PRIME WHITE

In July 1969, Zosimo Falcon and Justo Trazo entered into an

agreementwith Alejandro Te whereby it was agreed that from
1970 to 1976, Te shall be the sole dealer of 20,000 bags
Prime White cement in Mindanao. Falcon was the president of
Prime White Cement Corporation (PWCC) and Trazo was a
board member thereof. Te was likewise a board member of
PWCC. It was agreed that the selling price for a bag of
cement shall be P9.70.
Before the bags of cement can be delivered, Te already made
known to the public that he is the sole dealer of cements in
Mindanao. Various hardwares then approached him to be his
sub-dealers, hence, Te entered into various contracts with
them.
But then apparently, Falcon and Trazo were not authorized by
the Board of PWCC to enter into such contract. Nevertheless,
the Board wished to retain the contract but they wanted
some amendment which includes the increase of the selling
price per bag to P13.30 and the decrease of the total amount
of cement bags from 20k to 8k only plus the contract shall
only be effective for a period of three months and not 6
years.
Te refused the counter-offer. PWCC then awarded the contract
to someone else.
Te then sued PWCC for damages. PWCC filed a counterclaim
and in said counterclaim, it is claiming for moral damages the
basis of which is the claim that Tes filing of a civil case
against PWCC destroyed the companys goodwill. The lower
court ruled in favor Te.
ISSUE: Whether or not the ruling of the lower court is
correct.
HELD: No. Te is what can be called as a self-dealing director

he deals business with the same corporation in which he is a

director. There is nothing wrong per se with that. However,
Sec. 32 provides that:
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.
In this particular case, the Supreme Court focused on the fact
that the contract between PWCC and Te through Falcon and
Trazo was not reasonable. Hence, PWCC has all the rights to
void the contract and look for someone else, which it did. The
contract is unreasonable because of the very low selling
price. The Price at that time was at least P13.00 per bag and
the original contract only stipulates P9.70. Also, the original
contract was for 6 years and theres no clause in the contract
which protects PWCC from inflation. As a director, Te in this
transaction should protect the corporations interest more
than his personal interest. His failure to do so is disloyalty to
the corporation.
Anent the issue of moral damages, there is no question that
PWCCs goodwill and reputation had been prejudiced due to
the filing of this case. However, there can be no award for
moral damages under Article 2217 of the Civil Code in favor

of a corporation.
GOKONGWEI v SEC
Petitioner, stockholder of San Miguel Corp. filed a petition with the
SEC for the declaration of nullity of the by-laws etc. against the
majority members of the BOD and San Miguel. It is stated in the bylaws that the amendment or modification of the by-laws may only be
delegated to the BODs upon an affirmative vote of stockholders
representing not less than 2/3 of the subscribed and paid uo capital
stock of the corporation, which 2/3 could have been computed on the
basis of the capitalization at the time of the amendment. Petitioner
contends that the amendment was based on the 1961authorization,
the Board acted without authority and in usurpation of the power of the
stockholders n amending the by-laws in 1976. He also contends that
the 1961 authorization was already used in 1962 and 1963. He also
contends that the amendment deprived him of his right to vote and be
voted upon as a stockholder (because it disqualified competitors from
nomination and election in the BOD of SMC), thus the amended bylaws were null and void. While this was pending, the corporation
called for a stockholders meeting for the ratification of the amendment
to the by-laws. This prompted petitioner to seek for summary
judgment. This was denied by the SEC.In another case filed by
petitioner, he alleged that the corporation had been using corporate
funds in other corps and businesses outside the primary purpose
clause of the corporation in violation of the Corporation Code.
Issue: Are amendments valid?
Held: The validity and reasonableness of a by-law is purely a question
of law. Whether the by-law is in conflict with the law of the land, or with
the charter of the corporation or is in legal sense unreasonable and
therefore unlawful is a question of law. However, this is limited where
the reasonableness of a by-law is a mere matter of judgment, and one
upon which reasonable minds must necessarily differ, a court would
not be warranted in substituting its judgment instead of the judgment

