Corporation Law

Atty. Peralta | G01 | A.Y. 2015-2016

#1 Gokongwei vs. Securities and Exchange Commission AUTHOR: Delfin

[GR L-45911, 11 April 1979] NOTES: may format tayo palagay naman dun next digest.
TOPIC: CORPORATION BY LAWS Thank you 

Emergency Recit:

Petitioner Gokongwei is a stockholder of San Miguel Corporation who wanted to run as one of the board of directors of the
corporation. He is also a incorporator of Universal Robina (actually a major stockholder) and the Consolidated Food
Corporation (CFC) which is owned majority by him and his family. The board of San Miguel amended the by-laws of
SMC changing the qualifications of a director. Accroding to Gokongwei, this is an ultravires act as the board cannot on its
own change the by laws without the 2/3 vote of all the stock holders according to section 21 of the Corporation Code. He
then instituted several actions against SMC, including an action to compel them to produce documents such as corporate
meeting minutes as well as the balance sheet of a subsidiary corporation the SMC also controlled- SMI.
While the complaint is still with the SEC, SMC called for an emergency meeting in order to ratify the said amendment.
Gokongwei objected and asked SEC to issue a TRO/ Prelim Injunction. The SEC, denied and rescheduled the hearing of
the other cases after the emergency meeting. The meeting pushed through and the changes in the by laws was ratified.

For this reason the petitioner filed the certiorari in court, stating that SEC acted with grave abuse of discretion by not
acting on their petition.

Main Issue Raised and SC’s pronouncement:

Validity of the amendment on the by laws- the amendment is valid. The corporation code in Section 21 states that a
corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees."
The court said that it is not an ultra vires act and the code itself allows the board to prescribe qualifications. The actual
controversy or question that should be raised is Whether the qualifications that the board prescribed is an abuse of
their power or if they were justified in giving such qualification? The amendment of the bylaws prohibits a shareholder
that is also a stock holder of a competitor corporation to be elected in the board because of conflict of interest and that the
amendment is in the protection of the corporation.

The court held that a director has a fiduciary relationship with the other shareholders and that it is impossible for a person
to serve both masters without the detriment of the other. It enunciated The doctrine of “corporate opportunity” which
states 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.

The court upheld the validity of the amendment in the by laws however, it does not automatically held that Gokongwei is
disqualified. The board must give Gokongwei due process and there must be due hearing at which the petitioner must be
given the fullest opportunity to show that he is not covered by the disqualification.
The test must be whether the business does in fact compete, not whether it is capable of an indirect and highly
unsubstantial duplication of an isolated or non-characteristic activity. It is necessary to show that petitioner’s business
covers a substantial portion of the same markets for similar products to the extent of not less than 10% of respondent
corporation’s market for competing products.

The court also talked about the following:

Violation of the constitution against monopoly- that if a person who has shares with arrival corporation be allowed to sit in
the board of another corporation, their intimate knowledge of both business will enable them to control prices, production
etc and allowing them to quash the competition and the smaller businesses.

Clayton Act- By means of the interlocking directorates one man or group of men have been able to dominate and control a
great number of corporations to the detriment of the small ones dependent upon them and to the injury of the public.

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FACTS:
: [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as stockholder of 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. As a first cause
of action, Gokongwei alleged that on 18 September 1976, Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio
Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel Ortigas, and Antonio Prieto amended by bylaws of the corporation,
basing their authority to do so on a resolution of the stockholders adopted on 13 March 1961, when the outstanding capital
stock of the corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000
preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled
30,127,043, with a total par value of P301,270,430.00.

CAUSES OF ACTION:
1. Gokongwei contended that the Board acted without authority and in usurpation of the power of the stockholders
when it amended the by-laws of the corporation and changed the qualification to eligible to run as a director. (It
was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the
corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors
only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital
stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the
amendment.)
2. The authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board
ceased to exist.
3. Gokongwei averred that the membership of the Board of Directors had changed since the authority was given in
1961, there being 6 new directors.
4. He claimed that prior to the questioned amendment, Gokogwei had all the qualifications to be a director of the
corporation, being a substantial stockholder thereof; that as a stockholder, Gokongwei had acquired rights inherent
in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in
amending the by-laws, Soriano, et. al. purposely provided for Gokongwei's disqualification and deprived him of
his vested right as afore-mentioned, hence the amended by-laws are null and void.
5. He also alleged that corporations have no inherent power to disqualify a stockholder from being elected as a
director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M.
Soriano, while representing other corporations, entered into contracts (specifically a management contract) with
the corporation, which was avowed because the questioned amendment gave the Board itself the prerogative of
determining whether they or other persons are engaged in competitive or antagonistic business; that the portion of
the amended by-laws which states that in determining whether or not a person is engaged in competitive business,
the Board may consider such factors as business and family relationship, is unreasonable and oppressive and,
therefore, void; and that the portion of the amended by-laws which requires that "all nominations for election of
directors shall be submitted in writing to the Board of Directors at least five (5) working days before the date of the
Annual Meeting" is likewise unreasonable and oppressive.

For this reason, he prayed that the amended by-laws be declared null and void and the certificate of filing thereof be
cancelled, and that Soriano, et. al. be made to pay damages, in specified amounts, to Gokongwei.

On 28 October 1976, in connection with the same case, Gokongwei filed with the Securities and Exchange Commission an
"Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of the corporation refused to
allow him to inspect its records despite request made by Gokongwei for production of certain documents enumerated in the
request. The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their answer, and their
opposition to the petition, respectively.

Meanwhile, on 10 December 1976, while the petition was yet to be heard, the corporation issued a notice of special
stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws", setting such
meeting for 10 February 1977. This prompted Gokongwei to ask the SEC for a summary judgment insofar as the first

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cause of action is concerned, for the alleged reason that by calling a special stockholders' meeting for the aforesaid
purpose, Soriano, et. al. admitted the invalidity of the amendments of 18 September 1976.

The motion for summary judgment was opposed by Soriano, et. al. Pending action on the motion, Gokongwei filed an
"Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the determination of
Gokongwei's application for the issuance of a preliminary injunction and or Gokongwei's motion for summary judgment, a
temporary restraining order be issued, restraining Soriano, et. al. from holding the special stockholders' meeting as
scheduled. This motion was duly opposed by Soriano, et. al. On 10 February 1977, SEC issued an order denying the
motion for issuance of temporary restraining order. After receipt of the order of denial, Soriano, et. al. conducted the
special stockholders' meeting wherein the amendments to the by-laws were ratified. On 14 February 1977, Gokongwei
filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. A motion for
reconsideration of the order denying Gokongwei's motion for summary judgment was filed by Gokongwei before the SEC
on 10 March 1977.

[SEC Case 1423] Gokongwei alleged that, having discovered that the corporation has been investing corporate funds in
other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17-1/2 of
the Corporation Law, he filed with SEC, on 20 January 1977, a petition seeking to have Andres M. Soriano, Jr. and Jose
M. Soriano, as well as the corporation declared guilty of such violation, and ordered to account for such investments and to
answer for damages. On 4 February 1977, motions to dismiss were filed by Soriano, et. al., to which a consolidated motion
to strike and to declare Soriano, et. al. in default and an opposition ad abundantiorem cautelam were filed by Gokongwei.

Despite the fact that said motions were filed as early as 4 February 1977, the Commission acted thereon only on 25 April
1977, when it denied Soriano, et. al.'s motions to dismiss and gave them two (2) days within which to file their answer, and
set the case for hearing on April 29 and May 3, 1977. Soriano, et. al. issued notices of the annual stockholders' meeting,
including in the Agenda thereof, the "reaffirmation of the authorization to the Board of Directors by the stockholders at the
meeting on 20 March 1972 to invest corporate funds in other companies or businesses or for purposes other than the main
purpose for which the Corporation has been organized, and ratification of the investments thereafter made pursuant
thereto." By reason of the foregoing, on 28 April 1977, Gokongwei filed with the SEC an urgent motion for the issuance of
a writ of preliminary injunction to restrain Soriano, et. al. from taking up Item 6 of the Agenda at the annual stockholders'
meeting, requesting that the same be set for hearing on 3 May 1977, the date set for the second hearing of the case on the
merits. The SEC, however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17, 1977,
or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act, Gokongwei filed an
urgent manifestation on 3 May 1977, but this notwithstanding, no action has been taken up to the date of the filing of the
instant petition.

Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for issuance of writ of
preliminary injunction, with the Supreme Court, alleging that there appears a deliberate and concerted inability on the part
of the SEC to act.


ISSUE(S):

1. Whether the corporation has the power to provide for the (additional) qualifications of its directors.
2. Whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise
of corporate authority.

HELD:

1. It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws 'for its internal
government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs.'" 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." Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by

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a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within
the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." To this extent, therefore, the
stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his
property which he has invested in the capital stock of the corporation, and surrendered it to the will of the majority of his
fellow incorporators. It can not therefore be justly said that the contract, express or implied, between the corporation and
the stockholders is infringed by any act of the former which is authorized by a majority." Pursuant to section 18 of the
Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders
representing at least two-thirds of the subscribed capital stock of the corporation. If the amendment changes, diminishes or
restricts the rights of the existing shareholders, then the dissenting minority has only one right, viz.: "to object thereto in
writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed
capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that Gokongwei has a
vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired
contained the prescription that the corporate charter and the by-law shall be subject to amendment, alteration and
modification.

2. Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be
any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned.
As agents entrusted with the management of the corporation for the collective benefit of the stockholders, "they occupy a
fiduciary relation, and in this sense the relation is one of trust." "The ordinary trust relationship of directors of a
corporation and stockholders 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. Equity
recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof."
A director is a fiduciary. Their powers are powers in trust. He who is in such fiduciary position cannot serve himself first
and his cestuis second. He cannot manipulate the affairs of his corporation to their detriment and in disregard of the
standards of common decency. He cannot by the intervention of a corporate entity violate the ancient precept against
serving two masters. He cannot utilize his inside information and strategic position for his own preferment. He cannot
violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot violate
rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot use his power for
his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power
may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the
equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the
exclusion or detriment of the cestuis. 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.
The offer and assurance of Gokongwei that to avoid any possibility of his taking unfair advantage of his position as
director of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be
discussed, would not detract from the validity and reasonableness of the by-laws involved. Apart from the impractical
results that would ensue from such arrangement, it would be inconsistent with Gokongwei's primary motive in running for
board membership — which is to protect his investments in San Miguel Corporation. More important, such a proposed
norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation, for the
policy of the law is to encourage and enforce responsible corporate management.

RATIO:


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CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):

#2 Pena vs CA and Spouses Yap AUTHOR: ENRIQUEZ

TOPIC: NOTES: may format tayo palagay naman dun next digest.
PONENTE: Thank you 
FACTS:
 Pampanga Bus Company or PAMBUSCO, mortgaged its lots to the Development Bank of the Philippines or DBP.
This mortgage was foreclosed and was awarded to Petitioner Pena as the highest bidder. Hence, a certificate of sale in
her favour was issued.
 The Board of Directors or BoD of PAMBUSCO, through 3 out of its 5 directors, assigned its right of redemption over
the lots in favour of Marcelino Enriquez or Enriquez. The latter then redeemed it and was issued a certificate of
redemption.
 A day after the certificate was issued, Enriquez sold the lot to the Private Respondents Spouses Yap. Despite the sale,
Petitioner Pena remained in possession of the lots. Hence, the Private Respondents Yap were prompted to file this
case. In their complaint they sought to recover possession over the lands from Petitioner Pena, stating that they are its
registered owners and have to enforce their right of possession.
 Petitioner Pena argued that the Private Respondents Spouses Yap could not have acquired ownership over the
properties under a deed of absolute sale executed in their favour by one. Enriquez who likewise could not have become
the owner of the properties in question by redeeming the same under an allegedly void deed of assignment executed in
his favour by the original owners of the land in question, the PAMBUSCO. That since the deed of assignment
executed by PAMBUSCO in favour of Enriquez was void ab initio for being an ultra vires act of its board of directors
and, for being without any valuable consideration, it could not have had any legal effect; hence, all the acts which
flowed from it and all the rights and obligations which derived from the aforesaid void deed are likewise void and
without any legal effect.
 RTC ruled in favour of Petitioner Pena. But the CA reversed the RTC. Hence, Petitioner Pena appealed.

ISSUE(S):
Whether or not the PAMBUSCO’s Deed of Assignment in favour of Enriquez was valid

HELD: NO

RATIO:
Sec. 4, Art. III of the amended by laws of PAMBUSCO requires that there must be at least 4 Directors present in a meeting
to constitute a quorum. The by-laws of a corporation are its own private laws which substantially have the same effect as
the laws of the corporation. They are in effect, written, into the charter. In this sense they become part of the fundamental
law of the corporation with which the corporation and its directors and officers must comply.

In this case, only 3 out of 5 members of the BoD of PAMBUSCO convened by virtue of a prior notice of a special
meeting. There was no quorum to validly transact business since, under Section 4 of the amended by-laws hereinabove
reproduced, at least four (4) members must be present to constitute a quorum in a special meeting of the board of directors
of respondent PAMBUSCO.

Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of the corporation
may fix a greater number than the majority of the number of board members to constitute the quorum necessary for the
valid transaction of business. Any number less than the number provided in the articles or by-laws therein cannot
constitute a quorum and any act therein would not bind the corporation; all that the attending directors could do is to
adjourn.

CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):

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#3 Fleischer v. Botica Nolasco Co. AUTHOR: Garcia

[G.R. No. DATE] NOTES:
TOPIC: The article of by-laws is in taco bell language (Spanish /
PONENTE: Mexican) so I did not include it in the facts.
FACTS:
 Manuel Gonzalez was the original owner of the five shares of stock in question. He assigned and delivered said five
shares to Henry Fleischer.
 The Secretary-treasurer of Botica Nolasco Co. (Miciano) offered to buy from Fleischer, on behalf of the corporation,
said shares of stock, at their par value of P100 a share, for P500; that by virtue of article 12 of the by-laws of Botica
Nolasco, Inc., said corporation had the preferential right to buy from Manuel Gonzalez said shares.
 Fleischer requested Miciano to register said shares in his name; Miciano refused to do so, saying that it would be in
contravention of the by-laws of the corporation.
 Fleischer filed a complaint praying for a judgment ordering the Botica Nolasco, Inc. to register in his name in the
books of the corporation the five shares of stock recorded in said books in the name of Manuel Gonzales, and to
indemnify him of damages, and to pay the costs
 Judge Capistrano ruled in favor of Fleischer. He said that article 12 of the bylaws of the corporation which gives it
preferential right to buy its shares from retiring stockholders, is in conflict with Act No. 1459 (Corporation Law),
especially with section 34 thereof. Hence, this appeal
ISSUE(S):
 Whether or not article 12 (in Spanish) of the by-laws of the corporation is in conflict with the provisions of
the Corporation Law (Act No. 1459).
HELD:
 Yes. Such article is in conflict with Section 35 of Act No. 1459.
RATIO:
 By-laws must not e inconsistent with the provisions of the Corporation Law. By-laws of a corporation are valid
if they are reasonable and calculated to carry into effect the objects of the corporation provided they are not
contradictory to the general policy of the laws of the land. Under a statute authorizing by-laws for the transfer
of stock of a corporation, it can do no more than prescribe a general mode of transfer on the corporate books and
cannot justify an unreasonable restriction upon the right to sell. The shares of stock of a corporation are personal
property and the holder thereof may transfer the same without unreasonable restrictions.
 The power to enact by-laws restraining the sale and transfer of stock must be found in the governing statute or
charter. Restrictions upon the traffic in stock must have their source in legislative enactments, as the corporation
itself cannot create such impediments, as the corporation itself cannot create such impediments. By-laws of a
corporation are intended merely for the protection of the corporation, and prescribe regulations and not
restrictions; they are always subject to the charter of the corporation. The corporation, in the absence of such a
power, cannot ordinarily inquire into or pass upon the legality of the transaction by which its stock passes from
one person to another, nor it question the consideration upon which a sale is based. A by-law of a corporation
cannot take away or abridge the substantial rights of stockholders. The owner of corporate stock has the
same uncontrollable right to sell or alienate, which attaches to the ownership of any other species of
property.
CASE LAW/ DOCTRINE:
The sentences in bold in the ratio are basically the doctrines of the case.
DISSENTING/CONCURRING OPINION(S):

#4 Government of the Philippine Islands v. El Hogar AUTHOR: Magsino, Patricia Marie C.

G.R. No. L-26649 (July 13, 1927) NOTES: 17 causes of action, take note of nos. 4,5,6, and 8
TOPIC: Internal organization of corporation – about by laws
PONENTE: Street, J.
FACTS:
 Original Action in the Supreme Court
 Quo warranto proceeding by Govt. of the Philippine Islands against El Hogar Filipino – purpose is to deprive it of its
corporate franchise, exclude it from all corporate rights, and privileges, and effect a final dissolution of the

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corporation
 El Hogar organized under Sec. 171-190 Act No. 1459, devoted to the subject of building and loan associations, their
organization and administration.
 The capital of the corporation was not permitted to exceed P3M, but Act No. 2092 amended the statute, permitting
capitalization to the amount of ten millions.
 El Hogar amended its AOI stating that the amount of capital must not exceed what has been stated in Act No. 2092
 This resulted to El Hogar El Hogar having 5,826 shareholders, 125,750 shares with paid-up value of P8.7M, the
corporation paid P7.16M to its withdrawing stockholders
 The Government of the Philippine Islands filed an action against El Hogar due to the alleged illegal holding title to
real property for a period exceeding five (5) years after the same was bought in a foreclosure sale. Sec. 13(5) of the
Corporation Law states that corporations must dispose of real estate obtained within 5 years from receiving the title
 The Philippine Government now wants that El Hogar be excluded from all corporate rights and privileges and effect a
final dissolution of said corporation

 BACKGROUND OF RECORDED MORTGAGE:

 El Hogar was the holder of a recorded mortgage on a San Clemente land as security for a P24K loan to El Hogar.,
but shareholders and borrowers defaulted in payment so El Hogar foreclosed the mortgage and purchased the land
during the auction sale.
 A deed of conveyance in favor of El Hogar was executed and sent to the Register of Deeds of Tarlac with a request
that the certificate of title be cancelled and a new one be issued in favor of El Hogar from the Register of Deeds of
Tarlac.
 No reply was received so El Hogar filed a complaint with the Chief of the General Land Registration Office. The
certificate of title to the San Clemente land was received by El Hogar and a board resolution authorizing Benzon to
find a buyer was issued
 Alcantara, the buyer of the land, was given extension of time to make payment but defaulted so the contract treated
rescinded. Efforts were made to find another buyer. El Hogar acquired title in December 1920 until the property was
finally sold to Felipa Alberto in July 1926
 The interval exceeded 5 years but the period did not commence to run until May 7, 1921 when the register of deeds
delivered the new certificate of title.

ISSUE(S):

 Do the acts of respondent corporation merit its dissolution or deprivation of its corporate franchise, and the
exclusion from all its corporate rights and privileges

HELD:
 NO. Court will not dissolve but will confine El Hogar to its legitimate purposes.
 “…confine El Hogar Filipino to its legitimate purposes and to force it to eliminate its illegitimate purposes and
The government has made out its case, but the defendant should be permitted a reasonable time to fulfill the
conditions laid down in this decision.”

RATIO: LISTED BELOW ARE THE 17 CAUSES OF ACTIONS AND THE COURTS DECISION AND RATIO.

1) Alleged illegal holding of real property for a period exceeding five years from receipt of title-Cause of delay is not
the respondent’s fault

2) That respondent is owning and holding a business lot with the structure in excess of its reasonable requirements
and in contravention of Sec. 13(5) of Corpo. Law – COURT FINDS NO MERIT

Every corporation has the power to purchase, hold and lease such real property which they may reasonably and
necessarily require.

3) That respondent is engaged in activities different to the purposes for which the corporation was created and not
reasonably necessary to its legitimate purpose – COURT FINDS MERIT

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The administration of property, payment of real estate taxes, causing necessary repairs, managing real properties of
non-borrowing shareholders is more befitting to the business of a real estate agent or a trust company than a
building and loan association.

4) That the by-laws of the association stating that, “the board of directors by the vote of an absolute majority of its
members is empowered to cancel shares and to return the balance to the owner by reason of their conduct or any
other motive or liquidation” is in direct conflict with Sec. 187 of the Corporation Law which provides that the
board of directors shall not have the power to force the surrender and withdrawal of unmatured stock except in
case of liquidation or forfeiture of stock for delinquency – COURT FINDS NO MERIT

There is no provision of law making it a misdemeanor to incorporate an invalid provision in the by-laws of a
corporation; and if there were such, the hazards incident to corporate effort would be largely increased.

5) Art. 61 of El Hogar’s by-laws states that “attendance in person or by proxy by shareholders owning one-half plus
one of the shareholders shall be necessary to constitute a quorum for the election of directors” is contrary to Sec.
31 of the Corpo Law which provides that owners of the majority of the subscribed capital stock entitled to vote
must be present either in person or by proxy at all elections of directors – COURT FINDS NO MERIT

Corporation is not at fault for failure of the shareholders to attend the annual meetings and their non-attendance in
meeting is not to be interpreted as their assent to the way the corporation is being handled. Mere failure of a
corporation to elect officers does not terminate the terms of existing officers nor dissolve the corporation. The
general rule is to allow the officer to holdover until his successor is duly qualified.

6) That the directors of El Hogar, instead of receiving nominal pay or serving without pay, have been receiving large
compensation, varying in amount from time to time, out of respondents’ profits – COURT FINDS NO MERIT

With the growth of the corporation, the amount paid as compensation to the directors has increased beyond what
would probably – this cant be corrected in this court. Nor can it properly be made a basis for depriving respondent
of its franchise or enjoining it from compliance with the provisions of its own by-laws. If a mistake has been made,
the remedy is to lie rather in publicity and competition.

7) That the promoter and organizer of El Hogar was Mr. Antonio Melian and that in the early stages of the
organization of the association, the board of directors authorized the association to make a contract with him and
that the royalty given to him as founder is “unconscionable, excessive and out of proportion to the services
rendered” – COURT FINDS NO MERIT

The mere fact that compensation is in excess of what may be considered appropriate is not a proper consideration
for the court to resolve. That El Hogar is in contact with its promoter did not affect the association’s legal
character. The court is of the opinion that the traditional respect for the sanctity of the contract obligation should
prevail over the radical and innovating tendencies.

8) That Art. 70 of El Hogar’s by-laws, requiring persons elected as board of directors to be holders of shares of the
paid up value of P5,000 which shall be held as security, is objectionable since a poor member or wage earner
cannot serve as a director irrespective of other qualifications – COURT FINDS NO MERIT

Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualification of its
directors and the requirement of security from them for the proper discharge of the duties of their office in the
manner prescribed in Art. 70 is highly prudent and in conformity with good practice.

9) That respondent abused its franchise in issuing “special” shares alleged to be illegal and inconsistent with the plan
and purposes of building and loan associations – COURT FINDS NO MERIT

The said special shares are generally known as advance payment shares which were evidently created for the
purpose of meeting the condition caused by the prepayment of dues that is permitted. Sec. 178 of Corpo Law

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allows payment of dues or interest to be paid in advance but the corporation shall not allow interest on advance
payment grater than 6% per annum nor for a period longer than one year. The amount is satisfied by applying a
portion of the shareholder’s participation in the annual earnings. The mission of special shares does not involve
any violation of the principle that the shares must be sold at par.

10) That in making purchases at foreclosure sales constituting as security for 54 of the loans, El Hogar bids the full
amount after deducting the withdrawal value, alleged to be pursuing a policy of depreciating at the rate of 10
percent per annum, the value of the real properties it acquired and that this rate is excessive – COURT FINDS NO
MERIT

The board of directors possesses discretion in this matter. There is no provision of law prohibiting the association
from writing off a reasonable amount for depreciation on its assets for the purpose of determining its real profits.
Art. 74 of its by-laws expressly authorizes the board of directors to determine each year the amount to be written
down upon the expenses for the installation and the property of the corporation. The court cannot control the
discretion of the board of directors about an administrative matter as to which they have no legitimate power of
action.

11) That respondent maintains excessive reserve funds – COURT FINDS NO MERIT

The function of this fund is to insure stockholders against losses. When the reserves become excessive, the remedy
is in the hands of the Legislature. No prudent person would be inclined to take a policy in a company which had
conducted its affairs poorly that it only retained a fund barely sufficient to pay its present liabilities and was in a
condition where any change by the reduction of interest upon or depreciation in the value of securities or increase
of mortality would render it insolvent and subject to be placed in the hands of a receiver.

12) That the board of directors has settled upon the unlawful policy of paying a straight annual dividend of 10 percent
per centum regardless of losses suffered and profits made by the corporation, in contravention with the
requirements of Sec. 188 of the Corporation law – COURT FINDS NO MERIT

As provided in the previous cause of action, the board of directors shall determine the profits and losses and this
means that they shall exercise the usual discretion of good businessmen in allocating a portion of the annual profits
to purposes needful of the welfare of the association. The law contemplates distribution of earnings and losses
after legitimate obligations have been met.

13) That El Hogar has made loans to the knowledge of its officers which were intended to be used by the borrowers for
other purposes than the building of homes and no attempt has been made to control the borrowers with respect to
the use made of the borrowed funds – COURT FINDS NO MERIT

There is no statute expressly declaring that loans may be made by these associations SOLELY for the purpose of
building homes. The building of homes in Sec. 171 of Corporation Law is only one among several ends, which
building and loan associations are designed to promote and Sec. 181 authorizes the board of directors of the
association to fix the premium to be charged.

14) That the loans made by defendant for purposes other than building or acquiring homes have been extended in
extremely large amounts and to wealthy persons and large companies – COURT FINDS NO MERIT

The question of whether the making of large loans constitutes a misuser of the franchise which would justify the
court in depriving the association of its corporate life; is a matter confided to the discretion of the board of
directors. The law states no limit as to the size of the loans to be made by the association. Resort should be had to
the legislature because it is not a matter amenable to judicial control

15) That when the franchise expires, supposing the corporation is not reorganized, upon final liquidation of the
corporation, a reserve fund may exist which is out of all proportion to the requirements that may fall upon it in the
liquidation of the company – COURT FINDS NO MERIT

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This matter may be left to the discretion of the board of directors or to legislative action if it should be deemed
expedient to require the gradual suppression of reserve funds as the time for dissolution approaches. It is no matter
for judicial interference and much less could the resumption of the franchise be justified on this ground.

