1.

PHILIPPINE RACE HORSE TRAINER'S ASSOCIATION,

INC., Petitioner, v. PIEDRAS NEGRAS CONSTRUCTION AND DEVELOPMENT
CORPORATION, Respondent.

Facts:

Philippine Race Horse Trainer’s Association , Inc. president, Rogelio

Catajan, entered into a contract with Fil-estate Properties, Inc. for the
development of Royal Homes Subdivision, which involved the construction of 170
housing units in Fil-Estate’s property for P67,453,000. Subsequently, Fil-Estate
assigned its rights and obligations to Piedras Negras Construction and
Development Corp., its subcontractor. A second contract was forged between
PRHTAI and PNCDC for P80, 324,788.00. A third contract was entered into for
revised amount of P101, 150,000. Deducting the advances in the amount of
P42,868,048.21, the remaining balance due to PNCDC became P58,281,951.80.

When PNDC demanded for payment of the remaining balance, PRHTAI

explained that it was experiencing financial difficulties. Unable to collect the
remaining balance, PNDC filed a request for arbitration/complaint with CIAC
against PRHTAI. THE CIAC held that the third contract is unenforceable and that
there was overpayment on the part of PRHTAI in the amount of P14,351,484.61.
CA overturned the decision.

Issue:

Whether or not the third contract is unenforceable.

Ruling:

Yes.

The doctrine of apparent authority provides that a corporation will be

estopped from denying the agent's authority if it knowingly permits one of its
officers or any other agent to act within the scope of an apparent authority, and it
holds him out to the public as possessing the power to do those acts.

Here, there is nothing to imply that PRHTAI's new board of directors

actually acknowledged its indebtedness to PNCDC. At the most, it is a mere
request for copies of certain documents and it cannot reasonably be interpreted as
a recognition or ratification of said debt. They were merely constrained to make
such request because they still had no copies of their own, and said documents
were missing from the office files.

Notes:
 a. Apparent authority is derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the corporation holds
out an officer or agent as having the power to act or, in other words, the
apparent authority to act in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond the scope of his ordinary
powers.

ANTONIO C. CARAG, Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, ISABEL G. PANGANIBAN-
ORTIGUERRA, as Executive Labor Arbiter, NAFLU, and MARIVELES APPAREL
CORPORATION LABOR UNION, Respondents.

Facts:

National Federation of Labor Unions (NAFLU) and Mariveles Apparel

Corporation Labor Union (MACLU) filed a complaint against MAC for illegal
dismissal brought about by its illegal closure of business, without complying with
the basic requirement of Notice of Closure and that employees who worked one to
two weeks were not given their salaries. Because MAC already ceased operations,
the respondents sought after Atty. Carag, in his official capacity as Chairman of the
Board along with Mr. David as president to guarantee the satisfaction of any
judgment award. Atty. Pastores stated 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. LA impleaded Carag and David. NLRC denied to reduce bond filed by
MAC and Carag.

Issue:

Whether or not the employees of MAC be held liable on its behalf.

Ruling:

No.

Section 31 of the Corp Code states that directors or trustees who wilfully
and knowingly vote for or assent to patently unlawful acts of the corporation or
who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty
as such directors or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or members and
other persons.
 In this case, 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.

Notes:

a. 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. Bad faith is never
presumed. Bad faith does not connote bad judgment or negligence. Bad faith
imports a dishonest purpose. Bad faith means breach of a known duty
through some ill motive or interest. Bad faith partakes of the nature of fraud.
b. Section 2, Republic Act 602, the Minimum Wage Act. If the employer is an
artificial person, it must have an officer who can be presumed to be the
employer, being "the person acting in the interest of the employer." The
corporation is the employer, only in the technical sense.
c. If no definite proof exists as to who is the responsible officer, the president
of the corporation who can be deemed to be its chief operation officer shall
be presumed to be the responsible officer. In Republic Act 602, for example,
criminal responsibility is with the "manager" or in his default, the person
acting as such.
d. The personal liability of corporate officers validly attaches only when (a)
they assent to a patently unlawful act of the corporation; or (b) they are
guilty of bad faith or gross negligence in directing its affairs; or (c) they
incur conflict of interest, resulting in damages to the corporation, its
stockholders or other persons

PRIME WHITE CEMENT CORPORATION, Petitioner, vs. HONORABLE

INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, Respondents.

Facts:

Alejandro Te and Prime white Cement Corporation entered into a dealership

agreement through its President, Mr. Zosimo Falcon and Justo Trazo as Chairman
of the Board. The former is to be the exclusive dealer and/or distributor of the said
defendant of its cement products for a period of 5 years. After the agreement, the
plaintiff placed an advertisement in Manila Chronicle newspaper the fact of his
being the exclusive dealer and/or distributor of the corporation’s cements
products. He was asked by some of his businessmen friends and close associates if
they can be his sub-dealer in the Mindanao area.

