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Olongapo v. Subic

1) Olongapo City transferred water facilities and assets to the Olongapo City Water District (OCWD) under a contract, but OCWD failed to pay the agreed consideration. 2) While a case was pending, OCWD entered a joint venture forming Subic Water and Sewerage Co., making OCWD a shareholder. OCWD then entered a compromise agreement making Subic Water a co-maker. 3) The Court ruled that Subic Water and OCWD are separate entities, and the chairman signing for Subic Water did not have the authority to bind it as a co-maker, as that power rests with the board of directors. Subic Water cannot be held liable for OC

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441 views

Olongapo v. Subic

1) Olongapo City transferred water facilities and assets to the Olongapo City Water District (OCWD) under a contract, but OCWD failed to pay the agreed consideration. 2) While a case was pending, OCWD entered a joint venture forming Subic Water and Sewerage Co., making OCWD a shareholder. OCWD then entered a compromise agreement making Subic Water a co-maker. 3) The Court ruled that Subic Water and OCWD are separate entities, and the chairman signing for Subic Water did not have the authority to bind it as a co-maker, as that power rests with the board of directors. Subic Water cannot be held liable for OC

Uploaded by

joyiveeong
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Olongapo City

v.
Subic Water And Sewerage Co., Inc.
G.R. No. 171626
August 6, 2014

Facts:

Pursuant to PD 189, Olongapo City transferred all its existing water facilities and assets
under to the Olongapo City Water District (OCWD), for a consideration under a contract to pay.
As OCWD failed to pay the consideration for the transaction, and other obligations with the city,
petitioner filed a complaint for sum of money and damages against OCWD. While the case was
pending, OCWD entered into a Joint Venture Agreement (JVA) with other entities forming Subic
Water, a new corporate entity, which made OCWD a shareholder. Thereafter, to settle its case
with Olongapo City, it entered into a compromise agreement, making Subic Water a co-maker of
the latter, which was approved and signed by the latter’s then Chairman. When the city sought
to execute the agreement, OCWD ceased to operate forcing the city to go after Subic Water.
Subic Water denied liability holding that it is a separate entity from OCWD. The RTC ruled in favor
of the petitioner, which was later on reversed by the CA, hence this petition.

Issue: Whether or not Subic Water Philippines can be bound as a co-maker in the compromise
agreement.

Ruling:
A corporation, as a juridical entity, primarily acts through its board of directors, which
exercises its corporate powers and as a general rule, in the absence of authority from the board
of directors, no person, not even its officers, can validly bind a corporation. The power and
responsibility to decide whether a corporation can enter into a binding contract is lodged with
the board of directors, subject to the articles of incorporation, bylaws, or relevant provisions of
law. In this case, Mr. Aldip signed the compromise agreement purely in his own capacity. A
corporation is a juridical entity vested with a legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it. The corporate veil
should not and cannot be pierced unless it is clearly established that the separate and distinct
personality of the corporation was used to justify a wrong, protect fraud, or perpetrate a
deception. In this case, OCWD and Subic Water are two separate and different entities. Subic
Water clearly demonstrated that it was a separate corporate entity from OCWD and as a mere
shareholder, OCWD’s juridical personality cannot be equated nor confused with that of Subic
Water. Under the principle of separate personality above, Subic Water cannot be held liable for
OCWD’s corporate obligations in the same manner that OCWD cannot be held liable for the
obligations incurred by Subic Water as a separate entity.

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