PRIME WHITE

In July 1969, Zosimo Falcon and Justo Trazo entered into an agreementwith Alejandro Te whereby it was agreed that from 1970 to 1976, Te shall be the sole dealer of 20,000 bags Prime White cement in Mindanao. Falcon was the president of Prime White Cement Corporation (PWCC) and Trazo was a board member thereof. Te was likewise a board member of PWCC. It was agreed that the selling price for a bag of cement shall be P9.70.Before the bags of cement can be delivered, Te already made known to the public that he is the sole dealer of cements in Mindanao. Various hardwares then approached him to be his sub-dealers, hence, Te entered into various contracts with them.But then apparently, Falcon and Trazo were not authorized by the Board of PWCC to enter into such contract. Nevertheless, the Board wished to retain the contract but they wanted some amendment which includes the increase of the selling price per bag to P13.30 and the decrease of the total amount of cement bags from 20k to 8k only plus the contract shall only be effective for a period of three months and not 6 years.Te refused the counter-offer. PWCC then awarded the contract to someone else.Te then sued PWCC for damages. PWCC filed a counterclaim and in said counterclaim, it is claiming for moral damages the basis of which is the claim that Te’s filing of a civil case against PWCC destroyed the company’s goodwill. The lower court ruled in favor Te.ISSUE: Whether or not the ruling of the lower court is correct.HELD: No. Te is what can be called as a self-dealing director –

he deals business with the same corporation in which he is a director. There is nothing wrong per se with that. However, Sec. 32 provides that:SEC. 32.     Dealings of directors, trustees or officers with the corporation. —- A contract of the corporation with one or more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are present:1.  That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting;2.  That the vote of such director or trustee was not necessary for the approval of the contract;3.  That the contract is fair and reasonable under the circumstances; and4.  That in the case of an officer, the contract with the officer has been previously authorized by the Board of Directors.In this particular case, the Supreme Court focused on the fact that the contract between PWCC and Te through Falcon and Trazo was not reasonable. Hence, PWCC has all the rights to void the contract and look for someone else, which it did. The contract is unreasonable because of the very low selling price. The Price at that time was at least P13.00 per bag and the original contract only stipulates P9.70. Also, the original contract was for 6 years and there’s no clause in the contract which protects PWCC from inflation. As a director, Te in this transaction should protect the corporation’s interest more than his personal interest. His failure to do so is disloyalty to the corporation.Anent the issue of moral damages, there is no question that PWCC’s goodwill and reputation had been prejudiced due to the filing of this case. However, there can be no award for moral damages under Article 2217 of the Civil Code in favor

of a corporation.

GOKONGWEI v SEC

Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of nullity of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the by-laws that the amendment or modification of the by-laws may only be delegated to the BODs upon an affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid uo capital stock of the corporation, which 2/3 could have been computed on the basis of the capitalization at the time of the amendment. Petitioner contends that the amendment was based on the 1961authorization, the Board acted without authority and in usurpation of the power of the stockholders n amending the by-laws in 1976. He also contends that the 1961 authorization was already used in 1962 and 1963. He also contends that the amendment deprived him of his right to vote and be voted upon as a stockholder (because it disqualified competitors from nomination and election in the BOD of SMC), thus the amended by-laws were null and void. While this was pending, the corporation called for a stockholder’s meeting for the ratification of the amendment to the by-laws. This prompted petitioner to seek for summary judgment. This was denied by the SEC.In another case filed by petitioner, he alleged that the corporation had been using corporate funds in other corps and businesses outside the primary purpose clause of the corporation in violation of the Corporation Code.

Issue: Are amendments valid?

Held: The validity and reasonableness of a by-law is purely a question of law. Whether the by-law is in conflict with the law of the land, or with the charter of the corporation or is in legal sense unreasonable and therefore unlawful is a question of law. However, this is limited where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment

of those who are authorized to make by-laws and who have exercised authority. The Court held that a corporation has authority prescribed by law to prescribe the qualifications of directors. It has the inherent power to adopt by-laws for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. A corporation, under the Corporation law, may prescribe in its by-laws the qualifications, duties and compensation of directors, officers, and employees.Any person who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and he impliedly contracts that the will of the majority shall govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not forbidden by law. Any corporation may amend its by-laws by the owners of the majority of the subscribed stock. It cannot thus be said that petitioners has the vested right, as a stock holder, to be elected director, in the face of the fact that the law at the time such stockholder's right was acquired contained the prescription that the corporate charter and the by-laws shall be subject to amendment, alteration and modification. A Director stands in a fiduciary relation to the corporation and its shareholders, which is characterized as a trust relationship. An amendment to the corporate by-laws which renders a stockholder ineligible to be director, if he be also director in a corporation whose business is in competition with that of the other corporation, has been sustained as valid. This is based upon the principle that where the director is employed in the service of a rival company, he cannot serve both, but must betray one or the other. The amendment in this case serves to advance the benefit of the corporation and is good. Corporate officers are also not permitted to use their position of trust and confidence to further their private needs, and the act done in furtherance of private needs is deemed to be for the benefit of the corporation. This is called the doctrine of corporate opportunity.

