Case Number 42 Manuela Vda.

De Salvatierra vs Lorenzo Garlitos 103 Phil 757 Separate and Distinct Personality When Not Applicable In 1954, Manuela Vda. De Salvatierra entered into a lease contract with Philippine Fibers Producers Co., Inc. (PFPC). PFPC was represented by its president Segundino Refuerzo. It was agreed that Manuela shall lease her land to PFPC in exchange of rental payments plus shares from the sales of crops. However, PFPC failed to comply with its obligations and so in 1955, Manuela sued PFPC and she won. An order was issued by Judge Lorenzo Garlitos of CFI Leyte ordering the execution of the judgment against Refuerzos property (there being no property under PFPC). Refuerzo moved for reconsideration on the ground that he should not be held personally liable because he merely signed the lease contract in his official capacity as president of PFPC. Garlitos granted Refuerzos motion. Manuela assailed the decision of the judge on the ground that she sued PFPC without impleading Refuerzo because she initially believed that PFPC was a legitimate corporation. However, during trial, she found out that PFPC was not actually registered with the Securities and Exchange Commission (SEC) hence Refuerzo should be personally liable. ISSUE: Whether or not Manuela is correct. HELD: Yes. It is true that as a general rule, the corporation has a personality separate and distinct from its incorporators and as such the incorporators cannot be held personally liable for the obligations of the corporation. However, this doctrine is not applicable to unincorporated associations. The reason behind this doctrine is obvioussince an organization which before the law is non-existent has no personality and would be incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. In this case, Refuerzo was the moving spirit behind PFPC. As such, his liability cannot be limited or restricted that imposed upon [would-be] corporate shareholders. In acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such transaction. Case Number 48 Republic Planters vs Court of Appeals 216 SCRA 738 Liability of Officers Exception Change of Corporate Name In 1979, World Garment Manufacturing (WGM), through its board authorized Shozo Yamaguchi (president) and Fermin Canlas (treasurer) to obtain credit facilities from Republic Planters Bank (RPB). For this, 9 promissory notes were executed. Each promissory note was uniformly written in the following manner: ___________, after date, for value received, I/we, jointly and severally promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(.) Philippine Currency Please credit proceeds of this note to: ________ Savings Account ______XX Current Account

No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP. Sgd. Shozo Yamaguchi Sgd. Fermin Canlas However, no payment was made to RPB and the latter sued (WGM) in February 1982. In December 1982, WGM changed its name to Pinch Manufacturing Corporation (PMC). The trial court ruled that Canlas as well as the other signatory of the promissory note as solidarily liable for the amount stated therein. Only Canlas appealed. He averred that he cannot be held liable solidarily because in signing the promissory note, he did so within the scope and authority granted to him by the corporate board hence he should not be liable. The Court of Appeals agreed with him. The CA also ruled that the change of name of WGM to PMC extinguished the personality of WGM and hence so is its liability. ISSUE: Whether or not the Court of Appeals is correct. HELD: No. The change of name did not create a new corporation. Nor did it render PMC the successor of WGM. There is still only one corporation to speak of here. It is the same corporation with a different name, and its character is in no respect changed. A change in the corporate name does not make a new corporation, and whether effected by special act or under a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities. The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously contracted or incurred. Anent the issue of the liability of Canlas as treasurer of WGM, it is true that as a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. However, under the Negotiable Instruments Law, agents who sign a promissory note without indicating their capacity as such and without disclosing their principal shall be held personally liable to the promissory note. No parol evidence shall be admitted to prove the agency. In this case, Canlas signed the promissorny note without indicating that he did so as agent or treasurer of WGM, hence, he is personally liable pursuant to the Negotiable Instruments Law. Case Number 54 Loyola Grand Villas Homeowners (South) Association, Inc. vs Court of Appeals 276 SCRA 681 Failure to File By-Laws In 1983, the Loyola Grand Villas Association, Inc. (LGVAI) was incorporated by the homeowners of the Loyola Grand Villas (LGV), a subdivision. The Securities and Exchange Commission (SEC) issued a certificate of incorporation under its official seal to LGVAI in the same year. LGVAI was likewise recognized by the Home Insurance and Guaranty Corporation (HIGC), a government-owned-and-controlled corporation whose mandate is to oversee associations like LGVAI. Later, LGVAI later found out that there are two homeowners associations within LGV, namely: Loyola Grand Villas Homeowners (South) Association, Inc. (LGVAI-South) and Loyola Grand Villas Homeowners (North) Association, Inc. (LGVAI-North). The two associations asserted that they have to be formed because LGVAI is inactive. When LGVAI inquired about its status with HIGC, HIGC advised that LGVAI was already terminated; that it was automatically dissolved when it failed to submit it By-Laws after it was issued a certificate of incorporation by the SEC. ISSUE: Whether or not a corporations failure to submit its by-laws results to its automatic dissolution.

