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[G.R. No. 113032. August 21, 1997]
WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS,
DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F.
VILLASIS, petitioners, vs. RICARDO T. SALAS, SOLEDAD SALAS-
TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE
PORFIRIO PARIAN, respondents.
D E C I S I O N
HERMOSISIMA, JR., J.:
Up for review on certiorari are: (1) the Decision September 6, 1993 and
(2) the order dated November 23, 1993 of Branch 33 of the Regional
Trial Court of Iloilo City in Criminal Cases Nos. 37097 and 37098
for estafa and falsification of a public document, respectively. The
judgment acquitted the private respondents of both charges, but
petitioners seek to hold them civilly liable.
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-
Tubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the same
family, are the majority and controlling members of the Board of
Trustees of Western Institute of Technology, Inc. (WIT, for short), a
stock corporation engaged in the operation, among others, of an
educational institution. According to petitioners, the minority
stockholders of WIT, sometime on June 1, 1986 in the principal office of
WIT at La Paz, Iloilo City, a Special Board meeting was held. In
attendance were other members of the Board including one of the
petitioners Reginald Villasis. Prior to aforesaid Special Board Meeting,
copies of notice thereof, dated May 24, 1986, were distributed to all
Board Members. The notice allegedly indicated that the meeting to be
held on June 1, 1986 included item No. 6 which states:
"Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of
Western Institute of Technology, Inc. on compensation of all officers of
the corporation."
[1]

In said meeting, the Board of Trustees passed Resolution No. 48, s.
1986, granting monthly compensation to the private respondents as
corporate officers retroactive June 1, 1985, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs.
Soledad Tubilleja (accused), it was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation for
services rendered as follows: Chairman - P9,000.00/month, Vice-
Chairman - P3,500.00/month, Corporate Treasurer - P3,500.00/month
and Corporate Secretary - P3,500.00/month, retroactive June 1, 1985
and the ten percentum of the net profits shall be distributed equally
among the ten members of the Board of Trustees. This shall amend and
superceed(sic) any previous resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of
the Board of Trustees of Western Institute of Technology, Inc. held on
March 30, 1986 is true and correct to the best of my knowledge and
belief.
(Sgd) ANTONIO S. SALAS
Corporate Secretary
[2]

A few years later, that is, on March 13, 1991, petitioners Homero
Villasis, Preston Villasis, Reginald Villasis and Dimas Enriquez filed an
affidavit-complaint against private respondents before the Office of the
City Prosecutor of Iloilo, as a result of which two (2) separate criminal
informations, one for falsification of a public document under Article
171 of the Revised Penal Code and the other for estafa under Article
315, par. 1(b) of the RPC, were filed before Branch 33 of the Regional
Trial Court of Iloilo City. The charge for falsification of public document
was anchored on the private respondents submission of WITs income
statement for the fiscal year 1985-1986 with the Securities and
Exchange Commission (SEC) reflecting therein the disbursement of
corporate funds for the compensation of private respondents based on
Resolution No. 4, series of 1986, making it appear that the same was
passed by the board on March 30, 1986, when in truth, the same was
actually passed on June 1, 1986, a date not covered by the
corporations fiscal year 1985-1986 (beginning May 1, 1985 and ending
April 30, 1986). The information for falsification of a public document
states:
The undersigned City Prosecutor accuses RICARDO T. SALAS,
SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS
and RICHARD S. SALAS (whose dates and places of birth cannot be
ascertained) of the crime of FALSIFICATION OF A PUBLC DOCUMENT,
Art. 171 of the Revised Penal Code, committed as follows:
That on or about the 10
th
day of June, 1986, in the City of Iloilo,
Philippines and within the jurisdiction of this Honorable Court, the
above-named accused, being then the Chairman, Vice-Chairman,
Treasurer, Secretary and Trustee (who later became the secretary),
respectively, of the board of trustees of the Western Institute of
Technology, Inc., a corporation duly organized and existing under the
laws of the Republic of the Philippines, conspiring and confederating
together and mutually helping one another, to better realized (sic) their
purpose, did then and there wilfully, unlawfully and criminally prepare
and execute and subsequently cause to be submitted to the Securities
and Exchange Commission an income statement of the corporation for
the fiscal year 1985-1986, the same being required to be submitted
every end of the corporation fiscal year by the aforesaid Commission
and therefore, a public document, including therein the disbursement
of the retroactive compensation of accused corporate officers in the
amount of P186,470.70, by then and there making it appear that the
basis thereof Resolution No. 4, Series of 1986 was passed by the board
of trustees on March 30, 1986, a date covered by the corporations fiscal
year 1985-1986 (i.e., from May 1, 1985 to April 30, 1986), when in truth
and in fact, as said accused well knew, no such Resolution No. 48, Series
of 1986 was passed on March 30, 1986.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22,1991.
[3]
[Underscoring ours].
The Information, on the other hand, for estafa reads:
The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR
T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S.
SALAS (whose dates and places of birth cannot be ascertained) of the
crime of ESTAFA, Art. 315, par 1(b) of the Revised Penal Code,
committed as follows:
That on or about the 1
st
day of June, 1986, in the City of Iloilo,
Philippines and within the jurisdiction of this Honorable Court, the
above-named accused, being then the Chairman, Vice-Chairman,
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Treasurer, Secretary and Trustee (who later became the secretary),
respectively, of the board of trustees of the Western Institute of
Technology, Inc., a corporation duly organized and existing under the
laws of the Republic of the Philippines, conspiring and confederating
together and mutually helping one another, to better realize their
purpose, did then and there wilfully, unlawfully and feloniously defraud
the said corporation (and its stockholders) in the following manner, to
wit: herein accused, knowing fully well that they have no sufficient,
lawful authority to disburse--- let alone violation of applicable laws and
jurisprudence, disbursed the funds of the corporation by effecting
payment of their retroactive salaries in the amount of P186,470.70 and
subsequently paying themselves every 15
th
and 30
th
of the month
starting June 15, 1986 until the present, in the amount of P19,500.00
per month, as if the same were their own, and when herein accused
were informed of the illegality of these disbursements by the minority
stockholders by way of objections made in an annual stockholders
meeting held on June 14, 1986 and every year thereafter, they refused,
and still refuse, to rectify the same to the damage and prejudice of the
corporation (and its stockholders) in the total sum of P1,453,970.79 as
of November 15, 1991.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22,1991.
[4]
[Underscoring ours]
Thereafter, trial for the two criminal cases, docketed as Criminal Cases
Nos. 37097 and 37098, was consolidated. After a full-blown hearing,
Judge Porfirio Parian handed down a verdict of acquittal on both
counts
[5]
dated September 6, 1993 without imposing any civil liability
against the accused therein.
Petitioners filed a Motion for Reconsideration
[6]
of the civil aspect of the
RTC Decision which was, however, denied in an Order dated November
23, 1993.
[7]

Hence, the instant petition.
Significantly on December 8, 1994, a Motion for Intervention, dated
December 2, 1994, was filed before this Court by Western Institute of
Technology, Inc., supposedly one of the petitioners herein, disowning
its inclusion in the petition and submitting that Atty. Tranquilino R.
Gale, counsel for the other petitioners, had no authority whatsoever to
represent the corporation in filing the petition. Intervenor likewise
prayed for the dismissal of the petition for being utterly without merit.
The Motion for Intervention was granted on January 16, 1995.
[8]

