Topic: Separate Personality of the Corporation and that of the

Shareholders
MIRANT (PHILIPPINES) CORPORATION, ET. AL., v. JOSELITO A.
CARO
G.R. No. 181490

April 23, 2014

VILLARAMA, JR., J.:

FACTS:
Petitioner corporation is organized and operating under and by virtue of
the laws of the Republic of the Philippines. It is a holding company that owns
shares in project companies such as Mirant Sual Corporation and Mirant
Pagbilao Corporation (Mirant Pagbilao) which operate and maintain power
stations located in Sual, Pangasinan and Pagbilao, Quezon, respectively.
Petitioner corporation and its related companies maintain around 2,000
employees detailed in its main office and other sites. Petitioner corporation had
changed its name to CEPA Operations in 1996 and to Southern Company in
2001. In 2002, Southern Company was sold to petitioner Mirant whose
corporate parent is an Atlanta-based power producer in the United States of
America. Petitioner corporation is now known as Team Energy Corporation.
Petitioner Edgardo A. Bautista (Bautista) was the President of petitioner
corporation
when
respondent
was
terminated
from
employment.
Respondent was hired by Mirant Pagbilao on January 3, 1994 as its Logistics
Officer. In 2002, when Southern Company was sold to Mirant, respondent was
already a Supervisor of the Logistics and Purchasing Department of petitioner.
At the time of the severance of his employment, respondent was the
Procurement Supervisor of Mirant Pagbilao assigned at petitioner corporations
corporate office. As Procurement Supervisor, his main task was to serve as the
link between the Materials Management Department of petitioner corporation
and its staff, and the suppliers and service contractors in order to ensure that
procurement is carried out in conformity with set policies, procedures and
practices. In addition, respondent was put in charge of ensuring the timely,
economical, safe and expeditious delivery of materials at the right quality and
quantity to petitioner corporations plant. Respondent was also responsible for

guiding and overseeing the welfare and training needs of the staff of the
Materials Management Department. Due to the nature of respondents
functions, petitioner corporation considers his position as confidential.
Respondent filed a complaint for illegal dismissal and money claims for 13th
and 14th month pay, bonuses and other benefits, as well as the payment of
moral and exemplary damages and attorneys fees. It is the contention of
respondent that he was illegally dismissed by petitioner corporation due to the
latters non-compliance with the twin requirements of notice and hearing. He
asserts that while there was a notice charging him of unjustified refusal to
submit to random drug testing, there was no notice of hearing and petitioner
corporations investigation was not the equivalent of the hearing required under
the law which should have accorded respondent the opportunity to be heard.
In a decision dated August 31, 2005, Labor Arbiter Aliman D. Mangandog
found respondent to have been illegally dismissed. The Labor Arbiter also found
that the quitclaim purportedly executed by respondent was not a bona fide
quitclaim which effectively discharged petitioners of all the claims of
respondent in the case at bar. If at all, the Labor Arbiter considered the
execution of the quitclaim as a clear attempt on the part of petitioners to
mislead its office into thinking that respondent no longer had any cause of
action
against
petitioner
corporation.
On appeal to the NLRC, petitioners alleged that the decision of the Labor
Arbiter was rendered with grave abuse of discretion for being contrary to law,
rules and established jurisprudence, and contained serious errors in the
findings of facts which, if not corrected, would cause grave and irreparable
damage or injury to petitioners. The NLRC, giving weight and emphasis to the
inconsistencies in respondents explanations, considered his omission as
unjustified refusal in violation of petitioner corporations drug policy.
Respondent filed a motion for reconsideration, while petitioners filed a motion
for partial reconsideration of the NLRC decision. In a Resolution dated June
30,
2006,
the
NLRC
denied
both
motions.
ISSUE:
Whether or not Bautista is liable
HELD:

No. A corporation has a personality separate and distinct from its officers
and board of directors who may only be held personally liable for damages if it
is proven that they acted with malice or bad faith in the dismissal of an
employee. Absent any evidence on record that petitioner Bautista acted
maliciously or in bad faith in effecting the termination of respondent, plus the
apparent lack of allegation in the pleadings of respondent that petitioner
Bautista acted in such manner, the doctrine of corporate fiction dictates that
only petitioner corporation should be held liable for the illegal dismissal of
respondent.

Topic: Power of the Corporation to sue and be sued during

liquidation
ALABANG DEVELOPMENT CORPORATION, v. ALABANG HILLS
VILLAGE ASSOCIATION and RAFAEL TINIO

G.R. No. 187456

June 2, 2014

PERALTA, J:.

FACTS:
Alabang Development Corporation,developer of Alabang Hills Village filed
a complaint for Injunction and Damages against Alabang Hills Village
Association Inc., and its president, Rafael for allegedly starting the
construction of a multi-purpose hall and a swimming pool on one of the
parcels of land still owned by ADC, without the latters consent and approval,
and despite demand, failed to desist from constructing thereof. In its answer
with counter-claim, AHVAI denied ADCs allegations and made the following
claims:
a. That ADC has no legal capacity to sue because its corporate existence was
already dissolved by the Securities and Exchange Corporation on May 26,
2003.
b. That ADC has no cause of action as it was merely holding the property in
trust for AHVAI as beneficial owner thereof.

