You are on page 1of 8

CORPO 10

CORPORATE GOVERNANCE

Powers of the Board of Trustees


Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no
stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected
and qualified.

Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share
shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of
the capital stock of the corporation of which he is a director shall thereby cease to be a director. Trustees of non-stock
corporations must be members thereof. a majority of the directors or trustees of all corporations organized under this Code
must be residents of the Philippines.

GAMBOA V VICTORIANO (Powers of the BOD)


Plaintiff-respondents owned 1,328 shares of stock in INOCENTES DE LA RAMA, INC. a domestic
corporation with an authorized capital stock of 3000 shares, with a par value of P100.00 per share, 2,177 of which
were subscribed and issued, thus leaving 823 shares unissued.
Plaintiffs acquired the shares of stock held by Rafael Ledesma and Jose Sicangco, Jr., then President
and Vice-President of the corporation.
Defendants who were the remaining members of the board of directors of the corporation, in order to
forestall the takeover by the plaintiffs of the corporation, surreptitiously met and elected Ricardo L. Gamboa and
Honorio de la Rama as president and vice-president of the corporation, respectively, and thereafter passed a
resolution authorizing the sale of the 823 unissued shares of the corporation to the defendants at par value, after
which the defendants were elected to the board of directors of the corporation.
Plaintiffs sued for the nullification of the sale and the removal of the new board directors as usurpers.
Subsequently, a compromise agreement was entered into by the parties wherein they agreed that the
defendants waived and transferred their rights over the questioned number of shares in favor of the plaintiffs.
This was approved by the Court.
The defendants moved for the dismissal of the case which the Court denied.
On motion for reconsideration, they also alleged that the Court has no jurisdiction
over the case since the sale of the stocks concerned was purely management prerogative which the
Court cannot look into. This was also denied.

ISSUE: Whether the sale made by the board is a management concern which the courts has no jurisdiction over.

HELD:

The court held that the claim of the petitioners questioning the trial court's jurisdiction on matters affecting the management
of the corporation is without merit. The well-known rule is that courts cannot undertake to control the discretion of the board
of directors about administrative matters as to which they have legitimate power of action and contracts intra vires entered
into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so
unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority. In the instant case, the
plaintiffs aver that the defendants have concluded a transaction among themselves as will result to serious injury to the
interests of the plaintiffs, so that the trial court has jurisdiction over the case.

GOKONGWEI JR V SEC (BOT)

The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of
preliminary injunction arose out of two cases filed by petitioner with the Securities and Exchange Commission as
follows:
SEC CASE NO. 1375
On October 22, 1976, petitioner John Gokongwei Jr., as stockholder of respondent
San Miguel Corporation filed with the SEC a petition for the declaration of nullity of amended by- laws,
cancellation of certificate of filing of amended by-laws, injunction and damages with prayer for a
preliminary injunction against the majority of SMCs Board of Directors and SMC itself as an unwilling
petitioner.
As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents
amended the by-laws basing their authority on a resolution of the stockholders adopted on March 13, 1961, when
the outstanding capital stock of SMC was only P70,139,740. At the time of the amendment, the outstanding and
paid up shares were already P301,270,430.00.
It was contended that according to Section 22 of the Corporation Law and Article VIII of the by-laws of
the Corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of
Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up
capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the
time of the amendment.
Since the amendment was based on the 1961 authorization, petitioner contended that the Board acted
without authority and in usurpation of the power of the stockholders.
As a second cause of action, it was alleged that the authority granted in 1961 had
already been exercised in 1962 and 1963, after which the authority of the Board ceased to exist.
As a third cause of action, petitioner averred that the membership of the Board of
Directors had changed since the authority was given in 1961, there being 6 new directors.
As a fourth course of action, it was claimed that prior to the questioned amendment,
petitioner had all the qualifications to be a director of respondent corporation, being a substantial
stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock ownership,
such as the right to vote and be voted upon in the election of directors; and that in amending the by-
laws, respondent purposely provided for petitioners disqualification and deprived him of vested right as
afore-mentioned, hence the amended by-laws are null and void. As additional causes of action, it was
alleged:
That corporation have no inherent power to disqualify a
stockholder from being elected as a director and, therefore, the questioned act is ultra vires
and void
That Andres M. Soriano, Jr. and/or Jose M. Soriano, while
representing other corporations, entered into contract (specifically a management contract)
with respondent corporation, which was allowed because the questioned amendment gave the
Board itself the prerogative of determining whether they or other persons are engaged in
competitive or antagonistic business;
That the portion of the amended by-laws which states that in
determining whether or not a person is engaged in competitive business, the Board may
consider such factors as business and family relationship, is unreasonable and oppressive
and, therefore, void; and
That the portion of the amended by-laws which requires that all
nominations for election of directors **** shall be submitted in writing to the Board of Directors
at least 5 working days before the date of the Annual Meeting is likewise unreasonable and
oppressive.
It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing
thereof be cancelled, and that individual respondents be made to pay damages, in specified amounts, to
petitioner.

