G.R. No. 113032 August 21, 1997
WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ, PRESTON F.
VILLASIS & REGINALD F. VILLASIS, petitioner,
vs.
RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S.
SALAS & HON. JUDGE PORFIRIO PARIAN, respondents.
HERMOSISIMA, JR., J.:
Up for review on certiorari are: (1) the Decision dated September 6, 1993 and (2) the Order dated November
23, 1993 of Branch 33 of the Regional Trial Court of Iloilo City in Criminal Cases Nos. 37097 and 37098 for
estafa and falsification of a public document, respectively. The judgment acquitted the private respondents of
both charges, but petitioners seek to hold them civilly liable.
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S.
Salas, belonging to the same family, are the majority and controlling members of the Board of Trustees of
Western Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in the operation, among
others, of an educational institution. According to petitioners, the minority stockholders of WIT, sometime on
June 1, 1986 in the principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In attendance
were other members of the Board including one of the petitioners Reginald Villasis. Prior to aforesaid Special
Board Meeting, copies of notice thereof, dated May 24, 1986, were distributed to all Board Members. The
notice allegedly indicated that the meeting to be held on June 1, 1986 included Item No. 6 which states:
Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western Institute of
Technology, Inc. on compensation of all officers of the corporation. 1
In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly compensation to
the private respondents as corporate officers retroactive June 1, 1985, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it
was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation for services
rendered as follows: Chairman — P9,000.00/month, Vice Chairman —
P3,500.00/month, Corporate Treasurer — P3,500.00/month and Corporate
Secretary — P3,500.00/month, retroactive June 1, 1985 and the ten per
centum of the net profits shall be distributed equally among the ten members
of the Board of Trustees. This shall amend and superceed (sic) any previous
resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of
Western Institute of Technology, Inc. held on March 30, 1986 is true and correct to the best of my
knowledge and belief.
(Sgd) ANTONIO S. SALAS
Corporate Secretary2
A few years later, that is, on March 13, 1991, petitioners Homero Villasis, Prestod Villasis, Reginald Villasis and
Dimas Enriquez filed an affidavit-complaint against private respondents before the Office of the City
Prosecutor of Iloilo, as a result of which two (2) separate criminal informations, one for falsification of a public
document under Article 171 of the Revised Penal Code and the other for estafa under Article 315, par. 1(b) of
the RPC, were filed before Branch 33 of the Regional Trial Court of Iloilo City. The charge for falsification of
public document was anchored on the private respondents' submission of WIT's income statement for the
fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement
of corporate funds for the compensation of private respondents based on Resolution No. 4, series of 1986,
making it appear that the same was passed by the board on March 30, 1986, when in truth, the same was
actually passed on June 1, 1986, a date not covered by the corporation's fiscal year 1985-1986 (beginning May
1, 1985 and ending April 30, 1986). The Information for falsification of a public document states:
The undersigned City Prosecutor accuses RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD
SALAS-TUBILLEJA, ANTONIO S. SALAS and RICHARD S. SALAS (whose dates and places of birth
cannot be ascertained) of the crime of FALSIFICATION OF A PUBLIC DOCUMENT, Art. 171 of the
Revised Penal Code, committed as follows:
That on or about the 10th day of June, 1986, in the City of Iloilo, Philippines
and within the jurisdiction of this Honorable Court, the above-named accused,
being then the Chairman, Vice-Chairman, Treasurer, Secretary, and Trustee
(who later became Secretary), respectively, of the board of trustees of the
Western Institute of Technology, Inc., a corporation duly organized and
existing under the laws of the Republic of the Philippines, conspiring and
confederating together and mutually helping one another, to better realized
(sic) their purpose, did then and there wilfully, unlawfully and criminally
prepare and execute and subsequently cause to be submitted to the Securities
and Exchange Commission an income statement of the corporation for the
fiscal year 1985-1986, the same being required to be submitted every end of
the corporation fiscal year by the aforesaid Commission, and therefore, a
public document, including therein the disbursement of the retroactive
compensation of accused corporate officers in the amount of P186,470.70, by
then and there making it appear that the basis thereof Resolution No. 4, Series
of 1986 was passed by the board of trustees on March 30, 1986, a date covered
by the corporation's fiscal year 1985-1986 (i.e., from May 1, 1985 to April 30,
 1986), when in truth and in fact, as said accused well knew, no such Resolution
No. 48, Series of 1986 was passed on March 30, 1986.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22, 1991.3 [Emphasis ours].
The Information, on the other hand, for estafa reads:
The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-
TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS (whose dates and places of birth cannot be
ascertained) of the crime of ESTAFA, Art. 315, par. 1 (b) of the Revised Penal Code, committed as
follows:
That on or about the 1st day of June, 1986, in the City of Iloilo, Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused,
being then the Chairman, Vice-Chairman, Treasurer, Secretary, and Trustee
(who later became Secretary), respectively; of the Board of Trustees of
Western Institute of Technology, Inc., a corporation duly organized and
existing under the laws of the Republic of the Philippines, conspiring and
confederating together and mutually helping one another to better realize
their purpose, did then and there wilfully, unlawfully and feloniously defraud
the said corporation (and its stockholders) in the following manner, to wit:
herein accused, knowing fully well that they have no sufficient, lawful
authority to disburse — let alone violation of applicable laws and
jurisprudence, disbursed the funds of the corporation by effecting payment of
their retroactive salaries in the amount of P186,470.00 and subsequently
paying themselves every 15th and 30th of the month starting June 15, 1986
until the present, in the amount of P19,500.00 per month, as if the same were
their own, and when herein accused were informed of the illegality of these
disbursements by the minority stockholders by way of objections made in an
annual stockholders' meeting held on June 14, 1986 and every year thereafter,
they refused, and still refuse, to rectify the same to the damage and prejudice
of the corporation (and its stockholders) in the total sum of P1,453,970.79 as
of November 15, 1991.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22, 1991.4 [Emphasis ours]
Thereafter, trial for the two criminal cases, docketed as Criminal Cases Nos. 37097 and 37098, was
consolidated. After a full-blown hearing, Judge Porfirio Parian handed down a verdict of acquittal on both
counts5 dated September 6, 1993 without imposing any civil liability against the accused therein.
Petitioners filed a Motion for Reconsideration 6 of the civil aspect of the RTC Decision which was, however,
denied in an Order dated November 23, 1993.7
Hence, the instant petition.
Significantly on December 8, 1994, a Motion for Intervention, dated December 2, 1994, was filed before this
Court by Western Institute of Technology, Inc., supposedly one of the petitioners herein, disowning its
inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel for the other petitioners, had no
authority whatsoever to represent the corporation in filing the petition. Intervenor likewise prayed for the
dismissal of the petition for being utterly without merit. The Motion for Intervention was granted on January
16, 1995.8
Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal Cases
Nos. 37097 and 37098. They base their claim on the alleged illegal issuance by private respondents of
Resolution No. 48, series of 1986 ordering the disbursement of corporate funds in the amount of P186,470.70
representing retroactive compensation as of June 1, 1985 in favor of private respondents, board members of
WIT, plus P1,453,970.79 for the subsequent collective salaries of private respondents every 15th and 30th of
the month until the filing of the criminal complaints against them on March 1991. Petitioners maintain that
this grant of compensation to private respondents is proscribed under Section 30 of the Corporation Code.
Thus, private respondents are obliged to return these amounts to the corporation with interest.
We cannot sustain the petitioners. The pertinent section of the Corporation Code provides:
Sec. 30. Compensation of directors — In the absence of any provision in the by-laws fixing their
compensation, the directors shall not receive any compensation, as such directors, except for
reasonable per diems: Provided, however, That any such compensation (other than per diems) may
be granted to directors by the vote of the stockholders representing at least a majority of the
outstanding capital stock at a regular or special stockholders' meeting. In no case shall the total
yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income
before income tax of the corporation during the preceding year. [Emphasis ours]
There is no argument that directors or trustees, as the case may be, are not entitled to salary or other
compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is
founded upon a presumption that directors/trustees render service gratuitously, and that the return upon
their shares adequately furnishes the motives for service, without compensation. 9 Under the foregoing section,
there are only two (2) ways by which members of the board can be granted compensation apart from
reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when the
stockholders representing a majority of the outstanding capital stock at a regular or special stockholders'
meeting agree to give it to them.
This proscription, however, against granting compensation to directors/trustees of a corporation is not a
sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: ". . . [T]he directors shall not
receive any compensation, as such directors, . . . ." The phrase as such directors is not without significance for it
delimits the scope of the prohibition to compensation given to them for services performed purely in their
capacity as directors or trustees. The unambiguous implication is that members of the board may receive
compensation, in addition to reasonable per diems, when they render services to the corporation in a capacity
other than as directors/trustees.10 In the case at bench, Resolution No. 48, s. 1986 granted monthly
compensation to private respondents not in their capacity as members of the board, but rather as officers of
the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute
of Technology. We quote once more Resolution No. 48, s. 1986 for easy reference, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it
was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation for services
rendered as follows: Chairman — P9,000.00/month, Vice Chairman —
P3,500.00/month, Corporate Treasurer — P3,500.00/month and Corporate
Secretary — P3,500.00/month, retroactive June 1, 1985 and the ten per
centum of the net profits shall be distributed equally among the ten members
of the Board of Trustees. This shall amend and superceed (sic) any previous
resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of
Western Institute of Technology, Inc. held on March 30, 1986 is true and correct to the best of my
knowledge and belief.
(Sgd) ANTONIO S. SALAS
Corporate Secretary11 [Emphasis
ours]
Clearly, therefore, the prohibition with respect to granting compensation to corporate directors/trustees as
such under Section 30 is not violated in this particular case. Consequently, the last sentence of Section 30
which provides:
. . . . . . . In no case shall the total yearly compensation of directors, as such directors, exceed ten
(10%) percent of the net income before income tax of the corporation during the preceding year.
(Emphasis ours]
does not likewise find application in this case since the compensation is being given to private respondents in
their capacity as officers of WIT and not as board members.
Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of WIT for
and on behalf of the corporation to annul Resolution No. 48, s. 1986 which is prejudicial to the corporation.
We are unpersuaded. A derivative suit is an action brought by minority shareholders in the name of the
corporation to redress wrongs committed against it, for which the directors refuse to sue. 12 It is a remedy
designed by equity and has been the principal defense of the minority shareholders against abuses by the
majority.13 Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of
Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public
document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who
is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is
suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated
who wish to join.14 This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the
allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the
subject matter and nature of the action.15 This was not complied with by the petitioners either in their
complaint before the court a quo nor in the instant petition which, in part, merely states that "this is a petition
for review on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal Cases
Nos. 37097 and 37098"16 since the trial court's judgment of acquittal failed to impose any civil liability against
the private respondents. By no amount of equity considerations, if at all deserved, can a mere appeal on the
civil aspect of a criminal case be treated as a derivative suit.
Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which it is not, the
same is outrightly dismissible for having been wrongfully filed in the regular court devoid of any jurisdiction to
entertain the complaint. The ease should have been filed with the Securities and Exchange Commission (SEC)
which exercises original and exclusive jurisdiction over derivative suits, they being intra-corporate disputes,
per Section 5 (b) of P.D. No. 902-A:
In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission
over corporations, partnerships and other forms of associations registered with it as expressly
granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and
decide cases involving:
xxx xxx xxx
b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the State insofar as it concerns their individual
franchise or right to exist as such entity;
xxx xxx xxx
[Emphasis ours]
Once the case is decided by the SEC, the losing party may file a petition for review before the Court of Appeals
raising questions of fact, of law, or mixed questions of fact and law.17 It is only after the case has ran this
course, and not earlier, can it be brought to us via a petition for review on certiorari under Rule 45 raising only
pure questions of law.18 Petitioners, in pleading that we treat the instant petition as a derivative suit, are trying
to short-circuit the entire process which we cannot here sanction.
As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 for falsification of public document
and estafa, which this petition truly is, we have to deny the petition just the same. It will be well to quote the
respondent court's ratiocinations acquitting the private respondents on both counts:
The prosecution wants this Court to believe and agree that there is falsification of public document
because, as claimed by the prosecution, Resolution No. 48, Series of 1986 (Exh. "1-E-1") was not
taken up and passed during the Regular Meeting of the Board of Trustees of the Western Institute of
Technology (WIT), Inc. on March 30, 1986, but on June 1, 1986 special meeting of the same board of
trustees.
. . .[O]n the question of whether or not the accused can be held liable for estafa under Sec. 1 (b) of
Art. 315 of the Revised Penal Code, it is perceived by this Court that the receipt and the holding of
the money by the accused as salary on basis of the authority granted by the Articles and By-Laws of
the corporation are not tainted with abuse of confidence. The money they received belongs to them
and cannot be said to have been converted and/or misappropriated by them.
xxx xxx xxx 19
[Emphasis ours]

