WESTERN INSTITUTE OF TECHNOLOGY, INC., vs. SALAS, et al. RENATO REAL vs. SANGU PHILIPPINES, INC.
U PHILIPPINES, INC. and/ or KIICHI ABE
1997 Aug 21, G.R. No. 113032
FACTS:
The petitioners are the minority stockholders, while the
respondents are the majority stockholders of the corporation. The
petitioners alleged that a meeting was held in its principal office and
a prior notice was distributed to the members. Subsequently a
resolution was passed granting monthly compensation for services
rendered by its officers.
A complaint was filed against the respondents by the
petitioners contending that the grant of compensation is prohibited.
The trial court rendered decision in favor of the respondents.
ISSUE:
Whether or not the grant of compensation was valid.
RULING:
YES. Under section 30, there are two (2) ways by which
members of the board can be granted compensation apart from
reasonable per diems: (1) when there is a provision in the by-laws
fixing their compensation; and (2) when the stockholders
representing a majority of the outstanding capital stock at a regular
or special stockholders' meeting agree to give it to them. The
proscription under said section pertains to compensations granted to
members of the Board. But they are not prohibited to be
compensated if these members of the Board act as officers of the
corporation, more particularly as Chairman, Vice-Chairman,
Treasurer and Secretary of Western Institute of Technology.
G.R. No. 168757, January 19, 2011
FACTS:
Petitioner Renato Real was the Manager of Respondent
Corporation Sangu Philippines, Inc. engaged in the business of
providing manpower for general services, like janitors, janitresses
and other maintenance personnel, to various clients. Subsequently,
the janitors, etc employed by the latter filed their respective
complaint for illegal dismissal. Petitioner, on the other hand, was
removed from his position via Board resolution, and thus also filed an
illegal dismissal case against the corporation. The LA ruled for the
petitioner and his co-complainants, which was reversed by the NLRC.
The ruling of the NLRC was affirmed by the CA.
ISSUE:
Whether or not petitioner is a corporate officer of the
corporation.
RULING:
NO. He is not a corporate officer. It has been consistently
held that an ‘office’ is created by the charter of the corporation and
the officer is elected (or appointed) by the directors or stockholders.
Clearly here, respondents failed to prove that petitioner was
appointed by the board of directors. Although they had been
reiterating that the petitioner was employed as a manager, there was
no indication as to how he was put into such position. For
respondents’ failure to substantiate its claim the petitioner was
deemed to be not a coporate officer, hence jurisdiction properly lies
with the LA.
 MATLING INDUSTRIAL AND COMMERCIAL CORPORATION,
RICHARD K. SPENCER, CATHERINE SPENCER, AND ALEX MANCILLA
vs. RICARDO R. COROS
G.R. No. 157802, October 13, 2010
FACTS:
The respondent filed a case for illegal dismissal against
Matling and some of its corporate officers (petitioners) in the NLRC.
He was the Vice President for Finance and Administration when he
was dismissed. The petitioner opposed said complaint on the ground
that the issue at hand is an intra- corporate dispute which falls under
the jurisdiction of the SEC. The respondent opposed the same
contending that his being in the position was doubtful that he had
not been formally elected as such. The LA ruled in favor of petitioner
but the same was reversed by the NLRC, and to which the CA
affirmed.
ISSUE:
Whether or not respondent is a corporate officer.
RULING:
NO. The petitioners contend that the position of Vice
President for Finance and Administration was a corporate office,
having been created by Matling’s President pursuant to the by-Law.
However, the Court explained that an "office" is created by
the charter of the corporation and the officer is elected by the
directors or stockholders. On the other hand, an employee occupies
no office and generally is employed not by the action of the directors
or stockholders but by the managing officer of the corporation who
also determines the compensation to be paid to such employee. In
this case, respondent was appointed vice president for nationwide
expansion by Malonzo, petitioner’'s general manager, not by the
board of directors of petitioner. Also his compensation was paid by
Malonzo. Thus, respondent was an employee, not a "corporate
officer.
Also, the Board of Directors of Matling could not validly
delegate the power to create a corporate office to the President, in
light of Section 25 of the Corporation Code requiring the Board of
Directors itself to elect the corporate officers. Verily, the power to
elect the corporate officers was a discretionary power that the law
exclusively vested in the Board of Directors, and could not be
delegated to subordinate officers or agents.The office of Vice
President for Finance and Administration created by Matling’s
President pursuant to the by- law was an ordinary, not a corporate,
office.
GLORIA V. GOMEZ
vs.
PNOC DEVELOPMENT AND MANAGEMENT CORPORATION (PDMC)
- (formerly known as FILOIL DEVELOPMENT AND MANAGEMENT
CORPORATION [FDMC])
G.R. No. 174044, November 27, 2009
FACTS:
Petitioner Gloria V. Gomez used to work as Manager of the
Legal Department of Petron Corporation, then a government-owned
corporation. With Petron’s privatization, she availed of the
company’s early retirement program and left that organization on
April 30, 1994. On the following day, May 1, 1994, however, Filoil
Refinery Corporation (Filoil), also a government-owned corporation,
appointed her its corporate secretary and legal counsel, with the
same managerial rank, compensation, and benefits that she used to
enjoy at Petron. However, the privatization did not materialize so
Gomez continued to serve as corporate secretary of respondent
PDMC.
On March 29, 1999 the new board of directors of respondent
PDMC removed petitioner Gomez as corporate secretary. Further, at
the board’s meeting on October 21, 1999 the board questioned her
continued employment as administrator. In answer, she presented
the former president’s May 24, 1998 letter that extended her
term. Dissatisfied with this, the board sought the advice of its legal
department, which expressed the view that Gomez’s term extension
was an ultra vires act of the former president. It reasoned that, since
her position was functionally that of a vice-president or general
manager, her term could be extended under the company’s by-laws
only with the approval of the board. The legal department held that
her “de facto” tenure could be legally put to an end. Petitioner
Gomez for her part conceded that as corporate secretary, she served
only as a corporate officer. But, when they named her administrator,
she became a regular managerial employee. Consequently, the
respondent PDMC’s board did not have to approve either her
appointment as such or the extension of her term in 1998.
ISSUE:
Whether or not Gomez is an ordinary employee whose
complaint is within the jurisdiction of the NLRC.
RULING:
YES. The relationship of a person to a corporation, whether
as officer or agent or employee, is not determined by the nature of
the services he performs but by the incidents of his relationship with
the corporation as they actually exist. That the employee served
concurrently as corporate secretary for a time is immaterial. A
corporation is not prohibited from hiring a corporate officer to
perform services under circumstances which will make him an
employee. Indeed, it is possible for one to have a dual role of officer
and employee. NLRC has jurisdiction over a complaint filed by one
who served both as corporate officer and employee, when the
money claims were made as an employee and not as a corporate
officer.
DILY DANY NACPIL vs. INTERNATIONAL BROADCASTING
CORPORATION. G.R. No. 144767. March 21, 2002
FACTS:
Petitioner was Assistant General Manager for
Finance/Administration and Comptroller of private respondent
Intercontinental Broadcasting Corporation (IBC) from 1996 until April
1997. According to petitioner, when Emiliano Templo was appointed
to replace IBC President Tomas Gomez III sometime in March 1997,
the former told the Board of Directors that as soon as he assumes the
IBC presidency, he would terminate the services of petitioner.
Apparently, Templo blamed petitioner, along with a certain Mr.
Basilio and Mr. Gomez, for the prior mismanagement of IBC. Upon
his assumption of the IBC presidency, Templo allegedly harassed,
insulted, humiliated and pressured petitioner into resigning until the
latter was forced to retire. However, Templo refused to pay him his
retirement benefits, allegedly because he had not yet secured the
clearances from the Presidential Commission on Good Government
and the Commission on Audit.
IBC filed a motion to dismiss contending that petitioner was
a corporate officer who was duly elected by the Board of Directors of
IBC; hence, the case qualifies as an intra-corporate dispute falling
within the jurisdiction of the SEC.
On the other hand, petitioner argues that he is not a
corporate officer of IBC but an employee thereof since he had not
been elected nor appointed as Comptroller and Assistant Manager by
the IBC's Board of Directors but by an IBC General Manager. This is
also because the IBC's By-Laws do not even include the position of
comptroller in its roster of corporate officers.He therefore contends
that his dismissal is a controversy falling within the jurisdiction of the
labor courts.
ISSUE:
Whether or not petitioner is a corporate officer although the
position of comptroller is not expressly mentioned in the by-laws.
RULING:
NO. The fact that the position of Comptroller is not expressly
mentioned among the officers of the IBC in the By-Laws is of no
moment, because the IBC's Board of Directors is empowered under
Section 25 of the Corporation Code and under the corporation's By-
Laws to appoint such other officers as it may deem necessary.
The by-laws may and usually do provide for such other
officers," and that where a corporate office is not specifically
indicated in the roster of corporate offices in the by-laws of a
corporation, the board of directors may also be empowered under
the by-lawsto create additional officers as may be necessary.
Furthermore, as petitioner's appointment as comptroller required
the approval and formal action of the IBC's Board of Directors to
become valid, it is clear therefore holds that petitioner is a corporate
officer whose dismissal may be the subject of a controversy
cognizable by the SEC under Section 5(c) of P.D. 902-A which includes
controversies involving both election and appointmentof corporate
directors, trustees, officers, and managers. Had petitioner been an
ordinary employee, such board action would not have been required.
People's Aircargo and Warehousing Co. Inc. vs. Court of Appeals
[GR 117847, 7 October 1998]
FACTS:
People's Aircargo and Warehousing Co. Inc. (PAWCI) is a
domestic corporation, which was organized in the middle of 1986 to
operate a customs bonded warehouse at the old Manila International
Airport in Pasay City. To obtain a license for the corporation from the
Bureau of Customs, Antonio Punsalan Jr., the corporation president,
solicited a proposal from Stefani Saño for the preparation of a
feasibility study. Saño submitted a letter-proposal dated 17 October
1986 ("First Contract") to Punsalan, for the project feasibility study
(market, technical, and financial feasibility) and preparation of
pertinent documentation requirements for the application, worth
P350,000. Initially, Cheng Yong, the majority stockholder of PAWCI,
objected to Saño's offer, as another company priced a similar
proposal at only P15,000. However, Punsalan preferred Saño's
services because of the latter's membership in the task force, which
was supervising the transition of the Bureau of Customs from the
Marcos government to the Aquino Administration. On 17 October
1986, PAWCI, through Punsalan, sent Saño a letter confirming their
agreement.
Accordingly, Saño prepared a feasibility study for PAWCI
which eventually paid him the balance of the contract price, although
not according to the schedule agreed upon. On 4 December 1986,
upon Punsalan's request, Saño sent PAWCI another letter-proposal
("Second Contract") formalizing its proposal for consultancy services
in the amount of P400,000. On 10 January 1987, Andy Villaceren, vice
president of PAWCI, received the operations manual prepared by
Saño. PAWCI submitted said operations manual to the Bureau of
Customs in connection with the former's application to operate a
bonded warehouse; thereafter, in May 1987, the Bureau issued to it
a license to operate, enabling it to become one of the three public
customs bonded warehouses at the international airport. Saño also
conducted, in the third week of January 1987 in the warehouse of
PAWCI, a three-day training seminar for the latter's employees. On
25 March 1987, Saño joined the Bureau of Customs as special
assistant to then Commissioner Alex Padilla, a position he held until
he became technical assistant to then Commissioner Miriam
Defensor-Santiago on 7 March 1988. Meanwhile, Punsalan sold his
shares in PAWCI and resigned as its president in 1987. On 9 February
1988, Saño filed a collection suit against PAWCI. He alleged that he
had prepared an operations manual for PAWCI, conducted a seminar-
workshop for its employees and delivered to it a computer program;
but that, despite demand, PAWCI refused to pay him for his services.
PAWCI, in its answer, denied that Saño had prepared an operations
manual and a computer program or conducted a seminar-workshop
for its employees. It further alleged that the letter-agreement was
signed by Punsalan without authority, in collusion with Saño in order
to unlawfully get some money from PAWCI, and despite his
knowledge that a group of employees of the company had been
commissioned by the board of directors to prepare an operations
manual. The Regional Trial Court (RTC) of Pasay City, Branch 110,
rendered a Decision dated 26 October 1990 declared the Second
Contract unenforceable or simulated. However, since Saño had
actually prepared the operations manual and conducted a training
seminar for PAWCI and its employees, the trial court awarded
P60,000 to the former, on the ground that no one should be unjustly
enriched at the expense of another (Article 2142, Civil Code). The trial
Court determined the amount "in light of the evidence presented by
defendant on the usual charges made by a leading consultancy firm
on similar services." Upon appeal, and on 28 February 1994, the
appellate court modified the decision of the trial court, and declared
the Second Contract valid and binding on PAWCI, which was held
liable to Saño in the full amount of P400,000, representing payment
of Saño services in preparing the manual of operations and in the
conduct of a seminar for PAWCI. As no new ground was raised by
PAWCI, reconsideration of the decision was denied in the Resolution
promulgated on 28 October 1994. PAWCI filed the Petition for
Review.
