8. AIRENE UNERA vs.

SHIN HEUNG ELECTRO DIGITAL

G.R. No. 228328, March 11, 2020. ZALAMEDA, J.

DOCTRINE: As long as there is no malicious action of the part of the employer, the wisdom of
business judgment to implement a cost saving device is beyond the court’s determination. It is
the free will of management to conduct its own business affairs to achieve its purpose. Such
cannot be denied.

FACTS: Shin Heung Electrodigital Inc. is a company primarily engaged in the manufacture of a
computer part called “deck”. This was exclusively for Smart Electronics Manufacturing Service
Philippines. The company was forced to reduce its labor force from 2000 to 991 employees due
to dwindling sales. When Smart Manufacturing terminated its contract with the company, Shin
Heung decided to close. They issued a memorandum to inform their employees, and informed
the Department of Labor and Employment that they had intended to completely close
operations.

Several workers immediately inquired whether they would be allowed to resign for payment of
separation pay. They received an affirmative response and the employees submitted their
letters of resignation. However, before its scheduled closure, the company decided to recall its
notice of closure. They reasoned that the company resumed operation only over a small portion
of the business in order to alleviate losses and to help maintain the company assets until they
were finally sold.

The petitioner claimed that the closure was merely a ruse to circumvent their tenural rights and
filed separate complaints for illegal closure of establishment with claims for reinstatement,
backwages and additional separation pay. They argued that the company was in evident bad
faith when it resumed operations after their dismissal

Rule of Labor Arbiter: found that Shin Heung was compliant with all the requirements for a valid
cessation of business, making the dismissal valid, and that those who executed letters of
resignation were deemed to have done so voluntarily

Ruling of the NLRC: Reversed the decision of the Labor Arbiter and declared the petitioner’s
dismissal as illegal. It ruled that the evidence of the company were insufficient to sustain its
claim of continuous loss. Therefore, it deemed the act of dismissing its employees by
retrenchment as lacking of merit.

Ruling of the CA: Reinstated the ruling of the labor arbiter. It ruled that the company did not act
with bad faith in severing ties with their employees .

ISSUE: Whether or not the employees were illegally dismissed? (NO)

HELD: The Supreme Court ruled that the closure or cessation of business was the cause of the
dismissal of the employees. Distinction must be made between retrenchment and closure of
business establishment. They are completely separate and authorized causes for the
termination of employment.

Retrenchment is initiated by the employer through no fault of the employees during periods of
business recession, industrial depression or seasonal fluctuations. While closure of business is
the complete or partial cessation of the operations of the employer. This may be either due to
serious business losses or financial reverses. It is carried out to either stave off the financial
ruin or promote the business interest of the employer with the following requisites:
1. There must be a decision to close the operation of the enterprise by the management
2. The decision was made in good faith
3. There is no other option available to the employer

In this case, Shin Heungs intention was to totally close the business. The company had already
sufficiently proven substantial business losses on its part which necessitated the closure of the
company. Its decision to continue part of its previous operations is an exercise of its right to
continue its business. As long as there is no malicious action of the part of the employer, the
wisdom of business judgment to implement a cost saving device is beyond the court’s
determination. It is the free will of management to conduct its own business affairs to achieve its
purpose. Such cannot be denied.

9. AGO Realty & Dev. Corp. vs. Dr. Angelita Ago, et. al., G.R. No. 210906, October 16, 2019

Doctrine: 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.

Facts: ARDC is a close corporation. Its stockholders are petitioners and respondents. Angelita
introduced improvements on Lot No. H-3, titled in the name of ARDC, without the proper
resolution from the corporation's Board of Directors. ARDC and Emmanuel filed a complaint
before RTC Legazpi.

RTC: dismissed the complaint and holding Emmanuel and Corazon jointly and severally liable
for damages
• ARDC is the real party in interest and 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.

CA: affirmed RTC decision

Issue: Whether Emmanuel, et al. may sue on behalf of ARDC absent a resolution or any other
grant of authority from its Board of Directors sanctioning the institution of the case. Yes but a
derivative suit is an equitable remedy and one of last resort. ARDC should have filed the case
itself.

Held: 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. The 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.
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.
Since it is settled that she introduced improvements on ARDC's property without its consent, it
follows that the complaint was not baseless at all. However, because the case was not brought
by the corporation, but by its stockholders, its dismissal was properly decreed by the trial court.

10. Business Judgment Rule

Philippine Stock Exchange vs. CA, SEC, and Puerto Azul Land, Inc.
Facts: Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer
its shares to the public in order to raise funds allegedly to develop its properties and pay
its loans with several banking institutions.  In January, 1995, PALI was issued a Permit to
Sell its shares to the public by the Securities and Exchange Commission (SEC). To facilitate
the trading of its shares among investors, PALI sought to course the trading of its shares
through the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the
said stock exchange an application to list its shares, with supporting documents
attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALI's
application, recommended to the PSE's Board of Governors the approval of PALI's listing
application.
On February 14, 1996, before it could act upon PALI's application, the Board of Governors of
the PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late
President Marcos was the legal and beneficial owner of certain properties forming part of the
Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and
that the Ternate Development Corporation, which is among the stockholders of PALI,
likewise appears to have been held and continue to be held in trust by one Rebecco
Panlilio for then President Marcos and now, effectively for his estate, and requested
PALI's application to be deferred.
PALI's answer stated that the properties forming part of the Puerto Azul Beach Hotel and Resort
Complex were not claimed by PALI as its assets.
On March 27, 1996, the Board of Governors of the PSE rejected PALI's application, citing the
existence of serious claims, issues and circumstances surrounding PALI's ownership over its
assets that adversely affect the suitability of listing PALI's shares in the stock exchange.
Consequently, PALI requested SEC to review the PSE's action on PALI's listing application and
institute such measures as are just and proper under the circumstances.
SEC reversed the decision of PSE and ordered to immediately cause the listing of the PALI
shares in the Exchange, without prejudice to its authority to require PALI to disclose such other
material information it deems necessary for the protection of the investigating public.
On appeal, the CA denied the Petition for Review and ruled that SEC had both jurisdiction and
authority to look into the decision of the petitioner PSE.
Issue: WON PSE is correct in rejecting PALI’s listing application

Ruling:  SEC is the entity with the primary say as to whether or not securities, including shares
of stock of a corporation, may be traded or not in the stock exchange. This is in line with the
SEC's mission to ensure proper compliance with the laws, such as the Revised Securities Act
and to regulate the sale and disposition of securities in the country.
The role of the SEC in our national economy cannot be minimized. The legislature, through the
Revised Securities Act, Presidential Decree No. 902-A, and other pertinent laws, has entrusted
to it the serious responsibility of enforcing all laws affecting corporations and other forms of
associations not otherwise vested in some other government office. 

This is not to say, however, that the PSE's management prerogatives are under the absolute
control of the SEC. The PSE is, alter all, a corporation authorized by its corporate
franchise to engage in its proposed and duly approved business. One of the PSE's main
concerns, as such, is still the generation of profit for its stockholders. Moreover, the PSE
has all the rights pertaining to corporations, including the right to sue and be sued, to
hold property in its own name, to enter (or not to enter) into contracts with third persons, and to
perform all other legal acts within its allocated express or implied powers.

A corporation is but an association of individuals, allowed to transact under an assumed

corporate name, and with a distinct legal personality. In organizing itself as a collective body, it
waives no constitutional immunities and perquisites appropriate to such a body.  As to its
corporate and management decisions, therefore, the state will generally not interfere with the
same. Questions of policy and of management are left to the honest decision of the officers and
directors of a corporation, and the courts are without authority to substitute their judgment for
the judgment of the board of directors. The board is the business manager of the corporation,
and so long as it acts in good faith, its orders are not reviewable by the courts. 

Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority
to reverse the PSE's decision in matters of application for listing in the market, the SEC may
exercise such power only if the PSE's judgment is attended by bad faith.
In reaching its decision to deny the application for listing of PALI, the PSE considered important
facts, which, in the general scheme, brings to serious question the qualification of PALI to sell its
shares to the public through the stock exchange. During the time for receiving objections to the
application, the PSE heard from the representative of the late President Ferdinand E. Marcos
and his family who claim the properties of the private respondent to be part of the Marcos
estate. In time, the PCGG confirmed this claim. In fact, an order of sequestration has been
issued covering the properties of PALI, and suit for reconveyance to the state has been filed in
the Sandiganbayan Court.

