1. Corporate Law Case Digest: Tayag V.

Benguet

Lessons Applicable: Theory of Concession (Corporate Law)

FACTS:
1 March 27, 1960: Idonah Slade Perkins died in New York City
2 August 12, 1960: Prospero Sanidad instituted ancillary administration proceedings appointing
ancillary administrator Lazaro A. Marquez later on substituted by Renato D. Tayag
3 On January 27, 1964: CFI ordered domiciliary administrator County Trust Company of New York to
surrender to the ancillary administrator in the Philippines 33,002 shares of stock certificates owned by
her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local
creditors
4 When County Trust Company of New York refused the court ordered Benguet Consolidated, Inc.
to declare the stocks lost and required it to issue new certificates in lieu thereof
5 Appeal was taken by Benguet Consolidated, Inc. alleging the failure to comply with its by-laws
setting forth the procedure to be followed in case of a lost, stolen or destroyed so it cannot issue new
stock certs.

ISSUE: W/N Benguet Consolidated, Inc. can ignore a court order because of its by-laws

HELD: NO. CFI Affirmed

6 Fear of contigent liability - obedience to a lawful order = valid defense
7 Benguet Consolidated, Inc. is a Philippine corporation owing full allegiance and subject to the
unrestricted jurisdiction of local courts
8 Assuming that a contrariety exists between the above by-law and the command of a court decree,
the latter is to be followed.
9 corporation is an artificial being created by operation of law...."It owes its life to the state, its birth
being purely dependent on its will. Cannot ignore the source of its very existence

2. Torres vs. CA - GR 120138, Sept. 5, 1997;

Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development
Corporation (TRDC). TRDC is a small family owned corporation and other stockholders thereof include
Judge Torres nieces and nephews. However, even though Judge Torres owns the majority of TRDC and
was also the president thereof, he is only entitled to one vote among the 9-seat Board of Directors,
hence, his vote can be easily overridden by minority stockholders. So in 1987, before the regular election
of TRDC officers, Judge Torres assigned one share (qualifying share) each to 5 outsiders for the purpose
of qualifying them to be elected as directors in the board and thereby strengthen Judge Torres power over
other family members.
However, the said assignment of shares were not recorded by the corporate secretary, Ma. Christina
Carlos (niece) in the stock and transfer book of TRDC. When the validity of said assignments were
questioned, Judge Torres ratiocinated that it is impractical for him to order Carlos to make the entries
because Carlos is one of his opposition. So what Judge Torres did was to make the entries himself because
he was keeping the stock and transfer book. He further ratiocinated that he can do what a mere secretary
can do because in the first place, he is the president.
Since the other family members were against the inclusion of the five outsiders, they refused to take part
in the election. Judge Torres and his five assignees then decided to conduct the election among
themselves considering that the 6 of them constitute a quorum.

ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the subsequent
election is valid.

HELD: No. The assignment of the shares of stocks did not comply with procedural requirements. It did not
comply with the by laws of TRDC nor did it comply with Section 74 of the Corporation Code. Section 74
provides that the stock and transfer book should be kept at the principal office of the corporation. Here, it
was Judge Torres who was keeping it and was bringing it with him. Further, his excuse of not ordering the
secretary to make the entries is flimsy. The proper procedure is to order the secretary to make the entry of
said assignment in the book, and if she refuses, Judge Torres can come to court and compel her to make
the entry. There are judicial remedies for this. Needless to say, the subsequent election is invalid because
the assignment of shares is invalid by reason of procedural infirmity. The Supreme Court also emphasized:
all corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family
corporation is not an exemption. Such corporations cannot have rules and practices other than those
established by law.

3. Phil. Stock Exchange vs. CA 287 SCRA 232 Business Organization Corporation Law Extent of
Power of the Securities and Exchange Commission
Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI was granted
permission by the Securities and Exchange Commission (SEC) to sell its shares to the public in order for
PALI to develop its properties.
PALI then asked the Philippine Stock Exchange (PSE) to list PALIs stocks/shares to facilitate exchange.
The PSE Board of Governors denied PALIs application on the ground that there were multiple claims on
the assets of PALI. Apparently, the Marcoses, Rebecco Panlilio (trustee of the Marcoses), and some other
corporations were claiming assets if not ownership over PALI.
PALI then wrote a letter to the SEC asking the latter to review PSEs decision. The SEC reversed PSEs
decisions and ordered the latter to cause the listing of PALI shares in the Exchange.

