Team Pacific Corp., et. al. vs. Layla Parente, G.R. No.

206789, July 15, 2020

Facts:

In February 1999, Team Pacific hired Parente as a production operator in its Her-
metic Department.5 Later, Parente was promoted to being a quality assurance cali-
bration technician.6

On April 23, 2009, Parente filed for and commenced her 60-day maternity leave,
which would end on June 21, 2009. She gave birth on April 27, 2009. 7

On May 8, 2009, while on her maternity leave, Parente was asked to see Team Pa-
cific's human resource and administrative manager, Aurora Q. Garcia (Garcia). Par-
ente protested, saying that she was still on maternity leave and experiencing post-
natal weakness, dizziness, and shakiness. However, when she was told that there
were reports circulating within the plant that she would be terminated from employ-
ment, Parente acceded.8

During their meeting on May 21, 2009, Garcia handed Parente a letter and informed
her of her dismissal, effective on June 22, 2009, the day after the end of her mater -
nity leave. She was told that she would receive her separation pay on the same
date. Parente was about to ask why she was being dismissed, but Garcia interrupted
her and asked her to just affix her name and signature on the space provided in the
letter

Parente then went to the Department of Labor and Employment, where she was ad-
vised to first accept her separation pay before filing a complaint. 11 Thus, on June 8,
2009, after she had been required to process her clearance and sign several docu -
ments, Parente received her separation pay. 12

On July 9, 2009, Parente lodged her Complaint for illegal dismissal.

Petitioners maintain that the retrenchment was within the company's management
prerogative, and the wisdom and soundness of its authority may not be ques-
tioned.51

Moreover, petitioners contend that petitioners Garcia and Fernandez should not have
been made solidarity liable with petitioner Team Pacific as they showed no bad faith.
Likewise, they insist that the company has a separate personality from its directors,
officers, and stockholders.

Issue:
Finally, whether or not petitioners Garcia and Fernando should be solidarity liable
with petitioner Team Pacific.

1
Ruling:

Nonetheless, we find that petitioners Garcia and Fernandez should not be solidarily
liable with petitioner Team Pacific Corporation.

In case of dismissals, directors and officers of corporations may only be held solidar-
ily liable with the corporation if they acted in bad faith or with malice.

Here, respondent's dismissal was not shown to have been done in bad faith or with
malice. The documents submitted by petitioners reveal that the company may have
indeed been suffering business losses. The Regional Trial Court has even granted its
Petition for Corporate Rehabilitation. 111

While petitioners failed to show that they applied fair and reasonable criteria in se-
lecting the employees to be entrenched, it does not mean that the dismissals were
automatically done in bad faith or with malice. They may have simply failed to
strictly comply or to sufficiently prove compliance with the stringent rules for a valid
retrenchment. As such, bad faith or malice must still be proved.

Respondent failed to present clear and convincing evidence that petitioners Garcia or
Fernandez acted in bad faith or with malice. They did not breach any duty or were
motivated by ill will. Absent proof, the corporation's separate and distinct personality
must be respected.

In Mandaue Dinghow Dimsum House, Co., Inc. v. National Labor Relations Commis-
sion:107

It must be emphasized that a corporation is invested by law with a personality sepa-

rate and distinct from those of the persons composing it as well as from that of any
other legal entity to which it may be related. Because of this, the doctrine of piercing
the veil of corporate fiction must be exercised with caution.

In Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos, this Court

reiterated the rule that corporate directors and officers are solidarily liable with the
corporation for the termination of employees done with malice or bad faith. It has
been held that bad faith does not connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of wrong; it means
breach of a known duty through some motive or interest or ill will; it partakes of the
nature of fraud.108 (Citations omitted)

In MAM Realty Development Corporation v. National Labor Relations Commission:109

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. True, sol-

2
idary 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 stock 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 solidarity liable with the Corporation.

4. When a director, trustee or officer is made, by specific provision of law, personally

liable for his corporate action.

In labor cases, for instance, the Court has held corporate directors and officers soli-
darily liable with the corporation for the termination of employment of employees
done with malice or in bad faith. 110 (Emphasis in the original, citations omitted)

3
Montilla, Jr. vs. G Holdings, Inc., G.R. No. 194995, November 18, 2021

Facts:

On April 12, 2002, RTC of Kabankalan City, Branch 61, issued a Decision5 granting Emilio D.
Montilla, Jr.'s Demanda for Complimiento de Contrator, Rendecion de Cuentas con Daños y
Perjuicios6 (Compliance for Contracts, Submission of Accounts with Damages)7 docketed as
Civil Case No. 142 (96-5488), and ordered San Remigio Mines Inc., Ricardo Genora, and Jesus
Domingo to do certain acts,

In a Sheriff's Report10 dated April 30, 2003, Sheriff Roberto O. Repique informed the court that
Marinduque Mining and Industrial Corporation (MMIC) had no more properties at Sipalay City,
Negros Occidental, as the properties found on site were already acquired by respondent "G"
Holdings, Inc. (GHI) from Maricalum Mining Corporation (Maricalum) pursuant to a foreclosure
sale in December 2001.

On June 12, 2003, Montilla, Jr. moved for the issuance of an amended writ of execution, praying,
among others, for the court issue a writ to direct the court sheriff to take properties belonging to
San Remigio Mines Inc. and its assigns/successors, including, but not limited to, GHI, to satisfy
the judgment provided in the April 12, 2002 RTC Decision.

After due hearing on the motion, the RTC issued an Amended Order12 dated July 9, 2004, the
pertinent portion of which reads:

"G" Holdings, Inc. does not appear to be a privy of defendant Marinduque for
the decision to be enforced against the former. It got hold of the subject proper-
ties and mining claims under a badge of regularity by way of foreclosure sale
and mortgagee and highest bidder from Maricalum Mining Corporation, an entity
owned and controlled by the government organized by PNP and DBP after the
latter had earlier acquired said properties and mining claims as mortgagees and
highest bidders from defendant Maricalum in a foreclosure sale. "G" Holdings,
Inc. did not derive its rights and interest over said properties and mining claims
directly from defendant Maricalum nor was its immediate successor in interest.
To enforce the subject decision which is already final and executory against "G"
Holdings, Inc. which is not a party to the case and which was not heard would be
in violation of due process of law. 

Aggrieved, Montilla, Jr. elevated the case to the CA by way of a petition for certiorari,15 which
was denied in a Decision16 dated July 30, 2010 based on the following:

GHI was not a party to the case where the assets of MMC are disputed; as a
consequence, the lower court cannot enforce its judgment against GHI. To en-
force the subject decision which has become final and executory against GHI,
that is not a party to the case, and was not heard thereon, would be a violation of
due process of law. As the lower court succinctly put, such amended writ of exe-
cution would materially and substantially alter the decision which the court is
bereft of jurisdiction.17

4
The CA disregarded Montilla, Jr.'s assertion that GHI and the defunct MMIC are one and the
same person as the mere presence of interlocking directors is not by itself a ground to pierce the
corporate fiction. The CA said that the mortgage deed transaction made as a basis to pierce the
corporate veil was a transaction that was a derivative of the mortgages earlier constituted by GHI
with Asset Privatization Trust (APT) in the name of MMIC, in a full privatization process. The CA
concluded that if there was any control exercised over MMIC, it was APT, not GHI, that wielded
it.

 issue on the separate and distinct personalities of GHI and MMIC

Neither can We find for petitioner's argument that respondent is a mere alter ego of Maricalurn to
support the piercing of corporate veil between these two entities and ultimately enforce the judg-
ment award against respondent.

The matter of separate corporate personality between respondent and Maricalum has already
been resolved as early as the case of "G" Holdings, Inc. v. National Mines and Allied Workers
Union43 where We explained that:

[t]he mere interlocking of directors and officers does not warrant piercing the
separate corporate personalities of MMC and GHI. Not only must there be a
showing that there was majority or complete control, but complete domination,
not only of finances but of policy and business practice in respect to the transac-
tion attacked, so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own. The mortgage deed transaction at-
tacked as a basis for piercing the corporate veil was a transaction that was an
offshoot, a derivative, of the mortgages earlier constituted in the Promissory
Notes dated October 2, 1992. But these Promissory Notes with mortgage were
executed by GHI with APT in the name of MMC, in a full privatization process. It
appears that if there was any control or domination exercised over MMC, it was
APT, not GHI, that wielded it.44

The above-mentioned ruling was reinforced in the more recent case of Maricalum45 where We
discussed the parameters, guidelines and indicators for proper piercing of the corporate veil.
Therein, We said:

The doctrine of piercing the corporate veil applies only in three (3) basic ar -
eas, namely: (a) defeat of public convenience as when the corporate fiction is
used as a vehicle for the evasion of an existing obligation; (b) fraud cases or
when the corporate entity is used to justify a wrong, protect fraud, or defend a
crime; or (c) alter ego cases, where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation. This principle
is basically applied only to determine established liability. However, piercing of
the veil of corporate fiction is frowned upon and must be done with caution. This
is because a corporation is invested by law with a personality separate and dis-
tinct from those of the persons composing it as well as from that of any other le-
gal entity to which it may be related.

5
 A parent or holding company is a corporation which owns or is organized to
own a substantial portion of another company's voting shares of stock enough to
control or influence the latter's management, policies or affairs thru election of
the latter's board of directors or otherwise. However, the term "holding company"
is customarily used interchangeably with the term "investment company" which,
in turn, is defined by Section 4 (a) of Republic Act (R.A.) No. 2629 as "any issuer
(corporation) which is or holds itself out as being engaged primarily, or proposes
to engage primarily, in the business of investing, reinvesting, or trading in securi-
ties."

In other words, a "holding company" is organized and is basically conducting

its business by investing substantially in the equity securities of another com-
pany for the purposes of controlling their policies (as opposed to directly engag-
ing in operating activities) and "holding" them in a conglomerate or umbrella
structure along with other subsidiaries. Significantly, the holding company itself-
being a separate entity-does not own the assets of and does not answer for the
liabilities of the subsidiary or affiliate. The management of the subsidiary or affili-
ate still rests in the hands of its own board of directors and corporate officers. It
is in keeping with the basic rule a corporation is a juridical entity which is vested
with a legal personality separate and distinct from those acting for and in its be-
half and, in general, from the people comprising it. The corporate form was cre-
ated to allow shareholders to invest without incurring personal liability for the
acts of the corporation.

While the veil of corporate fiction may be pierced under certain instances,
mere ownership of a subsidiary does not justify the imposition of liability on the
parent company. It must further appear that to recognize a parent and a sub-
sidiary as separate entities would aid in the consummation of a wrong.
Thus, a holding corporation has a separate corporate existence and is to
be treated as a separate entity; unless the facts show that such separate
corporate existence is a mere sham, or has been used as an instrument for
concealing the truth.

In the case at bench, complainants mainly harp their cause on the alter ego
theory. Under this theory, piercing the veil of corporate fiction may be allowed
only if the following elements concur:

1) Control - not mere stock control, but complete domination - not

only of finances, but of policy and business practice in respect to the
transaction attacked, must have been such 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 a

fraud or a wrong, to perpetuate the violation of a statutory or other posi-
tive legal duty, or a dishonest and an unjust act in contravention of plain-
tiffs legal right; and

3) The said control and breach of duty must have proximately

caused the injury or unjust loss complained of.

In the instant case, there is no doubt that G Holdings - being the majority and controlling stock-
holder - had been exercising significant control over Maricalum Mining. This is because this
Court had already upheld the validity and enforceability of the PSA between the APT and G
Holdings. It was stipulated in the PSA that APT shall transfer 90% of Maricalum Mining's equity
securities to G Holdings and it establishes the presence of absolute control of a subsidiary's cor-

6
porate affairs. Moreover, the Court evinces its observation that Maricalum Mining's corporate
name appearing on the heading of the cash vouchers issued in payment of the services ren-
dered by the manpower cooperatives is being superimposed with G Holding's corporate name.
Due to this observation, it can be reasonably inferred that G Holdings is paying for Maricalum
Mining's salary expenses. Hence, the presence of both circumstances of dominant equity owner-
ship and provision for salary expenses may adequately establish that Maricalum Mining is an in-
strumentality of G Holdings.

However, mere presence of control and full ownership of a parent over a subsidiary is not
enough to pierce the veil of corporate fiction. It has been reiterated by this Court time and again
that mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate corpo-
rate personality.46

Indeed, in the absence of proof necessary to puncture respondent's corporate cover, its separate
corporate personality must be respected.

7
Villanueva vs. People, G.R. No. 218652, February 23, 2022

Facts:

On December 19, 2000, the municipality of Janiuay, Iloilo, through Mayor Franklin A. Locsin
(Mayor Locsin), representing the League of Municipalities of the Philippines (LMP), Iloilo Chap-
ter,8 entered into a Memorandum of Agreement (MOA)9 with the Department of Health (DOH)
Center for Health Development (CHD) for Western Visayas.10

The MOA was executed to implement the Rescue and Emergency Disaster Program of then
Senator Vicente S. Sotto III, for the purchase of necessary and appropriate medicines, equip -
ment, devices, and the likes, for emergency purposes, for distribution to the different municipali -
ties of the province of Iloilo. Considering that Mayor Locsin was then the president of LMP-Iloilo
Chapter, the execution and implementation of the MOA was coursed through the municipal gov-
ernment of Janiuay, by virtue of Sangguniang Bayan Resolution No. 318-2000.11 DOH thus duly
released the amount of P15,000,000.00 to the municipal government of Janiuay to carry out the
program.12

The Office of the Mayor of Janiuay caused the Invitation to Bid to be published in three local
newspapers inviting all qualified and accredited medical suppliers of various medicines and med-
ical supplies to participate in the bidding to be conducted on January 12, 2001 at the municipal
hall of Janiuay. On January 4, 2001, another Invitation to Bid was issued by the Office of the Mu-
nicipal Treasurer. Three companies allegedly responded to the invitation, namely: AM Eu-
ropharma Corporation (Europharma), Mallix Drug Center (Mallix Drug), and Phil. Pharmawealth,
Inc. (Pharmawealth).

Mayor Locsin approved15 the award to Europharma and Mallix Drug. Thereafter, purchase
orders16 and certificates of acceptance,17 both dated January 16, 2001 were issued, and the
medicines were immediately delivered to and received by Mayor Locsin on even date. The
medicines were inspected by Supply Officer Gabriel M. Billena as to their quantities and specifi -
cations.18

On the next day, January 17, 2001, the Municipality of Janiuay issued two checks in favor of
Europharma and Mallix Drug as payment for the medicines, and official receipts were subse-
quently issued in favor of petitioner's companies.19 Meanwhile, the Bureau of Food and Drugs
(BFAD) conducted a medical analysis on the delivered medicines by Europharma and Mallix
Drug. The drug cotrimoxazole20 worth P240,000.00 failed the test as embodied in the Result of
Analysis of BFAD.21 It was only on October 16, 2001 that Mallix Drug delivered the replacement
drugs which were found compliant under BFAD's standard. The medicines were subsequently
distributed to the municipalities that were beneficiaries-members of the LMP in the province of
Iloilo.22

On post-audit, a Notice of Suspension and Notice of Disallowance23 were issued by the pro-

vincial auditor, and Mayor Locsin and Treasurer Figueroa were ordered to submit a justification
on the alleged failure of the municipality to: 1) notify the Office of the Provincial Auditor of the bid -
ding; 2) require the winning bidder to submit a performance bond; 3) explain why Europharma
and Mallix Drug were allowed to bid despite the fact that both companies were owned by peti-
tioner; and 4) submit the list of the recipient municipalities with Requisition and Issue Vouchers
(RIV). It was uncovered during the annual audit of the provincial auditor for the calendar year
2001 that both Europharma and Mallix Drug were owned by petitioner, and that Europharma had
a suspended accreditation at the time of the bidding.

8
Finally, it did not see any reason to disqualify Europharma and Mallix Drug since Europharma is
a corporation with a distinct personality, while Mallix Drug is a sole proprietorship owned by peti-
tioner.

