118

MEGAN SUGAR CORPORATION, vs. REGIONAL TRIAL COURT of ILOILO,

Branch 68, Dumangas, Iloilo; New Frontier Sugar Corporation and EQUITABLE PCI BANK,
G.R. No. 170352, June 1, 2011

One of the instances of estoppel is when the principal has clothed the agent with indicia of authority as to
lead a reasonably prudent person to believe that the agent actually has such authority.

With the case of MEGAN, it had all the opportunity to repudiate the authority of Atty. Sabig since all motions,
pleadings and court orders were sent to MEGAN’s office. However, MEGAN never questioned the acts of Atty. Sabig
and even took time and effort to forward all the court documents to him.

FACTS
New Frontier Sugar Corporation (NFSC) obtained a loan from respondent Equitable PCI Bank (EPCIB). Said loan
was secured by a real estate mortgage over NFSC’s land consisting of ninety-two (92) hectares located in Passi City,
Iloilo, and a chattel mortgage over NFSC’s sugar mill. Due to liquidity problems and continued indebtedness to EPCIB,
NFSC entered into a Memorandum of Agreement (MOA) with Central Iloilo Milling Corporation (CIMICO), whereby the
latter agreed to take-over the operation and management of the NFSC raw sugar factory and facilities for the period
covering crop years 2000 to 2003.

On April 19, 2002, NFSC filed a complaint for specific performance and collection against CIMICO for the
latter’s failure to pay its obligations under the MOA.

EPCIB instituted extra-judicial foreclosure proceedings over NFSC’s land and sugar mill because of NFSC’s
failure to pay its debt. During public auction, EPCIB was the sole bidder and was thus able to buy the entire property
and consolidate the titles in its name. EPCIB then employed the services of Philippine Industrial Security Agency (PISA)
to help it in its effort to secure the land and the sugarmill.

CIMICO and petitioner Megan Sugar Corporation (MEGAN) entered into a MOA whereby MEGAN assumed CIMICO’s
rights, interests and obligations over the property. As a result of the foregoing undertaking, MEGAN started operating
the sugar mill.

On November 29, 2002, during the hearing on the motion for intervention, Atty. Reuben Mikhail Sabig (Atty.
Sabig) appeared before the RTC and entered his appearance as counsel for MEGAN. Several counsels objected to Atty.
Sabig’s appearance since MEGAN was not a party to the proceedings; however, Atty. Sabig explained to the court that
MEGAN had purchased the interest of CIMICO and manifested that his statements would bind MEGAN.

ISSUE
Whether petitioner is estopped from questioning the assailed orders because of the acts of Atty. Reuben
Mikhail Sabig (YES)

RULING
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its
purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom
they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and
the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice
might result. It has been applied by this Court wherever and whenever special circumstances of a case so demand.
Based on the events and circumstances surrounding the issuance of the assailed orders, this Court rules that MEGAN is
estopped from assailing both the authority of Atty. Sabig and the jurisdiction of the RTC. While it is true, as claimed by
MEGAN, that Atty. Sabig said in court that he was only appearing for the hearing of Passi Sugar’s motion for
intervention and not for the case itself, his subsequent acts, coupled with MEGAN’s inaction and negligence to
repudiate his authority, effectively bars MEGAN from assailing the validity of the RTC proceedings under the principle
of estoppel.

In the first place, Atty. Sabig is not a complete stranger to MEGAN. As a matter of fact, as manifested by EPCIB, Atty.
Sabig and his law firm SABIG SABIG & VINGCO Law Office has represented MEGAN in other cases where the opposing
parties involved were also CIMICO and EPCIB. As such, contrary to MEGAN’s claim, such manifestation is neither
immaterial nor irrelevant, because at the very least, such fact shows that MEGAN knew Atty. Sabig.

MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed him with apparent
authority to act in their behalf. It must be remembered that when Atty. Sabig entered his appearance, he was
accompanied by Concha, MEGAN’s director and general manager. Concha himself attended several court hearings, and
on December 17, 2002, even sent a letter to the RTC asking for the status of the case. A corporation may be held in
estoppel from denying as against innocent third persons the authority of its officers or agents who have been clothed
by it with ostensible or apparent authority.