ISSUE:
Whether a single instance where the corporation had
previously allowed its president to enter into a contract with another
without a board resolution expressly authorizing him, has clothed its
president with apparent authority to execute the subject contract.
HELD:
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. It
requires presentation of evidence of similar act(s) executed either in
its favor or in favor of other parties. It is not the quantity of similar
acts which establishes apparent authority, but the vesting of a
corporate officer with the power to bind the corporation. Herein,
PAWCI, through its president Antonio Punsalan Jr., entered into the
First Contract without first securing board approval. Despite such lack
of board approval, PAWCI did not object to or repudiate said
contract, thus "clothing" its president with the power to bind the
corporation. The grant of apparent authority to Punsalan is evident
in the testimony of Yong — senior vice president, treasurer and major
stockholder of PAWCI. The First Contract was consummated,
implemented and paid without a hitch. Hence, Sano should not be
faulted for believing that Punsalan's conformity to the contract in
dispute was also binding on petitioner. It is familiar doctrine that if a
corporation knowingly permits one of its officers, or any other agent,
to act within the scope of an apparent authority, it holds him out to
the public as possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt with
it through such agent, be estopped from denying the agent's
authority. Furthermore, Saño prepared an operations manual and
conducted a seminar for the employees of PAWCI in accordance with
their contract. PAWCI accepted the operations manual, submitted it
to the Bureau of Customs and allowed the seminar for its employees.
As a result of its aforementioned actions, PAWCI was given by the
Bureau of Customs a license to operate a bonded warehouse.
Granting arguendo then that the Second Contract was outside the
usual powers of the president, PAWCI's ratification of said contract
and acceptance of benefits have made it binding, nonetheless. The
enforceability of contracts under Article 1403(2) is ratified "by the
acceptance of benefits under them" under Article 1405.
LINTONJUA, JR. vs. ETERNIT CORPORATION
G.R. No. 144805 June 8, 2006
FACTS:
The Eternit Corporation (EC) manufactures roofing materials
and pipe products. Ninety (90%) percent of the shares of stocks of EC
were owned by Eteroutremer S.A. Corporation (ESAC), a corporation
registered under the laws of Belgium. Glanville was the General
Manager and President of EC, while Delsaux was the Regional
Director for Asia of ESAC. In 1986, because of the political situation in
the Philippines the management of ESAC wanted to stop its
operations and to dispose the land in Mandaluyong City. They
engaged the services of realtor/broker Lauro G. Marquez.
Marquez thereafter offered the land to Eduardo B. Litonjua, Jr. for
P27,000,000.00. Litonjua counter offered P20,000,000.00 cash.
Marquez apprised Glanville & Delsaux of the offer. Delsaux sent a
telex stating that, based on the "Belgian/Swiss decision," the final
offer was "US$1,000,000.00 and P2,500,000.00. The Litonjua
brothers deposited US$1,000,000.00 with the Security Bank & Trust
Company, and drafted an Escrow Agreement to expedite the sale.
Meanwhile, with the assumption of Corazon C. Aquino as President,
the political situation improved. Marquez received a letter from
Delsaux that the ESAC Regional Office decided not to proceed with
the sale. When informed of this, the Litonjuas, filed a complaint for
specific performance and payment for damages on account of the
aborted sale. Both the trial court and appellate court rendered
judgment in favor of defendants and dismissed the complaint.
The lower court declared that since the authority of the
agents/realtors was not in writing, the sale is void and not merely
unenforceable.
ISSUE:
WON the appellate court committed grave error of law in
holding that Marquez needed a written authority from respondent
ETERNIT before the sale can be perfected.
HELD:
Respondents maintain that Glanville, Delsaux and Marquez
had no authority from the stockholders of EC and its Board of
Directors to offer the properties for sale to the petitioners.
Petitioners assert that there was no need for a written authority from
the Board of Directors of EC for Marquez to validly act as broker. As
broker, Marquez was not an ordinary agent because his only job as a
broker was to look for a buyer and to bring together the parties to
the transaction. He was not authorized to sell the properties; hence,
petitioners argue, Article 1874 of the New Civil Code does not apply.
A corporation is a juridical person separate and distinct from its
stockholders and is not affected by the personal rights, obligations
and transactions of the latter. It may act only through its board of
directors or, when authorized by its board resolution, through its
officers or agents. The general principles of agency govern the
relation between the corporation and its officers or agents, subject
to the articles of incorporation, by-laws, or relevant provisions of law.
Agency may be oral unless the law requires a specific form. However,
to create or convey real rights over immovable property, a special
power of attorney is necessary. Thus, when a sale of a piece of land
or any portion thereof is through an agent, the authority of the latter
shall be in writing, otherwise, the sale shall be void.
In this case, the petitioners failed to adduce in evidence any
resolution of the Board of Directors of EC empowering Marquez,
Glanville or Delsaux as its agents, to sell, let alone offer for sale, for
and in its behalf, the eight parcels of land owned by it.
Moreover, the evidence of petitioners shows that Adams and
Glanville acted on the authority of Delsaux, who, in turn, acted on the
authority of ESAC, through its Committee for Asia, and the
Belgian/Swiss component of the management of ESAC. The offer of
Delsaux emanated only from the "Belgian/Swiss decision," and not
the entire management or Board of Directors of ESAC. While it is true
that petitioners accepted the counter-offer of ESAC, EC was not a
party to the transaction between them; hence, EC was not bound by
such acceptance. Decision of the lower court is affirmed.
ESPIRITU vs. PETRON CORPORATION
G.R. No. 170891, November 24, 2009
FACTS:
Petron sold and distributed LPG in cylinder tanks that carried
its trademark "Gasul."1 Respondent Carmen J. Doloiras owned and
operated Kristina Patricia Enterprises, the exclusive distributor of
Gasul LPGs in the whole of Sorsogon. Jose Nelson Doloiras served as
KPE’s manager. Bicol Gas Refilling Plant Corporation was also in the
business of selling and distributing LPGs in Sorsogon but theirs
carried the trademark "Bicol Savers Gas." Petitioner Audie Llona
managed Bicol Gas.
On August 4, 2001 KPE’s Jose saw a particular Bicol Gas truck
on the Maharlika Highway. While the truck carried mostly Bicol
Savers LPG tanks, it had on it one unsealed 50-kg Gasul tank and one
50-kg Shellane tank. He offered to make a swap for these but Llona
declined, saying the Bicol Gas owners wanted to send those tanks to
Batangas. Later Bicol Gas told Jose that it had no more Gasul tanks
left in its possession.
ISSUE:
Whether or not all the Petitioners are liable.
RULING:
NO. The "owners" of a corporate organization are its
stockholders and they are to be distinguished from its directors and
officers. The petitioners here, with the exception of Audie Llona, are
being charged in their capacities as stockholders of Bicol Gas. But the
Court of Appeals forgets that in a corporation, the management of its
business is generally vested in its board of directors, not its
stockholders. Stockholders are basically investors in a corporation.
They do not have a hand in running the day-to-day business
operations of the corporation unless they are at the same time
directors or officers of the corporation. Before a stockholder may be
held criminally liable for acts committed by the corporation,
therefore, it must be shown that he had knowledge of the criminal
act committed in the name of the corporation and that he took part
in the same or gave his consent to its commission, whether by action
or inaction.
The finding of the Court of Appeals that the employees
"could not have committed the crimes without the consent,
[abetment], permission, or participation of the owners of Bicol
Gas" is a sweeping speculation especially since, as demonstrated
above, what was involved was just one Petron Gasul tank found in a
truck filled with Bicol Gas tanks. Although the KPE manager heard
petitioner Llona say that he was going to consult the owners of Bicol
Gas regarding the offer to swap additional captured cylinders, no
indication was given as to which Bicol Gas stockholders Llona
consulted. It would be unfair to charge all the stockholders involved,
some of whom were proved to be minors. No evidence was
presented establishing the names of the stockholders who were
charged with running the operations of Bicol Gas. The complaint even
failed to allege who among the stockholders sat in the board of
directors of the company or served as its officers.
MAGALING VS. PETER ONG
G.R. NO. 173333. AUGUST 13, 2008
FACTS:
On 30 Sep 1998, respondent Peter Ong (Ong) instituted with
the RTC a Complaint for the collection of the sum of P389,000.00,
with interest, attorney’s fees and costs of suit, with prayer for
issuance of a writ of preliminary attachment against the spouses
Reynaldo Magaling and Lucila Magaling (Spouses Magaling) and
Termo Loans & Credit Corporation (Termo Loans) because of the
failure of Termo Loans to pay its outstanding obligation despite
demand. In addition to the preceding entreaty, Ong asked for the
issuance of the writ of preliminary attachment pursuant to Section
1(d), Rule 57 of the Rules of Court, as amended. Finding the same to
be impressed with merit, the RTC issued an Order directingthe
issuance of the writ prayed for upon the filing of a bond in the
amount ofP390,000.00. In their defense, Spouses Magaling alleged
in their Answer with Counter claim that Termo Loans failed to file an
Answer; thus, upon Ong’s motion, the RTC declared said corporation
in default and allowed Ong to present evidence exparte. The
Spouses Magaling moved for the reconsideration arguing that: “The
Writ of Preliminary Attachment x x x was improperly or irregularly
issued as there is no existing ground to support the issuance of an
attachment. In an Orderdated 19 Feb 1999, the RTC found that
Spouses Magaling’s Motion to Discharge Attachmentwas impressed
with merit On 5 Feb 2001, in complete contrast to its first decision,
the RTC promulgated its second decision holding the Spouses
Magaling free and clear of any obligation or liability with respect to
the sum of money claimed by Ong.
Ong appeal, the CA reversed the decision and a new one entered
declaring appellee spouses Magaling jointly and severally liable to
appellant Peter Ong for the corporate obligation of Thermo (sic)
Loans adjudged in the decision of the trial court dated 23 June 1999;
finding that the general rule that corporate officers cannot be held
personally liable for corporate debt when they act in good faith and
within the scope of their authority in executing a contract for and in
behalf of the corporation, cannot apply to the spouses Magaling. The
Court of Appeals pierced the veil of corporate fiction and held the
spouses Magaling solidarily liable with Termo Loans for the corporate
obligations of the latter since it found that Reynaldo Magaling was
grossly negligent in managing the affairs of the said corporation.
The Spouses Magaling’s motion for reconsideration was
denied by the Court of Appeals Ong likewise filed a motion for
reconsideration, albeit partial, that is, insofar as the issue of the
propriety of the discharge of the writ of preliminary attachment was
concerned.
ISSUE: WON THE COURT ERRED IN MAKING SPOUSES MAGALING
AND TERMO LOANS JOINTLY AND SEVERALLY LIABLE TO ONG FOR...
THE OBLIGATION INCURRED BY THE CORPORATION
HELD:
The petition is not meritorious. 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.

There are times, however, when solidary liabilities... s 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:
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;
(c) are guilty of conflict of interest to the prejudice of the corporation,
its stockholders or members, and other persons;[41]
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
When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the
corporation;[43] or
When a director, trustee or officer is made, by specific provision of
law, personally liable for his corporate action.[44]
In making the Spouses Magaling co-defendants of Termo Loans, Ong
alleged in his Complaint for Sum of Money filed with the RTC that the
spouses Reynaldo Magaling and Lucia Magaling were the controlling
stockholders and/or owners of Termo Loans, and that they had used
the... corporation to evade the payment of a valid obligation. The
appellate court eventually found the Spouses Magaling equally liable
with Termo Loans for the sum of money sought to be collected by
Ong.
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
In the present case, there is nothing substantial on record to show
that Reynaldo Magaling, as President of Termo Loans, has, indeed,
acted in bad faith in inviting Ong to invest in Termo Loans and/or in
obtaining a loan from Ong for said corporation in order to warrant
his... personal liability. From all indications, the proceeds of the
investment and/or loan were indeed utilized by Termo Loans.
Likewise, bad faith does not arise just because a corporation fails to
pay its obligations, because the inability to pay one's obligation is not
synonymous... with fraudulent intent not to honor the obligations.
