#33. LUXURIA HOMES, INC., and/or AIDA M. POSADAS vs.

HONORABLE COURT OF APPEALS, JAMES BUILDER CONSTRUCTION and/or

JAIME T. BRAVO G.R. No. 125986 January 28, 1999

TOPIC: Piercing the Veil of Corporate Fiction

DOCTRINE: “.…separate personality of the corporation may be disregarded only when

the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or
where necessary for the protection of the creditors.”

Facts: Aida Posadas and her children co-owned a property in Sucat, Muntinlupa occupied by
squatters. Posadas negotiated with Jaime Bravo to develop the property into a subdivision. She
authorized Bravo to negotiate with the squatters to leave the property.

Seven months later, Posadas and her children assigned the property to Luxuria Homes, Inc., for
organizational and tax avoidance purposes. Bravo signed as a witness in the assignment. In 1992,
Posadas and Bravo disagreed on the management contract for the development of the
subdivision. Bravo then demanded payment for his services however Posadas refused to pay
Bravo.

James Builder Construction and Bravo filed a complaint for specific performance in the RTC
against Posadas and Luxuria Homes, Inc. The RTC declared Posadas in default and ruled in
favor of Bravo. Posadas appealed to the CA but the CA affirmed the RTC decision with
modifications. The CA deleted the award of moral damages on the ground that respondent James
Builder Construction is a corporation and hence could not experience physical suffering and
mental anguish. The case then went to the SC. The SC denied the appeal however found merit in
Posadas motion for reconsideration.

ISSUE: Whether Luxuria Homes, Inc. is liable for the transactions entered into by Posadas and
Bravo.

RULING: No. It cannot be said that the incorporation of Luxuria Homes and the eventual
transfer of the subject property to it were in fraud of private respondents as such were done with
the full knowledge of Bravo.

Posadas is not the majority stockholder of petitioner Luxuria Homes, Inc.. The Articles of
Incorporation of petitioner Luxuria Homes, Inc., clearly show that petitioner Posadas owns
approximately 33% only of the capital stock. Hence, Posadas cannot be considered as an alter
ego of petitioner Luxuria Homes, Inc.

To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly
and convincingly established. It cannot be presumed. In Bayer-Roxas v. Court of Appeals, the SC
stated that the separate personality of the corporation may be disregarded only when the
corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where
necessary for the protection of the creditors.

In the instant case, Bravo failed to show proof that Posadas acted in bad faith. Since Bravo failed
to show that petitioner Luxuria Homes, Inc., was a party to any of the supposed transactions, not
even to the agreement to negotiate with and relocate the squatters, it cannot be held liable, nay
jointly and in solidum, to pay private respondents. Since it was Aida M. Posadas who contracted
respondent Bravo to render the subject services, only she is liable to pay the amounts adjudged
herein.
#74. RAMON P. JACINTO and JAIME J. COLAYCO v. FIRST WOMENS CREDIT
CORPORATION, represented in this derivative suit by SHIG KATAYAMA G.R. No.
154049. August 28, 2003

TOPIC: EXERCISE OF CORPORATE POWERS

DOCTRINE: Where there is no imminent danger of loss of corporate property or of any

other injury to stockholders, management of corporation should not be wrestled away form
the duly elected officers, who are prima facie entitled to administer the affairs of a
corporation. However, where the dissension among stockholders is such that the
corporation cannot successfully carry on its corporate functions the appointment of a
management committee becomes imperative.

FACTS: Shig Katayama, in his capacity as director and minority stockholder of FWCC, filed a
derivative suit before the SEC against Ramon Jacinto and Jaime Colayco, President and Vice
President of FWCC. Katayama claimed that Jacinto and Colayco committed plunder when they
diverted the amount of P720,333,266.00 to RJ Group of Companies as well as to other
companies affiliated with FWCC. Katayama prayed that Jacinto and Colayco be ordered to
account for and return the diverted amount to FWCC and that in the interim a management
committee be appointed to end the dissipation, wastage and loss of corporate funds.

To support his claim, Katayama presented the Special Audit Report of FWCCs external auditor
which states that from 1993 to 1997 Jacinto and Colayco withdrew P720,333,266.00 from
FWCC and transferred the withdrawn amount to RJ Group of Companies and companies
affiliated with FWCC without Board authorization. FWCC was left flat broke causing it to
default on several of its obligations with creditor banks and to close down several of its offices
around the country.

