SPECIAL THIRD DIVISION

[G.R. No. 220926. March 21, 2018.]

LUIS JUAN L. VIRATA and UEM-MARA PHILIPPINES

CORPORATION (now known as CAVITEX INFRASTRUCTURE
CORPORATION), petitioners, vs. ALEJANDRO NG WEE,
WESTMONT INVESTMENT CORP., ANTHONY T. REYES,
SIMEON CUA, VICENTE CUALOPING, HENRY CUALOPING,
MARIZA SANTOS-TAN, and MANUEL ESTRELLA, respondents.

[G.R. No. 221058. March 21, 2018.]

WESTMONT INVESTMENT, CORPORATION , petitioner, vs.

ALEJANDRO NG WEE, respondent.

[G.R. No. 221109. March 21, 2018.]

MANUEL ESTRELLA, petitioner, vs. ALEJANDRO NG WEE,

respondent.

[G.R. No. 221135. March 21, 2018.]

SIMEON CUA, VICENTE CUALOPING, and HENRY CUALOPING ,

petitioners, vs. ALEJANDRO NG WEE, respondent.

[G.R. No. 221218. March 21, 2018.]

ANTHONY T. REYES , petitioner, vs. ALEJANDRO NG WEE, LUIS

JUAN VIRATA, UEM-MARA PHILIPPINES CORP., WESTMONT
INVESTMENT CORP., MARIZA SANTOS-TAN, SIMEON CUA,
VICENTE CUALOPING, HENRY CUALOPING, and MANUEL
ESTRELLA, respondents.

RESOLUTION

VELASCO, JR., J : p

Before this Court are the following recourses from Our July 5, 2017
Decision:
a. Motion for Partial Reconsideration 1 filed by Luis Juan L. Virata
(Virata);
b. Motion for Reconsideration 2 of Mariza Santos-Tan (Santos-Tan);
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 c. Motion for Reconsideration 3 of Manuel Estrella (Estrella);
d. Motion for Partial Reconsideration 4 of Alejandro Ng Wee (Ng
Wee);
e. Motion for Reconsideration 5 of Simeon Cua, Vicente Cualoping,
and Henry Cualoping (Cua and the Cualopings);
f. Motion for Reconsideration 6 of Anthony T. Reyes (Reyes); and
g. Motion for Reconsideration 7 of Westmont Investment
Corporation (Wincorp).
The Court notes that the grounds relied upon by the movants Virata,
Estrella, Ng Wee, Cua and the Cualopings, Reyes, and Wincorp are the same
or substantially similar to those raised in their respective petitions at bar.
The same have been amply discussed, thoroughly considered, exhaustively
threshed out and resolved in Our July 5, 2017 Decision. Said motions for
reconsideration, perforce, must suffer the same fate of denial. Meanwhile,
the Court deems it necessary to discuss the issues raised by Santos-Tan,
who is only now participating in the proceedings, in her plea for
reconsideration. HTcADC