of those who are authorized to make by-laws and who have exercised
authority. The Court held that a corporation has authority prescribed
by law to prescribe the qualifications of directors. It has the inherent
power to adopt by-laws for its internal government, and to regulate the
conduct and prescribe the rights and duties of its members towards
itself and among themselves in reference to the management of its
affairs. A corporation, under the Corporation law, may prescribe in its
by-laws the qualifications, duties and compensation of directors,
officers, and employees.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 he impliedly contracts that the will of the
majority shall govern in all matters within the limits of the acts of
incorporation and lawfully enacted by-laws and not forbidden by law.
Any corporation may amend its by-laws by the owners of the majority
of the subscribed stock. It cannot thus be said that petitioners has the
vested right, as a stock holder, to be elected director, in the face of the
fact that the law at the time such stockholder's right was acquired
contained the prescription that the corporate charter and the by-laws
shall be subject to amendment, alteration and modification. A Director
stands in a fiduciary relation to the corporation and its shareholders,
which is characterized as a trust relationship. An amendment to the
corporate by-laws which renders a stockholder ineligible to be director,
if he be also director in a corporation whose business is in competition
with that of the other corporation, has been sustained as valid. This is
based upon the principle that where the director is employed in the
service of a rival company, he cannot serve both, but must betray one
or the other. The amendment in this case serves to advance the
benefit of the corporation and is good. Corporate officers are also not
permitted to use their position of trust and confidence to further their
private needs, and the act done in furtherance of private needs is
deemed to be for the benefit of the corporation. This is called the
doctrine of corporate opportunity.
check other cases from compiled digests
PHIL TRUST V RIVERA
Cooperativa Naval Filipina was duly incorporated with a capital of P100,000,

divided into 100 shares at a par

value of P100 each. Among its incorporators was Marciano Rivera, who
subscribed for 450 shares, representing a
value of P45,000. The company however became insolvent. Philippine Trust
became its assignee in bankruptcy.
PhilTrust sought to recover of the stock subscription of Rivera, which
admittedly, has never been paid. Rivera
contends that he never paid because the stockholders of Naval issued a
resolution shortly after the companys
incorporation, stating that the capital shall be reduced by 50%. As a result,
Rivera contends that the subscribers were
released from the obligation to pay any unpaid balance of their subscription
in excess of 50% of their subscriptions.
Rivera further contends that the subscriptions of the subscribers were 50%
cancelled, and certificates of shares of
stock were issued for the said remaining 50% of the subscriptions.
Issue:
Whether such reduction of the capital stock is valid.
Held:
No. SC held that the said resolution is without effect for being:
1. An attempted withdrawal of so much capital from
the fund which the companys creditors were entitled
ultimately to rely, and
2. For having been effected without compliance with the statutory
requirements of 17 of the Corporation Law
regarding reduction of capital stock, and
3. For failure to file a certificate with the Bureau of Commerce and Industry,
showing such reduction.
Thus, stockholder is still liable for the unpaid balance of his subscription.
Ratio: Subscriptions to the capital of a corporation constitute a fund to which
creditors have a right to look for
satisfaction of their claims and that the assignee in insolvency can maintain
an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts
. A corporation has no power to release an
original subscriber to its capital stock from the obligation of paying for
his shares, w/o a valuable

