COMMERCIAL LAW REVIEW | G02
01 NARRA NICKEL MINING AND DEVELOPMENT CORP.,
TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC. v. REDMONT CONSOLIDATED
MINES CORP.
G.R. No. 195580 |April 21, 2014 | VELASCO JR.|
ACIDO
TOPIC: Grandfather Rule
DOCTRINE: Under the liberal Control Test, there is no
need to further trace the ownership of the 60% (or
more) Filipino stockholdings of the Investing
Corporation since a corporation which is at least 60%
Filipino-owned is considered as Filipino. Under the
Strict Rule or Grandfather Rule Proper, the combined
totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., "grandfathered") to
determine the total percentage of Filipino ownership.
FACTS:
1. Respondent Redmont is a domestic corporation
organized and existing under Philippine laws; it
took interest in mining and exploring certain
areas of the province of Palawan. It learned that
the areas where it wanted to undertake
exploration and mining activities were already
covered by Mineral Production Sharing
Agreement (MPSA) applications of petitioners
Narra, Tesoro, and McArthur.
2. On January 2, 2007, Redmont filed before the
Panel of Arbitrators (POA) of the DENR 3 separate
petitions for the denial of petitioners’ applications
for MPSA, alleging that at least 60% of the capital
stock of McArthur, Tesoro, and Narra are owned
and controlled by MBMI Resources, Inc., a 100%
Canadian corporation.
3. Redmont reasoned that since MBMI is a
considerable stockholder of petitioners, it was the
driving force behind petitioners’ filing of the
MPSAs over the areas covered by applications
since it knows that it can only participate in
mining activities through corporations which are
deemed Filipino citizens. Redmont argued that
given that petitioners’ capital stocks were mostly
owned by MBMI, they were likewise disqualified
from engaging in mining activities through
MPSAs, which are reserved only for Filipino
citizens.
4. Petitioners averred that they were qualified
persons under Section 3(aq) of Republic Act No.
(RA) 7942 or the Philippine Mining Act of 1995 (at
least 60% capital owned by Fil citizens needed).
Further, their nationality as applicants is
immaterial because they also applied for
Financial or Technical Assistance Agreements
(FTAA), which are granted to foreign-owned
corporations.
5. Petitioners further claim that the issue of
nationality should not be raised as they are in
fact Philippine Nationals as 60% of their capital is
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owned by citizens of the Philippines. They
asserted that though MBMI owns 40% of the
shares of PLMC (which owns 5,997 shares of
Narra), 40% of the shares of MMC (which owns
5,997 shares of McArthur), and 40% of the shares
of SLMC (which, in turn, owns 5,997 shares of
Tesoro)1, the shares of MBMI will not make it the
owner of at least 60% of the capital stock of each
of petitioners. Finally, petitioners argue that the
best tool used in determining the nationality of a
corporation is the "control test" embodied in the
Foreign Investments Act of 1991.
6. POA disqualified petitioners and nullified their
MPSAs. Mines Adjudication Board reversed POA.
RTC TRO-d MAB. CA set aside MAB decision and
upheld petitioners’ disqualification. Pursuant to
the first sentence of paragraph 7 of DOJ Opinion
No. 020, Series of 2005, adopting the 1967 SEC
Rules which implemented the requirement of the
Constitution and other laws pertaining to the
exploitation of natural resources, the CA used the
"grandfather rule" to determine the nationality of
petitioners. Also, in a separate petition by
Redmont, the Office of the President cancelled
petitioners’ FTAAs.
ISSUE: Are Narra, Tesoro, and McArthur foreign
corporations based on the “Grandfather Rule”?
HELD: YES, petition denied
RULING:
1. “Corporate layering" is admittedly allowed by the
FIA; but if it is used to circumvent the Constitution
and pertinent laws, then it becomes illegal.
2. There are two acknowledged tests in determining
the nationality of a corporation: the control test
and the grandfather rule. The first part of
paragraph 7, DOJ Opinion No. 020, Series of 2005,
stating "shares belonging to corporations or
partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as
of Philippine nationality," pertains to the control
test or the liberal rule. On the other hand, the
second part of the DOJ Opinion which provides,
"if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only
the number of shares corresponding to such
percentage shall be counted as Philippine
nationality," pertains to the stricter, more stringent
grandfather rule.
3. Based on the said SEC Rule and DOJ Opinion, the
Grandfather Rule or the second part of the SEC
Rule applies only when the 60-40 Filipino-foreign
equity ownership is in doubt (i.e., in cases where
the joint venture corporation with Filipino and
1 Respective predecessors-in-interest/corporate
owners of the petitioners.
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foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint
venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated
differently, where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule
will not apply.
4. After a scrutiny of the evidence extant on record,
the Court finds that this case calls for the
application of the grandfather rule since, as ruled
by the POA and affirmed by the OP, doubt
prevails and persists in the corporate ownership
of petitioners. Also, as found by the CA, doubt is
present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur, and Tesoro, since
their common investor, the 100% Canadian
corporation––MBMI, funded them.
*Even if MBMI owns only 33-34% of the 2nd layer
(MMC, SMMI, PLMDC), they effectively control
them since the majority stockholder (Olympic) in
the 2nd layer paid nothing (Php 0) for its shares.
5. Concluding from the above-stated facts, it is
quite safe to say that petitioners McArthur,
Tesoro, and Narra are not Filipino since MBMI, a
100% Canadian corporation, owns 60% or more
of their equity interests. Such conclusion is
derived from grandfathering petitioners’
corporate owners, namely: MMI, SMMI, and
PLMDC. Going further and adding to the picture,
MBMI’s Summary of Significant Accounting
Policies statement– –regarding the "joint venture"
agreements that it entered into with the
"Olympic" and "Alpha" groups––involves SMMI,
Tesoro, PLMDC, and Narra. Noticeably, the
ownership of the "layered" corporations boils
down to MBMI, Olympic, or corporations under
the "Alpha" group wherein MBMI has joint venture
agreements with, practically exercising majority
control over the corporations mentioned.
6. In effect, whether looking at the capital structure
or the underlying relationships between and
among the corporations, petitioners are NOT
Filipino nationals and must be considered foreign
since 60% or more of their capital stocks or equity
interests are owned by MBMI.
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02 SHRIMP SPECIALISTS, INC. v FUJI TRIUMPH AGRI-
INDUSTRIAL CORPORATION
GR 168756 | 7 December 2009 | Carpio | ANGSIY
TOPIC: Separate Personality / Piercing the Veil
DOCTRINE: A corporation is vested by law with a
personality separate and distinct from the people
comprising it. Ownership by a single or small group of
stockholders of nearly all of the capital stock of the
corporation is not by itself a sufficient ground to
disregard the separate corporate personality.
FACTS:
1. SSI and Fuji entered into a Distributorship
Agreement, under which Fuji agreed to supply
prawn feeds to SSI.
2. As payment, SSI issued postdated checks to SSI
but thereafter issued a stop payment order
because it discovered that earlier deliveries were
contaminated with aflatoxin.
3. Fuji’s Vice President and SSI’s Finance Officer met
and agreed that SSI would issue another set of
checks to cover the ones earlier issued and that
Fuji would replace the feeds.
4. Upon presentment of the replacement checks,
however, they were again dishonored due to
another stop payment order issued by SSI.
5. SSI contends that it was constrained to issue such
order for failure of Fuji to replace the defective
feeds.
6. Criminal charges (BP 22) were filed against the SSI
officers who signed the checks.
7. RTC found the officers solidarily liable; CA
modified, absolving SSI’s President from liability
ISSUE: WON the President of SSI may be held solidarily
liable in this case- NO
HELD:
• A corporation is vested by law with a personality
separate and distinct from the people comprising
it. Ownership by a single or small group of
stockholders of nearly all of the capital stock of
the corporation is not by itself a sufficient ground
to disregard the separate corporate personality.
• The general rule is that obligations incurred by
the corporation, acting through its directors,
officers, and employees, are its sole liabilities.
However, solidary liability may be incurred under
the following exceptional circumstances:
o When directors and trustees or, in
appropriate cases, the officers of a
corporation: a) vote for or assent to
patently unlawful acts of the
corporation, b) act in bad faith or with
gross negligence in directing the
corporate affairs, or c) are guilty of
conflict of interest to the prejudice of the
corporation, its stockholders or members,
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and other persons;
o When a director or officer has consented
to the issuance of watered stocks or
who, having knowledge thereof, did not
forthwith file with the corporate secretary
his written objection thereto;
o When a director, trustee or officer has
contractually agreed or stipulated to
hold himself personally and solidarily
liable with the corporation; or
o When a director, trustee or officer is
made, by specific provision of law,
personally liable for his corporate action.
• In this case, none of these exceptional
circumstances is present.
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03 EDSA SHANGRI-LA HOTEL AND RESORT, INC.,
(ESHRI) RUFO B. COLAYCO, RUFINO L. SAMANIEGO,
KUOK KHOON CHEN, AND KUOK KHOON TSEN v. BF
CORPORATION (G.R. No. 145842)-1st petition
Cynthia Roxas-Del Castillo vs. BF Corporation (G.R.
No. 145873) -2nd petition
Velasco | BIGALBAL
TOPIC: Separate Personality/ Piercing the Corporate
Veil
DOCTRINE: The veil of corporate fiction shall be
disregarded when the separate juridical personality
of a corporation is abused or used to commit fraud
and perpetrate a social injustice, or used as a vehicle
to evade obligations.
FACTS:
1. 2 consolidated cases. Focus on the 2nd petition.
Both petitions stemmed from an Agreement for
the Execution of Builder’s Work contract for the
Edsa Shang Hotel Proj. that ESHRI and BF
executed in building the Hotel starting 1 May
1991. Contract states that payment of the
contract price would be based on the work
accomplished described in the monthly progress
billings. BF would submit a monthly progress billing
to ESHRI which would then re-measure the work
accomplished and prepare a Progress Payment
Certificate for that month's progress billing.
2. ESHRI, in its memorandum-letter laid down a
procedure for BF to follow:
a. submission of the progress billing to
ESHRI's Engineering Department; (2)
following-up of the preparation of the
Progress Payment Certificate with the
Head of the Quantity Surveying
Department; and (3) following-up of the
release of the payment with one Evelyn
San Pascual.
3. BF adhered to such procedure and submitted 19
progress billings. From Progress Billing Nos. 1-13,
ESHRI paid BF PhP86,501,834.05.
4. However, Progress Billing Nos. 14-19 was left
unpaid despite several attempts. BF filed a suit for
sum of money and damages before the RTC.
5. ESHRI claimed that BF should be ordered to
refund their excess payment due to incurring
delay and inferior work accomplishment. RTC
ruled in favor of BF. MFR-denied. ESHRI filed an
appeal to the CA.
6. During the pendency of the appeal, RTC granted
BF’s motion for execution pending appeal. Sheriff
garnished EHSRI’s bank account. CA issued a writ
of preliminary injunction upon ESHRI’s posting of
bond. CA set aside the RTC order. MFR of BF-
denied. BF filed a petition for review of the CA
decision before the SC. SC affirmed the CA order
with modification that recovery of ESHRI's
garnished deposits shall be against BF's bond.
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MFR-denied. ESHRI filed an application for
restitution of damages. BF filed separate MFR’s.
7. CA (appeal case) ruled in favor of BF. MFR-
denied. ESHRI filed a petition (1st petition) while
Cynthia del-Castillo (2nd petition) filed a separate
petition assailing the CA decision as it adjudged
her jointly and severally liable with ESHRI et al. to
pay the monetary award decreed in the RTC
decision (P24,780,490.00-unpaid work, retention
sum of P5,810,000.00, legal interest of the unpaid
work, 1M-moral damages, 1M-exemplary
damages, 1M-attorney’s fees and costs of suit).
ISSUE:
1. WON CA committed grave abuse of
discretion in admitting the photocopies of
Progress Billings No. 14-19? (Issue in the 1st
petition)
2. WON the restitution of garnished funds in
favor of ESHRI should be proper? (issue in the
1st petition)
3. WON CA erred in holding Cynthia Del-Castillo
personally liable to respondent? (Issue in the
2nd petition. FOCUS on this issue-related to
our topic)
HELD: 1st petition is dismissed. 2nd petition is granted.
CA decision is affirmed with modification that Del
Castillo is absolved from any liability.
1. NO.
♥ Sec. 6 of Rule 130 states- If the document is in
the custody or under control of the adverse
party, he must have reasonable notice to
produce it. If after such notice and after
satisfactory proof of its existence, he fails to
produce the document, secondary
evidence may be presented as in the case
of loss.
♥ Here, counsel for BF and ESHRI reveal that the
original copies are indeed under the custody
of ESHRI but the counsel of ESHRI have not
heard from his client.
♥ When such party has the original of the
writing and does not voluntarily offer to
produce it or refuses to produce it,
secondary evidence may be admitted.
2. NO.
♥ Petitioners ESHRI maintain that the CA
erroneously prevented restitution of ESHRI’s
improperly garnished funds when it nullified
its own CA decision (case regarding the
garnished funds). ESHRI contends that they
should be restored of their own funds without
awaiting the outcome of the main case
(appeal case with the CA). The restitution is
without merit because this was nullified
simultaneously when the CA decision
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affirmed the RTC decision on the execution
pending appeal. CA nullified the decision
pursuant to Sec. 5, Rule 39: Sec. 5. Effect of
reversal of executed judgment. — Where the
executed judgment is reversed totally or
partially, or annulled, on appeal or otherwise,
the trial court may, on motion, issue such
orders of restitution or reparation of damages
as equity and justice may warrant under the
circumstances.
♥ It is true that the Ca decision recognized the
validity of the issuance of the desired
restitution order but the CA had decided on
the appeal case on the merits when it
affirmed the RTC decision (that ruled in favor
of BF). This CA decision rendered the decision
on the incidental procedural matter on
restitution moot and academic. Allowing
restitution would only prolong an already
protracted litigation.
3. YES.
♥ Roxas-del Castillo argues that the RTC
decision violated the requirements of due
process and of Sec. 14, Article VII of the
Constitution- No decision shall be rendered
by any court without expressing therein
clearly and distinctly the facts and the law
on which it is based.
♥ She is correct. The RTC decision does not
provide the factual or legal basis for holding
her personally liable under the premises. In
fact, only in the dispositive portion of the
decision did her solidary liability crop up.
Aside from her inclusion as party defendant
in the underlying complaint, no reference is
made in other pleadings thus filed as to her
liability.
♥ The CA, by affirming the RTC ruling,
recognized the applicability of the doctrine
on piercing the veil of the separate
corporate identity. This cannot be followed.
A corporation, upon coming to existence, is
invested by law with a personality separate
and distinct from those of the persons
composing it. Ownership by a single or a
small group of stockholders of nearly all of
the capital stock of the corporation is not,
without more, sufficient to disregard the
fiction of separate corporate personality.
Thus, obligations incurred by corporate
officers, acting as corporate agents, are not
theirs, but direct accountabilities of the
corporation they represent. Solidary liability
on the part of corporate officers may at times
attach, but only under exceptional
circumstances, such as when they act with
malice or in bad faith. Also, in appropriate
cases, the veil of corporate fiction shall be
disregarded when the separate juridical
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personality of a corporation is abused or
used to commit fraud and perpetrate a
social injustice, or used as a vehicle to
evade obligations.
♥ Here, no act of malice or dishonest purpose
can be attributed to Cynthia Del-Castillo to
warrant the lifting of corporate veil.
♥ Even if she was still the director when ESHRI
defaulted in paying BF, the conclusion is still
true. Before she could be liable, Sec. 31 of
the Corporation Code must be proven: Sec.
31. Directors or trustees who willfully or
knowingly vote for or assent to patently
unlawful acts of the corporation or acquire
any pecuniary interest in conflict with their
duty as such directors or trustees shall be
liable jointly and severally for all damages
resulting therefrom suffered by the
corporation, its stockholders or members and
other persons.
♥ Here, testimony of Crispin Balingit do not
show that Del Castillo made any
misrepresentation respecting the payment. In
fact, the unpaid billings submitted were still
being evaluated then. Also, testimony states
that there was no instance that Del Castillo
acted in bad faith.
♥ Moreover, when the controversy started
between ESHRI and BF, Del Castillo was no
longer sitting in the ESHRI Board which was
not disputed by BF. Hence, she has no
participation in ESHRI’s corporate affairs
when the controversy started. The rule is,
contracts are binding only among parties to
an agreement pursuant to Art. 1311of the
Civil Code: Article 1311. Contracts take
effect only between the parties, their assigns
and heirs, except in cases where the rights
and obligations are not transmissible by their
nature, or by stipulation or by provision of
law.
♥ It is impossible to hold Del Castillo liable for
breaches of contract committed by ESHRI
after she severed official ties with it. Hence,
all other issues against her like her liability for
damages and attorney’s fees are not moot
and academic.
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04 PANTRANCO EMPLOYEES ASSO. (PEA-PTGWO) V.
NLRC
G.R. No. 170689; March 17, 2009; Nachura; Castillo
TOPIC: Separate personality/Piercing the veil
DOCTRINE: The general rule is that a corporation has
a personality separate and distinct from those of its
stockholders and other corporations to which it may
be connected. However, the doctrine of piercing the
corporate veil may be applied when the corporate
veil is used: 1) to defeat public convenience; 2) in
fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or 3)
in alter ego cases.
FACTS:
1. This is a consolidation of 2 petitions: a.)
PANTRANCO EMPLOYEES ASSOCIATION (PEA-
PTGWO) and PANTRANCO RETRENCHED
EMPLOYEES ASSOCIATION (PANREA) vs. NLRC, et
al; and b.) PNB vs. PEA-PTGWO, et. al.
2. Gonzales family owned 2 corporations,
Pantranco North Express, Inc. (PNEI), which
provided public transportation services, and
Macris Realty Corporation (Macris). PNEI’s bus
terminal stood on 4 valuable pieces of real estate
(Pantranco properties).
3. Gonzales family incurred huge financial losses so
the creditors took over the management of PNEI
and Macris. By 1978, it was fully owned by its
creditor, the National Investment Development
Corporation (NIDC), a subsidiary of the PNB.
4. Macris was later renamed as the National Realty
Development Corporation (Naredeco) and
eventually merged with the National
Warehousing Corporation (Nawaco) to form the
new PNB subsidiary, the PNB-Madecor.
5. In 1985, NIDC sold PNEI to North Express Transport,
Inc. (NETI), owned by Gregorio Araneta III. In
1986, PNEI was placed under sequestration by
PCGG, but was lifted in 1988, for the sale of PNEI
back to the private sector through the Asset
Privatization Trust (APT), which took over the
management of PNEI.
6. In 1992, PNEI applied with SEC for suspension of
payments. A management committee was
created, which recommended to SEC sale of the
company and retrenchment of several PNEI
employees. PNEI ceased its operation, thus,
various labor claims were filed by PNEI’s former
employees.
7. LA: in favor of the employees; levy on the
assets of PNEI to satisfy labor claims and also to
proceed against PNB, PNB-Madecor and Mega
Prime. The sheriff levied the Pantranco properties
registered under the name of PNB-Madecor.
7. PNB-Madecor and Mega Prime, and PNB
separately filed their Motions to quash the writ
and also their Third-Party Claims. PNB-Madecor
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opposed as the registered owner of the
Pantranco properties, Mega Prime as the
successor-in-interest and PNB because it was not
a party to the labor case and as creditor of PNB-
Madecor.
8. LA: Pantranco properties were owned by PNB-
Madecor, which is a corporation with a distinct
and separate personality, thus, its assets could
not answer for the liabilities of PNEI. However,
PNB-Madecor executed a promissory note in
favor of PNEI for P7.8M, thus, the writ of execution
to that extent is valid.
4. PNBs third-party claim was denied because it
only had an inchoate interest in the
properties.
9. NLRC: LA affirmed. MR denied.
10. In view of the P7.8M debt of PNB-Madecor to
PNEI, an auction sale was conducted over the
Pantranco properties to satisfy the claim of the
PNEI employees, wherein CPAR Realty was
adjudged as the highest bidder.
11. CA: NLRC affirmed. PNB, PNB-Madecor and
Mega Prime are corporations with personalities
separate and distinct from PNEI, thus, no cogent
reason to pierce the veil of corporate fiction.
Pantranco properties were never owned by PNEI
but were registered under the name of PNB-
Madecor. If PNB and PNB-Madecor could not
answer for the liabilities of PNEI, with more reason
should Mega Prime not be held liable being a
mere successor-in-interest of PNB-Madecor.
12. MR denied. Hence, this consolidated petition. For
the 1st, petitioners pray that PNB, PNB-Madecor
and Mega Prime be held solidary liable with PNEI,
while in the 2nd, PNB prays for the nullity of the
auction sale of Pantranco properties.
ISSUE/S: 1. WON the former PNEI employees can
attach the Pantranco properties of PNB, PNB-
Madecor and Mega Prime to satisfy their unpaid
labor claims against PNEI. NO.
2. WON PNB, PNB-Madecor and Mega Prime are
solidarily liable with PNEI for the unpaid labor claims.
NO.
RULING: PETITION DENIED.
- The Pantranco properties is not owned by PNEI, the
judgment debtor, which was never alleged in any of
the pleadings of the petitioners. In PNB MADECOR v.
Uy and PNB v. Mega Prime Realty and Holdings
Corporation/Mega Prime Realty and Holdings
Corporation v. PNB, it was established that the
properties were owned by Macris, the predecessor of
PNB-Madecor. Hence, they cannot be pursued
against by the creditors of PNEI.
- PNB, PNB-Madecor and Mega Prime are
corporations with personalities separate and distinct
from that of PNEI. PNB is sought to be held liable
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because it acquired PNEI through NIDC at the time
when PNEI was suffering financial reverses. PNB-
Madecor is being made to answer for petitioners
labor claims as the owner of the subject Pantranco
properties and as a subsidiary of PNB. Mega Prime is
also included for having acquired PNBs shares over
PNB-Madecor.
- The general rule is that a corporation has a
personality separate and distinct from those of its
stockholders and other corporations to which it may
be connected, which is created by law for
convenience and to prevent injustice.
- PNB, PNB-Madecor, Mega Prime, and PNEI are
corporations with their own personalities. Their
separate personalities had been recognized by the
Court in PNB v. Mega Prime Realty and Holdings
Corporation/Mega Prime Realty and Holdings
Corporation v. PNB, wherein PNB was declared as a
stockholder only of PNB-Madecor which later sold its
shares to Mega Prime; and that PNB-Madecor was
the owner of the Pantranco properties. Moreover,
these corporations are registered as separate entities
and, absent any valid reason, their separate identities
must be upheld.
- Neither the personality of PNEI be merged with PNB
simply because the latter acquired the
former. Settled is the rule that where one corporation
sells or otherwise transfers all its assets to another
corporation for value, the latter is not, by that fact
alone, liable for the debts and liabilities of the
transferor.
- Although there are grounds which warrant the
piercing of the corporate veil, none applies in this
case. Under the doctrine of piercing the veil of
corporate fiction, the court looks at the corporation
as a mere collection of individuals or an aggregation
of persons undertaking business as a group,
disregarding the separate juridical personality of the
corporation unifying the group.
- Another formulation of this doctrine is that when two
business enterprises are owned, conducted and
controlled by the same parties, both law and equity
will, when necessary to protect the rights of third
parties, disregard the legal fiction that two
corporations are distinct entities and treat them as
identical or as one and the same.
- Piercing the veil depends on the facts appropriately
pleaded or proved. However, any piercing of the
corporate veil has to be done with caution, but the
Court will not hesitate to disregard the corporate veil
when it is misused or when necessary in the interest of
justice for it was not meant to promote unfair
objectives.
- The doctrine of piercing the corporate veil applies
only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is
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used as a vehicle for the evasion of an existing responsibility is referred to as the parent
obligation; 2) fraud cases or when the corporate corporations own;
entity is used to justify a wrong, protect fraud, or 9. The parent corporation uses the property of the
defend a crime; or 3) alter ego cases, where a subsidiary as its own;
corporation is merely a farce since it is a mere alter 10. The directors or executives of the subsidiary do
ego or business conduit of a person, or where the not act independently in the interest of the
corporation is so organized and controlled and its subsidiary, but take their orders from the parent
affairs are so conducted as to make it merely an corporation;
instrumentality, agency, conduit or adjunct of 11. The formal legal requirements of the subsidiary
another corporation. In the absence of malice, bad are not observed.
faith, or a specific provision of law making a
corporate officer liable, such corporate officer - However, none of the circumstances is present in
cannot be made personally liable for corporate this case, thus, piercing of PNB-Madecor’s corporate
liabilities. veil is not proper, being a mere successor-in-interest
of PNB-Madecor, but with more reason should no
- In this case, PNEI employees allege that PNB was the
liability attach to Mega Prime.
owner of PNEI. Apart from proving ownership, it is
necessary to show facts that will justify to pierce the - For the nullity of the sale, the Court held that the
veil of corporate fiction and hold PNB liable for the Pantranco properties were owned by Macris and
debts of PNEI. Petitioners must show that PNB was later, the PNB-Madecor, never by PNEI or PNB.
using PNEI as a mere adjunct or instrumentality or has Therefore, applying their separate personalities, the
exploited or misused the corporate privilege of PNEI, only party which has the right and interest to question
which they failed to do so. the execution sale and the eventual right to annul is
PNB-Madecor or its successor-in-interest.
- Assuming, PNB may be held liable for the debts of
PNEI, petitioners still cannot proceed against the - PNB alleges that Mega Prime, the buyer of its entire
Pantranco properties, because it is owned by PNB- stockholdings in PNB-Madecor was indebted to
Madecor, a subsidiary of PNB. However, general rule it. Considering that said indebtedness remains
remains that PNB-Madecor has a personality unpaid, PNB insists that it has an interest over PNB-
separate and distinct from PNB. The mere fact that a Madecor and Mega Primes assets. Although PNB has
corporation owns all of the stocks of another an apparent interest in Mega Primes assets being the
corporation, taken alone, is not sufficient to justify creditor of the latter for a substantial amount, its
their being treated as one entity. If used to perform interest remains inchoate and has not yet ripened
legitimate functions, a subsidiary’s separate existence into a present substantial interest, which would give it
shall be respected, and the liability of the parent the standing to maintain an action involving the
corporation as well as the subsidiary will be confined subject properties.
to those arising in their respective businesses.
- In PNB v. Ritratto Group, Inc., it provided for
circumstances to determine whether a subsidiary is a
mere instrumentality of the parent-corporation:
1. The parent corporation owns all or most of the
capital stock of the subsidiary;
2. The parent and subsidiary corporations have
common directors or officers;
3. The parent corporation finances the subsidiary;
4. The parent corporation subscribes to all the
capital stock of the subsidiary or otherwise
causes its incorporation;
5. The subsidiary has grossly inadequate capital;
6. The parent corporation pays the salaries and
other expenses or losses of the subsidiary;
7. The subsidiary has substantially no business
except with the parent corporation or no assets
except those conveyed to or by the parent
corporation;
8. In the papers of the parent corporation or in the
statements of its officers, the subsidiary is
described as a department or division of the
parent corporation, or its business or financial

7
COMMERCIAL LAW REVIEW | G02
05 MANUEL C. ESPIRITU, JR., ET AL. v. PETRON CORP., ET
AL.
G.R. No. 170891|November 24, 2009| ABAD | DE
GUZMAN
SEPARATE PERSONALITY/ PIERCING THE VEIL
DOCTRINE:
1. A corporation is an entity separate and distinct
from the persons of its officers, directors, and
stockholders.
2. Before a stockholder may be held criminally
liable for acts committed by the corporation, it
must be shown that he had knowledge of the
criminal act committed in the name of the
corporation and that he took part in the same or
gave his consent to its commission, whether by
action or inaction.
FACTS:
1. Petron sold and distributed LPG under its
trademark "Gasul."
2. KPE is the exclusive distributor of Gasul in
Sorsogon.
3. Bicol Gas was also in the business of LPGs in
Sorsogon but theirs carried the trademark "Bicol
Savers Gas." Llona managed Bicol Gas.
4. In the course of trade, any given distributor of
LPGs at times acquired possession of LPG tanks
belonging to other distributors operating in the
same area. They called these "captured
cylinders."
5. According KPE’s manager Bicol Gas agreed with
KPE for the swapping of "captured cylinders"
since one distributor could not refill captured
cylinders with its own brand of LPG.
6. KPE’s manager visited the Bicol Gas refilling plant.
He noticed several Gasul tanks in their possession.
He requested a swap but Llona replied that he
first needed to ask the permission of the Bicol Gas
owners. That permission was given and they had
a swap involving 30 Gasul tanks held by Bicol
Gas.
7. KPE’s manager noticed that Bicol Gas still had a
number of Gasul tanks in its yard. He offered to
make a swap for these but Llona declined,
saying the Bicol Gas owners wanted to send
those tanks to Batangas.
8. Later, Bicol Gas told KPE’s manager that it had
no more Gasul tanks left in its possession. But
KPE’s manager observed that Bicol Gas trucks
often carried Gasul tanks. Also, KPE’s sales
dropped significantly.
9. KPE’s manager saw a particular Bicol Gas truck
which had on it one unsealed 50-kg Gasul tank
and one 50-kg Shellane tank. He followed the
truck and when it stopped at a store, he asked
the driver and its sales representative about the
Gasul tank in their truck. They said it was empty
but, when turned open its valve, it was not. They
8
CORPORATION LAW
then admitted that the Gasul and Shellane tanks
on their truck belonged to a customer who had
them filled up by Bicol Gas.
10. Because of the incident, KPE filed a complaint for
violations of RA 623 (illegally filling up registered
cylinder tanks), and Secs 155 (infringement of
trademarks) and 169.1 (unfair competition) of the
Intellectual Property Code.
11. The complaint charged Bicol Gas driver, sales
representative, manager, and the directors,
officers, and stockholders of Bicol Gas.
12. Prosecutor ruled that only the four Bicol Gas
employees could be charged. The charge
against the stockholders and directors of the
company was dismissed.
13. Petron and KPE filed certiorari with the CA. Since
the Bicol Gas employees presumably acted
under the direct order and control of its owners,
CA also ordered the inclusion of the stockholders
of Bicol Gas.
ISSUE: WON the stockholders of Bicol Gas shall be
charged? NO.
HELD:
• Bicol Gas employees by filling up with Bicol Gas
the tank registered to Petron and bearing its
mark without the latter’s written authority can
only be prosecuted for violation of R.A. 623.
• BUT AS FOR THE STOCKHOLDERS: Bicol Gas is a
corporation. It is an entity separate and distinct
from the persons of its officers, directors, and
stockholders.
• However, corporate officers or employees,
through whose act, default or omission the
corporation commits a crime, may themselves
be individually held answerable for the crime.
• When Bicol Gas declined the offer to swap
because the owners wanted to send them to
Batangas, CA believes that the employees of
Bicol Gas acted under the direct orders of its
owners and that "the owners of have full control
of the operations of the business."
• The "owners" of a corporate organization are its
stockholders and they are to be distinguished
from its directors and officers.
• The petitioners here are being charged in their
capacities as stockholders of Bicol Gas.
• In a corporation, the management of its business
is generally vested in its board of directors, not its
stockholders. Stockholders are basically investors.
They do not have a hand in running the day-to-
day business operations of the corporation unless
they are at the same time directors or officers of
the corporation.
• Before a stockholder may be held criminally
liable for acts committed by the corporation, it
must be shown that he had knowledge of the
criminal act committed in the name of the
COMMERCIAL LAW REVIEW | G02
corporation and that he took part in the same or
gave his consent to its commission, whether by
action or inaction.
• No evidence was presented establishing the
names of the stockholders who were charged
with running the operations of Bicol Gas. The
complaint even failed to allege who among the
stockholders are directors or officers.
• CA specifically mentioned Espiritu, Jr. as the
registered owner of the truck that the KPE
manager brought to the police. But the act that
R.A. 623 punishes is the unlawful filling up of
registered tanks of another. It does not punish the
act of transporting such tanks.
9
CORPORATION LAW
06 QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO
Y. LAU, and CHARLIE COLLADO V. THOMAS GEORGE
G.R. No. 172727 | September 8, 2010 | Nachura |
Delfin
TOPIC: Separate Personality/Piercing the Veil
DOCTRINE: Corporation is invested by law with
personality separate and distinct from those of the
persons composing it, such that, corporate officers
who entered into contracts in behalf of the
corporation cannot be held personally liable for the
liabilities of the latter.
However, personal liability of a corporate director,
trustee, or officer, along with the corporation, may
validly attach, as a rule, when:
(1) he assents to a patently unlawful act of the
corporation, or when he is guilty of bad faith or
gross negligence in directing its affairs, or when
there is a conflict of interest resulting in
damages to the corporation, its stockholders,
or other persons;
(2) he consents to the issuance of watered down
stocks or who, having knowledge thereof, does
not forthwith file with the corporate secretary
his written objection thereto;
(3) he agrees to hold himself personally and
solidarily liable with the corporation; or
(4) he is made by a specific provision of law
personally answerable for his corporate action.
FACTS:
1. Queensland Tokyo Commodities, Inc (QTCI) is a
duly licensed broker engaged in the trading of
commodity futures. Thomas George is an investor
who was encouraged by Mendoza and Lontoc
of QTCI.
2. Collado in behalf of QTCI and George entered
into a Customers Agreement with a Special
Power of Attorney, appointing Mendoza as his
attorney-in-fact with full authority to trade and
manage his account.
3. In 1996, the SEC issued a Cease and Desist Order
(CDO) against QTCI which prompted George to
demand the return of his investment but was
refused. He sought legal assistance and
discovered that Lontoc and Mendoza were not
licensed commodity futures salesman.
4. George filed for Recovery for Investment with
damages against QTCI, Lau (President), Collado,
Mendoza and Lontoc with the SEC.
5. QTCI through Collado and Lau denies privity to
any arrangement between Mendoza and
George and claims they only assign duly
qualified persons to handle their accounts.
6. QTCI further claim that George is now estopped
from raising it as a ground for the return of his
investment for transacted business with QTCI for
almost a year without questioning the license or
the authority of the traders handling his account.
COMMERCIAL LAW REVIEW | G02
If remedy is available, it should be made against
Mendoza and Lontoc and not QTCI. (Mendoza
and Lontoc did not answer as they cannot be
located)
7. SEC ruled for George. On appeal to the CA
affirmed the decision of the SEC finding liability
on QTCI in allowing an unlicensed salesman to
handle their accounts, violating the Commodity
Futures Trading Rules and Regulations. It held
Collado and Lau solidarily liable for payment of
George’s claim.
ISSUE/S: WON the CA erred in ordering Lau and
Collado solidarily liable? – NO
HELD/RULING:
• Based on the audit report revealing seven other
unlicensed investment consultants in QTCI and
the company’s practice of changing deeds of
SPA to bear those that are licensed, the court
found QTCI management failed to implement
the Commodity Futures Trading Rules against
hiring unlicensed consultants amounting to gross
negligence.
• If further held that Collado had knowledge and
actually participated in allowing unlicensed
salesman like Mendoza in handling client’s
accounts and Lau being the CEO failed to
exercise due care and diligence in supervising
the operations of QTCI to prevent said unlawful
acts.
• Although Lau may not have participated nor
been aware of the unlawful acts, he is however
grossly negligent in directing the affairs of QTCI
pursuant to Section 31 of the Corporation Code.
• Therefore, the court correctly ordered Lau and
Collado to be jointly and severally liable with
QTCI for all damages. (see #1 in doctrine)
10
CORPORATION LAW
07 ERIC GODFREY STANLEY LIVESEY vs. BINSWANGER
PHILS., INC., ET. AL.,
G.R. No. 177493 |Mar. 19, 2014 | BRION | DE LEON
TOPIC: Separate Personality/ Piercing the Veil
DOCTRINE: Piercing the veil of corporate fiction is an
equitable doctrine developed to address situations
where the separate corporate personality of a
corporation is abused or used for wrongful purposes.
Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for
non-legitimate purposes, such as to evade a just and
due obligation, or to justify a wrong, to shield or
perpetrate fraud or to carry out similar or inequitable
considerations, other unjustifiable aims or intentions, in
which case, the fiction will be disregarded and the
individuals composing it and the two corporations will
be treated as identical.
FACTS:
• Eric Godfrey Stanley Livesey filed a complaint
for illegal dismissal with money claims against
CBB Philippines Strategic Property Services,
Inc. (CBB) and Paul Dwyer. CBB was a
domestic corporation engaged in real estate
brokerage and Dwyer was its President.
• Allegedly, despite the several deals for CBB
he drew up, CBB failed to pay him a
significant portion of his salary. For this reason,
he was compelled to resign on December
18, 2001. He claimed CBB owed him
US$23,000.00 in unpaid salaries. CBB denied
liability. LA Jaime M. Reyno found that
Livesey had been illegally dismissed.
• Thereafter, the parties entered into a
compromise agreement which LA Reyno
approved. Under the agreement, Livesey
was to receive US$31,000.00 in full satisfaction
of LA Reyno’s decision, broken down into
US$13,000.00 to be paid by CBB to Livesey or
his authorized representative upon the
signing of the agreement; US$9,000.00 on or
before June 30, 2003; and US$9,000.00 on or
before September 30, 2003. Further, the
agreement provided that unless and until the
agreement is fully satisfied, CBB shall not: (1)
sell, alienate, or otherwise dispose of all or
substantially all of its assets or business; (2)
suspend, discontinue, or cease its entire, or a
substantial portion of its business operations;
(3) substantially change the nature of its
business; and (4) declare bankruptcy or
insolvency.
• CBB paid Livesey the initial amount of
US$13,000.00, but not the next two
installments as the company ceased
operations. First writ of execution not
enforced.
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

• Livesey filed a motion for the issuance of an
alias writ of execution, alleging that in the
process of serving respondents the writ, he
learned "that respondents, in a clear and
willful attempt to avoid their liabilities to
complainant have organized another
corporation, Binswanger Philippines, Inc." He
claimed that there was evidence showing
that CBB and Binswanger Philippines, Inc.
(Binswanger) are one and the same
corporation, pointing out that CBB stands for
Chesterton Blumenauer Binswanger. Invoking
the doctrine of piercing the veil of corporate
fiction, Livesey prayed that an alias writ of
execution be issued against respondents
Binswanger and Keith Elliot, CBB’s former
President, and now Binswanger’s President
and Chief Executive Officer (CEO).
authorities, although Elliot claimed that he bought
the item with his own money; and (5) Binswanger’s
takeover of CBB’s project with the PNB.
While the ostensible reason for Binswanger’s
establishment is to continue CBB’s business operations
in the Philippines, which by itself is not illegal, the
close proximity between CBB’s disestablishment and
Binswanger’s coming into existence points to an
unstated but urgent consideration which, was to
evade CBB’s unfulfilled financial obligation to Livesey
under the compromise agreement.
This underhanded objective, it must be stressed, can
only be attributed to Elliot. Elliot’s "guiding hand," is
very much evident in CBB’s demise and Binswanger’s
creation. Therefore, Elliot is as liable as Binswanger for
CBB 's unfulfilled obligation to Livesey.

