Professional Documents
Culture Documents
CASES
PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES TAN,
JUDITH TAN, ERNESTO TANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO
PADILLA JR., EDUARDO P. LIZARES and GRACE CHRISTIAN HIGH SCHOOL,
Petitioners,vs.PAUL SYCIP and MERRITTO LIM, Respondents.
One of the most important rights of a qualified shareholder or member is the right
to vote -- either personally or by proxy -- for the directors or trustees who are to
manage the corporate affairs. The right to vote is inherent in and incidental to the
ownership of corporate stocks. In nonstock corporations, the voting rights attach to
membership. The principle for determining the quorum for stock corporations is
applied by analogy to nonstock corporations, only those who are actual members
with voting rights should be counted. Under Section 52, the majority of the members
representing the actual number of voting rights, not the number or numerical
constant that may originally be specified in the articles of incorporation, constitutes
the quorum.
Under the By-Laws of GCHS, membership in the corporation shall, among others, be
terminated by the death of the member. Applying Section 91, dead members who
are dropped from the membership roster in the manner and for the cause provided
for in the By-Laws of GCHS are not to be counted in determining the requisite vote
in corporate matters or the requisite quorum for the annual members’ meeting.
With 11 remaining members, the quorum in the present case should be 6. Therefore,
there being a quorum, the annual members’ meeting was valid.
DOCTRINE:
By virtue of ratification, the acts of the board of directors become the acts of the
stockholders themselves, even if those acts were, at the outset, unauthorized.
FACTS:
Lopez Realty, Inc. (LRI) and Asuncion Lopez-Gonzalez initiated a “Complaint for
annulment of sale, cancellation of title, reconveyance and damages with prayer for
the issuance of temporary restraining order (TRO) and/or writ of preliminary
injunction against the spouses Tanjangco, Arturo and the Registrar of Deeds of
Manila.” Previously, LRI and Dr. Jose Tanjangco (Jose) “were the registered co-
owners of three parcels of land and the building erected thereon known as the
‘Trade Center Building’… Jose’s one-half share in the subject properties were later
transferred and registered in the name of his son Reynaldo Tanjangco and daughter-
in-law, Maria Luisa Arguelles (spouses Tanjangco).”
These were the stockholders of record of LRI at the time material to this case:
1. Asuncion Lopez-Gonzalez (Asuncion, Director & Corporate Secretary) – 7,831
shares;
2. Arturo F. Lopez (Arturo) – 7,830 shares;
3. Teresita Lopez-Marquez (Teresita) – 7,830 shares;
4. Rosendo de Leon (Rosendo, Director) – 5 shares
5. Benjamin Bernardino (Benjamin, Director) – 1 share;
6. Augusto de Leon (Augusto, Director) – 1 share; and
7. Leo Rivera (Leo, Director) – 1 share
During a special stockholders’ meeting held on 27 July 1981, the sale of 1/2 share of
LRI in the Trade Center Building was taken up. While the selling price was at P4 M,
the Tanjancos offered P3.8 M. To this, Asuncion countered with P5 M which was not
accepted by the Tanjancos. Thus, the board agreed to give Asuncion the priority to
equal the Tanjanco offer and the same to be exercised within ten (10) days.
Otherwise, the Tanjanco offer will be deemed accepted. Just a day after, Teresita
died (her estate’s executor Juanito L. Santos represented her afterwards). As
Asuncion failed to exercise her option to purchase the subject properties, and while
she was abroad, “the remaining directors: Rosendo, Benjamin and Leo convened in a
special meeting” passing and approving the 17 August 1981 Resolution authorizing
Arturo to negotiate and “carry out the complete termination of the sale terms and
conditions as embodied in the resolution of July 27, 1981, among others.
Subsequently, the sale was perfected with payments subsequently made.
ISSUE:
Whether or not the sale is valid.
