BOARD OF DIRECTORS/POWER OF THE BOD

15. VALLE VERDE COUNTRY CLUB, INC. V. AFRICA, G.R. NO.151969,

SEPTEMBER 4, 2009.

FACTS:

On February 27, 1996, during the Annual Stockholders’ Meeting of petitioner

Valle Verde Country Club, Inc. (VVCC), the VVCC Board of Directors were elected
including Eduardo Makalintal (Makalintal) among others. However, in the succeeding
years, the requisite quorum for the holding of the stockholders’ meeting could not be
obtained.  Consequently, the elected directors continued to serve in the VVCC Board in a
hold-over capacity.

Later, two of the BOD members (Makalintal and Dinglasan) resigned as member
of the VVCC Board.  They were replaced by Jose Ramirez and Eric Roxas, who were
elected by the remaining members of the VVCC Board.

Respondent Africa (Africa), a member of VVCC, questioned the election of

Ramirez and Roxas as members of the VVCC Board with the SEC and RTC,
respectively.  

In his complaint, Africa claimed that the election of Roxas and Ramirez was
contrary to Sec. 29, in relation to Sec. 23 of the Corporation code. Accordingly, pursuant
to the said provisions of the law, a year after Makalintal and Dinglasan’s election as
member of the VVCC Board in 1996, their term – as well as those of the other members
of the VVCC Board – should be considered to have already expired.  Thus, according
to Africa, the resulting vacancy should have been filled by the stockholders in a regular
or special meeting called for that purpose, and not by the remaining members of the
VVCC Board, as was done in this case.  

Africa additionally contends that for the members to exercise the authority to fill
in vacancies in the board of directors, Section 29 requires, among others, that there
should be an unexpired term during which the successor-member shall serve. Since
Makalintal’s term had already expired with the lapse of the one-year term provided in
Section 23, there is no more "unexpired term" during which Ramirez could serve.

The RTC sustained Africa’s complaint and declared the election of Ramirez, as
Makalintal’s replacement, to the VVCC Board as null and void.

Incidentally, the SEC issued a similar ruling on June 3, 2003, nullifying the
election of Roxas as member of the VVCC Board, vice hold-over director Dinglasan.

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

RULING:

NO. The SC said that the term being referred to under Sec. 23 of the Corporation
Code should mean that the term of the members of the board of directors shall
be only for one year; that their term expires one year after election to the office.  The
holdover period – that time from the lapse of one year from a member’s election to the
Board and until his successor’s election and qualification – is not part of the
director’s original term of office, nor is it a new term; however, the hold over
period constitutes part of his tenure.  

Consequently, when an incumbent member of the board of directors continues to

serve in a holdover capacity, it implies that the office has a fixed term, which has
expired, and the incumbent is holding the succeeding term.

In this case, when remaining members of the VVCC Board elected Ramirez to
replace Makalintal, there was no more unexpired term to speak of, as Makalintal’s one-
year term had already expired.  Pursuant to law, the authority to fill in the vacancy
caused by Makalintal’s rests with the VVCC’s stockholders, not to the remaining
members of its board of directors.

To assume – as VVCC does – that the vacancy is caused by Makalintal’s

resignation in 1998, not by the expiration of his term in 1997, is both illogical and
unreasonable.  His resignation as a holdover director did not change the nature of the
vacancy; the vacancy due to the expiration of Makalintal’s term had been created long
before his resignation.

WHEREFORE, we DENY the petitioners’ petition for review on certiorari, and

AFFIRM the partial decision of the Regional Trial Court.

16. FILIPINAS PORT V. GO (2007)

RATIONALE FOR "CENTRALIZED MANAGEMENT" DOCTRINE

FACTS:

Filport is a domestic corporation engaged in stevedoring services with

principal office located I Davao City. Filport’s president, Eliodoro C. Cruz,
wrote a letter to the corporation’s BOD questioning the creation and election of several
positions not provided for in the bylaws of the corporation with a monthly remuneration
of P13,050.00 each.
Cruz requested the board to take necessary action/actions to recover from those elected
to the positions the salaries they have received. Cruz not satisfied of whatever actions
the board took in representation of Filport and its stockholders, filed with the SEC a
derivative suit against Filport's BOD for acts of mismanagement detrimental to the
interest of the corporation and its shareholders at large.

Cruz prayed that the BOD be made to pay Filport, jointly and severally, the sums of
money variedly representing the damages incurred as a result of the creation of the
offices/positions complained of and the aggregate amount of the questioned increased
salaries.

RTC: BOD have the power to create positions not in the by-laws and can increase
salaries.   In case of insolvency of any or all of them, the members of the board who
created their positions are subsidiarily liable.

Appealed: creation of the positions merely for accommodation purposes - GRANTED

ISSUES: 

Whether the Filport’s Board of Directors acted within its powers in creating the
executive committee and other positions not provided for in the by laws of the
corporation.

HELD:

The governing body of a corporation is its board of directors. Section 23 of the

Corporation Code explicitly provides that unless otherwise provided therein, the
corporate powers of all corporations formed under the Code shall be exercised, all
business conducted, and all property of the corporation shall be controlled and held by a
board of directors. Thus, with the exception only of some powers expressly granted by
law to stockholders (or members, in case of non-stock corporations), the board of
directors (or trustees, in case of non-stock corporations) has the sole authority to
determine policies, enter into contracts, and conduct the ordinary business of the
corporation within the scope of its charter, i.e., its articles of incorporation, by-laws and
relevant provisions of law. Verily, the authority of the board of directors is restricted to
the management of the regular business affairs of the corporation, unless more
extensive power is expressly conferred.