Atty. Sabig may not have been armed with a board resolution, but the appearance of Concha made the parties
assume that MEGAN had knowledge of Atty. Sabig’s actions and, thus, clothed Atty. Sabig with apparent authority such
that the parties were made to believe that the proper person and entity to address was Atty. Sabig. Apparent
authority, or what is sometimes referred to as the "holding out" theory, or doctrine of ostensible agency, imposes
liability, not as the result of the reality of a contractual relationship, but rather because of the actions of a principal or
an employer in somehow misleading the public into believing that the relationship or the authority exists.

Like the CA, this Court notes that MEGAN never repudiated the authority of Atty. Sabig when all the motions,
pleadings and court orders were sent not to the office of Atty. Sabig but to the office of MEGAN, who in turn, would
forward all of the same to Atty. Sabig, to wit: x x x All the motions, pleadings and other notices in the civil case were
mailed to Atty. Reuben Mikhail P. Sabig, Counsel for Megan Sugar, NFSC Compound, Barangay Man-it, Passi, Iloilo City
which is the address of the Sugar Central being operated by Megan Sugar. The said address is not the real office
address of Atty. Sabig. As pointed out by private respondent Equitable PCI Bank, the office address of Atty. Sabig is in
Bacolod City. All orders, pleadings or motions filed in Civil Case 02-243 were received in the sugar central being
operated by Megan Central and later forwarded by Megan Sugar to Atty.

Sabig who is based in Bacolod City. We find it incredible that, granting that there was no authority given to
said counsel, the record shows that it was received in the sugar mill operated by Megan and passed on to Atty. Sabig.
At any stage, petitioner could have repudiated Atty. Sabig when it received the court pleadings addressed to Atty.
Sabig as their counsel.

One of the instances of estoppel is when the principal has clothed the agent with indicia of authority as to lead
a reasonably prudent person to believe that the agent actually has such authority. With the case of MEGAN, it had all
the opportunity to repudiate the authority of Atty. Sabig since all motions, pleadings and court orders were sent to
MEGAN’s office. However, MEGAN never questioned the acts of Atty. Sabig and even took time and effort to forward all
the court documents to him.

To this Court’s mind, MEGAN cannot feign knowledge of the acts of Atty. Sabig, as MEGAN was aware from the
very beginning that CIMICO was involved in an on-going litigation. Such fact is clearly spelled out in MEGAN’s MOA with
CIMICO, to wit:

119.
ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity as President of Advance
Paper Corporation, vs. ARMA TRADERS CORPORATION, MANUEL TING,
CHENG GUI and BENJAMIN NG.
G.R. No. 176897December 11, 2013.

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.

In the present petition, we do not agree with the CA’s findings that Arma Traders is not liable to pay the
loans due to the lack of board resolution authorizing Tan and Uy to obtain the loans. To begin with, Arma Traders’
Articles of Incorporation provides that the corporation may borrow or raise money to meet the financial requirements
of its business by the issuance of bonds, promissory notes and other evidence of indebtedness.

FACTS:
Petitioner Advance Paper is a domestic corporation engaged in the business of producing, printing,
manufacturing, distributing and selling of various paper products. Petitioner George Haw (Haw) is the President while
his wife, Connie Haw, is the General Manager. Respondent Arma Traders is also a domestic corporation engaged in the
wholesale and distribution of school and office supplies, and novelty products.6 Respondent Antonio Tan (Tan) was
formerly the President while respondent Uy Seng Kee Willy (Uy) is the Treasurer of Arma Traders.7 They represented
Arma Traders when dealing with its supplier, Advance Paper, for about 14 years. On the other hand, respondents
Manuel Ting, Cheng Gui and Benjamin Ng worked for Arma Traders as Vice-President, General Manager and Corporate
Secretary, respectively. Arma Traders, on various dates, purchased on credit notebooks and other paper products
amounting to ₱7,533,001.49 from Advance Paper. As payment for the purchases on credit and the loan transactions,
Arma Traders issued 82 postdated checks payable to cash or to Advance Paper. Advance Paper presented the checks to
the drawee bank but these were dishonored either for "insufficiency of funds" or "account closed." Despite repeated
demands, however, Arma Traders failed to settle its account with Advance Paper. Petitioners then filed a complaint for
collection of sum of money with application for preliminary attachment against Arma Traders, Tan, Uy, Ting, Gui, and
Ng. The petitioners claimed that the respondents fraudulently issued the postdated checks as payment for the
purchases and loan transactions knowing that they did not have sufficient funds with the drawee banks. The
respondents however, argued that the purchases on credit were spurious, simulated and fraudulent since there was no
delivery of the ₱7,000,000.00 worth of notebooks and other paper products. As to the loan transactions, the
respondents countered that these were the personal obligations of Tan and Uy to Advance Paper. These loans were
never intended to benefit the respondents.

