Western Institute vs.

Salas apart from reasonable per diems: (1) when there is a provision
Facts: Private respondents are the majority and controlling
members of the Board of Trustees of Western Institute of
Technology, Inc. a stock corporation engaged in the operation,
among others, of an educational institution. Then, the board of
directors amended their by laws giving the members of board
of directors a compensation. The ten per centum of the net
profits shall be distributed equally among the ten members of
the Board of Trustees. Few years later, the private
respondents were charged of falsification of public documents
and estafa. The charge for falsification of public document was
anchored on the private respondents’ submission of WIT’s
income statement for the fiscal year 1985-1986 with the
Securities and Exchange Commission (SEC) reflecting therein
the disbursement of corporate funds 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 corporation’s fiscal year 1985-1986. After a
full-blown hearing TC handed down a verdict of acquittal on
both counts without imposing any civil liability against the
accused therein.
Issue: WON the compensation of the board of directors as
stated in their by laws violates the corporation code?
Held: NO. 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.
Under the foregoing section, there are only two (2) ways by
which members of the board can be granted compensation
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. 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. 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.
MATLING INDUSTRIAL AND COMMERCIAL
CORPORATION VS. RICARDO COROS
FACTS: After respondent Ricardo Coros dismissal by Matling
as its Vice President for Financeand Administration, he filed on
August 10, 2000 a complaint for illegal suspension and
illegaldismissal against Matling and some of its
corporate officers in the NLRC, Sub-RegionalArbitration
Branch XII, Iligan City. The petitioners moved to dismiss the
complaint, raising theground, among others, that the
complaint pertained to the jurisdiction of the Securities
andExchange Commission due to the controversy
being intra-corporate inasmuch as therespondent was a
member of Matling’s Board of Directors aside from being its
Vice-Presidentfor Finance and Administration prior to his
termination.
The respondent opposed the petitioners’motion to dismiss,
insisting that his status as a member of Matling’s Board of
Directors wasdoubtful, considering that he had not been
formally elected as such; that he did not own a singleshare of
stock in Matling, considering that he had been made to
sign in blank an undatedindorsement of the certificate of
stock he had been given in 1992; that Matling had taken
backand retained the certificate of stock in its custody; and
that even assuming that he had been aDirector of Matling, he
had been removed as the Vice President for Finance and
Administration,not as a Director, a fact that the notice of his
termination dated April 10, 2000 showed.
On October 16, 2000, the Labor Arbiter granted the petitioners’
motion to dismiss, ruling that therespondent was a corporate
officer. On March 13, 2001, the NLRC set aside the
dismissal,concluding that the respondent’s complaint for illegal
dismissal was properly cognizable by theLA, not by the SEC,
because he was not a corporate officer by virtue of his position
in Matling,albeit high ranking and managerial, not
being among the positions listed in
Matling’sConstitution and By-Laws. On motion for
reconsideration, petitioners submitted a certifiedmachine
copies of Matling’s Amended Articles of Incorporation and By
Laws to prove that thePresident of Matling was thereby
granted "full power to create new offices and appoint
theofficers thereto” and the minutes of special meeting held on
June 7, 1999 by Matling’s Board ofDirectors to prove that
the respondent was, indeed, a Member of the Board
of Directors.Nonetheless, the NLRC denied the
petitioners’ motion for reconsideration. The
petitionerselevated the issue to the CA by petition for
certiorari. The CA dismissed the petition forcertiorari and
ruled that for a position to be considered as a corporate office,
or, for thatmatter, for one to be considered as a corporate
officer, the position must, if not listed inthe by-laws, have been
created by the corporation's board of directors, and the
occupantthereof appointed or elected by the same board of
directors or stockholders. Motion forreconsideration was
likewise denied. Hence this petition for review on certiorari.
ISSUE: Whether or not respondent was a corporate officer of
Matling Industrial and CommercialCorporation.RULING:
Conformably with Section 25, a position must be expressly
mentioned in the By-Lawsin order to be considered as a
corporate office. Thus, the creation of an office pursuant to
orunder a By-Law enabling provision is not enough to make a
position a corporate office. Guerreav. Lezama, the first ruling
on the matter, held that the only officers of a corporation were
thosegiven that character either by the Corporation Code or by
the By-Laws; the rest of the corporateofficers could be
considered only as employees or subordinate officials.
It is relevant to state in this connection that the SEC, the
primary agency administering theCorporation Code, adopted a
similar interpretation of Section 25 of the Corporation Code in
itsOpinion dated November 25, 1993, to wit:Thus, pursuant
to Section 25 of the Corporation Code, whoever are
the corporate officersenumerated in the by-laws are the
exclusive Officers of the corporation and the Board has
nopower to create other Offices without amending first the
corporate By-laws. However, the Boardmay create appointive
positions other than the positions of corporate Officers, but the
personsoccupying such positions are not considered as
corporate officers within the meaning of Section25 of the
Corporation Code and are not empowered to exercise the
functions of the corporateOfficers, except those functions
lawfully delegated to them. Their functions and duties are to
bedetermined by the Board of Directors/Trustees.Moreover,
the Board of Directors of Matling could not validly delegate the
power to create acorporate office to the President, in light of
Section 25 of the Corporation Code requiring theBoard of
Directors itself to elect the corporate officers. Verily, the power
to elect the corporateofficers was a discretionary power that
the law exclusively vested in the Board of Directors, andcould
not be delegated to subordinate officers or agents. The
office of Vice President forFinance and Administration
created by Matling’s President pursuant to By Law No. V was
anordinary, not a corporate, office.To emphasize, the power to
create new offices and the power to appoint the officers to
occupythem vested by By-Law No. V merely allowed
Matling’s President to create non-corporateoffices to be
occupied by ordinary employees of Matling. Such powers were
incidental to thePresident’s duties as the executive head of
Matling to assist him in the daily operations of thebusiness.
VS. INTERNATIONAL BROADCASTING CORP.
