Corporation Law: The Revised Corporation Code of the Philippines - Sec 30

THE REVISED CORPORATION CODE  OF THE PHILIPPINES

Republic Act No. 11232 

TITLE III -  BOARD OF DIRECTORS/TRUSTEES AND OFFICE

Section 30. 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.

A director, trustee or officer shall not attempt to acquire, or any interest adverse to the corporation in respect of any matter which has been reposed in them in confidence, and upon which, equity imposes a disability upon themselves to deal in their own behalf; otherwise, the said director, trustee or officer shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation.

1. Rationale.

• The explanation of the sponsor of the Corporation Code in the Batasang Pambansa regarding the rationale of Section 31 (now Section 30 of the RCCP) is still relevant. 
• It was explained: 
• "Now, it might be true, as Your Honor suggested, that some persons will be discouraged or disinclined to agree to serve the Board of Directors because of this liability. But at the same time this provision - Section 31 -is really no more than a consequence of the requirement that the position of membership in the Board of Director is a position of high responsibility and great trust. Unless a provision such as this is included, then that requirement of responsibility and trust will not be as meaningful as it should be. For after all, directors may take the attitude that unless they themselves commit the act, they would not be liable. But the responsibility of a director is not merely to act properly. The responsibility of a director is to assure that the Board of Directors, which means his colleagues acting together, does not act in a manner that is unlawful or to the prejudice of the corporation because of personal or pecuniary interest of the directors."
• The Supreme Court explained that Sections 31 to 34 of the Corporation Code (now Sections 30 to 33 of the RCCP) "were intended to impose exacting standards of fidelity on corporate officers and director but without unduly impeding them in the discharge of their work with concerns of litigation."

2. Duties.

• In a broad sense, management has three paramount duties, namely:
1. obedience
2. diligence
3. loyalty
• These duties, especially the duties of diligence and loyalty, are rooted in the fiduciary nature of directors. 
• Directors of a business corporation are not strictly speaking trustees (under the New Civil Code) and are not held to strict accountability as such. 
• "Nevertheless, their obligations are analogous to those of trustees. Directors are agents; they are fiduciaries. The fiduciary has two paramount obligations: responsibility (diligence) and loyalty. Those obligations apply with equal force to the humblest agent or broker and to the director of a great and powerful corporation. They lie at the very foundation of our whole system of free enterprise and are as fresh and significant today as when they were formulated decades ago."

2.01. Obedience. 

• Obedience requires compliance with laws and rules. 
• In relation to this duty, directors, trustees, and officers have the duty to act intra vires and within authority.
• Additionally, the duty of obedience requires directors and officers to comply with the provisions of the corporation's Articles of Incorporation and ByLaws.
• The directors, trustees, and officers must also obey the orders of courts. 
• The directors, trustees, and officers may be punished for contempt if they failed to comply with court orders.
• Even though a judgment, decree, or order is addressed to the corporation only, the officers, as well as the corporation itself, may be punished for contempt for disobedience to its terms, at least if they knowingly disobey the court's mandate, since a lawful judicial command to a corporation is in effect a command to the officers.

