Topic: General Principles, Attributes of Corporation which includes a discussion on the Doctrine of

Limited Liability

Case No. 12

MAMBULAO LUMBER COMPANY vs. PHILIPPINE NATIONAL BANK

G.R. No. L-22973, January 30, 1968
Facts:

The plaintiff applied for an industrial loan with interest with the PNB. To secure the payment of the
loan, the plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and
improvements existing thereon as well as various sawmill equipment, rolling unit and other fixed
assets of the plaintiff. However, the plaintiff failed to pay the amortizations on the amounts released
to and received by it.

Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused
to do so. Upon inspection and verification made by employees of the PNB, it was found that the
plaintiff had already stopped operation about the end of 1957 or early part of 1958. Thus, PNB
requested for the foreclosure of the real estate mortgage as well as the chattel mortgage.

Issue:

Whether or not petitioner is entitled to moral damages.

Held:

No. Herein appellant's claim for moral damages, however, seems to have no legal or factual basis.
Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings,
mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are
basis of moral damages. A corporation may have a good reputation which, if besmirched, may also be
a ground for the award of moral damages. The same cannot be considered under the facts of this case,
however, not only because it is admitted that herein appellant had already ceased in its business
operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever
adverse effects of the foreclosure sale of the chattels could have upon its reputation or business
standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban,
Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in
proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as
provided for in the mortgage contract, to which their attentions were timely called by herein
appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein
appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the
case also warrant the award of P3,000.00 as attorney's fees for herein appellant.
Topic: Doctrine of Separate Juridical Entity / Doctrine of Corporate Entity

Case No. 31

PHILIPPINE NATIONAL BANK vs. HYDRO RESOURCES CONTRACTORS CORPORATION

G.R. No. 167530, March 13, 2013
Facts:

Petitioners DBP and PNB foreclosed on certain mortgages made on the properties of Marinduque
Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and PNB acquired
substantially all the assets of MMIC and resumed the business operations of the defunct MMIC by
organizing NMIC. DBP and PNB owned 57% and 43% of the shares of NMIC, respectively, except for five
qualifying shares. Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping
and Road Construction Program in 1985. After computing the payments already made by NMIC under
the program and crediting the NMIC’s receivables from

Hercon, Inc., the latter found that NMIC still has an unpaid balance. Hercon, Inc. made several demands
on NMIC and when these were not heeded, a complaint for sum of money was filed in the RTC of
Makati seeking to hold petitioners NMIC, DBP, and PNB solidarily liable for the amount owing Hercon,
Inc. Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This
prompted the amendment of the complaint to substitute HRCC for Hercon, Inc.

Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50
creating the APT for the expeditious disposition and privatization of certain government corporations
and/or the assets thereof. Pursuant to the said Proclamation DBP and PNB executed their respective
deeds of transfer in favor of the National Government assigning. In turn and on even date, the National
Government transferred the said assets and liabilities to the APT as trustee under a Trust Agreement.
Thus, the complaint was amended for the second time to implead and include the APT as a defendant.
After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in favor of HRCC. It pierced
the corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC. The Court of Appeals
rendered the Decision dated November 30, 2004, affirmed the piercing of the veil of the corporate
personality.

Issue:

Whether or not NMIC is a distinct and separate legal entity which is liable to pay its corporate
obligation to HRCC.

Held:

Yes. A corporation is an artificial entity created by operation of law. It possesses the right of succession
and such powers, attributes, and properties expressly authorized by law or incident to its existence. It
has a personality separate and distinct from that of its stockholders and from that of other
corporations to which it may be connected. As a consequence of its status as a distinct legal entity and
as a result of a conscious policy decision to promote capital formation, a corporation incurs its own
liabilities and is legally responsible for payment of its obligations. In other words, by virtue of the
separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of
the stockholder. This protection from liability for shareholders is the principle of limited liability.
Equally well-settled is the principle that the corporate mask may be removed, or the corporate veil
pierced when the corporation is just an alter ego of a person or of another corporation. For reasons
of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against third persons.

As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason
to the contrary appears. When the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard the corporation as an association of
persons. Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud
that may work inequities among members of the corporation internally, involving no rights of the
public or third persons. In both instances, there must have been fraud, and proof of it. For the separate
juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and
convincingly established. It cannot be presumed.

As regards the third element, in the absence of both control by DBP and PNB of NMIC and fraud or
fundamental unfairness perpetuated by DBP and PNB through the corporate cover of NMIC, no harm
could be said to have been proximately caused by DBP and PNB on HRCC for which HRCC could hold
DBP and PNB solidarily liable with NMIC.

Considering that, under the deeds of transfer executed by DBP and PNB, the liability of the APT as
transferee of the rights, titles and interests of DBP and PNB in NMIC will attach only if DBP and PNB
are held liable, the APT incurs no liability for the judgment indebtedness of NMIC. Even HRCC
recognizes that "as assignee of DBP and PNB 's loan receivables," the APT simply "stepped into the
shoes of DBP and PNB with respect to the latter's rights and obligations" in NMIC. As such assignee,
therefore, the APT incurs no liability with respect to NMIC other than whatever liabilities may be
imputable to its assignors, DBP and PNB.

Even under Section 2.02 of the respective deeds of transfer executed by DBP and PNB which HRCC
invokes, the APT cannot be held liable. The contingent liability for which the National Government,
through the APT, may be held liable under the said provision refers to contingent liabilities of DBP and
PNB. Since DBP and PNB may not be held solidarily liable with NMIC, no contingent liability may be
imputed to the APT as well. Only NMIC as a distinct and separate legal entity is liable to pay its
corporate obligation to HRCC in the amount of ₱8,370,934.74, with legal interest thereon from date
of demand.
Topic: Doctrine of Piercing the veil of Corporate Fiction

Case No. 50

PHILIPPINE NATIONAL BANK vs. HYDRO RESOURCES CONTRACTORS CORPORATION

G.R. No. 167530, March 13, 2013
Facts:

Petitioners DBP and PNB foreclosed on certain mortgages made on the properties of Marinduque
Mining and Industrial Corporation (MMIC). As a result of the foreclosure, DBP and PNB acquired
substantially all the assets of MMIC and resumed the business operations of the defunct MMIC by
organizing NMIC. DBP and PNB owned 57% and 43% of the shares of NMIC, respectively, except for five
qualifying shares. Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping
and Road Construction Program in 1985. After computing the payments already made by NMIC under
the program and crediting the NMIC’s receivables from

Hercon, Inc., the latter found that NMIC still has an unpaid balance. Hercon, Inc. made several demands
on NMIC and when these were not heeded, a complaint for sum of money was filed in the RTC of
Makati seeking to hold petitioners NMIC, DBP, and PNB solidarily liable for the amount owing Hercon,
Inc. Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This
prompted the amendment of the complaint to substitute HRCC for Hercon, Inc.

Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50
creating the APT for the expeditious disposition and privatization of certain government corporations
and/or the assets thereof. Pursuant to the said Proclamation DBP and PNB executed their respective
deeds of transfer in favor of the National Government assigning. In turn and on even date, the National
Government transferred the said assets and liabilities to the APT as trustee under a Trust Agreement.
Thus, the complaint was amended for the second time to implead and include the APT as a defendant.
After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in favor of HRCC. It pierced
the corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC. The Court of Appeals
rendered the Decision dated November 30, 2004, affirmed the piercing of the veil of the corporate
personality.

Issue:

Whether or not there is sufficient ground to pierce the veil of corporate fiction.

Held:

No. In this connection, case law lays down a three-pronged test to determine the application of the
alter ego theory, which is also known as the instrumentality theory, namely:

(1) Control, not mere majority or complete stock control, but complete domination, not only
of finances but of policy and business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no separate mind, will or existence
of its own;
 (2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act
in contravention of plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of.

