Corporation Law: The Revised Corporation Code of the Philippines - Sec 24

  THE REVISED CORPORATION CODE  OF THE PHILIPPINES  

Republic Act No. 11232 

TITLE III -  BOARD OF DIRECTORS/TRUSTEES AND OFFICERS


SEC. 24. Corporate Officers. – 

Immediately after their election, the directors of a corporation must formally organize an elect: (a) a president, who must be a director; (b) a treasurer, who must be a resident; (c) a secretary, who must be a citizen and resident of the Philippines; and (d) such other officers as may be provided in the bylaws. If the corporation is vested with public interest, the board shall also elect compliance officer. The same person may hold two (2) or more positions concurrently, except that no one shall act as president and secretary or as president and treasurer at the same time, unless otherwise allowed in this Code.

The officers shall manage the corporation and perform such duties as may be provided in the bylaws and/or as resolved by the board of directors.

NOTES 

  • Election
    • immediately after election of the directors
    • directors shall elect the corporate officers
  • Corporate Officers
    1. a president, who must be a director;
    2. a treasurer, who must be a resident;
    3. a secretary, who must be a citizen and resident of the Philippines; and
    4. such other officers as may be provided in the bylaws.
  • Conditions
    • same person may hold two (2) or more positions concurrently
    • no one shall act as president and secretary at the same time
    • no one shall act as president and treasurer at the same time
  • Duties
    • officers shall manage the corporation
    • perform such duties as may be provided in the bylaws and/or as resolved by the board of directors
1. Corporate Officers.
  • Corporate officers are officers who are designated or specified as such or given that character in the law, the Articles of Incorporation and the By-Laws of the corporation. 
  • Under Section 52 of the RCCP, corporate officers are elected by the majority of all the members of the Board of Directors or Trustees  (that is, majority of the number of directors/trustees as fixed in the  Articles of Incorporation) and not merely by the majority of those who are present during the meeting.
  • Section 24 of the RCCP specifies four (4) corporate officers, namely: 
    • President
    • Treasurer
    • Secretary, and 
    • Compliance Officer, in case of a corporation vested with public interest
  • In addition, Section 62 of the RCCP recognizes the existence of:
    • Vice-President
    • Assistant Secretary
  • The Articles of Incorporation and By-Laws may create other corporate offices.
    • For instance, the By-Laws of corporations typically provides for a Chairman of the Board. 
    • The By-Laws may also provide for a General Manager, Auditor, Comptroller or such other specified officers as may be necessary in a particular corporation. 
  • The term of office of officers is one year. 
    • This is implicit from Section 24 which provides that election shall ensue after the directors are elected in the annual stockholders' meeting. 
    • It is also clear that the officers shall be elected by the majority of all the directors or trustees and not by a mere majority of the directors or trustees present. 
1.01. Officers Specified in By-Laws.
  • The By-Laws may and usually do provide for other officers.
  • The Supreme Court clarified in Matling Industrial and Commercial Corporation v. Coros, that "conformably with Section 25 (now Section 24 of the RCCP), a position must be expressly mentioned in the by-laws in order to be considered a corporate office. Thus, the creation of an office pursuant to or under the by-law enabling provision is not enough to make a position a corporate office." 
    • The corporate office must be specifically indicated in the roster of corporate offices in the By-Laws of the corporation. It is not enough that the By-Laws merely empowers the Board of Directors to create additional offices.
    • The mere designation as a high-ranking employee, however, is not enough to consider one as a corporate officer.
  • 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. Thus, these two requisites must concur:
    1. the creation of the position is under the corporation's charter or By-Laws; and
    2. the election of the officer is by the directors or stockholders.
  • It is also possible for one to have a dual role of officer and employee. 
    • For example, the corporate secretary may concurrently act as a managerial employee. 
    • A corporation is not prohibited from hiring a corporate officer to perform services under circumstances that will make him an employee. 
  • In one case, the By-Laws of the corporation provided for a position of Vice President and the Board already appointed a person to such position. Later, another person was appointed as Vice President with the operational title of Managing Director. 
    • The Supreme Court ruled that the second appointment was an appointment to a non-existing corporate office because only one Vice President was recognized under the By-Laws of the corporation. 
    • The Court did not consider the second appointee as a corporate officer but a regular employee.
    • In the same manner, the Assistant Vice President is not a corporate officer if such office is not expressly provided for in the By-laws. 
  • If the By-Laws does not specify the corporate office, the Board may still create appointive positions since the Board is the corporation's governing body with the power to exercise its prerogatives in managing the business affairs of the corporation.
    • However, the officers who are appointed are not corporate officers within the meaning of Section 24 of the RCCP.
    • These officers are not empowered to exercise functions of the corporate officers except those functions lawfully delegated to them.
  • The determination of the necessity for additional offices and/or positions in a corporation is a management prerogative which courts are not wont to review in the absence of any proof that such prerogative was exercised in bad faith or with malice.
    • In other words, Business Judgment Rule covers the creation of additional offices or positions.
  • The intent to create an additional office must be clear.
    • In addition, the relationship of a person to a corporation, whether as officer or agent or employee is not determined by the nature of the services he performs but by the incidents of his relationship with the corporation as they actually exist.
1.02. Office and Employment Distinguished.
  • Office
    • is a creation of the charter of a corporation,
  • Officer 
    • is the person elected by the directors or stockholders. 
  • Employee
    • occupies no office and is generally employed not by action of the directors and stockholders but by the managing officer of the corporation, who also determines the compensation to be paid to such employee. 
  • If one is a corporate officer, jurisdiction over his election or appointment is vested with the Regional Trial Court pursuant to Section 5.2 of the Securities Regulation Code that transferred jurisdiction of the Securities and Exchange Commission to regular courts over cases enumerated in Section 5 of Presidential Decree No. 902-A.
    • Dismissal of a corporate officer is always a corporate act, or an intra-corporate controversy. In addition, the question of remuneration involving a stockholder and officer, not a mere employee, is not a simple labor problem but a matter that comes within the area of corporate affairs and management and is corporate controversy in contemplation of the RCCP.
  • If an officer is not a corporate officer, it is the labor arbiters that are vested with jurisdiction to hear illegal dismissal cases involving such officer.

