Group 1 Reporting: Abucay l Galeno l Gomez l Grajo l Lite
Case Title
Gallagher v Germania Brewing Co.
54 N.W. 115 (1893)
Magsaysay - Labrador v CA
180 SCRA 266 (1989)
1
Issue & Ruling / additional notes Doctrine Keywords
Issue: Whether or not the claims of Barge and VanderHorck can be To allow the set-off in the case at bat, it will be
equitable set-off against the claims of Gallagher as against Germania tantamount to totally ignoring the legal doctrine, or
Brewin Corp.? fiction, that a corporation is an entity separate and
distinct from the body of its stockholders. It has been Fiction
Held:No. Their claims against Westphal are not subjects of equitable absolutely essential, for the administration of justice, entity separate and distinct from the
set-off to a claim against the defendant corporation. to treat a corporation as a collective entity, without body of its stockholders
regard to its individual shareholders. If the rights or
In the case at bar, to allow such set-off would be tantamount to totally
liabilities of a corporation could be affected by the
ignoring the legal doctrine that a corporation is an entity separate and
acts of the stockholders, except when acting in the
distinct from the body of its stockholders. The recognition of a
corporate name, it can easily be seen into what
corporation as a collective entity without regard to its individual
confusion and chaos corporate affairs would
shareholders has been absolutely essential for the administration of
inevitably fall.
justice. If the rights or liabilities of a corporation could be affected by the
acts of the stockholders, except when acting in the corporate name, it
can easily be seen into what confusion and chaos corporate affairs
would inevitably result in.
ISSUE: Whether or not petitioners can intervene in the case? A share of stock represents a proportionate or
aliquot interest in the property of the corporation, it
does not vest the owner thereof with any legal right Distinct legal personality
Ruling: While a share of stock represents a proportionate or aliquot or title to any of the property, his interest in the
interest in the property of the corporation, it does not vest the owner corporate property being equitable or beneficial in
thereof with any legal right or title to any of the property, his interest in nature. Shareholders are in no legal sense the
the corporate property being equitable or beneficial in nature. owners of corporate property, which is owned by the
Shareholders are in no legal sense the owners of corporate property, corporation as a distinct legal person.
which is owned by the corporation as a distinct legal person.
When can a shareholder intervene in a case involving the corporation as
a separate entity?
Note: As a rule, Doctrine of Corporate entity applies and shareholders
cannot intervene in cases involving the corporation unless:
If it is shown that the movant has legal interest in the matter
in litigation or otherwise qualified, and consideration must be
given as to whether the adjudication of the rights of the
original parties may be delayed or prejudiced, or whether the
intervenors rights may be protected in a separate
proceeding or not.
Shareholders cannot intervene if:
the interest is indirect, contingent, remote, conjectural,
consequential and collateral. At the very least, their interest
is purely inchoate, or in sheer expectancy of a right in the
management of the corporation and to share in the profits
thereof and in the properties and assets thereof on
dissolution, after payment of the corporate debts and
obligations.
ISSUE: Whether or not properties registered in the name of the A corporation is a juridical person distinct from the
corporation are owned by it as an entity separate and distinct from its members composing it. Properties registered in the
members. name of the corporation are owned by it as an entity Juridical person
separate and distinct from its members. Distinct from its members composing
Yes. A corporation is a juridical person distinct from the members it
composing it. Properties registered in the name of the corporation are Properties registered in its name are
owned by it as an entity separate and distinct from its members. While owned by it
shares of stock constitute personal property they do not represent
property of the corporation. The corporation has property of its own
 Group 1 Reporting: Abucay l Galeno l Gomez l Grajo l Lite 2
which consists chiefly of real estate. A share of stock only typifies an
aliquot part of the corporation's property, or the right to share in its
proceeds to that extent when distributed according to law and equity, but
its holder is not the owner of any part of the capital of the corporation.
Stockholders of Guanzon v Reg of Nor is he entitled to the possession of any definite portion of its property
Deeds or assets. The stockholder is not a co-owner or tenant in common of the
6 SCRA 373 (1962) corporate property.