HELD:
YES. The 17 August 1981 Board Resolution did not give Arturo the authority to act
as LRI’s representative in the sale. This is because the meeting of the board of
directors were such was passed was conducted without giving any notice to
Asuncion. This is in violation of Sec. 53 of the Corporation Code which requires
sending of notices for regular or special meetings to every director. As a result, a
meeting of the board of directors is legally infirm if there is failure to comply with
the requirements or formalities of the law or the corporation’s by-laws and any
action taken on such meeting may be challenged as a consequence. However, the
actions taken in such a meeting by the directors or trustees may be ratified
expressly or impliedly. Here, the ratification was expressed through the July 30,
1982 Board Resolution. In sum, whatever defect there was on the sale to the
spouses Tanjangco pursuant to the August 17, 1981 Board Resolution, the same was
cured through its ratification in the July 30, 1982 Board Resolution. It is of no
moment whether Arturo was authorized to merely negotiate or to enter into a
contract of sale on behalf of LRI as all his actions in connection to the sale were
expressly ratified by the stockholders holding 67% of the outstanding capital stock.
30. Legaspi Towers 300, Inc. vs. Murer
Facts: Legaspi Towers set the annual meeting of the condominium corporation
and the election of the new Board of Directors for the years 2004-2005 on April 2,
2004 at 5:00 p.m. at the lobby of Legaspi Towers. Out of a total number of 5,723
members who were entitled to vote, 1,358 were supposed to vote through their
respective proxies and their votes were critical in determining the existence of a
quorum, which was at least 2,863. The Committee on Elections of Legaspi
Towers 300, Inc., however, found most of the proxy votes, at its face value,
irregular, thus, questionable; and for lack of time to authenticate the same,
petitioners adjourned the meeting for lack of quorum.
Respondents, however, challenged the adjournment and pushed through with
the scheduled election and were elected as the new Board of Directors and
officers. Subsequently, they submitted a General Information Sheet to the
Securities and Exchange Commission (SEC) with the new set of officers.
Petitioners filed a complaint for the Declaration of Nullity of Elections before the
RTC of Manila. (Note that complaint was amended and an ex parte TRO was
filed)
Respondents, in their Answer, argued that the elections was lawfully conducted
and cited the report of SEC Counsel Nicanor Patricio. In said report, Patricio
stated that when the Board adjourned the meeting despite the objections of the
unit owners, the unit owners who objected to the adjournment gathered
themselves at the same place of the meeting and proceeded with the meeting.
The attendance was checked from among the members who stayed at the
meeting. Proxies were counted and recorded, and there was a declaration of a
quorum out of a total of 5,721 votes, 2,938 were present either in person or
proxy.
Respondents filed a comment on the motion to amend complaint praying that the
name of Legaspi Towers as party-plaintiff be deleted as the said inclusion by
petitioners was made without the authority of the current Board of Directors.
RTC denied said motion. CA held that as the right to vote is a personal right of a
stockholder of a corporation, such right can only be enforced through a direct
action; hence, Legaspi Towers 300, Inc. cannot be impleaded as plaintiff in this
case.
Issue: WON CA erred in not finding that RTC committed grave abuse of
discretion amounting to lack or excess of jurisdiction in denying the admission of
the Second Amended Complaint.
FACTS:
Trans Middle East (TMEE), the registered owners of sequestered shares in
Equitable-PCI Bank (EPCIB) assails Sandiganbayan’s Resolution which declared
that a TRO “issued 14 years ago by this Court in cases that were closed and
terminated ten years ago, remained in effect, thus disqualifying TMEE from
voting on its shares. The annual stockholders meeting of EPCIB was scheduled
on 23 May 2006, or the day after the Resolution was promulgated, leaving
questions as to the timing of the promulgation. In any event, the Resolution is
rooted in dubious and erroneous legal premises.”
ISSUE:
Whether or not PCGG exercises acts of dominion on the voting shares over the
registered owner of the shares in TMEE.
HELD:
NO. It is a well-settled rule that registered owners of the shares of a corporation,
even if they are sequestered by the government through the PCGG, exercises
the right and the privilege of voting on them. PCGG (as conservator) cannot, as a
rule, exercise acts of dominion by voting these shares. Registered owner of
sequestered shares may only be deprived of these voting rights, and the PCGG
authorized to exercise the same, only if it is able to establish that:
(1) there is prima facie evidence showing that the said shares are ill-gotten and
thus belong to the State; and
(2) there is an imminent danger of dissipation, thus necessitating the continued
sequestration of the shares and authority to vote thereupon by the PCGG while
the main issue is pending before the Sandiganbayan.