Due to the irregularities that plagued the bidding, the matter was referred to the Office of the Om-
budsman-Visayas for investigation. After preliminary investigation, the Office of the Ombudsman
ultimately found probable cause to indict the municipal officers who conducted the bidding, in-
cluding petitioner, for violation of Section 3 (e) of RA 3019.

Issue:

THE HONORABLE SANDIGANBAYAN ERRED WHEN IT PIERCED THE VEIL OR CORPO-

RATE FICTION IN RULING THAT AM-EUROPHARMA CORPORATION AND MALLIX DRUG
CENTER SHOULD HAVE BEEN CONSIDERED JUST ONE BIDDER.

Ruling:

Private individuals can be liable together with public officials if conspiracy is proven;
piercing of fiction of corporate veil is allowed if juridical entities are used by private indi-
viduals as vehicles to commit illegal acts.

It is true that there is no law that prohibits his companies/corporations from participating in
one and the same bidding under the principle that they are clothed with personalities separate
from the person/s composing them, however, since accused Rodrigo Villanueva used the
said companies as means or vehicles for the circumvention of statutes governing pro-
curement of government supplies through competitive bidding by combining his compa-
nies in the bidding, not only to get the desired price but also in order to assure that one or
both of them can get the award, such act should not be countenanced as the very pur-
pose of a public and competitive bidding (which is to give the public/government the best
possible advantage/bargain or secure the lowest possible price and curtail favoritism in
the award of government contract) would be defeated. Undoubtedly, this objective of compet-
itive bidding cannot be obtained if the only two (2) competing bidders are owned and controlled
by one and the same person.

xxxx

It is settled that there is conspiracy when two or more persons come to an agreement con -
cerning the commission of a felony and decide to commit it Conspiracy need not to be proved
by direct evidence and may be inferred from the conduct of the accused before, during,
and after the commission of the crime, which are indicative or a joint purpose, concerted
action and concurrence of sentiments. In conspiracy, the act of one is the act of all. Con-
spiracy is present when one occurs with the criminal design of another, indicated by the perfor -
mance of an overt act leading to the crime committed. It may be deduced from the mode and
manner in which the offense was committed.

xxxx

With respect to the accused private person, namely accused Rodrigo Villanueva the
owner of the AM Europharma and Mallix Drug, the Court also finds that he conspired with

9
accused public officials Frankie H. Locsin, Carlos C. Moreno, Ramon T. Tirador, Luzvi-
minda P. Figueroa and Ricardo Minurtio in the consummation of the subject procurement
because of the fact that his companies accepted and encashed the checks as payments
for the procured medicines which readily shows that he concurred in the criminal designs
of the said accused public officials. While it may be true that there is no direct evidence
linking him to conspiracy with the said accused public officials, the Court considers the
conduct of accused Rodrigo Villanueva in authorizing the spouses Antonio H. Gasapos
and Luz M. Sarmiento-Gazapos as his companies' representatives in the subject public
bidding, and immediately on the following day after the award or on January 16, 2001, he
caused his companies to deliver the procured medicines, and thereafter, on January 17,
2001, caused the encashment of the checks in payment thereof, indicative of a joint pur-
pose, concerted action and concurrence of sentiments. Undeniably, by permitting his two (2)
companies to participate in the subject public bidding, and immediately thereafter, became the
recipient of the proceeds of the said procured medicines, clearly indicate [accused] Rodrigo Vil-
lanueva's concurrence to the conspiracy and thereby giving him unwarranted benefit, advantage,
and preference.64 (Emphasis Ours; citations omitted)

Notably, petitioner was not only the general manager and the owner of the 99% capital stock
of Europharma65 but also the sole proprietor of Mallix Drug.66 The corporate documents67 of
the entities reveal petitioner's ownership and almost absolute control over Europharma. Mean-
while, Mallix Drug has no juridical personality separate and distinct from petitioner, it being a sole
proprietorship, and its business activities bind him.68 The foregoing thus display that the two
"companies" owned by petitioner which participated in the defective bidding were "alter egos" of
each other and of petitioner's.

Clearly, petitioner's attempt to use the corporate fiction of Europharma as a shield from liabil-
ity is not proper. Remarkably, when the corporate fiction is used as a means of perpetuating
fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention
of statutes, the achievement or perfection of monopoly, or generally the perpetration of knavery
or crime, such as in this case, the veil with which the law covers and isolates the corporation will
be lifted to allow for its consideration merely as an aggregation of individuals.70

Hence, this Court concurs in the disposition of the Sandiganbayan in piercing the veil of Eu-
ropharma's corporate fiction. In any case, even if this Court disallows the piercing of the corpo -
rate veil of Europharma, petitioner would still be held liable because his defense of denial was
self-serving and cannot be taken in his favor. Moreover, considering too that petitioner is the sole
proprietor of Mallix Drug, its liabilities are his and the participation of Mallix Drug in the flawed
bidding is evidence against him. 1

10
Esico vs. Alphaland Corp., G.R. No. 216716, November 17, 2021

Facts:

The labor dispute between Esico and respondents Alphaland originated from the former's employment relation-
ship with PhilWeb Corporation (PhilWeb), a part of respondents' group of companies.

Esico is a well-decorated officer, former pilot of the Philippine Airforce who retired with the rank of lieutenant
colonel. He is licensed to fly both fixed wing and rotary wing civilian aircrafts and had just topped the Certified Se-
curity Professional Examinations at the time of his employment within respondents' group of companies.[8]
Given his impressive credentials, PhilWeb initially hired Esico as Risk & Security Management Officer (RSMO

By April 19, 2010, respondents Alphaland concurrently engaged Esico as a rotary wing pilot assigned to fly the
Chairperson of respondents' group of companies. Roberto V. Ongpin (Ongpin), to his various engagements
within and outside the country.

[17]
On even date, Esico sent an e-mail  to Alphaland's then Head of Security and Aviation, Mike Asperin, express-
ing elation at working for respondents' group of companies and specifically asking for the latter's recommenda-
tion on what salary figure to quote respondents for his engagement as Pilot.

On June 6, 2011, after numerous verbal attempts to raise the matter of his employment status as a helicopter pi-
lot to his superiors went unheeded, [Esico emailed the officers of respondents on the topic]. The email, together
with the attached Memorandum dated 7 June 2011, was addressed to Mr. Michael Aspirin, copy furnished Mr.
Serafin Belleza ([Esico's] senior pilot) and Atty. Rodolfo Ma. Ponferrada ([respondents Alphaland's] legal coun-
sel). While Mr. Belleza acknowledged receipt of the e-mail, [Esico] never received any positive response from [re-
spondents].

On August 22, 2011, [Esico] received a job offer sheet as pilot from [respondent] Alphaland Corporation with the
level of manager. It offered, among others, a total monthly gross compensation of Ph115,000.00 including a
monthly representation allowance of Ph25,000.00, subject to liquidation. [Esico] signed the job offer sheet believ-
ing that it is the compensation package that he had asked for separately from his work as Risk & Security Man-
agement Officer for Philweb.

Despite the job offer, [Esico] claimed that he was never paid his salary as stated in the job offer. According to pri-
vate respondent, on October 26, 2011, he received an e-mail from Ms. Bargas asking for a meeting regarding his
proposed transfer from Philweb to [respondent corporations] for the purpose of serving the latter as a pilot. The
meeting with Ms. Vargas took place, but the latter did not give [Esico] any definite job offer regarding the effective
date of his transfer from employer Philweb to herein, [respondents]. [Esico] was also not told what his compensa-
tion will be as a helicopter pilot of [respondents].

On November 9, 2011 [Esico] received an e-mail from Mr. Belleza regarding partial flights involving the Cessna
Caravan, a fixed wing aircraft owned by [respondents], to which, [Esico] replied via e-mail on the next day. [Es-
ico] recommended that flights of said aircraft be performed on a limited basis only due to safety issues.

On December 23, 2011, [Esico] found out that he had been transferred from Philweb to Alphaland because he
could not access his payroll with Philweb. This was confirmed by Philweb's Human Resource Administrator. The
latter told [Esico] that he had been transferred to Alphaland effective December 1, 2011.

On February 17, 2012, [Esico] was informed by a fellow pilot about a plan by Mr. Asperin, the then Security and
Aviation Head, that he will be served with a job termination notice immediately.

11
On February 20, 2012, [Esico] sent an e-mail to the officers of the corporation to inquire about the veracity of his
impending job termination. No reply was heard from these corporate officers.

[Esico] alleged that he was due for recurrent training by July 2, 2012. However, despite formal request upon [re-
spondents Alphaland] to grant such training, [they] did not provide for [Esico's] recurrent training. Thus, without
recurrent training, [Esico] could no longer fly the company helicopter as pilot-in-command.

xxxx

On July 3, 2012, [Esico] tendered his letter of resignation addressed to [respondents Alphaland's HR Manager.
Ms. Josephine Maclang. In his resignation letter, he stated the following reasons: (a) serious embarrassments
and insults had been committed against his person, honor and reputation on several occasions by a company of-
ficer; (b) serious flight safety concerns; (c) absence of employment contract with Alphaland Corporation; (d) ab-
sence of helicopter recurrent training; (e) unresolved issues on services already rendered in favor of Alphaland
Corporation as fixed wing pilot from May 2, 2011 to June 2012; and (f) other related matters.

On July 16, 2012, [Esico] received a demand letter from [respondents Alphaland's] legal officer. Among other
things, the letter demanded that [Esico] reimburse [respondents Alphaland] in the amount of P977,720.00 repre-
senting the portion of his flight training expenses.

On July 19, 2012, [Esico] filed a complaint for illegal dismissal before the Regional Arbitration Branch of the
NLRC, docketed as NCR-07-10970-12. He also sent a reply letter addressed to [respondents'] counsel refuting
the allegations therein.

Ruling:

We are not unaware that PhilWeb is a separate juridical entity from that of respondents, albeit part of respon -
dents' group of companies. Legal fiction invests it with a personality separate and distinct from those of the per-
sons composing it as well as from that of any other legal entity to which it may be related.[84]
Nonetheless, we pierce the veil of corporate fiction in this instance considering the strong ambiguity in the em -
ployment contracts, three in all, signed by Esico as to which among in respondents' group of companies will com-
pensate him for the services he had rendered. We do not do so lightly.

It must be emphasized that Esico had rendered services for his concurrent designation as pilot and RSMO which
he understood would be separately compensated by either of the two corporations that are part of respondents'
group of companies, PhilWeb or ADI. However, by December 2011, while still performing functions as RSMO of
PhilWeb and expecting to draw salaries therefrom, Esico could no longer access his payroll account as he was
transferred to ADI's payroll account.

This transfer was effected easily enough between PhilWeb and ADI given the affiliate relationship between the
two corporations and within respondents' group of companies. Respondents cannot now disavow payment of Es-
ico's salaries as RSMO which was unceremoniously withheld when ADI unilaterally transferred Esico's payroll ac-
count from PhilWeb to ADI.

Recently, in Maricalum Mining Corporation v. Florentino[85] (Maricalum) we ruled, thus:

While the veil of corporate fiction may be pierced under certain instances, mere ownership of a subsidiary does
not justify the imposition of liability on the parent company. It must further appear that to recognize a parent and a
subsidiary as separate entities would aid in the consummation of a wrong, thus, a holding corporation has a sep-
arate corporate existence and is to be treated as a separate entity; unless the facts show that such separate cor-
porate existence is a mere sham, or has been used as an instrument for concealing the truth.

Maricalum further explained that the corporate veil may be lifted only if it has been used to shield fraud, defend
crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Here, the totality of
the circumstances evince fraud on the part of respondents' group of companies to evade an existing obligation.
[86]
 Undoubtedly, respondents' group of companies availed of Esico's services, both as a pilot and as a security
officer, for which he was not properly compensated. Notably, neither of respondents allege that Esico did not per-
form the work as RSMO, only that Esico was paid his salaries for the duration of employment relationship under
a single compensation package with concurrent designations. As we have repeatedly pointed out herein, the ar-
rangement set up by respondents Alphaland, reflected in the ambiguous employment contracts, worked for Es-

12
ico's disadvantage who was given the run around by respondents each time he attempted to ascertain the true
nature of the terms and conditions of his employment.
Thus, considering the totality of the circumstances, to prevent injustice, as well as the evasion of an existing obli -
gation, we recompute Esico's unpaid salaries under the various contracts he signed with respondents' group of
companies as follows:

Missionary Sisters of Our Lady of Fatima vs. Alzona, G.R. No. 224307, Aug. 6, 2018

Facts:

The Missionary Sisters of Our Lady of Fatima (petitioner), otherwise known as the
Peach Sisters of Laguna, is a religious and charitable group established under the
patronage of the Roman Catholic Bishop of San Pablo on May 30, 1989. Its primary
mission is to take care of the abandoned and neglected elderly persons. The peti-
tioner came into being as a corporation by virtue of a Certificate issued by the Secu -
rities and Exchange Commission (SEC) on August 31, 2001. 5 Mother Ma. Concepcion
R. Realon (Mother Concepcion) is the petitioner's Superior General.

Purificacion, a spinster, is the registered owner of parcels of land covered by Trans-

fer Certificate of Title (TCT) Nos. T-57820 * and T-162375; and a co-owner of an-
other property covered by TCT No. T-162380, all of which are located in Calamba
City, Laguna.

Purificacion, a spinster, is the registered owner of parcels of land covered by Trans-

fer Certificate of Title (TCT) Nos. T-57820 * and T-162375; and a co-owner of an-
other property covered by TCT No. T-162380, all of which are located in Calamba
City, Laguna.6

In 1996, Purificacion, impelled by her unmaterialized desire to be nun, decided to

devote the rest of her life in helping others. In the same year, she then became a
benefactor of the petitioner by giving support to the community and its works. 7

In 1997, during a doctor's appointment, Purificacion then accompanied by Mother

Concepcion, discovered that she has been suffering from lung cancer. Considering
the restrictions in her movement, Purificacion requested Mother Concepcion to take
care of her in her house, to which the latter agreed. 8

In October 1999, Purificacion called Mother Concepcion and handed her a handwrit-
ten letter dated October 1999. Therein, Purificacion stated that she is donating her
house and lot at F. Mercado Street and Riceland at Banlic, both at Calamba, Laguna,
to the petitioner through Mother Concepcion. On the same occasion, Purificacion in-
troduced Mother Concepcion to her nephew, Francisco Del Mundo (Francisco), and
niece, Ma. Lourdes Alzona Aguto-Africa (Lourdes). Purificacion, instructed Francisco
to give a share of the harvest to Mother Concepcion, and informed Lourdes that she
had given her house to Mother Concepcion.9

Sometime in August 2001, at the request of Purificacion, Mother Concepcion went to

see Atty. Nonato Arcillas (Atty. Arcillas) in Los Ba�os, Laguna. During their meet-
ing, Atty. Arcillas asked Mother Concepcion whether their group is registered with

13
the SEC, to which the latter replied in the negative. Acting on the advice given by
Atty. Arcillas, Mother Concepcion went to SEC and filed the corresponding registra-
tion application on August 28, 2001.10

On August 29, 2001, Purificacion executed a Deed of Donation Inter Vivos (Deed) in

favor of the petitioner, conveying her properties covered by TCT Nos. T-67820 and
T-162375, and her undivided share in the property covered by TCT No. T-162380.
The Deed was notarized by Atty. Arcillas and witnessed by Purificacion's nephews
Francisco and Diosdado Alzona, and grandnephew, Atty. Fernando M. Alonzo. The
donation was accepted on even date by Mother Concepcion for and in behalf of the
petitioner.11

Thereafter, Mother Concepcion filed an application before the Bureau of Internal

Revenue (BIR) that the petitioner be exempted from donor's tax as a religious orga-
nization. The application was granted by the BIR through a letter dated January 14,
2002 of Acting Assistant Commissioner, Legal Service, Milagros Regalado. 12

Subsequently, the Deed, together with the owner's duplicate copies of TCT Nos. T-
57820, T-162375, and T-162380, and the exemption letter from the BIR was pre-
sented for registration. The Register of Deeds, however, denied the registration on
account of the Affidavit of Adverse Claim dated September 26, 2001 filed by the
brother of Purificacion, respondent Amando Y. Alzona (Amando).13

On October 30, 2001, Purificacion died without any issue, and survived only by her
brother of full blood, Amando, who nonetheless died during the pendency of this
case and is now represented and substituted by his legal heirs, joined as herein re-
spondents.14

On April 9, 2002, Amando filed a Complaint before the RTC, seeking to annul the
Deed executed between Purificacion and the petitioner, on the ground that at the
time the donation was made, the latter was not registered with the SEC and there-
fore has no juridical personality and cannot legally accept the donation.

