October 2010 Philippine Supreme Court Decisions on Commercial Law

Here are selected October 2010 rulings of the Supreme Court of the Philippines on commercial law:

Corporation Law

Corporation; liability of corporate officers. With respect to the personal liability of Hartmannshenn and Schumacher, this Court has held that corporate directors and officers are only solidarily liable with the corporation for termination of employment of corporate employees if effected with malice or in bad faith.  Bad faith does not connote bad judgment or negligence; it imports dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of unknown duty through some motive or interest or ill will; it partakes of the nature of fraud.  To sustain such a finding, there should be evidence on record that an officer or director acted maliciously or in bad faith in terminating the employee.

Petitioners withheld respondent’s salary in the sincere belief that respondent did not work for the period in question and was, therefore, not entitled to it.  There was no dishonest purpose or ill will involved as they believed there was a justifiable reason to withhold his salary.  Thus, although they unlawfully withheld respondent’s salary, it cannot be concluded that such was made in bad faith.  Accordingly, corporate officers, Hartmannshenn and Schumacher, cannot be held personally liable for the corporate obligations of SHS.  SHS Perforated Materials, Inc., et al. vs. Manuel F. Diaz, G.R. No. 185814, October 13, 2010.

Corporation;  persons considered as corporate officers. Conformably with Section 25 of the Corporation Code, a position must be expressly mentioned in the By-Laws in order to be considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to make a position a corporate office. Guerrea v. Lezama, the first ruling on the matter, held that the only officers of a corporation were those given that character either by the Corporation Code or by the By-Laws; the rest of the corporate officers could be considered only as employees or subordinate officials.

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that the corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in the By-Laws. Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given that character either by the Corporation Code or by the corporation’s By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By-Laws of an enabling clause on the creation of just any corporate officer position.

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