Facts: Petitioner was an Assistant General Manager for
Finance/Administration and Comptroller of respondent IBC.
Alleging that he was forced to retire by the new IBC president,
he filed with the NLRC a complaint for illegal dismissal and
non-payment of benefits. IBC assailed the jurisdiction of the
Labor Arbiter, insisting that the complaint was a corporate
officer and that the dispute was for the SEC to take
cognizance of. Petitioner maintained that he was not a
corporate officer but a mere employee because he was
appointed by the GM, not appointed or elected by the Board.
Issue: WON SEC has jurisdiction over an employee who was
appointed by the GM.
Ruling: The Court has consistently held that there are two
elements to be considered in determining whether the SEC
has jurisdiction over the controversy, to wit: (1) the status or
relationship of the parties; and (2) the nature of the quest ions
that is the subject of their controversy. As petitioner’s
appointment as comptroller required the approval and formal
action of the IBC’s Board of Directors to become valid, it is
clear therefore that the petitioner is a corporate officer whose
dismissal may be the subject of a controversy cognizable by
the SEC now the RTC under Section 5(c) of PD 902-A which
includes controversies involving both election and appointment
of corporate directors, trustees, officers, and managers. Had
petitioner been an ordinary employee, such board action
would not have been required.
PEOPLE'S AIRCARGO AND WAREHOUSING CO. INC. VS.
COURT OF APPEALS
FACTS:
People's Aircargo and Warehousing Co. Inc. (PAWCI) is a
domestic corporation, organized in 1986 to operate a
customs bonded warehouse at the old Manila International
Airport in Pasay City.
Now, to obtain a license for the corporation from the Bureau of
Customs, ANTONIO PUNSALAN JR., the corporation
president, solicited a proposal from STEFANI SAÑO for the
preparation of a feasibility study. Saño submitted a letter of
proposal ("First Contract") to Punsalan, for the project
feasibility study (market, technical, and financial feasibility) and
preparation of pertinent documentation requirements for the
application, worth P350,000.
Initially, Cheng Yong, the majority stockholder of PAWCI,
objected to Saño's offer, as another company priced a similar
proposal at only P15,000. However, Punsalan preferred
Saño's services because of the latter's membership in the task
force, which was supervising the transition of the Bureau of
Customs from the Marcos government to the Aquino
Administration. PAWCI, through Punsalan, sent Saño a letter
confirming their agreement. Accordingly, Saño prepared a
feasibility study for PAWCI which eventually paid him the
balance of the contract price.
Upon Punsalan's request, Saño sent PAWCI another letter-
proposal ("Second Contract") formalizing its proposal for
consultancy services in the amount of P400,000. ANDY
VILLACEREN, vice president of PAWCI, received the
operations manual prepared by Saño. PAWCI submitted said
operations manual to the Bureau of Customs in connection
with the former's application to operate a bonded warehouse
where thereafter, the Bureau issued to it a license to operate,
enabling it to become one of the three public customs bonded
warehouses at the international airport. Saño also conducted,
in the warehouse of PAWCI, a three-day training seminar for
the latter's employees.
Thereafter, Saño joined the Bureau of Customs as special
assistant to then Commissioner ALEX PADILLA, a position he
held until he became technical assistant to then Commissioner
MIRIAM DEFENSOR-SANTIAGO.
Meanwhile, Punsalan sold his shares in PAWCI and resigned
as its president in 1987. Saño thereupon, filed a collection suit
against PAWCI. He alleged that he had prepared an
operations manual for PAWCI, conducted a seminar-workshop
for its employees and delivered to it a computer program; but
that, despite demand, PAWCI refused to pay him for his
services.
PAWCI, in its answer, denied that Saño had prepared an
operations manual and a computer program or conducted a
seminar-workshop for its employees. It further alleged that
THE LETTER-AGREEMENT WAS SIGNED BY PUNSALAN
WITHOUT AUTHORITY, IN COLLUSION WITH SAÑO in
order to unlawfully get some money from PAWCI, and despite
his knowledge that a group of employees of the company had
been commissioned by the board of directors to prepare an
operations manual.
RTC of Pasay City rendered a Decision declaring the Second
Contract unenforceable or simulated. However, since Saño
had actually prepared the operations manual and conducted a
training seminar for PAWCI and its employees, the trial court
awarded P60,000 to the former, on the ground that no one
should be unjustly enriched at the expense of another (Article
2142, Civil Code). The trial Court determined the amount "in
light of the evidence presented by defendant on the usual
charges made by a leading consultancy firm on similar
services."
Upon appeal, the appellate court modified the decision of the
trial court, and declared the Second Contract valid and binding
on PAWCI, which was held liable to Saño in the full amount of
P400,000, representing payment of Saño services in preparing
the manual of operations and in the conduct of a seminar for
PAWCI.
PAWCI filed the Petition for Review.
ISSUE:
Whether a single instance where the corporation had
previously allowed its president to enter into a contract with
another without a board resolution expressly authorizing him,
has clothed its president with apparent authority to execute the
subject contract.
RULING:
APPARENT AUTHORITY is derived not merely from practice.
Its existence may be ascertained through
(1) the general manner in which the corporation holds out an
officer or agent as having the power to act or, in other words,
the apparent authority to act in general, with which it clothes
him; or
(2) the acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether within or
beyond the scope of his ordinary powers.
It requires presentation of evidence of similar act(s) executed
either in its favor or in favor of other parties.
It is not the quantity of similar acts which establishes apparent
authority, but the vesting of a corporate officer with the power
to bind the corporation.
What happened here is that PAWCI, through its president
Antonio Punsalan Jr., entered into the First Contract without
first securing board approval. Despite such lack of board
approval, PAWCI DID NOT OBJECT TO OR REPUDIATE
SAID CONTRACT, THUS "CLOTHING" ITS PRESIDENT
WITH THE POWER TO BIND THE CORPORATION. The
grant of apparent authority to Punsalan is evident in the
testimony of Yong — senior vice president, treasurer and
major stockholder of PAWCI.
