PIONEER INSURANCE SURETY CORPORATION v.
MORNING
STAR et al.
Topic: The Corporation and the State
FACTS:
 Morning Start is a travel and tours agency with Benny Wong,
Estelita Wong, Arsenio Chua, Sonny Chua, and Wong Yan
Tak as shareholders and members of the board of directors
 International Air Transport Association (IATA) is a Canadian
corporation licensed to do business in the Philippines
 IATA appointed Morning Star as an accredited travel agent
 IATA and Morning Star entered into a passengers sales
agency agreement in which Morning Star is tasked to report
all air transport ticket sales to IATA
 Pioneer Insurance Surety Corp. is the surety company of
Morning Star
 Morning Star accumulated over Php 100m and USD 457k
of debt from IATA which was paid for by Pioneer
Insurance
 Pioneer Insurance filed a case against Morning Start and its
shareholders for a sum of money
 Pioneer’s arguments included:
o They included the individual respondents
because they, as shareholders and members of
the board of directors, were grossly negligent
and were in bad faith when they handled
Morning Star (massive debt was caused by their
gross negligence and bad faith)
o Cited Section 31 of the Corporation Code
 Individual respondents argued that:
o The shareholders are separate and distinct from the
corporation, hence they cannot be sued
 RTC: Morning Star and the individual respondents are liable
 CA: absolved the individual respondents and only held
Morning Star liable for the debt
ISSUE: WON the individual respondents should be held liable for the
company’s debt
HELD:
 NO
 The SC maintained that the corporation’s personality is
separate and distinct from those that represent the
corporation
 This separate corporate personality shields corporate
officers acting in good faith and within the scope of their
authority from personal liability except for situations
enumerated by law and jurisprudence
 The Court also found that the individual respondents DID
NOT act in bad faith
o Bad faith imports a dishonest purpose or some
moral obliquity and conscious doing of a wrong, not
simply bad judgement or negligence
 Also, individual respondents did no exhibit gross negligence
because the Court found out that the same board of
directors were also managing another corporation which did
fairly well compared to Morning Star. The mere fact that
Morning Star incurred huge losses and that it has no assets
at the time it contracted the large financial obligations did not
amount to gross negligence by the members of the board of
directors (individual respondents).