2. Phil. Stock Exchange , Inc. vs. The Hon.

Court of Appeals
GR No. 125469; October 27, 1997

Doctrines: SEC is the entity with the primary say as to whether or not securities,
including shares of stock of a corporation, may be traded or not in the stock exchange.
This is in line with the SEC’s mission to ensure proper compliance with the laws, such as
the Revised Securities Act and to regulate the sale and disposition of securities in the
country.
x---------------------------------------------------------------------------------------------------------------x
FACTS:
Puerto Azul Land, Inc. is a domestic real estate corporation seeking to offer its shares to the public in
order to raise funds to develop its properties and pay its loans with several banking institutions. Upon
being issued a Permit to Sell by the SEC, it sought to course the trading of its shares through the
petitioner PSE. However, during the application process, PSE received a letter from the heirs of
Ferdinand Marcos claiming ownership over certain properties forming part of PALI’s assets. 

Thereafter, in a regular meeting, the Board of Governors of the PSE reached its decision to reject PALI's
application, citing the existence of serious claims, issues and circumstances surrounding PALI's
ownership over its assets that adversely affect the suitability of listing PALI's shares in the stock
exchange. This prompted PALI to reach out to the Acting Chairman of SEC, Yasay Jr., requesting that the
SEC, in the exercise of its supervisory and regulatory powers over stock exchanges, to review PSE’s
rejection of PALI’s application.

The SEC rendered a decision in favor of PALI and ordered PSE to cause the listing of its shares in the
Exchange.

CA also rendered an unfavorable ruling. Hence the filing of the petition with the SC.

ISSUE: Is the SEC authorized to order PSE to list PALI’s shares? (YES)

RULING:
SEC is the entity with the primary say as to whether or not securities, including shares of stock of a
corporation, may be traded or not in the stock exchange. This is in line with the SEC’s mission to ensure
proper compliance with the laws, such as the Revised Securities Act and to regulate the sale and
disposition of securities in the country.

However, this does not mean that the PSE’s management prerogatives are under the absolute control of
the SEC. The PSE is, after all, a corporation authorized by its corporate franchise to engage in its
proposed and duly approved business. One of the PSE’s main concerns, as such, is still the generation of
profit for its stockholders. Moreover, the PSE has all the rights pertaining to corporations, including the
right to sue and be sued, to hold property in its own name, to enter (or not to enter) into contracts with
third persons, and to perform all other legal acts within its allocated express or implied powers.

The exercise of the authority of the SEC to reverse a decision in matters of application for listing in the
market is proper only when the decision is attended by bad faith. In this case, the petitioner was in the
right when it refused application of PALI, for a contrary ruling was not to the best interest of the general
public. Uncertainty of the properties’ ownership and alienability exists, and this puts to question the
qualification of PALI’s public offering.
 17. Filipinas Port Services vs. Go
GR No. 161886; March 16, 2007

Doctrines: The business judgment rule protects officers from liability when they make
good faith business decisions in an informed and deliberate manner. The presumption is
that they have acted on an informed basis, in good faith and in the honest belief that the
action taken was in the best interests of the company.

x---------------------------------------------------------------------------------------------------------------x
FACTS:
Eliodoro Cruz, the former Filport’s president, wrote a letter to the corporation’s Board of
Directors questioning the board’s creation of the following positions with a monthly remuneration of
13k each, and the election thereto of certain members of the board. He requested the board to take
necessary actions to recover from those elected to the aforementioned positions the salaries they have
received. 

Subsequently, Cruz, in representation of Filport and its stockholders, filed with the SEC a derivative suit
against the incumbent members of Filport’s Board of Directors. For alleged acts of mismanagement
detrimental to the interest of the corporation and its shareholders at large. The alleged acts are the
following: (1) creation of an executive committee composed of 7 members of the board, an office which,
to Cruz, is not provided for in the by-laws of the corporation and whose function merely duplicates
those of the President and General Manager; (2) increase in the emoluments of the Chairman, Vice
President, Treasurer and Assistant General Manager which increases are greatly disproportionate to the
volume and character of the work of the directors holding said positions; (3) re-creation of the positions
of Assistant Vice-Presidents for Corporate Planning, Operations, Finance and Administration, and the
election thereto of several board members; (4) creation of additional positions of Special Assistants to
the President and the Board Chairman, the directors elected/appointed thereto are not doing any work
to deserve the monthly remuneration of 13k each.

RTC: rendered judgment against the respondents by ordering the directors holding the positions of
Assistant Vice President for Corporate Planning, Special Assistant to the President and Special Assistant
to the Board Chairman to refund to the corporation the salaries they have received as such officers
“considering that Filipinas Port Services is not a big corporation requiring multiple executive positions
and that said positions were just created for accommodation. 

Court of Appeals: reversed and set aside the decision of the trial court.

ISSUE: Whether the creation of the executive committee and other offices in the corporation are within
the powers of the Board of Directors? (Yes)

RULING: 
The governing body of the corporation is its board of directors. Under Section 23 of the
Corporation Code, the corporate powers of all corporations formed under the Code shall be exercised,
all business conducted, and all property of the corporation shall be controlled and held by a board of
directors. Thus, with the exception only of some powers expressly granted by law to stockholders, the
board of directors has the sole authority to determine policies, enter into contracts, and conduct the
ordinary business of the corporation within the scope of its charter. The authority of the board of
directors is restricted to the management of the regular business affairs of the corporation unless more
extensive power is expressly conferred.
The court held that it cannot rule that the creation of the executive committee by the board of directors
is illegal or unlawful. First reason is the absence of a showing as to the true nature and functions of said
executive committee considering that the executive committee, referred to in Section 35 of the
Corporation Code which is as powerful as the board of directors and in effect acting for the board itself,
should be distinguished from other committees which are within the competency of the board to create
at any time and whose actions require ratification and confirmation by the board.

Another reason is that 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.