consideration for such release; and as against creditors a reduction of the

capital stock can
take place only in
the manner and under the conditions prescribed by the statute or the charter
or the AOI. Moreoever, strict
compliance with statutory regulations is necessary.
Note: that for reasons 2 and 3, Campos says that 17 has been replaced by
38, and now, even if all the
requirements are complied with, if creditors are prejudiced by such reduction,
it is most unlikely that the SEC will
approve it.
BOWMAN v CA
Nilcar Fajilan was a stockholder and the president of Boman
Environmental Development Corporation (Boman). In 1984,
he wrote a letter to the Board tendering his resignation and
his offer to sell his shareholdings for P300k. The Board
accepted the resignation as well as his offer to sell. The Board
advised Fajilan that Boman will be paying the shares in
installment. Fajilan is to transfer the shares upon completion
of payment. Boman paid the first two P50k installments but
defaulted in paying the remaining P200k. Fajilan then sued
Boman in the RTC of Makati.
ISSUE: Whether or not the RTC of Makati has jurisdiction.
HELD: No. This is an intra-corporate dispute and as such the
Securities and Exchange Commission (SEC) has jurisdiction.
This case involves an intra-corporate controversy because
the parties are a stockholder and the corporation. Fajilan is
still a stockholder. There has been no actual transfer of his
shares to the corporation. In the books of the corporation he
is still a stockholder. Fajilans suit against the corporation to
enforce the latters promissory note or compel the
corporation to pay for his shareholdings is cognizable by the
SEC alone which shall determine whether such payment will

not constitute a distribution of corporate assets to a

stockholder in preference over creditors of the corporation.
The SEC has exclusive supervision, control and regulatory
jurisdiction to investigate whether the corporation has
unrestricted retained earnings to cover the payment for the
shares, nd whether the purchase is for a legitimate corporate
purpose.
NOTE: This is a 1988 case, now the RTC has expanded
jurisdiction. Some RTCs are granted special jurisdiction to
hear and decide intra-corporate disputes.
CIR V CA
Sometime in the 1930s, Don Andres Soriano, a citizen and
resident of the United States, formed the corporation A.
Soriano Y Cia, predecessor of ANSCOR with a 1,000,000.00
capitalization divided into 10,000 common shares at a par
value of P100/share. ANSCOR is wholly owned and controlled
by the family of Don Andres, who are all non-resident aliens.
In 1937, Don Andres subscribed to 4,963 shares of the 5,000
shares originally issued.
On September 12, 1945, ANSCORs authorized capital stock
was increased to P2,500,000.00 divided into 25,000 common
shares with the same par value. Of the additional 15,000
shares, only 10,000 was issued which were all subscribed by
Don Andres, after the other stockholders waived in favor of
the former their pre-emptive rights to subscribe to the new
issues. This increased his subscription to 14,963 common
shares. A month later, Don Andres transferred 1,250 shares
each to his two sons, Jose and Andres Jr., as their initial
investments in ANSCOR. Both sons are foreigners.
By 1947, ANSCOR declared stock dividends. Other stock
dividend declarations were made between 1949 and

December 20, 1963. On December 30, 1964 Don Andres

died. As of that date, the records revealed that he has a total
shareholdings of 185,154 shares. 50,495 of which are
original issues and the balance of 134,659 shares as
stockdividend declarations. Correspondingly, one-half of that
shareholdings or 92,577 shares were transferred to his wife,
Doa Carmen Soriano, as herconjugal share. The offer half
formed part of his estate.
A day after Don Andres died, ANSCOR increased its capital
stock to P20M and in 1966 further increased it to P30M. In
the same year (December 1966), stock dividends worth
46,290 and 46,287 shares were respectively received by the
Don Andres estate and Doa Carmen from ANSCOR. Hence,
increasing their accumulated shareholdings to 138,867 and
138,864 common shares each.
On December 28, 1967, Doa Carmen requested a ruling
from the United States Internal Revenue Service (IRS),
inquiring if an exchange of common with preferred shares
may be considered as a tax avoidance scheme. By January 2,
1968, ANSCOR reclassified its existing 300,000common
shares into 150,000 common and 150,000 preferred shares.
In a letter-reply dated February 1968, the IRS opined that
the exchange is only a recapitalization scheme and not tax
avoidance. Consequently, on March 31, 1968 Doa Carmen
exchanged her whole 138,864 common shares for 138,860 of
the preferred shares. The estate of Don Andres in turn
exchanged 11,140 of its common shares for the remaining
11,140 preferred shares.
In 1973, after examining ANSCORs books of account and
record Revenue examiners issued a report proposing that
ANSCOR be assessed for deficiency withholding tax-atsource, for the year 1968 and the 2nd quarter of 1969 based