Petitioners would like us to hold private respondents civilly liable
despite their acquittal in Criminal Cases Nos. 37097 and 37098. They
base their claim on the alleged illegal issuance by private respondents
of Resolution No. 48, series of 1986 ordering the disbursement of
corporate funds in the amount of P186,470.70 representing the
retroactive compensation as of June 1, 1985 in favor of private
respondents, board members of WIT, plusP1,453,970.79 for the
subsequent collective salaries of private respondent every 15
th
and
30
th
of the month until the filing of the criminal complaints against
them on March 1991. Petitioners maintain that this grant of
compensation to private respondents is proscribed under Section 30 of
the Corporation Code. Thus, private respondents are obliged to return
these amounts to the corporation with interest.
We cannot sustain the petitioners. The pertinent section of the
Corporation Code provides:
Sec. 30. Compensation of directors.--- In the absence of any provision
in the by-laws fixing their compensation, the directors shall not receive
any compensation, as such directors, except for reasonable per
diems: Provided, however, That any such compensation (other than per
diems) may be granted to directors by the vote of the stockholders
representing at least a majority of the outstanding capital stock at a
regular or special stockholders meeting. In no case shall the total
yearly compensation of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the corporation during
the preceding year. *Underscoring ours+
There is no argument that directors or trustees, as the case may be, are
not entitled to salary or other compensation when they perform
nothing more than the usual and ordinary duties of their office. This
rule is founded upon a presumption that directors /trustees render
service gratuitously and that the return upon their shares adequately
furnishes the motives for service, without compensation
[9]
Under the
foregoing section, there are only two (2) ways by which members of the
board can be granted compensation apart from reasonable per diems:
(1) when there is a provision in the by-laws fixing their compensation;
and (2) when the stockholders representing a majority of the
outstanding capital stock at a regular or special stockholders meeting
agree to give it to them.
This proscription, however, against granting compensation to
directors/trustees of a corporation is not a sweeping rule. Worthy of
note is the clear phraseology of Section 30 which states: xxx *T+he
directors shall not receive any compensation, as such directors, xxx.
The phrase as such directors is not without significance for it delimits
the scope of the prohibition to compensation given to them for services
performed purely in their capacity as directors or trustees. The
unambiguous implication is that members of the board may receive
compensation, in addition to reasonable per diems, when they render
services to the corporation in a capacity other than as
directors/trustees.
[10]
In the case at bench, Resolution No. 48, s. 1986
granted monthly compensation to private respondents not in their
capacity as members of the board, but rather as officers of the
corporation, more particularly as Chairman, Vice-Chairman, Treasurer
and Secretary of Western Institute of Technology. We quote once more
Resolution No. 48, s. 1986 for easy reference, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs.
Soledad Tubilleja (accused), it was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation for
services rendered as follows: Chairman - P9,000.00/month, Vice-
Chairman - P3,500.00/month, Corporate Treasurer - P3,500.00/month
and Corporate Secretary -P3,500.00/month, retroactive June 1, 1985
and the ten percentum of the net profits shall be distributed equally
among the ten members of the Board of Trustees. This shall amend and
superceed(sic) any previous resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of
the Board of Trustees of Western Institute of Technology, Inc. held on
March 30, 1986 is true and correct to the best of my knowledge and
belief.
(Sgd) ANTONIO S. SALAS
Corporate Secretary
[11]
[Underscoring ours]
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Clearly, therefore , the prohibition with respect to granting
compensation to corporate directors/trustees as such under Section 30
is not violated in this particular case. Consequently, the last sentence of
Section 30 which provides:
xxx xxx. In no case shall the total yearly compensation of directors, as
such directors, exceed ten (10%) percent of the net income before
income tax of the corporation during the preceding year.
[Underscoring ours]
does not likewise find application in this case since the compensation is
being given to private respondents in their capacity as officers of WIT
and not as board members.
Petitioners assert that the instant case is a derivative suit brought by
them as minority shareholders of WIT for and on behalf of the
corporation to annul Resolution No. 48, s. 1986 which is prejudicial to
the corporation.
We are unpersuaded. A derivative suit is an action brought by minority
shareholders in the name of the corporation to redress wrongs
committed against it, for which the directors refuse to sue.
[12]
It is a
remedy designed by equity and has been the principal defense of the
minority shareholders against abuses by the majority.
[13]
Here,
however, the case is not a derivative suit but is merely an appeal on the
civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC
of Iloilo for estafa and falsification of public document. Among the
basic requirements for a derivative suit to prosper is that the minority
shareholder who is suing for and on behalf of the corporation must
allege his complaint before the proper forum that he is suing on a
derivative cause of action on behalf of the corporation and all other
shareholders similarly situated who wish to join.
[14]
This is necessary to
vest jurisdiction upon the tribunal in line with the rule that it is the
allegations in the complaint that vests jurisdiction upon the court or
quasi-judicial body concerned over the subject matter and nature of the
action.
[15]
This was not complied with by the petitioners either in their
complaint before the court a quo nor in the instant petition which, in
part, merely states that this is a petition for review on certiorari on
pure questions of law to set aside a portion of the RTC decision in
Criminal Cases Nos. 37097 and 37098
[16]
since the trial courts
judgment of acquittal failed to impose any civil liability against the
private respondents. By no amount of equity considerations, if at all
deserved, can a mere appeal on the civil aspect of a criminal case be
treated as a derivative suit.
Granting, for purposes of discussion, that this is a derivative suit as
insisted by petitioners, which it is not, the same is outrightly dismissible
for having been wrongfully filed in the regular court devoid of any
jurisdiction to entertain the complaint. The case should have been filed
with the Securities and Exchange Commission (SEC) which exercises
original and exclusive jurisdiction over derivative suits, they being intra-
corporate disputes, per Section 5(b) of P.D. No. 902-A:
In addition to the regulatory and adjudicative functions of the
Securities and Exchange Commission over corporations, partnerships
and other forms of associations registered with it as expressly granted
under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
xxx xxx xxx
b) Controversies arising out of intra-corporate or
partnership relations, between and among stockholders, members, or
associates; between any or all of them and the corporation, partnership
or association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association
and the State insofar as it concerns their individual franchise or right to
exist as such entity;
xxx xxx xxx. *Underscoring ours+
Once the case is decided by the SEC, the losing party may file a petition
for review before the Court of Appeals raising questions of fact, of law,
or mixed questions of fact and law.
[17]
It is only after the case has ran
this course, and not earlier, can it be brought to us via a petition for
review on certiorari under Rule 45 raising only pure questions of
law.
[18]
Petitioners, in pleading that we treat the instant petition as a
derivative suit, are trying to short-circuit the entire process which we
cannot here sanction.
As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098
for falsification of public document and estafa, which this petition truly
is, we have to deny the petition just the same. It will be well to quote
the respondent courts ratiocinations acquitting the private
respondents on both counts:
The prosecution wants this Court to believe and agree that there is
falsification of public document because, as claimed by the prosecution,
Resolution No. 48, Series of 1986 (Exh. 1-E-1) was not taken up and
passed during the Regular Meeting of the Board of Trustees of the
western Institute of Technology (WIT), Inc. on March 30, 1986, but on
June 1, 1986 special meeting of the same board of trustees.
This Court is reluctant to accept this claim of falsification. The
prosecution omitted to submit the complete minutes of the regular
meeting of the Board of Trustees on March 30, 1986. It only presented
in evidence Exh. C, which is page 5 or the last page of the said minutes.
Had the complete minutes (Exh. 1 consisting of five (5) pages, been
submitted, it can readily be seen and understood that Resolution No. 48,
Series of 1986 (Exh. 1-E-1) giving compensation to corporate officers,
was indeed included in Other Business, No. 6 of the Agenda, and was
taken up and passed on March 30, 1986. The mere fact of existence of
Exh. C also proves that it was passed on March 30, 1986 for Exh,. C is
a part and parcel of the whole minutes of the Board of Trustees Regular
Meeting on March 30, 1986. No better and more credible proof can be
considered other than the Minutes (Exh. 1) itself of the Regular
Meeting of the Board of Trustees on March 30, 1986. The imputation
that said Resolution No.48 was neither taken up nor passed on March
30, 1986 because the matter regarding compensation was not
specifically stated or written in the Agenda and that the words possible
implementation of said Resolution No. 48, was expressly written in the
Agenda for the Special Meeting of the Board on June 1, 1986, is
simply an implication. This evidence by implication to the mind of the
court cannot prevail over the Minutes (Exh. 1) and cannot ripen into
proof beyond reasonable doubt which is demanded in all criminal
prosecutions.
This Court finds that under the Eleventh Article (Exh. 3-D-1) of the
Articles of Incorporation (Exh. 3-B) of the Panay Educational
Institution, Inc., now the Western Institute of Technology, Inc., the
officers of the corporation shall receive such compensation as the
Board of Directors may provide. These Articles of Incorporation was
adopted on May 17, 1957 (Exh. 3-E). The Officers of the corporation
and their corresponding duties are enumerated and stated in Sections
1, 2, 3 and 4 of Art. III of the Amended By-Laws of the Corporation (Exh.
4-A) which was adopted on May 31, 1957. According to Sec. 6, Art. III
of the same By-Laws, all officers shall receive such compensation as
may be fixed by the Board of Directors.
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It is the perception of this Court that the grant of compensation or
salary to the accused in their capacity as officers of the corporation,
through Resolution No. 48, enacted on March 30, 1986 by the Board of
Trustees, is authorized by both the Articles of Incorporation and the By-
Laws of the Corporation. To state otherwise is to depart from the clear
terms of the said articles and by-laws. In their defense the accused have
properly and rightly asserted that the grant of salary is not for directors,
but for their being officers of the corporation who oversee the day to
day activities and operations of the school.
xxx xxx xxx
xxx [O]n the question of whether or not the accused can be held liable
for estafa under Sec. 1 (b) of Art. 315 of the Revised Penal Code, it is
perceived by this Court that the receipt and the holding of the money by
the accused as salary on basis of the authority granted by the Articles
and By-Laws of the corporation are not tainted with abuse of
confidence. The money they received belongs to them and cannot be
said to have been converted and/or misappropriated by them.
xxx xxx xxx.
[19]
[Underscoring ours]
From the foregoing factual findings, which we find to be amply
substantiated by the records, it is evident that there is simply no basis
to hold the accused, private respondents herein, civilly liable. Section
2(b) of Rule 111 on the New Rules on Criminal Procedure provides:
SEC. 2. Institution of separate civil action.
xxx xxx xxx
(b) Extinction of the penal action does not carry with it extinction of the
civil, unless the extinction proceeds from a declaration in a final
judgment that the fact from which the civil might arise did not
exist. [Underscoring ours]
Likewise, the last paragraph of Section 2, Rule 120 reads:
SEC. 2. Form and contents of judgment.
xxx xxx xxx
In case of acquittal, unless there is a clear showing that the act from
which the civil liability might arise did not exist, the judgment shall
make a finding on the civil liability of the accused in favor of the
offended party. *Underscoring ours+
The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely
based on reasonable doubt but rather on a finding that the accused-
private respondents did not commit the criminal acts complained of.
Thus, pursuant to the above rule and settled jurisprudence, any civil
action ex delicto cannot prosper. Acquittal in a criminal action bars the
civil action arising therefrom where the judgment of acquittal holds that
the accused did not commit the criminal acts imputed to them.
[20]

WHEREFORE, the instant petition is hereby DENIED with costs against
petitioners.
SO ORDERED.
Western Institute of Technology Inc. vs. Salas
[GR 113032, 21 August 1997]First Division, Hermosisima Jr. (J): 4
concur
Facts:
Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S.
Salas, and Richard S. Salas,belonging to the same family, are the
majority and controlling members of the Board of Trustees of
WesternInstitute of Technology, Inc. (WIT), a stock corporation engaged
in the operation, among others, of aneducational institution. According
to Homero L. Villasis, Dimas Enriquez, peston F. Villasis, and Reginald
F.Villasis, the minority stockholders of WIT, sometime on 1 June 1986 in
the principal office of WIT at La Paz,Iloilo City, a Special Board Meeting
was held. In attendance were other members of the Board
includingReginald Villasis. Prior to said Special Board Meeting, copies of
notice thereof, dated 24 May 1986, weredistributed to all Board
Members. The notice allegedly indicated that the meeting to be held on
1 June 1986included Item 6 which states that "Possible implementation
of Art. III, Sec. 6 of the Amended By-Laws of Western Institute of
Technology, Inc. on compensation of all officers of the corporation." In
said meeting, theBoard of Trustees passed Resolution 48, series 1986,
granting monthly compensation to Salas, et. al. ascorporate officers
retroactive 1 June 1985, in the following amounts: Chairman
9,000.00/month, ViceChairman P3,500.00/month, Corporate Treasurer
P3,500.00/month and Corporate Secretary
P3,500.00/month,retroactive June 1, 1985 and the ten percentum of
the net profits shall be distributed equally among the tenmembers of
the Board of Trustees. This shall amend and supercede any previous
resolution. A few yearslater, or on 13 March 1991, Homero Villasis,
Preston Villasis, Reginald Villasis and Dimas Enriquez filed anaffidavit-
complaint against Salas, et. al. before the Office of the City Prosecutor
of Iloilo, as a result of which2 separate criminal informations, one for
falsification of a public document under Article 171 of the RevisedPenal
Code and the other for estafa under Article 315, par. 1(b) of the RPC,
were filed before Branch 33 of theRegional Trial Court of Iloilo City. The
charge for falsification of public document was anchored on Salas,
et.al.'s submission of WIT's income statement for the fiscal year 1985-
1986 with the Securities and ExchangeCommission (SEC) reflecting
therein the disbursement of corporate funds for the compensation of
Salas, et.al. based on Resolution 4, series of 1986, making it appear that
the same was passed by the board on 30 March1986, when in truth, the
same was actually passed on 1 June 1986, a date not covered by the
corporation'sfiscal year 1985-1986 (beginning May 1, 1995 and ending
April 30, 1986). Thereafter, trial for the twocriminal cases (Criminal
Cases 37097 and 37098), was consolidated. After a full-blown hearing,
JudgePorfirio Parian handed down a verdict of acquittal on both counts
dated 6 September 1993 without imposingany civil liability against the
accused therein. Villasis, et. al. filed a Motion for Reconsideration of the
civilaspect of the RTC Decision which was, however, denied in an Order
dated 23 November 1993. Villasis, et. al.filed the petition for review on
certiorari. Significantly on 8 December 1994, a Motion for Intervention,
dated2 December 1994, was filed before this Court by Western
Institute of Technology, Inc., disowning itsinclusion in the petition and
submitting that Atty. Tranquilino R. Gale, counsel for Villasis, et. al., had
noauthority whatsoever to represent the corporation in filing the
petition. Intervenor likewise prayed for thedismissal of the petition for
being utterly without merit. The Motion for Intervention was granted
on 16January 1995.
Issue:
Whether the grant of compensation to Salas, et. al. is proscribed under
Section 30 of the CorporationCode.
Held:
Directors or trustees, as the case may be, are not entitled to salary or
other compensation when theyperform nothing more than the usual
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and ordinary duties of their office. This rule is founded upon
apresumption that directors/trustees render service gratuitously, and
that the return upon their shares adequatelyfurnishes the motives for
service, without compensation. Under Section 30 of the Corporation
Code, there areonly two (2) ways by which members of the board can
be granted compensation apart from reasonable per diems: (1) when
there is a provision in the by-laws fixing their compensation; and (2)
when the stockholdersrepresenting a majority of the outstanding
capital stock at a regular or special stockholders' meeting agree togive it
to them. Also, the proscription, however, against granting
compensation to director/trustees of acorporation is not a sweeping
rule. Worthy of note is the clear phraseology of Section 30 which state:
"[T]hedirectors shall not receive any compensation, as such directors."
The phrase as such directors is not withoutsignificance for it delimits
the scope of the prohibition to compensation given to them for services
performedpurely in their capacity as directors or trustees. The
unambiguous implication is that members of the boardmay receive
compensation, in addition to reasonable per diems, when they render
services to the corporationin a capacity other than as
directors/trustees. Herein, resolution 48, s. 1986 granted monthly
compensation toSalas, et. al. not in their capacity as members of the
board, but rather as officers of the corporation, moreparticularly as
Chairman, Vice-Chairman, Treasurer and Secretary of Western
Institute of Technology.Clearly, therefore, the prohibition with respect
to granting compensation to corporate directors/trustees as such under
Section 30 is not violated in this particular case. Consequently, the last
sentence of Section 30which provides that "In no case shall the total
yearly compensation of directors, as such directors, exceed ten(10%)
percent of the net income before income tax of the corporation during
the preceding year" does notlikewise find application in this case since
the compensation is being given to Salas, et. al. in their capacity
asofficers of WIT and not as board members.
[G.R. No. 101699. March 13, 1996]
BENJAMIN A. SANTOS, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, HON. LABOR ARBITER FRUCTUOSO T.
AURELLANO and MELVIN D. MILLENA,respondents.
D E C I S I O N
VITUG, J.:
In a petition for certiorari under Rule 65 of the Rules of Court,
petitioner Benjamin A. Santos, former President of the Mana Mining
and Development Corporation (MMDC), questions the resolution of
the National Labor Relations Commission (NLRC) affirming the
decision of the Labor Arbiter Fructouso T. Aurellano who, having held
illegal the termination of employment of private respondent Melvin D.
Millena, has ordered petitioner MMDC, as well as its president (herein
petitioner) and the executive vice-president in their personal capacities,
to pay Millena his monetary claims.
Private respondent, on 01 October 1985, 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 companys
laborers and employees.
[1]

