CORPORATION

23.38
Premium Marble Resources v. Court of Appeals

 Premium Marble Resources Inc. (thru Atty. Dumadag: representing Zaballa, et al. as officers)
filed an action (1st) for damages against International Corporate Bank.

 Later, Premium Inc. (but this time thru Siguion Law Office)
filed a motion (2nd) to dismiss the action of petitioners
 on the ground that the filing of the case was without authority from its duly
constituted board of directors
 as shown by the minutes of the Premium’s board of directors’ meeting.

 In its opposition to the motion to dismiss, Premium Inc. thru Atty. Dumadag
contended that:
1. the persons who signed the board resolution namely Belen, Jr., Nograles & Reyes
2. are not directors of the corporation
3. and were allegedly former officers and SH of Premium
NOTE: who were dismissed for various irregularities and fraudulent acts.

 that Siguion Reyna Law office is the lawyer of Belen and Nograles (not of Premium)
 and that the Articles of Incorporation of Premium shows that Belen, Nograles and Reyes
are not majority stockholders.

Issue:
W/N the case for damages against International Corporate Bank was authorized by the Premium Inc? -NO
(thru its duly constituted Board of Directors)

Held:
NO. The case against the bank was NOT authorized.

1. Sec 26 Corpo Code,

“all corporations duly organized pursuant thereto
are required to submit within the period of 30 days to the SEC
the names, nationalities and residences of the directors, trustees and officer selected.”

2. The Minutes of the Meeting of the Board on April 1982 states that
the newly elected officers for the year 1982 were:
1. Oscar Gan,
2. Mario Zavalla
3. Aderito Yujuico
4. Rodolfo Millare,
petitioner however,
failed to show proof that this election was reported to the SEC.

3. The last entry in their General Information Sheet with the SEC, as of 1986
appears to be the set of officers elected in March 1981.

4. The claim of petitioners as represented by Atty. Dumadag,

that Zaballa, et al., are the incumbent officers of Premium
has not been fully substantiated.

Hence, the 1st action filed against the International Corporate Bank must necessarily fail.

5. The power of the corporation to sue and be sued in any court is lodged with
the BOD that exercises its corporate powers.

In this case against the bank, the “BOD” the filed the case had no authority to do so.
(Zaballa, et al.)
 CORPORATION

23.39
Strategic Alliance Dev. Corp. v. Radstock Securities Ltd.

Issue:
W/N the PNCC Board Acted in Bad Faith and with Gross Negligence
in Directing the Affairs of PNCC? - YES

Held:
YES. The PNCC Board blatantly violated its duty of diligence
as it miserably failed to act in good faith in handling the affairs of PNCC.

1. First. For 20yrs, the PNCC Board had consistently refused to admit liability for the Marubeni loans.
because of the absence of a PNCC Board resolution authorizing the issuance of the letters of
guarantee.

2. The PNCC Board admitted liability for the Marubeni loans

despite PNCC’s total liabilities far exceeding its assets.
Once recognized, the Marubeni loans, would wipe out the assets of PNCC

3. The PNCC Board abandoned one of PNCC’s strong defenses,

which is the prescription of the action to collect the Marubeni loans.

4. The basis for the admission of liability for the Marubeni loans, which was an opinion of the
Feria Law Office, was not even shown to the PNCC Board.

Atty. Francisco, the Asset Privatization Trust trustee overseeing the proposed privatization
of PNCC at the time, was responsible for recommending to the PNCC Board the admission
of PNCC’s liability for the Marubeni loans.

He based his recommendation solely on a mere alleged opinion of the Feria Law Office
which he did not show to the board.

 The PNCC Board admitted liability for the P10.743 billion Marubeni loans without seeing,
reading or discussing the “Feria opinion”
which was the sole basis for its admission of liability.

Such act surely goes against ordinary human nature, and amounts to gross negligence and utter
bad faith, even bordering on fraud, on the part of the PNCC Board

Owing loyalty to PNCC and its stockholders, the PNCC Board should have exercised utmost care
and diligence in admitting a gargantuan debt that would certainly force PNCC into insolvency ,

 The act of the PNCC Board in issuing Board Resolution No. BD-092-2000
(expressly admitting liability for the Marubeni loans)
demonstrates the PNCC Board’s gross and willful disregard of the requisite care and diligence
in managing the affairs of PNCC,
amounting to bad faith and resulting in grave and irreparable injury to PNCC and its stockholders.
 CORPORATION

23.22
Steinberg v. Velasco

 Steinberg was the receiver of Sibugey Trading Company

 Velasco et. al were the members of the BOD.