ISSUE: Whether or not the corporate fiction must be

pierced

HELD: YES

RULING: The law vests a corporation with a

personality distinct and separate from its stockholders
or members. In the same vein, a corporation, by legal
fiction and convenience, is an entity shielded by a
protective mantle and imbued by law with a
character alien to the persons comprising it.
Nonetheless, the shield is not at all times
impenetrable and cannot be extended to a point
beyond its reason and policy. Circumstances might
deny a claim for corporate personality, under the
"doctrine of piercing the veil of corporate fiction."
In this case, there is an indubitable link between
CBB’s closure and Binswanger’s incorporation. CBB
ceased to exist only in name; it re-emerged in the
person of Binswanger for an urgent purpose which is
to avoid payment by CBB of the last two installments
of its monetary obligation to Livesey, as well as its
other financial liabilities.
Livesey’s evidence, whose existence the respondents
never denied, converged to show this continuity of
business operations from CBB to Binswanger. It was
not just coincidence that Binswanger is engaged in
the same line of business CBB embarked on: (1) it
even holds office in the very same building and on
the very same floor where CBB once stood; (2) CBB’s
key officers, Elliot, no less, and Catral moved over to
Binswanger, performing the tasks they were doing at
CBB; (3) notwithstanding CBB’s closure, Binswanger’s
Web Editor (Young), in an e-mail correspondence,
supplied the information that Binswanger is "now
known" as either CBB (Chesterton Blumenauer
Binswanger or as Chesterton Petty, Ltd., in the
Philippines; (4) the use of Binswanger of CBB’s
paraphernalia (receiving stamp) in connection with a
labor case where Binswanger was summoned by the

11
COMMERCIAL LAW REVIEW | G02
08 LANUZA JR AND OLBES v. BF CORP., SHANGRI-LA
ET.AL.
G.R. No. 174938 | Oct. 1, 2014 |LEONEN | ENRIQUEZ
TOPIC: SEPARATE PERSONALITY/PIERCING THE VEIL
DOCTRINE: Piercing the corporate veil is warranted
when "[the separate personality of a corporation] is
used as a means to perpetrate fraud or an illegal act,
or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to
confuse legitimate issues." It is also warranted in alter
ego cases "where a corporation is merely a farce
since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and
controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or
adjunct of another corporation."
When corporate veil is pierced, the corporation and
persons who are normally treated as distinct from the
corporation are treated as one person, such that
when the corporation is adjudged liable, these
persons, too, become liable as if they were the
corporation
FACTS:
1. BF Corporation filed a collection complaint with
the RTC against Shangri-La and the members of
its board of directors wherein Petitioners are a
part of.
2. BF Corporation alleged that:
• it entered into agreements with Shangri-La
wherein it undertook to construct for Shangri-
La a mall and a multilevel parking structure
along EDSA
• Shangri-La had been consistent in paying BF
Corporation. However, eventually, Shangri-La
started defaulting in payment
• Shangri-La induced BF Corporation to
continue with the construction of the
buildings using its own funds and credit
despite Shangri-La’s default
• Shangri-La misrepresented that it had funds
to pay for its obligations with BF Corporation
• Shangri-La took possession of the buildings
while still owing BF Corporation an
outstanding balance
• that the Shangri-La’s directors were in bad
faith in directing Shangri-La’s affairs.
Therefore, they should be held jointly and
severally liable with Shangri-La for its
obligations as well as for the damages that
BF Corporation incurred
3. Shangri-La and its Directors filed a motion to
suspend the proceedings in view of BF
Corporation’s failure to submit its dispute to
arbitration, in accordance with the arbitration
clause provided in its contract. It went up to the
SC which ruled that it must be submitted for
arbitration.
12
CORPORATION LAW
4. The RTC then issued an order directing service of
demands for arbitration upon all defendants
(including Petitioners) in BF Corporation’s
complaint.
5. Petitioners then filed a petition for certiorari
before the CA alleging grave abuse of discretion
in the issuance of orders compelling them to
submit to arbitration proceedings despite being
third parties to the contract between Shangri-La
and BF Corporation. The CA dismissed it. Hence,
this petition.
6. Petitioners argue that they cannot be held
personally liable for corporate acts or
obligations. The corporation is a separate being,
and nothing justifies BF Corporation’s allegation
that they are solidarily liable with Shangri-La.
Neither did they bind themselves personally nor
did they undertake to shoulder Shangri-La’s
obligations should it fail in its obligations. BF
Corporation also failed to establish fraud or bad
faith on their part.
7. On the other hand, BF Corporation also argued
that while petitioners were not parties to the
agreement, they were still impleaded under
Section 31 of the Corporation Code. Section 31
makes directors solidarily liable for fraud, gross
negligence, and bad faith. Petitioners are not
really third parties to the agreement because
they are being sued as Shangri-La’s
representatives, under Section 31 of the
Corporation Code.
ISSUE/HELD: Whether petitioners should be made
parties to the arbitration proceedings, pursuant to the
arbitration clause provided in the contract between
BF Corporation and Shangri-La? YES. Petition is
DENIED.
RATIO:
• The Arbitral Tribunal’s decision, absolving
petitioners from liability, and its binding effect on
BF Corporation, have rendered this case moot
and academic. The mootness of the case,
however, had not precluded us from resolving
issues so that principles may be established for
the guidance of the bench, bar, and the public.
• Thus, we rule that petitioners may be compelled
to submit to the arbitration proceedings in
accordance with Shangri-La and BF
Corporation’s agreement, in order to determine if
the distinction between Shangri-La’s personality
and their personalities should be disregarded.
• A corporation is an artificial entity created by
fiction of law. This means that while it is not a
person, naturally, the law gives it a distinct
personality and treats it as such. A corporation, in
the legal sense, is an individual with a personality
that is distinct and separate from other persons
COMMERCIAL LAW REVIEW | G02
including its stockholders, officers, directors,
representatives, and other juridical entities. The
law vests in corporations rights, powers, and
attributes as if they were natural persons with
physical existence and capabilities to act on
their own. For instance, they have the power to
sue and enter into transactions or contracts.
• Because a corporation’s existence is only by
fiction of law, it can only exercise its rights and
powers through its directors, officers, or agents,
who are all natural persons. A corporation
cannot sue or enter into contracts without them.
• A consequence of a corporation’s separate
personality is that consent by a corporation
through its representatives is not consent of the
representative, personally. Its obligations,
incurred through official acts of its
representatives, are its own. A stockholder,
director, or representative does not become a
party to a contract just because a corporation
executed a contract through that stockholder,
director or representative.
• Hence, a corporation’s representatives are
generally not bound by the terms of the contract
executed by the corporation. They are not
personally liable for obligations and liabilities
incurred on or in behalf of the corporation.
• As a general rule, therefore, a corporation’s
representative who did not personally bind
himself or herself to an arbitration agreement
cannot be forced to participate in arbitration
proceedings made pursuant to an agreement
entered into by the corporation. He or she is
generally not considered a party to that
agreement.
• However, there are instances when the
distinction between personalities of directors,
officers, and representatives, and of the
corporation, are disregarded. We call this
piercing the veil of corporate fiction.
• Piercing the corporate veil is warranted when
"[the separate personality of a corporation] is
used as a means to perpetrate fraud or an illegal
act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to
confuse legitimate issues." It is also warranted in
alter ego cases "where a corporation is merely a
farce since it is a mere alter ego or business
conduit of a person, or where the corporation is
so organized and controlled and its affairs are so
conducted as to make it merely an
instrumentality, agency, conduit or adjunct of
another corporation."
• When corporate veil is pierced, the corporation
and persons who are normally treated as distinct
from the corporation are treated as one person,
13
CORPORATION LAW
such that when the corporation is adjudged
liable, these persons, too, become liable as if
they were the corporation.
• Among the persons who may be treated as the
corporation itself under certain circumstances
are its directors and officers.
• Based on Sec. 31 of the Corporation Code, a
director, trustee, or officer of a corporation may
be made solidarily liable with it for all damages
suffered by the corporation, its stockholders or
members, and other persons in any of the
following cases:
a) willfully and knowingly voted for or
assented to a patently unlawful corporate
act;
b) of gross negligence or bad faith in
directing corporate affairs; and
c) acquired personal or pecuniary interest in
conflict with his or her duties as director or
trustee.
• Solidary liability with the corporation will also
attach in the following instances:
a) consented to the issuance of watered
stocks,
b) contractually agreed or stipulated to hold
himself personally and solidarily liable with
the corporation; and
c) made, by specific provision of law,
personally liable for his corporate action.
• Hence, when the directors, as in this case, are
impleaded in a case against a corporation,
alleging malice or bad faith on their part in
directing the affairs of the corporation,
complainants are effectively alleging that the
directors and the corporation are not acting as
separate entities. Complainants effectively pray
that the corporate veil be pierced because the
cause of action between the corporation and
the directors is the same. The corporation’s
obligations are treated as the representative’s
obligations when the corporate veil is pierced.
• However, when the courts disregard the
corporation’s distinct and separate personality
from its directors or officers, the courts do not say
that the corporation, in all instances and for all
purposes, is the same as its directors,
stockholders, officers, and agents. Courts merely
discount the distinction and treat them as one, in
relation to a specific act, in order to extend the
terms of the contract and the liabilities for all
damages to erring corporate officials who
participated in the corporation’s illegal acts.
COMMERCIAL LAW REVIEW | G02
• In this case, the Arbitral Tribunal rendered a
decision, finding that BF Corporation failed to
prove the existence of circumstances that render
petitioners and the other directors solidarily liable.
It ruled that petitioners and Shangri-La’s other
directors were not liable for the contractual
obligations of Shangri-La to BF Corporation. The
Arbitral Tribunal’s decision was made with the
participation of petitioners, albeit with their
continuing objection. In view of our discussion
above, we rule that petitioners are bound by
such decision.
14
CORPORATION LAW
09 IRENE MARTEL FRANSISCO V. NUMERIANO MALLEN,
JR.
G.R. No. 173169| September 22, 2010| CARPIO |
Estioko
TOPIC: Separate Personality/Piercing the Veil
DOCTRINE: To hold a director or officer personally
liable for corporate obligations, two requisites must
concur: (1) complainant must allege in the complaint
that the officer assented to patently unlawful acts of
the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) complainant must
clearly and convincingly prove such unlawful
acts, negligence or bad faith.
FACTS:
1. Mallen was hired as a waiter for VIPS Coffee
Shop and Restaurant.
2. On Jan. 30, 1998, Mallen took an approved
sick leave. On Feb. 15, 1998, he took a
vacation leave. Thereafter, he availed of his
paternity leave.
3. On April 18, 1998, he suffered tonsillitis, forcing
him to take a 3-day sick leave. However,
instead of the 3-day sick leave, he was given
3 mos. leave without pay.
4. Due to several illnesses within the 1st quarter
of the year, VIPS Coffee concluded that
Mallen was not physically fit to work. Thus, he
was given a 3 mos. leave to regain his
physical health.
5. After his leave, Mallen reported back to work
with a medical certificate stating that he was
fit to work but he was refused to work,
6. Because of this, Mallen filed a complaint for
(illegal dismissal) constructive dismissal.
7. The Labor Arbiter, whose decision was
reinstated by the Court of Appeals, stated
that FRANSISCO acted with malice and bad
faith in constructively dismissing respondent.
Thus, the Labor Arbiter held petitioner
personally liable for the monetary awards to
respondent.
ISSUE: Whether Fransisco is personally liable for the
monetary awards granted in favor of Mallen arising
from his alleged illegal termination- NO
HELD:
1. A corporation is a juridical entity with legal
personality separate and distinct from those
acting for and in its behalf and, in general,
from the people comprising it. The rule is that
obligations incurred by the corporation,
acting through its directors, officers and
employees, are its sole liabilities.
2. To hold a director or officer personally liable
for corporate obligations, two requisites must
COMMERCIAL LAW REVIEW | G02
concur: (1) complainant must allege in the
complaint that the director or officer
assented to patently unlawful acts of the
corporation, or that the officer was guilty of
gross negligence or bad faith; and
(2) complainant must clearly and
convincingly prove such unlawful
acts, negligence or bad faith.
3. LA’s finding lacks basis. Based on the records,
Mallen failed to allege either in his complaint
or position paper that Fransisco, as Vice-
President of VIPS Coffee Shop and
Restaurant, acted in bad faith. Neither did
Mallen clearly and convincingly prove that
Fransisco, as Vice-President of VIPS Coffee
Shop and Restaurant, acted in bad faith.
4. There was no evidence whatsoever to show
petitioners participation in respondents
alleged illegal dismissal.
5. Clearly, the twin requisites of allegation and
proof of bad faith, necessary to hold
petitioner personally liable for the monetary
awards to respondent, are lacking.
15
CORPORATION LAW
10 PACIFIC REHOUSE CORP. V. CA, EXPORT AND
INDUSTRY BANK
G.R. No. 199687 | March 24, 2014 | J. Reyes |
Huecas
TOPIC: Separate Personality/ Piercing the Veil
FACTS:
1. A case was filed before the RTC against EIB
Securities Inc. (E-Securities) for the
unauthorized sale of 32,180,000 DMCI shares
owned by Pacific Rehouse Corporation,
Pacific Concorde Corporation, Mizpah
Holdings, Inc., Forum Holdings Corporation,
and East Asia Oil Company, Inc. (Petitioners)
2. Judgment was rendered against E-Securities,
ordering the return of the DMCI shares to
Petitioners, but the Writ of Execution was
returned unsatisfied so Petitioners moved for
an alias writ of execution to hold Export and
Industry Bank, Inc. (Respondent) liable for the
judgment obligation of E-Securities alleging
that the latter is “a wholly-owned controlled
and dominated subsidiary of Export and
Industry Bank, Inc., and is thus a mere alter
ego and business conduit of the latter.”
(Respondent owns 499,995/500,000
outstanding shares of stocks of E-Securities)
3. Respondent contends that it is a separate
and distinct entity from its subsidiary and that
it was not properly impleaded as a
defendant in the initial case (irrelevant
topic).
ISSUE: W/N the Alter Ego Doctrine is applicable to
justify piercing the corporate veil.
HELD/RULING: NO
The three-pronged control test to establish when the
alter ego doctrine should be operative:
1. Control, not mere majority or
complete stock control, but
complete domination, not only of
finances but of policy and business
practice in respect to the
transaction attacked so that the
corporate entity as to this transaction
had at the time no separate mind,
will or existence of its own;
2. Such control must have been used
by the defendant to commit fraud or
wrong, to perpetuate the violation of
a statutory or other positive legal
duty, or dishonest and unjust act in
contravention of plaintiff’s legal right;
and
3. The aforesaid control and breach of
duty must [have] proximately
caused the injury or unjust loss
complained of.
COMMERCIAL LAW REVIEW | G02
The absence of any of the elements mentioned will
bar the applicability of the alter ego doctrine.
Control, by itself, does not mean that the controlled
corporation is a mere instrumentality or a business
conduit of the mother company. Even control over
the financial and operational concerns of a
subsidiary company does not by itself call for
disregarding its corporate fiction. There must be a
perpetuation of fraud behind the control or at least a
fraudulent or illegal purpose behind the control in
order to justify piercing the veil of corporate fiction.
Such fraudulent intent is lacking in this case and
there was no record demonstrative of Respondent’s
fraudulent intent in setting up E-Securities. To justify
treating the sole stockholder or holding company as
responsible, it is not enough that the subsidiary is so
organized and controlled as to make it “merely an
instrumentality, conduit or adjunct” of its
stockholders. It must further appear that to recognize
their separate entities would aid in the consummation
of a wrong.
Ownership by Respondent of a great majority or all of
stocks of E-Securities and the existence of interlocking
directorates may serve as badges of control, but
ownership of another corporation, per se, without
proof of actuality of the other conditions are
insufficient to establish an alter ego relationship or
connection between the two corporations, which will
justify the setting aside of the cover of corporate
fiction. The wrongdoing must be clearly and
convincingly established; it cannot be presumed.
Basically, even if E-Securities could not fulfill the
judgment award in favor of Petitioners, the
Respondents cannot be liable since the elements for
the applicability of the alter ego doctrine were not
complied with.
16
CORPORATION LAW
11. HEIRS OF FE TAN UY v. INTERNATIONAL EXCHANGE
BANK
GR NO. 166282 |FEBRUARY 13, 2013|Mendoza, J.|
INGUILLO
TOPIC: Separate Corporate Personality; Piercing the
corporate veil
DOCTRINE: Basic is the rule in corporation law that a
corporation is a juridical entity which is vested with a
legal personality separate and distinct from those
acting for an in its behalf. Following this principle,
obligations incurred by the corporation, acitng
through its directors, officers and employees, are its
sole liabilities. Nevertheless, this legal fiction may be
disregarded if it is used as a mean to perpetuate
fraud or an illegal act, or as a vehicle for the evasion
of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues.
FACTS:
1. In 1996, Hammer, through its President and
General Manager, Manuel Chua obtained loans
from International Exchange Bank (iBank). The
loans were covered by various promissory notes
with an aggregate amount of P24 Million.
• The loans were secured by a P9 Million-Peso
Real Estate Mortgage executed by Goldkey
Development Corporation over several of its
properties and a P25 Million- Surety
Agreement executed by Manuel Chua and
his wife, Fe Tan Uy.
2. Subsequently, Hammer defaulted in the payment
of its loans. As a result thereof, iBank moved to
foreclose Goldkey’s Real Estate Mortgage.
• Despite the sale of the Real Estate
Mortgages, an unpaid balance of
P13,420,177.62 remained.
3. Due to Hammer’s failure to settle the unpaid
balance, iBank filed a complaint for sum of
money against Hammer, Manuel Chua, Fe Tan
Uy, and GoldKey before the RTC.
4. Chua and Hammer both failed to file their
answers,hence, were declared in default.
• For her part, Fe Tan Uy argued that she
should not be held laible to iBank because
she never executed a Surety Agreement in
favor of iBank.
• Goldkey likewise denied liability mainly on
the ground that it was a corporation
separate and distinct from Hammer.
5. Meanwhile, iBank applied for a writ of preliminary
attachment which was favorably ruled by the
trial court. By virtue of which, a Notice of Levy on
Attachment of Real Properties over Goldkey’s
properties was sent to the Registry of Deeds of
Quezon City.
6. The RTC ruled in favor of iBank. In its decision, the
court a quo held that Goldkey and Hammer
were one and the same thus warranting the
COMMERCIAL LAW REVIEW | G02
piercing of the veil of corporate fiction. The
decision was based on the following factors:
a. Both were family corporations of Manuel
Chua and Fe Tan Uy;
b. Both shared the same office and transacted
business from the same place;
c. The assets of the 2 corporations are co-
mingled;
d. When Manuel Chua absconded, both
corporation ceased to operate.
7. Upon appeal, the Court of Appeals affirmed the
ruling of the RTC. It found that iBank was induced
to grant the loan by virtue of the falsified
Financial Records submitted by the petitioners;
such act showed that the petitioners used the
corporate fiction to defraud iBank and warrant
the conclusion that Hammer and Goldkey should
be treated as one and the same.
8. Hence, the instant petitioners separately filed by
the heirs of Uy and Goldkey.
ISSUE:
1. WON Uy, as an officer and stockholder of
Hammer, can be held laible to iBank for
Hammer’s loan obligation.-NO
2. WON Goldkey can be held laible for the
obligation of Hammer for being a mere alter ego
of the latter.- YES.
RULING:
1. No. Uy cannot be held laible for the obligation
of Hammer to iBank.
• Basic Rule in Corporation Law: A
corporation is a juridical entity which is
vested with a legal personality separate
and distinct from those acting for and in its
behalf and, in general, from the people
comprising it.
• Following this, as a general rule, a director,
officer or employee of a corporation is not
personally liable for obligations incurred by
the coporation. Nevertheless, as an
exception, Section 31 of the Corporation
Code provides that the legal fiction may be
disregarded if the same is used as a means
to perpetuate fraud or an illegal act, or as a
vehicle for the evasion of an existing
obligation, circumvention of statutes, or as a
means to confuse legitimate issues.
• Thus, before a director or officer of a
corporation can be held personally liable
for corporate obligations the following must
first be present:
a. It must be shown that the director or
officer assented to the patently unlawful
acts of the corporation or that he was
guilty og gross negligence or bad faith;
and
17
CORPORATION LAW
b. The complainant must clearly and
convincingly prove such unlawful acts,
negligence or bad faith.
• In the case at bar, iBank failed to prove that
Uy committed an unlawful act as an officer
of Hammer that would permit the piercing of
the corporate veil. In fact, upon review of the
complaint, it was shown that iBank never
averred that Uy committed any bad faith or
gross negligence in the performance of her
duties.
• The Court emphasized that the application
of the doctrine of piercing the corporate veil
should be done with caution and only in
cases what it has been clearly established
that the separate and distinct personality of
the corporation is used to justify a wrong.
2. Yes. Goldkey is a mere alter ego of Hammer.
• Under the doctrine of piercing the veil of
corporate fiction, when two business
enterprises are owned, conducted and
controlled by the same parties, both lawlaw
and equity will, when necessary to protect
the rights of third parties, disregard the legal
fiction that two corporations are distinct and
treat them as identical or one and the same.
• Furthermore, the Court cited its ruling in the
case of Concept Builders vs NLRC to lay
down some probative factors that will justify
the application of the doctrine of piercing
the corporate veil:
a. Stock ownership by one or common
ownership of both corporation;
b. Identity of directors and officers;
c. The manner of keeping corporate books
and records, and
d. Methods of conducting the business.
• In the case at bar, the factors cited above
are present as observed by the RTC:
a. Both corporations are family corporations
of defendants Manuel Chua, his wife
and their respective relatives.
b. Both Hammer and Goldkey share the
same office and practically transact their
business from the same place.
c. Chua, the President and Chief Operating
Officer of both corporations. Likewise, all
business transactions of Goldkey and
Hammer are done at the instance of
Manuel Chua who is duly authorized by
the corporations. In fact, it was Chua
who signed the PN for Hammer in his
capacity as the President and Gen.
Manager of Hammer. He was also the
one who signed the 3rd party real estate
mortgage for Goldkey to secure
Hammer’s obligation.
COMMERCIAL LAW REVIEW | G02
d. The assets of Hammer and Goldkey are
co-mingled. The proceeds of the loan
was used to finance the purchase of a
manager’s check payable to Goldkey.
e. When Manuel Chua disappeared,
Goldkey ceased to operate despite the
claim that the other officers and
stockholders are still around and may be
able to continue the business of
Goldkey, if it were different and distinct
from Hammer which suffered financial
set back.
18
CORPORATION LAW
12 PNB v. HYDRO RESOURCES CONTRACTORS CORP.
G.R. No. 167530| Mar. 13, 2013 | Leonardo-De Castro
| Lacap
TOPIC: Separate Personality/ Piercing the Veil
DOCTRINES:
• 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.
• Existence of interlocking directors, corporate
officers and shareholders is not enough
justification to pierce the veil of corporate fiction
in the absence of fraud or other public policy
considerations.
FACTS:
1. Development Bank of the Philippines (DBP) and
Philippine National Bank (PNB) acquired the
properties of Marinduque Mining and Industrial
Corporation (MMIC) through foreclosure of the
latter’s mortgages.
a. As a result, DBP and PNB acquires
substantially all of the assets of MMIC
and resumed operations by organizing
NMIC (Nonoc Mining and Industrial
Corporation.
b. DBP and PNB owned 57% and 43% of the
shares of NMIC, respectively. The board
of directors also came from either DBP or
PNB.
2. NMIC acquired the services of Hercon Inc. for the
former’s Mine Stripping and Road Construction
Program for a total of P35m.
3. After computing the payments made by NMIC,
Hercon found that there was still an unpaid
balance of P8m.
4. When Hercon’s demands were not heeded, it
filed a case for collection of sum of money with
the RTC against NMIC, DBP and PNB.
5. In the interim, Hercon, Inc was acquired by HRCC
(respondent, Hyrdro Resources Contractors
Corp). Meanwhile, Asset Privatization Trust (ATP)
was created through Proc. No. 50 and was
impleaded as a defendant in this case after the
assets and liabilities of DPB and PNB in NMIC were
transferred to ATP.
6. NMIC’s argument: HRCC has no cause of action
because the contract with HRCC was entered by
its then President who had no authority.
7. DBP and PNB’s arguments: claimed that HRCC
had no cause of action because they were not
privy to HRCC’s contract with NMIC
8. RTC: ruled in favor of PNB and it pierced the
corporate veil of NMIC by holding DBP and PNB
solidarily liable with NMIC.
COMMERCIAL LAW REVIEW | G02
a. NMIC is owned by defendants DBP and
PNB, with the former owning 57% thereof,
and the latter 43%
b. The business of NMIC was then also
being conducted and controlled by
both DBP and PNB.
c. In fact, it was Rolando M. Zosa, then
Governor of DBP, who was signing and
entering into contracts with third persons,
on behalf of NMIC.
9. CA: affirmed the decision of RTC.
10. PETITIONERS: All three petitioners assert that NMIC
is a corporate entity with a juridical personality
separate and distinct from both PNB and DBP.
• According to them, the application of the
doctrine of piercing the corporate veil is
unwarranted as nothing in the records would
show that the ownership and control of the
shareholdings of NMIC by DBP and PNB were
used to commit fraud, illegality or injustice.
• In the absence of evidence that the stock
control by DBP and PNB over NMIC was used
to commit some fraud or a wrong and that
said control was the proximate cause of the
injury sustained by HRCC, resort to the
doctrine of "piercing the veil of corporate
entity" is misplaced
11. RESPONDENT: claims that NMIC was the alter ego
of DBP and PNB which owned, conducted and
controlled the business of NMIC as shown by the
following circumstances: NMIC was owned by
DBP and PNB, the officers of DBP and PNB were
also the officers of NMIC, and DBP and PNB
financed the operations of NMIC.
ISSUE: Whether the doctrine of piercing the corporate
veil would apply to NMIC, thereby holding it solidarily
liable with DBP and PNB. NO
HELD:
• PRINCIPLE OF LIMITED LIABILITY: By virtue of the
separate juridical personality of a corporation,
the corporate debt or credit is not the debt or
credit of the stockholder.
• PERICING THE CORPORATE VEIL: Equally well-
settled is the principle that the corporate mask
may be removed or the corporate veil pierced
when the corporation is just an alter ego of a
person or of another corporation. For reasons of
public policy and in the interest of justice, the
corporate veil will justifiably be impaled only
when it becomes a shield for fraud, illegality or
inequity committed against third persons.
• Any application of the doctrine of piercing the
corporate veil should be done with caution. A
court should be mindful of the milieu where it is to
be applied.
o It must be certain that the corporate
fiction was misused to such an extent
19
CORPORATION LAW
that injustice, fraud, or crime was
committed against another, in disregard
of its rights.
o The wrongdoing must be clearly and
convincingly established; it cannot be
presumed.
• Sarona v. NLRC has defined the scope of
application of the doctrine of piercing the
corporate veil. The doctrine of piercing the
corporate veil applies only in three (3) basic
areas, namely:
1) defeat of public convenience as when
the corporate fiction is used as a vehicle
for the evasion of an existing obligation;
2) fraud cases or when the corporate entity
is used to justify a wrong, protect fraud,
or defend a crime; or
3) alter ego cases, where a corporation is
merely a farce since it is a mere alter ego
or business conduit of a person, or where
the corporation is so organized and
controlled and its affairs are so
conducted as to make it merely an
instrumentality, agency, conduit or
adjunct of another corporation.
• Here, HRCC has alleged from the inception of this
case that DBP and PNB (and the APT as assignee
of DBP and PNB) should be held solidarily liable
for using NMIC as alter ego.
• In this connection, case law lays down a three-
pronged test to determine the application of the
alter ego theory, which is also known as the
instrumentality theory, namely:
(1) Control, not mere majority or complete stock
control, but complete domination, not only
of finances but of policy and business
practice in respect to the transaction
attacked so that the corporate entity as to
this transaction had at the time no separate
mind, will or existence of its own;
(2) Such control must have been used by the
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or
other positive legal duty, or dishonest and
unjust act in contravention of plaintiff’s legal
right; and
(3) The aforesaid control and breach of duty
must have proximately caused the injury or
unjust loss complained of.
• To summarize, piercing the corporate veil based
on the alter ego theory requires the concurrence
of three elements: control of the corporation by
the stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff,
and harm or damage caused to the plaintiff by
the fraudulent or unfair act of the corporation.
The absence of any of these elements prevents
piercing the corporate veil.
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

corporation, the wrongdoing or unjust act in

• This Court finds that none of the tests has been
satisfactorily met in this case.
• The conclusion of the trial and appellate courts
that the DBP and PNB fit the alter ego theory with
respect to NMIC’s transaction with HRCC on the
premise of complete stock ownership and
interlocking directorates involved a quantum
leap in logic and law exposing a gap in reason
and fact.
• While ownership by one corporation of all or a
great majority of stocks of another corporation
and their interlocking directorates may serve as
indicia of control, by themselves and without
more, however, these circumstances are
insufficient to establish an alter ego relationship
or connection between DBP and PNB on the one
hand and NMIC on the other hand, that will justify
the puncturing of the latter’s corporate cover.
o This Court has declared that "mere
ownership by a single stockholder or by
another corporation of all or nearly all of
the capital stock of a corporation is not
of itself sufficient ground for disregarding
the separate corporate personality."
o This Court has likewise ruled that the
"existence of interlocking directors,
corporate officers and shareholders is
not enough justification to pierce the veil
of corporate fiction in the absence of
fraud or other public policy
considerations.
contravention of a plaintiff’s legal rights must be
clearly and convincingly established; it cannot
be presumed. Without a demonstration that any
of the evils sought to be prevented by the
doctrine is present, it does not apply.
• It is a recognition that, even assuming that DBP
and PNB exercised control over NMIC, there is no
evidence that the juridical personality of NMIC
was used by DBP and PNB to commit a fraud or
to do a wrong against HRCC.
• There being a total absence of evidence
pointing to a fraudulent, illegal or unfair act
committed against HRCC by DBP and PNB under
the guise of NMIC, there is no basis to hold that
NMIC was a mere alter ego of DBP and PNB.
THIRD ELEMENT: HARM/INJURY
• As regards the third element, in the absence of
both control by DBP and PNB of NMIC and fraud
or fundamental unfairness perpetuated by DBP
and PNB through the corporate cover of NMIC,
no harm could be said to have been proximately
caused by DBP and PNB on HRCC for which
HRCC could hold DBP and PNB solidarily liable
with NMIC.

FIRST ELEMENT: CONTROL

• In this case, nothing in the records shows that the
corporate finances, policies and practices of
NMIC were dominated by DBP and PNB in such a
way that NMIC could be considered to have no
separate mind, will or existence of its own but a
mere conduit for DBP and PNB.
o On the contrary, the evidence
establishes that HRCC knew and acted
on the knowledge that it was dealing
with NMIC, not with NMIC’s stockholders.
• HRCC has presented nothing to show that DBP
and PNB had a hand in the act complained of,
the alleged undue disregard by NMIC of the
demands of HRCC to satisfy the unpaid claims for
services rendered by HRCC in connection with
NMIC’s mine stripping and road construction
program in 1985. On the contrary, the overall
picture painted by the evidence offered by
HRCC is one where HRCC was dealing with NMIC
as a distinct juridical person acting through its
own corporate officers.

