Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

2015)

CORPORATION LAW

DOCTRINE OF SEPARATE LEGAL PERSONALITY

Stockholders cannot claim ownership over corporate properties by virtue of the Minutes of a
Stockholder’s meeting which merely evidence a loan agreement between the stockholders and the
corporation. As such, there interest over the properties are merely inchoate. - Philippine National
Bank vs. Merelo B. Aznar et al., G.R. No. 171805, May 30, 2011

DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION

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.

The first prong is the “instrumentality” or “control” test. This test requires that the subsidiary be
completely under the control and domination of the parent. It examines the parent corporation’s
relationship with the subsidiary. It inquires whether a subsidiary corporation is so organized and
controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the
parent corporation such that its separate existence as a distinct corporate entity will be ignored. It
seeks to establish whether the subsidiary corporation has no autonomy and the parent corporation,
though acting through the subsidiary in form and appearance, “is operating the business directly for
itself.”

The second prong is the “fraud” test. This test requires that the parent corporation’s conduct in
using the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of
the plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent
corporation uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a
showing of “an element of injustice or fundamental unfairness.”

The third prong is the “harm” test. This test requires the plaintiff to show that the defendant’s
control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm
suffered. A causal connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff
should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will have
been treated unjustly by the defendant’s exercise of control and improper use of the corporate form
and, thereby, suffer damages. - Development Bank of the Philippines vs. Hydro Resources
Contractors Corporation, GR. No. 167603, 167561 & 167603, March 13, 2013

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GOVERNMENT CORPORATIONS

The PNRC enjoys a special status as an important ally and auxiliary of the government in the
humanitarian field in accordance with its commitments under international law. Its structure is sui
generis. The Court should not shake its existence to the core in an untimely and drastic manner that
would not only have negative consequences to those who depend on it in times of disaster and
armed hostilities but also have adverse effects on the image of the Philippines in the international
community. - Dante V. Liban, Reynaldo M. Bernardo and Salvador M. Viari vs. Richard J.
Gordon, Philippine National Red Cross, Intervenor, G. R. No. 175352, January 18, 2011

Not all corporations, which are not government owned or controlled, are ipso facto to be
considered private corporations as there exists another distinct class of corporations or chartered
institutions which are otherwise known as "public corporations." These corporations are treated by
law as agencies or instrumentalities of the government which are not subject to the tests of
ownership or control and economic viability but to different criteria relating to their public
purposes/interests or constitutional policies and objectives and their administrative relationship to
the government or any of its Departments or Offices. - Boy Scouts of the Philippines vs.
Commission On Audit, G.R. No. 177131, June 7, 2011

CORPORATE NAME

While the SC stand by in its pronouncement on the importance of the corporate name to the very
existence of corporations and the significance thereof in the corporations right to sue, it shall not go
so far as to dismiss a case filed by the proper party using its former name when adequate
identification is presented. - NM Rothschild & Sons (Australia) Limited vs. Lepanto
Consolidated Mining Company, G.R. No. 175799, November 28, 2011

BOARD OF DIRECTORS/CORPORATE OFFICERS

Except for the powers which are expressly conferred on it by the Corporation Code and those that
are implied by or are incidental to its existence, a corporation has no powers. Physical acts, like the
signing of documents, can be performed only by natural persons duly authorized for the purpose by
corporate bylaws or by a specific act of the board of directors. - Cebu Bionic Builders Supply, Inc.
and Lydia Sia vs. Development Bank of the Philippines, Jose To Chip, Patricio Yap and Roger
Balila, G.R. No. 154366, November 17, 2010

The requirement of the certification of non-forum shopping is rooted in the principle that a party-
litigant shall not be allowed to pursue simultaneous remedies in different fora, as this practice is
detrimental to an orderly judicial procedure. However, the Court has relaxed, under justifiable
circumstances, the rule requiring the submission of such certification considering that, although it
is obligatory, it is not jurisdictional. Not being jurisdictional, it can be relaxed under the rule of
substantial compliance. Thus, a President of a corporation, among other enumerated corporate
officers and employees, can sign the verification and certification against of non-forum shopping in
behalf of the said corporation without the benefit of a board resolution. - South Cotabato
Communications Corporation and Gauvain J. Benzonan vs. Hon. Patricia A. Sto. Tomas,
Secretary of Labor And Employment, Rolando Fabrigar, Merlyn Velarde, Vince Lamboc,

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Felipe Galindo, Leonardo Miguel, Julius Rubin, Edel Roderos, Merlyn Coliao and Edgar
Jopson, G.R. No. 173326, December 15, 2010
DERIVATIVE SUIT

A derivative suit cannot prosper without first complying with the legal requisites for its institution.
Thus, a complaint which contained no allegation whatsoever of any effort to avail of intra-corporate
remedies allows the court to dismiss it, even motu proprio. Indeed, even if petitioners thought it
was futile to exhaust intra-corporate remedies, they should have stated the same in the Complaint
and specified the reasons for such opinion. The requirement of this allegation in the Complaint is
not a useless formality which may be disregarded at will. - Nestor Ching and Andrew Wellington
vs. Subic Bay Golf And Country Club, Inc., Hu Ho Hsiu Lien alias Susan Hu, Hu Tsung Chieh
alias Jack Hu, Hu Tsung Hui, Hu Tsung Tzu and Reynald R. Suarez, G.R. No. 174353,
September 10, 2014