HELD: No. A private corporation like LGVAI commences to have corporate existence and juridical personality from the date the Securities and Exchange Commission (SEC) issues a certificate of incorporation under its official seal. The submission of its by-laws is a condition subsequent but although it is merely such, it is a MUST that it be submitted by the corporation. Failure to submit however does not warrant automatic dissolution because such a consequence was never the intention of the law. The failure is merely a ground for dissolution which may be raised in a quo warranto proceeding. It is also worthwhile to note that failure to submit cant result to automatic dissolution because there are some instances when a corporation does not require a by-laws. Case Number 60 Ignacio Vicente vs Ambrosio Geraldez 52 SCRA 210 Delegation of Corporate Powers Compromise Agreement In 1967, HI Cement Corporation was granted authority to operate mining facilities in Bulacan. However, the areas allowed for it to explore cover areas which were also being explored by Ignacio Vicente, Juan Bernabe, and Moises Angeles. And so a dispute arose between the three and HI Cement as neither side wanted to give up their mining claims over the disputed areas. Eventually, HI Cement filed a civil case against the three. During pre-trial, the possibility of an amicable settlement was explored where HI Cement offered to purchase the areas of claims of Vicente et al at the rate of P0.90 per square meter. Vicente et al however wanted P10.00 per square meter. In 1969, the lawyers of HI Cement agreed to enter into a compromise agreement with the three whereby commissioners shall be assigned by the court for the purpose of assessing the value of the disputed areas of claim. An assessment was subsequently made pursuant to the compromise agreement and the commissioners recommended a price rate of P15.00 per square meter. One of the lawyers of HI Cement, Atty. Francisco Ventura, then notified the Board of Directors of HI Cement for the approval of the compromise agreement. But the Board disapproved the compromise agreement hence Atty. Ventura filed a motion with the court to disregard the compromise agreement. Vicente et al naturally assailed the motion. Vicente et al insisted that the compromise agreement is binding because prior to entering into the compromise agreement, the three lawyers of HI Cement declared in open court that they are authorized to enter into a compromise agreement for HI Cement; that one of the lawyers of HI Cement, Atty. Florentino Cardenas, is an executive official of HI Cement; that Cardenas even nominated one of the commissioners; that such act ratified the compromise agreement even if it was not approved by the Board. HI Cement, in its defense, averred that the lawyers were not authorized and that in fact there was no special power of attorney executed in their favor for the purpose of entering into a compromise agreement. Judge Ambrosio Geraldez ruled in favor of HI Cement. ISSUE: Whether or not a compromise agreement entered into by a lawyer purportedly in behalf of the corporation is valid without a written authority. HELD: No. Corporations may compromise only in the form and with the requisites which may be necessary to alienate their property. Under the corporation law the power to compromise or settle claims in favor of or against the corporation is ordinarily and primarily committed to the Board of Directors but such power may be delegated. The delegation must be clearly shown for as a general rule an officer or agent of the corporation has no power to compromise or settle a claim by or against the corporation, except to the extent that such power is given to him either expressly or by reasonable implication from the circumstances. In the case at bar, there was no special power of attorney authorizing the three lawyers to enter into a compromise agreement. This is even if the lawyers declared in open court that they are authorized to do so by the corporation (in this case, the transcript of stenographic notes does not show that the lawyers indeed declare such in open court). The fact that Cardenas, an officer of HI Cement, acted in effecting the compromise agreement, i.e. nominating a commissioner, does not ratify the compromise agreement. There is no showing that Cardenas act binds HI Cement;