In a letter, dated 08 September 1986, Abano advised private
respondent thusly:
Regarding Gatbo operations, as you also are aware, the rainy season is
now upon us and the peace and order condition in Sorsogon has
deteriorated. It is therefore, the boards decision that it would be
useless for us to continue operations, especially if we will always be in
the hole, so to speak. Our first funds receipts will be used to pay all
our debts. We will stop production until the advent of the dry season,
and until the insurgency problem clears. We will undertake only
necessary maintenance and repair work and will keep our overhead
down to the minimum manageable level. Until we resume full-scale
operations, we will not need a project accountant as there will be very
little paper work at the site, which can be easily handled at Makati.
We appreciate the work you have done for Mana and we will not
hesitate to take you back when we resume work at Gatbo. However it
would be unfair to you if we kept you in the payroll and deprive you of
the opportunity to earn more, during this period of Manas crisis.
[2]

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.
[3]

The claim was not heeded; on 20 October 1986, private
respondent filed with the NLRC Regional Arbitration, Branch No. V, in
Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th
month pay, overtime pay, separation pay and incentive leave pay
against MMDC and its two top officials, namely, herein petitioner
Benjamin A. Santos (the President) and Rodillano A. Velasquez (the
executive vice-president). In his complaint-affidavit (position paper),
submitted on 27 October 1986, Millena alleged, among other things,
that his dismissal was merely an offshoot of his letter of 12 August
1986 to Abao about the companys inability to pay its workers and to
remit withholding taxes to the BIR.
[4]

A copy of the notice and summons was served on therein
respondent (MMDC, Santos and Velasquez) on 29 October 1986.
[5]
At
the initial hearing on 14 November 1986 before the Labor Arbiter, only
the complaint, Millena, appeared; however, Atty. Romeo Perez, in
representation of the respondents, requested by telegram that the
hearing be reset to 01 December 1986. Although the request was
granted by the Labor Arbiter, private respondent was allowed,
nevertheless, to present his evidence ex-parte at that initial hearing.
The scheduled 01st December 1986 hearing was itself later reset
to 19 December 1986. On 05 December 1986, the NLRC
in Legazpi City again received a telegram from Atty. Perez asking for
fifteen (15) days within which to submit the respondents position
paper. On 19 December 1986, Atty. Perez sent yet another telegram
seeking a further postponement of the hearing and asking for a period
until 15 January 1987 within which to submit the position paper.
On 15 January 1987, Atty. Perez advised the NLRC
in Legazpi City that the position paper had finally been transmitted
through the mail and that he was submitting the case for resolution
without further hearing. The position paper was received by the Legazpi
City NLRC office on 19 January 1987. Complainant Millena filed, on 26
February 1987, his rejoinder to the position paper.
On 27 July 1988, Labor Arbiter Fructouso T. Aurellano, finding no
valid cause for terminating complainants employment, ruled, citing this
Courts pronouncement in Construction & Development Corporation of
the Philippines vs. Leogardo, Jr.
[6]
that a partial closure of an
establishment due to losses was a retrenchment measure that
rendered the employer liable for unpaid salaries and other monetary
claims. The Labor Arbiter adjudged:
WHEREFORE, the respondents are hereby ordered to pay the
petitioner the amount of P37,132.25 corresponding to the latters
unpaid salaries and advances: P5,400.00 for petitioners 13th month
pay; P3,340.95 as service incentive leave pay; and P5,400.00 as
Leyah Josef Corpo 4
th
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separation pay. The respondents are further ordered to pay the
petitioner 10% of the monetary awards as attorneys fees.
All other claims are dismissed for lack of sufficient evidence.
SO ORDERED.
[7]

Alleging abuse of discretion by the Labor Arbiter, the company
and its co-respondents filed a motion for reconsideration and/or
appeal.
[8]
The motion/ appeal was forthwith indorsed to the Executive
Director of the NLRC inManila.
In a resolution, dated 04 September 1989, the NLRC
[9]
affirmed
the decision of the Labor Arbiter. It held that the reasons relied upon by
MMDC and its co-respondents in the dismissal of Millena, i.e., the rainy
season, deteriorating peace and order situation and little paperwork,
were not causes mentioned under Article 282 of the Labor Code of
the Philippines and that Millena, being a regular employee, was
shielded by the tenurial clause mandated under the law.
[10]

A writ of execution correspondingly issued; however, it was
returned unsatisfied for the failure of the sheriff to locate the offices of
the corporation in the address indicated. Another writ of execution and
an order of garnishment was thereupon served on petitioner at his
residence.
Contending that he had been denied due process, petitioner filed
a motion for reconsideration of the NLRC s resolution along with a
prayer for the quashal of the writ of execution and order of
garnishment. He averred that he had never received any notice,
summons or even a copy of the complaint; hence, he said, the Labor
Arbiter at no time had acquired jurisdiction over him.
On 16 August 1991, the NLRC
[11]
dismissed the motion for
reconsideration. Citing Section 2, Rule 13,
[12]
and Section 13, Rule
14,
[13]
of the Rules of Court, it ruled that the Regional Arbitration office
had not, in fact, been remiss in the observance of the legal processes
for acquiring jurisdiction over the case and over the persons of the
respondents therein. The NLRC was also convinced that Atty. Perez had
been the authorized counsel of MMDC and its two most ranking
officers.
In holding petitioner personally liable for private respondents
claim, the NLRC cited Article 289
[14]
of the Labor Code and the ruling
in A.C. Ransom Labor Union-CCLU vs. NLRC
[15]
to the effect that (t)he
responsible officer of an employer corporation (could) be held
personally, not to say even criminally, liable for non-payment of
backwages, and that of Gudez vs. NLRC
[16]
which amplified that where
the employer corporation (was) no longer existing and unable to satisfy
the judgment in favor of the employee, the officer should be liable for
acting on behalf of the corporation.
In the instant petition for certiorari, petitioner Santos reiterates
that he should not have been adjudged personally liable by public
respondents, the latter not having validly acquired jurisdiction over his
person whether by personal service of summons or by substituted
service under Rule 19 of the Rules of Court.
Petitioner s contention is unacceptable. The fact that Atty.
Romeo B. Perez has been able to timely ask for a deferment of
the initial hearing on 14 November 1986, coupled with his subsequent
active participation in the proceedings, should disprove the supposed
want of service of legal process. Although as a rule, modes of service of
summons are strictly followed in order that the court may acquire
jurisdiction over the person of a defendant,
[17]
such procedural modes,
however, are liberally construed in quasi-judicial proceedings,
substantial compliance with the same being considered
adequate.
[18]
Moreover, jurisdiction over the person of the defendant in
civil cases is acquired not only by service of summons but also by
voluntary appearance in court and submission to its
authority.
[19]
Appearance by a legal advocate is such voluntary
submission to a courts jurisdiction.
[20]
It may be made not only by
actual physical appearance but likewise by the submission of pleadings
in compliance with the order of the court or tribunal.
To say that petitioner did not authorize Atty. Perez to represent
him in the case
[21]
is to unduly tax credulity. Like the Solicitor General,
the Court likewise considers it unlikely that Atty. Perez would have been
so irresponsible as to represent petitioner if he were not, in fact,
authorized.
[22]
Atty. Perez is an officer of the court, and he must be
presumed to have acted with due propriety. The employment of a
counsel or the authority to employ an attorney, it might be pointed out,
need not be proved in writing; such fact could inferred from
circumstantial evidence.
[23]
Petitioner was not just an ordinary official of
the MMDC; he was the President of the company.
Petitioner, in any event, argues that public respondents have
gravely abused their discretion in finding petitioner solidarily liable
with MMDC even (in) the absence of bad faith and malice on his
part.
[24]
There is merit in this plea.
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.
[25]
As a rule, this situation might arise when a corporation is used to
evade a just and due obligation or to justify a wrong,
[26]
to shield or
perpetrate fraud,
[27]
to carry out similar other unjustifiable aims or
intentions, or as a subterfuge to commit injustice and so circumvent the
law.
[28]
In Tramat Mercantile, Inc., vs. Court of Appeals,
[29]
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
[30]
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 petitioners 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.
It is true, there were various cases when corporate officers were
themselves held by the Court to be personally accountable for the
payment of wages and money claims to its employees. In A.C. Ransom
Labor Union-CCLU vs. NLRC,
[31]
for instance, the Court ruled that under
the Minimum Wage Law, the responsible officer of an employer
corporation could be held personally liable for nonpayment of
backwages for (i)f the policy of the law were otherwise, the
corporation employer (would) have devious ways for evading payment
of backwages. In the absence of a clear identification of the officer
directly responsible for failure to pay the backwages, the Court
considered the President of the corporation as such officer. The case
was cited in Chua vs. NLRC
[32]
in holding personally liable the vice-
Leyah Josef Corpo 4
th
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president of the company, being the highest and most ranking official of
the corporation next to the President who was dismissed for the latters
claim for unpaid wages.
A review of the above exceptional cases would readily disclose
the attendance of facts and circumstances that could rightly sanction
personal liability on the part of the company officer. In A.C.
Ransom, the corporate entity was a family corporation and execution
against it could not be implemented because of the disposition
posthaste of its leviable assets evidently in order to evade its just and
due obligations. The doctrine of piercing the veil of corporate fiction
was thus clearly appropriate. Chua likewise involved another family
corporation, and this time the conflict was between two brothers
occupying the highest ranking positions in the company. There were
incontrovertible facts which pointed to extreme personal animosity that
resulted, evidently in bad faith, in the easing out from the company of
one of the brothers by the other.
The basic rule is still that which can be deduced from the Courts
pronouncement in Sunio vs. National Labor Relations
Commission;
[33]
thus:
We come now to the personal liability of petitioner, Sunio, who was
made jointly and severally responsible with petitioner company and
CIPI for the payment of the backwages of private respondents. This is
reversible error. The Assistant Regional Directors Decision failed to
disclose the reason why he was made personally liable. Respondents,
however, alleged as grounds thereof, his being the owner of one-half
() interest of said corporation, and his alleged arbitrary dismissal of
private respondents.
Petitioner Sunio was impleaded in the Complaint in his capacity as
General Manager of petitioner corporation. There appears to be no
evidence on record that he acted maliciously or in bad faith in
terminating the services of private respondents. His act, therefore, was
within the scope of his authority and was a corporate act.
It is basic that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it as well as
from that of any other legal entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality. Petitioner
Sunio, therefore, should not have been made personally answerable for
the payment of private respondents back salaries.
The Court, to be sure, did appear to have deviated somewhat
in Gudez vs. NLRC;
[34]
however, it should be clear from our recent
pronouncement in Mam Realty Development Corporation and Manuel
Centeno vs. NLRC
[35]
that the Sunio doctrine still prevails.
WHEREFORE, the instant petition for certiorari is given DUE
COURSE and the decision of the Labor Arbiter, affirmed by the NLRC, is
hereby MODIFIED insofar as it holds herein petitioner Benjamin Santos
personally liable with Mana Mining and Development Corporation,
which portion of the questioned judgment is now SET ASIDE. In all other
respects, the questioned decision remains unaffected. No costs.
SO ORDERED.
Santos vs. National Labor Relations Commission [GR 101699, 13 March
1996]
?, Vitug (J): 4 concur
Facts: Melvin D. Millena, on 1 October 1985, was hired to be the
project accountant for Mana Mining andDevelopment Corporation's
(MMDC) mining operations in Gatbo, Bacon, Sorsogon. On 12 August
1986, Millena sent to Mr. Gil Abao, the MMDC corporate treasurer, a
memorandum calling the latter's 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 8
September 1986, Abao advised Millena that it was the board's
decision that it stop porduction (operation) in Sorsogon due to the
upcoming rainy seasons and the deterioration of the peace and order in
the said area; that the corporation will undertake only necessary
maintenance and repair work and will keep overhead down to the
minimum manageable level; and that the corporation will not need a
project accountant until the corporaton resumes full-scale operations.
Millena expressed "shock" over the termination of his employment. He
complained that he would not have resigned from the Sycip, Gores &
Velayo accounting firm, where he was already a senior staff auditor,
had it not been for the assurance of a "continuous job" by
MMDC's Eng. Rodillano E. Velasquez. Millena 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. On October
1986, Millena filed with the NLRC Regional Arbitration, Branch No. V, in
Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13
th