on the transaction of exchange and redemption ofstocks. BIR

made the corresponding assessments. ANSCORs subsequent
protest on the assessments was denied in 1983 by petitioner.
ANSCOR filed a petition for review with the CTA, the Tax
Court reversed petitioners ruling. CA affirmed the ruling of
the CTA. Hence this position.
Issue: Whether or not a person assessed for deficiency
withholding tax under Sec. 53 and 54 of the Tax Code is
being held liable in its capacity as a withholding agent.
Held: An income taxpayer covers all persons who derive
taxable income. ANSCOR was assessed by petitioner for
deficiency withholding tax, as such, it is being held liable in
its capacity as a withholding agent and not in its personality
as taxpayer. A withholding agent, A. Soriano Corp. in this
case, cannot be deemed a taxpayer for it to avail of a tax
amnesty under a Presidential decree that condones the
collection of all internal revenue taxes including the
increments or penalties on account of non-payment as well
as all civil, criminal, or administrative liabilities arising from
or incident to voluntary disclosures under the NIRC of
previously untaxed income and/or wealth realized here or
abroad by any taxpayer, natural or juridical. The Court
explains: The withholding agent is not a taxpayer, he is a
mere tax collector. Under the withholding system, however,
the agent-payer becomes a payee by fiction of law. His
liability is direct and independent from the taxpayer, because
the income tax is still imposed and due from the latter. The
agent is not liable for the tax as no wealth flowed into him,
he earned no income.
STEINBERG V VELASCO

FACTS: The board of directors of Sibuguey Trading Company

authorized the purchase of 330 shares of
stock of the corporation and declared payment of P3T as
dividends to stockholders. The directors from
whom 300 of the stocks were bought resigned before the board
approved the purchase and declared
the dividends. At the time of purchase of stock sand declaration
of dividends, the corporation had
accounts payable amounting to P9,241 and accounts receivable
amounting to P12,512, but the receiver
who made diligent efforts to collect the amounts receivable was
unable to do so. It has been alleged
that the payment of cash dividends to the stockholders was
wrongfully done and in bad faith, and to the
injury and fraud of the creditors of the corporation. The
directors are sought to be made personally
liable in their capacity as directors.
HELD: Creditors of a corporation have the right to assume that so
long as there are outstanding debts
and liabilities, the BOD will not use the assets of the corporation
to buy its own stock, and will not
declare dividends to stockholders when the corporation is
insolvent .In this case, it was found that the
corporation did not have an actual bona fide surplus from which
dividends could be paid. Moreover, the
Court noted that the Board of Directors purchased the stock
from the corporation and declared the
dividends on the stock at the same Board meeting, and that the
directors were permitted to resign so
that they could sell their stock to the corporation. Given all of
this, it was apparent that the directors did

not act in good faith or were grossly ignorant of their duties.

Either way, they are liable for their actions
which affected the financial condition of the corporation and
prejudiced creditors.
ONG YONG V TIU
1994:constructionoftheMasaganaCitimallinPasayCity
wasthreatenedwithstoppage,whenitsowner,theFirstLandlinkAsia
DevelopmentCorporation(FLADC),ownedbytheTius,became
heavilyindebtedtothePhilippineNationalBank(PNB)forP190M
Tosavethe2lotswherethemallwasbeingbuilt
fromforeclosure,theTiusinvitedOngYong,JuanitaTanOng,Wilson
T.Ong,AnnaL.Ong,WilliamT.OngandJuliaOngAlonzo(the
Ongs),toinvestinFLADC.
PreSubscriptionAgreement:OngsandtheTiusagreedto
maintainequalshareholdingsinFLADC
Ongs:subscribeto1,000,000shares
Tius:subscribetoanadditional549,800sharesin
additiontotheiralreadyexistingsubscriptionof450,200shares
Tius:nominatetheVicePresidentandtheTreasurerplus5
directors
OngsnominatethePresident,theSecretaryand6directors
(includingthechairman)totheboardofdirectorsofFLADCandright
tomanageandoperatethemall.
Tius:contributetoFLADCa4storeybuildingP20M(for
200Kshares)and2parcelsoflandP30M(for300Kshares)andP49.8M
(for49,800shares)
Ongs:paidP190Mtosettlethemortgageindebtednessof
FLADCtoPNB(P100Mincashfortheirsubscriptionto1Mshares)
February23,1996:TiusrescindedthePreSubscription
Agreement
February27,1996:TiusfiledattheSecuritiesand
ExchangeCommission(SEC)seekingconfirmationoftheirrescission