Respondent Santos-Tan never appealed the September 30, 2014

Decision and October 14, 2015 Resolution of the Court of Appeals (CA) in CA-
G.R. CV No. 97817 holding her liable with her co-parties to Ng Wee. Hence,
she maintains that the Court does not have jurisdiction over her person and
that, insofar as she is concerned, the CA ruling had already attained finality
and can no longer be modified. And when the Court promulgated its July 5,
2017 Decision granting Virata's cross-claim against her, the Court allegedly
altered the CA's final ruling as to her by increasing her exposure, in net
effect.
Additionally, Santos-Tan was allegedly deprived of her right to due
process since she was not afforded the opportunity to rebut the issue
pertaining to Virata's counterclaim, a claim that was allegedly not raised in
Virata's appeal but was granted nonetheless.
On the merits, Santos-Tan argues that the cross-claim should not have
been granted because the February 15 and March 15, 1999 Side Agreements
that served as the basis thereof never got the imprimatur of the Board of
Directors of Wincorp. Moreover, Santos-Tan points out that, as established,
Power Merge made a total of P2,183,775,253.11 of drawdowns from its
Credit Line Facility. Considering Power Merge's receipt of the said amount, it
would be iniquitous and immoral to require Santos-Tan and her co-directors
in Wincorp to reimburse Virata of whatever the latter would be required to
pay Ng Wee.
The arguments do not persuade.
It is at the height of error for respondent Santos-Tan to claim that the
Court does not have jurisdiction over her person. Clear in the petitions is that
Virata and Reyes specifically impleaded Santos-Tan as one of the party
respondents in their petitions, docketed as G.R. Nos. 220926 and 221218,
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 respectively. Through her designation as a party respondent in the said
appeals, the Court validly acquired jurisdiction over her person, and
prevented the assailed September 30, 2014 Decision and October 14, 2015
Resolution of the CA in CA-G.R. CV No. 97817 from attaining finality as to
her.
Santos-Tan's claim that she was denied of due process when the Court
granted Virata's cross-claim is likewise unavailing.
Virata raised his claim against his co-parties as early as the filing of his
Answer to Ng Wee's Complaint. The claim was then ventilated in trial where
the extent of the liability of each party had been ascertained. Virata, Santos-
Tan, and their co-parties would contest the findings of the trial court to the
CA, but to no avail. Eventually, the controversy was elevated to this Court.
The implication of Virata's persistent plea, up to this Court, to be
absolved of civil liability is to shift the burden entirely to his co-parties.
Otherwise stated, he was essentially re-asserting his cross-claim, as against
Santos-Tan included. However, Santos-Tan inexplicably waived her right to
address the allegations in Virata's bid for exoneration in his petition, despite
having been impleaded as party respondent.
The perceived denial of due process right is therefore illusory. Santos-
Tan had all the opportunity to counter Virata's allegations in his petition, but
did not avail of the same. She only has herself to blame, not only for failing
to appeal the appellate court's ruling, but also for her conscious refusal to
even file a comment on the petitions in the case at bar.
Furthermore, even though the cross-claim was not explicitly raised as
an issue in Virata's petition, the request therefor is subsumed under the
general prayer for equitable relief. Jurisprudence teaches that the Court's
grant of relief is limited to what has been prayed for in the Complaint or
related thereto, supported by evidence, and covered by the party's cause of
action. 8 Here, the grant of the cross-claim is but the logical consequence of
the Court's finding that the Side Agreements, although not binding on Ng
Wee and the other investors, are binding against the parties thereto. And
under the terms of the Side Agreements, the only liability of Power Merge is
not to pay for the promissory notes it issued, but to return and deliver to
Wincorp all the rights, titles and interests conveyed to it by Wincorp over the
Hottick obligations. It may be, as Santos-Tan argued, that Power Merge
made drawdowns from the credit line facility, and that its receipt of a
significant sum thereunder makes it liable to the investors. However, any
payment made by Virata for this liability would nevertheless still be subject
to the right of reimbursement from Wincorp by virtue of the Side
Agreements.
In his Dissent, esteemed Associate Justice Noel G. Tijam (Justice Tijam)
submits that the Wincorp directors — specifically Cua, the Cualopings,
Santos-Tan and Estrella — should not be jointly and solidarily liable with
Virata, Wincorp, Ong, and Reyes to pay Ng Wee the amount of his
investment. Justice Tijam stressed that there is lack of proof that the said
directors assented to the execution of the Side Agreements, barring the
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 Court from holding them personally accountable for fraud. Neither can they
be held liable for gross negligence since they exercised due diligence in
conducting the affairs of Wincorp. DETACa

The Court finds the submissions meritless.