c. That the lot is part of the open space required by law to be provided in the
subdivision.
The RTC dismissed ADCs complaint holding that:
a. It has no personality to sue and that subject area is a reserved area for the
benefit of the homeowners as required by law.
b. HLURB has exclusive jurisdiction over the dispute between ADC and AHVAI.
ADC then filed a Notice of Appeal to elevate the case to the CA, which also
denied its appeal, holding that it had no capacity to sue as it was already
defunct.
ISSUE:
Whether or not the corporation during liquidation can sue and be sued
HELD:
Yes. Section 122 of the Corporation Code provides as follows:
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
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.
This Court has held that:
It is to be noted that the time during which the corporation, through its own
officers, may conduct the liquidation of its assets and sue and be sued as a
corporation is limited to three years from the time the period of dissolution
commences; but there is no time limit within which the trustees must complete
a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78 [now
Sec. 122]) that the conveyance to the trustees must be made within the threeyear period. It may be found impossible to complete the work of liquidation
within the three-year period or to reduce disputed claims to judgment. The
authorities are to the effect that suits by or against a corporation abate when it
ceased to be an entity capable of suing or being sued (7 R.C.L., Corps., par.
750); but trustees to whom the corporate assets have been conveyed pursuant
to the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all
matters connected with the liquidation
In the absence of trustees, this Court ruled, thus:
Still in the absence of a board of directors or trustees, those having any
pecuniary interest in the assets, including not only the shareholders but
likewise the creditors of the corporation, acting for and in its behalf, might
make proper representations with the Securities and Exchange Commission,
which has primary and sufficiently broad jurisdiction in matters of this nature,
for working out a final settlement of the corporate concerns.
In the instant case, there is no dispute that petitioners corporate
registration was revoked on May 26, 2003. Based on the above-quoted
provision of law, it had three years, or until May 26, 2006, to prosecute or
defend any suit by or against it. The subject complaint, however, was filed only
on October 19, 2006, more than three years after such revocation.
It is likewise not disputed that the subject complaint was filed by
petitioner corporation and not by its directors or trustees. In fact, it is even
averred, albeit wrongly, in the first paragraph of the Complaint that plaintiff is
a duly organized and existing corporation under the laws of the Philippines,
with capacity to sue and be sued.

Petitioner, nonetheless, insists that a corporation may still sue, even after
it has been dissolved and the three-year liquidation period provided under
Section 122 of the Corporation Code has passed. Petitioner cites the cases
of Gelano v. Court of Appeals, Knecht v. United Cigarette Corporation, and PepsiCola Products Philippines, Inc. v. Court of Appeals, as authority to support its
position. The Court, however, agrees with the CA that in the abovecited cases,
the corporations involved filed their respective complaints while they were still
in existence. In other words, they already had pending actions at the time that
their corporate existence was terminated.
The import of this Courts ruling in the cases cited by petitioner is that
the trustee of a corporation may continue to prosecute a case commenced by
the corporation within three years from its dissolution until rendition of the
final judgment, even if such judgment is rendered beyond the three-year period
allowed by Section 122 of the Corporation Code. However, there is nothing in
the said cases which allows an already defunct corporation to initiate a suit
after the lapse of the said three-year period. On the contrary, the factual
circumstances in the abovecited cases would show that the corporations
involved therein did not initiate any complaint after the lapse of the three-year
period. In fact, as stated above, the actions were already pending at the time
that they lost their corporate existence.
In the present case, petitioner filed its complaint not only after its
corporate existence was terminated but also beyond the three-year period
allowed by Section 122 of theCorporation Code. Thus, it is clear that at the time
of the filing of the subject complaint petitioner lacks the capacity to sue as a
corporation. To allow petitioner to initiate the subject complaint and pursue it
until final judgment, on the ground that such complaint was filed for the sole
purpose of liquidating its assets, would be to circumvent the provisions of
Section 122 of the Corporation Code.
As to the last issue raised, the basic and pivotal issue in the instant case
is petitioners capacity to sue as a corporation and it has already been settled
that petitioner indeed lacks such capacity. Thus, this Court finds no cogent
reason to depart from the ruling of the CA finding it unnecessary to delve on
the other issues raised by petitioner.

WHEREFORE, the subject judgment of the lower court ordering the register of
deeds of Metro Manila, Makati Branch IV to reconstitute from Decree No.

15170 and the plan and technical descriptions submitted, the alleged
certificate of title, original and owner's duplicate copy, in the name of Manuela
Aquial is hereby annulled and set aside, and the petition for reconstitution is
ordered dismissed.

The temporary restraining order of June 27, 1980 issued against respondents
is hereby made and declared permanent. With costs jointly and severally
against private respondents.

The Division Clerk of Court is hereby directed to furnish the Honorable

Minister of Justice a copy of the decision at bar (as well as a copy, for ready
reference, of the decision of January 27, 1981 in the related Bernal case, G.R.
No. L-45168, previously ordered furnished to him) for the institution of
appropriate criminal proceedings against private respondents and all others
who have assisted or conspired with them as may be warranted by the evidence
of record.

Topic: Power of the Court to call for a special

stockholders meeting
ADERITO Z. YUJUICO v. CEZAR T. QUIAMBAO
G.R. No. 180416

FACTS:

June 02, 2014

SANDOVAL-GUTIERREZ, J.:

On July 27, 1998, the Securities and Exchange Commission (SEC)

approved the amendment of Strategic Alliance Development Corporations
(STRADEC) Articles of Incorporation authorizing the change of its principal
office from Pasig City Pangasinan. On March 1, 2004, STRADEC held its
annual stockholders meeting in Pasig City its office as indicated in the notices
sent to the stockholders. Herein petitioners and respondents were elected
members of the Board of Directors. Five months thereafter, respondents filed
with the RTC in Pangasinan a complaint against STRADEC. The complaint
seeks for the nullification of the election on the ground of improper venue,
pursuant to Section 51 of the Corporation Code, next is the nullification of all
subsequent transactions conducted by the elected directors and lastly that a
special stockholders meeting be held once again. The RTC under pairing Judge
Emuslan issued an Order for granting respondents application for preliminary
injunction ordering (1) the holding of a special stockholders meeting of
STRADEC on December 10, 2004 in the principal office of the corporation in
Bayambang, Pangasinan; and (2) the turn-over by petitioner Bonifacio Sumbilla
to the court of the duplicate key of the safety deposit box in Export Industry
Bank, Shaw Boulevard, Pasig City where the original Stock and Transfer Book
of STRADEC was deposited. The plaintiff filed with the Court of Appeals (CA) a
Petition for Certiorari. CA dismissed such petition and upheld the jurisdiction
of the RTC.
ISSUE:
Whether the RTC has the power to call a special stockholders meeting
involving an intra-corporate controversy?
HELD:
Yes. Upon the enactment of R.A. No. 8799, otherwise known as The
Securities Regulation Code which took effect on August 8, 2000, the
jurisdiction of the SEC over intra- corporate controversies and other cases
enumerated in Section 5 of P.D. No. 902-A has been transferred to the courts of
general jurisdiction, or the appropriate RTC. Section 5.2 of R.A. No. 8799
provides: 5.2. The Commissions jurisdiction over all cases enumerated in
Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts

of general jurisdiction or the appropriate Regional Trial Court, Provided, That

the Supreme Court in the exercise of its authority may designate the Regional
Trial Court branches that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases involving intracorporate disputes submitted for final resolution which should be resolved
within one (1) year from the enactment of this Code. The Commission shall
retain jurisdiction over pending suspension of payments/rehabilitation cases
filed as of 30 June 2000 until finally disposed. The RTC has the power to hear
and decide the intra-corporate controversy of the parties herein. Concomitant
to said power is the authority to issue orders necessary or incidental to the
carrying out of the powers expressly granted to it. Thus, the RTC may, in
appropriate cases, order the holding of a special meeting of stockholders or
members of a corporation involving an intra-corporate dispute under its
supervision.

Topic: Piercing of Corporate veil

COMMISSIONER OF CUSTOMS v. OILINK INTERNATIONAL
CORPORATION
G.R. No. 161759

July 2, 2014

BERSAMIN, J.:

FACTS:
On September 15, 1966, Union Refinery Corporation (URC) was
established under the Corporation Code of the Philippines. In the course of its
business undertakings, particularly in the period from 1991 to 1994, URC

imported oil products into the country. On January 11, 1996, Oilink was
incorporated for the primary purpose of manufacturing, importing, exporting,
buying, selling or dealing in oil and gas, and their refinements and by-products
at wholesale and retail of petroleum. URC and Oilink had interlocking directors
when Oilink started its business. On March 4, 1998, Oscar Brillo, the District
Collector of the Port of Manila, formally demanded that URC pay the taxes and
duties on its oil imports that had arrived between January 6, 1991 and
November 7, 1995. On November 25, 1998, then Customs Commissioner Pedro
C. Mendoza formally directed that URC pay the amount of P119,223,541.71
representing URCs special duties, VAT,and Excise Taxes that it had failed to
pay at the time of the release of its 17 oil shipments that had arrived in the
Sub-port of Mariveles from January 1, 1991 to September 7, 1995. A demand
was then formally filed amounting to P138,060,200.49. the assessment
however was declared void due to without authority and with grave abuse of
discretion tantamount to lack of jurisdiction because the Government was
thereby shifting the imposition from URC to Oilink.
ISSUE:
Whether or not piercing the corporate veil is applicable in the case at bar
HELD:
No. A corporation, upon coming into existence, is invested by law with a
personality separate and distinct from those of the persons composing it as
well as from any other legal entity to which it may be related. For this reason, a
stockholder is generally not made to answer for the acts or liabilities of the
corporation, and viceversa. The separate and distinct personality of the
corporation is, however, a mere fiction established by law for convenience and
to promote the ends of justice. It may not be used or invoked for ends that
subvert the policy and purpose behind its establishment, or intended by law to
which the corporation owes its being. This is true particularly when the fiction
is used to defeat public convenience, to justify wrong, to protectfraud, to defend
crime, to confuse legitimate legal or judicial issues, to perpetrate deception or
otherwise to 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 such instances,

the veil of corporate entity will be pierced or disregarded with reference to the
particular transaction involved.
In Philippine National Bank v. Ritratto Group, Inc., the Court has outlined the
following circumstances thatare useful in the determination of whether a
subsidiary is a mere instrumentality of the parent-corporation, viz:
1. Control, not mere majority or complete control, but complete domination, not
only of finances butof policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separatemind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or
wrong, to perpetrate the violation of a statutory or other positive legal duty, or
dishonest and, unjust act incontravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury
or unjust loss complained of.
In applying the "instrumentality" or"alter ego" doctrine, the courts are
concerned with reality, not form, and with how the corporation operated and
the individual defendant's relationship to the operation. Consequently, the
absence of any one of the foregoing elements disauthorizes the piercing of the
corporate veil.
Indeed, the doctrine of piercing the corporate veil has no application here
because the Commissioner of Customs did not establish that Oilink had been
set up to avoid the payment of taxes or duties, or for purposes that would
defeat public convenience, justify wrong, protect fraud, defend crime, confuse
legitimate legal or judicial issues, perpetrate deception or otherwise circumvent
the law.

