Filipinas Port Services, Inc. v.
Go (Vi) organization is for the stockholders to choose the directors who shall control
March 16, 2007| Garcia, J. | Doctrine of Centralized Management
PETITIONER: FILIPINAS PORT SERVICES, INC., represented by
stockholders, ELIODORO C. CRUZ and MINDANAO TERMINAL AND
BROKERAGE SERVICES, INC.
RESPONDENTS: VICTORIANO S. GO, ARSENIO LOPEZ CHUA,
EDGAR C. TRINIDAD, HERMENEGILDO M. TRINIDAD, JESUS
CHUA, JESUS SYBICO, MARY JEAN D. CO, HENRY CHUA,
JOSELITO S. JAYME, ERNESTO S. JAYME, and ELIEZER B. DE
JESUS
SUMMARY: Filport is a domestic corporation engaged in stevedoring
services. Cruz, former president of Filport, filed a suit saying that the Board
of Directors acted beyond its power when it created offices and increased
the salaries of certain officers. Cruz is asking for a refund of the salaries.
Issue: Whether the BOD had the authority to create offices and increase
salaries – YES. The governing body of a corporation is its board of
directors. Section 23 of the Corporation Code provides that unless
otherwise provided, the corporate powers of all corporations formed
under the Code shall be exercised, all business conducted and all
property of the corporation shall be controlled and held by a board of
directors. It has the sole authority to determine policies, enter into
contracts, and conduct the ordinary business of the corporation within
the scope of its charter. The bylaws of Filport state that the BOD shall
elect the officers which include “such other officers as the Board of
Directors may from time to time provide”. It also says that the BOD shall
fix the compensation of the officers and agents those in such other position.
The BOD has the power to create positions not provided for in Filport's
bylaws since the board is the corporation's governing body, clearly
upholding the power of its board to exercise its prerogatives in managing
the business affairs of the corporation.
DOCTRINE: The raison d’etre behind conferment of corporate powers on
the Board is not lost on the Court – indeed, the concentration in the Board
of the powers of control of corporate business and appointment of corporate
officers and managers is necessary for efficiency in any large organization.
Stockholders are too numerous, scattered and unfamiliar with the corporate
business to conduct its affairs directly – so the plan of corporate
and supervise the conduct of corporate business (from the outline).
FACTS:
1. The case is actually an intra-corporate dispute involving Filipinas
Port Services (Filport), a domestic corporation engaged in
stevedoring services with principal office in Davao City. On
September 4, 1992, Eliodoro C. Cruz, Filport's president from 1968
until he lost his bid for during the general stockholders' meeting in
1991, wrote a letter to the corporation's Board of Directors
questioning the board's creation of the following positions with a
monthly remuneration of P13,050.00 each, and the election of
certain members of the board:
Asst. Vice-Pres. for Corporate Planning - Edgar C. Trinidad(Director)
Asst. VP for Operations - Eliezer B. de Jesus (Director)
Asst. VP for Finance - Mary Jean D. Co (Director)
Asst. VP for Administration - Henry Chua (Director)
Special Asst. to the Chairman - Arsenio Lopez Chua (Director) Special
Asst. to the President - Fortunato V. de Castro
2. Cruz requested the Board to recover the salaries received by those
elected. The Board met about Cruz’s letter. The records do not show
the decision but whatever it was, Cruz did not like it. Cruz, in
representation of Filport and its stockholders, among which is
Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed
with the SEC a derivative suit against the respondents who were
then the incumbent members of Filport's Board of Directors, for
alleged acts of mismanagement detrimental to the interest of the
corporation and its shareholders for: creating the executive
committee of 7 members with P500 compensation per member
which is not provided in the by-laws; increasing emoluments of the
Chairman, VP, Treasurer, Asst. Gen. Manager; recreating the
positions of the Asst. VPs; and creating additional positions of
special assistants.
3. Cruz prayed that the respondent members of the board of directors
be made to pay Filport, jointly and severally, the sums of money
variedly representing the damages incurred as a result of the creation
of the offices/positions complained of and the aggregate amount of
the questioned increased salaries.
 4. The respondents said that this was allowed by the by-laws, within
the financial capacity of the company and that the positions of Asst.
