Ong Yong vs.

Tiu (401 SCRA 1 [2003])

https://lawphil.net/judjuris/juri2003/apr2003/gr_144476_2003.html

Facts:

In 1994, the construction of Masagana Citimall in Pasay City, owned by First Landlink Asia Development
Corporation (FLADC), faced potential stoppage due to FLADC's heavy indebtedness of P190 million to the
Philippine National Bank (PNB). To prevent foreclosure, FLADC's owners, the Tius, invited the Ongs to
invest in FLADC. They agreed to maintain equal shareholdings, with the Ongs subscribing to 1,000,000
shares, and the Tius subscribing to an additional 549,800 shares. Both parties had specific roles in the
management and operation of the mall.

The Tius contributed a 4-story building and two parcels of land, totaling P49.8 million, while the Ongs
paid P190 million to settle FLADC's mortgage indebtedness to PNB. On February 23, 1996, the Tius
rescinded the Pre-Subscription Agreement, and on February 27, 1996, they filed for confirmation of the
rescission at the Securities and Exchange Commission (SEC). The SEC confirmed the rescission, leading to
the Ongs filing for reconsideration.

The SEC en banc affirmed that the P70 million paid by the Ongs was a premium on capital stock, not an
advance loan. The Court of Appeals (CA) held that both parties were in pari delicto but decided to
rescind the Pre-Subscription Agreement due to their inability to work together, awarding most of the
benefits to the Tius.

Issue:

Whether or not Tius could legally rescind the Pre-Subscription Agreement

Held:

In this court ruling, the central issue is whether the Tius have the legal grounds to rescind the Pre-
Subscription Agreement. The court emphasizes the Trust Doctrine, which holds that subscriptions to a
corporation's capital stock constitute a fund that creditors can rely on for satisfaction of their claims. The
court rules that the Tius cannot legally rescind the agreement.

The background of the case involves FLADC, initially incorporated with the Tius owning 450,200 shares.
To equalize shareholdings with the Ongs, the authorized capital stock was increased, and the Pre-
Subscription Agreement was formed. The court classifies this agreement as a subscription contract
involving FLADC and the Ongs, not between the Tius and the Ongs.

The Tius argue that there are two contracts within the Pre-Subscription Agreement: a shareholders'
agreement and a subscription contract. The court dismisses this argument as strained and points out
that the Tius lack the legal standing to rescind the agreement since they were not parties to the
subscription contract between FLADC and the Ongs.

The Tius claim that the Ongs' breach is a breach by FLADC since they represent FLADC. However, the
court upholds the separate juridical personality of FLADC.
The Tius allege that they were prevented from participating in the management of the corporation, but
rescission is deemed an inappropriate remedy for such personal grievances. The Corporation Code
provides other intra-corporate remedies for such situations.

The court emphasizes that rescission would violate the Trust Fund Doctrine, which governs the
distribution of corporate assets and property. The distribution of corporate assets cannot be arbitrary
and should follow specific legal procedures. Rescission would result in an unauthorized distribution of
capital assets, violating the Trust Fund Doctrine and the Corporation Code.

Additionally, the court argues that rescission would effectively lead to the premature liquidation of the
corporation without following the proper legal procedures for dissolution and liquidation.

The Tius' claim that rescission is a petition to decrease capital stock is dismissed, as it doesn't comply
with the formal requirements for capital stock reduction.

The court stresses that judicial intervention in corporate affairs should be minimal, and the Tius' request
for rescission infringes on the "business judgment rule." The court concludes that rescission would be
unjust, as it could lead to significant financial benefits for the Tius at the expense of the Ongs, FLADC,
and its creditors.

In the final verdict, the court grants the Ongs' motion for reconsideration, dismissing the petition for
confirmation of rescission, declaring the Tius' rescission null and void, and denying the motion for the
issuance of a writ of execution.

