Pantranco Employees Asso., et al. vs. NLRC, et al./Philippine National Bank Vs. Pantranco Employees Association Inc., et al.

, G.R. No. 170689/G.R. No. 170705, March 17, 2009, is an interesting case wherein former employees of a company sought to satisfy their unpaid labor claims against another company that eventually acquired, and then sold, the employer company. The Gonzales family owned two corporations, namely, the Pantranco North Express, Inc. (PNEI) and Macris Realty Corporation (Macris). PNEI provided transportation services to the public, and had its bus terminal at the corner of Quezon and Roosevelt Avenues in Quezon City. The terminal stood on four valuable pieces of real estate (known as Pantranco properties) registered under the name of Macris. The Gonzales family later incurred huge financial losses despite attempts of rehabilitation and loan infusion. In March 1975, their creditors took over the management of PNEI and Macris. By 1978, full ownership was transferred to one of their creditors, the National Investment Development Corporation (NIDC), a subsidiary of the PNB. Macris was later renamed as the National Realty Development Corporation (Naredeco) and eventually merged with the National Warehousing Corporation (Nawaco) to form the new PNB subsidiary, the PNB-Madecor. In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio Araneta III. In 1986, PNEI was among the several companies placed under sequestration by the Presidential Commission on Good Government (PCGG) shortly after the historic events in EDSA. In January 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the private sector through the Asset Privatization Trust (APT). APT thus took over the management of PNEI. In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for suspension of payments. A management committee was thereafter created which recommended to the SEC the sale of the company through privatization. As a cost-saving measure, the committee likewise suggested the retrenchment of several PNEI employees. Eventually, PNEI ceased its operation. Along with the cessation of business came the various labor claims commenced by the former employees of PNEI where the latter obtained favorable decisions. On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution commanding the National Labor Relations Commission (NLRC) sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its former employees, as full and final satisfaction of the judgment awards in the labor cases. The sheriffs were likewise instructed to proceed against
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PNB, PNB-Madecor and Mega Prime. In implementing the writ, the sheriffs levied upon the four valuable pieces of real estate located at the corner of Quezon and Roosevelt Avenues, on which the former Pantranco Bus Terminal stood. These properties were covered by Transfer Certificate of Title (TCT) Nos. 87881-87884, registered under the name of PNB-Madecor. Subsequently, Notice of Sale of the foregoing real properties was published in the newspaper and the sale was set on July 31, 2002. Having been notified of the auction sale, motions to quash the writ were separately filed by PNB-Madecor and Mega Prime, and PNB. They likewise filed their Third-Party Claims. PNBMadecor anchored its motion on its right as the registered owner of the Pantranco properties, and Mega Prime as the successor-in-interest. For its part, PNB sought the nullification of the writ on the ground that it was not a party to the labor case. In its Third-Party Claim, PNB alleged that PNB-Madecor was indebted to the former and that the Pantranco properties would answer for such debt. On September 10, 2002, the Labor Arbiter declared that the subject Pantranco properties were owned by PNB-Madecor. It being a corporation with a distinct and separate personality, its assets could not answer for the liabilities of PNEI. Considering, however, that PNB-Madecor executed a promissory note in favor of PNEI for P7,884,000.00, the writ of execution to the extent of the said amount was concerned was considered valid. PNBs third-party claim to nullify the writ on the ground that it has an interest in the Pantranco properties being a creditor of PNB-Madecor, on the other hand, was denied because it only had an inchoate interest in the properties. The NLRC affirmed the Labor Arbiters decision. The CA also affirmed the NLRCs decision. The appellate court pointed out that PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from PNEI. As such, there being no cogent reason to pierce the veil of corporate fiction, the separate personalities of the above corporations should be maintained. The CA added that the Pantranco properties were never owned by PNEI; rather, their titles were registered under the name of PNB-Madecor. If PNB and PNB-Madecor could not answer for the liabilities of PNEI, with more reason should Mega Prime not be held liable being a mere successor-in-interest of PNB-Madecor. The former PNEI employees argued before the Supreme Court that PNB, through PNBMadecor, directly benefited from the operation of PNEI and had complete control over the funds of PNEI. Hence, they are solidarily answerable with PNEI for the unpaid money claims of the employees. Citing A.C. Ransom Labor Union-CCLU v. NLRC, the employees insist that
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where the employer corporation ceases to exist and is no longer able to satisfy the judgment awards in favor of its employees, the owner of the employer corporation should be made jointly and severally liable. The Supreme Court ruled that the former PNEI employees cannot attach the properties (specifically the Pantranco properties) of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims against PNEI. According to the Supreme Court: First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged in any of their pleadings the fact of such ownership. What was established, instead, in PNB MADECOR v. Uy and PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB was that the properties were owned by Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued against by the creditors of PNEI. We would like to stress the settled rule that the power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor alone. To be sure, one mans goods shall not be sold for another mans debts. A sheriff is not authorized to attach or levy on property not belonging to the judgment debtor, and even incurs liability if he wrongfully levies upon the property of a third person. Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from that of PNEI. PNB is sought to be held liable because it acquired PNEI through NIDC at the time when PNEI was suffering financial reverses. PNB-Madecor is being made to answer for petitioners labor claims as the owner of the subject Pantranco properties and as a subsidiary of PNB. Mega Prime is also included for having acquired PNBs shares over PNBMadecor. The general rule is that a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected. This is a fiction created by law for convenience and to prevent injustice. Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI are corporations with their own personalities. The separate personalities of the first three corporations had been recognized by this Court in PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB where we stated that PNB was only a stockholder of PNB-Madecor which later sold its shares to Mega Prime; and that PNB-Madecor was the owner of the Pantranco properties. Moreover, these corporations are registered as separate entities and, absent any valid reason, we maintain their separate identities and we cannot treat them as one.