The reason behind the conferment of corporate powers on the board of directors is not
lost on the Court. Indeed, the concentration in the board of the powers of control of
corporate business and of appointment of corporate officers and managers is necessary
for efficiency in any large organization. Stockholders are too numerous, scattered and
unfamiliar with the business of a corporation to conduct its business directly. And so the
plan of corporate organization is for the stockholders to choose the directors who shall
control and supervise the conduct of corporate business.
In the present case, the board’s creation of the positions of Assistant Vice Presidents for
Corporate Planning, Operations, Finance and Administration, and those of the Special
Assistants to the President and the Board Chairman, was in accordance with the regular
business operations of Filport as it is authorized to do so by the corporation’s by-laws,
pursuant to the Corporation Code.

Amended Bylaws of Filport provides the following:

Officers of the corporation, as provided for by the by-laws, shall be elected

by the board of directors at their first meeting after the election of
Directors. xxx
The officers of the corporation shall be a Chairman of the Board, President,
a Vice-President, a Secretary, a Treasurer, a General Manager and such
other officers as the Board of Directors may from time to time provide, and
these officers shall be elected to hold office until their successors are
elected and qualified. (Emphasis supplied.)

Unfortunately, the bylaws of the corporation are silent as to the creation by its board of
directors of an executive committee. Under Section 35 of the Corporation Code, the
creation of an executive committee must be provided for in the bylaws of the
corporation. Notwithstanding the silence of Filport’s bylaws on the matter, the creation
of the executive committee by the board of directors cannot be ruled as illegal or
unlawful. One reason is the absence of a showing as to the true nature and functions of
said executive committee considering that the "executive committee," referred to in
Section 35 of the Corporation Code which is as powerful as the board of directors and in
effect acting for the board itself, should be distinguished from other committees which
are within the competency of the board to create at anytime and whose actions require
ratification and confirmation by the board. Another reason is that, ratiocinated by both
the 2 courts below, the Board of Directors has the power to create positions not provided
for in Filport’s bylaws since the board is the corporation’s governing body, clearly
upholding the power of its board to exercise its prerogatives in managing the business
affairs of the corporation.

As well, it may not be amiss to point out that, as testified to and admitted by petitioner
Cruz himself, it was during his incumbency as Filport president that the executive
committee in question was created, and that he was even the one who moved for the
creation of the positions of the AVPs for Operations, Finance and Administration. By his
acquiescence and/or ratification of the creation of the aforesaid offices, Cruz is virtually
precluded from suing to declare such acts of the board as invalid or illegal. And it makes
no difference that he sues in behalf of himself and of the other stockholders. Indeed, as
his voice was not heard in protest when he was still Filport’s president, raising a hue and
cry only now leads to the inevitable conclusion that he did so out of spite and
resentment for his non-reelection as president of the corporation.
17. AGO REALTY & DEV.CORP. (ARDC) VS. DR. ANGELITA F. AGO, ET. AL.,
G.R. NO. 210906, OCTOBER 16, 2019

Grounded on equity, the derivative suit has proven to be an effective tool for the
protection of minority shareholders. Such actions have for their object the vindication of
a corporate injury, even though they are not brought by the corporation, but by its
stockholders. That said, derivative suits remain an exception. As a general rule,
corporate litigation must be commenced by the corporation itself, with the imprimatur
of the board of directors, which, pursuant to the law, wields the power to sue. Therefore,
since the derivative suit is a remedy of last resort, it must be shown that the board, to
the detriment of the corporation and without a valid business consideration, refuses to
remedy a corporate wrong. A derivative suit may only be instituted after such an
omission. Simply put, derivative suits take a back seat to board-sanctioned litigation
whenever the corporation is willing and able to sue in its own name.

Facts:

Petitioner Ago Realty & Development Corporation (ARDC) is a close corporation. Its

stockholders are petitioner Emmanuel F. Ago (Emmanuel); his wife, petitioner Corazon
C. Ago (Corazon); their children, Emmanuel Victor C. Ago and Arthur Emmanuel C. Ago
(collectively Emmanuel, et al.); and Emmanuel's sister, respondent Angelita F. Ago
(Angelita).

Accordingly, Angelita introduced improvements on the properties

belonging to the ARDC corporation without the proper resolution from the
corporation's Board of Directors.

Consequently, ARDC and Emmanuel, et al. filed a comp1aint before the Legazpi City

Regional Trial Court (RTC). They essentially alleged that Angelita, in connivance with
some local officials of Legazpi City, introduced unauthorized improvements on
corporate property and that she operate a restaurant business thereon.

Angelita admitted to introducing improvements on the subject lots. She narrated that
sometime in the 1960s, Emmanuel and Corazon immigrated to the United States,
leaving the management of ARDC's properties to her. She thus took control of the
corporation's properties and introduced improvements thereon, particularly a semi-
permanent multipurpose structure and a fence designed to protect the lot.

The RTC's Ruling

Dismissed the complaint and hold Emmanuel and Corazon jointly and severally liable
for damages. Finding ARDC to be the real party in interest, the trial court ruled that the
plaintiffs had no cause of action. Since Emmanuel, et al. brought the case without the
proper resolution from the Board of Directors, it was held that they were not authorized
to sue on behalf of the corporation considering that the undisputed properties in
litigation belonged to ARDC, hence, Emmanuel, et al., in their individual
capacities, were not the real parties in interest.

RTC ruled that the suit was held to be baseless, thus entitling the defendants to damages
and attorney's fees. Angelita was awarded moral damages since Emmanuel's claims
caused her embarrassment and tarnished her reputation in Bicol.

The CA's Ruling

CA affirmed the RTC's ruling anent the plaintiffs' lack of cause of action but deleting the
lower court's award of moral damages and attorney's fees. The appellate court held
that the case partook of the nature of a derivative suit. As
such, Emmanuel, et al. needed the imprimatur of ARDC's Board of Directors
to institute the action. While they were able to present a resolution purportedly
authorizing the filing of the case, the CA refused to give credence thereto on the ground
that the same was passed by the corporation's stockholders, and not its Board of
Directors.