2.02. Diligence.

• The directors and officers are required to exercise due care in the performance of their functions. 
• Negligence on their part proximately causing damage to the corporation will make them liable. 
• The liability is imposed under Section 30 of the RCCP if the directors, trustees, and officers directed the affairs of the corporation in bad faith or with gross negligence. 
• This duty is also referred to as the responsibility of directors that is proportioned to the occasion.
• It is a concept that has "a wide penumbra of meaning - a concept that is however sharpened in its practical application to the given facts of a situation."
• Broadly speaking, the directors, in drawing to themselves the power of the corporation, occupy a position of trusteeship (fiduciary) in relation to the stockholders in the sense that the board should exercise not only care and diligence but also utmost good faith in the management of corporate affairs.
• There is a radical difference when a stockholder is voting strictly as a shareholder and when voting as a director. 
• He represents himself when he votes as a shareholder. 
• The stockholder exercises his legal right to vote with a view of his own benefits as owner of the shares; he represents himself only when he votes as a shareholder. 
• When a stockholder votes as a director, he represents all the stockholders in his capacity as trustee of the stockholders.
• He cannot use his office as a director for his own personal benefit at the expense of the stockholders.
• The requirement of presence of bad faith and gross negligence under Section 30 indicates that the directors and officers are not liable for simple mistakes or negligence. 
• They are not insurers and are not liable for errors of judgment or mistakes while acting with reasonable diligence, care and skill
• Nevertheless, honesty or good faith alone does not suffice if there was gross negligence. 
• Gross negligence removes the act or omission from the operation of the Business Judgment Rule.
• For example, the mere fact that the corporation suffered heavy losses does not translate into liability of directors. 
• The Board of Liquidators v. The Heirs of Maximo M. Kalaw.
• The Directors were not made liable although they ratified an unprofitable  contract. 
• The Supreme Court explained that fair dealing disagrees with the idea that profitable contracts should be deemed accepted or ratified while similar unprofitable contracts are rejected or are not deemed ratified. "Profit or loss resulting from business ventures is no justification for turning one's back on contracts entered into." 
• The standard of care to be applied in the exercise of diligence is that of a reasonably prudent person. 
• The same standard is also sometimes referred to as the standard of an ordinarily prudent director under similar circumstances or an ordinarily prudent person under similar circumstances in one's affairs.
• Determination of exercise of due care entails examination of the facts and circumstances of a particular case. 
• Courts should consider such circumstances such as:
• the kind of corporation involved
• its size and financial resources
• the magnitude of the transaction
• the immediacy of the problem presented
• Although the directors and officers are not required to personally conduct an audit, due diligence dictates that they must maintain familiarity with the financial status of the corporation. 
• Moreover, under Section 3 of SEC Memorandum Circular No. 6, Series of 2008, the President or Chief Executive Officer and the Treasurer or Chief Financial Officer of the corporation are required to sign a Management Representation under oath that the information in financial statements, that accompany certain applications, is correct. 
• The same rule applies with respect to the Annual Financial Statement filed by the auditors of corporations. 
• In this connection, under the 2009 Code of Corporate Governance, the Management is required to provide the Board with adequate and timely information about the matters to be taken up in the meetings. 
• However, reliance on information volunteered by Management would not be sufficient in all circumstances and further inquiries may have to be made by a member of the Board to enable him to properly perform his duties and responsibilities.

2.03. Loyalty.

• The director or officer owes loyalty and allegiance to the corporation :
• a loyalty that is undivided
• an allegiance that is influenced by no consideration other than the welfare of the corporation. 
• Any adverse interest of a director will be subject to a rigid and uncompromising scrutiny.
• The directors are bound by all those rules of conscientious, fairness, morality, and honesty in purpose that the law imposes as  the guides for those who are under the fiduciary obligations and responsibilities. 
• They are held, in official action, to the extreme measure of candor, unselfishness and good faith. Those principles are rigid, essential and salutary. 
• The importance of the duty of loyalty becomes even more apparent where there is separation of ownership from management. 
• As aptly observed, "the separation of ownership from management, the development of the corporate structure so as to vest in small groups control of resources of great numbers of small and uninformed investors, make imperative a fresh and active devotion to that principle (of undivided loyalty) if the modern world of business is to perform its proper function.
• The director, as a fiduciary, cannot serve himself first and his cestuis second.
• He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency and honesty. He cannot by the intervention of  a corporate entity violate the ancient precept against serving two masters. 
• He cannot, by the use of the corporate device, avail himself of privileges normally permitted outsiders in a race of creditors. 
• He cannot utilize his inside information and his strategic position for his own preferment. 
• He cannot violate rules of fair play by doing indirectly through the corporation what he could not do directly. 
• He cannot use his power to his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical terms.
• Directors and officers owe fiduciary duty to the corporation and to the shareholders. Hence, the RCCP provides for rules on: 
1. Self-dealing directors;
2. Contracts between corporations with inter-locking directorship;
3. Usurpation of the corporation's business opportunity;
4. Oppression of the minority shareholders; and
5. Conflict of interest.
• In addition, the duty of loyalty is breached if: 
1. corporate properties are diverted without authority for personal benefit of the directors or officers; 
2. directors and officers acquire compensation for more than the fair value of their services; 
3. directors or officers provide false or deceptive information on which the stockholders rely to their damage and prejudice; 
4. insider trading under the Securities Regulation Code;
5. acceptance of bribes to benefit others; and 
6. use of governance machinery to protect entrenchment in office.
• It is also well-established that corporate officers "are not permitted to use their position of trust and confidence to further their private interests." 
• In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival business, the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would regard the new contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as a "fiduciary may not reap the fruits of his misconduct to the exclusion of his principal."
• There must also be loyalty to other stakeholders like creditors. 
• In one case, the Supreme Court agreed with the view of one party that when the corporation is insolvent, its directors who are its creditors cannot secure to themselves any advantage or preference over other creditors. They cannot take advantage of their fiduciary relation and deal directly with themselves, to the injury of others in equal right. If they do, equity will set aside the transaction at the suit of other creditors of the corporation or their representatives. Absence of actual fraudulent intent on the part of the directors is immaterial because the right of the creditors does not depend upon fraud in fact, but upon the violation of the fiduciary relation to the directors.
• Consistently, the governing body or officers of the corporation are charged with the duty of conducting its affairs strictly in the interest of its existing creditors, and it would be a breach of such trust for them to undertake to give any one of its members any advantage over any other creditors in securing the payment of his debts in preference to all others. For example, in insolvency cases, the mortgage/s in favor of the director/s should be considered void because of the legal principle that prevents director/s of an insolvent corporation from giving themselves a preference over outside creditors.

