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 Jorge-
netics Swine Improvement 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 mortgage[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 de-
spite demand.[7]

Thus, TTAI alleged in its complaint that as mortgagee it was entitled to take immediate
possession of the livestock subject of the mortgage which was wrongfully withheld by Jor -
genetics 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 ren-
dered 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, attorney 's fees, and costs.

Ruling:
The chairperson and president of a corpora-
tion may sign the verification and certifica-
tion without need of board resolution. More-
over, lack of authority of a corporate officer
to undertake an action on behalf of the cor-
poration may be cured by ratification through
the subsequent issuance of a board resolu-
tion.

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 submission 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 resolution, such as but not limited to the chairperson of
the board of directors, the president of a corporation, the general manager or acting gen -
eral manager, personnel officer, and an employment specialist in a labor case. Moreover,
the "lack of authority of a corporate officer to undertake an action on behalf of the corpora-
tion 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]

1
Given the foregoing, Mr. Jorge, as the chairperson and president of petitioner, is suffi-
ciently 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 ratified Mr. Jorge's
authority to represent petitioner and file the Petition in G.R. No. 201044.

Mirant Phils. Corp., et al. v. Joselito A. Caro, G.R. No. 181490, April 23, 2014

Facts:
[10] th
Respondent filed a complaint for illegal dismissal and money claims for 13 and
th
14 month pay, bonuses and other benefits, as well as the payment of moral and exem -
plary damages and attorney’s fees. Respondent posits the following allegations in his Po-
[11]
sition 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 Pur -
chasing Department with a monthly salary of P39,815.00.

On November 3, 2004, petitioner corporation conducted a random drug test where respon-
dent was randomly chosen among its employees who would be tested for illegal drug use.
[12]
Through an Intracompany Correspondence, 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 af-
ter lunch on that day. His receipt of the notice was evidenced by his signature on the cor -
respondence.

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 was then working as a caregiver. Respon-
[13]
dent attached to his Position Paper a Press Release of the Department of Foreign Af-
[14]
fairs (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 atten-
tion 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 Sal-
vador (Salvador), a lobby attendant at the Israeli Embassy, that he could not be allowed en-
try due to security reasons.

On that same day, at around 6:15 p.m., respondent returned to petitioner corporation’s of-
fice. When he was finally able to charge his cellphone at the office, he received a text mes -
sage from Tina Cecilia (Cecilia), a member of the Drug Watch Committee that conducted

2
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 ex-
pense. Respondent never heard from Cecilia again.

[15]
On November 8, 2004, respondent received a Show Cause Notice from petitioner corpo-
ration through Jaime Dulot (Dulot), his immediate supervisor, requiring him to explain in
writing why he should not be charged with “unjustified refusal to submit to random drug
[16]
testing.” Respondent submitted his written explanation on November 11, 2004. Peti-
tioner 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 November 3, 2004 and that the said bombing incident actually occurred. Re-
spondent requested for a hearing to explain that he could not submit proof that he was in -
deed present at the Israeli Embassy during the said day because he was not allegedly al-
lowed entry by the embassy due to security reasons.

On January 13, 2005, petitioner corporation’s Investigating Panel issued an Investigating

[18]
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.”

On January 19, 2005, petitioner corporation’s Asst. Vice President for Material Management
[19]
Department, George K. Lamela, Jr. (Lamela), recommended that respondent be
terminated from employment instead of merely being suspended. Lamela argued that even
if respondent did not outrightly refuse to take the random drug test, he avoided the same.
Lamela averred that “avoidance” was synonymous with “refusal.”

[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.
[21]
Respondent filed a Motion to 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
[57]
with malice or bad faith in the dismissal of an employee. Absent any evidence on
record that petitioner Bautista acted maliciously or in bad faith in effecting the termination

3
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.

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:

4
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 –

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.

5
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.

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.

6
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

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

7
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.

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

8
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.

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

9
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

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

10
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

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.

11
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;

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

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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."

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