month pay, overtime pay, separation pay and incentive leave pay
against MMDC and its two top officials,namely, Benjamin A Santos (the
President) and Rodillano A. Velasquez (the executive vice-president). In
his complaint-affidavit (position paper), submitted on 27 October 1986,
Millena alleged, among other things, that his dismissal was merely an
offshoot of his letter of 12 August 1986 to Abao about the company's
inability to pay its workers and to remit withholding taxes to the BIR. On
27 July 1988, Labor Arbiter Fructouso T.
Aurellano, finding no valid cause for terminating complaint's
employment, ruledthat a partial closure of anestablishment due to
losses was a retrenchment measure that rendered the employer liable
for unpaid salaries and other monetary claims. The Labor Arbiter
ordered Santos, et. al. to pay Millena the amount of P37,132.25
corresponding to the latter's unpaid salaries and advances:
P5,400.00 for petitioner's 13th month pay; P3,340.95 as service
incentive leave pay; and P5, 400.00 as separation pay. Santos, et. al.
were further ordered to pay Millena 10% of the monetary awards as
attorney's fees. Alleging abuse of discretion by the Labor Arbiter, the
company and its co-respondents filed a "motion for reconsideration and
/or appeal." 8 The motion/appeal was forthwith indorsed to the
Executive Director of the NLRC in Manila. In a resolution, dated 04
September 1989, the NLRC affirmed the decision of the Labor
Arbiter. A writ of execution correspondingly issued; however, it was
returned unsatisfied for the failure of the sheriff to locate the offices of
the corporation in the addressed indicated. Another writ of execution
and an order of garnishment was
thereupon served on Santos at his residence. Contending that he had
been denied due process, Santos filed a motion for reconsideration of
the NLRC's resolution along with a prayer for the quashal of the writ of
execution and order of garnishment. He averred that he had never
received any notice, summons or even a copy of the complaint; hence,
he said, the Labor Arbiter at no time had acquired jurisdiction over him.
On 16 August 1991, the NLRC dismissed the motion for reconsideration.
Santos filed the petition for certiorari.
Issue: Whether Santos should be made solidarily liable with MMDC.
Held: A corporation is a judicial entity with legal personality separated
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
thecorporation, 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
Leyah Josef Corpo 4
th
set Page | 8

veil. As a rule, this situation might arise a corporation is used to evade a
just and due obligation or to justify a wrong, to shield or perpetrate
fraud, to Commercial Law - Corporation Law, 2005 ( 39 )Narratives
(Berne Guerrero)
carry out similar other unjustifiable aims or intentions, or as a
subterfuge to commit injustice and so circumvent the law. 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 (b)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 fiction. The case of Santos is way of
these exceptional instances. It is not even shown that Santos has had a
direct hand in the dismissal of Millena enough to attribute to Santos a
patently unlawful act while acting for the corporation. Neither can
Article 289 of the Labor Code be applied since this specifically refers
only to the imposition of penalties under the Code. It is undisputed that
the termination of Millena'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. It is basic that a
corporation is invested by law with a personally separate and distinct
from those of the persons composing it as well as from that of any,
other legal entity to which it may be related. Mere ownership by a
single stockholder or by another corporation of all nearly all of the
capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personally. Similar to the case of
Sunio vs. National Labor Relations Commission, Santos should not have
been made personally answerable for the payment of Millena's back
salaries.
[G.R. No. 159795. July 30, 2004]
SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP,
INC., petitioners, vs. CONSTRUCTION INDUSTRY AND
ARBITRATION COMMISSION and SPS. NARCISO & AIDA
QUIAMBAO, respondents.
D E C I S I O N
PUNO, J.:
This is a petition for review on certiorari under Rule 45 of the
Revised Rules of Court, assailing the Decision and Resolution of the
Court of Appeals, dated June 30, 2003 and August 27, 2003,
respectively, in CA-G.R. SP No. 72736.
Petitioner COORDINATED GROUP, INC. (CGI) is a corporation
engaged in the construction business, with petitioner-spouses
ROBERTO and EVELYN DAVID as its President and Treasurer,
respectively.
The records reveal that on October 7, 1997, respondent-spouses
NARCISO and AIDA QUIAMBAO engaged the services of petitioner CGI
to design and construct a five-storey concrete office/residential building
on their land in Tondo, Manila. The Design/Build Contract of the parties
provided that: (a) petitioner CGI shall prepare the working drawings for
the construction project; (b) respondents shall pay petitioner CGI the
sum of Seven Million Three Hundred Nine Thousand Eight Hundred
Twenty-One and 51/100 Pesos (P7,309,821.51) for the construction of
the building, including the costs of labor, materials and equipment, and
Two Hundred Thousand Pesos (P200,000.00) for the cost of the design;
and (c) the construction of the building shall be completed within nine
(9) months after securing the building permit.
The completion of the construction was initially scheduled on or
before July 16, 1998 but was extended to November 15, 1998 upon
agreement of the parties. It appears, however, that petitioners failed to
follow the specifications and plans as previously agreed
upon. Respondents demanded the correction of the errors but
petitioners failed to act on their complaint. Consequently, respondents
rescinded the contract on October 31, 1998, after paying 74.84% of the
cost of construction.
Respondents then engaged the services of another contractor,
RRA and Associates, to inspect the project and assess the actual
accomplishment of petitioners in the construction of the building. It
was found that petitioners revised and deviated from the structural
plan of the building without notice to or approval by the respondents.
[1]

Respondents filed a case for breach of contract against
petitioners before the Regional Trial Court (RTC) of Manila. At the pre-
trial conference, the parties agreed to submit the case for arbitration to
the CONSTRUCTION INDUSTRY ARBITRATION COMMISSION
(CIAC). Respondents filed a request
[2]
for arbitration with the CIAC and
nominated Atty. Custodio O. Parlade as arbitrator. Atty. Parlade was
appointed by the CIAC as sole arbitrator to resolve the dispute. With
the agreement of the parties, Atty. Parlade designated Engr. Loreto C.
Aquino to assist him in assessing the technical aspect of the case. The
RTC of Manila then dismissed the case and transmitted its records to
the CIAC.
[3]

After conducting hearings and two (2) ocular inspections of the
construction site, the arbitrator rendered judgment against petitioners,
thus:
AWARD
In summary, award is hereby made in favor of the Quiambaos against
the Respondents, jointly and severally, as follows:
Lost Rentals -
P1,680,000.00
Cost to Complete, Rectification, etc. -
2,281,028.71
Damages due to erroneous staking -
117,000.00
Professional fees for geodetic
surveys, etc. -
72,500.00
Misc. expenses/ professional
fees of engineers -
118,642.50
Bills for water and electricity, PLDT -
15,247.68
Attorneys Fees -
100,000.00
Moral Damages -
250,000.00
Exemplary Damages -
250,000.00
-
-
-
-
-
-
-
-
-
-
-
-
-
Leyah Josef Corpo 4
th
set Page | 9

-
-
-
-
TOTAL P4,884,418.89
There is likewise an award in favor of the Respondents (petitioners
herein) and against the Claimants (respondents herein) for the value of
the materials and equipment left at (the) site (in) the amount of
P238,372.75. Respondent CGI is likewise credited with an 80%
accomplishment having a total value of P5,847,857.20.
All other claims and counterclaims are hereby dismissed for lack of
merit.
To recapitulate: Payments already
made to CGI -
P5,275,041.00
Amount awarded
above to Claimants -
4,864,418.89
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
To
tal


10
,15
9,4
59.
89
Payments due CGI for 80%
work accomplishment -
P5,847,857.20
Cost of materials and
equipment -
238,372.75
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total :
P6,086,29
9.95
Deducting this amount of P6,086,229.95 from P10,159,459.89, the
result is a net award in favor the Claimants of (sic) the amount of
P4,073,229.94.
WHEREFORE, the Respondents are hereby ordered to pay, jointly and
severally, the Claimants the amount of P4,073,229.94 with interest at
6% per annum from the date of the promulgation of this Award, and
12% per annum of the net award, including accrued interest, from the
time it becomes final and executory until it is fully paid.
Each party is hereby directed to pay to the Commission P15,000.00 as
such partys share in the experts fees paid to Engr. Loreto C. Aquino.
SO ORDERED.
[4]

Petitioners appealed to the Court of Appeals which affirmed the
arbitrators Decision but deleted the award for lost rentals.
[5]

Unsatisfied, petitioners filed this petition for review on certiorari,
raising the following issues:
I. THERE WAS NO BASIS, IN FACT AND IN LAW, TO ALLOW
RESPONDENTS TO UNILATERALLY RESCIND THE DESIGN/BUILT
CONTRACT, AFTER PETITIONERS HAVE (SIC) SUBSTANTIALLY
PERFORMED THEIR OBLIGATION UNDER THE SAID CONTRACT.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING
PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH CO-PETITIONER
COORDINATED (GROUP, INC.), IN CLEAR VIOLATION OF THE DOCTRINE
OF SEPARATE JURIDICAL PERSONALITY.
We find no merit in the petition.
Executive Order No. 1008 entitled, Construction Industry
Arbitration Law provided for an arbitration mechanism for the speedy
resolution of construction disputes other than by court litigation. It
recognized the role of the construction industry in the countrys
economic progress as it utilizes a large segment of the labor force and
contributes substantially to the gross national product of the
country.
[6]
Thus, E.O. No. 1008 vests on the Construction Industry
Arbitration Commission (CIAC) original and exclusive jurisdiction over
disputes arising from or connected with construction contracts entered
into by parties who have agreed to submit their case to voluntary
arbitration. Section 19 of E.O. No. 1008 provides that its arbitral award
shall be appealable to the Supreme Court only on questions of law.
[7]

There is a question of law when the doubt or difference in a given
case arises as to what the law is on a certain set of facts, and there is
a question of fact when the doubt arises as to the truth or falsity of the
alleged facts.
[8]
Thus, for a question to be one of law, it must not involve
an examination of the probative value of the evidence presented by the
parties and there must be no doubt as to the veracity or falsehood of
the facts alleged.
[9]

In the case at bar, it is readily apparent that petitioners are
raising questions of fact. In their first assigned error, petitioners claim
that at the time of rescission, they had completed 80% of the
construction work and still have 15 days to finish the project. They
likewise insist that they constructed the building in accordance with the
contract and any modification on the plan was with the consent of the
respondents.
Leyah Josef Corpo 4
th
set Page | 10

