Digest Corpo Index Card.docx

Salafranca v. Philamlife (Pamplona) Village Homeowners, 200 SCRA 469 (1998) Facts: Philamlife Village Homeowners Association amended its by-laws. The position of administrative officer, which Salafranca holds, was made coterminus with the BOD. Later Salafranca was terminated which prompted him to file a complaint for illegal dismissal. Issue: Whether Philamlife validly terminated Salafranca. Ruling: No. The right to amend the by-laws lies solely in the discretion of the employer, this being in the exercise of management prerogative or business judgment. However this right, extensive as it may be, cannot impair the obligation of existing contracts or rights. Salafranca, as a regular employee, is entitled to security of tenure, hence, his services may only be terminated for causes provided by law. A contrary interpretation would enable an employer to remove any employee from his employment by the simple expediency of amending its by-laws and providing that his/her position shall cease to exist upon the occurrence of a specified event.

China Banking Corporation v. Court of Appeals, 270 SCRA 503 (1997) Facts: Calapatia pledged his Stock Certificate of VGCCI to China Bank. Due to Calapatia's failure to pay China Bank which prompted the latter to file a a petition for extrajudicial foreclosure. China Bank informed VGCCI of the foreclosure proceedings and requested that the pledged stock be transferred to its name, as the highest bidder, which VGCI refused on the ground that Calapatia has unsettled accounts with VGCI. VGCI later auctioned Calapatia’s stock. VGCI it has prior right over China Bank for its by-laws provides that the Board may sell a members’ share to satisfy the claims of the Club. Issue: Whether vGCI’s by-laws are binding to China Bank. Ruling: No. In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third party and the shareholder was entered into, in this case, at the time the pledge agreement was executed. Third persons are not bound by by-laws, except when they have knowledge of the provisions either: 1. 2.

actually; or constructively.

Dela Rama v. Ma-ao Sugar Central Co., 27 SCRA 247 (1969) Facts: Defendants invested in shares of stock of Philippine Fiber, a company engaged in the manufacture of sugar bags. This was later ratified by the BOD. Plaintiff questions the same being ultra vires, not having been authorized by 2/3 of the voting power of the stockholders. Issue: Whether the 2/3 vote is necessary to validate the investment made by the defendants. Ruling: No. A private corporation’s investment in stocks, if done in pursuance of the corporate purpose, does not need the approval of the stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. When the investment is necessary to accomplish its purpose or purposes as stated in it articles of incorporation, the approval of the stockholders is not necessary. Note:

In sum, the approval of stockholders in investing in stocks of other company: 1.

NOT NEEDED - when the investment is necessary to accomplish its purpose or purposes as stated in it articles of incorporation, the approval of the stockholders is not necessary; 2. NEEDED - for any purpose other than the main purpose for which it was organized or is done solely for investment. BUT in both cases, authorization by the BOD is necessary. Pirovano v. De la Rama Steamship Co., Inc., 96 Phil 335

Facts: The BOD of De la Rama Steampship executed a board resolution granting the children of Pirovano the proceeds of life insurance policies for the life of Pirovano. This was later ratified by the stockholders of the said company. The donation, however, was later rescinded on the ground that it was ultra vires for the corporation to dispose of its assets by gift. Issue: Whether the donation was ultra vires. Ruling: No. The corporation was given broad and almost unlimited powers to carry out the purposes for which it was organized among them, (1) "To invest and deal with the moneys of the company not immediately required, in such manner as from time to time may be determined" and, (2) "to aid in any other manner any person, association, or corporation of which any obligation or in which any interest is held by this corporation or in the affairs or prosperity of which this corporation has a lawful interest." The donation in question undoubtedly comes within the scope of this broad power. Note: The case was easily resolved by the court for the donation made by the corporation was well within its power as provided in the corporation’s purpose in the articles of incorporation. But even if the act were ultra vires said donation would remain valid. ULTRA VIRES acts is defined as acts performed beyond the powers conferred upon the corporation either by law or by its articles of incorporation. This includes acts which are; 1. ILLEGAL – those contrary to law, morals, or public policy or public. These acts are VOID; 2. MERELY ultra vires – those which are not within the scope of the corporations AOI but are not illegal. It is merely voidable and may become binding and enforceable when ratified by the stockholders. Said donation, even if ultra vires is not void, and if voidable its infirmity has been cured by ratification and subsequent acts of the defendant corporation.

Filipinas Port Services v. Go, 518 SCRA 453 (2007) Facts: The BOD of Filipinas Port Services created an executive committee. Cruz questioned the said acts as mismanagement detrimental to the interest of the corporation and the same was not sanctioned by the corporate by-laws. Issue: Whether the BOD may do the above acts. Ruling: Yes. The Board of Directors has the power to create positions not provided for in Filport’s bylaws since the board is the corporation’s governing body, clearly upholding the power of its board to exercise its prerogatives in managing the business affairs of the corporation. Note:

Even if there was mismanagement resulting to corporate damages and/or business losses, still the respondents may not be held liable in the absence of a showing of bad faith in doing the acts complained of. If the cause of the losses is merely error in business judgment, not amounting to bad faith or negligence, directors and/or officers are not liable. For them to be held accountable, the mismanagement and the resulting losses on account thereof, it is necessary to show that the directors and/or officers acted in bad faith and with malice in doing the assailed acts. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill-will partaking of the nature of fraud.

Board of Liquidators v. heirs of Kalaw, 20 SCRA 987 (1967) Facts: NACOCO entered into several contracts through its general manager Kalaw. These contracts, due to unforeseen events, turned out to be unprofitable. The Board of Liquidators explained that, as required by the coporation’s by-laws, the approval of the BOD was necessary to enter into said contracts, hence, Kalaw should be made liable for entering into said contracts without prior approval of the BOD. Issue: Whether the contracts entered into by Kalaw were valid. Ruling: Yes, the Kalaw contracts are valid corporate acts. Where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. The by-laws of NACOCO require prior approval of the board on ALL corporate acts. However, it is the board itself, by its acts and through acquiescence, laid aside the by-law requirement of prior approval. Ratification cleanses the contract from all its defects from the moment it was constituted.

Montelibano v. Bacolod-Murcia Milling Co., Inc. 5 SCRA 36 (1962) Facts: Montelibano and Bacolod-Murcia entered into a milling contract where provides that the resulting product should be divided as follows: 1. 2.

55% - Planters; 45% - Mill.

This agreement was embodied in a printed Amended Milling Contract. Later Montelibano proposed an increase in the Planters’ share to 60%. The BOD of Bacolod-Murcia adopted a resolution granting the same. The increase was, however, denied by Bacolod-Murcia for being in effect a donation which the BOD has no authority to grant, an ultra vires act. Issue: Whether the act in question is ultra vires Ruling: No. If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends it may fairly be considered within charter powers. As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether or not it will cause losses or decrease the profits of the central, the court has no authority to review them. It is a well-known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment of the board of directors. So long as it acts in good faith its orders are not reviewable by the courts.