(1) THE BOARD OF LIQUIDATORS vs. HEIRS OF MAXIMO M.
KALAW, - Thereafter, President Roxas made a statement that NACOCO head did his
JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA, and
LEONOR MOLL
FACTS: The National Coconut Corporation (NACOCO) was chartered as a
non-profit governmental organization for the purposes of protection,
preservation and development of the coconut industry in the Philippines.
- NACOCOs charter was amended by RA No. 5 to grant the corporation the
express power to buy, sell, barter, export and in any manner deal in coconut,
copra and dessicated coconut as well as their by-products and to act as
agent, broker or commission merchant of the producers, dealers or
merchants thereof.
- NACOCO, after the passage of RA No. 5 embarked on copra trading
activities and amongst the scores of contracts executed by general manager
Kalaw were the disputed contracts for the delivery of copra. An unhappy
chain of events conspired to deter NACOCO from fulfilling these contracts.
Four (4) devastating typhoons visited the Philippines and the coconut trees
throughout the country suffered extensive damage.
-When it became clear that the contracts would be unprofitable, Kalaw
submitted them to the board for approval. A meeting was then held and
Kalaw made a full disclosure of the situation as regards the impending heavy
losses. No action was taken on the contracts. Neither did the board vote
thereon at the meeting.
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best to avert the losses and that NACOCO was recouping its losses and that
Kalaw was to remain in his post. The board met again with Kalaw and other
defendants Bocar, Garcia and Moll and they unanimously approved the
contracts as stated hereinbefore.
- The buyers threatened damage suits and some of the claims were settled.
However, one buyer Louis Dreyfus & Go. (Overseas) Ltd. did in fact sue
before the Court of First Instance of Manila, upon several claims involving
undelivered copra. These cases culminated in an out-of-court amicable
settlement when the Kalaw management was already out. The corporation
paid Dreyfus 70% of the total claims.
- With reference to the claims of Dreyfus, NACOCO put up the defenses that:
(1) The contracts were void because Dreyfus & Co. Ltd. did not have license
to do business here and;
(2) Failure to deliver was due to force majeure- the typhoons.
- NACOCO settled for P1,343,274.52, which it subsequently sought to
recover from general manager and board chairman Maximo M. Kalaw, and
directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw
with negligence under Article 2176 of the new Civil Code; and defendant
board members, including Kalaw, with bad faith and/or breach of trust for
having approved the contracts.
- The lower court dismissed the complaint as well as defendants
counterclaims except that plaintiff was ordered to pay the heirs of Kalaw for
unpaid salaries and cash deposits due the deceased Kalaw. Plaintiff
appealed directly to the Supreme Court.
UNAUTHORIZED BROKER
FACTS:
ISSUE: W/N Maximo Kalaw, the general manager, acted with bad faith
and/or breach of trust for entering contracts without prior board approval.
HELD: No. In the case at bar, the practice of the corporation has been to
allow its general manager to negotiate and execute contracts in its copra
trading activities for and in NACOCO's behalf without prior board approval. If
the by-laws were to be literally followed, the board should give its stamp of
prior approval on all corporate contracts. But that board itself, by its acts and
through acquiescence, practically laid aside the by-law requirement of prior
approval.
- By corporate confirmation, the contracts executed by Kalaw are valid
corporate acts and are thus purged of whatever vice or defect they may
have. Even in the face of an express by-law requirement of prior approval,
the law on corporations is not to be held so rigid and inflexible as to fail to
recognize equitable considerations. And, the conclusion inevitably is that the
embattled contracts remain valid.
- It is a well known rule of law that questions of policy of management are left
solely to the honest decision of officers and directors of a corporation, and
the court is without authority to substitute its judgment for the judgment of the
board of directors; the board is the business manager of the corporation,
and so long as it acts in good faith its orders are not reviewable by the
courts." The decision of the lower court is affirmed.
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(2) FIRME v. BUKAL ENTERPRISES & DEVT CORP
Sps. Firme owned a parcel of land in Fairview QC
Bukal Enterprises VPres De Castro authorized his friend Teodoro
Aviles (broker) to negotiate with petitioner spouses for the purchase
of their property (property valued at P2,500/sq.m)
Bukal Enterprises filed a complaint for specific performance and
damages v Sp. Firme (alleging that the Sp.Firme failed to comply
with their contract to sell agreement)
Per Sp. Firme
- No consent given to the sale of the property
- Repeatedly told Aviles that the property is not for sale (they intend
to reserve the property for their childred)
-The terms and conditions in the contract seemed one-sided thus
found unacceptable for the spouses: there was a provision
necessitating the delivery of the Propertys title in order for Bukal to
secure a loan from a bank and use the proceeds to pay for the
property
-Upon visit in their property, the spouses saw that thereve been
improvements made and the squatters vacated the property
-That Aviles (broker) had no valid authority to bind Bukal Enterprises
in the sale transaction (there was no board resolution authorizing
Aviles to act on behalf of Bukal Enterp.- this was ratified by Bukal
when it filed the complaint for enforcement of sale
Per Bukal Enterprises:
-Aviles testified that he was authorized to represent Bukal
Enterprises (even presented the 1st draft of the Deed of Sale to the
petitioners but such draft was rejected due to several objectionable
conditions e.g. payment of capital gains tax/other govt taxes by the
seller, relocation of the squatters at the sellers expense
-2nd draft allegedly accepted after the deletion of the objectionable
conditions and agreement re place where payment was to be made
-Scheduled payment had been postponed due to problems in the
transfer of funds
Later on Sp. Firme told Aviles that they were no longer interested in
selling their property
A demand letter from Bukal Enterp. was received by Sp. Firme
 Bukal Enterprises filed a complaint for specific performance and
damages
RTC: Complaint Dismissed. (There was No perfected contract of sale)
CA: Reversed
ISSUE: WON there was proper authorization from the BOD of Bukal
Enterprises for Aviles to contract on their behalf
HELD: Assuming that there was a valid sale, there was no approval from the
BOD of Bukal Enterprises to finalize any transaction with Sp. Firme. As
provided under Sec. 23 and 36 of the Corporation Code, the power to
purchase real property is vested in the board of directors or trustees. While a
corporation may appoint agents to negotiate for the purchase of real property
needed by the corporation, the final say will have to be with the board, whose
approval will finalize the transaction. A corporation can only exercise its
powers and transact business through its BOD/officers/agents when
authorized by a board resolution or its by-laws. In this case, there was no
board resolution from Bukals BOD for Aviles to transact on their behalf.
Therefore, Aviles lacked the proper authority to negotiate for Bukal
Enterprises.
(3) ARATEA & CANONIGO v. SUICO & CA
FACTS:
Case is about a complaint for a Sum of Money and damages involving
Aratea and Canonigo and Suico
-Aratea and Canonigo = controlling stockholders of Samar Mining
Development Corporation (SAMDECO) a domestic corporation engaged
in mining operations in San Isidro, Wright, Western Samar.
-Suico = businessman engaged in export and general merchandise
Suico entered into a MOA with SAMDECO (represented by Aratea and
Canonigo)
Under the MOA, Suico would extend loans and cash advances to
SAMDECO In exchange, SAMDECO would grant Suico the following
1. Exclusive right to sell/ market of the 50% of the coal extracted by
Samdeco from its open pit mines in Samar
2. Suico shall be paid 5% interest per month on the loan/ cash
advances that he extends.
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3. Suico given the right of first priority to operate the mining facilities in
the event SAMDECO becomes incapable of coping with the work
demands
4. Appointment as VP for Admin of Samdeco
Suico started lending money to SAMDECO, started selling the 50% of
the coal but failed to close a sale since all the offers from the clients he
brought in were allegedly too low for Aratea and Suico, despite being
competitive and fair enough.
SAMDECO never paid the loan principal and the 5% monthly interest
rate it promised.
SAMDECO was able to sell the other 50%.
Aratea and Canonigo eventually sold the mining rights and passed on
the operations of SAMDECO to Southeast Pacific Marketing, Inc.
(SPMI) (owned by Dy) without notice to/ consent from Suico
Suico filed a complaint for a Sum of Money and damages.
RTC: Aratea and Canonigo found solidarily liable with SAMDECO and SPMI
CA: Affirmed TCs decision
ISSUES: (1) WON the doctrine of piercing the corporate veil can be applied
in this case.
(2) WON petitioners should be held solidarily liable with Samdeco
HELD: (1) NO. Theres no reason to pierce the veil of corporation fiction in
this case. Absent any proof of fraud or double dealing, therefore, the doctrine
on piercing the veil of corporate entity would not apply. In this case, Suico
was very much aware that he was dealing with SAMDECO and that Aratea
and Canonigo were mere authorized representatives acting for and in behalf
of the corporation (they were authorized by a Board resolution). Also, there
were no indications whatsoever that Suico was misled to believe that the
loans and cash advances were intended for the personal benefit of Aratea
and/or Canonigo. Therefore, absent any proof of fraud or double dealing, the
doctrine on piercing the veil of corporate entity would not apply.
(2) YES. Under the Corp Code, the gen.rule states that obligations incurred
by the corporation are its sole liabilities. The following are the exceptions:
1.)When directors/ trustees/ officers of a corporation:
 1.1) vote for or assent to patently unlawful acts of the
corporation;
1.2) act in bad faith or with gross negligence in directing the
corporate affairs; (Court applied this one);
1.3) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;
2.) When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not forthwith file with
the corporate secretary his written objection thereto;
3.) When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the corporation;
or
4.) When a director, trustee or officer is made, by specific provision of
law, personally liable for his corporate action ;
5.) In labor cases - corporate directors and officers are solidarily
liable with the corporation for the termination of employment of corporate
employees done with malice or in bad faith.
- In this case, Aratea and Canonigo, despite having separate and distinct
personalities from SAMDECO are personally liable for the loans and
advances made by Suico to SAMDECO on account of their bad faith in
carrying out the business of the corporation. Court noted the following signs
of bad faith:
1.) Petitioners Aratea and Canonigo acted in bad faith when they, as officers
of SAMDECO, unreasonably prevented Suico from selling his part of the
coal-produce of the mining site, in gross violation of their MOA.
