You are on page 1of 9

Western Institute of Technology Inc. vs.

[GR 113032, 21 August 1997]First Division, Hermosisima Jr. (J): 4 concur

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), a stock corporation engaged in the operation, among others,
of an educational institution. According to Homaro L. Villas is, Dimas Enriquez, piston F. Villas is, and
Reginald F.Villasis, the minority stockholders of WIT, sometime on 1 June 1986 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 Reginald Villas is. Prior to said Special Board Meeting, copies of notice thereof, dated
24 May 1986, were distributed to all Board Members. The notice allegedly indicated that the meeting to
be held on 1 June 1986included Item 6 which states that "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." In said meeting, the Board of Trustees passed Resolution 48, series 1986, granting monthly
compensation to Salas, et. al. as corporate officers retroactive 1 June 1985, in the following amounts:
Chairman 9,000.00/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 per centum of the net profits
shall be distributed equally among the ten members of the Board of Trustees. This shall amend and
supersede any previous resolution. A few years later, or on 13 March 1991, Homaro Villas is, Preston
Villas is, Reginald Villas is and Dimas Enriquez filed an affidavit-complaint against Salas, et. al. before
the Office of the City Prosecutor of Iloilo, as a result of which2 separate criminal informations, one for
falsification of a public document under Article 171 of the RevisedPenal Code and the other for estafa
under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of theRegional Trial Court of Iloilo
City. The charge for falsification of public document was anchored on Salas,'s submission of WIT's
income statement for the fiscal year 1985-1986 with the Securities and ExchangeCommission (SEC)
reflecting therein the disbursement of corporate funds for the compensation of Salas, Based on
Resolution 4, series of 1986, making it appear that the same was passed by the board on 30 March1986,
when in truth, the same was actually passed on 1 June 1986, a date not covered by the corporations fiscal
year 1985-1986 (beginning May 1, 1995 and ending April 30, 1986). Thereafter, trial for the two criminal
cases (Criminal Cases 37097 and 37098), was consolidated. After a full-blown hearing, Judge Porfirio
Parian handed down a verdict of acquittal on both counts dated 6 September 1993 without imposing any
civil liability against the accused therein. Villas is, et. al. filed a Motion for Reconsideration of the
civilaspect of the RTC Decision which was, however, denied in an Order dated 23 November 1993. Villas
is, et. al.filed the petition for review on certiorari. Significantly on 8 December 1994, a Motion for
Intervention, dated2 December 1994, was filed before this Court by Western Institute of Technology,
Inc., disowning itsinclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel for
Villas is, et. al., had noauthority whatsoever to represent the corporation in filing the petition. Intervenor
likewise prayed for thedismissal of the petition for being utterly without merit. The Motion for
Intervention was granted on 16January 1995.

Whether the grant of compensation to Salas, et. al. is proscribed under Section 30 of the

Directors or trustees, as the case may be, are not entitled to salary or other compensation when
theyperform nothing more than the usual and ordinary duties of their office. This rule is founded upon
apresumption that directors/trustees render service gratuitously, and that the return upon their shares
adequatelyfurnishes the motives for service, without compensation. Under Section 30 of the Corporation
Code, there areonly 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 stockholdersrepresenting a majority of the outstanding capital stock at a regular or special
stockholders' meeting agree togive it to them. Also, the proscription, however, against granting
compensation to director/trustees of acorporation is not a sweeping rule. Worthy of note is the clear
phraseology of Section 30 which state: "[T]hedirectors shall not receive any compensation, as such
directors." The phrase as such directors is not withoutsignificance for it delimits the scope of the
prohibition to compensation given to them for services performedpurely in their capacity as directors or
trustees. The unambiguous implication is that members of the boardmay receive compensation, in
addition to reasonable per diems, when they render services to the corporationin a capacity other than as
directors/trustees. Herein, resolution 48, s. 1986 granted monthly compensation toSalas, et. al. not in their
capacity as members of the board, but rather as officers of the corporation, moreparticularly as Chairman,
Vice-Chairman, Treasurer and Secretary of Western Institute of Technology.Clearly, therefore, the
prohibition with respect to granting compensation to corporate directors/trustees as such under Section 30
is not violated in this particular case. Consequently, the last sentence of Section 30which provides that "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" does notlikewise find
application in this case since the compensation is being given to Salas, et. al. in their capacity asofficers
of WIT and not as board members
Santos vs. NLRC Case Digest
Santos vs. National Labor Relations Commission
[GR 101699, 13 March 1996]

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 complaint-affidavit (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

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:
When (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. National Labor Relations Commission, Santos should not have been made
personally answerable for the payment of Millena's back salaries.
Spouses David and Coordinated Group, Inc. vs
CIAC and Spouses Quiambao
(GR No 159795, July 30, 2004, Puno)

The spouses Quiambao engaged the services of the petitioner for the construction of a five-storey
building. In the performance of the project, the petitioner allegedly deviated from the original plan
without the approval of Spouses Quiambao. The latter therefore decided to rescind the contract and
hired the services of another contractor. When a definitive finding that indeed there was deviation on
the structural plan, Quiambao sued for damages impleading the officers of the construction company,
among them Engr. David, who is also an officer of the Company. The officer contended that he cannot
be made personally liable for what appears to be a corporate act by virtue of the doctrine of corporate

Whether or not Engr. David is personally liable to the Spouses Quiambao.