Neither can we merge the personality of PNEI with PNB simply because the latter acquired the former. Settled is the rule that where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor. Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to warrant the piercing of the corporate veil, none applies in the present case whether between PNB and PNEI; or PNB and PNB-Madecor. Under the doctrine of piercing the veil of corporate fiction, the court looks at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one and the same. Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote unfair objectives. As between PNB and PNEI, petitioners want us to disregard their separate personalities, and insist that because the company, PNEI, has already ceased operations and there is no other way by which the judgment in favor of the employees can be satisfied, corporate officers can be held jointly and severally liable with the company. Petitioners rely on the pronouncement of this Court in A.C. Ransom Labor Union-CCLU v. NLRC and subsequent cases. This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case. For one, in the said cases, the persons made liable after the companys cessation of operations were the officers and agents of the corporation. The rationale is that, since the corporation is an artificial person, it must have an officer who can be presumed to be the employer, being the person acting in the interest of the employer. The corporation, only in the technical sense, is the employer. In the instant case, what is being made liable is another corporation (PNB) which acquired the debtor corporation (PNEI).
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Moreover, in the recent cases Carag v. National Labor Relations Commission and McLeod v. National Labor Relations Commission, the Court explained the doctrine laid down in AC Ransom relative to the personal liability of the officers and agents of the employer for the debts of the latter. In AC Ransom, the Court imputed liability to the officers of the corporation on the strength of the definition of an employer in Article 212(c) (now Article 212[e]) of the Labor Code. Under the said provision, employer includes any person acting in the interest of an employer, directly or indirectly, but does not include any labor organization or any of its officers or agents except when acting as employer. It was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation. It added that the governing law on personal liability of directors or officers for debts of the corporation is still Section 31 of the Corporation Code. More importantly, as aptly observed by this Court in AC Ransom, it appears that Ransom, foreseeing the possibility or probability of payment of backwages to its employees, organized Rosario to replace Ransom, with the latter to be eventually phased out if the strikers win their case. The execution could not be implemented against Ransom because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations. Hence, the Court sustained the piercing of the corporate veil and made the officers of Ransom personally liable for the debts of the latter. Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. The Court ruled that assuming, for the sake of argument, that PNB may be held liable for the debts of PNEI, petitioners still cannot proceed against the Pantranco properties, the same being owned by PNB-Madecor, notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The general rule remains that PNB-Madecor has a personality separate and distinct from PNB. The mere fact that a corporation owns all of the stocks of another corporation, taken
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alone, is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiarys separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective businesses. MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETOHERALDO Deputy Provincial Sheriff of Camarines Norte, defendants-appellees. G.R. No. L-22973,January 30, 1968 ANGELES, J.: FACTS: On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 (approved for a loan of P100,000 only) with the Naga Branch of defendant PNB. To secure payment, the plaintiff mortgaged aparcel of land, together with the buildings and improvements existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of Camarines Norte. The PNB released from the approvedloan the sum of P27,500, and another release of P15,500.The plaintiff failed to pay the amortization on the amounts released to and received by it. It was found that the plaintiff had already stopped operation about the end of 1957 or early part of 1958.The unpaid obligation of the plaintiff as of September 22, 1961, amounted to P57,646.59, excludingattorney's fees. A foreclosure sale of the parcel of land, together with the buildings and improvementsthereon was, held on November 21, 1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the same within a period of one year.The plaintiff sent a letter reiterating its request that the foreclosure sale of the mortgaged chattels bediscontinued on the grounds that the mortgaged indebtedness had been fully paid and that it could not belegally effected at a place other than the City of Manila.The trial court sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum. The plaintiff on appeal advanced that its totalindebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not P58,213.51 as concludedby the court a quo; hence, the proceeds of the foreclosure sale of its real property alone in the amount of P56,908.00 on that
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date, added to the sum of P738.59 it remitted to the PNB thereafter was more thansufficient to liquidate its obligation, thereby rendering the subsequent foreclosure sale of its chattelsunlawful;That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of plaintiff'svigorous opposition thereto, and in taking possession thereof after the sale thru force, intimidation,coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff fordamages and attorney's fees.

ISSUE: Whether or not PNB may be held l iable to plaintiff Corporation for damages and attorneys fees.

HELD: Herein appellant's claim for moral damages, seems to have no legal or factual basis. Obviously, anartificial person like herein appellant corporation cannot experience physical sufferings, mentalanguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which arebasis of moral damages . A corporation may have a good reputation which, if besmirched, may also be aground for the award of moral damages. The same cannot be considered under the facts of this case,however, not only because it is admitted that herein appellant had already ceased in its business operationat the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedlybe the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is theplace agreed upon by the parties in the mortgage contract. ESTELITA BURGOS LIPAT AND ALFREDO LIPAT, vs. PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX- OFFICIO SHERIFF OF QUEZON
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CITY AND THE HEIRS OF EUGENIO D. TRINIDAD, G.R. No. 142435 April 30, 2003 http://www.chanrobles.com/cralawgrno142435april302003.html

While the power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in its board of directors, subject to the articles of incorporation, by-laws, or relevant provisions of law, yet, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to officers, committees, or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate by-laws, or authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in the general course of business.[31] Apparent authority, is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.[32] PNB, NASUDECO vs. Andrada Electric and Engineering Company (2002)Doctrine: Basic is the rule that a corporation has a legal personality distinct andseparate from the persons and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend crime, justify a wrong, defeat publicconvenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that thePhilippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchasedat the resulting public auction by the Development Bank of the Philippines (DBP), willnot make PNB liable for the PASUMILs contractual debts to respondent. Facts: 1.PASUMIL (Pampanga Sugar Mills) engaged the services of Andrada Electric for electrical rewinding, repair, the construction of a power house building,installation of turbines, transformers, among others. Most of the services werepartially paid by PASUMIL, leaving several unpaid accounts. 2.
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On August 1975, PNB, a semi-government corporation, acquired the assets of PASUMIL assets that were earlier foreclosed by the DBP. 3. On September 1975, PNB organized NASUDECO (National Sugar DevelopmentCorporation), under LOI No. 311 to take ownership and possession of the assetsand ultimately, to nationalize and consolidate its interest in other PNB controlledsugar mills. NASUDECO is a semi-government corporation and the sugar arm of the PNB.4.Andrada Electric alleges that PNB and NASUDECO should be liable for PASUMILs unpaid obligation amounting to 500K php, damages, and attorneysfees, having owned and possessed the assets of PASUMIL. Issue: Whether PNB and NASUDECO may be held liable for PASUMILs liability to AndradaElectric and Engineering Company. Held: NO. Basic is the rule that a corporation has a legal personality distinct and separate from thepersons and entities owning it. The corporate veil may be lifted only if it has been usedto shield fraud, defend crime, justify a wrong, defeat public convenience, insulate badfaith or perpetuate injustice.Thus, the mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting public auction by the Development Bankof the Philippines (DBP), will not make PNB liable for the PASUMIL's contractualdebts to Andrada Electric & Engineering Company (AEEC). Piercing the veil of corporate fiction may be allowed only if the following elementsconcur: (1) control not mere stock control, but complete domination not only of finances, but of policy and business practice in respect to the transaction attacked, musthave been such that the corporate entity as to this transaction had at the time noseparate mind, will or existence of its own; (2) such control must have been used by thedefendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff'slegal right; and (3) the said control and breach of duty must have proximately causedthe injury or unjust loss complained of.The absence of the foregoing elements in the present case precludes the piercing of thecorporate veil.First, other than the fact that PNB and NASUDECO acquired
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the assets of PASUMIL,there is no showing that their control over it warrants the disregard of corporatepersonalities. Second, there is no evidence that their juridical personality was used tocommit a fraud or to do a wrong; or that the separate corporate entity was farcicallyused as a mere alter ego, business conduit or instrumentality of another entityor person.Third, AEEC was not defrauded or injured when PNB and NASUDECO acquired theassets of PASUMIL. Hence, although the assets of NASUDECO can be easily traced toPASUMIL, the transfer of the latter's assets to PNB and NASUDECO was notfraudulently entered into in order to escape liability for its debt to AEEC.There was NO merger or consolidation with respect to PASUMIL and PNB.Respondent further claims that petitioners should be held liable for the unpaidobligations of PASUMIL by virtue of LOI Nos. 189-A and 311, which expresslyauthorized PASUMIL and PNB to merge or consolidate (allegedly).On the other hand, petitioners contend that their takeover of the operations of PASUMILdid not involve any corporate merger or consolidation, because the latter had never lostits separate identity as a corporation. A consolidation is the union of two or more existing entities to form a new entity calledthe consolidated corporation. A merger, on the other hand, is a union whereby one or more existing corporations are absorbed by another corporation that survives andcontinues the combined business.The merger, however, does not become effective upon the mere agreement of theconstituent corporations. Since a merger or consolidation involves fundamental changesin the corporation, as well as in the rights of stockholders and creditors, there must bean express provision of law authorizing them.For a valid merger or consolidation, the approval by the SEC of the articles of merger or consolidation is required. These articles must likewise be duly approved by a majority of the respective stockholders of the constituent corporations.In the case at bar, there is no merger or consolidation with respect to PASUMIL andPNB. The procedure prescribed under Title IX of the Corporation Code was notfollowed.In fact, PASUMILs corporate existence, as correctly found by the CA, had not beenlegally extinguished or terminated. Further, prior to PNBs acquisition of the foreclosedassets, PASUMIL had previously made partial payments to respondent for the formersobligation in the amount of P777,263.80. As of June 27, 1973, PASUMIL hadpaid P250,000 to respondent and, from January 5, 1974 to May 23, 1974,another P14,000.Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL torespondent. LOI No. 11 explicitly provides that PNB shall study and submitrecommendations on the claims of PASUMILs creditors. Clearly, the corporateseparateness between PASUMIL and PNB remains, despite respondents insistence tothe contrary.
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FRANCISCO v MEIJA FACTS: Adalia Francisco was the Treasurer of Cardale Financing and Realty Corporation (Cardale). Cardale, through Francisco, contracted with Andrea Gutierrez for the latter to execute a deed of sale over certain parcels of land in favor of Cardale. It was agreed that Gutierrez shall hand over the titles to Cardale but Cardale shall only give a downpayment, and later on full payment in installment. As security, Gutierrez shall retain a lien over the properties by way of mortgage. Nonetheless, Cardale defaulted in its payment. Gutierrez then filed a petition with the trial court to have the Deed rescinded. While the case was pending, Gutierrez died, and Rita Mejia, being the executrix of the will of Gutierrez took over the affairs of the estate. The case dragged on for 14 years because Francisco lost interest in presenting evidence. And while the case was pending, Cardale failed to pay real estate taxes over the properties in litigation hence, the local government subjected said properties to an auction sale to satisfy the tax arrears. The highest bidder in the auction sale was Merryland Development Corporation (Merryland). Apparently, Merryland is a corporation in which Francisco was the President and majority stockholder. Mejia then sought to nullify the auction sale on the ground that Francisco used the two corporations as dummies to defraud the estate of Gutierrez especially so that these circumstances are present: Francisco did not inform the lower court that the properties were delinquent in taxes; That there was notice for an auction sale and Francisco did not inform the Gutierrez estate and as such, the estate was not able to perform appropriate acts to remedy the same; That without knowledge of the auction, the Gutierrez estate cannot exercise their right of redemption; That Francisco failed to inform the court that the highest bidder in the auction sale was Merryland, her other company; That thereafter, Cardale was dissolved and the subject properties were divided and sold to other people. ISSUE: Whether or not Merryland and Francisco shall be held solidarily liable.
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HELD: No. Only Francisco shall be held liable to pay the indebtedness to the Gutierrez estate. What was only proven was that Francisco defrauded the Gutierrez estate as clearly shown by the dubious circumstances which caused the encumbered properties to be auctioned. By not disclosing the tax delinquency, Francisco left Gutierrez in the dark. She obviously acted in bad faith. Franciscos elaborate act of defaulting payment, disregarding the case, not paying realty taxes (since as treasurer of Cardale, shes responsible for paying the real estate taxes for Cardale), and failure to advise Gutierrez of the tax delinquencies all constitute bad faith. The attendant fraud and bad faith on the part of Francisco necessitates the piercing of the veil of corporate fiction in so far as Cardale and Francisco are concerned. Cardale and Francisco cannot escape liability now that Cardale has been dissolved. Francisco shall then pay Guttierez estate the outstanding balance with interest (total of P4.3 + million). As regards Merryland however, there was no proof that it is merely an alter ego or a business conduit of Francisco. Merryland merely bought the properties from the auction sale and such per se is not a wrongful act or a fraudulent act. Time and again it has been reiterated that mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Hence, Merryland cant be held solidarily liable with Francisco. Suldao vs. Cimech System Construction, Inc.[25][12] enunciated:

Constructive dismissal or a constructive discharge has been defined as quitting because continued employment is rendered impossible, unreasonable or unlikely, as an offer involving a demotion in rank and a diminution in pay. There is constructive dismissal when the continued employment is rendered impossible so as to foreclose any choice on the employees part except to resign from such employment. J. M. TUASON & CO., INC., represented by it Managing PARTNER,GREGORIA ARANETA, INC., plaintiff-appellee,-versusQUIRINO BOLAOS, defendant-appellant.FACTS: This was an action to recover possession of a parcel of land where theplaintiff was represented by a corporation.Issue: WON the case should be dismissed on the ground that the case was notbrought by the real property in interestHeld:No.
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 there is nothing to the contention that the present action is not brought bythe real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rulesof Court require is that an action be brought in the name of, but notnecessarily by , the real party in interest. (Section 2, Rule 2.) The complaint is signed by the law firm of Araneta and Araneta, "counsel forplaintiff" and commences with the statement "comes now plaintiff, throughits undersigned counsel." It is true that the complaint also states that theplaintiff is "represented herein by its Managing Partner Gregorio Araneta,Inc.", another corporation There is nothing against one corporation being represented byanother person, natural or juridical, in a suit in court. The contention that Gregorio Araneta Inc. cannot act as managingpartner for plaintiff on the theory that it is illegal for twocorporations to enter into a partnership is without merit, for the truerule is that though a corporation has no power into a partnership, itmay nevertheless enter into a joint venture with another where thenature of that venture is in line with the business authorized by itscharter. NOTE: Point of the case is about joint ventures being treated separately frompartnerships. Tuason does not explain why there was a difference in treatment of corporate involvement in partnerships as compared to that when it come to jointventures. Lim v. Philippine Fishing Gear Industries, Inc.
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FACTS: It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again borrowed money and they agreed to purchase fishing nets and other fishing equipments. Now, Yao and Chua represented themselves as acting in behalf of Ocean Quest Fishing Corporation (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to more than P500k. They were however unable to pay PFGI and so they were sued in their own names because apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some time to pay. Yao waived his rights. Lim Tong Lim however argued that hes not liable because he was not aware that Chua and Yao represented themselves as a corporation; that the two acted without his knowledge and consent. ISSUE: Whether or not Lim Tong Lim is liable. HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term common fund under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners. International Express Travel & Tour Services Inc., v. CA
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FACTS: In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the Philippine Football Federation (PFF) its travel services for the South East Asian Games. PFF, through Henri Kahn, its president, agreed. IETTI then delivered the plane tickets to PFF, PFF in turn made a down payment. However, PFF was not able to complete the full payment in subsequent installments despite repeated demands from IETTI. IETTI then sued PFF and Kahn was impleaded as a co-defendant. Kahn averred that he should not be impleaded because he merely acted as an agent of PFF which he averred is a corporation with separate and distinct personality from him. The trial court ruled against Kahn and held him personally liable for the said obligation (PFF was declared in default for failing to file an answer). The trial court ruled that Kahn failed to prove that PFF is a corporation. The Court of Appeals however reversed the decision of the trial court. The Court of Appeals took judicial notice of the existence of PFF as a national sports association; that as such, PFF is empowered to enter into contracts through its agents; that PFF is therefore liable for the contract entered into by its agent Kahn. The CA further ruled that IETTI is in estoppel; that it cannot now deny the corporate existence of PFF because it had contracted and dealt with PFF in such a manner as to recognize and in effect admit its existence. ISSUE: Whether or not the Court of Appeals is correct. HELD: No. PFF, upon its creation, is not automatically considered a national sports association. It must first be recognized and accredited by the Philippine Amateur Athletic Federation and the Department of Youth and Sports Development. This fact was never substantiated by Kahn. As such, PFF is considered as an unincorporated sports association. And under the law, any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. Kahn is therefore personally liable for the contract entered into by PFF with IETTI. There is also no merit on the finding of the CA that IETTI is in estoppel. The application of the doctrine of corporation by estoppel applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation. In the case at bar, IETTI is not trying to escape liability from the contract but rather is the one claiming from the contract. People of the Philippines v. Engr. Pineda
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FACTS: In 1993, Carlos Garcia, Patricio Botero, and Luisa Miraples were accused of illegal recruitment. It was alleged that they represented themselves as the incorporators and officers of Ricorn Philippine International Shipping Lines, Inc.; that Ricorn is a recruitment agency for seamen; that Garcia is the president, Botero is the vice-president, and Miraples (now at large) is the treasurer. It was later discovered that Ricorn was never registered with the Securities and Exchange Commission (SEC) and that it was never authorized to recruit by the Philippine Overseas Employment Agency (POEA). Botero and Garcia were convicted. Botero appealed. In his defense, Botero averred that he was not an incorporator; that he was merely an employee of Ricorn in charge of following up on their documents. ISSUE: Whether or not Botero is a mere employee of Ricorn. HELD: No. It was proven by evidence that he was introduced to the applicants as the vice president of Ricorn. When he was receiving applicants, he was receiving them behind a desk which has a nameplate representing his name and his position as VP of Ricorn. But Ricorn was never incorporated? How will this affect his liability in the crime illegal recruitment? Under the law, if the offender is a corporation, partnership, association or entity, the penalty shall be imposed upon the officer or officers of the corporation, partnership, association or entity responsible for violation. In this case, even if Ricorn was not incorporated, Botero and his cohorts are estopped from denying liability as corporate officers of Ricorn. Section 25 of the Corporation Code provides that All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all the debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. Prime White Cement vs IAC Case Digest Prime White Cement Corporation vs. Intermediate Appellate Court [GR 68555, 19 March 1993]