This Court is reluctant to accept this claim of falsification. The prosecution omitted to submit the
From the foregoing factual findings, which we find to be amply substantiated by the records, it is evident that
complete minutes of the regular meeting of the Board of Trustees on March 30, 1986. It only
there is simply no basis to hold the accused, private respondents herein, civilly liable. Section 2(b) of Rule 111
presented in evidence Exh. "C", which is page 5 or the last page of the said minutes. Had the
on the New Rules on Criminal Procedure provides:
complete minutes (Exh. "1") consisting of five (5) pages, been submitted, it can be readily seen and
understood that Resolution No. 48, Series of 1986 (Exh. "1-E-1") giving compensation to corporate
officers, was indeed included in Other Business, No. 6 of the Agenda, and was taken up and passed Sec. 2. Institution of separate civil action.
on March 30, 1986. The mere fact of existence of Exh. "C" also proves that it was passed on March
30, 1986 for Exh. "C" is part and parcel of the whole minutes of the Board of Trustees Regular
xxx xxx xxx
Meeting on March 30, 1986. No better and more credible proof can be considered other than the
Minutes (Exh. "1") itself of the Regular Meeting of the Board of Trustees on March 30, 1986. The
imputation that said Resolution No. 48 was neither taken up nor passed on March 30, 1986 because (b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction
the matter regarding compensation was not specifically stated or written in the Agenda and that the proceeds from a declaration in a final judgment that the fact from which the civil might arise did not
words "possible implementation of said Resolution No. 48, was expressly written in the Agenda for the exist. [Emphasis ours]
Special Meeting of the Board on June 1, 1986, is simply an implication. This evidence by implication to
the mind of the court cannot prevail over the Minutes (Exh. "1") and cannot ripen into proof beyond
Likewise, the last paragraph of Section 2, Rule 120 reads:
reasonable doubt which is demanded in all criminal prosecutions.

Sec. 2. Form and contents of judgment.

This Court finds that under the Eleventh Article (Exh. "3-D-1") of the Articles of Incorporation (Exh.
"3-B") of the Panay Educational Institution, Inc., now the Western Institute of Technology, Inc., the
officers of the corporation shall receive such compensation as the Board of Directors may provide. xxx xxx xxx
These Articles of Incorporation was adopted on May 17, 1957 (Exh. "3-E"). The Officers of the
corporation and their corresponding duties are enumerated and stated in Sections 1, 2, 3 and 4 of In case of acquittal, unless there is a clear showing that the act from which the civil liability might
Art. III of the Amended By-Laws of the Corporation (Exh. "4-A") which was adopted on May 31, arise did not exist, the judgment shall make a finding on the civil liability of the accused in favor of
1957. According to Sec. 6, Art. III of the same By-Laws, all officers shall receive such compensation the offended party. [Emphasis ours]
as may be fixed by the Board of Directors.

It is the perception of this Court that the grant of compensation or salary to the accused in their
capacity as officers of the corporation, through Resolution No. 48, enacted on March 30, 1986 by the
Board of Trustees, is authorized by both the Articles of Incorporation and the By-Laws of the
corporation. To state otherwise is to depart from the clear terms of the said articles and by-laws. In
their defense the accused have properly and rightly asserted that the grant of salary is not for
directors, but for their being officers of the corporation who oversee the day to day activities and
operations of the school.
The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based on reasonable doubt but rather on a
finding that the accused-private respondents did not commit the criminal acts complained of. Thus, pursuant
to the above rule and settled jurisprudence, any civil action ex delicto cannot prosper. Acquittal in a criminal
action bars the civil action arising therefrom where the judgment of acquittal holds that the accused did not
commit the criminal acts imputed to them.20
WHEREFORE, the instant petition is hereby DENIED with costs against petitioners.

xxx xxx xxx

 payroll and deprive you of the opportunity to earn more, during this period of Mana's
crisis.2

Private respondent expressed "shock" over the termination of his employment. He complained that he would
not have resigned from the Sycip, Gorres & Velayo accounting firm, where he was already a senior staff
G.R. No. 101699 March 13, 1996
auditor, had it not been for the assurance of a "continuous job" by MMDC's Engr. Rodillano E. Velasquez.
Private respondent requested that he be reimbursed the "advances" he had made for the company and be paid
BENJAMIN A. SANTOS, petitioner, his "accrued salaries/claims.3
vs.
NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER FRUCTUOSO T. AURELLANO and
The claim was not heeded; on 20 October 1986, private respondent filed with the NLRC Regional Arbitration,
MELVIN D. MILLENA, respondents.
Branch No. V, in Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th month pay, overtime pay,
separation pay and incentive leave pay against MMDC and its two top officials, namely, herein petitioner
  Benjamin A. Santos (the President) and Rodillano A. Velasquez (the executive vice-president). in his complaint-
affidavit (position paper), submitted on 27 October 1986, Millena alleged, among other things, that his
dismissal was merely an offshoot of his letter of 12 August 1986 to Abañ o about the company's inability to pay
VITUG, J.:p
its workers and to remit withholding taxes to the BIR. 4

In a petition for certiorari under Rule 65 of the Rules of Court, petitioner Benjamin A. Santos, former President
A copy of the notice and summons was served on therein respondents (MMDC, Santos and Velasquez) on 29
of the Mana Mining and Development Corporation ("MMDC"), questions the resolution of the National Labor
October 1986.5 At the initial hearing on 14 November 1986 before the Labor Arbiter, only the complainant,
Relations Commission ("NLRC") affirming the decision of Labor Arbiter Fructuoso T. Aurellano who, having
Millena, appeared; however, Atty. Romeo Perez, in representation of the respondents, requested by telegram
held illegal the termination of employment of private respondent Melvin D. Millena, has ordered petitioner
that the hearing be reset to 01 December 1986. Although the request was granted by the Labor Arbiter, private
MMDC, as well as its president (herein petitioner) and the executive vice-president in their personal capacities,
respondent was allowed, nevertheless, to present his evidence ex parte at that initial hearing.
to pay Millena his monetary claims.