SECOND ELEMENT: FRAUD

• In relation to the second element, to disregard
the separate juridical personality of a

20
COMMERCIAL LAW REVIEW | G02
13 KUKAN v. JUDGE REYES, MORALES
GR 182729 | Sep 29, 2010 | Velasco | Laureta
DOCTRINE: The principle of piercing the veil of
corporate fiction, and the resulting treatment of two
related corporations as one and the same juridical
person with respect to a given transaction, is basically
applied only to determine established liability; it is not
available to confer on the court a jurisdiction it has
not acquired, in the first place, over a party not
impleaded in a case.
FACTS:
1. Kukan, Inc. conducted a bidding for the supply
and installation of signages in a building being
constructed in Makati City. Morales was
awarded the 5M contract, which was reduced
to 3.3M after items were excluded.
2. Despite compliance Morales was only paid 1.9M
leaving a balance of 1.4M, which Kukan, Inc.
refused to pay despite demands.
Shortchanged, Morales filed a Complaint with
the RTC against Kukan, Inc. for sum of money.
3. Following the joinder of issues after Kukan, Inc.
filed an answer with counterclaim, trial ensued.
However, starting November 2000, Kukan, Inc.
no longer appeared and participated in the
proceedings before the trial court, prompting
the RTC to declare Kukan, Inc. in default and
paving the way for Morales to present his
evidence ex parte.
4. RTC decided in favor of Motrales and ordered
Kukan, Inc to pay 1.2M plus damages etc.
5. A writ of execution was issued. The sheriff levied
upon personal properties found at what was
supposed to be Kukan, Inc.s office at Salcedo
Village, Makati City. Alleging that it owned the
properties levied and that it was a different
corporation from Kukan, Inc., Kukan
International Corporation (KIC) filed an Affidavit
of Third-Party Claim. Notably, KIC was
incorporated in August 2000, or shortly after
Kukan, Inc. had stopped participating in the
case.
6. In an Omnibus Motion Morales’ prayer, applying
the principle of piercing the veil of corporate
fiction, that an order be issued for the
satisfaction of the judgment debt of Kukan, Inc.
with the properties under the name or in the
possession of KIC, it being alleged that both
corporations are but one and the same entity.
Denied.
7. Presiding judge Peralta inhibited. This time
Branch 21 granted the motion and declared
Kukan, Inc. and newly created KIC as one and
the same corporation and the levy as proper,
the two jointly and severally liable. CA affirmed.
ISSUE: W/N the principle of piercing the veil of
corporate entity was correctly applied? NO
21
CORPORATION LAW
HELD:
The principle of piercing the veil of corporate fiction,
and the resulting treatment of two related
corporations as one and the same juridical person
with respect to a given transaction, is basically
applied only to determine established liability; it is not
available to confer on the court a jurisdiction it has
not acquired, in the first place, over a party not
impleaded in a case.
Hence: (1) the court must first acquire
jurisdiction over the corporation or
corporations involved before its or their
separate personalities are disregarded; and
(2) the doctrine of piercing the veil of
corporate entity can only be raised during a
full-blown trial over a cause of action duly
commenced involving parties duly brought
under the authority of the court by way of
service of summons or what passes as such
service.
In this case (1) KIC was not impleaded in the
Civil Case and RTC did not acquire
jurisdiction over it. KIC was dragged to the
case after it reacted to the improper
execution of its properties and veritably
hauled to court, not thru the usual process of
service of summons, but by mere motion of a
party with whom it has no privity of contract
and after the decision in the main case had
already become final and executory; (2) no
full-blown trial.
Any application of the doctrine of piercing the
corporate veil should be done with caution. A court
should be mindful of the milieu where it is to be
applied. It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or
crime was committed against another, in disregard of
its rights. The wrongdoing must be clearly and
convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended
may result from an erroneous application.
Instances when the Court pierced the veil of
corporate fiction of two corporations, there was a
confluence of the following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation
is transferred to a second
corporation to avoid a financial
liability of the first corporation;
and
3. Both corporations are owned
and controlled by the same
persons such that the second
corporation should be
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

considered as a continuation ordered returned to Kukan International orporation.

and successor of the first The RTC to execute the RTC Decision dated
corporation. November 28, 2002 against Kukan, Inc. with
reasonable dispatch
In the instant case 1 & 2 are absent. There is,
therefore, no compelling justification for disregarding
the fiction of corporate entity.
As is apparent from its disquisition, the RTC brushed
aside the separate corporate existence of Kukan,
Inc. and KIC on the main argument that Michael
Chan owns 40% of the common shares of both
corporations, obviously oblivious that overlapping
stock ownership is a common business phenomenon.
It must be remembered, however, that KICs
properties were the ones seized upon levy on
execution and not that of Kukan, Inc. or of Michael
Chan for that matter. Mere ownership by a single
stockholder or by another corporation of a substantial
block of shares of a corporation does not, standing
alone, provide sufficient justification for disregarding
the separate corporate personality. For this ground to
hold sway in this case, there must be proof that Chan
had control or complete dominion of Kukan and KICs
finances, policies, and business practices; he used
such control to commit fraud; and the control was
the proximate cause of the financial loss complained
of by Morales. The absence of any of the elements
prevents the piercing of the corporate veil. The
records do not show these elements.
The fact that Kukan, Inc. entered into a PhP 3.3 million
contract when it only had a paid-up capital of PhP
5,000 is not an indication of the intent on the part of
its management to defraud creditors.
Neither should the level of paid-up capital of Kukan,
Inc. upon its incorporation be viewed as a badge of
fraud, for it is in compliance with Sec. 13 of the
Corporation Code,2 which only requires a minimum
paid-up capital of PhP 5,000.
In fine, there is no showing that the incorporation,
and the separate and distinct personality, of KIC was
used to defeat Morales right to recover from Kukan,
Inc. Judging from the records, no serious attempt was
made to levy on the properties of Kukan, Inc. Morales
could not, thus, validly argue that Kukan, Inc. tried to
avoid liability or had no property against which to
proceed. It is true that Michael Chan, a.k.a. Chan Kai
Kit, owns 40% of the outstanding capital stock of both
corporations. But such circumstance, standing alone,
is insufficient to establish identity. There must be at
least a substantial identity of stockholders for both
corporations in order to consider this factor to be
constitutive of corporate identity.
Granted. The levy placed upon the personal
properties of Kukan International Corporation is
hereby ordered lifted and the personal properties

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COMMERCIAL LAW REVIEW | G02
14 TIMOTEO SARONA v. NLRC
G.R. No. 185280 |Jan. 18, 2012 | J. Reyes | LAZATIN
TOPIC: Separate Personality / Piercing the Veil
DOCTRINE:
The doctrine of piercing the corporate veil applies
only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is
used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate
entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a
corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the
corporation is so organized and controlled and its
affairs are so conducted as
to make it merely an instrumentality, agency, conduit
or adjunct of another corporation.
FACTS:
1. Petitioner, who was hired by Sceptre as a security
guard was asked by Karen Therese Tan (Karen),
Sceptre’s Operation Manager, to submit a
resignation letter as the same was supposedly
required for applying for a position at Royale. The
petitioner was also asked to fill up Royale’s
employment application form, which was
handed to him by Royale’s General Manager,
respondent Cesar Antonio Tan II (Cesar).
2. After several weeks of being in floating status,
Royale’s Security Officer, Martin Gono (Martin),
assigned the petitioner at Highlight Metal Craft,
Inc. (Highlight Metal). Thereafter, the petitioner
was transferred and assigned to Wide Wide
World Express, Inc. (WWWE, Inc.).
3. Petitioner was informed that his assignment at
WWWE, Inc. had been withdrawn because
Royale had allegedly been replaced by another
security agency. The petitioner, however, shortly
discovered thereafter that Royale was never
replaced as WWWE, Inc.’s security agency. When
he placed a call at WWWE, Inc., he learned that
his fellow security guard was not relieved from his
post.
4. Subsequently, when the petitioner reported at
Royale’s office on October 1, 2003, Martin
informed him that he would no longer be given
any assignment per the instructions of Aida
Sabalones-Tan (Aida), general manager of
Sceptre. This prompted him to file a complaint for
illegal dismissal.
5. Labor Arbiter Jose Gutierrez (LA Gutierrez) ruled in
the petitioner’s favor and found him illegally
dismissed.
6. LA Gutierrez refused to pierce Royale’s corporate
veil for purposes of factoring the petitioner’s
length of service with Sceptre in the computation
of his separation pay. LA Gutierrez ruled that
Royale’s corporate personality, which is separate
23
CORPORATION LAW
and distinct from that of Sceptre, a sole
proprietorship owned by the late Roso Sabalones
(Roso) and later, Aida, cannot be pierced absent
clear and convincing evidence that Sceptre and
Royale share the same stockholders and
incorporators and that Sceptre has complete
control and dominion over the finances and
business affairs of Royale.
7. CA affirmed decision of LA
ISSUE:
WON Royale’s corporate fiction should be pierced for
the purpose of compelling it to recognize the
petitioner’s length of service with Sceptre and for
holding it liable for the benefits that have accrued to
him arising from his employment with Sceptre – YES
HELD:
1. As correctly pointed out by the petitioner, it was
Aida who exercised control and supervision over
the affairs of both Sceptre and Royale. Contrary
to the submissions of the respondents that Roso
had been the only one in sole control of
Sceptre’s finances and business affairs, Aida took
over as early as 1999 when Roso assigned his
license to operate Sceptre on May 3, 1999. As
further proof of Aida’s acquisition of the rights as
Sceptre’s sole proprietor, she caused the
registration of the business name “Sceptre
Security & Detective Agency” under her name
with the DTI a few months after Roso abdicated
his rights to Sceptre in her favor.
2. As far as Royale is concerned, the respondents
do not deny that she has a hand in its
management and operation and possesses
control and supervision of its employees,
including the petitioner. As the petitioner
correctly pointed out, that Aida was the one who
decided to stop giving any assignments to the
petitioner and summarily dismiss him is an
eloquent testament of the power she wields
insofar as Royale’s affairs are concerned. The
presence of actual common control coupled
with the misuse of the corporate form to
perpetrate oppressive or manipulative conduct
or evade performance of legal obligations is
patent; Royale cannot hide behind its corporate
fiction.
3. Aida’s control over Sceptre and Royale does not,
by itself, call for a disregard of the corporate
fiction. There must be a showing that a fraudulent
intent or illegal purpose is behind the exercise of
such control to warrant the piercing of the
corporate veil. However, the manner by which
the petitioner was made to resign from Sceptre
and how he became an employee of Royale
suggest the perverted use of the legal fiction of
the separate corporate personality. It is
COMMERCIAL LAW REVIEW | G02
undisputed that the petitioner tendered his
resignation and that he applied at Royale at the
instance of Karen and Cesar and on the
impression they created that these were
necessary for his continued employment.
4. They orchestrated the petitioner’s resignation
from Sceptre and subsequent employment at
Royale, taking advantage of their ascendancy
over the petitioner and the latter’s lack of
knowledge of his rights and the consequences of
his actions. Furthermore, that the petitioner was
made to resign from Sceptre and apply with
Royale only to be unceremoniously terminated
shortly thereafter leads to the ineluctable
conclusion that there was intent to violate the
petitioner’s rights as an employee, particularly his
right to security of tenure.
5. The respondents’ scheme reeks of bad faith and
fraud and compassionate justice dictates that
Royale and Sceptre be merged as a single entity,
compelling Royale to credit and recognize the
petitioner’s length of service with Sceptre. The
respondents cannot use the legal fiction of a
separate corporate personality for ends
subversive of the policy and purpose behind its
creation or which could not have been intended
by law to which it owed its being.
6. Also, Sceptre and Royale have the same
principal place of business. Aida and Wilfredo
became the owners of the property used by
Sceptre as its principal place of business by virtue
of a Deed of Absolute Sale they executed with
Roso. Royale, shortly after its incorporation,
started to hold office in the same property.
7. The respondents do not likewise deny that Royale
and Sceptre share the same officers and
employees. Karen assumed the dual role of
Sceptre’s Operation Manager and incorporator
of Royale. With respect to the petitioner, even if
he has already resigned from Sceptre and has
been employed by Royale, he was still using the
patches and agency cloths of Sceptre during his
assignment at Highlight Metal.
8. Royale also claimed a right to the cash bond
which the petitioner posted when he was still with
Sceptre. If Sceptre and Royale are indeed
separate entities, Sceptre should have released
the petitioner’s cash bond when he resigned and
Royale would have required the petitioner to
post a new cash bond in its favor.
9. Effectively, the petitioner cannot be deemed to
have changed employers as Royale and Sceptre
are one and the same. His separation pay
should, thus, be computed from the date he was
hired by Sceptre in April 1976 until the finality of
this decision.
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CORPORATION LAW
15 RAMIREZ, ET AL. v. MAR FISHING ET AL.
G.R. No. 168208, June 13, 2012 SERENO | LIN
TOPIC: Separate Personality/ Piercing the Veil
FACTS:
1. On 28 June 2001, Mar Fishing sold its principal
assets to co-respondent Miramar Fishing Co., Inc.
through public bidding. In view of that transfer,
Mar Fishing issued a Memorandum on October
23, 2001, informing all its workers that the
company would cease to operate by the end of
the month, thereafter, it also notified the DOLE of
the closure of its business operations.
2. Mar Fishing labor union, Mar Fishing Workers
Union NFL and Miramar entered into a
Memorandum of Agreement, which provides
that Miramar, shall absorb Mar Fishing regular
rank and file employees whose performance was
satisfactory, without loss of seniority rights and
privileges previously enjoyed.
3. Unfortunately, petitioners, who worked as rank
and file employees, were not hired or given
separation pay by Miramar. Thus, petitioners filed
Complaints for illegal dismissal with money claims
before the Arbitration Branch of the NLRC.
4. LA: Mar Fishing had necessarily closed its
operations, considering that Miramar had
already bought the tuna canning plant. By
reason of the closure, petitioners were legally
dismissed for authorized cause. In addition, even
if Mar Fishing reneged on notifying the DOLE
within 30 days prior to its closure, that failure did
not make the dismissals void. Consequently, the
LA ordered Mar Fishing to give separation pay to
its workers.
5. NLRC: modified the LA Decision. Noting that Mar
Fishing notified the DOLE only two days before
the business closed, the labor court considered
petitioners dismissal as ineffectual. Hence, it
awarded, apart from separation pay, full back
wages to petitioners from the time they were
terminated on 31 October 2001 until the date
when the LA upheld the validity of their dismissal
on 30 July 2002. Additionally, the NLRC pierced
the veil of corporate fiction and ruled that Mar
Fishing and Miramar were one and the same
entity, since their officers were the same. Hence,
both companies were ordered to solidarily pay
the monetary claims. MR: the NLRC modified its
ruling by imposing liability only on Mar Fishing.
6. CA: finding that only 3 of the 228 petitioners
signed the Verification and Certification against
forum shopping, the CA instantly dismissed the
action for certiorari against the 225 other
petitioners without ruling on the substantive
aspects of the case.
ISSUE: Whether the doctrine of piercing the veil
applies in this case?
COMMERCIAL LAW REVIEW | G02
HELD: NO
The question of whether one corporation is merely an
alter ego of another is purely one of fact generally
beyond the jurisdiction of this Court. In any case,
given only these bare reiterations, this Court sustains
the ruling of the LA as affirmed by the NLRC that
Miramar and Mar Fishing are separate and distinct
entities, based on the marked differences in their
stock ownership. Also, the fact that Mar Fishings
officers remained as such in Miramar does not by
itself warrant a conclusion that the two companies
are one and the same. As this Court held in Sesbreo
v. Court of Appeals, the mere showing that the
corporations had a common director sitting in all the
boards without more does not authorize disregarding
their separate juridical personalities.
Neither can the veil of corporate fiction between the
two companies be pierced by the rest of petitioners
submissions, namely, the alleged take-over by
Miramar of Mar Fishings operations and the evident
similarity of their businesses. At this point, it bears
emphasizing that since piercing the veil of corporate
fiction is frowned upon, those who seek to pierce the
veil must clearly establish that the separate and
distinct personalities of the corporations are set up to
justify a wrong, protect a fraud, or perpetrate a
deception.[38] This, unfortunately, petitioners have
failed to do.
In Indophil Textile Mill Workers Union vs. Calica:
petitioner seeks to pierce the veil of corporate entity
of Acrylic, alleging that the creation of the
corporation is a device 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 auxiliary
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.
Having been found by the trial courts to be a
separate entity, Mar Fishing and not Miramar is
required to compensate petitioners. Indeed, the
back wages and retirement pay earned from the
former employer cannot be filed against the new
owners or operators of an enterprise. CA AFFIRMED,
PETITION DENIED.
25
CORPORATION LAW
16 CHINA BANKING CORPORATION V. DYNE-SEM
ELECTRONICS CORP.
G.R. No.14923| July 11, 2006|J.BRION| MENDOZA
TOPIC: Separate Personality/Piercing the Corporate
Veil
DOCTRINE:
The mere fact that the businesses of two or more
corporations are interrelated is not a justification for
disregarding their separate personalities, absent
sufficient showing that the corporate entity was
purposely used as a shield to defraud creditors and
third persons of their rights.
FACTS:
1. Elpidio O. Lim borrowed a total of P8,939,000
from Petitioner (China Banking Corporation) as
evidenced by six promissory notes.
2. The borrowers failed to pay when the obligations
became due. Petitioner consequently instituted
a complaint for sum of money.
3. Summons was not served on Dynetics because it
had already closed down.
4. Petitioner filed an amended complaint
impleading Respondent (Dyne-Sem Electronics)
and its stockholders alleging that respondent
was formed and organized to be Dynetics’ alter
ego.
5. According to the Petitioner, i. Dynetics and the
Respondent are both engaged in the same line
of business of integrated circuits and
semiconductor devices; ii. Both have the same
principal office and factory site; and iii.
Respondent retained some of the officers of
Dynetic.
6. On the other hand, Respondent alleged that: i.
the incorporators as well as present stockholders
of respondent are totally different from those of
Dynetics, Inc.; ii. the various facilities,
machineries and equipment being used by
respondent in its business operations were validly
acquired, from various corporations which
became the absolute owners after the
transaction; and iii. the present site is under lease
from Food Terminal Inc, a GOCC.
7. RTC: Respondent is not an alter ego of Dynetics.
Thus, it is not liable under the promissory notes.
Only Lim and Dynetics are liable to the
Petitioner.
8. CA: Affirmed the decision of the RTC. Further,
two corporations (Dynetics and the Respondent)
had different articles of incorporation. Contrary
to petitioner’s claim, no merger or absorption
took place between the two. What transpired
was a mere sale of the assets of Dynetics to
respondent.
COMMERCIAL LAW REVIEW | G02
ISSUE: Whether Respondent is an alter ego of
Dynetics and the veil of corporate fiction should be
pierced.
HELD/RULING: NO.
1. To disregard the separate juridical personality of a
corporation, the wrongdoing must be proven clearly
and convincingly.
In this case, Petitioner failed to prove that
Respondent was organized and controlled, and its
affairs conducted, in a manner that made it merely
an instrumentality, agency, conduit or adjunct of
Dynetics, or that it was established to defraud
Dynetics’ creditors, including petitioner.
2. The similarity of business of the two corporations
did not warrant a conclusion that respondent was but
a conduit veil.
In Umali v. CA, “the mere fact that the businesses of
two or more corporations are interrelated is not a
justification for disregarding their separate
personalities, absent sufficient showing that the
corporate entity was purposely used as a shield to
defraud creditors and third persons of their rights.”
3. Respondent’s acquisition of some of the
machineries and equipment of Dynetics was not
proof that it was formed to defraud Petitioner.
What took place was a sale of the assets of the
former to the latter. Merger is legally distinct from a
sale of assets. Thus, where one corporation sells or
otherwise transfers all its assets to another corporation
for value, the latter is not liable for the debts and
liabilities of the transferor.
The sales were therefore valid and the transfers of the
properties to respondent legal and not in any way in
contravention of petitioner’s rights as Dynetics’
creditor.
4. Lastly, it may be true that respondent later hired
Dynetics’ former VP and Assistant Corporate Counsel.
However, SC ruled that it cannot conclude that
respondent was an alter ego of Dynetics.
In fact, even the overlapping of incorporators and
stockholders of two or more corporations will not
necessarily lead to such inference and justify the
piercing of the veil of corporate fiction.
26
CORPORATION LAW
17 HYATT ELEVATORS & ESCALATORS CORP. v.
GOLDSTAR ELEVATORS PHILS. INC
G.R. No. 161026 | October 24, 2005 | J. Panganiban |
MONTEALTO
TOPIC: Residence of a corporation
DOCTRINE: The residence of a corporation is the
place where its principal office is located, as stated in
its Articles of Incorporation.
FACTS:
• Hyatt and Goldstar are both domestic
corporations engaged in the business of
marketing, distributing and selling elevators
and escalators. Both corporations’ addresses
in their AOIs is in Makati City.
• Hyatt filed a complaint for unfair trade
practices against LGISC and LGIC in the RTC
of Mandaluyong City alleging:
o that it appointed Hyatt as the
exclusive distributor of LG elevators
and escalators in the Phils under an
exclusive distributorship agreement
o that LG subsequently terminated the
agreement in bad faith, causing
damage to Hyatt
• Hyatt amended the complaint to implead
Goldstar, alleging that Goldstar was being
utilized by LG in perpetuating their unlawful
and unjustified acts against Hyatt.
• Goldstar filed an MTD, raising the ground of
improper venue as neither Hyatt nor Goldstar
reside in Mandaluyong city.
• Hyatt alleged that it had closed its Makati
office and relocated to Mandaluyong City,
and that Goldstar was aware of this.
• RTC: venue properly laid. Only Goldstar
MRed. Denied. Goldstar filed PetCert. CA
granted. Hence, this case.
ISSUE: W/N the venue was improperly laid.
RULING: YES, as neither Goldstar nor Hyatt resides in
Mandaluyong.
The Rules of Court provides that actions may be
commenced and tried where the plaintiff or
defendant resides.
Residence is the permanent home -- the place to
which, whenever absent for business or pleasure, one
intends to return.
A corporation is a resident of the place where its
principal office is located as stated in the articles of
incorporation.
The requirement to state in the Articles the place
where the principal office of the corporation is to be
located is not a meaningless requirement.
COMMERCIAL LAW REVIEW | G02
1. Even assuming that they transacted business
in the Mandaluyong office of Hyatt, the fact
remains that, in law, Hyatt’s residence was
still the place indicated in its AOI.
While the rules on the venue of personal actions are
fixed for the convenience of the plaintiffs and their
witnesses, to insist that the proper venue is the actual
principal office and not that stated in its AOI would
create confusion and work untold inconvenience.
Enterprising litigants may, out of some ulterior motives,
easily circumvent the rules on venue by the simple
expedient of closing old offices and opening new
ones in another place that they may find well to suit
their needs.
27
CORPORATION LAW
18 ABS-CBN BROADCASTING CORPORATION vs. CA,
REPUBLIC BROADCASTING CORP., VIVA
PRODUCTIONS, INC., and VICENTE DEL ROSARIO
G.R. No. 128690|January 21, 1999|Davide|Pabrua
Claim for moral damages
DOCTRINE: The award of moral damages cannot be
granted in favor of a corporation because, being
an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no
senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be
experienced only by one having a nervous system.
FACTS:
1. 1990: ABS-CBN and VIVA executed a Film Exhibition
Agreement whereby Viva gave ABS-CBN an
exclusive right to exhibit some Viva films. It was
stipulated that ABS-CBN shall have the right of first
refusal to the next 24 Viva films for TV telecast
2. Dec. 1991: Viva, Del Rosario, offered ABS-CBN, a list
of 3 film packages (36 title) from which ABS-CBN may
exercise its right of first refusal.
3. ABS-CBN, however, can tick off only 10 titles it can
purchase and therefore did not accept the list. The
titles ticked off are not the subject of the case at bar
except the film Maging Sino Ka Man.
4. Feb. 1992: Del Rosario approached ABS-CBN, with
a list consisting of 52 original movie titles including the
14 titles subject of the present case, as well as 104 re-
runs from which ABS-CBN may choose another 52
titles, proposing to sell to ABS-CBN airing rights over
this package for P60M
5. Apr. 2, 1992: Del Rosario and ABS-CBN’s general
manager, Eugenio Lopez III, met to discuss the
package proposal of VIVA.
-Mr. Lopez testified that he and Del Rosario allegedly
agreed that ABS-CBN was granted exclusive film
rights to 14 films for a total consideration of P36
million; that he allegedly put this agreement as to the
price and number of films in a napkin and signed it
and gave it to Mr. Del Rosario
-Del Rosario denied having made any agreement
with Lopez regarding the 14 Viva film.
6. Apr. 6, 1992: Del Rosario and Gozon of RBS
discussed the terms and conditions of Viva’s offer to
sell the 104 films, after the rejection of the same
package by ABS-CBN
7. Apr. 29, 1992, VIVA signed a letter of agreement
granting RBS the exclusive right to air 104 Viva-
produced and/or acquired films including the 14 films
subject of the present case.
8. May 1992, ABS-CBN filed before the RTC a
complaint for specific performance with a prayer for
a writ of preliminary injunction and/or TRO against
hereafter RBS, VIVA, and Del Rosario.
COMMERCIAL LAW REVIEW | G02
9. RTC: ordered ABS-CBN to pay P5M as and by way
of moral damages. There was no meeting of minds
on the price and terms of the offer. The alleged
agreement between Lopez III and Del Rosario was
subject to the approval of the VIVA Board of
Directors, and said agreement was disapproved
during the meeting of the Board on 7 April 1992.
10. CA: affirmed RTC. It also noted that the napkin
was not produced. RBS’s reputation was debased by
the filing of the complaint and by the non-showing of
the film Maging Sino Ka Man. It reduced the moral
damages to P2M.
ISSUE: WON the award of moral damages was
proper – NO.
HELD:
• As to moral damages the law is Section 1, Chapter
3, Title XVIII, Book IV of the Civil Code. Article 2217
thereof defines what are included in moral
damages, while Article 2219 enumerates the cases
where they may be recovered. Article 2220
provides that moral damages may be recovered in
breaches of contract where the defendant acted
fraudulently or in bad faith. RBSs claim for moral
damages could possibly fall only under item (10) of
Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26,
27, 28, 29, 30, 32, 34 and 35.
• Moral damages are in the category of an award
designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the
wrongdoer. The award is not meant to enrich the
complainant at the expense of the defendant, but
to enable the injured party to obtain means,
diversion, or amusements that will serve to obviate
the moral suffering he has undergone. It is aimed at
the restoration, within the limits of the possible, of
the spiritual status quo ante, and should be
proportionate to the suffering inflicted.
• The award of moral damages cannot be granted in
favor of a corporation because, being an artificial
person and having existence only in legal
contemplation, it has no feelings, no emotions, no
senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be
experienced only by one having a nervous system.
The statement in People v. Manero and Mambulao
Lumber Co. v. PNBthat a corporation may recover
moral damages if it has a good reputation that is
debased, resulting in social humiliation is an obiter
dictum. On this score alone the award for damages
must be set aside, since RBS is a corporation.
28
CORPORATION LAW
19 ADVANCE PAPER CORP. V. ARMA TRADERS
GR 176897 | December 11, 2013 | BRION | PACA
TOPIC: Doctrine of Apparent Authority
DOCTRINE: When the sole management of the
corporation was entrusted to 2 of its
officers/incorporators, and the other officers never
had dealings with the corporation for 14 years and
the board and the stockholders never had a
meeting, the corporation is estopped from denying
the officers’ authority to obtain loans on behalf of the
corporation under the doctrine of apparent
authority.
FACTS:
1. Arma Traders is in the business of
wholesale/distribution of school and office
supplies. Tan was the President and Uy was the
Treasurer.
2. Tan and Uy represented Arma Traders in dealing
with Advance paper Corporation, a company
that produces paper products.
3. Arma Traders, upon the representation of Tan
and Uy, obtained 3 loans from Advance Paper
(P3.38M, P1M, and P3.4M, total of P7.78M). Arma
Traders needed the loans because its collectibles
did not arrive on time, and it had to settle
obligations with its other suppliers.
4. Advance Paper granted the loans to Arma
Traders. Hence, Arma Traders issued 82 post-
dated checks for Advance Paper Corporation.
These 82 checks were worth P15,130,636.87.
5. However, when Advance Paper presented the
checks to the drawee bank, the checks were
dishonored for “insufficiency of funds” or
“account closed.” Arma Traders failed to settle its
accounts with Advance Paper despite repeated
demands.
6. Advance Paper thus filed a collection suit against
Arma Traders and its other officers: its VP Manuel
Ting, GM Cheng Gui and Corporate Secretary
Benjamin Ng.
7. Arma Traders, Ting, Gui and Ng’s defense was
that the loan obtained by Tan and Uy are their
personal obligations, because the Board of
Directors never authorized Tan and Uy to obtain
the loans from Advance Paper.
8. As ultra vires acts, Ting, Gui and Ng claim that
Arma Traders should not be liable for such acts
committed by Tan and Uy in excess of their
authority.
9. Meanwhile, Advance Paper says that Tan and Uy
had the authority to obtain the loans because
Arma Traders left active and sole management
of the company to Tan and Uy.
10. According to Advance Paper, Arma Traders
never held a board meeting since 1984 up to
1985. Thus, if Arma Traders’ defense would be
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

believed, then all transactions of Arma Traders • Because of its own laxity in its business dealings,
during the said period may be questioned. Arma Traders is now estopped from denying Tan
11. Advance Paper cites Lipat v. Pacific Banking: if a and Uy’s authority to obtain loan from Advance
corporation knowingly permits one of its officers Paper.
or any other agent to act within the scope of an
apparent authority, it holds him out to the public
as possessing the power to do those acts; thus,
the corporation will, as against anyone who has
in good faith dealt with it through such agent, be
estopped from denying the agent’s authority.

ISSUE: Is Arma Traders liable to pay the loans

contracted by its officers Tan and Uy despite the lack
of board authorization? YES, under the doctrine of
apparent authority.

HELD/RULING:
• The doctrine of apparent authority provides that
a corporation will be estopped from denying the
agent’s authority if it knowingly permits one of its
officers/agents to act within the scope of an
apparent authority, and it holds him out to the
public as possessing the power to do those acts.
• Apparent authority is derived not merely from
practice. Its existence may be ascertained
through: (1) the general manner in which the
corporation holds out an officer or agent as
having the power to act or, in other words the
apparent authority to act in general, with which it
clothes him; or (2) the acquiescence in his acts of
a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope
of his ordinary powers.
• the board of directors may validly delegate
some of its functions and powers to officers,
committees or agents, and their authority to bind
the corporation is generally derived from law,
corporate bylaws or authorization from the
board, either expressly or impliedly by habit,
custom or acquiescence.
• In this case, it was proven that the sole
management of Arma Traders was left to Tan
and Uy and that he and the other officers never
dealt with the business and management of
Arma Traders for 14 years.
• Arma Traders own Corporate Secretary Ng
testified that since 1984 up to the filing of the
complaint in 1994 that Arma Traders, its
stockholders and board of directors never had a
meeting.
• Thus, Arma Traders bestowed upon Tan and Uy
broad powers by allowing them to transact with
3rd persons without the necessary written
authority from its non-performing board of
directors.
• Arma Traders failed to take precautions to
prevent its own corporate officers from abusing
their powers.

29
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

20 DONNINA C. HALLEY v. PRINTWELL, INC. distributed or in the possession of the

G.R. No. 157549 | May 30, 2011 | Bersamin |
Pagcaliwagan
Topic: Trust Fund Doctrine
d.
DOCTRINE: Under the trust fund doctrine, the unpaid
creditor may satisfy its claim from the unpaid
subscriptions of the stockholders.
FACTS:
1. Petitioner Halley was an incorporator and original
director of Business Media Philippines, Inc. (BMPI).
2. BMPI commissioned Printwell for the printing of
the magazine Philippines, Inc. that BMPI
published and sold.
a. BMPI placed with Printwell several orders
on credit, evidenced by invoices and
delivery receipts worth at least P300K
b. BMPI paid only P25K
3. Printwell sued BMPI for the collection of the
unpaid balance.
4. Printwell amended the complaint in order to
implead as defendants all the original
stockholders and incorporators to recover on
their unpaid subscriptions.
stockholders, regardless of full paymentof their
subscriptions, may be reached by the creditor in
satisfaction of its claim.
Also, under the trust fund doctrine, a corporation
has no legal capacity to release an original
subscriber to its capital stock from the obligation
of paying for his shares, in whole or in part,
without a valuable consideration, or fraudulently,
to the prejudice of creditors. The creditor is
allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of
the corporation for the satisfaction of its debt. To
make out a prima facie case in a suit against
stockholders of an insolvent corporation to
compel them to contribute to the payment of its
debts by making good unpaid balances upon
their subscriptions, it is only necessary to establish
that the stockholders have not in good faith paid
the par value of the stocks of the corporation.

ISSUE: WON Petitioner Halley is liable by virtue of the

trust fund doctrine.

RULING: YES. Petitioner is liable pursuant to the trust

fund doctrine for the corporate obligation of BMPI by
virtue of her subscription being still unpaid. Printwell,
as BMPI’s creditor,had a right to reach her unpaid
subscription in satisfaction of its claim.

a. The trust fund doctrine enunciates a rule that the

property of a corporation is a trust fund for the
payment of creditors, but such property can be
called a trust fund only by way of analogy or
metaphor. As between the corporation itself and
its creditors it is a simple debtor, and as between
its creditors and stockholders its assets are in
equity a fund for the payment of its debts.
b. It is established doctrine that subscriptions to the
capital of a corporation constitute a fund to
which creditors have a right to look for
satisfaction of their claims and that the assignee
in insolvency can maintain an action upon any
unpaid stock subscription in order to realize assets
for the payment of its debts.
c. We clarify that the trust fund doctrine is not
limited to reaching the stockholders’ unpaid
subscriptions. The scope of the doctrine when the
corporation is insolvent encompasses not only
the capital stock, but also other property and
assets generally regarded in equity as a trust fund
for the payment of corporate debts. All assets
and property belonging to the corporation held
in trust for the benefit of creditors that were

30
COMMERCIAL LAW REVIEW | G02
21 WILSON GAMBOA v. FINANCE SECRETARY
MARGARITO TEVES,
G.R. No. 176579| June 28, 2011|Carpio | Panday
DOCTRINE: The term capital in Section 11, Article XII of
the Constitution refers only to shares of stock that can
vote in the election of directors. This interpretation is
consistent with the intent of the framers of the
Constitution to place in the hands of Filipino citizens
the control and management of public utilities. As
revealed in the deliberations of the Constitutional
Commission, capital refers to the voting stock or
controlling interest of a corporation.
FACTS:
1. On Nov. 28, 1928, Act. No. 3436 granted PLDT a
franchise and right to engage in
telecommunications business.
2. In 1969, General Telephone and Electronics
Corporation (GTE), an American company and a
major PLDT stockholder, sold 26% of the
outstanding common shares of PLDT to Philippine
Telecommunications Investment Corporation
(PTIC).
3. On Nov. 1967, PTIC was incorporated and had
since engaged in the business of investment
holdings. PTIC held 26,034,263 PLDT common
shares (13.847% of the total PLDT outstanding
common shares).
4. In 1977, Prime Holdings, Inc. (PHI) was
incorporated by several persons, including
Roland Gapud and Jose Campos, Jr. It became
the owner of 111,415 shares of stock of PTIC by
virtue of 3 Deeds of Assignment executed by PTIC
stockholders Ramon Cojuangco and
Luis Tirso Rivilla.
5. In 1986, the 111,415 shares of stock of PTIC held
by PHI were sequestered by the PCGG (As these
were part of the ill-gotten wealth from President
Marcos). The 111,415 PTIC shares, which represent
about 46.125% of the outstanding capital stock of
PTIC, were later declared by the Court, on
August 8, 2006, to be owned by the Republic of
the Philippines.
6. In 1999, First Pacific, a Hong Kong-based
investment firm, acquired the 54% of PTIC’s
outstanding capital stock.
7. On Nov. 20, 2006, the Government decided to
sell the 111,415 shares (46.125% of PTIC’s
outstanding capital stock or 6.4% of PLDT’s
outstanding capital stock) and designated the
Inter-Agency Privatization Council (IPC) to sell
such shares through a public bidding. 2 bidders
emerged, Parallax Venture Fund and Pan-Asia
Presidio Capital. Parallax won with a bid of P25.6
billion/ $510 million.
8. First Pacific then announced that it would
exercise its right of first refusal as a PTIC
stockholder and buy such shares by matching
31
CORPORATION LAW
Parallax’s bid. Later in Feb. 28, 2007, First Pacific
bought such shares.
9. Case arose when petitioner Gamboa filed for
prohibition, injunction, declaratory relief, and
declaration of nullity of sale of the 111,415 PTIC
shares alleging that the sale of the 111,415 PTIC
shares would result in an increase in First Pacific’s
common shareholdings in PLDT from 30.7% to
37%, and combined with Japanese
NTT DoCoMos’ common shareholdings in PLDT, it
would result to total foreign common
shareholdings in PLDT of 51.56% (Collectively
81.47% of PLDT’s common equity). In this
connection, it violates Article 12 Section 11 of the
1987 Philippine Constitution which limits foreign
ownership of the capital of a public utility to not
more than 40%.
10. The Sanidads intervened joining petitioner
Gamboa claiming that, as PLDT subscribers, they
have a stake in the outcome of this case where
the Government is completing the sale of
government owned assets in PLDT, a public utility,
in violation of the nationality restrictions of the
Constitution.
ISSUE: WHETHER the term “capital” in Sec. 11 of Art. XII
of the 1987 Constitution refers to the total common
shares only or to the total outstanding capital stock
(combined total of common and non- voting
preferred shares) of PLDT, a public utility. ONLY TO
COMMON SHARES.
HELD:
1. Article 12, Section 11 (National Economy and
Patrimony) of the 1987 Constitution provides
that “No franchise, certificate, or any other
form of authorization for the operation of a
public utility shall be granted except to
citizens of the Philippines or to corporations or
associations organized under the laws of the
Philippines, at least sixty per centum of whose
capital is owned by such citizens”
2. Supreme Court ruled that the term capital
only includes shares of stock that can vote in
the election of directors. BECAUSE:
• Common shares have voting rights which
translate to control;
• Preferred shares are often excluded from any
control because preferred shareholders are
merely investors in the corporation for
income like bondholders.
• “Capital” refers to the voting stock or
controlling interest of a corporation. Holders
of PLDT preferred shares are explicitly denied
of the right to vote in the election of
directors. PLDT’s Articles of Incorporation
expressly state that the holders of Serial
Preferred Stock shall not be entitled to vote
at any meeting of the stockholders for the
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

election of directors or for any other purpose or management of the corporation is

or otherwise participate in any action taken exercised through the right to vote in the
by the corporation or its stockholders, or to election of directors.
receive notice of any meeting of 3. In the minutes of the Constitutional
stockholders. Commission, it was intended that capital
• On the other hand, holders of common refers to controlling interest.
shares are granted the exclusive right to vote
in the election of directors. PLDT’s Articles of
Incorporation state that each holder of
Common Capital Stock shall have one vote
in respect of each share of such stock held
by him on all matters voted upon by the
stockholders, and the holders of Common
Capital Stock shall have the exclusive right to
vote for the election of directors and for all
other purposes.
• In short, only holders of common shares can
vote in the election of directors, meaning
only common shareholders exercise control
over PLDT. Conversely, holders of preferred
shares, who have no voting rights in the
election of directors, do not have any control
over PLDT. In fact, under PLDT’s Articles of
Incorporation, holders of common shares
have voting rights for all purposes, while
holders of preferred shares have no voting
right for any purpose whatsoever.
• It must be stressed, and respondents do not
dispute, that foreigners hold a majority of the
common shares of PLDT. Foreigners hold
64.27% of the total number of PLDT’s
common shares, while Filipinos hold only
35.73%. Since holding a majority of the
common shares equates to control, it is clear
that foreigners exercise control over PLDT.
Such amount of control unmistakably
exceeds the allowable 40 percent limit on
foreign ownership of public utilities expressly
mandated in Section 11, Article XII of the
Constitution.
• Also, Filipinos hold less than 60 percent of the
voting stock, and earn less than 60 percent
of the dividends, of PLDT. This directly
contravenes the express command in Sec.
11, Art. XII of the Constitution that “no
franchise, certificate, or any other form of
authorization for the operation of a public
utility shall be granted except to x x x
corporations x x x organized under the laws
of the Philippines, at least sixty per centum of
whose capital is owned by such citizens...”
• Note that In the absence of provisions in the
articles of incorporation denying voting rights
to preferred shares, preferred shares have
the same voting rights as common shares.
With that said, it can then be concluded that
the term capital would include preferred
shares because such shares are given voting
rights or the right to participate in the control