ofthePreSubscriptionAgreement
SEC:confirmedrecissionofTius
OngsfiledreconsiderationthattheirP70Mwasnota
premiumoncapitalstockbutanadvanceloan
SECenbanc:affirmeditwasapremiumoncapitalstock
CA:OngsandtheTiuswereinparidelicto(whichwould
nothavelegallyentitledthemtorescission)but,"forpractical
considerations,"thatis,theirinabilitytoworktogether,itwasbestto
separatethetwogroupsbyrescindingthePreSubscriptionAgreement,
returningtheoriginalinvestmentoftheOngsandawardingpractically
everythingelsetotheTius.
ISSUE:W/NSpecificperformanceandNOTrecissionistheremedy
HELD:YES.Ongsgranted.
didnotjustifytherescissionofthecontract
providingappropriateofficesforDavidS.TiuandCelyY.
TiuasVicePresidentandTreasurer,respectively,hadnobearingon
theirobligationsunderthePreSubscriptionAgreementsincethe
obligationpertainedtoFLADCitself
failureoftheOngstocreditsharesofstockinfavorofthe
Tiusfortheirpropertycontributionsalsopertainedtothecorporation
andnottotheOngs
theprincipalobjectiveofbothpartiesinenteringintothe
PreSubscriptionAgreementin1994wastoraisetheP190million
lawrequiresthatthebreachofcontractshouldbeso
"substantialorfundamental"astodefeattheprimaryobjectiveofthe
partiesinmakingtheagreement
sincethecashandothercontributionsnowsoughttobe
returnedalreadybelongtoFLADC,aninnocentthirdparty,said
remedymaynolongerbeavailedofunderthelaw.
Anycontractfortheacquisitionofunissuedstockin
anexistingcorporationoracorporationstilltobeformedshallbe
deemedasubscriptionwithinthemeaningofthisTitle,notwithstanding
thefactthatthepartiesrefertoitasapurchaseorsomeothercontract
allowsthedistributionofcorporatecapitalonlyinthree
instances:(1)amendmentoftheArticlesofIncorporationtoreducethe

authorizedcapitalstock,24(2)purchaseofredeemablesharesbythe
corporation,regardlessoftheexistenceofunrestrictedretained
earnings,25and(3)dissolutionandeventualliquidationofthe
corporation.
TheywantthisCourttomakeacorporatedecisionfor
FLADC.
TheOngs'shortcomingswerefarfromseriousandcertainly
lessthansubstantial;theywereinfactremediableandcorrectable
underthelaw.Itwouldbetotallyagainstallrulesofjustice,fairness
andequitytodeprivetheOngsoftheirinterestsonpettyandtenuous
grounds.
AC RANSOM LABOR UNION V NLRC
Since a corporate employer is an artificial person, it must
have an officer who can be presumed to be the
employer, being the person acting in the interest of the employer.
Facts:
On June 6, 1961, employees of AC Ransom, most being members
of the AC Ransom Labor Union, went on
strike. The said strike was lifted on June 21 with most of the
strikers being allowed to resume their work. However,
twenty two strikers were refused reinstatement.
During 1969, the Hernandez family (owners of AC RANSOM) organized
another corporation under the name of
Rosario Industrial Corporation. The said company dealt in the same type of
business as AC Ransom.
The issue of back wages was brought before the Court of
Industrial Relations which rendered a decision on
December 19, 1972 ordering the twenty two strikers to be reinstated with
back wages.
On April 2, 1973,
RANSOM filed an application for clearance to close or cease operations
. The same was
granted by the Ministry of Labor and Employment. Although it has
stopped operations, RANSOM has continued its