2. Qualification and Functions. 
  • Minimum qualifications and duties of the corporate officers are provided for in the RCCP and the By-Laws. 
    • Section 46 of the RCCP states that the By-Laws may provide for the qualifications, duties and compensation of directors or trustees, officers and employees.202 
    • In addition, the Board may likewise expressly delegate other duties to officers through board resolutions. 
2.01. President. 
  • There can be only one president in a corporation. 
  • The Articles and By-Laws of the corporation cannot provide for more than one president because Section 24 of the RCCP provides for the election of "a president."
  • The RCCP prescribes the following qualifications for the position of president: 
    1. He/she must be a director (and consequently must be a stockholder);
    2. He/she cannot be concurrently the treasurer or secretary.
  • Unless there is a provision in the By-Laws to thecontrary, a president who has reached the retirement age of 60 can continue with his term as president. 
    • A president is not covered by the compulsory retirement age for employees.
  • Certain duties of the president are provided for in the RCCP and have been enumerated by the SEC as follows:
    1. To order the calling by the Secretary of a special meeting of the stockholders or members of a corporation for the purpose of removal of directors and trustees; (Sec. 27)
    2. To call for a special meeting of the Board of Directors or Trustees at any time or as provided in the By-Laws; (Sec. 52)
    3. To preside at all meetings of the directors or trustees as well as of the stockholder or members in the absence of the chairman, unless the By-Laws provide otherwise; (Sec. 53)
    4. To sign the certificates of stock representing shares issued by the corporation; (Sec. 62)
    5. To certify under oath the financial statements of the corporation if the total assets or total liabilities of the corporation are less than six hundred thousand pesos (P600,000.00), or such other amount as may be determined appropriate by the Department of Finance; (Sec. 74 & 129)
    6. To sign the Articles of Merger or Consolidation; (Sec. 77)
    7. For a One-Person Corporation, to prepare and sign explanations or comments on every qualification, reservation,  or adverse remark or disclaimer made by the auditor in the  latter's report; (Sec. 129)
    8. To sign the verification of a petition for dissolution of the corporation. (Sec. 135)
  • A corporate president is often given general supervision and control over corporate operations. 
  • Hence, the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation. 
    • In the absence of a charter or By-Laws provision to the contrary, the president is presumed to have the authority to act within the domain of the general objectives of the corporation's business and within the scope of his or her usual duties.
  • It has been held that the president of a corporation possesses the power to enter into a contract for the corporation, when the "conduct on the part of both the president and the corporation [shows] that he had been in the habit of acting in similar matters on behalf of the company and that the company had authorized him so to act and had recognized, approved and ratified his former and similar actions."
    • Furthermore, a party dealing with the president of a corporation is entitled to assume that he has the authority to enter, on behalf of the corporation, into contracts that are within the scope of the powers of said corporation and that do not violate any statute or rule on public policy.
2.02. Vice-President.
  • Sections 62 and 77 of the RCCP recognize that there may be a vice-president in a corporation. 
  • General Rule: In the absence of the president or if the office of the president becomes vacant, the vice-president, if one has been elected or appointed, has the authority to act in his stead, or to perform any duty of the office.
  • Likewise, the By-Laws ordinarily assign to the vice-president the duty of succession to the position of chief executive in the absence or disability of the president or the chairman of the board and such other duties as the board may assign.
2.03. Chairman.
  • The concept of board chairman and his functions as executive vary so widely in different companies.
  • The chairman may be concurrently the president and may be designated as the chief executive officer of the corporation. 
  • In other corporations, there may be a president who shall be the chief executive officer and a chairman whose function relate to presiding at meetings of the Board and of committees of which he is a member. 
  • In such latter case, the duty of the chairman as presiding officer is not an executive one.
  • The 2016 Code of Corporate Governance provides that the duties of the Chair in relation to the Board may include, among others, the following:
    1. Makes certain that the meeting agenda focuses on strategic matters, including the overall risk appetite of the corporation, considering the developments in the business and regulatory environments, key governance concerns, and contentious issues that will significantly affect operations; 
    2. Guarantees that the Board receives accurate, timely, relevant, insightful, concise, and clear information to enable it to make sound decisions; 
    3. Facilitates discussions on key issues by fostering an environment conducive for constructive debate and leveraging on the skills and expertise of individual directors; 
    4.  Ensures that the Board sufficiently challenges and inquires on reports submitted and representations made by Management; 
    5. Assures the availability of proper orientation for first-time directors and continuing training opportunities for all directors; and
    6. Makes sure that performance of the Board is evaluated at least once a year and discussed/followed up on. 
  • As an implementation of the SRC, the SEC requires the Chairman of the Board, Chief Executive Officer, and the Chief Finance Officer or persons holding equivalent positions under the By-Laws to sign the Statement of Management's Responsibility (SMR) as prescribed by SRC Rule 18.
2.04. Secretary.
  • The RCCP provides that the corporate secretary must be a resident and citizen of the Philippines. 
    • Other qualifications may be provided for in the By-Laws. 
    • However, it is clear from Section 24 that there shall be only one Corporate Secretary as the same provides for the election of "a secretary". 
  • It is not prohibited that the By-Laws provide for the position of assistant corporate secretary. 
    • The position of assistant corporate secretary is even expressly recognized under Sections 62 and 77 of the RCCP.
  • A foreigner cannot be a corporate secretary. 
    • It follows that a foreigner cannot likewise be appointed as an assistant corporate secretary. 