Section 31 of the Corporation Code expressly states:
Section 31. Liability of directors, trustees or officers. — Directors
or trustees who willfully 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.
When a director, trustee or officer attempts to acquire or acquire, in
violation of his duty, any interest adverse to the corporation in
respect of any matter which has been reposed in him in confidence,
as to which equity imposes a disability upon him to deal in his own
behalf, he shall be liable as a trustee for the corporation and must
account for the profits which otherwise would have accrued to the
corporation.
In Our July 5, 2017 Decision, the Court explicated the liabilities of the
board directors, thus:
G.R. No. 221135: The liabilities of
Cua and the Cualopings
On the other hand, the liabilities of Cua and the Cualopings are
more straightforward. They admit of approving the Credit Line
Agreement and its subsequent Amendment during the special
meetings of the Wincorp board of directors, but interpose the defense
that they did so because the screening committee found the
application to be above board. They deny knowledge of the Side
Agreements and of Power Merge's inability to pay.
We are not persuaded.
Cua and the Cualopings cannot effectively distance themselves
from liability by raising the defenses they did. As ratiocinated by the
CA:
Such submission creates a loophole, especially in
this age of compartmentalization, that would create a
nearly fool-proof scheme whereby well-organized
enterprises can evade liability for financial fraud. Behind
the veil of compartmentalized departments, such
enterprise could induce the investing public to invest in a
corporation which is financially unable to pay with
promises of definite returns on investment. If we follow
the reasoning of defendants-appellants, we allow the
masterminds and profiteers from the scheme to take the
money and run without fear of liability from law simply
because the defrauded investor would be hard-pressed to
identify or pinpoint from among the various departments
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 of a corporation which directly enticed him to part with
his money.
Petitioners Cua and the Cualopings bewail that the above-
quoted statement is overarching, sweeping, and bereft of legal or
factual basis. But as per the records, the totality of circumstances in
this case proves that they are either complicit to the fraud, or at the
very least guilty of gross negligence, as regards the "sans recourse"
transactions from the Power Merge account.
The board of directors is expected to be more than mere rubber
stamps of the corporation and its subordinate departments. It wields
all corporate powers bestowed by the Corporation Code, including the
control over its properties and the conduct of its business. Being
stewards of the company, the board is primarily charged with
protecting the assets of the corporation in behalf of its stakeholders.
Cua and the Cualopings failed to observe this fiduciary duty
when they assented to extending a credit line facility to Power Merge.
In PED Case No. 20-2378, the SEC discovered that Power Merge is
actually Wincorp's largest borrower at about 30% of the total
borrowings. It was then incumbent upon the board of directors to
have been more circumspect in approving its credit line facility, and
should have made an independent evaluation of Power Merge's
application before agreeing to expose it to a P2,500,000,000.00 risk.
Had it fulfilled its fiduciary duty, the obvious warning
signs would have cautioned it from approving the loan in
haste. To recapitulate: (1) Power Merge has only been in
existence for two years when it was granted a credit facility;
(2) Power Merge was thinly capitalized with only
P37,500,000.00 subscribed capital; (3) Power Merge was not
an ongoing concern since it never secured the necessary
permits and licenses to conduct business, it never engaged in
any lucrative business, and it did not file the necessary
reports with the SEC; and (4) no security other than its
Promissory Notes was demanded by Wincorp or was furnished
by Power Merge in relation to the latter's drawdowns.
It cannot also be ignored that prior to Power Merge's application
for a credit facility, its controller Virata had already transacted with
Wincorp. A perusal of his records with the company would have
revealed that he was a surety for the Hottick obligations that were
still unpaid at that time. This means that at the time the Credit Line
Agreement was executed on February 15, 1999, Virata still had direct
obligations to Wincorp under the Hottick account. But instead of
impleading him in the collection suit against Hottick, Wincorp's board
of directors effectively released Virata from liability, and, ironically,
granted him a credit facility in the amount of P1,300,000,000.00 on
the very same day. ATICcS