These claims of petitioners are refuted by the evidence on
record. In holding that respondents were justified in rescinding the
contract, the Court of Appeals upheld the factual findings of the sole
arbitrator, thus:
x x x
(A)s the Building was taking shape, they noticed deviations from the
approved plans and specifications for the Building. Most noticeable
were two (2) concrete columns in the middle of the basement which
effectively and permanently obstructed the basement for the parking
of vehicles x x x. In addition, three (3) additional concrete columns
were constructed from the ground floor to the roof deck x x x which
affected the overall dimension of the building such as altering the
specified beam depths, passageways and windows. In addition, Mrs.
Quiambao provided a virtual litany of alleged defects, to wit: (a) the
Building was not vertically plumbed xxx; (b) provisions for many
architectural members were not provided for, such as, (i) the recesses
for window plant boxes are lacking xxx, (ii) provisions for precast
molding are lacking xxx, (iii) canopies are also lacking x x x; (c)
misaligned walls, ugly discrepancies and gaps; (d) skewed walls to
floors/landings; (e) low head clearances and truncated beams x x x; (f)
narrow and disproportionate stairs xxx one (1) instead of two (2)
windows at the fire exit x x x, (g) absence of water-proofing along the
basement wall x x x and at the roof deck which caused leaks that
damages the mezzanine floor x x x; (h) the use of smaller diagonal
steel trusses at the penthouse. x x x There were others which were
shown during the site inspection such as: (1) L-shaped kitchen counters
instead of the required U-shaped counters x x x; (2) failure to provide
marble tops for the kitchen counters; (3) installation of single-tub sinks
where the plans called for double-type stainless kitchen sinks x x x; (4)
installation of much smaller windows than those required; (5)
misaligned window easements to wall, (6) floors were damaged by roof
leaks, (6) poor floor finish, misaligned tiles, floors with kapak and
disproportionate drawers and cabinets. A more comprehensive list of
alleged defects, deviations and complaints of the Quiambaos is found in
a report marked Exhibit C-144. Many of these defects were seen
during the site inspection and the only defense and comment of CGI
was that these were punch-list items which could have been corrected
prior to completion and turn-over of the Building had the Contract not
been terminated by the Claimants (respondents here). x x x Thus, x x x
(petitioner) CGI argued that: In any construction work, before a
contractor turns-over the project to the owner, punchlisting of defects is
done so as to ensure compliance and satisfaction of both the contractor
and the owner. Punch listing means that the contractor will list all
major and minor defects and rectifies them before the turnover of the
project to the owner. After all defects had been arranged, the project is
now turned over to the owner. For this particular project, no turn over
was made by the contractor to the owner yet. Actually, we were
already pinpointing these defects for punch listing before we were
terminated illegally. As alleged by the owner, the deficiencies
mentioned are stubouts of water closets at toilets, roofing and framing,
doors, cabinets, ceiling and stairs and other were not yet completed and
rectified by us. In fact we were counting on our project engineer in
charge x x x to do this in as much as this is one of his duties to do for the
company. x x x Confirmatory of this assertion of CGI that it was willing
to undertake the appropriate corrective works (whether or not the
items are punch-list items) is Exhibit C-88 which is a letter prepared by
CGIs Windell F. Vizconde, checked by CGIs Gary M. Garcia and noted
by CGIs Benjie Lipardo, addressed to the Quiambaos which stated that:
As per our discussion during the last meeting dated Sept. 28, 1998 the
following items was (sic) confirmed and clarified. These are described
as follows:
1. All ceiling cornices shall be installed as per plan specification which
is 1 x 4 in size.
2. All baseboards shall be installed as per plan specification which is
wood 1 x 4 in size.
3. Electrical Meter center and main panel breaker should be retained
to its present location.
4. Elevation of office, dining and stair lobby of ground floor shall be 4
higher than the elevation of parking area (subject for verification).
5. All door jambs at C.R. has (sic) to be replaced with concrete framing
jambs.
6. All ceilings mailers should be 2 x 2 in size.
7. All plywood ceiling that was damaged by rain water shall be
replaced.
8. Provide a pipe chase for the enclosure of soil stack pipe and water
line pipe at the ground floor level between grid line 3-4 along the light
well area.
9. Front side elevation view shall be follow (sic) as per plan specialy
(sic) at 4
th
flr.
10. One column at basement floor along grid line 2# B has to be
verified by the structural designer if ever it is safe to removed (sic) the
column and what will be their (sic) recommendation to support the
load.
11. Existing doors D-2 and D-3 shall be replaced a (sic) new one.
While Mrs. Quiambao appeared not to have given her conformity, this
document from CGI is an admission by CGI of the deficiencies in the
construction of the Building which needed to be corrected.
It appears that concrete samples taken from the basement, ground
floor, mezzanine and 2
nd
floor of the Building were subjected to a
concrete core test by Geotesting International, Inc., geotechnical and
materials testing engineers. A report dated January 20, 1999 x x x
showed x x x that (5) samples x x x failed the test. Sample S2 while it
showed a comprehensive strength of 3147 psi, the corrective strength
in psi was below the specified comprehensive strength of 3000 psi. CGI
failed to produce evidence of similar tests during the construction of
the Building although it is normal construction practice for the
contractor to provide samples for concrete core tests.
Deformed reinforcing steel bar specimens from the building were
subjected to physical tests. These tests were conducted at the
Materials Testing Laboratory of the Department of Civil Engineering,
College of Engineering, University of the Philippines. x x x There were 18
samples and x x x 8 failed the test although all of them passed the cold
bend test. x x x CGI submitted Quality Test Certificates issued by Steel
Asia certifying to the mechanical test results and chemical composition
of the steel materials tested x x x. However, the samples were provided
by the manufacturer, not by CGI, to Steel Asia, and there is no showing
that the materials supplied by the manufacturer to CGI for the Building
formed part of the steel materials, part of which was tested.
x x x
Regarding the additional columns at the basement and at the first
floor to the roof deck of the Building, which effectively restricted the
use of the basement as a parking area, and likewise reduced the area
which could be used by the Quiambaos in the different floors of the
Building, Engr. Roberto J. David admitted that these represented a
design change which was made and implemented by CGI without the
conformnity of the Claimants. The Contract specifically provided in
Article II that the CONTRACTOR shall submit to the OWNER all designs
for the OWNERS approval. This implies necessarily that all changes in
the approved design shall likewise be submitted to the OWNER for
Leyah Josef Corpo 4
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approval. This change, in my view, is the single most serious breach of
the Contract committed by CGI which justified the decision of the
Claimants to terminate the Contract. x x x (T)here is no evidence to
show that the Quiambaos approved the revision of the structural plans
to provide for the construction of the additional columns. x x x
x x x Engr. Villasenor defended his structural design as adequate. He
admitted that the revision of the plans which resulted in the
construction of additional columns was in pursuance of the request of
Engr. David to revise the structural plans to provide for a significant
reduction of the cost of construction. When Engr. David was asked for
the justification for the revision for the plans, he confirmed that he
wanted to reduce the cost of construction. In any case, whether the
cause of revision of the plans was the under-design of the foundation
or for reasons of economy, it is CGI which is at fault. CGI prepared the
structural plans and quoted the price for constructing the
Building. The Quiambaos accepted both the plans and the price. If
CGI made a mistake in designing the foundation or in estimating the
cost of construction, it was at fault. It cannot correct that mistake by
revising the plans and implementing the revisions without informing
the Quiambaos and obtaining their unequivocal approval of such
changes.
In addition, CGI admitted that no relocation survey was made by it prior
to the construction of the Building. Consequently, a one-meter portion
of the Building was constructed beyond the property line. In
justification, Engr. Barba V. Santos declared that CGI made the layout of
the proposed structure based on the existing fence. x x x (I)t is
understood that a contractor, in constructing a building, must first
conduct a relocation survey before construction precisely to avoid the
situation which developed here, that the Building was not properly
constructed within the owners property line. x x x This resulted in the
under-utilization of the property, small as it is, and the exposure of the
Quiambaos to substantial damages to the owner of the adjoining
property encroached upon.
A third major contested issue concerned the construction of the
cistern. x x x A cistern is an underground tank used to collect water
for drinking purposes. The contentious points regarding the
construction of the cistern are: first, that the cistern was designed to
accumulate up to 10,000 gallons of water; as constructed, its capacity
was less than the design capacity. Second, there is no internal
partition separating the cistern from the sump pit. x x x
Considering that the cistern is a receptacle for the collection of
drinking water, it is incomprehensible why the Respondents (herein
petitioners), in the design and construction of the cistern, has (sic) not
taken the necessary measures to make certain that the water in the
cistern will be free from contamination. x x x
Thus, granting the arguments of the Respondents (herein petitioners)
that the observed defects in the Building could be corrected before
turn-over and acceptance of the Building if CGI had been allowed to
complete its construction, the construction of additional columns, the
construction of the Building such that part of it is outside the property
line established a sufficient legal and factual basis for the decision of
the Quiambaos to terminate the Contract. The fact that five (5) of
nine (9) the (sic) concrete samples subjected to a core test, and eight
(8) of eighteen (18) deformed reinforcing steel bar specifics subjected
to physical tests failed the tests and the under-design of the cistern
was established after the Contract was terminated also served to
confirm the justified suspicion of the Quiambaos that the Building was
defective or was not constructed according to approved plans and
specifications.
[10]
(emphases supplied)
These are technical findings of fact made by expert witnesses and
affirmed by the arbitrator. They were also affirmed by the Court of
Appeals. We find no reason to revise them.
The second assigned error likewise involves a question of fact. It
is contended that petitioner-spouses David cannot be held jointly and
severally liable with petitioner CGI in the payment of the arbitral award
as they are merely its corporate officers.
At first glance, the issue may appear to be a question of law as it
would call for application of the law on the separate liability of a
corporation. However, the law can be applied only after establishing a
factual basis, i.e., whether petitioner-spouses as corporate officers were
grossly negligent in ordering the revisions on the construction plan
without the knowledge and consent of the respondent-spouses. On
this issue, the Court of Appeals again affirmed the factual findings of
the arbitrator, thus:
As a general rule, the officers of a corporation are not personally liable
for their official acts unless it is shown that they have exceeded their
authority. However, the personal liability of a corporate director,
trustee or officer, along with corporation, may so validly attach when
he assents to a patently unlawful act of the corporation or for bad
faith or gross negligence in directing its affairs.
The following findings of public respondent (CIAC) would support its
ruling in holding petitioners severally and jointly liable with the
Corporation:
x x x When asked whether the Building was underdesigned
considering the poor quality of the soil, Engr. Villasenor defended his
structural design as adequate. He admitted that the revision of the
plans which resulted in the construction of additional columns was in
pursuance of the request of Engr. David to revise the structural plans
to provide for a significant reduction of the cost of
construction. When Engr. David was asked for the justification for the
revision of the plans, he confirmed that he wanted to reduce the cost
of construction. x x x (emphases supplied)
[11]

Clearly, the case at bar does not raise any genuine issue of
law. We reiterate the rule that factual findings of construction
arbitrators are final and conclusive and not reviewable by this Court on
appeal, except when the petitioner proves affirmatively that: (1) the
award was procured by corruption, fraud or other undue means; (2)
there was evident partiality or corruption of the arbitrators or of any of
them; (3) the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing to
hear evidence pertinent and material to the controversy; (4) one or
more of the arbitrators were disqualified to act as such under section
nine of Republic Act No. 876 and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which the rights of any
party have been materially prejudiced; or (5) the arbitrators exceeded
their powers, or so imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to them was not
made.
[12]
Petitioners failed to show that any of these exceptions
applies to the case at bar.
Finally, it bears to remind petitioners of this Courts ruling in the
1993 case of Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders,
Inc.
[13]
which emphasized the rationale for limiting appeal to legal
questions in construction cases resolved through arbitration, thus:
x x x Consideration of the animating purpose of voluntary arbitration in
general, and arbitration under the aegis of the CIAC in particular,
requires us to apply rigorously the above principle embodied in Section
19 that the Arbitral Tribunals findings of fact shall be final and
inappealable (sic).
Voluntary arbitration involves the reference of a dispute to an impartial
body, the members of which are chosen by the parties themselves,
which parties freely consent in advance to abide by the arbitral award
issued after proceedings where both parties had the opportunity to be
heard. The basic objective is to provide a speedy and inexpensive
method of settling disputes by allowing the parties to avoid the
formalities, delay, expense and aggravation which commonly
accompany ordinary litigation, especially litigation which goes through
the entire hierarchy of courts. Executive Order No. 1008 created an
Leyah Josef Corpo 4
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arbitration facility to which the construction industry in the Philippines
can have recourse. The Executive Order was enacted to encourage the
early and expeditious settlement of disputes in the construction
industry, a public policy the implementation of which is necessary and
important for the realization of the national development goals.
Aware of the objective of voluntary arbitration in the labor field, in the
construction industry, and in other area for that matter, the Court will
not assist one or the other or even both parties in any effort to subvert
or defeat that objective for their private purposes. The Court will not
review the factual findings of an arbitral tribunal upon the artful
allegation that such body had misapprehended facts and will not pass
upon issues which are, at bottom, issues of fact, no matter how cleverly
disguised they might be as legal questions. The parties here had
recourse to arbitration and chose the arbitrators themselves; they must
have had confidence in such arbitrators. The Court will not, therefore,
permit the parties to relitigate before it the issues of facts previously
presented and argued before the Arbitral Tribunal, save only where a
clear showing is made that, in reaching its factual conclusions, the
Arbitral Tribunal committed an error so egregious and hurtful to one
party as to constitute a grave abuse of discretion resulting in lack or
loss of jurisdiction. Prototypical examples would be factual conclusions
of the Tribunal which resulted in deprivation of one or the other party
of a fair opportunity to present its position before the Arbitral Tribunal,
and an award obtained through fraud or the corruption of
arbitrators. Any other more relaxed rule would result in setting at
naught the basic objective of a voluntary arbitration and would reduce
arbitration to a largely inutile institution. (emphases supplied)
IN VIEW WHEREOF, the petition is DISMISSED for lack of
merit. Costs against petitioners.
SO ORDERED.
[G.R. No. 113907. April 20, 2001]
MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD
(MSMG-UWP), ITS PRESIDENT BEDA MAGDALENA VILLANUEVA,
R E S O L U T I O N
GONZAGA-REYES, J.:
Before us is petitioners motion for partial reconsideration of our
decision dated February 28, 2000,
[1]
the dispositive portion of which
reads:
[2]