Topic: Power of shareholders to bind the corporation

OLONGAPO CITY v. SUBIC WATER AND SEWERAGE CO., INC.
G.R. No. 171626,
FACTS:

August 06, 2014

BRION, J.:

On May 25, 1973, Presidential Decree No. 198 (PD 198) took effect. This
law authorized the creation of local water districts which may acquire, install,
maintain and operate water supply and distribution systems for domestic,
industrial, municipal and agricultural uses. Pursuant to PD 198, petitioner
Olongapo City (petitioner) passed Resolution No. 161, which transferred all
its existing water facilities and assets under the Olongapo City Public Utilities
Department Waterworks Division, to the jurisdiction and ownership of the
Olongapo City Water District (OCWD). PD 198, as amended, allows local water
districts (LWDs) which have acquired an existing water system of a local
government unit (LGU) to enter into a contract to pay the concerned LGU. In
lieu of the LGUs share in the acquired water utility plant, it shall be paid by
the LWD an amount not exceeding three percent (3%) of the LWDs gross
receipts from water sales in any year. Petitioner then filed a sum of money and
damages against OCWD and alleged that it failed to pay its electricity bills; a
compromise was then met by the parties; In this agreement, petitioner and
OCWD offset their respective claims and counterclaims. OCWD also undertook
to pay to petitioner its net obligation amounting to P135,909,467.09, to be
amortized for a period of not exceeding twenty-five (25) years at twenty-four
percent (24%) per annum; it also contained a provision regarding the
parties request that Subic Water, Philippines, which took over the operations of
the defendant Olongapo City Water District be made the co-maker for OCWDs
obligations. Mr. Noli Aldip, then chairman of Subic Water, acted as its
representative and signed the agreement on behalf of Subic Water. A writ of
execution was then issued by the RTC; Almost four years later, on May 30,
2003, the petitioner, through its new counsel, filed a notice of appearance with
urgent motion/manifestation and prayed again for the issuance of a writ of
execution against OCWD. A certain Atty. Segundo Mangohig, claiming to be
OCWDs former counsel, filed a manifestation alleging that OCWD had already
been dissolved and that Subic Water is now the former OCWD and stated that
the compromise is not valid since the signature if Mr. Noli Adlip is not valid
since the OCWD has already been dissolved.
ISSUE:
Whether or not the compromise agreement is valid
e

HELD:

No. An examination of the compromise agreement reveals that it was not

accompanied by any document showing a grant of authority to Mr. Noli Aldip to
sign
on
behalf
of
Subic
Water.
Subic Water is a corporation. A corporation, as a juridical entity, primarily
acts through its board of directors, which exercises its corporate powers. In
this capacity, 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.62 Section
23
of
the
Corporation
Code
provides:
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. (28a)
In Peoples Aircargo and Warehousing Co., Inc. v. Court of Appeals, we held that
under Section 23 of the Corporation Code, the power and responsibility to
decide whether a corporation can enter into a binding contract is lodged with
the board of directors, subject to the articles of incorporation, by-laws, or
relevant provisions of law. As we have clearly explained in another case:
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.64 [emphasis ours]

Mr. Noli Aldip signed the compromise agreement purely in his own capacity.
Moreover, the compromise agreement did not expressly provide that Subic
Water consented to become OCWDs co-maker. As worded, the compromise
agreement merely provided that both parties also request Subic Water,

Philippines, which took over the operations of Olongapo City Water District be
made as co-maker [for the obligations above-cited]. This request was never
forwarded to Subic Waters board of directors. Even if due notification had
been made (which does not appear in the records), Subic Waters board does
not appear to have given any approval to such request. No document such as
the minutes of Subic Waters board of directors meeting or a secretarys
certificate, purporting to be an authorization to Mr. Aldip to conform to the
compromise agreement, was ever presented. In effect, Mr. Aldips act of signing
the compromise agreement was outside of his authority to undertake.
Since Mr. Aldip was never authorized and there was no showing that Subic
Waters articles of incorporation or by-laws granted him such authority, then
the compromise agreement he signed cannot bind Subic Water. Subic Water
cannot likewise be made a surety or even a guarantor for OCWDs obligations.
OCWDs debts under the compromise agreement are its own corporate
obligations to petitioner.

Topic: Power of the Securities and Exchange Commission

PRIMANILA PLANS, INC., herein REPRESENTED by EDUARDO
S. MADRID, Petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, Respondent.
G.R. No. 193791

August 6, 2014

REYES, J.:

FACTS:
On April 9, 2008, SEC issued the subject cease and desist order
after
an
investigation conducted by
the
SECs
Compliance
and Enforcement Department (CED) on Primanila, a corporation operating as a
pre-need company, yielded the following factual findings: Primanilas website
(www.primanila.com) was offering a pension plan product called Primasa Plan,
that no registration statement has been filed by Primanila for the approval of
said Primasa Plan, and that many of its planholders mostly members of the
PNP remitted the total amount of Php 2,072,149.38 to Primanila representing
the aforementioned premium collections via salary deductions, among others.
ISSUES:
1.

Whether or not Primanila was accorded due process notwithstanding the

SECs immediate issuance of the cease and desist order.

2.

Whether or not Primanila violated Sec. 16 of Securities Regulation Code

which barred the sale or offer for sale to the public of a pre-need product
except in accordance with SEC rules and regulations.

HELD:

1.

Yes. The Court held that a cease and desist order may be issued
by the SEC motu proprio, it being unnecessary that it results from a
verified complaint from an aggrieved party. A prior hearing is also not
required whenever the Commission finds it appropriate to issue a cease
and desist order that aims to curtail fraud or grave or irreparable injury
to investors. There is good reason for this provision, as any delay in the
restraint of acts that yield such results can only generate further injury
to the public that the SEC is obliged to protect.

To equally protect individuals and corporations from baseless and

improvident issuances, the authority of the SEC under this rule is nonetheless

with defined limits. A cease and desist order may only be issued by the
Commission after proper investigation or verification, and upon showing that
the acts sought to be restrained could result in injury or fraud to the investing
public. Without doubt, these requisites were duly satisfied by the SEC prior to
its issuance of the subject cease and desist order.
The SEC was not mandated to allow Primanila to participate in the
investigationconducted by the Commission prior to the cease and desist
orders issuance. Given the circumstances, it was sufficient for the satisfaction
of the demands of due process that the company was amply apprised of the
results of the SEC investigation, and then given the reasonable opportunity to
present its defense. Primanila was able to do this via its motion to reconsider
and lift the cease and desist order.
2. Yes.

