Finally, unless they have exceeded their authority, corporate officers

are, as a general rule, not personally liable for their official acts,
because a corporation, by legal fiction, has a personality separate and
distinct from its officers, stockholders and members. Although as an
exception, corporate directors and officers are solidarily held liable
with the corporation, where terminations of employment are done with
malice or in bad faith, 33 in the absence of evidence that they acted
with malice or bad faith herein, the Court exempts the individual
respondents, Leo Rabang and Jane Navarette, from any personal
liability for the illegal dismissal of petitioners.

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It is basic that a corporation is a juridical entity with legal personality

separate and distinct from those acting for and in its behalf and, in
general, from the people comprising it. 40 The general rule is that
obligations incurred by the corporation, acting through its directors,
officers and employees, are its sole liabilities, and vice versa.
cTDECH
There are times, however, when solidary liabilities may be incurred and
the veil of corporate fiction may be pierced. Exceptional circumstances
warranting such disregard of a separate personality are summarized as
follows:
1. When directors and trustees or, in appropriate case, the officers
of a corporation:
(a) vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the
corporate affairs; cHDEaC
(c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons; 41
2. When a director or officer has consented to the issuance of
watered down stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection thereto;
42
3. When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the
corporation; 43 or
4. When a director, trustee or officer is made, by specific provision
of law, personally liable for his corporate action. 44

As explained above, to hold a director, a trustee or an officer

personally liable for the debts of the corporation and, thus, pierce the
veil of corporate fiction, bad faith or gross negligence by the director,
trustee or officer in directing the corporate affairs must be established
clearly and convincingly. Bad faith is a question of fact and is
evidentiary. Bad faith does not connote bad judgment or negligence. It
imports a dishonest purpose or some moral obliquity and conscious
wrongdoing. It means breach of a known duty through some ill motive
or interest. It partakes of the nature of fraud. 45

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Under the Corporation Code, where a corporation is an injured party, its power to sue is
lodged with its board of directors or trustees. But an individual stockholder may be
permitted to institute a derivative suit in behalf of the corporation in order to protect or
vindicate corporate rights whenever the officials of the corporation refuse to sue, or when
a demand upon them to file the necessary action would be futile because they are the ones
to be sued, or because they hold control of the corporation. 22 In such actions, the
corporation is the real party-in-interest while the suing stockholder, in behalf of the
corporation, is only a nominal party. 23
And while it is true that the complaining stockholder must show to the satisfaction of the
court that he has exhausted all the means within his reach to attain within the corporation
itself the redress for his grievances, or actions in conformity to his wishes, nonetheless,
where the corporation is under the complete control of the principal defendants, as here,
there is no necessity of making a demand upon the directors. The reason is obvious: a
demand upon the board to institute an action and prosecute the same effectively would
have been useless and an exercise in futility.

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A criminal charge for violation of the Securities Regulation Code is a specialized dispute.
Hence, it must first be referred to an administrative agency of special competence, i.e.,
the SEC. Under the doctrine of primary jurisdiction, courts will not determine a
controversy involving a question within the jurisdiction of the administrative tribunal,
where the question demands the exercise of sound administrative discretion requiring the
specialized knowledge and expertise of said administrative tribunal to determine
technical and intricate matters of fact. 12 The Securities Regulation Code is a special law.
Its enforcement is particularly vested in the SEC. Hence, all complaints for any violation
of the Code and its implementing rules and regulations should be filed with the SEC.
Where the complaint is criminal in nature, the SEC shall indorse the complaint to the
DOJ for preliminary investigation and prosecution as provided in Section 53.1 earlier
quoted.

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Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or
defend crime. 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 personal liability of corporate officers validly attaches only when (a) they assent to a
patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross
negligence in directing its affairs; or (c) they incur conflict of interest, resulting in
damages to the corporation, its stockholders or other persons.