In sum, the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion
of approving the application for listing in the PSE of the private respondent PALI, since this is a
matter addressed to the sound discretion of the PSE, a corporation entity, whose business
judgments are respected in the absence of bad faith.

11. Filipinas Port Services vs. Go 

G.R. No. 161886, March 16, 2007

Doctrine:
The Board of Directors has the power to create positions not provided for in the 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. 

Facts:
Eliodoro C. Cruz, the former Filports president, wrote a letter to the corporation's Board of
Directors questioning the boards creation of several positions with a monthly remuneration of
P13,050.00 each, and the election thereto of certain members of the board. In the letter, he
requested the board to take necessary actions to recover from those elected to the
aforementioned positions the salaries they have received.
Subsequently, Cruz, in representation of Filport and its stockholders, filed with the SEC a
derivative suit against the incumbent members of Filport’s Board of Directors. For alleged acts
of mismanagement detrimental to the interest of the corporation and its shareholders at large.
The alleged acts are the following: (1) creation of an executive committee in 1991 composed of
seven members of the board, an office which, to Cruz, is not provided for in the by-laws of the
corporation and whose function merely duplicates those of the President and General Manager;
(2) increase in the emoluments of the Chairman, Vice President, Treasurer and Assistant
General Manager which increases are greatly disproportionate to the volume and character of
the work of the directors holding said positions; (3) re-creation of the positions of Assistant Vice-
Presidents for Corporate Planning, Operations, Finance and Administration, and the election
thereto of several board members; (4) creation of additional positions of Special Assistants to
the President and the Board Chairman, the directors elected/appointed thereto are not doing
any work to deserve the monthly remuneration of P13,050.00 each.

He alleged that despite demands upon the respondent members of the board of directors to
desist from creating the positions in question and to account for the amounts incurred in
creating the same, the demands were unheeded.
Respondents demoed the allegations of mismanagement and materially averred the following:
(1) that the creation of the executive committee and the grant of per diems are allowed under
the by-laws of the corporation; (2) increases in the salaries were well within the financial
capacity of the corporation (3) the positions of AVPs for Corporate Planning, Operations,
Finance and Administration were already in existence during the tenure of Cruz as president of
the corporation and were merely recreated by the Board. It was further averred that Cruz and
his co petitioner have no authority nor standing to bring the derivative suit for and on behalf of
the corporation.
The RTC rendered judgment against the respondents by ordering the directors holding the
positions of Assistant Vice President for Corporate Planning, Special Assistant to the President
and Special Assistant to the Board Chairman to refund to the corporation the salaries they have
received as such officers <considering that Filipinas Port Services is not a big corporation
requiring multiple executive positions and that said positions were just created for
accommodation.
However, the CA granted the appeal and reversed and set aside the decision of the trial court.

Issue: 
WON the creation of the executive committee and other offices in the corporation are within the
powers of the Board of Directors. 

Held:
YES
The governing body of the corporation is its board of directors. Under Section 23 of the
Corporation Code, 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, the board of directors has the sole authority to determine policies, enter into
contracts, and conduct the ordinary business of the corporation within the scope of its charter,
its articles of incorporation, by-laws and relevant provisions of law. 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 court held that it cannot rule that the creation of the executive committee by the board of
directors is illegal or unlawful. First 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 any time and whose actions require ratification and
confirmation by the board.
Another reason is that 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.

12. CHING VS QUEZON CITY SPORTS CLUB

GR NO. 2000150/ NOV 7, 2016

DOCTRINE:
BUSINESS JUDGEMENT RULE: “questions of policy and management are left to the honest
decision of the officers and directors of a corporation; and the courts are without authority to
substitute their judgment for that of the BOD unless said judgment had been attended with
bad faith”
FACTS:
Quezon city sports club is a domestic corporation providing recreational activities, sports
facilities and other exclusive privileges. The petitioners, one of which, Catherine, is a member
since 1989 and as per policy, the privileges extend to her family, the other petitioners. The Club
underwent a case with the NLRC that required it to pay several illegally dismissed employees.
Unable to financially do so, the club required assistance from the club members, issuing a
Resolution asking 2,500 per member. Catherine believed this was unjust and did not pay her
contributions which prompted the club to suspend her privileges.
Laurence, daughter of Catherine, went to the club but was refused admittance because
Catherine’s membership was suspended. Petitioners asked for the recall of suspension and
asking for damages while the club states that they did not damage the reputation of their
members and that they were within their rights to do what they did.
RTC decided in favor of the Club saying they find no evidence of bad faith for imposing the fee
of 2,500 but that according to the by-laws of the club suspension of members should come after
notice and hearing which did not happen in this case. Also, the continued suspension of
Catherine even after she has paid the 2,500 special assessment fee is bad faith and malice.
CA decided that there is indeed notice of suspensions given to Catherine in the form of her
monthly statement of account and that the suspension was valid.
ISSUE:
WoN the suspension of Catherine’s account was done according to the by-laws of the club and
if it was valid. YES
RULING:
It is cited that the articles of incorporation and the by-laws are the fundamental documents
guiding the conduct of the corporate affairs of a corporation. The by-laws are self-imposed rules
and constitute a binding contract between the club and its members.
In this case the by-laws require that before a member is suspended there should be a notice
and hearing. Catherine did not specifically receive a notice that she was to be suspended,
rather the club relied on the general notice of account statements that warned of an automatic
suspension. Thus, the right to due process was violated. However, Catherine did admit that she
willfully violated the requirement to pay 2,500 which is a violation of the Board resolution that
required the payment of the 2,500.

13. Advance Paper Corp. (creditor) vs. Arma Traders Corp. (debtor), G.R. 176897 Dec. 11,
2013

Facts
Arma Traders is a distributor of school of supplies, and has been engaging with Advance Paper
as its supplier for 14 years.

In 1994, Pres. Tan and Treasurer Uy, in representation of Arma Traders, availed a total of
P15.13M worth of paper products from Advance Paper on credit.

As authorized signatories of Arma, Tan and Uy extended PDCs to Advance Papers. The checks
were dishonored due to lack of funds. Arma Traders failed to settle.
Adv. Paper filed a collection of sum of money with preliminary attachment against the corp and
some officers, proved the credit through sales invoices, and proved loan history through
previous checks by Arma.

Arma’s defense was that (1) There was no delivery of the paper products and (2) Pres. Tan and
Treas. Uy were the only ones responsible since they acted in excess of their authority since and
such are without approval of the BoD

Lower Courts: RTC Manila favored Advance Paper. CA reversed.

Issue and Ruling

Did Arma Traders Pres. Tan and Treas. Uy have authority to obtain loans?
Short answer
Yes, because of the doctrine of Apparent Authority substantiated by the following 5
circumstances: (1) First, Arma’s AOI provides that the corp may borrow money; (2) Tan and Uy
were incorporators and they alone had made the decisions for the business since 1984. (3)
Arma Corp is guilty of laxity and failed to prevent abuse by its officers; (4) Arma failed to prove
connivance between Advance Paper and Arma’s previous President and Treasurer.

Long answer
Arma Traders is liable to pay the loans on the basis of the doctrine of apparent authority. The
doctrine of apparent authority provides that 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.

AOI provides that they may borrow. Arma Traders’ Articles of Incorporation82 provides that the
corporation may borrow or raise money to meet the financial requirements of its business by the
issuance of bonds, promissory notes and other evidence of indebtedness.

Tan and Uy were incorporators. Also, Ng testified: the sole management of Arma Traders was
left to Tan and Uy and that he and the other officers never dealt with the business and
management of Arma Traders for 14 years. He also confirmed that since 1984 up to the filing of
the complaint against Arma Traders, its stockholders and board of directors never had its
meeting.

Arma Traders allowed its officers and failed to take precautions to prevent abuse. Thus, Arma
Traders bestowed upon Tan and Uy broad powers by allowing them to transact with third
persons without the necessary written authority from its non-performing board of directors. Arma
Traders failed to take precautions to prevent its own corporate officers from abusing their
powers. Because of its own laxity in its business dealings, Arma Traders is now estopped from
denying Tan and Uy’s authority to obtain loan from Advance Paper.
Debtor failed to show evidence of connivance between Haw and Tan/Uy. We also reject the
respondents’ claim that Advance Paper, through Haw, connived with Tan and Uy. The records
do not contain any evidence to prove that the loan transactions were personal to Tan and Uy. A
different conclusion might have been inferred had the cashier’s checks been issued in favor of
Tan and Uy, and had the postdated checks in favor of Advance Paper been either Tan and/or
Uy’s, or had the respondents presented convincing evidence to show how Tan and Uy
conspired with the petitioners to defraud Arma Traders.84 We note that the respondents initially
intended to present Sharow Ong, the secretary of Tan and Uy, to testify on how Advance Paper
connived with Tan and Uy. As mentioned, the respondents failed to present her on the witness
stand.

