FIRME VS BUKAL ENTERPRISE

414 SCRA 190

FACTS:
Spouses Constante and Azucena Firme are the registered owners of a parcel of land
located on Dahlia Avenue, Fairview Park, Quezon City. Renato de Castro, the vice
president of Bukal Enterprises and Development Corporation authorized his friend,
Teodoro Aviles, a broker, to negotiate with the Spouses Firme for the purchase of
the Property. On 28 March 1995, Bukal Enterprises filed a complaint for specific
performance and damages with the trial court, alleging that the Spouses Firme
reneged on their agreement to sell the Property. The complaint asked the trial court
to order the Spouses Firme to execute the deed of sale and to deliver the title to the
Property to Bukal Enterprises upon payment of the agreed purchase price. On 7
August 1998, the trial court rendered judgment against Bukal Enterprises, dismissing
the case and ordering Bukal Enterprises to pay the Spouses Constante and Azucena
Firme (1) the sum of P335,964.90 as and by way of actual and compensatory
damages; (2) the sum of P500,000.00 as and by way of moral damages; (3) the sum
of P100,000.00 as and by way of attorney’s fees; and (4) the costs of the suit.

The trial court held there was no perfected contract of sale as Bukal Enterprises
failed to establish that the Spouses Firme gave their consent to the sale of the
Property; and that Aviles had no valid authority to bind Bukal Enterprises in the sale
transaction. Bukal Enterprises appealed to the Court of Appeals, which reversed and
set aside the decision of the trial court. The appellate court ordered the Spouses
Firme to execute the Deed of Absolute Sale transferring the ownership of the subject
property to Bukal Enterprises immediately upon receipt of the purchase price of
P3,224,000.00 and to perform all such acts necessary and proper to effect the transfer
of the property covered by TCT 264243 to Bulak Enterprises; and directed Bukal
Enterprises to deliver the payment of the purchase price of the property within 60
days from the finality of the judgment. The Court of Appeals held that the lack of a
board resolution authorizing Aviles to act on behalf of Bukal Enterprises in the
purchase of the Property was cured by ratification; inasmuch as Bukal Enterprises
ratified the purchase when it filed the complaint for the enforcement of the sale. The
spouses Firme filed the petition for review on certiorari before the Supreme Court.
ISSUE:
Whether there was a perfected contract between the Spouses Firme and Bukal
Enterprises, the latter allegedly being represented by Aviles.

RULING:
There was no consent on the part of the Spouses Firme. Consent is an essential
element for the existence of a contract, and where it is wanting, the contract is non-
existent. The essence of consent is the conformity of the parties on the terms of the
contract, the acceptance by one of the offer made by the other. The Spouses Firme
flatly rejected the offer of Aviles to buy the Property on behalf of Bukal Enterprises.
There was therefore no concurrence of the offer and the acceptance on the subject
matter, consideration and terms of payment as would result in a perfected contract
of sale. Further, there was no approval from the Board of Directors of Bukal
Enterprises as would finalize any transaction with the Spouses Firme. Aviles did not
have the proper authority to negotiate for Bukal Enterprises. Aviles testified that his
friend, De Castro, had asked him to negotiate with the Spouses Firme to buy the
Property. De Castro, as Bukal Enterprises’ vice president, testified that he authorized
Aviles to buy the Property. However, there is no Board Resolution authorizing
Aviles to negotiate and purchase the Property on behalf of Bukal Enterprises. It is
the board of directors or trustees which exercises almost all the corporate powers in
a corporation. Under Sections 23 and 36 of the Corporation Code, 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. Aviles, who negotiated the purchase
of the Property, is neither an officer of Bukal Enterprises nor a member of the Board
of Directors of Bukal Enterprises. There is no Board Resolution authorizing Aviles
to negotiate and purchase the Property for Bukal Enterprises. There is also no
evidence to prove that Bukal Enterprises approved whatever transaction Aviles made
with the Spouses Firme. In fact, the president of Bukal Enterprises did not sign any
of the deeds of sale presented to the Spouses Firme. Even De Castro admitted that
he had never met the Spouses Firme. Considering all these circumstances, it is highly
improbable for Aviles to finalize any contract of sale with the Spouses Firme.
Furthermore, the Court notes that in the Complaint filed by Bukal Enterprises with
the trial court, Aviles signed the verification and certification of non-forum
shopping. The verification and certification of non-forum shopping was not
accompanied by proof that Bukal Enterprises authorized Aviles to file the complaint
on behalf of Bukal Enterprises. The power of a corporation to sue and be sued is
exercised by the board of directors. “The physical acts of the corporation, like the
signing of documents, can be performed only by natural persons duly authorized for
the purpose by corporate by-laws or by a specific act of the board of directors.” The
purpose of verification is to secure an assurance that the allegations in the pleading
are true and correct and that it is filed in good faith. True, this requirement is
procedural and not jurisdictional. However, the trial court should have ordered the
correction of the complaint since Aviles was neither an officer of Bukal Enterprises
nor authorized by its Board of Directors to act on behalf of Bukal Enterprises.