The First Contract was consummated, implemented and paid
without a hitch. Hence, Sano should not be faulted for
believing that Punsalan's conformity to the contract in dispute
was also binding on petitioner.
IT IS FAMILIAR DOCTRINE THAT IF A CORPORATION
KNOWINGLY PERMITS ONE OF ITS OFFICERS, OR ANY
OTHER AGENT, TO ACT WITHIN THE SCOPE OF AN
APPARENT AUTHORITY, IT HOLDS HIM OUT TO THE
PUBLIC AS POSSESSING THE POWER TO DO THOSE
ACTS; AND THUS, THE CORPORATION WILL, AS AGAINST
ANYONE WHO HAS IN GOOD FAITH DEALT WITH IT
THROUGH SUCH AGENT, BE ESTOPPED FROM DENYING
THE AGENT'S AUTHORITY.
Furthermore, Saño prepared an operations manual and
conducted a seminar for the employees of PAWCI in
accordance with their contract. PAWCI accepted the
operations manual, submitted it to the Bureau of Customs and
allowed the seminar for its employees. AS A RESULT OF ITS
AFOREMENTIONED ACTIONS, PAWCI WAS GIVEN BY
THE BUREAU OF CUSTOMS A LICENSE TO OPERATE A
BONDED WAREHOUSE.
Granting arguendo then that the Second Contract was outside
the usual powers of the president, PAWCI'S RATIFICATION
OF SAID CONTRACT AND ACCEPTANCE OF BENEFITS
HAVE MADE IT BINDING, NONETHELESS. The
enforceability of contracts under Article 1403(2) is ratified "by
the acceptance of benefits under them" under Article 1405.
EDUARDO LITONJUA, JR. AND ANTONIO LITONJUA V.
ETERNIT CORP.
FACTS:
Eternit Corp. is engaged in the manufacture of roofing
materials and pipe products. Itsmanufacturing operations were
conducted on 8 parcels of land located in Mandaluyong City,
coveredby TCTs with Far East Bank & Trust Company, as
trustee. 90% of the shares of stocks of Eternit Corp.were
owned by Eteroutremer S.A. Corporation (ESAC), a
corporation organized and registered underthe laws of
Belgium. Jack Glanville, an Australian citizen, was the General
Manager and President of Eternit Corp., while Claude
Frederick Delsaux was the Regional Director for Asia of
ESAC.
In 1986, the management of ESAC grew concerned about the
political situation in the Philippines andwanted to stop its
operations in the country. The Committee for Asia of ESAC
instructed MichaelAdams, a member of Eternit Corp.’s Board
of Directors, to dispose of the eight parcels of land.Adams
engaged the services of realtor/broker Lauro G. Marquez so
that the properties could beoffered for sale to prospective
buyers.
Marquez offered the parcels of land and the improvements
thereon to Eduardo B. Litonjua, Jr. of theLitonjua & Company,
Inc. Marquez declared that he was authorized to sell the
properties forP27,000,000.00 and that the terms of the sale
were subject to negotiation.
Eduardo Litonjua, Jr. responded to the offer. Marquez showed
the property to Eduardo Litonjua, Jr.,and his brother Antonio K.
Litonjua. The Litonjua siblings offered to buy the property
forP20,000,000.00 cash. Marquez apprised Glanville of the
Litonjua siblings’ offer and relayed the sameto Delsaux in
Belgium, but the latter did not respond. Glanville telexed
Delsaux in Belgium, inquiringon his position/ counterproposal
to the offer of the Litonjua siblings. Delsaux sent a telex to
Glanvillestating that, based on the “Belgian/Swiss decision,”
the final offer was “US$1,000,000.00 andP2,500,000.00 to
cover all existing obligations prior to final liquidation.
Litonjua, Jr. accepted the counterproposal of Delsaux.
Marquez conferred with Glanville, andconfirmed that the
Litonjua siblings had accepted the counter-proposal of
Delsaux. He also statedthat the Litonjua siblings would confirm
full payment within 90 days after execution and preparationof
all documents of sale, together with the necessary
governmental clearances.
The Litonjua brothers deposited the amount of
US$1,000,000.00 with the Security Bank & TrustCompany,
Ermita Branch, and drafted an Escrow Agreement to expedite
the sale.
With the assumption of Corazon Aquino as President of RP,
the political situation in the Philippineshad improved. Marquez
received a telephone call from Glanville, advising that the sale
would nolonger proceed. Glanville followed it up with a letter,
confirming that he had been instructed by hisprincipal to inform
Marquez that the decision has been taken at a Board Meeting
not to sell theproperties on which Eternit Corp. is situated.
When apprised of this development, the Litonjuas, through
counsel, wrote Eternit Corp., demandingpayment for damages
they had suffered on account of the aborted sale. EC,
however, rejected theirdemand.
ISSUE:
WON Marquez, Glanville, and Delsaux were authorized by
respondent Eternit Corp. to act as itsagents relative to the sale
of the properties of Eternit Corp., and if so, what are the
boundaries of theirauthority as agents
HELD:
No. A corporation is a juridical person separate and distinct
from its members or stockholders and is notaffected by the
personal rights, obligations and transactions of the latter. It
may act only through itsboard of directors or, when authorized
either by its by-laws or by its board resolution, through
itsofficers or agents in the normal course of business. The
general principles of agency govern therelation between the
corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law.
The property of a corporation is not the property of the
stockholders or members, and as such, maynot be sold
without express authority from the board of directors. Physical
acts, like the offering of theproperties of the corporation for
sale, or the acceptance of a counter-offer of prospective
buyers of such properties and the execution of the deed of
sale covering such property, can be performed by
thecorporation only by officers or agents duly authorized for
the purpose by corporate by-laws or byspecific acts of the
board of directors. Absent such valid delegation/authorization,
the rule is that thedeclarations of an individual director relating
to the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of such
director, are not binding on thecorporation.