    • To allow a foreigner to be an assistant corporate secretary would be tantamount to a circumvention of the imperative under Section 24 of the RCCP that a corporate secretary must be a citizen of the Philippines.
  • The corporate secretary must not only be a citizen, but also a resident of the Philippines under Section 24 of the RCCP. 
    • "Residence" or "resident"
      • as used in corporate statute is equivalent to "domicile," 
      • the pertinent elements of which are physical presence in the State and an intention to remain therein. 
      • imports more than a temporary stay in the place for the performance of a single piece of job or work, especially where the workman at the same time has a home and permanent place of abode in another place
  • The corporate secretary need not be a lawyer. 
    • However, if the corporation is covered by the Revised Code of Corporate Governance and the corporate secretary also acts as the compliance officer, it is preferred that the corporate secretary is also a lawyer.
  • Primarily, the corporate secretary is duty-bound to keep the corporate records and to make proper entries thereto. Other specific functions of the corporate secretary under the law are as follows: 
    1. Maintains the stock and transfer book. The corporate secretary makes the entries and records transfer of shares in the stock and transfer book.
    2. Signs the certificates of stocks of a corporation. (Sec. 62)
    3. Responsible for sending notices of the meeting/s of the directors (trustees) and/or stockholders (members).
    4. Takes and prepares the written minutes of Board/ stockholders' meetings.
    5. Certifies minutes of meetings of stockholders/ members and directors/trustees. 
    6. Issues certificates commonly known as "Secretary's Certificate" regarding the passage, existence, and binding effect of a Board resolution. 
    7. Calls meetings of stockholders for the removal of directors/trustees upon order of the president or on written demand of the stockholders representing or holding at least a majority of the outstanding capital stock.  (Sec. 27)
    8. Certifies under oath the following:
      1. amendment/s to the Articles of Incorporation; (Sec. 15)
      2. increase or decrease of authorized capital or increase of bonded indebtedness; (Sec. 37)
      3. resolution of stockholders and members authorizing the delegation of the power to amend and/or adopt new By-Laws; (Sec. 47)
      4. the articles of merger or consolidation. (Sec. 77)
    9. Counter-signs:
      1. the By-Laws to be submitted to the SEC; (Sec. 45)
      2. the resolution approving the dissolution of the corporation.  (Sec. 134 & 135)
    10. Verifies the Petition for Voluntary Dissolution of the corporation where creditors are affected.  (Sec. 135)
    11. Submits the report (General Information Sheet) on the election of directors, trustees, and officers to the SEC, within thirty (30) days after such election, which report shall contain the names, nationalities, shareholdings, and residence addresses of the directors, trustees and officers so elected. (Sec. 25)
    12. Submits a report to the SEC on the non-holding of elections. (Sec. 25)
    13. Submit a report to the SEC should a director trustee or officer die, resign or in any manner cease to hold office, within seven (7) days from knowledge thereof. (Sec. 25)
    14. Receives the written objection of a director or officer of a corporation to the issuance of watered stocks; (Sec. 64) and 
    15. Receives the written objection of a director to an action within the corporate powers taken at a meeting held without proper call or notice in a close corporation.(Sec. 100)
  • With respect to the minutes of the meetings unless otherwise directed by the Board, the corporate secretary need not prepare a transcript of what transpired during the meeting. 
    • The minutes need not be a word-for-word record of what transpired.
    • It only contains a summary and the highlights of the matters taken up during the meeting. 
    • However, the actual resolutions that were passed should be stated in the minutes. 
  • Section 3 of SEC Memorandum Circular No. 8, Series of 2013 imposes on corporate secretaries the responsibility of monitoring and observing compliance with the provisions of Filipino and foreign ownership requirements provided for in the:
    • Constitution
    • Foreign Investment Act and its IRR
    • other applicable laws
    • rules and regulations 
    • with the provisions of the Circular
  • The corporate secretary cannot delegate the responsibility of complying with the provisions of the Circular without the express authority from the Board of Directors or Trustees, as the case may be. 
  • The 2016 Code of Corporate Governance provides that "the corporate Secretary is primarily responsible to the corporation and its shareholders, and not to the Chairman or President of the Company."
  • The 2016 Code of Corporate Governance likewise enumerates the functions of a corporate secretary in a covered corporation as follows:
    1. Assists the Board and the board committees in the conduct of their meetings, including preparing an annual schedule of Board and committee meetings and the annual board calendar, and assisting the chairs of the Board and its committees to set agendas for those meetings;
    2. Safe keeps and preserves the integrity of the minutes of the meetings of the Board and its committees, as well as other official records of the corporation;
    3. Keeps abreast on relevant laws, regulations, all governance issuances, relevant industry developments and operations of the corporation, and advises the Board and the Chairman on all relevant issues as they arise; 
    4. Works fairly and objectively with the Board, Management and stockholders and contributes to the flow of information between the Board and management, the Board and its committees, and the Board and its stakeholders, including shareholders; 
    5. Advises on the establishment of board committees and their terms of reference; 
    6. Informs members of the Board, in accordance with the by-laws, of the agenda of their meetings at least five working days in advance, and ensures that the members have before them accurate information that will enable them to arrive at intelligent decisions on matters that require their approval; 
    7. Attends all Board meetings, except when justifiable causes, such as illness, death in the immediate family and serious accidents, prevent him/ her from doing so; 
    8. Performs required administrative functions; 
    9. Oversees the drafting of the by-laws and ensures that they conform with regulatory requirements; and 
    10. Performs such other duties and responsibilities as may be provided by the SEC.
2.05. Treasurer. 
  • The treasurer normally takes care of the funds of the corporation. 
  • The treasurer is ordinarily the custodian of the funds of the corporation with authority to disburse them in proper cases. 
  • In the absence of provisions in the by-laws to the contrary, the treasurer is:
    • authorized to receive funds
    • issue receipts,
    • keep the money of the corporation.
  • There shall only be one treasurer in the corporation under Section 24 of the RCCP which provide for the election of "a treasurer.
  • Residency:
    • The Corporation Code did not require the treasurer to be a resident or a citizen of the Philippines. The RCCP changed this and now expressly requires (under Section 24) the treasurer to be a resident of the Philippines.
    • Notably, even without an express requirement under the Corporation Code, the SEC, as a matter of policy, already imposed the residence requirement for treasurers. 
    • The policy was adopted in view of the nature of the functions of a treasurer.
  • The functions of the treasurer that are expressly provided for in the RCCP are as follows:
    1. Signs the Articles of Incorporation and certifies the information set forth in the seventh clause (on the corporation's authorized capital stock) and the eighth clause (on the number of shares of the authorized capital stock that has been subscribed and paid) thereof and that the paid-up portion of the subscription in cash and/or property for the benefit and credit of the corporation has been duly received; (Sec. 14) 
    2. In case of increase of authorized capital stock, executes a sworn statement showing that at least twenty-five percent (25%) of the increase in capital stock has been subscribed and that at least twenty-five percent (25%) of the amount subscribed has been paid in actual cash to the corporation or that property, the valuation of which is equal to twenty-five percent (25%) of the subscription, has been transferred to the corporation; (Sec. 37) and
    3. Certifies under oath the financial statements, if the total assets or total liabilities of the corporation are less than Six hundred thousand pesos (P600,000.00), or such other amount as may be determined appropriate by the Department of Finance; (Secs. 74, 129 & 177) 
  • However, Section 24 of the RCCP provides that:
    • no one shall act as president and secretary at the same time
    • no one shall act as president and treasurer at the same time
  • The law therefore considers the positions of secretary and treasurer as inconsistent with the position of a president. 
  • Verily, no incompatible positions may be held even if the RCCP allows concurrent positions. 
    • For example, the internal auditor may not be the external auditor of the company.
    • Similarly, a person cannot be a chairman and vice-chairman at the same time
4. Corporate Officer Concurrently an Employee. 
  • A corporation is not prohibited from hiring corporate officer to perform services under circumstances that will make him an employee.
    • Indeed, it is possible for one to have a dual role of officer and employee. ✅
  • If the corporate officer is also an employee, the NLRC has jurisdiction over a complaint filed by the same corporate officer who served both as corporate secretary and administrator, if the money claims were made as an employee and not as a corporate officer.
5. Anti-Dummy Law. 
  • Foreigners cannot be officers in wholly nationalized and partly nationalized corporations. 
  • They cannot also be directors in wholly nationalized activities. 
  • However, while no foreigner could be elected or appointed as officer in a corporation engaged in partly nationalized activities, a foreigner can be elected as a director in a partly nationalized activity in proportion to the equity participation allowed to foreigners. 
  • The difference lies in the fact that a director cannot act on his own while an officer acts individually for the corporation.
  • Read Commonwealth Act No. 108 known as the Anti-Dummy Law here.
  • Section 2-A of the Anti-Dummy Law provides that foreigners cannot "intervene in the management, operation, administration or control (of the corporation), whether as an officer, employee or laborer therein, with or without remuneration except technical personnel whose employment may be specifically authorized by the President of the Philippines."
    • This applies only to corporations with businesses that are reserved by the Constitution or law to Filipino citizens or where Filipinos own 60% of the capital. 
    • There is no prohibition for a foreign national to assume managerial position in a corporation which is not engaged in a wholly or partly nationalized industry.
  • For example, in wholly nationalized activities like retail trade, foreigners cannot even be appointed to a non-management position. 
    • The prohibition under the Anti-Dummy Law covers the entire range of employment regardless of whether they involve control or non-control activities. When the law says that you cannot employ an alien in any position pertaining to management, operation, administration and control, "whether as an officer, employee, or laborer therein," it only means one thing: the employment of a person who is not a Filipino citizen even in a minor or clerical or non-control position is prohibited. 
    • The reason is obvious: to plug any loophole or close any avenue that an unscrupulous alien may resort to in order to flout the law or defeat its purpose, for no one can deny that while one may be employed in a non-control position who apparently is harmless he may later turn out to be a mere tool to further the evil designs of the employer. 
    • It is imperative that the law be interpreted in a manner that would stave off any attempt at circumvention of the legislative purpose. 
  • A foreigner cannot be appointed as president in a corporation that is engaged in partly nationalized activity allowing only 40% foreign equity. 
    • However, a foreign national may assume the post of Chairman of the Board even in partly nationalized activities, if the power of the Chairman is limited to that of a presiding officer during Board meetings.
6. Authority of Officers. 
  • In some cases, corporate officers like the President can also bind the corporation. 
  • The authority of such individuals to bind the corporation is generally derived from the: 
    1. law;
    2. Articles of Incorporation;
    3. corporate By-Laws;
    4. authorization from the Board, either expressly or impliedly by habit, custom or acquiescence in the general course of business; or 
    5. those inherent in the office. 
  • In the absence of a specific provision of law, the corporate officers and other agents of the corporation can act for the corporation only if authorized by the Board or the By-Laws.
  • The reality in many corporations is that their respective Boards do not often meet. 
    • In actual practice, the management of these corporations is left to senior officers, particularly the President. 
    • In many cases, the primary responsibility for the business of the corporation is actually conducted by the senior officers and the Board only regulates and monitors the activities of the officers. 