The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be
completely under the control and domination of the parent. It examines the parent corporation’s
relationship with the subsidiary. It inquires whether a subsidiary corporation is so organized and
controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity will be ignored. It seeks to
establish whether the subsidiary corporation has no autonomy and the parent corporation, though
acting through the subsidiary in form and appearance, "is operating the business directly for itself."

The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of the
plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing of "an
element of injustice or fundamental unfairness."

The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control,
exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. A
causal connection between the fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the plaintiff should be established. The
plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by the
defendant’s exercise of control and improper use of the corporate form and, thereby, suffer damages.

To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of
three elements: control of the corporation by the stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the
fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing
the corporate veil.

This Court finds that none of the tests has been satisfactorily met in this case.

In applying the alter ego doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant’s relationship to that operation. With respect to
the control element, it refers not to paper or formal control by majority or even complete stock control
but actual control which amounts to "such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal." In addition, the control must be shown to have been exercised at the time
the acts complained of took place.

Both the RTC and the Court of Appeals applied the alter ego theory and penetrated the corporate
cover of NMIC based on two factors: (1) the ownership by DBP and PNB of effectively all the stocks of
NMIC, and (2) the alleged interlocking directorates of DBP, PNB and NMIC. Unfortunately, the
conclusion of the trial and appellate courts that the DBP and PNB fit the alter ego theory with respect
to NMIC’s transaction with HRCC on the premise of complete stock ownership and interlocking
directorates involved a quantum leap in logic and law exposing a gap in reason and fact.

While ownership by one corporation of all or a great majority of stocks of another corporation and
their interlocking directorates may serve as indicia of control, by themselves and without more,
however, these circumstances are insufficient to establish an alter ego relationship or connection
between DBP and PNB on the one hand and NMIC on the other hand, that will justify the puncturing
of the latter’s corporate cover. This Court has declared that "mere ownership by a single stockholder
or by another corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality." This Court has likewise ruled
that the "existence of interlocking directors, corporate officers and shareholders is not enough
justification to pierce the veil of corporate fiction in the absence of fraud or other public policy
considerations."
Topic: Doctrine of Piercing the veil of Corporate Fiction

Case No. 69

RUFINA LUY LIM vs. COURT OF APPEAL

G.R. No. 124715, January 24, 2000
Facts:

Rufina Luy Lim is the surviving spouse of the late Pastor Y. Lim whose estate is the subject of probate
proceedings entitled, "In Re: Intestate Estate of Pastor Y. Lim Rufina Luy Lim, represented by George
Luy, Petitioner". Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed
Distributing, Inc., Active Distributing, Inc. and Action Company are corporations formed, organized
and existing under Philippine laws and which owned real properties covered under the Torrens
system.

On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly
represented by her nephew George Luy, filed a joint petition for the administration of the estate of
Pastor Y. Lim before the Regional Trial Court of Quezon City.

Private respondent corporations, whose properties were included in the inventory of the estate of
Pastor Y. Lim, then filed a motion for the lifting of lis pendens and motion for exclusion of certain
properties from the estate of the decedent.

In an order dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93, sitting as a probate
court, granted the private respondents twin motions. Subsequently, Rufina Luy Lim filed a
verified amended petition wherein the Regional Trial Court acting on petitioner’s motion.

On September 4, 1995, the probate court appointed Rufina Lim as special administrator and Miguel
Lim and Lawyer Donald Lee, as co-special administrators of the estate of Pastor Y. Lim, after which
letters of administration were accordingly issued. September 12, 1995, the probate court denied anew
private respondents motion for exclusion.

Issue:

Whether or not the doctrine of piercing the veil of corporate entity is applicable to be able to include
in the probate proceedings the company formed by deceased Pastor Y. Lim.

Held:

No. It is settled that a corporation is clothed with personality separate and distinct from that of the
persons composing it. It may not generally be held liable for that of the persons composing it. It may
not be held liable for the personal indebtedness of its stockholders or those of the entities connected
with it.

Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate
from its stockholders or members. In the same vein, a corporation by legal fiction and convenience is
an entity shielded by a protective mantle and imbued by law with a character alien to the persons
comprising it.
Nonetheless, the shield is not at all times invincible. Thus, in FIRST PHILIPPINE INTERNATIONAL BANK vs.
COURT OF APPEALS, we enunciated:

"x x x When the fiction is urged as a means of perpetrating a fraud or an illegal act or
as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or
crime, the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals. x x x"

Piercing the veil of corporate entity requires the court to see through the protective shroud which
exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one
corporation from a seemingly separate one, were it not for the existing corporate fiction.

The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but
the alter ego of a person or of another corporation. Where badges of fraud exist, where public
convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the
notion of legal entity should come to naught.

Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction
is as follows: 1) Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiffs legal right; and (3) The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of. The absence of any of these elements prevent "piercing the
corporate veil".

Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate
corporate personalities. Moreover, to disregard the separate juridical personality of a corporation, the
wrong-doing must be clearly and convincingly established. It cannot be presumed.

Granting arguendo that the Regional Trial Court in this case was not merely acting in a limited capacity
as a probate court, petitioner nonetheless failed to adduce competent evidence that would have
justified the court to impale the veil of corporate fiction. Truly, the reliance reposed by petitioner on
the affidavits executed by Teresa Lim and Lani Wenceslao is unavailing considering that the
aforementioned documents possess no weighty probative value pursuant to the hearsay rule. Besides
it is imperative for us to stress that such affidavits are inadmissible in evidence inasmuch as the affiants
were not at all presented during the course of the proceedings in the lower court. To put it differently,
for this Court to uphold the admissibility of said documents would be to relegate from Our duty to
apply such basic rule of evidence in a manner consistent with the law and jurisprudence.
Topic: Doctrine of Piercing the veil of Corporate Fiction

Case No. 88

YUTIVO SONS HARDWARE COMPANY vs. COURT OF TAX APPEALS and COLLECTOR OF INTERNAL
REVENUE
G.R. No. L-13203, January 28, 1961

Facts:

Yutivo Sons Hardware Co. is a domestic corporation, organized under the laws of the Philippines,
which was engaged, prior to the last world war, in the importation and sale of hardware supplies and
equipment. After the liberation, it resumed its business and until June of 1946 bought a number of cars
and trucks from General Motors Overseas Corporation, an American corporation licensed to do
business in the Philippines. As importer, GM paid sales tax prescribed by sections 184, 185 and 186 of
the Tax Code on the basis of its selling price to Yutivo.

On June 13, 1946, the Southern Motors, Inc. was organized to engage in the business of selling cars,
trucks and spare parts. After the incorporation of SM and until the withdrawal of GM from the
Philippines in the middle of 1947, the cars and tracks purchased by Yutivo from GM were sold by Yutivo
to SM which, in turn, sold them to the public in the Visayas and Mindanao. When GM decided to
withdraw from the Philippines in the middle of 1947, the U.S. manufacturer of GM cars and trucks
appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its previous
arrangement of selling exclusively to SM.

On November 7, 1950, after several months of investigation by revenue officers, the Collector of
Internal Revenue made an assessment upon Yutivo and demanded from the latter P1,804,769.85 as
deficiency sales tax plus surcharge covering the period from the third quarter of 1947 to the fourth
quarter of 1949 claiming that the taxable sales were the retail sales by SM to the public and not the
sales at wholesale made by, Yutivo to the latter inasmuch as SM and Yutivo were one and the same
corporation, the former being the subsidiary of the latter.

The assessment was disputed by the petitioner, and a reinvestigation of the case having been made
by the agents of the Bureau of Internal Revenue. After another investigation, the respondent
Collector, in a letter to petitioner, redetermined that the aforementioned tax assessment was lawfully
due the government and in addition assessed deficiency sales tax due from petitioner for the four
quarters of 1950; This second assessment was contested by the petitioner Yutivo before the Court of
Tax Appeals, alleging that there is no valid ground to disregard the corporate personality of SM and to
hold that it is an adjunct of petitioner Yutivo; (2) that assuming the separate personality of SM may be
disregarded, the sales tax already paid by Yutivo should first be deducted from the selling price of SM
in computing the sales tax due on each vehicle; and (3) that the surcharge has been erroneously
imposed by respondent.

