Yao Ka Sin Trading v.

CA
- single proprietorship v. corporation
- all functions emanate from the BOD, unless those which are delegated to certain
individuals for practicality
- constitution covers the illegal acts (even if not in the AOI)

FACTS:

Constancio Maglana, President and Chairman of the Board of Prime White Cement Corporation
(PWCC) presented a letter-offer to Yao Ka Sin Trading through its manager, Henry Yao.

The letter-offer regarding the sale of 45,000 bags of prime white cement was accepted by YKS.
However, after its signing, the Board of Directors of PWCC disapproved the same. PWCC
informed YKS regarding the disapproval.

Notwithstanding the issue regarding the letter-offer, PWCC delivered only 10,000 bags of white
cement to YKS under a new and separate contract (not as what was stated in the letter-offer).

PWCC only committed the delivery of 10,000 bags but YKS insisted on the delivery of 45,000
bags.

YKS filed a Specific Performance with Damages against PWCC. In the Answer, PWCC alleged
that YKS has no legal personality to sue; the letter-offer was rejected by its BoD, hence it was
never consummated, but instead only agreed to sell 10,000 bags of white cement under a
separate contract.

RTC Decision:

Defendant was ordered to complete the delivery of 45,000 bags. Under the By-Laws of PWCC,
the President (Maglana) was granted by the BoD to enter into an agreement or contract. Such
contract or agreement is not be subject to the ratification of the BoD, but subject only to the
declared objects and purpose of the corporation and existing laws. Hence, it was validly
entered.

CA Decision:

CA reversed the decision. The letter-offer was rejected by PWCC’s BOD. Maglana and Yao
entered an unauthorized contract as Maglana was not authorized by the BoD nor was his action
ratified by the BoD. Nowhere in the AOI nor By-Laws was he empowered to enter into a
contract. Having no cause of action, YKS is not entitled to any relief.

ISSUE:

WON Plaintiff Henry Yao has the capacity to sue on behalf of YKS. - No
WON the letter-offer is binding with the respondent. - No

RULING:

I.

No, Henry Yao lacks the capacity to sue.

 Under the law, only natural or juridical persons or entities authorized by law may be
parties in a civil action and sole proprietorship is neither a natural person nor a juridical person.
A sole proprietorship as a form of business organization conducted for profit by a single
individual, and requires the proprietor or owner thereof to secure licenses and permits, register
the business name, and pay taxes to the national government. It does not vest juridical or
legal personality upon the sole proprietorship nor empower it to file or defend an action
in court.

Here, Henry Yao filed the complaint being the manager of Yao Ka Sin Trading, which is
a sole proprietorship. Hence, the proper party should be Yao Ka Sin, whose personality is not
separate nor distinct from the sole proprietorship.

Therefore, Henry Yao has no capacity to sue and Yao Ka Sin should be impleaded as a
complainant.

II.

No, the letter-offer did not bind the respondent.

Under the law, a corporation can act only through its officers and agents who can bind
the corporation in transactions with third persons to the extent of the authority conferred upon
them. Based on PWCC’s By-Laws, the President can execute and sign for and in behalf of the
corporation all contracts and agreements which the corporation may enter. The power to
execute and sign presupposes a prior act of the corporation through the BoD.

In this case, Mr. Maglana, the President of PWCC, entered into a contract with YKS for
the corporation independently from the BOD or without prior Board approval. Maglana also
failed to prove that he has the apparent authority to execute the contract.

Therefore, the contract was not binding with PWCC.

--------
The petitioner agreed to a new transaction after receiving the notification and accepted without
any protest the delivery covering 10,000 bags.
 ABS-CBN Broadcasting v. CA

FACTS:

ABSCBN entered into a Film Exhibition Agreement with Viva Production, Inc., where the former
was given an exclusive right to exhibit some Viva films. However, there are two versions of the
agreement:

 Mr. Eugenio Lopez III, General Manager of ABSCBN, asserted that ABSCBN was
granted with a film rights to fourteen (14) films for a total consideration of P36 million.
 However, Mr. Vicente Del Rosario insisted that the agreement covers 104 films for a
total price of P60 million.

A counterproposal from Mrs. Charo Concio covering 53 films for a consideration of P35 million
was then rejected by Viva’s Board of Directors.

Following the rejection, the 104 Viva-produced films were granted to RBS, which prompted
ABSCBN to file for a TRO against the RBS, Viva Production, and Del Rosario. This resulted to
the non-showing of the film “Maging Sino Ka Man” in RBS on the day of its supposed showing.

The RTC and CA ruled that the contract was not perfected and granted RBS damages due to
ABSCBN’s complaint.

ISSUES:
1. WON there was a perfected contract between VIVA and ABS-CBN.
2. WON RBS is entitled to damages.

RULING:
I.

The contract between Viva Productions, Inc. and ABSCBN was not binding.

Under the law, corporate powers, such as the power to enter into contracts, are
exercised by the Board of Directors, which power may be delegated to either an executive
committee or officials or contracted managers.

