1) BENGUET ELECTRlC COOPERATIVE, INC.,
Cosalan as General
vs.
NATIONAL LABOR RELATIONS COMMISSION,
PETER COSALAN and BOARD OF DIRECTORS
OF BENGUET ELECTRIC COOPERATIVE, INC.,
FACTS:
On 3 November 1982, respondent Cosalan received
Audit Memorandum No. 1 issued by the Commission
on Audit ("COA"). This Memorandum noted that
cash advances received by officers and employees
of petitioner Beneco in the amount of P129,618.48
had been virtually written off in the books of Beneco.
In the Audit Memorandum, the COA directed
petitioner Beneco to secure the approval of the
National Electrification Administration ("NEA")
before writing off or condoning those cash
advances, and recommended the adoption of
remedial measures.
On 12 November 1982, COA issued another
Memorandum — Audit Memorandum No. 2 ––
addressed to respondent Peter Cosalan, inviting
attention to the fact that the audit of per diems and
allowances received by officials and members of the
Board of Directors of Beneco showed substantial
inconsistencies with the directives of the NEA. The
Audit Memorandum once again directed the taking
of immediate action in conformity with existing NEA
regulations.
On 19 May 1983, petitioner Beneco received the
COA Audit Report on the financial status and
operations of Beneco for the eight (8) month period
ended 30 September 1982. This Audit Report noted
and enumerated irregularities in the utilization of
funds amounting to P37 Million released by NEA to
Beneco, and recommended that appropriate
remedial action be taken.
Having been made aware of the serious financial
condition of Beneco and what appeared to be
mismanagement, respondent Cosalan initiated
implementation of the remedial measures
recommended by the COA. The respondent
members of the Board of Beneco reacted by
adopting a series of resolutions during the period
from 23 June to 24 July 1984. These Board
Resolutions abolished the housing allowance of
respondent Cosalan; reduced his salary and his
representation and commutable allowances;
directed him to hold in abeyance all pending
personnel disciplinary actions; and struck his name
out as a principal signatory to transactions of
petitioner Beneco.
During the period from 28 July to 25 September
1984, the respondent Beneco Board members
adopted another series of resolutions which resulted
in the ouster of respondent Cosalan as General
Manager of Beneco and his exclusion from
performance of his regular duties as such, as well as
the withholding of his salary and allowances. These
resolutions were as follows:
1. Resolution No. 91-4 dated 28 July 1984:
. . . that the services of Peter M.
Manager of BENECO is terminated upon approval of
the National Electrification Administration;
2. Resolution No. 151-84 dated September 15,
1984;
. . . that Peter M. Cosalan is hereby suspended from
his position as General Manager of the Benguet
Electric Cooperative, Inc. (BENECO) effective as of
the start of the office hours on September 24, 1984,
until a final decision has been reached by the NEA
on his dismissal;
. . . that GM Cosalan's suspension from office shall
remain in full force and effect until such suspension
is sooner lifted, revoked or rescinded by the Board
of Directors; that all monies due him are withheld
until cleared;
3. Resolution No. 176-84 dated September 25,
1984;
. . . that Resolution No. 151-84, dated September 15,
1984 stands as preventive suspension for GM Peter
M. Cosalan. 1
Respondent Cosalan nevertheless continued to
work as General Manager of Beneco, in the belief
that he could be suspended or removed only by duly
authorized officials of NEA, in accordance with
provisions of P.D. No, 269, as amended by P.D. No.
1645 (the statute creating the NEA, providing for its
capitalization, powers and functions and
organization), the loan agreement between NEA and
petitioner Beneco 2 and the NEA Memorandum of 2
July 1980. 3 Accordingly, on 5 October and 10
November 1984, respondent Cosalan requested
petitioner Beneco to release the compensation due
him. Beneco, acting through respondent Board
members, denied the written request of respondent
Cosalan.
Cosalan then filed a complaint for illegal dismissal
against the BENECO Board Members, he later
impleaded BENECO itself. The Labor Arbiter (LA)
ruled in favor of Cosalan. The National Labor
Relations Commission (NLRC) affirmed the decision
of the LA but modified it so as to absolve the Board
Members from liability as it held that the Board
Members merely acted in their official capacity.
BENECO, being the only party adjudged to be liable,
then appealed said decision.
ISSUE:
WON the board acted in their fiduciary duty.
HELD:
No. The act of the Board Members is ultra vires.
