G.R. No.

143088

January 24, 2006

PHILIPPINE AIRLINES, INC., MANOLO AQUINO, JORGE MA. CUI, JR. and PATRICIA CHIONG, Petitioners,
vs. FLIGHT ATTENDANTS AND STEWARDS ASSOCIATION OF THE PHILIPPINES (FASAP) and LEONARDO
BHAGWANI, Respondents.
This petition for review on certiorari under Rule 45 of the Rules of Court presents a recurring question regarding the
Courts requirement of a certification of non-forum shopping.
Petitioners Philippine Airlines, Inc. (PAL) and Manolo Aquino, Jorge Ma. Cui, Jr. and Patricia Chiong, in their capacity
as Executive Vice-President Administration and Services, Manager International Cabin Crew and Assistant VicePresident Cabin Services, respectively, are before the Court seeking the reversal of the resolution of the Court of
Appeals in C.A. G.R. No. SP-56850, dated January 31, 2000, dismissing their appeal and the resolution of May 11,
2000, denying the motion for reconsideration.
The facts on the conflict between PAL and respondents Flight Attendants and Stewards Association of the
Philippines (FASAP) and Leonardo Bhagwani are not necessary for the Courts resolution of the petition. It is enough
to state that on May 14, 1997 FASAP and Leonardo Bhagwani filed a complaint for unfair labor practice, illegal
suspension and illegal dismissal against petitioners before the Labor Arbiter of the National Labor Relations
Commission (NLRC). The Labor Arbiter rendered a decision holding that PAL committed unfair labor practice and
illegal dismissal of Bhagwani and, consequently, ordered the payment of damages. The NLRC later modified the
decision by setting aside the finding that PAL was guilty of unfair labor practice, but affirming the rest of the
decision.
What is relevant to the case is the subsequent appeal to the Court of Appeals. When petitioners filed a petition for
certiorari against the decision with the Court of Appeals, it was accompanied by a Certification of Non-Forum
Shopping executed by Cesar R. Lamberte and Susan Del Carmen, Vice-President Human Resources and Assistant
Vice-President Cabin Services of PAL, respectively, who are not parties to the case. The certification, however, was
without proof that the two affiants had authority to sign in behalf of petitioners. As a result, the Court of Appeals
dismissed the case for failure to show the authority of affiants to sign for PAL and for failure of the other petitioners
to join in the execution of the certification. A motion for reconsideration was filed with a Secretarys Certificate
attached evidencing that affiants Cesar R. Lamberte and Susan Del Carmen have been authorized by Board
Resolution No. 00-02-03 to initiate and/or cause to be filed on behalf of PAL petitions and pleadings in all laborrelated cases. As to the other petitioners, it was argued that they are mere nominal parties so that their failure to
execute the certification does not justify dismissal of the petition. Despite this submission, the Court of Appeals
denied the motion for reconsideration. Hence, the case is now before this Court.
The petition is without merit.
The necessity for a certification of non-forum shopping in filing petitions for certiorari is found in Rule 65, Section 1,
in relation to Rule 46, Section 3 of the Rules of Court. These provisions require it to be executed by the
corresponding petitioner or petitioners. As no distinction is made as to which party must execute the certificate, this
requirement is made to apply to both natural and juridical entities.1 When the petitioner is a corporation, the
certification should be executed by a natural person. Furthermore, not just any person can be called upon to
execute the certification, although such a person may have personal knowledge of the facts to be attested to.2
This Court has explained that a corporation has no power except those conferred on it by the Corporation Code and
those that are implied or incidental to its existence. The exercise of these powers is done through the board of
directors and/or duly authorized officers and agents. Given these corporate features, the power of a corporation to
sue in any court is generally lodged with the board of directors. The board, in turn, can delegate the physical acts
needed to sue, which may be performed only by natural persons, to its attorneys-in-fact by a board resolution, if not
already authorized under the corporate by-laws.3
Thus, only individuals vested with authority by a valid board resolution may sign the certificate of non-forum
shopping in behalf of a corporation. In addition, the Court has required that proof of said authority must be
attached. Failure to provide a certificate of non-forum shopping is sufficient ground to dismiss the petition. Likewise,
the petition is subject to dismissal if a certification was submitted unaccompanied by proof of the signatorys
authority.4
The petition filed with the Court of Appeals had a certification of non-forum shopping executed by Cesar R.
Lamberte and Susan Del Carmen. The certification, however, was without proof of authority to sign. When a motion
for reconsideration was filed, a Secretarys Certificate was submitted as proof that the board of directors of PAL had
authorized the two to execute the certificate. Nonetheless, the Court finds that this belated submission is an
insufficient compliance with the certification requirement.

This Court has allowed the reinstatement of petitions that were dismissed due to lack of proof of authority to sign
the certification upon its subsequent submission, saying that this amounted to
substantial compliance. The rationale was that the signatories, at the time of execution of the certification, were in
fact authorized to sign, although proof of their authority was lacking.5

This is not what happened in this case. A perusal of the Secretarys Certificate submitted reveals that the authority
to cause the filing of the petition was granted on February 15, 2000.6 The petition, on the other hand, was filed on
January 24, 2000 and was dismissed by the Court of Appeals on January 31, 2000. This means that at the time the
certification was signed, Cesar R. Lamberte and Susan Del Carmen were not duly authorized by the Board of
Directors of PAL and, consequently, their signing and attestations were not in representation of PAL. This effectively
translates to a petition that was filed without a certification at all as none was issued by PAL, the principal party to
the case.
The required certification of non-forum shopping must be valid at the time of filing of the petition. An invalid
certificate cannot be remedied by the subsequent submission of a Secretarys Certificate that vests authority only
after the petition had been filed.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.

Case Digest on Peoples Aircargo and Warehousing, Inc. vs. CA

July 27, 2010
Peoples Aircargo and Warehousing Co., Inc. vs. CA [297 SCRA 170 (Oct 7 1998)]
Power of Board of Directors to Bind Corporation

Facts: Peoples Aircargo is a domestic corporation organized to operate a customs bonded warehouse. To obtain a
license for the corporation from the Bureau of Customs, Punsalan, its President, solicited a proposal from Sano for
the preparation of a feasibility study. Sano submitted a letter proposal to Punsalan of the terms and conditions of
the contract, amounting to P350,000.00.
Punsalan sent a letter to Sano confirming to their agreement.
Accordingly, Sano prepared the feasibility study. Sano was paid in full.
Thereafter, a 2nd contract was entered into for consultancy services. Hence, the Bureau of Customs issued a
license to Peoples Aircargo. Sano was not paid for this 2nd contract. Hence, he filed a collection case against the
corporation. Meanwhile, Punsalan sold his shares in Peoples Aircargo andresigned as president.
Peoples Aircargo denied that there were consultancy services rendered by Sano. It alleged that the 2nd contract
entered into between him and Punsalan was without authority.
RTC adjudged in favor of Sano. CA affirmed. Hence, this petition.

Issue: Whether or not the Punsalan had apparent authority to bind Peoples Aircargo to the 2nd contract.

Held: Yes. The general rule is that, in the absence of authority from the BoD, no person, not even its officers, can
validly bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and
members, having powers, attributes and properties expressly authrized by law or incident to its existence. Being a
juridical entity, a corporation may act through its BoD, which exercises almost all corporate powers, lays down all
corporate business policies and is responsible for the efficiency of management as is under Sec. 23 of the
Corporation Code.
The power and responsibility to decide whether the corporation should enter into a contract that will bind the
corporation is lodged in the board, subject to AoI, by laws, or relevant provisions of law. However, just as a natural
person may authorize another to do certain acts for and on his behalf, the BoD may validly delegate some of its
functions and powers to officers, committees or agents. The authority of such individuals to bind the corporation is
generally derived from law, corporate by laws or authorization from the board, either expressly or impliedly by
habit, custom or acquiescence in the general course of business.
In the case at bar, since the corporation had previously allowed Punsalan to enter into the first contract with Sano
without a board resolution expressly authorizing him, thus, it had clothed its president with apparent authority to
execute the subject 2nd contract.
If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those acts, and thus, the corporation will, as
against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents
authority.

San Juan Structural and Steel Fabricators Inc. vs. CA [296 SCRA 631 (Sept 29 1998)]
Effect of Unauthorized Acts of Corporate Officer
Sufficiency of Proof to Pierce Veil of Corporate Fiction

Facts: San Juan Structural and Steel Fabricators entered into an agreement with Motorich Sales Corporation through
Nenita Gruenberg, corporate treasurer of Motorich, for the transfer to the former a parcel of land upon a P100,000
earnest money, balance to be payable within March 2, 1989. Upon payment of the earnest money, and on March 1,
1989, San Juan allegedly asked to be submitted a computation of the balance due to Motorich. The latter, despite
repeated demands, refused to execute the Deed of Assignment of the land. San Juan discovered that Motorich
entered into a Deed of Absolute Sale of the land to ACL Development Corporation. Hence, San Juan filed a
complaint with the RTC.
On the other hand, Motorich contends that since Nenita Gruenberg was only the treasurer of said corporation, and
that its president, Reynaldo Gruenberg, did not sign the agreement entered into by San Juan and Motorich, the
treasurers signature was inadequate to bind Motorich to the agreement. Furthermore, Nenita contended that since
San Juan was not able to pay within the stipulated period, no deed of assignment could be made. The deed was
agreed to be executed only after receipt of the cash payment, and since according to Nenita, no cash payment was
made on the due date, no deed could have been executed.
RTC dismissed the case holding that Nenita Gruenberg was not authorized by Motorich to enter into said contract
with San Juan, and that a majority vote of the BoD was necessary to sell assets of the corporation in accordance
with Sec. 40 of the Corporation Code. CA affirmed this decision. Hence, this petition with SC.

Issues: (1) Whether or not there was a valid contract existing between San Juan and Motorich.
(2) Whether or not the veil of corporate fiction could be pierced.

