III. BOARD OF DIRECTORS (SEC.

22)

A. Nature of Office
1. Agency
2. Fiduciary Trust
3. Corporate Management
 Engineering Geoscience, Inc. v. PSB, G.R. No. 187262, Jan. 10, 2019
FACTS:
-EGI filed a complaint against PSBank together with MTBC which the annulment of loan
contract with PSBank.
-EGI obtained loan from PSBank in the principal amount of 24,064,000 pesos evidence with
Promissory Notes. To secure the loan, its president executed a Real Estate Mortgage in favor of
PSBank over two parcels of land.
- EGI was only able to make partial payments on its loan as it fell due based on the above
schedule of payment, and after paying a total amount of only Php3,223,192.91 or only half of the
amortizations due amounting to Php6,588,932.00, EGI made no further payments to [PSBank]
after its last payment made on November 29, 1990 in the amount of Php160,000.00. Thus,
[PSBank] invoked the acceleration clause under the promissory note and sent a demand letter
dated February 11, 1991 demanding full payment of its loan obligation.
-PSBank file a petition for extra-judicial foreclosure of mortgage to the RTC of Quezon. The
foreclosure was set out but did not pursue due to the complaint (writ of preliminary injunction)
filed by EGI before the trial court.
-Before the full-blown trial PSBank and EGI submitted a joint motion for approval of
Compromise Agreement which was approved by the court.
-notwithstanding the approved compromise agreement, EGI still failed to comply with the terms
and conditions.
-EGI filed a reply dated April 29 2005 and raised for the first time the alleged lack of authority
of its former president, Jose Rolando Santos, to enter into the compromise agreement reduced in
the Decision dated January 12, 1993.
-[PSBank] filed its Rejoinder with Opposition, arguing that EGI is now estopped from assailing
the authority of Atty. Ambrosio Garcia and EGI's former president Jose Rolando Santos, which
they could have interposed when they filed their motion for reconsideration of the order granting
the issuance of the writ of possession. Thus, [PSBank] prayed for the denial of EGI's motion for
lack of merit.

ISSUE: WON the former President of EGI (Santos) has no authority to represent EGI to enter
into a compromise agreement and to file a complaint against PSBank without SPA.

RULING: Yes.

A corporation, as a juridical entity, acts through its board of directors. The board exercises
almost all corporate powers, lays down all corporate business policies, and is responsible for the
efficiency of management. The general rule is that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation. Section 23 of the
Corporation Code of the Philippines provides:
SEC. 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 x x x.
xxx xxx xxx
As mentioned above, the records of the case show no evidence that EGI authorized Santos to file
a Complaint and enter into a Compromise Agreement on its behalf. Neither was there any
showing that EGI's By-Laws authorize its President to do such acts.
EGI's grant of authority to Santos, however, falls under the doctrine of apparent authority. Under
this doctrine, acts and contracts of the agent, as are within the apparent scope of the authority
conferred on him, although no actual authority to do such acts or to make such contracts has been
conferred, bind the principal. Furthermore, the principal's liability is limited only to third persons
who have been led reasonably to believe by the conduct of the principal that such actual
authority exists, although none was actually given. Apparent authority is determined only by the
acts of the principal and not by the acts of the agent.
EGI does not repudiate the act of Santos in signing the Promissory Notes; in fact, EGI made
partial payments, offering the authority of Santos to borrow and sign the Promissory Notes. EGI,
however, repudiates the act of Santos in entering into the Compromise Agreement extending the
repayment of the loan under the Promissory Notes, which extension is actually beneficial to EGI.
In fact, the Compromise Agreement bought time for EGI to pay the loan under the Promissory
Notes but EGI still failed to pay. Having availed of benefits under the Compromise Agreement,
EGI is estopped from repudiating it.
Since EGI's Board of Directors questioned Santos' authority to enter into a Compromise
Agreement only after 12 years, laches had already set in.
 Tom v. Rodriguez,G.R. 215764, July 13, 2016
 Riosa v. Tabaco La Suerte Corporation, G.R. No. 203786, Oct. 23,
2013

4. Business Judgement Rule

 Philippine Association of Stock Transfer and Registry Agencies, Inc.
v. CA, G.R. No. Oct. 15, 2007
FACTS:
Petitioner (PASTRA) is an association of stock transfer agents principally engaged in the
registration of stock transfers in the stock-and-transfer book of corporation.
On May 10, 1996, the petitioner’s BOD approves resolution allowing its members to increase the
transfer processing fee they charge to their clients from 45 per certificate to 75 per certificate,
effective July 1, 1996 and eventually to 100 per certificate, effective October 1, 1996. Also
authorized the imposition of a processing fee for the cancellation of stocks certificates at 20 per
certificate.
The public respondent (SEC) allowed to impose the 75 per certificate transfer fee and 20 per
certificate per cancellation. But, approval of additional increase of the transfer fees to 100 per
certificate was withheld for public hearing. The SEC issued a letter-authorization to this effect on
June 20, 1996.
Thereafter, Phil. Association of Securities Broker and Dealer Inc., registered its objection to the
measure advance by the petitioner and requested SEC to defer its implementation. The SEC
advise the petitioner to hold in abeyance the implementation of the increase until the matter was
cleared with all the parties concerned. Petitioner nonetheless proceeded the implementation of
the increase fees.
On July 8, 1996, the SEC issued Order No. 104, enjoining petitioner from imposing the new
fees.
Aggrieved petitioner went to the CA on certiorari contending SEC acted with grave abuse of
discretion or lack or excess of jurisdiction in issuing the order.
ISSUE: Whether SEC acted with grave abuse of discretion or lack or excess of jurisdiction in
issuing the order.
RULING: NO.
The Court held that the SEC is without authority to substitute its judgment for that of the corporation's
board of directors on business matters so long as the board of directors acts in good faith. This Court
notes, however, that this case involves, not whether petitioner's actions pertained to management
prerogatives or whether petitioner acted in good faith. Rather, this case involves the question of whether
the SEC had the power to enjoin petitioner's planned increase in fees after the SEC had determined that
said act if pursued may cause grave or irreparable injury or prejudice to the investing public. Petitioner
was fined for violating the SEC's cease-and-desist order which the SEC had issued to protect the interest
of the investing public, and not simply for exercising its judgment in the manner it deems appropriate for
its business.

The regulatory and supervisory powers of the Commission under Section 40 of the then Revised
Securities Act, in our view, were broad enough to include the power to regulate petitioner's fees.
Indeed, Section 47 gave the Commission the power to enjoin motu proprio any act or practice of
petitioner which could cause grave or irreparable injury or prejudice to the investing public. The
intentional omission in the law of any qualification as to what acts or practices are subject to the
control and supervision of the SEC under Section 47 confirms the broad extent of the SEC's
regulatory powers over the operations of securities-related organizations like petitioner.
The SEC's authority to issue the cease-and-desist order being indubitable under Section 47 in
relation to Section 40 of the then Revised Securities Act, and there being no showing that the
SEC committed grave abuse of discretion in finding basis to issue said order.