32. AGO Realty & Dev. Corp. (ARDC) vs. Dr. Angelita Ago
GR No. 210906; October 16, 2019

Doctrines: Requisite of Derivative Action:

(1) He was a stockholder or member at the time the acts or transactions subject
of the action occurred and the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in
the complaint, to exhaust all remedies available under the Articles of
Incorporation, by-laws or rules governing the corporation or partnership to
obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.

x---------------------------------------------------------------------------------------------------------------x
FACTS:
Petitioner company is a close corporation. Its stockholders are Emmanuel Ago, his wife Corazon Ago,
their children, and Emmanuel's sister, respondent Angelita Ago. Controversy arose when Angelita
introduced improvements on Lot No. H-3, owned by the company, without the proper resolution from
the Board of Directors. The improvements also encroached on another 2 lots, which also belonged to
the company.

Ago Realty and the other stockholders, filed a complaint alleging that Angelita, in connivance with Apin,
Amaro, and certain local officials of Legazpi City, introduced unauthorized improvements on corporate
property. A defense common to all the defendants was that the company never authorized the
institution of the suit. Without a resolution emanating from the corporation's Board of Directors, it was
argued that Emmanuel and the other stockholders had no legal standing to bring the case since the lots
in question belonged to Ago Realty.

RTC: held Emmanuel and Corazon jointly and severally liable for damages. Finding ARDC to be the real
party in interest, the trial court ruled that the plaintiffs had no cause of action. Since Emmanuel, et al.
brought the case without the proper resolution from the Board of Directors, it was held that they were
not authorized to sue on behalf of the corporation.

Court of Appeals: affirmed the RTC’s ruling

ISSUE: Whether petitioners may sue on behalf of the company, absent a resolution or any other grant of
authority from its Board of Directors sanctioning the institution of the case? (No)
RULING: 
As an exception to the foregoing rule, jurisprudence has recognized certain instances when  minority
stockholders may bring suits on behalf of corporations . Where the board of directors itself is a party to
the wrong, either because it is the author thereof or because it refuses to take remedial action, equity
permits individual stockholders to seek redress. These actions have come to be known as  derivative
suits. The Court defined a derivative suit as " a suit by a shareholder to enforce a corporate cause of
action." In derivative suits, it is the corporation that is the victim of the wrong. A board resolution is
not needed for the institution of a derivative suit.

The requisite of Derivative Action:

- He was a stockholder or member at the time the acts or transactions subject of the action
occurred and the time the action was filed;
- He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the Articles of Incorporation, by-laws or rules governing
the corporation or partnership to obtain the relief he desires;
- No appraisal rights are available for the act or acts complained of; and
- The suit is not a nuisance or harassment suit.

The second requisite does not obtain in this case. Contrary to the postulation of Emmanuel and Corazon,
their attempt to settle the dispute with Angelita can hardly be considered "all reasonable efforts to
exhaust all remedies available." More importantly, an apparent remedy available to Emmanuel,  et
al. was to cause ARDC itself, through its Board of Directors, to directly institute the case.  Because of
their controlling interest in the corporation, Emmanuel,  et al. could have prevailed upon the board to
pass a resolution authorizing any of them to file the case and sign the certification against forum
shopping.

The aggrieved stockholders cannot now come before the Court, claiming that their remedy is a
derivative suit. Their failure to elect a board ultimately resulted in their failure to exhaust all legal
remedies to obtain the relief they desired. Since this case could have been brought by ARDC, through its
board, its stockholders cannot maintain the suit themselves, purporting to sue in a derivative capacity.
Emmanuel, et al. should not be allowed to use a derivative suit to shortcut the law.

13. Advance Paper Corp., et. al. vs. Arma Traders Corp., et. al.
GR No. 176897; December 11, 2013
 Doctrines: 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. 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.

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.

x---------------------------------------------------------------------------------------------------------------x
FACTS:
Advance Paper is a domestic corporation engaged in the business of producing, printing,
manufacturing, distributing and selling of various paper products. Haw is the President while his wife,
Connie Haw, is the General Manager. 

Arma Traders where Tan was formerly the President while respondent Uy is the Treasurer, is also a
domestic corporation engaged in the wholesale and distribution of school and office supplies, and
novelty products. They represented Arma Traders when dealing with its supplier, Advance Paper, for
about 14 years. 

Arma Traders purchased on credit notebooks and other paper products amounting to P7,533,001.49
from Advance Paper, upon the representation of Tan and Uy, Arma Traders also obtained three loans
from Advance Paper in November 1994 amounting to P7,788,796.76. 

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 P15,130,636.87

Advance Paper presented the checks to the drawee bank but 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. 

A case was filed by the petitioners for collection of sum of money with application for preliminary
attachment against Arma Traders, Tan, Uy, Ting, Gui, and Ng.

RTC: ruled that the purchases on credit and loans were sufficiently proven by the petitioners and 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. 

The claims against Tan, Uy, Ting, Gui and Ng were dismissed due to the lack of evidence showing that
they bound themselves, either jointly or solidarily, with Arma Traders for the payment of its account. 
CA: set aside lower court’s order for Arma Traders to pay Advance Paper the sum of P15,321,798.25,
P1,500,000.00 for attorney’s fees and affirmed the dismissal of the complaint against respondents Tan,
Uy, Ting, Gui and Ng.

ISSUE: Is Arma Traders liable to pay the loans applying the doctrine of apparent authority? (Yes)

RULING: 
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. This
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.

Arma Traders is liable to pay the loans. 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 nonperforming 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.

x---------------------------------------------------------------------------------------------------------------x

14. Terp Construction Corp. vs. Banco Filipino Savings Bank

GR No. 221771; September 18, 2019

Doctrines: Apparent authority is ascertained through: (1) the general manner by which
the corporation holds out an officer or agent as having power to act or, in other words,
the apparent authority with which it clothes him to act in general, or (2) the acquiescence
in his acts of a particular nature, with actual or constructive knowledge thereof, whether
within or without the scope of his ordinary powers.

x---------------------------------------------------------------------------------------------------------------x
FACTS:
Terp Construction planned to develop a housing project called the Margarita Eastville and a
condominium called Margarita Plaza. To finance the projects, Terp Construction, Home Insurance
Guaranty, and Planters Bank agreed to raise funds through the issuance of bonds worth P400 million,
called the Margarita Project Participation Certificates (Margarita Bonds).