 In 1922, the BOD of Sibugey authorized the purchase of330 shares of the capital
stock at the price of P3,300
 At the time the purchase, it had A/P in the sum of P13K
and that, it had A/R of only P19K.

 In the same year,

a resolution to distribute dividends (amounting to P3,000) was approved by the board.

 In 1923, the Steinberg filed for Sibugey Comp.’s dissolution

on the ground that it was insolvent
A/P = P9K
A/R = P12K

 Stienberg now alleges, that the BOD was in bad faith

and the insolvency was intentional (to the injury and fraud of its creditors)

 He now prays that Velasco et. al. pay the sums of money wrongfully given to them with
interest and cost.

Issue:
W/N the BOD did not act in good faith and grossly ignorant
and therefore should pay for the losses? – YES

Held:
YES. It appears that the dividends were made in installments
so as not to affect the financial condition of the corporation.

Creditors of a corp. have the right to assume that so long as there are outstanding
the BOD will:
1. NOT use its assets to purchase its own stock
2. and they will not declare dividends to SHs when it is insolvent.

The corporation did not have an actual surplus from which the dividends could be paid.

The authorized capital stock was P20,000

(divided into 2,000 shares of the par value of P10 each)
which only P10,030 was subscribed and paid.

Less the P3,300 paid for the purchase of its own stock,
Less the P3,000 paid in dividends,

there would be left P4,000 only.

In this situation, it is apparent the directors did not act in good faith or that they were
grossly ignorant of their duties.

Hence, they are liable to pay.

 CORPORATION

23.12
Yao Ka Sin Trading vs. CA (1992)

 1973, the president (Constancio Maglana) of Prime White Cement Corporation,

sent an offer letter to Yao Ka Sin Trading.
o that Prime White is willing to sell 45,000 bags of cement at P24.30/ bag.
 The offer letter was received by Yao Ka Sin’s manager (Henry Yao)
o Yao sent a check in the amount of P243K worth of 10,000 bags of cement.

 However, the BOD of Prime White rejected the offer letter sent by Maglana
 but it considered Yao’s acceptance letter as a new contract offer
o Hence the Board sent a letter to Yao telling him that they will sell only 10,000 bags
to Yao Ka Sin
o and that he has 10 days to reply;
 that if no reply they will consider it as an acceptance
 and Prime White shall deposit the P243k check in its account
 then deliver the cements to Yao Ka Sin. Henry Yao never replied.

 Later, Yao Ka Sin sued Prime White

to compel the latter to comply with what Yao Ka Sin considered as the original contract

 Prime White defense:

although Maglana is empowered to sign contracts in behalf of Prime White,
such contracts are still subject to approval by Prime White’s Board,
and it requires approval by the National Investment and Development Corporation (NIDC),
(a government owned and controlled corporation)
because Prime White is a subsidiary of NIDC.

 Yao asserts:
that the letter from Maglana is a binding contract
because it was made under the apparent authority of Maglana.

TC: ruled in favor of Yao Ka Sin.

CA: reversed the trial court.

ISSUE:
WON the president of a corporation is clothed with apparent authority
to enter into binding contracts with 3P? (w/o the authority of the Board) – NO.

HELD: No.

As a rule, apparent authority may result from

(1) the manner, by which the corporation holds out an officer or agent
as having power to act (the apparent authority with which it clothes him to act in general)
(2) acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, whether within or without the scope of his ordinary powers. Also, the subsequent
letter by Prime White to
These are not present in this case. Yao Ka Sin is binding
because Yao Ka Sin’s
The president may only enter into contracts upon authority of the Board.
failure to respond
Hence, any agreement signed by the president is subject to approval by the Board. constitutes an
acceptance, per stated in
the letter itself – which
Unlike a general manager (like the case of Francisco vs GSIS),
was not contested by
the president has no apparent authority to enter into binding contracts with 3P. Henry Yao during trial.