While a corporation may appoint agents to negotiate for the
sale of its real properties, the final say willhave to be with the
board of directors through its officers and agents as authorized
by a boardresolution or by its by-laws.30 An unauthorized act
of an officer of the corporation is not binding on itunless the
latter ratifies the same expressly or impliedly by its board of
directors. Any sale of realproperty of a corporation by a person
purporting to be an agent thereof but without written
authorityfrom the corporation is null and void.
An agency may be expressed or implied from the act of the
principal, from his silence or lack of action,or his failure to
repudiate the agency knowing that another person is acting on
his behalf withoutauthority. Acceptance by the agent may be
expressed, or implied from his acts which carry out theagency,
or from his silence or inaction according to the circumstances.
Agency may be oral unless thelaw requires a specific form.
However, to create or convey real rights over immovable
property, aspecial power of attorney is necessary.
The Litonjuas failed to adduce in evidence any resolution of
the Board of Directors of Eternit Corp.empowering Marquez,
Glanville or Delsaux as its agents, to sell, let alone offer for
sale, for and in itsbehalf, the 8 parcels of land owned by
Eternit Corp. including the improvements thereon. The bare
factthat Delsaux may have been authorized to sell to Ruperto
Tan the shares of stock of respondent ESACcannot be used
as basis for Litonjua’s claim that he had likewise been
authorized by Eternit Corp. tosell the parcels of land.
While Glanville was the President and General Manager of
Eternit Corp., and Adams and Delsaux weremembers of its
Board of Directors, the three acted for and in behalf of
respondent ESAC, and not asduly authorized agents of Eternit
Corp.; a board resolution evincing the grant of such authority
isneeded to bind Eternit Corp. to any agreement regarding the
sale of the subject properties. Such boardresolution is not a
mere formality but is a condition sine qua non to bind Eternit unfair competition. The provincial prosecutors only found
Corp.Requisites of an agency by estoppels: (1) the principal probable cause on the violation of RA 623.
manifested a representation of the agent’sauthority or
KPE and Petron filed a special civil action for certiorari. CA
knowingly allowed the agent to assume such authority; (2) the
ruled in their favor, holding that unfair competition do not
third person, in good faith,relied upon such representation; (3)
absorb trademark infringement,
relying upon such representation, such third person has
changedhis position to his detriment.

ESPIRITU VS PETRON CORPORATION
FACTS:
Respondent Petron Corporation (Petron) sold and distributed
liquefied petroleum gas (LPG) in cylinder tanks that carried its
trademark Gasul Respondent Carmen J. Doloiras owned and
operated Kristina Patricia Enterprises (KPE), the exclusive
distributor of Gasul LPGs in the whole of Sorsogon. Bicol Gas
Refilling Plant Corporation (Bicol Gas) was also in the
business of selling and distributing LPGs in Sorsogon but
theirs carried the trademark Bicol Savers Gas.
In the course of trade and competition, any given distributor of
LPGs at times acquired possession of LPG cylinder tanks
belonging to other distributors operating in the same area.
They called these captured cylinders. It is a common practice
to swap captured cylinders and return it to their respective
LPG owners.
A KPE employee visited Bicol Gas, he requested for a swap
but the employee of Bicol Gas refused as he first needed to
ask the permission of the Bicol Gas Owners.
KPE filed a complaint for violation of RA 623 (illegally filling up
of registered cylinder tanks), infringement of trade marks and
ISSUE:
Whether Bicol Gas committed the following:
1. Trademark Infringement
2. Unfair Competition
3. RA 623
RULING:
Anent Trademark Infringment: NO
Section 155 of R.A. 8293 (in relation to Section 170[13])
provides that it is committed by any person who shall, without
the consent of the owner of the registered mark:
Use in commerce any reproduction, counterfeit, copy or
colorable imitation of a registered mark or the same container
or a dominant feature thereof in connection with the sale,
offering for sale, distribution, advertising of any goods or
services including other preparatory steps necessary to carry
out the sale of any goods or services on or in connection with
which such use is likely to cause confusion, or to cause
mistake, or to deceive; or
Reproduce, counterfeit, copy or colorably imitate a registered
mark or a dominant feature thereof and apply such
reproduction, counterfeit, copy or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or
advertisements intended to be used in commerce upon or in
connection with the sale, offering for sale, distribution, or
advertising of goods or services on or in connection with which
such use is likely to cause confusion, or to cause mistake, or
to deceive.
KPE and Petron have to show that the alleged infringer, the
responsible officers and staff of Bicol Gas, used Petrons Gasul
trademark or a confusingly similar trademark on Bicol Gas
tanks with intent to deceive the public and defraud its
competitor as to what it is selling.
Here, however, the allegations in the complaint do not show
that Bicol Gas painted on its own tanks Petrons Gasul
trademark or a confusingly similar version of the same to
deceive its customers and cheat Petron. Indeed, in this case,
the one tank bearing the mark of Petron Gasul found in a truck
full of Bicol Gas tanks was a genuine Petron Gasul tank, more
of a captured cylinder belonging to competition. No proof has
been shown that Bicol Gas has gone into the business of
distributing imitation Petron Gasul LPGs.
Anent Unfair Competition: NO
Section 168.3 (a) of R.A. 8293 (also in relation to Section 170)
describes the acts constituting the offense as follows:
168.3. In particular, and without in any way limiting the scope
of protection against unfair competition, the following shall be
deemed guilty of unfair competition:
(a) Any person, who is selling his goods and gives them the
general appearance of goods of another manufacturer or
dealer, either as to the goods themselves or in the wrapping of
the packages in which they are contained, or the devices or
words thereon, or in any other feature of their appearance,
which would be likely to influence purchasers to believe that
the goods offered are those of a manufacturer or dealer, other
than the actual manufacturer or dealer, or who otherwise
clothes the goods with such appearance as shall deceive the
public and defraud another of his legitimate trade, or any
subsequent vendor of such goods or any agent of any vendor
engaged in selling such goods with a like purpose;
Essentially, what the law punishes is the act of giving ones
goods the general appearance of the goods of another, which
would likely mislead the buyer into believing that such goods
belong to the latter.