The Issues

Whether or not Emmanuel, et al. may sue on behalf of ARDC’s absent a resolution or

any other grant of authority from its Board of Directors sanctioning the institution of the
case.

The Court's Ruling

No, Emmanuel et. al cannot sue on behalf of ARDC’s without a board resolution
authorizing the institution of the case.

While corporations are subjected to the State's broad regulatory powers, it is their
directors and officers who are tasked with addressing questions of internal policy and
management.62The business of a corporation is conducted by its board of
directors, and so long as the board acts in good faith, the State, through the
courts, may not interfere with its management decisions.63 This finds support
in Section 23 of the Corporation Code, which provides that a corporation exercises its
powers, conducts its business, and controls and holds its property through its board of
directors.64

As creatures of the law, corporations only possess those powers that are granted through
statute, either expressly or by way of implication, or those that are incidental to their
existence.65
One of the powers expressly granted by law to corporations is the power to sue. 66 As with
other corporate powers, the power to sue is lodged in the board of directors,
acting as a collegial body.67 Thus, in the absence of any clear authority from the board,
charter, or by-laws,68 no suit may be maintained on behalf of the corporation. A case
instituted by a corporation without authority from its board of directors is subject to
dismissal on the ground of failure to state a cause of action. 69

In certain instances, however, the stockholders may sue on behalf of the

corporation such in the case of a derivative suit where a board resolution
may be dispensed with upon failure to satisfy the requirements set forth
by law.

In this case, Emmauel et, al failed to exhaust the remedies under the corporation code
prior to his filing of a derivative suit before the RTC Legazpi. The fact of being a close
family corporation does not exempt Emmanuel from complying with the clear
requirements and formalities of the rules with the filing a derivative suit.

The apparent remedy available to Emmanuel, et al. was to cause ARDC

itself, through its Board of Directors, to directly institute the case. Because
of their controlling interest in the corporation, Emmanuel, et al. could have prevailed
upon the board to pass a resolution authorizing any of them to file the case and sign the
certification against forum shopping. Emmanuel, et al. should not be allowed to
use a derivative suit to shortcut the law.
WHEREFORE, the September 26, 2013 Decision and January 10, 2014 Resolution
rendered by the Court of Appeals in CA-G.R. CV No. 99771 are AFFIRMED.

CORPORATE OFFICER / LIABILITY OF CORPORATE OFFICER

18. MATLING INDUSTRIAL VS COROS (G.R. NO. 157802 OCTOBER

13, 2010)

Facts: 

Ricardo Coros was the Vice President for Finance and Administration of the Petitioner.
He was dismissed by the petitioner, as such he filed a complaint for illegal dismissal
against Matling before the NLRC in Iligan City.

The petitioners moved to dismiss the complaint, raising the ground, among others, that
the complaint pertained to the jurisdiction of the Securities and Exchange Commission
(SEC) due to the controversy being intracorporate as the respondent was a member of
Matlings Board of Directors aside from being its Vice-President for Finance and
Administration prior to his termination, thus NLRC lacks jurisdiction.
The respondent opposed the petitioners motion to dismiss, insisting that his status as a
member of Matlings Board of Directors was doubtful, considering that he had not been
formally elected as such; that he did not own a single share of stock in Matling,
considering that he had been made to sign in blank an undated indorsement of the
certificate of stock he had been given in 1992; that Matling had taken back and retained
the certificate of stock in its custody; and that even assuming that he had been a
Director of Matling, he had been removed as the Vice President for Finance and
Administration, not as a Director, a fact that the notice of his termination dated April
10, 2000 showed.

On October 16, 2000, the LA granted the petitioners motion to dismiss, ruling that the
respondent was a corporate officer because he was occupying the position of Vice
President for Finance and Administration and at the same time was a Member of the
Board of Directors of Matling; and that, consequently, his removal was a corporate act of
Matling and the controversy resulting from such removal was under the jurisdiction of
the SEC, pursuant to Section 5, paragraph (c) of Presidential Decree No. 902.

NLRC – properly cognizable by LA not by SEC, because he was not a corporate officer by
virtue of his position in Matling, albeit high ranking and managerial, not being among
the positions listed in Matling’s Constitution and By-Laws.

Issue: 

Was the Respondent’s Position of Vice President for Administration and

Finance a Corporate Office?

Held: 

No, the office of Vice President for Finance and Administration created by
Matlings President pursuant to By Law No. V was an ordinary, not a
corporate, office.  

Pursuant to Sec. 25 og the Corporation Code, a position must be expressly

mentioned in the By-Laws in order to be considered as a corporate office. Thus, the
creation of an office pursuant to or under a By-Law enabling provision is not enough to
make a position a corporate office. The SC further held that, the only officers of a
corporation were those given that character either by the Corporation Code or by the By-
Laws; the rest of the corporate officers could be considered only as employees or
subordinate officials.

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever
are the corporate officers enumerated in the by-laws are the exclusive Officers of the
corporation and the Board has no power to create other Offices without amending first
the corporate By-laws. However, the Board may create appointive positions
other than the positions of corporate Officers, but the persons occupying
such positions are not considered as corporate officers within the meaning
of Section 25 of the Corporation Code and are not empowered to exercise the
functions of the corporate Officers, except those functions lawfully delegated to them.
Their functions and duties are to be determined by the Board of Directors/Trustees.

In this case, since the respondent’s position is a mere creation pursuant to the enabling
provision of the By-Law, could not be considered as a corporate officer but as employee
or subordinate officials. Therefore, LA has jurisdiction.