The scheduled 01st December 1986 hearing was itself later reset to 19 December 1986. On 05 December 1986,
Private respondent, on 01 October 1985, was hired to be the project accountant for MMDC's mining operations
the NLRC in Legazpi City again received a telegram from Atty. Perez asking for fifteen (15) days within which
in Gatbo, Bacon, Sorsogon. On 12 August 1986, private respondent sent to Mr. Gil Abañ o, the MMDC corporate
to submit the respondents' position paper. On 19 December 1986, Atty. Perez sent yet another telegram
treasurer, a memorandum calling the latter's attention to the failure of the company to comply with the
seeking a further postponement of the hearing and asking for a period until 15 January 1987 within which to
withholding tax requirements of, and to make the corresponding monthly remittances to, the Bureau of
submit the position paper.
Internal Revenue ("BIR") on account of delayed payments of accrued salaries to the company's laborers and
employees.1
On 15 January 1987, Atty. Perez advised the NLRC in Legazpi City that the position paper had finally been
transmitted through the mail and that he was submitting the case for resolution without further hearing. The
In a letter, dated 08 September 1986, Abañ o advised private respondent thusly:
position paper was received by the Legazpi City NLRC office on 19 January 1987. Complainant Millena filed, on
26 February 1987, his rejoinder to the position paper.
Regarding Gatbo operations, as you also are aware, the rainy season is now upon us and
the peace and order condition in Sorsogon has deteriorated. It is therefore, the board's
On 27 July 1988, Labor Arbiter Fructuoso T. Aurellano, finding no valid cause for terminating complainant's
decision that it would be useless for us to continue operations, especially if we will
employment, ruled, citing this Court's pronouncement in Construction & Development Corporation of the
always be in the "hole," so to speak. Our first funds receipts will be used to pay all our
Philippines vs. Leogardo, Jr.6 that a partial closure of an establishment due to losses was a retrenchment
debts. We will stop production until the advent of the dry season, and until the
measure that rendered the employer liable for unpaid salaries and other monetary claims. The Labor Arbiter
insurgency problem clears. We will undertake only necessary maintenance and repair
adjudged
work and will keep our overhead down to the minimum manageable level. Until we
resume full-scale operations, we will not need a project accountant as there will be very
little paper work at the site, which can be easily handled at Makati. WHEREFORE, the respondents are hereby ordered to pay the petitioner the amount of
P37,132.25 corresponding to the latter's unpaid salaries and advances; P5,400.00 for
petitioner's 13th month pay; P3,340.95 as service incentive leave pay; and P5,400.00 as
We appreciate the work you have done for Mana and we will not hesitate to take you back
separation pay. The respondents are further ordered to pay the petitioner 10% of the
when we resume work at Gatbo. However it would be unfair to you if we kept you in the
monetary awards as attorney's fees.
 All other claims are dismissed for lack of sufficient evidence.
SO ORDERED.7
Alleging abuse of discretion by the Labor Arbiter, the company and its co-respondents filed a "motion for
reconsideration and/or appeal.8 The motion/appeal was forthwith indorsed to the Executive Director of the
NLRC in Manila.
In a resolution, dated 04 September 1989, the NLRC 9 affirmed the decision of the Labor Arbiter. It held that
the reasons relied upon by MMDC and its co-respondents in the dismissal of Millena, i.e., the rainy season,
deteriorating peace and order situation and little paperwork, were "not causes mentioned under Article 282 of
the Labor Code of the Philippines" and that Millena, being a regular employee, was "shielded by the tenurial
clause mandated under the law. 10
A writ of execution correspondingly issued; however, it was returned unsatisfied for the failure of the sheriff to
locate the offices of the corporation in the address indicated. Another writ of execution and an order of
garnishment was thereupon served on petitioner at his residence.
Contending that he had been denied due process, petitioner filed a motion for reconsideration of the NLRC's
resolution along with a prayer for the quashal of the writ of execution and order of garnishment. He averred
that he had never received any notice, summons or even a copy of the complaint; hence, he said, the Labor
Arbiter at no time had acquired jurisdiction over him.
On 16 August 1991, the NLRC 11 dismissed the motion for reconsideration. Citing Section 2, Rule 13, 12 and
Section 13, Rule 14, 13 of the Rules of Court, it ruled that the Regional Arbitration office had not, in fact, been
remiss in the observance of the legal processes for acquiring jurisdiction over the case and over the persons of
the respondents therein. The NLRC was also convinced that Atty. Perez had been the authorized counsel of
MMDC and its two most ranking officers.
14
In holding petitioner personally liable for private respondent's claim, the NLRC cited Article 289   of the Labor
Code and the ruling in A.C. Ransom Labor Union-CCLU vs. NLRC 15 to the effect that "(t)he responsible officer of
an employer corporation (could) be held personally, not to say even criminally, liable for non-payment of
backwages," and that of Gudez vs. NLRC  16 which amplified that "where the employer corporation (was) no
longer existing and unable to satisfy the judgment in favor of the employee, the officer should be liable for
acting on behalf of the corporation.
In the instant petition for certiorari, petitioner Santos reiterates that he should not have been adjudged
personally liable by public respondents, the latter not having validly acquired jurisdiction over his person
whether by personal service of summons or by substituted service under Rule 19 of the Rules of Court.
Petitioner's contention is unacceptable. The fact that Atty. Romeo B. Perez has been able to timely ask for a
deferment of the initial hearing on 14 November 1986, coupled with his subsequent active participation in the
proceedings, should disprove the supposed want of service of legal process. Although as a rule, modes of
service of summons are strictly followed in order that the court may acquire jurisdiction over the person of a
defendant, 17 such procedural modes, however, are liberally construed in quasi-judicial proceedings,
substantial compliance with the same being considered adequate. 18 Moreover, jurisdiction over the person of
the defendant in civil cases is acquired not only by service of summons but also by voluntary appearance in
court and submission to its authority. 19 "Appearance" by a legal advocate is such "voluntary submission to a
court's jurisdiction." 20 It may be made not only by actual physical appearance but likewise by the submission
of pleadings in compliance with the order of the court or tribunal.
To say that petitioner did not authorize Atty. Perez to represent him in the case 21 is to unduly tax credulity.
Like the Solicitor General, the Court likewise considers it unlikely that Atty. Perez would have been so
irresponsible as to represent petitioner if he were not, in fact, authorized. 22 Atty. Perez is an officer of the
court, and he must be presumed to have acted with due propriety. The employment of a counsel or the
authority to employ an attorney, it might be pointed out, need not be proved in writing; such fact could be
inferred from circumstantial evidence. 23 Petitioner was not just an ordinary official of the MMDC; he was the
President of the company.
Petitioner, in any event, argues that public respondents have gravely abused their discretion "in finding
petitioner solidarily liable with MMDC even (in) the absence of bad faith and malice on his part." 24 There is
merit in this plea.
A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation,
acting through its directors, officers and employees, are its sole liabilities. Nevertheless, being a mere fiction of
law, peculiar situations or valid grounds can exist to warrant, albeit done sparingly, the disregard of its
independent being and the lifting of the corporate veil. 25 As a rule, this situation might arise when a
corporation is used to evade a just and due obligation or to justify a wrong, 26 to shield or perpetrate
fraud, 27 to carry out similar other unjustifable aims or intentions, or as a subterfuge to commit injustice and
so circumvent the law. 28 In Tramat Mercantile, Inc., vs. Court of Appeals,29 the Court has collated the settled
instances when, without necessarily piercing the veil of corporate fiction, personal civil liability can also be
said to lawfully attach to a corporate director, trustee or officer; to wit: When —
(1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or
gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages
to the corporation, its stockholders or other persons;
(2) He consents to the issuance of watered stocks or who, having knowledge thereof, does
not forthwith file with the corporate secretary his written objection thereto;
(3) He agrees to hold himself personally and solidarily liable with the corporation; or
(4) He is made, by a specific provision of law, to personally answer for his corporate
action.
The case of petitioner is way off these exceptional instances. It is not even shown that petitioner has
had a direct hand in the dismissal of private respondent enough to attribute to him (petitioner) a
patently unlawful act while acting for the corporation. Neither can Article 289 30 of the Labor Code
be applied since this law specifically refers only to the imposition of penalties under the Code. It is
 undisputed that the termination of petitioner's employment has, instead, been due, collectively, to The Court, to be sure, did appear to have deviated somewhat in Gudez vs. NLRC;34 however, it should be clear
the need for a further mitigation of losses, the onset of the rainy season, the insurgency problem in from our recent pronouncement in Mam Realty Development Corporation and Manuel Centeno vs. NLRC  35 that
Sorsogon and the lack of funds to further support the mining operation in Gatbo. the Sunio doctrine still prevails.

It is true, there were various cases when corporate officers were themselves held by the Court to be personally WHEREFORE, the instant petition for certiorari is given DUE COURSE and the decision of the Labor Arbiter,
accountable for the payment of wages and money claims to its employees. In A.C. Ransom Labor Union-CCLU affirmed by the NLRC, is hereby MODIFIED insofar as it holds herein petitioner Benjamin Santos personally
vs. NLRC,31 for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an liable with Mana Mining and Development Corporation, which portion of the questioned judgment is now SET
employer corporation could be held personally liable for nonpayment of backwages for "(i)f the policy of the ASIDE. In all other respects, the questioned decision remains unaffected. No costs.
law were otherwise, the corporation employer (would) have devious ways for evading payment of back
wages." In the absence of a clear identification of the officer directly responsible for failure to pay the
SO ORDERED.
backwages, the Court considered the President of the corporation as such officer. The case was cited in Chua
vs. NLRC32 in holding personally liable the vice-president of the company, being the highest and most ranking
official of the corporation next to the President who was dismissed, for the latter's claim for unpaid wages.

A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that
could rightly sanction personal liability an the part of the company officer. In A.C. Ransom, the corporate entity
was a family corporation and execution against it could not be implemented because of the disposition
posthaste of its leviable assets evidently in order to evade its just and due obligations. The doctrine of
"piercing the veil of corporate fiction" was thus clearly appropriate. Chua likewise involved another family
corporation, and this time the conflict was between two brothers occupying the highest ranking positions in
the company. There were incontrovertible facts which pointed to extreme personal animosity that resulted,
evidently in bad faith, in the easing out from the company of one of the brothers by the other.