In summary, the court emphasized the Trust Fund Doctrine to argue against the rescission of the Pre-
Subscription Agreement. Rescission, in this case, would have effectively resulted in an unauthorized
distribution of corporate assets, which would have violated the Trust Fund Doctrine and the Corporation
Code. The court's decision was based on the principle that corporate assets and capital should not be
distributed arbitrarily and should be protected to satisfy the legitimate claims of creditors.
Bernas, et.al. vs. Cinco, et.al. (G.R. Nos. 163356-57, July 10, 2015)

https://lawphil.net/judjuris/juri2015/jul2015/gr_163356_2015.html

The case revolves around the Makati Sports Club (MSC), a Philippine corporation aimed at providing
social, cultural, recreational, and athletic activities to its members. It involves two groups: the Bernas
Group, comprising MSC's Board of Directors and Officers, and the Cinco Group, newly elected directors
during a special stockholders' meeting prompted by concerns about financial irregularities. The MSC
Oversight Committee (MSCOC), composed of past presidents, demanded the Bernas Group's resignation
to facilitate new elections, leading to a special stockholders' meeting called by the MSCOC. Despite the
Bernas Group's efforts to prevent it, the meeting proceeded, resulting in their removal from office. The
Bernas Group contested the meeting's legitimacy, arguing that the MSCOC lacked the authority to call it,
while the Cinco Group defended its validity under the Corporation Code and MSC by-laws, citing the
Corporate Secretary's refusal to call a special stockholders' meeting.

Subsequently, the newly elected directors investigated alleged irregularities, expelled Bernas from the
club, and sold his shares at auction. Multiple petitions concerning the Bernas Group's removal led to
legal disputes, and the SEC supervised the 1999 Annual Stockholders' Meeting, where stockholders
ratified the 1997 Special Stockholders' Meeting. However, the SEC ultimately declared the 1997 Special
Stockholders' Meeting and subsequent annual meetings invalid. The Court of Appeals upheld this
decision, invalidating the Special Stockholders' Meeting but affirming the subsequent annual meetings.
The Bernas Group supported the Special Stockholders' Meeting's invalidation and sought the nullification
of subsequent meetings, while the Cinco Group argued the Special Stockholders' Meeting's validity,
highlighting stockholders' ratification in subsequent annual meetings and the Corporate Secretary's prior
refusal to call a special meeting.

ISSUES:

1. Whether or not the Court of Appeals erred in ruling that the 17 December 1997 Special Stockholders’
Meeting is invalid.

2. Whether or not the Court of Appeals erred in failing to nullify the holding of the annual stockholders’
meeting on 20 April 1998, 19 April 1999 and 17 April 2000.

RULING:

1. The 17 December 1997 Special Stockholders' Meeting is deemed invalid and has no legal effect, along
with the resolution expelling the Bernas Group from the corporation and authorizing the sale of Bernas'
shares at public auction. According to the Corporation Code, the power to remove directors is vested in
the stockholders, and a special meeting for this purpose can be called by the President, the Board of
Directors, or upon the written demand of stockholders representing a majority of outstanding capital
stock. In this case, the MSCOC, while overseeing the corporation's affairs, lacked the authority to call the
special meeting as it was not explicitly granted by law or the MSC by-laws.

The board of directors of a corporation is a body that exercises all powers under the Corporation Code,
conducts its business, and controls its property. This fiduciary relationship exists between the directors
and the stockholders, and the directors must act in the best interests of the stockholders. Any illegal
corporate acts, like those contrary to law, morals, or public policy, are void and cannot be ratified. While
certain ultra vires acts (acts beyond the scope of the articles of incorporation) may be voidable, the 17
December 1997 Meeting falls into the category of being void ab initio and thus cannot be validated.
Therefore, actions taken after this invalid election have no legal effect. Additionally, the de facto
officership doctrine does not apply in this case, as it is limited to third parties not originally part of the
corporation. In situations where there is no authorized person to call a meeting, the SEC can assume
jurisdiction and order a petitioning stockholder or member to call a meeting, as per Section 50 of the
Corporation Code.

2. The subsequent Annual Stockholders' Meetings held on 20 April 1998, 19 April 1999, and 17 April
2000 are considered valid and binding, with one exception: the ratification of the removal of the Bernas
Group and the sale of Bernas' shares during these meetings is not valid. The expulsion of the Bernas
Group and the auction of Bernas' shares were void from the outset and therefore cannot be ratified
because a void act cannot be subject to ratification.

The 19 April 1999 Annual Stockholders' Meeting is considered valid because it adhered to Section 8 of
the MSC bylaws and was supervised by the SEC, as part of its regulatory and administrative duties under
the Corporation Code. This supervision gives rise to the presumption that the corporate officers elected
during this meeting are de jure officers, allowing them to lawfully exercise their functions and duties
within the corporation's scope of business, except for the ratification of actions that were void from the
beginning.