ISSUE: Whether the provisions of the amended by-laws of SMC, disqualifying a competitor from nomination or election to
the Board of Directors are valid and reasonable.

HELD:

The validity or reasonableness of a by-law of a corporation is purely a question of law. Whether the by-laws is in conflict with
the law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore unlawful is a
question of law. This rule is subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of
judgment, and one upon which reasonable minds must necessary differ, a court would not be warranted in substituting its
judgment instead of the judgment of those who are authorized to make the by-laws and who have exercised their authority.

It is recognized by all authorities that every competition has the inherent power to adopt by-laws for its internal
government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs. At common law, the rule was that the power to make and adopt
by-laws was inherent in every corporation as one of its necessary and inseparable legal incidents.
Any person who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the
stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the
articles of incorporation and lawfully enacted by-laws and not forbidden by-law.

It being settled that the corporation has the power to provide for the qualifications of its directors, the next question that must
be considered is whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable
exercise of corporate authority.

Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be
any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned.
As agents entrusted with the management of the corporation for the collective benefit of the stockholders, they occupy a
fiduciary relation, and in this sense the relation is the one of trust.

This is based upon the principle that where the director is so employed in the service of a rival company, he cannot serve
both, but must betray one or the other. Such an amendment advances the benefit of the corporation and is good.

Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the
director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of
his corporate duties above his personal concerns.

WHEREFORE, judgment is hereby rendered as follows:

On the matter of validity of the amended by-laws of the SMC, 6 justices voted to sustain the validity per se of amended by-
laws in question and to dismiss the petition without prejudice to the question of the actual disqualification of petitioner John
Gokongwei, Jr. to run and if elected to sit as director of SMC being decided, after a new and proper hearing of the Board of
Directors of SMC, whose decision shall be appealable to the SEC deliberating and acting en banc, and ultimately to this
Court. Unless disqualified in the manner herein provided, the prohibition in the aforementioned by-laws shall not apply to
peritioner.

A. Must Act as a Body

Sec. 25. Corporate officers, quorum. - Immediately after their election, the directors of a corporation must formally organize
by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall
be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or
more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as
president and treasurer at the same time.

The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the
corporation. Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the number of
directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate
business, and every decision of at least a majority of the directors or trustees present at a meeting at which there is a
quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all the
members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

ISLAMIC DIRECTORATE V CA(INC)

The subject of this petition for review is the Decision of the public respondent Court of Appeals, 1 dated
October 28, 1994, setting aside the portion of the Decision of the Securities and Exchange Commission (SEC, for
short) in SEC Case No. 4012 which declared null and void the sale of two (2) parcels of land in Quezon City covered
by the Deed of Absolute Sale entered into by and between private respondent Iglesia Ni Cristo (INC, for short) and the
Islamic Directorate of the Philippines, Inc., Carpizo Group, (IDP, for short).