TAN VS SYCIP
499 SCRA 216
FACTS:
Grace Christian High School (GCHS) is a nonstock, non-profit educational
corporation w/ 15 regular members, who also constitute the board of trustees.
April 6, 1998: During the annual members’ meeting only 11 living member-trustees,
as 4 had already died.
7 attended the meeting through their respective proxies.
The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection
of Atty. Antonio C. Pacis, who argued that there was no quorum.
In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith
Tan were voted to replace the 4 deceased member-trustees.
SEC: meeting void due to lack of quorum (NOT living but based on AIC)
Sec 24 read together with Sec 89
CA: Dismissed due to technicalities
ISSUE:
W/N dead members should still be counted in the quorum - NO based on by-laws

RULING:
NO. remaining members of the board of trustees of GCHS may convene and fill up
the vacancies in the board
Except as provided, the vote necessary to approve a particular corporate act as
provided in this Code shall be deemed to refer only to stocks with voting rights:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of the corporation property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance
with this Code; and
8. Dissolution of the corporation.
quorum in a members’ meeting is to be reckoned as the actual number of members
of the corporation
stock corporations - shareholders may generally transfer their shares on the death of
a shareholder, the executor or administrator duly appointed by the Court is vested
with the legal title to the stock and entitled to vote it
Until a settlement and division of the estate is effected, the stocks of the decedent
are held by the administrator or executor nonstock corporation - personal and non-
transferable unless the articles of incorporation or the bylaws of the corporation
provide otherwise
Section 91 of the Corporation Code: termination extinguishes all the rights of a
member of the corporation, unless otherwise provided in the articles of incorporation
or the bylaws.
whether or not "dead members" are entitled to exercise their voting rights (through
their executor or administrator), depends on those articles of incorporation or bylaws
By-Laws of GCHS: membership in the corporation shall be terminated by the death
of the member
With 11 remaining members, the quorum = 6.
SECTION 29. Vacancies in the office of director or trustee. -- Any vacancy
occurring in the board of directors or trustees other than by removal by the
stockholders or members or by expiration of term, may be filled by the vote of at
least a majority of the remaining directors or trustees, if still constituting a quorum;
otherwise, said vacancies must be filled by the stockholders in a regular or special
meeting called for that purpose. A director or trustee so elected to fill a vacancy shall
be elected only for the unexpired term of his predecessor in office. the filling of
vacancies in the board by the remaining directors or trustees constituting a quorum
is merely permissive, not mandatory either by the remaining directors constituting a
quorum, or by the stockholders or members in a regular or special meeting called for
the purpose By-Laws of GCHS prescribed the specific mode of filling up existing
vacancies in its board of directors; that is, by a majority vote of the remaining
members of the board remaining member-trustees must sit as a board (as a body in
a lawful meeting) in order to validly elect the new ones

LOPEZ REALTY VS FONTECHA

247 SCRA 183
FACTS:
Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner
Asuncion Lopez Gonzales is one of its majority shareholders. Sometime in 1978,
Arturo Lopez, one of the shareholders, submitted a proposal relative to the
distribution of certain assets of the corporation including the reduction of employees
with provision for their gratuity pay. It was approved in a special meeting of the
board of directors. Lopez Realty approved two resolutions, both passed in 1980,
providing for the gratuity pay of its employees.
In 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining
members of the Board of Directors passed another resolution on how the gratuity of
the employees will be given. Private respondents were the retained employees of
petitioner corporation. They requested for the full payment of their gratuity pay. This
was granted in a special meeting but petitioner Asuncion was still abroad at that
time. She sent a cablegram to the corporation objecting to certain matters taken up
by the board in her absence. Upon her return, she filed a derivative suit with the SEC
against Arturo Lopez. Notwithstanding the "corporate squabble" between petitioner
Asuncion Lopez Gonzales and Arturo Lopez, the first two (2) installments of the
gratuity pay were paid by petitioner corporation but the rest of the cash vouchers
and checks were cancelled by petitioner Asuncion. Despite private respondents'
repeated demands for their gratuity pay, corporation refused to pay the same.

