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ALBANO BAR REVIEW CENTER

PRIVATE CORPORATIONS,
SECURITIES REGULATION,
BANKING AND RELATED LAWS

by: ATTY. MARIA LULU G. REYES

THE CORPORATION CODE OF THE PHILIPPINES


(BP Blg. 68)
I. FORMATION and ORGANIZATION of CORPORATIONS
A. General Principles
Attributes Of A Corporation
Petron v. NCBA
APT v. CA
Mambulao Lumber v. PNB
Hanil v. CA
Bache and Co. V. Ruiz
Sulo ng bayan v. Araneta
B. Classification of Corporations
Private v. Public Corporation
Boy Scout of the Phils. v. COA
Liban v. Gordon
Baluyot v. Holganza
Veterans Federation of the Phils. v. Reyes
Special Charter Corporations
MIA v. CA
C. Stages in the Formation/ Organization of a corporation
Promotion
March II Marketing vs. Joson
Cagayan Fishing v. Sandiko
Caram v. CA
Pioneer Insurance v. CA
Rizal Light v. Municipality of Morong
D. Articles of Incorporation
Lanuza v. CA
Corporate Name
Alonso v. Cebu
Industrial Refractories v. CA
Ang Mga Kaanib sa Iglesia ng Dios v. Iglesia
Universal Mills v. Universal Textile Mills
Lyceum of the Phils. v. CA
Indiana Aerospace University v. CHED
Philips Export BV v. CA
Primary Purpose
Gala v. Ellice
Heirs of Pael v. CA
Uy Sulong v. Director

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Asuncion v. De Yriarte
Principal Office/ Domicile
Davao Light and Power Co. v. CA
Clavecilla Radio System v. Antillon
Sy v. Tyson Enterprises
Young Auto Supply v. CA
Term
Alhambra Cigar and Cigarette Mfg. v. SEC
Paid up Capital Stock
MISCI-NACUSIP Local Chapter v. NWPC
Classification of shares
San Miguel Corp. v. Sandiganbayan
Amendment and/ or rejection of Articles of Incorporation
Republic Planters Bank v. CA
E. Doctrine of Corporate entity vs. Piercing the Veil of corporate
Fiction
Ramirez vs. Mar Fishing, Inc.
Sarona vs. NLRC
Gold Line Tours vs. Heirs of Lacsa
Hacienda Luisita vs. PARC
Pantranco Employees v. NLRC
Cagayan valley Drug v. CIR
Heirs of Pajarillo v. CA
Petron v. NLRC
China Banking v. Dyne-Sem
Executive Sec. v. CA
Re: transport v. Latag
Heirs of De Leon v. CA
Velarde v. Lopez
PNB v. Ritratto
Booc v. Bantuas
Marubeni v. Lirag
Francisco v. Mejia
Landbank v. CA
PNB v. Andrada Electric
AZCOR v. NLRC
Claparols v. CIR
CIR v. Norton and Harrison
Concept Builders v. NLRC
Complex Electronics v. NLRC
Cordon v. Balicanta

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Delpher Trades v. IAC


Del Rosario v. NLRC
First International Bank v. CA
Francisco Motors v. CA
Laguio v. NLRC
Li m v. CA
Malayang Samahan v. Ramos
Matuguina Integrated v. CA
Manila Hotel Corp. v. NLRC
Norton and Harrison v. Collector
Reynoso v. CA
San Juan Structural v. CA
Santos v. NLRC
Tan Boon Bee v. Jarencio
TRB V. CA
Telephone Engg v. WCC
Umali v. CA
Vlason enterprises v. CA
Villa Rey Transit v. Ferrer
Yu v. NLRC
F. De Facto Corporation
Hall v. Piccio
G. Corporation by estoppels
International Express v. CA
Lim Tong v. PFGI, Inc.
Albert v. University Publishing
H. Non- User of Charter vs. Continuous Inoperation
Loyola Grand Villas v. CA
II. BOARD OF DIRECTORS
A. Requirements
Qualifications/ Qualifying Share
Villafuerte V. Moreno
Baguio v. CA
Detective and Protective v. Cloribel
Grace Christian HS v. CA
Lee v. CA
Disqualifications
Brias V. Hord
B. Election
Voting
Aurbach v. Sanitary Wares

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Bataan Shipyard v. PCGG


C. Report on Election
Premium Marble v. CA
D. Term of Office/Holdover
Seneres v. COMELEC
E. How Removed
Lambert v. Fox
F. How Vacancy Filled
Valle Verde Country Club v. Africa
G. How Compensated
Singson v. COA
Western Institute v. Salas
Central Coop. Exchange v. tibe
Lingayen Gulf v. Baltazar
H. Authority of the Board of Directors
La Bugaal v. Ramos
Shipside v. CA
ABS-CBN v. CA
Asset Privatization Trust v. CA
BA Savings Bank v. Sia
Montelibano v. Bacolod Murcia
Powers v. Marshall
Premium Marble v. CA
Ramirez v. Orientalist
I. Delegation of Authority to Corporate Officers
Corporate officers/ Meaning of Office vis-a-vis
Employment
Real v. Sangu
Matling v. Coros
Manila Metal v. PNB
Ongkiko v. NLRC
Lao v. CA
De Tavera v. Phil. Tuberculosis Society
Minimum Set of Officers; Qualifications and
Disqualifications; Authority and Liabilities
Matling v. Coros
Okol vs. Slimmers
Gomez vs. PNOC
E.B. Villarosa and Partners v. Benito
SSPC v. Bardaje
Cagayan Valley Drug v. CIR
Banate, et.al. v. Philippine Countryside Rural bank

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Millennium industrial v. Tan


Pabon v. NLRC
Vlason Enterprises v. CA
Prime White Cement v. IAC
Louis Vuitton SA v. Villanueva
Doctrine of Apparent Authority
Sargasso v. PPA
Acuna v. Batac province
Board of Liquidators v. Kalaw
Francisco v. GSIS
New durawood v. CA
Peoples Aircargo v. CA
San Juan Structural v. CA
Rural Bank v. Oclemia
J. Three-fold Duties of Directors and Officers: Diligence, Loyalty
and Obedience
Personal Liability of directors and other Corporate
officers
Ever Electrical vs. Samahang Manggagawa
Cojuangco v. republic
Ty v. NBI
Queensland-Tokyo Commodities v. George
Wensha Spa center v. Yung
Cebu Mactan v. Masahiro
David v. National Federation of Labor unions
Soriano v. People, BSP and PDIC
Cebu Country Club v. Elizaque
Caltex Inc. V. NLRC
Atrium Management v, CA
ARB construction v. CA
Lim v. CA
Francisco v. Mejia
DBP v. CA
AHS Phils. v. CA
Complex Electronics v. NLRC
Crisologo -Jose v. CA
FCY Construction v. CA
Llamado v. CA
MAM realty Development v. NLRC
Naguiat v. NLRC

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Progress Homes v. NLRC


REAHS Corp. v. NLRC
Santos v. NLRC
Sia v. People
Tramat Mercantile v. CA
Disloyalty
Gokongwei Jr. V. SEC
Strong v. Repide
Watered Stocks
Lirag Textile Mills v. SSS
Nava v. Peers Marketing
Self- Dealing Director/ Officer
Mead v. Mc Cullough
Prime White Cement v. IAC
Contracts between Corporations with Interlocking
Directors
Palting v. San Jose Petroleum
DBP v. CA
Derivative Suit: Remedies to Enforce Personal Liability
Legazpi Towers vs. Muer Et al.
Lisam Enterprise vs. BDO
STRADEC v. Radstock & PNCC
Yu v. Yukayguan
Gochan v. Young
Tam Wing v. Makasira
Lim v. Lim- Yu
Western Institute v. Salas
First International Bank v. Salas
Commart Phils. v. SEC
Chase v. Buencamino
San Miguel Corp. v. Kahn
Everett v. Asia Banking
Gamboa v. Victoriano
Reyes v. Tan
Pascual v. Orozco
III. POWERS OF CORPORATION
A. In General
Theory of Special Capacities v. Theory of General
Capacities
Acebedo Optical v. CA
Express, implied and Incidental Powers
Pilipinas v. SEC

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Luneta Motors v. Santos


Teresa Electric v. PSC
Powers v. Marshall
Power to Have/ Use Corporate Name and Seal
Laureano Investment v. CA
Power to Sue and be Sued
Tam v. Hon. Makasiar
Bitong v. CA
Special Services Corp. v. Centro La paz
R Transport Corp. v. CA
Power to Acquire, Dispose, Encumber Property
Director of Lands v. CA
Power to Make donations
Pirovano v. Dela Rama
B. To Increase or Decrease Capital Stock
Madrigal v. Zamora
Philtrust v. Rivera
C. To Deny Pre-emptive Rights
Datu Benito v. SEC
Dee v. SEC
PCGG v. SEC
Republic v. Sandiganbayan
D. To Sell or Otherwise Dispose of All or Substantially all of
Corporate Assets
PNB v. Andrada Electric
Islamic Directorate v. CA
Edward Nell Co. v. Pacific Farms
Esguerra v. CA
Lopez Realty v. Fontecha
E. To Invest Corporate Funds in Another Corporation of Business
Gokongwei v. SEC
Dela Rama v. Ma-ao Sugar
F. To Acquire Own Shares
Boman Environmental v. CA
Steinberg v. Velasco
G. To Declare Dividends
Kinds: cash, stock, property, scrip
Cojuangco v. republic
Declaration, Payment and record Date
Cojuangco, et.al. v. Sandiganbayan
Limitation on retention of Surplus Profits
Steinberg v. Velasco

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Nielson v. Lepanto
CIR v. Manning
Madrigal v. Zamora
Republic Planters v. Agana
Bitong v. CA
CIR v. CA
H. To Enter Into Management Contract
Aurbach v. Sanitary Wares
PNB v. Producers Warehouse
Nielson and Co. v. Lepanto Mining
Tuason v. Bolanos
I. Ultra Vires Acts
Heirs of Pael v. CA
Pilipinas Loan v. SEC
Crisologo v. CA
Carlos v. Mindoro Sugar
Pirovano v. Dela Rama Steamship
Republic v. Acoje Mining
Republic v. Security Credit
IV. BY-LAWS
A. Function
Nakpil v. IBC
PMI Colleges v. NLRC
Loyola Grand Villas v. CA
Citibank v. Chua
B. When to Adopt and File
Loyola Grand Villas v. CA
C. Contents
Authority to Elect Additional by-laws Officers
Fleischer v. Botica Nolasco
Gokongwei v.SEC
Government v. El Hogar Filipino
D. Amendment and/ or rejection of By- laws
Salafranca v. Philam Life
V. MEETINGS OF STOCKHOLDERS AND THE BOARD OF DIRECTORS
A. Kinds
Pena v. CA
B. Notice Required
Board of Liquidators v. Tan
C. Quorum Required

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Javellana v. Tayo
D. Who Could Attend and Vote
Sales v. SEC
Ponce v. Encarnacion
Lopez v. Ericta
VI.VOTING
A. Who may Exercise
Gamboa v. Teves
COCOFED v. Republic
Republic v. COCOFED
Lee v. CA
Republic v. Sandiganbayan
B. Voting Trust Agreement
Cordon v. Balicanta
NIDC v. Aquino
Lambert v. Fox
VII. CAPITAL STRUCTURE: STOCKS AND STOCKHOLDERS
A. Capital Stock, meaning
Distinguished from Capital
Gamboa v. Teves
Legal or Stated Capital
PLDT v. NTC
Control Test v. Grandfather Rule
Gamboa v. Teves
Agan v. PIATCO
B. Classification of Shares
Voting v. Non- Voting
Gamboa v. Teves
Castillo v. Balinghasay
Sales v. SEC
Redeemable Preferred
Republic Planters Bank v. Agana
Treasury
CIR v, Manning
San Miguel Corp. v. Sandiganbayan
C. Trust Fund Doctrine
National Telecom. V. SEC
Ong v. Tiu
D. What is a Subscription
Ong v. Tiu
Bayla v. Silang Traffic

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Salmon, Dexter and Co. v. Unson


Sunset View Condominium v. Campos
Velasco v. Poizat
E. Acquisition and Ownership of Shares in a Corporation; Extent
of Proprietary Right
Cojuangco v. Republic
Crisostomo v. SEC
Garcia v. Lim
Magsaysay- Labrador v. CA
Nicolas v. CA
Ramos v. CA
Saw v. CA
F. Consideration for Stocks
Apodaca v. NLRC
Fua Cun v. Summers
National Exchange v. Dexter
Nielson and Co. Lepanto Mining
Trillana v. Quezon
G. Collection of Unpaid Subscription
Garcia v. Suarez
PNB v. Bitulok Sawmill
Velasco v. Poizat
Lumanlan v. Cura
Edward Keller v. COB group Marketing
Effect of Delinquency
Valley Golf v. Caram
C alatagan Golf Club v. Clemente Jr.
H. Issuance of the Certificates of Stock
Fua Cun v. Summers
Baltazar v. Lingayen
Tan v. SEC
Embassy Farms v. CA
I. Rights to Transfer of Shares/ validity of restrictions on Right
Fleischer v. Botika Nolasco
Padgett and Bobcock v. Templeton
Rural bank of Salinas v. CA
Thompson v. CA
Yuchengco v. CA
Lim Tay v. CA
J. Transfer of Shares of Stock and Registration
Cojuangco v.Sandiganbayan
Republic v. Sandiganbayan

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Rural Bank of Lipa v. CA


BLTB v. Bitanga
Abejo v. Dela Cruz
Batongbuhay Gold Mines v. CA
Chemphil Export v. CA
Chua Guan v. Samahang Magsasaka
CIR v. Anglo-California Bank
Delos Santos v. Republic
De erquiga v. CA
Garcia v. Jomouad
Lopez v. CA
Monseratt v. Ceron
Puyat De Guzman
Razon v. IAC
Rivera v. Florendo
Santamaria v. Hongkong and Shanghai Bank
Torres v. CA
Won v. Wack-Wack Golf and Country Club
K. Lost or Destroyed Certificates
Philex Mining v. Reyes
VIII. CORPORATE BOOKS AND RECORDS
A. Books to be Kept
Bitong v. CA
B. Inspection of Corporate Books and Records
Sy, et.al. v. Sy
Africa v. PCGG
RP v. Sandiganbayan
Gokongwei v. SEC
Gonzales v. PNB
Pardo v. Hercules lumber
Philpotts v. Philippine Mnufacturing Co.
Republic v. Sandiganbayan
IX. MERGER AND CONSOLIDATION
A. Effects of Merger or Consolidation
BPI v. BPI Employees Union
PNB v. Andrada electric
Babst v. CA
Associated Bank v. CA
Alger Electric v. CA
CIR v. Norton and Harrison

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X. NON- STOCK
A. Purposes

B. Voting

CIR v. Rufino
Solid v. Bio Hong
CORPORATIONS
Chinese YMCA v. Ching
CIR v. Club Filipino
Litonjua v. CA
PPSTA v. Apostol

XI. CLOSE CORPORATION


A. Requirements for Formation
Dulay Enterprises v. CA
San Juan Structural Steel v. CA
Naguiat v. NLRC
XII. SPECIAL CORPORATIONS
A. Religious Corporations
RP v. IAC
Director of Lands v. CA
B. Corporation Aggregate
Iglesia Evangelica v. Bishop Lazaro
XIII. DISSOLUTION OF CORPORATIONS
A. Methods
Vesagas v. CA
Avon dale Garments v. NLRC
Daguhoy Enterprises v. Ponce
PNB v. CF
B. Liquidation
Metropolitan Bank v. Board of Trustees of Riverside
Yam v. CA
Alhambra Cigar v. SEC
Chung Ka Bio v. IAC
Republic v. Marsman
Tan Tiong Bio v. CIR
Reynolds v. CA
Mambulao v. PNB
Catmon Sales v. Liquidator
Knech v. Unites Cigarettes

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Chua v. NLRC
Clemente v. CA
Gelano v. CA
Reburiano v. CA
Republic Planters v. CA

XIV. FOREIGN CORPORATIONS


A. Definition And Rights
Avon v. CA
San Jose Petroleum v. CA
B. Requirements for the Establishment of a Branch/ License to do
Business in the Philippines
GMBH v. Isnani
New York Marine v. CA
C. Amendment of License
Aetna Casualty v. Pacific Star
Bulakhidas v. Navarro
Schmid and Oberly v. RJL
D. Doing Business with or without a License: Suits by or
Against Foreign Corporation
Schwani v. In and Out burger
Lorenzo Shipping v. Chubb
MR Holdings v. Bajar
Commissioner of Customs v. KMK Gani
Communications and Materials Designs v. CA
Columbia Pictures v. CA
Eriks PTE v. CA
Far East international v. Nankai Kogyo
Facilities Management v. dela Osa
French Oil Mill v. CA
HB Zachray v. CA
Home Insurance Co. v. eastern Shipping
Hutchison Ports v. SBMA
La Chemiste Lacoste v. Fernandez
Marubeni nederlands v. Tensuan
Phil. Columbia v. Lantin
Philip Morris v. Fortune Tobacco
Puma v. IAC
SBMA v. Universal International
Time v. Teves
Universal Rubber v. CA

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Van Zuiden v. GTVL industries

SECURITIES AND EXCHANGE COMMISSION LAW


( PD 902-A, as amended by RA No.8799 or the Securities Regulation
Code)
I. POWERS AND FUNCTIONS OF THE SEC
SEC v. PFEC
Aranza v. BF Homes
Quasha v. SEC
Traders royal bank v. CA
VICMAR Devt v. CA
II. ORIGINAL AND EXCLUSIVE JURISDICTION OF THE REGIONAL TRIAL
COURT
Orendain v. BF Homes
Pascual v. CA
A. Devices or Schemes Amounting to fraud or Misrepresentation
Fabia v. CA
A&A Continental v. SEC
Alleje v. CA
Banez v. Dimensional Construction
Sesbreno v. CA
B. Controversies Arising Out of Intra-Corporate or Partnership
Relations
Go Lim vs. Distinction Properties
Strategic Alliance vs. Star Infrastracture
GD Express v. CA
Iglesia v. Juane
Intestate Estate of Ty v. CA
Fabia v. CA
Vesagas v. CA
Abejo v. Dela Cruz
Aguinaldo v. SEC
Pereyra v. IAC
Mainland Construction v. Movilla
SEC v. CA
Sunsetview Condominium v. Campos
Western institute v. Salas
C. Controversies in the Election or Appointment/ Dismissal of
Corporate Officers
Real v. Sangu Phil.

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Matling v. Coros
Garcia v. Eastern telecom
De rossi v. NLRC
Espino v. NLRC
Estrada v. NLRC
Islamic Directorate v. CA
Ongkiko v. NLRC
Paguio v. NLRC
Pearson and George v. NLRC
Apodaca v. NLRC
PSBA v. Leano
Tabang v.NLRC
Union Motors v. NLRC
D. Petitions for Declaration in the State of Suspension of
Payments
Advent Capital vs. Alcantara
Siochi Fishery vs. BPI
Panlilio v. RTC
Castillo v. uniwide Warehouse
Pacific Wide v. Puerto Azul
PNB and EPCIB v. CA
Pryce Corp. v. CA
Uniwide v. Jandecs
BPI v. SEC
PAL v. Heirs of Zamora
Alemars v. Elbinias
Barotac Sugar Mills v. CA
BF Homes v. CA
BPI v. CA
Ching v. LandBank
PCIB v. CA
Radiola- Toshiba v. IAC
RCBC v. IAC
Rubberworld v. NLRC
Union Bank v. CA
SECURITIES REGULATION CODE
(RA NO. 8799)
I. REGISTRATION OF SECURITIES
A. Elements of an Investment contract
SEC v. W.J. Howey Co.
SEC vs. Prosperity Com, Inc.

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Power Homes unlimited v. SEC


SFC vs. Performance
Suzuki v. De Guzman
Bavierra v. Paglinawan
B. What securities are Required to be Registered
Timeshare Realty v. Lao
Makati Stock exchange v. SEC
La Orden v. Stiver and Philtrust
Philippine Stock Exchange v. SEC
C. Exempt Transactions
Timeshare Realty v. Lao
Nestle Phils. v. CA
II. TRADING SECURITIES
A. Margin Requirements
Carolina Industries v. CMS Stock Brokerage
B. Fraudulent Transactions
Phil. Asso. Of Stock Transfer v. CA
SEC v. CA
Onapal v. CA
C. Insiders Duty to disclose When Trading
Strong v. Repide
Union Bank of the Philippines v. SEC
III. PROTECTION OF SHAREHOLDERS INTEREST
A. Tender Offers
CEMCO v. National Life

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TOPIC: ATTRIBUTES OF A CORPORATION


PETRON CORPORATION
VS.
NATIONAL COLLEGE OFBUSINESS AND ARTS
G.R. NO. 155683 February 16, 2007
516 SCRA 168
FACTS:
In 1969, the V. Mapa properties, then owned by Felipe and Enrique
Monserrat, Jr., were mortgaged to the Development Bank of the Philippines
(DBP) as part of the security for the P5.2 million loan of Manila Yellow Taxicab
Co., Inc. (MYTC) and Monserrat Enterprises Co. MYTC, for its part, mortgaged
four parcels of land.
Felipes undivided interest in the V. Mapa properties was levied upon
in execution of a money judgment. DBP challenged the levy through a thirdparty claim asserting that the V. Mapa properties were mortgaged to it and
were, for that reason, exempt from levy or attachment. The RTC quashed it.
MYTC and the Monserrats got DBP to accept a dacion en pago arrangement
whereby MYTC conveyed to the bank the four mortgaged Quiapo properties
as full settlement of their loan obligation. But despite this agreement, DBP
did not release the V. Mapa properties from the mortgage.
Felipe, acting for himself and as Enriques attorney-in-fact, sold the V.
Mapa properties to respondent NCBA. Part of the agreement was that Felipe
and Enrique would secure the release of the titles to the properties free of all
liens and encumbrances including DBPs mortgage lien and Filoils levy on or
before July 31, 1982.
But the Monserrats failed to comply with this
undertaking. Thus, on February 3, 1983, NCBA caused the annotation of an
affidavit of adverse claim on the TCTs covering the V. Mapa properties.
NCBA filed a complaint against Felipe and Enrique for specific
performance. NCBA impleaded DBP as an additional defendant in order to
compel it to release the V. Mapa properties from mortgage.

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During the pendency of Civil Case No. 83-16617, Enriques


undivided interest in the V. Mapa properties was levied on in execution of a
judgment holding him liable to Petron (then known as Petrophil Corporation)
on a 1972 promissory note. The final deeds of sale of Enriques and Felipes
shares in the V. Mapa properties were awarded to Petron in 1986. Sometime
later, the Monserrats TCTs were cancelled and new ones were issued to
Petron. Thus it was that, towards the end of 1987, Petron intervened in
NCBAs suit against Felipe, Enrique and DBP (Civil Case No. 83-16617) to
assert its right to the V. Mapa properties.
The RTC rendered judgment, it ruled among other things, that Petron
never acquired valid title to the V. Mapa properties as the levy and sale
thereof were void and that NCBA was now the lawful owner of the properties.
Moreover, the RTC held Petron, DBP, Felipe and Enrique jointly and severally
liable to NCBA for exemplary damages and attorneys fees
On appeal, the CA affirmed in toto the decision of the RTC.
ISSUE/S:
Whether petitioner Petron Corporation (Petron) should be held liable to
pay attorneys fees and exemplary damages to respondent National
College of Business and Arts (NCBA).
RULING:
No.
Article 2208 lays down the rule that in the absence of stipulation,
attorneys fees cannot be recovered except in the following instances:
xxxxxx xxx
(5)
Where the defendant acted in gross and evident bad faith
in refusing to satisfy the plaintiffs plainly valid, just and
demandable claim;
xxx xxx xxx
Here, the RTC held Petron liable to NCBA for attorneys fees under
Article 2208(5), which allows such an award where the defendant acted in
gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid,
just, and demandable claim. However, the only justification given for this
verdict was that Petron had no reason to claim the V. Mapa properties
because, in the RTCs opinion, the levy and sale thereof were void. This was
sorely inadequate and it was erroneous for the CA to have upheld that ruling
built on such a flimsy foundation.
Article 2208(5) contemplates a situation where one refuses
unjustifiably and in evident bad faith to satisfy anothers plainly valid, just

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and demandable claim, compelling the latter needlessly to seek redress from
the courts. In such a case, the law allows recovery of money the plaintiff had
to spend for a lawyers assistance in suing the defendant expenses the
plaintiff would not have incurred if not for the defendants refusal to comply
with the most basic rules of fair dealing. It does not mean, however, that the
losing party should be made to pay attorneys fees merely because the court
finds his legal position to be erroneous and upholds that of the other party,
for that would be an intolerable transgression of the policy that no one
should be penalized for exercising the right to have contending claims
settled by a court of law. No gross and evident bad faith could be imputed to
Petron merely for intervening in NCBAs suit against DBP and the Monserrats
in order to assert what it believed (and had good reason to believe) were its
rights and to have the disputed ownership of the V. Mapa properties settled
decisively in a single lawsuit.
With respect to the award of exemplary damages, the rule in this
jurisdiction is that the plaintiff must show that he is entitled to moral,
temperate or compensatory damages before the court may even consider
the question of whether exemplary damages should be awarded. In other
words, no exemplary damages may be awarded without the plaintiffs right
to moral, temperate, liquidated or compensatory damages having first been
established. Therefore, in view of our ruling that Petron cannot be made
liable to NCBA for compensatory damages (i.e., attorneys fees), Petron
cannot be held liable for exemplary damages either.

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TOPIC: ATTRIBUTES OF A CORPORATION


ASSET PRIVATIZATION TRUST, petitioner,
vs.
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS,
JR., JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S.
PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as
Minority Stock-Holders of Marinduque Mining and Industrial
Corporation, respondents.
G.R. NO. 121171 December 29, 1998,
FACTS:
Republic Act No. 1828 authorized the development, exploration and
utilization of the mineral deposits in the Surigao Mineral Reservation. By
virtue of which, a Memorandum of Agreement was drawn, whereby the
Republic thru the Surigao Mineral Reservation Board, granted MMIC the
exclusive right to explore, develop and exploit nickel, cobalt and other
minerals in the Surigao mineral reservation. MMIC is a domestic corporation
engaged in mining with respondents Jesus S. Cabarrus, Sr. as President and
among its original stockholders.
The Government undertook to support the financing of MMIC by
purchase of MMIC debenture and extension of guarantees. MMIC, PNB and
DBP executed a Mortgage Trust Agreement whereby MMIC, as mortgagor,
agreed to constitute a mortgage in favor of PNB and DBP as mortgagees,
over all MMICs assets, subject of real estate and chattel mortgage executed
by the mortgagor, and additional assets described and identified, which the
mortgagor may acquire whether in substitution of, in replenishment, or in
addition thereto.
Article IV of the Mortgage Trust Agreement provides for Events of
Default, which expressly includes the event that the MORTGAGOR shall fail to
pay any amount secured by this Mortgage Trust Agreement when due. Article
V of the Mortgage Trust Agreement prescribes in detail, and in addition to the
enumerated events of defaults, circumstances by which the mortgagor may

Page 21 of 1072

be declared in default, the procedure therefor, waiver of period to foreclose,


authority of Trustee before, during and after foreclosure, including taking
possession of the mortgaged properties.
In various request for advances/remittances of loans of huge
amounts, , MMIC invariably committed to pay either on demand or under
certain terms the loans and accommodations secured from or guaranteed by
both DBP and PNB.
By 1984, DBP and PNBs financial exposure both in loans and in equity
in MMIC had reached tremendous proportions, and MMIC was having a
difficult time meeting its financial obligations. DBP and PNB as mortgagees of
MMIC assets, decided to exercise their right to extrajudicially foreclose the
mortgages in accordance with the Mortgage Trust Agreement. The foreclosed
assets were sold to PNB as the lone bidder and were assigned to three newly
formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining
and Industrial Corporation, and Island Cement Corporation. In 1986, these
assets were transferred to the Asset Privatization Trust (APT).
Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC,
filed a derivative suit against DBP and PNB. In the course of the trial, private
respondents and petitioner APT, as successor of the DBP and PNBs interest
in MMIC, mutually agreed to submit the case to arbitration by entering into a
Compromise and Arbitration Agreement.
ISSUE/S:
Whether or not the filing of the derivative suit was proper and the
award of damages was with legal basis.
RULING:
The civil case being a derivative suit, MMIC should have been
impleaded as a party. It was not joined as a party plaintiff or party defendant
at any stage of the proceedings. As it is, the award of damages to MMIC,
which was not a party before the Arbitration Committee, is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the
real party in interest while the stockholder filing suit for the corporations
behalf is only nominal party. The corporation should be included as a party in
the suit.
An individual stockholder is permitted to institute a derivative suit on
behalf of the corporation wherein he holds stock in order to protect or
vindicate corporate rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued or hold the control of the corporation. In
such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest.

Page 22 of 1072

It is a condition sine qua non that the corporation be impleaded as a


party because- Not only is the corporation an indispensible party, but it is
also the present rule that it must be served with process. The reason given
is that the judgment must be made binding upon the corporation and in
order that the corporation may get the benefit of the suit and may not bring
a subsequent suit against the same defendants for the same cause of action.
The arbiters, likewise, exceeded their authority in awarding moral
damages to Jesus Cabarrus, Sr. Cabarrus cause of action for the seizure of
the assets belonging to IEI, of which he is the majority stockholder, having
been ventilated in a complaint he previously filed with the RTC, from which
he obtained actual damages, he was barred res judicata from filing a similar
case in another court, this time asking for moral damages which he failed to
get from the earlier case.
It is a basic postulate that s corporation has a personality separate and
distinct from its stockholders. The properties foreclosed belonged to MMIC,
not to its stockholders. Hence, if wrong was committed in the foreclosure, it
was done against the corporation. Another reason is that Jesus S. Cabarrus,
Sr. cannot directly claim those damages for himself that would result in the
appropriation by, and the distribution to, him part of the corporations assets
before the dissolution of the corporation and the liquidation of its debts and
liabilities.

Page 23 of 1072

TOPIC: ATTRIBUTES OF A CORPORATION


MAMBULAO LUMBER COMPANY, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy
Provincial Sheriff of Camarines Norte, defendants-appellees
G.R, NO. L-22973 January 30, 1968
FACTS:
Plaintiff applied for an industrial loan of P155,000 with the Naga Branch
of defendant PNB and the former offered real estate, machinery, logging and
transportation equipments as collaterals. The application, however, was
approved for a loan of P100,000 only. To secure the payment of the loan, the
plaintiff mortgaged to defendant PNB a parcel of land.
PNB released from the approved loan the sum of P27,500, for which
the plaintiff signed a promissory note wherein it promised to pay to the PNB
the said sum in five equal yearly. The plaintiff failed to pay the amortizations
on the amounts released to and received by it. It was found that the plaintiff
had already stopped operation about the end of 1957 or early part of 1958.
Plaintiff sent separate letters protesting against the foreclosure of the
real estate and chattel mortgages on the grounds that they could not be
effected unless a Court's order was issued against it (plaintiff) for said
purpose and that the foreclosure proceedings, according to the terms of the
mortgage contracts, should be made in Manila.
Several employees of the PNB arrived in the compound and they
informed Luis Salgado, Chief Security Guard of the premises, that the
properties therein had been auctioned and bought by the PNB, which in turn
sold them to Mariano Bundok. On the following day, two trucks and men of
Mariano Bundok arrived but Salgado did not permit them to take out any
equipment from inside the compound of the plaintiff. Thru the intervention,
however, of the local police and PC soldiers, the trucks of Mariano Bundok

Page 24 of 1072

were able finally to haul the properties originally mortgaged by the plaintiff
to the PNB, which were bought by it at the foreclosure sale and subsequently
sold to Mariano Bundok.
ISSUE/S:
Whether or not moral damages may be awarded to a corporation.
RULING:
Herein appellant's claim for moral damages seems to have no legal or
factual basis. Obviously, an artificial person like herein Appellant Corporation
cannot experience physical sufferings, mental anguish, fright, serious
anxiety, wounded feelings, moral shock or social humiliation which are the
basis of moral damages. A corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages. The
same cannot be considered under the facts of this case, however, not only
because it is admitted that herein appellant had already ceased in its
business operation at the time of the foreclosure sale of the chattels, but
also for the reason that whatever adverse effect the foreclosure sale of the
chattels could have upon its reputation or business standing would
undoubtedly be the same whether the sale was conducted at Jose
Panganiban. Camarines Norte, or in Manila which is the place agreed upon by
the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy
sheriff of Camarines Norte in proceeding with the sale in utter disregard of
the agreement to have the chattels sold in Manila as provided for in the
mortgage contract, to which their attentions were timely called by herein
appellant, and in disposing of the chattels in gross for the miserable amount
of P4,200.00, herein appellant should be awarded exemplary damages in the
sum of P10,000.00. The circumstances of the case also warrant the award of
P3,000.00 as attorney's fees for herein appellant.

Page 25 of 1072

TOPIC: ATTRIBUTES OF A CORPORATION


HANIL DEVELOPMENT CO., LTD., petitioner,
vs.
COURT OF APPEALS AND M.R. ESCOBAR EXPLOSIVE ENGINEERS,
INC., respondent.
G.R. No. 113176. July 30, 2001
FACTS:
In the early seventies, the Ministry of Public Works and Highways
(MPWH for brevity) awarded petitioner Hanil Development Co., Ltd. the
contract to construct the 200-kilometer Iligan-Cagayan de Oro-Butuan
Highway Project. On November 14, 1976, Hanil sub-let the rock-blasting work
portion of the contract to private respondent M.R. Escobar Explosive
Engineers, Inc.. By express stipulation of the parties, Escobar will be
compensated.
Escobar commenced its blasting works. It continued its services until
terminated by Hanil on December 15, 1978. It It claimed, however, that
Hanil still partially owes it one million three hundred forty one thousand
seven hundred twenty-seven and 40/100 (P1,341,727.40) pesos for blastings
done in the B-2, B-3 and C-1 areas. The claim was predicated on the theory
that the rocks it caused to explode in the contested areas were solid in
nature, and therefore the volume should be computed using the crosssection approach pursuant to the above-quoted paragraph 9(a). It appears
that all the payments it received were fixed based on the joint survey
method under paragraph 9(b). Escobar stressed that Hanil was always paid
by the MPWH using the cross-section system.
Consequently, Escobar instituted Civil Case No. 35966 for recovery of a
sum of money with damages against Hanil . The CFI handed down a Decision
ordering Hanil to pay for the value of rocks blasted by Escobar.
ISSUE/S:

Page 26 of 1072

Whether or not the award of moral damages and other damages is


proper.
RULING:
No.
Hanil failed to prove the actual value of pecuniary injury which it
sustained as a consequence of Escobars institution of an unfounded civil
suit. The testimony of one of its witnesses, presented in the CFI, to the effect
that; the filing of the complaint affected Hanils reputation and that it
affected the management and engineers working in the site, is not enough
proof. The institution of the suit, unfounded though it may be, does not
always lead to pecuniary loss as to warrant an award of actual or temperate
damages. So, too, must its demand for payment of moral damages fail. The
rule is that moral damages can not be granted in favor of a corporation.
Being an artificial person and having existence only in legal contemplation, a
corporation has no feelings, no emotions, no senses. It cannot, therefore,
experience physical suffering, mental anguish, fright, serious anxiety,
wounded feelings or moral shock or social humiliation, which can be suffered
only by one having a nervous system.
Hanils prayer for exemplary damages must likewise be denied. It
must be remembered that this kind of damages cannot be recovered as a
matter of right. Its allowance rests in the sound discretion of the court, and
only upon a showing of its legal foundation. Under the Civil Code, the
claimant must first establish that he is entitled to moral, temperate,
compensatory or liquidated damages before it may be imposed in his favor.
Hanil failed to do so, hence, it cannot claim exemplary damages.

Page 27 of 1072

TOPIC: ATTRIBUTES OF A CORPORATION


BACHE & CO. (PHIL.), INC. AND FREDERICK E. SEGGERMAN
VS.
HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA
G.R. NO. L-32409 February 27, 1971
FACTS:
Respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a
letter addressed to respondent Judge Vivencio M. Ruiz requesting the
issuance of a search warrant against petitioners for violation of Section 46(a)
of the National Internal Revenue Code and authorizing Revenue Examiner
Rodolfo de Leon, one of herein respondents, to make and file the application
for search warrant which was attached to the letter.
The following day, respondent De Leon and his witness went to the
court and brought with them the following papers:
respondent Vera's aforesaid letter-request;
an application for search warrant already filled up but still
unsigned by respondent De Leon;
an affidavit of respondent Logronio subscribed before
respondent De Leon;
a deposition in printed form of respondent Logronio already
accomplished and signed by him but not yet subscribed;
and
a search warrant already accomplished but still unsigned
by respondent Judge.
Three days later, the BIR agents served the search warrant petitioners
at the offices of petitioner corporation. Petitioners' lawyers protested the
search on the ground that no formal complaint or transcript of testimony was
attached to the warrant.

Page 28 of 1072

Petitioners filed a petition that the search warrant be quashed,


dissolved or recalled. After hearing, the court, presided over by respondent
Judge, issued an order dismissing the petition for dissolution of the search
warrant. In the meantime, the Bureau of Internal Revenue made tax
assessments on petitioner corporation in the total sum of P2,594,729.97,
partly, if not entirely, based on the documents thus seized.
ISSUE/S:
Whether or not the issuance of the search warrant was proper.
HELD:
The right of the people to be secure in their persons, houses, papers
and effects against unreasonable searches and seizures shall not be violated,
and no warrants shall issue but upon probable cause, to be determined by
the judge after examination under oath or affirmation of the complainant and
the witnesses he may produce, and particularly describing the place to be
searched, and the persons or things to be seized."
Personal examination by the judge of the complainant and his
witnesses is necessary to enable him to determine the existence or nonexistence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the
Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of
which prohibit the issuance of warrants except "upon probable cause." The
determination of whether or not a probable cause exists calls for the exercise
of judgment after a judicial appraisal of facts and should not be allowed to be
delegated in the absence of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by
respondent Judge of the complainant and his witness. While it is true that the
complainant's application for search warrant and the witness' printed-form
deposition were subscribed and sworn to before respondent Judge, the latter
did not ask either of the two any question the answer to which could possibly
be the basis for determining whether or not there was probable cause
against herein petitioners. The search warrant in question was issued for at
least four distinct offenses under the Tax Code. The first is the violation of
Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are
interrelated. The second is the violation of Sec. 53 (withholding of income
taxes at source). The third is the violation of Sec. 208 (unlawful pursuit of
business or occupation); and the fourth is the violation of Sec. 209 (failure to
make a return of receipts, sales, business or gross value of output actually
removed or to pay the tax due thereon).
The documents, papers and effects sought to be seized are described
in Search Warrant No. 2-M-70 in this manner:

Page 29 of 1072

"Unregistered and private books of account; records of bank


deposits and withdrawals; and records of foreign remittances,
covering the years 1966 to 1970."
The description does not meet the requirement in Art III, Sec. 1, of the
Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court, that the
warrant should particularly describe the things to be seized.
A corporation is, after all, but an association of individuals under an
assumed name and with a distinct legal entity. In organizing itself as a
collective body it waives no constitutional immunities appropriate to such
body. Its property cannot be taken without compensation. It can only be
proceeded against by due process of law, and is protected, under the 14th
Amendment, against unlawful discrimination . . ."

TOPIC: ATTRIBUTES OF A CORPORATION


SULO NG BAYAN, INC.,
VS.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL
WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC.
AND REGISTER OF DEEDS OF BULACAN
G.R. NO. L-31061 August 17, 1976
FACTS:
Plaintiff Sulo ng Bayan, Inc. filed an accion de reivindicacion with the
court to recover the ownership and possession of a large tract of land. The
complaint specifically alleged that plaintiff is a corporation organized and
existing under the laws of the Philippines, with its principal office and place
of business at San Jose del Monte, Bulacan; that its membership is composed
of natural persons residing at San Jose del Monte, Bulacan; that the members
of the plaintiff corporation, through themselves and their predecessors-ininterest, had pioneered in the clearing of the afore-mentioned tract of land,
cultivated the same since the Spanish regime and continuously possessed
the said property openly and publicly under concept of ownership adverse
against the whole world; that defendant-appellee Gregorio Araneta, Inc.,
sometime in the year 1958, through force and intimidation, ejected the
members of the plaintiff corporation from their possession of the
aforementioned vast tract of land; that upon investigation conducted by the
members and officers of plaintiff corporation, they found out for the first time
in the year 1961 that the land in question "had been either fraudulently or
erroneously included, by direct or constructive fraud, in Original Certificate of
Title No. 466 of the Land Records of the province of Bulacan", issued on May
11, 1916, which title is fictitious, non-existent and devoid of legal efficacy
due to the fact that "no original survey nor plan whatsoever" appears to

Page 30 of 1072

have been submitted as a basis thereof and that the court which issued the
decree of registration did not acquire jurisdiction over the land registration
case because no notice of such proceedings was given to the members of
the plaintiff corporation who were then in actual possession of said
properties; that as a consequence of the nullity of the original title, all
subsequent titles derived therefrom, Transfer Certificate of Title No. 4986
issued in the name of Hacienda Caretas, Inc., and another transfer certificate
of title in the name of Paradise Farms, Inc., are therefore void.
ISSUE/S:
Whether or not Plaintiff Corporation (non- stock) may institute an
action in behalf of its individual members for the recovery of certain
parcels of land allegedly owned by said members.
HELD:
NO.
It is a doctrine well-established and obtains both at law and in equity
that a corporation is a distinct legal entity to be considered as separate and
apart from the individual stockholders or members who compose it, and is
not affected by the personal rights, obligations and transactions of its
stockholders or members. The property of the corporation is its property and
not that of the stockholders, as owners, although they have equities in it.
Conversely, a corporation ordinarily has no interest in the individual property
of its stockholders unless transferred to the corporation, "even in the case of
a one-man corporation".
It must be noted, however, that the juridical personality of the
corporation, as separate and distinct from the persons composing it, is but a
legal fiction introduced for the purpose of convenience and to sub serve the
ends of justice. This separate personality of the corporation may be
disregarded, or the veil of corporate fiction pierced, in cases where it is used
as a cloak or cover for fraud or illegality, or to work an injustice, or where
necessary to achieve equity.
It has not been claimed that the members have assigned or transferred
whatever rights they may have on the land in question to the plaintiff
corporation. Absent any showing of interest, therefore, a corporation, like
plaintiff-appellant herein, has no personality to bring an action for and in
behalf of its stockholders or members for the purpose of recovering property
which belongs to said stockholders or members in their personal capacities.
It is fundamental that there cannot be a cause of action without an
antecedent primary legal right conferred by law upon a person. Evidently,
there can be no wrong without a corresponding right, and no breach of duty
by one person without a corresponding right belonging to some other person.

Page 31 of 1072

Thus, the essential elements of a cause of action are legal right of the
plaintiff, correlative obligation of the defendant, an act or omission of the
defendant in violation of the aforesaid legal right. Clearly, no right of action
exists in favor of plaintiff corporation, for as shown heretofore it does not
have any interest in the subject matter of the case which is material and
direct so as to entitle it to file the suit as a real party in interest.
In order that a class suit may prosper, the following requisites must be
present:
1. that the subject matter of the controversy is one of
common or general interest to many persons; and
2. that the parties are so numerous that it is
impracticable to bring them all before the court.
Here, there is only one party plaintiff, and the plaintiff corporation does
not even have an interest in the subject matter of the controversy, and
cannot, therefore, represent its members or stockholders who claim to own
in their individual capacities ownership of the said property. Moreover, as
correctly stated by the appellees, a class suit does not lie in actions for the
recovery of property where several persons claim ownership of their
respective portions of the property, as each one could allege and prove his
respective right in a different way for each portion of the land, so that they
cannot all be held to have identical title through acquisitive prescription.

Page 32 of 1072

TOPIC:CLASSIFICATIONS OF CORPORATION
BOY SCOUTS OF THE PHILIPPINES,
vs.
COMMISSION ON AUDIT
G.R. No. 177131 June 7, 2011
FACTS:
This case arose when the COA issued Resolution No. 99-011on August
19, 1999 with the subject "Defining the Commissions policy with respect to
the audit of the Boy Scouts of the Philippines." In its whereas clauses, the
COA Resolution stated that the BSP was created as a public corporation
under Commonwealth Act No. 111, as amended by Presidential Decree No.
460. and Republic Act No. 7278; that in Boy Scouts of the Philippines v.
National Labor Relations Commission, the Supreme Court ruled that the BSP,
as constituted under its charter, was a "government-controlled corporation
within the meaning of Article IX (B) (2) (1) of the Constitution"; and that "the
BSP is appropriately regarded as a government instrumentality under the
1987 Administrative Code. The COA Resolution also cited its constitutional
mandate under Section 2(1), Article IX (D).
The BSP sought reconsideration of the COA Resolution. The BSP
believes that the cited case has been superseded by RA 7278. The 1987
Administrative Code itself, of which the BSP vs. NLRC relied on for some
terms, defines government-owned and controlled corporations as agencies
organized as stock or non-stock corporations which the BSP, under its
present charter, is not.
ISSUE/S:

Page 33 of 1072

Whether or not Boy Scouts of the Philippines is a government-owned or


controlled corporation or instrumentality, agency, or subdivision of the
government.
RULING:
After looking at the legislative history of its amended charter and
carefully studying the applicable laws and the arguments of both parties, we
find that the BSP is a public corporation and its funds are subject to the
COAs audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October
31, 1936), entitled "An Act to Create a Public Corporation to be known as the
Boy Scouts of the Philippines and to define its Powers and Purposes" created
the BSP as a "public corporation".
There are three classes of juridical persons under Article 44 of the Civil
Code and the BSP, as presently constituted under Republic Act No. 7278, falls
under the second classification.
Evidently, the BSP, which was created by a special law to serve a
public purpose in pursuit of a constitutional mandate, comes within the class
of "public corporations" defined by paragraph 2, Article 44 of the Civil Code
and governed by the law which creates it, pursuant to Article 45 of the same
Code.
The BSP is a public corporation or a government agency or
instrumentality with juridical personality, which does not fall within the
constitutional prohibition in Article XII, Section 16, notwithstanding the
amendments to its charter. Not all corporations, which are not government
owned or controlled, are ipso facto to be considered private corporations as
there exists another distinct class of corporations or chartered institutions
which are otherwise known as "public corporations." These corporations are
treated by law as agencies or instrumentalities of the government which are
not subject to the tests of ownership or control and economic viability but to
different criteria relating to their public purposes/interests or constitutional
policies and objectives and their administrative relationship to the
government or any of its Departments or Offices.
Further Section 16, Article XII should not be construed so as to prohibit
Congress from creating public corporations. In fact, Congress has enacted
numerous laws creating public corporations or government agencies or
instrumentalities vested with corporate powers. Moreover, Section 16, Article
XII, which relates to National Economy and Patrimony, could not have tied
the hands of Congress in creating public corporations to serve any of the
constitutional policies or objectives.

Page 34 of 1072

The Court is fortified that the Administrative Code of 1987 designates


the BSP as one of the attached agencies of the Department of Education,
Culture and Sports ("DECS"). An "agency of the Government" is defined as
referring to any of the various units of the Government including a
department, bureau, office, instrumentality, government-owned or
-controlled corporation, or local government or distinct unit therein.
The Court believes that the BSP is appropriately regarded as "a
government instrumentality" under the 1987 Administrative Code. It thus
appears that the BSP may be regarded as both a "government controlled
corporation with an original charter" and as an "instrumentality" of the
Government within the meaning of Article IX (B) (2) (1) of the Constitution.

TOPIC: CLASSIFICATIONS OF CORPORATION


DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI,
vs.
RICHARD J. GORDON
G.R. No. 175352 July 15, 2009& January 18, 2011
FACTS:
Petitioners are officers of the Board of Directors of the Quezon City Red
Cross Chapter while respondent is Chairman of the Philippine National Red
Cross (PNRC) Board of Governors.
During respondents incumbency as a member of the Senate of the
Philippines,he was elected Chairman of the PNRC during the 23 February
2006 meeting of the PNRC Board of Governors. Petitioners allege that by
accepting the chairmanship of the PNRC Board of Governors, respondent has
ceased to be a member of the Senate as provided in Section 13, Article VI of
the Constitution.
Petitioners cite Camporedondo v. NLRC which held that the PNRC is a
government-owned or controlled corporation. Petitioners claim that in
accepting and holding the position of Chairman of the PNRC Board of
Governors, respondent has automatically forfeited his seat in the Senate,
pursuant to Flores v. Drilon.
Respondent further insists that the PNRC is not a government-owned or
controlled corporation and that the prohibition under Section 13, Article VI of
the Constitution does not apply in the present case since volunteer service to
the PNRC is neither an office nor an employment.
In their Reply, petitioners claim that their petition is neither an action
for quo warranto nor an action for declaratory relief. Petitioners maintain that

Page 35 of 1072

the present petition is a taxpayers suit questioning the unlawful


disbursement of funds, considering that respondent has been drawing his
salaries and other compensation as a Senator even if he is no longer entitled
to his office. Petitioners point out that this Court has jurisdiction over this
petition since it involves a legal or constitutional issue which is of
transcendental importance.
ISSUE/S:
Whether the office of the PNRC Chairman is a government office or an
office in a government-owned or controlled corporation for purposes of
the prohibition in Section 13, Article VI of the Constitution.

RULING:
July 15, 2009 Decision
The PNRC is not government-owned but privately owned. The vast
majority of the thousands of PNRC members are private individuals, including
students. Under the PNRC Charter, those who contribute to the annual fund
campaign of the PNRC are entitled to membership in the PNRC for one year.
Thus, any one between 6 and 65 years of age can be a PNRC member for
one year upon contributing P35, P100, P300, P500 or P1,000 for the year.20
Even foreigners, whether residents or not, can be members of the PNRC.
Thus, the PNRC is a privately owned, privately funded, and privately
run charitable organization. The PNRC is not a government-owned or
controlled corporation.
The Constitution recognizes two classes of corporations. The first refers
to private corporations created under a general law. The second refers to
government-owned or controlled corporations created by special charters.
The Constitution emphatically prohibits the creation of private
corporations except by general law applicable to all citizens. The purpose of
this constitutional provision is to ban private corporations created by special
charters, which historically gave certain individuals, families or groups
special privileges denied to other citizens.
In short, Congress cannot enact a law creating a private corporation
with a special charter. Such legislation would be unconstitutional. Private
corporations may exist only under a general law. If the corporation is private,
it must necessarily exist under a general law. Stated differently, only
corporations created under a general law can qualify as private corporations.
Under existing laws, the general law is the Corporation Code, except that the
Cooperative Code governs the incorporation of cooperatives.

Page 36 of 1072

Just like the Local Water Districts, the PNRC was created through a
special charter. However, unlike the Local Water Districts, the elements of
government ownership and control are clearly lacking in the PNRC. Thus,
although the PNRC is created by a special charter, it cannot be considered a
government-owned or controlled corporation in the absence of the essential
elements of ownership and control by the government.
In sum, we hold that the office of the PNRC Chairman is not a
government office or an office in a government-owned or controlled
corporation for purposes of the prohibition in Section 13, Article VI of the
1987 Constitution. However, since the PNRC Charter is void insofar as it
creates the PNRC as a private corporation, the PNRC should incorporate
under the Corporation Code and register with the Securities and Exchange
Commission if it wants to be a private corporation.
January 18, 2011 Decision
The PNRC, as a National Society of the International Red Cross and Red
Crescent Movement, can neither be classified as an instrumentality of the
State, so as not to lose its character of neutrality as well as its
independence, nor strictly as a private corporation since it is regulated by
international humanitarian law and is treated as an auxiliary of the State.
Based on the above, the sui generis status of the PNRC is now
sufficiently established. Although it is neither a subdivision, agency, or
instrumentality of the government, nor a government-owned or -controlled
corporation or a subsidiary thereof, as succinctly explained in the Decision of
July 15, 2009, so much so that respondent, under the Decision, was correctly
allowed to hold his position as Chairman thereof concurrently while he
served as a Senator, such a conclusion does notipso facto imply that the
PNRC is a private corporation within the contemplation of the provision of
the Constitution, that must be organized under the Corporation Code. As
correctly mentioned by Justice Roberto A. Abad, the sui generis character of
PNRC requires us to approach controversies involving the PNRC on a case-tocase basis.
In sum, the PNRC enjoys a special status as an important ally and
auxiliary of the government in the humanitarian field in accordance with its
commitments under international law. This Court cannot all of a sudden
refuse to recognize its existence, especially since the issue of the
constitutionality of the PNRC Charter was never raised by the parties. It bears
emphasizing that the PNRC has responded to almost all national disasters
since 1947, and is widely known to provide a substantial portion of the
countrys blood requirements. Its humanitarian work is unparalleled. The
Court should not shake its existence to the core in an untimely and drastic
manner that would not only have negative consequences to those who

Page 37 of 1072

depend on it in times of disaster and armed hostilities but also have adverse
effects on the image of the Philippines in the international community. The
sections of the PNRC Charter that were declared void must
therefore stay.

TOPIC: CLASSIFICATIONS OF CORPORATION


FRANCISCA S. BALUYOT
vs.
PAUL E. HOLGANZA and the OFFICE OF THE OMBUDSMAN (VISAYAS)
represented by its Deputy Ombudsman for the Visayas ARTURO C.
MOJICA, Director VIRGINIA PALANCA-SANTIAGO, and Graft
Investigation Officer I ANNA MARIE P. MILITANTE
G.R. No. 136374 February 9, 2000
FACTS:
During a spot audit conducted on March 21, 1977 by a team of auditors
from the Philippine National Red Cross (PNRC) headquarters, a cash shortage
of P154, 350.13 was discovered in the funds of its Bohol chapter. Petitioner
Francisca S. Baluyot was held accountable for the shortage. Thereafter, on
January 8, 1998, private respondent Paul E. Holganza, in his capacity as a
member of the board of directors of the Bohol chapter, filed an affidavitcomplaint charging petitioner of malversation under Article 217 of the
Revised Penal Code.
On February 6, 1998, public respondent issued an Order requiring
petitioner to file her counter-affidavit to the charges of malversation and
dishonesty within ten days from notice, with a warning that her failure to
comply would be construed as a waiver on her part to refute the charges,
and that the case would be resolved based on the evidence on record. On
March 14, 1998, petitioner filed her counter-affidavit;raising principally the
defense that public respondent had no jurisdiction over the controversy. She
argued that the Ombudsman had authority only over government-owned or
controlled corporations, which the PNRC was not, or so she claimed.

Page 38 of 1072

ISSUE/S:
Whether or not PNRC is a private voluntary organization.
RULING:
Resolving the issue set out in the opening paragraph of this opinion,
we rule that the Philippine National Red Cross (PNRC) is a government owned
and controlled corporation, with an original charter under Republic Act No.
95, as amended.
The test to determine whether a corporation is government owned or
controlled or private in nature is simple.
Is it created by its own charter for the exercise of a public
function, or by incorporation under the general corporation law?
Those with special charters are government corporations subject to its
provisions, and its employees are under the jurisdiction of the Civil Service
Commission, and are compulsory members of the Government Service
Insurance System. The PNRC was not "impliedly converted to a private
corporation" simply because its charter was amended to vest in it the
authority to secure loans, be exempted from payment of all duties, taxes,
fees and other charges of all kinds on all importations and purchases for its
exclusive use, on donations for its disaster relief work and other services and
in its benefits and fund raising drives, and be allotted one lottery draw a year
by the Philippine Charity Sweepstakes Office for the support of its disaster
relief operation in addition to its existing lottery draws for blood program.
Clearly then, public respondent has jurisdiction over the matter,
pursuant to Section 13, of Republic Act No. 6770, otherwise known as "The
Ombudsman Act of 1989", to wit:
Sec. 13.Mandate. The Ombudsman and his Deputies, as
protectors of the people, shall act promptly on complaints filed in
any form or manner against officers or employees of the
Government, or of any subdivision, agency or instrumentality
thereof, including government-owned or controlled corporations,
and enforce their administrative, civil and criminal liability in
ever case where the evidence warrants in order to promote
efficient service by the Government to the people.

Page 39 of 1072

TOPIC:CLASSIFICATIONS OF CORPORATION
THE VETERANS FEDERATION OF THE PHILIPPINES represented by
Esmeraldo R. Acorda,
vs.
Hon. ANGELO T. REYES in his capacity as Secretary of National
Defense; and Hon. EDGARDO E. BATENGA in his capacity as
Undersecretary for Civil Relations and Administration of the
Department of National Defense
G. R. No. 155027.February 28, 2006
FACTS:
Petitioner VFP was created under Rep. Act No. 2640, a statute
approved on 18 June 1960.
On 15 April 2002, petitioners incumbent president received a letter
which tended to show that there is an organizational and management
relationship between Veterans Federation of the Philippines and the
Philippine Veterans Bank which for many years have been inadvertently
overlooked. On 10 June 2002, respondent DND Secretary issued the assailed
DND Department Circular No. 04.
In a letter addressed to the President of petitioner, respondent DND
Secretary reiterated his instructions in his earlier letter of 13 April 2002.
Thereafter, petitioners President received a letter dated 23 August 2002
from respondent Undersecretary, informing him that Department Order No.
129 dated 23 August 2002 directed "the conduct of a Management Audit of
the Veterans Federation of the Philippines." The letter went on to state that
respondent DND Secretary "believes that the mandate given by said law can
be meaningfully exercised if this department can better appreciate the
functions, responsibilities and situation on the ground and this can be done
by undertaking a thorough study of the

Page 40 of 1072

Subsequently, the Secretary General of the VFP sent an undated letter


to respondent DND Secretary, with notice to respondent Undersecretary for
Civil Relations and Administration, complaining about the alleged broadness
of the scope of the management audit and requesting the suspension thereof
until such time that specific areas of the audit shall have been agreed upon.
The request was, however, denied by the Undersecretary. Petitioner
thus filed Certiorari with Prohibition under Rule 65 of the 1997 Rules of Civil
Procedure.
ISSUE/S:
Is the VFP a Private non-government Corporation
RULING:
The Supreme Court is constrained to rule that petitioner is in fact a
public corporation. Before responding to petitioners allegations one by one,
here are the more evident reasons why the VFP is a public corporation:
1) Rep. Act No. 2640 is entitled "An Act to Create a Public
Corporation to be Known as the Veterans Federation of the
Philippines, Defining its Powers, and for Other Purposes."
2) Any action or decision of the Federation or of the Supreme
Council shall be subject to the approval of the Secretary of
Defense.
3) The VFP is required to submit annual reports of its
proceedings for the past year, including a full, complete
and itemized report of receipts and expenditures of
whatever kind, to the President of the Philippines or to the
Secretary of National Defense.
4) Under Executive Order No. 37 dated 2 December 1992, the
VFP was listed as among the government-owned and
controlled corporations that will not be privatized.
5) In Ang Bagong Bayani OFW Labor Party v. COMELEC this
Court held in a minute resolution that the "VFP [Veterans
Federation Party] is an adjunct of the government, as it is
merely an incarnation of the Veterans Federation of the
Philippines.

Page 41 of 1072

TOPIC:CLASSIFICATIONS OF CORPORATION
MANILA INTERNATIONAL AIRPORT AUTHORITY,
vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF
PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY
ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUE,
G.R. No. 155650. July 20, 2006
FACTS:
Petitioner Manila International Airport Authority operates the Ninoy
Aquino International Airport (NAIA) Complex in Paraaque City under
Executive Order No. 903, otherwise known as the Revised Charter of the
Manila International Airport Authority (MIAA Charter). Executive Order No.
903 was issued on 21 July 1983 by then President Ferdinand E. Marcos.
Subsequently, Executive Order Nos. 909 and 298 amended the MIAA
Charter.
As operator of the international airport, MIAA administers the land,
improvements and equipment within the NAIA Complex. The MIAA Charter
transferred to MIAA approximately 600 hectares of land, including the
runways and buildings then under the Bureau of Air Transportation. The
MIAA Charter further provides that no portion of the land transferred to MIAA
shall be disposed of through sale or any other mode unless specifically
approved by the President of the Philippines.
The Office of the Government Corporate Counsel (OGCC) issued
Opinion No. 061. The OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under Section
21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of
Paraaque to pay the real estate tax imposed by the City. MIAA then paid
some of the real estate tax already due.

Page 42 of 1072

On 28 June 2001, MIAA received Final Notices of Real Estate Tax


Delinquency from the City of Paraaque for the taxable years 1992 to 2001.
On 17 July 2001, the City of Paraaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport Lands and
Buildings. The Mayor of the City of Paraaque threatened to sell at public
auction the Airport Lands and Buildings should MIAA fail to pay the real
estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No.
061.
ISSUE:
Whether MIAA is a government-owned or controlled corporation.
RULING:
The Supreme Court ruled that MIAAs Airport Lands and Buildings are
exempt from real estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation
but an instrumentality of the National Government and thus
exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt
from real estate tax.
MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or
controlled corporation, is not exempt from real estate tax. Respondents claim
that the deletion of the phrase any government-owned or controlled so
exempt by its charter in Section 234(e) of the Local Government Code
withdrew the real estate tax exemption of government-owned or controlled
corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real
Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation
is not exempt from real estate tax. However, MIAA is not a governmentowned or controlled corporation.
MIAA is a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested with
corporate powers.
When the law vests in a government instrumentality corporate powers,
the instrumentality does not become a corporation. Unless the government

Page 43 of 1072

instrumentality is organized as a stock or non-stock corporation, it remains a


government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent
domain, police authority and the levying of fees and charges. At the same
time, MIAA exercises all the powers of a corporation under the Corporation
Law, insofar as these powers are not inconsistent with the provisions of this
Executive Order.
MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust
for the Republic. Section 48, Chapter 12, Book I of the Administrative Code
allows instrumentalities like MIAA to hold title to real properties owned by the
Republic.
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a governmentowned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable
person because it is not subject to taxes, fees or charges of any kind by
local governments. The only exception is when MIAA leases its real property
to a taxable person as provided in Section 234(a) of the Local Government
Code, in which case the specific real property leased becomes subject to real
estate tax. Thus, only portions of the Airport Lands and Buildings leased to
taxable persons like private parties are subject to real estate tax by the City
of Paraaque.

Page 44 of 1072

TOPIC: STAGES IN THE FORMATION/ORGANIZATION OF A CORPORATION


MARC II MARKETING, INC. AND LUCILA
v.
JOSON
G.R. No. 171993 ; December 12, 2011
FACTS:
THE board of directors of petitioner Marc II Marketing, Inc. conducted a
meeting on Aug. 29, 1994 where respondent Alfredo M. Joson was appointed
as one of its corporate officers, with the designation or title of general
manager. He was supposed to function as a managing director with other
duties and responsibilities that the board may provide and authorize.
On June 30, 1997, petitioner corporation decided to stop its operations due
to poor sales collection, aggravated by the inefficient management of its
affairs.
Consequently, the services of respondent as general manager were
terminated.
Aggrieved, respondent filed a complaint for reinstatement and money claims
against petitioner.
ISSUE:
Is the controversy intra-corporate?
RULING:
No., That respondent was also a director and a stockholder of
petitioner corporation will not automatically make the case fall within the
ambit of intra-corporate controversy and be subjected to the Regional Trial
Courts jurisdiction. Not all conflicts between the stockholders and the

Page 45 of 1072

corporation are classified as intra-corporate. Other factors such as the status


or relationship of the parties and the nature of the question that is the
subject of the controversy must be considered in determining whether the
dispute involves corporate matters so as to regard them as intra-corporate
controversies.
As previously discussed, respondent was not a corporate officer of petitioner
corporation but a mere employee thereof so there was no intra-corporate
relationship between them. With regard to the subject of the controversy or
issue involved herein, i.e., respondents dismissal as petitioner corporations
General Manager, the same did not present or relate to an intra-corporate
dispute.

TOPIC: STAGES IN THE FORMATION/ORGANIZATION OF A CORPORATION


CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,
vs.
TEODORO SANDIKO, defendant-appellee.
G.R. No. L-43350 December 23, 1937
FACTS:
Manuel Tabora owns four parcels of land which he mortgages in three
separate occasions. The first two mortgages were to PNB and the third to
Severina Buzon. All three mortgages were registered and annotated at the
back of the title. The mortgages were made in order for Tabora to have
enough funds to form a fishery businesses. However, he experienced
financial reverses. He formed a corporation (Cagayan Fishing) composed of
himself, his wife, and a few others. From the articles of incorporation, it
appears that out of the P48,700, amount of capital stock subscribed, P45,000
was subscribed by Manuel Tabora himself and P500 by his wife. Both Tabora
and His wife were directors and the latter was treasurer as well.
In MAY 31, 1930, Tabora executed a public document entitled Escritura
de Transpaso de Propiedad Inmueble (Deed of Transfer of Real Property),
selling such parcels of land to Cagayan Fishing Development Co., Inc. The
sale was concluded with a consideration of P1 and subject to the mortgages
mentioned. The agreement was that the title to the lands will not be
transferred unless Cagayan Fishing will pay Taboras indebtedness.

Page 46 of 1072

Cagayan Fishing filed its articles of incorporation with the Bureau of


Commerce and Industry on OCTOBER 22, 1930. In October of 1931, the
board of directors of the company authorized its president Jose Ventura) to
sell such parcels of lands to Teodoro Sandiko. Sandiko obligated himself to
pay shoulder the three mortgages earlier described and issued a promissory
note in favour of the company. However, Sandiko failed to pay for the
amount stipulated upon, causing Cagayan Fishing to file a case for collection
of sum of money against him.
ISSUE/S:
Whether or not the sale between Cagayan Fishing and Sandiko was
valid.
RULING:
The initial transfer of the land (from Tabora to Cagayan Fishing)
occurred in May of 1930 while the company was incorporated only in October
of the same year. Hence, the transfer occurred five months before the
company was incorporated. While a DULY ORGANIZED corporation can
purchase and hold property for the purposes of its business, the same cannot
be said for a company that has not yet been incorporated. The contract
between Tabora and Cagayan Fishing referred to the company as "una
sociedad en vias de incorporacion" (a society in the process of
incorporation). It was not a de facto corporation at the time it entered into
the contracts. It had not legal personality to do so.
Corporations are creatures of the law, and can only come into
existence in the manner prescribed by law. A corporation, until organized,
has no being, franchises or faculties. Nor do those engaged in bringing it into
being have any power to bind it by contract, unless so authorized by the
charter there is not a corporation nor does it possess franchise or faculties
for it or others to exercise, until it acquires a complete existence. Since
Cagayan Fishing did not have any legal personality when the lands were
transferred to it, it also does not have the right to transfer the same to
Sandiko.
However, the court held that the contract was entered into not
between Manuel Tabora and a non-existent corporation but between the
Manuel Tabora as owner of the four parcels of lands on the one hand and the
same Manuel Tabora, his wife and others, as mere promoters of a
corporations on the other hand. These promoters could not have acted as
agent for a projected corporation since that which no legal existence could
have no agent. A corporation, until organized, has no life and therefore no
faculties. It is, as it were, a child in ventre sa mere.

Page 47 of 1072

TOPIC: STAGES IN THE FORMATION/ORGANIZATION OF A CORPORATION


FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners
vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANO,
respondents.
G.R. No. L-48627 June 30, 1987
FACTS:
Barretto and Garcia requested Arellano to conduct a project study
regarding putting up an airline business. Arellano was also tasked to perform
pre-organizational services and was promised P50,000 as compensation. The
project study was revised before being presented to prospective investors.
Such investors are petitioners in this case. Garcia, Caram and Barreto
became members of the board of the resultant corporation which is Filipinas
Orient Airways.
The lower court held that the petitioners (who are subsequent
investors of the company) are jointly and severally liable with the corporation
for the compensation of Arellano. The petitioners state that they merely
invested in the corporation after the project study was made and it was
Barreto who was the moving spirit in the creation of the company.

Page 48 of 1072

ISSUE/S:
Who should be liable for the compensation of the promoter
RULING:
Petitioners were not involved in the initial stages of the organization of
the airline, which were being directed by Barretto as the main promoter. The
petitioners were merely among the financiers whose interest was to be
invited and who were in fact persuaded, on the strength of the project study,
to invest in the proposed airline.
Also, there was no showing that the Filipinas Orient Airways was a fictitious
corporation and did not have a separate juridical personality, to justify
making the petitioners, as principal stockholders thereof, responsible for its
obligations. As a bona fide corporation, the Filipinas Orient Airways should
alone be liable for its corporate acts as duly authorized by its officers and
directors.
Hence, the petitioners cannot be held personally liable for the
compensation claimed by the private respondent for the services performed
by him in the organization of the corporation. Te petitioners did not contract
such services. The most that can be said is that they benefited from such
services, but that surely is no justification to hold them personally liable
therefore. Otherwise, all the other stockholders of the corporation, including
those who came in later, and regardless of the amount of their share
holdings, would be equally and personally liable also with the petitioners for
the claims of the private respondent.

Page 49 of 1072

TOPIC: STAGES IN THE FORMATION/ORGANIZATION OF A CORPORATION


PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and
JACOB S. LIM, respondents.
G.R. No. 84197 July 28, 1989
FACTS:
Jacob Lim owned and operated Southern Air Lines (SAL) as a single
proprietorship. He sought to expand his business, hence, he offered certain
people the chance to join him in making his business a corporation. Due to
such representations, Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and
Constancio Maglana (Maglana) contributed some funds.
The funds were used to purchase two aircrafts and certain parts from
Japan Domestic Airlines (JDA). Lim had the transaction secured by a surety
bond issued by Pioneer Insurance and Surety Corporation.
Lim also executed chattel mortgages over the aircrafts and equipment.
Lim defaulted on his payments, prompting JDA to seek payment from
Pioneer. Pioneer paid the balance of the purchase price and now seeks to
foreclose the mortgage over the aircrafts. The contributors (Bormaheco,

Page 50 of 1072

Cervanteses and Maglana) intervened, claiming that they were part owners
of such aircrafts and that Lim acted in his own name and not in the name of
the supposed corporation. It should be noted that despite Lims
representations, he did not form incorporate his businesses and did not
include the contributors in his plans.
ISSUE/S:
Should the contributors be held liable for the amount owed to Pioneer
RULING:
While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be governed by
the supposed charter and the laws of the state relating thereto and not by
the rules governing partners, it is ordinarily held that persons who attempt,
but fail, to form a corporation and who carry on business under the corporate
name occupy the position of partners inter se. Thus, where persons associate
themselves together under articles to purchase property to carry on a
business, and their organization is so defective as to come short of creating a
corporation within the statute, they become in legal effect partners inter se,
and their rights as members of the company to the property acquired by the
company will be recognized. However, such a relation does not necessarily
exist, for ordinarily persons cannot be made to assume the relation of
partners, as between themselves, when their purpose is that no partnership
shall exist, and it should be implied only when necessary to do justice
between the parties; thus, one who takes no part except to subscribe for
stock in a proposed corporation which is never legally formed does not
become a partner with other subscribers who engage in business under the
name of the pretended corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution. A partnership relation
between certain stockholders and other stockholders, who were also
directors, will not be implied in the absence of an agreement, so as to make
the former liable to contribute for payment of debts illegally contracted by
the latter.
The petitioner never had the intention to form a corporation with the
respondents despite his representations to them. This gives credence to the
cross-claims of the respondents to the effect that they were induced and
lured by the petitioner to make contributions to a proposed corporation
which was never formed because the petitioner reneged on their agreement.
No de facto partnership was created among the parties which would
entitle the petitioner to a reimbursement of the supposed losses of the
proposed corporation. The record shows that the petitioner was acting on his
own and not in behalf of his other would-be incorporators in transacting the
sale of the airplanes and spare parts.

Page 51 of 1072

TOPIC: STAGES IN THE FORMATION/ORGANIZATION OF A CORPORATION


RIZAL LIGHT & ICE CO., INC., petitioner,
vs.
THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE
COMMISSION, respondents.
G.R. No. L-20993
September 28, 1968
FACTS:
Rizal Light and Ice Co., Inc. is a duly organized corporation that was
granted a certificate of public convenience (CPC) for the installation,
operation and maintenance of an electric light, heat and power service in the
municipality of Morong, Rizal. However, it was found that it failed to fulfil its
duties as stated in its certificate and in the regulations of the Public Service
Commission. Hence, its CPC was cancelled. While Rizal Co was contesting the
cancellation of its CPC, the Commission granted Morong Electric Co a CPC to
install, operate and maintain an electric heat, light and power service in said
municipality. Rizal opposed such act, stating that Morong Electric Co did not
have a corporate personality when the franchise was granted to it since it
was incorporated in October 1962 while the CPC was given in May of the
same year.
ISSUE/S:

Page 52 of 1072

Whether or not the Morong Electric Co was incapacitated to apply for


and accept a CPC.
RULING:
The juridical personality and legal existence of Morong Electric began
only on October 17, 1962 when its certificate of incorporation was issued by
the SEC. Before that date, or pending the issuance of said certificate of
incorporation, the incorporators cannot be considered as de facto
corporation. But the fact that Morong Electric had no corporate existence on
the day the franchise was granted in its name does not render the franchise
invalid, because later Morong Electric obtained its certificate of incorporation
and then accepted the franchise in accordance with the terms and conditions
thereof.
The fact that a company is not completely incorporated at the time the
grant is made to it by a municipality to use the streets does not, in most
jurisdictions, affect the validity of the grant. But such grant cannot take
effect until the corporation is organized. The reason is that a privilege of this
character is a mere license to the corporation until it accepts the grant and
complies with its terms and conditions.
The incorporation of Morong Electric on October 17, 1962 and its
acceptance of the franchise as shown by its action in prosecuting the
application filed with the Commission for the approval of said franchise, not
only perfected a contract between the respondent municipality and Morong
Electric but also cured the deficiency pointed out by the petitioner in the
application of Morong Electric.
The efficacy of the franchise, however, arose only upon its approval by
the Commission on March 13, 1963. The reason is that
Under Act No. 667, as amended by Act No. 1022, a municipal
council has the power to grant electric franchises, subject to the
approval of the provincial board and the President. However,
under Section 16(b) of Commonwealth Act No. 146, as amended,
the Public Service Commission is empowered "to approve,
subject to constitutional limitations any franchise or privilege
granted under the provisions of Act No. 667, as amended by Act
No. 1022, by any political subdivision of the Philippines when, in
the judgment of the Commission, such franchise or privilege will
properly conserve the public interests and the Commission shall
in so approving impose such conditions as to construction,
equipment, maintenance, service, or operation as the public
interests and convenience may reasonably require, and to issue
certificates of public convenience and necessity when such is
required or provided by any law or franchise." Thus, the efficacy

Page 53 of 1072

of a municipal electric franchise arises, therefore, only after the


approval of the Public Service Commission.

TOPIC: CONTENTS OF ARTICLES OF INCORPORATION


JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES,
Petitioner,
vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION,
DOLORES ONRUBIA, ELENITA NOLASCO, JUAN O. NOLASCO III, ESTATE
OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT MARINE SCHOOL,
INC., Respondents.
G.R. No. 131394
March 28, 2005
FACTS:
In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was
incorporated, with seven hundred (700) founders shares and seventy-six
(76) common shares as its initial capital stock subscription reflected in the
articles of incorporation. Sometime in 1979, a special stockholders meeting
was called and held on the basis of what was considered as a quorum of
twenty-seven (27) common shares, representing more than two-thirds (2/3)
of the common shares issued and outstanding.
On 06 May 192, a special stockholders meeting was held to elect a
new set of directors. Private respondents thereafter filed a petition with the

Page 54 of 1072

SEC questioning the validity of the 06 May 1992 stockholders meeting


alleging that the quorum for the said meeting should not be based on the
165 issued and outstanding shares as per the stock and transfer book, but on
the initial subscribed capital stock of seven hundred seventy-six (776)
shares, as reflected in the 1952 Articles of Incorporation
ISSUE/S:
Whether it is the companys stock and transfer book, or its 1952
Articles of Incorporation, which determines stockholders shareholding
and provides the basis for computing the quorum.
RULING:
The Articles Of Incorporation has been described as one of that defines
the carter of the corporation and the contractual relationships between the
State and the corporation, the stockholders and the State, and between the
corporation and its stockholders.
When PMMSI was incorporated the
prevailing law was Act No. 1459, otherwise known as The Corporation Law,
review of PMMSIs articles of incorporation shows that the corporation
complied with the requirements list down by Act. No, 1459, otherwise known
as "The Corporation Law." Section 6 thereof states:
Sec. 6. Five or more persons, not exceeding fifteen, a majority of
whom are residents of the Philippines, may form a private
corporation for any lawful purpose or purposes by filing with the
Securities and Exchange Commission articles of incorporation
duly executed and acknowledged before a notary public, setting
forth:
....
(7) If it be a stock corporation, the amount of its capital stock, in
lawful money of the Philippines, and the number of shares into
which it is divided, and if such stock be in whole or in part
without par value then such fact shall be stated; Provided,
however, That as to stock without par value the articles of
incorporation need only state the number of shares into which
said capital stock is divided.
(8) If it be a stock corporation, the amount of capital stock or
number of shares of no-par stock actually subscribed the amount
or number of shares of no-par stock subscribed by each and the
sum paid by each on his subscription. . . .
A review of PMMSIs articles of incorporationshows that the corporation
complied with the requirements laid down by Act No. 1459.

Page 55 of 1072

TOPIC: CORPORATE NAME


FRANCISCO M. ALONSO, substituted by his heirs, petitioners,
vs.
CEBU COUNTRY CLUB, INC., respondent.
G.R. No. 130876, January 31, 2002
FACTS:
Petitioner Francisco M. Alonso, who died pendente lite and substituted
by his legal heirs, a lawyer by profession, the only son and sole heir of the
late Tomas N. Alonso and Asuncion Medalle, who died on June 16, 1962 and
August 18, 1963, respectively. Cebu Country Club, Inc. is a non-stock, nonprofit corporation duly organized and existing under Philippine Laws the
purpose of which is to cater to the recreation and leisure of its members.
Sometime in 1992, petitioner discovered documents and records
showing that his father acquired Lot No. 727 of the Banilad Friar Lands Estate
from the Government of the Philippine Islands in or about the year 1911 in
accordance with the Friar Lands Act (Act No. 1120). It appears, however, that
the deed was not registered with the Register of Deeds because of lack of
technical requirements, among them the approval of the deed of sale by the
Secretary of Agriculture and Natural Resources, as required by law. Upon

Page 56 of 1072

investigation of the status of the land, petitioner found out from the office of
the Registrar of Deeds of Cebu City that title to Lot No. 727 of the Banilad
Friar Lands Estate had been "administratively reconstituted from the owners
duplicate" on July 26, 1948 under Transfer Certificate of Title (TCT) No. RT1310 (T-11351) in the name of United Service Country Club, Inc., predecessor
of Cebu Country Club, Inc. On March 8, 1960, upon order of the Court of First
Instance, the name of the registered owner in TCT No. RT-1310 (T-11531) was
changed to Cebu Country Club, Inc.
In the firm belief that petitioners father is still the rightful owner of Lot
No. 727 of the Banilad Friar Lands Estate since there are no records showing
that he ever sold or conveyed the disputed property to anyone, on July 7,
1992, petitioner made a formal demand upon Cebu Country Club, Inc. to
restore to him the ownership and possession of said lot within fifteen (15)
days from receipt thereof.
Left with no other recourse, on September 25, 1992, petitioner filed
with the Regional Trial Court, Cebu City,a complaint for declaration of nullity
and non existence of deed/title, cancellation of certificates of title and
recovery of property against defendant Cebu Country Club, Inc. November 5,
1992, Cebu Country Club, Inc. filed with the trial court its answer with
counterclaim.
On May 7, 1993, the trial court rendered a decision in favor of the
defendant and against the plaintiff, declaring the contested property or Lot
727 as legally belonging to the defendant. On March 31, 1997, the Court of
Appeals promulgated a decision affirming the lower courts decision. On
October 24, 2000, we required the Solicitor General to file comment on the
issue of the validity of the re-constituted title in dispute.On November 8,
2000, the Solicitor General submitted a comment stating that on the basis of
information received from the Land Registration Authority (LRA) and the Land
Management Bureau (LMB), the Cebu Country Club, Inc. had been occupying
the disputed property even before the Second World War and developed it
into a golf course and must have acquired the property in a proper and valid
manner

ISSUE/S:
Whether or not the Court of Appeals lawfully adjudged the validity of
the administrative reconstitution of the title of Cebu Country Club, Inc.
over the OCT of the Government of the Philippine Islands and Sales
Patent No. 14353 on Lot No. 727 in the name of Tomas N. Alonso.
RULING:

Page 57 of 1072

The issue is factual, which, as aforesaid, cannot be reviewed in this


appeal. Nevertheless, petitioners assail the validity of the administrative
reconstitution of Cebu Country Club, Inc.s title No. RT-1310 (T-11351) on
three (3) grounds: Its source title bears the same number as another title
which refers to another parcel of land; There is no recorded transaction of
the land from Tomas Alonso in favor of Cebu Country Club, Inc.; and The
technical description was not transcribed in the title within two (2) years
from the date of its reconstitution. None of the grounds has any basis or
merit.
On the question that TCT No. RT-1310 (T-11351) bears the same
number as another title to another land, we agree with the Court of Appeals
that there is nothing fraudulent with the fact that Cebu Country Club, Inc.s
reconstituted title bears the same number as the title of another parcel of
land.
Petitioners next argue that the reconstituted title of Cebu Country Club,
Inc. had no lawful source to speak of; it was reconstituted through extrinsic
and intrinsic fraud in the absence of a deed of conveyance in its favor. In
truth, however, reconstitution was based on the owners duplicate of the
title, hence, there was no need for the covering deed of sale or other modes
of conveyance. Cebu Country Club, Inc. was admittedly in possession of the
land since long before the Second World War, or since 1931. Petitioner failed
to adduce evidence of fraud. In an action for re-conveyance based on fraud,
he who charges fraud must prove such fraud in obtaining a title. Worse, the
imputation of fraud was so tardily brought, some forty-four (44) years or
sixty-one (61) years after its supposed occurrence, that is, from the
administrative reconstitution of title on July 26, 1948, or from the issuance of
the original title on November 19, 1931, that verification is rendered
extremely difficult, if not impossible, especially due to the supervening event
of the second world war during which practically all public records were lost
or destroyed, or no longer available.
Petitioners next question the lack of technical description inscribed in
the reconstituted title in Cebu Country Club, Inc.s name. This is not a bar to
reconstitution of the title nor will it affect the validity of the reconstituted
title. A registered owner is given two (2) years to file a plan of such land with
the Chief of the General Land Registration Office. The two-year period is
directory, not jurisdictional. In other words, the failure to submit the technical
description within two (2) years would not invalidate the title. At most, the
failure to file such technical description within the two-year period would bar
a transfer of the title to a third party in a voluntary transaction.