    • In some cases, the directors, when they act collectively as a Board, merely lay down policies for the operating offices to implement.
  • The general principles of agency govern the relation between the corporation and its officers or agents subject to the provisions of the Articles of Incorporation, By-Laws or relevant provisions of law.
    • When authorized, their acts can bind the corporation. 
    • Conversely, when unauthorized, their acts cannot bind it.
    • When an agent is authorized, the personality of the corporation is extended through the facility of the agent. 
    • A corporation is governed by the rule that an agency may be express or implied from the act of the principal, from his silence of lack of action or his failure to repudiate the agency knowing that another person is acting on his behalf without authority. 
    • Agency may be oral unless the law requires a specific form.
    • For example, a special power of attorney is necessary to convey or create real rights over immovable property. 
      • Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. 
      • In other words, a resolution of the Board is necessary for such purpose.
  • A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that the authority to do so has been conferred upon him, and these include:
    1. Powers that, in the usual course of the particular business, are incidental to those expressly provided; 
    2. Powers that may be implied from the powers intentionally conferred; 
    3. Powers added by custom and usage, as usually pertaining to the particular officer or agent; and 
    4. Apparent powers as the corporation has caused a person dealing with the officer or agent to believe that it has conferred.
  • If the authority of officers is provided for in a Board resolution, the corporate officers shall be deemed fully clothed by the corporation to exercise a power of the Board, if the Board specifically authorizes them to do so.
    • A contract cannot be deemed perfected if the corporation's Board did not accept or did not authorize an officer to accept the counter-offer.
    • Powers may be incidental to the business of the corporation. 
      • For example, corporate officers can freely enter and perform acts of maintenance of a real property of the corporation.
      • The right includes breaking open the door and replacing its locks, apparently due to loss of the keys.
  • If the By-Laws provides for specific powers of an officer like the president, the officer need not secure a separate resolution from the Board to exercise the specific power. 
    • Thus, if the By-Laws expressly confers upon the president of the corporation the power to borrow money, execute contracts, and sign and indorse checks and promissory notes in the name of the corporation, it is no longer necessary for the Board to pass another resolution for the same purpose.
  • The officers may act in accordance with company policies. 
    • Corporate policies may be written policies approved by the Board. 
    • However, corporate policies need not be in writing and may be established by sufficient evidence. 
  • With respect to service of summons, Section 11 of Rule 14 of the 1997 Rules of Civil Procedure, as amended provides that when the defendant in a case is a corporation organized under the laws of the Philippines, service may be made on the president, general manager, corporate secretary, treasurer, or in-house counsel or in their absence or unavailability, their secretaries. 
      • president
      • general manager
      • corporate secretary
      • treasurer
      • in-house counsel or their secretaries
    • Service on officers not specified under Section 11 is invalid and does not bind the corporation. 
  • There are also cases when a written authority is necessary to authorize an officer. 
    • For example, the power to borrow money is one of those cases where corporate officers as agents of the corporation need a special power of attorney.
7. Implied Authority.
  • A corporate officer, who is entrusted with the general management and control of its business, has implied authority to make any contract or do any other act that 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 that 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. 
  • It is also well-settled that 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
8. Practice, Custom and Policy. 
  • Where the Board of Directors approves similar acts as a matter of general practice, custom, and policy, the officer may bind the company without formal authorization of the Board. 
  • The existence of such authority is established, by proof of the course of business the usage and practices of the company and by the knowledge that the Board of Directors has, or must be presumed to have, of acts and doings of its subordinates m and about the affairs of the corporation
  • 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. 
    • For example, the practice of the corporation to allow its general manager to negotiate and execute contracts in its copra trading activities for and in the corporation's behalf without prior Board approval makes the contracts entered into by a corporate officer as valid corporate acts.
9. Ratification. 
  • The acts of corporate officers within the scope of their authority are binding on the corporation, but when these officers exceed their authority, their actions cannot bind the corporation, unless the Board ratifies such acts or is estopped from disclaiming them. 
    • Thus, the contract entered into by an officer like the President is binding on the corporation if the Board ratified the same.
  • The corporation may ratify the unauthorized act of its corporate officer.
  • Ratification means that the principal voluntarily adopts, confirms and gives sanction to some unauthorized act of its agent on its behalf. 
    • It is this voluntary choice, knowingly made, which amounts to a ratification of what was theretofore unauthorized and becomes the authorized act of the party so making the ratification. 
    •  The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. 
    • Ratification can be made either expressly or impliedly. 
      • Implied ratification may take various forms like:
        • silence or acquiescence
        • acts showing approval or adoption of the act
        • acceptance and retention of benefits flowing therefrom
      • However, silence, acquiescence, retention of benefits, and acts that may be interpreted as approval of the act do not by themselves constitute implied ratification. 
      • For an act to constitute an implied ratification, there must be no acceptable explanation for the act other than that there is an intention to adopt the act as his or her own.
  • Ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified, and is equivalent to original authority and the corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time. 