2.) Moreover, petitioners also acted in bad faith when they sold their rights
over the mining area in favor of SPMI and Dy (despite the right of first priority
given to Suico in the MOA).
- Hence, Suico suffered grave injustice because he was prevented from
acquiring the opportunity to obtain payment of his loans and cash advances,
while petitioners Aratea and Canonigo profited from the sale of their
shareholdings in SAMDECO in favour of SPMI and DY. The facts duly
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 4
established Aratea and Canonigos personal liability as officers/stockholders
of SAMDECO and their solidary liability with SAMDECO for its obligations in
favour of Suico.
(4) PRIME WHITE CEMENT CORP. v. IAC & TE
FACTS: On or about 16 July 1969, Alejandro Te and Prime White Cement
Corporation (PWCC) thru its President, Mr. Zosimo Falcon and Justo C.
Trazo, as Chairman of the Board, entered into a dealership agreement
whereby Te was obligated to act as the exclusive dealer and/or distributor of
PWCC of its cement products in the entire Mindanao area for a term of 5
years and providing among others that:
(a) the corporation shall, commencing September, 1970, sell to and
supply Te, as dealer with 20,000 bags (94 lbs/bag) of white cement per
month;
(b) Te shall pay PWCC P9.70, Philippine Currency, per bag of white
cement, FOB Davao and Cagayan de Oro ports;
(c) Te shall every time PWCC is ready to deliver the good, open with
any bank or banking institution a confirmed, unconditional, and irrevocable
letter of credit in favor of PWCC and that upon certification by the boat
captain on the bill of lading that the goods have been loaded on board the
vessel bound for Davao the said bank or banking institution shall release the
corresponding amount as payment of the goods so shipped."
- Right after plaintiff Te entered into the dealership agreement, he placed an
advertisement in a national, circulating newspaper the fact of his being the
exclusive dealer of PWWC's white cement products in Mindanao area, more
particularly, in the Manila Chronicle dated 16 August 1969 and was even
congratulated by his business associates, so much so, he was asked by
some of his businessmen friends and close associates if they can be his sub-
dealer in the Mindanao area.
- Relying heavily on the dealership agreement, Te sometime in the months of
September, October, and December, 1969, entered into a written agreement
with several hardware stores dealing in buying and selling white cement in
the Cities of Davao and Cagayan de Oro which would thus enable him to sell
his allocation of 20,000 bags regular supply of the said commodity, by
September, 1970.
- After Te was assured by his supposed buyer that his allocation of 20,000
bags of white cement can be disposed of, he informed the defendant
corporation in his letter dated 18 August 1970 that he is making the
necessary preparation for the opening of the requisite letter of credit to cover
the price of the due initial delivery for the month of September 1970, looking
forward to PWCC's duty to comply with the dealership agreement. In reply to
the aforesaid letter of Te, PWCC thru its corporate secretary, replied that the
board of directors of PWCC decided to impose the following conditions:
(a) Delivery of white cement shall commence at the end of November, 1970;
(b) Only 8,000 bags of white cement per month for only a
period of three (3) months will be delivered;
(c) The price of white cement was priced at P13.30 per bag;
(d) The price of white cement is subject to readjustment unilaterally on the
part of the defendant;
(e) The place of delivery of white cement shall be Austurias (sic);
(f) The letter of credit may be opened only with the Prudential Bank, Makati
Branch;
(g) Payment of white cement shall be made in advance and which payment
shall be used by the defendant as guaranty in the opening of a foreign letter
of credit to cover costs and expenses in the procurement of materials in the
manufacture of white cement.
- Several demands to comply with the dealership agreement were made by
Te to PWCC, however, PWCC refused to comply with the same, and Te by
force of circumstances was constrained to cancel his agreement for the
supply of white cement with third parties, which were concluded in
anticipation of, and pursuant to the said dealership agreement.
- Notwithstanding that the dealership agreement between Te and PWCC was
in force and subsisting, PWCC, in violation of, and with evident intention not
to be bound by the terms and conditions thereof, entered into an exclusive
dealership agreement with a certain Napoleon Co for the marketing of white
cement in Mindanao. Te filed suit.
- After trial, the trial court adjudged PWCC liable to Alejandro Te in the
amount of P3,302,400.00 as actual damages, P100,000.00 as moral
damages, and P10,000 00 as and for attorney's fees and costs. The
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 5
appellate court affirmed the said decision. Hence, PWCC filed the petition for
review on certiorari.
ISSUE: Whether the "dealership agreement" referred by the President and
Chairman of the Board of PWCC is a valid and enforceable contract.
HELD: The dealership agreement is not valid and unenforceable. Under the
Corporation Law, which was then in force at the time the case arose, as well
as under the present Corporation Code, all corporate powers shall be
exercised by the Board of Directors, except as otherwise provided by law.
- Although it cannot completely abdicate its power and responsibility to act for
the juridical entity, the Board may expressly delegate specific powers to its
President or any of its officers. In the absence of such express delegation, a
contract entered into by its President, on behalf of the corporation, may still
bind the corporation if the board should ratify the same expressly or
impliedly. Implied ratification may take various forms like silence or
acquiescence; by acts showing approval or adoption of the contract; or by
acceptance and retention of benefits flowing therefrom.
- Furthermore, even in the absence of express or implied authority by
ratification, the President as such may, as a general rule, bind the
corporation by a contract in the ordinary course of business, provided the
same is reasonable under the circumstances. These rules are basic, but are
all general and thus quite flexible. They apply where the President or other
officer, purportedly acting for the corporations, is dealing with a third person,
i.e., a person outside the corporation.
- The situation is quite different where a director or officer is dealing with his
own corporation. Herein, Te was not an ordinary stockholder; he was a
member of the Board of Directors and Auditor of the corporation as well. He
was what is often referred to as a "self-dealing" director. A director of a
corporation holds a position of trust and as such, he owes a duty of loyalty to
his corporation.
- In case his interests conflict with those of the corporation, he cannot
sacrifice the latter to his own advantage and benefit. As corporate managers,
directors are committed to seek the maximum amount of profits for the
corporation. A director's contract with his corporation is not in all instances
void or voidable. If the contract is fair and reasonable under the
circumstances, it may be ratified by the stockholders provided a full
disclosure of his adverse interest is made.
- Granting arguendo that the "dealership agreement" would be valid and
enforceable if entered into with a person other than a director or officer of the
corporation, the fact that the other party to the contract was a Director and
Auditor of PWCC changes the whole situation.
- First of all, the contract was neither fair nor reasonable. The "dealership
agreement" entered into in July 1969, was to sell and supply to Te 20,000
bags of white cement per month, for 5 years starting September 1970, at the
fixed price of P9.70 per bag. Te is a businessman himself and must have
known, or at least must be presumed to know, that at that time, prices of
commodities in general, and white cement in particular, were not stable and
were expected to rise.
- At the time of the contract, PWCC had not even commenced the
manufacture of white cement, the reason why delivery was not to begin until
14 months later. He must have known that within that period of 6 years, there
would be a considerable rise in the price of white cement. In fact, Te's own
Memorandum shows that in September 1970, the price per bag was P14.50,
and by the middle of 1975, it was already P37.50 per bag. Despite this, no
provision was made in the "dealership agreement" to allow for an increase in
price mutually acceptable to the parties.
- Instead, the price was pegged at P9.70 per bag for the whole 5 years of the
contract. Fairness on his part as a director of the corporation from whom he
was to buy the cement, would require such a provision. In fact, this
unfairness in the contract is also a basis which renders a contract entered
into by the President, without authority from the Board of Directors, void or
voidable, although it may have been in the ordinary course of business. The
fixed price of P9.70 per bag for a period of 5 years was not fair and
reasonable.
- As director, especially since he was the other party in interest, Te's bounden
duty was to act in such manner as not to unduly prejudice the corporation. In
the light of the circumstances of this case, it is to Us quite clear that he was
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 6
guilty of disloyalty to the corporation; he was attempting in effect, to enrich
himself at the expense of the corporation. There is no showing that the
stockholders ratified the "dealership agreement" or that they were fully aware
of its provisions. The contract was therefore not valid and the Court cannot
allow him to reap the fruits of his disloyalty.
(5) ZOMER DEVT CORP v. INTERNATIONAL EXCHANGE BANK
FACTS:
The Board of Directors of Zomer Development Corp. approved a
resolution authorizing it to apply for and obtain a credit line with
respondent International Exchange Bank (IEB) in the amount of
P60,000,000
The BOD also authorized petitioner to assign, pledge, or mortgage
its properties as security for this credit line; and to secure and
guarantee the term loan and other credit facility of IDHI Prime
Aggregates Corporation (Prime Aggregates) with IEB.
Prime Aggregates obtained a loan from IEB in the amount of
P60,000,000
Petitioner, through its Treasurer Amparo Zosa (Amparo) and its
General Manager Manuel Zosa, Jr. (Zosa), executed a real estate
mortgage covering three parcels of land in favor of IEB to secure the
loan.
Prime Aggregates subsequently obtained several loans from IEB
Prime Aggregates failed to settle its outstanding obligation
IEB file a petition for extra-judicial foreclosure of mortgage before the
RTC
Sheriff issued a Notice of Extra-Judicial Foreclosure and Sale
Petitioner filed a complaint for Injunction with application for writ of
preliminary injunction/temporary restraining order
alleging that real estate mortgage was null and void for being ultra
vires because it was not empowered to mortgage its properties as
security for the payment of obligations of third parties, and Amparo
and Zosa were authorized to mortgage its properties to secure only a
P60,000,000 term loan and one credit facility of Prime Aggregates
RTC denied
ISSUE:
(2) W/N Prime Aggregates is a subsidiary of Zomer Development Corp. c. The REM was executed by
Amparo Zosa who was the treasurer
(2) W/N the real estate mortgage that was executed was null and void for
of plaintiff and Manuel Zosa, the
being ultra vires
General Manager, both are
HELD: directors/stockholders of the plaintiff.