Page 58 of 1072

TOPIC:CORPORATE NAME
INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES,
petitioner, vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
REFRACTORIES CORPORATION OF THE PHILIPPINES, respondents.
G.R. No. 122174.October 3, 2002
FACTS:
Respondent Refractories Corporation of the Philippines (RCP) is a
corporation duly organized on October 13, 1976 for the purpose of engaging
in the business of manufacturing, producing, selling, exporting and otherwise
dealing in any and all refractory bricks, its by-products and derivatives. On
June 22, 1977, it registered its corporate and business name with the Bureau
of Domestic Trade.
Petitioner IRCP on the other hand, was incorporated on August 23,
1979 originally under the name "Synclaire Manufacturing Corporation". It
amended its Articles of Incorporation on August 23, 1985 to change its
corporate name to "Industrial Refractories Corp. of the Philippines". It is

Page 59 of 1072

engaged in the business of manufacturing all kinds of ceramics and other


products, except paints and zincs.
Both companies are the only local suppliers of monolithic gunning
mix.Discovering that petitioner was using such corporate name, respondent
RCP filed on April 14, 1988 with the Securities and Exchange Commission
(SEC) a petition to compel petitioner to change its corporate name on the
ground that its corporate name is confusingly similar with that of petitioners
such that the public may be confused or deceived into believing that they
are one and the same corporation.
The SEC decided in favor the petitioner and against the respondent
declaring the latters corporate name Industrial Refractories Corporation of
the Philippines as deceptively and confusingly similar to that of petitioners
corporate name Refractories Corporation of the Philippines. the SEC En
Banc modified the appealed decision in that petitioner was ordered to delete
or drop from its corporate name only the word "Refractories". Petitioner IRCP
elevated the decision of the SEC En Banc through a petition for review on
certiorari to the Court of Appeals which then rendered the herein assailed
decision. The appellate court upheld the jurisdiction of the SEC over the case
and ruled that the corporate names of petitioner IRCP and respondent RCP
are confusingly or deceptively similar, and that respondent RCP has
established its prior right to use the word "Refractories" as its corporate
name. The appellate court also found that the petition was filed beyond the
reglementary period.

ISSUE/S:
Whether or not there is confusing or deceptive similarity between
petitioner and respondent RCPs corporate names.
RULING:
Pursuant thereto, the Revised Guidelines in the Approval of Corporate
and Partnership Names specifically requires that:
1) a corporate name shall not be identical, misleading or
confusingly similar to one already registered by another
corporation with the Commission; and
2) if the proposed name is similar to the name of a registered
firm, the proposed name must contain at least one distinctive
word different from the name of the company already
registered.
In this case, respondent RCP was incorporated on October 13, 1976
and since then has been using the corporate name "Refractories Corp. of the
Philippines". Meanwhile, petitioner was incorporated on August 23, 1979
originally under the name "Synclaire Manufacturing Corporation". It only

Page 60 of 1072

started using the name "Industrial Refractories Corp. of the Philippines" when
it amended its Articles of Incorporation on August 23, 1985, or nine (9) years
after respondent RCP started using its name. Thus, being the prior registrant,
respondent RCP has acquired the right to use the word "Refractories" as part
of its corporate name.
Anent the second requisite, in determining the existence of confusing
similarity in corporate names, the test is whether the similarity is such as to
mislead a person using ordinary care and discrimination and the Court must
look to the record as well as the names themselves. Petitioners corporate
name is "Industrial Refractories Corp. of the Phils.", while respondents is
"Refractories Corp. of the Phils." Obviously, both names contain the identical
words "Refractories", "Corporation" and "Philippines". The only word that
distinguishes petitioner from respondent RCP is the word "Industrial" which
merely identifies a corporations general field of activities or operations. We
need not linger on these two corporate names to conclude that they are
patently similar that even with reasonable care and observation, confusion
might arise. It must be noted that both cater to the same clientele, i.e. the
steel industry. In fact, the SEC found that there were instances when different
steel companies were actually confused between the two, especially since
they also have similar product packaging. Such findings are accorded not
only great respect but even finality, and are binding upon this Court, unless it
is shown that it had arbitrarily disregarded or misapprehended evidence
before it to such an extent as to compel a contrary conclusion had such
evidence been properly appreciated. And even without such proof of actual
confusion between the two corporate names, it suffices that confusion is
probable or likely to occur.
TOPIC: CORPORATE NAME
ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA
BANSANG PILIPINAS, INC., petitioner,
vs.
IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG
KATOTOHANAN, respondent.
G.R. No. 137592.December 12, 2001
FACTS:
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng
Katotohanan, is a non-stock religious society or corporation registered in
1936. In 1976, one Eliseo Soriano and several other members of respondent
corporation disassociated themselves from the latter and succeeded in
registering on March 30, 1977 a new non-stock religious society or
corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan.

Page 61 of 1072

On July 16, 1979, respondent corporation filed with the SEC a petition
to compel the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan to change its corporate name, which petition was docketed as
SEC Case No. 1774. It appears that during the pendency of SEC Case No.
1774, Soriano, et al., caused the registration on April 25, 1980 of petitioner
corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa
Bansang Pilipinas. The acronym "H.S.K." stands for Haligi at Saligan ng
Katotohanan. On March 2, 1994, respondent corporation filed before the SEC
a petition, praying that petitioner be compelled to change its corporate name
and be barred from using the same or similar name on the ground that the
same causes confusion among their members as well as the public.
Petitioner filed a petition for review with the Court of Appeals. On October 7,
1997, the Court of Appeals rendered the assailed decision affirming the
decision of the SEC En Banc. Petitioner's motion for reconsideration was
denied by the Court of Appeals on February 16, 1992.
ISSUE/S:
Whether or not the Court of Appeals failed to consider and properly
apply the exceptions established by jurisprudence in the application of
section 18 of the corporation code to the instant case.
RULING:
It is the duty of the SEC to prevent confusion in the use of corporate
names not only for the protection of the corporations involved but more so
for the protection of the public. Parties organizing a corporation must choose
a name at their peril; and the use of a name similar to one adopted by
another corporation, whether a business or a nonprofit organization, if
misleading or likely to injure in the exercise of its corporate functions,
regardless of intent, may be prevented by the corporation having a prior
right, by a suit for injunction against the new corporation to prevent the use
of the name.
The additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc."
in petitioner's name are, as correctly observed by the SEC, merely
descriptive of and also referring to the members, or kaanib, of respondent
who are likewise residing in the Philippines. These words can hardly serve as
an effective differentiating medium necessary to avoid confusion or difficulty
in distinguishing petitioner from respondent. This is especially so, since both
petitioner and respondent corporations are using the same acronym H.S.K.;
not to mention the fact that both are espousing religious beliefs and
operating in the same place. Parenthetically, it is well to mention that the
acronym H.S.K. used by petitioner stands for "Haligi at Saligan ng
Katotohanan."

Page 62 of 1072

TOPIC: CORPORATE NAME


UNIVERSAL MILLS CORPORATION, petitioner,
vs.
UNIVERSAL TEXTILE MILLS, INC., respondent.
G.R. No.L-28351. July 28, 1977
FACTS:
The Universal Textile Mills, Inc. was organ on December 29, 1953, as a
textile manufacturing firm for which it was issued a certificate of registration
on January 8, 1954. The Universal Mills Corporation, on the other hand, was
registered in this Commission on October 27, 1954, under its original name,
Universal Hosiery Mills Corporation, having as its primary purpose the
"manufacture and production of hosieries and wearing apparel of all kinds."

Page 63 of 1072

On May 24, 1963, it filed an amendment to its articles of incorporation


changing its name to Universal Mills Corporation, its present name, for which
this Commission issued the certificate of approval on June 10, 1963.
The immediate cause of this present complaint, however, was the
occurrence of a fire which gutted respondent's spinning mills in Pasig, Rizal.
Petitioner alleged that as a result of this fire and because of the similarity of
respondent's name to that of herein complainant, the news items appearing
in the various metropolitan newspapers carrying reports on the fire created
uncertainty and confusion among its bankers, friends, stockholders and
customers prompting petitioner to make announcements, clarifying the real
Identity of the corporation whose property was burned. Petitioner presented
documentary and testimonial evidence in support of this allegation.
ISSUE/S:
Whether or not the order of the Commission enjoining petitioner to its
corporate name constitutes, in the light of the circumstances found by
the Commission, a grave abuse of discretion.
RULING:
The Supreme Court believesthat it is not. Indeed, it cannot be said that
the impugned order is arbitrary and capricious. The corporate names in
question are not Identical, but they are indisputably so similar that even
under the test of "reasonable care and observation as the public generally
are capable of using and may be expected to exercise" invoked by appellant,
We are apprehensive confusion will usually arise, considering that under the
second amendment of its articles of incorporation on August 14, 1964,
appellant included among its primary purposes the "manufacturing, dyeing,
finishing and selling of fabrics of all kinds" in which respondent had been
engaged for more than a decade ahead of petitioner. Factually, the
Commission found existence of such confusion, and there is evidence to
support its conclusion. Since respondent is not claiming damages in this
proceeding, it is, of course, immaterial whether or not appellant has acted in
good faith, but We cannot perceive why of all names, it had to choose a
name already being used by another firm engaged in practically the same
business for more than a decade enjoying well earned patronage and
goodwill, when there are so many other appropriate names it could possibly
adopt without arousing any suspicion as to its motive and, more importantly,
any degree of confusion in the mind of the public which could mislead even
its own customers, existing or prospective. Premises considered, there is no
warrant for our interference.

Page 64 of 1072

TOPIC: CORPORATE NAME


LYCEUM OF THE PHILIPPINES, INC., petitioner,
vs.
COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM OF CABAGAN,
LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM
OF TUAO, INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES,
LYCEUM OF SOUTHERN PHILIPPINES, LYCEUM OF EASTERN
MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC.,
respondents.
G.R. No. 101897. March 5, 1993.
FACTS:
Petitioner is an educational institution duly registered with the
Securities and Exchange Commission. When it first registered with the SEC

Page 65 of 1072

on 21 September 1950, it used the corporate name Lyceum of the


Philippines, Inc. and has used that name ever since.
On 24 February 1984, petitioner instituted proceedings before the SEC
to compel the private respondents, which are also educational institutions, to
delete the word "Lyceum" from their corporate names and permanently to
enjoin them from using "Lyceum" as part of their respective names.
Petitioner had sometime before commenced in the SEC a proceeding against
the Lyceum of Baguio, Inc. to require it to change its corporate name and to
adopt another name not "similar to or identical" with that of petitioner. In an
Order dated 20 April 1977, Associate Commissioner Julio Sulit held that the
corporate name of petitioner and that of the Lyceum of Baguio, Inc. were
substantially identical because of the presence of a "dominant" word,
"Lyceum," the name of the geographical location of the campus being the
only word which distinguished one from the other corporate name.
ISSUE/S:
Whether or not the Court of Appeals erred in holding that respondent
Western Pangasinan Lyceum, Inc. was incorporated earlier than
petitioner and that Lyceum as a generic word cannot be appropriated
by the petitioner to the exclusion of others.
RULING:
The Supreme Court does not consider that the corporate names of
private respondent institutions are "identical with, or deceptively or
confusingly similar" to that of the petitioner institution. True enough, the
corporate names of private respondent entities all carry the word "Lyceum"
but confusion and deception are effectively precluded by the appending of
geographic names to the word "Lyceum." Thus, we do not believe that the
"Lyceum of Aparri" can be mistaken by the general public for the Lyceum of
the Philippines, or that the "Lyceum of Camalaniugan" would be confused
with the Lyceum of the Philippines.
The Court concludes and so hold that petitioner institution is not
entitled to a legally enforceable exclusive right to use the word "Lyceum" in
its corporate name and that other institutions may use "Lyceum" as part of
their corporate names. To determine whether a given corporate name is
"identical" or "confusingly or deceptively similar" with another entity's
corporate name, it is not enough to ascertain the presence of "Lyceum" or
"Liceo" in both names. One must evaluate corporate names in their entirety
and when the name of petitioner is juxtaposed with the names of private
respondents, they are not reasonably regarded as "identical" or "confusingly
or deceptively similar" with each other.

Page 66 of 1072

TOPIC: CORPORATE NAME


INDIANA AEROSPACE UNIVERSITY, petitioner,
vs.
COMMISSION ON HIGHER EDUCATION (CHED), respondent.
G.R. No. 139371. April 4, 2001
FACTS:
Dr. Reynaldo Vera, Chairman, Technical Panel for Engineering,
Architecture, and Maritime Education (TPRAM) of CHED, received a letter
from Douglas R. Macias, Chairman, Board of Aeronautical Engineering of PRC
and Chairman, Technical Committee for Aeronautical Engineering inquiring
whether herein petitioner had already acquired its UNIVERSITY status in view
of the latters advertisement in the Manila Bulletin.
In response to said letter, Dr. Vera requested the concerned Regional
Office under Chairman Alcala to conduct an investigation on the alleged

Page 67 of 1072

misrepresentation. The investigation was then made by the Regional Director


of Cebu. The report made states that the Director met with petitioners
principal to advised them not to use University unless the school had
complied with the basic requirement of being a University as prescribed in
CHED Memorandum Order No. 48, s. 1996.
Subsequently, respondent directed petitioner to desist from using the
term university, including the use of the same in any of its branches. Further,
respondent found out that petitioner had filed a proposal to amend its
corporate name from Indiana School of Aeronautics to Indiana Aerospace
University, which was supposedly favorably recommended by the
Department of Education, Culture and Sports (DECS) per its Endorsement
dated 17 July 1995, and on that basis, SEC issued to petitioner Certificate of
Registration No. AS-083-002689 dated August 7, 1995. However, SEC
Chairman Perfecto Yasay, Jr. informed respondent in his letter to Chairman
Alcala that petitioner has not filed any amended Articles of Incorporation that
changed its corporate name.
Thereafter, petitioner filed an appeal for reconsideration of
respondents order, promising to follow the provisions of CMO No. 48.
However, respondent rejected said appeal and ordered petitioner to cease
and desist from using the word University.
Consequently petitioner filed a complaint for damages with prayer for
Writ of Preliminary injunction and TRO before the RTC. Said court issued the
Writ of Preliminary Injunction which the CA dissolved.

ISSUE/S:
Whether or not CA erred in dissolving the Writ of Preliminary
Injunction issued by the RTC.
RULING:
NO.
The Supreme Court concurs with the CA that the trial court acted with
grave abuse of discretion in issuing the Writ of Preliminary Injunction against
respondent. Petitioner failed to establish a clear right to continue
representing itself to the public as a university. Indeed, it has no vested right
to misrepresent itself. Before an injunction can be issued, it is essential that:
(1) there must be a right in esse to be protected, and
(2) the act against which the injunction is to be directed must
have violated such right.

Page 68 of 1072

The establishment and the operation of schools are subject to prior


authorization from the government. No school may claim to be a
university unless it has first complied with the prerequisites
provided in Section 34 of the Manual of Regulations for Private
Schools. Section 3, Rule 58 of the Rules of Court, limits the grant of
preliminary injunction to cases in which the plaintiff is clearly entitled to the
relief prayed for.
The Court also agrees with the finding of the CA that the act sought to
be enjoined by petitioner is not violative of the latter's rights. Respondent's
Cease and Desist Order of July 30, 1997 merely restrained petitioner from
using the term "university" in its name. It was not ordered to close, but
merely to revert to its authorized name; hence, its proprietary rights were
not violated.

TOPIC:CORPORATE NAME
PHILIPS EXPORT B.V.,PHILIPS ELECTRICAL LAMPS,INC. and PHILIPS
INDUSTRIAL DEVELOPMENT, INC., petitioners,
vs.
COURT OF APPEALS, SECURITIES & EXCHANGE COMMISSION and
STANDARD PHILIPS CORPORATION, respondents.
G.R. No. 96161. February 21, 1992
FACTS:
Petitioners belong to the PHILIPS Group of Companies.
Petitioner Philip Export B.V. (PEBV), a foreign corporation organized
under the laws of the Netherlands and not engaged in business in the
Philippines is the owner of the trademarks PHILIPS andPHILIPS SHIELD
EMBLEM as registered with the Philippine Patent Office. The two other
petitioners were the authorized users of the said trademarks.

Page 69 of 1072

On the other hand, respondent Standard Philips Corporation was issued


a Certificate of registration by respondent SEC. Thus, petitioners filed a letter
complaint with the SEC for the cancellation of the word PHILIPS from
private respondents corporate name.
For private respondents refusal to amend its Articles of Incorporation,
petitioners filed with the SEC a petition for the issuance of a Writ of
Preliminary Injunction on the ground thatPrivate Respondent's use of the
word PHILIPS amounts to an infringement and clear violation of Petitioners'
exclusive right to use the same considering that both parties engage in the
same business. However, the SEC ruled against the issuance of said writ and
thereafter dismissed the petition for lack of merit.
On appeal, the SEC en bancaffirmed the dismissal declaring that the
corporate names of Petitioners and Private Respondent hardly breed
confusion inasmuch as each contains at least two different words and,
therefore, rules out any possibility of confusing one for the other.
The CA dismissed the petition and the Motion for Reconsideration filed
by petitioners.
ISSUE/S:
Whether or not, petitioners have the exclusive right to use the
word PHILIPS which must be free from any infringement by
similarity.
RULING:
Yes.
A corporation acquires its name by choice and need not select a name
identical with or similar to one already appropriated by a senior corporation
while an individual's name is thrust upon him (See Standard Oil Co. of New
Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973, 977). A corporation
can no more use a corporate name in violation of the rights of others than an
individual can use his name legally acquired so as to mislead the public and
injure another (Armington vs. Palmer, 21 RI 109. 42 A 308).
Our own Corporation Code, in its Section 18, expressly provides that:
No corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is identical or
deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law
or is patently deceptive, confusing or contrary to existing
law. Where a change in a corporate name is approved, the
commission shall issue an amended certificate of
incorporation under the amended name.

Page 70 of 1072

The statutory prohibition cannot be any clearer. To come within its


scope, two requisites must be proven, namely:
(1) That the complainant corporation acquired a prior right over
the use of such corporate name; and
(2) The proposed name is either:
a. Identical; or
b. Deceptively or confusingly similarto that of any
existing corporation or to any other name
already protected by law; or
c. Patently deceptive, confusing or contrary to
existing law.
The right to the exclusive use of a corporate name with freedom from
infringement by similarity is determined by priority of adoption (1 Thompson,
p. 80 citing Munn v. Americana Co., 82 N. Eq. 63, 88 Atl. 30; San Francisco
Oyster House v. Mihich, 75 Wash. 274, 134 Pac. 921). In this regard, there is
no doubt with respect to Petitioners' prior adoption of' the name ''PHILIPS" as
part of its corporate name. Petitioners Philips Electrical and Philips Industrial
were incorporated on 29 August 1956 and 25 May 1956, respectively, while
Respondent Standard Philips was issued a Certificate of Registration on 12
April 1982, twenty-six (26) years later (Rollo, p. 16). Petitioner PEBV has also
used the trademark "PHILIPS" on electrical lamps of all types and their
accessories since 30 September 1922, as evidenced by Certificate of
Registration No. 1651.
The second requisite no less exists in this case. In determining the
existence of confusing similarity in corporate names, the test is whether the
similarity is such as to mislead a person, using ordinary care and
discrimination. In so doing, the Court must look to the record as well as the
names themselves (Ohio Nat. Life Ins. Co. v. Ohio Life Ins. Co., 210 NE 2d
298). While the corporate names of Petitioners and Private Respondent are
not identical, a reading of Petitioner's corporate names, to wit: PHILIPS
EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL
DEVELOPMENT, INC., inevitably leads one to conclude that "PHILIPS" is,
indeed, the dominant word in that all the companies affiliated or associated
with the principal corporation, PEBV, are known in the Philippines and abroad
as the PHILIPS Group of Companies.
Moreover, PHILIPS is a trademark or trade name which was registered
as far back as 1922. Petitioners, therefore, have the exclusive right to its use
which must be free from any infringement by similarity. A corporation has an
exclusive right to the use of its name, which may be protected by injunction
upon a principle similar to that upon which persons are protected in the use
of trademarks and trade names (18 C.J.S. 574). Such principle proceeds upon
the theory that it is a fraud on the corporation which has acquired a right to
that name and perhaps carried on its business there under, that another
should attempt to use the same name, or the same name with a slight
variation in such a way as to induce persons to deal with it in the belief that

Page 71 of 1072

they are dealing with the corporation which has given a reputation to the
name (6 Fletcher [Perm Ed], pp. 39-40, citing Borden Ice Cream Co. v.
Borden's Condensed Milk Co., 210 F 510). Notably, too, Private Respondent's
name actually contains only a single word, that is, "STANDARD", different
from that of Petitioners inasmuch as the inclusion of the term "Corporation"
or "Corp." merely serves the Purpose of distinguishing the corporation from
partnerships and other business organizations.
The fact that there are other companies engaged in other lines of
business using the word "PHILIPS" as part of their corporate names is no
defense and does not warrant the use by Private Respondent of such word
which constitutes an essential feature of Petitioners' corporate name
previously adopted and registered and-having acquired the status of a wellknown mark in the Philippines and internationally as well (Bureau of Patents
Decision No. 88-35 [TM], June 17, 1988, SEC Records

TOPIC:PRIMARY PURPOSE
ALICIA E. GALA, GUIA G. DOMINGO and RITA G. BENSON, petitioners,
vs.
ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO MANAGEMENT
AND DEVELOPMENT CORPORATION, RAUL E. GALA, VITALIANO N.
AGUIRRE II, ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S.
MANIEGO, RODOLFO B. REYNO, RENATO S. GONZALES, VICENTE C.
NOLAN, NESTOR N. BATICULON, respondents.
G.R. No. 156819. December 11, 2003
FACTS:
On March 28, 1979, the Ellice Agro-Industrial Corporation was formed
and organized. The total subscribed capital stock of the corporation was
P3.5 Million with 35,000 shares. Additional shares were acquired and
subscribed from said corporation. Subsequently, on September 16, 1982, the
Margo Management and Development Corporation (Margo) was
incorporated. The total subscribed capital stock of Margo was 20,000 shares

Page 72 of 1072

at P200,000.00. Several transfers of shares of Ellice to Margo were made by


the stockholders and some payments of subscription were made by
transferring parcels of land by the Gala Spouses.
In essence, petitioners want this Court to disregard the separate
juridical personalities of Ellice and Margo for the purpose of treating all
property purportedly owned by said corporations as property solely owned
by the Gala spouses. The petitioners contention in support of this theory is
that the purposes for which Ellice and Margo were organized should be
declared as illegal and contrary to public policy. They claim that the
respondents never pursued exemption from land reform coverage in good
faith and instead merely used the corporations as tools to circumvent land
reform laws and to avoid estate taxes. Specifically, they point out that
respondents have not shown that the transfers of the land in favor of Ellice
were executed in compliance with the requirements of Section 13 of R.A.
3844. Furthermore, they alleged that respondent corporations were run
without any of the conventional corporate formalities.
ISSUE/S:
Whether Or Not The Lower Court Erred In Not Declaring As Illegal
And Contrary To Public Policy The Purposes And Manner In Which
Respondent Corporations Were Organized.
RULING:
NO.
At the outset, the Court holds that petitioners contentions impugning
the legality of the purposes for which Ellice and Margo were organized,
amount to collateral attacks which are prohibited in this jurisdiction.
The best proof of the purpose of a corporation is its articles of
incorporation and by-laws. The articles of incorporation must state the
primary and secondary purposes of the corporation, while the by-laws outline
the administrative organization of the corporation, which, in turn, is
supposed to insure or facilitate the accomplishment of said purpose.
In the case at bar, a perusal of the Articles of Incorporation of Ellice
and Margo shows no sign of the allegedly illegal purposes that petitioners are
complaining of. It is well to note that, if a corporations purpose, as stated in
the Articles of Incorporation, is lawful, then the SEC has no authority to
inquire whether the corporation has purposes other than those stated, and
mandamus will lie to compel it to issue the certificate of incorporation.
Assuming there was even a grain of truth to the petitioners claims
regarding the legality of what are alleged to be the corporations true
purposes, we are still precluded from granting them relief. We cannot

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address here their concerns regarding circumvention of land reform laws, for
the doctrine of primary jurisdiction precludes a court from arrogating unto
itself the authority to resolve a controversy the jurisdiction over which is
initially lodged with an administrative body of special competence. Since
primary jurisdiction over any violation of Section 13 of Republic Act No. 3844
that may have been committed is vested in the Department of Agrarian
Reform Adjudication Board (DARAB), then it is with said administrative
agency that the petitioners must first plead their case. With regard to their
claim that Ellice and Margo were meant to be used as mere tools for the
avoidance of estate taxes, suffice it say that the legal right of a taxpayer to
reduce the amount of what otherwise could be his taxes or altogether avoid
them, by means which the law permits, cannot be doubted.
The petitioners allegation that Ellice and Margo were run without any
of the typical corporate formalities, even if true, would not merit the grant of
any of the relief set forth in their prayer. We cannot disregard the corporate
entities of Ellice and Margo on this ground. At most, such allegations, if
proven to be true, should be addressed in an administrative case before the
SEC.
Thus, even if Ellice and Margo were organized for the purpose of
exempting the properties of the Gala spouses from the coverage of land
reform legislation and avoiding estate taxes, we cannot disregard their
separate juridical personalities.

TOPIC:PRIMARY PURPOSE
UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO
CALIXTO and UY CHO YEE, petitioners,
vs.
THE DIRECTOR OF COMMERCE AND INDUSTRY, respondent.
G.R. No. L-15429. December 1, 1919
FACTS:
Petitioners had been associated together as partners in a partnership
known as Mercantil Regular Colectiva, under the style and firm Siulong y
Cia. Said partnership was to be dissolved in order to form a corporation to
be known as "Siulong y Compaia, Incorporada."
The proposed Articles of Incorporation of the said proposed corporation
states the following purposes:
(a) The purchase and sale, importation and exportation, of
the products of the country as well as of foreign countries;
(b) To discount promissory notes, bills of exchange, and
other negotiable instruments;

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(c) The purchase and sale of bills of exchange, bonds,


stocks, or "participaciones de sociedades mercantiles e
industriales [joint account of mercantile and industrial
associations]," and of all classes of mercantile documents;
"comisiones
[commissions];"
"consignaciones
[consignments];"
(d) To act as agents for life, marine and fire insurance
companies;
(e) To purchase and sell boats of all classes "y fletamento
de los mismos [and charterage of same];" and
(f) To purchase and sell industrial and mercantile
establishments.
Respondent in his argument states the following:
(a) that the proposed articles of incorporation presented for
file and registry permitted the petitioners to engage in a
business which had for its end more than one purpose;
(b) that it permitted the petitioners to engage in the
banking business, and
(c) to deal in real estate, in violation of the Act of Congress
of July 1, 1902.
ISSUE/S:
Whether or not the proposed articles of incorporation of "Siuliong
y Cia., Inc.," permits it to engage in a business with more than
one purpose.
RULING:
The Supreme Court states:
1. That a corporation may be organized under the laws of the
Philippine Islands for mercantile purposes, and to engage in such
incidental business as may be necessary and advisable to give
effect to, and aid in, the successful operation and conduct of the
principal business.
2. While we have arrived at the conclusion that the proposed
articles of incorporation do not authorize the petitioners to
engage in a business with more than one purpose, we do not
mean to be understood as having decided that corporations
under the laws of the Philippine Islands may not engage in a
business with more than one purpose. Such an interpretation
might work a great injustice to corporations organized under the
Philippine laws. Such an interpretation would give foreign
corporations, which are permitted to be registered under the
laws here and which may be organized for more than one
purpose, a great advantage over domestic corporations. We do
not believe that it was the intention of the legislature to give

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foreign corporations such an advantage over domestic


corporations.
Considering the particular purposes and objects of the
proposed articles of incorporation which are specially
enumerated above, we are of the opinion that it contains nothing
which violates in the slightest degree any of the provisions of the
laws of the Philippine Islands, and the petitioners are, therefore,
entitled to have such articles of incorporation filed and
registered as prayed for by them and to have issued to them a
certificate under the seal of the office of the respondent, setting
forth that such articles of incorporation have been duly filed in
his office. (Sec. 11, Act No. 1459.)

TOPIC:PRIMARY PURPOSE
NORBERTO ASUNCION, ET AL., petitioners-appellants,
vs.
MANUEL DE YRIARTE, respondent-appellee.
G.R. No. 9321. September 24, 1914
FACTS:
Respondent, the Chief of the Division of Archives of the Executive
Bureau, refused to file a certain Articles of Incorporation on the ground that
the object of the corporation, as stated in the articles was not lawful and
that, in pursuance of Sec. 6 of Act No. 1459, they were not registerable.
Consequently, the proposed Incorporators filed a complaint to compel
said Chief to receive and register said Articles of Incorporation.

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The CFI found in favor of herein respondent and refused to order the
registration of the said Articles. It holds that respondent, under the
Corporation Law, had authority to determine both the sufficiency of the
Articles and the legality of the object of the proposed corporation.
Hence, this appeal.
ISSUE/S:
Whether Or Not The Purposes Of The Corporation As Stated In
The Articles Of Incorporation Are Lawful Within The Meaning Of
The Corporation Law.
RULING:
The purpose of the incorporation as stated in the articles is:
That the object of the corporation is
(a) to organize and regulate the management, disposition,
administration and control which the barrio of Pulo or San
Miguel or its inhabitants or residents have over the
common property of said residents or inhabitants or
property belonging to the whole barrio as such; and
(b) to use the natural products of the said property for
institutions, foundations, and charitable works of common
utility and advantage to the barrio or its inhabitants.
The municipality of Pasig as recognized by law contains within its limits
several barrios or small settlements, like Pulo or San Miguel, which have no
local government of their own but are governed by the municipality of Pasig
through its municipal president and council. The president and members of
the municipal council are elected by a general vote of the municipality, the
qualified electors of all the barrios having the right to participate.
The municipality of Pasig is a municipal corporation organized by law. It
has the control of all property of the municipality. The various barrios of the
municipality have no right to own or hold property, they not being
recognized as legal entities by any law. The residents of the barrios
participate in the advantages which accrue to the municipality from public
property and receive all the benefits incident to residence in a municipality
organized by law. If there is any public property situated in the barrio of Pulo
or San Miguel not belonging to the general government or the province, it
belongs to the municipality of Pasig and the sole authority to manage and
administer the same resides in that municipality. Until the present laws upon
the subject are charged no other entity can be the owner of such property or
control or administer it.
The object of the proposed corporation, as appears from the articles
offered for registration, is to make of the barrio of Pulo or San Miguel a

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corporation which will become the owner of and have the right to control and
administer any property belonging to the municipality of Pasig found within
the limits of that barrio. This clearly cannot be permitted. Otherwise
municipalities as now established by law could be deprived of the property
which they now own and administer. Each barrio of the municipality would
become under the scheme proposed, a separate corporation, would take
over the ownership, administration, and control of that portion of the
municipal territory within its limits. This would disrupt, in a sense, the
municipalities of the Islands by dividing them into a series of smaller
municipalities entirely independent of the original municipality.
What the law does not permit cannot be obtained by indirection. The
object of the proposed corporation is clearly repugnant to the provisions of
the Municipal Code and the governments of municipalities as they have been
organized thereunder.

TOPIC: PRINCIPAL OFFICE/DOMICILE


DAVAO LIGHT & POWER CO., INC., petitioner,
vs.
THE HON. COURT OF APPEALS, HON. RODOLFO M. BELLAFLOR,
Presiding Judge of Branch 11, RTC-Cebu and FRANCISCO
TESORERO, respondents.
G.R. N.O. 111685, JANUARY 20, 2001
FACTS:
Petitioner Davao Light & Power Co., Inc. filed a complaint for
damages against private respondent Francisco Tesorero before the Regional
Trial Court of Cebu City. Private respondent filed a motion to dismiss claiming
among others that venue was improperly laid.
It is private respondent's contention that the proper venue is Davao
City, and not Cebu City where petitioner filed the case. Private respondent

Page 78 of 1072

argues that petitioner is estopped from claiming that its residence is in Cebu
City, in view of contradictory statements made by petitioner prior to the filing
of the action for damages. Private respondent adverts to several contracts it
entered into by petitioner with the National Power Corporation (NAPOCOR)
where in the description of personal circumstances, the former states that its
principal office is P. Reyes St., Davao City." According to private respondent
the petitioner's address in Davao City, as given in the contracts, is an
admission which should bind petitioner.
ISSUE/S:
Whether or not venue has been properly laid.
RULING:
It cannot be disputed that petitioner's principal office is in Cebu City,
per its amended articles of incorporation and by-laws. An action for
damages being a personal action, venue is determined pursuant to Rule 4,
section 2 of the Rules of Court, to wit:
Venue of personal actions.
All other actions may be commenced and tied where the
plaintiff or any of the principal plaintiffs resides, or where the
defendant or any of the principal defendants resides, or in the case of
a non-resident defendant where he may be found, at the election of
the plaintiff.
Thus, the case was properly filed at Cebu City where petitioner has its
residence.
TOPIC:PRINCIPAL OFFICE/DOMICILE
CLAVECILLIA RADIO SYSTEM, petitioner-appellant,
vs.
HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of
Cagayan de Oro City and NEW CAGAYAN GROCERY, respondentsappellees.
G.R. No. L-22238, FEBRUARY 18, 1967
19 SCRA 379
FACTS:
It appears that on June 22, 1963, the New Cagayan Grocery filed a
complaint against the Clavecilla Radio System alleging, in effect, that on
March 12, 1963, the following message, addressed to the former, was filed at
the latter's Bacolod Branch Office for transmittal thru its branch office at
Cagayan de Oro: NECAGRO CAGAYAN DE ORO (CLAVECILLA): REURTEL

Page 79 of 1072

WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP


LATER REPLY POHANG
The Cagayan de Oro branch office having received the said message
omitted, in delivering the same to the New Cagayan Grocery, the word "NOT"
between the words "WASHED" and "AVAILABLE," thus changing entirely the
contents and purport of the same and causing the said addressee to suffer
damages. After service of summons, the Clavecilla Radio System filed a
motion to dismiss the complaint on the grounds that it states no cause of
action and that the venue is improperly laid. The New Cagayan Grocery
interposed an opposition to which the Clavecilla Radio System filed its
rejoinder. Thereafter, the City Judge, on September 18, 1963, denied the
motion to dismiss for lack of merit and set the case for hearing.
Hence, the Clavecilla Radio System filed a petition for prohibition with
preliminary injunction with the Court of First Instance praying that the City
Judge, Honorable Agustin Antillon, be enjoined from further proceeding with
the case on the ground of improper venue. The respondents filed a motion
to dismiss the petition but this was opposed by the petitioner. Later, the
motion was submitted for resolution on the pleadings.
ISSUE/S:
Whether or not the venue has been properly laid.
RULING:
No.
Settled is the principle in corporation law that the residence of a
corporation is the place where its principal office is established, which in this
case is in Manila, thus suit must be instituted in the City of Manila and not in
the corporations branch office in Cagayan de Oro.
The Court has held in Cohen v. Benguet Comm. Cp., Ltd., 34 Phil. 526
that the same may be served with summons under Sec. 1, Rule 4 of the RRC
does not apply when the defendant resides in the Philippines for in such
case, he may be sued only in his residence, regardless of the place where he
may be found and served with summons. To allow action to be instituted in
nay place when there are branch offices would create confusion ad work
untold inconvenience t the corporation.

Page 80 of 1072

TOPIC:PRINCIPAL OFFICE/DOMICILE
JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION, petitioners,
vs.
TYSON ENTERPRISES, INC., JUDGE GREGORIO G. PINEDA of the Court
of First Instance of Rizal, Pasig Branch XXI and COURT OF
APPEALS, respondents.
G.R. NO. L-56763, DECEMBER 15, 1982
119 SCRA 367
FACTS:
On August 29, 1979, Tyson Enterprises, Inc. filed against John Sy and
Universal Parts Supply Corporation, residents of Bacolod, a complaint for the
collection of money in Pasig, Rizal. However, there is no allegation in the
complaint as to the office or place of business of plaintiff Tyson Enterprises,
Inc., which is located in Manila. What is alleged is the postal address or

Page 81 of 1072

residence of Dominador Ti, the president and general manager of plaintiff


firm, which is in San Juan, Rizal.
Defendant Sy and Universal Parts Supply Corporation filed a motion to
dismiss on the ground of improper venue. The plaintiff opposed the motion
to dismiss which the trial court denied. On appeal, the Appellate Court
dismissed the petition. It ruled that the parties did not intend Manila as the
exclusive venue of the actions arising under their transactions and that since
the action was filed in Pasig, which is near Manila, no useful purpose would
be served by dismissing the same and ordering that it be filed in Manila.
ISSUE:
Whether or not venue is properly laid.
RULING:
The Court ruled in the affirmative.
For purposes of venue, it is the place of business of the corporation
rather than the residence of its president that is considered. The residence of
its president is not the residence of the corporation because a corporation
ahs a personality separate and distinct from that of its officers and
stockholders.
The collection should have been filed in Manila where the plaintiff
corporation has its residence and the pace designated in its invoice, not in
Bacolod City.

TOPIC:PRINCIPAL OFFICE/DOMICILE
YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND
GEORGE CHIONG ROXAS, respondents.
G.R. NO. 104175, JUNE 25, 1993
223 SCRA 670
FACTS:
Defendant sought the dismissal of an action filed by the plaintiff, a
corporation, before the Regional Trial Court of Cebu City, on the ground of
improper venue. Accordingly, venue was improperly laid since the address of
the plaintiff was supposedly in Pasay City, as evidenced by a contract of sale,
letters and several commercial documents sent by the plaintiff to the

Page 82 of 1072

defendant, even though the plaintiff's articles of incorporation stated that its
principal office was in Cebu City.
The complaint was dismissed on the ground of improper venue.
ISSUE/S:
Whether or not venue was properly laid.
RULING:
No.
In the Regional Trial Courts, all personal actions are commenced and
tried in the province or city where the defendant or any of the defendants
resides or may be found, or where the plaintiff or any of the plaintiffs resides,
at the election of the plaintiff. There are two plaintiffs in the case at bench: a
natural person and a domestic corporation. Both plaintiffs aver in their
complaint that they are residents of Cebu City, thus:
The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:
"THIRD. That the place where the principal office of the
corporation is to be established or located is at Cebu City,
Philippines. If it was Roxas who sued YASCO in Pasay City and the
latter questioned the venue on the ground that its principal place
of business was in Cebu City, Roxas could argue that YASCO was
in estoppel because it misled Roxas to believe that Pasay City
was its principal place of business. But this is not the case before
us.
With the finding that the residence of YASCO for purposes of venue is
in Cebu City, where its principal place of business is located, it becomes
unnecessary to decide whether Garcia is also a resident of Cebu City and
whether Roxas was in estoppel from questioning the choice of Cebu City as
the venue.

Page 83 of 1072

TOPIC: TERM OF A CORPORATION


ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY,
INC., petitioner,
vs.
SECURITIES & EXCHANGE COMMISSION, respondent
G.R. No. L-23606, July 29, 1968
24 SCRA 269
FACTS:
Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc.
was duly incorporated under Philippine laws on January 15, 1912. By its
corporate articles it was to exist for fifty (50) years from incorporation. Its
term of existence expired on January 15, 1962. On that date, it ceased
transacting business, entered into a state of liquidation.

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Thereafter, a new corporation. Alhambra Industries, Inc. was


formed to carry on the business of Alhambra and the stockholders named
Angel S. Gamboa trustee to take charge of its liquidation.
On June 20, 1963 within Alhambra's three-year statutory period for
liquidation - Republic Act 3531 was enacted into law. It amended Section 18
of the Corporation Law; it empowered domestic private corporations to
extend their corporate life beyond the period fixed by the articles of
incorporation for a term not to exceed fifty years in any one instance.
Previous to Republic Act 3531, the maximum non-extendible term of such
corporations was fifty years. Alhambra's board of directors resolved to
amend its articles of incorporation to extend its corporate life for an
additional fifty years, or a total of 100 years from its incorporation for which
when submitted to the SEC was denied on ground that its term already
expired.
ISSUE/S:
Whether or not the Alhambra may extend its corporate termby
amendment of its articles of incorporation effected during the
three-year statutory period for liquidation when its original term
of existence had already expired.
RULING:
NO.
The continuance of a "dissolved" corporation as a body corporate for
three years has for its purpose the final closure of its affairs, and no
other; the corporation is specifically enjoined from "continuing the business
for which it was established". The liquidation of the corporation's affairs set
forth in Section 77 became necessary precisely because its life had ended.
For this reason alone, the corporate existence and juridical personality of the
corporation to do business may no longer be extended. The moment a
corporation's right to exist as an "artificial person" ceases, its corporate
powers are terminated "just as the powers of a natural person to take part in
mundane affairs cease to exist upon his death". There is nothing left but to
conduct, as it were, the settlement of the estate of a deceased juridical
person.

Page 85 of 1072

TOPIC: PAID UP CAPITAL STOCK


MSCI-NACUSIP Local Chapter, petitioner,
vs.
NATIONAL WAGES AND PRODUCTIVITY COMMISSION and MONOMER
SUGAR CENTRAL, INC., respondents.
G.R. No. 125198. March 3, 1997
269 SCRA 173
FACTS:
Asturias Sugar Central, Inc. (ASCI, for brevity), executed a
Memorandum of Agreement with Monomer Trading Industries, Inc. (MTII, for
brevity), whereby MTII shall acquire the assets of ASCI by way of a Deed of
Assignment provided that an entirely new organization in place of MTII shall
be organized, which new corporation shall be the assignee of the assets of
ASCI. By virtue of this Agreement, a new corporation was organized and

Page 86 of 1072

incorporated under the corporate name Monomer Sugar Central, Inc. or


MSCI, the private respondent herein.
MSCI applied for exemption from the coverage of Wage Order No. RO
VI-01 issued by the Board on the ground that it is a distressed employer. In
support thereto, MSCI submitted its audited financial statements and income
tax returns duly stamped "received" by the Bureau of Internal Revenue (BIR)
and the Securities and Exchange Commission (SEC) for the period beginning
February 15, 1990 and ending. August 31, 1990, including the quarterly
financial statements and income tax returns for the two quarters ending
November 30, 1990 and February 28, 1991.
The petitioner herein MSCI-NACUSIP Local Chapter (Union, for brevity),
in opposition, maintained that MSCI is not distressed; that respondent
applicant has not complied with the requirements for exemption; and that
the financial statements submitted by MSCI do not reflect the true and valid
financial status of the company, and that the paid-up capital would have
been higher than P5 million and thus impairment would have been lower
than 25% had the pre-organization agreement between ASCI and MTII been
complied with.
ISSUE/S:
What is the correct paid-up capital of MSCI for the pertinent
period covered by the application for exemption P5 million or
P64, 688,528.00?
RULING:
The Board held that the paid-up capital of MSCI on the aforesaid dates
was actually P64,688,528.00 and not P5 million as claimed by MSCI in its
application for exemption and, thus, the established losses amounting to
P3,400,738.00 constitute an impairment of only 5.25% of the true paid-up
capital of P64 million plus,which losses are not enough to meet the required
25% impairment requirement. This conclusion is anchored on the belief of
the Board that the value of the assets of ASCI, party to the Memorandum of
Agreement, transferred to MSCI on March 28, 1990 should be taken into
consideration in computing the paid-up capital of MSCI to reflect its true
financial structure. Moreover, the loans or advances extended by MTII, the
other party to the Agreement, to MSCI should allegedly be treated as
additional investments to MSCI, and must therefore be included in computing
respondent's paid-up capital.
Public respondent Commission thought otherwise. In reversing the
Board and granting the exemption, the Commission held that the Board
exceeded its authority in computing and giving new valuation to what should
be the paid-up capital of MSCI. It stressed that RA No. 6727, or the Wage

Page 87 of 1072

Rationalization Act, and its implementing guidelines have not conferred upon
the Board the authority to change the paid-up capital of a corporation.
The foregoing asseveration of the parties considered, we find no grave
abuse of discretion on the part of the Commission in setting aside the
findings of the Board and granting full exemption to MSCI from Wage Order
No. RO VI-01.
NWPC Guidelines No. 01, Series of 1992 as well as the new NWPC
Guidelines No. 01, Series of 1996, define Capital as referring to paid-up
capital at the end of the last full accounting period, in the case of
corporations or total invested capital at the beginning of the period under
review, in the case of partnerships and single proprietorships. To have a clear
understanding of what paid-up capital is, however, a referral to Sections 12
and 13 of BP Blg. 68 or the Corporation Code.
By express provision of Section 13, paid-up capital is that portion of the
authorized capital stock which has been both subscribed and paid. To
illustrate, where the authorized capital stock of a corporation is worth P 1
million and the total subscription amounts to P250,000.00, at least 25% of
this amount, namely, P62,500.00 must be paid up per Section 13. The latter,
P62,500.00, is the paid-up capital or what should more accurately be termed
as "paid-up capital
stock."
In the case under consideration, there is no dispute, and the Board
even mentioned in its August 17, 1993 Decision, that MSCI was organized
and incorporated on February 15, 1990 with an authorized capital stock of
P60 million, P20 million of which was subscribed. Of the P20 million
subscribed capital stock, P5 million was paid-up. This fact is only too glaring
for the Board to have been misled into believing that MSCI'S paid-up capital
stock was P64 million plus and not P5 million.

TOPIC:CLASSIFICATION OF SHARES
SAN MIGUEL CORPORATION, petitioner,
vs.
SANDIGANBAYAN, respondents
G.R. Nos. 104637-38. September 14, 2000
340 SCRA 289-331
FACTS:
Coconut Industry Investment Fund Holding Companies (CIIF),
composed of 14 companies, sold 33,133,266 shares of the outstanding

Page 88 of 1072

capital stock of San Miguel Corporation to Andres Soriano (Andres) of the


SMC Group payable in 4 installments. Andres paid the initial P500 million to
the UCPB as administrator of the CIIF.
Later, the PCGG sequestered the shares of stock subject of the sale.
Due to the sequestration, the SMC Group suspended payment of the balance
of the purchase price of the subject stocks. In retaliation, the UCPB Group
rescinded the sale. However, the parties were able to thresh out their dispute
to the extent that that they filed with the Sandiganbayan a Joint Petition for
Approval of the Compromise Agreement.
The Republic, through the OSG, opposed the Compromise Agreement.
It contended that the involved coco-levy funds, whether in the form of
earnings or dividends therefrom, or in the form of the value of liquidated
corporate assets represented by all sequestered shares, or in the form of
cash, or in the form of "proceeds" of sale or of "payments" of certain alleged
obligations are public funds (they are the subject of the civil case regarding
ill-gotten wealth of Marcos). As public funds, the coco-levy funds, in any form
or transformation, are beyond or "outside the commerce."
The Sandiganbayan issued an order requiring SMC Group to deliver the
certificates of stock representing the subject matter of the Compromise
Agreement to the PCGG.
ISSUE/S:
Whether it is proper for the Sandiganbayan to order SMC Group
to deliver the treasury shares to PCGG and pay their
corresponding dividends.
RULING:
The case at bar does not merely involve a compromise agreement
dealing with private interest but involves sequestered shares of stock now
worth more than nine (9) billions of pesos. Their ownership is still under
litigation. It is not yet known whether the shares are part of the alleged illgotten wealth of former President Marcos and his "cronies." Any Compromise
Agreement concerning these sequestered shares falls within the
unquestionable jurisdiction of and has to be approved by the Sandiganbayan.
Moreover, SMC Group's primary justification for failing it to turn over
the certificates of stock for the 25.45 million sequestered shares as well as
the cash dividends already accrued thereon that the shares of stock have
allegedly now become Treasury Shares is unmeritorious. Under the
Corporation Code 'Treasury shares are shares of stock which have been
issued and fully paid for, but subsequently reacquired by, the issuing
corporation by purchase, redemption, donation or through some lawful

Page 89 of 1072

means . . .' (Sec. 9, B.P. Blg. 68, Corporation Code). These 26.45 million
shares of stock or any portion thereof can, therefore, become Treasury
Shares, i.e., property of the San Miguel Corporation, only if the sale between
the UCPB Group and the SMC Group is allowed; otherwise these shares
cannot even begin to be deemed to have been 're-acquired by the issuing
corporation,' i.e., the San Miguel Corporation.
But even if, indeed, these shares are treasury shares, they remain
sequestered so that any movement of these shares cannot be of any
permanent character that will alter their being sequestered shares and,
therefore, in 'custodia legis,' that is to say, under the control and disposition
of the Court.
It must finally be said that the conversion of the 26.45 (or 25.45)
million shares by the SMC Group into Treasury Shares is of the SMC Group's
own making and the SMC Group cannot perform acts that will, by its own
say-so, take property away from 'custodia legis.'

TOPIC: AMENDMENT AND/OR REJECTION OF ARTICLES OF INCORPORATION


REPUBLIC PLANTERS BANK, petitioner,
vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.
G.R. No. 93073. December 21, 1992
216SCRA 738
FACTS:
Defendant Shozo Yamaguchi and private respondent Fermin Canlas
were President/Chief Operating Officer and Treasurer respectively, of

Page 90 of 1072

Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution No.1


dated August 1, 1979, defendant Shozo Yamaguchi and private respondent
Fermin Canlas were authorized to apply for credit facilities with the petitioner
Republic Planters Bank in the forms of export advances and letters of
credit/trust receipts accommodations. Petitioner bank issued nine promissory
notes. In the promissory notes marked as Exhibits C, D and F, the name
Worldwide Garment Manufacturing, Inc. was apparently rubber stamped
above the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted
to change its corporate name to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery
of sums of money covered among others, by the nine promissory notes with
interest thereon, plus attorney's fees and penalty charges. The complainant
was originally brought against Worldwide Garment Manufacturing, Inc. inter
alia, but it was later amended to drop Worldwide Manufacturing, Inc. as
defendant and substitute Pinch Manufacturing Corporation it its place.
Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not
file an Amended Answer and failed to appear at the scheduled pre-trial
conference despite due notice. Only private respondent Fermin Canlas filed
an Amended Answer wherein he, denied having issued the promissory notes
in question since according to him, he was not an officer of Pinch
Manufacturing
Corporation,
but
instead
of
Worldwide
Garment
Manufacturing, Inc., and that when he issued said promissory notes in behalf
of Worldwide Garment Manufacturing, Inc., the same were in blank, the
typewritten entries not appearing therein prior to the time he affixed his
signature.
ISSUE/S:
Whether an amendment in a corporation's Articles of
Incorporation effecting a change of corporate name from
Worldwide Garment manufacturing Inc to Pinch Manufacturing
Corporation extinguished the personality of the original
corporation.
RULING:
The respondent Court made a grave error in holding that an
amendment in a corporation's Articles of Incorporation effecting a change of
corporate name, in this case from Worldwide Garment manufacturing Inc to
Pinch Manufacturing Corporation extinguished the personality of the original
corporation.

Page 91 of 1072

The corporation, upon such change in its name, is in no sense a new


corporation, nor the successor of the original corporation. It is the same
corporation with a different name, and its character is in no respect changed.
A change in the corporate name does not make a new corporation, and
whether effected by special act or under a general law, has no affect on the
identity of the corporation, or on its property, rights, or liabilities. The
corporation continues, as before, responsible in its new name for all debts or
other liabilities which it had previously contracted or incurred.

TOPIC: DOCTRINE OF
CORPORATE FICTION

CORPORATE

ENTITY/

PIERCING

THE

VEIL

OF

RAMIREZ
V.
MAR FISHING, INC
JUNE 13, 2012
FACTS:
On 28 June 2001, respondent Mar Fishing Co., Inc. (Mar Fishing),
engaged in the business of fishing and canning of tuna, sold its principal

Page 92 of 1072

assets to co-respondent Miramar Fishing Co., Inc. (Miramar) through public


bidding.The proceeds of the sale were paid to the Trade and Investment
Corporation of the Philippines (TIDCORP) to cover Mar Fishings outstanding
obligation in the amount of 897,560,041.26. In view of that transfer, Mar
Fishing issued a Memorandum dated 23 October 2001 informing all its
workers that the company would cease to operate by the end of the month.
On 29 October 2001 or merely two days prior to the months end, it notified
the Department of Labor and Employment (DOLE) of the closure of its
business operations.
Thereafter, Mar Fishings labor union, Mar Fishing Workers Union NFL and
Miramar entered into a Memorandum of Agreement. The Agreement
provided that the acquiring company, Miramar, shall absorb Mar Fishings
regular rank and file employees whose performance was satisfactory,
without loss of seniority rights and privileges previously enjoyed.
Unfortunately, petitioners, who worked as rank and file employees, were not
hired or given separation pay by Miramar. Thus, petitioners filed Complaints
for illegal dismissal with money claims before the Arbitration Branch of the
National Labor Relations Commission (NLRC).
ISSUE:
Whether or not Mar Fishing were liable to pay the claims of the
employees?
HELD:
The Labor Arbiter (LA) found that Mar Fishing had necessarily closed its
operations, considering that Miramar had already bought the tuna canning
plant. By reason of the closure, petitioners were legally dismissed for
authorized cause. In addition, even if Mar Fishing reneged on notifying the
DOLE within 30 days prior to its closure, that failure did not make the
dismissals void. Consequently, the LA ordered Mar Fishing to give separation
pay to its workers.

TOPIC: DOCTRINE OF
CORPORATE FICTION

CORPORATE

ENTITY/

PIERCING

THE

VEIL

OF

SARONA, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and NATIONAL STEEL
CORPORATION (NSC), respondents.
G.R. No. 109902 August 2, 1994

Page 93 of 1072

FACTS:
On 5 July 1990, petitioners filed separate complaints for unfair labor
practice, regularization and monetary benefits with the NLRC, Sub-Regional
Arbitration Branch XII, Iligan City.
The complaints were consolidated and after hearing, the Labor Arbiter
in a Decision dated 7 June 1991, declared petitioners "regular project
employees who shall continue their employment as such for as long as such
[project] activity exists," but entitled to the salary of a regular employee
pursuant to the provisions in the collective bargaining agreement. It also
ordered payment of salary differentials.
Both parties appealed to the NLRC from that decision. Petitioners
argued that they were regular, not project, employees. Private respondent,
on the other hand, claimed that petitioners are project employees as they
were employed to undertake a specific project NSC's Five Year Expansion
Program (FAYEP I & II).
The NLRC in its questioned resolutions modified the Labor Arbiter's
decision. It affirmed the Labor Arbiter's holding that petitioners were project
employees since they were hired to perform work in a specific undertaking
the Five Years Expansion Program, the completion of which had been
determined at the time of their engagement and which operation was not
directly related to the business of steel manufacturing. The NLRC, however,
set aside the award to petitioners of the same benefits enjoyed by regular
employees for lack of legal and factual basis.
Deliberating on the present Petition for Certiorari, the Court considers that
petitioners have failed to show any grave abuse of discretion or any act
without or in excess of jurisdiction on the part of the NLRC in rendering its
questioned resolutions of 8 January 1993 and 15 February 1993.
ISSUE:
Whether or not National Steel Corporation is liable to its employees?
HELD:
In the case of Mercado, Sr. vs. National Labor Relations Commission,
this Court ruled that the proviso in the second paragraph of Article 280
relates only to casual employees and is not applicable to those who fall
within the definition of said Article's first paragraph, i.e., project employees.
The familiar grammatical rule is that a proviso is to be construed with
reference to the immediately preceding part of the provision to which it is
attached, and not to other sections thereof, unless the clear legislative intent
is to restrict or qualify not only the phrase immediately preceding the proviso
but also earlier provisions of the statute or even the statute itself as a whole.
No such intent is observable in Article 280 of the Labor Code, which has been
quoted earlier.
ACCORDINGLY, in view of the foregoing, the Petition for Certiorari is hereby
DISMISSED for lack of merit. The Resolutions of the NLRC dated 8 January

Page 94 of 1072

1993 and 15 February 1993 are hereby AFFIRMED. No pronouncement as to


costs.

TOPIC: DOCTRINE OF
CORPORATE FICTION

CORPORATE

ENTITY/

PIERCING

THE

VEIL

OF

GOLD LINE TOURS


v.
HEIRS OF LACSA
June 18, 2012
FACTS:

Page 95 of 1072

On August 2, 1993, Ma. Concepcion Lacsa (Concepcion) and her sister,


Miriam Lacsa (Miriam), boarded a Goldline passenger bus with Plate No.
NXM-105 owned and operated by Travel &Tours Advisers, Inc. They were
enroute from Sorsogon to Cubao, Quezon City. At the time, Concepcion,
having just obtained her degree of Bachelor of Science in Nursing at the Ago
Medical and Educational Center, was proceeding to Manila to take the
nursing licensure board examination. Upon reaching the highway at
Barangay San Agustin in Pili, Camarines Sur, the Goldline bus, driven by
Rene Abania (Abania), collided with a passenger jeepney with Plate No. EAV313 coming from the opposite direction and driven by Alejandro Belbis. As a
result, a metal part of the jeepney was detached and struck Concepcion in
the chest, causing her instant death.
On August 23, 1993, Concepcions heirs, represented by Teodoro
Lacsa, instituted in the RTC a suit against Travel & Tours Advisers Inc. and
Abania to recover damages arising from breach of contract of carriage. The
complaint, docketed as Civil Case No. 93-5917 and entitled Heirs of
Concepcion Lacsa, represented by Teodoro Lacsa v. Travel & Tours Advisers,
Inc. (Goldline) and Rene Abania, alleged that the collision was due to the
reckless and imprudent manner by which Abania had driven the Goldline
bus.
In support of the complaint, Miriam testified that Abania had been
occasionally looking up at the video monitor installed in the front portion of
the Goldline bus despite driving his bus at a fast speed; that in Barangay San
Agustin, the Goldline bus had collided with a service jeepney coming from
the opposite direction while in the process of overtaking another bus; that
the impact had caused the angle bar of the jeepney to detach and to go
through the windshield of the bus directly into the chest of Concepcion who
had then been seated behind the drivers seat; that concerned bystanders
had hailed another bus to rush Concepcion to the Ago Foundation Hospital in
Naga City because the Goldline bus employees and her co-passengers had
ignored Miriams cries for help; and that Concepcion was pronounced dead
upon arrival at the hospital.
To refute the plaintiffs allegations, the defendants presented SPO1
Pedro Corporal of the Philippine National Police Station in Pili, Camarines Sur,
and William Cheng, the operator of the Goldline bus. SPO1 Corporal opined
that based on his investigation report, the driver of the jeepney had been at
fault for failing to observe precautionary measures to avoid the collision; and
suggested that criminal and civil charges should be brought against the
operator and driver of the jeepney. On his part, Cheng attested that he had
exercised the required diligence in the selection and supervision of his
employees; and that he had been engaged in the transportation business
since 1980 with the use of a total of 60 units of Goldline buses, employing
about 100 employees (including drivers, conductors, maintenance personnel,

Page 96 of 1072

and mechanics); that as a condition for regular employment, applicant


drivers had undergone a one-month training period and a six-month
probationary period during which they had gotten acquainted with Goldlines
driving practices and demeanor; that the employees had come under
constant supervision, rendering improbable the claim that Abania, who was a
regular employee, had been glancing at the video monitor while driving the
bus; that the incident causing Concepcions death was the first serious
incident his (Cheng) transportation business had encountered, because the
rest had been only minor traffic accidents; and that immediately upon being
informed of the accident, he had instructed his personnel to contact the
family of Concepcion.
The defendants blamed the death of Concepcion to the recklessness of
Bilbes as the driver of the jeepney, and of its operator, Salvador Romano;
and that they had consequently brought a third-party complaint against the
latter.
ISSUE:
Did the CA rightly find and conclude that the RTC did not gravely abuse
its discretion in denying petitioners verified third-party claim?
HELD:
The main contention of Third Party Claimant is that it is the owner of
the Bus and therefore, it should not be seized by the sheriff because the
same does not belong to the defendant Travel & Tours Advises, Inc.
(GOLDLINE) as the third party claimant and defendant are two separate
corporation with separate juridical personalities. Upon the other hand, this
Court had scrutinized the documents submitted by the Third party Claimant
and found out that William Ching who claimed to be the operator of the
Travel & Tours Advisers, Inc. (GOLDLINE) is also the President/Manager and
incorporator of the Third Party Claimant Goldline Tours Inc. and he is joined
by his co-incorporators who are Ching and Dy thereby this Court could
only say that these two corporations are one and the same corporations.
This is of judicial knowledge that since Travel & Tours Advisers, Inc. came to
Sorsogon it has been known as GOLDLINE.
This Court is not persuaded by the proposition of the third party claimant
that a corporation has an existence separate and/or distinct from its
members insofar as this case at bar is concerned, for the reason that
whenever necessary for the interest of the public or for the protection of
enforcement of their rights, the notion of legal entity should not and is not to
be used to defeat public convenience, justify wrong, protect fraud or defend
crime.

Page 97 of 1072

TOPIC: DOCTRINE OF
CORPORATE FICTION

CORPORATE

ENTITY/

PIERCING

THE

VEIL

OF

HACIENDA LUISITA INC. (HLI)


V.
PRESIDENTIAL AGRARIAN REFORM COUNCIL (PARC), ET AL.,
G.R. NO. 171101, NOVEMBER 22, 2011
I.

THE FACTS

On July 5, 2011, the Supreme Court en banc voted unanimously (11-0)


to DISMISS/DENY the petition filed by HLI and AFFIRM with MODIFICATIONS
the resolutions of the PARC revoking HLIs Stock Distribution Plan (SDP) and
placing the subject lands in Hacienda Luisita under compulsory coverage of
the Comprehensive Agrarian Reform Program (CARP) of the government.
The Court however did not order outright land distribution. Voting 6-5,
the Court noted that there are operative facts that occurred in the interim
and which the Court cannot validly ignore. Thus, the Court declared that the
revocation of the SDP must, by application of the operative fact principle,
give way to the right of the original 6,296 qualified farmworkers-beneficiaries
(FWBs) to choose whether they want to remain as HLI stockholders or
[choose actual land distribution]. It thus ordered the Department of Agrarian
Reform (DAR) to immediately schedule meetings with the said 6,296 FWBs
and explain to them the effects, consequences and legal or practical
implications of their choice, after which the FWBs will be asked to manifest,
in secret voting, their choices in the ballot, signing their signatures or placing
their thumbmarks, as the case may be, over their printed names.
The parties thereafter filed their respective motions for reconsideration
of the Court decision.
II.

THE ISSUES

(1) Is the operative fact doctrine available in this case?


(2) Is Sec. 31 of RA 6657 unconstitutional?
(3) Cant the Court order that DARs compulsory acquisition of Hacienda
Lusita cover the full 6,443 hectares allegedly covered by RA 6657 and
previously held by Tarlac Development Corporation (Tadeco), and not just the
4,915.75 hectares covered by HLIs SDP?
(4) Is the date of the taking (for purposes of determining the just
compensation payable to HLI) November 21, 1989, when PARC approved
HLIs SDP?
(5) Has the 10-year period prohibition on the transfer of awarded lands
under RA 6657 lapsed on May 10, 1999 (since Hacienda Luisita were placed

Page 98 of 1072

under CARP coverage through the SDOA scheme on May 11, 1989), and thus
the qualified FWBs should now be allowed to sell their land interests in
Hacienda Luisita to third parties, whether they have fully paid for the lands
or not?
(6) THE CRUCIAL ISSUE: Should the ruling in the July 5, 2011 Decision that
the qualified FWBs be given an option to remain as stockholders of HLI be
reconsidered?
III. THE RULING
[The Court PARTIALLY GRANTED the motions for reconsideration of
respondents PARC, et al. with respect to the option granted to the original
farmworkers-beneficiaries (FWBs) of Hacienda Luisita to remain with
petitioner HLI, which option the Court thereby RECALLED and SET ASIDE. It
reconsidered its earlier decision that the qualified FWBs should be given an
option to remain as stockholders of HLI, and UNANIMOUSLY directed
immediate land distribution to the qualified FWBs.]
1.

YES, the operative fact doctrine is applicable in this case.

[The Court maintained its stance that the operative fact doctrine is
applicable in this case since, contrary to the suggestion of the minority, the
doctrine is not limited only to invalid or unconstitutional laws but also applies
to decisions made by the President or the administrative agencies that have
the force and effect of laws. Prior to the nullification or recall of said
decisions, they may have produced acts and consequences that must be
respected. It is on this score that the operative fact doctrine should be
applied to acts and consequences that resulted from the implementation of
the PARC Resolution approving the SDP of HLI. The majority stressed that the
application of the operative fact doctrine by the Court in its July 5, 2011
decision was in fact favorable to the FWBs because not only were they
allowed to retain the benefits and homelots they received under the stock
distribution scheme, they were also given the option to choose for
themselves whether they want to remain as stockholders of HLI or not.]
2.

NO, Sec. 31 of RA 6657 NOT unconstitutional.

[The Court maintained that the Court is NOT compelled to rule on the
constitutionality of Sec. 31 of RA 6657, reiterating that it was not raised at
the earliest opportunity and that the resolution thereof is not the lis mota of
the case. Moreover, the issue has been rendered moot and academic since
SDO is no longer one of the modes of acquisition under RA 9700. The
majority clarified that in its July 5, 2011 decision, it made no ruling in favor of
the constitutionality of Sec. 31 of RA 6657, but found nonetheless that there
was no apparent grave violation of the Constitution that may justify the
resolution of the issue of constitutionality.]

Page 99 of 1072

3.
NO, the Court CANNOT order that DARs compulsory acquisition of
Hacienda Lusita cover the full 6,443 hectares and not just the 4,915.75
hectares covered by HLIs SDP.
[Since what is put in issue before the Court is the propriety of the revocation
of the SDP, which only involves 4,915.75 has. of agricultural land and not
6,443 has., then the Court is constrained to rule only as regards the 4,915.75
has. of agricultural land.Nonetheless, this should not prevent the DAR, under
its mandate under the agrarian reform law, from subsequently subjecting to
agrarian reform other agricultural lands originally held by Tadeco that were
allegedly not transferred to HLI but were supposedly covered by RA 6657.
However since the area to be awarded to each FWB in the July 5, 2011
Decision appears too restrictive considering that there are roads, irrigation
canals, and other portions of the land that are considered commonly-owned
by farmworkers, and these may necessarily result in the decrease of the area
size that may be awarded per FWB the Court reconsiders its Decision and
resolves to give the DAR leeway in adjusting the area that may be awarded
per FWB in case the number of actual qualified FWBs decreases. In order to
ensure the proper distribution of the agricultural lands of Hacienda Luisita
per qualified FWB, and considering that matters involving strictly the
administrative implementation and enforcement of agrarian reform laws are
within the jurisdiction of the DAR, it is the latter which shall determine the
area with which each qualified FWB will be awarded.
On the other hand, the majority likewise reiterated its holding that the 500hectare portion of Hacienda Luisita that have been validly converted to
industrial use and have been acquired by intervenors Rizal Commercial
Banking Corporation (RCBC) and Luisita Industrial Park Corporation (LIPCO),
as well as the separate 80.51-hectare SCTEX lot acquired by the
government, should be excluded from the coverage of the assailed PARC
resolution. The Court however ordered that the unused balance of the
proceeds of the sale of the 500-hectare converted land and of the 80.51hectare land used for the SCTEX be distributed to the FWBs.]
4.
YES, the date of taking is November 21, 1989, when PARC approved
HLIs SDP.
[For the purpose of determining just compensation, the date of taking is
November 21, 1989 (the date when PARC approved HLIs SDP) since this is
the time that the FWBs were considered to own and possess the agricultural
lands in Hacienda Luisita. To be precise, these lands became subject of the
agrarian reform coverage through the stock distribution scheme only upon
the approval of the SDP, that is, on November 21, 1989. Such approval is
akin to a notice of coverage ordinarily issued under compulsory acquisition.

Page 100 of 1072

On the contention of the minority (Justice Sereno) that the date of the notice
of coverage [after PARCs revocation of the SDP], that is, January 2, 2006, is
determinative of the just compensation that HLI is entitled to receive, the
Court majority noted that none of the cases cited to justify this position
involved the stock distribution scheme. Thus, said cases do not squarely
apply to the instant case. The foregoing notwithstanding, it bears stressing
that the DAR's land valuation is only preliminary and is not, by any means,
final and conclusive upon the landowner. The landowner can file an original
action with the RTC acting as a special agrarian court to determine just
compensation. The court has the right to review with finality the
determination in the exercise of what is admittedly a judicial function.]
5.
NO, the 10-year period prohibition on the transfer of awarded lands
under RA 6657 has NOT lapsed on May 10, 1999; thus, the qualified FWBs
should NOT yet be allowed to sell their land interests in Hacienda Luisita to
third parties.
[Under RA 6657 and DAO 1, the awarded lands may only be transferred or
conveyed after 10 years from the issuance and registration of the
emancipation patent (EP) or certificate of land ownership award (CLOA).
Considering that the EPs or CLOAs have not yet been issued to the qualified
FWBs in the instant case, the 10-year prohibitive period has not even started.
Significantly, the reckoning point is the issuance of the EP or CLOA, and not
the placing of the agricultural lands under CARP coverage. Moreover, should
the FWBs be immediately allowed the option to sell or convey their interest
in the subject lands, then all efforts at agrarian reform would be rendered
nugatory, since, at the end of the day, these lands will just be transferred to
persons not entitled to land distribution under CARP.]
6.
YES, the ruling in the July 5, 2011 Decision that the qualified FWBs be
given an option to remain as stockholders of HLI should be reconsidered.
[The Court reconsidered its earlier decision that the qualified FWBs should be
given an option to remain as stockholders of HLI, inasmuch as these qualified
FWBs will never gain control [over the subject lands] given the present
proportion of shareholdings in HLI. The Court noted that the share of the
FWBs in the HLI capital stock is [just] 33.296%. Thus, even if all the holders
of this 33.296% unanimously vote to remain as HLI stockholders, which is
unlikely, control will never be in the hands of the FWBs. Control means the
majority of [sic] 50% plus at least one share of the common shares and other
voting shares. Applying the formula to the HLI stockholdings, the number of
shares that will constitute the majority is 295,112,101 shares (590,554,220
total HLI capital shares divided by 2 plus one [1] HLI share).
The
118,391,976.85 shares subject to the SDP approved by PARC substantially
fall short of the 295,112,101 shares needed by the FWBs to acquire control
over HLI.]

Page 101 of 1072

TOPIC: DOCTRINE OF
CORPORATE FICTION

CORPORATE

ENTITY/

PIERCING

THE

VEIL

OF

PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) and


PANTRANCO RETRENCHED EMPLOYEES ASSOCIATION (PANREA),
Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC), PANTRANCO
NORTH EXPRESS, INC. (PNEI), PHILIPPINE NATIONAL BANK (PNB),
PHILIPPINE NATIONAL BANK-MANAGEMENT AND DEVELOPMENT
CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY AND
HOLDINGS CORPORATION (MEGA PRIME), Respondents.
G.R. No. 170689. March 17, 2009
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
PANTRANCO EMPLOYEES ASSOCIATION, INC. (PEA-PTGWO),
PANTRANCO RETRENCHED EMPLOYEES ASSOCIATION (PANREA) AND
PANTRANCO ASSOCIATION OF CONCERNED EMPLOYEES (PACE), ET
AL., PHILIPPINE NATIONAL BANK-MANAGEMENT DEVELOPMENT
CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY
HOLDINGS, INC., Respondents.
G.R. No. 170705. March 17, 2009
FACTS:
The Gonzales family owned two corporations, namely, the PNEI and
Macris Realty Corporation (Macris). PNEI provided transportation services to
the public, and had its bus terminal at the corner of Quezon and Roosevelt
Avenues in Quezon City. The terminal stood on four valuable pieces of real
estate (known as Pantranco properties) registered under the name of Macris.
The Gonzales family later incurred huge financial losses despite attempts of
rehabilitation and loan infusion. In March 1975, their creditors took over the
management of PNEI and Macris. By 1978, full ownership was transferred to
one of their creditors, the National Investment Development Corporation
(NIDC), a subsidiary of the PNB.
Macris was later renamed as the National Realty Development
Corporation (Naredeco) and eventually merged with the National
Warehousing Corporation (Nawaco) to form the new PNB subsidiary, the PNBMadecor.
In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a
company owned by Gregorio Araneta III. In 1986, PNEI was among the

Page 102 of 1072

several companies placed under sequestration by the Presidential


Commission on Good Government (PCGG) shortly after the historic events in
EDSA. In January 1988, PCGG lifted the sequestration order to pave the way
for the sale of PNEI back to the private sector through the Asset Privatization
Trust (APT). APT thus took over the management of PNEI.
In 1992, PNEI applied with the Securities and Exchange Commission
(SEC) for suspension of payments. A management committee was thereafter
created which recommended to the SEC the sale of the company through
privatization. As a cost-saving measure, the committee likewise suggested
the retrenchment of several PNEI employees. Eventually, PNEI ceased its
operation. Along with the cessation of business came the various labor
claims commenced by the former employees of PNEI where the latter
obtained favorable decisions.
ISSUE/S:
Whether there isa valid ground that may exist to warrant the
piercing of the corporate veil.
RULING:
Under the doctrine of "piercing the veil of corporate fiction," the court
looks at the corporation as a mere collection of individuals or an aggregation
of persons undertaking business as a group, disregarding the separate
juridical personality of the corporation unifying the group.
Another
formulation of this doctrine is that when two business enterprises are owned,
conducted and controlled by the same parties, both law and equity will,
when necessary to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat them as identical
or as one and the same.
Clearly, what can be inferred from the earlier cases is that the doctrine
of piercing the corporate veil applies only in three (3) basic areas, namely:
1. defeat of public convenience as when the corporate
fiction is used as a vehicle for the evasion of an
existing obligation;
2. fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or
3. alter ego cases, where a corporation is merely a
farce since it is a mere alter ego or business conduit
of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit
or adjunct of another corporation.
In the absence of malice, bad faith, or a specific provision of law
making a corporate officer liable, such corporate officer cannot be made
personally liable for corporate liabilities.

Page 103 of 1072

Applying the foregoing doctrine to the instant case, we quote with approval
the CA disposition in this wise: It would not be enough, then, for the
petitioners in this case, the PNEI employees, to rest on their laurels with
evidence that PNB was the owner of PNEI. Apart from proving ownership, it is
necessary to show facts that will justify us to pierce the veil of corporate
fiction and hold PNB liable for the debts of PNEI. The burden undoubtedly
falls on the petitioners to prove their affirmative allegations. In line with the
basic jurisprudential principles we have explored, they must show that PNB
was using PNEI as a mere adjunct or instrumentality or has exploited or
misused the corporate privilege of PNEI.
The Court do not see how the burden has been met. Lacking proof of a
nexus apart from mere ownership, the petitioners have not provided us with
the legal basis to reach the assets of corporations separate and distinct from
PNEI.

Page 104 of 1072

TOPIC: DOCTRINE OF
CORPORATE FICTION

CORPORATE

ENTITY/

PIERCING

THE

VEIL

OF

CAGAYAN VALLEY DRUG CORPORATION, petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 151413. February 13, 2008
545 SCRA 10
FACTS:
Petitioner, a corporation duly organized and existing under Philippine
laws, is a duly licensed retailer of medicine and other pharmaceutical
products. It operates two drugstores, one in Tuguegarao, Cagayan, and the
other in Roxas, Isabela, under the name and style of Mercury Drug.
Petitioner alleged that in 1995, it granted 20% sales discounts to
qualified senior citizens on purchases of medicine pursuant to Republic Act
No. (RA) 74323 and its implementing rules and regulations. In compliance
with Revenue Regulation No. (RR) 2-94, petitioner treated the 20% sales
discounts granted to qualified senior citizens in 1995 as deductions from the
gross sales in order to arrive at the net sales, instead of treating them as tax
credit as provided by Section 4 of RA 7432.
On December 27, 1996, however, petitioner filed with the Bureau of
Internal Revenue (BIR) a claim for tax refund/tax credit of the full amount of
the 20% sales discount it granted to senior citizens for the year 1995,
allegedly ]abelled] to PhP 123,083 in accordance with Sec. 4 of RA 7432.
The BIRs inaction on petitioners claim for refund/tax credit compelled
petitioner to file on March 18, 1998 a petition for review before the CTA
docketed as C.T.A. Case No. 5581 in order to forestall the two-year
prescriptive period provided under Sec. 2304 of the 1977 Tax Code, as
amended. Thereafter, on March 31, 2000, petitioner amended its petition for
review.
ISSUE/S:
Whether petitioners president can sign the subject verification
and certification sans the approval of its Board of Directors.
RULING:
It must be borne in mind that Sec. 23, in relation to Sec. 25 of the
Corporation Code, clearly enunciates that all corporate powers are exercised,

Page 105 of 1072

all business conducted, and all properties controlled by the board of


directors. A corporation has a separate and distinct personality from its
directors and officers and can only exercise its corporate powers through the
board of directors. Thus, it is clear that an individual corporate officer cannot
solely exercise any corporate power pertaining to the corporation without
authority from the board of directors. This has been our constant holding in
cases instituted by a corporation.
In a slew of cases, however, we have recognized the authority of some
corporate officers to sign the verification and certification against forum
shopping. In Mactan-Cebu International Airport Authority v. CA, we
recognized the authority of a general manager or acting general manager to
sign the verification and certificate against forum shopping; in Pfizer v.
Galan, we upheld the validity of a verification signed by an employment
specialist who had not even presented any proof of her authority to
represent the company, in Novelty Philippines, Inc., v. CA, we ruled that a
personnel officer who signed the petition but did not attach the authority
from the company is authorized to sign the verification and non-forum
shopping certificate;and in Lepanto Consolidated Mining Company v. WMC
Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of
the Board and President of the Company can sign the verification and
certificate against non-forum shopping even without the submission of the
boards authorization.
In sum, we have held that the following officials or employees of the
company can sign the verification and certification without need of a board
resolution:
(1) the Chairperson of the Board of Directors,
(2) the President of a corporation,
(3) the General Manager or Acting General Manager,
(4) Personnel Officer, and
(5) an Employment Specialist in a labor case.
While the above cases do not provide a complete listing of authorized
signatories to the verification and certification required by the rules, the
determination of the sufficiency of the authority was done on a case to case
basis. The rationale applied in the foregoing cases is to justify the authority
of corporate officers or representatives of the corporation to sign the
verification or certificate against forum shopping, being in a position to
verify the truthfulness and correctness of the allegations in the petition.

Page 106 of 1072

TOPIC:DOCTRINE OF CORRPORATE ENTITY V. PIERCING THE VEIL


THE HEIRS OF THE LATE PANFILO V. PAJARILLO
VS.
THE HON. COURT OF APPEALS, ET, AL.
G.R. NO. 155056-57 OCTOBER 19, 2007
FACTS:
Panfilo V. Pajarillo was the owner and operator of several buses. He
used the name "PVP Liner" in his buses. Private respondents were employed
as drivers, conductors and conductresses by Panfilo.
Private respondents and several co-employees formed a union called
"SAMAHAN NG MGA MANGGAGAWA NG PANFILO V. PAJARILLO. DOLE issued a
Certificate of Registration in favor of the respondent union.
Upon learning of the formation of union, Panfilo and his children
ordered some of the private respondents to sign a document affirming their
trust and confidence in Panfilo and denying any irregularities on his part.
Other private respondents were directed to sign a blank document which
turned out to be a resignation letter. Private respondents refused to sign the
said documents, hence, they were barred from working or were dismissed
without hearing and notice. Panfilo and his children and relatives also formed
a company union where they acted as its directors and officers.
Respondent union and several employees filed a Complaint for unfair
labor practice and illegal deduction and illegal dismissal before the Labor
Arbiter. Labor Arbiter dismissed the complaint for lack of merit. NLRC
reversed the decision of Arbiter Asuncion and ordered the reinstatement of,
and payment of backwages, ECOLA, 13th month pay, legal holiday pay and
service incentive leave pay to, private respondents. The Court of Appeals
rendered a decision granting the respondent unions petition and nullifying
the Orders of the NLRC. It also reinstated the Decision of the NLRC.
ISSUE:
Whether or not the Court of Appeals seriously erred in piercing
the veil of corporate entity of PVP Pajarillo Liner Inc.

Page 107 of 1072

RULING:
It is a fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders and from other
corporations to which it may be connected. However, this separate and
distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice. Hence, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to defeat labor laws,
this separate personality of the corporation may be disregarded or the veil of
the corporate fiction pierced. This is true likewise when the corporation is
merely an adjunct, a business conduit or an alter ego of another corporation.
The corporate mask may be lifted and the corporate veil may be pierced
when a corporation is but the alter ego of a person or another corporation.
It is apparent that Panfilo started his transportation business as the
sole owner and operator of passenger buses utilizing the name PVP Liner for
his buses. After being charged by respondent union of unfair labor practice,
illegal deductions, illegal dismissal and violation of labor standard laws,
Panfilo transformed his transportation business into a family corporation,
namely, P.V. Pajarillo Liner Inc. He and petitioners were the incorporators,
stockholders and officers therein. P.V. Pajarillo Inc. and the sole proprietorship
of Panfilo have the same business address. P.V. Pajarillo Inc. also uses the
name "PVP Liner" in its buses. Further, the license to operate or franchise of
the sole proprietorship was merely transferred to P.V. Pajarillo Liner Inc.
It is clear from the foregoing that P.V. Pajarillo Liner Inc. was a mere
continuation and successor of the sole proprietorship of Panfilo. It is also
quite obvious that Panfilo transformed his sole proprietorship into a family
corporation in a surreptitious attempt to evade the charges of respondent
union. Given these considerations, Panfilo and P.V. Pajarillo Liner Inc. should
be treated as one and the same person for purposes of liability.

Page 108 of 1072

TOPIC:DOCTRINE OF CORRPORATE ENTITY V. PIERCING THE VEIL


PETRON CORPORATION AND PETER C. MALIGRO
VS.
NATIONAL LABOR RELATIONS COMMISSION AND CHITO S. MANTOS
G.R. No. 154532, October 27, 2006
FACTS:
Petron is engaged in the refining, sale and distribution of petroleum
and other related products, while Peter C. Maligro was the former Visayas
Operations Assistant Manager of Petron's Visayas-Mindanao District Office at
Lahug, Cebu City.
Petron hired Chito S. Mantos, an Industrial Engineer, as a managerial,
professional and technical employee with initial designation as a Bulk Plant
Engineering Trainee. It was while assigned at Petron's Cebu District Office
with Peter Maligro as his immediate superior, when Mantos, thru a Notice of
Disciplinary Action, was suspended for 30 days for violating company rules
and regulations regarding AWOL, not having reported for work during the
period August 5 to 27, 1996.
Subsequently, in a notice Termination of Services, Mantos' services
were altogether terminated effective December 1, 1996, by reason of his
continued absences from August 28, 1996 onwards, as well as for
Insubordination/Discourtesy for making false accusations against his
superior.
Mantos filed with the NLRC, a complaint for illegal dismissal and other
monetary claims against Petron and/or Peter C. Maligro. The Labor Arbiter
declared Mantos to have been constructively dismissed but ruled that only
Petron could be held liable to him for separation pay in lieu of reinstatement
and the cash equivalent of his certificate of stocks, less his personal
accountabilities. The NLRC reversed the findings of the Labor Arbiter
regarding Mantos' constructive dismissal considered him to have been
illegally dismissed only on December 1, 1996 and the NLRC adjudged
Maligro solidarily liable with Petron The CA outrightly dismissed the petition
for being defective in form because only Petron signed the verification and
certification on non-forum shopping without its co-petitioner Peter Maligro
likewise signing the same.
ISSUE/S:

Page 109 of 1072

Whether or not the corporate officers can be held solidary liable


with the corporation in case of illegal dismissal.

RULING:
Settled is the rule in this jurisdiction that a corporation is invested by
law with a legal personality separate and distinct from those acting for and in
its behalf and, in general, from the people comprising it. Thus, obligations
incurred by corporate officers acting as corporate agents are not theirs but
the direct accountabilities of the corporation they represent. True, solidary
liabilities may at times be incurred by corporate officers, but only when
exceptional circumstances so warrant. For instance, in labor cases, corporate
directors and officers may be held solidarily liable with the corporation for
the termination of employment if done with malice or in bad faith.
In the present case, the apparent basis for the NLRC in holding
petitioner Maligro solidarily liable with Petron were its findings that
(1) the Investigation Committee was created a day after the
summons in NLRC RAB-VII Case No. 11-1439-96 was received,
with Maligro no less being the chairman thereof; and
(2) the basis for the charge of insubordination was the private
respondent's alleged making of false accusations against Maligro.
Those findings, however, cannot justify a finding of personal liability on
the part of Maligro inasmuch as said findings do not point to Maligro's
extreme personal hatred and animosity with the respondent. It cannot,
therefore, be said that Maligro was motivated by malice and bad faith in
connection with private respondent's dismissal from the service.