There was no legal basis for them to suspend
Cosalan indefinitely for under the Implementing
Rules of the Labor Code the maximum period form
preventive suspension should not go beyond 30
days. Further, it was found that Cosalan was never
informed of the charges against him nor was he
afforded the opportunity to present his case. He was
deprived of due process. Nor was Cosalan’s
suspension approved by the NEA, which is also on the part of accused Eugene Yang and taking
required for due process purposes. advantage of his position as senior manager of the
These acts by the Board Members are tainted with Bank of Commerce (Bancom), did then and there
bad faith. A very strong presumption arises that the willfully, unlawfully and feloniously defraud Bancom
Board Members are acting in reprisal against the as follows: That Bancapital Development
reforms sought to be introduced by Cosalan in order Corporation (Bancap) thru accused Nite, Bradley
to address the irregularities within BENECO. The and Escalambre by means of fraudulent
Board Members are therefore liable for damages misreoresentations; offered and confirmed for sale
under Section 31 of the Corporation Code Php250 Million worth of Treasury bills at a
Sec. 31. Liability of directors, trustees or officers. discounted price of Php243,215,972.52 to Bancom
— Directors or trustees who willfully and knowingly which was actually purchased and fully paid by
vote for or assent to patently unlawful acts of the Bancom, when in truth and in fact Bancap which was
corporation or who are guilty of gross negligence or not authorized to trade security did not actually have
bad faith in directing the affairs of the corporation or such Treasury bills worth Php250 Million as only
acquire any personal or pecuniary interest in conflict Php88 Million worth of Treasury bills was delivered
with their duty as such directors or trustees shall be to Bancom upon receipt by Bancap of the full
jointly liable and severally for all damages resulting payment thereof; that accused Eugene Yang, senior
therefrom suffered by the corporation, its stockholders
manager of Bancom, willfully, unlawfully and
or members and other persons . . . (Emphasis
feloniously caused the preparation, issuance and
supplied). And even though BENECO is a
signing of the manager’s check in payment of the
cooperative, it is still covered by the Corporation
treasury bills in question on the basis of the trading
Code because under PD 269, cooperatives are
order he himself approved and Bancap’s
considered as corporations.
confirmation of sale signed by accused Nite and
The Supreme Court ruled that BENECO and the
Escalambre, and, once in possession of the full
BENECO Board Members are liable for the
payment thereof, the above-named accused
damages caused against Cosalan. However
misappropriated, misapplied and converted the
BENECO can seek reimbursement from the Board
same to their own personal use and benefit and
Members so as not to unduly penalize the innocent
despite repeated demands failed to deliver the
members of BENECO.
remaining Treasury bills worth Php162 Million, to the
damage and prejudice of Bancom, its creditors and
stockholders, in the amount of Php162 Million
2) BANK OF COMMERCE
Pesos.
vs. MARILYN P. NITE
CONTRARY TO LAW.7
The case was docketed as Criminal Case No. 94-
FACTS:
5268. The two cases were tried jointly.
Since Bradley was still at large during the trial, and
Respondent Marilyn Nite (Nite) was charged,
the proceedings against Escalambre and Yang were
together with Nunelon Bradley (Bradley) and Victoria
suspended pending their petition for certiorari and
Magalona-Escalambre (Escalambre), with violation
mandamus before the Court of Appeals in
of Section 19 of Batas Pambansa Bilang 1785 (BP
connection with the denial of their demurrer to
Blg. 178) in an Information that reads:
evidence, as separate trial was conducted against
That on or about April 25, 1994, in the Municipality
Nite after she was arrested in the United States of
of Makati, Metro Manila, and within the jurisdiction of
America for overstaying and brought back to the
the Honorable Court, the above-named accused,
Philippines.
doing business under the name and style of
In Criminal Case No. 94-5267, the thrust of the
Bancapital Development Corporation (Bancap) did
prosecution’s argument was that Nite, as President
then and there, willfully and feloniously engage in the
of Bancapital Development Corporation (Bancap),
business of selling securities, particularly treasury
violated Section 19 of BP Blg. 178 when Bancap
bills (T-bills) with Bank of Commerce (Bancom) in
sold ₱250 million worth of treasury bills to Bank of
the amount of ₱250 Million without having been
Commerce (Bancom) without being registered as
registered as a broker, dealer or salesman with the
broker, dealer, or salesman of securities. In Criminal
Securities and Exchange Commission, in violation of
Case No. 94-5268, the prosecution alleged that Nite
said law.
defrauded Bancom by falsely pretending to posses
CONTRARY TO LAW.6
and own ₱250 million worth of treasury bills that
The case docketed as Criminal Case No. 94-5267.
