CORPORATION BY ESTOPPEL: RATIONALE Standard Ptoducts, having recognized the corporate existence of
Asia Banking by making a PN in its favor and making partial
G.R. No. 22106 September 11, 1924
ASIA BANKING CORPORATION, plaintiff-appellee, vs. STANDARD
PRODUCTS, CO., INC., defendant-appellant.
 Standard Products issued a PN in favor of Asia Banking. The
former made partial payments but later on failed to full
settle its obligation. Hence, Asia Banking brought an action
to recover the balance due on the said PN in the sum of
P24,736.47.
 At the trial of the case, it appear that Asia Banking failed to
prove affirmatively the corporate existence of the parties.
Nonetheless, the trial court ruled in its favor.
 Standard Products now insists the court erred in finding that
the parties were corporations with juridical personality.
ISSUE: WON SP should be held liable to AB despite the failure of the
latter to prove their corporate existence.
HELD: YES.
As a general rule, in the absence of fraud a person who has
contracted or otherwise dealt with an association in such a way as
to recognize and in effect admit its legal existence as a corporate
body is thereby estopped to deny its corporate existence in any
action leading out of or involving such contract or dealing, unless
its existence is attacked for cause which have arisen since making
the contract or other dealing relied on as an estoppel and this
applies to foreign as well as to domestic corporations.
payments on the same, is therefore estopped to deny said Asia
Banking's corporate existence. It is, of course, also estopped from
denying its own corporate existence. Under these circumstances it
was unnecessary for the plaintiff to present other evidence of the
corporate existence of either of the parties.
G.R. No. L-11442 May 23, 1958
MANUELA T. VDA. DE SALVATIERRA, petitioner, vs. HON. LORENZO
C. GARLITOS, in his capacity as Judge of the Court of First Instance
of Leyte, Branch II, and SEGUNDINO REFUERZO, respondents.
 Philippine Fibers Producers Co., Inc., representing itself as a
duly organized domestic corporation and with Segundino
Refuerzo as the alleged President, entered into a contract of
lease with Manuela Salvatierra over a parcel of land in
Burauen, Leyte owned by the latter.
 It was provided in said contract, among other things, that
that the land would be planted crops suitable to the soil;
that the lessor would be entitled to 30% of the net income
accruing from the harvest; and that after every harvest, the
lessee was bound to declare at the earliest possible time
the income derived therefrom and to deliver the
corresponding share due the lessor.
 On April 5, 1955, Manuela filed a complaint against PFC and
Refuerzo, for accounting, rescission and damages. She
averred that sometime in April, 1954, PFC refused to render
an accounting of the income derived from one of the
harvests made in the subject land and to deliver the lessor's
 share. Considering this violation of the terms of the lease
agreement, a rescission was but proper.
 The trial court later on ruled in favor of Manuela, and
susequently issued issued a writ of execution, in virtue of
which the Provincial Sheriff of Leyte caused the attachment
of 3 parcels of land registered in the name of Segundino
Refuerzo. No property of PFP was found available for
attachment.
 Refuerzo then filed a motion claiming that the said decision
was null and void with respect to him, there being no
allegation in the complaint pointing to his personal liability;
for while it was conceded that he was a signatory to the
lease contract, he did so in his capacity as president of the
corporation.
 Manuela argues on the other hand that her failure to
specify Refuerzo's personal liability was due to the fact that
all the time she was under the impression that PFP was duly
registered corporation as appearing in the contract, but a
subsequent inquiry from the SEC yielded otherwise.
 The Court a quo granted Refuerzo’s motion and ordered for
the release all properties belonging to him that might have
already been attached.
ISSUE: WON Refuerzo should be held liable personally in the
present cse.
HELD: YES.
 While as a general rule a person who has contracted with an
association in such a way as to recognize its existence as a
corporate body is estopped from denying the same in an
action arising out of such transaction, this doctrine may not
be held to be applicable where there was an attendance of
fraud.
 In the instant case, the circumstances surrounding the
execution of the contract lead to the inescapable conclusion
that Manuela was really made to believe that PFP was duly
organized in accordance with law. (NOTE: Refuerzo neither
confirmed nor denied PFP’s corporate existence to
Manuela, leading the latter to believe that PFP is duly
registered.)
 A corporation indeed has a juridical personality separate
and distinct from its component members, stockholders and
officers such that a corporation cannot be held liable for the
personal indebtedness of a stockholder and conversely, a
stockholder cannot be held personally liable for any
financial obligation of the corporation in excess of his
unpaid subscription. But this rule is understood to refer
merely to registered corporations and cannot be made
applicable to the liability of members of an
unincorporated association.
o REASON: Since an organization which before the
law is non-existent has no personality and would be
incompetent to act and appropriate for itself the
powers and attributes of a corporation as provided
by law; it cannot create agents or confer authority
on another to act in its behalf.
o Thus, those who act or purport to act as its
representatives or agents do so without authority
and at their own risk. A person who acts as an agent
 without authority or without a principal is himself
regarded as the principal.
 Considering that Refuerzo, as president of the unregistered
corporation PFP., was the moving spirit behind the
consummation of the lease agreement by acting as its
representative, his liability cannot be limited or restricted to
that imposed upon corporate shareholders. In acting on
behalf of a corporation which he knew to be unregistered,
he assumed the risk of reaping the consequential damages
or resultant rights, if any, arising out of such transaction.
G.R. No. L-19118 January 30, 1965
MARIANO A. ALBERT, plaintiff-appellant, vs. UNIVERSITY
PUBLISHING CO., INC., defendant-appellee.
 On September 24, 1949, Mariano A. Albert sued University
Publishing for failure of the latter to pay the second
installment of its debt. Mariano alleged inter alia that the
company, through Jose M. Aruego, its President, entered
into a contract with him where the company agreed to pay
him in installment P30,000 for the exclusive right to publish
his revised Commentaries on the Revised Penal Code and
for his share in previous sales of the book's first edition.
Further, it was stipulated in the contract that failure to pay
one installment would render the rest due.
 University Publishing admitted such allegation of its
corporate existence and the execution and terms of the
contract, but alleged that it was Mariano who breached
their contract by failing to deliver his manuscript.
 CFI ruled in favor of Mariano, ordering University Publishing
to pay Justo Albert, administrator of Mariano’s estate, the
sum of P23,000. Upon appeal to the SC, the amount was
reduced to P15,000.00, to be executed in full.
 Justo later on petitioned for a writ of execution against Jose
Aruego, as the real defendant. Apparently, it was
discovered that there is no such entity as University
Publishing. He annexed to his petition a certification from
the SEC attesting that Univerity Publishing was never
registered.
 University Publishing countered by filing, through counsel
(Aruego's own law firm), a manifestation stating that Jose
Aruego is not a party to the case.
ISSUE: WON the judgment may be executed against Jose Aruego,
supposed President of University Publishing as the real defendant.
HELD: YES.
 On account of its non-registration, University Publishing
cannot be considered a corporation. It has therefore no
personality separate from Jose M. Aruego; and it cannot be
sued independently.
 The corporation-by-estoppel doctrine is inapplicable here.
Aruego represented a non-existent entity and induced the
plaintiff and the court to believe in such representation. He
signed the contract as "President" of "University Publishing
Co., Inc.," stating that this was "a corporation duly
organized and existing under the laws of the Philippines,"
and obviously misled Mariano into believing the same. One
who has induced another to act upon his wilful
 misrepresentation that a corporation was duly organized
and existing under the law, cannot thereafter set up
against his victim the principle of corporation by estoppel.
 Jose M. Arueg was the real party to the contract sued upon;
that he was the one who reaped the benefits resulting from
it, so much so that partial payments of the consideration
were made by him; that he violated its terms, thereby
precipitating the suit in question; and that in the litigation
he was the real defendant.
 NOTE: Should there be persons who under the law are liable
to Aruego for reimbursement or contribution with respect
to the payment he makes under the judgment in question,
he may proceed against them through proper remedial
measures.
 NOTE: It is not hard to decipher why University Publishing,
through counsel, would not want Jose Aruego to be
considered a party to the present case: should a separate
action be now instituted against Jose M. Aruego, the
plaintiff will have to reckon with the statute of limitations.
G.R. No. 136448. November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR
INDUSTRIES, INC., respondent.
 It appears that Lim, Chua, and Yao verbally agreed to
acquire two fishing boats from CMF Fishing Corporation.
They subsequently borrowed P3.25 million from Jesus Lim,
brother of Lim Tong Lim, to finance the venture.
 CMF then executed the Deed of Sale in favor of Lim Tong
Lim to serve as security for the loan extended by Jesus Lim;
 Lim, Chua and Yao thereafter agreed that the refurbishing ,
re-equipping, repairing, dry docking and other expenses for
the boats would be shouldered by Chua and Yao.
 Jesus Lim again extended a loan to the partnership in the
amount of P1 million, because of which, Yao and Chua
entrusted the ownership papers of two other boats to Lim.
 In pursuance of the business agreement, Yao and Chua
bought nets from Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation," their purported
business name.
 The buyers, however, failed to pay for the fishing nets and
the floats; hence, PFG filed a collection suit against Chua,
Yao and Lim.
 The suit was brought against the three in their capacities as
general partners, on the allegation that Ocean Quest Fishing
Corporation was a nonexistent corporation as shown by a
Certification from the SEC.
 The trial court held Chua, Yao and Lim, as general partners,
jointly liable to pay PFG, basing it ruling on the testimonies
of the witnesses presented and on a Compromise
Agreement executed by the three in a separate case filed by
Chua and Yaoagainst Lim. In their Compromise Agreement,
they revealed their intention to pay the loan (from Lim/ JLH
Corporation?) with the proceeds of the sale of the boats,
and to divide equally among them the excess or loss.
 In affirming the trial court, the CA held that Lim was a
partner of Chua and Yao in a fishing business and may thus
be held liable as a such for the fishing nets and floats
purchased by and for the use of the partnership. According
to the CA, it is evident that the ultimate undertaking of the
 defendants was to divide the profits among themselves
which is what a partnership essentially is.
 Among the contentions raised by Lim in insisting that he
should not be held jontly liable with Yao and Chua was that
only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not
appear on any of the contracts and since he never directly
transacted with PFG, he cannot be held liable.
ISSUE: WON Lim should be held jointly liable with Chua and Yao.
HELD: YES.
It is evident that Lim, Chua and Yao decided to form a corporation.
Although it was never legally formed for unknown reasons, this fact
alone does not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on estoppel,
those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general
partners.
Technically, it is true that Lim did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is
covered by the scope of the doctrine of corporation by estoppel.
Unquestionably, Lim benefited from the use of the nets found inside
F/B Lourdes, the boat which has earlier been proven to be an asset
of the partnership. (He in fact questions the attachment of the nets,
because the Writ issued by the RTC has effectively stopped his use of
the fishing vessel.)
NOTE: A litigation is not a game of technicalities. Technicality, when
it deserts its proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant consideration from
courts. There should be no vested rights in technicalities.
NOTE: The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in
a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to
evade its responsibility for a contract it entered into and by virtue of
which it received advantages and benefits. On the other hand, a
third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from
it, may be barred from denying its corporate existence in a suit
brought against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible corporation,
despite knowledge of its legal defects, may be held liable for
contracts they impliedly assented to or took advantage of.
NOTE: it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business.
NOTE: In implying that the lower courts have decided on the basis
of one piece of document alone, Lim fails to appreciate that the CA
and the RTC delved into the history of the document and explored
all the possible consequential combinations in harmony with law,
logic and fairness. Verily, the two lower courts factual findings
mentioned above nullified petitioners argument that the existence
of a partnership was based only on the Compromise Agreement.
NOTE: Lim evidently entered into a business agreement with Chua
and Yao, in which debts were undertaken in order to finance the
acquisition and the upgrading of the vessels which would be used in
their fishing business. The sale of the boats, as well as the division
among the three of the balance remaining after the payment of
their loans, proves that F/B Lourdes, though registered in his name,
was not his own property but an asset of the partnership. It is
absurd for Lim to sell his property to pay a debt he did not incur, if
the relationship among the three of them was merely that of lessor-
lessee, instead of partners.
PIERCING THE VEIL OF CORPORATE FICTION
BUENAFLOR UMALI vs. CA
Mauricia Castillo was the administratrix in charge over a parcel of
land left be Felipe Castillo. Said land was mortgaged to DBP and was
about to be foreclosed but then Mauricia’s nephew, Santiago
Rivera, proposed that they convert the land into 4 subdivisions so
that they can raise the necessary money to avoid foreclosure.
Mauricia agreed. Rivera sought to develop said land through his
company, Slobec Realty Corporation (SRC), of which he was also the
president. SRC then contracted with Bormaheco, Inc. for the
purchase of one tractor. Bormaheco agreed to sell the tractor on an
installment basis. At the same time, SRC mortgaged said tractor to
Bormaheco as security just in case SRC will default. As additional
security, Mauricia and other family members executed a surety
agreement whereby in case of default in paying said tractor, the
Insurance Corporation of the Philippines (ICP) shall pay the balance.