B. Requirements for Office

1. Qualifications/Qualifying share (Sec. 22)
 Villafuerte v. Moreno, 2 October 2009
Every director must own at least one (1) share of the capital stock of the corporation of which he
is a director, which share shall stand in his name on the books of the corporation. Any director
who ceases to be the owner of at least one (1) share of the capital stock of the corporation of
which he is a director shall thereby cease to be a director. Trustees of non-stock corporations
must be members thereof. A majority of the directors or trustees of all corporations organized
under this Code must be residents of the Philippines. (Emphasis and underscoring supplied)|||
(Tom v. Rodriguez, G.R. No. 215764, [July 6, 2015], 763 PHIL 162-175)
FACTS:
On 28 August 2006, at the sideline of the 18th FIBA World Congress held at Tokyo, Japan, a
Joint Communique ("Tokyo Communique") was entered into by the feuding Basketball
Association of the Philippines ("BAP") and the newly formed Pilipinas
Basketbol ("PB"), through their then incumbent Presidents, Jose D. Lina, Jr. and Bernardo
Gabriel L. Atienza, respectively, and as witnessed not only by their other representatives but also
by the representative of the Philippine Olympic Committee ("POC") and the FIBA Secretary
General Patrick Baumann. The main objectives of the Tokyo Communique are (1) to unify said
rival basketball associations and (2) to facilitate the lifting of the suspension imposed by the
Federation Internationale de Basketball ("FIBA"), which prevented the country from
participating in any international basketball competitions.
Specifically, the Tokyo Communique provides for the merger of the BAP and the PB resulting to
a single united basketball organization that will seek membership with the POC and will
eventually take over the membership of BAP in the FIBA, subject to the appropriate FIBA
regulations on membership. It also provides for the creation of a three-man panel composed of
the incumbent presidents of the BAP and the PB and a third member to be agreed upon by both
presidents, which will undertake the tasks of (1) writing and finalizing the organization's
constitution and by-laws; (2) reviewing, verifying and validating the list of members as
submitted by BAP and PB to the FIBA Central Board Special Commission based on agreed set
of criteria for membership as formulated by the panel; and (3) convening the National Congress
of the united organization and to oversee the election of officers. aTIEcA
Pursuant to the provisions of the Tokyo Communique relative to the creation of a three-man
panel, petitioner Manuel V. Pangilinan ("Petitioner Pangilinan") was named as its third member
and was even chosen as its Chairman. Also, the BAP and PB submitted to FIBA their respective
lists of members-associations in compliance with the provisions thereof.
On 17 September 2006, in keeping with the merger and unification efforts as embodied in the
Tokyo Communique, the Samahang Basketbol ng Pilipinas, Inc. ("SBP") was established and its
constitutive documents consisting of the Articles of Incorporation were signed by the five (5)
incorporators, which include petitioner Pangilinan. On the same day, the incorporators likewise
passed and signed its by-laws. 3
On 4 February 2007, the three-man panel met in Bangkok, Thailand where it forged and
executed a Memorandum of Agreement ("Bangkok Agreement") integrating therein the final
terms and conditions of the unity and merger of BAP and PB. In said agreement, the BAP and
PB amended the corporate name of SBP from "Samahang Basketbol ng Pilipinas, Inc." to "BAP-
Samahang Basketbol ng Pilipinas, Inc." ("BAP-SBP").
On June 27, 2008, petitioners filed before the Regional Trial Court of Manila a petition 5 for
declaration of nullity of the election of respondents as members of the Board of Trustees and
Officers of BAP-SBP. The case was docketed as Civil Case No. 08-119546. Petitioners alleged
that the June 12, 2008 election was a sham, illegal, and void. They also claimed to be the rightful
and legally elected trustees and officers of the BAP-SBP and thus prayed that the corporate reins
of BAP-SBP be turned over to them.
By way of answer, respondents argued that petitioners have no cause of action; that Villafuerte
never assumed the position of Chairman of the BAP-SBP because he failed to qualify for the
same; that before Villafuerte could legally assume the Chairmanship of BAP-SBP, he must first
be elected a member of the Board of Trustees; that petitioners' June 4, 2008 National Congress
had no quorum because the attendees thereof were either mere associates and non-voting
members or actually non-members; and that only six of the attendees were active and voting
members. HCSEIT
On September 3, 2008, the trial court rendered its Decision declaring the convening of the
National Congress on June 12, 2008 and the election of respondents null and without legal effect.
On June 27, 2008, petitioners filed before the Regional Trial Court of Manila a petition 5 for
declaration of nullity of the election of respondents as members of the Board of Trustees and
Officers of BAP-SBP. The case was docketed as Civil Case No. 08-119546. Petitioners alleged
that the June 12, 2008 election was a sham, illegal, and void. They also claimed to be the rightful
and legally elected trustees and officers of the BAP-SBP and thus prayed that the corporate reins
of BAP-SBP be turned over to them.
By way of answer, respondents argued that petitioners have no cause of action; that Villafuerte
never assumed the position of Chairman of the BAP-SBP because he failed to qualify for the
same; that before Villafuerte could legally assume the Chairmanship of BAP-SBP, he must first
be elected a member of the Board of Trustees; that petitioners' June 4, 2008 National Congress
had no quorum because the attendees thereof were either mere associates and non-voting
members or actually non-members; and that only six of the attendees were active and voting
members. HCSEIT
On September 3, 2008, the trial court rendered its Decision 6 declaring the convening of the
National Congress on June 12, 2008 and the election of respondents null and without legal effect.
Finally, the Court of Appeals found Villafuerte not qualified to hold the position of Chairman of
BAP-SBP. It held that the organization's By-laws require that the Chairman of the Board of
Trustees must first be a trustee. Since Villafuerte was not yet named as a trustee of the BAP-SBP
when the National Congress was held, therefore he was unqualified to hold the position of
Chairman.
ISSUE: WON Villafuerte is qualified to hold as Chairman of BAP-SBP.
RULING: NO. Villafuerte is not qualified to hold as Chairman.
The Court of Appeals correctly held that Clause 3 of the Bangkok Agreement merely intended to
recognize the associations affiliated with BAP and PB as "members" as against being labeled as
just "probationary members" of the BAP-SBP. However, said recognition does not dispense with
the need to classify said members in accordance with the provisions of BAP-SBP's Articles of
Incorporation and By-Laws, and the Tokyo Communique. Had the intention been otherwise, the
parties would have expressed this by means of the appropriate provisions repealing or amending
the contradictory provisions in said documents as what they did to a provision in the Bangkok
Agreement with respect to the removal of officers.
The membership validation resulted in the conferment of active membership status upon 19
BAP-SBP members, 17 of which participated in the June 12, 2008 meeting. Petitioners even
constituted the majority of the Committee that undertook the task; they actively participated in
the formulation of the validation rules based on the by-laws providing for this; some of them
actively participated in the validation of the membership list and even voted along with other
members of the Committee for the grant of active membership status to the 19 regular members.
Thus, as correctly held by the Court of Appeals, petitioners are now estopped from assailing the
validity and mandatory nature of the BAP-SBP's validation process as a prerequisite to a
member's acquisition of active (voting) membership status.
Anent the chairmanship of the Board of Trustees of the BAP-SBP, the Court of Appeals
correctly held that petitioner Villafuerte's nomination must of necessity be understood as being
subject to or in accordance with the qualifications set forth in the By-Laws of the BAP-SBP.
Since the said by-laws require the Chairman of the Board of Trustees to be a trustee himself,
petitioner Villafuerte was not qualified since he had neither been elected nor appointed as one of
the trustees of BAP-SBP. In other words, petitioner Villafuerte never validly assumed the
position of Chairman because he failed in the first place to qualify therefor.
 Baguio v. CA, GR. No. 93417, September 14, 1993
FACTS:
 A compliant was filed by petitioner against private respondent to collect of sum of
money. It alleged that the respondents, respondent of Las Palmas Intl Corp sold to
petitioner 600 shares of stocks of said corporation. However, said respondents neither
delivered the shares nor returned the payment to him. Petitioner prayed for a refund.
 Respondents Palmas claimed that the petitioner failed to pay for said shares. They alleged
that there was no receipt issued to prove the payment.
 The trial court ruled in favor of the petitioner. On the other hand, CA held that the board
resolution and secretary’s certificate did not attest the petitioner had paid the purchase
price of 60,000.
ISSUE: WON the petitioner actually paid respondent Palmas the sum of 60,000 as purchase
price of shares of stocks sold to him.
RULING: NO
 Considering the large amount of the money alleged to have been paid and the absence of
a receipt to evidence the payment by petitioner to respondents, petitioner should have
presented at least convincing evidence as to the source of the money. If the money was
withdrawn from his bank deposits, he could easily have secured a certification to that
effect. Evidence of this nature could have bolstered petitioner's claim that such a big sum
of money passed hands on July 8, 1982.
 The testimony of Joaquin Versoza, petitioner's witness, that respondent Consuelo Palma
told him that the payment of the back wages of the employees of respondent corporation
was drawn from the money paid by petitioner is hearsay. Hearsay evidence whether
objected to or not, has not probative value unless the proponent can show that the
evidence falls within the exceptions to the hearsay rule (People vs. Nebreja, 203 SCRA
45 [1991]).
  Besides, the board resolution (Exh. A) was an act of the corporation and not of
respondents Palmas. The corporation had nothing to do with the business transactions
between its officers in their personal capacity and petitioner.
 In voting for the adoption of the resolution, the majority of the directors merely relied on
information given them by respondents Palmas, regarding the transaction with petitioner.
The majority of the directors, therefore, cannot be charged with knowledge of the transfer
of the shares of stock to petitioner, much less the payment made by petitioner to
respondents Palmas.
 The election of a person to the board of directors of a corporation does not necessarily
mean that he has paid for the shares recorded in his name. In most cases, nominee
directors do not pay for the qualifying shares assigned to them. Likewise, the Corporation
Code does not require that one elected or appointed as vice-president of a corporation
should be the owner of shares of stock of the corporation.