ISSUE: Whether or not it is within the power of the SEC to reverse actions done by the PSE.

HELD: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE pursuant to the
Revised Securities Act and for the purpose of ensuring fair administration of the exchange. PSE, as a
corporation itself and as a stock exchange is subject to SECs jurisdiction, regulation, and control. In order
to insure fair dealing of securities and a fair administration of exchanges in the PSE, the SEC has the
authority to look into the rulings issued by the PSE. The SEC is the entity with the primary say as to
whether or not securities, including shares of stock of a corporation, may be traded or not in the stock
exchange.
HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only reverse decisions
issued by the PSE if such are tainted with bad faith. In this case, there was no showing that PSE acted
with bad faith when it denied the application of PALI. Based on the multiple adverse claims against the
assets of PALI, PSE deemed that granting PALIs application will only be contrary to the best interest of the
general public. It was reasonable for the PSE to exercise its judgment in the manner it deems appropriate
for its business identity, as long as no rights are trampled upon, and public welfare is safeguarded.

4. Feliciano vs. Commission on Audit

[GR 147402, 14 January 2004]

Facts: A Special Audit Team from Commission on Audit (COA) Regional Office No. VIII audited the
accounts of the Leyte Metropolitan Water District (LMWD). Subsequently, LMWD received a letter
from COA dated 19 July 1999 requesting payment of auditing fees. As General Manager of LMWD,
Engr. Ranulfo C. Feliciano sent a reply dated 12 October 1999 informing COAs Regional Director
that the water district could not pay the auditing fees. Feliciano cited as basis for his action Sections
6 and 20 of PD 198, as well as Section 18 of RA 6758. The Regional Director referred Felicianos
reply to the COA Chairman on 18 October 1999. On 19 October 1999, Feliciano wrote COA through
the Regional Director asking for refund of all auditing fees LMWD previously paid to COA. On 16
March 2000, Feliciano received COA Chairman Celso D. Gangans Resolution dated 3 January
2000 denying Felicianos request for COA to cease all audit services, and to stop charging auditing
fees, to LMWD. The COA also denied Felicianos request for COA to refund all auditing fees
previously paid by LMWD. Feliciano filed a motion for reconsideration on 31 March 2000, which
COA denied on 30 January 2001. On 13 March 2001, Felicaino filed the petition for certiorari.

Issue: Whether a Local Water District (LWD) is a government-owned or controlled corporation.

Held: The Constitution recognizes two classes of corporations. The first refers to private
corporations created under a general law. The second refers to government-owned or controlled
corporations created by special charters. The Constitution emphatically prohibits the creation of
private corporations except by a general law applicable to all citizens. The purpose of this
constitutional provision is to ban private corporations created by special charters, which historically
gave certain individuals, families or groups special privileges denied to other citizens. In short,
Congress cannot enact a law creating a private corporation with a special charter. Such legislation
would be unconstitutional. Private corporations may exist only under a general law. If the corporation
is private, it must necessarily exist under a general law. Stated differently, only corporations created
under a general law can qualify as private corporations. Under existing laws, that general law is the
Corporation Code, except that the Cooperative Code governs the incorporation of cooperatives. The
Constitution authorizes Congress to create government-owned or controlled corporations through
special charters. Since private corporations cannot have special charters, it follows that Congress
can create corporations with special charters only if such corporations are government-owned or
controlled. Obviously, LWDs are not private corporations because they are not created under the
Corporation Code. LWDs are not registered with the Securities and Exchange Commission. Section
14 of the Corporation Code states that [A]ll corporations organized under this code shall file with the
Securities and Exchange Commission articles of incorporation x x x. LWDs have no articles of
incorporation, no incorporators and no stockholders or members. There are no stockholders or
members to elect the board directors of LWDs as in the case of all corporations registered with the
Securities and Exchange Commission. The local mayor or the provincial governor appoints the
directors of LWDs for a fixed term of office. LWDs exist by virtue of PD 198, which constitutes their
special charter. Since under the Constitution only government-owned or controlled corporations may
have special charters, LWDs can validly exist only if they are government-owned or controlled. To
claim that LWDs are private corporations with a special charter is to admit that their existence is
constitutionally infirm. Unlike private corporations, which derive their legal existence and power from
the Corporation Code, LWDs derive their legal existence and power from PD 198.