In this case, Del Rosario has no authority to bind a contract with ABS CBN until Viva’s
BoD approves it. In fact, Viva’s Board of Director rejected ABS-CBN's counter-offer and insisted
that the film package for 140 films be maintained.

Therefore, the contract was not binding.

II.

RBS is not entitled for moral damages and exemplary damages.

Under the law, the award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal contemplation, it has no
feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental
anguish, which can be experienced only by one having a nervous system.
 In this case, it is RBS who claimed for moral damages. Hence, as a corporation, it
cannot be entitled for such.

Moreover, the claims for moral and exemplary damages are favored when there is an
abuse of right on the part of the defendant. The elements of the abuse of right doctrine are: (1)
the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole
intent of prejudicing or injuring another.

In this case, there is no adequate proof that ABS-CBN was inspired by malice or bad
faith.

Therefore, RBS is not entitled for any damages.

 MARC II MARKETING v. ALFREDO JOSON

FACTS:

Alfredo Joson was the General Manager, incorporator, director and stockholder of Marc II
Marketing which took over Marc Marketing. He was employed by Lucila Joson, President of
Marc Marketing through a Management Contract.

Thereafter, Marc II Mktg. decided to stop its operation and apprised Respondent of the
termination of his services as GM. Respondent filed a complaint for reinstatement and money
claim against Marc II.

Lucila Joson moved to dismiss the complaint on the ground that the Labor Arbiter lacks
jurisdiction as the case involved an intra-corporate controversy, which jurisdiction belongs to the
SEC [now with the Regional Trial Court (RTC).

LA’s Decision:
LA favored the respondent. There was an employer-employee relationship between Lucila
Joson and Alfredo Joson. Respondent was illegally dismissed.

NLRC’s Decision:
NLRC ruled in favor of petitioner Corp. Respondent was a corporate officer whose dismissal
involved a purely intra-corporate controversy.

CA’s Decision:
CA upheld LA’s decision. The respondent was a mere employee of petitioner corporation, who
has been illegally dismissed from employment without valid cause and without due process.

ISSUES:
1. WON Alfredo Joson is a corporate officer, which case automatically falls within the
jurisdiction of the RTC and not with the Labor Arbiter.
2. WON Lucila Joson can be made joint and severally liable with the petitioner corporation.

I.

Alfredo Joson is not a corporate officer.

Under the law, corporate officers are those expressly mentioned by the
Corporation Code or by the corporation’s by-laws, while the rest are considered only as
employees or subordinate officials. The board of directors has no power to create other
corporate offices without first amending the corporate by-laws so as to include therein the
newly created corporate office. The dismissal of a corporate officer is always regarded as a
corporate act and/or an intra-corporate controversy which falls under the jurisdiction of
the RTC.

In this case, the petitioner Corporation’s by laws did not explicitly reveal the position of a
General Manager as one of its corporate officers. Hence, the respondent can only be regarded
as an employee or subordinate.
 Therefore, being an employee, his case falls within the jurisdiction of the LA and not with
the RTC.

II.

Lucila Joson is jointly and solidariy liable with the petitioner corporation.

Under the law, the corporation has a personality separate and distinct from its officers,
stockholders, however its corporate veil can be pierced when the notion of its legal entity
is used as a means to perpetrate fraud, illegal act, used as a vehicle for the evasion of an
existing obligation, and to confuse legitimate issues.

In this case, Lucila Joson, the President of the corporation acted in bad faith and with
malice in effecting the abrupt dismissal of the Respondent without prior notice and without
separation pay considering that his termination was not due to business losses or financial
reverses.

Therfore, Lucica Joson can be made personally liable.

-----------------------------------------

PRINCIPLES

JURISDICTION

Original and exclusive Jurisdiction of Labor Arbiter

- cases involving termination or dismissal of workers
Jurisdiction of RTC
- cases involving termination or dismissal of a corporate officer

CORPORATE OFFICER

A corporate officers are those officers of a corporation who are given that character either by
the Corporation Code or by the corporation's by-laws.  

Under the Corporation Code, corporate officers are 1) president; (2) secretary; (3) treasurer;
and (4) such other officers as may be provided for in the by-laws.

The corporate officers enumerated in the by-laws are the exclusive Officers of the
corporation and the Board has no power to create other Offices without amending first
the corporate [b]y-laws.
 Cosare v. Broadcom

FACTS:

Cosare was employed as salesman by Arevalo who set up Broadcom. Cosare was named an
incorporator of Broadcom and was promoted to the position of Assistant VP for Sales.

Thereafer, Cosare was replaced by Alex Abiog as VP for Sales. Cosare also sent a confidential
memo to Arevalo about the anomalies allegedly committed by Abiog. However, instead of acting
on the accusation, Cosare was asked to tender his resignation in exchange for financial
assistance in the amount of php 300,000.00.

Cosare was precluded from reporting to work and barred from entering the company premises.
He filed the subject labor complaint.