WHEREFORE, the petition is GRANTED; the decision of the National
Labor Relations Commission in Case No. NCR-00-09-04199-89 is
REVERSED and SET ASIDE; and the respondent company is hereby
ordered to immediately reinstate the petitioners to their respective
positions. Should reinstatement be not feasible, respondent company
shall pay separation pay of one month salary for every year of
service. Since petitioners were terminated without the requisite
written notice at least 30 days prior to their termination, following the
recent ruling in the case of Ruben Serrano vs. National Labor Relations
Commission and Isetann Department Store, the respondent company is
hereby ordered to pay full backwages to petitioner-employees while
the Federation is also ordered to pay full backwages to petitioner-union
officers who were dismissed upon its instigation. Since the dismissal of
petitioners was without cause, backwages shall be computed from the
time the herein petitioner employees and union officers were dismissed
until their actual reinstatement. Should reinstatement be not feasible,
their backwages shall be computed from the time petitioners were
terminated until the finality of this decision. Costs against the
respondent company.
SO ORDERED.
Petitioners allege that this Court committed patent and palpable error
in holding that the respondent company officials cannot be held
personally liable for damages on account of employees dismissal
because the employer corporation has a personality separate and
distinct from its officers who merely acted as its agents whereas the
records clearly established that respondent company officers Saul
Tawil, Carlos T. Javelosa and Renato C. Puangco have caused the hasty,
arbitrary and unlawful dismissal of petitioners from work; that as top
officials of the respondent company who handed down the decision
dismissing the petitioners, they are responsible for acts of unfair labor
practice; that these respondent corporate officers should not be
considered as mere agents of the company but the
wrongdoers. Petitioners further contend that while the case was
pending before the public respondents, the respondent company, in
the early part of February 1990, began removing its machineries and
equipment from its plant located at Merville Park, Paranaque and
began diverting jobs intended for the regular employees to its sub-
contractor/satellite branches;
[3]
that the respondent company officials
are also the officers and incorporators of these satellite companies as
shown in their articles of incorporation and the general information
sheet. They added that during their ocular inspection of the plant site
of the respondent company, they found that the same is being used by
other unnamed business entities also engaged in the manufacture of
garments. Petitioners further claim that the respondent company no
longer operates its plant site as M. Greenfield thus it will be very
difficult for them to fully enforce and implement the courts
decision. In their subsequent motion filed on the same day, petitioners
also pray for the (A) inclusion of the names of employees listed in
Annex D of the petition which they inadvertently omitted in the
caption of the case, to wit: (1) Amores, Imelda (2) Andres, Josefina
(3)Aragon, Felicidad (4) Arias, Genevive (5) Arroyo, Salvacion (6) Arceo,
Elizabeth (7) Anonuevo, Monica (8) Abellada, Josefina (9) Advincula,
Harmelina (10) Ajayo, Rosario (11) Alilay, Marilyn (12) Almario, Anliza
(13) Almario, Angelita (14) Almazan, Marilou (15) Almonte, Rosalina
(16) Alvaran, Marites (17) Alvarez, Edna (18) Ampo, Anacorita (19)
Aquino, Leonisa (20) Bactat, Celia (21) Carpio, Azucena G. (22) Cruz,
Amelia (23) Glifonia, Eugenia (24) Escurel, Evelyn F. (25) Hilario,
Bonifacio G. (26) Payuan, Adoracion (27) Perez, Mercedita (28) Rempis,
Zenaida (29) Rosario, Margie deL (30) Salvador, Norma (31)
Sambayanan, Olivia (32) Tiaga, Aida (33) Torbela, Maria (34) Trono,
Nenevina (35) Varona, Asuncion (36) Vasquez, Elisa M. (37) Villanueva,
Milagros (38) Villapondo, Eva C. (39) Villon, Adeliza T.; (B) correction
of their own typographical errors of the names of employees appearing
in the caption, which should be as follows: Manuela Avelin, Belen
Barquio, Lita Buquid, Violeta C. Ciervo, Marilou Dejocos, Maximina
Faustino, Primitiva Gomez, Myrna Palaca, Mercedita Perez, Rebecca
Poceran, Amorlita Rotairo, Emma Saludario, Tita Senis, Salvacion
Wilson,
[4]
Anita Ahillon, Gregoria Arguelles, Tessie Balbis, Betty Borja,
Rodrigo Buella, Celsa Doropan, Maria Enicame, Josephine Lasco, Julita
Maniba, Juanita Osuyos, Juana Overencio, Azucena Postigo, Cristina
Rapinan, Roselyn Rivero, Edeltrudes Romero, Rodelia Royandoyon,
Fausta Segundo, Teodora Sulit, Elena Tebis, Paulina Valdez,
[5]
Susan
Abogona, Diana Adovas, Carmen Rosimo Basco, Macaria Barrion, Maria
Fe Berezo, Matilde de Blas, Rufina Bugnot, Aurora Bravo, Jovita Cera,
Precila Carta, Amalia Eugenio, Milagros Fonseca, Jose Irlanda, Rowena
Jarabejo, Regina Lapidario, Josie Marcos, Shirley Melegrito, Noemi
Menguillo, Teresita Nierves, Ricardo Paloga, Florenia Ragos, Leonila
Rodil, Emma Saludario, Narcisa Songuad, Josie Sumarsar, Evangeline
Tayco;
[6]
(C) inclusion of other employees similarly situated whose
names were not included in Annex D or in the caption of the case, to
wit: (1) Dionisa Aban, (2) Alicia Aragon, (3) Vicky Francia, (4) Nelita F.
Gelongos, (5) Erlinda San Juan, (6) Erlinda Baby Patungan Manalo, (7)
Leyah Josef Corpo 4
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Jenette Patungan,
[7]
(8) Blandina Simbahan,
[8]
(9) Asuncion
Varona,
[9]
(10) Josefina Andres, (11) Teresita Arales, (12) Alice Artikulo,
(13) Esther Cometa, (14) Eliza Cabiting, (15) Erlinda Dalut, (16) Edna
Fernandez, (17) Emily Inocencio, (18) Esperanza Jalocon, (19) Imelda
Jarabe, (20) Mercedes Pabadora, (21) Venerado Pastoral, (22) Cristina
Perlas, (23) Margie del Rosario.
[10]

In their Comment, the Solicitor General interposes no objection to
petitioners prayer for the inclusion of omitted and similarly situated
employees and the correction of employees names in the caption of
the case.
On the other hand, private respondent company officials Carlos
Javelosa and Remedios Caoleng, in their Comment, state that
considering that petitioners admitted having knowledge of the fact that
private respondent officers are also holding key positions in the alleged
satellite companies, they should have presented the pertinent evidence
with the public respondents; thus it is too late for petitioners to require
this Court to admit and evaluate evidence not presented during the
trial; that the supposed proof of satellite companies hardly constitute
newly discovered evidence. Respondent officials interpose no objection
to the inclusion of employees inadvertently excluded in the caption of
the case but object to the inclusion of employees who were allegedly
similarly situated for the reason that these employees had not been
parties to the case, hence should not be granted any relief from the
court. Respondent company failed to file its comment.
[11]

Petitioners contention that respondent company officials should be
made personally liable for damages on account of petitioners dismissal
is not impressed with merit. 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.
[12]
The rule is that
obligations incurred by the corporation, acting through its directors,
officers and employees, are its sole liabilities.
[13]
True, solidary liabilities
may at times be incurred but only when exceptional circumstances
warrant such as, generally, in the following cases:
[14]

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.
[15]

(2) When a director or officer has consented to the issuance of watered
stocks or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto.
[16]

(3) When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the
Corporation.
[17]

(4) When a director, trustee or officer is made, by specific provision of
law, personally liable for his corporate action.
[18]

In labor cases, particularly, the Court has held corporate directors and
officers solidarily liable with the corporation for the termination of
employment of corporate employees done with malice or in bad
faith.
[19]
Bad faith or negligence is a question of fact and is
evidentiary.
[20]
It has been held that bad faith does not connote bad
judgement or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it means breach of a known
duty thru some motive or interest or ill will; it partakes of the nature of
fraud.
[21]

In the instant case, there is nothing substantial on record to show that
respondent officers acted in patent bad faith or were guilty of gross
negligence in terminating the services of petitioners so as to warrant
personal liability. As held in Sunio vs. NLRC,
[22]

We now come to the personal liability of petitioner, Sunio, who was
made jointly and severally responsible with petitioner company and
CIPI for the payment of the backwages of private respondents. This is
reversible error. The Assistant Regional Directors Decision failed to
disclose the reason why he was made personally liable. Respondents,
however, alleged as grounds thereof, his being the owner of one half
(1/2) interest of said corporation, and his alleged arbitrary dismissal of
private respondents.
Petitioner Sunio was impleaded in the Complaint in his capacity as
General Manager of petitioner corporation. There appears to be no
evidence on record that he acted maliciously or in bad faith in
terminating the services of private respondents. His act, therefore, was
within the scope of his authority and was a corporate act.
It is basic that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it as well as
from that of any other legal entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate
personality. Petitioner Sunio, therefore, should nor have been made
personally answerable for the payment of private respondents back
salaries.
Petitioners claim that the jobs intended for the respondent companys
regular employees were diverted to its satellite companies where the
respondent company officers are holding key positions is not
substantiated and was raised for the first time in this motion for
reconsideration. Even assuming that the respondent company officials
are also officers and incorporators of the satellite companies, such
circumstance does not in itself amount to fraud. The documents
attached to petitioners motion for reconsideration show that these
satellite companies
[23]
were established prior to the filing of petitioners
complaint against private respondents with the Department of Labor
and Employment on September 6, 1989 and that these corporations
have different sets of incorporators aside from the respondent officers
and are holding their principal offices at different locations. Substantial
identity of incorporators between respondent company and these
satellite companies does not necessarily imply fraud.
[24]
In such a case,
respondent companys corporate personality remains inviolable.
[25]

Although there were earlier decisions of this Court in labor cases where
corporate officers were held to be personally liable for the payment of
wages and other money claims to its employees, we find those rulings
inapplicable to this case. In La Campana Coffee Factory, Inc. vs.
Kaisahan ng Manggagawa sa La Campana (KKM),
[26]
La Campana Coffee
Factory, Inc. and La Campana Gaugau Packing were substantially owned
by the same person. They had one office, one management, and a
single payroll for both businesses. The laborers of the gaugau factory
and the coffee factory were also interchangeable, i.e., the workers in
one factory worked also in the other factory.
In Claparols vs. Court of Industrial Relations,
[27]
the Claparol Steel and
Nail Plant which was ordered to pay its workers backwages, ceased
Leyah Josef Corpo 4
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operations on June 30, 1957 and was succeeded on the next day, July 1,
1957 by the Claparols Steel Corporation. Both corporations were
substantially owned and controlled by the same person and there was
no break or cessation in operations. Moreover, all the assets of the
steel and nail plant were transferred to the new corporation.
Notably, in the above-mentioned cases, a new corporation was created,
owned by the same family, engaged in the same business and operating
in the same compound, a situation which is not obtaining in the instant
case.
In AC Ransom Labor Union-CCLU vs. NLRC,
[28]
the Court ruled that under
the Minimum Wage Law, the responsible officer of an employer
corporation can be held personally liable for non-payment of
backwages for if the policy of the law were otherwise, the corporation
employer would have devious ways for evading of back wages. This
Court said:
In the instant case, it would appear that RANSOM, in 1969, foreseeing
the possibility or probability of payment of backwages to the 22
strikers, organized ROSARIO to replace RANSOM, with the latter to be
eventually phased out if the 22 strikers win their case. RANSOM
actually ceased operations on May 1, 1973, after the December 19,
1972 Decision of the Court of Industrial Relations was promulgated
against RANSOM.
Clearly, the situation in AC Ransom does not obtain in this case, where
the alleged satellite companies were established even prior to the filing
of petitioners complaint with the Department of Labor.
Petitioners prayer for the inclusion of employees listed in Annex D
whose names were admittedly inadvertently excluded in the caption of
the case and for the correction of typographical errors of the
employees names appearing in the caption, is well taken and is hereby
granted. However, petitioners prayer for the inclusion of other
employees allegedly similarly situated but whose names were not
included either in Annex D or in the caption of the case must be
denied. A judgment cannot bind persons who are not parties to the
action.
[29]
It is elementary that strangers to a case are not bound by the
judgment rendered by the court and such judgment is not available as
an adjudication either against or in favor of such other
person.
[30]
Petitioners failed to explain why these employees allegedly
similarly situated were not included in the submitted list filed before
us. Such inclusion would be tantamount to a substantial amendment
which cannot be allowed at this late stage of the proceedings as it will
definitely work to the prejudice and disadvantage of the private
respondents.
[31]