    • The adoption or ratification of a contract by a corporation is nothing more or less than the making of an original contract. Thus, an express ratification of a contract by the Board of Directors cleanses the contract from all its defects from the moment it was constituted; the contracts are thus purged of whatever vice or defect they may have.
  • Any party who alleges that the corporation ratified the action of the officer must prove such ratification.
    • For example, ratification of a loan agreement cannot be inferred from the fact that the officer who signed the promissory note was the company president; that the president signed the postdated checks which were used to pay for the note; that the checks were dishonored upon presentment; and that the president failed to raise the defense of lack of authority when a Batas Pambansa Blg. 22 case was filed against him.
10. Agency by Estoppel.
  • Article 1873 of the New Civil Code is the statutory recognition of agency by estoppel. 
    • The rule on agency by estoppel applies to corporations. 
    • In proper cases, the corporation may be estopped from claiming that corporate officers are not agents with respect to specific transactions.
10.01. Apparent Authority. 
  • In addition, based on decisions of the Supreme Court, an officer may also bind the corporation if he has apparent authority. 
  • "The doctrine of apparent authority is a species of the doctrine of estoppel."
    • An officer may be clothed with apparent authority for specific acts.  
    • Apparent authority may also be derived from practice.
    • It is a familiar doctrine that if a corporation knowingly permits its officers or any other agent, to do acts within the scope of an apparent authority, and holds the officer or agent out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority.
  • The doctrine of apparent authority that is being applied in agency law is similarly applicable to corporations.
  • Apparent authority is derived not only from practice - its existence may be ascertained through:
    1. the general manner in which the corporation holds out an officer or agent as having the power to act, with which it clothes him, or
    2. the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, with or beyond the scope of his ordinary powers.
  • It is not the quantity of similar acts that establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation — the third person has little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestations of corporate consent. 
    • The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law.
  • Anybody who alleges that the corporate officer has apparent authority is required to present evidence of similar act or acts executed either in his favor or in favor of other parties. 
    • It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with power to bind the corporation. 
    • There must be proof of reliance upon the representations, and that, in turn, needs proof that the representation predated the action taken in reliance thereof.
    • The action in behalf of the corporation must likewise be established. 
      • For instance, in a contract of sale, the doctrine of apparent authority cannot be invoked if there is no showing that the officer of the corporation approved the proposed sale.
  • The principal's liability, however, is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was given.
    • In other words, apparent authority is determined only by the acts of the principal and not by the acts of the agent. 
    • There can be no apparent authority of an agent without acts or conduct on the part of the principal; such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as claimant, and such acts or conduct must have produced a change of position to the third party's detriment.
  • The Doctrine of Apparent Authority was applied in a situation where the sole management was left to the President and the Treasurer who are both incorporators of the corporation. 
    • The other stockholders, directors and officers never dealt with the business of the corporation for 14 years and the stockholders and the Board of Directors never had its meeting. 
    • Thus, the corporation bestowed upon the president and treasurer broad powers by allowing them to transact with third persons without the necessary written authority from its non-performing Board of Directors.
11. De Facto Officers. 
  • A person is a de facto officer if he acts as such, under color of authority, through election or appointment. 
  • By color of authority is meant authority derived from an election or appointment, although irregular or informal, so that the incumbent must be more than a volunteer.
  • The operation of the principle of de facto officership is "limited to third persons who were originally not part of the corporation but became such by reason of voting" certain shares.
    • The de facto doctrine was introduced as a matter of public policy and necessity to protect the interests of the public and individuals where those interests were involved in the acts of the officers without being lawful officers. 
    • The official dealings of officers r directors de facto with third persons are sustained as rightful and valid, on the ground of continuous acquiescence by the corporation and suffering them to hold themselves out as having such authority, thereby inducing others to deal with them in such capacity.
12. Compensation.
  • The By-Laws may provide that the Board shall fix the compensation of the corporate officers.
  • Even without any provision in the By-Laws, the power to fix the remuneration of corporate officers still rests with the Board. 
  • The fixing of the compensation is part of the regular business of the corporation that the Board conducts.
PROBLEMS: 
IAI, Inc. (IAI) by a Stock Purchase Agreement, sold to AI, Inc. (Al) for the sum of P19.5 Million all its outstanding shares of stocks in "F" Corp. The agreement was signed by LG and JV, presidents of IAI and AI respectively. IAI expressly warranted in the agreement that the net worth of "F" Corp. is P12 Million. IAI agreed that if the net worth is less than P12 Million, IAI will pay AI the deficiency. AI paid IAI P12 Million and retained the amount of P7.5 million to answer for any deficiency m the net worth. Instead of reflecting a net worth, it turned out that "F' had a deficiency of Pl.2 Million. Hence, IAI is obligated to reimburse AI the amount of P13.2 Million (P12 Million plus the deficiency of Pl.2 Million). However, considering that AI retained P7.5 Million, the balance to be reimbursed is only P5.2 Million. Later, LG, the president of IAI proposed in writing that Al's claim for refund be reduced to P4.09 Million but he promised to pay the costs of certain superstructures in behalf of AI. AI accepted the proposal. Later, IAI's Board refused to implement the accepted proposal on the ground that while the said Board authorized LG to sell the shares, 1t did not authorize LG to make the last proposal. Is the position of IAI's Board tenable?

