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KUKAN INTERNATIONAL CORPORATION, Petitioner, vs HON.

AMOR REYES, in her


capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 21, and
ROMEO M. MORALES, doing business under the name and style “RM Morales Trophies
and Plaques,” Respondents.

FACTS: Sometime in March 1998, Kukan, Inc. conducted a bidding worth Php 5M (reduced to
PhP 3,388,502) for the supply and installation of signages in a building being constructed in
Makati City which was won by Morales.

Despite his compliance, Morales was only paid the amount of PhP 1,976,371.07, leaving a
balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands.

Morales filed a Complaint with the RTC against Kukan, Inc. for a sum of money. However,
starting November 2000, Kukan, Inc. no longer appeared and participated in the proceedings
before the trial court, prompting the RTC to declare Kukan, Inc. in default and paving the way
for Morales to present his evidence ex parte.

On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc.

After the above decision became final and executory, Morales moved for and secured a writ of
execution against Kukan, Inc. The sheriff then levied upon various personal properties found at
what was supposed to be Kukan, Inc.’s office at Unit 2205, 88 Corporate Center, Salcedo Village,
Makati City. Alleging that it owned the properties thus levied and that it was a different
corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-
Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had
stopped participating in Civil Case No. 99-93173.

In reaction to KIC’s claim, Morales interposed an Omnibus Motion dated April 30, 2003, praying,
and applying the principle of piercing the veil of corporate fiction, that an order be issued for the
satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in the
possession of KIC, it being alleged that both corporations are but one and the same entity. KIC
opposed Morales’ motion. The court denied the omibus motion.

In a bid to establish the link between KIC and Kukan, Inc., Morales filed a Motion for
Examination of Judgment Debtors dated May 4, 2005 which sought that subponae be issued
against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit.
This too was denied by the court.

Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually
granted the motion. The case was re-raffled to Branch 21, presided by public respondent Judge
Amor Reyes.

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction
to declare KIC as having no existence separate from Kukan, Inc. This time around, the RTC, by
Order dated March 12, 2007, granted the motion. From the above order, KIC moved but was
denied reconsideration in another Order dated June 7, 2007.

KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007
RTC Orders but on January 23, 2008, the CA denied the petition and affirmed the assailed
Orders. The CA later denied KIC’s MR in the assailed resolution.
Hence, the instant petition for review.
ISSUES
A. whether the trial court can, after the judgment against Kukan, Inc. has attained finality,
execute it against the property of KIC;
B. whether the trial court acquired jurisdiction over KIC;
C. whether the trial and appellate courts correctly applied, under the premises, the principle of
piercing the veil of corporate fiction.

DECISION

A. No.

In Carpio v. Doroja,[13] the Court ruled that the deciding court has supervisory control
over the execution of its judgment:

A case in which an execution has been issued is regarded as still pending so that all proceedings
on the execution are proceedings in the suit. There is no question that the court which rendered
the judgment has a general supervisory control over its process of execution, and this power
carries with it the right to determine every question of fact and law which may be involved in the
execution.

The court’s supervisory control does not, however, extend as to authorize the alteration or
amendment of a final and executory decision, save for certain recognized exceptions, among
which is the correction of clerical errors. Else, the court violates the principle of finality of
judgment and immutability.

As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the
aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of execution,
answerable for the above judgment liability is a clear case of altering a decision, an instance of
granting relief not contemplated in the decision sought to be executed. And the change does not
fall under any of the recognized exceptions to the doctrine of finality and immutability of
judgment. It is a settled rule that a writ of execution must conform to the fallo of the judgment;
as an inevitable corollary, a writ beyond the terms of the judgment is a nullity.

Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an
examination of the other issues raised by KIC would be proper.