After trial, on August 14, 2013, the RTC rendered its Decision 16 finding no merit in
the complaint, thus ruling:

Issue:

whether or not the Deed executed by Purificacion in favor of the petitioner is valid
and binding. In relation to this, the Court is called upon to determine the legal ca-
pacity of the petitioner, as donee, to accept the donation, and the authority Mother
Concepcion to act on behalf of the petitioner in accepting the donation.

Ruling:

The petition is meritorious.

14
Ultimately, the petitioner argues that the intestate estate of Purificacion is estopped
from questioning its legal personality considering the record is replete of evidence to
prove that Purificacion at the time of the donation is fully aware of its status and yet
was still resolved into giving her property. 32

In response, the respondents submit that juridical personality to enter into a con-
tract of donation is vested only upon the issuance of a Certificate of Incorporation
from SEC.33 Further, the respondents posit that the petitioner cannot even be con-
sidered as a de facto corporation considering that for more than 20 years, there was
never any attempt on its part to incorporate, which decision came only after Atty.
Arcillas, suggestion.

Under Article 737 of the Civil Code, "[t]he donor's capacity shall be determined as of
the time of the making of the donation." By analogy, the legal capacity or the per-
sonality of the donee, or the authority of the latter's representative, in certain cases,
is determined at the time of acceptance of the donation.

Article 738, in relation to Article 745, of the Civil Code provides that all those who
are not specifically disqualified by law may accept donations either personally or
through an authorized representative with a special power of attorney for the pur-
pose or with a general and sufficient power.

The Court finds that for the purpose of accepting the donation, the petitioner is
deemed vested with personality to accept, and Mother Concepcion is clothed with
authority to act on the latter's behalf.

At the outset, it must be stated that as correctly pointed out by the CA, the RTC
erred in holding that the petitioner is a de facto corporation.

Jurisprudence settled that "[t]he filing of articles of incorporation and the issuance

of the certificate of incorporation are essential for the existence of a de facto  corpo-
ration."38 In fine, it is the act of registration with SEC through the issuance of a cer-
tificate of incorporation that marks the beginning of an entity's corporate exis-
tence.39

Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001. How-
ever, the SEC issued the corresponding Certificate of Incorporation only on August
31, 2001, two (2) days after Purificacion executed a Deed of Donation on August 29,
2001. Clearly, at the time the donation was made, the Petitioner cannot be consid-
ered a corporation de facto.  40

Rather, a review of the attendant circumstances reveals that it calls for the applica-
tion of the doctrine of corporation by estoppel as provided for under Section 21 of
the Corporation Code, viz.:

15
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided, how -
ever, That when any such ostensible corporation is sued on any transaction entered
by it as a corporation or on any tort committed by it as such, it shall not be allowed
to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, can-

not resist performance thereof on the ground that there was in fact no cor-
poration. (Emphasis Ours)

The doctrine of corporation by estoppel is founded on principles of equity and is de-

signed to prevent injustice and unfairness. It applies when a non-existent corpora-
tion enters into contracts or dealings with third persons. 41 In which case, the person
who has contracted or otherwise dealt with the non-existent corporation is estopped
to deny the latter's legal existence in any action leading out of or involving such con-
tract or dealing. While the doctrine is generally applied to protect the sanctity of
dealings with the public,42 nothing prevents its application in the reverse, in fact the
very wording of the law which sets forth the doctrine of corporation by estoppel per-
mits such interpretation. Such that a person who has assumed an obligation in favor
of a non-existent corporation, having transacted with the latter as if it was duly in-
corporated, is prevented from denying the existence of the latter to avoid the en-
forcement of the contract.

Jurisprudence dictates that the doctrine of corporation by estoppel applies for as

long as there is no fraud and when the existence of the association is attacked for
causes attendant at the time the contract or dealing sought to be enforced was en-
tered into, and not thereafter.43

In this controversy, Purificacion dealt with the petitioner as if it were a corporation.

This is evident from the fact that Purificacion executed two (2) documents conveying
her properties in favor of the petitioner � first, on October 11, 1999 via handwrit-
ten letter, and second, on August 29, 2001 through a Deed; the latter having been
executed the day after the petitioner filed its application for registration with the
SEC.44

The doctrine of corporation by estoppel rests on the idea that if the Court were to
disregard the existence of an entity which entered into a transaction with a third
party, unjust enrichment would result as some form of benefit have already accrued
on the part of one of the parties. Thus, in that instance, the Court affords upon the
unorganized entity corporate fiction and juridical personality for the sole purpose of
upholding the contract or transaction.

In this case, while the underlying contract which is sought to be enforced is that of a
donation, and thus rooted on liberality, it cannot be said that Purificacion, as the
donor failed to acquire any benefit therefrom so as to prevent the application of the
doctrine of corporation by estoppel.45 To recall, the subject properties were given by
Purificacion, as a token of appreciation for the services rendered to her during her
illness.46 In fine, the subject deed partakes of the nature of a remuneratory or com-
pensatory donation, having been made "for the purpose of rewarding the donee for
past services, which services do not amount to a demandable debt."

16
Therefore, under the premises, past services constitutes consideration, which in tum
can be regarded as "benefit" on the part of the donor, consequently, there exists no
obstacle to the application of the doctrine of corporation by estoppel; although
strictly speaking, the petitioner did not perform these services on the expectation of
something in return.

Precisely, the existence of the petitioner as a corporate entity is upheld in this case
for the purpose of validating the Deed to ensure that the primary objective for which
the donation was intended is achieved, that is, to convey the property for the pur-
pose of aiding the petitioner in the pursuit of its charitable objectives.

Further, apart from the foregoing, the subsequent act by Purificacion of re-convey-
ing the property in favor of the petitioner is a ratification by conduct  of the other-
wise defective donation.50

Express or implied ratification is recognized by law as a means to validate a defec-

tive contract.51 Ratification cleanses or purges the contract from its defects from
constitution or establishment, retroactive to the day of its creation. By ratification,
the infirmity of the act is obliterated thereby making it perfectly valid and enforce-
able.52

The principle and essence of implied ratification require that the principal has full
knowledge at the time of ratification of all the material facts and circumstances re-
lating to the act sought to be ratified or validated. 53 Also, it is important that the act
constituting the ratification is unequivocal in that it is performed without the slight-
est hint of objection or protest from the donor or the donee, thus producing the in-
evitable conclusion that the donation and its acceptance were in fact confirmed and
ratified by the donor and the donee.54

In this controversy, while the initial conveyance is defective, the genuine intent of
Purificacion to donate the subject properties in favor of the petitioner is indubitable.
Also, while the petitioner is yet to be incorporated, it cannot be said that the initial
conveyance was tainted with fraud or misrepresentation. Contrarily, Purificacion
acted with full knowledge of circumstances of the Petitioner. This is evident from Pu-
rificacion's act of referring Mother Concepcion to Atty. Arcillas, who, in turn, advised
the petitioner to apply for registration. Further, with the execution of two (2) docu-
ments of conveyance in favor of the petitioner, it is clear that what Purificacion in-
tended was for the sisters comprising the petitioner to have ownership of her prop-
erties to aid them in the pursuit of their charitable activities, as a token of apprecia-
tion for the services they rendered to her during her illness. 55 To put it differently,
the reference to the petitioner was merely a descriptive term used to refer to the
sisters comprising the congregation collectively. Accordingly, the acceptance of
Mother Concepcion for the sisters comprising the congregation is sufficient to perfect
the donation and transfer title to the property to the petitioner. Ultimately, the sub-
sequent incorporation of the petitioner and its affirmation of Mother Concepcion's
authority to accept on its behalf cured whatever defect that may have attended the
acceptance of the donation.

The Deed sought to be enforced having been validly entered into by Purificacion, the
respondents' predecessor-in-interest, binds the respondents who succeed the latter
as heirs.56 Simply, as they claim interest in their capacity as Purificacion's heirs, the
respondents are considered as "privies" to the subject Deed; or are "those between
whom an action is binding although they are not literally parties to the said action.

17
Anent the authority of Mother Concepcion to act as representative for and in behalf
of the petitioner, the Court similarly upholds the same. Foremost, the authority of
Mother Concepcion was never questioned by the petitioner. In fact, the latter affirms
and supports the authority of Mother Concepcion to accept the donation on their be-
half; as she is, after all the congregation's Superior General. 60 Furthermore, the pe-
titioner's avowal of Mother Concepcion's authority after their SEC registration is a
ratification of the latter's authority to accept the subject donation as the petitioner's
representative.

Angeles Balinghasay vs. Cecilia Castillo, G.R. No. 185664, April 8, 2015

Facts:

The MCPI, a domestic corporation organized in 1977, operates the Medical Center Parañaque
(MCP) locatedin Dr. A. Santos Avenue, Sucat, Parañaque City. Castillo, Oscar, Flores, Navarro,
and Templo are minority stockholders of MCPI. Each of them holds 25 Class B shares. On the
other hand, nine of the herein petitioners, namely, Balinghasay, Bernabe, Alodia, Jimenez,
Oblepias, Savet, Villamora,Valdez and Villareal, are holders of Class A shares and were Board
Directors of MCPI. The other eight petitioners are holders of Class B shares. The petitioners are
part of a group who invested in the purchase of ultrasound equipment, the operation of and earn-
ings from which gave rise to the instant controversy.

Before 1997, the laboratory, physical therapy, pulmonary and ultrasound services in MCP were
provided to patients by way of concessions granted to independent entities. When the conces-
sions expired in 1997, MCPI decided that it would provide on its own the said services, except ul-
trasound.5

In 1997, the MCPI’s Board of Directors awarded the operation of the ultrasound unit to a group of
investors (ultrasound investors) composed mostly of Obstetrics-Gynecology (Ob-gyne) doctors.
The ultrasound investors held either Class A or Class B shares of MCPI. Among them were nine
of the herein petitioners, who were then, likewise, MCPI Board Directors. The group purchased a
Hitachi model EUB-200 C ultrasound equipment costing ₱850,000.00 and operated the same.
Albeit awarded by the Board of Directors, the operation was not yet covered by a written con-
tract.
6

In the meeting of the MCPI’s Board of Directors held on August 14, 1998, seven (7) of the twelve
(12) Directors present were part of the ultrasound investors. The Board Directors made a counter
offer anent the operation of the ultrasound unit. Hence, essentially then, the award of the ultra-
sound operation still bore no formal stamp of approval. 7

On February 5, 1999, twelve (12) Board Directors attended the Board meeting and eight (8) of
them were among the ultrasound investors. A Memorandum of Agreement (MOA) was entered
into by and between MCPI, represented by its President then, Bernabe, and the ultrasound in-
vestors, represented by Oblepias. Per MOA, the gross income to be derived from the operation
of the ultrasound unit, minus the sonologists’ professional fees, shall be divided between the ul-
trasound investors and MCPI, in the proportion of 60% and 40%, respectively. Come April 1,
1999, MCPI’s share would be 45%, while the ultrasound investors would receive 55%. Further,
the ownership of the ultrasound machine would eventually be transferred to MCPI. 8

On October 6, 1999, Flores wrote MCPI’s counsel a letter challenging the Board of Directors’ ap-
proval of the MOA for being prejudicial to MCPI’s interest. Thereafter, on February 7, 2000, Flo-
res manifested to MCPI’s Board of Directors and President his view regarding the illegality of the
MOA, which, therefore, cannot be validly ratified.9

18
On March 22, 2001, the herein respondents filed with the RTC a derivative suit  against the peti-
10

tioners for violation of Section 31  of the Corporation Code. Among the prayers in the Complaint
11

were: (a) the annulment of the MOA and the accounting of and refund by the petitioners of all
profits, income and benefits derived from the said agreement

The petitioners likewise claimed that under Section 32  of the Corporation Code, the MOA was
13

merely voidable. Since there was no proof that the subsequent Board of Directors of MCPI
moved to annul the MOA, the same should be considered as having been ratified. Further, in the
Annual Stockholders Meeting held on February 11, 2000, the MOA had already been discussed
and passed upon.

Issue:

Ruling:

In declaring the invalidity of the MOA, the CA explained that:

"Quorum" is defined as that number of members of a body which, when legally assembled in
their proper places, will enable the body to transact its proper business. "Majority," when required
to constitute a quorum, means the greater number than half or more than half of any total.

In the case at bar, the majority of the number of directors, if it is indeed thirteen (13), is seven (7),
while if it is eleven (11), the majority is six (6). During the meetings held by the MCPI Board of Di-
rectors i.e.1) 14 August 1998 meeting x x x, twelve (12)directors were present, and of said num-
ber, seven (7) of them belong to the ultrasound investors x x x, and at which meeting, the Board
decided to make a counter-offer x x x to the ultrasound group and; 2) 05 February 1999 meeting
x x x, twelve (12) directors were present, and of said number, eight (8) of them belong to the ul-
trasound investors x x x, and at which meeting, the Board decided to proceed with the signing of
the [MOA] x x x. As can be gleaned from the Minutes of said Board meetings, without the pres-
ence of the [petitioners] directors/ultrasound investors, there can be no quorum. At any rate, dur-
ing the Board meeting on 14 August 1998, the [MOA] was not approved as only a counter-offer
was agreed upon. As to the 05 February 1999 Board meeting, without considering the votes of
the [petitioners] directors/ultrasound investors, in connection with the signing of the [MOA], no
valid decision can be made. It further appears that x x x [Oblepias], who signed the [MOA] on be-
half of the ultrasound/Ob-Gyne group as OWNER of the ultrasound equipment, and x x x Presi-
dent Dr. Bernabe, who signed the same on behalf of MCPI x x x, are both ultrasound investors.
Thus, We find that the [MOA] was not validly approved by the MCPI Board. Plainly, [the petition-
ers/directors] x x x, in acquiring an interest adverse to the corporation, are liable as trustees for
the corporation and must account for the profits under the [MOA] which otherwise would have ac-
crued to MCPI.

Further, 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 in behalf of the corporation in order to protect or vindicate corporate
rights whenever the officials of the corporation refuse to sue, or when a demand upon them to file
the necessary action would be futile because they are the ones to be sued, or because they hold
control of the corporation. In such actions, the corporation is the real party-in-interest while the
suing stockholder, in behalf of the corporation, is only a nominal party.

[The petitioners] MCPI directors, who are ultrasound investors, in violation of their duty as such
directors, acquired an interest adverse to the corporation when they entered into the ultrasound
contract. By doing so, they have unjustly profited from the transaction which otherwise would
have accrued to MCPI. In fact, as reflected in the ultrasound income x x x for the year 1997 to
2001, the ultrasound investors earned a net share of ₱4,417,573.81. [The petitioners]

19
directors/ultrasound investors failed to inhibit themselves from participating in the meeting and
from voting with respect to the decision to proceed with the signing of the [MOA]. Certainly, said
[petitioners] directors/ultrasound investors have dealt in their behalf and took an interest adverse
to MCPI.