Page 110 of 1072

TOPIC:DOCTRINE OF CORRPORATE ENTITY V. PIERCING THE VEIL


CHINA BANKING CORPORATION
VS.
DYNE-SEM ELECTRONICS CORPORATION
G.R. No. 149237, June 11, 2006
FACTS:
Dynetics and Elpidio O. Lim borrowed a total of P8,939,000 from China
Banking Corporation. The loan was evidenced by six promissory notes. The
borrowers failed to pay when the obligations became due. Petitioner
consequently instituted a complaint for sum of money on June 25, 1987
against them. The complaint sought payment of the unpaid promissory notes
plus interest and penalties.
An amended complaint was filed by petitioner impleading Dyne-Sem
and its stockholders Vicente Chuidian, Antonio Garcia and Jacob Ratinoff.
According to petitioner, respondent was formed and organized to be
Dynetics alter ego as established by the following circumstances: that
Dynetics, Inc. and respondent are both engaged in the same line of business
of manufacturing, producing, assembling, processing, importing, exporting,
buying, distributing, marketing and testing integrated circuits and
semiconductor devices; that the principal office and factory site of Dynetics,
Inc. located at Avocado Road, FTI Complex, Taguig, Metro Manila, were used
by respondent as its principal office and factory site; that respondent
acquired some of the machineries and equipment of Dynetics, Inc. from
banks which acquired the same through foreclosure; that respondent
retained some of the officers of Dynetics, Inc.
The trial court ruled that Dyne-Sem Electronics Corporation is not
an alter ego of Dynetics, Inc. Thus, Dyne-Sem Electronics Corporation is not
liable under the promissory notes. The Court of Appeals dismissed the appeal
and affirmed the trial courts decision.
ISSUE/S:
Whether or not the trial court have ruled in accordance with law
and/or applicable jurisprudence to the extent that the doctrine of
piercing the veil of corporate fiction is not applicable in the case
at bar?

Page 111 of 1072

RULING:
The general rule is that a corporation has a personality separate and
distinct from that of its stockholders and other corporations to which it may
be connected. This is a fiction created by law for convenience and to prevent
injustice.
Nevertheless, being a mere fiction of law, peculiar situations or valid
grounds may exist to warrant the disregard of its independent being and the
piercing of the corporate veil. In Martinez v. Court of Appeals, we held: The
veil of separate corporate personality may be lifted when such personality is
used to defeat public convenience, justify wrong, protect fraud or defend
crime; or used as a shield to confuse the legitimate issues; or when the
corporation is merely an adjunct, a business conduit or an alter ego of
another corporation or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation; or when the corporation is
used as a cloak or cover for fraud or illegality, or to work injustice, or where
necessary to achieve equity or for the protection of the creditors. In such
cases, the corporation will be considered as a mere association of persons.
The liability will directly attach to the stockholders or to the other
corporation. To disregard the separate juridical personality of a corporation,
the wrongdoing must be proven clearly and convincingly.
In this case, petitioner failed to prove that Dyne-Sem was organized
and controlled, and its affairs conducted, in a manner that made it merely an
instrumentality, agency, conduit or adjunct of Dynetics, or that it was
established to defraud Dynetics creditors, including petitioner. The similarity
of business of the two corporations did not warrant a conclusion that
respondent was but a conduit of Dynetics. As we held in Umali v. Court of
Appeals, "the mere fact that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities,
absent sufficient showing that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their rights." Likewise,
respondents acquisition of some of the machineries and equipment of
Dynetics was not proof that respondent was formed to defraud petitioner. As
the Court of Appeals found, no mergertook place between Dynetics and
respondent Dyne-Sem. What took place was a sale of the assets of the
former to the latter. Merger is legally distinct from a sale of assets. Thus,
where one corporation sells or otherwise transfers all its assets to another
corporation for value, the latter is not, by that fact alone, liable for the debts
and liabilities of the transferor. Petitioner itself admits that respondent
acquired the machineries and equipment not directly from Dynetics but from
the various corporations which successfully bidded for them in an auction
sale. The contracts of sale executed between the winning bidders and
respondent showed that the assets were sold for considerable amounts. The

Page 112 of 1072

Court of Appeals thus correctly ruled that the assets were not "diverted" to
respondent as an alter ego of Dynetics. The machineries and equipment
were transferred and disposed of by the winning bidders in their capacity as
owners. The sales were therefore valid and the transfers of the properties to
respondent legal and not in any way in contravention of petitioners rights as
Dynetics creditor. Finally, it may be true that respondent later hired
Dynetics former Vice-President Luvinia Maglaya and Assistant Corporate
Counsel Virgilio Gesmundo. From this, however, we cannot conclude that
respondent was an alter ego of Dynetics. In fact, even the overlapping of
incorporators and stockholders of two or more corporations will not
necessarily lead to such inference and justify the piercing of the veil of
corporate fiction.

Page 113 of 1072

TOPIC:DOCTRINE OF CORRPORATE ENTITY V. PIERCING THE VEIL


THE EXECUTIVE SECRETARY, THE SECRETARY OF JUSTICE, THE
SECRETARY OF LABOR AND EMPLOYMENT, AND THE SECRETARY OF
FOREIGN AFFAIRS, OWWA PUNO, ADMINISTRATOR, AND POEA
ADMINISTRATOR,
VS.
THE HON. COURT OF APPEALS AND ASIAN RECRUITMENT COUNCIL
PHILIPPINE CHAPTER (ARCO-PHIL.), INC., REPRESENTING ITS
MEMBERS: WORLDCARE SERVICES INTERNATIONALE, INC.,
STEADFAST INTERNATIONAL RECRUITMENT CORPORATION, DRAGON
INTERNATIONAL MANPOWER SERVICES CORPORATION, VERDANT
MANPOWER MOBILIZATION CORPORATION, BRENT OVERSEAS
PERSONNEL, INC., ARL MANPOWER SERVICES, INC., DAHLZHEN
INTERNATIONAL SERVICES, INC., INTERWORLD PLACEMENT CENTER,
INC., LAKAS TAO CONTRACT SERVICES, LTD. CO., AND SSC
MULTISERVICES,
G.R. NO. 131719, MAY 25, 2004
FACTS:
The Omnibus Rules and Regulations Implementing the Migrant Workers
and Overseas Filipino Act of 1995 was, thereafter, published in the April 7,
1996 issue of the Manila Bulletin. However, even before the law took effect
ARCO-Phil. filed, o petition for declaratory relief under Rule 63 of the Rules of
Court with the Regional Trial Court of Quezon City to declare as
unconstitutional Section 2, paragraph (g), Section 6, paragraphs (a) to (j), (l)
and (m), Section 7, paragraphs (a) and (b), and Sections 9 and 10 of the law,
with a plea for the issuance of a temporary restraining order and/or writ of
preliminary injunction enjoining the respondents therein from enforcing the
assailed provisions of the law.
It prayed that the court issue a temporary restraining order to enjoin
the enforcement of Section 6, paragraphs (a) to (m) on illegal recruitment,
Section 7 on penalties for illegal recruitment, and Section 9 on venue of
criminal actions for illegal recruitments. The respondent alleged that Section
6, subsections (a) to (m) is unconstitutional because licensed and authorized
recruitment agencies are placed on equal footing with illegal recruiters. It
contended that while the Labor Code distinguished between recruiters who
are holders of licenses and non-holders thereof in the imposition of penalties,

Page 114 of 1072

Rep. Act No. 8042 does not make any distinction. The penalties in Section
7(a) and (b) being based on an invalid classification are, therefore, repugnant
to the equal protection clause, besides being excessive; hence, such
penalties are violative of Section 19(1), Article III of the Constitution. 9 It was
also pointed out that the penalty for officers/officials/employees of
recruitment agencies who are found guilty of economic sabotage or largescale illegal recruitment under Rep. Act No. 8042 is life imprisonment. Since
recruitment agencies usually operate with a manpower of more than three
persons, such agencies are forced to shut down, lest their officers and/or
employees be charged with large scale illegal recruitment or economic
sabotage and sentenced to life imprisonment. Thus, the penalty imposed by
law, being disproportionate to the prohibited acts, discourages the business
of licensed and registered recruitment agencies.
The respondent also posited that Section 6(m) and paragraphs (15)
and (16), Sections 8, 9 and 10, paragraph 2 of the law violate Section 22,
Article III of the Constitution10 prohibiting ex-post facto laws and bills of
attainder. This is because the provisions presume that a licensed and
registered recruitment agency is guilty of illegal recruitment involving
economic sabotage, upon a finding that it committed any of the prohibited
acts under the law. Furthermore, officials, employees and their relatives are
presumed guilty of illegal recruitment involving economic sabotage upon
such finding that they committed any of the said prohibited acts.
The appellate court dismissed the petition and affirming the assailed
order and writ of preliminary injunction issued by the trial court.
ISSUE/S:
Whether or not the trial court committed grave abuse of its
discretion amounting to excess or lack of jurisdiction in issuing
the assailed order and the writ of preliminary injunction on a
bond of only P50,000
RULING:
The validity of Section 6 of R.A. No. 8042 which provides that
employees of recruitment agencies may be criminally liable for illegal
recruitment has been upheld in People v. Chowdury:
As stated in the first sentence of Section 6 of RA 8042, the
persons who may be held liable for illegal recruitment are the
principals, accomplices and accessories. An employee of a
company or corporation engaged in illegal recruitment may be
held liable as principal, together with his employer, if it is shown
that he actively and consciously participated in illegal
recruitment. It has been held that the existence of the corporate
entity does not shield from prosecution the corporate agent who

Page 115 of 1072

knowingly and intentionally causes the corporation to commit a


crime. The corporation obviously acts, and can act, only by and
through its human agents, and it is their conduct which the law
must deter. The employee or agent of a corporation engaged in
unlawful business naturally aids and abets in the carrying on of
such business and will be prosecuted as principal if, with
knowledge of the business, its purpose and effect, he consciously
contributes his efforts to its conduct and promotion, however
slight his contribution may be.
By its rulings, the Court thereby affirmed the validity of the assailed
penal and procedural provisions of Rep. Act No. 8042, including the
imposable penalties therefor. Until the Court, by final judgment, declares that
the said provisions are unconstitutional, the enforcement of the said
provisions cannot be enjoined.

Page 116 of 1072

TOPIC:DOCTRINE OF CORRPORATE ENTITY V. PIERCING THE VEIL


R & E TRANSPORT, INC., AND HONORIO ENRIQUEZ
VS.
AVELINA P. LATAG, REPRESENTING HER DECEASED HUSBAND, PEDRO
M. LATAG
G.R. NO. 155214, FEBRUARY 13, 2004
FACTS:
Pedro Latag was a regular employee of La Mallorca Taxi since March 1,
1961. When La Mallorca ceased from business operations, Latag transferred
to R & E Transport, Inc. Latag got sick in January 1995 and was forced to
apply for partial disability with the SSS, which was granted. When he
recovered, he reported for work in September 1998 but was no longer
allowed to continue working on account of his old age.
Latag thus asked the administrative officer of petitioners, for his
retirement pay pursuant to Republic Act 7641 but he was ignored. Thus
Latag filed a case for payment of his retirement pay before the NLRC.
The Labor Arbiter rendered a decision in favor of Latag. On January 21,
2000, Avelina Latag was invited to the office of petitioners counsel and was
offered the amount of P38,500.00, which she accepted and asked to sign an
already prepared quitclaim and release and a joint motion to dismiss the
case. After a day or two, respondent, received a copy of the January 10, 2000
Decision of the Labor Arbiter. Petitioners interposed an appeal before the
NLRC.
NLRC dismissed the appeal for failure to post a cash or surety bond, as
mandated by law. The CA ruled that the labor arbiters January 10, 2000
Decision and May 23, 2000 Order had already become final and executory.
ISSUE:
Whether or not the facts of the case warrants the application of
doctrine of piercing the veil of corporate fiction?

Page 117 of 1072

RULING:
The question of whether a corporation is a mere alter ego is one of
fact.
Piercing the veil of corporate fiction may be allowed only if the
following elements concur:
1. control -- not mere stock control, but complete domination
-- not only of finances, but of policy and business practice
in respect to the transaction attacked, must have been
such that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own;
2. such control must have been used by the defendant to
commit a fraud or a wrong to perpetuate the violation of a
statutory or other positive legal duty, or a dishonest and an
unjust act in contravention of plaintiffs legal right; and
3. the said control and breach of duty must have proximately
caused the injury or unjust loss complained of."
Respondent has not shown by competent evidence that one taxi
company had stock control and complete domination over the other or vice
versa. In fact, no evidence was presented to show the alleged renaming of
"La Mallorca Taxi" to "R & E Transport, Inc." The seven-year gap between the
time the former closed shop and the date when the latter came into being
also casts doubt on any alleged intention of petitioners to commit a wrong or
to violate a statutory duty. This lacuna in the evidence compels us to reverse
the Decision of the CA affirming the labor arbiters finding of fact that the
basis for computing Pedros retirement pay should be 37 years, instead of
only 14 years.

Page 118 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE
FICTION
HEIRS OF TRINIDAD DE LEON VDA. DE ROXAS
VS.
COURT OF APPEALS AND MAGUESUN MANAGEMENT AND
DEVELOPMENT CORPORATION
G.R. NO. 138660, FEBRUARY 5, 2004
422 SCRA 101
FACTS:
In a suit filed by the Roxas heirs to set aside the decree of registration
over two unregistered parcels of land in Tagaytay City granted to Maguesun
before the RTC but has since reached the Supreme Court, Meycauayan
Central Realty filed a Petition for Intervention alleging that it purchased three
parcels of land from Maguesun which form part of the property awarded to
the Roxas heirs. The Supreme Court denied the said Petition and
subsequently, the Motion for Reconsideration of Meycauayan. Thus, the
decision became final on August 21, 1997.
However, despite the finality of the decision in favour of the Roxas
heirs, Meycauayan filed a Complaint for reconveyance, damages and
quieting of title with the trial court entitled Meycauayan Central Realty Corp.
v. Heirs of Manual A. Roxas and Trinidad de Leon vda. De Roxas, Maguesun
Management and Development Corp., Register of Deeds of Tagaytay City,
City Assessor of Tagaytay City and Land Registration Authority, which is an
almost exact reproduction of the Petition for Intervention filed by
Meycauayan before the Supreme Court.
The trial court dismissed the said Complaint for lack of merit. The court
further held that Meycauayan is guilty of forum shopping.
Meanwhile, the Roxas heirs filed on June 2, 1999 before the Supreme
Court a Petition to cite for indirect contempt the officers of Meycauayan.
ISSUE/S:
Whether or not the corporation and its officers may be held liable
for contempt.

Page 119 of 1072

RULING:
The general rule is that a corporation and its officers and agents may
be held liable for contempt. A corporation and those who are officially
responsible for the conduct of its affairs may be punished for contempt in
disobeying judgments, decrees, or orders of a court made in a case within its
jurisdiction.
Under Section 1 of Rule 71 of the Rules of Court, direct contempt is
punishable by a fine not exceeding two thousand pesos (P2,000) or
imprisonment not exceeding ten (10) days, or both, if committed against a
Regional Trial Court or a court of equivalent or higher rank. Hence,
Meycauayan and its Executive Vice President Juan M. Lamson, Jr. are each
fined P2,000 for direct contempt of court for forum shopping.
WHEREFORE, we find Meycauayan Central Realty Corporations
Executive Vice President Juan M. Lamson, Jr. GUILTY of INDIRECT CONTEMPT
and FINE him TEN THOUSAND PESOS (P10,000). Furthermore, we find
Meycauayan Central Realty Corporation and its Executive Vice President Juan
M. Lamson, Jr. GUILTY of DIRECT CONTEMPT for forum shopping and FINE
them TWO THOUSAND PESOS (P2,000) each. The Court warns them that a
repetition of the same or similar offense shall merit a more severe penalty.

Page 120 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATEFICTION
MEL V. VELARDE, petitioner,
vs.
LOPEZ, INC., respondent.
G.R. NO. 153886, JANUARY 14, 2004
419 SCRA 422
FACTS:
A Notarized loan agreement covering the amount of 10 million pesos
was executed between, Eugenio Lopez Jr., then President of respondent
Lopez, Inc., as LENDER, and petitioner Mel Velarde, then General Manager of
Sky Vision Corporation, a subsidiary of respondent, as BORROWER.
Petitioner, however, defaulted in payment of the agreed instalments for the
aforesaid loan. The respondent, in response to the letter of petitioner,
advised him by letter that he could use his retirement benefits in Sky Vision
in partial settlement of his loan after he settles his accountabilities to the
latter and gives his written instructions to it. Petitioner however, refused,
asserting that the imputed unliquidated advances from Sky Vision had
already been properly liquidated.
Thus, respondent filed an action for collection of sum of money with
damages before the Pasig City RTC. Herein petitioner filed his answer which
included a counterclaim against respondent asserting that he is entitled to
retirement benefits from Sky Vision, unpaid salaries, unpaid incentives,
unpaid share from the net income of Lopez, Inc., equity in his service vehicle,
reasonable return on the stock ownership plan for services rendered as
General Manager, and moral damages and attorneys fees. Respondent
moved to dismiss the said counterclaim for lack of jurisdiction which drew
petitioner to assert in his comment and opposition thereto that the veil of
corporate fiction must be pierced to hold respondent liable for his
counterclaims. The RTC denied respondents Motion to Dismiss holding
among others that there exists an identity of interest between Sky Vision and
Lopez, Inc. to warrant the piercing of the veil of corporate fiction.
ISSUE:
Whether or not the existence of a parent-subsidiary relationship
between corporations is sufficient ground to pierce the veil of
corporate fiction.

Page 121 of 1072

RULING:
It cannot be gainsaid that a subsidiary has an independent and
separate juridical personality, distinct from that of its parent company,
hence, any claim or suit against the latter does not bind the former and vice
versa.
Petitioner argues nevertheless that jurisdiction over the subsidiary is
justified by piercing the veil of corporate fiction. Piercing the veil of corporate
fiction is warranted, however, only in cases when the separate legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend
crime, such that in the case of two corporations, the law will regard the
corporations as merged into one. The rationale behind piercing a
corporations identity is to remove the barrier between the corporation from
the persons comprising it to thwart the fraudulent and illegal schemes of
those who use the corporate personality as a shield for undertaking certain
proscribed activities.
In applying the doctrine of piercing the veil of corporate fiction, the
following requisites must be established:
1. control, not merely majority or complete stock
control;
2. such control must have been used by the defendant
to commit fraud or wrong, to perpetuate the violation
of a statutory or other positive legal duty, or
dishonest acts in contravention of plaintiffs legal
rights; and
3. the aforesaid control and breach of duty must
proximately cause the injury or unjust loss
complained of.
Nowhere, however, in the pleadings and other records of the case can
it be gathered that respondent has complete control over Sky Vision, not only
of finances but of policy and business practice in respect to the transaction
attacked, so that Sky Vision had at the time of the transaction no separate
mind, will or existence of its own. The existence of interlocking directors,
corporate officers and shareholders is not enough justification to pierce the
veil of corporate fiction in the absence of fraud or other public policy
considerations.
This Court is thus not convinced that the real party-in-interest with
regard to the counterclaim for damages arising from the alleged tortuous
manner by which petitioner was forced to retire as General Manager of Sky
Vision is respondent.
WHEREFORE, the instant petition for review on certiorari is hereby
DENIED.

Page 122 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
PHILIPPINE NATIONAL BANK, petitioner,
vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN
GENERAL MERCHANDISE, respondents.
G.R. NO. 142616, JULY 31, 2001
362 SCRA 216
FACTS:
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary
company of PNB, organized and doing business in Hong Kong, extended a
letter of credit in favor of the respondents in the amount of US$300,000.00
secured by real estate mortgages constituted over 4 parcels of land in Makati
City. Respondents made repayments of the loan incurred by remitting those
amounts to their loan account with PNB-IFL in Hong Kong.
However, they defaulted in payment. Thus, PNB-IFL, through its
attorney-in-fact PNB, notified the respondents of the foreclosure of all the
real estate mortgages and that the properties subject thereof were to be sold
at a public auction.
However, herein respondents filed before the RTC of Makati a complaint for
injunction with prayer for the issuance of a writ of preliminary injunction
and/or temporary restraining order to enjoin PNB from foreclosing the said
properties. Petitioner, on the other hand, assailed the said petition through a
Motion to Dismiss on the ground that it does not state a cause of action and
there is no privity of contract between PNB and the respondents, and that
PNB is merely an agent of PNB-IFL.
The RTC granted the said injunction on the ground that since PNB-IFL,
is a wholly owned subsidiary of defendant Philippine National Bank, the suit
against the defendant PNB is a suit against PNB-IF.
ISSUE/S:
Whether or not the RTC erred in granting the said injunction
against PNB.

Page 123 of 1072

RULING:
The general rule is that as a legal entity, a corporation has a
personality distinct and separate from its individual stockholders or
members, and is not affected by the personal rights, obligations and
transactions of the latter. The mere fact that a corporation owns all of the
stocks of another corporation, taken alone is not sufficient to justify their
being treated as one entity. If used to perform legitimate functions, a
subsidiary's separate existence may be respected, and the liability of the
parent corporation as well as the subsidiary will be confined to those arising
in their respective business. The courts may in the exercise of judicial
discretion step in to prevent the abuses of separate entity privilege and
pierce the veil of corporate entity.
It is manifestly impossible to catalogue the infinite variations of fact
that can arise but there are certain common circumstances which are
important and which, if present in the proper combination, are controlling.
These are as follows:
a. The parent corporation owns all or most of the capital
stock of the subsidiary.
b. The parent and subsidiary corporations have
common directors or officers.
c. The parent corporation finances the subsidiary.
d. The parent corporation subscribes to all the capital
stock of the subsidiary or otherwise causes its
incorporation.
e. The subsidiary has grossly inadequate capital.
f. The parent corporation pays the salaries and other
expenses or losses of the subsidiary.
g. The subsidiary has substantially no business except
with the parent corporation or no assets except those
conveyed to or by the parent corporation.
h. In the papers of the parent corporation or in the
statements of its officers, the subsidiary is described
as a department or division of the parent
corporation, or its business or financial responsibility
is referred to as the parent corporation's own.
i. The parent corporation uses the property of the
subsidiary as its own.
j. The directors or executives of the subsidiary do not
act independently in the interest of the subsidiary
but take their orders from the parent corporation.
k. The formal legal requirements of the subsidiary are
not observed.
The Supreme Court have held that the doctrine of piercing the
corporate veil is an equitable doctrine developed to address situations where

Page 124 of 1072

the separate corporate personality of a corporation is abused or used for


wrongful purposes. The doctrine applies when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime, or
when it is made as a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.
In Concept Builders, Inc. v. NLRC, the Supreme Court have laid the test
in determining the applicability of the doctrine of piercing the veil of
corporate fiction, to wit:
1. Control, not mere majority or complete control, but complete
domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no
separate mind, will or existence of its own.
2. Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and, unjust act in contravention
of plaintiffs legal rights; and,
3. The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of.
The absence of any
corporate veil." In applying
courts are concerned with
operated and the individual

one of these elements prevents "piercing the


the "instrumentality" or "alter ego" doctrine, the
reality and not form, with how the corporation
defendant's relationship to the operation.

Aside from the fact that PNB-IFL is a wholly owned subsidiary of


petitioner PNB, there is no showing of the indicative factors that the former
corporation is a mere instrumentality of the latter are present. Neither is
there a demonstration that any of the evils sought to be prevented by the
doctrine of piercing the corporate veil exists. Inescapably, therefore, the
doctrine of piercing the corporate veil based on the alter ego or
instrumentality doctrine finds no application in the case at bar.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed
decision of the Court of Appeals is hereby REVERSED. The Orders dated June
30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch
147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the
complaint in said case DISMISSED.

Page 125 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
SALVADOR O. BOOC, complainant,
vs.
MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3, ILIGAN CITY,
respondent.
A.M. No. P-01-1464, March 13, 2001
354 SCRA 279
FACTS:
Herein respondent Sheriff Malayo B. Bantuas, pursuant to a Writ of
Execution issued in Civil Case No. 1718 filed a Notice of Levy with the
Register of Deeds, Iligan City over a parcel of land covered by TCT No. T19209 and owned by Five Star Marketing Corporation. The corporation
through the complainant reiterated to respondent sheriff that it was the
owner of the property and Rufino Booc had no share or interest in the
corporation. Respondent sheriff, however, did not heed the corporations
demand. Thus, after due notice, he scheduled the public auction on August
31, 1999. Consequently, the corporation, to protect its rights and interests,
filed an action for Quieting of Title with the RTC, Branch 4 of Iligan City.
Bantuas, in his answer to the complaint filed against him before the
OCA, said that he filed a Notice of Levy with the Register of Deeds of Iligan
City on the share, rights, interest and participation of Rufino Booc in the
parcel of land owned by Five Star Marketing Corporation. Respondent sheriff
claimed that Rufino Booc is the owner of around 200 shares of stock in said
corporation according to a document issued by the Securities and Exchange
Commission. Moreover, Bantuas averred that the corporation is merely a
dummy of Rufino Booc and his brother Sheikding Booc based on an affidavit
executed by the latter.
ISSUE/S:
Whether or not the sheriff erred in levying the property belonging
to the corporation on the ground that said corporation is merely
a dummy of petitioner.

Page 126 of 1072

RULING:
Respondent sheriff, however, overstepped his authority when he
disregarded the distinct and separate personality of the corporation from
that of Rufino Booc as stockholder of the corporation by levying on the
property of the corporation. Respondent sheriff should not have made the
levy based on mere conjecture that since Rufino Booc is a stockholder and
officer of the corporation, then he might have an interest or share in the
subject property.
It is settled that a corporation is clothed with a personality separate
and distinct from that of its stockholders. It may not be held liable for the
personal indebtedness of its stockholders. In the case of Del Rosario vs.
Bascar, Jr., we imposed the fine of P5,000.00 on respondent sheriff Bascar for
allocating unto himself the power of the court to pierce the veil of corporate
entity and improvidently assuming that since complainant Esperanza del
Rosario is the treasurer of Miradel Development Corporation, they are one
and the same. In the said case we reiterated the principle that the mere fact
that one is a president of the corporation does not render the property he
owns or possesses the property of the corporation since the president, as an
individual, and the corporation are separate entities.
WHEREFORE , respondent Malayo B. Bantuas, Sheriff IV of the RTC of
Iligan City , Branch 3, is hereby FINED in the sum of Five Thousand Pesos
(P5,000.00) with the STERN WARNING that a repetition of the same or similar
acts in the future will be dealt with more severely.

Page 127 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
MARUBENI CORPORATION, RYOICHI TANAKA, RYOHEI KIMURA and
SHOICHI ONE, petitioners,
vs.
FELIX LIRAG, respondent.
G.R. NO. 130998, August 10, 2001
FACTS:
Respondent Felix Lirag filed with the RTC Makati a complaint for
specific performance and damages claiming that petitioners owed him the
sum of P6,000,000.00 representing commission pursuant to an oral
consultancy agreement with Marubeni. Lirag claimed that on February 2,
1987, petitioner Ryohei Kimura hired his consultancy group for the purpose
of obtaining government contracts of various projects. Petitioners allegedly
promised to pay him 6% consultancy fee based on the total costs of the
projects obtained. Lirag claims that one of the projects handled he handled
was the Bureau of Post project, amounting to P100,000,000.00 which was
awarded to the "Marubeni-Sanritsu tandem." He further claims that Marubeni
and Sanritsu are sister corporations, and that it is really Marubeni who is the
supplier and real contractor of the project and subcontracted the same to
Sanritsu, thereby implying the need to pierce the veil of corporate fiction.
Lirag alleged that despite his repeated formal verbal demands for
payment of the agreed consultancy fee, petitioners did not pay.
In their answer, petitioners denied the consultancy agreement on the
ground that petitioner Ryohei Kimura did not have the authority to enter into
such agreement in behalf of Marubeni and that Marubeni did not participate
in the bidding for the Bureau of Post project, nor benefited from the
supposed project.
Both the RTC and the CA ruled in favour of Lirag finding that there exists an
oral consultancy agreement between his consultancy group and Marubeni.
ISSUE/S:

Page 128 of 1072

Whether or not piercing the veil of corporate fiction between


Marubeni and Sanritsu is justified.
RULING:
Not because two foreign companies came from the same country and
closely worked together on certain projects would the conclusion arise that
one was the conduit of the other, thus piercing the veil of corporate fiction.
To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established. It cannot be
presumed. The separate personality of the corporation may be disregarded
only when the corporation is used as a cloak or cover for fraud or illegality, or
to work injustice, or where necessary for the protection of creditors. We could
not just rely on respondent's testimony regarding the existence of the
"Marubeni-Sanritsu tandem" to justify his claim for payment of commission.
This conclusion is too conjectural to be believed.
Aside from the self-serving testimony of respondent regarding the
existence of a close working relationship between Marubeni and Sanritsu,
there was nothing that would support the conclusion that Sanritsu was an
agent of Marubeni.

Page 129 of 1072

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT
CORPORATION, petitioners,
vs.
RITA C. MEJIA, as Executrix of Testate Estate of ANDREA CORDOVA
VDA. DE GUTERREZ, respondent.
G.R. No. 141617
August 14, 2001
FACTS:
Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner
of a parcel of land in Camarin, Caloocan City known as Lot 861 of the Tala
Estate. The property was later subdivided into five lots with an area of five
hectares each and pursuant thereto, TCT No. 5779 was cancelled and five
new transfer certificates of title were issued in the name of Gutierrez.
On 21 December 1964, Gutierrez and Cardale Financing and Realty
Corporation (Cardale) executed a Deed of Sale with Mortgage relating to the
lots covered by TCT Nos. 7124, 7125, 7126 and 7127, for the consideration
of P800, 000.00. Cardale paid Gutierrez P171,000.00. It was agreed that the
balance of P629,000.00 would be paid in several installments .Thereafter, the
titles of Gutierrez were cancelled and in lieu thereof TCT Nos. 7531 to 7534
were issued in favor of Cardale.
To secure payment of the balance of the purchase price, Cardale
constituted a mortgage on three of the four parcels. The encumbrance was
annotated upon the certificates of title and the owner's duplicate certificates.
The owner's duplicates were retained by Gutierrez.
On 26 August 1968, owing to Cardale's failure to settle its mortgage
obligation, Gutierrez filed a complaint for rescission of the contract.On 20
October 1969, during the pendency of the rescission case, Gutierrez died and
was substituted by her executrix, respondent Rita C. Mejia (Mejia). However,
Cardale, which was represented by petitioner Adalia B. Francisco (Francisco)
in her capacity as Vice-President and Treasurer of Cardale, lost interest in
proceeding with the presentation of its evidence and the case lapsed into
inactive status for a period of about fourteen years.

Page 130 of 1072

The mortgaged parcels of land became delinquent in paying real estate


taxes, thus it was levied in an auction sale on 1 and 12 September 1983. .
The highest bidder for the three parcels of land was petitioner Merryland
Development Corporation (Merryland), whose President and majority
stockholder is Francisco.
The title was later transferred in the name of Merryland. Mejia, in her
capacity as executrix of the Estate of Gutierrez, filed with the RTC of Quezon
City a complaint for damages with prayer for preliminary attachment against
Francisco, Merryland and the Register of Deeds of Caloocan City.
ISSUE/S:
Whether or not Cardale Financing and Realty Corporation and
Merryland Development Corporation are one and the same.
RULING:
No, they are not one and the same.
A corporation is a juridical person with a separate and distinct
personality from mat of the stockholders or members who compose it .
However, when the legal fiction of the separate corporate personality is
abused, such as when the same is used for fraudulent or wrongful ends, the
courts have not hesitated to pierce the corporate veil. When the notion of
legal entity is used to defeat public convenience, justify wrong, protect fraud,
or defend crime, the law will regard the corporation as an association of
persons.
With specific regard to corporate officers, the general rule is that the
officer cannot be held personally liable with the corporation, whether civilly
or otherwise, for the consequences of his acts, if he acted for and in behalf of
the corporation, within the scope of his authority and in good faith. In such
cases, the officer's acts are properly attributed to the corporation. However,
if it is proven that the officer has used the corporate fiction to defraud a third
party, or that he has acted negligently, maliciously or in bad faith, then the
corporate veil shall be lifted and he shall be held personally liable for the
particular corporate obligation involved.
The Court, after an assiduous study of this case, is convinced that the
totality of the circumstances appertaining conduce to the inevitable
conclusion that petitioner Francisco acted in bad faith. The events leading up
to the loss by the Gutierrez estate of its mortgage security attest to this. It
has been established that Cardale failed to comply with its obligation to pay
the balance of the purchase price for the four parcels of land it bought from
Gutierrez covered by TCT Nos. 7531 to 7534, which obligation was secured
by a mortgage upon the lands covered by TCT Nos. 7531, 7532 and 7533.
This prompted Gutierrez to file an action for rescission of the Deed of Sale
with Mortgage but the case dragged on for about fourteen years when
Cardale, as represented by Francisco, who was Vice-President and Treasurer

Page 131 of 1072

of the same, lost interest in completing its presentation of evidence.


Francisco knew that the properties subject of the mortgage had become tax
delinquent. In fact, as treasurer of Cardale, Francisco herself was the officer
charged with the responsibility of paying the realty taxes on the
corporation's properties. In addition, notices dated 9 July 1982 from the City
Treasurer of Caloocan demanding payment of the tax arrears on the subject
properties were sent directly to Francisco's address in White Plains, Quezon
City. Thus, as early as 1982, Francisco could have informed the Gutierrez
estate or the trial court in Civil Case No. Q-12366 of the tax arrears and of
the notice from the City Treasurer so that the estate could have taken the
necessary steps to prevent the auction sale and to protect its interests in the
mortgaged properties, but she did no such thing. Finally, in 1983, the
properties were levied upon and sold at public auction wherein Merryland
a corporation where Francisco is a stockholderand concurrently acts as
President and director was the highest bidder.
That Merryland acquired the property at the public auction only serves
to shed more light upon Francisco's fraudulent purposes. Based on the
findings of the Court of Appeals, Francisco is the controlling stockholder and
President of Merryland.Thus, aside from the instrumental role she played as
an officer of Cardale, in evading that corporation's legitimate obligations to
Gutierrez, it appears that Francisco's actions were also oriented towards
securing advantages for another corporation in which she had a substantial
interest.
The only act imputable to Merryland in relation to the mortgaged
properties is that it purchased the same and this by itself is not a fraudulent
or wrongful act. No evidence has been adduced to establish that Merryland
was a mere alter ego or business conduit of Francisco. Time and again it has
been reiterated that mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personality
.Neither has it been alleged or proven that Merryland is so organized and
controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of Cardale. Even assuming that
the businesses of Cardale and Merryland are interrelated, this alone is not
justification for disregarding their separate personalities, absent any showing
that Merryland was purposely used as a shield to defraud creditors and third
persons of their rights. Thus, Merryland's separate juridical personality must
be upheld.

Page 132 of 1072

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
LAND BANK OF THE PHILIPPINES, petitioner,
vs.
THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION and
EMMANUEL C. OATE, respondents.
G.R. No. 127181
September 4, 2001
FACTS:
On various dates in September, October, and November, 1980,
appellant Land Bank of the Philippines (LBP) extended a series of credit
accommodations to appellee ECO, using the trust funds of the Philippine
Virginia Tobacco Administration (PVTA) in the aggregate amount of
P26,109,000.00. The proceeds of the credit accommodations were received
on behalf of ECO by appellee Oate.
On the respective maturity dates of the loans, ECO failed to pay the
same. ECO claims that the company was in financial difficulty for it was
unable to collect its investments with companies which were affected by the
financial crisis brought about by the Dewey Dee scandal. On October 20,
1981, ECO proposed and submitted to LBP a "Plan of Payment" whereby the
former would set up a financing company which would absorb the loan
obligations. It was proposed that LBP would participate in the scheme
through the conversion of P9,000,000.00 which was part of the total loan,
into equity.How ever such plan was rejected by the LBP and asked ECO for
the revision of the plan. ECO in turn delete the LBPs participation in the Plan
of Payment.
LBP then sent a letter to the PVTA for the latters comments. The letter
stated that if LBP did not hear from PVTA within five (5) days from the latters
receipt of the letter, such silence would be construed to be an approval of
LBPs intention to file suit against ECO and its corporate officers. PVTA did
not respond to the letter.
On June 28, 1982, Landbank filed a complaint for Collection of Sum of
Money against ECO and Emmanuel C. Oate.

Page 133 of 1072

ISSUE/S:
Whether or not the corporate veil of ECO Management Corporation
should be pierced.
Whether or not Emmanuel C. Oate should be held jointly and
severally liable with ECO Management Corporation for the loans
incurred from Land Bank.
RULING:
NO.
A corporation, upon coming into existence, is invested by law with a
personality separate and distinct from those persons composing it as well as
from any other legal entity to which it may be related. By this attribute, a
stockholder may not, generally, be made to answer for acts or liabilities of
the said corporation, and vice versa. This separate and distinct personality is,
however, merely a fiction created by law for convenience and to promote the
ends of justice. For this reason, it may not be used or invoked for ends
subversive to the policy and purpose behind its creationor which could not
have been intended by law to which it owes its being. This is particularly true
when the fiction is used to defeat public convenience, justify wrong, protect
fraud, defend crime,confuse legitimate legal or judicial issues,perpetrate
deception or otherwise circumvent the law.This is likewise true where the
corporate entity is being used as an alter ego, adjunct, or business conduit
for the sole benefit of the stockholders or of another corporate entity. In all
these cases, the notion of corporate entity will be pierced or disregarded with
reference to the particular transaction involved.
The burden is on petitioner to prove that the corporation and its stockholders
are, in fact, using the personality of the corporation as a means to perpetrate
fraud and/or escape a liability and responsibility demanded by law. In order
to disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established.In the absence of
any malice or bad faith, a stockholder or an officer of a corporation cannot be
made personally liable for corporate liabilities.
The mere fact that Oate owned the majority of the shares of ECO is
not a ground to conclude that Oate and ECO are one and the same. Mere
ownership by a single stockholder of all or nearly all of the capital stock of a
corporation is not by itself sufficient reason for disregarding the fiction of
separate corporate personalities.Neither is the fact that the name "ECO"
represents the first three letters of Onates name sufficient reason to pierce
the veil. Even if it did, it does not mean that the said corporation is merely a
dummy of Oate. A corporation may assume any name provided it is lawful.
There is nothing illegal in a corporation acquiring the name or as in this case,
the initials of one of its shareholders.
That respondent corporation in this case was being used as a mere
alter ego of Oate to obtain the loans had not been shown. Bad faith or fraud

Page 134 of 1072

on the part of ECO and Oate was not also shown. As the Court of Appeals
observed, if shareholders of ECO meant to defraud petitioner, then they
could have just easily absconded instead of going out of their way to propose
"Plans of Payment."Likewise, Oate volunteered to pay a portion of the
corporations debt.This offer demonstrated good faith on his part to ease the
debt of the corporation of which he was a part. It is understandable that a
shareholder would want to help his corporation and in the process, assure
that his stakes in the said corporation are secured. In this case, it was
established that the P1 Million did not come solely from Oate. It was taken
from a trust account which was owned by Oate and other investors. It was
likewise proved that the P1 Million was a loan granted by Oate and his codepositors to alleviate the plight of ECO. This circumstance should not be
construed as an admission that he was really the debtor and not ECO.
As to the second issue, the evidence presented by the petitioner does
not suffice to hold respondent Oate personally liable for the debt of corespondent ECO.

Page 135 of 1072

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT
CORPORATION, petitioners,
vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.
G.R. No. 142936. April 17, 2002
381 SCRA 244
FACTS:
Andrada Electric and Engineering Company (AEEC) is a partnership
duly organized, existing and operating under the laws of the Philippines.
PNB acquired the assets of Pampanga Sugar Mills Inc. (PASUMIL) that
were earlier foreclosed by the Development Bank of the Philippines under LOI
No. 13. That PNB organized the NASUDECO in September 1975, to take
ownership and possession of assets and ultimately nationalize and
consolidate its interest in other PNB controlled sugar mills.
Prior to October 29, 1971, PASUMIL engaged the service of AEEC for
electrical rewinding and repair most of which were partially paid by the
defendant PASUMIL, leaving several unpaid accounts with the AEEC, that
finally on October 29, 1971 AEEC and PASUMIL entered into a contract to be
performed by AEEC.
Total obligation was P777, 263.80, PASUMIL paid only P250, 000.00
leaving a balance of P527, 263.80 and another payment of P14, 000.00, thus
total balance of P513, 263.80. The defendant PNB, PASUMIL and now
NASUDECO failed and refused to pay; that the President of the NASUDECO is
also the Vice-President of the PNB, and this official holds office at the 10 th
Floor of the PNB, Escolta, Manila, and plaintiff besought this official to pay
the outstanding obligation of the defendant PASUMIL, inasmuch as the
defendant PNB and NASUDECO now owned and possessed the assets of the
defendant PASUMIL, and these defendants all benefited from the works, and
the electrical, as well as the engineering and repairs, performed by the
plaintiff; that because of the failure and refusal of the defendants to pay their

Page 136 of 1072

just, valid, and demandable obligations, plaintiff suffered actual damages in


the total amount of P513,263.80; and that in order to recover these sums,
the plaintiff was compelled to engage the professional services of counsel, to
whom the plaintiff agreed to pay a sum equivalent to 25% of the amount of
the obligation due by way of attorneys fees. . Accordingly, the plaintiff
prayed that judgment be rendered against the defendants PNB, NASUDECO,
and PASUMIL to be jointly and severally liable.
PNB and NASUDECO filed a joint motion to dismiss on the ground that
they were not part to the contract, but the motion was denied and decision
was in favor of AEEC. The decision of the lower court was affirmed by the
Court of Appeals.
ISSUE/S:
Whether or not PNB and NASUDECO are liable for the obligations of
PASUMIL?
RULING:
General Rule states that, a corporation that purchases the assets of
another will not be liable for the debts of the selling corporation; provided
the former acted in good faith and paid adequate consideration. Except
under the following circumstances:
a) purchaser expressly or impliedly agrees to assume
the debts;
b) transaction amounts to consolidation or merger;
c) purchasing company is a merely continuation of the
selling company;
d) transaction is fraudulently entered into in order to
escape liability.
In the case at bar, we hold that there is no merger or consolidation
with respect to PASUMIL and PNB. The procedure prescribed under Title IX of
the Corporation Code was not followed.
In fact, PASUMILs corporate existence, as correctly found by the CA,
had not been legally extinguished or terminated. Further, prior to PNBs
acquisition of the foreclosed assets, PASUMIL had previously made partial
payments to respondent for the formers obligation in the amount of
P777,263.80.
As of June 27, 1973, PASUMIL had paid P250,000 to
respondent and, from January 5, 1974 to May 23, 1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt
of PASUMIL to respondent. LOI No. 11 explicitly provides that PNB shall study
and submit recommendations on the claims of PASUMILs creditors. Clearly,

Page 137 of 1072

the corporate separateness between PASUMIL and PNB remains, despite


respondents insistence to the contrary.

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
AZCOR MANUFACTURING INC., FILIPINAS PASO and/or ARTURO
ZULUAGA/Owner, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND CANDIDO
CAPULSO, respondents.
G.R. No. 117963. February 11, 1999
303 SCRA 26
FACTS:
Capulso worked for Azcor as ceramics worker for more than two years.
However, an amount of P50.00 was deducted from his salary without
informing him of the reason therefore.
Capulso verbally requested to go on sick leave due to bronchial
asthma. He went back to petitioner to resume his work but was not allowed
informing him that only the owner, Zuluaga could allow him to continue in his
job.
He filed complaint for illegal dismissal.
Petitioner alleged that Capulso resigned from work and joined Filipinas
Paso but there was no vacancy.
The Labor Arbiter dismissed the complaint but the NLRC declared there
was illegal dismissal.
ISSUE/S:
Whether or not petitioner could be held jointly and severally liable to
Capulso for back wages since Azcor and Fili[inas Paso are separate and
distinct corporation with different personalities.

Page 138 of 1072

RULING:
Capulso had no knowledge that he was already working under Filipinas
Paso since he continued to retain his Azcor i.d; his pay slips contained the
name of Azcor giving the impression that Azcor was paying his salary. He was
paid the same salary and performing the same kind of job in the same work
area, location, using the same tools and under the same supervisor.
His employment contract with Filipinas Paso was signed by Azcor
personnel officer, which showed that Capulso was being hired from 1 March
1990 to 31 August 1990 by AZCOR to do jobs for Filipinas Paso.
It is evident from the foregoing discussion that Capulso was led into
believing that while he was working with Filipinas Paso, his real employer was
AZCOR. Petitioners never dealt with him openly and in good faith, nor was
he informed of the developments within the company, i.e., his alleged
transfer to Filipinas Paso and the closure of AZCORs manufacturing
operations beginning 1 March 1990. Understandably, he sued AZCOR alone
and was constrained to implead Filipinas Paso as additional respondent only
when it became apparent that the latter also appeared to be his employer.
The totality of the evidence was a veil attempt by petitioners to
deprive Capulso of what he had earned through hard labor by taking
advantage of his low level of education and confusing him as to who really
was his true employer - such a callous and despicable treatment of a worker
who had rendered faithful service to their company thus petitioners AZCOR
MANUFACTURING, INC., FILIPINAS PASO and ARTURO ZULUAGA are ORDERED
to pay, jointly and solidarily to the heirs of Capulso.

Page 139 of 1072

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PEIRCING THE VEIL


EDUARDO CLAPAROLS, ROMULO AGSAM and/or CLAPAROLS STEEL
AND NAIL PLANT, petitioners,
vs.
COURT OF INDUSTRIAL RELATIONS, ALLIED WORKERS' ASSOCIATION
and/or DEMETRIO GARLITOS, ALFREDO ONGSUCO, JORGE
SEMILLANO, SALVADOR DOROTEO, ROSENDO ESPINOSA, LUDOVICO
BALOPENOS, ASER AMANCIO, MAXIMO QUIOYO, GAUDENCIO QUIOYO,
and IGNACIO QUIOYO, respondents.
G.R. No. L-30822 July 31, 1975
65 SCRA 613
FACTS:
On August 6, 1957, unfair labor practice was filed against Claparol
Steel and Nail Plant. Claparol was ordered to reinstate the employees but
they were refused by the employer on several attempts on the ground that
there was no order from the corporation owner.
Claparol Steel and Nail Plant ceased operation on June 30, 1957 and
succeed by Claparol Steel Corporation on July 1, 1957.
Claparol Steel Corporation claimed that it ceased to operate on
December 7, 1962, thus re-employment of respondent workers cannot go
beyond December 7, 1962.
ISSUE/S:
Whether or not Claparol Steel Corporation is liable for backwages and
reinstatement being an alter ego of Claparol Steel and Nail
Corporation.
RULING:
YES.
Claparol Steel and Nail Plant, which ceased operation of June 30, 1957,
was SUCCEEDED by the Claparol Steel Corporation effective the next day,
July 1, 1957 up to December 7, 1962, when the latter finally ceased to
operate, were not disputed by petitioners.

Page 140 of 1072

It is very clear that the latter corporation was a continuation and


successor of the first entity, and its emergence was skillfully timed to avoid
the financial liability that already attached to its predecessor, the Claparol
Steel and Nail Plant. Both predecessors and successor were owned and
controlled by the petitioner Eduardo Claparol and there was no break in the
succession and continuity of the same business. This "avoiding-the-liability"
scheme is very patent, considering that 90% of the subscribed shares of
stocks of the Claparol Steel Corporation (the second corporation) was owned
by respondent (herein petitioner) Claparol himself, and all the assets of the
dissolved Claparol Steel and Nail Plant were turned over to the emerging
Claparol Steel Corporation.

Page 141 of 1072

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
COMMISSIONER OF INTERNAL REVENUE
vs.
NORTON and HARRISON COMPANY
G.R. No. L-17618
August 31, 1964
11 SCRA 714
FACTS:
Norton and Harrison is a corporation organized in 1911. Jackbilt is,
likewise, a corporation organized primarily for the purpose of making,
producing and manufacturing concrete blocks. Norton and Jackbilt entered
into an agreement whereby Norton was made the sole and exclusive
distributor of concrete blocks manufactured by Jackbilt. Pursuant to this
agreement, whenever an order for concrete blocks was received by the
Norton & Harrison Co. from a customer, the order was transmitted to Jackbilt
which delivered the merchandise direct to the customer. Payment for the
goods is, however, made to Norton, which in turn pays Jackbilt the amount
charged the customer less a certain amount, as its compensation or profit.
During the existence of the distribution or agency agreement, Norton &
Harrison acquired by purchase all the outstanding shares of stock of Jackbilt.
Apparently, due to this transaction, the Commissioner of Internal Revenue,
after conducting an investigation, assessed the respondent Norton &
Harrison for deficiency sales tax and surcharges. In other words, the
Commissioner considered the sale of Norton to the public as the original
sale and not the transaction from Jackbilt. As Norton and Harrison did not
conform with the assessment, the matter was brought to the Court of Tax
Appeals.
The Commissioner of Internal Revenue contends that since Jackbilt was
owned and controlled by Norton & Harrison, the corporate personality of the
former Jackbilt should be disregarded for sales tax purposes, and the sale of
Jackbilt blocks by petitioner to the public must be considered as the original
sales from which the sales tax should be computed. The Commissioner of
Internal Revenue appealed the issue to the SC.
ISSUE/S:
Whether the acquisition of all the stocks of the Jackbilt by the
Norton & Harrison Co., merged the two corporations into a single
corporation

Page 142 of 1072

RULING:
Yes.
The decision appealed from should be as it is hereby reversed and
another entered making the appellee Norton & Harrison liable for the
deficiency sales taxes assessed against it by the appellant Commissioner of
Internal Revenue, plus 25% surcharge thereon. If the income of Norton
should be considered separate from the income of Jackbilt, then each would
declare such earning separately for income tax purposes and thus pay lesser
income tax. The combined taxable Norton-Jackbilt income would subject
Norton to a higher tax. Based upon the 1954-1955 income tax return of
Norton and Jackbilt, and assuming that both of them are operating on the
same fiscal basis and their returns are accurate, we would have the following
result: Jackbilt declared a taxable net income of P161,202.31 in which the
income tax due was computed at P37,137.00. Whereas Norton declared as
taxable, a net income of P120, 101.59, on which the income tax due was
computed at P25, 628.00. The total of these liabilities is P50, 764.84. On the
other hand, if the net taxable earnings of both corporations are combined,
during the same taxable year, the tax due on their total which is P281,
303.90 would be P70, 764.00. So that, even on the question of income tax
alone, it would be to the advantages of Norton that the corporations should
be regarded as separate entities.

Page 143 of 1072

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
CONCEPT BUILDERS, INC.,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and
Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego,
Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogello
Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera,
Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina,
Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres,
Felipe Basilan, and Ruben Robalos
GR 108734
29 May 1996
257 SCRA 149
FACTS:
Concept Builders, Inc., (CBI) a domestic corporation, is engaged in the
construction business while. On November 1981, Marabe, et. al., were served
individual written notices of termination of employment by CBI, effective on
30 November 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they were
hired had been completed.
The National Labor Relations Commission (NLRC) found it to be, the
fact, however, that at the time of the termination of Marabe, et.al.'s
employment, the project in which they were hired had not yet been finished
and completed. CBI had to engage the services of sub-contractors whose
workers performed the functions of Marabe, et. al.
Aggrieved, Marabe, et. al. filed a complaint for illegal dismissal. On 19
December 1984, the Labor Arbiter rendered judgment ordering CBI to
reinstate Marabe et. al. and to pay them back wages. On 27 November 1985,
the NLRC dismissed the motion for reconsideration. Labor Arbiter issued a
writ of execution directing the sheriff to execute the Decision. The writ was
partially satisfied through garnishment of sums from CBI's debtor.
On 1 February 1989, an Alias Writ of Execution was issued by the Labor
Arbiter directing the sheriff to collect from CBI the sum of P117, 414.76,
representing the balance of the judgment award, and to reinstate Marabe, et.
al. to their former positions. On 26 September 1986, upon motion of Marabe,
et. al., the Labor Arbiter issued a second alias writ of execution.

Page 144 of 1072

On 6 November 1989, a certain Dennis Cuyegkeng filed a third-party


claim with the Labor Arbiter alleging that the properties sought to be levied
upon by the sheriff were owned by HPPI, of which he is the Vice-President.
On 23 November 1989, Marabe, et. al. filed a Motion for Issuance of a
Break-Open Order," alleging that HPPI and CBI were owned by the same
incorporator/stockholders. Thereafter, it directed the sheriff to proceed with
the auction sale of the properties already levied upon. It dismissed the thirdparty claim for lack of merit. CBI moved for reconsideration but the motion
was denied by the NLRC in a Resolution, dated 3December 1992.
Hence, the petition.
ISSUE/S:
Whether the NLRC was correct in issuing the break-open order to
levy the HPPI properties.
RULING:
Yes.
It is a fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stock holders and from other
corporations to which it may be connected. But, this separate and distinct
personality of a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of separate juridical
personality is used to defeat public convenience, justify wrong, protect fraud
or defend crime, or is used as a device to defeat the labor laws, this separate
personality of the corporation may be disregarded or the veil of corporate
fiction pierced. This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation. The
conditions under which the juridical entity may be disregarded vary
according to the peculiar facts and circumstances of each case.

Page 145 of 1072

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION

COMPLEX ELECTRONICS CORPORATION


vs.
NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 121315

July 19, 1999

310 SCRA 403

FACTS:
Complex Electronics Corporation (Complex) was engaged in the
manufacture of electronic products. The rank and file workers of Complex
were organized into a union known as the Complex Electronics Employees
Association, herein referred to as the Union. On March 4, 1992, Complex
received a facsimile message from Lite-On Philippines Electronics Co.,
requiring it to lower its price by 10%. Consequently, Complex informed its
Lite-On personnel that such request of lowering their selling price by 10%
were not feasible as they were already incurring losses at the present prices
of their products. Under such circumstances, Complex regretfully informed
the employees that it was left with no alternative but to close down the
operations of the Lite-On Line. The company, however, promised the
following:
1) Complex will follow the law by giving the people to be
retrenched the necessary 1 month notice. Hence,
retrenchment will not take place until after 1 month from
March 09, 1992.
2) The Company will try to prolong the work for as many
people as possible for as long as it can by looking for job
slots for them in another line if workload so allows and if
their skills are compatible with the line requirement.

Page 146 of 1072

3) The company will give the employees to be retrenched a


retrenchment pay as provided for by law i.e. half a month
for every year of service in accordance with Article 283 of
the Labor Code of Philippines.

The Union, on the other hand, pushed for a retrenchment pay


equivalent to one (1) month salary for every year of service, which Complex
refused. The Union filed a notice of strike with the National Conciliation and
Mediation Board (NCMB). A complaint was, thereafter, filed with the Labor
Arbitration Branch of the NLRC for unfair labor practice.
Ionics was
impleaded as a party defendant because the officers and management
personnel of Complex were also holding office at Ionics with Lawrence Qua
as the President of both companies.

Ionics contended that it was an entity separate and distinct from


Complex and had been in existence since July 5, 1984 or eight (8) years
before the labor dispute arose at Complex. Like Complex, it was also
engaged in the semi-conductor business where the machinery, equipment
and materials were consigned to them by their customers. On April 30,
1993, the Labor Arbiter rendered a decision in favor of the employees.

Separate appeals were filed by Complex, Ionics and Lawrence Qua


before the respondent NLRC who also ruled in favor of the employees.

Complex, Ionics and the Union filed their motions for reconsideration
which were denied.
Hence these petitions.

ISSUE/S:

Page 147 of 1072

Whether or not Ionics may be held liable together with complex on


the ground that both companies have the set of board of directors.
RULING:
No.

In the case at bar, petitioner seeks to pierce the veil of corporate


entity, alleging that the creation of the corporation is a devise to evade the
application of the CBA between petitioner Union and private respondent
company. Ionics may be engaged in the same business as that of Complex,
but this fact alone is not enough reason to pierce the veil of corporate fiction
of the corporation. Well-settled is the rule that a corporation has a
personality separate and distinct from that of its officers and
stockholders. This fiction of corporate entity can only be disregarded in
certain cases such as when it is used to defeat public convenience, justify
wrong, protect fraud, or defend crime. To disregard said separate juridical
personality of a corporation, the wrongdoing must be clearly and
convincingly established.

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION

Page 148 of 1072

ROSAURA P. CORDON
vs.
JESUS BALICANTA
A.C. No. 2797

October 4, 2002

390 SCRA 299

FACTS:
When her husband Felixberto C. Jaldon died, Rosaura Cordon and her
daughter Rosemarie inherited the properties.
respondent enticed
complainant and her daughter to organize a corporation that would develop
the said real properties into a high-scale commercial complex with a
beautiful penthouse for complainant. Relying on these apparently sincere
proposals, complainant and her daughter assigned 19 parcels of land to
Rosaura Enterprises, Incorporated, a newly-formed and duly registered
corporation in which they assumed majority ownership. The subject parcels
of land were then registered in the name of the corporation. Thereafter,
respondent single-handedly ran the affairs of the corporation in his capacity
as Chairman of the Board, President, General Manager and Treasurer.

Complainant and her daughter made several demands on respondent


for the delivery of the real properties they allegedly assigned to the
corporation, for an accounting of the proceeds of the LBP loan and as well as
the properties sold, and for the rentals earned by BCC. But the demands
remained unheeded. Hence, complainant and her daughter, terminated the
services of respondent as their lawyer and repeated their demands for
accounting and turn-over of the corporate funds, and the return of the 19
titles that respondent transferred to the corporation.

Page 149 of 1072

For his defense, respondent, in his comment and position paper,


denied employing deceit and machination in convincing complainant and her
daughter to assign their real properties to the corporation; that they freely
and voluntary executed the deeds of assignment and the voting trust
agreement that they signed

ISSUE/S:
Can the accused raise the separate personality of the corporation as
a defense?

RULING:
No.
Respondent Attorney Jesus T. Balicanta is disbarred. for commission
of acts of misconduct and disloyalty by taking undue and unfair advantage of
his legal knowledge as a lawyer to gain material benefit for himself at the
expense of complainant Rosaura P. Jaldon-Cordon and caused serious
damage to the complainant.

The fraudulent acts he carried out against his client followed a well
thought of plan to misappropriate the corporate properties and funds
entrusted to him. At the very outset, he embarked on his devious scheme by
making himself the President, Chairman of the Board, Director and Treasurer
of the corporation; although he knew he was prohibited from assuming the
position of President and Treasurer at the same time. As Treasurer, he
accepted in behalf of the corporation the 19 titles that complainant and her
daughter co-owned. The other treasurer appointed, Farnacio Bucoy, did not
appear to be a stockholder or director in the corporate records. The minutes
of the meetings supposedly electing him and Bucoy as officers of the
corporation actually bore the signatures of respondent and the secretary

Page 150 of 1072

only, contrary to his claim that they were signed by the directors and
stockholders.

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION

DELPHER TRADES CORPORATION, and DELPHIN PACHECO


vs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES,
INC.
G.R. No. L-69259
January 26, 1988
157 SCRA 349
FACTS:
Delfin Pacheco and sister Pelagia were the owners of a parcel of land in
Polo (now Valenzuela). On April 3, 1974, they leased to Construction

Page 151 of 1072

Components International Inc. The property and providing for a right of first
refusal should it decide to buy the said property. Construction Components
International, Inc. assigned its rights and obligations under the contract of
lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and
consent of Delfin and Pelagia. In 1976, a deed of exchange was executed
between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades
Corporation whereby the Pachecos conveyed to the latter the leased
property together with another parcel of land also located in Malinta Estate,
Valenzuela for 2,500 shares of stock of defendant corporation.
On the ground that it was not given the first option to buy the leased
property pursuant to the proviso in the lease agreement, respondent Hydro
Pipes Philippines, Inc., filed an amended complaint for reconveyance of the
lot.
ISSUE/S:
Whether the Deed of Exchange of the properties executed by the
Pachecos and the Delpher Trades Corporation on the other was
meant to be a contract of sale which, in effect, prejudiced the Hydro
Phils right of first refusal over the leased property included in the
deed of exchange
RULING:
No.
By their ownership of the 2,500 no par shares of stock, the Pachecos
have control of the corporation. Their equity capital is 55% as against 45% of
the other stockholders, who also belong to the same family group. In effect,
the Delpher Trades Corporation is a business conduit of the Pachecos. What
they really did was to invest their properties and change the nature of their
ownership from unincorporated to incorporated form by organizing Delpher
Trades Corporation to take control of their properties and at the same time
save on inheritance taxes. The Deed of Exchange of property between the
Pachecos and Delpher Trades Corporation cannot be considered a contract
of sale. There was no transfer of actual ownership interests by the Pachecos
to a third party. The Pacheco family merely changed their ownership from
one form to another. The ownership remained in the same hands. Hence, the
private respondent has no basis for its claim of a light of first refusal under
the lease contract.

Page 152 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
FRANCISCO V. DEL ROSARIO,
vs.
NATIONAL LABOR RELATIONS COMMISSION and LEONARDO V.
ATIENZA
G.R. No. 85416. July 24, 1990
309 S 73
FACTS:

Page 153 of 1072

In POEA Case No. 85-06-0394, the Philippine Overseas Employment


Administration (POEA) promulgated a decision on February 4, 1986
dismissing the complaint for money claims for lack of merit. The decision was
appealed to the National Labor Relations Commission (NLRC), which on April
30, 1987 reversed the POEA decision and ordered Philsa Construction and
Trading Co., Inc. (the recruiter) and Arieb Enterprises (the foreign employer)
to jointly and severally pay private respondent the peso equivalent of
$16,039.00, as salary differentials, and $2,420.03, as vacation leave
benefits. The case was elevated to the Supreme Court, but the petition was
dismissed on August 31, 1987 and entry of judgment was made on
September 24, 1987.
A writ of execution was issued by the POEA but it was returned
unsatisfied as Philsa was no longer operating and was financially incapable of
satisfying the judgment. Private respondent moved for the issuance of an
alias writ against the officers of Philsa. This motion was opposed by the
officers, led by petitioner, the president and general manager of the
corporation.
On February 12, 1988, the POEA issued a resolution, the dispositive
portion of which read:
WHEREFORE, premises considered, let an alias writ of Execution
be issued and the handling sheriff is ordered to execute against
the properties of Mr. Francisco V. del -Rosario and if insufficient,
against the cash and/or surety bond of Bonding Company
concerned for the full satisfaction of the judgment awarded.
Petitioner appealed to the NLRC. On September 23, 1988, the NLRC
dismissed the appeal.
On October 21, 1988, petitioner's motion for reconsideration was
denied.
ISSUE/S:
Whether or not Philsa International Placement and Services
Corp.should be liable.
RULING:
The Court finds grave abuse of discretion on the part of the NLRC.
Under the law a corporation is bestowed juridical personality, separate
and distinct from its stockholders. But when the juridical personality of the
corporation is used to defeat public convenience, justify wrong, protect fraud
or defend crime, the corporation shall be considered as a mere association of
persons, and its responsible officers and/or stockholders shall be held

Page 154 of 1072

individually liable. For the same reasons, a corporation shall be liable for the
obligations of a stockholder, or a corporation and its successor-in-interest
shall be considered as one and the liability of the former shall attach to the
latter.
But for the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly established. It
cannot be presumed.
In this regard we find the NLRC's decision wanting. The conclusion that
Philsa allowed its license to expire so as to evade payment of private
respondent's claim is not supported by the facts. Philsa's corporate
personality therefore remains inviolable.
Thus, at the time Philsa allowed its license to lapse in 1985 and even at
the time it was delisted in 1986, there was yet no judgment in favor of
private respondent. An intent to evade payment of his claims cannot
therefore be implied from the expiration of Philsa's license and its delisting.
Neither will the organization of Philsa International Placement and
Services Corp. and its registration with the POEA as a private employment
agency imply fraud since it was organized and registered in 1981, several
years before private respondent filed his complaint with the POEA in 1985.
The creation of the second corporation could not therefore have been in
anticipation of private respondent's money claims and the consequent
adverse judgment against Philsa.
Likewise, substantial identity of the
corporations does not necessarily imply fraud.

incorporators

of

the

two

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank
of the Philippines) and MERCURIO RIVERA,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO
DEMETRIA, and JOSE JANOLO
G.R. No. 115849. January 24, 1996

Page 155 of 1072

252 S 259
FACTS:
In the course of its banking operations, the defendant Producer Bank of
the Philippines acquired six parcels of land with a total area of 101 hectares.
The property used to be owned by BYME Investment and Development
Corporation which had them mortgaged with the bank as collateral for a
loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to
purchase the property and thus initiated negotiations for that purpose.
In the early part of August 1987 said plaintiffs, upon the suggestion of
BYME investment's legal counsel, Jose Fajardo, met with defendant Mercurio
Rivera, Manager of the Property Management Department of the defendant
bank. The meeting was held pursuant to plaintiffs' plan to buy the property.
After the meeting, plaintiff Janolo, following the advice of defendant Rivera,
made a formal purchase offer to the bank for (P3, 500,000.00) PESOS, in
cash.
On September 1, 1987, defendant Rivera made on behalf of the bank a
formal reply by letter stating among others that the bank's counter-offer is at
P5.5 million for more than 101 hectares on lot basis.
Plaintiffs thru a letter stating that they would like to amend my
previous offer and I now propose to buy the said lot at P4.250 million in
CASH.
There was no reply to Janolo's foregoing letter of September 17, 1987.
What took place was a meeting on September 28, 1987 between the
plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as
well as Fajardo, the BYME lawyer, attended the meeting. Two days later, or on
September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, stating
that they are accepting his offer to purchase the property at Sta. Rosa,
Laguna, formerly owned by Byme Investment, for a total price of PESOS: FIVE
MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).
On October 12, 1987, the conservator of the bank was replaced by an
Acting Conservator in the person of defendant Leonida T. Encarnacion. On
November 4, 1987, defendant Rivera wrote plaintiff saying that your proposal
to buy the properties the bank foreclosed from Byme investment Corp.
located at Sta. Rosa, Laguna is under study yet as of this time by the newly
created committee for submission to the newly designated Acting
Conservator of the bank.
What thereafter transpired was a series of demands by the plaintiffs for
compliance by the bank with what plaintiff considered as a perfected
contract of sale

Page 156 of 1072

On May 16, 1988, plaintiffs filed a suit for specific performance with
damages against the bank, its Manager Rivers and Acting Conservator
Encarnacion.

ISSUE/S:
Did the bank conservator have the unilateral power to repudiate the
authority of the bank officers and/or to revoke the said contract?
RULING:
It is not disputed that the petitioner Bank was under a conservator
placed by the Central Bank of the Philippines during the time that the
negotiation and perfection of the contract of sale took place.
The issue of the Conservator's alleged authority to revoke or repudiate
the perfected contract of sale was raised for the first time in this Petition
as this was not litigated in the trial court or Court of Appeals. As already
stated earlier, issues not raised and/or ventilated in the trial court, let alone
in the Court of Appeals, "cannot be raised for the first time on appeal as it
would be offensive to the basic rules of fair play, justice and due process."
In the second place, there is absolutely no evidence that the
Conservator, at the time the contract was perfected, actually repudiated or
overruled said contract of sale. The Bank's acting conservator at the time,
Rodolfo Romey, never objected to the sale of the property to Demetria and
Janolo. What petitioners are really referring to is the letter of Conservator
Encarnacion, who took over from Romey after the sale was perfected on
September 30, 1987 which unilaterally repudiated not the contract but
the authority of Rivera to make a binding offer and which unarguably
came months after the perfection of the contract. Said letter dated May 12,
1988 is reproduced hereunder:
In the third place, while admittedly, the Central Bank law gives
vast and far-reaching powers to the conservator of a bank, it
must be pointed out that such powers must be related to the
"preservation of the assets of the bank, the reorganization of the
management thereof and the restoration of its viability." Such
powers, enormous and extensive as they are, cannot extend to
the post-facto repudiation of perfected transactions, otherwise
they would infringe against the non-impairment clause of the
Constitution.
Hence, the conservator merely takes the place of a bank's board of
directors. What the said board cannot do such as repudiating a contract
validly entered into under the doctrine of implied authority the
conservator cannot do either. Ineluctably, his power is not unilateral and he

Page 157 of 1072

cannot simply repudiate valid obligations of the Bank. His authority would be
only to bring court actions to assail such contracts as he has already done
so in the instant case. A contrary understanding of the law would simply not
be permitted by the Constitution. Neither by common sense. To rule
otherwise would be to enable a failing bank to become solvent, at the
expense of third parties, by simply getting the conservator to unilaterally
revoke all previous dealings which had one way or another or come to be
considered unfavorable to the Bank, yielding nothing to perfected
contractual rights nor vested interests of the third parties who had dealt with
the Bank.

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
FRANCISCO MOTORS CORPORATION
vs.
COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL
G.R. No. 100812. June 25, 1999

Page 158 of 1072

FACTS:
On January 23, 1985, petitioner filed a complaintagainst private
respondents to recover three thousand four hundred twelve and six centavos
(P3,412.06), representing the balance of the jeep body purchased by the
Manuels from petitioner; an additional sum of twenty thousand four hundred
fifty-four and eighty centavos (P20,454.80) representing the unpaid balance
on the cost of repair of the vehicle; and six thousand pesos (P6,000.00) for
cost of suit and attorney's fees.To the original balance on the price of jeep
body were added the costs of repair.In their answer, private respondents
interposed a counterclaim for unpaid legal services by Gregorio Manuel in
the amount of fifty thousand pesos (P50,000) which was not paid by the
incorporators, directors and officers of the petitioner.
The trial court decided the case on June 26, 1985, in favor of petitioner
in regard to the petitioner's claim for money, but also allowed the counterclaim of private respondents. Both parties appealed. On April 15, 1991, the
Court of Appeals sustained the trial court's decision.
ISSUE/S:
Whether or not the Court of Appeals erred in applying the Doctrine
of Piercing the veil of Corporate Entity
RULING:
Basic in corporation law is the principle that a corporation has a
separate personality distinct from its stockholders and from other
corporations to which it may be connected.
In our view, however, given the facts and circumstances of this case,
the doctrine of piercing the corporate veil has no relevant application here.
Respondent court erred in permitting the trial court's resort to this doctrine.
The rationale behind piercing a corporation's identity in a given case is to
remove the barrier between the corporation from the persons comprising it
to thwart the fraudulent and illegal schemes of those who use the corporate
personality as a shield for undertaking certain proscribed activities. However,
in the case at bar, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed. It
is the petitioner as a corporation which is being ordered to answer for the
personal liability of certain individual directors, officers and incorporators
concerned. Hence, it appears to us that the doctrine has been turned upside
down because of its erroneous invocation.
Furthermore, considering the nature of the legal services involved,
whatever obligation said incorporators, directors and officers of the

Page 159 of 1072

corporation had incurred, it was incurred in their personal capacity. When


directors and officers of a corporation are unable to compensate a party for a
personal obligation, it is far-fetched to allege that the corporation is
perpetuating fraud or promoting injustice, and be thereby held liable therefor
by piercing its corporate veil. While there are no hard and fast rules on
disregarding separate corporate identity, we must always be mindful of its
function and purpose. A court should be careful in assessing the milieu where
the doctrine of piercing the corporate veil may be applied. Otherwise an
injustice, although unintended, may result from its erroneous application.
The personality of the corporation and those of its incorporators,
directors and officers in their personal capacities ought to be kept separate
in this case. The claim for legal fees against the concerned individual
incorporators, officers and directors could not be properly directed against
the corporation without violating basic principles governing corporations.
Moreover, every action including a counterclaim must be prosecuted or
defended in the name of the real party in interest. It is plainly an error to lay
the claim for legal fees of private respondent Gregorio Manuel at the door of
petitioner (FMC) rather than individual members of the Francisco family.

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
SOL LAGUIO, RENE LAOLAO, ANNALIZA ENSANDO, EDELIZA ASAS,
LILIA MARAY, EVELYN UNTALAN,* ROSARIO CHICO, REYNALDO
GARCIA, MERLITA DE LOS SANTOS,* JOSEPHINE DERONG,* GEMMA
TIBALAO BANTOLO, LUCY ALMONTE,* CRISPINA VANQUARDIA,
NARCISA VENZON, NORMA ELEGANTE,* AMELITA MORENO,* ABNER

Page 160 of 1072

PETILOS, NARCISO HILAPO, DOLORES OLAES, MELINDA LLADOC,


ERNA AZARCON, and APRIL TOY, INC. WORKERS UNION ALAB ,
vs.
NATIONAL LABOR RELATIONS COMMISSION, WELL WORLD TOYS,
INC., APRIL TOYS, INC., YU SHENG LING, JENN L. WANG, EUCLIFF
CHENG, CHI SHENG LIN, NENITA C. AGUIRRE, MA. THERESA R.
CADIENTE and GLICERIA R. AGUIRRE
G.R. No. 108936. October 4, 1996
262 SCRA 709
FACTS:
Private respondent April Toy, Inc. is a domestic corporation
incorporated on January 6, 1989, for the purpose of "manufacturing,
importing, exporting, buying , selling, sub-contracting or otherwise dealing
in, at wholesale and retail," stuffed toys, with principal place of business at
Paraaque, Manila. On December 20, 1989, or after almost a year of
operation, April posted a memorandum within its premises and circulated a
copy of the same among its employees informing them of its dire financial
condition. To avert further business reverses, April decided to shorten its
corporate term "up to February 28, 1990," submitted a notice of dissolution
to the Securities and Exchange Commission and published the same in a
newspaper of general circulation. April also notified its employees, the
Department of Labor and Employment, the Social Security System, the Board
of Investments, the Bureau of Internal Revenue, and the Municipality of
Paraaque of its dissolution.
In view of April's cessation of operations, petitioners who initially
composed of seventy-seven employees below filed a complaint for "illegal
shutdown/retrenchment/dismissal and unfair labor practice." On June 21,
1990, petitioners amended their complaint to implead private respondent
Well World Toys, Inc. (Well World for brevity), a corporation also engaged in
the manufacture of stuffed toys for export with principal office located at Las
Pias, Manila.
To bolster their claim that April and Well World are one and the same
corporation, petitioners argue that both corporations have the same set of
incorporators.
ISSUE/S:
Whether or not April Toy and Well-World Toy are one and the same
RULING:
We can not fully subscribe to the above contention of the
complainants. We do not believe that the circumstances related by the
complainants are sufficient indicia that the two corporations are one and the
same corporation although it appears that two of the original incorporators
and stockholders of April Toy, Inc. were incorporators and minority

Page 161 of 1072

stockholders of Well-World Toy, Inc. Hence it does not mean that the two (2)
corporations are adjunct and conduit. There is not express provision under
the Corporation Law prohibiting stockholders or incorporators of a
corporation to be a stockholder or incorporator of another corporation.
The fiction that a corporation was a distinct and separate personality
shall not be used as a subterfuge to commit injustice and circumvent the law
does not apply in the present case. There is no conclusive evidence to
convince us that respondent April Toy, Inc. was established and later on
closed to defeat the rights of the workers of Well-World Toy, Inc. which would
otherwise support the charge of unfair labor practice. Hence, we find that the
two (2) corporations are separate and distinct entities.
Anent the question of whether or not April Toy and Well-World Toy are
one and the same, with the facts and circumstances showing that the owners
of April Toy are different from those of Well-World, the management of one
being different from the other, and the office of April Toy is situated more
than ten kilometers away from Well-World, plus the fact that the closure of
April Toy was for valid reasons, the Labor Arbiter likewise correctly opined
that the two corporations are separate and distinct from each other, and that
there is no basis for piercing the veil of corporate fiction.

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
RUFINA LUY LIM
vs.

Page 162 of 1072

COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED


DISTRIBUTING, INC., ACTIVE DISTRIBUTORS, ALLIANCE MARKETING
CORPORATION, ACTION COMPANY, INC.
G.R. No. 124715.January 24, 2000
323 SCRA 102
FACTS:
Private respondents Auto Truck Corporation, Alliance Marketing
Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action
Company are corporations formed, organized and existing under Philippine
laws and which owned real properties covered under the Torrens system.
On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as
surviving spouse and duly represented by her nephew George Luy, fried on
17 March 1995, a joint petition for the administration of the estate of Pastor
Y. Lim before the Regional Trial Court of Quezon City.
Private respondent corporations, whose properties were included in the
inventory of the estate of Pastor Y. Lim, then filed a motionfor the lifting of
lispendens and motionfor exclusion of certain properties from the estate of
the decedent.
In an orderdated 08 June 1995, the Regional Trial Court of Quezon City,
Branch 93, sitting as a probate court, granted the private respondents' twin
motions.
On 04 July 1995, the Regional Trial Court acting on petitioner's motion
issued an orderreinstating the annotation of lispendens.
On 04 September 1995, the probate court appointed Rufina Lim as
special administrator and Miguel Lim and Lawyer Donald Lee, as co-special
administrators of the estate of Pastor Y. Lim, after which letters of
administration were accordingly issued.
In an order12 dated 12 September 1995, the probate court denied anew
private respondents' motion for exclusion.
ISSUE/S:
Whether the corporations are
instrumentalities of Pastor Lim

the

mere

alter

egos

or

RULING:
It is settled that a corporation is clothed with personality separate and
distinct from that of the persons composing it. It may not generally be held
liable for that of the persons composing it. It may not be held liable for the

Page 163 of 1072

personal indebtedness of its stockholders or those of the entities connected


with it.
Rudimentary is the rule that a corporation is invested by law with a
personality distinct and separate from its stockholders or members. In the
same vein, a corporation by legal fiction and convenience is an entity
shielded by a protective mantle and imbued by law with a character alien to
the persons comprising it.
Nonetheless, the shield is not at all times invincible.
Piercing the veil of corporate entity requires the court to see through
the protective shroud which exempts its stockholders from liabilities that
ordinarily, they could be subject to, or distinguishes one corporation from a
seemingly separate one, were it not for the existing corporate fiction.
The corporate mask may be lifted and the corporate veil may be
pierced when a corporation is just but the alter ego of a person or of another
corporation. Where badges of fraud exist, where public convenience is
defeated; where a wrong is sought to be justified thereby, the corporate
fiction or the notion of legal entity should come to naught.
Mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate corporate personalities.
Moreover, to disregard the separate juridical personality of a
corporation, the wrong-doing must be clearly and convincingly established. It
cannot be presumed.
Granting arguendo that the Regional Trial Court in this case was not merely
acting in a limited capacity as a probate court, petitioner nonetheless failed
to adduce competent evidence that would have justified the court to impale
the veil of corporate fiction.

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD
VS.
HON. CRESENCIO J. RAMOS

Page 164 of 1072

G.R. No. 113907. February 28, 2000


FACTS:
Herein petitioner (local Union) is an affiliate of the private respondent
United Lumber and General Workers of the Philippines. On September 12,
1986, a local union election was held under the auspices of the ULGWP
where the petitioner Beda Magdalena Villanueva and the other union officers
were proclaimed as winners. However, a petition for impeachment was filed
by the defeated candidates.
In lieu of this, the local union held a general membership meeting
however, several of its members was unable to attend the same prompting
the Executive Board to conduct an investigation regarding such absence.
After due investigation, through a memorandum, the national federation
approved the imposition of a 50.00 fine. This imposition of the fine became
the subject of a bitter disagreement between the local union and the
federation, culminating in the formers declaration of general autonomy from
the latter.
The Officials of ULGWP, called a special Board meeting where they
came up with a resolution to place MSMG under trusteeship and appointing
Cesar Clarete as administrator. Thereafter, said administrator designated one
Alfredo Kalingking as local union president and disauthorizing the incumbent
officers from representing the employees. Nevertheless, the union officers
were expelled from the ULGWP. Upon the other hand, the corporation, under
pressure of a threatened strike terminated the 30 union officers from
employment.
ISSUE/S:
Whether or not the complainants have recourse against the
federation and not against the corporation and its officers.
RULING:
The Supreme Court ruled that said contention that the issue of
expulsion of the union officers is purely and intra-union matter is untenable.
While it is true that the issue of expulsion is originally between the
local union and the federation, the issue was later converted into a
termination dispute when the company dismissed the petitioners from work
without the benefit of a separate notice and hearing. Notwithstanding the
fact that the dismissal was at the instance of the federation and that it
undertook to hold the company free from any liability resulting from such
dismissal, the company may still be held liable if it was remiss from its duty
to accord the would be dismissed employees their right to be heard on the
matter.

Page 165 of 1072

It is likewise the opinion of the Court and so holds, the respondent


company officials cannot be held personally liable for damages on account of
the employees dismissal because the employer corporation has a
personality separate and distinct from its officer who merely acted as its
agents.

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
MATAGUINA INTEGRATED WOOD PRODUCTS,INC.
VS.
COURT OF APPEALS

Page 166 of 1072

263 SCRA 490

OCTOBER 24, 1996

FACTS:
On June 28, 1973, the Acting Director of the Bureau of Forest
Development issued PTL No. 30 covering an area of 5,400 hectares to Mrs.
Milagros Mataguina who was doing business under the name MLE which is a
sole proprietorship venture. Thereafter, petitioner MIWPI was incorporated
having an authorized capital stock of ten million pesos. Milagros Mataguina
became the majority stockholder when the board approved the transfer of
the stocks held by Henry Wee to the latter.
In a letter addressed to the Director of BFD, Matguina requested for a
change of name and transfer of management of PTL No. 30 from a single
proprietorship under her name to that of MIWPI. Mataguina and MIWPI then
executed a deed of transfer involving all the rights and interest of Mataguina
over PTL No. 30 in consideration of 148,000 shares of stocks in MIWPI.
Pending approval of the request, DAVENCOR complained to the District
Forester that Mataguina encroached on their concession area. During the
pendency of the case, Mataguina disposed her shares in MIWPI, thereby
ceasing to be a shareholder of the petitioner. When the decision of the
Minister of Natural Resources became final an executory, it directed the
issuance of a writ of execution not only against MLE but also against MIWPI.
Thus, the filing of the instant complaint for prohibition, damages and
injunction, with the RTC of Davao.
The trial court ruled in favor of MIWPI but upon appeal, the appellate
court reversed said decision, hence this petition.
ISSUE/S:
Whether or not it is possible to pierce MIWPI veil of corporate
existence, thus making it a mere conduit of MLE.
RULING:
Generally accepted is the principle that no man shall be affected by
any proceeding which he is a stranger, and strangers to the case are not
bound by the judgment rendered by the Court. In the same manner, an
execution can be issued only against a party and not against one who did not
have his day in court. Thus, the court found that there is no basis for the
issuance of the order of execution against the petitioner. The same was
issued without giving the petitioner an opportunity to defend itself and
oppose the request of DAVENCOR for the issuance of the writ against it. It
does not appear that petitioner was at all furnished with a copy of

Page 167 of 1072

DAVENCORs letter requesting for the execution of the Secretarys decision


against it.
The Court also ruled that the evidence presented at trial does not
warrant the piercing the veil of MIWPIs corporate existence. It is settled that
a corporation is clothed with a personality separate and distinct from the
persons composing it. It may not generally be held liable for that of the
persons composing it. It may not be held liable for the personal indebtedness
of its stockholders. But when the juridical personality of the corporation is
used to defeat public convenience, justify wrong protect fraud or defend
crime, the corporation shall be considered as a mere association of persons
and its responsible officers and/or stockholders shall be individually liable.
The Court reiterated the observation of the appellate court to in stating that
the alleged control of Plaintiff Corporation was not evident in any particular
corporate acts of plaintiff corporation where Milagros Mataguina Logging
Enterprises using plaintiff corporation, executed acts or power directly
involving plaintiff. Neither was there evidence of defendants that MLE, using
the facilities and resources of MIWPI, involved itself on transaction using both
single proprietorship and plaintiff corporation in such particular line of
business undertaking.