LA’s Decision:
Cosare’s complaint was dismissed for failure to establish illegal dismissal.

NLRC’s Decision:
Cosare was constructively dismissed. He was awarded in the amount of 100K.

CA’s Decision:
The case involves an intra-corporate controversy which was within the jurisdiction of the RTC,
not LA. Cosare was a stockholder and he was listed as one of its directors.

ISSUES:
WON the Cosare is a corporate officer. WON the LA has a jurisdiction over the case.
WON the case involves an intra-corporate controversy.

RULING:
I.
No, Cosare is not a corporate officer.

Under the law, a corporate officer is one whose position is created under the
corporation’s charter or by-laws and that the election of the officer is by the directors or
stockholders. The complaint for illegal dismissal of a corporate officer is lodged with the RTC.

In this case, Broadcom’s by-laws only created the office of the President, Vice-President,
Treasurer, and Secretary. Hence, his position could only be deemed a regular office.

Therefore, Cosare is not a corporate officer, but a regular employee.

II.
LA has the jurisdiction over the complaint.

Under the law, the illegal dismissal of a regular employee is cognizable under the LA.

In this case, Cosare is not a corporate officer since his position as VP for Sales is not
one among those offices created in the corporate by-laws. Hence, he is deemed a regular
employee.
 Therefore, his complaint is cognizable in the LA.

III.
The case does not involve an intra-corporate controversy.

Under the controversy test, the controversy, to qualify as an intra-corporate controversy,

must not only be rooted in the existence of an intra-corporate relationship, but must as well
pertain to the enforcement of the parties’ correlative rights and obligations under the
Corporation Code and the internal and intra-corporate regulatory rules of the corporation.

In this case, the issue pertains to Cosare’s rights and obligations as a regular officer,
instead of a stockholder of the corporation.

Hence, the case does not involve an intra-corporate controversy.

----------------------------

PRINCIPLES:

INTRA-CORPORATE CONTROVERSY
An intro-corporate controversy which falls within the jurisdiction of regular courts pertains
to disputes that involves any of the following relationships:
(1) between the corporation, partnership or association and the public;
(2) between the corporation, partnership or association and the state in so far as its franchise,
permit or license to operate is concerned;
(3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and
(4) among the stockholders, partners or associates, themselves.

Under the nature of the controversy test, the incidents of that relationship must also be
considered for the purpose of ascertaining whether the controversy itself is intra-corporate. The
controversy must not only be rooted in the existence of an intra-corporate relationship, but must
as well pertain to the enforcement of the parties’ correlative rights and obligations under
the Corporation Code and the internal and intra-corporate regulatory rules of the
corporation.

CORPORATE OFFICER
There are two circumstances which must concur in order for an individual to be
considered a corporate officer, as against an ordinary employee or officer, namely:
(1) the creation of the position is under the corporation’s charter or by-laws; and
(2) the election of the officer is by the directors or stockholders

The board of directors has no power to create other corporate offices without first amending the
corporate by-laws so as to include therein the newly created corporate office.

OFFICE V. EMPLOYEE
It has been held that an "office" is created by the charter of the corporation and the
officer is elected by the directors and stockholders. On the other hand, an "employee" usually
occupies no office and generally is employed not by action of the directors or stockholders but
by the managing officer of the corporation who also determines the compensation to be paid to
such employee.
 BPI v. CASA MONTESSORI
(Moral damages)

FACTS:

Casa Montessori discovered that 9 of its checks had been encashed by a certain Sonny Santos,
a fictitious name used by Leonardo Yabut. Yabut admitted that he forged the signature of Ms.
Lebron, Casa Montessori’s President, and encashed the checks.

The CA took into account CASA’s contributory negligence that resulted in the undetected
forgery. Hence, both Yabut and BPI were ordered to reimburse CASA. However, it disallowed
attorney’s fees and moral and exemplary damages.

ISSUE:
1. WON CASA is entitled moral damages.

RULING:

I.
No, CASA cannot claim for moral damages.

Under the law, a corporation -- being an artificial person without feelings, emotions and
senses, and having existence only in legal contemplation -- is not entitled to moral damages,
because it cannot experience physical suffering and mental anguish. However, for breach
of the fiduciary duty required of a bank, a corporate client may claim such damages
when its good reputation is besmirched by such breach, and social humiliation results.
therefrom

In this case, CASA, is a corporation. Hence, it cannot be entitled to moral damages.

Moreover, CASA was unable to prove that BPI had debased its good reputation of, and
consequently caused its incalculable embarrassment.

Therefore, CASA cannot claim for moral damages.

 GEORG v. HOLY TRINITY COLLEGE
(doctrine of apparent authority)

FACTS:

Edward Enriquez, who represented Sr. Medalle, the President of HTC, contracted with Benjie
Georg to seek assistance for payment of HTC’s Grand Chorale and Dance Companys’
European Tour.