As acknowledged by the petitioners and aptly pointed out by the respondents, the existence of
the circumstances and urgent hospital necessity justifying the purchase and operation of the ul-
trasound unit by the investors were not at the outset offered as evidence. Having been belatedly
raised, the aforesaid defenses were not scrutinized during the trial and their truth or falsity was
not uncovered. This is fatal to the petitioners’ cause. The CA thus cannot be faulted for ruling
against the petitioners in the face of evidence showing that: (a) there was no quorum when the
Board meetings were held on August 14, 1998 and February 5, 1999; (b) the MOA was not rati-
fied by a vote of two-thirds of MCPI’s outstanding capital stock; and (c) the Balance Sheets for
the years 1996 to 2000 indicated that MCPI was in a financial position to purchase the ultrasound
equipment.

The petitioners harp on their lofty purpose, which had supposedly moved them to purchase and
operate the ultrasound unit. Unfortunately, their claims are not evident in the records.  Further,
1âwphi1

even if their claims were to be assumed as true for argument’s sake, the fact remains that the
Board Directors, who approved the MOA, did not outrightly inform the stockholders about it. The
ultrasound equipment was purchased and had been in operation since 1997, but the matter was
only brought up for ratification by the stockholders in the annual meetings held in the years 2000
to 2003. This circumstance lends no credence to the petitioners’ cause.

20
Airene Unera, et. al. vs. Shin Heung Electro Digital, Inc., et al., G.R. No. 228328. Mar. 11, 2020

Facts:
Respondent Shin Heung Electrodigital, Inc. (Shin Heung) is a company primarily engaged in the manufacture of
a computer part called "deck" exclusively for Smart Electronics Manufacturing Service Philippines, Inc. (SEPHIL).
Due to dwindling sales and decreasing use of their manufactured product, Shin Heung was initially forced to
[3]
reduce its labor force from 2000 to 991 employees.  Eventually, Shin Heung decided to close shop after SEPHIL
[4]
formally terminated its contract with the company.  It, thus, issued a Memorandum dated 18 April 2013,
informing its employees of the company's impending closure 

A number of Shin Heung's properties, including buildings, machineries and equipment, were later sold. The
company also took a loan to pay all its workers separation pay at the rate of 15 days per year of service for a
grand total of P28,973,250.00. Those who volunteered to resign were paid first, while the workers who did not
resign and opted to work until 31 July 2013 were paid on their last day of work or some days or weeks thereafter.
[8]

Before its scheduled closure, Shin Heung sent another letter dated 29 July 2013 to the DOLE to recall its earlier
notice of closure. 

Shin Heung, however, asserted that the expected infusion of capital did not follow through. Moreover, the
customers it found had limited product orders, which were manufactured using only the press, mold and injection
[10]
sections of the company.  Thus, the company resumed operations over a small portion of the business to
alleviate losses and to help maintain company equipment and machineries until the company assets are finally
sold. It also leased 80% of its company premises to THN Autoparts Philippines, Inc. for the period 01 September
[11]
2014 until 31 August 2017.

Claiming the closure as a ruse to circumvent their tenurial rights, petitioners, who are Shin Heung's previous
employees, filed separate complaints for illegal closure of establishment with claims for reinstatement,
backwages, additional separation pay, damages and attorney's fees before the Labor Arbiter. To their mind, Shing
Heung was in evident bad faith when it resumed business operations after their dismissals.

Ruling:
We do not agree.

In the present case, there is no indication that Shin Heung was impelled by any unlawful or dishonest motive
aimed to circumvent the rights of its workers. To recall, Shin Heung's sole client for its manufactured products ter-
minated its agreement with the company. Prior to this, the company had already reduced its manpower from
2000 to 991 due to declining sales. The substantial losses suffered by the company are also supported by au-
dited financial statements covering the years 2010 to 2013, as well as findings of an independent auditor.
[32]
 These documents were appropriately given evidentiary weight in accordance with the Court's pronouncement
[33]
in Asian Alcohol Corp. v. National Labor Relations Commission,  viz:

The condition of business losses is normally shown by audited financial documents like yearly balance sheets
and profit and loss statements as well as annual income tax returns. It is our ruling that financial statements must
be prepared and signed by independent auditors. Unless duly audited, they can be assailed as self-serving docu-
ments. But it is not enough that only the financial statements for the year during which retrenchment was under-
taken, are presented in evidence. For it may happen that while the company has indeed been losing, its losses
may be on a downward trend, indicating that business is picking up and retrenchment, being a drastic move,
should no longer be resorted to. Thus, the failure of the employer to show its income or loss for the immediately
preceding year or to prove that it expected no abatement of such losses in the coming years, may be speak the

21
weakness of its cause. It is necessary that the employer also show that its losses increased through a period of
time and that the condition of the company is not likely to improve in the near future.[34]
With the declining demand for its manufactured product and the pullout of its sole client, Shin Heung was left with
no other option but to close shop. Its decision to do so was clearly communicated to stakeholders months before
[35]
the target date. Accordingly, the company sold its equipment and other assets.  It, however, found it difficult to
[36]
find a buyer for its real estate prompting it to lease a large part of the premises to generate more income.

In the interim of finding a solution to their financial woes, Shin Heung was able to find a few customers who were
willing to do business with them. The customers, however, only have limited orders, which were manufactured
using the press, injection and mold sections of the company. The assembly section, which formed more or less
90% of the its previous operation, remained non-functional. The decision to push through with the minimal orders
were also a result of wanting to keep the company's unsold equipment in good running condition thereby
commanding a good resale price.

From the foregoing, the Court finds the totality of the circumstances surrounding Shin Heung's decision to cease
operations as refutation of the claim of bad faith. What the Court sees is a company struggling to stay afloat or
trying to get by. There is no indication to defraud its employees of any of their deserving rights. In fact, the
company took a loan to pay its employees separation pay despite the rule that dispenses with such payment
when the cause for closure of business is due to serious losses. Moreover, there was no union busting or any
union activity that the company sought to prevent.

To be clear, the resumption of Shin Heung's operations was limited to the press, injection and mold section of the
company. It rehired its previous employees who were working in the said sections based on their availability to
immediately return to work. Moreover, the re-hired workers were given the status of regular employees
immediately upon their first day of work on 19 August 2013. Unfortunately, Shin Heung cannot rehire all of its
workers, especially those who worked in the now defunct assembly section.
[37]
In Beralde v. Lapanday Agricultural and Development Corp.,  the Court did not accord bad faith on the subse-
quent acts of the employer to re hire its retrenched workers or to hire new employees since the employer had al-
ready sufficiently proven economic or business losses, to wit:

In exercising its right retrench employees, the firm may choose to close all, or a part of, its business to avoid fur -
ther losses or mitigate expenses. In Caffco International Limited v. Office of the MinisterMinistry of Labor and
Employment, the Court has aptly observed that -

Similarly, Shin Heung had already sufficiently proven substantial business losses on its part thereby necessitating
the closure of the company. Its decision to continue a part of its previous operations did not negate good faith in
its decision to close shop, but is seen as an exercise of its right to continue its business. As long as no arbitrary
or malicious action on the part of the employer is shown, the wisdom of a business judgment to implement a cost
saving device is beyond the court's determination. After all, the free will of management to conduct its own
business affairs to achieve its purpose cannot be denied.

22
AGO Realty & Dev. Corp. vs. Dr. Angelita F. Ago, et. al., G.R. No. 210906, October 16, 2019

Facts:
Petitioner Ago Realty & Development Corporation (ARDC) is a close corporation. 3 Its
stockholders are petitioner Emmanuel F. Ago (Emmanuel); his wife, petitioner
Corazon C. Ago (Corazon); their children, Emmanuel Victor C. Ago and Arthur
Emmanuel C. Ago (collectively Emmanuel, et al.); and Emmanuel's sister,
respondent Angelita F. Ago (Angelita).

This controversy arose when Angelita introduced improvements on Lot No. H-

3, titled in the name of ARDC, without the proper resolution from the corpo-
ration's Board of Directors. The improvements also encroached on Lot No. H-1
and Lot No. H-2, which also belonged to ARDC.5

Consequently, on August 11, 2006, ARDC and Emmanuel, et al. filed a com-

p1aint6 before the Legazpi City Regional Trial Court (RTC). They essentially alleged
that Angelita, in connivance with Teresita P. Apin (Teresita), Maribel Amaro (Mari-
bel), and certain local officials of Legazpi City, introduced unauthorized improve-
ments on corporate property. For her part, Teresita was accused of operating a
restaurant named "Kicks Resto Bar" in the improvements, 7 while Maribel was im-
pleaded as Angelita's employee.8 On the other hand, the local officials were im-
pleaded as defendants since they were responsible for issuing the permits relative to
the improvements introduced by Angelita and the business concerns thereon. 9

On September 15, 2006, Teresita filed her answer. She denied all the material alle-
gations and averred that her restaurant was operating not on Lot No. H-3, as stated
in the complaint, but on Lot No. 1-B, which is not ARDC's property.

Notably, a defense common to all the defendants was that ARDC never
authorized the institution of the suit. Without a resolution emanating from
the corporation's Board of Directors, it was argued that Emmanuel, et
al. had no legal standing to bring the case since the lots in question
belonged to ARDC.

Issue:
Whether or not 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.

Ruling:
Corporate powers are exercised by the board of directors

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

As creatures of the law, corporations only possess those powers that are granted
through statute, either expressly or by way of implication, or those that are inciden-
tal to their existence.65

One of the powers expressly granted by law to corporations is the power to sue. 66 As
with other corporate powers, the power to sue is lodged in the board of direc-
tors, acting as a collegial body.67 Thus, in the absence of any clear authority from
the board, charter, or by-laws,68 no suit may be maintained on behalf of the corpora-
tion. A case instituted by a corporation without authority from its board of directors
is subject to dismissal on the ground of failure to state a cause of action. 69

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

corporation

As an exception70 to the foregoing rule, jurisprudence has recognized certain in-

stances when minority stockholders may bring suits on behalf of corpora-
tions.71 Where the board of directors itself is a party to the wrong, either because it
is the author thereof or because it refuses to take remedial action, equity permits in-
dividual stockholders to seek redress.72 These actions have come to be known as de-
rivative suits. In Chua v. Court of Appeals,73 the Court defined a derivative suit as "a
suit by a shareholder to enforce a corporate cause of action."74

In derivative suits, it is the corporation that is the victim of the wrong. As

such, it is the corporation that is properly regarded as the real party in interest,
while the relator-stockholder is merely a nominal party. 75 The corporation must be
impleaded so that the benefits of the suit accrue to it and also because it must be
barred from bringing a subsequent case against the same defendants for the same
cause of action.76 Stated otherwise, the judgment rendered in the suit must consti-
tute res judicata against the corporation, even though it refuses to sue through its
board of directors.77

That said, not every wrong suffered by a stockholder involving a corporation will
vest in him or her the standing to commence a derivative suit.

Here, the CA held that since the cause of action belongs to ARDC, the properties in
question being titled in its name, the case instituted by Emmanuel, et al. was deriv-
ative in nature. As such, they should have first secured a board resolution authoriz-
ing them to bring suit.81 Emmanuel, et al. counter, arguing that a derivative suit
does not require the imprimatur of the board of directors. 82 Since, in derivative suits,
the corporation is usually under the control of the wrongdoers, it would be absurd to
require the stockholders to obtain board authority prior to the commencement of liti-
gation.

24
Emmanuel et al. are correct.

A board resolution is not needed for the institution of a derivative suit

The record reveals that the complaint a quo was filed by Emmanuel, et al. While the
caption states that ARDC was also one of the plaintiffs, there is nothing showing that
the corporation's Board of Directors had authorized the filing of the case. Thus, the
case is deemed as instituted by Emmanuel, et al. without ARDC's acquiescence.

As discussed above, the corporate power to sue is exercised by the board of direc-
tors. For this purpose, the board may authorize a representative of the corporation
to perform all necessary physical acts, such as the signing of documents. 83 Such au-
thority may be derived from the by-laws or from a specific act of the board
of directors,  i.e., a board resolution.

However, in derivative suits, the recognized rule is different. Since the board is

guilty of breaching the trust reposed in it by the stockholders, it is but logi -
cal to dispense with the requirement of obtaining from it authority to insti-
tute the case and to sign the certification against forum shopping. It has
been held that when "the corporation x x x is under the complete control of the prin -
cipal defendants in the case, x x x it is obvious that a demand upon the [board] to
institute an action and prosecute the same effectively would [be] useless, and the
law does not require litigants to perform useless acts." 86Thus, the institution of a
derivative suit need not be preceded by a board resolution.

But, given that authority from the board of directors can be dispensed with in deriv -
ative suits, can the case filed by Emmanuel, et al. even be classified as such in the
first place?

The derivative suit is an equitable remedy and one of last resort

The right of stockholders to bring derivative suits is not based on any provision of
the Corporation Code or the Securities Regulation Code, but is a right that is implied
by the fiduciary duties that directors owe corporations and stockholders. 88Deriva-
tive suits are, therefore, grounded not on law, but on equity.

Despite derivative suits being grounded on equity, they cannot prosper in the ab-
sence of any or some of the requisites enumerated in the Interim Rules of Procedure
for Intra-Corporate Controversies,93viz.:

Rule 8
DERIVATIVE SUITS

Section 1. Derivative action. - A stockholder or member may bring an action in the

name of a corporation or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the ac-

25
 tion occurred and the time the action was filed;
   
(2) He exerted all reasonable efforts, and alleges the same with particularity in the com-
plaint, 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 acts or acts complained of; and
   
(4) The suits is not a nuisance or harassment suit.94

The second requisite does not obtain in this case.

Before instituting a derivative suit, the relator-stockholder must exert all

reasonable efforts to exhaust all remedies available under the articles of in-
corporation, the by-laws, and the laws or rules governing the corporation or
partnership to obtain the relief he or she desires. Such fact must then be al-
leged with particularity in the complaint. 95 "The obvious intent behind the rule is to
make the derivative suit the final recourse of the stockholder, after all other reme-
dies to obtain the relief sought had failed." 96

In their petition, Emmanuel, et al. allege that they exerted all reasonable efforts to
exhaust all remedies available to them. They point to the fact that they invited An-
gelita to a meeting to amicably settle the dispute. 97 Indeed, the record shows that
Emmanuel, Corazon, and Angelita came together for a special stockholders' meeting
on August 11, 2006. However, their attempt to resolve the dispute turned sour when
Angelita walked out before the meeting even started.98

Contrary to the postulation of Emmanuel and Corazon, their attempt to settle the
dispute with Angelita can hardly be considered "all reasonable efforts to exhaust all
remedies available."

More importantly, an apparent remedy available to Emmanuel, et al. was to

cause ARDC itself, through its Board of Directors, to directly institute the
case. Because of their controlling interest in the corporation, Emmanuel, et al. could
have prevailed upon the board to pass a resolution authorizing any of them to file
the case and sign the certification against forum shopping.

The derivative suit has proven to be an effective tool for the protection of the minor -
ity shareholder's corporate interest. It is essentially an exception to the rule that a
wrong done to a corporation must be vindicated through legal action commenced by
the board of directors.

Through the voting procedure found in the Corporation Code, 101 the majority share-
holders exercise control over the board of directors. In Gamboa v. Finance Secretary
Teves, et al.,102 the Court, in no uncertain terms, declared that: "[i]ndisputably, one
of the rights of a stockholder is the right to participate in the control or management
of the corporation. This is exercised through his vote in the election of directors be-
cause it is the board of directors that controls or manages the corpora-
tion."103 Hence, in the normal course of things, when a corporation is
wronged, the board will readily litigate in order to protect the majority's

26
corporate interests. For the minority, on the other hand, this may not be the case.
There may be situations where a corporation is wronged, but the board of directors
refuses to take remedial action. The board's refusal may be based on valid business
considerations, such as that the costs of litigation exceed the potential judgment
award. But in situations where the board's decision is tantamount to breach-
ing the trust reposed in it by the minority, equity necessitates that the ag -
grieved stockholders be given a remedy. Thus, the minority, in a derivative ca-
pacity, may sue or defend104 on behalf of the corporation.