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION

Page 168 of 1072

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD.,


petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J.
DIOSANA AND MARCELO G. SANTOS, respondents.
GR NO. 120077 OCTOBER 13, 2000
FACTS:
Herein respondent was an overseas worker employed as a printer at
the Mazoon Printing Press, Sultanate of Oman. Subsequently he was directly
hired by the Palace Hotel, Beijing and later terminated due to retrenchment.
MHC at the time of the filing of the case was still a government owned and
controlled corporation. MHICL is a corporation duly organized and existing
under the laws of Hong Kong. MHC is an incorporator of MHICL owning 50%
of its capital stock. By virtue of a management agreement, MHICL trained the
personnel and staff of the Palace Hotel in Beijing.
As said, respondent Santos was hired by Palace Hotel as printer but
with higher monthly salary and increased benefits. The contract with Palace
Hotel was for a period of two years. A year after, the executive secretary
suggested in a handwritten note that Santos be given one month notice of
his release from employment. A month after, Palace Hotel informed Santos
that his employment would be terminated die to business reverses brought
about by the political upheaval in China. Upon his return in the Philippines,
respondent filed a complaint for illegal dismissal with the NLRC. The
complaint named MHC and MHICL, Palace Hotel and Mr. Shmidt as
respondents.
ISSUE/S:
Whether or not MHC is liable for Santos retrenchment.
RULING:
Even if we assume two things:
(1) that the NLRC had jurisdiction over the case, and
(2) that MHICL was liable for Santos' retrenchment, still MHC, as
a separate and distinct juridical entity cannot be held liable.
True, MHC is an incorporator of MHICL and owns fifty percent (50%) of
its capital stock. However, this is not enough to pierce the veil of corporate
fiction between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is
resorted to when the corporate fiction is used to defeat public convenience,
justify wrong, protect fraud or defend a crime. 41 It is done only when a
corporation is a mere alter ego or business conduit of a person or another
corporation.

Page 169 of 1072

In Traders Royal Bank v. Court of Appeals, we held that "the mere


ownership by a single stockholder or by another corporation of all or nearly
all of the capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities."
The tests in determining whether the corporate veil may be pierced
are:
1. the defendant must have control or complete domination
of the other corporation's finances, policy and business
practices with regard to the transaction attacked. There
must be proof that the other corporation had no separate
mind, will or existence with respect the act complained of.
2. control must be used by the defendant to commit fraud
or wrong.
3. the aforesaid control or breach of duty must be the
proximate cause of the injury or loss complained of. The
absence of any of the elements prevents the piercing of
the corporate veil.
It is basic that a corporation has a personality separate and distinct
from those composing it as well as from that of any other legal entity to
which it may be related. Clear and convincing evidence is needed to pierce
the veil of corporate fiction. In this case, we find no evidence to show that
MHICL and MHC are one and the same entity.

Page 170 of 1072

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
NORTON and HARRISON COMPANY, respondent
G.R. No. L-17618, August 31, 1964
FACTS:
Norton and Harrison is a corporation organized in 1911,
1. to buy and sell at wholesale and retail, all kinds of goods,
wares, and merchandise;
2. to act as agents of manufacturers in the United States and
foreign countries; and
3. to carry on and conduct a general wholesale and retail
mercantile establishment in the Philippines.
Jackbilt is, likewise, a corporation organized on February 16, 1948
primarily for the purpose of making, producing and manufacturing concrete
blocks.
On July 27, 1948, Norton and Jackbilt entered into an agreement
whereby Norton was made the sole and exclusive distributor of concrete
blocks manufactured by Jackbilt. Thus, whenever an order for concrete
blocks was received by the Norton from a customer, the order was
transmitted to Jackbilt which delivered the merchandise direct to the
customer. Payment for the good is, however, made to Norton, which in turn
pays Jackbilt the amount charged the customer less a certain amount, as its
compensation or profit.
On May 1, 1953 the agency agreement was terminated and a
management agreement between the parties was entered into wherein it
provided that Norton would sell concrete blocks for Jackbilt for a fixed
monthly management fee of P2,000.00, which was later increased to
P5,000.00. During the existence of the distribution or agency agreement, or
on June 10, 1949, Norton & Harrison acquired by purchase all the
outstanding shares of stock of Jackbilt.
The CIR considered the sale of Norton to the public as the original sale
and not the transaction from Jackbilt.
The CIR contended and as
subsequently ruled by the CTA that since Jackbilt was owned and controlled
by Norton, the corporate personality of the former (Jackbilt) should be
disregarded for sales tax purposes, and the sale of Jackbilt blocks by
petitioner to the public must be considered as the original sales from which
the sales tax should be computed.

Page 171 of 1072

ISSUE/S:
Whether the acquisition of all the stocks of the Jackbilt by the
Norton & Harrison Co., merged the two corporations into a single
corporation
RULING:
The court found sufficient ground to support the theory that the
separate identities of the two companies should be disregarded. Among
these circumstances, which were successfully refuted by appellee Norton
are:
a. Norton and Harrison owned all the outstanding stocks of the
Jackbilt; of the 15,000 authorized shares of Jackbilt on March
31, 1958, 14, 998 shares belonged to Norton and Harrison and
one each to seven others,
b. Norton constituted Jackbilt's board of directors in such a way
as to enable it to actually direct and manage the other's
affairs by making the same officers of the board for both
companies
c. Norton financed the operations of the Jackbilt,
d. Norton treats Jackbilt employees as its own. Evidence show
that Norton paid the salaries of Jackbilt employees and gave
the same privileges as Norton employees
e. Compensation given to board members of Jackbilt, who are
also board members and/or employees of Norton, indicate
that Jackbilt is merely a department of Norton.
All these lead to the conclusion that the Jackbilt is merely an adjunct,
business conduit or alter ego, of Norton and that the fiction of corporate
entities, separate and distinct from each, should be disregarded. The
corporate fiction raised by petitioner was only used to avoid payment of
taxes.

Page 172 of 1072

TOPIC: DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
BIBIANO O. REYNOSO IV
VS.
HON. COURT OF APPEALS AND GENERAL CREDIT CORPORATION
GR NOS. 116124-35 NOVEMBER 22, 2000
FACTS:
Commercial Credit Corporation a financing investment firm decided to
organize franchise companies in different parts of the country wherein it shall
hold 30% equity. Herein petitioner was designated as the resident manager
of the franchise company in Quezon City known as CCC-QC.
CCC-Qc thereafter entered into an exclusive management contract
with CCC whereby the latter was granted the management and full control of
the business activities of the former. But pursuant to the DOSRI Rule,
prohibiting lending of funds by corporations to its directors, CCC decided to
form CCC Equity Corporation a wholly owned subsidiary, to which CCC
transferred its 305 equity in CCC-QC. Under this set up, several Officials of
CCC including Reynoso, became employees of CCC-Equity. Thus, petitioner in
order to boost the business activities of CCC-QC deposited his personal funds
in the company and in turn, the CCC-QC issued him its interest bearing
promissory notes.
Thereafter, a complaint for collection of sum of money with preliminary
attachment was instituted by CCC-QC against petitioner, who had in the
meantime been dismissed from his employment. The Complaint alleged that
petitioner embezzled the funds. Out of the funds missing, at least 630,000
were used for the purchase of a house. In the meantime, CCC became known
as General Credit Corporation. It then filed a special appearance and
opposition alleging that it was not a party to the case and therefore
petitioner must direct its claim against CCC-QC.
ISSUE/S:
Whether or not General Credit Corporation is a stranger to the civil
case and thus judgment cannot be enforced against it.
RULING:
As established, a corporation is an artificial being invested by law with
a personality separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be related. It has

Page 173 of 1072

the advantage of non-dependence on the lives of those who compose it even


as it enjoys certain rights and conducts activities of natural persons.
Any piercing of the corporate veil has to be done with caution. But
where the corporate fiction is sued as an unfair device to achieve an
inequitable result, defraud creditors, evade contracts and obligations, or to
shield it from the effects of a court decision, the Court will not hesitate to
apply its supervisory and adjudicative matters. The doctrine of the piercing
the corporate fiction applies only when such fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime.

Page 174 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.,
petitioner,vs.COURT OF APPEALS, MOTORICH SALES CORPORATION,
NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY
AND DEVELOPMENT CORP., respondents.
G.R. No. 129459. September 29, 1998
FACTS:
On 14 February 1989, plaintiff-appellant entered into an agreement
with defendant-appellee Motorich Sales Corporation for the transfer to it of a
parcel of land identified as Lot 30, Block 1 of the Acropolis Greens
Subdivision located in the District of Murphy, Quezon City Metro Manila,
containing an area of 414 square meters, covered by TCT No. (362909) 2876,
that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant
paid the down payment in the sum of P100,000.00, the balance to be paid on
or before March 2, 1989.
That defendant-appellee Motorich Sales Corporation despite repeated
demands and in utter disregard of its commitments had refused to execute
the Transfer of Rights/Deed of Assignment which is necessary to transfer the
certificate of title. Defendant ACL Development Corp. is impleaded as a
necessary party since TCT No. (362909) 2876 is still in the name of said
defendant; while defendant JNM Realty & Development Corp. is likewise
impleaded as a necessary party in view of the fact that it is the transferor of
right in favor of defendant-appellee Motorich Sales Corporation. That on April
6, 1989, defendant ACL Development Corporation and Motorich Sales
Corporation entered into a Deed of Absolute Sale whereby the former
transferred to the latter the subject property.
ISSUE/S:
Whether or not the doctrine of piercing the veil of corporate fiction
is applicable in the instant case.
RULING:
Thus, the Court has consistently ruled that when the fiction is used as
a means of perpetrating a fraud or an illegal act or as vehicle for the evasion
of an existing obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery or crime,
the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.

Page 175 of 1072

We stress that the corporate fiction should be set aside when it


becomes a shield against liability for fraud, illegality or inequity committed
on third persons. The question of piercing the veil of corporate fiction is
essentially, then, a matter of proof. In the present case, however, the Court
finds no reason to pierce the corporate veil of Respondent Motorich.
Petitioner utterly failed to establish that said corporation was formed, or that
it is operated, for the purpose of shielding any alleged fraudulent or illegal
activities of its officers or stockholders; or that the said veil was used to
conceal fraud, illegality or inequity at the expense of third persons like
petitioner.

Page 176 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
BENJAMIN A. SANTOS, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER
FRUCTUOSO T. AURELLANO and MELVIN D. MILLENA, respondents.
G.R. No. 101699. March 13, 1996
FACTS:
Private respondent, on 01 October 1985, was hired to be the project
accountant for MMDC's mining operations in Gatbo, Bacon, Sorsogon. On 12
August 1986, private respondent sent to Mr. Gil Abao, the MMDC corporate
treasurer, a memorandum calling the latter's attention to the failure of the
company to comply with the withholding tax requirements of, and to make
the corresponding monthly remittances to, the Bureau of Internal Revenue
("BIR") on account of delayed payments of accrued salaries to the company's
laborers and employees. Private respondent expressed "shock" over the
termination of his employment. He complained that he would not have
resigned from the Sycip, Gorres & Velayo accounting firm, where he was
already a senior staff auditor, had it not been for the assurance of a
"continuous job" by MMDC's Engr. Rodillano E. Velasquez. Private respondent
requested that he be reimbursed the "advances" he had made for the
company and be paid his "accrued salaries/claims.
The claim was not heeded, on 20 October 1986, private respondent
filed with the NLRC a complaint for illegal dismissal. On 27 July 1988, Labor
Arbiter, finding no valid cause for terminating complainant's employment. In
a resolution, dated 04 September 1989, the NLRC affirmed the decision of
the Labor Arbiter. On 16 August 1991, the NLRC dismissed the motion for
reconsideration. In holding petitioner personally liable for private
respondent's claim, the responsible officer of an employer corporation
(could) be held personally, not to say even criminally, liable for non-payment
of back wages," and that where the employer corporation was no longer
existing and unable to satisfy the judgment in favor of the employee, the
officer should be liable for acting on behalf of the corporation.
ISSUE/S:
Whether or not the NLRC have gravely abused their discretion "in
finding petitioner solidarily liable with MMDC even in the absence of
bad faith and malice on his part."

Page 177 of 1072

RULING:
A corporation is a juridical entity with legal personality separate and
distinct from those acting for and in its behalf and, in general, from the
people comprising it. The rule is that obligations incurred by the corporation,
acting through its directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds
can exist to warrant, albeit done sparingly, the disregard of its independent
being and the lifting of the corporate veil.
As a rule, this situation might arise when a corporation is used to
evade a just and due obligation or to justify a wrong, to shield or perpetrate
fraud, to carry out similar other unjustifiable aims or intentions, or as a
subterfuge to commit injustice and so circumvent the law. It is well-settled
instances when, without necessarily piercing the veil of corporate fiction,
personal civil liability can also be said to lawfully attach to a corporate
director, trustee or officer; to wit: 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.
The case of petitioner is way off these exceptional instances. It is not
even shown that petitioner has had a direct hand in the dismissal of private
respondent enough to attribute to him a patently unlawful act while acting
for the corporation. Neither can Article 289 of the Labor Code be applied
since this law specifically refers only to the imposition of penalties under the
Code. It is undisputed that the termination of petitioner's employment has,
instead, been due, collectively, to the need for a further mitigation of losses,
the onset of the rainy season, the insurgency problem in Sorsogon and the
lack of funds to further support the mining operation in Gatbo.

Page 178 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
TAN BOON BEE & CO., INC.
vs.
THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF
BRANCH XVIII of the Court of First Instance of Manila, GRAPHIC
PUBLISHING, INC., and PHILIPPINE AMERICAN CAN DRUG COMPANY;
G.R. No. L-41337; June 30, 1988
FACTS:
Petitioner herein, doing business under the name and style of Anchor
Supply Co., sold on credit to herein private respondent Graphic Publishing,
Inc. (GRAPHIC ) paper products as evidenced by a promissory note. When
Graphic failed to fulfill its obligation, petitioner filed a collection suit. After
trial, the court ruled in favor of petitioner, thus, issuing a writ of execution
over a printing machine which was levied by the sheriff.
However, respondent Philippine American Drug Company (PADCO) had
informed the sheriff that the printing machine is its property and not that of
GRAPHIC but the sheriff proceeded with the auction sale. Thus, respondent
judge issued an order declaring the sale to be null and void and ordered the
return of the machine to PADCO.
ISSUE/S:
Whether or not respondent judge committed grave abuse of
discretion in not piercing the veil of corporate fiction
RULING:
It is true that a corporation, upon coming into being, is invested by law
with a personality separate and distinct from that of the persons composing
it as well as from any other legal entity to which it may be related. However,
such separate personality of the corporation may be disregarded, or the veil
of corporate fiction pierced, in cases where it is used as a cloak or cover for
fraud or illegality, or to work an injustice, or where necessary to achieve
equity or when necessary for the protection of creditors. Corporations are
composed of natural persons and the legal fiction of a separate corporate
personality is not a shield for the commission of injustice and inequity.
Likewise, this is true when the corporation is merely an adjunct, business
conduit or alter ego of another corporation. In such case, the fiction of
separate and distinct corporation entities should be disregarded.
In the instant case, petitioner's evidence established that PADCO was
never engaged in the printing business; that the board of directors and the
officers of GRAPHIC and PADCO were the same; and that PADCO holds 50%
share of stock of GRAPHIC. Petitioner likewise stressed that PADCO's own

Page 179 of 1072

evidence shows that the printing machine in question had been in the
premises of GRAPHIC since May, 1965, long before PADCO even acquired its
alleged title on July 11, 1966 from Capitol Publishing. That the said machine
was allegedly leased by PADCO to GRAPHIC on January 24, 1966, even before
PADCO purchased it from Capital Publishing on July 11, 1966, only serves to
show that PADCO's claim of ownership over the printing machine is not only
farce and sham but also unbelievable.
Considering the aforestated principles and the circumstances
established in this case, respondent judge should have pierced PADCO's veil
of corporate Identity.

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION

Page 180 of 1072

TRADERS ROYAL BANK, petitioner,


vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE
CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents.
G.R. No. 93397. March 3, 1997
FACTS:
Filriters is the registered owner of CBCI No. D891. Under a deed of
assignment Filriters transferred CBCI No.D891 to Philippine Underwriters
Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI
No. D891, which was still registered in the name of Filriters, to appellant
Traders Royal Bank (TRB). Armed with the deed of assignment, TRB sought
the transfer and registration of CBCI No. D891 in its name before the Central
Bank. The Central Bank, however, refused to effect the transfer and
registration in view of an adverse claim filed by defendant Filriters.
The lower court ruled against TRB. The CA found that the assignment
of the certificate from Filriters to Philfinance was fictitious, having made
without consideration. Thus, TRB's claimed interest has no basis, what
happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a
sister corporation, to guarantee its financing operations. Thus, this petition.
Petitioner now argues that the transfer of the subject CBCI to TRB must
upheld, as the respondent Filriters and Philfinance, though separate
corporate entities on paper, have used their corporate fiction to defraud TRB
into purchasing the subject CBCI, which purchase now is refused registration
by the Central Bank.
ISSUE:
Whether or not TRB properly invoked the defense of piercing the
veil of corporate fiction
RULING:
Piercing the veil of corporate entity requires the court to see through
the protective shroud which exempts its stockholders from liabilities that
ordinarily, they could be subject to, or distinguished one corporation from a
seemingly separate one, were it not for the existing corporate fiction. But to
do this, the court must be sure that the corporate fiction was misused, to
such an extent that injustice, fraud, or crime was committed upon another,
disregarding, thus, his, her, or its rights. It is the protection of the interests of
innocent third persons dealing with the corporate entity which the law aims
to protect by this doctrine.
The corporate separateness between Filriters and Philfinance remains,
despite the petitioners insistence on the contrary. For one, other than the

Page 181 of 1072

allegation that Filriters is 90% owned by Philfinance, and the identity of one
shall be maintained as to the other, there is nothing else which could lead
the court under circumstance to disregard their corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was
not defrauded at all when it acquired the subject certificate of indebtedness
from Philfinance. On its face the subject certificates states that it is
registered in the name of Filriters. This should have put the petitioner on
notice, and prompted it to inquire from Filriters as to Philfinance's title over
the same or its authority to assign the certificate. As it is, there is no showing
to the effect that petitioner had any dealings whatsoever with Filriters, nor
did it make inquiries as to the ownership of the certificate.

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner,

Page 182 of 1072

vs.
WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF
RIZAL and LEONILA SANTOS GATUS, for herself and in behalf of her
minor children, Teresita, Antonina and Reynaldo, all surnamed
GATUS, respondents.
G.R. No. L-28694. May 13, 1981
FACTS:
TESCO is engaged in the business of manufacturing telephone
equipment with offices at Sheridan Street, Mandaluyong, Rizal. Its Executive
Vice-President and General Manager is Jose Luis Santiago. It has a sister
company, the Utilities Management Corporation (UMACOR), with offices in
the same location. UMACOR is also under the management of Jose Luis
Santiago. On September 8, 1964, UMACOR employed the late Pacifico L.
Gatus as Purchasing Agent. On May 16, 1965, Pacifico L. Gatus was detailed
with petitioner company. He reported back to UMACOR on August 1, 1965.
On January 13, 1967, he contracted illness and although he returned to work
on May 10, 1967, he died nevertheless on July 14, 1967 of "liver cirrhosis
with malignant degeneration."
Pacificos widow filed a claim for compensation Workmen's
Compensation Commision (WCC), alleging therein that her deceased
husband was an employee of TESCO and that he died of liver cirrhosis. WCC
required TESCO to submit an Employer's Report of Accident or Sickness. The
report was thus submitted with UMACOR indicated as the employer of the
deceased and was signed by Jose Luis Santiago. The employer stated that it
would not controvert the claim for compensation, and admitted that the
deceased employee contracted illness "in regular occupation." On the basis
of this Report, the Acting Referee awarded death benefits plus burial
expenses in favor of the heirs of Pacifico against TESCO.
TESCO filed with SC a petition seeking to annul the award and to enjoin
the Sheriff from levying and selling its properties at public auction. TESCO
takes the position that WCC has no jurisdiction to render a valid award in this
suit as there was no employer-employee relationship between them, the
deceased having been an employee of UMACOR and not of TESCO.
ISSUE:
Whether TESCO and UMACOR are one and the same entity so that if
in the affirmative TESCO can be considered as the employer of
Pacifico and the award against it is proper.
RULING:
It is only in this Petition that TESCO denied, for the first time, the
employer-employee relationship. In fact, TESCO represented and defended
itself as the employer of the deceased. Nowhere in said documents did it

Page 183 of 1072

allege that it was not the employer. There was even an admission by TESCO
itself that TESCO and UMACOR are sister companies operating under one
single management and housed in the same building. Although respect for
the corporate personality as such, is the general rule, there are exceptions.
In appropriate cases, the veil of corporate fiction may be pierced as when the
same is made as a shield to confuse the legitimate issues.

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION

Page 184 of 1072

BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M.


CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAEZ, LEOVINA C.
JALBUENA and SANTIAGO M. RIVERA, petitioners,
vs.
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY
PARTS MANUFACTURING CO., INC., respondents.
G.R. No. 89561. September 13, 1990
FACTS:
Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de
Castillo. The Castillo family are the owners of a parcel of land located in
Lucena City which was given as security for a loan from the Development
Bank of the Philippines. For their failure to pay the amortization, foreclosure
of the said property was about to be initiated. This problem was made known
to Santiago Rivera, who proposed to them the conversion into subdivision of
the four (4) parcels of land adjacent to the mortgaged property to raise the
necessary fund. The Idea was accepted by the Castillo family and to carry
out the project, a Memorandum of Agreement was executed by and between
Slobec Realty and Development, Inc., represented by its President Santiago
Rivera and the Castillo family. In this agreement, Santiago Rivera obliged
himself to pay the Castillo family the sum of P70,000.00 immediately after
the execution of the agreement and to pay the additional amount of
P400,000.00 after the property has been converted into a subdivision.
Rivera, armed with the agreementapproached Mr. Modesto Cervantes,
President of defendant Bormaheco, and proposed to purchase from
Bormaheco two (2) tractors Model D-7 and D-8 Subsequently, a Sales
Agreement
Bormaheco, Inc. and Slobec Realty and Development, Inc., represented
by its President, Santiago Rivera, executed a Sales Agreement over one unit
of Caterpillar Tractor D-7 over the said equipment as security for the
payment of the aforesaid balance of P180,000.00. As further security of the
aforementioned unpaid balance, Slobec obtained from Insurance Corporation
of the Phil. a Surety Bond, with ICP (Insurance Corporation of the Phil.) as
surety and Slobec as principal, in favor of Bormaheco, as borne out by
Exhibit '8' (p. 111, Record). The aforesaid surety bond was in turn secured by
an Agreement of Counter-Guaranty with Real Estate Mortgage executed by
Rivera as president of Slobec and Mauricia Meer Vda. de Castillo, Buenaflor
Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and
Leovina Castillo Jalbuena, as mortgagors and Insurance Corporation of the
Philippines (ICP) as mortgagee. In this agreement, ICP guaranteed the
obligation of Slobec with Bormaheco in the amount of P180,000.00. In giving
the bond, ICP required that the Castillos mortgage to them the properties in
question, namely, four parcels of land covered by TCTs in the name of the
mortgagors.
ISSUE/S:

Page 185 of 1072

Whether or not piercing the veil of corporate entity is the proper


remedy in order that the foreclosure proceeding may be declared a
nullity
RULING:
No.
Under the doctrine of piercing the veil of corporate entity, when valid
grounds therefore exist, the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or stockholders
may be disregarded. In such cases, the corporation will be considered as a
mere association of persons. The members or stockholders of the corporation
will be considered as the corporation, that is, liability will attach directly to
the officers and stockholders. The doctrine applies when the corporate fiction
is used to:
defeat public convenience,
justify wrong, protect fraud, or
defend crime, or
when it is made as a shield to confuse the legitimate issues or
where a corporation is the mere alter ego or business conduit of
a person, or

where the corporation is so organized and controlled and its


affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
In the case at bar, petitioners seek to pierce the V621 Of corporate
entity of Bormaheco, ICP and PM Parts, alleging that these corporations
employed fraud in causing the foreclosure and subsequent sale of the real
properties belonging to petitioners. While we do not discount the possibility
of the existence of fraud in the foreclosure proceeding, neither are we
inclined to apply the doctrine invoked by petitioners in granting the relief
sought.
Piercing the veil of corporate entity is not the proper remedy in order
that the foreclosure proceeding may be declared a nullity under the
circumstances obtaining in the legal case at bar.
In the first place, the legal corporate entity is disregarded only if it is
sought to hold the officers and stockholders directly liable for a corporate
debt or obligation. In the instant case, petitioners do not seek to impose a
claim against the individual members of the three corporations involved; on
the contrary, it is these corporations which desire to enforce an alleged right
against petitioners. Assuming that petitioners were indeed defrauded by
private respondents in the foreclosure of the mortgaged properties, this fact
alone is not, under the circumstances, sufficient to justify the piercing of the
corporate fiction, since petitioners do not intend to hold the officers and/or

Page 186 of 1072

members of respondent corporations personally liable therefor. Petitioners


are merely seeking the declaration of the nullity of the foreclosure sale,
which relief may be obtained without having to disregard the aforesaid
corporate fiction attaching to respondent corporations. Secondly, petitioners
failed to establish by clear and convincing evidence that private respondents
were purposely formed and operated, and thereafter transacted with
petitioners, with the sole intention of defrauding the latter.
The mere fact, therefore, that the businesses of two or more
corporations are interrelated is not a justification for disregarding their
separate personalities, absent sufficient showing that the corporate entity
was purposely used as a shield to defraud creditors and third persons of their
rights.

Page 187 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
VLASON ENTERPRISES CORPORATION, petitioner,
vs.
COURT OF APPEALS and DURAPROOF SERVICES, represented by its
General Manager, Cesar Urbino Sr., respondents.
G.R. Nos. 121662-64. July 6, 1999
FACTS:
Poro Point Shipping Services, then acting as the local agent of Omega
Sea Transport Company of Honduras & Panama, a Panamanian company,
(Omega), requested permission for its vessel M/V Star Ace, which had engine
trouble, to unload its cargo and to store it at the Philippine Ports Authority
(PPA) compound in San Fernando, La Union while awaiting transhipment to
Hongkong. The request was approved by the Bureau of Customs.
Despite the approval, the customs personnel boarded the vessel when
it docked on January 7, 1989, on suspicion that it was the hijacked M/V Silver
Med owned by Med Line Philippines Co., and that its cargo would be
smuggled into the country. The district customs collector seized said vessel
and its cargo. A notice of hearing of SFLU Seizure Identification No. 3-89 was
served on its consignee, Singkong Trading Co. of Hongkong, and its shipper,
Dusit International Co., Ltd. of Thailand.
While seizure proceedings were ongoing, La Union was hit by three
typhoons, and the vessel ran aground and was abandoned. On June 8, 1989,
its authorized representative, Frank Cadacio, entered into a salvage
agreement with private respondent to secure and repair the vessel at the
agreed consideration of $1 million and fifty percent (50%) of the cargo after
all expenses, cost and taxes. The District Collector of Customs, Aurelio M.
Quiray, lifted the warrant of seizure on July 16, 1989. However, in a Second
Indorsement dated November 11, 1989, then Customs Commissioner
Salvador M. Mison declined to issue a clearance for Quirays Decision;
instead, he forfeited the vessel and its cargo in accordance with Section
2530 of the Tariff and Customs Code. Accordingly, acting District Collector of
Customs John S. Sy issued a Decision decreeing the forfeiture and the sale of
the cargo in favor of the government.
To enforce its preferred salvors lien, herein Private Respondent
Duraproof Services filed with the RTC of Manila a Petition for Certiorari,
Prohibition and Mandamus assailing the actions of Commissioner Mison and
District Collector Sy.
Also impleaded as respondents were PPA
Representative Silverio Mangaoang and Med Line Philippines, Inc. the
complaint was amended to include former District Collector Quiray; PPA Port
Manager Adolfo Ll. Amor Jr; Petitioner Vlason Enterprises as represented by

Page 188 of 1072

its president, Vicente Angliongto; Singkong Trading Company as represented


by Atty. Eddie Tamondong; Banco Du Brasil; Dusit International Co., Inc.;
Thai-Nan Enterprises Ltd. and Thai-United Trading Co., Ltd. In both Petitions,
private respondent plainly failed to include any allegation pertaining to
petitioner, or any prayer for relief against it. Summonses for the amended
Petition were served on Atty. Joseph Capuyan for Med Line Philippines:
Angliongto (through his secretary, Betty Bebero), Atty. Tamondong and
Commissioner Mison. Upon motion of the private respondent, the trial court
allowed summons by publication to be served upon the alien defendants who
were not residents and had no direct representatives in the country.
Thereafter, there was a motion to declare defendants in default but such
motion was denied as it was not acted upon. After trial, the court a quo
adjudged the private respondent liable. Respondent later on appealed
contending Anglioto, who is served with summons through his secretary
should also be made liable.

ISSUE/S:
Can piercing the veil of corporate fiction be resorted to when
serving summons?
RULING:
No.
A corporation may be served summons through its agents or officers
who under the Rules are designated to accept service of process. A summons
addressed to a corporation and served on the secretary of its president binds
that corporation. This is based on the rationale that service must be made
on a representative so integrated with the corporation sued, that it is safe to
assume that said representative had sufficient responsibility and discretion
to realize the importance of the legal papers served and to relay the same to
the president or other responsible officer of the corporation being sued. The
secretary of the president satisfies this criterion. This rule requires, however,
that the secretary should be an employee of the corporation sought to be
summoned. Only in this manner can there be an assurance that the
secretary will "bring home to the corporation the notice of the filing of the
action" against it.
In the present case, Bebero was the secretary of Angliongto, who was
president of both VSI and petitioner, but she was an employee of VSI, not of
petitioner. The piercing of the corporate veil cannot be resorted to when
serving summons.Doctrinally, a corporation is a legal entity distinct and
separate from the members and stockholders who compose it. However,
when the corporate fiction is used as a means of perpetrating a fraud,
evading an existing obligation, circumventing a statute, achieving or
perfecting a monopoly or, in generally perpetrating a crime, the veil will be

Page 189 of 1072

lifted to expose the individuals composing it. None of the foregoing


exceptions has been shown to exist in the present case. Quite the contrary,
the piercing of the corporate veil in this case will result in manifest injustice.
This we cannot allow.
Hence, the corporate fiction remains.

Page 190 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
VILLA REY TRANSIT, INC., plaintiff-appellant,
vs.
EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and
PUBLIC SERVICE COMMISSION, defendants.
G.R. No. L-23893. October 29, 1968
FACTS:
On January 8, 1959, Jose M. Villarama sold two certificates of public
convenience (CPC) to Pantranco, with the condition that the seller shall not
for a period of 10 years from the date of this sale, apply for any TPU service
identical or competing with the buyer." On March 6, 1959, a corporation
called Villa Rey Transit, Inc. was organized with the wife of Jose M. Villarama
as one of the incorporators, and at the same time the treasurer of the
corporation.
On April 7, 1959, the Corporation executed with one Valentin Fernando
a contract of sale over five CPC. The Sheriff of Manila, on July 7, 1959, levied
on two of the five CPC, by virtue of a writ of execution issued by the CFI
Pangasinan, in favor of Eusebio Ferrer, judgment creditor, against Valentin
Fernando, judgment debtor. A public sale was conducted by the Sheriff of
the said two CPC. Ferrer was the highest bidder, and a certificate of sale was
issued in his name. Thereafter, Ferrer sold the two CPC to Pantranco.
Thus, two sets of applications for approval of sale were filed before the
PSC, by Fernando and the Corporation, and that of Ferrer and Pantranco. In
the meantime, the Court decreed that until the issue on the ownership of the
disputed certificates shall have been finally settled by the proper court, the
Corporation should be the one to operate the lines provisionally.
On November 4, 1959, the Corporation filed in the CFI-Manila, a
complaint for the annulment of the sheriff's sale of the aforesaid two
certificates of public convenience in favor of Ferrer, and the subsequent sale
thereof by the latter to Pantranco. Pantranco, on its part, filed a third-party
complaint against Jose M. Villarama, alleging that Villarama and the
Corporation, are one and the same; that Villarama and/or the Corporation
was disqualified from operating the two certificates in question by virtue of
the contract non-competition stipulation.
ISSUE/S:
Whether or not Villa Rey Transit, Inc. is an alter ego of Jose M.
Villarama.

Page 191 of 1072

RULING:
Yes.
Taking account of the foregoing evidence, together with Celso Rivera's
testimony, it would appear that: Villarama supplied the organization
expenses and the assets of the Corporation, such as trucks and equipment;
there was no actual payment by the original subscribers of the amounts of
P95,000.00 and P100,000.00 as appearing in the books;Villarama made use
of the money of the Corporation and deposited them to his private accounts;
and the Corporation paid his personal accounts.
Villarama himself admitted that he mingled the corporate funds with
his own money.He also admitted that gasoline purchases of the Corporation
were made in his name because "he had existing account with Stanvac
which was properly secured and he wanted the Corporation to benefit from
the rebates that he received."
The foregoing circumstances are strong persuasive evidence showing
that Villarama has been too much involved in the affairs of the Corporation to
altogether negative the claim that he was only a part-time general manager.
They show beyond doubt that the Corporation is his alter ego.
The doctrine that a corporation is a legal entity distinct and separate
from the members and stockholders who compose it is recognized and
respected in all cases which are within reason and the law. When the fiction
is urged as a means of perpetrating a fraud or an illegal act or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of
knavery or crime,the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted
to allow for its consideration merely as an aggregation of individuals.
Upon the foregoing considerations, We are of the opinion, and so hold,
that the preponderance of evidence have shown that the Villa Rey Transit,
Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause in the
contract entered into by the latter and Pantranco is also enforceable and
binding against the said Corporation. For the rule is that a seller or promisor
may not make use of a corporate entity as a means of evading the obligation
of his covenant.31 Where the Corporation is substantially the alter ego of the
covenantor to the restrictive agreement, it can be enjoined from competing
with the covenantee.

Page 192 of 1072

TOPIC:DOCTRINE OF CORPORATE ENTITY VS. PIERCING THE VEIL OF


CORPORATE FICTION
JAMES YU and WILSON YOUNG, petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER
DANIEL C. CUETO, TANDUAY DISTILLERY INC., FERNANDO DURAN,
EDUARDO PALIWAN, ROQUE ESTOCE AND RODRIGO SANTOS,
respondents.
G.R. Nos. 111810-11. June 16, 1995
FACTS:
Private respondents were former employees of Tanduay Distillery Inc
(TDI).
On Mar 29, 1988, the employees of TDI, including private respondents
received a memorandum from TDI that their services were to be terminated
within 30 days from receipt thereof for reasons of retrenchment.
Then, on June 1, 1988, Twin Ace Holdings, buyer of TDI's assets, took
over the business and assumed to use the business name Tanduay Distillers.
Thereafter, the retrenched employees filed a motion to implead James Yu and
Wilson Young as party in the illegal dismissal case. Petitioners herein
objected said motion claiming , asserting that they are representatives of
Tanduay Distillers an entity distinct and separate from TDI, the previous
owner, and that there is no employer-employee relationship between
Tanduay Distillers and private respondents.
The LA granted the motion for the speedy disposition of justice. It also
ruled that there was illegal dismissal and ordered TDI to reinstate the
employees.
The NLRC affirmed the decision. The employees then filed a motion for
execution against Young and Yu which the petitioners opposed claiming that
there is no basis for the execution since Tanduay Distillers is different from
TDI, the entity against which the judgment was rendered. Subsequently TDI
filed a manifestation which was affirmed by the LA indicating the payment of
the monetary claims. The LA executing the order ruled that TDI, Young and
Yu should reinstate the employees. The petitioners filed a petition for
certiorari to the NLRC which denied the petition.
ISSUE/S:
Whether respondent NLRC committed grave abuse of discretion in
holding petitioners Yu and Young liable.

Page 193 of 1072

RULING:
The Supreme Court holds that petitioners, for a number of reasons,
may not be held answerable and liable under the final judgment of Labor
Arbiter Cauton-Barcelona.
It is basic that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it as well as from
that of any other legal entity to which it may be related (Palay, Inc. et al. vs.
Clave, et al., 124 SCRA 641 [1983]).
The genuine nature of the sale to Twin Ace is evidenced by the fact
that Twin Ace was only a subsequent interested buyer. At the time when
termination notices were sent to its employees, TDI was negotiating with the
First Pacific Metro Corporation for the sale of its assets. Only after First Pacific
gave up its efforts to acquire the assets did Twin Ace or Tanduay Distillers
come into the picture. Respondents-employees have not presented any proof
as to communality of ownership and management to support their
contention that the two companies are one firm or closely related. The
doctrine of piercing the veil of corporate entity applies when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud, or
defend crime or where a corporation is the mere alter ego or business
conduit of a person (Indophil Textile Mill Workers Union vs. Calica, 205 SCRA
697, 703 (1992]). To disregard the separate juridical personality of a
corporation, the wrong-doing must be clearly and convincingly established. It
cannot be presumed (Del Rosario vs. NLRC, 187 SCRA 777, 7809 [1990]).
The complaint for unfair labor practice, illegal lay off, and separation
benefits was filed against TDI. Only later when the manufacture and sale of
Tanduay products was taken over by Twin Ace or Tanduay Distillers were
James Yu and Wilson Young impleaded.
The corporation itself Twin Ace or Tanduay Distillers was never
made a party to the case.
Another factor to consider is that TDI as a corporation or its shares of
stock were not purchased by Twin Ace. The buyer limited itself to purchasing
most of the assets, equipment, and machinery of TDI. Thus, Twin Ace or
Tanduay Distillers did not take over the corporate personality of DTI although
they manufacture the same product at the same plant with the same
equipment and machinery. Obviously, the trade name "Tanduay" went with
the sale because the new firm does business as Tanduay Distillers and its
main product of rum is sold as Tanduay Rum. There is no showing, however,
that TDI itself was absorbed by Twin Ace or that it ceased to exist as a

Page 194 of 1072

separate corporation, In point of fact TDI is now herein a party respondent


represented by its own counsel.
Significantly, TDI in the petition at hand has taken the side of its former
employees and argues against Tanduay Distillers. In its memorandum filed
on January 9, 1995, TDI argues that it was not alone its liability which arbiter
recognized "but also of James Yu and Wilson Young representatives of Twin
Ace and/or the Allied Bank Group doing business under the name "TANDUAY
DISTILLERS," to whom the business and assets of TDI were sold." If TDI and
Tanduay, Distillers are one and the same group or one is a continuation of
the other, the two would not be fighting each other in this case. TDI would
not argue strongly "that the petition for certiorari filed by James Yu and
Wilson Young be dismissed for lack of merit." It is obvious that the second
corporation, Twin Ace or Tanduay Distillers, is an entity separate and distinct,
from the first corporation, TDI. The circumstances of this case are different
from the earlier decisions of the Court in labor cases where the veil of
corporate fiction was pierced.
In Claparols vs. Court of Industrial Relations (65 SCRA 613 (1975]), the
Claparols Steel and Nail Plant, which was ordered to pay its workers
backwages, ceased operations on June 30, 1956 and was succeeded on the
very next day, July 1, 1957, by the Claparols Steel Corporation. Both
corporations were substantially owned and controlled by the same person
and there was no break or cessation in operations. Moreover, all the assets of
the steel and nail plant were transferred to the new corporation.
In fine, the fiction of separate and distinct corporate entities cannot, in
the instant case, be disregarded and brushed aside, there being not the least
indication that the second corporation is a dummy or serves as a client of the
first corporate entity.
In the case at bench, since TDI and Twin Ace or Tanduay Distillers are
two separate and distinct entities, the order for Tanduay Distillers (and
petitioners) to reinstate respondents-employees is obviously without legal
and factual basis.

Page 195 of 1072

TOPIC:DE FACTO CORPORATION


C. ARNOLD HALL and BRADLEY P. HALL, petitioners,
vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte,
FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity
as receiver of the Far Eastern Lumber and Commercial Co., Inc.,
respondents.
G.R. No. L-2598. June 29, 1950
FACTS:
On May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and
the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and
Ceferino S. Abella, signed and acknowledged in Leyte, the articles of
incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized
to engage in a general lumber business to carry on as general contractors,
operators and managers, etc. Attached to the articles was an affidavit of the
treasurer stating that 23,428 shares of stock had been subscribed and fully
paid with certain properties transferred to the corporation described in a list
appended thereto.
Immediately after the execution of said articles of incorporation, the
corporation proceeded to do business with the adoption of by-laws and the
election of its officers.
On December 2, 1947, the said articles of incorporation were filed in
the office of the SEC Commissioner, for the issuance of the corresponding
certificate of incorporation.
On March 22, 1948, pending action on the articles of incorporation by
the aforesaid governmental office, the respondents filed the civil case
alleging among other things that the Far Eastern Lumber and Commercial Co.
was an unregistered partnership; that they wished to have it dissolved
because of bitter dissension among the members, mismanagement and
fraud by the managers and heavy financial losses. The defendants in the suit
filed a motion to dismiss, contesting the court's jurisdiction and the
sufficiency of the cause of action.
After hearing the parties, the dissolution of the company was ordered;
and at the request of plaintiffs, appointed the respondent Pedro A. Capuciong
as receiver of the properties thereof. The petitioners offered to file a counterbond for the discharge of the receiver, but the respondent judge refused to
accept the offer and to discharge the receiver.

Page 196 of 1072

Thus, the present special civil action was instituted in this court.
ISSUE/S:
Whether or not court had jurisdiction to decree the dissolution of the
company, because it being a de facto corporation, dissolution
thereof may only be ordered in a quo warranto proceeding instituted
in accordance with section 19 of the Corporation Law.
RULING:
Section 19 reads as follows:
. . . The due incorporation of any corporations claiming in good
faith to be a corporation under this Act and its right to exercise
corporate powers shall not be inquired into collaterally in any
private suit to which the corporation may be a party, but such
inquiry may be had at the suit of the Insular Government on
information of the Attorney-General.
There are least two reasons why this section does not govern the
situation. Not having obtained the certificate of incorporation, the Far Eastern
Lumber and Commercial Co. even its stockholders may not probably
claim "in good faith" to be a corporation.
Under our statue it is to be noted (Corporation Law, sec. 11) that it is
the issuance of a certificate of incorporation by the Director of the Bureau of
Commerce and Industry which calls a corporation into being. The immunity if
collateral attack is granted to corporations "claiming in good faith to be a
corporation under this act." Such a claim is compatible with the existence of
errors and irregularities; but not with a total or substantial disregard of the
law. Unless there has been an evident attempt to comply with the law the
claim to be a corporation "under this act" could not be made "in good faith."
(Fisher on the Philippine Law of Stock Corporations, p. 75. See also
Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)
Second, this is not a suit in which the corporation is a party. This is a
litigation between stockholders of the alleged corporation, for the purpose of
obtaining its dissolution. Even the existence of a de jure corporation may be
terminated in a private suit for its dissolution between stockholders, without
the intervention of the state.
There might be room for argument on the right of minority
stockholders to sue for dissolution;1 but that question does not affect the
court's jurisdiction, and is a matter for decision by the judge, subject to
review on appeal. Whkch brings us to one principal reason why this petition

Page 197 of 1072

may not prosper, namely: the petitioners have their remedy by appealing the
order of dissolution at the proper time.
There is a secondary issue in connection with the appointment of a
receiver. But it must be admitted that receivership is proper in proceedings
for dissolution of a company or corporation, and it was no error to reject the
counter-bond, the court having declared the dissolution. As to the amount of
the bond to be demanded of the receiver, much depends upon the discretion
of the trial court, which in this instance we do not believe has been clearly
abused.

Page 198 of 1072

TOPIC: CORPORATION BY ESTOPPEL


INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner
vs.
COURT OF APPEALS, respondent
G.R. NO. 119002, OCTOBER 19, 2000
FACTS:
Petitioner IETTS wrote a letter to the Philippine Football Federation
through its president Henri Khan offering its services as a travel agency to
the latter. Such offer was accepted. For partial payment, Khan issued a
personal check.however, no other payments were made.Thus, a suit was
filed against Henri Khan in his personal capacity as the president of the
Football Federation.
It was claimed that the Federation was not a corporation with valid
corporate personality. An entity may be recognize as a national sports
association when recognized by the accrediting association the Philippine
Amateur Athletic Federation under R.A. 3135 and P.D. 604 which Henri Khan
failed to substantiate.
ISSUE/S:
Whether or not the doctrine of estoppels is applicable in this case.
RULING:
NO.
The doctrine of estoppel applies to a third party only when he tries to
escape liabilities on a contract from which he has benefited on the irrelevant
ground of defective incorporation. Herein IETTSI is not trying to escape
liability from the contract but rather is the one claiming from the contract.
Henri Khan should be held liable for the unpaid obligations of the
unincorporated Federation. It is settled that any person acting or purporting
to act on behalf of a corporation which has no valid existence assumes such
privileges and becomes personally liable.

Page 199 of 1072

TOPIC:CORPORATION BY ESTOPPEL
LIM TONG LIM, petitioner
vs.
PHIL. FISHING GEAR INDUSTRIES, INC., respondent
G.R. NO. 136448, NOVEMBER 3, 1999
317 SCRA 728
FACTS:
On behalf of Ocean Quest Fishing Corp., Antonio Chua & Peter Yao
entered into a contract with respondents for the purchase of fishing nets of
various sizes and floats. They claimed to be engaged in a business venture
with petitioner who however was not made a signatory of the agreement.
Chua, Yao and petitioner failed to pay for the fishing nets and the
floats, hence respondent filed for a collection suit and writ of preliminary
attachment in their capacities as general partners on the allegation that the
corporation they represent was a non-existent corporation as certified by the
SEC.
ISSUE/S:
Whether or not petitioner is estopped from assailing the existence
of partnership on ground that he was not a signatory of the
contract.
RULING:
Yes.
The evidence clearly showed that the partnership existed among
petitioner, Chua & Yao to engage in a fishing business by buying boats
finance by a loan secured from petitioners brother.
Under Sec. 21 of the Corporation Code, corporation by estoppel applies
to an alleged corporation and to a third party. The instant case is an
unincorporated corporation where it is estopped from denying its corporate
capacity in a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to shy away
from its responsibility for a contract it entered into and by virtue of which it
received advantages and benefits.

Page 200 of 1072

In this case, though petitioner s name does not appear on the


contract, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which was proven to be the asset of the partnership placed
under his name to assure payment of the debt he and his partners owed.
TOPIC:CORPORATION BY ESTOPPEL
MARIANO ALBERT, plaintiff-appellant
vs.
UNIVERSITY PUBLISHING CO., INC., defendant-appellee
G.R. NO. L -19118, JANUARY 30, 1965
FACTS:
Petitioner entered into contract with respondent through its president,
Mr. Jose Aruego for the exclusive right to publish his Commentaries on the
RPC for an amount of P30, 000.00 to be paid in instalments. However,
respondent failed to comply, thus A collection suit was filed against the
corporation.
Upon the issuance of a writ of execution, it was found out that
respondent corporation is non-existing as certified by the SEC. Thus,
petitioner sought to enforce the writ against Mr. Aruego who signed as its
president and who represented the corporation in the proceedings.
ISSUE/S:
Whether or not respondent is estopped from assailing its corporate
personality.
HELD:
The Court ruled that the Corporation-By-Estoppel Doctrine is not
applicable in this case as the purported corporation is in reality non existent.
There was a misrepresentation by Mr. Aruego signing as a president that the
corporation is duly organized and existing under the laws of the Philippines
and misled petitioner into believing the same.
The evidence is clear that Mr. Aruego acting as the representative of a
non-existent principal was the real party in the contract and that he was the
one who reaped the benefits resulting from it, so much so that partial
payments of the consideration were made by him. Perforce, responsibility
under judgment falls on him.

Page 201 of 1072

TOPIC:CORPORATION BY ESTOPPEL
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION,
INC., petitioner,
vs.
HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY
CORPORATION, EMDEN ENCARNACION and HORATIO
AYCARDO, respondents.
G.R. NO. 117188, AUGUST 7, 1997
FACTS:
Loyola Grand Villas Homeowners Association (LGVHA) is the sole
homeowners' association in Loyola Grand Villas, duly registered subdivision
revoked the certificates of registration issued to Loyola Grand Villas
homeowners (North) Association Incorporated (the North Association for
brevity) and Loyola Grand Villas Homeowners (South) Association
Incorporated (the South Association) for failure to file its corporate by-laws.
These developments prompted the officers of the LGVHAI to lodge a
complaint with the HIGC. They questioned the revocation of LGVHAI's
certificate of registration without due notice and hearing and concomitantly
prayed for the cancellation of the certificates of registration of the North and
South Associations by reason of the earlier issuance of a certificate of
registration in favor of LGVHAI.
ISSUE:
Whether or not the doctrine of estoppels is applicable in this case.
HELD:
No.
The failure to file its by - laws presupposes that the corporation is
already incorporated and has the effect only of suspension or revocation
pursuant to PD 902 A after proper notice and hearing.
It necessarily follows that failure to file the by-laws within that period
does not imply the "demise" of the corporation. By-laws may be necessary
for the "government" of the corporation but these are subordinate to the
articles of incorporation as well as to the Corporation Code and related
statutes. In the absence of charter or statutory provisions to the contrary,

Page 202 of 1072

by-laws are not necessary either to the existence of a corporation or to the


valid exercise of the powers conferred upon it, certainly in all cases where
the charter sufficiently provides for the government of the body; and even
where the governing statute in express terms confers upon the corporation
the power to adopt by-laws, the failure to exercise the power will be ascribed
to mere nonaction which will not render void any acts of the corporation
which would otherwise be valid.
The mere fact, however, of the existence of power in the corporation to
adopt by-laws does not ordinarily and of necessity make the exercise of such
power essential to its corporate life, or to the validity of any of its acts.

Page 203 of 1072

TOPIC: QUALIFICATIONS/QUALIFYING SHARE


REP. LUIS R. VILLAFUERTE, PROSPERO A. PICHAY, CHRISTIAN TAN,
WILSON YOUNG, TERESITA ABUNDO, TONY FABICO, BONIFACIO
ALENTAJAN, RIZALITO DELMORO, GODOFREDO E. GALLEGA, MANNY
A. GATCHALIAN, MA. CARMEN S. PADOR, CELESTINO S. MARTINEZ,
ANTONIO TAN ITURALDE, ALEXANDER WANG, YUL C. BENOSA,
ELBERT CATAMPUNGAN ATILLANO, SR., LORENZO CO SY, EDWARD YU
CHUA and LEONCIO CHUA, Petitioners,
vs.
GOV. OSCAR S. MORENO, MANUEL V. PANGILINAN, MARIEVIC G.
RAMOS-AONUEVO, JOSE A. CAPISTRANO, JR., PEDRO C. ALFARO,
JR., BERNARDO GABRIEL L. ATIENZA, JOSE EMMANUEL M. EALA,
FERNANDO G. LOZANO, FR. PAUL M. DE VERA OSB, NICANOR
FORTICH JORGE, DANIEL DANILO V. SORIA and NATHANIEL P.
PADILLA, Respondents.
G.R. No. 186566. October 2, 2009
FACTS:
On 28 August 2006, at the sideline of the 18 th FIBA World Congress
held at Tokyo, Japan, a Joint Communique (Tokyo Communique) was
entered into by the feuding Basketball Association of the Philippines (BAP)
and the newly formed Pilipinas Basketbol (PB), through their then
incumbent Presidents, Jose D. Lina, Jr. And Bernardo Gabriel L. Atienza,
respectively, and as witnessed not only by their other representatives but
also by the representative of the Philippine Olympic Committee (POC) and
the FIBA Secretary General Patrick Baumann. The main objectives of the
Tokyo Communique are (1) to unify said rival basketball associations and (2)
to facilitate the lifting of the suspension imposed by the Federation
Internationale de Basketball (FIBA), which prevented the country from
participating in any international basketball competitions.
Specifically, the Tokyo Communique provides for the merger of the BAP
and the PB resulting to a single united basketball organization that will seek
membership with the POC and will eventually take over the membership of
BAP in the FIBA, subject to the appropriate FIBA regulations on membership.
Pursuant to the provisions of the Tokyo Communique relative to the creation
of a three-man panel, petitioner Manuel V. Pangilinan (Petitioner Pangilinan)
was named as its third member and was even chosen as its Chairman. Also,
the BAP and PB submitted to FIBA their respective lists of membersassociations in compliance with the provisions thereof.
In keeping with the merger and unification efforts as embodied in the
Tokyo Communique, the Samahang Basketbol ng Pilipinas, Inc. (SBP) was

Page 204 of 1072

established and its constitutive documents consisting of the Articles of


Incorporation were signed by the five (5) incorporators, which include
petitioner Pangilinan. On the same day, the incorporators likewise passed
and signed its by-laws. The three-man panel met in Bangkok, Thailand where
it forged and executed a Memorandum of Agreement (Bangkok
Agreement) integrating therein the final terms and conditions of the unity
and merger of BAP and PB. In said agreement, the BAP and PB amended the
corporate name of SBP from Samahang Basketbol ng Pilipinas, Inc. To
BAP-Samahang Basketbol ng Pilipinas, Inc. (BAP-SBP).
Petitioners filed before the Regional Trial Court of Manila a petitionfor
declaration of nullity of the election of respondents as members of the Board
of Trustees and Officers of BAP-SBP. The case was docketed as Civil Case No.
08-119546. Petitioners alleged that the June 12, 2008 election was a sham,
illegal, and void. They also claimed to be the rightful and legally elected
trustees and officers of the BAP-SBP and thus prayed that the corporate reins
of BAP-SBP be turned over to them.
ISSUE/S:
Which members of the BAP-SBP are entitled to vote and be voted
upon as trustees and officers of said organization based on the
terms and conditions of the Tokyo Communique, the Bangkok
Agreement and the Articles of Incorporation and By-Laws of the
organization.
RULING:
The Supreme Court finds that the Court of Appeals correctly held that
Clause 3 of the Bangkok Agreement merely intended to recognize the
associations affiliated with BAP and PB as members as against being
]abelled as just probationary members of the BAP-SBP. However, said
recognition does not dispense with the need to classify said members in
accordance with the provisions of BAP-SBPs Articles of Incorporation and ByLaws, and the Tokyo Communique. Had the intention been otherwise, the
parties would have expressed this by means of the appropriate provisions
repealing or amending the contradictory provisions in said documents as
what they did to a provision in the Bangkok Agreement with respect to the
removal of officers.
Moreover, Clause 3 of the Bangkok Agreement must be read not in
isolation but in conjunction with the Tokyo Communique and the BAP-SBPs
Article of Incorporation and By-Laws. The Court of Appeals historical account
as to how all subject documents came into being is enlightening, thus:
Pertinently, the Tokyo Communique purposely created a threeman panel to review, verify, and validate the list of members as

Page 205 of 1072

submitted by PB and BAP to the FIBA Central Board Special


Commission created to hear the Philippine case based on agreed
set of criteria for membership formulated by three-man panel.
Pursuant to the stipulations of the Tokyo Communique, the SBP
was created leading to the execution and adoption of its Articles
of Incorporation and by-laws, which laid down, among others, the
criteria for membership of the SBP. Subsequent thereto, the
three-man panel again convened and executed the said Bangkok
Agreement, in which the admission of all the bona fide members
of BAP and PB as appearing in the lists submitted to FIBA as
members instead of probationary members of SBP was agreed
upon.
To reiterate, the Tokyo Communiques directive to the three-man panel
is for it to review, verify, and validate the list of members as submitted by PB
and BAP to the FIBA Central Board Special Commission created to hear the
Philippine Case based on an agreed set of criteria for membership as
formulated by said three-man panel. In other words, there is a given process
for validation of membership rather than the automatic grant of voting or
active membership status being insisted upon by petitioners. Besides, had it
intended all bona fide members to be admitted as accredited members or
first members or active members, the three-man panel would have
specifically used such term since its members were all aware that the SBPs
Articles of Incorporation and by-laws were already in existence at the time
and also provided for three classes or categories of members.

Page 206 of 1072

TOPIC: QUALIFICATIONS/QUALIFYING SHARE


CONSTANCIO T. BAGUIO, petitioner,
vs.
COURT OF APPEALS (Fourteenth Division), LAS PALMAS
INTERNATIONAL MANPOWER CORPORATION, SPOUSES DONALDO
PALMA AND CONSUELO P. PALMA and CYNTHIA C. CALAPRE,
respondents.
G.R. No. 93417. September 14, 1993
226 SCRA 366
FACTS:
Respondent Donaldo Palma was the president of respondent Las
Palmas; his wife, respondent Consuelo Palma, was the vice-president and
treasurer; and respondent Cynthia G. Calapre was the corporate secretary.
Respondents Palmas were also officers of Masters & Mates Association of the
Philippines, a sublessee of a portion of the office space leased by petitioner.
In the early part of April 1982, petitioner saw respondent Donaldo
Palma to collect his 25% share in the profits earned by respondents Palmas
when they sent 21 workers to Saudi Arabia. Instead of paying petitioner,
respondents Palmas offered to sell him 600 shares of stock or respondent Las
Palmas for P60,000.00 and to make him a director and vice-president of the
corporation.
As to the subsequent events, the trial court accepted as true the
version of petitioner. According to the trial court, respondents Palmas went to
the office of petitioner on July 8, 1982 at 7:00 p.m., where petitioner handed
the amount of P60,000.00 in P100.00-bills to them in the presence of Jose
Baldeo, Jr., a security guard of the building. Respondents Palmas, in turn
delivered to petitioner a copy of the Board Resolution No. 001, series of 1982
of respondent corporation (Exh. A) and the secretary's certificate (Exh. B).
When the petitioner asked for a receipt, respondents Palmas assured him
that the board resolution and the secretary's certificate were better evidence
of payment than an ordinary receipt. He was likewise told that the stock
certificate would be issued in December 1982, after the board meeting.
Respondents Palmas used the money to pay their employees, whose salaries
had not been paid for several months.

Page 207 of 1072

As December 1982 came and no certificate of stock was issued to him,


petitioner became suspicious of respondents Palmas. Sometime in May 1983,
petitioner inquired from the Securities and Exchange Commission about the
legal personality of Respondent Corporation. He discovered that the board
resolution (Exh. A) and secretary's certificate (Exh. B) Were not recorded with
said office. Moreover, the corporate secretary listed in the SEC records was a
certain Anabelle Acapulco and not respondent Calapre.
Petitioner, having lost his patience, ejected Master and Mates
Association of the Philippines, the agency owned by respondents Palmas.
ISSUE/S:
Whether petitioner can claim that being a member of the board of
directors and occupying the position of Vice-President-International
necessarily imply that he must have owned duly-paid shares of
stock.
RULING:
Under Section 63 of the Corporation Code, no transfer of shares of
stock shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation showing the names of the parties to
the transfer, the date of the transfer and the number of the certificates and
shares transferred. Petitioner has not shown compliance with this law.
Petitioner further cites that if it were true that respondents Palmas
failed to receive his payment they should have passed another board
resolution, specifically cancelling the offer contained in board resolution
(Exh. A). There was no need to issue another resolution cancelling the board
resolution, Exhibit A, because no certificate of stock was issued and no
transfer of shares was recorded in the books of the corporation pursuant
thereto. More so, if we consider the transaction is not between the
corporation and petitioner but between private respondents qua
stockholders and petitioner.
Petitioner cannot claim that being a member of the board of directors
and occupying the position of Vice-President-International necessarily imply
that he must have owned duly-paid shares of stock.
The election of a person to the board of directors of a corporation does
not necessarily mean that he has paid for the shares recorded in his name. In
most cases, nominee directors do not pay for the qualifying shares assigned
to them. Likewise, the Corporation Code does not require that one elected or
appointed as vice-president of a corporation should be the owner of shares of
stock of the corporation.

Page 208 of 1072

TOPIC: QUALIFICATIONS/QUALIFYING SHARE


DETECTIVE & PROTECTIVE BUREAU, INC., petitioner,
vs.
THE HONORABLE GAUDENCIO CLORIBEL, in his capacity as Presiding
Judge of Branch VI, Court of First Instance of Manila, and FAUSTINO
S. ALBERTO, respondents.
G.R. No. L-23428. November 29, 1968
26 SCRA 255
FACTS:
Plaintiff was a corporation duly organized and existing under the laws
of the Philippines; that defendant was managing director of plaintiff
corporation from 1952 until January 14, 1964; that in June, 1963, defendant
illegally seized and took control of all the assets as well as the books,
records, vouchers and receipts of the corporation from the accountantcashier, concealed them illegally and refused to allow any member of the
corporation to see and examine the same; that on January 14, 1964, the
stockholders, in a meeting, removed defendant as managing director and
elected Jose de la Rosa in his stead; that defendant not only had refused to
vacate his office and to deliver the assets and books to Jose de la Rosa, but
also continued to perform unauthorized acts for and in behalf of plaintiff
corporation; that defendant had been required to submit a financial
statement and to render an accounting of his administration from 1952 but
defendant has failed to do so; that defendant, contrary to a resolution
adopted by the Board of Directors on November 24, 1963, had been illegally
disposing of corporate funds; that defendant, unless immediately restrained
ex-parte, would continue discharging the functions of managing director; and
that it was necessary to appoint a receiver to take charge of the assets and
receive the income of the corporation.
Plaintiff prayed that a preliminary injunction ex-parte be issued
restraining defendant from exercising the functions of managing director and
from disbursing and disposing of its funds; that Jose M. Barredo be appointed
receiver; that, after judgment, the injunction be made permanent and
defendant be ordered to render an accounting.
ISSUE/S:

Page 209 of 1072

Whether Jose de la Rosa could not be elected managing director


because he did not own any stock in the corporation.
RULING:
There is in the record no showing that Jose de la Rosa owned a share of
stock in the corporation. If he did not own any share of stock, certainly he
could not be a director pursuant to the mandatory provision of Section 30 of
the Corporation Law, which in part provides:
Sec. 30. Every director must own in his own right at least one
share of the capital stock of the stock corporation of which he is
a director, which stock shall stand in his name on the books of
the corporations....
If he could not be a director, he could also not be a managing director
of the corporation, pursuant to Article V, Section 3 of the By-Laws of the
Corporation which provides that:
The manager shall be elected by the Board of Directors from
among its members.... (Record, p. 48)
If the managing director-elect was not qualified to become
managing director, respondent Fausto Alberto could not be
compelled to vacate his office and cede the same to the
managing director-elect because the by-laws of the corporation
provides in Article IV, Section 1 that Directors shall serve until
the election and qualification of their duly qualified successor.

Page 210 of 1072

TOPIC: QUALIFICATIONS/QUALIFYING SHARE


GRACE CHRISTIAN HIGH SCHOOL, petitioner,
vs.
THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC.,
ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.
G.R. No. 108905. October 23, 1997
281 SCRA 133
FACTS:
Petitioner Grace Christian High School is an educational institution
offering preparatory, kindergarten and secondary courses at the Grace
Village in Quezon City. Private respondent Grace Village Association, Inc., on
the other hand, is an organization of lot and/or building owners, lessees and
residents at Grace Village, while private respondents Alejandro G. Beltran
and Ernesto L. Go were its president and chairman of the committee on
election, respectively, in 1990, when this suit was brought.
As adopted in 1968, the by-laws of the association. Subsequently, on
December 20, 1975, a committee of the board of directors prepared a draft
of an amendment to the by-laws. The draft was never presented to the
general membership for approval. Nevertheless, from 1975, after it was
presumably submitted to the board, up to 1990, petitioner was given a
permanent seat in the board of directors of the association. On February 13,
1990, the associations committee on election in a letter informed James Tan,
principal of the school, that it was the sentiment that all directors should be
elected by members of the association because to make a person or entity
a permanent Director would deprive the right of voters to vote for fifteen (15)
members of the Board, and it is undemocratic for a person or entity to hold
office in perpetuity. For this reason, Tan was told that the proposal to make
the Grace Christian High School representative as a permanent director of
the association, although previously tolerated in the past elections should be
reexamined. Following this advice, notices were sent to the members of the
association that the provision on election of directors of the 1968 by-laws of
the association would be observed.
Petitioner requested the chairman of the election committee to change
the notice of election by following the procedure in previous elections,
claiming that the notice issued for the 1990 elections ran counter to the

Page 211 of 1072

practice in previous years and was in violation of the by-laws (of 1975)
and unlawfully deprive[d] Grace Christian High School of its vested right [to]
a permanent seat in the board.
As the association denied its request, the school brought suit for
mandamus in the Home Insurance and Guaranty Corporation to compel the
board of directors of the association to recognize its right to a permanent
seat in the board.
ISSUE/S:
Whether petitioner has already acquired a vested right to a
permanent seat in the Board of Directors of Grace Village
Association.
RULING:
The board of directors of corporations must be elected from among the
stockholders or members. There may be corporations in which there are
unelected members in the board but it is clear that in the examples cited by
petitioner the unelected members sit as ex officio members, i.e., by virtue of
and for as long as they hold a particular office. But in the case of petitioner,
there is no reason at all for its representative to be given a seat in the board.
Nor does petitioner claim a right to such seat by virtue of an office held. In
fact it was not given such seat in the beginning. It was only in 1975 that a
proposed amendment to the by-laws sought to give it one.
Since the provision in question is contrary to law, the fact that for
fifteen years it has not been questioned or challenged but, on the contrary,
appears to have been implemented by the members of the association
cannot forestall a later challenge to its validity. Neither can it attain validity
through acquiescence because, if it is contrary to law, it is beyond the power
of the members of the association to waive its invalidity. For that matter the
members of the association may have formally adopted the provision in
question, but their action would be of no avail because no provision of the
by-laws can be adopted if it is contrary to law.
It is probable that, in allowing petitioners representative to sit on the
board, the members of the association were not aware that this was contrary
to law. It should be noted that they did not actually implement the provision
in question except perhaps insofar as it increased the number of directors
from 11 to 15, but certainly not the allowance of petitioners representative
as an unelected member of the board of directors. It is more accurate to say
that the members merely tolerated petitioners representative and tolerance
cannot be considered ratification.
Nor can petitioner claim a vested right to sit in the board on the basis
of practice. Practice, no matter how long continued, cannot give rise to any

Page 212 of 1072

vested right if it is contrary to law. Even less tenable is petitioners claim that
its right is ]oterminous with the existence of the association.

TOPIC: QUALIFICATIONS/QUALIFYING SHARE


RAMON C. LEE and ANTONIO DM. LACDAO, petitioners,
vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP.,
PABLO GONZALES, JR. and THOMAS GONZALES, respondents.
G.R. No. 93695. February 4, 1992
205 SCRA 752
FACTS:
On November 15, 1985, a complaint for a sum of money was filed by
the International Corporate Bank, Inc. Against the private respondents who,
in turn, filed a third party complaint against ALFA and the petitioners on
March 17, 1986.
On September 17, 1987, the petitioners filed a motion to dismiss the
third party complaint which the Regional Trial Court of Makati, Branch 58
denied in an Order dated June 27, 1988.
On July 18, 1988, the petitioners filed their answer to the third party
complaint. Meanwhile, on July 12, 1988, the trial court issued an order
requiring the issuance of an alias summons upon ALFA through the DBP as a
consequence of the petitioners letter informing the court that the summons
for ALFA was erroneously served upon them considering that the
management of ALFA had been transferred to the DBP.
In a manifestation dated July 22, 1988, the DBP claimed that it was not
authorized to receive summons on behalf of ALFA since the DBP had not
taken over the company which has a separate and distinct corporate
personality and existence.
ISSUE:
Whether the execution of the voting trust agreement between
petitioners and the other stockholders of ALFA, as one party, and
the DBP, as the other party, the former assigned and transferred all
their shares in ALFA to DBP, as trustee.

Page 213 of 1072

RULING:
The facts of this case show that the petitioners, by virtue of the voting
trust agreement executed in 1981 disposed of all their shares through
assignment and delivery in ]avour of the DBP, as trustee. Consequently, the
petitioners ceased to own at least one share standing in their names on the
books of ALFA as required under Section 23 of the new Corporation Code.
They also ceased to have anything to do with the management of the
enterprise. The petitioners ceased to be directors. Hence, the transfer of the
petitioners shares to the DBP created vacancies in their respective positions
as directors of ALFA. The transfer of shares from the stockholder of ALFA to
the DBP is the essence of the subject voting trust agreement as evident from
the following stipulations:
1. The TRUSTORS hereby assign and deliver to the TRUSTEE
the certificate of the shares of the stocks owned by them
respectively and shall do all things necessary for the
transfer of their respective shares to the TRUSTEE on the
books of ALFA.
2. The TRUSTEE shall issue to each of the TRUSTORS a trust
certificate for the number of shares transferred, which shall
be transferrable in the same manner and with the same
effect as certificates of stock subject to the provisions of
this agreement;
3. The TRUSTEE shall vote upon the shares of stock at all
meetings of ALFA, annual or special, upon any resolution,
matter or business that may be submitted to any such
meeting, and shall possess in that respect the same
powers as owners of the equitable as well as the legal title
to the stock;
4. The TRUSTEE may cause to be transferred to any person
one share of stock for the purpose of qualifying such
person as director of ALFA, and cause a certificate of stock
evidencing the share so transferred to be issued in the
name of such person;
xxx xxx xxx
9. Any stockholder not entering into this agreement may
transfer his shares
to the same trustees without the need of revising this
agreement, and this agreement shall have the same force
and effect upon that said stockholder. (CA Rollo, pp. 137138; Emphasis supplied)
Considering that the voting trust agreement between ALFA and the
DBP transferred legal ownership of the stock covered by the agreement to
the DBP as trustee, the latter became the stockholder of record with respect

Page 214 of 1072

to the said shares of stocks. In the absence of a showing that the DBP had
caused to be transferred in their names one share of stock for the purpose of
qualifying as directors of ALFA, the petitioners can no longer be deemed to
have retained their status as officers of ALFA which was the case before the
execution of the subject voting trust agreement. There appears to be no
dispute from the records that DBP has taken over full control and
management of the firm.

TOPIC: BOARD OF DIRECTORS - DISQUALIFICATIONS


ENRIQUE P. BRIAS Y ROXAS, petitioner,
vs.
JOHN S. HORD, ET AL., respondents.
G.R. No. L-8387, February 5, 1913
24 PHIL. 286
FACTS:
Respondent, John S. Hord, has been the duly elected, qualified, and the
acting president of the Bank of the Philippine Islands while petitioner was
duly elected and appointed as a member of the committee of credits of said
board of directors. He made application to respondent for authority and
opportunity to examine and inspect the books of account of said corporation
then and there in the possession and under the immediate control of said
respondent which was denied repeatedly.
It is claimed by the respondents that the petitioner did, on the 26th of
September, 1912, resign, voluntarily, unequivocally, and absolutely, as a
member of said board of directors which petitioner refuted.
ISSUE/S:
Whether or not petitioner is disqualified to be a member of the
board of directors of the respondent bank having resigned from his
post.
RULING:
No.
It is not disputed that a resignation per verba is just as effective and
binding as a resignation per scripta. In this case, it will be noted that no

Page 215 of 1072

words are here attributed to the petitioner which indicate that he then and
there absolutely and unequivocally resigned. The most that can be said is
that he "ceased to attend its meetings." If the petitioner had resigned, at the
time and in the manner alleged, then he had forfeited his right to act in any
relation with the board. His resignation per verba was sufficient. No formal
acceptance of his resignation was necessary; neither was it necessary to
make an entry thereof in the minutes of the board. While this is true, it must,
however, appear that he positively and affirmatively stated or indicated that
it was his intention to resign then and there.

TOPIC:ELECTION, VOTING
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM AND
CHARLES CHAMSAY
VS.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG AND AVELINO V.
CRUZ
G.R. NO. 75875, DECEMBER 15, 1989
180 SCRA 131
FACTS:
Saniwares is a domestic corporation incorporated for the primary
purpose of manufacturing and marketing sanitary wares. It was composed of
Filipino investors and ASI, an American corporation as stockholders. In the
election of its Board of Directors, it was agreed that as long as AmericanStandard shall own at least 30% of the outstanding stock of the Corporation,
three of the nine directors shall be designated by American-Standard, and
the others six: shall be designated by the Filipino stockholders of the
Corporation.
In the election of its Board of Directors, the Secretary then certified for
the election of the following ---- Wolfgang Aurbach, John Griffin, David
Whittingham, Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. Because of
disagreement, the ASI Group conducted a second election where Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay were
nominated, Luciano E. Salazar voted for himself, thus the said five directors
were certified as elected directors by the Acting Secretary, Andres
Gatmaitan.

Page 216 of 1072

ISSUE/S:
Who are the elected officers of the business?
RULING:
Equally important as the consideration of the contractual intent of the
parties is the consideration as regards the possible domination by the foreign
investors of the enterprise in violation of the nationalization requirements
enshrined in the Constitution and circumvention of the Anti-Dummy Act. In
this regard, petitioner Salazar's position is that the Anti-Dummy Act allows
the ASI group to elect board directors in proportion to their share in the
capital of the entity. It is to be noted, however, that the same law also limits
the election of aliens as members of the board of directors in proportion to
their allowance participation of said entity. In the instant case, the foreign
Group ASI was limited to designate three directors. This is the allowable
participation of the ASI Group. Hence, in future dealings, this limitation of six
to three board seats should always be maintained as long as the joint
venture agreement exists considering that in limiting 3 board seats in the 9man board of directors there are provisions already agreed upon and
embodied in the parties' Agreement to protect the interests arising from the
minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and
SEC which were impliedly affirmed by the appellate court declaring Messrs.
Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo,
Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo,
and George F. Lee as the duly elected directors of Saniwares at the March
8,1983 annual stockholders' meeting.

Page 217 of 1072

TOPIC:ELECTION, VOTING
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO)
Vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN
JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA,
COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA,
COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO
G.R. No. 75885 May 27, 1987
FACTS:
After the Marcos Regime, and under the Aquino Administration, the
President, Corazon C. Aquino, promulgated Executive Orders number 1 and 2
on February 28, 1986 and March 12, 1986 ordering the sequestration,
provisional take over freezing and recovery of al the ill-gotten property
amassed by the leaders and supporters of the previous regime.
Under said E.O., the PCGG undertook to sequester and provisionally
take over Bataan shipyard and Engineering Co.. Inc., a corporation known to
be an asset of the Marcos. The PCGG ordered the said corporation to
produce certain documents. It likewise took over the execution and carrying
out of the business, as well as making executive decisions in behalf of the
corporation including the pulling out of certain business transactions entered
into by the corporation.
In a special civil action filed by BASECO, the latter assailed E.O.s 1
and 2 contending that both are unconstitutional. It further contended that
the acts of PCGG in sequestering and provisionally taking over the
corporation are not valid and is in fact illegal on the following grounds,

Page 218 of 1072

1. no notice and hearing was accorded to it before its


properties and business prerogatives were taken over by
the PCGG,
2. PCGG is not a court, it is a mere investigative agency, thus,
it cannot competently act as a prosecutor and a judge in
the same cause,
3. PCGG illegally interfered with BASECOs right of dominion
and management of its business affairs.
ISSUE/S:
Whether or not the PCGG may properly exercise the prerogative to
vote sequestered stock of corporations

RULING:
It is within the parameters of these conditions and circumstances that
the PCGG may properly exercise the prerogative to vote sequestered stock of
corporations, granted to it by the President of the Philippines through a
Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG,
"pending the outcome of proceedings to determine the ownership of * *
(sequestered) shares of stock," "to vote such shares of stock as it may have
sequestered in corporations at all stockholders' meetings called for the
election of directors, declaration of dividends, amendment of the Articles of
Incorporation, etc." The Memorandum should be construed in such a manner
as to be consistent with, and not contradictory of the Executive Orders
earlier promulgated on the same matter. There should be no exercise of the
right to vote simply because the right exists, or because the stocks
sequestered constitute the controlling or a substantial part of the corporate
voting power. The stock is not to be voted to replace directors, or revise the
articles or by-laws, or otherwise bring about substantial changes in policy,
program or practice of the corporation except for demonstrably weighty and
defensible grounds, and always in the context of the stated purposes of
sequestration or provisional takeover, i.e., to prevent the dispersion or undue
disposal of the corporate assets. Directors are not to be voted out simply
because the power to do so exists. Substitution of directors is not to be done
without reason or rhyme, should indeed be shunned if at an possible, and
undertaken only when essential to prevent disappearance or wastage of
corporate property, and always under such circumstances as assure that the
replacements are truly possessed of competence, experience and probity.
In the case at bar, there was adequate justification to vote the
incumbent directors out of office and elect others in their stead because the
evidence showed prima facie that the former were just tools of President
Marcos and were no longer owners of any stock in the firm, if they ever were
at all. This is why, in its Resolution of October 28, 1986; this Court declared

Page 219 of 1072

that Petitioner has failed to make out a case of grave abuse or excess of
jurisdiction in respondents' calling and holding of a stockholders' meeting for
the election of directors as authorized by the Memorandum of the President *
* (to the PCGG) dated June 26, 1986, particularly, where as in this case, the
government can, through its designated directors, properly exercise control
and management over what appear to be properties and assets owned and
belonging to the government itself and over which the persons who appear
in this case on behalf of BASECO have failed to show any right or even any
shareholding in said corporation.

TOPIC:REPORT ON ELECTION
PREMIUM MARBLE RESOURCES, INC.
VS.
THE COURT OF APPEALS AND INTERNATIONAL CORPORATE
BANK, PRINTLINE CORPORATION V. THE COURT OF APPEALS AND
INTERNATIONAL CORPORATE BANK
G.R. NO. 96551 NOVEMBER 4, 1996
FACTS:
On Aug. to Oct. 1982, Ayala Investment and Development Corporation
issued 3 checks in the total amount of P31,663.88 payable to Premium.
Former officers of the Premium headed by Saturnino Belen Jr. without any
authority from the Premium deposited the checks to his conduit corporation
Intervest Merchant Finance. Even though the checks were payable to
premium, International Corporate Bank cleared the checked in Intervests
favor and allowed the latter to use the funds. Thus Premium filed an action
for damages assisted by Atty. Dumadag.
Subsequently after, Premium represented by the Siguion Reyna Law
Firm filed a motion to dismiss the complaint claiming that it was filed without
the authority of the BOD of Premium. Atty. Dumadag claimed that the MOD
was signed by Belen, Jr., Nograles and Reyes who are not directors of the
corporation but were former officers dismissed for various irregularities and
fraudulent acts. The Sigion Reyna law firm claimed that it should be the
general information sheet filed with the SEC that is the best evidence of who
are the stockholders and not the AI. The LC that since no officers have yet
been elected and qualified the officers of Premium are Nograles, Belen and
Reyes and therefore those represented by Atty. Dumadag have yet no legal
capacity to file the case. The CA affirmed the decision.

Page 220 of 1072

ISSUE/S:
Whether or not the filing of the case for damages against private
respondent was authorized by a duly constituted Board of Directors
of the petitioner corporation.
RULING:
By the express mandate of the Corporation Code (Section 26), all
corporations duly organized pursuant thereto are required to submit within
the period therein stated (30 days) to the Securities and Exchange
Commission the names, nationalities and residences of the directors,
trustees and officers elected. Sec. 26 of the Corporation Code provides, thus:
Sec. 26. Report of election of directors, trustees and officers. Within thirty
(30) days after the election of the directors, trustees and officers of the
corporation, the secretary, or any other officer of the corporation, shall
submit to the Securities and Exchange Commission, the names, nationalities
and residences of the directors, trustees and officers elected. . . .
Evidently, the objective sought to be achieved by Section 26 is to give
the public information, under sanction of oath of responsible officers, of the
nature of business, financial condition and operational status of the company
together with information on its key officers or managers so that those
dealing with it and those who intend to do business with it may know or have
the means of knowing facts concerning the corporation's financial resources
and business responsibility.
The claim, therefore, of petitioners as represented by Atty. Dumadag,
that Zaballa, et al., are the incumbent officers of Premium has not been fully
substantiated. In the absence of an authority from the board of directors, no
person, not even the officers of the corporation, can validly bind the
corporation.

Page 221 of 1072

TOPIC:TERM OF OFFICE/HOLD OVER


DR. HANS CHRISTIAN M. SEERES
VS.
COMMISSION ON ELECTIONSAND MELQUIADES A. ROBLES
G.R. NO. 178678, APRIL 16, 2009
FACTS:
Robles was elected president and chairperson of Buhay, a party-list
group duly registered with COMELEC. The constitution of BUHAY provides for
a three-year term for all its party officers, without re-election. BUHAY
participated in the 2001 and 2004 elections, with Robles as its president. All
the required Manifestations of Desire to Participate in the said electoral
exercises, including the Certificates of Nomination of representatives, carried
the signature of Robles as president of BUHAY.
On March 29, 2007, Robles signed and filed a Certificate of Nomination
of BUHAYs nominees for the 2007 elections containing the following names:
(i) Rene M. Velarde, (ii) Ma. Carissa Coscolluela, (iii) William Irwin C. Tieng,
(iv) Melchor R. Monsod, and (v) Teresita B. Villarama. Earlier, however, or on
March 27, 2007, petitioner Hans Christian Seeres, holding himself up as
acting president and secretary-general of BUHAY, also filed a Certificate of
Nomination with the COMELEC, nominating: (i) himself, (ii) Hermenegildo C.
Dumlao, (iii) Antonio R. Bautista, (iv) Victor Pablo C. Trinidad, and (v) Eduardo
C. Solangon, Jr.
Seeres filed with the COMELEC a Petition to Deny Due Course to
Certificates of Nomination, alleged that he was the acting president and
secretary-general of BUHAY, having assumed that position since August 17,

Page 222 of 1072

2004 when Robles vacated the position. Pushing the point, Seeres would
claim that the nominations made by Robles were, for lack of authority, null
and void owing to the expiration of the latters term as party president.
Furthermore, Seeres asserted that Robles was, under the Constitution,
disqualified from being an officer of any political party, the latter being the
Acting Administrator of the Light Railway Transport Authority (LRTA), a
government-controlled corporation. Robles, so Seeres would charge, was
into a partisan political activity which civil service members, like the former,
were enjoined from engaging in.
ISSUE/S:
Whether or not Robles has the right to assume the presidency in
hold over capacity?

RULING:
As a general rule, officers and directors of a corporation hold over after
the expiration of their terms until such time as their successors are elected
or appointed. Sec. 23 of the Corporation Code contains a provision to this
effect, thus: Section 23. The board of directors or trustees.Unless otherwise
provided in this Code, the corporate powers of all corporations formed under
this Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is no stock, from
among the members of the corporation, who shall hold office for one (1) year
until their successors are elected and qualified.
The holdover doctrine has, to be sure, a purpose which is at once legal
as it is practical. It accords validity to what would otherwise be deemed as
dubious corporate acts and gives continuity to a corporate enterprise in its
relation to outsiders. This is the analogical situation obtaining in the present
case. The voting members of BUHAY duly elected Robles as party President
in October 1999. And although his regular term as such President expired in
October 2002, no election was held to replace him and the other original set
of officers. Further, the constitution and by-laws of BUHAY do not expressly or
impliedly prohibit a hold-over situation. As such, since no successor was ever
elected or qualified, Robles remained the President of BUHAY in a "hold-over"
capacity.