Based on the MOA, Georg advanced domestice international airplane tickets, in favor of the
Group. Subsequently, Georg filed a complaint for a Sum of Money with damages against HTC
for its nonpayment of loan.

HTC argued that it is not a party to the MOA and it is not obliged to pay the amount borrowed.

The RTC ruled in favor of the petitioner which held Defendants solidarily liable to pay petitioner.
However, CA held that Sr. Medalle did not participate in the negotiation, perfection and partial
consummation of the contract.

ISSUE:

WON HTC can be held liable based on the MOA.

RULING:

Yes, HTC can be held liable.

Under the doctrine of apparent authority, a corporation will be estopped from

denying the agent's authority if it knowingly permits one of its officers or any other agent
to act within the scope of an apparent authority, and it holds him out to the public as
possessing the power to do those acts.

In this case, HTCs’s Board of Trustees never contested the standing of the Dance and
Chorale Group and had in fact lent its support in the form of sponsoring uniforms or freely
allowed the school premises to be used by the group for their practice sessions. Thus, any
agreement or contract entered into by Sr. Medalle as President of Holy Trinity College relating
to the Group bears the consent and approval of respondent.

Therefore, HTC is liable.

 MITA PARDO DE TAVERA v. PHILIPPINE TUBERCOLOSIS SOCIETY, INC.
- expiration of term

FACTS:

Mita de Tavera is a doctor of medicine and a specialist in the treatment of tuberculosis. She is a
member of the BOD of the Respondent but was later on removed from her position. She alleged
that such acts of the BOD is void since other members of the BOD who voted for her ouster
were not members of the Society.

The Defendants explained that Tavera’s removal from her position as Exec Sec was held at the
pleasure of the BOD and they were members of the Society and qualified to be elected as
members.

The RTC ruled that Tavera was not illegally terminated and that it is a case of a quo warranto.
The Court held that her appointment was at the pleasure of the appointing power and hence her
appointment in essence was temporary in nature, terminable at a moment's notice without need
to show that the termination was for cause.

ISSUE:

WON Tavera was illegally removed.

RULING:

No.

Under the corporate by-laws of the Respondent corp., an Executive Secretary shall hold
office at the pleasure of the Board of Directors, unless their term of employment shall have been
fixed in their contract of employment.

In this case, there was no fixed term in the letter addressed to petitioner informing her of
her appointment as Executive Secretary. Her appointment, that was held at the pleasure of
the appointing power, is in essence temporary in nature and co-extensive with the desire
of the Board of Directors.

When the Board opted to replace the incumbent, technically there is no removal but
only an expiration of term and in an expiration of term, there is no need of prior notice,
due hearing or sufficient grounds before the incumbent can be separated from office.
 NECTARINA RANIEL v. PAUL JOCHIICO, et al. - removal of directors
(online participation is allowed)

FACTS:

Petitioners Ma. Victoria R. Pag-ong (Pag-ong), director, and Nectarina S. Raniel (Raniel),
director and corporate officer (as Corporate Secretary), of Nephro Systems Dialysis Center
(Nephro).

They questioned the respondents' plan to enter into a joint venture with the Butuan Doctors'
Hospital and College, Inc. (The respondents are the incoporators and directors of Nephro)

Subsequently, notices of Special Stockholder’s Meeting were issued but petitioners did not
attend. In the said Special SM, Board resolutions were passed by the SH, removing the
petitioners as directors.

ISSUE:

WON their removal was valid.

RULING:

Yes, the removal of the directors were valid.

Under the law:

1. Any director or trustee of a corporation may be removed from office by a vote of
the stockholders holding or representing at least two-thirds (2/3) of the
outstanding capital stock, or if the corporation be a non-stock corporation, by a vote of
at least two-thirds (2/3) of the members entitled to vote:
2. Provided, that such removal shall take place either at a regular meeting of the
corporation or at a special meeting called for the purpose,
3. and in either case, after previous notice to stockholders or members of the corporation
of the intention to propose such removal at the meeting.

A special meeting of the stockholders or members of a corporation for the purpose

of removal of directors or trustees or any of them, must be called by the secretary on order of
the president or on the written demand of the stockholders representing or holding at
least a majority of the outstanding capital stock, or if it be a non-stock corporation, on the
written demand of a majority of the members entitled to vote.

Removal may be with or without cause: Provided, That removal without cause may
not be used to deprive minority stockholders or members of the right of representation to which
they may be entitled under Section 24 of this Code

In this case, Nephro has 500 shares. A two-thirds vote of Nephro's outstanding capital
stock would be 333.33 shares, and during the Stockholders' Special Meeting held on February
16, 1998, 400 shares voted for petitioners' removal.

Therefore, considering the number of votes, it is more than enough to oust

petitioners from their respective positions as members of the board, with or without
cause.
 BERNAS v. CINCO - calling of elections
(Treasury shares those that are bought back cannot be considered in the computation of
the 2/3 rule.