ISSUE:
Whether or not the corporation is bound to give the full gratuity pay
considering the lack of notice to one of the board directors during the resolution that
granted it.

RULING:
Yes. The general rule is that a corporation, through its board of directors,
should act in the manner and within the formalities, if any, prescribed by its
charter or by the general law. Thus, directors must act as a body in a meeting
called pursuant to the law or the corporation’s by-laws, otherwise, any action taken
therein may be questioned by any objecting director or shareholder. Be that as it
may, jurisprudence tells us that an action of the board of directors during a
meeting, which was illegal for lack of notice, may be ratified either expressly,
by the action of the directors in subsequent legal meeting, or impliedly, by the
corporation’s subsequent course of conduct. Thus, despite lack of notice at that
time the assailed resolutions were passed, Asuncion is now precluded from
questioning the validity since she acquiesced thereto by signing the vouchers
of the gratuity pay.
Assuming, arguendo, that there was no notice given to Asuncion Lopez
Gonzales during the special meetings held on August 17, 1981 and September
1, 1981, it is erroneous to state that the resolutions passed by the board during the
said meetings were ultra vires. In legal parlance, “ultra vires” act refers to one which
is not within the corporate powers conferred by the Corporation Code or
articles of incorporation or not necessary or incidental in the exercise of the
powers so conferred.

The assailed resolutions before us cover a subject which concerns the benefit
and welfare of the company’s employees. To stress, providing gratuity pay for its
employees is one of the express powers of the corporation under the Corporation
Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any
liability arising from the issuance of the subject resolutions. Petitioners try to
convince us that the subject resolutions had no force and effect in view of the
non-approval thereof during the Annual Stockholders’ Meeting held on March
1, 1982. To strengthen their position, petitioners cite section 28 1/2 of the
Corporation Law (Section 40 of the Corporation Code). We are not persuaded. The
cited provision is not applicable to the case at bench as it refers to the sale, lease,
exchange or disposition of all or substantially all of the corporation’s assets,
including its goodwill. In such a case, the action taken by the board of directors
requires the authorization of the stockholders on record. It will be observed that,
except for Arturo Lopez, the stockholders of Petitioner Corporation also sit as
members of the board of directors. Under the
circumstances in field, it will be illogical and superfluous to require the
stockholders’ approval of the subject resolutions. Thus, even without the
stockholders’ approval of the subject resolutions, petitioners are still liable to pay
private respondents’ gratuity pay.

ACUNA VS BATAC PRODUCERS COOPERATIVE

20 SCRA 526
FACTS:
Plaintiff Emiliano Acuña filed a complaint against the defendant Batac Producers
Cooperative Marketing Association, Inc., (Batac Procoma). The complaint alleged
that on or about May 5, 1962 it was tentatively agreed upon between plaintiff and
defendant Leon Q. Verano, as Manager of the defendant Batac Procoma that the
former would seek and obtain the sum of not less than P20,000.00 to be advanced to
the defendant Batac Procoma to be utilized by it as additional funds for its Virginia
tobacco buying operations during the current redrying season. Emiliano Acuña
would be constituted as the corporation’s representative in Manila to assist in
handling and facilitating its continuous shipments of tobacco and their delivery to
the redrying plants and in speeding up the prompt payment and collection of all
amounts due to the corporation for such shipments. For his services plaintiff
Emiliano Acuña would be paid a remuneration at the rate of P0.50 per kilo of
tobacco. The said tentative agreement was favorably received by the Board of
Directors of the defendant Batac Procoma and unanimously authorized defendant
Leon Q. Verano, by a formal resolution, to execute any agreement with any person
or entity, on behalf of the corporation, and defendant Leon Q. Verano was acceptable
to the corporation, except that the remuneration for the plaintiff Emiliano Acuña’s
services would be P0.30 per kilo of tobacco. The formal “Agreement” was executed
between plaintiff Emiliano Acuña and defendant Leon Q. Verano, as Manager of the
defendant corporation, duly authorized by its Board of Directors for such purpose.
On the same date, plaintiff gave Emiliano Acuña turned over to the defendant
corporation, thru its treasurer, the sum of P20,000.00. From then on, plaintiff
Emiliano Acuña diligently and religiously kept his part of the “Agreement” that
plaintiff even furnished the defendant corporation, upon request of its Manager Leon
Q. Verano three thousand (3,000) sacks which it utilized in the shipment of its
tobacco costing P6,000.00 and that plaintiff Emiliano Acuña had personally
advanced out of his own personal funds the total sum of P5,000.00 with the full
knowledge, acquiescence and consent of all the individual defendants.