no proof that he is authorized by the Board; no proof that there is a provision in the articles of incorporation of HI Cement that he can bind the corporation. Case Number 66 Madrigal & Company, Inc. vs Ronaldo Zamora 151 SCRA 355 Cash Dividends Madrigal & Company, Inc. (MCI) manages the business of another corporation, Rizal Cement Co., Inc. (RCC). In 1973, a labor union in MCI sought the renewal of the collective bargaining agreement (CBA). The union proposes a P200.00 monthly wage increase and an additional P100 monthly allowance. MCI refused to negotiate. Later, MCI reduced its authorized capital stocks. It then wrote a letter to the Department of Labor averring that it is incurring losses and so it will enforce a retrenchment program. The letter is however unsupported by documents and so the Department of Labor ignored it. However, MCI went on to dismiss several employees which led the labor union to sue MCI for unfair labor practices and illegal dismissal. The labor arbiter ruled in favor of the labor union. The issue reached the Office of the President. The then Presidential Assistant For Legal Affairs, Ronaldo Zamora, denied MCIs appeal. On appeal, MCI insists that it is incurring losses; that as such, it has to reduce its capitalization; that the profits it is earning are cash dividends from RCC; that under the law, dividends are the absolute property of a stockholder like MCI and cannot be compelled to share it with creditors (like the employees). ISSUE: Whether or not the dividends in this case, as understood by MCI, cannot be made available to meet its employees economic demands. HELD: No. As found by the labor arbiter, MCI is in fact making significant profits. MCIs reduction of its capitalization is simply a scheme to avoid negotiations with the labor union. It is therefore correct for the arbiter to order MCI to comply with the unions demands. It is true that cash dividends are the absolute property of the stockholders and cannot be made available for disposition to a corporations creditors. However, this should be viewed in context. This is only true in the case of corporation distributing dividends to its stockholders. If this is the case (if the dividends are still with the corporation, in this case RCC), then creditors cannot touch such dividends. But if the stockholder already receives the dividends, then it becomes a profit on the part of the stockholder hence its creditors (like the employees) can make some demands out of it. In this case, MCI is a stockholder of RCC. While RCC still has not distributed the dividends, creditors cannot demand it because such dividends are owned by stockholders like MCI. But when MCI already receives the dividends, then MCIs creditors can already demand share from the dividends because such dividends are already the profits of the stockholder/MCI. So in this case, the employees can demand their share from said profits (not strictly viewed as dividends now) by way of salary increase. Case Number 72 Lopez Realty v. Fontecha 274 SCRA 183 Other powers - to Provide Gratuity Pay for Employees Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez Gonzales is one of its majority shareholders. Sometime in 1978, Arturo Lopez submitted a proposal relative to the distribution of certain assets of petitioner corporation among its 3 main shareholders. One of the aspects of the proposal was the reduction of employees with provision for their gratuity pay.

Petitioner corporation approved 2 resolutions providing for the gratuity pay of its employees , viz: (a) Resolution No. 6, Series of 1980, passed by the stockholders in a special meeting held on September 8, 1980, resolving to set aside, twice a year, a certain sum of money for the gratuity pay of its retiring employees and to create a Gratuity Fund for the said contingency; and (b) Resolution No. 10, Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund covering the period from 1950 up to 1980. On July 28, 1981, board member and majority stockholder Teresita Lopez Marquez died. On August 17, 1981, except for Asuncion Lopez Gonzales the remaining members of the Board of Directors convened a special meeting and passed a resolution the gratuity (pay) of the employees be given as follows: (a) Those who will be laid off be given the full amount of gratuity; (b) Those who will be retained will receive 25% of their gratuity (pay) due on September 1 , 1981, and another 25% on January 1, 1982, and 50% to be retained by the office in the meantime . Private respondents, the retained employees of petitioner corporation, requested for the full payment of their gratuity pay and such was granted. At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, she objected to certain matters taken up by the board in her absence. Upon her return, she filed a derivative suit with the SEC against majority shareholder Arturo F. Lopez. The corporation had prepared the cash vouchers and checks for the third installments of gratuity pay of private respondents vouchers were cancelled by petitioner Asuncion Lopez Gonzales. Despite private respondents' repeated demands for their gratuity pay, corporation refused to pay the same. Labor Arbiter rendered judgment in favor of private respondents. On Appeal, NLRC dismissed the appeal for lack of merit. ISSUE: Whether or not public respondent acted with grave abuse of discretion in holding that private respondents are entitled to receive their gratuity pay under the assailed board resolutions dated August 17, 1951 and September 1, 1981. HELD: The conduct of petitioners after the passage of resolutions dated August, 17, 1951 and September 1, 1981, had estopped them from assailing the validity of said board resolutions. The general rule is that a corporation, through its broad of directors, should act in the manner and within the formalities, if any, prescribed by its charter or by the general law. Thus, directors must act as a body in a meeting called pursuant to the law or the corporations by-laws, otherwise, any action taken therein may be questioned by any objecting director or shareholder. Be that as it may, jurisprudence tells us that an action of the board of directors during a meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporations subsequent course of conduct. Providing gratuity pay for its employees is one of the express powers of a corporation under the Corporation Code, and cannot be considered to be ultra vires to avoid any liability arising from the resolution granting such gratuity pay.

