SpsFernandezV - Smart Fernando

ALM1201: LAW ON BUSINESS ORGANIZATIONS (PARTNERSHIP AND CORPORATION)
SPOUSES FERNANDEZ V. SMART COMMUNICATIONS

G.R. NO. 212885 JULY 17, 2019
PREPARED BY: CHARLES STEVEN VHEZ S. FERNANDO
Facts:
Petitioners Nolasco and Maricris were the Chief Executive Officer (CEO) and Member of the Board
of Directors of EOL, a corporation that offers internet services nationwide through franchisees.
Smart Communications, Inc. (SMART), on the other hand, is a mobile phone service provider. EOL
sought SMART sometime in 2006 to provide the mobile communication requirements for its
expansion. A series of meetings ensued between the parties where it was determined that EOL
would be needing approximately 2,000 post-paid lines with corresponding cell phone units. In
view of this, EOL's corporate president Salustiano G. Samaco III (Samaco III), signed on separate
occasions, two (2) Corporate Service Applications (SAF) for the 2,000 postpaid lines with
corresponding cell phone units. He also signed Letters of Undertaking to cover the 1,119 phone
lines issued by SMART to EOL thus far. Paragraph 8 of these Letters of Undertaking read:
3. Everything Online, Inc. agrees that it shall be fully responsible for the settlement of
whatever charges to be incurred under the above mobile numbers and shall fully comply with the
terms and conditions pertaining to the Smart Corporate Service Application Form and other
related Subscription Contracts. Likewise, Everything Online, Inc. shall bind itself to be
continuously responsible regardless of assignment and movements of its designated users until
such time that the units are validly transferred, after the expiration of the lock-in period, after
twenty-four (24) months for nineteen (19) lines at Plan 1200 and after thirty-six (36) months for
one thousand one hundred (1,100) lines at Plan 500, respectively.
8. The President and each one of the directors and officers of the corporation shall be held
solidarily liable in their personal capacity with the SUBSCRIBER for all charges for the use of the
SMART Celfones (sic) units acquired by the said SUBSCRIBER.
In September 2006, EOL demanded the release of the remaining phone lines to cover its initial
order of 2,000 units. SMART informed EOL that before it approves further phone line applications,
the parties should restate and clarify the agreements between them, to which EOL agreed. In a
letter dated September 13, 2006 (Letter Agreement), SMART specified the terms of the
agreement over the 1,119 phone lines it already issued in favor of EOL. In addition to the Letter
of Agreement, EOL executed an Undertaking (EOL Undertaking) where it affirmed its availability
of 1,119 SMART cell phones and services. EOL also agreed to assume full responsibility for the
charges incurred on the use of all these units. The pertinent portion of the EOL Undertaking
signed by Samaco III and petitioner Nolasco provides Paragraphs 8 and 3 of the Letters of
Undertaking.
SMART failed to collect from EOL despite repeated demands. On April 20, 2009, the trial court
gave due course to the application for the issuance of a writ of attachment and ordered the
posting of an attachment bond for ₱39,770,810.87. Urgent Motion to Lift and Discharge Writ of
Preliminary Attachment issued against SMART. Petitioners averred that they are not the real party
in interest in the case. Maricris claimed that the only allegation holding the directors and officers
personally and solidarily liable with EOL was the alleged provisions in the
Issue/s:
Whether or not there was a ground to dismiss complaint for a collection of sum of money
against petitioners as corporate officer and director.
Held:
The Court finds the petition partly meritorious.It is basic in corporation law that a corporation is
an artificial being invested by law with a personality separate and distinct from its stockholders
and from other corporations to which it may be connected. Inferred from a corporation's separate
personality is that "consent by a corporation through its representatives is not consent of the
representative, personally." The corporate obligations, incurred through official acts of its
representatives, are its own. Corollarily, a stockholder, director, or representative does not
become a party to a contract just because a corporation executed a contract through that
stockholder, director, or representative. As a general rule, a corporation's representatives are not
bound by the terms of the contract executed by the corporation. "They are not personally liable
for obligations and liabilities incurred on or in behalf of the corporation. Therefore, the trial court
correctly dismissed the complaint against Maricris on the ground of failure to state cause of
action.
This is not the case with petitioner Nolasco. Nolasco, as CEO, signed the EOL Undertaking
purportedly binding himself to be "held solidarily liable in his personal capacity with the
franchisee or assignee for all charges for the use of SMART cell phone units acquired by Everything
Online, Inc." Such allegation proffers hypothetically admitted ultimate facts, which would warrant
an action for a collection for a sum of money based on the provision of the EOL Undertaking. The
allegations in the complaint, regarding the possible personal liability of petitioner Nolasco based
on Item 9 of EOL Undertaking, sufficiently stated a cause of action.

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ALM1201: LAW ON BUSINESS ORGANIZATIONS (PARTNERSHIP AND CORPORATION)

SPOUSES FERNANDEZ V. SMART COMMUNICATIONS

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