16) That various outstanding loans have been made by the respondent to corporations and partnerships and such
entities subscribed to respondents’ shares for the sole purpose of obtaining such loans – COURT FINDS NO
MERIT

Sec. 173 of Corporation Law declares that “any person” may become a stockholder in building and loan
associations. The phrase ANY PERSON does not prevent a finding that the phrase may not be taken in its proper
and broad sense of either a natural or artificial person.

17) That in disposing real estate purchased by it, some of the properties were sold on credit and the persons and
entities to which it was sold are not members nor shareholders nor were they made members or shareholders,
contrary to the provision of Corporation Law requiring loans to be stockholders only – COURT FINDS NO
MERIT

The law does not prescribe that the property must be sold for cash or that the purchaser shall be a shareholder in
the corporation. Such sales can be made upon the terms and conditions approved by the parties.

CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):

#5 Citi Bank, N.A. v. Chua AUTHOR: Mendoza

[G.R. No. DATE] 102300 March 17, 1993 NOTES:
TOPIC:
PONENTE: campos
FACTS:
 Citi Bank, a foreign commercial banking corporation duly licensed to do business in the Philippines was sued by the
spouses Velez for specific performace and damages.
 Sps.Velez's Contentions: 1.Sps.Velez were good clients of Citi Bank in its branch in Cebu until the filing of their
complaint.They are alleging that Citi Bank extended to them credit lines sufficiently secured with real estate
mortgageand chattel mortgages on equipment. And claim that it offered them special additional accommodation of
Php5 million.
 2. When they tried to exchange with Citi Bank 6 checks amounting to 3,095,000 and as a
sign of good faith issued and delivered a check for Php75,000 but it allegedly refused to continue with the
arrangement even after repeated demands.
 Citibank's Contentions: 1. That Velez deposited his unfunded deposited checks to Citbank. Having already gained the
trust and confidence of the officers of the bank, naturally, they never discovered that his personal checks were
unfunded. And it also gave the bank false impression that the Sps.Velez's construction business was doing very well.
 2.Citi Bank filed a complaint for violation of B.P. 22 and estafa.
 On the pre-trial conference, Citibank's counsel presented a SPA executed by a bank officer named Florencia Tarriela
in favor of its counsel J.P. Garcia & Associates, to represent and bind the bank thereof.However, inspite of this SPA,
the sps.Velez moved to declare the bank in default on the ground that the SPA was not executed by the Board of
Directors of the Bank.
 Citibank attached another SPA, as an oppisiton to Velez's motion, made by William W. Ferguson, VP and highest
ranking officer of Citibank Philippines. But respondent judge Canares still issued an order declaring Citibank in
default stating that the records does not show the requisite document of SPA assuming the same to ba a delegable
authority.
 The CA dismissed Citibank's petition because (1) it admitted that it did not and could not present a board resolution
from its Board of Directos appointing its counsel as its attorrney-in-fact during thr pre-trial conference and (2) the
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appointment has not been approved by the SEC as required by Sec.46 of the Corporation Code. Furthermore, the SPA
has not been shown to be intended not only to represent the bank at the pre-trial of thr case on a certain date but also
to enter into any compromise.
 In its petition to the SC, Citibank argued that no board resolution was necessary for its legal counsel to act as its
attorney-in-fact in the case because the bank's by-laws grant to its executing officer and secretary pro-term the power
to delegate to a Citibank officer, in the case of William Ferguson , the authority to represent and defend the bank and
its interest.
ISSUE(S): 1. Whether a board resolution of the board of directors of a corporation is always necessary for granting
authority to an agent to represent the corporation in court cases.

HELD: The SC granted Citibank's petitionand the case was remanded back to the RTC for further proceedings.

RATIO:
1.On why there was a valid delegation of Ferguson's express power
 In accordance with Secs. 23, 25 and 47, enumerates what may be contained in the by-laws, among which is a
provision for the "qualifications, duties and compensation of directors or trustees, officers and employees." Taking
all the provisions of law together, it is clear that corporate powers may be directly conferred upon corporate
officers or agents by statute, thr articles of incorporation, the by-laws or by resolution or other act of the board of
directors. In addition, an officer who is not a director may also appoint other agents when authorized by the by-
laws or by the board of directors which is referred to as express powers conferred.
 Since the by-laws are a source of authority for corporate officers and agents of the corporation, a resolution of the
Board of Directors of Citbank appointing an attorrney-in-fact to represent and bind it during thr pre-trial
conference of the case is not necessary because its by-laws allows its officers , the executing officer and the
secretary and pro-term, to execute a power of attorney to a designated bank officer, William Ferguson in this case,
clothing him with authority to direct and manage corporate officers. The relevant provision in the SPA provides:
 " XXI. To substitute or delegate this power of attorney in whole or in part in favor of such one or more
employees of the bank, as he may deem advisable, but without divesting himself of any of ghe powers granted to
him by this power of attorney; And to grant and execute in favor of any one or more such employees, powers of
attorney containing all or such authorities, as he may deem advisable.
 2. On whether Citbank's by-laws are effective considering that is has been previously gramted a license to do
business in the Philippines.
 A careful reading of Sec.46, which was used by the CA to support its conclusion, that a corpoartion can submit its
by-laws, prior to incorporation, or within one month after receipt of official notice of the issuance of its certificate
of incorporation by the SEC. And even more important,said provision starts with the phrase "Every corporation
formed under this Code", which can only refer to corporations incorporated in the Philippines. Hence, Sec.46, in
sofar as it refers to the effectivity of corporate by-laws, applies only to domestic corporations.
 3. There is nothing to show that Citibank "misersbly failed to oblige"; on the contrary, 3 special powers of attorney
manifest prudence and diligence on petitioner bank's part. Furthermore, Ferguson, who heads the the bank's
Philippine office, must be understood to have sufficient powers to act promptly in order to protect the interest of
his princiipal.Lastly, while there are instances, to be sure ,when a party may be properly defaulted, these should be
the exceptions rather than the ruleand should be allowed only in clear cases of an obstinate refusal or inordinate
neglect to comply with the orders of the court.
CASE LAW/ DOCTRINE:
1.In the corporate hierarchy, there are 3 levels of control: (1) the board of directors, which is responsible for corporate
policies and the general management of the business affairs of the corporation; (2) the officers, who in theory execute the
policies laid down by the board, but in practice often have wide latitude in determining the course of business operations;
and (3) the stockholders, who have the residual power over fundamental corporate changes, like the amendments of the
Articles of Incorporation.

2.It is a fundamental principle in the law of agency that every delegation of authority, whether general or special, carries
with it , unless the contrary be express, implied authority to do all of those acts, naturally and ordinarily done in such cases,
which are reasonably necessary and proper to be done in order to carry into effect hte main authority conferred.

3. That corporate powers may be directly conferred upon corporate officers or agents by statute, the articles of
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incorporation, the by-laws or by resolution or other act of the board of directors.

DISSENTING/CONCURRING OPINION(S):

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#6 LOYOLA GRAND VILLAS HOMEOWNERS AUTHOR: PAGCALIWAGAN

(SOUTH) ASSOCIATION, INC. V COURT OF NOTES: This is a petition for review on certiorari of the
APPEALS decision of the CA affirming the decision of the Home
G.R. No. 117188 August 7, 1997 Insurance and Guaranty Corporation (HIGC).
TOPIC: By-laws
PONENTE: Romero, J.
FACTS:
 February 8, 1983 – Private respondent Loyola Grand Villas Homeowners Association (LGVHAI) was organized
as the association of homeowners and residents of the Loyola Grand Villas
 It was registered with the Home Financing Corporation, predecessor of other private respondent Home
Insurance and Guaranty Corporation (HIGC), as the sole homeowners’ organization in the said
subdivision
 For some reason, LGVHAI did not file its corporate by-laws.
 1988 – Officers of the LGVHAI tried to register its by-laws but failed to do so.
 Officers discovered that there were 2 other organizations within the subdivision – North Association and
South Association
 February 13, 1989 – North Association was registered under HIGC
 December 20, 1988 – It submitted its by-laws
 LGVHAI was dissolved for 2 reasons:
 It did not submit its by-laws within the period required by the Corporation Code, and
 There was non-user of corporate charter because HIGC had not received any report on the association’s
activities
 July 27, 1989 – Registration of the South Association with the HIGC
 Officers of LGVHAI lodged a complaint with the HIGC
 Questioned the revocation of LGVHAI’s certificate of registration without due notice and hearing, and
 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
HIGC Hearing Officer: Rendered decision in favor of LGVHAI
Appeals Board of HIGC: Affirmed HIGC Hearing Officer’s decision
CA: Affirmed both decisions
ISSUE(S): Whether or not the LGVHAI’s failure to file its by-laws within the period prescribed by Section 46 of the
Corporation Code had the effect of automatically dissolving the said corporation.

HELD: NO

RATIO:
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. There are in fact cases where by-laws are
unnecessary to corporate existence or to the valid exercise of corporate powers.

Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the
non-filing of the same within the period provided for in Section 46 However, such omission has been rectified by
Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the SEC

There can be no automatic corporate dissolutionsimply because the incorporators failed to abide by the required filing
of by-laws embodied in Section 46 of the Corporation Code. There is no outright “demise” of corporate existence.
Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In
other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same.
CASE LAW/ DOCTRINE:
It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect
corporate personality. Organization and commencement of transaction of corporate business are but conditions
subsequent and not prerequisites for acquisition of corporate personality. The adoption and filing of by-laws is also a
condition subsequent.

Under Section 19 of the Corporation Code, a corporation commences its corporate existence and juridical personality
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and is deemed incorporated from the date the Securities and ExchangeCommission issues certificate of incorporation
under its official seal. This may be done even before the filing of the by-laws, which under Section 46 of the
Corporation Code, must be adopted ‘within one month after receipt of official notice of the issuance of its certificate of
incorporation.
DISSENTING/CONCURRING OPINION(S):

# 7 Gallegher V Germania Brewing Co. AUTHOR: REYES

[G.R. No. DATE] NOTES: Can’t use set-off with regards to the personal
TOPIC: obligations and liabilities of stockholders and the assets of
PONENTE: J Mitchell the Corporation.
FACTS:
 Plaintiff, as assignee of Westphal, brought this action to recover goods sold and delivered by his assignor (Westphal),
to the defendant corporation.
 However, Barge and Vander Horck intervened, and stated that they could intervene because they owned all the capital
stock of the defendant, and that no other person but themselves had an interest in the stock and property of Germania
Brewing co.
 They also contended that they had a cause of action against Westphal which accrued before the assignment to the
plaintiff, and that Westphal was utterly insolvent.
 The relief they were seeking was that to equitably set-off their claims against Westphal from those that Gallegher (as
Westphal’s assignee) has against the defendant corp.
 Gallegher states that Barge and Vander had no such interest in the litigation as to entitle them to intervene and that
their claims cannot be set-off against a claim against the corporation, since a corporation is a legal entity, entirely
distinct from its stockholders.
ISSUE(S): WON the claims of Barge and Vander Horck can be equitably set-off against the claims of Gallagher as
against Germania Brewin Corp.

HELD: No. Their claims against Westphal are not subjects of equitable set-off to a claim against the defendant
corporation.

RATIO:
To allow a set-off in the case at bar, would be tantamount to totally ignoring the legal doctrine, or fiction, that a
corporation is an entity separate and distinct from the body of its stockholders. It has been absolutely essential for the
administration of justice to treat the corporation as a collective entity, without regard to its individual shareholders. If the
rights or acts of the stockholders, except when acting in the corporate name, it can easily be seen into what confusion and
chaos corporate affairs would inevitably fall. The separation of identity protects the integrity of the corporation.

In as much as the two intervenors own all the stock of this corporation (Germania), the facts of this case seem
comparatively free from embarrassments, and the contention of the respondent quite plausible, but if the facts were
changed so that a larger body of stockholders existed, to still entertain the theory that set-off is possible would create
numerous complications.
CASE LAW/ DOCTRINE:
DISSENTING/CONCURRING OPINION(S):

#8 SAN JUAN STRUCTURAL AND STEEL AUTHOR: S A Y O

FABRICATORS, INC. vs. COURT OF APPEALS,
MOTORICH SALES CORPORATION, NENITA LEE
GRUENBERG, ACL DEVELOPMENT CORP. and
JNM REALTY ANDDEVELOPMENT CORP.
[G.R. No. 129459. September 29, 1998]
NOTES: May a corporate treasurer, by herself and without
any authorization from the board of directors, validly sell a
parcel of land owned by the corporation? May the veil of
corporate fiction be pierced on the mere ground that almost
all of the shares of stock of the corporation are owned by
said treasurer and her husband?

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These questions are answered in the negative by this Court

PANGANIBAN, J. in resolving the Petition for Review on Certiorari.

FACTS:
 Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc. 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 located at Acropolis Greens Subdivision, District of Murphy, Quezon City, Metro Manila.

 That as stipulated in the Agreement of 14 February 1989, plaintiff-appellant 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

 On March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance, covered by Metrobank
Cashiers Check, payable to defendant-appellee Motorich Sales Corporation;

 That plaintiff-appellant and defendant-appellee Motorich Sales Corporation were supposed to meet in the office of
plaintiff-appellant but defendant-appellees 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;

 That defendant ACL Development Corp. is impleaded as a necessary party since Transfer Certificate of Title 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; that by reason of said transfer, the
Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales Corporation, represented by
defendant-appellee Nenita Lee Gruenberg and Reynaldo L. Gruenberg

 That as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporations bad faith in refusing
to execute a formal Transfer of Rights/Deed of Assignment, plaintiff-appellant suffered moral and nominal damages

 In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg interposed as affirmative
defense that the President and Chairman of Motorich did not sign the agreement; that Mrs. Gruenbergs signature on
the agreement is inadequate to bind Motorich.