Amparo Zosa is the biggest
We do agree that the Petitioner, under its By-Laws, is not stockholder and is the mother of
empowered to mortgage its properties as a security for the practically all the other stockholders of
payment of the obligations of third parties. This is on the general plaintiff. Manuel Zosa, Jr. is the
premise that the properties of a corporation are regarded as held General Manager and a son of
in trust for the payment of corporate creditors and not for the Amparo.
creditors of third parties. However, the Petitioner is not
proscribed from mortgaging its properties as security for the d. The Corporate Secretary of plaintiff
payment of obligations of third parties. and [Prime Aggregates] are members
Private Corporation, by way of exceptions, may give of the Zosa family. The Corporate
a third party mortgage: Secretary of [Prime Aggregates] is
also the daughter of Francis Zosa,
1. When the mortgage of corporate president of plaintiff.
assets/properties shall be done in the
furtherance of the interest of the e. The President of plaintiff
corporation and in the usual and corporation, Francis Zosa and the
regular course of its business; and president of [Prime Aggregates],
Rolando Zosa, are brothers (aside
2. To secure the debt of a subsidiary. from being common directors of both
corporations.)
In the present recourse, the Respondent Court found
that not only is Prime Aggregates a subsidiary of the The Petitioners shrill incantations that the Resolution, approved
Petitioner but that the Petitioner appeared to be a family by its Board of Directors, authorizing its Treasurer and General
corporation: Manager to execute a Real Estate Mortgage as security for the
payment of the account of Prime Aggregates, a sister
corporation, is not for its best interest, is a puzzlement. Since
a. The plaintiff appears to be a family
when is a private corporation, going to the aid of a sister
corporation. The incorporators and
corporation, not for the best interest of both corporation? For in
stockholders and the membership of
doing so, the two (2) corporations are enhancing, boosting and
the board of directors are Zosa family.
promoting a common interest, the interest of family having
b. Francis and Rolando Zosa are ownership of both corporations.
directors of [Prime Aggregates] and of The intention of the Members of the Board of Directors of the
plaintiff corporation x x x Petitioner, in approving the Resolution, may be ascertained also
from the contemporaneous and subsequent acts of the
Petitioner, the Private Respondent and Prime Aggregates. Given
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 7
 the factual milieu in the present recourse, as found and declared
by the Respondent Court, there can be no equivocation that,
indeed the Petitioner conformed to and ratified, and hence, is
bound by the execution, by its Treasurer and General Manager,
of the Real Estate Mortgage in favor of the Private respondent,
with its properties used as securities for the payment of the credit
and loan availments of Prime Aggregates from the Private
Respondent on the basis of the Resolution approved by its
Board of Directors. As our Supreme Court declared, ratification
and/or approval by the corporation of the acts of its
agents/officers may be ascertained through the acquiescence in
his acts of a particular nature, with actual or constructive thereof,
whether within or beyond the scope of his ordinary powers.
(6) LIPAT v. PACIFIC BANKING CORP
FACTS:
Petitioner spouses Alfredo and Estelita Lipat, owned Belas
Export Trading (BET), a single proprietorship, engaged in the
manufacture of garments for domestic and foreign consumption,
Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage
BET
Lipats also owned the Mystical Fashions in the United States,
which sells goods imported from the Philippines through BET
and managed by Mrs. Lipat
Estelita Lipat executed a special power of attorney appointing
Teresita Lipat as her attorney-in-fact to obtain loans and other
credit accommodations from respondent Pacific Banking
Corporation (Pacific Bank)
She likewise authorized Teresita to execute mortgage contracts
on properties owned or co-owned by her as security for the
obligations to be extended by Pacific Bank including any
extension or renewal thereof.
Teresita, by virtue of the special power of attorney, was able to
secure a loan from Pacific Bank, to buy fabrics to be
manufactured by BET and exported to Mystical Fashions in the
United States
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 8
Teresita, executed a Real Estate Mortgage over their property
located at Cubao, Quezon City
Said property was likewise made to secure other additional or
new loans, discounting lines, overdrafts and credit
accommodations, of whatever amount
BET was incorporated into a family corporation named Belas
Export Corporation (BEC) in order to facilitate the management
of the business
BEC was engaged in the business of manufacturing and
exportation of all kinds of garments of whatever kind and
description and utilized the same machineries and equipment
previously used by BET
Its incorporators and directors included the Lipat spouses who
owned a combined 300 shares out of the 420 shares subscribed,
Teresita Lipat who owned 20 shares, and other close relatives
and friends of the Lipats. Estelita Lipat was named president of
BEC, while Teresita became the vice-president and general
manager.
the loan was later restructured in the name of BEC and
subsequent loans were obtained by BEC with the corresponding
promissory notes duly executed by Teresita on behalf of the
corporation
The promissory notes, export bills, and trust receipt eventually
became due and demandable. Unfortunately, BEC defaulted in
its payments
Estelita Lipat went to the office of the banks liquidator and asked
for additional time to enable her to personally settle BECs
obligations. The bank acceded to her request but Estelita failed
to fulfill her promise
The real estate mortgage was foreclosed and after compliance
with the requirements of the law the mortgaged property was
sold at public auction.
spouses Lipat filed before the Quezon City RTC a complaint for
annulment of the real estate mortgage, extrajudicial foreclosure
and the certificate of sale issued over the property
alleging that the promissory notes, trust receipt, and export bills
were all ultra vires acts of Teresita as they were executed without
the requisite board resolution of the Board of Directors of BEC
 Lipats also averred that assuming said acts were valid and
binding on BEC, the same were the corporations sole obligation,
it having a personality distinct and separate from spouses Lipat
Pacific Bank and Trinidad alleged in common that petitioners
Lipat cannot evade payments of the value of the promissory
notes, trust receipt, and export bills with their property because
they and the BEC are one and the same, the latter being a family
corporation
ISSUE: W/N the doctrine of piercing the veil of corporate fiction is applicable
in this case
HELD:
The Court relied upon the alter ego doctrine or instrumentality rule,
rather than fraud in piercing the veil of corporate fiction. BEC merely
succeeded BET as petitioners alter ego.
Where one corporation is so organized and controlled and its affairs
are conducted so that it is, in fact, a mere instrumentality or adjunct
of the other, the fiction of the corporate entity of the instrumentality
may be disregarded. The controls necessary to invoke the rule is not
majority or even complete stock control but such domination of
finances, policies and practices that the controlled corporation has,
so to speak, no separate mind, will or existence of its own, and is but
a conduit for its principal.
We find that the evidence on record demolishes, rather than
buttresses, petitioners contention that BET and BEC are separate
business entities. Note that Estelita Lipat admitted that she and her
husband, Alfredo, were the owners of BET and were two of the
incorporators and majority stockholders of BEC. It is also undisputed
that Estelita Lipat executed a special power of attorney in favor of
her daughter, Teresita, to obtain loans and credit lines from Pacific
Bank on her behalf. Incidentally, Teresita was designated as
executive-vice president and general manager of both BET and BEC,
respectively.
It could not have been coincidental that BET and BEC are so intertwined with
each other in terms of ownership, business purpose, and management. BET
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 9
and BEC are one and the same and the latter is a conduit of and merely
succeeded the former. Petitioners attempt to isolate themselves from and
hide behind the corporate personality of BEC so as to evade their liabilities to
Pacific Bank is precisely what the classical doctrine of piercing the veil of
corporate entity seeks to prevent and remedy. In our view, BEC is a mere
continuation and successor of BET and petitioners cannot evade their
obligations in the mortgage contract secured under the name of BEC on the
pretext that it was signed for the benefit and under the name of BET
(7) CARAG VS NLRC
DOCTRINE The rule is that a director is not personally liable for the debts of
the corporation , which has a separate and legal personality of his own .
section 31 of the Corp code makes a director liable for corporate debt if he
willingly or knowingly votes for or assents to patently unlawful acts of the
corporation or if he is guilty of gross negligence or bad faith in directing the
affairs of the corp.
FACTS: Arbiter Ortiguerra held that mariveles apparel corp (MAC) its
Chairman of the Board Antonio Carag and it president armando David guilty
of illegal closure and are solidarily liable for the separation pay of MACs rank
and file employee.
- National Federation of Labor Unions ( NAFLU) and Mariveles Apparel
Corporation Labor Union (MACLU) filed a complaint against MAC for illegal
disclosure of business.
- Complainants claim that on July 8, 1993, without notice of any kind the
company ceased its operation as prelude to the final closing of the firm , that
prior to the companys closure it did not bother to servr written notice to
employees and to the DOLE at least 1 month before the intended closure.
Counsel for the respondent submitted a position paper that states that the
complainant should have not impleaded Carag and and david bec MAC is
actually owned by consortium of banks, Carag and David own shares in MAC
only to qualify them to serve as MACs officers .
- Arbiter Ortiguera granted to implead Carag and David without any further
proceedings and orders both to be solidarily liable with MAC to the
complainants.

- Respondents opposed the impleader of Carag and David saying that they
are not the owners of MAC and they are only minority stockholders holding
qualifying shares . Piercing the veil of corp fiction can not be done in the
present case for such remedy can only be availed of in case of close or
family owned business.
ARBITER: Defendants should be held liable.
NLRC: Motion to reduce bonds for both respondents dismiss for lack of merit.
CA: Dismissed the petition and affirmed the decission of the labor Arbiter
ISSUE: WON INDIVIDUAL RESPONDENTS CAN BE HELD PERSONALLY
LIABLE
HELD: Petition is meritorious.
- Directors not liable for corporate debts, to hold them liable , bad faith or
wrongdoing of the director must be established clearly and convincingly , bad
faith is never presumed , does not connote bad judgement or negligence ,
imports dishonest purpose, means breach of known duties through some ill
motive or interest, partakes the nature of fraud.
- Failure to give notice is not an unlawful act, such failure to give notice is a
violation of procedural due process but does not amount to an unlawful or
criminal act , For a a wrongdoing to make a director personally liable for the
debts of the corp, the wrongdoing approved or assented to by the director
must be patently unlawful. Mere failure to comply with the notice requirement
does not amount to patently unlawful act . Patently unlawful act are those
declared unlawful by law which imposes penalties for the commission of such
unlawful acts, there must be a law declaring the act unlawful and penalizing
the act.