The Court held that Primanila clearly violated Section 16 of the

SRC which states that no person shall sell or offer for sale to the public
any pre-need plan except in accordance with rules and regulations which
the Commission shall prescribe. Such rules shall regulate the sale of preneed plans by, among other things, requiring the registration of pre-need
plans, licensing persons involved in the sale of pre-need plans,
requiring disclosures to
prospective
plan
holders,
prescribing
advertising guidelines, providing for uniform plans, imposing capital,
bonding and other financial responsibility, and establishing
trust funds for the payment of benefits under such plans.

Topic: Separate and distinct personality of the corporation

WPM INTERNATIONAL TRADING, INC.
MANLAPAZ v. FE CORAZON LABAYEN
G.R. No. 182770
FACTS:

September 17, 2014

and

WARLITO
BRION, J.:

P.

Fe Corazon Labayen, is the owner of H.B.O. Systems Consultants, a

management and consultant firm. The petitioner, WPM International Trading,
Inc. (WPM), is a domestic corporation engaged in the restaurant business,
while Warlito P. Manlapaz (Manlapaz) is its president. Sometime in 1990, WPM
entered into a management agreement with the respondent, by virtue of which
the respondent was authorized to operate, manage and rehabilitate Quickbite,
a restaurant owned and operated by WPM. As part of her tasks, the respondent
looked for a contractor who would renovate the two existing Quickbite outlets
in Divisoria, Manila and Lepanto St. after the said project, there was
insufficient in payment making the CLN file a complaint of sum of money
against respondent which led for respondent to file a case for damages against
however Manlapaz claims that it was his fellow incorporator/director Edgar
Alcansaje who was in-charge with the daily operations of the Quickbite outlets;
that when Alcansaje left WPM, the remaining directors were compelled to hire
the respondent as manager; that the respondent had entered into the
renovation agreement with CLN in her own personal capacity; that when he
found the amount quoted by CLN too high, he instructed the respondent to
either renegotiate for a lower price or to look for another contractor; that since
the respondent had exceeded her authority as agent of WPM, the renovation
agreement should only bind her; and that since WPM has a separate and
distinct personality, Manlapaz cannot be made liable for the respondents
claim.

ISSUE:
Whether or not Manlapaz is jointly and severally liable with WPM to the
respondent for reimbursement, damages and interest.
HELD:
No. The rule is settled that a corporation has a personality separate and
distinct from the persons acting for and in its behalf and, in general, from the
people comprising it.9 Following this principle, the obligations incurred by the
corporate officers, orother persons acting as corporate agents, are the direct
accountabilities ofthe corporation they represent, and not theirs. Thus, a

director, officer or employee of a corporation is generally not held personally

liable for obligations incurred by the corporation; it is only in exceptional
circumstances that solidary liability will attach to them.
Incidentally, the doctrine of piercing the corporate veil applies only in three (3)
basic instances, namely: a) when the separate and distinct corporate
personality defeats public convenience, as when the corporate fiction is used as
a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the
corporate entity is used to justify a wrong, protect a fraud, or defend a crime;
or c) is used in alter ego cases, i.e., where a corporation is essentially 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 so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another
corporation.
Piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements, namely:
(1) Control, not mere majority or complete stock 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 beenused 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
right; and
(3) The aforesaid control and breach of duty must have proximately
caused the injury or unjust loss complained of.
The absence of any ofthese elements prevents piercing the corporate veil.
In the present case, the attendant circumstances do not establish that WPM is
a mere alter ego of Manlapaz.
Aside from the fact that Manlapaz was the principal stockholder of WPM,
records do not show that WPM was organized and controlled, and its affairs
conducted in a manner that made it merely an instrumentality, agency, conduit
or adjunct of Manlapaz. As held in Martinez v. Court of Appeals, the mere

ownership by a single stockholder of even all or nearly all of the capital stocks
ofa corporation is not by itself a sufficient ground to disregard the separate
corporate personality. To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established.
Likewise, the records of the case do not support the lower courts finding that
Manlapaz had control or domination over WPM or its finances. That Manlapaz
concurrently held the positions of president, chairman and treasurer, or that
the Manlapazs residence is the registered principal office of WPM, are
insufficient considerations to prove that he had exercised absolute control over
WPM.
In this connection, we stress that the control necessary to invoke the
instrumentality or alter ego rule is not majority or even complete stock control
but such domination of finances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence of its own, and
is but a conduit for its principal. The control must be shown to have been
exercised at the time the acts complained of took place. Moreover, the control
and breach of duty must proximately cause the injury or unjust loss for which
the complaint is made.
Here, the respondent failed to prove that Manlapaz, acting as president, had
absolute control over WPM. Even granting that he exercised a certain degree of
control over the finances, policies and practices of WPM, in view of his position
as president, chairman and treasurer of the corporation, such control does not
necessarily warrant piercing the veil of corporate fiction since there was not a
single proof that WPM was formed to defraud CLN or the respondent, or that
Manlapaz was guilty of bad faith or fraud. Since no harm could be said to have
been proximately caused by Manlapaz for which the latter could be held
solidarily liable with WPM, and considering that there was no proof that WPM
had insufficient funds, there was no sufficient justification for the RTC and the
CA to have ruled that Manlapaz should be held jointly and severally liable to
the respondent for the amount she paid to CLN. Hence, only WPM is liable to
indemnify the respondent.