19. LESLIE OKOL VS. SLIMMERS WORLD INTERNATIONAL, ET AL., G.R.

NO. 160146, DECEMBER 11, 2009

The Facts

Respondent (Slimmer’s World) employed petitioner Leslie Okol (Okol) as a

management trainee. She rose up the ranks to become Head Office Manager and then
Director and Vice President until her dismissal.

Prior to Okol's dismissal, Slimmers World preventively suspended Okol. The suspension
arose from the seizure by the Bureau of Customs of seven Precor elliptical machines and
seven Precor treadmills belonging to or consigned to Slimmers World. The shipment of
the equipment was placed under the names of Okol and two customs brokers for a value
less than US$500. For being undervalued, the equipment were seized.

Okol received a memorandum that her suspension had been extended from pending the
outcome of the investigation on the Precor equipment importation.

Okol received another memorandum from Slimmers World requiring her to explain why
no disciplinary action should be taken against her in connection with the equipment
seized by the Bureau of Customs.

Okol filed her written explanation. However, Slimmers World found Okol's explanation
to be unsatisfactory, thus, his employment was terminated.

Okol filed a complaint with the Arbitration branch of the NLRC against Slimmers World
for illegal suspension, illegal dismissal, unpaid commissions, damages and attorney's
fees, with prayer for reinstatement and payment of back wages.

Respondents filed a Motion to Dismiss the case asserting that the NLRC had no
jurisdiction over the subject matter of the complaint.

The labor arbiter granted the motion to dismiss. The labor arbiter ruled that Okol was
the vice-president of Slimmers World at the time of her dismissal. Since it involved a
corporate officer, the dispute was an intra-corporate controversy falling outside the
jurisdiction of the Arbitration branch.

On appeal, the NLRC reversed and set aside the labor arbiter's order reinstating Okol to
her former position with full back wages.
Respondents then filed an appeal with the Court of Appeals.

The Ruling of the Court of Appeals

affirmed the labor arbiter's Order stating that the case, being an intra-corporate dispute,
falls within the jurisdiction of the regular courts pursuant to Republic Act No. 8799 and
that the NLRC had acted without jurisdiction in giving due course to the complaint and
deprived respondents of their right to due process in deciding the case on the merits.

Hence, the instant petition.

The Issue

whether petitioner was an employee or a corporate officer of Slimmers World.

The Court's Ruling

Yes, the petitioner is a corporate officer.

Section 25 of the Corporation Code enumerates corporate officers as the president,

secretary, treasurer and such other officers as may be provided for in the by-laws.

In the present case, the respondents, in their motion to dismiss filed before the labor
arbiter, attached the General Information Sheet13 (GIS) of the meeting of the Board of
Directors and Secretary's Certificate,15 and the Amended By-Laws of Slimmers World as
submitted to the SEC showing that petitioner was a corporate officer whose
rights do not fall within the NLRC's jurisdiction. The GIS and minutes of the
meeting of the board of directors indicated that petitioner was a member of the board of
directors, holding one subscribed share of the capital stock, and an elected corporate
officer.

It was clear in the documents submitted by respondents that petitioner was a director
and officer of Slimmers World. The charges of illegal suspension, illegal dismissal,
unpaid commissions, reinstatement and back wages imputed by petitioner against
respondents fall squarely within the ambit of intra-corporate disputes.

In a number of cases,17 we have held that a corporate officer's dismissal is always a

corporate act, or an intra-corporate controversy which arises between a stockholder and
a corporation. The question of remuneration involving a stockholder and officer, not a
mere employee, is not a simple labor problem but a matter that comes within the area of
corporate affairs and management and is a corporate controversy in contemplation of
the Corporation Code.18

20. GLORIA V. GOMEZ VS. PNOC DEV. AND MNGT. CORP. (PDMC), G.R.
NO. 174044, NOV. 27, 2009

FACTS:

The relationship of a person to a corporation whether as officer or agent or

employee is not determined by the nature of the services he performs but by the
incidents of his relationship with the corporation as they actually exist.

FACTS: In May 1994, Gomez, was hired by the President of PDMC, a GOCC, as
corporate secretary and legal counsel and later re-hired as administrator and legal
counsel. In 1998, the next president extended her term as administrator beyond her
retirement age. In 1999, the new board of directors removed her as corporate secretary
and questioned her continued employment as administrator. The board sought advice
from its legal department which expressed that Gomez’s term extension was an ultra
vires act of the former president. It reasoned that since her position was functionally
that of a vice-president or general manager, her term could only be extended under the
company’s by-laws only with the approval of the board. Consequently, the board
decided to terminate her services retroactive to the date of her retirement.

Gomez admitted that as corporate secretary, she served only as a corporate officer. But,
when they named her administrator, she became a regular managerial employee.
Consequently, the board did not have to approve either her appointment as such or
the extension of her term

PDMC claims that as administrator petitioner Gomez performed functions that were
similar to those of its vice-president or its general manager, corporate positions
that were mentioned in the company’s by-laws. It points out that Gomez was
third in the line of command, next only to the chairman and president, and had
been empowered to make major decisions and manage the affairs of the company.

ISSUE: Whether Gomez is a corporate officer or not

HELD: Gomez is NOT a corporate officer.

Ordinary company employees are generally employed not by action of the

directors and stockholders but by that of the managing officer of the corporation
who also determines the compensation to be paid such employees. Corporate
officers, on the other hand, are elected or appointed by the directors or
stockholders, and are those who are given that character either by the Corporation
Code or by the corporation’s by-laws.

Here, it was the PDMC president who appointed petitioner Gomez administrator,
not its board of directors or the stockholders. The president alone also determined
her compensation package. Moreover, the administrator was not among the
corporate officers mentioned in the by-laws.