3. Liability of Directors/Officers. 

• As a rule, directors and officers are not personally liable or solidarily liable with the corporation. Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent.

3.01 Criminal Liability. 

• Corporate officers or employees, through whose act, default or omission the corporation commits a crime, may be individually held answerable for the crime.
• However, the actions contemplated under Section 30 and Section 33 of the RCCP, do not result in criminal liability punishable under Section 170 of the RCCP because no penal sanction is expressly provided for in Sections 30 and 33.
• Section 171: If the offender is a corporation, the penalty may, at the discretion of the court, be imposed upon such corporation and/or upon its directors, trustees, stockholders, members, officers, or employees responsible for the violation or indispensable to its commission. 
• Section 172: Anyone who shall aid, abet, counsel, command, induce, or cause any violation of this Code, or any rule, regulation, or order of the (SEC) shall be punished with a fine not exceeding that imposed on the principal offenders, at the discretion of the court, after taking into account their participation in the offense.

3.02. Personal and Solidary Liability.

• Personal liability may be incurred by directors/trustees and officers in the cases enumerated below. In these cases, the liability of the directors/ trustees and officers may be solidary with the corporation. Thus, directors/trustees and officers are personally liable even if the act was done in the name of the corporation: 

1. When directors and trustees of the corporation (and officers in proper cases if they are joint tortfeasors):
• Vote for or assent to patently unlawful acts of the corporation; 
•  Act in bad faith or with gross negligence in directing the affairs of the corporation; 
• Are guilty of conflicts of interest to the prejudice of the corporation, its stockholders or members, and other persons; 
2. When a director or has consented to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto;
3. When the director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation;
4. When a director, trustee or officer is made, by specific provisions of law, personally liable for his corporate actions.

• The burden is on the one claiming against the directors and officers to prove that the said directors or officers performed specific acts that are covered by any of the cases enumerated above.
• The directors and officers are the only ones personally liable if they are either not authorized at all or somehow acted in excess of their authority as agents or representatives of the corporation in entering into a contract. The officer or director would be personally liable instead of the corporation. 

