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GRACE CHRISTIAN HIGHSCHOO VS CA 281 SCRA 133 FACTS: Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization of lot and/or building owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L. Go were its president and chairman of the committee on election, respectively, in 1990, when this suit was brought. As adopted in 1968, the by-laws of the association provided in Article IV, as follows: The annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year at the principal office of the Association at 2:00 P.M. where they shall elect by plurality vote and by secret balloting, the Board of Directors, composed of eleven (11) members to serve for one (1) year until their successors are duly elected and have qualified. It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws, reading as follows; VI. ANNUAL MEETING The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. Each Charter or Associate Member of the Association is entitled to vote. He shall be entitled to as many votes as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00) PESOS for one vote. The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to 1990, petitioner was given a permanent seat in the board of directors of the association. On February 13, 1990, the associations committee on election in a letter informed James Tan, principal of the school, that it was the sentiment that all directors should be elected by members of the association because to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen (15) members of the Board, and it is undemocratic for a person or entity to hold office in perpetuity. For this reason, Tan was told that the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined. Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in previous elections, claiming that the notice issued for the 1990 elections ran counter to the practice in previous years and was in violation of the by-laws (of 1975) and unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board. It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the association and that in reply to the query, the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to 92 of the Corporation Code (B.P. Blg. 68). ISSUE: W/N the right of petitioners representative to sit in the board of directors of respondent Grace Village Association, Inc. as a permanent member thereof is valid? HELD: NO. In the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petiti oner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law. It is probable that, in allowing petitioners representative to sit on the board, the members of the association were not aware that this was contrary to law. The Petitioner herein did not acquire a vested right to a permanent seat in the Board of Directors of Grace Village Association; Petitioner cannot claim a vested right to sit in the board on the basis of practice. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioners claim that its right is coterminus with the existence of the association. Petitioner disputes the ruling that the provision in question, giving petitioners representative a permanent seat in the board of the association, is contrary to law. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected members of boards of directors of corporations The board of directors of corporations must be elected from among the stockholders or members according to the Corpo Code (Sec.23). There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. --------------------------------------------G.R. NO. L-45911, APRIL 11, 1979 JOHN GOKONGWEI, JR. VS.SEC ET. AL. FACTS: Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of nullity of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the by-laws that the amendment or modification of the bylaws may only be delegated to the BODs upon an affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the Corp, which 2/3 could have been computed on the basis of the capitalization at the time of the amendment.

Petitioner contends that the amendment was based on the 1961 authorization, the Board acted without authority and in usurpation of the power of the stockholders n amending the by-laws in 1976. He also contends that the 1961 authorization was already used in 1962 and 1963. He also contends that the amendment deprived him of his right to vote and be voted upon as a stockholder (because it disqualified competitors from nomination and election in the BOD of SMC), thus the amended by-laws were null and void. While this was pending, the Corp called for a stockholders meeting for the ratification of the amendment to the by-laws. This prompted petitioner to seek for summary judgment. This was denied by the SEC. In another case filed by petitioner, he alleged that the Corp had been using corporate funds in other corps and businesses outside the primary purpose clause of the Corp in violation of the Corp Code. ISSUES/HELD: 1. WON the amended by-laws of SMC of disqualifying a competitor from nomination or election to the BOD of SMC are valid and reasonable A. THE VALIDITY AND REASONABLENESS OF A BY-LAW IS PURELY A QUESTION OF LAW. Whether the by-law is in conflict with the law of the land, or with the charter of the Corp or is in legal sense unreasonable and therefore unlawful is a question of law. However, this is limited where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised authority. Any Corp may amend its by-laws by the owners of the majority of the subscribed stock. It cannot thus be said that petitioners has the vested right, as a stock holder, to be elected director, in the face of the fact that the law at the time such stockholder's right was acquired contained the prescription that the corporate charter and the by-laws shall be subject to amendment, alteration and modification. B. AUTHORITY OF CORP TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW The Court held that a Corp has authority prescribed by law to prescribe the qualifications of directors. It has the inherent power to adopt by-laws for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. A Corp, under the Corp law, may prescribe in its by-laws the qualifications, duties and compensation of directors, officers, and employees. Any person who buys stock in a Corp does so with the knowledge that its affairs are dominated by a majority of the stockholders and he impliedly contracts that the will of the majority shall govern in all matters within the limits of the acts of inCorp and lawfully enacted by-laws and not forbidden by law. C. NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR Any person "who buys stock in a Corp does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of inCorp and lawfully enacted by-laws and not forbidden by law." To this extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the Corp, and surrendered it to the will of the majority of his fellow incorporators. ... It cannot therefore be justly said that the contract, express or implied, between the Corp and the stockholders is infringed ... by any act of the former which is authorized by a majority ... ." Pursuant to section 18 of the Corp Law, any Corp may amend its articles of inCorp by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the Corp If the amendment changes, diminishes or restricts the rights of the existing shareholders then the disenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any bylaw or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment, alteration and modification. 17 It being settled that the Corp has the power to provide for the qualifications of its directors, the next question that must be considered is whether the disqualification of a competitor from being elected to the BOD is a reasonable exercise of corporate authority. D. A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORP AND ITS SHAREHOLDERS Although in the strict and technical sense, directors of a private Corp are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the Corp and the stockholders as a body are concerned. As agents entrusted with the management of the Corp for the collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of trust." Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof. E. AN AMENDMENT TO THE CORP BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A CORP WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORP, HAS BEEN SUSTAINED AS VALID It is a settled state law in the US, according to Fletcher, that Corps have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the Corp's BOD. ... An amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a Corp whose business is in competition with or is antagonistic to the other Corp is valid."24 This is based upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an amendment "advances the benefit of the Corp and is good." An exception exists in New Jersey, where the Supreme Court held that the Corp Law in New Jersey prescribed the only qualification, and therefore the Corp was not empowered to add additional qualifications. 25 This is the exact opposite of the situation in the Philippines because as stated heretofore, section 21 of the Corp Law expressly provides that a Corp may make by-laws for the qualifications of directors. Thus, it has been held that an officer of a Corp cannot engage in a business in direct competition with that of the Corp where he is a director by utilizing information he has received as such officer, under "the established law that a director or officer of a Corp may not enter into a competing enterprise which cripples or injures the business of the Corp of which he is an officer or director. The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the Corp justly calls for protection. 30

2. WON respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International Inc., a fully owned subsidiary of San Miguel Corp. The stockholder's right of inspection of the Corp's books and records is based upon their ownership of the assets and property of the Corp. It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or a ownership. 52 This right is predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the Corp. 53 In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the Corp. 54 In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corp and, therefore, under its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the Corp as extending to books and records of such wholly subsidiary which are in respondent Corp's possession and control. 3. WON respondent SEC gravely abused its discretion in allowing the stockholders of respondent Corp to ratify the investment of corporate funds in a foreign Corp. Section 17-1/2 of the Corp Law allows a Corp to "invest its funds in any other Corp or business or for any purpose other than the main purpose for which it was organized" provided that its BOD has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its inCorp that the vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary. 69 As stated by respondent Corp, the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its Articles of InCorp, which is to manufacture and market beer. Assuming arguendo that the BOD of SMC had no authority to make the assailed investment, there is no question that a Corp, like an individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. 70 This is true because the questioned investment is neither contrary to law, morals, public order or public policy. Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose. The mere fact that respondent Corp submitted the assailed investment to the stockholders for ratification at the annual meeting of May 10, 1977 cannot be construed as an admission that respondent Corp had committed an ultra vires act, considering the common practice of Corps of periodically submitting for the gratification of their stockholders the acts of their directors, officers and managers. ---------------------WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F. VILLASIS, petitioners, vs. RICARDO T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE PORFIRIO PARIAN FACTS: Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the same family, are the majority and controlling members of the Board of Trustees of Western Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in the operation, among others, of an educational institution. According to petitioners, the minority stockholders of WIT, in the principal office of WIT at La Paz, Iloilo City, a Special Board meeting was held. In attendance were other members of the Board including one of the petitioners Reginald Villasis. Prior to aforesaid Special Board Meeting, copies of notice thereof, dated May 24, 1986, were distributed to all Board Members. The notice allegedly indicated that the meeting to be held on June 1, 1986 included item No. 6 which states: "Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western Institute of Technology, Inc. on compensation of all officers of the corporation." Resolution No. 48 s. 1986 On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it was unanimously resolved that: The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman - P9,000.00/month, Vice-Chairman - P3,500.00/month, Corporate Treasurer - P3,500.00/month and Corporate Secretary - P3,500.00/month, retroactive June 1, 1985 and the ten percentum of the net profits shall be distributed equally among the ten members of the Board of Trustees. This shall amend and superceed(sic) any previous resolution. There were no other business. The Chairman declared the meeting adjourned at 5:11 P.M. This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technol ogy, Inc. held on March 30, 1986 is true and correct to the best of my knowledge and belief. (Sgd) ANTONIO S. SALAS Corporate Secretary Petitioners Homero Villasis, Preston Villasis, Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against private respondents before the Office of the City Prosecutor of Iloilo, as a result of which two (2) separate criminal informations, one for falsification of a public document under Article 171 of the Revised Penal Code and the other for estafa under Article 315, par. 1(b) of the RPC, were in the Regional Trial Court of Iloilo City. The charge for falsification of public document was anchored on the private respondents submission of WITs income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate funds for the compensation of private respondents based on Resolution No. 4, series of 1986, making it appear that the same was passed by the board on March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date not covered by the corporations fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30, 1986). The Estafa case is anchored in the following; unlawfully and feloniously defraud the said corporation (and its stockholders) in the following manner, to wit: herein accused (Salas), knowing fully well that they have no sufficient, lawful authority to disburse--- let alone violation of applicable laws and jurisprudence,