5. National Coal Co. v. CIR

Facts: The National Coal Co.(NCC) was created by a special law and was enacted by virtue of Act 2705 in
order to develop a coal industry. It was engaged in coal mining on reserved lands belonging to the
government. The National Coal Co.(NCC) filed a case against the CIR for the recovery of sum of money it
paid on protest as specific tax on 24,089 tons of coals claiming exemption to tax pursuant to Sec. 14 and
15 of Act 2719.

Issue: WON NCC is a private corporation?

Held: Plaintiff is a private corporation. The mere fact that the government is a majority stockholder of the
corporation does not make the corporation. Act 2705 as amended by Act 2822 makes it subject to all the
provision of the corporation law. As a private corporation, it has no greater rights, powers or privileges
than any other corporation which may be organized for the same purpose under the corporation law and
certainly it was not the intention of the legislature to give preference or right or privilege over other
legitimate private corporation in the mining of coal. NCC is required to pay taxes pursuant to Section 1496
of the Administrative Code. Moreover, Act 2719 is applicable only to lessee or owner of coal bearing lands
which NCC is not.

6. MaRILAO WATER vs, IAC no digest

7. Sappari K. Sawadjaan was among the first employees of the Philippine Amanah Bank (PAB) when it was
created. He rose through the ranks, working his way up from his initial designation as security guard.

In February 1988, while still designated as appraiser/investigator, Sawadjaan was assigned to inspect the
properties offered as collaterals by Compressed Air Machineries and Equipment Corporation (CAMEC) for a
credit line of Five Million Pesos secure by REM over the latters poperties. On the basis of his Inspection
and Appraisal Report, the PAB granted the loan application.
In the meantime, Sawadjaan was promoted to Loans Analyst I.
In January 1990, Congress passed Republic Act 6848 creating the AIIBP and repealing P.D. No. 264 (which
created the PAB). By virtue of which all assets, liabilities and capital accounts of the PAB were transferred
to the AIIBP, and the existing personnel of the PAB were to continue to discharge their functions unless
discharged. In the ensuing reorganization, Sawadjaan was among the personnel retained by the AIIBP.
When CAMEC failed to pay despite the given extension, the bank, now referred to as the AIIBP, discovered
that TCT No. N-130671 was spurious, the property described therein non-existent, and that the property
covered by TCT No. C-52576 had a prior existing mortgage in favor of one Divina Pablico.
The Board of Directors of the AIIBP created an Investigating Committee to look into the CAMEC
transaction. They found petitioner guilty of conduct prejudicial to the best interest of the service. The
board suspended the petitioner, prompting the latter to appeal the decision citing AIIBPs lack of legal
standing to sue since it was not able to file its by-laws within the prescribed period.

Issue:
Whether a corporation which failed to file its by-laws within the prescribed period ipso facto lose its power
as such

Held:
NO. At the very least, by its failure to submit its by-laws on time, the AIIBP may be considered a de facto
corporation whose right to exercise corporate powers may not be inquired into collaterally in any private
suit to which such corporations may be a party. Moreover, a corporation which has failed to file its by-laws
within the prescribed period does not ipso facto lose its powers as such. The SEC Rules on
Suspension/Revocation of the Certificate of Registration of Corporations, details the procedures and
remedies that may be availed of before an order of revocation can be issued. There is no showing that
such a procedure has been initiated in this case.

8.
Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al., G.R.No. 176579, June 28, 2011

THE FACTS
This is a petition to nullify the sale of shares of stock of Philippine TelecommunicationsInvestment
Corporation (PTIC) by the government of the Republic of the Philippines, acting throughthe Inter-Agency Privatization
Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), anaffiliate of First Pacific Company Limited (First Pacific), a
Hong Kong-based investmentmanagement and holding company and a shareholder of the Philippine Long Distance
TelephoneCompany (PLDT).The petitioner questioned the sale on the ground that it also involved an indirect sale of
12million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC toFirst Pacific.
With the this sale, First Pacifics common shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the total common shareholdings of foreigners in PLDT toabout 81.47%. This,
according to the petitioner, violates Section 11, Article XII of the 1987 PhilippineConstitution which limits foreign ownership
of the capital of a public utility to not more than 40%,thus:
Section 11.
No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines, at least sixty per centum of whosecapital is
owned by such citizens
; nor shall such franchise, certificate, or authorization be exclusive incharacter or for a longer period than
fifty years. Neither shall any such franchise or right be grantedexcept under the condition that it shall be
subject to amendment, alteration, or repeal by the Congresswhen the common good so requires. The
State shall encourage equity participation in public utilities bythe general public. The participation of
foreign investors in the governing body of any public utilityenterprise shall be limited to their proportionate
share in its capital, and all the executive and managingofficers of such corporation or association must be
citizens of the Philippines. (Emphasis supplied)