ISSUE: Whether the said sale is valid absence of registration authority from the Board.

HELD:

The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Group's failure to comply with
Section 40 of the Corporation Code pertaining to the disposition of all or substantially all assets of the corporation:
Sec. 40. Sale or other disposition of assets. Subject to the provisions of existing laws on illegal combinations and monopolies,
a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise
dispose of all or substantially all of its property and assets, including its goodwill, upon terms and conditions and for such
consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property or
consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation, by the vote of at least
two-thirds (2/3) of the members, in a stockholders' or members' meeting duly called for the purpose. Written notice of the
proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or
served personally: Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided in
this Code.

A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation
would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated.

xxx xxx xxx

The Tandang Sora property, it appears from the records, constitutes the only property of the IDP. Hence, its sale to a third-party is
a sale or disposition of all the corporate property and assets of IDP falling squarely within the contemplation of the foregoing
section. For the sale to be valid, the majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of
the bona fide members of the corporation should have been obtained. These twin requirements were not met as the Carpizo
Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose names and signatures
were affixed by the Carpizo Group together with the sham Board Resolution authorizing the negotiation for the sale were, from all
indications, not bona fide members of the IDP as they were made to appear to be. Apparently, there are only fifteen (15) official
members of the petitioner corporation including the eight (8) members of the Board of Trustees. 39

All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and private respondent INC was intrinsically
void ab initio.

Private respondent INC nevertheless questions the authority of the SEC to nullify the sale for being made outside of its
jurisdiction, the same not being an intra-corporate dispute.

The resolution of the question as to whether or not the SEC had jurisdiction to declare the subject sale null and void is rendered
moot and academic by the inherent nullity of the highly dubious sale due to lack of consent of the IDP, owner of the subject
property. No end of substantial justice will be served if we reverse the SEC's conclusion on the matter, and remand the case to
the regular courts for further litigation over an issue which is already determinable based on what we have in the records.

RAMIREZ V ORIENTALIST

JF Ramirez is engaged in the business of marketing films for manufacturers.


In an agreement with Orientalist Co. (a company engaged in the business of maintaining and conducting a
theater in the city of manila for exhibition of cinematographic films) they offered exclusive agency of Eclair and Milano
films.
JF Ramirez was represented in that agreement by his son Jose Ramirez while Ramon J. Fernandez (a
director and) accepted the offer and represented the firm treasurer through an informal conference with all the
members of the company's board of directors except one, and with approval of those with whom he had
communicated.

ISSUE: Whether the company is liable in the contract entered upon by Ramon J. Fernandez?

Whther Ramon J. Fernandez is liable based upon his personal signature to the same documents?

HELD:

The Court affirmed the decision of the lower court which held that Orientalist is liable as the principal debtor and Ramon J.
Fernandez as guarantor of JF Ramirez.

If an action is brought against a corporation upon a contract alleged to be its contract, if it desires to set up the defense that the
contract was executed by one not authorized as its agent, it must plead non est factum. A corporation can not avail itself of the
defense that it had no power to enter into the obligation to enforce which the suit is brought, unless it pleads that defense.
No sworn answer denying the genuineness and due execution of the contracts in question or questioning the authority of Ramon
J. Fernandez to bind the Orientalist Company was filed in this case; but evidence was admitted without objection from the
plaintiff, tending to show that Ramon J. Fernandez had no such authority. This evidence consisted of extracts from the minutes of
the proceedings of the company's board of directors and also of extracts from the minutes of the proceedings of the company's
stockholders, showing that the making of this contract had been under consideration in both bodies and that the authority to
make the same had been withheld by the stockholders. BUT The failure of the defendant corporation to make any issue in its
answer with regard to the authority of Ramon J. Fernandez to bind it, and particularly its failure to deny specifically under oath
the genuineness and due execution of the contracts sued upon, have the effect of elimination the question of his authority from
the case, considered as a matter of mere pleading.