Shareholders/Investors, even upon showing that

they benefited from the services rendered by a Shareholders/Investors cannot be
Caram v CA Issue: Whether or not petitioners themselves are also and personally claiming party, they cannot be held personally liable held personally liable
151 SCRA 373 (1987) liable for expenses incurred for the organization of the corporation. otherwise, all the other stockholders of the
corporation, including those who came in later, and
regardless of the amount of their share holdings,
would be equally and personally liable also with the
petitioners for the claims of the private respondent.
Ruling: No. In the light of these circumstances, we hold that the
petitioners cannot be held personally liable for the compensation
claimed by the private respondent for the services performed by him in
the organization of the corporation. To repeat, the petitioners did not
contract such services. It was only the results of such services that
Barretto and Garcia presented to them and which persuaded them to
invest in the proposed airline. The most that can be said is that they
benefited from such services, but that surely is no justification to hold
them personally liable therefor. Otherwise, all the other stockholders of
the corporation, including those who came in later, and regardless of the
amount of their share holdings, would be equally and personally liable
also with the petitioners for the claims of the private respondent.

ISSUE: Whether or not Ong (officer of TRAMAT) acting in his capacity

as a corporate officer may be held jointly and severally liable with the
corporation which was found liable by a competent court.
Ruling:
Exceptions to separate liability
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 --

It was, nevertheless, an error to hold David Ong jointly and severally 1. He assents (a) to a patently unlawful
liable with TRAMAT to de la Cuesta under the questioned act of the corporation, or
transaction. Ong had there so acted, not in his personal capacity, but as (b) for bad faith, or gross negligence in
Tramat Mercantile v CA
an officer of a corporation, TRAMAT, with a distinct and separate directing its affairs, or (c) for conflict of
238 SCRA 14 (1987)
personality. As such, it should only be the corporation, not the person interest, resulting in damages to the
acting for and on its behalf, that properly could be made liable thereon. corporation, its stockholders or other
persons;

2. He consents to the issuance of

watered stocks or who, having
knowledge thereof, does not forthwith file
with the corporate secretary his written
objection thereto;

3. He agrees to hold himself personally

and solidarily liable with the
corporation; or

4. He is made, by a specific provision of

law, to personally answer for his
 Group 1 Reporting: Abucay l Galeno l Gomez l Grajo l Lite
Palay, Inc. v. Clave (1983) 124 SCRA
640
San Juan Structural v CA
296 SCRA 631 (1998)
3
corporate action.
ISSUE: A corporation is invested by law with a personality
separate and distinct from those of the persons Invested by law
1. Whether the doctrine of piercing the veil of corporate fiction has composing it. As a general rule, a corporation may Personality seprate and distinct
application to the case. not be made to answer for acts or liabilities of its Corporation may not be made to
stockholders or those of the legal entities to which it answer liabilities of its shareholders
2. Whether petitioner On Stott can be held solidarity liable with petitioner
may be connected and vice versa. or members and vice versa
Corporation for the refund of the installment payments made by
respondent Dump it.
RULING:
The doctrine of piercing the veil of corporate fiction has no application to
the case. Consequently, petitioner Onstott cannot be held solidarity
liable with petitioner Corporation for the refund of the installment
payments made by respondent Dumpit.
A corporation is invested by law with a personality separate and distinct
from those of the persons composing it. 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.
However, 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
perpetrate fraud or con fuse 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. In this case however, there are
no badges of fraud on the part of the petitioners. They had literally
relied, although mistakenly, on paragraph 6 of the contract with
respondent when they rescinded the contract to sell extra judicially.
Although On Stott appears to be the controlling stockholder, there being
no fraud, he cannot be made personally liable.
Issues: Doctrine: A corporation is a juridical person separate Juridical person
and distinct from its stockholders or members. Separate and distinct
(1) Whether or not there was a valid contract existing between San Accordingly, the property of the corporation is not Properties may not be sold without
Juan and Motorich. the property of its stockholders or members and may express authoriztion by the Board of
not be sold by the stockhlders or members without Directors
Ruling: (1) No. The contract entered into between Nenita and San
express authorization from the corporations Board of A corporation may act only through
Juan cannot bind Motorich, because the latter never authorized nor
Directors. its board of directors or, when
ratified such sale. A corporation is a juridical person separate and
authorized either by its bylaws or by
distinct from its stockholders or members. Accordingly, the property of
its board resolution, through its
the corporation is not the property of its stockholders and may not be Acts of corporate officers within the scope of their officers or agents in the normal
sold by them without express authorization from the corporations BoD. authority are binding on the corporation. But when course of business. The general
This is in accordance with Sec. 23 of the Corporation Code. these officers exceed their authority, their actions principles of agency govern the
cannot bind the corporation, unless it has ratified relation between the corporation and
Indubitably, a corporation can only act through its BoD or, when
such acts or is estopped from disclaiming them. its officers or agents, subject to the
authorized either by its by laws or by its board resolution, through its
officers or agents in the normal course of business. The general articles of incorporation, bylaws, or
principles of agency govern the relation between the corporation and its relevant provisions of law.
officers or agents, subject to the AoI, by laws, or relevant provisions of When officers exceed authority it
law. A corporate officer or agent may represent and bind the does not bind corporation but can be
corporation in transactions with 3rd persons to the extent that the ratified by BOD
authority to do so has been conferred upon him, and this includes
powers which have been intentionally conferred, and also such powers
 Group 1 Reporting: Abucay l Galeno l Gomez l Grajo l Lite 4
as, in the usual course of the particular business, are incidental to, or
may be implied from, the powers intentionally conferred, powers added
by custom and usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation has caused
persons dealing with the officer or agent to believe that it has conferred.
Furthermore, persons dealing with an assumed agent, whether the
assumed agency be a general or special one, are bound at their peril, if
they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it. Unless
duly authorized, a treasurer, whose powers are limited, cannot bind the
corporation in a sale of its assets.

