28 Virata V NG Wee

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828 Phil. 710
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 SANTOSTAN, AND MANUEL
ESTRELLA, RESPONDENTS.
[G.R. No. 221058]
WESTMONT INVESTMENT, CORPORATION, PETITIONER,
VS. ALEJANDRO NG WEE, RESPONDENT.
[G.R. No. 221109]
MANUEL ESTRELLA, PETITIONER, VS. ALEJANDRO NG
WEE, RESPONDENT.
[G.R. No. 221135]
SIMEON CUA, VICENTE CUALOPING, AND HENRY
CUALOPING, PETITIONERS, VS. ALEJANDRO NG WEE,
RESPONDENT.
[G.R. No. 221218]
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
https://elibrary.judiciary.gov.ph/thebookshelf/showdocsfriendly/1/63889 Page 1 of 18
VELASCO JR., J.:
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 (SantosTan);
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.
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
P2,183,755,253.11 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 codirectors 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, 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. SantosTan 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 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.
The Gourt 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 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.
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 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 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.
Had Santos-Tan and the members of the board fulfilled their fiduciary 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 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.
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 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.
[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 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.
DISSENTING OPINION
TIJAM, J.:
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 Php 2,500,000,000.00, and allowed the latter to make
drawdowns of Php 2,183,755,253.11, 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.
The 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 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 Php 213,290,410.36.
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]
"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 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 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, SantosTan 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 not 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.
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.
[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

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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E-Library - Information At Your Fingertips: Printer Friendly 2/6/24, 11:39 AM

828 Phil. 710

SPECIAL THIRD DIVISION

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

VELASCO JR., J.:

a. Motion for Partial Reconsideration[1] filed by Luis Juan L. Virata

b. Motion for Reconsideration[2] of Mariza Santos-Tan (Santos​Tan);

c. Motion for Reconsideration[3] of Manuel Estrella (Estrella)

d. Motion for Partial Reconsideration[4] of Alejandro Ng Wee (Ng

e. Motion for Reconsideration[5] of Simeon Cua, Vicente Cualoping,

f. Motion for Reconsideration[6] of Anthony T. Reyes (Reyes); and

g. Motion for Reconsideration[7] of Westmont Investment Corporation

The arguments do not persuade.

The implication of Virata's persistent plea, up to this Court, to be absolved of civil

The Gourt finds the submissions meritless.

Section 31 of the Corporation Code expressly states:

Section 31. Liability of directors, trustees or officers. - Directors or

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

G.R. No. 221135: The liabilities of Cua and the Cualopings

We are not persuaded.

Cua and the Cualopings cannot effectively distance themselves from

Such submission creates a loophole, especially in this age of

Petitioners Cua and the Cualopings bewail that the above-quoted

The board of directors is expected to be more than mere rubber stamps of

It cannot also be ignored that prior to Power Merge's application for a

G.R. No. 221109: The liability of Manuel Estrella

To refresh, Estrella echoes the defense of Tankiansee, who was exempted

We agree with the findings of the courts a quo.

For perspective, Tankiansee was exempted from liability upon establishing

Unfortunately, no concrete evidence was ever offered to confirm Estrella's

Neither can petitioner Estrella be permitted to raise the defense that he is a

The practice of installing undiscerning directors cannot be tolerated, let

(citations omitted, emphasis added)

The Court expounded on the concept of corporate ratification in Board of Liquidators

Authorities, great in number, are one in the idea that "ratification by a

And in University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas,[11] We have

Implied ratification may take the form of silence, acquiescence, acts

As further noted in the assailed Decision:

It must be remembered that the special meeting of Wincorp's board of

WHEREFORE, premises considered, the following motions are hereby DENIED

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

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.

Bersamin, Jardeleza, and Reyes, Jr., JJ., concur.

[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.

b. Motion for Reconsideration[2] of Mariza Santos-Tan (SantosTan);