Case Number 84 De Rossi v. NLRC 314 SCRA 245 Who is an Officer of the corporation

Armando de Rossi, an Italian citizen, was the Executive Vice-President and General Manager of private respondent, Matling Industrial and Commercial Corporation (MICC). He started work on July 1, 1985. On August 10, 1988, MICC terminated his employment. He filed with the NLRC a complaint for illegal dismissal with corresponding damages. MICC based petitioner's dismissal on the ground that the petitioner failed to secure his employment permit, grossly mismanaged the business affairs of the company, and misused corporate funds. However, petitioner argued that it was the duty of the company to secure his work permit during the term of his office, and that his termination was illegal for lack of just cause. Labor Arbiter rendered a decision in favor of petitioner. MICC appealed the decision. Petitioner filed a motion for issuance of writ of execution. Private respondents filed a counter manifestation and motion contendeing that the position of executive vice-president is an elective post, specifically provided by the corporate's by-laws. Thus, the dismissal of the petitioner was an intra-corporate matter within the jurisdiction of the Securities and Exchange Commission (SEC) and not with the Labor Arbiter or the NLRC. NLRC rendered its decision dismissing the case. However, the Commission stated that, although in its view it has jurisdiction over the case, it must yield to the Supreme Court's decisions recognizing SEC's jurisdiction over such a case. ISSUE: Whether or not SEC has jurisdiction over the complaint for illegal dismissal filed by petitioner HELD: An office is created by the charter of the corporation and the officer is elected by the directors or stockholders. . . Note that a corporate officers removal from his office is a corporate act. If such removal occasions an intra-corporate controversy, its nature is not altered by the reason or wisdom, or lack thereof, with which the Board of Directors might have in taking such action. When petitioner, as Executive Vice-President allegedly diverted company funds for his personal use resulting in heavy financial losses in the company, this matter would amount to fraud. Such fraud would be detrimental to the interest not only of the corporation but also of its members. This type of fraud encompasses controversies in a relationship within the corporation covered by the SEC jurisdiction [now with the regular courts]. Perforce, the matter would come within the area of corporate affairs and management, and such a corporate controversy would call for the adjudicative expertise of the SEC, not the Labor Arbiter or the NLRC. Case Number 84 Vasquez vs De Borja 74 Phil 560 In January 1932, De Borja entered into a contract of sale with the NVSD Co., Inc. The subject of the sale was 4,000 cavans of rice valued at Php2.10 per cavan. On behalf of the company, the contract was executed by Vasquez as the companys acting president. NVSD Co. only delivered 2,488 cavans and failed and refused despite demand to deliver the rest hence De Borja incurred damages (apparently, NVSD Co was insolvent). He then sue Vasquez for payment of damages. ISSUE: Whether or not Vasquez is liable for damages. HELD: No. Vasquez is not party to the contract as it was NVSD Co which De Borja contracted with. It is well known that a corporation is an artificial being invested by law with a personality of its own, separate and distinct from that of its stockholders and from that of its officers who manage and run its affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by them for an in its behalf. The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract did not make Vazquez principally or even subsidiarily liable for such negligence. Since it was the

corporations contract, its non fulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent liable. JUSTICE PARAS Dissenting : Vasquez as president of NVSD Co is liable for damages. Vasquez, as acting president and manager of NatividadVazquez Sabani Development Co., Inc., and with full knowledge of the then insolvent status of his company, agreed to sell to De Borja 4,000 cavans of palay. Further, NVSD Co was soon thereafter dissolved.