Page 223 of 1072

TOPIC:HOW REMOVED
LEON J. LAMBERT, plaintiff-appellant,
vs.
T. J. FOX, defendant-appellee.
G.R. NO. L-7991, JANUARY 29, 1914
FACTS:
John R. Edgar & Co., engaged in the retail book and stationery
business, found itself in such condition financially that its creditors agreed to
take over the business, incorporate it and accept stock therein in payment of
their respective credits. This was done, the plaintiff and the defendant
becoming the two largest stockholders in the new corporation called John R.
Edgar & Co., Incorporated. A few days after the incorporation was completed
plaintiff and defendant entered into an agreement whereby the shockholders
mutually and reciprocally agree not to sell, transfer, or otherwise dispose of
any part of their present holdings of stock in said John R. Edgar & Co. Inc., till
after 1 year from the date hereof and that Either party violating this
agreement shall pay P1000.00 as liquidated damages, unless previous
consent in writing to such sale, transfer, or other disposition be obtained.
Notwithstanding this contract, Fox sold his stock in the said corporation
to E. C. McCullough of the firm of E. C. McCullough & Co. of Manila, a strong
competitor of the said John R. Edgar & Co., Inc. This sale was made by the
defendant against the protest of the plaintiff and with the warning that he
would be held liable under the contract hereinabove set forth and in
accordance with its terms. In fact, the defendant Foz offered to sell his shares

Page 224 of 1072

of stock to the plaintiff for the same sum that McCullough was paying them
less P1,000, the penalty specified in the contract.
ISSUE/S:
Whether or not the suspension of the power to sell the stock is valid
and legal.
RULING:
In this jurisdiction penalties provided in contracts of this character are
enforced . It is the rule that parties who are competent to contract may make
such agreements within the limitations of the law and public policy as they
desire, and that the courts will enforce them according to their terms. (Civil
Code, articles 1152, 1153, 1154, and 1155; Fornow vs. Hoffmeister, 6 Phil.
Rep., 33; Palacios vs. Municipality of Cavite, 12 Phil. Rep., 140; Gsell vs.
Koch, 16 Phil. Rep., 1.) The only case recognized by the Civil Code in which
the court is authorized to intervene for the purpose of reducing a penalty
stipulated in the contract is when the principal obligation has been partly or
irregularly fulfilled and the court can see that the person demanding the
penalty has received the benefit of such or irregular performance. In such
case the court is authorized to reduce the penalty to the extent of the
benefits received by the party enforcing the penalty.
In this jurisdiction, there is no difference between a penalty and
liquidated damages, so far as legal results are concerned. Whatever
differences exists between them as a matter of language, they are treated
the same legally. In either case the party to whom payment is to be made is
entitled to recover the sum stipulated without the necessity of proving
damages. Indeed one of the primary purposes in fixing a penalty or in
liquidating damages, is to avoid such necessity.
It is also urged by the appelle in this case that the stipulation in the
contract suspending the power to sell the stock referred to therein is an
illegal stipulation, is in restraint of trade and, therefore, offends public policy.
We do not so regard it. The suspension of the power to sell has a beneficial
purpose, results in the protection of the corporation as well as of the
individual parties to the contract, and is reasonable as to the length of time
of the suspension. We do not here undertake to discuss the limitations to the
power to suspend the right of alienation of stock, limiting ourselves to the
statement that the suspension in this particular case is legal and valid.
The judgment is reversed, the case remanded with instructions to
enter a judgment in favor of the plaintiff and against the defendant for
P1,000, with interest; without costs in this instance.

Page 225 of 1072

TOPIC: BOARD OF DIRECTORS HOW VACANCY IS FILLED


VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY
GAMBOA, AMADO M. SANTIAGO, JR., FORTUNATO DEE, AUGUSTO
SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS III, ERIC ROXAS, in
their capacities as members of the Board of Directors of Valle Verde
Country Club, Inc., and JOSE RAMIREZ, Petitioners,
vs.
VICTOR AFRICA, Respondent.
G.R. NO. 151969, SEPTEMBER 4, 2009
FACTS:
On February 27, 1996, during the Annual Stockholders Meeting of
petitioner Valle Verde Country Club, Inc. (VVCC), the following were elected
as members of the VVCC Board of Directors: Ernesto Villaluna, Jaime C.
Dinglasan, Eduardo Makalintal, Francisco Ortigas III, Victor Salta, Amado M.
Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa. In the years
1997, 1998, 1999, 2000, and 2001, however, the requisite quorum for the
holding of the stockholders meeting could not be obtained. Consequently,
the above-named directors continued to serve in the VVCC Board in a holdover capacity.
On September 1, 1998, Dinglasan resigned as member of the VVCC
Board. In a meeting held on October 6, 1998, the remaining directors, still
constituting a quorum of VVCCs nine-member board, elected Eric Roxas to
fill in the vacancy created by the Dinglasans resignation.

Page 226 of 1072

A year later, Makalintal also resigned as member of the VVCC Board.


He was replaced by Jose Ramirez, who was elected by the remaining
members of the VVCC Board on March 6, 2001.
Respondent Africa, a member of VVCC, questioned the election of
Roxas and Ramirez as members of the VVCC Board with the SEC and the RTC,
respectively on the grounds that the election of Roxas was contrary to
Section 29 of the Corporation Code and that Makalintals term as well as
those of the other members of the WCC board has already expired. Thus,
according to Africa, the resulting vacancy should have been filled by the
stockholders in a regular or special meeting called for that purpose, and not
by the remaining members of the VVCC Board, as was done in this case.
ISSUE/S:
Whether or not the election of Roxas and Makalintal to the VVCC
Board is valid.
RULING:
While the Court in El Hogar approved of the practice of the directors to
fill vacancies in the directorate, we point out that this ruling was made
before the present Corporation Code was enacted and before its Section 29
limited the instances when the remaining directors can fill in vacancies in the
board, i.e., when the remaining directors still constitute a quorum and when
the vacancy is caused for reasons other than by removal by the stockholders
or by expiration of the term.
It also bears noting that the vacancy referred to in Section 29
contemplates a vacancy occurring within the directors term of office. When
a vacancy is created by the expiration of a term, logically, there is no more
unexpired term to speak of. Hence, Section 29 declares that it shall be the
corporations stockholders who shall possess the authority to fill in a vacancy
caused by the expiration of a members term.
As correctly pointed out by the RTC, when remaining members of the
VVCC Board elected Ramirez to replace Makalintal, there was no more
unexpired term to speak of, as Makalintals one-year term had already
expired. Pursuant to law, the authority to fill in the vacancy caused by
Makalintals leaving lies with the VVCCs stockholders, not the remaining
members of its board of directors.

Page 227 of 1072

TOPIC: BOARD OF DIRECTORS HOW COMPENSATED


GABRIEL C. SINGSON, ANDRE NAVATO, EDGARDO P. ZIALCITA,
ARACELI E. VILLANUEVA, TYRONE M. REYES, JOSE CLEMENTE, JR.,
FEDERICO PASCUAL, ALEJANDRA C. CLEMENTE, ALBERT P. FENIX, JR.,
and MELPIN A. GONZAGA, Petitioners,
vs.
COMMISSION ON AUDIT, Respondent.
G.R. No. 159355, August 9, 2010
FACTS:
The Philippine International Convention Center, Inc. (PICCI) is a
government corporation whose sole stockholder is the Bangko Sentral ng
Pilipinas (BSP). Petitioner Araceli E. Villanueva was then a member of the
PICCI Board of Directors and Officer-in-Charge (OIC) of PICCI, while her copetitioners were then members of the PICCI Board of Directors and officials of
the BSP. By virtue of the PICCI By-Laws, petitioners were authorized to
receive P1,000.00 per diem each for every meeting attended. Pursuant to its
Monetary Board (MB) Resolution No. 15 dated January 5, 1994, as amended,
the BSP MB granted additional monthly RATA, in the amount of P1,500.00, to
each of the petitioners, as members of the Board of Directors of PICCI.
On June 7, 1999, then the PICCI Corporate Auditor issued a Notice of
Disallowance to Villanueva, disallowing in audit the payment of petitioners
RATA in the total amount of P1,565,000.00, and directing them to settle
immediately the said disallowances, on the ground of double compensation

Page 228 of 1072

due to the fact that they are already receiving compensation as officers of
the BSP which is contrary to law.
The petitioners filed a Motion for Reconsideration before the Corporate
Auditor but the same was denied. The said disallowance was subsequently
affirmed by COA.
ISSUE/S:
Whether or not respondent COA committed grave abuse of
discretion in finding that the petitioners violated its by-laws when
section 30 of the corporation code authorizes the stockholders to
grant compensation to its directors.
RULING:
Section 30 of the Corporation Code, which authorizes the stockholders
to grant compensation to its directors, states:
Sec. 30.Compensation of Directors. In the absence of any
provision in the by-laws fixing their compensation, the directors
shall not receive any compensation, as such directors, except for
reasonable per diems; Provided, however, that any such
compensation (other than per diems) may be granted to
directors by the vote of the stockholders representing at least a
majority of the outstanding capital stock at a regular or special
stockholders meeting.
In no case shall the total yearly
compensation of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the corporation
during the preceding year.
In construing the said provision, it bears stressing that the directors of
a corporation shall not receive any compensation for being members of the
board of directors, except for reasonable per diems. The two instances
where the directors are to be entitled to compensation shall be when it is
fixed by the corporations by-laws or when the stockholders, representing at
least a majority of the outstanding capital stock, vote to grant the same at a
regular or special stockholders meeting, subject to the qualification that, in
any of the two situations, the total yearly compensation of directors, as such
directors, shall in no case exceed ten (10%) percent of the net income before
income tax of the corporation during the preceding year.
Section 8 of the Amended By-Laws of PICCI, in consonance with Section
30 of the Corporation Code, restricted the scope of petitioners compensation
by fixing their per diem at P1,000.00.

Page 229 of 1072

MB Resolution No. 15, dated January 5, 1994, as amended by MB


Resolution No. 34, dated January 12, 1994, are valid corporate acts of
petitioners that became the bases for granting them additional monthly RATA
of P1,500.00, as members of the Board of Directors of PICCI. The RATA is
distinct from salary (as a form of compensation). Unlike salary which is paid
for services rendered, the RATA is a form of allowance intended to defray
expenses deemed unavoidable in the discharge of office. Hence, the RATA is
paid only to certain officials who, by the nature of their offices, incur
representation and transportation expenses. Indeed, aside from the RATA
that they have been receiving from the BSP, the grant of P1,500.00 RATA to
each of the petitioners for every board meeting they attended, in their
capacity as members of the Board of Directors of PICCI, in addition to their
P1,000.00 per diem, does not run afoul the constitutional proscription
against double compensation.TOPIC: BOARD OF DIRECTORS HOW
COMPENSATED
WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS,
DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F. VILLASIS,
petitioner,
vs.
RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA,
ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE PORFIRIO
PARIAN, respondents.
G.R. No. 113032. August 21, 1997
278 SCRA 216
FACTS:
Private respondents, belonging to the same family, are the majority
and controlling members of the Board of Trustees of Western Institute of
Technology, Inc. In a board meeting, the Board of Trustees passed Resolution
No. 48, s. 1986, granting monthly compensation to the private respondents
as corporate officers.
On March 13, 1991, petitioners Homero Villasis, Prestod Villasis,
Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against
private respondents before the Office of the City Prosecutor of Iloilo, as a
result of which two (2) separate criminal informations, one for falsification of
a public document and the other for estafa. The charge for falsification of
public document was anchored on the private respondents' submission of
WIT's income statement for the fiscal year 1985-1986 with the Securities and
Exchange Commission (SEC) reflecting therein the disbursement of corporate
funds for the compensation of private respondents based on Resolution No.
4, series of 1986, making it appear that the same was passed by the board
on March 30, 1986, when in truth, the same was actually passed on June 1,
1986, a date not covered by the corporation's fiscal year 1985-1986
(beginning May 1, 1985 and ending April 30, 1986). The respondents were

Page 230 of 1072

acquitted of both charges, without the imposition of any civil liability against
them. Thus, Petitioners filed a Motion for Reconsideration of the civil aspect
of the case, but was denied.
ISSUE/S:
Whether or not the said resolution granting monthly compensation
to the private respondents as corporate officers is valid.
RULING:
The pertinent section of the Corporation Code provides:
Sec. 30. Compensation of directors.--- In the absence of any
provision in the by-laws fixing their compensation, the directors
shall not receive any compensation, assuch directors, except for
reasonable per diems: Provided, however, That any such
compensation (other than per diems) may be granted to
directors by the vote of the stockholders representing at least a
majority of the outstanding capital stock at a regular or special
stockholders meeting.
In no case shall the total yearly
compensation of directors, as such directors, exceed ten(10%)
percent of the net income before income tax of the corporation
during the preceding year.
There is no argument that directors or trustees, as the case may be,
are not entitled to salary or other compensation when they perform nothing
more than the usual and ordinary duties of their office. This rule is founded
upon a presumption that directors /trustees render service gratuitously and
that the return upon their shares adequately furnishes the motives for
service, without compensation Under the foregoing section, there are only
two (2) ways by which members of the board can be granted compensation
apart from reasonable per diems:
1. when there is a provision in the by-laws fixing their
compensation; and
2. when the stockholders representing a majority of the
outstanding capital stock at a regular or special
stockholders meeting agree to give it to them.
This proscription, however, against granting compensation to
directors/trustees of a corporation is not a sweeping rule. Worthy of note is
the clear phraseology of Section 30 which states: xxx The directors shall not
receive any compensation, as such directors, xxx. The phrase as such
directors is not without significance for it delimits the scope of the prohibition
to compensation given to them for services performed purely in their
capacity as directors or trustees. The unambiguous implication is that
members of the board may receive compensation, in addition to reasonable
per diems, when they render services to the corporation in a capacity other
than as directors/trustees. In the case at bench, Resolution No. 48, s. 1986
granted monthly compensation to private respondents not in their capacity

Page 231 of 1072

as members of the board, but rather as officers of the corporation, more


particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western
Institute of Technology.
Clearly, therefore, the prohibition with respect to granting
compensation to corporate directors/trustees as such under Section 30 is not
violated in this particular case. Consequently, the last sentence of Section
30 which provides:
xxx xxx. In no case shall the total yearly compensation of
directors, as such directors, exceed ten (10%) percent of the net
income before income tax of the corporation during the
preceding year. does not likewise find application in this case
since the compensation is being given to private respondents in
their capacity as officers of WIT and not as board members.

TOPIC: BOARD OF DIRECTORS HOW COMPENSATED


CENTRAL COOPERATIVE EXCHANGE, INC.
VS.
CONCORDIO TIBE, SR. and THE HONORABLE COURT OF APPEALS
G.R. No. L-27972, June 30, 1970
33 SCRA 593
FACTS:
The petitioner is a national federation of farmers' cooperative
marketing associations, or FACOMAS, scattered throughout the country; its
single majority stockholder is the former Agricultural Credit and Cooperative
Financing Administration (ACCFA), now Agricultural Credit Administration
(ACA). As a member of the petitioner's board of directors from 23 May 1958
to 26 May 1960, representing FACOMAS in Eastern Visayas, respondent
Concordio Tibe, Sr. drew and collected from petitioner CCE cash advances
amounting to P5,668.00; of this sum, respondent had, admittedly, already
liquidated P3,317.25, leaving the sum of P2,350.75 still to be accounted for.
By admission of the petitioner the sum of P2,350.75 has been further
reduced to P2,133.45 as of 31 January 1963 on account of partial payments
made after suit was filed (Petitioner's Brief, page 17). Respondent Tibe had
also drawn several sums, amounting to P14,436.95, representing
commutable per diems for attending meetings of the Board of Directors in
Manila, per diems and transportation expenses for FACOMA visitations,
representation expenses and commutable discretionary funds. All of these
disbursements were based upon several resolutions adopted by CCEs Board

Page 232 of 1072

of Directors and these sums were disbursed with the approval of general
manager, treasurer and auditor of CCE.
ISSUE/S:
Whether or not the board of directors of the CCE had the power and
authority to adopt various resolutions which appropriated the funds
of the corporation for the above-enumerated expenses for the
members of the said board.
RULING:
Section 8 of the By-Laws of petitioner federation provides:
The compensation, if any, and the per diems for
attendance at meetings of the members of the Board of
Directors shall be determined by the members at any
annual meeting or special meeting of the Exchange called
for the purpose.
The Supreme Court agrees with the petitioner that the questioned
resolutions are contrary to the By-Laws of the federation and, therefore, are
not within the power of the board of directors to enact. The By-Laws, in the
aforequoted Section 8, explicitly reserved unto the stockholders the power to
determine the compensation of members of the board of directors, and the
stockholders did restrict such compensation to "actual transportation
expenses plus the per diems of P30.00 and actual expenses while waiting."
Even without the express reservation of said power, the directors are not
entitled to compensation, for
... The law is well-settled that directors of corporations
presumptively serve without compensation and in the absence of
an express agreement or a resolution in relation thereto, no
claim can be asserted therefore (Sec. 2110, 5 Fletcher 375-376).
Thus it has been held that there can be no recovery of
compensation, unless expressly provided for, when a director
serves as president or vice president, as secretary, as treasurer
or cashier, as a member of an executive committee, as chairman
of a building committee, or similar offices (Sec. 2112, 5, Fletcher
381-382). (Alvendia, The Law of Private Corporations in the
Philippines, pages 275-276)
Thus, the directors, in assigning themselves additional duties, such as
the visitation of FACOMAS, acted within their power, but, by voting for
themselves compensation for such additional duties, they acted in excess of
their authority, as expressed in the By-Laws.

Page 233 of 1072

TOPIC: BOARD OF DIRECTORS HOW COMPENSATED


LINGAYEN GULF ELECTRIC POWER COMPANY, INC.
VS.
IRINEO BALTAZAR
G.R. NO. L-4824, June 30, 1953
93 Phil 404
FACTS:
Lingayen Gulf Electric Power Company is a domestic corporation with
an authorized capital stock of P300, 000 divided into 3,000 shares with a par
value of P100 per share to which the defendant, Irineo Baltazar appears to
have subscribed for 600 shares on account of which he had paid upon the
organization of the corporation the sum of P15,000. After incorporation, the
defendant made further payments on account of his subscription, leaving a
balance of P18,500 unpaid for.
On September 28, 1949, the legal counsel of the plaintiff corporation
wrote a letter to the defendant, demanding the payment of the unpaid
balance of his subscription amounting to P18,500. Copy of this letter was
sent by registered mail to the defendant on September 29,1 949. The
defendant ignored the said demand. Thus, Lingayen instituted a civil suit
against Baltazar for collection of sum of money. Defendant on the other
hand, included in his answer a counterclaim against Lingayen claiming from
the plaintiff a reasonable compensation at the rate of P700 per month as

Page 234 of 1072

president of the company, for the period from March 1, 1946 to December
31, 1948.
ISSUE/S:
Whether or not the defendant is entitled to compensation as
president of the plaintiff corporation.
RULING:
No.
As regards the compensation of President claimed by defendant and
appellant, it is clear that he is not entitled to the same. The by-laws of the
company are silent as to the salary of the President. And, while resolutions of
the incorporators and stockholders provide salaries for the general manager,
secretary-treasurer and other employees, there was no provision for the
salary of the President. On the other hand, other resolutions provide for per
diems to be paid to the President and the directors of each meeting
attended, P10 for the President and P8 for each director, which were later
increased to P25 and P15, respectively. This leads to the conclusions that the
President and the board of directors were expected to serve without salary,
and that the per diems paid to them were sufficient compensation for their
services. Furthermore, for defendant's several years of service as President
and up to the filing of the action against him, he never filed a claim for
salary. He thought of claiming it only when this suit was brought against him.

Page 235 of 1072

TOPIC: AUTHORITY OF THE BOARD OF DIRECTORS


LA BUGAL-BLAAN TRIBAL ASSOCIATION, INC. et al.
vs.
VICTOR O. RAMOS, Secretary, Department of Environment and
Natural Resources (DENR), et al.
G.R. No. 127882
December 1, 2004
FACTS:
RA 7942 (The Philippine Mining Act) took effect on April 9, 1995.
Before the effectivity of RA 7942, or on March 30, 1995, the President signed
a Financial and Technical Assistance Agreement (FTAA) with WMCP, a
corporation organized under Philippine laws, covering close to 100, 000
hectares of land in South Cotabato, Sultan Kudarat, Davao del Sur and North
Cotabato.
On August 15, 1995, the DENR Secretary Victor Ramos issued DENR
Administrative Order 95-23, which was later repealed by DENR
Administrative Order 96-40, adopted on December 20, 1996.
Petitioners prayed that RA 7942, its implementing rules, and the FTAA
between the government and WMCP be declared unconstitutional on ground
that they allow fully foreign owned corporations like WMCP to exploit, explore
and develop Philippine mineral resources in contravention of Article XII
Section 2 paragraphs 2 and 4 of the Charter.

Page 236 of 1072

In January 2001, WMC a publicly listed Australian mining and


exploration company sold its whole stake in WMCP to Sagittarius Mines,
60% of which is owned by Filipinos while 40% of which is owned by Indophil
Resources, an Australian company. DENR approved the transfer and
registration of the FTAA in Sagittarius name but Lepanto Consolidated
assailed the same. The latter case is still pending before the Court of
Appeals.
WMCP then points out that the original claim owners of the major
mineralized areas included in the WMCP FTAA, namely, Sagittarius,
Tampakan Mining Corporation, and Southcot Mining Corporation, are all
Filipino-owned corporations, each of which was a holder of an approved
Mineral Production Sharing Agreement awarded in 1994, albeit their
respective mineral claims were subsumed in the WMCP FTAA; and that these
three companies are the same companies that consolidated their interests in
Sagittarius to whom WMC sold its 100% equity in WMCP. WMCP concludes
that in the event that the FTAA is invalidated, the MPSAs of the three
corporations would be revived and the mineral claims would revert to their
original claimants.
ISSUE/S:
Whether or not the sale of the shares of stocks of WMC to
Sagittarius is valid.
RULING:
Yes.
Section 40 expressly applies to the assignment or transfer of the FTAA,
not to the sale and transfer of shares of stock in WMCP as contended by the
petitioners.
Moreover,
when
the
transferee
of
an
FTAA
is
another foreign corporation, there is a logical application of the requirement
of prior approval by the President of the Republic and notification to
Congress in the event of assignment or transfer of an FTAA. In this situation,
such approval and notification are appropriate safeguards, considering that
the new contractor is the subject of a foreign government.
On the other hand, when the transferee of the FTAA happens to be
a Filipino corporation, the need for such safeguard is not critical; hence, the
lack of prior approval and notification may not be deemed fatal as to render
the transfer invalid. In this case, since the transfer was made in favor of a
Filipino corporation, prior approval by the President and notification to
Congress is not really required.

Page 237 of 1072

TOPIC: AUTHORITY OF THE BOARD OF DIRECTORS


SHIPSIDE INCORPORATED
vs.
THE HON. COURT OF APPEALS [Special Former Twelfth Division],
HON. REGIONAL TRIAL COURT, BRANCH 26 (San Fernando City, La
Union) & The REPUBLIC OF THE PHILIPPINES
GR 143377
February 20, 2001
352 SCRA 334
FACTS:
The petitioner filed a certiorari with the CA containing the requisite
certification on non-forum shopping. However, the CA dismissed the petition
on the ground that Lorenzo Balbin, the resident manager for petitioner, who
was the signatory in the verification and certification on non-forum shopping,
failed to show proof that he was authorized by the petitioners board of
directors to file such a petition. The petitioner submits a motion for
reconsideration which attached a secretarys certificate attesting to the
signatorys authority to sign certificates against forum shopping on behalf of
the petitioner. When the court of CA denied the motion, the petitioner sought
relief with the SC.
ISSUE/S:
Whether or not an authorization from petitioners Board of Directors
is still required in order for its resident manager to institute or
commence a legal action for and in behalf of the corporation.

Page 238 of 1072

RULING:
No.
The SC revised the decision of CA recognizing the belated filing of the
certifications against forum shopping as permitted in exceptional
circumstances. It further held that with more reason should a petition be
given due course when this incorporates a certification on non-forum
shopping without evidence that the person signing the certifications was an
authorized signatory and the petitioner subsequently submits a secretarys
certificate attesting to the signatorys authority in its motion for
consideration. The court allows belated submission of certifications showing
proof of the signatorys authority in signing the certification of forum
shopping.
In the instant case, the merits of petitioners case should be considered
special circumstances or compelling reasons that justify tempering the
requirement in regard to the certificate of non-forum shopping. Moreover,
in Loyola, Roadway, and Uy, the Court excused non-compliance with the
requirement as to the certificate of non-forum shopping. With more reason
should we allow the instant petition since petitioner herein did submit a
certification on non-forum shopping, failing only to show proof that the
signatory was authorized to do so. That petitioner subsequently submitted a
secretarys certificate attesting that Balbin was authorized to file an action
on behalf of petitioner likewise mitigates this oversight.

Page 239 of 1072

TOPIC: AUTHORITY OF THE BOARD OF DIRECTORS


ABS-CBN BROADCASTING CORPORATION
vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP,
VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO
G.R. No. 128690
January 21, 1999
301 SCRA 572
FACTS:
In
1990, ABS-CBN
and Viva
executed
a Film
Exhibition Agreement whereby ABS-CBN was given the right of first refusal to
the next twenty-four (24) Viva films for TV telecast under such terms as may
be agreed upon by the parties hereto, provided, however, that such right
shall be exercised by ABS-CBN from the actual offer in writing. Consequently,
Viva, through defendant Del Rosario, offered ABS-CBN, through its vicepresident Charo Santos-Concio, a list of three(3) film packages (36 titles)
from which ABS-CBN may exercise its right of first refusal under the aforesaid agreement. ABS CBN rejected said list.
On February 27, 1992, Del Rosario approached Ms. Concio, with
a list consisting of 52 original movie titles, as well as 104 re-runs from which
ABS-CBN may choose another 52 titles, or a total of 156 titles, proposing to
sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs
forP60,000,000.00. The package was rejected by ABS-CBN. On April 06,

Page 240 of 1072

1992, Del Rosario and Mr. Graciano Gozon of RBS discussed the terms and
conditions of Viva's offer to sell the 104 films.
On April 07, 1992, defendant Del Rosario received through his
secretary, a handwritten note from Ms. Concio which reads: "Here's the draft
of the contract. I hope you find everything in order," to which was attached a
draft exhibition agreement, a counter-proposal covering 53 films for a
consideration of P35million. The said counter-proposal was however rejected
by Viva's Board of Directors. On April 29, 1992, Viva granted RBS the
exclusive right to air 104 Viva-produced and/or acquired films including the
fourteen (14) films subject of the present case.
ABS-CBN then filed a complaint for specific performance. RTC rendered
a decision in favor of RBS and VIVA and against ABS-CBN, ruling that there
was no meeting of minds on the price and terms of the offer. Furthermore,
the right of first refusal under the 1990 Film Exhibition Agreement had
previously been exercised per Ms. Concio's letter to Del Rosario ticking off
ten titles acceptable to them, which would have made the 1992 agreement
an entirely new contract. The Court of Appeals affirmed the decision of the
RTC.
ISSUE/S:
Whether or not there was no perfected contract between petitioner
and private respondent.
RULING:
No.
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the
Tamarind Grill on 2 April 1992to discuss the package of films, said package of
104 VIVA films was VIVAs offer to ABS-CBN to enter into a new Film
Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counterproposal in the form of a draft contract proposing exhibition of 53 films for a
consideration of P35 million. This counter-proposal could be nothing less than
the counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVAs offer,
for it was met by a counter-offer which substantially varied the terms of the
offer. Even if it be concededarguendo that Del Rosario had accepted the
counter-offer, the acceptance did not bind VIVA, as there was no proof
whatsoever that Del Rosario had the specific authority to do so. That Del
Rosario did not have the authority to accept ABS-CBNs counter-offer was
best evidenced by his submission of the draft contract to VIVAs Board of
Directors for the latters approval. In any event, there was between Del
Rosario and Lopez III no meeting of minds.

Page 241 of 1072

TOPIC: AUTHORITY OF THE BOARD OF DIRECTORS


ASSET PRIVATIZATION TRUST
vs.
COURT OF APPEALS et al.
G.R. No. 121171. December 29, 1998
FACTS:
The development, exploration and utilization of the mineral deposits in
the Surigao Mineral Reservation have been authorized by RA No. 1828, as
amended by RAs No. 2077 and 4167, by virtue of which laws, a MOA was
drawn on July 3, 1968, whereby the Republic thru the Surigao Mineral
Reservation Board, granted MMIC the exclusive right to explore, develop and
exploit minerals in the Surigao Mineral Reservation.
The Philippine Government undertook to support the financing of MMIC
by purchase of MMIC debenture and extension of guarantees. DBP approved
guarantees in favor of MMIC and subsequent requests for guarantees were
based on the unutilized portion of the Government commitment. Thereafter,
the Government extended accommodations to MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust
Agreement whereby MMIC, as mortgagor, agreed to constitute a mortgage in
favor of PNB and DBP as mortgagees, over all MMICs assets, subject of real

Page 242 of 1072

estate and chattel mortgage executed by the mortgagor, and additional


assets described and identified, including assets of whatever kind, nature or
description.
By 1984, MMIC was having a difficult time meeting its financial
obligations. Thus, a financial restructuring plan (FRP) designed to reduce
MMIC's interest expense through debt conversion to equity was drafted by
the Sycip Gorres Velayo accounting firm. On April 30, 1984, the FRP was
approved by the Board of Directors of the MMIC. However, the proposed FRP
had never been formally adopted, approved or ratified by either PNB or DBP.
However, the as the loans remained unpaid, the DBP and PNB
extrajudicially foreclosed the mortgage. The foreclosed assets were then
transferred to Asset Privatization Trust (APT). Actions for the Annulment of
Foreclosures, Specific Performance and Damages were then filed by MMIC
against DBP and PNB. The case was submitted for arbitration, but was failed,
hence, a petition before the SC was filed.

ISSUE/S:
Whether or not the Financial Restructuring Plan (FRP) which was
approved by the Board of Directors of the MMIC is valid and thus the
foreclosure was not justified.
RULING:
No.
PNB and DBP had the legitimate right to foreclose the mortgages of
MMIC whose obligations were past due. There was no financial restructuring
agreement to speak of that could have constituted an impediment to the
exercise of the banks right to foreclose. As correctly stated by Mr. Jose C.
Sison, a member of the Arbitration Committee who wrote a separate opinion:
(1) the various loans and advances made by DBP and PNB to
MMIC have become overdue and remain unpaid. The fact that a
FRP was drawn up is enough to establish that MMIC has not been
complying with the terms of the loan agreement. Restructuring
simply connotes that the obligations are past due that is why it is
restructurable;
(2) When MMIC thru its board and the stockholders agreed and
adopted the FRP, it only means that MMIC had been informed or

Page 243 of 1072

notified that its obligations were past due and that foreclosure is
forthcoming; xxx
Moreover, PNB and DBP had to initiate foreclosure proceedings as
mandated by P.D. No. 385, which took effect on January 31, 1974. The
decree requires government financial institutions to foreclose collaterals for
loans where the arrearages amount to 20% of the total outstanding
obligations.

TOPIC: AUTHORITY OF THE BOARD OF DIRECTORS


BA SAVINGS BANK, petitioner,
vs.
ROGER T. SIA, TACIANA U. SIA and JOHN DOE, respondents.
G.R. No. 131214
July 27, 2000
336 SCRA 484
FACTS:
The Court of Appeals issued a Resolution denying due course a Petition
for Certiorari filed by BA Savings Bank, on the ground that the Certification
on anti-forum shopping incorporated in the petition was signed not by the
duly authorized representative of the petitioner, as required under Supreme
Court Circular 28-91 but by its counsel, in contravention of said circular.
A Motion for Reconsideration was filed by petitioner, attached to it was
a BA Savings Bank Corporate Secretarys Certificate. The Certificate showed
that the petitioners Board of directors approved a resolution authorizing the
petitioners lawyers to represent it in any action or proceeding before any
court, tribunal or agency; and to sign the Certificate of Non-forum Shopping,
among others. The MR was denied by the Court of Appeals on the ground
that Supreme Court Revised Circular No. 28-91 requires that it is the

Page 244 of 1072

petitioner, not the counsel, who must certify under oath to all of the facts
and undertakings required therein.
ISSUE/S:
Whether or not the Supreme Court Revised Circular No. 28-91 allows
a corporation to authorize its counsel to execute a certificate of nonforum shopping in its behalf.
RULING:
Yes.
A corporation, such as the petitioner, has no powers except those
expressly conferred on it by the Corporation Code and those that are implied
by or are incidental to its existence. In turn, a corporation exercises said
powers through its board of directors and/or its duly authorized officers and
agents. Physical acts, like the signing of documents, can be performed only
by natural persons duly authorized for the purpose by corporate bylaws or by
a specific act of the board of directors. All acts within the powers of a
corporation may be performed by agents of its selection; and, except so far
as limitations or restrictions which may be imposed by special charter, bylaw, or statutory provisions, the same general principles of law which govern
the relation of agency for a natural person govern the officer or agent of a
corporation, of whatever status or rank, in respect to his power to act for the
corporation; and agents once appointed, or members acting in their stead,
are subject to the same rules, liabilities and incapacities as are agents of
individuals and private persons.
In the present case, the corporations board of directors issued a
Resolution specifically authorizing its lawyers to act as their agents in any
action or proceeding before the Supreme Court, the Court of Appeals, or any
other tribunal or agency; and to sign, execute and deliver in connection
therewith the necessary pleadings, motions, verification, affidavit of merit,
certificate of non-forum shopping and other instruments necessary for such
action and proceeding.
The resolution of the Board of Directors was sufficient to vest
petitioners lawyers with authority to bind the corporation and was specific
enough as to the acts they were empowered to do. In the case of natural
persons, Circular 28-91 requires the parties themselves to sign the certificate
of non-forum shopping. However, such requirement cannot be imposed on
artificial persons, like corporations, for the reason that they cannot do the
task themselves. Corporations act only through their officers and duly
authorized agents. The Circular does not require corporate officers to sign

Page 245 of 1072

the certificate. Further, there is no prohibition against authorizing agents to


do so.

TOPIC: AUTHORITY OF BOARD OF DIRECTORS


ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants,
vs.
BACOLOD-MURCIA MILLING CO., INC., defendant-appellee.
G.R. No. L-15092. May 18, 1962
5 SCRA 36
FACTS:
Plaintiffs-appellants, Alfredo Montelibano, Alejandro Montelibano, and
the Limited co-partnership Gonzaga and Company, had been and are sugar
planters adhered to the defendant-appellee's sugar central mill under
identical milling contracts. Originally executed in 1919, said contracts were
stipulated to be in force for 30 years starting with the 1920-21 crops, and
provided that the resulting product should be divided in the ratio of 45% for
the mill and 55% for the planters. Sometime in 1936, it was proposed to
execute amended milling contracts, increasing the planters' share to 60% of
the manufactured sugar and resulting molasses, besides other concessions,
but extending the operation of the milling contract from the original 30 years
to 45 years. To this effect, a printed Amended Milling Contract form was
drawn up. On August 20, 1936, the Board of Directors of the appellee

Page 246 of 1072

Bacolod-Murcia Milling Co., Inc., adopted a resolution granting further


concessions to the planters over and above those contained in the printed
Amended Milling Contract.
Appellants signed and executed the printed Amended Milling Contract
on September 10, 1936, but a copy of the resolution of August 10, 1936,
signed by the Central's General Manager, was not attached to the printed
contract until April 17, 1937.
In 1953, the appellants initiated the present action, contending that
three Negros sugar centrals (La Carlota, Binalbagan-Isabela and San Carlos),
with a total annual production exceeding one-third of the production of all
the sugar central mills in the province, had already granted increased
participation (of 62.5%) to their planters, and that under paragraph 9 of the
resolution of August 20, 1936, heretofore quoted, the appellee had become
obligated to grant similar concessions to the plaintiffs (appellants herein).
ISSUE/S:
Whether of not the stipulations contained in the resolution were
made without consideration; that the resolution in question was,
therefore, null and void ab initio, being in effect a donation that was
ultra vires and beyond the powers of the corporate directors to
adopt.
RULING:
1. The terms embodied in the resolution of August 20, 1936 were
supported by the same causa or consideration underlying the main
amended milling contract; i.e., the promises and obligations
undertaken thereunder by the planters, and, particularly, the
extension of its operative period for an additional 15 years over and
beyond the 30 years stipulated in the original contract. Hence, the
conclusion of the court below that the resolution constituted
gratuitous concessions not supported by any consideration is legally
untenable.
2. There can be no doubt that the directors of the appellee company
had authority to modify the proposed terms of the Amended Milling
Contract for the purpose of making its terms more acceptable to the
other contracting parties.
The rule is that
It is a question, therefore, in each case of the logical
relation of the act to the corporate purpose expressed in
the charter. If that act is one which is lawful in itself, and
not otherwise prohibited, is done for the purpose of serving

Page 247 of 1072

corporate ends, and is reasonably tributary to the


promotion of those ends, in a substantial, and not in a
remote and fanciful sense, it may fairly be considered
within charter powers. The test to be applied is whether
the act in question is in direct and immediate furtherance
of the corporation's business, fairly incident to the express
powers and reasonably necessary to their exercise. If so,
the corporation has the power to do it; otherwise, not.
(Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266-268)

3. As the resolution in question was passed in good faith by the board


of directors, it is valid and binding, and whether or not it will cause
losses or decrease the profits of the central, the court has no
authority to review them.
They hold such office charged with the duty to act for the
corporation according to their best judgment, and in so
doing they cannot be controlled in the reasonable exercise
and performance of such duty. Whether the business of a
corporation should be operated at a loss during depression,
or close down at a smaller loss, is a purely business and
economic problem to be determined by the directors of the
corporation and not by the court. It is a well-known rule of
law that questions of policy or of management are left
solely to the honest decision of officers and directors of a
corporation, and the court is without authority to substitute
its judgment of the board of directors; the board is the
business manager of the corporation, and so long as it acts
in good faith its orders are not reviewable by the courts.
(Fletcher on Corporations, Vol. 2, p. 390).

Page 248 of 1072

TOPIC: AUTHORITY OF BOARD OF DIRECTORS


ANTHONY POWERS,et. al., plaintiffs-appellants,
vs.
DONALD I. MARSHALL,et. al., defendants-appellees.
G.R. No. L-48064. May 9, 1988
FACTS:
On July 16, 1975, plaintiffs, all associate members of the International
School, Inc., filed an action for injunction in the CFI of Rizal, against the ten
(10) members of the Board of Trustees of the school. The suit was
precipitated by a letter dated May 19, 1975 which Donald I. Marshall,
president of the Board of Trustees of the International School in Makati,
Metro-Manila, addressed to the parents of the students, giving notice that
the Board of Trustees had decided to embark on a program to construct new
buildings and remodel existing ones to accommodate the increasing
enrollment in the school, and that it was necessary for the school to raise
P35,000,000.00 for this purpose. The Board intended to raise the needed
funds primarily through subscriptions to capital notes and prepayment
certificates, and any deficiency from these sources would be covered by

Page 249 of 1072

collecting a so-called "development fee" of P2,625 from each enrollee


starting with the school year 1975-1976 and continuing up to the school year
1986-1987.
The school superintendent, Dr. Max Snyder, acting under instructions
from the Board of Trustees, wrote a letter to the parents of returning
students, enclosing an Application for Admission which specifically advised
that the payment of the development fee was a pre-requisite for reenrollment.
The plaintiffs protested against the imposition of the development fee.
On June 18, 1975 they requested the Board of Trustees to suspend the
implementation of the requirement of payment. On July 16, 1975 the
plaintiffs filed a complaint for injunction against the school. On July 17, 1975,
the trial court issued an order temporarily restraining the defendants or their
authorized representatives and agents from executing and/or enforcing the
development program.The Court dismissed the complaint for lack of valid
cause of action, and dissolved the restraining order of July 17, 1975. Plaintiffs
appealed to CA.
ISSUE/S:
Whether the Board of Trustees of the International School was
authorized to adopt the development plan for which the disputed
fee was being collected from the students.
RULING:
YES.
Section 2 (b) of P.D. No. 732 granting certain rights to the International
School, Inc., expressly authorized the Board of Trustees "upon consultation
with the Secretary of Education and Culture, . . . to determine the amount of
fees and assessments which may be reasonably imposed upon its students,
to maintain or conform to the school standard of education." Such
consultation had been made with the Secretary of Education and Culture who
expressed his conformity with the reasonableness of the assessment of
P2,625.00 per student for the whole school year to carry out its development
program.
Since the collection of the development fee had been approved by the
Board of Trustees of the International School, Inc., it was a valid exercise of
corporate power by the Board, and said assessment was binding upon all the
members of the corporation. Their action to stop the collection of said fee
was correctly dismissed by the trial court for lack of a valid cause of action
against the school.

Page 250 of 1072

TOPIC: AUTHORITY OF BOARD OF DIRECTORS


PREMIUM MARBLE RESOURCES, INC., petitioner,
vs.
THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK,
respondents.
G.R. No. 96551. November 4, 1996
264 SCRA 11
FACTS:
Premium Marbles, assisted by Atty. Dumadag as counsel, filed an
action for damages against International Corporate Bank. The latter, on the
other, alleged the Premium has no capacity/personality/authority to sue in
this instance and the complaint should therefore be dismissed for failure to
state a cause of action.
Meanwhile, the same corporation, Premium, but this time represented
by Siguion Reyna et.al. Law office as counsel, filed a motion to dismiss on the

Page 251 of 1072

ground that the filing of the case was without authority from its duly
constituted board of directors as shown by the excerpt of the minutes of the
Premiums board of directors meeting.
Premium through Atty. Dumadag opposed by contending that the
persons who signed the board resolution, the Belen et al are not directors of
the corporation. On the other, Siguion Reyna Law Office asserted that it is
the general information sheet filed with the SEC that is the best evidence
that would show who are the stockholders of the corporation and not the
Articles of Incorporation since the latter does not keep track of the many
changes that take place after new stockholders subscribe to corporate
shares of stocks.
ISSUE/S:
Whether or not the filing of the case for damages against private
respondent was authorized by a duly constituted Board of Directors
of the petitioner Corporation.
RULING:
Petitioner, through the first set of officers, Mario Zavalla, et al
presented the minutes of the meeting of its Board held on April 1, 1982 as
proof that the filing of the case was authorized by the Board. On the other
hand, the second set of officers, Belen et al presented a resolution dated July
30, 1986, to show that Premium did not authorize the filing in its behalf of
any suit against respondent Bank. However while the Minutes of the meeting
dated April 1, 1982 states that the officers were Zavalla et al, petitioner
failed to show proof that this election was reported with the SEC. In the
absence of any board resolution from its board of directors the authority to
act for and in behalf of the corporation, the present action must fail. The
power of the corporation to sue and be sued in any court is lodged with the
board of directors that exercises its corporate powers.
The claimed therefore of petitioners as represented by Atty. Dumadag,
that Zavalla et al are the incumbent officers of Premium has not been fully
substantiated. In the absence of an authority from the board of directors, no
person, not even the officers of the corporation, can validly bind the
corporation.

Page 252 of 1072

TOPIC: AUTHORITY OF BOARD OF DIRECTORS


J. F. RAMIREZ, plaintiff-appellee,
vs.
THE ORIENTALIST CO., and RAMON J. FERNANDEZ, defendantsappellants.
G.R. No. 11897. September 24, 1918
38 PHIL 634
FACTS:
The Orientalist Company is a domestic corporation, was engaged in the
business of maintaining and conducting a theater in the city of Manila for the
exhibition of cinematographic films. The plaintiff J. F. Ramirez was, at the
same time, a resident of the city of Paris, France, and was engaged in the
business of marketing films for a manufacturer or manufacturers, there
engaged in the production or distribution of cinematographic material. The
plaintiff was represented in the city of Manila by his son, Jose Ramirez.

Page 253 of 1072

In July, 1913, negotiations were begun with said officials of the


Orientalist Company by Jose Ramirez, as agent of the plaintiff, for the
purpose of placing the exclusive agency of these films in the hands of the
Orientalist Company. The defendant Ramon J. Fernandez, one of the directors
of the Orientalist Company and also its treasurer, was chiefly active in this
matter.
Near the end of July of the said year, Jose Ramirez, placed in the hands
of Fernandez an offer. Accordingly, Ramon J. Fernandez, on July 30, had an
informal conference with all the members of the company's board of
directors except one, and with the approval of those with whom he had
communicated, addressed a letter to Jose Ramirez, in Manila, accepting the
offer contained in the memorandum for the exclusive agency of the Eclair
films. A few days later, on August 5, he addressed another letter couched in
the same terms, likewise accepting the offer of the exclusive agency for the
Milano films.
Two letters of acceptance were sent by Fernandez to Ramirez. In these
communications it will be noted the separate signature of R. J. Fernandez, as
an individual, is placed somewhat below and to the left of the signature of
the Orientalist Company as signed by R. J. Fernandez, in the capacity of
treasurer.
In due time the films began to arrive in Manila, a draft for the cost and
expenses incident to each shipment being attached to the proper bill of
lading. It appears that the Orientalist Company was without funds to meet
these obligations and the first few drafts were dealt with in the following
manner: The drafts, upon presentment through the bank, were accepted in
the name of the Orientalist Company by its president B. Hernandez, and
were taken by the latter with his own funds. As the drafts had thus been paid
by B. Hernandez, the films which had been procured by the payment of said
drafts were treated by him as his own property; and they in fact never came
into the actual possession of the Orientalist Company as owner at all, though
it is true Hernandez rented the films to the Orientalist Company and they
were exhibited by it in the Oriental Theater under an arrangement which was
made between him and the theater's manager.
During the period between February 27, 1914, and April 30, 1914,
there arrived in the city of Manila several remittances of films from Paris, and
it is these shipments which have given occasion for the present action. All of
the drafts accompanying these films were drawn, as on former occasions,
upon the Orientalist Company; and all were accepted in the name of the
Orientalist Company by its president, B. Hernandez, except the last, which
was accepted by B. Hernandez individually. None of the drafts thus accepted
were taken up by the drawee or by B. Hernandez when they fell due; and it

Page 254 of 1072

was finally necessary for the plaintiff himself to take them up as dishonored
by nonpayment.
Thereupon an action was instituted by the plaintiff on May 19,1914,
against the Orientalist Company, and Ramon J. Fernandez. The court,
appointed a receiver who took charge of the films and sold them. The
amount realized from this sale was applied to the satisfaction of the
plaintiff's claim and was accordingly delivered to him in part payment
thereof. In the judgment of the trial court the Orientalist Company was
declared to be a principal debtor and Ramon J. Fernandez was declared to be
liable subsidiarily as guarantor. From this judgment both of the parties
defendant appealed.
ISSUE/S:
Whether or not trial court correctly declared that the Orientalist
Company was the principal debtor and Ramon J. Fernandez was
liable subsidiarily as guarantor.
RULING:
YES.
Ramon J. Fernandez, as treasurer, had no independent authority to
bind the company by signing its name to the letters in question. It is declared
in section 28 of the Corporation Law that corporate powers shall be
exercised, and all corporate business conducted by the board of directors;
and this principle is recognized in the by-laws of the corporation in question
which contain a provision declaring that the power to make contracts shall
be vested in the board of directors. It is true that it is also declared in the
same by-laws that the president shall have the power, and it shall be his
duty, to sign contracts; but this has reference rather to the formality of
reducing to proper form the contracts which are authorized by the board and
is not intended to confer an independent power to make contracts binding on
the corporation.
The fact that the power to make corporate contracts is thus vested in
the board of directors does not signify that a formal vote of the board must
always be taken before contractual liability can be fixed upon a corporation;
for the board can create liability, like an individual, by other means than by a
formal expression of its will.
As already observed, it is familiar doctrine that if a corporation
knowingly permits one of its officers, or any other agent, to do acts within
the scope of an apparent authority, and thus holds him out to the public as
possessing power to do those acts, the corporation will, as against any one
who has in good faith dealt with the corporation through such agent, be
estopped from denying his authority; and where it is said "if the corporation

Page 255 of 1072

permits" this means the same as "if the thing is permitted by the directing
power of the corporation."
As appears upon the face of the contracts, the signature of Fernandez, in his
individual capacity, is not in line with the signature of the Orientalist
Company, but is set off to the left of the company's signature and somewhat
below. Observation teaches that it is customary for persons who sign
contracts in some capacity other than that of principal obligor to place their
signatures to one side; but the court hardly thinks that this circumstance
alone would justify a court in holding that Fernandez here took upon himself
the responsibility of a guarantor rather than that of a principal obligor. The
Court, however, think that the form in which the contract is signed raises a
doubt as to what the real intention was. In this connection it is entirely clear,
from the testimony of both Ramirez and Ramon J. Fernandez, that the
responsibility of the latter was intended to be that of a guarantor. There is, to
be sure, a certain difference between these witnesses as to the nature of this
guaranty, inasmuch as Fernandez would have us believe that his name was
signed as a guaranty that the contract would be approved by the
corporation, while Ramirez says that the name was put on the contract for
the purpose of guaranteeing, not the approval of the contract but its
performance. We are convinced that the latter was the real intention of the
contracting parties.

TOPIC: CORPORATE OFFICERS/ MEANING OF OFFICE VIS A VIS EMPLOYMENT


RENATO REAL, Petitioner,
vs.
SANGU PHILIPPINES, INC. and/ or KIICHI ABE, Respondents.
G.R. No. 168757: January 19, 2011
FACTS:
Petitioner Renato Real was the Manager of respondent corporation
Sangu Philippines, Inc., a corporation engaged in the business of providing

Page 256 of 1072

manpower for general services, like janitors,


maintenance personnel, to various clients.

janitresses

and

other

Petitioner was removed from his position as Manager through Board


Resolution 2001-03 adopted by respondent corporation's Board of Directors.
Petitioner complained that he was neither notified of the Board Meeting
during which said board resolution was passed nor formally charged with any
infraction. He just received from respondents a letter 4cralaw dated March 26,
2001 stating that he has been terminated from service effective March 25,
2001 for the following reasons: (1) continuous absences at his post at Ogino
Philippines Inc. for several months which was detrimental to the
corporation's operation; (2) loss of trust and confidence; and, (3) to cut down
operational expenses to reduce further losses being experienced by
respondent corporation.
In 2001, petitioner, together with 29 others who were either janitors,
janitresses, leadmen and maintenance men, all employed by respondent
corporation, filed their respective Complaints2cralaw for illegal dismissal.
The Labor arbiter declared the petitioner including his co employees as
illegally dismissed and ordered their reinstatement, however the NLRC
reversed the decision and declared petitioner as validly dismissed and the
Labor Arbiter having no jurisdiction since petitioner is one among the
stockholders, a corporate officer thus belonging to intra-corporate case. The
decision of the NLRC was affirmed by the Court of Appeals.
ISSUE/S:
Whether or not the petitioner is a corporate officer of the respondent
corporation?
RULING:
Corporate officers' in the context of Presidential Decree No. 902-A are
those officers of the corporation who are given that character by the
Corporation Code or by the corporation's by-laws. There are three specific
officers whom a corporation must have under Section 25 of the Corporation
Code. These are the president, secretary and the treasurer. The number of
officers is not limited to these three. A corporation may have such other
officers as may be provided for by its by-laws like, but not limited to, the
vice-president, cashier, auditor or general manager. The number of corporate
officers is thus limited by law and by the corporation's by-laws.
Respondents claim that petitioner was appointed Manager by virtue of
Section 1, Article IV of respondent corporation's By-Laws which provides:

Page 257 of 1072

ARTICLE
IV:OFFICER,
Section
1. Election/Appointment Immediately after their election, the Board of Directors shall
formally organize by electing the President, Vice-President, the
Secretary at said meeting. The Board, may from time to
time, appoint such other officers as it may determine to
be necessary or proper. Any two (2) or more positions may be
held concurrently by the same person, except that no one shall
act as President and Treasurer or Secretary at the same time.
The examination of the record shows that that petitioner's appointment
was not made pursuant to the above-quoted provision of respondent
corporation's By-Laws. No copy of board resolution appointing petitioner as
Manager or any other document showing that he was appointed to said
position by action of the board was submitted by respondents.

TOPIC: CORPORATE OFFICERS/ MEANING OF OFFICE VIS A VIS EMPLOYMENT


MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K.
SPENCER, CATHERINE SPENCER, AND ALEX MANCILLA, Petitioners,
vs.
RICARDO R. COROS, Respondent.
G.R. No. 157802 : October 13, 2010
FACTS:
After his dismissal by Matling as its Vice President for Finance and
Administration, the respondent filed on August 10, 2000 a complaint for

Page 258 of 1072

illegal suspension and illegal dismissal against Matling and some of its
corporate officers (petitioners).
The petitioners moved to dismiss the complaint, raising the ground,
among others, that the complaint pertained to the jurisdiction of the
Securities and Exchange Commission (SEC) due to the controversy being
intra-corporate inasmuch as the respondent was a member of Matlings Board
of Directors aside from being its Vice-President for Finance and
Administration prior to his termination.
The respondent opposed the petitioners motion to dismiss, insisting
that his status as a member of Matlings Board of Directors was doubtful,
considering that he had not been formally elected as such; that he did not
own a single share of stock in Matling, considering that he had been made to
sign in blank an undated endorsement of the certificate of stock he had been
given in 1992; that Matling had taken back and retained the certificate of
stock in its custody; and that even assuming that he had been a Director of
Matling, he had been removed as the Vice President for Finance and
Administration, not as a Director, a fact that the notice of his termination
dated April 10, 2000 showed.
LA granted the petitioners motion to dismiss, ruling that the
respondent was a corporate officer because he was occupying the position of
Vice President for Finance and Administration and at the same time was a
Member of the Board of Directors of Matling.
On March 13, 2001, the NLRC set aside the dismissal, concluding that
the respondents complaint for illegal dismissal was properly cognizable by
the LA, not by the SEC, because he was not a corporate officer by virtue of
his position in Matling, albeit high ranking and managerial, not being among
the positions listed in Matlings Constitution and By-Laws.
The Court of Appeals affirmed the decision of the NLRC.
ISSUE/S:
Whether or not respondent Coros is a corporate officer?
RULING:
The petitioners contend that the position of Vice President for Finance
and Administration was a corporate office, having been created by Matlings
President pursuant to By-Law No. V, as amended, to wit:
BY LAW NO. V: Officers
The President shall be the executive head of the
corporation; shall preside over the meetings of the
stockholders
and
directors;
shall
countersign
all

Page 259 of 1072

certificates, contracts and other instruments of the


corporation as authorized by the Board of Directors; shall
have full power to hire and discharge any or all employees
of the corporation; shall have full power to create new
offices and to appoint the officers thereto as he may deem
proper and necessary in the operations of the corporation
and as the progress of the business and welfare of the
corporation may demand; shall make reports to the
directors and stockholders and perform all such other
duties and functions as are incident to his office or are
properly required of him by the Board of Directors. In case
of the absence or disability of the President, the Executive
Vice President shall have the power to exercise his
functions.
The petitioners argue that the power to create corporate offices and to
appoint the individuals to assume the offices was delegated by Matlings
Board of Directors to its President through By-Law No. V, as amended; and
that any office the President created, like the position of the respondent, was
as valid and effective a creation as that made by the Board of Directors,
making the office a corporate office. In justification, they cite Tabang v.
National Labor Relations Commission, which held that other offices are
sometimes created by the charter or by-laws of a corporation, or the board of
directors may be empowered under the by-laws of a corporation to create
additional officers as may be necessary.
The respondent counters that Matlings By-Laws did not list his position
as Vice President for Finance and Administration as one of the corporate
offices; that Matlings By-Law No. III listed only four corporate officers,
namely: President, Executive Vice President, Secretary, and Treasurer; that
the corporate offices contemplated in the phrase and such other officers as
may be provided for in the by-laws found in Section 25 of the Corporation
Code should be clearly and expressly stated in the By-Laws; that the fact
that Matlings By-Law No. III dealt with Directors & Officers while its By-Law
No. V dealt with Officers proved that there was a differentiation between the
officers mentioned in the two provisions, with those classified under By-Law
No. V being ordinary or non-corporateofficers; and that the officer, to be
considered as a corporate officer, must be elected by the Board of Directors
or the stockholders, for the President could only appoint an employee to a
position pursuant to By-Law No. V.
However, Section 25 of the Corporation Code provides:Corporate
officers, quorum.--Immediately after their election, the directors of a
corporation must formally organize by the election of a president, who shall
be a director, a treasurer who may or may not be a director, a secretary who
shall be a resident and citizen of the Philippines, and such other officers

Page 260 of 1072

as may be provided for in the by-laws. Any two (2) or more positions
may be held concurrently by the same person, except that no one shall act
as president and secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the
duties enjoined on them by law and the by-laws of the corporation. Unless
the articles of incorporation or the by-laws provide for a greater majority, a
majority of the number of directors or trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate
business, and every decision of at least a majority of the directors or trustees
present at a meeting at which there is a quorum shall be valid as a corporate
act, except for the election of officers which shall require the vote of a
majority of all the members of the board. Directors or trustees cannot attend
or vote by proxy at board meetings.
Conformably with Section 25, a position must be expressly mentioned
in the By-Laws in order to be considered as a corporate office. Thus, the
creation of an office pursuant to or under a By-Law enabling provision is not
enough to make a position a corporate office. Guerrea v. Lezama, the first
ruling on the matter, held that the only officers of a corporation were those
given that character either by the Corporation Code or by the By-Laws; the
rest of the corporate officers could be considered only as employees or
subordinate officials.

TOPIC: CORPORATE OFFICERS/ MEANING OF OFFICE VIS A VIS EMPLOYMENT


MANILA METAL CONTAINER CORPORATION, petitioner,
REYNALDO C. TOLENTINO, intervenor,
vs.
PHILIPPINE NATIONAL BANK, respondent,DMCI-PROJECT
DEVELOPERS, INC., intervenor.
G.R. No. 166862
December 20, 2006
511 S 444

Page 261 of 1072

FACTS:
Petitioner was the owner of an 8,015 square meter parcel of land. To
secure a P900, 000.00 loans it had obtained from respondent PNB, petitioner
executed a real estate mortgage over the lot. Respondent PNB later granted
petitioner a new credit accommodation of P1, 000,000.00; and, on November
16, 1973, petitioner executed an Amendment of Real Estate Mortgage over
its property. On March 31, 1981, petitioner secured another loan of P653,
000.00 from respondent PNB, payable in quarterly installments
of P32,650.00, plus interests and other charges.
On August 5, 1982, respondent PNB filed a petition for extrajudicial
foreclosure of the real estate mortgage and sought to have the property sold
at public auction for petitioners outstanding obligation to respondent PNB as
of June 30, 1982.
After due notice and publication, the property was sold at public
auction on September 28, 1982 where respondent PNB was declared the
winning bidder for P1,000,000.00. The Certificate of Sale issued in its favor
was registered with the Office of the Register of Deeds of Rizal, and was
annotated at the dorsal portion of the title on February 17, 1983. Thus, the
period to redeem the property was to expire on February 17, 1984.
An offer made by the petitioner for extension of redemption and
repurchase on an installment basis was denied. Meanwhile, some PNB Pasay
City Branch personnel informed petitioner that as a matter of policy, the
bank does not accept "partial redemption."
Since petitioner failed to redeem the property, the Register of Deeds
cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of
respondent PNB.
Meanwhile, the Special Assets Management Department (SAMD) had
prepared a statement of account, and as of June 25, 1984 petitioner's
obligation amounted to P1,574,560.47.
In the meantime, the SAMD recommended to the management of
respondent PNB that petitioner be allowed to repurchase the property for P1,
574,560.00. In a letter dated November 14, 1984, the PNB management
informed petitioner that it was rejecting the offer and the recommendation of
the SAMD.
On June 4, 1985, respondent PNB informed petitioner that the PNB
Board of Directors had accepted petitioner's offer to purchase the property,
but for P1,931,389.53 in cash less the P725,000.00 already deposited with it.

Page 262 of 1072

Petitioner rejected respondent's proposal in a letter dated July 14,


1988. It maintained that respondent PNB had agreed to sell the property for
P1,574,560.47, and that since its P725,000.00 downpayment had been
accepted, respondent PNB was proscribed from increasing the purchase price
of the property.
ISSUE/S:
Whether or not SAMD was authorized by respondent's Board of
Directors to accept petitioner's offer and sell the property for
P1,574,560.47.
RULING:
No.
There is no evidence that the SAMD was authorized by respondent's
Board of Directors to accept petitioner's offer and sell the property for
P1,574,560.47. Any acceptance by the SAMD of petitioner's offer would not
bind respondent. As this Court ruled in AF Realty Development, Inc. vs.
Diesehuan Freight Services, Inc.:
Section 23 of the Corporation Code expressly provides that
the corporate powers of all corporations shall be exercised by the
board of directors. Just as a natural person may authorize
another to do certain acts in his behalf, so may the board of
directors of a corporation validly delegate some of its functions
to individual officers or agents appointed by it. Thus, contracts or
acts of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with the
performance of authorized duties of such director, are held not
binding on the corporation.
Thus, a corporation can only execute its powers and transact its
business through its Board of Directors and through its officers and agents
when authorized by a board resolution or its by-laws.
It appears that the SAMD had prepared a recommendation for
respondent to accept petitioner's offer to repurchase the property even
beyond the one-year period; it recommended that petitioner be allowed to
redeem the property and pay P1,574,560.00 as the purchase price.
Respondent later approved the recommendation that the property be sold to
petitioner. But instead of the P1,574,560.47 recommended by the SAMD and
to which petitioner had previously conformed, respondent set the purchase
price at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer
was qualified, hence can be at most considered as a counter-offer. If

Page 263 of 1072

petitioner had accepted this counter-offer, a perfected contract of sale would


have arisen; as it turns out, however, petitioner merely sought to have the
counter-offer reconsidered. This request for reconsideration would later be
rejected by respondent.

TOPIC: CORPORATE OFFICERS/ MEANING OF OFFICE VIS A VIS EMPLOYMENT


BIENVENIDO ONGKINGCO, as President and GALERIA DE
MAGALLANES CONDOMINIUM ASSOCIATION, INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and FEDERICO B.
GUILAS, respondents.
G.R. No. 119877 March 31, 1997
270 SCRA 613

Page 264 of 1072

FACTS:
Petitioner Galeria de Magallanes Condominium Association, Inc.
(Galeria for brevity) is a non-stock, non-profit corporation formed in
accordance with R.A. No. 4726, otherwise known as the Condominium Act.
"Its primary purpose is to hold title to the common areas of the Galeria de
Magallanes Condominium Project and to manage and administer the same
for the use and convenience of the residents and/or owners. Petitioner
Bienvenido Ongkingco was the president of Galeria at the time private
respondent filed his complaint.
On 1 September 1990, Galeria's Board of Directors appointed private
respondent Federico B. Guilas as Administrator/Superintendent. He was
given a "monthly salary of P10,000 subject to review after five (5) months
and subsequently thereafter as Galeria's finances improved. As
Administrator, private respondent was tasked with the maintenance of the
"performance and elegance of the common areas of the condominium and
external appearance of the compound thereof for the convenience and
comfort of the residents as well as to keep up the quality image, and hence
the value of the investment for the owners thereof.
However, on 17 March 1992, through a resolution passed by the Board
of Directors of Galeria, private respondent was not re-appointed as
Administrator. As a result, private respondent instituted a complaint against
petitioners for illegal dismissal and non-payment of salaries with the NLRC.
ISSUE/S:
Whether or not respondent is corporate officer of Galeria?
RULING:
YES.
Private respondent is an officer of petitioner corporation and not its
mere employee. The by-laws of the Galeria de Magallanes Condominium
Association specifically includes the Superintendent/Administrator in its
roster of corporate officers:
xxx xxx xxx
Sec. 6. The Superintendent or Administrator The Board
of Directors may appoint a Superintendent or Administrator
for the condominium project if the activities and financial
condition of the Association so warrant. If one is so
appointed, he shall be the principal administrative officer
of the Association. He shall attend to routinary and day-today business and activities of the Association and shall
keep regular officer hours for the purpose. He shall have
such other duties and powers as may be conferred upon

Page 265 of 1072

him by the Board of Directors or delegated by the President


of the Association.
The president, vice-president, secretary and treasurer are commonly
regarded as the principal or executive officers of a corporation, and modern
corporation statutes usually designate them as the officers of the
corporation. However, other offices are sometimes created by the charter or
by-laws of a corporation, or the board of directors may be empowered under
the by-laws of a corporation to create additional offices as may be necessary.
It has been held that an "office" is created by the charter of the
corporation and the officer is elected by the directors or stockholders. On the
other hand, an "employee" usually occupies no office and generally is
employed not by action of the directors or stockholders but by the managing
officer of the corporation who also determines the compensation to be paid
to such employee.
In the case at bar, considering that herein respondent, unlike an
ordinary employee, was appointed by petitioner corporation's Board of
Trustees in its memorandum of September 1, 1990, he is deemed an officer
of the corporation. Perforce, Section 5(c) of Presidential Decree No. 902-A,
which provides that the SEC exercises exclusive jurisdiction over
controversies in the election or appointment of directors, trustees, officers or
managers of corporations, partnerships or associations, applies in the
present dispute. Accordingly, jurisdiction over the same is vested in the SEC,
and not in the Labor Arbiter or the NLRC.

TOPIC: CORPORATE OFFICERS/ MEANING OF OFFICE VIS A VIS EMPLOYMENT


ANDRES LAO, petitioner,
vs.
COURT OF APPEALS, THE ASSOCIATED ANGLO-AMERICAN TOBACCO
CORPORATION and ESTEBAN CO, respondents.
G.R. No. 47013
February 17, 2000
325 SCRA 694
FACTS:

Page 266 of 1072

On April 6, 1965, The Associated Anglo-American Tobacco Corporation


(Corporation for brevity) entered into a "Contract of Sales Agent" with Andres
Lao. Under the contract, Lao agreed to sell cigarettes manufactured and
shipped by the Corporation to his business address in Tacloban City. Lao
would in turn remit the sales proceeds to the Corporation. For his services,
Lao would receive commission depending on the kind of cigarettes sold, fixed
monthly salary, and operational allowance. As a guarantee to Lao's
compliance with his contractual obligations, his brother Jose and his father
Tomas executed a deed of mortgage in favor of the Corporation in the
amount of P200, 000.00.
The Corporation awarded him trophies and plaques in recognition of his
outstanding performance from 1966 to 1968. However, in February 1968 and
until about seven (7) months later, Lao failed to accomplish his monthly
sales report. It was then and there established that Lao's liability amounted
to P525, 053.47. And so, Lao and his brother Lao Y Ka enlisted the services of
the Sycip Gorres and Velayo Accounting Firm (SGV) to check and reconcile
the accounts. However, the SGV personnel Lao had employed failed to
conclude their services because the Corporation did not honor its
commitment to assign two of its accountants to assist them. Neither did the
Corporation allow the SGV men access to its records.
Since Lao appeared to encounter difficulties in complying with his
obligations under the contract of agency, the Corporation sent Ngo Kheng to
supervise Lao's sales operations in Leyte and Samar. Ngo Kheng discovered
that, contrary to Lao's allegation that he still had huge collectibles from his
customers; nothing was due the Corporation from Lao's clients. From then
on, Lao no longer received shipments from the Corporation which transferred
its vehicles to another compound controlled by Ngo Kheng. Shipments of
cigarettes and the corresponding invoices were also placed in the name of
Ngo Kheng.
On May 21, 1970, Andres, Jose and Tomas Lao brought a complaint for
accounting and damages with writ of preliminary injunction against the
Corporation.
Petitioner Esteban Co filed a case for estafa against Lao, during the
pendency of the first case.
ISSUE/S:
Whether or not Esteban Co as an officer of the Corporation can be held
personally liable for malicious prosecution in filing estafa case against
Lao.
RULING:

Page 267 of 1072

No.
He is not personally liable since he has the authority to file the case as
impliedly granted by the Corporation for its failure to object on the act of Co.
A perusal of his affidavit-complaint reveals that at the time he filed the
same on June 24, 1974, petitioner Co was the vice-president of the
Corporation. As a corporate officer, his power to bind the Corporation as its
agent must be sought from statute, charter, by-laws, a delegation of
authority to a corporate officer, or from the acts of the board of directors
formally expressed or implied from a habit or custom of doing business. In
this case, no such sources of petitioner's authority from which to deduce
whether or not he was acting beyond the scope of his responsibilities as
corporate vice-president are mentioned, much less proven. It is thus logical
to conclude that the board of directors or by laws- of the corporation vested
petitioner Co with certain executive duties one of which is a case for the
Corporation.
That petitioner Co was authorized to institute the estafa case is
buttressed by the fact that the Corporation failed to make an issue out of his
authority to file said case. Upon well-established principles of pleading, lack
of authority of an officer of a corporation to bind it by contract executed by
him in its name, is a defense which should have been specially pleaded by
the Corporation. The Corporation's failure to interpose such a defense could
only mean that the filing of the affidavit-complaint by petitioner Co was with
the consent and authority of the Corporation. In the same vein, petitioner Co
may not be held personally liable for acts performed in pursuance of an
authority and therefore, holding him solidarily liable with the Corporation for
the damages awarded to respondent Lao does accord with law and
jurisprudence.

TOPIC: CORPORATE OFFICERS/ MEANING OF OFFICE VIS A VIS EMPLOYMENT


MITA PARDO DE TAVERA, plaintiff-appellant,
vs.
PHILIPPINE TUBERCULOSIS SOCIETY, INC., FRANCISCO ORTIGAS, JR.,
MIGUEL CAIZARES, BERNARDO P. PARDO, RALPH NUBLA,
MIDPANTAO ADIL, ENRIQUE GARCIA, ALBERTO G. ROMULO and THE

Page 268 of 1072

PRESENT BOARD OF DIRECTORS, PHILIPPINE TUBERCULOSIS


SOCIETY, INC., defendants- appellees.
GR. No. L-48928 February 25, 1982
112 S 243
FACTS:
Plaintiff is a doctor of Medicine by profession and a recognized
specialist in the treatment of tuberculosis, having been in the continuous
practice of her profession since 1945; that she is a member of the Board of
Directors of the defendant Society, in representation of the Philippine Charity
Sweepstakes Office; that she was duly appointed on April 27, 1973 as
Executive Secretary of the Society; that on May 29, 1974, the past Board of
Directors removed her summarily from her position, the lawful cause of
which she was not informed, through the simple expedient of declaring her
position vacant; that immediately thereafter, defendant Alberto Romulo was
appointed to the position by an affirmative vote of seven directors, with two
abstentions and one objection; and that defendants Pardo, Nubla, Garcia and
Adil, not being members of defendant Society when they were elevated to
the position of members of the Board of Directors, are not qualified to be
elected as such and hence, all their acts in said meeting of May 29, 1974 are
null and void.
The defendants deny that plaintiff was illegally removed from her
position as Executive Secretary and averring that under the Code of By-Laws
of the Society, said position is held at the pleasure of the Board of Directors
and when the pleasure is exercised, it only means that the incumbent has to
vacate the same because her term has expired; that defendants Pardo,
Nubla, Adil and Garcia were, at the time of their election, members of the
defendant Society and qualified to be elected as members of the Board, that
assuming that said defendants were not members of defendant Society at
the time of their election, the question of qualification of the members of the
Board of Directors should have been raised at the time of their election.
ISSUE:
Whether or not petitioner was illegally removed from her position as an
officer of the respondent.

RULING:
Petitioner claims and the respondents do not dispute that the
Executive Secretary is an officer of the Society pursuant to provision in the
Code of By-laws Laws:

Page 269 of 1072

Section 7.01. Officers of the Society. - The executed


officers f the Society shall be the President a VicePresident, a Treasurer who shall be elected by the Board of
Directors, Executive Secretary, and an Auditor, who shall
be appointed by the Board of Directors, all of whom shall
exercise the functions, powers and prerogatives generally
vested upon such officers, the functions hereinafter set out
for their respective offices and such other duties is from
time to time, may be prescribed by the Board of Directors.
On e person may hold more than one office except when
the functions thereof are incompatible with each other.
Section 7.02. Tenure of Office. - All executive officers of the
Society except the Executive Secretary and the Auditor
shall be elected the Board of Directors, for a term of one
rear ind shall hold office until their successors are elected
and have qualified. The Executive secretary, the Auditor
and all other office ers and employees of the Society shall
hold office at the pleasure of the Board of Directors, unless
their term of employment shall have been fixed in their
contract of employment.
xxx xxx xxx
Section 7.04. Removal of Officers and Employees. - All
officers and employees shall be subject to suspension or
removal for a sufficient cause at any time by affirmative
vote of a majority of an the members of the Board of
Directors, except that employees appointed by the
President alone or by the other officers alone at the
pleasure of the officer appointing him.
Petitioner was designated as Acting Executive Secretary with an
honorarium of P200.00 monthly in view of the application of Dr. Jose Y.
Buktaw for leave effective September 1, 1972 for 300 working days. In an
organizational meeting, the president mentioned that there is a need of
appointing a permanent Executive Secretary, thus petitioner was appointed
as Executive Secretary.
Although the minutes of the organizational meeting show that the
Chairman mentioned the need of appointing a "permanent" Executive
Secretary, such statement alone cannot characterize the appointment of
petitioner without a contract of employment definitely fixing her term
because of the specific provision of Section 7.02 of the Code of By-Laws.
Besides the word permanent" could have been used to distinguish the
appointment from acting capacity.

Page 270 of 1072

The absence of a fixed term in the letter addressed to petitioner informing


her of her appointment as Executive Secretary is very significant. This could
have no other implication than that petitioner held an appointment at the
pleasure of the appointing power.
An appointment held at the pleasure of the appointing power is in
essence temporary in nature. It is co-extensive with the desire of the Board
of Directors. Hence, when the Board opts to replace the incumbent,
technically there is no removal but only an expiration of term and in an
expiration of term, there is no need of prior notice, due hearing or sufficient
grounds before the incumbent can be separated from office. The protection
afforded by Section 7.04 of the Code of By-Laws on Removal of Officers and
Employees, therefore, cannot be claimed by petitioner.

TOPIC:MINIMUM SET OF OFFICERS; QUALIFICATIONS; DISQUALIFICATIONS;


AUTHORITY & LIABILITIES
MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K.
SPENCER, CATHERINE SPENCER, AND ALEX MANCILLA, Petitioners,

Page 271 of 1072

vs.
RICARDO R. COROS, Respondent.
G.R. No. 157802. October 13, 2010
FACTS:
After his dismissal by Matling as its VP for Finance and Administration,
the respondent filed a complaint for illegal suspension and illegal dismissal
against Matling and some of its corporate officers. The petitioners moved to
dismiss raising the ground that the complaint pertained to the jurisdiction of
SEC due to the controversy being intra-corporate inasmuch as the
respondent was a member of Matlings BOD aside from being its VP for
Finance and Administration prior to his termination.
The respondent opposed the petitioners motion to dismiss, insisting
that his status as a member of Matlings Board of Directors was doubtful,
considering that he had not been formally elected as such; that he did not
own a single share of stock in Matling, considering that he had been made to
sign in blank an undated indorsement of the certificate of stock he had been
given; that Matling had taken back and retained the certificate of stock in its
custody; and that even assuming that he had been a Director of Matling, he
had been removed as the VP for Finance and Administration, not as a
Director, a fact that the notice of his termination showed.
ISSUE/S:
Whether the respondent was a corporate officer of Matling or not.
RULING:
Matlings By-Laws did not list his position as VPfor Finance and
Administration as one of the corporate offices; that Matlings By-Law No. III
listed only four corporate officers, namely: President, Executive Vice
President, Secretary, and Treasurer; that the corporate offices contemplated
in the phrase "and such other officers as may be provided for in the by-laws"
found in Section 25 of the Corporation Code should be clearly and expressly
stated in the By-Laws; that the fact that Matlings By-Law No. III dealt with
Directors & Officers while its By-Law No. V dealt with Officers proved that
there was a differentiation between the officers mentioned in the two
provisions, with those classified under By-Law No. V being ordinary or noncorporate officers; and that the officer, to be considered as a corporate
officer, must be elected by the Board of Directors or the stockholders, for the
President could only appoint an employee to a position pursuant to By-Law
No. V.
Section 25 of the Corporation Code provides:
Section 25. Corporate officers, quorum.--Immediately after
their election, the directors of a corporation must formally
organize by the election of a president, who shall be a
director, a treasurer who may or may not be a director, a
secretary who shall be a resident and citizen of the
Philippines, and such other officers as may be provided for

Page 272 of 1072

in the by-laws. Any two (2) or more positions may be held


concurrently by the same person, except that no one shall
act as president and secretary or as president and
treasurer at the same time.
The directors or trustees and officers to be elected shall perform the
duties enjoined on them by law and the by-laws of the corporation. Unless
the articles of incorporation or the by-laws provide for a greater majority, a
majority of the number of directors or trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate
business, and every decision of at least a majority of the directors or trustees
present at a meeting at which there is a quorum shall be valid as a corporate
act, except for the election of officers which shall require the vote of a
majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings.
Conformably with Section 25, a position must be expressly mentioned
in the By-Laws in order to be considered as a corporate office. Thus, the
creation of an office pursuant to or under a By-Law enabling provision is not
enough to make a position a corporate office. The only officers of a
corporation were those given that character either by the Corporation Code
or by the By-Laws; the rest of the corporate officers could be considered only
as employees or subordinate officials. Thus, an "office" is created by the
charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and
generally is employed not by the action of the directors or stockholders but
by the managing officer of the corporation who also determines the
compensation to be paid to such employee.
In this case, respondent was appointed vice president for nationwide
expansion by Malonzo, petitioner's general manager, not by the board of
directors of petitioner. It was also Malonzo who determined the compensation
package of respondent. Thus, respondent was an employee, not a "corporate
officer."
This interpretation is the correct application of Section 25 of the
Corporation Code, which plainly states that the corporate officers are the
President, Secretary, Treasurer and such other officers as may be provided
for in the By-Laws. Accordingly, the corporate officers in the context of PD
No. 902-A are exclusively those who are given that character either by the
Corporation Code or by the corporations By-Laws.
A different interpretation can easily leave the way open for the Board
of Directors to circumvent the constitutionally guaranteed security of tenure
of the employee by the expedient inclusion in the By-Laws of an enabling
clause on the creation of just any corporate officer position.

Page 273 of 1072

It is relevant to state in this connection that the SEC, the primary


agency administering the Corporation Code, adopted a similar interpretation
of Section 25 of the Corporation Code in its Opinion dated November 25,
1993,21 to wit:
Thus, pursuant to the above provision (Section 25 of the Corporation
Code), whoever are the corporate officers enumerated in the by-laws are the
exclusive Officers of the corporation and the Board has no power to create
other Offices without amending first the corporate By-laws. However, the
Board may create appointive positions other than the positions of corporate
Officers, but the persons occupying such positions are not considered as
corporate officers within the meaning of Section 25 of the Corporation Code
and are not empowered to exercise the functions of the corporate Officers,
except those functions lawfully delegated to them. Their functions and duties
are to be determined by the Board of Directors/Trustees.
Moreover, the Board of Directors of Matling could not validly delegate
the power to create a corporate office to the President, in light of Section 25
of the Corporation Code requiring the Board of Directors itself to elect the
corporate officers. Verily, the power to elect the corporate officers was a
discretionary power that the law exclusively vested in the Board of Directors,
and could not be delegated to subordinate officers or agents. The office of
Vice President for Finance and Administration created by Matlings President
pursuant to By Law No. V was an ordinary, not a corporate, office.
To emphasize, the power to create new offices and the power to
appoint the officers to occupy them vested by By-Law No. V merely allowed
Matlings President to create non-corporate offices to be occupied by
ordinary employees of Matling. Such powers were incidental to the
Presidents duties as the executive head of Matling to assist him in the daily
operations of the business.

Page 274 of 1072

TOPIC:MINIMUM SET OF OFFICERS; QUALIFICATIONS; DISQUALIFICATIONS;


AUTHORITY
& LIABILITIES
E. B. VILLAROSA & PARTNER CO., LTD., petitioner,
vs.
HON. HERMINIO I. BENITO, in his capacity as Presiding Judge, RTC,
Branch 132, Makati City and IMPERIAL DEVELOPMENT
CORPORATION, respondent.
G.R. No. 136426. August 6, 1999
312 SCRA 65
FACTS:
Herein Petitioner, a limited partnership with principal office address at
102 Juan Luna St., Davao City and with branch offices at 2492 Bay View
Drive, Tambo, Paraaque, Metro Manila and Kolambog, Lapasan, Cagayan de
Oro City. Petitioner and private respondent executed a Deed of Sale with
Development Agreement wherein the former agreed to develop certain
parcels of land located at Barrio Carmen, Cagayan de Oro belonging to the
latter into a housing subdivision for the construction of low cost housing
units. They further agreed that in case of litigation regarding any dispute
arising therefrom, the venue shall be in the proper courts of Makati.
Private respondent filed a complaint for breach of contract and
damages against petitioner before RTC of Makati for failure to comply with
the contract. Summons together with the complaint were served upon the
petitioner through its Branch Manager Wendell Sabultero at Cagayan De Oro
City.
Petitioner sought the dismissal of the complaint on the ground of
improper service of summons and lack of jurisdiction over the person of the
petitioner. It contends that the trial court did not acquire jurisdiction over its
person since the summons was improperly served upon its employee in its
branch office at Cagayan De Oro City who is not one of those persons named
in Section 11, Rule 14 of the 1997 Rules of Civil Procedure upon whom the
service of summons maybe made.
The Trial court issued an order stating that since the summons and
copy of the complaint were in fact received by the corporation through its
branch manager, there was substantial compliance with the rule on service
of summons and consequently, it validly acquires jurisdiction over the person
of the petitioner.
ISSUE/S:

Page 275 of 1072

Whether or not the trial court acquired jurisdiction over the person
of petitioner upon service of summons on its Branch manager.
RULING:
No.
Accordingly, the Supreme Court ruled that the service of summons
upon the branch manager of petitioner at its branch office at Cagayan de
Oro, instead of upon the general manager at its principal office at Davao City
is improper. Consequently, the trial court did not acquire jurisdiction over the
person of the petitioner.
The fact that defendant filed a belated motion to dismiss did not
operate to confer jurisdiction upon its person. There is no question that the
defendant's voluntary appearance in the action is equivalent to service of
summons. Before, the rule was that a party may challenge the jurisdiction of
the court over his person by making a special appearance through a motion
to dismiss and if in the same motion, the movant raised other grounds or
invoked affirmative relief which necessarily involves the exercise of the
jurisdiction of the court.This doctrine has been abandoned in the case of La
Naval Drug Corporation vs. Court of Appeals, et al., which became the basis
of the adoption of a new provision in the former Section 23, which is now
Section 20 of Rule 14 of the 1997 Rules. Section 20 now provides that "the
inclusion in a motion to dismiss of other grounds aside from lack of
jurisdiction over the person of the defendant shall not be deemed a
voluntary appearance." The emplacement of this rule clearly underscores the
purpose to enforce strict enforcement of the rules on summons. Accordingly,
the filing of a motion to dismiss, whether or not belatedly filed by the
defendant, his authorized agent or attorney, precisely objecting to the
jurisdiction of the court over the person of the defendant can by no means
be deemed a submission to the jurisdiction of the court. There being no
proper service of summons, the trial court cannot take cognizance of a case
for lack of jurisdiction over the person of the defendant. Any proceeding
undertaken by the trial court will consequently be null and void.