As to the liability of the corporation

Ramon J. Fernandez, as treasurer, had no independent authority to bind the company by signing its name to the letters
in question. It is declared by signing its name to the letters in question. It is declared in section 28 of the Corporation Law that
corporate power shall be exercised, and all corporate business conducted by the board of directors; and this principle is
recognized in the by-laws of the corporation in question which contain a provision declaring that the power to make contracts
shall be vested in the board of directors. It is true that it is also declared in the same by-laws that the president shall have the
power, and it shall be his duty, to sign contract; but this has reference rather to the formality of reducing to proper form the
contract which are authorized by the board and is not intended to confer an independent power to make contract binding on the
corporation.

We believe it is a fair inference from the recitals of the minutes of the stockholders meeting of September 18, that this
body was then cognizant that the officer had already been accepted in the name of the Orientalist Company and that the films
which were then expected to arrive were being imported by virtue of such acceptance. Certainly four members of the board of
directors there present were aware of this fact, as the letter accepting the offer had been sent with their knowledge and consent.

the board of directors, before the financial inability of the corporation to proceed with the project was revealed, had
already recognized the contract as being in existence and had proceeded to take the steps necessary to utilize the films.

Signature of Ramon J. Fernandez

As appears upon the face of the contracts, the signature of Fernandez, in his individual capacity, is not in line with the signature
of the Orientalist Company, but is set off to the left of the company's signature and somewhat below. From the testimony of both
Ramirez and Ramon J. Fernandez, that the responsibility of the latter was intended to be that of guarantor.

If the name of a person not interested in the performance of these contracts had appeared written in the place where
the name of Ramon J. Fernandez is signed, and the evidence had shown that such name was there written merely to attest the
signature of the corporation, or of Ramon J. Fernandez as treasurer, no court would have had any hesitation in holding that no
liability had been incurred though words were wanting to show how the name was signed. But wehre a name is signed
ambiguously, parol evidence is admissible to show the character in the signature affixed.

BOARD OF LIQUIDATORS V KALAW

The National Coconut Corporation (NACOCO) was chartered as a non-profit governmental organization by
Commonwealth Act 518 avowedly for the protection, preservation and development of the coconut industry in the
Philippines.
NACOCO's charter was amended by Republic Act No. 5 to grant that corporation the express power "to buy,
sell, barter, export, and in any other manner deal in, coconut, copra, and dessicated coconut, as well as their by-
products, and to act as agent, broker or commission merchant of the producers, dealers or merchants" thereof.
The charter amendment was enacted to stabilize copra prices, to serve coconut producers by securing
advantageous prices for them, to cut down to a minimum, if not altogether eliminate, the margin of middlemen, mostly
aliens.4 chanrobles virtual law library
General manager and board chairman was Maximo M. Kalaw. The rest of the defendants were members of
the Board.
Four devastating typhoons visited the Philippines; Coconut trees throughout the country suffered extensive
damage.
Copra production decreased. Prices spiralled. Warehouses were destroyed. Cash
requirements doubled. Deprivation of export facilities increased the time necessary to accumulate shiploads
of copra. Quick turnovers became impossible, financing a problem.
When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for
approval. Kalaw made a full disclosure of the situation, apprised the board of the impending heavy losses. No action
was taken on the contracts.
President Roxas made a statement that the NACOCO head did his best to avert the losses, emphasized that
government concerns faced the same risks that confronted private companies, that NACOCO was recouping its losses,
and that Kalaw was to remain in his post.
Not long thereafter, the board met again where they unanimously approved 5 contracts to
deliver copra; however, there was only partially performance of the contracts by NACOCO.
Other buyers filed damage suits; Some of the claims were settled
NACOCO seeks to recover the sum settlement payments from general manager and board chairman
Maximo M. Kalaw, and from its 3 directors. It charges Kalaw with negligence under Article 1902 of the old Civil Code
(now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach of
trust for having approved the contracts without prior approval of the board of directors, to the damage and prejudice of
plaintiff.