A Contract of Guaranty was executed wherein the roles of the three companies were established: Terp
Construction would sell the Margarita Bonds and convey the funds into an asset pool named the
Margarita Asset Pool Formation and Trust Agreement. Planters Bank, as trustee, would be the custodian
of the assets in the asset pool with the corresponding obligation to pay the interests and redeem the
bonds at maturity. Home Insurance Guaranty Corporation, as guarantor, would pay investors the value
of the bond at maturity plus 8.5% interest per year.

Banco Filipino, the respondent, purchased Margarita Bonds for P100 million and asked for an additional
interest on top of the 8.5% guaranteed per annum with Terp’s Senior Vice President Escalona.

After the economic crisis, Terp Construction suffered unrealized income and it was not able to proceed
with the construction. 

When the Margarita Bonds matured, the funds in the asset pool were insufficient to pay the bond
holders. Pursuant to the agreed upon roles under the Contract of Guaranty, Planters Bank conveyed the
asset pool funds to Home Insurance Guaranty Corporation which then paid Banco Filipino interest
earnings of 8.5% per year. However, a demand letter was sent by Banco Filipino, alleging that it was
entitled to a 15.5% interest on its investment and therefore it still has a seven percent (7%) remaining
unpaid interest; but Terp Construction refused to pay the demanded interest.

A Complaint for declaration of nullity of interest and damages was filed by Banco Filipino, alleging that it
only agreed to pay the additional interest of seven percent (7%) on the condition that all asset pool
funds would be released to Terp Construction, but since it was not released, it could not pay the
additional interest.

On the other hand, Banco Filipino alleged that it was induced into buying the Margarita Bonds after Terp
Construction, through its senior vice president’s letters, committed to pay 15.5% interest on a P50
million bond and 16.5% interest on a P50 million bond it held for another client. It alleged that Terp
Construction paid the additional interest twice during the Margarita Bonds' holding period.

RTC: decided in favor of Terp Construction, finding that among others, the act of Escalona, as the senior
vice president, was not binding on the corporation since it was not ratified.

CA: however, reversed the decision of the RTC, as it found that the obligations were pure obligations
and were not based on a condition, and that Escalona’s acts were ratified by Terp Construction after
having paid interest differentials twice to Banco Filipino during the Margarita Bonds’ holding period.

ISSUE: Whether Terp Construction is bound to pay additional interest to respondent Banco Filipino?
(Yes)

RULING: 
Terp Construction is bound to pay the additional interest being claimed by Banco Filipino.

The Supreme Court, in ruling so, explained that a corporation exercises its corporate powers through its
board of directors, which may be validly delegated to its officers, committees, or agencies. Their
authority to bind the corporation is generally derived from law, corporate by-laws, or authorization from
the board, either expressly or impliedly by habit, custom, or acquiescence in the general course of
business.

The Court explained that authorization from the board may be actual or apparent. An actual authority
may, in turn, be express or implied. Express actual authority refers to the corporate powers expressly
delegated by the board of directors. Implied actual authority, on the other hand, "can be measured by
his or her prior acts which have been ratified by the corporation or whose benefits have been accepted
by the corporation." 

The Court found that Terp Construction’s subsequent act of twice paying the additional interest
Escalona committed to during the term of the Margarita Bonds is considered a ratification of Escalona's
acts. In addition, it was found that Escalona had apparent authority to transact on behalf of the
petitioner. 

The Court explained that apparent authority is ascertained through: (1) the general manner by which
the corporation holds out an officer or agent as having power to act or, in other words, the apparent
authority with which it clothes him to act in general, or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, whether within or without the scope of his
ordinary powers.

Findings show that Banco Filipino relied on Escalona’s apparent authority to promise additional interest
payments, especially since he is the senior vice president of Terp Construction. Moreover, the act of
Terp Construction in paying Escalona’s promised additional interest demonstrated the latter’s apparent
authority.
 22. Harpoon Marine Services, Inc., et. al. vs. Fernan H. Francisco
GR No. 167751; March 2, 2011

Doctrines: Obligations incurred by corporate officers are not theirs but the direct
accountabilities of the corporation they represent. — Obligations incurred by corporate
officers, acting as such corporate agents, are not theirs but the direct accountabilities of
the corporation they represent.” As such, they should not be generally held jointly and
solidarily liable with the corporation.

Exceptions––As such, they should not be generally held jointly and solidarily liable with
the corporation, except:

1. When directors and trustees or, in appropriate cases, the officers of a

corporation -
(a) vote for or assent to [patently] unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons.
2. When the director or officer has consented to the issuance of watered stock or
who, having knowledge thereof, did not forthwith file with the corporate
secretary his written objection thereto.
3. When a director, trustee or officer has contractually agreed or stipulated to
hold himself personally and solidarily liable with the corporation.
4. When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.

x---------------------------------------------------------------------------------------------------------------x
FACTS:
Harpoon Marine Services, Inc. is a company engaged in ship building and ship repair. Its
President and CEO, Jose Rosit, originally hired Fernan Francisco as its Yard Supervisor tasked to oversee
and supervise all projects of the company.

Francisco then left the company but was eventually rehired and assumed his previous position.
Francisco averred that he was unceremoniously dismissed by Rosit due to the fact that Harpoon could
no longer afford his salary but his separation pay and accrued commissions will be paid. Few days later,
Francisco went to Rosit’s office to claim his separation pay and accrued commission, but Rosit only
offered to pay his separation pay. After several unheeded requests, Francisco through his counsel, sent a
demand letter asking for the payment of his commission. However, Harpoon and Rosit denied that it
owed Francisco commission, asserting that they never entered into any contract or agreement for the
payment of commissions. With this, Francisco filed an illegal dismissal complaint praying for the
payment––among others his separation pay and commissions. 

Labor Arbiter: rendered a decision declaring that Harpoon Services Inc. together with Jose Rosit
solidarily liable to pay Francisco

NLRC and Court of Appeals: affirmed LA’s decision.