disbursed the funds of the corporation by effecting payment of their retroactive salaries in the amount of P186,470.70 and subsequently paying themselves every 15th and 30th of the month starting June 15, 1986 until the present, in the amount of P19,500.00 per month, as if the same were their own, and when herein accused were informed of the illegality of these disbursements by the minority stockholders by way of objections made in an annual stockholders meeting held on June 14, 1986 and every year thereafter, they refused, and still refuse, to rectify the same to the damage and prejudice of the corporation (and its stockholders). ISSUE: Is the compensation given to the respondents proper in accordance to the Corporation Code? HELD: YES. Compensations to directors are allowed under Sec. 30, Corpo Code. Sec. 30. Compensation of directors.--- In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation, as such directors, except for reasonable per diems: Provided, however, That any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors /trustees render service gratuitously and that the return upon their shares adequately furnishes the motives for service, without compensation. Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders meeting agree to give it to them. This proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: xxx [T]he directors shall not receive any compensation, as such directors, xxx. The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members of the board may receive compensation, in addition to reasonable per diems, when they render services to the corporation in a capacity other than as directors/trustees.. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of Technology. Petitioners case is NOT a Derivative Suit. Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of WIT for and on behalf of the corporation to annul Resolution No. 48, s. 1986 which is prejudicial to the corporation. We are unpersuaded. A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority. Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join. Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which it is not, the same is outrightly dismissible for having been wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. The case should have been filed with the Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction over derivative suits, they being intra-corporate disputes, per Section 5(b) of P.D. No. 902-A. _________________________ DILY DANY NACPIL, petitioner, vs. INTERNATIONAL BROADCASTING CORPORATION FACTS: Petitioner states that he was Assistant General Manager for Finance/Administration and Comptroller of private respondent Intercontinental Broadcasting Corporation (IBC) from 1996 until April 1997. According to petitioner, when Emiliano Templo was appointed to replace IBC President Tomas Gomez III sometime in March 1997, the former told the Board of Directors that as soon as he assumes the IBC presidency, he would terminate the services of petitioner. Apparently, Templo blamed petitioner, along with a certain Mr. Basilio and Mr. Gomez, for the prior mismanagement of IBC. Upon his assumption of the IBC presidency, Templo allegedly harassed, insulted, humiliated and pressured petitioner into resigning until the latter was forced to retire. However, Templo refused to pay him his retirement benefits, allegedly because he had not yet secured the clearances from the Presidential Commission on Good Government and the Commission on Audit. Furthermore, Templo allegedly refused to recognize petitioners employment, claiming that petitioner was not the Assistant General Manager/Comptroller of IBC but merely usurped the powers of the Comptroller. Hence, in 1997, petitioner filed with the Labor Arbiter a complaint for illegal dismissal and non-payment of benefits. Instead of filing its position paper, IBC filed a motion to dismiss alleging that the Labor Arbiter had no jurisdiction over the case. IBC contended that petitioner was a corporate officer who was duly elected by the Board of Directors of IBC; hence, the case qualifies as an intra-corporate dispute falling within the jurisdiction of the Securities and Exchange Commission (SEC). However, the motion was denied by the Labor Arbiter. Labor Arbiter rendered a Decision stating that petitioner had been illegally dismissed. Court of Appeals reversed decision of Labor Arbiter and NLRC. Hence petition. ISSUE: The issue to be resolved is whether the Labor Arbiter had jurisdiction over the case for illegal dismissal and non-payment of benefits filed by petitioner. HELD: NO. The Court finds that the Labor Arbiter had no jurisdiction over the same. SEC has jurisdiction. Under Presidential Decree No. 902-A (the Revised Securities Act), the law in force when the complaint for illegal dismissal was instituted by petitioner in 1997, the following cases fall under the exclusive of the SEC:

c) Controversies in the election or appointment of directors, trustees, officers, or managers of such corporations, partnerships or associations; PETITIONER IS A CORPORATE OFFICER. Petitioner argues that he is not a corporate officer of the IBC but an employee thereof since he had not been elected nor appointed as Comptroller and Assistant Manager by the IBCs Board of Directors. He points out that he had actually been appointed as such by the IBCs General Manager, Ceferino Basilio. In support of his argument, petitioner underscores the fact that the IBCs By-Laws does not even include the position of comptroller in its roster of corporate officers. He therefore contends that his dismissal is a controversy falling within the jurisdiction of the labor courts. Petitioners argument is untenable. Even assuming that he was in fact appointed by the General Manager, such appointment was subsequently approved by the Board of Directors of the IBC. That the position of Comptroller is not expressly mentioned among the officers of the IBC in the By-Laws is of no moment, because the IBCs Board of Directors is empowered under Section 25 of the Corporation Code, and under the corporations By-Laws to appoint such other officers as it may deem necessary. The By-Laws of the IBC categorically provides: XII. OFFICERS The officers of the corporation shall consist of a President, a Vice-President, a Secretary-Treasurer, a General Manager, and such other officers as the Board of Directors may from time to time does fit to provide for. Said officers shall be elected by majority vote of the Board of Directors and shall have such powers and duties as shall hereinafter provide (Emphasis supplied).[13] The Court has held that in most cases the by-laws may and usually do provide for such other officers,[14] and that where a corporate office is not specifically indicated in the roster of corporate offices in the by-laws of a corporation, the board of directors may also be empowered under the by-laws to create additional officers as may be necessary. An office has been defined as a creation of the charter of a corporation, while an officer as a person elected by the directors or stockholders. On the other hand, an employee occupies no office and is generally employed not by action of the directors and stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. As petitioners appointment as comptroller required the approval and formal action of the IBCs Board of Directors to become valid, it is clear therefore holds that petitioner is a corporate officer whose dismissal may be the subject of a controversy cognizable by the SEC under Section 5(c) of P.D. 902-A which includes controversies involving both election and appointment of corporate directors, trustees, officers, and managers. --------------------------G.R NO. 117847, OCTOBER 7, 1998 PEOPLES AIRCARGO AND WAREHOUSING, INC. VS. CA FACTS: Petitioner is a domestic Corp organized in 1986 to operate a customs bonded warehouse at the old Manila International Airport (MIA). To obtain a license from the Bureau of Customs, Antonio Punsalan, Jr., the Corp president, solicited a proposalfrom private respondent Stefani Sano for the preparation of afeasibility study. Sano submitted a letter proposal dated October 17, 1986 (First Contract) to Punsalan regarding his request for professional engineering consultancy services which services are offered in the amount of P350,000.00. Initially, Cheng Yang, the majority stockholder of petitioner, objected to said offer as another company can provide for the same service at a lower price. However, Punsalan preferred Sanos services because of latters membership in the task force, which task force was supervising the transition of the Bureau from the Marcos to the Aquino government. Petitioner, through Punsalan, thereafter confirmed the contract. On December 4, 1986, upon Punsalans request, private respondent sent petitioner another letter-proposal (Second Contract) which offers the same service already at P400,000.00 instead of the previous P350,000.00 offer. On January 10, 1987, Andy Villaceren, vice-president of petitioner, received the operations manual prepared by Sano and which manual operations was submitted by petitioner to the Bureau in compliance for its application to operate abonded warehouse. Thereafter, in May 1987, the Bureau issued to it a license to operate. Private respondent also conducted in the third week of January 1987 in the warehouse of petitioner, a threeday training seminar for the petitioners employees. On February 9, 1988, private respondent filed a collection suit against petitioner. He alleged that he had prepared an operations manual for petitioner, conducted a seminar-workshop for its employees and delivered to it a computer program but that despite demand, petitioner refused to pay him for his services. Petitioner, on its part, denied that Sano had prepared such manual operations and at the same time alleged that the letter-agreement was signed by Punsalan without authority and as such unenforceable. It alleges that the disputed contract was not authorized by its BOD. ISSUE: WON the Second Contract signed by Punsalan is enforceable and binding against petitioner. HELD: Yes, the Second Contract is binding and enforceable. The general rule is that, in the absence of authority from the BOD, no person, not even its officers, can validly bind a Corp. A Corp is a juridical person, separate and distinct from its stockholders and members having xxx powers, attributes and properties expressly authorized by law or incident to its existence. Being a juridical entity, a Corp may act through its BOD, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management, as provided in Section 23 of the Corp Code. However, it is familiar doctrine that if a Corp knowingly permits 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 and thus, the Corp wi tll, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents authority. Thus private respondent shall not be faulted for believing that Punsalans conformity to the contract in dispute was also binding on petitioner. In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the First Contract without first securing board approval. Despite such lack of board approval, petitioner did not object to or repudiate said contract, thus "clothing" its president with the power to bind the Corp. The grant of apparent authority to Punsalan is evident in the testimony of Yong senior vice president, treasurer and major stockholder of petitioner. Furthermore, private respondent prepared an operations manual and conducted a seminar for the employees of petitioner in accordance with their contract. Petitioner accepted the operations manual, submitted it to the Bureau of Customs and allowed the seminar for its employees. As a result of its aforementioned actions, petitioner was given by the Bureau of Customs a license to operate a bonded warehouse. Granting arguendo then that the Second Contract was outside the usual powers of

the president, petitioner's ratification of said contract and acceptance of benefits have made it binding, nonetheless. The enforceability of contracts under Article 1403(2) is ratified "by the acceptance of benefits under them" under Article 1405. -------------------PRIME WHITE CEMENT CORPORATION, vs AIC and ALEJANDRO TE, respondents. FACTS: Plaintiff and defendant corporation thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a dealership agreement (Exhibit A) whereby said plaintiff was obligated to act as the exclusive dealer and/or distributor of the said defendant corporation of its cement products in the entire Mindanao area for a term of five (5) years and proving among others that: a. The corporation shall, commencing September, 1970, sell to and supply the plaintiff, as dealer with 20,000 bags (94 lbs/bag) of white cement per month; b. The plaintiff shall pay the defendant corporation P9.70, Philippine Currency, per bag of white cement, FOB Davao and Cagayan de Oro ports; c. The plaintiff shall, every time the defendant corporation is ready to deliver the good, open with any bank or banking institution a confirmed, unconditional, and irrevocable letter of credit in favor of the corporation and that upon certification by the boat captain on the bill of lading that the goods have been loaded on board the vessel bound for Davao the said bank or banking institution shall release the corresponding amount as payment of the goods so shipped. Relying heavily on the dealership agreement, plaintiff sometime in the months of September, October, and December, 1969, entered into a written agreement with several hardware stores dealing in buying and selling white cement in the Cities of Davao and Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular supply of the said commodity, After the plaintiff was assured by his supposed buyer that his allocation of 20,000 bags of white cement can be disposed of, he informed the defendant corporation in his letter dated August 18, 1970 that he is making the necessary preparation for the opening of the requisite letter of credit to cover the price of the due initial delivery for the month of September, 1970, looking forward to the defendant corporation's duty to comply with the dealership agreement. In reply to the aforesaid letter of the plaintiff, the defendant corporation thru its corporate secretary, replied that the board of directors of the said defendant decided to impose the following conditions: a. Delivery of white cement shall commence at the end of November, 1970; b. Only 8,000 bags of white cement per month for only a period of three (3) months will be delivered; c. The price of white cement was priced at P13.30 per bag; d. The price of white cement is subject to readjustment unilaterally on the part of the defendant; e. The place of delivery of white cement shall be Austurias; f. The letter of credit may be opened only with the Prudential Bank, Makati Branch; g. Payment of white cement shall be made in advance and which payment shall be used by the defendant as guaranty in the opening of a foreign letter of credit to cover costs and expenses in the procurement of materials in the manufacture of white cement. xxx xxx xxx Several demands to comply with the dealership agreement were made by the plaintiff to the defendant, however, defendant refused to comply with the same, and plaintiff by force of circumstances was constrained to cancel his agreement for the supply of white cement with third parties, which were concluded in anticipation of, and pursuant to the said dealership agreement. Notwithstanding that the dealership agreement between the plaintiff and defendant was in force and subsisting, the defendant corporation, in violation of, and with evident intention not to be bound by the terms and conditions thereof, entered into an exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao hence, this suit. After trial, the trial court adjudged the corporation liable to Alejandro Te. The appellate court affirmed the said decision mainly on the following basis, and We quote: There is no dispute that when Zosimo R. Falcon and Justo B. Trazo signed the dealership agreement Exhibit "A", they were the President and Chairman of the Board, respectively, of defendant-appellant corporation. Neither is the genuineness of the said agreement contested. As a matter of fact, it appears on the face of the contract itself that both officers were duly authorized to enter into the said agreement and signed the same for and in behalf of the corporation. When they, therefore, entered into the said transaction they created the impression that they were duly clothed with the authority to do so. It cannot now be said that the disputed agreement which possesses all the essential requisites of a valid contract was never intended to bind the corporation as this avoidance is barred by the principle of estoppel. Prime White alleges however that, THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE COURT ARE CONTRARY TO THE ESTABLISHED JURISPRUDENCE, PRINCIPLE AND RULE ON FIDUCIARY DUTY OF DIRECTORS AND OFFICERS OF THE CORPORATION Alejandro being also director (Auditor) of Prime White. ISSUE: There is only one legal issue to be resolved by this Court: whether or not the "dealership agreement" referred by the President and Chairman of the Board of petitioner corporation is a valid and enforceable contract. HELD: Agreement is NOT VALID. Mr. Te acted unfairly in dealing with his own corporation. Under the Corporation Law, which was then in force at the time this case arose, as well as under the present Corporation Code, all corporate powers shall be exercised by the Board of Directors, except as otherwise provided by law. Although it cannot completely abdicate its power and responsibility to act for the juridical entity, the Board may expressly delegate specific powers to its President or any of its officers. In the absence of such express delegation, a contract entered into by its President, on behalf of the corporation, may still bind the corporation if the board should ratify the same expressly or impliedly. Implied ratification may take various forms like silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Furthermore, even in the absence of express or implied authority by ratification, the President as such may, as a general rule, bind the corporation by a contract in the ordinary course of business, provided the same is reasonable under the circumstances. These rules are basic, but are all general and thus quite flexible. They apply where the President or other officer, purportedly acting for the corporation, is dealing with a third person, i. e., a person outside the corporation.