The foregoing discussion notwithstanding, this Court still cannot
totally absolve Reynaldo Magaling from any liability considering his
gross negligence in directing the affairs of Termo Loans; thus, he must
be made personally liable for the debt of Termo Loans to Ong
In order to pierce the veil of corporate fiction, for reasons of
negligence by the director, trustee or officer in the conduct of the
transactions of the corporation, such negligence must be gross. Gross
negligence is one that is characterized by the want of even slight
care,... acting or omitting to act in a situation where there is a duty
to act, not inadvertently but willfully and intentionally with a
conscious indifference to consequences insofar as other persons may
be affected;[47] and must be established by clear and... convincing
evidence. Parenthetically, gross or willful negligence could amount to
bad faith.[48]
In the case at bar, in their Memorandum filed before the RTC, the
Spouses Magaling argued that "the Amended Complaint did not
allege that Reynaldo Magaling was guilty of gross negligence or bad
faith in directing the affairs of the corporation"; and that respondent
Ong was not able to adduce evidence to offset the effect of the
particular allegation. Hence, they insist that it was unfair for the
appellate court to conclude that Reynaldo Magaling failed to exercise
the necessary diligence in running Termo Loans.
We disagree.
Reynaldo Magaling's gross negligence became apparent, undeniable
and proven during the course of the proceedings in the trial court.
Reynaldo Magaling was the lone witness presented in court to belie
the claim of Ong. On cross-examination, he (Reynaldo Magaling)
clearly and... plainly shed light on how Termo Loans was run under
his aegis... businessman engaged in similar lines of lending company
and being the President, the former President of Themo (sic) Loans,
you had .... you were furnished with final.... with financial statement
of the company... was it not?
Reynaldo Magaling's very own testimony gave reason for the
appellate court's finding of gross negligence on his part. Instead of
the intended effect of refuting the supposition that Termo Loans was
assiduously managed, Reynaldo Magaling's foregoing testimony only
convincingly... displayed his gross negligence in the conduct of the
affairs of Termo Loans. From our standpoint, his casual manner,
insouciance and nonchalance, nay, indifference, to the predicament
of the distressed corporation glaringly exhibited a lackadaisical
attitude from a top... office of a corporation, a conduct totally
abhorrent in the corporate world.
GARCIA V. SOCIAL SECURITY COMMISSION LEGALAND COLLECTION
& SSS, G.R. NO. 170735 (DECEMBER 17, 2007)
FACTS:
Petitioner Immaculada L. Garcia, Eduardo de Leon, Ricardo
de Leon, Pacita Fernandez, and Consuelo Villanueva were directors
of Impact Corporation. Petitioner Immaculada L. Garcia, Eduardo de
Leon, Ricardo de Leon, Pacita Fernandez, and Consuelo Villanueva
were directors of Impact Corporation. Records show that around
1978, Impact Corporation started encountering financial problems.
Impact Corporation filed with the Securities and Exchange
Commission (SEC) a Petition for Suspension of Payments. The
company is directed to payall the entitled workers unpaid wages,
unpaid 13th month pay and to remit to the Social Security System loan
amortizations and SSS premiums previously deducted from the
wages of the workers.
The Social Security System (SSS), through its Legal and
Collection Division(LCD), filed a case before the SSC for the collection
of unremitted SSS premium contributions withheld by Impact
Corporation from its employees. Petitioner avers that under the
aforesaid provision, the liability does not include liability for the
unremitted SSS premium contributions.
ISSUE:
WON petitioner can be made solely liable for the corporate
obligations of Impact Corporation pertaining to unremitted SSS
premium contributions and penalties therefore.
RULING:
The petition is DISMISSED for lack of merit. The surviving
director of the Impact Corporation is solely liable for the unremitted
SSS premium contributions and penalties therefor. The petitioner
avers that under the social security law provision, the liability does
not includeliability for the unremitted SSS premium contributions.
But accordingly, the sections must be understood or interpreted as a
whole and not by parts. The liability imposed as contemplated under
the provisions of the social security law does not preclude the liability
for theunremitted amount.
Following the doctrine laid down in Laguna Transportation
Co., Inc. v. Social Security System,38 this Court rules that although a
corporation once formed is conferred a juridical personality separate
and distinct from the persons comprising it, it is but a legal fiction
introduced for purposes of convenience and to subserve the ends of
justice. The concept cannot be extended to a point beyond its
reasons and policy, and when invoked in support of an end
subversive of this policy, will be disregarded by the courts.
SEC. 31. Liability of directors, trustees or officers. - Directors or
trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence
or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such
directors, or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
The situation of petitioner, as a director of Impact Corporation when
said corporation failed to remit the SSS premium contributions falls
exactly under the fourth situation. Section 28(f) of the Social Security
Law imposes a civil liability for any act or omission pertaining to the
violation of the Social Security Law, to wit:
(f) If the act or omission penalized by this Act be committed by an
association, partnership, corporation or any other institution, its
managing head, directors or partners shall be liable to the penalties
provided in this Act for the offense.
In fact, criminal actions for violations of the Social Security Law are
also provided under the Revised Penal Code. The Social Security Law
provides, in Section 28 thereof, to wit:
(h) Any employer who, after deducting the monthly contributions or
loan amortizations from his employees’ compensation, fails to remit
the said deductions to the SSS within thirty (30) days from the date
they became due shall be presumed to have misappropriated such
contributions or loan amortizations and shall suffer the penalties
provided in Article Three hundred fifteen of the Revised Penal Code.
(i) Criminal action arising from a violation of the provisions of this Act
may be commenced by the SSS or the employee concerned either
under this Act or in appropriate cases under the Revised Penal Code:
x x x.
Respondents would like this Court to apply another exception to the
rule that the persons comprising a corporation are not personally
liable for acts done in the performance of their duties.
PETRON CORPORATION AND PETER C. MALIGRO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION AND CHITO S.
MANTOS, respondents.
G.R. No. 154532, October 27, 2006
FACTS:
Petitioner Petron Corporation (Petron), a corporation duly
organized and existing under the laws of the Philippines, is engaged
in the refining, sale and distribution of petroleum and other related
products, while its co-petitioner Peter C. Maligro was the former
Visayas Operations Assistant Manager of Petron's Visayas-Mindanao
District Office at Lahug, Cebu City.
On May 15, 1990, Petron, through its Cebu District Office,
hired the herein private respondent Chito S. Mantos, an Industrial
Engineer, as a managerial, professional and technical employee with
initial designation as a Bulk Plant Engineering Trainee. He attained
regular employment status on November 15, 1990 and was later on
designated as a Bulk Plant Relief Supervisor, remaining as such for
the next five years while being assigned to the different plants and
offices of Petron within the Visayas area.
On May 15, 1990, Petron, through its Cebu District Office,
hired the herein private respondent Chito S. Mantos, an Industrial
Engineer, as a managerial, professional and technical employee with
initial designation as a Bulk Plant Engineering Trainee. He attained
regular employment status on November 15, 1990 and was later on
designated as a Bulk Plant Relief Supervisor, remaining as such for
the next five years while being assigned to the different plants and
offices of Petron within the Visayas area.
It was while assigned at Petron's Cebu District Office with
petitioner Peter Maligro as his immediate superior, when Mantos,
thru a Notice of Disciplinary Action dated October 29, 1996,3 a copy
of which was received by him on November 18, 1996,4 was
suspended for 30 days from November 1 to 30, 1996 for violating
company rules and regulations regarding Absence Without Leave
(AWOL), not having reported for work during the period August 5 to
27, 1996.
Subsequently, in a notice Termination of Services bearing
date November 20, 19965 and received by him on November 25,
1996,6 Mantos' services were altogether terminated effective
December 1, 1996, by reason of his continued absences from August
28, 1996 onwards, as well as for Insubordination/Discourtesy for
making false accusations against his superior.
Meanwhile, on November 8, 1996, contending that he has been
constructively dismissed as of August 5, 1996, Mantos filed with the
National Labor Relations Commission, Regional Arbitration Branch
(NLRC-RAB), Cebu City, a complaint for illegal dismissal and other
monetary claims against Petron and/or Peter C. Maligro.
ISSUE: WON Maligro is solidary liable with Petron
HELD:
NO. In the present case, the apparent basis for the NLRC in
holding petitioner Maligro solidarily liable with Petron were its
findings that (1) the Investigation Committee was created a day after
the summons in NLRC RAB-VII Case No. 11-1439-96 was received,
with Maligro no less being the chairman thereof; and (2) the basis for
the charge of insubordination was the private respondent's alleged
making of false accusations against Maligro.
Those findings, however, cannot justify a finding of personal
liability on the part of Maligro inasmuch as said findings do not point
to Maligro's extreme personal hatred and animosity with the
respondent. It cannot, therefore, be said that Maligro was motivated
by malice and bad faith in connection with private respondent's
dismissal from the service.
True, solidary liabilities may at times be incurred by
corporate officers, but only when exceptional circumstances so
warrant. For instance, in labor cases, corporate directors and officers
may be held solidarily liable with the corporation for the termination
of employment if done with malice or in bad faith. The fact that
Maligro himself was the committee chairman is not itself sufficient to
impute bad faith on his part or attribute bias against him. It is
undisputed that Maligro was private respondent's superior, being
Petron's Operations Assistant Manager for Visayas and Mindanao. It
is thus logical for him to be part of the committee that will investigate
private respondent's alleged infractions of company rules and
regulations. As well, the committee was composed of three other
Petron officers as members, and nowhere is there any showing that
Maligro, as committee chairman, influenced the other committee
members to side against the private respondent.
URBAN BANK VS MAGDALENO PENA
OCTOBER 19, 2011
FACTS:
These consolidated petitions began as a simple case for
payment of services rendered and for reimbursement of costs. The
case spun a web of suits and counter-suits because of: (1) the size of
the award for agent’s fee rendered in favor of Atty. Magdaleno Peña
(Peña) – PhP24,000,000 – rendered by the trial court; (2) the
controversial execution of the full judgment award of PhP28,500,000
(agent’s fee plus reimbursement for costs and other damages)
pending appeal; and (3) the finding of solidary liability against Urban
Bank, Inc., and several of its corporate officers and directors together
with the concomitant levying and sale in execution of the personal
(even conjugal) properties of those officers and directors; and (4) the
fact that assets with declared conservative values of at least PhP181
Million which, together with those with undeclared values could
reach very much more than such amount,1 were levied or sold on
execution pending appeal to satisfy the PhP28.5 Million award in
favor of Atty. Peña. Incidentally, two supersedeas bonds worth PhP80
Million (2.8 times the amount of the judgment) were filed by Urban
Bank and some of its officers and directors to stay the execution
pending appeal.
Peña, a lawyer, was formerly a stockholder, director and
corporate secretary of Isabel Sugar Company, Inc. (ISCI). ISCI owned
a parcel of land. ISCI leased theland. Without its consent and in
violation of the lease contract, the lessee subleasedthe land to
several tenants, who in turn put up nightclubs inside the
compound.Before the expiration of the lease contract, ISCI informed
the lessee and histenants that the lease would no longer be renewed
because the land will be sold.ISCI and Urban Bank executed a
Contract to Sell, and they agreed that the finalinstallment released
by the bank upon ISCI’s delivery of full and actual possessionof the
land, free from any tenants.ISCI then instructed Peña, to act as its
agent and handle the eviction of the tenants. The lessee left, but the
unauthorized sub-tenants refused to leave. Peña had thegates of the
property closed and he also posted security guards—services for
whichhe advanced payments. Despite the closure of the gates and
the posting of theguards, the sub-tenants would force open the
gates, and proceed to carry on withtheir businesses.Peña then filed a
complaint with the RTC, which issued a TRO. At the time
thecomplaint was filed, a new title to the had already been issued in
the name of UrbanBank.When information reached the judge that
the had already been transferred by ISCI to Urban Bank, the trial
court recalled the TRO and issued a break-open order for the
property. Peña immediately contacted ISCI’s president and told him
that because of the break-open order of the RTC, he (Peña) would be
recalling the security guards he had posted to secure the property.
The President asked him tosuspend the withdrawal of the posted
guards, so that ISCI could get in touch first with Urban Bank. Peña
also called Urban Bank’s President.
The President allegedly assured him that the bank was going to retain
his services, and that the he should not give up possession of the
subject land. Thereafter, Peña, in representation of Urban Bank, filed
a separate complaint withthe RTC-Makati City, to enjoin the tenants
from entering the Pasay property. Acting on Urban Bank’s
preliminary prayer, the RTC-Makati City issued a TRO. While the 2nd
complaint was pending, Peña made efforts to settle the issue of
possession of the with the sub-tenants. During the negotiations, he
was exposed toseveral civil and crimal cases and received several
threats against his life. The sub- tenants eventually agreed to stay off
the property for a total consideration of PhP1.5M. Peña advanced the
payment for the full and final settlement of their claims against Urban
Bank. Peña formally informed Urban Bank that it could already take
possession of the Pasay property. There was however no mention of
the compensation due and owed to him for the services he had
rendered. The bank subsequently took actual possession of the
property and installed its own guards at the premises. Peña
thereafter made several attempts to contact Urban Bank, but the
bank officers would not take any of his calls. Peña formally demanded
from Urban Bank the payment of the 10% compensation and
attorney’s fees allegedly promised to him during his telephone
conversation with Urban Bank’s President for securing and
maintaining peaceful possession of the property. Urban Bank and
individual bank officers and directors argued that it was ISCI, the
original owners of the Pasay property, that had engaged the services
of Peña in securing the premises; and, consequently, they could not
be held liable for the expenses Peña had incurred.