Held: (1) No. The contract entered into between Nenita and San Juan cannot bind Motorich, because the latter
never authorized nor ratified such sale. A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the corporation is not the property of its stockholders and
may not be sold by them without express authorization from the corporations BoD. This is in accordance with Sec.
23 of the Corporation Code.
Indubitably, a corporation can only act through its BoD or, when authorized either by its by laws or by its board
resolution, through its officers or agents in the normal course of business. The general principles of agency govern
the relation between the corporation and its officers or agents, subject to the AoI, by laws, or relevant provisions of
law. A corporate officer or agent may represent and bind the corporation in transactions with 3rd persons to the
extent that the authority to do so has been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or
may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining
to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the
officer or agent to believe that it has conferred. Furthermore, persons dealing with an assumed agent, whether the
assumed agency be a general or special one, are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to establish it. Unless duly authorized, a treasurer, whose powers are limited,
cannot bind the corporation in a sale of its assets.

In the case at bar, San Juan had the responsibility of ascertaining the extent of Nenitas authority to represent the
corporation. Selling is obviously foreign to a corporate treasurers function. Neither was real estate sale shown to
be a normal business activity of Motorich. The primary purpose of said corporation is marketing, distribution,
import and export relating to a general merchandising business. Unmistakably, its treasurer is not cloaked with
actual or apparent authority to buy or sell real property, an activity which falls way beyond the scope of her general
authority.
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 it has ratified such acts or is estopped from
disclaiming them.

(2) No. San Juan argues that the veil of corporate fiction should be pierced because the spouses Reynaldo and
Nenita Gruenberg own 99.96% of the subscribed capital stock, they needed no authorization from the BoD to enter
into the said contract.
The veil can only be disregarded when it is utilized as a shield to commit fraud, illegality or inequity, defeat public
convenience, confuse legitimate issues, or serve as a mere alter ego or business conduit of a person or an
instrumentality, agency or adjunct of another corporation. Hence, the question of piercing the veil becomes a
matter of proof. In the case at bar, SC found no reason to pierce the veil. San Juan failed to establish that said
corporation was formed for the purpose of shielding any fraudulent act of its officers and stockholders.
G.R. No. 150350 August 22, 2006
KOJI YASUMA, Petitioner, vs. HEIRS OF CECILIO S. DE VILLA and EAST CORDILLERA MINING
CORPORATION, Respondents.
This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated October 18, 2001 in CAG.R. CV No. 61755.
The antecedent facts follow.
On September 15, 1988, October 21, 1988 and December 5, 1988, Cecilio S. de Villa obtained loans from petitioner
Koji Yasuma in the amounts of P1,100,000, P100,000 and P100,000, respectively, for the total amount of P1.3
million. These loans were evidenced by three promissory notes signed by de Villa as borrower. The last promissory
note in the amount of P1,300,000 cancelled the first two notes.
The loans were initially secured by three separate real estate mortgages on a parcel of land with Transfer Certificate
of Title No. 176575 in the name of respondent East Cordillera Mining Corporation. The deeds of mortgage were
executed on the dates the loans were obtained, signed by de Villa as president of respondent corporation. The third
real estate mortgage later cancelled the first two.3
For failure of de Villa to pay, petitioner filed a collection suit in the Regional Trial Court of Makati City, Branch 148
(RTC-Br. 148) against de Villa and respondent corporation.4 The RTC-Br. 148 declared de Villa and respondent
corporation in default and resolved the case in favor of petitioner. On appeal, however, the judgment of RTC-Br. 148
was annulled on the ground of improper service of summons.5 Thus, the case was remanded for retrial.
During the pendency of the case in the RTC-Br. 148, de Villa died. Petitioner consequently amended the complaint
and impleaded the heirs of de Villa as defendants.6
After the case was re-heard, the RTC of Makati City, Branch 139 (RTC-Br. 139) rendered judgment on November 13,
1998 in favor of petitioner and against respondent corporation. It ordered respondent corporation to pay petitioner
P1.3 million plus legal interest, attorneys fees, liquidated damages and costs of suit. The complaint was dismissed
against respondent heirs.7
On appeal, the CA reversed and set aside the decision of RTC-Br. 139. It held that the loan was personal to de Villa
and that the mortgage was null and void for lack of authority from the corporation.
Petitioner is now before this Court with the following assignment of errors:
1. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT DECLARED
THAT THE CORPORATION DID NOT RATIFY THE ACT OF ITS PRESIDENT IN OBTAINING LOANS FROM PETITIONER
DESPITE ITS ADMISSION THAT IT RECEIVED THE MONEY OF THE PETITIONER.
2. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT TOTALLY
DISREGARDED THE ADMITTED FACTS AND ISSUES AGREED UPON BY THE PARTIES AND APPROVED BY THE TRIAL
COURT DURING THE PRE-TRIAL.

3. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE
THE REAL ESTATE MORTGAGE AND THE AWARD OF ATTORNEYS FEES, 10% LIQUIDATED DAMAGES AND THE COSTS
OF SUIT.
4. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE
THE AWARD OF INTEREST BY WAY OF DAMAGES IN FAVOR OF PETITIONER.8
The issues to be resolved are the following:
1) whether the loans were personal liabilities of de Villa or debts of respondent corporation and
2) whether the mortgage on respondent corporations property was null and void for having been executed without
its authority.
We begin with a brief study of some well-settled legal doctrines relevant to the disposition of this case.
Personal or Corporate Liability?
A corporation is a juridical person, separate and distinct from its stockholders. Being a juridical entity, a corporation
may act through its board of directors, as provided in Section 23 of the Corporation Code of the Philippines:9
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
xxx xxx xxx

The corporation can also act through its corporate officers who may be authorized either expressly by the by-laws
or board resolutions or impliedly such as by general practice or policy or as are implied from express powers.10 The
general principles of agency govern the relation between the corporation and its officers or agents.11 When
authorized, their acts can bind the corporation. Conversely, when unauthorized, their acts cannot bind it.
However, the corporation may ratify the unauthorized act of its corporate officer.12 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.13 The substance of the doctrine is confirmation
after conduct, amounting to a substitute for a prior authority.14 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, or acceptance and retention of benefits flowing therefrom.15
The power to borrow money is one of those cases where corporate officers as agents of the corporation need a
special power of attorney.16 In the case at bar, no special power of attorney conferring authority on de Villa was
ever presented. The promissory notes evidencing the loans were signed by de Villa (who was the president of
respondent corporation) as borrower without indicating in what capacity he was signing them. In fact, there was no
mention at all of respondent corporation. On their face, they appeared to be personal loans of de Villa.
Petitioner, however, contends that respondent corporations admission that it received the total amount of P1.3
million was effectively a ratification of the act of its former president.17 It appears that, in the pre-trial order dated
March 4, 1997 issued by RTC-Br. 139, respondent corporation indeed admitted the following:
xxx xxx xxx
3. Defendants ADMIT that the total amount of P1.3 Million subject matter of the Promissory Notes was RECEIVED by
the Defendant-Corporation;18 (emphasis supplied)
xxx xxx xxx
In its answer, respondent corporation stated:
7. The sum of money which [petitioner] sought to recover form herein [respondents] is not really a loan but his
investment to the mining project of [respondent] corporation which unfortunately did not succeed due to the delays
caused by typhoons and bad rainy season in the Benguet mountains causing landslides in the mining and milling
site during the latter part of 1988, and the killer earthquake of 1990 which destroyed the mining area. As
investment to a losing business venture, he is not entitled to claim payment neither could he treat it as a loan.19

The CA held that this admission was not tantamount to ratification because what respondent corporation admitted
was that the money was in fact received as an investment. It concluded that:
even if the [respondent corporation] received the money, it cannot be held responsible for not knowing the
preceding transaction between the [p]resident and the [petitioner] as in fact there was a misrepresentation made to
the [respondent corporation], to the effect that the money was an investment and not a loan. The alleged
investment is actually a personal loan of Cecilio de Villa.20
Petitioners contention has no merit. There was no showing that respondent corporation ever authorized de Villa to
obtain the loans on its behalf. The notes did not show that de Villa acted on behalf of the corporation. Actually, the
corporation would not have figured in the transaction at all had it not been for its admission that it received the
amount of P1.3 million. As could be gleaned from the promissory notes, it was a stranger to the transaction.
Thus, we conclude that petitioner himself did not consider the corporation to be his debtor for if he really knew that
de Villa was obtaining the loan on behalf of the corporation, then why did he allow the notes to reflect only the
personal liability of de Villa?21 Even the demand letters of petitioner were personally addressed to de Villa and not
to respondent corporation.22 Undoubtedly, petitioner dealt with de Villa purely in his personal capacity.
Respondent corporation could not have ratified the act of de Villa because there was no proof that it knew that he
took out a loan on its behalf. As stated earlier, ratification is a voluntary choice that is knowingly made. The
corporation could not have ratified an act it had no knowledge of:
xxx xxx xxx
Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts
were suppressed or unknown, there can be no valid ratification . 23
The fact that the corporation admitted receiving the proceeds of the loan did not amount to ratification of the loan.
It accepted the amount from de Villa, its president at that time, in good faith. Good faith is always presumed.24
Petitioner did not show that the corporation acted in bad faith.

It follows that respondent corporation was not liable for the subsequent loss of the money which it accepted as an
investment. It could not be faulted for not knowing that it was the proceeds of a loan obtained by de Villa. It was
under no obligation to check the source of the investments which went into its coffers. As long as the investment
was used for legitimate corporate purposes, the investor bore the risk of loss.
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation liable
since there was no authority, express, implied or apparent, given to de Villa to borrow money from petitioner.
Neither was there any subsequent ratification of his act.
Was the Mortgage Valid or Void?
Petitioner insists that the mortgage executed by de Villa, as president of the corporation, was ratified by the latter
since the mortgage was an accessory contract of the loan.25 We disagree.
A special power of attorney is necessary to create or convey real rights over immovable property.26 Furthermore,
the special power of attorney must appear in a public document.27 In the absence of a special power of attorney in
favor of de Villa as president of the corporation, no valid mortgage could have been executed by him.28 Since the
mortgage was void, it could not be ratified.
Petitioner cannot blame anyone but himself. He did not check if the person he was dealing with had the authority to
mortgage the property being offered as collateral.
Given that the loan and mortgage were not binding on respondent corporation, the latter cannot be held liable for
interest, attorneys fees and liquidated damages arising from the loan.
Personal Liability of De Villa
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death). Petitioner
vigorously sought to make respondent corporation liable but exerted no effort at all to argue for the liability of
respondent heirs. The trial court correctly dismissed the case against the latter. Petitioners remedy now is to file a
money claim in the settlement proceedings of de Villas estate, if not too late, as indicated in
Rule 8629 of the Rules of Court.