Since new officers were duly elected during the 1998 and 1999 Annual Stockholders' Meetings, the
Bernas Group cannot use the holdover principle to remain in office. They had no right to continue as
directors unless reelected by the stockholders each year, and they cannot justify their holdover by failing
to perform their duties.
Western Institute of Technology vs. Salas (278 SCRA 216 [1997])

https://lawphil.net/judjuris/juri1997/aug1997/gr_113032_1997.html

Facts:

The Salas family controls the Board of Trustees of Western Institute of Technology, Inc. (WIT), an
educational institution. In 1986, a Special Board Meeting was held to discuss compensation for corporate
officers, retroactive to June 1, 1985. The Villasis family, minority stockholders, attended the meeting.
They later filed criminal complaints against Salas and others for falsification of documents and estafa.
They alleged that corporate documents were falsified to make it appear the resolution was passed on
March 30, 1986, rather than on June 1, 1986, which didn't fall within the fiscal year.

After a trial, Judge Porfirio Parian acquitted the accused without imposing civil liability. The Villasis family
filed a Motion for Reconsideration, which was denied. They then filed a petition for review on certiorari.
Western Institute of Technology, Inc. intervened, disowning involvement in the petition and stating that
their counsel had no authority to file it. The motion for intervention was granted.

In summary, the Salas family, controlling the WIT board, faced criminal charges for allegedly falsifying
documents related to officer compensation. After a trial, they were acquitted. The institution itself
intervened to disassociate from the petition filed by the minority shareholders.

Issue:

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

Held:

This passage provides an overview of the rules governing compensation for directors or trustees of
corporations, with a focus on Section 30 of the Corporation Code. Here are the key points:

1. In general, directors or trustees are not entitled to receive a salary or compensation for their regular
duties, unless specific conditions are met.

2. Section 30 of the Corporation Code outlines two scenarios in which directors or trustees may be
granted compensation beyond reasonable per diems:

a. If the corporation's bylaws include a provision that establishes their compensation.

b. If a majority of the stockholders, representing the outstanding capital stock, agree to grant them
compensation during a regular or special stockholders' meeting.

3. The prohibition against granting compensation to directors or trustees applies specifically to

compensation for services performed in their capacities as directors or trustees.
4. However, this prohibition does not apply when board members receive compensation for services
rendered in roles other than their positions as directors or trustees. In this instance, Resolution 48, series
1986, approved compensation for Salas and others in their capacities as officers of the corporation, such
as Chairman, Vice-Chairman, Treasurer, and Secretary of Western Institute of Technology.

5. As a result, the limitation specified in Section 30, which states that "the total yearly compensation of
directors, as such directors, shall not exceed ten percent of the net income before income tax of the
corporation during the preceding year," does not apply in this case. This is because the compensation is
being granted to Salas and others in their capacities as officers, rather than as board members.

In summary, this passage clarifies the conditions under which directors or trustees of a corporation can
receive compensation, emphasizing that the prohibition against compensation is specifically related to
their roles as directors or trustees and not other roles within the corporation.of directors, as such
directors, exceed ten (10%) percent of the net income before income tax of the corporation during the
preceding year" does not likewise find application in this case since the compensation is being given to
Salas, et. al. in their capacity as officers of WIT and not as board members.
WQPP vs. Marketing Communications, Inc. vs. Galera (616 SCRA 422 [2010])

https://lawphil.net/judjuris/juri2010/mar2010/gr_169207_2010.html

**Facts**:

Jocelyn Galera, an American citizen, was recruited by a Hong Kong-based corporation (private
respondents) to work in the Philippines for WPP Marketing Communications Inc. (WPP). Her
employment with WPP commenced on September 1, 1999, and within four months, she was designated
as Vice President of WPP. On December 14, 2000, Galera was verbally informed by private respondent
Steedman of her termination, and a termination letter followed the next day. In response, Galera filed a
complaint against her employers, alleging illegal dismissal, damages, and back wages.