B. No.

In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173.
Even if it is conceded that it raised affirmative defenses through its aforementioned pleadings,
KIC never abandoned its challenge, however implicit, to the RTC’s jurisdiction over its person.
The challenge was subsumed in KIC’s primary assertion that it was not the same entity as
Kukan, Inc. Pertinently, in its Comment and Opposition to Plaintiff’s Omnibus Motion dated May
20, 2003, KIC entered its “special but not voluntary appearance” alleging therein that it was a
different entity and has a separate legal personality from Kukan, Inc. And KIC would
consistently reiterate this assertion in all its pleadings, thus effectively resisting all along the
RTC’s jurisdiction of its person. It cannot be overemphasized that KIC could not file before the
RTC a motion to dismiss and its attachments in Civil Case No. 99-93173, precisely because KIC
was neither impleaded nor served with summons. Consequently, KIC could only assert and
claim through its affidavits, comments, and motions filed by special appearance before the RTC
that it is separate and distinct from Kukan, Inc.

Following La Naval Drug Corporation, KIC cannot be deemed to have waived its objection
to the court’s lack of jurisdiction over its person. It would defy logic to say that KIC
unequivocally submitted itself to the jurisdiction of the RTC when it strongly asserted that it and
Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other option but
to insist on its separate identity and plead for relief consistent with that position.

C. No.

The principle of piercing the veil of corporate fiction, and the resulting treatment of two related
corporations as one and the same juridical person with respect to a given transaction, is
basically applied only to determine established liability;[34] it is not available to confer on the
court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case.
Elsewise put, a corporation not impleaded in a suit cannot be subject to the court’s process of
piercing the veil of its corporate fiction. In that situation, the court has not acquired jurisdiction
over the corporation and, hence, any proceedings taken against that corporation and its
property would infringe on its right to due process. Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much:
23. Piercing the veil of corporate entity applies to determination of liability not of
jurisdiction. x x x

This is so because the doctrine of piercing the veil of corporate fiction comes to play only during
the trial of the case after the court has already acquired jurisdiction over the corporation. Hence,
before this doctrine can be applied, based on the evidence presented, it is imperative that the
court must first have jurisdiction over the corporation.[35] x x x (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first acquire jurisdiction
over the corporation or corporations involved before its or their separate personalities are
disregarded; and (2) the doctrine of piercing the veil of corporate entity can only be raised
during a full-blown trial over a cause of action duly commenced involving parties duly brought
under the authority of the court by way of service of summons or what passes as such service.

In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and
convincing proof that the separate and distinct personality of the corporation was purposefully
employed to evade a legitimate and binding commitment and perpetuate a fraud or like
wrongdoings. To be sure, the Court has, on numerous occasions, applied the principle where a
corporation is dissolved and its assets are transferred to another to avoid a financial liability of
the first corporation with the result that the second corporation should be considered a
continuation and successor of the first entity.

In those instances when the Court pierced the veil of corporate fiction of two corporations, there
was a confluence of the following factors:

1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation to avoid a


financial liability of the first corporation; and

3. Both corporations are owned and controlled by the same persons such that the second
corporation should be considered as a continuation and successor of the first corporation.

In the instant case, however, the second and third factors are conspicuously absent. There is,
therefore, no compelling justification for disregarding the fiction of corporate entity separating
Kukan, Inc. from KIC. In applying the principle, both the RTC and the CA miserably failed to
identify the presence of the abovementioned factors.
It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those
who seek to pierce the veil must clearly establish that the separate and distinct personalities of
the corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the
concrete and on the assumption that the RTC has validly acquired jurisdiction over the party
concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed
and thereafter KIC purposely formed and operated to defraud him. Morales has not to us
discharged his burden.

