1.Feliciano vs. Commission on Audit, 419 SCRA 363, G.R. No.

147402 January 14, 2004

Facts:
COA’s Special Audit Team from COA Regional Office audited the accounts of Leyte Metropolitan Water
District(LMWD). LMWD has received a letter from COA for payment of auditing fees. Engr. Feliciano,
General Manager of LMWD and herein petitioner, sent a reply that said district could not pay said fees.
Also, Engr. Feliciano wrote COA asking for a refund on all auditing fees previously paid.
COA Chairman Celso Gangan denied the request. Petitioner filed this instant petition. Attached to the
petition were resolutions of the Visayas Association of Water Districts (VAWD) and the Philippine
Association of Water Districts (PAWD) supporting the petition.

The COA ruled that it has jurisdiction to audit over local water districts. The COA also denied
petitioner’s request for COA to stop charging auditing fees as well as petitioner’s request for COA to
refund all auditing fees already paid.

Issue:
1. Whether a Local Water District (“LWD”) created under PD 198, as amended, is a government-
owned or controlled corporation subject to the audit jurisdiction of COA;
2. WON LWDs are private or are not GOCCs with original charter.

Held:
1. YES. The Constitution and existing laws mandate COA to audit all government agencies,
including GOCCs with original charters. An LWD is a GOCC with an original charter. Section 2(1),
Article IX-D of the Constitution provides for COA’s audit jurisdiction. The COA’s audit jurisdiction
extends not only to government “agencies or instrumentalities,” but also to “government-owned and
controlled corporations with original charters” as well as “other government-owned or controlled
corporations” without original charters.
2. The Constitution recognizes two classes of corporations. The first refers to private corporations
created under a general law. The second refers to government-owned or controlled corporations
created by special charters. The Constitution emphatically prohibits the creation of private
corporations except by a general law applicable to all citizens. The purpose of this constitutional
provision is to ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens.
In short, Congress cannot enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law. Stated differently, only
corporations created under a general law can qualify as private corporations. Under existing laws,
that general law is the Corporation Code, except that the Cooperative Code governs the incorporation
of cooperatives.
The Constitution authorizes Congress to create government-owned or controlled corporations through
special charters. Since private corporations cannot have special charters, it follows that Congress
can create corporations with special charters only if such corporations are government-owned or
controlled.
Obviously, LWDs are not private corporations because they are not created under the Corporation
Code. LWDs are not registered with the Securities and Exchange Commission. Section 14 of the
Corporation Code states that “[A]ll corporations organized under this code shall file with the Securities
and Exchange Commission articles of incorporation x x x.” LWDs have no articles of incorporation,
no incorporators and no stockholders or members. There are no stockholders or members to elect
the board directors of LWDs as in the case of all corporations registered with the Securities and
Exchange Commission. The local mayor or the provincial governor appoints the directors of LWDs
for a fixed term of office. This Court has ruled that LWDs are not created under the Corporation
Code, thus:
LWDs exist by virtue of PD 198, which constitutes their special charter.

2. INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT
OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents.

FACTS:

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On June 30, 1989, petitioner International Express Travel and Tour Services, Inc., through its managing
director, wrote a letter to the Philippine Football Federation (Federation), through its president private
respondent Henri Kahn. The offer was accepted. The Federation made two partial payments for the
tickets with outstanding balance. A demand letter was given, and another partial payment was given,
still there is outstanding balance remaining. Thereafter, no further payments were made despite
repeated demands.

The petitioner filed a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in
his personal capacity and as President of the Federation and impleaded the Federation as an
alternative defendant. Henri Kahn filed his answer with counterclaim. While not denying the allegation
that the Federation owed the outstanding balance, he averred that the petitioner has no cause of action
against him either in his personal capacity or in his official capacity as president of the Federation,
being the latter having its own separate and distinct juridical personality. On the other hand, the
Federation failed to file its answer, hence, was declared in default by the trial court.

The trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn
personally liable for the unpaid obligation of the Federation. Being the President of defendant
Federation, its corporate existence is within the personal knowledge of defendant Henri Kahn.

Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent
court rendered a decision reversing the trial court, which recognized the juridical existence of the
Federation. It rationalized that since petitioner failed to prove that Henri Kahn guaranteed the obligation
of the Federation, he should not be held liable for the same as said entity has a separate and distinct
personality from its officers.

Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation
be held liable for the unpaid obligation. The same was denied by the appellate court in its resolution of
8 February 1995.

ISSUE: Whether or not Henry Kahn is personally liable notwithstanding the fact that the Federation has
its own separate entity.

RULING: The resolution of the case at bar hinges on the determination of the existence of the Philippine
Football Federation as a juridical person. In the assailed decision, the appellate court recognized the
existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as the
Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the
laws from which said Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical
existence of national sports associations. This may be gleaned from the powers and functions granted
to these associations.
While we agree with the appellate court that national sports associations may be accorded corporate
status, such does not automatically take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality, the State must give its
consent either in the form of a special law or a general enabling act. We cannot agree with the view of
the appellate court and the private respondent that the Philippine Football Federation came into
existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any
provision creating the Philippine Football Federation. These laws merely recognized the existence of
national sports associations and provided the manner by which these entities may acquire juridical
personality.
As stated in the laws, before an entity may be considered as a national sports association, such entity
must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under
R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact of
recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence
of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of
the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not
prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur
Athletic Federation or the Department of Youth and Sports Development. Accordingly, we rule that the
Philippine Football Federation is not a national sports association within the purview of the
aforementioned laws and does not have corporate existence of its own.

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That being said, it follows that private respondent Henry Kahn should be held liable for the unpaid
obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation
law that any person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and becomes personally liable for contract entered into or for other acts
performed as such agent. As president of the Federation, Henri Kahn is presumed to have known about
the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken
by the appellate court that even assuming that the Federation was defectively incorporated, the
petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt
with the Federation in such a manner as to recognize and in effect admit its existence. The doctrine of
corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application
of the doctrine applies to a third party only when he tries to escape liability on a contract from which he
has benefited on the irrelevant ground of defective incorporation. In the case at bar, the petitioner is
not trying to escape liability from the contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the
Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED.
SO ORDERED.

3. Magsaysay-Labrador vs. CA, 180 SCRA 266

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4. Sulo ng Bayan vs. Araneta

[GR L-31061, 17 August 1976

Facts: On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of
Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms Inc.,
National Waterworks & Sewerage Authority (NAWASA), Hacienda Caretas Inc., and the Register of Deeds of
Bulacan to recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan,
containing an area of 27,982,250 sqm. registered under the Torrens System in the name of Gregorio Araneta, Inc,
et. al.'s predecessors-in-interest, who are members of the corporation. On 2 September 1966, Gregorio
Araneta,Inc. filed a motion to dismiss the amended complaint on the grounds that the complaint states no cause
of action and that the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and
Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. NAWASA did not file any motion to
dismiss but pleaded in its answer the lack of cause of action by Sulo ng Bayan Inc. and the barring of such action
by prescription and laches. On 24 January 1967, the trial court issued an Order dismissing the amended complaint.
On 14 February 1967, Sulo ng Bayan filed a motion to reconsider the Order of dismissal, arguing that the
complaint states a sufficient cause of action because the subject matter of the controversy in one of common
interest to the members of the corporation who are so numerous that the present complaint should be treated as a
class suit. The motion was denied by the trial court in its Order dated 22 February 1967. Sulo ng Bayan appealed
to the Court of Appeals. On 3 September 1969, the Court of Appeals certified the case to the Supreme Court for
resolution of the legal issues involved in the controversy, since it is a question of law.

Issue: Whether the corporation may institute an action in behalf of its individual members for the recovery of
certain parcels of land allegedly owned by said members.

Held: A corporation is a distinct legal entity to be considered as separate and apart from the individual
stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions
of its stockholders or members. The property of the corporation is its property and not that of the stockholders, as
owners, although they have equities in it. Properties registered in the name of the corporation are owned by it as
an entity separate and distinct from its members. A corporation ordinarily has no interest in the individual property
of its stockholders unless transferred to the corporation. The mere fact that one is president of a corporation does
not render the property which he owns or possesses the property of the corporation, since the president, as
individual, and the corporation are separate entities. Similarly, stockholders in a corporation engaged in buying
and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the distribution
of the land of the corporation upon surrender of their stock certificates were considered not to have such legal or

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equitable title or interest in the land, as would support a suit for title, especially against parties other than the
corporation. It must be noted, however, that the juridical personality of the corporation, as separate and distinct
from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve
the ends of justice. This separate personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where
necessary to achieve equity. It has not been claimed that the members have assigned or transferred whatever rights
they may have on the land in question to the corporation. Absent any showing of interest, a corporation has no
personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering
property which belongs to said stockholders or members in their personal capacities. Thus, the appeal was
dismissed.