Issue:

Whether or not Southern Motors, Inc. is an instrumentality of Yutivo.

Held:
Yes. It is an elementary and fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other corporation petitions to which it may be
connected. However, "when the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime," the law will regard the corporation as an association of
persons, or in the case of two corporations merge them into one.

Consideration of various other circumstances, especially when taken together, indicates that Yutivo
treated SM merely as its department or adjunct. For one thing, the accounting system maintained by
Yutivo shows that it maintained a high degree of control over SM accounts. All transactions between
Yutivo and SM are recorded and effected by mere debit or credit entries against the reciprocal account
maintained in their respective books of accounts and indicate the dependency of SM as branch upon
Yutivo. Apart from the accounting system, other facts corroborate or independently show that SM is
a branch or department of Yutivo. Even the branches of SM in Bacolod, Iloilo, Cebu, and Davao treat
Yutivo — Manila as their "Head Office" or "Home Office" as shown by their letters of remittances or
other correspondences. These correspondences were actually received by Yutivo and the reference
to Yutivo as the head or home office is obvious from the fact that all cash collections of the SM's
branches are remitted directly to Yutivo. Added to this fact, is that SM may freely use forms or
stationery of Yutivo

The fact that SM is a mere department or adjunct of Yutivo is made more patent by the fact that
arrastre conveying, and charges paid for the "operation of receiving, loading or unloading" of
imported cars and trucks on piers and wharves, were charged against SM. Overtime charges for the
unloading of cars and trucks as requested by Yutivo and incurred as part of its acquisition cost thereof,
were likewise charged against and treated as expenses of SM. If Yutivo were the importer, these
arrastre and overtime charges were Yutivo's expenses in importing goods and not SM's. But since
those charges were made against SM, it plainly appears that Yutivo had sole authority to allocate its
expenses even as against SM in the sense that the latter is a mere adjunct, branch or department of
the former.

Proceeding to another aspect of the relation of the parties, the management fees due from SM to
Yutivo were taken up as expenses of SM and credited to the account of Yutivo. If it were to be assumed
that the two organizations are separate juridical entities, the corresponding receipts or receivables
should have been treated as income on the part of Yutivo. But such management fees were recorded
as "Reserve for Bonus" and were therefore a liability reserve and not an income account. This reserve
for bonus were subsequently distributed directly to and credited in favor of the employees and
directors of Yutivo, thereby clearly showing that the management fees were paid directly to Yutivo
officers and employees.

Briefly stated, Yutivo financed principally, if not wholly, the business of SM and actually extended all
the credit to the latter not only in the form of starting capital but also in the form of credits extended
for the cars and vehicles allegedly sold by Yutivo to SM as well as advances or loans for the expenses
of the latter when the capital had been exhausted. Thus, the increases in the capital stock were made
in advances or "Guarantee" payments by Yutivo and credited in favor of SM. The funds of SM were all
merged in the cash fund of Yutivo. At all times Yutivo thru officers and directors common to it and SM,
exercised full control over the cash funds, policies, expenditures and obligations of the latter.
Topic: Stages in the Formation / Organization of a Corporation

Case No. 107

FERMIN Z. CARAM, JR. and ROSA O. DE CARAM vs. THE HONORABLE COURT OF APPEALS and
ALBERTO V. ARELLANO
G.R. No. L-48627, June 30, 1987

Facts:

The petitioners claim that this order has no support in fact and law because they had no contract
whatsoever with the private respondent regarding the above-mentioned services. Their position is
that as mere subsequent investors in the corporation that was later created, they should not be held
solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with Barretto and
Garcia, their co-defendants in the lower court, who were the ones who requested the said services
from the private respondent.

Issue:

Whether or not the petitioners should be held liable.

Held:

No. The petitioners were not involved in the initial stages of the organization of the airline. They were
merely among the financiers whose interest was to be invited and who were in fact persuaded, on the
strength of the project study, to invest in the proposed airline.

There was no showing that the Airline was a fictitious corporation and did not have a separate juridical
personality to justify making the petitioners, as principal stockholders thereof, responsible for its
obligations. As a bona fide corporation, the Airline should alone be liable for its corporate acts as duly
authorized by its officers and directors. Granting that the petitioners benefited from the services
rendered, such is no justification to hold them personally liable therefor. Otherwise, all the other
stockholders of the corporation, including those who came in late, and regardless of the amount of
their shareholdings, would be equally and personally liable also with the petitioner for the claims of
the private respondent.

Petitioners cannot be held personally liable for the compensation claimed by the private respondent
for the services performed by him in the organization of the corporation. To repeat, the petitioners
did not contract such services. It was only the results of such services that Barretto and Garcia
presented to them and which persuaded them to invest in the proposed airline. The most that can be
said is that they benefited from such services, but that surely is no justification to hold them personally
liable therefor.

A promoter could not have acted as agent for a corporation that had no legal existence. A corporation,
until organized, has no life therefore no faculties. The corporation had no juridical personality to enter
into a contract.
Topic: Incorporation and Organization Proper (Corporate Name)

Case No. 126

FRANCISCO M. ALONSO vs. CEBU COUNTRY CLUB, INC.

G. R. No. 130876, January 31, 2002

Facts:

Sometime in 1992, petitioner discovered documents and records Friar Lands Sale Certificate
Register/Installment Record Certificate, Sales and Assignment of Sales Certificate showing that his
father acquired Lot No. 727 of the Banilad Friar Lands Estate from the Government of the Philippine
Islands in or about the year 1911 in accordance with the Friar Lands Act (Act No. 1120). On March 27,
1926, the Director of Lands executed a final deed of sale in favor of petitioner’s father Tomas N. Alonso.
It appears, however, that the deed was not registered with the Register of Deeds because of lack of
technical requirements.

Upon investigation of the status of the land, petitioner found out from the office of the Registrar of
Deeds that title to Lot No. 727 of the Banilad Friar Lands Estate had been administratively reconstituted
from the owners duplicate on in the name of United Service Country Club, Inc., predecessor of Cebu
Country Club, Inc. On March 8, 1960, upon order of the Court of First Instance, the name of the
registered owner was changed to Cebu Country Club, Inc.

In the firm belief that petitioners father is still the rightful owner of Lot No. 727 of the Banilad Friar
Lands Estate since there are no records showing that he ever sold or conveyed the disputed property
to anyone, on July 7, 1992, petitioner made a formal demand upon Cebu Country Club, Inc. to restore
to him the ownership and possession of said lot within fifteen (15) days from receipt thereof. He
indicated that his claim was analogous to that of the heirs of the late Ramon Cabrera and Graciano
Ingles which was upheld by the Court of Appeals. Cebu Country Club, Inc., however, denied petitioners
claim and refused to deliver possession to him.

Left with no other recourse, on September 25, 1992, petitioner filed with the Regional Trial Court, Cebu
City, a complaint for declaration of nullity and nonexistence of deed/title, cancellation of certificates
of title and recovery of property against defendant Cebu Country Club, Inc. While Cebu Country Club,
Inc. filed with the trial court its answer with counterclaim

On May 7, 1993, the trial court rendered a decision in favor of the defendant and against the plaintiff
and it was affirmed in toto by CA.

Issue:

Whether or not the reconstituted title to Cebu Country Club, Inc. is valid.