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Facts: On or about 16 July 1969, Alejandro Te and Prime White Cement Corporation (PWCC) thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a dealership agreement whereby Te was obligated to act as the exclusive dealer and/or distributor of PWCC of its cement products in the entire Mindanao area for a term of 5 years and providing among others that (a) the corporation shall, commencing September, 1970, sell to and supply Te, as dealer with 20,000 bags (94 lbs/bag) of white cement per month; (b) Te shall pay PWCC P9.70, Philippine Currency, per bag of white cement, FOB Davao and Cagayan de Oro ports; (c) Te shall every time PWCC is ready to deliver the good, open with any bank or banking institution a confirmed, unconditional, and irrevocable letter of credit in favor of PWCC and that upon certification by the boat captain on the bill of lading that the goods have been loaded on board the vessel bound for Davao the said bank or banking institution shall release the corresponding amount as payment of the goods so shipped."

Right after Te entered into the dealership agreement, he placed an advertisement in a national, circulating newspaper the fact of his being the exclusive dealer of PWWC's white cement products in Mindanao area, more particularly, in the Manila Chronicle dated 16 August 1969 and was even congratulated by his business associates, so much so, he was asked by some of his businessmen friends and close associates if they can be his sub-dealer in the Mindanao area. Relying heavily on the dealership agreement, Te sometime in the months of September, October, and December, 1969, entered into a written agreement with several hardware stores dealing in buying and selling white cement in the Cities of Davao and Cagayan de Oro which would thus enable him to sell his allocation of 20,000 bags regular supply of the said commodity, by September, 1970. After Te was assured by his supposed buyer that his allocation of 20,000 bags of white cement can be disposed of, he informed the defendant corporation in his letter dated 18 August 1970 that he is making the necessary preparation for the opening of the requisite letter of credit to cover the price of the due initial delivery for the month of September 1970, looking forward to PWCC's duty to comply with the dealership agreement.

In reply to the aforesaid letter of Te, PWCC thru its corporate secretary, replied that the board of directors of PWCC decided to impose the following conditions: (a) Delivery of white cement shall commence at the end of November, 1970; (b) Only 8,000 bags of white cement per month for only a period of three (3) months will be delivered; (c) The price of white cement
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was priced at P13.30 per bag; (d) The price of white cement is subject to readjustment unilaterally on the part of the defendant; (e) The place of delivery of white cement shall be Austurias (sic); (f) The letter of credit may be opened only with the Prudential Bank, Makati Branch; (g) Payment of white cement shall be made in advance and which payment shall be used by the defendant as guaranty in the opening of a foreign letter of credit to cover costs and expenses in the procurement of materials in the manufacture of white cement. Several demands to comply with the dealership agreement were made by Te to PWCC, however, PWCC refused to comply with the same, and Te by force of circumstances was constrained to cancel his agreement for the supply of white cement with third parties, which were concluded in anticipation of, and pursuant to the said dealership agreement. Notwithstanding that the dealership agreement between Te and PWCC was in force and subsisting, PWCC, in violation of, and with evident intention not to be bound by the terms and conditions thereof, entered into an exclusive dealership agreement with a certain Napoleon Co for the marketing of white cement in Mindanao. Te filed suit. After trial, the trial court adjudged PWCC liable to Alejandro Te in the amount of P3,302,400.00 as actual damages, P100,000.00 as moral damages, and P10,000 00 as and for attorney's fees and costs. The appellate court affirmed the said decision. Hence, PWCC filed the petition for review on certiorari.

Issue: Whether the "dealership agreement" referred by the President and Chairman of the Board of PWCC is a valid and enforceable contract.

Held: The dealership agreement is not valid and unenforceable. Under the Corporation Law, which was then in force at the time the case arose, as well as under the present Corporation Code, all corporate powers shall be exercised by the Board of Directors, except as otherwise provided by law. Although it cannot completely abdicate its power and responsibility to act for the juridical entity, the Board may expressly delegate specific powers to its President or any of its officers. In the absence of such express delegation, a contract entered into by its President, on behalf of the corporation, may still bind the corporation if the board should ratify the same expressly or impliedly. Implied ratification may take various forms like silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Furthermore, even in the absence of express or implied authority by ratification, the President as such may, as a general rule, bind the corporation by a contract in the ordinary course of business, provided the same is reasonable
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under the circumstances. These rules are basic, but are all general and thus quite flexible. They apply where the President or other officer, purportedly acting for the corporations, is dealing with a third person, i.e., a person outside the corporation. The situation is quite different where a director or officer is dealing with his own corporation. Herein, Te was not an ordinary stockholder; he was a member of the Board of Directors and Auditor of the corporation as well. He was what is often referred to as a "self-dealing" director. A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. As corporate managers, directors are committed to seek the maximum amount of profits for the corporation. A director's contract with his corporation is not in all instances void or voidable. If the contract is fair and reasonable under the circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made.

Granting arguendo that the "dealership agreement" would be valid and enforceable if entered into with a person other than a director or officer of the corporation, the fact that the other party to the contract was a Director and Auditor of PWCC changes the whole situation. First of all, the contract was neither fair nor reasonable. The "dealership agreement" entered into in July 1969, was to sell and supply to Te 20,000 bags of white cement per month, for 5 years starting September 1970, at the fixed price of P9.70 per bag. Te is a businessman himself and must have known, or at least must be presumed to know, that at that time, prices of commodities in general, and white cement in particular, were not stable and were expected to rise. At the time of the contract, PWCC had not even commenced the manufacture of white cement, the reason why delivery was not to begin until 14 months later. He must have known that within that period of 6 years, there would be a considerable rise in the price of white cement. In fact, Te's own Memorandum shows that in September 1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag. Despite this, no provision was made in the "dealership agreement" to allow for an increase in price mutually acceptable to the parties. Instead, the price was pegged at P9.70 per bag for the whole 5 years of the contract. Fairness on his part as a director of the corporation from whom he was to buy the cement, would require such a provision. In fact, this unfairness in the contract is also a basis which renders a contract entered into by the President, without authority from the Board of Directors, void or voidable, although it may have been in the ordinary course of business. The fixed price of P9.70 per bag for a period of 5 years was not fair and reasonable. As director, specially since he was the other party in interest, Te's bounden duty was to act in such manner
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as not to unduly prejudice the corporation. In the light of the circumstances of this case, it is to Us quite clear that he was guilty of disloyalty to the corporation; he was attempting in effect, to enrich himself at the expense of the corporation. There is no showing that the stockholders ratified the "dealership agreement" or that they were fully aware of its provisions. The contract was therefore not valid and the Court cannot allow him to reap the fruits of his disloyalty. Montelibano vs Bacolod-Murcia Milling (1962) Facts: Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and the Limited copartnership Gonzaga and Company, had been and are sugar planters adhered to the defendant-appellees sugar central mill under identical milling contracts. Originally executed in 1919, said contracts were stipulated to be in force for 30 years starting with the 1920-21 crop, and provided that the resulting product should be divided in the ratio of 45% for the mill and 55% for the planters. Sometime in 1936, it was proposed to execute amended milling contracts, increasing the planters share to 60% of the manufactured sugar and resulting molasses, besides other concessions, but extending the operation of the milling contract from the original 30 years to 45 years. The Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further concessions to the planters over and above those contained in the printed Amended Milling Contract. The appellants initiated the present action, contending that three Negros sugar centrals with a total annual production exceeding one-third of the production of all the sugar central mills in the province, had already granted increased participation (of 62.5%) to their planters, and that under the resolution the appellee had become obligated to grant similar concessions to the plaintiffs. The appellee Bacolod-Murcia Milling Co., inc., resisted the claim, and defended by urging that the stipulations contained in the resolution were made without consideration; that the resolution in question was, therefore, null and void ab initio, being in effect a donation that was ultra vires and beyond the powers of the corporate directors to adopt.