WHEREFORE, the petition is hereby GRANTED. The CA’s January 23, 2008 Decision and April 16,
2008 Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy
placed upon the personal properties of Kukan International Corporation is hereby ordered lifted
and the personal properties ordered returned to Kukan International Corporation. The RTC of
Manila, Branch 21 is hereby directed to execute the RTC Decision dated November 28, 2002
against Kukan, Inc. with reasonable dispatch.
Concept Builders vs NLRC
GR 108734; 29 May 1996
Facts:
Petitioner Concept Builders, Inc., a domestic corporation engaged in the construction business.
Private respondents were employed by said company as laborers, carpenters and riggers.
However, they were illegally dismissed.
Aggrieved, private respondents filed a complaint for illegal dismissal. The Labor Arbiter rendered
judgment ordering petitioner to reinstate private respondents and to pay them back wages. It
became final and executory.
The alias Writ of Execution cannot be enforced by the sheriff because all the employees inside
petitioner’s premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were
employees of Hydro Pipes Philippines, Inc. (HPPI) and not by petitioner. Thus, NLRC issued a
break-open order against Concept Builders and HPPI.
Issue: Whether the piercing the veil of corporate entity is proper.
Held: Yes.
It is a fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected. But,
this separate and distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of separate juridical personality is used
to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device
to defeat the labor laws, this separate personality of the corporation may be disregarded or the
veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct,
a business conduit or an alter ego of another corporation.
The conditions under which the juridical entity may be disregarded vary according to the peculiar
facts and circumstances of each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.
The SEC en banc explained the “instrumentality rule” which the courts have applied in
disregarding the separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it is,
in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
“instrumentality” may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of instances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but
a conduit for its principal. It must be kept in mind that the control must be shown to have been
exercised at the time the acts complained of took place. Moreover, the control and breach of
duty must proximately cause the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is
as follows:
1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of
its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty or dishonest and unjust act in
contravention of plaintiff’s legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements prevents “piercing the corporate veil.” In applying the
“instrumentality” or “alter ego” doctrine, the courts are concerned with reality and not form, with
how the corporation operated and the individual defendant’s relationship to that operation.
Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of back wages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner corporation.
Ang Mga Kaanib vs. Iglesia (December 12, 2001)
FACTS: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of
God in Christ Jesus, the Pillar and Ground of Truth), is a non-stock religious society or
corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several other
members of respondent corporation disassociated themselves from the latter and succeeded in
registering on March 30, 1977 a new non-stock religious society or corporation, named Iglesia
ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan. Respondent corporation filed with
the SEC a petition to compel the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan to change its corporate name to another name that is not similar or identical to any
name already used by a corporation, partnership or association registered with the Commission.
Petitioner is compelled to change its corporate name and be barred from using the same or
similar name on the ground that the same causes confusion among their members as well as the
public. SEC rendered a decision ordering petitioner to change its corporate name. The Court of
Appeals rendered the assailed decision affirming the decision of the SEC En Banc.

ISSUE: Whether the court of appeals failed to properly appreciate the scope of the constitutional
guarantee on religious freedom

RULING: The additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in petitioner's
name are, as correctly observed by the SEC, merely descriptive of and also referring to the
members, or kaanib, of respondent who are likewise residing in the Philippines. These words can
hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in
distinguishing petitioner from respondent. This is especially so, since both petitioner and
respondent corporations are using the same acronym — H.S.K.; not to mention the fact that
both are espousing religious beliefs and operating in the same place. The fact that there are
other non-stock religious societies or corporations using the names Church of the Living God,
Inc., Church of God Jesus Christ the Son of God the Head, Church of God in Christ & By the Holy
Spirit, and other similar names, is of no consequence. It does not authorize the use by petitioner
of the essential and distinguishing feature of respondent's registered and protected corporate
name. Ordering petitioner to change its corporate name is not a violation of its constitutionally
guaranteed right to religious freedom. In so doing, the SEC merely compelled petitioner to abide
by one of the SEC guidelines in the approval of partnership and corporate names, namely its
undertaking to manifest its willingness to change its corporate name in the event another
person, firm, or entity has acquired a prior right to the use of the said firm name or one
deceptively or confusingly similar to it. The instant petition for review is DENIED. The appealed
decision of the Court of Appeals is AFFIRMED in toto.
INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES vs. COURT OF
APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES
CORPORATION OF THE PHILIPPINES

G.R. No. 122174, October 3, 2002

Facts:

Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized on


October 13, 1976. On June 22, 1977, it registered its corporate and business name with the
Bureau of Domestic Trade.