ISSUE: IS THERE SOLIDARY LIABILITY
HELD:
Considering the unconscionable award given by the trial
court and the unjustified imposition of solidary liability against the
eight bank officers, the Court is vacating the Decision of the RTC-Bago
City Decision. The trial court erroneously made solidarily liable Urban
Bank’s directors and officers without even any allegations, much less
proof, of any acts of bad faith, negligence or malice in the
performance of their duties. In addition, the trial court mistakenly
anchored its astounding award of damages amounting
PhP28,500,000 on the basis of the mere account of Atty. Peña of a
telephone conversation, without even considering the surrounding
circumstances and the sheer disproportion to the legal services
rendered to the bank.
In any event, Peña did not adduce any proof that the eight
individual defendants performed unlawful acts or were grossly
negligent or in bad faith. Aside from the general allegation that they
were corporate officers or members of the board of directors of
Urban Bank, no specific acts were alleged and proved to warrant a
finding of solidary liability. At most, petitioners Borlongan, Bejasa and
Manuel were identified as those who had processed the agency
agreement with Peña through their telephone conversations with
him and/or written authorization letter.
In ruling for the solidary liability of the other bank directors,
the decision of the trial court hinged solely on the purported
admission of Arturo Manuel, Jr., that the transactions with Atty. Peña
were approved by the Board of Directors:
Arco Pulp and Paper Co, v. Lim
G.R. No. 206806, 25 June 2014
FACTS:
Lim works in the business of supplying scrap papers, cartons,
and other raw materials, under the name Quality Paper and Plastic
Products, Enterprises, to factories engaged in the paper mill business.
Lim delivered scrap papers to Arco Pulp and Paper Company, Inc. The
parties allegedly agreed that Arco Pulp and Paper would either pay
Dan T. Lim the value of the raw materials or deliver to him their
finished products of equivalent value. Arco Pulp and Paper and a
certain Eric Sy executed a memorandum of agreement where Arco
Pulp and Paper bound themselves to deliver their finished products
to Megapack Container Corporation, owned by Eric Sy. The liability of
Arco Pulp was now transferred to Megapack in paying Lim. Dan T. Lim
sent a letter to Arco Pulp and Paper demanding payment but no
payment was made to him. Now Lim filed a case against Arco Pulp.
The Arco Pulp now contends that their agreement was novated
because of the MOA agreed upon Sy and Arco.
ISSUE:
Whether or not the obligation between the parties was an
alternative obligation
RULING:
Yes. The rule on alternative obligations is governed by Article
1199 of the Civil Code, which states:
Article 1199. A person alternatively bound by different prestations
shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of
the other undertaking.
In an alternative obligation, there is more than one object, and the
fulfillment of one is sufficient, determined by the choice of the debtor
who generally has the right of election.” The right of election is
extinguished when the party who may exercise that option
categorically and unequivocally makes his or her choice known.
DBP vs. COURT OF APPEALS, REMINGTON INDUSTRIAL SALES
GR 126200, 16 August 2001
FACTS:
Between July 1981 and April 1984, Marinduque Mining
entered into 3 mortgage agreements with PNB and DBP involving its
real properties located in Surigao del Norte, Negros Occidental, and
Rizal, as well as its equipments located therein. Marinduque failed to
pay its loans, causing the foreclosure of the said mortgages. PNB and
DBP thereafter gained control of the said properties.
In the meantime, between July 16, 1982 to October 4, 1983,
Marinduque Mining purchased and caused to be delivered
construction materials and other merchandise from Remington
Industrial Sales Corporation. The purchases remained unpaid as of
August 1, 1984 when Remington filed a complaint for a sum of money
and damages against Marinduque Mining for the value of the unpaid
construction materials and other merchandise purchased by
Marinduque Mining, as well as interest, attorney’s fees and the costs
of suit.
Remington’s original complaint was amended to include
PNB, DBP, Maricalum Mining Corporation and Island Cement
Corporation as co-defendants. Remington asserted that Marinduque
Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and Island
Cement must be treated in law as one and the same entity by
disregarding the veil of corporate fiction since the personnel, key
officers and rank-and-file workers and employees of co-defendants
NMIC, Maricalum and Island Cement creations of co-defendants PNB
and DBP were the personnel of co-defendant MMIC such that
practically there has only been a change of name for all legal purpose
and intents.
ISSUE:
Whether or not the take over of PNB and DBP over
Marinduque Mining is in bad faith.
RULING:
NO. Their actions are mandated under the law. Where the
corporations have directors and officers in common, there may be
circumstances under which their interest as officers in one company
may disqualify them in equity from representing both corporations in
transactions between the two. Thus, where one corporation was
‘insolvent and indebted to another, it has been held that the directors
of the creditor corporation were disqualified, by reason of self-
interest, from acting as directors of the debtor corporation in the
authorization of a mortgage or deed of trust to the former to secure
such indebtedness In the same manner that when the corporation is
insolvent, its directors who are its creditors cannot secure to
themselves any advantage or preference over other creditors. They
cannot thus take advantage of their fiduciary relation and deal
directly with themselves, to the injury of others in equal right.
 Directors of insolvent corporation, who are creditors of the
company, cannot secure to themselves any preference or advantage
over other creditors in the payment of their claims. It is not good
morals or good law. The governing body of officers thereof are
charged with the duty of conducting its affairs strictly in the interest
of its existing creditors, and it would be a breach of such trust for
them to undertake to give any one of its members any advantage
over any other creditors in securing the payment of his debts in
preference to all others. When validity of these mortgages, to secure
debts upon which the directors were indorsers, was questioned by
other creditors of the corporation, they should have been classed as
instruments rendered void by the legal principle which prevents
directors of an insolvent corporation from giving themselves a
preference over outside creditors.
JOHN GOKONGWEI vs. SEC, ANDRES SORIANO, et al.
GR L-45911, 11 April 1979
FACTS:
Gokonwei alleged that on September 18, 1976, individual
respondents amended by bylaws of San Miguel Corporation, basing
their authority to do so on a resolution of the stockholders adopted
on March 13, 1961, when the outstanding capital stock of respondent
corporation was only P70,139.740.00, divided into 5,513,974
common shares at P10.00 per share and 150,000 preferred shares at
P100.00 per share. At the time of the amendment, the outstanding
and paid up shares totalled 30,127,043, with a total par value of
P301,270,430.00. It was contended that according to section 22 of
the Corporation Law and Article VIII of the by-laws of the corporation,
the power to amend, modify, repeal or adopt new by-laws may be
delegated to the Board of Directors only by the affirmative vote of
stockholders representing not less than 2/3 of the subscribed and
paid up capital stock of the corporation, which 2/3 should have been
computed on the basis of the capitalization at the time of the
amendment. Since the amendment was based on the 1961
authorization, petitioner contended that the Board acted without
authority and in usurpation of the power of the stockholders.
It was claimed that prior to the questioned amendment,
petitioner had all the qualifications to be a director of respondent
corporation, being a substantial stockholder thereof; that as a
stockholder, petitioner had acquired rights inherent in stock
ownership, such as the rights to vote and to be voted upon in the
election of directors; and that in amending the by-laws, respondents
purposely provided for petitioner's disqualification and deprived him
of his vested right as afore-mentioned, hence the amended by-laws
are null and void.
ISSUE:
Whether or not SMC’s BoD acted in bad faith in making the
amendment which disqualified Gokongwei from being elected as
Director.
RULING:
NO. SMC is merely protecting its interest from Gokongwei,
who owns companies in direct competition with SMC’s business.
Although in the strict and technical sense, directors of a private
corporation are not regarded as trustees, there cannot be any doubt
that their character is that of a fiduciary insofar as the corporation
and the stockholders as a body are concerned. As agents entrusted
with the management of the corporation for the collective benefit of
the stockholders, they occupy a fiduciary relation, and in this sense
the relation is one of trust. It springs from the fact that directors have
the control and guidance of corporate affairs and property; hence of
the property interests of the stockholders. Equity recognizes that
stockholders are the proprietors of the corporate interests and are
ultimately the only beneficiaries thereof
It is obviously to prevent the creation of an opportunity for
an officer or director of San Miguel Corporation, who is also the
officer or owner of a competing corporation, from taking advantage
of the information which he acquires as director to promote his
individual or corporate interests to the prejudice of San Miguel
Corporation and its stockholders, that the questioned amendment of
the by-laws was made.
Certainly, where two corporations are competitive in a
substantial sense, it would seem improbable, if not impossible, for
the director, if he were to discharge effectively his duty, to satisfy his
loyalty to both corporations and place the performance of his
corporation duties above his personal concerns.
ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and
SECURITIES & EXCHANGE COMMISSION
vs. COURT OF APPEALS and IGLESIA NI CRISTO
G.R. No. 117897. May 14, 1997
FACTS:
Petitioner IDP-Tamano Group alleges that sometime in 1971,
Islamic leaders of all Muslim major tribal groups in the Philippines
headed by Dean Cesar Adib Majul organized and incorporated the
ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary
purpose of which is to establish an Islamic Center in Quezon City for
the construction of a "Mosque (prayer place), Madrasah (Arabic
School), and other religious infrastructures" so as to facilitate the
effective practice of Islamic faith in the area.
The Libyan government donated money to the IDP to
purchase land at Culiat, Tandang Sora, Quezon City, to be used as a
Center for the Islamic populace. The land, with an area of 49,652
square meters, was covered by two titles: Transfer Certificate of Title
Nos. RT-26520 (176616) and RT-26521 (170567), both registered in
the name of IDP.
According to the petitioner, in 1972, after the purchase of the
land by the Libyan government in the name of IDP, Martial Law was
declared by the late President Ferdinand Marcos. Thereafter, two
Muslim groups sprung, the Carpizo Group and the Abbas Group, both
groups claimed to be the legitimate IDP. Significantly, on October 3,
1986, the SEC, in a suit between these two contending groups, came
out with a Decision in SEC Case No. 2687 declaring the election of
both the Carpizo Group and the Abbas Group as IDP board members
to be null and void.
ISSUE:
Whether or not the Deed of Sale executed by Carpizo Group
is valid.
RULING:
NO. This is precisely what the SEC did in SEC Case No. 4012
when it adjudged the election of the Carpizo Group to the IDP Board
of Trustees to be null and void. Consequently, the Carpizo Group is
bereft of any authority whatsoever to bind IDP in any kind of
transaction including the sale or disposition of ID property.
Nothing thus becomes more settled than that the IDP-
Carpizo Group with whom private respondent INC contracted is a
fake Board. Premises considered, all acts carried out by the Carpizo
Board, particularly the sale of the Tandang Sora property, allegedly in
the name of the IDP.
The Carpizo Group-INC sale is further deemed null and void
ab initio because of the Carpizo Group's failure to comply with
Section 40 of the Corporation Code pertaining to the disposition of
all or substantially all assets of the corporation.
The Tandang Sora property, appears from the records,
constitutes the only property of the IDP. Hence, its sale to a third-
party is a sale or disposition of all the corporate property and assets
of IDP falling squarely within the contemplation of the foregoing
section. For the sale to be valid, the majority vote of the legitimate
Board of Trustees, concurred in by the vote of at least 2/3 of the bona
fide members of the corporation should have been obtained.
These twin requirements were not met as the Carpizo Group
which voted to sell the Tandang Sora property was a fake Board of
Trustees, and those whose names and signatures were affixed by the
Carpizo Group together with the sham Board Resolution authorizing
the negotiation for the sale were, from all indications, not bona fide
members of the IDP as they were made to appear to be. All told, the
disputed Deed of Absolute Sale executed by the fake Carpizo Board
and private respondent INC was intrinsically void ab initio.
 SME BANK, INC. VS. DE GUZMAN
GR NOS. 185517 & 186641, OCT 8, 2013
FACTS:
Security of tenure is a constitutionally guaranteed right.1 Employees
may not be terminated from their regular employment except for just
or authorized causes under the Labor Code2 and other pertinent laws.
A mere change in the equity composition of a corporation is neither a
just nor an authorized cause that would legally permit the dismissal
of the corporation’s employees en masse.