 That the other signature, that of Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required; that
plaintiff knew this from the very beginning as it was presented a copy of the Transfer of Rights at the time the
Agreement was signed;

 San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that Nenita and her husband
owns 98% of the corporation’s capital stocks; that as such, it is a close corporation and that makes Nenita and the
President as principal stockholders who do not need any authorization from the corporate board; that in this case, the
corporate veil may be properly pierced.

RTC: Against pet.; no evidence to show that defendant Nenita Lee Gruenberg was indeed authorized by defendant
corporation

CA: Affirmed. Sale did not conform with Sec. 40 of the Corporation Code

ISSUE(S):

WON The contract entered by Nenita Gruenberg (Treasurer) is binding with respect to Motorich

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HELD: No

Motorich is right in invoking that it is not bound by the acts of Nenita because her act in entering into a contract with San
Juan was not authorized by the board of directors of Motorich. Nenita is however ordered to return the P100k.

RATIO:
The contract entered into between Nenita and San Juan cannot bind Motorich, because the latter never authorized nor
ratified such sale. A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly,
the property of the corporation is not the property of its stockholders and may not be sold by them without express
authorization from the corporation’s BoD. This is in accordance with Sec. 23 of the Corporation Code.

Indubitably, a corporation can only act through its BoD or, when authorized either by its by laws or by its board resolution,
through its officers or agents in the normal course of business. The general principles of agency govern the relation
between the corporation and its officers or agents, subject to the AoI, by laws, or relevant provisions of law. A corporate
officer or agent may represent and bind the corporation in transactions with 3rd 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. Furthermore, persons dealing with an assumed agent, whether the assumed agency be a general or special one,
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 authority, and in case either is controverted, the burden of proof is upon them to establish it. Unless duly
authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets.

In the case at bar, San Juan had the responsibility of ascertaining the extent of Nenita’s authority to represent the
corporation. Selling is obviously foreign to a corporate treasurer’s function. Neither was real estate sale shown to be a
normal business activity of Motorich. The primary purpose of said corporation is marketing, distribution, import and
export relating 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.
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.

CASE LAW/ DOCTRINE:

SEC. 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 and until their successors are
elected and qualified.

DISSENTING/CONCURRING OPINION(S):

#9 AUTHOR: Solis
STOCKHOLDERS OF F. GUANZON AND SONS, INC. NOTES: 3-pg case lang ito
vs. REGISTER OF DEEDS OF MANILA
[G.R. No. L-18216, October 30, 1962]
TOPIC: Theory of Corporate Entity
PONENTE: Bautista Angelo, J.
FACTS:
 5 stockholders of the F. GUANZON and SONS, INC. executed a certificate of liquidation of the assets of the
corporation, stating that they are dissolving the corporation, that they have distributed among themselves in
proportion to their shareholding, as liquidating dividends the assets of said corporation, including real properties
located in Manila

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 The certificate of liquidation, when presented to the Register of Deeds of Manila, was denied for seven grounds, of
the following were disputed by the stockholders:
(1) The number of parcels not certified to in the acknowledgement
(2) P430.50 Registration fees need be paid
(3) P940.45 documentary stamps need be attached to the document
(4) The judgment of the Court approving the dissolution and directing the disposition of the assets of the corporation
need be presented
 Company’s contention: the certificate of liquidation is not a conveyance or transfer but merely a distribution of the
assets of the corporation which has ceased to exist for having been dissolved. Not being a conveyance the certificate
need not contain a statement of the number of parcel of land involved in the distribution in the acknowledgement
appearing therein. Hence the amount of documentary stamps to be affixed thereon should only be P0.30 and not
P940.45, as required by the register of deeds. Neither is it correct to require them to pay the amount of P430.50 as
registration fee.

ISSUE(S): Whether or not that certificate merely involves a distribution of the corporation’s assets or should be
considered a transfer or conveyance.

HELD: The certificate of liquidation is considered as a transfer or conveyance, though it involves a distribution of the
corporation’s assets, in the last analysis represents a transfer of said assets from the corporation to the stockholders. Hence,
in substance it is a transfer or conveyance.

RATIO:
 A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute
personal property, they do not represent property of the corporation.
 A share of stock only typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to
that extent when distributed according to law and equity, but its holder is not the owner of any part of the capital of
the corporation. Nor is he entitled to the possession of any definite portion of its property or assets.
 It is clear that the act of liquidation made by the stockholders of the F. GUANZON and SONS, INC. of the latter’s
assets is not and cannot be considered a partition of community property, but rather a transfer or conveyance of the
title of its assets to the individual stockholders. Indeed, since the purpose of the liquidation, as well as the
distribution of the assets of the corporation, is to transfer their title from the corporation to the stockholders in
proportion to their shareholdings,--that transfer cannot be effected without the corresponding deed of conveyance
from the corporation to the stockholders. It is, therefore, fair and logical to consider the certificate of liquidation
as one in the nature of a transfer or conveyance.
CASE LAW/ DOCTRINE:
DISSENTING/CONCURRING OPINION(S):

10 Caram vs Court of Appeals AUTHOR: The Taliño

[G.R. No. L-48627; 6/30/1987]
NOTES: This case was poorly written though it’s very short
TOPIC: Theory of Corporate Entity – Its Effects (-_-) The facts were scattered lol.

PONENTE: Cruz, J. Just remember:

Petitioners – Major Stockholders
Barreto and Garcia – Board Members
FACTS:
 Private Respondent (Alberto Arellano) filed a case against the petitioners (Fermin Caram, Jr. and Rosa de Caram)
to collect the sum of Php 50,000 for the preparation of the project study and his technical services, which led to
the organization of the corporation of the petitioners (Filipinas Orient Airways). The preparation of the project
study was made upon the request of Barretto.

 The trial court ruled in favour of the private respondent and ordered the petitioners, including Garcia and Barretto

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(the ones who requested for the services of the private respondent), to pay the former.

 The Court of Appeals affirmed the decision of the trial court and ruled that the defendants (petitioners, Garcia, and
Barretto) are jointly and severally liable because

“it was upon the request of Barretto and Garcia that the private respondent handled the preparation of the
project study, which was presented to Fermin Caram so the latter was convinced to invest in the proposed
airlines. The project study was revised for purposes of presentation to financiers and the banks. It was on
the basis of this study that the corporation was actually organized and rendered operational. Defendants
Garcia and Caram, and Barretto became members of the Board and/or officers of the corporation. Thus,
not only the defendant corporation but all the other defendants who were involved in the preparatory
stages of the incorporation, who caused the preparation and/or benefited from the project study and the
technical services of plaintiff must be liable.”

ISSUE(S): WON the petitioners are personally liable for the expenses incurred in connection with the corporation

HELD: No, they are not.

RATIO:
 The petitioners were not involved in the initial stages of the organization of the airline, which were being directed
by Barretto as the main promoter. It was he who was putting all the pieces together, so to speak. 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.

 Significantly, 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.

 In the light of these circumstances, we hold that 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. To repeat, the petitioners did not contract such services. It was only the result of such services that
Barretto and Garcia presented to them and which persuaded them to invest in the proposed airline. The most that
can be said is that they benefited from such services, but that surely is no justification to hold them personally
liable therefor. 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
CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):

#11 PALAY v. CLAVE AUTHOR: TAN

[G.R. No. DATE] 124 SCRA 640 (1983) NOTES:
TOPIC: Theory of Corporate Entity; Its Effects
PONENTE: Melencio-Herrera, J.
FACTS:
 On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott, executed in favor of private
respondent, Nazario Dumpit, a Contract to Sell a parcel of land owned by the corporation.
 The sale price was P23,300.00 with 9% interest per annum, payable with a downpayment and the balance in
monthly installments until fully paid.
 Paragraph 6 of the contact provided for automatic extrajudicial rescission upon default in payment of any monthly
installment after the lapse of 90 days form the expiration of the grace period of one month, without need of notice
and with forfeiture of all installments paid.
 Respondent Dumpit paid the downpayment and several monthly installments amounting to P13,722.50.

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 The last payment was made on December 5, 1967 for installments up to September 1967.
 Almost 6 years later (1973), respondent wrote petitioner a letter offering to update all his overdue accounts with
interest and seeking consent to the assignment of his rights to a certain Lourdes Dizon.
 Petitioners replied, informing respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6
of the contract, and that the lot had already been resold.
 Respondent filed a letter complaint with the National Housing Authority (NHA) which found that the rescission
was void in the absence of judicial or notarial demand. It also ordered Palay, Inc. and Alberto Onstott, in his
capacity as President of the corporation, jointly and severally, to refund immediately to Nazario Dumpit the
amount of paid with 12% interest form the filing of the complaint. MR denied by NHA. Respondent Presidential
Executive Assistant Clave affirmed the Resolution of the NHA. Reconsideration sought by petitioner was denied
for lack of merit. Hence, the present petition.
ISSUE(S):
1. Whether the doctrine of piercing the veil of corporate fiction has application to the case.
2. Whether petitioner Onstott can be held solidarily liable with petitioner Corporation for the refund of the installment
payments made by respondent Dumpit.
HELD:
1. No.
2. No. Only petitioner Palay, Inc. is directed to refund to respondent Dumpit.
RATIO
1. The doctrine of piercing the veil of corporate fiction has no application to the case. A corporation is invested by
law with a personality separate and distinct from those of the persons composing it. 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 pierces when it is used:
a) as a shield to further an end subversive of justice;
b) for purposes that could not have been intended by law;
c) to defeat public convenience, justify wrong, protect fraud, or defend crime;
d) to perpetuate fraud or confuse legitimate issues;
e) to circumvent the law or perpetuate deception; or
f) as an alter-ego, adjunct or business conduit for the sole benefit of the stockholders.

In the case, however, there are no badges of fraud on the part of the petitioners. They had literally relied, although
mistakenly, on paragraph 6 of the contract with respondent when they rescinded the contract to sell extrajudicially
and had sold it to a third person.

2. Petitioner Onstott cannot be held solidarily liable with petitioner Corporation. He was initially made liable because
he was the President of the corporation and he appeared to be the controlling stockholder. However, no sufficient
proof exists on record that said petitioner used the corporation to defraud private respondent. 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 corporate personality.

CASE LAW/ DOCTRINE:

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 pierces when it is used:
a) as a shield to further an end subversive of justice;
b) for purposes that could not have been intended by law;
c) to defeat public convenience, justify wrong, protect fraud, or defend crime;
d) to perpetuate fraud or confuse legitimate issues;
e) to circumvent the law or perpetuate deception; or
f) as an alter-ego, adjunct or business conduit for the sole benefit of the stockholders.

DISSENTING/CONCURRING OPINION(S):

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# 12 Magsaysay-Labrador vs. CA & Rodriguez-
Magsaysay
[G.R. No. 58168 // December 19, 1989]
TOPIC: Theory of Corporate Entity; Its Effects
PONENTE: Chief Justice Fernan
AUTHOR: TIGLAO
NOTES: Petition for Review on Certiorari. Here, petitioners
seek to reverse and set aside the CA decision affirming the
CFI decision which denied petitioners’ motion to intervene
in an annulment suit filed by respondent.
This case is basically a case involving a motion for
intervention. Find the bold part for the relevant doctrine in
Corporation Law.

FACTS:
 On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late
Senator Genaro Magsaysay, brought to the CFI-Olangapo an action against Artemio Panganiban, Subic Land
Corporation, Filipinas Manufacturer’s Bank, and the Register of Deeds of Zambales.
 She alleged that she and her husband acquired, thru conjugal funds, a parcel of land with improvements, known as
“Pequena Island”.
 After the death of her husband, she discovered an annotation at the back of the TCT that the land was acquired by her
husband from his separate capital, not the conjugal funds. It also showed that the registration of a Deed of Assignment
executed by the husband was in favor of SUBIC and the registration of Deed of Mortgage in the amount of 2.7 M
executed by SUBIC in favor of FILMANBANK.
 She alleges that these acts of her late husband were void and done in attempt to defraud the conjugal partnership.
Considering that the land is conjugal, her marital consent was not obtained; the change made by the Register of Deeds
of the titleholders was effected without the approval of the Commission on Land Registration and that the late Senator
did not execute the Deed of Assignment or his consent thereto, if obtained, was secured by mistake, violence and
intimidation.
 She also alleged that the assignment in favor of SUBIC was without consideration; thus, null and void. She prays that
the Deed of Assignment and the Deed of Mortgage be annulled.
 Petitioners of this case, who are the sisters of the late senator, filed a motion for intervention on the ground that their
brother conveyed to them one-half of his shareholdings in SUBIC (416,566.6 shares) and as assignees of around 41%
of the total outstanding shares of such stocks in SUBIC, they have a substantial and legal interest in the subject matter
of litigation and that they have legal interest in the success of the suit with respect to SUBIC.
 CFI Ruling: Motion for Intervention is DENIED. Petitioners have no legal interest in the matter of litigation and their
being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because
SUBIC has a personality separate and distinct from its stockholders.
 CA Ruling: CFI Decision is affirmed. No legal justification to disturb the findings of the CFI. The CA further stated
that whatever claims the petitioners have against the late Senator or against SUBIC for that matter can be ventilated in
a separate proceeding, such that with the denial of the motion for intervention, they are not left without any remedy
under the law. Motion for reconsideration was also denied.
 Petitioners’ Arguments
o They argue that their right to intervene is based on the assignment made by the late Senator of a
certain portion of his shareholdings to them. Such transfer, as petitioners would posit, clothes them
with an interest, protected by law, in the matter of litigation.
o Petitioners argue that their ownership of 41.66% of the outstanding capital stock of SUBIC entitles
them to a significant vote in the corporate affairs; that they are affected by the action of the widow of
their late brother for it concerns the only tangible asset of the corporation and that it appears that they
are mot vitally interested in the outcome of the case than SUBIC.