If the by-laws of Prime White did provide Maglana with apparent authority, this was not proven
by Yao Ka Sin.
 CORPORATION

23.23
Bates v. Dresser

 National City Bank of Cambridge. (NCBC)

 Dresser - president
 Earl - cashier
 Coleman - bank’s bookkeeper.

 An auditor reported that the daily balance book (NCBC) was very much behind,
that it was impossible to prove the deposits and that a competent bookkeeper should be employed.
They hired a bookkeeper (Coleman)

Coleman was in-charge of monitoring the inflow of cash:

 He kept the deposit ledger.
 He then acted as paying and receiving teller, in addition to his other duty.

 Later, Coleman began a series of thefts

 The BOD attributed the decline of monthly deposits to competition with rival banks.
 The bank’s semi-annual examinations by national bank examiners found nothing suspicious.
 The directors also relied on Earl (cashier) since he was an honest man.
However, if only Earl had opened the envelopes that came from the clearinghouse,
he would’ve discovered the fraud.

Issue:
W/N the BOD neglected their duty by accepting the cashier’s statement of liabilities and
failing to inspect the depositors’ ledger? - NO.

Held: NO. The BOD are not negligent.

Until the event showed the possibility that their failure to look at the ledger opened a way to fraud,
the directors were NOT bound to call in the passbooks and compare them with the ledger.

The BOD should not be held answerable for

1. taking the cashier’s statement of liabilities to be as correct.
2. The director’s confidence seemed warranted by the semi-annual examinations
3. they were encouraged in their belief that all was well by the president
(whose responsibility and knowledge were greater than theirs)

The President (Dresser) on the other hand

1. was daily at the bank
2. he had the deposit ledger in his hands,
3. and he had hints and warning regarding the theft from other employees of the bank.

In accepting the presidency, Dresser must be taken to have contemplated responsibility

for losses to the bank, if chargeable to his fault. Those that happened was chargeable
to his fault, after he had warnings that should have led to steps that would have made
the fraud impossible.

NOTE:
BOD – not liable. Not obligated to check ledger w/o suspicion
President – liable. He was daily at the bank and had hints of theft. He did nothing.
 CORPORATION

23.24
Smith v. Van Gorkam

Trans Union was suffering a tax credit problem prompting Van

Gorkom to sell his shares but eventually negotiated to involve all the
stocks of Trans Union. A corporation called Marmon was attempting a
leverage buy-out of Trans Union. Van Gorkom proposed a price of $55 a
share. Van Gorkom and his CFO didn’t bother to do any research to see
how much the company was actually worth. He didn’t even inform
Trans Union’s legal department about the transaction. Later, it was
found that the value of $55 was only about 60% of what the company
was worth. Van Gorkom called an emergency meeting of the board of
directors, proposed the merger, and the directors gave preliminary
approval. In the meeting, Van Gorkom did not disclose that there was
no basis for the $55 price and that there had been objections by Trans
Union management regarding the merger. Neither did he provide the
directors with copies of the merger agreement. The directors eventually
recommended that the shareholders approve the merger even though
they did not really learn if the terms of the merger were a good deal for
the company. The Appellate Court found that the directors were grossly
negligent because they approved the merger without substantial inquiry
or any expert advice. Therefore they breached their duty to care.

Issue:
W/N the actions of Van Gorkom and the board is protected by the Business
Judgement Rule Doctrine.

Held:
NO. The Court found that the directors breached their fiduciary duty by their
failure to inform themselves of all information reasonably available to them and
relevant to their decision to recommend the
merger. Van Gorkom breached his duty to care by offering $55 a share
because, “the record is devoid of any competent evidence that $55
represented the per share intrinsic value of the Company.” The business
judgment rule was not a defense because the directors and Van Gorkom
didn’t use any “business judgment” when they came to their decision.

Doctrine: In order to hide behind the business judgment rule, you have to show that
you made an informed decision based on some principle of business.
 CORPORATION

23.26

Mead v. McCullough

The complaint contains three causes of action one of which is for the value of the
personal effects alleged to have been left by Mead and sold by the defendants. The
parties organized the Philippine Engineering & Construction Co. (PECC) by giving $2000
Mexican currency cash each, except for Mead who contributed property. Mead was also
the general manager until he resigned to accept employment with the Canton &
Shanghai Railway Co.
Several contracts entered by Mead as general manager failed,
specifically a wrecking contract with the navy. Because of these failures,
the board voted to sell all the rights and interests of PECC to the
wrecking contract in favor of McCullough (along with some of Mead’s
personal effects). McCullough then incorporated a new company,
Manila Salvage Association, and transferred all his rights and interests to
the contract to MSA. Mead alleges that these were done in bad faith.