Respondent employees Elicerio Gaspar (Elicerio), Ricardo
Gaspar, Jr. (Ricardo), Eufemia Rosete (Eufemia), Fidel Espiritu (Fidel),
Simeon Espiritu, Jr. (Simeon, Jr.), and Liberato Mangoba (Liberato)
were employees of Small and Medium Enterprise Bank, Incorporated
(SME Bank). Originally, the principal shareholders and corporate
directors of the bank were Eduardo M. Agustin, Jr. (Agustin) and
Peregrin de Guzman, Jr. (De Guzman). SME Bank experienced
financial difficulties. To remedy the situation, the bank officials
proposed its sale to Abelardo Samson (Samson).
Negotiations ensued, and a formal offer was made to
Samson. Through his attorney-in-fact, Tomas S. Gomez IV, Samson
then sent formal letters (Letter Agreements) to Agustin and De
Guzman, demanding the following as preconditions for the sale of
SME Bank’s shares of stock: 1. You shall guarantee the peaceful turn
over of all assets as well as the peaceful transition of management of
the bank and shall terminate/retire the employees we mutually agree
upon, upon transfer of shares in favor of our group’s nominees; 2. All
retirement benefits, if any of the above officers/stockholders/board
of directors are hereby waived upon cosummation [sic] of the above
sale. The retirement benefits of the rank and file employees including
the managers shall be honored by the new management in
accordance with B.R. No. 10, S. 1997.
Agustin and De Guzman accepted the terms and conditions
proposed by Samson and signed the conforme portion of the Letter
Agreements.Simeon Espiritu (Espiritu), then the general manager of
SME Bank, held a meeting with all the employees of the head office
and of the Talavera and Muñ oz branches of SME Bank and persuaded
them to tender their resignations, 11 with the promise that they
would be rehired upon reapplication. His directive was allegedly done
at the behest of petitioner Olga Samson. Relying on their
representation All of them tendered their resignation, Eufemia first
tendered resignation then after tendered retirement.
Agustin and De Guzman signified their conformity to the
Letter Agreements and sold 86.365% of the shares of stock of SME
Bank to spouses Abelardo and Olga Samson. Spouses Samson then
became the principal shareholders of SME Bank, while Aurelio
Villaflor, Jr. was appointed bank president. As it turned out,
respondent employees, except for Simeon, Jr., 26 were not rehired.
After a month in service, Simeon, Jr. again resigned Respondent-
employees demanded the payment of their respective separation
pays, but their requests were denied.
Aggrieved by the loss of their jobs, respondent employees
filed a Complaint before the National Labor Relations Commission
(NLRC)– Regional Arbitration Branch No. III and sued SME Bank,
spouses Abelardo and Olga Samson and Aurelio Villaflor (the Samson
Group) for unfair labor practice; illegal dismissal; illegal deductions;
underpayment; and nonpayment of allowances, separation pay and
13th month pay. Subsequently, they amended their Complaint to
include Agustin and De Guzman as respondents to the case.
The labor arbiter ruled that the buyer of an enterprise is not
bound to absorb its employees, unless there is an express stipulation
to the contrary. However, he also found that respondent employees
were illegally dismissed, because they had involuntarily executed
their resignation letters after relying on representations that they
would be given their separation benefits and rehired by the new
management. Accordingly, the labor arbiter decided the case against
Agustin and De Guzman, but dismissed the Complaint against the
Samson Group. Thus ordering Agustin and De Guzman to pay
separation pay to the employees.
Respondent employees, Agustin and De Guzman brought
separate appeals to the NLRC. Respondent employees questioned
the labor arbiter’s failure to award backwages, while Agustin and De
Guzman contended that they should not be held liable for the
payment of the employees’ claims. The NLRC found that there was
only a mere transfer of shares – and therefore, a mere change of
management – from Agustin and De Guzman to the Samson Group.
As the change of management was not a valid ground to terminate
respondent bank employees, the NLRC ruled that they had indeed
been illegally dismissed. It further ruled that Agustin, De Guzman and
the Samson Group should be held jointly and severally liable for the
employees’ separation pay and backwages, CA affirming NLRC
decision. Hence this appeal.
ISSUE: WON respondent employees were illegally dismissed and, if
so, which of the parties are liable for the claims of the employees and
the extent of the reliefs that may be awarded to these employees.
HELD:
Petition was partially granted. Petitioner bank also argues
that, there being a transfer of the business establishment, the
innocent transferees no longer have any obligation to continue
employing respondent employees,56 and that the most that they can
do is to give preference to the qualified separated employees; hence,
the employees were validly dismissed. The argument is misleading
and unmeritorious. Contrary to petitioner bank’s argument, there
was no transfer of the business establishment to speak of, but merely
a change in the new majority shareholders of the corporation.
There are two types of corporate acquisitions: asset sales
and stock sales. In asset sales, the corporate entity sells all or
substantially all of its assets to another entity. In stock sales, the
individual or corporate shareholders sell a controlling block of stock
to new or existing shareholders.
In asset sales, the rule is that the seller in good faith is
authorized to dismiss the affected employees, but is liable for the
payment of separation pay under the law.The buyer in good faith, on
the other hand, is not obliged to absorb the employees affected by
the sale, nor is it liable for the payment of their claims. The most that
it may do, for reasons of public policy and social justice, is to give
preference to the qualified separated personnel of the selling firm.
In contrast with asset sales, in which the assets of the selling
corporation are transferred to another entity, the transaction in stock
sales takes place at the shareholder level. Because the corporation
possesses a personality separate and distinct from that of its
shareholders, a shift in the composition of its shareholders will not
affect its existence and continuity. Thus, notwithstanding the stock
sale, the corporation continues to be the employer of its people and
continues to be liable for the payment of their just claims.
Furthermore, the corporation or its new majority shareholders are
not entitled to lawfully dismiss corporate employees absent a just or
authorized cause.
In the case at bar, the Letter Agreements show that their
main object is the acquisition by the Samson Group of 86.365% of
the shares of stock of SME Bank.66 Hence, this case involves a stock
sale, whereby the transferee acquires the controlling shares of
stock of the corporation. Thus, following the rule in stock sales,
respondent employees may not be dismissed except for just or
authorized causes under the Labor Code.
The rule should be different in Manlimos, as this case
involves a stock sale. It is error to even discuss transfer of ownership
of the business, as the business did not actually change hands. The
transfer only involved a change in the equity composition of the
corporation. To reiterate, the employees are not transferred to a
new employer, but remain with the original corporate employer,
notwithstanding an equity shift in its majority shareholders. This
being so, the employment status of the employees should not have
been affected by the stock sale. A change in the equity composition
of the corporate shareholders should not result in the automatic
termination of the employment of the corporation’s employees.
Neither should it give the new majority shareholders the right to
legally dismiss the corporation’s employees, absent a just or
authorized cause.
The right to security of tenure guarantees the right of
employees to continue in their employment absent a just or
authorized cause for termination. This guarantee proscribes a
situation in which the corporation procures the severance of the
employment of its employees – who patently still desire to work for
the corporation – only because new majority stockholders and a new
management have come into the picture. This situation is a clear
circumvention of the employees’ constitutionally guaranteed right to
security of tenure, an act that cannot be countenanced by this Court.
We therefore see it fit to expressly reverse our ruling in Manlimos
insofar as it upheld that, in a stock sale, the buyer in good faith has
no obligation to retain the employees of the selling corporation; and
that the dismissal of the affected employees is lawful, even absent a
just or authorized cause.
JIAO VS. NATIONAL LABOR RELATIONS COMMISSION
G.R. NO. 182331. APRIL 18, 2012
FACTS:
The petitioners were regular employees of the Philippine
Banking Corporation (Philbank), each with at least ten years of
service in the company. Pursuant to its Memorandum dated August
28, 1970, Philbank established a Gratuity Pay Plan (Old Plan) for its
employees. Philbank merged with Global Business Bank, Inc.
(Globalbank), with the former as the surviving corporation and the
latter as the absorbed corporation, but the bank operated under the
name Global Business Bank, Inc. As a result of the merger,
complainants’ respective positions became redundant. A Special
Separation Program (SSP) was implemented and the petitioners were
granted a separation package. As their positions were included in the
redundancy declaration, the petitioners availed of the SSP, signed
acceptance letters and executed quitclaims. In August 2002,
respondent Metropolitan Bank and Trust Company (Metrobank)
acquired the assets and liabilities of Global bank through a Deed
of Assignment of Assets and Assumption of Liabilities.
Subsequently, the petitioners filed separate complaints for non-
payment of separation pay with prayer for damages and attorney’s
fees before the National Labor Relations Commission (NLRC). The
petitioners insist that Metrobank is liable because it is the “parent”
company of Global bank and that majority of the latter’s board of
directors are also members of the former’s board of directors.
ISSUE: W/N Metrobank may be held liable for the claims of
petitioners?
HELD:
No, considering that the petitioners have already waived
their right to file an action for any of their claims in relation to their
employment with Global bank, the question of whether Metrobank
can be held liable for these claims is now academic. However, in
order to put to rest any doubt in the petitioners’ minds as to
Metrobank’s liabilities, we shall proceed to discuss this issue.
We hold that Metrobank cannot be held liable for the petitioners’
claims. As a rule, a corporation that purchases the assets of another
will not be liable for the debts of the selling corporation, provided the
former acted in good faith and paid adequate consideration for such
assets, except when any of the following circumstances is present: (1)
where the purchaser expressly or impliedly agrees to assume the
debts; (2) where the transaction amounts to a consolidation or
merger of the corporations; (3) where the purchasing corporation is
merely a continuation of the selling corporation; and (4) where
the selling corporation fraudulently enters into the transaction to
escape liability for those debts.
BANK OF COMMERCE, vs RADIO PHILIPPINES
Facts:
In late 2001 the Traders Royal Bank (TRB) proposed to sell to
petitioner Bank of Commerce (Bancommerce) for ₱10.4 billion its
banking business consisting of specified assets and liabilities.
Bancommerce agreed subject to prior Bangko Sentral ng Pilipinas'
(BSP's) approval of their Purchase and Assumption (P & A)
Agreement. On November 8, 2001 the BSP approved that agreement
subject to the condition that Bancommerce and TRB would set up an
escrow fund of PSO million with another bank to cover TRB liabilities
for contingent claims that may subsequently be adjudged against it,
which liabilities were excluded from the purchase.
On November 9, 2001 Bancommerce entered into a P & A
Agreement with TRB and acquired its specified assets and liabilities,
excluding liabilities arising from judicial actions which were to be
covered by the BSP-mandated escrow of ₱50 million.
To comply with the BSP mandate, on December 6, 2001 TRB
placed ₱50 million in escrow with Metropolitan Bank and Trust Co.
(Metrobank) to answer for those claims and liabilities that were
excluded from the P & A Agreement and remained with TRB.
Accordingly, the BSP finally approved such agreement on July 3, 2002.
Shortly after or on October 10, 2002, acting in G.R. 138510,
Traders Royal Bank v. Radio Philippines Network (RPN), Inc., this
Court ordered TRB to pay respondents RPN, Intercontinental
Broadcasting Corporation, and Banahaw Broadcasting Corporation
(collectively, RPN, et al.) actual damages of ₱9,790,716.87 plus 12%
legal interest and some amounts. Based on this decision, RPN, et
al.filed a motion for execution against TRB before the Regional Trial
Court (RTC) of Quezon City. But rather than pursue a levy in execution
of the corresponding amounts on escrow with Metrobank, RPN, et al.
filed a Supplemental Motion for Execution1 where they described
TRB as "now Bank of Commerce" based on the assumption that TRB
had been merged into Bancommerce
Issue: Is there a merger between TRB and BanCom?
Held:
Merger is a re-organization of two or more corporations that
results in their consolidating into a single corpor ation, which is one
of the constituent corporations, one disappearing or dissolving and
the other surviving. To put it another way, merger is the absorption
of one or more corporations by another existing corporation, which
retains its identity and takes over the rights, privileges, franchises,
properties, claims, liabilities and obligations of the absorbed
corporation(s). The absorbing corporation continues its existence
while the life or lives of the other corporation(s) is or are terminated
A de facto merger can be pursued by one corporation
acquiring all or substantially all of the properties of another
corporation in exchange of shares of stock of the acquiring
corporation. The acquiring corporation would end up with the
business enterprise of the target corporation; whereas, the target
corporation would end up with basically its only re maining assets
being the shares of stock of the acquiring corporation
It is clear that no merger took place between Bancommerce
and TRB as the requireme nts and procedures for a merger were
absent. A merger does not become effective upon the mere
agreementof the constituent corporations. All the requirements
specified in the law must be complied with in order for merger to take
effect. Section 79 of the Corporation Code further provides that the
merger shall be effective only upon the issuance by the Securities and
Exchange Commission (SEC) of a certificate of merger
The enforcement, therefore, of the decision in the main case
should not include the assets and properties that Bancommerce
acquired from TRB. These have ceased to be assets and properties of
TRB under the terms of the BSP-approved P & A Agreement between
them. They are not TRB assets and properties in the possession of
Bancommerce.