(8) WOODCHILD HOLDINGS VS ROXAS ELECTRIC CONSTRUCTIONS
COMPANY
FACTS: The respondent Board of Directors approved a resolution
authorizing the corporation, through its president, Roberto B. Roxas, to sell
the Lot with an area of 7,213 square meters, at a price and under such
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 10
terms and conditions which he deemed most reasonable and advantageous
to the corporation; and to execute, sign and deliver the pertinent sales
documents and receive the proceeds of the sale for and on behalf of the
company.
- Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy the lot which it
planned to construct its warehouse building, and a portion of the adjoining lot
so that its 45-foot container van would be able to readily enter or leave the
property. In a Letter to Roxas dated June 21, 1991, WHI President Jonathan
Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and conditions
One of the terms incorporated in Dys offer was the following provision:
5. This Offer to Purchase is made on the representation and warranty
of the OWNER/SELLER, that he holds a good and registrable title to the
property, which shall be conveyed CLEAR and FREE of all liens and
encumbrances, and that the area of 7,213 square meters of the subject
property already includes the area on which the right of way traverses from
the main lot (area) towards the exit to the Sumulong Highway as shown in
the location plan furnished by the Owner/Seller to the buyer. Furthermore, in
the event that the right of way is insufficient for the buyers purposes
(example: entry of a 45-foot container), the seller agrees to sell additional
square meter from his current adjacent property to allow the buyer to full
access and full use of the property.
- In the meantime, WHI complained to Roberto Roxas that the vehicles of
RECCI were parked on a portion of the property over which WHI had been
granted a right of way. Roxas promised to look into the matter. Dy and Roxas
discussed the need of the WHI to buy a 500-square-meter portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085 as provided for in the deed of
absolute sale. However, Roxas died soon thereafter. On April 15, 1992, the
WHI wrote the RECCI, reiterating its verbal requests to purchase a portion of
the said lot as provided for in the deed of absolute sale, and complained
about the latters failure to eject the squatters within the three-month period
agreed upon in the said deed.
- On June 17, 1992, the WHI filed a complaint against the RECCI with the
Regional Trial Court of Makati, for specific performance and damages, and
alleged, inter alia, the following in its complaint:

- In its answer to the complaint, the RECCI alleged that it never authorized its
former president, Roberto Roxas, to grant the beneficial use of any portion of
Lot No. 491-A-3-B-1, nor agreed to sell any portion thereof or create a lien or
burden thereon. It alleged that, under the Resolution approved on May 17,
1991, it merely authorized Roxas to sell Lot No. 491-A-3-B-2 covered by TCT
No. 78086. As such, the grant of a right of way and the agreement to sell a
portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in the said deed
are ultra vires. The RECCI further alleged that the provision therein that it
would sell a portion of Lot No. 491-A-3-B-1 to the WHI lacked the essential
elements of a binding contract.
- The trial court ruled that the RECCI was estopped from disowning the
apparent authority of Roxas under the May 17, 1991 Resolution of its Board
of Directors. The court reasoned that to do so would prejudice the WHI which
transacted with Roxas in good faith, believing that he had the authority to
bind the WHI relating to the easement of right of way, as well as the right to
purchase a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085.
- The RECCI appealed the decision to the CA, which rendered a decision on
November 9, 1999 reversing that of the trial court, and ordering the dismissal
of the complaint.
- Petitioner avers that, under its Resolution of May 17, 1991, the respondent
authorized Roxas, then its president, to grant a right of way over a portion of
Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the
respondent to buy a portion of the said property.
- The petitioner contends that when the respondent sold Lot it (respondent)
was well aware of its obligation to provide the petitioner with a means of
ingress to or egress from the property to the Sumulong Highway, since the
latter had no adequate outlet to the public highway.
It contends that the respondent never objected to Roxas acceptance of its
offer to purchase the property and the terms and conditions therein; the
respondent even allowed Roxas to execute the deed of absolute sale in its
behalf. The petitioner asserts that the respondent even received the
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 11
purchase price of the property without any objection to the terms and
conditions of the said deed of sale.
ISSUE: WON THE BOARD IS ESTOPPED FROM RAISING THE DEFENSE
OF APPARENT AUTHORITY OF ROXAS
HELD: PETITION HAS MERIT
- For its part, the respondent posits that Roxas was not so authorized under
the May 17, 1991 Resolution of its Board of Directors to impose a burden or
to grant a right of way in favor of the petitioner on Lot No. 491-A-3-B-1, much
less convey a portion thereof to the petitioner. Hence, the respondent was
not bound by such provisions contained in the deed of absolute sale, the
petitioner cannot enforce its right to buy a portion of the said property since
there was no agreement in the deed of absolute sale on the price thereof as
well as the specific portion and area to be purchased by the petitioner.
- Generally, the acts of the corporate officers within the scope of their
authority are binding on the corporation. However, under Article 1910 of the
New Civil Code, acts done by such officers beyond the scope of their
authority cannot bind the corporation unless it has ratified such acts
expressly or tacitly, or is estopped from denying them:
- As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly. Thus,
contracts entered into by corporate officers beyond the scope of authority are
unenforceable against the corporation unless ratified by the corporation.
- Evidently, Roxas was not specifically authorized under the said resolution to
grant a right of way in favor of the petitioner on a portion of Lot No. 491-A-3-
B-1 or to agree to sell to the petitioner a portion thereof. The authority of
Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No.
78086 did not include the authority to sell a portion of the adjacent lot, Lot
No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such
authority be implied from the authority granted to Roxas to sell Lot No. 491-
A-3-B-2 to the petitioner on such terms and conditions which he deems most
reasonable and advantageous. Under paragraph 12, Article 1878 of the New
Civil Code,

(9) EXPERTRAVEL & TOURS, INC., v. COURT OF APPEALS and
KOREAN AIRLINES
FACTS: Korean Airlines (KAL) is a corporation established and registered in
the Republic of South Korea and licensed to do business in the Philippines.
Its general manager in the Philippines is Suk Kyoo Kim, while its appointed
counsel was Atty. Mario Aguinaldo and his law firm.
- KAL, through Atty. Aguinaldo, filed a Complaint against ETI with the
Regional Trial Court (RTC) of Manila, for the collection of the principal
amount of P260,150.00, plus attorneys fees and exemplary damages. The
verification and certification against forum shopping was signed by Atty.
Aguinaldo, who indicated therein that he was the resident agent and legal
counsel of KAL and had caused the preparation of the complaint. ETI filed a
motion to dismiss citing that KAL's lawyer, Atty. Aguinaldo, who signed the
verification and certification of non-forum shopping was not authorized by its
Board of Directors.
- Finally, KAL submitted an Affidavit executed by its general manager,
alleging that the board of directors conducted a special teleconference on
June 25, 1999, which he and Atty. Aguinaldo attended. It was also averred
that in that same teleconference, the board of directors approved a resolution
authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping
and to file the complaint. Suk Kyoo Kim also alleged, however, that the
corporation had no written copy of the aforesaid resolution.
- On April 12, 2000, the trial court issued an Order denying the motion to
dismiss, giving credence to the claims of Atty. Aguinaldo and Suk Kyoo Kim
that the KAL Board of Directors indeed conducted a teleconference on June
25, 1999, during which it approved a resolution as quoted in the submitted
affidavit.
- CA: Affirmed the Trial Courts decision on the basis that the verification and
certificate of non-forum shopping executed by Atty. Aguinaldo was sufficient
compliance with the Rules of Court. According to the appellate court, Atty.
Aguinaldo had been duly authorized by the board resolution approved on
June 25, 1999, and was the resident agent of KAL. As such, the RTC could
not be faulted for taking judicial notice of the said teleconference of the KAL
Board of Directors.
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 12
It was reversed by SC.
ISSUE: Whether or not the petitioner correct in assailing that until and after
teleconferencing is recognized as a legitimate means of conducting
meetings, gathering quorum of board of directors, such cannot be taken
judicial notice of by the court.
HELD: Yes. It is settled that the requirement to file a certificate of non-forum
shopping is mandatory and that the failure to comply with this requirement
cannot be excused. The certification is a peculiar and personal responsibility
of the party, an assurance given to the court or other tribunal that there are
no other pending cases involving basically the same parties, issues and
causes of action. Hence, the certification must be accomplished by the party
himself because he has actual knowledge of whether or not he has initiated
similar actions or proceedings in different courts or tribunals. Even his
counsel may be unaware of such facts. Hence, the requisite certification
executed by the plaintiffs counsel will not suffice.
-In a case where the plaintiff is a private corporation, the certification may be
signed, for and on behalf of the said corporation, by a specifically authorized
person, including its retained counsel, who has personal knowledge of the
facts required to be established by the documents.
- Generally speaking, matters of judicial notice have three material requisites:
(1) the matter must be one of common and general knowledge;
(2) it must be well and authoritatively settled and not doubtful or uncertain;
and
(3) it must be known to be within the limits of the jurisdiction of the court.
- The principal guide in determining what facts may be assumed to be
judicially known is that of notoriety. Hence, it can be said that judicial notice is
limited to facts evidenced by public records and facts of general notoriety.
Moreover, a judicially noticed fact must be one not subject to a reasonable
dispute in that it is either:
(1) generally known within the territorial jurisdiction of the trial court; or
(2) capable of accurate and ready determination by resorting to sources
whose accuracy cannot reasonably be questionable.
- In this age of modern technology, the courts may take judicial notice that
business transactions may be made by individuals through teleconferencing.
Teleconferencing is interactive group communication (three or more people in
two or more locations) through an electronic medium. In general terms,
teleconferencing can bring people together under one roof even though they
are separated by hundreds of miles.
- The Court agrees with the RTC that persons in the Philippines may have a
teleconference with a group of persons in South Korea relating to business
transactions or corporate governance.
- If the resolution had indeed been approved on June 25, 1999, long before
the complaint was filed, the respondent should have incorporated it in its
complaint, or at least appended a copy thereof. The respondent failed to do
so. It was only on January 28, 2000 that the respondent claimed, for the first
time, that there was such a meeting of the Board of Directors held on June
25, 1999; it even represented to the Court that a copy of its resolution was
with its main office in Korea, only to allege later that no written copy existed.
- Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim
participated in a teleconference along with the respondents Board of
Directors, the Court is not convinced that one was conducted; even if there
had been one, the Court is not inclined to believe that a board resolution was
duly passed specifically authorizing Atty. Aguinaldo to file the complaint and
execute the required certification against forum shopping.
- The Court is, thus, more inclined to believe that the alleged teleconference
on June 25, 1999 never took place, and that the resolution allegedly
approved by the respondents Board of Directors during the said
teleconference was a mere concoction purposefully foisted on the RTC, the
CA and this Court, to avert the dismissal of its complaint against the
petitioner.
Petition granted..
(10) PRIME WHITE CEMENT CORP v. IAC- Same with #4
(11) MARC II MARKETING AND LUCILA JOSON VS ALFREDO JOSON
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 13
Petitioner: corporation engaged in marketing, selling and distributing in
retail household appliances; it took over the business operations of Marc
marketing
Respondent: President and majority stockholder of the petitioner corporation
FACTS: Before the incorporation of the petitioner, the respondent as
President of previous Marc Marketing, is engaged as General Manager of the
petitioner corporation formalized through a Management Contract in 1994. At
the time of the execution of the contract, the petitioner corporation was not
yet incorporated. The contract granted that the respondent was entitled to
30% net income of its work as GM and 30% net profit to compensate for the
possible loss of opportunity to work abroad.
- August 1994: the petitioner was officially incorporated. Pursuant to the by-
laws of the corporation, the corporate officers were appointed and were given
power to appoint other officers as necessary.
- August 1994: The board of directors conducted a meeting where the
respondent was designated as its GM.
- 1997: the corporation decided to stop and cease operations due to poor
sales collection aggravated by its inefficient management affairs. The
respondent was formally informed of the cessation and appraised of the
termination of his services as GM since the respondents services is no
longer needed to wind up the affairs.
PROCEDURE
1. The respondent, feeling aggrieved, filed a complaint for
reinstatement and money claim at the NLRC alleging that the
petitioner dismissed him due to hatred towards his family.
2. The parties failed to settle the case amicably at the labor arbiter
requiring them to submit their respective position papers.
3. LA: issued order deferring resolution of petitioners motion to
dismiss; reiterating that the petitioner must submit position paper but
failed to comply insisting that LA has no jurisdiction over the case;
when given a final date of order, the petitioners still failed to submit
their position papers therefore rendering a decision in favor of the
respondent and declared that there is illegal dismissal
 4. NLRC: ruled in favor of the petitioner giving credence to
Secretarys certificate that the termination was valid
5. CA: upheld the ruling of LA remanded to NLRC for monetary
award
Argument of the petitioner
1. The controversy does not pose intra-corporate
2. The petitioner is not solidarily liable with the corporation not there
was malice or bad faith.
ISSUE: Whether or not the respondent is a corporate officer or mere
employee of the corporation.
HELD: NO. The respondent is not a corporate officer.
- The position of a general manager is not among those enumerated in the
by-laws of the corporation which explicitly reveal that the officers are
composed of (1) chairman; (2) President; (3) one or more Vice-President; (4)
Treasurer; and (5) Secretary
1. PD 902-A Section 5. What is intra-corporate controversy. intra-
corporate controversies are those controversies arising out of intra-
corporate or partnership relations, between and among stockholders,
members or associates; between any or all of them and the
corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between
such corporation, partnership or association and the State insofar as
it concerns their individual franchise or right to exist as such entity. It
also includes controversies in the election or appointments of
directors, trustees, officers or managers of such corporations,
partnerships or associations
2. Easycall Communications Phils. vs King. PD 902-A Section 5;
who are corporate officers. corporate officers are those officers of
a corporation who are given that character either by the Corporation
Code or by the corporations by-laws. Section 25 of the Corporation
Code specifically enumerated who are these corporate officers, to
wit: (1) president; (2) secretary; (3) treasurer; and (4) such other
officers as may be provided for in the by-laws
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 14
3. Matling Industrial and Commercial Corporation vs Coros.
Section 25 of the corporation code.
a. Conformably with Section 25, a position must be expressly
mentioned in the [b]y-[l]aws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to
or under a [b]y-[l]aw enabling provision is not enough to
make a position a corporate office.
b. What is an office; Generally, an employee does not
occupy office he is employed not by the action of the
directors or stockholders but by a managing officer of
the corporation who determines the compensation to be
paid. An "office" is created by the charter of the
corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no
office and generally is employed not by the action of the
directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be
paid to such employee.
c. Correct interpretation of Section 25. This interpretation is
the correct application of Section 25 of the Corporation
Code, which plainly states that the corporate officers are the
President, Secretary, Treasurer and such other officers as
may be provided for in the [b]y-[l]aws. Accordingly, the
corporate officers in the context of PD No. 902-A are
exclusively those who are given that character either by the
Corporation Code or by the corporations [b]y[l]aws.
d. Effect of different interpretation of Section 25. A different
interpretation can easily leave the way open for the Board of
Directors to circumvent the constitutionally guaranteed
security of tenure of the employee by the expedient inclusion
in the [b]y-[l]aws of an enabling clause on the creation of just
any corporate officer position.
e. Section 25 of the Corporation Code; the corporate
officers enumerated in the by-laws are exclusive officers
of the corporation; the board has no power to create
 other officers without amendment of the corporate by-
laws. Thus, pursuant to the above provision (Section 25 of
the Corporation Code), whoever are the corporate officers
enumerated in the by-laws are the exclusive Officers of the
corporation and the Board has no power to create other
Offices without amending first the corporate [b]y-laws.
However, the Board may create appointive positions other
than the positions of corporate Officers, but the persons
occupying such positions are not considered as corporate
officers within the meaning of Section 25 of the Corporation
Code and are not empowered to exercise the functions of
the corporate Officers, except those functions lawfully
delegated to them. Their functions and duties are to be
determined by the Board of Directors/Trustees.
2. Compensation was fixed and determined by the President and not
the BOD not subject to the approval of the petitioner or BOD
3. The Secretarys Certificate shown by the petitioner that the
respondent is a corporate officer will not change the fact that he is an
employee as it does not amount to amendment of the by-laws.
4. The Secretarys Certificate were obvious fabrications
5. The respondent being a director and stockholder does not
automatically make the case within the ambit of intra-corporate
controversy
6. The position of General Manager was not offered on account of
his being corporation director and stockholder
(12) SWEDISH MATCH PHILIPPINES INC v. TEH TREASURER OF THE
CITY OF MANILA

FACTS: The petitioner paid business tax amounting to P400k which was the
f. Section 25 of the Corporation Code; provision on
assessed amount based on Section 14 and 21 of the Manila Revenue Code.
Section 25 safeguards the right of employee to security
Out of the amount, P160k corresponded the payment under Section 21.
of tenure; allowing the creation of corporate officer
through inclusion in the by-laws of enabling clause
- The petitioner then wrote a letter claiming refund of business tax for it
empowers the board of directors to circumvent the
asserted that it was not liable to pay under Section 21 which constituted
constitutionally protected right. This Court considers that
double taxation.
the interpretation of Section 25 of the Corporation Code laid
down in Matling safeguards the constitutionally enshrined
PROCEDURE
right of every employee to security of tenure. To allow the
1. RTC: dismissed the petition for failure to plead capacity to sue and
creation of a corporate officer position by a simple inclusion
to state the authority of a certain Ms. Beleno who executed
in the corporate by-laws of an enabling clause empowering
verification and non-forum shopping.
the board of directors to do so can result in the
2. CTA: affirmed the decision of the RTC; that the signatory of
circumvention of that constitutionally well-protected right
verification and certification of non-forum shopping of Ms. Beleno as
companys finance manager was not authorized as there was no
CASE: In this case, those provided in the by-laws does not include GM as
board resolution or secretarys certificate to show proof of her
corporate officer of the corporation as it was not specifically specified therein.
authority to act in behalf of the corporation
The enabling clause in the by-laws of the corporation cannot make a position
a corporate office. As enunciated in the case of Matling, the board of
ISSUES:
directors has no power to create other corporate offices without amendment
(1) Is the finance manager authorized to file the petition? Or Is a verification
of the corporate by-laws.
or certification of non-forum shopping filed by a finance manager valid in the
absence of authority from the BOD.
Circumstances the court considers as to the petitioner cannot be
corporate officer
1. It was not enumerated in the by-laws
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 15
(2) Tax topic: Does the imposition of Section 21 of Manila Revenue Code
constitute double taxation
HELD:
(1) YES. the finance manager is authorized to file the petition; YES. the
verification or certification of non-forum shopping filed by the finance
manager is valid despite the absence of authority from BOD
RATIONALE (1)
A. It was held in previous jurisprudence that the following officials or
employees of company can sign the verification and certification without
need of a board resolution: (1) the Chairperson of the Board of Directors, (2)
the President of a corporation, (3) the General Manager or Acting General
Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor
case. Although there is no complete listing of authorized signatories to the
verification and certification, the determination of the sufficiency is done in a
case to case basis.
1. Cebu Metro Pharmacy, Inc. v. Euro-Med Laboratories,
Philippines, Inc. The power of a corporation to sue and be sued is
lodged in the board of directors, which exercises its corporate
powers. It necessarily follows that "an individual corporate officer
cannot solely exercise any corporate power pertaining to the
corporation without authority from the board of directors." Thus,
physical acts of the corporation, like the signing of documents, can
be performed only by natural persons duly authorized for the
purpose by corporate by-laws or by a specific act of the board of
directors.
2. Shipside Incorporated v. Court of Appeals. a verification signed
without an authority from the board of directors is defective.
However, the requirement of verification is simply a condition
affecting the form of the pleading and non-compliance does not
necessarily render the pleading fatally defective. The court may in
fact order the correction of the pleading if verification is lacking or, it
may act on the pleading although it may not have been verified,
where it is made evident that strict compliance with the rules may be
dispensed with so that the ends of justice may be served.