The situation is quite different where a director or officer is dealing with his own corporation. In the instant case respondent Te was not an ordinary stockholder; he was a member of the Board of Directors and Auditor of the corporation as well. He was what is often referred to as a "self-dealing" director. A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. On the other hand, a director's contract with his corporation is not in all instances void or voidable. If the contract is fair and reasonable under the circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made as stated in Section 32 of the Corporation Code. Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if entered into with a person other than a director or officer of the corporation, the fact that the other party to the contract was a Director and Auditor of the petitioner corporation changes the whole situation. First of all, We believe that the contract was neither fair nor reasonable. The "dealership agreement" entered into in July, 1969, was to sell and supply to respondent Te 20,000 bags of white cement per month, for five years starting September, 1970, at the fixed price of P9.70 per bag. Respondent Te is a businessman himself and must have known, or at least must be presumed to know, that at that time, prices of commodities in general, and white cement in particular, were not stable and were expected to rise. At the time of the contract, petitioner corporation had not even commenced the manufacture of white cement, the reason why delivery was not to begin until 14 months later. He must have known that within that period of six years, there would be a considerable rise in the price of white cement. In fact, respondent Te's own Memorandum shows that in September, 1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag. Despite this, no provision was made in the "dealership agreement" to allow for an increase in price mutually acceptable to the parties. Instead, the price was pegged at P9.70 per bag for the whole five years of the contract. Fairness on his part as a director of the corporation from whom he was to buy the cement, would require such a provision. In fact, this unfairness in the contract is also a basis which renders a contract entered into by the President, without authority from the Board of Directors, void or voidable, although it may have been in the ordinary course of business. We believe that the fixed price of P9.70 per bag for a period of five years was not fair and reasonable. As director, specially since he was the other party in interest, respondent Te's bounden duty was to act in such manner as not to unduly prejudice the corporation. In the light of the circumstances of this case, it is to Us quite clear that he was guilty of disloyalty to the corporation; he was attempting in effect, to enrich himself at the expense of the corporation. There is no showing that the stockholders ratified the "dealership agreement" or that they were fully aware of its provisions. The contract was therefore not valid and this Court cannot allow him to reap the fruits of his disloyalty. -----------------------------G.R NO. 101699, 13 MARCH 1996 SANTOS VS. NLRC FACTS: Melvin D. Millena, on 1 October 1985, was hired to be the project accountant for Mana Mining and Development Corporation's (MMDC) mining operations in Gatbo, Bacon, Sorsogon. On 12 August 1986, Millena sent to Mr. Gil Abao, the MMDC corporate treasurer, a memorandum calling the latter's attention to the failure of the company to comply with the withholding tax requirements of, and to make the corresponding monthly remittances to, the Bureau of Internal Revenue (BIR) on account of delayed payments of accrued salaries to the company's laborers and employees. In a letter, dated 8 September 1986, Abao advised Millena that it was the board's decision that it stop porduction (operation) in Sorsogon due to the upcoming rainy seasons and the deterioration of the peace and order in the said area; that the corporation will undertake only necessary maintenance and repair work and will keep overhead down to the minimum manageable level; and that the corporation will not need a project accountant until the corporaton resumes full-scale operations. Millena expressed "shock" over the termination of his employment. He complained that he would not have resigned from the Sycip, Gores & Velayo accounting firm, where he was already a senior staff auditor, had it not been for the assurance of a "continuous job" by MMDC's Eng. Rodillano E. Velasquez. Millena requested that he be reimbursed the "advances" he had made for the company and be paid his "accrued salaries/claims." The claim was not heeded. On October 1986, Millena filed with the NLRC Regional Arbitration, Branch No. V, in Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th month pay, overtime pay, separation pay and incentive leave pay against MMDC and its two top officials, namely, Benjamin A Santos (the President) and Rodillano A. Velasquez (the executive vice-president). In his complaintaffidavit (position paper), submitted on 27 October 1986, Millena alleged, among other things, that his dismissal was merely an offshoot of his letter of 12 August 1986 to Abao about the company's inability to pay its workers and to remit withholding taxes to the BIR. On 27 July 1988, Labor Arbiter Fructouso T. Aurellano, finding no valid cause for terminating complaint's employment, ruledthat a partial closure of an establishment due to losses was a retrenchment measure that rendered the employer liable for unpaid salaries and other monetary claims. The Labor Arbiter ordered Santos, et. al. to pay Millena the amount of P37,132.25 corresponding to the latter's unpaid salaries and advances: P5,400.00 for petitioner's 13th month pay; P3,340.95 as service incentive leave pay; and P5, 400.00 as separation pay. Santos, et. al. were further ordered to pay Millena 10% of the monetary awards as attorney's fees. Alleging abuse of discretion by the Labor Arbiter, the company and its co-respondents filed a "motion for reconsideration and /or appeal." 8 The motion/appeal was forthwith indorsed to the Executive Director of the NLRC in Manila. In a resolution, dated 04 September 1989, the NLRC affirmed the decision of the Labor Arbiter. A writ of execution correspondingly issued; however, it was returned unsatisfied for the failure of the sheriff to locate the offices of the corporation in the addressed indicated. Another writ of execution and an order of garnishment was thereupon served on Santos at his residence. Contending that he had been denied due process, Santos filed a motion for reconsideration of the NLRC's resolution along with a prayer for the quashal of the writ of execution and order of garnishment. He averred that he had never received any notice, summons or even a copy of the complaint; hence, he said, the Labor Arbiter at no time had acquired jurisdiction over him. On 16 August 1991, the NLRC dismissed the motion for reconsideration. Santos filed the petition for certiorari. ISSUE: Whether Santos should be made solidarily liable with MMDC. HELD:

A corporation is a judicial entity with legal personality separated and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate veil. As a rule, this situation might arise a corporation is used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law. Without necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to wit: (1) He assents: (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (b) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; (2) He consents to the issuance of watered 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, to personally answer for his corporate action. The case of Santos is way of these exceptional instances. It is not even shown that Santos has had a direct hand in the dismissal of Millena enough to attribute to Santos a patently unlawful act while acting for the corporation. Neither can Article 289 of the Labor Code be applied since this specifically refers only to the imposition of penalties under the Code. It is undisputed that the termination of Millena's employment has, instead, been due, collectively, to the need for a further mitigation of losses, the onset of the rainy season, the insurgency problem, in Sorsogon and the lack of funds to further support the mining operation in Gatbo. It is basic that a corporation is invested by law with a personally separate 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. Mere ownership by a single stockholder or by another corporation of all nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personally. Similar to the case of Sunio vs. NLRC, Santos should not have been made personally answerable for the payment of Millena's back salaries. ----------------SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP, INC., petitioners, vs. CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION and SPS. NARCISO & AIDA QUIAMBAO, respondents. FACTS: Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged in the construction business, with petitioner-spouses ROBERTO and EVELYN DAVID as its President and Treasurer, respectively. Respondent-spouses NARCISO and AIDA QUIAMBAO engaged the services of petitioner CGI to design and construct a five-storey concrete office/residential building on their land in Tondo, Manila. The Design/Build Contract of the parties provided that: (a) petitioner CGI shall prepare the working drawings for the construction project; (b) respondents shall pay petitioner CGI the sum of Seven Million Three Hundred Nine Thousand Eight Hundred Twenty-One and 51/100 Pesos (P7,309,821.51) for the construction of the building, including the costs of labor, materials and equipment, and Two Hundred Thousand Pesos (P200,000.00) for the cost of the design; and (c) the construction of the building shall be completed within nine (9) months after securing the building permit. The completion of the construction was initially scheduled on or before July 16, 1998 but was extended to November 15, 1998 upon agreement of the parties. It appears, however, that petitioners failed to follow the specifications and plans as previously agreed upon. Respondents demanded the correction of the errors but petitioners failed to act on their complaint. Consequently, respondents rescinded the contract on October 31, 1998, after paying 74.84% of the cost of construction. Respondents then engaged the services of another contractor, RRA and Associates, to inspect the project and assess the actual accomplishment of petitioners in the construction of the building. It was found that petitioners revised and deviated from the structural plan of the building without notice to or approval by the respondents. Respondents filed a case for breach of contract against petitioners before the Regional Trial Court (RTC) of Manila. At the pre-trial conference, the parties agreed to submit the case for arbitration to the CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC). The RTC of Manila then dismissed the case and transmitted its records to the CIAC. After conducting hearings and two (2) ocular inspections of the construction site, the arbitrator rendered judgment against petitioners CGI, thus: Petitioners allege that THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH CO-PETITIONER COORDINATED (GROUP, INC.), IN CLEAR VIOLATION OF THE DOCTRINE OF SEPARATE JURIDICAL PERSONALITY. ISSUE: WON Petitioners are liable jointly and severally with CGI? HELD: JOINTLY LIABLE Petitioners deviated from the contract. (A)s the Building was taking shape, they (Quiambaos) noticed deviations from the approved plans and specifications for the Building. Most noticeable were two (2) concrete columns in the middle of the basement which effectively and permanently obstructed the basement for the parking of vehicles. In addition, three (3) additional concrete columns were constructed from the ground floor to the roof deck x x x which affected the overall dimension of the building such as altering the specified beam depths, passageways and windows. In addition, Mrs. Quiambao provided a virtual litany of alleged defects. While Mrs. Quiambao appeared not to have given her conformity, this document (a checklist of constructions to be corrected) from CGI is an admission by CGI of the deficiencies in the construction of the Building which needed to be corrected. Deformed reinforcing steel bar specimens from the building were subjected to physical tests. These tests were conducted at the Materials Testing Laboratory of the Department of Civil Engineering, College of Engineering, University of the Philippines. x x x There were 18 samples and x x x 8 failed the test although all of them passed the cold bend test. x x x CGI submitted Quality Test Certificates issued by Steel Asia certifying to the mechanical test results and chemical composition of the steel materials tested x x x. Regarding the additional columns at the basement and at the first floor to the roof deck of the Building, which effectively restricted the use of the basement as a parking area, and likewise reduced the area which could be used by the Quiambaos in the different floors of the Building, Engr. Roberto J. David admitted that these represented a design change which was made and implemented by CGI