3. Anent RA 623: NO
R.A. 623, as amended punishes any person who, without the
written consent of the manufacturer or seller of gases
contained in duly registered steel cylinders or tanks, fills the
steel cylinder or tank, for the purpose of sale, disposal or
trafficking, other than the purpose for which the manufacturer
or seller registered the same. This was what happened in this
case, assuming the allegations of KPEs manager to be true.
Bicol Gas employees filled up with their firms gas the tank
registered to Petron and bearing its mark without the latters
written authority. Consequently, they may be prosecuted for
that offense.
As to liability:
No evidence was presented establishing the names of the
stockholders who were charged with running the operations of
Bicol Gas. The complaint even failed to allege who among the
stockholders sat in the board of directors of the company or
served as its officers.
The Court of Appeals of course specifically mentioned
petitioner stockholder Manuel C. Espiritu, Jr. as the registered
owner of the truck that the KPE manager brought to the police
for investigation because that truck carried a tank of Petron
Gasul. But the act that R.A. 623 punishes is the unlawful filling
up of registered tanks of another. It does not punish the act of
transporting such tanks. And the complaint did not allege that
the truck owner connived with those responsible for filling up
that Gasul tank with Bicol Gas LPG.
LUCIA MAGALING, et al., VS. PETER ONG
Doctrine: The veil of corporate fiction may be pierced if there’s
gross negligence onthe part of the directors. Nature: Petition
for Review on Certiorari filed under Rule 45 seeking the
reversal ofthe Decision of the CA.
FACTS:1)Respondent Ong instituted with the RTC a
Complaint for the collection of thesum of P389,000.00, with
interest, attorney's fees and costs of suit, with prayer
forissuance of a writ of preliminary attachment against
the spouses Magaling andTermo Loans. The allegation
was that said sps. are the
controllingstockholders/owners of Termo Loans and had used
the corporation as mere alterego or adjunct to evade the
payment of valid obligation
2)The sps. sought a loan from Peter Ong and promised a
corresponding interestof 2.5 %. As a guarantee, Reynaldo
issued 7 checks, but only 2 were cleared by thebank. Despite
demands, the sps. and and Termo Loans failed to pay.
3)RTC grants the writ of preliminary attachment against sps
Magaling as it findsthat the petition of Ong was
impressed with merit. In their response
withcounterclaim, the sps. alleged that Ong voluntarily
invested the money without anyinducement because he got
attracted with the interest rate and that the checks thatwere
issued by Termo Loans as a corporation and answering
defendants are noteven signatories thereto.
4)Pursuant to the writ of preliminary attachment earlier issued
the Sheriff of RTC, Br. 13 of Lipa City, caused the attachment
of two (2) parcels of land coveredby Transfer Certificates of
Title No. T-109347 and No. T-75559, both in the names ofthe
Spouses Magaling. The Sps. Magaling expectedly moved for
the reconsideration of the Order ofthe RTC granting the writ of
preliminary attachment which the RTC granted. TheRTC found
that Spouses Magaling's Motion to Discharge Attachment was
impressedwith merit: FIRSTLY, it appears that the obligation
was incurred by Termo Loans. Itis therefore a corporate
liability and not the personal obligation of the sps.
6)RTC decided against Termo Loans and ordered the
execution of the orderagainst it and subsequently cleared the
sps. Magaling of liability ratiocinating thatTermo Loans has a
personality separate and distinct from that of Reynaldo
Magalingwho happens to be only a stockholder thereof and
president at that time. However,the Sheriff was not able to
attach any of the properties of Termo Loans as it hadalready
stopped its operations. CA reverses the decision of RTC and
held that pouses Magaling jointly andseverally liable to Ong for
the corporate obligation of Termo Loans. The CA piercedthe
veil of corporate fiction and held the sps. Magaling solidarily
liable with TermoLoans for the corporate obligations of
the latter since it found that ReynaldoMagaling was
grossly negligent in managing the affairs of the said
corporation. MoRof sps was denied by CA and grants
the motion of Ong for the re-issuance ofpreliminary
attachment against the properties of sps Magaling.
ISSUE: Was the CA correct in making the sps
Magaling liable for the loanscontracted by Termo Loans?
HELD: Yes!
The general rule is that obligations incurred by the corporation,
acting through itsdirectors, officers and employees, are its sole
liabilities, and vice versa.There are times, however, when
solidary liabilities may be incurred and the veil ofcorporate
fiction may be pierced. Exceptional circumstances
warranting suchdisregard of a separate personality are
summarized as follows:
1.When directors and trustees or, in appropriate case,
the officers of acorporation:
(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,
itsstockholders or members, and other persons;
2.When a director or officer has consented to the issuance of
watered downstocks or who, having knowledge thereof, did
not forthwith file with the corporatesecretary his written
objection thereto;
3.When a director, trustee or officer has contractually agreed
or stipulated tohold himself personally and solidarily liable with
the corporation; or
4.When a director, trustee or officer is made, by
specific provision of law,personally liable for his corporate
action. Although there’s no bad faith and fraud in this
instance , the Court still cannot totally absolve
Reynaldo Magaling from any liability considering his
gross negligence in directing the affairs of Termo
Loans; thus, he must be made personally liable for the
debt of Termo Loans to Ong. In order to pierce the veil
of corporate fiction, for reasons of negligence by the
director, trustee or officer in the conduct of the transactions of
the corporation, such negligence must be gross. Gross
negligence is one that is characterized by the wantof even
slight care, acting or omitting to act in a situation where there
is a duty toact, not inadvertently but willfully and intentionally
with a conscious indifference to consequences insofar as other
persons may be affected; and must be establishedby clear and
convincing evidence. Parenthetically, gross or willful
negligence couldamount to bad faith.He never told the
investors of the risks that their investment will be subjected to
inhis testimony when he said, upon cross-examination,
that “I did not tell that toinvestors, what is going on for
fear that they might be afraid of what is happening,Your
Honor.” Worse, he didn’t pursue the investements when
Termo Loans closeddown because he was also managing 9
other loan companies simultaneously.