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. However, the fact that a corporation owns all of the stocks of another corporation, taken
alone, is not sufficient to justify their being treated as one entity. If used to perform
legitimate functions, a subsidiary's separate existence shall be respected, and the liability
of the parent corporation, as well as the subsidiary shall be confined to those arising in
their respective business. 75 A corporation has a separate personality distinct from its
stockholders and from other corporations to which it may be conducted. This separate
and distinct personality of a corporation is a fiction created by law for convenience and to
prevent injustice. DCAHcT
This Court, in Martinez v. Court of Appeals 76 held that, being a mere fiction of law,
peculiar situations or valid grounds can exist to warrant, albeit sparingly, the disregard of
its independent being and the piercing of the corporate veil. The veil of separate
corporate personality may be lifted when, inter alia, the corporation is merely an adjunct,
a business conduit or an alter ego of another corporation 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; or when the
corporation is used as a cloak or cover for fraud or illegality; or to work injustice; or
where necessary to achieve equity or for the protection of the creditors. In those cases
where valid grounds exist for piercing the veil of corporate entity, the corporation will be
considered as a mere association of persons. The liability will directly attach to them. 77
The Court likewise declared in the same case that the test in determining the application
of the instrumentality or alter ego doctrine is as follows:
1. Control, not mere majority or complete stock control, but complete dominion, 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 complaint of.
The Court emphasized that 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. 78

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Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be made either by the board
of directors or by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating
to the affairs of the corporation, but not in the course of, or connected with the
performance of authorized duties of such director, are held not binding on the
corporation.
Thus, a corporation can only execute its powers and transact its business through its
Board of Directors and through its officers and agents when authorized by a board
resolution or its by-laws. 61

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Only stockholders or members have the power to remove the directors or trustees elected
by them, as laid down in Section 28 of the Corporation Code, 16 which provides in part:
SEC. 28. Removal of directors or trustees. — Any director or trustee of a
corporation may be removed from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation
be a non-stock corporation, by a vote of at least two-thirds (2/3) of the members entitled
to vote: Provided, that such removal shall take place either at a regular meeting of the
corporation or at a special meeting called for the purpose, and in either case, after
previous notice to stockholders or members of the corporation of the intention to propose
such removal at the meeting. A special meeting of the stockholders or members of a
corporation for the purpose of removal of directors or trustees or any of them, must be
called by the secretary on order of the president or on the written demand of the
stockholders representing or holding at least a majority of the outstanding capital stock,
or if it be a non-stock corporation, on the written demand of a majority of the members
entitled to vote. . . . Notice of the time and place of such meeting, as well as of the
intention to propose such removal, must be given by publication or by written notice as
prescribed in this Code. . . . Removal may be with or without cause: Provided, That
removal without cause may not be used to deprive minority stockholders or members of
the right of representation to which they may be entitled under Section 24 of this Code.

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. A corporation, upon coming to existence, is invested by law with a personality separate

and distinct from those of the persons composing it. Ownership by a single or a small
group of stockholders of nearly all of the capital stock of the corporation is not, without
more, sufficient to disregard the fiction of separate corporate personality. 23 Thus,
obligations incurred by corporate officers, acting as corporate agents, are not theirs, but
direct accountabilities of the corporation they represent. Solidary liability on the part of
corporate officers may at times attach, but only under exceptional circumstances, such as
when they act with malice or in bad faith. 24 Also, in appropriate cases, the veil of
corporate fiction shall be disregarded when the separate juridical personality of a
corporation is abused or used to commit fraud and perpetrate a social injustice, or used as
a vehicle to evade obligations.

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A corporation is invested by law with a personality separate from that of its stockholders
or members. It has a personality separate and distinct from those of the persons
composing it as well as from that of any other entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not in itself sufficient ground for disregarding the
separate corporate personality. A corporation's authority to act and its liability for its
actions are separate and apart from the individuals who own it.
The veil of corporate fiction treats as separate and distinct the affairs of a corporation and
its officers and stockholders. As a general rule, a corporation will be looked upon as a
legal entity, unless and until sufficient reason to the contrary appears. When the notion of
legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an association of persons. Also, the
corporate entity may be disregarded in the interest of justice in such cases as fraud that
may work inequities among members of the corporation internally, involving no rights of
the public or third persons. In both instances, there must have been fraud and proof of it.
For the separate juridical personality of a corporation to be disregarded, the wrongdoing
must be clearly and convincingly established. It cannot be presumed. 17