 Detective and Protective Bureau v. Cloribel, No. L-23428, November 29,

1968
Principle: CORPORATION LAW; DIRECTOR; STOCK; TO QUALIFY AS A DIRECTOR
OF A CORPORATION, ONE MUST OWN AT LEAST ONE SHARE OF STOCK THEREIN.
— Every director must own in his own right at least one share of the capital stock of the stock
corporation of which he is a director, which stock shall stand in his name on the books of the
corporation (Sec. 30, Corporation Law). So that, if the By-Laws of the Corporation provides that
"The manager shall be elected by the Board of Directors from among its members," one could
not be a managing director of said corporation unless he owns at least one share of stock thereof.
FACTS:
 The complaint, in Civil Case No. 56949 of the Court of First Instance of Manila, dated
May 4, 1964, filed by Detective and Protective Bureau, Inc., therein plaintiff (petitioner
herein) against Fausto S. Alberto, therein defendant (respondent herein), for accounting
with preliminary injunction and receivership, alleged that plaintiff was a corporation duly
organized and existing under the laws of the Philippines; that defendant was managing
director of plaintiff corporation from 1952 until January 14, 1964; that in June 1963,
defendant illegally seized and took control of all the assets as well as the books, records,
vouchers and receipts of the corporation from the accountant-cashier, concealed them
illegally and refused to allow any member of the corporation to see and examine the
same; that on January 14, 1964, the stockholders, in a meeting, removed defendant as
managing director and elected Jose de la Rosa in his stead; that defendant not only had
refused to vacate his office and to deliver the assets and books to Jose de la Rosa, but also
continued to perform unauthorized acts for and in behalf of plaintiff corporation; that
defendant had been required to submit a financial statement and to render an accounting
of his administration from 1952 but defendant has failed to do so; that defendant,
contrary to a resolution adopted by the Board of Directors on November 24, 1963, had
been illegally disposing of corporate funds; that defendant, unless immediately
restrained ex-parte, would continue discharging the functions of managing director; and
that it was necessary to appoint a receiver to take charge of the assets and receive the
income of the corporation. Plaintiff prayed that a preliminary injunction ex-parte be
issued restraining defendant from exercising the functions of managing director and from
disbursing and disposing of its funds; that Jose M. Barredo be appointed receiver; that,
after judgment, the injunction be made permanent and defendant be ordered to render an
accounting.
ISSUE: WON Jose Dela Rosa could be elected as managing director of plaintiff corporation.
RULING: No.
The fourth reason alleged by petitioner in support of its stand is that public interest demanded
that the writ enjoining respondent Fausto Alberto from exercising the functions of managing
director be maintained. Petitioner contended that respondent Alberto had arrogated to himself the
powers of the Board of Directors of the corporation because he refused to vacate the office and
surrender the same to Jose de la Rosa who had been elected managing director by the Board to
succeed him. This assertion, however, was disputed by respondent Alberto who stated that Jose
de la Rosa could not be elected managing director because he did not own any stock in the
corporation.
There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation.
If he did not own any share of stock, certainly he could not be a director pursuant to the
mandatory provision of Section 30 of the Corporation Law, which in part provides:
"Sec. 30. Every director must own in his own right at least one share of the capital stock of the
stock corporation of which he is a director, which stock shall stand in his name on the books of
the corporation .."
If he could not be a director, he could also not be a managing director of the corporation,
pursuant to Article V, Section 3 of the By-Laws of the Corporation which provides that:.
"The manager shall be elected by the Board of Directors from among its members . . ." (Record,
p. 48)
If the managing director-elect was not qualified to become managing director, respondent Fausto
Alberto could not be compelled to vacate his office and cede the same to the managing director-
elect because the by-laws of the corporation provides in Article IV, Section 1 that "Directors
shall serve until the election and qualification of their duly qualified successor."
 Grace Christian HS v. CA, GR. No. 108905, October 23, 1997
Sypnosis:
Petitioner Grace Christian High School is an educational institution at the Grace Village in
Quezon City while private respondent Grace Village Association, Inc.,is an organization of lot
and/or building owners, lessees and residents at Grace Village. On December 20, 1975, a
committee of the board of directors of the Association prepared a draft of an amendment to the
1968 by-laws of the Association providing, among others, that "GRACE CHRISTIAN HIGH
SCHOOL representative is a permanent Director of the ASSOCIATION," but the draft was
never presented to the general membership for approval. Nevertheless, from 1975 to 1990,
petitioner was given a permanent seat in the board of directors of the Association. However, on
February 13, 1990, the Association's committee on election informed the principal of the school
that all directors should be elected by members of the Association and that making the School
representative as a permanent director of the Association should be reexamined. The School then
brought suit to compel the board of directors of the Association to recognize its right to a
permanent seat in the board.