Issue: WON the board resolution is an ultra vires act and in effect a donation from the board of directors?

Held: No. There can be no doubt that the directors of the appellee company had authority to modify the proposed terms of the Amended Milling Contract for the purpose of making its
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terms more acceptable to the other contracting parties. As the resolution in question was passed in good faith by the board of directors, it is valid and binding, and whether or not it will cause losses or decrease the profits of the central, the court has no authority to review them. Whether the business of a corporation should be operated at a loss during depression, or close down at a smaller loss, is a purely business and economic problem to be determined by the directors of the corporation and not by the court. The appellee Bacolod-Murcia Milling Company is, under the terms of its Resolution of August 20, 1936, duty bound to grant similar increases to plaintiffs-appellants herein. G.R. No. L-40620 May 5, 1979

RICARDO L. GAMBOA, LYDIA R. GAMBOA, HONORIO DE 1A RAMA, EDUARDO DE LA RAMA, and the HEIRS OF MERCEDES DE LA RAMA-BORROMEO, petitioners, vs. HON. OSCAR R. VICTORIANO as Presiding Judge of the Court of First Instance of Negros Occidental, Branch II, BENJAMIN LOPUE, SR., BENJAMIN LOPUE, JR., LEONITO LOPUE, and LUISA U. DACLES respondents.

Exequiel T. A Alejandro for petitioners.

Acua, Lirazan & Associates for private respondents.

CONCEPCION JR., J,:

Petition for certiorari to review the order of the respondent judge, dated January 2, 1975, denying the petitioners' motion to dismiss the complaint filed in Civil Case No. 10257 of the
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Court of First Instance of Negros Occidental, entitled, "Benjamin Lopue Sr., et al., plaintiffs, versus Ricardo Gamboa, et al., defendants," as well as the order dated April 4, 1975, denying the motion for the reconsideration of Said order.

In the aforementioned Civil Case No. 10257 of the Court of First Instance of Negros Occidental, the herein petitioners, Ricardo L. Gamboa, Lydia R. Gamboa, Honorio de la Rama, Eduardo de la Rama, and the late Mercedes de la Rama-Borromeo, now represented by her heirs, as well as Ramon de la Rama, Paz de la Rama-Battistuzzi, and Enzo Battistuzzi, were sued by the herein private respondents, Benjamin Lopue, Sr., Benjamin Lopue, Jr., Leonito Lopue, and Luisa U. Dacles to nullify the issuance of 823 shares of stock of the Inocentes de la Rama, Inc. in favor of the said defendants. The gist of the complaint, filed on April 4, 1972, is that the plaintiffs, with the exception of Anastacio Dacles who was joined as a formal party, are the owners of 1,328 shares of stock of the Inocentes de la Rama, Inc., a domestic corporation, with an authorized capital stock of 3,000 shares, with a par value of P100.00 per share, 2,177 of which were subscribed and issued, thus leaving 823 shares unissued; that upon the plaintiffs' acquisition of the shares of stock held by Rafael Ledesma and Jose Sicangco, Jr., then President and Vice-President of the corporation, respectively, the defendants Mercedes R. Borromeo, Honorio de la Rama, and Ricardo Gamboa, remaining members of the board of directors of the corporation, in order to forestall the takeover by the plaintiffs of the afore-named corporation, surreptitiously met and elected Ricardo L. Gamboa and Honorio de la Rama as president and vice-president of the corporation, respectively, and thereafter passed a resolution authorizing the sale of the 823 unissued shares of the corporation to the defendants, Ricardo L. Gamboa, Lydia R. Gamboa, Honorio de la Rama, Ramon de la Rama, Paz R. Battistuzzi Eduardo de la Rama, and Mercedes R. Borromeo, at par value, after which the defendants Honorio de la Rama, Lydia de la Rama-Gamboa, and Enzo Battistuzzi were elected to the board of directors of the corporation; that the sale of the unissued 823 shares of stock of the corporation was in violation of the plaintiffs' and pre-emptive rights and made without the approval of the board of directors representing 2/3 of the outstanding capital stock, and is in disregard of the strictest relation of trust existing between the defendants, as stockholders thereof; and that the defendants Lydia de la Rama-Gamboa, Honorio de la Rama, and Enzo Battistuzzi were not legally elected to the board of directors of the said corporation and has unlawfully usurped or intruded into said office to the prejudice of the plaintiffs. Wherefore, they prayed that a writ of preliminary injunction be issued restraining the defendants from committing, or continuing the performance of an act tending to prejudice, diminish or otherwise injure the plaintiffs'
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rights in the corporate properties and funds of the corporation, and from disposing, transferring, selling, or otherwise impairing the value of the 823 shares of stock illegally issued by the defendants; that a receiver be appointed to preserve and administer the property and funds of the corporation; that defendants Lydia de la Rama-Gamboa, Honorio de la Rama, and Enzo Battistuzzi be declared as usurpers or intruders into the office of director in the corporation and, consequently, ousting them therefrom and declare Luisa U. Dacles as a legally elected director of the corporation; that the sale of 823 shares of stock of the corporation be declared null and void; and that the defendants be ordered to pay damages and attorney's fees, as well as the costs of suit . 1

Acting upon the complaint, the respondent judge, after proper hearing, directed the clerk of court "to issue the corresponding writ of preliminary injunction restraining the defendants and/or their representatives, agents, or persons acting in their behalf from the commission or continuance of any act tending in any way to prejudice, diminish or otherwise injure plaintiffs' rights in the corporate properties and funds of the corporation Inocentes de la Rama, Inc.' and from disposing, transferring, selling or otherwise impairing the value of the certificates of stock allegedly issued illegally in their names on February 11, 1972, or at any date thereafter, and ordering them to deposit with the Clerk of Court the corresponding certificates of stock for the 823 shares issued to said defendants on February 11, 1972, upon plaintiffs' posting a bond in the sum of P50,000.00, to answer for any damages and costs that may be sustained by the defendants by reason of the issuance of the writ, copy of the bond to be furnished to the defendants. " 2 Pursuant thereto, the defendants deposited with the clerk of court the corporation's certificates of stock Nos. 80 to 86, inclusive, representing the disputed 823 shares of stock of the corporation. 3

On October 31, 1972, the plaintiffs therein, now private respondents, entered into a compromise agreement with the defendants Ramon de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi , 4 whereby the contracting parties withdrew their respective claims against each other and the aforenamed defendants waived and transferred their rights and interests over the questioned 823 shares of stock in favor of the plaintiffs, as follows:

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3. That the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi will waive, cede, transfer or other wise convey, as they hereby waive, cede, transfer and convey, free from all liens and encumbrances unto the plaintiffs, in such proportion as the plaintiffs may among themselves determine, all of the rights, interests, participations or title that the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi Enzo Battistuzzi now have or may have in the eight hundred twenty-three (823) shares in the capital stock of the corporation INOCENTES DELA RAMA, INC.' which were issued in the names of the defendants in the above-entitled case on or about February 11, 1972, or at any date thereafter and which shares are the subject-matter of the present suit.