5. Bataan Shipyard & Engineering Co., Inc. vs. Presidential Commission on Good Government
No. L-75885, May 27, 1987.
FACTS: BASECO is a ship repair and ship building company incorporated as a domestic private
corporation on Aug. 30, 1972 by a consortium of Filipino ship owners and shipping executives. Its main
office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its
main shipyard is located at Mariveles, Bataan."Its Articles of Incorporation disclose that its authorized
capital stock is Php60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of
Php12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of
Php3,035,000.00 has been paid by the incorporators. The same articles identify the incorporators,
numbering fifteen. By 1986, however, of these fifteen incorporators, six had ceased to be stockholders.
As of 1986, there were twenty stockholders listed in BASECO's Stock and Transfer Book. When EO 1
& 2 was promulgated by Pres. Corazon Aquino and respectively the sequestration, takeover and other
orders in relation to the EO done by the PCGG to the alleged Marcos controlled corporation which is
BASECO. The problem arose when the sequestration order was initiated. The sequestration order was
directed to 3 commissioners of the PCGG directing them to sequester the following:

1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.
7. New Trident Management
8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo" Romualdez
And were ordered to do the following:
1. To implement this sequestration order with a minimum disruption of these companies' business
activities.
2. To ensure the continuity of these companies as going concerns, the care and maintenance of
these assets until such time that the Office of the President through the Commission on Good
Government should decide otherwise.
3. To report to the Commission on Good Government periodically. Further, you are authorized to
request for Military/Security Support from the Military/Police authorities, and such other acts essential
to the achievement of this sequestration order. Thereafter, the corporation was ordered by the PCGG
to produce certain documents such as:
1. Stock Transfer Book
2. Legal documents, such as:

2.1. Articles of Incorporation

2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986
2.4. Minutes of the Regular and Special Meetings of the Board of Directors from1973 to 1986
2.5. Minutes of the Executive Committee Meetings from 1973 to 1986
2.6. Existing contracts with suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding share/stockholdings from1973 to 1986 duly
certified by the Corporate Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to
December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31, 1986.
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6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the authorized signatories for withdrawals
thereof.
10. Schedule of company investments and placements.

Petitioner prays to the Court:

1) To declare unconstitutional and void Executive Orders Numbered 1 and 2;
2) To annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued
and acts done on the basis thereof, inclusive of the take over order of July 14, 1986 and the
termination of the services of the BASECO executives.
3) The production of certain document infringed the right against self-incrimination
4) and that PCGG unduly interfered with its management and affairs and right of dominion.

Argument of BASECO: First, no notice and hearing was accorded to it before its properties and
business were taken over; Second, the PCGG is not a court, but a purely investigative agency and
therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in
the issuances which envisions any proceeding, process or remedy by which petitioner may
expeditiously challenge the validity of the takeover after the same has been effected; and Fourthly,
being directed against specified persons, and in disregard of the constitutional presumption of
innocence and general rules and procedures, they constitute a Bill of Attainder."

ISSUE: Whether or not a corporation can avail the right against self-incrimination

HELD:
No, the contention lacks merit. It is elementary that the right against self-incrimination has no
application to juridical persons. "While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not follow that a corporation, vested with
special privileges and franchises, may refuse to show its hand when charged with an abuse of such
privileges. * *" At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14
assures protection to individuals required to produce evidence before the PCGG against any possible
violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of
testimony or information he is compelled to present. As amended, said Section 4 now provides that—
"* * * * 'The witness may not refuse to comply with the order on the basis of his privilege against self-
incrimination; but no testimony or other information compelled under the order (or any information
directly or indirectly derived from such testimony, or other information) may be used against the
witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise
failing to comply with the order." The constitutional safeguard against unreasonable searches and
seizures finds no application to the case at bar either. There has been no search undertaken by any
agent or representative of the PCGG, and of course no seizure on the occasion thereof.

6.LUXURIA HOMES, INC. vs. COURT OF APPEALS

FACTS: Petitioner Posadas and her two minor children co-owned a 1.6 hectare of property in Sucat,
Muntinlupa which was occupied by squatters. Petitioner entered into a negotiation with private
respondent Bravo regarding the development of the said property into a residential subdivision. With
written authorization, respondent buckled down to work and started negotiations with the squatters.
Seven months later, Petitioner and her two children through Deed of Assignment, assigned the said
property to Luxuria Homes, Inc. purportedly for organizational and tax avoidance purposes.
Respondent signed as one of the witnesses to the execution of the Deed of assignment and Articles of
Incorporation of Luxuria Homes.
Years later, the relationship of petitioner and respondent turned sour. Respondent demanded payment
for services rendered in connection with the development of the land, such as: relocation of squatters,
preparation of the architectural design and site development plan. Petitioner refuses to pay the amount
demanded. Private respondent James Builder Construction and Jaime Bravo instituted an action
against petitioner for specific performance. Respondent alleged that Posadas surreptitiously formed
Luxuria Homes and transferred the subject land to it to evade payment and defraud creditors, including

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respondent. The trial Court declared petitioner in default. It ordered petitioner Posadas jointly and in
solidum with Luxuria Homes to pay private respondent.

ISSUE: Whether or not Luxuria Homes can be held liable to private respondents for transaction entered
between petitioner Posadas and private respondent?

RULING: NO. The transfer was made at the time the relationship between petitioner and respondents
was supposedly very pleasant. It cannot be said that the incorporation of Luxuria Homes and eventual
transfer of the property to it were in fraud of private respondents as such were done with his full
knowledge. To disregard the separate juridical personality of corporation, the wrongdoing must be
clearly and convincingly established. It cannot be presumed.
Since respondent failed to show that Luxuria Homes was a party to any of the supposed transactions,
it cannot be held liable jointly and in solidum to pay respondent. In this case, it was petitioner Posadas
who contracted respondent to render the services mentioned, only she is liable to pay the amounts
adjudged therein.

7. CONCEPT BUILDERS, INC. vs. NLRC, G.R. No. 108734. May 29, 1996

FACTS:

Petitioner is a domestic corporation engaged in construction business. Private respondents were

employed by the said company as laborers, carpenters and riggers. Private respondents were served individual
written notices of termination of employment stating that their contracts of employment has expired and the
projects in which they were hired had been completed. Respondent however found out that at the time of
termination, the project in which they were hired had not yet finished and completed. Private respondent filed a
complaint for illegal dismissal. Labor Arbiter rendered a decision against the petitioner which was affirmed by
the NLRC. Labor Arbiter issued a writ of execution which was partially satisfied. The special sheriff recommended
that a break open order be issued to enable him to enter petitioner’s property.

Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to
be levied by the sheriff were owned Hydro Pipes Philippines, Inc. (HPPI) of which he is the vice president. Private
respondent alleged that HPPI and petitioner were owned by the same incorporators/stockholders. HPPI filed an
opposition to private respondents motion contending that HPPI is a corporation separate and distinct from
petitioner; that the doctrine of piercing the veil should not be applied in the absence of any showing that HPPI
was created in order to evade petitioner’s liability to private respondent.

ISSUE: Whether or not veil of corporate fiction should be pierced?

RULING:

YES. Under the law a corporation the separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice. So, when the notion of separate juridical personality is
used to defeat convenience and justify a wrong, protect fraud or defend a crime, this separate personality may
be disregarded. This is likewise true when the corporation is merely an adjunct business conduit or an alter ego
of another corporation. In the given case, petitioner claimed that it ceased its business operation on April 29,
1986, the same day when HPPI submitted an information sheet containing the same office address as that of
the petitioner. Clearly, petitioner ceased its operation business in order to evade the payment to respondent
backwages and to bar their reinstatement. HPPI is obviously a business conduit of petitioner orchestrated to
avoid the financial liability that is already attached to the petitioner.

8. VILLA REY TRANSIT, INC., plaintiff-appellant vs. FERRER, PANTRANCO and PSC, defendants-
appellants. PANTRANCO, third-party plaintiff-appellant, vs. VILLARAMA, third-party defendant-
appellee.
G.R. No. L-23893 October 29, 1968 ANGELES, J.:

FACTS: Jose Villarama was an operator of a bus transportation pursuant to two certificates of public convenience
granted him by the Public Service Commission (PSC). Later, he sold the certificates to the Pangasinan
Transportation Company, Inc. (Pantranco) with the condition that the seller (Villarama) "shall not for a period of
10 years, apply for any TPU service identical or competing with the buyer."
Barely three months thereafter, a corporation called Villa Rey Transit, Inc. (the Corporation) was
organized with a capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each;
P200,000.00 was the subscribed stock; Natividad Villarama (wife of Jose Villarama) was one of the incorporators,

6
and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and sister-in-law of
Jose Villarama; of the subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation,
Natividad.
In less than a month after its registration with the SEC, the Corporation bought five certificates of public
convenience and 49 buses from one Valentin Fernando. Later, the Sheriff of Manila levied on 2 of the 5
certificates, in favor of Eusebio Ferrer, judgment creditor, against Fernando, judgment debtor. A public sale was
conducted. Ferrer was the highest bidder. Ferrer sold the two certificates to Pantranco.
The Corporation filed a complaint against Ferrer, Pantranco and the PSC for the annulment of the sheriff's
sale. Pantranco, on its part, filed a third-party complaint against Villarama, alleging that Villarama and/or the
Corporation was disqualified from operating the two certificates in question by virtue of the previous agreement.
The trial court declared null and void the sheriff's sale of two certificates of public convenience in favor of Ferrer
and the subsequent sale thereof by the latter to Pantranco and declaring Villa Rey Transit, Inc., to be the lawful
owner of the said certificates of public convenience.
Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit, Inc.
(Corporation) is a distinct and separate entity from Villarama. Ferrer, for his part, challenges the decision insofar
as it holds that the sheriff's sale is null and void.

ISSUE: Whether the stipulation between Villarama and Pantranco binds Villa Rey Transit, Inc.?

RULING: The Supreme Court decision in is the affirmative. The restrictive clause in the contract entered into by
the Villarama and Pantranco is also enforceable and binding against the said Corporation. The rule is that a seller
or promisor may not make use of a corporate entity as a means of evading the obligation of his covenant. The
evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the Corporation, his wife,
however, was an incorporator and was elected treasurer of the Corporation. The evidence further shows that the
initial cash capitalization of the corporation was mostly financed by Villarama; he supplied the organization
expenses and the assets of the Corporation, such as trucks and equipment; there was no actual payment by the
original subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the books; Villarama made
use of the money of the Corporation and deposited them to his private accounts; and the Corporation paid his
personal accounts. The foregoing circumstances are strong persuasive evidence showing that Villarama has been
too much involved in the affairs of the Corporation to altogether negate the claim that he was only a part-time
general manager. They show beyond doubt that the Corporation is his alter ego.
The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders
who compose it is recognized and respected in all cases which are within reason and the law. When the fiction is
urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals.