The writ of sequestration would not legally bar TMEE from voting its shares. It
would only be possible if there is prima facie evidence that such shares are ill-
gotten and where there is an imminent danger of dissipation. Given that
Sandiganbayan has yet to release such findings, this is not applicable. In fact, in
a Resolution of Sandiganbayan, it declared that TMEE has the prima facie right
as owner of the registered owner of the sequestered shares. Petition granted.
DECISION
ABAD, J.:
This case is about what distinguishes a regular company manager performing important
executive tasks from a corporate officer whose election and functions are governed by the
company’s by-laws.
Petitioner Gloria V. Gomez used to work as Manager of the Legal Department of Petron
Corporation, then a government-owned corporation. With Petron’s privatization, she
availed of the company’s early retirement program and left that organization on April 30,
1994. On the following day, May 1, 1994, however, Filoil Refinery Corporation (Filoil),
also a government-owned corporation, appointed her its corporate secretary and legal
counsel,1 with the same managerial rank, compensation, and benefits that she used to
enjoy at Petron.
But Filoil was later on also identified for privatization. To facilitate its conversion, the
Filoil board of directors created a five-member task force headed by petitioner Gomez
who had been designated administrator.2 While documenting Filoil’s assets, she found
several properties which were not in the books of the corporation. Consequently, she
advised the board to suspend the privatization until all assets have been accounted for.
With the privatization temporarily shelved, Filoil underwent reorganization and was
renamed Filoil Development Management Corporation (FDMC), which later became the
respondent PNOC Development Management Corporation (PDMC). When this
happened, Gomez’s task force was abolished and its members, including Gomez, were
given termination notices on March 5, 1996.3 The matter was then reported to the
Department of Labor and Employment on March 7, 1996.4
On March 29, 1999 the new board of directors of respondent PDMC removed petitioner
Gomez as corporate secretary. Further, at the board’s meeting on October 21, 1999 the
board questioned her continued employment as administrator. In answer, she presented
the former president’s May 24, 1998 letter that extended her term. Dissatisfied with this,
the board sought the advice of its legal department, which expressed the view that
Gomez’s term extension was an ultra vires act of the former president. It reasoned that,
since her position was functionally that of a vice-president or general manager, her term
could be extended under the company’s by-laws only with the approval of the board. The
legal department held that her "de facto" tenure could be legally put to an end.8
Sought for comment, the Office of the Government Corporate Counsel (OGCC) held the
view that while respondent PDMC’s board did not approve the creation of the position of
administrator that Gomez held, such action should be deemed ratified since the board had
been aware of it since 1994. But the OGCC ventured that the extension of her term
beyond retirement age should have been made with the board’s approval.9
Petitioner Gomez for her part conceded that as corporate secretary, she served only as a
corporate officer. But, when they named her administrator, she became a regular
managerial employee. Consequently, the respondent PDMC’s board did not have to
approve either her appointment as such or the extension of her term in 1998.
Pending resolution of the issue, the respondent PDMC’s board withheld petitioner
Gomez’s wages from November 16 to 30, 1999, prompting her to file a complaint for
non-payment of wages, damages, and attorney’s fees with the Labor Arbiter on
December 8, 1999.10 She later amended her complaint to include other money claims.11
In a special meeting held on December 29, 1999 the respondent PDMC’s board resolved
to terminate petitioner Gomez’s services retroactive on August 11, 1998, her retirement
date.12 On January 5, 2000 the board informed petitioner of its decision.13 Thus, she
further amended her complaint to include illegal dismissal.14
Upon elevation of the matter to the Court of Appeals (CA) in CA-G.R. SP 88819,
however, the latter rendered a decision on May 19, 2006,18 reversing the NLRC decision.
The CA held that since Gomez’s appointment as administrator required the approval of
the board of directors, she was clearly a corporate officer. Thus, her complaint is within
the jurisdiction of the Regional Trial Court (RTC) under P.D. 902-A, as amended by
Republic Act (R.A.) 8799.19 With the denial of her motion for reconsideration,20 Gomez
filed this petition for review on certiorari under Rule 45.