The Corporation Law requires members of the boards of directors of corporations to be elected.
The provision in question is contrary to law. The fact that for several years it has not been
questioned but, on the contrary, appears to have been implemented by the members of the
association, cannot forestall a later challenge to its validity. Nor can petitioner claim a vested
right to sit in the board on the basis of "practice." D
Principle:
COMMERCIAL LAW; CORPORATION CODE; BOARD OF DIRECTORS; REQUIRED TO
BE ELECTED; VIOLATION THEREOF FOR A LONG PERIOD CONSIDERED MERE
TOLERANCE, CANNOT BE ACQUIESCED. — Sections 28 and 29 of the Corporation
Law require members of the boards of directors of corporations to be elected. The board of
directors of corporations must be elected from among the stockholders or members. There may
be corporations in which there are unelected members in the board but it is clear that in the
examples cited by petitioner the unelected members sit as ex officio members, i.e.,by virtue of
and for as long as they hold a particular office. But in the case of petitioner, there is no reason at
all for its representative to be given a seat in the board. Nor does petitioner claim a right to such
seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in
1975 that the proposed amendment to the by-laws sought to give it one. Since the provision in
question is contrary to law, the fact that for fifteen years it has not been questioned or challenged
but, on the contrary, appears to have been implemented by the members of the association cannot
forestall a later challenge to its validity. Neither can it attain validity through acquiescence
because, if it is contrary to law, it is beyond the power of the members of the association to
waive its invalidity. For that matter the members of the association may have formally adopted
the provision in question, but their action would be of no avail because no provision of the by-
laws can be adopted if it is contrary to law. It is probable that, in allowing petitioner's
representative to sit on the board, the members of the association were not aware that this was
contrary to law. It should be noted that they did not actually implement the provision in question
except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the
allowance of petitioner's representative as an unelected member of the board of directors. It is
more accurate to say that the members merely tolerated petitioner's representative and tolerance
cannot be considered ratification. Nor can petitioner claim a vested right to sit in the board on the
basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if
it is contrary to law. Even less tenable is petitioner's claim that its right is "coterminus with the
existence of the association.
 Lee v. CA, GR. No. 93695, February 4, 1992
ID.; ID.; ID.; ELIGIBILITY OF A DIRECTOR UNDER THE OLD CORPORATION CODE
AND UNDER THE NEW CORPORATION CODE. — Under the old Corporation Code, the
eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such
director being a party to a voting trust agreement inasmuch as he remains owner (although
beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which
a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old
Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided
under the old Corporation Code. With the omission of the phrase "in his own right" the election
of trustees and other persons who in fact are not the beneficial owners of the shares registered in
their names on the books of the corporation becomes formally legalized (see Campos and Lopez-
Campos, supra, p. 296). Hence, this is a clear indication that in order to be eligible as a director,
what is material is the legal title to, not beneficial ownership of, the stock as appearing on the
books of the corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section
300, p. 92 [1969] citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051)||| (Lee v. Court of Appeals,
G.R. No. 93695, [February 4, 1992], 282 PHIL 786-802)
FACTS:
On November 15, 1985, a complaint for a sum of money was filed by the International Corporate
Bank, Inc. against the private respondents who, in turn, filed a third party complaint against
ALFA and the petitioners on March 17, 1986.
On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which
the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27, 1988.
On July 18, 1988, the petitioners filed their answer to the third party complaint.
Meanwhile, on July 12, 1988, the trial issued an order requiring the issuance of an alias
summons upon ALFA through the DBP as a consequence of the petitioners' letter informing the
court that the summons for ALFA was erroneously served upon them considering that the
management of ALFA had been transferred to the DBP.
In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive
summons on behalf of ALFA since the DBP had not taken over the company which has a
separate and distinct corporate personality and existence.
On August 4, 1988, the trial court issued an order advising the private respondents to take the
appropriate steps to serve the summons to ALFA.
On August 16, 1988, the private respondents filed a Manifestation and Motion for the
Declaration of Proper Service of Summons which the trial court granted on August 17, 1988.
On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA
through the petitioners, thus, denying the latter's motion for reconsideration and requiring ALFA
to file its answer through the petitioners as its corporate officers.
On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating
their stand that by virtue of the voting trust agreement they ceased to be officers and directors of
ALFA, hence, they could no longer receive summons or any court processes for or on behalf of
ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a
copy of the voting trust agreement between all the stockholders of ALFA (the petitioners
included), on the one hand, and the DBP, on the other hand, whereby the management and
control of ALFA became vested upon the DBP.
On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January
2, 1989 and declared that service upon the petitioners who were no longer corporate officers of
ALFA cannot be considered as proper service of summons on ALFA.
In the instant case, the point of controversy arises from the effects of the creation of the voting
trust agreement. The petitioners maintain that with the execution of the voting trust agreement
between them and the other stockholders of ALFA, as one party, and the DBP, as the other party,
the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that
by virtue of the voting trust agreement the petitioners can no longer be considered directors of
ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code
which provides, in part, that:
ISSUE: WON by virtue of voting trust agreement the petitioner can no longer be considered
director of ALFA.
RULING YES. the petitioners' position meritorious.
Both under the old and the new Corporation Codes there is no dispute as to the most immediate
effect of a voting trust agreement on the status of a stockholder who is a party to its execution —
from legal title-holder or owner of the shares subject of the voting trust agreement, he becomes
the equitable or beneficial owner.
The penultimate question, therefore, is whether the change in his status deprives the stockholder
of the right to qualify as a director under section 23 of the present Corporation Code which
deletes the phrase "in his own right." Section 30 of the old Code states that:
"Every director must own in his own right at least one share of the capital stock of the stock
corporation of which he is a director, which stock shall stand in his name on the books of the
corporation. A director who ceases to be the owner of at least one share of the capital stock of a
stock corporation of which is a director shall thereby cease to be a director . . .." (Underlining
supplied)
Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be
adversely affected by the simple act of such director being a party to a voting trust agreement
inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the
voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the
trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue
of the phrase "in his own right" provided under the old Corporation Code.
With the omission of the phrase "in his own right" the election of trustees and other persons who
in fact are not the beneficial owners of the shares registered in their names on the books of the
corporation becomes formally legalized (see Campos and Lopez-Campos, supra, p. 296). Hence,
this is a clear indication that in order to be eligible as a director, what is material is the legal title
to, not beneficial ownership of, the stock as appearing on the books of the corporation (2
Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969] citing People
v. Lihme, 269 Ill. 351, 109 N.E. 1051).
The facts of this case show that the petitioners, by virtue of the voting trust agreement executed
in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as
trustee. Consequently, the petitioners ceased to own at least one share standing in their names on
the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased
to have anything to do with the management of the enterprise. The petitioners ceased to be
directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their
respective positions as directors of ALFA. The transfer of shares from the stockholders of ALFA
to the DBP is the essence of the subject voting trust agreement as evident from the following
stipulations:
"1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of
stocks owned by them respectively and shall do all things necessary for the transfer of their
respective shares to the TRUSTEE on the books of ALFA.
2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of
shares transferred, which shall be transferable in the same manner and with the same effect as
certificates of stock subject to the provisions of this agreement;
3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special,
upon any resolution, matter or business that may be submitted to any such meeting, and shall
possess in that respect the same powers as owners of the equitable as well as the legal title to the
stock;
4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of
qualifying such person as director of ALFA, and cause a certificate of stock evidencing the share
so transferred to be issued in the name of such person;
xxx xxx xxx
9. Any stockholder not entering into this agreement may transfer his shares to the same trustee,
without the need of revising this agreement, and this agreement shall have the same force and
effect upon that said stockholder." (CA Rollo, pp. 137-138; Underlining supplied)
Considering that the voting trust agreement between ALFA and the DBP transferred legal
ownership of the stocks covered by the agreement to the DBP as trustee, the latter became the
stockholder of record with respect to the said shares of stocks. In the absence of a showing that
the DBP had caused to be transferred in their names one share of stock for the purpose of
qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their
status as officers of ALFA which was the case before the execution of the subject voting trust
agreement. There appears to be no dispute from the records that DBP has taken over full control
and management of the firm.