The position of the Board of IAI is not tenable. An officer of a corporation who is authorized to sell the stock of another corporation has the implied power to perform all other obligations arising therefrom, such as securing payment of the shares of stock. By allowing its president to sign the Stock Purchase Agreement on its behalf, IAI clothed him with apparent capacity  to perform all acts that are expressly provided for or impliedly and inherently included in such power to sell. (Inter-Asia Investment Industries, Inc. v. Court of Appeals, G.R. No. 125778, June 10, 2003)

Can the President of a Corporation or the Chairman of its Board of Directors bind the corporation? Explain.

Yes, if he is acting within his express, implied or apparent authority. The president of the corporation and the chairman of the Board of Directors are both officers of the corporation. So long as either of these two officers act within the scope of their express or apparent authority, their acts would be binding on the corporation. The rule on agency would cover the binding force of their acts. (1969 Bar) 

Evans, the President of 3D Corporation, wrote a letter to Ed, offering to sell the latter 5 ,000 bags of fertilizer at Pl 00.00 per bag. Ed sign ed his conformity to the letter-offer, and paid a downpayment of P50 ,000 .00. A few days later, the Corporate Secretary of 3D informed Ed of the decision of their Board of Directors not to ratify the letter-offer. However, since Ed had already paid the downpayment, 3D Corporation delivered 500 bags of fertilizer, which Ed accepted. 3D made it clear that the delivery should be consider ed an entirely n ew transaction. Thereafter, Ed sought enforcement of the letter-offer. Is there a binding contract for the 5,000 bags of fertilizer? Explain. 