The Labor Arbiter ruled in favor of Galera, declaring her dismissal illegal due to a lack of due process. The
National Labor Relations Commission (NLRC) overturned the Labor Arbiter's decision, asserting that
Galera was a corporate officer and that the Labor Arbiter had no jurisdiction over the case as it involved
an intra-corporate dispute. Galera appealed to the Court of Appeals (CA), which reversed the NLRC's
decision, stating that Galera could only be considered a corporate officer if appointed as such by the
corporation's Board of Directors or in accordance with the Articles of Incorporation or By-Laws. The case
was subsequently elevated to the Supreme Court.

**Issues**:

1. Was Jocelyn Galera an employee or a corporate officer of WPP?

2. Whether or not the case was properly within the jurisdiction of the Labor Arbiter.

3. Whether or not the dismissal of Galera without compliance with the two-notice rule was proper.

4. Whether or not Galera was entitled to a monetary award despite not securing an Alien Employment
Permit before her employment.

**Rulings**:

1. Jocelyn Galera is considered an employee, not a corporate officer. Examination of WPP's by-laws
revealed that her appointment as a corporate officer was to a non-existent corporate office. The by-laws
specified only one Vice-President and five directorship positions, all of which were occupied at the time
of her appointment. While an amendment to the by-laws allowed for an additional Vice-President and
two additional directors, it was effective only on February 16, 2001, and therefore could not have
retroactively affected Galera's dismissal on December 14, 2000. Additionally, the four-fold test of an
employer-employee relationship was met as evidenced by the provisions of Galera's employment
contract.

2. As an employee, the case was properly within the jurisdiction of the Labor Arbiter and the NLRC.
Article 217 of the Labor Code explicitly grants Labor Arbiters and the Commission the authority to hear
and decide cases involving all workers, including non-agricultural workers, making Galera's case fall
under their purview.
3. The dismissal of Galera was improper as it lacked both substantive and procedural due process. WPP
failed to establish any just and authorized cause for her termination and did not comply with the two-
notice rule, which requires notifying the employee of the specific acts or omissions leading to dismissal
and subsequently informing them of the employer's decision to terminate their employment.

4. Galera was not entitled to a monetary award since she did not secure an Alien Employment Permit
before her employment commenced. The Philippine Labor Code mandates that any alien seeking
employment in the Philippines must obtain an employment permit from the Department of Labor before
being engaged for work. Granting Galera's request would condone a violation of Philippine labor laws
requiring aliens to secure work permits before their employment.

The Court ruled in favor of Jocelyn Galera on the issues of her employment status and the legality of her
dismissal but denied her claim for a monetary award due to her failure to secure the necessary
employment permit.
Marc II Marketing, Inc. vs. Joson (662 SCRA 35 [2011])

https://lawphil.net/judjuris/juri2011/dec2011/gr_171993_2011.html

**Facts:**

- Petitioner Marc II Marketing, Inc. is a Philippine corporation involved in the retail and wholesale
distribution of household appliances and products.

- The petitioner corporation took over the business operations of Marc Marketing, Inc., following its
incorporation and registration with the Securities and Exchange Commission (SEC).

- Lucila V. Joson is the President and majority stockholder of the petitioner corporation and was also the
former President and majority stockholder of Marc Marketing, Inc.

- Respondent Alfredo M. Joson served as the General Manager, incorporator, director, and stockholder of
the petitioner corporation.

- Prior to the incorporation of the petitioner corporation, Alfredo worked as the General Manager of
Marc Marketing, Inc., as formalized by a Management Contract.

- On June 30, 1997, the petitioner corporation decided to cease its operations due to poor sales
collection and inefficient management, formally informing Alfredo of the cessation and terminating his
services.

- Alfredo filed a Complaint for Reinstatement and Money Claim against the petitioners before the Labor
Arbiter.

- Petitioners filed a Motion to Dismiss, arguing that the case should be under the jurisdiction of the SEC
or RTC due to an intra-corporate controversy.

- The Labor Arbiter ordered the parties to submit their respective Position Papers. Petitioners failed to do
so, and their Motion to Dismiss was treated as their Position Paper.

**Issues:**

1. Whether Alfredo, as the General Manager of the petitioner corporation, is considered a corporate
officer or a mere employee.

2. Which between the Labor Arbiter and the RTC has jurisdiction over Alfredo's dismissal as General
Manager of the petitioner corporation.