Due to their control over the board of directors, the majority should not ordinarily be
allowed to resort to derivative suits. Where a corporation under the effective
control of the majority is wronged, board-sanctioned litigation should take
precedence over derivative actions. After all, the law expressly vests the
power to sue in the board of directors, 105and a remedy based on equity,
such as the derivative suit, can prevail only in the absence of one provided
by statute.106 In other words, majority stockholders who have undisputed corporate
control cannot resort to derivative suits when there is nothing preventing the corpo-
ration itself from filing the case.

In the complaint they filed before the Legazpi City RTC, Emmanuel, et al. alleged
that, together, they own 70% of ARDC's shares of capital stock. 107 In support
of their allegation, they attached to their complaint the corporation's General Infor-
mation Sheet,108 which shows that, out of ARDC's 5,000 shares of stock, 3,500 be-
long to Emmanuel, et al. collectively, while only 1,500 belong to Angelita.

Clearly, the case before the RTC was instituted by the stockholders holding the con-
trolling interest in ARDC. However, the wrong done directly to ARDC was a
wrong done only indirectly to the inchoate corporate interests of Em-
manuel, et al.109 If ARDC truly desired to vindicate its rights, it should have done so
through its Board of Directors. Considering the majority shareholdings of the
plaintiffs  a quo, their interests should have been protected by the board
through affirmative action.

However, this could not happen because ARDC did not have a board of direc-
tors. On this point, the record is bereft of any showing that ARDC's stockholders
ever met to elect its governing board. Before the trial court, Emmanuel admitted
that ARDC never held any stockholders' meetings from the time it was incorporated
until 2005

The failure of ARDC's majority stockholders to elect a board of directors must be

taken against them. To be sure, there was nothing preventing Emmanuel, et
al. from holding a meeting for the purpose of electing a board, even in An-
gelita's absence or over her objection. It is admitted that the plaintiffs  a
quo hold a majority of ARDC's capital stock, by virtue of which they could have con-
stituted a board to exercise the corporation's powers. 112 If they had done so, the in-
stant case could have been instituted by ARDC itself.

The role of the board of directors is impressed with such importance that
corporate business cannot properly be conducted without it

Being necessary to the legitimate operation of business, the board of directors is an

organ that is indispensable to the corporate vehicle. If this case were allowed to
prosper as a derivative suit, the non-election of boards of directors would be incen-

27
tivized, and the stability brought by "centralized management" 113 eroded. Majority
shareholders cannot be allowed to bypass the formation of a board and di-
rectly conduct corporate business themselves. The Court cannot stress
enough that the law mandates corporations to exercise their powers
through their governing boards. Hence, if a person114 or group of persons truly
desires to conduct business through the corporate medium, then he, she, or they, as
a matter of law, must form a board of directors. To allow Emmanuel, et al. to forego
the election of directors, and directly commence and prosecute this case would not
only downplay the key role of the board in corporate affairs, but also undermine the
theory of separate juridical personality.

It is axiomatic that a corporation is an entity with a legal personality separate and

distinct from the people comprising it. 115 Accordingly, a wrong done to a corporation
does not vest in its shareholders a cause of action against the wrongdoer. Since the
corporation is the real party in interest, it must seek redress itself. As stated above,
a case instituted by the stockholders would be subject to dismissal on the ground
that the complaint fails to state a cause of action. 116

Here, because ARDC is the victim of the act complained of, the cause of action does
not lie with Emmanuel, et al. The corporation should have filed the case itself
through its board of directors. However, this could not be done since those responsi-
ble for the institution of this case never bothered to elect a governing body to wield
ARDC's powers and to manage its affairs. Their omission cannot be without conse-
quence. Verily, by virtue of their admitted controlling interest in ARDC, Em-
manuel, et al. could have come together and formed a board of directors
consisting of all five of the corporation's stockholders. Even without Angelita's
participation, such a board would have been able to validly conduct business 117 and,
accordingly, could have sanctioned the filing of the complaint before the Legazpi City
RTC. The aggrieved stockholders cannot now come before the Court, claiming that
their remedy is a derivative suit. Their failure to elect a board ultimately re-
sulted in their failure to exhaust all legal remedies to obtain the relief they
desired. Since this case could have been brought by ARDC, through its board, its
stockholders cannot maintain the suit themselves, purporting to sue in a derivative
capacity. Emmanuel, et al. should not be allowed to use a derivative suit to
shortcut the law.

Neither can Emmanuel, et al. take refuge in their assertion that ARDC is a close
family corporation. They claim that the stockholders of a close corporation may take
part in the active management of corporate affairs. Hence, they, as ARDC's stock-
holders, are legally invested with the power to sue for the corporation.

As correctly claimed, under Section 97 of the Corporation Code, 118 a close corpora-
tion may task its stockholders with the management of business, essentially desig-
nating them as directors. However, the law is clear that a close corporation must do
so through a provision to that effect contained in its articles of incorporation.
Nowhere in ARDC's Articles of incorporation 119 can such a provision be found. There
is nothing that expressly or impliedly allows Emmanuel, et al. and Angelita,
or any of them, to manage the corporation. Hence, the merger of stock owner-
ship and active management that Emmanuel, et al. rely on cannot be applied to
ARDC.

28
Emmanuel's designation as President was ineffectual because ARDC did not have a
board of directors. Section 25 of the Corporation Code explicitly requires the
president of a corporation to concurrently hold office as a director. 124 This only
serves to further highlight the key role of the board as a corporate manager. By
designating a director as president of the corporation, the law intended to create a
close-knit relationship between the top corporate officer and the collegial body that
ultimately wields the corporation's powers.

29
PSE vs. Hon. Court of Appeals, et. al. G.R. No. 125469, Oct. 27,1997

Facts:

The 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 applica-
tion 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 was re-
quested to comment upon the said letter.

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 the contrary, the resort is actually owned by
Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI. Fur-
thermore, the Ternate Development Corporation owns only 1.20% of PALI. The Marcoses re-
sponded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and
Resort Complex, thereby implying that they are also asserting legal and beneficial ownership of
other properties titled under the name of PALI.

On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential
Commission on Good Government (PCGG) requesting for comments on the letters of the PALI
and the Marcoses. On March 4, 1996, the PSE was informed that the Marcoses received a Tem-
porary Restraining Order on the same date, enjoining the Marcoses from, among others, "further
impeding, obstructing, delaying or interfering in any manner by or any means with the considera-
tion, processing and approval by the PSE of the initial public offering of PALI." The TRO was is-
sued by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No.
65561, pending in Branch 69 thereof.

In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its
decision to reject PALI's application, citing the existence of serious claims, issues and circum-
stances surrounding PALI's ownership over its assets that adversely affect the suitability of listing
PALI's shares in the stock exchange.

On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Per-
fecto R. Yasay, Jr., bringing to the SEC's attention the action taken by the PSE in the application
of PALI for the listing of its shares with the PSE, and requesting that the SEC, in the exercise of
its supervisory and regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-
A, review the PSE's action on PALI's listing application and institute such measures as are just
and proper under the circumstances.

30
On April 24, 1996, the SEC rendered its Order, reversing the PSE's decision. 

Issue:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN
ISSUING THE ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR
AUTHORITY; SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF
SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND
SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;

Ruling:
Under presidential decree No. 902-A, the powers of the SEC over stock exchanges are more
limited as compared to its authority over ordinary corporations. In connection with this, the
powers of the SEC over stock exchanges under the Revised Securities Act are specifically
enumerated, and these do not include the power to reverse the decisions of the stock exchange.
Authorities are in abundance even in the United States, from which the country's security policies
are patterned, to the effect of giving the Securities Commission less control over stock
exchanges, which in turn are given more lee-way in making the decision whether or not to allow
corporations to offer their stock to the public through the stock exchange. This is in accord with
the "business judgment rule" whereby the SEC and the courts are barred from intruding into
business judgments of corporations, when the same are made in good faith. the said rule
precludes the reversal of the decision of the PSE to deny PALI's listing application, absent a
showing of bad faith on the part of the PSE. Under the listing rules of the PSE, to which PALI had
previously agreed to comply, the PSE retains the discretion to accept or reject applications for
listing. Thus, even if an issuer has complied with the PSE listing rules and requirements, PSE
retains the discretion to accept or reject the issuer's listing application if the PSE determines that
the listing shall not serve the interests of the investing public.

31
Filipinas Port Services vs. Go G.R. No. 161886, March 16, 2007

Facts:
On 4 September 1992, petitioner Eliodoro C. Cruz, Filport’s president from 1968 until he lost his
bid for reelection as Filport’s president during the general stockholders’ meeting in 1991, wrote a
letter2 to the corporation’s Board of Directors questioning the board’s creation of the following
positions with a monthly remuneration of ₱13,050.00 each, and the election thereto of certain
members of the board, to wit:

In his aforesaid letter, Cruz requested the board to take necessary action/actions to recover from
those elected to the aforementioned positions the salaries they have received.

On 15 September 1992, the board met and took up Cruz’s letter. The records do not show what
specific action/actions the board had taken on the letter. Evidently, whatever action/actions the
board took did not sit well with Cruz.

On 14 June 1993, Cruz, purportedly in representation of Filport and its stockholders, among
which is herein co-petitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed
with the SEC a petition3 which he describes as a derivative suit against the herein respondents
who were then the incumbent members of Filport’s Board of Directors, for alleged acts of mis-
management detrimental to the interest of the corporation and its shareholders at large, namely:

1. creation of an executive committee in 1991 composed of seven (7) members of the

board with compensation of ₱500.00 for each member per meeting, an office which, to
Cruz, is not provided for in the by-laws of the corporation and whose function merely du-
plicates 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 charac-
ter of the work of the directors holding said positions;

3. re-creation of the positions of Assistant Vice-Presidents (AVPs) for Corporate Plan-

ning, Operations, Finance and Administration, and the election thereto of board members
Edgar C. Trinidad, Eliezer de Jesus, Mary Jean D. Co and Henry Chua, respectively; and

4. creation of the additional positions of Special Assistants to the President and the
Board Chairman, with Fortunato V. de Castro and Arsenio Lopez Chua elected to the
same, the directors elected/appointed thereto not doing any work to deserve the monthly
remuneration of ₱13,050.00 each.

In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged that despite demands
made upon the respondent members of the board of directors to desist from creating the posi-
tions in question and to account for the amounts incurred in creating the same, the demands
were unheeded. Cruz thus prayed that the respondent members of the board of directors be
made to pay Filport, jointly and severally, the sums of money variedly representing the damages
incurred as a result of the creation of the offices/positions complained of and the aggregate
amount of the questioned increased salaries.

In their common Answer with Counterclaim, 4 the respondents denied the allegations of misman-
agement and materially averred as follows:

32
 1. the creation of the executive committee and the grant of per diems for the attendance
of each member are allowed under the by-laws of the corporation;

2. the increases in the salaries/emoluments of the Chairman, Vice-President, Treasurer

and Assistant General Manager were well within the financial capacity of the corporation
and well-deserved by the officers elected thereto; and

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, adding that all those appointed to said positions of
Assistant Vice Presidents, as well as the additional position of Special Assistants to the
Chairman and the President, rendered services to deserve their compensation.

In the same Answer, respondents further averred that Cruz and his co-petitioner Minterbro, while
admittedly stockholders of Filport, have no authority nor standing to bring the so-called "deriva-
tive suit" for and in behalf of the corporation; that respondent Mary Jean D. Co has already
ceased to be a corporate director and so with Fortunato V. de Castro, one of those holding an
assailed position; and that no demand to cease and desist from further committing the acts com-
plained of was made upon the board. By way of affirmative defenses, respondents asserted that
(1) the petition is not duly verified by petitioner Filport which is the real party-in-interest; (2) Fil-
port, as represented by Cruz and Minterbro, failed to exhaust remedies for redress within the cor-
poration before bringing the suit; and (3) the petition does not show that the stockholders bring-
ing the suit are joined as nominal parties. In support of their counterclaim, respondents averred
that Cruz filed the alleged derivative suit in bad faith and purely for harassment purposes on ac-
count of his non-reelection to the board in the 1991 general stockholders’ meeting.

Issue:
1. Whether the CA erred in holding that Filport’s Board of Directors acted within its powers
in creating the executive committee and the positions of AVPs for Corporate Planning,
Operations, Finance and Administration, and those of the Special Assistants to the
President and the Board Chairman, each with corresponding remuneration, and in
increasing the salaries of the positions of Board Chairman, Vice-President, Treasurer and
Assistant General Manager;

Ruling:

The governing body of a corporation is its board of directors. Section 23 of the Corporation
Code12 explicitly provides that unless otherwise provided therein, the corporate powers of all
corporations formed under the Code shall be exercised, all business conducted and all property
of the corporation shall be controlled and held by a board of directors. Thus, with the exception
only of some powers expressly granted by law to stockholders (or members, in case of non-stock
corporations), the board of directors (or trustees, in case of non-stock corporations) has the sole
authority to determine policies, enter into contracts, and conduct the ordinary business of the
corporation within the scope of its charter, i.e., its articles of incorporation, by-laws and relevant
provisions of law. Verily, the authority of the board of directors is restricted to the management of
the regular business affairs of the corporation, unless more extensive power is expressly
conferred.

In the present case, the board’s creation of the positions of Assistant Vice Presidents for
Corporate Planning, Operations, Finance and Administration, and those of the Special Assistants
to the President and the Board Chairman, was in accordance with the regular business
operations of Filport as it is authorized to do so by the corporation’s by-laws, pursuant to the
Corporation Code.

33
Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule that the creation of
the executive committee by the board of directors is illegal or unlawful. One reason is the ab-
sence of a showing as to the true nature and functions of said executive committee considering
that the "executive committee," referred to in Section 35 of the Corporation Code which is as
powerful as the board of directors and in effect acting for the board itself, should be distinguished
from other committees which are within the competency of the board to create at anytime and
whose actions require ratification and confirmation by the board. 16 Another reason is that, ratioci-
nated by both the two (2) courts below, the Board of Directors has the power to create positions
not provided for in Filport’s bylaws since the board is the corporation’s governing body, clearly
upholding the power of its board to exercise its prerogatives in managing the business affairs of
the corporation.

As well, it may not be amiss to point out that, as testified to and admitted by petitioner Cruz him-
self, it was during his incumbency as Filport president that the executive committee in question
was created, and that he was even the one who moved for the creation of the positions of the
AVPs for Operations, Finance and Administration. By his acquiescence and/or ratification of the
creation of the aforesaid offices, Cruz is virtually precluded from suing to declare such acts of the
board as invalid or illegal. And it makes no difference that he sues in behalf of himself and of the
other stockholders. Indeed, as his voice was not heard in protest when he was still Filport’s presi-
dent, raising a hue and cry only now leads to the inevitable conclusion that he did so out of spite
and resentment for his non-reelection as president of the corporation.

But even assuming, in gratia argumenti, that there was mismanagement resulting to corporate
damages and/or business losses, still the respondents may not be held liable in the absence, as
here, of a showing of bad faith in doing the acts complained of.

If the cause of the losses is merely error in business judgment, not amounting to bad faith or neg-
ligence, directors and/or officers are not liable. 17 For them to be held accountable, the misman-
agement and the resulting losses on account thereof are not the only matters to be proven; it is
likewise necessary to show that the directors and/or officers acted in bad faith and with malice in
doing the assailed acts. Bad faith does not simply connote bad judgment or negligence; it imports
a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a
known duty through some motive or interest or ill-will partaking of the nature of fraud. 18 We have
searched the records and nowhere do we find a "dishonest purpose" or "some moral obliquity,"
or "conscious doing of a wrong" on the part of the respondents that "partakes of the nature of
fraud.

34
Ching v. Quezon City Sports Club, Inc., G.R. No. 200150, November 7, 2016

Facts:

Respondent Club is a duly registered domestic corporation providing recreational ac-

tivities, sports facilities, and exclusive privileges and services to its members.

Petitioner Catherine became a member and regular patron of respondent Club in

1989. Per policy of respondent Club, petitioner Catherine's membership privileges
were extended to immediate family members.

