February 2013 Philippine Supreme Court Decisions on Commercial Law

Here are select February 2013 rulings of the Supreme Court of the Philippines on commercial law:

Corporation; liability of officers and directors. Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Following this principle, obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. A director, officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation. Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.

This is consistent with the provisions of the Corporation Code of the Philippines, which states:

Sec. 31. Liability of directors, trustees or officers. – 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.

Solidary liability will then attach to the directors, officers or employees of the corporation in certain circumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; and (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.

Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following requisites must concur: (1) the 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) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.

While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45, this Court can take cognizance of factual issues if the findings of the lower court are not supported by the evidence on record or are based on a misapprehension of facts. Heirs of Fe Tan Uy (Represented by her heir, Manling Uy Lim) vs. International Exchange Bank/Goldkey Development Corporation vs. International Exchange Bank, G.R. No. 166282/G.R. No. 166283, February 13, 2013.

Corporations; piercing the corporate veil. It behooves this Court to emphasize that the piercing of the veil of corporate fiction is frowned upon and can only be done if it has been clearly established that the separate and distinct personality of the corporation is used to justify a wrong, protect fraud, or perpetrate a deception. As aptly explained in Philippine National Bank v. Andrada Electric & Engineering Company:

Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application. Heirs of Fe Tan Uy (Represented by her heir, Manling Uy Lim) vs. International Exchange Bank/Goldkey Development Corporation vs. International Exchange Bank, G.R. No. 166282/G.R. No. 166283, February 13, 2013.

Corporation; piercing the corporate veil. Under a variation of the doctrine of piercing the veil of corporate fiction, when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or one and the same.

While the conditions for the disregard of the juridical entity may vary, the following are some probative factors of identity that will justify the application of the doctrine of piercing the corporate veil, as laid down in Concept Builders, Inc. v NLRC:

(1) Stock ownership by one or common ownership of both corporations;

(2) Identity of directors and officers;

(3) The manner of keeping corporate books and records, and

(4) Methods of conducting the business.

Heirs of Fe Tan Uy (Represented by her heir, Manling Uy Lim) vs. International Exchange Bank/Goldkey Development Corporation vs. International Exchange Bank, G.R. No. 166282/G.R. No. 166283, February 13, 2013.

Nature of bank relationship with depositors; fiduciary nature does not convert the contract from a simple loan to a trust agreement; bank must observe high standards of integrity and performance. Contrary to the petitioner’s position, UCPB did not become a trustee by the mere opening of the ACCOUNT. While this may seem to be the case, by reason of the fiduciary nature of the bank’s relationship with its depositors, this fiduciary relationship does not “convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied.” It simply means that the bank is obliged to observe “high standards of integrity and performance” in complying with its obligations under the contract of simple loan. Per Article 1980 of the Civil Code, a creditor-debtor relationship exists between the bank and its depositor. The savings deposit agreement is between the bank and the depositor; by receiving the deposit, the bank impliedly agrees to pay upon demand and only upon the depositor’s order. Joseph Goyanko, Jr., as administrator of the Estate of Joseph Goyanko, Sr. vs. United Coconut Planters Bank, Mango Avenue Branch, G.R. No. 179096. February 6, 2013

(Hector thanks Patrick Henry D. Salazar for his assistance to Lexoterica.)

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