As to the claim if PDMC that Gomez was performing functions that were similar to
those of its vice-president or its general manager (corporate positions mentioned in
the by-laws), the relationship of a person to a corporation, whether as officer or
agent or employee, is not determined by the nature of the services he performs
but by the incidents of his relationship with the corporation as they actually exist.
Here, respondent PDMC hired petitioner Gomez as an ordinary employee without
board approval as was proper for a corporate officer. When the company got her
the first time, it agreed to have her retain the managerial rank that she held with
Petron. Her appointment paper said that she would be entitled to all the rights,
privileges, and benefits that regular PDMC employees enjoyed.

In addition, that Gomez served concurrently as corporate secretary for a time is

immaterial. A corporation is not prohibited from hiring a corporate officer to
perform services under circumstances which will make him an employee. Indeed, it
is possible for one to have a dual role of officer and employee.

21. RODOLFO LABORTE, ET AL. V. PAGSANJAN TOURISM CONSUMERS’

COOP., ET AL., G.R. NO. 183860, JAN. 15, 2014

Rodolfo Laborte, et al. v. Pagsanjan Tourism Consumers’ Coop., et al., G.R.

No. 183860, Jan. 15, 2014
DOCTRINE: As a general rule the officer cannot be held personally liable with the
corporation, whether civilly or otherwise, for the consequences of his acts, if acted for
and in behalf of the corporation, within the scope of his authority and in good faith.
Furthermore, the Court also notes that the charges against petitioners Laborte and the
PTA for grave coercion and for the violation of R.A. 6713 have all been dismissed. Thus,
the Court finds no basis to hold petitioner Laborte liable.

FACTS: 1. Petitioner Philippine Tourism Authority (PTA) is a government-owned and

controlled corporation that administers tourism zones.

2. Respondent Pagsanjan Tourism Consumers’ Cooperative (PTCC) is a cooperative

organized since 1988 under Republic Act No. 6938, or the "Cooperative Code of the
Philippines." The other individual respondents are PTCC employees, consisting of
restaurant staff and boatmen at the PTA Complex.
3. In 1989, in order to help the PTCC as a cooperative, the PTA allowed it to operate a
restaurant business located at the main building of the PTA Complex and the boat ride
services to ferry guests and tourists to and from the Pagsanjan Falls, paying a certain
percentage of its earnings to the PTA.

4. In 1993, the PTA implemented a reorganization and reshuffling in its top level
management. Herein petitioner Rodolfo Laborte (Laborte) was designated as Area
Manager, CALABARZON area with direct supervision over the PTA Complex and other
entities at the Southern Luzon. Eventually, Laborte served a written notice upon the
respondents to cease the operations of the latter’s restaurant business and boat ride
services in view of the rehabilitation, facelifting and upgrading project of the PTA
Complex.

5. Consequently, the PTCC filed with the RTC a complaint of Preliminary Injunction
against Laborte and also sought for an award of moral and exemplary damages.
6. Laborte opposed the TRO contending that the PTCC does not own the restaurant
facility as it only tolerated to operate the same by the PTA as a matter of lending support
and assistance to the cooperative in its formative years and that PTA has neither been
granted any franchise nor concession to operate a restaurant and boating services in the
PTA Complex, hence no existing right has been violated by the petitioners.
7. The PTCC filed with the trial court a Petition for Contempt with Motion for Early
Resolution. It alleged that Laborte and his lawyers defied the TRO and proceeded to
close the restaurant.
8. RTC and CA rendered judgment in favor of the plainlitiff (PTCC) and against
defendant (Laborte) ordering them to jointly and severally liable. Hence, this petition.

ISSUE:
Whether petitioner Laborte is liable both in his personal and official capacity as acting
resident manager?

HELD:
NO

RATIO: (1) The PTA is a government owned and controlled corporation which was
mandated to administer tourism zones. Based on this mandate, it was the PTA’s
obligation to adopt a comprehensive program and project to rehabilitate and upgrade
the facilities of the PTA Complex as shown in Annexes "H-2" to "H-4" of the petition.
The Court finds that there was indeed a renovation of the Pagsanjan Administration
Complex which was sanctioned by the PTA main office; and such renovation was done
in good faith in performance of its mandated duties as tourism administrator. In the
exercise of its management prerogative to determine what is best for the said agency,
the PTA had the right to terminate at any moment the PTCC’s operations of the
restaurant and the boat ride services since the PTCC has no contract, concession or
franchise from the PTA to operate the above-mentioned businesses. As shown by the
records, the operation of the restaurant and the boat ride services was merely tolerated,
in order to extend financial assistance to its PTA employee-members who are members
of the then fledging PTCC.

While the PTCC has been operating the restaurant and boat ride services for almost ten
(10) years until its closure, the same was by mere tolerance of the PTA. In the
consolidated case of Phil. Ports Authority v. Pier 8 Arrastre & Stevedoring Services, Inc.,
the Court upheld the authority of government agencies to terminate at any time hold-
over permits. Thus, considering that the PTCC’s operation of the restaurant and the boat
ride services was by mere tolerance, the PTA can, at any time, terminate such operation

(2) With respect to Laborte's liability in his official and personal capacity, the Court
finds that Laborte was simply implementing the lawful order of the PTA Management.
As a general rule the officer cannot be held personally liable with the corporation,
whether civilly or otherwise, for the consequences of his acts, if acted for and in behalf of
the corporation, within the scope of his authority and in good faith. Furthermore, the
Court also notes that the charges against petitioners Laborte and the PTA for grave
coercion and for the violation of R.A. 6713 have all been dismissed. Thus, the Court finds
no basis to hold petitioner Laborte liable.

22. HARPOON MARINE SERVICES, INC., ET AL.., Petitioner, v. FERNAN H.

FRANCISCO, Respondents.