On June 15, 1999, the National Labor Relations Commission (NLRC) rendered a De-
cision in NLRC NCR Case No. 00-07-06219, ordering respondent Club to pay back-
wages, 13th and 14th month pay, and allowances to six illegally dismissed employees.
The successive appeals of respondent Club to the Court of Appeals and this Court
were unsuccessful, and the judgment for illegal dismissal against respondent Club
became final and executory. As a result, an alias writ of execution of said judgment
was served on respondent Club on September 19, 200 1 for the total amount of
P4,433,550.00.

Because respondent Club was not in a financial position to pay the monetary awards
in NLRC NCR Case No. 00-07-06219, respondent BOD approved on September 20,
200I Board Resolution No. 7-2001,3 entitled "Special Assessment for Club Members
in Relation to the Marie Rose Navarro, et al. v. QCSI, et al. Case," resolving to "seek
the assistance of its members by assessing each member the amount of TWO THOU-
SAND FIVE HUNDRED PESOS (P2,500.00) payable in five (5) equal monthly pay-
ments starting the month of September 2001."

Petitioner Catherine was duly notified of the implementation of the special assess-
ment through a Letter4 dated September 25, 2001 from the Treasurer of respondent
Club. The amount of P500.00 was debited and/or charged to Catherine's account
each month from September 2001 to January 2002, as reflected in the Statements
of Account5 issued by respondent Club. Each Statement of Account sent by respon-
dent Club to petitioner Catherine included a general notice, quoted below:

Petitioner Catherine believed that the imposition of the special assessment in Board
Resolution No. 7-2001 was unjust and/or illegal, however, she took no action
against the same. Petitioner Catherine simply avoided paying the special assessment
by settling the amounts due in her Statements of Account from September 2001 to
January 2002 short of P500.00.7

Respondent BOD then passed Board Resolution No. 3-2002 on April 18, 2002 which
suspended the privileges of the members of respondent Club who had not yet paid
the special assessment, thus:

Petitioner Catherine continued availing herself of the services of respondent Club

and regularly paid the amounts due in her Statements of Account from February
2002 to May 2003, but always leaving behind a balance of more or less
P2,500.00.9 Petitioner Catherine was not personally informed of Board Resolution
No. 3-2002 nor advised that she was already deemed delinquent in the payment of
any other Statements of Account.

35
On May 22, 2003, petitioner Laurence went to respondent Club intending to avail
himself of its services using the account of his mother, petitioner Catherine. Respon-
dent Club refused to accommodate petitioner Laurence because his mother's mem-
bership privileges had been suspended. The following day, May 23, 2003, petitioner
Catherine went to respondent Club to verify the suspension of her membership privi-
leges. Respondent Lopez, the Finance Manager of respondent Club, gave petitioner
Catherine copies of Board Resolution Nos. 7-2001 and 3-2002. Petitioner Catherine
also noticed during said visit that her name was included and highlighted in respon-
dent Lopez's Memorandum dated May 22, 2003 addressed to "All Outlets" with the
subject matter of "Suspended Members Due to Non-Payment of P2,500.00 Special
Assessment," copies of which were posted at the workstations of the employees of
respondent Club and in other conspicuous places within the premises of respondent
Club.10

Petitioner Catherine, through counsel, sent respondents a letter dated May 24, 2003
demanding the immediate recall of the suspension of her membership privileges, an
explanation why she should not file a case for damages against respondents, and an
apology for besmirching her name and good reputation. 11 Respondents, also through
counsel, replied in a letter dated May 29, 2003 pointing out that respondent Club
had never besmirched the reputation of any of its members in its 20 years of exis -
tence; that petitioner Catherine herself admitted that she had failed to pay the
P2,500.00 special assessment fee; and that the list of suspended members who
failed to pay the special assessment fee was never posted but was given to the
members concerned.12

Meanwhile, so she can avail herself of the services of respondent Club, petitioner
Catherine registered as a guest of either her husband, petitioner Lorenzo, or her
other daughter, Noelle Ching (Noelle). Consequently, petitioner Catherine was pay-
ing more than double her customary fees to enjoy the services of respondent Club.

On July 7, 2003, petitioners instituted before the RTC a Complaint for damages
against respondents, based on Articles 19, 20, and 21 of the Civil Code

Issue:
THE COURT OF APPEALS ERRED IN RULING THAT THE SUSPENSION OF CATHERINE
CHING IN NOT PAYING THE SPECIAL ASSESSMENT PURSUANT TO A BOARD
RESOLUTION CAN BE MADE UNDER ARTICLE 33 OF THE BY-LAWS OF THE CLUB.

Ruling:

The Court had previously recognized in Forest Hills Golf and Country Club, Inc. v.
Gardpro, Inc.,38 that articles of incorporation and by-laws of a country club are the
fundamental documents governing the conduct of the corporate affairs of said club;
they establish the norms of procedure for exercising rights, and reflected the pur -
poses and intentions of the incorporators. The by-laws are the self-imposed rules re-
sulting from the agreement between the country club and its members to conduct
the corporate business in a particular way. In that sense, the by-laws are the private
"statutes" by which the country club is regulated, and will function. Until repealed,
the by-laws are the continuing rules for the government of the country club and its
officers, the proper function being to regulate the transaction of the incidental busi-
ness of the country club. The by-laws constitute a binding contract as between the
country club and its members, and as among the members themselves. The by-laws

36
are self-imposed private laws binding on all members, directors, and officers of the
country club. The prevailing rule is that the provisions of the articles of incorporation
and the by-laws must be strictly complied with and applied to the letter.

In construing and applying the provisions of the articles of incorporation and by-laws
of the country club, the Court, also in  Forest Hills, sustained the application by the
Court of Appeals therein of the rules on interpretation of contracts under Articles
1370 and 1374 of the Civil Code. The plain meaning rule embodied in Article 1370 of
the Civil Code provides that if the terms of the contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations
shall control; while Article 1374 of the Civil Code declares that "[t]he various stipula-
tions of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly." Verily, all stipulations of the
contract are considered and the whole agreement is rendered valid and enforceable,
instead of treating some provisions as superfluous, void, or inoperable.

Being guided accordingly, the Court now turns to the pertinent By-Laws of respon-
dent Club.

At cursory glance, it would seem that the suspension of petitioner Catherine's privi-
leges was due to the P2,500.00 special assessment charged in her Statements of
Account from September 2001 to January 2002, which remained unpaid for over
three months by the time respondent BOD passed Board Resolution No. 3-2002 on
April 18, 2002; and for one year and four months by the time respondent Lopez is -
sued her Memorandum dated May 22, 2003. However, tracing back, the P2,500.00
special assessment was not an ordinary account or bill incurred by petitioners in re-
spondent Club, as contemplated in Section 33(a) of the By-Laws.

Section 33(a) of the By-Laws refers to the regular dues and ordinary accounts or
bills incurred by members as they avail of the services at respondent Club, and for
which the members are charged in their monthly Statement of Account. The imme-
diate payment or collection of the amount charged in the member's monthly State-
ment of Account is essential so respondent Club can carry-on its day-to-day opera-
tions, which is why Section 33(a) allows for the automatic suspension of a nonpay-
ing member after a specified period and notification.

The special assessment in the instant case arose from an extraordinary circum-
stance,  i.e., the necessity of raising payment for the monetary judgment against re-
spondent Club in an illegal dismissal case. The special assessment of P2,500.00 was
imposed upon the members by respondent BOD through Board Resolution No. 7-
2001 dated September 20, 2001; it only so happened that said Board Resolution
was implemented by directly charging the special assessment, in P500.00 install-
ments, in the members' Statements of Account for five months. Thus, petitioner
Catherine's nonpayment of the special assessment was, ultimately, a violation of
Board Resolution No. 7-2001, covered by Section 35(a) of the By-Laws. This much
was acknowledged by respondent BOD itself when it mentioned in Board Resolution
No. 3-2002 that "[t]o enforce Board Resolution No. 7-2001," it was suspending the
members who did not pay the special assessment.

37
Section 35(a) of the By-Laws requires notice and hearing prior to a member's sus -
pension. Definitely, in this case, petitioner Catherine did not receive notice specifi-
cally advising her that she could be suspended for nonpayment of the special as-
sessment imposed by Board Resolution No. 7-2001 and affording her a hearing prior
to her suspension through Board Resolution No. 3-2002. Respondents merely relied
on the general notice printed in petitioner Catherine's Statements of Account from
September 2001 to April 2002 warning of automatic suspension for accounts of over
P20,000.00 which are past due for 60 days, and accounts regardless of amount
which are 75 days in arrears. While said general notice in the Statements of Account
might have been sufficient for purposes of Section 33(a) of the By-Laws, it fell short
of the stricter requirement under Section 35(a) of the same By-Laws. Petitioner
Catherine's right to due process was clearly violated.

Nevertheless, it is not lost upon this Court that petitioner Catherine herself admitted
violating Board Resolution No. 7-2001 by not paying the P2,500.00 special assess-
ment. Petitioner Catherine cannot deny knowledge of the special assessment be-
cause the first installment of P500.00 was already charged in her Statement of Ac -
count for September 2001 and she willfully did not pay said amount. Despite being
aware of the special assessment, petitioner Catherine simply chose not to pay the
same, without taking any other step to let respondents know of her opposition to
said special assessment, until she complained in her letter dated May 24, 2003
about the suspension of her membership privileges. Again, the Court is not called
upon to determine the propriety of the imposition of the special assessment upon
the members of the respondent Club. Whatever reasons petitioner Catherine might
have against the special assessment would not change the fact of her nonpayment
of the same in violation of Board Resolution No. 7-2001. Consequently, there was
ground for respondents to suspend petitioner Catherine's membership privileges.

38
Advance Paper Corp, et.al., vs. Arma Traders Corp, et. al. G.R. No.176897, Dec. 11, 2013

Facts:

Petitioner Advance Paper is a domestic corporation engaged in the business of producing, print-
ing, manufacturing, distributing and selling of various paper products.  Petitioner George Haw
4

(Haw) is the President while his wife, Connie Haw, is the General Manager. 5

Respondent Arma Traders is also a domestic corporation engaged in the wholesale and distribu-
tion of school and office supplies, and novelty products.  Respondent Antonio Tan (Tan) was for-
6

merly the President while respondent Uy Seng Kee Willy (Uy) is the Treasurer of Arma
Traders.  They represented Arma Traders when dealing with its supplier, Advance Paper, for
7

about 14 years. 8

On the other hand, respondents Manuel Ting, Cheng Gui and Benjamin Ng worked for Arma
Traders as Vice-President, General Manager and Corporate Secretary, respectively. 9

On various dates from September to December 1994, Arma Traders purchased on credit note-
books and other paper products amounting to ₱7,533,001.49 from Advance Paper.  10

Upon the representation of Tan and Uy, Arma Traders also obtained three loans from Advance
Paper in November 1994 in the amounts of ₱3,380,171.82, ₱1,000,000.00, and ₱3,408,623.94
or a total of ₱7,788,796.76.  Arma Traders needed the loan to settle its obligations to other sup-
11

pliers because its own collectibles did not arrive on time.  Because of its good business relations
12

with Arma Traders, Advance Paper extended the loans. 13

As payment for the purchases on credit and the loan transactions, Arma Traders issued 82 post-
dated checks  payable to cash or to Advance Paper. Tan and Uy were Arma Traders’ authorized
14

bank signatories who signed and issued these checks which had the aggregate amount of
₱15,130,636.87. 15

Advance Paper presented the checks to the drawee bank but these were dishonored either for
"insufficiency of funds" or "account closed." Despite repeated demands, however, Arma Traders
failed to settle its account with Advance Paper.16

On December 29, 1994, the petitioners filed a complaint  for collection of sum of money with ap-
17

plication for preliminary attachment against Arma Traders, Tan, Uy, Ting, Gui, and Ng.

The respondents also claimed that the loan transactions were ultra vires because the board of
directors of Arma Traders did not issue a board resolution authorizing Tan and Uy to obtain the
loans from Advance Paper. They claimed that the borrowing of money must be done only with
the prior approval of the board of directors because without the approval, the corporate officers
are acting in excess of their authority or ultra vires. When the acts of the corporate officers
are ultra vires, the corporation is not liable for whatever acts that these officers committed in ex-
cess of their authority. Further, the respondents claimed that Advance Paper failed to verify Tan
and Uy’s authority to transact business with them. Hence, Advance Paper should suffer the con-
sequences.

39
First, Arma Traders led the petitioners to believe that Tan and Uy had the authority to obtain
loans since the respondents left the active and sole management of the company to Tan and Uy
since 1984. In fact, Ng testified that Arma Traders’ stockholders and board of directors never
conducted a meeting from 1984 to 1995. Therefore, if the respondents’ position will be sustained,
they will have the absurd power to question all the business transactions of Arma Traders.  Cit-52

ing Lipat v. Pacific Banking Corporation,  the petitioners said that if a corporation knowingly per-
53

mits one of its officers or any other agent to act within the scope of an apparent authority, it holds
him out to the public as possessing the power to do those acts; thus, the corporation will, as
against anyone who has in good faith dealt with it through such agent, be estopped from denying
the agent’s authority.

Issue:

Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority.

Ruling:

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.  The doctrine of apparent authority does not apply if the principal did not commit any
76

acts or conduct which a third party knew and relied upon in good faith as a result of the exercise
of reasonable prudence. Moreover, the agent’s acts or conduct must have produced a change of
position to the third party’s detriment.

A corporate officer or agent may represent and bind the corporation in transactions with third per-
sons to the extent that [the] authority to do so has been conferred upon him, and this includes
powers as, in the usual course of the particular business, are incidental to, or may be implied
from, the powers intentionally conferred, powers added by custom and usage, as usually pertain-
ing to the particular officer or agent, and such apparent powers as the corporation has caused
person dealing with the officer or agent to believe that it has conferred.

[A]pparent 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. It requires presen-
tation of evidence of similar act(s) executed either in its favor or in favor of other parties.
It is not the quantity of similar acts which establishes apparent authority, but the vesting
of a corporate officer with the power to bind the corporation. [emphases and underscores
ours]

"Inasmuch as a corporate president is often given general supervision and control over corporate
operations, the strict rule that said officer has no inherent power to act for the corporation is
slowly giving way to the realization that such officer has certain limited powers in the transaction
of the usual and ordinary business of the corporation."  "In the absence of a charter or bylaw
80

provision to the contrary, the president is presumed to have the authority to act within the

40
domain of the general objectives of its business and within the scope of his or her usual
duties."81

In the present petition, we do not agree with the CA’s findings that Arma Traders is not liable to
pay the loans due to the lack of board resolution authorizing Tan and Uy to obtain the loans. To
begin with, Arma Traders’ Articles of Incorporation  provides that the corporation may borrow or
82

raise money to meet the financial requirements of its business by the issuance of bonds,
promissory notes and other evidence of indebtedness. Likewise, it states that Tan and Uy are
not just ordinary corporate officers and authorized bank signatories because they are also Arma
Traders’ incorporators along with respondents Ng and Ting, and Pedro Chao. Furthermore, the
respondents, through Ng who is Arma Traders’ corporate secretary, incorporator, stockholder
and director, testified that 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. 83

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.

41
Terp Construction Corp. vs. Banco Filipino Savings Bank, G.R. No. 221771, Sept.18, 2019

Facts:

A corporation's repeated payment of an allegedly unauthorized obligation contracted

by one (1) of its officers effectively ratifies that corporate officer's allegedly unautho-
rized act.