Issue:
W/N the sale or transfer to McCullough of the assets of said corporation was done
within the laws and powers of the corporation.

Held:
YES. A private corporation, which owes no special duty to the
public and which has not been given the right of eminent domain, has
absolute right and power as against the whole world except the state, to
sell and dispose of all of its property. A transaction done in good faith which achieves
substantial justice cannot be disturbed based on mere suspicions.
Doctrine: Generally speaking, the voice of a majority of the stockholders
is the law of the corporation, but there are exceptions to this rule. There
must necessarily be a limit upon the power of the majority. Without
such a limit the will of the majority would be absolute and irresistible
and might easily degenerate into an arbitrary tyranny. Notwithstanding
these limitations upon the power of the majority of the stockholders,
their (the majority’s) resolutions, when passed in good faith and for a
just cause, deserve careful consideration and are generally binding upon
the minority.
 CORPORATION

23.29
People’s Aircargo v. Court of Appeals

People’s Aircargo is a domestic corporation, which was organized

in the middle of 1986 to operate a customs bonded warehouse. To
obtain a license for the corporation from the Bureau of Customs,
Antonio Punsalan Jr., the corporation president, solicited a proposal
from Stefano Sano (who was preferred because of his membership in
the task force supervising the transition of the bureau from the Marcos
to the Aquino Government) for a feasibility study. This constituted the
“First Contract” for which Sano was paid for. On December 1086, a
“Second Contract”, this time for consultancy services, was made upon
Punsalan’s request. The consultancy services included an Operations
Manual and Seminar/Workshop for the employees of People’s Aircargo
Sano was not paid for the 2nd contract so he filed a collection case. By this time,
Punsalan had sold his shares and resigned as president. People’s Aircargo denied
that Sano conducted Consultancy services. It alleged that the contract entered into
between Sano and Punsalan was without authority.

Issue:
W/N Punsalan, as president, has apparent authority to enter into the second contract
that could bind the corporation

Held:
YES. Since the corporation had previously allowed Punsalan to
enter into the first contract with Sano without a board resolution
expressly authorizing him, thus, it had clothed its president with
apparent authority to execute the Second Contract. Furthermore,
private respondent prepared an operations manual and conducted a
seminar for the employees of petitioner in accordance with their
contract. Petitioner accepted the operations manual, submitted it to the
Bureau of Customs and allowed the seminar for its employees. As a
result of this, petitioner was given by the Bureau of Customs a license to
operate a bonded warehouse. Even if the Second Contract was outside
the usual powers of the president, petitioner’s ratification of said
contract and acceptance of benefits have made it binding, nonetheless.

Doctrine: Contracts entered into by a corporate president without express prior

board approval bind the corporation, when such officer’s apparent authority is
established and when these contracts are ratified by the corporation.
• 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.
 CORPORATION

23.30
Gurrea v. Lezama

Gurrea sought to have Resolution No. 65 of the Board of Directors

of the La Paz Ice Plant and Cold Storage Co., Inc., removing him from his
position of manager of said corporation declared null and void and to
recover damages incident thereto. The action is predicated on the
ground that said resolution was adopted in contravention of the
provisions of the by-laws of the corporation, of the Corporation Law and
of the understanding, intention and agreement reached among its
stockholders.

Issue:
W/N Gurrea was properly removed from his position as manager of La Paz Ice Plant by
a mere resolution.