Jacinto and Colayco admitted that they withdrew money from FWCC for the benefit of
companies associated with Jacinto and claimed that the withdrawals were legitimate loans
extended in the ordinary course of business. The Boards decision to lend money to RJ Group of
Companies was intended to maximize FWCCs idle funds. Katayama denied consenting and
knowing the transfer of fund and further asserted that there were no surplus of fund since they
even needed to loan P600,000.00 to make ends meet.

Hearing Officer Palmares ordered the creation of an Interim Management Committee composed
of three members to oversee the administration of FWCC while the case is pending. Hearing
Officer Palmares stated that the massive diversion of funds and the constant bickering among
stockholders demanded the immediate creation of a management committee pendente lite.

Jacinto and Colayco moved for reconsideration but was denied. They went to the SEC en
banc which upheld the creation of the Committee. They appealed to the Court of Appeals but
was also denied for the reason that the existing danger to the interests of the stockholders, i.e.,
suspension of corporate business and threatened reduction in the value of corporate assets,
demanded the creation of a management committee pendente lite. Jacinto and Colayco filed this
petition for review in the SC.

ISSUE: Whether the creation of the ICM is valid

RULING: Yes. The SC was convinced that the appointment of the Interim Management
Committee is warranted by the circumstances. The findings of Hearing Officer Palmares relative
to the transfer of funds from FWCC to RJ Group of Companies without the corresponding Board
resolutions, the drastic reduction of the number of FWCC branch offices all over the country, the
suspension of lending operations, the limitation of FWCCs operations to mere collection of
receivables as well as the inability of FWCC to pay its pressing obligations amply support the
conclusion that there is imminent danger of dissipation, loss, wastage or destruction of corporate
assets.

The word imminent has been defined as impending or on the point of

happening; while danger means peril or exposure to loss or injury. The findings of FWCCs
external auditor support the conclusion that petitioners unrestricted and continuous management
of FWCC poses an impending peril to corporate assets. For one, Jacinto and Colayco allowed the
release of loans to companies associated with Jacinto without the corresponding Board
resolutions. Petitioners argument that Katayama knew of the practice does not justify the
impropriety of their dealings inasmuch as a corporate act inherently illegal does not cease to be
illegal simply because the questioning stockholder is aware of the illegal practice and hence
cannot claim that he was deceived. Additionally, as admitted by the parties and borne out by the
evidence on record, the prevailing internal dispute and feud between petitioners and Katayama
have resulted in the total paralization of FWCCs business operations and adversely affected its
collection efforts.

In view of these facts, the Hearing Officer was clearly justified in ordering the appointment of
the IMC to oversee the operation of FWCC and preserve its assets pending resolution of the
parties dispute. In fine, it cannot be denied that the circumstances obtaining in the present case
demonstrate quite clearly the need for the immediate appointment of the IMC.
#115 SANTIAGO CUA, JR., SOLOMON S. CUA and EXEQUIEL D. ROBLES, in their
capacity as Directors of PHILIPPINE RACING CLUB, INC., vs.
MIGUEL OCAMPO TAN, JEMIE U. TAN and ATTY. BRIGIDO J. DULAY, G.R. No.
181455-56 December 4, 2009

x - - - - - - - - - - - - - - - - - - - - - - -x

SANTIAGO CUA, SR., in his capacity as Director of PHILIPPINE RACING CLUB, INC.
vs.
COURT OF APPEALS, MIGUEL OCAMPO TAN, JEMIE U. TAN, ATTY. BRIGIDO J.
DULAY, and HON. CESAR UNTALAN, Presiding Judge, Makati Regional Trial Court,
Br. 149 G.R. No. 182008

TOPIC: DERIVATIVE SUIT

DOCTRINES:

1) It is well settled in this jurisdiction that where corporate directors are guilty of a breach of
trust — not of mere error of judgment or abuse of discretion — and intracorporate remedy is
futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders
and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly
upon the corporation and indirectly upon the stockholders
2) Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while
the stockholder filing suit for the corporation’s behalf is only a nominal party. The corporation
should be included as a party in the suit.

TOPIC: RIGHT OF INSPECTION

DOCTRINE: The right to information which includes the right to inspect corporate books and
records is a right personal to each stockholder.

FACTS: PRCI is a corporation organized and established under Philippine laws to conduct
business related to horse track racing and other business connected thereto including public
betting, raising horses, and breeding horses. The AOI was amended to add a secondary purpose
of acquiring real properties.