Page 276 of 1072

TOPIC:MINIMUM SET OF OFFICERS; QUALIFICATIONS; DISQUALIFICATIONS;


AUTHORITY
& LIABILITIES
SUPREME STEEL PIPE CORPORATION and REGAN SY, Petitioners
vs.
ROGELIO BARDAJE, Respondent.
G.R. No. 170811. April 24, 2007
522 SCRA 155
FACTS:
Petitioner Supreme Steel Pipe Corporation (SSPC), a domestic
corporation primarily engaged in the business of manufacturing steel pipes,
employed respondent Rogelio Bardaje as a warehouseman. SSPC employees
were required to wear a uniform (a yellow t-shirt with a logo and the marking
Supreme) while at work.
On August 19, 1999, respondent reported for work at 6:45 a.m. It was
a common practice among warehousemen to wear long-sleeved shirts over
their uniforms to serve as protection from heat and dust while working, and
on this day, respondent had on a green long-sleeved shirt over his uniform.
Momentarily, security guard Christopher Barrios called him in a loud voice,
and arrogantly ordered him to remove and turn-over to him (Barrios) the
long-sleeved shirt. Insulted and feeling singled-out from the other
warehousemen who were also wearing long-sleeved shirts over their
uniforms, respondent replied: Ano ba ang gusto mo, hubarin ko o
magsuntukan na lang tayo sa labas? A heated exchange of words ensued,
but the brewing scuffle between the two was averted by a co-employee from
the Production Division, Albert A. Bation. A security guard, Ricky Narciso, was
able to keep the parties apart. Barrios reported the incident to the SSPC
management. Because of the incident, Bardaje was dismissed.
ISSUE/S:
Can Regan Sy being the President of SSPC be held liable?
RULING:
No.
It appears that respondent impleaded SSPC President Regan Sy only
because he is an officer/agent of the company. However, petitioner Sy
cannot be held solidarily liable with petitioner SSPC for the termination of
respondents employment, since there is no showing that the dismissal was
attended with malice or bad faith.

Page 277 of 1072

TOPIC:MINIMUM SET OF OFFICERS; QUALIFICATIONS; DISQUALIFICATIONS;


AUTHORITY
& LIABILITIES
CAGAYAN VALLEY DRUG CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 151413. February 13, 2008
545 SCRA 10
FACTS:
Petitioner, a corporation duly organized and existing under Philippine
laws, is a duly licensed retailer of medicine and other pharmaceutical
products. It operates two drugstores, one in Tuguegarao, Cagayan, and the
other in Roxas, Isabela, under the name and style of "Mercury Drug."
In 1995, Cagayan granted 20% sales discounts to qualified senior
citizens on purchases of medicine pursuant to RA 7432. It treated such
discounts as deductions from the gross sales pursuant to Revenue Regulation
No. 2-49 instead of treating them as tax credit as provided under Section 4 of
RA 7432.
Cagayan filed with the BIR a claim for tax refund of the full amount of
the 20% sales discount it granted to senior citizens for the year 1995.
BIR failed to act on the petition. Thus, Cagayan filed a petition for
review with the CTA but the latter dismissed the petition for lack of merit.
On appeal to CA, the latter dismissed the petition on the ground that
the person who signed the verification and certification of non-forum
shopping, a certain Jacinto Concepcion, President of Cagayan, failed to
adduce proof that he was duly authorized by the board of directors to do so.
ISSUE/S:
Whether petitioners president can sign the subject verification and
certification sans the approval of its Board of Directors.
RULING:
YES.
Section 23 in relation to Section 25 of the Corporation Code enunciates
that all corporate powers are exercised, all business conducted, and all
properties controlled by the board of directors. Thus, an individual corporate

Page 278 of 1072

officer cannot solely exercise any corporate power pertaining to the


corporation without authority from the board.
However, in some cases decided by SC, the following officials or
employees of the company can sign the verification and certification without
need of a board resolution:
1. The Chairperson of the board of directors (Lepanto Case,
Sept. 24, 2003);
2. the President of a corporation (Lepanto,supra);
3. the General Manager or Acting Manager (Mactan-Cebu
Case, Nov. 7, 2000); Personnel Officer (Novelty Philippines
Case, Sept 17, 2003);
4. an Employment Specialist in Labor case (Pfizer Case, May
25, 2001).
The rationale apllied in the forefoing cases is to justify the authority of
corporate officers to sign being in a position to verify the truthfulness and
correctness of the allegations in the petition.
In the recent case of Philippine Airlines(Jan 24, 2006), SC held that
only individuals vested with authority by a valid board resolution may sign
the verification and certification. In this case, SC said that appending the
board resolution to the complaint or petition is the better procedure to
obviate any question on the authority of the signatory to the verification and
certification.
In the case at bar, Cagayan substantially complied with Secs. 4 and 5,
Rule 7 of the Rules of Court because:
1. the requisite board resolution has been submitted albeit
belatedly;
2. application of Lepanto case with the rationale that the
President of Cagayan is in a position to verify the
truthfulness and correctness of the allegations in the
petition;
3. the President has signed the complaint before the CTA at
the inception of the judicial claim for refund.

Page 279 of 1072

TOPIC:MINIMUM SET OF OFFICERS; QUALIFICATIONS; DISQUALIFICATIONS;


AUTHORITY
& LIABILITIES
VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL, BONIFACIO
CORTEL, ROSENDO MAGLASANG, and PATROCINIA MONILAR,
Petitioners,
vs.
PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU), INC. and
TEOFILO SOON, JR., Respondents.
G.R. No. 163825, July 13, 2010
FACTS:
On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia
Monilar obtained a loan from PCRB for P1,070,000.00. The subject loan was
evidenced by a promissory note and was payable on January 18, 1998. To
secure the payment of the subject loan, the spouses Maglasang executed, in
favor of PCRB a real estate mortgage over their property, Lot 12868-H-3-C, 6
including the house constructed thereon, owned by petitioners Mary Melgrid
and Bonifacio Cortel, the spouses Maglasangs daughter and son-in-law,
respectively. Aside from the subject loan, the spouses Maglasang obtained
two other loans from PCRB which were covered by separate promissory notes
and secured by mortgages on their other properties.
Sometime in November 1997 (before the subject loan became due),
the spouses Maglasang and the spouses Cortel asked PCRBs permission to
sell the subject properties. They likewise requested that the subject
properties be released from the mortgage since the two other loans were
adequately secured by the other mortgages. The spouses Maglasang and the
spouses Cortel claimed that the PCRB, acting through its Branch Manager,
Pancrasio Mondigo, verbally agreed to their request but required first the full
payment of the subject loan. The spouses Maglasang and the spouses Cortel
thereafter sold to petitioner Violeta Banate the subject properties for
P1,750,000.00. The spouses Magsalang and the spouses Cortel used the
amount to pay the subject loan with PCRB. After settling the subject loan,
PCRB gave the owners duplicate certificate of title of Lot 12868-H-3-C to
Banate, who was able to secure a new title in her name. The title, however,
carried the mortgage lien in favor of PCRB, prompting the petitioners to
request from PCRB a Deed of Release of Mortgage. As PCRB refused to
comply with the petitioners request, the petitioners instituted an action for
specific performance before the RTC to compel PCRB to execute the release
deed.

Page 280 of 1072

After trial, the RTC ruled in favor of the petitioners. It noted that the
petitioners, as "necessitous men," could not have bargained on equal footing
with PCRB in executing the mortgage, and concluded that it was a contract of
adhesion. Therefore, any obscurity in the mortgage contract should not
benefit PCRB.
On appeal, the CA reversed the RTCs decision. The CA did not consider
as valid the petitioners new agreement with Mondigo, which would novate
the original mortgage contract containing the cross-collateral stipulation. It
ruled that Mondigo cannot orally amend the mortgage contract between
PCRB, and the spouses Maglasang and the spouses Cortel.
ISSUE/S:
Whether or not the act of Mondigo in verbally entering into
agreement with spouses Maglasang and Sps. Cortel binds the
corporation.
RULING:
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board of
directors. The power and the responsibility to decide whether the corporation
should enter into a contract that will bind the corporation are lodged in the
board, subject to the articles of incorporation, bylaws, or relevant provisions
of law. In the absence of authority from the board of directors, no person, not
even its officers, can validly bind a corporation.
However, just as a natural person may authorize another to do certain
acts for and on his behalf, the board of directors may validly delegate some
of its functions and powers to its officers, committees or agents. The
authority of these individuals to bind the corporation is generally derived
from law, corporate bylaws or authorization from the board, either expressly
or impliedly by habit, custom or acquiescence in the general course of
business.
Notably, the petitioners action for specific performance is premised on
the supposed actual or apparent authority of the branch manager, Mondigo,
to release the subject properties from the mortgage, although the other
obligations remain unpaid. In light of our discussion above, proof of the
branch managers authority becomes indispensable to support the
petitioners contention. The petitioners make no claim that Mondigo had
actual authority from PCRB, whether express or implied. Rather, adopting the
trial courts observation, the petitioners posited that PCRB should be held
liable for Mondigos commitment, on the basis of the latters apparent
authority.
The Court disagrees with this position.
Under the doctrine of apparent authority, acts and contracts of the
agent, as are within the apparent scope of the authority conferred on him,
although no actual authority to do such acts or to make such contracts has

Page 281 of 1072

been conferred, bind the principal. The principals liability, however, is


limited only to third persons who have been led reasonably to believe by the
conduct of the principal that such actual authority exists, although none was
given. In other words, apparent authority is determined only by the acts of
the principal and not by the acts of the agent. There can be no apparent
authority of an agent without acts or conduct on the part of the principal;
such acts or conduct must have been known and relied upon in good faith as
a result of the exercise of reasonable prudence by a third party as claimant,
and such acts or conduct must have produced a change of position to the
third partys detriment.
In the present case, the decision of the trial court was utterly silent on
the manner by which PCRB, as supposed principal, has "clothed" or "held
out" its branch manager as having the power to enter into an agreement, as
claimed by petitioners. No proof of the course of business, usages and
practices of the bank about, or knowledge that the board had or is presumed
to have of, its responsible officers acts regarding bank branch affairs, was
ever adduced to establish the branch managers apparent authority to
verbally alter the terms of mortgage contracts. Neither was there any
allegation, much less proof, that PCRB ratified Mondigos act or is estopped
to make a contrary claim.
Further, we would be unduly stretching the doctrine of apparent
authority were we to consider the power to undo or nullify solemn
agreements validly entered into as within the doctrines ambit. Although a
branch manager, within his field and as to third persons, is the general agent
and is in general charge of the corporation, with apparent authority
commensurate with the ordinary business entrusted him and the usual
course and conduct thereof, yet the power to modify or nullify corporate
contracts remains generally in the board of directors.26 Being a mere branch
manager alone is insufficient to support the conclusion that Mondigo has
been clothed with "apparent authority" to verbally alter terms of written
contracts, especially when viewed against the telling circumstances of this
case: the unequivocal provision in the mortgage contract; PCRBs vigorous
denial that any agreement to release the mortgage was ever entered into by
it; and, the fact that the purported agreement was not even reduced into
writing considering its legal effects on the parties interests. To put it simply,
the burden of proving the authority of Mondigo to alter or novate the
mortgage contract has not been established.
It is a settled rule that persons dealing with an agent are bound at their
peril, if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of the agents authority, and in case
either is controverted, the burden of proof is upon them to establish it. As
parties to the mortgage contract, the petitioners are expected to abide by its
terms. The subsequent purported agreement is of no moment, and cannot
prejudice PCRB, as it is beyond Mondigos actual or apparent authority, as
above discussed.

Page 282 of 1072

TOPIC: MINIMUM SET OF OFFICERS; QUALIFICATIONS; DISQUALIFICATIONS;


AUTHORITY AND LIABILITIES:
MILLENIUM INDUSTRIAL COMMERCIAL CORPORATION
vs.
JACKSON TAN
G.R. No. 131724
February 28, 2000
383 Phil. 468
FACTS:
In December 1994, Millenium Industrial Commercial Corporation,
petitioner herein, executed a Deed of Real Estate Mortgage over its real
property covered by TCT No. 24069 in favor of respondent Jackson Tan. The
mortgage was executed to secure payment of petitioner's indebtedness to
respondent in the amount of P2 million, without monthly interest, but which,
at maturity date on June 10, 1995, was payable in the amount of P4 million.
On November 9, 1995, respondent filed against petitioner a complaint
for foreclosure of mortgage in the Regional Trial Court, Branch 6, Cebu City.
On November 21, 1995, summons and a copy of the complaint were served
upon petitioner through a certain Lynverd Cinches, described in the sheriff's
return, dated November 23, 1995, as "a Draftsman, a person of sufficient age
and (discretion) working therein, he is the highest ranking officer or Officerin-Charge of defendant's Corporation, to receive processes of the Court."
Petitioner moved for the dismissal of the complaint on the ground that
there was no valid service of summons upon it, as a result of which the trial
court did not acquire jurisdiction over it. Petitioner invoked Rule 14, 13 of
the 1964 Rules of Court and contended that service on Lynverd Cinches, as
alleged in the sheriff's return, was invalid as he is not one of the authorized
persons on whom summons may be served and that, in fact, he was not
even its employee.

Page 283 of 1072

Petitioner also sought the dismissal of the complaint against it on the


ground that it had satisfied its obligation to respondent. Petitioner further
prayed for "other reliefs just and equitable under the premises." On
December 15, 1995, the trial court denied petitioner's Motion to Dismiss. The
petitioners motion for reconsideration was denied by the trial court. The
Court of Appeals dismissed the petitioners petition for certiorari.
Hence, this petition.

ISSUE:
Whether it is allowable to merely infer actual receipt of summons by
the corporation through the person on whom summons was served.
RULING:
No.
Summons is the means by which the defendant in a case is notified of
the existence of an action against him and, thereby, the court is conferred
jurisdiction over the person of the defendant. If the defendant is corporation,
Rule 14, 13 requires that service of summons be made upon the
corporations president, manager, secretary, cashier, agent, or any of its
directors. The rationale of the rule is that service must be made on a
representative so integrated with the corporation sued as to make it a
priori presumable that he will realize his responsibilities and know what he
should do with any legal papers received by him.
Petitioner contends that the enumeration in Rule 14, 13 is exclusive
and that service of summons upon one who is not enumerated therein is
invalid. This is the general rule. However, it is settled that substantial
compliance by serving summons on persons other than those mentioned in
the above rule may be justified. We hold that it cannot be allowed. For there
to be substantial compliance, actual receipt of summons by the corporation
through the person served must be shown. Where a corporation only learns
of the service of summons and the filing of the complaint against it through
some person or means other than the person actually served, the service of
summons becomes meaningless. This is particularly true in the present case
where there is serious doubt if Lynverd Cinches, the person on whom service
of summons was effected, is in fact an employee of the corporation. Except
for the sheriff's return, there is nothing to show that Lynverd Cinches was
really a draftsman employed by the corporation.

Page 284 of 1072

TOPIC: MINIMUM SET OF OFFICERS; QUALIFICATIONS; DISQUALIFICATIONS;


AUTHORITY AND LIABILITIES:
SALOME PABON and VICENTE CAMONAYAN
vs.
NATIONAL LABOR RELATIONS COMMISSION and SENIOR MARKETING
CORPORATION
G.R. No. 120457
September 24, 1998
357 Phil. 7
FACTS:
On May 24, 1994 and June 22, 1994, complaints for illegal dismissal
and non-payment of benefits were filed by petitioners Salome Pabon and
Vicente Camonayan against private respondent Senior Marketing Corporation
(SMC) and its Field Manager, R-Jay Roxas Summons and notices of hearings
were sent to Roxas at private respondents provincial office in 13 Valley
Homes, Patul Road, Santiago, Isabela which were received by its bookkeeper,
Mina Villanueva.
On September 15, 1994, the Labor Arbiter rendered a judgment by
default after finding that private respondent tried to evade all the summons
and orders of hearing by refusing to claim all the registered mail addressed
to it.
Instead of appealing the Labor Arbiters decision to the National Labor
Relations Commission (NLRC), within ten (10) days from receipt of the said
decision, private respondent filed a motion for reconsideration/new
trial before the Labor Arbiter. It was only after the said ten-day period had
lapsed that private respondent appealed to the NLRC which, in a
Decision promulgated on March 31, 1995, setting aside the Labor Arbiters
decision.
Hence, this petition.
ISSUE/S:

Page 285 of 1072

Whether respondent was properly served with summons in


accordance with the Rules of Court through its bookkeeper at its
provincial office address.
RULING:
Yes.
We are of the view that a bookkeeper can be considered as an agent of
private Respondent Corporation within the purview of Section 13, Rule 14 of
the old Rules of Court. The rationale of all rules with respect to service of
process on a corporation is that such service must be made to an agent of a
representative so integrated with the corporation sued as to make it
a priori supposable that he will realize his responsibilities and know what he
should do with any legal papers served on him. The bookkeepers task is one
under consideration. The job of a bookkeeper is so integrated with the
corporation that his regular recording of the corporations business
accounts and essential facts about the transactions of a business enterprise
safeguards the corporation from possible fraud being committed adverse to
its own corporate interest.
Although it may be true that the service of summons was made on a
person not authorized to receive the same in behalf of the petitioner,
nevertheless since it appears that the summons and complaint were in fact
received by the corporation through its said clerk, the Court finds that there
was a substantial compliance with the rule on service of summons. Indeed
the purpose of said rule as above stated to assure service of summons on
the corporation had thereby been attained. The need for speedy justice must
prevail over technicality.

Page 286 of 1072

TOPIC: MINIMUM SET OF OFFICERS; QUALIFICATIONS;


DISQUALIFICATIONS; AUTHORITY AND LIABILITIES:
VLASON ENTERPRISES CORPORATION
vs.
COURT OF APPEALS and DURAPROOF SERVICES, represented by its
General Manager, Cesar Urbino Sr.
G.R. Nos. 121662-64
July 6, 1999
310 SCRA 26
FACTS:
Poro Point Shipping Services, then acting as the local agent of Omega
Sea Transport Company of Honduras & Panama, a Panamanian company,
(hereafter referred to as Omega), requested permission for its vessel M/V
Star Ace, which had engine trouble, to unload its cargo and to store it at the
Philippine Ports Authority (PPA) compound in San Fernando, La Union while
awaiting transhipment to Hongkong. The request was approved by the
Bureau of Customs. Despite the approval, the customs personnel boarded
the vessel when it docked on January 7, 1989, on suspicion that it was the
hijacked M/V Silver Med owned by Med Line Philippines Co., and that its
cargo would be smuggled into the country. The district customs collector
seized said vessel and its cargo pursuant to Section 2301, Tariff and Customs
Code. A notice of hearing of SFLU Seizure Identification No. 3-89 was served
on its consignee, Singkong Trading Co. of Hongkong, and its shipper, Dusit
International Co., Ltd. of Thailand.
While seizure proceedings were ongoing, La Union was hit by three
typhoons, and the vessel ran aground and was abandoned. On June 8, 1989,
its authorized representative, Frank Cadacio, entered into a salvage
agreement with private respondent to secure and repair the vessel at the
agreed consideration of $1 million and fifty percent (50%) of the cargo after
all expenses, cost and taxes.
Finding that no fraud was committed, the District Collector of Customs,
Aurelio M. Quiray, lifted the warrant of seizure on July 16, 1989. However, in
a Second Indorsement dated November 11, 1989, then Customs
Commissioner Salvador M. Mison declined to issue a clearance for Quirays
Decision; instead, he forfeited the vessel and its cargo in accordance with
Section 2530 of the Tariff and Customs Code. Accordingly, acting District
Collector of Customs John S. Sy issued a Decision decreeing the forfeiture
and the sale of the cargo in favor of the government.
To enforce its preferred salvors lien, herein Private Respondent
Duraproof Services filed with the Regional Trial Court of Manila a Petition
for Certiorari,
Prohibition
and Mandamus assailing
the
actions
of
Commissioner Mison and District Collector Sy. Also impleaded as

Page 287 of 1072

respondents; were PPA Representative Silverio Mangaoang and Med Line


Philippines, Inc.
On January 10, 1989, private respondent amended its Petition to
include former District Collector Quiray; PPA Port Manager Adolfo Ll. Amor Jr;
Petitioner Vlason Enterprises as represented by its president, Vicente
Angliongto; Singkong Trading Company as represented by Atty. Eddie
Tamondong; Banco Du Brasil; Dusit International Co., Inc.; Thai-Nan
Enterprises Ltd. and Thai-United Trading Co., Ltd. In both Petitions, private
respondent plainly failed to include any allegation pertaining to petitioner, or
any prayer for relief against it.
Summonses for the amended Petition were served on Atty. Joseph
Capuyan for Med Line Philippines: Angliongto (through his secretary, Betty
Bebero), Atty. Tamondong and Commissioner Mison. Upon motion of the
private respondent, the trial court allowed summons by publication to be
served upon the alien defendants who were not residents and had no direct
representatives in the country.
After much ado, the CA ruled that the judgment sought to be reviewed
has become final and executory and ordered the Regional Trial Court to take
appropriate action on the urgent ex-parte motion for issuance of a writ of
execution filed by private respondent. Pursuant thereto, the Regional Trial
Court of Manila issued a writ of possession thus placing private respondent in
possession of petitioners barge Lawin.
Hence, this petition.
ISSUE:
Whether Petitioner Company was served with summons.
RULING:
Yes.
A corporation may be served summons through its agents or officers
who under the Rules are designated to accept service of process. A
summons addressed to a corporation and served on the secretary of its
president binds that corporation. This is based on the rationale that service
must be made on a representative so integrated with the corporation sued,
that it is safe to assume that said representative had sufficient responsibility
and discretion to realize the importance of the legal papers served and to
relay the same to the president or other responsible officer of the corporation
being sued. The secretary of the president satisfies this criterion. This rule
requires, however, that the secretary should be an employee of the
corporation sought to be summoned. Only in this manner can there be an
assurance that the secretary will bring home to the corporation [the] notice
of the filing of the action against it.

Page 288 of 1072

In the present case, Bebero was the secretary of Angliongto, who was
president of both VSI and petitioner, but she was an employee of VSI, not of
petitioner. The piercing of the corporate veil cannot be resorted to when
serving summons. Doctrinally, a corporation is a legal entity distinct and
separate from the members and stockholders who compose it. However,
when the corporate fiction is used as a means of perpetrating a fraud,
evading an existing obligation, circumventing a statute, achieving or
perfecting a monopoly or, in generally perpetrating a crime, the veil will be
lifted to expose the individuals composing it. None of the foregoing
exceptions has been shown to exist in the present case. Quite the contrary,
the piercing of the corporate veil in this case will result in manifest
injustice. This we cannot allow. Hence, the corporate fiction remains.

Page 289 of 1072

TOPIC:MINIMUM SET OF OFFICERS; QUALIFICATIONS; DISQUALIFICATIONS;


AUTHORITY AND LIABILITIES:
PRIME WHITE CEMENT CORPORATION
vs.
HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE
G.R. No. L-68555
March 19, 1993
220 SCRA 103
FACTS:
On or about 16 July 1969, Alejandro Te and Prime White Cement
Corporation (PWCC) thru its President, Mr. Zosimo Falcon and Justo C. Trazo,
as Chairman of the Board, entered into a dealership agreement whereby Te
was obligated to act as the exclusive dealer and/or distributor of PWCC of its
cement products in the entire Mindanao area for a term of 5 years and
providing among others that (a) the corporation shall, commencing
September, 1970, sell to and supply Te, as dealer with 20,000 bags (94
lbs/bag) of white cement per month; (b) Te shall pay PWCC P9.70, Philippine
Currency, per bag of white cement, FOB Davao and Cagayan de Oro ports;
(c) Te shall every time PWCC is ready to deliver the good, open with any bank
or banking institution a confirmed, unconditional, and irrevocable letter of
credit in favor of PWCC and that upon certification by the boat captain on the
bill of lading that the goods have been loaded on board the vessel bound for
Davao the said bank or banking institution shall release the corresponding
amount as payment of the goods so shipped." Right after Te entered into the
dealership agreement, he placed an advertisement in a national, circulating
newspaper the fact of his being the exclusive dealer of PWWC's white
cement products in Mindanao area, more particularly, in the Manila Chronicle
dated 16 August 1969 and was even congratulated by his business
associates, so much so, he was asked by some of his businessmen friends
and close associates if they can be his sub-dealer in the Mindanao area.
Relying heavily on the dealership agreement, Te sometime in the months of
September, October, and December, 1969, entered into a written agreement
with several hardware stores dealing in buying and selling white cement in
the Cities of Davao and Cagayan de Oro which would thus enable him to sell
his allocation of 20,000 bags regular supply of the said commodity, by
September, 1970.
After Te was assured by his supposed buyer that his allocation of
20,000 bags of white cement can be disposed of, he informed the defendant
corporation in his letter dated 18 August 1970 that he is making the
necessary preparation for the opening of the requisite letter of credit to
cover the price of the due initial delivery for the month of September 1970,
looking forward to PWCC's duty to comply with the dealership agreement. In
reply to the aforesaid letter of Te, PWCC thru its corporate secretary, replied

Page 290 of 1072

that the board of directors of PWCC decided to impose the following


conditions: (a) Delivery of white cement shall commence at the end of
November, 1970; (b) Only 8,000 bags of white cement per month for only a
period of three (3) months will be delivered; (c) The price of white cement
was priced at P13.30 per bag; (d) The price of white cement is subject to
readjustment unilaterally on the part of the defendant; (e) The place of
delivery of white cement shall be Austurias; (f) The letter of credit may be
opened only with the Prudential Bank, Makati Branch; (g) Payment of white
cement shall be made in advance and which payment shall be used by the
defendant as guaranty in the opening of a foreign letter of credit to cover
costs and expenses in the procurement of materials in the manufacture of
white cement. Several demands to comply with the dealership agreement
were made by Te to PWCC, however, PWCC refused to comply with the same,
and Te by force of circumstances was constrained to cancel his agreement
for the supply of white cement with third parties, which were concluded in
anticipation of, and pursuant to the said dealership agreement.
Notwithstanding that the dealership agreement between Te and PWCC was in
force and subsisting, PWCC, in violation of, and with evident intention not to
be bound by the terms and conditions thereof, entered into an exclusive
dealership agreement with a certain Napoleon Co for the marketing of white
cement in Mindanao. Te filed suit. After trial, the trial court adjudged PWCC
liable to Alejandro Te in the amount of P3,302,400.00 as actual
damages,P100,000.00 as moral damages, and P10,000 00 as and for
attorney's fees and costs. The appellate court affirmed the said decision.
Hence, this petition.
ISSUE/S:
Whether or not the "dealership agreement" referred by the
President and Chairman of the Board of petitioner corporation is a
valid and enforceable contract.
RULING:
No.
Under the Corporation Law, which was then in force at the time this
case arose, as well as under the present Corporation Code, all corporate
powers shall be exercised by the Board of Directors, except as otherwise
provided by law. Although it cannot completely abdicate its power and
responsibility to act for the juridical entity, the Board may expressly delegate
specific powers to its President or any of its officers. In the absence of such
express delegation, a contract entered into by its President, on behalf of the
corporation, may still bind the corporation if the board should ratify the same
expressly or impliedly. Implied ratification may take various forms like
silence or acquiescence; by acts showing approval or adoption of the
contract; or by acceptance and retention of benefits flowing therefrom.
Furthermore, even in the absence of express or implied authority by
ratification, the President as such may, as a general rule, bind the

Page 291 of 1072

corporation by a contract in the ordinary course of business, provided the


same is reasonable under the circumstances. These rules are basic, but are
all general and thus quite flexible. They apply where the President or other
officer, purportedly acting for the corporation, is dealing with a third
person, i. e., a person outside the corporation.
The situation is quite different where a director or officer is dealing with
his own corporation. In the instant case respondent Te was not an ordinary
stockholder; he was a member of the Board of Directors and Auditor of the
corporation as well. He was what is often referred to as a "self-dealing"
director. A director of a corporation holds a position of trust and as such, he
owes a duty of loyalty to his corporation. In case his interests conflict with
those of the corporation, he cannot sacrifice the latter to his own advantage
and benefit. As corporate managers, directors are committed to seek the
maximum amount of profits for the corporation. This trust relationship "is not
a matter of statutory or technical law. It springs from the fact, that directors
have the control and guidance of corporate affairs and property and hence,
of the property interests of the stockholders."

Page 292 of 1072

TOPIC:MINIMUM SET OF OFFICERS; QUALIFICATIONS; DISQUALIFICATIONS;


AUTHORITY AND LIABILITIES:
LOUIS VUITTON S.A.
vs.
JUDGE FRANCISCO DIAZ VILLANUEVA, presiding Judge, Branch 36,
The Metropolitan Trial Court at Quezon City, Metro Manila
A.M. No. MTJ-92-643
November 27, 1992
216 SCRA 121
FACTS:
The complaining witness in this case is the representative and
attorney-in-fact, counsel of Louis Vuitton, S.A. French Company with business
address at Paris, France. Private complainant is suing the accused for the
protection of the trade mark Louis Vuitton and the L.V. logo which are duly
registered with the Philippine Patent Office. On May 10, 1989, Atty. Felino
Padlan of the Quasha Law Office brought a letter to the COD informing the
latter to cease and desist from selling leather articles bearing the trade
marks Louis Vuitton and L.V. logo as the same is the registered trademarks
belonging to the private complainant which has not authorized any person in
the Philippines to sell such articles. On September 6, 1989, Mrs. Domingo
bought from the same store a wallet with a trade mark and logo of Louis
Vuitton. On September 28 1989, the NBI, upon the request of the Quasha law
Firm applied for a Search Warrant at the Metropolitan Trial Court in Quezon
City; that the application was granted and the Search Warrant was issued
against COD and was enforced on the same date. From the implementation
of the said Search Warrant, about seventy-two (72) leather products were
seized. The accused signed the inventory of the seized articles.
The accused, on the other hand, claimed: that he is not the
manufacturer or seller of the seized articles; that the said articles were sold
in the store by a concessionaire by the name of Erlinda Tan who is doing
business under the name of Hi-Tech Bags and wallets. The trial court
acquitted the accused.
Hence, this petition.
ISSUE/S:
Whether Jose V. Rosarion who was accused as owner/proprietor of
COD was not properly charged as his personality is distinct from
that of the COD's.
RULING:
Jose v. Rosario was charged as owner/proprietor. COD is not a single
proprietorship but one that is run and owned by a corporation, Rosario Bros.,

Page 293 of 1072

Inc., of which the accused is stockholder and Executive Vice-President. A


stockholder generally does not have a hand in the management of the
corporate affairs. On the other hand, the Vice-President had no inherent
power to bind the corporation. As general rule, his duties must be specified
in the by-laws. In the criminal case, the information did not specify his duties
as Executive Vice-President. The trial court had no basis for holding that as
such, the accused entered into a contract with the concessionaire thereby
giving the latter an opportunity to practice unfair competition. Whereas,
Section 23 of the Corporation Code is explicit that the directors, acting as a
body, exercise corporation powers and conduct the corporation's business.
The board has the sole power and responsibility to decide whether a
corporation should enter into any contract or perform any act. The
amendment of the charge, as proposed by the private prosecutor, would not
in any way affect the application of the doctrine that the corporation has a
personality distinct from that of its owners.
Moreover, the finding of the trial court that there is no unfair
competition rendered the consideration of the motions insignificant. If there
was unfair competition, so would there be no offense of giving others an
opportunity to engage in unfair competition since there was no unfair
competition to begin with.

Page 294 of 1072

TOPIC: DOCTRINE OF APPARENT AUTHORITY


SARGASSO CONSTRUCTION & DEVELOPMENT CORPORATION/PICK &
SHOVEL, INC.,/ATLANTIC ERECTORS, INC. (JOINT VENTURE)
VS.
PHILIPPINE PORTS AUTHORITY
G.R. No. 170530, July 5, 2010
FACTS:
Plaintiff Sargasso Construction and Development Corporation, Pick and
Shovel, Inc. and Atlantic Erectors, Inc., a joint venture, was awarded the
construction of Pier 2 and the rock causeway (R.C. Pier 2) for the port of San
Fernando, La Union, after a public bidding conducted by the defendant PPA.
Implementation of the project commenced on August 14, 1990. Adjacent to
Pier 2 is an area of P4,280 square meters intended for the reclamation
project as part of the overall port development plan.
In a letter dated October 1, 1992 of Mr. Melecio J. Go, Executive
Director of the consortium, plaintiff offered to undertake the reclamation
between the Timber Pier and Pier 2 of the Port of San Fernando, La Union, as
an extra work to its existing construction of R.C. Pier 2 and Rock Causeway
for a price of P36,294,857.03. Defendant replied thru its Assistant General
Manager Teofilo H. Landicho in a letter that the proposed project cost is not
acceptable but the proposal may be considered if the price be reduced.
On August 26, 1993, a Notice of Award signed by PPA General Manager
Rogelio Dayan was sent to plaintiff for the phase I Reclamation Contract in
the reduced amount and instructing it to "enter into and execute the contract
agreement with this Office" and to furnish the documents representing
performance security and credit line.
At its meeting held on September 9, 1994, the Board decided not to
approve the contract proposal since there is no strong legal basis for
Management to award the supplemental contract through negotiation. The
Board noted that the Pier 2 Project was basically for the construction of a pier
while the supplemental agreement refers to reclamation. Thus there is no
basis to compare the terms and conditions of the reclamation project with
the original contract.
On June 30, 1997, plaintiff filed a complaint for specific performance
and damages against respondent.

Page 295 of 1072

ISSUE/S:
Whether or not the general manager of PPA is vested with authority
to enter into a contract for and on behalf of PPA.
RULING:
No.
Under Section 51 of contracts in behalf of the Republic of the
Philippines shall be executed by the President unless authority therefore is
expressly vested by law or by him in any other public officer.
Contracts in behalf of the political subdivisions and corporate agencies
or instrumentalities shall be approved by their respective governing boards
or councils and executed by their respective executive heads. Contracts to
which the government is a party are generally subject to the same laws and
regulations which govern the validity and sufficiency of contracts between
private individuals. A government contract, however, is perfected only upon
approval by a competent authority, where such approval is required.
P.D. 857 states that one of the corporate powers of respondents Board
of Directors is to "reclaim any part of the lands vested in the Authority." It
also "exercises all the powers of a corporation under the Corporation Law."
On the other hand, the law merely vests the general manager the "general
power to sign contracts" and "to perform such other duties as the Board
may assign" Therefore, unless respondents Board validly authorizes its
general manager, the latter cannot bind respondent PPA to a contract.
Precisely, the Board of Directors of the respondent did not see fit to
approve the contract by negotiation after finding that "the Pier 2 Project was
basically for the construction of a pier while the supplemental agreement
refers to reclamation. Thus, there is no basis to compare the terms and
conditions of the reclamation project with the original contract (Pier 2
Project) of Sargasso." The negotiated contract itself basically contravenes
stringent legal requirements aimed at protecting the interest of the public.
The facts here do not conform to what the law requires.

Page 296 of 1072

TOPIC: DOCTRINE OF APPARENT AUTHORITY


EMILIANO ACUA,
vs.
BATAC PRODUCERS COOPERATIVE MARKETING ASSOCIATION, INC. et
al
G.R. No. L-20333 June 30, 1967
FACTS:
On August 9, 1962, Emiliano Acua filed a complaint, which was later
amended on August 13, against the defendant Batac Producers Cooperative
Marketing Association, Inc.The complaint alleged, inter alia, that on or about
May 5, 1962 it was tentatively agreed upon between plaintiff and defendant
Leon Q. Verano, as Manager of the defendant Batac Procoma, Inc., that the
former would seek and obtain the sum of not less, than P20,000.00 to be
advanced to the defendant Batac Procoma, Inc., to be utilized by it as
additional funds for its Virginia tobacco buying operations during the current
redrying season.
The said tentative agreement was favorably received by the Board of
Directors of the defendant Batac Procoma Inc., and on May 6, 1962 all the
defendants named above, who constituted the entire Board of Directors of
said corporation unanimously authorized defendant Leon Q. Verano, by a
formal resolution. He was assured by these defendants that a formal
approval of said "Agreement" by the Board was no longer necessary, as it
was a mere "formality" appended to its authorizing resolution and as all the
members of the Board had already agreed to the same. But the "Agreement"
was disapproved by its Board of Directors on June 6, 1962.
On September 10, 1962, the trial court dismissed the complaint .
ISSUE/S:
Whether or not the agreement is binding between the parties
RULING:
Yes.
There is abundant authority in support of the proposition that
ratification may be express or implied, and that implied ratification may take
diverse forms, such as by silence or acquiescence; by acts showing approval
or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom.

Page 297 of 1072

The very resolution of the Board of Directors relied upon by defendants


appears to militate against their contention. It refers to plaintiff's failure to
comply with certain promises he had made, as well as to his interpretation of
the contract with respect to his remuneration which, according to the Board,
was contrary to the intention of the parties. The resolution then proceeds to
"disapprove and/or rescind" the said contract. The idea of conflicting
interpretation, or rescission on the ground that one of the parties has failed
to fulfill his obligation under the contract, is certainly incompatible with
defendants' theory here that no contract had yet been perfected for lack of
approval by the Board of Directors.
Hence, the order of the trial court is set aside and the case was
remanded for further proceedings.

TOPIC: DOCTRINE OF APPARENT AUTHORITY

Page 298 of 1072

THE BOARD OF LIQUIDATORS representing THE GOVERNMENT OF


THE REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE
DECEASED CASIMIRO GARCIA, and LEONOR MOLL, defendantsappellees.
G.R. No. L-18805. August 14, 1967
FACTS:
The National Coconut Corporation (NACOCO, for short) was chartered
as a non-profit governmental organization on May 7, 1940 by Commonwealth
Act 518 avowedly for the protection, preservation and development of the
coconut industry in the Philippines. On August 1, 1946, NACOCO's charter
was amended [Republic Act 5]. General manager and board chairman was
Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members
of the Board; defendant Leonor Moll became director only on December 22,
1947.
NACOCO, after the passage of Republic Act 5, embarked on copra trading
activities. Several contracts executed by general manager Kalaw became
sources of dispute. An unhappy chain of events conspired to deter NACOCO
from fulfilling these contracts. Four devastating typhoons visited the
Philippines. Coconut trees throughout the country suffered extensive
damage. Copra production decreased. Cash requirements doubled.
Deprivation of export facilities increased the time necessary to accumulate
shiploads of copra. Quick turnovers became impossible, financing a problem.
When it became clear that the contracts would be unprofitable Kalaw
submitted them to the board for approval. It was not until December 22,
1947 when the membership was completed. Defendant Moll took her oath on
that date. A meeting was then held. Kalaw made a full disclosure of the
situation apprised the board of the impending heavy losses. No action was
taken on the contracts. Neither did the board vote thereon at the meeting of
January 7, 1948 following. Then, on January 11, 1948, President Roxas made
a statement that the NACOCO head did his best to avert the losses,
emphasized that government concerns faced the same risks that confronted
private companies, that NACOCO was recouping its losses, and that Kalaw
was to remain in his post. Not long thereafter, that is, on January 30, 1948,
the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They
unanimously approved the contracts. As was to be expected, NACOCO but
partially performed the contracts.
The buyers threatened damage suits. Some of the claims were settled.
But one buyer, Louis Dreyfus & Co. (Overseas) Ltd., did in fact sue before the
Court of First Instance of Manila. The corporation thereunder paid Dreyfus
P567,024.52 representing 70% of the total claims. With particular reference
to the Dreyfus claims, NACOCO put up the defenses that: (1) the contracts
were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license

Page 299 of 1072

to do business here; and (2) failure to deliver was due to force majeure, the
typhoons.
All the settlements sum up to P1,343,274.52. In 1949, NACOCO seeks
to recover the said sum from general manager and board chairman Maximo
M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It
charges Kalaw with negligence under Article 2176, new Civil Code; and
defendant board members, including Kalaw, with bad faith and/or breach
trust for having approved the contracts. The lower court came out with a
judgment dismissing the complaint without costs as well as defendant's
counterclaims, except that plaintiff was ordered to pay the heirs of Maximo
Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit due the
deceased Kalaw from NACOCO.
ISSUE/S:
Did the Board of Liquidators has lost its legal personality to continue
with this suit due to its
winding-up?
Is the Defendant's second that the action is unenforceable against
the heirs of Kalaw because it is a personal action and at that did not
survive his death correct?
Did Kalaw justifiedly enter into the controverted contracts without
the prior approval of the corporation's directorate?
RULING:
1. NO.
The three methods by which a corporation may wind up its affairs: (1)
under Section 3, Rule 104, of the Rules of Court [which superseded Section
66 of the Corporation Law]
whereby, upon voluntary dissolution of a
corporation, the court may direct "such disposition of its assets as justice
requires, and may appoint a receiver to collect such assets and pay the
debts of the corporation;" (2) under Section 77 of the Corporation Law,
whereby a corporation whose corporate existence is terminated, "shall
nevertheless be continued as a body corporate for three years after the time
when it would have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling it gradually to settle and
close its affairs, to dispose of and convey its property and to divide its capital
stock, but not for the purpose of continuing the business for which it was
established"; and (3) under Section 78 of the Corporation Law, by virtue of
which the corporation, within the three-year period just mentioned, "is
authorized and empowered to convey all of its property to trustees for the
benefit of members, stockholders, creditors, and others interested."
Section 1 of Executive Order 372, whereby the corporate existence of
NACOCO was continued for a period of three years from the effectivity
of the order for "the purpose of prosecuting and defending suits by or
against it and of enabling the Board of Liquidators gradually to settle
and close its affairs, to dispose of and convey its property in the

Page 300 of 1072

manner hereinafter provided", is to be read not as an isolated provision


but in conjunction with the whole. So reading, it will be readily
observed that no time limit has been tackled to the existence of the
Board of Liquidators and its function of closing the affairs of the various
government-owned corporations, including NACOCO.
By Section 2 of the executive order, while the boards of directors of the
various corporations were abolished, their powers and functions and
duties under existing laws were to be assumed and exercised by the
Board of Liquidators. The President thought it best to do away with the
boards of directors of the defunct corporations; at the same time,
however, the President had chosen to see to it that the Board of
Liquidators step into the vacuum. And nowhere in the executive order
was there any mention of the lifespan of the Board of Liquidators. A
glance at the other provisions of the executive order buttresses our
conclusion. Thus, liquidation by the Board of Liquidators may, under
section 1, proceed in accordance with law, the provisions of the
executive order, "and/or in such manner as the President of the
Philippines may direct. Implicit in all these, is that the term of life of the
Board of Liquidators is without time limit. Executive Order 372, the
government, the sole stockholder, abolished NACOCO, and placed its
assets in the hands of the Board of Liquidators. The Board of
Liquidators thus became the trustee on behalf of the government. It
was an express trust. The legal interest became vested in the trustee
the Board of Liquidators. The beneficial interest remained with the
sole stockholder the government. At no time had the government
withdrawn the property, or the authority to continue the present suit,
from the Board of Liquidators. The provisions of Section 78 of the
Corporation Law the third method of winding up corporate affairs
find application.
2. NO.
The suit here revolves around the alleged negligent acts of Kalaw for
having entered into the questioned contracts without prior approval of the
board of directors, to the damage and prejudice of plaintiff; and is against
Kalaw and the other directors for having subsequently approved the said
contracts in bad faith and/or breach of trust. Clearly then, the present case is
not a mere action for the recovery of money nor a claim for money arising
from contract. The suit involves alleged tortious acts. And the action is
embraced in suits filed "to recover damages for an injury to person or
property, real or personal," which survive.
3. YES.
Settled jurisprudence has it that where similar acts have been
approved by the directors as a matter of general practice, custom, and
policy, the general manager may bind the company without formal

Page 301 of 1072

authorization of the board of directors. In varying language, existence of


such authority is established, by proof of the course of business, the usages
and practices of the company and by the knowledge which the board of
directors has, or must be presumed to have, of acts and doings of its
subordinates in and about the affairs of the corporation. So also,
". . . authority to act for and bind a corporation may be presumed from acts
of recognition in other instances where the power was in fact exercised."
". . . Thus, when, in the usual course of business of a corporation, an officer
has been allowed in his official capacity to manage its affairs, his authority to
represent the corporation may be implied from the manner in which he has
been permitted by the directors to manage its business." In the case at bar,
the practice of the corporation has been to allow its general manager to
negotiate and execute contracts in its copra trading activities for and in
NACOCO's behalf without prior board approval. If the by-laws were to be
literally followed, the board should give its stamp of prior approval on all
corporate contracts. But that board itself, by its acts and through
acquiescence practically laid aside the by-law requirement of prior approval.
Under the given circumstances, the Kalaw contracts are valid corporate acts.

Page 302 of 1072

TOPIC: DOCTRINE OF APPARENT AUTHORITY


TRINIDAD J. FRANCISCO, plaintiff-appellee,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.
G.R. No. L-18287. March 30, 1963
TRINIDAD J. FRANCISCO, plaintiff-appellant,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee.
G.R. No. L-18155. March 30, 1963
FACTS:
On 10 October 1956, Trinidad J. Francisco, in consideration of a loan in
the amount of P400,000.00, out of which the sum of P336,100.00 was
released to her, mortgaged in favor of the defendant, GSIS a parcel of land.
On 6 January 1959, the System extrajudicially foreclosed the mortgage on
the ground that up to that date the plaintiff-mortgagor was in arrears on her
monthly installments in the amount of P52,000.00. The System itself was the
buyer of the property in the foreclosure sale.
On 20 February 1959, the plaintiff's father, Atty. Vicente J. Francisco,
sent a letter for a proposal of payment to the general manager of the
defendant corporation. On the same day Francisco received a telegram
approving his request by the board of the GSIS. The defendant received the
amount of P30,000.00, and issued therefor its official receipt No. 1209874,
dated 4 March 1959. It did not, however, take over the administration of the
compound. GSIS sent 3 letters, one dated 29 January 1960, which was signed
by its assistant general manager, and the other two letters, dated 19 and 26
February 1960, respectively, which were signed by Andal, asking the plaintiff
for a proposal for the payment of her indebtedness, since according to the
System the one-year period for redemption had expired.
In reply, Atty. Francisco sent a letter, dated 11 March 1960, protesting
against the System's request for proposal of payment and inviting its
attention to the concluded contract generated by his offer of 20 February
1959, and its acceptance by telegram of the same date.
ISSUE/S:
Whether or not the offer of compromise has been validly
accepted

Page 303 of 1072

RULING:
Yes.
The offer of compromise made by plaintiff in the letter, Exhibit "A", had
been validly accepted, and was binding on the defendant. The terms of the
offer were clear, and over the signature of defendant's general manager,
Rodolfo Andal, plaintiff was informed telegraphically that her proposal had
been accepted. There was nothing in the telegram that hinted at any
anomaly, or gave ground to suspect its veracity, and the plaintiff, therefore,
can not be blamed for relying upon it.
If a private corporation intentionally or negligently clothes its officers
or agents with apparent power to perform acts for it, the corporation will be
estopped to deny that such apparent authority is real, as to innocent third
persons dealing in good faith with such officers or agents. Hence, even if it
were the board secretary who sent the telegram, the corporation could not
evade the binding effect produced by the telegram.

Page 304 of 1072

TOPIC: DOCTRINE OF APPARENT AUTHORITY


NEW DURAWOOD CO., INC. petitioner,
vs.
COURT OF APPEALS, HON. FELIX S. CABALLES, as Judge, RTC of
Antipolo, Rizal, Branch 71, WILSON M. GAW, ORLANDO S. BONGAT ,
DURAWOOD CONSTRUCTION AND LUMBER SUPPLY CO., INC.,
respondents.
G.R. No. 111732, Feb 20, 1996
FACTS:
On February 14, 1990, a "Petition for Judicial Reconstitution of the Lost
Owner's Duplicate Certificates of TCT Nos. 140486; 156454 and 140485"
was filed in the Regional Trial Court, Branch LXXI, Antipolo, Rizal by
petitioner-corporation, represented by its Branch Manager, Wilson M. Gaw.
Attached to said petition was an "Affidavit of Loss" of respondent Orlando S.
Bongat, one of the stockholders of petitioner-corporation.
Finding the petition "to be sufficient in form and in substance,"
respondent Judge set the case for hearing on March 18, 1991. On April 16,
1991, respondent Judge issued the questioned order.
Sometime in May, 1991, petitioner discovered that the original TCT
Nos. N-140485, N-140486 and 156454 on file with the Register of Deeds of
Rizal had been cancelled and, in lieu thereof, TCT Nos. 200100, 200101 and
200102 had been issued in the name of respondent Durawood Construction
and Lumber Supply, Inc. Surprised by this cancellation, petitioner after
investigation found out about the reconstitution proceeding in the
respondent trial court. So, on July 17, 1991, petitioner filed suit in the Court
of Appeals praying for the annulment of the assailed order in LRC Case No.
91-924 penned by respondent Judge. It also prayed for the cancellation of
the new certificates (TCT Nos. 200100, 200101 and 200102). On May 31,
1993, the respondent Court of Appeals rendered the assailed Decision and
on August 30, 1993, the Resolution denying the motion for reconsideration.
ISSUE/S:
Whether or not Gaw's act of filing the reconstitution proceedings
is binding upon petitioner-corporation

Page 305 of 1072

RULING:
No.
The appellate court erred in its explanation that while there may not
have been a quorum during the board meeting of petitioner-corporation on
May 10, 1984 when a resolution authorizing Gaw to sue on its behalf was
allegedly passed, this did "not mean however, that New Durawood Co., Inc.
cannot be bound by Gaw's action because "no howl of protest, complaint or
denial came from (said corporation), and that said corporation in fact had
taken advantage of the benefits therefrom. Hence, petitioner is estopped
from questioning Gawls acts. The appellate Court was of the belief that
petitioner-corporation ratified Gaw's "authority" by acquiescence to his acts.
The respondent Court thus concluded that petitioner-corporation's "claim of
being a victim of extrinsic fraud is baseless."
It is clear that, there having been no quorum present during the
meeting in question, the board of directors could not have validly given Gaw
any express authority to file the petition. Upon the other hand, the doctrine
of "apparent authority" cannot apply as to Gaw because, being a mere
branch manager, he could not be looked upon as a corporate officer clothed
with the implied or "apparent" power to file suit for and in behalf of a
corporation. Neither will estoppel prevent the corporation from questioning
Gaw's acts. Precisely, these acts were hidden from the company and its top
officers. How then can estoppel attach?
By his surreptitious filing of the petition for reconstitution without
authority express or implied of his employer, Gaw enabled respondent
corporation to acquire the certificates of title in a manner contrary to law.
In petitions for issuance of new owner's duplicate copies of Torrens
titles, it is essential as provided under Sec. 109 of P.D. 1529 as amended
(supra) that the trial court take steps to assure itself that the petitioner is
the "registered owner or other person in interest". Otherwise, new owner's
duplicate certificates might be issued in favor of impostors who could
fraudulently dispose, hypothecate or otherwise deal in and with real estate in
mockery of the Torrens system of titling properties.

Page 306 of 1072

TOPIC:DOCTRINE OF APPARENT AUTHORITY


PEOPLE'S AIRCARGO AND WAREHOUSING CO. INC.,
vs.
COURT OF APPEALS and STEFANI SAO,
G.R. No. 117847. October 7, 1998
297 S 170
FACTS:
Petitioner is a domestic corporation, which was organized in the middle
of 1986 to operate a customs bonded warehouse at the old Manila
International Airport in Pasay City.
To obtain a license for the corporation from the Bureau of Customs, Antonio
Punsalan Jr., the corporation president, solicited a proposal from private
respondent for the preparation of a feasibility study. Private respondent
submitted a letter-proposal.
Initially, Cheng Yong, the majority stockholder of petitioner, objected to
private respondent's offer, as another company priced a similar proposal at
only P15,000. However, Punsalan preferred private respondent's service
because of the latter's membership in the task force, which was supervising
the transition of the Bureau of Customs from the Marcos government to the
Aquino administration.
On October 17, 1986, pertitioner, through Punsalan, sent private
respondent a letter, confirming their agreement.
Accordingly, private respondent prepared a feasibility study for
petitioner which eventually paid him the balance of the contract price,
although not according to the schedule agreed upon.
On December 4, 1986, upon Punsalan's request, private respondent
sent petitioner another letter-proposal.
On January 10, 1987, Andy Villaceren, vice president of petitioner,
received the operations manual prepared by private respondent. Petitioner
submitted said operations manual to the Bureau of Customs is connection
with the former's application to operate a bonded warehouse; thereafter, in
May 1987, the Bureau issued to it a license to operate, enabling it to become
one of the three public bonded warehouses at the international airport.
Private respondent also conducted, in the third week of January 1987 in the
warehouse of petitioner, a three-day training seminar for the latter's
employees.

Page 307 of 1072

On March 25, 1987, private respondent joined the Bureau of Customs


as special assistant to then Commissioner Alex Padilla, a position he held
until he became technical assitant to then Commissioner Miriam DefensorSantiago on March 7, 1988.
Meanwhile, Punsalan sold his shares in
petitioner-corporation and resigned as its president in 1987.
On February 9, 1988, private respondent filed a collection suit against
petitioner.
ISSUE/S:
Whether the subject letter-agreement for services was binding on
the corporation simply because it was entered into by its
president
RULING:
The general rule is that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation. A
corporation is a juridical person, separate and distinct from its stockholders
and members, "having . . . powers, attributes and properties expressly
authorized by law or incident to its existence."
Being a juridical entity, a corporation may board of directors, which
exercises almost all corporate powers, lays down all corporate business
policies and is responsible for the efficiency of management, as provided in
Section 23 of the Corporation Code of the Philippines.
Under this provision, the power and the responsibility to decide
whether the corporation should enter into a contract that will bind the
corporation is lodged in the board, subject to the articles of incorporaration,
bylaws, or relevant provisions of law. Howeever, just as a natural person
may authorize another to do certain acts for and on his behalf, the board of
directors may validly delegate some of its functions and powers to officers,
committees or agents. The authority of such individuals to bind the
corporation is generally derived from law, corporate bylaws or authorization
from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business.
In the case at bar, petitioner, through its president Antonio Punsalan Jr.,
entered into the First Contract without first securing board approval. Despite
such lack of board approval, petitioner did not object to or repudiate said
contract, thus "clothing" its president with the power to bind the corporation.
The grant of apparent authority to Punsalan is evident in the testimony of
Yong senior vice president, treasurer and major stockholder of petitioner.
Hence, private respondent should not be faulted for believing that Punsalan's
conformity to the contract in dispute was also binding on petitioner. It is

Page 308 of 1072

familiar doctrine that if a corporation knowingly permits one of its officers, or


any other agent, to act within the scope of an apparent authority, it holds
him out to the public as possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agent's authority.

Page 309 of 1072

TOPIC: DOCTRINE OF APPARENT AUTHORITY


SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.,
vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE
GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY AND
DEVELOPMENT CORP.,
G.R. No. 129459. September 29, 1998
FACTS:
Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s
amended complaint alleged that on 14 February 1989, plaintiff-appellant
entered into an agreement with defendant-appellee Motorich Sales
Corporation for the transfer to it of a parcel of land identified as Lot 30, Block
1 of the Acropolis Greens Subdivision containing an area of Four Hundred
Fourteen (414) square meters.
That as stipulated in the Agreement of 14 February 1989, plaintiffappellant paid the down payment in the sum of One Hundred Thousand
(P100, 000.00) Pesos, the balance to be paid on or before March 2, 1989;
that on March 1, 1989.
Mr. Andres T. Co, president of plaintiff-appellant Corporation, wrote a
letter to defendant-appellee Motorich Sales Corporation requesting for a
computation of the balance to be paid plaintiff-appellant was ready with the
amount corresponding to the balance, payable to defendant-appellee
Motorich Sales Corporation; that plaintiff-appellant and defendant-appellee
Motorich Sales Corporation were supposed to meet in the office of plaintiffappellant but defendant-appellee's treasurer, Nenita Lee Gruenberg, did not
appear; that defendant-appellee Motorich Sales Corporation despite
repeated demands and in utter disregard of its commitments had refused to
execute the Transfer of Rights/Deed of Assignment which is necessary to
transfer the certificate of title.
ISSUE/S:
Was there a valid contract of sale between petitioner and
Motorich?
RULING:
In the case at bar, Respondent Motorich categorically denies that it
ever authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of
land. Consequently, petitioner had the burden of proving that Nenita
Gruenberg was in fact authorized to represent and bind Motorich in the
transaction. Petitioner failed to discharge this burden. Its offer of evidence
before the trial court contained no proof of such authority. It has not shown

Page 310 of 1072

any provision of said respondent's articles of incorporation, bylaws or board


resolution to prove that Nenita Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich does not free
petitioner from the responsibility of ascertaining the extent of her authority
to represent the corporation. Petitioner cannot assume that she, by virtue of
her position, was authorized to sell the property of the corporation. Selling is
obviously foreign to a corporate treasurer's function, which generally has
been described as "to receive and keep the funds of the corporation, and to
disburse them in accordance with the authority given him by the board or
the properly authorized officers."
Neither was such real estate sale shown to be a normal business
activity of Motorich. The primary purpose of Motorich is marketing,
distribution, export and import in relation to a general merchandising
business. Unmistakably, its treasurer is not cloaked with actual or apparent
authority to buy or sell real property, an activity which falls way beyond the
scope of her general authority.
As a general rule, the acts of corporate officers within the scope of
their authority are binding on the corporation. But when these officers
exceed their authority, their actions "cannot bind the corporation, unless it
has ratified such acts or is estopped from disclaiming them."
In this case, there is a clear absence of proof that Motorich ever
authorized Nenita Gruenberg, or made it appear to any third person that she
had the authority, to sell its land or to receive the earnest money. Neither
was there any proof that Motorich ratified, expressly or impliedly, the
contract. Petitioner rests its argument on the receipt which, however, does
not prove the fact of ratification. The document is a hand-written one, not a
corporate receipt, and it bears only Nenita Gruenberg's signature. Certainly,
this document alone does not prove that her acts were authorized or ratified
by Motorich.
Because Motorich had never given a written authorization to
Respondent Gruenberg to sell its parcel of land, we hold that the February
14, 1989 Agreement entered into by the latter with petitioner is void under
Article 1874 of the Civil Code. Being inexistent and void from the beginning,
said contract cannot be ratified.

Page 311 of 1072

TOPIC:DOCTRINE OF APPARENT AUTHORITY


RURAL BANK OF MILAOR (CAMARINES SUR)
vs.
FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO,
FELICISIMO OCFEMIA, RENATO OCFEMIA JR, and WINSTON OCFEMIA
G.R. No. 137686.February 8, 2000
325 SCRA 99
FACTS:
On April 10, 1996, petitioner was declared in default on motion of the
respondents for failure to file an answer within the reglementary-period after
it was duly served with summons. On April 26, 1996, herein petitioner filed a
motion to set aside the order of default with objection thereto filed by herein
respondents.
On June 17, 1996, an order was issued denying petitioner's motion to
set aside the order of default. The defendant filed a motion for
reconsideration of the order of June 17, 1996 with objection thereto by
respondents. An order was issued denying petitioner's motion for
reconsideration. On July 31, 1996, respondents filed a motion to set case for
hearing. A copy thereof was duly furnished the petitioner but the latter did
not file any opposition and so respondents were allowed to present their
evidence ex-parte. A certiorari case was filed by the petitioner with the Court
of Appeals but the petition was denied in a decision rendered on March 31,
1997 and the same is now final.
The evidence presented by the respondents, shows that she is the
daughter of Francisca Ocfemia, a co-respondent in this case, and the late
Renato Ocfemia who died on July 23, 1994. The parents of her father, Renato
Ocfemia, were Juanita Arellano Ocfemia and Felicisimo Ocfemia. Her other
co-respondents Rowena O. Barrogo, Felicisimo Ocfemia, Renato Ocfemia, Jr.
and Winston Ocfemia are her brothers and sisters.
Marife O. Nio knows the five parcels of land described in paragraph 6 of the
petition and that they are the ones possessing them which were originally
owned by her grandparents, respondents mortgaged the said five parcels of
land and two others to the petitioner Rural Bank of Milaor as shown by the
Deed of Real Estate Mortgage.
The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not
able to redeem the mortgaged properties consisting of seven (7) parcels of
land and so the mortgage was foreclosed and thereafter ownership thereof
was transferred to the petitioner bank. Out of the seven (7) parcels that were

Page 312 of 1072

foreclosed, five (5) of them are in the possession of the respondents because
these five (5) parcels of land described in paragraph 6 of the petition were
sold by the petitioner bank to the parents of Marife O. Nio.
The aforementioned five (5) parcels of land subject of the deed of sale
have not been, however transferred in the name of the parents of Merife O.
Nio after they were sold to her parents by the petitioner bank because
according to the Assessor's Office the five (5) parcels of land, subject of the
sale, cannot be transferred in the name of the buyers as there is a need to
have the document of sale registered with the Register of Deeds of
Camarines Sur.
In view of the foregoing, Marife O. Nio went to the Register of Deeds of
Camarines Sur with the Deed of Sale in order to have the same registered.
The Register of Deeds, however, informed her that the document of sale
cannot be registered without a board resolution of the petitioner Bank.
The petitioner bank refused her request for a board resolution and
made many alibis.
ISSUE/S:
Whether the bank manager can enter into a contract of sale.
RULING:
In any event, the bank acknowledged, by its own acts or failure to act,
the authority of Fe S. Tena to enter into binding contracts. After the execution
of the Deed of Sale, respondents occupied the properties in dispute and paid
the real estate taxes due thereon. If the bank management believed that it
had title to the property, it should have taken some measures to prevent the
infringement or invasion of its title thereto and possession thereof.
Likewise, Tena had previously transacted business on behalf of the bank, and
the latter had acknowledged her authority. A bank is liable to innocent third
persons where representation is made in the course of its normal business by
an agent like Manager Tena, even though such agent is abusing her
authority.
Clearly, persons dealing with her could not be blamed for
believing that she was authorized to transact business for and on behalf of
the bank.
Notwithstanding the putative authority of the manager to bind the
bank in the Deed of Sale, petitioner has failed to file an answer to the
Petition below within the reglementary period, let alone present evidence
controverting such authority. Indeed, when one of herein respondents, Marife
S. Nino, went to the bank to ask for the board resolution, she was merely told
to bring the receipts. The bank failed to categorically declare that Tena had
no authority. This Court stresses the following:

Page 313 of 1072

. . . Corporate transactions would speedily come to a


standstill were every person dealing with a corporation
held duty-bound to disbelieve every act of its responsible
officers, no matter how regular they should appear on their
face.
In this light, the bank is estopped from questioning the authority of the
bank manager to enter into the contract of sale. If a corporation knowingly
permits one of its officers or any other agent to act within the scope of an
apparent authority, it holds the agent out to the public as possessing the
power to do those acts; thus, the corporation will, as against anyone who has
in good faith dealt with it through such agent, be estopped from denying the
agent's authority.
Unquestionably, petitioner has authorized Tena to enter into the Deed
of Sale. Accordingly, it has a clear legal duty to issue the board resolution
sought by respondent's. Having authorized her to sell the property, it
behooves the bank to confirm the Deed of Sale so that the buyers may enjoy
its full use.

Page 314 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
IMELDA O. COJUANGCO, PRIME HOLDINGS, INC., AND THE ESTATE OF
RAMON U. COJUANGCO
vs.
SANDIGANBAYAN, REPUBLIC OF THE PHILIPPINES, AND THE SHERIFF
OF SANDIGANBAYAN
G.R. No. 183278.April 24, 2009
FACTS:
On July 16, 1987, respondent Republic of the Philippines filed before
the Sandiganbayan a "Complaint for Reconveyance, Reversion, Accounting,
Restitution and Damages," praying for the recovery of alleged ill-gotten
wealth from the late President Marcos and former First Lady Imelda Marcos
and their cronies, including some 2.4 million shares of stock in the Philippine
Long Distance Telephone Company
The complaint, which was later amended to implead herein petitioners
Ramon and Imelda Cojuangco alleged that the Marcoses ill-gotten wealth
included shares in the registered in the name of Prime Holdings, Inc. (Prime
Holdings).
The Sandiganbayan dismissed the complaint with respect to the
recovery of the PLDT shares, hence, the Republic appealed to this Court.
The Decision became final and executory on October 26, 2006, hence,
the Republic filed on November 20, 2006 with the Sandiganbayan a Motion
for the Issuance of a Writ of Execution, praying for the cancellation of the
111,415 shares/certificates of stock registered in the name of Prime Holdings
and the annotation of the change of ownership on PTICs Stock and Transfer
Book.
ISSUE/S:
whether the Sandiganbayan gravely abused its discretion in
ordering the accounting, delivery, and remittance to the Republic
of the stock, cash, and property dividends pertaining to the
111,415 PTIC shares of Prime Holdings

Page 315 of 1072

RULING:
This Court, in directing the reconveyance to the Republic of the
111,415 shares of PLDT stock owned by PTIC in the name of Prime Holdings,
declared the Republic as the owner of said shares and, necessarily, the
dividends and interests accruing thereto.
Ownership is a relation in law by virtue of which a thing pertaining to
one person is completely subjected to his will in everything not prohibited by
law or the concurrence with the rights of another. Its traditional elements or
attributes include jus utendi or the right to receive from the thing what it
produces.
It would be absurd to award the shares to the Republic as their owner
and not include the dividends and interests accruing thereto. An owner who
cannot exercise the "juses" or attributes of ownership -- the right to possess,
to use and enjoy, to abuse or consume, to accessories, to dispose or
alienate, to recover or vindicate, and to the fruits - is a crippled owner.
Respecting petitioners argument that the Republic has yielded its right
to the fruits of the shares when it sold them to Metro Pacific Assets Holdings,
Inc., (Metro Pacific), the same does not lie.
Dividends are payable to the stockholders of record as of the date of
the declaration of dividends or holders of record on a certain future date, as
the case may be, unless the parties have agreed otherwise. And a transfer of
shares which is not recorded in the books of the corporation is valid only as
between the parties, hence, the transferor has the right to dividends as
against the corporation without notice of transfer but it serves as trustee of
the real owner of the dividends, subject to the contract between the
transferor and transferee as to who is entitled to receive the dividends.
It is thus clear that the Republic is entitled to the dividends accruing
from the subject 111,415 shares since 1986 when they were sequestered up
to the time they were transferred to Metro Pacific via the Sale and Purchase
Agreement of February 28, 2007; and that the Republic has since the latter
date been serving as trustee of those dividends for the Metro Pacific up to
the present, subject to the terms and conditions of the said agreement they
entered into.

Page 316 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
ARNEL U. TY, MARIE ANTONETTE TY, JASON ONG, WILLY DY, and
ALVIN TY
vs.
NBI SUPERVISING AGENT MARVIN E. DE JEMIL, PETRON GASUL
DEALERS ASSOCIATION, and TOTALGAZ DEALERS ASSOCIATION
G.R. No. 182147.December 15, 2010
FACTS:
Petitioners are stockholders of Omni Gas Corporation as per Omnis
General Information Sheet submitted to the Securities and Exchange
Commission. Omni is in the business of trading and refilling of Liquefied
Petroleum Gas cylinders and holds Pasig City Mayors Permit.
The case all started when Joaquin Guevara Adarlo & Caoile Law Offices
sent a letter to the NBI requesting, on behalf of their clients Shellane Dealers
Association, Inc., Petron Gasul Dealers Association, Inc., and Totalgaz Dealers
Association, Inc., for the surveillance, investigation, and apprehension of
persons or establishments in Pasig City that are engaged in alleged illegal
trading of petroleum products and underfilling of branded LPG cylinders in
violation of Batas Pambansa Blg. 33.
Agents De Jemil and Kawada attested to conducting surveillance of
Omni in the months of March and April 2004 and doing a test-buy on April
15, 2004. They brought eight branded LPG cylinders of Shellane, Petron
Gasul, Totalgaz, and Superkalan Gaz to Omni for refilling. The branded LPG
cylinders were refilled, for which the National Bureau of Investigation (NBI)
agents paid PhP 1,582 issued by Omni on April 15, 2004. The refilled LPG
cylinders were without LPG valve seals and one of the cylinders was actually
underfilled, as found by LPG Inspector Noel N. Navio of the Liquefied
Petroleum Gas Industry Association who inspected the eight branded LPG
cylinders on April 23, 2004 which were properly marked by the NBI after the
test-buy.
On the same day of the filing of the application for search warrants on
April 28, 2004, the RTC, Branch 167 in Pasig City issued Search Warrants. The

Page 317 of 1072

NBI served the warrants the next day or on April 29, 2004 resulting in the
seizure of several items from Omnis premises duly itemized in the NBIs
Receipt/Inventory of Property/Item Seized.
ISSUE/S:
Whether or not petitioners can be held liable under BP 33 for
being mere directors, not actually in charge of the management
of the Business Affairs of the Corporation
RULING:
When the offender is a corporation, partnership, or other juridical
person, the president, the general manager, managing partner, or such
other officer charged with the management of the business affairs thereof, or
employee responsible for the violation shall be criminally liable; in case the
offender is an alien, he shall be subject to deportation after serving the
sentence.
If the offender is a government official or employee, he shall be
perpetually disqualified from office.
On this point, we agree with petitioners except as to petitioner Arnel U.
Ty who is indisputably the President of Omni.
It may be noted that Sec. 4 above enumerates the persons who may
be held liable for violations of the law, viz:
1. the president,
2. general manager,
3. managing partner,
4. such other officer charged with the management of the
business affairs of the corporation or juridical entity, or
5. the employee responsible for such violation.
A common thread of the first four enumerated officers is the fact that
they manage the business affairs of the corporation or juridical entity. In
short, they are operating officers of a business concern, while the last in the
list is self-explanatory.
It is undisputed that petitioners are members of the board of directors
of Omni at the time pertinent. There can be no quibble that the enumeration
of persons who may be held liable for corporate violators of BP 33, as
amended, excludes the members of the board of directors. This stands to
reason for the board of directors of a corporation is generally a policy making
body. Even if the corporate powers of a corporation are reposed in the board
of directors under the first paragraph of Sec. 23of the Corporation Code, it is
of common knowledge and practice that the board of directors is not directly
engaged or charged with the running of the recurring business affairs of the

Page 318 of 1072

corporation. Depending on the powers granted to them by the Articles of


Incorporation, the members of the board generally do not concern
themselves with the day-to-day affairs of the corporation, except those
corporate officers who are charged with running the business of the
corporation and are concomitantly members of the board, like the President.
Section 25 of the Corporation Code requires the president of a corporation to
be also a member of the board of directors.
Thus, the application of the legal maxim expressio unius est exclusio
alterius, which means the mention of one thing implies the exclusion of
another thing not mentioned. If a statute enumerates the thing upon which it
is to operate, everything else must necessarily and by implication be
excluded from its operation and effect. The fourth officer in the enumerated
list is the catch-all "such other officer charged with the management of the
business affairs" of the corporation or juridical entity which is a factual issue
which must be alleged and supported by evidence.

Page 319 of 1072

TOPIC: PERSONAL LIABLITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO Y. LAU, and
CHARLIE COLLADO, Petitioners,
vs.
THOMAS GEORGE, Respondent.
G.R. No. 172727. September 8, 2010
FACTS:
QTCI is a duly licensed broker engaged in the trading of commodity
futures. In 1995, Guillermo Mendoza, Jr. and OnilerLontoc of QTCI met with
respondent Thomas George, encouraging the latter to invest with QTCI. On
July 7, 1995, upon Mendozas prodding, respondent finally invested with
QTCI. On the same day, Collado, in behalf of QTCI, and respondent signed the
Customers Agreement. Forming part of the agreement was the Special
Power of Attorneyexecuted by respondent, appointing Mendoza as his
attorney-in-fact with full authority to trade and manage his account.
On June 20, 1996, the Securities and Exchange Commission (SEC)
issued a Cease-and-Desist Order (CDO) against QTCI. Alarmed by the
issuance of the CDO, respondent demanded from QTCI the return of his
investment, but it was not heeded. He then sought legal assistance, and
discovered that Mendoza and Lontoc were not licensed commodity futures
salesmen.
On February 4, 1998, respondent filed a complaint for Recovery of
Investment with Damageswith the SEC against QTCI, Lau, and Collado,
petitioners, and against the unlicensed salesmen, Mendoza and Lontoc. The
case was docketed as SEC Case No. 02-98-5886, and was raffled to SEC
Hearing Officer Julieto F. Fabrero.
Only petitioners answered the complaint, as Mendoza and Lontoc had
since vanished into thin air. Traversing the complaint, petitioners denied the
material allegations in the complaint and alleged lack of cause of action, as a
defense. Petitioners averred that QTCI only assigned duly qualified persons to
handle the accounts of its clients; and denied allowing unlicensed brokers or
agents to handle respondents account. They claimed that they were not

Page 320 of 1072

aware of, nor were they privy to, any arrangement which resulted in the
account of respondent being handled by unlicensed brokers. They added that
even assuming that the subject account was handled by an unlicensed
broker, respondent is now estopped from raising it as a ground for the return
of his investment. They pointed out that respondent transacted business
with QTCI for almost a year, without questioning the license or the authority
of the traders handling his account. It was only after it became apparent that
QTCI could no longer resume its business transactions by reason of the CDO
that respondent raised the alleged lack of authority of the brokers or traders
handling his account. The losses suffered by respondent were due to
circumstances beyond petitioners control and could not be attributed to
them. Respondents remedy, they added, should be against the unlicensed
brokers who handled the account. Thus, petitioners prayed for the dismissal
of the complaint.
ISSUE/S:
Whether or not individual petitioners are solidarily liable for the
damages and awards due the respondent.
RULING:
The Supreme Court is not persuaded by petitioners assertion that they
had no hand in Mendozas designation as respondents attorney-in-fact. As
pointed out by the CA, the Special Power of Attorney formed part of
respondents agreement with QTCI, and under the Customers
Agreement,only a licensed or registered dealer or investment consultant may
be appointed as attorney-in-fact.
The evidence on record established that petitioners indeed permitted
an unlicensed trader and salesman, like Mendoza, to handle respondents
account. On the other hand, the record is bereft of proof that respondent had
knowledge that the person handling his account was not a licensed trader.
Respondent can, therefore, recover the amount he had given under the
contract. The SEC Hearing Officer and the CA, therefore, committed no
reversible error in holding that respondent is entitled to a full recovery of his
investments. Doctrine dictates that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it,
such that, save for certain exceptions, corporate officers who entered into
contracts in behalf of the corporation cannot be held personally liable for the
liabilities of the latter. Personal liability of a corporate director, trustee, or
officer, along (although not necessarily) with the corporation, may validly
attach, as a rule, only when
1. he assents to a patently unlawful act of the corporation,
or when he is guilty of bad faith or gross negligence in
directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its
stockholders, or other persons;

Page 321 of 1072

2. he consents to the issuance of watered down 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 personally answerable for his corporate
action.
Petitioner Romeo Lau, as president of petitioner QTCI, cannot feign
innocence on the existence of these unlawful activities within the company,
especially so that Collado, himself a ranking officer of QTCI, is involved in the
unlawful execution of customer orders. Petitioner Lau, being the chief
operating officer, cannot escape the fact that had he exercised a modicum of
care and discretion in supervising the operations of QTCI, he could have
detected and prevented the unlawful acts of [petitioner] Collado and
Mendoza.
It is therefore safe to conclude that although Lau may not have
participated nor been aware of the unlawful acts, he is however deemed to
have been grossly negligence in directing the affairs of QTCI.
In all, it having been established by substantial evidence that
petitioner Collado assented to the unlawful act of QTCI, and that petitioner
Lau is grossly negligent in directing the affairs of QTCI, and pursuant to
Section 31 of the Corporation Code, they are therefore, jointly and severally
liable with QTCI for all the damages and awards due to the respondent.
We find no compelling reason to depart from the conclusion of the SEC
Hearing Officer, which was affirmed by the CA. We are in full accord with his
reasons for holding Lau and Collado jointly and severally liable with QTCI for
the payment of respondents claim.

Page 322 of 1072

TOPIC: PERSONAL LIABLITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
WENSHA SPA CENTER, INC. and/or XU ZHI JIE, Petitioners,
vs.
LORETA T. YUNG, Respondent.
G.R. No. 185122.August 16, 2010
FACTS:
Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business of
sauna bath and massage services. Xu Zhi Jie a.k.a. Pobby Co is its
president,respondent Loreta T. Yung was its administrative manager at the
time of her termination from employment. Loreta stated that she used to be
employed by Manmen Services Co., Ltd. where Xu was a client. Xu was
apparently impressed by Loretas performance. After he established Wensha,
he convinced Loreta to transfer and work at Wensha.
Loreta recounted that on August 10, 2004, she was asked to leave her
office because Xu and a Feng Shui master were exploring the premises. Later
that day, Xu asked Loreta to go on leave with pay for one month. She did so
and returned on September 10, 2004. Upon her return, Xu and his wife asked
her to resign from Wensha because, according to the Feng Shui master, her
aura did not match that of Xu. Loreta refused but was informed that she
could no longer continue working at Wensha. That same afternoon, Loreta
went to the NLRC and filed a case for illegal dismissal against Xu and
Wensha.
Wensha and Xu denied illegally terminating Loretas employment. They
claimed that two months after Loreta was hired, they received various
complaints against her from the employees so that on August 10, 2004, they
advised her to take a leave of absence for one month while they conducted
an investigation on the matter. Based on the results of the investigation, they
terminated Loretas employment on August 31, 2004 for loss of trust and
confidence.
ISSUE/S:

Page 323 of 1072

Whether or not the Court of Appelas committed grave abuse of


discretion and serious errors when it held that petitioner XU ZHI
JIE to be solidarily liable with WENSHA, assuming that respondent
was illegally dismissed.
RULING:
The Court finds merit in the argument of petitioner Xu that the CA
erred in ruling that he is solidarily liable with Wensha.
Elementary is the rule that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it and
from that of any other legal entity to which it may be related. Mere
ownership by a single stockholder or by another corporation of all or nearly
all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.
In the subject decision, the CA concluded that petitioner Xu and
Wensha are jointly and severally liable to Loreta. We have read the decision
in its entirety but simply failed to come across any finding of bad faith or
malice on the part of Xu. There is, therefore, no justification for such a ruling.
To sustain such a finding, there should be an evidence on record that an
officer or director acted maliciously or in bad faith in terminating the services
of an employee. Moreover, the finding or indication that the dismissal was
effected with malice or bad faith should be stated in the decision itself.

Page 324 of 1072

TOPIC: PERSONAL LIABLITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
CEBU MACTAN MEMBERS CENTER, INC., Petitioner,
vs.
MASAHIRO TSUKAHARA, Respondent.
G.R. No. 159624.July 17, 2009
FACTS:
In February 1994, petitioner Cebu Mactan Members Center, Inc.
(CMMCI), through Mitsumasa Sugimoto (Sugimoto), the President and
Chairman of the Board of Directors of CMMCI, obtained a loan amounting to
P6,500,000 from respondent Masahiro Tsukahara. As payment for the loan,
CMMCI issued seven postdated checks of CMMCI payable to Tsukahara. On
13 April 1994, CMMCI, through Sugimoto, obtained another loan amounting
to P10,000,000 from Tsukahara. Sugimoto executed and signed a promissory
note in his capacity as CMMCI President and Chairman, as well as in his
personal capacity.
Tsukahara alleged that the amount of P16,500,000 was used by CMMCI
for the improvement of its beach resort, which included the construction of a
wave fence, the purchase of airconditioners and curtains, and the provision
of salaries of resort employees. He also asserted that Sugimoto, as the
President of CMMCI, "has the power to borrow money for said corporation by
any legal means whatsoever and to sign, endorse and deliver all checks and
promissory notes on behalf of the corporation.
CMMCI, on the other hand, denied borrowing the amount from
Tsukahara, and claimed that both loans were personal loans of Sugimoto. The
company also contended that if the loans were those of CMMCI, the same
should have been supported by resolutions issued by CMMCIs Board of
Directors.
ISSUE/S:

Page 325 of 1072

Whether the Court of Appeals erred in holding that CMMCI is


liable for the loan contracted by its President without a resolution
issued by the CMMCI Board of Directors.
RULING:
A corporate officer or agent may represent and bind the corporation in
transactions with third persons to the extent that the authority to do so has
been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the
particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or agent to believe
that it has conferred.
It is clear from the foregoing that the president of CMMCI is given the
power to borrow money, execute contracts, and sign and indorse checks and
promissory notes, in the name and on behalf of CMMCI. With such powers
expressly conferred under the corporate by-laws, the CMMCI president, in
exercising such powers, need not secure a resolution from the companys
board of directors. The corporation is now estopped from denying the
authority of its president to bind the former into contractual relations.
Thus, given the presidents express powers under the CMMCIs by-laws,
Sugimoto, as the president of CMMCI, was more than equipped to enter into
loan transactions on CMMCIs behalf. Accordingly, the loans obtained by
Sugimoto from Tsukahara on behalf of CMMCI are valid and binding against
the latter, and CMMCI may be held liable to pay such loans.

Page 326 of 1072

TOPIC: PERSONAL LIABLITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
ARMANDO DAVID, Petitioner,
vs.
NATIONAL FEDERATION OF LABOR UNION and MARIVELES APPAREL
CORPORATION, Respondents.
G.R. Nos. 148263 and 148271-72.April 21, 2009
FACTS:
MAC hired David as IMPEX and Treasury Manager on 16 September
1988. David began serving as MACs President in May 1990. David served as
President in the nature of a nominee as he did not own any of MACs shares.
David tendered his irrevocable resignation from MAC on 30 September 1993.
Davids resignation was made effective on 15 October 1993.
In a complaint for illegal dismissal dated 12 August 1993, National
Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor
Union (MACLU) alleged that MAC ceased operations on 8 July 1993 without
prior notice to its employees. MAC allegedly gave notice of its closure on the
same day that it ceased operations. MACLU and NAFLU further alleged that,
at the time of MACs closure, employees who had rendered one to two weeks
work were not paid their corresponding salaries.
ISSUE/S:
Whether or not in finding petitioner guilty of illegal closure and
making him personally liable for payment of private respondents
claims.
RULING:
Assuming arguendo that the NLRC and the Labor Arbiter had
jurisdiction over David, we rule that it was still improper to hold David liable
for MACs obligations to its employees.
However, Article 212(e) of the Labor Code, by itself, does not make a
corporate officer personally liable for the debts of the corporation because
Section 31 of the Corporation Code is still the governing law on personal

Page 327 of 1072

liability of officers for the debts of the corporation. Section 31 of the


Corporation Code provides:
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.
There was no showing of David willingly and knowingly voting for or
assenting to patently unlawful acts of the corporation, or that David was
guilty of gross negligence or bad faith.

Page 328 of 1072

TOPIC: PERSONAL LIABLITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
HILARIO P. SORIANO and ROSALINDA ILAGAN, Petitioners,
vs.
PEOPLE OF THE PHILIPPINES, BANGKO SENTRAL NG PILIPINAS (BSP),
and PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC),
Respondents.
G.R. No. 159517-18.June 30, 2009
FACTS:
Hilario P. Soriano and Rosalinda Ilagan were the President and General
Manager, respectively, of the Rural Bank of San Miguel (Bulacan), Inc.
(RBSM). Allegedly, on June 27, 1997 and August 21, 1997, during their
incumbency as president and manager of the bank, petitioners indirectly
obtained loans from RBSM. They falsified the loan applications and other
bank records, and made it appear that Virgilio J. Malang and Rogelio Maaol
obtained loans of P15,000,000.00 each, when in fact they did not.
Accordingly, on May 4, 2000, State Prosecutor Josefino A. Subia
charged Soriano in the Regional Trial Court (RTC) of Malolos, Bulacan, with
violation of Section 83 of Republic Act No. 337 (R.A. No. 337) or the General
Banking Act, as amended by Presidential Decree No. 1795, or Violation of the
Director, Officer, Stockholder or Related Interest (DOSRI) Rules (DOSRI
Rules). On the same date, an information for estafa thru falsification of
commercial document was also filed against Soriano and Ilagan.
ISSUE/S:
Whether or not petitioners can be sued at the same time with
violation of DOSRI rules and estafa.
RULING:
The Court had ruled that a single act or incident might offend against
two or more entirely distinct and unrelated provisions of law thus justifying
the prosecution of the accused for more than one offense. The only limit to

Page 329 of 1072

this rule is the Constitutional prohibition that no person shall be twice put in
jeopardy of punishment for "the same offense."
Consequently, the filing of the multiple charges against petitioners,
although based on the same incident, is consistent with settled doctrine.
As aptly pointed out by the BSP in its memorandum, there are
differences between the two (2) offenses. A DOSRI violation consists in the
failure to observe and comply with procedural, reportorial or ceiling
requirements prescribed by law in the grant of a loan to a director, officer,
stockholder and other related interests in the bank, i.e. lack of written
approval of the majority of the directors of the bank and failure to enter such
approval into corporate records and to transmit a copy thereof to the BSP
supervising department. The elements of abuse of confidence, deceit, fraud
or false pretenses, and damage, which are essential to the prosecution for
estafa, are not elements of a DOSRI violation. The filing of several charges
against Soriano was, therefore, proper.