VPs were just recreated (they already existed). They also claimed
that Minterbro had no standing to file the suit.
5. The case was with SEC for a long time but was not decided and with
the enactment of RA 8799, this was transferred to RTC of Davao
City. The RTC ruled that the Board of Directors can create positions
and increase salaries of Chairman, VP, Treasurer, and Asst. Gen.
Manager but the Asst. VP for Corporate Planning (Edgar Trinidad)
and Special Asst. VPs should refund the salaries (because it is a
small company and the positions were just an accommodation). It
was appealed by Go, et. al. to the CA. The CA reversed the trial
court (except the part where RTC said the special asst. positions
were merely for accommodation purposes). The respondents filed a
motion for nunc pro tunc order (a motion filed to correct an error –
they said the decision saying “It is bereft of merit” should be “It is
impressed with merit” – wait, so typo?). This was granted by the CA
so Cruz, et. al. filed this petition for review on certiorari.
ISSUES:
1. Whether the creation of the executive committee was within the
powers of the BOD – YES
RATIO:
1. The governing body of a corporation is its board of directors.
Section 23 of the Corporation Code provides that unless otherwise
provided, the corporate powers of all corporations formed under
the Code shall be exercised, all business conducted and all
property of the corporation shall be controlled and held by a
board of directors. Thus, with the exception only of some powers
expressly granted by law to stockholders (or members, in case of
non-stock corporations), the board of directors (or trustees, in case
of non-stock corporations) has the sole authority to determine
policies, enter into contracts, and conduct the ordinary business
of the corporation within the scope of its charter. The authority
of the board of directors is restricted to the management of the
regular business affairs of the corporation, unless more extensive
power is expressly conferred.
2. IMPT: The raison d’etre behind conferment of corporate powers
on the Board is not lost on the Court – indeed, the concentration in
the Board of the powers of control of corporate business and
appointment of corporate officers and managers is necessary for
efficiency in any large organization. Stockholders are too numerous,
scattered and unfamiliar with the corporate business to conduct its
affairs directly – so the plan of corporate organization is for the
stockholders to choose the directors who shall control and supervise
the conduct of corporate business. (This is what is also in the outline)
3. The board's creation of the positions of Asst. VPs for Corporate
Planning, Operations, Finance and Administration, and those of the
Special Assistants to the President and the Board Chairman, was in
accordance with the regular business operations of Filport as it
is authorized to do so by the corporation's by-laws, pursuant to
the Corporation Code.
4. The election of officers of a corporation is provided under Sec. 25
of the Code:
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.
5. The amended by-laws of the corporation state that the officers shall
be elected by the board of directors at the first meeting after the
election of Directors. It also provides a list of the officers which
includes “such other officers as the Board of Directors may from
time to time provide”. It also says that the BOD shall fix the
compensation of the officers and agents of the corporation.
6. The Board of Directors has the power to create positions not
provided for in Filport's bylaws since the board is the corporation's
governing body, clearly upholding the power of its board to exercise
its prerogatives in managing the business affairs of the corporation.
7. It was during Cruz’s incumbency as Filport president that the
executive committee in question was created, and that he was even
the one who moved for the creation of the positions of the AVPs for
Operations, Finance and Administration (ironically, now he is
assailing its existence). By his acquiescence and/or ratification of
the creation of the aforesaid offices, Cruz is virtually precluded from
suing to declare such acts of the board as invalid or illegal. (The
 Court said that he may be doing this out of spite for not being
reelected as President)
8. Cruz’s claim of mismanagement has no basis and even if it did, they
still cannot be held liable due to the absence of bad faith. If the cause
of the losses is merely error in business judgment, not amounting to
bad faith or negligence, directors and/or officers are not liable. For
them to be held accountable, the mismanagement and the resulting
losses on account thereof are not the only matters to be proven; it is
likewise necessary to show that the directors and/or officers acted in
bad faith and with malice in doing the assailed acts.
9. Regarding some positions being mere accommodations, no evidence
was presented so this cannot be upheld. It would be an improper
judicial intrusion into the internal affairs of Filport if the Court
determines the propriety or impropriety of the creation of offices and
the grant of salary increases.
10. WHEREFORE, the petition is DENIED and the challenged decision
of the CA is AFFIRMED in all respects.