ISSUE: W/N petitioners’ motion to intervene should be granted.

HELD: Petition denied.

RATIO:
 In the case of Batama Farmers’ Cooperative Marketing Association v. Rosal, “As clearly stated in Section 2, Rule 12,
to be permitted to intervene in a pending action, the party must have a legal interest in the matter of litigation, or in the
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success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a
distribution or other disposition of the property in the custody of the court or an officer thereof.”
 To allow intervention, [a] it must be shown that the movant has legal interest in the matter in litigation, or otherwise
qualified; and [b] consideration must be given as to whether the adjudication of the rights of the original parties may be
delayed or prejudiced, or whether the intervenor's rights may be protected in a separate proceeding or not. Both
requirements must concur as the first is not more important than the second.
 The interest which entitles a person to intervene in a suit between other parties must be in the matter in litigation and of
such direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect
of the judgment. Otherwise, if persons not parties of the action could be allowed to intervene, proceedings will become
unnecessarily complicated, expensive and interminable. And this is not the policy of the law.
 The words "an interest in the subject" mean a direct interest in the cause of action as pleaded, and which would put the
intervenor in a legal position to litigate a fact alleged in the complaint, without the establishment of which plaintiff
could not recover.
 Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and
collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of
the corporate debts and obligations.
 IMPORTANT: While a share of stock represents a proportionate or aliquot (a portion of a larger whole) interest in the
property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his
interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the
owners of corporate property, which is owned by the corporation as a distinct legal person.
 The petitioners’ interest may be protected in a separate proceeding which is why this Court will not allow the motion
for intervention. There are four pending cases which have been filed in Court which amply protect their interests.
 Lastly the corporation did not keep books and records. No transfer was ever recorded, with regard the transfer of
shares. The transfer must be registered in the books of the corporation to affect third persons. Section 63 of the
Corporation Code provides: “No transfer, however, 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 transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares transferred.”

CASE LAW/ DOCTRINE:

 IMPORTANT FOR CORPORATION LAW:
o While a share of stock represents a proportionate or aliquot (a portion of a larger whole) interest in the property of
the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in
the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of
corporate property, which is owned by the corporation as a distinct legal person.

DISSENTING/CONCURRING OPINION(S): N/A

#13 State v. Standard Oil AUTHOR: Valera

49 Ohio, St., 137, N.E. 279, 15(1892)
The Corporate entity
MINSHALL
FACTS:
1. Standard Oil desired to enter into an elaborate agreement that would have consolidated several corporations and
partnerships into one corporation operated as a trust.

2. All of the owners and holders of its capital stock, including all the officers and directors of said defendant
company, signed said agreements, without attaching the corporate name and seal of said defendant company
thereto, and the official designations of its officers.

3. Since the signing of the agreement, the nine trustees have been and still are able to choose and have chosen
annually such boards of directors of defendant company as they (nine trustees) have seen fit and control the action
of Standard Oil in the conduct and management of its business.

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4. Plaintiff attorney general brought an action in quo warranto to preclude the furtherance of the transaction.

5. Standard Oil contends that all of the shares of stock of defendant except seven were transferred to the nine trustees,
and these seven were retained only for the qualification of the directory, which the trustees might from time to
time select, either from their own numbers or from others of their choice and the transfers were made by
defendant's transferring officers upon its stock books. And dividends of the company are paid to the holders of its
stock as also appearing in its books.

6. Also, Standard Oil further contends that the nine trustees individually owned majority interests in the stocks of the
various corporations, and that they could exercise the same voting power by virtue of their own stocks.

ISSUE(S):
1.Major: IS the agreement against public policy/ contrary to law?
Sub issues:
2. WON The Standard Oil Company of Ohio acted in their corporate capacity.
3. WON section 6789, Revised Statues which provides: "Nothing in this chapter contained shall authorize an action against
a corporation for forfeiture of charter, unless the same be commenced within five years after the act complained of was
done or committed." Bars this action?

HELD:
1. YES. The agreement creates monopoly which would have been against the public policy of the state. The court
ousted the oil company from the right to make the agreement and of the power to perform it.
2. YES. The property and assets of the corporation could only be transferred by a corporate act, and the agreement could
not in this respect, be carried into effect, other than by such corporate act.
3. NO. The whole of Sec 6789, Revised Statutes, is not quoted by the defendant; it further proceeds: "Nor shall an action
be brought against a corporation for the exercise of a power or franchise under its charter which it has used and exercised
for a term of twenty years."

RATIO:
1.) The law requires that a corporation should be controlled and managed by its directors in the interest of its own
stockholders,and conformable to the purpose for which it was created by the laws of its state. By this agreement,
indirectly it Is true, but none the less effectually, the defendant is controlled and managed by the Standard Oil
Trust, an association with its principal place of business in New York City, and organized for a purpose contrary to
the policy of our laws. Its object was to establish a virtual monopoly of the business of producing petroleum, and
of manufacturing, refining and dealing in it and all its products, throughout the entire country, and by which it
might not merely control the production, but the price at its pleasure. All such associations are contrary to the
policy of our state and void.

2.) general proposition that a corporation is to be regarded as a legal entity, existing separate and apart from the nat-
ural persons composing it, is not disputed; but that the statement is a mere fiction, existing only in idea, is well
under-stood, and not controverted by anyone who pretends to accurate knowledge on the subject. So long as a
proper use is made of the fiction, that a corporation is an entity apart from its shareholders, it is harmless, and,
because convenient, should not be called in question; but where it is urged to an end subversive of its policy, or
such is the issue, the fiction must be ignored, and the question determined, whether the act in question, though
done by shareholders, that is to say, by the persons united in one body, was done simply as individuals and with
respect to their individual interests as shareholders, or was done ostensibly as such, but, as a matter of fact, to
control the corporation and affect the transaction of its business, in the same manner as if the act had been clothed
with all the formalities of a corporate act. The property and assets of the corporation could only be transferred by a
corporate act, and the agreement could not in this respect, be carried into effect, other than by such corporate act;
and clearly indicates that the purpose of the stockholders of the defendant, in becoming a party to it, was to affect
their property and business as a corporation; in other words, was to act in their corporate, and not in their
individual, capacity. The agreement, as performed by the members of the defendant, as effectually places the
property and business of the defendant under the control and management of the Standard Oil Trust, as if the same
had been transferred as provided in the original agreement.

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3.) Plaintiff avers that the first part does not apply to proceedings instituted on behalf of the state to forfeit charter of a
corporation. Court says the statute gives no exemption and it still applies. However, the next part which provides
“Nor shall an action be brought against a corporation for the exercise of a power or franchise under its charter
which it has used and exercised for a term of twenty years" applies. Therefore within that time such a proceeding
may be brought.”
CASE LAW/ DOCTRINE:
a corporation is an artificial person, or entity, apart from its members, is merely a description,
in figurative language, of a corporation viewed as a collective body; a corporation is really an association of persons, and
no judicial dictum or legislative enactment can alter this fact EXCEPT when there is an urge to an end subversive of its
policy, or such is the issue, then the fiction must be ignored.
DISSENTING/CONCURRING OPINION(S):

#14 AUTHOR: Acido

Laguna Transportation Co., Inc. v. SSS, G.R. No. L-14606, NOTES: Direct appeal to SC (pure questions of law)
April 28, 1960
TOPIC: Theory of Corporate Entity – Contrary to law…
PONENTE: Barrera, J.
FACTS:
 January 24, 1958: petitioner Laguna Transportation Co., Inc. filed with the Court of First Instance of Laguna a
petition praying that an order be issued by the court declaring that it is not bound to register as a member of
respondent Social Security System and, therefore, not obliged to pay to the latter the contributions required under
the Social Security Act.
 February 11, 1958: respondent filed its answer, praying for dismissal due to petitioner's failure to exhaust
administrative remedies, and for a declaration that petitioner is covered by said Act, since the latter's business has
been in operation for at least 2 years prior to September 1, 1957.
 Stipulation of facts during eventual trial on May 27, 1958 - check full case, but the relevant points are:
 That petitioner is a domestic corporation duly organized and existing under the laws of the
Philippines, with principal place of business at Biñan, Laguna…
 That respondent has served notice upon the petitioner requiring it to register as member of the
System and to remit the premiums due from all the employees of the petitioner and the
contribution of the latter to the System beginning the month of September, 1957…
 That sometime in 1949, the Biñan Transportation Co., a corporation duly registered with the
Securities and Exchange Commission, sold part of the lines and equipment it operates to Gonzalo
Mercado, Artemio Mercado, Florentino Mata and Dominador Vera Cruz…
 That after the sale, the said vendees formed an unregistered partnership under the name of Laguna
Transportation Company which continued to operate the lines and equipment bought from the
Biñan Transportation Company, in addition to new lines which it was able to secure from the
Public Service Commission…
 That the original partners forming the Laguna Transportation Company, with the addition of two
new members, organized a corporation known as the Laguna Transportation Company, Inc.,
which was registered with the Securities and Exchange Commission on June 20, 1956, and which
corporation is the plaintiff now in this case…
 That the corporation continued the same transportation business of the unregistered partnership…
 CFI: LTC is subject to compulsory coverage.
ISSUE:

Whether or not LTC is an employer engaged in business as a common carrier which had been in operation for at least 2
years prior to the enactment of the Social Security Act and, therefore, subject to compulsory coverage thereunder.

HELD:

Yes. CFI decision affirmed.

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The 4 original partners, with 2 others (Maura Mendoza and Sabina Borja) later converted the partnership into a corporate
entity, by registering its articles of incorporation with the Securities and Exchange Commission on June 20, 1956. The firm
name "Laguna Transportation Company" was not altered, except with the addition of the word "Inc." to indicate that
petitioner was duly incorporated under existing laws. The corporation continued the same transportation business of the
unregistered partnership, using the same lines and equipment. There was, in effect, only a change in the form of the
organization of the entity engaged in the business of transportation of passengers. There was no transfer of interest, but a
mere change in the form of the organization from an unregistered partnership to that of a corporation. As a rule, courts will
look to the substance and not to the form.

Hence, said entity as an employer engaged in business, was already in operation for at least 3 years prior to the enactment
of the Social Security Act on June 18, 1954 and for at least two years prior to the passage of the amendatory act on June
21, 1957.

To adopt petitioner's argument would defeat, rather than promote, the ends for which the Social Security Act was enacted.
An employer could easily circumvent the statute by simply changing his form of organization every other year, and then
claim exemption from contribution to the System as required…

Where a corporation was formed by, and consisted of members of a partnership whose business and property was
conveyed and transferred to the corporation for the purpose of continuing its business, in payment for which corporate
capital stock was issued, such corporation is presumed to have assumed partnership debts, and is prima facie liable
therefor. The reason for the rule is that the members of the partnership may be said to have simply put on a new coat, or
taken on a corporate cloak, and the corporation is a mere continuation of the partnership.

CASE LAW/ DOCTRINE:

While it is true that a corporation once formed is conferred a juridical personality separate and district from the persons
composing it, it is but a legal fiction introduced for purposes of convenience and to subserve the ends of justice.

#15 MARVEL BLDG. CORP. v. DAVID AUTHOR: ADRE

94 Phil. 376(1954) NOTES: CIRCUMSTANTIAL EVIDENCE SHOWING
TOPIC: Evasion of liability to government ONE-MAN CORPORATION. Section 89, Rule 123 of the
PONENTE: LABRADOR, J. Rules of Court and section 42 of the Provisional law for the
application of the Penal Code, applies in this case pursuant
to circumstantial evidence as the basis of judgment.
FACTS:
 Marvel Building Corporation was incorporated in February 12, 1947
 AOI indicated capital stock of P 2,000,000.00 of which P1,025,000 was (at the time of incorporation) subscribed and
paid by the following incorporators:
Maria B. Castro -------- 250 shares ------P250,000.00
Amado A. Yatco ------- 100" ------ 100,000.00
Santiago Tan ----------- 100" ------ 100,000.00
Jose T. Lopez ---------- 90" ------ 90,000.00
Benita Lamagna --------- 90" ------ 90,000.00
C.S. Gonzales ----------- 80" ------ 80,000.00
Maria Cristobal --------- 70" ------ 70,000.00
Segundo Esguerra, Sr. -- 75" ------ 75,000.00
Ramon Sangalang -------- 70" ------ 70,000.00
Maximo Cristobal ------- 55" ------ 55,000.00
Antonio Cristobal ------ 45" ------ 45,000.00
Total of: P1,025,000.00.
 Majority of its stockholders are Maria B. Castro (President), Amado A. Yatco, Segundo Esguerra and Maximo
Cristobal(Secretary-Treasurer) from the total of eleven(11) stockholders.
 During the existence of the corporation, it acquired assets including buildings, namely, Aguinaldo Building (in the

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name of Segundo Esguerra, Sr.), Wise Building (the purchase being made in the name of Dolores Trinidad, wife of
Amado A. Yatco) and Dewey Boulevard-Padre Faura Mansion.
 Both building were purchased for P1,800,00, but as the corporation had only P1,025,000, the balance of the purchase
price was obtained as loans from the Insular Life Assurance Co., Ltd. and the Philippine Guaranty Co., Inc.
 Of the incorporators of the Marvel Building Corporation, Maximo Cristobal and Antonio Cristobal are half-brothers of
Maria B. Castro, Manila Cristobal is a half-sister, and Segundo Esguerra, Sr. a brother-in-law, husband of Maria
Cristobal, Maria B. Castro’s half-sister.
 Towards the end of year 1948, internal revenue examiners discovered that from the 11 stock certificates, all of it were
endorsed in the bank by the subscribers, except the one subscribed by Maria B. Castro.
 They also discovered that there were no business meeting held by the board of directors, no by-laws and that the
corporation never had any reports of their transactions or affairs.
 As a result, Secretary of Finance recommended the collection of war profit taxes assessed against Maria B. Castro in
the amount of P3, 593,950.78 and to seize the three (3) buildings named above.
 Plaintiff (Marvel Building Corporation) filed a complaint for the release of the seized property contending that said
properties are owned by the corporation and not solely by Maria Castro.
 The trial court ruled in favor of plaintiff and enjoined Collector of Internal Revenue from selling the same.
 Collector of Internal Revenue appealed, and CA ruled that trial court failed to show that Maria B. Castro is not the true
owner of all the stock certificates of the corporation, therefore confiscation of the property against the corporation is
justified.
 Hence this petition.
ISSUE(S): Whether or not Maria B. Castro is the sole owner of all the stocks of Marvel Corporation and the other
stockholders are mere dummies?