Following the trend in the development of properties in the area, PRCI wished to convert its
Makati property from a racetrack to urban residential and commercial use. PRCI management
decided to transfer its racetrack from Makati to Cavite. PRCI began developing its Cavite
property as a racetrack.
PRCI management decided that it was best to spin off the management and development of the
land to a wholly owned subsidiary so that PRCI could continue to focus its efforts on pursuing its
core business competence of horse racing. Instead of organizing and establishing a new
corporation, PRCI management acquired another domestic corporation, JTH Davies Holdings,
Inc. PRCI entered into a Sale and Purchase Agreement for the acquisition from JME of
41,928,290 common shares or 95.55% of the outstanding capital stock of JTH.

Miguel, et al., as minority stockholders of PRCI, filed before the RTC a complaint denominated
as a Derivative Suit with prayer for Issuance of TRO/Preliminary Injunction, against the rest of
the directors of PRCI and/or JTH.

The Complaint was based on the following: (1) the approval by the majority directors of PRCI of
the Board Resolutions dated 26 September 2006 and 11 May 2007— with undue haste and
deliberate speed, despite the absence of any disclosure and information—was not only
anomalous and fraudulent, but also extremely prejudicial and inimical to interest of PRCI,
committed in violation of their fiduciary duty as directors of the said corporation; (2) Solomon,
as PRCI President, with the acquiescence of the majority directors of PRCI, maliciously refused
and resisted the request of respondents Miguel, et al., for complete and adequate information
relative to the disputed Board Resolutions, brazenly and unlawfully violating the rights of the
minority stockholders to information and to inspect corporate books and records; and (3) without
being officially and formally nominated, the majority directors of PRCI illegally and unlawfully
constituted themselves as members of the Board of Directors and/or Executive Officers of JTH,
rendering all the actions they have taken as such null and void ab initio. RTC issued a TRO
thereof. CA affirmed RTC decision. Respondents questioned the infirmities of Miguel’s
complaint.

ISSUES:

1) Whether the filing of the derivative suit is valid.

2) Whether Right to Inspection was denied

RULING:

1) No. It is well settled in this jurisdiction that where corporate directors are guilty of a breach
of trust—not of mere error of judgment or abuse of discretion—and intracorporate remedy is
futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders
and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly
upon the corporation and indirectly upon the stockholders.

Considering the claim of Miguel, et al., that its Complaint in Civil Case No. 07610 is not just a
derivative suit, but also an intracorporate action arising from devices or schemes employed by
the PRCI Board of Directors amounting to fraud or misrepresentation. A thorough study of the
said Complaint, however, reveals that the distinction is deceptive. The supposed devices and
schemes employed by the PRCI Board of Directors amounting to fraud or misrepresentation are
the very same bases for the derivative suit. They are the very same acts of the PRCI Board of
Directors that have supposedly caused injury to the corporation. From the very beginning of their
Complaint, respondents have alleged that they are filing the same “as shareholders, for and in
behalf of the Corporation, in order to redress the wrongs committed against the Corporation and
to protect or vindicate corporate rights, and to prevent wastage and dissipation of corporate funds
and assets and the further commission of illegal acts by the Board of Directors.” Although
respondents Miguel, et al., also aver that they are seeking “redress for the injuries of the minority
stockholders against the wrongdoings of the majority,” the rest of the Complaint does not bear
this out, and is utterly lacking any allegation of injury personal to them or a certain class of
stockholders to which they belong.

A corporation, such as PRCI, is but an association of individuals, allowed to transact under an

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

The Court stresses that the corporation is the real party in interest in a derivative suit, and the
suing stockholder is only a nominal party: An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he holds stocks in order to protect or
vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones
to be sued, or hold the control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in interest. For a derivative
suit to prosper, it is required that the minority stockholder suing for and on behalf of the
corporation must allege in his complaint that he is suing on a derivative cause of action on behalf
of the corporation and all other stockholders similarly situated who may wish to join him in the
suit. It is a condition sine qua non that the corporation be impleaded as a party because not only
is the corporation an indispensable party, but it is also the present rule that it must be served with
process.

2. Personal action for inspection of corporate books and records

Respondents Miguel, et al., allege another cause of action, other than the derivative suit is the
violation of their right to information relative to the disputed Resolutions, i.e., the Resolutions
dated 16 September 2006 and 11 May 2007 of the PRCI Board of Directors.