WHEREFORE, petitioners motion for reconsideration is partially
granted so as to include the names of employees listed in Annex D
which petitioners inadvertently omitted in the caption of this case, to
wit: (1) Amores, Imelda (2) Andres, Josefina (3) Aragon, Felicidad (4)
Arias, Genevive (5) Arroyo, Salvacion (6) Arceo, Elizabeth (7) Anonuevo,
Monica (8) Abellada, Josefina (9) Advincula, Harmelina (10) Ajayo,
Rosario (11) Alilay, Marilyn (12) Almario, Anliza (13) Almario,
Angelita (14) Almazan, Marilou (15) Almonte, Rosalina (16) Alvaran,
Marites (17) Alvarez, Edna (18) Ampo, Anacorita (19) Aquino, Leonisa
(20) Bactat, Celia (21) Carpio, Azucena G. (22) Cruz, Amelia (23) Glifonia,
Eugenia (24) Escurel, Evelyn F. (25) Hilario, Bonifacio G. (26) Payuan,
Adoracion (27) Perez, Mercedita (28) Rempis, Zenaida (29) Rosario,
Margie del (30) Salvador, Norma (31) Sambayanan, Olivia (32) Tiaga,
Aida (33) Torbela, Maria (34) Trono, Nenevina (35) Varona, Asuncion
(36) Vasquez, Elisa M. (37) Villanueva, Milagros (38) Villapondo, Eva C.
(39) Villon, Adeliza T.; and to correct the typographical errors of the
names of employees appearing in the caption, as follows: Manuela
Avelin, Belen Barquio, Lita Buquid, Violeta C. Ciervo, Marilou Dejocos,
Maximina Faustino, Primitiva Gomez, Myrna Palaca, Mercedita Perez,
Rebecca Poceran, Amorlita Rotairo, Emma Saludario, Tita Senis,
Salvacion Wilson, Anita Ahillon, Gregoria Arguelles, Tessie Balbis, Betty
Borja, Rodrigo Buella, Celsa Doropan, Maria Enicame, Josephine Lasco,
Julita Maniba, Juanita Osuyos, Juana Overencio, Azucena Postigo,
Cristina Rapinan, Roselyn Rivero, Edeltrudes Romero, Rodelia
Royandoyon, Fausta Segundo, Teodora Sulit, Elena Tebis, Paulina
Valdez, Susan Abogona, Diana Adovas, Carmen Rosimo Basco, Macaria
Barrion, Maria Fe Berezo, Matilde de Blas, Rufina Bugnot, Aurora Bravo,
Jovita Cera, Precila Carta, Amalia Eugenio, Milagros Fonseca, Jose
Irlanda, Rowena Jarabejo, Regina Lapidario, Josie Marcos, Shirley
Melegrito, Noemi Menguillo, Teresita Nierves, Ricardo Paloga, Florenia
Ragos, Leonila Rodil, Emma Saludario, Narcisa Songuad, Josie Sumarsar,
Evangeline Tayco.
SO ORDERED.
G.R. No. L-68555 March 19, 1993
PRIME WHITE CEMENT CORPORATION, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO
TE, respondents.
De Jesus & Associates for petitioner.
Padlan, Sutton, Mendoza & Associates for private respondent.

CAMPOS, JR., J.:
Before Us is a Petition for Review on Certiorari filed by petitioner Prime
White Cement Corporation seeking the reversal of the decision * of the
then Intermediate Appellate Court, the dispositive portion of which
reads as follows:
WHEREFORE, in view of the foregoing, the judgment appealed from is
hereby affirmed in toto.
1

The facts, as found by the trial court and as adopted by the respondent
Court are hereby quoted, to wit:
On or about the 16th day of July, 1969, plaintiff and defendant
corporation thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as
Chairman of the Board, entered into a dealership agreement (Exhibit A)
whereby said plaintiff was obligated to act as the exclusive dealer
and/or distributor of the said defendant corporation of its cement
products in the entire Mindanao area for a term of five (5) years and
proving (sic) among others that:
a. The corporation shall, commencing September, 1970, sell to and
supply the plaintiff, as dealer with 20,000 bags (94 lbs/bag) of white
cement per month;
b. The plaintiff shall pay the defendant corporation P9.70, Philippine
Currency, per bag of white cement, FOB Davao and Cagayan de Oro
ports;
c. The plaintiff shall, every time the defendant corporation is ready to
deliver the good, open with any bank or banking institution a
confirmed, unconditional, and irrevocable letter of credit in favor of the
corporation and that upon certification by the boat captain on the bill
Leyah Josef Corpo 4
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of lading that the goods have been loaded on board the vessel bound
for Davao the said bank or banking institution shall release the
corresponding amount as payment of the goods so shipped.
Right after the plaintiff entered into the aforesaid dealership
agreement, he placed an advertisement in a national, circulating
newspaper the fact of his being the exclusive dealer of the defendant
corporation's white cement products in Mindanao area, more
particularly, in the Manila Chronicle dated August 16, 1969 (Exhibits R
and R-1) and was even congratulated by his business associates, so
much so, he was asked by some of his businessmen friends and close
associates if they can be his
sub-dealer in the Mindanao area.
Relying heavily on the dealership agreement, plaintiff sometime in the
months of September, October, and December, 1969, entered into a
written agreement with several hardware stores dealing in buying and
selling white cement in the Cities of Davao and Cagayan de Oro which
would thus enable him to sell his allocation of 20,000 bags regular
supply of the said commodity, by September, 1970 (Exhibits O, O-1, O-
2, P, P-1, P-2, Q, Q-1 and Q-2). After the plaintiff was assured by his
supposed buyer that his allocation of 20,000 bags of white cement can
be disposed of, he informed the defendant corporation in his letter
dated August 18, 1970 that he is making the necessary preparation for
the opening of the requisite letter of credit to cover the price of the due
initial delivery for the month of September, 1970 (Exhibit B), looking
forward to the defendant corporation's duty to comply with the
dealership agreement. In reply to the aforesaid letter of the plaintiff,
the defendant corporation thru its corporate secretary, replied that the
board of directors of the said defendant decided to impose the
following conditions:
a. Delivery of white cement shall commence at the end of November,
1970;
b. Only 8,000 bags of white cement per month for only a period of
three (3) months will be delivered;
c. The price of white cement was priced at P13.30 per bag;
d. The price of white cement is subject to readjustment unilaterally on
the part of the defendant;
e. The place of delivery of white cement shall be Austurias (sic);
f. The letter of credit may be opened only with the Prudential Bank,
Makati Branch;
g. Payment of white cement shall be made in advance and which
payment shall be used by the defendant as guaranty in the opening of a
foreign letter of credit to cover costs and expenses in the procurement
of materials in the manufacture of white cement. (Exhibit C).
xxx xxx xxx
Several demands to comply with the dealership agreement (Exhibits D,
E, G, I, R, L, and N) were made by the plaintiff to the defendant,
however, defendant refused to comply with the same, and plaintiff by
force of circumstances was constrained to cancel his agreement for the
supply of white cement with third parties, which were concluded in
anticipation of, and pursuant to the said dealership agreement.
Notwithstanding that the dealership agreement between the plaintiff
and defendant was in force and subsisting, the defendant corporation,
in violation of, and with evident intention not to be bound by the terms
and conditions thereof, entered into an exclusive dealership agreement
with a certain Napoleon Co for the marketing of white cement in
Mindanao (Exhibit T) hence, this suit. (Plaintiff's Record on Appeal, pp.
86-90).
2

After trial, the trial court adjudged the corporation liable to Alejandro
Te in the amount of P3,302,400.00 as actual damages, P100,000.00 as
moral damages, and P10,000.00 as and for attorney's fees and costs.
The appellate court affirmed the said decision mainly on the following
basis, and We quote:
There is no dispute that when Zosimo R. Falcon and Justo B. Trazo
signed the dealership agreement Exhibit "A", they were the President
and Chairman of the Board, respectively, of defendant-appellant
corporation. Neither is the genuineness of the said agreement
contested. As a matter of fact, it appears on the face of the contract
itself that both officers were duly authorized to enter into the said
agreement and signed the same for and in behalf of the corporation.
When they, therefore, entered into the said transaction they created
the impression that they were duly clothed with the authority to do so.
It cannot now be said that the disputed agreement which possesses all
the essential requisites of a valid contract was never intended to bind
the corporation as this avoidance is barred by the principle of
estoppel.
3

In this petition for review, petitioner Prime White Cement Corporation
made the following assignment of errors.
4

I
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE
COURT ARE UNPRECEDENTED DEPARTURES FROM THE CODIFIED
PRINCIPLE THAT CORPORATE OFFICERS COULD ENTER INTO CONTRACTS
IN BEHALF OF THE CORPORATION ONLY WITH PRIOR APPROVAL OF THE
BOARD OF DIRECTORS.
II
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE
COURT ARE CONTRARY TO THE ESTABLISHED JURISPRUDENCE,
PRINCIPLE AND RULE ON FIDUCIARY DUTY OF DIRECTORS AND
OFFICERS OF THE CORPORATION.
III
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE
COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE, PRINCIPLE
AND RULE ON UNENFORCEABLE CONTRACTS AS PROVIDED IN ARTICLE
1317 OF THE NEW CIVIL CODE.
IV
THE DECISION AND RESOLUTION OF THE INTERMEDIATE APPELLATE
COURT DISREGARDED THE PRINCIPLE AND JURISPRUDENCE AS TO
WHEN AWARD OF ACTUAL AND MORAL DAMAGES IS PROPER.
V
IN NOT AWARDING PETITIONER'S CAUSE OF ACTION AS STATED IN ITS
ANSWER WITH SPECIAL AND AFFIRMATIVE DEFENSES WITH
COUNTERCLAIM THE INTERMEDIATE APPELLATE COURT HAS CLEARLY
DEPARTED FROM THE ACCEPTED USUAL, COURSE OF JUDICIAL
PROCEEDINGS.
Leyah Josef Corpo 4
th
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There is only one legal issue to be resolved by this Court: whether or
not the "dealership agreement" referred by the President and Chairman
of the Board of petitioner corporation is a valid and enforceable
contract. We do not agree with the conclusion of the respondent Court
that it is.
Under the Corporation Law, which was then in force at the time this
case arose,
5
as well as under the present Corporation Code, all
corporate powers shall be exercised by the Board of Directors, except
as otherwise provided by law.
6
Although it cannot completely abdicate
its power and responsibility to act for the juridical entity, the Board may
expressly delegate specific powers to its President or any of its officers.
In the absence of such express delegation, a contract entered into by its
President, on behalf of the corporation, may still bind the corporation if
the board should ratify the same expressly or impliedly. Implied
ratification may take various forms like silence or acquiescence; by
acts showing approval or adoption of the contract; or by acceptance
and retention of benefits flowing therefrom.
7
Furthermore, even in the
absence of express or implied authority by ratification, the President as
such may, as a general rule, bind the corporation by a contract in the
ordinary course of business, provided the same is reasonable under the
circumstances.
8
These rules are basic, but are all general and thus quite
flexible. They apply where the President or other officer, purportedly
acting for the corporation, is dealing with a third person, i. e., a
person outside the corporation.
The situation is quite different where a director or officer is dealing with
his own corporation. In the instant case respondent Te was not an
ordinary stockholder; he was a member of the Board of Directors and
Auditor of the corporation as well. He was what is often referred to as a
"self-dealing" director.
A director of a corporation holds a position of trust and as such, he
owes a duty of loyalty to his corporation.
9
In case his interests conflict
with those of the corporation, he cannot sacrifice the latter to his own
advantage and benefit. As corporate managers, directors are
committed to seek the maximum amount of profits for the corporation.
This trust relationship "is not a matter of statutory or technical law. It
springs from the fact that directors have the control and guidance of
corporate affairs and property and hence of the property interests of
the stockholders."
10
In the case of Gokongwei v. Securities and
Exchange Commission, this Court quoted with favor from Pepper v.
Litton,
11
thus:
. . . He cannot by the intervention of a corporate entity violate the
ancient precept against serving two masters. . . . He cannot utilize his
inside information and his strategic position for his own preferment. He
cannot violate rules of fair play by doing indirectly through the
corporation what he could not do directly. He cannot use his power for
his personal advantage and to the detriment of the stockholders and
creditors no matter how absolute in terms that power may be and no
matter how meticulous he is to satisfy technical requirements. For that
power is at all times subject to the equitable limitation that it may not
be exercised for the aggrandizement, preference, or advantage of the
fiduciary to the exclusion or detriment of the cestuis. . . . .
On the other hand, a director's contract with his corporation is not in all
instances void or voidable. If the contract is fair and reasonable under
the circumstances, it may be ratified by the stockholders provided a full
disclosure of his adverse interest is made. Section 32 of the Corporation
Code provides, thus:
Sec. 32. Dealings of directors, trustees or officers with the corporation.
A contract of the corporation with one or more of its directors or
trustees or officers is voidable, at the option of such corporation, unless
all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in
which the contract was approved was not necessary to constitute a
quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the
approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in the case of an officer, the contract with the officer has been
previously authorized by the Board of Directors.
Where any of the first two conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or trustee,
such contract may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or
of two-thirds (2/3) of the members in a meeting called for the purpose:
Provided, That full disclosure of the adverse interest of the directors or
trustees involved is made at such meeting: Provided, however, That the
contract is fair and reasonable under the circumstances.
Although the old Corporation Law which governs the instant case did
not contain a similar provision, yet the cited provision substantially
incorporates well-settled principles in corporate law.
12