The compromise agreement was approved by the trial court on December 4, 1972, 5 As a result, the defendants filed a motion to dismiss the complaint, on November 19, 1974, upon the grounds: (1) that the plaintiffs' cause of action had been waived or abandoned; and (2) that they were estopped from further prosecuting the case since they have, in effect, acknowledged the validity of the issuance of the disputed 823 shares of stock. The motion was denied on January 2, 1975. 6

The defendants also filed a motion to declare the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi in contempt of court, for having violated the writ of preliminary injunction when they entered into the aforesaid compromise agreement with the plaintiffs, but the respondent judge denied the said motion for lack of merit. 7

On February 10, 1975, the defendants filed a motion for the reconsideration of the order denying their motion to dismiss the complaint' and subsequently, an Addendum thereto, claiming that the respondent court has no jurisdiction to interfere with the management of the corporation by the board of directors, and the enactment of a resolution by the defendants, as members of the board of directors of the corporation, allowing the sale of the 823 shares of stock to the defendants was purely a management concern which the courts could not interfere with. When the trial court denied said motion and its addendum, the defendants filed the instant petition for certiorari for the review of said orders.

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The petition is without merit. The questioned order denying the petitioners' motion to dismiss the complaint is merely interlocutory and cannot be the subject of a petition for certiorari. The proper procedure to be followed in such a case is to continue with the trial of the case on the merits and, if the decision is adverse, to reiterate the issue on appeal. It would be a breach of orderly procedure to allow a party to come before this Court every time an order is issued with which he does not agree.

Besides, the order denying the petitioners' motion to dismiss the complaint was not capriciously, arbitrarily, or whimsically issued, or that the respondent court lacked jurisdiction over the cause as to warrant the issuance of the writ prayed for. As found by the respondent judge, the petitioners have not waived their cause of action against the petitioners by entering into a compromise agreement with the other defendants in view of the express provision of the compromise agreement that the same "shall not in any way constitute or be considered a waiver or abandonment of any claim or cause of action against the other defendants." There is also no estoppel because there is nothing in the agreement which could be construed as an affirmative admission by the plaintiff of the validity of the resolution of the defendants which is now sought to be judicially declared null and void. The foregoing circumstances and the fact that no consideration was mentioned in the agreement for the transfer of rights to the said shares of stock to the plaintiffs are sufficient to show that the agreement was merely an admission by the defendants Ramon de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi of the validity of the claim of the plaintiffs.

The claim of the petitioners, in their Addendum to the motion for reconsideration of the order denying the motion to dismiss the complaint, questioning the trial court's jurisdiction on matters affecting the management of the corporation, is without merit. The well-known rule is that courts cannot undertake to control the discretion of the board of directors about administrative matters as to which they have legitimate power of, 10 action and contracts intra vires entered into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to a wanton destruction of the rights of the minority. 11 In the instant case, the plaintiffs aver that the defendants have concluded a transaction among themselves as will result to serious injury to the interests of the plaintiffs, so that the trial court has jurisdiction over the case.
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The petitioners further contend that the proper remedy of the plaintiffs would be to institute a derivative suit against the petitioners in the name of the corporation in order to secure a binding relief after exhausting all the possible remedies available within the corporation.

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock 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. 12 In the case at bar, however, the plaintiffs are alleging and vindicating their own individual interests or prejudice, and not that of the corporation. At any rate, it is yet too early in the proceedings since the issues have not been joined. Besides, misjoinder of parties is not a ground to dismiss an action. 13

WHEREFORE, the petition should be, as it is hereby DISMISSED for lack of merit. With costs against the petitioners.

SO ORDERED. G.R. No. 89879 April 20, 1990

JAIME PABALAN AND EDUARDO LAGDAMEO, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER AMBROSIO B. SISON, ELIZABETH RODEROS, ET AL., and THE SHERIFF OF THE NATIONAL LABOR RELATIONS COMMISSION, respondents.

Sofronio A. Larcia and Conrado Abriol Padilla for petitioners.

Apolinario N. Lomabao, Jr. for private respondents.

GANCAYCO, J.:

Once again the parameters of the liability of the officers of a corporation as to unpaid wages and other claims of the employees of a corporation which has a separate and distinct personality are brought to fore in this case.

On October 20, 1987, eighty-four (84) workers of the Philippine Inter-Fashion, Inc. (PIF) filed a complaint against the latter for illegal transfer simultaneous with illegal dismissal without justifiable cause and in violation of the provision of the Labor Code on security of tenure as well as the provisions of Batas Pambansa Blg. 130. Complainants demanded reinstatement with full backwages, living allowance, 13th month pay and other benefits under existing laws and/or separation pay.

On October 21, 1987, PIF, through its General Manager, was notified about the complaint and summons for the hearing set for November 6, 1987. The hearing was re-set for November 27, 1987 for failure of respondents to appear. On November 30, 1987 respondents (petitioners herein) moved for the cancellation of the hearing scheduled on November 6, 1987 so that they could engage a counsel to properly represent them preferably on November 17, 1987.

On December 10, 1987 both parties were directed to submit their respective position papers within ten (10) days. By mutual agreement the hearing was re-set on December 21, 1987 but on said date respondents and/or counsel failed to appear. The hearing was re-set on January 14, 1988 on which date respondents were given a deadline to submit their position paper.
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On January 4, 1988 complainants filed their position paper. On January 14, 1988 counsel for respondents moved that he be given until January 22, 1988 to file their position paper. The labor arbiter granted the motion. The PIF filed its position paper on January 22, 1988. The heating for February 17, 1988 was re-set to March 9, 1988 and on March 29, 1988 on which dates respondents failed to appear.

On May 5, 1988, with leave of the labor arbiter, complainants filed their supplemental position paper impleading the petitioners as officers of the PIF in the complaint for their illegal transfer to a new firm.

On July 13, 1988 a decision was rendered by the labor arbiter the dispositive part of which reads as follows:

IN VIEW OF THE FOREGOING CONSIDERATION, respondent Philippine Inter-Fashion and its officers Mr. Jaime Pabalan and Mr. Eduardo Lagdameo are hereby ordered to:

1. reinstate the sixty two (62) complainants to their former or equivalent position without loss of seniority rights and privileges;

2. to pay, jointly and severally, their backwages and other benefits from the time they were dismissed up to the time they are actually reinstated, the computation to be based from the latest minimum wage law at the time of their dismissal. (See attached Annex "A" of complainants' position paper.)

SO ORDERED. 1

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Not satisfied therewith petitioners filed a motion for reconsideration in the First Division of the public respondent, National Labor Relations Commission (NLRC), which nevertheless, affirmed the appealed decision and dismissed the appeal for lack of merit in a resolution dated June 30, 1989. Petitioners were ordered to pay the appeal fee in accordance with law.