The basic rule is still that which can be deduced from the Court's pronouncement in Sunio vs. National Labor
Relations Commission;33 thus:

We come now to the personal liability of petitioner, Sunio, who was made jointly and
severally responsible with petitioner company and CIPI for the payment of the
backwages of private respondents. This is reversible error. The Assistant Regional
Director's Decision failed to disclose the reason why he was made personally liable.
Respondents, however, alleged as grounds thereof, his the being owner of one-half (1/2)
interest of said corporation, and his alleged arbitrary dismissal of private respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of
petitioner corporation. There appears to be no evidence on record that he acted
maliciously or in bad faith in terminating the services of private respondents. His act,
therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to
which it may be related. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality. Petitioner Sunio, therefore,
should not have been made personally answerable for the payment of private
respondents' back salaries.
 petitioners revised and deviated from the structural plan of the building without notice to or approval by the
respondents.1
G.R. No. 159795             July 30, 2004
Respondents filed a case for breach of contract against petitioners before the Regional Trial Court (RTC) of
Manila. At the pre-trial conference, the parties agreed to submit the case for arbitration to the CONSTRUCTION
SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP, INC., petitioners,
INDUSTRY ARBITRATION COMMISSION (CIAC). Respondents filed a request 2 for arbitration with the CIAC and
vs.
nominated Atty. Custodio O. Parlade as arbitrator. Atty. Parlade was appointed by the CIAC as sole arbitrator to
CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION and SPS. NARCISO & AIDA
resolve the dispute. With the agreement of the parties, Atty. Parlade designated Engr. Loreto C. Aquino to
QUIAMBAO, respondents.
assist him in assessing the technical aspect of the case. The RTC of Manila then dismissed the case and
transmitted its records to the CIAC.3

After conducting hearings and two (2) ocular inspections of the construction site, the arbitrator rendered
judgment against petitioners, thus:
DECISION
AWARD

In summary, award is hereby made in favor of the Quiambaos against the Respondents, jointly and severally,
as follows:

PUNO, J.:
Lost Rentals - P1,680,000.00
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, assailing the Decision
and Resolution of the Court of Appeals, dated June 30, 2003 and August 27, 2003, respectively, in CA-G.R. SP Cost to Complete, Rectification, etc. - 2,281,028.71
No. 72736.
Damages due to erroneous staking - 117,000.00
Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged in the construction business, with
Professional fees for geodetic surveys, etc. - 72,500.00
petitioner-spouses ROBERTO and EVELYN DAVID as its President and Treasurer, respectively.
Misc. expenses/ professional fees of engineers - 118,642.50
The records reveal that on October 7, 1997, respondent-spouses NARCISO and AIDA QUIAMBAO engaged the
services of petitioner CGI to design and construct a five-storey concrete office/residential building on their Bills for water and electricity, PLDT - 15,247.68
land in Tondo, Manila. The Design/Build Contract of the parties provided that: (a) petitioner CGI shall prepare
the working drawings for the construction project; (b) respondents shall pay petitioner CGI the sum of Seven
Attorney’s Fees - 100,000.00
Million Three Hundred Nine Thousand Eight Hundred Twenty-One and 51/100 Pesos (P7,309,821.51) for the
construction of the building, including the costs of labor, materials and equipment, and Two Hundred
Moral Damages - 250,000.00
Thousand Pesos (P200,000.00) for the cost of the design; and (c) the construction of the building shall be
completed within nine (9) months after securing the building permit.
Exemplary Damages - 250,000.00

The completion of the construction was initially scheduled on or before July 16, 1998 but was extended to TOTAL P4,884,418.89
November 15, 1998 upon agreement of the parties. It appears, however, that petitioners failed to follow the
specifications and plans as previously agreed upon. Respondents demanded the correction of the errors but
petitioners failed to act on their complaint. Consequently, respondents rescinded the contract on October 31, There is likewise an award in favor of the Respondents (petitioners herein) and against the Claimants
1998, after paying 74.84% of the cost of construction. (respondents herein) for the value of the materials and equipment left at (the) site (in) the amount of
P238,372.75. Respondent CGI is likewise credited with an 80% accomplishment having a total value of
Respondents then engaged the services of another contractor, RRA and Associates, to inspect the project and P5,847,857.20.
assess the actual accomplishment of petitioners in the construction of the building. It was found that
All other claims and counterclaims are hereby dismissed for lack of merit. We find no merit in the petition.

Executive Order No. 1008 entitled, "Construction Industry Arbitration Law" provided for an arbitration
To recapitulate:
mechanism for the speedy resolution of construction disputes other than by court litigation. It recognized the
role of the construction industry in the country’s economic progress as it utilizes a large segment of the labor
Payments already made to CGI - P5,275,041.00 force and contributes substantially to the gross national product of the country. 6 Thus, E.O. No. 1008 vests on
the Construction Industry Arbitration Commission (CIAC) original and exclusive jurisdiction over disputes
Amount awarded above to Claimants - 4,864,418.89 arising from or connected with construction contracts entered into by parties who have agreed to submit their
case to voluntary arbitration. Section 19 of E.O. No. 1008 provides that its arbitral award shall be
Total 10,159,459.89 appealable to the Supreme Court only on questions of law. 7

Payments due CGI for 80% work

There is a question of law when the doubt or difference in a given case arises as to what the law is on a
accomplishment P5,847,857.20 -
certain set of facts, and there is a question of fact when the doubt arises as to the truth or falsity of the alleged
facts.8 Thus, for a question to be one of law, it must not involve an examination of the probative value of the
Cost of materials and equipment 238,372.75 - evidence presented by the parties and there must be no doubt as to the veracity or falsehood of the facts
alleged.9
Total : P6,086,299.95

In the case at bar, it is readily apparent that petitioners are raising questions of fact. In their first assigned
Deducting this amount of P6,086,229.95 from P10,159,459.89, the result is a net award in favor the Claimants error, petitioners claim that at the time of rescission, they had completed 80% of the construction work and
of (sic) the amount of P4,073,229.94. still have 15 days to finish the project. They likewise insist that they constructed the building in accordance
with the contract and any modification on the plan was with the consent of the respondents.