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 (Mar-
garita Bonds).4

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 gener-
ated into an asset pool named the Margarita Asset Pool Formation and Trust Agree-
ment. 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. 5

Banco Filipino purchased Margarita Bonds for P100 million. It asked for additional in-
terest other than the guaranteed 8.5% per annum, based on the letters dated Feb-
ruary 3, 1997 and April 8, 1997 written by Terp Construction Senior Vice President
Alberto Escalona (Escalona).6

Terp Construction began constructing Margarita Eastville and Margarita Plaza. After
the economic crisis in 1997, however, it suffered unrealized income and could not
proceed with the construction.7

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 and that as of July 1, 2001, it was entitled to a
seven percent (7%) remaining unpaid interest of P 18,104,431.33. 8 Terp Construc-
tion refused to pay the demanded interest.9

Terp Construction filed a Complaint for declaration of nullity of interest, damages,

and attorney's fees against Banco Filipino. It alleged that it only agreed to pay the
seven percent (7%) additional interest on the condition that all the asset pool funds
would be released to Terp Construction for it to pay the additional interest. However,
it could not have paid the additional interest since the funds of the asset pool were
never released to it.10

Banco Filipino, on the other hand, alleged that it was induced into buying the Mar -
garita Bonds after Terp Construction, through its senior vice president's letters, com-
mitted to pay 15.5% interest on a P50 million bond that Banco Filipino held for a

42
client and 16.5% interest on a P50 million bond it held for another client. It alleged
that Terp Construction paid the additional interest twice during the Margarita Bonds'
holding period.11

Banco Filipino claimed that in September 1998, after no payment of interest on the
bonds had been made, Planters Bank called on the guaranty of Home Insurance
Guaranty Corporation, which only paid 8.5% interest instead of the 15.5% and
16.5% interests that Terp Construction had committed to pay. Thus, it demanded
the interest differentials, but to no avail.12

Banco Filipino further alleged that it investigated the cause of default and found that
it was because Terp Construction was unable to finish the Margarita projects. It also
found that despite raising P400 million from the bonds, only P39 million was actually
used for the projects. It alleged that as of November 30, 2001, the unpaid interest
differentials already amounted to P29,932,827.71.13

On May 29, 2010, the Regional Trial Court issued a Decision in favor of Terp Con -
struction. It found that there was no evidence to show that Terp Construction was
obligated to pay the interest differentials, and that the act of Escalona, the senior
vice president, were not binding on the corporation since they were not ratified. 14

Banco Filipino appealed before the Court of Appeals, arguing, among others, that the
two (2) letters sent by Escalona were sufficient evidence to prove that Terp Con-
struction committed to pay the interest differentials.

Issue:

Ruling:

A corporation exercises its corporate powers through its board of directors. 43 This
power may be validly delegated to its officers, committees, or agencies. "The au-
thority of such individuals to bind the corporation is generally derived from law, cor-
porate bylaws or authorization from the board, either expressly or impliedly by
habit, custom or acquiescence in the general course of business[.]" 44

The authority of the board of directors to delegate its corporate powers may either
be: (1) actual; or (2) apparent. 45

Actual authority may be express or implied. Express actual authority refers to the
corporate powers expressly delegated by the board of directors. Implied actual au-
thority, 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 corpo-
ration."46

Petitioner's subsequent act of twice paying the additional interest Escalona commit-
ted to during the term of the Margarita Bonds is considered a ratification of
Escalona's acts. Petitioner's only defense that they were "erroneous

43
payment[s]"47 since it never obligated itself from the start cannot stand. Corpora-
tions are bound by errors of their own making.

Escalona likewise had apparent authority to transact on behalf of petitioner. In Yao

Ka Sin Trading v. Court of Appeals:48

The rule is of course settled that "[a]lthough an officer or agent acts without, or in
excess of, his actual authority if he acts within the scope of an apparent authority
with which the corporation has clothed him by holding him out or permitting him to
appear as having such authority, the corporation is bound thereby in favor of a per-
son who deals with him in good faith in reliance on such apparent authority, as
where an officer is allowed to exercise a particular authority with respect to the busi-
ness, or a particular branch of its continuously and publicly, for a considerable
time."49

Apparent authority is ascertained through:

(1) the general manner by which the corporation holds out an officer or agent as
having power to act or, in other words, the apparent authority with which it clothes
him to act in general, or (2) the acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether within or without the scope of his
ordinary powers.50 (Citation omitted)

Here, respondent relied on Escalona's apparent authority to promise interest pay-

ments over and above the guaranteed 8.5%, considering that Escalona was peti-
tioner's then senior vice president. His apparent authority was further demonstrated
by petitioner paying respondent what Escalona promised during the Margarita
Bonds' term.

It should likewise be noted that at the time this Petition was filed, Escalona signed
the Verification and Certification51 as the president of the corporation, signifying that
petitioner did not consider his alleged unauthorized acts as fatal to his continued in-
volvement in corporate affairs.

44
Allied Banking Corp. vs. Spouses Macam, G.R. No. 200635, February 1, 2021

Facts:
Mario Macam (Mario), on the recommendation of his brother Manuel and facilitation of Elena Valerio (Valerio),
invested P1,572,000.00 in the cellular card business of respondent Helen Garcia (Helen).
[4]
On November 4, 2002, Mario deposited P1,572,000.00 in Valerio's Savings Account  with Allied Bank-Pasay
Road Branch (AB-Pasay).
On February 6, 2003, a series of transactions occurred at the Allied Bank-Alabang Las Piñas Branch (AB-ALP),
headed by respondent Maribel Caña (Caña). At 8:45 a.m., Caña informed bank teller Melissa Berras (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 Caña that she cannot credit the corresponding amounts to the five accounts as indicated in
the fund transfer receipts. Nonetheless, Caña effected a local override and approved the fund transfer.
[9]
 Consequently, the amounts were credited to the five deposit accounts, including Valerio's, in the amount of
P10 Million.
Meanwhile, Valerio withdrew P1,722,500.00 from her deposit account at AB-Pasay. Valerio deposited
P1,590,000.00 to the account of Mario's brother Manuel and the latter's wife and Sheila Macam.
In subsequent and separate instances, the Spouses Mario Macam were able to make withdrawals in the total
[11]
amount of P490,000.00,  leaving a balance of P1.1 Million in their savings account with AB-PT.
Later that day, Caña again instructed Berras to debit specific amounts from different accounts, to wit:
[16]
Mamalayan learned of the debiting of the three accounts  after the Branch Head of Allied Bank-Imus (AB-I)
inquired about the huge debit on their client's account. Mamalayan told the AB-I Branch Head to contact Caña as
she was unaware of the said debit transactions.

At 3:30 p.m., Mamalayan received an SMS from Caña that the P46 Million deposit had been cancelled. As soon
as Berras overheard Mamalayan telling the Pick-Up Tellers and the Cash Center about the cancellation, Berras
approached Mamalayan and told her about the fund transfer transactions totaling P46 Million which she had
expedited. Berras disclosed to Mamalayan: (1) Caña's specific instructions; (2) Caña's override and approval of
the fund transfer transactions from Helen's account to five different accounts despite the lack of fund deposit of
P46 Million, and (3) the subsequent credits, debits and reversals made on the accounts of Valerio, Capili and
Tiglao.
At 5:50 p.m., Caña 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
[19]
deposit accounts.
On February 19, 2003, Angela Barcelona, Region Head, Retail Banking Group for Allied Bank's South Metro
Manila Branches, ordered the debit of the remaining P1.1 Million from the account of the Spouses Mario Macam
which resulted in the closure thereof.
On March 3, 2003, 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.

Issue:
I.

whether Allied Bank is liable for unilaterally debiting and closing the deposit account
of the Spouses Mario Macam.

45
Ruling:
Yes.

Allied Bank is expected to act with extraordinary diligence required of banks. We

cannot overemphasize that the highest degree of diligence required of banks
likewise contemplates such diligence in the selection and supervision of its
employees. The very nature of their work which involves handling millions of pesos
in daily transactions requires a degree of responsibility, care and trustworthiness
that is far greater than those expected from ordinary clerks and employees. 55 The
bank must not only exercise "high standards of integrity and performance," it must
also insure that its employees do likewise because this is the only way to insure that
the bank will comply with its fiduciary duty. 56

We thus agree with the trial court's holding that Allied Bank clothed Ca�a with
sufficient authority to effect the ostensible crediting of Helen's account and approve
the subsequent fund transfers to five different accounts in the total amount of P46
Million. The trial court found that in previous instances, Ca�a had extended Helen
the same credit arrangement via a temporary overdraft line.

The RTC correctly observed, thus:chanroblesvirtualawlibrary

It may be worthy to mention the fact that banks accord overdraft line to their
favored clients. These fund transfers to and credits to accounts as against overdraft
account to debit from, constitutes valid transactions.

It is admitted that third-party defendant Ca�a is the Bank Manager of Allied Bank
who authorized the debiting of the P46,000,000.00 funds from the current account
of third-party defendant Helen Garcia. The act of Ca�a albeit unauthorized by the
bank still binds the bank. One thing clear from the record is that the unauthorized
acts of Ca�a may have been a practice in the past, where favored clients are
accorded Temporary Over Draft Line. This is manifested in the treatment of the
unrecovered amount after the reversals made, where Third- Party Defendants Sps.
Melchor and Helen Garcia were made to execute a Real Estate Mortgage to secure
payment for the unrecovered amount of T9.8 Million. It is a policy practiced by
banking institutions wherein the bank's loan committee approves in the form of loan
the amount constituting the overdraft balance for the purpose of regularizing the
temporary overdraft (TOD) granted the depositors against Chattel or Real Estate
Mortgages.

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.

46
It is true that it was Ca�a 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, x x x 57 chanRoblesvirtualLawlibrary

The authority of a corporate officer or agent in dealing with third persons may be
actual or apparent.58 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. 59 Ca�a'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.

Prescinding from all the foregoing, the lower courts were correct in sustaining Allied Bank's liability to the
Spouses Mario Macam for culpa contractual.

47
Jorgenetics Swine Improvement Corp. vs. Thick & Thin Agri-Products, Inc., G.R. Nos. 201044 &
222691, May 5, 2021

Facts:
On November 10, 2008, TTAI filed a complaint for replevin with damages [5] against Jorgenetics Swine Improve-
ment Corporation (Jorgenetics), seeking possession of 4,765 heads of hogs that were the subject of a chattel
mortgage between the parties. In its complaint, TTAI alleged that the parties entered into an agreement where
TTAI would supply, on credit, feeds and other supplies necessary for Jorgenetics' hog raising business. As secu-
rity for payment of their obligation amounting to Php20,000,000.00, Jorgenetics executed a chattel mort-
gage[6] over its hog livestock inventories in favor of TTAI. While TTAI delivered feeds and supplies pursuant to the
agreement, Jorgenetics failed to pay for the same despite demand.[7]

Thus, TTAI alleged in its complaint that as mortgagee it was entitled to take immediate possession of the live -
stock subject of the mortgage which was wrongfully withheld by Jorgenetics to avoid compliance of its obligation.
[8]
 It prayed for the immediate issuance of a writ of replevin commanding the immediate seizure of the hogs, for
judgment to be rendered adjudicating rightful possession of the hogs subject of the mortgage to TTAI, or in the
event possession could not be secured, the payment of Php20,000,000.00 with interest, and for damages, attor-
ney 's fees, and costs.

Ruling:
The chairperson and president of a corporation may
sign the verification and certification without need
of board resolution. Moreover, lack of authority of a
corporate officer to undertake an action on behalf of
the corporation may be cured by ratification through
the subsequent issuance of a board resolution.

TTAI contends that Mr. Romeo J. Jorge, the chairperson and president of petitioner, had no authority to file the
Petition in G.R. No. 201044 on behalf of Jorgenetics at the time of the filing thereof, and that the belated submis -
sion of the Board Resolution indicating Mr. Jorge's authority and ratifying the filing of the Petition will not cure the
defect.

We disagree.

In Cagayan Valley Drug Corp. v. Commissioner of Internal Revenue,[60] this Court ruled that certain officials or
employees of a corporation can sign the verification and certification on its behalf without need of a board resolu-
tion, such as but not limited to the chairperson of the board of directors, the president of a corporation, the gen -
eral manager or acting general manager, personnel officer, and an employment specialist in a labor case. More-
over, the "lack of authority of a corporate officer to undertake an action on behalf of the corporation may be cured
by ratification through the subsequent issuance of a board resolution, recognizing the validity of the action or the
authority of the concerned officer."[61]

Given the foregoing, Mr. Jorge, as the chairperson and president of petitioner, is sufficiently authorized to sign
the verification and certification on behalf of Jorgenetics. Any doubt on his authority to sign the verification and
certification is likewise obviated by the secretary's certificate it submitted upon the orders of this Court, which rati-
fied Mr. Jorge's authority to represent petitioner and file the Petition in G.R. No. 201044.

48
Mirant Phils. Corp., et al. v. Joselito A. Caro, G.R. No. 181490, April 23, 2014
Facts:
[10] th th
Respondent filed a complaint  for illegal dismissal and money claims for 13  and 14  month pay, bonuses and
other benefits, as well as the payment of moral and exemplary damages and attorney’s fees.  Respondent posits
[11]
the following allegations in his Position Paper:

On January 3, 1994, respondent was hired by petitioner corporation as its Logistics Officer and was assigned at
petitioner corporation’s corporate office in Pasay City. At the time of the filing of the complaint, respondent was
already a Supervisor at the Logistics and Purchasing Department with a monthly salary of P39,815.00.

On November 3, 2004, petitioner corporation conducted a random drug test where respondent was randomly
chosen among its employees who would be tested for illegal drug use. Through an Intracompany Correspon-
[12]
dence,  these employees were informed that they were selected for random drug testing to be conducted on
the same day that they received the correspondence.  Respondent was duly notified that he was scheduled to be
tested after lunch on that day.  His receipt of the notice was evidenced by his signature on the correspondence.

Respondent avers that at around 11:30 a.m. of the same day, he received a phone call from his wife’s colleague
who informed him that a bombing incident occurred near his wife’s work station in Tel Aviv, Israel where his wife
[13]
was then working as a caregiver.  Respondent attached to his Position Paper a Press Release  of the Depart-
[14]
ment of Foreign Affairs (DFA) in Manila to prove the occurrence of the bombing incident and a letter  from the
colleague of his wife who allegedly gave him a phone call from Tel Aviv.

Respondent claims that after the said phone call, he proceeded to the Israeli Embassy to confirm the news on
the alleged bombing incident. Respondent further claims that before he left the office on the day of the random
drug test, he first informed the secretary of his Department, Irene Torres (Torres), at around 12:30 p.m. that he
will give preferential attention to the emergency phone call that he just received. He also told Torres that he
would be back at the office as soon as he has resolved his predicament. Respondent recounts that he tried to
contact his wife by phone but he could not reach her. He then had to go to the Israeli Embassy to confirm the
bombing incident. However, he was told by Eveth Salvador (Salvador), a lobby attendant at the Israeli Embassy,
that he could not be allowed entry due to security reasons.

On that same day, at around 6:15 p.m., respondent returned to petitioner corporation’s office. When he was fi-
nally able to charge his cellphone at the office, he received a text message from Tina Cecilia (Cecilia), a member
of the Drug Watch Committee that conducted the drug test, informing him to participate in the said drug test. He
immediately called up Cecilia to explain the reasons for his failure to submit himself to the random drug test that
day. He also proposed that he would submit to a drug test the following day at his own expense. Respondent
never heard from Cecilia again.

[15]
On November 8, 2004, respondent received a Show Cause Notice  from petitioner corporation through Jaime
Dulot (Dulot), his immediate supervisor, requiring him to explain in writing why he should not be charged with “un-
[16]
justified refusal to submit to random drug testing.”  Respondent submitted his written explanation  on Novem-
ber 11, 2004.  Petitioner corporation further required respondent on December 14, 2004 to submit additional
pieces of supporting documents to prove that respondent was at the Israeli Embassy in the afternoon of Novem-
ber 3, 2004 and that the said bombing incident actually occurred. Respondent requested for a hearing to explain
that he could not submit proof that he was indeed present at the Israeli Embassy during the said day because he
was not allegedly allowed entry by the embassy due to security reasons.

[18]
On January 13, 2005, 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.”

49
On January 19, 2005, petitioner corporation’s Asst. Vice President for Material Management Department, George
[19]
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.”