MERGER

FEBTC employees that were absorbed by petitioner upon the merger between FEBTC and BPI
should be covered by the Union Shop Clause found in the existing CBA between petitioner and
respondent Union. The Court believes that it is contrary to public policy to declare the former
FEBTC employees as forming part of the assets or liabilities of FEBTC that were transferred and
absorbed by BPI in the Articles of Merger. Assets and liabilities, should be deemed to refer only to
property rights and obligations of FEBTC and do not include the employment contracts of its
personnel. A corporation cannot unilaterally transfer its employees to another employer like
chattel. Even though FEBTC employees had no choice or control over the merger of their employer
with BPI, they had a choice whether or not they would allow themselves to be absorbed by BPI.
Employment is a personal consensual contract and absorption by BPI of a former FEBTC employee
without the consent of the employee is in violation of an individual’s freedom to contract. - Bank of
the Philippine Islands vs. BPI Employees Union-Davao Chapter-Federation of Unions in BPI
Unibank, G.R. No. 164301, August 10, 2010

SECURITIES AND REGULATIONS CODE

It is axiomatic that jurisdiction over the subject matter is conferred by law and is determined by the
allegations of the complaint or the petition irrespective of whether the plaintiff is entitled to all or
some of the claims or reliefs asserted therein. - Philippine Stock Exchange, Inc. vs. The Manila
Banking Corporation et.al, G.R. No. 147778. July 23, 2008

INTRA-CORPORATE CONTROVERSIES

Civil cases involving the inspection of corporate books are governed by the rules of procedure set
forth in the Interim Rules of Procedure for Intra-Corporate Controversies under Republic Act No.
8799 (Interim Rules). In order to assail the decision or order issued under the Interim order must
be sought from the appellate court to enjoin the enforcement or implementation of the decision or
order, and unless a restraining order is so issued, the decision or order rendered under the Interim
Rules shall remain to be immediately executory.

In the inspection of Corporate Books, the burden of proof lies with the corporation who
refuses to grant to the stockholder the right to inspect corporate records.

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Supervening events refer to facts which transpire after judgment has become final and executory or
to new circumstances which developed after the judgment has acquired finality, including matters
which the parties were not aware of prior to or during the trial as they were not yet in existence at
that time, a supervening event affects or changes the substance of the judgment and renders the
execution thereof inequitable, impossible or unjust. - Dee Ping Wee, Araceli Wee and Marina U.
Tan vs. Lee Hiong Wee and Rosalind Wee, G.R. No. 169345, August 25, 2010

BANKING LAWS

Banks, their business being impressed with public interest, are expected to exercise more care and
prudence than private individuals in their dealings, even those involving registered lands. The rule
that persons dealing with registered lands can rely solely on the certificate of title does not apply to
banks. - Philippine Trust Company (also known as Philtrust Bank) vs. Hon. Court of Appeals
and Forfom Development Corporation, G.R. No. 150318, November 22, 2010

Bangko Sentral ng Pilipinas placed Rural Bank of Tuba (RBTI) under receivership with the
Philippine Deposit Insurance Corporation as the receiver. Accordingly, PDIC filed a petition for
assistance in the liquidation of RBTI which was approved by the trial court. As an incident of the
proceeding, BIR intervened as one of the creditors of RBTI. BIR contends that a tax clearance is
required before the approval of project of distribution of the assets of a bank. In denying their
contention, the Court held the law expressly provides that debts and liabilities of the bank under
liquidation are to be paid in accordance with the rules on concurrence and preference of credit
under the Civil Code. With reference to the other real and personal property of the debtor,
sometimes referred to as “free property,” the taxes and assessments due the National Government,
other than those in Articles 2241(1) and 2242(1) of the Civil Code, such as the corporate income
tax, will come only in ninth place in the order of preference. If the BIR’s contention that a tax
clearance be secured first before the project of distribution of the assets of a bank under liquidation
may be approved, then the tax liabilities will be given absolute preference in all instances, including
those that do not fall under Articles 2241(1) and 2242(1) of the Civil Code. - Philippine Deposit
Insurance Corporation vs. Bureau Of Internal Revenue, G.R. No. 172892, June 13, 2013

INTELLECTUAL PROPERTY LAW

The conviction of Gemma for trademark infringement under Section 155 of Republic Act No. 8293,
as the counterfeit goods seized were not only found in her possession and control, but also in the
building registered under her business. The counterfeit cigarettes seized from Gemma’s possession
were intended to confuse and deceive the public as to the origin of the cigarettes intended to be
sold. - Gemma Ong a.k.a. Maria Teresa Gemma Catacutan vs. People of the Philippines, G.R.
No. 169440, November 23, 2011

NEGOTIABLE INSTRUMENTS LAW

Banks are engaged in a business impressed with public interest, and it is their duty to protect in
return their many clients and depositors who transact business with them. - Bank Of America NT
& SA vs. Philippine Racing Club, G.R. No. 150228, July 30, 2009

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