Topic: Derivative suit initiated by shareholders

ALFREDO L. VILLAMOR, JR. v. JOHN S. UMALE, in substitution

of
HERNANDO F. BALMORES
G.R. No. 172843

September 24, 2014

LEONEN, J.:

FACTS:

MC Home Depot occupied a prime property (Rockland area) in Pasig. The

property was part of the area owned by Mid-Pasig Development Corporation
(Mid-Pasig). On March 1, 2004, Pasig Printing Corporation (PPC) obtained an
option to lease portions of MidPasigs property, including the Rockland area.
On November 11, 2004, PPCs board of directors issued a resolution waiving all
its rights, interests, and participation in the option to lease contract in favor of
the law firm of Atty. Alfredo Villamor, Jr. (Villamor). PPC received no
consideration for this waiver in favor of Villamors law firm.
On November 22, 2004, PPC, represented by Villamor, entered into a
memorandum of agreement (MOA) with MC Home Depot. Under the MOA, MC
Home Depot would continue to occupy the area as PPCs sublessee for 4 years,
renewable for another 4 years, at a monthly rental of P4,500,000.00 plus
goodwill of P18,000,000.00.
In compliance with the MOA, MC Home Depot issued 20 post-dated checks
representing rental payments for one year and the goodwill money. The checks
were given to Villamor who did not turn these or the equivalent amount over to
PPC, upon encashment.
Hernando Balmores, a stockholder and director of PPC, wrote a letter
addressed to PPCs directors on April 4, 2005. He informed them that Villamor
should be made to deliver to PPC and account for MC Home Depots checks or
their equivalent value.

Due to the alleged inaction of the directors, respondent Balmores filed with the
RTC an intra-corporate controversy complaint under Rule 1, Section 1(a)(1) of
the Interim Rules for Intra-Corporate Controversies (Interim Rules) against
petitioners for their alleged devices or schemes amounting to fraud or
misrepresentation "detrimental to the interest of the corporation and its
stockholders."
Respondent Balmores alleged in his complaint that because of petitioners
actions, PPCs assets were ". . . not only in imminent danger, but have actually
been dissipated, lost, wasted and destroyed." Respondent Balmores prayed that
a receiver be appointed from his list of nominees. He also prayed for petitioners
prohibition from "selling, encumbering, transferring or disposing in any
manner any of [PPCs] properties, including the MC Home Depot checks and/or
their proceeds." He prayed for the accounting and remittance to PPC of the MC
Home Depot checks or their proceeds and for the annulment of the boards
resolution waiving PPCs rights in favor of Villamors law firm.

The RTC denied respondent Balmores prayer for the appointment of a receiver
or the creation of a management committee. RTC held PPCs entitlement to the
checks was doubtful. The resolution issued by PPCs board of directors, waiving
its rights to the option to lease contract in favor of Villamors law firm, must be
accorded prima facie validity. Also, there was a pending case filed by one
Leonardo Umale against Villamor, involving the same checks. Umale was also
claiming ownership of the checks. This, according to the trial court, weakened
respondent Balmores claim that the checks were properties of PPC.

Balmores filed with the CA a petition for certiorari under Rule 65 of the Rules
of Court and the same was granted. It reversed the trial courts decision, and
issued a new order placing PPC under receivership and creating an interim
management committee. As a justification of said decision, the CA stated that
the boards waiver of PPCs rights in favor of Villamors law firm without any
consideration and its inaction on Villamors failure to turn over the proceeds of
rental payments to PPC warrant the creation of a management committee. The

circumstances resulted in the imminent danger of loss, waste, or dissipation of

PPCs assets.

According to the CA, the trial court abandoned its duty to the stockholders in a
derivative suit when it refused to appoint a receiver or create a management
committee, all during the pendency of the proceedings.

ISSUE:
Whether the CA correctly characterized respondent Balmores action as a
derivative suit.

HELD:
NO. Petition is granted. A derivative suit is an action filed by stockholders
to enforce a corporate action. It is an exception to the general rule that the
corporations power to sue is exercised only by the board of directors or
trustees. Individual stockholders may be allowed to sue on behalf of the
corporation whenever the directors or officers of the corporation refuse to sue
to vindicate the rights of the corporation or are the ones to be sued and are in
control of the corporation. In derivative suits, the real party in interest is the
corporation, and the suing stockholder is a mere nominal party.

Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate

Controversies (Interim Rules) provides the 5 requisites for filing derivative suits:

SECTION 1. Derivative action. A stockholder or member may bring an action

in the name of a corporation or association, as the case may be, provided that:
1 He was a stockholder or member at the time the acts or transactions
subject of the action occurred and at the time the action was filed;

2 He exerted all reasonable efforts, and alleges the same with

particularity in the complaint, to exhaust all remedies available under
the articles of incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires;
3 No appraisal rights are available for the act or acts complained of; and
4 The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the
case.

The fifth requisite for filing derivative suits, while not included in the
enumeration, is implied in the first paragraph of Rule 8, Section 1 of the
Interim Rules: The action brought by the stockholder or member must be "in
the name of [the] corporation or association. . . ." This requirement has already
been settled in jurisprudence.

It is important that the corporation be made a party to the case. As explained

in Asset Privatization Trust v. Court of Appeals, to wit: the corporation must be
joined as party because it is its cause of action that is being litigated and
because judgment must be a res judicata against it.

In the same case, this court enumerated the reasons for disallowing a direct
individual suit.

The reasons given for not allowing direct individual suit are:
1 . . . "the universally recognized doctrine that a stockholder in a
corporation has no title legal or equitable to the corporate property; that
both of these are in the corporation itself for the benefit of the
stockholders." In other words, to allow shareholders to sue separately
would conflict with the separate corporate entity principle;

2 . . . that the prior rights of the creditors may be prejudiced. Thus, our
Supreme Court held in the case of Evangelista v. Santos, that the
stockholders may not directly claim those damages for themselves for
that would result in the appropriation by, and the distribution among
them of part of the corporate assets before the dissolution of the
corporation and the liquidation of its debts and liabilities, something
which cannot be legally done in view of Section 16 of the Corporation
Law. . .";
3 the filing of such suits would conflict with the duty of the management to
sue for the protection of all concerned;
4 it would produce wasteful multiplicity of suits; and
5 it would involve confusion in ascertaining the effect of partial recovery by
an individual on the damages recoverable by the corporation for the
same act.
Respondent Balmores action in the trial court failed to satisfy all the requisites
of a derivative suit. Respondent failed to exhaust all available remedies to
obtain the reliefs he prayed for. He also failed to allege that appraisal rights
were not available for the acts complained of. This is another requisited as
provided under Rule 8, Section 1(3) of the Interim Rules. Neither did
respondent Balmores implead PPC as party in the case nor did he allege that
he was filing on behalf of the corporation.