check other cases from compiled digests…

PHIL TRUST V RIVERACooperativa Naval Filipina was duly incorporated with a capital of P100,000, divided into 100 shares at a par 

value of P100 each. Among its incorporators was Marciano Rivera, who subscribed for 450 shares, representing avalue of P45,000. The company however became insolvent. Philippine Trust became its assignee in bankruptcy.PhilTrust sought to recover ½ of the stock subscription of Rivera, which admittedly, has never been paid. Riveracontends that he never paid because the stockholders of Naval issued a resolution shortly after the company’sincorporation, stating that the capital shall be reduced by 50%. As a result, Rivera contends that the subscribers werereleased from the obligation to pay any unpaid balance of their subscription in excess of 50% of their subscriptions.Rivera further contends that the subscriptions of the subscribers were 50% cancelled, and certificates of shares of stock were issued for the said remaining 50% of the subscriptions.Issue:Whether such reduction of the capital stock is valid.Held: No. SC held that the said resolution is without effect for being:1. An attempted withdrawal of so much capital fromthe fund which the company’s creditors were entitledultimately to rely, and2. For having been effected without compliance with the statutory requirements of § 17 of the Corporation Lawregarding reduction of capital stock, and3. For failure to file a certificate with the Bureau of Commerce and Industry, showing such reduction.Thus, stockholder is still liable for the unpaid balance of his subscription.Ratio: Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. A corporation has no power to release anoriginal subscriber to its capital stock from the obligation of paying for his shares, w/o a valuableconsideration for such release; and as against creditors a reduction of the

capital stock cantake place only inthe manner and under the conditions prescribed by the statute or the charter or the AOI. Moreoever, strictcompliance with statutory regulations is necessary. Note: that for reasons 2 and 3, Campos says that § 17 has been replaced by § 38, and now, even if all therequirements are complied with, if creditors are prejudiced by such reduction, it is most unlikely that the SEC willapprove it.

BOWMAN v CANilcar Fajilan was a stockholder and the president of Boman Environmental Development Corporation (Boman). In 1984, he wrote a letter to the Board tendering his resignation and his offer to sell his shareholdings for P300k. The Board accepted the resignation as well as his offer to sell. The Board advised Fajilan that Boman will be paying the shares in installment. Fajilan is to transfer the shares upon completion of payment. Boman paid the first two P50k installments but defaulted in paying the remaining P200k. Fajilan then sued Boman in the RTC of Makati.ISSUE: Whether or not the RTC of Makati has jurisdiction.HELD: No. This is an intra-corporate dispute and as such the Securities and Exchange Commission (SEC) has jurisdiction. This case involves an intra-corporate controversy because the parties are a stockholder and the corporation. Fajilan is still a stockholder. There has been no actual transfer of his shares to the corporation. In the books of the corporation he is still a stockholder.  Fajilan’s suit against the corporation to enforce the latter’s promissory note or compel the corporation to pay for his shareholdings is cognizable by the SEC alone which shall determine whether such payment will not constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation.

The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation has unrestricted retained earnings to cover the payment for the shares, nd whether the purchase is for a legitimate corporate purpose.NOTE: This is a 1988 case, now the RTC has expanded jurisdiction. Some RTCs are granted special jurisdiction to hear and decide intra-corporate disputes.