Granting arguendo that the "dealership agreement" involved here
would be valid and enforceable if entered into with a person other than
a director or officer of the corporation, the fact that the other party to
the contract was a Director and Auditor of the petitioner corporation
changes the whole situation. First of all, We believe that the contract
was neither fair nor reasonable. The "dealership agreement" entered
into in July, 1969, was to sell and supply to respondent Te 20,000 bags
of white cement per month, for five years starting September, 1970, at
thefixed price of P9.70 per bag. Respondent Te is a businessman himself
and must have known, or at least must be presumed to know, that at
that time, prices of commodities in general, and white cement in
particular, were not stable and were expected to rise. At the time of the
contract, petitioner corporation had not even commenced the
manufacture of white cement, the reason why delivery was not to begin
until 14 months later. He must have known that within that period of
six years, there would be a considerable rise in the price of white
cement. In fact, respondent Te's own Memorandum shows that in
September, 1970, the price per bag was P14.50, and by the middle of
1975, it was already P37.50 per bag. Despite this, no provision was
made in the "dealership agreement" to allow for an increase in price
mutually acceptable to the parties. Instead, the price was pegged at
P9.70 per bag for the whole five years of the contract. Fairness on his
part as a director of the corporation from whom he was to buy the
cement, would require such a provision. In fact, this unfairness in the
contract is also a basis which renders a contract entered into by the
President, without authority from the Board of Directors, void or
voidable, although it may have been in the ordinary course of business.
We believe that the fixed price of P9.70 per bag for a period of five
years was not fair and reasonable. Respondent Te, himself, when he
subsequently entered into contracts to resell the cement to his "new
dealers" Henry Wee
13
and Gaudencio Galang
14
stipulated as follows:
The price of white cement shall be mutually determined by us but in no
case shall the same be less than P14.00 per bag (94 lbs).
The contract with Henry Wee was on September 15, 1969, and that
with Gaudencio Galang, on October 13, 1967. A similar contract with
Prudencio Lim was made on December 29, 1969.
15
All of these
contracts were entered into soon after his "dealership agreement" with
Leyah Josef Corpo 4
th
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petitioner corporation, and in each one of them he protected himself
from any increase in the market price of white cement. Yet, except for
the contract with Henry Wee, the contracts were for only two years
from October, 1970. Why did he not protect the corporation in the
same manner when he entered into the "dealership agreement"? For
that matter, why did the President and the Chairman of the Board not
do so either? As director, specially since he was the other party in
interest, respondent Te's bounden duty was to act in such manner as
not to unduly prejudice the corporation. In the light of the
circumstances of this case, it is to Us quite clear that he was guilty of
disloyalty to the corporation; he was attempting in effect, to enrich
himself at the expense of the corporation. There is no showing that the
stockholders ratified the "dealership agreement" or that they were fully
aware of its provisions. The contract was therefore not valid and this
Court cannot allow him to reap the fruits of his disloyalty.
As a result of this action which has been proven to be without legal
basis, petitioner corporation's reputation and goodwill have been
prejudiced. However, there can be no award for moral damages under
Article 2217 and succeeding articles on Section 1 of Chapter 3 of Title
XVIII of the Civil Code in favor of a corporation.
In view of the foregoing, the Decision and Resolution of the
Intermediate Appellate Court dated March 30, 1984 and August 6,
1984, respectively, are hereby SET ASIDE. Private respondent Alejandro
Te is hereby ordered to pay petitioner corporation the sum of
P20,000.00 for attorney's fees, plus the cost of suit and expenses of
litigation.
SO ORDERED.
Prime White Cement Corporation vs. Intermediate Appellate Court
[GR 68555, 19 March 1993]Second Division, Campos Jr. (J): 4 concur
Facts:
On or about 16 July 1969, Alejandro Te and Prime White Cement
Corporation (PWCC) thru itsPresident, Mr. Zosimo Falcon and Justo C.
Trazo, as Chairman of the Board, entered into a dealershipagreement
whereby Te was obligated to act as the exclusive dealer and/or
distributor of PWCC of its cementproducts in the entire Mindanao area
for a term of 5 years and providing among others that (a) the
corporationshall, commencing September, 1970, sell to and supply Te,
as dealer with 20,000 bags (94 lbs/bag) of whitecement per month; (b)
Te shall pay PWCC P9.70, Philippine Currency, per bag of white cement,
FOB Davaoand Cagayan de Oro ports; (c) Te shall every time PWCC is
ready to deliver the good, open with any bank or banking institution a
confirmed, unconditional, and irrevocable letter of credit in favor of
PWCC and thatupon certification by the boat captain on the bill of
lading that the goods have been loaded on board the vesselbound for
Davao the said bank or banking institution shall release the
corresponding amount as payment of the goods so shipped." Right after
Te entered into the dealership agreement, he placed an advertisement
in anational, circulating newspaper the fact of his being the exclusive
dealer of PWWC's white cement products inMindanao area, more
particularly, in the Manila Chronicle dated 16 August 1969 and was
even congratulatedby his business associates, so much so, he was asked
by some of his businessmen friends and close associatesif they can be
his sub-dealer in the Mindanao area. Relying heavily on the dealership
agreement, Te sometimein the months of September, October, and
December, 1969, entered into a written agreement with
severalhardware stores dealing in buying and selling white cement in
the Cities of Davao and Cagayan de Oro whichwould thus enable him to
sell his allocation of 20,000 bags regular supply of the said commodity,
bySeptember, 1970. After Te was assured by his supposed buyer that
his allocation of 20,000 bags of whitecement can be disposed of, he
informed the defendant corporation in his letter dated 18 August 1970
that he ismaking the necessary preparation for the opening of the
requisite letter of credit to cover the price of the dueinitial delivery for
the month of September 1970, looking forward to PWCC's duty to
comply with thedealership agreement. In reply to the aforesaid letter of
Te, PWCC thru its corporate secretary, replied that theboard of
directors of PWCC decided to impose the following conditions: (a)
Delivery of white cement shallcommence at the end of November,
1970; (b) Only 8,000 bags of white cement per month for only a period
of three (3) months will be delivered; (c) The price of white cement was
priced at P13.30 per bag; (d) The priceof white cement is subject to
readjustment unilaterally on the part of the defendant; (e) The place of
deliveryof white cement shall be Austurias (sic); (f) The letter of credit
may be opened only with the Prudential Bank,Makati Branch; (g)
Payment of white cement shall be made in advance and which payment
shall be used bythe defendant as guaranty in the opening of a foreign
letter of credit to cover costs and expenses in theprocurement of
materials in the manufacture of white cement. Several demands to
comply with the dealershipagreement were made by Te to PWCC,
however, PWCC refused to comply with the same, and Te by force
of circumstances was constrained to cancel his agreement for the
supply of white cement with third parties,which were concluded in
anticipation of, and pursuant to the said dealership agreement.
Notwithstanding thatthe dealership agreement between Te and PWCC
was in force and subsisting, PWCC, in violation of, and withevident
intention not to be bound by the terms and conditions thereof, entered
into an exclusive dealershipagreement with a certain Napoleon Co for
the marketing of white cement in Mindanao. Te filed suit. After trial,
the trial court adjudged PWCC liable to Alejandro Te in the amount of
P3,302,400.00 as actual damages,P100,000.00 as moral damages, and
P10,000 00 as and for attorney's fees and costs. The appellate
courtaffirmed the said decision. Hence, PWCC filed the petition for
review on certiorari.
Issue:
Whether the "dealership agreement" referred by the President and
Chairman of the Board of PWCC is avalid and enforceable contract.
Held:
The dealership agreement is not valid and unenforceable. Under the
Corporation Law, which wasthen in force at the time the case arose, as
well as under the present Corporation Code, all corporate powersshall
be exercised by the Board of Directors, except as otherwise provided by
law. Although it cannotcompletely abdicate its power and responsibility
to act for the juridical entity, the Board may expresslydelegate specific
powers to its President or any of its officers. In the absence of such
express delegation, acontract entered into by its President, on behalf of
the corporation, may still bind the corporation if the boardshould ratify
the same expressly or impliedly. Implied ratification may take various
forms like silence or acquiescence; by acts showing approval or
adoption of the contract; or by acceptance and retention of
benefitsflowing therefrom. Furthermore, even in the absence of
express or implied authority by ratification, thePresident as such may,
as a general rule, bind the corporation by a contract in the ordinary
course of business,provided the same is reasonable under the
circumstances. These rules are basic, but are all general and thusquite
flexible. They apply where the President or other officer, purportedly
acting for the corporations, is dealing with a third person, i.e., a person
outside the corporation. The situation is quite different where adirector
Leyah Josef Corpo 4
th
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or officer is dealing with his own corporation. Herein, Te was not an
ordinary stockholder; he was amember of the Board of Directors and
Auditor of the corporation as well. He was what is often referred to as
a"self-dealing" director. A director of a corporation holds a position of
trust and as such, he owes a duty of loyalty to his corporation. In case
his interests conflict with those of the corporation, he cannot sacrifice
thelatter to his own advantage and benefit. As corporate managers,
directors are committed to seek the maximumamount of profits for the
corporation. A director's contract with his corporation is not in all
instances void or voidable. If the contract is fair and reasonable under
the circumstances, it may be ratified by the stockholdersprovided a full
disclosure of his adverse interest is made.Granting arguendo that the
"dealership agreement" would be valid and enforceable if entered into
with aperson other than a director or officer of the corporation, the fact
that the other party to the contract was aDirector and Auditor of PWCC
changes the whole situation. First of all, the contract was neither fair
nor reasonable. The "dealership agreement" entered into in July 1969,
was to sell and supply to Te 20,000 bags of white cement per month,
for 5 years starting September 1970, at the fixed price of P9.70 per bag.
Te is abusinessman himself and must have known, or at least must be
presumed to know, that at that time, prices of commodities in general,
and white cement in particular, were not stable and were expected to
rise. At the timeof the contract, PWCC had not even commenced the
manufacture of white cement, the reason why deliverywas not to begin
until 14 months later. He must have known that within that period of 6
years, there would bea considerable rise in the price of white cement.
In fact, Te's own Memorandum shows that in September 1970, the
price per bag was P14.50, and by the middle of 1975, it was already
P37.50 per bag. Despite this, noprovision was made in the "dealership
agreement" to allow for an increase in price mutually acceptable to
theparties. Instead, the price was pegged at P9.70 per bag for the whole
5 years of the contract. Fairness on hispart as a director of the
corporation from whom he was to buy the cement, would require such
a provision. Infact, this unfairness in the contract is also a basis which
renders a contract entered into by the President,without authority from
the Board of Directors, void or voidable, although it may have been in
the ordinarycourse of business. The fixed price of P9.70 per bag for a
period of 5 years was not fair and reasonable. Asdirector, specially since
he was the other party in interest, Te's bounden duty was to act in such
manner as notto unduly prejudice the corporation. In the light of the
circumstances of this case, it is to Us quite clear that hewas guilty of
disloyalty to the corporation; he was attempting in effect, to enrich
himself at the expense of thecorporation. There is no showing that the
stockholders ratified the "dealership agreement" or that they werefully
aware of its provisions. The contract was therefore not valid and the
Court cannot allow him to reap thefruits of his disloyalty.