14. TERP CONSTRUCTION CORPORATION, PETITIONER, V. BANCO FILIPINO SAVINGS

AND MORTGAGE BANK (G.R. No. 221771, September 18, 2019)
Doctrine: A corporation's repeated payment of an allegedly unauthorized obligation contracted
by one (1) of its officers effectively ratifies that corporate officer's allegedly unauthorized act.
Facts:
This Court resolves a Petition for Review on Certiorari assailing the Decision and Resolution of
the Court of Appeals, which reversed and set aside the Regional Trial Court Decision and
ordered Terp Construction Corporation (Terp Construciton) to pay Banco Filipino Savings and
Mortgage Bank (Banco Filipino) interest differentials of P18,104,431.33.
Sometime in 1995, Terp Construction planned to develop a housing project called the Margarita
Eastville and a condominium called Margarita Plaza. To finance the projects, Terp Construction,
Home Insurance Guaranty Corporation, and Planters Development Bank (Planters Bank)
agreed to raise funds through the issuance of bonds worth P400 million called the Margarita
Project Participation Certificates (Margarita Bonds).
The three (3) companies entered into a Contract of Guaranty in which they agreed that Terp
Construction would sell the Margarita Bonds and convey the funds generated into an asset pool
named the Margarita Asset Pool Formation and Trust Agreement. Planters Bank, as trustee,
would be the custodian of the assets in the asset pool with the corresponding obligation to pay
the interests and redeem the bonds at maturity.
Home Insurance Guaranty Corporation, as guarantor, would pay investors the value of the bond
at maturity plus 8.5% interest per year. Banco Filipino purchased Margarita Bonds for P100
million. It asked for additional interest other than the guaranteed 8.5% per annum. Terp
Construction began constructing Margarita Eastville and Margarita Plaza.
When the Margarita Bonds matured, the funds in the asset pool were insufficient to pay the
bond holders. Pursuant to the Contract of Guaranty, Planters Bank conveyed the asset pool
funds to Home Insurance Guaranty Corporation, which then paid Banco Filipino interest
earnings of 8.5% per year. Banco Filipino, however, sent Terp Construction a demand letter
dated January 31, 2001, alleging that it was entitled to a 15.5% interest on its investment. Then,
Terp Corporation filed a complaint for the nullity of interest, damages, and attorney's fees
against Banco Filipino.
The RTC issued a Decision in favor of Terp Construction. On appeal, the CA reversed the
decision of the RTC, finding Terp Corpation was not obligated to pay additional interest, since it
was never mentioned and found unmeritorious Terp Construction's defense that the letters were
unauthorized acts of Escalona, its then senior vice president, since his acts were ratified when
Terp Construction paid interest differentials twice to Banco Filipino during the Margarita Bonds'
holding period.
Issue:
Whether or not the Terp Construction expressly agreed to be bound to respondent Banco
Filipino Savings Mortgage Bank for additional interest in the bonds it purchased?
Ruling:
A corporation's repeated payment of an allegedly unauthorized obligation contracted by one of
its officers effectively ratifies that corporate officer's allegedly unauthorized act. A corporation
exercises its corporate powers through its board of directors. This power may be validly
delegated to its officers, committees, or agencies. "The authority of such individuals to bind the
corporation is generally derived from law, corporate bylaws or authorization from the board,
either expressly or impliedly by habit, custom or acquiescence in the general course of
business[.]” The authority of the board of directors to delegate its corporate powers may either
be: (1) actual; or (2) apparent. Actual authority may be express or implied. Express actual
authority refers to the corporate powers expressly delegated by the board of directors. Implied
actual authority, on the other hand, "can be measured by his or her prior acts which have been
ratified by the corporation or whose benefits have been accepted by the corporation.”
Petitioner's subsequent act of twice paying the additional interest Escalona committed to during
the term of the Margarita Bonds is considered a ratification of Escalona's acts. Petitioner's only
defense that they were "erroneous payment[s]" since it never obligated itself from the start
cannot stand. Corporations are bound by errors of their own making.

ALLIED BANKING CORP. VS. SPOUSES MACAM, G.R. NO. 200635, FEBRUARY 1, 2021
[ G.R. No. 200635, February 01, 2021]
HERNANDO, J.:

DOCTRINE: Employers shall be liable for the damages caused by their employees acting within
the scope of their assigned tasks.

FACTS:

Mario Macam invested P1,572,000.00 in the cellular card business of respondent Helen Garcia.
Elena Valerio, the Unit Manager in Helen's business, facilitated the transaction. Said amount
was deposited in Velerio's Savings Account with Allied Bank-Pasay Road Branch. On February
6, 2003, Mariebel Caña, Branch Head of Allied Bank - Alabang Las Piñas Branch, informed
bank teller Melisa Berras to anticipate a deposit by Helen in the amount of P46 million.

Since Helen had yet to make the promised deposit and her account balance did not amount to
P46 Million, Berras protested to Cana that she cannot credit the corresponding amounts to the
five accounts as indicated in the fund transfer receipts. Nonetheless, Cana effected a local
override and approved the fund transfer. Consequently, the amounts were credited to the five
deposit accounts, including Valeria's, in the amount of P10 Million. Meanwhile, Valerio withdrew
P1,722,500 from her account at AB-Pasay and deposited P1,590,000 to the account of Mario's
brother Manuel and the latter's wife and Sheila Macam. They were able to make withdrawals
leaving a balance of P1.1 million.

Cana again instructed Berras to debit specific amounts from different accounts including
Valerio's account. Mamalayan learned of the debiting of the three accounts. Mamalayan
received an SMS from Cana that the P46 million deposit had been cancelled. Cana instructed
Mamalayan to book the amount of P20.3 million under "Accounts Receivable" corresponding to
the unrecovered amount from the P46 Million which had been earlier transferred to various
deposit accounts. Due to the discrepancy, Angela Barcelona, Region Head, Retail Banking
Group for Allied Bank, ordered the debit of the remaining Pl.1 million from the account of the
Spouses Mario Macam which resulted in the closure thereof.

The Spouses Mario Macam learned of the closure after they were unable to withdraw from their
account. Hence, the Spouses Mario Macam filed the complaint for Damages against the bank
and the AB-PT Branch Head, Dimog.

The RTC ruled in favor of the Spouses Macam and orders Allied Bank and Guillermo P. Dimog
jointly and severally, to pay respondents Mario Antonio Y. Macam and Rose Trinidad T. Macam,
the amount of P 1.1 million with interest thereon at 12% interest per annum, computed from the
date the accounts of respondents, the Spouses Mario Macam] had been closed on February 19,
2003 until the full amount is actually paid.

CA affirmed their decision. the appellate court likewise found that Allied Bank is liable to the
Spouses Mario Macam for breach of contract, or culpa contractual. It held that Allied Bank
reneged on its contractual obligation to the Spouses Mario Macam to pay their money in deposit
on demand.

The Allied Bank argued that it holds valid title not only to the Pl.1 million that it debited from the
account of the Spouses Mario Macam but to the entire P1,590,000.00 used to open the subject
deposit account of the Spouses Mario Macam with AB-PT Branch as well. Allied Bank defines
its banking relationship with the Spouses Mario Macam in the negative as "not that which is
ordinarily between a bank and its depositor." The bank asseverates that it owns the funds which
inadvertently found its way into the Spouses Mario Macam's account.

ISSUE:
W/N Allied Bank is solely liable for the transaction made by their employee Maribel Caña that
led to the closure of account of Mario Macam?

RULING: YES

Allied Bank defines its banking relationship with the Spouses Mario Macam in the negative as
"not that which is ordinarily between a bank and its depositor." The bank asseverates that it
owns the funds which inadvertently found its way into the Spouses Mario Macam's account.
The SC finds the arguments of Allied Bank are untenable.

Banking industry is impressed with public interest requiring banks to assume a degree of
diligence higher than that of a good father of a family. Thus, all banks are charged with
extraordinary diligence in the handling and care of its deposits as well as the highest degree of
diligence in the selection and supervision of its employees.