Aggrieved, Harpoon Marine Services Inc., and Rosit filed a Petition for Review on Certiorari, insisting that
Rosit being an officer of the company, has a personality distinct from that of Harpoon and that no proof
was adduced to show that he acted with malice or bad faith hence no liability, solidary or otherwise,
should be imposed on him.
ISSUE: Whether Rosit can be held solidarily liable with Harpoon Marine Services Inc. for the illegally
terminating Francisco? (No)

RULING: 
Rosit cannot be held solidarily liable with Harpoon Marine Services Inc. for illegally terminating
Francisco. As held in the case of MAM Realty Development Corporation v. National Labor Relations
Commission, obligations incurred by corporate officers, acting as such corporate agents, are not theirs
but the direct accountabilities of the corporation they represent. As such, they should not be generally
held jointly and solidarily liable with the corporation. Except in the following circumstances:

1. When directors and trustees or, in appropriate cases, the officers of a corporation 

a. vote for or assent to [patently] unlawful acts of the corporation;

b. act in bad faith or with gross negligence in directing the corporate affairs;
c. are guilty of conflict of interest to the prejudice of the corporation, its stockholders or
members, and other persons.

2. When the director or officer has consented to the issuance of watered stock or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto.

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation.

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.

The general rule is grounded on the theory that a corporation has a legal personality separate and
distinct from the persons comprising it. To warrant the piercing of the veil of corporate fiction, the
officer’s bad faith or wrongdoing “must be established clearly and convincingly as bad faith is never
presumed.

In this case, the Court of Appeals basis for Rosit’s liability was that he acted in bad faith when he
approached Francisco and told him that the company can no longer afford his salary and that he will be
paid separation pay and accrued commissions. This could not substantially justify the personal liability of
Rosit for there are no satisfactory evidence that he acted in bad faith with gross or inexcusable
negligence, or that he acted outside the scope of his authority as company president. Rosit’s actuations
only show the illegality of the manner of effecting Francisco’s termination from service due to absence
of just or valid cause and non-observance of procedural due process but do not point to any malice or
bad faith on his part. Besides, good faith is still presumed. In addition, liability only attaches if the officer
has assented to patently unlawful acts of the corporation.  

Hence, Rosit is not solidarily liable with Harpoon for illegally dismissing Francisco.

x---------------------------------------------------------------------------------------------------------------x

23. Mirant (Phils.) Corp., et. al. vs. Joselito A. Caro

 GR No. 181490; April 23, 2014

Doctrines: A corporation has a personality separate and distinct from its officers and
board of directors who may only be held personally liable for damages if it is proven that
they acted with malice or bad faith in the dismissal of an employee. Absent any evidence
on record that petitioner Bautista acted maliciously or in bad faith in effecting the
termination of respondent, plus the apparent lack of allegation in the pleadings of
respondent that petitioner Bautista acted in such manner, the doctrine of corporate
fiction dictates that only petitioner corporation should be held liable for the illegal
dismissal of respondent.

x---------------------------------------------------------------------------------------------------------------x
FACTS:
Bautista was the President of petitioner corporation when respondent was terminated from
employment.

Caro was hired by Mirant Pagbilao as its Logistics Officer. When Southern Company was sold to Mirant,
Caro was already a Supervisor of the Logistics and Purchasing Department of petitioner. At the time of
the severance of his employment, Caro was the Procurement Supervisor of Mirant Pagbilao
assigned at petitioner corporations’ corporate office. As Procurement Supervisor, his main task was to
serve as the link between the Materials Management Department of petitioner corporation and its staff,
and the suppliers and service contractors in order to ensure that procurement is carried out in
conformity with set policies, procedures and practices. In addition, Caro was put in charge of ensuring
the timely, economical, safe and expeditious delivery of materials at the right quality and quantity to
petitioner corporations’ plant. Respondent was also responsible for guiding and overseeing the welfare
and training needs of the staff of the Materials Management Department. Due to the nature of Caro
functions, petitioner corporation considers his position as confidential.

Respondent filed a complaint for illegal dismissal and money claims as well as the payment of moral and
exemplary damages and attorneys fees. He’s contention that he was illegally dismissed by petitioner
corporation due to the latter’s non-compliance with the twin requirements of notice and hearing.

He asserts that while there was a notice charging him of unjustified refusal to submit to random drug
testing, there was no notice of hearing and petitioner corporations investigation was not the equivalent
of the hearing required under the law which should have accorded respondent the opportunity to be
heard.

Labor Arbiter: found respondent to have been illegally dismissed.

NLRC: considered his omission as unjustified refusal in violation of petitioner corporations drug policy.

ISSUE: Is petitioner Bautista personally liable for Caro’s dismissal? (No)

RULING: 
The Supreme Court agreed with the petitioners that Bautista should not be held personally liable for
Caro’s dismissal as he acted in good faith and within the scope of his official functions as then president
of the corporation. 
A corporation has a personality separate and distinct from its officers and board of directors who may
only be held personally liable for damages if it is proven that they acted with malice or bad faith in the
dismissal of an employee. 

Absent any evidence on record that petitioner Bautista acted maliciously or in bad faith in effecting the
termination of respondent, plus the apparent lack of allegation in the pleadings of respondent that
petitioner Bautista acted in such manner, the doctrine of corporate fiction dictates that only petitioner
corporation should be held liable for the illegal dismissal of respondent.

x---------------------------------------------------------------------------------------------------------------x

24. Queensland-Tokyo Commodities, Inc., et. al. vs. Thomas George

GR No. 172727; September 8, 2010

Doctrines: Personal liability of a corporate director, trustee, or officer, along (although

not necessarily) with the corporation, may validly attach, as a rule, only when –
(1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad
faith or gross negligence in directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its stockholders, or other persons.
(2) he consents to the issuance of watered-down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection
thereto;
(3) he agrees to hold himself personally and solidarily liable with the corporation; or
(4) he is made by a specific provision of law personally answerable for his corporate
action.

x---------------------------------------------------------------------------------------------------------------x
FACTS:
Queensland-Tokyo Commodities Inc is a duly licensed broker engaged in the trading of
commodity futures. Mendoza and Lontoc of QTCI met with respondent George, encouraging the latter
to invest with company whereby they successfully convinced George. Collado (represented QTCI) met
with the respondent and signed the customer’s agreement with an SPA executed by respondent
appointing Mendoza as his attorney-in-fact with full authority to trade and manage his account. 

SEC issued a Cease-and-Desist Order against QTCI. Respondent then demanded that his investment be
returned, however he learned that Mendoza and Lontoc were not licensed commodity futures
salesman. 