HELD: Yes. The CIR presented evidence to prove his claim that Maria B. Castro the sole and true owner of the share of
stock Marvel Building Corp., this was the supposed endorsement in blank of the shares of stock in the name of other
incorporators.
RATIO:
 The evidence was testified by Aquino, Internal Revenue examiner, Mariano, examiner and Crispin Llamado,
undersecretary of Finance.

 Julio Llamado who was at that time the bookkeeper of Marvel Building Corp also testified that he was the one who
had prepared the original certificates which was given by Maria for comparison with the Articles of Incorporation and
that he also prepared stock certificates which was copied in the Photostat presented in evidence.

 CIR was also able to submit an evidence that the fact that the other stockholder did not have incomes in such amounts
during the time of the organization of the corporation in 1947 or immediately thereto, as to enable them to pay full for
their supposed subscription and that this supposed subscribers fail to come to court to assert that they actually paid for
their subscription and are not mere dummies.

Evidences in detail (just in case he asks):

 The existence of endorsed certificates, discovered by the internal revenue agents between 1948 and 1949 in the
possession of the Secretary-Treasurer;
 The fact that twenty-five certificates were signed by the president of the corporation, for no justifiable reason;
 The fact that two sets of certificates were issued, the undisputed fact that Maria B. Castro had made enormous profits
and, therefore, had a motive to hide them to evade the payment of taxes,
 The other subscribers had no incomes of sufficient magnitude to justify their big subscriptions, the fact that the
subscriptions were not receipted for and deposited by the treasurer in the name of the corporation but were kept by
Maria B. Castro herself;
 The stockholders or the directors never appeared to have never met to discuss the business of the corporation.
 Maria B. Castro advanced big sums of money to the corporation without any previous arrangement or accounting, and
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the fact that the books of accounts were kept as if they belonged to Maria B. Castro alone — these facts are of patent
and potent significance.
 This implied that Maria B. Castro would not have asked them to endorse their stock certificates, or be keeping these in
her possession, if they were really the owners.
 They never would have consented that Maria B. Castro keep the funds without receipts or accounting, nor that she
manages the business without their knowledge or concurrence, were they owners of the stocks in their own rights.
 Each and every one of the facts all set forth above, in the same manner, is inconsistent with the claim that the
stockholders, other than Maria B. Castro, own their shares in their own right.

#16 AUTHOR: BONDOC

NOTES:
TAN BOON BEE & CO., INC., petitioner,
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, respondents.
G.R. No. L-41337 June 30, 1988

TOPIC: THEORY OF CORPORATE ENTITY: ITS

EFFECTS
PONENTE: PARAS J.
FACTS:

Petitioner, doing business under the name and style of Anchor Supply Co., sold on credit to private respondent Graphic
Publishing, Inc. (GRAPHIC) paper products amounting to P55,214.73. GRAPHIC made partial payment of P24,848.74
and a promissory note was executed to cover the balance of P30,365.99. In the promissory note, it was stipulated that the
amount will be paid on monthly installments and failure to pay any installment would make the amount immediately
demandable. For failure of GRAPHIC to pay any installment, petitioner filed a civil case for sum of money. In a Decision
the trial court ordered GRAPHIC to pay the petitioner the sum of P30,365.99 with 12% interest. On the motion of
petitioner, a writ of execution was issued by respondent judge; but the writ expired without the sheriff finding any property
of GRAPHIC, an alias writ of execution was subsequently issued.

Pursuant to the alias writ of execution, the sheriff levied 1 unit printing machine Identified as "Original Heidelberg
Cylinder Press" found in the premises of GRAPHIC. The printing machine was then scheduled for auction sale but in a
letter, private respondent, Philippine American Drug Company (PADCO) informed the sheriff that the printing machine is
its property and not of GRAPHIC, and advised the sheriff to stop the scheduled auction sale on July 26, 1974.
Notwithstanding the said letter, the sheriff proceeded with the auction sale, and sold the property to the petitioner.
Thereafter respondent PADCO filed a Motion to Nullify Sale on Execution (With Injunction). Respondent judge, ruled in
favor of PADCO, setting aside the sale of the 'Heidelberg cylinder press in favor of the plaintiff as well as the levy on the
said property. On the ground that the each of the two corporations has a juridical personality distinct and separate from the
other and the properties of one cannot be levied upon to satisfy the obligation of the other.

ISSUE(S):

WON the respondent judge erred in not piercing PADCO’s veil of corporate entity despite sufficient evidence showing
that PADCO was shielding under the theory of corporate petition

HELD: Yes.

RATIO:

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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 PADCO's own evidence shows that the printing machine had been in the premises
of GRAPHIC long before PADCO acquired its alleged title on the printing machine from Capitol Publishing. That the said
machine was allegedly leased by PADCO to GRAPHIC, even before PADCO purchased it from Capital Publishing, this
only show that PADCO's claim of ownership over the printing machine is a sham and unbelievable.

Considering the circumstances established in this case, respondent judge should have pierced PADCO's veil of corporate
Identity.

PREMISES CONSIDERED, the Order of the then Court of First Instance of Manila, is ANNULLED and SET ASIDE, and
the Temporary Restraining Order issued is hereby made permanent.

SO ORDERED.
CASE LAW/ DOCTRINE:

A corporation, is provided 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, this separate personality of the corporation may be
disregarded, or the veil of corporate fiction be pierced, in cases where it is used as a cover for fraud or illegality, or to work
an injustice or when it is necessary for the protection of creditors.
DISSENTING/CONCURRING OPINION(S):

#17 NAMARCO v ASSOCIATED FINANCE CO., AUTHOR: Castro

INC. NOTES:
[No. L-20886. April 27, 1967] This involves an appeal taken by NAMARCO from a
TOPIC: Disregarding Corporate Entity portion of the decision of CFI Manila dismissing the
PONENTE: Dizon, J. complaint insofar as Francisco Sycip (President of
Associated Finance, Inc.) was concerned.

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FACTS:
 On March 25, 1958, ASSOCIATED, a domestic corporation, through its President, Francisco Sycip, entered into an
agreement to exchange sugar with NAMARCO, through its General Manager, Benjamin Estrella.

STIPULATION: ASSOCIATED would deliver to NAMARCO 22,516 bags (each weighing 100 pounds) of
“Victorias” and/or “National” refined sugar in exchange for 7,722.71 bags of “Busilak” and 17,285.08 piculs of
“Pasumil” raw sugar belonging to the latter. Both agreed to pay liquidated damages equivalent to 20% of the
contractual value of the sugar should either party fail to comply with the terms and conditions.

 To comply with its obligation, NAMARCO delivered to ASSOCIATED 7,732.71 bags of “Busilak” and 17,285.08
piculs of “Pasumil” domestic raw sugar.

 ASSOCIATED failed to deliver to NAMARCO the 22,516 bags of “Victoria” and/or “National” refined sugar agreed
upon. So, NAMARCO demanded in writing that ASSOCIATED either a) deliver the sugar immediately, or b) pay the
equivalent cash value in the amount of P372,639.80.

 ASSOCIATED, through Sycip, offered to pay NAMARCO the value of 22,516 bags of refined sugar at the rate of
P15.30 per bag, but the latter rejected the offer. Instead, NAMARCO demanded the payment of P403,514.28, which is
the total price for both kinds of sugar based on the quotation.

 Despite repeated demands, ASSOCIATED still refused to deliver the raw sugar or pay for the refined sugar delivered
to it. Therefore, NAMARCO instituted the action for collection of sum of money against ASSOCIATED and
Francisco Sycip.

 Trial Court: ordered ASSOCIATED to pay to NAMARCO but dismissed the case against Francisco Sycip.

 Court of Appeals: certified the case to the SC for final adjudication pursuant to sections 17 and 31 of the Judiciary Act
of 1948, as amended, the amount involved being more than P200,000.00, exclusive of interests and costs.
ISSUE:
Whether Francisco Sycip may be held liable, jointly and severally with ASSOCIATED, for the sums of money adjudged in
favor of NAMARCO

HELD: YES
RATIO:

It is settled law in this and other jurisdictions that when the corporation is the mere alter ego of a person, the corporate
fiction may be disregarded; the same being true when the corporation is controlled, and its affairs are so conducted as to
make it merely an instrumentality, agency or conduit of another

Sycip was guilty of fraud because through false representations he succeeded in inducing NAMARCO to enter into the
aforesaid exchange agreement, with full knowledge, on his part, of the fact that ASSOCIATED whom he represented and
over whose business and affairs he had absolute control, was in no position to comply with the obligation it bad assumed.
Consequently, he cannot now seek refuge behind the general principle that a corporation has a personality distinct and
separate from that of its stockholders and that the latter are not personally liable for the corporate obligations.

The evidence of record shows that, of the capital stock of ASSOCIATED, Sycip owned P60 000.00 worth of shares. while
his wife—the second biggest stockholder—owned P20,000.00 worth of shares; that the par value of the subscribed capital
stock of ASSOCIATED was only P105,000.00; that negotiations that lead to the execution of the exchange agreement in
question were conducted exclusively by Sycip on behalf of ASSOCIATED; that, as a matter of fact, in the course of his
testimony, Sycip referred to himself as the one who contracted or transacted the business in his personal capacity, and
asserted that the exchange agreement was his personal contract; that it was Sycip who made personal representations and
gave assurances that ASSOCIATED was in actual possession of the 22,516 bags of “Victorias” and/or “National” refined
sugar which the latter had agreed to deliver to NAMARCO, and that the same was ready for delivery; that, as a matter of
fact, ASSOCIATED was at that time already insolvent; that when NAMARCO made demands upon ASSOCIATED to
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deliver the 22,516 bags of refined sugar it was under obligation to deliver to the former, ASSOCIATED and Sycip, instead
of making delivery of the sugar, offered to pay its value at the rate of P15.30 per bag—a clear indication that they did not
have the sugar contracted for.
CASE LAW/ DOCTRINE:

Corporate fiction may be disregarded when:

1. When the corporation is the mere alter ego of a person;

2. When the corporation is controlled, and its affairs are so conducted as to make it merely an instrumentality, agency or
conduit of another.

#19 Claparols vs. CIR AUTHOR: Dayos

G.R. No. L-30822 July 31, 1975 NOTES:
TOPIC: Theory of Corporate entity; disregarding it; DATE OF ESTABLISHMENT:
contrary to law, public policy and evasion of liability to the Claparols Steel and Nailplant Company – June 30, 1957
government Claparols Steel Corporation – July 1, 1957; ceased
PONENTE: Makasiar, J. operations on December 7, 1962.
[natulog lang, biglang iba na yung company ni KUPALrols]
FACTS:
 Claparols Steel and Nail Plant (CLAPAROLS) and owner Eduardo Claparols were complained of unfair labor
practice on account of illegal dismissal. Allied Worker’s Association alleged that Claparols dismissed them because
of their active membership in the worker’s union.
 Hence, on May 14, 1964, Court of Industrial Relations (CIR) found Claparols guilty of union busting and ordered the
respondents "(1) To cease and desist from committing unfair labor practices against their employees and laborers; (2)
To reinstate said complainants to their former or equivalent jobs, as soon as possible, with back wages from the
date of their dismissal up to their actual reinstatement"
 To implement the award of back wages, Chief Auditing Examiner of the Court (CAE) was directed to proceed to the
office of Petitioner Company and evaluate its payrolls and other records relevant for the computation of the said back
wages.
 CAE then presented three computations: 1) covers February 1, 1957 to October 31, 1964; 2) up to and including
December 7, 1962, when the corporation stopped operations; 3) only up to June 30, 1957 when the Claparols Steel
and Nail Plant ceased to operate
 CLAPAROLS filed an opposition invoking the Sta. Cecilla Sawmills ruling that the back wages be limited only to
three months counted from the date of separation, especially since both cases present the same circumstances – that
the company had closed down on the same year when its workers were illegally dismissed.
 Private respondent workers contend that CLAPAROLS STEEL CORPORATION (successor) and CLAPAROLS
STEEL AND NAIL PLANT (predecessor) are one and the same entity.
 CIR: (1) awarded the amount of back wages in favor of the private respondents from date of separation up to
December 7, 1962 and; (2) Sta. Cecilla Sawmills ruling does not apply.
 MR by petitioner but subsequently denied because the complaint was pro forma.
 Petitioner then filed a petition for certiorari but SC denied the same.