Hence the herein petition for certiorari with prayer for the issuance of a temporary restraining order wherein the petitioners raised the following issues:

THE ARBITER AND THE NLRC DID NOT ACQUIRE JURISDICTION OVER THE PERSONS OF THE PETITIONERS AND, THEREFORE, THE DECISION AND THE RESOLUTION, UNDER DISPUTE, ARE NULL AND VOID.

THE DECISION AND THE NLRC RESOLUTION SUFFER FROM A LEGAL AND CONSTITUTIONAL INFIRMITY BECAUSE THEY SANCTION A DEPRIVATION OF PETITIONERS' PROPERTIES WITHOUT DUE PROCESS OF LAW.

THE ARBITER AND THE NLRC COMMITTED A GRAVE ABUSE OF DISCRETION IN ADJUDGING PETITIONERS HEREIN AS JOINTLY AND SEVERALLY LIABLE WITH PHILIPPINE INTER-FASHION, INC. TO PAY THE JUDGMENT DEBT.

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On September 25, 1989 this Court dismissed the petition for insufficiency in form and substance, having failed to comply with the Rules of Court and Administrative Circular No. 188 requiting the verification of the petition. A motion for reconsideration filed by the petitioners of the said resolution was denied on October 16, 1989 for failure to raise any substantial arguments to warrant a modification thereof. However, acting on an urgent motion to include the motion for reconsideration of the resolution of September 25, 1989 in the court's calendar which the Court granted, on November 30, 1989 the Court resolved to set aside said resolutions of September 25, 1989 and October 16, 1989, and to require respondents to comment thereon within ten (10) days from notice thereof. A temporary restraining order was issued enjoining respondents from enforcing or implementing the questioned decision of the labor arbiter affirmed by the NLRC upon a bond to be filed by petitioners in the amount of P100,000.00. However, on February 7, 1990 for failure of petitioner to file the required bond despite extensions of time granted them, the Court resolved to lift the temporary restraining order issued on November 13, 1989.

Now to the merit of the petition.

Petitioners do not question the merits of the decision insofar as PIF is concerned in this proceeding. The first two issues they raised are to the effect that the public respondents never acquired jurisdiction over them as they have not been served with summons and thus they were deprived due process.

The Court finds these grounds to be devoid of merit. As the record shows while originally it was PIF which was impleaded as respondent before the labor arbiter, petitioners also appeared in their behalf through counsel. Thereafter when the supplemental position paper was filed by complainants, petitioners were impleaded as respondents to which they filed an opposition inasmuch as they filed their own supplemental position papers. They were therefore properly served with summons and they were not deprived of due process.

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Petitioners contend however that under the circumstances of the case as officers of the corporation PIF they could not be jointly and severally held liable with the corporation for its liability in this case.

The settled rule is that the corporation is vested by law with a personality separate and distinct from the persons composing it, including its officers as well as from that of any other legal entity to which it may be related. Thus, a company manager acting in good faith within the scope of his authority in terminating the services of certain employees cannot be held personally liable for damages. 2 Mere ownership by a single stockholder or by another corporation of all or nearly all capital stocks of the corporation is not by itself sufficient ground for disregarding the separate corporate personality. 3

As a general rule, officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. 4 However, the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be disregarded as follows:

This finding does not ignore the legal fiction that a corporation has a personality separate and distinct from its stockholders and members, for, as this Court had held "where the incorporators and directors belong to a single family, the corporation and its members can be considered as one in order to avoid its being used as an instrument to commit injustice," or to further an end subversive of justice. In the case of Claparols vs. CIR involving almost similar facts as in this case, it was also held that the shield of corporate fiction should be pierced when it is deliberately and maliciously designed to evade financial obligations to employees.

To the same effect . . . (are) this Court's rulings in still other cases:

When the notion of legal entity is used as a means to perpetrate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, and or (to) confuse legitimate issues the veil which protects the corporation will be lifted. 5
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In this particular case complainants did not allege or show that petitioners, as officers of the corporation deliberately and maliciously designed to evade the financial obligation of the corporation to its employees, or used the transfer of the employees as a means to perpetrate an illegal act or as a vehicle for the evasion of existing obligations, the circumvention of statutes, or to confuse the legitimate issues.

Indeed, in the questioned resolution of the NLRC dated June 30, 1989 there is no finding as to why petitioners were being held jointly and severally liable for the liability and obligation of the corporation except as to invocation of the ruling of this Court in A.C. Ransom Labor UnionCCLU vs. NLRC 6 in that the liability in the cases of illegal termination of employees extends not only to the corporation as a corporate entity but also to its responsible officers acting in the interest of the corporation or employer.

It must be noted, however, that A.C. Ransom Labor Union-CCLU vs. NLRC the corporation was a family corporation and that during the strike the members of the family organized another corporation which was the Rosario Industrial Corporation to which all the assets of the A.C. Ransom Corporation were transferred to continue its business which acts of such officers and agents of A.C. Ransom Corporation were intended to avoid payment of its obligations to its employees. In such case this Court considered the president of the corporation to be personally liable together with the corporation for the satisfaction of the claim of the employees. 7

Not one of the above circumstances has been shown to be present. Hence petitioners can not be held jointly and severally liable with the PIF corporation under the questioned decision and resolution of the public respondent.

WHEREFORE, the petition is GRANTED and the questioned resolution of the public respondent dated June 30, 1989 is hereby modified by relieving petitioners of any liability as officers of the PIF and holding that the liability shall be solely that of Philippine Inter-Fashion, Inc. No costs.
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SO ORDERED. Gokongwei vs. SEC, 89 SCRA 336 (1979) Facts: Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of nullity of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the by-laws that the amendment or modification of the by-laws may only be delegated to the BODs upon an affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid uo capital stock of the corporation, which 2/3 could have been computed on the basis of the capitalization at the time of the amendment. Petitioner contends that the amendment was based on the 1961 authorization, the Board acted without authority and in usurpation of the power of the stockholders n amending the by-laws in 1976. He also contends that the 1961 authorization was already used in 1962 and 1963. He also contends that the amendment deprived him of his right to vote and be voted upon as a stockholder (because it disqualified competitors from nomination and election in the BOD of SMC), thus the amended by-laws were null and void. While this was pending, the corporation called for a stockholders meeting for the ratification of the amendment to the by-laws. This prompted petitioner to seek for summary judgment. This was denied by the SEC. In another case filed by petitioner, he alleged that the corporation had been using corporate funds in other corps and businesses outside the primary purpose clause of the corporation in violation of the Corporation Code.

Issue: Are amendments valid?

Held: The validity and reasonableness of a by-law is purely a question of law. Whether the bylaw is in conflict with the law of the land, or with the charter of the corporation or is in legal sense unreasonable and therefore unlawful is a question of law. However, this is limited where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised authority. The Court held that a corporation has authority prescribed by law to prescribe the qualifications of directors. It has the inherent power to adopt by-laws for its internal
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government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. A corporation, under the Corporation law, may prescribe in its by-laws the qualifications, duties and compensation of directors, officers, and employees. Any person who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and he impliedly contracts that the will of the majority shall govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not forbidden by law. Any corporation may amend its by-laws by the owners of the majority of the subscribed stock. It cannot thus be said that petitioners has the vested right, as a stock holder, to be elected director, in the face of the fact that the law at the time such stockholder's right was acquired contained the prescription that the corporate charter and the by-laws shall be subject to amendment, alteration and modification. A Director stands in a fiduciary relation to the corporation and its shareholders, which is characterized as a trust relationship. An amendment to the corporate by-laws which renders a stockholder ineligible to be director, if he be also director in a corporation whose business is in competition with that of the other corporation, has been sustained as valid. This is based upon the principle that where the director is employed in the service of a rival company, he cannot serve both, but must betray one or the other. The amendment in this case serves to advance the benefit of the corporation and is good. Corporate officers are also not permitted to use their position of trust and confidence to further their private needs, and the act done in furtherance of private needs is deemed to be for the benefit of the corporation. This is called the doctrine of corporate opportunity. ATRIUM MANAGEMENT CORP. V. CA, G.R. NO. 109491, FEB. 28, 2001IS A CORPORATION TO WHICH FOUR CROSSED CHECKS WERE INDORSED BY THE PAYEE CORPORATION A HOLDER IN DUE COURSE AND HENCE ENTITLED TO RECOVER THE AMOUNT OF THE CHECKS WHEN THE SAME HAD BEEN DISHONORED FOR THE REASON OF PAYMENT STOPPED?