Held:

Yes. Petitioners next argue that the reconstituted title of Cebu Country Club, Inc. had no lawful source
to speak of; it was reconstituted through extrinsic and intrinsic fraud in the absence of a deed of
conveyance in its favor. In truth, however, reconstitution was based on the owners duplicate of the
title, hence, there was no need for the covering deed of sale or other modes of conveyance. Cebu
Country Club, Inc. was admittedly in possession of the land since long before the Second World War,
or since 1931. In fact, the original title (TCT No. 11351) was issued to the United Service Country Club,
Inc. on November 19, 1931 as a transfer from Transfer Certificate of Title No. 1021 (Exh. D-6). More
importantly, Cebu Country Club, Inc. paid the realty taxes on the land even before the war, and tax
declarations covering the property showed the number of the TCT of the land. Cebu Country Club, Inc.
produced receipts showing real estate tax payments since 1949 (Exhs. 27 to 100-B). On the other hand,
petitioner failed to produce a single receipt of real estate tax payment ever made by his father since
the sales patent was issued to his father on March 24, 1926. Worse, admittedly petitioner could not
show any torrens title ever issued to Tomas N. Alonso, because, as said, the deed of sale executed on
March 27, 1926 by the Director of Lands was not approved by the Secretary of Agriculture and Natural
Resources and could not be registered. Under the law, it is the act of registration of the deed of
conveyance that serves as the operative act to convey the land registered under the Torrens system.
The act of registration creates constructive notice to the whole world of the fact of such conveyance.
On this point, petitioner alleges that Cebu Country Club, Inc. obtained its title by fraud in connivance
with personnel of the Register of Deeds in 1941 or in 1948, when the title was administratively
reconstituted. Imputations of fraud must be proved by clear and convincing evidence. Petitioner failed
to adduce evidence of fraud. In an action for re-conveyance based on fraud, he who charges fraud
must prove such fraud in obtaining a title. In this jurisdiction, fraud is never presumed. The strongest
suspicion cannot sway judgment or overcome the presumption of regularity. The sea of suspicion has
no shore, and the court that embarks upon it is without rudder or compass. Worse, the imputation of
fraud was so tardily brought, some forty-four (44) years or sixty-one (61) years after its supposed
occurrence, that is, from the administrative reconstitution of title on July 26, 1948, or from the issuance
of the original title on November 19, 1931, that verification is rendered extremely difficult, if not
impossible, especially due to the supervening event of the second world war during which practically
all public records were lost or destroyed, or no longer available.

Petitioners next question the lack of technical description inscribed in the reconstituted title in
Cebu Country Club, Inc.s name. This is not a bar to reconstitution of the title nor will it affect the validity
of the reconstituted title. A registered owner is given two (2) years to file a plan of such land with the
Chief of the General Land Registration Office. The two-year period is directory, not jurisdictional. In
other words, the failure to submit the technical description within two (2) years would not invalidate
the title. At most, the failure to file such technical description within the two-year period would bar a
transfer of the title to a third party in a voluntary transaction.
Topic: Incorporation and Organization Proper (Classification of Shares))

Case No. 145

WILSON P. GAMBOA vs. FINANCE SECRETARY MARGARITO B. TEVES

G.R. No. 176579, June 28, 2011

Facts:

The Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to
engage in telecommunications business. In 1969, General Telephone and Electronics Corporation
(GTE), an American company and a major PLDT stockholder, sold 26 percent of the outstanding
common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several
persons. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three
Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986,
the 111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on
Good Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the
outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic of the
Philippines.

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining
54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency
Privatization Council (IPC) of the Philippine Government announced that it would sell the 111,415 PTIC
shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public bidding.Thereafter,
First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the
111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1
February 2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by
IPC until 2 March 2007 to buy the PTIC shares.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC
shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common
shares of PLDT. With the sale, First Pacifics common shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT to about
81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign
ownership of the capital of a public utility to not more than 40 percent. During the 8 December 2006
bidding, Parallax Capital Management LP emerged as the highest bidder.

Issue:

Whether or not the term capital in Section 11, Article XII of the Constitution refers to the common
shares of PLDT, a public utility.

Held:

Yes. Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the
Filipinization of public utilities, to wit:
 Section 11. No franchise, certificate, or any other form of authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any such franchise
or right be granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to
their proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizens of the Philippines.

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum
nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a
corporation to be granted authority to operate a public utility, at least 60 percent of its capital must
be owned by Filipino citizens. Thus, the 40% foreign ownership limitation should be interpreted to
apply to both the beneficial ownership and the controlling interest.

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the
Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore,
ownership of record of shares will not suffice but it must be shown that the legal and beneficial
ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it
is already admitted that the voting interests of foreigners which would gain entry to petitioner PLDT
by the acquisition of SMART shares through the Questioned Transactions is equivalent to 82.99%, and
the nominee arrangements between the foreign principals and the Filipino owners is likewise
admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with
constitutional or legal requirements. Except as otherwise provided in the articles of incorporation and
stated in the certificate of stock, each share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code,
the holders of such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially
all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance
with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a
particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting
rights.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management
of the corporation. This is exercised through his vote in the election of directors because it is the board
of directors that controls or manages the corporation. In the absence of provisions in the articles of
incorporation denying voting rights to preferred shares, preferred shares have the same voting rights
as common shares. However, preferred shareholders are often excluded from any control, that is,
deprived of the right to vote in the election of directors and on other matters, on the theory that the
preferred shareholders are merely investors in the corporation for income in the same manner as
bondholders. In fact, under the Corporation Code only preferred or redeemable shares can be
deprived of the right to vote. Common shares cannot be deprived of the right to vote in any corporate
meeting, and any provision in the articles of incorporation restricting the right of common
shareholders to vote is invalid.

Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term capital in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred shares also have the right to
vote in the election of directors, then the term capital shall include such preferred shares because the
right to participate in the control or management of the corporation is exercised through the right to
vote in the election of directors. In short, the term capital in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the election of directors. This interpretation is consistent
with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control
and management of public utilities.
Topic: Incorporation and Organization Proper (Other Cases))

Case No. 164

MARSH THOMSON vs. COURT OF APPEALS and THE AMERICAN CHAMBER OF COMMERCE OF THE
PHILIPPINES, INC.
G.R. No. 116631kOctober 28, 1998

Facts:

Marsh Thomson was the Executive Vice-President and, later on, the Management Consultant of
private respondent, the American Chamber of Commerce of the Philippines, Inc. for over ten years,
1979-1989. While petitioner was still working with private respondent, his superior, A. Lewis Burridge,
retired as AmChams President.Before Burridge decided to return to his home country, he wanted to
transfer his proprietary share in the Manila Polo Club (MPC) to petitioner. However, through the
intercession of Burridge, private respondent paid for the share but had it listed in petitioner’s name.

On April 25, 1986, Burridge transferred said proprietary share to petitioner, as confirmed in a letter of
notification to the Manila Polo Club. Upon his admission as a new member of the MPC, petitioner paid
the transfer fee from his own funds; but private respondent subsequently reimbursed this amount. On
November 19, 1986, MPC issued Proprietary Membership Certificate Number 3398 in favor of
petitioner. But petitioner, however, failed to execute a document recognizing private respondent’s
beneficial ownership over said share.

Following AmChams policy and practice, there was a yearly renewal of employment contract between
the petitioner and private respondent. When petitioners contract of employment was up for renewal
in 1989, he notified private respondent that he would no longer be available as Executive Vice
President after September 30, 1989. Still, the private respondent asked the petitioner to stay on for
another six (6) months. Petitioner indicated his acceptance of the consultancy arrangement. Private
respondent rejected petitioners counter-proposal.

On April 5, 1990, private respondent, through counsel sent a letter to the petitioner demanding the
return and delivery of the MPC share which it (AmCham) owns and placed in your name. Failing to get
a favorable response, private respondent filed on May 15, 1990, a complaint against petitioner
praying, inter alia, that the Makati Regional Trial Court render judgment ordering Thomson to return
the Manila Polo Club share to the plaintiff and transfer said share to the nominee of plaintiff. The trial
court promulgated its decision in favor of the petitioner, however, it was reversed by the CA.