without the conformnity of the Claimants. The Contract specifically provided in Article II that "the CONTRACTOR shall submit to the OWNER all designs for the OWNERS approval." This implies necessarily that all changes in the approved design shall likewise be submitted to the OWNER for approval. This change, in the view of the arbitrator, is the single most serious breach of the Contract committed by CGI which justified the decision of the Claimants to terminate the Contract. x x x (T)here is no evidence to show that the Quiambaos approved the revision of the structural plans to provide for the construction of the additional columns. x x x x x x Engr. Villasenor defended his structural design as adequate. He admitted that the revision of the plans which resulted in the construction of additional columns was in pursuance of the request of Engr. David to revise the structural plans to provide for a significant reduction of the cost of construction. When Engr. David was asked for the justification for the revision for the plans, he confirmed that he wanted to reduce the cost of construction. In any case, whether the cause of revision of the plans was the underdesign of the foundation or for reasons of economy, it is CGI which is at fault. CGI prepared the structural plans and quoted the price for constructing the Building. The Quiambaos accepted both the plans and the price. If CGI made a mistake in designing the foundation or in estimating the cost of construction, it was at fault. It cannot correct that mistake by revising the plans and implementing the revisions without informing the Quiambaos and obtaining their unequivocal approval of such changes. In addition, CGI admitted that no relocation survey was made by it prior to the construction of the Building. Consequently, a one-meter portion of the Building was constructed beyond the property line. In justification, Engr. Barba V. Santos declared that CGI made the layout of the proposed structure based on the existing fence. x x x (I)t is understood that a contractor, in constructing a building, must first conduct a relocation survey before construction precisely to avoid the situation which developed here, that the Building was not properly constructed within the owners property line. x x x This resulted in the under-utilization of the property, small as it is, and the exposure of the Quiambaos to substantial damages to the owner of the adjoining property encroached upon. A third major contested issue concerned the construction of the cistern. x x x A cistern is an underground tank used to collect water for drinking purposes. The contentious points regarding the construction of the cistern are: first, that the cistern was designed to accumulate up to 10,000 gallons of water; as constructed, its capacity was less than the design capacity. Second, there is no internal partition separating the cistern from the sump pit. JOINT LIABILITY. The second assigned error likewise involves a question of fact. It is contended that petitioner-spouses David cannot be held jointly and severally liable with petitioner CGI in the payment of the arbitral award as they are merely its corporate officers. At first glance, the issue may appear to be a question of law as it would call for application of the law on the separate liability of a corporation. However, the law can be applied only after establishing a factual basis, i.e., whether petitioner-spouses as corporate officers were grossly negligent in ordering the revisions on the construction plan without the knowledge and consent of the respondentspouses. On this issue, the Court of Appeals again affirmed the factual findings of the arbitrator, thus: As a general rule, the officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. However, the personal liability of a corporate director, trustee or officer, along with corporation, may so validly attach when he assents to a patently unlawful act of the corporation or for bad faith or gross negligence in directing its affairs. The following findings of public respondent (CIAC) would support its ruling in holding petitioners severally and jointly liable with the Corporation: " x x x When asked whether the Building was underdesigned considering the poor quality of the soil, Engr. Villasenor defended his structural design as adequate. He admitted that the revision of the plans which resulted in the construction of additional columns was in pursuance of the request of Engr. David to revise the structural plans to provide for a significant reduction of the cost of construction. When Engr. David was asked for the justification for the revision of the plans, he confirmed that he wanted to reduce the cost of construction. x x x" _____________________ MALAYANG SAMAHAN NG MGA MANGGAGAWA vs. HON. CRESENCIO J. RAMOS, NATIONAL LABOR RELATIONS COMMISSION, M. GREENFIELD (B), INC., SAUL TAWIL, CARLOS T. JAVELOSA, RENATO C. PUANGCO, WINCEL LIGOT, MARCIANO HALOG, GODOFREDO PACENO, SR., GERVACIO CASILLANO, LORENZO ITAOC, ATTY. GODOFREDO PACENO, JR., MARGARITO CABRERA, GAUDENCIO RACHO, SANTIAGO IBANEZ, AND RODRIGO AGUILING FACTS: Petitioners workers allege that this Court committed patent and palpable error in holding that the respondent company officials cannot be held personally liable for damages on account of employees dismissal because the employer corporation has a personality separate and distinct from its officers who merely acted as its agents whereas the records clearly established that respondent company officers Saul Tawil, Carlos T. Javelosa and Renato C. Puangco have caused the hasty, arbitrary and unlawful dismissal of petitioners from work; that as top officials of the respondent company who handed down the decision dismissing the petitioners, they are responsible for acts of unfair labor practice; that these respondent corporate officers should not be considered as mere agents of the company but the wrongdoers. Petitioners further contend that while the case was pending before the public respondents, the respondent company, in the early part of February 1990, began removing its machineries and equipment from its plant located at Merville Park, Paranaque and began diverting jobs intended for the regular employees to its sub-contractor/satellite branches; that the respondent company officials are also the officers and incorporators of these satellite companies as shown in their articles of incorporation and the general information sheet. They added that during their ocular inspection of the plant site of the respondent company, they found that the same is being used by other unnamed business entities also engaged in the manufacture of garments. Petitioners further claim that the respondent company no longer operates its plant site as M. Greenfield thus it will be very difficult for them to fully enforce and implement the courts decision ISSUE: WON Company officials are personally liable for damages in the petitioners dismissal. HELD: NO. Petitioners contention that respondent company officials should be made personally liable for damages on account of petitioners dismissal is not impressed with merit. A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general from the people comprising it. True, solidary 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;

are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons (2) When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto. (3) When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the Corporation. (4) When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. In labor cases, particularly, the Court has held corporate directors and officers solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith. Bad faith or negligence is a question of fact and is evidentiary.It has been held that bad faith does not connote bad judgement or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it partakes of the nature of fraud In the instant case, there is nothing substantial on record to show that respondent officers acted in patent bad faith or were guilty of gross negligence in terminating the services of petitioners so as to warrant personal liability. Petitioners claim that the jobs intended for the respondent companys regular employees were diverted to its satellite companies where the respondent company officers are holding key positions is not substantiated and was raised for the first time in this motion for reconsideration. Even assuming that the respondent company officials are also officers and incorporators of the satellite companies, such circumstance does not in itself amount to fraud. Substantial identity of incorporators between respondent company and these satellite companies does not necessarily imply fraud. In such a case, respondent companys corporate personality remains inviolable ------------------------GR 125778, 10 JUNE 2003 INTER-ASIA INVESTMENTS INDUSTRIES VS. COURT OF APPEALS FACTS: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock Purchase Agreement (the Agreement), sold to Asia Industries, Inc. (Asia Industries) for and in consideration of the sum of P19,500,000.00 all its right, title and interest in and to all the outstanding shares of stock of FARMACOR, INC. (FARMACOR). The Agreement was signed by Leonides P. Gonzales and Jesus J. Vergara, presidents of Inter-Asia and Asia Industries, respectively. Under paragraph 7 of the Agreement, Inter-Asia as seller made warranties and representations. The Agreement was later amended with respect to the "Closing Date," originally set up at 10:00 a.m. of 30 September 1978, which was moved to 31 October 1978, and to the mode of payment of the purchase price. The Agreement, as amended, provided that pending submission by SGV of FARMACOR's audited financial statements as of 31 October 1978, Asia Industries may retain the sum of P7,500,000.00 out of the stipulated purchase price of P19,500,000.00; that from this retained amount of P7,500,000.00, Asia Industries may deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; and that if the amount retained is not sufficient to make up for the deficiency in the Minimum Guaranteed Net Worth, Inter-Asia shall pay the difference within 5 days from date of receipt of the audited financial statements. Asia Industries paid Inter-Asia a total amount of P12,000,000.00: P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on 2 November 1978. From the STATEMENT OF INCOME AND DEFICIT attached to the financial report dated 28 November 1978 submitted by SGV, it appears that FARMACOR had, for the 10 months ended 31 October 1978, a deficit of P11,244,225.00. Since the stockholder's equity amounted to P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed net worth shortfall thus amounted to P13,244,225.00 after adding the net worth deficiency of P1,244,225.00 to the Minimum Guaranteed Net Worth of P12,000,000.00. The adjusted contract price, therefore, amounted to P6,225,775.00 which is the difference between the contract price of P19,500,000.00 and the shortfall in the guaranteed net worth of P13,224,225.00. Asia Industries having already paid Inter-Asia P12,000,000.00, it was entitled to a refund of P5,744,225.00. Inter-Asia thereafter proposed, by letter of 24 January 1980, signed by its president, that Asia Industries's claim for refund be reduced to P4,093,993.00, it promising to pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the proposal respondent agreed. Inter-Asia, however, welched on its promise. Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00 plus P759,570.00) exclusive of interest. On 5 April 1983, Asia Industries filed a complaint against Inter-Asia with the Regional Trial Court of Makati, one of two causes of action of which was for the recovery of above-said amount of P4,853,503.00 17 plus interest. Denying Asia Industries's claim, Inter-Asia countered that Asia Industries failed to pay the balance of the purchase price and accordingly set up a counterclaim. Finding for Asia Industries, the trial court rendered on 27 November 1991 a Decision, ordering Inter-Asia to pay Asia Industries the sum of P4,853,503.00 plus interest thereon at the legal rate from the filing of the complaint until fully paid, the sum of P30,000.00 as attorney's fees and the costs of suit; and (b) dismissing the counterclaim. On appeal to the Court of Appeals, and by Decision of 25 January 1996, the Court of Appeals affirmed the trial court's decision. Inter-Asia's motion for reconsideration of the decision having been denied by the Court of Appeals by Resolution of 11 July 1996, Inter-Asia filed the petition for review on certiorari. ISSUE: Whether the 24 January 1980 letter signed by Inter-Asias president is valid and binding. HELD: The 24 January 1980 letter signed by Inter-Asia's president is valid and binding. As held in the case of People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, the general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct from its stockholders and members, "having . . . powers, attributes and properties expressly authorized by law or incident to its existence." Being a juridical entity, a corporation may act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is responsible for the efficiency of management, as provided in Section 23 of the Corporation Code of the Philippines. Under this provision, the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business, viz: "A corporate officer or agent may represent and bind the corporation in