The respondents also claimed that the loan transactions were ultra vires because the board of directors of
Arma Traders did not issue a board resolution authorizing Tan and Uy to obtain the loans from Advance Paper. They
claimed that the borrowing of money must be done only with the prior approval of the board of directors because
without the approval, the corporate officers are acting in excess of their authority or ultra vires. When the acts of the
corporate officers are ultra vires, the corporation is not liable for whatever acts that these officers committed in
excess of their authority. Further, the respondents claimed that Advance Paper failed to verify Tan and Uy’s authority
to transact business with them. Hence, Advance Paper should suffer the consequences. The respondents accused Tan
and Uy for conspiring with the petitioners to defraud Arma Traders through a series of transactions known as
rediscounting of postdated checks. In rediscounting, the respondents explained that Tan and Uy would issue Arma
Traders’ postdated checks to the petitioners in exchange for cash, discounted by as much as 7% to 10% depending on
how long were the terms of repayment. The rediscounted percentage represented the interest or profit earned by the
petitioners in these transactions. Tan did not file his Answer and was eventually declared in default. On the other
hand, Uy filed his Answer but was subsequently declared in default upon his failure to appear during the pre-trial. In
his Answer, he admitted that Arma Traders together with its corporate officers have been transacting business with
Advance Paper. He claimed that he and Tan have been authorized by the board of directors for the past 13 years to
issue checks in behalf of Arma Traders to pay its obligations with Advance Paper. Furthermore, he admitted that Arma
Traders’ checks were issued to pay its contractual obligations with Advance Paper. However, according to him,
Advance Paper was informed beforehand that Arma Traders’ checks were funded out of the ₱20,000,000.00 worth of
collectibles coming from the provinces. Unfortunately, the expected collectibles did not materialize for unknown
reasons. Ng filed his Answer and claimed that the management of Arma Traders was left entirely to Tan and Uy. Thus,
he never participated in the company’s daily transactions. The RTC ruled that the purchases on credit and loans were
sufficiently proven by the petitioners. Hence, the RTC ordered Arma Traders to pay Advance Paper the sum of
₱15,321,798.25 with interest, and ₱1,500,000.00 for attorney’s fees, plus the cost of the suit. Upon appeal, the CA
reversed the trial court’s decision.

ISSUE:
Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority. (YES)

RULING:
The doctrine of apparent authority provides that a corporation will be estopped from denying the agent’s
authority if it knowingly permits one of its officers or any other agent to act within the scope of an apparent authority,
and it holds him out to the public as possessing the power to do those acts.76 The doctrine of apparent authority does
not apply if the principal did not commit any acts or conduct which a third party knew and relied upon in good faith as
a result of the exercise ofreasonable prudence. Moreover, the agent’s acts or conduct must have produced a change of
position to the third party’s detriment. In Inter-Asia Investment Industries v. Court of Appeals, we explained: Under
this provision [referring to Sec. 23 of the Corporation Code], 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 who 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.