After the defendant corporation enabled to replenish its funds with continuous
collections from the PVTA for tobacco delivered due to the help, assistance and
intervention of plaintiff Emiliano Acuña, for which the said corporation collected
from the PVTA the total sum of P381,495.00, the “Agreement” was disapproved by
its Board of Directors. Upon the foregoing allegations plaintiff filed a complaint
before the court.
ISSUE:
Whether or not the Board of Directors did not allow the contract between them and
petitioner Emiliano Acuña.

RULING:
Yes, the Board of Directors allows the contract between them and petitioner
Emiliano Acuña. A perusal of the complaint reveals that it contains sufficient
allegation indicating such approval or at least subsequent ratification. On the first
point we note the following averments, the plaintiff met with each and all of the
individual defendants, who constituted the entire Board of Directors and discussed
with them extensively the tentative agreement and he was made to understand that
it was acceptable to them, except as to plaintiff’s remuneration. It was finally agreed
between the plaintiff and all said Directors that his remuneration would be P0.30 per
kilo of tobacco. After the agreement was formally executed, he was assured by said
Directors that there would be no need of formal approval by the Board. It should be
noted in this connection that although the contract required such approval it did not
specify just in what manner the same should be given.

On the question of ratification the complaint alleges that plaintiff delivered to the
defendant corporation the sum of P20,000.00 as called for in the contract. He
rendered his services by furnishing 3,000 sacks at a cost of P6,000.00 and advanced
to it further sum of P5,000.00 and that he did all of these things with the full
knowledge, acquiescence and consent of each and all of the individual defendants
who constitute the Board of Directors of the defendant corporation. There is
abundant authority in support of the proposition that ratification may be express or
implied, and that implied ratification may take diverse forms, such as by silence or
acquiescence, by acts showing approval or adoption of the contract, or by acceptance
and retention of benefits flowing therefrom.
CUA VS TAN
607 SCRA 645
FACTS:
Philippine Racing Club Inc. (PRCI) was organized to carry on the business of a
racecourse in all its branches and promote the breeding of better horses in the
Philippines. PRCI owns two real properties:
(1) the Sta. Ana Racetrack or the “Makati property” and (2) the “Cavite property”.
PRCI management decided that it was best to spin off the management and
development of the Makati property to a wholly owned subsidiary. It then opted to
acquire another domestic corporation, JTH Davies Holdings, Inc. (JTH).

PRCI management determined that it could initially acquire 41,928,290 shares, or

95.55% of the outstanding capital stock of JTH. The PRCI Board of Directors held
a meeting on 26 Sep 2006. Among the Directors present were petitioners Santiago
Sr., Santiago Jr., and Solomon, as well as respondent Dulay. After deliberating on
the matter of the acquisition of JTH by PRCI, all the directors present, except
respondent Dulay, voted affirmatively to pass and approve the following resolutions:
Declaration of Intention to Acquire and Purchase Shares of Stock of Another
Company;
(2) a Special Stockholders’ meeting;
(3) Authorized Attorney-in-Fact and Proxy. The next day, PRCI entered into a
Sale and Purchase Agreement for the acquisition from JME of 99.5% of the
outstanding capital stock of JTH. In the Special Stockholders’ Meeting held on 7
November 2006, attended by stockholders with 481,045,887 shares or 84.42% of the
outstanding capital stock of PRCI, the acquisition by PRCI of JTH was presented
for approval. Several stockholders expressed their satisfaction with PRCI’s decision
to purchase JTH shares due to the latter’s goodwill.

Thereafter, PRCI again engaged the assistance of SGV. It was then determined that
the Makati property could be transferred to JTH in exchange for the unissued portion
of the latter’s recently increase authorized capital stock. The matter of the proposed
exchange was approved by the PRCI Board of Directors in its meeting, again with
the lone dissent of respondent Dulay. Subsequently, the Annual Stockholders’
Meeting of PRCI was scheduled. It included the property-for-shares exchange
between PRCI and JTH, which was supposed to be presented for approval by
stockholders under their agenda during the special meeting. However, respondents
Miguel, et al., as minority stockholders of PRCI filed before the RTC a Complaint,
denominated as a Derivative Suit with prayer for Issuance of TRO/Preliminary
Injunction, against the directors of PRCI and/or JTH based on their alleged devices
or schemes amounting to fraud or misrepresentation.

ISSUE:
Whether or not respondents’ complaint constituted a valid derivative suit?