FACTS:

Petitioners, Bernas, et al., are members of the BOD and officers of Makati Sports Club (MSC).
Due to the rumored anomalies in handling corporate funds, the MSC Oversight Committee
(MSCOC), composed of the past presidents of the club, demanded the Bernas Group to resign
from their respective positions to pave the way for the election of new set of officers.

Aggrieved, the Bernas Group filed an action before the Securities Investigation and Clearing
Department (SICD) of the SEC for the nullification of the 1997 Special Stockholders Meeting.
They argued that the authority to call a meeting lies with the Secretary and not with the
MSCOC.

The SICD held the 1997 Special Stockholders Meeting as invalid and nullified the expulsion of
Bernas from the corporation and the sale of his share at the public auction.

The SEC reversed SICD’s findings.

ISSUE:

1. WON the 1997 Special Stockholders Meeting was valid.

RULING:
I.
No, the 1997 Special Stockholders Meeting is not valid.

Under the MSC By-laws, only the President and the Board of Directors are
authorized by the by-laws to call a special meeting. In cases where the person authorized to
call a meeting refuses, fails or neglects to call a meeting, then the stockholders
representing at least 100 shares, upon written request, may file a petition to call a special
stockholder's meeting.

In this case, the 1997 Special Stockholders' Meeting was called neither by the President
nor by the Board of Directors but by the MSCOC. The MSCOC is created for the purpose of
overseeing the affairs of the corporation, nowhere in the by-laws does it state that it is
authorized to exercise corporate powers, such as the power to call a special meeting. The Cinco
Group cannot claim that if was left without recourse after the Corporate Secretary previously
refused to heed its demand to call a special stockholders' meeting. The remedy would be to file
a petition to the SEC to direct the Corp Sec to call a meeting by giving proper notice required
under the Code.

Therefore the 1997 Special Stockholders Meeting is not valid and the subsequent acts of
expelling Bernas from the club, the election of the Cinco Group, and the selling of his shares at
the public auction, are invalid.

A void election cannot be ratified by the subsequent Annual Stockholders' Meeting.

-----------------
ILLEGAL v. ULTRA VIRES
Corporate acts or contracts which are illegal
- It contemplates the doing of an act which are contrary to law, morals or public policy or
public duty, and are, like similar transactions between individuals, void: They cannot
serve as basis of a court action nor acquire validity by performance, ratification or
estoppel

Corporate acts or contracts which are merely ultra vires.

- Those which are not illegal or void ab initio, but are not merely within the scope of the
articles of incorporation, are merely voidable and may become binding and enforceable
when ratified by the stockholders.

POWERS OF BOD
A corporation's board of directors is understood to be that body which
(1) exercises all powers provided for under the Corporation Code;
(2) conducts all business of the corporation; and
(3) controls and holds all the property of the corporation.

Its members have been characterized as trustees or directors clothed with fiduciary character.
 VALLE VERDE COUNTRY CLUB INC V AFRICA
(Stockholders shall fill the vacancy caused by an expiration of the member’s term;
Remaining members of the Board shall fill the vacancy caused whenever a portion of the
member’s term remains unexpired)

FACTS:

Petitioners are elected members of Valle Verde Country Club, Inc. (VVCC) in 1996. However,
during the succeeding years - 1997, 1998, 1999, 2000, and 2001, the members were in hold
over capacity for failure to achieve a quorum for those years.

In 1998, a member resigned. The remaining directors elected Roxas to fill in the vacancy
created by the resignation. In 2001, Ramirez was elected by the remaining members to replace
Makalintal who previously resigned. A member of VVCC questioned the election of Roxas and
Ramirez of members of the VVCC.

ISSUE:

WON 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 election of the remaining directors for another director is not valid.

Under the law, that it shall be the corporation’s stockholders who shall possess the
authority to fill in a vacancy caused by the expiration of a member’s term. Under the
Corporation Code, the BOD shall hold office for 1 year and their term expires one year after
election to the office. The law has authorized the remaining members of the board to fill in a
vacancy only in cases where the vacancy in the corporation’s board of directors is caused not
by the expiration of a member’s term.

In this case, the directors’ term have already expired and the period where they are in
hold over capacity are not part of the their term of office. Hence, the vacancy must be filled by
the stockholders of VVCC in a regular or special meeting called for the purpose.

Therefore, the election made by the remaining directors are not valid.

------------

The word "term" has acquired a definite meaning in jurisprudence. In several cases, we have
defined "term" as the time during which the officer may claim to hold the office as of right, and
fixes the interval after which the several incumbents shall succeed one another.7 The term of
office is not affected by the holdover.8 The term is fixed by statute and it does not change simply
because the office may have become vacant, nor because the incumbent holds over in office
beyond the end of the term due to the fact that a successor has not been elected and has failed
to qualify.

Term is distinguished from tenure in that an officer’s "tenure" represents the term during which
the incumbent actually holds office. The tenure may be shorter (or, in case of holdover, longer)
than the term for reasons within or beyond the power of the incumbent.
When the vacancy is due to expiration - the election should be held on the day not later than the
expiration. In a meeting called for that purpose.