To completely evade liability, Allied Bank ascribes all blame to the acts of its employee, Caña,
beginning with the credit of P46 Million to Helen's account without an actual deposit of funds.
The bank further muddles the issues, assumes all the injury and damage, but none of the
responsibility for its own negligence and that of its employee. It turns a blind eye on its
contractual obligation to, and the damage suffered by, its depositor.

Articles 1172, 2176 and 2180 of the Civil Code lay down the following principles:

(1) the responsibility of the obligor arising from negligence in the performance of the obligation
is demandable;
(2) the fault or negligence of the obligor causing damage to another obliges him to pay for the
damage done; and
(3) the obligation to pay for the damage is demandable not only for one's own acts or omission,
but also for those of persons for whom one is responsible.

Paragraph 5 of Article 2180 provides that "employers shall be liable for the damages caused by
their employees xxx acting within the scope of their assigned tasks."

It appears that in the previous instances, there were occasions of promised belated deposits of
Helen Garcia that have always materialized hence, the practice went on.

It is true that it was Caña who facilitated the transactions by making an override and through the
use of fund transfer tickets which she accomplished and which did not bear the required
validation of the teller and the Branch Operations Officer.

It is inconceivable that the bank would not have known the unauthorized transaction it appearing
to involve too huge an amount to have [gone] unnoticed. For this reason, [Allied Bank] had
indeed failed to perform what was incumbent upon it, which is to ensure regularity in the
banking transactions.

The authority of a corporate officer or agent in dealing with third persons may be actual or
apparent. The apparent authority to act for and to bind a corporation may be presumed from
acts of recognition in other instances, wherein the power was exercised without any objection
from its board or shareholders. Caña's act of approving the P46 Million fund transfer and the
subsequent transfers to different accounts in various branches of Allied Bank leading to the
P1,590,000.00 transfer to the account of the Spouses Mario Macam all appear to have been
clothed with authority. Indeed, the subsequent transfers of funds were approved by several
Branch Heads.

The doctrine of "apparent authority", with special reference to banks, has long been recognized
in this jurisdiction. Apparent authority is derived not merely from practice. Its existence may be
ascertained through:1) the general manner in which the corporation holds out an officer or agent
as having the power to act, or in other words, the apparent authority to act in general, with which
it clothes him; or 2) the acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, within or beyond the scope of his ordinary powers.
DISPOSITION

WHEREFORE, the Petition for Review on Certiorari is DENIED. The November 10, 2011
Decision of the Court of Appeals in CA-G.R. CV No. 91098 is AFFIRMED with MODIFICATION
in that petitioner Allied Banking Corporation is solely liable to pay respondent Rose Trinidad
Macam.

16. MIRANT (PHILIPPINES) CORP. V. CARO,

G.R. No. 181490, [APRIL 23, 2014]
FACTS:
Petitioner corporation’s Investigating Panel issued an Investigating Report finding
respondent guilty of “unjustified refusal to submit to random drug testing” and recommended a
penalty of four working weeks suspension without pay, instead of termination, due to the
presence of mitigating circumstances. In the same Report, the Investigating Panel also
recommended that petitioner corporation should review its policy on random drug testing,
especially of the ambiguities cast by the term “unjustified refusal.”
Petitioner corporation’s Asst. Vice President for Material Management Department,
George K. Lamela, Jr. (Lamela), recommended that respondent be terminated from
employment instead of merely being suspended. Lamela argued that even if respondent did not
outrightly refuse to take the random drug test, he avoided the same. Lamela averred that
“avoidance” was synonymous with “refusal.”
Respondent received a letter from petitioner corporation’s Vice President for Operations,
Tommy J. Sliman (Sliman), terminating him on the same date. Respondent filed a Motion to
Appeal his termination. The motion was denied by petitioner corporation.
It is the contention of respondent that he was illegally dismissed by petitioner corporation
due to the latter’s non-compliance with the twin requirements of notice and hearing. He asserts
that while there was a notice charging him of “unjustified refusal to submit to random drug
testing,” there was no notice of hearing and petitioner corporation’s investigation was not the
equivalent of the “hearing” required under the law which should have accorded respondent the
opportunity to be heard.
ISSUE: Whether the corporation officers should be held liable solidarily with the corporation?
HELD:
NO. Finally, the petition avers that petitioner Bautista should not be held personally liable
for respondent’s dismissal as he acted in good faith and within the scope of his official functions
as then president of petitioner corporation. We agree with petitioners. Both decisions of the
Labor Arbiter and the CA did not discuss the basis of the personal liability of petitioner Bautista,
and yet the dispositive portion of the decision of the Labor Arbiter — which was affirmed by the
appellate court — held him jointly and severally liable with petitioner corporation, viz.:
WHEREFORE, premises considered, this Office finds respondents GUILTY of illegal
dismissal, and hereby ordered to jointly and severally reinstate complainant back to his former
position without loss on seniority rights and benefits and to pay him his backwages and other
benefits from the date he was illegally dismissed up to the time he is actually reinstate x x x
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. 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.

17. Queensland-Tokyo Commodities, Inc., et al. vs. Thomas George

G.R. No. 172727, Sept. 8, 2010

FACTS:
QTCI is a duly licensed broker engaged in the trading of commodity futures.

Guillermo Mendoza, Jr. And Oniler Lontoc of QTCI met with respondent Thomas George
encouraging the latter to invest with QTCI. Respondent finally invested with QTCI.

The SEC issued a Cease-and-Desist Order against QTCI. Alarmed by the issuance of the CDO,
respondent demanded from QTCI the return of his investment, but it was not heeded.

Respondent 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.

Petitioners denied the material allegations in the complaint and alleged lack of cause of action.

Petitioners averred that QTCI only assigned duly qualified persons to handle the accounts of its
clients; and denied allowing unlicensed brokers or agents to handle respondent’s account. They
claimed 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.

SEC Hearing Officer rendered a decision in favor of respondent.

Petitioners went to the CA via a petitioner for Review.

CA sustained the finding that petitioners violated the Revised Rules and Regulations on
Commodity Future Trading when they allowed an unlicensed salesman, like Mendoza, to handle
respondent’s account.
ISSUE:
Whether petitioners are jointly liable with QTCI

HELD: YES
The Commission took into consideration the fact that petitioner Collado, who is not a licensed
commodity salesman, himself violated the provisions of the Revised Rules and Regulations on
Commodity Futures Trading when he admitted having participated in the execution of customers
orders without giving any exception thereto, which presumably includes his participation in the
execution of customers orders of the respondent.

Mendoza’s participation in the trading of respondent’s account is within the knowledge of

petitioner Collado.

The presence of seven (7) unlicensed investment consultants within QTCI apart from Mendoza
and Collado’s participation in the unlawful execution of orders under the respondent’s account
clearly establish the fact that the management of QTCI failed to implement the rules and
regulations against hiring of, and associating with, unlicensed consultants or traders.

Petitioner Lau, as president of QTCI, cannot feign innocence on the existence of there unlawful
activities within the company, especially so that Collado, himself a ranking officer of QTCI, is
involved in the unlawful execution of customers orders. Lau, being the chief operating officer,
cannot escape the fact that had he exercised a modicum of case and discretion in supervising
the operations of QTCI, he could have detected and prevented the unlawful acts of Collado and
Mendoza.

Therefore, although Lau may not have participated nor been aware of the unlawful acts, he is
however deemed to have been grossly negligent in directing the affairs of QTCI.

In all, it having been established by substantial evidence that [petitioner] Collado assented to
the unlawful act of QTCI, and that [petitioner] Lau is grossly negligent in directing the affairs
of QTCI, and pursuant to Section 31 of the Corporation Code, they are therefore, jointly
and severally liable with QTCI for all the damages and awards due to the [respondent].

18. OSCARES V. MAGSAYSAY MARITIME CORP.

G.R. NO. 245858, DEC. 2, 2020

Ponente: Assoc. Justice Rosmari D. Carandang

FACTS

On August 14, 2015, the Philippine Overseas Employment Administration (POEA) approved the
contract of employment between Oscares and respondent SK Shipping (Singapore) Pte. Ltd.,
through its manning agent respondent Magsaysay Maritime Corporation (respondents). He was
certified as fit to work by respondents' examining physician on August 29, 2015. As Second
Assistant Engineer on board the vessel MV K. Garnet, he was responsible for the maintenance,
operation of engineering, electrical and electronic systems of the vessel.