II.
THE ISSUE

Does the term capital in Section

11, Article XII of the Constitution refer to the total commonshares only, or to the total outstanding capital stock (combined
total of common and non-votingpreferred shares) of PLDT, a public utility?
III.
THE RULING

[The Court partly granted the petition and

held that the term capital in Section 11, Article XII
of the Constitution refers only to shares of stock entitled to vote in the election of directors of a public
utility, i.e., to the total common shares in PLDT.]
 Considering that common shares have voting rights which translate to control, as opposed topreferred shares which usually
have no voting rights,
the term capital in Section 11, Article XII of
the Constitution refers only to common shares. However, if the preferred shares also have the right
to vote in the election of directors, then the term capital shall include such preferred
shares because the right to participate in the control or management of the corporation is exercised through the right to
vote in the election of directors. In short,
the term capital in Section 11, Article XII of the Constitution refers only to shares of stock that can vote
in the election of directors.

To construe broadly the term capital as the total outstanding capital stock, including both common and non-voting
preferred shares, grossly contravenes the intent and letter of the Constitution that the State shall develop a self -reliant and
independent national economy effectively controlled by Filipinos. A broad definition unjustifiably disregards
who owns the all-important votingstock, which necessarily equates to control of the public utility.Holders of PLDT preferred
shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of Incorporation expressly state
that the holders of Serial PreferredStock shall not be entitled to vote at any meeting of the stockholders
for the election of directors or for any other purpose or otherwise participate in any action taken by the
corporationor its stockholder s, or to receive notice of any meeting of stockholders. On the other hand, holders
of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles of Incorporation state
that each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him on all
matters voted upon by the stockholders, and theholders of Common Capital Stock shall have the exclusive right
to vote for the election of directors and for all other purposes. It must be stressed, and respondents do not
dispute, that foreigners hold a majority of thecommon shares of PLDT. In fact, based on PLDTs 2010 General Information
Sheet (GIS), which isa document required to be submitted annually to the Securities and ExchangeCommission, foreigners
hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares. In other words,
foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a
majority of the common sharesequates to control, it is clear that foreigners exercise control over PLDT. Such amount of
controlunmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expresslymandated in
Section 11, Article XII of the Constitution. As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of
PLDT commonshares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words,
preferred shares have twice the par value of common shares but cannot elect directors andhave only 1/70 of the dividends
of common shares. Moreover, 99.44% of the preferred shares areowned by Filipinos while foreigners own only a minuscule
0.56% of the preferred shares. Worse,preferred shares constitute 77.85% of the authorized capital stock of PLDT while
common sharesconstitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting
preferred shares but with the common shares, blatantly violating the constitutionalrequirement of 60 percent Filipino control
and Filipino beneficial ownership in a public utility.In short, Filipinos hold less than 60 percent of the voting stock, and earn
less than 60 percentof the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of
the Constitution that [n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to x x x corporations x x x organized under the laws of thePhilippines, at least sixty per centum of
whose capital is owned by such citizens x x x. To repeat, (1) foreigners own 64.27% of the common shares of PLDT,
which class of sharesexercises the sole right to vote in the election of directors, and thus exercise control over
PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do
not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have novoting rights; (4) preferred shares
earn only 1/70 of the dividends that common shares earn; (5)preferred shares have twice the par value of common shares;
and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This
kind of ownership and control of a public utility is a mockery of the Constitution.[Thus, the Respondent Chairperson of the
Securities and Exchange Commission was DIRECTED by the Court to apply the foregoing definition of the term capital
in determining theextent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company,and if
there is a violation of Section 11, Article XII of the Constitution, to impose the appropriatesanctions under the law.]

9. CEASE VS CA

FACTS:

Forrest Cease and five (5) other American citizens formed Tiaong Milling and Plantation Company.Eventually, the shares of
the other original incorporators were bought out by Cease with his children. The companys charter lapsed in June
1958. Forrest Cease died in August 1959.There was nomention whether there were steps to liquidate the
company. Some of his children wanted an actualdivision while others wanted a reincorporation. Two of his
children, Benjamin and Florence, initiatedSpecial Proceeding No. 3893 with CFI Tayabas asking that the
Tiaong Milling and PlantationCorporation be declared identical to Forrest Cease and that its properties be
divided among hischildren as intestate heirs. Defendants opposed the same but the CFI ruled in favor of
the plaintiffs.Defendants filed a notice of appeal from the CFIs decision but the same was dismissed for
beingpremature. The case was elevated to the SC which remanded it to the Court of Appeals. The CA
dismissed the petition.