Dulay Enterprises v CA
225 SCRA 678 (1993)
Issue: Whether the sale of the mortgaged property without approval of Exception to rule that sale of property must be
all the members of the Board of Directors is valid. approved by all the members by the BOD: a close
corporation and consequently a board resolution Exception:
Ruling: Petitioner corporation is classified as a close corporation and authorizing the sale or mortgage of the subject close corporation and consequently a
consequently a board resolution authorizing the sale or mortgage of the property is not necessary to bind the corporation for board resolution authorizing the sale
subject property is not necessary to bind the corporation for the the action of its president. At any rate, a corporate or mortgage of the subject property is
action of its president. At any rate, a corporate action taken at a board action taken at a board meeting without proper call not necessary to bind the corporation
meeting without proper call or notice in a close corporation is deemed or notice in a close corporation is deemed ratified by for the action of its president.
ratified by the absent director unless the latter promptly files his written the absent director unless the latter promptly files his
objection with the secretary of the corporation after having written objection with the secretary of the a corporate action taken at a board
knowledge of the meeting which, in this case, petitioner corporation after having knowledge of the meeting. meeting without proper call or notice
Virgilio Dulay failed to do. in a close corporation is deemed
ratified by the absent director unless
"Sec. 101. When board meeting is unnecessary or improperly held. the latter promptly files his written
Unless the by-laws provide otherwise, any action by the directors of a objection with the secretary of the
close corporation without a meeting shall nevertheless be deemed valid corporation after having
if: knowledge of the meeting.
"1. Before or after such action is taken, written consent thereto is signed
by all the directors; or
"2. All the stockholders have actual or implied knowledge of the action
and make no prompt objection thereto in writing; or
"3. The directors are accustomed to take informal action with the
express or implied acquiesce of all the stockholders; or
"4. All the directors have express or implied knowledge of the action in
question and none of them makes prompt objection thereto in writing.
"If a directors' meeting is held without proper call or notice, an action
taken therein within the corporate powers is deemed ratified by a
director who failed to attend, unless he promptly files his written
objection with the secretary of the corporation after having knowledge
thereof."

Definition:

A corporation is a legal or juridical person with a personality separate and distinct from its individual stockholders or member and from any other legal entity to
which it may be connected. As a result, Properties registered in its own name are owned by and the Corporation may not be held to answer the liability of its
shareholders or members and, in the same way, shareholders cannot be held personally liable for the obligation of the former except:

1. He assents (a) to a patently unlawful act of the corporation, or

(b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other
persons;
Group 1 Reporting: Abucay l Galeno l Gomez l Grajo l Lite 5
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written
objection thereto;

3. He agrees to hold himself personally and solidarily liable with the corporation; or

4. He is made, by a specific provision of law, to personally answer for his corporate action.
Although, a corporate officer acting can bind the corporation to any transactions within his authorized power, alienation of property of a corporation such as in a
sale and mortgage of property must be approved by the BOD to be valid and binding to the corporation, except in closed corporation.