9. FRANCISCO MOTORS CORP v CA, G.R. No. 100812. June 25, 1999

FACTS: Petitioner filed a complaint against private respondents to recover a sum of money the balance of the
jeep body purchased by the Manuels from petitioner In their answer, private respondents interposed a
counterclaim for unpaid legal services by Gregorio Manuel in the amount of 50K which was not paid by the
incorporators, directors and officers of the petitioner. Gregorio Manuel was petitioners Assistant Legal Officer,
he represented members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad.
Petitioner argued that being a corporation, it should not be held liable therefor because these fees were owed
by the incorporators, directors and officers of the corporation in their personal capacity as heirs of Benita Trinidad.
Petitioner stressed that the personality of the corporation, vis--vis the individual persons who hired the services
of private respondent, is separate and distinct, hence, the liability of said individuals did not become an obligation
chargeable against petitioner.
RTC: Ruled in favor of Gregorio Manuel.
CA: The personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases
where it is used as a cloak or cover for found illegality, or to work an injustice, or where necessary to achieve
equity or when necessary for the protection of creditors. (Corporations are composed of natural persons and the
legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity.
Hence this appeal
ISSUE: Whether or not the corporation should be held liable for the unpaid legal fees by its directors and officers
in their personal capacity.
HELD: No. Basic in corporation law is the principle that a corporation has a separate personality distinct from its
stockholders and from other corporations to which it may be connected. However, under the doctrine of piercing
[18]

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the veil of corporate entity, the corporations separate juridical personality may be disregarded, for example, when
the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime.
In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil
has no relevant application here. In the case at bar, instead of holding certain individuals or persons responsible
for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is being
ordered to answer for the personal liability of certain individual directors, officers and incorporators concerned.
Considering the nature of the legal services involved, whatever obligation said incorporators, directors and
officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of
a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the
corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its
corporate veil. While there are no hard and fast rules on disregarding separate corporate identity, we must always
be mindful of its function and purpose. A court should be careful in assessing the milieu where the doctrine of
piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may result from its
erroneous application.
The personality of the corporation and those of its incorporators, directors and officers in their personal capacities
ought to be kept separate in this case. The claim for legal fees against the concerned individual incorporators,
officers and directors could not be properly directed against the corporation without violating basic principles
governing corporations.

10. G.R. No. 142435 April 30, 2003, ESTELITA BURGOS LIPAT and ALFREDO LIPAT vs. PACIFIC
BANKING CORPORATION,
Facts:
Spouses Alfredo and Estelita Lipat, owned "Bela's Export Trading" (BET), a single proprietorship engaged in the
manufacture of garments for domestic and foreign consumption. The Lipats also owned the "Mystical Fashions"
in the US which sells goods imported from the Philippines through BET.
To facilitate the convenient operation of BET, Estelita executed SPA appointing Teresita, her daughter, to obtain
loans and other credit accommodations from respondent Pacific Bank. She also authorized Teresita to execute
mortgage contracts on properties owned or co-owned by her as security for the obligations.
A loan was secured and as security therefore a Real Estate Mortgage (REM) was executed over the property of
the spouses. Sometime after, BET was incorporated into a family corporation named Bela’s Export Corporation
(BEC) and the loan was restructured in its name. Subsequent loans were obtained in behalf of BEC all secured
by the previous REM. BEC defaulted in its payments which led to the foreclosure and sale of the mortgaged
property. The spouses moved to annul the sale alleging that BEC is a distinct and separate personality from
them and that the REM was executed only to secure BET’s loan. Both trial court and CA ruled to pierce the
corporate veil to hold petitioner spouses liable for BEC’s obligation.
Issue:
Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case.
Held:
YES.
We find that the evidence on record demolishes, rather than buttresses, petitioners’ contention that BET and
BEC are separate business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were
the owners of BET and were two of the incorporators and majority stockholders of BEC. It is also undisputed that
Estelita Lipat executed a special power of attorney in favor of her daughter, Teresita, to obtain loans and credit
lines from Pacific Bank on her behalf. Incidentally, Teresita was designated as executive-vice president and
general manager of both BET and BEC, respectively. It could not have been coincidental that BET and BEC are
so intertwined with each other in terms of ownership, business purpose, and management. Apparently, BET and
BEC are one and the same and the latter is a conduit of and merely succeeded the former. Petitioners’ attempt
to isolate themselves from and hide behind the corporate personality of BEC so as to evade their liabilities to
Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and
remedy.
In our view, BEC is a mere continuation and successor of BET, and petitioners cannot evade their obligations in
the mortgage contract secured under the name of BEC on the pretext that it was signed for the benefit and under
the name of BET. We are thus constrained to rule that the Court of Appeals did not err when it applied the
instrumentality doctrine in piercing the corporate veil of BEC.

11. TIMES TRANSPORTATION COMPANY, INC., petitioner, vs. SANTOS SOTELO

G.R. No. 163786 February 16, 2005 YNARES-SANTIAGO, J.:

FACTS: Petitioner Times Transportation Company, Inc. (Times) is a corporation engaged in the business of
land transportation. Prior to its closure in 1997, the Times Employees Union (TEU) was formed and issued a
certificate of union registration. Times challenged the legitimacy of TEU by filing a petition for the cancellation of
its union registration.

8
In a certification election held on July 1, 1997, TEU was certified as the sole and exclusive collective bargaining
agent in Times. Consequently, TEU’s president wrote the management of Times and requested for collective
bargaining. Times refused on the ground that the decision of the Med-Arbiter upholding the validity of the
certification election was not yet final and executory.
TEU filed a Notice of Strike on August 8, 1997. Another conciliation/mediation proceeding was conducted for the
purpose of settling the brewing dispute. In the meantime, Times’ management implemented a retrenchment
program and notices of retrenchment.

On October 17, 1997, TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged
participation in what it deemed was an illegal strike, Times terminated all the 123 striking employees by virtue of
two notices dated October 26, 1997 and November 24, 1997. On November 17, 1997, then DOLE Secretary
Quisumbing issued the second return-to-work order certifying the dispute to the NLRC. While the strike was
ended, the employees were no longer admitted back to work.

In the meantime, by December 12, 1997, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership
over Times’ Certificates of Public Convenience and a number of its bus units by virtue of several deeds of sale.4
Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority
stockholder of Times.

On May 21, 1998, the NLRC rendered a decision5 in the cases certified to it by the DOLE, the dispositive portion
of which read:
WHEREFORE, the respondents’ first strike, conducted from March 3, 1997 to March 12, 1997, is hereby declared
LEGAL; its second strike, which commenced on October 17, 1997, is hereby declared ILLEGAL. Consequently,
those … 23 persons who participated in the illegal strike … are deemed to have lost their employment status
and were therefore validly dismissed from employment: …
Times and TEU both appealed the decision of the NLRC, which the Court of Appeals affirmed on November 17,
2000.

NLRC DECISION: WHEREFORE, premises considered, judgment is hereby entered FINDING that the
dismissals of complainants, excluding the expunged ones, by respondent Times Transit (sic) Company, Inc.
effected, participated in, authorized or ratified by respondent Santiago Rondaris constituted the prohibited act of
unfair labor practice under Article 248(a) and (e) of the Labor Code, as amended and hence, illegal and that the
sale of said respondent company to respondents Mencorp Transport Systems Company (sic), Inc. and/or Virginia
Mendoza and Reynaldo Mendoza was simulated and/or effected in bad faith, ORDERING:The monetary award
amounted to P43,347,341.69.

On March 4, 2002, Times, Mencorp and the Spouses Mendoza submitted their respective memorandum of
appeal to the NLRC with motions to reduce the bond. Mencorp posted a P5 million bond issued by Security
Pacific Assurance Corp. (SPAC).

On April 30, 2002, the NLRC issued an order disposing of the said motion, thus: WHEREFORE, premises
considered, the Urgent Motion for Reduction of Bond is denied for lack of merit.

On May 18, 2002, Times moved to reconsider said order arguing mainly that it did not have sufficient funds to
put up the required bond. On July 26, 2002, Mencorp and the Spouses Mendoza posted an additional P10 million
appeal bond. Thus far, the total amount of bond posted was P15 million.

August 7, 2002, the NLRC granted the Motion for Reduction of Bond and approved the P10 million additional
appeal bond.

On September 17, 2002, the NLRC rendered its decision, stating:

WHEREFORE, the foregoing premises duly considered, the decision appealed from is hereby VACATED.

ISSUE: W/N NLRC COMMITTED A GRAVE ABUSE OF DISCRETION IN DELAYING THE RESOLUTION OF
TIMES MOTION FOR RECONSIDERATION, THAT NLRC UNNECESSARILY PROLONGED THE PERIOD OF
APPEAL.

W/N THE SALE OF TIMES TO TRANSPORTATION COMPANY INC. TO MENCORP TRANSPORT SYSTEM
INC IS VALID

HELD: 1.) YES. NLRC COMITTED A GRAVE ABUSE OF DISCRETION IN PROLONGING THE PERIOD OF
THE APPEAL.

Article 223 of the Labor Code provides that in case of a judgment involving a monetary award, an appeal by the
employer may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding
9
company duly accredited by the NLRC in the amount equivalent to the monetary award in the judgment appealed
from. The perfection of an appeal in the manner and within the period prescribed by law is not only mandatory
but also jurisdictional, and failure to perfect an appeal has the effect of making the judgment final and executory.