The key issue in this case is whether or not petitioner Gomez was, in her capacity as
administrator of respondent PDMC, an ordinary employee whose complaint for illegal
dismissal and non-payment of wages and benefits is within the jurisdiction of the NLRC.
Ordinary company employees are generally employed not by action of the directors and
stockholders but by that of the managing officer of the corporation who also determines
the compensation to be paid such employees.21 Corporate officers, on the other hand, are
elected or appointed22 by the directors or stockholders, and are those who are given that
character either by the Corporation Code or by the corporation’s by-laws.23
Here, it was the PDMC president who appointed petitioner Gomez administrator, not its
board of directors or the stockholders. The president alone also determined her
compensation package. Moreover, the administrator was not among the corporate officers
mentioned in the PDMC by-laws. The corporate officers proper were the chairman,
president, executive vice-president, vice-president, general manager, treasurer, and
secretary.24
Respondent PDMC claims, however, that since its board had under its by-laws the power
to create additional corporate offices, it may be deemed to have simply ratified its
president’s creation of the corporate position of administrator.25 But creating an
additional corporate office was definitely not respondent PDMC’s intent based on its
several actions concerning the position of administrator.1avvphi1
Respondent PDMC never told Gomez that she was a corporate officer until the tail-end of
her service after the board found legal justification for getting rid of her by consulting its
legal department and the OGCC which supplied an answer that the board obviously
wanted. Indeed, the PDMC president first hired her as administrator in May 1994 and
then as "administrator/legal counsel" in September 1996 without a board approval. The
president even extended her term in May 1998 also without such approval. The
company’s mindset from the beginning, therefore, was that she was not a corporate
officer.
What is more, respondent PDMC enrolled petitioner Gomez with the Social Security
System, the Medicare, and the Pag-Ibig Fund. It even issued certifications dated October
10, 2008,30 stating that Gomez was a permanent employee and that the company had
remitted combined contributions during her tenure. The company also made her a
member of the PDMC’s savings and provident plan31 and its retirement plan.32 It grouped
her with the managers covered by the company’s group hospitalization insurance. 33
Likewise, she underwent regular employee performance appraisals,34 purchased stocks
through the employee stock option plan,35 and was entitled to vacation and emergency
leaves.36 PDMC even withheld taxes on her salary and declared her as an employee in the
official Bureau of Internal Revenue forms.37 These are all indicia of an employer-
employee relationship which respondent PDMC failed to refute.
WHEREFORE, the Court GRANTS the petition, REVERSES and SETS ASIDE the
decision dated May 19, 2006 and the resolution dated August 15, 2006 of the Court of
Appeals in CA-G.R. SP 88819, and REINSTATES the resolution dated November 22,
2002 of the National Labor Relations Commission’s Third Division in NLRC NCR 30-
12-00856-99. Let the records of this case be REMANDED to the arbitration branch of
origin for the conduct of further proceedings.
Issue: Whether the NLRC has jurisdiction over the subject matter
Held: Yes. Under Section 5 of PD 902-A, the law applicable at the time this
controversy arose, the SEC, not the NLRC, had original and exclusive jurisdiction
over cases involving the removal of corporate officers. Section 5(c) of PD 902-A
applied to a corporate officers dismissal for his dismissal was a corporate act
and/or an intra-corporate controversy.
However, it had to be first established that the person removed or dismissed was
a corporate officer. Corporate officers in the context of PD 902-A are those
officers of a corporation who are given that character either by the Corporation
Code or by the corporations by-laws. Under Section 25 of the Corporation Code,
the corporate officers are the president, secretary, treasurer and such other
officers as may be provided for in the by-laws.
Here, petitioner merely alleged that respondent was a corporate officer.
However, it failed to prove that its by-laws provided for the office of vice president
for nationwide expansion. An office is created by the charter of the corporation
and the officer is elected by the directors or stockholders. On the other hand, an
employee occupies no office and generally is employed not by the action of the
directors or stockholders but by the managing officer of the corporation.