Petitioner IRCP was incorporated on August 23, 1979 originally under the name "Synclaire
Manufacturing Corporation". It amended its Articles of Incorporation on August 23, 1985 to
change its corporate name to "Industrial Refractories Corp. of the Philippines".

Both companies are the only local suppliers of monolithic gunning mix.

Respondent RCP then filed a petition with the Securities and Exchange Commission to compel
petitioner IRCP to change its corporate name.

The SEC rendered judgment in favor of respondent RCP.

Petitioner appealed to the SEC En Banc. The SEC En Banc modified the appealed decision and
the petitioner was ordered to delete or drop from its corporate name only the word
"Refractories".

Petitioner IRCP filed a petition for review on certiorari to the Court of Appeals and the appellate
court upheld the jurisdiction of the SEC over the case and ruled that the corporate names of
petitioner IRCP and respondent RCP are confusingly or deceptively similar, and that respondent
RCP has established its prior right to use the word "Refractories" as its corporate name.

Petitioner then filed a petition for review on certiorari

Issue:

Are corporate names Refractories Corporation of the Philippines (RCP) and "Industrial
Refractories Corp. of the Philippines" confusingly and deceptively similar?
Ruling:

Yes, the petitioner and respondent RCP’s corporate names are confusingly and deceptively
similar.
Further, Section 18 of the Corporation Code expressly prohibits the use of a corporate name
which is "identical or deceptively or confusingly similar to that of any existing corporation or to
any other name already protected by law or is patently deceptive, confusing or contrary to
existing laws". The policy behind said prohibition is to avoid fraud upon the public that will have
occasion to deal with the entity concerned, the evasion of legal obligations and duties, and the
reduction of difficulties of administration and supervision over corporation.

The Supreme Court denied the petition for review on certiorari due for lack of merit.
Benguet vs nlrc
Facts: In 1982, Peter Cosalan, then general manager of the Benguet Electric Cooperative
(BENECO), received an audit report from the National Electrification Administration (NEA). The
said audit advised Cosalan of certain irregularities in the management of the funds of BENECO.
Cosalan then sought to address the issue by introducing reforms recommended by the NEA as
well as by the auditing body, Commission on Audit. However, the Board Members of BENECO
reacted to these reforms by issuing a series of resolutions which first reduced Cosalan’s salary
and allowances, then he was excluded from his work, and eventually, he was suspended
indefinitely.
Cosalan then filed a complaint for illegal dismissal against the BENECO Board Members, he later
impleaded BENECO itself. The Labor Arbiter (LA) ruled in favor of Cosalan. The National Labor
Relations Commission (NLRC) affirmed the decision of the LA but modified it so as to absolve the
Board Members from liability as it held that the Board Members merely acted in their official
capacity. BENECO, being the only party adjudged to be liable, then appealed said decision.
ISSUE: Whether or not the National Labor Relations Commission is correct.
HELD: No. The act of the Board Members is ultra vires. There was no legal basis for them to
suspend Cosalan indefinitely for under the Implementing Rules of the Labor Code the maximum
period form preventive suspension should not go beyond 30 days. Further, it was found that
Cosalan was never informed of the charges against him nor was he afforded the opportunity to
present his case. He was deprived of due process. Nor was Cosalan’s suspension approved by
the NEA, which is also required for due process purposes.
These acts by the Board Members are tainted with bad faith. A very strong presumption arises
that the Board Members are acting in reprisal against the reforms sought to be introduced by
Cosalan in order to address the irregularities within BENECO. The Board Members are therefore
liable for damages under Section 31 of the Corporation Code. And even though BENECO is a
cooperative, it is still covered by the Corporation Code because under PD 269, cooperatives are
considered as corporations.
The Supreme Court ruled that BENECO and the BENECO Board Members are liable for the
damages caused against Cosalan. However BENECO can seek reimbursement from the Board
Members so as not to unduly penalize the innocent members of BENECO.
BOARD OF LIQUIDATORS V KALAW G.R. No. L-18805 August 14, 1967 THE BOARD OF
LIQUIDATORS representing THE GOVERNMENT OF THE REPUBLIC OF THE
PHILIPPINES, plaintiff-appellant, vs. HEIRS OF MAXIMO M. KALAW, JUAN BOCAR,
ESTATE OF THE DECEASED CASIMIRO GARCIA, and LEONOR MOLL,defendants-appellees.