The records reveal that Times, Mencorp and the Spouses Mendoza’s motion to reduce the bond was denied
and the NLRC ordered them to post the required amount within an unextendible period of ten (10) days.21
However, instead of complying with the directive, Times filed another motion for reconsideration of the order of
denial. Several weeks later, Mencorp posted an additional bond, which was still less than the required amount.
Three (3) months after the filing of the motion for reconsideration, the NLRC reversed its previous order and
granted the motion for reduction of bond.1awphi1.nét

From the decision of the Labor Arbiter, it took the NLRC four months to rule on the "motion" for exemption to pay
bond and another four months to decide the merits of the case. This Court has repeatedly ruled that delay in the
settlement of labor cases cannot be countenanced. Not only does it involve the survival of an employee and his
loved ones who are dependent on him…, it also wears down the meager resources of the workers...
We agree with the Court of Appeals that the foregoing constitutes grave abuse of discretion on the part of the
NLRC. By delaying the resolution of Times’ motion for reconsideration, it has unnecessarily prolonged the period
of appeal. We have held that to extend the period of appeal is to prolong the resolution of the case, a
circumstance which would give the employer the opportunity to wear out the energy and meager resources of
the workers to the point that they would be constrained to give up for less than what they deserve in law.22 The
NLRC is well to take notice of our pronouncement in Santos v. Velarde:23
2.) NO. THE SALE OF TIMES TO TRANSPORTATION COMPANY INC. TO MENCORP TRANSPORT
SYSTEM INC IS INVALID/ VOID

We have held that piercing the corporate veil is warranted only in cases when the separate legal entity is used
to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two
corporations, the law will regard the corporations as merged into one.27 It may be allowed only if the following
elements concur: (1) control—not mere stock control, but complete domination—not only of finances, but of
policy and business practice in respect to the transaction attacked; (2) such control must have been used to
commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest
and an unjust act in contravention of a legal right; and (3) the said control and breach of duty must have
proximately caused the injury or unjust loss complained of.28
The following findings of the Labor Arbiter, which were cited and affirmed by the Court of Appeals, have not been
refuted by Times, to wit:
1. The sale was transferred to a corporation controlled by V. Mendoza, the daughter of respondent S. Rondaris
of [Times] where she is/was also a director, as proven by the articles of incorporation of [Mencorp];
2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza, Virginia R. Mendoza, Vernon
Gerard R. Mendoza, Vivian Charity R. Mendoza, Vevey Rosario R. Mendoza are all relatives of respondent S.
Rondaris;
3. The timing of the sale evidently was to negate the employees/complainants/members’ right to organization as
it was effected when their union (TEU) was just organized/requesting [Times] to bargain;
4. [Mencorp] never obtained a franchise since its supposed incorporation in 10 May 1994 but at present, all the
buses of [Times] are already being run/operated by respondent [Mencorp], the franchise of [Times] having been
transferred to it.29
THEREFORE, We uphold the findings of the labor arbiter and the Court of Appeals. The sale of Times’ franchise
as well as most of its bus units to a company owned by Rondaris’ daughter and family members, right in the
middle of a labor dispute, is highly suspicious. It is evident that the transaction was made in order to remove
Times’ remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases
filed against it.

12. G.R. No. 168306 June 19, 2007

Yao, Sr. v People of the Philippines
FACTS:
On 3 April 2003, NBI agent Oblanca filed two applications for search warrant with the RTC against
petitioners and other occupants of the MASAGANA compound for alleged violation of Section 155, in
relation to Section 170 of Republic Act No. 8293 or "The Intellectual Property Code of the Philippines."
The applications alleged that the petitioners are actually producing, selling, offering for sale and/or
distributing LPG products using steel cylinders owned by, and bearing the tradenames, trademarks,
and devices of Petron and Pilipinas Shell, without authority.
A search warrants were issued. Petitioners filed with the RTC a Motion to Quash the Search Warrants.
MASAGANA, as third party claimant, filed with the RTC a Motion for the Return of Motor Compressor
and LPG Refilling Machine, which were seized. The RTC denied both Motions. The RTC resolved that
MASAGANA cannot be considered a third party claimant whose rights were violated as a result of the
10
seizure since the evidence disclosed that petitioners are stockholders of MASAGANA and that they
conduct their business through the same juridical entity. Upon appeal, the CA affirmed RTC’s decision.
Petitioners filed a Motion for Reconsideration was denied. Hence, the petition.
ISSUE:
Whether or not the CA erred in ruling that the complaint is directed against MASAGANA, acting through
its officers and directors, hence MASAGANA may not be considered as third party claimant whose
rights were violated as a result of the seizure.
RULING:
No. It is an elementary and fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders, directors or officers. However, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons, or in the case of two corporations merge them into
one. In other words, the law will not recognize the separate corporate existence if the corporation is
being used pursuant to the foregoing unlawful objectives. This non-recognition is sometimes referred
to as the doctrine of piercing the veil of corporate entity or disregarding the fiction of corporate entity.
Where the separate corporate entity is disregarded, the corporation will be treated merely as an
association of persons and the stockholders or members will be considered as the corporation, that is,
liability will attach personally or directly to the officers and stockholders.
Here, the petitioners, as directors/officers of MASAGANA, are utilizing the latter in violating the
intellectual property rights of Petron and Pilipinas Shell. Thus, petitioners collectively and MASAGANA
should be considered as one and the same person for liability purposes.
Further, it is apparent that the motor compressor, LPG refilling machine and the GASUL and SHELL
LPG cylinders seized were the corpus delicti, the body or substance of the crime, or the evidence of
the commission of trademark infringement. It is possible that, if returned to MASAGANA, these items
will be used again in violating the intellectual property rights of Petron and Pilipinas Shell. Thus, the
RTC was justified in denying the petitioners’ motion for their return so as to prevent the petitioners
and/or MASAGANA from using them again in trademark infringement.
The petition is denied.

13. Hall vs. Piccio, 86 Phil 603

G.R. No. L-2598 June 29, 1950
C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs. EDMUNDO S. PICCIO, Judge of the Court of First
Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far
Eastern Lumber and Commercial Co., Inc.,respondents.

FACTS:
Petitioners and the respondents signed, the article of incorporation of the Far Eastern Lumber and
Commercial Co., Inc., organized to engage in a general lumber business to carry on as general contractors,
operators and managers, etc. Immediately after the execution of said articles of incorporation, the
corporation proceeded to do business. Subsequently, the said articles of incorporation were filed in the office
of the SEC for the issuance of the corresponding certificate of incorporation. Pending action, the respondents
filed before the Court alleging among other things that the Company was an unregistered partnership; that
they wished to have it dissolved because of bitter dissension among the members, mismanagement, fraud and
heavy financial losses. The court ordered the dissolution of the company. In the present special civil action the
petitioners argued: that the court had no jurisdiction to decree the dissolution of the company, because it
being a de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted
in accordance with section 19 of the Corporation Law; that inasmuch as respondents Fred Brown and Emma
Brown had signed the article of incorporation but only a partnership.
ISSUE (1):
Does a corporation exist in this case?
RULING:

11
No. All the parties are informed that the SEC has yet issued the corresponding certificate of incorporation. All
of them ought to know, that the personality of a corporation begins to exist only from the moment such
certificate is issued — not before (sec. 11, Corporation Law). The complaining associates have not represented
to the others that they were incorporated any more than the latter had made similar representations to them.
And as nobody was led to believe anything to his prejudice and damage, the principle of estoppel does not
apply. This is not an instance requiring the enforcement of contracts with the corporation through the rule of
estoppel.
ISSUE (2):
Was the court bereft of jurisdiction to decree the dissolution?
RULING:
No. The contention of the petitioners is premised on the theory that, inasmuch as the Company is a de facto
corporation, section 19 of the Corporation Law applies, and therefore the court had no jurisdiction to take
cognizance of said case. Section 19 reads as follows:
. . . The due incorporation of any corporations claiming in good faith to be a corporation under
this Act and its right to exercise corporate powers shall not be inquired into collaterally in any private suit to
which the corporation may be a party, but such inquiry may be had at the suit of the Insular Government on
information of the Attorney-General.
However, this section does not govern the situation. Not having obtained the certificate of incorporation, the
Company — even its stockholders — may not probably claim "in good faith" to be a corporation. The
immunity of collateral attack is granted to corporations "claiming in good faith to be a corporation under this
act." Unless there has been an evident attempt to comply with the law, the claim to be a corporation "under
this act" could not be made "in good faith."

14. Seventh Day Adventist vs. Northeastern Mindanao Mission, July 21, 2006, GR 150416
Facts
On April 21, 1959, Felix Cosio and his wife, Felisa Cuysona donated their land to the South Philippine
Union Mission of Seventh Day Adventist Church of Bayugan (SPUM-SDA Baguyan). The donation was
allegedly accepted by Liberato Rayos, an elder of the Seventh Day Adventist Church.
However, after 21 years, the same parcel of land was sold by the spouses Cosio to the Seventh Day
Adventist Church of Northeastern Mindanao Mission (SDA-NEMM).
Petitioners were claiming ownership over the property as donees. This was opposed by respondents who
argued that at the time of the donation, SPUM-SDA Bayugan could not legally be a donee because, not having
incorporated yet, it had no juridical personality. Neither were petitioners members of the local church then, hence,
the donation could not have been made particularly to them.
Petitioners filed suit for cancellation of title, quieting of ownership and possession, declaratory relief and
reconveyance with prayer for preliminary injunction and damages. The RTC ruled upholding the sale in favor of
respondents.
The CA affirmed the RTC decision but deleted award of moral damages and attorney’s fees.
Issue
Should the Seventh Day Adventist Church of Northeastern Mindanao Mission’s ownership of the lot be
upheld?
Ruling
Yes. Transfer of ownership from the spouses Cosio to SDA-NEMM was made upon constructive delivery
of the property on February 28, 1980 when the sale was made through a public instrument. TCT No. 4468 was
thereafter issued and it remains in the name of SDA-NEMM.
Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership of
a property may be transferred by tradition as a consequence of a sale.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another person who accepts it. The donation could not have been made in favor of an entity yet inexistent at the
time it was made. Nor could it have been accepted as there was yet no one to accept it.
In the case at bar, the SPUM-SDA Bayugan at the time of donation had neither juridical personality nor
capacity to accept such gift.