[A]pparent authority is derived not merely from practice. Its existence may be ascertained through (1) the
general manner in which the corporation holds out an officer or agent as having the power to act or, in other words the
apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It requires
presentation of evidence of similar act(s) executed either in its favor or in favor of other parties. It is not the quantity
of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the
corporation. [emphases and underscores ours]

In People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals, we ruled that the doctrine of apparent
authority is applied when the 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 corporation. "Inasmuch as a corporate president
is often given general supervision and control over corporate operations, the strict rule that said officer has no
inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited
powers in the transaction of the usual and ordinary business of the corporation."80 "In the absence of a charter or
bylaw provision to the contrary, the president is presumed to have the authority to act within the domain of the
general objectives of its business and within the scope of his or her usual duties." In the present petition, we do not
agree with the CA’s findings that Arma Traders is not liable to pay the loans due to the lack of board resolution
authorizing Tan and Uy to obtain the loans. To begin with, Arma Traders’ Articles of Incorporation provides that the
corporation may borrow or raise money to meet the financial requirements of its business by the issuance of bonds,
promissory notes and other evidence of indebtedness. Likewise, it states that Tan and Uy are not just
ordinarycorporate officers and authorized bank signatories because they are also Arma Traders’ incorporators along
with respondents Ng and Ting, and Pedro Chao. Furthermore, the respondents, through Ng who is Arma Traders’
corporate secretary, incorporator, stockholder and director, testified that the sole management of Arma Traders was
left to Tan and Uy and that he and the other officers never dealt with the business and management of Arma Traders
for 14 years. He also confirmed that since 1984 up to the filing of the complaint against Arma Traders, its stockholders
and board of directors never had its meeting.

Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact with third persons
without the necessary written authority from its non-performing board of directors. Arma Traders failed to take
precautions to prevent its own corporate officers from abusing their powers. Because of its own laxity in its business
dealings, Arma Traders is now estopped from denying Tan and Uy’s authority to obtain loan from Advance Paper.

We also reject the respondents’ claim that Advance Paper, through Haw, connived with Tan and Uy. The
records do not contain any evidence to prove that the loan transactions were personal to Tan and Uy. A different
conclusion might have been inferred had the cashier’s checks been issued in favor of Tan and Uy, and had the
postdated checks in favor of Advance Paper been either Tan and/or Uy’s, or had the respondents presented convincing
evidence to show how Tan and Uy conspired with the petitioners to defraud Arma Traders.84 We note that the
respondents initially intended to present Sharow Ong, the secretary of Tan and Uy, to testify on how Advance Paper
connived with Tan and Uy. As mentioned, the respondents failed to present her on the witness stand.

120
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T.
ONG, and JULIE ONG ALONZO, Petitioners–versus- DAVID S. TIU, CELY Y. TIU, MOLY YU GAW,
BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES
DEVELOPMENT CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY,
and the SECURITIES AND EXCHANGE COMMISSION, Respondents.
G.R. No. 144476, SPECIAL SECOND DIVISION, April 8, 2003, CORONA, J.

The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs. Rivera,
provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right
to look for the satisfaction of their claims.

In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the
unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust Fund
Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when
distribution of capital assets and property of the corporation is allowed.

Facts:
In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which was owned by David S.
Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (the Tius), encountered
dire financial difficulties. It was heavily indebted to the Philippine National Bank (PNB) for P190 million. To stave off
foreclosure of the mortgage on the two lots where the mall was being built, the Tius invited Ong Yong, Juanita Tan
Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-
Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the
Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to subscribe to an
additional 549,800 shares at P100.00 each in addition to their already existing subscription of 450,200 shares.
Furthermore, they agreed that the Tius were entitled to nominate the Vice-President and the Treasurer plus 5
directors while the Ongs were entitled to nominate the President, the Secretary and 6 directors (including the
chairman) to the board of directors of FLADC. Moreover, the Ongs were given the right to manage and operate the
mall.

Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while the
Tius committed to contribute to FLADC a four-storey building and two parcels of land respectively valued at P20 million
(for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million (for 49,800 shares) to cover their additional
549,800 stock subscription therein. The Ongs paid in another P70 million 3 to FLADC and P20 million to the Tius over
and above their P100 million investment, the total sum of which (P190 million) was used to settle the P190 million
mortgage indebtedness of FLADC to PNB. The business harmony between the Ongs and the Tius in FLADC, however, was
shortlived because the Tius, on 23 February 1996, rescinded the Pre-Subscription Agreement. The Tius accused the
Ongs of (1) refusing to credit to them the FLADC shares covering their real property contributions; (2) preventing David
S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties as Vice-President and Treasurer,
respectively, and (3) refusing to give them the office spaces agreed upon. The controversy finally came to a head when
the case was commenced by the Tius on 27 February 1996 at the Securities and Exchange Commission (SEC), seeking
confirmation of their rescission of the Pre-Subscription Agreement.

After hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr., issued a decision on 19 May 1997
confirming the rescission sought by the Tius. On motion of both parties, the above decision was partially reconsidered
but only insofar as the Ongs' P70 million was declared not as a premium on capital stock but an advance (loan) by the
Ongs to FLADC and that the imposition of interest on it was correct. Both parties appealed to the SEC en banc which
rendered a decision on 11 September 1998, affirming the 19 May 1997 decision of the Hearing Officer. The SEC en banc
confirmed the rescission of the Pre-Subscription Agreement but reverted to classifying the P70 million paid by the Ongs
as premium on capital and not as a loan or advance to FLADC, hence, not entitled to earn interest. On appeal, the
Court of Appeals (CA) rendered a decision on 5 October 1999, modifying the SEC order of 11 September 1998.

Their motions for reconsideration having been denied, both parties filed separate petitions for review before
the Supreme Court. On 1 February 2002, the Supreme Court promulgated its Decision, affirming the assailed decision of
the Court of Appeals but with the modifications that the P20 million loan extended by the Ongs to the Tius shall earn
interest at 12% per annum to be computed from the time of judicial demand which is from 23 April 1996; that the P70
million advanced by the Ongs to the FLADC shall earn interest at 10% per annum to be computed from the date of the
FLADC Board Resolution which is 19 June 1996; and that the Tius shall be credited with 49,800 shares in FLADC for their
property contribution, specifically, the 151 sq. m. parcel of land. The Court affirmed the fact that both the Ongs and
the Tius violated their respective obligations under the Pre-Subscription Agreement.

On 15 March 2002, the Tius filed before the Court a Motion for Issuance of a Writ of Execution. Aside from their
opposition to the Tius' Motion for Issuance of Writ of Execution, the Ongs filed their own "Motion for Reconsideration;
Alternatively, Motion for Modification (of the February 1, 2002 Decision)" on 15 March 2002. Willie Ong filed a separate
"Motion for Partial Reconsideration" dated 8 March 2002, pointing out that there was no violation of the Pre-
Subscription Agreement on the part of the Ongs, among others. On 29 January 2003, the Special Second Division of this
Court held oral arguments on the respective positions of the parties. On 27 February 2003, Dr. Willie Ong and the rest
of the movants Ong filed their respective memoranda. On 28 February 2003, the Tius submitted their memorandum.

Issue:
1. Whether the pre-Subscription Agreement executed by the Ongs is actually a subscription contract.
2. Whether the rescission of Pre-Subscription Agreement would result in unauthorized liquidation.
Ruling:
1. FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius owning
450,200 shares representing the paid-up capital. When the Tius invited the Ongs to invest in FLADC as stockholders, an
increase of the authorized capital stock became necessary to give each group equal (50-50) shareholdings as agreed
upon in the Pre-Subscription Agreement. The authorized capital stock was thus increased from 500,000 shares to
2,000,000 shares with a par value of P100 each, with the Ongs subscribing to 1,000,000 shares and the Tius to 549,800
more shares in addition to their 450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the contract
was the 1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares, the parties'
Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation
Code. A subscription contract necessarily involves the corporation as one of the contracting parties since the subject
matter of the transaction is property owned by the corporation — its shares of stock. Thus, the subscription contract
(denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000
shares of stock was, from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the
Tius. Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they were not selling
any of their own shares to them. It was FLADC that did. Considering therefore that the real contracting parties to the
subscription agreement were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract
filed by the Tius in their personal capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and
certainly not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs
inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides that "contracts take effect
only between the parties, their assigns and heirs. . ." Therefore, a party who has not taken part in the transaction
cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected
thereby.