Issue:

Whether or not the transfer of said share to the appellants nominee would be disapproved by the
MPC, is a matter that should be raised at the proper time, which is only if such transfer is disapproved
by the MPC.

Held:

No. The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its
members. The Club only restricts membership to deserving applicants in accordance with its rules,
when the amended Articles of Incorporation states that: No transfer shall be valid except between the
parties and shall be registered in the Membership Book unless made in accordance with these Articles
and the By-Laws. Thus, as between parties herein, there is no question that a transfer is
feasible. Moreover, authority granted to a corporation to regulate the transfer of its stock does not
empower it to restrict the right of a stockholder to transfer his shares, but merely authorizes the
adoption of regulations as to the formalities and procedure to be followed in effecting transfer.

In this case, the petitioner was the nominee of the private respondent to hold the share and enjoy the
privileges of the club. But upon the expiration of petitioner’s employment as officer and consultant of
AmCham, the incentives that go with the position, including use of the MPC share, also ceased to
exist. It now behooves petitioner to surrender said share to private respondents next nominee,
another natural person. Obviously, this arrangement of trust and confidence cannot be defeated by
the petitioner’s citation of the MPC rules to shield his untenable position, without doing violence to
basic tenets of justice and fair dealing.

However, we still have to ascertain whether the rights of herein parties to the trust still subsist. It has
been held that so long as there has been no denial or repudiation of the trust, the possession of the
trustee of an express and continuing trust is presumed to be that of the beneficiary, and the statute
of limitations does not run between them. With regard to a constructive or a resulting trust, the
statute of limitations does not begin to run until the trustee clearly repudiates or disavows the trust
and such disavowal is brought home to the other party, cestui que trust. The statute of limitations runs
generally from the time when the act was done by which the party became chargeable as a trustee by
operation of law or when the beneficiary knew that he had a cause of action, in the absence of fraud
or concealment.
Topic: Incorporation and Organization Proper (Other Cases)

Case No. 183

SANTIAGO ESLABAN, JR. vs. CLARITA VDA. DE ONORIO

G.R. No. 146062, June 28, 2001

Facts:

Clarita Vda. de Enorio is the owner of a lot in Barangay M. Roxas, Sto. Nio, South Cotabato. On October
6, 1981, Santiago Eslaban, Jr., Project Manager of the NIA, approved the construction of the main
irrigation canal of the NIA on the said lot, affecting a 24,660 square meter portion
thereof. Respondents husband agreed to the construction of the NIA canal provided that they be paid
by the government for the area taken after the processing of documents by the Commission on Audit.

Sometime in 1983, a Right-of-Way agreement was executed between respondent and the NIA. The NIA
then paid respondent the amount of P4,180.00 as Right-of-Way damages. Respondent subsequently
executed an Affidavit of Waiver of Rights and Fees whereby she waived any compensation for
damages to crops and improvements which she suffered as a result of the construction of a right-of-
way on her property. The same year, petitioner offered respondent the sum of P35,000.00 by way of
amicable settlement pursuant to Executive Order No. 1035.

Respondent demanded payment for the taking of her property, but petitioner refused to pay.
Accordingly, respondent filed a complaint against petitioner before the Regional Trial Court.
Petitioner, through the Office of the Solicitor-General, filed an Answer.

On October 18, 1993, the trial court rendered a decision in favor of plaintiff and against the defendant.
On appeal, it affirms the the RTC.

Issue:

Whether or not Santiago Eslaban, Jr. is authorized to sign the Certificate of Non-forum shopping.

Held:

No. Rule 7, 5 of the 1997 Revised Rules on Civil Procedure provides:

Certification against forum shopping. The plaintiff or principal party shall certify under
oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn
certification annexed thereto and simultaneously filed therewith: (a) that he has not
theretofore commenced any action or filed any claim involving the same issues in any
court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other
action or claim is pending therein; (b) if there is such other pending action or claim, a
complete statement of the present status thereof; and (c) if he should thereafter learn
that the same or similar action or claim has been filed or is pending, he shall report the
fact within five (5) days therefrom to the court wherein his aforesaid complaint or
initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice,
unless otherwise provided, upon motion and after hearing . . . .
By reason of Rule 45, 4 of the 1997 Revised Rules on Civil Procedure, in relation to Rule 42, 2 thereof,
the requirement of a certificate of non-forum shopping applies to the filing of petitions for review on
certiorari of the decisions of the Court of Appeals, such as the one filed by petitioner.

As provided in Rule 45, 5, The failure of the petitioner to comply with any of the foregoing
requirements regarding . . . the contents of the document which should accompany the petition shall
be sufficient ground for the dismissal thereof.

The requirement in Rule 7, 5 that the certification should be executed by the plaintiff or the principal
means that counsel cannot sign the certificate against forum-shopping. The reason for this is that the
plaintiff or principal knows better than anyone else whether a petition has previously been filed
involving the same case or substantially the same issues. Hence, a certification signed by counsel alone
is defective and constitutes a valid cause for dismissal of the petition.

In this case, the petition for review was filed by Santiago Eslaban, Jr., in his capacity as Project Manager
of the NIA. However, the verification and certification against forum-shopping were signed by Cesar
E. Gonzales, the administrator of the agency. The real party-in-interest is the NIA, which is a body
corporate. Without being duly authorized by resolution of the board of the corporation, neither
Santiago Eslaban, Jr. nor Cesar E. Gonzales could sign the certificate against forum-shopping
accompanying the petition for review. Hence, on this ground alone, the petition should be dismissed.
Topic: Corporate Powers (Power to acquire own shares)

Case No. 202

PHILIP TURNER and ELNORA TURNER vs. LORENZO SHIPPING CORPORATION

G.R. No. 157479, November 24, 2010

Facts:

The petitioners held 1,010,000 shares of stock of the respondent, a domestic corporation engaged
primarily in cargo shipping activities. In June 1999, the respondent decided to amend its articles of
incorporation to remove the stockholder’s pre-emptive rights to newly issued shares of stock. Feeling
that the corporate move would be prejudicial to their interest as stockholders, the petitioners voted
against the amendment and demanded payment of their shares at the rate of P2.276/share based on
the book value of the shares, or a total of P2,298,760.00.

The respondent found the fair value of the shares demanded by the petitioners unacceptable. The
disagreement on the valuation of the shares led the parties to constitute an appraisal committee
pursuant to Section 82 of the Corporation Code, each of them nominating a representative.
On October 27, 2000, the appraisal committee reported its valuation of P2.54/share, for an aggregate
value of P2,565,400.00 for the petitioners. Subsequently, the petitioners demanded payment based
on the valuation of the appraisal committee, plus 2%/month.

In its letter to the petitioners dated January 2, 2001, the respondent refused the petitioners demand.
Upon the respondent’s refusal to pay, the petitioners sued the respondent for collection and damages
in the RTC in Makati City. Nevertheless, because the principal office of the respondent was in
Manila, was ultimately transferred to Branch 46 of the RTC in Manila.

Issue:

Whether or not a corporation had the power to acquire or purchase its own stocks.

Held:

Yes. In England, it was held invalid for a corporation to purchase its issued stocks because such
purchase was an indirect method of reducing capital (which was statutorily restricted), aside from
being inconsistent with the privilege of limited liability to creditors. Only a few American jurisdictions
adopted by decision or statute the strict English rule forbidding a corporation from purchasing its own
shares. In some American states where the English rule used to be adopted, statutes granting
authority to purchase out of surplus funds were enacted, while in others, shares might be purchased
even out of capital provided the rights of creditors were not prejudiced. The reason underlying the
limitation of share purchases sprang from the necessity of imposing safeguards against the depletion
by a corporation of its assets and against the impairment of its capital needed for the protection of
creditors.