12
 Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation.
But there are stringent requirements before one can qualify as a de facto corporation:
(a) The existence of a valid law under which it may be incorporated;
(b) An attempt in good faith to incorporate; and
(c) Assumption of corporate powers.
The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the
existence of a de facto corporation. We have held that an organization not registered with the SEC cannot be
considered a corporation in any concept, not even as a corporation de facto. Petitioners themselves admitted that
at the time of the donation, they were not registered with the SEC.
No certificate of incorporation was ever issued to petitioners at the time of the donation. Neither could the
principle of separate juridical personality apply since there was never any corporation to speak of. And some of
the representatives of petitioner were not even members of the local church then, thus, they could not even claim
that the donation was particularly for them.
In view of the foregoing, petitioners arguments anchored on their supposed de facto status hold no water.
We are convinced that there was no donation to petitioners or their supposed predecessor-in-interest.

15. LIM TONG LIM VS. CA and PHILIPPINE FISHING GEAR INDUSTRIES

Facts:
Lim Tong Lim requested Peter Yao and Antonio Chuato engage in commercial fishing with him. The
three agreed to purchase two fishing boats but since they do not have the money they borrowed from
one Jesus Lim the brother of Lim Tong Lim. Subsequently, they again borrowed money for the purchase
of fishing nets and other fishing equipments. Yao and Chua represented themselves as acting in behalf
of “Ocean Quest Fishing Corporation” (OQFC) and they contracted with Philippine Fishing Gear
Industries (PFGI) for the purchase of fishing nets amounting to more than P500k. However, they were
unable to pay PFGI and hence were sued in their own names as Ocean Quest Fishing Corporation is
a non-existent corporation. Chua admitted his liability while Lim Tong Lim refused such liability alleging
that Chua and Yao acted without his knowledge and consent in representing themselves as a
corporation.
Issue:
Whether or not petitioner is also liable under the Doctrine of Corporation by Estoppel.
Ruling:
Yes, the doctrine of corporation by estoppel proves that petitioner is liable along with Chua and Yao
when they formed an ostensible corporstion.
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That when any such ostensible corporation
is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall
not be allowed to use as a defense its lack of corporate personality.
A third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation
and received benefits from it, may be barred from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who benefited from the transaction made by the
ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they
impliedly assented to or took advantage of.

16. INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT
OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents.

FACTS:

On June 30, 1989, petitioner International Express Travel and Tour Services, Inc., through its managing
director, wrote a letter to the Philippine Football Federation (Federation), through its president private
respondent Henri Kahn. The offer was accepted. The Federation made two partial payments for the
tickets with outstanding balance. A demand letter was given, and another partial payment was given,
still there is outstanding balance remaining. Thereafter, no further payments were made despite
repeated demands.

13
The petitioner filed a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in
his personal capacity and as President of the Federation and impleaded the Federation as an
alternative defendant. Henri Kahn filed his answer with counterclaim. While not denying the allegation
that the Federation owed the outstanding balance, he averred that the petitioner has no cause of action
against him either in his personal capacity or in his official capacity as president of the Federation,
being the latter having its own separate and distinct juridical personality. On the other hand, the
Federation failed to file its answer, hence, was declared in default by the trial court.

The trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn
personally liable for the unpaid obligation of the Federation. Being the President of defendant
Federation, its corporate existence is within the personal knowledge of defendant Henri Kahn.

Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent
court rendered a decision reversing the trial court, which recognized the juridical existence of the
Federation. It rationalized that since petitioner failed to prove that Henri Kahn guaranteed the obligation
of the Federation, he should not be held liable for the same as said entity has a separate and distinct
personality from its officers.

Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation
be held liable for the unpaid obligation. The same was denied by the appellate court in its resolution of
8 February 1995.

ISSUE:
Whether or not Henry Kahn is personally liable notwithstanding the fact that the Federation has
its own separate entity.

RULING:
The resolution of the case at bar hinges on the determination of the existence of the Philippine Football
Federation as a juridical person. In the assailed decision, the appellate court recognized the existence
of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as the Revised
Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws
from which said Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical
existence of national sports associations. This may be gleaned from the powers and functions granted
to these associations.
While we agree with the appellate court that national sports associations may be accorded corporate
status, such does not automatically take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality, the State must give its
consent either in the form of a special law or a general enabling act. We cannot agree with the view of
the appellate court and the private respondent that the Philippine Football Federation came into
existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any
provision creating the Philippine Football Federation. These laws merely recognized the existence of
national sports associations and provided the manner by which these entities may acquire juridical
personality.
As stated in the laws, before an entity may be considered as a national sports association, such entity
must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under
R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact of
recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence
of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of
the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not
prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur
Athletic Federation or the Department of Youth and Sports Development. Accordingly, we rule that the
Philippine Football Federation is not a national sports association within the purview of the
aforementioned laws and does not have corporate existence of its own.
That being said, it follows that private respondent Henry Kahn should be held liable for the unpaid
obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation
law that any person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and becomes personally liable for contract entered into or for other acts
performed as such agent. As president of the Federation, Henri Kahn is presumed to have known about
14
the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken
by the appellate court that even assuming that the Federation was defectively incorporated, the
petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt
with the Federation in such a manner as to recognize and in effect admit its existence. The doctrine of
corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application
of the doctrine applies to a third party only when he tries to escape liability on a contract from which he
has benefited on the irrelevant ground of defective incorporation. In the case at bar, the petitioner is
not trying to escape liability from the contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the
Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED.
SO ORDERED.

17. .FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND
EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and
ANGELITA F. AGO, respondents.

FACTS: Expos is a radio documentary program hosted by Carmelo Mel Rima (Rima) and Hermogenes
Jun Alegre (Alegre). Expos is aired every morning over DZRC-AM which is owned by Filipinas
Broadcasting Network, Inc. (FBNI).

With the supposed exposs, FBNI, Rima and Alegre transmitted malicious imputations, and as such,
destroyed plaintiffs (AMEC and Ago) reputation. Thus, AMEC and Angelita Ago (Ago), as Dean of
AMECs College of Medicine, filed a complaint for damages against FBNI, Rima and Alegre.

AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the
selection and supervision of its employees, particularly Rima and Alegre.

The trial court rendered a decision finding FBNI and Alegre liable for libel except Rima, it ordered
them to pay AMEC, among others, some determinate moral damages.

On appeal to the Court of Appeals (CA), the CA affirmed the trial courts judgment with modification.
The CA made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for
damages and attorneys fees because the broadcasts were directed against AMEC, and not against
her.

In its petition for review before the Supreme Court, one of the issues raised by FBNI is whether
AMEC is entitled to moral damages contending that it is not entitled because it is a corporation.

ISSUES: Whether or not AMEC, as a corporation, is entitled to moral damages?

HELD: Yes. A juridical person is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering or such sentiments as wounded feelings, serious
anxiety, mental anguish or moral shock.

In the case of Mambulao Lumber Co. v. PNB, et al., the Supreme Court held that a corporation may
have a good reputation which, if besmirched, may also be a ground for the award of moral damages.

Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 of the Civil Code.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any
other form of defamation. Article 2219 does not qualify whether the plaintiff is a natural or juridical
person. Therefore, a juridical person such as a corporation can validly complain for libel or any other
form of defamation and claim for moral damages.

Clearly, AMEC is entitled to moral damages.

18. COASTAL PACIFIC TRADING, INC. vs. SOUTHERN ROLLING MILLS CO.

15
FACTS: Respondent was renamed into Visayan Integrated Steel Corporation (VISCO) engaged
in steel processing business. VISCO obtained a loan from Development Bankof the Philippines (DBP)
which was secured by a real estate mortgage covering VISCO’s three parcels of land including the
machinery and equipments therein. VISCO entered into a second loan with respondent banks
(Consortium) to finance itsimportation for various raw materials. VISCO executed a second mortgage
over the previous properties mentioned, however they were unrecorded. VISCO was unable to pay its
second mortgage with the consortium, which resulted in the latter acquiring 90% of the equity of VISCO,
giving them the control and management of VISCO. Despite the acquisition, VISCO remained indebted
to Consortium. VISCO entered into a processing agreement with petitioner wherein petitioner delivered
3,000 metric tons of hot rolled steel coils which VISCO would process into block iron sheet. VISCO was
only able to return 1,600 metric tons. To pay for its mortgage with DBP, VISCO sold 2 of its generators
to FILMAG. DBP executed a deed of assignment of mortgage in favor of consortium. Consortium
foreclosed the mortgage and was the highest bidder. Consortium later sold the properties to National
Steel Corporation. Petitioner filed civil action for annulment of sale, damage with preliminary injunction.
Petitioner imputes bad faith on the action of the Consortium, the latter being able to sell the properties
of VISCO despite attachment of the properties, placing them beyond the reach of VISCO’s other
creditors.
ISSUE: Whether or not petitioner is entitled to moral damages?
HELD: No. As a rule, a corporation is not entitled to moral damages because, not being a natural
person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety,
mental anguish and moral shock. The only exception to this rule is when the corporation has a good
reputation that is debased, resulting in its humiliation in the business realm. In the present case, the
records do not show any evidence that the name or reputation of petitioner has been sullied as a result
of the Consortium’s fraudulent acts. Accordingly, moral damages are not warranted. Petitioner was able
to recover exemplary damages.