3.06. Gross Negligence

• For a director or officer to be made liable for negligence, the negligence must be so gross that it could amount to bad faith.
• Simple negligence is not enough. Gross negligence is one that is characterized by the want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected. 
• It evinces a thoughtless disregard of consequences without exerting any effort to avoid them; the want or absence of or failure to exercise slight care or diligence, or the entire absence of care.
• Gross negligence must be established by clear and convincing evidence.
• Gross negligence amounts to bad faith.
• Example:
• When the president and controlling stockholder of a corporation was made solidarily liable with the corporation under a contract of loan because he was clearly grossly negligent in directing the affairs of the corporation without due regard to the plight of its investors-lenders. When the president testified, he alleged that he had no knowledge of the following: 
1. when the corporation started its operations, he did not inform the new investors that the corporation already had difficulties receiving payments from borrowers; 
2. formal insolvency proceedings have commenced; 
3. who took over when he allegedly resigned; 
4. if the investors got their money back;
5. who else invested in the company; 
6. how much the other directors invested in the company;
7. who got the assets of the corporation because he was allegedly not attending to the affairs of the subject corporation because he has many other companies; 
8. where the financial records of the corporation are; and
9. where he placed his own personal copy of the financial statement of the corporation. The president could not even remember if he was the one who convinced the plaintiff to invest; he allegedly could not remember if he informed the investor that he has other lending corporations and he did not call a meeting of directors because no director allegedly attended previous meetings.
• His own testimony condemned him so to speak. The business judgment rule cannot protect a member of the Board if the failure to inform the investors of the relevant, material and available information amounts to gross negligence especially if the information are reasonably available and should be within the knowledge of the officers.
• Virata v. Wee, G.R. No. 220926, 221058, 221109, 221135, and 221218, March 21, 2018:
• The Board members were made liable because they approved the credit line application of a company in the amount of P2,500,000,000.00 despite the glaring signs that it would be unable to make good its obligation. Worse, the directors should not have allowed the exclusion of the surety from the collection suit. It was explained that their subsequent actions reveal that the exclusion of the surety was not a mere error in judgment but a calculated maneuver to defraud its investors.
• The directors would also be considered grossly negligent if their action lacks business purpose, is so egregious as to amount to a no-win decision, or a result from an obvious and prolonged failure to exercise oversight or supervision.
• Sanchez v. Republic of the Philippines, G.R. No. 172885, October 9, 2009:
• The President and Executive Vice President of one corporation were made personally liable in one case when they failed to remit the rentals and earnings to the Department of Education and Culture and Sports (DECS) even if they were contractually bound to do so. It was established that the said officers, "acting in bad faith or with gross neglect did not turn over even one centavo of rent to DECS nor render an accounting of their collections. Nor did they account for the money they collected by submitting to the Securities and Exchange Commission the required financial statements covering such collections." The revenues were deposited in the name of the Executive Vice President and the corporation's accountant.
• Heirs of Fe Tan Uy v. International Exchange Bank, G.R. No. 166282, February 13, 2013:
• The treasurer of a corporation was not made liable just because she was negligent in the performance of her duties by allowing the corporation to contract a loan despite its precarious  financial position. The treasurer was not made liable because her  actions/negligence did not amount to gross negligence. 

3.07. Watered Stocks.

• Watered stocks are stocks of a corporation issued for less than their par or issued value or stocks issued for a consideration other than cash, valued in excess of the fair value of such consideration
• Section 64 of the RCCP provides that a director or officer who consents to the issuance of watered stocks shall be solidarily liable with the stockholder' concerned to the corporation and to corporate creditors for the difference between the value received at the time of the issuance of the stocks and the par or issued value of the same.

3.08. Contractual Assumption of Liability. 

• A director or officer is personally liable for the corporation's debt if they so contractually agree or stipulate.
• However, the mere fact that the director or officer signed an agreement does not mean that he is personally liable.
•  He is not personally liable if he signs as a corporate representative.
• This may happen for instance if the corporate officer signed a guarantee agreement with the description ''Vice-President-Treasurer."

3.09. Liability Imposed by Law. 

• A specific provision of law may make the director or officer personally liable for corporate obligations. 
• For example, a director may be required to pay collected and unremitted Social Security System (SSS) contributions of an employee to the SSS. 
• Although payment of SSS contributions is in the nature of corporate obligation, the liability of directors is still imposed by Section 28(f) of the Social Security Law.

4. Conflict of Interest. 

• Section 30 of the RCCP provides for two cases concerning the liability of directors, trustees, and officers for conflict of interest situations that breach their duty of loyalty. 

1. The first paragraph of Section 30 makes directors or trustees, who acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees, liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. 
• The provision expresses the broad statement of liability that is consistent with the nature of the identified persons as fiduciaries.
2. The second paragraph of Section 30 provides for a situation wherein a director, trustee or officer violates his or her duty of loyalty and he/she is considered under the law to be liable as a trustee for the corporation and as such, he/she must account for the profits which otherwise would have accrued to the corporation. In this case, the following requirements must be present: 
1.  A director, trustee or officer attempts to acquire or acquires, an interest adverse to the corporation;
2. The adverse interest is on a matter that has been reposed in him in confidence; 
3.  Equity imposes a disability upon him/her to deal in his/her own behalf. 