FACTS:

The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit
governmental organization on avowedly for the protection, preservation and development of the
coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended
[Republic Act 5] to grant that corporation the express power to buy and sell copra. The charter
amendment was enacted to stabilize copra prices, to serve coconut producers by securing
advantageous prices for them, to cut down to a minimum, if not altogether eliminate, the margin
of middlemen, mostly aliens. General manager and board chairman was Maximo M. Kalaw;
defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll
became director only on December 22, 1947. NACOCO, after the passage of Republic Act 5,
embarked on copra trading activities.

An unhappy chain of events conspired to deter NACOCO from fulfilling the contracts it entered
into. Nature supervened. Four devastating typhoons visited the Philippines in 1947. When it
became clear that the contracts would be unprofitable, Kalaw submitted them to the board for
approval. It was not until December 22, 1947 when the membership was completed. Defendant
Moll took her oath on that date. A meeting was then held. Kalaw made a full disclosure of the
situation, apprised the board of the impending heavy losses. No action was first taken on the
contracts but not long thereafter, that is, on January 30, 1948, the board met again with Kalaw,
Bocar, Garcia and Moll in attendance. They unanimously approved the contracts hereinbefore
enumerated.

As was to be expected, NACOCO but partially performed the contracts. The buyers threatened
damage suits, some of which were settled. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd.,
did in fact sue before the Court of First Instance of Manila. The cases culminated in an out-of-
court amicable settlement when the Kalaw management was already out.
With particular reference to the Dreyfus claims, NACOCO put up the defenses that:

(1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to
do business here; and
(2) failure to deliver was due to force majeure, the typhoons. All the settlements sum up to
P1,343,274.52.
In this suit started in February, 1949, NACOCO seeks to recover the above sum of
P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and directors Juan
Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of
the old Civil Code (now Article 2176, new Civil Code); and defendant board members, including
Kalaw, with bad faith and/or breach of trust for having approved the contracts. By Executive
Order 372, dated November 24, 1950, NACOCO, together with other government-owned
corporations, was abolished, and the Board of Liquidators was entrusted with the function of
settling and closing its affairs.

DECISION OF LOWER COURTS:


1. CFI-Manila: dismissed the complaint. Plaintiff was ordered to pay the heirs of Maximo Kalaw
the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from
NACOCO.

ISSUE:
1. Whether plaintiff Board of Liquidators has lost its legal personality to continue with this suit
since the three year period has elapsed, the Board of Liquidators may not now continue with,
and prosecute, the present case to its conclusion
2. Whether the action is unenforceable against Kalaw
3. whether the case at bar is to be taken out of the general concept of the powers of a general
manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval
of NACOCO contracts.
4. Whether damages should be awarded
RULING:
1. No, the provision should be read not as an isolated provision but in conjunction with the
whole. So reading, it will be readily observed that no time limit has been tacked to the existence
of the Board of Liquidators and its function of closing the affairs of the various government
owned corporations, including NACOCO.
The President thought it best to do away with the boards of directors of the defunct
corporations; at the same time, however, the President had chosen to see to it that the Board of
Liquidators step into the vacuum. And nowhere in the executive order was there any mention of
the lifespan of the Board of Liquidators.
3 methods by which corporation may wind up it its affairs:
1. Voluntary dissolution, "such disposition of its assets as justice requires, and may appoint a
receiver to collect such assets and pay the debts of the corporation;
2. Corporate existence is terminated - "shall nevertheless be continued as a body
corporate for three years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and of enabling it gradually
to settle and close its affairs, to dispose of and convey its property and to divide its
capital stock, but not for the purpose of continuing the business for which it was
established;"
3. corporation, within the three year period just mentioned, "is authorized and empowered to
convey all of its property to trustees for the benefit of members, stockholders, creditors, and
others interested
Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution
of a corporation ends its existence so that there must be statutory authority for
prolongation of its life even for purposes of pending litigation
Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the
complete loss of plaintiff's corporate existence after the expiration of the period of
three (3) years for the settlement of its affairs is what impelled the President to create a Board
of Liquidators, to continue the management of such matters as may then be pending."
The Board of Liquidators thus became the trustee on behalf of the government. It was an
express trust. The legal interest became vested in the trustee — the Board of Liquidators. The
beneficial interest remained with the sole stockholder — the government. At no time had the
government withdrawn the property, or the authority to continue the present suit, from the
Board of Liquidators. If for this reason alone, we cannot stay the hand of the Board of
Liquidators from prosecuting this case to its final conclusion. The provisions of Section 78 of the
Corporation Law — the third method of winding up corporate affairs — find application.