This only goes to show that even if Cua and the Cualopings are
not guilty of fraud, they would nevertheless still be liable for gross
negligence in managing the affairs of the company, to the prejudice
of its clients and stakeholders. Under such circumstances, it becomes
immaterial whether or not they approved of the Side Agreements or
authorized Reyes to sign the same since this could have all been
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 avoided if they were vigilant enough to disapprove the Power Merge
credit application. Neither can the business judgment rule apply
herein for it is elementary in corporation law that the doctrine admits
of exceptions: bad faith being one of them, gross negligence,
another. The CA then correctly held petitioners Cua and the
Cualopings liable to respondent Ng Wee in their personal capacity.
G.R. No. 221109: The liability of
Manuel Estrella
To refresh, Estrella echoes the defense of Tankiansee, who was
exempted from liability by the trial court. He claims that just like
Tankiansee, he was not present during Wincorp's special board
meetings where Power Merge's credit line was approved and
subsequently amended. Both also claimed that they protested and
opposed the board's actions. But despite the parallels in their
defenses, the trial court was unconvinced that Estrella should be
released from liability. Estrella appealed to the CA, but the adverse
ruling was sustained.
We agree with the findings of the courts a quo.
The minutes of the February 9, 1999 and March 11, 1999
Wincorp Special Board Meetings were considered as damning
evidence against Estrella, just as they were for Cua and the
Cualopings. Although they were said to be unreliable insofar as
Tankiansee is concerned, the trial court rightly distinguished between
the circumstances of Estrella and Tankiansee to justify holding
Estrella liable.
For perspective, Tankiansee was exempted from liability upon
establishing that it was physically impossible for him to have
participated in the said meetings since his immigration records
clearly show that he was outside the country during those specific
dates. In contrast, no similar evidence of impossibility was ever
offered by Estrella to support his position that he and Tankiansee are
similarly situated.
Estrella submitted his departure records proving that he had
left the country in July 1999 and returned only in February of 2000.
Be that as it may, this is undoubtedly insufficient to establish his
defense that he was not present during the February 9, 1999 and
March 11, 1999 board meetings.
Instead, the minutes clearly state that Estrella was present
during the meetings when the body approved the grant of a credit
line facility to Power Merge. Estrella would even admit being present
during the February 9, 1999 meeting, but attempted to evade
responsibility by claiming that he left the meeting before the "other
matters," including Power Merge's application, could have been
discussed.
Unfortunately, no concrete evidence was ever offered to
confirm Estrella's alibi. In both special meetings scheduled, Estrella
averred that he accompanied his wife to a hospital for her cancer
screening and for dialogues on possible treatments. However, this
claim was never corroborated by any evidence coming from the
hospital or from his wife's physicians. Aside from his mere say-so, no
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 other credible evidence was presented to substantiate his claim.
Thus, the Court is not inclined to lend credence to Estrella's self-
serving denials.
Neither can petitioner Estrella be permitted to raise the defense
that he is a mere nominee of John Anthony Espiritu, the then
chairman of the Wincorp board of directors. It is of no moment that he
only had one nominal share in the corporation, which he did not even
pay for, just as it is inconsequential whether or not Estrella had been
receiving compensation or honoraria for attending the meetings of
the board.
The practice of installing undiscerning directors cannot be
tolerated, let alone allowed to perpetuate. This must be curbed by
holding accountable those who fraudulently and negligently perform
their duties as corporate directors, regardless of the accident by
which they acquired their respective positions.
In this case, the fact remains that petitioner Estrella accepted
the directorship in the Wincorp board, along with the obligations
attached to the position, without question or qualification. The
fiduciary duty of a company director cannot conveniently be
separated from the position he occupies on the trifling argument that
no monetary benefit was being derived therefrom. The gratuitous
performance of his duties and functions is not sufficient justification
to do a poor job at steering the company away from foreseeable
pitfalls and perils. The careless management of corporate affairs, in
itself, amounts to a betrayal of the trust reposed by the corporate
investors, clients, and stakeholders, regardless of whether or not the
board or its individual members are being paid. The RTC and the CA,
therefore, correctly disregarded the defense of Estrella that he is a
mere nominee. (citations omitted, emphasis added)
As regards Santos-Tan, she would likewise be liable in her personal
capacity under Section 31 of the Corporation Code. 9 Her liability is no
different from that of Cua and the Cualopings. She cannot utilize the
separate juridical personality of Wincorp as a shield when she, along with the
other board members, approved the credit line application of Power Merge in
the amount of P2,500,000,000.00 despite the glaring signs that it would be
unable to make good its obligation, to wit:
(1) Power Merge has only been in existence for two years when it
was granted a credit facility;
(2) Power Merge was thinly capitalized with only P37,500,000.00
subscribed capital;
(3) Power Merge was not an ongoing concern since it never secured
the necessary permits and licenses to conduct business, it never
engaged in any lucrative business, and it did not file the
necessary reports with the SEC; and
(4) No security other than its Promissory Notes was demanded by
Wincorp or was furnished by Power Merge in relation to the
latter's drawdowns.TIADCc