5. Agency Rules on the Duty of Loyalty. 

• Consistent with the duty of loyalty — in addition to the rules under Section 30 — agency rules may also be applied to make the director, trustee or officer liable as a fiduciary.
• Article 1889 of the New Civil Code:
• The agent shall be liable for damages if there is a conflict between his interests and those of his principal, and said agent prefers his own interest. 
• Thus, directors, trustees, and officers, acting as agents, shall be liable for damages to the corporation that they represent in conflict of interest situations covered by Article 1889 of the New Civil Code. 
• As early as 1923, the Supreme Court already explained that the relations of an agent to his principal are fiduciary and "his position is analogous to that of a trustee and he cannot consistently with the principles of good faith, be allowed to create in himself an interest in opposition to that of his principal or cestui que trust."
• Article 1891 of the New Civil Code:
• Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal.
• For instance, in a sale of corporate properties, a director, trustee or officer who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to the corporation, the vendor, is guilty of breach of loyalty to his principal, the corporation. If the director, trustee or officer takes such profit, bonus or gift from the vendee, the director, trustee or officer, as agent, thereby assumes a position wholly inconsistent with that of being an agent of the corporation.

6. Labor Cases. 

• It has been suggested that directors and corporate officers are personally liable in illegal termination cases because of Article 212(e) of the Labor Code that defines employers as any person acting in the interest of an employer, directly or indirectly. 
• Carag v. NLRC, G.R. No. 147590, April 2, 2007:
• In an En Banc decision, the Supreme Court declared that Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation
• The governing law on personal liability of directors and officers for debts of the corporation is still Section 31 of the Corporation Code (now, Section 30 of the RCCP). 
• The liability of directors and officers in illegal termination cases likewise includes their solidary obligation with the corporation in the cases enumerated in note 3.02 above.
• Generally, director and officers are personally liable in cases when they acted with malice or bad faith in terminating the services of an employee.
• Although an employee is an "insider" in the corporation, he may, in proper cases successfully use the Doctrine of Piercing the Veil of Corporate Fiction to make a corporate officer liable for illegal termination. The corporate entity may be disregarded in the interest of justice in such cases as fraud that may work inequities among the members of the corporation internally, involving no rights of the public or third persons.

7. Duties of Officers. 

• Like directors, officers are similarly vested with the duties of obedience, loyalty and diligence. 
• The fiduciary duties of officers are subject to the general principles of agency. 
• As noted earlier, the Supreme Court recognized that the general principles of agency govern the relation between the corporation and its officers or agents.
• The applicability of the provisions of agency under the New Civil Code brings a different dimension to the duties of obedience, loyalty and diligence of the officers.
• The duty of obedience requires the agent to act within:
• the authority given to him by the Board,
• the By-Laws 
• the Articles of Incorporation
• The officer must also act in accordance with the instructions of the Board in the execution of the agency.
• The duty of loyalty requires the agent to avoid conflict of interest situations. 
• The officer who acts as the agent of the corporation shall be liable for damages if, there being a conflict between his interest and those of the principal, he should prefer his own.
• The duty of loyalty likewise requires the officer to deliver to the corporation whatever he may have received by virtue of the agency even though it may not be owing to the corporation.
•  The duty of diligence makes an officer liable for damages that the principal may have suffered through his non-performance of his duty.
• In corporate law, there would be liability if the officer commits gross negligence.

PROBLEMS:

X subscribed and paid for Pl0,000.00 worth of shares of stock of Rainbow Mines, Inc. as an incorporator and original subscriber. He was employed as the mine superintendent and as such, made the design of certain equipment used in its mines. Due to some technical error in the design, the corporation suffered a loss of P1 million. The Board accused X of infidelity and breach of trust, and confiscated his shares. Is the action of the Board legal? 

No. Even assuming that there was infidelity or breach of trust, the corporation cannot take the law in its own hands and confiscate the shares of X. The corporation must file an action in court and must avail of the appropriate remedy available under the Rules of Court. Confiscation of shares is not one of the remedies under the Rules of Court.