The surety bond agreement between Mauricia and ICP was secured
by Mauricia’s parcel of land (same land to be developed).
SRC defaulted in paying said tractor. Bormaheco foreclosed the
tractor but it wasn’t enough hence ICP paid the deficiency. ICP then
foreclosed the property of Mauricia. ICP later sold said property to
Philippine Machinery Parts Manufacturing Corporation (PMPMC).
PMPMC then demanded Mauricia et al to vacate the premises of
said property.
While all this was going on, Mauricia died. Her successor-
administratrix, Buenaflor Umali, questioned the foreclosure made
by ICP. Umali alleged that all the transactions are void and
simulated hence they were defrauded; that through Bormaheco’s
machinations, Mauricia was fooled into entering into a surety
agreement with ICP; that Bormaheco even made the premium
payments to ICP for said surety bond; that the president of
Bormaheco is a director of PMPMC; that the counsel who assisted in
all the transactions, Atty. Martin De Guzman, was the legal counsel
of ICP, Bormaheco, and PMPMC.
ISSUE: Whether or not the veil of corporate fiction should be
pierced.
HELD: NO.
There is no clear showing of fraud in this case. The mere fact that
Bormaheco paid said premium payments to ICP does not constitute
fraud per se. As it turned out, Bormaheco is an agent of ICP. SRC,
through Rivera, agreed that part of the payment of the mortgage
shall be paid for the insurance. Naturally, when Rivera was paying
some portions of the mortgage to Bormaheco, Bormaheco is o (1) "When a local buyer was interested in the purchase of
applying some parts thereof for the payment of the premium – and railway materials, machinery, and supplies, it asked for price
this was agreed upon beforehand. quotations from KPI";

Further, piercing the veil of corporate fiction is not the proper o (2) "KPI then cabled for the quotation desired from Koppel
remedy in order that the foreclosure conducted by ICP be declared Industrial Car and Equipment Company";
a nullity. The nullity may be attacked directly without disregarding
the separate identity of the corporations involved. Further still, o (3) "KPI, however, quoted to the purchaser a selling price above
Umali et al are not enforcing a claim against the individual members the figures quoted by Koppel Industrial Car and Equipment
of the corporations. They are not claiming said members to be Company";
liable. Umali et al are merely questioning the validity of the o (4) "On the basis of these quotations, orders were placed by the
foreclosure. local purchasers
The veil of corporate fiction can’t be pierced also by the simple · KPI paid under protest the P64,122.51 demanded by the CIR.
reason that the businesses of two or more corporations are
interrelated, absent sufficient showing that the corporate entity was Total profit
purposely used as a shield to defraud creditors and third persons of
Php 3,772,403,82
their rights. In this case, there is no justification for disregarding
their separate personalities. KPI Share
KOPPEL vs. YATCO Php 132,201.30

 Koppel Philippines Inc. (KPI) has a capital stock divided into KPI paid commercial broker’s tax (4% of KPI Share)
thousand (1,000) shares of P100 each.
 The Koppel Industrial Car and Equipment Company (KICEC) Php 5,288.05
owns 995 shares of the total capital stock. KICEC is
CIR demanded (1% of Total Profit) + 25% surcharge for late payment
organized under US laws and not licensed to do business in
– Paid tax
the Philippines. The remaining five (5) shares only were and
are owned one each by officers of the KPI. Php 64,122.51
 They have the following business process:
· It appears that KICEC is the only foreign principal of KPI.
· The KPI corporation bore alone incidental expenses - as, for
instance, cable expenses-not only those of its own cables but also
those of its "principal" .
· The KPI's "share in the profits" realized from the transactions
in which it intervened was left virtually in the hands of KICEC
· Where drafts were not paid by the purchasers, the local banks
were instructed not to protest them but to refer them to KPI which
was fully empowered by KICEC to instruct the banks with regards to
disposition of the drafts and documents
· Where the goods were European origin, consular invoices, bill
of lading, and, in general, the documents necessary for clearance
were sent directly to KPI
· If the KPI had in stock the merchandise desired by local
buyers, it immediately filled the orders of such local buyers and
made delivery in the Philippines without the necessity of cabling its
principal in America either for price quotations or confirmation or
rejection of that agreed upon between it and the buyer
· Whenever the deliveries made by KICEC were incomplete or
insufficient to fill the local buyer's orders, KPI used to make good
the deficiencies by deliveries from its own local stock, but in such
cases it charged its principal only the actual cost of the merchandise
thus delivered by it from its stock and in such transactionsKPI did
not realize any profit #fluffypeaches
· CFI:
o KPI is a mere dummy or branch ("hechura") of KICEC.
o did not deny legal personality to Koppel (Philippines), Inc. for
any and all purposes, but in effect its conclusion was that, in the
transactions involved herein, the public interest and convenience
would be defeated and what would amount to a tax evasion
perpetrated, unless resort is had to the doctrine of "disregard of the
corporate fiction."
Issues/Ruling:
1. WON KPI is a domestic corporation distinct and separate from,
and not a mere branch of KICEC
KPI:
· Its corporate existence as cannot be collaterally attacked and
that the Government is estopped from so doing.
SC:
· Koppel (Philippines), Inc. was a mere branch or agency or
dummy ("hechura") of Koppel Industrial Car and Equipment Co. The
lower court did not hold that the corporate personality of KPI would
also be disregarded in other cases or for other purposes. It would
have had no power to so hold. The courts' action in this regard must
be confined to the transactions involved in the case at bar "for the
purpose of adjudging the rights and liabilities of the parties in the
case. They have no jurisdiction to do more." <3 peaches
· United States vs. Milwaukee Refrigeration Transit
o General Rule: a corporation will be looked upon as a legal entity
as a general rule, and until sufficient reason to the contrary
appears;
o Exception: Wthe notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law
will regard the corporation as an association of persons.
· Manifestly, the principle is the same whether the "person" be
natural or artificial.
· A very numerous and growing class of cases wherein the
corporate entity is disregarded is that (it 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)."
· Where it appears that two business enterprises are owned,
conducted and controlled by the same parties, both law and equity
will, when necessary to protect the rights of third persons, disregard
the legal fiction that two corporations are distinct entities, and treat
them as identical. (Abney vs. Belmont Peaches Country Club
Properties, Inc., 279 Pac., 829.) #bebegurrpeaches
· The fact that KPI is a mere branch is conclusively borne out by
the fact, among others, that the amount of the so-called "share in
the profits" of KPIwas ultimately left to the sole, unbridled control
of KICEC. If KPI was intended to function as a bona fide separate
corporation, we cannot conceive how this arrangement could have
been adopted.
· No group of businessmen could be expected to organize a
mercantile corporation if the amount of that profit were to be
subjected to such a unilateral control of another corporation, unless
indeed the former has previously been designed by the
incorporators to serve as a mere subsidiary, branch or agency of the
latter.
· KPI charged the parent corporation no more than actual cost -
without profit whatsoever - for merchandise allegedly of its own to
complete deficiencies of shipments made by said parent
corporation.
G.R. No. L-13119 September 22, 1959
RICARDO TANTONGCO, Petitioner, vs. KAISAHAN NG MGA
MANGGAGAWA SA LA CAMPAN (KKM) AND THE HONORABLE
COURT OF INDUSTRIAL RELATIONS, Respondents.
This is a petition for certiorari and prohibition with prayer for
issuance of a writ of preliminary injunction to prohibit CIR from
proceeding with the hearing of the contempt proceedings for which
Riicardo Tantongco was cited to appear the present his evidence.
The contempt proceedings which petitioner seeks to stop are based
on the order of the CIR which reads as follows:
It appearing that the Order of this Court, in the above-entitled
case, dated February 18, 1957, has become final and executory and
the respondents have failed to comply with the same, the said
respondents, namely, the La Campana Starch and Coffee Factory or
its manager or the person who has charge of the management, and
the administrator of the Estate of Ramon Tantongco are hereby
ordered to comply with said order, within five days from receipt
hereof, particularly the following, to wit:
(a) To reinstate the persons named in the said Order of
February 18, 1957;
 (b) To deposit the amount of P65,534.01 with this Court.
With respect to possible back wages from August 28, 1957 as
mentioned in the petition for contempt of August 30, 1957, the
same shall first be determined.
It would appear that Tantongco failed to comply with said order and
so, as already stated, he was cited to appear and to adduce
evidence on his behalf to show why he should not be punished for
indirect contempt.
The facts in this case may be briefly narrated thus: Sometime
in June, 1951, members of the Kaisahan ng mga Manggagawa sa La
Campana, a labor union to which were affiliated workers in the La
Campana Starch Factory and La Campana Coffee Factory, two
separate entities but under the one management, presented
demands for higher wages, and more privileges and benefits in
connection with their work. When the management failed and
refused to grant the demands, the Department of Labor intervened;
but failing to settle the controversy, it certified the dispute to the
Court of Industrial Relations on July 17, 1951, where it was
docketed as Case No. 584-V. On the theory that the laborers
presenting the demands were only the ones working in the coffee
factory, said company filed through the management a motion to
dismiss claiming that inasmuch as there were only 14 of them in
said factory, the Court of Industrial Relations had no jurisdiction to
entertain and decide the case. The motion was denied by the Court
of Industrial Relations, which said:
. . . There was only management for the business of gawgaw
and coffee with whom the laborers are dealing regarding their
work. Hence, the filing of action against the La Campana Starch and
Coffee Factory is proper and justified.
The order of denial was appealed to this Tribunal through
certiorari under G.R. No. L-5677. In disposing of the case, we held:
As to the first ground, petitioners obviously do not question
the fact that the number of employees of the La Campana Gaugau
Packing involved in the case is more than the jurisdictional number
(31) required by law, but they contend that the industrial court has
no jurisdiction to try case against La Campana Coffee Factory Co.
Inc. because the latter has allegedly only 14 laborers and only five of
these are members of respondent Kaisahan. This contention loses
force when it is noted that, as found by the industrial court - and
this finding is conclusive upon us - La Campana Gaugau Packing and
La Campana Coffee Factory Co. Inc., are operating under one single
management, that is, one business though with two trade names.
True, the coffee factory is a corporation , and, by legal fiction, an
entity existing separate and part from the persons composing it,
that is, Tan Tong and his family. But is settled this fiction of law,
which has been introduced as a matter of convenience and to
subserve the ends of justice cannot be invoke to further an end
subversive of that purpose.
... The attempt to make the two factories appear as two
separate business, when in reality, they are but one is but a device
to defeat the ends of the law (the Act governing capital and labor
relations) and should not be permitted to prevail.
Upon the return of the case to the Court of Industrial
Relations, the latter proceeded with the hearing. In the meantime
incidental cases involving the same parties came up and were filed
before the Court of Industrial Relations in the following cases:
Case No. 584-V(1) - petition for contempt against the La
Campana Starch and Coffee Factory for having employed 21 new
laborers in violation of the order of July 21, 1951, filed on July 25,
1951;
Case No. 584-V(2) - petition of La Campana for authority for
authority to dismiss Loreto Bernabe, filed on July 25, 19651;
Case No. 584-V(3) - petition of Union to reinstate Bonifacio
Calderon with backpay, filed on August 3, 1951;
Case No. 584-V(5) - petition of Union to reinstate Marcelo
Estrada and Exequiel Rapiz with back pay and to punish officials of
the company for contempt, filed on February 13, 1952; and
Case No. 584-V(6) - petition of union for reinstatement of
Ibardolaza and seven other member-laborers and to punish the
officers of the company for contempt, filed on July 15, 1953.
These five cases were heard jointly. In the meantime Ramon
Tantongco supposed to be the owner and manager of the La
Campana Starch Factory and the person in charge of the La
Campana Coffee Factory died on May 16, 1956. On motion of the
labor union, the Court of Industrial Relations order the inclusion as
party respondent of the administrator of the estate of Ramon
Tantongco who was Ricardo Tantongco.
Ricardo Tantongco, as administrator, under a special
appearance filed a motion to dismiss all the cases including the
main case, that is to say, Cases No. 584-(V) to 584-V(6), on the
ground that said cases involved claims for sums of money and
consequently should be filed before the probate court having
jurisdiction over the estate, pursuant to the provisions of Rule 3,
Section 21, and Rule 88, Section 1 of the Rules of Court. On August
23, 1956, the Court of Industrial Relations denied the motion to
dismiss and proceed to hear the incidental cases against the La
Campana entities.