DEL CASTILLO, J.:

FACTS:

Petitioner Harpon, a company engaged in ship building and ship repair, hired
respondent Francisco as a Yard Supervisor tasked to oversee and supervise all projects
of the company. After several years, respondent left for employment elsewhere but was
rehired by petitioner and assumed his previous position.
Years after, respondent was dismissed by petitioner’s President and Chief Executivre
Officer (CEO) Rosit, stating that the company could no longer afford his salary and that
he would be paid his separation pay and accrued commissions.

Respondent continued to report for work until such time when he was barred from
entering the company premises.

Relying on the promise of the petitioner regarding the separation pay and commissions,
he went to the office to claim the same, but petitioner offered only separation pay, thus
the respondent refused to received it and declined to sign a quitclaim.

As such, Francisco demanded payment of his commissions, then filed a case before the
Labor Arbiter for illegal dismissal.

Petitioner denied the allegations and contended that the termination is due to the
respondent’s tardiness and excessive absences and also said that with regard to the
commissions claimed, Harpoon averred that Francisco was only a regular employee,
with a regular salary, and that the supposed "commissions" were merely additional
money recognizing Francisco’s efforts.

ISSUES:

Whether Rosit is solidarily liable with Harpoon

HELD:

Rosit could not be held solidarily liable with Harpoon

for lack of substantial evidence of bad faith and malice
on his part in terminating respondent.

Although we find no error on the part of the NLRC and the CA in declaring the dismissal
of respondent illegal, we, however, are not in accord with the ruling that petitioner
Rosit should be held solidarily liable with petitioner Harpoon for the payment of
respondent's backwages and separation pay.

As held in the case ofMAM Realty Development Corporation v. National Labor Relations
Commission, "obligations incurred by [corporate officers], acting as such corporate
agents, are not theirs but the direct accountabilities of the corporation they represent."
As such, they should not be generally held jointly and solidarily liable with the
corporation.

The Court, however, cited circumstances when solidary liabilities may be imposed, as
when the officer acted in bad faith or gross negligence in handling corporate affairs.
Here, the CA imposed personal liability on Rosit based on bad faith, even though there
was no proof that Rosit acted with bad faith or outside of his authority as company
president.

At most, his acts merely showed the absence of a just or valid cause in terminating the
employment of Francisco.
The general rule is grounded on the theory that a corporation has a legal personality
separate and distinct from the persons comprising it. [36] To warrant the piercing of the
veil of corporate fiction, the officer's bad faith or wrongdoing "must be established
clearly and convincingly" as "[b]ad faith is never presumed." [37]

In the case at bench, the CA's basis for petitioner Rosit's liability was that he acted in
bad faith when he approached respondent and told him that the company could no
longer afford his salary and that he will be paid instead his separation pay and accrued
commissions. This finding, however, could not substantially justify the holding of any
personal liability against petitioner Rosit. The records are bereft of any other
satisfactory evidence that petitioner Rosit acted in bad faith with gross or inexcusable
negligence, or that he acted outside the scope of his authority as company president.

Indeed, petitioner Rosit informed respondent that the company wishes to terminate his
services since it could no longer afford his salary. Moreover, the promise of separation
pay, according to petitioners, was out of goodwill and magnanimity.

At the most, petitioner Rosit's actuations only show the illegality of the manner of
effecting respondent's termination from service due to absence of just or valid cause
and non-observance of procedural due process but do not point to any malice or bad
faith on his part. Besides, good faith is still presumed. In addition, liability only attaches
if the officer has assented to patently unlawful acts of the corporation.

Thus, it was error for the CA to hold petitioner Rosit solidarily liable with petitioner
Harpoon for illegally dismissing respondent.

Petition is PARTLY GRANTED.

23. MIRANT (PHILIPPINES) CORPORATION, ET. AL., Petitioners, v.

JOSELITO A. CARO, Respondent.

VILLARAMA, JR., J.:

FACTS:

Respondent filed a complaint for illegal dismissal and money claims and other benefit
and payment of moral and exemplary damages against the petitioner and the its
president Edgardo Bautista.

Accordingly, respondent was hired by petitioner as its logistics officer.

Petitioner conducted a random drug test where respondent was randomly chosen
among its employees who would be tested for illegal drug use. Through an internal
correspondence, the respondent was informed of the random drug testing and that hi is
selected to undergo the same. The respondent was duly notified of the schedule
evidenced by his signature on the correspondence.

However, according to the respondent, at around 11:30 am of the same day oof which
the random drug testing will be conducted, respondent received a fone call from his
wife’s colleague that there was a bombing incident occurred near his wife’s workstation
in Isarael. As such, he proceeded immediately to Isaeli Embassy to confirm the news.
Respondent claims that before he left the office on the day of drug testing, he informed
the secretary of his department. On the same day, respondent returned to the office,
however, he was informed that he cannot participate anymore.

Petitioner contended however, that the failure of respondent to cimplu with the
corporations policy amounted to wilfull breach of trust and loss of conficence on him
punishable by termination.

ISSUES: 

Whether or not the petitioner illegally dismissed the respondent?

Whether INDIVIDUAL PETITIONER BAUTISTA can be HELD PERSONALLY LIABLE

HELD:

1.We agree with the disposition of the appellate court that there was illegal
dismissal in the case at bar.

While the adoption and enforcement by petitioner corporation of its Anti-Drugs

Policy is recognized as a valid exercise of its management prerogative as an
employer, such exercise is not absolute and unbridled. Managerial prerogatives
are subject to limitations provided by law, collective bargaining agreements, and
the general principles of fair play and justice. In the exercise of its management
prerogative, an employer must therefore ensure that the policies, rules and
regulations on work-related activities of the employees must always be fair and
reasonable and the corresponding penalties, when prescribed, commensurate to
the offense involved and to the degree of the infraction. The Anti-Drugs Policy of
Mirant fell short of these requirements.