CIR V CASometime in the 1930’s, Don Andres Soriano, a citizen and resident of the United States, formed the corporation “A. Soriano Y Cia”, predecessor of ANSCOR with a 1,000,000.00 capitalization divided into 10,000 common shares at a par value of P100/share. ANSCOR is wholly owned and controlled by the family of Don Andres, who are all non-resident aliens. In 1937, Don Andres subscribed to 4,963 shares of the 5,000 shares originally issued.On September 12, 1945, ANSCOR’s authorized capital stock was increased to P2,500,000.00 divided into 25,000 common shares with the same par value. Of the additional 15,000 shares, only 10,000 was issued which were all subscribed by Don Andres, after the other stockholders waived in favor of the former their pre-emptive rights to subscribe to the new issues. This increased his subscription to 14,963 common shares. A month later, Don Andres transferred 1,250 shares each to his two sons, Jose and Andres Jr., as their initial investments in ANSCOR. Both sons are foreigners.By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were made between 1949 and December 20, 1963. On December 30, 1964 Don Andres died. As of that date, the records revealed that he has a total shareholdings of 185,154 shares. 50,495 of which are original

issues and the balance of 134,659 shares as stockdividend declarations. Correspondingly, one-half of that shareholdings or 92,577 shares were transferred to his wife, Doña Carmen Soriano, as herconjugal share. The offer half formed part of his estate.A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further increased it to P30M. In the same year (December 1966), stock dividends worth 46,290 and 46,287 shares were respectively received by the Don Andres estate and Doña Carmen from ANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and 138,864 common shares each.On December 28, 1967, Doña Carmen requested a ruling from the United States Internal Revenue Service (IRS), inquiring if an exchange of common with preferred shares may be considered as a tax avoidance scheme. By January 2, 1968, ANSCOR reclassified its existing 300,000common shares into 150,000 common and 150,000 preferred shares.In a letter-reply dated February 1968, the IRS opined that the exchange is only a recapitalization scheme and not tax avoidance. Consequently, on March 31, 1968 Doña Carmen exchanged her whole 138,864 common shares for 138,860 of the preferred shares. The estate of Don Andres in turn exchanged 11,140 of its common shares for the remaining 11,140 preferred shares.In 1973, after examining ANSCOR’s books of account and record Revenue examiners issued a report proposing that ANSCOR be assessed for deficiency withholding tax-at-source, for the year 1968 and the 2nd quarter of 1969 based on the transaction of exchange and redemption ofstocks. BIR made the corresponding assessments. ANSCOR’s subsequent protest on the assessments was denied in 1983 by petitioner. ANSCOR filed a petition for review with the CTA, the Tax Court reversed petitioners ruling. CA affirmed the ruling of the CTA.

Hence this position.

Issue: Whether or not a person assessed for deficiency withholding tax under Sec. 53 and 54 of the Tax Code is being held liable in its capacity as a withholding agent.

Held: An income taxpayer covers all persons who derive taxable income. ANSCOR was assessed by petitioner for deficiency withholding tax, as such, it is being held liable in its capacity as a withholding agent and not in its personality as taxpayer. A withholding agent, A. Soriano Corp. in this case, cannot be deemed a taxpayer for it to avail of a tax amnesty under a Presidential decree that condones “the collection of all internal revenue taxes including the increments or penalties on account of non-payment as well as all civil, criminal, or administrative liabilities arising from or incident to voluntary disclosures under the NIRC of previously untaxed income and/or wealth realized here or abroad by any taxpayer, natural or juridical.” The Court explains: “The withholding agent is not a taxpayer, he is a mere tax collector. Under the withholding system, however, the agent-payer becomes a payee by fiction of law. His liability is direct and independent from the taxpayer, because the income tax is still imposed and due from the latter. The agent is not liable for the tax as no wealth flowed into him, he earned no income.”STEINBERG V VELASCOFACTS: The board of directors of Sibuguey Trading Company authorized the purchase of 330 shares of stock of the corporation and declared payment of P3T as dividends to stockholders. The directors fromwhom 300 of the stocks were bought resigned before the board approved the purchase and declaredthe dividends. At the time of purchase of stock sand

declaration of dividends, the corporation hadaccounts payable amounting to P9,241 and accounts receivable amounting to P12,512, but the receiverwho made diligent efforts to collect the amounts receivable was unable to do so. It has been allegedthat the payment of cash dividends to the stockholders was wrongfully done and in bad faith, and to theinjury and fraud of the creditors of the corporation. The directors are sought to be made personallyliable in their capacity as directors.HELD: Creditors of a corporation have the right to assume that so long as there are outstanding debtsand liabilities, the BOD will not use the assets of the corporation to buy its own stock, and will notdeclare dividends to stockholders when the corporation is insolvent .In this case, it was found that thecorporation did not have an actual bona fide surplus from which dividends could be paid. Moreover, theCourt noted that the Board of Directors purchased the stock from the corporation and declared thedividends on the stock at the same Board meeting, and that the directors were permitted to resign sothat they could sell their stock to the corporation. Given all of this, it was apparent that the directors didnot act in good faith or were grossly ignorant of their duties. Either way, they are liable for their actionswhich affected the financial condition of the corporation and prejudiced creditors.