In this case, respondent was appointed vice president for nationwide expansion
by Malonzo, petitioners general manager, not by the board of directors of
petitioner. It was also Malonzo who determined the compensation package of
respondent. Thus, respondent was an employee, not a corporate officer. The CA
was therefore correct in ruling that jurisdiction over the case was properly with
the NLRC, not the SEC.
________________________________________________________________
FACTS:
National Federation of Labor Unions (NAFLU) and Mariveles Apparel
Corporation Labor Union (MACLU) (collectively, complainants), on behalf of all of
MAC’s rank and file employees, filed a complaint against MAC for illegal
dismissal brought about by its illegal closure of business. Alleged in their
complaint was that MAC without notice of any kind filed in accordance with
pertinent provisions of the Labor Code, ceased operations with the intention of
completely closing its shop or factory; that at the time of closure, there were
several employees who had not received their corresponding
wages/salaries/benefits; among others.
Complainant moved to implead Carag (in his official capacity as Chairman of the
Board) along with David (as President) arguing that the inclusion of individual
respondents as party respondents in the present case is to guarantee the
satisfaction of any judgment award on the basis of Article 212(c) of the Phil.
Labor Code, as amended, which provides “Employer includes any person acting
in the interest of an employer, directly or indirectly. .[..]”
Atty. Pastores, as counsel for respondents, argued that complainants should not
have impleaded Carag and David because MAC is actually owned by a
consortium of banks. Carag and David own shares in MAC only to qualify them to
serve as MAC’s officers.
Arbiter Ortiguerra rendered her Decision granting the motion to implead and
subsequently declared Carag and David solidarily liable with MAC to
complainants.
Atty. Pastores filed their Memorandum before the NLRC. Carag, through a
separate counsel, filed an appeal. They alleged that Carag and David, being
such officers, are not the owners of MAC; that MAC is owned by a consortium of
banks, as stockholders; piercing the corporate veil to hold the stockholders liable
for corporate liabilities is only true [for] close corporations (family corporation),
which is not the prevailing situation in MAC. Respondents also filed separate
motions to reduce bond.
NLRC denied the motions to reduce bond and stated that to grant such reduction
on the ground that the appeal is meritorious would be tantamount to ruling on the
merits of the appeal.
Respondents filed separate petitions for certiorari before the Supreme Court. An
issuance of a temporary restraining order to enjoin NLRC from enforcing Arbiter
Ortiguerra’s Decision was granted by the SC. SC referred the case to the CA.
CA held that Carag and David, as the most ranking officers of MAC, had a direct
hand at the time in the illegal dismissal of MAC’s employees; that the failure of
Carag and David to observe the notice requirement in closing the company
shows malice and bad faith, which justifies their solidary liability with MAC.
ISSUE:
When is a director personally liable for the debts of the corporation?
HELD:
The rule is that a director is not personally liable for the debts of the corporation,
which has a separate legal personality of its own. Section 31 (as the exception to
the rule) makes a director personally liable for corporate debts if he wilfully and
knowingly votes for or assents to patently unlawful acts of the corporation. It also
makes a director personally liable if he is guilty of gross negligence or bad faith in
directing the affairs of the corporation.
To hold a director personally liable for debts of the corporation, and thus pierce
the veil of corporate fiction, the bad faith or wrongdoing of the director must be
established clearly and convincingly.
For a wrongdoing to make a director personally liable for debts of the
corporation, the wrongdoing approved or assented to by the director must be a
patently unlawful act. Mere failure to comply with the notice requirement of labor
laws on company closure or dismissal of employees does not amount to a
patently unlawful act. Patently unlawful acts are those declared unlawful by law
which imposes penalties for commission of such unlawful acts.
In this case, Article 283 of the Labor Code, requiring a one-month prior notice to
employees and the DOLE before any permanent closure of a company, does not
state that non-compliance with the notice is an unlawful act punishable under the
Code. There is no provision in any other Article of the Labor Code declaring
failure to give such notice an unlawful act and providing for its penalty.