REPUBLIC PLANTERS BANK
vs.
HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court of First
Instance of Rizal, Branch XXVIII, Pasay City, ROBES-FRANCISCO
REALTY & DEVELOPMENT CORPORATION and ADALIA F. ROBES
G.R. No. 51765. March 3, 1997
FACTS:
On September 18, 1961, private respondent Corporation
secured a loan from petitioner in the amount of P120,000.00. Instead
of giving the legal tender totaling to the full amount of the loan,
which is P120,000.00, petitioner lent such amount partially in the
form of money and partially in the form of stock certificates
numbered 3204 and 3205, each for 400 shares with a par value of
P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said
stock certificates were in the name of private respondent Adalia F.
Robes and Carlos F. Robes, who subsequently, however, endorsed his
shares in favor of Adalia F. Robes.
On January 31, 1979, private respondents proceeded against
petitioner and filed a Complaint anchored on private respondents'
alleged rights to collect dividends under the preferred shares in
question and to have petitioner redeem the same under the terms
and conditions of the stock certificates.
The trial court rendered the herein assailed decision in favor
of private respondents ordering petitioner to pay private
respondents the face value of the stock certificates as redemption
price, plus 1% quarterly interest thereon until full payment.
ISSUES:
Whether or not the corporation can declare dividends.
RULING:
YES. Under the old Corporation Law in force at the time the
contract between the petitioner and the private respondents was
entered into, it was provided that "no corporation shall make or
declare any dividend except from the surplus profits arising from its
business, or distribute its capital stock or property other than actual
profits among its members or stockholders until after the payment
of its debts and the termination of its existence by limitation or lawful
dissolution."Similarly, the present Corporation Codeprovides that the
board of directors of a stock corporation may declare dividends only
out of unrestricted retained earnings.
Thus, the declaration of dividends is dependent upon the
availability of surplus profit or unrestricted retained earnings, as the
case may be. Dividends are thus payable only when there are profits
earned by the corporation and as a general rule, even if there are
existing profits, the board of directors has the discretion to
determine whether or not dividends are to be declared.
Redeemable shares, on the other hand, are shares usually
preferred, which by their terms are redeemable at a fixed date, or at
the option of either issuing corporation, or the stockholder, or both
at a certain redemption price.A redemption by the corporation of its
stock is, in a sense, a repurchase of it for cancellation.The present
Code allows redemption of shares even if there are no unrestricted
retained earnings on the books of the corporation.
However, while redeemable shares may be redeemed
regardless of the existence of unrestricted retained earnings, this is
subject to the condition that the corporation has, after such
redemption, assets in its books to cover debts and liabilities inclusive
of capital stock. Redemption, therefore, may not be made where the
corporation is insolvent or if such redemption will cause insolvency
or inability of the corporation to meet its debts as they mature.
 RURAL BANK OF MILAOR (CAMARINES SUR)
vs. FRANCISCA OCFEMIA, et. al.
GR 137686, 08 February 2000
FACTS:
The spouses Felicisimo Ocfemia and Juanita Arellano
Ocfemia were not able to redeem the mortgaged properties
consisting of seven (7) parcels of land from Milaor and so the
mortgage was foreclosed and thereafter ownership thereof was
transferred to the bank. Out of the seven (7) parcels that were
foreclosed, five (5) of them are in the possession of the Ocfemias
because these were sold by the [petitioner] bank to the parents of
Marife Ocfemia Niño as evidenced by a Deed of Sale executed in
January 1988.
Marife went to the Register of Deeds of Camarines Sur with
the Deed of Sale (Exh. C) in order to have the same registered. The
Register of Deeds, however, informed her that the document of sale
cannot be registered without a board resolution of the Bank. Marife
then went to the bank, showed to it the Deed of Sale, the tax
declaration and receipt of tax payments and requested the bank for
a board resolution so that the property can be transferred to the
name of Marife’s parents Renato Ocfemia and Francisca Ocfemia.
The bank, after requiring so many requirements and making
so many alibis to Marife, refused to issue the board resolution. It
claims that its bank manager Fe Tena did not have authority to sell
the properties to the Ocfemias therefore rendering the deed of sale
invalid.
ISSUE:
Whether or not the bank manager has authority to act on
behalf of the bank.
RULING:
YES. There was an apparent authority bestowed with Tena.
The bank acknowledged, by its own acts or failure to act, the
authority of Fe S. Tena to enter into binding contracts. After the
execution of the Deed of Sale, respondents occupied the properties
in dispute and paid the real estate taxes due thereon. If the bank
management believed that it had title to the property, it should have
taken some measures to prevent the infringement or invasion of its
title thereto and possession thereof.
Likewise, Tena had previously transacted business on behalf
of the bank, and the latter had acknowledged her authority. A bank
is liable to innocent third persons where representation is made in
the course of its normal business by an agent like Manager Tena,
even though such agent is abusing her authority. Clearly, persons
dealing with her could not be blamed for believing that she was
authorized to transact business for and on behalf of the bank.
In this light, the bank is estopped from questioning the
authority of the bank manager to enter into the contract of sale. If a
corporation knowingly permits one of its officers or any other agent
to act within the scope of an apparent authority, it holds the agent
out to the public as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good faith dealt with
it through such agent, be estopped from denying the agent’s
authority.
More so, the bank is in default for failing to answer the
complaint of the Ocfemias within the reglamentary period without
any justifiable excuse.
 UNIVERSITY OF MINDANAO VS. BANGKO SENTRAL NG PILIPINAS
GR NO. 194964, JANUARY 11, 2016
Nature of Action: An action for the nullification and cancellation of
mortgage on the ground that the person who entered into contract
has no authority to execute such contract.
FACTS:
Guillermo B. Torres and Dolores P. Torres incorporated and
operated two (2) thrift banks: (1) First Iligan Savings & Loan
Association, Inc. (FISLAI); and (2) Davao Savings and Loan Association,
Inc. (DSLAI). Guillermo B. Torres chaired both thrift banks. He acted
as FISLAI's President, while his wife, Dolores P. Torres, acted as
DSLAI's President and FISLAI's Treasurer. Upon Guillermo B. Torres'
request, Bangko Sentral ng Pilipinas issued a P1.9 million standby
emergency credit to FISLAI. On May 25, 1982, University of
Mindanao's Vice President for Finance, Saturnino Petalcorin,
executed a deed of real estate mortgage over University of
Mindanao's property in Cagayan de Oro City in favor of Bangko
Sentral ng Pilipinas. "The mortgage served as security for FISLAI's PI.9
Million loan" It was allegedly executed on University of Mindanao's
behalf. As proof of his authority to execute a real estate mortgage for
University of Mindanao, Saturnino Petalcorin showed a Secretary's
Certificate signed by University of Mindanao's Corporate Secretary,
Aurora de Leon. The Secretary’s certificate states among others the
authorizing of the chairman to appoint Satunino Pactolerin to
represent the University of Mindanao to transact, transfer, convey,
lease, mortgage, or otherwise hypothecate the subject properties.
Saturnino Petalcorin executed another deed of real estate mortgage,
allegedly on behalf of University of Mindanao, over its two properties
in Iligan City. This mortgage served as additional security for FISLAI's
loans. FISLAI and DSLAI eventually merged with DSLAI as the surviving
corporation in an effort to rehabilitate the thrift banks due to the
heavy withdrawals of depositors. DSLAI later became known as
Mindanao Savings and Loan Association, Inc. (MSLAI). MSLAI failed to
recover from its losses. Bangko Sentral ng Pilipinas later on
foreclosed the mortgaged properties. University of Mindanao filed
two Complaints for nullification and cancellation of mortgage. One
Complaint was filed before the Regional Trial Court of Cagayan de
Oro City, and the other Complaint was filed before the Regional Trial
Court of Iligan City. University of Mindanao alleged that it did not
obtain any loan from Bangko Sentral ng Pilipinas and that Aurora De
Leon’s certification was anomalous. That it never authorized
Saturnino Petalcorin to execute real estate mortgage contracts
involving its properties to secure FISLAI's debts and it never ratified
the execution of the mortgage contracts. The Regional Trial Courts
ruled in favor of University of Mindanao. The Court of Appeals
however ruled that "although BSP failed to prove that the UM Board
of Trustees actually passed a Board Resolution authorizing Petalcorin
to mortgage the subject real properties, Aurora de Leon's Secretary's
Certificate" clothed Petalcorin with apparent and ostensible
authority to execute the mortgage deed on its behalf. Bangko Sentral
ng Pilipinas merely relied in good faith on the Secretary's
Certificate. University of Mindanao is estopped from denying
Saturnino Petalcorin's authority.
ISSUE:
Whether petitioner University of Mindanao is bound by the
real estate mortgage contracts executed by Saturnino Petalcorin.
RULING:
No. Acts of an officer that are not authorized by the board of
directors/trustees do not bind the corporation unless the corporation
ratifies the acts or holds the officer out as a person with authority to
transact on its behalf.
Petitioner argues that it did not authorize Saturnino
Petalcorin to mortgage its properties on its behalf. There was no
board resolution to that effect. Thus, the mortgages executed by
Saturnino Petalcorin were unenforceable. The mortgage contracts
executed in favor of respondent do not bind petitioner. They were
executed without authority from petitioner. Being a juridical person,
petitioner cannot conduct its business, make decisions, or act in any
manner without action from its Board of Trustees. The Board of
Trustees must act as a body in order to exercise corporate powers.
Individual trustees are not clothed with corporate powers just by
being a trustee. Hence, the individual trustee cannot bind the
corporation by himself or herself. The corporation may, however,
delegate through a board resolution its corporate powers or
functions to a representative, subject to limitations under the law
and the corporation's articles of incorporation. The relationship
between a corporation and its representatives is governed by the
general principles of agency. Article 1317 of the Civil Code provides
that there must be authority from the principal before anyone can
act in his or her name:
ART. 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has by
law a right to represent him.
Hence, without delegation by the board of directors or
trustees, acts of a person - including those of the corporation's
directors, trustees, shareholders, or officers—executed on behalf of
the corporation are generally not binding on the corporation. The
unenforceable status of contracts entered into by an unauthorized
person on behalf of another is based on the basic principle that
contracts must be consented to by both parties. There is no contract
without meeting of the minds as to the subject matter and cause of
the obligations created under the contract. Consent of a person
cannot be presumed from representations of another, especially if
obligations will be incurred as a result. Thus, authority is required to
make actions made on his or her behalf binding on a person.
Contracts entered into by persons without authority from the
corporation shall generally be considered ultra vires and
unenforceable against the corporation.
LAND BANK OF THE PHILIPPINES VS EDUARDO M. CACAYURAN
G.R. NO. 191667, APRIL 17, 2013
FACTS:
This is a petition for Review on Certiorari of the CA affirming
the RTC in declaring the nullity of the loan agreements entered into
by Land Bank and the Municipality of Agoo, La Union.
Agoo SB passed a certain resolution to implement a
redevelopment plan to redevelop the Agoo Public Plaza. To finance
the plan, SB passed a resolution authorizing then Maor Eriguel to
obtain a loan from Land Bank, incidental to it, mortgaged a portion
of the plaza as collateral. It has also authorized the assignment of a
portion if the IRA and monthly income in favor of Land Bank to secure
the payment. 10 Kiosks were made at the plaza, then were rented
out. Later, a commercial center on the Plaza lot was built too, with a
loan from Land Bank, posting the same securities as the first loan.
The commercial loan was opposed by some residents of the
municipality embodied in a manifesto launched through a signature
campaign by the residents and Cacayuran. Invoking his right as
taxpayer, Cacayuran filed a complaint against the officials and Land
bank assailing the validity of the loans on the ground that the Plaza
lot used as collateral is property of public dominion and therefore
beyond the commerce of man.
RTC Ruling: declared the nullity of the subject loans, saying
that the oans were passed in a highly irregular manner, as such, the
Municipality is not bound by the same.
Aggrieved, Land Bank filed notice of appeal.
Ruling of CA: affirmed with modification the RTC's ruling,
excluding the Vice Mayor from any personal liability arising from the
subject loans. Cacayuran has locus standi as resident and taxpayer in
the municipality and the issue involves public interest. The plaza
cannot be a valid collateral to a loans for it is of public dominion.
Land Bank filed this instant petition.

ISSUES: whether the subject loans are ultra vires. [The doctrine in the
law of corporations that holds that if a corporation enters into a
contract that is beyond the scope of its corporate powers, the
contract is illegal.]