When the vacancy is removal - the election may be held on the same day of the meeting
authorizing the removal, provided that the agenda and notice of the meeting provide for such
election of a replacement director/trustee
 Western Institute of Technology v. Salas
(GR: BOD can receive compensation if there is a provision in the by-laws.

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

GR: Not allowed

Exception: (1) Per Diem (2)

FACTS:

Respondent Salas Family are the majority and controlling members of the Board of Trustees of
Western Institute of Technology, Inc. In a Special Board Meeting conducted, the BoT approved
a resolution granting monthly compensation to the officers of the corporation (other than being
trustees)

Few years later, the petitioners (Villasis Group) filed a complaint of falsification of a public
document and estafa against the respondents regarding the submission of WIT’s income
statement and the disbursement of corporate funds for the compensation of private respondents
when no Resolution was in fact passed.

The RTC acquitted the respondents.

ISSUE:

WON the officers may be granted compensation apart from reasonable per diems.
WON the case is a derivative suit.

RULING:

I.
Yes, the corporate officers may be granted compensation.

Under the law, members of the board may receive compensation, in addition to
reasonable per diems, when they render services to the corporation in a capacity other than as
directors/trustees.

In this case, the Board Resolution 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.

Therefore, the corporate officers may be granted compensation.

II.
No, the case does not involve a derivative suit.
 Under the law, the 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. The minority shareholder must allege in his complaint before the
proper forum that he is suing on a derivative cause of action on behalf of the corporation and all
other shareholders similarly situated who wish to join. It must be filed with the SEC.

In this case, the suit was merely an appeal on the civil aspect of the criminal cases filed
with the RTC for estafa and falsification of public document. The petition was a review
on certiorari on pure questions of law to set aside a portion of the RTC decision and it was not
filed with SEC.

Therefore, the case is a derivative suit.

-------------------------

PRINCIPLES:

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.

The prosecution omitted to submit the complete minutes of the regular meeting of the Board of
Trustee to rule on the falsification. The estafa was denied as the grant of compensation or
salary in their capacity as officers is authorized by both the Articles of Incorporation and the By-
Laws of the corporation.

COMPENSATION

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.

Presumption:
Directors/trustees render service gratuitously, and that the return upon their shares adequately
furnishes the motives for service, without compensation.

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.
 Virata v. Uemmara Philippines Corp.

FACTS:

Ng Wee placed investments with Westmont Investment Corporation (Wincorp), who screens
qualified corporate borrower. Wee’s initial investments were matched with Hottick Holdings
Corp., majority of its shares was owned by Malaysian national. However, due to Asian financial
crisis, Hottick Holdings, tehe corporate borrower, defaulted in paying paying its outstanding
obligation.

Wincorp assured Wee that it will absorb the losses from Hottick account. Further, Wee’s
investment would be transferred to a new borrower account - Power Merge Corp. Several
promissory notes in favor of Wee’s were issued by Power Merge.

Unknown to Wee, Wincorp and Power Merge executed additional contracts absolving Power
Merge of liability as regards the promissory notes it issued (side agreement)

Moreover, Ng Wee was not able to collect Power Merge's outstanding obligation and then filed
for Complaint for Sum of Money with Damages. Wincorp officers Ong and Reyes were likewise
impleaded for signing the side agreement.

ISSUE

WON Wincorp and Power Merge are liable to Ng Wee

WON UEM MARA is liable.

RULING
I.
Yes.

Under the law, the separate personality of the corporation may be disregarded or the veil
of corporate fiction pierced when the notion of separate juridical personality is used:

(1) to defeat public convenience, justify wrong, protect fraud or defend crime;
(2) as a device to defeat the labor laws; or
(3) when the corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.

Moreover, to determine the application of the alter-ego theory, a three-pronged tests is

applied as follows:

1) Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no separate mind, will or existence of
its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiffs legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or
unjust loss complained of.
 In this case, Virata not only owned majority of the Power Merge shares; he exercised
complete control Power Merge clearly present an alter ego. Power Merge never operated to
perform its business functions, but for the benefit of Virata.

Therefore, Wincorp and Power Merge are liable to Ng Wee.

II.
UEM MARRA is not liable.

Under the law, cause of action exists when an act or omission on the part of such
defendant in violation of the right of the plaintiff or constituting a breach of the obligation of the
defendant to the plaintiff for which the latter may maintain an action for recovery of damages or
other appropriate relief.

In this case, Ng Wee cannot point to a specific wrong committed by UEM-MARA against
him in relation to his investments in Wincorp. UEM-MARA is an entity distinct and separate from
Power Merge, and it was not established that it was guilty in perpetrating fraud against the
investors. It was a non-party to the "sans recourse" transactions, the Credit Line Agreement, the
Side Agreements, the Promissory Notes, the Confirmation Advices, and to the other
transactions that involved Wincorp, Power Merge, and Ng Wee.
 Fransisco v. Mallen
(2 rules to hold officers liable- The corp being a separate legal entity, an artificial being - distinct
from its shareholders. Presumption of regularity in the pursuit of the performance)

FACTS:

Mallen was hired as a waiter for VIPS Coffee Shop and Restaurant. In 1998, when he filed for
three-day sick leave, respondent was given three months leave instead.