RULING:
No.
It is well settled in this jurisdiction that where corporate directors are guilty of a
breach of trust — not of mere error of judgment or abuse of discretion — and
intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf
of himself and other stockholders and for the benefit of the corporation, to bring
about a redress of the wrong inflicted directly upon the corporation and indirectly
upon the stockholders. A derivative suit, however, must be differentiated from
individual and representative or class suits. Suits by stockholders or members of a
corporation based on wrongful or fraudulent acts of directors or other persons may
be classified into individual suits, class suits, and derivative suits.

According to the SC, a shareholder's derivative suit seeks to recover for the benefit
of the corporation and its whole body of shareholders when injury is caused to the
corporation that may not otherwise be redressed because of failure of the corporation
to act. Thus, ‘the action is derivative, i.e., in the corporate right. if the gravamen of
the complaint is injury to the corporation, or to the whole body of its stock and
property without any severance or distribution among individual holders, or it
seeks to recover assets for the corporation or to prevent the dissipation of its
assets.’ In contrast, "a direct action is one filed by the shareholder individually
(or on behalf of a class of shareholders to which he or she belongs) for injury to his
or her interest as a shareholder. The two actions are mutually exclusive: i.e., the
right of action and recovery belongs to either the shareholders (direct
action) or the corporation (derivative action)." As regards the derivative suit re:
acquisition of JTH, the Court held that it is dismissible for being moot and academic.
It should be noted that the 26 September 2006 Resolution of the PRCI Board of
Directors not only authorized the acquisition by PRCI of up to 100% of the common
stock of JTH, but it also specifically appointed petitioner Santiago Sr. to act as
attorney-in-fact and proxy who could vote all the shares of PRCI in JTH, as well as
nominate, appoint, and vote into office directors and/or officers during regular and
special stockholders’ meetings of JTH. It was by this authority that PRCI directors
were able to constitute the JTH Board of Directors. Subsequently, the disputed
Resolution was approved and ratified by the stockholders, holding 74% of the
outstanding capital stock in PRCI, during the Special Stockholders’ Meeting held on
7 November 2006.

Respondents Miguel, et al., instituted the derivative suit against herein petitioners in
their capacity as directors of PRCI and/or JTH. Clearly, the acquisition by PRCI of
JTH and the constitution of the JTH Board of Directors are no longer just the acts of
the majority of the PRCI Board of Directors, but also of the majority of the PRCI
stockholders. By ratification, even an unauthorized act of an agent becomes the
authorized act of the principal. To declare the Resolution dated 26 September 2006
of the PRCI Board of Directors null and void will serve no practical use or value, or
affect any of the rights of the parties, because the Resolution of the PRCI
stockholders -- approving and ratifying said acquisition and the manner in which
PRCI shall constitute the JTH Board of Directors -- will still remain valid and
binding. In fact, if the derivative suit, insofar as it concerns the Resolution dated 26
September 2006 of the PRCI Board of Directors, is not dismissible for mootness, it
is still vulnerable to dismissal for failure to implead indispensable parties, namely,
the majority of the PRCI stockholders. The derivative suit, with respect to the
Resolution dated 11 May 2007 of the PRCI Board of Directors, is similarly
dismissible for lack of cause of action. Rule 8, Section 1 of the Interim Rules of
Procedure for Intra-Corporate Controversies (IRPICC) lays down the following
requirements, which a stockholder must comply with in filing a derivative suit. In
the case at bar, the Court found that the third requisite, that “no appraisal rights are
available for the acts complained of”, was lacking. The Court found the averment of
respondents Miguel, et al., that appraisal rights were not available to them untenable,
because appraisal rights may only be exercised by stockholders who had voted
against the DLSU Commercial Law Review Digest G02 (2015-2016) proposed
corporate action; and that at the time respondents Miguel, et al., instituted the
derivative suit, PRCI stockholders had yet to vote on the intended property-for-
shares exchange between PRCI and JTH. Respondents Miguel, et al., themselves
caused the unavailability of appraisal rights by filing the Complaint, in which they
prayed that the 11 May 2007 Resolution of the Board of Directors approving the
property-for-shares exchange between PRCI and JTH be declared null and void,
even before the said Resolution could be presented to the PRCI stockholders for
approval or rejection. More than anything, the argument of respondents Miguel, et
al., raises questions of whether their derivative suit was prematurely filed for they
had failed to exert all reasonable efforts to exhaust all other remedies available under
the articles of incorporation, by-laws, laws, or rules governing the corporation or
partnership, as required by Rule 8, Section 1(2) of the IRPICC. The obvious intent
behind the rule is to make the derivative suit the final recourse of the stockholder
after all other remedies to obtain the relief sought have failed.