SC Ruling:
Generally, 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 powers conferred upon it by
law.43 There are two (2) types of ultra vires acts. There is a distinction
between an act utterly beyond the jurisdiction of a municipal
corporation and the irregular exercise of a basic power under the
legislative grant in matters not in themselves jurisdictional. The
former are ultra vires in the primary sense and void; the latter, ultra
vires only in a secondary sense which does not preclude ratification
or the application of the doctrine of estoppel in the interest of equity
and essential justice.
Applying these principles to the case at bar, it is clear that the
Subject Loans belong to the first class of ultra vires acts deemed as
void. Records disclose that the said loans were executed by the
Municipality for the purpose of funding the conversion of the Agoo
Plaza into a commercial center pursuant to the Redevelopment Plan.
However, the conversion of the said plaza is beyond the
Municipality’s jurisdiction considering the property’s nature as one
for public use and thereby, forming part of the public dominion.
Accordingly, it cannot be the object of appropriation either by the
State or by private persons. Nor can it be the subject of lease or any
other contractual undertaking.
 LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION,
INC. vs. HON. COURT OF APPEALS
1997 Aug 7, G.R. No. 117188
FACTS:
LGVHAI was organized as the association of homeowners and
residents of the Loyola Grand Villas. It was registered with the Home
Financing Corporation. For unknown reasons, however, LGVHAI did
not file its corporate by-laws. Sometime in 1988, the officers of the
LGVHAI tried to register its by-laws. They failed to do so. They later
discovered that there were two other organizations within the
subdivision the North Association and the South Association.
According to private respondents, a non-resident and Soliven himself
respectively headed these associations. They also discovered that
these associations had five (5) registered homeowners each who
were also the incorporators, directors and officers thereof. None of
the members of the LGVHAI was listed as member of the North
Association while three (3) members of LGVHAI were listed as
members of the South Association. When they inquired as to the
status of LGVHAI, the head of the legal department of the HIGC,
informed him that LGVHAI had been automatically dissolved for two
reasons. First, it did not submit its by-laws within the period required
by the Corporation Code and, second, there was non-user of
corporate charter because HIGC had not received any report on the
association's activities. These prompted the LGVHAI to lodge
complaint with HIGC questioning its act of revoking its certificate of
registration without due notice and hearing and concomitantly
prayed for the cancellation of the certificates of registration of the
North and South Associations by reason of the earlier issuance of a
certificate of registration in favor of LGVHAI.
ISSUE: Whether or not the failure of a corporation to file its by-laws
within one month from the date of its incorporation, as mandated by
Section 46 of the Corporation Code, result in its automatic
dissolution.
RULING:
NO. Although the Corporation Code requires the filing of by-
laws, it does not expressly provide for the consequences of the non-
filing of the same within the period provided for in Section 46. Even
under the express grant of power and authority under Presidential
Decree No. 902-A, there can be no automatic corporate dissolution
simply because the incorporators failed to abide by the required filing
of by-laws embodied in Section 46 of the Corporation Code. There is
no outright "demise" of corporate existence. Proper notice and
hearing are cardinal components of due process in any democratic
institution, agency or society. In other words, the incorporators must
be given the chance to explain their neglect or omission and remedy
the same.
CHINA BANKING CORPORATION VS. COURT OF APPEALS
[GR 117604, 26 MARCH 1997]
FACTS:
On 21 August 1974, Galicano Calapatia, Jr., a stockholder of
Valley Golf & Country Club, Inc. (VGCCI), pledged his Stock Certificate
1219 to China Banking Corporation (CBC). On 16 September 1974,
CBC wrote VGCCI requesting that the pledge agreement be recorded
in its books. In a letter dated 27 September 1974, VGCCI replied that
the deed of pledge executed by Calapatia in CBC's favor was duly
noted in its corporate books. On 3 August 1983, Calapatia obtained a
loan of P20,000.00 from CBC, payment of which was secured by the
pledge agreement still existing between Calapatia and CBC. Due to
Calapatia's failure to pay his obligation, CBC, on 12 April 1985, filed a
petition for extrajudicial foreclosure before Notary Public Antonio T.
de Vera of Manila, requesting the latter to conduct a public auction
sale of the pledged stock. On 14 May 1985, CBC informed VGCCI of
the foreclosure proceedings and requested that the pledged stock be
transferred to its name and the same be recorded in the corporate
books. However, on 15 July 1985, VGCCI wrote CBC expressing its
inability to accede to CBC's request in view of Calapatia's unsettled
accounts with the club. Despite the foregoing, Notary Public de Vera
held a public auction on 17 September 1985 and CBC emerged as the
highest bidder at P20,000.00 for the pledged stock. Consequently,
CBC was issued the corresponding certificate of sale. On 21
November 1985, VGCCI sent Calapatia a notice demanding full
payment of his overdue account in the amount of P18,783.24. Said
notice was followed by a demand letter dated 12 December 1985 for
the same amount and another notice dated 22 November 1986 for
P23,483.24. On 4 December 1986, VGCCI caused to be published in
the newspaper Daily Express a notice of auction sale of a number of
its stock certificates, to be held on 10 December 1986 at 10:00 a.m.
Included therein was Calapatia's own share of stock (Stock Certificate
1219). Through a letter dated 15 December 1986, VGCCI informed
Calapatia of the termination of his membership due to the sale of his
share of stock in the 10 December 1986 auction. On 5 May 1989, CBC
advised VGCCI that it is the new owner of Calapatia's Stock Certificate
1219 by virtue of being the highest bidder in the 17 September 1985
auction and requested that a new certificate of stock be issued in its
name. On 2 March 1990, VGCCI replied that "for reason of
delinquency" Calapatia's stock was sold at the public auction held on
10 December 1986 for P25,000.00. On 9 March 1990, CBC protested
the sale by VGCCI of the subject share of stock and thereafter filed a
case with the Regional Trial Court of Makati for the nullification of
the 10 December 1986 auction and for the issuance of a new stock
certificate in its name. On 18 June 1990, the Regional Trial Court of
Makati dismissed the complaint for lack of jurisdiction over the
subject matter on the theory that it involves an intra-corporate
dispute and on 27 August 1990 denied CBC's motion for
reconsideration. On 20 September 1990, CBC filed a complaint with
the Securities and Exchange Commission (SEC) for the nullification of
the sale of Calapatia's stock by VGCCI; the cancellation of any new
stock certificate issued pursuant thereto; for the issuance of a new
certificate in petitioner's name; and for damages, attorney's fees and
costs of litigation. On 3 January 1992, SEC Hearing Officer Manuel P.
Perea rendered a decision in favor of VGCCI, stating in the main that
considering that the said share is delinquent, VGCCI had valid reason
not to transfer the share in the name of CBC in the books of VGCCI
until liquidation of delinquency. Consequently, the case was
dismissed. On 14 April 1992, Hearing Officer Perea denied CBC's
motion for reconsideration. CBC appealed to the SEC en banc and on
4 June 1993, the Commission issued an order reversing the decision
of its hearing officer; holding that CBC has a prior right over the
pledged share and because of pledgor's failure to pay the principal
debt upon maturity, CBC can proceed with the foreclosure of the
pledged share; declaring that the auction sale conducted by VGCCI
on 10 December 1986 is declared NULL and VOID; and ordering
VGCCI to issue another membership certificate in the name of CBC.
VGCCI sought reconsideration of the order. However, the SEC denied
the same in its resolution dated 7 December 1993. The sudden turn
of events sent VGCCI to seek redress from the Court of Appeals. On
15 August 1994, the Court of Appeals rendered its decision nullifying
and setting aside the orders of the SEC and its hearing officer on
ground of lack of jurisdiction over the subject matter and,
consequently, dismissed CBC's original complaint. The Court of
Appeals declared that the controversy between CBC and VGCCI is not
intra-corporate; nullifying the SEC orders and dismissing CBC’s
complaint. CBC moved for reconsideration but the same was denied
by the Court of Appeals in its resolution dated 5 October 1994. CBC
filed the petition for review on certiorari.
ISSUE: Whether CBC is bound by VGCCI's by-laws.
HELD:
In order to be bound, the third party must have acquired
knowledge of the pertinent by-laws at the time the transaction or
agreement between said third party and the shareholder was
entered into. Herein, at the time the pledge agreement was
executed. VGCCI could have easily informed CBC of its by-laws when
it sent notice formally recognizing CBC as pledgee of one of its shares
registered in Calapatia's name. CBC's belated notice of said by-laws
at the time of foreclosure will not suffice. By-laws signifies the rules
and regulations or private laws enacted by the corporation to
regulate, govern and control its own actions, affairs and concerns and
its stockholders or members and directors and officers with relation
thereto and among themselves in their relation to it. In other words,
by-laws are the relatively permanent and continuing rules of action
adopted by the corporation for its own government and that of the
individuals composing it and having the direction, management and
control of its affairs, in whole or in part, in the management and
control of its affairs and activities. The purpose of a by-law is to
regulate the conduct and define the duties of the members towards
the corporation and among themselves. They are self-imposed and,
although adopted pursuant to statutory authority, have no status as
public law. Therefore, it is the generally accepted rule that third
persons are not bound by by-laws, except when they have knowledge
of the provisions either actually or constructively. For the exception
to the general accepted rule that third persons are not bound by by-
laws to be applicable and binding upon the pledgee, knowledge of
the provisions of the VGCCI By-laws must be acquired at the time the
pledge agreement was contracted. Knowledge of said provisions,
either actual or constructive, at the time of foreclosure will not affect
pledgee's right over the pledged share. Article 2087 of the Civil Code
provides that it is also of the essence of these contracts that when
the principal obligation becomes due, the things in which the pledge
or mortgage consists maybe alienated for the payment to the
creditor. Further, VGCCI's contention that CBC is duty-bound to know
its by-laws because of Article 2099 of the Civil Code which stipulates
that the creditor must take care of the thing pledged with the
diligence of a good father of a family, fails to convince. CBC was never
informed of Calapatia's unpaid accounts and the restrictive
provisions in VGCCI's by-laws. Furthermore, Section 63 of the
Corporation Code which provides that "no shares of stock against
which the corporation holds any unpaid claim shall be transferable in
the books of the corporation" cannot be utilized by VGCCI. The term
"unpaid claim" refers to "any unpaid claim arising from unpaid
subscription, and not to any indebtedness which a subscriber or
stockholder may owe the corporation arising from any other
transaction." Herein, the subscription for the share in question has
been fully paid as evidenced by the issuance of Membership
Certificate 1219. What Calapatia owed the corporation were merely
the monthly dues. Hence, Section 63 does not apply.
JOHN GOKONGWEI, JR., vs. SEC, ANDRES M. SORIANO et.al.
G.R. No. L-45911, April 11, 1979.
FACTS:
Petitioner alleged that on September 18, 1976, individual
respondents amended the by-laws of the corporation, basing their
authority to do so on a resolution of the stockholders adopted on
March 13, 1961. It was contended that according to section 22 of the
Corporation Law and Article VIII of the by-laws of the corporation,
the power to amend, modify, repeal or adopt new by-laws may be
delegated to the Board of Directors only by the affirmative vote of
stockholders representing not less than 2/3 of the subscribed and
paid up capital stock of the corporation, which 2/3 should have been
computed on the basis of the capitalization at the time of the
amendment. Since the amendment was based on the 1961
authorization, petitioner contended that the Board acted without
authority and in usurpation of the power of the stockholders.
Petitioner averred that the membership of the Board of Directors had
changed since the authority was given in 1961, there being six (6) new
directors.
It was claimed that prior to the questioned March 13, 1961
amendment, petitioner had all the qualifications to be a director of
respondent corporation, being a substantial stockholder thereof;
that as a stockholder, petitioner had acquired rights inherent in stock
ownership, such as the rights to vote and to be voted upon in the
election of directors; and that in amending the by-laws, respondents
purposely provided for petitioner's disqualification and deprived him
of his vested right as afore-mentioned, hence the amended by-laws
are null and void.
ISSUE:
Whether or not the disqualification of Gokongwei Jr. to run
for directorship of the corporation valid, as such was only provided in
the amended by-laws of the corporation.
RULING:
YES. It is recognized by all authorities that 'every corporation
has the inherent power to adopt by-laws 'for its internal 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.'" At common law, the rule was "that the
power to make and adopt by-laws was inherent in every corporation
as one of its necessary and inseparable legal incidents.
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 that he impliedly contracts that the will of the
majority shall govern in all matters within the limits of the act of
incorporation and lawfully enacted by-laws and not forbidden by
law."
Under section 22 of the same law, the owners of the majority
of the subscribed capital stock may amend or repeal any by-law or
adopt new by-laws. It cannot be said, therefore, that petitioner has a
vested right to be elected director, in the face of the fact that the law
at the time such right as stockholder was acquired contained the
prescription that the corporate charter and the by-law shall be
subject to amendment, alteration and modification.