Further, respondent filed before the Department of Labor and Employment-National Capital
Region (DOLE-NCR) a complaint for underpayment of wages and non-payment of holiday pay.
Then he reported back to work but was refused to work.

LA’s Decision:
VIP's Coffee Shop & Restaurant and/or Irene Francisco are ordered to reinstate complainant to
his former or equivalent position without loss of seniority rights, and to pay complainant jointly
and severally his backwages, plus his paternity pay, and attorney's  fees.

NLRC’s Decision:
The NLRC found respondent's filing of a complaint for illegal dismissal premature.

ISSUE:
WON Francisco is personally liable for the monetary awards granted in favor of respondent
arising from his alleged illegal termination.

RULING:

No.

Under the law, 2 requisites must concur to hold a director or officer personally liable for
corporate obligations: 1) complainant must allege in the complaint that the director or
officer assented to patently unlawful acts of the corporation, or that the officer was guilty
of gross negligence or bad faith;[11] and (2) complainant must clearly and convincingly
prove such unlawful acts,  negligence or bad faith

In this case, respondent failed to allege either in his complaint or position paper that
petitioner, as Vice-President of VIPS Coffee Shop and Restaurant, acted in bad faith.[21] Neither
did respondent clearly and convincingly prove that petitioner, as Vice-President of VIPS Coffee
Shop and Restaurant, acted in bad faith.  In fact, there was no evidence whatsoever to show
petitioner's participation in respondent's alleged illegal dismissal.

Therefore, Francisco cannot be made liable.

 MAM Realty Dev’t Corp. v. NLRC
(solidary liabilities - the exception)

FACTS:

Celso B. Balbastro was hired as a pump operator with Rancho Estate. His services were
contracted by MAM, as a service contractor, for the operation of the Rancho Estates’ water
pump. He was not at all subject to the control or supervision of MAM.

Balbastro then filed a labor case against MAM Realty Development Corporation ("MAM") and its
Vice President Manuel P. Centeno, for wage differentials, "ECOLA," overtime pay, incentive
leave pay, 13th month pay (for the years 1988 and 1989), holiday pay and rest day pay.

LA dismissed the complaint. The NLRC reversed the decision and directed MAM and its VP
Centeno to pay Balbastro.

ISSUE:

WON VP Centenno can be held liable.

RULING:

No, Centeno cannot be jointly and severally liable with MAM.

Under the law, corporate directors and officers are solidarily liable with the corporation
for the termination of employment of employees done with malice or in bad faith.

In this case, there is nothing substantial on record that can justify, prescinding from the
foregoing, petitioner Centeno's solidary liability with the corporation.

Therefore, Centeno cannot be made liable and Balbastro should be paid solely by
petitioner MAM Realty Development Corporation.

PRINCIPLES:

A corporation, being a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents, are not theirs but the
direct accountabilities of the corporation they represent.

Solidarily liabilities may at times be incurred but only when exceptional circumstances warrant
such as, generally, in the following cases:
(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.

(2) When a director or officer has consented to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto.
(3) When the director , trustee or officer has contractually agreed or stipulated to hold
himself personally and solidarily liable with Corporation

(4) When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action.
 Cebu Country Club, Inc. v. Elizagaque
(sec. 30 - confidence - need to comply

FACTS:

Respondent, Ricardo F. Elizagaque, Senior Vice President and Operations Manager for the
Visayas and Mindanao of San Miguel Corporation, filed with CCCI an application for proprietary
members.

However, CCI, through its BOD disapproved Elizagaque’s application for proprietary
membership. The respondent filed for MR but CCI remained silent, until it filed for damages
against petitioners.

ISSUE:

WON petitioners are liable to respondent for damages in disapproving the application for
proprietary membership with CCI.
WON the liability is joint and several.

RULING:
I.
Yes

Under the law, every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith. When a
right is exercised in a manner which does not conform with the norms enshrined in
Article 19 and results in damage to another, a legal wrong is thereby committed for which
the wrongdoer must be held responsible

In this case, the AOI of CCCI, provides the right of the BoD to approve or disapprove an
application for proprietary membership. However, petitioners violated the rules governing
human relations in disapproving respondent’s applications. The unanimous vote of the directors
present at a special or regular meeting was not printed on the application form respondent filled
and submitted to CCCI

Therefore, petitioners are liable to respondent for damages in disapproving the application for
proprietary membership with CCCI.

II.

Yes.

Under the law, directors or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their
duty as such directors, or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or members and other persons.

In this case, the petitioners acted in bad faith in disapproving Elizagaque’s application.

Therefore, the petitioners are jointly and severally liable.