Bancap supposedly sold to Bancom when none of
Nite was also charged, together with Bradley,
the treasury bills described in the Confirmation of
Escalambre, and Eugene Yang (Yang), with Estafa
Sale and Letter of Undertaking issued by Bancap
in an Information that reads:
were ever delivered to Bancom. The prosecution
That on or about April 25, 1994, in Makati, Metro
alleged that Bancom paid Bancap the amount of
Manila, and within the jurisdiction of this Honorable
₱243,215,972.52 as payment for the treasury bills
Court, the above-named accused, confederating
but Bancap only delivered substitute bills in the
together and mutually helping each other, by means
amount of ₱88 million.
of deceit, with unfaithfulness or abuse of confidence
Nite was acquitted by the trial court of violation of
Section 19 of BP Blg. 178 and estafa. Hence, the
only issue here is Nite’s civil liability after her
acquittal.
ISSUE:
WoN nite is personally liableto Bancom for the
amount of treasury bills undelivered by Bancap.
HELD:
The general rule is that a corporation is invested by
law with a personality separate and distinct from that
of the persons composing it, or from any other legal
entity that it may be related to.12 The obligations of a
corporation, acting through its directors, officers, and
employees, are its own sole liabilities.13 Therefore,
the corporation’s directors, officers, or employees
are generally not personally liable for the obligations
of the corporation.14
Bancom alleges that his case falls under the
exception to the general rule and that Nite should be
held personally liable for Bancap’s obligation.
Bancom alleges that Nite signed the Confirmation of
Sale knowing that Bancap did not have the treasury
bills, and thus, sale was illegal.
Bancom’s arguments have no merit.
To hold a director or officer personally liable for
corporate obligations, two requisites must concur:
(1) complainant must allege in the complaint that the
director or officer assented to patently unlawful acts
of the corporation, or that the officer was guilty of
gross negligence or bad faith; and (2) complaint
must clearly and convincingly prove such unlawful
acts, negligence or bad faith.15 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.16
It is settled that the transaction between Bancom
and Bancap is an ordinary sale. We give weight to
the finding of both the trial court and the Court of
Appeals that Bancap’s liability arose from its
contractual obligation to Bancom. The trial court and
the Court of Appeals found that Bancom and Bancap
had been dealing with each other as seller and buyer
of treasury bills from December 1992 until the
transaction subject of this case on 25 April 1994,
which was no different from their previous
transactions. Nite, as Bancap’s President, cannot be
held personally liable for Bancap’s obligation unless
it can be shown that she acted fraudulently.
However, the issue of fraud had been resolved with
finality when the trial court acquitted Nite of estafa
on the ground that the element of deceit is non-
existent in the case. The acquittal had long become
final and the finding is conclusive on this Court. The
prosecution failed to show that Nite acted in bad
faith. It is no longer open for review. Nite’s act of
signing the Confirmation of Sale, by itself, does not
make the corporate liability her personal liability.
In addition, we consider the testimony of Lagrimas
Nuqui, the Legal Officer in Charge of the
Government Securities Department of the Bangko
Sentral ng Pilipinas from 1994 to 1998, who
explained that primary issues of treasury bills are
supposed to be issued only to accredited dealers but
these accredited banks can sell to anyone who need
not be accredited, and such buyers, who may be
corporations or individuals, are classified as the
secondary market. The trial court and the Court of
Appeals found that Bancap sold the treasury bills as
a secondary dealer.17 As such, Bancap’s act of
selling securities to Bancom is at most ultra vires and
not patently unlawful.
Base on the foregoing, we cannot hold Nite
Personally liable for Bancap’s corporate liability.
3.
SOLIDBANK CORPORATION, petitioner, vs.
MINDANAO FERROALLOY CORPORATION,
Spouses JONG-WON HONG and SOO-OK KIM
HONG,*TERESITA CU, and RICARDO
**
P. GUEVARA and Spouse, respondents.
FACTS:
The Maria Cristina Chemical Industries (MCCI) and
three (3) Korean corporations, namely, the
Ssangyong Corporation, the Pohang Iron and Steel
Company and the Dongil Industries Company, Ltd.,
decided to forge a joint venture and establish a
corporation, under the name of the Mindanao
Ferroalloy Corporation (Corporation for brevity) with
principal offices in Iligan City. Ricardo P. Guevara
was the President and Chairman of the Board of
Directors of the Corporation. Jong-Won Hong, the
General Manager of Ssangyong Corporation, was
the Vice-President of the Corporation for Finance,
Marketing and Administration. So was Teresita R.