transactions with third persons 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 pertaining 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. 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. It requires presentation of evidence of similar acts 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." Hence, an officer of a corporation who is authorized to purchase the stock of another corporation has the implied power to perform all other obligations arising therefrom, such as payment of the shares of stock. By allowing its president to sign the Agreement on its behalf, Inter-Asia clothed him with apparent capacity to perform all acts which are expressly, impliedly and inherently stated therein. -------------------LAPULAPU FOUNDATION, INC. and ELIAS Q. TAN, petitioners, vs. COURT OF APPEALS (Seventeenth Division) and ALLIED BANKING CORP., respondents FACTS: Sometime in 1977, petitioner Elias Q. Tan, then President of the co-petitioner Lapulapu Foundation, Inc., obtained four loans from the respondent Allied Banking Corporation covered by four promissory notes in the amounts of P100,000 each. As of January 23, 1979, the entire obligation amounted to P493,566.61 and despite demands made on them by the respondent Bank, the petitioners failed to pay the same. The respondent Bank was constrained to file with the Regional Trial Court of Cebu City, Branch 15, a complaint seeking payment by the petitioners, jointly and solidarily, of the sum of P493,566.61 representing their loan obligation, exclusive of interests, penalty charges, attorneys fees and costs. In its answer to the complaint, the petitioner Foundation denied incurring indebtedness from the respondent Bank alleging that the loans were obtained by petitioner Tan in his personal capacity, for his own use and benefit and on the strength of the personal information he furnished the respondent Bank. The petitioner Foundation maintained that it never authorized petitioner Tan to co-sign in his capacity as its President any promissory note and that the respondent Bank fully knew that the loans contracted were made in petitioner Tans personal capacity and for his own use and that the petitioner Foundation never benefited, directly or indirectly, therefrom. The petitioner Foundation then interposed a cross-claim against petitioner Tan alleging that he, having exceeded his authority, should be solely liable for said loans, and a counterclaim against the respondent Bank for damages and attorneys fees. For his part, petitioner Tan admitted that he contracted the loans from the respondent Bank in his personal capacity. The parties, however, agreed that the loans were to be paid from the proceeds of petitioner Tans shares of common stocks in the Lapulapu Industries Corporation, a real estate firm. The loans were covered by promissory notes which were automatically renewable (rolledover) every year at an amount including unpaid interests, until such time as petitioner Tan was able to pay the same from the proceeds of his aforesaid shares. According to petitioner Tan, the respondent Banks employee required him to affix two signatures on every promissory note, assuring him that the loan documents would be filled out in accordance with their agreement. However, after he signed and delivered the loan documents to the respondent Bank, these were filled out in a manner not in accord with their agreement, such that the petitioner Foundation was included as party thereto. Further, prior to its filing of the complaint, the respondent Bank made no demand on him. After due trial, the court a quo rendered judgment the dispositive portion of which reads: WHEREFORE, in view of the foregoing evidences [sic], arguments and considerations, this court hereby finds the preponderance of evidence in favor of the plaintiff and hereby renders judgment as follows: Requiring the defendants Elias Q. Tan and Lapulapu Foundation, Inc. [the petitioners herein] to pay jointly and solidarily to the plaintiff Allied Banking Corporation [the respondent herein] the amount of P493,566.61 as principal obligation for the four promissory notes. On appeal, the CA affirmed with modification the judgment of the court a quo by deleting the award of attorneys fees in favor of the respondent Bank for being without basis. Aggrieved, the petitioners now come to the Court alleging that THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THE PAROL EVIDENCE RULE AND THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY AS BASIS FOR ADJUDGING JOINT AND SOLIDARY LIABILITY ON THE PART OF PETITIONERS ELIAS Q. TAN AND LAPULAPU FOUNDATION, INC. ISSUE: WON Petitioners should be held jointly and solidarily liable with corporation? HELD: YES. The Court particularly finds as incredulous petitioner Tans allegation that he was made to sign blank loan documents and that the phrase IN MY OFFICIAL/PERSONAL CAPACITY was superimposed by the respondent Banks employee despite petitioner Tans protestation. The Court is hard pressed to believe that a businessman of petitioner Tans stature could have been so careless as to sign blank loan documents. In contrast, as found by the CA, the promissory notes clearly showed upon their faces that they are the obligation of the petitioner Foundation, as contracted by petitioner Tan in his official and personal capacity.Moreover, the application for credit accommodation, the signature cards of the two accounts in the name of petitioner Foundation, as well as New Current Account Record,all accompanying

the promissory notes, were signed by petitioner Tan for and in the name of the petitioner Foundation. These documentary evidence unequivocally and categorically establish that the loans were solidarily contracted by the petitioner Foundation and petitioner Tan. Finally, the appellate court did not err in holding the petitioners jointly and solidarily liable as it applied the doctrine of piercing the veil of corporate entity. The petitioner Foundation asserts that it has a personality separate and distinct from that of its President, petitioner Tan, and that it cannot be held solidarily liable for the loans of the latter. The Court agrees with the CA that the petitioners cannot hide behind the corporate veil under the following circumstances: The evidence shows that Tan has been representing himself as the President of Lapulapu Foundation, Inc. He opened a savings account and a current account in the names of the corporation, and signed the application form as well as the necessary specimen signature cards twice, for himself and for the foundation. He submitted a notarized Secretarys Certificate from the corporation, attesting that he has been authorized, inter alia, to sign for and in behalf of the Lapulapu Foundation any and all checks, drafts or other orders with respect to the bank; to transact business with the Bank, negotiate loans, agreements, obligations, promissory notes and other commercial documents; and to initially obtain a loan for P100,000.00 from any bank . Under these circumstances, the defendant corporation is liable for the transactions entered into by Tan on its behalf Per its Secretarys Certificate, the petitioner Foundation had given its President, petitioner Tan, ostensible and apparent authority to inter alia deal with the respondent Bank. Accordingly, the petitioner Foundation is estopped from questioning petitioner Tans authority to obtain the subject loans from the respondent Bank. It is a familiar doctrine that if a corporation knowingly permits 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; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents authority ----------------------------G.R. NO. 160215. NOVEMBER 10, 2004] HYDRO RESOURCES CONTRACTORS CORPORATION V.. NATIONAL IRRIGATION ADMINISTRATION, RESPONDENT. FACTS: In a competitive bidding conducted by the National Irrigation Administration (NIA) sometime in August 1978, Hydro Resources Contractors Corporation (Hydro) was awarded Contract MPI-C-2[5] involving the main civil work of the Magat River Multi-Purpose Project. On November 6, 1978, the parties signed Amendment No. 1[6] of the contract whereby NIA agreed to increase the foreign currency allocation for equipment financing from US$28,000,000.00 for the first and second years of the contract to US$38,000,000.00, to be made available in full during the first year of the contract to enable the contractor to purchase the needed equipment and spare parts, as approved by NIA, for the construction of the project. On April 9, 1980, the parties entered into a Memorandum of Agreement[7] (MOA) whereby they agreed that Hydro may directly avail of the foreign currency component of the contract for the sole purpose of purchasing necessary spare parts and equipment for the project. This was made in order for the contractor to avoid further delays in the procurement of the said spare parts and equipment. A few months after the MOA was signed, NIA and Hydro entered into a Supplemental Memorandum of Agreement (Supplemental MOA) to include among the items to be financed out of the foreign currency portion of the Contract construction materials, supplies and services as well as equipment and materials for incorporation in the permanent works of the Project. [8] Work on the project progressed steadily until Hydro substantially completed the project in 1982 and the final acceptance was made by NIA on February 14, 1984.[9] During the period of the execution of the contract, the foreign exchange value of the peso against the US dollar declined and steadily deteriorated. Whenever Hydros availment of the foreign currency component exceeded the amount of the foreign currency payable to Hydro for a particular period, NIA charged interest in dollars based on the prevailing exchange rate instead of the fixed exchange rate of P7.3735 to the dollar. Yet when Hydro received payments from NIA in Philippine Pesos, NIA made deductions from Hydros foreign currency component at the fixed exchange rate of P7.3735 to US$1.00 instead of the prevailing exchange rate. Upon completion of the project, a final reconciliation of the total entitlement of Hydro to the foreign currency component of the contract was made. The result of this final reconciliation showed that the total entitlement of Hydro to the foreign currency component of the contract exceeded the amount of US dollars required by Hydro to repay the advances made by NIA for its account in the importation of new equipment, spare parts and tools. Hydro then presented its claim for said foreign exchange differential to NIA on August 12, 1983 [11] but the latter refused to honor the same. Hydro made several [12] demands to recover its claim until the same was turned down with finality by then NIA Administrator Federico N. Alday, Jr. on January 6, 1987.[13] Hydro filed a request for arbitration with the Construction Industry Arbitration Commission (CIAC). NIA filed its Answer with Compulsory Counterclaim [15] raising laches, estoppel and lack of jurisdiction by CIAC as its special defenses. with the Court of Appeals where the same was docketed as CA-G.R. SP No. 37180,[21] which dismissed the petition in a Resolution dated June 28, 1996.[22] NIA challenged the resolution of the Court of Appeals before this Court in a special civil action for certiorari, docketed as G.R. No. 129169.[23] Meanwhile, on June 10, 1997, the CIAC promulgated a decision in favor of Hydro. [24] NIA filed a Petition for Review on Appeal before the Court of Appeals, which was docketed as CA-G.R. SP No. 44527.[25] During the pendency of CA-G.R. SP No. 44527 before the Court of Appeals, this Court dismissed special civil action for certiorari docketed as G.R. No. 129169 on the ground that CIAC had jurisdiction over the dispute and directed the Court of Appeals to proceed with reasonable dispatch in the disposition of CA-G.R. SP No. 44527. NIA did not move for reconsideration of the said decision, hence, the same became final and executory on December 15, 1999. [ ISSUES: WON Hydros claim has prescribed HELD: 1. Prescription. Any controversy or dispute arising out of or relating to this Contract which cannot be resolved by mutual agreement shall be decided by the Administrator within thirty (30) calendar days from receipt of a written notice from Contractor and who shall furnish Contractor a written copy of this decision. Such decision shall be final and conclusive unless within thirty (30) calendar days from the

date of receipt thereof, Contractor shall deliver to NIA a written notice addressed to the Administrator that he desires that the dispute be submitted to arbitration. Pending decision from arbitration, Contractor shall proceed diligently with the performance of the Contract On February 18, 1987, Hydro sent a letter[31] to NIA, addressed to then NIA Administrator Federico N. Alday, Jr., manifesting its desire to submit the dispute to arbitration. The letter was received by NIA on February 19, 1987, which was within the thirty-day prescriptive period. Second, as early as April 1983, Hydro and NIA, through its Administrator Cesar L. Tech, prepared the Joint Computation which shows that Hydro is entitled to the foreign currency differential. Instead of upholding the CIACs findings on this point, the Court of Appeals ruled that Cesar L. Techs act of signing the Joint Computation was an ultra vires act. This again is patent error. It must be noted that the Administrator is the highest officer of the NIA. Furthermore, Hydro has been dealing with NIA through its Administrator in all of its transactions with respect to the contract and subsequently the foreign currency differential claim. The NIA Administrator is empowered by the Contract to grant or deny foreign currency differential claims. It would be preposterous for the NIA Administrator to have the power of granting claims without the authority to verify the computation of such claims. Finally, the records of the case will show that NIA itself never disputed its Administrators capacity to sign the Joint Computation because it knew that the Administrator, in fact, had such capacity. Even assuming for the sake of argument that the Administrator had no authority to bind NIA, the latter is already estopped after repeatedly representing to Hydro that the Administrator had such authority. A corporation may be held in estoppel from denying as against third persons the authority of its officers or agents who have been clothed by it with ostensible or apparent authority. [34] Indeed . . . 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 person 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 business, or a particular branch of it, continuously and publicly, for a considerable time.. . .[35] Third, NIA has clearly waived the prescriptive period when it continued to entertain Hydros claim regarding new matters raised by the latter in its letters to NIA and then issuing rulings thereon. -----------------EXPERTRAVEL & TOURS, INC., petitioner, vs. COURT OF APPEALS and KOREAN AIRLINES, respondents.