Espiritu v. Petron

FACTS:

Petron Gasul and Bicol Gas are competitors in selling and distributing liquified petroleum gas
(LPG) in Sorsogon.

The one tank bearing the mark of Petron Gasul found in a truck full of Bicol Gas tanks such as
in a case of a captured cylinder belonging to competition.

Moreover, Jose Nelson is KPE’s manager. He noticed several Petron Gasul tanks in the
possession of Bicol Gas.

Thereafter, KPE filed a complaint for violations of RA 8293 (illegally filling up registered cylinder
tanks and infringement of trade marks, and unfrair trade of the IP Code against directors,
officers, and stockholders of Bicol Gas.

CA ruled on the liability of the stockholders and members of the board of directors of Bicol Gas
with respect to the charge of unlawfully filling up a steel cylinder or tank that belonged to Petron

ISSUES:
WON directors, officers, and stockholders of Bicol Gas can be held liable.

RULING:

No.

The Corporation Code provides that, although a corporation is an entity separate and
distinct from the persons of its officers, directors, and stockholders, it has been held that
corporate officers or employees, through whose act, default or omission the corporation
commits a crime, may themselves be individually held answerable for the crime.

In this case, the complaint failed to allege who among the stockholders had knowledge
of the commission of a criminal act (possessing one Petron Gasul tank found in a truck filled
with Bicol Gas tanks) in the name of the corporation and that took part in the same or gave his
consent to its commission, whether by action or inaction. Further, the petitioner failed to allege
that the truck owner connived with those responsible for filling up that Gasul tank with Bicol Gas
LPG.

Therefore, the stockholders, owners, and officers are not liable.

PRINCIPLES:

The "owners" of a corporate organization are its stockholders and they are to be distinguished
from its directors and officers.

The management of its business is generally vested in its board of directors, not its
stockholders
Stockholders are basically investors in a corporation. They do not have a hand in running the
day-to-day business operations of the corporation unless they are at the same time directors or
officers of the corporation

Before a stockholder may be held criminally liable for acts committed by the corporation,
therefore, it must be shown that he had knowledge of the criminal act committed in the
name of the corporation and that he took part in the same or gave his consent to its
commission, whether by action or inaction.
BSP v. Campa

FACTS:

Bankwise applied for a Special Liquidity Facility (SLF) loan from BSP, who in turn, advised
Bankwise to submit mortgages of properties owned by 3rd parties to secure its outstanding
obligation to BSP.

Bankwise failed to pay hence, BSP applied for extra-judicial foreclosure of the 3rd party
mortgages.

Alino, a stockholder of VR Holding, owning 10% of the outstanding shares of stock, and who
allowed that his properties be used by Bankwise, filed a Complaint for specific performance,
novation, and damages with TRO against BSP and Bankwise.

Haru Gen Beach Resort further filed a complaint in intervention.

BSP's opposed such intervention as the case is a derivative suit which, according to it,
effectively disallows intervention by a non-stockholder (Haru Gen is not a SH of VR Holding).

The RTC and CA granted the complaint in intervention filed by respondents who called for the
nullity of the REM.

ISSUE:

WON the case is one that involves derivative suit.

RULING:

No

Under the law, derivative suits presupposes that the corporation is the injured party and
the individual stockholder may file a derivative suit on behalf of the corporation to protect or
vindicate corporate rights whenever the officials of the corporation refuse to sue, or are the ones
to be sued, or hold control of the corporation.

In this case, the damage does not really devolve on the corporation. The harm or injury
that Aliño sought to be prevented pertains to properties registered under Aliño and other third-
party mortgagors who suit for the recovery of their properties. There is no actual or threatened
injury alleged to have been done to the corporation due to the foreclosure of the properties
belonging to third-party mortgagors.

Therefore the case does not involve a derivative suit. The Court now disallows the
dismissal of the case when not found to be a derivative suit. The SC ordered the re-raffling of
the case to all the RTCs of the place where the complaint was filed.

PRINCIPLES

A derivative action is a suit by a shareholder to enforce a corporate cause of action. Under the
Corporation Code, where a corporation is an injured party, its power to sue is lodged with its
board of directors or trustees. But an individual stockholder may be permitted to institute a
derivative suit on behalf of the corporation in order to protect or vindicate corporate rights
whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold
control of the corporation.

Requirements for derivative suit:

1. the party bringing suit should be a shareholder as of the time of the act or
transaction complained of, the number of his shares not being material;
2. he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the
board of directors for the appropriate relief but the latter has failed or refused to heed
his plea; and
3. the cause of action actually devolves on the corporation, the wrongdoing or harm
having been, or being caused to the corporation and not to the particular
stockholder bringing the suit.

Otherwise put:

l) The person filing the suit must be a stockholder or member at the time the acts or
transactions subject of the action occurred and the time the action was filed;

(2) He must have exerted all reasonable efforts, and alleges the same with particularity in
the complaint, to exhaust all remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.