George filed a complaint for recovery of investment with damages with the SEC against QTCI, Lau and
Collado and against Mendoza and, Lontoc. 

The petitioners denied the material allegations in the complaint and alleged lack of cause of action, as a
defense. Petitioners averred that QTCI only assigned duly qualified persons to handle the accounts of its
clients; and denied allowing unlicensed brokers or agents to handle respondent’s account. They claimed
that they were not aware of, nor were they privy to, any arrangement which resulted in the account of
respondent being handled by unlicensed brokers. The losses suffered by respondent were due to
circumstances beyond petitioners’ control and could not be attributed to them. Respondent’s remedy,
they added, should be against the unlicensed brokers who handled the account.

SEC ruled against QTCI and ordered to pay jointly to respondent. On their appeal with the CA, the
appellate court did not disturb the findings of the CA and declared that the petitioners are liable to
respondent. 

ISSUE: Whether the petitioners, as officers of the corporation, solidarily liable for the payment of
respondents claim? (Yes)

RULING: 
Doctrine dictates that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it, such that, save for certain exceptions, corporate officers who
entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of
the latter. Personal liability of a corporate director, trustee, or officer, along with the corporation, may
validly attach, as a rule, only when –

(1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the
corporation, its stockholders, or other persons;
(2) he consents to the issuance of watered-down stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
(3) he agrees to hold himself personally and solidarily liable with the corporation; or
(4) he is made by a specific provision of law personally answerable for his corporate action.

Collado, petitioner, is not a licensed commodity salesman, and violated the provisions of the Revised
Rules and Regulations on Commodity Futures Trading when he participated in the execution of the
customer orders. Furthermore, the presence of 7 unlicensed investment consultants within QTCI apart
from herein petitioners and in unlawful execution of orders under the respondent’s account established
the fact that the management of QTCI failed to implement the rules and regulations against the hiring
of, and associating with, unlicensed consultants or traders. It reflects that the management is negligent
in hiring their employees. 

Lau, as president of QTCI, cannot feign innocence on the existence of unlawful activities, especially since
Collado, an officer of QTCI, is involved therein. As the COO, he cannot escape the fact that had he
exercised diligence and care in supervising the operations of QTCI, he could have detected and
prevented unlawful acts of its officers, Collado and Mendoza. It is therefore safe to conclude that
although Lau may not have participated nor been aware of the unlawful acts, he is however deemed to
have been grossly negligence in directing the affairs of QTCI.

11) Cecilia Castillo, et. al. vs. Angeles Balinghasay, et. al., G.R. No. 150976, October 18, 2004

DOCTRINE:

All shareholders, regardless of classification, other than holders of preferred or redeemable shares, are
entitled to vote and to be elected as corporate directors or officers.
One of the rights of a stockholder is the right to participate in the control and management of the
corporation that is exercised through his vote. The right to vote is a right inherent in and incidental to
the ownership of corporate stock, and as such is a property right. The stockholder cannot be deprived of
the right to vote his stock nor may the right be essentially impaired, either by the legislature or by the
corporation, without his consent, through amending the charter, or the by-laws.

FACTS:

Petitioners and the respondents are stockholders of Medical Center Parañaque, Inc (MCPI), a domestic
corporation, with the former holding Class "B" shares and the latter owning Class "A" shares. At the time
of its incorporation, Act No. 1459, the old Corporation Law was still in force and effect. On September 9,
1992, Article VII of MCPI Article of Incorporation was again amended. It states that “except when
otherwise provided by law, only holders of Class "A" shares have the right to vote and the right to be
elected as directors or as corporate officers.” The SEC approved the foregoing amendment in 1993.

On February 9, 2001, the shareholders of MCPI held their annual stockholders’ meeting and election for
directors. During the course of the proceedings, respondent Rustico Jimenez, citing Article VII, as
amended, and notwithstanding MCPI’s history, declared over the objections of herein petitioners, that
no Class "B" shareholder was qualified to run or be voted upon as a director. In the past, MCPI had seen
holders of Class "B" shares voted for and serve as members of the corporate board and some Class "B"
share owners were in fact nominated for election as board members. Nonetheless, Jimenez went on to
announce that the candidates holding Class "A" shares were the winners of all seats in the corporate
board. The petitioners protested, claiming that Article VII was null and void for depriving them, as Class
"B" shareholders, of their right to vote and to be voted upon, in violation of the Corporation Code (Batas
Pambansa Blg. 68), as amended. On March 22, 2001, after their protest was given short shrift, herein
petitioners filed a Complaint for Injunction, Accounting and Damages before the RTC. In favor for the
respondents, the trial court ruled that corporations had the power to classify their shares of stocks, such
as "voting and non-voting" shares, conformably with Section 67 of the Corporation Code of the
Philippines. Hence this petition.

ISSUE:

Whether or not holders of Class "B" shares of the MCPI may be deprived of the right to vote and be
voted for as directors in MCPI.

RULING:

No. Since the Class “B” shareholders are not classified as holders of either preferred or redeemable
shares, then it necessarily follows that they are entitled to vote and to be voted for as directors or
officers. The law referred to in the amendment to Article VII refers to the Corporation Code and no
other law. At the time of the incorporation of MCPI in 1977, the right of a corporation to classify its
shares of stock was sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P. Blg.
68, retained the same grant of right of classification of stock shares to corporations, but with a
significant change. Under Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights
were explicitly provided for, such that "no share may be deprived of voting rights except those classified
and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code" and that
"there shall always be a class or series of shares which have complete voting rights." Section 6 of the
Corporation Code being deemed written into Article VII of the Articles of Incorporation of MCPI, it
necessarily follows that unless Class "B" shares of MCPI stocks are clearly categorized to be "preferred"
or "redeemable" shares, the holders of said Class "B" shares may not be deprived of their voting rights.
Note that there is nothing in the Articles of Incorporation nor an iota of evidence on record to show that
Class "B" shares were categorized as either "preferred" or "redeemable" shares. The only possible
conclusion is that Class "B" shares fall under neither category and thus, under the law, are allowed to
exercise voting rights.

13) Airene Unera, et. al. vs. Shin Heung Electro Digital, Inc., G.R. No. 228328. March 11, 2020

Doctrine:

It is within the power of the board of directors to permanently close the operation of the company due
to continuous business losses. To be a valid ground for termination, the following must be present: (1)
There must be a decision to close or cease operation of the enterprise by the management; (2) The
decision was made in good faith; and (3) There is no other option available to the employer except to
close or cease operations.