On November 4, 2015, while the vessel was anchored in Panama, Oscares was singing in front
of a videoke machine together with another crew member when he slipped and fell out of
balance. As a result, he suffered major knee injuries. First aid was administered to him. On
November 11, 2015, he was sent to a medical facility in San Luis Hospital, Mexico. He was
diagnosed with fracture fragmentary of the tibia bone epiphysis in the right leg and fracture
crack of the tibia bone epyphysis in the left leg. It was recommended that he undergo major
knee surgery or osteosintesis
fixation and sterilization. Oscares was declared unfit to work for 10 weeks.

On December 10, 2015, Oscares was repatriated to Manila and he was recommended to
undergo major knee surgery. Respondents insisted that Oscares should shoulder the cost of
his surgery. Since his protests fell on deaf ears, he was compelled to undergo the necessary
surgery on December 29, 2016. Oscares also shouldered his physical rehabilitation which
ensued thereafter. Nonetheless, he was required to report to NGC.

Oscares sent a demand letter dated July 25, 2016 to respondents for a copy of his final
assessment and referral to a third doctor. Since respondents took no action, he filed a notice to
arbitrate against them. After mandatory conciliation/mediation, they reached a deadlock. On
July 14, 2017, the Panel ruled that Oscares is entitled to total and permanent disability benefits
worth US$131,797.00 based on-the Collective Bargaining Agreement (CBA).

On August 29, 2018, the CA granted the petition and reversed and set aside the decision of the
panel of voluntary arbitrators. The CA held that Oscares' injury was not work-related, work
caused, or work-aggravated. It has no connection whatsoever to his official duties.
Consequently, it is not compensable.

ISSUE

Whether the corporate officers are liable. – YES.

RULING

Respondents, including Arnold Javier as the President of Magsaysay Maritime Corporation,

shall be jointly and severally liable to Oscares in accordance with Section 10 of Republic Act
(RA) No. 8042, as amended by RA No. 10022, which provides that "if the
recruitment/placement agency is a juridical being, the corporate officers and directors and
partners as the case may be, shall themselves be jointly and solidarily liable with the
corporation or partnership for the aforesaid claims and damages."

In Gargallo v. Dahle Seafront Crewing (Manila), Inc., we explained that corporate officers or
directors cannot, as a general rule, be personally held liable for the contracts entered into by the
corporation because the corporation has a separate and distinct legal personality. However,
"personal liability of such corporate director, trustee, or officer, along (although not necessarily)
with the corporation, may validly attach when he is made by a specific provision of law
personally answerable for his corporate action." As such, We upheld the joint and solidary
liability of the officer in that case following Sec. 10 of RA No. 8042, as amended.

We similarly imposed joint and several liability on the foreign employer, local manning agency,
and its officer/director in Carino v. Maine Marine Phils., Inc. Respondents alleged that pursuant
to a Writ of Execution issued by the National Conciliation and Mediation Board on October 3,
2017, they paid the full judgment award. If it is true, Oscares must return the excess of what he
received to respondents because he is only entitled to disability benefits of Grade 10, sickness
allowance, moral damages, and attorney's fees. This is in accordance with Section 18, Rule XI
of the 2011 National Labor Relations Commission Rules of Procedure, as amended by En
Banc Resolution Nos. 11- 12, Series of 2012 and 05-14, Series of 2014. 71 However,
respondents have not submitted proof that it has paid the full judgment award to Oscares.
Hence, We do not have any basis to order the return the excess of what they allegedly paid to
Oscares.

DISPOSITION

WHEREFORE, the petition is GRANTED. The Decision dated August 29, 2018 and and the
Resolution dated February 27, 2019 of the Court of Appeals in CA-G.R. SP No. 151822 are
REVERSED and SET ASIDE. The Decision dated March 30, 2017 and the Resolution dated
July 14, 2017 of the Office of the Panel of Voluntary Arbitrators are REINSTATED with the
MODIFICATION in that respondents Magsaysay Maritime Corp., SK Shipping (Singapore) Pte.
Ltd., and/or Arnold B. Javier are jointly and severally held liable to pay petitioner John A.
Oscares sickness allowance in an amount equivalent to his basic wage not exceeding 120
days and disability benefit equivalent to Grade 10 rating under the POEA-SEC.

19.

SPOUSES FERNANDEZ VS. SMART COMMUNICATIONS, INC.

G.R. No. 212885, July 17, 2019

DOCTRINE:

It is basic in corporation law that a corporation is an artificial being invested by law with a
personality separate and distinct from its stockholders and from other corporations to
which it may be connected. Inferred from a corporation's separate personality is that "consent
by a corporation through its representatives is not consent of the representative, personally."
The corporate obligations, incurred through official acts of its representatives, are its own.
Corollarily, a stockholder, director, or representative does not become a party to a contract just
because a corporation executed a contract through that stockholder, director, or
representative. As a general rule, a corporation's representatives are not bound by the terms of
the contract executed by the corporation. "They are not personally liable for obligations and
liabilities incurred on or in behalf of the corporation. " There are instances, however, when the
distinction between personalities of directors, officers, and representatives, and of the
corporation, are disregarded. This is piercing the veil of corporate fiction.  The doctrine of
piercing the veil of corporate fiction is a legal precept that allows a corporation's separate
personality to be disregarded under certain circumstances, so that a corporation and its
stockholders or members, or a corporation and another related corporation could be treated as
a single entity. It is meant to apply only in situations where the separate corporate personality of
a corporation is being abused or being used for wrongful purposes. 

The piercing of the corporate veil must be done with caution.  To justify the piercing of
the veil of corporate fiction, "it must be shown by clear and convincing proof that the
separate: and distinct personality of the corporation was purposefully employed to evade
a legitimate and binding commitment and perpetuate a fraud or like wrongdoings."

A corporate director, trustee, or officer is to be held solidarily liable with the

corporation in the following instances:

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 a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the Corporation; or

4) When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate action. 

FACTS:

Everything Online, Inc. (EOL) is a corporation that offers internet services nationwide
through franchisees.  Smart Communications, Inc. (SMART), on the other hand, is a mobile
phone service provider. Petitioners Nolasco and Maricris were the Chief Executive Officer
(CEO) and Member of the Board of Directors of EOL, respectively.  As alleged in the Amended
Complaint, EOL sought SMART sometime in 2006 to provide the mobile communication
requirements for its expansion. Series of meetings ensued between the parties where it was
determined that EOL would be needing approximately 2,000 post-paid lines with corresponding
cell phone units. Nineteen (19) of these lines shall be under the corporate account of EOL while
the rest of the lines and phones shall be distributed to EOL's franchisees.  In view of this, EOL's
corporate president Salustiano G. Samaco III (Samaco III), signed on separate occasions, two
(2) Corporate Service Applications (SAF) for the 2,000 postpaid lines with corresponding cell
phone units. He also signed Letters of Undertakingto cover for the 1,119 phone lines issued by
SMART to EOL thus far. Paragraph 8 of these Letters of Undertaking read:

8. The President and each one of the directors and officers of the corporation shall be
held solidarily liable in their personal capacity with the SUBSCRIBER for all charges for
the use of the SMART Celfones (sic) units acquired by the said SUBSCRIBER.

SMART averred that after the execution of the EOL Undertaking, its credit and collection
department sent, by email, phone bills to EOL that had been previously returned to SMART.
These bills were for the collection of the monthly payment due on the lines that were supposedly
given to EOL's franchisees. However, EOL allegedly refused to receive the bills, stating that it
was not liable for the payment of bills of phone lines assigned to franchisees. SMART notified
EOL that its collectibles already amounted to at least ₱18,000,000.00 representing the costs of
cell phone units and the plans usage. EOL officers were also reminded that under the EOL
Undertaking and the Letter Agreements, it is bound to pay the bills of the franchisees, whether
the phones were in the possession of the franchisees or not. SMART failed to collect from EOL
despite repeated demands. Thus, on April 1, 2009, an Amended Complaint with an application
for a writ of preliminary attachment was filed by SMART before the RTC of Makati, Branch 62
for Collection of Sum of Money docketed as Civil Case No. 09- 199 against EOL and all its
directors and officers including petitioners Nolasco and Maricris.

With respect to Nolasco, petitioners argued that while his signature appears in the EOL
Undertaking, it is not a sufficient ground to implead him in the complaint together with EOL. It
was SMART that drafted the EOL Undertaking and Nolasco's participation is limited to the
affixing of his signature thereon after EOL's President has already signed it. Nolasco signed in
good faith and without the opportunity to read the contents of the same. Be that as it may,
Nolasco is not the real party in interest in this case because he was no longer an
Officer/Director of EOL at the time the complaint was filed as their entire share was already
assigned to one of EOL's directors. 