25, 1999 at which a quorum was present, the said Board unanimously passed, voted upon and approved the following resolution which is now in full force and effect, to wit: RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo & Associates or any of its lawyers are hereby appointed and authorized to take with whatever legal action necessary to effect the collection of the unpaid account of Expert Travel & Tours. They are hereby specifically authorized to prosecute, litigate, defend, sign and execute any document or paper necessary to the filing and prosecution of said claim in Court, attend the Pre-Trial Proceedings and enter into a compromise agreement relative to the abovementioned claim. IN WITNESS WHEREOF, I have hereunto affixed my signature this 10th day of January, 1999, in the City of Manila, Philippines. (Sgd.) MARIO A. AGUINALDO Resident Agent SUBSCRIBED AND SWORN to before me this 10th day of January, 1999, Atty. Mario A. Aguinaldo exhibiting to me his Community Tax Certificate No. 14914545, issued on January 7, 2000 at Manila, Philippines. (Sgd.) Doc. No. 119; Page No. 25; Book No. XXIV Series of 2000. ATTY. HENRY D. ADASA Notary Public Until December 31, 2000 PTR #889583/MLA 1/3/2000[6]

FACTS: Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty. Mario Aguinaldo and his law firm. KAL, through Atty. Aguinaldo, filed a Complaint against ETI with the Regional Trial Court (RTC) of Manila, for the collection of the principal amount of P260,150.00, plus attorneys fees and exemplary damages. The verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint. ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to execute the verification and certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. KAL opposed the motion, contending that Atty. Aguinaldo was its resident agent and was registered as such with the Securities and Exchange Commission (SEC) as required by the Corporation Code of the Philippines. It was further alleged that Atty. Aguinaldo was also the corporate secretary of KAL. Appended to the said opposition was the identification card of Atty. Aguinaldo, showing that he was the lawyer of KAL. During the hearing, Atty. Aguinaldo claimed that he had been authorized to file the complaint through a resolution of the KAL Board of Directors approved during a special meeting held on June 25, 1999. Upon his motion, KAL was given a period of 10 days within which to submit a copy of the said resolution. The trial court granted the motion. Atty. Aguinaldo subsequently filed other similar motions, which the trial court granted. Finally, KAL submitted on March 6, 2000 an Affidavit of even date, executed by its general manager Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference on June 25, 1999, which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo Kim also alleged, however, that the corporation had no written copy of the aforesaid resolution. On April 12, 2000, the trial court issued an Order denying the motion to dismiss, giving credence to the claims of Atty. Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors indeed conducted a teleconference on June 25, 1999, during which it approved a resolution as quoted in the submitted affidavit. ETI filed a motion for the reconsideration of the Order, contending that it was inappropriate for the court to take judicial notice of the said teleconference without any prior hearing. The trial court denied the motion in its Order dated August 8, 2000. ETI then filed a petition for certiorari and mandamus, assailing the orders of the RTC. certificate signed by Atty. Aguinaldo dated January 10, 2000. SECRETARYS/RESIDENT AGENTS CERTIFICATE KNOW ALL MEN BY THESE PRESENTS: I, Mario A. Aguinaldo, of legal age, Filipino, and duly elected and appointed Corporate Secretary and Resident Agent of KOREAN AIRLINES, a foreign corporation duly organized and existing under and by virtue of the laws of the Republic of Korea and also duly registered and authorized to do business in the Philippines, with office address at Ground Floor, LPL Plaza Building, 124 Alfaro St., Salcedo Village, Makati City, HEREBY CERTIFY that during a special meeting of the Board of Directors of the Corporation held on June In its comment on the petition, KAL appended a

CA rendered judgment dismissing the petition, ruling that the verification and certificate of non-forum shopping executed by Atty. Aguinaldo was sufficient compliance with the Rules of Court. According to the appellate court, Atty. Aguinaldo had been duly authorized by the board resolution approved on June 25, 1999, and was the resident agent of KAL. As such, the RTC could not be faulted for taking judicial notice of the said teleconference of the KAL Board of Directors. In its reply, the petitioner pointed out that there are no rulings on the matter of teleconferencing as a means of conducting meetings of board of directors for purposes of passing a resolution; until and after teleconferencing is recognized as a legitimate means of gathering a quorum of board of directors, such cannot be taken judicial notice of by the court. The petitioner further avers that the supposed holding of a special meeting on June 25, 1999 through teleconferencing where Atty. Aguinaldo was supposedly given such an authority is a farce, considering that there was no mention of where it was held, whether in this country or elsewhere. It insists that the Corporation Code requires board resolutions of corporations to be submitted to the SEC. Even assuming that there was such a teleconference, it would be against the provisions of the Corporation Code not to have any record thereof. The petitioner insists that the teleconference and resolution adverted to by the respondent in its pleadings were mere fabrications foisted by the respondent and its counsel on the RTC, the CA and this Court. ISSUE: WON the appointed counsel of KAL is the right person to file a certi of non-forum shopping of a private corpo? HELD: NO. appointed counsel will only be proper if AUTHORIZED by the Board of Directors. It is settled under Sec.5 Rule 7,Rules of Court, that the requirement to file a certificate of non-forum shopping is mandatory and that the failure to comply with this requirement cannot be excused. The certification is a peculiar and personal responsibility of the party, an assurance given to the court or other tribunal that there are no other pending cases involving basically the same parties, issues and causes of action. Hence, the certification must be accomplished by the party himself because he has actual knowledge of whether or not he has initiated similar actions or proceedings in different courts or tribunals. Even his counsel may be unaware of such facts. Hence, the requisite certification executed by the plaintiffs counsel will not suffice. In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf of the said corporation, by a specifically authorized person, including its retained counsel, who has personal knowledge of the facts required to be established by the documents For who else knows of the circumstances required in the Certificate but its own retained counsel. Its regular officers, like its board chairman and president, may not even know the details required therein. In this case, the petitioner, as the defendant in the RTC, assailed the authority of Atty. Aguinaldo to execute the requisite verification and certificate of non-forum shopping as the resident agent and counsel of the respondent. It was, thus, incumbent upon the respondent, as the plaintiff, to allege and establish that Atty. Aguinaldo had such authority to execute the requisite verification and certification for and in its behalf. The respondent, however, failed to do so. The verification and certificate of non-forum shopping which was incorporated in the complaint and signed by Atty. Aguinaldo reads: I, Mario A. Aguinaldo of legal age, Filipino, with office address at Suite 210 Gedisco Centre, 1564 A. Mabini cor. P. Gil Sts., Ermita, Manila, after having sworn to in accordance with law hereby deposes and say: THAT -

1. I am the Resident Agent and Legal Counsel of the plaintiff in the above entitled case and have caused the preparation of the above complaint; 2. I have read the complaint and that all the allegations contained therein are true and correct based on the records on files; 3. I hereby further certify that I have not commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency. If I subsequently learned that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or any tribunal or agency, I will notify the court, tribunal or agency within five (5) days from such notice/knowledge. (Sgd.)

on behalf of the Corporation was denied. In G.R. No. 152542: Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint for forcible entry, preliminary mandatory injunction with temporary restraining order and damages against the group of Antonio Monfort III. The group of Antonio Monfort III alleged that they are possessing and controlling the Haciendas and harvesting the produce therein on behalf of the corporation and not for themselves. They likewise raised the affirmative defense of lack of legal capacity of Ma. Antonia M. Salvatierra to sue on behalf of the Corporation. Complaint was eventually dismissed. Basis of claim of Salvatierra lack of capacity to sue: The group of Antonio Monfort III claims that the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation is void because the purported Members of the Board who passed the same were not validly elected officers of the Corporation. ISSUE: WON Ma. Antonia M. Salvatierra has the legal capacity to sue on behalf of the Corporation.

MARIO A. AGUINALDO Affiant CITY OF MANILA SUBSCRIBED AND SWORN TO before me this 30th day of August, 1999, affiant exhibiting to me his Community Tax Certificate No. 00671047 issued on January 7, 1999 at Manila, Philippines. (Sgd.) Doc. No. 1005; Page No. 198; Book No. XXI Series of 1999. ATTY. HENRY D. ADASA Notary Public Until December 31, 2000 PTR No. 320501 Mla. 1/4/99[13] Corporation failed to comply with Section 26 of the Corporation Code, requiring submission to the SEC within thirty (30) days after the election the names, nationalities and residences of the elected directors, trustees and officers of the Corporation. 1. In the case at bar, the fact that four of the six Members of the Board listed in the 1996 General Information Sheet are already dead at the time the March 31, 1997 Board Resolution was issued, does not automatically make the four signatories (i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board Resolution (whose name do not appear in the 1996 General Information Sheet) as among the incumbent Members of the Board. This is because it was not established that they were duly elected to replace the said deceased Board Members. To correct the alleged error in the General Information Sheet, the retained accountant of the Corporation informed the SEC in its November 11, 1998 letter that the non-inclusion of the lawfully elected directors in the 1996 General Information Sheet was attributable to its oversight and not the fault of the Corporation. This belated attempt, however, did not erase the doubt as to whether an election was indeed held. 2. What further militates against the purported election of those who signed the March 31, 1997 Board Resolution was the belated submission of the alleged Minutes of the October 16, 1996 meeting where the questioned officers were elected. The issue of legal capacity of Ma. Antonia M. Salvatierra was raised before the lower court by the group of Antonio Monfort III as early as 1997, but the Minutes of said October 16, 1996 meeting was presented by the Corporation only in its September 29, 1999 Comment before the Court of Appeals. Moreover, the Corporation failed to prove that the same October 16, 1996 Minutes was submitted to the SEC. -----------------G.R NO. 194795, 13 JUNE 2012 EVER ELEC MANUFACTURING V. SAMAHANG MANGGAGAWA NG EVER FACTS: Petitioner Ever Electrical Manufacturing, Inc. (EEMI) is a corporation engaged in the business of manufacturing electrical parts and supplies. On the other hand, the respondents are members of Samahang Manggagawa ng Ever Electrical/NAMAWU Local 224 (respondents) headed by Felimon Panganiban. The controversy started when EEMI closed its business operations on October 11, 2006 resulting in the termination of the services of its employees. Aggrieved, respondents filed a complaint for illegal dismissal with prayer for payment of 13 th month pay, separation pay, damages, and attorneys fees. Respondents alleged that the closure was made without any warning, notice or memorandum and in full disregard of the requirements of the Labor Code. In its defense, EEMI explained that it had closed the business due to various factor such as suffering huge losses. In November 1996, it obtained a loan in the amount ofP121,400,000.00 from United Coconut Planters Bank (UCPB). As security for the loan, EEMIs land and its improvements, including the factory, were mortgaged to UCPB. EEMIs business suffered further losses due to the continued entry of cheaper goods from China and other Asian countries. Adding to EEMIs financial woes was the closure of Orient Bank where most of its resources were invested. As a result, EEMI was not able to meet its loan obligations with UCPB. On April 25, 2007, the Labor Arbiter (LA) ruled that respondents were not illegally dismissed. It, however, ordered EEMI and its President, Vicente Go (Go), to pay their employees separation pay and 13th month pay respectively. the NLRC reversed and set aside the decision of the LA. The NLRC dismissed the complaint for lack of merit and ruled that since EEMIs cessation of business operation was due to serious business losses, the employees were not entitled to separation pay. Respondents moved for reconsideration of the NLRC decision, but the NLRC denied the motion in its March 23, 2009 Resolution.[9] On August 31, 2010, the CA granted the petition and the NLRC decision is NULLIFIED and the Decision dated April 25, 2007 of Labor Arbiter Melquiades Sol Del Rosario, REINSTATED. The CA held that respondents were entitled to separation pay and 13 th month pay because the closure of EEMIs business operation was effected by the enforcement of a writ of execution and not by reason of business losses. Hence this petition. ISSUES: 1. Whether the CA erred in finding that the closure of EEMIs operation was not due to business losses; and 2. Whether the CA erred in finding Vicente Go solidarily liable with EEMI. HELD: NO. Ma. Antonia M. Salvatierra failed to prove that four of those who authorized her to represent the Corporation were the lawfully elected Members of the Board of the Corporation. As such, they cannot confer valid authority for her to sue on behal f of the corporation. Ratio: A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors.