WHEREFORE, the petition is hereby DENIED. The October 18, 2001 decision of the Court of Appeals in CA-G.R. CV
No. 61755 is AFFIRMED.
Costs against petitioner.
SO ORDERED.

Civil Code

Agency; apparent authority of an agent based on estoppel; concept. In Woodchild Holdings, Inc. v. Roxas
Electric and Construction Company, Inc. the Court stated that persons dealing with an assumed agency,
whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it. In other words, when the petitioner relied only on
the words of respondent Alejandro without securing a copy of the SPA in favor of the latter, the petitioner is bound
by the risk accompanying such trust on the mere assurance of Alejandro.
The same Woodchild case stressed that apparent authority based on estoppel can arise from the principal who
knowingly permit the agent to hold himself out with authority and from the principal who clothe the agent with
indicia of authority that would lead a reasonably prudent person to believe that he actually has such authority.
Apparent authority of an agent arises only from acts or conduct on the part of the principal and such acts or
conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of
reasonable prudence by a third person as claimant and such must have produced a change of position to its
detriment. In the instant case, the sale to the Spouses Lajarca and other transactions where Alejandro allegedly
represented a considerable majority of the co-owners transpired after the sale to the petitioner; thus, the petitioner
cannot rely upon these acts or conduct to believe that Alejandro had the same authority to negotiate for the sale of
the subject property to him. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349, July
24, 2013.

Yao ka sin trading vs ca 209 SCRA 763 Business Organization Corporation Law Liability of Officers
Apparent Authority
Facts:
In 1973, Constancio Maglana, president of Prime White Cement Corporation, sent an offer letter to Yao Ka Sin
Trading. The offer states that Prime White is willing to sell 45,000 bags of cement at P24.30 per bag. The offer letter
was received by Yao Ka Sins manager, Henry Yao. Yao accepted the letter and pursuant to the letter, he sent a
check in the amount of P243,000.00 equivalent to the value of 10,000 bags of cement. However, the Board of
Directors of Prime White rejected the offer letter sent by Maglana but it considered Yaos acceptance letter as a new
contract offer hence the Board sent a letter to Yao telling him that Prime White is instead willing to sell only 10,000
bags to Yao Ka Sin and that he has ten days to reply; that if no reply is made by Yao then they will consider it as an
acceptance and that thereafter Prime White shall deposit the P243k check in its account and then deliver the
cements to Yao Ka Sin. Henry Yao never replied.
Later, Yao Ka Sin sued Prime White to compel the latter to comply with what Yao Ka Sin considered as the true
contract, i.e., 45,000 bags at P24.30 per bag. Prime White in its defense averred that although Maglana is
empowered to sign contracts in behalf of Prime White, such contracts are still subject to approval by Prime Whites
Board, and then it still requires further approval by the National Investment and Development Corporation (NIDC), a
government owned and controlled corporation because Prime White is a subsidiary of NIDC.
Henry Yao asserts that the letter from Maglana is a binding contract because it was made under the apparent
authority of Maglana. The trial court ruled in favor of Yao Ka Sin. The Court of Appeals reversed the trial court.

ISSUE: Whether or not the president of a corporation is clothed with apparent authority to enter into binding
contracts with third persons without the authority of the Board

HELD:
No. The Board may enter into contracts through the president. The president may only enter into contracts upon
authority of the Board. Hence, any agreement signed by the president is subject to approval by the Board. Unlike a
general manager (like the case of Francisco vs GSIS), the president has no apparent authority to enter into binding
contracts with third persons. Further, if indeed the by-laws of Prime White did provide Maglana with apparent
authority, this was not proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the general manner, by which the corporation holds out an officer
or agent as having power to act or, in other words, the apparent authority with which it clothes him to act in general
or (2) acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within
or without the scope of his ordinary powers. These are not present in this case.
Also, the subsequent letter by Prime White to Yao Ka Sin is binding because Yao Ka Sins failure to respond
constitutes an acceptance, per stated in the letter itself which was not contested by Henry Yao during trial.

Montelibano vs Bacolod-Murcia Milling (1962)

February 14, 2013 markerwins Corporation Law, Mercantile Lawcorpo, merc
Facts:
Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited co-partnership Gonzaga and
Company, had been and are sugar planters adhered to the defendant-appellees sugar central mill under identical
milling contracts. Originally executed in 1919, said contracts were stipulated to be in force for 30 years starting with
the 1920-21 crop, and provided that the resulting product should be divided in the ratio of 45% for the mill and 55%
for the planters. Sometime in 1936, it was proposed to execute amended milling contracts, increasing the planters
share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but extending the
operation of the milling contract from the original 30 years to 45 years. The Board of Directors of the appellee
Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further concessions to the planters over and above
those contained in the printed Amended Milling Contract. The appellants initiated the present action, contending
that three Negros sugar centrals with a total annual production exceeding one-third of the production of all the
sugar central mills in the province, had already granted increased participation (of 62.5%) to their planters, and
that under the resolution the appellee had become obligated to grant similar concessions to the plaintiffs. The
appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and defended by urging that the stipulations contained
in the resolution were made without consideration; that the resolution in question was, therefore, null and void ab
initio, being in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt.

Issue: WON the board resolution is an ultra vires act and in effect a donation from the board of directors?

Held:
No. There can be no doubt that the directors of the appellee company had authority to modify the proposed terms
of the Amended Milling Contract for the purpose of making its terms more acceptable to the other contracting
parties. As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and
whether or not it will cause losses or decrease the profits of the central, the court has no authority to review them.
Whether the business of a corporation should be operated at a loss during depression, or close 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. The appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution of August 20, 1936, duty
bound to grant similar increases to plaintiffs-appellants herein.

3. ID.; ID.; ID.; INSTANCES WHEN PERSONAL CIVIL LIABILITY CAN BE LAWFULLY ATTACHED TO A CORPORATE
DIRECTOR, TRUSTEE OR OFFICER. - In Tramat Mercantile, Inc. vs. Court of Appeals, (238 SCRA 14, 19) the
Court has collated the settled instances when, without necessarily piercing the veil of corporate fiction, personal
civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to wit: When - (1) He
assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its
affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; (2)
He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; (3) He agrees to hold himself personally and solidarily liable with
the corporation; or (4) He is made, by a specific provision of law, to personally answer for his corporate action.

G.R. No. 111008 November 7, 1994

TRAMAT MERCANTILE, INC. AND DAVID ONG, petitioners, vs. HON. COURT OF APPEALS AND MELCHOR
DE LA CUESTA, respondents.
This petition for review on certiorari challenges the 04th March 1993 decision of the Court of Appeals and its
resolution of 01 July 1993 denying the motion for reconsideration.

On 09 April 1984, Melchor de la Cuesta, doing business under the name and style of "Farmers Machineries," sold to
Tramat Mercantile, Inc. ("Tramat"), one (1) unit HINOMOTO TRACTOR Model MB 1100D powered by a 13 H.P. diesel
engine. In payment, David Ong, Tramat's president and manager, issued a check for P33,500.00 (apparently
replacing an earlier postdated check for P33,080.00). Tramat, in turn, sold the tractor, together with an attached
lawn mower fabricated by it, to the Metropolitan Waterworks and Sewerage System ("NAWASA") for P67,000.00.
David Ong caused a "stop payment" of the check when NAWASA refused to pay the tractor and lawn mower after
discovering that, aside from some stated defects of the attached lawn mower, the engine (sold by de la Cuesta)
was a reconditioned unit.
On 28 May 1985, de la Cuesta filed an action for the recovery of P33,500.00, as well as attorney's fees of
P10,000.00, and the costs of suit. Ong, in his answer, averred, among other things, that de la Cuesta had no cause
of action; that the questioned transaction was between plaintiff and Tramat Mercantile, Inc., and not with Ong in his
personal capacity; and that the payment of the check was stopped because the subject tractor had been priced as
a brand new, not as a reconditioned unit.
On 02 November 1989, after the reception of evidence, the trial court rendered a decision, the dispositive portions
of which read:
WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered:
1. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of P33,500.00 with legal interest
thereon at the rate of 12% per annum from July 7, 1984 until fully paid; and
2. Ordering the defendants, jointly and severally, to pay the plaintiff the sum of P10,000.00 as attorney's fees, and
the costs of this suit.
SO ORDERED. 1
An appeal was timely interposed by the defendants. On 04 March 1993, the Court of Appeals affirmed in toto the
decision of the trial court. Defendant-appellants' motion for reconsideration was denied.
Hence, the instant petition.
We could find no reason to reverse the factual findings of both the trial court and the appellate court, particularly in
holding that the contract between de la Cuesta and TRAMAT was one of absolute, not conditional, sale of the tractor
and that de la Cuesta did not violate any warranty on the sale of the tractor to TRAMAT. The appellate court, in its
decision, adequately explained:
If the perfection of the sale was dependent upon acceptance by the MWSS of the subject tractor why did the
appellants issue a check in payment of the item to the appellee? And long after MWSS had complained about the
defective tractor engine, and after the appellee had failed to remedy the defect, why did the appellants still draw
and deliver a replacement check to the appellee for the increased amount of P33,500.00?
These payments argue against the claim now made by the defendants that the sale was conditional.
According to the appellee, the additional amount covered the cost of replacing the oil gasket of the tractor engine
when it was repaired in Soledad Cac's gasoline station in Quezon City. The appellants, on the other hand, claims the
amount represented the freight charges for transporting the tractor from Cauayan, Isabela to Metro Manila.
The appellants should have explained why they failed to include the freight charges in the first check. The tractor
was transported from Isabela to Metro Manila as early as April 1984, and the first check was drawn at about the
same time. The freight charges cannot be said to have been incurred when the tractor engine was delivered back to
the supplier for repairs. The appellants admitted that the engine was not brought back to Isabela. The repairs were
done at Soledad Cac's gasoline station in Quezon City.