It should be noted that there is no indication in the problem if Mr. X is a director or a corporate officer. If Mr. X is a director or a corporate officer, the action of the Board is not legal. In the first place, it does not appear that there was gross negligence on the part of X. Mere technical error will not make the officer liable. Section 30 of the Revised Corporation Code provides that a director or trustee can be made liable if he must have voted or assented to a patently unlawful act, or be guilty of bad faith or gross negligence, or be in conflict of interest with the corporation. It is believed that the rule applies to officers. However, such grounds are not the present in this case. If the position of superintendent is not a corporate office and Mr. X is not a director, then it is also believed that there is no basis for infidelity and breach of trust. However, the applicable law is labor law and labor law does not likewise allow confiscation of shares.(1989 Bar).

A, B, and C ar shareholders of XYZ Company. A has an unpaid ubscription of Pl00,000.00, B's shares are fully paid up, while C owns only nominal but fully paid up shares and is a director and officer. XYZ Company becomes insolvent, and it is established that the insolvency is the result of fraudulent practices within the company. If you were the counsel for a creditor of XYZ Company, would you advise legal action against A, B, and C?  

I would advise the creditor to file an action against A for the latter's unpaid subscription in the amount of P100,000.00. Since the corporation is insolvent, the unpaid subscription becomes due without need of call. However, the limit of a stockholder's liability to the creditor is only up to the extent of his unpaid subscription. 

 I would likewise advise the creditor to file an action for damages against C in his capacity as director and officer because the corporation's insolvency was the result of fraudulent practices within the company. Under Section 31 of the Corporation Code (now Section 30 of the RCCP), directors are liable jointly and severally for damages sustained by the corporation, stockholders or other persons resulting from gross negligence or bad faith in directing the affairs of the Corporation. 

 I will however inform the creditor that there is no cause of action against B because he has already fully paid for his subscription. Since the stockholder is not an officer, his liability as stockholder is only up to the extent of his subscription. (1997 Bar)

As a result of perennial business losses, a corporation's net worth has been wiped out. In fact, it is now in a negative territory. Nonetheless, the stockholders did not like to give up. Creditor banks, however, do not share the confidence of the stockholders and refuse to grant more loans.

(1) What tools are available to the stockholders to replenish capital? 

A corporation may replenish capital by:

1. Issuing new shares for subscription; 
2. Obtaining advances from the stockholders of the corporation;
3. Demanding payment of unpaid subscriptions by the stockholders. 

(2) Assuming that the corporation continues to operate even with depleted capital, would the stockholders or the managers be solidarily liable for the obligations incurred by the corporation? Explain. 

No. A corporation has a personality separate and distinct from that of its stockholders and officers. Hence, the stockholders or the managers cannot be held solidarily liable for the obligations. incurred by the corporation. However, under Section 30 of the Revised Corporation Code, the managers/officers may be held liable for gross negligence or fraud. (1999 Bar)

Mr. X had been employed as an accountant by Tiwala Bank. Through years of exemplary service, he was appointed as bank manager of Laguna branch, and was given commensurate increase in salary and perquisites.  During his service as bank manager, Mr. X learned of the top-management orders regarding the transfer of three of his branch's tellers. Mr. X made representations to retain the three tellers. Irked by his actuations, officers of the bank questioned Mr. X on alleged unauthorized credit accommodations. In order to remove Mr. X from his post, the officers imposed upon the former the burdensome task of explaining his side within 24 hours. Failure on his part would then constitute as basis for his suspension and dismissal. 

Mr. X, having inadequate time to explain his side, was dismissed from office on the ground of loss of confidence. He now comes to you seeking legal advice as to his rights and who should be made to answer for his present predicament. If you were the lawyer, what would be your advice to Mr. X? 

I would advise Mr. X to institute an action against the corporation, as well as the officers who caused his illegal dismissal. There is no question that managerial employees should enjoy the confidence of top management. This is especially true in banks where officials handle big sums of money and engage in confidential and fiduciary transactions. However, loss of confidence should not be simulated. It should not be used as a subterfuge for causes which are improper, illegal, or unjustified. Loss of confidence may not be arbitrarily asserted in the face of overwhelming evidence to the contrary. It must be genuine, not a mere afterthought to justify earlier action taken in bad faith. The evidence showed that the officers of the corporation acted jointly in causing the illegal and unjustifiable dismissal of the plaintiff. As such, they should be jointly and severally held liable to him. Clearly, the officers of the bank acted beyond their authority and against what the law, particularly Article 1701 in relation to Articles 19, 20, and 21 of the Civil Code, provides. (General Bank & Trust Co. v. Court of Appeals, G.R. No. L-42724, April 9, 1985)