personality as a corporation. For practical purposes, reinstatement of the 22

strikers has been precluded. As a matter of
fact, reinstatement is not an issue in this case.
A motion of execution was filed by the Union against AC Ransom but the
former was unable to collect due to the
inability to find leviable assets of the company.
The Union subsequently asked the officers of Ransom to be personally
liable for payment of the back wages.
The motion was granted by the Labor Arbiter but was subsequently reversed
by
the NLRC.
Issue:
1.
W/N the officers of the corporation should be held personally liable to pay
for the back wages.
Held:
1.
YES. Under Article 212 (c) of the Labor Code, Employee
includes any person acting in the interest of an
employ er, directly or indirectly. Since Ransom is an
artificial person, it must have an officer who can be
presumed to be the employer, being the person acting in the interest of the
employer (Ransom).
In PD 525, where a corporation fails to pay the emergency
allowance therein provided, the prescribed penalty
shall be imposed upon the guilty officer or officers of the corporation.
In the instant case, RANSOM, in foreseeing the possibility or
probability of payment of back wages to the 22
strikers, organized ROSARIO to replace RANSOM, with the latter to be
eventually phased out if the 22 strikers
win their case.
The record does not clearly identify the officer or officers of RANSOM
directly responsible for failure to pay
the back wages of the 22 strikers. In the absence of definite proof in that
regard, it should be presumed that the
responsible officer is the President of the corporation who can be deemed the
chief operation officer thereof

Mcleod vs NLRC
FACTS:
On February 2, 1995, John F. McLeod filed a complaint for retirement benefits,
vacation and sick leave benefits and other benefits against Filipinas Synthetic
Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc.,
Complainant was the former VP and Plant Manager of Peggy Mills, Inc.; that he
was hired in June 1980 and Peggy Mills closed operations due to irreversible
losses but its assets were acquired by Sta. Rosa Textile Corporation complainant
was hired by Sta. Rosa Textile but he resigned and that while complainant was
Vice President and Plant Manager of Peggy Mills, the union staged a strike up to
July 1992 resulting in closure of operations due to irreversible losses as per
Notice .The complainant was relied upon to settle the labor problem but due to
his lack of attention and absence the strike continued resulting in closure of the
company. Mcleod contends that the corporations are solidarily liable. On 3 April
1998, the Labor Arbiter rendered his decision in favor of Mcleod The NLRC
Reversed decision CA- Modified the NLRCs decision. Lim was solidarily liable
Issue:
whether there is merger/ consolidation
w/n Patricio Lim must be solidarily liable with PMI
Held:
There was also no merger or consolidation of PMI and SRTI. Consolidation is the
union of two or more existing corporations to form a new corporation called the
consolidated corporation. It is a combination by agreement between two or more
corporations by which their rights, franchises, and property are united and
become those of a single, new corporation, composed generally, although not
necessarily, of the stockholders of the original corporations. Merger, on the other
hand, is a union whereby one corporation absorbs one or more existing
corporations, and the absorbing corporation survives and continues the
combined business.
The parties to a merger or consolidation are called constituent corporations. In
consolidation, all the constituents are dissolved and absorbed by the new
consolidated enterprise. In merger, all constituents, except the surviving
corporation, are dissolved. In both cases, however, there is no liquidation of the
assets of the dissolved corporations, and the surviving or consolidated
corporation acquires all their properties, rights and franchises and their
stockholders usually become its stockholders. The surviving or consolidated
corporation assumes automatically the liabilities of the dissolved corporations,
regardless of whether the creditors have consented or not to such merger or