A: No, there is no binding contract for the 5,000 bags of fertilizer. First, the facts do not indicate that Evans, the President of 3D Corporation, was authorized by the Board of Directors to enter into the said contract or that he was empowered to do so under so me provision of the By-Laws of 3D Corporation. Secondly, the facts do not also indicate that Evans has been cloth ed with the apparent power to execute the contract or agreements similar to it. Lastly, 3D Corporation has specifically informed Ed that it has not ratified the contract for the sale of 5,000 bags of fertilizer and that the delivery to Ed of 500 bags, which Ed accepted, is an entirely new transaction. (1996 Bar) 

Acme Trading Company, Inc. (Acme), a trading company wholly owned by foreign stockholders, was persuaded by Paulo Alva, a Filipino, to invest in 20% of the outstanding shares of stock of a corporation he is forming which will engage in the department store business (the "department store corporation"). Paulo also urged Acme to invest in 40% of the outstanding shares of stock of the realty corporation he is putting up to own the land on which the department store will be built (the "realty corporation"). 

May Acme invest in the said department store corporation? Explain your answer. 
The right of Acme to invest in the "department store corporation" would depend on the paid-up capital of said corporation as provided for in Republic Act No. 8762 or the Retail Trade Liberalization Act. If the paid up capital of the "department store corporation" is less than US$2,500,000.00 Acme may not invest in the same. If the paid up capital is US$2,500,000.00 or more, Acme may invest in such activity. 

May Acme invest in the realty corporation? Discuss with reasons. 
Yes. The Constitution limits land ownership to Filipino citizens and to companies at least 60% of whose capital is locally owned. Therefore Acme may invest in the "realty corporation" provided that at least 60% of the capital stock of the latter corporation belongs to Filipinos.

May the President of Acme, a foreigner, sit in the Board of Directors of the said department store corporation? May he be a director of the realty corporation? Discuss with reasons. 
No. The Anti Dummy Law allows the election of aliens as members of the Board of Directors or governing body of corporations or associations engaged in partially nationalized activities, in proportion to their allowable participation or share in the capital of such entities. As such, with respect to the "department store" corporation, the President of Acme may or may not sit in the Board of Directors depending on whether as per the paid-up capital of said corporation, Acme is allowed by law to invest in the same. With respect to the "realty corporation," the President of Acme may sit in the Board of Directors. 

May the Treasurer of Acme, another foreigner, occupy the same position in the said department store corporation? May he be treasurer of the said realty corporation? Explain your answers.
The treasurer of Acme may not hold the same position (or any other officer position) either in the "department store corporation" or in the "realty corporation" since the Anti-Dummy Law prohibits the employment of aliens in such nationalized areas of business except those that call for highly technical qualifications. However, in the case of the "department store corporation", if it can be wholly owned by foreigners because it is no longer a nationalized entity as it has paid up capital of more than $2,500 ,000, then the treasurer of Acme can also be the treasurer thereof. (1990 Bar)

The purpose of the proposed X Corporation is the extraction and treatment of water. The capital of X Corporation is divided as follows: 70% of the outstanding capital shall be owned by A Corporation, a 60% Filipino and 40% foreign-owned corporation. The remaining 30% shall belong to a foreign company. Can X Corporation engage in the proposed purpose or business? 

Yes. The extraction and treatment of water can be considered exploration, development, and utilization of natural resources. Hence, the required Filipino capital is 60% under Article XII, Section 2 of the Constitution. In the given problem, 70% of the outstanding capital of X Corporation; shall be owned by A Corporation that is considered as a Philippine National because 60% of its outstanding capital stock belongs to Filipinos. However, it is necessary that 60% of the members of the Board of the proposed corporation are also Filipinos. (SEC Opinion dated July 16, 2001) 





Comments

Post a Comment

Popular posts from this blog

Equality and Human Rights: The United Nations and Human Rights System (September 16, 2023)

Sovereign Equality of States/Principle of sovereign equality UN Charter of 1945 All states are equal before international law no matter the size of their territory, population, economy or military. All states have equal rights and duties under international law, and that no state has the right to interfere in the internal affairs of another state. Positive Consequences: All states have a voice in international affairs .   All states have the opportunity to participate in international organizations and to negotiate and conclude treaties. This helps to ensure that the interests of all states are represented in the development of international law and policy. No state has the right to interfere in the internal affairs of another state.  This helps to protect the sovereignty of all states and to prevent the use of force or coercion to achieve political objectives. States have the right to develop their own political, economic, and social systems without interference from othe...
Read more

Commercial Laws 1: R.A. No. 11057 — Personal Property Security Act

  Commercial Law TITLE XVI Personal Property Security Act Micro, Small and Medium Enterprises are sources of growth and innovation. They contribute to and benefit from future growth. Their increased participation in global trade "can have significant impact in reducing poverty through employment creation, productivity improvements and economies of scale." Congress passed the Personal Property Security Act in order to provide Micro, Small and Medium Enterprises (MSMEs) more access to "credit at the least cost through the establishment of a unified and modern legal framework for securing obligations with personal property ." It was explained:  According to the 2015 Philippine Statistics Authority data, there are 896,839 micro-small and medium enterprises (MSMEs) that established in the Philippines.  These MSMEs generated a total of 4,784,870 jobs in 2015 versus 2,181,819 for the large enterprises.  This indicates that the MSMEs contributed almost 61 % o...
Read more

Land Title and Deeds: Chapter 1 — What Lands are Capable of Being Registered

Chapter I What Lands are Capable of Being Registered All lands in the Philippines are presumed to be lands of the public domain, and therefore, owned by the State. This rule finds support in Section 2, Article XII of the 1987 Constitution:  Section 2 . All lands of the public domain , waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State . With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by such citizens. Such agreements may be fo...
Read more