The SC held that an exception to the doctrine of corporate entity is when there is bad faith in the
performance of the duty of the officer. In the instant case, bad faith was proven when Engr. David
categorically admitted that the company deviated from the original structural plan in order to lower the
cost of construction. By his act, Engr. David violated Sec 31 of the Corporation Code which provides that
directors or trustees who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or
trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons. Therefore, the SC deemed that equity
demand that he should be liable to Spouses Quiambao.
Malayang Samahan ng mga Manggagawa sa M. Greenfield vs Cresencio Ramos

Commercial Law Corporation Law Veil of Corporate Fiction Illegal Dismissal Cases

In February 1990, M. Greenfield, Inc. (MGI), through its officers Saul Tawil, Carlos Javelosa, and Renato
Puangco began terminating employees. The corporation closed down one of their plants and so they
said they have to retrench the number of employees. Consequently, the Malayang Samahan ng mga
Manggagawa sa M. Greenfield (MSMG-UWP) filed an illegal dismissal case against MGI. The National
Labor Relations Commission, chaired by Cresencio Ramos, ruled against the union. But on appeal, the
decision of the NLRC was reversed and the corporation was ordered, among others, to pay the
employees backwages. The union further appealed as they contend that the officers of the corporation
should be held solidarily liable.

ISSUE: Whether or not the officers of the corporation should be held solidarily liable.

HELD: No. 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. The rule is that obligations
incurred by the corporation, acting through its directors, officers and employees are its sole liabilities.
There is no question that MGI is guilty of illegal dismissal but the officers cannot be held solidarily liable.

Its true that theres a plethora of illegal dismissal cases where the SC made corporate officers personally
liable but these cases usually involve corporate officers who acted in bad faith in illegally dismissing
employees. Corporate directors and officers may be solidarily liable with the corporation for the
termination of employment of corporate employees if the same is done with malice or in bad faith.
Prime White Cement Corporation vs Intermediate Appellate Court

220 SCRA 103 Commercial Law Corporation Code Award of Moral Damages to Corporations Self-
Dealing Director

In July 1969, Zosimo Falcon and Justo Trazo entered into an agreement with Alejandro Te whereby it
was agreed that from 1970 to 1976, Te shall be the sole dealer of 20,000 bags Prime White cement in
Mindanao. Falcon was the president of Prime White Cement Corporation (PWCC) and Trazo was a board
member thereof. Te was likewise a board member of PWCC. It was agreed that the selling price for a bag
of cement shall be P9.70.

Before the bags of cement can be delivered, Te already made known to the public that he is the sole
dealer of cements in Mindanao. Various hardwares then approached him to be his sub-dealers, hence,
Te entered into various contracts with them.

But then apparently, Falcon and Trazo were not authorized by the Board of PWCC to enter into such
contract. Nevertheless, the Board wished to retain the contract but they wanted some amendment
which includes the increase of the selling price per bag to P13.30 and the decrease of the total amount
of cement bags from 20k to 8k only plus the contract shall only be effective for a period of three months
and not 6 years.

Te refused the counter-offer. PWCC then awarded the contract to someone else.

Te then sued PWCC for damages. PWCC filed a counterclaim and in said counterclaim, it is claiming for
moral damages the basis of which is the claim that Tes filing of a civil case against PWCC destroyed the
companys goodwill. The lower court ruled in favor Te.

ISSUE: Whether or not the ruling of the lower court is correct.

HELD: No. Te is what can be called as a self-dealing director he deals business with the same
corporation in which he is a director. There is nothing wrong per se with that. However, Sec. 32 provides

SEC. 32. Dealings of directors, trustees or officers with the corporation. - A contract of the
corporation with one or more of its directors or trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in the case of an officer, the contract with the officer has been previously authorized by the
Board of Directors.
In this particular case, the Supreme Court focused on the fact that the contract between PWCC and Te
through Falcon and Trazo was not reasonable. Hence, PWCC has all the rights to void the contract and
look for someone else, which it did. The contract is unreasonable because of the very low selling price.
The Price at that time was at least P13.00 per bag and the original contract only stipulates P9.70. Also,
the original contract was for 6 years and theres no clause in the contract which protects PWCC from
inflation. As a director, Te in this transaction should protect the corporations interest more than his
personal interest. His failure to do so is disloyalty to the corporation.

Anent the issue of moral damages, there is no question that PWCCs goodwill and reputation had been
prejudiced due to the filing of this case. However, there can be no award for moral damages under
Article 2217 of the Civil Code in favor of a corporation.

NOTE: In a later case, Coastal Pacific Trading, Inc. vs Southern Rolling Mills Co., Inc. (July 28, 2006), it was
ruled that a corporation may be entitled to moral damages provided that its good reputation was
debased resulting in its humiliation in the business realm.