Now, however, a corporation can purchase its own shares, provided payment is made out of surplus
profits and the acquisition is for a legitimate corporate purpose. In the Philippines, this new rule is
embodied in Section 41 of the Corporation Code, to wit:
 Section 41. Power to acquire own shares. - A stock corporation shall have the
power to purchase or acquire its own shares for a legitimate corporate purpose or
purposes, including but not limited to the following cases: Provided, That the
corporation has unrestricted retained earnings in its books to cover the shares to be
purchased or acquired:

1. To eliminate fractional shares arising out of stock dividends;

2. To collect or compromise an indebtedness to the corporation, arising out of unpaid

subscription, in a delinquency sale, and to purchase delinquent shares sold during said
sale; and

3. To pay dissenting or withdrawing stockholders entitled to payment for their shares

under the provisions of this Code.

The Corporation Code defines how the right of appraisal is exercised, as well as the implications
of the right of appraisal, as follows:

1. The appraisal right is exercised by any stockholder who has voted against the
proposed corporate action by making a written demand on the corporation within
30 days after the date on which the vote was taken for the payment of the fair
value of his shares. The failure to make the demand within the period is deemed a
waiver of the appraisal right.

2. If the withdrawing stockholder and the corporation cannot agree on the fair value
of the shares within a period of 60 days from the date the stockholders approved
the corporate action, the fair value shall be determined and appraised by three
disinterested persons, one of whom shall be named by the stockholder, another
by the corporation, and the third by the two thus chosen. The findings and award
of the majority of the appraisers shall be final, and the corporation shall pay their
award within 30 days after the award is made. Upon payment by the corporation
of the agreed or awarded price, the stockholder shall forthwith transfer his or her
shares to the corporation.

3. All rights accruing to the withdrawing stockholders shares, including voting and
dividend rights, shall be suspended from the time of demand for the payment of
the fair value of the shares until either the abandonment of the corporate action
involved or the purchase of the shares by the corporation, except the right of such
stockholder to receive payment of the fair value of the shares.

4. Within 10 days after demanding payment for his or her shares, a dissenting
stockholder shall submit to the corporation the certificates of stock representing
his shares for notation thereon that such shares are dissenting shares. A failure to
do so shall, at the option of the corporation, terminate his rights under this Title X
of the Corporation Code. If shares represented by the certificates bearing such
notation are transferred, and the certificates are consequently canceled, the rights
of the transferor as a dissenting stockholder under this Title shall cease and the
 transferee shall have all the rights of a regular stockholder; and all dividend
distributions that would have accrued on such shares shall be paid to the
transferee.

5. If the proposed corporate action is implemented or effected, the corporation shall

pay to such stockholder, upon the surrender of the certificates of stock
representing his shares, the fair value thereof as of the day prior to the date on
which the vote was taken, excluding any appreciation or depreciation in
anticipation of such corporate action.

Notwithstanding the foregoing, no payment shall be made to any dissenting stockholder unless the
corporation has unrestricted retained earnings in its books to cover the payment. In case the
corporation has no available unrestricted retained earnings in its books, Section 83 of the Corporation
Code provides that if the dissenting stockholder is not paid the value of his shares within 30 days after
the award, his voting and dividend rights shall immediately be restored.

The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the
payment of the shares of stocks of the withdrawing stockholders. Under the doctrine, the capital
stock, property, and other assets of a corporation are regarded as equity in trust for the payment of
corporate creditors, who are preferred in the distribution of corporate assets. The creditors of a
corporation have the right to assume that the board of directors will not use the assets of the
corporation to purchase its own stock for as long as the corporation has outstanding debts and
liabilities. There can be no distribution of assets among the stockholders without first paying
corporate debts. Thus, any disposition of corporate funds and assets to the prejudice of creditors is
null and void.
Topic: Corporate Powers (Ultra Vires Act)

Case No. 221

IRINEO G. CARLOS vs. MINDORO SUGAR CO., ET AL.

G.R. No. L-36207, October 26, 1932

Facts:

The Mindoro Sugar Company is a corporation constituted in accordance with the laws of the country
and registered on July 30, 1917. According to its articles of incorporation, one of its principal purposes
was to acquire and exercise the franchise granted by Act No. 2720 to George H. Fairchild, to substitute
the organized corporation, the Mindoro Company, and to acquire all the rights and obligations of the
latter and of Horace Havemeyer and Charles J. Welch in the so-called San Jose Estate in the Province
of Mindoro.

The Philippine Trust Company is another domestic corporation, registered on October 21, 1917. In its
articles of incorporation, some of its purposes are expressed thus: "To acquire by purchase,
subscription, or otherwise, and to invest in, hold, sell, or otherwise dispose of stocks, bonds,
mortgages, and other securities, or any interest in either, or any obligations or evidences of
indebtedness, of any other corporation or corporations, domestic or foreign.

In pursuance of this resolution, the Mindoro Sugar Company executed in favor of the Philippine Trust
Company the deed of trust transferring all of its property to it in consideration of the bonds it had
issued to the value of P3,000,000.

The Philippine Trust Company sold thirteen bonds, Nos. 1219 to 1231, to Ramon Diaz for P27,300, at a
net profit of P100 per bond. The four bonds Nos. 1219, 1220, 1221, and 1222, here in litigation, are
included in the thirteen sold to Diaz. The Philippine Trust Company paid the appellant, upon
presentation of the coupons, the stipulated interest from the date of their maturity until the 1st of July
1928, when it stopped payments; and thenceforth it alleged that it did not deem itself bound to pay
such interest or to redeem the obligation because the guarantee given for the bonds was illegal and
void.

Issue:

Whether or not Philippine Trust Company bound itself legally and acted within its corporate powers in
guaranteeing the four bonds in question.

Held:

Yes. The Philippine Trust Company has full powers to acquire personal property such as the bonds in
question. Being authorized to acquire the bonds, it was given implied power to guarantee them in
order to place them upon the market under better, more advantageous conditions, and thereby
secure the profit derived from their sale. It is not, however, ultra vires for a corporation to enter into
contracts of guaranty or suretyship where it does so in the legitimate furtherance of its purposes and
business. And it is well settled that where a corporation acquires commercial paper or bonds in the
legitimate transaction of its business it may sell them, and in furtherance of such a sale it may, in order
to make them the more readily marketable, indorse or guarantee their payment.

Guaranties of payment of bonds taken by a loan and trust company in the ordinary course of its
business, made in connection with their sale, are not ultra vires, and are binding.
Topic: Board of Directors and Trustees (Qualification /Qualifying share)

Case No. 240

RAMON C. LEE and ANTONIO DM. LACDAO vs. THE HON. COURT OF APPEALS, SACOBA
MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES
G.R. No. 93695, February 4, 1992

Facts:

A complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private
respondents who, in turn, filed a third party complaint against ALFA and the petitioners. The trial court
denied the motion to dismiss the 3rd party complaint filed by petitioners and ordered the respondents
to serve summons to ALFA. Initially the summons was served to ALFA through the DBP as a
consequence of the petitioner's letter informing the court that the summons for ALFA was
erroneously served upon them considering that the management of ALFA had been transferred to the
DBP. On the other hand, the DBP claimed that it was not authorized to receive summons on behalf of
ALFA since the DBP had not taken over the company which has a separate and distinct corporate
personality and existence. Private respondents filed a Manifestation and Motion for the Declaration
of Proper Service of Summons which the trial court granted, and which was opposed by the petitioners
contending that there was improper service of summons because they were no longer officers of ALFA
by virtue of a voting trust agreement.

Issue:

Whether or not the petitioners are correct.