Cu. On November 26, 1990, the Board of Directors
of the Corporation approved a Resolution
authorizing its President and Chairman of the Board
of Directors or Teresita R. Cu, acting together with
Jong-Won Hong, to secure an omnibus line in the
aggregate amount of P30,000,000.00 from the
Solidbank x x x.
xxxxxxxxx
In the meantime, the Corporation started its
operations sometime in April, 1991. Its indebtedness
ballooned to P200,453,686.69 compared to its
assets of only P65,476,000.00. On May 21, 1991,
the Corporation secured an ordinary time loan from
the Solidbank in the amount of P3,200,000.00.
Another ordinary time loan was granted by the Bank
to the Corporation on May 28, 1991, in the amount
of P1,800,000.00 or in the total amount
of P5,000,000.00, due on July 15 and 26, 1991,
respectively.
However, the Corporation and the Bank agreed to
consolidate and, at the same time, restructure the
two (2) loan availments, the same payable on
September 20, 1991. The Corporation
executed Promissory Note No. 96-91-00865-6 in
favor of the Bank evidencing its loan in the amount
of P5,160,000.00, payable on September 20, 1991.
Teresita Cu and Jong-Won Hong affixed their
signatures on the note. To secure the payment of the
said loan, the Corporation, through Jong-Won Hong
and Teresita Cu, executed a Deed of Assignment in
favor of the Bank covering its rights, title and interest
to the following:
The entire proceeds of drafts drawn under
Irrevocable Letter of Credit No. M-S-041-2002080
opened with The Mitsubishi Bank Ltd. Tokyo dated
June 13, 1991 for the account of Ssangyong Japan
Corporation, 7F. Matsuoka-Tamura-Cho Bldg., 22-
10, 5-Chome, Shimbashi, Minato-Ku, Tokyo, Japan
up to the extent of US$197,679.00
The Corporation likewise executed a Quedan, by
way of additional security, under which the
Corporation bound and obliged to keep and hold, in
trust for the Bank or its Order, Ferrosilicon for
US$197,679.00. Jong-Won Hong and Teresita Cu
affixed their signatures thereon for the Corporation.
The Corporation, also, through Jong-Won Hong and
Teresita Cu, executed a Trust Receipt Agreement,
by way of additional security for said loan, the
Corporation undertaking to hold in trust, for the
Bank, as its property, the following:
1. THE MITSUBISHI BANK LTD., Tokyo L/C No. M-
S-041-2002080 for account of Ssangyong Japan
Corporation, Tokyo, Japan for US$197,679.00
Ferrosilicon to expire September 20, 1991.
2. SEC QUEDAN NO. 91-476 dated June 26, 1991
covering the following:
Ferrosilicon for US$197,679.00
However, shortly after the execution of the said
deeds, the Corporation stopped its operations. The
Corporation failed to pay its loan availments from the
Bank inclusive of accrued interest. On February 11,
1992, the Bank sent a letter to the Corporation
demanding payment of its loan availments inclusive
of interests due. The Corporation failed to comply
with the demand of the Bank. On November 23,
1992, the Bank sent another letter to the
[Corporation] demanding payment of its account
which, by November 23, 1992, had amounted
to P7,283,913.33. The Corporation again failed to
comply with the demand of the Bank.
On January 6, 1993, the Bank filed a complaint
against the Corporation with the Regional Trial Court
of Makati City, entitled and docketed as Solidbank
Corporation vs. Mindanao Ferroalloy Corporation,
Sps. Jong-Won Hong and the Sps. Teresita R.
Cu, Civil Case No. 93-038 for Sum of Money with a
plea for the issuance of a writ of preliminary
attachment. x x x
xxxxxxxxx
Under its Amended Complaint, the Plaintiff alleged
that it impleaded Ricardo Guevara and his wife as
Defendants because, [among others]:
Defendants JONG-WON HONG and TERESITA
CU, are the Vice-Presidents of defendant
corporation, and also members of the companys
Board of Directors. They are impleaded as joint and
solidary debtors of [petitioner] bank having signed
the Promissory Note, Quedan, and Trust Receipt
agreements with [petitioner], in this case.
xxxxxxxxx
[Petitioner] likewise filed a criminal complaint x x x
entitled and docketed as Solidbank Corporation vs.