Held:
YES. Guerra’s position was only created by the officers. The by laws did not provide
for the creation of his position. Therefore, he may not be considered as an “officer”
and the manner of removal provided for in the by laws shall not be made applicable to
him. He may thus be removed by a mere resolution by the officers of the corporation.
The by-laws of the instant corporation in turn provide that in the board
of directors there shall be a president, a vice-president, a secretary and
a treasurer. These are the only ones mentioned therein as officers of the
corporation. The manager is not included. The by-laws provide that the
officers of the corporation may be removed or suspended by the
affirmative vote of 2/3 of the corporation. The conclusion is inescapable
that Guerra can be suspended or removed by said board of directors
under such terms as it may see fit and not as provided for in the by-
laws, without the 2/3 vote of the stockholders, as required when an
officer is to be removed.
Doctrine: One distinction between officers and agents of a corporation
lies in the manner of their creation. An officer is created by the charter
of the corporation, and the officer is elected by the directors or the
stockholders. An agency is usually created by the officers, or one or
more of them, and the agent is appointed by the same authority. It is
clear that the two terms officers and agents are by no means
interchangeable.
 CORPORATION

23.31
Mita Pardo de Tavera v. Tuberculosis Society

Dr. Buktaw, then executive secretary of the Board of Directors of

the Philippine Tuberculosis Society (Society) retired. Dr. Mita Pardo de
Tavera was appointed as his replacement. President Canizares sent an
appointment letter. The letter of appointment, however, didn’t include
a fixed term. Subsequently, de Tavera was removed from her post
without telling her the cause. One of the defendants, Alberto Romulo
was appointed to her position with a vote of 7(affirm)-2(abstain)-
1(objection). The defendants claimed denying that plaintiff was illegally
removed from her position as Executive Secretary and averring that
under the Society’s by-laws, said position is held at the pleasure of the
Board of Directors and when the pleasure is exercised, it only means
that the incumbent has to vacate the same because her term has
expired.

Issue:
W/N de Tavera was illegally dismissed

Held:
NO. Although the minutes of the organizational meeting show that the Chairman
mentioned the need of appointing a “permanent” Executive Secretary, such
statement alone cannot characterize the appointment of petitioner without a
contract of employment definitely fixing her term because of the specific provision
of Section 7.02 of the Code of By-Laws that: “The Executive Secretary shall hold
office at the pleasure of the Board of Directors, unless their term of employment
shall have been fixed in their contract of employment.” Besides the word
“permanent” could have been used to distinguish the appointment from
acting capacity”.
 CORPORATION

23.32
Matling Industrial and Commercial Corp. v. Coros

Ricardo R. Coros is the Vice President for Finance and

Administration of Matling Industrial and Commercial Corporation.
However, Matling dismissed him. As a result, Coros filed a complaint for
illegal suspension and illegal dismissal against Matling and some of its
corporate officers before the NLRC. Matling, et al. moved to dismiss the petition. They
claimed that SEC, and not NLRC, had jurisdiction over the case, the matter being an
intra-corporate in nature. This is because Coros was also a member of the
corporation’s Board of Directors prior to his termination.

Issue:
W/N Coros, as Vice President for Finance and Administration, was a
corporate office of Matling Industrial and Commercial Corporation.

Held:
NO. The position of “Vice President for Finance and Administration” was
not explicitly written in the by-laws. Coros’ was appointed Vice President by Matling’s
general manager and not by the Board of Directors. It was also the general manager
who determined the amount of compensation he received. Therefore, Coros is
merely an employee and not a corporate officer. This being the case, NLRC and not SEC
has jurisdiction over his complaint for illegal dismissal. In addition, there is no
relation between his acquisition of his status as stockholder or Director and his
position as Vice President of Finance and Administration. His position as
stockholder or Director remained unaffected by his dismissal as Vice
President. This is not an intra-corporate controversy, because an intra-corporate
controversy is one, which arises between a stockholder and a corporation.

Doctrine: A position must be expressly mentioned in the By-laws in

order to be considered as a corporate office. The creation of an office
under a by-law enabling provision is not enough to make a position a
corporate office. A different interpretation can easily allow the Board to
circumvent the constitutional guarantee of security of tenure by
including an enabling clause on the creation of any corporate office in the by-laws.
The Board may create appointive positions other than those expressly mentioned in
the by-laws. However, persons occupying such positions are not considered as
corporate officers within the meaning of Section 25.
 CORPORATION

23.33
De Rossi v. NLRC

Armando de Rossi is an Italian Citizen and was the Executive Vice-

President and General Manager of Matling Industrial and Commercial Corp. (MICC).
He started to work in 1985 and was terminated in 1988 for failing to secure his
employment permit and grossly mismanaged the business affairs of the company—he
allegedly diverted corporate funds to his personal use. Aggrieved, he then filed a case
against MICC in the NLRC for illegal dismissal.