The Court of Appeals observed correctly when it succinctly
stated that, "[c]learly,Reynaldo Magaling was grossly
negligent in directing the affairs of Thermo (sic)Loans
without due regard to the plight of its investors and
thus should be heldjointly and severally liable for the
corporate obligation of Thermo (sic) Loans toappellant
Peter Ong
GOKONGWEI, Jr. v. SEC
FACTS:
This is a petition for “declaration of nullity of amended by -
laws, cancellation of certificate of filing of amended by-laws
and damages” filed by petitioner John Gokongwei against the
majority of the members of the Board of Directors. Hehas the ff
causes of action:
1.that the Board in amending the by-laws, had no authority to
do so because it was based on the a 1961authorization and
the amendment being contested was in 1976, and the
authorization should have been based onvotes made
according to the 1976 shares, not the 1961 shares,
2.the authority granted in 1961 had already been exercised in
1962 and 1963, after which theauthority of the Board ceased
to exist,
3.membership of the Board changed since 1961, there are 6
new directors,
4. that prior to the amendment of the by-laws, he had all the
qualifications to be a director (he was asubstantial
stockholder) and the aamended by-laws disqualified him and
deprived him of a vested right to be voted,
5.that the corporation has no inherent power to disqualify a
stockholder from being elected andtherefore it is an ultra vires
and void act. Petitioner also wanted to inspect records and
documents of San Miguel Corporation but the request was
denied because the request was said to have been made in
bad faith.Respondents filed their answer to the petition,
denying the substantial allegations therein and stating, by way
of affirmative defenses that "the action taken by the Board of
Directors on September 18, 1976 resulting in the . . .
amendments isvalid and legal because the power to 'amend,
modify, repeal or adopt new By-laws' delegated to said Board
on March 13, 1961and long prior thereto has never been
revoked, withdrawn or otherwise nullified by the stockholders
of SMC". Also said that the power of the Board to amend the
by-laws are broad, subject only to existing laws.August 1972,
the Universal Robina Corporation (URC), a corporation
engaged in business competitive to that of respondent
corporation, began acquiring shares amounting to 622,987
shares. In October 1972, the Consolidated FoodsCorporation
(CFC) likewise began acquiring shares in respondent
corporation that amounted to P543,959.00.
On January 12,1976, petitioner, who is president and
controlling shareholder of URC and CFC (both closed
corporations) purchased 5,000shares of stock of respondent
corporation, and thereafter, in behalf of himself, CFC and
URC, "conducted malevolent andmalicious publicity campaign
against SMC" to generate support from the stockholder "in his
effort to secure for himself and inrepresentation of URC and
CFC interests, a seat in the Board of Directors of SMC".
Petitioner was rejected by thestockholders in his bid to secure
a seat in the Board of Directors on the basic issue that
petitioner was engaged in acompetitive business and his
securing a seat would have subjected respondent corporation
to grave disadvantages.
On May 6, 1977, this Court issued a temporary restraining
order restraining private respondents from disqualifying or
preventing petitioner from running or from being voted as
director of respondent corporation and from submitting
forratification or confirmation or from causing the ratification or
confirmation of the amendment. SEC held that petitioner
shouldbe allowed to run as a director but that he should not sit
as such until SEC has decided on the validity of the by-laws
indispute.Respondents reason out that petitioner is engaged in
businesses competitive and antagonistic to that of respondent
SMC and that the Board realized the clear and present danger
in competitors being directors because they would have
easyand direct access to SMC’s business and trade secrets.
ISSUE: W/N the amended by-laws of SMC disqualifying a
competitor from nomination or election to the Boardof
Directors of SMC are valid and
reasonable.HELD/RATIONALE: Amendments are valid.
The validity or reasonableness of a by-law of a corporation is
purely a question of law. Petitioner claims that theamended
by-laws are invalid and unreasonable because they were
tailored to suppress the minority and prevent them from
having representation in the Board", at the same time
depriving petitioner of his "vested right" to be voted for and to
vote for aperson of his choice as director.Any person "who
buys stock in a corporation does so with the knowledge that its
affairs are dominated by a majority of the stockholders and
that he impliedly contracts that the will of the majority shall
govern in all matters within the limits of the act of incorporation
and lawfully enacted by-laws and not forbidden by law."
Pursuant to section 18 of the Corporation Law, any corporation
may amend its articles of incorporation by a vote orwritten
assent of the stockholders representing at least two-thirds of
the subscribed capital stock of the corporation. If
theamendment changes, diminishes or restricts the rights of
the existing shareholders, then the dissenting minority has
only oneright, viz.: "to object thereto in writing and demand
payment for his share." Under section 22 of the same law, the
owners of the majority of the subscribed capital stock may
amend or repeal any by-law or adopt new by-laws. It cannot
be said,therefore, that petitioner has a vested right to be
elected director, in the face of the fact that the law at the time
such right asstockholder was acquired contained the
prescription that the corporate charter and the by-law shall be
subject to amendment,alteration and modification.
Although in the strict and technical sense, directors of a private
corporation are not regarded as trustees, there cannot be any
doubt that their character is that of a fiduciary insofar as the
corporation and the stockholders as a body are concerned.As
agents entrusted with the management of the corporation, they
should act for the collective benefit of the stockholders.It is a
settled state law in the United States that corporations have
the power to make by-laws declaring a personemployed in the
service of a rival company to be ineligible for the corporation's
Board of Directors. ". . . (A)n amendment which renders
ineligible, or if elected, subjects to removal, a director if he be
also a director in a corporation whose business isin
competition with or is antagonistic to the other corporation is
valid." This is based upon the principle that where thedirector
is so employed in the service of a rival company, he cannot
serve both, but must betray one or the other. Such an
amendment "advances the benefit of the corporation and is
good."