ISSUE: Whether Kalaw is negligent for having entered into the questioned contracts without prior approval of the board of
directors

HELD:

No

Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without
the prior approval of the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter
III thereof, recites, as amongst the duties of the general manager, the obligation: "(b) To perform or execute on behalf of the
Corporation upon prior approval of the Board, all contracts necessary and essential to the proper accomplishment for which the
Corporation was organized." chanrobles virtual law library

As a rule, a corporate officer is "intrusted with the general management and control of its business, has implied authority to
make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the
corporation. As such officer, "he may, without any special authority from the Board of Directors perform all acts of an ordinary
nature, which by usage or necessity are incident to his office, and may bind the corporation by contracts in matters arising in the
usual course of business. chanrobles virtual law library

The problem, therefore, is whether the case at bar is to be taken out of the general concept of the powers of a general manager,
given the cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO
contracts.chanroblesvirtuallawlibrary chanrobles virtual law library

The peculiar nature of copra trading requires that sales agreements be entered into, even though the goods are not yet in the
hands of the seller. Known in business parlance as forward sales, it is concededly the practice of the trade. A certain amount of
speculation is inherent in the undertaking. To NACOCO, forward sales were a necessity. Copra could not stay long in its hands; it
would lose weight, its value decrease. Above all, NACOCO's limited funds necessitated a quick turnover. Copra contracts then
had to be executed on short notice - at times within twenty-four hours. To be appreciated then is the difficulty of calling a formal
meeting of the board.chanroblesvirtuallawlibrary chanrobles virtual law libra

Long before the disputed contracts came into being, Kalaw contracted - by himself alone as general manager - for forward sales
of copra. For the fiscal year ending June 30, 1947, Kalaw signed some 60 such contracts for the sale of copra to divers parties.
During that period, from those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's board
of directors that, on December 5, 1946, in Kalaw's absence, it voted to grant him a special bonus "in recognition of the signal
achievement rendered by him in putting the Corporation's business on a self-sufficient basis within a few months after assuming
office, despite numerous handicaps and difficulties." chanrobles virtual law library

These previous contract it should be stressed, were signed by Kalaw without prior authority from the board. Said contracts were
known all along to the board members. Nothing was said by them. The aforesaid contracts stand to prove one thing: Obviously,
NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means to end, to the sound discretion of
NACOCO's general manager Maximo M. Kalaw. virtual

lSettled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom,
and policy, the general manager may bind the company without formal authorization of the board of directors. In varying
language, existence of such authority is established, by proof of the course of business, the usage and practices of the company
and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in
and about the affairs of the corporation. So also,

x x x authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power
was in fact exercised. 28 chanrobles virtual law library

x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage
its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the
directors to manage its business.

In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its
copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the
board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through
acquiescence, practically laid aside the by-law requirement of prior approval.chanroblesvirtuallawlibrary chanrobles virtual law
library

Under the given circumstances, the Kalaw contracts are valid corporate acts. They (the directors) hold such office charged with
the duty to act for the corporation according to their best judgment, and in so doing they cannot be controlled in the reasonable
exercise and performance of such duty. Whether the business of a corporation should be operated at a loss during a business
depression, or closed down at a smaller loss, is a purely business and economic problem to be determined by the directors of the
corporation, and not by the court. It is a well known rule of law that questions of policy of management are left solely to the
honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the
judgment of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its
orders are not reviewable by the courts."

Kalaw's good faith, and that of the other directors, clinch the case for defendants.