Issue:
W/N the NLRC has jurisdiction over illegal dismissal
cases and intra-corporate affairs regarding elections and appointments.

Held:
NO. It is the SEC who has jurisdiction in the abovementioned cases. The Articles
of Incorporation of MICC expressly states that de Rossi’s position as Executive
Vice-President was considered to be an “officer” position.

Doctrine: The SEC has the jurisdiction over removal of corporate officers as well as
intra-corporate affairs regarding election and appointment of corporate officers.
 CORPORATION

23.35
Palay, Inc. v. Clave

Palay, Inc., through its President, Albert Onstott executed a Contract to Sell a
parcel of land to Dumpit. Paragraph 6 of the contract provided for automatic
extrajudicial rescission upon default in payment of any monthly installment after
the lapse of 90 days from the expiration of the grace period of 1 month, without
need of notice and with forfeiture of all installments paid. Dumpit paid the
downpayment and several installments. Almost 6 years later, Dumpit wrote Palay, Inc.
offering to update all his overdue accounts with interest, and seeking its written
consent to the assignment of his rights to a certain Lourdes Dizon. Palay, Inc.
informed him that his Contract to Sell had long been rescinded pursuant to paragraph
6 of the contract, and that the lot had already been resold. Dumpit filed a letter
complaint with the National Housing Authority (NHA) for reconveyance.

Issue:
W/N petitioners may be held liable for the refund of the installment payments made
by Dumpit.

Held:
YES. Rights to the lot should be restored to Dumpit or the same
should be replaced by another acceptable lot. However, considering
that the property had already been sold to a third person and there is
no evidence on record that other lots are still available, private
respondent is entitled to the refund of installments paid plus interest at
the legal rate of 12% computed from the date of the institution of the
action.
As a general rule, a corporation may not be made to answer for acts or
liabilities of its stockholders or those of the legal entities to which it may
be connected and vice versa. There were no badges of fraud on
petitioners’ part. They had literally relied, albeit mistakenly, on paragraph 6 of
its contract with Dumpit when it rescinded the contract
to sell extrajudicially and had sold it to a third person. Onstott was made
liable because he was then the President of the corporation. No
sufficient proof exists on record that said petitioner used the
corporation to defraud private respondent. He cannot be made
personally liable just because he “appears to be the controlling
stockholder”.

Doctrine: The veil of corporate fiction may be pierced when it is used as a shield
to further an end subversive of justice; or for purposes that could not have
been intended by the law that created it; or to defeat public convenience,
justify wrong, protect fraud, or defend crime; or to perpetuate fraud or
confuse legitimate issues; or to circumvent the law or perpetuate deception; or
as an alter ego, adjunct or business conduit for the sole benefit of the
stockholders.
 CORPORATION

23.36
Tramat Mercantile, Inc. v. Court of Appeals

Melchor de la Cuesta (doing business under the name of Farmer’s

Machineries) sold a tractor to Tramat Mercantile. David Ong, president
and manager of Tramat, issued a check for payment. In turn, Tramat
sold the tractor along with a lawn mower to MWSS. The latter refused
to pay when it learned that the tractor was not brand new and there
were hidden defects. Ong then issued a stop payment for the check
issued to de la Cuesta (it seems that Ong intended to pay de la Cuesta
with the proceeds of the sale to MWSS). Because of this, de la Cuesta
filed an action for recovery of the P33,500 payment as well as P10,000
as attorney's fees. Ong answered that de la Cuesta had no cause of
action, and that the transaction was between de la Cuesta and Tramat
Mercantile, not Ong.

Issue:
W/N Ong can be held liable in his personal capacity.

Held:
NO. David Ong was acting as an officer of Tramat, not in his
personal capacity. Tramat has its own distinct and separate personality. In the case at
bench, there is no indication that petitioner David Ong could be held personally
accountable under any of the mentioned cases (see doctrine).

Doctrine: Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when:
1. He assents
a. To a patently unlawful act of the corporation
b. For bad faith, or gross negligence in directing its affairs
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;
4. He is made, by a specific provision of law, to personally answer
for his corporate action.
 CORPORATION

23.37
A.C. Ransom Labor Union-CCLU v. NLRC

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.