Had Santos-Tan and the members of the board fulfilled their fiduciary
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 duty to protect the corporation for the sake of its stakeholders, the obvious
warning signs would have cautioned them from approving Power Merge's
loan application and credit limit increase in haste. The failure to heed these
warning signs, to Our mind, constitutes gross negligence, if not fraud, for
which the members of the board could be held personally accountable.
The contention that the Side Agreements were without the imprimatur
of its board of directors cannot be given credence. The totality of
circumstances supports the conclusion that the Wincorp directors impliedly
ratified, if not furtively authorized, the signing of the Side Agreements in
order to lay the groundwork for the fraudulent scheme. Thus, even though it
is quite understandable that there is no document traceable to said Wincorp
directors expressly authorizing the execution of the said documents, We are
not precluded from holding the same.
The Court expounded on the concept of corporate ratification in Board
of Liquidators v. Heirs of Kalaw 10 in the following wise:
Authorities, great in number, are one in the idea that
"ratification by a corporation of an unauthorized act or contract by its
officers or others relates back to the time of the act or contract
ratified, and is equivalent to original authority;" and that "[t]he
corporation and the other party to the transaction are in precisely the
same position as if the act or contract had been authorized at the
time." The language of one case is expressive: "The adoption or
ratification of a contract by a corporation is nothing more nor
less than the making of an original contract. The theory of
corporate ratification is predicated on the right of a corporation to
contract, and any ratification or adoption is equivalent to a
grant of prior authority." (emphasis added)
And in University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, 11

We have discussed that:

Implied ratification may take the form of silence,
acquiescence, acts consistent with approval of the act, or
acceptance or retention of benefits. However, silence,
acquiescence, retention of benefits, and acts that may be interpreted
as approval of the act do not by themselves constitute implied
ratification. For an act to constitute an implied ratification, there
must be no acceptable explanation for the act other than that
there is an intention to adopt the act as his or her own. x x x
(emphasis added)
In the case at bar, it can be inferred from the attendant circumstances
that the Wincorp board ratified, if not approved, the Side Agreements. Guilty
of reiteration, Virata's prior transactions with Wincorp is recorded in the
latter's books. The Wincorp directors are chargeable with knowledge of the
surety agreement that Virata executed to secure the Hottick obligations to
its investors. However, instead of enforcing the surety agreement against
Virata when Hottick defaulted, the Wincorp board approved a resolution
excluding Virata as a party respondent in the collection suit to be filed
against Hottick and its proprietors. What is more, this resolution was
approved by the movant-directors on February 9, 1999, the very same day
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 Virata's credit line application for Power Merge in the maximum amount of
P1,300,000,000.00 was given the green light.
As further noted in the assailed Decision:
It must be remembered that the special meeting of Wincorp's
board of directors was conducted on February 9 and March 11 of
1999, while the Credit Line Agreement and its Amendment were
entered into on February 15 and March 15 of 1999, respectively. But
as indicated in Power Merge's schedule of drawdowns, Wincorp
already released to Power Merge the sum of P1,133,399,958.45 as of
February 12, 1999, before the Credit Line Agreement was executed.
And as of March 12, 1999, prior to the Amendment,
P1,805,018,228.05 had already been released to Power Merge.
The fact that the proceeds were released to Power Merge
before the signing of the Credit Line Agreement and the Amendment
thereto lends credence to Virata's claim that Wincorp did not intend
for Power Merge to be strictly bound by the terms of the credit
facility; and that there had already been an understanding between
the parties on what their respective obligations will be, although this
agreement had not yet been reduced into writing. The underlying
transaction would later on be revealed in black and white through the
Side Agreements, the tenor of which amounted to Wincorp's
intentional cancellation of Power Merge and Virata's obligation under
their Promissory Notes. In exchange, Virata and Power Merge
assumed the obligation to transfer equity shares in UPDI and the
tollway project in favor of Wincorp. An arm's length transaction has
indeed taken place, substituting Virata and Power Merge's obligations
under the Promissory Notes, in pursuance of the Memorandum of
Agreement and Waiver and Quitclaim executed by Virata and
Wincorp. Thus, as far as Wincorp, Power Merge, and Virata are
concerned, the Promissory Notes had already been discharged.
To emphasize, there were clear warning signs that Power Merge would
not have been able to pay the almost P2.5 billion face value of its
promissory notes. To Our mind, the Wincorp board of directors' approval of
the credit line agreement, notwithstanding these telltale signs and the above
outlined circumstances, establishes the movant-directors' liability to Ng Wee.
For if these do not attest to their privity to Wincorp's fraudulent scheme,
they would, at the very least, convincingly prove that the movant-directors
are guilty of gross negligence in managing the company affairs. The movant-
board directors should not have allowed the exclusion of Virata from the
collection suit against Hottick knowing that he is a surety thereof. As
revealed by their subsequent actions, this was not a mere error in judgment
but a calculated maneuver to defraud its investors. Hence, the Court did not
err when it ruled that Sec. 31 of the Corporation Code must be applied, and
the separate juridical personality of Wincorp, pierced. SDAaTC

Moreover, the Court finds it highly suspect that the movant-directors,

aside from Estrella, did not question why the case proceeded without the
board chairman, John Anthony B. Espiritu (Espiritu). There were seventeen
(17) named defendants in Civil Case No. 00-99006 with the Regional Trial
Court, Branch 39 in Manila, which included the entire composition of the
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 Wincorp board of directors. If the movant-directors truly believed that they
are on par with each other in terms of participation, then they should have
instituted a cross-claim against Espiritu, or at least objected against his
being dropped as a party defendant.
WHEREFORE, premises considered, the following motions are hereby
DENIED for lack of merit:
a. Motion for Partial Reconsideration filed by Luis Juan L. Virata;
b. Motion for Reconsideration of Mariza Santos-Tan;
c. Motion for Reconsideration of Manuel Estrella;
d. Motion for Partial Reconsideration of Alejandro Ng Wee;
e. Motion for Reconsideration of Simeon Cua, Vicente Cualoping,
and Henry Cualoping;
f. Motion for Reconsideration of Anthony T. Reyes; and
g. Motion for Reconsideration of Westmont Investment Corporation.
No further pleadings or motions will be entertained.
Let entry of judgment be issued.
SO ORDERED.
Bersamin, Jardeleza and Reyes, Jr., JJ., concur.
Tijam, J., I respectfully dissent. Please see my dissenting opinion.

Separate Opinions
TIJAM, J., dissenting:

On July 5, 2017, this Court issued its Decision in the present

consolidated cases. In the said Decision, it was found that Wincorp extended
a credit line to Power Merge in the maximum amount of
Php2,500,000,000.00, and allowed the latter to make drawdowns of
Php2,183,755,253.11, despite signs that would show Power Merge's inability
to pay. To secure the Credit Line Agreement and the Amendment to Credit
Line Agreement, Power Merge executed promissory notes obliging itself to
pay Wincorp, for itself or as agent for and on behalf of certain investors the
amount of the drawdowns with interest on the maturity of the promissory
note. However, unknown to Ng Wee, the promissory notes were rendered
useless by the Side Agreements, simultaneously executed by Ong and Reyes
with the Credit Line Agreement and the Amendment to Credit Line
Agreement, which virtually exonerated Power Merge of its liability on the
promissory notes.
T h e ponencia held that the actuations of Wincorp establishes the
presence of actionable fraud, for which the corporation can be held liable,
while Power Merge is liable to Ng Wee bases on the promissory notes even
as an accommodation party.
On the basis of fraud, the ponencia pierced the corporate veil of
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 Wincorp and held the directors and officers of the latter as personally liable
to Ng Wee. The basis of their liability was grounded on Section 31 of the
Corporation Code when they assented to the grant of the Credit Line
Agreement and Amendment to the Credit Line Agreement to Power Merge.
I agree with the findings and rulings ponencia except for holding the
individual petitioners, namely; Simeon Cua, Vicente and Henry Cualoping,
Mariza Santos-Tan and Manuel Estrella solidarily liable with Wincorp, Luis L.
Virata, Antonio T. Ong and Anthony T. Reyes to pay Ng Wee the amount of
Php213,290,410.36.
As held by this Court in Philippine National Bank v. Hydro Resources
Contractors Corp., 1 a corporation acquires a separate personality from that
of its directors and officers, to wit:
A corporation is an artificial entity created by operation of law.
It possesses the right of succession and such powers, attributes, and
properties expressly authorized by law or incident to its existence. It
has a personality separate and distinct from that of its stockholders
and from that of other corporations to which it may be connected. As
a consequence of its status as a distinct legal entity and as a result of
a conscious policy decision to promote capital formation, a
corporation incurs its own liabilities and is legally responsible for
payment of its obligations. In other words, by virtue of the separate
juridical personality of a corporation, the corporate debt or credit is
not the debt or credit of the stockholder. This protection from liability
for shareholders is the principle of limited liability. 2 (Citations
omitted)
It is well-settled that the juridical personality of a corporation may be
removed or its corporate veil pierced when the corporation is just an alter
ego of a person or of another corporation. When the corporation becomes a
shield for fraud, illegality or inequity committed against third persons, the
corporate veil will, as a result, be disregarded for the interest of justice. 3 acEHCD

"However, the rule is that a court should be careful in assessing the

milieu where the doctrine of the corporate veil may be applied. Otherwise an
injustice, although unintended, may result from its erroneous application.
Thus, cutting through the corporate cover requires an approach
characterized by due care and caution." 4
"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." 5
Directors, Trustees or Officers can be held personally and solidarily
liable with the corporation in situations enumerated by law and
jurisprudence, 6 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
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 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.'" 7
Section 31 of the Corporation Code provides that:
Sec. 31. Liability of directors; trustees or officers. —
Directors or trustees who willfully 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.
When a director, trustee or officer attempts to acquire or
acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in him
in confidence, as to which equity imposes a disability upon him to
deal in his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would
have accrued to the corporation. (Emphasis ours)
In the present case, nowhere in the records does it appear that the
granting, extending and approving of the Credit Line Agreement and the
Amendment to the Credit Line Agreement is a patently unlawful act of the
corporation. In fact, the granting and approval of the same falls within the
function and purpose of Wincorp as an investment house. Thus, the mere
approval of Cua, the Cualopings, Santos-Tan and Estrella of the said credit
line agreements cannot be equated to knowingly assenting or approving a
patently unlawful act of the corporation. Neither can it be equated to bad
faith, fraud nor gross negligence.
The records do not show that Cua, the Cualopings, Santos-Tan and
Estrella willfully and knowingly vote for or assent to the execution of the Side
Agreements that virtually exonerated Power Merge of its liability on the
promissory notes, except for the signatories who were Ong and Reyes.
Neither are they guilty of gross negligence or bad faith in directing or
dealing in the affairs of the corporation, they merely approved the Credit
Line Agreements because the screening committee of the corporation and its
subordinate departments approved the same. In the case of Pioneer
Insurance & Surety Corp. v. Morning Star Travel & Tours, Inc., et al. , 8 "bad
faith imports a dishonest purpose or some moral obliquity and conscious
doing of a wrong, not simply bad judgment or negligence." 9 "It means
breach of a known duty through some motive or interest or ill will; it
partakes of the nature of fraud." 10 "Fraud may be defined as the voluntary
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 execution of a wrongful act, or a willful omission, knowing and intending the
effects which naturally and necessarily arise from such act or omission." 11
In this case, the Credit Line Agreements of Wincorp as approved by its
officers may be called as a business strategy which turned out to be
unfavorable. This does not mean however that Cua, the Cualopings, Santos-
Tan and Estrella perpetrated fraud as they did not know and intend the
effects of such act or omission, nor was there bad faith on their part since
there is no dishonest purpose or consciousness in doing such wrong.
It is undisputed that Ong and Reyes executed the Side Agreements
which exonerated Power Merge from its liabilities to Wincorp. It does
however show that Ong and Reyes were authorized by the board of directors
in executing the Side Agreements. "Acts of an officer that are not authorized
by the board of directors/trustees do not bind the corporation unless the
corporation ratifies the acts or holds the officer out as a person with
authority to transact on its behalf." 12 Here, there is simply nothing that will
establish that Cua, the Cualopings, Santos-Tan and Estrella authorized or
ratified the acts of Ong and Reyes. HSAcaE