Page 330 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER


CORPORATE OFFICERS
CEBU COUNTRY CLUB, INC., SABINO R. DAPAT, RUBEN D.
ALMENDRAS, JULIUS Z. NERI, DOUGLAS L. LUYM, CESAR T. LIBI,
RAMONTITOE. GARCIA and JOSE B. SALA, petitioners,
vs.
RICARDO F. ELIZAGAQUE, respondent.
G.R. No. 160273. January 18, 2008
FACTS:
Cebu Country Club, Inc.,( CCCI) is a domestic corporation operating as
a non-profit and non-stock private membership club its principal place of
business in Banilad, Cebu. Petitioners herein are the members of the Board
of Directors.
Respondent Elizagaque as the Senior Vice-president and Operations
Manager for the Visayas and Mindanao of San Miguel Corp., a special
company proprietary of CCCI, was designated as a special non-proprietary
member of CCCI as approved by the CCCIs board.
Later, respondent, thru the indorsenment of 2 proprietary members of
CCCI and upon purchasing the share of a certain Dr. Bulatid in the amount of
P 3.5 Million, filed an application for proprietary membership with CCCI.
However, said application was deferred and later on disapproved by the
Board of Directors of CCCI. Thus, respondent wrote 2 letters of
reconsideration, but CCCI never answered.
Subsequently, respondent filed a complaint for damages against
petitioners wherein the RTC acted in his favor by ordering herein petitioners
jointly and severally liable.
The CA affirmed and modified the decision of the RTC.
ISSUE/S:
Whether In Disapproving Respondents Application For
Proprietary Membership With CCCI, Petitioners Are Liable To
Respondent For Damages, And
If So, Whether Their Liability Is Joint And Several.

Page 331 of 1072

RULING:
In rejecting respondents application for proprietary membership, the
Supreme Court finds that petitioners violated the rules governing human
relations, the basic principles to be observed for the rightful relationship
between human beings and for the stability of social order. The trial court
and the Court of Appeals aptly held that petitioners committed fraud and
evident bad faith in disapproving respondents applications. This is contrary
to morals, good custom or public policy. Hence, petitioners are liable for
damages pursuant to Article 19 in relation to Article 21 of the same Code.
It bears stressing that the amendment to Section 3(c) of CCCIs
Amended By-Laws requiring the unanimous vote of the directors present at a
special or regular meeting was not printed on the application form
respondent filled and submitted to CCCI. What was printed thereon was the
original provision of Section 3(c) which was silent on the required number of
votes needed for admission of an applicant as a proprietary member.
Petitioners explained that the amendment was not printed on the
application form due to economic reasons. We find this excuse flimsy and
unconvincing. Such amendment, aside from being extremely significant, was
introduced way back in 1978 or almost twenty (20) years before respondent
filed his application. We cannot fathom why such a prestigious and exclusive
golf country club, like the CCCI, whose members are all affluent, did not have
enough money to cause the printing of an updated application form.
It is thus clear that respondent was left groping in the dark wondering
why his application was disapproved. He was not even informed that a
unanimous vote of the Board members was required. When he sent a letter
for reconsideration and an inquiry whether there was an objection to his
application, petitioners apparently ignored him. Certainly, respondent did not
deserve this kind of treatment. Having been designated by San Miguel
Corporation as a special non-proprietary member of CCCI, he should have
been treated by petitioners with courtesy and civility. At the very least, they
should have informed him why his application was disapproved.
The exercise of a right, though legal by itself, must nonetheless be in
accordance with the proper norm. When the right is exercised arbitrarily,
unjustly or excessively and results in damage to another, a legal wrong is
committed for which the wrongdoer must be held responsible. It bears
reiterating that the trial court and the Court of Appeals held that petitioners
disapproval of respondents application is characterized by bad faith.
Thus, petitioners argument that they could not be held jointly and
severally liable for damages because only one (1) voted for the disapproval
of respondents application lacks merit.

Page 332 of 1072

Section 31 of the Corporation Code provides:


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.

Page 333 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER


CORPORATE OFFICERS
CALTEX (PHILS.), INC. (now CHEVRON PHILIPPINES, INC.), Petitioner,
vs.
NATIONAL LABOR RELATIONS
COMMISSION AND ROMEO T. STO. TOMAS, Respondents.
G.R. No. 159641. October 15, 2007
FACTS:
Private respondent Romeo T. Sto Tomas was a regular employee of
petitioner since February 2, 1984. He was a Senior Accounting Analyst
receiving a monthly salary of P29, 860.00 at the time of his termination on
July 31, 1997.
In a letter dated October 21, 1996, petitioner informed the Department
of Labor and Employment (DOLE) of its plan to implement a redundancy
program in its Marketing Division and some departments in its Batangas
Refinery for the period starting October 1996 to December 1998. The letter
alleged that the redundancy program is a response to the market situation
which constrained petitioner to rationalize and simplify its business
processes; that petitioner undertook a review, restructuring and streamlining
of its organization which resulted in consolidation, abolition and outsourcing
of certain functions and in the identification of certain redundant positions.
The letter also states that petitioner will provide the DOLE a list of affected
employees as it implements each phase of the redundancy program.
Petitioner, through a letter dated June 30, 1997, notified private
respondent of his termination effective July 31, 1997 due to the redundancy
of his position and awarded him a separation package in the amount of
P559,458.90 consisting of the following:
Regular separation/retirement benefits P352,721.25
under the New Retirement Plan; and
Ex-gratia payment computed at months
Basic pay for every year of service 206,737.65
TOTAL: Php 559, 458. 905
On June 8, 1998, respondent filed with the Labor Arbiter a complaint
for illegal dismissal against petitioner and its President and Chief Executive
Officer, Mr. Clifton Hon.
ISSUE/S:
Whether private respondents termination on the ground of
redundancy was valid.
RULING:

Page 334 of 1072

NO.
In the instant case, we find no reversible error committed by the CA in
upholding the findings of the NLRC that there was no substantial evidence
presented by petitioner to justify private respondent's dismissal due to
redundancy. As correctly found by the CA, petitioners evidence to show
redundancy merely consisted of a copy of petitioners letter to the DOLE
informing the latter of its intention to implement a redundancy program and
nothing more. The letter which merely stated that petitioner undertook a
review, restructuring and streamlining of its organization which resulted in
consolidation, abolition and outsourcing of certain functions; and which
resulted in identified and redundant positions instead of simplifying its
business process restructuring, does not satisfy the requirement of
substantial evidence, that is, the amount of evidence which a reasonable
mind might accept as adequate to justify a conclusion.
Petitioner failed to demonstrate the superfluity of private respondents
position as there was nothing in the records that would establish any
concrete and real factors recognized by law and relevant jurisprudence, such
as overhiring of workers, decreased volume of business, or dropping of a
particular product line or service activity previously manufactured or
undertaken by the enterprise, which were adopted by petitioner in
implementing the redundancy program.
Petitioner also failed to show any fair and reasonable criteria in
ascertaining what positions are redundant and how the selection of
employees to be dismissed was made.

Page 335 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER


CORPORATE OFFICERS
ATRIUM MANAGEMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA M. DE
LEON, RAFAEL DE LEON, JR., AND HI-CEMENT CORPORATION,
respondents.
G.R. No. 109491. February 28, 2001
FACTS:
On January 3, 1983, Atrium Management Corporation filed with the
Regional Trial Court, Manila an action for collection of the proceeds of four
postdated checks in the total amount of P2 million. Hi-Cement Corporation
through its corporate signatories, petitioner Lourdes M. de Leon, treasurer,
and the late Antonio de las Alas, Chairman, issued checks in favor of E.T.
Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the
four checks to petitioner Atrium Management Corporation for valuable
consideration. Upon presentment for payment, the drawee bank dishonored
all four checks for the common reason "payment stopped". Atrium, thus,
instituted this action after its demand for payment of the value of the checks
was denied.
After due proceedings, on July 20, 1989, the trial court rendered a
decision ordering Lourdes M. de Leon, her husband Rafael de Leon, E.T.
Henry and Co., Inc. and Hi-Cement Corporation to pay petitioner Atrium,
jointly and severally, the amount of P2 million corresponding to the value of
the four checks, plus interest and attorney's fees.
On appeal to the Court of Appeals, on March 17, 1993, the Court of
Appeals promulgated its decision modifying the decision of the trial court,
absolving Hi-Cement Corporation from liability and dismissing the complaint
as against it. The appellate court ruled that:
1. Lourdes M. de Leon was not authorized to issue the subject
checks in favor of E.T. Henry, Inc.;
2. The issuance of the subject checks by Lourdes M. de Leon
and the late Antonio de las Alas constituted ultra vires
acts; and
3. The subject checks were not issued for valuable
consideration.
ISSUE/S:

Page 336 of 1072

Whether Lourdes M. de Leon and Antonio de las Alas were


personally liable for the checks issued as corporate officers and
authorized signatories of the check.
RULING:
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 down 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."
In the case at bar, Lourdes M. de Leon and Antonio de las Alas as
treasurer and Chairman of Hi-Cement were authorized to issue the checks.
However, Ms. de Leon was negligent when she signed the confirmation letter
requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the
rediscounting of the crossed checks issued in favor of E.T. Henry. She was
aware that the checks were strictly endorsed for deposit only to the payee's
account and not to be further negotiated. What is more, the confirmation
letter contained a clause that was not true, that is, "that the checks issued to
E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T.
Henry". Her negligence resulted in damage to the corporation.
Hence, Ms. de Leon may be held personally liable therefor.

Page 337 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER


CORPORATE OFFICERS
ARB CONSTRUCTION CO., INC., and MARK MOLINA, petitioners,
vs.
COURT OF APPEALS, TBS SECURITY AND INVESTIGATION AGENCY
represented by CECILIA R. BACLAY, respondents.
G.R. No. 126554. May 31, 2000
FACTS:
On 15 August 1993 TBS Security and Investigation Agency (TBSS)
entered into two (2) Service Contracts with Petitioner Corporation wherein
TBSS agreed to provide and post security guards in the five (5)
establishments being maintained by ARBC. Clause 10 of the Service
Contracts provides
10. This contract shall be effective for a period of one (1)
year commencing from 15th August 1993 and shall be
considered automatically renewed for the same period
unless otherwise a written notice of termination shall have
been given by one party to the other party thirty (30) days
in advance.
On February 23, 1994 ARBC informed TBSS of its desire to terminate
the Service Contracts effective thirty (30) days after receipt of the letter.
Also, in a letter dated 22 March 1994, ARBC through its Vice President for
Operations, Mark Molina, informed TBSS that it was replacing its security
guards with those of Global Security Investigation Agency (GSIA).
In response to both letters, TBSS informed ARBC that the latter could
not preterminate the Service Contracts nor could it post security guards from
GSIA as it would run counter to the provisions of their Service Contracts.
On 23 March 1994 Molina wrote TBSS conceding that indeed the
"security contract dated 15 August 1993 stipulates that the duration of the
service shall be for a period of one year, ending on 15 August 1994 . . . and
could not be preterminated until then." 1 Nevertheless, Molina decreased the
security guards to only one (1) allegedly pursuant to Clause 2 of the Service
Contracts which provides
2. The AGENCY shall adopt a guarding system and post
guards in accordance thereof, in the premises of the client

Page 338 of 1072

throughout the whole 24 hours daily, using variable shifts


of the guards at such hours as may be designated by the
CLIENT or AGENCY. As required by the CLIENT, the security
guards to be assigned by the AGENCY shall consist initially
of the following . . . subject to be increased or decreased
by the CLIENT at its sole discretion depending on the
security situation or the exigency of the service, by giving
the AGENCY at least SEVEN (7) days prior notice.
Thus, TBSS filed a complaint agains petitioners.
ISSUE/S:
Whether or not petitioner Molina is liable to private respondent in
his personal capacity.
RULING:
It is basic that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it as well as from
that of any other legal entity to which it may be related. As a general rule, a
corporation may not be made to answer for acts or liabilities of its
stockholders or those of the legal entities to which it may be connected and
vice versa. However, the veil of corporate fiction may be pierced when it is
used as a shield to further an end subversive of justice; or for purposes that
could not have been intended by the law that created it; or to defeat public
convenience, justify wrong, protect fraud, or defend crime; or to perpetuate
deception; or as an alter ego, adjunct or business conduit for the sole benefit
of the stockholders.
Prescinding from the foregoing, the general rule is that officers of a
corporation are not personally liable for their official acts unless it is shown
that they have exceeded their authority.
Article 31 of the Corporation Code is in point
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 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 . . . .
On the basis hereof, petitioner Molina could not be held jointly and
severally liable for any obligation which petitioner ARBC may be held
accountable for, absent any proof of bad faith or malice on his part.
Corollarily, it is also incorrect on the part of the Court of Appeals to conclude
that there was a sufficient cause of action against Molina as to make him
personally liable for his actuations as Vice President for Operations of ARBC.

Page 339 of 1072

A cursory reading of the records of the instant case would reveal that Molina
did not summarily withhold certain amounts from the payrollof TBSS.
Instead, he enumerated instances which in his view were enough bases to do
so.

TOPIC: PERSONAL LIABILITY OF DIRECTORS & OTHER CORPORATE OFFICERS


RUFINA LUY LIM, petitioner,
vs.
COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, et
al respondents.
G.R. No. 124715, JANUARY 24, 2000
323 SCRA 102
FACTS:
Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim
whose estate is the subject of probate proceedings while private respondents
Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing,
Inc., Active Distributing, Inc. and Action Company are corporations formed,
organized and existing under Philippine laws and which owned real
properties covered under the Torrens system and whose properties were
included in the inventory of the estate of Pastor Y. Lim.
Although the above business entities dealt and engaged in business
with the public as corporations, all their capital, assets and equity were
however, were personally owned by the late Pastor Y Lim. Hence the alleged
stockholders and officers appearing in the respective articles of incorporation
of the above business entities were mere dummies of Pastor Y. Lim, and they
were listed therein only for purposes of registration with the Securities and
Exchange Commission.
ISSUE/S:
Whether or not the officers of the corporation shall be held liable
for the debts of the corporation.
RULING:
No.
The real properties included in the inventory of the estate of the Late
Pastor Y. Lim are in the possession of and are registered in the name of
private respondent corporations, which under the law possess a personality
separate and distinct from their stockholders. It is settled that a corporation
is clothed with personality separate and distinct from that of the persons

Page 340 of 1072

composing it. It may not generally be held liable for that of the persons
composing it. It may not be held liable for the personal indebtedness of its
stockholders or those of the entities connected with it.
Mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate corporate personalities.
Moreover, to disregard the separate juridical personality of a corporation, the
wrong-doing must be clearly and convincingly established. The reliance
reposed by petitioner on the affidavits executed by Teresa Lim and Lani
Wenceslao is unavailing considering that the aforementioned documents
possess no weighty probative value pursuant to the hearsay rule, as the
affiants were not at all presented during the course of the proceedings in the
lower court.

Page 341 of 1072

TOPIC:PERSONAL LIABILITY OF DIRECTORS & OTHER CORPORATE OFFICERS


ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT
CORPORATION, petitioners,
vs.
RITA C. MEJIA, as Executrix of Testate Estate of ANDREA CORDOVA
VDA. DE GUTERREZ, respondent.
G.R. NO. 141617, August 14, 2001
FACTS:
Andrea Cordova Vda. de Gutierrez was the registered owner of a parcel
of land. Gutierrez and Cardale Financing and Realty Corporation executed a
Deed of Sale with Mortgage relating to the lots secured by a mortgage on
three of the four parcels of land. Cardale failed to settle its mortgage
obligation thus Gutierrez filed a complaint for rescission of the contract and
Cardale was represented by petitioner Adalia B. Francisco in her capacity as
Vice-President and Treasurer of Cardale.
The mortgaged parcels of land became delinquent in the payment of
real estate taxes culminated in their levy and auction sale with petitioner
Merryland as the highest bidder and whose President and majority
stockholder is Francisco. Appellee Francisco knew that Cardale of which she
was vice-president and treasurer had an outstanding obligation to Gutierrez
for the unpaid balance of the real properties. She also knew that Gutierrez
had a mortgage lien on the said properties to secure payment of the
aforesaid obligation. Despite such knowledge, appellee Francisco did not
inform Gutierrez's Estate or the Executrix as well as the trial court.
ISSUE/S:
Whether or not Francisco, a corporate officer should be held
personally liable.
RULING:
Yes.
With specific regard to corporate officers, the general rule is that the
officer cannot be held personally liable with the corporation, whether civilly

Page 342 of 1072

or otherwise, for the consequences of his acts, if he acted for and in behalf of
the corporation, within the scope of his authority and in good faith. In such
cases, the officer's acts are properly attributed to the corporation. However,
if it is proven that the officer has used the corporate fiction to defraud a third
party, or that he has acted negligently, maliciously or in bad faith, then the
corporate veil shall be lifted and he shall be held personally liable for the
particular corporate obligation involved.
The totality of the circumstances appertaining conduce to the
inevitable conclusion that petitioner Francisco acted in bad faith. It has been
established that Cardale failed to comply with its obligation to pay the
balance of the purchase price for the four parcels of land it bought from
Gutierrez where the case dragged on for about fourteen years with Francisco
being the Vice-President and Treasurer of the same. Francisco knew that the
properties subject of the mortgage had become tax delinquent, being the
officer charged with and yet she did not inform the Gutierrez estate or the
trial court of the tax arrears and of the notice from the City Treasurer so as to
prevent the auction sale and to protect its interests in the mortgaged
properties. Finally, in 1983, the properties were sold at public auction
wherein Merryland a corporation where Francisco is a stockholder and
concurrently acts as President and director was the highest bidder which
incident only serves to shed more light upon Francisco's fraudulent purposes.

Page 343 of 1072

TOPIC:PERSONAL LIABILITY OF DIRECTORS & OTHER CORPORATE OFFICERS


DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
HONORABLE COURT OF APPEALS and
REMINGTON INDUSTRIAL SALES CORPORATION, respondents.
G.R. NO. 126200, AUGUST 16, 2001
FACTS:
Marinduque Mining-Industrial Corporation obtained from the PNB
various loan accommodations it secured by a Deed of Real Estate Mortgage
and Chattel Mortgage in favor of PNB and another Mortgage Trust Agreement
on July 13, 1981, which was further amended to favor PNB and DBP of all of
its other real and personal properties and other real rights subsequently
acquired by Marinduque Mining. Marinduque Mining failed to settle its loan
obligations thus PNB and DBP instituted an extrajudicial foreclosure
proceedings over the mortgaged properties.
Remington Industrial Sales Corporation (Remington) for which
Marinduque Mining purchased construction materials and other merchandise
which remained unpaid filed a complaint for a sum of money and damages
impleading therein
PNB and DBP, Nonoc Mining, Maricalum Mining
Corporation (Maricalum Mining) and Island Cement Corporation (Island
Cement) as co-defendants. Accordingly, NMIC, Maricalum and Island Cement
which are newly created entities are practically owned wholly by defendants
PNB and DBP, and managed by their officers, aside from the fact that the
aforesaid co-defendants NMIC, Maricalum and Island Cement were organized
in such a hurry and in such suspicious circumstances by co-defendants PNB
and DBP after the supposed extrajudicial foreclosure of MMIC's assets as to
make their supposed projects assets, machineries and equipment which
were originally owned by co-defendant MMIC in fraud of the latters creditors.
ISSUE/S:
Whether or not the officers of the corporation should be held
personally liable.
HELD:

Page 344 of 1072

No.
PNB and DBP are mandated to foreclose on the mortgage when the
past due account had incurred arrearages pursuant to Section 1 of
Presidential Decree No. 385 (The Law on Mandatory Foreclosure). The banks
had no choice but to obey the statutory command.
The Court of Appeals made reference to two principles in corporation
law. The first pertains to transactions between corporations with interlocking
directors resulting in the prejudice to one of the corporations. This rule does
not apply in this case, however, since the corporation allegedly prejudiced
(Remington) is a third party, not one of the corporations with interlocking
directors (Marinduque Mining and DBP).
The second principle invoked by respondent court involves "directors x
x x who are creditors" which is also inapplicable herein. Here, the creditor of
Marinduque Mining is DBP, not the directors of Marinduque Mining. Neither
do we discern any bad faith on the part of DBP by its creation of Nonoc
Mining, Maricalum and Island Cement. As Remington itself concedes, DBP is
not authorized by its charter to engage in the mining business. The creation
of the three corporations was necessary to manage and operate the assets
acquired in the foreclosure sale lest they deteriorate from non-use and lose
their value.

Page 345 of 1072

TOPIC:PERSONAL LIABILITY OF DIRECTORS & OTHER CORPORATE OFFICERS


AHS/PHILIPPINES, INC., GERVACIO R. AMISTOSO and CONSTANCIO V.
HALILI, petitioners,
vs.
COURT OF APPEALS and ALFONSO R. BAYANI, respondents.
G.R. No. 111807, June 14, 1996
FACTS:
Petitioner Corporation was engaged in the sale and manufacture of
medicines and pharmaceuticals in the country and did substantial business
with government hospitals. On 1 June 1970 it hired private respondent as an
Area Manager for Visayas and Mindanao, and later appointed him Manager of
its Cebu branch. On 30 January 1978 private respondent was dismissed from
the service on ground of insubordination. Private respondent filed a
complaint for damages alleging that petitioners were directly encouraging,
abetting and promoting bribery in the guise of "commissions,"
"entertainment expenses" and "representation expenses" which were given
to various government hospital officials in exchange for favorable
recommendations, approvals and actual purchases of medicines and
pharmaceuticals.
ISSUE/S:
Whether or not petitioners Amistoso as president and Halili as
vice-president of the same corporation be held joint and
solidarily liable with the corporation for the dismissal of
respondent.
RULING:
No.
The Supreme Court have already said that corporate officers are not
personally liable for money claims of discharged corporate employees unless
they acted with evident malice and bad faith in terminating their
employment. In the case at bar, while petitioners Amistoso and Halili may
have had a hand in the relief of respondent, Bayani, there are no indications
of malice and bad faith on their part. On the contrary it is apparent that the
relief order was a business judgment on the part of the officers, with the best

Page 346 of 1072

interest of the corporation in mind, based on their opinion that respondent


Bayani had failed to perform the duties expected of him.

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA)
represented by its union president CECILIA TALAVERA, GEORGE
ARSOLA, MARIO DIAGO AND SOCORRO BONCAYAO, petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, COMPLEX
ELECTRONICS CORPORATION, IONICS CIRCUIT, INC., LAWRENCE QUA,
REMEDIOS DE JESUS, MANUEL GONZAGA, ROMY DELA ROSA,
TERESITA ANDINO, ARMAN CABACUNGAN, GERRY GABANA, EUSEBIA
MARANAN and BERNADETH GACAD, respondents.
G.R. No. 121315. July 19, 1999
310 SCRA 143
FACTS:
Complex Electronics Corporation (Complex) was engaged in the
manufacture of electronic products. It was actually a subcontractor of
electronic products where its customers gave their job orders, sent their own
materials and consigned their equipment to it. The customers were foreignbased companies with different product lines and specifications requiring the
employment of workers with specific skills for each product line. Thus, there
was the AMS Line for the Adaptive Micro System, Inc., the Heril Line for Heril
Co., Ltd., the Lite-On Line for the Lite-On Philippines Electronics Co., etc.
The rank and file workers of Complex were organized into a union
known as the Complex Electronics Employees Association, herein referred to
as the Union. Complex received a facsimile message from Lite-On Philippines
Electronics Co., requiring it to lower its price by 10%. Consequently, a
meeting was held between Complex and the personnel of the Lite-On
Production Line. Complex informed its Lite-On personnel that such request of
lowering their selling price by 10% was not feasible as they were already
incurring losses at the present prices of their products. Under such
circumstances, Complex regretfully informed the employees that it was left
with no alternative but to close down the operations of the Lite-On Line.

Page 347 of 1072

The Union, on the other hand, pushed for a retrenchment pay


equivalent to one (1) month salary for every year of service, which Complex
refused. Complex filed a notice of closure of the Lite-On Line with the
Department of Labor and Employment (DOLE) and the retrenchment of the
ninety-seven (97) affected employees. Thus, the Union filed a notice of strike
with the National Conciliation and Mediation Board (NCMB). Two days
thereafter, the Union conducted a strike vote which resulted in a "yes" vote.
A complaint was, thereafter, filed with the Labor Arbitration Branch of
the NLRC for unfair labor practice, illegal closure/illegal lockout, money
claims for vacation leave, sick leave, unpaid wages, 13th month pay,
damages and attorney's fees. The Union alleged that the pull-out of the
machinery, equipment and materials from the company premises, which
resulted to the sudden closure of the company was in violation of Section 3
and 8, Rule XIII, Book V of the Labor Code of the Philippines and the existing
CBA. Ionics was impleaded as a party defendant because the officers and
management personnel of Complex were also holding office at Ionics with
Lawrence Qua as the President of both companies.
ISSUE/S:
Whether Lawrence Qua can be held personally liable as director
of said corporation.
RULING:
In the matter of personal liability of Lawrence Qua, it is settled that in
the absence of malice or bad faith, a stockholder or an officer of a
corporation cannot be made personally liable for corporate liabilities. In the
present case, while it may be true that the equipment, materials and
machinery were pulled-out of Complex and transferred to Ionics during the
night, their action was sufficiently explained by Lawrence Qua that the pullout of the machinery, equipment and materials was effected during
nighttime is not per se an indicia of bad faith on the part of respondent Qua
since he had no other recourse, and the same was dictated by the prevailing
mood of unrest as the laborers were already vandalizing the equipment, bent
on picketing the company premises and threats to lock out the company
officers were being made. Such acts of respondent Qua were, in fact, made
pursuant to the demands of Complex's customers who were already alarmed
by the pending labor dispute and imminent strike to be stage by the
laborers, to have their equipment, machinery and materials pull out of
Complex. As such, these acts were merely done pursuant to his official
functions and were not, in any way, made with evident bad faith.
The Supreme Court perceives no intention on the part of Lawrence Qua
and the other officers of Complex to defraud the employees and the Union.
They were compelled to act upon the instructions of their customers who
were the real owners of the equipment, materials and machinery. The

Page 348 of 1072

prevailing labor unrest permeating within the premises of Complex left the
officers with no other choice but to pull them out of Complex at night to
prevent their destruction. Thus, we see no reason to declare Lawrence Qua
personally liable to the Union.
TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE
OFFICERS
ERNESTINA CRISOLOGO-JOSE, petitioner,
vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf
and as Vice-President for Sales of Mover Enterprises, Inc.,
respondents.
G.R. No. 80599. September 15, 1989
FACTS:
In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover
Enterprises, Inc. in-charge of marketing and sales; and the president of the
said corporation was Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares,
in accommodation of his clients, the spouses Jaime and Clarita Ong, issued
Check No. 093553 drawn against Traders Royal Bank, dated June 14, 1980, in
the amount of P45,000.00 payable to defendant Ernestina Crisologo-Jose.
Since the check was under the account of Mover Enterprises, Inc., the same
was to be signed by its president, Atty. Oscar Z. Benares, and the treasurer of
the said corporation. However, since at that time, the treasurer of Mover
Enterprises was not available, Atty. Benares prevailed upon the plaintiff,
Ricardo S. Santos, Jr., to sign the aforesaid chEck as an alternate story.
Plaintiff Ricardo S. Santos, Jr. did sign the check.
ISSUE/S:
Whether or not respondent being only a co-signatory does not
detract him from his personal liability.
RULING:
Respondent Santos is an accommodation party and is, therefore, liable
for the value of the check. The fact that he was only a co-signatory does not
detract from his personal liability. A co-maker or co-drawer under the
circumstances in this case is as much an accommodation party as the other
co-signatory or, for that matter, as a lone signatory in an accommodation
instrument. Under the doctrine in Philippine Bank of Commerce vs. Aruego,
supra, he is in effect a co-surety for the accommodated party with whom he
and his co-signatory, as the other co-surety, assume solidary liability ex lege
for the debt involved. With the dishonor of the check, there was created a
debtor-creditor relationship, as between Atty. Benares and respondent

Page 349 of 1072

Santos, on the one hand, and petitioner, on the other. This circumstance
enables respondent Santos to resort to an action of consignation where his
tender of payment had been refused by petitioner.
TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE
OFFICERS
FCY CONSTRUCTION GROUP, INC., and FRANCIS C. YU, petitioners,
vs.
THE COURT OF APPEALS, THE HON. JOSE C. DE LA RAMA, Presiding
Judge, Branch 139, Regional Trial Court, NCJR, Makati City, MetroManila, and LEY CONSTRUCTION AND DEVELOPMENT CORPORATION,
respondents.
G.R. No. 123358. February 1, 2000
324 SCRA 270
FACTS:
On June 29, 1993, private respondent Ley Construction and
Development Corporation filed a Complaint for collection of a sum of money
with application for preliminary attachment against petitioner FCY
Construction Group, Inc. and Francis C. Yu with the Makati Regional Trial
Court which was docketed as Civil Case No. 93-2112. Private respondent
alleged that it had a joint venture agreement with petitioner FCY
Construction Group, Inc. (wherein petitioner Francis C. Yu served as
President) over the Tandang Sora Commonwealth Flyover government
project, for which it had provided funds and construction materials. The
Complaint was filed in order to compel petitioners to pay its half share in the
collections received in the project as well as those yet to be received therein.
In support of its application for a writ of attachment, private respondent
alleged that petitioners were guilty of fraud in incurring the obligation and
had fraudulently misapplied or converted the money paid them, to which it
had an equal share.
ISSUE/S:
Whether or not petitioner Francis Yu can be held personally liable
to the acts of the corporation.
RULING:
Petitioner Francis Yu cannot be made liable in his individual capacity if
he indeed entered into and signed the contract in his official capacity as
President, in the absence of stipulation to that effect, due to the personality
of the corporation being separate and distinct from the persons composing it.
However, while we agree that petitioner Francis Yu cannot be held solidarily
liable with Petitioner Corporation merely because he is the President thereof

Page 350 of 1072

and was involved in the transactions with Private Corporation, we also note
that there exists instances when corporate officers may be held personally
liable for corporate acts.
Such exceptions were outlined in Tramat Mercantile, Inc. vs. Court of
Appeals, as follows 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 down 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.

Page 351 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
RICARDO A. LLAMADO, petitioner,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
G.R. No. 99032. March 26, 1997
270 SCRA 423
FACTS:
It was the practice in the corporation for petitioner to sign blank checks
and leave them with Pascual so that Pascual could make disbursements and
enter into transactions even in the absence of petitioner. One of the checks
which petitioner signed in blank and gave to Pascual is the check in question,
Exhibit "A."
The check was later issued to private complainant, filled up with the
amount P186,500.00 and date November 4, 1983.The check was dishonored
when private complainant presented it for payment because its payment had
been stopped. However, there were also no sufficient funds in the account to
cover the amount of the check.
Private complainant went to see Aida Tan, the "Secretary" of Pan-Asia
Finance Corporation, about the dishonor of the check because "she was the
one who handled the check and gave it to me." He returned the check to
Aida Tan who gave him a receipt for it, and promised "to return the cash
money." However, she did not do so. Instead, she returned the check to
private complainant.
On November 11, 1983, private complainant entered into an
agreement with petitioner whereby Pan-Asia Finance Corporation would pay
private complainant 10% of the P186,500.00 by November 14, or 15, and the
balance will be rolled over for 90 days. Private respondent was not however
paid as agreed upon.
ISSUE/S:
Whether petitioner can be held personally liable for the amount
of the check because he signed the same in his capacity as
Treasurer of the corporation.
RULING:

Page 352 of 1072

Petitioner's argument that he should not be held personally liable for


the amount of the check because it was a check of the Pan Asia Finance
Corporation and he signed the same in his capacity as Treasurer of the
corporation is also untenable. The third paragraph of Section 1 of BP Blg. 22
states:
Where the check is drawn by a corporation, company or
entity, the person or p ersons who actually signed the
check in behalf of such drawer shall be liable under this
Act.

Page 353 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
MAM REALTY DEVELOPMENT CORPORATION and MANUEL CENTENO,
petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION and CELSO B.
BALBASTRO respondents.
G.R. No. 114787. June 2, 1995
244 SCRA797
FACTS:
The case originated from a complaint filed with the Labor Arbiter by
private respondent Celso B. Balbastro against herein petitioners, MAM Realty
Development Corporation ("MAM") and its Vice President Manuel P. Centeno,
for wage differentials, "ECOLA," overtime pay, incentive leave pay, 13th
month pay (for the years 1988 and 1989), holiday pay and rest day pay.
Balbastro alleged that he was employed by MAM as a pump operator in 1982
and had since performed such work at its Rancho Estate, Marikina, Metro
Manila. He earned a basic monthly salary of P1,590.00 for seven days of
work a week that started from 6:00 a.m. to up until 6:00 p.m. daily.
MAM countered that Balbastro had previously been employed by
Francisco Cacho and Co., Inc., the developer of Rancho Estates. Sometime in
May 1982, his services were contracted by MAM for the operation of the
Rancho Estates' water pump. He was engaged, however, not as an
employee, but as a service contractor, at an agreed fee of P1,590.00 a
month. Similar arrangements were likewise entered into by MAM with one
Rodolfo Mercado and with a security guard of Rancho Estates III
Homeowners' Association. Under the agreement, Balbastro was merely made
to open and close on a daily basis the water supply system of the different
phases of the subdivision in accordance with its water rationing scheme. He
worked for only a maximum period of three hours a day, and he made use of
his free time by offering plumbing services to the residents of the
subdivision. He was not at all subject to the control or supervision of MAM
for, in fact, his work could so also be done either by Mercado or by the
security guard.
On 23 May 1990, prior to the filing of the complaint, MAM executed a
Deed of Transfer, effective 01 July 1990, in favor of the Rancho Estates Phase
III Homeowners Association, Inc., conveying to the latter all its rights and
interests over the water system in the subdivision.
ISSUE/S:

Page 354 of 1072

Whether petitioner Centeno can be held solidary liabile to the


acts of the corporation.
RULING:
A corporation, being a juridical entity, may act only through its
directors, officers and employees. Obligations incurred by them, acting as
such corporate agents, are not theirs but the direct accountabilities of the
corporation they represent. True, solidary liabilities may at times be incurred
but only when exceptional circumstances warrant such as, generally, in the
following cases:
1. When directors and trustees or, in appropriate cases, the
officers of a corporation
a) vote for or assent to patently unlawful acts of the
corporation;
b) act in bad faith or with gross negligence in directing the
corporate affairs;
c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other
persons.
2. When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection
thereto.
3. When a 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
provision of law, personally liable for his corporate action.
In labor cases, for instance, the Court has held corporate directors and
officers solidarily liable with the corporation for the termination of
employment of employees done with malice or in bad faith. In the case at
Bench, there is nothing substantial on record that can justify, prescinding
from the foregoing, petitioner Centeno's solidary liability with the
corporation.

Page 355 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
SERGIO F. NAGUIAT, doing business under the name and style
SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD TAXI, INC.
VS.
NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION),
NATIONAL ORGANIZATION OF WORKINGMEN and its members,
LEONARDO T. GALANG, et al.
G.R. No. 116123, March 13, 1997
FACTS:
CFTI and NEI are both family-owned corporations where Sergio is the
President and Antolin Naguiat as VP. CFTI hold a concessionaire's contract
with the Army Air Force Exchange Services (AAFES) for the operation of taxi
services within Clark Air Base. Due to the phase-out of the US military bases
in the Philippines, from which Clark Air Base was not spared, the AAFES was
dissolved, and the services of individual respondents were officially
terminated. The Drivers Union and CFTI negotiated as to the severance pay
to which the members of the union, except the herein respondents,
accepted. Respondents disaffiliated themselves with the Union and joined
the NOWM. They filed a complaint against "Sergio F. Naguiat doing business
under the name and style Sergio F. Naguiat Enterprises, Inc., AAFES with
Mark Hooper as Area Service Manager, Pacific Region, and AAFES Taxi
Drivers Association with Eduardo Castillo as President," for payment of
separation pay due to termination/ phase-out. The complaint was later
amended to include additional taxi drivers who were similarly situated as
complainants, and CFTI with Antolin T. Naguiat as vice president and general
manager, as party respondent.
In their complaint, they alleged that they are regular employees of NEI
although their individual applications for employment were approved by
CFTI. They claimed to have been assigned to NEI after having been hired by
CFTI, and that the former thence managed, controlled and supervised their
employment.

Page 356 of 1072

Private respondents were held liable by the labor arbiter prompting


them to file their individual appeal before the NLRC, which affirmed the same
subject to some modifications.
ISSUE/S:
Whether or not Sergio F. Naguiat at and Antolin Naguiat, as
officers and SHs of CFTI could be held personally accountable for
corporate debts; and who were not impleaded as defendants.
RULING:
Our jurisprudence is wanting as to the definite scope of "corporate
tort." Essentially, "tort" consists in the violation of a right given or the
omission of a duty imposed by law. Simply stated, tort is a breach of a legal
duty. Article 283 of the Labor Code mandates the employer to grant
separation pay to employees in case of closure or cessation of operations of
establishment or undertaking not due to serious business losses or financial
reverses, which is the condition obtaining at bar. CFTI failed to comply with
this law-imposed duty or obligation. Consequently, its stockholder who was
actively engaged in the management or operation of the business should be
held personally liable.
Furthermore, in MAM Realty Development vs. NLRC, the Court
recognized that a director or officer may still be held solidarily liable with a
corporation by specific provision of law. Thus: . . . A corporation, being a
juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents, are not theirs
but the direct accountabilities of the corporation they represent. True,
solidary liabilities may at times be incurred but only when exceptional
circumstances warrant such as, generally, in the following cases: xxx xxx xxx
4. When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.
As pointed out earlier, the fifth paragraph of Section 100 of the
Corporation Code specifically imposes personal liability upon the stockholder
actively managing or operating the business and affairs of the close
corporation. In fact, in posting the surety bond required by this Court for the
issuance of a temporary restraining order enjoining the execution of the
assailed NLRC Resolutions, only Sergio F. Naguiat, in his individual and
personal capacity, principally bound himself to comply with the obligation
thereunder, i.e., "to guarantee the payment to private respondents of any
damages which they may incur by reason of the issuance of a temporary
restraining order sought, if it should be finally adjudged that said principals
were not entitled thereto.

Page 357 of 1072

The Court here finds no application to the rule that a corporate officer
cannot be held solidarily liable with a corporation in the absence of evidence
that he had acted in bad faith or with malice. In the present case, Sergio
Naguiat is held solidarily liable for corporate tort because he had actively
engaged in the management and operation of CFTI, a close corporation.
Antolin T. Naguiat was the vice president of the CFTI. Although he
carried the title of "general manager" as well, it had not been shown that he
had acted in such capacity. Furthermore, no evidence on the extent of his
participation in the management or operation of the business was preferred.
In this light, he cannot be held solidarily liable for the obligations of CFTI and
Sergio Naguiat to the private respondents.

Page 358 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
PROGRESS HOMES and ERMELO ALMEDA
VS.
NATIONAL LABOR RELATIONS COMMISSION, GREGORIO A. MEDRANO,
DANTE BAGUIO, JAIME GUAN, JOSE SAPALARAN, RONNIE DELPINO,
DIONISIO FRANCISCO and ELMER BAGUIO
G.R. No. 106212, March 7, 1997
269 SCRA 274
FACTS:
Petitioner Progress Homes Subdivision is a housing project undertaken
by the Ermelo M. Almeda Foundation, Inc., a non-stock organization duly
registered with the Securities and Exchange Commission (SEC). When it
engaged in constructing low-cost housing units for low-income employees, it
named its project "Progress Homes Subdivision" in Camarines Sur. The other
petitioner, Ermelo Almeda, is the President and General Manager of Progress
Homes and the owner of the land where the Progress Homes Subdivision is
located.
Private respondents allegedly were among the workers employed by
petitioners in their construction and development of the subdivision from
1986 to 1988. They were paid varying salaries.
Forty of these workers, including private respondents, filed before the
NLRC Arbitration Branch a petition for reinstatement, salary adjustment,
ECOLA, overtime pay and 13th month pay.
Petitioners amicably settled the case with thirty-three of the laborers,
leaving private respondents as the only claimants. Private respondents
alleged that they worked as laborers and carpenters for 8.5 hours a day at a
salary below the minimum wage and that when they demanded payment of
the benefits due them, they were summarily dismissed and barred from
entering the workplace.
Petitioners denied that private respondents were regular employees
claiming that they were only project employees and that there was no
employer-employee relationship between them.

Page 359 of 1072

ISSUE/S:
Whether or not petitioner Almeda could be held jointly and
severally liable with Progress Homes.
RULING:
NO.
The NLRC committed grave abuse of discretion when it affirmed the
Labor Arbiter's decision holding petitioner Almeda jointly and severally liable
with Progress Homes. The Court has held that corporate directors and
officers are solidarily liable with the corporation for the termination of
employment of employees only if the termination is done with malice or in
bad faith.The Labor Arbiter's decision failed to disclose why Almeda was
made personally liable. There appears no evidence on record that he acted
maliciously or in bad faith in terminating the services of private
respondents.Petitioner Almeda, therefore, should not have been made
personally answerable for the payment of private respondents' salaries.

Page 360 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
REAHS CORPORATION, SEVERO CASTULO, ROMEO PASCUA, and
DANIEL VALENZUELA
VS.
NATIONAL LABOR RELATIONS COMMISSION, BONIFACIO RED
VICTORIA PADILLA, MA. SUSAN R. CALWIT, SONIA DE LA CRUZ,
SUSAN DE LA CRUZ, EDNA WAHINGON, NANCY B. CENITA and
BENEDICTO A. TULABING
G.R. No. 117473 April 15, 1997
FACTS:
Complainant Bonifacio Red, Benedicto Tulabing, Nancy Cenita and
Susan Calwit Edna Wahingon, Susan dela Cruz, Sonia dela Cruz and Victoria
Padilla instituted an action before a the labor arbiter for unfair labor practice
and illegal dismissal, claims for separation pay, underpayment of wages,
holiday pay and 13th month pay.
On the other hand, respondents allege that a certain Ms Soledad
Domingo, the sole proprietress and operator of Rainbow Sauna located at
316 Araneta Avenue, Quezon City, offered to sell her business to respondent
Reah's Corporation After the sale, all the assets of Ms Domingo were turned
over to respondent Reah's, which put a sing-along coffee shop and massage
clinic; that complainant Red started his employment on the first week of
December 1988 as a roomboy at P50.00/day and was given living quarters
inside the premises as he requested; that sometime in March 1989,
complainant Red asked permission to go to Bicol for a period of ten (10)
days, which was granted, and was given an advance money of P1,200.00 to
bring some girls from the province to work as attendants at the respondent's
massage clinic, that it was only on January 1, 1990 that complainant Red
returned and was re-hired under the same terms and conditions of his
previous employment with the understanding that he will have to refund the
P1,200.00 cash advance given to him; that due to poor business, increase in
the rental cost and the failure of Meralco to reconnect the electrical services
in the establishment, it suffered losses leading to its closure.
The labor arbiter rendered judgment dismissing private respondents'
complaints for unfair labor practice and illegal dismissal but upholding the
claims for separation pay, underpayment of wages, holiday pay and 13th
month pay. The NLRC dismissed the appeal.

Page 361 of 1072

ISSUE/S:
Whether or not petitioners-officers can be held jointly and
severally liable with the corporation in the payment of separation
pay to private respondents under Article 283 of the Labor Code.
RULING:
As a general rule established by legal fiction, the corporation has a
personality separate and distinct from its officers, stockholders and
members. Hence, officers of a corporation are not personally liable for their
official acts unless it is shown that they have exceeded their authority. This
fictional veil, however, can be pierced by the very same law which created it
when "the notion of the legal entity is used as a means to perpetrate fraud,
an illegal act, as a vehicle for the evasion of an existing obligation, and to
confuse legitimate issues". Under the Labor Code, for instance, when a
corporation violates a provision declared to be penal in nature, the penalty
shall be imposed upon the guilty officer or officers of the corporation.
In the case at bar, the thrust of petitioners' arguments was aimed at
confining liability solely to the corporation, as if the entity were an
automaton designed to perform functions at the push of a button. The issue,
however, is not limited to payment of separation pay under Article 283 but
also payment of labor standard benefits such as underpayment of wages,
holiday pay and 13th month pay to two of the private respondents. While
there is no sufficient evidence to conclude that petitioners have
indiscriminately stopped the entity's business, at the same time, petitioners
have opted to abstain from presenting sufficient evidence to establish the
serious and adverse financial condition of the company.

Page 362 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
LYDIA SANTOS
VS.
NATIONAL LABOR RELATIONS COMMISSION AND SECURITY BANK
AND TRUST COMPANY
G.R. NO. 76721 SEPTEMBER 21, 1987
254 SCRA 673
FACTS:
Private respondent was hired to be the project accountant for MMDC's
mining operations in Gatbo, Bacon, Sorsogon. Private respondent sent to Mr.
Gil Abao, the MMDC corporate treasurer, a memorandum calling the latter's
attention to the failure of the company to comply with the withholding tax
requirements of, and to make the corresponding monthly remittances to, the
Bureau of Internal Revenue ("BIR") on account of delayed payments of
accrued salaries to the company's laborers and employees.
In a letter, private respondent was informed that his employment
contract was terminated as decided by the Board of MMDC. Private
respondent filed with the NLRC a complaint for illegal dismissal against
MMDC. Millena alleged, among other things, that his dismissal was merely an
offshoot of his letter of 12 August 1986 to Abao about the company's
inability to pay its workers and to remit withholding taxes to the BIR. LA
Aurellano ruled that there was no valid cause for terminating complainant's
employment. Upon appeal, the NLRC affirmed the decision of the Labor
Arbiter.
ISSUE/S:
Whether or not petitioner is solidarily liable with MMDC even in
the absence of bad faith and malice on his part.
RULING:
A corporation is a juridical entity with legal personality separate and
distinct from those acting for and in its behalf and, in general, from the
people comprising it. The rule is that obligations incurred by the corporation,
acting through its directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds
can exist to warrant, albeit done sparingly, the disregard of its independent
being and the lifting of the corporate veil. As a rule, this situation might arise
when a corporation is used to evade a just and due obligation or to justify a
wrong, to shield or perpetrate fraud, to carry out similar other unjustifable

Page 363 of 1072

aims or intentions, or as a subterfuge to commit injustice and so circumvent


the law.
In Tramat Mercantile, Inc., vs. Court of Appeals,the Court has collated
the settled instances when, without necessarily piercing the veil of corporate
fiction, personal civil liability can also be said to lawfully attach to a
corporate director, trustee or officer; to wit: 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.
The case of petitioner is way off these exceptional instances. It is not
even shown that petitioner has had a direct hand in the dismissal of private
respondent enough to attribute to him (petitioner) a patently unlawful act
while acting for the corporation. Neither can Article 289 of the Labor Code be
applied since this law specifically refers only to the imposition of penalties
under the Code. It is undisputed that the termination of petitioner's
employment has, instead, been due, collectively, to the need for a further
mitigation of losses, the onset of the rainy season, the insurgency problem in
Sorsogon and the lack of funds to further support the mining operation in
Gatbo.

Page 364 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
JOSE O. SIA
VS.
THE PEOPLE OF THE PHILIPPINES
G.R. No. L-30896, April 28, 1983
121 SCRA 655
FACTS:
Jose 0. Sia was General Manager of the Metal Manufacturing Company
of the Philippines, Inc. Because his company was in need of raw materials to
be imported from abroad, he applied for a letter of credit to import steel
sheets from Mitsui Bussan Kaisha, Ltd. of Tokyo, Japan directed to the
Continental Bank. His application has been approved and the letter of credit
was opened in the amount of $18,300 and the goods arrived sometime in
July, 1963. The bill of exchange issued for the purpose of collecting the
unpaid account thereon having fallen due neither accused nor his company
having made payment thereon notwithstanding demands, and the accounts
having reached the sum in pesos of P46,818.68 after deducting his deposit
valued at P28,736.47; that was the reason why upon complaint by
Continental Bank, the Fiscal filed the information after preliminary
investigation.
ISSUE/S:
Whether petitioner Jose O. Sia, having only acted for and in
behalf of the Metal Manufacturing Company of the Philippines
(Metal Company, for short) as President thereof in dealing with
the complainant, the Continental Bank, (Bank for short) he may
be liable for the crime charged.
RULING:
The case cited by the Court of Appeals in support of its stand-Tan Boon
Kong case, supra-may however not be squarely applicable to the instant case
in that the corporation was directly required by law to do an act in a given
manner, and the same law makes the person who fails to perform the act in
the prescribed manner expressly liable criminally. The performance of the act
is an obligation directly imposed by the law on the corporation. Since it is a

Page 365 of 1072

responsible officer or officers of the corporation who actually perform the act
for the corporation, they must of necessity be the ones to assume the
criminal liability; otherwise this liability as created by the law would be
illusory, and the deterrent effect of the law, negated.
In the present case, a distinction is to be found with the Tan Boon Kong
case in that the act alleged to be a crime is not in the performance of an act
directly ordained by law to be performed by the corporation. The act is
imposed by agreement of parties, as a practice observed in the usual pursuit
of a business or a commercial transaction. The offense may arise, if at all,
from the peculiar terms and condition agreed upon by the parties to the
transaction, not by direct provision of the law. The intention of the parties,
therefore, is a factor determinant of whether a crime was committed or
whether a civil obligation alone intended by the parties. With this
explanation, the distinction adverted to between the Tan Boon Kong case and
the case at bar should come out clear and meaningful. In the absence of an
express provision of law making the petitioner liable for the criminal offense
committed by the corporation of which he is a president as in fact there is no
such provisions in the Revised Penal Code under which petitioner is being
prosecuted, the existence of a criminal liability on his part may not be said to
be beyond any doubt. In all criminal prosecutions, the existence of criminal
liability for which the accused is made answerable must be clear and certain.
The maxim that all doubts must be resolved in favor of the accused is always
of compelling force in the prosecution of offenses. This Court has thus far not
ruled on the criminal liability of an officer of a corporation signing in behalf of
said corporation a trust receipt of the same nature as that involved herein. In
the case of Samo vs. People, L-17603-04, May 31, 1962, the accused was not
clearly shown to be acting other than in his own behalf, not in behalf of a
corporation.

Page 366 of 1072

TOPIC: PERSONAL LIABILITY OF DIRECTORS AND OTHER CORPORATE


OFFICERS
TRAMAT MERCANTILE, INC. AND DAVID ONG
VS.
HON. COURT OF APPEALS AND MELCHOR DE LA CUESTA
G.R. No. 111008, November 7, 1994
FACTS:
Melchor de la Cuesta, doing business under the name and style of
"Farmers Machineries," sold to Tramat Mercantile, Inc. ("Tramat"), 1 unit
HINOMOTO TRACTOR Model. In payment, David Ong, Tramat's president and
manager, issued a postdated check for P33,500.00. Tramat, in turn, sold the
tractor, together with an attached lawn mower fabricated by it to NAWASA.
David Ong caused a "stop payment" of the check when NAWASA refused to
pay the tractor and lawn mower after discovering that, aside from some
stated defects of the attached lawn mower, the engine (sold by de la Cuesta)
was a reconditioned unit.
Melchor de la Cuesta filed an action for the recovery of P33,500.00.
Ong, in his answer, averred, among other things, that de la Cuesta had no
cause of action and that the questioned transaction was between Farmers
Machineries and Tramat Mercantile, Inc., and not with Ong in his personal
capacity and that the payment of the check was stopped because the
subject tractor had been priced as a brand new, not as a reconditioned unit.
The trial court ruled in favor of Farmers Machineries as represented by
de la Cuesta and holding David Ong jointly and severally liable with TRAMAT
which was affirmed by the CA on appeal.
ISSUE/S:
Whether or not defendant Ong could be held jointly and severally
liable with TRAMAT to de la Cuesta?
RULING:
NO.
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

Page 367 of 1072

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.
In the case at bench, there is no indication that petitioner David Ong
could be held personally accountable under any of the abovementioned
cases.

Page 368 of 1072

TOPIC: DISLOYALTY
JOHN GOKONGWEI, JR., petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO,
JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO
BUNAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO,
SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and
EDUARDO R. VISAYA, respondents.
G.R. No. L-45911 April 11, 1979
89 SCRA 336
FACTS:
The Universal Robina Corporation, a corporation engaged in business
competitive to that of respondent corporation, began acquiring shares
therein until September 1976 when its total holding amounted to 622,987
shares: that in October 1972, the Consolidated Foods Corporation (CFC)
likewise began acquiring shares in respondent corporation until its total
holdings amounted to P543,959.00 in September 1976; that on January 12,
1976, petitioner, who is president and controlling shareholder of Robina and
CFC (both closed corporations) purchased 5,000 shares of stock of
respondent corporation, and thereafter, in behalf of himself, CFC and Robina,
"conducted malevolent and malicious publicity campaign against SMC" to
generate support from the stockholder "in his effort to secure for himself and
in representation of Robina and CFC interests, a seat in the Board of
Directors of SMC", that in the stockholders' meeting of March 18, 1976,
petitioner was rejected by the stockholders in his bid to secure a seat in the
Board of Directors on the basic issue that petitioner was engaged in a
competitive business and his securing a seat would have subjected
respondent corporation to grave disadvantages; that "petitioner nevertheless
vowed to secure a seat in the Board of Directors at the next annual meeting;
that thereafter the Board of Directors amended the by-laws as afore-stated.
On October 22, 1976, petitioner, as stockholder of respondent San
Miguel Corporation, filed with the Securities and Exchange Commission (SEC)
a petition for "declaration of nullity of amended by-laws, cancellation of
certificate of filing of amended by- laws, injunction and damages with prayer
for a preliminary injunction" against the majority of the members of the
Board of Directors and San Miguel Corporation as an unwilling petitioner.
Causes of action are the following: individual respondents amended by
bylaws of the corporation, basing their authority to do so on a resolution of
the stockholders adopted on March 13, 1961; the authority granted in 1961
has already been exercised in 1962-63; petitioner averred that the
membership of the Board of Directors had changed since the authority was
given in 1961, there being six (6) new directors; Soriano et. Al purposely

Page 369 of 1072

provided Gokongweis disqualification and deprived him of his right and


finally the corporation has no inherent power to disqualify him as stockholder
from being elected as Board of Director.
ISSUE/S:
Whether or not the amended by-laws of SMC of disqualifying a
competitor from nomination or election to the Board of Directors of
SMC are valid and reasonable.
RULING:
The validity or reasonableness of a by-law of a corporation is purely a
question of law. Whether the by-law is in conflict with the law of the land, or
with the charter of the corporation, or is in a legal sense unreasonable and
therefore unlawful is a question of law. This rule is subject, however, to the
limitation that where the reasonableness of a by-law is a mere matter of
judgment, and one upon which reasonable minds must necessarily differ, a
court would not be warranted in substituting its judgment instead of the
judgment of those who are authorized to make by-laws and who have
exercised their authority.
The exclusion of a competitor from the Board is legitimate corporate
purpose, considering that being a competitor, petitioner cannot devote an
unselfish and undivided Loyalty to the corporation; that it is essentially a
preventive measure to assure stockholders of San Miguel Corporation of
reasonable protective from the unrestrained self-interest of those charged
with the promotion of the corporate enterprise; that access to confidential
information by a competitor may result either in the promotion of the interest
of the competitor at the expense of the San Miguel Corporation, or the
promotion of both the interests of petitioner and respondent San Miguel
Corporation, which may, therefore, result in a combination or agreement in
violation of Article 186 of the Revised Penal Code by destroying free
competition to the detriment of the consuming public. It is further argued
that there is not vested right of any stockholder under Philippine Law to be
voted as director of a corporation. It is alleged that petitioner, as of May 6,
1978, has exercised, personally or thru two corporations owned or controlled
by him, control over the following shareholdings in San Miguel Corporation.
Private respondents contend that the disputed amended by laws were
adopted by the Board of Directors of San Miguel Corporation a-, a measure of
self-defense to protect the corporation from the clear and present danger
that the election of a business competitor to the Board may cause upon the
corporation and the other stockholders inseparable prejudice.
In this
jurisdiction, under section 21 of the Corporation Law, a corporation may
prescribe in its by-laws "the qualifications, duties and compensation of
directors, officers and employees ... " This must necessarily refer to a
qualification in addition to that specified by section 30 of the Corporation
Law, which provides that "every director must own in his right at least one
share of the capital stock of the stock corporation of which he is a director.

Page 370 of 1072

Thus, it has been held that an officer of a corporation cannot engage in


a business in direct competition with that of the corporation where he is a
director by utilizing information he has received as such officer, under "the
established law that a director or officer of a corporation may not enter into a
competing enterprise which cripples or injures the business of the
corporation of which he is an officer or director. It is also well established
that corporate officers "are not permitted to use their position of trust and
confidence to further their private interests." The doctrine of "corporate
opportunity" is precisely a recognition by the courts that the fiduciary
standards could not be upheld where the fiduciary was acting for two entities
with competing interests. This doctrine rests fundamentally on the
unfairness, in particular circumstances, of an officer or director taking
advantage of an opportunity for his own personal profit when the interest of
the corporation justly calls for protection . It is not denied that a member of
the Board of Directors of the San Miguel Corporation has access to sensitive
and highly confidential information, such as:
a) marketing strategies and pricing structure;
b) budget for expansion and diversification;
c) research and development; and
d) sources of funding, availability of personnel,
proposals of mergers or tie-ups with other firms.
It is obviously to prevent the creation of an opportunity for an officer or
director of San Miguel Corporation, who is also the officer or owner of a
competing corporation, from taking advantage of the information which he
acquires as director to promote his individual or corporate interests to the
prejudice of San Miguel Corporation and its stockholders, that the questioned
amendment of the by-laws was made. Certainly, where two corporations are
competitive in a substantial sense, it would seem improbable, if not
impossible, for the director, if he were to discharge effectively his duty, to
satisfy his loyalty to both corporations and place the performance of his
corporation duties above his personal concerns.
Indeed, access by a competitor to confidential information regarding
marketing strategies and pricing policies of San Miguel Corporation would
subject the latter to a competitive disadvantage and unjustly enrich the
competitor, for advance knowledge by the competitor of the strategies for
the development of existing or new markets of existing or new products
could enable said competitor to utilize such knowledge to his advantage.

Page 371 of 1072

TOPIC: DISLOYALTY
ELEANOR ERICA STRONG AND RICHARD P. STRONG, plaintiffsappellees,
vs.
FRANCISCO GUTIERREZ REPIDE, defendant-appellant.
November15, 1906 G.R. No. L-2101
41 Phil 947
FACTS:
This action was brought to recover 800 shares of the capital stock of
the Philippine Sugar Estates Development Company, Limited, an anonymous
society formed to hold the Dominican friar lands.
The shares were the property of one of the plaintiffs, Mrs. Strong, as
part of the estate of her first husband. They were purchased by the
defendant through a broker who dealt with her agent, one Jones, who had
the script in her possession and who had made the sale without the
knowledge of the plaintiff. The defendant was a director, was the managing
agent, and was in his own right the majority stockholder of the society.
The government of United States wants to secure title of the friar
lands. Thus the Governor made an offer for purchase for the total sum of S6,
043, 219.47 in gold for the friar lands though owned by different owners.
However ,before the final offer has been made by the Governor, the
defendant although still holding out for a higher price for the lands, took
steps to purchase the 800 shares of stock in his company owned by Mrs.
Strong, which he knew were in possession of Jones as her agent.
Defendant employed one Kauffman and the latter employed a certain
Mr. Sloan, a broker to purchase the stock for him and told Sloan that the
stock was for a member of his wifes family. Mr. Sloan communicated with Mr.
Strong but he was referred to Mr. Jones.
Mr. Jones sold the 800 shares of stock for S16, 000.00 Mexican currencies
delivering to Kauffman at S18, 000.00, S1, 800 for Kauffmans services.
ISSUE/S:
Whether or not it is the duty of the defendant to disclose the facts
bearing upon or which might affect the value of the stock.
RULING:
A Director must always be loyal and act in good faith not only for the
corporation but for the stock holder as well. Directors of a corporation are
but the agents and trustees of the company; they have power only to act for
the interest of the company and not against it. Any agreement to influence

Page 372 of 1072

their action for the benefit of others and to the prejudice of the company is
fraudulent
and
void.
It is one of the fundamental principles of law that a person acting as an
agent or in a fiduciary relation cannot act for himself and at the same time
as agent for another whose interests are conflicting. Thus a person cannot be
a purchaser of property and at the same time agent of the vendor. The law
will always condemn the transactions of such a party in his own behalf or in
respect to matters concerning him as agent of others and will give relief
against such acts whenever their enforcement is seasonably resisted.
Directors and general managers of corporation and all other persons who
sustain any fiduciary relation to other parties and are clothed with power to
act for them are subject to this rule.
Concealing his identity when procuring the purchase of the stock by his
agent, was in itself a strong evidence of fraud on the part of the defendant.
The concealment was not a mere inadvertent omission, an omission without
any fraudulent or deceitful interest but was studied and intentional omission,
to be characterized as part of the deceitful machination to obtain the
purchase without giving any information whatever as to the state and
probable result of the negotiations, to the vendor of the stocks , in that way
obtained the same at a lower price.
They are not liable for errors of judgment and mistakes of fact or law
when they act in good faith and with proper carte. They are liable, however,
when by their secret connivance or by fraudulent conduct they have made
great
profits
at
the
expense
of
the
stockholders.

Page 373 of 1072

TOPIC: WATERED STOCK


LIRAG TEXTILE MILLS, INC., and BASILIO L. LIRAG, Petitioners,
vs.
SOCIAL SECURITY SYSTEM, and HON. PACIFICO DE CASTRO,
Respondents
G.R. No. L-33205 August 31, 1987
FACTS:
The plaintiff [herein respondent Social Security System] and the
defendants [herein petitioners] Lirag Textile Mills, Inc. and Basilio Lirag
entered into a Purchase Agreement under which the plaintiff agreed to
purchase from the said defendant preferred shares of stock worth ONE
MILLION PESOS P1,000,000.00 subject to the conditions set forth in such
agreement.
The plaintiff, on January 31, 1962, paid the defendant Lirag Textile
Mills, Inc. the sum of FIVE HUNDRED THOUSAND PESOS P500, 000.00 for
which the said defendant issued to plaintiff 5,000 preferred shares with a par
value of one hundred pesos P10000 per share as evidenced by stock
Certificate No. 128, and further made another payment of P500,000.00 for
which the said defendant issued to plaintiff 5,000 preferred shares with a par
value of one hundred pesos P100.00 per share as evidenced by Stock
Certificate No. 139.
Purchase Agreement provides for the repurchase by the Lirag Textile
Mills, Inc. of the shares of stock at regular intervals of one year beginning
with the 4th year following the date of issue, Stock Certificates Nos. 128 and
139 were to be repurchased by the Lirag Textile Mills, Inc. thus, to guarantee
the redemption of the stocks purchased by the plaintiff, the payment of
dividends, as well as the other obligations of the Lirag Textile Mills, Inc.,
defendants Basilio L. Lirag signed the Purchase Agreement of September 4,
1961 not only as president of the defendant corporation, but also as surety
so that should the Lirag Textile Mills, Inc. fail to perform any of its obligations
in the said Purchase Agreement, the surety shall immediately pay to the
vendee the amounts then outstanding.
Defendant corporation failed to redeem certificates of Stock Nos. 128
and 139 by payment of the amounts and Lirag Textile Mills, Inc. has not paid
dividends despite notices to defendant and Basilio as surety. Defendant
claims that it was not able to pay its obligation due to financial reverses.
It has been the policy of the plaintiff to be represented in the board of
directors of the corporation or entity which has obtained financial assistance
from the System be it in terms of loans, mortgages or equity investments,

Page 374 of 1072

thus Messrs. Rene Espina, Bernardino Abes and Heber Catalan were each
issued one common share of stock as a qualifying share to their election to
the Board of Directors of the Lirag Textiles Mills, Inc. However, the per diems
received by the SSS representative do not go to the coffers of the System but
personally to the representative in the said board of directors.
Lirag Textile Mills, Inc. and Basilio L. Lirag denied the existence of any
obligation on their part to redeem the preferred stocks, on the ground that
the SSS became and still is a preferred stockholder of the corporation so that
redemption of the shares purchased depended upon the financial ability of
said corporation. Insofar as defendant Basilio Lirag is concerned, it was
alleged that his liability arises only if the corporation is liable and does not
perform its obligations under the Purchase Agreement. They further
contended that no liability on their part has arisen because of the financial
condition of the corporation upon which such liability was made to depend,
particularly the non-realization of any profit or earned surplus. Thus, the
other claims for dividends, liquidated damages and exemplary damages are
allegedly without basis.
ISSUE/S:
Whether or not respondent SSS is a stock holder of Petitioner
Corporation.
RULING:
The Purchase Agreement is, indeed, a debt instrument. Its terms and
conditions unmistakably show that the parties intended the repurchase of
the preferred shares on the respective scheduled dates to be an absolute
obligation which does not depend upon the financial ability of petitioner
corporation. This absolute obligation on the part of petitioner corporation is
made manifest by the fact that a surety was required to see to it that the
obligation is fulfilled in the event of the principal debtor's inability to do so.
The unconditional undertaking of petitioner corporation to redeem the
preferred shares at the specified dates constitutes a debt which is defined
"as an obligation to pay money at some fixed future time, or at a time which
becomes definite and fixed by acts of either party and which they expressly
or impliedly, agree to perform in the contract.
The rights given by the Purchase Agreement to respondent SSS are
rights not enjoyed by ordinary stockholders. The aforementioned rights
specially stipulated for the benefit of the plaintiff [respondent SSS] suggest
eloquently an intention on the part of the plaintiff [respondent SSS] to
facilitate a loan to the defendant corporation upon the latter's request. In
order to afford protection to the plaintiff which otherwise is provided by
means of collaterals, as the plaintiff exacts in its grants of loans in its
ordinary transactions of this kind, as it is looked upon more as a lending
institution rather than as an investing agency, the purchase agreement

Page 375 of 1072

supplied these protective rights which would otherwise be furnished by


collaterals to the loan. Thus, the membership in the board is to have a
watchdog in the operation of the business of the corporation, so as to insure
against mismanagement which may result in losses not entirely unavoidable
since payment for purposes of redemption as well as the dividends is
expressly stipulated to come from profits and/or surplus. Such a right is
never exacted by an ordinary stockholder merely investing in the
corporation.
Moreover, the Purchase Agreement provided that failure on the part of
petitioner to repurchase the preferred shares on the scheduled due dates
renders the entire obligation due and demandable, with petitioner in such
eventuality liable to pay 12% of the then outstanding obligation as liquidated
damages. These features of the Purchase Agreement, taken collectively,
clearly show the intent of the parties to be bound therein as debtor and
creditor, and not as corporation and stockholder.

Page 376 of 1072

TOPIC: WATERED STOCK


RICARDO A. NAVA, petitioner-appellant.
vs.
PEERS MARKETING CORPORATION, RENATO R. CUSI and AMPARO
CUSI, respondents-appellees.
G.R. No. L-28120 November 25, 1976
FACTS:
Teofilo Po as an incorporator subscribed to eighty shares of Peers
Marketing Corporation at one hundred pesos a share or a total par value of
eight thousand pesos. Po paid two thousand pesos or twenty-five percent of
the amount of his subscription. No certificate of stock was issued to him or,
for that matter, to any incorporator, subscriber or stockholder.
On April 2, 1966 Po sold to Ricardo A. Nava for two thousand pesos
twenty of his eighty shares. In the deed of sale Po represented that he was
"the absolute and registered owner of twenty shares" of Peers Marketing
Corporation.
Nava requested the officers of the corporation to register the sale in
the books of the corporation. The request was denied because Po has not
paid fully the amount of his subscription. Nava was informed that Po was
delinquent in the payment of the balance due on his subscription and that
the corporation had a claim on his entire subscription of eighty shares which
included the twenty shares that had been sold to Nava.
Nava filed this mandamus action in the Court of First Instance of
Negros Occidental, Bacolod City Branch to compel the corporation and
Renato R. Cusi and Amparo Cusi, its executive vice-president and secretary,
respectively, to register the said twenty shares in Nava's name in the
corporation's transfer book.
ISSUE/S:
Whether or not the Corporation and its officers can be compelled to
register the alleged purchased shares of stock by Nava.

Page 377 of 1072

RULING:
NO
SEC. 35 of the Corporation Code provides that: the capital stock of
stock corporations shall be divided into shares for which certificates signed
by the president or the vice-president, countersigned by the secretary or
clerk and sealed with the seal of the corporation, shall be issued in
accordance with the by-laws. Shares of stock so issued are personal property
and may be transferred by delivery of the certificate indorsed by the owner
or his attorney in fact or other person legally authorized to make the transfer.
No transfer, however, shall be valid, except as between the, parties, until the
transfer is entered and noted upon the books of the corporation so as to
show the names of the parties to the transaction, the date of the transfer,
the number of the certificate, and the number of shares transferred.
No share of stock against which the corporation holds any unpaid claim
shall be transferable on the books of the corporation.
As prescribed in section 35, shares of stock may be transferred by delivery to
the transferee of the certificate properly indorsed. "Title may be vested in
the transferee by delivery of the certificate with a written assignment or
endorsement thereof. There should be compliance with the mode of transfer
prescribed by law.
The usual practice is for the stockholder to sign the form on the back of
the stock certificate. The certificate may thereafter be transferred from one
person to another. If the holder of the certificate desires to assume the legal
rights of a shareholder to enable him to vote at corporate elections and to
receive dividends, he fills up the blanks in the form by inserting his own
name as transferee. Then he delivers the certificate to the secretary of the
corporation so that the transfer may be entered in the corporation's books.
The certificate is then surrendered and a new one issued to the transferee.
(Hager vs. Bryan, 19 Phil. 138, 143-4).
That procedure cannot be followed in the instant case because, as
already noted, the twenty shares in question are not covered by any
certificate of stock in Po's name. Moreover, the corporation has a claim on
the said shares for the unpaid balance of Po's subscription. A stock
subscription is a subsisting liability from the time the subscription is made.
The subscriber is as much bound to pay his subscription as he would be to
pay any other debt. The right of the corporation to demand payment is no
less incontestable. (Velasco vs. Poizat, 37 Phil. 802; Lumanlan vs. Cura, 59
Phil. 746).
A corporation cannot release an original subscriber from paying for his
shares without a valuable consideration (Philippine National Bank vs. Bitulok
Sawmill,
Inc.,
L-24177-85, June 29, 1968, 23 SCRA 1366) or without the unanimous consent

Page 378 of 1072

of the stockholders (Lingayen Gulf Electric Power Co., Inc. vs. Baltazar, 93
Phil 404).
Under the facts of this case, there is no clear legal duty on the part of the
officers of the corporation to register the twenty shares in Nava's name;
hence, there is no cause of action for mandamus.

TOPIC: SELF-DEALING DIRECTOR/OFFICER


CHARLES W. MEAD, plaintiff-appellant,
vs.
E. C. McCullough, ET AL., and THE PHILIPPINE ENGINEERING AND
CONSTRUCTION COMPANY, defendant-appellants.
G.R. No. 6217 December 26, 1911
21 Phil 95
FACTS:
On March 15, 1902, Mead and McCullough organized the "Philippine
Engineering and Construction Company," the incorporators being the only
stockholders and also the directors of said company, with general ordinary
powers. One of the contracts and work undertaken by the company during
the management of Mead were the wrecking contract with the Navy
Department at Cavite for the raising of the Spanish ships sunk by Admiral
Dewey.
Shortly after the Mead left the Philippine Islands for China, the other
directors, the defendants in this case, held a meeting on December 24, 1903,
for the purpose of discussing the condition of the company at that time and
determining what course to pursue and at the same date, entered into a
contract with the defendant McCullough selling the wrecking contract with
the naval authorities to the latter.
On the 28th of the same month, McCullough in turn transferred his
right, title and interest over the wrecking contract by virtue of a contract to
R. W. Brown, H. D. C. Jones, John T. Macleod, and T. H. Twentyman. The
assignees of the wrecking contract, including McCullough, formed was now
known as the "Manila Salvage Association." This association paid to
McCullough $15,000 Mexican Currency cash for the assignment of said
contract. In addition to this payment, McCullough retained a one-sixth
interest in the new company or association.
ISSUE:

Page 379 of 1072

Whether or not an officer or directors of the corporation can


purchase the corporate property.
RULING:
While a corporation remains solvent, we can see no reason why a
director or officer, by the authority of a majority of the stockholders or board
of managers, may not deal with the corporation, loan it money or buy
property from it, in like manner as a stranger. So long as a purely private
corporation remains solvent, its directors are agents or trustees for the
stockholders. They owe no duties or obligations to others. But the moment
such a corporation becomes insolvent, its directors are trustees of all the
creditors, whether they are members of the corporation or not, and must
manage its property and assets with strict regard to their interest; and if they
are themselves creditors while the insolvent corporation is under their
management, they will not be permitted to secure to themselves by
purchasing the corporate property or otherwise any personal advantage over
the other creditors. Nevertheless, a director or officer may in good faith and
for an adequate consideration purchase from a majority of the directors or
stockholders the property even of an insolvent corporation, and a sale thus
made to him is valid and binding upon the minority. (Beach et al. vs. Miller,
supra; Twin-Lick Oil Company vs. Marbury, supra; Drury vs. Cross, 7 Wall.,
299; Curran vs. State of Arkansas, 15 How., 304; Richards vs. New
Hamphshire Insurance Company, 43 N. H., 263; Morawetz on Corporations
(first edition), sec. 579; Haywood vs. Lincoln Lumber Company et al., 64 Wis.,
639; Port vs. Russels, 36 Ind., 60; Lippincott vs. Shaw Carriage Company, 21
Fed. Rep., 577.)
The sale or transfer of the corporate property in the case at bar was
made by three directors who were at the same time a majority of
stockholders. If a majority of the stockholders have a clear and a better right
to sell the corporate property than a majority of the directors, then it can be
said that a majority of the stockholders made this sale or transfer to the
defendant McCullough.
But as we have said when the sale or transfer under consideration took
place, there were three directors present, and all voted in favor of making
this sale. It was not necessary for the president, McCullough, to vote. There
was a quorum without him: a quorum of the directors, and at the same time
a majority of the stockholders.
A corporation is essential a partnership, except in form. "The directors
are the trustees or managing partners, and the stockholders are the cestui
que trust and have a joint interest in all the property and effects of the
corporation." (Per Walworth, Ch., in Robinson vs. Smith, 3 Paige, 222, 232; 5
idem, 607; Slee vs. Bloom, 19 Johns., 479; Hoyt vs. Thompson, 1 Seld., 320.)

Page 380 of 1072

The Philippine Engineering and Construction Company was an artificial


person, owning its property and necessarily acting by its agents; and these
agents were the directors. McCullough was then an agent or a trustee, and
the stockholders the principal. Or say (as corporation was insolvent) that he
was an agent or trustee and the creditors were the beneficiaries. This being
the true relation, then the rules of the law (art. 1713 of the Civil Code)
applicable to sales and purchases by agents and trustees would not apply to
the purchase in question for the reason that there was a quorum without
McCullough, and for the further reason that an officer or director of a
corporation, being an agent of an artificial person and having a joint interest
in the corporate property, is not such an agent as that treated of in article
1713 of the Civil Code.

Page 381 of 1072

TOPIC: SELF-DEALING DIRECTOR/OFFICER


PRIME WHITE CEMENT CORPORATION
VS.
HONORABLE INTERMEDIATE APPELLATE COURT AND ALEJANDRO TE
G.R. NO. 68555, MARCH 19, 1993
220 SCRA 103
FACTS:
Prime White Cement Corporation, herein plaintiff, entered into a
dealership agreement with herein private respondent Alejandro Te, who is
likewise a member of the Board of Directors and Auditor of the said
corporation, whereby the latter shall act as an exclusive dealer and/or
distributor of Prime Whites cement products in the entire Mindanao area for
a period of five years at a fixed price of P9.70 per bag of cement.
Thus, relying heavily on the dealership agreement, Te entered into written
agreements between several hardware stores to whom he would supply
Prime Whites cement. Te even wrote the corporation to inform the latter that
he is already making the necessary preparation for the opening of the
requisite letter of credit to cover the price of the initial delivery due for the
month of September. However, the corporation replied through its corporate
secretary that the Board of Prime White decided to impose certain conditions
which effectively modified the dealership agreement that they have entered
into. Said conditions effectively reduced the number of cement bags to be
delivered, shortening the period of the exclusive dealership agreement, as
well as fixing the price of white cement at P13.30 per bag.
Te demanded for the corporation to comply with the dealership
agreement. However, said corporation refused, forcing him to cancel his
agreement to supply white cement with third parties. Thus, Te filed an action
for damages against the corporation which the trial court ruled in favour of
Te. Said decision was affirmed by the IAC.
ISSUE/S:
Whether or not the dealership agreement entered into by a
self-dealing director and a corporation is valid and enforceable.
RULING:
Inthe instant case, respondent Te was not an ordinary stockholder; he
was a member of the Board of Directors and Auditor of the corporation as
well. He was what is often referred to as a self-dealing director.
Section 32 of the Corporation Code provides, thus:
Sec. 32. Dealings, of directors, trustees or officers with the
corporation. A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the option of such
corporation, unless all the following conditions are present:

Page 382 of 1072

1. That the presence of such or trustee in the board meeting in


which the contract was approved was not necessary to
constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for
the approval of the contract;
3. That the contract is fair and reasonable under the
circumstances; and
4. That in the case of an officer, the contract with the officer has
been previously authorized by the Board of Directors.
Where any of the first two conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or trustee, such
contract may be ratified by the vote of the stockholders at least two-thirds
(2/3) of the outstanding capital stock of two-thirds (2/3) of the members in a
meeting called for the purpose: Provided, That full disclosure of the adverse
interest of the directors or trustees involved is made at such meeting:
Provided, however, That the contract is fair and reasonable under the
circumstances.
In the case at bar, the Supreme Court held that the contract was
neither fair nor reasonable. The dealership agreement entered into in July
1969 was to sell and supply to respondent Te 20,000 bags of white cement
per month, for five years starting September 1970, at the fixed price of P9.70
per bag. Respondent Te is a businessman himself and must have known, or
at least must be presumed to know, that at that time, prices of commodities
in general, and white cement in particular, were not stable and were
expected to rise. Despite this, no provision was made in the dealership
agreement to allow for an increase in price mutually acceptable to the
parties.
In view of the foregoing, the Decision and Resolution of the
Intermediate Appellate Court dated March 30, 1984 and August 6, 1984,
respectively, are hereby SET ASIDE. Private respondent Alejandro Te is
hereby ordered to pay petitioner corporation the sum of P20,000.00 for
attorneys fees, plus the cost of suit and expenses of litigation.

Page 383 of 1072

TOPIC: CONTRACTS
DIRECTORS

BETWEEN

CORPORATIONS

WITH

INTERLOCKING

PEDRO PALTING
VS.
SAN JOSE PETROLEUM INCORPORATED
G.R. NO. L-14441, DECEMBER 17, 1966
18 SCRA 924
FACTS:
On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine
Securities and Exchange Commission a sworn registration statement, for the
registration and licensing for sale in the Philippines Voting Trust Certificates
representing 2,000,000 shares of its capital stock of a par value of $0.35 a
share, at P1.00 per share. It was alleged that the entire proceeds of the sale
of said securities will be devoted or used exclusively to finance the
operations of San Jose Oil Company, Inc. (a domestic mining corporation
hereafter to be referred to as SAN JOSE OIL) which has 14 petroleum
exploration concessions covering an area of a little less than 1,000,000
hectares, located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La
Union, Iloilo, Cotabato, Davao and Agusan.
Respondent SAN JOSE PETROLEUM, whose shares of stock were
allowed registration for sale in the Philippines, was incorporated under the
laws of Panama in April, 1956 with an authorized capital stock of
$500,000.00, American currency, divided into 50,000,000 shares at par value
of $0.01 per share.
Its Articles of Incorporation include, among others, a provision which
states that no contract or transaction between the corporation and any
other association or partnership will be affected, except in case of fraud, by
the fact that any of the directors or officers of the corporation is interested
in, or is a director or officer of, such other association or partnership, and
that no such contract or transaction of the corporation with any other person
or persons, firm, association or partnership shall be affected by the fact that
any director or officer of the corporation is a party to or has an interest in,
such contract or transaction, or has in anyway connected with such other
person or persons, firm, association or partnership; and finally, that all and
any of the persons who may become director or officer of the corporation
shall be relieved from all responsibility for which they may otherwise be
liable by reason of any contract entered into with the corporation, whether it
be for his benefit or for the benefit of any other person, firm, association or
partnership in which he may be interested.
ISSUE/S:

Page 384 of 1072

Whether or not the aforementioned provision in the Articles of


Incorporation of San Jose Petroleum is valid under Philippine
laws.
RULING:
These provisions are in direct opposition to our corporation law and
corporate practices in this country. These provisions alone would outlaw any
corporation locally organized or doing business in this jurisdiction. Consider
the unique and unusual provision that no contract or transaction between
the company and any other association or corporation shall be affected
except in case of fraud, by the fact that any of the directors or officers of the
company may be interested in or are directors or officers of such other
association or corporation; and that none of such contracts or transactions of
this company with any person or persons, firms, associations or corporations
shall be affected by the fact that any director or officer of this company is a
party to or has an interest in such contract or transaction or has any
connection with such person or persons, firms associations or corporations;
and that any and all persons who may become directors or officers of this
company are hereby relieved of all responsibility which they would otherwise
incur by reason of any contract entered into which this company either for
their own benefit, or for the benefit of any person, firm, association or
corporation in which they may be interested.
The impact of these provisions upon the traditional judiciary
relationship between the directors and the stockholders of a corporation is
too obvious to escape notice by those who are called upon to protect the
interest of investors. The directors and officers of the company can do
anything, short of actual fraud, with the affairs of the corporation even to
benefit themselves directly or other persons or entities in which they are
interested, and with immunity because of the advance condonation or relief
from responsibility by reason of such acts. This and the other provision which
authorizes the election of non-stockholders as directors, completely
disassociate the stockholders from the government and management of the
business in which they have invested.