As gleaned from the aforequoted certification, there was no allegation that Atty. Aguinaldo had been authorized to execute the certificate of non-forum shopping by the respondents Board of Directors; moreover, no such board resolution was appended thereto or incorporated therein. While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this does not mean that he is authorized to execute the requisite certification against forum shopping. Under Section 127, in relation to Section 128 of the Corporation Code, the authority of the resident agent of a foreign corporation with license to do business in the Philippines is to receive, for and in behalf of the foreign corporation, services and other legal processes in all actions and other legal proceedings against such corporation. Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent may be aware of actions filed against his principal (a foreign corporation doing business in the Philippines), such resident may not be aware of actions initiated by its principal, whether in the Philippines against a domestic corporation or private individual, or in the country where such corporation was organized and registered, against a Philippine registered corporation or a Filipino citizen. The respondent knew that its counsel, Atty. Aguinaldo, as its resident agent, was not specifically authorized to execute the said certification. It attempted to show its compliance with the rule subsequent to the filing of its complaint by submitting, on March 6, 2000, a resolution purporting to have been approved by its Board of Directors during a teleconference held on June 25, 1999, allegedly with Atty. Aguinaldo and Suk Kyoo Kim in attendance. However, such attempt of the respondent casts veritable doubt not only on its claim that such a teleconference was held, but also on the approval by the Board of Directors of the resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping. The respondents allegation that its board of directors conducted a teleconference on June 25, 1999 and approved the said resolution (with Atty. Aguinaldo in attendance) is incredible, given the additional fact that no such allegation was made in the complaint. If the resolution had indeed been approved on June 25, 1999, long before the complaint was filed, the respondent should have incorporated it in its complaint, or at least appended a copy thereof. . The respondent failed to do so. Worse still, it appears that as early as January 10, 1999, Atty. Aguinaldo had signed a Secretarys/Resident Agents Certificate alleging that the board of directors held a teleconference on June 25, 1999. No such certificate was appended to the complaint, which was filed on September 6, 1999. The Court is, thus, more inclined to believe that the alleged teleconference on June 25, 1999 never took place, and that the resolution allegedly approved by the respondents Board of Directors during the said teleconference was a mere concoction purposefully foisted on the RTC, the CA and this Court, to avert the dismissal of its complaint against the petitioner. --------------------------------G.R. No. 155472 : July 8, 2004 MONFORT HERMANOS AGRI DEVT vs. MONFORT et al. FACTS: Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the registered owner of a farm, fishpond and sugar cane plantation known as Haciendas San Antonio II, Marapara, Pinanoag and Tinampa-an, all situated in Cadiz City. It also owns one unit of motor vehicle and two units of tractors. The same allowed Ramon H. Monfort, its Executive Vice President, to breed and maintain fighting cocks in his personal capacity at Hacienda San Antonio. In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took possession of the 4 Haciendas, the produce thereon and the motor vehicle and tractors, as well as the fighting cocks of Ramon H. Monfort. In G.R. No. 155472: The Corporation, represented by its President, Ma. Antonia M. Salvatierra, and Ramon H. Monfort, in his personal capacity, filed against the group of Antonio Monfort III, a complaint for delivery of motor vehicle, tractors and 378 fighting cocks, with prayer for injunction and damages. Motion to dismiss on the ground of Ma. Antonia M. Salvatierra's lack of capacity to sue

HELD: 1. Although business reverses or losses are recognized by law as an authorized cause, it is still essential that the alleged losses in the business operations be proven convincingly; otherwise, this ground for termination of employment would be susceptible to abuse by conniving employers, who might be merely feigning business losses or reverses in their business ventures in order to ease out employees. In this case, EEMI failed to establish that the main reason for its closure was business reverses. As aptly observed by the CA, the cessation of EEMIs business was not directly brought about by serious business losses or financial reverses, but by reason of the enforcement of a judgment against it. Thus, EEMI should be required to pay separation pay to its affected employees. 2. As to whether or not Go should be held solidarily liable with EEMI, the Court agrees with the petitioner. As a general rule, corporate officers should not be held solidarily liable with the corporation for separation pay for it is settled that a corporation is invested by law with a personality separate 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. 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 corporate personality. [17] The LA was of the view that Go, as President of the corporation, actively participated in the management of EEMIs corporate obligations, and, accordingly, rendered judgment ordering EEMI and Go in solidum to pay the complainants their due. Restaurante Las Conchas case: as a rule, the officers and members of a corporation are not personally liable for acts done in the performance of their duties. In Mandaue Dinghow Dimsum House, Co., Inc., the Court declined to apply the ruling in Restaurante Las Conchas. It stressed that a corporation is invested by law with a personality separate 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. For said reason, the doctrine of piercing the veil of corporate fiction must be exercised with caution. Citing Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos,[28] the Court explained that corporate directors and officers are solidarily liable with the corporation for the termination of employees done with malice or bad faith. It stressed 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.

of Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles; that on two occasions, complainant wrote letters to Patricio Lim requesting for his retirement and other benefits; that in the last quarter of 1994 respondents offered complainant compromise settlement of only P300,000.00 which complainant rejected. COMPLAINANTS ALLEGATION: that all respondents being one and the same entities are solidarily liable for all salaries and benefits and complainant is entitled to; that all respondents have the: (1)same address at 12/F B.A. Lepanto Building, Makati City; (2)that their counsel holds office in the same address; that all respondents have the same offices and key personnel such as Patricio Lim and Eric Hu; (3)that respondents Position Paper is verified by Marialen C. Corpuz who knows all the corporate officers of all respondents; (4)that the veil of corporate fiction may be pierced if it is used as a shield to perpetuate fraud and confuse legitimate issues; that complainant never accepted the change in his position from Vice-President and Plant Manger to consultant and it is incumbent upon respondents to prove that he was only a consultant; RESPONDENTS DEFENSE: that except for Peggy Mills, the other respondents are not proper persons in interest due to the lack of employer-employee relationship between them and complainant; that undersigned counsel does not represent Peggy Mills, Inc. In a separate Position Paper, respondent Peggy Mills alleged that complainant was hired on February 10, 1991 as per Board Minutes (Annex "A"); that on August 19, 1987, the workers staged an illegal strike causing cessation of operations on July 21, 1992; that respondent filed a Notice of Closure with the DOLE (Annex "B"); that all employees were given separation pay except for compl ainant whose task was extended to December 31, 1992 to wind up the affairs of the company as per vouchers (Annexes "C" and "C-1"); that respondent offered complainant his retirement benefits under RA 7641 but complainant refused; that the regular salaries of complainant from closure up to December 31, 1992 have offset whatever vacation and sick leaves he accumulated; that his claim for unused plane tickets from 1989 to 1992 has no policy basis. Labor Arbiter favoured complainant. NLRC reversed. CA affirmed NLRC. Hence, this petition . ISSUE: WON all respondents being one and the same entities are solidarily liable for all salaries/benefits, if any. HELD: 1. There should be clear and convincing evidence that SRTI, FETMI, and Filsyn were being used as alter ego, adjunct or business conduit for the sole benefit of Peggy Mills, Inc. (PMI), otherwise, said corporations should be treated as distinct and separate from each other. The Court of Appeals pointed out that PMI and Filsyn have only two interlocking incorporators and directors, namely, Patricio and Carlos Palanca, Jr. Reiterating the ruling of this Court in Laguio v. NLRC, 11 the Court of Appeals held that mere substantial identity of the incorporators of two corporations does not necessarily imply fraud, nor warrant the piercing of the veil of corporate fiction. The Court also pointed out that when SRTI and PMI executed the Dation in Payment with Lease, it was clear that SRTI did not assume the liabilities PMI incurred before the execution of the contract. The Court of Appeals held that McLeod failed to substantiate his claim that all respondent corporations should be treated as one corporate entity. The Court thus upheld the NLRCs finding that no employer-employee relationship existed between McLeod and respondent corporations except PMI. The Court of Appeals ruled that Eric Hu, as an officer of PMI, should be exonerated from any liability, there being no proof of malice or bad faith on his part. The Court of Appeals, however, ruled that McLeod was entitled to recover from PMI and Patricio, the companys Chairman and President. The Court of Appeals pointed out that Patricio deliberately and maliciously evaded PMIs financial obligation to McLeod. The Court of Appeals stated that, on several occasions, despite his approval, Patricio refused and ignored to pay McLeods retirement benefits. The Court of Appeals stated that the delay lasted for one year prompting McLeod to initiate legal action. The Court of Appeals stated that although PMI offered to pay McLeod his retirement benefits, this offer for P300,000 was still below the "floor limits" provided by law. The Court of Appeals held that an employee could demand payment of retirement benefits as a matter of right. 2. The Court of Appeals held that McLeod was not entitled to payment of vacation, sick leave and holiday pay because as Vice President and Plant Manager, McLeod is a managerial employee who, under Article 82 of the Labor Code, is not entitled to these benefits. While for McLeod to be entitled to payment of service incentive leave and holidays, there must be an agreement to that effect between him and his employer. 3. McLeod could have presented evidence to support his allegation of employer-employee relationship between him and any of Filsyn, SRTI, and FETMI, but he did not. Appointment letters or employment contracts, payrolls, organization charts, SSS registration, personnel list, as well as testimony of co-employees, may serve as evidence of employee status. A corporation is an artificial being invested by law with a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be connected.36 While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime,37 or when it is made as a shield to confuse the legitimate issues, or where a corporation is the 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. 38 To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed.39 Here, we do not find any of the evils sought to be prevented by the doctrine of piercing the corporate veil. That respondent corporations have interlocking incorporators, directors, and officers is of no moment. The existence of interlocking incorporators, directors, and officers is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations. Personal liability of corporate directors, trustees or officers attaches only when

The rationale is that, since the corporation is an artificial person, it must have an officer who can be presumed to be the employer, being the person acting in the interest of the employer. The corporation, only in the technical sense, is the employer. In the instant case, what is being made liable is another corporation (PNB) which acquired the debtor corporation (PNEI). Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) 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. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. In labor cases, corporate directors and officers may be held solidarily liable with the corporation for the termination of employment only if done with malice or in bad faith. In the present case, Go may have acted in behalf of EEMI but the companys failure to operate cannot be equated to bad faith. Cessation of business operation is brought about by various causes like mismanagement, lack of demand, negligence, or lack of business foresight. Unless it can be shown that the closure was deliberate, malicious and in bad faith, the Court must apply the general rule that a corporation has, by law, a personality separate and distinct from that of its owners. As there is no evidence that Go, as EEMIs President, acted maliciously or in bad faith in handling their business affairs and in eventually implementing the closure of its business, he cannot be held jointly and solidarily liable with EEMI. -----------------G.R. NO. 146667 , JANUARY 23, 2007 MCLEOD VS. NLRC, FILSYN, FAR EASTERN TEXTILE MILLS, INC, (PEGGY MILLS, INC.), PATRICIO L. LIM, AND ERIC HU, FACTS: John F. McLeod filed a complaint for retirement benefits, vacation and sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary and 13th month pay, moral and exemplary damages, attorneys fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu. In his Position Paper, complainant alleged that he is an expert in textile manufacturing process; that as early as 1956 he was hired as the Assistant Spinning Manager of Universal Textiles, Inc. (UTEX). That he was promoted to Senior Manager and worked for UTEX till 1980 under its President, respondent Patricio Lim; that in 1978 Patricio Lim formed Peggy Mills, Inc. with respondent Filsyn having controlling interest; that complainant was absorbed by Peggy Mills as its Vice President and Plant Manager of the plant at Sta. Rosa, Laguna That in 1989 the plant union staged a strike and in 1993 was found guilty of staging an illegal strike; that from 1989 to 1992 complainant was entitled to 4 round trip business class plane tickets on a Manila-London-Manila itinerary but this benefit not its monetary equivalent was not given; In 1991 Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. as per agreement and this was renamed as Sta. Rosa Textile with Patricio Lim as Chairman and President; Complainant worked for Sta. Rosa until November 30 that from time to time the owners of Far Eastern consulted with complainant on technical aspects of reoperation of the plant as per correspondence until he reached and applied retirement age at the end of 1993, he was only given a reduced 13th month pay ofP44,183.63, leaving a balance of P15,816.87; that thereafter the owners