Anent the first assigned error, We sustain the trial court's finding that at the time of the purchase, the appellants
did not reveal to the appellee the true purpose for which the tractor would be used. Granting that the appellants
informed the appellee that they would be reselling the unit to the MWSS, an entity admittedly not engaged in
farming, and that they ordered the tractor without the power tiller, an indispensable accessory if the tractor would
be used in farming, these in themselves would not constitute the required implied notice to the appellee as seller.
xxx xxx xxx
In regard to the second assigned error, We do not agree that the appellee should have been held liable for the
tractor's alleged hidden defects. . . .

It has to be noted in this regard that, to satisfy the requirements of the MWSS, the appellants borrowed a lawn
mower from the MWSS so they could fabricate one such mower. The appellants' witness stated that the kind of midmounted lawn mower was being manufactured by their competitor, Alpha Machinery, which had by then stopped
supplying the same (tsn,
Nov. 29, 1988, pp. 73-74). There is no showing that the appellants had had any previous experience in the
fabrication of this lawn mower. In fact, as aforesaid, they had to borrow one from the MWSS which they could copy.
But although they made a copy with the same specifications and design, there was no assurance that the copy
would function as well as with the model.
xxx xxx xxx
Although the trial court discussed it in a different light, We view the matter in the same way the trial court did
that the lawn mower as fabricated by the appellants was the root of the parties' problems.
Having had no previous experience in the manufacture of lawn mowers of the same type as that in litigation, and in
a possibly patent-infringing effort to undercut their competition, the appellants gathered enough daring to do the
fabrication themselves. But the product might have proved too much for the subject tractor to power, and the
tractor's engine was strained beyond its limits, causing it to overheat and damage its gaskets.
No wonder, then, it was a gasket Soledad Cac had to replace, at a cost chargeable to the appellants. No wonder,
furthermore, the appellants' witness declared that even after the replacement of that one gasket, the engine still
leaked oil after being torture-tested. The integrity of the other engine gaskets might have been impaired, too. Such
was the burden placed on the engine. The engine malfunctioned not necessarily because the engine, as alleged by
the appellants, had been a reconditioned, and not a brand new, one. It malfunctioned because it was made to do
what it simply could not. 2
It was, nevertheless, an error to hold David Ong jointly and severally liable with TRAMAT to de la Cuesta under the
questioned transaction. Ong had there so acted, not in his personal capacity, but as an officer of a corporation,
TRAMAT, with a distinct and separate personality. As such, it should only be the corporation, not the person acting
for and on its behalf, that properly could be made liable thereon. 3
Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may
so validly attach, as a rule, only when
1. He assents (a) to a patently unlawful act of the corporation, or
(b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons; 4
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; 5
3. He agrees to hold himself personally and solidarily liable with the corporation; 6 or
4. He is made, by a specific provision of law, to personally answer for his corporate action. 7
In the case at bench, there is no indication that petitioner David Ong could be held personally accountable under
any of the abovementioned cases.
WHEREFORE, the petition is given DUE COURSE and the decision of the trial court, affirmed by the appellate court,
is MODIFIED insofar as it holds petitioner David Ong jointly and severally liable with Tramat Mercantile, Inc., which
portion of the questioned judgment is SET ASIDE. In all other respects, the decision appealed from is AFFIRMED. No
costs.
SO ORDERED.

G.R. No. 172885

October 9, 2009

MANUEL LUIS S. SANCHEZ, Petitioner, vs. REPUBLIC OF THE PHILIPPINES, Represented by the
Department of Education, Culture and Sports, Respondent.

This petition for review on certiorari assails the February 21, 2006 Decision1 of the Court of Appeals in CA-G.R. CV
83648 and its Resolution2 of May 29, 2006, which dismissed the petitioners appeal from the decision of Branch 71
of the Regional Trial Court (RTC) of Pasig City in Civil Case 66852.
The Facts and the Case
In 1980, during the regime of President Ferdinand E. Marcos, the government-owned Human Settlements
Development Corporation (HSDC) built with public funds and on government land the St. Martin Technical Institute
Complex at Barangay Ugong, Pasig City. This later on became known as the University of Life Complex.
In July 1980, First Lady Imelda R. Marcos and others organized the University of Life Foundation, Inc. (ULFI), a
private non-stock, non-profit corporation devoted to non-formal education. On August 26, 1980 the government
gave the management and operation of the Complex to ULFI but HSDC was to continue to construct facilities and
acquire equipment for it. Although ULFI was to get all the incomes of the Complex, ULFI had to pay HSDC an annual
fee of 14 percent of HSDCs investments in it.
After the fall of the Marcos regime in 1986, the new government reorganized HSDC into the Strategic Investment
Development Corporation (SIDCOR) under the supervision of the Office of the President. Realizing that ULFI never
paid the 14 percent annual fee due to HSDC, now totaling about P316 million, on July 25, 1989 SIDCOR rescinded
the HSDC-ULFI agreement. Ironically, in its place, SIDCOR entered into an Interim Management Agreement with
ULFI, allowing it to continue managing and operating the Complex.
Meantime, in October 1989, the government transferred the ownership of ULFIs properties to the Department of
Education, Culture and Sports (DECS). Later in January 1990, Republic Act 6847 transferred full control and
management of the Complex to DECS with effect two years from the laws enactment. The DECS transferred its
offices to the Complex in December 1990. On January 29, 1991, SIDCOR transferred all its rights in the Complex to
the National Government which in turn transferred the same to the DECS.
On January 31, 1991 DECS and ULFI entered into a Management Agreement, granting ULFI the authority to manage
and operate the Complex until the end of that year. During this period, ULFI was expressly mandated under the said
Management Agreement to remit to the Bureau of the Treasury, through the DECS, all incomes from the Complex,
net of allowable expenses.3 At the end of 1991, the DECS gave ULFI notice to immediately vacate the Complex. But
ULFI declined, prompting the DECS to file an action for unlawful detainer against it in Civil Case 2959 of the
Metropolitan Trial Court (MeTC) of Pasig City. After hearing, MeTC dismissed the action for lack of merit. On the
DECSs appeal to the RTC, the latter affirmed the order of dismissal.
On appeal of the DECS to the Court of Appeals by petition for review,4 however, the latter rendered judgment on
January 17, 1995, reversing the MeTC and RTC decisions. The appeals court ordered ULFI to vacate the Complex and
pay such reasonable rentals as the MeTC might fix. This Court dismissed ULFIs recourse to it from the judgment of
the Court of Appeals.5
On April 15, 1996 the MeTC fixed, after hearing, the rents that ULFI had to pay the DECS at P22,559,215.14 (due
from February 1992 to January 1996) plus P6,325.00 per month until it shall have vacated the premises.6 The DECS
succeeded in ejecting ULFI but the latter did not pay the amounts due from it.
On June 15, 1998 the DECS filed a complaint7 before the RTC of Pasig City in Civil Case 66852 for collection of the
P22,559,215.14 in unremitted rents and damages against Henri Kahn, ULFIs President, and petitioner Manuel Luis
S. Sanchez, its Executive Vice-President, based on their personal liability under Section 31 of the Corporation Code.
The latter two were Managing Director and Finance Director, respectively, of the corporation.8
The complaint alleged that Kahn and petitioner Sanchez, as key ULFI officers, were remiss in safekeeping ULFIs
corporate incomes and in accounting for them.9 They neither placed the incomes derived from the Complex in
ULFIs deposit account nor submitted the required financial statements detailing their transactions. The underlying
theory of the case is that Kahn and Sanchez "operated ULFI as if it were their own property, handled the collections
and spent the money as if it were their personal belonging."10 The DECS asked the RTC to order Kahn and Sanchez
personally to pay it the P22,559,215.14 in rents due from ULFI with legal interest, exemplary damages of
P1,000,000.00, attorneys fees of P500,000.00, and costs.
In his answer, petitioner Sanchez alleged that, being a mere officer of ULFI, he cannot be made personally liable for
its adjudged corporate liability. He took exception to the complaint, characterizing it as an attempt to pierce the
corporate veil that cloaked ULFI.

Satisfied that the DECS fully established its case, on October 14, 2002, the RTC rendered judgment, ordering Kahn
and petitioner Sanchez to pay the DECS, jointly and severally, P22,559,215.14 with legal interest from April 1, 1996

until they shall have fully paid the same, P500,000.00 in exemplary damages, and P200,000.00 in attorneys fees,
plus costs.11
Both Kahn and petitioner Sanchez appealed to the Court of Appeals. The latter court gave due course to Sanchezs
appeal but denied that of Kahn since it was filed out of time. On February 21, 2006 the Court of Appeals rendered
judgment, wholly affirming the trial courts decision,12 hence, this petition.
In a nutshell, Sanchez argues that he cannot be made personally liable for ULFIs corporate obligations absent
specific allegations in the complaint and evidence adduced during trial that would warrant a piercing of the
corporate veil. He further argues that the DECS is barred by res judicata and forum shopping from collecting from
him what it could not get by execution from ULFI under the judgment in the ejectment case. Finally, he claims that
because ULFI suffered losses in operations during the period 1992 up to 1996, there could have been nothing left of
the rentals it collected from the lessees of the Complex.
The DECS points out, on the other hand, that since Kahn and petitioner Sanchez were guilty of fraud and bad faith
in managing the funds of ULFI, they can be made to personally answer for those funds and to pay its corporate
obligations pursuant to Section 31 of the Corporation Code. They collected money from rents but did not, as was
their duty, remit this to the DECS pursuant to the DECS-ULFI agreement.

The Issues
The case before this Court presents the following issues:
1. whether or not petitioner Sanchez, a director and chief executive officer of ULFI, can be held liable in damages
under Section 31 of the Corporation Code for gross neglect or bad faith in directing the corporations affairs; and
2. Whether or not the action in Civil Case 66852 is barred by res judicata and constitutes forum shopping by the
DECS.