WHEREFORE, the Respondents are hereby ordered to pay, jointly and severally, the Claimants the amount of
P4,073,229.94 with interest at 6% per annum from the date of the promulgation of this Award, and 12% per
annum of the net award, including accrued interest, from the time it becomes final and executory until it is
fully paid.
Each party is hereby directed to pay to the Commission P15,000.00 as such party’s share in the expert’s fees
paid to Engr. Loreto C. Aquino.
SO ORDERED.4
Petitioners appealed to the Court of Appeals which affirmed the arbitrator’s Decision but deleted the award for
lost rentals.5
Unsatisfied, petitioners filed this petition for review on certiorari, raising the following issues:
I. THERE WAS NO BASIS, IN FACT AND IN LAW, TO ALLOW RESPONDENTS TO UNILATERALLY
RESCIND THE DESIGN/BUILT CONTRACT, AFTER PETITIONERS HAVE (SIC) SUBSTANTIALLY
PERFORMED THEIR OBLIGATION UNDER THE SAID CONTRACT.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS JOINTLY AND
SEVERALLY LIABLE WITH CO-PETITIONER COORDINATED (GROUP, INC.), IN CLEAR VIOLATION
OF THE DOCTRINE OF SEPARATE JURIDICAL PERSONALITY.
These claims of petitioners are refuted by the evidence on record. In holding that respondents were justified in
rescinding the contract, the Court of Appeals upheld the factual findings of the sole arbitrator, thus:
xxx
(A)s the Building was taking shape, they noticed deviations from the approved plans and
specifications for the Building. Most noticeable were two (2) concrete columns in the middle
of the basement which effectively and permanently obstructed the basement for the parking
of vehicles x x x. In addition, three (3) additional concrete columns were constructed from
the ground floor to the roof deck x x x which affected the overall dimension of the building
such as altering the specified beam depths, passageways and windows. In addition, Mrs.
Quiambao provided a virtual litany of alleged defects, to wit: (a) the Building was not vertically
plumbed xxx; (b) provisions for many architectural members were not provided for, such as, (i) the
recesses for window plant boxes are lacking xxx, (ii) provisions for precast molding are lacking xxx,
(iii) canopies are also lacking x x x; (c) misaligned walls, ugly discrepancies and gaps; (d) skewed
walls to floors/landings; (e) low head clearances and truncated beams x x x; (f) narrow and
disproportionate stairs xxx one (1) instead of two (2) windows at the fire exit x x x, (g) absence of
water-proofing along the basement wall x x x and at the roof deck which caused leaks that damages
the mezzanine floor x x x; (h) the use of smaller diagonal steel trusses at the penthouse. x x x There
were others which were shown during the site inspection such as: (1) L-shaped kitchen counters
instead of the required U-shaped counters x x x; (2) failure to provide marble tops for the kitchen
counters; (3) installation of single-tub sinks where the plans called for double-type stainless kitchen
sinks x x x; (4) installation of much smaller windows than those required; (5) misaligned window
easements to wall, (6) floors were damaged by roof leaks, (6) poor floor finish, misaligned tiles,
floors with "kapak" and disproportionate drawers and cabinets. A more comprehensive list of
alleged defects, deviations and complaints of the Quiambaos is found in a report marked Exhibit C-
144. Many of these defects were seen during the site inspection and the only defense and
comment of CGI was that these were punch-list items which could have been corrected prior
to completion and turn-over of the Building had the Contract not been terminated by the
Claimants (respondents here). x x x Thus, x x x (petitioner) CGI argued that: "In any construction
work, before a contractor turns-over the project to the owner, punchlisting of defects is done so as to
ensure compliance and satisfaction of both the contractor and the owner. Punch listing means that the
contractor will list all major and minor defects and rectifies them before the turnover of the project to
the owner. After all defects had been arranged, the project is now turned over to the owner. For this
particular project, no turn over was made by the contractor to the owner yet. Actually, we were
already pinpointing these defects for punch listing before we were terminated illegally. As alleged by
the owner, the deficiencies mentioned are stubouts of water closets at toilets, roofing and framing,
doors, cabinets, ceiling and stairs and other were not yet completed and rectified by us. In fact we were
counting on our project engineer in charge x x x to do this in as much as this is one of his duties to do
for the company. x x x" Confirmatory of this assertion of CGI that it was willing to undertake the
appropriate corrective works (whether or not the items are punch-list items) is Exhibit C-88 which
is a letter prepared by CGI’s Windell F. Vizconde, checked by CGI’s Gary M. Garcia and noted by CGI’s
Benjie Lipardo, addressed to the Quiambaos which stated that:
"As per our discussion during the last meeting dated Sept. 28, 1998 the following items was (sic)
confirmed and clarified. These are described as follows:
"1. All ceiling cornices shall be installed as per plan specification which is 1" x 4" in size.
"2. All baseboards shall be installed as per plan specification which is wood 1" x 4" in size.
"3. Electrical Meter center and main panel breaker should be retained to its present location.
"4. Elevation of office, dining and stair lobby of ground floor shall be 4" higher than the elevation of
parking area (subject for verification).
"5. All door jambs at C.R. has (sic) to be replaced with concrete framing jambs.
"6. All ceilings mailers should be 2 x 2 in size.
"7. All plywood ceiling that was damaged by rain water shall be replaced.
"8. Provide a pipe chase for the enclosure of soil stack pipe and water line pipe at the ground floor level
between grid line 3-4 along the light well area.
"9. Front side elevation view shall be follow (sic) as per plan specialy (sic) at 4 th flr.
"10. One column at basement floor along grid line 2# B has to be verified by the structural designer if
ever it is safe to removed (sic) the column and what will be their (sic) recommendation to support the
load.
"11. Existing doors D-2 and D-3 shall be replaced a (sic) new one."
While Mrs. Quiambao appeared not to have given her conformity, this document from CGI is an
admission by CGI of the deficiencies in the construction of the Building which needed to be
corrected.
It appears that concrete samples taken from the basement, ground floor, mezzanine and
2nd floor of the Building were subjected to a concrete core test by Geotesting International,
Inc., geotechnical and materials testing engineers. A report dated January 20, 1999 x x x showed
x x x that (5) samples x x x failed the test. Sample S2 while it showed a comprehensive strength of
3147 psi, the corrective strength in psi was below the specified comprehensive strength of 3000 psi.
CGI failed to produce evidence of similar tests during the construction of the Building although it is
normal construction practice for the contractor to provide samples for concrete core tests.
Deformed reinforcing steel bar specimens from the building were subjected to physical
tests. These tests were conducted at the Materials Testing Laboratory of the Department of Civil
Engineering, College of Engineering, University of the Philippines. x x x There were 18 samples and x
x x 8 failed the test although all of them passed the cold bend test. x x x CGI submitted Quality Test
Certificates issued by Steel Asia certifying to the mechanical test results and chemical composition
of the steel materials tested x x x. However, the samples were provided by the manufacturer, not by
CGI, to Steel Asia, and there is no showing that the materials supplied by the manufacturer to CGI for
the Building formed part of the steel materials, part of which was tested.
xxx
Regarding the additional columns at the basement and at the first floor to the roof deck of the
Building, which effectively restricted the use of the basement as a parking area, and likewise
reduced the area which could be used by the Quiambaos in the different floors of the
Building, Engr. Roberto J. David admitted that these represented a design change which was
made and implemented by CGI without the conformnity of the Claimants. The Contract
specifically provided in Article II that "the CONTRACTOR shall submit to the OWNER all designs for
the OWNER’S approval." This implies necessarily that all changes in the approved design shall
likewise be submitted to the OWNER for approval. This change, in my view, is the single most
serious breach of the Contract committed by CGI which justified the decision of the Claimants
to terminate the Contract. x x x (T)here is no evidence to show that the Quiambaos approved the
revision of the structural plans to provide for the construction of the additional columns. x x x
x x x Engr. Villasenor defended his structural design as adequate. He admitted that the revision of
the plans which resulted in the construction of additional columns was in pursuance of the
request of Engr. David to revise the structural plans to provide for a significant reduction of
the cost of construction. When Engr. David was asked for the justification for the revision for
the plans, he confirmed that he wanted to reduce the cost of construction. In any case,
 whether the cause of revision of the plans was the under-design of the foundation or for
reasons of economy, it is CGI which is at fault. CGI prepared the structural plans and quoted
the price for constructing the Building. The Quiambaos accepted both the plans and the price.
If CGI made a mistake in designing the foundation or in estimating the cost of construction, it
was at fault. It cannot correct that mistake by revising the plans and implementing the
revisions without informing the Quiambaos and obtaining their unequivocal approval of
such changes.
In addition, CGI admitted that no relocation survey was made by it prior to the construction of the
Building. Consequently, a one-meter portion of the Building was constructed beyond the property
line. In justification, Engr. Barba V. Santos declared that CGI made the layout of the proposed
structure based on the existing fence. x x x (I)t is understood that a contractor, in constructing a
building, must first conduct a relocation survey before construction precisely to avoid the situation
which developed here, that the Building was not properly constructed within the owner’s property
line. x x x This resulted in the under-utilization of the property, small as it is, and the exposure of the
Quiambaos to substantial damages to the owner of the adjoining property encroached upon.
A third major contested issue concerned the construction of the cistern. x x x A cistern is an
underground tank used to collect water for drinking purposes. The contentious points
regarding the construction of the cistern are: first, that the cistern was designed to accumulate
up to 10,000 gallons of water; as constructed, its capacity was less than the design capacity.
Second, there is no internal partition separating the cistern from the sump pit. x x x
Considering that the cistern is a receptacle for the collection of drinking water, it is
incomprehensible why the Respondents (herein petitioners), in the design and construction
of the cistern, has (sic) not taken the necessary measures to make certain that the water in
the cistern will be free from contamination. x x x
Thus, granting the arguments of the Respondents (herein petitioners) that the observed defects in
the Building could be corrected before turn-over and acceptance of the Building if CGI had been
allowed to complete its construction, the construction of additional columns, the construction of
the Building such that part of it is outside the property line established a sufficient legal and
factual basis for the decision of the Quiambaos to terminate the Contract. The fact that five
(5) of nine (9) the (sic) concrete samples subjected to a core test, and eight (8) of eighteen
(18) deformed reinforcing steel bar specifics subjected to physical tests failed the tests and
the under-design of the cistern was established after the Contract was terminated also
served to confirm the justified suspicion of the Quiambaos that the Building was defective or
was not constructed according to approved plans and specifications.10 (emphases supplied)
These are technical findings of fact made by expert witnesses and affirmed by the arbitrator. They were also
affirmed by the Court of Appeals. We find no reason to revise them.
The second assigned error likewise involves a question of fact. It is contended that petitioner-spouses
David cannot be held jointly and severally liable with petitioner CGI in the payment of the arbitral award as
they are merely its corporate officers.
At first glance, the issue may appear to be a question of law as it would call for application of the law on the
separate liability of a corporation. However, the law can be applied only after establishing a factual basis, i.e.,
whether petitioner-spouses as corporate officers were grossly negligent in ordering the revisions on the
construction plan without the knowledge and consent of the respondent-spouses. On this issue, the Court of
Appeals again affirmed the factual findings of the arbitrator, thus:
As a general rule, the officers of a corporation are not personally liable for their official acts unless it
is shown that they have exceeded their authority. However, the personal liability of a corporate
director, trustee or officer, along with corporation, may so validly attach when he assents to
a patently unlawful act of the corporation or for bad faith or gross negligence in directing its
affairs.
The following findings of public respondent (CIAC) would support its ruling in holding petitioners
severally and jointly liable with the Corporation:
" x x x When asked whether the Building was underdesigned considering the poor quality
of the soil, Engr. Villasenor defended his structural design as adequate. He admitted
that the revision of the plans which resulted in the construction of additional
columns was in pursuance of the request of Engr. David to revise the structural
plans to provide for a significant reduction of the cost of construction. When Engr.
David was asked for the justification for the revision of the plans, he confirmed that
he wanted to reduce the cost of construction. x x x" (emphases supplied)11
Clearly, the case at bar does not raise any genuine issue of law. We reiterate the rule that factual findings of
construction arbitrators are final and conclusive and not reviewable by this Court on appeal, except when the
petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or other undue means;
(2) there was evident partiality or corruption of the arbitrators or of any of them; (3) the arbitrators were
guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear
evidence pertinent and material to the controversy; (4) one or more of the arbitrators were disqualified to act
as such under section nine of Republic Act No. 876 and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which the rights of any party have been materially prejudiced;
or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite
award upon the subject matter submitted to them was not made. 12 Petitioners failed to show that any of
these exceptions applies to the case at bar.
Finally, it bears to remind petitioners of this Court’s ruling in the 1993 case of Hi-Precision Steel Center, Inc.
vs. Lim Kim Steel Builders, Inc.13 which emphasized the rationale for limiting appeal to legal questions in
construction cases resolved through arbitration, thus:
x x x Consideration of the animating purpose of voluntary arbitration in general, and arbitration
under the aegis of the CIAC in particular, requires us to apply rigorously the above principle
embodied in Section 19 that the Arbitral Tribunal’s findings of fact shall be final and
inappealable (sic).
Voluntary arbitration involves the reference of a dispute to an impartial body, the members of
which are chosen by the parties themselves, which parties freely consent in advance to abide by the
 arbitral award issued after proceedings where both parties had the opportunity to be heard. The
basic objective is to provide a speedy and inexpensive method of settling disputes by
allowing the parties to avoid the formalities, delay, expense and aggravation which
commonly accompany ordinary litigation, especially litigation which goes through the entire
hierarchy of courts. Executive Order No. 1008 created an arbitration facility to which the
construction industry in the Philippines can have recourse. The Executive Order was enacted to
encourage the early and expeditious settlement of disputes in the construction industry, a public
policy the implementation of which is necessary and important for the realization of the national
development goals.

Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in
other area for that matter, the Court will not assist one or the other or even both parties in any
effort to subvert or defeat that objective for their private purposes. The Court will not review the
factual findings of an arbitral tribunal upon the artful allegation that such body had
"misapprehended facts" and will not pass upon issues which are, at bottom, issues of fact, no matter
how cleverly disguised they might be as "legal questions." The parties here had recourse to
arbitration and chose the arbitrators themselves; they must have had confidence in such
arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues of
facts previously presented and argued before the Arbitral Tribunal, save only where a clear
showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an
error so egregious and hurtful to one party as to constitute a grave abuse of discretion
resulting in lack or loss of jurisdiction. Prototypical examples would be factual conclusions of the
Tribunal which resulted in deprivation of one or the other party of a fair opportunity to present its
position before the Arbitral Tribunal, and an award obtained through fraud or the corruption of
arbitrators. Any other more relaxed rule would result in setting at naught the basic objective of a
voluntary arbitration and would reduce arbitration to a largely inutile institution. (emphases
supplied)

IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. Costs against petitioners.

SO ORDERED.
G.R. No. 113907      April 20, 2001
MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD
VS RAMOS
GONZAGA-REYES, J.:
Before us is petitioners' motion for partial reconsideration of our decision dated February 28, 2000, 1 the
dispositive portion of which reads:2
"WHEREFORE, the petition is GRANTED; the decision of the National Labor Relations Commission in
Case No. NCR-00-09-04199-89 is REVERSED and SET ASIDE; and the respondent company is hereby
ordered to immediately reinstate the petitioners to their respective positions. Should reinstatement
be not feasible, month salary for every year of service. Since petitioners least 30 days prior to their
termination, following the recent ruling in the case of Ruben Serrano vs. National Labor Relations
Commission and Isetann Department Store, the respondent company is hereby ordered to pay full
backwages to petitioner-employees while the Federation is also ordered to pay full backwages to
petitioner-union officers who were dismissed upon its instigation. Since the dismissal of petitioners
was without cause, backwages shall be computed from the time the herein petitioner employees
and union officers were dismissed until their actual reinstatement. Should reinstatement be not
feasible, their backwages shall be computed from the time petitioners were terminated until the
finality of this decision. Costs against the respondent company.1âwphi1.nêt
SO ORDERED."
Petitioners allege that this Court committed patent and palpable error in holding the "the respondent company
officials cannot be held personally liable for damages on account of employees' dismissal because the
employer corporation has a personality separate and distinct from its officers who merely acted as its agents"
whereas the records clearly established that respondent company officers Saul Tawil, Carlos T. Javelosa and
Renato C. Puangco have caused the hasty, arbitrary and unlawful dismissal of petitioners from work; that as
top officials of the respondent company who handed down the decision dismissing the petitioners, they are
responsible for acts of unfair labor practice; that these respondent corporate officers should not be considered
as mere agents of the company but the wrongdoers. Petitioners further contend that while the case was
pending before the public respondents, the respondent company, in the early part of February 1990, began
removing its machineries and equipment from its plant located at Merville Park, Paranaque and began
diverting jobs intended for the regular employees to its sub-contractor/satellite branches; 3 that the
respondent company officials are also the officers and incorporators of these satellite companies as shown in
their articles of incorporation and the general information sheet. They added that during their ocular
inspection of the plant site of the respondent company, they found that the same is being used by other
unnamed business entities also engaged in the manufacture of garments. Petitioners further claim that the
respondent company no longer operates its plant site as M. Greenfield thus it will be very difficult for them to
fully enforce and implement the court's decision. In their subsequent motion filed on the same day, petitioners
also pray for the (A) inclusion of the names of employees listed in Annex "D" of the petition which they
inadvertently omitted in the caption of the case, to wit: (1) Amores, Imelda (2) Andres, Josefina (3) Aragon,
Felicidad (4) Arias, Genevive (5) Arroyo, Salvacion (6) Arceo, Elizabeth (7) Anonuevo, Monica (8) Abellada,
Josefina (9) Advincula, Harmelina (10) Ajayo, Rosario (11) Alilay, Marilyn (12) Almario, Anliza (13) Almario,
Angelita (14) Almazan, Marilou (15) Almonte, Rosalina (16) Alvaran, Marites (17) Alvarez, Edna (18) Ampo,
Anacorita (19) Aquino, Leonisa (20) Bactat, Celia (21) Carpio, Azucena G. (22) Cruz, Amelia (23) Glifonia,
Eugenia (24) Escurel, Evelyn F. (25) Hilario, Bonifacio G. (26) Payuan, Adoracion (27) Perez, Mercedita (28)
Rempis, Zenaida (29) Rosario, Margie del (30) Salvador, Norma (31) Sambayanan, Olivia (32) Tiaga, Aida (33)
Torbela, Maria (34) Trono, Nenevina (35) Varona, Asuncion (36) Vasquez, Elisa M. (37) Villanueva, Milagros
(38) Villapondo, Eva C. (39) Villon, Adeliza T.; (B) correction of their own typographical errors of the names of
employees appearing in the caption, which should be as follows: Manuela Avelin, Belen Barquio, Lita Buquid,
Violeta C. Ciervo, Marilou Dejocos, Maximina Faustino, Primitiva Gomez, Myrna Palaca, Mercedita Perez,
Rebecca Poceran, Amorlita Rotairo, Emma Saludario, Tita Senis, Salvacion Wilson, 4 Anita Ahillon, Gregoria
Arguelles, Tessie Balbis, Betty Borja, Rodrigo Buella, Celsa Doropan, Maria Enicame, Josephine Lasco, Julita
Maniba, Juanita Osuyos, Juana Overencio, Azucena Postigo, Cristina Rapinan, Roselyn Rivero, Edeltrudes
Romero, Rodelia Royandoyon, Fausta Segundo, Teodora Sulit, Elena Tebis, Paulina Valdez, 5 Susan Abogona,
Diana Adovas, Carmen Rosimo Basco, Macaria Barrion, Maria Fe Berezo, Matilde de Blas, Rufina Bugnot,
Aurora Bravo, Jovita Cera, Precila Carta, Amalia Eugenio, Milagros Fonseca, Jose Irlanda, Rowena Jarabejo,
Regina Lapidario, Josie Marcos, Shirley Melegrito, Noemi Menguillo, Teresita Nierves, Ricardo Paloga, Florenia
Ragos, Leonila Rodil, Emma Saludario, Narcisa Songuad, Josie Sumarsar, Evangeline Tayco; 6 {C) inclusion of
other employees similarly situated whose names were not included in Annex "D" or in the caption of the case,
to wit: (1) Dionisa Aban, (2) Alicia Aragon, (3) Vicky Francia, (4) Nelita F. Gelongos, (5) Erlinda San Juan, (6)
Erlinda Baby Patungan Manalo, (7) Jenette Patungan,7 (8) Blandina Simbahan,8 (9) Asuncion Varona,9 (10)
Josefina Andres, (11) Teresita Arales, (12) Alice Artikulo, (13) Esther Cometa, (14) Eliza Cabiting, (15) Erlinda
Dalut, (16) Edna Fernandez, (17) Emily Inocencio, (18) Esperanza Jalocon, (19) Imelda Jarabe, (20) Mercedes
Pabadora, (21) Venerado Pastoral, (22) Cristina Perlas, (23) Margie del Rosario. 10
In their Comment, the Solicitor General interposes no objection to petitioners' prayer for the inclusion of
omitted and similarly situated employees and the correction of employees' names in the caption of the case.
On the other hand, private respondent company officials Carlos Javelosa arid Remedios Caoleng, in their
Comment, state that considering that petitioners admitted having knowledge of the fact that private
respondent officers are also holding key positions in the alleged satellite companies, they should have
presented the pertinent evidence with the public respondents; thus it is too late for petitioners to require this
Court to admit and evaluate evidence not presented during the trial; that the supposed proof of satellite
companies hardly constitute newly discovered evidence. Respondent officials interpose no objection to the
inclusion of employees inadvertently excluded in the caption of the case but object to the inclusion of
employees who were allegedly similarly situated for the reason that these employees had not been parties to
the case, hence should not be granted any relief from the court. Respondent company failed to file its
comment.11
Petitioners' contention that respondent company officials should be made personally liable for damages on
account of petitioners' dismissal is not impressed with merit. A corporation is a juridical entity with legal
personality separate and distinct from those acting for and in its behalf and, in general from the people
comprising it.12 The rule is that obligations incurred by the corporation, acting through its directors, officers
and employees are its sole liabilities.13 True, solidary liabilities may at times be incurred but only when
exceptional circumstances warrant such as, generally, in the following cases: 14
1. When directors and trustees or, in appropriate cases, the officers of a corporation
 (a) Vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or
members, and other persons. 15
(2) When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto.16
(3) When a director, trustee or officer as contractually agreed or stipulated to hold himself
personally and solidarily liable with the Corporation. 17
(4) When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.18
In labor cases, particularly, the Court has held corporate directors and officers solidarily liable with the
corporation for the termination of employment of corporate employees done with malice or in bad faith. 19 Bad
faith or negligence is a question of fact and is evidentiary. 20 It has been held that bad faith does not connote bad
judgement or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of
wrong; it means breach of known duty thru some motive or interest or ill will; it partakes of the nature of
fraud.21
In the instant case, there is nothing substantial on record to show that respondent officers acted in patent bad
faith or were guilty of gross negligence in terminating the services of petitioners so as to warrant personal
liability. As held in Sunio vs. NLRC,22
"We now come to the personal liability of petitioner, Sunio, who was made jointly and severally
responsible with petitioner company and CIPI for the payment of the backwages of private
respondents. This is reversible error. The Assistant Regional Director's Decision failed to disclose
the reason why he was made personally liable. Respondents, however, alleged as grounds thereof,
his being the owner of one half (1/2) interest of said corporation, and his alleged arbitrary dismissal
of private respondents.
personality. Petitioner Sunio, therefore, should nor have been made personally answerable for the
payment of private respondents ' back salaries."
Petitioners' claim that the jobs intended for the respondent company's regular employees were diverted, to its
satellite companies where the respondent company officers are holding key positions is not substantiated and
was raised for the first time in this motion for reconsideration. Even assuming that the respondent company
officials are also officers and incorporators of the satellite companies, such circumstance does not in itself
amount to fraud. The documents attached to petitioners' motion for reconsideration show that these satellite
companies23 were established prior to the filing of petitioners' complaint against private respondents with the
Department of Labor and Employment on September 6, 1989 and that these corporations have different sets of
incorporators aside from the respondent officers and are holding their principal offices at different locations.
Substantial identity of incorporators between respondent company and these satellite companies does not
necessarily imply fraud.24 In such a case, respondent company's corporate personality remains inviolable. 25
Although there were earlier decisions of this Court in labor cases where corporate officers were held to be
personally liable for the payment of wages and other money claims to its employees, we find those rulings
inapplicable to this case. In La Campana Coffee Factory, Inc. vs. Kaisahan ng Manggagawa sa La Campana
(KKM},26 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 vs. Court of Industrial Relations,27 , the Claparol 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 pant
were transferred to the new corporation.
Notably, in the above-mentioned cases, a new corporation was created, owned by the same family, engaged in
the same business and operating in the same compound, a situation which is not obtaining in the instant case.
In AC Ransom Labor Union-CCLU vs. NLRC,28 the Court ruled that under the Minimum Wage Law, the
responsible officer of an employer corporation can be held personally liable for non-payment of backwages for
"if the policy of the law were otherwise, the corporation employer would have devious ways for evading of
back wages." This Court said:

"In the instant case, it would appear that RANSOM; in 1969, foreseeing the possibility or probability
Petitioner Sunio was impleaded in the Complaint in his capacity as several Manager of petitioner
of payment of backwages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter
corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in
to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations on
terminating the services of private respondents. His act, therefore, was within the scope of his
May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was
authority and was a corporate act.
promulgated against RANSOM."

It is basic that a corporation is invested by law with a personality separate and distinct from those
Clearly, the situation in AC Ransom does not obtain in this case, where the alleged satellite companies were
of the persons composing it as well as from that of any other legal entity to which it may be related.
established even prior to the filing of petitioners' complaint with the Department of Labor.
Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
Petitioners' prayer for the inclusion of employees listed in Annex "D" whose names were admittedly
inadvertently excluded in the caption of the case and for the correction of typographical errors of the
employees' names appearing in the caption, is well taken and is hereby granted. However, petitioners' prayer
for the inclusion of other employees allegedly similarly situated but whose names were not included either in
Annex "D" or in the caption of the case must be denied. A judgment cannot bind persons who are not parties to
the action.29 It is elementary that strangers to a case are not bound by the judgment rendered by the court and
such judgment is not available as an adjudication either against or in favor of such other person. 30 Petitioners
failed to explain why these employees allegedly similarly situated were not included in the submitted list filed
before us. Such inclusion would be tantamount to a substantial amendment which cannot be allowed at this
late stage of the proceedings as it will definitely work to the prejudice and disadvantage of the private
respondents.31

WHEREFORE, petitioners' motion for reconsideration is partially granted so as to include the names of
employees listed in Annex "D" which petitioners inadvertently omitted in the caption of this case, to wit: (1)
Amores, Imelda (2) Andres, Josefina (3)Aragon, Felicidad (4) Arias, Genevive (5) Arroyo, Salvacion (6) Arceo,
Elizabeth (7) Anonuevo, Monica (8) Abellada, Josefina (9) Advincula, Harmelina (10) Ajayo, Rosario (11)
Alilay, Marilyn (12) Almario, An1iza (13) A1mario, Angelita (14) Almazan, Marilou (15) Almonte, Rosalina
(16) Alvaran, Marites (17) Alvarez, Edna (18) Ampo, Anacorita (19) Aquino , Leonisa (20) Bactat, Celia (21)
Carpio, Azucena G. (22) Cruz, Amelia (23) Glifonia, Eugenia (24) Escurel, Evelyn F. (25) Hilario, Bonifacio G.
(26) Payuan, Adoracion (27) Perez, Mercedita (28) Rempis, Zenaida (29) Rosario, Margie del (30) Salvador,
Norma (31) Sambayanan, Olivia (32) Tiaga, Aida (33) Torbela, Maria (34) Trono, Nenevina (35) Varona,
Asuncion (36) Vasquez, Elisa M. (37) Villanueva, Milagros (38) Villapondo, Eva C. (39) Villon, Adeliza T.; and to
correct the typographical errors of the names of employees appearing in the caption, as follows: Manuela
Avelin, Belen Barquio, Lita Buquid, Violeta C. Ciervo, Marilou Dejocos, Maximina Faustino, Primitiva Gomez,
Myrna Palaca, Mercedita Perez, Rebecca Poceran, Amorlita Rotairo, Emma Saludario, Tita Senis, Salvacion
Wilson, Anita Ahillon, Gregoria Arguelles, Tessie Balbis, Betty Borja, Rodrigo Buella, Celsa Doropan, Maria
Enicame, Josephine Lasco, Julita Maniba, Juanita Osuyos, Juana Overencio, Azucena Postigo, Cristina Rapinan,
Roselyn Rivero, Edeltrudes Romero, Rodelia Royandoyon, Fausta Segundo, Teodora Sulit, Elena Tebis, Paulina
Valdez, Susan Abogona, Diana Adovas, Carmen Rosimo Basco, Macaria Barrion, Maria Fe Berezo, Matilde de
Blas, Rufina Bugnot, Aurora Bravo, Jovita Cera, Precila Carta, Amalia Eugenio, Milagros Fonseca, Jose Irlanda,
Rowena Jarabejo, Regina Lapidario, Josie Marcos, Shirley Melegrito, Noemi Menguillo, Teresita Nierves,
Ricardo Paloga, Florenia Ragos, Leonila Rodil, Emma Saludario, Narcisa Songuad, Josie Sumarsar, Evangeline
Tayco.

SO ORDERED.

Melo, Sandoval-Gutierrez, JJ., concur.

 particularly, in the Manila Chronicle dated August 16, 1969 (Exhibits R and R-1) and was
even congratulated by his business associates, so much so, he was asked by some of his
businessmen friends and close associates if they can be his
G.R. No. L-68555 March 19, 1993
sub-dealer in the Mindanao area.

PRIME WHITE CEMENT CORPORATION, petitioner,

vs.
HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, respondents.
Before Us is a Petition for Review on Certiorari filed by petitioner Prime White Cement Corporation seeking
the reversal of the decision * of the then Intermediate Appellate Court, the dispositive portion of which reads
as follows:
WHEREFORE, in view of the foregoing, the judgment appealed from is hereby affirmed in
toto.1
The facts, as found by the trial court and as adopted by the respondent Court are hereby quoted, to wit:
Relying heavily on the dealership agreement, plaintiff sometime in the months of
September, October, and December, 1969, entered into a written agreement with several
hardware stores dealing in buying and selling white cement in the Cities of Davao and
Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular
supply of the said commodity, by September, 1970 (Exhibits O, O-1, O-2, P, P-1, P-2, Q, Q-1
and Q-2). After the plaintiff was assured by his supposed buyer that his allocation of
20,000 bags of white cement can be disposed of, he informed the defendant corporation
in his letter dated August 18, 1970 that he is making the necessary preparation for the
opening of the requisite letter of credit to cover the price of the due initial delivery for the
month of September, 1970 (Exhibit B), looking forward to the defendant corporation's
duty to comply with the dealership agreement. In reply to the aforesaid letter of the
plaintiff, the defendant corporation thru its corporate secretary, replied that the board of
directors of the said defendant decided to impose the following conditions:

On or about the 16th day of July, 1969, plaintiff and defendant corporation thru its a. Delivery of white cement shall commence at the end of November,
President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a 1970;
dealership agreement (Exhibit A) whereby said plaintiff was obligated to act as the
exclusive dealer and/or distributor of the said defendant corporation of its cement
b. Only 8,000 bags of white cement per month for only a period of
products in the entire Mindanao area for a term of five (5) years and proving (sic) among
three (3) months will be delivered;
others that:

c. The price of white cement was priced at P13.30 per bag;

a. The corporation shall, commencing September, 1970, sell to and
supply the plaintiff, as dealer with 20,000 bags (94 lbs/bag) of white
cement per month; d. The price of white cement is subject to readjustment unilaterally
on the part of the defendant;
b. The plaintiff shall pay the defendant corporation P9.70, Philippine
Currency, per bag of white cement, FOB Davao and Cagayan de Oro e. The place of delivery of white cement shall be Austurias (sic);
ports;
f. The letter of credit may be opened only with the Prudential Bank,
c. The plaintiff shall, every time the defendant corporation is ready Makati Branch;
to deliver the good, open with any bank or banking institution a
confirmed, unconditional, and irrevocable letter of credit in favor of
g. Payment of white cement shall be made in advance and which
the corporation and that upon certification by the boat captain on
payment shall be used by the defendant as guaranty in the opening
the bill of lading that the goods have been loaded on board the
of a foreign letter of credit to cover costs and expenses in the
vessel bound for Davao the said bank or banking institution shall
procurement of materials in the manufacture of white cement.
release the corresponding amount as payment of the goods so
(Exhibit C).
shipped.