On June 12, 1956, a partial decision was rendered in the main
case No. 584-V, which partial decision was elevated to us and is still
pending appeal. On February 18, 1957, the Court of Industrial
Relations issued an order in incidental Cases No. 584-V(1), V(2), V(5)
and V(6), directing the "management of the respondent company
and or the administrator of the Estate of Ramon Tantongco", to
reinstate the dismissed laborers mentioned therein with back
wages. This order of February 18, 1957, as well as the order
directing the inclusion of the administrator of the estate of Ramon
Tantongco as additional respondent in the incidental cases, and the
order denying the petition of the administrator to dismiss said
incidental cases were appealed to this tribunal though certiorari.
The appeal, however, was summarily dismissed by this Court in its
resolution of June 12, 1957, as follows:
This Court, deliberating upon the allegations of the petition
filed in case l-12355 (La Campana Starch Coffee Factory et al. vs.
Kaisahan ng Mga Manggagawa sa la Campana, KKM, et al) for
review, on certiorari of the decision of the Court of Industrial
Relations referred to therein, and finding that there is no merit in
the petition, RESOLVE TO DISMISS the same.
 The CIR order of February 18, ,1957, in the incidental cases
Nos. 584-V to V(6), having become final and executory , the laborers
involved reported for work on August 28, 1957, but they were not
admitted by the management. Consequently, the union filed a
petition dated August 30, 1957, to hold respondents in said cases
for contempt. After hearing the CIR issued the order of September
30, 1957, subject of this petition, ordering "the La Campana Starch
and Coffee Factory or its manager or the person who has charge of
its management and the administrator of the estate of Ramon
Tantongco" to "reinstate the persons named in the order of
February 18, 1957" and "to deposit the amount of P65,534.01." For
refusal or failure to comply with said order, petitioner Ricardo
Tantongco was required to appear before the attorney of the CIR in
contempt proceedings. Petitioner now seeks to prohibit the CIR
from proceeding with the trial for contempt and to enjoin
respondent CIR from enforcing its order of September 30, 1957.
Petitioner contends that upon the death of Ramon Tantongco,
the claims of the laborers should have been dismissed and that said
claims should have been filed with the probate court having
jurisdiction over the administration proceedings of the estate of
Ramon Tantongco, pursuant to the provisions of Rule 3, Section 21
of the Rules of Court and that the failure to file claims with the
administrator forever barred said claims as provided in Rule 87,
Section 5 of the Rules of Court, especially after the assets of the
estate had been distributed among the heirs, and petitioner had
ceased to be the administrator of the estate. As already stated this
same question was raised by petitioner in G.R. No. L-12355, entitled
"La Campana Starch and Coffee Factory and Ricardo Tantongco, etc.
vs. Kaisahan ng mga Manggagawa sa La Campana (KKM)," which, as
already stated, was summarily dismissed by this Court in a
resolution dated June 12, 1957. Consequently, said question may
not again be raised in the present case. Furthermore, it may be
recalled that both in the main case in the incidental cases No. 584-V
to 584-V(6), Ramon Tantongco was never a party. The party there
was the La Campana Starch and Coffee Factory by which name it
was sought to designate the two entities La Campana Starch Packing
and the La Campana Coffee Factory. Naturally, the claims contained
in said cases were not the claims contemplated by law to be
submitted before the administrator. In other words the death of
Ramon Tantongco did not deprive the CIR of its jurisdiction over the
cases aforementioned. Moreover, the money claims of the laborers
were merely incidental to their demands for reinstatement for
having been unjustly dismissed, and for better working conditions.
Petitioner, however, contends that in G.R. No. L-5677, we
"pierced the veil of corporate existence", and held that the La
Campana Starch and Coffee Factory and its owner, Ramon
Tantongco, were one; so that with the death of Ramon, the La
Campana entities ceased to exist, resulting in the loss of jurisdiction
of the CIR to enforce its order against said entities. The reason we
applied the so-called "piercing the veil of corporate existence" in
G.R. No. L-5677 was to avoid the technicality therein advanced in
order to defeat the jurisdiction of the CIR. We there found that
although there were ostensibly two separate companies or entities,
they were managed by the same person or persons and the workers
in both were used interchangeably so that in order to determine
whether or not the CIR had jurisdiction, the number of workers in
both entitles, not in only one, was to be considered. However, we
still believe that although the family of Ramon Tantongco was
practically the owner of both the coffee factory and the starch
factory, nevertheless these entities are separate from the
personality of Ramon. The coffee factory is a stock corporation and
the shares are owned not only by Ramon but also by others, such as
petitioner Ricardo who not only is a stockholder and director and
treasurer but also the management of the same Furthermore,
petitioner is now estopped from claiming that the two entities in
question and Ramon are one. Thus in Annex 3-CIR (par. 1 thereof)
which is a complaint for injunction filed by La Campana Food
Products, et al and La Campana Starch Packing against the
consolidated Labor Organization of the Philippines, in civil Case No.
P-25482 in the Court of First Instance of Rizal, petitioner admitted
the existence and operation of said entities; in Annex 4-CIR where
petitioner appeared as General Manager representing the two
entities in its agreement with the La Campana Workers Union to
resolve the dispute between the two entities and the laborers in
case Nos. 1072-V and 1371-ULP, the existence of the two entities
appears to have been admitted; and in Annex 5-A-CIR, an answer to
the complaint of La Campana Workers Union in case No. 1471-ULP
(Annex 5-CIR), petitioner admitted the allegation that said two
factories were in existence and doing business with petitioner as
manager of the same.
In relation to the order of the CIR requiring petitioner to
appear in the contempt proceedings instituted against him,
petitioner contends that after he ceased to be the administrator of
the estate of Ramon Tantongco, he may not now be compelled to
comply with the order of the court. In answer, it is enough to bear
in mind the jurisdiction and authority of the CIR as to compliance
with and violations of its orders under section 6, Commonwealth
Act No. 143, which we quote below:
. . . The Court or any Judge thereof shall have furthermore, all
the inherent powers of a court of justice provided in paragraph 5 of
Rule 124 of the Supreme Court, as well as the power to punish
direct and indirect contempt as provided in Rule 64 of the same
Court, under the same procedure and penalties provided therein.
Any violation of any order, award, or decision of the Court of
Industrial Relations shall, after such order, award or decision has
become final, conclusive, and executory, constitute contempt of
court:
In case the employer (or landlord) committing any such
violation or contempt is an association or corporation, the manager
or the person who has the charge of the management of the
business of the association or corporation and the officers of
directors thereof who have ordered or authorized the violation of
contempt shall be liable. . . .
In conclusion, we find and hold that the La Campana Starch
and Food Products Company which stands for the La Campana
Starch and Coffee Factory are entities distinct from the personality
of Ramon Tantongco; that after the death of Ramon these two
entities continued to exist and to operate under the management of
petitioner and that consequently he is the proper person and
official to which the orders of the CIR are addressed and who is in
duty bound to comply with the same. We further find that the CIR
acted with in its jurisdiction in issuing its order of September 30,
1957 and in requiring petitioner to appear to give his evidence if any
in relation with the contempt proceedings instituted against him.
G.R. No. 110358 November 9, 1994
QUINTIN ROBLEDO, MARIO SINLAO, LEONARDO SAAVEDRA,
VICENTE SECAPURI, DANIEL AUSTRIA, ET AL., petitioners, vs. THE
NATIONAL LABOR RELATIONS COMMISSION, BACANI SECURITY
AND ALLIED SERVICES CO., INC., AND BACANI SECURITY AND
PROTECTIVE AGENCY AND/OR ALICIA BACANI, respondents.
Petitioners were former employees of BSPA. They were employed
as security guards at different times during the period 1969 to
December 1989 when BSPA ceased to operate.
BSPA was a single proprietorship owned, managed and operated by
the late Felipe Bacani. It was registered with the Bureau of Trade
and Industry as a business name in 1957. Upon its expiration, the
registration was renewed on July 1, 1987 for a term of five (5) years
ending 1992.
On December 31, 1989, Felipe Bacani retired the business name and
BSPA ceased to operate effective on that day. At that time,
respondent Alicia Bacani, daughter of Felipe Bacani, was BSPA's
Executive Directress.
On January 15, 1990 Felipe Bacani died. An intestate proceeding
was instituted for the settlement of his estate before the Regional
Trial Court, National Capital Region, Branch 155, Pasig, Metro
Manila.
Earlier, on October 26, 1989, respondent Bacani Security and Allied
Services Co., Inc. (BASEC, for brevity) had been organized and
registered as a corporation with the Securities and Exchange
Commission. The following were the incorporators with their
respective shareholdings:
ALICIA BACANI — 25,250 shares
LYDIA BACANI — 25,250 shares
AMADO P. ELEDA — 25,250 shares
VICTORIA B. AURIGUE — 25,250 shares
FELIPE BACANI — 20,000 shares
The primary purpose of the corporation was to "engage in the
business of providing security" to persons and entities. This was the
same line of business that BSPA was engaged in. Most of the
petitioners, after losing their jobs in BSPA, were employed in BASEC.
On July 5, 1990, some of the petitioners filed a complaint with
the Department of Labor and Employment, National Capital Region,
for underpayment of wages and nonpayment of overtime pay, legal
holiday pay, separation pay and/or retirement/resignation benefits,
and for the return of their cash bond which they posted with BSPA.
Made respondents were BSPA and BASEC. Petitioners were
subsequently joined by the rest of the petitioners herein who filed
supplementary complaints.
On March 1, 1992, the Labor Arbiter rendered a decision upholding
the right of the petitioners. The dispositive portion of his decision
reads:
CONFORMABLY WITH THE FOREGOING, the judgment is hereby
rendered finding complainants entitled to their money claims as
herein above computed and to be paid by all the respondents
herein in solidum except BSPA which has already been retired from
business.
Respondents are further ordered to pay attorney's fees equivalent
to five (5) percent of the awarded money claims.
On appeal the National Labor Relations Commission reversed. In a
decision dated March 30, 1993, the NLRC's First Division declared
the Labor Arbiter without jurisdiction and instead suggested that
petitioners file their claims with the Regional Trial Court, Branch
155, Pasig, Metro Manila, where an intestate proceeding for the
settlement of Bacani's estate was pending. Petitioners moved for a
reconsideration but their motion was denied for lack of merit.
No appeal lies to review decisions of the NLRC. Nonetheless the
petition in this case was treated as a special civil action of certiorari
to determine whether the NLRC did not commit a grave abuse of its
discretion in reversing the Labor Arbiter's decision.
The issues in this case are two fold: first, whether Bacani Security
and Allied Services Co. Inc. (BASEC) and Alicia Bacani can be held
liable for claims of petitioners against Bacani Security and Protective
Agency (BSPA) and, second, if the claims were the personal liability
of the late Felipe Bacani, as owner of BSPA, whether the Labor
Arbiter had jurisdiction to decide the claims.
Petitioners contend that public respondent erred in setting aside
the Labor Arbiter's judgment on the ground that BASEC is the same
entity as BSPA the latter being owned and controlled by one and the
same family, namely the Bacani family. For this reason they urge
that the corporate fiction should be disregarded and BASEC should
be held liable for the obligations of the defunct BSPA.
We find the petition to be without merit.
As correctly found by the NLRC, BASEC is an entity separate and
distinct from that of BSPA. BSPA is a single proprietorship owned
and operated by Felipe Bacani. Hence its debts and obligations were
the personal obligations of its owner. Petitioners' claim which are
based on these debts and personal obligations, did not survive the
death of Felipe Bacani on January 15, 1990 and should have been
filed instead in the intestate proceedings involving his estate.
Indeed, the rule is settled that unless expressly assumed labor
contracts are not enforceable against the transferee of an
enterprise. The reason for this is that labor contracts are in
personam.2 Consequently, it has been held that claims for
backwages earned from the former employer cannot be filed
against the new owners of an enterprise.3 Nor is the new operator
of a business liable for claims for retirement pay of employees.
Petitioners claim, however, that BSPA was intentionally retired in
order to allow expansion of its business and even perhaps an
increase in its capitalization for credit purpose. According to them,
the Bacani family merely continued the operation of BSPA by
creating BASEC in order to avoid the obligations of the former.
Petitioners anchor their claim on the fact that Felipe Bacani, after
having ceased to operate BSPA, became an incorporator of BASEC
together with his wife and daughter. Petitioners urge piercing the
veil of corporate entity in order to hold BASEC liable for BSPA's
obligations.
The doctrine of piercing the veil of corporate entity is used
whenever a court finds that the corporate fiction is being used to
defeat public convenience, justify wrong, protect fraud, or defend
crime, or to confuse legitimate issues, or that a corporation is the
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.5 It is apparent, therefore, that
the doctrine has no application to this case where the purpose is
not to hold the individual stockholders liable for the obligations of
the corporation but, on the contrary, to hold the corporation liable
for the obligations of a stockholder or stockholders. Piercing the veil
of corporate entity means looking through the corporate form to
the individual stockholders composing it. Here there is no reason to
pierce the veil of corporate entity because there is no question that
petitioners' claims, assuming them to be valid, are the personal
liability of the late Felipe Bacani. It is immaterial that he was also a
stockholder of BASEC.