**Rulings:**

- The Court ruled that Alfredo, as the General Manager, is not a corporate officer. According to the
Corporation Code, corporate officers are explicitly defined and include the President, Secretary,
Treasurer, and any other officers provided for in the by-laws. The phrase "such other officers as may be
provided for in the by-laws" was clarified in previous cases to mean that a position must be expressly
mentioned in the by-laws to be considered a corporate office.
- The enabling provision in the petitioner corporation's by-laws allowed the Board of Directors to appoint
other officers, including the General Manager. However, this did not make the General Manager a
corporate officer without amending the by-laws to include this position.

- Since Alfredo was not a corporate officer under the Corporation Code or the by-laws, he was
considered an employee occupying a high-ranking position. Therefore, his dismissal did not constitute an
intra-corporate controversy, and the Labor Arbiter had jurisdiction over the case.

**Conclusion:**

Alfredo, as the General Manager, was not a corporate officer, and the Labor Arbiter had jurisdiction over
his dismissal case.
Bañate vs. Phil. Countryside Rural Bank (625 SCRA 21 [2010])

https://chanrobles.com/scdecisions/jurisprudence2010/july2010/163825.php

**Facts:**

- On July 22, 1997, the petitioners obtained a loan of P1,070,000.00 from PCRB, secured by a real estate
mortgage.

- The petitioners, along with another couple, requested PCRB's permission to sell the mortgaged
properties and be released from the mortgage since they had other loans adequately secured by
different mortgages.

- PCRB verbally agreed to this request but required the full payment of the subject loan before releasing
the mortgage.

- After settling the loan, PCRB gave the buyer, Banate, the duplicate certificate of title, but it still carried
the mortgage lien in favor of PCRB.

- The petitioners requested a Deed of Release of Mortgage from PCRB, which PCRB refused to provide.

- The petitioners filed an action for specific performance before the RTC to compel PCRB to execute the
release deed.

- PCRB claimed that Banate was a buyer in bad faith as she was aware of the existing mortgage when
purchasing the properties.

- The RTC ruled in favor of the petitioners, stating that the verbal agreement with PCRB's branch
manager was valid.

**Issues:**

1. Whether the verbal agreement between the petitioners and PCRB's branch manager novated the
original mortgage contract and is binding upon PCRB.

**Held:**

No, the verbal agreement did not novate the original mortgage contract and is not binding upon PCRB.

**Rulings:**

- Novation requires the creation of a new valid obligation along with the extinguishment or modification
of an existing one. Both parties' consent is necessary.

- In the context of corporate entities, the corporate powers of a corporation must be exercised by the
board of directors. No one, not even corporate officers, can bind a corporation without the board's
authority.

- Corporate boards may delegate some functions and powers to officers, committees, or agents, and
their authority is derived from law, bylaws, or authorization from the board.
- In this case, there was no proof that PCRB authorized its branch manager to verbally alter mortgage
contracts. The trial court did not establish the branch manager's apparent authority to modify the
mortgage contract. There was no evidence of a course of business, usages, or practices of the bank to
support such authority.

- PCRB's vigorous denial of the agreement, the clear terms of the mortgage contract, and the absence of
a written agreement were significant factors.

- Apparent authority should not be stretched to include the power to undo or nullify valid agreements.
The power to modify or nullify corporate contracts typically resides with the board of directors.

- The burden of proving the branch manager's authority to alter the mortgage contract was not
established.

**Conclusion:**

The verbal agreement between the petitioners and PCRB's branch manager did not novate the original
mortgage contract, and PCRB was not bound by it. The petitioners' request for a Deed of Release of
Mortgage was not valid based on the verbal agreement.
Associated Bank vs. Pronstroller (558 SCRA 113 [2008])

https://lawphil.net/judjuris/juri2008/jul2008/gr_148444_2008.html

**Facts:**

- Spouses Eduardo and Ma. Pilar Vaca executed a Real Estate Mortgage (REM) in favor of Associated Bank
(Associated) over their property.

- Associated won the public auction due to the Vacas' failure to pay their obligation and was issued the
title.

- The Vacas filed an action to nullify the REM and foreclosure sale.

- During the case, Associated advertised the property for sale, and the Pronstrollers bought it.

- Associated and the Pronstrollers executed a Letter-Agreement allowing the balance to be paid later,
pending the court decision on Associated's right to possess the property.