2. Disqualifications (Sec. 26)

A person shall be disqualified from being a director or trustee or officer of any
corporation if within 5 days prior the election or appointment as such, the person
was:
1) convicted with final judgment:
(a) Imprisonment for a period of exceeding six years.
(b) For violating of this code.
(c) Violating RA8799 or the Securities Regulation Act.
2) found administratively liable for any offense involving fraudulent act; and
3) by a foreign court or equivalent foreign regulatory authority for acts or
violation or misconduct similar to those enumerated.
Sec. 27. Removal of Director or Trustees—Any director or Trustee in a
corporation may be removed from office by a vote of the stockholder holding or
representing at least two-thirds of the outstanding capital, or by a vote of two
thirds of the members entitled to vote in a non-stock corporation.
Provided shall take place either at a regular meeting of the corporation or at a
special meeting called for the purpose, after previous notice to the stockholder or
members of the corporation of the intention to purpose such removal at the
meeting.
 3. Residences (Sec. 22)
President-
Treasurer-resident
Secretary-citizen and resident of the Philippines
Other officers as may be provide by law.
Compliance officer (for corporation vested with public interest.

4. Nationality

5. Number of Directors

Not more than 15 BOD and Trustees [ Sec. 13(f)]

6. Independent Directors of PHCs (Sec. 22 in rel. to Sec.38, RA 8799)

C. Election (Sec. 23)

1. QUORUM/Emergency Quorum
[ A stockholder or member who participates through remote communication
or in absentia shall be deemed present for the purpose of quorum]
2. Voting – Personal vs. Remote/ In absentia vs Proxy
 Aurbach v. Ssanitary Wares, GR. No. 75975-76 December 15, 1989
 Bataan Shipyard v. PCGG, No. L-75885, May 27, 1987
3. Election Contests (Rule 6, A.M. No. 01-2-04-SC [March 13, 2001])
 Multinational v. Gacutan, 2 August 2017
 Ricafort v. Hon. Dicdican, 9 March 2016

D. Report on Election / Failure to Hold Elections/ Hold-Over (Sec. 25)

 Premium Marble v. CA, GR. No. 96551, November 4, 1996

E. Term of Office/Holdover (Sec. 22)

 SEC v. Baguio Country Club, 12 August 2015
 Señeres v. COMELEC and Robles, 16 April 2009

F. Removal (Sec. 27)

 Bernas v. Cinco, 1 July 2015
 Lambert v. Fox, 26 P 588

G. How Vacancy Filled (Sec. 28)/Emergency Board

 Valle Verde Country Club v. Africa, 4 September 2009

H. Compensations (Sec. 30)

Sec. 29.
In no case the total yearly compensation of directors exceeds ten percent of the net
income before income tax of ther corporation during the preceding year.

I. Meetings of Directors (Sec. 52)

Sec. 52. Regular and Special Meeting of Directors or Trustees; Quorum.

Regular meeting shall be held monthly or as provided in the bylaws.

Special meeting may be held any time upon the call of the president or as
provided in the bylaws.

J. Power/Authority of the Board of Directors as Corporate Agents (Sec. 22)

 Riosa v. Tabaco, 23 October 2013
FACTS:
On February 26, 2002, petitioner Aquiles Riosa (Aquiles) filed his
Complaint for Annulment/Declaration of Nullity of Deed of
Absolute Sale and Transfer Certificate of Title, Reconveyance and
Damages against respondent Tabaco La Suerte Corporation (La
Suerte) before the RTC.

Aquiles alleged that he was the owner and in actual possession of a

52-square meter commercial lot situated in Barangay Quinale,
Tabaco City, Albay; that he acquired the said property through a
deed of cession and quitclaim executed by his parents, Pablo
Riosa, Sr. and Sabiniana Biron; that he declared the property in his
name and had been religiously paying the realty tax on the said
proper. His daughter, Annie Lyn Riosa Zampelis, renovated the
commercial building on the lot and introduced improvements
costing no less than P300,000.00. Subsequently he obtained loan
from Sia Ko Pio in the total amount of 50,000, a security for the
loan Sia Ko Pio requested the photocopy of deed of cession and
quitclaim. He affixed his signature without reading the
document, on his surprise he received a letter from La Suerte
informing him that subject lot was already registered in its name.

Aquiles claimed that by means of fraud, misrepresentation and

deceit employed by Sia Ko Pio, he was made to sign the document
which he thought was a receipt and undertaking to pay the loan,
only to find out later that it was a document of sale.

The RTC gave credence to the testimony of Aquiles that he was

made to sign an instrument of sale without his knowledge because
he trusted Sia Ko Pio and he was of the belief that what he had
signed was merely an instrument of indebtedness. It cited, as legal
basis, Article 1330 of the Civil Code which provides that a contract
where the consent is given thru violence, intimidation, undue
influence or fraud is voidable.

La Suerte appealed to the CA. In its May 30, 2012 Decision, the
CA reversed the RTC decision and upheld the validity of the
subject deed of sale in favor of La Suerte. It declared La Suerte as
the lawful owner of the subject lot and improvements thereon,
subject to the right of reimbursement for the renovation expenses.
The CA held that tax declarations or realty tax payments by
Aquiles were not conclusive evidence of ownership.

ISSUE:
whether there was a perfected and valid contract of sale for the
subject property between Aquiles and La Suerte, through its Chief
Executive Officer, Sia Ko Pio.

RULING: NO,
After an assiduous assessment of the evidentiary records, the Court
holds otherwise.

The Court agrees with the finding of the RTC that there was no
perfected contract of sale.� It is a hornbook doctrine that the
findings of fact of the trial court are entitled to great weight on
appeal and should not be disturbed except for strong and valid
reasons, because the trial court is in a better position to examine
the demeanor of the witnesses while testifying.
The elements of a contract of sale are: a] consent or meeting of the
minds, that is, consent to transfer ownership in exchange for the
price; b] determinate subject matter; and c] price certain in money
or its equivalent.