consolidation.27 In the present case, there is no showing that the subject dation
in payment involved any corporate merger or consolidation. Neither is there any
showing of those indicative factors that SRTI is a mere instrumentality of PMI.
Moreover, SRTI did not expressly or impliedly agree to assume any of PMIs
debts. 2. In the present case, there is nothing substantial on record to show that
Patricio acted in bad faith in terminating McLeods services to warrant Patricios
personal liability. PMI had no other choice but to stop plant operations. The work
stoppage therefore was by necessity. The company could no longer continue with
its plant operations because of the serious business losses that it had suffered.
The mere fact that Patricio was president and director of PMI is not a ground to
conclude that he should be held solidarily liable with PMI for McLeods money
claims.
The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,59 which the Court of
Appeals cited, does not apply to this case. We quote pertinent portions of the
ruling, thus:
(a) Article 265 of the Labor Code, in part, expressly provides: "Any worker whose
employment has been terminated as a consequence of an unlawful lockout shall
be entitled to reinstatement with full backwages."
Article 273 of the Code provides that: "Any person violating any of the provisions
of Article 265 of this Code shall be punished by a fine of not exceeding five
hundred pesos and/or imprisonment for not less than one (1) day nor more than
six (6) months."
(b) How can the foregoing provisions be implemented when the employer is a
corporation? The answer is found in Article 212 (c) of the Labor Code which
provides: "(c) Employer includes any person acting in the interest of an
employer, directly or indirectly. The term shall not include any labor organization
or any of its officers or agents except when acting as employer.". The foregoing
was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is
an artificial person, it must have an officer who can be presumed to be the
employer, being the "person acting in the interest of (the) employer" RANSOM.
The corporation, only in the technical sense, is the employer. The responsible
officer of an employer corporation can be held personally, not to say even
criminally, liable for non-payment of back wages. That is the policy of the law.
SERGIO V NAGUIAT

Sergio Naguiat was the president of Clark Field Taxi, Inc.

(CFTI) which supplied taxi services to Clark Air Base. At the
same time, Naguiat was a director of the Sergio F. Naguiat
Enterprises, Inc. (SFNEI), their family owned corporation

along with CFTI.

In 1991, CFTI had to close due to great financial losses and
lost business opportunity resulting from the phase-out of
Clark Air Base brought about by the Mt. Pinatubo eruption
and the expiration of the RP-US military bases agreement.
CFTI then came up with an agreement with the drivers that
the latter be entitled to a separation pay in the amount of
P500.00 per every year of service. Most of the drivers
accepted this but some drivers did not. The drivers who
refused to accept the separation pay offered by CFTI instead
sued the latter before the labor arbiter.
The labor arbiter ruled in favor of the taxi drivers. The
National Labor Relations Commission affirmed the labor
arbiter. It was established that when CFTI closed, it was in
profitable standing and was not incurring losses. It ruled that
the drivers are entitled to $120.00 per every year of service
subject to exchange rates prevailing that time.
The NLRC likewise ruled that SFNEI as well as CFTIs president
and vice president Sergio Naguiat and Antolin Naguiat should
be held jointly and severally liable to pay the drivers. The
NLRC ruled that SFNEI actively managed CFTI and its
business affairs hence it acted as the employer of the drivers.
ISSUE: Whether or not the ruling of the NLRC is correct.
HELD: It is only partially correct.
1. It is correct when it ruled that the Sergio
Naguiat is jointly and severally liable to pay the drivers
the award of separation pay in the amount so
determined. As president of CFTI, Sergio Naguiat is
considered an employer of the dismissed employees
who is therefore liable for the obligations of the
corporation to its dismissed employees. Moreover, CFTI,
being a close family corporation, is liable for corporate
torts and stockholders thereof shall be personally liable

for corporate torts unless the corporation has obtained

reasonably adequate liability insurance (par. 5, Section
100, Close Corporations, Corporation Code). Antolin
Naguiat is absolved because there was insufficient
evidence as against him.
2. SFNEI is not liable jointly or severally with CFTI.
SFNEI has nothing to do with CFTI. There is no sufficient
evidence to prove that it actively managed CFTI
especially so when even the drivers testified that their
employer is CFTI and that their payroll comes from CFTI.
Further, SFNEI was into trading business while CFTI was
into taxi services.