2. The rescission of the Pre-Subscription Agreement will effectively result in the unauthorized distribution of
the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code,
since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property
of the corporation is allowed. Rescission will, in the final analysis, result in the premature liquidation of the
corporation without the benefit of prior dissolution in accordance with Sections 117, 118, 119 and 120 of the
Corporation Code.

121.

RYUICHI YAMAMOTO v. NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO 551 SCRA 447 (2008)

To disregard the separate juridical personality of a corporation, the wrongdoing or unjust act in contravention of a
plaintiff’s legal rights must be clearly and convincingly established. Also, without acceptance, a mere offer produces
no obligation.

Facts:
Ryuichi Yamamoto and Ikuo Nishino agreed to enter into a joint venture wherein Nishino would acquire such
number of shares of stock equivalent to 70% of the authorized capital stock of the corporation. However, Nishino and
his brother Yoshinobu Nishino acquired more than 70% of the authorized capital stock. Negotiations subsequently
ensued in light of a planned takeover by Nishino who would buy-out the shares of stock of Yamamoto who was advised
through a letter that he may take all the equipment/ machinery he had contributed to the company (for his own use
and sale) provided that the value of such machines is deducted from the capital contributions which will be paid to
him. However, the letter requested that he give his “comments on all the above, soonest”. On the basis of the said
letter, Yamamoto attempted to recover the machineries but Nishino hindered him to do so, drawing him to file a Writ
of Replevin. The Trial Court issued the writ. However, on appeal, Nishino claimed that the properties being recovered
were owned by the corporation and the above-said letter was a mere proposal which was not yet authorized by
the Board of Directors. Thus, the Court of Appeals reversed the trial court’s decision despite Yamamoto’s contention
that the company is merely an instrumentality of the Nishinos.

ISSUE:
Whether based on the letter of Nishino’s counsel, Yamamoto may retrieve the machineries and equipment,
which admittedly was part of his investment, bound the corporation. (NO)

RULING:
Indeed, without a Board Resolution authorizing respondent Nishino to act for and in behalf of the corporation,
he cannot bind the latter. Under the Corporation Law, unless otherwise provided, corporate powers are exercised by
the Board of Directors. Contrary to the allegation of Yamamoto, the company is not a mere alter ego of Ikou and
Yoshinubo Nishino. While the veil of separate corporate personality may be pierced when the corporation is merely an
adjunct, a business conduit, or
alter ego of a person, the mere ownership by a single stockholder of even all or nearly all of the capital stocks of a
corporation is not by itself a sufficient ground to disregard the separate corporate personality. Yamamoto argues, in
another vein, that promissory estoppel lies against respondents, thus: Under the doctrine of promissory estoppel,
estoppel may arise from the making of a promise, even though without consideration, if it was intended that the
promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to
sanction the perpetration of fraud or would result in other injustice. It bears noting, however, that the aforementioned
paragraph 12 of the letter is followed by a request for Yamamoto to give his comments on all the above, soonest. What
was thus proffered to Yamamoto was not a promise, but a mere offer, subject to his acceptance. Without acceptance,
a mere offer produces no obligation. Thus, under Article 1181 of the Civil Code,

[i]n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the condition. In the case at bar, there is no
showing of compliance with the condition for allowing Yamamoto to take the machineries and equipment, namely, his
agreement to the deduction of their value from his capital contribution due him in the buy-out of his interests in NLII.
Yamamoto’s allegation that he agreed to the condition remained just that, no proof thereof having been presented.
The machineries and equipment, which comprised Yamamoto’s investment in NLII, thus remained part of the capital
property of the corporation. It is settled that the property of a corporation is not the property of its stockholders or
members. Under the trust fund doctrine, the capital stock, property, and other assets of a corporation are regarded as
equity in trust for the payment of corporate creditors which are preferred over the stockholders in the distribution of
corporate assets. The distribution of corporate assets and property cannot be made to depend on the whims and
caprices of the stockholders, officers, or directors of the corporation unless the indispensable conditions and
procedures for the protection of corporate creditors are followed.