Held:

Yes. The petitioners argue that by virtue of the voting trust agreement the petitioners can no longer
be considered directors of ALFA. They cited that to be directors, the Corporation Code requires that it
must own at least 1 one (1) share of the capital stock of the corporation of which he is a director which
share shall stand in his name on the books of the corporation. The voting trust agreement effectively
transferred to DBP, as the trustee, legal ownership of the stock covered by the agreement and the
latter became the stockholder of record with respect to the said shares of stocks. Since the petitioners
no longer had in their names even a single share in the corporation, they ceased to be qualified as
directors, hence they are no longer authorized to receive summons. Being so, the service of summons
upon the petitioners was invalid.
Topic: Corporate Powers (Authority of the Board of Directors)

Case No. 259

BA SAVINGS BANK vs. ROGER T. SIA, TACIANA U. SIA and JOHN DOE
G.R. No. 131214, July 27, 2000

Facts:

A petition for certiorari was filed by herein petitioner bank. However, the CA denied due course the
same on the ground that the certificate of non-forum shopping was signed by a lawyer. A Motion for
Reconsideration was subsequently filed by the petitioner, attached to which was a BA Savings Bank
Corporate Secretary’s Certificate. The Certificate showed that the petitioner’s Board of Directors
approved a Resolution on May 21, 1996, authorizing the petitioner’s lawyers to represent it in any
action or proceeding before any court, tribunal or agency; and to sign, execute and deliver the
Certificate of Non-forum Shopping, among others. Said motion was denied on the ground that
Supreme Court Revised Circular No. 28-91 requires that it is the petitioner, not the counsel, who must
certify under oath to all of the facts and undertakings required therein.

Issue:

Whether or not the board of directors has authority to exercise corporate power.

Held:

Yes. A corporation exercises powers through its board of directors and/or its duly authorized officers
and agents. Physical acts, like the signing of documents, can be performed only by natural persons
duly authorized for the purpose by corporate bylaws or by a specific act of the board of directors. In
this case, the corporation’s board of directors issued a Resolution specifically authorizing its lawyers
“to act as their agents in any action or proceeding before the Supreme Court, the Court of Appeals, or
any other tribunal or agency and to sign, execute and deliver in connection therewith the necessary
pleadings, motions, verification, affidavit of merit, certificate of non-forum shopping and other
instruments necessary for such action and proceeding.” The Resolution was sufficient to vest such
persons with the authority to bind the corporation and was specific enough as to the acts they were
empowered to do.

Circular 28-91 requires the parties themselves to sign the certificate of non-forum shopping. However,
such requirement cannot be imposed on artificial persons, like corporations, for the simple reason that
they cannot personally do the task themselves. In this case, the corporation very well exercised its
power to authorize a representative to act on its behalf.
Topic: Corporate Powers (Qualification and Disqualification; Authority and Liabilities)

Case No. 278

SALOME PABON and VICENTE CAMONAYAN vs. NATIONAL LABOR RELATIONS COMMISSION and
SENIOR MARKETING CORPORATION
G.R. No. 120457, September 24, 1998

Facts:

On May 24, 1994 and June 22, 1994, complaints for illegal dismissal and non-payment of benefits were
filed by petitioners Salome Pabon and Vicente Camonayan against private respondent Senior
Marketing Corporation (SMC) and its Field Manager, R-Jay Roxas Summons and notices of hearings
were sent to Roxas at private respondent's provincial office in 13 Valley Homes, Patul Road, Santiago,
Isabela which were received by its bookkeeper, Mina Villanueva.

On September 15, 1994, the Labor Arbiter rendered a judgment by default after finding that private
respondent tried to evade all the summons and orders of hearing by refusing to claim all the registered
mail addressed to it.

Issue:

Whether or not Petitioners herein are authorized to receive summons in behalf of the corporation.

Held:

Yes. Bookkeeper can be considered as an agent of private respondent corporation within the purview
of Section 13, Rule 14 of the old Rules of Court. The rationale of all rules with respect to service of
process on a corporation is that such service must be made to an agent or a representative so
integrated with the corporation sued as to make it a priori supposable that he will realize his
responsibilities and know what he should do with any legal papers served on him. The bookkeeper's
task is one under consideration. The job of a bookkeeper is so integrated with the corporation that his
regular recording of the corporation's "business accounts" and "essential facts about the transactions
of a business or enterprise" safeguards the corporation from possible fraud being committed adverse
to its own corporate interest.

Although it may be true that the service of summons was made on a person not authorized to receive
the same in behalf of the petitioner, nevertheless since it appears that the summons and complaint
were in fact received by the corporation through its said clerk, the Court finds that there was
substantial compliance with the rule on service of summons. Indeed, the purpose of said rule as above
stated to assure service of summons on the corporation had thereby been attained. The need for
speedy justice must prevail over technicality.
Topic: Corporate Powers (Other Cases)

Case No. 297

NECTARINA S. RANIEL and MA. VICTORIA R. PAG-ONG vs. PAUL JOCHICO, JOHN STEFFENS and
SURYA VIRIYA
G.R. No. 153413, March 1, 2007
Facts:

Petitioners first questioned their removal in SEC Case for Declaration of Nullity of the Illegal Acts of
Respondents, Damages and Injunction. Petitioners, together with respondents Paul Jochico,
John Steffens and Surya Viriya, were incorporators and directors of Nephro, with Raniel acting as
Corporate Secretary and Administrator. The conflict started when petitioners questioned
respondents' plan to enter into a joint venture with the Butuan Doctors' Hospital and College,
Inc. Because of this, petitioners claim that respondents tried to compel them to waive and assign their
shares with Nephro but they refused. Thereafter, Raniel sought an indefinite leave of absence due to
stress, but this was denied by Jochico, as Nephro President. Raniel, nevertheless, did not report for
work, causing Jochico to demand an explanation from her why she should not be removed as
Administrator and Corporate Secretary. Raniel replied, expressing her sentiments over the disapproval
of her request for leave and respondents' decision with regard to the Butuan venture.

On January 30, 1998, Jochico issued a Notice of Special Board Meeting on February 2, 1998. Despite
receipt of the notice, petitioners did not attend the board meeting. In said meeting, the Board passed
several resolutions ratifying the disapproval of Raniel's request for leave, dismissing her as
Administrator of Nephro, declaring the position of Corporate Secretary vacant. Otelio Jochico issued
the corresponding notices for the Special Stockholders' Meeting to be held on February 16, 1998 which
were received by petitioners on February 2, 1998. Again, they did not attend the meeting. The
stockholders who were present removed the petitioners as directors of Nephro. Thus, petitioners filed
SEC Case No. 02-98-5902.

Issue:

Whether or not the removal of the petitioner in the corporation is valid.

Held:

Yes. A corporation exercises its powers through its board of directors and/or its duly
authorized officers and agents, except in instances where the Corporation Code requires stockholders
approval for certain specific acts.

Based on Section 23 of the Corporation Code which provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in

this Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled and
held by the board of directors or trustees x x x.
A corporation’s board of directors is understood to be that body which (1) exercises all powers
provided for under the Corporation Code; (2) conducts all business of the corporation; and (3) controls
and holds all property of the corporation. Its members have been characterized as trustees
or directors clothed with a fiduciary character. Moreover, the directors may appoint officers and
agents and as incident to this power of appointment, they may discharge those appointed.

In this case, petitioner Raniel was removed as a corporate officer through the resolution of Nephro's
Board of Directors adopted in a special meeting on February 2, 1998. As correctly ruled by the SEC,
petitioners' removal was a valid exercise of the powers of Nephro's Board of Directors.

Petitioners Raniel and Pag-ong's removal as members of Nephro's Board of Directors was
likewise valid.