ISSUE:
Whether the complaint should be dismissed on the ground of failure to state cause of
action?
RULING:

Yes – as to Petitioner Maricris. No – as to Petitioner Nolasco. By merely stating a legal

conclusion, the Amended Complaint presented no sufficient allegation against petitioner
Maricris upon which the Court could grant the relief prayed for. The trial court correctly
dismissed the complaint against Maricris on the ground of failure to state cause of action. This is
not the case with petitioner Nolasco. Nolasco, as CEO, signed the EOL Undertaking purportedly
binding himself to be "held solidarily liable in his personal capacity with the franchisee or
assignee for all charges for the use of SMART cell phone units acquired by Everything Online,
Inc." Such allegation proffers hypothetically admitted ultimate facts, which would warrant an
action for a collection for sum of money based on the provision of the EOL Undertaking. The
following is clearly stipulated in Item 9 of the EOL Undertaking signed by Nolasco, viz.:

9. The President and each one of the directors and officers of Everything Online,
Inc. shall be held solidarity liable in their personal capacity with the franchisee or
assignee for all charges for the use of the SMART cellphone units acquired by
Everything Online, Inc.

Verily, the trial court erred in dismissing the complaint against petitioner Nolasco. The
allegations in the complaint, regarding the possible personal liability of petitioner Nolasco based
on Item 9 of EOL Undertaking, sufficiently stated a cause of action. The question of whether
petitioner Nolasco is a real party-in-interest who would be benefited or injured by the judgment,
would be better threshed out in a full-blown trial. Indeed, in cases that call for the piercing of the
corporate veil, "parties who are normally treated as distinct individuals should be made to
participate in the proceedings in order to determine if such distinction should be disregarded
and, if so, to determine the extent of their liabilities."

A judicious examination of the Amended Complaint shows that petitioners were

impleaded in the instant action based on the provisions of the Letter Agreement and EOL
Undertaking, which purportedly bound them to be solidarily liable with the corporation in its
obligation with SMART. In effect, the Amended Complaint seeks to pierce the veil of corporate
fiction against Nolasco and Maricris in their capacities as corporate officer and director of EOL.

It is basic in corporation law that a corporation is an artificial being invested by law with a
personality separate and distinct from its stockholders and from other corporations to which it
may be connected. Inferred from a corporation's separate personality is that "consent by a
corporation through its representatives is not consent of the representative, personally." The
corporate obligations, incurred through official acts of its representatives, are its own. Corollarily,
a stockholder, director, or representative does not become a party to a contract just because a
corporation executed a contract through that stockholder, director, or representative. As a
general rule, a corporation's representatives are not bound by the terms of the contract
executed by the corporation. "They are not personally liable for obligations and liabilities
incurred on or in behalf of the corporation. " There are instances, however, when the distinction
between personalities of directors, officers, and representatives, and of the corporation, are
disregarded. This is piercing the veil of corporate fiction.  The doctrine of piercing the veil of
corporate fiction is a legal precept that allows a corporation's separate personality to be
disregarded under certain circumstances, so that a corporation and its stockholders or
members, or a corporation and another related corporation could be treated as a single entity. It
is meant to apply only in situations where the separate corporate personality of a corporation is
being abused or being used for wrongful purposes. 

The piercing of the corporate veil must be done with caution.  To justify the piercing of
the veil of corporate fiction, "it must be shown by clear and convincing proof that the separate:
and distinct personality of the corporation was purposefully employed to evade a legitimate and
binding commitment and perpetuate a fraud or like wrongdoings."

A corporate director, trustee, or officer is to be held solidarily liable with the corporation
in the following instances:

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 a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the Corporation; or

4) When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate action. 

These instances have not been shown in the case of petitioner Maricris. While the
Amended Complaint alleged that EOL fraudulently refused to pay the amount due, nothing in
the said pleading or its annexes would show the basis of Maricris' alleged fraudulent act that
warrants piercing the corporate veil. No explanation or narration of facts was presented pointing
to the circumstances constituting fraud which must be stated with particularity, thus rendering
the allegation of fraud simply an unfounded conclusion of law. Without specific averments, "the
complaint presents no basis upon which the court should act, or for the defendant to meet it with
an intelligent answer and must, perforce, be dismissed for failure to state a cause of action."

20. Metroplex Berhad v. Sinophil Corp

Facts: Sinophil entered into a Share Swap agreement with Metroplex and Paxell Investment Ltd.
They later held an Unwinding Agreement. Metroplex and Paxell were unable to return 1.87
Bbillion of SInophil shares whilst 2 billion Sinophil shares remained pledged by Metroplex in
favour of International Exchange Bank and Asian Bank.
Later the shareholders of SInophil voted for reduction of authorised capital stock which were
included in the amendment of Articles of Incorporation of Sinophil which were approved by the
CRMD and CFD. There was again reducing of authorised stock which were also approved.
Petitioners Yaw, Metroplex, and Paxell filed a petition for Review before SEC questioning
approval by CRMD and CFD of the amendments of Articles of Incorporation of Sinophil alleging
among others that he reduction was approved by the CRMD and CFD despite the lack of more
than two-thirds (2/3) approval of the Sinophil shareholders; The decrease in the authorised
capital stock of Sinophil violated the legal requirement that a corporation cannot reduce its
issued capital unless it has unrestricted retained earnings; the decreases involved the "selective
reduction" of Sinophil 's authorized capital stock which resulted in the diminution of the
shareholdings of petitioner Yaw and other shareholders of Sinophil, and the return of the
investments of petitioners Metroplex and Paxell ahead of Yaw and other shareholders of
Sinophil; and The selective reduction entailed the assumption and payment of loans secured by
Metroplex and Paxell 's Sinophil shares, to the prejudice of Sinophil and its shareholders
including petitioner Yaw.
Both SEC and Court of Appeals decided in favour of Sinophil citing decrease in capital stock
complied with the requirements imposed by the Corporation Code, particularly Section 38. The
petitioners herein filed Petition for Review on Certiorari with the Supreme Court.
Issue: Whether or not the appellate court correctly affirmed the Order of the SEC.
Held: Yes. The appellate court is correct in finding that the decrease in respondent Sinophil's
capital stock was legal and that the public respondent SEC's approval thereof was proper.
Section 38 is clear. A corporation can only decrease its capital stock if the following are present:
Approval by a majority vote of the board of directors;
Written notice of the proposed diminution of the capital stock, and of the time and place
of a stockholders' meeting duly called for the purpose, addressed to each stockholder at
his place of residence;
2/3 of the outstanding capital stock voting favorably at the said stockholders' meeting
duly;
Certificate in duplicate, signed by majority of the directors and countersigned by the
chairman and secretary of the stockholders' meeting stating that legal requirements have
been complied with;
Prior approval of the SEC; and
Effects do not prejudice the rights of corporate creditors.
After a corporation faithfully complies with the requirements laid down in Section 38, the SEC
has nothing more to do other than approve the same. Pursuant to Section 38, the scope of the
SEC's determination of the legality of the decrease in authorized capital stock is confined only to
the determination of whether the corporation submitted the requisite authentic documents to
support the diminution. Simply, the SEC's function here is purely administrative in nature.
In Ong Yang v. Tiu,34 the Court held that decreasing a corporation's authorized capital stock,
which is an amendment of the corporation's Articles of Incorporation, is a decision that only the
stockholders and the directors can make, considering that they are the contracting parties
thereto. For third persons or parties outside the corporation like the SEC to interfere to the
decrease of the capital stock without reasonable ground is a violation of the "business judgment
rule"
Furthermore, the SEC is not vested by law with any power to interpret contracts and interfere in
the determination of the rights between and among a corporation's stockholders. Neither can
the SEC adjudicate on the contractual relations among these same stockholders. Thus,
petitioners' allegation that it is the SEC that should determine the parties' rights under the
contracts executed, particularly the Swap Agreement, the Unwinding Agreement, and the
general proxy, has no basis. To stress, the SEC's only function here was to determine the
corporation's compliance with the formal requirements under Section 38 of Corporation Code.
Disclosure of corporate actions to the stock exchange is intended to apprise the investing public
of the condition and planned corporate actions of the listed corporation, thereby providing
investors with sufficient, relevant and material information as to the nature of the investment
vehicle and the relationship of the risks and returns associated with it. The corporation's simple
act of disclosing the decrease and delisting to the PSE was more than enough notice to the
investing public. There was nothing in the corporation's act that resulted in grave or irreparable
injury or prejudice to the investing public.
WHEREFORE, the Petition for Review on Certiorari with Application for the Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction is DENIED.