19. LYCEUM OF PHILIPPINES v. CA, 219 SCRA 612, March 5, 1993

Petitioner, Lyceum of the Philippines, an educational institution registered with the Securities
and Exchange Commission on 21 September 1950. Petitioner used such corporate name ever since.
Petitioner filed a case against private respondent, Lyceum of Baguio, Inc. before the SEC to change its
corporate name and to adopt another name not "similar or identical" with that of petitioner. SEC held
that the corporate name of petitioner and that of the Lyceum of Baguio, Inc. were substantially identical
because of the presence of a "dominant" word, i.e., "Lyceum," the name of the geographical location
of the campus being the only word which distinguished one from the other corporate name. The SEC
also noted that petitioner had registered as a corporation ahead of the Lyceum of Baguio, Inc. in point
of time, and ordered the latter to change its name to another name "not similar or identical with" the
names of previously registered entities. Lyceum of Baguio filed petition for certiorari but was denied for
lack of merit.

On appeal by private respondents to the SEC En Banc, the decision of the hearing officer was reversed
and set aside. The SEC En Banc did not consider the word "Lyceum" to have become so identified with
petitioner as to render use thereof by other institutions as productive of confusion about the identity of
the schools concerned in the mind of the general public. Unlike its hearing officer, the SEC En Banc
held that the attaching of geographical names to the word "Lyceum" served sufficiently to distinguish
the schools from one another, especially in view of the fact that the campuses of petitioner and those
of the private respondents were physically quite remote from each other. Petitioner then went on appeal
to the Court of Appeals. However, the Court of Appeals affirmed the decision of the SEC En Banc.

ISSUES:
1. WON the corporate names of the parties are identical with or deceptively similar to that of the
petitioner

16
2. WON the use by the Lyceum of the Philippines of the word Lyceum in its corporate name has been
for such length of time and with such exclusivity as to have become associated or identified with the
petitioner institution in the mind of the general public (Doctrine of Secondary meaning).

RULING:

1. No. The policy underlying the prohibition in Section 18 against the registration of a corporate name
which is "identical or deceptively or confusingly similar" to that of any existing corporation or which is
"patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon
the public which would have occasion to deal with the entity concerned, the evasion of legal obligations
and duties, and the reduction of difficulties of administration and supervision over corporations.

We do not consider that the corporate names of private respondent institutions are "identical with, or
deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names
of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively
precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that
the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that
the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines.

2. No. Petitioner did not present evidence, which provided that the word “Lyceum” acquired secondary
meaning. The petitioner failed to adduce evidence that it had exclusive use of the word. Even if
petitioner used the word for a long period of time, it had not acquired any secondary meaning in its
favor because the appellant failed to prove that it had been using the same word all by itself to the
exclusion of others.

20.Ang mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, HSK sa Bansang Pilipinas Inc. vs.
Iglesia ng Dios kay Cristo Jesus, Haligi at Suhay ng Katotohanan
[GR 137592, 12 December 2001]

Facts:
The Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (IDCJ-HSK; Church of God in
Christ Jesus, the Pillar and Ground of Truth), is a non-stock religious society or corporation registered
in 1936. Sometime in 1976, one Eliseo Soriano and several other members of said corporation
disassociated themselves from the latter and succeeded in registering on March 30,1977 a new non-
stock religious corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan
(IDKJ-HSK). On July 16, 1979, IDCJ-HSK filed with the SEC a petition to compel IDKJ-HSK to change
its corporate name. SEC rendered judgment in favor of IDCJ-HSK, ordering IDKJ-HSK to change its
corporate name to another name that is not similar or identical to any name already used by a
corporation, partnership or association registered with the Commission. No appeal was taken from said
decision.
During the pendency case in SEC, Soriano, et al., caused the registration on April 25, 1980 of Ang Mga
Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas (AK[IDKH-HSK]BP). The
acronym "H.S.K." stands for Haligi at Saligan ng Katotohanan. On March 2, 1994, IDCJ-HSK filed
before the SEC a petition praying that AK[IDKH-HSK]BP be compelled to change its corporate name
and be barred from using the same or similar name on the ground that the same causes confusion
among their members as well as the public. KIDKH-HSK-BP filed a motion to dismiss on the ground of
lack of cause of action. The motion to dismiss was denied. Thereafter, for failure to file an answer,
AK[IDKH-HSK]BP was declared in default and IDCJ-HSK was allowed to present its evidence ex parte.
On November 20, 1995, the SEC rendered a decision ordering AK[IDKH-HSK]BP to change its
corporate name. AK[IDKH-HSK]BP appealed to the SEC En Banc (SEC-AC 539). In a decision dated
4 March 1996, the SEC En Banc affirmed the above decision, upon a finding that AK[IDKH-HSK]BP's
corporate name was identical or confusingly or deceptively similar to that of IDCJ-HSK's corporate
name. AK[IDKH-HSK]BP filed a petition for review with the Court of Appeals. The Court of Appeals
rendered the decision affirming the decision of the SEC En Banc. Motion for reconsideration was denied
by the Court of Appeals hence this petition for review.

Issue: Whether the corporate names of AK[IDKH-HSK]BP and IDCH-HSK are confusingly similar.

Held: The SEC has the authority to de-register at all times and under all circumstances corporate names
which in its estimation are likely to spawn confusion. It is the duty of the SEC to prevent confusion in
17
the use of corporate names not only for the protection of the corporations involved but more so for the
protection of the public. Section 18 of the Corporation Code provides that "No corporate name may be
allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively
or confusingly similar to that of any existing corporation or to any other name already protected by law
or is patently deceptive, confusing or is contrary to existing laws. When a change in the corporate name
is approved, the Commission shall issue an amended certificate of incorporation under the amended
name." Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states that
"(d) If the proposed name contains a word similar to a word already used as part of the firm name or
style of a registered company, the proposed name must contain two other words different from the
name of the company already registered; Parties organizing a corporation must choose a name at their
peril; and the use of a name similar to one adopted by another corporation, whether a business or a
nonprofit organization, if misleading or likely to injure in the exercise of its corporate functions,
regardless of intent, may be prevented by the corporation having a prior right, by a suit for injunction
against the new corporation to prevent the use of the name.
Herein, the additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in AK[IDKH-HSK]BP's
name are merely descriptive of and also referring to the members, or kaanib, of IDCH-HSK who are
likewise residing in the Philippines. These words can hardly serve as an effective differentiating medium
necessary to avoid confusion or difficulty in distinguishing AK[IDKH-HSK]BP from IDCH-HSK. This is
especially so, since both AK[IDKH-HSK]BP and IDCH-HSK are using the same acronym — H.S.K.; not
to mention the fact that both are espousing religious beliefs and operating in the same place.
Parenthetically, it is well to mention that the acronym H.S.K. used by AK[IDKH-HSK]BP stands for
"Haligi at Saligan ng Katotohanan." Then, too, the records reveal that in holding out their corporate
name to the public, AK[IDKH-HSK]BP highlights the dominant words "IGLESIA NG DIOS KAY KRISTO
HESUS, HALIGI AT SALIGAN NG KATOTOHANAN," which is strikingly similar to IDCH-HSK's
corporate name, thus making it even more evident that the additional words "Ang Mga Kaanib" and "Sa
Bansang Pilipinas, Inc.", are merely descriptive of and pertaining to the members of IDCH-HSK.
Significantly, the only difference between the corporate names of AK[IDKH-HSK]BP and IDCH-HSK
are the words SALIGAN and SUHAY. These words are synonymous — both mean ground, foundation
or support. Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile Mills,
Inc., 22 where the Court ruled that the corporate names Universal Mills Corporation and Universal
Textile Mills, Inc., are undisputably so similar that even under the test of "reasonable care and
observation" confusion may arise.
Wherefore, in view of all foregoing, the instant petition for review was DENIED. And the decision of the
Court of Appeals AFFIRMED.

21. [G.R. No. 122174. October 3, 2002]

INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES, petitioner, vs. COURT OF
APPEALS, SECURITIES AND EXCHANGE COMMISSION and REFRACTORIES CORPORATION
OF THE PHILIPPINES, respondents.
Facts: This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
Decision of the Court of Appeals in CA-G.R. SP No. 35056, denying due course and dismissing the
petition filed by Industrial Refractories Corp. of the Philippines (IRCP).
Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly organized on
October 13, 1976 for the purpose of engaging in the business of manufacturing, producing, selling,
exporting and otherwise dealing in any and all refractory bricks, its by-products and derivatives. On
June 22, 1977, it registered its corporate and business name with the Bureau of Domestic Trade.
Petitioner IRCP on the other hand, was incorporated on August 23, 1979 originally under the name
Synclaire Manufacturing Corporation. It amended its Articles of Incorporation on August 23, 1985 to
change its corporate name to Industrial Refractories Corp. of the Philippines. It is engaged in the
business of manufacturing all kinds of ceramics and other products, except paints and zincs. Both
companies are the only local suppliers of monolithic gunning mix.
Discovering that petitioner was using such corporate name, respondent RCP filed on April 14, 1988
with the Securities and Exchange Commission (SEC) a petition to compel petitioner to change its
corporate name on the ground that its corporate name is confusingly similar with that of petitioners such
that the public may be confused or deceived into believing that they are one and the same corporation.
The SEC decided in favor of respondent RCP and rendered judgment on July 23, 1993 declaring the
latters corporate name Industrial Refractories Corporation of the Philippines as deceptively and
confusingly similar to that of petitioners corporate name Refractories Corporation of the Philippines.
Accordingly, respondent is hereby directed to amend its Articles of Incorporation by deleting the name

18
Refractories Corporation of the Philippines in its corporate name within thirty (30) days from finality of
this Decision. Likewise, respondent is hereby ordered to pay the petitioner the sum of P50,000.00 as
attorneys fees.
Petitioner appealed to the SEC En Banc, arguing that it does not have any jurisdiction over the case,
and that respondent RCP has no right to the exclusive use of its corporate name as it is composed of
generic or common words.
In its Decision dated July 23, 1993, the SEC En Banc modified the appealed decision in that petitioner
was ordered to delete or drop from its corporate name only the word Refractories.
ISSUES:
(1) Whether or not the SEC has jurisdiction to hear and decide the case at bar;
(2) Whether or not there is confusing similarity between the corporate names of the petitioner and the
defendant; and
HELD:
(1) The jurisdiction of the SEC is not merely confined to the adjudicative functions provided in Section
5 of P.D. 902-A, as amended. By express mandate, it has absolute jurisdiction, supervision and control
over all corporations. It also exercises regulatory and administrative powers to implement and enforce
the Corporation Code, one of which is Section 18, which provides:
“SEC. 18. Corporate name. — No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or contrary
to existing laws. When a change in the corporate name is approved, the Commission shall issue an
amended certificate of incorporation under the amended name.”