The doctrine of "corporate opportunity" is precisely a
recognition that fiduciary standards could not be upheld
wherethe fiduciary was acting for two entities with competing
interests. It is not denied that a member of the Board of
Directors of the San Miguel Corporation has access to
sensitive and highly confidential information.It is obviously to
prevent the creation of an opportunity for an officer or director
of San Miguel Corporation, who isalso the officer or owner of a
competing corporation, from taking advantage of the
information which he acquires as directorto promote his
individual or corporate interests to the prejudice of San Miguel
Corporation and its stockholders, that thequestioned
amendment of the by-laws was made. Certainly, where two
corporations are competitive in a substantial sense, it would
seem improbable, if not impossible, for the director, if he were
to discharge effectively his duty, to satisfy his loyalty toboth
corporations and place the performance of his corporation
duties above his personal concerns.In the absence of any
legal prohibition or overriding public policy, wide latitude may
be accorded to the corporation inadopting measures to protect
legitimate corporate interests. The test must be whether the
business does in fact compete, not whether it is capable of an
indirect and highly unsubstantial duplication of an isolated or
non-characteristic activity.
DEVELOPMENT BANK OF THE PHILIPPINES (DBP) VS.
HONORABLE COURT OF APPEALS AND REMINGTON
INDUSTRIAL SALES CORPORATION (RISC)
G.R. No. 126200; August 16, 2001
Marinduque Mining-Industrial Co. (MMIC) obtained various
loans from Philippine National Bank (PNB) and DBP secured
by Real Estate Mortgages (REM) and Chattel Mortgages (CM)
over all their properties in Surigao del Norte, Negros
Occidental and Rizal as well as any assets it may
subsequently acquire.
PNB and DBP instituted extrajudicial foreclosure against
MMIC for failure to settle it obligations where PNB and DBP
emerged and was declared the highest bidder.
To ensure the continued operation of the refinery, PNB and
DBP transferred and assigned all their right and interest to
Nonoc Mining and Industrial Co. (NMIC) and Miralcum Mining
Co. (MMC).
PNB and DBP later transferred those given to NMIC and MMC
to the Government thru the Asset Privatization Trust (APT)
pursuant to a proclamation.
Meanwhile, MMIC purchased and caused the delivery of
construction materials from RISC. This remained unpaid,
however, which prompted Remington to file a complaint for
sum of money against MMIC.
RISC later filed multiple amendments to implead PNB, DBP,
NMIC, MMC, Island Cement Co. (ICC), and APT asserting that
they must all be considered as one entity by piercing the veil of
corporate fiction, alleging: that NMIC, MMC, ICC are wholly
owned and managed by the officers of PNB and DBP; that the
transfer of properties was made in fraud of creditors; that the
use of the same premises and hiring of the same employees
and officers are badged of bad faith.
The RTC favored RISC. Which the CA affirmed.
The CA agreed with RISC that:
When a corporation is insolvent, the directors of the creditor
corporation are disqualified, by reason of self-interest, from
acting as directors of the debtor corporation in the
authorization of a mortgage or deed of trust to the former to
secure such indebtedness. (Interlocking directors)
When the corporation is insolvent, its directors who are its
creditors cannot secure to themselves any advantage or
preference over other creditors. (directors who are creditors)
If they do, equity will set aside the transaction at the suit of
creditors of the corporation or their representatives, without
reference to the question of any actual fraudulent intent on the
part of the directors, for the right of the creditors does not
depend upon fraud in fact, but upon the violation of the
fiduciary relation to the directors."
Hence this petition by DBP maintaining that RISC has no
cause of action.
• The hiring of MMIC employees and the use of the
same premises is also justified by reason of convenience,
practicality, and efficiency.
As to transactions between corporations with interlocking
directors, it cannot apply in this case. RISC is a third party and
not the one that has interlocking directors like MMIC and DBP.
As to “directors who are creditors”, it is also not applicable
since the creditor of MMIC is DBP and not the directors of
MMIC.
(yan lang talaga diniscuss about Interlocking directors ☹)

ISSUE: 2. The claim of Remington cannot be enforced in absence

of liquidation proceedings.
1. Is there fraud so as to warrant piercing the veil of
corporate fiction? NO The Civil Code demands that there must be first some
proceeding where the claims of all the preferred creditors may
2. Can the claim of RISC be enforced? NO be adjudicated, such as insolvency, the settlement of
decedent's estate, or other liquidation proceedings of similar
RULING:
import.
1. There is no fraud. The acts of PNB and DBP are
Since the extrajudicial foreclosure instituted by PNB and DBP
justified:
is not the liquidation proceeding contemplated by the Civil
• PNB and DBP has the duty under the Law on Code, Remington cannot claim its pro rata share from DBP.
Mandatory Foreclosure (PD No. 385) to foreclose mortgages
when the due accounts incur arrears of more than 20% of the
total outstanding obligations.
• The creation of NMIC, MMC, and ICC is necessary to
manage and operate the business since they are not
authorized to change their charter to engage in mining. Hence,
there is no bad faith.
URBAN BANK, INC, MAGDALENO M. PEÑA,
FACTS:
Peña, a lawyer, was formerly a stockholder, director and
corporate secretary of Isabel Sugar Company, Inc. (ISCI). ISCI
owned a parcel of land. ISCI leased the land. Without its
consent and in violation of the lease contract, the lessee
subleased the land to several tenants, who in turn put up
nightclubs inside the compound. Before the expiration of the
lease contract, ISCI informed the lessee and his tenants that
the lease would no longer be renewed because the land will
be sold.
ISCI and Urban Bank executed a Contract to Sell, and they
agreed that the final installment released by the bank upon
ISCI’s delivery of full and actual possession of the land, free
from any tenants.