The checks were crossed checks and specifically indorsed for deposit to payees account only. From the beginning, the corporation was aware of the fact that the checks were all for deposit only to payees account. Clearly then, it could not be considered a holder in due course. However, it does not follow as a legal proposition that simply because it was not a holder in due course for having taken the instruments in question, with notice that the same was for
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deposit only, that it was altogether precluded from recovering on the instrument. The disadvantage in not being a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. (Atrium Management Corp. v. CA, G.R. No. 109491, Feb. 28, 2001) Premium Marble Resources Incorporated v. Court of AppealsGR No. 96551November 1996 Facts: Assailed in the instant petition for review is the decision of the Court of Appeals which affirmedthe trial courts dismissal of petitioners complaint for damages.The case began when Premium Marble Resources, Inc. (Premium for brevity), assisted by Atty.Arnulfo Dumadag as counsel, filed an action for damages against International Corporate Bank. In itsAnswer International Corporate Bank alleged, inter alia, that Premium has nocapacity/personality/authority to sue in this instance and the complaint should, therefore, be dismissedfor failure to state a cause of action.The same corporation, i.e., Premium, but this time represented by Siguion Reyna, Montecillioand Ongsiako Law Office as counsel, filed a motion to dismiss the action of petitioners on the groundthat the filing of the case was without authority from its duly constituted board of directors as shown bythe excerpt of the minutes of the Premiums board of directors meeting.In its opposition to the motion to dismiss, Premium thru Atty. Dumadag contended that the persons who signed the board resolution namely Belen, Jr., Nograles & Reyes, are not directors of thecorporation and were allegedly former officers and stockholders of Premium who were dismissed for various irregularities and fraudulent acts; that Siguion Reyna Law office is the lawyer of Belen and Nograles and not of Premium and that the Articles of Incorporation of Premium shows that Belen, Nograles and Reyes are not majority stockholders.Siguion Reyna Law firm as counsel of Premium in a rejoinder, asserted that it is the generalinformation sheet filed with the Securities and Exchange Commission, among others, that is the bestevidence that would show who are the stockholders of a corporation and not the Articles of Incorporation since the latter does not keep track of the many changes that take place after newstockholders subscribe to corporate shares of stocks. Hence, the case.Issue: Whether or not the filing of the case for damages against private respondent bank was authorized by a duly constituted Board of Directors of the petitioner corporation?Held: The claim, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., has not been fullysubstantiated. In the absence of an authority from the board of directors, no person, not even theofficers of the corporation, can validly bind the corporation.By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant thereto are required to submit within the period therein stated (30 days) to the Securities andExchange Commission the names, nationalities and
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residences of the directors, trustees and officerselected.The Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officersfor the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner however, failed to show proof that this election was reported to the SEC. In fact, the last entry in their General Information Sheet with the SEC, as of 1986 appears to be the set of officers elected in March1981.Hence, the court agree with the finding of public respondent Court of Appeals, that in theabsence of any board resolution from its board of directors the [sic] authority to act for and in behalf of the corporation, the present action must necessarily fail. The power of the corporation to sue and besued in any court is lodged with the board of directors that exercises its corporate powers. Pirovano vs. The De La Rama Steamship Co. [G.R. No. L-5377, December 29, 1954] Facts: Enrico Pirovano was the President and General Manager of the De la Rama Steamship Company. Early in 1941 the company insured the life of said Enrico Pirovano in various Philippine and American Life Insurance companies. Enrico Pirovano was largely responsible for the rapid and very successful development of the activities of the company. He was killed by the Japanese in Manila sometime in 1944 leaving as his only heirs four minor children. In view of the fact that Enrico Pirovano left practically nothing to his heirs, the current President of De la Rama Steamship proposed that it is but fit and proper that the company which owes so much to the deceased should make some provision for his children. He proposed that out of the proceeds of the insurance policies the sum of P400,000 be set aside for Pirovanos minor children, said sum of money to be convertible into 4,000 shares of the stock of the Company, at par, or 1,000 shares for each child. A resolution was adopted to carry out the proposal and submitted to the stockholders of the De la Rama company at a meeting properly convened, and on that same date the same was duly approved.

Sometime in March 1950, the President of the corporation, Sergio Osmea, Jr., inquired to the Securities and Exchange Commission asking for opinion regarding the validity of the donation of the proceeds of the insurance policies to the Pirovano children. SEC rendered its opinion that the donation was void because the corporation could not dispose of its assets by gift and therefore the corporation acted beyond the scope of its corporate powers. In 1951, in view of the failure of compliance with the conditions to which the above donation was made subject, and in view of the opinion of the SEC Commissioner, the majority of the stockholders' voted to revoke the resolution approving the donation to the Pirovano children. The minor children of
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the late Enrico Pirovano, represented by their mother and guardian, Estefania demanded the payment of the credit due them, amounting to P564,980.89, but the company refused to pay. Thus, they instituted an action in the Court of First Instance of Rizal.

Issue: Can defendant corporation give by way of donation the proceeds of said insurance policies to the minor children of the late Enrico Pirovano under the law or its articles of corporation, or is that donation an ultra vires act?

Held: After a careful perusal of the provisions of the articles of incorporation of the De la Rama company, we find that the corporation was given broad and almost unlimited powers to carry out the purposes for which it was organized among them, (1) "To invest and deal with the moneys of the company not immediately required, in such manner as from time to time may be determined" and, (2) "to aid in any other manner any person, association, or corporation of which any obligation or in which any interest is held by this corporation or in the affairs or prosperity of which this corporation has a lawful interest." The world deal is broad enough to include any manner of disposition, and refers to moneys not immediately required by the corporation, and such disposition may be made in such manner as from time to time may be determined by the corporations. The donation in question undoubtedly comes within the scope of this broad power for it is a fact appearing in the evidence that the insurance proceeds were not immediately required when they were given away.

Granting arguendo that the donation given by Pirovano children is outside the scope of the powers of the defendant corporation, or the scope of the powers that it may exercise under the law, or it is an ultra vires act, still it may said that the same can not be invalidated, or declared legally ineffective for the reason alone, it appearing that the donation represents not only the act of the Board of Directors but of the stockholders themselves as shown by the fact that the same has been expressly ratified in a resolution duly approved by the latter. By this ratification, the infirmity of the corporate act, it may has been obliterated thereby making the act perfectly valid and enforceable. This is specially so if the donation is not merely executory but executed and consummated and no creditors are prejudice, or if there are creditors affected, the latter has expressly given their confirmity.
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A distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra vires. The former contemplates the doing of an act which is contrary to law, morals, or public policy or public duty, and are, like similar transactions between the individuals void. They cannot serve as basis of a court action, nor require validity. ultra vires acts on the other hand, or those which are not illegal and void ab initio, but are merely within are not illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders. Said donation, even if ultra vires in the supposition we have adverted to, is not void, and if voidable its infirmity has been cured by ratification and subsequent acts of the defendant corporation. The defendant corporation, therefore, is now prevented or estopped from contesting the validity of the donation.

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