Relying on the dealership agreement, plaintiff entered into a written

agreement with several hardware stores dealing in buying and selling white
cement in Davao and CDO. After the plaintiff was assured by his supposed buyer
that his allocation of 20,000 bags of white cement can be disposed of, he informed
the defendant corp that he is making the preparation for the opening of the
requisite letter of credit. As a reply the BoD of the said defendant imposed
conditions (only 8,000 bags per month for a period of 3 mts). Several demands to
comply with the dealership agreement were made but defendant refused to
comply. Plaintiff was forced to cancel his agreement with 3rd parties. Despite the
subsisting agreement, the defendant corporation entered into an exclusive
dealership agreement with Napoleon Co. RTC adjudged the corporation liable to
Alejandro Te for damages, affirmed by CA.

Issue:

Whether or not the dealership agreement referred by the President and

Chairman of the Board is a valid an enforceable contract.

Ruling:

No. It is an invalid contract.

A director of a corporation holds a position of trust and as such, he owes a

duty of loyalty to his corporation. In case his interests conflict with those of the
corporation, he cannot sacrifice the latter to his own advantage and benefit. As
corporate managers, directors are committed to seek the maximum amount of
profits for the corporation. This trust relationship "is not a matter of statutory or
technical law. It springs from the fact that directors have the control and guidance
of corporate affairs and property and hence of the property interests of the
stockholders."

Respondent Te's bounden duty was to act in such manner as not to unduly
prejudice the corporation. In the light of the circumstances of this case, it is to Us
quite clear that he was guilty of disloyalty to the corporation; he was attempting in
effect, to enrich himself at the expense of the corporation. There is no showing that
the stockholders ratified the "dealership agreement" or that they were fully aware
of its provisions.

Terms of the Agreement:

a. The corporation shall, commencing September, 1970, sell to and supply the
plaintiff, as dealer with 20,000 bags (94 lbs/bag) of white cement per month;
b. The plaintiff shall pay the defendant corporation P9.70, Philippine Currency, per
bag of white cement, FOB Davao and Cagayan de Oro ports;

c. The plaintiff shall, every time the defendant corporation is ready to deliver the
good, open with any bank or banking institution a confirmed, unconditional, and
irrevocable letter of credit in favor of the corporation and that upon certification by
the boat captain on the bill of lading that the goods have been loaded on board the
vessel bound for Davao the said bank or banking institution shall release the
corresponding amount as payment of the goods so shipped.

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES
CORPORATION, respondents.

Facts:

Marinduque Mining-Industrial Corporation obtained from PNB various loan

aoomodations. To secure these loans, the former executed a Deed of Real Estate
Mortgage and Chattel Mortgage in favor of PNB, covering all of Marinduque
Mining’s real properties in Surigao Del Norte, Sipalay, Negros Occidental, and at
Antipolo, Rizal, including the improvements thereon. The loan amounted to P4B. A
second Mortgage Trust Agreement was executed by Marinduque Mining in favor of
PNB and DBP. Therein, Marinduque mortgaged the said properties to the banks. It
also covered all its chattels, as well as assets of whatever kind, nature and
description which Marinduque Mining may subsequently acquire in substitution or
replenishment or in addition to the previous Deed of Real and Chattel Mortgage.
Marinduque Mining also obtained loans from PNB, totaling to P2B.

For failure of Marinduque Mining to settle its loan obligations, PNB and DBP
instituted an extrajudicial foreclosure proceeding, where PNB and DBP turned out
to be the highest bidders. Through a Deed of Transfer, the banks assigned and
transferred to the National Government through Asset Privatization Trust.
Remington purchased and caused to be delivered construction materials which
remained unpaid causing it to file a complaint for a sum of money and damages
against Marinduque Mining. RTC ruled in favor of Remington, affirmed by CA.

Issue:

Whether or not there is a presence of fraud, which warrants the piercing of

the corporate veil.

Ruling:

No.
 It is an elementary and fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. However, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an association of persons or in case of
two corporations, merge them into one".

In this case, the Court do not find any fraud on the part of Marinduque
Mining and its transferees to warrant the piercing of the corporate veil. Thus, PNB
and DBP did not only have a right, but the duty under said law, to foreclose upon
the subject properties. The banks had no choice but to obey the statutory
command.

Notes:

a. Section 1 of Presidential Decree No. 385 (The Law on Mandatory

Foreclosure) provides:

It shall be mandatory for government financial institutions, after the lapse of

sixty (60) days from the issuance of this decree, to foreclose the collateral
and/or securities for any loan, credit accommodation, and/or guarantees
granted by them whenever the arrearages on such account, including
accrued interest and other charges, amount to at least twenty percent (20%)
of the total outstanding obligations, including interest and other charges, as
appearing in the books of account and/or related records of the financial
institution concerned. This shall be without prejudice to the exercise by the
government financial institution of such rights and/or remedies available to
them under their respective contracts with their debtors, including the right
to foreclose on loans, credits, accommodations and/or guarantees on which
the arrearages are less than twenty (20%) percent.

B. Neither do we discern any bad faith on the part of DBP by its creation of Nonoc
Mining, Maricalum and Island Cement. As Remington itself concedes, DBP is not
authorized by its charter to engage in the mining business. The creation of the
three corporations was necessary to manage and operate the assets acquired in
the foreclosure sale lest they deteriorate from non-use and lose their value. In the
absence of any entity willing to purchase these assets from the bank, what else
would it do with these properties in the meantime? Sound business practice
required that they be utilized for the purposes for which they were intended.