Rulings of the Court

Petitioner Sanchez points out that the Court of Appeals decision arbitrarily changed the DECSs theory of the case
from one based on his and Kahns alleged failure to deposit for the account of ULFI whatever rentals they have
collected to another based on their alleged failure to remit to the DECS the incomes of the facilities they managed.
But Sanchez is drawing insignificant distinctions from what the DECS claims and what the court below finds. Both
essentially rest on Kahn and Sanchezs failure to account for the rent incomes that they collected from lease of
spaces in the facilities of the Complex beyond the one-year management authority that the DECS granted ULFI in
1991.
Petitioner Sanchez claims that there is no ground for the courts below to pierce the veil of corporate identity and
hold him and Kahn, who were mere corporate officers, personally liable for ULFIs obligations to the DECS. But this
is not a case of piercing the veil of corporate fiction. The DECS brought its action against Sanchez and Kahn under
Section 31 of the Corporation Code, which should not be confused with actions intended to pierce the corporate
fiction.
Section 31 of the Corporation Code makes directors-officers of corporations jointly and severally liable even to third
parties for their gross negligence or bad faith in directing the affairs of their corporations. Thus:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or
assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or
trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons. (Emphasis supplied)
xxxx
The DECS does not have to invoke the doctrine of piercing the veil of corporate fiction. Section 31 above expressly
lays down petitioner Sanchez and Kahns liability for damages arising from their gross negligence or bad faith in
directing corporate affairs. The doctrine mentioned, on the other hand, is an equitable remedy resorted to only
when the corporate fiction is used, among others, to defeat public convenience, justify wrong, protect fraud or
defend a crime.13
Moreover, in a piercing case, the test is complete control or domination, not only of finances, but of policy and
business practice in respect of the transaction attacked.14 This is not the case here. Section 31, under which this

case was brought, makes a corporate directorwho may or may not even be a stockholder or memberaccountable
for his management of the affairs of the corporation.

Bad faith implies breach of faith and willful failure to respond to plain and well understood obligation.15 It does not
simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty through some motive or interest or ill will.16 It partakes of the
nature of fraud.17
Gross negligence, on the other hand, is the want of even slight care, acting or omitting to act in a situation where
there is duty to act, not inadvertently but willfully and intentionally, with a conscious indifference to consequences
insofar as other persons may be affected.18 It evinces a thoughtless disregard of consequences without exerting
any effort to avoid them;19 the want or absence of or failure to exercise slight care or diligence, or the entire
absence of care.20
In resolving the issue of whether or not petitioner Sanchez, a director and chief executive officer of ULFI, can be
held liable in damages under Section 31 of the Corporation Code for bad faith or gross neglect in directing the
corporations affairs, the Court will consider only the Court of Appeals findings of facts. This Courts jurisdiction in a
petition for review on certiorari under Rule 45 is limited to reviewing only errors of law. It is bound by the findings of
fact of the Court of Appeals.
The Court of Appeals found that from January 1992 to January 1996, after ULFIs authority to manage the Complex
expired and despite the ejectment suit that the DECS filed against it, petitioner Sanchez and Kahn still continued to
lease spaces in those facilities to third persons. And they collected and kept all the rents although they knew that
these primarily belonged to the DECS. ULFI had merely managed the facilities and collected earnings from them for
the DECS. What is more, Sanchez and Kahn were aware that they had to submit written accounts of those rents and
remit the net earnings from them to the Bureau of Treasury, through the DECS, at the end of the year. Yet, Sanchez
and Kahn, acting in bad faith or with gross neglect did not turn over even one centavo of rent to the DECS nor
render an accounting of their collections. Nor did they account for the money they collected by submitting to the
Securities and Exchange Commission the required financial statements covering such collections.
Parenthetically, a witness for the defense, Evangeline Naniong, ULFIs bookkeeper, testified that the revenues from
the rents were deposited in the bank in the names of Sanchez and ULFIs accountant. And so only they could
withdraw and spend those revenues.21
Petitioner Sanchez of course claims that the funds they had collected proved inadequate even to meet expenses.
But, as the appellate court held, he had been unable to substantiate such claims. As the officer charged with
approving and implementing corporate disbursements, Sanchez had the duty to present documents showing how
the incomes of the foundation were spent. But he failed to do so even after the DECS, which took custody of the
records, asked Kahn to submit a list of the documents they needed for establishing their defenses so these may be
made available to them.22 Under the circumstances, the indubitable conclusion is that petitioner Sanchez and Kahn
acted with bad faith, if not with gross negligence, in failing to perform their duty to remit to DECS or keep in safe
hands ULFIs incomes from the leases.1avvphi1
Section 31 lays down the "doctrine of corporate opportunity" and holds personally liable corporate directors found
guilty of gross negligence or bad faith in directing the affairs of the corporation, which results in damage or injury to
the corporation, its stockholders or members, and other persons. The ejectment suit that held only ULFI liable to the
DECS for unpaid rents does not constitute res judicata to the issue of personal liabilities of Kahn and petitioner
Sanchez under the circumstances to pay such obligations, given that the unaccounted funds would have settled the
same.
Petitioners allegations of forum shopping must fail as well. The essence of forum shopping is the filing of multiple
suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose
of obtaining a favorable judgment.23 This is not the case with respect to the ejectment suit vis--vis the action for
damages.
WHEREFORE, the Court DENIES the petition and AFFIRMS the February 21, 2006 Decision of the Court of Appeals in
CA-G.R. CV 83648 and its Resolution of May 29, 2006.
SO ORDERED.

G.R. No. 172885

October 9, 2009

MANUEL LUIS S. SANCHEZ, Petitioner, vs. REPUBLIC OF THE PHILIPPINES, Represented by the
Department of Education, Culture and Sports, Respondent.
The Facts
In January 1990, Republic Act 6847 transferred full control and management of the Complex to DECS (department
of education culture and sports) with effect two years from the laws enactment. The DECS transferred its offices to
the Complex, SIDCOR (Strategic Investment Development Corporation) transferred all its rights in the Complex to
the National Government which in turn transferred the same to the DECS.
DECS and ULFI entered into a Management Agreement, granting ULFI the authority to manage and operate the
Complex until the end of that year. During this period, ULFI was expressly mandated under the said Management
Agreement to remit to the Bureau of the Treasury, through the DECS, all incomes from the Complex, net of
allowable expenses, DECS gave ULFI notice to immediately vacate the Complex. But ULFI declined, prompting the
DECS to file an action for unlawful detainer.
DECS succeeded in ejecting ULFI but the latter did not pay the amounts due from it.
DECS filed a complaint before the RTC of Pasig City in for collection of unremitted rents and damages against Henri
Kahn, ULFIs President, and petitioner Manuel Luis S. Sanchez, its Executive Vice-President, based on their personal
liability under Section 31 of the Corporation Code. The latter two were Managing Director and Finance Director,
respectively, of the corporation.
The complaint alleged that Kahn and petitioner Sanchez, as key ULFI officers, were remiss in safekeeping ULFIs
corporate incomes and in accounting for them. They neither placed the incomes derived from the Complex in ULFIs
deposit account nor submitted the required financial statements detailing their transactions. The underlying theory
of the case is that Kahn and Sanchez "operated ULFI as if it were their own property, handled the collections and
spent the money as if it were their personal belonging."
Sanchez alleged that, being a mere officer of ULFI, he cannot be made personally liable for its adjudged corporate
liability. He took exception to the complaint, characterizing it as an attempt to pierce the corporate veil that cloaked
ULFI.
RTC rendered judgment ordering Kahn and petitioner Sanchez to pay the DECS, jointly and severally,
Court of Appeals. wholly affirming the trial courts decision
The DECS points out, on the other hand, that since Kahn and petitioner Sanchez were guilty of fraud and bad faith
in managing the funds of ULFI, they can be made to personally answer for those funds and to pay its corporate
obligations pursuant to Section 31 of the Corporation Code. They collected money from rents but did not, as was
their duty, remit this to the DECS pursuant to the DECS-ULFI agreement.

Issue
Whether or not petitioner Sanchez, a director and chief executive officer of ULFI, can be held liable in damages
under Section 31 of the Corporation Code for gross neglect or bad faith in directing the corporations affairs; and

Ruling
Sanchez and khan jointly and severally liable.
Section 31 lays down the "doctrine of corporate opportunity" and holds personally liable corporate directors found
guilty of gross negligence or bad faith in directing the affairs of the corporation, which results in damage or injury to
the corporation, its stockholders or members, and other persons. The ejectment suit that held only ULFI liable to the
DECS for unpaid rents does not constitute res judicata to the issue of personal liabilities of Kahn and petitioner
Sanchez under the circumstances to pay such obligations, given that the unaccounted funds would have settled the
same.
Petitioner Sanchez of course claims that the funds they had collected proved inadequate even to meet expenses.
But, as the appellate court held, he had been unable to substantiate such claims. As the officer charged with
approving and implementing corporate disbursements, Sanchez had the duty to present documents showing how
the incomes of the foundation were spent. But he failed to do so even after the DECS, which took custody of the
records, asked Kahn to submit a list of the documents they needed for establishing their defenses so these may be
made available to them. Under the circumstances, the indubitable conclusion is that petitioner Sanchez and Kahn
acted with bad faith, if not with gross negligence, in failing to perform their duty to remit to DECS or keep in safe
hands ULFIs incomes from the leases.
After ULFIs authority to manage the Complex expired and despite the ejectment suit that the DECS filed against it,
petitioner Sanchez and Kahn still continued to lease spaces in those facilities to third persons. And they collected
and kept all the rents although they knew that these primarily belonged to the DECS. ULFI had merely managed the
facilities and collected earnings from them for the DECS. What is more, Sanchez and Kahn were aware that they had
to submit written accounts of those rents and remit the net earnings from them to the Bureau of Treasury, through
the DECS, at the end of the year. Yet, Sanchez and Kahn, acting in bad faith or with gross neglect did not turn over
even one centavo of rent to the DECS nor render an accounting of their collections. Nor did they account for the
money they collected by submitting to the Securities and Exchange Commission the required financial statements
covering such collections.
Parenthetically, a witness for the defense, Evangeline Naniong, ULFIs bookkeeper, testified that the revenues from
the rents were deposited in the bank in the names of Sanchez and ULFIs accountant. And so only they could
withdraw and spend those revenues.