32
COMMERCIAL LAW REVIEW | G02
22 VALLE VERDE COUNTRY CLUB (VVCC), Inc. v.
VICTOR AFRICA
G.R. No. 151969 | Sept. 4, 2009 | J. Brion | PARAS
TOPIC: Powers of the BOD
DOCTRINES:
1. The holdover period is not part of the term of
office of a member of the BOD.
2. A vacancy in the BOD due to expiration of
term of office must be filled by the
stockholders of VVCC in a regular or special
meeting called for the purpose.
FACTS:
1. In 1996, during the Annual Stockholders Meeting
of VVCC, members of the VVCC Board of
Directors (BOD) were elected. In the years 1997-
2001, however, the requisite quorum for the
holding of the stockholders meeting could not be
obtained so the directors continued to serve in
the VVCC Board in a hold-over capacity.
2. In 1998, Dinglasan resigned as member of the
VVCC Board. The remaining directors, still
constituting a quorum of VVCCs nine-member
board, elected Roxas to fill in the vacancy. A
year later, Makalintal also resigned as member.
He was replaced by Jose Ramirez, who was
elected by the remaining members of the VVCC
Board.
3. Africa, a member of VVCC, questioned the
election of Roxas and Ramirez with SEC and RTC
respectively, questioning the validity of Roxas
and Ramirez.
ISSUE: Can the members of a Corp.’s BOD elect
another director to fill in a vacancy caused by the
resignation of a hold-over director? NO
RATIO:
The resolution of this legal issue is significantly hinged
on the determination of what constitutes a director’s
term of office.
The holdover period is not part of the term of office of
a member of the BOD. We have defined term as the
time during which the officer may claim to hold the
office as of right, and fixes the interval after which the
several incumbents shall succeed one another. The
term of office is not affected by the holdover. The
term is fixed by statute and it does not change simply
because the office may have become vacant, nor
because the incumbent holds over in office beyond
the end of the term due to the fact that a successor
has not been elected and has failed to qualify.
Term is distinguished from tenure in that an officer’s
tenure represents the term during which the
33
CORPORATION LAW
incumbent actually holds office. The tenure may be
shorter (or, in case of holdover, longer) than the term
for reasons within or beyond the power of the
incumbent.
When Sec. 23[9] of the Corp. Code declares that the
BOD shall hold office for 1 year until their successors
are elected and qualified, the term of the members
shall be only for one year. The holdover period from
the lapse of one year from a member’s election to
the Board and until his successors election and
qualification is not part of the director’s original term
of office, nor is it a new term; the holdover period,
however, constitutes part of his tenure.
After the lapse of one year from his election as
member of the VVCC Board in 1996, Makalintal’s
term have already expired. With the expiration of
Makalintal’s term of office, a vacancy resulted which,
by the terms of Sec. 29[11] of the Corp. Code, must
be filled by the stockholders of VVCC in a regular or
special meeting called for the purpose. His
resignation as a holdover director did not change the
nature of the vacancy; the vacancy due to the
expiration of Makalintal’s term had been created
long before his resignation.
THE POWERS OF THE CORP.’S BOD EMANATE FROM ITS
STOCKHOLDERS.
VVCCs construction of Sec. 29 of the Corp. Code on
the authority to fill up vacancies in the BOD, in
relation to Sec. 23 thereof, effectively weakens the
stockholders power to participate in the corporate
governance by electing their representatives to the
BOD. The BOD is only a creation of the stockholders
and it derives its power to control and direct the
affairs of the Corp. from them. The BOD, in drawing to
themselves the powers of the Corp., occupies a
position of trusteeship in relation to the stockholders,
in the sense that the board should exercise not only
care and diligence, but utmost good faith in the
management of corporate affairs.
The underlying policy of the Corp. Code is that the
business and affairs of a Corp. must be governed by
a BOD whose members have stood for election, and
who have actually been elected by the stockholders,
on an annual basis. Only in that way can the
directors' continued accountability to shareholders,
and the legitimacy of their decisions that bind the
Corp.'s stockholders, be assured. The shareholder
vote is critical to the theory that legitimizes the
exercise of power by the directors or officers over
properties that they do not own.
The law has authorized the remaining members of the
board to fill in a vacancy only in specified instances,
so as not to retard or impair the Corp.’s operations;
yet, in recognition of the stockholders’ right to elect
the members of the board, it limited the period
COMMERCIAL LAW REVIEW | G02
during which the successor shall serve only to the
unexpired term of his predecessor in office.
While the Court in El Hogar approved of the practice
of the directors to fill vacancies in the directorate, this
ruling was made before the present Corp. Code was
enacted. It also bears noting that the vacancy
referred to in Sec. 29 contemplates a vacancy
occurring within the director’s term of office. When a
vacancy is created by the expiration of a term,
logically, there is no more unexpired term to speak of.
Hence, it shall be the Corp.’s stockholders who shall
possess the authority to fill in a vacancy caused by
the expiration of a member’s term.
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CORPORATION LAW
23 FILIPINAS PORT SERVICES, REPRESENTED BY E. CRUZ
V. VICTORIANO GO, ET.AL.
G.R. No. 161886 | 16 March 2007 | Garcia | Pineda
TOPIC: Board of Directors
DOCTRINE:
• The governing body of a corporation is its board
of directors. Under Section 34, the Board shall
exercise all corporate powers. All business is
conducted and all corporate property is
controlled by the Board.
• As long as the Board acts within the scope of its
authority and in good faith for corporate
interests, the Court cannot review its actions.
• In the absence of bad faith in mismanagement,
the Directors cannot be held liable.
FACTS:
1. On September 1992, E. Cruz (Filports’ president
from 1968-1991) sent a letter questioning the
Board’s creation of certain positions with monthly
salary of P13050 each. These positions include
Assistant Vice Presidents for Corporate Planning,
Operations, Finance and Administration, and
those of the Special Assistants to the President
and the Board Chairman.
2. The Board did not act favorably upon Cruz’
letter. This prompted Cruz, in representation of
Filport and its shareholders, to file a derivative suit
against Respondents (incumbent members of the
Board) for alleged acts of mismanagement
detrimental to the corporation: creation of
positions, increase in emoluments, creation of
executive committee. Cruz prayed that the
members of the Board pay Filport, jointly and
severally, the sums of money variedly
representing the damages incurred as a result of
the creation of the offices/positions complained
of and the aggregate amount of the questioned
increased salaries.
3. Respondents argued that the assailed acts were
done within the scope of the Board’s powers.
Also, Cruz’ filing of the suit was done in bad faith,
as he was simply bitter for losing the election.
ISSUE: W/N the assailed acts were done within the
scope of the Board’s powers
HELD: YES. Respondents are not liable.
RULING:
The Board exercises all corporate powers necessary
for the management of regular business affairs of the
corporation.
• The governing body of a corporation is its board
of directors. Under Section 34, the Board shall
exercise all corporate powers. All business is
conducted and all corporate property is
controlled by the Board.
COMMERCIAL LAW REVIEW | G02
• The Board has the sole authority to determine
policies, enter into contracts, and conduct the
ordinary business of the corporation within the
scope of its charter, i.e., its articles of
incorporation, by-laws and relevant provisions of
law.
• Rationale behind the conferment of corporate
powers on the Board: necessity for efficiency in a
large organization. As there is a large number of
stockholders, they cannot directly conduct the
business. Thus, stockholders choose directors who
control and supervise corporate business.
The assailed acts of the Board were within the Board’s
powers. Thus, Respondents cannot be held liable.
• The Board’s creation of the positions was in
accordance with Filport’s regular business and
was authorized by the by-laws. Filport’s by-laws
provide for the offices that may be created, and
provide that the Board shall fix the compensation
of officers. However, the bylaws are silent as to
the creation of an executive committee.
Nevertheless, in the absence of bad faith,
Respondents cannot be held liable.
• The determination of necessity for additional
offices is a management prerogative beyond the
province of the Court’s inquiry. Such are business
decisions that only the Board can determine. As
long as the Board acts in good faith towards the
corporation’s interests, its orders are not
reviewable by the courts.
The derivative suit was properly filed.
• The derivative suit was properly filed. An
individual stockholder may institute a derivative
suit on behalf of the corporation to protect
corporate rights. In this case, the action is
principally for damages resulting from the
alleged mismanagement of Filport. Since the
ones to be sued are the directors/officers of the
corporation itself, a stockholder, like petitioner
Cruz, may validly institute a derivative suit to
vindicate the alleged corporate injury, in which
case Cruz is only a nominal party while Filport is
the real party-in-interest. For sure, in the
prayer portion of petitioners petition before the
SEC, the reliefs prayed were asked to be made in
favor of Filport.
• Requisites of a derivative suit
o Party should be a shareholder at the time
of the act complained of;
o Party attempted to exhaust intra-
corporate remedies; and
o The cause of action actually devolves on
the corporation, and not on the Party.
35
CORPORATION LAW
24 MATLING IND’L AND COMMERCIAL CORP., ET. AL.
RICARDO R. COROS,
G.R. NO. 157802 | OCT. 13, 2010 | BERSAMIN |
REAGO
TOPIC: Corporate Officer
DOCTRINES:
1. Under Section 25 of the Corporation Code, a
position must be expressly mentioned in the
By-Laws in order to be considered as a
corporate office. Thus, the creation of an
office pursuant to or under a By-Law
enabling provision is not enough to make a
position a corporate office.
2. Only officers of a corporation were those
given that character either by the
Corporation Code or by the By-Laws; the rest
of the corporate officers could be
considered only as employees or subordinate
officials.
3. In determining which body has jurisdiction
over a case, it would be a better policy to
consider not only the status or relationship of
the parties but also the nature of the
question that is the subject of their
controversy.
FACTS:
• Coros was dismissed as VP for Finance and
Administration of Matling.
• He filed a complaint for illegal suspension and
illegal dismissal against Matling and some of its
corporate officers in NLRC.
• Matling moved to dismiss the complaint on the
ground that the SEC has the jurisdiction due to
the controversy being intra-corporate since
Coros was a member of Matling’s Board of
Directors aside from being its VP for Finance and
Administration prior to his termination.
• LA: granted the MTD ruling that Coros was a
corporate officer because he was occupying the
position of VP for Finance and Administration and
at the same time was a member of the BoD of
Matling.
• NLRC: ruled that the illegal dismissal complainy
was properly cognizable by the LA, not by the
SEC, because he was not a corporate officer by
virtue of his position in Matling.
• CA: held that the alleged illegal dismissal of
Coros is within the jurisdiction of the LA
ISSUE:
Whether Coros was a coporate officer of Matling or
not. Specifically, was the position of VP for
Administration and Finance a corporate office? NO
RULING:
COMMERCIAL LAW REVIEW | G02
The position of VP for Administration and Finance is
not a corporate office.
1. Under Section 25 of the Corporation Code, a
position must be expressly mentioned in the By-
Laws in order to be considered as a corporate
office. Thus, the creation of an office pursuant to
or under a By-Law enabling provision is not
enough to make a position a corporate office.
Guerrea v. Lezama, the first ruling on the matter,
held that the only officers of a corporation were
those given that character either by the
Corporation Code or by the By-Laws; the rest of
the corporate officers could be considered only
as employees or subordinate officials.
2. An "office" is created by the charter of the
corporation and the officer is elected by the
directors or stockholders. On the other hand, an
employee occupies no office and generally is
employed not by the action of the directors or
stockholders but by the managing officer of the
corporation who also determines the
compensation to be paid to such employee.
3. In this case, Coros was appointed vice president
for nationwide expansion by Malonzo, Matling’s
general manager, not by the board of directors
of petitioner. It was also Malonzo who
determined the compensation package of
respondent. Thus, Coros was an employee, not a
"corporate officer." The CA was therefore correct
in ruling that jurisdiction over the case was
properly with the NLRC, not the SEC (now the
RTC).
4. This interpretation is the correct application of
Section 25 of the Corporation Code, which
plainly states that the corporate officers are the
President, Secretary, Treasurer and such other
officers as may be provided for in the By-Laws.
Accordingly, the corporate officers in the context
of PD No. 902-A are exclusively those who are
given that character either by the Corporation
Code or by the corporation’s By-Laws.
5. To emphasize, the power to create new offices
and the power to appoint the officers to occupy
them vested by By-Law No. V merely allowed
Matling’s President to create non-corporate
offices to be occupied by ordinary employees of
Matling. Such powers were incidental to the
President’s duties as the executive head of
Matling to assist him in the daily operations of the
business.
36
CORPORATION LAW
25 MARC II Marketing, Inc. and Lucila Joson vs.
Alfredo M. Joson
G.R. No. 171993 |Dec. 12, 2011 |J. Perez |
Resurreccion
TOPIC: Corporate Officer
Doctrine: The only corporate officers are those
provided for by the Corporation Code or by the by-
laws; the rest of the corporate officers could be
considered only as employees or subordinate
officials. With that, a position must be expressly
mentioned in the by-laws in order to be considered
as a corporate officer.
Facts:
1. Alfredo was the General Manager of Marc
Marketing Inc. Eventually, Marc Marketing
stopped its operation. Then MARC II Marketing
took over Marc Marketing. MARC II absorbed
Alfredo as its GM.
2. MARC II’s by-laws provide that its corporate
officers are as follows: Chairman, President, one
or more Vice-President(s), Treasurer and
Secretary. Its Board of Directors, however, may,
from time to time, appoint such other officers as it
may determine to be necessary or proper.
3. Later on, MARC II decided to stop its operations
due to poor sales collection aggravated by the
inefficient management of its affairs. On the
same date, it formally informed Alfredo of the
cessation of its business operation. Then, Alfredo
was told of the termination of his employment as
GM.
4. Felt aggrieve, Alfredo filed a complaint for
Reinstatement against MARC II before LA. As
expected, MARC II filed a motion to dismiss for
lack of jurisdiction as the case involved an intra-
corporate controversy, since Alfredo is a
corporate officer.
5. LA ruled that Alfredo was an employee of MARC
II. However, NLRC reversed the LA. On appeal,
the CA reversed the NLR. The CA declared that
LA has jurisdiction. Alfredo, as GM, was a mere
employee.
6. Hence, this case.
Issue: WON Alfredo, as the GM of MARC II, was a
corporate officer of the latter. NO.
Ruling:
1. The By-laws of MACR II show that its corporate
officers are composed only of: (1) Chairman; (2)
President; (3) one or more Vice-President; (4)
Treasurer; and (5) Secretary. The position of
General Manager was not among those
enumerated.
2. Section 25 of the Corporation Code specifically
enumerated who are these corporate officers, to
COMMERCIAL LAW REVIEW | G02
wit: (1) president; (2) secretary; (3) treasurer; and
(4) such other officers as may be provided for in
the by-laws.
3. The phrase "such other officers as may be
provided for in the by-laws,' has been clarified
and elaborated in this Court's recent
pronouncement in Matling Industrial and
Commercial Corporation v. Coros, where it held,
thus:
4. Conformably with Section 25, a position must be
expressly mentioned in the by-laws in order to be
considered as a corporate office. Thus, the
creation of an office pursuant to or under a [b]y-
[l]aw enabling provision is not enough to make a
position a corporate office. In Guerrea v. Lezama,
the first ruling on the matter, held that the only
officers of a corporation were those given that
character either by the Corporation Code or by
the by-laws; the rest of the corporate officers
could be considered only as employees or
subordinate officials.
5. Since the position of General Manager was not
among those enumerated, the latter is not a
corporate officer but a mere employee of the
corporation.
6. This Court considers that the interpretation of
Section 25 of the Corporation Code laid down in
Matling safeguards the constitutionally enshrined
right of every employee to security of tenure.
7. To allow the creation of a corporate officer
position by a simple inclusion in the corporate by-
laws of an enabling clause empowering the
board of directors to do so can result in the
circumvention of that constitutionally well-
protected right.
37
CORPORATION LAW
26 OKOL v SLIMMERS WORLD INTERNATIONAL
GR 160146 | 11 December 2009 | J. Carpio | Reyes
TOPIC: Corporate Officer
DOCTRINE: Section 25 of the Corporation Code
enumerates corporate officers as the president,
secretary, treasurer and such other officers as may be
provided for in the by-laws. The determination of the
rights of a director and corporate officer dismissed
from his employment as well as the corresponding
liability of a corporation, if any, is an intra-corporate
dispute subject to the jurisdiction of the regular
courts.
FACTS:
• Okol was a Director and Vice President of
Slimmers World from 1996 until her dismissal in
1999.
• Prior to her dismissal, Okol was preventively
suspended for undervaluing imported
equipment (treadmills and elliptical
machines), resulting to the seizure thereof by
the Bureau of Customs.
• Okol filed a complaint against Slimmers
World for illegal dismissal, illegal suspension,
and damages. Slimmers World filed a MTD on
the ground of lack of jurisdiction of the NLRC,
which the labor arbiter granted. NLRC
reversed. CA set aside the NLRC resolution.
ISSUE: WON NLRC has jurisdiction over the illegal
dismissal case- NO
HELD:
§ Section 25 of the Corporation Code
enumerates corporate officers as the
president, secretary, treasurer and such other
officers as may be provided for in the by-
laws.
§ An "office" is created by the charter of the
corporation and the officer is elected by the
directors or stockholders, while an
"employee" usually occupies no office and
generally is employed not by action of the
directors or stockholders but by the
managing officer of the corporation who
also determines the compensation to be
paid to such employee.
§ The General Information Sheet, Minutes of
the meeting of the Board of Directors,
Secretary’s Certificate, and the Amended
By-Laws showed that Okol was a director
and officer of Slimmers World.
o The charges of illegal suspension,
illegal dismissal, unpaid commissions,
reinstatement and back wages
imputed by Okol therefore fall
squarely within the ambit of intra-
corporate disputes since a
COMMERCIAL LAW REVIEW | G02
corporate officer’s dismissal is always
a corporate act, or an intra-
corporate controversy which arises
between a stockholder and a
corporation.
o The question of remuneration
involving a stockholder and officer,
not a mere employee, is not a simple
labor problem but a matter that
comes within the area of corporate
affairs and management and is a
corporate controversy
contemplation of the Corporation
Code.
CORPORATION LAW
27 GLORIA V. GOMEZ v. PNOC DEV. AND MNGT.
CORP. (PDMC)
G.R. No. 174044 |Nov. 27, 2009 | J. ABAD | S A Y O
TOPIC: Corporate Officers
DOCTRINE: Ordinary company employees are
generally employed not by action of the directors
and stockholders but by that of the managing officer
of the corporation who also determines the
compensation to be paid such employees.
Corporate officers, on the other hand, are elected or
in appointed by the directors or stockholders, and are
those who are given that character either by the
Corporation Code or by the corporation’s by-laws.
FACTS:
1. Petitioner Gloria V. Gomez used to work as
Manager of the Legal Department of Petron
(then a GOCC).
2. With Petron’s privatization, she availed of the
companys early retirement program and left that
organization. However, Filoil Refinery Corporation
(also then a GOCC) appointed her its corporate
secretary and legal counse (same managerial
rank, compensation, benefits, etc.)
3. But Filoil was later on also identified for
privatization. To facilitate its conversion, the Filoil
board of directors created a five-member task
force headed by petitioner Gomez who had
been designated administrator
4. While documenting Filoils assets, she found
several properties which were not in the books of
the corporation. Consequently, she advised the
board to suspend the privatization until all assets
have been accounted for.
5. With the privatization temporarily shelved, Filoil
underwent reorganization and was renamed Filoil
Development Management Corporation
(FDMC), which later became the respondent
PNOC Development Management Corporation
(PDMC).
6. When this happened, Gomezs task force was
abolished and its members, including Gomez,
were given termination notices.
7. Meantime, petitioner Gomez continued to serve
as corporate secretary of respondent
PDMC. PDMC’s president re-hired her as
administrator and legal counsel of the company.
8. The next president of PDMC extended her term
as administrator beyond her retirement age.
9. A new board of directors for PDMC, however,
took over the company which removed
petitioner Gomez as corporate secretary.
10. The board also questioned her continued
employment as administrator.
11. In answer, she presented the former presidents
letter that extended her term. Dissatisfied with
this, the board sought the advice of its legal
department, which expressed the view that
38
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Gomezs term extension was an ultra vires act of 3. Respondent PDMC never told Gomez that
the former president. she was a corporate officer until the tail-end
12. It reasoned that, since her position was of her service after the board found legal
functionally that of a vice-president or general justification for getting rid of her by consulting
manager, her term could be extended under the its legal department and the OGCC which
company’s by-laws only with the approval of the supplied an answer that the board obviously
board. (her de facto tenure could be legally put wanted. Indeed, the PDMC president first
to an end) hired her as administrator in May 1994 and
13. Office of the Government Corporate Counsel then as administrator/legal counsel in
(OGCC): creation of admin position and September 1996 without a board approval.
Gomez’s appointment deemed ratified since the
board had been aware of it since 1994. But the 4. The president even extended her term in
OGCC ventured that the extension of her term May 1998 also without such approval. The
beyond retirement age should have been made company’s mindset from the beginning,
therefore, was that she was not a corporate
with the board’s approval.
officer.
14. Petitioner Gomez for her part conceded that as
corporate secretary, she served only as a
5. The relationship of a person to a corporation,
corporate officer. But, when they named her
whether as officer or agent or employee, is
administrator, she became a regular managerial
not determined by the nature of the services
employee. Consequently, the respondent PDMCs
he performs but by the incidents of his
board did not have to approve either her
relationship with the corporation as they
appointment as such or the extension of her term
actually exist.
in 1998.
15. Gomez, as a regular employee, filed a complaint
6. Here, respondent PDMC hired petitioner
with the NLRC for illegal dismissal and payment of
Gomez as an ordinary employee without
benefits.
board approval as was proper for a
corporate officer. When the company got
ISSUE: WON petitioner Gomez was, in her capacity as
her the first time, it agreed to have her retain
administrator of respondent PDMC, an ordinary
the managerial rank that she held with
employee whose complaint for illegal dismissal and
Petron. Her appointment paper said that she
non-payment of wages and benefits is within the
would be entitled to all the rights, privileges,
jurisdiction of the NLRC.
and benefits that regular PDMC employees
enjoyed. This is in sharp contrast to what the
HELD: YES, Ordinary EE.
former PDMC presidents appointment paper
stated: he was elected to the position and
1. Here, it was the PDMC president who
his compensation depended on the will of
appointed petitioner Gomez administrator,
the board of directors.
not its board of directors or the
stockholders. The president alone also
determined her compensation
package. Moreover, the administrator was
not among the corporate officers mentioned
in the PDMC by-laws. The corporate officers
proper were the chairman, president,
executive vice-president, vice-president,
general manager, treasurer, and secretary.

2. Respondent PDMC claims, however, that

since its board had under its by-laws the
power to create additional corporate
offices, it may be deemed to have simply
ratified its presidents creation of the
corporate position of administrator. But
creating an additional corporate office was
definitely not respondent PDMCs intent
based on its several actions concerning the
position of administrator.

39
COMMERCIAL LAW REVIEW | G02
28 LABORTE V. PAGSANJAN TOURISM CONSUMERS’
COOPERATIVE
G.R. No. 183860 | 15 January 2014 | J. Ruben Reyes
| San Juan
TOPIC: Liability of Corporate Officers
DOCTRINE: A corporate officer cannot be held
personally liable with the corporation, whether civilly
or otherwise, for the consequences of his acts, if
acted for and in behalf of the corporation, within the
scope of his authority and in good faith.
FACTS: Pagsanjan Tourism Consumers’ Cooperative
(PTCC) was operating a restaurant business and boat
ride services within the Philippine Tourism Authority
Complex in Pagsanjan, Laguna (hereafter, the
“Complex”). Laborte, then Area Manager of the
Philippine Tourism Authority – CALABARZON (PTAC),
closed down PTCC’s businesses in view of the
rehabilitation of the Complex. PTA and Laborte were
made liable for the losses sustained by PTCC and its
employees because of the closure of its businesses.
In this case, Laborte assails, among others, the
decision of the Court of Appeals making him
personally liable for the foregoing losses. He maintains
that he should not be made personally liable for the
said losses because he ordered the closure in his
official capacity, it was made in good faith, and he
ordered the same in compliance with the directives
of PTA’s top management.
ISSUE: Should Laborte be made personally liable for
the said losses?
RULING: Laborte should NOT be made personally
liable for the said losses. Laborte ordered the closure
of the PT’s businesses in his official capacity as Area
Manager of PTAC. He was simply implementing the
lawful order of the PTA Management. As a rule, the
officer cannot be held personally liable with the
corporation, whether civilly or otherwise, for the
consequences of his acts, if acted for and in behalf
of the corporation, within the scope of his authority
and in good faith.
40
CORPORATION LAW
29 MAM REALTY DEVELOPMENT CORPORATION v.
NLRC
GR No. 114787, VITUG, J., Sullano
TOPIC: Liability of Corporate Officer
DOCTRINE: A corporation, being a juridical entity,
may act only through its directors, officers and
employees. Obligations incurred by them, acting as
such corporate agents, are not theirs but the direct
accountabilities of the corporation they represent.
FACTS:
1. Private respondent Celso B. Balbastro filed a
complaint before the Labor arbiter against
petitioners, MAM Realty Development
Corporation ("MAM") and its Vice President
Manuel P. Centeno, for wage differentials,
"ECOLA," overtime pay, incentive leave pay, 13th
month pay (for the years 1988 and 1989), holiday
pay and rest day pay.
2. Balbastro alleged that he was employed by
MAM as a pump operator in 1982 and had since
performed such work at its Rancho Estate,
Marikina, Metro Manila. He earned a basic
monthly salary of P1,590.00 for seven days of work
a week that started from 6:00 a.m. to up until 6:00
p.m. daily.
3. 3. MAM countered that Balbastro was engaged,
not as an employee, but as a service contractor,
at an agreed fee of P1,590.00 a month.
4. The labor arbiter dismissed the complaint. On
appeal with the NLRC, the commissioner set
aside LA decision and held Manuel Centeno
jointly and solidarilly liable with MAM realty
development corporation to pay complainant
the sum of P86,641.05.
ISSUE: WON Manuel Centeno, VP of MAM, can be
held solidarily liable with MAM realty development
corporation. NO.
HELD:
• NLRC erred in holding Centeno jointly and
severally liable with MAM.
• A corporation, being a juridical entity, may act
only through its directors, officers and
employees. Obligations incurred by them, acting
as such corporate agents, are not theirs but the
direct accountabilities of the corporation they
represent.
• Solidary liabilities may at times be incurred but
only when exceptional circumstances warrant
such as, generally, in the following cases:
o When directors and trustees or, in
appropriate cases, the officers of a
corporation – vote for or assent to patently
unlawful acts of the corporation; act in bad
faith or with gross negligence in directing the
corporate affairs; are guilty of conflict of
interest to the prejudice of the corporation,
COMMERCIAL LAW REVIEW | G02
its stockholders or members, and other
persons.
o When a director or officer has consented to
the issuance of watered stocks or who,
having knowledge thereof, did not forthwith
file with the corporate secretary his written
objection thereto.
o When a director, trustee or officer has
contractually agreed or stipulated to hold
himself personally and solidarily liable with
the Corporation
o When a director, trustee or officer is made,
by specific provision of law, personally liable
for his corporate action.
• In this case, there is nothing substantial on record
that can justify petitioner Centeno's solidary
liability with the corporation.
41
CORPORATION LAW
30 HARPOON MARINE SERVICES, INC. v. FERNAN
FRANCISCO
G.R. No. 167751 | 02 MARCH 2011| J. DEL CASTILLO |
TIGLAO
TOPIC: Liability of Corporate Officer
DOCTRINE: As held in MAM Realty Development
Corporation v. NLRC, obligations incurred by
corporate officers, acting as corporate agents, are
not theirs, but the direct accountabilities of the
corporation they represent. As such, they should not
be generally held jointly and solidarily liable with the
corporation. The Court, however, cited certain
exceptions, to wit:
1. When directors and trustees or, in appropriate
cases, the officers of a corporation:
a. Vote for or assent to [patently] unlawful
acts of the corporation;
b. Act in bad faith or with gross negligence
in directing the corporate affairs;
c. Are guilty of conflict of interest to the
prejudice of the corporation, its
stockholders or members, and other
persons;
2. When the director or officer has consented to the
issuance of watered stock or who, having
knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto;
3. When a director, trustee or officer has
contractually agreed or stipulated to hold himself
personally and solidarily liable with the
corporation;
4. When a director, trustee or officer is made, by
specific provision of law, personally liable for his
corporate action.
The general rule is grounded on the theory that a
corporation has a legal personality separate and
distinct from the persons comprising it. To warrant the
piercing of the veil of corporate fiction, the officers
bad faith or wrongdoing must be established clearly
and convincingly as bad faith is never presumed.
FACTS:
1. Petitioner Harpoon Marine Services, Inc.
(Harpoon), a company engaged in ship building
and ship repair, with petitioner Jose Lido Rosit
(Rosit) as its President and CEO, originally hired
respondent Fernan Francisco (Francisco) in 1992
as its Yard Supervisor.
2. In 1998, Francisco left for employment elsewhere
but Harpoon rehired him. He assumed his
previous position. However, he averred that Rosit
unceremoniously dismissed him because the
company could no longer afford his salary. The
company offered to pay him his separation pay
and accrued commissions.
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

3. Francisco nonetheless continued to report for unlawful acts of the corporation. Thus, it was error
work, but he was eventually barred from entering for the CA to hold Rosit solidarily liable with
the company premises. Eventually, he Harpoon for illegally dismissing Francisco.
proceeded to accept the company’s offer.
However, Rosit only offered separation pay,
which he refused to accept. He then demanded
an amount representing his commissions.
Harpoon and Rosit denied that they owed
Francisco anything as they never entered into
any contract or agreement for the payment of
commissions.
4. In October 2001, Francisco filed an illegal
dismissal complaint, which both the Labor Arbiter
and the NLRC granted. Harpoon and Rosit then
filed a petition for certiorari before the CA which
was denied. Hence, this petition.
5. Among other things, Harpoon and Rosit argue
that no liability, solidary or otherwise, should be
imposed on Rosit because, being an officer of
the company, he has a personality distinct from
that of Harpoon, and that no proof was
adduced to show that he acted with malice or
bad faith.

ISSUE/S: Whether or not Rosit, as an officer of

Harpoon, could be held solidarily liable with the latter
– NO

HELD/RULING;
1. Rosit cannot be held solidarily liable because
there is no substantial evidence of bad faith and
malice on his part in terminating Francisco.
2. In this case, the CA’s basis for Rosit’s liability was
that he acted in bad faith when he approached
respondent and told him that the company
could no longer afford his salary and that he will
be paid instead his separation pay and accrued
commissions. This finding, however, could not
substantially justify the holding of any personal
liability against Rosit.
3. The records are bereft of any other satisfactory
evidence that Rosit acted in bad faith with gross
or inexcusable negligence, or that he acted
outside the scope of his authority as company
president.
4. In fact, Rosit informed Francisco that the
company wishes to terminate his services since it
could no longer afford his salary. Moreover, the
promise of separation pay, according to
Harpoon and Rosit, was out of goodwill and
magnanimity.
5. At most, Rosit’s actuations only show the illegality
of the manner of effecting Francisco’s
termination from service due to absence of just
or valid cause and non-observance of
procedural due process but do not point to any
malice or bad faith on his part. Besides, good
faith is still presumed. In addition, liability only
attaches if the officer has assented to patently

42
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31 SPI TECHNOLOGIES v. MAPUA c. (c) they agree to hold themselves

G.R. No. 191154 | April 7, 2014 | REYES | TING personally and solidarily liable with the
TOPIC: Liability of Corporate Officer corporation; or
d. (d) they are made by specific provision
DOCTRINE: Generally, directors, officers or trustees of law personally answerable for their
could not be personally held liable for acts of the corporate action.
corporation. Except, only when: (a) they assent to a 3. Such were not present in this case, thus the
patently unlawful act of the corporation, or when officers could not be held liable.
they are guilty of bad faith or gross negligence in 4. The details specified by Mapua, are mere
directing its affairs, or when there is a conflict of suppositions.
interest resulting in damages to the corporation, its
stockholders or other persons; (b) they consent to the
issuance of watered down stocks or when, having
knowledge of such issuance, do not forthwith file with
the corporate secretary their written objection; (c)
they agree to hold themselves personally and
solidarily liable with the corporation; or (d) they are
made by specific provision of law personally
answerable for their corporate action

• Mapua, a corporate development head, filed a

complaint for illegal dismissal against SPI
o She alleged that she failed to meet the
deadlines, and thus, most of her work
was transferred.
o Subsequently, she was removed from her
position because it was redundant
• Mapua filed an illegal dismissal case against SPI.
o She alleged that Villanueva, Nolan,
Maquera and Raina, as officers of SPI
were the ones who informed her that she
was dismissed. Immediately after
Villanueva told her, her laptop and
phone was taken by the HR Supervisor.
o Villanueva even gave Mapua’s work to
Nolan and Raina

ISSUE: WON the corporate officers impleaded should

also be held liable for Mapua’s illegal dismissal
NO

HELD:
1. There was illegal dismissal, as found by the SC.
Generally, directors, officers or trustees could not
be held personally liable for such.
2. However, personal liability of corporate directors,
trustees or officers attaches only when:
a. (a) they assent to a patently unlawful act
of the corporation, or when they are
guilty of bad faith or gross negligence in
directing its affairs, or when there is a
conflict of interest resulting in damages
to the corporation, its stockholders or
other persons;
b. (b) they consent to the issuance of
watered down stocks or when, having
knowledge of such issuance, do not
forthwith file with the corporate secretary
their written objection;

43
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32 MIRANT [PHILS.] CORP and BAUTISTA vs. JOSELITO ISSUES: w/n Bautista, the President of Mirant, should
CARO be jointly and severally liable with Mirant NO
G.R. No. 181490 | April 23, 2014 | Villarama | Vargas
TOPIC: Liability of Corporate Officer HELD:
1. The LA and the CA did not discuss the basis of
DOCTRINE: A corporation has a personality separate the personal liability of Bautista, and yet the
and distinct from its officers and board of directors dispositive portion of the decision of the Labor
who may only be held personally liable for damages Arbiter - which was affirmed by the CA - held him
if it is proven that they acted with malice or bad faith jointly and severally liable with Mirant.
in the dismissal of an employee. Absent any evidence 2. A corporation has a personality separate and
on record that petitioner Bautista acted maliciously distinct from its officers and board of directors
or in bad faith in effecting the termination of who may only be held personally liable for
respondent, plus the apparent lack of allegation in damages if it is proven that they acted with
the pleadings of respondent that petitioner Bautista malice or bad faith in the dismissal of an
acted in such manner, the doctrine of corporate employee.
fiction dictates that only petitioner corporation should 3. Absent any evidence on record that Bautista
be held liable for the illegal dismissal of respondent. acted maliciously or in bad faith in effecting the
termination of Caro, plus the apparent lack of
FACTS: allegation in the pleadings of Caro that Bautista
1. RESPONDENT Caro (Caro) filed a complaint for acted in such manner, the doctrine of corporate
illegal dismissal and money claim, as well as fiction dictates that only Mirant should be held
damages and attorney’s fees against petitioners liable for the illegal dismissal of Caro.
corporation (Mirant) and Bautista
2. Bautista was the President of Mirant when Caro
was terminated from employment (u may
proceed to #9 if u want to be very brief)
3. Caro was a Supervisor at the Logistics and
Purchasing Department of Mirant
4. One day, Mirant conducted a random drug test
where Caro was randomly chosen among its
employees who would be tested for illegal drug
use. Caro was duly notified that he was
scheduled to be tested after lunch on that day.
5. Caro avers that at around 11:30 a.m. of the same
day, he received a phone call from his wife’s
colleague who informed him that a bombing
incident occurred near his wife’s work station in
Tel Aviv, Israel where his wife was then working as
a caregiver
6. Caro claims that he then proceeded to the Israeli
Embassy to confirm the news on the alleged
bombing incident.
7. At around 6:15 p.m., Caro returned to Mirant’s
office and explained to the test conductors the
reasons for his failure to submit himself to the
random drug test. He also proposed that he
would submit to a drug test the following day at
his own expense.
8. Eventually, Mirant charged Caro with “unjustified
refusal to submit to random drug testing,” then
dismissed him.
9. Labor Arbiter found petitioners guilty of illegal
dismissal and held both Mirant and Bautista to be
jointly and severally liable to pay Caro for his
claims.
10. NLRC reversed LA. CA reversed NLRC. Hence, this
petition.