It is the SEC’s duty to prevent confusion in the use of corporate names not only for the protection of
the corporations involved but more so for the protection of the public, and it has authority to de-register
at all times and under all circumstances corporate names which in its estimation are likely to generate
confusion. Clearly therefore, the present case falls within the ambit of the SEC’s regulatory powers.
(2) Yes, there is confusing or deceptive similarity between petitioner and respondent RCP’s corporate
names. As held in Philips Export B.V. vs. Court of Appeals, to fall within the prohibition of the law, two
requisites must be proven, to wit:
(1) that the complainant corporation acquired a prior right over the use of such corporate
name; and
(2) the proposed name is either: (a) identical, or (b) deceptively or confusingly similar to that
of any existing corporation or to any other name already protected by law; or (c) patently deceptive,
confusing or contrary to existing law.
As regards the first requisite, it has been held that the right to the exclusive use of a corporate name
with freedom from infringement by similarity is determined by priority of adoption. In this case,
respondent RCP was incorporated on October 13, 1976 and since then has been using the corporate
name “Refractories Corp. of the Philippines”. Meanwhile, petitioner was incorporated on August 23,
1979 originally under the name “Synclaire Manufacturing Corporation”. It only started using the name
“Industrial Refractories Corp. of the Philippines” when it amended its Articles of Incorporation on August
23, 1985, or nine (9) years after respondent RCP started using its name. Thus, being the prior
registrant, respondent RCP has acquired the right to use the word “Refractories” as part of its corporate
name.
Anent the second requisite, in determining the existence of confusing similarity in corporate names, the
test is whether the similarity is such as to mislead a person using ordinary care and discrimination and
the Court must look to the record as well as the names themselves. Petitioner’s corporate name is
“Industrial Refractories Corp. of the Phils.”, while respondent’s is “Refractories Corp. of the
Phils.” Obviously, both names contain the identical words “Refractories”, “Corporation” and
“Philippines”. The only word that distinguishes petitioner from respondent RCP is the word “Industrial”
which merely identifies a corporation’s general field of activities or operations. It must be noted that
both cater to the same clientele, i.e.¸ the steel industry. And even without proof of actual confusion
between the two corporate names, it suffices that confusion is probable or likely to occur.

22. JG Summit Holdings, Inc. vs Court of Appeals

412 SCRA 10
PUNO, J.:

A joint venture (JVA) was entered by a government corporation, National Investment and Development
Corporation (NIDC) with a Japanese corporation, Kawasaki Heavy Industries, Ltd. for a shipyard

19
business, Philippine Shipyard and Engineering Corporation (PHILSECO), with an agreement of a
shareholding proportion of 60%-40 respectively and a right of first refusal to Kawasaki. Thereafter,
NIDC transferred all its rights, title and interest to the Philippine National Bank (PNB). After several
months, by virtue of Administrative Order 14, PNB's interest in PHILSECO was transferred to the
National Government. Then President Aquino’s Proclamation No. 50 was issued establishing the
Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title to and
possession of, conserve, manage and dispose of non-performing assets of the National Government.
A trust agreement was entered into between the National Government and the APT by virtue of which
the latter was named the trustee of the National Government's share in PHILSECO. As a result of a
quasi-reorganization of PHILSECO to settle its huge obligations to PNB, the National Government's
shareholdings in PHILSECO increased to 97.41% thereby reducing Kawasaki's shareholdings to 2.59%
.
After negotiations, it was agreed that Kawasaki’s right of first refusal under the JVA be “exchanged” for
the right to top by 5% the highest bid for said shares. Kawasaki informed that Philyards Holdings, Inc.
(PHI), in which it was a stockholder, would exercise this right in its stead. Petitioner JG Summit Holdings
was declared highest bidder. Even so, because of the right to top by 5% percent the highest bid,
Kawasaki/PHI’s was able to top the winning bid. JG Summit protested, contending that PHILSECO, as
a shipyard is a public utility and, hence, must observe the 60%-40% Filipino-foreign capitalization. By
buying 87.67% of PHILSECO’s capital stock at bidding, Kawasaki/PHI in effect now owns more than
40% of the stock, thus violative of the laws.

ISSUE: Whether or not PHILSECO, a shipyard, is a public utility and hence Kawasaki, a foreign
corporation, can acquire only a maximum of 40% of its capital.

HELD: No, a shipyard such as PHILSECO is not considered a public utility.

First, because a shipyard which is a place or enclosure where ships are built or repaired is in its nature
serves a limited clientele and not legally obliged to render its services indiscriminately to the public.
While the business may be regulated for public good, it does not justify the qualifications for public utility
which implies public use and service to the public hence it must be engaged in regularly supplying the
public with some commodity or service of public consequence.

Second, it is not declared as public utility by law. Based on its legislative history, since the enactment
of Act No. 2307 which created the Public Utility Commision (PUC) until repealed by Commonwealth
Act No. 146 establishing Public Service Commission, a shipyard was a public utility and should abide
by the Filipino citizenship requirement of 60-40 capital of a corporation. Thereafter, Pres. Marcos issued
PD No. 666 which removed the shipbuilding and ship repair industry from the list of public utilities
thereby freeing it from the 60-40 citizenship requirement. Batas Pambansa Blg. 391 repealed the PD
No. 666 and reverted shipyards as public utilities. Then Pres. Aquino’s Executive Order No. 226
repealed the previous laws with no revival of the principle that shipyards are public utilities. Thus absent
of such legislation declaring the same, a shipyard reverts back to its status as a non-public utility.

With this, there was nothing preventing Kawasaki from acquiring more than 40% of PHILSECO’s total
capitalization. The JVA should also be interpreted as the phrase “maintaining a proportion of 60%-40%”
refers to their respective share of the burden each time the Board of Directors decides to increase the
subscription to reach the target paid-up capital of P312 million. It does not bind the parties to maintain
the sharing scheme all throughout the existence of their partnership.

Dispositive Portion:

IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED. The
impugned Decision and Resolution of the Court of Appeals are AFFIRMED.