G.R. No. 96551 November 4, 1996

PREMIUM MARBLE RESOURCES, INC., petitioner,
CORPORATE BANK, respondents.

vs. THE COURT OF APPEALS and INTERNATIONAL

PRINTLINE CORPORATION, petitioner,vs. THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK,
respondents.
Assailed in the instant petition for review is the decision 1 of the Court of Appeals in CA-G.R. CV No. 16810 dated
September 28, 1990 which affirmed the trial court's dismissal of petitioners' complaint for damages.
The antecedents:
On July 18, 1986, Premium Marble Resources, Inc. (Premium for brevity), assisted by Atty. Arnulfo Dumadag as
counsel, filed an action for damages against International Corporate Bank which was docketed as Civil Case No.
14413. The complaint states, inter alia:
3. Sometime in August to October 1982, Ayala Investment and Development Corporation issued three (3) checks
[Nos. 097088, 097414 & 27884] in the aggregate amount of P31,663.88 payable to the plaintiff and drawn against
Citibank;
xxx xxx xxx
5. On or about August to October 1982, former officers of the plaintiff corporation headed by Saturnino G. Belen, Jr.,
without any authority whatsoever from the plaintiff deposited the above-mentioned checks to the current account
of his conduit corporation, Intervest Merchant Finance (Intervest, for brevity) which the latter maintained with the
defendant bank under account No. 0200-02027-8;
6. Although the checks were clearly payable to the plaintiff corporation and crossed on their face and for payee's
account only, defendant bank accepted the checks to be deposited to the current account of Intervest and
thereafter presented the same for collection from the drawee bank which subsequently cleared the same thus
allowing Intervest to make use of the funds to the prejudice of the plaintiff;
xxx xxx xxx
14. The plaintiff has demanded upon the defendant to restitute the amount representing the value of the checks
but defendant refused and continue to refuse to honor plaintiff's demands up to the present;
15. As a result of the illegal and irregular acts perpetrated by the defendant bank, the plaintiff was damaged to the
extent of the amount of P31,663.88;
Premium prayed that judgment be rendered ordering defendant bank to pay the amount of P31,663.88 representing
the value of the checks plus interest, P100,000.00 as exemplary damages; and P30,000.00 as attorney's fees.

In its Answer International Corporate Bank alleged, inter alia, that Premium has no capacity/personality/authority to
sue in this instance and the complaint should, therefore, be dismissed for failure to state a cause of action.
A few days after Premium filed the said case, Printline Corporation, a sister company of Premium also filed an action
for damages against International Corporate Bank docketed as Civil Case No. 14444. Thereafter, both civil cases
were consolidated.
Meantime, the same corporation, i.e., Premium, but this time represented by Siguion Reyna, Montecillio and
Ongsiako Law Office as counsel, filed a motion to dismiss on the ground that the filing of the case was without
authority from its duly constituted board of directors as shown by the excerpt of the minutes of the Premium's
board of directors' meeting. 2
In its oposition to the motion to dismiss, Premium thru Atty. Dumadag contended that the persons who signed the
board resolution namely Belen, Jr., Nograles & Reyes, are not directors of the corporation and were allegedly former
officers and stockholders of Premium who were dismissed for various irregularities and fraudulent acts; that Siguion
Reyna Law office is the lawyer of Belen and Nograles and not of Premium and that the Articles of Incorporation of
Premium shows that Belen, Nograles and Reyes are not majority stockholders.
On the other hand, Siguion Reyna Law firm as counsel of Premium in a rejoinder, asserted that it is the general
information sheet filed with the Securities and Exchange Commission, among others, that is the best evidence that
would show who are the stockholders of a corporation and not the Articles of Incorporation since the latter does not
keep track of the many changes that take place after new stockholders subscribe to corporate shares of stocks.
In the interim, defendant bank filed a manifestation that it is adopting in toto Premium's motion to dismiss and,
therefore, joins it in the praying for the dismissal of the present case on the ground that Premium lacks authority
from its duly constituted board of directors to institute the action.
In its Order, the lower court concluded that:
Considering that the officers (directors) of plaintiff corporation enumerated in the Articles of Incorporation, filed on
November 9, 1979, were "to serve until their successors are elected and qualified" and considering further that as
of March 4, 1981, the officers of the plaintiff corporation were Alberto Nograles, Fernando Hilario, Augusto Galace,
Jose L.R. Reyes, Pido Aguilar and Saturnino Belen, Jr., who presumably are the officers represented by the Siguion
Reyna Law Firm, and that together with the defendants, they are moving for the dismissal of the above-entitled
case, the Court finds that the officers represented by Atty. Dumadag do not as yet have the legal capacity to sue for
and in behalf of the plaintiff corporation and/or the filing of the present action (Civil Case 14413) by them before
Case No. 2688 of the SEC could be decided is a premature exercise of authority or assumption of legal capacity for
and in behalf of plaintiff corporation.
The issues raised in Civil Case No. 14444 are similar to those raised in Civil Case No. 14413. This Court is of the
opinion that before SEC Case No. 2688 could be decided, neither the set of officers represented by Atty. Dumadag
nor that set represented by the Siguion Reyna, Montecillo and Ongsiako Law Office, may prosecute cases in the
name of the plaintiff corporation.
It is clar from the pleadings filed by the parties in these two cases that the existence of a cause of action against
the defendants is dependent upon the resolution of the case involving intra-corporate controversy still pending
before the SEC. 3
On appeal, the Court of Appeals affirmed the trial court's Order 4 which dismissed the consolidated cases. Hence,
this petition.
Petitioner submits the following assignment of errors:
I The Court of Appeals erred in giving due course to the motion to dismiss filed by the Siguion Reyna Law Office
when the said motion is clearly filed not in behalf of the petitioner but in behalf of the group of Belen who are the
clients of the said law office.
I IThe Court of Appeals erred in giving due course to the motion to dismiss filed by the Siguion Reyna Law Office in
behalf of petitioner when the said law office had already appeared in other cases wherein the petitioner is the
adverse party.
III The Court of Appeals erred when it ruled that undersigned counsel was not authorized by the Board of Directors
to file Civil Case Nos. 14413 and 14444.
IV The Court of Appeals erred in concluding that under SEC Case No. 2688 the incumbent directors could not act for
and in behalf of the corporation.

V The Court of Appeals is without jurisdiction to prohibit the incumbent Board of Directors from acting and filing this
case when the SEC where SEC Case No. 2688 is pending has not even made the prohibition.
We find the petition without merit.
The only issue in this case is whether or not the filing of the case for damages against private respondent was
authorized by a duly constituted Board of Directors of the petitioner corporation.
Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel Pengson, Jose Ma. Silva, Aderito
Yujuico and Rodolfo Millare, presented the Minutes 5 of the meeting of its Board of Directors held on April 1, 1982,
as proof that the filing of the case against private respondent was authorized by the Board. On the other hand, the
second set of officers, viz., Saturnino G. Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes, presented a Resolution 6
dated July 30, 1986, to show that Premium did not authorize the filing in its behalf of any suit against the private
respondent International Corporate Bank.
Later on, petitioner submitted its Articles of Incorporation 7 dated November 6, 1979 with the following as
Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and Jose Ma. Silva.
However, it appears from the general information sheet and the Certification issued by the SEC on August 19, 1986
8 that as of March 4, 1981, the officers and members of the board of directors of the Premium Marble Resources,
Inc. were:
Alberto C. Nograles President/Director
Fernando D. Hilario Vice President/Director
Augusto I. Galace Treasurer
Jose L.R. Reyes Secretary/Director
Pido E. Aquilar Director
Saturnino G. Belen, Jr. Chairman of the Board.
While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for the year
1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to show proof that this
election was reported to the SEC. In fact, the last entry in their General Information Sheet with the SEC, as of 1986
appears to be the set of officers elected in March 1981.
We agree with the finding of public respondent Court of Appeals, that "in the absence of /any board resolution from
its board of directors the [sic] authority to act for and in behalf of the corporation, the present action must
necessarily fail. The power of the corporation to sue and be sued in any court is lodged with the board of directors
that exercises its corporate powers. Thus, the issue of authority and the invalidity of plaintiff-appellant 's
subscription which is still pending, is a matter that is also addressed, considering the premises, to the sound
judgment of the Securities & Exchange Commission." 9
By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant thereto are
required to submit within the period therein stated (30 days) to the Securities and Exchange Commission the
names, nationalities and residences of the directors, trustees and officers elected.
Sec. 26 of the Corporation Code provides, thus:
Sec. 26. Report of election of directors, trustees and officers. Within thirty (30) days after the election of the
directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit
to the Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees and
officers elected. . . .
Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction of
oath of responsible officers, of the nature of business, financial condition and operational status of the company
together with information on its key officers or managers so that those dealing with it and those who intend to do
business with it may know or have the means of knowing facts concerning the corporation's financial resources and
business responsibility. 10
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers
of Premium has not been fully substantiated. In the absence of an authority from the board of directors, no person,
not even the officers of the corporation, can validly bind the corporation. 11
We find no reversible error in the decision sought to be reviewed.

ACCORDINGLY, for lack of merit, the petition is hereby DENIED.

SO ORDERED.

G.R. No. L-68555 March 19, 1993

Prime White Cement v. IAC

FACTS:
In July 1969, Zosimo Falcon and Justo Trazo entered into an agreement with Alejandro Te whereby it was agreed that
from 1970 to 1976, Te shall be the sole dealer of 20,000 bags Prime White cement in Mindanao. Falcon was the
president of Prime White Cement Corporation (PWCC) and Trazo was a board member thereof. Te was likewise a
board member of PWCC. It was agreed that the selling price for a bag of cement shall be P9.70.
Before the bags of cement can be delivered, Te already made known to the public that he is the sole dealer of
cements in Mindanao. Various hardwares then approached him to be his sub-dealers, hence, Te entered into various
contracts with them.
But then apparently, Falcon and Trazo were not authorized by the Board of PWCC to enter into such contract.
Nevertheless, the Board wished to retain the contract but they wanted some amendment which includes the
increase of the selling price per bag to P13.30 and the decrease of the total amount of cement bags from 20k to 8k
only plus the contract shall only be effective for a period of three months and not 6 years.
Te refused the counter-offer. PWCC then awarded the contract to someone else.
Te then sued PWCC for damages. PWCC filed a counterclaim and in said counterclaim, it is claiming for moral
damages the basis of which is the claim that Tes filing of a civil case against PWCC destroyed the companys
goodwill. The lower court ruled in favor Te.