Ricardo Guevara, Teresita R. Cu and Jong Won
Hong x x x for Violation of P.D. 115. On April 14,
1993, the investigating Prosecutor issued a
Resolution finding no probable cause for violation of
P.D. 115 against the Respondents as the goods
covered by the quedan were nonexistent:
xxxxxxxxx
In their Answer to the complaint [in the civil case],
the Spouses Jong-Won Hong and Soo-ok Kim Hong
alleged, inter alia, that [petitioner] had no cause of
action against them as:
x x x the clean loan of P5.1 M obtained was a
corporate undertaking of defendant
MINFACO executed through its duly authorized
representatives, Ms. Teresita R. Cu and Mr. Jong-
Won Hong, both Vice Presidents then of MINFACO.
x x x.
xxxxxxxxx
[On their part, respondents] Teresita Cu and Ricardo
Guevara alleged that [petitioner] had no cause of
action against them because: (a) Ricardo Guevara
did not sign any of the documents in favor of
[petitioner]; (b) Teresita Cu signed the Promissory
Note, Deed of Assignment, Trust
Receipt and Quedan in blank and merely as
representative and, hence, for and in behalf of the
Defendant Corporation and, hence, was not
personally liable to [petitioner].
In the interim, the Corporation filed, on June 20,
1994, a Petition, with the Regional Trial Court of
Iligan City, for Voluntary Insolvency x x x.
xxxxxxxxx
Appended to the Petition was a list of its creditors,
including [petitioner], for the amount
of P8,144,916.05. The Court issued an Order, on
July 12, 1994, finding the Petition sufficient in form
and substance x x x.
xxxxxxxxx
In view of said development, the Court issued an
Order, in Civil Case No. 93-038, suspending the
proceedings as against the Defendant Corporation
but ordering the proceedings to proceed as against
the individual defendants x x x.
xxxxxxxxx
On December 10, 1999, the Court rendered a
Decision dismissing the complaint for lack of cause
of action of [petitioner] against the Spouses Jong-
Won Hong, Teresita Cu and the Spouses Ricardo
Guevara, x x x.
xxxxxxxxx
In dismissing the complaint against the individual
[respondents], the Court a quo found and declared
that [petitioner] failed to adduce a morsel of evidence
to prove the personal liability of the said
[respondents] for the claims of [petitioner] and that
the latter impleaded the [respondents], in its
complaint and amended complaint, solely to put
more pressure on the Defendant Corporation to pay
its obligations to [petitioner].
[Petitioner] x x x interposed an appeal, from the
Decision of the Court a quo and posed, for x x x
resolution, the issue of whether or not the individual
[respondents], are jointly and severally liable to
[petitioner] for the loan availments of the
[respondent] Corporation, inclusive of accrued
interests and penalties.
In the meantime, on motion of [petitioner], the Court
set aside its Order, dated February 2, 1995,
suspending the proceedings as against the
[respondent] Corporation. [Petitioner] filed a Motion
for Summary Judgment against the [respondent]
Corporation. On February 28, 2000, the Court
rendered a Summary Judgment against the
[respondent] Corporation, the decretal portion of
which reads as follows:
WHEREFORE, premises considered, this Court
hereby resolves to give due course to the motion for
summary judgment filed by herein [petitioner].
Consequently, judgment is hereby rendered in favor
of [Petitioner] SOLIDBANK CORPORATION and
against [Respondent] MINDANAO FERROALLOY
CORPORATION, ordering the latter to pay the
former the amount of P7,086,686.70, representing
the outstanding balance of the subject loan as of 24
September 1994, plus stipulated interest at the rate
of 16% per annum to be computed from the
aforesaid date until fully paid together with an
amount equivalent to 12% of the total amount due
each year from 24 September 1994 until fully paid.
Lastly, said [respondent] is hereby ordered to pay
[petitioner] the amount of P25,000.00 to [petitioner]
as reasonable attorneys fees as well as cost of
litigation.[5]
In its appeal, petitioner argued that (1) it had
adduced the requisite evidence to prove the solidary
liability of the individual respondents, and (2) it was
not liable for their counterclaims for damages and
attorneys fees.
ISSUE:
WoN there is ample evidence on record to support
the joint and solidary liability of individual
respondents with Mindanao Ferroalloy Corporation.
HELD:
Basic is the principle that a corporation is vested by
law with a personality separate and distinct from that
of each person composing[9] or representing
it.[10] Equally fundamental is the general rule that
corporate officers cannot be held personally liable
for the consequences of their acts, for as long as
these are for and on behalf of the corporation, within
the scope of their authority and in good faith.[11] The
separate corporate personality is a shield against
the personal liability of corporate officers, whose
acts are properly attributed to the corporation.[12]
Tramat Mercantile v. Court of Appeals[13] held thus:
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, 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;
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.