44
COMMERCIAL LAW REVIEW | G02
33 Joselito Musni Puno vs. Puno Enterprises
G.R. No. 177066, Sept. 11, 2009| Nachura | Valera
Topic: Stockholders
Doctrine: only stockholders of record are entitled to
receive dividends declared by the corporation, a
right inherent in the ownership of the shares.Upon the
death of a shareholder, the heirs do not
automatically become stockholders of the
corporation and acquire the rights and privileges of
the deceased as shareholder of the corporation. The
stocks must be distributed first to the heirs in estate
proceedings, and the transfer of the stocks must be
recorded in the books of the corporation. Section 63
of the Corporation Code provides that no transfer
shall be valid, except as between the parties, until
the transfer is recorded in the books of the
corporation.
Facts:
1. Carlos Puno was an incorporator of Puno
Enterprises(Respondent). He died.
2. Joselito Puno(Petitioner) claiming to be a son of
the deceased Carlos Puno. As a surviving heir he
claimed entitlement ot the rights and privileges of
his father as stock holder of Respondent. He filed
a complaint for Specific performance praying
that he be allowed to inspect the corporate
books, render and accounting and to be given
all the profits, earnings, dividends or income
pertaining to the shares of Carlos Puno.
3. The RTC ruled in favor of Petitioner after he
showed a birth certificate, the RTC ordered the
Respondent to allow Petitioner to inspect the
corporate books and records.
4. On Appeal, The CA ordered the dismissal of the
Complaint. According to the CA, Petitioner was
not able to establish his filation to Carlos Puno.
The CA said that petitioner had no right to
demand to be allowed to examine the
corporate books as he was not a stockholder but
was merely claiming rights as an heir of Carlos
Puno. The CA further stated that his action for
specific performance appeared to be
premature; the proper action to be taken was to
prove his filiation to Carlos Puno in a petition for
the settlement of Carlos Puno’s estate.
Issues: w/n Petitioner as a surviving heir acquire the
rights and privileges of his father as a stock holder of
the Respondent?
Held: No.
4. Petitioner anchors his claim on his being an heir
of the deceased stockholder. However, The SC
agrese with the appellate court that petitioner
was not able to prove satisfactorily his filiation to
the deceased stockholder; thus, the former
cannot claim to be an heir of the latter
45
CORPORATION LAW
5. In any case Sections 74, and 75 enumerate the
persons who are entitled to the inspection of the
corporate books which are the directors, trustees,
stockholders.
6. The stockholders right of inspection of the
corporate books is based upon his ownership of
shares of the Corp. Only stockholders of record
are entitled to receive dividends declared by the
corporation, a right inherent in the ownership of
the shares
7. Upon the death of a shareholder, the heirs do not
automatically become stockholders of the
corporation and acquire the rights and privileges
of the deceased as shareholder of the
corporation. The stocks must be distributed first to
the heirs in estate proceedings, and the transfer
of the stocks must be recorded in the books of
the corporation. Section 63 of the Corporation
Code provides that no transfer shall be valid,
except as between the parties, until the transfer is
recorded in the books of the corporation. During
such interim period, the heirs stand as the
equitable owners of the stocks, the executor or
administrator duly appointed by the court being
vested with the legal title to the stock. Until a
settlement and division of the estate is effected,
the stocks of the decedent are held by the
administrator or executor. Consequently, during
such time, it is the administrator or executor who
is entitled to exercise the rights of the deceased
as stockholder
8. Thus, even if petitioner presents sufficient
evidence in this case to establish that he is the
son of Carlos L. Puno, he would still not be
allowed to inspect respondent’s books and be
entitled to receive dividends from respondent,
absent any showing in its transfer book that some
of the shares owned by Carlos L. Puno were
transferred to him. This would only be possible if
petitioner has been recognized as an heir and
has participated in the settlement of the estate
of the deceased
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

34 DAVID LAO and JOSE LAO v DIONISIO LAO the alleged seller.
GR 170585 | 6 October 2008 | J. Reyes | Yumul o Therefore, the burden of proof is on
TOPIC: Stockholders them to show that they are
shareholders of PFSC.
DOCTRINE: A certificate of stock is prima facie § The mere inclusion as
evidence that the holder is a shareholder of a shareholders in the GIS of
corporation. The mere inclusion as shareholder in the PFSC is insufficient proof that
GIS is insufficient proof that they are shareholders of they are shareholders of the
the company. As between the GIS and the company. As between the
corporate books, it is the latter that is controlling. General Information Sheet
and the corporate books, it
FACTS: is the latter that is controlling.
1. David and Jose Lao claim that they are ♥ In contrast, Dionisio was able to prove that
stockholders of Pacific Foundry Shop Corporation he is the owner of the disputed shares. He
based on the General Information Sheet filed had in his possession the certificates of stocks
with the SEC, in which they are named as of Hipolito Lao, properly endorsed to him,
stockholders and directors of the corporation. and such transfer having been duly
2. They filed a petition with the SEC against Dionisio registered in the stock and transfer book of
Lao, president of PFSC. They prayed for a the corporation.
declaration as stockholders and directors of
PFSC, issuance of certificates of shares in their
name and to be allowed to examine the
corporate books of PFSC.
a. David alleged that he acquired 446
shares in PFSC from his father, Lao Pong
Bao, which shares were previously
purchased from a certain Hipolito Lao.
b. Jose, on the other hand, alleged that he
acquired 333 shares from Dionisio himself.
3. Dionisio alleged that the inclusion of their names
in the corporation's GIS was inadvertently made.
He also claimed that David and Jose did not
acquire any shares in PFSC by any of the modes
recognized by law, namely subscription,
purchase, or transfer. Hence, they had no right to
be issued certificates or stocks or to inspect its
corporate books.
4. The Securities Regulation Code was enacted,
transferring jurisdiction over all intra-corporate
disputes from the SEC to the RTC.
5. RTC ruled against David and Jose; CA affirmed

ISSUE: WON David and Jose are stockholders of PFSC

HELD: NO
♥ A certificate of stock is the evidence of a
holder's interest and status in a corporation. It
is a written instrument signed by the proper
officer of a corporation stating or
acknowledging that the person named in
the document is the owner of a designated
number of shares of its stock. It is prima facie
evidence that the holder is a shareholder of
a corporation.
♥ David and Jose have no certificates of
shares in their name. There is neither any
written document that there was a sale or
assignment of shares nor proof of possession
of the certificates of shares in the name of

46
COMMERCIAL LAW REVIEW | G02
35 LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH)
ASSOCIATION, INC. v. HON. COURT OF APPEALS,
HOME INSURANCE AND GUARANTY CORPORATION,
EMDEN ENCARNACION and HORATIO AYCARDO
G.R. No. 117188, August 7, 1997. ROMERO | ACIDO
TOPIC: By-laws
DOCTRINE: As the "rules and regulations or private
laws enacted by the corporation to regulate, govern
and control its own actions, affairs and concerns and
its stockholders or members and directors and officers
with relation thereto and among themselves in their
relation to it," by-laws are indispensable to
corporations in this jurisdiction. These may not be
essential to corporate birth but certainly, these are
required by law for an orderly governance and
management of corporations. Nonetheless, failure to
file them within the period required by law by no
means tolls the automatic dissolution of a
corporation.
FACTS:
1. LGVHAI was organized on February 8, 1983 as the
association of homeowners and residents of the
Loyola Grand Villas. It was registered with the
Home Financing Corporation, the predecessor of
herein respondent HIGC, as the sole
homeowners' organization in the said subdivision.
It was organized by the developer of the
subdivision and its first president was Victorio V.
Soliven, himself the owner of the developer. For
unknown reasons, however, LGVHAI did not file its
corporate by-laws.
2. Sometime in 1988, the officers of the LGVHAI tried
to register its by-laws. They failed to do so. To the
officers' consternation, they discovered that
there were two other organizations within the
subdivision — the North Association (HIGC reg.
Feb.13, 1989; by-laws passed Dec. 20, 1988) and
the South Association (HIGC reg. July 27, 1989;
by-laws passed July 26, 1989).
3. In July 1989, when Soliven inquired about the
status of LGVHAI, Atty. Joaquin A. Bautista, the
head of the legal department of the HIGC,
informed him that LGVHAI had been
automatically dissolved because: 1) it did not
submit its by-laws within the period required by
the Corporation Code and 2) there was non-user
of corporate charter because HIGC had not
received any report on the association's
activities.
4. These developments prompted the officers of the
LGVHAI to lodge a complaint with the HIGC,
questioning the revocation of LGVHAI's
certificate of registration without due notice and
hearing and concomitantly prayed for the
cancellation of the certificates of registration of
the North and South Associations by reason of
47
CORPORATION LAW
the earlier issuance of a certificate of registration
in favor of LGVHAI.
5. HIGC Hearing Officer: Ruled in favor of LGVHAI.
Ordered cancellation of Certificates of
Registration of North and South Assocs. HIGC
Appeals Board dismissed South Assoc.’s appeal.
CA affirmed Appeals Board.
ISSUE: Whether 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, petition denied.
RULING:
• (See Sec. 46, Corp. Code) reveals the legislative
intent to attach a directory, and not mandatory,
meaning for the word "must" in the first sentence
thereof. Note should be taken of the second
paragraph of the law which allows the filing of
the by-laws even prior to incorporation.
• Failure to file the by-laws within the 1-month
period does not imply the "demise" of the
corporation. By-laws may be necessary for the
"government" of the corporation but these are
subordinate to the articles of incorporation as
well as to the Corporation Code and related
statutes. There are in fact cases where by-laws
are unnecessary to corporate existence or to the
valid exercise of corporate powers.
• It has been said that the by-laws of a corporation
are the rule of its life, and that until by-laws have
been adopted the corporation may not be able
to act for the purposes of its creation, and that
the first and most important duty of the members
is to adopt them. This would seem to follow as a
matter of principle from the office and functions
of by-laws. Viewed in this light, the adoption of
by-laws is a matter of practical, if not one of
legal, necessity. Moreover, the peculiar
circumstances attending the formation of a
corporation may impose the obligation to adopt
certain by-laws, as in the case of a close
corporation organized for specific purposes. And
the statute or general laws from which the
corporation derives its corporate existence may
expressly require it to make and adopt by-laws
and specify to some extent what they shall
contain and the manner of their adoption. The
mere fact, however, of the existence of power in
the corporation to adopt by-laws does not
ordinarily and of necessity make the exercise of
such power essential to its corporate life, or to the
validity of any of its acts.
• 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.
COMMERCIAL LAW REVIEW | G02
However, such omission has been rectified by
Presidential Decree No. 902-A (power of SEC to
revoke, suspend for failure to file by-laws within
the required period)
• Even under the foregoing express grant of power
and authority, there can be no automatic
corporate dissolution simply 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.
48
CORPORATION LAW
36 PETRONILO J. BARAYUGA V. ADVENTIST UNIV. OF
THE PHILS.
G.R. No. 168008 | August 17, 2011 | Bersamin |
Angsiy
TOPIC: By-laws
DOCTRINE: Section 108 of the Corporation Code
determines the membership and number of trustees
in an educational corporation. The second
paragraph of the provision, although setting the term
of the members of the Board of Trustees at five years,
contains a proviso expressly subjecting the duration
to what is otherwise provided in the articles of
incorporation or by-laws of the educational
corporation. That contrary provision controls on the
term of office.
FACTS:
1. AUP, a non-stock and non-profit educational inst.
Was directly under the North Philippine Union
Mission (NPUM) of the Seventh Day Adventist
2. NPUM executive comm. elected the member of
the BoT of AUP, including the chairman and
secretary. Dayson was elected as chairman while
Barayuga was chosen secretary
3. After 2 mos., BoT appointed Barayuga President
of AUP
4. NPUM conducted external performance audit.
Audit concluded that he had committed serious
violations of fundamental rules and procedure in
the disbursements and use of funds
5. He was asked to explain. He replied that he had
already prepared his explanation
6. BoT set a meeting (special meeting). Being the
secretary, Barayuga prepared the agenda and
included an item on his case. BoT decided to
adjourn after Barayuga’s explanation and set
another meeting considering that the meeting
was not called for the purpose of deciding his
case.
7. After some time, Dayson notified Barayuga that
BoT would hold in abeyance its deliberations and
would meet again on Jan 27; that some sectors
in the campus had not been propery
represented during the special meeting.
8. On Jan 27, Barayuga sent a letter to the BoT.
Also, the members by secret ballot voted to
remove him as President because of his serious
violations. They would appoint an interim
committee consisting of 3 members to assume
the powers and functions of the Pres.
9. On Jan 28, Barayuga was handed a letter
together with a copy of the minutes of the Jan 27
meeting
10. Barayuga handed to Dayson a letter requesting
recon plus extension to gather the docs since he
was attending to his dying mother
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

11. Recon was denied. He was given a letter the
next day but he refused to receive the notice,
simply saying Alam ko na yan
12. Barayuga filed suit for injunction in the RTC. Plus
TRO. Impleading AUP and BoT, represented by
Dayson, and the interim committee.
a. Denied due process. That he was not
validly removed.
b. That he was entitled a five year term
13. RTC: PI was granted
a. There was neither a written request
made by any two members of the BoT
nor proper notices sent to the members
as required by the By-Laws – patent
defect which tainted the meetings with
nullity
14. CA nullified RTC’s writ of PI
a. The fiver year term provision was
inexistent in the constitution and by laws
and working policy of AUP. His term of
office expired two years from his
appointment based on AUPS amended
by laws. That he had been a mere de
facto officer appointed by the BoT and
that he had no legal right warranting the
issuance of PI
ISSUE: Whether CA correctly ruled that Barayuga had
no legal right to the position that could be protected
by the injunctive writ.
right to an office in him. An unfilled model form
creates or establishes no rights in favor of
anyone.
• The petitioners assertion of a five-year duration
for his term of office lacked legal basis.
• Section 108 of the Corporation Code determines
the membership and number of trustees in an
educational corporation
o The second paragraph of the provision,
although setting the term of the
members of the Board of Trustees at five
years, contains a proviso expressly
subjecting the duration to what is
otherwise provided in the articles of
incorporation or by-laws of the
educational corporation. That contrary
provision controls on the term of office
• In AUPs case, its amended By-Laws provided the
term of the members of the Board of Trustees,
and the period within which to elect the officers
• The officers, including the President, were to
exercise the powers vested by Section 2 of the
amended By-Laws for a term of only two years,
not five years.
• By the time of his removal for cause as President
on January 27, 2003, he was already occupying
the office in a hold-over capacity, and could be
removed at any time, without cause, upon the
election or appointment of his successor

HELD: YES
• Moot and academic: The injunctive writ issued by
the RTC was meant to protect the petitioners
right to stay in office as President. Given that the
lifetime of the writ of preliminary injunction was
co-extensive with the duration of the act sought
to be prohibited, this injunctive relief already
became moot in the face of the admission by
the petitioner that his term of office premised on
his alleged five-year tenure as President had
lasted only until December 2005.
• Petitioner rested his claim for injunction mainly
upon his representation that he was entitled to
serve for five years as President of AUP under the
Constitution, By-Laws and Working Policy aka
Bluebook. All that he presented in that regard,
however, were mere photocopies of the
Bluebook
• The document had no evidentiary value. It had
not been officially adopted for submission to and
approval of the SEC. It was nothing but an
unfilled model form. As such, it was, at best, only
a private document that could not be admitted
as evidence in judicial proceedings until it was
first properly authenticated in court
• Even assuming that the petitioner had properly
authenticated the photocopies of the Bluebook,
the provisions contained therein did not vest the

49
COMMERCIAL LAW REVIEW | G02
37 VALLEY GOLF & COUNTRY CLUB, INC. vs. ROSA O.
VDA. DE CARAM
Topic: By-laws
Tinga | BIGALBAL
DOCTRINE: Sec. 91 of the Corp. Code provides:
SEC. 91. Termination of membership. — Membership
shall be terminated in the manner and for the causes
provided in the articles of incorporation or the by-
laws. Termination of membership shall have the effect
of extinguishing all rights of a member in the
corporation or in its property, unless otherwise
provided in the articles of incorporation or the by-
laws.
However, SC concluded that when the loss of
membership in a non-stock corporation also entails
the loss of property rights, the manner of deprivation
of such property right should also be in accordance
with the provisions of the Civil Code
FACTS:
1. Valley Golf & Country Club (Valley Golf) is a non-
stock, non-profit corp. which operates a golf
course. Members and guests are entitled to
facilities and privileges provided by Valley Golf.
Shareholders are assessed monthly membership
dues.
2. 1961- Late Congressman Fermin Caram, husband
of respondent, subscribed, purchased, and paid
in full one Golf share in the capital stock of Valley
Golf. He was issued a stock cert. for the golf
share. Stock cert indicates a par value of P9,000.
3. Valley Golf alleged that since 25 Jan. 1980,
Caram stopped paying his monthly dues which
were assessed until 31 June 1987. It alleged that it
sent 5 letters to Caram regarding the delinquent
account, sent to P.O. Box No. 1566, Makati
Commercial Center Post Office, the mailing
address which Caram allegedly gave to Valley
Golf.
4. 1st letter states Caram’s delinquent account and
his privileges are suspended pursuant to Sec. 3,
Art. VII of its by-laws. 2nd letter stated that should
Caram’s account remain unpaid for 45 days, his
name will be included in the delinquent list to be
posted on its bulletin board. 3rd letter informed
Caram again of his delinquent account and
suspension of privileges. 4th letter states that if
Caram fails to pay within 10 days from receipt, it
would exercise its right to sell the Golf Share to
satisfy the outstanding amount, pursuant to the
provisions of the by-laws. The final letter (3 May
1987), issued a final deadline until 31 May 1987 for
Caram to sale of the Golf share to satisfy the
claims of Valley Golf.
50
CORPORATION LAW
5. 11 June 1987- Golf share was sold at public
auction for P25,000.
6. As it turned out, Caram had died on 6 Oct. 1986.
Intestate proceeding before RTC Iloilo is ongoing
already which includes the golf share.
Respondent was unaware of the controversy
when it was adjudicated to her, paying the
estate tax after approval of the partition of
Caram’s estate, including the golf share.
7. It was only through a letter dated 15 May 1990
that the heirs of Caram learned the sale of the
golf share following their inquiry about it. After a
series of correspondence, Caram heirs were
informed that they were entitled to a refund of
P11,066.52 out of the proceeds of the sale of the
golf share, the amount under custody of Valley
Golf since 11 June 1987.
8. Respondent (Caram’s wife) filed an action for
reconveyance of the share with damages before
SEC against Valley Golf. SEC hearing officer ruled
in favor of Carams wife, ordering Valley Golf to
convey ownership of the Golf Share or in the
alternative to issue one fully paid share of stock
of Valley Golf the same class as the Golf Share to
Caram’s wife. Damages totaling P90,000.00 were
also awarded to her.
9. SEC hearing officer took note of Sec. 67 par. 2 of
the Corp. Code- a share stock could only be
deemed delinquent and sold in an extrajudicial
sale at public auction only upon the failure of the
stockholder to pay the unpaid subscription or
balance for the share. That such is not applicable
to Caram because he fully paid the share and
has been assessed not by this reason but for his
delinquent club dues. SEC hearing officer
concluded that the auction sale had no basis in
law and is a nullity.
10. SEC hearing officer took note of Valley Golf’s
argument that the sale of the golf share was
authorized under the by-laws. However, it was
ruled that pursuant to Section 6 of the Corp.
Code, a provision creating a lien upon shares of
stock for unpaid debts, liabilities, or assessments
of stockholders to the corporation, should be
embodied in the Articles of Incorporation, and
not merely in the by-laws, because Section 6
(par. 1) prescribes that the shares of stock of a
corporation may have such rights, privileges and
restrictions as may be stated in the articles of
incorporation (AOI). Here, Valley Golf’s AOI did
not impose any lien, liability or restriction on the
Golf Share or any conditionality that the Golf
Share would be subject to assessment of monthly
dues or a lien on the share for non-payment of
such dues. Also, since Section 98 of the Corp.
Code provides that restrictions on transfer of
shares should appear in the articles of
incorporation, by-laws and the certificate of
stock to be valid and binding on any purchaser
COMMERCIAL LAW REVIEW | G02
in good faith, there was more reason to apply
the said rule to club delinquencies to constitute a
lien on golf shares. SEC hearing officer observed
that the letters were sent after Caram’s death.
He concluded that the sale of the golf share was
a deprivation of property without due process of
law.
11. On appeal to SEC en banc, it arffirmed the
hearing officer’s decision in toto.
12. Valley Golf filed a petition for review before the
CA. CA affirmed the ruling of SEC en banc with
modification of deleting the attorney’s fees.
13. In its petition before the SC, Valley Golf concedes
that Sec. 67 of the Corp. code is not applicable
but argues that its by-laws authorizes the sale of
delinquent shares. That the by-laws constitute a
valid law or contractual agreement between the
corporation and its stockholders or their
respective successors. That the by-laws was also
approved by SEC.
14. It also argued that CA erred on relying upon Sec.
6 of the Corp. Code to nullify the provisions of the
by-laws. Sec. 6 refers to restrictions on the shares
of stock which should be stated in the AOI, as
differentiated from liens which under the by-laws
would serve as basis for the auction sale of the
share. Sec. 6 also contains the word may, thus,
evincing the non-mandatory character of the
requirement that restrictions or liens be stated in
the articles of incorporation.
ISSUE:
1. WON non-stock corporation may seize and
dispose of the membership share of a fully-paid
member on account of its unpaid debts to the
corporation when it is authorized to do so under
the corporate by-laws but not by the Articles of
Incorporation?
2. WON the actions of Valley Golf concerning the
membership of Caram proper?
HELD: Petition is denied.
1. YES.
♥ AOI of Valley Golf does not contain any
provision authorizing the corporation to
create any lien on a member's Golf Share as
a consequence of the member's unpaid
assessments or dues to Valley Golf but is
contained in its by-laws. Valley Golf
submitted the amended by-laws regarding
Club Accounts Art. VIII provides:
Section 1. Lien. — The Club has the first lien on the
share of the stockholder who has, in his/her/its name,
or in the name of an assignee, outstanding accounts
and liabilities in favor of the Club to secure the
payment thereof.
51
CORPORATION LAW
Section 3. The account of any member shall be
presented to such member every month. If any
statement of accounts remains unpaid for a
period(45) days after cut-off date, said member
maybe posted as delinquent. No delinquent member
shall be entitled to enjoy the privileges of such
membership for the duration of the delinquency.
After the member shall have been posted as
delinquent, the Board may order his/her/its share sold
to satisfy the claims of the club; after which the
member loses his/her/its rights and privileges
permanently. No member can be indebted to the
Club at any time any amount in excess of the credit
limit set by the Board of Directors from time to time.
The unpaid account referred to here includes non-
payment of dues, charges and other assessments
and non-payment for subscriptions
♥ Valley Golf argues that by virtue of the by-
law provisions a lien is created on the shares
of its members to ensure payment of dues
and other assessments on members. Both
SEC and CA did not agree on this. They
noted that the procedure under Sec. 67 of
the Corp. Code for unpaid subscriptions is
inapt to a non-stock corp. vis-à-vis a
member's outstanding dues. In non-stock,
member has fully paid for his membership
share while in stock corp., stockholder has
not yet fully paid for the share or shares of
stock he subscribed to, thereby authorizing
the stock corporation to call on the unpaid
subscription, declare the shares delinquent
and subject the delinquent shares to a sale
at public auction.
♥ Also, following Sec. 6 of the Corp. Code, the
lien on the golf share in favor of Valley Golf is
not valid as the power to constitute such a
lien should be provided in the AOI, and not
merely in the by-laws.
♥ However, Sec. 91 of the Corp. Code
provides:
SEC. 91. Termination of membership. — Membership
shall be terminated in the manner and for the causes
provided in the articles of incorporation or the by-
laws. Termination of membership shall have the
effect of extinguishing all rights of a member in the
corporation or in its property, unless otherwise
provided in the articles of incorporation or the by-
laws
• Hence, the right of a non-stock corp., Valley
Golf in this case, to expel a member through
forfeiture of the Golf Share may be
established in the by-laws alone. Both the
SEC and the CA are wrong then in holding
that the establishment of a lien and the loss
of the Golf Share consequent to the
COMMERCIAL LAW REVIEW | G02
enforcement of the lien should have been
provided for in the AOI.
• If in the affirmative, is there any cause to
invalidate the lien and the subsequent sale
of the Golf Share by Valley Golf? Former SEC
Chairperson Rosario Lopez explains Sec. 91 in
her commentaries in the Corp. Code:
The prevailing rule is that the provisions of the articles
of incorporation or by-laws of termination of
membership must be strictly complied with and
applied to the letter. Thus, an association whose
member fails to pay his membership due and annual
due as required in the by-laws, and which provides
for the termination or suspension of erring members
as well as prohibits the latter from intervening in any
manner in the operational activities of the
association, must be observed because by-laws are
self-imposed private laws binding on all members,
directors and officers of the corporation.
• By-law provision of Valley Golf discusses that
termination of membership may occur after
the following conditions: 1) presentation of
the account of the member; (2) failure of the
member to settle the account within forty-
five days after the cut-off date; (3) posting of
the member as delinquent; and (4) issuance
of an order by the board of directors that the
share of the delinquent member be sold to
satisfy the claims of Valley Golf.
• The conditions are approved by SEC and SC
is disinclined to rule against its validity.
• SC notes that Valley Golf was organized in
such a way that membership is adjunct to
ownership of a share in the club; hence the
necessity to dispose of the share to terminate
membership. Share ownership and
termination of membership may also lead to
infringement of rights.
• Here, Valley Golf is a non-stock corp. but the
golf share has an assigned value reflected
on the certificate of membership itself.
Termination of membership in Valley Golf
does not merely lead to the withdrawal of
the rights and privileges of the member to
club properties and facilities but also to the
loss of the Golf Share itself for which the
member had fully paid. Claim of Valley Golf
is limited to the unpaid dues but Caram’s loss
would be on the amount he had paid for the
share and also the price it would have
fetched in the market at the time his
membership was terminated.
• A refund mechanism may disquiet concerns
of undue loss of property rights
corresponding to termination of
membership.- Valley Golf seizes the share,
52
CORPORATION LAW
sells it to itself or a third person for
P100,000.00, then refunds P99,000.00 back to
the delinquent member. Such a mechanism
obviates the inequity of the first example,
and assures that the loss sustained by the
delinquent member is commensurate to the
actual debt owed to Valley Golf. Yet
noticeably, the by-laws of Valley Golf does
not require the Club to refund to the
discharged member the remainder of the
proceeds of the sale after the outstanding
obligation is extinguished. After Caram’s wife
had filed her complaint though, Valley Golf
did inform her that the heirs of Caram are
entitled to such refund.
• On the other hand, the by-laws does not
provide for a mode of notice to the member
before the Golf Share is put up for sale, yet
the sale marks the termination of
membership. If member fails to pay within 45
days, Valley Golf is entitled to have the
member posted as delinquent. The by-laws
does not require any notice to the member
from the time delinquency is posted to the
day the sale of the share is actually held. The
setup is to the extreme detriment to the
member, who upon being notified that the
lien on his share is due for execution would
be duly motivated to settle his accounts to
foreclose such possibility. Corp. Code is silent
on this as to whether it permits the
termination of membership without due
notice to the member. This was done in the
case of Long v. Basa involving a religious
corp.
• However, the religious corp. does not
normally involve a purchase of shares,
contrary to the situation here. SC concluded
that when the loss of membership in a non-
stock corporation also entails the loss of
property rights, the manner of deprivation of
such property right should also be in
accordance with the provisions of the Civil
Code.
2. NO.
• Commentaries of Lopez on an SEC opinion
states:
In order that the action of a corporation in expelling
a member for cause may be valid, it is essential, in
the absence of a waiver, that there shall be a
hearing or trial of the charge against him, with
reasonable notice to him and a fair opportunity to be
heard in his defense. If the method of trial is not
regulated by the by-laws of the association, it should
at least permit substantial justice. The hearing must
COMMERCIAL LAW REVIEW | G02
be conducted fairly and openly and the body of
persons before whom it is heard or who are to decide
the case must be unprejudiced.
• Valley Golf alleges that it was notified of
Caram’s death only in 1990. However, this
was belied by the demand letters they sent
to Caram’s mailing address. The 2 letters are
both addressed to “EST. of Fermin Caram”
which could only be taken to refer to estate.
This proves that it had known of Caram’s
death prior to the auction. Hence, Valley
Golf acted in bad faith when it sent the
demand letters under the pretense that they
believed Caram to be alive when in truth,
they knew that he already died. That reason
alone is sufficient to nullify the sale and
sustain the rulings of the SEC and the CA. Art.
19-21 of the CC may also be applied on the
act done by Valley Golf. These provisions
enunciate a general obligation under law for
every person to act fairly and in good faith
towards one another. Non-stock corporations
and its officers are not exempt from that
obligation.
• By-laws of Valley Golf is discomfiting enough
in failing to provide any formal notice and
hearing before a member’s share can be
seized and sold. SC will not interfere with how
non-stock corp. runs their daily affiars.
However, when a member is not given an
opportunity to defend himself on the
deprivation of property rights, by-laws is not
enough. SC deems it to refer to the Civil
Code for defense from loss of property rights.
• Membership shares are considered as
movable or personal property and they can
be constituted as security to secure a
principal obligation, such as the dues and
fees. There are at least two contractual
modes under the Civil Code by which
personal property can be used to secure a
principal obligation. The first is through a
contract of pledge while the second is
through a chattel mortgage.
• However, in this case, Caram had not signed
any document that shows his agreement to
constitute his Golf Share as security in favor of
Valley Golf to answer for his obligations to the
club. The by-laws is not designed as a
bilateral contract between Caram and
Valley Golf, or a vehicle by which Caram
expressed his consent to constitute his Golf
Share as security for his account with Valley
Golf.
53
CORPORATION LAW
38 JUANITO ANG, FOR AND IN BEHALF OF SUNRISE
MARKETING (BACOLOD), INC. v. SPOUSES ANG
G.R. No. 201675; June 19, 2013; Carpio; Castillo
TOPIC: Derivative Suit
DOCTRINE: A derivative suit is an action brought by a
stockholder on behalf of the corporation to enforce
corporate rights against the corporation’s directors,
officers or other insiders.
FACTS:
1. Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly
registered corporation owned by the Ang
family. Its current stockholders are Juanito,
Anecita, Jeannevie, Roberto, and Rachel, all
surnamed Ang.
2. Roberto, SBMI’s President and Juanito, the VP,
are siblings. Anecita, the Treasurer, is Juanito’s
wife and Jeannevie is their daughter. Rachel is
the Corporate Secretary.
3. On July 1995, Nancy Ang, sister of Juanito and
Roberto, a former SBMI stockholder, and her
husband, Theodore Ang, agreed to extend a
loan to settle SBMI’s and other corporations
owned by Ang family with Bayshore Aqua
Culture Corporation, Oceanside Marine
Resources and JR Aqua Venture. Nancy and
Theodore issued a check in the amount of $1M
payable to "Juanito Ang and/or Anecita Ang
and/or Roberto Ang and/or Rachel Ang."
4. Nancy and Theodore are now currently residing
in the US. There was no written loan agreement,
in view of the close relationship between the
parties. Part of the loan was also used to
purchase real properties for SMBI, for Juanito,
and for Roberto.
5. On December 2005, SMBI increased its authorized
capital stock to ₱10M. The Certificate of Increase
of Capital Stock was signed by Juanito, Anecita,
Roberto, and Rachel as directors of SMBI. Juanito
claimed, however, that the increase of SMBI’s
capital stock was done in contravention of the
Corporation Code.
6. Juanito alleged that when he and Anecita left
for Canada, spouses Roberto and Rachel Ang
took over the active management of SBMI and
were able to successfully manipulate the stocks
sharings between themselves at 50-50.
7. Juanito claimed that payments to Nancy and
Theodore ceased sometime after 2006. On
November 2008, Nancy and Theodore, their
counsel here sent a demand letter to "Spouses
Juanito L. Ang/Anecita L. Ang and Spouses
Roberto L. Ang/Rachel L. Ang" for payment of
the principal amounting to $1M plus interest at
10% p.a., but Roberto and Rachel answered with
a letter that they are not complying because
they have not personally contracted a loan from
Nancy and Theodore.
COMMERCIAL LAW REVIEW | G02
8. On January 2009, Juanito and Anecita executed
a Deed of Acknowledgment and Settlement
Agreement (Settlement Agreement) and an
Extra-Judicial Real Estate Mortgage (Mortgage),
where they admitted that they obtained a loan
from Nancy and Theodore for $1M on 31 July
1995, secured by parcels of land or shares on
parcels of land owned by SBMI, Juanito, Roberto,
Anecita and Roberto’s son.
9. A certain Kenneth C. Locsin signed on behalf of
Nancy and Theodore, under a SPA, which was
not attached as part of the Settlement
Agreement or the Mortgage, nor included in the
records of this case. Thereafter, Juanito filed a
"Stockholder Derivative Suit with prayer for an ex-
parte Writ of Attachment/Receivership" before
the RTC Bacolod.
10. Juanito alleged that "the intentional and
malicious refusal of defendant Sps. Roberto and
Rachel Ang to settle their 50% share of the total
obligation will definitely affect the financial
viability of plaintiff SMBI." He also claimed that he
has been "illegally excluded from the
management and participation in the business of
SBMI through force, violence and intimidation"
and that Rachel and Roberto have seized and
carted away SMBI’s records from its office.
11. RTC: ex-parte writ of attachment and break open
order granted. Atty. Jerry Basiao, was appointed
as Receiver of SMBI, who was directed to furnish
the required Receivership Bond.
12. Rachel alleged that it is not a derivative suit as
defined under the Interim Rules of Procedure for
Intra-Corporate Controversies because, although
labelled as a derivative suit, it is actually a
collection suit since the real party in interest is not
SMBI, but Nancy and Theodore. Furthermore, it is
for the benefit of a non-stockholder and not the
corporation because the primary relief prayed
for the payment of amount which is 50% of the
loan obligations of SBMI to its creditor, the Sps.
Theodore and Nancy Ang. Lastly, Juanito failed
to allege that he "exerted all reasonable efforts
to exhaust all intra-corporate remedies available
under the articles of incorporation, by-laws, laws
or rules governing the corporation to obtain the
relief he desires," as required by the Interim Rules.
13. RTC: It is a derivative suit. Motion to Dismiss is
denied.
14. CA: RTC reversed and set aside. It is a harassment
suit, and not a valid derivative suit as defined
under the Interim Rules. Furthermore, Juanito
failed to exhaust intra-corporate remedies and
the loan was not SMBI’s corporate obligation. MR
denied. Hence, this petition.
ISSUE/S:
1. WON the suit is a derivative suit. NO.
54
CORPORATION LAW
2. WON Juanito failed to exhaust intra-corporate
remedies provided by the Interim Rules. YES.
RULING: PETITION DENIED. CA AFFIMED.
- A derivative suit is an action brought by a
stockholder on behalf of the corporation to enforce
corporate rights against the corporation’s directors,
officers or other insiders.
- The Corporation Code provides that the directors or
officers, as provided under the by-laws, have the
right to decide whether or not a corporation should
sue. Since these directors or officers will never be
willing to sue themselves, or impugn their wrongful or
fraudulent decisions, stockholders are permitted by
law to bring an action in the name of the corporation
to hold these directors and officers accountable. In
derivative suits, the real party-in-interest is the
corporation, while the stockholder is a mere nominal
party.
- In Yu v. Yukayguan, the Court has recognized that a
stockholder’s right to institute a derivative suit is not
based on any express provision of the Corporation
Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make
corporate directors or officers liable for damages
suffered by the corporation and its stockholders for
violation of their fiduciary duties. Hence, a
stockholder may sue for mismanagement, waste or
dissipation of corporate assets because of a special
injury to him for which he is otherwise without redress.
In effect, the suit is an action for specific performance
of an obligation owed by the corporation to the
stockholders to assist its rights of action when the
corporation has been put in default by the wrongful
refusal of the directors or management to make
suitable measures for its protection. The basis of a
stockholder’s suit is always one in equity. However, it
cannot prosper without first complying with the legal
requisites for its institution. - Section 1, Rule 8 of the
Interim Rules imposes the following requirements for
derivative suits:
(1) The person filing the suit must be a
stockholder or member at the time the acts
or transactions subject of the action
occurred and the time the action was filed;
(2) He must have exerted all reasonable
efforts, and alleges the same with
particularity in the complaint, to exhaust all
remedies available under the articles of
incorporation, by-laws, laws or rules
governing the corporation or partnership to
obtain the relief he desires;
(3) No appraisal rights are available for the
act or acts complained of; and
(4) The suit is not a nuisance or harassment
suit.
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

- Applying the requirements, the suit is not a

derivative suit because it failed to show how the acts
of Rachel and Roberto resulted in any detriment to
SMBI because the loan was not a corporate
obligation, but a personal debt of the Ang brothers
and their spouses.
- The check was issued to "Juanito Ang and/or
Anecita Ang and/or Roberto Ang and/or Rachel
Ang" and not SMBI. The proceeds of the loan were
used for payment of the obligations of the other
corporations owned by the Angs as well as the
purchase of real properties for the Ang brothers. SMBI
was never a party to the Settlement Agreement or
the Mortgage. It was never named as a co-debtor or
guarantor of the loan. Both instruments were
executed by Juanito and Anecita in their personal
capacity, and not in their capacity as directors or
officers of SMBI. Thus, SMBI is under no legal obligation
to satisfy the obligation.
- The fact that Juanito and Anecita attempted to
constitute a mortgage over "their" share in a
corporate asset cannot affect SMBI. The Mortgage
reveals that it was signed by Juanito and Anecita in
their personal capacity as the "owners" of a pro-
indiviso share in SMBI’s land and not on behalf of
SMBI.
- Since damage to the corporation was not
sufficiently proven by Juanito, it cannot be
considered a derivative suit. Moreover, the Complaint
also failed to allege that all available corporate
remedies under the articles of incorporation, by-laws,
laws or rules governing the corporation were
exhausted, as required under the Interim Rules.
Although SBMI is a family corporation, it is not exempt
from complying with the Interim Rules. Complaint
showed that it was mainly filed to collect a debt
allegedly extended by the spouses Theodore and
Nancy Ang to SBMI. Thus, the aggrieved party is not
SMBI but the spouses Theodore and Nancy Ang, who
are not even stockholders, thus, it is not a derivative
suit.