Specific Lesson:

The stock holder of Shin Hueng decided to permanently close the operation of the company due to
continuous business losses. Unera, the petitioners are the employees filed for illegal closure, held: it was
due to retrenchment reasons, and such an action is wholly with in the Board’s powers.

Facts:

Respondent Shin Heung Electrodigital, Inc. (Shin Heung) is a company primarily engaged in the
manufacture of a computer part called “deck” exclusively for Smart Electronics Manufacturing Service
Philippines, Inc. (SEPHIL). Due to dwindling sales and decreasing use of their manufactured product, Shin
Heung was initially forced to reduce its labor force from 2000 to 991 employees. Eventually, the owners,
stockholders and members of the Board of the Directors of the company have decided to permanently
close the operation of the company due to continuous business losses and after the company’s one and
only client has decided to pull out and withdraw orders for alleged purely business reasons. Hence,
without any client to serve and being unable to find a new business, the management was left with no
other alternative but to close. Shin Heung also informed DOLE of its intent to completely close
operations.

Several workers immediately inquired whether they may be allowed to resign for early payment
for separation pay. After an affirmative response, the workers submitted their letters of resignation.
Those who did not resign were served with their respective notices of termination at least 30 days prior
to the scheduled company closure.

Accordingly, the company sold its equipment and other assets. It, however, found it difficult to
find a buyer for its real estate prompting it to lease a large part of the premises to generate more
income.

Before its scheduled closure, Shin Heung sent another letter to the DOLE to recall its earlier
notice of closure. Shin Heung stated that they found new clients within the Philippines and from other
parts of the world. Thus, their company stockholders decided to infuse more capital, sufficient to start a
full blast production operation. The company resumed operations over a small portion of the business to
alleviate losses and help maintain company equipment and machineries until the company assets are
finally sold.

Claiming the closure as a ruse to circumvent their tenurial rights, petitioners, who are Shin
Heung’s previous employees, filed separate complaints for illegal closure of the establishment with
claims for reliefs before the Labor Arbiter. To their mind, Shin Heung was in evident bad faith when it
resumed business operations after their dismissals.

Initiated by: Employees, for illegal closure.

LA: Shing heung. The Labor Arbiter ruled in favor of the respondent company.

NLRC: In favor, The NLRC, however, reversed the ruling of the LA and declared petitioners’ dismissal as
illegal. On appeal, the Court of Appeals ruled in favor of respondents and reinstated the Labor Arbiter’s
decision.

Issue:

Whether the Court of Appeals seriously erred in ruling that the respondent company validly closed
despite there is absence of closure.

Ruling:

No. The decision of Shin Heung to close its business or cease operations was done in good faith.

To be a valid ground for termination, the following must be present: (1) There must be a
decision to close or cease operation of the enterprise by the management; (2) The decision was made in
good faith; and (3) There is no other option available to the employer except to close or cease
operations.

A careful review of the records show that Shin Heung’s intention was to totally close the
business. Notwithstanding its use of the word “retrenchment” in its communications to the DOLE and to
its employees, Shin Heung consistently informed its stakeholders of the complete cessation of
operations by the close of business hours on July 31, 2013. In fact, all of Shin Heung’s employees,
including its president, were dismissed by July 31, 2013. Hence, the Labor Arbiter and the Court of
Appeals did not err in identifying the authorized cause of termination in this case a closure or cessation
of business.

In Beralde vs. Lapanday Agricultural and Development Corp., the Court reiterates that in
retrenchment, the goal is to prevent impending losses or further business reversals – it therefore does
not require that there is an actual closure of the business. Thus, when the employer satisfactorily proved
economic or business losses with sufficient supporting evidence and have complied with the
requirements mandated under the law to justify retrenchment, as in this case, it cannot be said that the
subsequent acts of the employer to re-hire the retrenched employees or to hire new employees
constitutes bad faith. Consequently, when Lapanday continued its operation, it was merely exercising its
prerogative to streamline its operations.

Similarly, Shin Heung had already sufficiently proven substantial business losses on its part
thereby necessitating the closure of the company. Its decision to continue a part of its previous
operations did not negate good faith in its decision to close shop, but is seen as an exercise of its right to
continue its business. As long as no arbitrary or malicious action on the part of the employer is shown,
the wisdom of a business judgment to implement a cost saving device is beyond the court’s
determination. After all, the free will of management to conduct its own business affairs to achieve its
purpose cannot be denied.

25. MARC II Marketing, Inc. vs. Alfredo Joson

GR No. 171993; December 12, 2011

Doctrines: Liability of Corporate Officers. The corporation has a personality separate

and distinct from its officers, stockholders and members such that corporate officers are
not personally liable for their official acts unless it is shown that they have exceeded their
authority. However, this corporate veil can be pierced when the notion of the legal entity
is used as a means to perpetrate fraud, an illegal act, as a vehicle for the evasion of an
existing obligation, and to confuse legitimate issues.

x---------------------------------------------------------------------------------------------------------------x
FACTS:
Before Marc II Marketing, Inc. was officially incorporated, respondent Alfredo has already been
engaged by petitioner Lucila, in her capacity as President of Marc Marketing, Inc., to work as the General
Manager of petitioner corporation. For occupying the said position, Alfredo was among its corporate
officers by the express provision of Section 1, Article IV of its by-laws.

In 1994, Marc II Marketing, Inc. was officially incorporated and registered with the SEC. Accordingly,
Marc Marketing, Inc. was made non-operational. Respondent continued to discharge his duties as
General Manager but this time under Marc II Marketing, Inc.

Per an undated Secretary’s Certificate, Marc II Marketing, Board of Directors conducted a meeting
where respondent was appointed as one of its corporate officers with the designation or title of General
manager to function as a managing director with other duties and responsibilities that the Board of
Directors may provide and authorized.

In 1997, Marc II Marketing, Inc. decided to stop and cease its operations due to poor sales collection
aggravated by the inefficient management of its affairs. On the same date, it formally informed
respondent of the cessation of its business operation. Concomitantly, respondent was apprised of the
termination of his services as General Manager since his services as such would no longer be necessary
for the winding up of its affairs.

Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners
Lucila Joson before the Labor Arbiter. In his complaint, respondent averred that petitioner Lucila
dismissed him from his employment with petitioner corporation due to the feeling of hatred she
harbored towards his family. The same was rooted in the filing by petitioner Lucila’s estranged husband,
who happened to be respondent’s brother, of a Petition for Declaration of Nullity of their Marriage.

Petitioners filed a Motion to Dismiss grounded on the Labor Arbiter’s lack of jurisdiction as the case
involved an intra-corporate controversy, which jurisdiction belongs to the SEC (now with the Regional
Trial Court).

Labor Arbiter: ruled in favor of respondent.

NLRC:  ruled in favor of petitioners by giving credence to the Secretarys Certificate, which evidenced
petitioner corporation’s Board of Directors meeting in which a resolution was approved appointing
respondent as its corporate officer with designation as General Manager. 

Court of Appeals: ruled in favor of the respondent.

ISSUE: Is the respondent as General Manager of petitioner corporation a corporate officer or a mere
employee? (a mere employee)
RULING: 

The respondent as General Manager is not a corporate officer in this case.

In the context of PD No. 902-A, corporate officers are those officers of a corporation who are given that
character either by the Corporation Code or by the corporation’s by-laws. Section 25 of the Corporation
Code specifically enumerated who these corporate officers, to wit: (1) president; (2) secretary; (3)
treasurer; and (4) such other officers as may be provided for in the by-laws. 

Thus, pursuant to 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.
A careful perusal of petitioner corporation’s by-laws, particularly paragraph 1, Section 1, Article IV,
would explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2) President; (3)
one or more Vice-President; (4) Treasurer; and (5) Secretary. The position of General Manager was not
among those enumerated.

The Supreme Court ruled that respondent was not a corporate officer of petitioner corporation because
his position as General Manager was not specifically mentioned in the roster of corporate officers in its
corporate by-laws. The enabling clause in petitioner corporation’s by-laws empowering its Board of
Directors to create additional officers, i.e., General Manager, and the alleged subsequent passage of a
board resolution to that effect cannot make such a position a corporate office. Matling clearly
enunciated that the board of directors has no power to create other corporate offices without first
amending the corporate by-laws so as to include therein the newly created corporate office. Though the
board of directors may create appointive positions other than the positions of corporate officers, the
persons occupying such positions cannot be viewed as corporate officers under Section 25 of the
Corporation Code.

Respondent, though occupying the General Manager position, was not a corporate officer of petitioner
corporation rather he was merely its employee occupying a high-ranking position. Accordingly,
respondent’s dismissal as petitioner corporation’s General Manager did not amount to an intra-
corporate controversy. Jurisdiction therefore properly belongs with the Labor Arbiter and not with the
RTC.

4. Oscares vs. Magsaysay Maritime Corp.

GR No. 245858; December 2, 2020

Doctrines: Corporate officers or directors cannot, as a general rule, be personally held

liable for the contracts entered into by the corporation because the corporation has a
separate and distinct legal personality. However, "personal liability of such corporate
director, trustee, or officer, along (although not necessarily) with the corporation, may
validly attach when he is made by a specific provision of law personally answerable for
his corporate action.”

x---------------------------------------------------------------------------------------------------------------x
FACTS:
POEA approved the contract of employment between Oscares and SK Shipping (Singapore) Pte.
Ltd., through its manning agent respondent Magsaysay Maritime Corporation. He was certified as fit to
work by respondents' examining physician. As Second Assistant Engineer on board the vessel MV K.
Garnet, he was responsible for the maintenance, operation of engineering, electrical and electronic
systems of the vessel.

While the vessel was anchored in Panama, Oscares was singing in front of a videoke machine together
with another crew member when he slipped and fell out of balance. As a result, he suffered major knee
injuries. Oscares was repatriated to Manila. Upon arrival, he reported to respondents who referred him
to NGC Medical Specialist Clinic, Inc. (NGC) for post-employment medical examination and
management. Respondents insisted that Oscares should shoulder the cost of his surgery. Since his
protests fell on deaf ears, he was compelled to undergo the necessary surgery. Oscares also shouldered
his physical rehabilitation which ensued thereafter.

Dr. Cruz issued a final disability assessment of Grade 10 for Oscares. Oscares then sought the opinion of
Dr. Magtira, an orthopedist, who issued a medical report recommending permanent disability and
considered him permanently unfit in any capacity for further sea duties. Dr. Pundavela, another doctor
consulted by Oscares, issued a medical report likewise stating that he is permanently disabled and unfit
for sea duty in any capacity.

Consequently, Oscares sent a demand letter to respondents for a copy of his final assessment and
referral to a third doctor. Since respondents took no action, he filed a notice to arbitrate against them.
After mandatory conciliation/mediation, they reached a deadlock.
According to the Panel, a work-related injury is one arising out of and in the course of employment. An
injury occurs in the course of employment when it takes place within the period of employment, at a
place where the employee reasonably may be in the performance of his duties, and while fulfilling those
duties or engaged in something incidental thereto. Thus, the Panel held that when Oscares suffered
from his injury, he was engaged in an act necessary to his physical well-being and incidental to his
employment.

CA: ruled in favor of the respondent. It held that Oscares' injury was not work-related, work-caused, or
work-aggravated. It has no connection whatsoever to his official duties. Consequently, it is not
compensable.

ISSUE: Whether the CA erred in setting aside the ruling of the Panel? (Yes)

RULING: 
Granted the disability compensation to Oscares equivalent to Grade 10 as recommended by
respondents' designated physician.

Oscares' act of singing can be considered necessary to his health and comfort while on board the vessel.
He incurred his injury while he was performing this act. Oscares neither willfully injured himself nor
acted with notorious negligence.

Respondents, including Arnold Javier as the President of Magsaysay Maritime Corporation, shall be
jointly and severally liable to Oscares in accordance with Migrant Workers Act, which provides that "if
the recruitment/placement agency is a juridical being, the corporate officers and directors and partners
as the case may be, shall themselves be jointly and solidarily liable with the corporation or partnership
for the aforesaid claims and damages.