Indeed, the doctrine is stood on its head when what is sought is to
make a corporation liable for the obligations of a stockholder. But
there are several reasons why BASEC is not liable for the personal
obligations of Felipe Bacani. For one, BASEC came into existence
before BSPA was retired as a business concern. BASEC was
incorporated on October 26, 1989 and its license to operate was
released on May 28, 1990, while BSPA ceased to operate on
December 31, 1989. Before, BSPA was retired, BASEC was already
existing. It is, therefore, not true that BASEC is a mere continuity of
BSPA.
Second, Felipe Bacani was only one of the five (5) incorporators of
BASEC. He owned the least number of shares in BASEC, which
included among its incorporators persons who are not members of
his family. That his wife Lydia and daughter Alicia were also
incorporators of the same company is not sufficient to warrant the
conclusion that they hold their shares in his behalf.
Third, there is no evidence to show that the assets of BSPA were
transferred to BASEC. If BASEC was a mere continuation of BSPA, all
or at least a substantial part of the latter's assets should have found
their way to BASEC.
Neither can respondent Alicia Bacani be held liable for BSPA's
obligations. Although she was Executive Directress of BSPA, she was
merely an employee of the BSPA, which was a single proprietorship.
Now, the claims of petitioners are actually money claims against the
estate of Felipe Bacani. They must be filed against his estate in
accordance with Sec. 5 of Rule 86.
The rationale for the rule is that upon the death of the defendant, a
testate or intestate proceeding shall be instituted in the proper
court wherein all his creditors must appear and file their claims
which shall be paid proportionately out of the property left by the
deceased. The objective is to avoid duplicity of procedure. Hence
the ordinary actions must be taken out from the ordinary courts. 6
Under Art. 110 of the Labor Code, money claims of laborers enjoy
preference over claims of other creditors in case of bankruptcy or
liquidation of the employer's business.
FRAUD CASES
G.R. No. L-15121 August 31, 1962
GREGORIO PALACIO, in his own behalf and in behalf of his minor
child,
MARIO PALACIO, plaintiffs-appellants,
vs.
FELY TRANSPORTATION COMPANY, defendant-appellee.
Antonio A. Saba for plaintiffs-appellants.
Mercado, Ver and Reyes for defendant-appellee.
REGALA, J.:
This is an appeal by the plaintiffs from the decision of the Court of
First Instance of Manila which dismissed their complaint.
Originally taken to the Court of Appeals, this appeal was certified to
this Court on the ground that it raises purely questions of law.
The parties in this case adopt the following findings of fact of the
lower court:
In their complaint filed with this Court on May 15, 1954, plaintiffs
allege, among other things, "that about December, 1952, the
defendant company hired Alfredo Carillo as driver of AC-787 (687)
(a registration for 1952) owned and operated by the said defendant
company; that on December 24, 1952, at about 11:30 a.m., while
the driver Alfonso (Alfredo) Carillo was driving AC-687 at Halcon
Street, Quezon City, wilfully, unlawfully and feloniously and in a
negligent, reckless and imprudent manner, run over a child Mario
Palacio of the herein plaintiff Gregorio Palacio; that on account of
the aforesaid injuries, Mario Palacio suffered a simple fracture of
the right tenor (sic), complete third, thereby hospitalizing him at the
Philippine Orthopedic Hospital from December 24, 1952, up to
January 8, 1953, and continued to be treated for a period of five
months thereafter; that the plaintiff Gregorio Palacio herein is a
welder by occupation and owner of a small welding shop and
because of the injuries of his child he has abandoned his shop
where he derives income of P10.00 a day for the support of his big
family; that during the period that the plaintiff's (Gregorio Palacio's)
child was in the hospital and who said child was under treatment for
five months in order to meet the needs of his big family, he was
forced to sell one air compressor (heavy duty) and one heavy duty
electric drill, for a sacrifice sale of P150.00 which could easily sell at
P350.00; that as a consequence of the negligent and reckless act of
the driver Alfredo Carillo of the herein defendant company, the
herein plaintiffs were forced to litigate this case in Court for an
agreed amount of P300.00 for attorney's fee; that the herein
plaintiffs have now incurred the amount of P500.00 actual expenses
for transportation, representation and similar expenses for
gathering evidence and witnesses; and that because of the nature
of the injuries of plaintiff Mario Palacio and the fear that the child
might become a useless invalid, the herein plaintiff Gregorio Palacio
has suffered moral damages which could be conservatively
estimated at P1,200.00.
On May 23, 1956, defendant Fely Transportation Co., filed a Motion
to Dismiss on the grounds (1) that there is no cause of action against
the defendant company, and (2) that the cause of action is barred
by prior judgment..
In its Order, dated June 8, 1956, this Court deferred the
determination of the grounds alleged in the Motion to Dismiss until
the trial of this case.
On June 20, 1956, defendant filed its answer. By way of affirmative
defenses, it alleges (1) that complaint states no cause of action
against defendant, and (2) that the sale and transfer of the jeep AC-
687 by Isabelo Calingasan to the Fely Transportation was made on
December 24, 1955, long after the driver Alfredo Carillo of said jeep
had been convicted and had served his sentence in Criminal Case
No. Q-1084 of the Court of First Instance of Quezon City, in which
both the civil and criminal cases were simultaneously tried by
agreement of the parties in said case. In the Counterclaim of the
Answer, defendant alleges that in view of the filing of this complaint
which is a clearly unfounded civil action merely to harass the
defendant, it was compelled to engage the services of a lawyer for
an agreed amount of P500.00.
During the trial, plaintiffs presented the transcript of the
stenographic notes of the trial of the case of "People of the
Philippines vs. Alfredo Carillo, Criminal Case No. Q-1084," in the
Court of First Instance of Rizal, Quezon City (Branch IV), as Exhibit
"A".1äwphï1.ñët
It appears from Exhibit "A" that Gregorio Palacio, one of the herein
plaintiffs, testified that Mario Palacio, the other plaintiff, is his son;
that as a result of the reckless driving of accused Alfredo Carillo, his
child Mario was injured and hospitalized from December 24, 1952,
to January 8, 1953; that during all the time that his child was in the
hospital, he watched him during the night and his wife during the
day; that during that period of time he could not work as he slept
during the day; that before his child was injured, he used to earn
P10.00 a day on ordinary days and on Sundays from P20 to P50 a
Sunday; that to meet his expenses he had to sell his compressor and
electric drill for P150 only; and that they could have been sold for
P300 at the lowest price.
During the trial of the criminal case against the driver of the jeep in
the Court of First Instance of Quezon City (Criminal Case No. Q-
1084) an attempt was unsuccessfully made by the prosecution to
prove moral damages allegedly suffered by herein plaintiff Gregorio
Palacio. Likewise an attempt was made in vain by the private
prosecutor in that case to prove the agreed attorney's fees between
him and plaintiff Gregorio Palacio and the expenses allegedly
incurred by the herein plaintiffs in connection with that case. During
the trial of this case, plaintiff Gregorio Palacio testified substantially
to the same facts.
The Court of First Instance of Quezon City in its decision in Criminal
Case No. 1084 (Exhibit "2") determined and thoroughly discussed
the civil liability of the accused in that case. The dispositive part
thereof reads as follows:
IN VIEW OF THE FOREGOING, the Court finds the accused Alfredo
Carillo y Damaso guilty beyond reasonable doubt of the crime
charged in the information and he is hereby sentenced to suffer
imprisonment for a period of Two Months & One Day of Arresto
Mayor; to indemnify the offended party, by way of consequential
damages, in the sum of P500.00 which the Court deems reasonable;
with subsidiary imprisonment in case of insolvency but not to
exceed ¹/3 of the principal penalty imposed; and to pay the costs.
On the basis of these facts, the lower court held action is barred by
the judgment in the criminal case and, that under Article 103 of the
Revised Penal Code, the person subsidiarily liable to pay damages is
Isabel Calingasan, the employer, and not the defendant corporation.
Against that decision the plaintiffs appealed, contending that:
THE LOWER COURT ERRED IN NOT SUSTAINING THAT THE
DEFENDANT-APPELLEE IS SUBSIDIARILY LIABLE FOR DAMAGES AS A
RESULT OF CRIMINAL CASE NO. Q-1084 OF THE COURT OF FIRST
INSTANCE OF QUEZON CITY FOR THE REASON THAT THE
INCORPORATORS OF THE FELY TRANSPORTATION COMPANY, THE
DEFENDANT-APPELLEE HEREIN, ARE ISABELO CALINGASAN HIMSELF,
HIS SON AND DAUGHTERS;
THE LOWER COURT ERRED IN NOT CONSIDERING THAT THE
INTENTION OF ISABELO CALINGASAN IN INCORPORATING THE FELY
TRANSPORTATION COMPANY, THE DEFENDANT-APPELLEE HEREIN,
WAS TO EVADE HIS CIVIL LIABILITY AS A RESULT OF THE
CONVICTION OF HIS DRIVER OF VEHICLE AC-687 THEN OWNED BY
HIM:

THE LOWER COURT ERRED IN HOLDING THAT THE CAUSE OF
ACTION OF THE PLAINTIFFS-APPELLANTS IS BARRED BY PRIOR
JUDGMENT.
With respect to the first and second assignments of errors, plaintiffs
contend that the defendant corporate should be made subsidiarily
liable for damages in the criminal case because the sale to it of the
jeep in question, after the conviction of Alfred Carillo in Criminal
Case No. Q-1084 of the Court of First Instance of Quezon City was
merely an attempt on the part of Isabelo Calingasan its president
and general manager, to evade his subsidiary civil liability.
The Court agrees with this contention of the plaintiffs. Isabelo
Calingasan and defendant Fely Transportation may be regarded as
one and the same person. It is evident that Isabelo Calingasan's
main purpose in forming the corporation was to evade his
subsidiary civil liability1 resulting from the conviction of his driver,
Alfredo Carillo. This conclusion is borne out by the fact that the
incorporators of the Fely Transportation are Isabelo Calingasan, his
wife, his son, Dr. Calingasan, and his two daughters. We believe that
this is one case where the defendant corporation should not be
heard to say that it has a personality separate and distinct from its
members when to allow it to do so would be to sanction the use of
the fiction of corporate entity as a shield to further an end
subversive of justice. (La Campana Coffee Factory, et al. v. Kaisahan
ng mga Manggagawa, etc., et al., G.R. No. L-5677, May 25, 1953)
Furthermore, the failure of the defendant corporation to prove that
it has other property than the jeep (AC-687) strengthens the
conviction that its formation was for the purpose above indicated.
And while it is true that Isabelo Calingasan is not a party in this case,
yet, is held in the case of Alonso v. Villamor, 16 Phil. 315, this Court
can substitute him in place of the defendant corporation as to the
real party in interest. This is so in order to avoid multiplicity of suits
and thereby save the parties unnecessary expenses and delay. (Sec.
2, Rule 17, Rules of Court; Cuyugan v. Dizon. 79 Phil. 80; Quison v.
Salud, 12 Phil. 109.)
Accordingly, defendants Fely Transportation and Isabelo Calingasan
should be held subsidiarily liable for P500.00 which Alfredo Carillo
was ordered to pay in the criminal case and which amount he could
not pay on account of insolvency.
We also sustain plaintiffs' third assignment of error and hold that
the present action is not barred by the judgment of the Court of
First Instance of Quezon City in the criminal case. While there seems
to be some confusion on part of the plaintiffs as to the theory on
which the is based — whether ex-delito or quasi ex-delito (culpa
aquiliana) — We are convinced, from the discussion prayer in the
brief on appeal, that they are insisting the subsidiary civil liability of
the defendant. As a matter of fact, the record shows that plaintiffs
merely presented the transcript of the stenographic notes (Exhibit
"A") taken at the hearing of the criminal case, which Gregorio
Palacio corroborated, in support of their claim for damages. This
rules out the defense of res judicata, because such liability proceeds
precisely from the judgment in the criminal action, where the
accused was found guilty and ordered to pay an indemnity in the
sum P500.00.
G.R. No. L-56076 September 21, 1983
PALAY, INC. and ALBERT ONSTOTT, petitioner, vs. JACOBO C.
CLAVE, Presidential Executive Assistant NATIONAL HOUSING
AUTHORITY and NAZARIO DUMPIT respondents.
The Resolution, dated May 2, 1980, issued by Presidential Executive
Assistant Jacobo Clave in O.P. Case No. 1459, directing petitioners
Palay, Inc. and Alberto Onstott jointly and severally, to refund to
private respondent, Nazario Dumpit, the amount of P13,722.50 with
12% interest per annum, as resolved by the National Housing
Authority in its Resolution of July 10, 1979 in Case No. 2167, as well
as the Resolution of October 28, 1980 denying petitioners' Motion
for Reconsideration of said Resolution of May 2, 1980, are being
assailed in this petition.