I am therefore inclined to rule that there is no basis in holding Cua, the

Cualopings, Santos-Tan and Estrella jointly and severally liable with Virata,
Wincorp, Ong and Reyes to pay Ng Wee the amount of his investment.

Footnotes

1. Rollo (G.R. No. 221218), Vol. 2, p. 1176.

2. Id. at 1219.
3. Id. at 1229.

4. Id. at 1261.
5. Id. at 1307.

6. Id. at 1343.

7. Id. at 1363.
8. Philippine Charter Insurance Corporation v. Philippine National Construction
Corporation, G.R. No. 185066, October 2, 2009, 602 SCRA 723, 736.
9. Section 31. Liability of directors, trustees or officers. — Directors or trustees who
willfully 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.
  When a director, trustee or officer attempts to acquire or acquire, in
violation of his duty, any interest adverse to the corporation in respect of any
matter which has been reposed in him in confidence, as to which equity
imposes a disability upon him to deal in his own behalf, he shall be liable as a
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 trustee for the corporation and must account for the profits which otherwise
would have accrued to the corporation.
10. 127 Phil. 399 (1967).

11. G.R. Nos. 194964-65, January 11, 2016.

TIJAM, J., dissenting:

1. 706 Phil. 297 (2013).

2. Id. at 308.
3. Id. at 308-309.

4. Id. at 309.

5. Id.
6. See Edsa Shangri-La Hotel and Resort, Inc., et al. v. BF Corporation, 578 Phil.
588, 607 (2008); Aratea v. Suico, 547 Phil. 407, 415-416 (2007) citing MAM
Realty Development Corp. v. National Labor Relations Commission, 314 Phil.
838, 844-845 (1995); Solidbank Corporation v. Mindanao Ferroalloy
Corporation, 502 Phil. 651, 665 (2005) citing Tramat Mercantile, Inc. v. Court
of Appeals, 308 Phil. 13, 17 (1994).
7. Solidbank Corporation v. Mindanao Ferroalloy Corporation, supra at 665 citing
Tramat Mercantile, Inc. v. Court of Appeals, supra at 17. See also Aratea v.
Suico, 547 Phil. 407, 415-416 (2007) citing MAM Realty Development Corp. v.
National Labor Relations Commission, supra at 844-845.
8. 763 Phil. 428 (2015).

9. Id. at 442.

10. Ever Electrical Manufacturing, Inc., et al. v. Samahang Manggagawa ng Ever

Electrical/NAMAWU Local 224, 711 Phil. 529, 539 (2012).
11. Rep. of the Phils. v. Estate of Alfonso Lim, Sr., et al., 611 Phil. 37, 52 (2009).

12. University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, et al., 776 Phil. 401,
411 (2016).

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