Cases when the court authorized corporate officers to sign verification
and certification against forum shopping
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 16
3. Mactan-Cebu International Airport Authority v. CA. we
recognized the authority of a general manager or acting general
manager to sign the verification and certificate against forum
shopping
4. Pfizer v. Galan. we upheld the validity of a verification signed by
an "employment specialist" who had not even presented any proof of
her authority to represent the company
5. Novelty Philippines, Inc., v. CA. we ruled that a personnel officer
who signed the petition but did not attach the authority from the
company is authorized to sign the verification and non-forum
shopping certificate
6. Lepanto Consolidated Mining Company v. WMC Resources
International Pty. Ltd. (Lepanto). we ruled that the Chairperson of
the Board and President of the Company can sign the verification
and certificate against non-forum shopping even without the
submission of the boards authorization
CASE: In this case, given the factual circumstances, the court found liberal
jurisprudential exception may be applied to the case. The minutes of the
Special meeting of the BOD provides that the belated submission of proof of
authority from the board of directors is not an ordinary case. The petitioner
corporation ratified the authority of Ms. Beleno to represent it in the petition
filed. Also, the position of Ms. Beleno as the corporations finance
director/manager is relevant to the determination of her capability and
sufficiency to verify the truthfulness and correctness of the allegations in the
Petition. A finance director/manager looks after the overall management of
the financial operations of the organization and is normally in charge of
financial reports, which necessarily include taxes assessed and paid by the
corporation. Thus, for this particular case, Ms. Beleno, as finance director,
may be said to have been in a position to verify the truthfulness and
correctness of the allegations in the claim for a refund of the corporations
business taxes.
(13) ALFREDO MONTELIBANO, ET AL. vs. BACOLOD-MURCIA MILLING
CO., INC.
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-appellee's 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. To this effect, a printed Amended Milling Contract form was
drawn up. On August 20, 1936, the BOD of the appellee Bacolod-Murcia
Milling Co., Inc., adopted a resolution (Acts No. 11, Acuerdo No. 1) granting
further concessions to the planters over and above those contained in the
printed Amended Milling Contract.
- Appellants signed and executed the printed Amended Milling Contract on
September 10, 1936, but a copy of the resolution of August 10, 1936, signed
by the Central's General Manager, was not attached to the printed contract
until April 17, 1937.
- In 1953, the appellants initiated the present action, contending that three
Negros sugar centrals (La Carlota, Binalbagan-Isabela and San Carlos), 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 paragraph 9 of the
resolution of August 20, 1936, the appellee had become obligated to grant
similar concessions to the plaintiffs (appellants herein). 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.
After trial, the court rendered judgment upholding the stand of the defendant
Milling company, and dismissed the complaint. Hence this appeal.
ISSUE: Whether or not the resolution in question was null and void ab initio,
being in effect a donation that was ultra vires and beyond the powers of the
corporate directors to adopt.
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 17
HELD: It must be remembered that the controverted resolution was adopted
by appellee corporation as a supplement to, or further amendment of, the
proposed milling contract, and that it was approved on August 20, 1936,
twenty-one days prior to the signing by appellants on September 10, of the
Amended Milling Contract itself; so that when the Milling Contract was
executed, the concessions granted by the disputed resolution had been
already incorporated into its terms.
- No reason appears of record why, in the face of such concessions, the
appellants should reject them or consider them as separate and apart from
the main amended milling contract, specially taking into account that
appellant Alfredo Montelibano was, at the time, the President of the Planters
Association that had agitated for the concessions embodied in the resolution
of August 20, 1936. That the resolution formed an integral part of the
amended milling contract, signed on September 10, and not a separate
bargain, is further shown by the fact that a copy of the resolution was simply
attached to the printed contract without special negotiations or agreement
between the parties.
- It follows from the foregoing that the terms embodied in the resolution of
August 20, 1936 were supported by the same causa or consideration
underlying the main amended milling contract; i.e., the promises and
obligations undertaken thereunder by the planters, and, particularly, the
extension of its operative period for an additional 15 years over and beyond
the 30 years stipulated in the original contract. Hence, the conclusion of the
court below that the resolution constituted gratuitous concessions not
supported by any consideration is legally untenable.
- All disquisition concerning donations and the lack of power of the directors
of the respondent sugar milling company to make a gift to the planters would
be relevant if the resolution in question had embodied a separate
agreement after the appellants had already bound themselves to the terms of
the printed milling contract. But this was not the case. When the resolution
was adopted and the additional concessions were made by the company, the
appellants were not yet obligated by the terms of the printed contract, since
they admittedly did not sign it until twenty-one days later, on September 10,
1936. Before that date, the printed form was no more than a proposal that
either party could modify at its pleasure, and the appellee actually modified it
by adopting the resolution in question. So that by September 10, 1936
defendant corporation already understood that the printed terms were not
controlling, save as modified by its resolution of August 20, 1936; and we are
satisfied that such was also the understanding of appellants herein, and that
the minds of the parties met upon that basis.
- Otherwise there would have been no consent or "meeting of the minds",
and no binding contract at all. But the conduct of the parties indicates that
they assumed, and they do not now deny, that the signing of the contract on
September 10, 1936, did give rise to a binding agreement. That agreement
had to exist on the basis of the printed terms as modified by the resolution of
August 20, 1936, or not at all. Since there is no rational explanation for the
company's assenting to the further concessions asked by the planters before
the contracts were signed, except as further inducement for the planters to
agree to the extension of the contract period, to allow the company now to
retract such concessions would be to sanction a fraud upon the planters who
relied on such additional stipulations.
(14) GOKONGWEI v. SEC
FACTS: [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as
stockholder of San Miguel Corporation, filed with the Securities and
Exchange Commission (SEC) a petition for "declaration of nullity of amended
by-laws, cancellation of certificate of filing of amended by-laws, injunction
and damages with prayer for a preliminary injunction" against the majority of
the members of the Board of Directors and San Miguel Corporation as an
unwilling petitioner. As a first cause of action, Gokongwei alleged that on 18
September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel,
Antonio Roxas, Emeterio Buao, Walthrode B. Conde, Miguel Ortigas, and
Antonio Prieto amended by bylaws of the corporation, basing their authority
to do so on a resolution of the stockholders adopted on 13 March 1961,
when the outstanding capital stock of the corporation was only
P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share
and 150,000 preferred shares at P100.00 per share. At the time of the
amendment, the outstanding and paid up shares totalled 30,127,043, with a
total par value of P301,270,430.00.
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 18
- It was contended that according to section 22 of the Corporation Law and
Article VIII of the by-laws of the corporation, the power to amend, modify,
repeal or adopt new by-laws may be delegated to the Board of Directors only
by the affirmative vote of stockholders representing not less than 2/3 of the
subscribed and paid up capital stock of the corporation, which 2/3 should
have been computed on the basis of the capitalization at the time of the
amendment. Since the amendment was based on the 1961 authorization,
Gokongwei contended that the Board acted without authority and in
usurpation of the power of the stockholders.
- As a second cause of action, it was alleged that the authority granted in
1961 had already been exercised in 1962 and 1963, after which the authority
of the Board ceased to exist.
- As a third cause of action, Gokongwei averred that the membership of the
Board of Directors had changed since the authority was given in 1961, there
being 6 new directors.
- As a fourth cause of action, it was claimed that prior to the questioned
amendment, Gokogwei had all the qualifications to be a director of the
corporation, being a substantial stockholder thereof; that as a stockholder,
Gokongwei had acquired rights inherent in stock ownership, such as the
rights to vote and to be voted upon in the election of directors; and that in
amending the by-laws, Soriano, et. al. purposely provided for Gokongwei's
disqualification and deprived him of his vested right as afore-mentioned,
hence the amended by-laws are null and void.
- As additional causes of action, it was alleged that corporations have no
inherent power to disqualify a stockholder from being elected as a director
and, therefore, the questioned act is ultra vires and void; that Andres M.
Soriano, Jr. and/or Jose M. Soriano, while representing other corporations,
entered into contracts (specifically a management contract) with the
corporation, which was avowed because the questioned amendment gave
the Board itself the prerogative of determining whether they or other persons
are engaged in competitive or antagonistic business; that the portion of the
amended by-laws which states that in determining whether or not a person is
engaged in competitive business, the Board may consider such factors as
business and family relationship, is unreasonable and oppressive and,
therefore, void; and that the portion of the amended by-laws which requires
that "all nominations for election of directors shall be submitted in writing to
the Board of Directors at least five (5) working days before the date of the
Annual Meeting" is likewise unreasonable and oppressive. It was, therefore,
prayed that the amended by-laws be declared null and void and the
certificate of filing thereof be cancelled, and that Soriano, et. al. be made to
pay damages, in specified amounts, to Gokongwei.
- On 28 October 1976, in connection with the same case, Gokongwei filed
with the Securities and Exchange Commission an "Urgent Motion for
Production and Inspection of Documents", alleging that the Secretary of the
corporation refused to allow him to inspect its records despite request made
by Gokongwei for production of certain documents enumerated in the
request, and that the corporation had been attempting to suppress
information from its stockholders despite a negative reply by the SEC to its
query regarding their authority to do so.
- The motion was opposed by Soriano, et. al. The Corporation, Soriano, et.
al. filed their answer, and their opposition to the petition, respectively.
Meanwhile, on 10 December 1976, while the petition was yet to be heard, the
corporation issued a notice of special stockholders' meeting for the purpose
of "ratification and confirmation of the amendment to the By-laws", setting
such meeting for 10 February 1977. This prompted Gokongwei to ask the
SEC for a summary judgment insofar as the first cause of action is
concerned, for the alleged reason that by calling a special stockholders'
meeting for the aforesaid purpose, Soriano, et. al. admitted the invalidity of
the amendments of 18 September 1976. The motion for summary judgment
was opposed by Soriano, et. al. Pending action on the motion, Gokongwei
filed an "Urgent Motion for the Issuance of a Temporary Restraining Order",
praying that pending the determination of Gokongwei's application for the
issuance of a preliminary injunction and or Gokongwei's motion for summary
judgment, a temporary restraining order be issued, restraining Soriano, et. al.
from holding the special stockholders' meeting as scheduled. This motion
was duly opposed by Soriano, et. al.