On March 28, 1965, petitioner Palay, Inc., through its President,
Albert Onstott executed in favor of private respondent, Nazario
Dumpit, a Contract to Sell a parcel of Land (Lot No. 8, Block IV) of
the Crestview Heights Subdivision in Antipolo, Rizal, with an area of
1,165 square meters, - covered by TCT No. 90454, and owned by
said corporation. The sale price was P23,300.00 with 9% interest per
annum, payable with a downpayment of P4,660.00 and monthly
installments of P246.42 until fully paid. Paragraph 6 of the contract
provided for automatic extrajudicial rescission upon default in
payment of any monthly installment after the lapse of 90 days from
the expiration of the grace period of one month, without need of
notice and with forfeiture of all installments paid.
Respondent Dumpit paid the downpayment and several
installments amounting to P13,722.50. The last payment was made
on December 5, 1967 for installments up to September 1967.
On May 10, 1973, or almost six (6) years later, private respondent
wrote petitioner offering to update all his overdue accounts with
interest, and seeking its written consent to the assignment of his
rights to a certain Lourdes Dizon. He followed this up with another
letter dated June 20, 1973 reiterating the same request. Replying
petitioners informed respondent that his Contract to Sell had long
been rescinded pursuant to paragraph 6 of the contract, and that
the lot had already been resold.
Questioning the validity of the rescission of the contract,
respondent filed a letter complaint with the National Housing
Authority (NHA) for reconveyance with an altenative prayer for
refund (Case No. 2167). In a Resolution, dated July 10, 1979, the
NHA, finding the rescission void in the absence of either judicial or
notarial demand, ordered Palay, Inc. and Alberto Onstott in his
capacity as President of the corporation, jointly and severally, to
refund immediately to Nazario Dumpit the amount of P13,722.50
with 12% interest from the filing of the complaint on November 8,
1974. Petitioners' Motion for Reconsideration of said Resolution
was denied by the NHA in its Order dated October 23, 1979. 1
On appeal to the Office of the President, upon the allegation that
the NHA Resolution was contrary to law (O.P. Case No. 1459),
respondent Presidential Executive Assistant, on May 2, 1980,
affirmed the Resolution of the NHA. Reconsideration sought by
petitioners was denied for lack of merit. Thus, the present petition
wherein the following issues are raised:
I Whether notice or demand is not mandatory under the
circumstances and, therefore, may be dispensed with by stipulation
in a contract to sell.
II Whether petitioners may be held liable for the refund of the
installment payments made by respondent Nazario M. Dumpit.
III Whether the doctrine of piercing the veil of corporate
fiction has application to the case at bar.
IV Whether respondent Presidential Executive Assistant
committed grave abuse of discretion in upholding the decision of
respondent NHA holding petitioners solidarily liable for the refund
of the installment payments made by respondent Nazario M.
Dumpit thereby denying substantial justice to the petitioners,
particularly petitioner Onstott.
We issued a Temporary Restraining Order on Feb 11, 1981 enjoining
the enforcement of the questioned Resolutions and of the Writ of
Execution that had been issued on December 2, 1980. On October
28, 1981, we dismissed the petition but upon petitioners' motion,
reconsidered the dismissal and gave due course to the petition on
March 15, 1982.
On the first issue, petitioners maintain that it was justified in
cancelling the contract to sell without prior notice or demand upon
respondent in view of paragraph 6 thereof which provides-
6. That in case the BUYER falls to satisfy any monthly
installment or any other payments herein agreed upon, the BUYER
shall be granted a month of grace within which to make the
payment of the t in arrears together with the one corresponding to
the said month of grace. -It shall be understood, however, that
should the month of grace herein granted to the BUYER expire,
without the payment & corresponding to both months having been
satisfied, an interest of ten (10%) per cent per annum shall be
charged on the amounts the BUYER should have paid; it is
understood further, that should a period of NINETY (90) DAYS
elapse to begin from the expiration of the month of grace
hereinbefore mentioned, and the BUYER shall not have paid all the
amounts that the BUYER should have paid with the corresponding
interest up to the date, the SELLER shall have the right to declare
this contract cancelled and of no effect without notice, and as a
consequence thereof, the SELLER may dispose of the lot/lots
covered by this Contract in favor of other persons, as if this contract
had never been entered into. In case of such cancellation of this
Contract, all the amounts which may have been paid by the BUYER
in accordance with the agreement, together with all the
improvements made on the premises, shall be considered as rents
paid for the use and occupation of the above mentioned premises
and for liquidated damages suffered by virtue of the failure of the
BUYER to fulfill his part of this agreement : and the BUYER hereby
renounces his right to demand or reclaim the return of the same
and further obligates peacefully to vacate the premises and deliver
the same to the SELLER.
Well settled is the rule, as held in previous jurisprudence, 2 that
judicial action for the rescission of a contract is not necessary where
the contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions. However, even in the
cited cases, there was at least a written notice sent to the defaulter
informing him of the rescission. As stressed in University of the
Philippines vs. Walfrido de los Angeles 3 the act of a party in
treating a contract as cancelled should be made known to the other.
We quote the pertinent excerpt:
Of course, it must be understood that the act of a party in treating a
contract as cancelled or resolved in account of infractions by the
other contracting party must be made known to the other and is
always provisional being ever subject to scrutiny and review by the
proper court. If the other party denies that rescission is justified it is
free to resort to judicial action in its own behalf, and bring the
matter to court. Then, should the court, after due hearing, decide
that the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the contrary
case, the resolution will be affirmed, and the consequent indemnity
awarded to the party prejudiced.
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will conclusively
and finally settle whether the action taken was or was not correct in
law. But the law definitely does not require that the contracting
party who believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the
pendency of the suit until the final judgment of rescission is
rendered when the law itself requires that he should exercise due
diligence to minimize its own damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring that
judicial action is necessary for the resolution of a reciprocal
obligation (Ocejo Perez & Co., vs. International Banking Corp., 37
Phil. 631; Republic vs. Hospital de San Juan De Dios, et al., 84 Phil
820) since in every case where the extrajudicial resolution is
contested only the final award of the court of competent
jurisdiction can conclusively settle whether the resolution was
proper or not. It is in this sense that judicial action win be necessary,
as without it, the extrajudicial resolution will remain contestable
and subject to judicial invalidation unless attack thereon should
become barred by acquiescense, estoppel or prescription.
Fears have been expressed that a stipulation providing for a
unilateral rescission in case of breach of contract may render
nugatory the general rule requiring judicial action (v. Footnote,
Padilla Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140) but,
as already observed, in case of abuse or error by the rescinder the
other party is not barred from questioning in court such abuse or
error, the practical effect of the stipulation being merely to transfer
to the defaulter the initiative of instituting suit, instead of the
rescinder (Emphasis supplied).
Of similar import is the ruling in Nera vs. Vacante 4 , reading:
A stipulation entitling one party to take possession of the land and
building if the other party violates the contract does not ex propio
vigore confer upon the former the right to take possession thereof if
objected to without judicial intervention and determination.
This was reiterated in Zulueta vs. Mariano 5 where we held that
extrajudicial rescission has legal effect where the other party does
not oppose it.6 Where it is objected to, a judicial determination of
the issue is still necessary.
In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in Court. If the debtor
impugns the dclaration, it shall be subject to judicial determination.
In this case, private respondent has denied that rescission is
justified and has resorted to judicial action. It is now for the Court to
determine whether resolution of the contract by petitioners was
warranted.
We hold that resolution by petitioners of the contract was
ineffective and inoperative against private respondent for lack of
notice of resolution, as held in the U.P. vs. Angeles case, supra
Petitioner relies on Torralba vs. De los Angeles 8 where it was held
that "there was no contract to rescind in court because from the
moment the petitioner defaulted in the timely payment of the
installments, the contract between the parties was deemed ipso
facto rescinded." However, it should be noted that even in that case
notice in writing was made to the vendee of the cancellation and
annulment of the contract although the contract entitled the seller
to immediate repossessing of the land upon default by the buyer.
The indispensability of notice of cancellation to the buyer was to be
later underscored in Republic Act No. 6551 entitled "An Act to
Provide Protection to Buyers of Real Estate on Installment
Payments." which took effect on September 14, 1972, when it
specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take
place after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to
the buyer.
The contention that private respondent had waived his right to be
notified under paragraph 6 of the contract is neither meritorious
because it was a contract of adhesion, a standard form of petitioner
corporation, and private respondent had no freedom to stipulate. A
waiver must be certain and unequivocal, and intelligently made;
such waiver follows only where liberty of choice has been fully
accorded. 9 Moreover, it is a matter of public policy to protect
buyers of real estate on installment payments against onerous and
oppressive conditions. Waiver of notice is one such onerous and
oppressive condition to buyers of real estate on installment
payments.
Regarding the second issue on refund of the installment payments
made by private respondent. Article 1385 of the Civil Code provides:
ART. 1385. Rescission creates the obligation to return the
things which were the object of the contract, together with their
fruits, and the price with its interest; consequently, it can be carried
out only when he who demands rescission can return whatever he
may be obliged to restore.
Neither sham rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss.
As a consequence of the resolution by petitioners, rights to the lot
should be restored to private respondent or the same should be
replaced by another acceptable lot. However, considering that the
property had already been sold to a third person and there is no
evidence on record that other lots are still available, private
respondent is entitled to the refund of installments paid plus
interest at the legal rate of 12% computed from the date of the
institution of the action. 10 It would be most inequitable if
petitioners were to be allowed to retain private respondent's
payments and at the same time appropriate the proceeds of the
second sale to another.
We come now to the third and fourth issues regarding the personal
liability of petitioner Onstott who was made jointly and severally
liable with petitioner corporation for refund to private respondent
of the total amount the latter had paid to petitioner company. It is
basic that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it as wen
as from that of any other legal entity to which it may be related. 11
As a general rule, a corporation may not be made to answer for acts
or liabilities of its stockholders or those of the legal entities to which
it may be connected and vice versa. However, the veil of corporate
fiction may be pierced when it is used as a shield to further an end
subversive of justice 12 ; or for purposes that could not have been
intended by the law that created it 13 ; or to defeat public
convenience, justify wrong, protect fraud, or defend crime. 14 ; or
to perpetuate fraud or confuse legitimate issues 15 ; or to
circumvent the law or perpetuate deception 16 ; or as an alter ego,
adjunct or business conduit for the sole benefit of the stockholders.
We find no badges of fraud on petitioners' part. They had literally
relied, albeit mistakenly, on paragraph 6 (supra) of its contract with
private respondent when it rescinded the contract to sell
extrajudicially and had sold it to a third person.
In this case, petitioner Onstott was made liable because he was
then the President of the corporation and he a to be the controlling
stockholder. No sufficient proof exists on record that said petitioner
used the corporation to defraud private respondent. He cannot,
therefore, be made personally liable just because he "appears to be
the controlling stockholder". Mere ownership by a single
stockholder or by another corporation is not of itself sufficient
ground for disregarding the separate corporate personality. 18 In
this respect then, a modification of the Resolution under review is
called for.
WHEREFORE, the questioned Resolution of respondent public
official, dated May 2, 1980, is hereby modified. Petitioner Palay, Inc.
is directed to refund to respondent Nazario M. Dumpit the amount
of P13,722.50, with interest at twelve (12%) percent per annum
from November 8, 1974, the date of the filing of the Complaint. The
temporary Restraining Order heretofore issued is hereby lifted.
G.R. No. 89879 April 20, 1990
JAIME PABALAN AND EDUARDO LAGDAMEO, petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER
AMBROSIO B. SISON, ELIZABETH RODEROS, ET AL., and THE
SHERIFF OF THE NATIONAL LABOR RELATIONS COMMISSION,
respondents.
Once again the parameters of the liability of the officers of a
corporation as to unpaid wages and other claims of the employees
of a corporation which has a separate and distinct personality are
brought to fore in this case.
On October 20, 1987, eighty-four (84) workers of the Philippine
Inter-Fashion, Inc. (PIF) filed a complaint against the latter for illegal
transfer simultaneous with illegal dismissal without justifiable cause
and in violation of the provision of the Labor Code on security of
tenure as well as the provisions of Batas Pambansa Blg. 130.
Complainants demanded reinstatement with full backwages, living
allowance, 13th month pay and other benefits under existing laws
and/or separation pay.
On October 21, 1987, PIF, through its General Manager, was
notified about the complaint and summons for the hearing set for
November 6, 1987. The hearing was re-set for November 27, 1987
for failure of respondents to appear. On November 30, 1987
respondents (petitioners herein) moved for the cancellation of the
hearing scheduled on November 6, 1987 so that they could engage
a counsel to properly represent them preferably on November 17,
1987.