Consistent with the foregoing principles, we sustain
the CAs ruling that Respondent Guevara was not
personally liable for the contracts. First, it is beyond
cavil that he was duly authorized to act on behalf of
the corporation; and that in negotiating the loans with
petitioner, he did so in his official capacity. Second,
no sufficient and specific evidence was presented to
show that he had acted in bad faith or gross
negligence in that negotiation. Third, he did not hold
himself personally and solidarily liable with the
corporation. Neither is there any specific provision of
law making him personally answerable for the
subject corporate acts.
On the other hand, Respondents Cu and Hong
signed the Promissory Note without the word by
preceding their signatures, atop the designation
Maker/Borrower and the printed name of the
corporation, as follows:
__(Sgd) Cu/Hong__
(Maker/Borrower)
MINDANAO FERROALLOY
While their signatures appear without qualification,
the inference that they signed in their individual
capacities is negated by the following facts: 1) the
name and the address of the corporation appeared
on the space provided for Maker/Borrower; 2)
Respondents Cu and Hong had only one set of
signatures on the instrument, when there should
have been two, if indeed they had intended to be
bound solidarily -- the first as representatives of the
corporation, and the second as themselves in their
individual capacities; 3) they did not sign under the
spaces provided for Co-maker, and neither were
their addresses reflected there; and 4) at the back of
the Promissory Note, they signed above the words
Authorized Representative.
Moreover, it is axiomatic that solidary liability cannot
be lightly inferred.[14] Under Article 1207 of the Civil
Code, there is a solidary liability only when the
obligation expressly so states, or when the law or the
nature of the obligation requires solidarity. Since
solidary liability is not clearly expressed in the
Promissory Note and is not required by law or the
nature of the obligation in this case, no conclusion of
solidary liability can be made.
Furthermore, nothing supports the alleged joint
liability of the individual petitioners because, as
correctly pointed out by the two lower courts, the
evidence shows that there is only one debtor: the
corporation. In a joint obligation, there must be at
least two debtors, each of whom is liable only for a
proportionate part of the debt; and the creditor is
entitled only to a proportionate part of the credit.[15]
Moreover, it is rather late in the day to raise the
alleged joint liability, as this matter has not been
pleaded before the trial and the appellate courts.
Before the lower courts, petitioner anchored its claim
solely on the alleged joint and several (or solidary)
liability of the individual respondents. Petitioner must
be reminded that an issue cannot be raised for the
first time on appeal, but seasonably in the
proceedings before the trial court.[16]
So too, the Promissory Note in question is a
negotiable instrument. Under Section 19 of the
Negotiable Instruments Law, agents or
representatives may sign for the principal. Their
authority may be established, as in other cases of
agency. Section 20 of the law provides that a person
signing for and on behalf of a [disclosed] principal or
in a representative capacity x x x is not liable on the
instrument if he was duly authorized.
The authority of Respondents Cu and Hong to sign
for and on behalf of the corporation has been amply
established by the Resolution of Minfacos Board of
Directors, stating that Atty. Ricardo P. Guevara
(President and Chairman), or Ms. Teresita R. Cu
(Vice President), acting together with Mr. Jong Won
Hong (Vice President), be as they are hereby
authorized for and in behalf of the Corporation to: 1.
Negotiate with and obtain from (petitioner) the
extension of an omnibus line in the aggregate of P30
million x x x; and 2. Execute and deliver all
documentation necessary to implement all of the
foregoing.[17]
Further, the agreement involved here is a contract of
adhesion, which was prepared entirely by one party
and offered to the other on a take it or leave it basis.
Following the general rule, the contract must be read
against petitioner, because it was the party that
prepared it,[18] more so because a bank is held to
high standards of care in the conduct of its
business.[19]
In the totality of the circumstances, we hold that
Respondents Cu and Hong clearly signed the Note
merely as representatives of Minfaco.