ONG YONG V TIU1994: construction of the Masagana Citimall in Pasay City

was threatened with stoppage, when its owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became heavily indebted to the PhilippineNational Bank (PNB) for P190M

To save the 2 lots where the mall was being built

from foreclosure, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. 

Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in FLADC

Ongs: subscribe to 1,000,000 shares Tius: subscribe to an additional 549,800 shares in

addition to their already existing subscription of 450,200 sharesTius: nominate the Vice-President and the Treasurer plus 5

directors Ongs nominate the President, the Secretary and 6 directors

(including the chairman) to the board of directors of FLADC and right to manage and operate the mall.

Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M (for 300K shares) and P49.8M (for 49,800 shares) 

Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for their subscription to 1M shares)

February 23, 1996: Tius rescinded the Pre-Subscription Agreement

February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking confirmation of their rescission of the Pre-Subscription Agreement 

SEC: confirmed recission of TiusOngs filed reconsideration that their P70M was not a

premium on capital stock but an advance loan SEC en banc: affirmed it was a premium on capital stockCA: Ongs and the Tius were in pari delicto (which would

not have legally entitled them to rescission) but, "for practical considerations," that is, their inability to work together, it was best to separate the two groups by rescinding the Pre-Subscription Agreement, returning the original investment of the Ongs and awarding practically everything else to the Tius.

ISSUE: W/N Specific performance and NOT recission is the remedy

HELD: YES.  Ongs granted.did not justify the rescission of the contract

providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer, respectively, had no bearing on their obligations under the Pre-Subscription Agreement since the obligation pertained to FLADC itself 

failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also pertained to the corporation and not to the Ongs

the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was to raise the P190 million 

law requires that the breach of contract should be so "substantial or fundamental" as to defeat the primary objective of the parties in making the agreement

since the cash and other contributions now sought to be returned already belong to FLADC, an innocent third party, said remedy may no longer be availed of under the law.

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract

allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings,25 and (3) dissolution and eventual liquidation of the corporation.

They want this Court to make a corporate decision for FLADC. 

The Ongs' shortcomings were far from serious and certainly less than substantial; they were in fact remediable and correctable under the law. It would be totally against all rules of justice, fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds.

AC RANSOM LABOR UNION V NLRC

S i n c e a c o r p o r a t e e m p l o y e r i s a n a r t i f i c i a l p e r s o n , i t m u s t h a v e a n o f f i c e r w h o c a n b e p r e s u m e d t o b e t h e

employer, being the “person acting in the interest of the employer.”Facts:On June 6, 1961, employees of AC Ransom, most being members of the AC Ransom Labor Union, went onstrike. The said strike was lifted on June 21 with most of the strikers being allowed to resume their work. However,twenty two strikers were refused reinstatement.During 1969, the Hernandez family (owners of AC RANSOM) organized another corporation under the name of Rosario Industrial Corporation. The said company dealt in the same type of business as AC Ransom.The issue of back wages was brought before the Court of Industrial Relations which rendered a decision onDecember 19, 1972 ordering the twenty two strikers to be reinstated with back wages.On April 2, 1973,RANSOM filed an application for clearance to close or cease operations. The same wasgranted by the Ministry of Labor and Employment. Although it has stopped operations, RANSOM has continued its personality as a corporation. For practical purposes, reinstatement of the 22 strikers has been precluded. As a matter of fact, reinstatement is not an issue in this case.A motion of execution was filed by the Union against AC Ransom but the former was unable to collect due to theinability to find leviable assets of the company.The Union subsequently asked the officers of Ransom to be personallyliable for payment of the back wages.The motion was granted by the Labor Arbiter but was subsequently reversed bythe NLRC.Issue:1.W/N the officers of the corporation should be held personally liable to pay for the back wages.Held:1.

YES. Under Article 212 (c) of the Labor Code, “Employee” includes any person acting in the interest of ane m p l o y e r, d i r e c t l y o r i n d i r e c t l y. S i n c e R a n s o m i s a n a r t i f i c i a l p e r s o n , i t m u s t h a v e a n o f f i c e r w h o c a n b e presumed to be the employer, being the “person acting in the interest of the employer (Ransom).”In PD 525, where a corporation fails to pay the emergency allowance therein provided, the prescribed penalty“shall be imposed upon the guilty officer or officers” of the corporation.In the instant case, RANSOM, in foreseeing the possibility or probability of payment of back wages to the 22strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikerswin their case.The record does not clearly identify “the officer or officers” of RANSOM directly responsible for failure to paythe back wages of the 22 strikers. In the absence of definite proof in that regard, it should be presumed that theresponsible officer is the President of the corporation who can be deemed the chief operation officer thereof