ISSUE: Whether or not the ruling of the lower court is correct.

RULING:
No. Te is what can be called as a self-dealing director he deals business with the same corporation in which he is a
director. There is nothing wrong per se with that. However, Sec. 32 provides that:
SEC. 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with one or
more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following
conditions are present:
1. That the presence of such director or trustee in the board meeting in which the contract was approved was not
necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in the case of an officer, the contract with the officer has been previously authorized by the Board of
Directors.
In this particular case, the Supreme Court focused on the fact that the contract between PWCC and Te through
Falcon and Trazo was not reasonable. Hence, PWCC has all the rights to void the contract and look for someone
else, which it did. The contract is unreasonable because of the very low selling price. The Price at that time was at
least P13.00 per bag and the original contract only stipulates P9.70. Also, the original contract was for 6 years and
theres no clause in the contract which protects PWCC from inflation. As a director, Te in this transaction should
protect the corporations interest more than his personal interest. His failure to do so is disloyalty to the
corporation.
Anent the issue of moral damages, there is no question that PWCCs goodwill and reputation had been prejudiced
due to the filing of this case. However, there can be no award for moral damages under Article 2217 of the Civil
Code in favor of a corporation.

Corporate Law Case Digest: Filipinas Port v. Go (2007)

G.R. No. 161886

March 16, 2007

Lessons Applicable: Rationale for "Centralized Management" Doctrine

FACTS:
Sept 4 1992: Eliodoro C. Cruz, Filports president from 1968-1991, wrote a letter to the corporations BOD
questioning the creation and election of the following positions with a monthly remuneration of P13,050.00 each.
Cruz requested the board to take necessary action/actions to recover from those elected to the aforementioned
positions the salaries they have received.
Jun 4 1993: Cruz, purportedly in representation of Filport and its stockholders, among which is herein copetitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed with the SEC a derivative suit against
Filport's BOD for acts of mismanagement detrimental to the interest of the corporation and its shareholders at large.
Cruz prayed that the BOD 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.

RTC: BOD have the power to create positions not in the by-laws and can increase salaries. But Edgar C. Trinidad
under the third and fourth causes of action to restore to the corporation the total amount of salaries he received as
assistant vice president for corporate planning; and likewise ordering Fortunato V. de Castro and Arsenio Lopez
Chua under the fourth cause of action to restore to the corporation the salaries they each received as special
assistants respectively to the president and board chairman. In case of insolvency of any or all of them, the
members of the board who created their positions are subsidiarily liable.
Appealed: creation of the positions merely for accommodation purposes - GRANTED
ISSUES:
W/N there was mismanagement - NO
W/N there is a proper derivative suit - YES

HELD: CA Affirmed
NO
Section 35 of the Corporation Code, the creation of an executive committee (as powerful as the BOD) must be
provided for in the bylaws of the corporation
Notwithstanding the silence of Filports bylaws on the matter, we cannot rule that the creation of the executive
committee by the board of directors is illegal or unlawful. One reason is the absence of a showing as to the true
nature and functions of executive committee
But even assuming there was mismanagement resulting to corporate damages and/or business losses,
respondents may not be held liable in the absence of a showing of bad faith in doing the acts complained of.
("dishonest purpose","some moral obliquity","conscious doing of a wrong", "partakes of the nature of fraud")
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
2. YES
Besides, the requisites before a derivative suit can be filed by a stockholder: - present
a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of, the
number of his shares not being material; - a stockholder of Filport
b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the
appropriate relief but the latter has failed or refused to heed his plea; and
- he wrote a letter
c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being
caused to the corporation and not to the particular stockholder bringing the suit. - wrong against the stockholders
of the corporation generally
G.R. No. 151969

September 4, 2009

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY GAMBOA, AMADO M. SANTIAGO, JR.,
FORTUNATO DEE, AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS III, ERIC ROXAS, in their
capacities as members of the Board of Directors of Valle Verde Country Club, Inc., and JOSE RAMIREZ,
Petitioners, vs. VICTOR AFRICA, Respondent.

FACTS
On February 27, 1996, during the Annual Stockholders Meeting of petitioner Valle Verde Country Club, Inc. (VVCC),
the VVCC Board of Directors were elected including Eduardo Makalintal (Makalintal) among others. In the years
1997, 1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of the stockholders meeting
could not be obtained. Consequently, the directors continued to serve in the VVCC Board in a hold-over capacity.
Later, Makalintal resigned as member of the VVCC Board. He was replaced by Jose Ramirez (Ramirez), who was
elected by the remaining members of the VVCC Board on March 6, 2001. Respondent Africa (Africa), a member of

VVCC, questioned the election of Ramirez as members of the VVCC Board with the Regional Trial Court (RTC),
respectively. Africa claimed that a year after Makalintals election as member of the VVCC Board in 1996, his
[Makalintals] term as well as those of the other members of the VVCC Board should be considered to have
already expired. Thus, according to Africa, the resulting vacancy should have been filled by the stockholders in a
regular or special meeting called for that purpose, and not by the remaining members of the VVCC Board, as was
done in this case. The RTC sustained Africas complaint.

ISSUE
Whether the remaining directors of the corporations Board, still constituting a quorum, can elect another director to
fill in a vacancy caused by the resignation of a hold-over director.

RULING
NO.
When Section 23 of the Corporation Code declares that the board of directorsshall hold office for one (1) year
until their successors are elected and qualified, we construe the provision to mean that the term of the members
of the board of directors shall be only for one year; their term expires one year after election to the office. The
holdover period that time from the lapse of one year from a members election to the Board and until his
successors election and qualification is not part of the directors original term of office, nor is it a new term; the
holdover period, however, constitutes part of his tenure. Corollary, when an incumbent member of the board of
directors continues to serve in a holdover capacity, it implies that the office has a fixed term, which has expired,
and the incumbent is holding the succeeding term.
[Here], when remaining members of the VVCC Board elected Ramirez to replace Makalintal, there was no more
unexpired term to speak of, as Makalintals one-year term had already expired. Pursuant to law, the authority to fill
in the vacancy caused by Makalintals leaving lies with the VVCCs stockholders, not the remaining members of its
board of directors. To assume as VVCC does that the vacancy is caused by Makalintals resignation in 1998, not
by the expiration of his term in 1997, is both illogical and unreasonable. His resignation as a holdover director did
not change the nature of the vacancy; the vacancy due to the expiration of Makalintals term had been created long
before his resignation

WESTERN INSTITUTE OF TECHNOLOGY, INC., vs. RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD
SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE PORFIRIO PARIAN, G.R. No.
113032 August 21, 1997
FACTS:
Up for review on certiorari are: the Decision and the Order of Branch 33 of the RTC of Iloilo City in Criminal Cases for
estafa and falsification of a public document. The judgment acquitted the private respondents of both charges, but
petitioners seek to hold them civilly liable.
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S.
Salas, belonging to the same family, are the majority and controlling members of the Board of Trustees of Western

Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in the operation, among others, of an
educational institution. According to petitioners, the minority stockholders of WIT, sometime on June 1, 1986 in the
principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In attendance were other members of
the Board including one of the petitioners Reginald Villasis. Prior to aforesaid Special Board Meeting, copies of
notice thereof, dated May 24, 1986, were distributed to all Board Members. The notice allegedly indicated that the
meeting to be held on June 1, 1986 included Item No. 6 which was about the possible implementation on monthly
compensation of all officers of the corporation. In said meeting, the Board of Trustees passed Resolution No. 48,
granting monthly compensation to the private respondents as corporate officers retroactive June 1, 1985.
On March 13, 1991, petitioners Homero Villasis, Prestod Villasis, Reginald Villasis and Dimas Enriquez filed an
affidavit-complaint against private respondents before the Office of the City Prosecutor of Iloilo, as a result of which
two (2) separate criminal informations, one for falsification of a public document under Article 171 of the Revised
Penal Code and the other for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of the RTC
of Iloilo City. The charge for falsification of public document was anchored on the private respondents' submission of
WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC)
reflecting therein the disbursement of corporate funds for the compensation of private respondents based on
Resolution No. 4, series of 1986, making it appear that the same was passed by the board on March 30, 1986, when
in truth, the same was actually passed on June 1, 1986, a date not covered by the corporation's fiscal year 19851986 (beginning May 1, 1985 and ending April 30, 1986).
Thereafter, trial for the two criminal cases were consolidated. After a full-blown hearing, the Judge handed down a
verdict of acquittal on both counts dated September 6, 1993 without imposing any civil liability against the accused
therein.
Petitioners filed a MR of the civil aspect of the RTC Decision which was denied. Hence, the instant petition. On
December 8, 1994, a Motion for Intervention, was filed by WIT, supposedly one of the petitioners herein, disowning
its inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel for the other petitioners, had no
authority whatsoever to represent the corporation in filing the petition and likewise prayed for the dismissal of the
petition. This was granted.
ISSUES:
1.) WON private respondents can be held civilly liable despite their acquittal in Criminal Cases.
2.) WON petitioners can file the instant case being a derivative suit as minority shareholders of WIT for and on
behalf of the corporation.