On December 10, 1987 both parties were directed to submit their
respective position papers within ten (10) days. By mutual
agreement the hearing was re-set on December 21, 1987 but on
said date respondents and/or counsel failed to appear. The hearing
was re-set on January 14, 1988 on which date respondents were
given a deadline to submit their position paper.
On January 4, 1988 complainants filed their position paper. On
January 14, 1988 counsel for respondents moved that he be given
until January 22, 1988 to file their position paper. The labor arbiter
granted the motion. The PIF filed its position paper on January 22,
1988. The heating for February 17, 1988 was re-set to March 9,
1988 and on March 29, 1988 on which dates respondents failed to
appear.
On May 5, 1988, with leave of the labor arbiter, complainants filed
their supplemental position paper impleading the petitioners as
officers of the PIF in the complaint for their illegal transfer to a new
firm.
On July 13, 1988 a decision was rendered by the labor arbiter the
dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATION, respondent
Philippine Inter-Fashion and its officers Mr. Jaime Pabalan and Mr.
Eduardo Lagdameo are hereby ordered to:
1. reinstate the sixty two (62) complainants to their former or
equivalent position without loss of seniority rights and privileges;
2. to pay, jointly and severally, their backwages and other
benefits from the time they were dismissed up to the time they are
actually reinstated, the computation to be based from the latest
minimum wage law at the time of their dismissal. (See attached
Annex "A" of complainants' position paper.) SO ORDERED.
Not satisfied therewith petitioners filed a motion for
reconsideration in the First Division of the public respondent,
National Labor Relations Commission (NLRC), which nevertheless,
affirmed the appealed decision and dismissed the appeal for lack of
merit in a resolution dated June 30, 1989. Petitioners were ordered
to pay the appeal fee in accordance with law.
Hence the herein petition for certiorari with prayer for the issuance
of a temporary restraining order wherein the petitioners raised the
following issues:
A THE ARBITER AND THE NLRC DID NOT ACQUIRE
JURISDICTION OVER THE PERSONS OF THE PETITIONERS AND,
THEREFORE, THE DECISION AND THE RESOLUTION, UNDER DISPUTE,
ARE NULL AND VOID.
B THE DECISION AND THE NLRC RESOLUTION SUFFER FROM A
LEGAL AND CONSTITUTIONAL INFIRMITY BECAUSE THEY SANCTION
A DEPRIVATION OF PETITIONERS' PROPERTIES WITHOUT DUE
PROCESS OF LAW.
C THE ARBITER AND THE NLRC COMMITTED A GRAVE ABUSE
OF DISCRETION IN ADJUDGING PETITIONERS HEREIN AS JOINTLY
AND SEVERALLY LIABLE WITH PHILIPPINE INTER-FASHION, INC. TO
PAY THE JUDGMENT DEBT.
On September 25, 1989 this Court dismissed the petition for
insufficiency in form and substance, having failed to comply with
the Rules of Court and Administrative Circular No. 1-88 requiting the
verification of the petition. A motion for reconsideration filed by the
petitioners of the said resolution was denied on October 16, 1989
for failure to raise any substantial arguments to warrant a
modification thereof. However, acting on an urgent motion to
include the motion for reconsideration of the resolution of
September 25, 1989 in the court's calendar which the Court
granted, on November 30, 1989 the Court resolved to set aside said
resolutions of September 25, 1989 and October 16, 1989, and to
require respondents to comment thereon within ten (10) days from
notice thereof. A temporary restraining order was issued enjoining
respondents from enforcing or implementing the questioned
decision of the labor arbiter affirmed by the NLRC upon a bond to
be filed by petitioners in the amount of P100,000.00. However, on
February 7, 1990 for failure of petitioner to file the required bond
despite extensions of time granted them, the Court resolved to lift
the temporary restraining order issued on November 13, 1989.
Now to the merit of the petition.
Petitioners do not question the merits of the decision insofar as PIF
is concerned in this proceeding. The first two issues they raised are
to the effect that the public respondents never acquired jurisdiction
over them as they have not been served with summons and thus
they were deprived due process.
The Court finds these grounds to be devoid of merit. As the record
shows while originally it was PIF which was impleaded as
respondent before the labor arbiter, petitioners also appeared in
their behalf through counsel. Thereafter when the supplemental
position paper was filed by complainants, petitioners were
impleaded as respondents to which they filed an opposition
inasmuch as they filed their own supplemental position papers.
They were therefore properly served with summons and they were
not deprived of due process.
Petitioners contend however that under the circumstances of the
case as officers of the corporation PIF they could not be jointly and
severally held liable with the corporation for its liability in this case.
The settled rule is that the corporation is vested by law with a
personality separate and distinct from the persons composing it,
including its officers as well as from that of any other legal entity to
which it may be related. Thus, a company manager acting in good
faith within the scope of his authority in terminating the services of
certain employees cannot be held personally liable for damages. 2
Mere ownership by a single stockholder or by another corporation
of all or nearly all capital stocks of the corporation is not by itself
sufficient ground for disregarding the separate corporate
personality.
As a general rule, officers of a corporation are not personally liable
for their official acts unless it is shown that they have exceeded
their authority. 4 However, the legal fiction that a corporation has a
personality separate and distinct from stockholders and members
may be disregarded as follows:
This finding does not ignore the legal fiction that a corporation has a
personality separate and distinct from its stockholders and
members, for, as this Court had held "where the incorporators and
directors belong to a single family, the corporation and its members
can be considered as one in order to avoid its being used as an
instrument to commit injustice," or to further an end subversive of
justice. In the case of Claparols vs. CIR involving almost similar facts
as in this case, it was also held that the shield of corporate fiction
should be pierced when it is deliberately and maliciously designed
to evade financial obligations to employees.
To the same effect . . . (are) this Court's rulings in still other cases:
When the notion of legal entity is used as a means to perpetrate
fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, and or (to) confuse
legitimate issues the veil which protects the corporation will be
lifted.
In this particular case complainants did not allege or show that
petitioners, as officers of the corporation deliberately and
maliciously designed to evade the financial obligation of the
corporation to its employees, or used the transfer of the employees
as a means to perpetrate an illegal act or as a vehicle for the evasion
of existing obligations, the circumvention of statutes, or to confuse
the legitimate issues.
Indeed, in the questioned resolution of the NLRC dated June 30,
1989 there is no finding as to why petitioners were being held
jointly and severally liable for the liability and obligation of the
corporation except as to invocation of the ruling of this Court in A.C.
Ransom Labor Union-CCLU vs. NLRC 6 in that the liability in the
cases of illegal termination of employees extends not only to the
corporation as a corporate entity but also to its responsible officers
acting in the interest of the corporation or employer.
It must be noted, however, that A.C. Ransom Labor Union-CCLU vs.
NLRC the corporation was a family corporation and that during the
strike the members of the family organized another corporation
which was the Rosario Industrial Corporation to which all the assets
of the A.C. Ransom Corporation were transferred to continue its
business which acts of such officers and agents of A.C. Ransom
Corporation were intended to avoid payment of its obligations to its
employees. In such case this Court considered the president of the
corporation to be personally liable together with the corporation for
the satisfaction of the claim of the employees.
Not one of the above circumstances has been shown to be present.
Hence petitioners can not be held jointly and severally liable with
the PIF corporation under the questioned decision and resolution of
the public respondent.
WHEREFORE, the petition is GRANTED and the questioned
resolution of the public respondent dated June 30, 1989 is hereby
modified by relieving petitioners of any liability as officers of the PIF
and holding that the liability shall be solely that of Philippine Inter-
Fashion, Inc. No costs.
G.R. No. 85416 July 24, 1990
FRANCISCO V. DEL ROSARIO, petitioner, vs. NATIONAL LABOR
RELATIONS COMMISSION and LEONARDO V. ATIENZA,
respondents.
In POEA Case No. 85-06-0394, the Philippine Overseas Employment
Administration (POEA) promulgated a decision on February 4, 1986
dismissing the complaint for money claims for lack of merit. The
decision was appealed to the National Labor Relations Commission
(NLRC), which on April 30, 1987 reversed the POEA decision and
ordered Philsa Construction and Trading Co., Inc. (the recruiter) and
Arieb Enterprises (the foreign employer) to jointly and severally pay
private respondent the peso equivalent of $16,039.00, as salary
differentials, and $2,420.03, as vacation leave benefits. The case
was elevated to the Supreme Court, but the petition was dismissed
on August 31, 1987 and entry of judgment was made on September
24, 1987.
A writ of execution was issued by the POEA but it was returned
unsatisfied as Philsa was no longer operating and was financially
incapable of satisfying the judgment. Private respondent moved for
the issuance of an alias writ against the officers of Philsa. This
motion was opposed by the officers, led by petitioner, the president
and general manager of the corporation.
On February 12, 1988, the POEA issued a resolution, the dispositive
portion of which read:
WHEREFORE, premises considered, let an alias writ of Execution be
issued and the handling sheriff is ordered to execute against the
properties of Mr. Francisco V. del -Rosario and if insufficient, against
the cash and/or surety bond of Bonding Company concerned for the
full satisfaction of the judgment awarded.
Petitioner appealed to the NLRC. On September 23, 1988, the NLRC
dismissed the appeal. On October 21, 1988, petitioner's motion for
reconsideration was denied.
Thus, this petition was filed on October 28, 1988, alleging that the
NLRC gravely abused its discretion. On November 10, 1988 the
Court issued a temporary restraining order enjoining the
enforcement of the NLRC's decision dated September 23, 1988 and
resolution dated October 21, 1988. The petition was given due
course on June 14, 1989.
After considering the undisputed facts and the arguments raised in
the pleadings, the Court finds grave abuse of discretion on the part
of the NLRC.
The action of the NLRC affirming the issuance of an alias writ of
execution against petitioner, on the theory that the corporate
personality of Philsa should be disregarded, was founded primarily
on the following findings of the POEA —
xxx xxx xxx
6. Per the certification issued by the Licensing Division of this
Office, it appears that Philsa Construction & Trading Co., Inc., with
office address at 126 Pioneer St., Mandaluyong, Metro Manila,
represented by Mr. Francisco V. del Rosario, President and General
Manager, was formerly a registered construction contractor whose
authority was originally issued on July 21, 1978 but was already
delisted from the list of agencies/entities on August 15, 1986 for
inactivity;
7. Per another certification issued by the Licensing Division of
this Office, it also appears that another corporation, Philsa
International Placement & Services Corp., composed of practically
the same set of incorporators/stockholders, was registered as a
licensed private employment agency whose license was issued on
November 5, 1981, represented by the same Mr. Francisco V. del
Rosario as its President/ General Manager.
and an application of the ruling of the Court in A.C. Ransom Labor
Union-CCLU v. NLRC, G.R. No. 69494, June 10, 1986, 142 SCRA 269.
However, we find that the NLRC's reliance on the findings of the
POEA and the ruling in A. C. Ransom is totally misplaced.
1. Under the law a corporation is bestowed juridical
personality, separate and distinct from its stockholders [Civil Code,
Art. 44; Corporation Code, sec. 2]. But when the juridical personality
of the corporation is used to defeat public convenience, justify
wrong, protect fraud or defend crime, the corporation shall be
considered as a mere association of persons [Koppel (Phil.), Inc. v.
Yatco, 77 Phil. 496 (1946), citing 1 Fletcher, Cyclopedia of
Corporations, 135-136; see also Palay, Inc. v. Clave, G.R. No. 56076,
September 21, 1983, 124 SCRA 638], and its responsible officers
and/or stockholders shall be held individually liable. For the same
reasons, a corporation shall be liable for the obligations of a
stockholder [Palacio v. Fely Transportation], or a corporation and its
successor-in-interest shall be considered as one and the liability of
the former shall attach to the latter. [Koppel v. Yatco]
But for the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly
established. It cannot be presumed.
In this regard we find the NLRC's decision wanting. The conclusion
that Philsa allowed its license to expire so as to evade payment of
private respondent's claim is not supported by the facts. Philsa's
corporate personality therefore remains inviolable.
Consider the following undisputed facts:
(1) Private respondent filed his complaint with the POEA on
June 4, 1985;
(2) The last renewal of Philsa's license expired on October 12,
1985;
(3) The POEA dismissed private respondent's complaint on
February 4, 1986;
(4) Philsa was delisted for inactivity on August 15, 1986; *
(5) The dismissal of the complaint was appealed to the NLRC
and it was only on April 30, 1987 that the judgment awarding
differentials and benefits to private respondent was rendered.
Thus, at the time Philsa allowed its license to lapse in 1985 and even
at the time it was delisted in 1986, there was yet no judgment in
favor of private respondent. An intent to evade payment of his
claims cannot therefore be implied from the expiration of Philsa's
license and its delisting.