- On 10 February 1977, Cremation issued an order denying the motion for
issuance of temporary restraining order. After receipt of the order of denial,
Soriano, et. al. conducted the special stockholders' meeting wherein the
amendments to the by-laws were ratified. On 14 February 1977, Gokongwei
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 19
filed a consolidated motion for contempt and for nullification of the special
stockholders' meeting. A motion for reconsideration of the order denying
Gokongwei's motion for summary judgment was filed by Gokongwei before
the SEC on 10 March 1977.
- [SEC Case 1423] Gokongwei alleged that, having discovered that the
corporation has been investing corporate funds in other corporations and
businesses outside of the primary purpose clause of the corporation, in
violation of section 17-1/2 of the Corporation Law, he filed with SEC, on 20
January 1977, a petition seeking to have Andres M. Soriano, Jr. and Jose M.
Soriano, as well as the corporation declared guilty of such violation, and
ordered to account for such investments and to answer for damages. On 4
February 1977, motions to dismiss were filed by Soriano, et. al., to which a
consolidated motion to strike and to declare Soriano, et. al. in default and an
opposition ad abundantiorem cautelam were filed by Gokongwei.
- Despite the fact that said motions were filed as early as 4 February 1977,
the Commission acted thereon only on 25 April 1977, when it denied Soriano,
et. al.'s motions to dismiss and gave them two (2) days within which to file
their answer, and set the case for hearing on April 29 and May 3, 1977.
Soriano, et. al. issued notices of the annual stockholders' meeting, including
in the Agenda thereof, the "reaffirmation of the authorization to the Board of
Directors by the stockholders at the meeting on 20 March 1972 to invest
corporate funds in other companies or businesses or for purposes other than
the main purpose for which the Corporation has been organized, and
ratification of the investments thereafter made pursuant thereto."
- By reason of the foregoing, on 28 April 1977, Gokongwei filed with the SEC
an urgent motion for the issuance of a writ of preliminary injunction to restrain
Soriano, et. al. from taking up Item 6 of the Agenda at the annual
stockholders' meeting, requesting that the same be set for hearing on 3 May
1977, the date set for the second hearing of the case on the merits. The
SEC, however, cancelled the dates of hearing originally scheduled and reset
the same to May 16 and 17, 1977, or after the scheduled annual
stockholders' meeting. For the purpose of urging the Commission to act,
Gokongwei filed an urgent manifestation on 3 May 1977, but this
notwithstanding, no action has been taken up to the date of the filing of the
instant petition.
Gokongwei filed a petition for petition for certiorari, mandamus and
injunction, with prayer for issuance of writ of preliminary injunction, with the
Supreme Court, alleging that there appears a deliberate and concerted
inability on the part of the SEC to act.
ISSUES:
(1) Whether or not the corporation has the power to provide for the
(additional) qualifications of its directors.
(2) Whether the disqualification of a competitor from being elected to the
Board of Directors is a reasonable exercise of corporate authority.
(3) Whether the SEC gravely abused its discretion in denying Gokongwei's
request for an examination of the records of San Miguel International, Inc., a
fully owned subsidiary of San Miguel Corporation.
(4) Whether the SEC gravely abused its discretion in allowing the
stockholders of San Miguel Corporation to ratify the investment of corporate
funds in a foreign corporation.
HELD:
(1) It is recognized by all authorities that "every corporation has the inherent
power to adopt by-laws 'for its internal government, and to regulate the
conduct and prescribe the rights and duties of its members towards itself and
among themselves in reference to the management of its affairs.'" In this
jurisdiction under section 21 of the Corporation Law, a corporation may
prescribe in its by-laws "the qualifications, duties and compensation of
directors, officers and employees." This must necessarily refer to a
qualification in addition to that specified by section 30 of the Corporation Law,
which provides that "every director must own in his right at least one share of
the capital stock of the stock corporation of which he is a director."
- Any person "who buys stock in a corporation does so with the knowledge
that its affairs are dominated by a majority of the stockholders and that he
impliedly contracts that the will of the majority shall govern in all matters
within the limits of the act of incorporation and lawfully enacted by-laws and
not forbidden by law." To this extent, therefore, the stockholder may be
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 20
considered to have "parted with his personal right or privilege to regulate the
disposition of his property which he has invested in the capital stock of the
corporation, and surrendered it to the will of the majority of his fellow
incorporators. It can not therefore be justly said that the contract, express or
implied, between the corporation and the stockholders is infringed by any act
of the former which is authorized by a majority." Pursuant to section 18 of the
Corporation Law, any corporation may amend its articles of incorporation by
a vote or written assent of the stockholders representing at least two-thirds of
the subscribed capital stock of the corporation. If the amendment changes,
diminishes or restricts the rights of the existing shareholders, then the
dissenting minority has only one right, viz.: "to object thereto in writing and
demand payment for his share." Under section 22 of the same law, the
owners of the majority of the subscribed capital stock may amend or repeal
any by-law or adopt new by-laws.
- It cannot be said, therefore, that Gokongwei has a vested right to be elected
director, in the face of the fact that the law at the time such right as
stockholder was acquired contained the prescription that the corporate
charter and the by-law shall be subject to amendment, alteration and
modification.
(2) Although in the strict and technical sense, directors of a private
corporation are not regarded as trustees, there cannot be any doubt that their
character is that of a fiduciary insofar as the corporation and the stockholders
as a body are concerned. As agents entrusted with the management of the
corporation for the collective benefit of the stockholders, "they occupy a
fiduciary relation, and in this sense the relation is one of trust."
- "The ordinary trust relationship of directors of a corporation and
stockholders is not a matter of statutory or technical law. It springs from the
fact that directors have the control and guidance of corporate affairs and
property and hence of the property interests of the stockholders. Equity
recognizes that stockholders are the proprietors of the corporate interests
and are ultimately the only beneficiaries thereof." A director is a fiduciary.
Their powers are powers in trust. He who is in such fiduciary position cannot
serve himself first and his cestuis second. He cannot manipulate the affairs
of his corporation to their detriment and in disregard of the standards of
common decency. He cannot by the intervention of a corporate entity violate
the ancient precept against serving two masters. He cannot utilize his inside
information and strategic position for his own preferment. He cannot violate
rules of fair play by doing indirectly through the corporation what he could not
do so directly. He cannot violate rules of fair play by doing indirectly through
the corporation what he could not do so directly. He cannot use his power for
his personal advantage and to the detriment of the stockholders and
creditors no matter how absolute in terms that power may be and no matter
how meticulous he is to satisfy technical requirements.
- For that power is at all times subject to the equitable limitation that it may
not be exercised for the aggrandizement, preference, or advantage of the
fiduciary to the exclusion or detriment of the cestuis. The doctrine of
"corporate opportunity" is precisely a recognition by the courts that the
fiduciary standards could not be upheld where the fiduciary was acting for
two entities with competing interests. This doctrine rests fundamentally on
the unfairness, in particular circumstances, of an officer or director taking
advantage of an opportunity for his own personal profit when the interest of
the corporation justly calls for protection. It is not denied that a member of the
Board of Directors of the San Miguel Corporation has access to sensitive and
highly confidential information, such as: (a) marketing strategies and pricing
structure; (b) budget for expansion and diversification; (c) research and
development; and (d) sources of funding, availability of personnel, proposals
of mergers or tie-ups with other firms. It is obviously to prevent the creation of
an opportunity for an officer or director of San Miguel Corporation, who is
also the officer or owner of a competing corporation, from taking advantage
of the information which he acquires as director to promote his individual or
corporate interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws was made.
- Certainly, where two corporations are competitive in a substantial sense, it
would seem improbable, if not impossible, for the director, if he were to
discharge effectively his duty, to satisfy his loyalty to both corporations and
place the performance of his corporation duties above his personal concerns.
The offer and assurance of Gokongwei that to avoid any possibility of his
taking unfair advantage of his position as director of San Miguel Corporation,
he would absent himself from meetings at which confidential matters would
be discussed, would not detract from the validity and reasonableness of the
by-laws involved. Apart from the impractical results that would ensue from
such arrangement, it would be inconsistent with Gokongwei's primary motive
in running for board membership which is to protect his investments in
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 21
San Miguel Corporation. More important, such a proposed norm of conduct
would be against all accepted principles underlying a director's duty of fidelity
to the corporation, for the policy of the law is to encourage and enforce
responsible corporate management.
(3) Pursuant to the second paragraph of section 51 of the Corporation Law,
"(t)he record of all business transactions of the corporation and minutes of
any meeting shall be open to the inspection of any director, member or
stockholder of the corporation at reasonable hours." The stockholder's right
of inspection of the corporation's books and records is based upon their
ownership of the assets and property of the corporation. It is, therefore, an
incident of ownership of the corporate property, whether this ownership or
interest be termed an equitable ownership, a beneficial ownership, or a
quasi-ownership.
- This right is predicated upon the necessity of self-protection. It is generally
held by majority of the courts that where the right is granted by statute to the
stockholder, it is given to him as such and must be exercised by him with
respect to his interest as a stockholder and for some purpose germane
thereto or in the interest of the corporation. In other words, the inspection has
to be germane to the petitioner's interest as a stockholder, and has to be
proper and lawful in character and not inimical to the interest of the
corporation.
- The "general rule that stockholders are entitled to full information as to the
management of the corporation and the manner of expenditure of its funds,
and to inspection to obtain such information, especially where it appears that
the company is being mismanaged or that it is being managed for the
personal benefit of officers or directors or certain of the stockholders to the
exclusion of others." While the right of a stockholder to examine the books
and records of a corporation for a lawful purpose is a matter of law, the right
of such stockholder to examine the books and records of a wholly-owned
subsidiary of the corporation in which he is a stockholder is a different thing.
- Stockholders are entitled to inspect the books and records of a corporation
in order to investigate the conduct of the management, determine the
financial condition of the corporation, and generally take an account of the
stewardship of the officers and directors. herein, considering that the foreign
subsidiary is wholly owned by San Miguel Corporation and, therefore, under
Its control, it would be more in accord with equity, good faith and fair dealing
to construe the statutory right of petitioner as stockholder to inspect the
books and records of the corporation as extending to books and records of
such wholly owned subsidiary which are in the corporation's possession and
control.