- The Pronstrollers requested an extension, which was initially denied but later granted by another
Letter-Agreement.

- Associated reorganized its management, and Atty. Braulio Dayday discovered the Pronstrollers' failure
to deposit the balance.

- The matter was referred to the Legal Department for rescission or cancellation of the agreement.

- The Pronstrollers' proposals for payment were rejected, and they were advised to refund a portion of
their payment.

- Associated sold the property to the Vacas while the Pronstrollers' case was pending.

- The Pronstrollers won the case, and the RTC nullified the agreement with Associated.

- Associated appealed to the Court of Appeals (CA).

**Issue:**

Whether Associated can rescind the agreement with the Pronstrollers.

**Held:**

No, Associated cannot rescind the agreement. CA affirmed RTC.

**Rulings:**

- In the absence of authority from the board of directors, no person, not even officers, can bind a
corporation.

- Boards can delegate some functions and powers to officers, committees, and agents.

- The doctrine of apparent authority applies, where the corporation holds out an officer or agent as
having the power to act or acquiesces in their acts.
- The first Letter-Agreement was entered into without a board resolution, thus clothing Atty. Soluta with
apparent authority to modify it with the second Letter-Agreement.

- A notice of lis pendens was registered to warn the world of the pending litigation, giving the court
authority to cancel the title of the Vacas.

**Conclusion:**

Associated cannot rescind the agreement with the Pronstrollers. The doctrine of apparent authority and
the registration of a notice of lis pendens were considered in favor of the Pronstrollers.
Strategic Alliance Dev. Corp. vs. Radstock Securities Ltd. (607 SCRA 413 [2009])

https://lawphil.net/judjuris/juri2009/dec2009/gr_178158_2009.html

**Facts:**

- Construction Development Corporation of the Philippines (CDCP), later renamed Philippine National
Construction Corporation (PNCC), obtained loans from Marubeni Corporation.

- CDCP officials issued letters of guarantee for the loans without a board resolution authorizing it.

- In 1983, CDCP's name changed to PNCC, reflecting government ownership of 90.3%.

- In 2000, PNCC admitted liability to Marubeni after two decades of refusal.

- In 2001, Marubeni assigned its credit to Radstock Securities Limited (Radstock).

- PNCC and Radstock entered a Compromise Agreement wherein PNCC would pay a reduced amount in
settlement of its guarantee of CDCP Mining's debt.

- STRADEC moved for reconsideration, claiming a right to PNCC's shares, receivables, securities, and
interests.

**Issue:**

Whether the Compromise Agreement between PNCC and Radstock is valid in relation to the
Constitution, existing laws, and public policy.

**Held:**

The Compromise Agreement is contrary to the Constitution, existing laws, and public policy.

**Rulings:**

- PNCC's toll fees are public funds held in trust by PNCC for the National Government.

- Using toll fees to pay a private debt is against the Constitution's prohibition of using government funds
or property solely for public purposes.

- Since there is no appropriation law for the compromise amount, the agreement is void under the
Constitution.

- Radstock, as a foreign corporation, cannot own land in the Philippines, and therefore, it cannot own the
rights to land ownership.

- Any assignment of land rights by Radstock is a circumvention of the Constitutional prohibition against
foreign corporations owning land in the Philippines.

- This circumvention renders the Compromise Agreement void.

**Conclusion:**
The Compromise Agreement is invalid as it goes against the Constitution, existing laws, and public policy.
The use of public funds for private debt and the circumvention of land ownership laws make the
agreement void.

Filipinas Port Services vs. NLRC (177 SCRA 203 [1989])

https://lawphil.net/judjuris/juri1991/aug1991/gr_97237_1991.html

**Facts:**

- The government policy mandated that cargo handling operations in ports be limited to one cargo
handling operator-contractor.

- Different stevedoring and arrastre corporations in the Port of Davao merged into a single dockhandlers
corporation, Davao Dockhandlers, Inc., later renamed Filport.

- Filport absorbed its labor force from the merging operators.

- Private respondents filed complaints for retirement benefits, claiming services rendered prior to
February 16, 1977.

- Labor Arbiter held Filport liable.

- NLRC affirmed the decision.

- Filport filed a petition with the Supreme Court (G.R. No. 85704) but was still pending when another
employee, Josefino Silva, filed a similar case against Filport.