The non-derivative character of respondent Balmores action may also be

gleaned from his allegations in the trial court complaint. In the complaint, he
described the nature of his action as an action under Rule 1, Section 1(a)(1) of
the Interim Rules, and not an action under Rule 1, Section 1(a)(4) of the
Interim Rules, which refers to derivative suits.

Rule 1, Section 1(a)(1) of the Interim Rules refers to acts of the board,
associates, and officers, amounting to fraud or misrepresentation, which may
be detrimental to the interest of the stockholders. This is different from a
derivative suit.

While devices and schemes of the board of directors, business associates, or

officers amounting to fraud under Rule 1, Section 1(a)(1) of the Interim Rules
are causes of a derivative suit, it is not always the case that derivative suits are
limited to such causes or that they are necessarily derivative suits. Hence, they
are separately enumerated in Rule 1, Section 1(a) of the Interim Rules:

SECTION 1. (a) Cases covered. These Rules shall govern the procedure to be
observed in civil cases involving the following:
1 Devices or schemes employed by, or any act of, the board of directors,
business associates, officers or partners, amounting to fraud or
misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of any corporation,
partnership, or association;
2 Controversies arising out of intra-corporate, partnership, or association
relations, between and among stockholders, members, or associates; and
between, any or all of them and the corporation, partnership, or
association of which they are stockholders, members, or associates,
respectively;
3 Controversies in the election or appointment of directors, trustees,
officers, or managers of corporations, partnerships, or associations;
4 Derivative suits; and
5 Inspection of corporate books.
Stockholder/s suits based on fraudulent or wrongful acts of directors,
associates, or officers may also be individual suits or class suits.

Individual suits are filed when the cause of action belongs to the individual
stockholder personally, and not to the stockholders as a group or to the
corporation.

In this case, respondent Balmores filed an individual suit. His intent was very
clear from his manner of describing the nature of his action. He was alleging
that the acts of PPCs directors, specifically the waiver of rights in favor of
Villamors law firm and their failure to take back the MC Home Depot checks
from Villamor, were detrimental to his individual interest as a stockholder.

Topic: Notice in a Board of Director Meeting

LOPEZ REALTY, INC. and ASUNCION LOPEZ-GONZALES v.
SPOUSES REYNALDO TANJANGCO and MARIA LUISA
ARGUELLES-TANJANGCO
G.R. No. 154291

November 12, 2014

REYES, J.:

FACTS:
Lopez Realty, Inc. (LRI) and Asuncion Lopez-Gonzalez initiated a
Complaint for annulment of sale, cancellation of title, reconveyance and
damages with prayer for the issuance of temporary restraining order (TRO)
and/or writ of preliminary injunction against the spouses Tanjangco, Arturo
and the Registrar of Deeds of Manila.
Previously, LRI and Dr. Jose Tanjangco (Jose) were the registered co-owners of
three parcels of land and the building erected thereon known as the Trade
Center Building Joses one-half share in the subject properties were later
transferred and registered in the name of his son Reynaldo Tanjangco and
daughter-in-law, Maria Luisa Arguelles (spouses Tanjangco).
These were the stockholders of record of LRI at the time material to this case:
1. Asuncion Lopez-Gonzalez (Asuncion, Director & Corporate Secretary)
7,831 shares;
2. Arturo F. Lopez (Arturo) 7,830 shares;

3. Teresita Lopez-Marquez (Teresita) 7,830 shares;

4. Rosendo de Leon (Rosendo, Director) 5 shares
5. Benjamin Bernardino (Benjamin, Director) 1 share;
6. Augusto de Leon (Augusto, Director) 1 share; and
7. Leo Rivera (Leo, Director) 1 share
During a special stockholders meeting held on 27 July 1981, the sale of 1/2
share of LRI in the Trade Center Building was taken up. While the selling price
was at P4 M, the Tanjancos offered P3.8 M. To this, Asuncion countered with
P5 M which was not accepted by the Tanjancos. Thus, the board agreed to give
Asuncion the priority to equal the Tanjanco offer and the same to be exercised
within ten (10) days. Otherwise, the Tanjanco offer will be deemed accepted.
Just a day after, Teresita died (her estates executor Juanito L. Santos
represented her afterwards).
As Asuncion failed to exercise her option to purchase the subject properties,
and while she was abroad, the remaining directors: Rosendo, Benjamin and
Leo convened in a special meeting passing and approving the 17 August 1981
Resolution authorizing Arturo to negotiate and carry out the complete
termination of the sale terms and conditions as embodied in the Resolution of
July 27, 1981, among others. Subsequently, the sale was perfected with
payments subsequently made.
After learning of the sale, Asuncion filed this complaint challenging the validity
of the 17 August 1982 Resolution on the ground that she was not notified of
the meeting.
ISSUE:
Whether or not the sale is valid
HELD:
The sale was valid. The 17 August 1981 Board Resolution did not give
Arturo the authority to act as LRIs representative in the sale as the meeting of
the board of directors where such was passed was conducted without giving
any notice to Asuncion. This is in violation of Section 53 of the Corporation