It is a settled that corporations have the power to make by-
laws declaring a person employed in the service of a rival company to
be ineligible for the corporation's Board of Directors. ".An
amendment which renders ineligible, or if elected, subjects to
removal, a director if he be also a director in a corporation whose
business is in competition with or is antagonistic to the other
corporation is valid."
GRACE CHRISTIAN HIGH SCHOOL vs. THE COURT OF APPEALS
1997 Oct 23, G.R. No. 108905
FACTS:
Petitioner Grace Christian High School is an educational
institution offering preparatory, kindergarten and secondary courses
at the Grace Village in Quezon City. Private respondent Grace Village
Association, Inc., on the other hand, is an organization of lot and/or
building owners, lessees and residents at Grace Village, while private
respondents Alejandro G. Beltran and Ernesto L. Go were its
president and chairman of the committee on election. For 15 years
the petitioner had been occupying a permanent seat in the Board of
Directors of the respondent. However, the latter decided to
“reexamine” the right of petitioner's representative to continue as an
unelected member of the board. As the board denied petitioner's
request to be allowed representation without election, petitioner
brought an action for mandamus in the Home Insurance and
Guaranty Corporation. Its action was dismissed by the hearing officer
whose decision was subsequently affirmed by the appeals board.
Petitioner appealed to the Court of Appeals, which in turn upheld the
decision of the HIGC's appeals board. Hence this petition for review.
ISSUE:
Whether or not the petitioner has acquired a vested right to
be a permanent director in the association under the drafted by –
laws, but which were not submitted to the members for approval.
RULING:
NO. The present Corporation Code states that the board of
directors of corporations must be elected from among the
stockholders or members. There may be corporations in which there
are unelected members in the board but it is clear that in the
examples cited by petitioner the unelected members sit as ex officio
members, i.e., by virtue of and for as long as they hold a particular
office. But in the case of petitioner, there is no reason at all for its
representative to be given a seat in the board. Nor does petitioner
claim a right to such seat by virtue of an office held. In fact it was not
given such seat in the beginning. It was only in 1975 that a proposed
amendment to the by-laws sought to give it one.
Since the provision in question is contrary to law, the fact
that for fifteen years it has not been questioned or challenged but,
on the contrary, appears to have been implemented by the members
of the association cannot forestall a later challenge to its validity.
Neither can it attain validity through acquiescence because, if it is
contrary to law, it is beyond the power of the members of the
association to waive its invalidity. For that matter the members of the
association may have formally adopted the provision in question, but
their action would be of no avail because no provision of the by-laws
can be adopted if it is contrary to law.
Also, petitioner cannot claim a vested right to sit in the board
on the basis of "practice." Practice, no matter how long continued,
cannot give rise to any vested right if it is contrary to law. Even less
tenable is petitioner's claim that its right is "coterminus with the
existence of the association."
PMI COLLEGES vs. NLRC
G.R. No. 121466. August 15, 1997
FACTS:
On July 7, 1991, petitioner, an educational institution
offering courses on basic seaman's training and other marine-related
courses, hired private respondent as contractual instructor with an
agreement that the latter shall be paid at an hourly rate of P30.00 to
P50.00, depending on the description of load subjects and on the
schedule for teaching the same. Pursuant to this engagement, private
respondent then organized classes in marine engineering.
Initially, private respondent and other instructors were
compensated for services rendered during the first three periods of
the abovementioned contract. However, for reasons unknown to
private respondent, he stopped receiving payment for the
succeeding rendition of services. This claim of non-payment was
embodied in a letter dated March 3, 1992, written by petitioner's
Acting Director, Casimiro A. Aguinaldo, addressed to its President,
Atty. Santiago Pastor, calling attention to and appealing for the early
approval and release of the salaries of its instructors including that of
private respondent.
Private respondent's claims, were resisted by petitioner.
Later in the proceedings, PMI Colleges manifested that Mr. Tomas
Cloma Jr., a member of the board of trustees write a letter to the
Chairman of the Board, clarifying the case of Galvan and stating
therein, inter alia, that under PMI’s by-laws only the Chairman is
authorized to sign any contract and that Galvan, in any event, failed
to submit documents on the alleged shipyard and plant visits in
Cavite Naval Base.
ISSUE:
Whether or not the contract of employment of Galvan valid
even if the signatory therein was not the Chairman of the Board.
RULING:
YES. The contract of employment is valid. The contract
remained valid even if the signatory thereon was not the chairman of
the board which allegedly violated petitioner’s by-laws. Since by-laws
operate merely as internal rules among the stockholders, they cannot
affect or prejudice third persons who deal with the corporation,
unless they have knowledge of the same. No proof appears on record
that private respondent ever knew anything about the provisions of
the said by-laws. In fact, petitioner itself merely asserts the same
without even bothering to attach a copy or excerpt thereof to show
that there is such provision. That this allegation has never been
denied to private respondent nor necessarily signify admission of its
existence because technicalities of law and procedure and the rules
obtaining in the courts of law do not strictly apply to proceeding of
this nature.
ENRIQUE SALAFRANCA vs. PHILAMLIFE (PVHA VILLAGE,
HOMEOWNERS ASSOCIATION, INC.,et al., respondents.
G.R. No. 121791 December 23, 1998
FACTS:
Salafranca was hired as Administrative Officer by PVHA on
May 1, 1981 and was extended successive appointments. Sometime
in 1987, PVHA decided to amend its by-laws. Included therein was a
provision regarding officers, specifically, the position of
administrative officer under which said officer shall hold office at the
pleasure of the Board of Directors. In a letter dated December 7,
1992, PVHA and Dazo informed Salafranca that they had decided to
discontinue his services. Claiming that his services had been
unlawfully and unceremoniously dispensed with, Salafranca filed a
complaint for illegal dismissal with money claims and for damages.
The LA held that respondents’ contention that complainant’s
term of employment was co-terminous with the term of Office of the
Board of Directors, is wanting in merit. The 1987 Amendment would
not be applicable to the case of complainant who had become a
regular employee long time before the Amendment took place.
Moreover, the Amendment should be applied prospectively and not
retroactively. On appeal, the NLRC reversed the decision of the LA.
ISSUE:
Whether or not Salafranca was legally dismissed by private
respondents pursuant to the 1987 amendment in the By-laws.
RULING:
NO. Salafranca had already attained the status of a regular
employee, as evidenced by his eleven years of service with PVHA.
Accordingly, petitioner enjoys the right to security of tenure and his
services may be terminated only for causes provided by law. While
PVHA has the right to terminate the services of Salafranca, this is
subject to both substantive and procedural grounds. PVHA failed to
substantiate petitioner’s dismissal, rendering the latter’s termination
illegal.
In an effort to validate the dismissal of Salafranca,
respondents posit the theory that the latter’s position is co-
terminous with that of the Board of Directors, as provided for in its
amended by-laws. Admittedly, the right to amend the by-laws lies
solely in the discretion of the employer, this being in the exercise of
management prerogative or business judgment. However this right,
extensive as it may be, cannot impair the obligation of existing
contracts or rights.
PVHA’s insistence that it can legally dismiss Salafranca on the
ground that his tenure has expired is untenable. Salaranca, being a
regular employee, is entitled to security of tenure; hence, his services
may only be terminated for causes provided by law. A contrary
interpretation would not find justification in the laws or the
Constitution. If the Court was to rule otherwise, it would enable an
employer to remove any employee from his employment by the
simple expediency of amending its by-laws and providing that his/her
position shall cease to exist upon the occurrence of a specified event.
If PVHA wanted to make the Salafranca’s position co-
terminous with that of the Board of Directors, then the amendment
must be effective after Salafranca’s stay with PVHA, not during his
term. Obviously, the measure taken by the private respondent in
amending its by-laws is nothing but a devious, but crude, attempt to
circumvent Salafranca’s right to security of tenure as a regular
employee guaranteed under the Labor Code.
MA. MERCEDES L. BARBA v. LICEO DE CAGAYAN UNIVERSITY
G .R. No. 193857, November 28, 2012
FACTS:
Petitioner Dr. Ma. Mercedes L. Barba (Barba) was the Dean
of the College of Physical Therapy of respondent Liceo de Cagayan
University, Inc. (Liceo).
In the school year 2003 to 2004, the College of Physical
Therapy suffered a dramatic decline in the number of enrollees from
a total of 1,121 students in the school year 1995 to 1996 to only 29
students in the first semester of school year 2003 to 2004. Due to the
low number of enrollees, Liceo decided to freeze the operation of the
College of Physical Therapy indefinitely. Thereafter, the College of
Physical Therapy ceased operations and Barba went on leave without
pay starting. Subsequently, Liceo sent Barba a letter dated April 27,
2005 instructing Barba to return to work on and report to Ma. Chona
Palomares, the Acting Dean of the College of Nursing, to receive her
teaching load and assignment as a full-time faculty member in that
department. Barba did not report to Palomares and requested for the
processing of her separation benefits in view of the closure of the
College of Physical Therapy.
Another letter was sent to Barba but the latter still refused
to return to work. Hence, Liceo sent Barba a notice terminating her
services on the ground of abandonment.
Barba filed a complaint before the Labor Arbiter for illegal dismissal,
payment of separation pay and retirement benefits against Liceo. She
alleged that her transfer to the College of Nursing as a faculty
member is a demotion amounting to constructive dismissal.
The LA ruled that Barba was not constructively dismissed.
The NLRC reversed the LA. Liceo went to the CA and filed a
Supplemental Petition raising for the first time the issue of lack of
jurisdiction of the Labor Arbiter and the NLRC over the case. Liceo
claimed that a College Dean is a corporate officer under its by-laws
and Barba was a corporate officer of Liceo since her appointment was
approved by the board of directors. Thus, Liceo maintained that the
jurisdiction over the case is with the regular courts and not with the
labor tribunals.
In its original Decision, the CA reversed the NLRC resolutions.
The CA did not find merit in Liceos assertion in its Supplemental
Petition that the position of Barba as College Dean was a corporate
office. The CA further found that no constructive dismissal occurred
nor has Barba abandoned her work.
Unsatisfied, both Barba and Liceo sought reconsideration of
the CA decision. Thereafter, the CA reversed its earlier ruling.
Hence,Barba filed the present petition.
ISSUES:
I. Whether or not the labor tribunals have jurisdiction over Barbas
complaint for constructive dismissal?
II. Whether or not Barba was constructively dismissed?
HELD:
The petition is granted. Corporate officers are elected or
appointed by the directors or stockholders, and are those who are
given that character either by the Corporation Code or by the
corporations by-laws. Section 25 of the Corporation Code
enumerates corporate officers as the president, the secretary, the
treasurer and such other officers as may be provided for in the by- for a fixed term, subject to reappointment and revocation or
laws. In Matling Industrial and Commercial Corporation v. Coros, the termination for a valid cause. When Liceo decided to close its College
phrase "such other officers as may be provided for in the by-laws" of Physical Therapy due to drastic decrease in enrollees,Barbas
has been clarified, thus: "Conformably with Section 25, a position appointment as its College Dean was validly revoked and her
must be expressly mentioned in the By-Laws in order to be subsequent assignment to teach in the College of Nursing was
considered as a corporate office. The rest of the corporate officers justified as it is still related to her scholarship studies in Physical
could be considered only as employees of subordinate officials." Therapy. Particularly, for a transfer not to be considered a
However, an assiduous perusal of these documents does not constructive dismissal, the employer must be able to show that such
convince us that Barba occupies a corporate office position in the transfer is not unreasonable, inconvenient, or prejudicial to the
university. In Liceos by-laws, there are four officers specifically employee.
mentioned, namely, a president, a vice president, a secretary and a
treasurer. In addition, it is provided that there shall be other GRANTED.
appointive officials, a College Director and heads of departments
whose appointments, compensations, powers and duties shall be
determined by the board of directors. It is worthy to note that a
College Dean is not among the corporate officers mentioned in Liceos
by-laws. Barba was not directly elected nor appointed by the board
of directors to any corporate office but her appointment was merely
approved by the board together with the other academic deans of
respondent university in accordance with the procedure prescribed
in Liceos Administrative Manual. Though the board of directors may
create appointive positions other than the positions of corporate
officers, the persons occupying such positions cannot be deemed as
corporate officers as contemplated by Section 25 of the Corporation
Code. Thus, petitioner, being an employee of respondent, her
complaint for illegal/constructive dismissal against respondent was
properly within the jurisdiction of the Labor Arbiter and the NLRC.
On the issue of constructive dismissal, we agree with the
Labor Arbiter and the appellate courts earlier ruling that Barba was
not constructively dismissed.Barbas letter of appointment
specifically appointed her as Dean of the College of Physical Therapy
and Doctor-in-Charge of the Rehabilitation Clinic "for a period of
three years effective July 1, 2002 unless sooner revoked for valid
cause or causes." Evidently, Barbas appointment as College Dean was