(4) Section 17-1/2 of the Corporation Law allows a corporation to "invest its
funds in any other corporation or business or for any purpose other than the
main purpose for which it was organized" provided that its Board of Directors
has been so authorized by the affirmative vote of stockholders holding
shares entitling them to exercise at least two-thirds of the voting power. If the
investment is made in pursuance of the corporate purpose, it does not need
the approval of the stockholders. It is only when the purchase of shares is
done solely for investment and not to accomplish the purpose of its
incorporation that the vote of approval of the stockholders holding shares
entitling them to exercise at least two-thirds of the voting power is necessary.
As stated by the corporation, the purchase of beer manufacturing facilities by
SMC was an investment in the same business stated as its main purpose in
its Articles of Incorporation, which is to manufacture and market beer. It
appears that the original investment was made in 1947-1948, when SMC,
then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong
(Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of
San Miguel beer thereat. Restructuring of the investment was made in 1970-
1971 thru the organization of SMI in Bermuda as a tax free reorganization.
- Assuming arguendo that the Board of Directors of SMC had no authority to
make the assailed investment, there is no question that a corporation, like an
individual, may ratify and thereby render binding upon it the originally
unauthorized acts of its officers or other agents. This is true because the
questioned investment is neither contrary to law, morals, public order or
public policy. It is a corporate transaction or contract which is within the
corporate powers, but which is defective from a purported failure to observe
in its execution the requirement of the law that the investment must be
authorized by the affirmative vote of the stockholders holding two-thirds of
the voting power.
- This requirement is for the benefit of the stockholders. The stockholders for
whose benefit the requirement was enacted may, therefore, ratify the
investment and its ratification by said stockholders obliterates any defect
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 22
which it may have had at the outset. Besides, the investment was for the
purchase of beer manufacturing and marketing facilities which is apparently
relevant to the corporate purpose. The mere fact that the corporation
submitted the assailed investment to the stockholders for ratification at the
annual meeting of 10 May 1977 cannot be construed as an admission that
the corporation had committed an ultra vires act, considering the common
practice of corporations of periodically submitting for the ratification of their
stockholders the acts of their directors, officers and managers.
(15) EVER ELECTRICAL MANUFACTURING, INC. & GO v. SAMAHANG
MANGGAGAWA NG EVER ELECTRICAL/NAMAWU LOCAL 224
RESPONDENTS
FACTS: Ever Electrical Manufacturing, Inc. (EEMI) closed its business
operations on October 11, 2006 resulting in the termination of the services of
its employees. Aggrieved, respondents, who are members of Samahang
Manggagawa ng Ever Electrical/NAMAWU Local 224, filed a complaint for
illegal dismissal with prayer for payment of 13th month pay, separation pay,
damages, and attorney fees. Respondents alleged that the closure was
made without any warning, notice or memorandum and in full disregard of
the requirements of the Labor Code.
- In its defense, EEMI explained that it had closed the business due to
various factors, most of which included huge financial loss all the way back
from 1995. EEMI business suffered further losses due to the continued entry
of cheaper goods from China and other Asian countries. Adding to EEMI
financial woes was the closure of Orient Bank where most of its resources
were invested. As a result, EEMI was not able to meet its loan obligations
with UCPB.
- In an attempt to save the company, EEMI entered into a dacion en pago
arrangement with UCPB which, in effect, transferred ownership of the
company property to UCPB. Originally, EEMI wanted to lease the premises
to continue its business operation but under UCPB policy, a previous debtor
who failed to settle its loan obligation was not eligible to lease its acquired
assets. Thus, UCPB agreed to lease it to an affiliate corporation, EGO
Electrical Supply Co, Inc. (EGO), for and in behalf of EEMI. On February 2,
2002, a lease agreement was entered into between UCPB and EGO. The
said lease came to a halt when UCPB instituted an unlawful detainer suit
against EGO before the MeTC of Makati, who ruled in favor of UCPB and
ordered EGO to vacate the leased premises and pay rentals to UCPB in the
amount of P21,473,843.65. On September 19, 2006, a writ of execution was
issued.Consequently, on October 11, 2006, the Sheriff implemented the writ
by closing the premises and, as a result, EEMI employees were prevented
from entering the factory.
- The Labor Arbiter (LA) ruled that respondents were not illegally dismissed
but ordered EEMI and its President, Vicente Go to pay their employees
separation pay and 13th month pay respectively.
- On September 15, 2008, the NLRC reversed and set aside the decision of
the LA. The NLRC dismissed the complaint for lack of merit and ruled that
since EEMI cessation of business operation was due to serious business
losses, the employees were not entitled to separation pay. Respondents
moved for reconsideration of the NLRC decision, but the NLRC denied the
motion in its March 23, 2009 Resolution.
- Unperturbed, respondents elevated the case before the CA via a petition for
certiorari under Rule 65. The appellate court granted the petition and nullified
the decision of the NLRC and reinstated the LA decision.
ISSUE: Whether the CA erred in finding Vicente Go solidarily liable with
EEMI.
HELD: As a general rule, corporate officers should not be held solidarily
liable with the corporation for separation pay for it is settled that a corporation
is invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it
may be related. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personality.
- The LA was of the view that Go, as President of the corporation, actively
participated in the management of EEMI corporate obligations, and,
accordingly, rendered judgment ordering EEMI and Go "in solidum to pay the
complainants" their due. He explained that "[r]espondent Go negligence in
not paying the lease rental of the plant in behalf of the lessee EGO Electrical
Supply, Inc., where EEMI was operating and reimburse expenses of UCPB
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 23
for real estate taxes and the like, prompted the bank to file an unlawful
detainer case against the lessee, EGO Electrical Supply Co. The CA affirmed
the LA decision citing the case of Restaurante Las Conchas v. Llego,where it
was held that "when the employer corporation is no longer existing and
unable to satisfy the judgment in favor of the employees, the officers should
be held liable for acting on behalf of the corporation."
- A study of Restaurante Las Conchas case, however, bares that it was an
application of the exception rather than the general rule. As stated in the said
case, "as a rule, the officers and members of a corporation are not personally
liable for acts done in the performance of their duties." The Court therein
explained that it applied the exception because of the peculiar circumstances
of the case. If the rule would be applied, the employees would end up in an
empty victory because as the restaurant had been closed for lack of venue,
there would be no one to pay its liability as the respondents therein claimed
that the restaurant was owned by a different entity, not a party in the case.
In Mandaue Dinghow Dimsum House, Co., Inc., the Court declined to apply
the ruling in Restaurante Las Conchas because there was no evidence that
the respondent therein, Henry Uytrengsu, acted in bad faith or in excess of
his authority. It stressed that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be related. For said
reason, the doctrine of piercing the veil of corporate fiction must be exercised
with caution.Citing Malayang Samahan ng mga Manggagawa sa M.
Greenfield v. Ramos, the Court explained that corporate directors and
officers are solidarily liable with the corporation for the termination of
employees done with malice or bad faith. It stressed that bad faith does not
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; it partakes of the nature of
fraud.
- In Pantranco Employees Association, the Court also rejected the invocation
of Restaurante Las Conchas and refused to pierce the veil of corporate
fiction. It explained: As between PNB and PNEI, petitioners want us to
disregard their separate personalities, and insist that because the company,
PNEI, has already ceased operations and there is no other way by which the
judgment in favor of the employees can be satisfied, corporate officers can
be held jointly and severally liable with the company.
- This reliance fails to persuade. The aforesaid decisions are inapplicable to
the instant case. In the said cases, the persons made liable after the
company cessation of operations were the officers and agents of the
corporation. The rationale is that, since the corporation is an artificial person,
it must have an officer who can be presumed to be the employer, being the
person acting in the interest of the employer. The corporation, only in the
technical sense, is the employer. In the instant case, what is being made
liable is another corporation (PNB) which acquired the debtor corporation
(PNEI).
- More importantly, as aptly observed by this Court in A.C. Ransom Labor
Union-CCLU v. NLRC, it appears that Ransom, foreseeing the possibility or
probability of payment of backwages to its employees, organized Rosario to
replace Ransom, with the latter to be eventually phased out if the strikers win
their case. The execution could not be implemented against Ransom
because of the disposition posthaste of its leviable assets evidently in order
to evade its just and due obligations. Hence, the Court sustained the piercing
of the corporate veil and made the officers of Ransom personally liable for
the debts of the latter.
- In labor cases, corporate directors and officers may be held solidarily liable
with the corporation for the termination of employment only if done with
malice or in bad faith. Bad faith does not 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; it partakes of the nature of fraud.
- In the present case, Go may have acted in behalf of EEMI but the company
failure to operate cannot be equated to bad faith. Cessation of business
operation is brought about by various causes like mismanagement, lack of
demand, negligence, or lack of business foresight. Unless it can be shown
that the closure was deliberate, malicious and in bad faith, the Court must
apply the general rule that a corporation has, by law, a personality separate
and distinct from that of its owners. As there is no evidence that Go, as EEMI
President, acted maliciously or in bad faith in handling their business affairs
and in eventually implementing the closure of its business, he cannot be held
jointly and solidarily liable with EEMI.

- Clearly, what can be inferred from the earlier cases is that the doctrine of
piercing the corporate veil applies only in three (3) basic areas, namely: 1)
defeat of public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a crime; or
3) alter ego cases, where a corporation is merely a farce since it is a mere
alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.
In the absence of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be made personally
liable for corporate liabilities.

- Similarly, in the case at bench, the records do not warrant an application of

the exception. The rule, which requires the presence of malice or bad faith,
must still prevail. In the recent case of Wensha Spa Center and/or Xu Zhi Jie
v. Yung,the Court absolved the corporation president from liability in the
absence of bad faith or malice. In the said case, the Court stated:
AGUINALDO, ALPAJORA, CABRERA, DINO, EVANGELISTA, LAPEZ, MANGUERA, TABU- Corporation Law| 24
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