21. Magallanes Watercraft Association INC. v Margarito Auguis

G.R. No. 211485 May 30, 2016

Facts: Petitioner Magallanes Watercraft Association, Inc. (MWAI) is a local association of

motorised boat owners and operators ferrying cargoes and passengers from Magallanes,
Agusan del Norte, to Butuan City and back. Respondents Margarito C. Auguis (Auguis) and
Dioscoro C. Basnig (Basnig) were members and officers of MWAI - vice-president and
secretary, respectively.
The Board of Trustees of MWAI passed Resolution No. 1, Series of 2003, and thereafter issued
Memorandum No. 001 suspending the rights and privileges of Auguis and Basnig as members
of the association for thirty (30) days for their refusal to pay their membership dues and berthing
fees due to their pending oral complaint and demand for financial audit of the association funds.
Despite the suspension, Auguis and Basnig still failed to settle their obligations with MWAI.
MWAI then issued Memorandum No. 002, Series of 2004, suspending their rights and privileges
for another thirty (30) days.
Respondents filed an action for damages and attorney's fees with a prayer for a writ of
preliminary injunction before the RTC. In decision, the trial court ordered Auguis and Basnig to
pay their unpaid accounts and required MWAI to pay them actual damages and attorney's fees.
Aggrieved, MWAI appealed before the CA. The CA affirmed the decision of the RTC as it held
that MWAI was guilty of an ultra vires act.  The CA noted that neither MWAI's Articles of
Incorporation nor its By-Laws contained any provision that expressly and/or impliedly vested
power or authority upon its Board to recommend the imposition of disciplinary sanctions on its
delinquent officers and/or members. MWAI moved for reconsideration Undaunted, it filed this
present petition with the sole

Issue: Whether or not the petitioner is guilty of an ultra vires act

Ruling: No, the petitioner is not guilty of an ultra vires act. Corporate powers include implied and
incidental powers. If the suspension of rights and privileges of members is not among the
corporate powers granted to MWAI, then the same is an ultra vires act which exposes MWAI to
possible liability.
Section 45 of the Corporation Code provides for the powers possessed by a corporation, No
corporation under this Code shall possess or exercise any corporate powers except those
conferred by this Code or by its articles of incorporation and except such as are necessary or
incidental to the exercise of the powers so conferred.
A corporation may exercise its powers only within those definitions. Corporate acts that are
outside those express definitions under the law or articles of incorporation or those "committed
outside the object for which a corporation is created" are ultra vires.
The only exception to this rule is when acts are necessary and incidental to carry out a
corporation's purposes, and to the exercise of powers conferred by the Corporation Code and
under a corporation's articles of incorporation.
In this case, MWAI can properly impose sanctions on Auguis and Basnig for being delinquent
members considering that the payment of membership dues enables MWAI to discharge its
duties and functions enumerated under its charter. Moreover, respondents were obligated by
the by-laws of the association to pay said dues. The suspension of their rights and privileges is
not an ultra vires act as it is reasonably necessary or proper in order to further the interest and
welfare of MWAI.

22.
WATERFRONT PHILIPPINES VS. SOCIAL SECURITY SYSTEM
G.R No. 249337, July 6, 2021
DOCTRINE:
An ultra vires act may be classified as either illegal or merely ultra vires. The former
contemplates the doing of an act which is contrary to law, morals, or public order, or one that
contravenes some rules of public policy or public duty, and is, like similar transactions between
individuals, void. It cannot serve as a basis of a court action, nor acquire validity by
performance, ratification, or estoppel. On the other hand, a mere ultra vires act is that which is
not illegal and void ab initio but is merely outside of the scope of the articles of incorporation,
and is thus, merely voidable and may become binding and enforceable when ratified by the
stockholders.
FACTS:
A contract of loan with real estate mortgage with option to convert to shares of stock was
executed between petitioners Waterfront Philippines Inc., (WPI, for brevity), Wellex Group, Inc
(WII, for brevity) and the Wellex Group Inc. (WGI, for brevity) and respondent Social Security
System. As a security for the loan, WII constituted a mortgage in favor of SSS over two parcels
of land located in Quezon City. As an additional security, WGI delivered two hundred million
(200,000,000) of its common shares to an escrow bank/ agent for the account of SSS. The
parties also executed other related contracts denominated as an addendum to the adverted
contract of loan, such as Convertible promissory note and Escrow agency agreement. Due to
the petitioners’ failure to settle the loan. SSS extrajudicially foreclosed the mortgaged
properties. During the foreclosure sale, SSS emerged as the highest bidder. Despite the
foreclosure sale, WPI still had an outstanding balance, prompting SSS to file a complaint for
sum of money with damages against herein petitioners.
The RTC dismissed the complaint for sum of money on the ground that no rights flow from the
contract of loan, the same being null and void. RTC declared that the contract of loan is not
included among the powers of SSS under Section 26 of Republic Act (R.A.) No. 8282. The RTC
elucidated that under Section 26, the investment of reserve funds may only be done for specific
purposes, which does not include offering it for a loan. Additionally, the RTC questioned the
authority of SSS Executive Vice President Leopoldo S. Veroy (EVP Veroy, for brevity) and
Senior Vice President Edgar Solilapsi (SVP Solilapsi, for brevity) to enter into the contract of
loan. It further observed that SSS failed to present any evidence to show that its President
delegated his powers or approved the authority of said officers. The Court of Appeals disagreed
with the RTC regarding the validity of the loan agreement. The CA noted that during the pre-
trial, the petitioners, through their counsel, stipulated on the due execution and genuineness of
the Contract of Loan. Thus, the petitioners are now estopped from assailing the loan.

ISSUE:
Whether the petitioners are now estopped from assailing the validity of the contract of loan
considering that there is an admission of its due execution and genuineness during the pre- trial.

RULING:
The execution of the loan contract was done in stark violation of R.A. No. 8282. As discussed, it
was entered into without the approval of the SSS' President which is clearly required under
Section 3(b). Worse, it embodied a transaction that was not authorized under Section 26 of the
same law. Patently, said contract of loan transgressed R.A. No. 8282, thereby rendering it an
illegal ultra vires act.
Correspondingly, illegal ultra vires acts or those that are clearly beyond the scope of one’s
authority are null and void and cannot be given any effect. The doctrine of estoppel cannot
operate to give effect to an act which is otherwise null and void or ultra vires. Estoppel cannot
be predicated on an illegal act.

23. DONNINA C. HALLEY vs. PRINTWELL, INC., G.R. No. 157549 May 30, 2011 BERSAMIN,
J: Topic: Piercing the Veil of Corporate Fiction; Trust Fund Doctrine Doctrine: Stockholders of a
corporation are liable for the debts of the corporation up to the extent of their unpaid
subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because
the veil may be lifted to avoid defrauding corporate creditors.
Facts: Petitioner Halley was an incorporator and original director of Business Media Phil. Inc.
(BMPI) while respondent was engaged in commercial and industrial printing. BMPI
commissioned respondent for the printing of magazine Philippines together with wrappers and
subscription cards that the former published and sold. BMPI placed several orders on credit to
respondent but failed to pay the balance. Thus, respondent sued BMPI for the collection of the
unpaid balance of P291,342.76 in the RTC. Printwell amended the complaint in order to implead
as defendants all the original stockholders and incorporators to recover on the unpaid
subscriptions. Petitioner argued that she had paid her subscriptions, evidenced by several
official receipts and that BMPI had a personality separate from its stockholders which
personality should not be disregarded. RTC and CA pierced the veil of corporate fiction and held
the stockholders of BMPI as personally liable for corporate debts up to the extent of their unpaid
subscriptions under the Trust Fund doctrine. Both courts also found some irregularities in the
issuance of official receipts. Issues: (1) Whether the separate personalities of BMPI and its
stockholders should be disregarded. (2) Whether the trust fund doctrine is applicable. Ruling:
(1)Yes. Corporate personality should not be used to foster injustice. Printwell impleaded the
petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the unpaid
subscriptions because it appeared that such subscriptions were the remaining visible assets of
BMPI; and (b) to avoid multiplicity of suits. In the present case, personal liabilities of petitioner
with other stockholders remained because they were in charge of the operations of BMPI at the
time the unpaid obligation was transacted. To deny respondent from recovering from petitioner
would place the latter in a limbo on where to assert their right to collect from BMPI since the
stockholders who are petitioners are availing the defense of corporate fiction to evade payment
of its obligation. (2)Yes. the petitioner was liable pursuant to the trust fund doctrine for the
corporate obligation of BMPI by virtue of her subscription being still unpaid. The trust fund
doctrine states that subscriptions to the capital of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock subscription in order to realize assets for the
payment of its debts. The scope of the doctrine when the corporation is insolvent encompasses

not only the capital stock, but also other property and assets generally regarded in equity as a
trust fund for the payment of corporate debts. Thus, Printwell, as BMPIs creditor, had a right to
reach petitioner's unpaid subscription in satisfaction of its claim. The liability of stockholder for
corporate debt is up to the extent of their unpaid subcription. In view of petitioner's unpaid
subscription of 265, 500 , she was liable up to that amount.