- First Division of the Supreme Court ruled in favor of Filport in G.R. No. 86026, holding that Filport is not
liable for the obligations of the predecessor employers.

- Second Division of the Supreme Court dismissed G.R. No. 85704.

- Filport filed a petition for clarification with a prayer for preliminary injunction to reconcile the
conflicting decisions.

**Issue:**

Whether Filport is liable for the retirement benefits of private respondents for services rendered prior to
February 16, 1977, when it absorbed the labor force from the merging operators.

**Held:**

Filport is liable for the retirement benefits of private respondents.

**Rulings:**

- Findings of administrative agencies, particularly in labor cases, are generally accorded respect and at
times finality.

- The merger between the different corporations resulted in Filport having a succession of employment
rights and obligations.
- The law enforced at the time of the merger mandated that Filport would absorb the labor force and
necessary personnel complement of the merging operators, indicating the intention to continue
employer-employee relationships.

- A memorandum exonerating Filport from liability issued by the PPA Assistant General Manager is
contrary to public policy and the right to security of tenure.

- The principle cited in Fernando v. Angat Labor Union applies when the transferee is an entirely new
corporation, not when the transferee is an alter ego of the merging firms.

- Denying the private respondents the benefits of their labor for services rendered before the merger
would violate constitutional provisions on labor protection and social justice.

- The Supreme Court has consistently adopted a liberal approach favoring the exercise of labor rights in
interpreting labor laws and constitutional provisions.

**Conclusion:**

Filport is liable for the retirement benefits of private respondents for services rendered prior to the
merger, as it is considered a successor-employer, and the attempt to exempt itself from this liability is
contrary to public policy and the protection of labor rights. The conflicting decisions of the Supreme
Court are reconciled by affirming the findings of the NLRC and the principle that Filport is liable for the
retirement benefits.
Sanchez vs. Republic (603 SCRA 229 [2009])

https://chanrobles.com/scdecisions/jurisprudence2009/oct2009/gr_172885_2009.php

**Facts:**

- In 1980, during the Marcos regime, the Human Settlements Development Corporation (HSDC) built the
St. Martin Technical Institute Complex in Pasig City using public funds and government land.

- The University of Life Foundation, Inc. (ULFI), a private non-profit corporation organized by First Lady
Imelda Marcos, was given management and operation of the Complex.

- An agreement required ULFI to pay HSDC an annual fee.

- After the fall of the Marcos regime, the government reorganized HSDC into the Strategic Investment
Development Corporation (SIDCOR).

- SIDCOR rescinded the HSDC-ULFI agreement due to ULFI's failure to pay the annual fee.

- Government ownership of ULFI's properties was transferred to the Department of Education, Culture
and Sports (DECS).

- ULFI and DECS entered into a management agreement.

- DECS filed an unlawful detainer case against ULFI.

- ULFI was evicted, but it didn't pay the rent owed to DECS.

- DECS filed a collection case against Henri Kahn and Manuel Luis S. Sanchez, officers of ULFI, under
Section 31 of the Corporation Code, alleging their gross negligence or bad faith in handling ULFI's funds.

**Issue:**

1. Whether Manuel Luis S. Sanchez can be held personally liable for damages under Section 31 of the
Corporation Code for gross negligence or bad faith in directing ULFI's affairs.

2. Whether the action is barred by res judicata or constitutes forum shopping.

**Ruling:**

1. Manuel Luis S. Sanchez can be held personally liable for damages under Section 31 of the Corporation
Code for gross negligence or bad faith in directing ULFI's affairs.

2. The action is not barred by res judicata or constitutes forum shopping.

**Key Points:**

- Section 31 of the Corporation Code holds directors or officers personally liable for damages resulting
from gross negligence or bad faith in directing corporate affairs.

- Bad faith implies breach of faith and willful failure to respond to obligations, while gross negligence
involves want of even slight care in a situation where there is a duty to act.
- The case does not involve piercing the corporate veil but is based on Section 31, making the directors
personally liable for their actions.

- Forum shopping requires filing multiple suits involving the same parties for the same cause of action. In
this case, the unlawful detainer case and the action for damages are not the same cause of action.

- Res judicata does not apply because the unlawful detainer case was based on non-payment of rent,
while the action for damages is based on gross negligence and bad faith in handling funds, distinct
issues.