[20]
On February 14, 2005, 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
[21]
Appeal  his termination on February 23, 2005. The motion was denied by petitioner corporation on March 1,
2005.

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:

Ruling:

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
[57]
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.

50
Atienza v. Golden Ram Engineering Supplies Corp., G.R. No. 205405, June 28, 2021

Facts:

[Petitioner] Eduardo Atienza was engaged in the business of operating MV Ace I, a passenger
vessel plying the Batangas-Mindoro route. [Respondent] Golden Ram Engineering Supplies and
Equipment Corporation [GRESEC] is a dealer and distributor of engines and heavy equipment.
Its President and Manager is [respondent] BartoLome T. Torres.

Asserting his claim for damages arising from breach of warranty. Atienza filed a Complaint, aver-
ring, inter alia, that Torres offered for sale two vessel engines amounting to P3.5 Million Pesos to
be installed in MV Ace I, described as follows:

On 24 August 1993, Atienza bought the two vessel engines from [GRESEC] and as proof of his
purchase, he was issued a Proforma Invoice which stated therein the warranty period, viz:

Atienza forthwith paid the amount of P2.5 Million Pesos, after which the two engines were deliv-
ered and commissioned by [GRESEC] sometime in March 1994.

On 26 September 1994, the engine on the right side of MV Ace I suffered a major dysfunction,
the diagnosis of which revealed that the connecting rod had split resulting in engine stuck up.
Atienza immediately reported the incident to [GRESEC] which sent a certain Engineer R. R. Tor-
res (Engr. Torres), its Sales and Service Engineer, to inspect and determine the extent of the
damage. Engr. Torres confirmed that the "defect was inherent being attributable to factory de-
fect". This finding was reported to MAN B&W Diesel, Singapore Pte. Ltd. (MAN Diesel), the for-
eign supplier. In turn, the latter promised that the engine which suffered the malfunction would be
replaced in accordance with the warranty.

Thereafter, Atienza made pleas for the replacement of the engine but his entreaties fell on deaf
ears. Inevitably, he suffered losses for failure to operate since 26 September 1994. On 28 Octo-
ber 1994, Atienza wrote [GRESEC] a Demand Letter offering two alternatives for the company
– one, replace the engine or reimburse him for the losses he had incurred, or two, retrieve the
two engines and refund the cost with interest plus payment for losses. However, [GRESEC] paid
no heed to his demand prompting him to lodge a Complaint for damages.

In their Answer, [GRESEC] and Torres (collectively, defendants) admitted the breakdown of the
engine but confuted Atienza's assertion that Engr. Torres had confirmed that "defect was inher-
ent being attributable to factory defect". Contrariwise, they claimed that the cause of the damage
to the engine was improper maintenance on the part of Atienza. Defendants maintained that they
never promised to replace the engine and that MAN Diesel was liable only for replacement of
parts found to be defective on account of unsound material, faulty design or poor workmanship.
Inasmuch as the defect of the engine was brought about by improper maintenance, the warranty
claim must necessarily be denied as it was not within the coverage thereof. Moreover, [GRESEC]
was merely an agent of MAN Diesel which had the authority to grant or deny warranty claims.
[Defendants] likewise professed that Atienza had quoted portions of Article XI (Warranty Clause)
of the General Conditions to support his claim; yet, he conveniently omitted other provisions
which would nullify his claim, In particular, they cited Item 5 which states –

51
Issue:
whether respondents' denial of Atienza's warranty claim for the defective vessel engines was
done in bad faith as to hold Bartolome solidarity liable with GRESEC for the payment of actual
and moral damages, attorney's fees and costs of suit.

Ruling:

However, as regards the trial court's finding of respondents' solidary liability to Atienza for dam-
ages, we note that the trial court's Decision did not contain a discussion on the solidary liability of
Bartolome with GRESEC. The RTC simply ordered respondents to pay, in solidum, the monetary
awards to Atienza.

Solidary liability cannot be lightly inferred. "There is solidary liability when the obligation ex-
pressly so states, when the law so provides, or when the nature of the obligation so requires.
Settled is the rule that a director or officer shall only be personally liable for the obligations of the
corporation, if the following conditions concur: (1) the complainant alleged 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; and (2) the complainant clearly and convincingly proved
such unlawful acts, negligence or bad faith."16

Basic is the principle that a corporation is vested by law with a personality separate and distinct
from that of each person composing or representing it. Equally fundamental is the general rule
that corporate officers cannot be held personally liable for the consequences of their acts, for as
long as these are for and in behalf of the corporation, within the scope of their authority and in
good faith. The separate corporate personality is a shield against the personal liability of corpo-
rate officers, whose acts are properly attributed to the corporation.

Consistent with the foregoing principles, we disagree with the CA's pronouncement absolving
respondent Bartolome from liability to the damages incurred by Atienza. Atienza established
sufficient and specific evidence to show that Bartolome had acted in bad faith or gross
negligence in the sale of the defective vessel engine and the delivery and installation of demo
units instead of a new engine which Atienza paid for.

52
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. In 1995, Guillermo
Mendoza, Jr. (Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with respondent Thomas
George (respondent), encouraging the latter to invest with QTCI. On July 7, 1995, upon Men-
doza’s prodding, respondent finally invested with QTCI. On the same day, Collado, in behalf of
QTCI, and respondent signed the Customer’s Agreement. 3 Forming part of the agreement was
the Special Power of Attorney4 executed by respondent, appointing Mendoza as his attorney-in-
fact with full authority to trade and manage his account.

On June 20, 1996, the Securities and Exchange Commission (SEC) issued a Cease-and-Desist
Order (CDO) against QTCI. Alarmed by the issuance of the CDO, respondent demanded from
QTCI the return of his investment, but it was not heeded. He then sought legal assistance, and
discovered that Mendoza and Lontoc were not licensed commodity futures salesmen.

On February 4, 1998, respondent filed a complaint for Recovery of Investment with Dam-
ages5 with the SEC against QTCI, Lau, and Collado (petitioners), and against the unlicensed
salesmen, Mendoza and Lontoc. The case was docketed as SEC Case No. 02-98-5886, and
was raffled to SEC Hearing Officer Julieto F. Fabrero.

Only petitioners answered the complaint, as Mendoza and Lontoc had since vanished into thin
air. Traversing the complaint, petitioners denied the material allegations in the complaint and al-
leged lack of cause of action, as a defense. 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 unli-
censed brokers. They added that even assuming that the subject account was handled by an un-
licensed broker, respondent is now estopped from raising it as a ground for the return of his in-
vestment. They pointed out that respondent transacted business with QTCI for almost a year,
without questioning the license or the authority of the traders handling his account. It was only af-
ter it became apparent that QTCI could no longer resume its business transactions by reason of
the CDO that respondent raised the alleged lack of authority of the brokers or traders handling
his account. The losses suffered by respondent were due to circumstances beyond petitioners’
control and could not be attributed to them. Respondent’s remedy, they added, should be against
the unlicensed brokers who handled the account. Thus, petitioners prayed for the dismissal of
the complaint.

Issue:

Petitioners Collado and Lau next fault the CA in making them solidarily liable for the payment of
respondent’s claim

53
Ruling:
Doctrine dictates that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it, such that, save for certain exceptions, corporate officers
who entered into contracts in behalf of the corporation cannot be held personally liable for the
liabilities of the latter. Personal liability of a corporate director, trustee, or officer, along (although
not necessarily) with the corporation, may validly attach, as a rule, only when – (1) he assents to
a patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in
directing its affairs, or when there is a conflict of interest resulting in damages to the corporation,
its stockholders, or other persons; (2) he consents to the issuance of watered down stocks or
who, having knowledge thereof, does not forthwith file with the corporate secretary his written
objection thereto; (3) he agrees to hold himself personally and solidarily liable with the
corporation; or (4) he is made by a specific provision of law personally answerable for his
corporate action.

In holding Lau and Collado jointly and severally liable with QTCI for respondent’s claim, the SEC
Hearing Officer explained in this wise:

Anent the issue of who among the individual [petitioners] are jointly liable with QTCI in the pay-
ment of the awards, the Commission took into consideration, among others, that audit report on
the trading activities submitted by the Brokers and Exchange Department (BED) of this Commis-
sion (Exhibit "J"). The findings contained in the report include the presence of seven (7) unli-
censed investment consultants in QTCI, and the company practice of changing deeds of Special
Power of Attorney bearing those who are licensed (exhibits "J-1" and "J-2").

The Commission also took into consideration the fact that [petitioner] Collado, who is not a li-
censed commodity salesman, himself violated the aforequoted provisions of the Revised Rules
and Regulations on Commodity Futures Trading when he admitted having participated in the ex-
ecution of the customers orders (p. 7, TSN dated January 21, 1999) without giving any exception
thereto, which presumably includes his participation in the execution of customers orders of the
[respondent].

Such being the case, [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 x x x Men-
doza, and [petitioner] Collado’s participation in the unlawful execution of orders under the [re-
spondent’s] account clearly established the fact that the management of QTCI failed to imple-
ment the rules and regulations against the hiring of, and associating with, unlicensed consultants
or traders. How these unlicensed personnel been able to pursue their unlawful activities is a re-
flection of how negligent [the] management was.

[Petitioner] Romeo Lau, as president of [petitioner] QTCI, cannot feign innocence on the exis-
tence of these unlawful activities within the company, especially so that Collado, himself a rank-
ing officer of QTCI, is involved in the unlawful execution of customers orders. [Petitioner] Lau, be-
ing the chief operating officer, cannot escape the fact that had he exercised a modicum of care
and discretion in supervising the operations of QTCI, he could have detected and prevented the
unlawful acts of [petitioner] Collado and Mendoza.

54
It is therefore safe to conclude that although Lau may not have participated nor been aware of
the unlawful acts, he is however deemed to have been grossly negligence in directing the affairs
of QTCI.

Oscares vs. Magsaysay Maritime Corp., G.R. No. 245858, December 2, 2020

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 As-
sistant Engineer on board the vessel MV K. Garnet, he was responsible for the maintenance, op-
eration of engineering, electrical and electronic systems of the vessel.6

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 bal-
ance. As a result, he suffered major knee injuries. First aid was administered to him. On Novem-
ber 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 os-
teosintesis-fixation and sterilization. Oscares was declared unfit to work for 10 weeks.7

On December 10, 2015, Oscares was repatriated to Manila. Upon arrival, he reported to respon-
dents who referred him to NGC Medical Specialist Clinic, Inc. (NGC) for post-employment medi-
cal examination and management.8 Oscares underwent x-ray of both knees on December 14,
2015. The result revealed that he had complete oblique fracture of the right medical condyle.
Thus, 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 re-
habilitation which ensued thereafter. Nonetheless, he was required to report to NGC.9

On March 16, 2016, NGC issued an interim disability assessment of Grade 10-complete immobil-
ity of a knee joint in full flexion. However, Oscares' attending physician in Seamen's Hospital,
Iloilo declared him unfit for duty on April 12, 2016. The removal of his plates was recommended
thereafter.

Consequently, Oscares sent a demand letter14 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 dead-
lock.15

On July 14, 2017, the Panel ruled that Oscares is entitled to total and permanent disability bene-
fits worth US$131,797.00 based on the Collective Bargaining Agreement (CBA). In addition, it
awarded moral damages of P100,000.00 for respondents' gross negligence in its delay in ad-
dressing and refusing to shoulder the medical needs of Oscares, as well as for circumventing the
provisions of the POEA-Standard Employment Contract (POEA-SEC) and the CBA. 

55
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. Dohle Seafront Crewing (Manila), Inc., 67 We explained that
corporate officers or directors cannot, as a general rule, be personally held liable for the con-
tracts 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 (al-
though 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.68 We similarly imposed joint and several liability on the foreign employer, local man-
ning agency, and its officer/director in Cariño v. Maine Marine Phils., Inc. 69

56
Sps. Fernandez vs. Smart Comm., Inc., G.R. No. 212885, July 17, 2019

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 ser-
3

vice provider.  Petitioners Nolasco and Maricris were the Chief Executive Officer (CEO) and
4

Member of the Board of Directors of EOL, respectively.  5

As alleged in the Amended Complaint,  EOL sought SMART sometime in 2006 to provide the
6

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 ac-
count of EOL while the rest of the lines and phones shall be distributed to EOL's franchisees.   In
7

view of this, EOL's corporate president Salustiano G. Samaco III (Samaco III), signed on sepa-
rate occasions, two (2) Corporate Service Applications (SAF) for the 2,000 postpaid lines with
corresponding cell phone units. He also signed Letters of Undertaking  to cover for the 1,119
8

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 soli-
darily 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. 9

In September 2006, EOL demanded the release of the remaining phone lines to cover its initial
order of 2,000 units. SMART informed EOL that before it approved further phone line applica-
tions, the parties should restate and clarify the agreements between them, to which EOL
agreed.   In a letter dated September 13, 2006 (Letter Agreement), SMART specified the terms
10

of the agreement over the 1,119 phone lines it already issued in favor of EOL.   In addition to the
11

Letter Agreement, EOL executed an Undertaking   (EOL Undertaking) where it affirmed its avail-
12

ment of 1,119 SMART cell phones and services. EOL also agreed to assume full responsibility
for the charges incurred on the use of all these units. The pertinent portion of the EOL Undertak-
ing signed by Samaco III and petitioner Nolasco provides:

SMART averred that after the execution of the EOL Undertaking, its credit and collection depart-
ment 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 li-
able for the payment of bills of phone lines assigned to franchisees.  14

On October 13, 2006, 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 A6rreements, it is bound to
pay the bills of the franchisees, whether the phones were in the possession of the franchisees or
not. 
15

On July 27, 2007, a meeting was purportedly held between the parties where EOL proposed to
update the payments for 304 accounts of its franchisees and it would update and amend the
monthly plan for the other 765 accounts. EOL then issued Banco De Oro Check No. 1003473
dated August 3, 2007 for ₱394,064.62 in favor of SMART as partial payment and as a sign of
good faith. However, the BDO check was dishonored upon presentment clue to insufficiency of
funds.  16

57
On November 8, 2007, SMART sent EOL a notice of final demand for the payment of the out-
standing amount of ₱17,506,740.55. Despite receipt of the demand letter, EOL failed to pay the
amount due. On January 2, 2008, another demand letter for ₱20,662,073.45   was sent by 17

SMART to EOL. No payment was made by EOL. SMART claimed that the total due from EOL al-
ready amounted to ₱39,770,810.87 as of October 31, 2008.  18

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
19

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.

Ruling:

It is basic in corporation law that a corporation is an artificial being invested by law with a person-
ality 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
49

through its representatives is not consent of the representative, personally."  The corporate obli-
50

gations, 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 exe-
cuted a contract through that stockholder, director, or representative.  51

As a general rule, a corporation's representatives are not bound by the terms of the contract exe-
cuted by the corporation. "They are not personally liable for obligations and liabilities incurred on
or in behalf of the corporation. "52

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 cor-
53

poration's separate personality to be disregarded under certain circumstances, so that a corpora-

tion 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 per-
sonality of a corporation is being abused or being used for wrongful purposes.  54

The piercing of the corporate veil must be done with caution.   To justify the piercing of the veil of
55

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 com-
mitment and perpetuate a fraud or like wrongdoings." 56

A corporate director, trustee, or officer is to be held solidarily liable with the corporation in the fol-
lowing 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 corpo-
ration, 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;

58
3) When a director, trustee or officer has contractually agreed or stipulated to hold himself per-
sonally 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. 57

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 cir-
cumstances constituting fraud which must be stated with particularity, thus rendering the allega-
tion 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 intelli-
gent answer and must, perforce, be dismissed for failure to state a cause of action." 58

This is not the case with petitioner Nolasco. Nolasco, as CEO, signed the EOL Undertaking pur-
portedly 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 ac-
tion 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. 65

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 No-
66

lasco is a real party-in-interest who would be benefited or injured by the judgment, would be bet-
ter 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 deter-
mine the extent of their liabilities."

59