Code which requires sending of notices for regular or special meetings to every
director.
As a result, a meeting of the board of directors is legally infirm if there is
failure to comply with the requirements or formalities of the law or the
corporations by laws and any action taken on such meeting may be challenged
as a consequence.
Notwithstanding, the actions taken in such a meeting by the directors or
trustees may be ratified expressly or impliedly. In the case of ratification, it
means that the principal voluntarily adopts, confirms and gives sanction to
some unauthorized act of its agent on its behalf.
Here, the ratification was expressed through the July 30, 1982 Board
Resolution. Regarding Asuncions claims that the 30 July 1982 Board
Resolution did not ratify the 17 August 1981 Resolution due to Juanitos
disqualification and Leos negative vote. Asuncion assails the authority of
Juanito to vote because he was not a director and he did not own any share of
stock which would qualify him to be one. On the contrary, Juanito defends his
right to vote as the representative of Teresitas estate. Upon examination of the
July 30, 1982 minutes of the meeting, it can be deduced that the meeting is a
joint stockholders and directors meeting. The Court takes into account that
majority of the board of directors except for Asuncion, had already approved of
the sale to the spouses Tanjangco prior to this meeting. As a consequence, the
power to ratify the previous resolutions and actions of the board of directors in
this case lies in the stockholders, not in the board of directors. It would be
absurd to require the board of directors to ratify their own actsacts which the
same director s already approved of beforehand. Hence, Juanito, as the
administrator of Teresitas estate even though not a director, is entitled to vote
on behalf of Teresitas estate as the administrator thereof.
Citing jurisprudence, in stock corporations, shareholders may generally
transfer their shares. Thus, on the death of a shareholder, the executor or
administrator duly appointed by the Court is vested with the legal title to the
stock and entitled to vote it. Until a settlement and division of the estate is
effected, the stocks of the decedent are held by the administrator or executor.
As there exists no corporate secretarys certification of the minutes of the
meeting, only Juanito, Benjamin and Roseno, whose signature appeared on
the minutes, could be considered as to have ratified the sale to the spouses

Tanjangco. As Leo owns only 1 share, the results are the same against the
overwhelming shares who voted in favor of ratification.
In sum, whatever defect there was on the sale to the spouses Tanjangco
pursuant to the August 17, 1981 Board Resolution, the same was cured
through its ratification in the July 30, 1982 Board Resolution. It is of no
moment whether Arturo was authorized to merely negotiate or to enter into a
contract of sale on behalf of LRI as all his actions in connection to the sale were
expressly ratified by the stockholders holding 67% of the outstanding capital
stock.
Citing jurisprudence, the Court held that by virtue of ratification, the acts of
the board of directors become the acts of the stockholders themselves, even if
those acts were, at the outset, unauthorized.

Topic: Power of the Court to sanction a rehabilitation plan

MARILYN VICTORIO-AQUINO, Petitioner,
vs.
PACIFIC PLANS, INC. and MAMERTO A. MARCELO, JR. (CourtAppointed Rehabilitation Receiver of Pacific Plans, Inc.),
Respondents.
G.R. No. 193108

FACTS:

December 10, 2014

PERALTA,J.:

Respondent Pacific Plans, Inc. (now APEC) is engaged in the business of

selling pre-need plans and educational plans, including traditional open-ended
educational plans (PEPTrads). PEPTrads are educational plans where
respondent guarantees to pay the planholder, without regard to the actual cost
at the time of enrolment, the full amount of tuition and other school fees of
a designated beneficiary.
Petitioner is a holder of two (2) units of respondents PEPTrads.
On April 7, 2005, foreseeing the impossibility of meeting its
obligations to the availing planholders as they fall due, respondent filed a
Petition for Corporate Rehabilitation with the Regional Trial Court, praying that
it be placed under rehabilitation and suspension of payments. At the time of
filing of the Petition for Corporate Rehabilitation, respondent had more or less
34,000 outstanding PEPTrads.
On April 12, 2005, the Rehabilitation Court issued a Stay Order,
directing the suspension of payments of the obligations of respondent and
ordering all creditors and interested parties to file their comments/oppositions,
respectively, to the Petition for Corporate Rehabilitation. The same Order also
appointed respondent Marcelo as the rehabilitation receiver.
Pursuant to the prevailing rules on corporate rehabilitation, respondent
submitted to the Rehabilitation Court its proposed rehabilitation plan. Under
the terms thereof, respondent proposed the implementation of a Swap, which
will essentially give the planholder a means to exit from the PEPTrads at terms
and conditions relative to a termination value that is more advantageous than
those provided under the educational plan in case of voluntary termination.
The rehabilitation receiver submitted an Alternative Rehabilitation
Plan and was approved by the Court. However due to the fact that the value of
the Philippine Peso strengthened and appreciated, the rehabilitation receiver
submitted a Modified Rehabilitation Plan.
ISSUE:

Whether or not the Rehabilitation Court has the authority to sanction a

rehabilitation plan, or the modification thereof, even when the essential feature
of the plan involves forcing creditors to reduce their claims against respondent.
HELD:
YES. The Court upheld the cram-down power of the Rehabilitation Court
pursuant to Sec. 23 of FRIA which states that the court may approve a
rehabilitation plan over the opposition of creditors, holding a majority of the
total liabilities of thedebtor if, in its judgment, the rehabilitation of the debtor is
feasible and the opposition of the creditors is manifestly unreasonable.
Moreover, notwithstanding the rejection of the Rehabilitation Plan by
the creditors, the court may confirm the Rehabilitation Plan if all of the
following circumstances are present:

Alternatives
Accept payments online
Appointed
Approve

1.

The Rehabilitation Plan complies with the requirements specified in this

Act;

2.

The rehabilitation
Rehabilitation Plan;

receiver

recommends

the

confirmation

of

the

3.

The shareholders, owners or partners of the juridical debtor lose at least

theircontrolling interest as a result of the Rehabilitation Plan; and

4.

The Rehabilitation Plan would likely provide the objecting class of

creditors with compensation which has a net present value greater than that
which they would have received if the debtor were under liquidation.