ISSUE(S): Whether or not CLAPAROLS can invoke the Sta. Cecilla Sawmills doctrine that the reasonable period of time
for back wages of employees is three months counted from the date of separation in cases where employees were
dismissed on the same year of the company’s cessation?

HELD: NO, Sta. Cecilla Sawmills doctrine does not apply because successor company and predecessor company are one
and the same.

RATIO:
 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 Claparols Steel and Nail Plant.

 Both predecessors and successor were owned and controlled by the petitioner Eduardo Claparols and there was no

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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
Claparols Steel Corporation (the second corporation) was owned by respondent (herein petitioner) Claparols
himself, and all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging
Claparols Steel Corporation.

 The second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and
should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its
employees.

CASE LAW/ DOCTRINE: The corporations were successors to each other, and there was no break in the succession and
continuity of the same business. It was obvious that the second corporation seeks the protective shield of corporate fiction
maliciously and deliberately designed to evade its obligation to its employees.

Where a corporation is merely an adjunct, business conduit or alter ego of another corporation, the fiction of separate and
distinct corporate entities should be disregarded. Additionally, where a corporation is a dummy and serves no business
purpose and is intended only as a blind, the corporate fiction may be ignored.

DISSENTING/CONCURRING OPINION(S):

#20 INDOPHIL TEXTILE MILL WORKERS UNION v. AUTHOR: De Leon

CALICA
[G.R. No. DATE] G.R. No. 96490. February 3,1992.
TOPIC: Theory of Corporate Entity
PONENTE: MEDIALDEA, J.
FACTS:

Petitioner Indophil Textile Mill Workers Union-PTGWO is a legitimate labor organization duly registered with the
Department of Labor and Employment and the exclusive bargaining agent of all the rank-and-file employees of Indophil
Textile Mills, Incorporated. Respondent Teodorico P. Calica is impleaded in his official capacity as the Voluntary
Arbitrator of the National Conciliation and Mediation Board of the Department of Labor and Employment, while private
respondent Indophil Textile Mills, Inc. is a corporation engaged in the manufacture, sale and export of yarns of various
counts and kinds and of materials of kindred character and has its plants at Barrio Lambakin. Marilao, Bulacan.

 In April, 1987, petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil Textile
Mills, Inc. executed a collective bargaining agreement effective from April 1, 1987 to March 31, 1990.
 On November 3, 1967 Indophil Acrylic Manufacturing Corporation was formed and registered with the Securities
and Exchange Commission. Subsequently, Acrylic applied for registration with the Board of Investments for
incentives under the 1987 Omnibus Investments Code. The application was approved on a preferred non-pioneer
status.
 In 1988, Acrylic became operational and hired workers according to its own criteria and standards. Sometime in
July, 1989, the workers of Acrylic unionized and a duly certified collective bargaining agreement was executed.
 In 1990, the petitioner union claimed that the plant facilities built and set up by Acrylic should be considered as an
extension or expansion of the facilities of private respondent Company pursuant to Section 1(c), Article I of the
CBA. It is the petitioner's contention that Acrylic is part of the Indophil bargaining unit.
 The petitioner's contention was opposed by private respondent which submits that it is a juridical entity separate
and distinct from Acrylic.

Petitioner and private respondent entered into a submission agreement on September 6, 1990.

Public respondent arbitrator: Sec. l, (c), Art. I, of the 1987 CBA do (sic) not extend to the employees of Acrylic as an

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extension or expansion of Indophil Textile Mills, Inc.

Petitioner notes that the foregoing evidence sufficiently establish that Acrylic is but an extension or expansion of private
respondent, to wit:

 the two corporations have their physical plants, offices and facilities situated in the same compound, at Barrio
Lambakin, Marilao, Bulacan;
 many of private respondent's own machineries, such as dyeing machines, reeling, boiler, Kamitsus among others,
were transferred to and are now installed and being used in the Acrylic plant;
 the services of a number of units, departments or sections of private respondent are provided to Acrylic; and
 the employees of private respondent are the same persons manning and servicing the units of Acrylic.

Private respondent: The existence of a bonafide business relationship between Acrylic and private respondent is not a
proof of being a single corporate entity because the services which are supposedly provided by it to Acrylic are auxiliary
services or activities which are not really essential in the actual production of Acrylic. It also pointed out that the essential
services are discharged exclusively by Acrylic personnel under the control and supervision of Acrylic managers and
supervisors.

In sum, petitioner insists that the public respondent committed grave abuse of discretion amounting to lack or in excess of
jurisdiction in erroneously interpreting the CBA provision and in failing to disregard the corporate entity of Acrylic.
ISSUE(S): W/N the operations in Indophil Acrylic Corporation are an extension or expansion of private respondent
Company. W/N the rank-and-file employees working at Indophil Acrylic should be recognized as part of, and/or within the
scope of the bargaining unit.
HELD: NO
RATIO:

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. (Umali et al. v. Court
of Appeals, G.R. No. 89561, September 13, 1990, 189 SCRA 529, 542)

In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the
corporation is a devise to evade the application of the CBA between petitioner Union and private respondent Company.
While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither are
we inclined to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the businesses of private
respondent and Acrylic are related, that some of the employees of the private respondent are the same persons manning
and providing for auxilliary services to the units of Acrylic, and that the physical plants, offices and facilities are situated
in the same compound, it is our considered opinion that these facts are not sufficient to justify the piercing of the corporate
veil of Acrylic.

Hence, the Acrylic not being an extension or expansion of private respondent, the rank-and-file employees working at
Acrylic should not be recognized as part of, and/or within the scope of the petitioner, as the bargaining representative of
private respondent.

CASE LAW/ DOCTRINE:

…We already ruled in the case of Diatagon Labor Federation Local 110 of the ULGWP v. Ople (supra) that it is grave
abuse of discretion to treat two companies as a single bargaining unit when these companies are indubitably distinct

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entities with separate juridical personalities.

DISSENTING/CONCURRING OPINION(S):

#21 CASE: NAFLU V OPLE AUTHOR: DELFIN, K.

[G.R. No. L-68661 July 22, 1986] NOTES:

TOPIC: Disregarding Corporate Entity

PONENTE: GUTIERREZ, JR., J

EMERGENCY RECIT:

FACTS:
 1982, the National Federation of Labor Union (NAFLU) filed a request for conciliation before the Bureau of Labor
Relations requesting for the intervention in its dispute with management involving certain money claims, refusal to
conclude a collective agreement after such has been negotiated and run-away shop undertaken by management in
order to bust the union.
 Several conferences were conducted by the Bureau to settle the dispute amicably. In the course of the proceedings,
however, management unilaterally declared a temporary shutdown
 After all efforts to mediate the charges of unfair labor practice and non-payment of certain money claims have
failed, the union filed its notice of strike. The firm offered payment of P200,000. as complete settlement of all
claims inclusive of the separation pay from the company. The union rejected the offer which it felt was tantamount
to a proposal to eliminate the union and final separation of its members from the company.
 For this reason, the union filed a complaint for unfair labor practice against the management of Lawman. The
period of shutdown was extended without notifying the Bureau of Labor Union.
 The respondent filed a motion for reconsideration stating that it had suffered losses and informed this Ministry of its
decision to effect a shutdown and a memorandum announcing the cessation of operations.
 The company alleged further that it had no more plant and building because they were allegedly repossessed by the
Pioneer Texturizing Corporation for the failure of respondent to pay rentals but they still offered to pay every
employee affected by the shutdown a separation pay of P328.95 each. Ey ar
 National Federation of Labor Unions (NAFLU) submitted a position paper alleging that it was certified by the
Bureau of Labor Relations as the sole and exclusive bargaining agent of all the rank and file employees of the said
factory.
 Negotiations followed in October 1981 until January 1982. The management refused to grant substantial economic
demands to the workers, hence, the union declared a strike in July 1982.
 The name of Lawman was changed to LIBRA GARMENTS. Under that name, new applicants for employment
were called even as the company continued to manufacture the same products but under the name of LIBRA
GARMENTS. When this was discovered by the workers, LIBRA GARMENTS was changed to DOLPHIN
GARMENTS.
 Ministry of Labor and Employment in 1983 assumes jurisdiction over the dispute at Lawman Industrial Corporation
pursuant to Art. 264 (g) of the Labor Code and ordered them to:
1) All employees affected by the extended shutdown which is highly irregular, are ordered to return to work
and management is directed to accept all returning workers under the same terms and conditions prevailing
previous to the illegal shutdown.
2) Management is further directed to pay severance compensation including all unpaid wages previous to the
shutdown and after March 15, 1983 in the event that the company cannot resume operations.
3) Pending the determination of the charges on illegal lockout run-away-shop and the pending money claims
against the company, Lawman Industrial is hereby enjoined from transferring ownership or otherwise
effecting any encumbrance or any of its existing assets in favor of any third party without a prior clearance
from this Office and timely notice to the union.
4) They are also prohibited from terminating the employment of any of its employees pending the outcome of
this dispute.

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 On July 31, 1984, the public respondent modified its earlier order and directed the private respondent to pay all
accrued wages and benefits including a one month's pay for its failure to comply with the requirement of notice
under Batas Pambansa Blg. 130, as amended and separation pay for all dismissed employees equivalent to one
month's pay or one-half month's pay for every year of service whichever is higher computed up to January, 1983
when the company had declared its intention to actually close its operations. However, despite a finding that the
private respondent company was guilty of unfair labor practice, the public respondent did not order the
reinstatement of the employees concerned "because the company has declared that it had already ceased its
operations completely."
ISSUES:
 Whether or not, on the basis of the findings of the public respondent that the respondent company was guilty of
unfair labor practice, the petitioners should be reinstated to their former positions without loss of seniority rights
and with full backwages?

HELD:
 Yes, they are guilty of unfair labor practices and as such is ordered to reinstate the petitioners to positions in
LIBRA/DOLPHIN GARMENTS with backwages of not more than three (3) years each and without loss of
seniority rights and benefits being enjoyed by them prior to the alleged closure of Lawman's Industrial Corporation.
RATIO:
 It is clear from the records of this case that the company bargained in bad faith with the union when pending the
negotiation of their collective agreement, the company declared a temporary cessation of its operations which in
reality was an illegal lockout. Evidently, the company also maintained run-away shop when it started transferring its
machine first to Libra and then to Dolphin Garments. Failure on the part of the company to comply with the
requirements of notice and due process to the employees and the Labor Ministry one month before the intended
'closure' of the firm is clearly against the law.
 There is also evidence on the record that even after the alleged 'shutdown' the company was still operating in the
name of Lawman Industrial although production was being carried out by another firm called Libra Garments (later
Dolphin Garments).
 The second corporation seeks the protective shield of a corporate fiction to achieve an illegal purpose. As
enunciated in the case of Claparols v. Court of Industrial Relations (65 SCRA 613) its veil in the present case
should, therefore, be pierced as it was deliberately and maliciously designed to evade its financial obligations to its
employees. It is an established principle that when the veil of corporate fiction is made as a shield to perpetrate a
fraud or to confuse legitimate issues (here, the relation of employer-employee), the same should be pierced (A.D.
Santos, Inc. v. Vasquez, 22 SCRA 1156).
 As Libra/Dolphin Garments is but an alter-ego of the old employer, Lawman Industrial, the former must bear the
consequences of the latter's unfair acts by reinstating the petitioners to their former positions without loss of
seniority rights (See Phil. Land-Air-Sea Labor Union (PLASLU) v. Sy Indong Co. Rice and Corn Mill, 11 SCRA
277).

CASE LAW/ DOCTRINE:

 It is an established principle that when the veil of corporate fiction is made as a shield to perpetrate a fraud or to
confuse legitimate issues, it must be pierced.