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(1) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in di recting its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) they consent to the issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith file with the corporate secretary their written objection; (3) they agree to hold themselves personally and solidarily liable with the corporation; or (4) they are made by specific provision of law personally answerable for their corporate action. Considering that McLeod failed to prove any of the foregoing exceptions in the present case, McLeod cannot hold Patricio solidarily liable with PMI. -----------------------G.R. NO. 147590, APRIL 2, 2007 ANTONIO C. CARAG VS. NLRC, ISABEL G. PANGANIBAN-ORTIGUERRA, AS EXECUTIVE LABOR ARBITER, NAFLU, AND MARIVELES APPAREL CORPORATION LABOR UNION, RESPONDENTS. FACTS: National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union (MACLU) (collectively, complainants), on behalf of all of MAC's rank and file employees, filed a complaint against MAC for illegal dismissal brought about by its illegal closure of business. In their complaint dated 12 August 1993, complainants alleged the following: 2. Complainant NAFLU is the sole and exclusive bargaining agent representing all rank and file employees of [MAC]. That there is an existing valid Collective Bargaining Agreement (CBA) executed by the parties and that at the time of the cause of action herein below discussed happened there was no labor dispute between the Union and Management except cases pending in courts filed by one against the other. 3. That on July 8, 1993, without notice of any kind filed in accordance with pertinent provisions of the Labor Code, [MAC], for reasons known only by herself [sic] ceased operations with the intention of completely closing its shop or factory. Such intentions [sic] was manifested in a letter, allegedly claimed by [MAC] as its notice filed only on the same day that the operations closed. 4. That at the time of closure, employees who have rendered one to two weeks work were not paid their corresponding salaries/wages, which remain unpaid until time [sic] of this writing. 5. That there are other benefits than those above-mentioned which have been unpaid by [MAC] at the time it decided to cease operations, benefits gained by the workers both by and under the CBA and by operations [sic] of law. 6. That the closure made by [MAC] in the manner and style done is perce [sic] illegal, and had caused tremendous prejudice to all of the employees, who suffered both mental and financial anguish and who in view thereof merits [sic] award of all damages (actual, exemplary and moral), [illegible] to set [an] example to firms who in the future will [illegibl e] the idea of simply prematurely closing without complying [with] the basic requirement of Notice of Closure.6 (Emphasis supplied) Upon receipt of the records of the case, Arbiter Ortiguerra summoned the parties to explore options for possible settlement. The nonappearance of respondents prompted Arbiter Ortiguerra to declare the case submitted for resolution "based on the extant pleadings." In their position paper dated 3 January 1994, complainants moved to implead Carag and David, as follows: x x x x In the present case, it is unfortunate for respondents that the records and evidence clearly demonstrate that the individual complainants are entitled to the reliefs prayed for in their complaint. However, any favorable judgment the Honorable Labor Arbiter may render in favor of herein complainants will go to naught should the Office fails [sic] to appreciate the glaring fact that the respondents [sic] corporation is no longer existing as it suddenly stopped business operation since [sic] 8 July 1993. Under this given circumstance, the complainants have no option left but to implead Atty. ANTONIO CARAG, in his official capacity as Chairman of the Board along with MR. ARMANDO DAVID as President. Both are also owners of the respondent corporation with office address at 10th Floor, Gamon Centre, Alfaro Street, Salcedo Village[,] Makati[,] Metro Manila although they may be collectively served with summons and other legal processes through counsel of record Atty. Joshua Pastores of 8th Floor, Hanston Bldg., Emerald Avenue, Ortigas[,] Pasig, Metro Manila. This inclusion of individual respondents as party respondents in the present case is to guarantee the satisfaction of any judgment award on the basis of Article 212(c) of the Philippine Labor Code, as amended, which says: "Employer includes any person acting in the interest of an employer, directly or indirectly. It does not, however, include any labor organization or any of its officers or agents except when acting as employer." The provision was culled from Section 2, Republic Act 602, the Minimum Wage Act. If the employer is an artificial person, it must have an officer who can be presumed to be the employer, being "the person acting in the interest of the employer." The corporation is the employer, only in the technical sense. (A.C. Ransom Labor Union CCLU VS. NLRC, G.R. 69494, June 10, 1986). Where the employercorporation, AS IN THE PRESENT CASE, is no longer existing and unable to satisfy the judgment in favor of the employee, the officer should be held liable for acting on behalf of the corporation. (Gudez vs. NLRC, G.R. 83023, March 22, 1990). Also in the recent celebrated case of Camelcraft Corporation vs. NLRC, G.R. 90634-35 (June 6, 1990), Carmen contends that she is not liable for the acts of the company, assuming it had [acted] illegally, because Camelcraft in a distinct and separate entity with a legal personality of its own. She claims that she is only an agent of the company carrying out the decisions of its board of directors, "We do not agree," said the Supreme Court. "She is, in fact and legal effect, the corporation, being not only its president and general manager but also its owner." The responsible officer of an employer can be held personally liable not to say even criminally liable for nonpayment of backwages. This is the policy of the law. If it were otherwise, corporate employers would have devious ways to evade paying backwages. (A.C. Ransom Labor Union-CCLU V. NLRC, G.R. 69494, June 10, 1986). If no definite proof exists as to who is the responsible officer, the president of the corporation who can be deemed to be its chief operation officer shall be presumed to be the responsible officer. In Republic Act 602, for example, criminal responsibility is with the "manager" or in his default, the person acting as such (Ibid.)7 (Emphasis supplied) Atty. Joshua L. Pastores (Atty. Pastores), as counsel for respondents, submitted a position paper dated 21 February 1994 and stated that complainants should not have impleaded Carag and David because MAC is actually owned by a consortium of banks. Carag and David own shares in MAC only to qualify them to serve as MAC's officers. Without any further proceedings, Arbiter Ortiguerra rendered her Decision dated 17 June 1994 granting the motion to implead Carag and David. In the same Decision, Arbiter Ortiguerra declared Carag and David solidarily liable with MAC to complainants. The Ruling of the Labor Arbiter In her Decision dated 17 June 1994, Arbiter Ortiguerra ruled as follows:

This is a complaint for illegal dismissal brought about by the illegal closure and cessation of business filed by NAFLU and Mariveles Apparel Corporation Labor Union for and in behalf of all rank and file employees against respondents Mariveles Apparel Corporation, Antonio Carag and Armando David [who are] its owners, Chairman of the Board and President, respectively. The Ruling of the NLRC In a Resolution promulgated on 5 January 1995, the NLRC Third Division denied the motions to reduce bond. The NLRC stated that to grant a reduction of bond on the ground that the appeal is meritorious would be tantamount to ruling on the merits of the appeal. The Ruling of the Appellate Court Appellate court issued a joint decision on the separate petitions. The appellate court identified two issues as essential: (1) whether Arbiter Ortiguerra properly held Carag and David, in their capacities as corporate officers, jointly and severally liable with MAC for the money claims of the employees; and (2) whether the NLRC abused its discretion in denying the separate motions to reduce bond filed by MAC and Carag. The appellate court held that the absence of a formal hearing before the Labor Arbiter is not a cause for Carag and David to impute grave abuse of discretion. The appellate court found that Carag and David, as the most ranking officers of MAC, had a direct hand at the time in the illegal dismissal of MAC's employees. The failure of Carag and David to observe the notice requirement in closing the company shows malice and bad faith, which justifies their solidary liability with MAC. The appellate court also found that the circumstances of the present case do not warrant a reduction of the appeal bond. ISSUES: 1. Has petitioner Carag's right to due process been blatantly violated by holding him personally liable for over P50 million of the corporation's liability, merely as board chairman and solely on the basis of the motion to implead him in midstream of the proceedings as additional respondent, without affording him the right to present evidence and in violation of the accepted procedure prescribed by Rule V of the NLRC Rules of Procedure, as to render the ruling null and void? 2. Assuming, arguendo, that he had been accorded due process, is the decision holding him solidarily liable supported by evidence when the only pleadings (not evidence) before the Labor Arbiter and that of the Court of Appeals are the labor union's motion to implead him as respondent and his opposition thereto, without position papers, without evidence submitted, and without hearing on the issue of personal liability, and even when bad faith or malice, as the only legal basis for personal liability, was expressly found absent and wanting by [the] Labor Arbiter, as to render said decision null and void? 3. Did the NLRC commit grave abuse of discretion in denying petitioner's motion to reduce appeal bond? HELD: 1. On Denial of Due Process to Carag and David Carag asserts that Arbiter Ortiguerra rendered her Decision of 17 June 1994 without issuing summons on him, without requiring him to submit his position paper, without setting any hearing, without giving him notice to present his evidence, and without informing him that the case had been submitted for decision - in violation of Sections 2,15 3,16 4,17 5(b),18 and 11(c) 19 of Rule V of The New Rules of Procedure of the NLRC.20 It is clear from the narration in Arbiter Ortiguerra's Decision that she only summoned complainants and MAC, and not Carag, to a conference for possible settlement. Indisputably, there was utter absence of due process to Carag at the arbitration level. The procedure adopted by Arbiter Ortiguerra completely prevented Carag from explaining his side and presenting his evidence. This alone renders Arbiter Ortiguerra's Decision a nullity insofar as Carag is concerned. While labor arbiters are not required to conduct a formal hearing or trial, they have no license to dispense with the basic requirements of due process such as affording respondents the opportunity to be heard. In this case, Carag was in a far worse situation. Here, Carag was not issued summons, not accorded a conciliatory conference, not ordered to submit a position paper, not accorded a hearing, not given an opportunity to present his evidence, and not notified that the case was submitted for resolution. Thus, we hold that Arbiter Ortiguerra's Decision is void as against Carag for utter absence of due process. It was error for the NLRC and the Court of Appeals to uphold Arbiter Ortiguerra's decision as against Carag. 2. On the Liability of Directors for Corporate Debts Complainants did not allege in their complaint that Carag wilfully and knowingly voted for or assented to any patently unlawful act of MAC. Complainants did not present any evidence showing that Carag wilfully and knowingly voted for or assented to any patently unlawful act of MAC. Neither did Arbiter Ortiguerra make any finding to this effect in her Decision. Complainants did not also allege that Carag is guilty of gross negligence or bad faith in directing the affairs of MAC. Compl ainants did not present any evidence showing that Carag is guilty of gross negligence or bad faith in directing the affairs of MAC. Neither did Arbiter Ortiguerra make any finding to this effect in her Decision. The Court concur with the CA that these two respondents are not liable. Section 31 of the Corporation Code (Batas Pambansa Blg. 68) provides: "Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith ... shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders and other persons." The personal liability of corporate officers validly attaches only when (a) they assent to a patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross negligence in directing its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation, its stockholders or other persons.31 (Boldfacing in the original; boldfacing with underscoring supplied) Thus, it was error for Arbiter Ortiguerra, the NLRC, and the Court of Appeals to hold Carag personally liable for the separation pay owed by MAC to complainants based alone on Article 212(e) of the Labor Code. Article 212(e) does not state that corporate officers are personally liable for the unpaid salaries or separation pay of employees of the corporation. The liability of corporate officers for corporate debts remains governed by Section 31 of the Corporation Code.WHEREFORE, we GRANT the petition.

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