VALLE VERDE COUNTRY CLUB, INC., et. al vs.VICTOR AFRICA G.R. No. 151969 September
4, 2009 BRION, J.: Topic: Election of Directors; Hold-Over Principle Doctrine: The holdover
period is not part of the term of office of a member of the board of directors. Business and
affairs of a corporation must be governed by a board of directors whose members have stood
for election, and who have actually been elected by the stockholders, on an annual basis. Facts:
On 1996, during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club, Inc.
(VVCC), the following were elected as members of the VVCC Board of Directors: 1.Villaluna
2.DINGLASAN - replaced by ROXAS 3.MAKALINTAL - replaced by RAMIREZ 4 .Ortigas III,
5.Salta 6.Santiago, Jr., 7.Dee 8.Sunico 9.Gamboa. In the years 1997- 2001, however, the
requisite quorum for the holding of the stockholders’ meeting could not be obtained.
Consequently, the above-named directors continued to serve in the VVCC Board in a hold-over
capacity.

On 1998, Dinglasan resigned from his position as member of the VVCC Board. In a meeting
held on 1998, the remaining directors, still constituting a quorum of VVCC’s nine-member board,
elected Roxas to fill in the vacancy created by the resignation of Dinglasan. On the same year
Makalintal also resigned as member of the VVCC Board. He was replaced by Ramirez, who
was elected by the remaining members of the VVCC Board on 2001. Respondent Africa a
member of VVCC, questioned the election of Roxas and Ramirez as members of the VVCC
Board with the SEC and RTC.He alleged that the election of Roxas was contrary to Section 29,
in relation to Section 23, of the Corporation Code. Africa claimed that a year after Makalintal’s
election as member of the board in 1996, Makalintal’s 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. 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 holdover period is not part of
the term of office of a member of the board of directors. Consequently, when during the
holdover period, a director resigns from the board, the vacancy can only be filled-up, since there
is no term left to fill-up pursuant to the provisions of Section 29 of the Corporation Code which
mandates that a vacancy occurring in the board of directors caused by the expiration of a
member's term shall be filled by the corporation's stockholders. In the case at bar, after the
lapse of one year from his election as member of the VVCC Board in 1996, Makalintal’s term of
office is deemed to have already expired. That he continued to serve in the VVCC Board in a
holdover capacity cannot be considered as extending his term. Makalintal’s term of office began
in 1996 and expired in 1997, but, by virtue of the holdover doctrine in Section 23 of the
Corporation Code, he continued to hold office until his resignation on 1998. This holdover
period, however, is not to be considered as part of his term, which, as declared, had already
expired. With the expiration of Makalintal’s term of office, a vacancy resulted which, by the
terms of Section 29 of the Corporation Code, must be filled by the stockholders of VVCC in a
regular or special meeting called for the purpose. 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. Hence, Section 29 of the Corporation Code declares
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 and not by the remaining directors. TERM 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. The holdover period is not part of the term of
office of a member of the board of directors

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

TENURE represents the term during which the incumbent actually holds office. the holdover
period, however, constitutes part of tenure

The tenure may be shorter (or, in case of holdover, longer) than the term for reasons within or
beyond the power of the incumbent. to qualify

24. Enano-Bote v. Alvarez

G.R. No. 223572, November 10, 2020

FACTS:
1. Subic Bay Metropolitan Authority (SBMA) entered into a lease agreement with
Centennial Air (CAIR) for the lease of Building 8324 located at Subic Bay International Airport,
Subic Bay Freeport Zone, for a period of five (5) years.

2. CAIR became delinquent and was constantly remiss in the payment of its obligations.

3. Due to the continuous refusal of CAIR to settle its debts, SBMA was compelled to file a
complaint against the former and its stockholders asking for payment.

4. Bote et al denying their liability to SBMA. They argued that they were no longer
stockholders of the corporation at the time the Lease Agreement was executed between CAIR
and SBMA

5. Allegedly they entered into a Deed of Assignment of Subscription Rights with Alvarez
whereby they assigned, transferred and conveyed their aggregate subscription of 400k shares
of Alvarez

6. Alvarez assumed to pay the unpaid balance of their subscriptions in the amount of 30M.
In effect Jennifer and Virgilio remained as nominal stockholders of the corporation while the rest
of them were totally divested of their corporate shares.

7. Since they ceased to be stockholders of the corp, they were no longer parties to the
Lease Agreement, thus they cannot be held liable for any breach thereof.

8. Petitioners filed a Third-Party Complaint against Alvarez, they admitted that they were
the incorporators of CAIR when it was incorporated.
9. They executed ASR in favor of Alvarez covering their entire shares of stock in CAIR.
Among the conditions of this transfer was Alvarez’s undertaking to relieve each of them from the
payment of their remaining unpaid subscriptions to the corporation.

10. In consideration of the assignment, Alvarez also agreed to transfer and assign 76k and
4k fully paid and non-assessable shares to Jennifer and Virgilio.

11. Thus, with the exception of petitioners, who remained as nominal stockholders of the
corp, the rest of them were totally divested their corporate shares and were relieved from paying
their unpaid subscriptions as a consequence of their assignment

12. When Lease Agreement was executed between SBMA and CAIR, petitioners were no
longer the majority stockholders of the latter.

13. At the time Alvarez stood as the President and the authorized representative of CAIR.
He should be held liable for the payment of unpaid subscriptions which would cover the unpaid
rentals of the corporation

14. RTC and CA – ruled defendant corporations Centennial Air Inc and individual
defendants Bote et al be jointly and severally liable to pay plaintiff SBMA plus legal interest

ISSUE:
WON CA committed an error of law in applying the trust fund doctrine to make petitioners
personally and solidarily liable with CAIR for the unpaid rental claimed by SBMA against CAIR
because of their unpaid subscriptions in CAIR’s capital stock

HELD: YES. HALLEY DOCTRINE DOES NOT APPLY IN THIS CASE.

TRUST FUND DOCTRINE
- first enunciated in the American case of Wood v. Dummer was adopted in our
jurisdiction in Philippine Trust Co v Rivera.

Halley recognized two instances when the creditor is allowed to maintain an action upon any
unpaid subscriptions based on trust fund doctrine:

(1) where the debtor corporation released the subscriber to its capital stock from the
obligation of paying for their shares, in whole or in part, without a valuable consideration or
fraudulently, to the prejudice of creditors; and
(2) where the debtor corporation is insolvent or has been dissolved without providing for the
payment of its creditors.

The crucial fact in Halley which justified the application of the trust fund doctrine is that after the
filing of the original complaint, the directors and stockholders of BMPI had resolved to dissolve
BMPI during the annual meeting.
The move to dissolve BMPI was viewed by the Court as a clear attempt by the directors and
stockholders to escape BMPI’s liability to Printwell. And the subscriptions, while appearing on
the books of the corporation as fully paid, were in fact not paid.

These circumstances thus justified the Court’s piercing of BMPI’s corporate veil where the
corporate personality may be disregarded if the corporate entity is being used as a cloak or
cover for fraud.

SBMA failed to either allege or prove any of the two grounds recognized in Halley when the trust
fund doctrine may be applied to compel the stockholders to contribute to the payment of CAIR’s
debts by compelling them to pay the unpaid balances upon their subscriptions.

Given the failure of SBMA to make a case for the application of the trust fund doctrine against
petitioners, the Court will not provide the basis for the former

Thus, third-party complaint filed by petitioners against Alvarez should be dismissed with the
award of damages in favor of petitioners vacated.