2. Action against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia
survives.

claims that are barred if not filed in the estate settlement proceedings(Rule 87, sec. 5)
> actions that are abated by death are:
(1) claims for funeral expenses and those for the last sickness of the decedent;
(2) judgments for money; and
(3) "all claims for money against the decedent, arising from contract express or implied."
it is not enough that the claim against the deceased party be for money, but it must arise from
"contract express or implied"

actions that survive and may be prosecuted against the executor or administrator
(Rule 88, sec. 1)
> 1. actions for damages caused by tortious conduct of a defendant (as in the case at bar)
survive the death of the latter.
actions that survive against a decedent's executors or administrators, and they are:
(1) actions to recover real and personal property from the estate; (2) actions to enforce a lien
thereon; and
(3) actions to recover damages for an injury to person or property.

3. The movement of the market requires that sales agreements be entered into, even though
the goods are not yet in the hands of the seller. Known in business parlance as forward sales, it
is concededly the practice of the trade. Above all, NACOCO's limited funds necessitated a quick
turnover. Copra contracts then had to be executed on short notice — at times within twenty-four
hours. To be appreciated then is the difficulty of calling a formal meeting of the board
So pleased was NACOCO's board of directors that, on December 5, 1946, in Kalaw's absence, it
voted to grant him aspecial bonus "in recognition of the signal achievement rendered by him in
putting the Corporation's business on a self-sufficient basis within a few months after assuming
office, despite numerous handicaps and difficulties."
These previous contract it should be stressed, were signed by Kalaw without prior authority from
the board. Existence of such authority is established, by proof of the course of business,
the usage and practices of the company and by the knowledge which the board of directors has,
or must be presumed to have, of acts and doings of its subordinates in and about the affairs of
the corporation.
If the by-laws were to be literally followed, the board should give its stamp of prior approval on
all corporate contracts. But that board itself, by its acts and through acquiescence, practically
laid aside the by-law requirement of prior approval.
Under the given circumstances, the Kalaw contracts are valid corporate acts. Bad faith does
not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of wrong; it means breach of a known duty
thru some motive or interest or ill will; it partakes of the nature of fraud. Applying this
precept to the given facts herein, we find that there was no "dishonest purpose," or
"some moral obliquity," or "conscious doing of wrong," or "breach of a known duty,"
or "Some motive or interest or ill will" that "partakes of the nature of fraud."