ACUNA V BATAC PRODUCERS

Emiliano Acuna entered into agreement with the manager of Batac PROCOMA Inc. wherein he will advance
a certain amount of money to Batac as an additional fund for its Virginia Tobacco buying operations and in return
Acuna will be the representative of the BAtac Procoma in Manila, with the salary ofP0.50 per kilo of tobacco.
The Agreement was entered into by the Batac Procoma manager with the knowledge and consent of the
other official of Batac Procoma. (these officers constitutes the board of batac).
When Batac Procoma got the money from Acuna, they started buying out tobaccos.
Then Acuna was surprise that the Agreement was not recognized by Batac Procoma, according to them,
the Agreement was not approved by the board. (this happened when Batac already got the money and used it, and
refuse to act on their part of the agreement)

ISSUE: Whether the AGREEMENT was impliedly approved and ratified by the board of directors of Batac?

HELD:

A perusal of the complaint reveals that it contains sufficient allegations indicating such approval or at least subsequent
ratification. On the first point we note the following averments: that on May 9th 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; that it was finally agreed between
plaintiff and all said Directors that his remuneration would be P0.30 per kilo (of tobacco); and that 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; that he rendered the services he was required to do; that he furnished said defendant 3,000 sacks at a
cost of P6,000.00 and advanced to it the 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.

Significantly the very resolution of the Board of Directors relied upon by defendants appears to militate against their contention. It
refers to plaintiff's failure to comply with certain promises he had made, as well as to his interpretation of the contract with
respect to his remuneration which, according to the Board, was contrary to the intention of the parties. The resolution then
proceeds to "disapprove and/or rescind" the said contract. The idea of conflicting interpretation, or rescission on the ground that
one of the parties has failed to fulfill his obligation under the contract, is certainly incompatible with defendants' theory here that
no contract had yet been perfected for lack of approval by the Board of Directors.

HARDEN V BENGUET CONSOLIDATED (ultra vires)

Benguet Mining (as a sociedad anonima) in an agreement with Balatoc Mining (a corporation) undertook
to build a milling plant and a power plant for the latter.
In consideration thereof, Balatoc in turn, delivered six hundred thousand shares of stock of the
company in favor of Benguet Mining.
When the project became successful and the value of the shares of Balatoc Mining appreciated, plaintiff
Harden, being an owner of thousands of shares in Balatoc mining sought to annul the transactions entered by the
two mining entities because the law prohibits mining companies like Benguet Mining to hold any interest in a
mining corporation like Balatoc Mining.
It is the contention of Benguet Mining that it is not prohibited from doing so because it is a sociedad
anonima and not a corporation.

ISSUE: whether the plaintiffs has a right of action against defendant corporation..

Assuming the first question to be answered in the affirmative, the Benguet Company, which was organized as a
sociedad anonima, is a corporation prohibited a mining corporation from becoming interested in another mining corporation.

HELD:

(1) The defendant Benguet Company has committed no civil wrong against the plaintiffs, and if a public
wrong has been committed, the directors of the Balatoc Company, and the plaintiff Harden himself, were the active
inducers of the commission of that wrong. The contract, supposing it to have been unlawful in fact, has been
performed on both sides, by the building of the Balatoc plant by the Benguet Company and the delivery to the
latter of the certificate of 600,000 shares of the Balatoc Company. There is no possibility of really undoing what
has been done. Nobody would suggest the demolition of the mill. The Balatoc Company is secure in the
possession of that improvement, and talk about putting the parties in status quo ante by restoring the
consideration with interest, while the Balatoc Company remains in possession of what it obtained by the use of
that money, does not quite meet the case. Also, to mulct the Benguet Company in many millions of dollars in favor
of individuals who have not the slightest equitable right to that money in a proposition to which no court can give a
ready assent.
(2) Having shown that the plaintiffs in this case have no right of action against the Benguet Company for the
infraction of law supposed to have been committed, we forego cny discussion of the further question whether a
sociedad anonima created under Spanish law, such as the Benguet Company, is a corporation within the meaning
of the prohibitory provision already so many times mentioned. That important question should, in our opinion, be
left until it is raised in an action brought by the Government.

You might also like