In this case, there was no clear and convincing evidence that

Aquiles definitely sold the subject property to La Suerte, nor was
there evidence that La Suerte authorized its chief executive officer,
Sia Ko Pio, to negotiate and conclude a purchase of the
property.� Aquiles� narration in open court is clear that he did
not intend to transfer ownership of his property.

The foregoing testimony negates any intention on the part of

Aquiles to sell the property in exchange for the amounts borrowed.
Evidently, it was a series of transactions between Aquiles and Sia
Po Ko, but not between the parties. The transactions were between
Aquiles, as borrower, and Sia Ko Pio, as lender. It was not a sale
between Aquiles, as vendor, and La Suerte, as vendee. There was
no agreement between the parties. As the first element was
wanting, Aquiles correctly argued that there was no contract of
sale. Under Article 1475 of the Civil Code, the contract of sale is
perfected at the moment there is a meeting of minds on the thing
which is the object of the contract and on the price.

And for said reasons, the CA should not have favorably considered
the validity of the deed of absolute sale absent any written
authority from La Suerte board of directors for Sia Ko Pio to
negotiate and purchase Aquiles property on its behalf and to use its
money to pay the purchase price. The Court notes that when Sia
Ko Pio�s son, Juan was presented as an officer of La Suerte, he
admitted that he could not find in the records of the corporation
any board resolution authorizing his father to purchase the disputed
property. In Spouses Firme v. Bukal Enterprises and Development
Corporation,21 it was written:

It is the board of directors or trustees which exercises almost all the

corporate powers in a corporation. Thus, the Corporation Code
provides:
SEC. 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 stock, or where there is no stock, from
among the members of the corporation, who shall hold office
for one (1) year and until their successors are elected and
qualified.
SEC. 36. Corporate powers and capacity. Every corporation
incorporated under this Code has the power and capacity:

xxx

7. To purchase, receive, take or grant, hold, convey, sell, lease,

pledge, mortgage and otherwise deal with such real and
personal property, including securities and bonds of other
corporations, as the transaction of a lawful business of the
 corporation may reasonably and necessarily require, subject to
the limitations prescribed by the law and the Constitution.

xxx
Under these provisions, the power to purchase real property
is vested in the board of directors or trustees. While a
corporation may appoint agents to negotiate for the purchase of
real property needed by the corporation, the final say will have
to be with the board, whose approval will finalize the
transaction. A corporation can only exercise its powers and
transact its business through its board of directors and through
its officers and agents when authorized by a board resolution or
its by-laws. As held in AF Realty & Development, Inc. v.
Dieselman Freight Services, Co.:

Section 23 of the Corporation Code expressly provides that the

corporate powers of all corporations shall be exercised by the
board of directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the board of
directors of a corporation validly delegate some of its functions
to individual officers or agents appointed by it. Thus, contracts
or acts of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the
board. Absent such valid delegation/authorization, the rule
is that the declarations of an individual director relating to
the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of
such director, are held not binding on the corporation.
[Emphases supplied]

In the case at bench, Sia Ko Pio, although an officer of La

Suerte, had no authority from its Board of Directors to enter
into a contract of sale of Aquiles property. It is, thus, clear that
the loan obtained by Aquiles from Sia Ko Pio was a personal
loan from the latter, not a transaction between Aquiles and La
Suerte. There was no evidence to show that Sia Ko Pio was
clothed with authority to use his personal fund for the benefit
of La Suerte. Evidently, La Suerte was never in the picture.

 La Buga al v. Ramos, GR. No. 127882, January 27, 2004

 Shipside v. CA, GR. No. 143377, February 20, 2001
 Cebu Mactan v. Masahira, 17 July 2009
 ABS-CBN v. CA, GR. No. 128690, January 21, 1999
 Yao Ka Sin v. CA, 15 June 1992
 Asset Privatization trust v. CA, GR. No. 121171, December 29,
1998
 BA Savings Bank v. Sia, GR. No. 131214, July 27, 2000
 Montelibano v. Bacolod Murcia, No. L-15092 May 18, 1962
 Powers v. Marshall , 9 May 1988
 Premium Marble v. CA, GR. No. 96551, November 4, 1996
 Ramirez v. Orientalist, 38 P 634

K. Delegations of Board and Authority

1. Statutory Corporate Officers: President, Secretary, treasurer,
Compliance Officer
 2. By-law Corporate officers

3. Meaning of “Office” vis-a-vis “Employment”

 Real v. Sangu Phil., 19 January 2011
 Matling v. Coro, 13 October 2010
 Manila Metal v. PNB, GR. No. 166862December 20, 2006
 Ongkiko v. NLRC, GR. No. 119877 March 31, 1997
 Lao v. CA, GR. No. 47013, February 17, 2000
 De Tavera v. Phil. Tuberculosis Society, No. L-48928, February
25, 1982

4. Corporate Officers (Sec. 24): Qualifications and Disqualifications;

Authority and Liabilities
 Ayala v. ASB Realty, GR No. 210043, September 26, 2018
 Tan v. Downtown Realty Investment, Inc., G.R. No. 201497, oct.
3, 2018
 Collegio Medico v. Lim , GR. No. 212034, July 2, 2018
 People’s Security v. Flores Et. Al. GR No. 211312, December 12,
2016
 Villalon v. Lirio, GR. No. 183869, August 3, 2015
 Bank of Commerce v. Nite, GR. No. 211535, July 22, 2015
 Pioneer Insurance v. Morning Star Travel GR. No. 198436, July 8,
2015
 Nacpil v. Intercontinental Broadcasting Corp., G.R. No. 144767,
March 21, 2002
 E.B. Villarosa and Partners, Co. Inc., v. Benito, GR NO. 136426
August 6, 1999
 Cagayan Valley Drug Corp v. CIR, GR. No. 151413 February 13,
2008

5. Executive Committee, Management Committee and Other Special

Committees (sec. 34)

6. Management Contract (Sec. 43)

 Aurbach v. Sanitary Wares, GR. No. 758754, December 15, 1989
 Nielson and Co. v. Lepanto Mining, No. L-21601, October 28,
1968

7. “Doctrine of Apparent Authority”/” Holding -out” Theory

 Eternal Gardens Memorial Park Corp. v. Perlas, et.al. GR. No.
236126, September 7, 2020
 Calubad v. Ricaren Development, GR. NO. 202364, August 30,
2017
 Citystate Saving v. Tobias, GR. No. 227990, March 7, 2018
 Philippine Horse Trainers Association, Inc. v. Piedras Negras
Construction and Development Corporation, GR. No. 192659,
December 02, 2015

L. Three-Fold Fiduciary Duties of Directors and Officer (Sec. 30)

Duty of Obedience
● Ty v. NBI, 15 December 2010

2. Duty of Diligence and Care: Business Judgment Rule

● Steinberg v. Velasco, 52 P 953
● Balinghasay v. Castillo, 8 April 2015
● PSE v. CA and SEC, 27 October 1997
● Ong v. Tiu, 8 April 2003

3. Duty of Loyalty
● Ient v. Tullet, 11 January 2017

3.1 Self-Dealing Director/ Officer (Sec. 31)

● Cojuangco v. Republic, 12 April 2011
● Mead v. McCullough, 21 P 95
● Prime White Cement v. IAC, GR No. 68555 March 19, 1993