Page 385 of 1072

TOPIC: CONTRACTS
DIRECTORS

BETWEEN

CORPORATIONS

WITH

INTERLOCKING

DEVELOPMENT BANK OF THE PHILIPPINES


VS.
HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL
SALES CORPORATION
G.R. No. 126200, August 16, 2001
363 SCRA 307
FACTS:
Marinduque Mining-Industrial Corporation, obtained from the Philippine
National Bank
various loan accommodations. To secure the loans,
Marinduque Mining executed on October 9, 1978 a Deed of Real Estate
Mortgage and Chattel Mortgage in favor of PNB. The mortgage covered all of
Marinduque Mining's real properties, located at Surigao del Norte, Sipalay,
Negros Occidental, and at Antipolo, Rizal, including the improvements
thereon. As of November 20, 1980, the loans extended by PNB amounted to
P4 Billion, exclusive of interest and charges.
For failure of Marinduque Mining to settle its loan obligations, PNB and
DBP instituted sometime on July and August 1984 extrajudicial foreclosure
proceedings over the mortgaged properties.
In the ensuing public auction sales PNB and DBP emerged and were
declared the highest bidders over the foreclosed real properties, buildings,
mining claims, leasehold rights together with the improvements thereon as
well as machineries and equipments of MMIC.
PNB and DBP thereafter thru several Deed of Transfers assigned and
transferred to Nonoc Mining and Industrial Corporation all their rights,
interest and participation over the foreclosed properties of MMIC located at
Nonoc Island, Surigao del Norte for an initial consideration of
P14,361,000,000.00, in favor of Maricalum Mining Corp. all its rights, interest
and participation over the foreclosed properties of MMIC at Sipalay, Negros
Occidental for an initial consideration of P325,800,000.00 and to the National
Government through the Asset Privatization Trust all its existing rights and
interest over the assets of MMIC, earlier assigned to Nonoc Mining and
Industrial Corporation, Maricalum Mining Corporation and Island Cement
Corporation.
However, between July 16, 1982 to October 4, 1983, Marinduque
Mining purchased and caused to be delivered construction materials and
other merchandise from Remington Industrial Sales Corporation worth
P921,755.95. The purchases remained unpaid as of August 1, 1984 when
Remington filed a complaint for a sum of money and damages against

Page 386 of 1072

Marinduque Mining for the value of the unpaid construction materials and
other merchandise purchased by Marinduque Mining, as well as interest,
attorney's fees and the costs of suit. The complaint was later amended to
include PNB and DBP, Nonoc Mining, Maricalum Mining and Island Cement
based on the claim of Remington that these mining corporations must be
treated in law as one and the same entity by disregarding the veil of
corporate fiction since:
1. Co-defendants NMIC, Maricalum and Island Cement which
are newly created entities are practically owned wholly by
defendants PNB and DBP, and managed by their officers,
aside from the fact that the aforesaid co-defendants NMIC,
Maricalum and Island Cement were organized in such a
hurry and in such suspicious circumstances by codefendants PNB and DBP after the supposed extrajudicial
foreclosure of MMIC's assets as to make their supposed
projects assets, machineries and equipment which were
originally owned by co-defendant MMIC beyond the reach
of creditors of the latter.
2. The personnel, key officers and rank-and-file workers and
employees of co-defendants NMIC, Maricalum and Island
Cement creations of co-defendants PNB and DBP were the
personnel of co-defendant MMIC such that . . . practically
there has only been a change of name for all legal purpose
and intents
The RTC and CA ruled in favour of Remington.
ISSUE:
Whether or not the presence of interlocking directors warrant the
piercing of the veil of corporate fiction.
RULING:
The Court of Appeals made reference to two principles in corporation
law. The first pertains to transactions between corporations with interlocking
directors resulting in the prejudice to one of the corporations. This rule does
not apply in this case, however, since the corporation allegedly prejudiced
(Remington) is a third party, not one of the corporations with interlocking
directors (Marinduque Mining and DBP).
The second principle invoked by respondent court involves "directors x x x
who are creditors" which is also inapplicable herein. Here, the creditor of
Marinduque Mining is DBP, not the directors of Marinduque Mining.
Neither do we discern any bad faith on the part of DBP by its creation
of Nonoc Mining, Maricalum and Island Cement. As Remington itself
concedes, DBP is not authorized by its charter to engage in the mining
business. The creation of the three corporations was necessary to manage
and operate the assets acquired in the foreclosure sale lest they deteriorate

Page 387 of 1072

from non-use and lose their value. In the absence of any entity willing to
purchase these assets from the bank, what else would it do with these
properties in the meantime? Sound business practice required that they be
utilized for the purposes for which they were intended.
Remington also asserted in its third amended complaint that the use of
Nonoc Mining, Maricalum and Island Cement of the premises of Marinduque
Mining and the hiring of the latter's officers and personnel also constitute
badges of bad faith.
Assuming that the premises of Marinduque Mining were not among
those acquired by DBP in the foreclosure sale, convenience and practicality
dictated that the corporations so created occupy the premises where these
assets were found instead of relocating them. No doubt, many of these
assets are heavy equipment and it may have been impossible to move them.
The same reasons of convenience and practicality, not to mention efficiency,
justified the hiring by Nonoc Mining, Maricalum and Island Cement of
Marinduque Mining's personnel to manage and operate the properties and to
maintain the continuity of the mining operations.

Page 388 of 1072

TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


LEGASPI TOWERS 300, INC Vs.AMELIA P. MUER et.al
G.R. No. 170783 - June 18, 2012
FACTS:
Pursuant to the by-laws of Legaspi Towe, petitioners Lilia Marquinez
et.al ., The incumbent Board of Directors, set the annual meeting of the
members of the condominium corporation and the election of the new Board
of Directors.
Out of a total number of 5,723 members who were entitled to vote,
1,358 were supposed to vote through their respective proxies and their votes
were critical in determining the existence of a quorum, which was at least
2,863 (50% plus 1). The Committee on Elections of Legaspi Towers 300, Inc.,
however, found most of the proxy votes, at its face value, irregular, thus,
questionable; and for lack of time to authenticate the same, petitioners
adjourned the meeting for lack of quorum.
Despite petitioners' insistence that no quorum was obtained during the
annual meeting respondents pushed through with the scheduled election and
were elected as the new Board of Directors and officers of Legaspi Towers
Subsequently, they submitted a General Information Sheet to the Securities
and Exchange Commission (SEC) with the new set of officers.
Petitioners filed a Complaint for the Declaration of Nullity of Elections
ISSUE:
Whether or not petitioners have no right as board of directors to bring
an action in behalf of Legaspi towers.
HELD:
The complaint is meant to be a derivative suit filed by petitioners in
behalf of the corporation. The sudden takeover by private respondents of the
management of Legaspi Towers
has only proven the rightfulness of
petitioners move to include Legaspi Towers as party-plaintiff. This is because
every resolution passed by private respondents sitting as a board result[s] in
violation of Legaspi Towers right to be managed and represented by herein
petitioners.

Page 389 of 1072

Since it is the corporation that is the real party-in-interest in a


derivative suit, then the reliefs prayed for must be for the benefit or interest
of the corporation. When the reliefs prayed for do not pertain to the
corporation, then it is an improper derivative suit.
The requisites for a derivative suit are as follows:
a) The party bringing suit should be a shareholder as of the time of the act
or transaction complained of, the number of his shares not being material;
b) He has tried to exhaust intra-corporate remedies, i.e., has made a demand
on the board of directors for the appropriate relief but the latter has failed or
refused to heed his plea; and
c)
The cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation and not
to the particular stockholder bringing the suit.
Petitioners complaint seek to nullify the said election, and to protect
and enforce their individual right to vote. Petitioners seek the nullification of
the election of the Board of Directors composed of respondents, who
pushed through with the election even if petitioners had adjourned the
meeting allegedly due to lack of quorum. Petitioners are the injured party,
whose rights to vote and to be voted upon were directly affected by the
election of the new set of board of directors.

Page 390 of 1072

TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


LISAM ENTERPRISES, INC vs. BANCO DE ORO UNIBANK, INC.
G.R. No. 143264 -April 23, 2012
FACTS:
Petitioners filed a Complaint against respondents for Annulment of
Mortgage. Petitioner Lolita Soriano alleged that she is a stockholder of
petitioner Lisam and a member of its Board of Directors, designated as its
Corporate Secretary. Plaintiff LEI, in the course of its business operation,
acquired by purchase a parcel of residential land with improvement.
Spouses Soriano in their personal capacity and for their own use and
benefit obtained a loan as Banco de Oro Unibank, Inc. in the total amount of
P20 Million. That as security for the payment of the credit accommodation
spouses Soriano without authority and consent of the board and with the use
of a falsified board resolution, executed a real estate mortgage on property
of plaintiff LEI in favor of Banco de oro. The Spouses Soriano, with intent to
defraud and prejudice plaintiff LEI and its stockholders, falsified the
signatures of Lolita A. Soriano
ISSUE:
Whether or not the derivative suit is proper.
Held:
Yes, With the amendment stating that plaintiff Lolita A. Soriano
likewise made demands upon the Board of Directors of Lisam Enterprises,
Inc., to make legal steps to protect the interest of the corporation from said
fraudulent transaction, but unfortunately, until now, no such legal step was
ever taken by the Board, hence, this action for the benefit and in behalf of
the corporation. In Hi-Yield Realty, Incorporated v. Court of Appeals the Court
enumerated the requisites for filing a derivative suit, as follows:

a) The party bringing the suit should be a shareholder as of the time of


the act or transaction complained of, the number of his shares not being
material;

Page 391 of 1072

b) He has tried to exhaust intra-corporate remedies, i.e., has made a


demand on the board of directors for the appropriate relief but the latter has
failed or refused to heed his plea; and
c) The cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation and not
to the particular stockholder bringing the suit.[7]
the amended complaint will reveal that all the foregoing requisites had
been alleged therein. Hence, the amended complaint remedied the defect in
the original complaint and now sufficiently states a cause of action.

TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY

Page 392 of 1072

STRATEGIC ALLIANCE DEVELOPMENT CORPORATION, Petitioner,


vs.
RADSTOCK SECURITIES LIMITED and PHILIPPINE NATIONAL
CONSTRUCTION CORPORATION, Respondents.
ASIAVEST MERCHANT BANKERS BERHAD, Intervenor.
G.R. No. 178158 December 4, 2009
FACTS:
PNCC was incorporated in 1966 for a term of fifty years under the
Corporation Code with the name Construction Development Corporation of
the Philippines (CDCP). PD 1113, issued on 31 March 1977, granted CDCP a
30-year franchise to construct, operate and maintain toll facilities in the
North and South Luzon Tollways. PD 1894, issued on 22 December 1983,
amended PD 1113 to include in CDCPs franchise the Metro Manila
Expressway, which would "serve as an additional artery in the transportation
of trade and commerce in the Metro Manila area."
Sometime between 1978 and 1981, Basay Mining Corporation (Basay
Mining), an affiliate of CDCP, obtained loans from Marubeni Corporation of
Japan (Marubeni) amounting to 5,460,000,000 yen and US$5 million. A CDCP
official issued letters of guarantee for the loans, committing CDCP to pay
solidarily for the full amount of the 5,460,000,000 yen loan and to the extent
of P20 million for the US$5 million loan. However, there was no CDCP Board
Resolution authorizing the issuance of the letters of guarantee. Later, Basay
Mining changed its name to CDCP Mining Corporation (CDCP Mining). CDCP
Mining secured the Marubeni loans when CDCP and CDCP Mining were still
privately owned and managed.
Subsequently in 1983, CDCP changed its corporate name to PNCC to
reflect the extent of the Government's equity investment in the company,
which arose when government financial institutions converted their loans to
PNCC into equity following PNCCs inability to pay the loans. Various
government financial institutions held a total of seventy-seven point fortyeight percent (77.48%) of PNCCs voting equity, most of which were later
transferred to the Asset Privatization Trust (APT) under Administrative Orders
No. 14 and 64, series of 1987 and 1988, respectively. Also, the Presidential
Commission on Good Government holds some 13.82% of PNCCs voting
equity under a writ of sequestration and through the voluntary surrender of
certain PNCC shares. In fine, the Government owns 90.3% of the equity of
PNCC and only 9.70% of PNCCs voting equity is under private ownership.
Meanwhile, the Marubeni loans to CDCP Mining remained unpaid. On
20 October 2000, during the short-lived Estrada Administration, the PNCC
Board of Directors (PNCC Board) passed Board Resolution No. BD-092-2000

Page 393 of 1072

admitting PNCCs liability to Marubeni for P10,743,103,388 as of 30


September 1999.
This was the first PNCC Board Resolution admitting PNCCs liability for
the Marubeni loans. Previously, for two decades the PNCC Board consistently
refused to admit any liability for the Marubeni loans.
On 22 November 2000, the PNCC Board passed Board Resolution No.
BD-099-2000 amending Board Resolution No. BD-092-2000. PNCC Board
Resolution No.
In January 2001, barely three months after the PNCC Board first
admitted liability for the Marubeni loans, Marubeni assigned its entire credit
to Radstock for US$2 million or less than P100 million. In short, Radstock
paid Marubeni less than 10% of the P10.743 billion admitted amount.
Radstock immediately sent a notice and demand letter to PNCC.
On 15 January 2001, Radstock filed an action for collection and
damages against PNCC before the Regional Trial Court. In its order of 23
January 2001, the trial court issued a writ of preliminary attachment against
PNCC. The trial court ordered PNCCs bank accounts garnished and several of
its real properties attached. PNCC filed a petition for certiorari before the
Court of Appeals, assailing the denial of the motion to dismiss. On 30 August
2002, the Court of Appeals denied PNCCs petition. PNCC filed a motion for
reconsideration, which the Court of Appeals also denied. PNCC filed a petition
for review before this Court, docketed as G.R. No. 156887.
Meanwhile, on 19 June 2001, at the start of the Arroyo Administration,
the PNCC Board, under a new President and Chairman, revoked Board
Resolution No. BD-099-2000. The trial court rendered a decicion in favor of
the plaintiff and the defendant was directed to pay the total amount of
Thirteen Billion One Hundred Fifty One Million Nine Hundred Fifty Six
thousand Five Hundred Twenty Eight Pesos (P13,151,956,528.00) with
interest from October 15, 2001 plus Ten Million Pesos (P10,000,000.00) as
attorneys fees. PNCC appealed the trial courts decision to the Court of
Appeals.
ISSUE/S:
When to intervene?
Who may intervene?
RULING:
The Court of Appeals denied STRADECs motion for intervention on the
ground that the motion was filed only after the Court of Appeals and the trial
court had promulgated their respective decisions.
Section 2, Rule 19 of the 1997 Rules of Civil Procedure provides:

Page 394 of 1072

SECTION 2. Time to intervene. The motion to intervene may be


filed at any time before rendition of judgment by the trial court. A
copy of the pleading-in-intervention shall be attached to the
motion and served on the original parties.
The rule is not absolute. The rule on intervention, like all other rules of
procedure, is intended to make the powers of the Court completely available
for justice. It is aimed to facilitate a comprehensive adjudication of rival
claims, overriding technicalities on the timeliness of the filing of the claims.
Concededly, STRADEC has no legal interest in the subject matter of the
Compromise Agreement. Section 1, Rule 19 of the 1997 Rules of Civil
Procedure states:
SECTION 1. Who may intervene. - A person who has a legal
interest in the matter in litigation, or in the success of either of
the parties, or an interest against both, or is so situated as to be
adversely affected by a distribution or other disposition of
property in the custody of the court or of an officer thereof may,
with leave of court, be allowed to intervene in the action. The
Court shall consider whether or not the intervention will unduly
delay or prejudice the adjudication of the rights of the original
parties, and whether or not the intervenors rights may be fully
protected in a separate proceeding.
A derivative action is a suit by a stockholder to enforce a corporate
cause of action. Under the Corporation Code, where a corporation is an
injured party, its power to sue is lodged with its board of directors or
trustees. However, an individual stockholder may file a derivative suit on
behalf of the corporation to protect or vindicate corporate rights whenever
the officials of the corporation refuse to sue, or are the ones to be sued, or
hold control of the corporation. In such actions, the corporation is the real
party-in-interest while the suing stockholder, on behalf of the corporation, is
only a nominal party.
In this case, the PNCC Board cannot conceivably be expected to attack
the validity of the Compromise Agreement since the PNCC Board itself
approved the Compromise Agreement. In fact, the PNCC Board steadfastly
defends the Compromise Agreement for allegedly being advantageous to
PNCC.
Besides, the circumstances in this case are peculiar. Sison, as former
PNCC President and Chairman of the PNCC Board, was responsible for the
approval of the Board Resolution issued on 19 June 2001 revoking the
previous Board Resolution admitting PNCCs liability for the Marubeni loans.
Such revocation, however, came after Radstock had filed an action for
collection and damages against PNCC on 15 January 2001. Then, when the
trial court rendered its decision on 10 December 2002 in favor of Radstock,

Page 395 of 1072

Sison was no longer the PNCC President and Chairman, although he remains
a stockholder of PNCC.

TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


ANTHONY S. YU, ROSITA G. YU and JASON G. YU, Petitioners,
vs.
JOSEPH S. YUKAYGUAN, NANCY L. YUKAYGUAN, JERALD NERWIN
L. YUKAYGUAN, and JILL NESLIE L. YUKAYGUAN, [on their own behalf
and on behalf of] WINCHESTER INDUSTRIAL SUPPLY, INC.,
Respondents.
G.R. No. 177549. June 18, 2009
FACTS:
Petitioners and the respondents were all stockholders of Winchester.
Respondents filed against petitioners complaint for Accounting, Inspection of
Corporate Books and Damages through Embezzlement and Falsification of
Corporate Records and Accounts, in their own behalf and as a derivative suit
on behalf of Winchester.
According to respondents, Winchester, Inc. was established and
incorporated, with petitioner Anthony as one of the incorporators, holding
1,000 shares of stock worth P100,000.00. Petitioner Anthony paid for the said
shares of stock with respondent Josephs money, thus, making the former a
mere trustee of the shares for the latter. Petitioner Anthony ceded 800 of his
1,000 shares of stock in Winchester to respondent Joseph, as well as Yu Kay
Guan, Siao So Lan, and John S. Yu. Petitioner Anthony remained as trustee for
respondent Joseph of the 200 shares of stock in Winchester, Inc., still in
petitioner Anthonys name.
Respondents then alleged that, Winchester bought from its
incorporators, excluding petitioner Anthony, their accumulated 8,500 shares
in the corporation. Subsequently, Winchester sold the same 8,500 shares to
other persons, who included respondents Nancy, Jerald, and Jill; and
petitioners Rosita and Jason.
Respondents further averred that although respondent Joseph
appeared as the Secretary and Treasurer in the corporate records of
Winchesterpetitioners actually controlled and ran the said corporation as if it
were their own family business. Petitioner Rosita handled the money market
placements of the corporation to the exclusion of respondent Joseph, the
designated Treasurer of Winchester. Petitioners were also misappropriating

Page 396 of 1072

the funds and properties of Winchester. by understating the sales, charging


their personal and family expenses to the said corporation, and withdrawing
stocks for their personal use without paying for the same. Respondents
attached to the Complaint various receipts to prove the personal and family
expenses charged by petitioners to Winchester.

ISSUE/S:
Whether or not a derivative suit may be converted into liquidation
proceedings.
RULING:
The general rule is that where a corporation is an injured party,
its power to sue is lodged with its board of directors or trustees. Nonetheless,
an individual stockholder is permitted to institute a derivative suit on behalf
of the corporation wherein he holds stocks in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to sue, or
are the ones to be sued, or hold the control of the corporation. In such
actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. A derivative action is a suit by a
shareholder to enforce a corporate cause of action. The corporation is a
necessary party to the suit. And the relief which is granted is a judgment
against a third person in favor of the corporation. Similarly, if a corporation
has a defense to an action against it and is not asserting it, a stockholder
may intervene and defend on behalf of the corporation.
In contrast, liquidation is a necessary consequence of the dissolution of
a corporation. It is specifically governed by Section 122 of the Corporation
Code, which reads:
SEC. 122. Corporate liquidation. Every corporation whose
charter expires by its own limitation or is annulled by forfeiture
or otherwise, or whose corporate existence for other purposes is
terminated in any other manner, shall nevertheless be continued
as a body corporate for three (3) years after the time when it
would have been so dissolved, for the purpose of prosecuting
and defending suits by or against it and enabling it to settle and
close its affairs, to dispose of and convey its property and to
distribute its assets, but not for the purpose of continuing the
business for which it was established.
At any time during said three (3) years, said corporation is authorized
and empowered to convey all of its property to trustees for the benefit of
stockholders, members, creditors, and other persons in interest. From and

Page 397 of 1072

after any such conveyance by the corporation of its property in trust for the
benefit of its stockholders, members, creditors and others in interest, all
interest which the corporation had in the property terminates, the legal
interest vests in the trustees, and the beneficial interest in the stockholders,
members, creditors or other persons in interest.
Upon winding up of the corporate affairs, any asset distributable to any
creditor or stockholder or member who is unknown or cannot be found shall
be escheated to the city or municipality where such assets are located.
Except by decrease of capital stock and as otherwise allowed by this
Code, no corporation shall distribute any of its assets or property except
upon lawful dissolution and after payment of all its debts and liabilities.
Following the voluntary or involuntary dissolution of a corporation,
liquidation is the process of settling the affairs of said corporation, which
consists of adjusting the debts and claims, that is, of collecting all that is due
the corporation, the settlement and adjustment of claims against it and the
payment of its just debts. More particularly, it entails the following:
Winding up the affairs of the corporation means the collection of all
assets, the payment of all its creditors, and the distribution of the remaining
assets, if any among the stockholders thereof in accordance with their
contracts, or if there be no special contract, on the basis of their respective
interests. The manner of liquidation or winding up may be provided for in the
corporate by-laws and this would prevail unless it is inconsistent with law.
It may be undertaken by the corporation itself, through its Board of
Directors; or by trustees to whom all corporate assets are conveyed for
liquidation; or by a receiver appointed by the SEC upon its decree dissolving
the corporation.
Glaringly, a derivative suit is fundamentally distinct and independent
from liquidation proceedings. They are neither part of each other nor the
necessary consequence of the other. There is totally no justification for the
Court of Appeals to convert what was supposedly a derivative suit instituted
by respondents, on their own behalf and on behalf of Winchester against
petitioners, to a proceeding for the liquidation of Winchester.

Page 398 of 1072

TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


VIRGINIA O. GOCHAN, et. al., petitioner,
vs.
RICHARD G. YOUNG, et. al., respondents.
G.R. No. 131889. March 12, 2001
FACTS:
In June, 1951, Felix Gochan and Sons Realty Corporation was registered
with the SEC, with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan,
Tomasa Gochan, Esteban Gochan and Crispo Gochan as its incorporators.
Felix Gochan Sr.'s daughter, Alice, mother of herein respondents,
inherited 50 shares of stock in Gochan Realty from the former.
Alice died in 1955, leaving the 50 shares to her husband, John Young,
Sr.
In 1962, the Regional Trial Court of Cebu adjudicated 6/14 of these
shares to her children, herein respondents Richard Young, David Young, Jane
Young Llaban, John Young Jr., Mary Young Hsu and Alexander Thomas Young.
Having earned
September 1979.

dividends,

these

stocks

numbered

179

by

20

Five days later (25 September), at which time all the children had
reached the age of majority, their father John Sr., requested Gochan Realty to
partition the shares of his late wife by cancelling the stock certificates in his
name and issuing in lieu thereof, new stock certificates in the names of
herein respondents.
On 17 October 1979, respondent Gochan Realty refused, citing as
reason, the right of first refusal granted to the remaining stockholders by the
Articles of Incorporation.
Thereafter, John, Sr. died, leaving the shares to the respondents.
On 8 February 1994, Cecilia Gochan Uy and Miguel Uy filed a complaint
with the SEC for issuance of shares of stock to the rightful owners,

Page 399 of 1072

nullification of shares of stock, reconveyance of property impressed with


trust, accounting, removal of officers and directors and damages against
respondents. A Notice of Lis Pendens was annotated upon the real properties
of the corporation.
.
ISSUE/S:
Whether or not herein respondents have the personality to file a
derivative suit.
RULING:
Yes.
The fact that certain persons are not registered as stockholders in the
books of the corporation will not bar them from filing a derivative suit, if it is
evident from the allegations in the complaint that they are bona fide
stockholders.
The complaint, which was deemed admitted by the adverse party due
to their failure to so specifically deny, alleges that the Youngs are, as in fact
they are, the heirs of John Young, Jr.- husband of Alice Gochan who
predeceased her husband and transferred the share of stock in question to
him. As such, it cannot be denied that the children are the beneficial owners
of the stocks, who, after partition of their fathers estate, would be the legal
owners thereof. Thus, they have the personality to file the derivative suit not
only in behalf of the corporation but also in their own right as heirs and as
stockholders.

Page 400 of 1072

TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


TAM WING TAK, petitioner,
vs.
HON. RAMON P. MAKASIAR (in his Capacity as Presiding Judge of the
Regional Trial Court of Manila, Branch 35) and ZENON DE GUIA (in
his capacity as Chief State Prosecutor), respondents.
G.R. No. 122452. January 29, 2001

FACTS:
On November 11, 1992, petitioner, in his capacity as director of
Concord-World Properties, Inc., a domestic corporation, filed an affidavitcomplaint charging Vic Ang Siong with violation of B.P. Blg. 22. The complaint
alleged that a check for the amount of P83, 550,000.00, issued by Vic Ang
Siong in favor of Concord, was dishonored when presented for encashment.
Vic Ang Siong sought the dismissal of the case on two grounds: First,
that petitioner had no authority to file the case on behalf of Concord, the
payee of the dishonored check, since the firms board of directors had not
empowered him to act on its behalf. Second, he and Concord had already
agreed to amicably settle the issue after he made a partial payment of P19,
000, 000.00 on the dishonored check.
ISSUE/S:
Whether or not petitioner had the capacity to sue in behalf of
Concord.
RULING:
No.
The Court held that it is not disputed in the instant case that Concord,
a domestic corporation, was the payee of the bum check, not
petitioner. Therefore, it is Concord, as payee of the bounced check, which is
the injured party. Since petitioner was neither a payee nor a holder of the

Page 401 of 1072

bad check, he had neither the personality to sue nor a cause of action
against Vic Ang Siong. Under Section 36 of the Corporation Code, read in
relation to Section 23, it is clear that where a corporation is an injured party,
its power to sue is lodged with its board of directors or trustees. Note that
petitioner failed to show any proof that he was authorized or deputized or
granted specific powers by Concords board of director to sue Victor Ang
Siong for and on behalf of the firm. Clearly, petitioner as a minority
stockholder and member of the board of directors had no such power or
authority to sue on Concords behalf. Nor can the Court upheld his act as a
derivative suit. For a derivative suit to prosper, it is required that the
minority stockholder suing for and on behalf of the corporation must allege in
his complaint that he is suing on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated who may wish to join
him in the suit. There is no showing that petitioner has complied with the
foregoing requisites. It is obvious that petitioner has not shown any clear
legal right which would warrant the overturning of the decision of public
respondents to dismiss the complaint against Vic Ang Siong.

Page 402 of 1072

TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


GILDA C. LIM, et al
vs.
PATRICIA LIM-YU, in her capacity as a minority stockholder of
LIMPAN INVESTMENT CORPORATION
G.R. No. 138343. February 19, 2001
FACTS:
At a special meeting on 07 October 1994, the Board of Directors of
Limpan Investment Corporation approved a resolution to pay the legal
services of Gilda C. Lim in the handling of various cases on behalf of, or
involving the corporation in the amount of P1, 551,500.00 to be paid in
equivalent value in shares of stock of the corporation totaling 15,515 shares.
Due to the issuance of the unsubscribed shares to the petitioner Gilda C. Lim,
all of LIMPAN's authorized capital stock became fully subscribed, with Gilda
C. Lim ending up controlling 62.5% of the shares.
In July 1996, the respondent Patricia Lim Yu, a sister of the petitioner,
LIM, filed a complaint against the members of the Board of Directors of
LIMPAN who approved the aforesaid resolution.
ISSUE/S:
Whether or not respondent has the legal capacity to file a derivative
suit against the petitioners.
RULING:
No.
The Court held that respondent cannot transact in representation of or
for the benefit of her parents, brothers or sisters, or the Limpan Investment
Corporation. She can act only on and in her own behalf, not that of
petitioners or the Corporation.

Page 403 of 1072

There appears to be a confusion on the nature of the suit initiated


before the SEC. Petitioners describe it as a derivative suit, which has been
defined as "an action brought by minority shareholders in the name of the
corporation to redress wrongs committed against it, for which the directors
refuse to sue. It is a remedy designed by equity and has been the principal
defense of the minority shareholders against abuses by the majority." In a
derivative action, the real party in interest is the corporation itself, not the
shareholder(s) who actually instituted it.
If the suit filed by respondent was indeed derivative in character, then
respondent may not have the capacity to sue. The reason is that she would
be acting in representation of the corporation, an act which the TRO enjoins
her from doing.
However, that the suit of respondent cannot be characterized as
derivative, because she was complaining only of the violation of her
preemptive right under Section 39 of the Corporation Code. She was merely
praying that she be allowed to subscribe to the additional issuances of stocks
in proportion to her shareholdings to enable her to preserve her percentage
of ownership in the corporation. She was therefore not acting for the benefit
of the corporation. Quite the contrary, she was suing on her own behalf, out
of a desire to protect and preserve her preemptive rights. Unquestionably,
the TRO did not prevent her from pursuing that action.
Petitioners fail to appreciate the distinction between the act itself and
its net result. The act of filing the suit did not in any way bind the
corporation.

Page 404 of 1072

TOPIC: DERIVATIVE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS,
DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F. VILLASIS
vs.
RICARDO T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS,
RICHARD S. SALAS & HON. JUDGE PORFIRIO PARIAN
G.R. No. 113032
August 21, 1997
278 SCRA 216, 223
FACTS:
Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S.
Salas, and Richard S. Salas, belonging to the same family, are the majority
and controlling members of the Board of Trustees of Western Institute of
Technology, Inc. (WIT), a stock corporation engaged in the operation, among
others, of an educational institution. According to Homero L. Villasis, Dimas
Enriquez, Peston F. Villasis, and Reginald F. Villasis, the minority stockholders
of WIT, sometime on 1 June 1986 in the principal office of WIT at La Paz, Iloilo
City, a Special Board Meeting was held. In attendance were other members
of the Board including Reginald Villasis.
Prior to said Special Board Meeting, copies of notice thereof, dated 24
May 1986, were distributed to all Board Members. The notice allegedly
indicated that the meeting to be held on 1 June 1986 included Item 6 which
states that "Possible implementation of Art. III, Sec. 6 of the Amended ByLaws of Western Institute of Technology, Inc. on compensation of all officers
of the corporation." In said meeting, the Board of Trustees passed Resolution
48, series 1986, granting monthly compensation to Salas, et. al. as corporate
officers retroactive 1 June 1985, in the following amounts: Chairman
9,000.00/month, Vice Chairman P3,500.00/month, Corporate Treasurer
P3,500.00/month and Corporate Secretary P3,500.00/month, retroactive June
1, 1985 and the ten per centum of the net profits shall be distributed equally

Page 405 of 1072

among the ten members of the Board of Trustees. This shall amend and
supersede any previous resolution.
A few years later, or on 13 March 1991, Homero Villasis, Preston
Villasis, Reginald Villasis and Dimas Enriquez filed an affidavit-complaint
against Salas, et. al. before the Office of the City Prosecutor of Iloilo, as a
result of which2 separate criminal informations, one for falsification of a
public document under Article 171 of the Revised Penal Code and the other
for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33
of the Regional Trial Court of Iloilo City. The charge for falsification of public
document was anchored on Salas, et. al.'s submission of WIT's income
statement for the fiscal year 1985-1986 with the Securities and Exchange
Commission (SEC) reflecting therein the disbursement of corporate funds for
the compensation of Salas, et.al. based on Resolution 4, series of 1986,
making it appear that the same was passed by the board on 30March 1986,
when in truth, the same was actually passed on 1 June 1986, a date not
covered by the corporation's fiscal year 1985-1986 (beginning May 1, 1995
and ending April 30, 1986).
Thereafter, trial for the two criminal cases (Criminal Cases 37097 and
37098), was consolidated. After a full-blown hearing, Judge Porfirio Parian
handed down a verdict of acquittal on both counts dated 6 September 1993
without imposing any civil liability against the accused therein. Villasis, et. al.
filed a Motion for Reconsideration of the civil aspect of the RTC Decision
which was, however, denied in an Order dated 23 November 1993.Villasis,
et. al. filed the petition for review on certiorari. Significantly on 8 December
1994, a Motion for Intervention, dated 2 December 1994, was filed before
this Court by Western Institute of Technology, Inc., disowning its inclusion in
the petition and submitting that Atty. Tranquilino R. Gale, counsel for Villasis,
et.al., had no authority whatsoever to represent the corporation in filing the
petition. Intervenor likewise prayed for the dismissal of the petition for being
utterly without merit. The Motion for Intervention was granted on January 16,
1995.
ISSUE/S:
Whether the grant of compensation to Salas, et. al. is proscribed
under Section 30 of the Corporation Code.
RULING:
Directors or trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than the usual and
ordinary duties of their office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the return upon their
shares adequately furnishes the motives for service, without compensation.
Under Section 30 of the Corporation Code, there are only two (2) ways by

Page 406 of 1072

which members of the board can be granted compensation apart from


reasonable per diems:
1. when there is a provision in the by-laws fixing their
compensation; and
2. when the stockholders representing a majority of the
outstanding capital stock at a regular or special stockholders'
meeting agree to give it to them.
Also, the proscription, however, against granting compensation to
director/trustees of corporation is not a sweeping rule. Worthy of note is the
clear phraseology of Section 30 which state: "The directors shall not receive
any compensation, as such directors." The phrase as such directors is not
without significance for it delimits the scope of the prohibition to
compensation given to them for services performed purely in their capacity
as directors or trustees. The unambiguous implication is that members of the
board may receive compensation, in addition to reasonable per diems, when
they render services to the corporation in a capacity other than as
directors/trustees. Herein, resolution 48, s. 1986 granted monthly
compensation to Salas, et. al. not in their capacity as members of the board,
but rather as officers of the corporation, more particularly as Chairman, ViceChairman, Treasurer and Secretary of Western Institute of Technology.
Clearly, therefore, the prohibition with respect to granting compensation to
corporate directors/trustees as such under Section 30 is not violated in this
particular case. Consequently, the last sentence of Section 30 which provides
that "In no case shall the total yearly compensation of directors, as such
directors, exceed ten (10%) percent of the net income before income tax of
the corporation during the preceding year" does not likewise find application
in this case since the compensation is being given to Salas, et. al. in their
capacity as officers of WIT and not as board members.

Page 407 of 1072

TOPIC: DERIVATIVE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank
of the Philippines) and MERCURIO RIVERA,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO
DEMETRIA, and JOSE JANOLO.
G.R. No. 115849
January 24, 1996
FACTS:
First Philippine International Bank acquired six parcels of land with a
total area of 101 hectares located at Don Jose, Sta. Rose, Laguna through its
banking operations. The said parcels of land formerly belonged to BYME
Investment and Development Corp, as they were mortgaged as collateral for
a bank loan. The original plaintiffs, Demetrio and Jose Janolo, wanted to
purchase the property and thus initiated negotiations for that purpose. In
the early part of August 1987, Demetrio and Jose, upon the suggestion of
BYME investment's legal counsel, met with Mercurio Rivera, Manager of the
Property Management Department of the defendant bank. The meeting was
held pursuant to Demetrios and Joses plan to buy the property. After the
meeting, plaintiff Jose, following the advice of Mercurio, made a formal
purchase offer to the bank through a letter. The offer to buy was accepted by
the bank. Then, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting
Conservator in the person of defendant Leonida T. Encarnacion. Mercurio
wrote Demetrio a letter stating that the land to be purchased is under study
yet as of this time by the newly created committee for submission to the
newly designated Acting Conservator of the bank. This was then followed by
a number of demands for the bank to comply with what was deemed as a
perfected contract of sale by former plaintiffs. These were then refused by
the bank.
Demetrio and Jose, through a letter to defendant Mercurio, already
tendered payment of the amount of P5.5 million "pursuant to (our) perfected
sale agreement." The Bank refused to receive both the payment and the
letter. Instead, the parcels of land involved in the transaction were advertised
by the bank for sale to any interested buyer. Demetrio and Jose demanded
the execution by the bank of the documents on what was considered as a
"perfected agreement" through another letter. The Bank acknowledged the
receipt of the letter but remained adamant in its position. Demetrio and
Jose, through counsel, made a final demand for compliance by the bank with
its obligations under the considered perfected contract of sale. The Bank
filed a reply repudiating the authority of Mercurio and claimed that his
dealings with the Demetrio and Jose, particularly his counter-offer of P5.5

Page 408 of 1072

Million are unauthorized or illegal; thus, there is no perfected contract of


sale.
On that basis, the Bank justified the refusal of the tenders of payment
and the non-compliance with the obligations under what the Demetrio and
Jose considered to be a perfected contract of sale. Other major stockholders
of the Bank filed a motion to intervene as a derivative suit with the Regional
Trial Court of Makati against the plaintiffs "to declare any perfected sale of
the property as unenforceable and to stop Ejercito from enforcing or
implementing the sale In his answer, Jose argued that the Second Case was
barred by litis pendentia by virtue of the case then pending in the Court of
Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a
Motion for Leave of Court to Dismiss the Case without Prejudice. "The Bank
opposed this motion on the ground, among others, that plaintiff's act of
forum shopping justifies the dismissal of both cases, with prejudice. The
Bank, in its memorandum, averred that this motion is still pending in the
Makati RTC.
The Bank vigorously argues that in spite of this verification, Demetrio, Jose,
etc. are guilty of actual forum shopping because the instant petition pending
before this Court involves "identical parties or interests represented, rights
asserted and reliefs sought (as that) currently pending before the Regional
Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the
two cases are so intertwined that a judgment or resolution in either case will
constitute res judicata in the other."
On the other hand, Demetrio, Jose, etc. explain that there is no forumshopping because:
1. In the earlier or "First Case" from which this proceeding arose,
the Bank was impleaded as a defendant, whereas in the "Second
Case" (assuming the Bank is the real party in interest in a
derivative suit), it was plaintiff;
2. "The derivative suit is not properly a suit for and in behalf of the
corporation under the circumstances"
3. Although the CERTIFICATION/VERIFICATION signed by the Bank
president and attached to the Petition identifies the action as a
"derivative suit," it "does not mean that it is one" and "that is a
legal question for the courts to decide"
ISSUE:
Whether or not the 2nd Case filed was a derivative suit.
RULING:
Yes.

Page 409 of 1072

In the instant case before us, there is also identity of parties, or at


least, of interests represented. Although the plaintiffs in the Second Case
(Henry L. Co. et al.) are not name parties in the First Case, they represent the
same interest and entity, namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they
have no direct personal interest in the matter in controversy.
They are not principally or even subsidiary liable; much less are
they direct parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case
show that the stockholders are bringing a "derivative suit". In the
caption itself, petitioners claim to have brought suit "for and in
behalf of the Producers Bank of the Philippines. Indeed, this is
the very essence of a derivative suit:
An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he
holds stock in order to protect or vindicate corporate
rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the
real party in interest. (Gamboa v. Victoriano, 90 SCRA 40,
47 [1979]).
In the face of the damaging admissions taken from the complaint in
the Second Case, petitioners, quite strangely, sought to deny that the
Second Case was a derivative suit, reasoning that it was brought, not by the
minority shareholders, but by Henry Co et al., who not only own, hold or
control over 80% of the outstanding capital stock, but also constitute the
majority in the Board of Directors of petitioner Bank. That being so, then they
really represent the Bank. So, whether they sued "derivatively" or directly,
there is undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the
personality Of the Bank is separate and distinct from its shareholders. But
the rulings of this Court are consistent: "When the fiction is urged as a
means of perpetrating a fraud or an illegal act or as a vehicle for the evasion
of an existing obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery or crime,
the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals."
In addition to the many cases where the corporate fiction has been
disregarded, we now add the instant case, and declare herewith that the

Page 410 of 1072

corporate veil cannot be used to shield an otherwise blatant violation of the


prohibition against forum-shopping. Shareholders, whether suing as the
majority in direct actions or as the minority in a derivative suit, cannot be
allowed to trifle with court processes, particularly where, as in this case, the
corporation itself has not been remiss in vigorously prosecuting or defending
corporate causes and in using and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to use their
shareholders as fronts to circumvent the stringent rules against forum
shopping.

Page 411 of 1072

TOPIC: DERIVATIVE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


COMMART (PHILS.) INC., JESUS, CORAZON, ALBERTO, AND BERNARD
all surnamed MAGLUTAC
vs.
SECURITIES & EXCHANGE COMMISSION and ALICE MAGLUTAC
G.R. No. 85318
June 3, 1991
198 SCRA 73
FACTS:
Two brothers, Jesus and Mariano Maglutac organized Commart (Phils.),
Inc. Sometime in June 1984, the two brothers agreed to go their separate
ways, with Mariano being persuaded to sell to Jesus his shareholdings in
Commart amounting to 25% of the outstanding capital stock. Marianos wife,
Alice M. Maglutac (Private respondent herein) who has been for years a
stockholder and director of Commart, did not dispose of her shareholdings,
and thus continued as such even after the sale of Marianos equity.
Shortly after the sale of his equity in Commart to Jesus, Mariano
allegedly discovered that for several years, Jesus and his wife Corazon (who
was herself a director) had been siphoning and diverting to their private
bank accounts in the United States and in Hongkong gargantuan amounts
sliced off from commissions due Commart from some foreign suppliers.
Consequently, spouses Mariano and Alice Maglutac filed a complaint with the
SEC against Jesus Maglutac and rest of the members of the Board of
Directors of Commart. SEC held that the suit is a derivative suit.
ISSUE/S:
Whether or not SEC correctly held that the case was a derivative
suit.
RULING:
Yes.
SEC correctly held that the case was a minority stockholdings
derivative suit and correctly sustained the hearing panels denial of the
motions to dismiss. Readily shows that it avers the diversion of corporate
income into the private bank accounts of petitioner Jesus T. Maglutac and his
wife. Likewise, the principal relief prayed for in the complaint is the recovery
of a sum of money in favor of the corporation. This being the case, the
complaint is definitely a derivative suit. Consequently, the SEC correctly
held that the case was a minority stockholders derivative suit and correctly
sustained the hearing panels denial- insofar as Alice Maglutac was
concerned- of the motions to dismiss it.

Page 412 of 1072

TOPIC: DERIVATIVE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


ELTON W. CHASE, as minority stockholder and on behalf of the
stockholders similarly situated and for the benefit of AMERICAN
MACHINERY AND PARTS MANUFACTURING, INC.,
vs.
THE COURT of FIRST INSTANCE OF MANILA, BRANCH XIV, DR. VICTOR
BUENCAMINO, SR., VICTOR BUENCAMINO, JR., DOLORES A.
BUENCAMINO and JULIO B. FRANCIA, JR.
G.R. No. L-20457
October 29, 1966
FACTS:
On August 20, 1960, petitioner, a minority stockholder of AMPARTS,
filed a derivative suit in the CFI of Manila against Dr. Victor Buencamino Sr.,
Victor Buencamino, Jr., Dolores A. Buencamino and Julio B. Francia, Jr.,
majority stockholders and corporate directors of AMPARTS charging them
with breach of trust; praying for their removal as directors and, if necessary,
for the dissolution and liquidation of said corporation. Attached to the
complaint was an application for the appointment of a receiver of AMPARTS.
After a hearing on the application the court, then presided by the Hon.
Magno S. Gatmaitan, issued an order dated June 10, 1961 denying the same,
but requiring respondents to file bond in the amount of P100,000.00 to
answer for whatever damages petitioner might suffer by reason of the
denial. Petitioner's motion for reconsideration was likewise denied. After trial
on the merits, the court rendered judgment finding Dr. Buencamino guilty of
mismanagement and condemning him "to pay Amparts the sum of
P1,970,200 with legal interest from date of the filing of the complaint; he is
also prohibited from collecting any interest on the sum of P300,000.00 paid
by him on the 15th July, 1955 on the initial subscription, and such interest as
has already been paid to him is ordered refunded with legal interest from the
date of the filing of the complaint . . ."
On May 8, 1962, petitioner filed a motion for the appointment of
Lawrence Moran as receiver of Amparts until the full amount of the above
judgment against respondent Buencamino is fully satisfied or until the
dissolution or liquidation of said corporation.
On May 12, 1962, the Court issued the following order:
(1) Mr. Chase shall have free access to AMPARTS and its
records personally and/or through representative duly
authorized;

Page 413 of 1072

(2) Decisions of Dr. Buencamino and/or management of


AMPARTS shall be made known to Chase who shall have
the right to object and if so, the matter shall be notified to
the Court which shall resolve the difficulties; in the interim,
pending the objection, the decision shall not be enforced or
made operative;
With this resolution, the Court disposes for the present of the
issue of receivership.
Supplementing the above-quoted order, the respondent court, now
presided by the Hon. Jesus De Veyra, issued the following order of August 27,
1962:
As for the appointment of a receiver, Judge Gatmaitan decided on the
temporary measure of giving petitioner herein a veto right, appealable
to this Court, on all decisions of management. Considering that up to
the present, the Buencaminos own 2/3 of the stock of the corporation,
the solution is equitable and must be allowed to continue subject to
the condition that once a decision of management is made known to
plaintiff, he must make known his objection thereto to the Court within
five (5) days from receipt of said decision, otherwise he shall be
deemed to have waived any objection to the decision.

ISSUE/S:
Whether or not the respondent court committed a grave abuse of
discretion in issuing its orders of June 10, 1961, June 21, 1961,
May 12, 1962, and August 27 of the same year mentioned
heretofore.
RULING:
It is well settled in this jurisdiction that where corporate directors are
guilty of a breach of trust and intra-corporate remedy is futile, the minority
stockholders may resort to the courts for appropriate relief and, incidentally,
ask for the appointment of a receiver for the protection of their rights. In
such case, however, the appointment of a receiver is a matter addressed to
the sound discretion of the court, and it has been frequently held that such
discretion to appoint a receiver who would take over the administration of

Page 414 of 1072

the corporate business should be exercised with great caution and only when
the necessity therefore is clear.
The facts of the present case show that, in connection with the order of
June 10, 1961, which denied petitioner's application for the appointment of a
receiver, the court required respondents herein to file a bond in the amount
of P100,000.00 to answer for whatever damages petitioner might suffer by
reason of the denial. Again, perhaps by reason of the judgment rendered
against Dr. Buencamino finding him guilty of mismanagement etc., the
respondent court, through the Hon. Jesus de Veyra, issued the order of
August 27, 1962 whose pertinent portion is quoted above.
Upon the facts of the case, and considering the precautionary
measures adopted by the respondent court for the protection of petitioner's
rights and interest in AMPARTS, We cannot find our way clear to ruling that
said court had committed a grave abuse of discretion in issuing the orders
complained of.
WHEREFORE, the petition for certiorari is dismissed.

Page 415 of 1072

TOPIC:DERIVATIVE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


SAN MIGUEL CORPORATION, represented by EDUARDO DE LOS
ANGELES,
vs.
ERNEST KAHN, ANDRES SORIANO III, BENIGNO TODA, JR., ANTONIO
ROXAS, ANTONIO PRIETO, FRANCISCO EIZMENDI, JR., EDUARDO
SORIANO, RALPH KAHN and RAMON DEL ROSARIO, JR.
G.R. No. 85339. August 11, 1989
FACTS:
On December 15, 1983, 33,133,266 shares of the outstanding capital
stock of the San Miguel Corporation were acquired by fourteen other
corporations, and were placed under a Voting Trust Agreement in favor of
the late Andres Soriano, Jr. When the latter died, Eduardo M. Cojuangco, Jr.
was elected Substitute Trustee on April 9, 1984 with power to delegate the
trusteeship in writing to Andres Soriano III. Shortly after the Revolution of
February, 1986, Cojuangco left the country amid "persistent reports" that
"huge and unusual cash disbursements from the funds of SMC" had been
irregularly made, and the resources of the firm extensively used in support of
the candidacy of Ferdinand Marcos during the snap elections in February,
1986.
On March 26, 1986, an "Agreement" was executed between Andres
Soriano III, as "Buyer," and the 14 corporations, as "Sellers," for the purchase
by Soriano, "for himself and as agent of several persons," of the 33,133,266
shares of stock at the price of P100.00 per share, or "an aggregate sum of
Three Billion Three Hundred Thirteen Million Three Hundred Twenty Six
Thousand Six Hundred (P3,313,326,600.00) Pesos payable in specified
installments. The Agreement revoked the voting trust above mentioned, and
expressed the desire of the corporations to sell the shares of stock "to pay
certain outstanding and unpaid debts," and Soriano's own wish to purchase
the same "in order to institutionalize and stabilize the management of the
COMPANY in and the professional officer corps, mandated by the COMPANY's
By- laws, and to direct the COMPANY towards giving the highest priority to its
principal products and extensive support to agriculture programme of' the
Government ...
At this point the 33,133,266 SMC shares were sequestered by the
Presidential Commission on Good Government (PCGG), on the ground that
the stock belonged to Eduardo Cojuangco, Jr., allegedly a close associate and

Page 416 of 1072

dummy of former President Marcos, and the sale thereof was "in direct
contravention of .. Executive Orders Numbered 1 and 2 which prohibit.
At the meeting of the SMC Board on January 30, 1987, Eduardo de los
Angeles, one of the PCGG representatives in the SMC board, impugned said
Resolution No. 86-12-2, denying that it was ever adopted, and stating that
what in truth was agreed upon at the meeting of December 4, 1986 was
merely a "further study" by Director Ramon del Rosario of a plan presented
by him for the assumption of the loan. De los Angeles also pointed out
certain "deleterious effects" thereof. He was however overruled by private
respondents. When his efforts to obtain relief within the corporation and
later the PCGG proved futile, he repaired to the Securities and Exchange
Commission.
.
ISSUE/S:
Whether or not de los Angeles could file a derivative suit as
stockholder and/or director of the San Miguel Corporation.
RULING:
The bona fide ownership by a stockholder of stock in his own right
suffices to invest him with standing to bring a derivative action for the
benefit of the corporation. The number of his shares is immaterial since he is
not suing in his own behalf, or for the protection or vindication of his own
particular right, or the redress of a wrong committed against him,
individually, but in behalf and for the benefit of the corporation.
Neither can the "conflict-of-interest" theory be upheld. From the conceded
premise that de los Angeles now sits in the SMC Board of Directors by the
grace of the PCGG, it does not follow that he is legally obliged to vote as the
PCGG would have him do, that he cannot legitimately take a position
inconsistent with that of the PCGG, or that, not having been elected by the
minority stockholders, his vote would necessarily never consider the latter's
interests. The proposition is not only logically indefensible, non sequitur, but
also constitutes an erroneous conception of a director's role and function, it
being plainly a director's duty to vote according to his own independent
judgment and his own conscience as to what is in the best interests of the
company. Moreover, it is undisputed that apart from the qualifying shares
given to him by the PCGG, he owns 20 shares in his own right, as regards
which he cannot from any aspect be deemed to be "beholden" to the PCGG,
his ownership of these shares being precisely what he invokes as the source
of his authority to bring the derivative suit.

Page 417 of 1072

It is also theorized, on the authority of the BASECO decision, that the


PCGG has no power to vote sequestered shares of stock as an act of
dominion but only in pursuance to its power of administration. The
inference is that the PCGG's act of voting the stock to elect de los Angeles to
the SMC Board of Directors was unauthorized and void; hence, the latter
could not bring suit in the corporation's behalf. The argument is strained and
obviously of no merit. As already more than plainly indicated, it was not
necessary for de los Angeles to be a director in order to bring a derivative
action; all he had to be was a stockholder, and that he was owning in his own
right 20 shares of stock, a fact not disputed by the respondents.
TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY
HARRIE S. EVERETT, CRAL G. CLIFFORD, ELLIS H. TEAL and GEORGE
W. ROBINSON,
vs.
THE ASIA BANKING CORPORATION, NICHOLAS E. MULLEN, ERIC
BARCLAY, ALFRED F. KELLY, JOHN W. MEARS and CHARLES D.
MACINTOSH,
G.R. No.L-25241.November 3, 1926
49 Phil 512
FACTS:
Defendant Asia Banking Corporation, a foreign banking corporation
duly licensed to transact banking business in the Philippine Islands, with its
principal office and place of business at Manila and that said Corporation was
never been empowered by law or licensed to do any business other than
commercial banking in the Philippine. Defendants Nicholas E. Mullen, Alfred
F. Kelly, John W. Mears, and Charles D. Macintosh were residents of said City
of Manila and were officers, agents and employees of the said Corporation,
the said Mullen being the General Manager thereof in said City; That the
defendant Eric Barclay is a now a resident of Los Angeles, California, and the
defendant Mcintosh is also residing in the United States, his exact residence
being unknown.
Teal and Company, a domestic corporation duly incorporated under the
laws of the Philippine Islands and with principal office and place of business
at Manila. That during said times the plaintiffs Everett, Clifford, Teal and
Robinson were the principal stockholders in the Company owning a total of
4,478 shares therein and that the defendant Barclay was the only other
stockholder, owning one share thereof.
In the year 1921, Teal and Company has become indebted to the firm
of H. W. Peabody and Company in the sum of P300, 000, being for tractors,
plows and parts which had been ordered and delivered, the Bank and other

Page 418 of 1072

banks in Manila held drafts accepted by the Company under said H. W.


Peabody and Company's guarantee.
Thereafter, the Bank persuaded the Company and the said H. W.
Peabody and Co. and Smith, Kirkpatrick and Co. to enter into a so called
"creditors agreement" with itself, wherein it was mutually agreed that neither
of the parties should take action to collect its debts from the Company for
the term of two years after the date thereof. That these plaintiffs have no
copy of said agreement but beg leave to refer to the original of same, in
possession of the Bank, for greater certainty.
The said Company was indebted to the Bank in about the sum of
P750,000, which said sum was secured by mortgage on its personal property
and the improvements upon the real estate occupied by it.
It was further represented by the Bank and Mullen that in order to
protect the mutual interests of the Bank and the Company it was necessary
to carry into effect the said proposed voting trust without the knowledge of
the creditors above named and thereby place the Bank in an advantageous
position with regard to them. Relying upon the previous friendly relations
between the bank and the Company and between the individual defendants
and these plaintiffs and relying upon the promise and representations of the
defendants, these plaintiffs were induced to sign and did sign and deliver to
the Bank simultaneously a so-called "Voting Trust Agreement," executed by
the plaintiff stockholders and a Memorandum of Agreement executed by the
Company.
By reason of the facts above set forth and of their reliance upon the
good faith and good-will of the defendants these plaintiffs were induced to
sign the "Memorandum of Agreement," and "Voting Trust Agreement.
ISSUE/S:
Whether or not corporation Teal and Company is a necessary
party plaintiff.
RULING:
Invoking the well-known rule that shareholders cannot ordinarily sue in
equity to redress wrongs done to the corporation, but that the action must be
brought by the Board of Directors, the appellees argue and the court
below held that the corporation Teal and Company is a necessary party
plaintiff and that the plaintiff stockholders, not having made any demand on
the Board to bring the action, are not the proper parties plaintiff. But, like
most rules, the rule in question has its exceptions. It is alleged in the
complaint and, consequently, admitted through the demurrer that the
corporation Teal and Company is under the complete control of the principal

Page 419 of 1072

defendants in the case, and, in these circumstances, it is obvious that a


demand upon the Board of Directors to institute an action and prosecute the
same effectively would have been useless, and the law does not require
litigants to perform useless acts.
The conclusion of the court below that the plaintiffs, not being
stockholders in the Philippine Motors Corporation, had no legal right to
proceed against that corporation in the manner suggested in the complaint
evidently rest upon a misconception of the character of the action. In this
proceeding it was necessary for the plaintiffs to set forth in full the history of
the various transactions which eventually led to the alleged loss of their
property and, in making a full disclosure, references to the Philippine Motors
Corporation appear to have been inevitable. It is to be noted that the
plaintiffs seek no judgment against the corporation itself at this stage of the
proceedings.
The court below also erred in holding that the investigation of the
transaction referred to in the complaint is not within the province of the
courts, but should be conducted by some other agency. That discovery, such
as that demanded in the present action, is one of the functions of a court of
equity is so well established as to require no discussion.

Page 420 of 1072

TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


RICARDO L. GAMBOA, LYDIA R. GAMBOA, HONORIO DE 1A RAMA,
EDUARDO DE LA RAMA, and the HEIRS OF MERCEDES DE LA RAMABORROMEO
vs.
HON. OSCAR R. VICTORIANO as Presiding Judge of the Court of First
Instance of Negros Occidental, Branch II, BENJAMIN LOPUE, SR.,
BENJAMIN LOPUE, JR., LEONITO LOPUE, and LUISA U. DACLES
G.R. No.L-40620. May 5, 1979
90 SCRA 40
FACTS:
The plaintiffs, with the exception of Anastacio Dacles who was joined
as a formal party, are the owners of 1,328 shares of stock of the Inocentes
de la Rama, Inc., a domestic corporation, with an authorized capital stock of
3,000 shares, with a par value of P100.00 per share, 2,177 of which were
subscribed and issued, thus leaving 823 shares unissued; that upon the
plaintiffs' acquisition of the shares of stock held by Rafael Ledesma and Jose
Sicangco, Jr., then President and Vice-President of the corporation,
respectively, the defendants Mercedes R. Borromeo, Honorio de la Rama, and
Ricardo Gamboa, remaining members of the board of directors of the
corporation, in order to forestall the takeover by the plaintiffs of the aforenamed corporation, surreptitiously met and elected Ricardo L. Gamboa and
Honorio de la Rama as president and vice-president of the corporation,
respectively.
Thereafter passed a resolution authorizing the sale of the 823 unissued
shares of the corporation to the defendants, Ricardo L. Gamboa, Lydia R.
Gamboa, Honorio de la Rama, Ramon de la Rama, Paz R. Battistuzzi Eduardo
de la Rama, and Mercedes R. Borromeo, at par value, after which the
defendants Honorio de la Rama, Lydia de la Rama-Gamboa, and
EnzoBattistuzzi were elected to the board of directors of the corporation; that
the sale of the unissued 823 shares of stock of the corporation was in
violation of the plaintiffs' and pre-emptive rights and made without the
approval of the board of directors representing 2/3 of the outstanding capital

Page 421 of 1072

stock, and is in disregard of the strictest relation of trust existing between


the defendants, as stockholders thereof; and that the defendants Lydia de la
Rama-Gamboa, Honorio de la Rama, and Enzo Battistuzzi were not legally
elected to the board of directors of the said corporation and has unlawfully
usurped or intruded into said office to the prejudice of the plaintiffs.
Private respondents, entered into a compromise agreement with the
defendants Ramon de la Rama, Paz de la Rama Battistuzzi and Enzo
Battistuzzi , whereby the contracting parties withdrew their respective claims
against each other and the aforenamed defendants waived and transferred
their rights and interests over the questioned 823 shares of stock in favor of
the plaintiffs.
ISSUE/S:
Whether or not a derivative suit is proper in this case
RULING:
The petitioners further contend that the proper remedy of the plaintiffs
would be to institute a derivative suit against the petitioners in the name of
the corporation in order to secure a binding relief after exhausting all the
possible remedies available within the corporation.
An individual stockholder is permitted to institute a derivative suit on
behalf of the corporation wherein he holds stock in order to protect or
vindicate corporate rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued or hold the control of the corporation. In such
actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. In the case at bar, however, the
plaintiffs are alleging and vindicating their own individual interests or
prejudice, and not that of the corporation. At any rate, it is yet too early in
the proceedings since the issues have not been joined. Besides, misjoinder of
parties is not a ground to dismiss an action.

Page 422 of 1072

TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


CATALINA R. REYES
vs.
HON. BIENVENIDO A. TAN, as Judge of the Court of First Instance of
Manila, Branch XIII and FRANCISCA R. JUSTINIANI
G.R. No.L-16982.September 30, 1961
3 SCRA 198
FACTS:
The corporation, Roxas-Kalaw Textile Mills, Inc., was organized on June
5, 1954 by defendants Cesar K. Roxas, Adelia K. Roxas, Benjamin M. Roxas,
Jose Ma. Barcelona and Morris Wilson, for and on behalf of the following
primary principals with the following shareholdings: Adelia K. Roxas, 1200
Class A shares; I. Sherman, 900 Class A shares; Robert W. Born, 450 Class A
shares and Morris Wilson, 450 Class A shares; that the plaintiff holds both
Class A and Class B shares and number and value thereof, the Board of
Directors approved a resolution designating one Dayaram as co-manager
with the specific understanding that he was to act as defendant
WadhumalDalamal's designee, Morris Wilson was likewise designated as comanager with responsibilities for the management of the factory only, that
an office in New York was opened for the purpose of supervising purchases,
which purchases must have the unanimous agreement of Cesar K. Roxas,
New York resident member of the board of directors, Robert Born and
Wadhumal Dalamal or their respective representatives; that several
purchases aggregating $289,678.86 were made in New York for raw
materials such as greige cloth, rayon and grey goods for the textile mill and
shipped to the Philippines, which shipment were found out to consist not of
raw materials but already finished products, such as, West Point Khaki rayon
suiting materials dyed in the piece, finished rayon tafetta in cubes, cotton
eyelets, etc., for which reasons the Central Bank of the Philippines stopped
all dollar allocations for raw materials for the corporation which necessarily

Page 423 of 1072

led to the paralyzation of the operation of the textile mill and its business;
that the supplier of the aforesaid finished goods was the United Commercial
Company of New York in which defendant Dalamal had interests and the
letter of credit for said goods were guaranteed by the Indian Commercial
Company and the Indian Traders in which firms defendant Dalamal likewise
held interests; that the resale of the finished goods was the business of the
Indian Commercial Company of Manila, which company could not obtain
dollar allocations for importations of finished goods under the Central Bank
regulations; that plaintiff and some members of the board of directors urged
defendants to proceed against Dalamal, exposing his offense to the Central
Bank, and to initiate suit against Dalamal for his fraud against the
corporation; that defendants refused to proceed against Dalamal and instead
continued to deal with the Indian Commercial Company to the damage and
prejudice of the corporation.
ISSUE/S:
Whether or not derivative suit is proper in this case
RULING:
It is well settled in this jurisdiction that where corporate directors are
guilty of a breach of trust not of mere error of judgment or abuse of
discretion and intracorporate remedy is futile or useless, a stockholder
may institute a suit in behalf of himself and other stockholders and for the
benefit of the corporation, to bring about a redress of the wrong inflicted
directly upon the corporation and indirectly upon the stockholders.
The claim that respondent Justiniani did not take steps to remedy the
illegal importation for a period of two years is also without merit. During that
period of time respondent had the right to assume and expect that the
directors would remedy the anomalous situation of the corporation brought
about by their own wrong doing. Only after such period of time had elapsed
could respondent conclude that the directors were remiss in their duty to
protect the corporation property and business.
The directors permitted the fraudulent transaction to go unpunished
and nothing appears to have been done to remove the erring purchasing
managers. In a way the appointment of a receiver may have been thought of
by the court below so that the dollar allocation for raw material may be
revived and the textile mill placed on an operating basis. It is possible that if
a receiver in which the Central Bank may have confidence is appointed, the
dollar allocation for raw material may be restored. Claim is made that if a
receiver is appointed, the Philippine National Bank to which the corporation
owes considerable sums of money might be led to foreclose the mortgage.
Precisely the appointment of a receiver in whom the bank may have had
confidence might rehabilitate the business and bring a restoration of the
dollar allocation much needed for raw material and an improvement in the

Page 424 of 1072

business and assets the corporation, thus insuring the collection of the
bank's loan.
Considering the above circumstances we are led to agree with the
judge below that the appointment of a receiver was not only expedient but
also necessary to restore the faith and confidence of the Central Bank
authorities in the administration of the affairs of the corporation, thus
ultimately leading to a restoration of the dollar allocation so essential to the
operation of the textile mills. The first assignment of error is, therefore,
overruled.

TOPIC: DERIVATICE SUIT: REMEDIES TO ENFORCE PERSONAL LIABILITY


CANDIDO PASCUAL
vs.
EUGENIO DEL SAZ OROZCO, ET AL.
G.R. No. L-5174. March 17, 1911
FACTS:
That during the years 1903, 1904, 1905, and 1907 the defendants and
appellees, without the knowledge, consent, or acquiescence of the
stockholders, deducted their respective compensation from the gross income
instead of from the net profits of the bank, thereby defrauding the bank and
its stockholders of approximately P20,000 per annum; that though due
demands has been made upon them therefor, defendants refuse to refund to
the bank the sums so misappropriated, or any part thereof; that defendants
constitute a majority of the present board of directors of the bank, who alone
can authorize an action against them in the name of the corporation, and
that prior to the filing of the present suit plaintiff exhausted every remedy in
the premises within this banking corporation.
The second cause of action sets forth that defendants' and appellees'
immediate predecessors in office in this bank during the years 1899, 1900,
1901, and 1902, committed the same illegality as to their compensation as is
charged against the defendants themselves; that in the four years
immediately following the year 1902, the defendants and appellees were the
only officials or representatives of the bank who could and should investigate
and take action in regard to the sums of money thus fraudulently
appropriated by their predecessors; that they were the only persons
interested in the bank who knew of the fraudulent appropriation by their
predecessors; that they wholly neglected to take any action in the premises
or inform the stockholders thereof; that due demand has been made upon
defendants to reimburse the bank for this loss; that the bank itself can not
bring an action in its own name against the defendants and appellees, for

Page 425 of 1072

the reason already stated, and that there remains no remedy within the
corporation itself.
ISSUE/S:
Whether or not plaintiff by reason of the fact that he is a
stockholder in the bank has a right to maintain a suit for and on
behalf of the bank
RULING:
The right of individual stockholders to maintain suits for and on behalf
of the corporation was denied until within a comparatively short time, but his
right is now no longer doubted.
Notwithstanding this fact, however, that it was the duty and right of
the corporation to bring suit remedy these wrongs, it gradually became
apparent that frequently the corporation was helpless and unable to institute
the suit. It was found, where the guilty parties themselves controlled the
directors and also a majority of the stock, that the corporation was in their
power, was unable to institute suit, and that the minority of the stockholders
were being defrauded of their rights and were without remedy. Where
corporate directors have committed a breach of trust either by their frauds,
ultra vires acts, or negligence, and the corporation is unable or unwilling to
institute suit to remedy the wrong, a single stockholder may institute that
suit, suing on behalf of himself and other stockholders and for the benefit of
the corporation, to bring about a redress of the wrong done directly to the
corporation and indirectly to the stockholders.
So it is clear that the plaintiff, by reason of the fact that he is a
stockholder in the bank has a right to maintain a suit for and on behalf of the
bank, but the extent of such a right must depend upon when, how, and for
what purpose he acquired the shares which he now owns. In the
determination of these questions we can not see how, if it be true that the
bank is a quasi-public institution, it can affect in any way the final result.

Page 426 of 1072

TOPIC: POWERS OF CORPORATIONS THEORY OF SPECIAL CAPACITY VS.


THEORY OF GENERAL CAPACITIES
ACEBEDO OPTICAL COMPANY, INC.
vs.
COURT OF APPEALS, et al
G.R. No. 100152. March 31, 2000
FACTS:
Petitioner applied with the Office of the City Mayor of Iligan for a
business permit. After consideration of petitioners application and the
opposition interposed thereto by local optometrists, respondent City Mayor
issued Business Permit No. 5342 subject to the following conditions:
1. Since it is a corporation, Acebedo cannot put up an optical
clinic but only a commercial store;
2. Acebedo cannot examine and/or prescribe reading and similar
optical glasses for patients, because these are functions of
optical clinics;
3. Acebedo cannot sell reading and similar eyeglasses without a
prescription having first been made by an independent
optometrist (not its employee) or independent optical clinic.
Acebedo can only sell directly to the public, without need of a
prescription, Ray-Ban and similar eyeglasses;
4. Acebedo cannot advertise optical lenses and eyeglasses, but
can advertise Ray-Ban and similar glasses and frames;
5. Acebedo is allowed to grind lenses but only upon the
prescription of an independent optometrist.
On December 5, 1988, private respondent Samahan ng Optometrist Sa
Pilipinas (SOPI), Iligan Chapter, through its Acting President, Dr. Frances B.
Apostol, lodged a complaint against the petitioner before the Office of the

Page 427 of 1072

City Mayor, alleging that Acebedo had violated the conditions set forth in its
business permit and requesting the cancellation and/or revocation of such
permit.
ISSUE/S:
Whether or not Acebedos act of hiring optometrists is
considered the practice by the corporation itself of the profession
of optometry.
RULING:
No.
Courts have distinguished between optometry as a learned profession
in the category of law and medicine, and optometry as a mechanical art.
And, insofar as the courts regard optometry as merely a mechanical art, they
have tended to find nothing objectionable in the making and selling of
eyeglasses, spectacles and lenses by corporations so long as the patient is
actually examined and prescribed for by a qualified practitioner.
The primary purpose of the statute regulating the practice of
optometry is to insure that optometrical services are to be rendered by
competent and licensed persons in order to protect the health and physical
welfare of the people from the dangers engendered by unlicensed practice.
Such purpose may be fully accomplished although the person rendering the
service is employed by a corporation.
Furthermore, it was ruled that the employment of a qualified
optometrist by a corporation is not against public policy. Unless prohibited by
statutes, a corporation has all the contractual rights that an individual
hasand it does not become the practice of medicine or optometry because of
the presence of a physician or optometrist. The manufacturing, selling,
trading and bartering of eyeglasses and spectacles as articles of
merchandise do not constitute the practice of optometry.
Moreover, distinction must be made between the grant of a license or
permit to do business and the issuance of a license to engage in the practice
of a particular profession. The first is usually granted by the local authorities
and the second is issued by the Board or Commission tasked to regulate the
particular profession. A business permit authorizes the person, natural or
otherwise, to engage in business or some form of commercial activity. A
professional license, on the other hand, is the grant of authority to a natural
person to engage in the practice or exercise of his or her profession.
What is sought by petitioner from respondent City Mayor is a permit
engage in the business of running an optical shop. It does not purport
seek a license to engage in the practice of optometry as a corporate body
entity, although it does have in its employ, persons who are duly licensed

to
to
or
to

Page 428 of 1072

practice optometry by the Board of Examiners in Optometry. The objective of


the imposition of subject conditions on petitioners business permit could be
attained by requiring the optometrists in petitioners employ to produce a
valid certificate of registration as optometrist, from the Board of Examiners
in Optometry. A business permit is issued primarily to regulate the conduct of
business and the City Mayor cannot, through the issuance of such permit,
regulate the practice of a profession, like that of optometry. Such a function
is within the exclusive domain of the administrative agency specifically
empowered by law to supervise the profession, in this case the Professional
Regulations Commission and the Board of Examiners in Optometry.

TOPIC: EXPRESS, IMPLIED AND INCIDENTAL POWERS


PILIPINAS LOAN COMPANY, INC.
vs.
SEC AND FILIPINAS PAWNSHOP, INC.
G.R. No. 104720. April 4, 2001
356 SCRA 193
FACTS:
Private respondent Filipinas Pawnshop, Inc. is a duly organized
corporation registered with the SEC. The AI of private respondent states that
its primary purpose is to extend loans at legal interest on the security of
either personal properties or on the security of real properties, and to finance
installment sales of motor vehicles, home appliances and other chattels.
Petitioner is a lending corporation duly registered with the SEC. On
September 11, 1990, private respondent filed a complaint against petitioner.
The complaint alleged that petitioner, contrary to the restriction set by the
Commission, has been operating and doing business as a pawnbroker,
pawnshop or "sanglaan" in the same neighborhood where private respondent
has had its own pawnshop for 30 years in violation of its primary purpose
and without the imprimatur of the Central Bank to engage in the pawnshop
business thereby causing unjust and unfair competition with private
respondent.
ISSUE/S:
Whether or not private respondent can engage in pawnbroking.
RULING:
No.

Page 429 of 1072

The Court held that a corporation, under the Corporation Code, has
only such powers as are expressly granted to it by law and by its articles of
incorporation,those which may be incidental to such conferred powers, those
reasonably necessary to accomplish its purposes and those which may be
incident to its existence. In the case at bar, the limit of the powers of
petitioner as a corporation is very clear, it is categorically prohibited from
"engaging in pawnbroking as defined under PD 114". Hence, in determining
what constitutes pawnbrokerage, the relevant law to consider is PD 114. This
reference to PD 114 is also in line with Article 2123 of the Civil Code that
states that: "Art. 2123. With regard to pawnshops and other establishments,
which are engaged in making loans secured by pledges, the special laws and
regulations concerning them shall be observed, and subsidiarily, the
provisions of this Title."
Moreover, a careful examination and analysis of the records of this
case indicates that petitioner has indeed engaged in the business of
pawnbroking. It is not argued that petitioner does lend money on the security
of personal property. What must be observed though are the very prominent
words "SANGLAAN" found on its billboards which cannot but give the
impression to the public that its establishment is more of a pawnshop than a
lending institution servicing different kinds of loans. The word "SANGLAAN",
especially in big cities, have come to be associated with pawnshops and it
denotes the idea of a place where one presents personal property for a loan,
which is the exclusive domain of a pawnshop. Thus, the use of such word by
petitioner was more calculated to attract customers who will acquire loans on
the security of personal properties alone. That this activity is in fact
undertaken can be readily deduced from the graphic and unmistakable setup of petitioners place of business which is a picture of a typical pawnshop
where a person transacts through small glass openings labeled sangla and
tubos. Moreover, the supposed "promissory note" evidencing a customers
transaction with petitioner, is more of a pawnticket than what it represents.

Page 430 of 1072

TOPIC: EXPRESS, IMPLIED AND INCIDENTAL POWERS


LUNETA MOTOR COMPANY
vs
A.D. SANTOS, INC., ET AL.
G.R. No. L-17716. July 31, 1962
5 SCRA 809
FACTS:
On December 31, 1941, to secure payment of a loan evidenced by a
promissory note executed by Nicolas Concepcion in favor of petitioner,
Concepcion executed a chattel mortgage covering the above mentioned
certificate in favor of petitioner. The certificate was later sold to Francisco
Benitez, Jr., who resold it to Rodi Taxicab Company. On October 10, 1953
petitioner filed an action to foreclose the chattel mortgage executed in its
favor by Concepcion in view of the failure of the latter and his guarantor,
Placido Esteban, to pay their overdue account.
On June 9, 1958, the CFI of Manila adjudged Concepcion indebted to
petitioner and ordered that the certificate of public convenience subject
matter of the chattel mortgage be sold at public auction in accordance with
law. Accordingly, on March 3, 1959 said certificate was sold at public auction
to petitioner, and six days thereafter the Sheriff of the City of Manila issued
in its favor the corresponding certificate of sale. Thereupon petitioner filed
the application for the approval of the sale. Respondent A.D. Santos, Inc.
opposed petitioner's application, filed a motion to dismiss based on the
ground that under the petitioner's Articles of Incorporation, it was not
authorized to engage in the taxicab business or operate as a common
carrier.

Page 431 of 1072

The respondent Commission held that under petitioner's articles of


incorporation it had no authority to engage in the taxicab business or
operate as a common carrier, and that, is a result, it could not acquire by
purchase the certificate of public convenience referred to above. Hence, the
present appeal interposed by petitioner who claims that, in accordance with
the Corporation Law and its articles of incorporation, it can acquire by
purchase the certificate of public convenience in question, maintaining
inferentially that, after acquiring said certificate, it could make use of it by
operating a taxicab business or operate is a common carrier by land.
ISSUE/S:
Whether or not under the Corporation Law and petitioner's AI, it
may acquire by purchase a certificate of public convenience and
after its acquisition; it may hold the certificate and thereunder
operate as a common carrier by land.
RULING:
No.
It is not denied that under Section 13 (5) of the Corporation Law, a
corporation created thereunder may purchase, hold, etc., and otherwise deal
in such real and personal property is the purpose for which the corporation
was formed may permit, and the transaction of its lawful business may
reasonably and necessarily require. The issue here is precisely whether the
purpose for which petitioner was organized and the transaction of its lawful
business reasonably and necessarily require the purchase and holding by it
of a certificate of public convenience like the one in question and thus give it
additional authority to operate thereunder as a common carrier by land.
Petitioner claims in this regard that its corporate purposes are to carry
on a general mercantile and commercial business, etc., and that it is
authorized in its articles of incorporation to operate and otherwise deal in
and concerning automobiles and automobile accessories' business in all its
multifarious ramification and to operate, etc., and otherwise dispose of
vessels and boats, etc., and to own and operate steamship and sailing ships
and other floating craft and deal in the same and engage in the Philippine
Islands and elsewhere in the transportation of persons, merchandise and
chattels by water; all this incidental to the transportation of automobiles
The Court found nothing in the legal provision and the provisions of
petitioner's AI relied upon that could justify petitioner's contention in this
case. To the contrary, they are precisely the best evidence that it has no
authority at all to engage in the business of land transportation and operate
a taxicab service. That it may operate and otherwise deal in automobiles and
automobile accessories; that it may engage in the transportation of
persons by water does not mean that it may engage in the business of land

Page 432 of 1072

transportation an entirely different line of business. If it could not thus


engage in the line of business, it follows that it may not acquire an certificate
of public convenience to operate a taxicab service, such as the one in
question, because such acquisition would be without purpose and would
have no necessary connection with petitioner's legitimate business.

TOPIC: EXPRESS, IMPLIED AND INCIDENTAL POWERS


TERESA ELECTRIC AND POWER CO., INC., petitioner,
vs.
PUBLIC SERVICE COMMISSION and FILIPINAS CEMENT
CORPORATION, respondents.
G. R. No. L- 21804. September 25, 1967
FACTS:
The Teresa Electric Light and Power Co., Inc. is a domestic corporation
operating an electric plant in Teresa, Rizal, under a subsisting certificate of
public convenience and necessity issued on June 2, 1960, while the
respondent Filipinas is likewise a domestic corporation engaged in the
manufacture and sale of cement.
On May 24, 1962 Filipinas filed an application with the Public Service
Commission for a certificate of public convenience to install, maintain and
operate an electric plant in sitio Kaysapon of barrio Pamanaan, municipality
of Teresa, Rizal, for the purpose of supplying electric power and light to its
cement factory and its employees living within its compound.
Petitioner filed its written opposition alleging:
1. that it is the duly authorized operator of an electric light,
heat and power service in Teresa, Rizal;
2. that Filipinas is not authorized by its articles of
incorporation to operate an electric plant;
3. that the Municipal Council of Teresa had not authorized it
either to operate the proposed service;

Page 433 of 1072

4. that it is willing to supply Filipinas' need for electricity; and


5. that Filipinas' principal business does not come within the
jurisdiction of the respondent Commission.
ISSUE/S:
Whether under its articles of incorporation Filipinas is authorized
to operate and maintain an electric plant.
RULING:
Yes.
It appears that the Articles of Incorporation of Filipinas (paragraph 7)
provide for authority to secure from any governmental, state, municipality, or
provincial, city or other authority, and to utilize and dispose of in any lawful
manner, rights, powers, privileges, franchises and concessions obviously
necessary or at least related to the operation of its cement factory. Moreover,
said Articles of Incorporation also provide that the corporation may generally
perform any and all acts connected with the business of manufacturing
portland cement or arising therefrom or incidental thereto.
It can not be denied that the operation of an electric light, heat and
power plant is necessarily connected with the business of manufacturing
cement. If in the modern world where we live today electricity is virtually a
necessity for our daily needs, it is more so in the case of industries like the
manufacture of cement.
Upon the last question, petitioner claims that Filipinas is not entitled to
a certificate of public convenience to maintain and operate electric service
for its cement plant and its employees because petitioner is operating an
electric plant in the same municipality where Filipinas cement plant is
located.
While it is true that operators of public convenience and service
deserve some protection from unnecessary or unlawful competition, yet the
rule is that nobody has any exclusive right to secure a franchise or a
certificate of public convenience. Above any or all considerations, the grant
of franchises and certificates of public convenience and service should be
guided by public service and interest; the latter are the primordial
considerations to be taken into account.
Moreover, it has been established in this case that petitioner was in no
condition to supply the power needs of Filipinas, because its load capacity
was only 200 kilowatts while Filipinas was in need of 6,000 Kilowatts power
to operate its cement factory.

Page 434 of 1072

TOPIC: EXPRESS, IMPLIED AND INCIDENTAL POWERS


ANTHONY POWERSet. al
VS.
DONALD I. MARSHALL et. Al
G.R. No. L-48064. May 09, 1988
FACTS:
On July 16, 1975, plaintiffs, all associate members of the International
School, Inc., filed an action for injunction in the CFI of Rizal, against the ten
(10) members of the Board of Trustees of the school. The suit was
precipitated by a letter dated May 19, 1975 which Donald I. Marshall,
president of the Board of Trustees of the International School in Makati,
Metro-Manila, addressed to the parents of the students, giving notice that
the Board of Trustees had decided to embark on a program to construct new
buildings and remodel existing ones to accommodate the increasing
enrollment in the school, and that it was necessary for the school to raise
P35, 000,000.00 for this purpose. The Board intended to raise the needed
funds primarily through subscriptions to capital notes and prepayment
certificates, and any deficiency from these sources would be covered by
collecting a so-called "development fee" of P2,625 from each enrollee
starting with the school year 1975-1976 and continuing up to the school year
1986-1987.
The school superintendent, Dr. Max Snyder, acting under instructions
from the Board of Trustees, wrote a letter to the parents of returning
students, enclosing an Application for Admission which specifically advised

Page 435 of 1072

that the payment of the development fee was a pre-requisite for reenrollment.
The plaintiffs protested against the imposition of the development fee.
On June 18, 1975 they requested the Board of Trustees to suspend the
implementation of the requirement of payment. On July 16, 1975 the
plaintiffs filed a complaint for injunction against the school. On July 17, 1975,
the trial court issued an order temporarily restraining the defendants or their
authorized representatives and agents from executing and/or enforcing the
development program.The Court dismissed the complaint for lack of valid
cause of action, and dissolved the restraining order of July 17, 1975. Plaintiffs
appealed to CA.
ISSUE/S:
Whether or not the Board of Trustees has the power to
implement the development plan.
RULING:
Yes.
The Court held that the by-laws of the school authorized the BOT to
exercise such powers which may be lawfully exercised by the corporation,
subject to applicable laws, the Articles of Incorporation and the by-lays.
The law authorizes the BOT to determine the amount of fees which
may reasonably be imposed to maintain or conform to the school standard of
education upon consultation and approval of the Secretary of Education.
Aside from the authority emanating from both the law and the by-laws,
the development plan and the consequential increase of school fees had
been approved by the schools Board and by the Secretary of Education.
Thus, the questioned act is a valid exercise of Board power.

Page 436 of 1072

TOPIC:POWER TO HAVE/USE CORPORATE NAME OR SEAL


LAUREANO INVESTMENT & DEVELOPMENT CORPORATION
VS.
COURT OF APPEALS AND BORMAHECO, INC.
G.R. NO. 100468 MAY 6, 1997
FACTS:
Spouses Reynaldo Laureano and Florence Laureano are majority
stockholders of petitioner Corporation who entered into a series of loan and
credit transactions with Philippine National Cooperative Bank (PNCB). To
secure payment of the loans, they executed Deeds of Real Estate Mortgage
however, in view of their failure to pay their indebtedness, PNCB applied for
extrajudicial foreclosure of the real estate mortgages. The bank was the
purchaser of the properties in question in the foreclosure sale and titles
thereof were consolidated in PNCB's name.
Private respondent Bormaheco, Inc. became the successor of the
obligations and liabilities of PNCB over subject lots by virtue of a Deed of
Sale/Assignment wherein Bormaheco bought from PNCB under a bulk sale
114 titled and untitled properties including the two parcels of land in
question, formerly registered in the name of the Laureano spouses.
Bormaheco filed an Ex-Parte Petition for the Issuance of Writ of
Possession of the two parcels of land of petitioner. Petitioner Corporation filed
its Motion for Intervention and to Admit Attached Complaint in Intervention in
said case. However, it sued under the name Lideco Corporation and not

Pag