" In Gargallo v. Dohle Seafront Crewing (Manila), Inc., The Court explained that corporate officers or
directors cannot, as a general rule, be personally held liable for the contracts entered into by the
corporation because the corporation has a separate and distinct legal personality. However, "personal
liability of such corporate director, trustee, or officer, along (although not necessarily) with the
corporation, may validly attach when he is made by a specific provision of law personally answerable for
his corporate action." As such, we upheld the joint and solidary liability of the officer in that case
following Sec. 10 of RA No. 8042, as amended.68 We similarly imposed joint and several liabilities on the
foreign employer, local manning agency, and its officer/director in Cariño v. Maine Marine Phils., Inc.

30. Magallanes Watercraft Asso., Inc. vs. Auguis

GR No. 211485; May 30, 2016
 Doctrines: Under Section 45 of the Corporation Code, it is clear that a corporation has:
(1) express powers, which are bestowed upon by law or its articles of incorporation; and
(2) necessary or incidental powers to the exercise of those expressly conferred. An act
which cannot fall under a corporation's express or necessary or incidental powers is
an ultra vires act.

For if that act is one which is lawful in itself and not otherwise prohibited, and is done for
the purpose of serving corporate ends, and reasonably contributes to the promotion of
those ends in a substantial and not in a remote and fanciful sense, it may be fairly
considered within the corporation's charter powers.

A corporation may exercise its powers only within those definitions. Corporate acts that
are outside those express definitions under the law or articles of incorporation or those
"committed outside the object for which a corporation is created" are ultra vires. The
only exception to this rule is when acts are necessary and incidental to carry out a
corporation's purposes, and to the exercise of powers conferred by the Corporation
Code and under a corporation's articles of incorporation.

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, in a substantial, and not in a remote and fanciful, sense, it may fairly be considered
within charter powers. The test to be applied is whether the act in question is in direct
and immediate furtherance of the corporation's business, fairly incident to the express
powers and reasonably necessary to their exercise. If so, the corporation has the power
to do it; otherwise, not.

x---------------------------------------------------------------------------------------------------------------x
FACTS:
Magallanes Watercraft Association is a local association of motorized banca owners and
operators ferrying cargoes and passengers from Magallanes, Agusan del Norte to Butuan City and back.
Auguis and Basnig were members and officers of Magallanes Watercraft— vice-president and secretary,
respectively.
 
The Board of Trustees then passed a resolution and issued a Memorandum suspending the rights and
privileges of Auguis and Basnig as members of the association for 30 days for their refusal to pay their
membership dues and berthing fees because of their pending oral complaint and demand for financial
audit of the association funds.

In spite of the suspension, Auguis and Basnig still failed to settle their obligations with Magallanes, thus,
they issued another Memorandum suspending their rights and privileges. Auguis and Basnig then filed
an action for damages and attorney's fees. 

RTC: ordered Auguis and Basnig to pay their unpaid accounts but, nonetheless, required Magallanes to
pay them actual damages and attorney's fees. 

Court of Appeals: affirmed the trial court ruling that Magallanes was guilty of an ultra vires act. The CA
noted that neither Magallanes’s Articles of Incorporation nor its By-Laws contained any provision that
expressly or impliedly vested power or authority upon its Board to recommend the imposition of
disciplinary sanctions on its delinquent officers or members. It further noted that Magallanes lacked the
authority to suspend the right of the respondents to operate their bancas, which was granted through a
Certificate of Public Convenience. The Maritime Industry Authority (MARINA) was the sole government
agency which had the authority to suspend, cancel and/or revoke the franchise of the two. 
Magallanes insisted that it was not guilty of an ultra vires act when it suspended respondents' berthing
rights because its by-laws obliged Auguis and Basnig as members to: (1) obey and comply with the by-
laws, rules and regulations that may be promulgated by the association from time to time; and (2) to pay
its membership dues and other assessments. 

ISSUE: Whether Magallanes’ By-Laws vested authority upon its Board to recommend the imposition of
disciplinary sanctions on its delinquent officers or members? (Yes)

RULING: 
Under Section 45 of the Corporation Code, it is clear that a corporation has: (1) express
powers, which are bestowed upon by law or its articles of incorporation; and (2) necessary or
incidental powers to the exercise of those expressly conferred. An act which cannot fall under a
corporation's express or necessary or incidental powers is an  ultra vires act.

Under Section 3(a) and Section 3(c) Article V of MWAI's By-Laws, its members are bound "to obey and
comply with the by-laws, rules and regulations that may be promulgated by the association from time
to time" and "to pay membership dues and other assessments of the association."
 
The fact alone that neither the Articles of Incorporation nor the By-Laws of Magallanes granted its
Board the authority to discipline members does not make the suspension of the rights and privileges
of the respondents  ultra vires. In  National Power Corporation v. Vera, the Court stressed that an act
might be considered within corporate powers, even if it was not among the express powers, if the
same served the corporate ends. 

In the case of Republic of the Philippines v. Acoje Mining Company, Inc., the Court affirmed the rule
that a corporation is not restricted to the exercise of powers expressly conferred upon it by its
charter, but has the power to do what is reasonably necessary or proper to promote the interest or
welfare of the corporation.

In  University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, the Court wrote that a corporation may
exercise its powers only within those definitions. Corporate acts that are outside those express
definitions under the law or articles of incorporation or those "committed outside the object for which
a corporation is created" are  ultra vires. The only exception to this rule is when acts are necessary
and incidental to carry out a corporation's purposes, and to the exercise of powers conferred by  the
Corporation Code and under a corporation's articles of incorporation.

Montelibano, et al. v. Bacolod-Murcia Milling Co., Inc. stated the test to determine if a corporate act is
in accordance with its purposes: The test to be applied is whether the act in question is in direct and
immediate furtherance of the corporation's business, fairly incident to the express powers and
reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not.

Based on the foregoing, Magallanes can properly impose sanctions on Auguis and Basnig for being
delinquent members considering that the payment of membership dues enables Magallanes to
discharge its duties and functions. Moreover, respondents were obligated by the by-laws of the
association to pay said dues. The suspension of their rights and privileges is not an   ultra vires  act as it
is reasonably necessary or proper in order to further the interest and welfare of Magallanes.