55
COMMERCIAL LAW REVIEW | G02
39 LEGASPI TOWERS 300, INC., ET. AL. v. AMELIA P.
MUER, ET. AL.,
G.R. NO. 170783 | JUNE 18, 2012 | PERALTA | DE
GUZMAN
DERIVATIVE SUIT
DOCTRINE: Since it is the corporation that is the real
party-in-interest in a derivative suit, then the reliefs
prayed for must be for the benefit or interest of the
corporation. When the reliefs prayed for do not
pertain to the corporation, then it is an improper
derivative suit.
FACTS:
1. Petitioners, the incumbent Board of Directors, set
the annual meeting of the members of the
condominium corporation and the election of
the new Board of Directors for the years 2004-
2005.
2. Out of a total number of 5,723 members who
were entitled to vote, 1,358 were supposed to
vote through their respective proxies and their
votes were critical in determining the existence of
a quorum, which was at least 2,863 (50% plus 1).
3. The Committee on Elections of Legaspi Towers
300, Inc., found most of the proxy votes irregular,
and for lack of time to authenticate them,
petitioners adjourned the meeting for lack of
quorum.
4. Respondents challenged the adjournment.
5. Despite that no quorum was obtained during the
annual meeting, respondents pushed through
with the election and were elected as the new
Board of Directors and officers of Legaspi Towers
Inc.
6. They submitted General Information Sheet with
new set of officers.
7. Petitioners filed a Complaint for the Declaration
of Nullity of Elections with TRO against
respondents.
8. RTC issued TRO, enjoining defendants from taking
over management, or to maintain a status quo.
9. Respondents allege that the election on April 2,
2004 was lawfully conducted. Respondents cited
the Report of SEC Counsel Patricio, who was
ordered by the SEC to attend the annual
meeting
a. Atty. Patricio stated that the scheduled
elections could not proceed because
the Election Committee was not able to
validate the authenticity of the proxies.
b. When the Board adjourned the meeting,
the unit owners who objected gathered
and proceeded with the meeting. The
attendance was checked from among
the members who stayed. Proxies were
counted, and there was a declaration of
a quorum.
56
CORPORATION LAW
c. Votes were cast and the newly-elected
members of the Board of Directors for the
years 2004-2005 were named.
10. Respondents contended that it was clear that
the election was legitimate and lawful; thus, they
prayed for the dismissal of the complaint.
11. TC then issued an Order clarifying that the TRO
issued was not applicable as the respondents
had actually assumed management.
12. The petitioners' filed a motion to amend
complaint to implead Legaspi Towers 300, Inc. as
plaintiff.
13. Respondents filed a Comment praying that the
name of Legaspi Towers Inc., as party-plaintiff in
the Amended Complaint, be deleted as the said
inclusion by petitioners was made without the
authority of the current Board of Directors
(respondents)
14. Petitioners filed a petition for certiorari with CA.
CA dismissed.
15. CA held that as the right to vote is a personal
right of a stockholder, such right can only be
enforced through a direct action; hence,
Legaspi Towers Inc. cannot be impleaded as
plaintiff.
16. Petitioners clarified that the inclusion of Legaspi
Towers Inc. as a plaintiff was intended as a direct
action by the corporation acting through them
(petitioners) as the reconstituted Board of
Directors. The election conducted was invalid;
hence, petitioners could reconstitute themselves
as the Board of Legaspi Towers in a hold-over
capacity. By so doing, petitioners had the right to
bring the action in representation of Legaspi
Towers.
17. Although petitioners admit that the action
involves their right to vote, they argue that it also
involves the right of the corporation to be
managed and run by the duly-elected Board of
Directors.
ISSUE: WON derivative suit is proper in this case? NO.
HELD:
• The Amended Complaint is meant to be a
derivative suit filed by petitioners in behalf of the
corporation. CA stated that petitioners justified
the inclusion of Legaspi Towers Inc. as plaintiff by
invoking the doctrine of derivative suit.
• A derivative suit must be differentiated from
individual and representative or class suits. Suits
by stockholders or members of a corporation
based on wrongful or fraudulent acts of directors
or other persons may be classified into individual
suits, class suits, and derivative suits.
o Where a stockholder or member is
denied the right of inspection, his suit
would be individual because the wrong
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

is done to him personally and not to the board of directors for the
other stockholders or the corporation. appropriate relief but the latter has failed
o Where the wrong is done to a group of or refused to heed his plea; and
stockholders, a class or representative o the cause of action actually devolves on
suit will be proper for the protection of all the corporation, the wrongdoing or harm
stockholders belonging to the same having been, or being caused to the
group. corporation and not to the particular
o But where the acts complained of stockholder bringing the suit.
constitute a wrong to the corporation • Petitioners’ complaint seeks to nullify the said
itself, the cause of action belongs to the election, and to protect and enforce their
corporation and not to the individual individual right to vote.
stockholder. Although in most cases of • Petitioners are the injured party, whose rights to
wrong to the corporation, each vote and to be voted upon were directly
stockholder is necessarily affected affected by the election of the new set of board
because the value of his interest therein of directors. The party-in-interest are the
would be impaired, this fact of itself is not petitioners as stockholders.
sufficient to give him an individual cause • Under the circumstances, the derivative suit filed
of action since the corporation is a by petitioners in behalf of the condominium
person distinct and separate from him, corporation in the complaint is improper.
and can and should itself sue the • The stockholder’s right to file a derivative suit is
wrongdoer. not based on any express provision of the
o In cases of mismanagement where the Corporation Code, but is impliedly recognized
wrongful acts are committed by the when the law makes corporate directors or
directors themselves, a stockholder may officers liable for damages suffered by the
find that he has no redress because the corporation and its stockholders for violation of
former are vested by law with the right to their fiduciary duties, which is not the issue in this
decide whether or not the corporation case.
should sue, and they will never be willing
to sue themselves. The corporation
would thus be helpless to seek remedy.
o The right of a stockholder to sue on
behalf of a corporation is a derivative
suit. It has been proven to be an
effective remedy of the minority against
the abuses of management.
o A stockholder is permitted to institute a
derivative suit on behalf of the
corporation in order to protect or
vindicate corporate rights, whenever
officials of the corporation refuse to sue
or are the ones to be sued or hold the
control of the corporation. In such
actions, the suing stockholder is
regarded as the nominal party, with the
corporation as the party-in- interest.
o Since it is the corporation that is the real
party-in-interest in a derivative suit, then
the reliefs prayed for must be for the
benefit or interest of the corporation.
When the reliefs prayed for do not
pertain to the corporation, then it is an
improper derivative suit.
• The requisites for a derivative suit are as follows:
o the party bringing suit should be a
shareholder as of the time of the act or
transaction complained of, the number
of his shares not being material;
o he has tried to exhaust intra-corporate
remedies, i.e., has made a demand on

57
COMMERCIAL LAW REVIEW | G02
40 MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL
CORPORATION V. MIGUEL LIM
G.R. No. 165887 | June 6, 2011 | Villarama | Delfin
TOPIC: Derivative Suit
DOCTRINE:
It is enough that a member or a minority of
stockholders file a derivative suit for and in behalf of a
corporation. An individual stockholder is permitted to
institute a derivative suit on behalf of the corporation
wherein he holds stock in order to protect or
vindicate corporate rights, whenever officials of the
corporation refuse to sue or are the ones to be sued
or hold the control of the corporation. In such
actions, the suing stockholder is regarded as the
nominal party, with the corporation as the party in
interest.
FACTS:
1. Ruby Industrial Corporations (RUBY) is a domestic
corporation of glass manufacturing. Miguel Lim is
a minority stockholder in the corporation. Due to
liquidity problems, it filed with the SEC a petition
for suspension of payments which SEC granted.
2. The management committee created by SEC
yielded two rehabilitation plans. The
BENHAR/RUBY Rehabilitation Plan by the majority
stockholder headed by Giang and the
Alternative Plan of the minority stockholders
represented by Miguel Lim.
3. The BENHAR Plan was opposed by 40% of the
stockholders, including Lim and ALFC, the biggest
unsecured creditor of Ruby and the chairman of
the management committee as it will result to
the transfer of Ruby’s assets beyond the reach
and to the prejudice of its unsecured creditors.
4. In 1988, upon endorsement to the SEC, it
approved the BENHAR Plan. Lim appealed to the
SEC en banc which issued a TRO and eventually
a preliminary injunction, enjoining the
implementation of the BENHAR Plan. The CA also
upheld the writ.
5. Despite the writ and even before hearing,
BENHAR paid off Far East Bank, one of Ruby’s
secured creditors. A deed of assignment of credit
and mortgage rights was executed in favor of
BENHAR. The same was done for other secured
creditors.
6. BENHAR and Ruby continued to perform actus in
pursuance of the First Benhar Plan. A
stockholder’s meeting was set to extend the
corporate term of Ruby for another 25 years as
well as election the directors. Lim objected to its
validity with the CA stating that the majority
58
CORPORATION LAW
stockholders increased their shares to 74.75% by
implementing the Benhar Plan which is a clear
violation of the injunction orders.
7. Lim also filed a motion informing SEC of Benhar
and Ruby’s illegal acts. MANCOM concurred with
Lim and filed similar manifestation on the irregular
infusion and extension of terms.
8. Ruby filed an opposition and claims that the
extension of the corporate term was duly
submitted and approved by the SEC.
9. MANCOM and Lim continuously opposed the
actions of BENHAR and Ruby separately.
Eventually, the SEC declared that the suspension
of payments issued on 1893 having exceeded
the 180-day period has long lapsed.
10. From this judgment, Lim in his personal capacity
and in representation of the minority stockholders
filed a petition for review with prayer for a TRO
and/or writ of preliminary injunction with the CA.
11. Ruby contends that the belated submission of the
SPA executed by the minority stockholders of
Ruby should have caused the dismissal of the
petition and that MANCOM for which Lim is a
member committed forum shopping.
ISSUE: WON Lim has personality to sue? – YES
HELD/RULING:
1. MANCOM and/or Lim have consistently
challenged acts perpetrated by the majority
stockholders which are prejudicial to Ruby and
each time they go to court they advance the
interest of the corporation itself contending
Ruby’s assets should be preserved for the equal
benefit of all its creditors. In this light, CA was
correct in recognizing the right of Lim to institute
a stockholder’s action where the real party in
interest is the corporation itself.
2. A derivative action is a suit by a shareholder to
enforce a corporate cause of action. It is a
remedy designed by equity and has been the
principal defense of the minority shareholders
against abuses by the majority.
COMMERCIAL LAW REVIEW | G02
41 SIMNY G. GUY, ET. AL. v. THE HON. OFELIA C. CALO,
G.R. No. 189486, Sept. 5, 2012, PEREZ, DE LEON
TOPIC: Transfer of Stock Ownership
DOCTRINE: When a stock certificate is endorsed in
blank by the owner thereof, it constitutes what is
termed as "street certificate," so that upon its face,
the holder is entitled to demand its transfer his name
from the issuing corporation.
FACTS:
1. As reflected in Stock Certificate Nos. 004-014,
Gilbert G. Guy (Respondent) practically owned
almost 80 percent of the 650,000 subscribed
capital stock of GoodGold Realty
Development Corporation.
2. Simny (his mother) claimed that upon the advice
of their lawyers, upon the incorporation of
GoodGold, they issued stock certificates
reflecting the shares held by each stockholder
duly signed by Francisco (his father) as President
and Atty. Emmanuel Paras as Corporate
Secretary, with corresponding blank
endorsements at the back of each certificate –
including Stock Certificate Nos. 004-014 under
Gilbert’s name. These certificates were all with
Gilbert’s irrevocable endorsement and power of
attorney to have these stocks transferred in the
books of corporation. All of these certificates
were always in the undisturbed possession of the
spouses Francisco and Simny.
3. Francisco instructed Benjamin Lim, a nominal
shareholder of GoodGold and his trusted
employee, to collaborate with Atty. Emmanuel
Paras, to redistribute GoodGold’s shareholdings
evenly among his children, while maintaining a
proportionate share for himself and his wife,
Simny.
4. Accordingly, some of GoodGold’s certificates
were cancelled and new ones were issued to
represent the redistribution of GoodGold’s shares
of stock.
5. Five years after the redistribution of GoodGold’s
shares of stock, Gilbert filed with the Regional Trial
Court (RTC) of Manila, a Complaint for the
"Declaration of Nullity of Transfers of Shares in
GoodGold and of General Information Sheets
and Minutes of Meeting, and for Damages with
Application for a Preliminary Injunctive Relief,"
against his mother, Simny, and his sisters. Gilbert
alleged, among others, that no stock certificate
ever existed; that his signature at the back of the
spurious Stock Certificate Nos. 004-014 which
purportedly endorsed the same and that of the
corporate secretary, Emmanuel Paras, at the
obverse side of the certificates were forged, and,
should be nullified.
6. Gilbert withdrew the complaint when the NBI
found the signatures to be genuine. But after 3
CORPORATION LAW
years, he again refiled the complaint. Which is
the present controversy
ISSUE: Whether there is a valid transfer of stocks
HELD: YES
RULING:
The charges of fraud which Gilbert accuses his
siblings are not supported by the required factual
allegations. No corporate power or office was
alleged to have facilitated the transfer of Gilbert’s
shares. How the petitioners perpetrated the fraud, if
ever they did, is an indispensable allegation which
Gilbert must have had alleged with particularity in his
& complaint, but which he failed to.
With Gilbert’s failure to allege specific acts of fraud in
his complaint and his failure to rebut the NBI report,
therefore, the signatures appearing on the stock
certificates, including his blank endorsement thereon
were authentic. With the stock certificates having
been endorsed in blank by Gilbert, which he himself
delivered to his parents, the same can be cancelled
and transferred in the names of petitioners.
While there is a contrary ruling, as an exception to the
general rule enunciated above, what the Court held
in Neugene Marketing Inc., et al., v CA, where stock
certificates endorsed in blank were stolen from the
possession of the beneficial owners constraining the
Supreme Court to declare the transfer void for lack of
delivery and want of value, the same cannot apply
to Gilbert because the stock certificates which
Gilbert endorsed in blank were in the undisturbed
possession of his parents who were the beneficial
owners and who themselves as such owners caused
the transfer in their names. Indeed, even if Gilbert’s
parents were not the beneficial owners, an
endorsement in blank of the stock certificates
coupled with its delivery, entitles the holder to
demand the transfer of said stock certificates in his
name from the issuing corporation.
59
COMMERCIAL LAW REVIEW | G02
42 FIL-ESTATE GOLF AND DEVELOPMENT, INC. (FEGDI)
AND FILESTATE LAND INC. (FELI) V VERTEX SALES AND
TRADING, INC. (G.R. No. 202079 June 10, 2013)
AUTHOR: Enriquez
PONENTE: Brion
TOPIC: Transfer of Stock Ownership
DOCTRINE: Physical delivery is necessary to transfer
ownership of stocks.
FACTS:
1. FEGDI is a stock corporation whose primary
business is the development of golf courses. FELI is
also a stock corporation, but is engaged in real
estate development. FEGDI was the developer of
the Forest Hills Golf and Country Club (Forest Hills)
and, in consideration for its financing support and
construction efforts, was issued several shares of
stock of Forest Hills.
2. FEGDI sold to RS Asuncion Construction
Corporation (RSACC) one Class "C" Common
Share of Forest Hills Prior to the full payment of the
purchase price, RSACC sold the share to Vertex.
RSACC advised FEGDI of the sale to Vertex and
FEGDI, in turn, instructed Forest Hills to recognize
Vertex as a shareholder.
3. Despite Vertex’s full payment, the share
remained in the name of FEGDI. 17 months after
the sale Vertex wrote FEDGI a letter demanding
the issuance of a stock certificate in its name. FELI
replied, initially requested Vertex to first pay the
necessary fees for the transfer. Although Vertex
complied with the request, no certificate was
issued.
4. This prompted Vertex to make a final demand. As
the demand went unheeded, Vertex filed a
Complaint for Rescission with Damages and
Attachment against FEGDI, FELI and Forest Hills.
During the pendency of the rescission action, a
certificate of stock was issued in Vertex’s name,
but Vertex refused to accept it.
5. The RTC dismissed the complaint for insufficiency
of evidence. It ruled:
a. that the delay in the issuance of stock
certificates does not warrant rescission of
the contract as this constituted a mere
casual or slight breach.
b. that notwithstanding the delay in the
issuance of the stock certificate, the sale
had already been consummated; the
issuance of the stock certificate is just a
collateral matter to the sale and the
stock certificate is not essential to "the
creation of the relation of shareholder."
6. CA reversed the RTC and rescinded the sale of
the share. Citing Section 63 of the Corporation
Code, it held that there can be no valid transfer
of shares where there is no delivery of the stock
certificate. It considered the prolonged issuance
60
CORPORATION LAW
of the stock certificate a substantial breach that
served as basis for Vertex to rescind the sale.
7. Hence, this petition to the SC.
8. FEGDI argued that the delay cannot be
considered a substantial breach because Vertex
was unequivocally recognized as a shareholder
of Forest Hills. In fact, Vertex’s nominees became
members of Forest Hills and fully enjoyed and
utilized all its facilities. It added that RSACC also
used its shareholder rights and eventually sold its
share to Vertex despite the absence of a stock
certificate.
9. On the other hand, Vertex alleged that its use
and enjoyment of Forest Hills’ facilities cannot be
considered delivery and transfer of ownership
ISSUE/HELD: Whether the delay in the issuance of a
stock certificate can be considered a substantial
breach as to warrant rescission of the contract of
sale. YES. PETITION DENIED.
RATIO:
• Physical delivery is necessary to transfer
ownership of stocks.
• Citing Raquel-Santos v. Court of Appeals, the SC
said that in "a sale of shares of stock, physical
delivery of a stock certificate is one of the
essential requisites for the transfer of ownership of
the stocks purchased."
• Section 63 of the Corporation Code provides:
SEC. 63. Certificate of stock and
transfer of shares. – The capital stock of
stock corporations shall be divided into
shares for which certificates signed by
the president or vice-president,
countersigned by the secretary or
assistant secretary, and sealed with the
seal of the corporation shall be issued
in accordance with the by-laws.
Shares of stock so issued are personal
property and may be transferred by
delivery of the certificate or certificates
indorsed by the owner or his attorney-
in-fact or other person legally
authorized to make the
transfer.1âwphi1 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.
No shares of stock against which the
corporation holds any unpaid claim
shall be transferable in the books of the
corporation.
COMMERCIAL LAW REVIEW | G02
• In this case, Vertex fully paid the purchase price
but the stock certificate was only delivered 3
years after when Vertex filed an action for
rescission against FEGDI.
• Under these facts, considered in relation to the
governing law, FEGDI clearly failed to deliver the
stock certificates, representing the shares of stock
purchased by Vertex, within a reasonable time
from the point the shares should have been
delivered. This was a substantial breach of their
contract that entitles Vertex the right to rescind
the sale under Article 1191 of the Civil Code. It is
not entirely correct to say that a sale had already
been consummated as Vertex already enjoyed
the rights a shareholder can exercise. The
enjoyment of these rights cannot suffice where
the law, by its express terms, requires a specific
form to transfer ownership.
61
CORPORATION LAW
43 CALATAGAN GOLF CLUB, INC v. SIXTO CLEMENTE
G.R. No. 165443| April 16, 2009| TINGA | Estioko
TOPIC: Sale of delinquent Stocks
DOCTRINE: Section 69 of the Corp. Code refers
specifically to unpaid subscriptions to capital stocks. It
does not apply to unpaid membership dues in non-
stock corporations.
FACTS:
1. Clemente purchased one share of stock of
Calatagan.
2. Calatagan charges monthly dues on its
members. The provision on monthly dues is
incorporated in the Articles of Incorporation and
By-Laws. It was also reproduced in the dorsal side
of the Certificate of Stock.
3. When Clemente stopped paying his monthly
dues, Calatagan sent 3 demand letter to
Clemente’s mailing address as indicated in the
membership application. All were sent back to
sender with the postal note that the address had
been closed.
4. Since Clemente still failed to settle his obligations,
his share was sold at a public auction (Jan. 15,
1993).
5. Clemente learned of the sale of his share only in
Nov. 1997. He filed a claim with the SEC seeking
the restoration of his shareholdings in Calatagan
with damages.
6. The SEC ruled in favor of Calatagan, citing Sec.
69 of the Corp Code., which provides that the
sale of shares at an auction sale can only be
questioned within 6 mos. from the date of sale.
The SEC concluded that Clemente’s claim, filed 4
years after the sale, had already prescribed.
7. The CA reversed the decision citing the SEC’s
own ruling in Caram v. Valley Golf, that Sec. 69
specifically refers to unpaid subscriptions to
capital stock, and not to any other debt of
stockholders. With the insinuation that Sec. 69
does not apply to unpaid membership dues in
non-stock corporations, the appellate court
employed Article 1140 of the Civil Code as the
proper rule of prescription.
ISSUE: Whether the right of Clemente to recover his
shareholdings has already prescribed? – NO
HELD:
• Section 69 of the Code provides that an action
to recover delinquent stock sold must be
commenced by the filing of a complaint within
six (6) months from the date of sale. As correctly
pointed out by the Court of Appeals, Section 69 is
part of Title VIII of the Code entitled "Stocks and
Stockholders" and refers specifically to unpaid
subscriptions to capital stock, the sale of which is
COMMERCIAL LAW REVIEW | G02
governed by the immediately preceding Section
68.
• There are fundamental differences that defy
equivalence or even analogy between the sale
of delinquent stock under Section 68 and the sale
that occurred in this case. At the root of the sale
of delinquent stock is the non-payment of the
subscription price for the share of stock itself. The
stockholder or subscriber has yet to fully pay for
the value of the share or shares subscribed. I
• In this case, Clemente had already fully paid for
the share in Calatagan and no longer had any
outstanding obligation to deprive him of full title
to his share. Perhaps the analogy could have
been made if Clemente had not yet fully paid for
his share and the non-stock corporation, pursuant
to an article or by-law provision designed to
address that situation, decided to sell such share
as a consequence. But that is not the case here,
and there is no purpose to apply Section 69 to
the case at bar.
• Since the action is for recovery of a share of
stock, plus damages. The applicable provision is
Article 1140 of the Civil Code which provides that
an action to recover movables shall prescribe in
eight (8) years.
• Ultimately, the petition must fail because
Calatagan had failed to duly observe both the
spirit and letter of its own by-laws. The by-law
provisions was clearly conceived to afford due
notice to the delinquent member of the
impending sale, and not just to provide an
intricate façade that would facilitate
Calatagan’s sale of the share. But then, the bad
faith on Calatagan’s part is palpable. As found
by the Court of Appeals, Calatagan very well
knew that Clemente’s postal box to which it sent
its previous letters had already been closed, yet it
persisted in sending that final letter to the same
postal box
62
CORPORATION LAW
44 PAUL LEE TAN V. PAUL SYCIP
G.R. No. 153468 | August 17, 2006 |C J. Panganiban
| Huecas
TOPIC: Quorum
FACTS:
a. Grace Christian High School (GCHS) is a
nonstock, non-profit educational corporation
with fifteen (15) regular members, who also
constitute the board of trustees.
b. During the annual members meeting, GCHS
only had 11 living members (4 died), and
only 7 out of the 11 attended.
c. The meeting was held despite objections
that there was no quorum since the basis
should not be the number of living member-
trustees but the original 15.
d. Petitioners (who are members) contend that
quorum should be based on the living
members (11), excluding the deceased.
e. SEC ruled that there was no quorum as the
same shall be the number of members
specified in the articles of incorporation and
not simply the number of the living members.
ISSUE: W/N there was a quorum. YES
HELD/RULING:
Section 52. Quorum in Meetings. Unless otherwise
provided for in this Code or in the by-laws, a quorum
shall consist of the stockholders representing a
majority of the outstanding capital stock or a majority
of the members in the case of non-stock
corporations.
For stock corporations, the quorum referred to in
Section 52 of the Corporation Code is based on the
number of outstanding voting stocks. For nonstock
corporations, only those who are actual,
living members with voting rights shall be counted in
determining the existence of a quorum during
members meetings.
Reason: In stock corporations, shareholders
may generally transfer their shares. Thus, on
the death of a shareholder, the executor or
administrator duly appointed by the Court is
vested with the legal title to the stock and
entitled to vote it. Until a settlement and
division of the estate is effected, the stocks of
the decedent are held by the administrator
or executor.
On the other hand, membership in and all rights
arising from a nonstock corporation are personal and
non-transferable, unless the articles of incorporation
or the bylaws of the corporation provide otherwise. In
other words, the determination of whether or not
COMMERCIAL LAW REVIEW | G02
dead members are entitled to exercise their voting
rights (through their executor or administrator),
depends on those articles of incorporation or bylaws.
2. Under the By-Laws of GCHS, membership in
the corporation shall, among others, be
terminated by the death of the
member. Section 91 of the Corporation
Code further provides that termination
extinguishes all the rights of a member of the
corporation, unless otherwise provided in the
articles of incorporation or the bylaws.
3. Since the dead members cease to part of
the membership roster of GCHS, they are not
to be counted in determining the requisite
vote in corporate matters or the requisite
quorum for the annual members meeting.
Therefore, with 11 remaining members, the
number required to constitute a quorum is 6
which is attendant in this case.
63
CORPORATION LAW
45 PHILIP TURNER AND ELEONOR TURNER VS LORENZO
SHIPPING CORPORATION
GR NO. 157479|NOVEMBER 24, 2010|BERSAMIN,
J.|INGUILLO
TOPIC: APPRAISAL RIGHT
DOCTRINE:
FACTS:
• Sometime in 1999, Lorenzo Shipping decided
to amend its articles of incorporation to
remove the stockholders pre-emptive rights
to newly issued shares of stock.
• Anticipating that the amendment would be
prejudicial to the stockholders, the Turners,
who held 1,010,000 shares of stock in the
company, voted against the amendment
and demanded payment of their shares at
the rate of P2.28/share based on the book
value of the shares. The corporation
countered this and argued that it is the
market value of the shares on the date
before the action to remove the pre-emptive
right must be followed or P.41/share,
considering that its shares were listed in the
Philippine Stock Exchange.
• To settle the disagreement on the valuation
of the subject shares, an appraisal
committee was constituted pursuant to
Section 82 of the Corporation Code. After
due deliberation, the appraisal committee
reported that the valuation of the shares
should be placed at P2.54/shares or an
aggregate value of P2,565,400.
• Accordingly, the Turners demanded
payment on the basis of the appraisal
committee’s report, plus 2%/month penalty
reckoned from the date of their original
demand for payment.
• Lorenzo Shipping refused the demand and
argued that pursuant to the Corporation
Code, the dissenting stockholders exercising
their appraisal right could be paid only if the
corporation has unrestricted retained
earnings to cover the fair value of the shares.
However, it opined that at the time of the
petitioners demand, it had no unrestricted
retained earnings as borne out by its
Financial Statement which showed a deficit
of P72 Million as of December 31, 1999.
• This prompted Philip and Eleonor Turner to file
an action for collection and damages
against Lorenzo Shipping. Pending the
resolution of the case, Turner filed a Motion
for Partial Summary Judgment claiming that
contrary to Lorenzo’s claim, it has an
COMMERCIAL LAW REVIEW | G02
accumulated unrestricted retained earnings
of P11Million as of the 1st quarter of 2002.
• Opposing the Motion, Lorenzo argued that
the determination of the unrestricted
retained earnings should be made at the
end of the fiscal year of the corporation.
• The trial court granted the Motion for Partial
Summary Judgment. It ruled that the only
restriction imposed by the Corporation Code
is that payment to any dissenting stockholder
can only be made if the corporation has
unrestricted retained earnings in its books to
cover such payment; since it was shown that
Lorenzo Shipping has retained earnings of
P11Million as of March 2002 it must
accordingly pay the Turners.
a. In addition to this, the trial court emphasized
that the law does not say that the unrestricted
retained earnings must exist at the time of the
demand. Even if there are no retained earnings
at the time the demand is made if there are
retained earnings later, the fair value of such
stocks must be paid,
b. Upon Motion duly filed by Turner, the trial court
ordered the immediate execution of the order.
• Aggrieved, Lorenzo Shipping elevated the
case to the CA via a Rule 65 Petition.
• Pending resolution, Lorenzo Shipping filed an
application for the issuance of a TRO enjoining
the Turners, and their agents from enforcing
the writ of execution. By then, however, the
writ has already been partially executed.
• After due deliberation, the appellate court
ruled that Petitioner’s cause of action had
not yet accrued due to the lack of
unrestricted retained earnings in the books of
the corporation of Lorenzo Shipping.
• The CA noted that at the time the complaint
was filed, the corporation had no
unrestricted retained earnings. This is
evidenced by a letter dated January 02 2001
where the corporation informed the Turners
that its Financial Record for the year ending
1999 showed a deficit of P72 Million. Hence,
while the petitioner’s appraisal right already
existed, their right to payment had not yet
accrued when the complaint was filed on
January 22, 2001.
• The Turner’s right of action arose only when
the corporation already had unrestricted
retained earnings on March 2002. Thus, the
action was filed prematurely.
• Hence, the instant petition.
ISSUE: WON the Turner, at the time the complaint has
been filed, had vested rights to demand the
payment of their shares.
64
CORPORATION LAW
RULING: NO because at the time the complaint was
filed, the corporation had no unrestricted retained
earnings.
• Stockholders Appraisal Right; In General -A
stockholder who dissents from certain corporate
actions has the right to demand payment of the
fair value of his shares.
• Section 81 of the Corporation Code provides that
the stockholders appraisal right may be
exercised in the following instances:
• In case of any amendment to the articles of
incorporation which has the effect of changing
or restricting the rights of any stockholder or class
of share
• In case of sale, lease, exchange, transfer,
mortgage or other disposition of all or
substantially all of the corporate property, and
• In case of a merger or consolidation.
1. Clearly, before the right may be exercised there
must first be a fundamental change in the
charter substantially prejudicing the rights of the
stockholders. Thus, the right does not lie unless
objectionable corporate action is taken.
2. Under common law, there are conflicting views
as to whether or not a corporation has the
power to acquire or purchase its own stocks.
Now, however, as provided in Section 41 of the
Corporation Code, a corporation is already
allowed to purchase its own shares, provided
payment is made out of surplus profits and the
acquisition is for a legitimate corporate purpose.
3. The Court likewise laid down the following steps
on how the right of appraisal should be
exercised:
• First, any stockholder who has voted against the
proposed corporate action must elect to
exercise his appraisal right by making a written
demand on the corporation within 30 days after
the date on which the vote was taken for the
payment of the fair value of his shares.
• Effect of failure to make a demand:
Waiver of the appraisal right.
• If the withdrawing stockholder and corporation
fails to reach an agreement as to the fair value
of the shares within 60 days from the date the
stockholders approved the corporate action, it
shall be determined and appraised by 3
disinterested persons.
• One elected by the withdrawing
shareholder
• One elected by the corporation
• Last one elected by the 2 thus chosen.
• Upon the election to exercise his appraisal right,
all rights accruing to the withdrawing
COMMERCIAL LAW REVIEW | G02
stockholders shares, including voting and
dividend rights, shall be suspended from the time
of demand until either the abandonment of the
corporate action or the purchase of the shares
by the corporation except the such stockholders
right to receive payment for the value of his
shares
• Within 10 days after demanding payment for his
shares, a withdrawing stockholder shall submit to
the corporation the certificates of stock
representing his shares.
• If the proposed corporate action is implemented,
the corporation shall obligate itself to pay the
stockholder, upon the surrender of the
certificates of stock.
1. Note, however, that before the corporation may
be compelled to pay the withdrawing
stockholder, it must first be established that the
corporation has unrestricted retained earnings. If
the corporation has no available unrestricted
earnings, Section 83 of the Corporation Code
provides that if no payment is made to the
dissenting stockholder within 30 days after the
award, his voting and dividend rights shall be
immediately restored.
2. Furthermore, the trust fund doctrine backstops
the requirement of unrestricted retained earnings
to fund the payment of the shares of stocks of
the withdrawing stockholders. Under the
doctrine, the capital stock, property, and other
assets of a corporation are regarded as equity in
trust for the payment of corporate creditors, who
are preferred in the distribution of corporate
assets.
i. The creditors of a corporation have the
right to assume that the board of
directors will not use the assets of the
corporation to purchase its own stock
for as long as the corporation has
outstanding debts and liabilities. There
can be no distribution of assets among
the stockholders without first paying
corporate debts. Thus, any disposition of
corporate funds and assets to the
prejudice of creditors is null and void.
3. In the case at bar, while it is undisputed that the
Turner may demand the payment of the fair
value of their shares, such right however is limited
by the fact that at the time the complaint was
filed, the company had no unrestricted retained
earnings in its books.
4. The subsequent existence of unrestricted
retained earnings after the filing of the
complaint, did not cure the fact that the
complaint was filed prematurely.
65
CORPORATION LAW
46 MA. BELEN FLORDELIZA ANG-ABAYA, ET. AL. v.
EDUARDO G. ANG (2008)
G.R. No. 178511 | Dec. 4, 2008 | Ynares-Santiago |
Lacap
TOPIC: Corporate Books and Right to Inspect
DOCTRINES:
• The stockholder’s right of inspection of the
corporation’s books and records is based upon
their ownership of the assets and property of the
corporation. It is, therefore, an incident of
ownership of the corporate property, whether this
ownership or interest be termed an equitable
ownership, a beneficial ownership, or a quasi-
ownership.
• In other words, the inspection has to be germane
to the petitioner’s interest as a stockholder, and
has to be proper and lawful in character and not
inimical to the interest of the corporation.
• It is now expressly required as a condition for
such examination that the one requesting it must
not have been guilty of using improperly any
information secured through a prior examination,
or that the person asking for such examination
must be acting in good faith and for a legitimate
purpose in making his demand
FACTS:
1. Vibelle Manufacturing Corporation (VMC) and
Genato Investments, Inc. (Genato) (collectively
referred to as corporations) where petitioners
Flordeliza, Jason, Vincent, and private
respondent Eduardo are shareholders, officers
and members of the board of directors.
2. Prior to the controversy, VMC, Genato, and
Oriana Manufacturing Corporation (Oriana) filed
a separate Civil Case for damages with TRO and
application for Preliminary Injunction against
respondent Eduardo for fraudulently wresting
control/management of the corporations
3. During the pendency of the Civil Case, Eduardo
sought permission to inspect the corporate books
of VMC and Genato on account of petitioners
alleged failure and/or refusal to update him on
the financial and business activities of these
family corporations
4. Petitioners denied the request claiming that
Eduardo would use the information obtained
from said inspection for purposes inimical to the
corporations interests
5. Because of petitioners refusal to grant his request
to inspect the corporate books of VMC and
Genato, Eduardo filed an Affidavit-Complaint
(Criminal Case) against petitioners Flordeliza and
Jason, charging them with violation of Section 74,
in relation to Section 144, of the Corporation
Code.
6. Petitioners prayed for the dismissal of the
complaint for lack of factual and legal basis, or
COMMERCIAL LAW REVIEW | G02
for the suspension of the same while Civil Case
was still pending resolution.
7. CRIMINAL CASE: City Prosecutor recommended
that petitioners be charged with two counts of
violation of Section 74. However, this reversed by
the DOJ and ordered withdrawal of the
informations
8. CA: reversed the DOJ but suspended the
proceedings on the ground that CIVIL CASE
poses a prejudicial question.
a. It held that Eduardo can demand said
examination as a stockholder of both
corporations;
b. that Eduardo raised legitimate questions
that necessitated inspection of the
corporate books and records; and
c. that petitioners refusal to allow
inspection created probable cause to
believe that they have committed a
violation of Section 74 of the Corporation
Code.
9. PETITIONERS: argue that Eduardo’s demand for
an inspection of the corporations books is based
on the latters attempt in bad faith at having his
more than P165 million advances from the
corporations written off;
a. that Eduardo is unjustly demanding that
he be given the office of Jason, or the
Vice Presidency for Finance and
Corporate Secretary;
b. that Eduardo is usurping rights belonging
exclusively to the corporations; and
c. Eduardos attempts at coercing the
corporations, their directors and officers
into giving in to his baseless demands
involving specific corporate assets.
ISSUE: Whether right to inspect the books of the
corporation is an absolute right. NO
HELD: Resolutions of the Secretary of Justice directing
the withdrawal of the information filed against
petitioners for violation of Section 74 of the
Corporation Code are reinstated.
RE: STOCKHOLDER’S RIGHT TO INSPECT THE BOOKS
1. The stockholder’s right of inspection of the
corporation’s books and records is based upon
their ownership of the assets and property of the
corporation.
2. This right is predicated upon the necessity of self-
protection. It is generally held by majority of the
courts that where the right is granted by statute
to the stockholder, it is given to him as such and
must be exercised by him with respect to his
interest as a stockholder and for some purpose
germane thereto or in the interest of the
corporation.
66
CORPORATION LAW
3. In other words, the inspection has to be germane
to the petitioner’s interest as a stockholder, and
has to be proper and lawful in character and not
inimical to the interest of the corporation.
4. In Republic v. Sandiganbayan, 199 SCRA 39
(1991), the Court declared that the right to
inspect and/or examine the records of a
corporation under Section 74 of the Corporation
Code is circumscribed by the express limitation
contained in the succeeding proviso, which
states that:
a. [I]t shall be a defense to any action under
this section that the person demanding to
examine and copy excerpts from the
corporation’s records and minutes has
improperly used any information
secured through any prior examination of
the records or minutes of such corporation
or of any other corporation, or was not
acting in good faith or for a legitimate
purpose in making his demand.
5. Thus, contrary to Eduardos insistence, the
stockholders right to inspect corporate books is
not without limitations. While the right of
inspection was enlarged under the Corporation
Code as opposed to the old Corporation Law
RE: APPLICABILITY OF SEC. 144 OF THE CORP CODE
• In order therefore for the penal provision
under Section 144 of the Corporation Code to
apply in a case of violation of a stockholder
or members right to inspect the corporate
books/records as provided for under Section
74 of the Corporation Code, the following
elements must be present:
o First. A director, trustee, stockholder or
member has made a prior demand in
writing for a copy of excerpts from the
corporations records or minutes;
o Second. Any officer or agent of the
concerned corporation shall refuse to allow
the said director, trustee, stockholder or
member of the corporation to examine and
copy said excerpts;
o Third. If such refusal is made pursuant to a
resolution or order of the board of directors
or trustees, the liability under this section for
such action shall be imposed upon the
directors or trustees who voted for such
refusal; and,
o Fourth. Where the officer or agent of the
corporation sets up the defense that the
person demanding to examine and copy
excerpts from the corporations records and
minutes has improperly used any
information secured through any prior
examination of the records or minutes of
such corporation or of any other
corporation, or was not acting in good faith
COMMERCIAL LAW REVIEW | G02
or for a legitimate purpose in making his
demand, the contrary must be shown or
proved.
• Thus, in a criminal complaint for violation of
Section 74 of the Corporation Code, the
defense of improper use or motive is in the
nature of a justifying circumstance that
would exonerate those who raise and are
able to prove the same.
• Accordingly, where the corporation denies
inspection on the ground of improper motive
or purpose, the burden of proof is taken from
the shareholder and placed on the
corporation
• The serious allegations of the petitioners (Fact
No. 9) are supported by official and other
documents, such as board resolutions,
treasurers affidavits and written
communication from the respondent
Eduardo himself, who appears to have
withheld his objections to these charges.
o
His silence virtually amounts to an
acquiescence.
o Taken together, all these serve to justify
petitioners allegation that Eduardo was not
acting in good faith and for a legitimate
purpose in making his demand for
inspection of the corporate books.
o Otherwise stated, there is lack of probable
cause to support the allegation that
petitioners violated Section 74 of the
Corporation Code in refusing respondents
request for examination of the corporation
books.
67
CORPORATION LAW
47 ADERITO Z. YUJUICO ET. AL. v. CEZAR T. QUIAMBAO
ET. AL.,
G.R. No. 180416, June 2, 2014 I Perez I Laureta
TOPIC: Corporate Books and Right to Inspect
DOCTRINE: A criminal action based on the violation
of a stockholder's right to examine or inspect the
corporate records and the stock and transfer book of
a can only be maintained against corporate officers
or any other persons acting on behalf of such
corporation, not mere outgoing officers.
FACTS:
1. Strategic Alliance Development Corporation
(STRADEC) is a domestic corporation operating
as a business development and investment
company. During 2004 annual stockholder's
meeting petitioner Aderito Yujuico was elected
as president and chairman of the company,
replacing Cezar Quiambao who held the
position since 1994. Yujuico appointed petitioner
Bonifacio C. Sumbilla as treasurer and one
Joselito John G. Blando as corporate secretary
replacing respondent Eric C. Pilapil.
2. Petitioners filed a criminal complaint against
respondents and one Giovanni T. Casanova of
violating Sec 74 in relation to Sec 144 of the
Corporation Code (pls. read!). The petitioners
premise such accusation on the following factual
allegations:
3. According to petitioners, the refusal of
respondents to turn over STRADEC's corporate
records and stock and transfer book violates their
right, as stockholders, directors and officers of the
corporation, to inspect such records and book
under Sec 74 of the Code. For such violation,
petitioners conclude, respondents may be held
criminally liable pursuant to Section 144 of the
Code.
ISSUES:
1. W/N refusal amounts to a violation of Section 74 of
the Code, for which Section 144 (penal provision)
apply? YES.
2. Does the obligation in Article 74 only apply to the
corporations? YES
HELD:
1. The act of ref using to allow inspection of the stock
and transfer book of a corporation, when done in
violation of Section 74(4) of the Corporation Code, is
punishable as an offense under Section 144 of the
same code.
Section 74 is the provision of the Corporation Code
that deals with the books a corporation is required to
keep.
It must be emphasized that Section 144 already
purports to penalize "violations" of "any provision" of
the Corporation Code "not otherwise specifically
COMMERCIAL LAW REVIEW | G02
penalized therein." Hence, we find inconsequential
the fact that that Section 74 expressly mentions the
application of Section 144 only to a specific act, but
not with respect to the other possible violations of the
former section.
2. A criminal action based on the violation of a
stockholder's right to examine or inspect the
corporate records and the stock and transfer book of
a corporation under the 2nd and 4th paragraphs of
Sec 74 such as in this case--can only be maintained
against corporate officers or any other persons acting
on behalf of such corporation. The submissions of the
petitioners during the preliminary investigation,
however, clearly suggest that respondents are
neither in relation to STRADEC.
A perusal of the second and fourth paragraphs of
Section 74, as well as the first paragraph of the same
section, reveal that they are provisions that obligates
a corporation: they prescribe what books or records
a corporation is required to keep; where the
corporation shall keep them;
and what are the other obligations of the corporation
to its stockholders or members in relation to such
books and records. Hence, by parity of reasoning,
the second and fourth paragraphs of Section 74,
including the first paragraph of the same section, can
only be violated by a corporation.
It is clear then that a criminal action based on the
violation of the second or fourth paragraphs of
Section 74 can only be maintained against corporate
officers or such other persons that are acting on
behalf of the corporation. Violations of the second
and fourth paragraphs of Section 74 contemplates a
situation wherein a corporation, acting thru one of its
officers or agents, denies the right of any of its
stockholders to inspect the records, minutes and the
stock and transfer book of such corporation.
In this case respondents are merely outgoing officers
of STRADEC who, for some reason, withheld and
refused to turn-over the company records of
STRADEC; that it is the petitioners who are actually
acting on behalf of STRADEC; and that STRADEC is
actually merely trying to recover custody of the
withheld records.
Dismissed.
68
CORPORATION LAW
48 BANK OF COMMERCE v. RADIO PHILS. NETWORK,
INC., ET AL.
G.R. No. 195615|Apr. 21, 2014|Abad, J. | Lazatin
Corporate Books and Right to Inspect
NOTE: The case is really about mergers.
DOCTRINE: A merger does not become effective
upon the mere agreement of the constituent
corporations. The Code also provides that the merger
shall be effective only upon the issuance by the SEC
of a certificate of merger.
FACTS:
• Traders Royal Bank proposed to sell to Bank
of Commerce (Bancommerce) its banking
business consisting of specified assets and
liabilities.
• BSP approved the Purchase and Assumption
Agreement subject to Bancommerce and
TRB setting up an escrow fund to cover TRB
liabilities for contingent claims, which are
excluded from the purchase.
• TRB placed P50M in escrow with MetroBank
to answer for claims and liabilities excluded
from the Agreement.
• Pursuant to another case, TRB was ordered to
pay the respondents (RPN et al) actual
damages.
• RPN moved for execution. However, rather
than pursue a levy in execution on the
escrow, RPN filed a Supplemental Motion for
Execution where they described TRB as “now
Bank of Commerce” based on the
assumption that TRB had merged into
Bancommerce.
• Bancommerce filed its Special Appearance
with Opposition denying that there was a
merger between TRB and Bancommerce.
• RTC: Granted execution to cover any and all
assets of TRB “including those subject of the
merger/consolidation in the guise of a
Purchase and Sale Agreement and/or
against the Escrow Fund.”
• CA: Affirmed RTC but deleted the phrase
that the P&A agreement was a mere tool to
effectuate a merger.
• RPN sought for an alias writ of execution
before the RTC. Granted.
o CA Decision allowed it to execute on
the assets that Bancommerce
acquired from TRB under the
Agreement.
ISSUE: Whether there was a merger between TRB and
Bancommerce. NONE.
HELD:
1. Merger is a reorganization of two or more
corporations that results in their consolidating into
COMMERCIAL LAW REVIEW | G02
a single corporation, which is one of the
constituent corporations, one disappearing or
dissolving and the other surviving.
2. It is clear that no merger took place between
Bancommerce and TRB as the requirements and
procedures for a merger were absent.
Ø A merger does not become effective
upon the mere agreement of the
constituent corporations.
3. All the requirements specified in the law must be
complied with in order for merger to take effect.
Section 79 of the Corporation Code further
provides that the merger shall be effective only
upon the issuance by the Securities and
Exchange Commission (SEC) of a certificate of
merger.
4. Bancommerce and TRB remained separate
corporations with distinct corporate personalities.
Ø What happened is that TRB sold and
Bancommerce purchased identified
recorded assets of TRB in consideration
of Bancommerce’s assumption of
identified recorded liabilities of TRB
including booked contingent accounts.
Ø There is no law that prohibits this kind of
transaction especially when it is done
openly and with appropriate
government approval.
5. In strict sense, no merger or consolidation took
place as the records do not show any plan or
articles of merger or consolidation. More
importantly, the SEC did not issue any certificate
of merger or consolidation.
NOTE: The decision cited the dissenting opinion of
Justice Mendoza, where he found that a “de facto”
merger existed between TRB and Bancommerce.
6. The SC, citing Dean Villanueva, a de facto
merger can be pursued by one corporation
acquiring all or substantially all of the properties
of another corporation in exchange of shares of
stock of the acquiring corporation.
Ø No de facto merger took place in the
present case simply because the TRB
owners did not get in exchange for the
bank’s assets and liabilities an equivalent
value in Bancommerce shares of stock.
Ø Bancommerce and TRB agreed with BSP
approval to exclude from the sale the
TRB’s contingent judicial liabilities,
including those owing to RPN, et al.
69
CORPORATION LAW
49 MINDANAO SAVINGS AND LOAN ASSOC., v.
EDWARD WILLKOM, ET. AL,
G.R. No. 178618 | Oct. 11, 2010 | NACHURA | LIN
TOPIC: Merger and consolidation
FACTS:
1. First Iligan Savings and Loan Association, Inc.
(FISLAI) and Davao Savings and Loan
Association, Inc. (DSLAI) are entities duly
registered with the SEC primarily engaged in the
business of granting loans and receiving deposits
from the general public, and treated as banks.
2. In 1985, FISLAI and DSLAI entered into a merger,
with DSLAI as the surviving corporation but their
articles of merger were not registered with the
SEC due to incomplete documentation. DSLAI
changed its corporate name to MSLAI by way of
an amendment to its Articles of Incorporation
which was approved by the SEC.
3. In 1986, the Board of Directors of FISLAI passed
and approved Board Resolution assigning its
assets in favor of DSLAI which in turn assumed the
former’s liabilities. The business of MSLAI, however,
failed. Hence, the Monetary Board of the Central
Bank of the Philippines ordered its liquidation with
PDIC as its liquidator.
4. Prior to the closure of MSLAI, Uy filed with the RTC
of Iligan City, an action for collection of sum of
money against FISLAI. The RTC issued a summary
decision in favor of Uy, directing FISLAI to pay. 6
parcels of land owned by FISLAI were levied and
sold to Willkom.
5. In 1995, MSLAI, represented by PDIC, filed before
the RTC a complaint for the annulment of the
Sheriff’s Sale alleging that the sale on execution
of the subject properties was conducted without
notice to it and PDIC. Respondents, in its answer,
averred that MSLAI had no cause of action
because MSLAI is a separate and distinct entity
from FISLAI on the ground that the “unofficial
merger” between FISLAI and DSLAI (now MSLAI)
did not take effect considering that the merging
companies did not comply with the formalities
and procedure for merger or consolidation as
prescribed by the Corporation Code of the
Philippines.
ISSUE: Whether the merger between FISLAI and DSLAI
(now MSLAI) valid and effective?
HELD: NO. Ordinarily, in the merger of two or more
existing corporations, one of the corporations survives
and continues the combined business, while the rest
are dissolved and all their rights, properties, and
liabilities are acquired by the surviving corporation.
Although there is a dissolution of the absorbed or
merged corporations, there is no winding up of their
affairs or liquidation of their assets because the
surviving corporation automatically acquires all their
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