3.2 Contracts between Corporations with Interlocking

Directors (Sec. 32)
● Palting v. San Jose Petroleum, No. L-14441 December 17, 1966
● DBP v. CA, GR No. 126200 August 16, 2001

3.3 Doctrine of Corporate Opportunity (Sec. 33)

● Gokongwei Jr. v. SEC, No. L- 45911 April 11, 1979
● Strong v. Repide, 41 P 947
Duty of Obedience
● Ty v. NBI, 15 December 2010

2. Duty of Diligence and Care: Business Judgment Rule

● Steinberg v. Velasco, 52 P 953
● Balinghasay v. Castillo, 8 April 2015
● PSE v. CA and SEC, 27 October 1997
● Ong v. Tiu, 8 April 2003

3. Duty of Loyalty
● Ient v. Tullet, 11 January 2017

3.1 Self-Dealing Director/ Officer (Sec. 31)

● Cojuangco v. Republic, 12 April 2011
● Mead v. McCullough, 21 P 95
● Prime White Cement v. IAC, GR No. 68555 March 19, 1993

3.2 Contracts between Corporations with Interlocking

Directors (Sec. 32)
● Palting v. San Jose Petroleum, No. L-14441 December 17, 1966
● DBP v. CA, GR No. 126200 August 16, 2001

3.3 Doctrine of Corporate Opportunity (Sec. 33)

● Gokongwei Jr. v. SEC, No. L- 45911 April 11, 1979
● Strong v. Repide, 41 P 947
Duty of Obedience
● Ty v. NBI, 15 December 2010

2. Duty of Diligence and Care: Business Judgment Rule

● Steinberg v. Velasco, 52 P 953
● Balinghasay v. Castillo, 8 April 2015
● PSE v. CA and SEC, 27 October 1997
● Ong v. Tiu, 8 April 2003

3. Duty of Loyalty
● Ient v. Tullet, 11 January 2017

3.1 Self-Dealing Director/ Officer (Sec. 31)

● Cojuangco v. Republic, 12 April 2011
● Mead v. McCullough, 21 P 95
● Prime White Cement v. IAC, GR No. 68555 March 19, 1993

3.2 Contracts between Corporations with Interlocking

Directors (Sec. 32)
● Palting v. San Jose Petroleum, No. L-14441 December 17, 1966
● DBP v. CA, GR No. 126200 August 16, 2001

3.3 Doctrine of Corporate Opportunity (Sec. 33)

● Gokongwei Jr. v. SEC, No. L- 45911 April 11, 1979
● Strong v. Repide, 41 P 947

1. Duty of Obedience
● Ty v. NBI, 15 December 2010
FACTS:
Petitioners are stockholders of Omni Gas Corporation (Omni) as per Omni’s
General Information Sheet6 (GIS) dated March 6, 2004 submitted to the Securities
and Exchange Commission (SEC). Omni is in the business of trading and refilling
of Liquefied Petroleum Gas (LPG) cylinders.

The case all started when Joaquin Guevara Adarlo & Caoile Law Offices (JGAC
Law Offices) sent a letter dated March 22, 2004 7 to the NBI requesting, on behalf
of their clients Shellane Dealers Association, Inc., Petron Gasul Dealers
Association, Inc., and Totalgaz Dealers Association, Inc., for the surveillance,
investigation, and apprehension of persons or establishments in Pasig City that are
engaged in alleged illegal trading of petroleum products and underfilling of
branded LPG cylinders in violation of Batas Pambansa Blg. (BP) 33, 8 as amended
by Presidential Decree No. (PD) 1865.

The JGAC Law Offices was furnished by several petroleum producers/brand

owners their respective certifications on the dealers/plants authorized to refill their
respective branded LPG cylinders, to wit: (1) On October 3, 2003, Pilipinas Shell
Petroleum Corporation (Pilipinas Shell) issued a certification 10 of the list of
entities duly authorized to refill Shellane LPG cylinders; (2) on December 4,
2003, Petron Corporation (Petron) issued a certification 11 of their dealers in
Luzon, Visayas, and Mindanao authorized to refill Petron Gasul LPG cylinders;
and (3) on January 5, 2004, Total (Philippines) Corporation (Total) issued two
certifications12 of the refilling stations and plants authorized to refill
their Totalgaz and Superkalan Gaz LPG cylinders.

Agents De Jemil and Kawada attested to conducting surveillance of Omni in the

months of March and April 2004 and doing a test-buy on April 15, 2004. They
brought eight branded LPG cylinders of Shellane, Petron Gasul, Totalgaz,
and Superkalan Gaz to Omni for refilling. The branded LPG cylinders were
refilled, for which the National Bureau of Investigation (NBI) agents paid PhP
1,582 as evidenced by Sales Invoice No. 90040 13 issued by Omni on April 15,
2004.

The NBI’s test-buy yielded positive results for violations of BP 33, Section 2(a) in
relation to Secs. 3(c) and 4, i.e., refilling branded LPG cylinders without
authority; and Sec. 2(c) in relation to Sec. 4, i.e., underdelivery or underfilling of
LPG cylinders. Thus, on April 28, 2004, Agent De Jemil filed an Application for
Search Warrant (With Request for Temporary Custody of the Seized
Items)14 before the Regional Trial Court (RTC) in Pasig City.

On the same day of the filing of the application for search warrants on April 28,
2004, the RTC, Branch 167 in Pasig City issued Search Warrants No. 2624 17 and
2625.18 The NBI served the warrants the next day or on April 29, 2004 resulting in
the seizure of several items from Omni’s premises duly itemized in the NBI’s
Receipt/Inventory of Property/Item Seized.19 On May 25, 2004, Agent De Jemil
filed his Consolidated Return of Search Warrants with Ex-Parte Motion to Retain
Custody of the Seized Items20 before the RTC Pasig City.
The Assistant City Prosecutor finding probable cause to charge petitioners with
violations of pertinent sections of BP 33, as amended,
The Office of the Secretary of Justice issued a Resolution 31 reversing and setting
aside the November 7, 2005 Joint Resolution of the Office of the Chief State
Prosecutor.
The CA sought to dismiss the petition and later revoke the resolution.
ISSUE: WON the petitioners is liable for the violation.
RULING: YES,

Sec. 4 of BP 33, as amended, provides for the penalties and persons who are
criminally liable, thus:
Sec. 4. Penalties. — Any person who commits any act herein prohibited shall,
upon conviction, be punished with a fine of not less than twenty thousand pesos
(P20,000) but not more than fifty thousand pesos (P50,000), or imprisonment of
at least two (2) years but not more than five (5) years, or both, in the discretion of
the court. In cases of second and subsequent conviction under this Act, the
penalty shall be both fine and imprisonment as provided herein. Furthermore, the
petroleum and/or petroleum products, subject matter of the illegal trading,
adulteration, shortselling, hoarding, overpricing or misuse, shall be forfeited in
favor of the Government: Provided, That if the petroleum and/or petroleum
products have already been delivered and paid for, the offended party shall be
indemnified twice the amount paid, and if the seller who has not yet delivered has
been fully paid, the price received shall be returned to the buyer with an
additional amount equivalent to such price; and in addition, if the offender is an
oil company, marketer, distributor, refiller, dealer, sub-dealer and other retail
outlets, or hauler, the cancellation of his license.
Trials of cases arising from this Act shall be terminated within thirty (30) days
after arraignment.