ISCI then instructed Peña, to act as its agent and handle the
eviction of the tenants. The lessee left, but the unauthorized
sub-tenants refused to leave. Peña had the gates of the
property closed and he also posted security guards—services
for which he advanced payments. Despite the closure of the
gates and the posting of the guards, the sub-tenants would
force open the gates, and proceed to carry on with their
businesses.
Peña then filed a complaint with the RTC, which issued a
TRO. At the time the complaint was filed, a new title to the had
already been issued in the name of Urban Bank.
When information reached the judge that the had already been
transferred by ISCI to Urban Bank, the trial court recalled the
TRO and issued a break-open order for the property. Peña
immediately contacted ISCI’s presidentand told him that
because of the break-open order of the RTC, he (Peña) would
be recalling the security guards he had posted to secure the
property. The President asked him to suspend the withdrawal
of the posted guards, so that ISCI could get in touch first with
Urban Bank.
Peña also called Urban Bank’s President. The President
allegedly assured him that the bank was going to retain his
services, and that the he should not give up possession of the
subject land.
Thereafter, Peña, in representation of Urban Bank, filed a
separate complaint with the RTC-Makati City, to enjoin the
tenants from entering the Pasay property. Acting on Urban
Bank’s preliminary prayer, the RTC-Makati City issued a TRO.
While the 2nd complaint was pending, Peña made efforts to
settle the issue of possession of the with the sub-tenants.
During the negotiations, he was exposed to several civil and
crimal cases and received several threats against his life. The
sub-tenants eventually agreed to stay off the property for a
total consideration of PhP1.5M. Peña advanced the payment
for the full and final settlement of their claims against Urban
Bank. Peña formally informed Urban Bank that it could already
take possession of the Pasay property. There was however no
mention of the compensation due and owed to him for the
services he had rendered. The bank subsequently took actual
possession of the property and installed its own guards at the
premises.
Peña thereafter made several attempts to contact Urban Bank,
but the bank officers would not take any of his calls. Peña
formally demanded from Urban Bank the payment of the 10%
compensation and attorney’s fees allegedly promised to him
during his telephone conversation with Urban Bank’s President
for securing and maintaining peaceful possession of the
property.
Urban Bank and individual bank officers and directors argued
that it was ISCI, the original owners of the Pasay property, that
had engaged the services of Peña in securing the premises;
and, consequently, they could not be held liable for the
expenses Peña had incurred.
ISSUE: W/N Pena is entitled to payment for the services he
rendered as agent of Urban Bank.
HELD: Yes.
RATIO:
Peña should be paid for services rendered under the agency
relationship that existed between him and Urban Bank based
on the civil law principle against unjust enrichment, and not on
the basis of the purported oral contract. Whether or not an
agency has been created is determined by the fact that one is
representing and acting for another. The law makes no
presumption of agency; proving its existence, nature and
extent is incumbent upon the person alleging it.
(NOTE: This case is also under I.3.c of our outline so I’m
including this): Agency is presumed to be for compensation.
Unless the contrary intent is shown, a person who acts as an
agent does so with the expectation of payment according to
the agreement and to the services rendered or results
effected.
In this case there’s no evidence that Urban Bank agreed to
pay Peña a specific amount or percentage of amount for his
services, so the court applies the principle against unjust
enrichment and on the basis of quantum meruit. The agency of
Peña comprised of services ordinarily performed by a lawyer
who is tasked with the job of ensuring clean possession by the
owner of a property. The court measured the amount Pena is
entitled to for the services he rendered (as opposed to the
10% compensation demanded by Pena).
CORPORATION AND PETER C. MALIGRO vs. NATIONAL
LABOR RELATIONS COMMISSION AND CHITO S.
MANTOS
FACTS
On May 15, 1990, Petron, through its Cebu District Office,
hired the herein private respondent Chito S. Mantos, an
Industrial Engineer, as a managerial, professional and
technical employee with initial designation as a Bulk Plant
Engineering Trainee. He attained regular employment status
on November 15, 1990 and was later on designated as a Bulk
Plant Relief Supervisor, remaining as such for the next five
years while being assigned to the different plants and offices
of Petron within the Visayas area. It was while assigned at
Petron’s Cebu District Office with petitioner Peter Maligro as
his immediate superior, when Mantos, thru a Notice of
Disciplinary Action was suspended for 30 days from November
1 to 30, 1996 for violating company rules and regulations
regarding AWOL, not having reported for work during the
period August 5 to 27, 1996. Subsequently, his services was
terminated effective December 1, 1996, by reason of his
continued absences from August 28, 1996 onwards, as well as
for Insubordination/Discourtesy for making false accusations
against his superior. Meanwhile, contending that he has been
constructively dismissed as of August 5, 1996, Mantos filed
with the NLRC-RAB, Cebu City, a complaint for illegal
dismissal.
ISSUES: Whether or not Maligro is solidarily liable with Petron.
RULING: NO. The NLRC erred in holding petitioner Peter
Maligro jointly and severally liable with petitioner Petron for the
money claims of the private respondent. Settled is the rule in
this jurisdiction that a corporation is invested by law with a
legal personality separate and distinct from those acting for
and in its behalf and, in general, from the people comprising it.
Thus, obligations incurred by corporate officers acting as
corporate agents are not theirs but the direct accountabilities
of the corporation they represent. True, solidary liabilities may
at times be incurred by corporate officers, but only when
exceptional circumstances so warrant. In the present case, the
apparent basis for the NLRC in holding petitioner Maligro
solidarily liable with Petron were its findings that (1) the
Investigation Committee was created a day after the summons
in NLRC RAB was received, with Maligro no less being the
chairman thereof; and (2) the basis for the charge of
insubordination was the private respondent’s alleged making
of false accusations against Maligro. Those findings, however,
cannot justify a finding of personal liability on the part of
Maligro inasmuch as said findings do not point to Maligro’s
extreme personal hatred and animosity with the respondent. It
cannot, therefore, be said that Maligro was motivated by
malice and bad faith in connection with private respondent’s
dismissal from the service.