No Reason to Pierce
the Corporate Veil
Under certain circumstances, courts may treat a
corporation as a mere aggroupment of persons, to
whom liability will directly attach. The distinct and
separate corporate personality may be
disregarded, inter alia, when the corporate identity is
used to defeat public convenience, justify a wrong,
protect a fraud, or defend a crime. Likewise, the
corporate veil may be pierced when the corporation
acts as a mere alter ego or business conduit of a
person, or when it is so organized and controlled and
its affairs so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of
another corporation.[20] But to disregard the separate
juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established; it
cannot be presumed.[21]
Petitioner contends that the corporation was used to
protect the fraud foisted upon it by the individual
respondents. It argues that the CA failed to consider
the following badges of fraud and evident bad faith:
1) the individual respondents misrepresented the
corporation as solvent and financially capable of
paying its loan; 2) they knew that prices of
ferrosilicon were declining in the world market when
they secured the loan in June 1991; 3) not a single
centavo was paid for the loan; and 4) the corporation
suspended its operations shortly after the loan was
granted.[22]
Fraud refers to all kinds of deception -- whether
through insidious machination, manipulation,
concealment or misrepresentation -- that would lead
an ordinarily prudent person into error after taking
the circumstances into account.[23] In contracts, a
fraud known as dolo causante or causal fraud[24] is
basically a deception used by one party prior to or
simultaneous with the contract, in order to secure the
consent of the other.[25] Needless to say, the deceit
employed must be serious. In contradistinction, only
some particular or accident of the obligation is
referred to by incidental fraud or dolo incidente,[26] or
that which is not serious in character and without
which the other party would have entered into the
contract anyway.[27]
Fraud must be established by clear and convincing
evidence; mere preponderance of evidence is not
adequate.[28] Bad faith, on the other hand, imports a
dishonest purpose or some moral obliquity and
conscious doing of a wrong, not simply bad
judgment or negligence.[29] It is synonymous with
fraud, in that it involves a design to mislead or
deceive another.[30]
Unfortunately, petitioner was unable to establish
clearly and precisely how the alleged fraud was
committed. It failed to establish that it was deceived
into granting the loans because of respondents
misrepresentations and/or insidious actions. Quite
the contrary, circumstances indicate the weakness
of its submission.
First, petitioner does not deny that the P5 million
loan represented the consolidation of two
loans,[31] granted long before the bank required the
individual respondents to execute the Promissory
Note, Trust Receipt Agreement, Quedan or Deed of
Assignment. Hence, no words, acts or machinations
arising from any of those instruments could have
been used by them prior to or simultaneous with the
execution of the contract, or even as some accident
or particular of the obligation.
Second, petitioner bank was in a position to verify for
itself the solvency and trustworthiness of respondent
corporation. In fact, ordinary business prudence
required it to do so before granting the multimillion
loans. It is of common knowledge that, as a matter
of practice, banks conduct exhaustive investigations
of the financial standing of an applicant debtor, as
well as appraisals of collaterals offered as securities
for loans to ensure their prompt and satisfactory
payment. To uphold petitioners cry of fraud when it
failed to verify the existence of the goods covered by
the Trust Receipt Agreement and the Quedan is to
condone its negligence.
4.
FACTS:
Respondents, spouses Don A. Alviar and Georgia B.
Alviar, are the registered owners of a parcel of land
in San Juan, Metro Manila, covered by Transfer
Certificate of Title (TCT) No. 438157 of the Register
of Deeds of Rizal. On 10 July 1975, they executed a
deed of real estate mortgage in favor of petitioner
Prudential Bank to secure the payment of a loan
worth P250,000.00.[2] This mortgage was annotated
at the back of TCT No. 438157. On 4 August 1975,
respondents executed the corresponding
promissory note, PN BD#75/C-252, covering the
said loan, which provides that the loan matured on 4
August 1976 at an interest rate of 12% per annum
with a 2% service charge, and that the note is
secured by a real estate mortgage as
aforementioned.[3] Significantly, the real estate
mortgage contained the following clause:
That for and in consideration of certain loans,
overdraft and other credit accommodations obtained
from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to,
irrespective of number, as DEBTOR, and to secure
the payment of the same and those that may
hereafter be obtained, the principal or all of which is
hereby fixed at Two Hundred Fifty Thousand
(P250,000.00) Pesos, Philippine Currency, as well
as those that the Mortgagee may extend to the
Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to
the Mortgagee, whether direct or indirect, principal
or secondary as appears in the accounts, books and
records of the Mortgagee, the Mortgagor does
hereby transfer and convey by way of mortgage
unto the Mortgagee, its successors or assigns, the
parcels of land which are described in the list
inserted on the back of this document, and/or
appended hereto, together with all the buildings and
improvements now existing or which may hereafter