rights, privileges, and powers, as well as their liabilities.
The merger, however, does not become effective
upon the mere agreement of the constituent
corporations.
The steps necessary to accomplish a merger or
consolidation, as provided for in Sections 76,24 77,25
78,26 and 7927 of the Corporation Code, are:
(1) The board of each corporation draws up a plan
of merger or consolidation. Such plan must include
any amendment, if necessary, to the articles of
incorporation of the surviving corporation, or in case
of consolidation, all the statements required in the
articles of incorporation of a corporation.
(2) Submission of plan to stockholders or members of
each corporation for approval. A meeting must be
called and at least two (2) weeks’ notice must be
sent to all stockholders or members, personally or by
registered mail. A summary of the plan must be
attached to the notice. Vote of two-thirds of the
members or of stockholders representing two-thirds of
the outstanding capital stock will be needed.
Appraisal rights, when proper, must be respected.
(3) Execution of the formal agreement, referred to as
the articles of merger o[r] consolidation, by the
corporate officers of each constituent corporation.
These take the place of the articles of incorporation
of the consolidated corporation, or amend the
articles of incorporation of the surviving corporation.
(4) Submission of said articles of merger or
consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying
all corporations concerned at least two weeks
before.
(6) Issuance of certificate of merger or consolidation.
effectivity of the merger, the absorbed corporation
ceases to exist but its rights and properties, as well as
liabilities, shall be taken and deemed transferred to
and vested in the surviving corporation. The same
rule applies to consolidation which becomes
effective not upon mere agreement of the members
but only upon issuance of the certificate of
consolidation by the SEC. There being no merger
between FISLAI and DSLAI (now MSLAI), for third
parties such as respondents, the two corporations
shall not be considered as one but two separate
corporations.
As far as third parties are concerned, the assets of
FISLAI remain as its assets and cannot be considered
as belonging to DSLAI and MSLAI, notwithstanding
the Deed of Assignment. The certificates of title of the
subject properties were clean and contained no
annotation of the fact of assignment. Respondents
cannot, therefore, be faulted for enforcing their claim
against FISLAI on the properties registered under its
name. MSLAI, as the successor-in-interest of DSLAI,
has no legal standing to annul the execution sale
over the properties of FISLAI. With more reason can it
not cause the cancellation of the title to the subject
properties of Willkom and Go. PETITION DENIED.

Clearly, the merger shall only be effective upon the

issuance of a certificate of merger by the SEC,
subject to its prior determination that the merger is
not inconsistent with the Corporation Code or existing
laws. Where a party to the merger is a special
corporation governed by its own charter, the Code
particularly mandates that a favorable
recommendation of the appropriate government
agency should first be obtained. In this case, it is
undisputed that the articles of merger between FISLAI
and DSLAI were not registered with the SEC due to
incomplete documentation. Consequently, the SEC
did not issue the required certificate of merger. Even
if it is true that the Monetary Board of the Central
Bank of the Philippines recognized such merger, the
fact remains that no certificate was issued by the
SEC. Such merger is still incomplete without the
certification.

The issuance of the certificate of merger is crucial

because not only does it bear out SEC’s approval but
it also marks the moment when the consequences of
a merger take place. By operation of law, upon the

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COMMERCIAL LAW REVIEW | G02
50. METROBANK v. THE BOARD OF TRUSTEES OF
RIVERSIDE MILLS CORPORATION| G.R. No.176959|
September 8,2010| J. VIllarama, Jr. | MENDOZA
TOPIC: Mergers and Consolidation
(NOTE: The case did not directly mention any issue
about Mergers and Consolidation par.4 sec.122 was
the closest)
DOCTRINE:
Under Par. 4 Section 122 of the Corporation Code,
“Except by decrease of capital stock and as
otherwise allowed by this Code, no corporation shall
distribute any of its assets or property except upon
lawful dissolution and after payment of all its debts
and liabilities.”
FACTS:
1. RMC (Riverside Mills Corporation) established a
Provident and Retirement Plan (Plan) for its regular
employees.
2. Under the Plan, RMC and its employees shall each
contribute 2% of the employee’s current basic
monthly salary. The contributions shall form part of the
provident fund (the Fund) which shall be held,
invested and distributed by the Commercial Bank
and Trust Company.
3. The Board of Trustees of RMCPRF (the Board)
entered into an Investment Management
Agreement(Agreement) with Philbank (now,
petitioner Metropolitan Bank and Trust Company).
Pursuant to the Agreement, Petitioner shall act as an
agent of the Board and shall hold, manage, invest
and reinvest the Fund in Trust Account in its behalf.
4. In 1984, RMC ceased business operations.
Nonetheless, petitioner continued to render
investment services to Respondent Board.
5. In 1995, Petitioner informed Respondent-Board that
Philbank’s Board of Directors had decided to apply
the remaining trust assets held by it in the name of
RMCPRF against part of the outstanding obligations
of RMC.
6. RMC Unpaid Employees Association, Inc.
(Association), representing the terminated employees
of RMC, demanded payment of their share. When
such demand went unheeded, the Association,
along with the individual members of RMCPRF, filed a
complaint for accounting against the Board and its
officers.
7. In 1998, during the trial, the Board passed a
Resolution in court declaring that the Fund belongs
exclusively to the employees of RMC. It authorized
petitioner to release the proceeds of Trust Account
through the Board, as the court may direct.
8. According to Petitioner, the cessation of RMC’s
operations ended not only the Board members’
employment in RMC, but also their tenure as
members of the RMCPRF Board of Trustees.
9. RTC: Rendered a decision in favor of respondents.
It declared invalid the reversion and application of
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CORPORATION LAW
the proceeds of the Fund to the outstanding
obligation of RMC to petitioner bank.
10. CA: Affirmed RTC. It held that the Fund is distinct
from RMC’s account in petitioner bank and may not
be used except for the benefit of the members of
RMCPRF.
ISSUE: Whether the proceeds of the RMCPRF may be
applied to satisfy RMC’s debt to Philbank
(Metrobank).
HELD/RULING: NO
1. Under Section 122 of the Corporation Code, a
dissolved corporation shall nevertheless continue as a
body corporate for 3 years for the purpose of
prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose
and convey its property and to distribute its assets,
but not for the purpose of continuing the business for
which it was established.
2. Within those 3 years, the corporation may appoint
a trustee or receiver who shall carry out the said
purposes beyond the three 3-year winding-up period.
Thus, a trustee of a dissolved corporation may
commence a suit which can proceed to final
judgment even beyond the 3-year period of
liquidation.
3. In the same manner, during and beyond the 3 year
winding-up period of RMC, the Board of Trustees of
RMCPRF may do no more than settle and close the
affairs of the Fund.
The Board retains its authority to act on behalf of its
members, albeit, in a limited capacity. It may
commence suits on behalf of its members but not
continue managing the Fund for purposes of
maximizing profits.
4.Here, the Board’s act of issuing the Resolution
authorizing petitioner to release the Fund to its
beneficiaries is still part of the liquidation process, that
is, satisfaction of the liabilities of the Plan, and does
not amount to doing business. Hence, it was properly
within the Board’s power to promulgate.
COMMERCIAL LAW REVIEW | G02
51 BANK OF COMMERCE v. RADIO PHILIPPINES
GR No. 195615 | April 21, 2014 | Abad | Montealto
TOPIC: Merger/Consolidation
DOCTRINE: The Corporation Code requires the
following steps for merger or consolidation: (1) The
board of each corporation draws up a plan of
merger or consolidation; (2) Submission of plan to
stockholders or members of each corporation for
approval. A meeting must be called and at least two
(2) weeks’ notice must be sent to all stockholders or
members, personally or by registered mail. A
summary of the plan must be attached to the notice.
Vote of two-thirds of the members or of stockholders
representing two thirds of the outstanding capital
stock will be needed. Appraisal rights, when proper,
must be respected; (3) Execution of the formal
agreement, referred to as the articles of merger o[r]
consolidation, by the corporate officers of each
constituent corporation. These take the place of the
articles of incorporation of the consolidated
corporation, or amend the articles of incorporation of
the surviving corporation; (4) Submission of said
articles of merger or consolidation to the SEC for
approval; (5) If necessary, the SEC shall set a hearing,
notifying all corporations concerned at least two
weeks before; and (6) Issuance of certificate of
merger or consolidation
FACTS:
1. Traders Royal Bank (TRB) and to petitioner Bank of
Commerce entered into a purchase and
assumption agreement wherein the former sold
P10.4B of its banking business consisting of
specified assets and liabilities to the latter which
was approved by the BSP provided that they
would set up an escrow fund to cover TRB
liabilities for contingent claims.
2. Shortly after, TRB, in a case against Radio
Philippines (RPN), was ordered to pay the latter
actual damages. RPN file a motion for execution
where they described that TRB is now Bank of
Commerce on the assumption that they had
been merged. Bank of commerce filed a special
appearance opposing the same.
3. However, the RTC in the case of TRB and RPN still
granted the writ of execution against Bank of
Commerce. A petition for certiorari was filed with
the CA wherein it still granted the execution,
however, it did not believe that the purchase
and agreement between TRB and Bank of
Commerce was a mere tool to effectuate a
merger/consolidation.
4. Bank of Commerce assails the issuance of the
RTC of an alias execution contending that the
CA found that there was no
merger/consolidation.
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CORPORATION LAW
ISSUE: WON the CA gravely erred in failing to rule that
the RTC’s Order of execution against Bancommerce
was a nullity because the CA Decision of December
8, 2009 in CA-G.R. SP 91258 held that TRB had not
been merged into Bancommerce as to make the
latter liable for TRB’s judgment debts?
HELD: YES
• Merger is a re-organization of two or more
corporations that results in their consolidating into
a single corporation, which is one of the
constituent corporations, one disappearing or
dissolving and the other surviving.
• The Corporation Code requires the following
steps for merger or consolidation: (1) The board
of each corporation draws up a plan of merger
or consolidation; (2) Submission of plan to
stockholders or members of each corporation for
approval. A meeting must be called and at least
two (2) weeks’ notice must be sent to all
stockholders or members, personally or by
registered mail. A summary of the plan must be
attached to the notice. Vote of two-thirds of the
members or of stockholders representing two
thirds of the outstanding capital stock will be
needed. Appraisal rights, when proper, must be
respected; (3) Execution of the formal
agreement, referred to as the articles of merger
o[r] consolidation, by the corporate officers of
each constituent corporation. These take the
place of the articles of incorporation of the
consolidated corporation, or amend the articles
of incorporation of the surviving corporation; (4)
Submission of said articles of merger or
consolidation to the SEC for approval; (5) If
necessary, the SEC shall set a hearing, notifying
all corporations concerned at least two weeks
before; and (6) Issuance of certificate of merger
or consolidation
• In this case, it is clear that no merger took place
between Bancommerce and TRB as the
requirements and procedures for a merger were
absent. A merger does not become effective
upon the mere agreement of the constituent
corporations. All the requirements specified in the
law must be complied with in order for merger to
take effect.
• Here, Bancommerce and TRB remained separate
corporations with distinct corporate personalities.
What happened is that TRB sold and
Bancommerce purchased identified recorded
assets of TRB in consideration of Bancommerce’s
assumption of identified recorded liabilities of TRB
including booked contingent accounts. There is
no law that prohibits this kind of transaction
especially when it is done openly and with
appropriate government approval.
• Also, no de facto merger took place in the
present case simply because the TRB owners did
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

not get in exchange for the bank’s assets and
liabilities an equivalent value in Bancommerce
shares of stock. Bancommerce and TRB agreed
with BSP approval to exclude from the sale the
TRB’s contingent judicial liabilities, including those
owing to RPN, et al
• Since there had been no merger, Bancommerce
cannot be considered as TRB’s successor-in-
interest and against which the Court’s Decision of
October 10, 2002 in G.R. 138510 may been
forced. Bancommerce did not hold the former
TRBs assets in trust for it as to subject them to
garnishment for the satisfaction of the latter’s
liabilities to RPN.
52 VITALIANO N. AGUIRRE II AND FIDEL N. AGUIRRE
vs. FQB+7, INC., NATHANIEL D. BOCOBO, PRISCILA
BOCOBO AND ANTONIO DE VILLA
G.R. No. 170770 | January 09, 2013 | Del Castillo
|Pabrua
Topic: Corporate Dissolution
DOCTRINE: Pursuant to Section 145 of the Corporation
Code, an existing intra-corporate dispute, which
does not constitute a continuation of corporate
business, is not affected by the subsequent dissolution
of the corporation.
FACTS:
1. Oct. 5, 2004: Vitaliano filed, in his individual
capacity and on behalf of FQB+7, a Complaint for
intra-corporate dispute, injunction, inspection of
corporate books and records, and damages, against
Nathaniel, Priscila, and Antonio.
2. The Complaint alleged that FQB+7 was established
in 1985 with the following directors and subscribers, as
reflected in its Articles of Incorporation:

Directors Subscribers
1. Francisco Q. Bocobo 1. Francisco Q. Bocobo
2. Fidel N. Aguirre 2. Fidel N. Aguirre
3. Alfredo Torres 3. Alfredo Torres
4. Victoriano Santos 4. Victoriano Santos
5. Victorino Santos 5. Victorino Santos
6. Vitaliano N. Aguirre II
7. Alberto Galang
8. Rolando B. Bechayda

To Vitaliano's knowledge, except for the death of

Francisco Q. Bocobo and Alfredo Torres, there has
been no other change in the above listings.

3. It was alleged that Vitaliano discovered a GIS of

FQB+7 in the SEC records. which was filed by
Francisco Q. Bocobo's heirs, Nathaniel and Priscila, as
FQB+7's president and secretary/treasurer,
respectively, which reflected the ff:

Directors Subscribers
1. Nathaniel D. Bocobo 1. Nathaniel D. Bocobo
2. Priscila D. Bocobo 2. Priscila D. Bocobo
3. Fidel N. Aguirre 3. Fidel N. Aguirre
4. Victoriano Santos 4. Victorino Santos
5. Victorino Santos 5. Victorino Santos
6. Consolacion Santos= 6. Consolacion Santos

4. RTC granted the application of Vitaliano for

preliminary injunction.
5. Respondents filed a Petition for Certiorari and
Prohibition before the CA. They informed the CA that
the SEC had already revoked FQB+7's Certificate of
Registration on September 29, 2003 for its failure to
comply with the SEC reportorial requirements.

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6. CA ruled that Section 122 of the Corporation Code the subsequent dissolution of the
allows a dissolved corporation to continue as a body corporation.
corporate for the limited purpose of liquidating the
corporate assets and distributing them to its creditors, Note: to be considered as an intra-corporate dispute,
stockholders, and others in interest. It does not allow the case: (a) must arise out of intra-corporate or
the dissolved corporation to continue its business. CA partnership relations, and (b) the nature of the
determined that Vitaliano's Complaint, being geared question subject of the controversy must be such that
towards the continuation of FQB+7, Inc.'s business, it is intrinsically connected with the regulation of the
should be dismissed because the corporation has lost corporation or the enforcement of the parties' rights
its juridical personality. Moreover, the CA held that and obligations under the Corporation Code and the
the trial court does not have jurisdiction to entertain internal regulatory rules of the corporation.
an intra-corporate dispute when the corporation is
already dissolved.
7. Petitioners maintained that the CA erred in
characterizing the reliefs they sought as a
continuance of the dissolved corporation's business,
which is prohibited under Section 122 of the
Corporation Code. Instead, they argued, the relief
they seek is only to determine the real Board of
Directors that can represent the dissolved
corporation.

ISSUE: WON the corporation's dissolution affected the

trial court's jurisdiction to hear the intracorporate
dispute -NO

HELD:
• Section 145 of the Corporation Code
protects, among others, the rights and
remedies of corporate actors against other
corporate actors. The statutory provision
assures an aggrieved party that the
corporation's dissolution will not impair, much
less remove, his/her rights or remedies against
the corporation, its stockholders, directors or
officers. It also states that corporate
dissolution will not extinguish any liability
already incurred by the corporation, its
stockholders, directors, or officers. In short,
Section 145 preserves a corporate actor's
cause of action and remedy against another
corporate actor. In so doing, Section 145 also
preserves the nature of the controversy
between the parties as an intra-corporate
dispute.

• The dissolution of the corporation simply

prohibits it from continuing its business.
However, despite such dissolution, the parties
involved in the litigation are still corporate
actors. The dissolution does not automatically
convert the parties into total strangers or
change their intra-corporate relationships.
Neither does it change or terminate existing
causes of action, which arose because of
the corporate ties between the parties. Thus,
a cause of action involving an intra-
corporate controversy remains and must be
filed as an intra-corporate dispute despite

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53 PARAMOUNT INSURANCE V. AC ORDOEZ • Although the cancellation of a corporation’s

CORPORATION certificate of registration puts an end to its
GR 175109 | August 6, 2008 | YNARES-SANTIAGO | juridical personality, Sec. 122 of the Corporation
Paca Code, however provides that a corporation
TOPIC: Corporate Dissolution whose corporate existence is terminated in any
manner continues to be a body corporate for
DOCTRINE: Dissolved Corporations may still maintain three years after its dissolution for purposes of
actions in court for the protection of rights which prosecuting and defending suits by and against it
includes the right to appeal. Sec. 22 of the and to enable it to settle and close its affairs.
Corporation Code provides that a corporation whose • Thus, corporations whose certificate of
existence is terminated, in any manner, continues to registration was revoked by the SEC may still
be a body corporate for 3 years after dissolution for maintain actions in court for the protection of its
purposes of prosecuting and defending suits by, and rights which includes the right to appeal.
against, it – in order to settle and close its affairs. Sec. • Furthermore, Sec. 145 of the Corporation Code
145 provides that No right or remedy in favor of or provides that: no right or remedy in favor of, or
against any corporation shall be removed or against, a corporation shall be removed or
impaired by the subsequent dissolution of the impaired by the subsequent dissolution of the
corporation. Thus, dissolution or even the expiration corporation.
of the 3-year liquidation period should not be a bar to • Dissolution or even the expiration of the three-
a corporation’s enforcement of its rights as a year liquidation period should not be a bar to a
corporation. corporation’s enforcement of its rights as a
corporation.
FACTS:
1. Paramount Insurance is the subrogee of Maximo (*NOTE: The case did not mention when AC Ordoez
Mata. Maximo Mata owned a Honda City which Corporation was dissolved.)
figured in a vehicular accident with a truck miser
owned by AC Ordoez Corporation, and driven
by Franklin Suspine.
2. Paramount filed a case for damages against AC
Ordoez Corporation with the MTC
3. Paramount filed a motion to declare AC Ordoez
Corporation in default, due to its failure to file an
answer
4. AC Ordoez Corporation claims that summons
was improperly served.
5. AC Ordoez’ President, Armando Ordoez, thus
filed a motion to admit their answer, alleging
honest mistake and business reverses that
prevented the hiring of a lawyer.
6. The MTC admitted the answer. Paramount
Insurance assails the decision via a certiorari with
the RTC.
7. The RTC set aside the MTC. AC Ordoez appeals to
the CA.
8. CA reverses the RTC, and reinstated the MTC
order admitting AC Ordoez’ answer.
9. Paramount Insurance questions the personality of
AC Ordoez Corporation to file an appeal,
claiming AC Ordoez Corporation no longer had
any legal personality to file such appeal.

ISSUE: May a dissolved corporation still file an appeal

in court? YES. Dissolution or even the expiration of the
three-year liquidation period should not be a bar to a
corporations enforcement of its rights as a
corporation.