ISSUE: Whether or not the Court of Appeals erred in affirming the lower courts decision that thesubject
properties owned by the corporation are also properties of the estate of Forrest Cease

HELD: NO. The trial court indeed found strong support, one that is based on a well-entrenchedprinciple of
law which is the theory of "merger of Forrest L. Cease and The Tiaong Milling as onepersonality", or that
"the company is only the business conduit and alter ego of the deceased ForrestL. Cease and the
registered properties of Tiaong Milling are actually properties of Forrest L. Cease andshould be divided
equally, share and share alike among his six children, ... ", the trial court aptly applied the familiar
exception to the general rule by disregarding the legal fiction of distinct andseparate corporate personality
and regarding the corporation and the individual member one and thesame. In shredding the fictitious
corporate veil, the trial judge narrated the undisputed factualpremise, thus: While the records showed that
originally its incorporators were aliens, friends or third-parties inrelation to another, in the course of its
existence, it developed into a close family corporation. TheBoard of Directors and stockholders belong to
one family the head of which Forrest L. Cease alwaysretained the majority stocks and hence the control
and management of its affairs. It must be notedthat as his children increase or become of age, he
continued distributing his shares among themadding Florence, Teresa and Marion until at the time of his death only
190 were left to his name.Definitely, only the members of his family benefited from the Corporation. The corporation 'never'
had any account with any banking institution or if any account was carried ina bank on its behalf, it was in the name
of Mr. Forrest L. Cease. There is truth in plaintiff's allegationthat the corporation is only a business conduit
of his father and an extension of his personality, they are one and the same thing. Thus, the assets of the
corporation are also the estate of Forrest L. Cease,the father of the parties herein who are all legitimate children
of full blood. A rich store of jurisprudence has established the rule known as the doctrine of disregarding
orpiercing the veil of corporate fiction.GENERAL RULE: a corporation is vested by law with a personality separate and
distinct from thepersons composing it as well as any other legal entity to which it may be related. By virtue
of thisattribute, a corporation may not, generally, be made to answer for acts or liabilities of its
stockholdersor those of the legal entities to which it may be connected, and vice versa. This separate and
distinctpersonality is, however, merely a fiction created by law for convenience and to promote the ends of
justice

EXCEPTIONS: Such rule may not be used or invoked for ends subversive of the policy and purpose behind
its creation or which could not have been intended by law to which it owes its being. This isparticularly
true where the fiction is used to defeat public convenience, justify wrong, protect fraud,defend crime,
confuse legitimate legal or judicial issues, perpetrate deception or otherwise circumventthe law This is
likewise true where the corporate entity is being used as an alter ego, adjunct, or businessconduit for the
sole benefit of the stockholders or of another corporate. In any of these cases, thenotion of corporate
entity will be pierced or disregarded, and the corporation will be treated merely as an association of
persons or, where there are two corporations, they will be merged as one, the one being merely regarded
as part or the instrumentality of the other. An indubitable deduction from the findings of the trial court
cannot but lead to the conclusion thatthe business of the corporation is largely, if not wholly, the personal venture of
Forrest L. Cease. Thereis not even a shadow of a showing that his children were subscribers or purchasers of the stocks
they own. Their participation as nominal shareholders emanated solely from Forrest L. Cease's
gratuitousdole out of his own shares to the benefit of his children and ultimately his family.If the Court
sustained the theory of petitioners that the trial court acted in excess of jurisdiction orabuse of discretion
amounting to lack of jurisdiction in deciding the civil case as a case for partition,Tiaong Milling and Plantation Company
would have been able to extend its corporate existence beyond the period of its charter which lapsed in
June, 1958 under the guise and cover of F. L, CeasePlantation Company, Inc. as Trustee which would be
against the law, and as Trustee shall have beenable to use the assets and properties for the benefit of the
petitioners, to the great prejudice anddefraudation. of private respondents. Hence, it becomes necessary
and imperative to pierce thatcorporate veil.The judgment appealed from is AFFIRMED.
11. CIR v. Norton & Harrison Company, G.R. No. L-17618, Aug. 31, 1964)

Plaintiffs filed a collection action against X Corporation. Upon execution of the court's decision, X
Corporation was found to be without assets. Thereafter, plaintiffs filed an action against its present and
past stockholder Y Corporation which owned substantially all of the stocks of X corporation. The two
corporations have the same board of directors and Y Corporation financed the operations of X corporation.
May Y Corporation be held liable for the debts of X Corporation? Why?