be erected or constructed thereon, of which the
Mortgagor declares that he/it is the absolute owner
free from all liens and incumbrances. . . .[4]
On 22 October 1976, Don Alviar executed another
promissory note, PN BD#76/C-345 for
P2,640,000.00, secured by D/A SFDX #129,
signifying that the loan was secured by a "hold-out"
on the mortgagor's foreign currency savings account
with the bank under Account No. 129, and that the
mortgagor's passbook is to be surrendered to the
bank until the amount secured by the "hold-out" is
settled.[5]
On 27 December 1976, respondent
spouses executed for Donalco Trading, Inc., of
which the husband and wife were President and
Chairman of the Board and Vice
President,[6] respectively, PN BD#76/C-430 covering
P545,000.000. As provided in the note, the loan is
secured by "Clean- Phase out TOD CA 3923," which
means that the temporary overdraft incurred by
Donalco Trading, Inc. with petitioner is to be
converted into an ordinary loan in compliance with a
Central Bank circular directing the discontinuance of
overdrafts.[7]
On 16 March 1977, petitioner wrote Donalco
Trading, Inc., informing the latter of its approval of a
straight loan of P545,000.00, the proceeds of which
shall be used to liquidate the outstanding loan of
P545,000.00 TOD. The letter likewise
mentioned that the securities for the loan were the
deed of assignment on two promissory notes
executed by Bancom Realty Corporation with Deed
of Guarantee in favor of A.U. Valencia and Co. and
the chattel mortgage on various heavy and
transportation equipment.[8]
On 06 March 1979, respondents paid petitioner
P2,000,000.00, to be applied to the obligations of
G.B. Alviar Realty and Development, Inc. and for the
release of the real estate mortgage for the
P450,000.00 loan covering the two (2) lots located
at Vam Buren and Madison Streets, North
Greenhills, San Juan, Metro Manila. The payment
was acknowledged by petitioner who accordingly
released the mortgage over the two properties.[9]
On 15 January 1980, petitioner moved for the
extrajudicial foreclosure of the mortgage on the
property covered by TCT No. 438157. Per
petitioner's computation, respondents had the total
obligation of P1,608,256.68, covering the three (3)
promissory notes, to wit: PN BD#75/C-252 for
P250,000.00, PN BD#76/C-345 for P382,680.83,
and PN BD#76/C-340 for P545,000.00, plus
assessed past due interests and penalty charges.
The public auction sale of the mortgaged property
was set on 15 January 1980.
Respondents filed a complaint for damages with a
prayer for the issuance of a writ of preliminary
injunction with the RTC of Pasig,[11]claiming that they
have paid their principal loan secured by the
mortgaged property, and thus the mortgage should
not be foreclosed.
On 15 March 1994, the trial court dismissed the
complaint and ordered the Sheriff to proceed with
the extra- judicial foreclosure.
The Court of Appeals affirmed the Order of the trial
court but deleted the award of attorney's fees.[17] It
ruled that while a continuing loan or credit
accommodation based on only one security or
mortgage is a common practice in financial and
commercial institutions, such agreement must be
clear and unequivocal. In the instant case, the
parties executed different promissory notes
agreeing to a particular security for each loan. Thus,
the appellate court ruled that the extrajudicial
foreclosure sale of the property for the three loans is
improper.

ISSUE:
WoN the respondents are the real party to the loan.

HELD:
No. it is important to note that one of the loans
sought to be included in the "blanket mortgage
clause" was obtained by respondents for Donalco
Trading, Inc. Indeed, PN BD#76/C-430 was
executed by respondents on behalf of Donalco
Trading, Inc. and not in their personal
capacity. Petitioner asks the Court to pierce the veil
of corporate fiction and hold respondents liable even
for obligations they incurred for the corporation. The
mortgage contract states that the mortgage covers
"as well as those that the Mortgagee may extend to
the Mortgagor and/or DEBTOR, including interest
and expenses or any other obligation owing to
the Mortgagee, whether direct or indirect, principal
or secondary." Well-settled is the rule that a
corporation has a personality separate and distinct
from that of its officers and stockholders. Officers of
a corporation are not personally liable for their acts
as such officers unless it is shown that they have
exceeded their authority.[36] However, the legal
fiction that a corporation has a personality separate
and distinct from stockholders and members may be
disregarded if it is used as a means to perpetuate
fraud or an illegal act or as a vehicle for the evasion
of an existingobligation, the circumvention of
statutes, or to confuse legitimate issues.[37] PN
BD#76/C-430, being an obligation of Donalco
Trading, Inc., and not of the respondents, is not
within the contemplation of the "blanket mortgage
clause." Moreover, petitioner is unable to show that
respondents are hiding behind the corporate
structure to evade payment of their obligations. Save
for the notation in the promissory note that the loan
was for house construction and personal
consumption, there is no proof showing that the loan
was indeed for respondents' personal consumption.
Besides, petitioner agreed to the terms of the
promissory note. If respondents were indeed the
real parties to the loan, petitioner, a big, well-
established institution of long standing that it is,
should have insisted that the note be made in the
name of respondents themselves, and not to
Donalco Trading Inc., and that they sign the note in
their personal capacity and not as officers of the
corporation.