RULE:
1st issue Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal
Cases. They base their claim on the alleged illegal issuance by private respondents of Resolution No. 48, series of
1986 ordering the disbursement of corporate funds in the amount of P186,470.70 representing retroactive
compensation as of June 1, 1985 in favor of private respondents, board members of WIT, plus P1,453,970.79 for the
subsequent collective salaries of private respondents every 15th and 30th of the month until the filing of the
criminal complaints against them on March 1991. Petitioners maintain that this grant of compensation to private
respondents is proscribed under Section 30 of the Corporation Code, thus, private respondents are obliged to return
these amounts to the corporation with interest.
We cannot sustain the petitioners. The pertinent section of the Corporation Code provides: Sec. 30. Compensation
of directors In the absence of any provision in the by-laws fixing their compensation, the directors shall not
receive any compensation, as such directors, except for reasonable per diems: Provided, however, That any such
compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at
least a majority of the outstanding capital stock at a regular or special stockholders' meeting. In no case shall the
total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before
income tax of the corporation during the preceding year.
Under the foregoing section, there are only two (2) ways by which members of the board can be granted
compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular
or special stockholders' meeting agree to give it to them.
Worthy of note is the clear phraseology of Section 30 which states: "[T]he directors shall not receive any
compensation, as such directors, " The unambiguous implication is that members of the board may receive
compensation, in addition to reasonable per diems, when they render services to the corporation in a capacity other

than as directors/trustees. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to
private respondents not in their capacity as members of the board, but rather as officers of the corporation, more
particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of Technology. Clearly,
therefore, the prohibition under Section 30 is not violated in this particular case. Consequently, the last sentence of
Section 30 which provides: In no case shall the total yearly compensation of directors, as such directors, exceed
ten (10%) percent of the net income before income tax of the corporation during the preceding year. does not
likewise find application in this case since the compensation is being given to private respondents in their capacity
as officers of WIT and not as board members.
2nd issue Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of
WIT for and on behalf of the corporation to annul Resolution No. 48, s. 1986 which is prejudicial to the corporation.
A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs
committed against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the
principal defense of the minority shareholders against abuses by the majority. This case is not a derivative suit but
is merely an appeal on the civil aspect of Criminal Cases. In a derivative suit, the minority shareholder must allege
in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation
and all other shareholders similarly situated who wish to join. This is necessary to vest jurisdiction upon the
tribunal in line with the rule that it is the allegations in the complaint that vests jurisdiction upon the court or quasijudicial body concerned over the subject matter and nature of the action. This was not complied with by the
petitioners either in their complaint before the court a quo nor in the instant. By no amount of equity
considerations, if at all deserved, can a mere appeal on the civil aspect of a criminal case be treated as a derivative
suit.
Granting that this is a derivative suit as insisted by petitioners, the same is outrightly dismissible for having been
wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. The case should have been
filed with the Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction over
derivative suits, they being intra-corporate disputes, based on Section 5 (b) of P.D. No. 902-A. Once the case is
decided by the SEC, the losing party may file a petition for review before the CA raising questions of fact, of law, or
mixed questions of fact and law. It is only after the case has ran this course, and not earlier, can it be brought to us
via a petition for review on certiorari under Rule 45 raising only pure questions of law. Petitioners, in pleading that
we treat the instant petition as a derivative suit, are trying to short-circuit the entire process which we cannot here
sanction. As an appeal on the civil aspect of Criminal Cases for falsification of public document and estafa, which
this petition truly is, we have to deny the petition just the same.
From the foregoing factual findings, which we find to be amply substantiated by the records, it is evident that there
is simply no basis to hold the accused, private respondents herein, civilly liable. Section 2, Rule 120 reads: In case
of acquittal, unless there is a clear showing that the act from which the civil liability might arise did not exist, the
judgment shall make a finding on the civil liability of the accused in favor of the offended party.
The acquittal in Criminal Cases is not merely based on reasonable doubt but rather on a finding that the accusedprivate respondents did not commit the criminal acts complained of. Thus, pursuant to the above rule and settled
jurisprudence, any civil action ex delicto cannot prosper. Acquittal in a criminal action bars the civil action arising
therefrom where the judgment of acquittal holds that the accused did not commit the criminal acts imputed to
them. WHEREFORE, the instant petition is hereby DENIED with costs against petitioners. SO ORDERED.

Turner vs. Lorenzo Shipping

Facts:
The petitioners (Philip and Elnora Turner) held 1,010,000 shares of stock of the respondent (Lorenzo Shipping
Corp.), a domestic corporation engaged primarily in cargo shipping activities. The respondent decided to amend its
articles of incorporation to remove the stockholders pre-emptive rights to newly issued shares of stock. The
petitioners voted against the amendment and demanded payment of their shares at the rate of P2.276/share based
on the book value of the shares, or a total of P2,298,760.00.
The respondent found the fair value of the shares demanded to be unacceptable. It insisted that the market value
on the date before the action to remove the pre-emptive right was taken should be the value, or P0.41/share
(P414,100.00) and that the payment could be made only if the respondent had unrestricted retained earnings in its
books to cover the value of the shares, which was not the case.
The disagreement on the valuation of the shares led the parties to constitute an appraisal committee pursuant to
Sec. 82 of the Corporation Code. The committee reported its valuation of P2.54/share, for an aggregate value of
P2,565,400.00.
Subsequently, the petitioners demanded payment based on the valuation plus 2%/month penalty from the date of
their original demand for payment, as well as the reimbursement of the amounts advanced as professional fees to
the appraisers.
Respondent refused the petitioners demand, explaining that pursuant to the Corporation Code, the dissenting
stockholders exercising their appraisal rights could be paid only when the corporation had unrestricted retained
earnings to cover the fair value of the shares, but that it had no retained earnings at the time of the petitioners
demand, as borne out by its Financial Statements for Fiscal Year 1999 showing a deficit of P72,973,114.00 as of
December 31, 1999.
Upon the respondents refusal to pay, the petitioners sued the respondent for collection and damages in the RTC on
January 22, 2001.
The petitioners filed their motion for partial summary judgment, claiming that the respondent has an accumulated
unrestricted retained earnings of P11,975,490.00, evidenced by its Financial Statement as of the Quarter Ending
March 31, 2002;
The respondent opposed the motion for partial summary judgment, stating that the determination of the
unrestricted retained earnings should be made at the end of the fiscal year of the respondent, and that the
petitioners did not have a cause of action against the respondent.

RTC granted the petitioners motion fixing the fair value of the shares of stocks at P2.54 per share. The evidence
submitted shows that the respondent has retained earnings of P11,975,490 as of March 21, 2002. This is not
disputed by the defendant. Its only argument against paying is that there must be unrestricted retained earnings at
the time the demand for payment is made. RTC further stated that the law does not say that the unrestricted
retained earnings must exist at the time of the demand. Even if there are no retained earnings at the time the
demand is made if there are retained earnings later, the fair value of such stocks must be paid. The only restriction
is that there must be sufficient funds to cover the creditors after the dissenting stockholder is paid.
Subsequently, on November 28, 2002, the RTC issued a writ of execution.
The respondent commenced a special civil action for certiorari in the CA. CA issued a TRO, enjoining the
petitioners, and their agents and representatives from enforcing the writ of execution. By then, however, the writ of
execution had been partially enforced. The TRO then lapsed without the CA issuing a writ of preliminary injunction
to prevent the execution. Thereupon, the sheriff resumed the enforcement of the writ of execution.
CA granted respondent's petition. The Orders and the corresponding Writs of Garnishment are NULLIFIED and the
Civil Case is ordered DISMISSED.

Issue:
WON the petitioners have a valid cause of action against the respondent.

Held:
No. SC upheld the decision of the CA. RTC acted in excess of its jurisdiction.
No payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings
in its books to cover the payment (apply the Trust fund doctrine). In case the corporation has no available
unrestricted retained earnings in its books, Sec. 83 provides that if the dissenting stockholder is not paid the value
of his shares within 30 days after the award, his voting and dividend rights shall immediately be restored.
The respondent had indisputably no unrestricted retained earnings in its books at the time the petitioners
commenced the Civil Case on January 22, 2001. It proved that the respondents legal obligation to pay the value of
the petitioners shares did not yet arise. The Turners right of action arose only when petitioner had already
retained earnings in the amount of P11,975,490.00 on March 21, 2002; such right of action was inexistent on
January 22, 2001 when they filed the Complaint.

The RTC concluded that the respondents obligation to pay had accrued by its having the unrestricted retained
earnings after the making of the demand by the petitioners. It based its conclusion on the fact that the Corporation
Code did not provide that the unrestricted retained earnings must already exist at the time of the demand.
The RTCs construal of the Corporation Code was unsustainable, because it did not take into account the petitioners
lack of a cause of action against the respondent. In order to give rise to any obligation to pay on the part of the
respondent, the petitioners should first make a valid demand that the respondent refused to pay despite having
unrestricted retained earnings. Otherwise, the respondent could not be said to be guilty of any actionable omission
that could sustain their action to collect.
Neither did the subsequent existence of unrestricted retained earnings after the filing of the complaint cure the lack
of cause of action. The petitioners right of action could only spring from an existing cause of action. Thus, a
complaint whose cause of action has not yet accrued cannot be cured by an amended or supplemental pleading
alleging the existence or accrual of a cause of action during the pendency of the action. For, only when there is an
invasion of primary rights, not before, does the adjective or remedial law become operative. Verily, a premature
invocation of the courts intervention renders the complaint without a cause of action and dismissible on such
ground. In short, the Civil Case, being a groundless suit, should be dismissed.
Even the fact that the respondent already had unrestricted retained earnings more than sufficient to cover the
petitioners claims on June 26, 2002 (when they filed their motion for partial summary judgment) did not rectify the
absence of the cause of action at the time of the commencement of the Civil Case. The motion for partial summary
judgment, being a mere application for relief other than by a pleading, was not the same as the complaint in the
Civil Case. Thereby, the petitioners did not meet the requirement of the Rules of Court that a cause of action must
exist at the commencement of an action, which is "commenced by the filing of the original complaint in court."

Additional info:
Cause of Action:
A cause of action is the act or omission by which a party violates a right of another. The essential elements of a
cause of action are: (a) the existence of a legal right in favor of the plaintiff; (b) a correlative legal duty of the
defendant to respect such right; and (c) an act or omission by such defendant in violation of the right of the plaintiff
with a resulting injury or damage to the plaintiff for which the latter may maintain an action for the recovery of
relief from the defendant. Although the first two elements may exist, a cause of action arises only upon the
occurrence of the last element, giving the plaintiff the right to maintain an action in court for recovery of damages
or other appropriate relief.