4. No. This is a case of damnum absque injuria. Conjunction of damage and wrong is here
absent. There cannot be an actionable wrong if either one or the other is wanting. Of course,
Kalaw could not have been an insurer of profits. He could not be expected to predict the coming
of unpredictable typhoons. And even as typhoons supervened Kalaw was not remissed in his
duty. He exerted efforts to stave off losses. That Kalaw cannot be tagged with crassa
negligentia or as much as simple negligence, would seem to be supported by the fact that even
as the contracts were being questioned in Congress and in the NACOCO board itself, President
Roxas defended the actuations of Kalaw.
It is a well known rule of law that questions of policy of management are left solely to the honest
decision of officers and directors of a corporation, and the court is without authority to substitute
its judgment for the judgment of the board of directors; the board is the business manager of
the corporation, and so long as it acts in good faith its orders are not reviewable by the
courts."
Atrium Management Corporation v. Court of Appeals
Facts: Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M. de
Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in favor of E.T. Henry
and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four checks to Atrium for
valuable consideration. Enrique Tan of E.T. Henry approached Atrium for financial assistance,
offering to discount four RCBC checks in the total amount of P2 million, issued by Hi-Cement in
favor of E.T. Henry. Atrium agreed to discount the checks, provided it be allowed to confirm with
Hi-Cement the fact that the checks represented payment for petroleum products which E.T.
Henry delivered to Hi-Cement. Upon presentment for payment, the drawee bank dishonored all
four checks for the common reason “payment stopped”. As a result thereof, Atrium filed an
action for collection of the proceeds of 4 PDC in the total amount of 2M with RTC Manila.
Judgment was rendered in favor of Atrium ordering Lourdes and Rafael de Leon, E.T. Henry and
Co., and Hi-Cement to pay Atrium the said amount plus interest and attorneys fees. CA absolved
Hi-cement Corporation from liability. It also ruled that since Lourdes was not authorized to issue
the subjects checks in favor of E.T. Henry Inc., the said act was ultra vires.
Issue: Whether the issuance of the questioned checks was an ultra vires act;
Ruling: Yes.
An ultra vires act is one committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the power conferred upon it by
law. The term “ultra vires” is “distinguished from an illegal act for the former is merely voidable
which may be enforced by performance, ratification, or estoppel, while the latter is void and
cannot be validated.
Personal liability of a corporate director, trustee or officer along (although not necessarily) with
the corporation may so validly attach, as a rule, only when:
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;
2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does
not forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action.
In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and Chairman of Hi-
Cement were authorized to issue the checks. However, Ms. de Leon was negligent when she
signed the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for
the rediscounting of the crossed checks issued in favor of E.T. Henry. She was aware that the
checks were strictly endorsed for deposit only to the payee’s account and not to be further
negotiated. What is more, the confirmation letter contained a clause that was not true, that is,
“that the checks issued to E.T. Henry were in payment of Hydro oil bought by Hi-Cement from
E.T. Henry”. Her negligence resulted in damage to the corporation. Hence, Ms. de Leon may be
held personally liable therefore.
Loyola vs. CA
Facts: In 1983, the Loyola Grand Villas Association, Inc. (LGVAI) was incorporated by the
homeowners of the Loyola Grand Villas (LGV), a subdivision. The Securities and Exchange
Commission (SEC) issued a certificate of incorporation under its official seal to LGVAI in the
same year. LGVAI was likewise recognized by the Home Insurance and Guaranty Corporation
(HIGC), a government-owned-and-controlled corporation whose mandate is to oversee
associations like LGVAI.
Later, LGVAI later found out that there are two homeowners associations within LGV, namely:
Loyola Grand Villas Homeowners (South) Association, Inc. (LGVAI-South) and Loyola Grand
Villas Homeowners (North) Association, Inc. (LGVAI-North). The two associations asserted that
they have to be formed because LGVAI is inactive. When LGVAI inquired about its status with
HIGC, HIGC advised that LGVAI was already terminated; that it was automatically dissolved
when it failed to submit it By-Laws after it was issued a certificate of incorporation by the SEC.
ISSUE: Whether or not a corporation’s failure to submit its by-laws results to its automatic
dissolution.
HELD: No. A private corporation like LGVAI commences to have corporate existence and
juridical personality from the date the Securities and Exchange Commission (SEC) issues a
certificate of incorporation under its official seal. The submission of its by-laws is a condition
subsequent but although it is merely such, it is a MUST that it be submitted by the corporation.
Failure to submit however does not warrant automatic dissolution because such a consequence
was never the intention of the law. The failure is merely a ground for dissolution which may be
raised in a quo warranto proceeding. It is also worthwhile to note that failure to submit can’t
result to automatic dissolution because there are some instances when a corporation does not
require a by-laws.