DISSENTING/CONCURRING OPINION(S):


#22 CASE ASIONICS PHILIPPINES, INC. and/or AUTHOR: ENRIQUEZ

FRANK YIH, petitioners,
vs. NOTES:
NATIONAL LABOR RELATIONS COMMISSION,
YOLANDA BOAQUINA, and JUANA
GAYOLA, respondents

G.R. No. 124950 May 19, 1998

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TOPIC: Disregarding Corporate Entity: Contrary to Law,

Public Policy, and Evasion of Liability to Government

PONENTE: Vitug
FACTS:
 API is a domestic corporation engaged in the business of assembling semi-conductor chips and other electronic
products mainly for export. API’s President is Frank Yih. They are the Petitioners.
 Private Respondents Yolanda Boaquina and Juana Gayola works for API as material control clerk and as production
operator.
 During the third quarter of 1992, API commenced negotiations with the duly recognized bargaining agent of its
employees, the Federation of Free Workers ("FFW"), for a Collective Bargaining Agreement ("CBA"). A deadlock,
however, ensued and the union decided to file a notice of strike. This event prompted the two customers of API,
Indala and CP Clare Theta J, to thereupon refrain from sending to API additional kits or materials for assembly. API,
given the circumstance that its assembly line had to thereby grind to a halt, was forced to suspend operations
 Private respondents Boaquina and Gayola were among the employees asked to take a leave from work.
 Inasmuch as its business activity remained critical, API was constrained to implement a company-wide retrenchment.
Both were affected by such.
 Dissatisfied with their union (FFW), Boaquina and Gayola, together with some of other co-employees, joined the
Lakas ng Manggagawa sa Pilipinas Labor Union ("Lakas Union") where they eventually became members of its
Board of Directors.
 Several employees which included private respondents Boaquina and Gayola, a complaint for illegal dismissal,
violation of labor standards and separation pay, as well as for recovery of moral and exemplary damages, was filed
against API and/or Frank Yih before the NLRC National Capital Region Arbitration Branch.
 Labor Arbiter Canizares rendered his decision holding petitioners guilty of illegal dismissal. Frank Yih was held to
be solidarily liable with the corporation. He ordered petitioners to pay private respondent Yolanda Boaquina
separation pay of one-half (1/2) month pay for every year of service, plus overtime pay, and to reinstate private
respondent Juana Gayola with full backwages from the time her salaries were withheld from her until her actual
reinstatement.
 NLRC affirmed LA.
ISSUE(S): WHETHER OR NOT A STOCKHOLDER/DIRECTOR/OFFICER OF A CORPORATION CAN BE HELD
LIABLE FOR THE OBLIGATION OF THE CORPORATION ABSENT ANY PROOF AND FINDING OF BAD
FAITH?

HELD: No.

RATIO:
 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. 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.
 Nothing on record is shown to indicate that Frank Yih has acted in bad faith or with malice in carrying out the
retrenchment program of the company. His having been held by the NLRC to be solidarily and personally liable
with API is thus legally unjustified.
CASE LAW/ DOCTRINE:

# 23 Villa Rey Transit Inc. v. Ferrer AUTHOR: Garcia

[G.R. No. L-23893 October 29, 1968] NOTES:
TOPIC: Sorry Late. 
PONENTE: Angeles J.
FACTS:
 Prior to 1959 – Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey
Transit pursuant to certificates of public convenience granted by the Public Service Commission. (Nos. 33213 and
104651). These authorized Villarama to operate a total of 32 units on various routes from Pangasinan to Manila and
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vice versa.
 The two certificates were sold to Pangasinan Transportation Company, Inc. (Pantranco), for 350k 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.”
 Three months thereafter, Villa Rey Transit, Inc. was organized with a capital stock of 500k divided into 5k shares of
the par value of Php100 each.
o 200,000 was the subscribed stocks
o Natividad R. Villarama (wife of Jose) was one of the incorporators and she subscribed for 1k
o The brother and sister-in-law of Jose subscribed the balance.
 Less than a month after its registration, the Corporation bought 5 certificates of public convenience, 49 buses, tools,
and equipment from Fernando. The parties to the contract immediately applied with the PSC for its approval, wit h a
prayer for the issuance of a provisional authority in favor of the corporation to operate the service.
 PSC granted the provisional permit prayed for, upon the condition that “it may be modified or revoked by the
Commission at any time, shall be subject to whatever action that may be taken on the basic application and shall be
valid only during the pendency of said application.”
 Sheriff of Manila (July 7, 1959) levied on two of the five certificates of public convenience pursuant to a writ of
execution issued by CFI in favor of Ferrer against Fernando. On July 16, a public sale was conducted and Ferrer was
the highest bidder. Ferrer sold the two certificates of public convenience to Pantranco.
 November 4, 1959 – Villa Rey Transit Inc. filed in the CFI Manila a complaint for the annulment of the sheriffs sale
of the two certificates of public convenience.

CFI:
 Villa Rey Transit, Inc. is a distinct and separate entity from Jose M. Villarama
 Sheriff’s sale is null and void.
ISSUE(S):
1. Does the stipulation between Villarama and Pantranco, as contained in the deed of sale, that the former “shall not
for a period of 10 years from the date of this sale, apply for any TPU service identical or completion with
the buyer”, apply to new lines only or does it include existing lines?
2. Whether or not such stipulation is valid and enforceable
3. Whether or not the said stipulation bind the Corporation
HELD:
1. Immaterial
2. The stipulation is enforceable
3. It is binding to the Corporation

RATIO:
 The 10 year prohibition upon Villarama is not against his application for , or purchase of certificates of public
convenience, but merely the operation of TPU along the lines covered by the certificates sold by thim to
Pantranco.
 The intention of the parties was to eliminate the seller as a competitor of the buyer for ten years along the lines of
operation covered by the certificate of public convenience subject of their transaction. The word “apply” as
broadly used has for frame of reference, a service by the seller on the lines or routes that would compete with the
buyer along the routes acquired by the latter. The stipulation prohibiting Villarama for a period of 10 years to
“apply” for TPU service along the lines covered by the certificates of public convenience sold by him to
Pantranco is valid and reasonable.
 The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the Corporation,
alleging that he did not become such, because he did not have sufficient funds to invest, his wife, however, was an
incorporator with the least subscribed number of shares and was elected treasurer of the Corporation. Jose’s
Testimony – His money and His wife’s money are one. Also, based on the evidence, the initial cash capitalization
of the corporation was mostly finance by Villarama. Witness – Celso Rivera – It was made to appear that the 95k
delivered to Villarama in payment for equipment purchased from him, and the 100k was loaned as advances to the
stockholders. Further, Villarama purchased and paid with his personal checks Ford trucks for the Corporation.
Not a single one of the acts as proof of Villarama’s oneness with the Corporation has been denied by him. The
interference of Villarama in the complex affairs of the corporation, and particularly its finances are much too
inconsistent with the ends and purposes of the Corporation law, which, precisely, seeks to separate personal
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responsibilities from corporate undertakings. Villa Rey Transit, Inc. is an alter ego of Jose, and that the
restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding
against the said Corporation.

CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):

#24 Cease v. Court of Appeals AUTHOR: Magsino, Patricia Marie C.

G.R. No. L-33172, Oct. 18, 1979] NOTES:
TOPIC: Close corporation
PONENTE: Guerrero, J.
FACTS:

 This is an appeal by certiorari from a CA decision dismissing the petition for certiorari, mandamus, prohibition
filed by the petitioners
 Forrest Cease and five (5) other American citizens formed Tiaong Milling and Plantation Company
 Cease and his children then bought out the shares of the other original incorporators and the properties acquired by
the company, the company’s charter then expired in June 1958, then Forrest Cease died in August 1959
 There was no mention regarding the liquidation of the company, some of Cease’s children wanted an actual
division while others wanted a reincorporation, two of his children (Benjamin and Florence) initiated Special
Proceeding No. 3893 with CFI of Tayabas asking that the Tiaong Milling and Plantation Corporation be declared
identical to Forrest Cease and that its properties be divided among his children as intestate heirs
 The defendants opposed this but the CFI ruled in favor of the plaintiffs, declaring the properties of Tiaong Milling
is part of the estate of Cease, so the defendants filed a notice of appeal from the CFI’s decision but this was
dismissed for being premature
 The case was elevated to the SC but it was remanded to the Court of Appeals
 The CA dismissed the petition, so present petition

ISSUE(S):

 Did the Court of Appeals err in affirming the CFI’s decision that the subject properties owned by the corporation
are also properties of the estate of Forrest Cease

HELD: NO. Judgment is AFFIRMED.

TIAONG MILLING AND PLANTATION COMPANY BECAME A CLOSE FAMILY CORPORATION. ALL
PROPERTIES BELONG TO CEASE FAMILY.

RATIO:
 Quoted from the trial judge:
o “While the records showed that originally its incorporators were aliens, friends or third-parties in
relation to another, in the course of its existence, it developed into a close family corporation. The Board
of Directors and stockholders belong to one family the head of which Forrest L. Cease always retained the
majority stocks and hence the control and management of its affairs.”

o “…as his children increase or become of age, he continued distributing his shares among them adding
Florence, Teresa and Marion until at the time of his death only 190 were left to his name. Definitely, only
the members of his family benefited from the Corporation.”

o “…there is truth in plaintiff's allegation that the corporation is only a business conduit of his father and
an extension of his personality, they are one and the same thing. Thus, the assets of the corporation are
also the estate of Forrest L. Cease, the father of the parties herein who are all legitimate children of full
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blood.”
 Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is one whose
articles of incorporation provide that:
(1) All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by
not more than a specified number of persons, not exceeding twenty (20);
(2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer
permitted by this Title; and
(3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of
any class. Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at
least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation
which is not a close corporation within the meaning of this Code.
Any corporation may be incorporated as a close corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public utilities, educational institutions and corporations declared
to be vested with public interest in accordance with the provisions of this Code.
The provisions of this Title shall primarily govern close corporations: Provided, That the provisions of
other Titles of this Code shall apply suppletorily except insofar as this Title otherwise provides.

CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):

#25 Delpher Trades and Delphin Pacheco v.IAC and AUTHOR: Mendoza
Hydro Pipes Philippines,Inc. NOTES:
[G.R. No. DATE]L-69259 January 26,1988
TOPIC:
PONENTE: Gutierrez Jr.
FACTS:
• Petitioners question the decision of the IAC which ruled in favor of Hydro Pipe's contention that the deed of exchange
whereby Delfin Pacheco and his wife conveyed a parcel of land to Delpher Trades in exchange for 2,500 shares of
stock was actually a deed of sale which violated a right of first refusal under a lease contract.
• Background: 1.In 1974, the Pachecos were the owners of 27,169 sq.m of real estate in Polo (now Valenzuela),
Bulacan.
• 2. On April 3,1974, the Pachecos leased to Construction Components International Inc. the lot
provided that during the existence or after the term of this lease,the lessor should he decide tosellthe property leased
shallfirst offer the same to the lessee.
• 3.On August 3, 1974 ,the lessee-Construction Components International assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes with the signed conformity and consent of the
lessors-Pachecos. Including the contract of lease,as well as the assignment of lease were annotated at the back of the

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title.
• 4. On, January 3,1976, a deed of exchange was executed between the Pachecos and Delpher Trades
whereby the Pachecos conveyed to the latter the leased property in question together with their other lotsa in
Valenzuela.
• Hydro Pipe sued the Pachecos on the ground that it was not given the first option to buy the leased property pursuant
to the contract and filed for the reconveyance of the lot in question.
• The CFI of Bulacan ruled in favor of Hydro Pipe declaring the valid existence of its preferentialright to acquire the
property (right of first refusal) and ordering its reconveyance.
• The IAC affirmed the decision of the CFI.Hence,this petition to the SC.
• Delpher's Contentions:
• 1. That Hydro Pipe will acquire from it a parcel of industrial land for only 14Php/sq.m although the prevailing value
is approximately 300Php/sq.m.

2.That Hydro Pipe is allowed to exercise its right of first refusal even if there is no 'sale' or transfer of actual
ownership interests by the Pachecos to third parties.

3. That Delpher Trades is a family corporation and was organzied by the chiuldren of the spouses Pelagia Pacheco
and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles,who owned in commoin the disputed parcel of
land leased to Hydro Pipes.

4. That in order perpetuate their control over the property through the corporation and to avoid taxes, the two pieces
of real estate (including the lot leased to Hydro Pipes) were transferred toDelpher Trades by virtue of a deed of
exchange of property.And in exchange for these properties, the Pachecosacquired 2,500 unissued no par value shares
of stockwhich are equivalent to a 55% majority in the corporation because the other owners only owned 2,000
shares. They refer to this scheme as "estate planning".

• 5. That there was no actual transfer of ownership of the land since the Pachecos remainted in control of the property.
The transfer of ownership, if anything, was merely in form but not substance. Because in reality, Delpher Trades is a
mere alter ego of the Pachecos;hence, the corporation and the Pachecos should be deemed the same.
• Hyrdo Pipes' Contention: 1. That Delpher Trades is a corporate entity separate and distinct from the Pachecos.Thus, it
cannot be said that Delpher Trades is the Pachecos' same alter ego.
•
ISSUE(S):
Whether or not the deed of exchange of the properties executed by the Pachecos on the one hand and the Delpher
Trades on the other was meant to be a contract which, in effect,prejudiced Hydro Pipe's right of first refusal over
the leased property.
HELD:
SC ruled in favor of the petitioners
RATIO:
• 1. In exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of sotcks of
the Delpher Trades Corporation.Consequently, the Pachecos became stockholders of the corporation by
subscription. "The essence of the stock subscription is an agreement to take and pay for original unissued shares of
a corporation,formed or to be formed.It is significant that the Pachecos took no ar value shares in exchange for
their properties.
• 2. There was no attemp0t to state the true or current market value of the lot. Land valued at P300/sq.m was turned
over to the family's corporation for only P14/sq.m. It is to be stressed that by their ownership of the 2,500 no par
shares of stock,the Pachecos have control of the corporation. Their equity capital of 55% as against 45% of the
other stockholders,who also belong to the same family group.
• 3.In effect, the Delpher Trades 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.
• 4. 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 mere changed their ownership from one form to another.Hence,Hydro Pipes has no
basisfor its claim of a right of first refusal under the lease contract.

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CASE LAW/ DOCTRINE:

After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from the
corporation or from individual owners thereof.

A no par value share does not purport to represent any stated proportionate interest in the capitalstock measured by value
but only an aliquot part of the whole number of such shares of the issuing corporation. The holder of no par value shares
may see fromthe certificate itself that he is only a an aliquot pshares in the assets of the corporation.
DISSENTING/CONCURRING OPINION(S):

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