Mcleod vs NLRCFACTS: On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave benefits and other benefits against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Complainant was the former VP and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980 and Peggy Mills closed operations due to irreversible losses but its assets were acquired by Sta. Rosa Textile Corporation complainant was hired by Sta. Rosa Textile but he resigned and that while complainant was Vice President and Plant Manager of Peggy Mills, the union staged a strike up to July 1992 resulting in closure of operations due to irreversible losses as per Notice .The complainant was relied upon to settle the labor problem but due to his lack of attention and absence the strike continued resulting in closure of the company. Mcleod contends that the corporations are solidarily liable. On 3 April 1998, the Labor Arbiter rendered his decision in favor of

Mcleod The NLRC – Reversed decision CA- Modified the NLRC’s decision. Lim was solidarily liable 

Issue: whether there is merger/ consolidationw/n Patricio Lim must be solidarily liable with PMI

 Held: There was also no merger or consolidation of PMI and SRTI. Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations. Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the combined business. 

The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders. The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.27 In the present case, there is no showing that the subject dation in payment involved any corporate merger or consolidation. Neither is there any showing of those indicative factors that SRTI is a mere instrumentality of PMI. 

Moreover, SRTI did not expressly or impliedly agree to assume any of PMI’s debts. 2. In the present case, there is nothing substantial on record to show that Patricio acted in bad faith in terminating McLeod’s services to warrant Patricio’s personal liability. PMI had no other choice but to stop plant operations. The work stoppage therefore was by necessity. The company could no longer continue with its plant operations because of the serious business losses that it had suffered. The mere fact that Patricio was president and director of PMI is not a ground to conclude that he should be held solidarily

liable with PMI for McLeod’s money claims.

 The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,59 which the Court of Appeals cited, does not apply to this case. We quote pertinent portions of the ruling, thus:(a) Article 265 of the Labor Code, in part, expressly provides: "Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages." Article 273 of the Code provides that: "Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than six (6) months." 

(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides: "(c) ‘Employer’ includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer.". The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM 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" RANSOM. The corporation, only in the technical sense, is the employer. The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law.

SERGIO V NAGUIAT

Sergio Naguiat was the president of Clark Field Taxi, Inc. (CFTI) which supplied taxi services to Clark Air Base. At the same time, Naguiat was a director of the Sergio F. Naguiat Enterprises, Inc. (SFNEI), their family owned corporation along with CFTI.In 1991, CFTI had to close due to “great financial losses and lost business opportunity” resulting from the phase-out of Clark Air Base brought about by the Mt. Pinatubo eruption and the expiration of the RP-US military bases agreement.CFTI then came up with an agreement with the drivers that

the latter be entitled to a separation pay in the amount of P500.00 per every year of service. Most of the drivers accepted this but some drivers did not. The drivers who refused to accept the separation pay offered by CFTI instead sued the latter before the labor arbiter.The labor arbiter ruled in favor of the taxi drivers. The National Labor Relations Commission affirmed the labor arbiter. It was established that when CFTI closed, it was in profitable standing and was not incurring losses. It ruled that the drivers are entitled to $120.00 per every year of service subject to exchange rates prevailing that time.The NLRC likewise ruled that SFNEI as well as CFTI’s president and vice president Sergio Naguiat and Antolin Naguiat should be held jointly and severally liable to pay the drivers. The NLRC ruled that SFNEI actively managed CFTI and its business affairs hence it acted as the employer of the drivers.ISSUE: Whether or not the ruling of the NLRC is correct.HELD: It is only partially correct.

1. It is correct when it ruled that the Sergio Naguiat is jointly and severally liable to pay the drivers the award of separation pay in the amount so determined. As president of CFTI, Sergio Naguiat is considered an “employer” of the dismissed employees who is therefore liable for the obligations of the corporation to its dismissed employees. Moreover, CFTI, being a close family corporation, is liable for corporate torts and stockholders thereof shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance (par. 5, Section 100, “Close Corporations”, Corporation Code). Antolin Naguiat is absolved because there was insufficient evidence as against him.

2. SFNEI  is not liable jointly or severally with CFTI. SFNEI has nothing to do with CFTI. There is no sufficient

evidence to prove that it actively managed CFTI especially so when even the drivers testified that their employer is CFTI and that their payroll comes from CFTI. Further, SFNEI was into trading business while CFTI was into taxi services.