HELD/RULING:

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54 ALABANG DEVELOPMENT CORPORATION v.
ALABANG HILLS VILLAGE ASSOCIATION, INC.
G.R. No. 187456 | June 2, 2014 | Peralta |
Pagcaliwagan
Topic: Corporate Dissolution
DOCTRINE: The time during which the corporation,
through its own officers, may conduct the liquidation
of its assets and sue and be sued as a corporation is
limited to three years from the time the period of
dissolution commences; but there is no time limit
within which the trustees must complete a liquidation
placed in their hands.
FACTS:
• October 19, 2006 – Complaint for Injunction
and Damages was filed by Alabang
Development Corporation (ADC) against
Alabang Hills Village Association, Inc. (AHVAI)
and Tinio (President of AHVAI). The complaint
alleges that:
o ADC learned that AHVAI started the
construction of improvements (multi-
purpose hall and swimming pool) on
ADC’s alleged parcels of land
without consent and approval.
o Despite demand, AHVAI failed to
desist from constructing the said
improvements.
• In AHVAI’s Answer it claimed that:
o ADC has no legal capacity to sue
since its existence as a registered
corporate entity was revoked by the
Securities and Exchange Commission
(SEC) on May 26, 2003
ISSUE: WON ADC has the capacity to file the
complaint.
RULING: NO. ADC lacks the capacity to sue as a
corporation.
1. It is to be noted that the time during which the
corporation, through its own officers, may
conduct the liquidation of its assets and sue and
be sued as a corporation is limited to three years
from the time the period of dissolution
commences; but there is no time limit within
which the trustees must complete a liquidation
placed in their hands. It is provided only that the
conveyance to the trustees must be made within
the three-year period. It may be found impossible
to complete the work of liquidation within the
three-year period or to reduce disputed claims to
judgment. The authorities are to the effect that
suits by or against a corporation abate when it
ceased to be an entity capable of suing or being
sued; but trustees to whom the corporate assets
have been conveyed pursuant to the authority
of Sec. 78 [now Sec. 122] may sue and be sued
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CORPORATION LAW
as such in all matters connected with the
liquidation.
2. In the absence of a board of directors or trustees,
those having any pecuniary interest in the assets,
including not only the shareholders but likewise
the creditors of the corporation, acting for and in
its behalf, might make proper representations
with the Securities and Exchange Commission,
which has primary and sufficiently broad
jurisdiction in matters of this nature, for working
out a final settlement of the corporate concerns.
3. In the instant case, there is no dispute that
petitioner's corporate registration was revoked on
May 26, 2003. Based on the above-quoted
provision of law, it had three years, or until May
26, 2006, to prosecute or defend any suit by or
against it. The subject complaint, however, was
filed only on October 19, 2006, more than three
years after such revocation. It is likewise not
disputed that the subject complaint was filed by
Petitioner Corporation and not by its directors or
trustees. In fact, it is even averred, albeit wrongly,
in the first paragraph of the Complaint that
"[p]laintiff is a duly organized and existing
corporation under the laws of the Philippines,
with capacity to sue and be sued. x x x"
4. In the present case, petitioner filed its complaint
not only after its corporate existence was
terminated but also beyond the three-year
period allowed by Section 122 of the Corporation
Code. Thus, it is clear that at the time of the filing
of the subject complaint petitioner lacks the
capacity to sue as a corporation. To allow
petitioner to initiate the subject complaint and
pursue it until final judgment, on the ground that
such complaint was filed for the sole purpose of
liquidating its assets, would be to circumvent the
provisions of Section 122 of the Corporation
Code.
COMMERCIAL LAW REVIEW | G02
55 STEELCASE, INC. v. DESIGN INTERNATIONAL
SELECTIONS, INC.
G.R. No. 171995 | April 18, 2012 | Panday
TOPIC: Foreign Corporation
DOCTRINE: Genereally, a foreign corporation doing
business in the Philippines, without a license cannot
sue in Philippine courts. Except, when the party to be
sued is estopped from challenge the personality of a
corporation after having acknowledged the same by
entering into a contract with it.
FACTS:
1. Steelcase, a foreign corporation, and DISI orally
entered into a dealership agreement – where
DISI will have the right to market, sell, distribute,
install, and service its products to end-user
customers within the Philippines.
2. Subsequently, business was terminated.
3. Steelcase filed a complaint for sum of money
against DISI for its unpaid account of $600k, plus
damages.
a. DISI answered and stated that the
complaint should be dismissed because
of Steelcase’s lack of legal capacity to
sue in Phil courts. Steelcase has no
license to do business in the Philippines.
Thus, cannot sue.
ISSUE: Whether Steelcase is doing business in the
Philippines.
HELD: NO, so Steelcase may sue even though it has
no license. Moreover, DISI is estopped from
questioning Steelcase’s capacity to sue.
1. The appointment by Steelcase of a distributor
(DISI) in the Philippines is not sufficient to
constitute “doing business” unless it is under the
full control of the foreign corporation.
a. If the distributor is an independent entity
which buys and distributes products,
other than those of the foreign
corporation, for its own name and its
own account, the foreign corporation
cannot be considered to be doing
business in the Philippines.
b. In addition to Steelcase products, DISI
also distributed products of other
companies
c. DISI was an independent contractor,
distributing various products of Steelcase
and of other companies, acting in its
own name and for its own account.
2. Despite the admission by Steelcase that it owns
25% of Modernform, with the remaining 75%
being owned and controlled by Thai
stockholders, it is grossly insufficient to justify
piercing the veil of corporate fiction and declare
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CORPORATION LAW
that Modernform acted as the alter ego of
Steelcase to enable it to improperly conduct
business in the Philippines.
a. Steelcase cannot be deemed to have
been doing business in the Philippines
through Modernform.
3. MOREOVER, even if Steelcase was deemed as
doing business in the Philippines, DISI was
nonetheless estopped from challenging
Steelcase’s capacity to sue in the Philippines. DISI
was aware that it was doing business in the
Philippines without a license and had benefited
from such business.
a. Entering into a dealership agreement
with Steelcase charged DISI with the
knowledge that Steelcase was not
licensed to engage in business activities
in the Philippines.
b. From the inception of the dealership
agreement in 1986 until September 1998,
DISI did not bring to Steelcase’s attention
that it was improperly doing business in
the Philippines without a license.
c. DISI only raised the issue with Steelcase
after it was informed that it owed the
latter $600k for the sale and delivery of its
products under their special credit
arrangement.
4. A foreign corporation doing business in the
Philippines, without a license, may sue in
Philippine Courts against a Philippine citizen or
entity who had contracted with and benefited by
said corporation. A party is estopped to
challenge the personality of a corporation after
having acknowledged the same by entering into
a contract with it.
COMMERCIAL LAW REVIEW | G02
56 Global Business Holdings, Inc. v. Surecomp
Software, B.V.
G.R. No. 173463, Oct. 13, 2010 | J. Nachura | PARAS
TOPIC: Foreign Corporation
DOCTRINE OF ESTOPPEL: A foreign corporation doing
business in the Philippines without license may sue in
Philippine courts, a Filipino citizen or a Philippine entity
that had contracted with and benefited from it. A
party is estopped from challenging the personality of
a corporation after having acknowledged the same
by entering into a contract with it.
FACTS:
1. In 1999, Surecomp, a foreign corporation duly
organized and existing under the laws of the
Netherlands, entered into a software license
agreement with Asian Bank Corporation (ABC), a
domestic corporation, for the use of its IMEX
Software System (System) in the banks computer
system for 20 years.
2. In 2000, ABC merged with Global and the latter
as the surviving corporation. When Global took
over the operations of ABC, it informed
Surecomp of its decision to discontinue with the
agreement and to stop further payments
thereon. Consequently, for failure of Global to
pay its obligations under the agreement despite
demands, Surecomp filed a complaint for
breach of contract with damages before the
RTC alleging that it is a foreign corporation not
doing business in the Philippines and is suing on
an isolated transaction.
3. Instead of filing an answer, Global filed a motion
to dismiss based on two grounds: (1) that
Surecomp had no capacity to sue because it
was doing business in the Philippines without a
license; and (2) that the claim on which the
action was founded was unenforceable under
the Intellectual Property Code of the Philippines.
The said motion to dismiss was denied.
ISSUE: Does Surecomp, a foreign corporation, have
capacity to sue here? YES
RATIO:
The determination of a corporation’s capacity is a
factual question that requires the elicitation of a
preponderant set of facts. As a rule, unlicensed
foreign non-resident corporations doing business in
the Philippines cannot file suits in the Philippines. This is
mandated under Section 133 of the Corporation
Code, which reads:
Sec. 133. Doing business without a license. - No
foreign corporation transacting business in the
Philippines without a license, or its successors or
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CORPORATION LAW
assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or
administrative agency of the Philippines, but such
corporation may be sued or proceeded against
before Philippine courts or administrative tribunals on
any valid cause of action recognized under
Philippine laws.
A corporation has a legal status only within the state
or territory in which it was organized. For this reason, a
corporation organized in another country has no
personality to file suits in the Philippines. In order to
subject a foreign corporation doing business in the
country to the jurisdiction of our courts, it must
acquire a license from the SEC and appoint an agent
for service of process. Without such license, it cannot
institute a suit in the Philippines.
The exception to this rule is the doctrine of estoppel.
Global is estopped from challenging Surecomp’s
capacity to sue.
A foreign corporation doing business in the Philippines
without license may sue in Philippine courts a Filipino
citizen or a Philippine entity that had contracted with
and benefited from it. A party is estopped from
challenging the personality of a corporation after
having acknowledged the same by entering into a
contract with it. The principle is applied to prevent a
person contracting with a foreign corporation from
later taking advantage of its noncompliance with the
statutes, chiefly in cases where such person has
received the benefits of the contract.
Due to Global’s merger with ABC and because it is
the surviving corporation, it is as if it was the one
which entered into contract with Surecomp. In the
merger of two existing corporations, one of the
corporations survives and continues the business,
while the other is dissolved, and all its rights,
properties, and liabilities are acquired by the surviving
corporation. Under the terms of the merger or
consolidation, Global assumed all the liabilities and
obligations of ABC as if it had incurred such liabilities
or obligations itself. In the same way, Global also has
the right to exercise all defenses, rights, privileges,
and counter-claims of every kind and nature which
ABC may have or invoke under the law. These
findings of fact were never contested by Global in
any of its pleadings filed before this Court.
COMMERCIAL LAW REVIEW | G02
57 CARGILL, INC. V. INTRA STRATA ASSURANCE
CORPORATION
G.R. No. 168266 | 15 March 2010 | Carpio | Pineda
TOPIC: Foreign Corporation
DOCTRINE:
• Actual transaction of business within the
Philippine territory is an essential requisite for
the Philippines to acquire jurisdiction over a
foreign corporation and thus require the
foreign corporation to secure a Philippine
business license.
• Doing business: business activities are not just
casual, but so systematic and regular as to
manifest continuity and permanence of
activity
• Activities within Philippine jurisdiction that do
not create earnings or profits to the foreign
corporation do not constitute doing business.
FACTS:
1. Cargill is a corporation incorporated under
Delaware, USA laws.
2. Cargill and Northern Mindanao Corporation
(NMC) executed a contract, whereby NMC
agreed to sell to Cargill a certain quantity of
molasses at a determined price.
3. The contract was amended three times. The third
amendment included a requirement for NMC to
put up a performance bond to guarantee that
NMC would deliver according to the amended
terms. Intra Strata issued a performance bond of
P11M to guarantee NMC’s delivery of the 10,500
tons of molasses, and P9.9M to guarantee
repayment of the downpayment as provided in
the contract.
4. NMC was only able to deliver 219.5 metric tons of
molasses out of the agreed 10500 metric tons.
Thus, Cargill wanted to claim upon the
performance and surety bonds. Intra Strata
refused to pay. This prompted Cargill to file a
complaint for sum of money against NMC and
Intra Strata.
5. RTC ruled in favor of Cargill. CA reversed the
ruling on the ground that Cargill has no capacity
to sue as it is a foreign corporation doing business
in the Philippines without the requisite license. The
purchases of molasses were in pursuance of its
basic business (not specified in the case), and
not merely isolated transactions.
ISSUE/S: W/N Cargill has standing to sue in the
Philippines
HELD: YES. Cargill has standing to sue in the
Philippines. Cargill is a foreign company merely
importing molasses from a Philipine exporter. A
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CORPORATION LAW
foreign company that merely imports goods from a
Philippine exporter, without opening an office or
appointing an agent in the Philippines, is not doing
business in the Philippines. Thus, Cargill does not need
to obtain a license before filing an action in court.
RULING:
Under Section 123 of the Corporation Code foreign
corporation must first obtain a license before doing
business in the Philippines. Otherwise, it cannot
maintain any action before Philippine courts, as
provided in Section 133.
• Actual transaction of business within the
Philippine territory is an essential requisite for
the Philippines to acquire jurisdiction over a
foreign corporation and thus require the foreign
corporation to secure a Philippine business
license. If a foreign corporation does not transact
such kind of business in the Philippines, even if it
exports its products to the Philippines,
the Philippines has no jurisdiction to require such
foreign corporation to secure a Philippine
business license.
• While the Corporation Code is silent on the
definition of doing business, others laws shed
some light.
o RA 5455 and Omnibus Investments Code:
“any other act or acts that imply a
continuity of commercial dealings or
arrangements, and contemplate to that
extent the performance of acts or works,
or the exercise of some of the functions
normally incident to, and in progressive
prosecution of, commercial gain or of
the purpose and object of the business
organization”
o Foreign Investments Act: “any other act
or acts that imply a continuity of
commercial dealings or arrangements,
and contemplate to that extent the
performance of acts or works, or the
exercise of some of the functions
normally incident to, and in progressive
prosecution of, commercial gain or of
the purpose and object of the business
organization”
• Intra Strata has the burden of proving that
Cargill’s business activities were not just casual,
but so systematic and regular as to manifest
continuity and permanence of activity to
constitute doing business in the Philippines.
o Intra Strata failed to prove that Cargill
was doing business. The three
amendments to the contract do not
signify the intent of Cargill to establish a
continuous business.
o Other factors indicate that Cargill was
not doing business in the Philippines:
Cargill has no office in the Philippines;
COMMERCIAL LAW REVIEW | G02
Cargill imports products from the
Philippines through a non-exclusive local
broker that acts as an independent
contractor and not as an agent.
• Further, activities within Philippine jurisdiction that
do not create earnings or profits to the foreign
corporation do not constitute doing business in
the Philippines. In this case, under the contract,
Cargill did not derive any income. It was NMC
that was to derive income.
80
CORPORATION LAW
58 STRATEGIC ALLIANCE DEV. CORP. (STRADEC) VS.
STAR INFRA DEV. CORP (SIDC). ET. AL.,
G.R. No. 187872 | Nov. 17, 2010 | PEREZ | REAGO
TOPIC: Foreign Corporation
DOCTRINES:
• The combined application of the relationship test
and the nature of the controversy test has,
consequently, become the norm in determining
whether a case is an intra-corporate controversy
or is purely civil in character.
o Relationship Test: The types of action
must be (a) between the corporation,
partnership or association and the
public; (b) between the corporation,
partnership or association and its
stockholders, partners, members, or
officers; (c) between the corporation,
partnership or association and the State
insofar as its franchise, permit or license
to operate is concerned; and, (d)
among the stockholders, partners or
associates themselves
o Nature of the Controversy Test: the
dispute must not only be rooted in the
existence of an intra-corporate
relationship, but must also refer to the
enforcement of the parties' correlative
rights and obligations under the
Corporation Code as well as the internal
and intra-corporate regulatory rules of
the corporation.
• SCCs are still considered courts of general
jurisdiction.
FACTS:
1. STRADEC is a domestic corporation primarily
engaged in the business of a development
company in all the element sand details thereof,
with principal place of business at Poblacion Sur,
Bayambang, Pangasinan.
2. STRADEC, along with other individuals and
corporations, incorporated SIDC.
3. It paid and owned 2,449,998 shares or 49% of the
5M shares of stock into which SIDC’s authorized
capital stock of P5M were divided.
4. SIDC transferred its principal place of business
from Pasig City to Poblacion Sur, Bayambang,
Pangasinan, and later, to Lipa, Batangas.
5. On October 2004, Yujuico and Sumbilla, in their
respective capacities as President and Treasurer
of STRADEC, executed a promissory note for and
in consideration of a loan in the sum of P10M
extended in favor of said corporation by Wong,
one of the incorporators of SIDC.
6. As security, a pledge constituted over STRADEC’s
entire shareholdings in SIDC was executed by
Yujuico.
COMMERCIAL LAW REVIEW | G02
7. Due to STRADEC’s repeated default on its
obligations, the shares pledged were sold by way
of a notarial sale on April 26, 2005.
8. Having tendered the sole bid of P11.8M, Wong
was issued the corresponding certificates of stock
of SIDC.
9. On July 17, 2006, Quiambao, the President and
Chairman of BoD of STRADEC filed a petition in
the RTC Batangas City and alleged the following,
among others:
a. Yujuico and Sumbilla were not
authorized to enter into any loan
agreement with Wong and pledge its
SIDC shareholdings as security therefor;
b. STRADEC did not receive the proceeds
of the supposed loan and immediately
apprised SIDC of the irregularity of the
transaction upon discovery;
c. Wong subsequently sold the shares to
CTCII, a corporation he formed with
members of his own family
10. RTC issued an order as to the 4 main causes of
action (COA) filed by STRADEC:
a. 1st COA: declaration of nullity of the
supposed loan extended by Wong to
STRADEC and the Deed of Pledge
covering STRADEC’s entire shareholding
in SIDC –> RTC Batangas is the wrong
venue
b. 2nd COA: declaration of nullity of the
action sale of STRADEC’s entire
shareholdings in SIDC in Makati City ->
RTC Batangas is the wrong venue
c. 3rd COA: cancellation of registration of
fraudulent transfers involving STRADEC’s
shareholding in SIDC -> any action must
be held in abeyance until after the SC
shall have rendered a ruling as to who
between the conflicting 2 sets of BoD of
STRADEC should be recognized as
legitimate.
d. 4th COA: Declaration of invalidity of the
30 July 2005 annual stockholders meeting
and 20 July 2006 special stockholder’s
meeting of SIDC -> same with above
11. STRADEC interposed an oral MR on the ground of
the solidary liability of the officers and SIDC
incurred for the tortious transfer of the subject
shares.
12. The MR filed above was denied for lack of merit.
13. STRADEC filed a petition for certiorari before the
CA.
14. CA: discounted the grave abuse of discretion
STRADEC imputed against the RTC upon the
following findings and conclusions:
a. As to 1st and 2nd COA – purely civil in
nature and are erroneously joined with
the 3rd and 4th COA
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CORPORATION LAW
b. As to 3rd and 4th COA – RTC was correct
in holding it in abeyance in view of the
pendency of cases in other courts
involving, among other issues, the
ownership of STRADEC’s shares, its
legitimate Directors and Corporate
Officers and the authority of Cezar T.
Quiambao to act for and its behalf
ISSUES:
1. Whether the declaration of nullity of the loan
extended by Wong and the pledge covering
STRADEC’s entire shareholding in SIDC (1st COA)
and the declaration of nullity of the notarial sale
of the said shares (2nd COA) are intra-corporate
controversies. YES
2. Whether the 3rd and 4th COA be held in
abeyance in view of the pendency of other
cases. NO
RULING:
• The first and second COAs are intra-corporate
controversies.
1. An intra-corporate dispute is understood
as a suit arising from intra-corporate
relations or between or among
stockholders or between any or all of
them and the corporation. Applying
what has come to be known as the
relationship test, it has been held that the
types of actions embraced by the
foregoing definition include the following
suits: (a) between the corporation,
partnership or association and the
public; (b) between the corporation,
partnership or association and its
stockholders, partners, members, or
officers; (c) between the corporation,
partnership or association and the State
insofar as its franchise, permit or license
to operate is concerned; and, (d)
among the stockholders, partners or
associates themselves
2. It was held that the better policy in
determining which body has jurisdiction
over a case would be to consider not
only the status or relationship of the
parties but also the nature of the
question that is the subject of their
controversy.
3. Under the nature of the controversy test,
the dispute must not only be rooted in
the existence of an intra-corporate
relationship, but must also refer to the
enforcement of the parties' correlative
rights and obligations under the
Corporation Code as well as the internal
and intra-corporate regulatory rules of
the corporation The combined
application of the relationship test and
COMMERCIAL LAW REVIEW | G02
the nature of the controversy test has,
consequently, become the norm in
determining whether a case is an intra-
corporate controversy or is purely civil in
character.
4. Applying the relationship test, we find
that STRADEC’s first and second causes
of action qualify as intra-corporate
disputes since said corporation and
respondent Wong are incorporators
and/or stockholders of SIDC. Having
acquired STRADEC’s shares thru the
impugned notarial sale conducted by
respondent Caraos, respondent Wong
appears to have further transferred said
shares in favor of CTCII, a corporation he
allegedly formed with members of his
own family. By reason of said transfer,
CTCII became a stockholder of SIDC and
was, in fact, alleged to have been
recognized as such by the latter and its
corporate officers.
5. Considering that they fundamentally
relate to STRADEC’s status as a
stockholder and the alleged fraudulent
divestment of its stockholding in SIDC, the
same causes of action also qualify as
intra-corporate disputes under the
nature of the controversy test. As part of
the fraud which attended the transfer of
its shares, STRADEC distinctly averred,
among other matters, that respondents
Yujuico and Sumbilla had no authority to
contract a loan with respondent Wong;
that the pledge executed by respondent
Yujuico was simulated since it did not
receive the proceeds of the loan for
which its shares in SIDC were set up as
security; that irregularities attended the
notarial sale conducted by respondent
Caraos who sold said shares to
respondent Wong; that the latter
unlawfully transferred the same shares in
favor of CTCII; and, that SIDC and its
officers recognized and validated said
transfers despite being alerted about
their defects. Ultimately, the foregoing
circumstances were alleged to have
combined to rid STRADEC of its shares in
SIDC and its right as a stockholder to
participate in the latter’s corporate
affairs.
6. Pursuant to Section 5.2 of the SRC, the
jurisdiction of the SEC over all cases
enumerated under Section 5 of
Presidential Decree No. 902-A has been
transferred to RTCs designated by this
Court as SCCs pursuant to A.M. No. 00-
11-03-SC promulgated on 21 November
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CORPORATION LAW
2000. Unlike the SEC which is a tribunal of
limited jurisdiction, SCCs like the RTC are
still competent to tackle civil law issues
incidental to intra-corporate disputes
filed before them
7. SCCs are still considered courts of
general jurisdiction. Section 5.2 of R.A.
No. 8799 directs merely the Supreme
Court's designation of RTC branches that
shall exercise jurisdiction over intra-
corporate disputes. Nothing in the
language of the law suggests the
diminution of jurisdiction of those RTCs to
be designated as SCCs. The assignment
of intra-corporate disputes to SCCs is
only for the purpose of streamlining the
workload of the RTCs so that certain
branches thereof like the SCCs can focus
only on a particular subject matter.
• The CA also erred in upholding the RTC’s
suspension of proceedings for STRADEC’s third
and fourth causes of action assailing the
registration of the transfers of its shares as well as
the 30 July 2005 annual meeting and 20 July 2006
special meeting of SIDC’s stockholders, in view of
the pendency of actions in other courts involving
ownership of the shares into which STRADEC’s
own capital stock has been divided and its
legitimate directors and officers.
1. On the principle that a corporation is a
legal entity with a personality separate
and distinct from its individual
stockholders or members and from that
of its officers who manage and run its
affairs, the SC has held that said other
actions have little or no bearing to the
issues set forth in STRADEC’s amended
petition which, at bottom, involve the
transfer of its own shareholding in SIDC
and its status and rights as such
stockholder.
2. As the owner, STRADEC is undoubtedly
possessed of clear and unmistakable
rights over the subject SIDC shares which
respondent Yujuico pledged in favor of
respondent Wong. Unless collectively
restrained, the aforesaid acts will
completely divest STRADEC of its shares
and unfairly deprive it of participation in
SIDC's corporate affairs pending the
determination of the validity of the
impugned transfers
COMMERCIAL LAW REVIEW | G02 CORPORATION LAW

59 IGLESIA EVANGELICA METODISTA EN LAS ISLAS power to remove him as such or transfer him to
FILIPINAS, INC. (IEMELIF) v. JUANE another congregation.
G.R. Nos. 172447, Sept 18, 2009, J. Chico-Nazario, 9. Hence, this case.
Resurreccion
Topic: Corporation Sole
Issue: WON IEMELIF has a legal personality to file the
Doctrine: A corporation sole is one formed by the said case against Juane. YES.
chief archbishop, bishop, priest, minister, rabbi or
other presiding elder of a religious denomination, Ruling:
sect, or church, for the purpose of administering or
managing, as trustee, the affairs, properties and The CA is correct. Even if the transformation of IEMELIF
temporalities of such religious denomination, sect or from a corporation sole to a corporation
church. aggregate was legally defective, its head or
governing body, i.e., Bishop Lazaro, whose acts
As opposed to a corporation aggregate, a were approved by the Highest Consistory of
corporation sole consists of a single member, while a Elders, still did not change.
corporation aggregate consists of two or more
persons. A corporation sole is one formed by the chief
archbishop, bishop, priest, minister, rabbi or other
Facts: presiding elder of a religious denomination, sect,
or church, for the purpose of administering or
1. IEMELIF (the church) transformed from managing, as trustee, the affairs, properties and
corporation sole to corporation aggregate. temporalities of such religious denomination, sect
2. Natanael Juane (Juane) was appointed as a or church. As opposed to a corporation
resident Pastor of the church in Tondo, Manila. As aggregate, a corporation sole consists of a single
the resident pastor, the church allowed him to member, while a corporation aggregate consists
of two or more persons. If the transformation did
stay and occupy a pastor residence in the
not materialize, the corporation sole would still be
church’ property.
Bishop Lazaro, who himself performed the
3. Eventually, Juane was removed as the resident
questioned acts of removing Juane as Resident
pastor by the church due to his rebellion and Pastor of the Tondo Congregation.
defiant acts against the orders of the high elders
of the latter. If the transformation did materialize, the corporation
4. As a result, the church wanted him to get out of aggregate would be composed of the Highest
the pastor residence. However, Juane refused to Consistory of Elders, which nevertheless
vacate the same. approved the very same acts. As either Bishop
5. This prompted the church to file a case of Lazaro or the Highest Consistory of Elders had the
unlawful detainer against Juane before the MTC. authority to appoint Juane as Resident Pastor of
As expected, Juane filed a motion to dismiss. the IEMELIF Tondo Congregation, it also had the
6. After the trial, the MTC ruled in favor of the power to remove him as such or transfer him to
another congregation.
church and ordered Juane to vacate the
property. However, Juane appealed the case to
the CA.
7. In the CA, Juane argued that the transformation
of IEMELIF from a corporation sole to a
corporation aggregate was legally defective
and, therefore, IEMELIF had no personality to
eject Juane from the subject property.
8. But the CA ruled that even the transformation of
IEMELIF from a corporation sole to a corporation
aggregate was legally defective, its head or
governing body, i.e., Bishop Lazaro, whose acts
were approved by the Highest Consistory of
Elders, still did not change. As Bishop Lazaro and
the Highest Consistory of Elders had the authority
to appoint Juane as Resident Pastor of the
IEMELIF Tondo Congregation, they also had the

83
COMMERCIAL LAW REVIEW | G02
60 RENATO REAL V. SANGU PHILIPPINES, INC., ET AL.
G.R. No. 168757 | January 19, 2011 | Del Castillo |
Reyes
TOPIC: Intra-corporate dispute
DOCTRINE: To determine whether a case involves an
intra-corporate controversy, and is to be heard and
decided by the branches of the RTC specifically
designated by the Court to try and decide such
cases, two elements must concur: (a) the status or
relationship of the parties, and (2) the nature of the
question that is the subject of their controversy.
FACTS:
1. Real was the manager of Sangu, a corp.
engaged in the business of providing manpower
2. In 2001, Real together with 29 others, all
employed by Sangu, filed complaints for illegal
dismissal against Sangu and Abe, VP and GM of
Sangu.
3. LA ruled in favor of petitioners. Sangu was
ordered to reinstate petitioners to their former
positions
4. Sangu appeled to the NLRC with the argument
that Real is both a stockholder and a corporate
officer of Sangu, hence, the action is an intra-
corporate dispute over which LA has no
jurisdiction
5. NLRC ruled in favor of Sangu; LA has no
jurisdiction with respect to the complaint of Real.
6. CA affirmed NLRC
7. Petitioner argues:
a. That he is not a corporate officer; neither
elected nor appointed
b. The issue was with respect to employer-
employee relationship; evidenced by the
termination letter sent to him
8. Respondent argues:
a. Real is a stockholder as well as a
corporate officer of Sangu
i. He was one of the incorporators
b. The fact that Real is being given benefits
under the LC as stated in his termination
letter does not mean that they are
recognizing the employer-employee
relationship between them
ISSUE: Whether Real’s complaint for illegal dismissal
constitutes an intra-corporate dispute. NO.
RATIO:
1. To determine whether a case involves an intra-
corporate controversy, and is to be heard and
decided by the branches of the RTC specifically
designated by the Court to try and decide such
cases, two elements must concur: (a) the status
or relationship of the parties, and (2) the nature
of the question that is the subject of their
controversy.
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CORPORATION LAW
2. The first element requires that the controversy
must arise out of intra-corporate or partnership
relations between any or all of the parties and
the corporation, partnership, or association of
which they are not stockholders, members or
associates, between any or all of them and the
corporation, partnership or association of which
they are stockholders, members or associates,
respectively; and between such corporation,
partnership, or association and the State insofar
as it concerns the individual franchises
3. The second element requires that the dispute
among the parties be intrinsically connected with
the regulation of the corporation. If the nature of
the controversy involves matters that are purely
civil in character, necessarily, the case does not
involve an intra-corporate controversy
4. While respondents repeatedly claim that
petitioner was appointed as Manager pursuant
to the corporations By-Laws, the above-quoted
inconsistencies in their allegations as to how
petitioner was placed in said position, coupled
by the fact that they failed to produce any
documentary evidence to prove that petitioner
was appointed thereto by action or with
approval of the board, only leads this Court to
believe otherwise. It has been consistently held
that [a]n office is created by the charter of the
corporation and the officer is elected (or
appointed) by the directors or stockholders
5. Clearly here, respondents failed to prove that
petitioner was appointed by the board of
directors. Thus, we cannot subscribe to their claim
that petitioner is a corporate officer.
6. There is no intra-corporate relationship between
the parties insofar as petitioner’s complaint for
illegal dismissal is concerned and that same does
not satisfy the relationship test
7. Respondents terminated the services of petitioner
for the following reasons: (1) his continuous
absences at his post at Ogino Philippines, Inc; (2)
respondent’s loss of trust and confidence on
petitioner; and, (3) to cut down operational
expenses to reduce further losses being
experienced by the corporation.
8. From these, it is not difficult to see that the
reasons given by respondents for dismissing
petitioner have something to do with his being a
Manager of respondent corporation and nothing
with his being a director or stockholder
(1) For one, petitioner’s continuous
absences in his post in Ogino relates to
his performance as Manager
(2) Second, respondent’s loss of trust and
confidence in petitioner stemmed from
his alleged acts of establishing a
company engaged in the same line of
business as respondent corporations and
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submitting proposals to the latter’s clients
while he was still serving as its Manager.
i. While we note that respondents
also claim these acts as
constituting acts of disloyalty of
petitioner as director and
stockholder, we, however, think
that same is a mere
afterthought. It was only after
respondents invoked the Labor
Arbiters lack of jurisdiction over
petitioner’s complaint filed
before the NLRC that
respondents started considering
said acts as such.
(3) Third, in saying that they were dismissing
petitioner to cut operational expenses,
respondents actually want to save on
the salaries and other remunerations
being given to petitioner as its Manager.
i. Thus, when petitioner sought for
reinstatement, he wanted to
recover his position as Manager,
a position which we have,
however, earlier declared to be
not a corporate position. He is
not trying to recover a seat in
the board of directors or to any
appointive or elective corporate
position which has been
declared vacant by the board.
9. Certainly, what we have here is a case of
termination of employment which is a labor
controversy and not an intra-corporate dispute.
In sum, we hold that petitioner’s complaint
likewise does not satisfy the nature of controversy
test.
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CORPORATION LAW
61 CHATEAU DE BAIE CONDOMINIUM CORP. v. SPS.
MORENO
G.R. No. 186271 |Feb. 23, 2011|J. BRION| S AYO
TOPIC: Intra- Corporate disputes
DOCTRINE: The case before the RTC involved an intra-
corporate dispute the Moreno spouses were asking
for an accounting of the association dues and were
questioning the manner the petitioner calculated the
dues assessed against them. These issues are alien to
the first case that was initiated by Salvacion a third
party to the petitioner-Moreno relationship to stop the
extrajudicial sale on the basis of the lack of the
requirements for a valid foreclosure sale. Although
the extrajudicial sale of the Moreno properties to the
petitioner has been fully effected and the Salvacion
petition has been dismissed with finality, the
completion of the sale does not bar
the Moreno spouses from questioning the amount of
the unpaid dues that gave rise to the foreclosure and
to the subsequent sale of their properties. The
propriety and legality of the sale of the condominium
unit and the parking spaces questioned by Salvacion
are different from the propriety and legality of the
unpaid assessment dues that the Moreno spouses are
questioning in the present case.
FACTS:
1. Mrs. Moreno is the registered owner of a
penthouse unit and two parking slots (Moreno
properties) in Chateau de Baie Condominium
(Chateau Condominium) As a registered owner
in Chateau Condominium, Mrs. Moreno is a
member/stockholder of the condominium
corporation.
2. Mrs. Moreno obtained a loan from Oscar
Salvacion, and she mortgaged
the Moreno properties as security.
3. Under the Condominium Act, when a unit owner
fails to pay the association dues, the
condominium corporation can enforce a lien on
the condominium unit by selling the unit in an
extrajudicial foreclosure sale.
4. On November 23, 2001, the petitioner caused the
annotation of a Notice of Assessment on the
CCTs of the Moreno properties for unpaid
association dues and sent a demand letter to
the Moreno spouses who offered to settle their
obligation, but the petitioner declined the offer.
5. The president of the petitioner Condominium
wrote the Clerk of Court/Ex-Officio Sheriff for the
extrajudicial public auction sale of
the Moreno properties. The extrajudicial sale was
scheduled on February 10, 2005.
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6. The first case - the Salvacion Case
To stop the extrajudicial sale, Salvacion, as
mortgagee, filed, on February 3, 2005, a petition
for certiorari and prohibition with prayer for the
issuance of a temporary restraining order and/or
writ of preliminary injunction before the RTC,
Branch 196, Paranaque City. (dismissed by SC)
7. The present case the Moreno Case
While the Salvacion case was pending before
the CA, the Moreno spouses filed before the RTC,
Paranaque City, a complaint for intra-corporate
dispute against the petitioner to question how it
calculated the dues assessed against them, and
to ask an accounting of the association dues.
They asked for damages and the annulment of
the foreclosure proceedings, and prayed for the
issuance of a writ of preliminary injunction.
8. The petitioner moved to dismiss the complaint on
the ground of lack of jurisdiction, alleging that
since the complaint was against the
owner/developer of a condominium whose
condominium project was registered with and
licensed by the Housing and Land Use Regulatory
Board (HLURB), the HLURB has the exclusive
jurisdiction.
9. RTC denied MTD (prohibited pleading in intra-
corporate dispute proceedings)
10. CA also favored the Morenos hence, this appeal
by way of a Rule 45 petition.
ISSUES:
1. WON the dispute’s nature is of an intra-corporate
dispute hence cognizable by regular courts.
2. WON the dismissal of the Salvacion petition bars an
action by the Morenos
HELD:
1. YES, RTC has JD.
2. NO, questions on the two cases are different
1. The facts of this case are similar to the facts
in Wack Wack Condominium Corporation, et
al. v. Court of Appeals, et al., where we
held that the dispute as to the validity of the
assessments is purely an intra-corporate
matter between Wack Wack Condominium
Corporation and its stockholder, Bayot, and
is, thus, within the exclusive original
jurisdiction of the Securities and Exchange
Commission (SEC).
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CORPORATION LAW
62 WACK-WACK CONDOMINIUM CORPORATION V.
COURT OF APPEALS
G.R. No. 78490 | 23 November 1992 | J. Campos |
San Juan
TOPIC: Intra-corporate dispute
DOCTRINE: The validity of the assessment against a
member of a condominium corporation is an intra-
corporate dispute between the condominium
corporation and one of its stockholder.
FACTS: Bayot owned a condominium unit in Wack
Wack Condominium Building. As such, she became a
stockholder of the condominium corporation. Later,
Bayot was assessed with unpaid condominium dues
which amounted to Php112,000++, and which she
refused to pay. Wack Wack then sought for the
extrajudicial foreclosure of Bayot’s unit to answer for
her outstanding assessments which had remained
unpaid. Before the sale of the property, Bayot filed a
petition for injunction with the SEC. Wack Wack
sought for the dismissal of the SEC petition on the
ground that the SEC has no jurisdiction over the
controversy because the foreclosure proceedings an
action quasi-in rem.
ISSUE: Is the validity of the assessment an intra-
corporate dispute, and thus within the jurisdiction of
the SEC?
RULING: YES, the dispute as to the validity of the
assessments is purely an intra-corporate matter
between Wack Wack and its stockholder, Bayot, and
is thus within the exclusive original jurisdiction of the
SEC. Since the extrajudicial sale was authorized by
Wack Wack’s by-laws and was the result of the non-
payment of said assessments, the legality of such
foreclosure is necessarily an issue which is likewise
within the exclusive original jurisdiction of the SEC. The
validity of the foreclosure depends on the legality of
the assessments and the issue must be determined by
the SEC to insure that the private respondent was not
deprived of her property without having been heard.
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63 COSARE v BROADCOM ASIA INC.
G.R. No. 201298 | February 5, 2014 | Reyes, J. |
Sullano
TOPIC: Intra-corporate Dispute
DOCTRINE: Corporate officers are those officers of the
corporation who are given that character by the
Corporation Code (President, Secretary and
Treasurer) or by the corporation’s by-laws. If the
dispute is between a corporate officer and the
corporation, it is an intra-corporate dispute and the
regular courts have jurisdiction. Otherwise, if the
dispute was for termination of a regular employee, it
is the Labor Arbiter who has jurisdiction of the case.
FACTS:
1. Cosare was an incorporator and Assistant Vice
President for Sales of Broadcom
2. Cosare informed Arevalo (the one who set up
Broadcom) of certain anomalies committed by
Cosare’s immediate supervisor – such as under
the table dealings etc.
a. Cosare was then made by Arevalo to
resign, but Cosare refused.
b. Cosare then received a memo where he
was charged with serious misconduct. He
was subsequently prevented from
entering company premises
c. He filed a complaint for illegal dismissal
with the Labor Arbiter.
d. CA dismissed the complaint because
such is an intra-corporate dispute, thus
the LA has no jurisdiction
i. in this case, the by-laws only say
that the officers are the
President, VP, Treasurer and
Secretary
b. An office is usually created by charter of
the corporation and is elected by the
BOD and stockholders
c. Since Cosare was merely an Assistant VP
for Sales, he is not considered as an
officer, and the case at hand for
dismissal is not an intra-corporate
dispute. Thus, the LA has jurisdiction, and
not the regular courts.
d. The fact that Cosare owned stocks is
insufficient to make the case an intra-
corporate dispute
e. CA was incorrect in relying on the
General Information Sheets which
named Cosare as an “officer”
3. Under the nature of the controversy test, the
incidents of that relationship must also be
considered for the purpose of ascertaining
whether the controversy itself is intra-corporate.
The controversy must not only be rooted in the
existence of an intra-corporate relationship, but
must as well pertain to the enforcement of the
parties’ correlative rights and obligations under
the Corporation Code and the internal and intra-
corporate regulatory rules of the corporation. If
the relationship and its incidents are merely
incidental to the controversy or if there will still be
conflict even if the relationship does not exist,
then no intra-corporate controversy exists.

ISSUE: WON the case is an intra-corporate dispute.

NO, thus, the LA has jurisdiction

RULING:
1. An intra-corporate controversy, which falls within
the jurisdiction of regular courts, has been
regarded in its broad sense to pertain to disputes
that involve any of the following relationships: (1)
between the corporation, partnership or
association and the public; (2) between the
corporation, partnership or association and the
state in so far as its franchise, permit or license to
operate is concerned; (3) between the
corporation, partnership or association and its
stockholders, partners, members or officers; and
(4) among the stockholders, partners or
associates, themselves
2. Cosare was a regular employee and not a
corporate officer, thus, it is not an intra-corporate
dispute
a. Corporate officers are those officers of
the corporation who are given that
character by the Corporation Code
(President, Secretary and Treasurer) or by
the corporation’s by-laws

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