Neither will the organization of Philsa International Placement and
Services Corp. and its registration with the POEA as a private
employment agency imply fraud since it was organized and
registered in 1981, several years before private respondent filed his
complaint with the POEA in 1985. The creation of the second
corporation could not therefore have been in anticipation of private
respondent's money claims and the consequent adverse judgment
against Philsa.
Likewise, substantial identity of the incorporators of the two
corporations does not necessarily imply fraud.
The circumstances of this case distinguish it from those in earlier
decisions of the Court in labor cases where the veil of corporate
fiction was pierced.
In La Campana Coffee Factory, Inc. v. Kaisahan ng Manggagawa sa
La Campana (KKM) 93 Phil. 160 (1953), La Campana Coffee Factory,
Inc. and La Campana Gaugau Packing were substantially owned by
the same person. They had one office, one management, and a
single payroll for both businesses. The laborers of the gaugau
factory and the coffee factory were also interchangeable, i.e., the
workers in one factory worked also in the other factory.
In Claparols v. Court of Industrial Relations, G.R. No. L-30822, July
31, 1975, 65 SCRA 613, the Claparols Steel and Nail Plant, which was
ordered to pay its workers backwages, ceased operations on June
30, 1957 and was succeeded on the next day, July 1, 1957 by the
Claparols Steel Corporation. Both corporations were substantially
owned and controlled by the same person and there was no break
or cessation in operations. Moreover, all the assets of the steel and
nail plant were transferred to the new corporation.
2. As earlier stated, we also find that, contrary to the NLRC'S
holding, the ruling in A. C. Ransom is inapplicable to this case. In A.
C. Ransom, the Court said:
... In the instant case, it would appear that RANSOM, in 1969,
foreseeing the possibility or probability of payment of back wages
to the 22 strikers, organized ROSARIO to replace RANSOM, with the
latter to be eventually phased out if the 22 strikers win their case.
RANSOM actually ceased operations on May 1, 1973, after the
December 19, 1972 Decision of the Court of Industrial Relations was
promulgated against RANSOM. [At p. 274.]
The distinguishing marks of fraud were therefore clearly apparent in
A. C. Ransom. A new corporation was created, owned by the same
family, engaging in the same business and operating in the same
compound.
Thus, considering that the non-payment of the workers was a
continuing situation, the Court adjudged its President, the
"responsible officer" of the corporation, personally liable for the
backwages awarded, he being the chief operation officer or
"manager" who could be held criminally liable for violations of
Republic Act No. 602 (the old Minimum Wage Law.)
In the case now before us, not only has there been a failure to
establish fraud, but it has also not been shown that petitioner is the
corporate officer responsible for private respondent's predicament.
It must be emphasized that the claim for differentials and benefits
was actually directed against the foreign employer. Philsa became
liable only because of its undertaking to be jointly and severally
bound with the foreign employer, an undertaking required by the
rules of the POEA [Rule II, sec. 1(d) (3)], together with the filing of
cash and surety bonds [Rule 11, sec. 4], in order to ensure that
overseas workers shall find satisfaction for awards in their favor.
At this juncture, the Court finds it appropriate to point out that a
judgment against a recruiter should initially be enforced against the
cash and surety bonds filed with the POEA. As provided in the POEA
Rules and Regulations —
... The bonds shall answer for all valid and legal claims arising from
violations of the conditions for the grant and use of the license or
authority and contracts of employment. The bonds shall likewise
guarantee compliance with the provisions of the Labor Code and its
implementing rules and regulations relating to recruitment and
placement, the rules of the Administration and relevant issuances of
the Ministry and all liabilities which the Administration may impose.
... [Rule II, see. 4.]
Quite evidently, these bonds do not answer for a single specific
liability, but for all sorts of liabilities of the recruiter to the worker
and to the POEA. Moreover, the obligations guaranteed by the
bonds are continuing. Thus, the bonds are subject to replenishment
when they are garnished, and failure to replenish shall cause the
suspension or cancellation of the recruiter's license [Rule II, sec. 19].
Furthermore, a cash bond shall be refunded to a recruiter who
surrenders his license only upon posting of a surety bond of similar
amount valid for three (3) years [Rule II, sec. 20]. All these, to
ensure recovery from the recruiter.
It is therefore surprising why the POEA ordered execution "against
the properties of Mr. Francisco V. del Rosario and if insufficient,
against the cash and/or surety bond of Bonding Company
concerned for the till satisfaction of the judgment awarded" in
complete disregard of the scheme outlined in the POEA Rules and
Regulations. On this score alone, the NLRC should not have affirmed
the POEA.
G.R. No. L-20214 March 17, 1923
G. C. ARNOLD, plaintiff-appellant, vs. WILLITS & PATTERSON, LTD.,
defendant-appellee.
For a number of years prior to the times alleged in the complaint,
the plaintiff was in the employ of the International Banking
Corporation of Manila, and it is conceded that he is a competent
and experienced business man. July 31, 1916, C. D. Willits and I. L.
Patterson were partners doing business in San Francisco, California,
under the name of Willits & Patterson. The plaintiff was then in San
Francisco, and as a result of negotiations the plaintiff and the firm
entered into a written contract, known in the record as Exhibit A, by
which the plaintiff was employed as the agent of the firm in the
Philippine Islands for certain purposes for the period of five years at
a minimum salary of $200 per month and travelling expenses. The
plaintiff returned to Manila and entered on the discharge of his
duties under the contract. As a result of plaintiff's employment and
the world war conditions, the business of the firm in the Philippines
very rapidly increased and grew beyond the fondest hopes of either
party. A dispute arose between the plaintiff and the firm as to the
construction of Exhibit A as to the amount which plaintiff should
receive for his services. Meanwhile Patterson retired from the firm
and Willits became the sole owner of its assets. For convenience of
operation and to serve his own purpose, Willits organized a
corporation under the laws of California with its principal office at
San Francisco, in and by which he subscribed for, and became the
exclusive owner of all the capital stock except a few shares for
organization purposes only, and the name of the firm was used as
the name of the corporation. A short time after that Willits came to
Manila and organized a corporation here known as Willits &
Patterson, Ltd., in and to which he again subscribed for all of the
capital stock except the nominal shares necessary to qualify the
directors. In legal effect, the San Francisco corporation took over
and acquired all of the assets and liabilities of the Manila
corporation. At the time that Willits was in Manila and while to all
intents and purposes he was the sole owner of the stock of
corporations, there was a conference between him and the plaintiff
over the disputed construction of Exhibit A. As a result of which
another instrument, known in the record as Exhibit B, was prepared
in the form of a letter which the plaintiff addressed to Willits at
Manila on November 10, 1919, the purpose of which was to more
clearly define and specify the compensation which the plaintiff was
to receive for his services. Willits received and confirmed this letter
by signing the name of Willits & Patterson, By C.d. Willits. At the
time both corporations were legally organized, and there is nothing
in the corporate minutes to show that Exhibit B was ever formally
ratified or approved by either corporation. After its organization,
the Manila corporation employed a regular accountant whose duty
it was to audit the accounts of the company and render financial
statements both for the use of the local banks and the local and
parent corporations at San Francisco. From time to time and in the
ordinary course of business such statements of account were
prepared by the accountant and duly forwarded to the home office,
and among other things was a statement of July 31, 1921, showing
that there was due and owing the plaintiff under Exhibit B the sum
of P106,277.50. A short time previous to that date, the San
Francisco corporation became involved in financial trouble, and all
of its assets were turned over to a "creditors' committee." When
this statement was received, the "creditors' committee"
immediately protested its allowance. An attempt was made without
success to adjust the matter on a friendly basis and without
litigation. January 10, 1922, the plaintiff brought this action to
recover from the defendant the sum of P106,277.50 with legal
interest and costs, and written instruments known in the record as
Exhibits A and B were attached to, and made a part of, the
complaint.
For answer, the defendant admits the formal parts of the complaint,
the execution of Exhibit A and denies each and every other
allegation, except as specifically admitted, and alleges that what is
known as Exhibit B was signed by Willits without the authority of
the defendant corporation or the firm of Willits & Patterson, and
that it is not an agreement which was ever entered into with the
plaintiff by the defendant or the firm, and, as a separate defense
and counterclaim, it alleges that on the 30th of June, 1920, there
was a balance due and owing the plaintiff from the defendant under
the contract Exhibit A of the sum of P8,741.05. That his salary from
June 30, 1920, to July 31, 1921, under Exhibit A was $400 per
month, or a total of P10,400. That about July 6, 1921, the plaintiff
wrongfully took P30,000 from the assets of the firm, and that he is
now indebted to the firm in the sum of P10,858.95, with interest
and costs, from which it prays judgement.
The plaintiff admits that he withdrew the P30,000, but alleges that
it was with the consent and authority of the defendant, and denies
all other new matter in the answer.
Upon such issues a trial was had, and the lower court rendered
judgment in favor of the defendant as prayed for in its
counterclaim, from which the plaintiff appeals, contending that the
trial court erred in not holding that the contract between the
parties is that which is embodied in Exhibits A and B, and that the
defendant assumed all partnership obligations, and in failing to
render judgment for the plaintiff, as prayed for, and in dismissing
his complaint, and denying plaintiff's motion for a new trial.
JOHNS, J.:
In their respective briefs opposing counsel agree that the important
questions involved are "what was the contract under which the
plaintiff rendered services for five years ending July 31, 1921," and
"what is due the plaintiff under that contract." Plaintiff contends
that his services were performed under Exhibits A and B, and that
the defendant assumed all of the obligations of the original
partnership under Exhibit A, and is now seeking to deny its liability
under, and repudiate, Exhibit B. The defendant admits that Exhibit A
was the original contract between Arnold and the firm of Willits &
Patterson by which he came to the Philippine Islands, and that it
was therein agreed that he was to be employed for a period of five
years as the agent of Willits & Patterson in the Philippine Islands to
operate a certain oil mill, and to do such other business as might be
deemed advisable for which he was to receive, first, the travelling
expenses of his wife and self from San Francisco to Manila, second,
the minimum salary of $200 per month, third, a brokerage of 1 per
cent upon all purchases and sales of merchandise, except for the
account of the coconut oil mill, fourth, one-half of the profits on any
transaction in the name of the firm or himself not provided for in
the agreement. That the agreement also provided that if it be found
that the business was operated at a loss, Arnold should receive a
monthly salary of $400 during such period. That the business was
operated at a loss from June 30, 1920, to July 31, 1921, and that for
such reason, he was entitled to nothing more than a salary of $400
per month, or for that period P10,400. Adding this amount to the
P8,741.05, which the defendant admits he owed Arnold on June 30,
1920, makes a total of P19,141.05, leaving a balance due the
defendant as set out in the counterclaim. In other words, that the
plaintiff's compensation was measured by, and limited to, the above
specified provisions in the contract Exhibit A, and that the
defendant corporation is not bound by the terms or provisions of
Exhibit B, which is as follows:
WILLITS & PATTERSON, LTD.
MANILA, P. I., Nov. 10, 1919.
CHAS. D. WILLITS, Esq.,
Present.
DEAR MR. WILLITS: My understanding of the intent of my
agreement with Willits & Patterson is as under:
Commissions. Willits & Patterson, San Francisco, pay me a
commission of one per cent on all purchases made for them in the
Philippines or sales made to them by Manila and one per cent on all
sales made for them in the Philippines, or purchases made from
them by Manila. If such purchases or sales are on an f. o. b. basis
the commission is on the f. o. b. price; if on a c. i. f. basis the
commission is computed on the c. i. f. price
These commissions are credited to me in San Francisco.
I do not participate in any profits on business transacted between
Willits & Patterson, San Francisco, and Willits & Patterson, Ltd.,
Manila.
Profits. On all business transacted between Willits & Patterson, Ltd.
and others than Willits & Patterson, San Francisco, half the profits
are to be credited to my account and half to the Profit & Loss
account of Willits & Patterson, Ltd., Manila.
On all other business, such as the Cooperative Coconut Products Co.
account, or any other business we may undertake as agents or
managers, half the profits are to be credited to my account and half
to the Profit & Loss account of Willits & Patterson, Ltd., Manila.
Where Willits & Patterson, San Francisco, or Willits & Patterson,
Ltd., Manila, have their own funds invested in the capital stock or a
corporation, I of course do not participate in the earnings of such
stock, any more than Willits & Patterson would participate in the
earnings of stock held by me on my account.
If the foregoing conforms to your understanding of our agreement,
please confirm below.