A: Yes, Y Corporation may be held liable for the debts of X Corporation. The doctrine of piercing the veil of
corporation fiction applies to this case. The two corporations have the same board of directors and Y
Corporation owned substantially all of the stocks of X Corporation, which facts justify the conclusion that
the latter is merely an extension of the personality of the former, and that the former controls the policies
of the latter. Added to this is the fact that Y Corporation controls the finances of X Corporation which is
merely an adjunct, business conduit or alter ego of Y Corporation.

12.
JOHN F. MCLEOD vs. NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION),FILIPINAS
SYNTHETIC FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS,INC., STA. ROSA TEXTILES,
INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, AND ERIC HUG.R. NO. 146667 January 23, 2007Ponente:
CARPIO,
J.

FACTS:
On February 2, 1995, John F. McLeod filed a complaint for:1. retirement benefits2. vacation and sick leave benefits3. non-
payment of unused airline tickets4. holiday pay5. underpayment of salary6. 13th month pay7. moral and exemplary
damages8.
attorneys fees plus interest, against Filipinas Synthetic Corporation (FILSYN), Far Eastern Textile Mills, Inc.,
Sta. RosaTextiles, Inc. (SRTI), Patricio Lim (President of PMI) and Eric Hu.Complainant was the Vice President and Plant
Manager of the plant of Peggy Mills, Inc. (PMI) atSta. Rosa, Laguna. Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills,
Inc. and this wasrenamed as Sta. Rosa Textile (SRTI) with Patricio Lim as Chairman and President. The
ownersof Far Eastern Textiles decided for cessation of operations of Sta. Rosa Textiles. On twooccasions, complainant
wrote letters to Patricio Lim requesting for his retirement and otherbenefits. In the last quarter of 1994 respondents offered
complainant compromise settlement ofonly P300,000.00 which complainant rejected.

The Labor Arbiter held all respondents as jointly and solidarily liable for complainants money
claims.The NLRC reversed and set aside the ruling of the Labor Arbiter and a new one was enteredordering only
respondent Peggy Mills, Inc. (PMI) to pay the money claims. All other claims weredismissed for lack of merit.The Court
of Appeals affirmed the decision of the NLRC with modification. It held Patricio Lim as jointly and solidarily liable with
Peggy Mills, Inc. (PMI) to pay the money claims to McLeod.

ISSUE:
Whether or not Patricio Lim, as President of PMI, could be held jointly and solidarily liable with PMI.

HELD:
No, Patricio Lim is absolved from personal liability. A corporation is a juridical entity with legal personality separate
and distinct from those actingfor and in its behalf and, in general, from the people comprising it. The rule is that
obligationsincurred by the corporation, acting through its directors, officers, and employees, are its soleliabilities.Personal
liability of corporate directors, trustees or officers attaches only when:(1) they assent to a patently unlawful act of the
corporation, or when they are guilty of bad faithor gross negligence in directing its affairs, or when there is a conflict of
interest resulting indamages to the corporation, its stockholders or other persons;(2) they consent to the issuance of
watered down stocks or when, having knowledge of suchissuance, do not forthwith file with the corporate secretary their
written objection;(3) they agree to hold themselves personally and solidarily liable with the corporation; or(4) they are made
by specific provision of law personally answerable for their corporate action.Considering that McLeod failed to prove any of
the foregoing exceptions in the present case,McLeod cannot hold Patricio solidarily liable with PMI.The records are bereft of
any evidence that Patricio acted with malice or bad faith. Bad faith is aquestion of fact and is evidentiary. Bad faith does not
connote bad judgment or negligence. Itimports a dishonest purpose or some moral obliquity and conscious wrongdoing. It
meansbreach of a known duty through some ill motive or interest. It partakes of the nature of fraud.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. Thecompany could no longer continue with its plant operations because of the serious businesslosses that it had
suffered. The mere fact that Patricio was president and director of PMI is not aground to conclude that
he should be held solidarily liable with PMI for McLeods money claims.

13. DE ASIS VS CA NO DIGEST