Rule 7 of the IRPICC shall apply to disputes exclusively involving the rights of stockholders or
members to inspect the books and records and/or to be furnished with the financial statements of
a corporation, under Sections 74 and 75 of the Corporation Code.

Rule 7, Section 2 of IRPICC enumerates the requirements particular to a complaint for

inspection of corporate books and records:

Sec. 2. Complaint. - In addition to the requirements in section 4, Rule 2 of these Rules, the
complaint must state the following:

(1) The case is for the enforcement of plaintiff's right of inspection of corporate orders or records
and/or to be furnished with financial statements under Sections 74 and 75 of the Corporation
Code of the Philippines;

(2) A demand for inspection and copying of books and records and/or to be furnished with
financial statements made by the plaintiff upon defendant;
(3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such
refusals, if any; and

(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified
and illegal, stating the law and jurisprudence in support thereof. (Emphasis ours.)

The right to information, which includes the right to inspect corporate books and records, is a
right personal to each stockholder. The SC observed that only respondent Dulay actually made a
demand for a copy of "all the records, documents, contracts, and agreements, emails, letters,
correspondences, relative to the acquisition of JTH. However, Dulay’s complaint should be
dismissed for lack of cause of action. His demand for copies of pertinent documents relative to
the acquisition of JTH shares was not denied by any of the defendants named in the Complaint in
Civil Case No. 07-610, but by Atty. Manalo, the Corporate Secretary of PRCI, in a letter dated
17 January 2006. It is therefore Corporate Secretary Manalo who should be held liable for the
supposedly wrongful and unreasonable denial of respondent Dulay’s demand for inspection and
copying of corporate books and records. Atty. Manalo however is not among the defendants
named in the Complaint in Civil Case No. 07-610.

There is also utter lack of any allegation in the Complaint that Corporate Secretary Manalo
denied respondent Dulay’s demand pursuant to a resolution or order of the PRCI Directors, so
that the latter (who are actually named defendants in the Complaint) could also be held liable for
the denial.
#156 DILY DANY NACPIL vs. INTERNATIONAL BROADCASTING CORPORATION
G.R. No. 144767 March 21, 2002

TOPIC: CORPORATE OFFICER

DOCTRINE: “by-laws may and usually do provide for such other officers,” and 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.

FACTS: Dily Dany Nacpil was an Assistant General Manager for Finance/Administration and
Comptroller of Intercontinental Broadcasting Corporation (IBC). When Emiliano Templo was
appointed as IBC President, Templo allegedly told the Board of Directors that he would
terminate the services of Nacpil. Templo blamed Nacpil, along with two others for the prior
mismanagement of IBC. When Templo assumed as president, he allegedly harassed and
pressured Nacpil to resign until Nacpil was forced to retire. Templo refused to pay Nacpil his
retirement benefits because he had not yet secured the clearances from the Presidential
Commission on Good Government and the Commission on Audit. Templo also allegedly refused
to recognize Nacpil’s employment claiming that Nacpil was not the Assistant General
Manager/Comptroller of IBC but merely usurped the powers of the Comptroller. Nacpil filed
with the Labor Arbiter a complaint for illegal dismissal and non-payment of benefits.

IBC filed a motion to dismiss alleging that the Labor Arbiter had no jurisdiction over the case.
IBC contended that Nacpil was a corporate officer duly elected by the BOD of IBC qualifying
the case as an intra-corporate dispute falling within the jurisdiction of the Securities and
Exchange Commission (SEC). The motion was denied by the Labor Arbiter.

The Labor Arbiter rendered a decision in favor of Nacpil. IBC appealed to the NLRC, but was
dismissed. IBC then filed with the Court of Appeals a petition for certiorari which was granted
by the CA. Nacpil then appealed to the SC.

ISSUE: Whether Nacpil is a corporate officer.

Ruling: Yes. Assuming that Nacpil was appointed by the General Manager, such appointment
was subsequently approved by the Board of Directors of the IBC. The fact that the position of
Comptroller is not expressly mentioned among the officers of the IBC in the By-Laws does not
matter because the IBC's Board of Directors is empowered under Section 25 of the Corporation
Code and under the corporation's By-Laws to appoint such other officers as it may deem
necessary.

The By-Laws of the IBC provides that: 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.

The Supreme Court has held that the "by-laws may and usually do provide for such other
officers,” and 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 "officer" is defined 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.

Nacpil’s appointment as comptroller required the approval and formal action of the IBC's Board
of Directors to become valid. It is clear 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. Had petitioner been an ordinary employee, such board action would not
have been required.