Yours faithfully,
(Sgd.) G. C. ARNOLD
Confirmed:
WILLITS & PATTERSON
By (Sgd.) CHAS. D. WILLITS
There is no dispute about any of the following facts: That at the
inception C.D. Willits and I. L. Patterson constituted the firm of
Willits & Patterson doing business in the City of San Francisco; that
later Patterson retired from the firm, and Willits acquired all of his
interests and thereafter continued the business under the name
and style of Willits & Patterson; that the original contract Exhibit A
was made between the plaintiff and the old firm at San Francisco on
July 31, 1916, to cover a period of five years from that date; that
plaintiff entered upon the discharged of his duties and continued his
services in the Philippine Islands to someone for the period of five
years; that on November 10, 1919, and as a result of conferences
between Willits and the plaintiff, Exhibit B was addressed and
signed in the manner and form above stated in the City of Manila. A
short time prior to that date Willits organized a corporation in San
Francisco, in the State of California, which took over and acquired
all of the assets of the firm's business in California then being
conducted under the name and style of Willits & Patterson; that he
subscribed for all of the capital stock of the corporation, and that in
truth and in fact he was the owner of all of its capital stock. After
this was done he caused a new corporation to be organized under
the laws of the Philippine Islands with principal office at Manila,
which took over and acquired all the business and assets of the firm
of Willits & Patterson in the Philippine Islands, in and to which, in
legal effect, he subscribed for all of its capital stock, and was the
owner of all of its stock. After both corporations were organized the
above letter was drafted and signed. The plaintiff contends that the
signing of Exhibit B in the manner and under the conditions in which
it was signed, and through the subsequent acts and conduct of the
parties, was ratified and, in legal effect, became and is now binding
upon the defendant.
It will be noted that Exhibit B was executed in Manila, and that at
the time it was signed by Willits, he was to all intents and purposes
the legal owner of all the stock in both corporations. It also appears
from the evidence that the parent corporation at San Francisco took
over and acquired all of the assets and liabilities of the local
corporation at Manila. That after it was organized the Manila
corporation kept separate records and account books of its own,
and that from time to time financial statements were made and
forwarded to the home office, from which it conclusively appears
that plaintiff was basing his claim for services upon Exhibit A, as it
was modified by Exhibit B. That at no time after Exhibit B was signed
was there ever any dispute between plaintiff and Willits as to the
compensation for plaintiff's services. That is to say, as between the
plaintiff and Willits, Exhibit B was approved, followed and at all
times in force and effect, after it was signed November 10, 1919. It
appears from an analysis of Exhibit B that it was for the mutual
interest of both parties. From a small beginning, the business was
then in a very flourishing conditions and growing fast, and the
profits were very large and were running into big money.
Among other things, Exhibit A provided: "(a) That the net profits
from said coconut oil business shall be divided in equal shares
between the said parties hereto; (b) that Arnold should receive a
brokerage of 1 per cent from all purchases and sales of
merchandise, except for the account of the coconut mills; (c) that
the net profits from all other business should be divided in equal
half shares between the parties hereto."
Under the above provisions, the plaintiff might well contend that he
was entitled to one-half of all the profits and a brokerage of 1 per
cent from all purchases and sales, except those for the account of
the coconut oil mills, which under the volume of business then
existing would run into a very large sum of money. It was for such
reason and after personal conferences between them, and to settle
all disputed questions, that Exhibit B was prepared and signed.
The record recites that "the defendant admits that from July 31,
1916 to July 31, 1921, the plaintiff faithfully performed all the duties
incumbent upon him under his contract of employment, it being
understood, however, that this admission does not include an
admission that the plaintiff placed a proper interpretation upon his
right to remuneration under said contract of employment."
It being admitted that the plaintiff worked "under his contract of
employment" for the period of five years, the question naturally
arises, for whom was he working? His contract was made with the
original firm of Willits & Patterson, and that firm was dissolved and
it ceased to exist, and all of its assets were merged in, and taken
over by, the parent corporation at San Francisco. In the very nature
of things, after the corporation was formed, the plaintiff could not
and did not continue to work for the firm, and, yet, he continued his
employment for the full period of five years. For whom did he work
after the partnership was merged in the corporation and ceased to
exist?
It is very apparent that, under the conditions then existing, the
signing of Exhibit B was for the mutual interests of both parties, and
that if the contract Exhibit A was to be enforced according to its
terms, that Arnold might well contend for a much larger sum of
money for his services. In truth and in fact Willits and both
corporations recognized his employment and accepted the benefits
of his services. He continued his employment and rendered his
services after the corporation were organized and Exhibit B was
signed just the same as he did before, and both corporations
recognized and accepted his services. Although the plaintiff was
president of the local corporation, the testimony is conclusive that
both of them were what is known as a one man corporation, and
Willits, as the owner of all of the stock, was the force and dominant
power which controlled them. After Exhibit B was signed it was
recognized by Willits that the plaintiff's services were to be
performed and measured by its term and provisions, and there
never was any dispute between plaintiff and Willits upon that
question.
The controversy first arose after the corporation was in financial
trouble and the appointment of what is known in the record as a
"creditors' committee." There is no claim or pretense that there was
any fraud or collusion between plaintiff and Willits, and it is very
apparent that Exhibit B was to the mutual interest of both parties. It
is elementary law that if Exhibit B is a binding contract between the
plaintiff and Willits and the corporations, it is equally binding upon
the creditors' committee. It would not have any higher or better
legal right than the corporation itself, and could not make any
defense which it could not make. It is very significant that the claim
or defense which is now interposed by the creditors' committee was
never made or asserted at any previous time by the defendant, and
that it never was made by Willits, and it is very apparent that if he
had remained in control of the corporation, it would never have
made the defense which is now made by the creditors' committee.
The record is conclusive that at the time he signed Exhibit B, Willits
was, in legal effect, the owner and holder of all the stock in both
corporations, and that he approved it in their interest, and to
protect them from the plaintiff having and making a much larger
claim under Exhibit A. As a matter of fact, it appears from the
statement of Mr. Larkin, the accountant, in the record that if
plaintiff's cause of action was now founded upon Exhibit A, he
would have a claim for more than P160,000.
Thompson on Corporations, 2d ed., vol. I, section 10, says:
The proposition that a corporation has an existence separate and
distinct from its membership has its limitations. It must be noted
that this separate existence is for particular purposes. It must also
be remembered that there can be no corporate existence without
persons to compose it; there can be no association without
associates. This separate existence is to a certain extent a legal
fiction. Whenever necessary for the interests of the public or for the
protection or enforcement of the rights of the membership, courts
will disregard this legal fiction and operate upon both the
corporation and the persons composing it.
In the same section, the author quotes from a decision in 49 Ohio
State, 1371; 15 L. R. A., 145, in which the Supreme Court of Ohio
says:
"So long as a proper use is made of the fiction that a corporation is
an entity apart from its shareholders, it is harmless, and, because
convenient, should not be called in question; but where it is urged
to an end subversive of its policy, or such is the issue, the fiction
must be ignored, and the question determined whether the act in
question, though done by shareholders, — that is to say, by the
persons uniting in one body, — was done simply as individuals, and
with respect to their individual interest as shareholders, or was
done ostensibly as such, but, as a matter of fact, to control the
corporation, and affect the transaction of its business, in the same
manner as if the act had been clothed with all the formalities of a
corporate act. This must be so, because, the stockholders having a
dual capacity, and capable of acting in either, and a possible interest
to conceal their character when acting in their corporate capacity,
the absence of the formal evidence of the character of the act
cannot preclude judicial inquiry on the subject. If it were otherwise,
then in that department of the law fraud would enjoy an immunity
awarded to it in no other."
Where the stock of a corporation is owned by one person whereby
the corporation functions only for the benefit of such individual
owner, the corporation and the individual should be deemed to be
the same.
Ruling Case Law, vol. 7, section 663, says:
While of course a corporation cannot ratify a contract which is
strictly ultra vires, and which it in the first instance could not have
made, it may by ratification render binding on it a contract, entered
into on its behalf by its officers or agents without authority. As a
general rule such ratification need not be manifested by any voted
or formal resolution of the corporation or be authenticated by the
corporate seal; no higher degree of evidence is requisite in
establishing ratification on the part of a corporation, than is
requisite in showing an antecedent authorization.
SEC. 666. The assent or approval of a corporation to acts done on its
account may be inferred in the same manner that the absent of a
natural person may be, and it is well settled that where a
corporation with full knowledge of the unauthorized act of its
officer or agents acquiesces in and consents to such acts, it thereby
ratifies them, especially where the acquiescence results in prejudice
to a third person.
SEC. 669. So, when, in the usual course of business of a corporation,
an officer has been allowed in his official capacity to manage its
affair, his authority to represent the corporation may be inferred
from the manner in which he has been permitted by the directors to
transact its business.
SEC. 656. In accordance with a well-known rule of the law of agency,
notice to corporate officers or agents within the scope or apparent
scope of their authority is attributed to the corporation.
SEC. 667. As a general rule, if a corporation with knowledge of its
agents unauthorized act received and enjoys the benefits thereof, it
impliedly ratifies the unauthorized act if it is one capable of
ratification by parol.
In its article on corporations, Corpus Juris, in section 2241 says:
Ratification by a corporation of a transaction not previously
authorized is more easily inferred where the corporation receives
and retains property under it, and as a general rule where a
corporation, through its proper officers or board, takes and retains
the benefits of the unauthorized act or contract of an officer or
agent, with full knowledge of all the material facts, it thereby
ratifies and becomes bound by such act of contract, together with
all the liabilities and burdens resulting therefrom, and in some
jurisdiction this rule is, in effect, declared by statute. Thus the
corporation is liable on the ground of ratification where, with
knowledge of the facts, it accepts the benefit of services rendered
under an unauthorized contract of employment . . . .
Applying the law to the facts.
Mr. Larkin, an experienced accountant, was employed by the local
corporation, and from time to time and in the ordinary course of
business made and prepared financial statements showing its assets
and liabilities, true copies of which were sent to the home office in
San Francisco. It appears upon their face that plaintiff's
compensation was made and founded on Exhibit B, and that such
statements were made and prepared by the accountant on the
assumption that Exhibit B was in full force and effect as between
the plaintiff and the defendant. In the course of business in the
early part of 1920, plaintiff, as manager of the defendant, sold 500
tons of oil for future delivery at P740 per ton. Due to break in the
market, plaintiff was able to purchase the oil at P380 per ton or a
profit of P180,000.
It appears from Exhibit B under the heading of "Profits" that:
On all the business transacted between Willits & Patterson, Ltd. and
others than Willits & Patterson, San Francisco, half the profit are to
be credited to may account and half to the Profit & Loss account
Willits & Patterson, Ltd., Manila.
The purchasers paid P105,000 on the contracts and gave their notes
for P75,000, and it was agreed that all of the oil purchased should
be held as security for the full payment of the purchase price. As a
result, the defendant itself received the P105,000 in cash, P75,000
in notes, and still holds the 500 tons of oil as security for the
balance of the purchase price. This transaction was shown in the
semi-annual financial statement for the period ending December
31, 1920. That is to say, the business was transacted by and through
the plaintiff, and the defendant received and accepted all of the
profits on the deal, and the statement which was rendered gave
him a credit for P90,737.88, or half the profit as provided in the
contract Exhibit B, with interest.
Although the previous financial statements show upon their face
that the account of plaintiff was credit with several small items on
the same basis, it was not until the 23d of March, 1921, that any
objection was ever made by anyone, and objection was made for
the first time by the creditors' committee in a cable of that date.
As we analyze the facts Exhibit B was, in legal effect, ratified and
approved and is now binding upon the defendant corporation, and
the plaintiff is entitled to recover for his services on that writing as it
modified the original contract Exhibit A.
It appears from the statement prepared by accountant Larkin
founded upon Exhibit B that the plaintiff is entitled to recover
P106,277.50. It is very apparent that his statement was based upon
the assumption that there was a net profit of P180,000 on the 500
tons of oil, of which the plaintiff was entitled to one-half.
In the absence of any other proof, we have the right to assume that
the 500 tons of oil was worth the amount which the defendant paid
for them at the time of the purchase or P380 per ton, and the
record shows that the defendant took and now has the possession
of all of the oil secure the payment of the price at which it was sold.
Hence, the profit on the deal to the defendant at the time of the
sale would amount to the difference between what the defendant
paid for the oil and the amount which it received for the oil at the
time it sold the oil. It appears that at the time of the sale the
defendant only received P105,000 in cash, and that it took and
accepted the promissory notes of Cruz & Tan Chong Say, the
purchasers, for P75,000 more which have been collected and may
never be. Hence, it must follow that the amount evidence by the
notes cannot now be deemed or treated as profits on the deal and
cannot be until such times as the notes are paid.
The judgment of the lower court is reversed, and a money judgment
will be entered here in favor of the plaintiff and against the
defendant for the sum of P68,527.50, with thereon at the rate of 6
per cent per annum from the 10th day of January, 1922. In addition
thereto, judgment will be rendered against the defendant in
substance and to the effect that the plaintiff is the owner of an
undivided one-half interest in the promissory notes for P75,000
which were executed by Cruz & Tan Chong Say, as a part of the
purchase price of the oil, and that he is entitled to have and receive
one-half of all the proceeds from the notes or either of them, and
that also he have judgment against the defendant for costs. So
ordered.