In 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.
In 1972, a decision to reinstate the 22 strikers was rendered by the Court of
Industrial Relations.

In 1973, RAMSOM filed an application for clearance to close and cease

operations which was granted, and as such the reinstatement of the 22
strikers has been precluded. Because of this, the Union subsequently
asked the officers of Ransom to be personally liable for payment of the
back wages.

Issue:
W/N the officers of the corporation should be held personally liable to pay for the
back wages.

Held:
YES. 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.
Note: 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.
Doctrine: Under Article 212 (c) of the Labor Code, “Employee” includes any person acting
in the interest of an employer, 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).”
 CORPORATION

23.37
Sanchez vs CA
Lilia Sanchez, petitioner, constructed a house on a 76-square meter lot owned by her parents-in-
law. The lot was registered under TCT No. 263624 with the following co-owners: Eliseo Sanchez
married to Celia Sanchez, Marilyn Sanchez married to Nicanor Montalban, Lilian Sanchez, widow,
Nenita Sanchez, single, Susana Sanchez married to Fernando Ramos, and Felipe Sanchez.[1] On 20
February 1995, the lot was registered under TCT No. 289216 in the name of private respondent
Virginia Teria by virtue of a Deed of Absolute Sale supposed to have been executed on 23 June
1995[2] by all six (6) co-owners in her favor. Petitioner claimed that she did not affix her signature
on the document and subsequently refused to vacate the lot, thus prompting private respondent
Virginia Teria to file an action for recovery of possession of the aforesaid lot with the Metropolitan
Trial Court (MeTC) of Caloocan City sometime in September 1995, subsequently raffled to Br. 49 of
that court.

Issue: WON the sale is valid given that one of the co owners did not consent thereto

Held:

This case overlooks a basic yet significant principle of civil law: co-ownership. Throughout the
proceedings from the MeTC to the Court of Appeals, the notion of co-ownership was not
sufficiently dealt with. We attempt to address this controversy in the interest of substantial
justice. Certiorari should therefore be granted to cure this grave abuse of discretion.

Sanchez Roman defines co-ownership as “the right of common dominion which two or more persons
have in a spiritual part of a thing, not materially or physically divided. Manresa defines it as the
“manifestation of the private right of ownership, which instead of being exercised by the owner in
an exclusive manner over the things subject to it, is exercised by two or more owners and the
undivided thing or right to which it refers is one and the same.”

The characteristics of co-ownership are: (a) plurality of subjects, who are the co-owners, (b) unity
of or material indivision, which means that there is a single object which is not materially divided,
and which is the element which binds the subjects, and, (c) the recognition of ideal shares, which
determines the rights and obligations of the co-owners.

In co-ownership, the relationship of such co-owner to the other co-owners is fiduciary in character
and attribute. Whether established by law or by agreement of the co-owners, the property or
thing held pro-indiviso is impressed with a fiducial nature so that each co-owner becomes a trustee
for the benefit of his co-owners and he may not do any act prejudicial to the interest of his co-
owners.

Thus, the legal effect of an agreement to preserve the properties in co-ownership is to create an
express trust among the heirs as co-owners of the properties. Co-ownership is a form of trust and
every co-owner is a trustee for the others.

Before the partition of a land or thing held in common, no individual or co-owner can claim title to
any definite portion thereof. All that the co-owner has is an ideal or abstract quota or
proportionate share in the entire land or thing.

Article 493 of the Civil Code gives the owner of an undivided interest in the property the right to
freely sell and dispose of it, i.e., his undivided interest. He may validly lease his undivided interest
to a third party independently of the other co-owners. But he has no right to sell or alienate a
concrete, specific or determinate part of the thing owned in common because his right over the
thing is represented by a quota or ideal portion without any physical adjudication.

Although assigned an aliquot but abstract part of the property, the metes and bounds of
petitioner’s lot has not been designated. As she was not a party to the Deed of Absolute Sale
voluntarily entered into by the other co-owners, her right to 1/6 of the property must be
respected. Partition needs to be effected to protect her right to her definite share and determine
the boundaries of her property. Such partition must be done without prejudice to the rights of
private respondent Virginia Teria as buyer of the 5/6 portion of the lot under dispute.