When the offender is a corporation, partnership, or other juridical person,

the president, the general manager, managing partner, or such other officer
charged with the management of the business affairs thereof, or employee
responsible for the violation shall be criminally liable; in case the offender is an
alien, he shall be subject to deportation after serving the sentence.

If the offender is a government official or employee, he shall be perpetually

disqualified from office. (Emphasis supplied.)

On this point, we agree with petitioners except as to petitioner Arnel U. Ty who is

indisputably the President of Omni.

It may be noted that Sec. 4 above enumerates the persons who may be held liable
for violations of the law, viz: (1) the president, (2) general manager, (3) managing
partner, (4) such other officer charged with the management of the business
affairs of the corporation or juridical entity, or (5) the employee responsible for
such violation. A common thread of the first four enumerated officers is the fact
that they manage the business affairs of the corporation or juridical entity. In
short, they are operating officers of a business concern, while the last in the list is
self-explanatory.

It is undisputed that petitioners are members of the board of directors of Omni at

the time pertinent. There can be no quibble that the enumeration of persons who
may be held liable for corporate violators of BP 33, as amended, excludes the
members of the board of directors. This stands to reason for the board of directors
of a corporation is generally a policy making body. Even if the corporate powers
of a corporation are reposed in the board of directors under the first paragraph of
Sec. 2372 of the Corporation Code, it is of common knowledge and practice that
the board of directors is not directly engaged or charged with the running of the
recurring business affairs of the corporation. Depending on the powers granted to
them by the Articles of Incorporation, the members of the board generally do not
concern themselves with the day-to-day affairs of the corporation, except those
corporate officers who are charged with running the business of the corporation
and are concomitantly members of the board, like the President. Section 2573 of
the Corporation Code requires the president of a corporation to be also a member
of the board of directors.

Thus, the application of the legal maxim expressio unius est exclusio alterius,
which means the mention of one thing implies the exclusion of another thing not
mentioned. If a statute enumerates the thing upon which it is to operate,
everything else must necessarily and by implication be excluded from its
operation and effect.74 The fourth officer in the enumerated list is the catch-all
"such other officer charged with the management of the business affairs" of the
corporation or juridical entity which is a factual issue which must be alleged and
supported by evidence.

A scrutiny of the GIS reveals that among the petitioners who are members of the
board of directors are the following who are likewise elected as corporate officers
of Omni: (1) Petitioner Arnel U. Ty (Arnel) as President; (2) petitioner Mari
Antonette Ty as Treasurer; and (3) petitioner Jason Ong as Corporate Secretary.
Sec. 4 of BP 33, as amended, clearly indicated firstly the president of a
corporation or juridical entity to be criminally liable for violations of BP 33, as
amended.

Evidently, petitioner Arnel, as President, who manages the business affairs of

Omni, can be held liable for probable violations by Omni of BP 33, as amended.
The fact that petitioner Arnel is ostensibly the operations manager of Multi-Gas
Corporation, a family owned business, does not deter him from managing Omni
as well. It is well-settled that where the language of the law is clear and
unequivocal, it must be taken to mean exactly what it says. As to the other
petitioners, unless otherwise shown that they are situated under the catch-all "such
other officer charged with the management of the business affairs," they may not
be held liable under BP 33, as amended, for probable violations. Consequently,
with the exception of petitioner Arnel, the charges against other petitioners must
perforce be dismissed or dropped.

2. Duty of Diligence and Care: Business Judgment Rule

● Steinberg v. Velasco, 52 P 953
● Balinghasay v. Castillo, 8 April 2015
● PSE v. CA and SEC, 27 October 1997
● Ong v. Tiu, 8 April 2003

3. Duty of Loyalty
● Ient v. Tullet, 11 January 2017

3.1 Self-Dealing Director/ Officer (Sec. 31)

● Cojuangco v. Republic, 12 April 2011
● Mead v. McCullough, 21 P 95
● Prime White Cement v. IAC, GR No. 68555 March 19, 1993

3.2 Contracts between Corporations with Interlocking

Directors (Sec. 32)
● Palting v. San Jose Petroleum, No. L-14441 December 17, 1966
● DBP v. CA, GR No. 126200 August 16, 2001
 3.3 Doctrine of Corporate Opportunity (Sec. 33)
● Gokongwei Jr. v. SEC, No. L- 45911 April 11, 1979
● Strong v. Repide, 41 P 947
3.4 “Re
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I
m
p
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a
nd Regulations
in relation to “Arms-length Rule”

4. Personal Liability of Directors and other Corporate

Officers/Liability of Corporation for Acts of Officers
● Virata, v. UERM, G.R. No. 220926, 21 March 2018
● Pioneer Insurance v. Morning Star, 8 July 2015
3.4 “Re
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C
on
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,

I
m
p
a
c
t

a
nd Regulations
in relation to “Arms-length Rule”

4. Personal Liability of Directors and other Corporate

Officers/Liability of Corporation for Acts of Officers
● Virata, v. UERM, G.R. No. 220926, 21 March 2018
● Pioneer Insurance v. Morning Star, 8 July 2015
3.4 “Re
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I
m
p
a
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nd Regulations
in relation to “Arms-length Rule”

4. Personal Liability of Directors and other Corporate

Officers/Liability of Corporation for Acts of Officers
● Virata, v. UERM, G.R. No. 220926, 21 March 2018
● Pioneer Insurance v. Morning Star, 8 July 2015

3.4 “Related Party Transactions”: Concept, Impact and Regulations

in relation to “Arms-length Rule”

4. Personal Liability of Directors and other Corporate

Officers/Liability of Corporation for Acts of Officers
● Virata, v. UERM, G.R. No. 220926, 21 March 2018
● Pioneer Insurance v. Morning Star, 8 July 2015
● Guillermo v. Uson, 7 March 2016
● SPI Technologies v. Mapua, 7 April 2014
● Heirs of Uy v. International Exchange Bank, 13 February 2013
● Ever Electrical v. Samahang Manggagawa, 13 June 2012
● Harpoon v. Francisco, 2 March 2011
● Queensland-Tokyo Commodities v. George, 8 September 2010
● Geraldo v. Bill Sender, 3 October 2018
● Wensha Spa Center v. Yung, 16 August 2010
● Cebu Mactan v. Masahiro, 17 July 2009
● David vs. National Federation of Labor Unions, 21 April 2009
● Soriano v. People, BSP and PDIC, 30 June 2009
● Cebu Country Club v. Elizagaque, GR No. 160273 January 18, 2008
● Caltex Inc. v. NLRC, GR No. 159641 October 15, 2007
● Atrium Management v. CA, GR No. 109491 February 28, 2001
● ARB Construction v. CA, Gr No. 126554 May 31, 2000
● Lim v. CA, GR No. 111008 November 7, 1994
● Francisco v. Mejia, 14 August 2001
● DBP v. CA, 16 August 2001
● Tramat Mercantile v. CA, 238 S 14