Petitioner corporations subject Anti-Drugs Policy fell short of being fair and
reasonable.

First. The policy was not clear on what constitutes unjustified refusal when the
subject drug policy prescribed that an employees unjustified refusal to submit to
a random drug test shall be punishable by the penalty of termination for the first
offense. To be sure, the term unjustified refusal could not possibly cover all forms
of refusal as the employees resistance, to be punishable by termination, must be
unjustified. To the mind of the Court, it is on this area where petitioner
corporation had fallen short of making it clear to its employees as well as to
management as to what types of acts would fall under the purview of unjustified
refusal. Even petitioner corporations own Investigating Panel recognized this
ambiguity.
2. A corporation has a personality separate and distinct from its officers and board of directors who may only be
held personally liable for damages if it is proven that they acted with malice or bad faith in the dismissal of an
employee. 57 Absent any evidence on record that petitioner Bautista acted maliciously or in bad faith in effecting
the termination of respondent, plus the apparent lack of allegation in the pleadings of respondent that petitioner
Bautista acted in such manner, the doctrine of corporate fiction dictates that only petitioner corporation should be
held liable for the illegal dismissal of respondent.
 

24. QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO Y. LAU, and

CHARLIE COLLADO, vs. THOMAS GEORGE.
G.R. NO. 172727, September 8, 2010
Nachura

Facts:

QTCI is a duly licensed broker engaged in the trading of commodity futures. In 1995,
Guillermo Mendoza, Jr. (Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with
respondent Thomas George, encouraging the latter to invest with QTCI. On July 7, 1995,
Collado, in behalf of QTCI, and George signed the Customer's Agreement. Forming part
of the agreement was the Special Power of Attorney executed by George, appointing
Mendoza as his attorney-in-fact with full authority to trade and manage his account.

On June 20, 1996, the SEC issued a Cease-and-Desist Order against QTCI.
Alarmed by the issuance of the CDO, George demanded from QTCI the return of his
investment, but it was not followed. He then sought legal assistance, and discovered that
Mendoza and Lontoc were not licensed commodity futures salesmen. Thus he filed a
complaint for Recovery of Investment with Damages with the SEC against QTCI, Lau,
and Collado, and against the unlicensed salesmen, Mendoza and Lontoc. The case was
docketed and was raffled to SEC Hearing Officer Julieto F. Fabrero.

Only petitioners answered the complaint, as Mendoza and Lontoc had

disappeared. After due proceedings, the SEC Hearing Officer rendered a decision in
favor of George.

QCTI contended that they were not aware of, nor were they privy to, any arrangement
which resulted in the account of respondent being handled by unlicensed brokers. The losses suffered
by respondent were due to circumstances beyond petitioners' control and could not be attributed to
them. Respondent's remedy, they added, should be against the unlicensed brokers who handled the
account. Thus, petitioners prayed for the dismissal of the complaint. 6 cralaw

Issue:

Whether or not the individual petitioners are solidarily liable for damages against
respondent.

Held:

Yes, individual respondents are jointly and severally liable with QTCI for the
payment of respondent's claim.
Doctrine dictates that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it, such that, save for certain exceptions, corporate officers who
entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of
the latter. Personal liability of a corporate director, trustee, or officer, along (although not necessarily)
with the corporation, may validly attach, as a rule,

The SC cited the circumstances when corporate officers may be held personally liable for the
liabilities of the corporation:
(1) he assents to a patently unlawful act of the corporation, or when he is guilty of
bad faith or gross negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders, or other
persons;

(2) he consents to the issuance of watered down 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 personally answerable for his corporate
action.22cralaw

In this case, the evidence on record established that petitioners indeed permitted an
unlicensed trader and salesman, like Mendoza, to handle George's account. On the other
hand, the record is bereft of proof that George had knowledge that the person handling
his account was not a licensed trader. George can, therefore, recover the amount he had
given under the contract.

The SEC Hearing Officer, held Lau and Collado jointly and severally liable with
QTCI for respondent's claim,pursuant to Section 31 of the Corporation Code, because:

1. Collado, who is not a licensed commodity salesman, violated the provisions of the
Revised Rules and Regulations on Commodity Futures Trading when he admitted
having participated in the execution of the customers orders without giving any
exception thereto, which presumably includes his participation in the execution of
customers orders of the .
Such being the case, [Mendoza's] participation in the trading of [respondent's]
account is within the knowledge of Collado.

2. Lau, as president of QTCI was negligent when it allowed the presence of 7 unlicensed
investment consultants within QTCI (apart from Mendoza), and allowed Collado's
participation in the unlawful execution of orders under the [respondent's] account. The
management of QTCI failed to implement the rules and regulations against the hiring of,
and associating with, unlicensed consultants or traders. How these unlicensed
personnel been able to pursue their unlawful activities is a reflection of how negligent
the management was.
 Lau cannot pretend innocence on the existence of these unlawful activities within
the company, especially so that Collado, himself a ranking officer of QTCI, is involved in
the unlawful execution of customer’s orders. Lau, being the chief operating officer,
cannot escape the fact that had he exercised a modicum of care and discretion in
supervising the operations of QTCI, he could have detected and prevented the unlawful
acts of Collado and Mendoza.

Wherefore there is no compelling reason to depart from the conclusion of the

SEC Hearing Officer, which was affirmed by the CA. We are in full accord with his
reasons for holding Lau and Collado jointly and severally liable with QTCI for the
payment of respondent's claim.

25. MARC II MARKETING, INC. and LUCILA V. JOSON, Petitioners, v.

ALFREDO M. JOSON, Respondent.