xxx xxx xxx

Right after the plaintiff entered into the aforesaid dealership agreement, he placed an
advertisement in a national, circulating newspaper the fact of his being the exclusive
dealer of the defendant corporation's white cement products in Mindanao area, more
 Several demands to comply with the dealership agreement (Exhibits D, E, G, I, R, L, and N)
were made by the plaintiff to the defendant, however, defendant refused to comply with
the same, and plaintiff by force of circumstances was constrained to cancel his agreement
for the supply of white cement with third parties, which were concluded in anticipation
of, and pursuant to the said dealership agreement.
Notwithstanding that the dealership agreement between the plaintiff and defendant was
in force and subsisting, the defendant corporation, in violation of, and with evident
intention not to be bound by the terms and conditions thereof, entered into an exclusive
dealership agreement with a certain Napoleon Co for the marketing of white cement in
Mindanao (Exhibit T) hence, this suit. (Plaintiff's Record on Appeal, pp. 86-90). 2
After trial, the trial court adjudged the corporation liable to Alejandro Te in the amount of P3,302,400.00 as
actual damages, P100,000.00 as moral damages, and P10,000.00 as and for attorney's fees and costs. The
appellate court affirmed the said decision mainly on the following basis, and We quote:
There is no dispute that when Zosimo R. Falcon and Justo B. Trazo signed the dealership
agreement Exhibit "A", they were the President and Chairman of the Board, respectively,
of defendant-appellant corporation. Neither is the genuineness of the said agreement
contested. As a matter of fact, it appears on the face of the contract itself that both officers
were duly authorized to enter into the said agreement and signed the same for and in
behalf of the corporation. When they, therefore, entered into the said transaction they
created the impression that they were duly clothed with the authority to do so. It cannot
now be said that the disputed agreement which possesses all the essential requisites of a
valid contract was never intended to bind the corporation as this avoidance is barred by
the principle of estoppel.3
In this petition for review, petitioner Prime White Cement Corporation made the following assignment of
errors. 4
I
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE
UNPRECEDENTED DEPARTURES FROM THE CODIFIED PRINCIPLE THAT CORPORATE
OFFICERS COULD ENTER INTO CONTRACTS IN BEHALF OF THE CORPORATION ONLY
WITH PRIOR APPROVAL OF THE BOARD OF DIRECTORS.
II
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE
CONTRARY TO THE ESTABLISHED JURISPRUDENCE, PRINCIPLE AND RULE ON
FIDUCIARY DUTY OF DIRECTORS AND OFFICERS OF THE CORPORATION.
III
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT
DISREGARDED THE PRINCIPLE AND JURISPRUDENCE, PRINCIPLE AND RULE ON
UNENFORCEABLE CONTRACTS AS PROVIDED IN ARTICLE 1317 OF THE NEW CIVIL
CODE.
IV
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT
DISREGARDED THE PRINCIPLE AND JURISPRUDENCE AS TO WHEN AWARD OF ACTUAL
AND MORAL DAMAGES IS PROPER.
V
IN NOT AWARDING PETITIONER'S CAUSE OF ACTION AS STATED IN ITS ANSWER WITH
SPECIAL AND AFFIRMATIVE DEFENSES WITH COUNTERCLAIM THE INTERMEDIATE
APPELLATE COURT HAS CLEARLY DEPARTED FROM THE ACCEPTED USUAL, COURSE
OF JUDICIAL PROCEEDINGS.
There is only one legal issue to be resolved by this Court: whether or not the "dealership agreement" referred
by the President and Chairman of the Board of petitioner corporation is a valid and enforceable contract. We
do not agree with the conclusion of the respondent Court that it is.
Under the Corporation Law, which was then in force at the time this case arose, 5 as well as under the present
Corporation Code, all corporate powers shall be exercised by the Board of Directors, except as otherwise
provided by law.6 Although it cannot completely abdicate its power and responsibility to act for the juridical
entity, the Board may expressly delegate specific powers to its President or any of its officers. In the absence of
such express delegation, a contract entered into by its President, on behalf of the corporation, may still bind
the corporation if the board should ratify the same expressly or impliedly. Implied ratification may take
various forms — like silence or acquiescence; by acts showing approval or adoption of the contract; or by
acceptance and retention of benefits flowing therefrom. 7 Furthermore, even in the absence of express or
implied authority by ratification, the President as such may, as a general rule, bind the corporation by a
contract in the ordinary course of business, provided the same is reasonable under the circumstances. 8 These
rules are basic, but are all general and thus quite flexible. They apply where the President or other officer,
purportedly acting for the corporation, is dealing with a third person, i. e., a person outside the corporation.
The situation is quite different where a director or officer is dealing with his own corporation. In the instant
case respondent Te was not an ordinary stockholder; he was a member of the Board of Directors and Auditor
of the corporation as well. He was what is often referred to as a "self-dealing" director.
A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his
corporation.9 In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his
own advantage and benefit. As corporate managers, directors are committed to seek the maximum amount of
profits for the corporation. This trust relationship "is not a matter of statutory or technical law. It springs from
the fact that directors have the control and guidance of corporate affairs and property and hence of the
property interests of the stockholders." 10 In the case of Gokongwei v. Securities and Exchange Commission, this
Court quoted with favor from Pepper v. Litton,11 thus:
. . . He cannot by the intervention of a corporate entity violate the ancient precept against
serving two masters. . . . He cannot utilize his inside information and his strategic position
for his own preferment. He cannot violate rules of fair play by doing indirectly through
the corporation what he could not do directly. He cannot use his power for his personal
advantage and to the detriment of the stockholders and creditors no matter how absolute
in terms that power may be and no matter how meticulous he is to satisfy technical
requirements. For that power is at all times subject to the equitable limitation that it may
not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the
exclusion or detriment of the cestuis. . . . .
On the other hand, a director's contract with his corporation is not in all instances void or voidable. If the
contract is fair and reasonable under the circumstances, it may be ratified by the stockholders provided a full
disclosure of his adverse interest is made. Section 32 of the Corporation Code provides, thus:
Sec. 32. Dealings of directors, trustees or officers with the corporation. — A contract of
the corporation with one or more of its directors or trustees or officers is voidable, at the
option of such corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in which the
contract was approved was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the
contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in the case of an officer, the contract with the officer has been previously
authorized by the Board of Directors.
Where any of the first two conditions set forth in the preceding paragraph is absent, in
the case of a contract with a director or trustee, such contract may be ratified by the vote
of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock
or of two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That
full disclosure of the adverse interest of the directors or trustees involved is made at such
meeting: Provided, however, That the contract is fair and reasonable under the
circumstances.
Although the old Corporation Law which governs the instant case did not contain a similar provision, yet the
cited provision substantially incorporates well-settled principles in corporate law. 12
Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if entered
into with a person other than a director or officer of the corporation, the fact that the other party to the
contract was a Director and Auditor of the petitioner corporation changes the whole situation. First of all, We
believe that the contract was neither fair nor reasonable. The "dealership agreement" entered into in July,
1969, was to sell and supply to respondent Te 20,000 bags of white cement per month, for five years starting
September, 1970, at the fixed price of P9.70 per bag. Respondent Te is a businessman himself and must have
known, or at least must be presumed to know, that at that time, prices of commodities in general, and white
cement in particular, were not stable and were expected to rise. At the time of the contract, petitioner
corporation had not even commenced the manufacture of white cement, the reason why delivery was not to
begin until 14 months later. He must have known that within that period of six years, there would be a
considerable rise in the price of white cement. In fact, respondent Te's own Memorandum shows that in
September, 1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag.
Despite this, no provision was made in the "dealership agreement" to allow for an increase in price mutually
acceptable to the parties. Instead, the price was pegged at P9.70 per bag for the whole five years of the
contract. Fairness on his part as a director of the corporation from whom he was to buy the cement, would
require such a provision. In fact, this unfairness in the contract is also a basis which renders a contract entered
into by the President, without authority from the Board of Directors, void or voidable, although it may have
been in the ordinary course of business. We believe that the fixed price of P9.70 per bag for a period of five
years was not fair and reasonable. Respondent Te, himself, when he subsequently entered into contracts to
resell the cement to his "new dealers" Henry Wee 13 and Gaudencio Galang 14 stipulated as follows:
The price of white cement shall be mutually determined by us but in no case shall the
same be less than P14.00 per bag (94 lbs).
The contract with Henry Wee was on September 15, 1969, and that with Gaudencio Galang, on October 13,
1967. A similar contract with Prudencio Lim was made on December 29, 1969. 15 All of these contracts were
entered into soon after his "dealership agreement" with petitioner corporation, and in each one of them he
protected himself from any increase in the market price of white cement. Yet, except for the contract with
Henry Wee, the contracts were for only two years from October, 1970. Why did he not protect the corporation
in the same manner when he entered into the "dealership agreement"? For that matter, why did the President
and the Chairman of the Board not do so either? As director, specially since he was the other party in interest,
respondent Te's bounden duty was to act in such manner as not to unduly prejudice the corporation. In the
light of the circumstances of this case, it is to Us quite clear that he was guilty of disloyalty to the corporation;
he was attempting in effect, to enrich himself at the expense of the corporation. There is no showing that the
stockholders ratified the "dealership agreement" or that they were fully aware of its provisions. The contract
was therefore not valid and this Court cannot allow him to reap the fruits of his disloyalty.
As a result of this action which has been proven to be without legal basis, petitioner corporation's reputation
and goodwill have been prejudiced. However, there can be no award for moral damages under Article 2217
and succeeding articles on Section 1 of Chapter 3 of Title XVIII of the Civil Code in favor of a corporation.
In view of the foregoing, the Decision and Resolution of the Intermediate Appellate Court dated March 30,
1984 and August 6, 1984, respectively, are hereby SET ASIDE. Private respondent Alejandro Te is hereby
ordered to pay petitioner corporation the sum of P20,000.00 for attorney's fees, plus the cost of suit and
expenses of litigation.
SO ORDERED.