Only stockholders or members have the power to remove the directors or trustees elected by
them, as laid down in Section 28 of the Corporation Code, which provides in part:

SEC. 28. Removal of directors or trustees. -- Any director or trustee of a

corporation may be removed from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the outstanding capital stock, or if the
corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of the
members entitled to vote: Provided, that such removal shall take place either at a
regular meeting of the corporation or at a special meeting called for the purpose, and
in either case, after previous notice to stockholders or members of the corporation of
the intention to propose such removal at the meeting. A special meeting of the
stockholders or members of a corporation for the purpose of removal of directors or
trustees or any of them, must be called by the secretary on order of the president or
on the written demand of the stockholders representing or holding at least a majority
of the outstanding capital stock, or if it be a non-stock corporation, on the written
demand of a majority of the members entitled to vote. x x x Notice of the time and
place of such meeting, as well as of the intention to propose such removal, must be
given by publication or by written notice as prescribed in this Code. x x x Removal may
be with or without cause: Provided, that removal without cause may not be used to
deprive minority stockholders or members of the right of representation to which they
may be entitled under Section 24 of this Code.
Topic: Three-Fold Duties of Directors and Officers (Personal Liability of Directors and other Corporate
Officers)
Case No. 316

ARMANDO DAVID vs. NFLU, MARIVELES APPAREL CORPORATION LABOR UNION

GR 148263, 148271-72, April 21, 2009

Facts:

MAC hired David as IMPEX and Treasury Manager on 16 September 1988. David began serving as MAC's
President in May 1990. David served as President in the nature of a nominee as he did not own any of
MAC's shares. David tendered his irrevocable resignation from MAC on 30 September 1993. David's
resignation was made effective on 15 October 1993.

In a complaint for illegal dismissal dated 12 August 1993, National Federation of Labor Unions (NAFLU)
and Mariveles Apparel Corporation Labor Union (MACLU) alleged that MAC ceased operations on 8
July 1993 without prior notice to its employees. MAC allegedly gave notice of its closure on the same
day that it ceased operations. MACLU and NAFLU further alleged that, at the time of MAC's closure,
employees who had rendered one to two weeks work were not paid their corresponding salaries.

Atty. Joshua Pastores, as MAC's counsel, submitted a position paper dated 21 February 1994 and
argued that Carag and David should not be held liable because MAC is owned by a consortium of banks.
Carag's and David's ownership of MAC shares only served to qualify them to serve as officers in MAC.

Issue:

Whether or not David may be held liable for the illegal dismissal of MAC employees.

Held:

No. It is improper to hold David liable for MAC's obligations to its employees. However, Article 212(e)
of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the
corporation because Section 31 of the Corporation Code is still the governing law on personal liability
of officers for the debts of the corporation. Section 31 of the Corporation Code provides: 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.

There was no showing of David willingly and knowingly voting for or assenting to patently unlawful
acts of the corporation, or that David was guilty of gross negligence or bad faith.

Also, the NLRC never gained jurisdiction over David for there was an invalid service of summons.
Topic: Three-Fold Duties of Directors and Officers (Personal Liability of Directors and other Corporate
Officers)

Case No. 335

BENJAMIN A. SANTOS vs. NATIONAL LABOR RELATIONS COMMISSION

G.R. No. 101699, March 13, 1996

Facts:

Private respondent was hired to be the project accountant for MMDCs mining operations in Gatbo,
Bacon, Sorsogon. On 12 August 1986, private respondent sent to Mr. Gil Abao, the MMDC corporate
treasurer, a memorandum calling the latters attention to the failure of the company to comply with
the withholding tax requirements of, and to make the corresponding monthly remittances to the
Bureau of Internal Revenue (BIR) on account of delayed payments of accrued salaries to the
company’s laborers and employees.

In a letter, dated 08 September 1986, Abano advised private respondent to resign from the
corporation. Private respondent expressed shock over the termination of his employment. He
complained that he would not have resigned from the Sycip, Gorres & Velayo accounting firm, where
he was already a senior staff auditor, had it not been for the assurance of a continuos job by MMDCs
Engr. Rodillano E. Velasquez. Private respondent requested that he be reimbursed the advances he
had made for the company and be paid his accrued salaries/claims.

The claim was not heeded, hence, private respondent filed with the NLRC Regional Arbitrationa
complaint for illegal dismissal, unpaid salaries, 13th month pay, overtime pay, separation pay, and
incentive leave pay against MMDC and its two top officials. On 27 July 1988, Labor Arbiter Fructouso
T. Aurellano, finding no valid cause for terminating complainant’s employment.

Issue:

Whether or not petitioner is solidarily liable with MMDC even in the absence of bad faith and malice
on his part.

Held:

No. 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. The rule is that obligations incurred by
the corporation, acting through its directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to
warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate
veil. As a rule, this situation might arise when a corporation is used to evade a just and due obligation
or to justify a wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable aims or
intentions, or as a subterfuge to commit injustice and so circumvent the law. In Tramat Mercantile, Inc.,
vs. Court of Appeals, the Court has collated the settled instances when, without necessarily piercing
the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate
director, trustee or officer; to wit: When
 (1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;
(2) He consents to the issuance of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
(3) He agrees to hold himself personally and solidarily liable with the corporation; or
(4) He is made, by a specific provision of law, to personally answer for his corporate action.

The case of petitioner is way off these exceptional instances. It is not even shown that petitioner has
had a direct hand in the dismissal of private respondent enough to attribute to him (petitioner) a
patently unlawful act while acting for the corporation. Neither can Article 289 of the Labor Code be
applied since this law specifically refers only to the imposition of penalties under the Code. It is
undisputed that the termination of petitioner’s employment has, instead, been due, collectively, to
the need for a further mitigation of losses, the onset of the rainy season, the insurgency problem in
Sorsogon and the lack of funds to further support the mining operation in Gatbo.
Topic: Three-Fold Duties of Directors and Officers (Contracts between corporations and interlocking
directors)

Case No. 354

DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS, REMINGTON INDUSTRIAL

SALES
GR 126200, August 16, 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 takeover of PNB and DBP over Marinduque Mining is in bad faith.

Held:

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.
Topic: Three-Fold Duties of Directors and Officers (Other Cases)

Case No. 373

HARPOON MARINE SERVICES, Inc. and JOSE LIDO T. ROSIT vs. FERNAN H. FRANCISCO
G.R. No. 167751, March 2, 2011

Facts:

Respondent averred that he was unceremoniously dismissed by petitioner Rosit. He was informed that
the company could no longer afford his salary and that he would be paid his separation pay and
accrued commissions. Respondent nonetheless continued to report for work. A few days later,
however, he was barred from entering the company premises. Relying on the promise of petitioner
Rosit, respondent went to the office on June 30, 2001 to receive his separation pay and commissions,
but petitioner Rosit offered only his separation pay. Respondent refused to accept it and also declined
to sign a quitclaim. After several unheeded requests, respondent, through his counsel, sent a demand
letter dated September 24, 2001 to petitioners asking for payment of P70,000.00, which represents
his commissions for the seven boats constructed and repaired by the company under his supervision.
In a letter-reply dated September 28, 2001, petitioners denied that it owed respondent any
commission, asserting that they never entered into any contract or agreement for the payment of
commissions. Hence, on October 24, 2001, respondent filed an illegal dismissal complaint praying for
the payment of his backwages, separation pay, unpaid commissions, moral and exemplary damages
and attorney’s fees.

Issue:

Whether or not the President is solidarily liable with the corporation.

Held:

No. Though the Court found that Respondent was illegally dismissed, it held that the President of the
Petitioner Corporation should not be held solidarily liable with Petitioner Corporation. Obligations
incurred by corporate officers, acting as such corporate agents, are not theirs but the direct
accountabilities of the corporation they represent. Thus, they should not be generally held jointly and
solidarily liable with the corporation. The general rule is grounded on the theory that a corporation
has a legal personality separate and distinct from the persons comprising it.

As exceptions to the general rule, solidary liability may be imposed: (1) When directors and trustees
or, in appropriate cases, 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; (2) When the director or officer has consented to the issuance of watered stock
or who, having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto; (3) When a director, trustee or officer has contractually agreed or stipulated to hold
himself personally and solidarily liable with the corporation; (4) When a director, trustee or officer is
made, by specific provision of law, personally liable for his corporate action. To warrant the piercing
of the veil of corporate fiction, the officer’s bad faith or wrongdoing must be established clearly and
convincingly as bad faith is never presumed.