Complainants did not allege or prove, and Arbiter Ortiguerra did not make any
finding, that Carag approved or assented to any patently unlawful act to which
the law attaches a penalty for its commission. On this score alone, Carag cannot
be held personally liable for the separation pay of complainants.
Complainants claim that Carag is personally liable for MAC’s debts to
complainants “on the basis of Article 212(e) of the Labor Code, as amended.”
The Court has already ruled in several cases that Article 212(e) of the Labor
Code, by itself, does not make a corporate officer personally liable for the debts
of the corporation. The governing law on personal liability of directors for debts of
the corporation is still Section 31 of the Corporation Code.
The rule is still that the doctrine of piercing the corporate veil applies only when
the corporate fiction is used to defeat public convenience, justify wrong, protect
fraud, or defend crime. In the absence of malice, bad faith, or a specific provision
of law making a corporate officer liable, such corporate officer cannot be made
personally liable for corporate liabilities. Neither Article 212(e) nor Article 273
(now 272) of the Labor Code expressly makes any corporate officer personally
liable for the debts of the corporation.
Thus, it was error for Arbiter Ortiguerra, the NLRC, and the CA to hold Carag
personally liable for separation pay owed by MAC to complainants based alone
on Article 212(e) of the Labor Code. The liability of corporate officers for
corporate debts remains governed by Section 31 of the Corporation Code.
Doctrine: In the piercing case, the test is complete control or domination, not
only of finances, but of policy and business practice in respect of the transaction
attacked. This is not the case here. Section 31, under which this case was
brought, makes a corporate director who may or may not even be a stockholder
or member accountable for his management of the affairs of the corporation.
Facts: University of Life Complex (Complex) was built during the regime of
President Marcos. In July 1980, First Lady Imelda R. Marcos and others
organized the University of Life Foundation, Inc. (ULFI). The government gave
the management and operation of the Complex to ULFI. After the fall of the
Marcos regime, the government transferred the ownership of ULFIs properties to
the Department of Education, Culture and Sports (DECS). Later, Republic Act
6847 transferred full control and management of the Complex to DECS.
DECS succeeded in ejecting ULFI but the latter did not pay the amounts due
from it. DECS filed a complaint for collection and damages against Henri Kahn,
ULFIs President, and petitioner Manuel Luis S. Sanchez, its Executive Vice-
President, based on their personal liability under Section 31 of the Corporation
Code. The latter two were Managing Director and Finance Director, respectively,
of the corporation.
Sanchez alleged that, being a mere officer of ULFI, he cannot be made
personally liable for its adjudged corporate liability. He took exception to the
complaint, characterizing it as an attempt to pierce the corporate veil that cloaked
ULFI.
Issue: Whether petitioner Sanchez, a director and chief executive officer of ULFI,
can be held liable in damages under Section 31 of the Corporation Code for
gross neglect or bad faith in directing the corporations affair
Held: Yes. Petitioner Sanchez claims that there is no ground for the courts to
pierce the veil and hold him and Kahn personally liable for ULFIs obligations to
the DECS. But this is not a case of piercing the veil of corporate fiction. The
DECS brought its action under Section 31 of the Corporation Code, which should
not be confused with actions intended to pierce the corporate fiction. Section 31
of the Corporation Code makes directors-officers of corporations jointly and
severally liable even to third parties for their gross negligence or bad faith in
directing the affairs of their corporations.
In the piercing case, the test is complete control or domination, not only of
finances, but of policy and business practice in respect of the transaction
attacked. This is not the case here. Section 31, under which this case was
brought, makes a corporate director who may or may not even be a stockholder
or member accountable for his management of the affairs of the corporation.
The DECS does not have to invoke the doctrine of piercing the veil of corporate
fiction. Section 31 above expressly lays down petitioner Sanchez and Kahn’s
liability for damages arising from their gross negligence or bad faith in directing
corporate affairs.
Court DENIES the petition and AFFIRMS the decision of the CA ordering Kahn
and petitioner Sanchez to pay the DECS, jointly and severally P 22,559,215.14
with legal interest from April 1, 1996 until they shall have fully paid the same,
P500,000.00 in exemplary damages, and P200,000.00 in attorneys fees, plus
costs.