FACTS:

Petitioner Marc II Marketing, Inc. (Marc II) is a domestic corporation engaged in buying
and distributing household appliance, among others. It took over the operations of Marc
Marketing, Inc. (Marc), which was made non-operational following its incorporation
and registration with the SEC. Petitioner Lucila Joson (Lucila) is Marc’s II President and
Mjaority stockholder. She was also the former President and majority stockholder of the
defunct Marc Marketing, Inc.

Before Marc II was officially incorporated, Alfredo Joson (respondent) had already been
engaged by Lucila in her capacity as President of Marc to work as Marc II’s General
Manager. Pending Marc II’s incorporation, Alfredo was designated as Marc’s General
Manager as during such time Marc is in the process of winding up. Later on, Marc II was
officially incorporated and Alfredo became the General Manager.

However, Marc II decided to cease its operations due to poor sales collection aggravated
by inefficient management of its affairs. Alfredo was then informed of the termination of
his services since such no longer be necessary for the winding up of Marc II’s affairs.

Aggrieved Alfredo, filed a complaint for reinstatement with the LA.

Petitioner contended that LA has no jurisdiction over alfredo being a corporate officer.

ISSUE:

Whether or not alfredo is a corporate officer?

HELD:
No, respondent though occupying the General Manager position, was not a
corporate officer of petitioner corporation rather he was merely its employee
occupying a high-ranking position.

Conformably with Section 25, a position must be expressly mentioned in the by-
laws in order to be considered as a corporate office. Thus, the creation of an office
pursuant to or under a by-law enabling provision is not enough to make a
position a corporate office.

The SC added that the only officers of a corporation were those given character
either by the Corporation Code or by the by laws; the rest of the corporate officers
could be considered only as employees or subordinate officials.

A careful perusal of petitioner corporations by-laws, revealed that its corporate

officers are composed only of:

(1) Chairman;
(2) President;
(3) one or more Vice-President;
(4) Treasurer; and
(5) Secretary.

The position of General Manager was not among those enumerated.

With the given circumstances and in conformity with Matling Industrial and
Commercial Corporation v. Coros, this Court rules that respondent was not a
corporate officer of petitioner corporation because his position as General
Manager was not specifically mentioned in the roster of corporate officers in its
corporate by-laws.

STOCKHOLDERS
26. JOSELITO MUSNI PUNO VS. PUNO ENTERPRISES, INC., ET. AL., G.R.
NO. 177066, SEPT. 11, 2009

Upon the death of a stockholder, the heirs do not automatically become stockholders of
the corporation; neither are they mandatorily entitled to the rights and privileges of a
stockholder. This, we declare in this petition for review on certiorari of the Court of
Appeals (CA) Decision[1] dated October 11, 2006 and Resolution dated March 6, 2007 in
CA-G.R. CV No. 86137.

The facts of the case follow:

Carlos L. Puno, who died on June 25, 1963, was an incorporator of respondent Puno
Enterprises, Inc.

Petitioner Joselito Musni Puno, claiming to be an heir of Carlos L. Puno, initiated a

complaint for specific performance against respondent.

Petitioner averred that he is the son of the deceased with the latter's common-law wife,
Amelia Puno. As surviving heir, he claimed entitlement to the rights and privileges of his
late father as stockholder of respondent.

The complaint thus prayed that respondent allow petitioner to inspect its corporate
book, render an accounting of all the transactions it entered into from 1962, and give
petitioner all the profits, earnings, dividends, or income pertaining to the shares of
Carlos L. Puno.[2]

ISSUE:

WON PETITIONER IS ENTITLED TO INSPECT THE CORPORATE BOOKS OF

DEFENDANT CORPORATION.

The stockholder's right of inspection of the corporation's books and records

is based upon his ownership of shares in the corporation and the necessity
for self-protection. After all, a shareholder has the right to be intelligently
informed about corporate affairs.[13] Such right rests upon the stockholder's
underlying ownership of the corporation's assets and property. [14]

Similarly, only stockholders of record are entitled to receive dividends

declared by the corporation, a right inherent in the ownership of the shares.
[15]

Upon the death of a shareholder, the heirs do not automatically become

stockholders of the corporation and acquire the rights and privileges of the
deceased as shareholder of the corporation. The stocks must be distributed
first to the heirs in estate proceedings, and the transfer of the stocks must
be recorded in the books of the corporation. Section 63 of the Corporation
Code provides that no transfer shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation. [16] During such
interim period, the heirs stand as the equitable owners of the stocks, the
executor or administrator duly appointed by the court being vested with the
legal title to the stock.[17] Until a settlement and division of the estate is
effected, the stocks of the decedent are held by the administrator or
executor.[18] Consequently, during such time, it is the administrator or
executor who is entitled to exercise the rights of the deceased as
stockholder.

Thus, even if petitioner presents sufficient evidence in this case to establish

that he is the son of Carlos L. Puno, he would still not be allowed to inspect
respondent's books and be entitled to receive dividends from respondent,
absent any showing in its transfer book that some of the shares owned by
Carlos L. Puno were transferred to him. This would only be possible if
petitioner has been recognized as an heir and has participated in the
settlement of the estate of the deceased.

Corollary to this is the doctrine that a determination of whether a person,

claiming proprietary rights over the estate of a deceased person, is an heir
of the deceased must be ventilated in a special proceeding instituted
precisely for the purpose of settling the estate of the latter. The status of an
illegitimate child who claims to be an heir to a decedent's estate cannot be
adjudicated in an ordinary civil action, as in a case for the recovery of
property.[19] The doctrine applies to the instant case, which is one for
specific performance to direct respondent corporation to allow petitioner to
exercise rights that pertain only to the deceased and his representatives.

WHEREFORE, premises considered, the petition is DENIED. The Court

of Appeals Decision dated October 11, 2006 and Resolution dated March 6,
2007 are AFFIRMED.
David C. Lao and Jose C. Lao vs. Dionisio C. Lao, G.R. No. 170585, October 6, 2008