23. Young Auto Supply vs. Court of Appeals

FACTS: On 28 October 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio
Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated
Marketing & Development Corporation (CMDC) to George C. Roxas. The purchase price was
P8,000,000.00 payable as follows: a down payment of P4,000,000.00 and the balance of
P4,000,000.00 in four postdated checks of P1,000,000.00 each. Immediately after the execution of the
agreement, Roxas took full control of the four markets of CMDC. However, the vendors held on to the
20
stock certificates of CMDC as security pending full payment of the balance of the purchase price. The
first check of P4,000,000.00, representing the down payment, was honored by the drawee bank but
the four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime,
Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO received
P600,000.00, leaving a balance of P3,400,000.00.
Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds
of the sale of the CMDC shares to Nemesio Garcia. On 10 June 1988, YASCO and Garcia filed a
complaint against Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that Roxas be
ordered to pay them the sum of P3,400,000.00 or that full control of the three markets be turned over
to YASCO and Garcia. The complaint also prayed for the forfeiture of the partial payment of
P4,600,000.00 and the payment of attorney's fees and costs. Failing to submit his answer, and on 19
August 1988, the trial court declared Roxas in default. The order of default was, however, lifted upon
motion of Roxas. On 22 August 1988, Roxas filed a motion to dismiss. After a hearing, wherein
testimonial and documentary evidence were presented by both parties, the trial court in an Order dated
8 February 1991 denied Roxas' motion to dismiss. After receiving said order, Roxas filed another
motion for extension of time to submit his answer. He also filed a motion for reconsideration, which the
trial court denied in its Order dated 10 April 1991 for being pro-forma. Roxas was again declared in
default, on the ground that his motion for reconsideration did not toll the running of the period to file his
answer. On 3 May 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not
accompanied with the required affidavit of merit. But without waiting for the resolution of the motion, he
filed a petition for certiorari with the Court of Appeals. The Court of Appeals dismissal of the complaint
on the ground of improper venue. A subsequent motion for reconsideration by YASCO was to no avail.
YASCO and Garcia filed the petition.
ISSUE: Whether the venue for the case against YASCO and Garcia in Cebu City was improperly laid.
RULING: A corporation has no residence in the same sense in which this term is applied to a natural
person. But for practical purposes, a corporation is in a metaphysical sense a resident of the place
where its principal office is located as stated in the articles of incorporation. The Corporation Code
precisely requires each corporation to specify in its articles of incorporation the "place where the
principal office of the corporation is to be located which must be within the Philippines." The purpose of
this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be
ambulatory. Actions cannot be filed against a corporation in any place where the corporation maintains
its branch offices. The Court ruled that to allow an action to be instituted in any place where the
corporation has branch offices, would create confusion and work untold inconvenience to said entity.
By the same token, a corporation cannot be allowed to file personal actions in a place other than its
principal place of business unless such a place is also the residence of a co-plaintiff or a defendant.
With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal
place of business is located, it becomes unnecessary to decide whether Garcia is also a resident of
Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City as the venue.
The decision of the Court of Appeals was set aside.
Note.—Venue stipulations in a contract do not as a rule supersede the general rule set out in
Rule 4 of the Rules of Court, they should be construed merely as agreement on an additional forum,
not as limiting venue to the specified place (Nasser vs. Court of Appeals, 191 SCRA 783)
24. Republic Planters Bank vs. Agana
FACTS: Private respondent Robes Francisco Realty & Dev’t Corp. secured a loan from petitioner in
the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued
to private respondent corporation. In other words, instead of giving the legal tender totaling to the full
amount of the loan which is P120,000.00, petitioner lent such amount partially in the form of stock
certificates numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for
P4,000 each, for a total of P8,000.00. Said stock certificates were in the name of private respondent
Adalia Robes and Carlos Robes, who, however, subsequently endorsed his shares in favor of Adalia
Robes.
Said certificates of stock bear the following terms and conditions:
1. The right to receive a quarterly dividend of 1%, cumulative and participating.
2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after 2
years from the date of issue at the option of the Corporation.
21
Private respondents proceeded against petitioner and filed a complaint anchored on private
respondents’ alleged rights to collect dividends under the preferred shares in question and to have
petitioner redeem the same under the terms and conditions of the stock certificates.
The trial court ordered the petitioner to pay private respondents the face value of the stock certificates
as redemption price, plus 1% quarterly interest. Hence this petition.
ISSUE: Whether or not respondents have the right to collect dividends and whether they can compel
petitioner to redeem the preferred shares.
HELD: YES. A preferred share of stock is one which entitles the holder thereof to certain preferences over the
holders of common stock. The preferences are designed to induce persons to subscribe for shares of a
corporation. Preferred shares take a multiplicity of forms. The most common forms may be classified into two:
(1) preferred shares as to assets; and (2) preferred as to dividends. The former is a share which gives the holder
thereof the preference in the distribution of the assets of the corporation in case of liquidation; the latter is a
share the holder of which is entitled to receive dividends on said share to the extent agreed upon before any
dividends at all are paid to the holders of common stock. There is no guarantee, however, that the share will
receive any dividends. Preferences granted to preferred stockholders do not give them a lien upon the property
of the corporation nor make them creditors of the corporation, the right of the former being always subordinate
to the latter. Shareholders, both common and preferred are considered risk takers who invest capital in the
business arid who can look only to what is left after corporate debts and liabilities are fully paid.

Redeemable shares are shares usually preferred, which by their terms are redeemable at a fixed date, or at the
option of either issuing corporation, or the stockholder, or both at certain redemption price; redemption may
not be made where the corporation is insolvent or if such redemption will cause insolvency or inability of the
corporation to meet its debts as they mature.
While the stock certificates in the case at bar does allow redemption, the option to do so was clearly vested in
the petitioner bank. The redemption is therefore optional.
The redemption of said shares cannot be allowed. The Central Bank made a finding that said petitioner has been
suffering from chronic reserve deficiency, and that such finding resulted in the directive prohibiting the
petitioner bank from redeeming any preferred share, on the ground that said redemption would reduce the
assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was
prohibited for a just and valid reason.
“Interest bearing stocks”, on which the corporation agrees absolutely to pay interest before dividends are paid
to common stockholders, is legal only when construed as requiring payment of interest as dividends from net
earnings or surplus only.

26.GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs. THE COURT OF APPEALS, GRACE
VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents.

G.R. No. 108905 October 23, 1997

Facts: Petitioner Grace Christian High School is an educational institution located at the Grace Village
in Quezon City, while Private respondent Grace Village Association, Inc. ["Association'] is an
organization of lot and/or building owners, lessees and residents at Grace Village. The original 1968
by-laws provide that the Board of Directors, composed of eleven (11) members, shall serve for one
(1) year until their successors are duly elected and have qualified. On 20 December 1975, a
committee of the board of directors prepared a draft of an amendment to the by-laws which provides
that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the
ASSOCIATION." However, this draft was never presented to the general membership for approval.
Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board of directors of
the association.
On 13 February 1990, the association's committee on election sought to change the by-laws
and informed the Petitioner's school principal "the proposal to make the Grace Christian High School
representative as a permanent director of the association, although previously tolerated in the past
elections should be reexamined." Following this advice, notices were sent to the members of the
association that the provision on election of directors of the 1968 by-laws of the association would be
observed. Petitioner requested the chairman of the election committee to change the notice to honor
the 1975 by-laws provision, but was denied. The school then brought suit for mandamus in the Home
22
Insurance and Guaranty Corporation (HIGC) to compel the board of directors to recognize its right to
a permanent seat in the board.
Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered an
opinion to the effect that the practice of allowing unelected members in the board was contrary to the
existing by-laws of the association and of the Corporation Code (B.P. Blg. 68). This was adopted by
the association in its Answer in the mandamus filed with the HIGC.

The HIGC hearing officer ruled in favor of the association, which decision was affirmed by the HIGC
Appeals Board and the Court of Appeals.

Issue: W/N the 1975 provision giving the petitioner a permanent board seat was valid.

Ruling: No. Section 23 of the Corporation Code (and its predecessor Section 28 and 29 of the
Corporation Law) leaves no room for doubt that the Board of Directors of a Corporation must be
elected from among the stockholders or members. There may be corporations in which there are
unelected members in the board but it is clear that in these instances, the unelected members sit as
ex officio members, i.e., by virtue of and for as long as they hold a particular office.
But in the case of petitioner, there is no reason at all for its representative to be given a seat in
the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not
given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws
sought to give it one.
Since the provision in question is contrary to law, the fact that it has gone unchallenged for
fifteen years cannot forestall a later challenge to its validity. Neither can it attain validity through
acquiescence because, if it is contrary to law, it is beyond the power of the members of the
association to waive its invalidity. It is more accurate to say that the members merely tolerated
petitioner's representative and tolerance cannot be considered ratification. Nor can petitioner claim a
vested right to sit in the board on the basis of "practice." Practice, no matter how long continued,
cannot give rise to any vested right if it is contrary to law.

27. Gokongwei vs. Securities and Exchange Commission

FACTS: Petitioner as stockholder of San Miguel Corporation (SMC), filed with the Securities and
Exchange Commission (SEC) a petition for the declaration of nullity of amended by-laws, cancellation
of certificate of filing of amended by-laws, injunction and damages with prayer for a preliminary
injunction against the majority members of the Board of Directors and SMC. Petitioner alleged that the
Board amended the by-laws, prescribing additional qualifications for its directors which provides that,
“no person shall be qualify or eligible for nomination if he is engaged in any business which competes
with that of the corporation” . The Board of Directors based their authority to do so on a resolution of
the stockholders. It was contended that according to the law, the power to amend, modify, repeal or
adopt new by-laws may be delegated to the Board of Directors only by affirmative vote of the
stockholders representing not less than ⅔ of the subscribed and paid up capital stock. Gokongwei
contended that the Board acted without authority and in usurpation of the power of the stockholders.
Gokongwei further contended that prior to the amendment, he possessed all the qualification to be a
director of the corporation. That as a stockholder, he had acquired rights inherent in stock ownership,
such as the right to vote and be voted in the election of directors, and that in amending the by-laws,
private respondents purposely provided for petitioner’s disqualification and deprived him of his vested
right, hence the amended by-laws is null and void. As additional cause of action, petitioner alleged that
corporations have no inherent power to disqualify a stockholder from being elected as a director;
therefore, the questioned act is ultra vires and void.

ISSUE: Whether or not the corporation has the power to provide for additional qualifications of its
directors?

RULING: YES. Every corporation has the inherent power to adopt by-laws for its internal government,
and to regulate the conduct and prescribe the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs. Under section 21 of the Corporation Law, a
23
corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors,
officers and employees." This must necessarily refer to a qualification in addition to that specified by
section 30 of the Corporation Law, which provides that "every director must own in his right at least one
share of the capital stock of the stock corporation of which he is a director." Any person "who buys
stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the
stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within
the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." To this
extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege
to regulate the disposition of his property which he has invested in the capital stock of the corporation,
and surrendered it to the will of the majority of his fellow incorporators. It cannot therefore be justly said
that the contract, express or implied, between the corporation and the stockholders is infringed by any
act of the former which is authorized by a majority."
Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation
by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital
stock of the corporation. If the amendment changes, diminishes or restricts the rights of the existing
shareholders, then the dissenting minority has only one right, "to object thereto in writing and demand
payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed
capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that
Gokongwei has a vested right to be elected director, in the face of the fact that the law at the time such
right as stockholder was acquired contained the prescription that the corporate charter and the by-law
shall be subject to amendment, alteration and modification.

29. Dily Dany Nacpil vs. International Broadcasting Corporation

G.R. No. 144767. March 21, 2002

Facts: Petitioner was the Assistant General Manager for Finance/Administration and Comptroller of
private respondent Intercontinental Broadcasting Corporation (IBC) from 1996 until April 1997. Upon
assumption of Emiliano Templo as the IBC President, petitioner was forced to retire. Templo refused
to pay him his retirement benefits. Hence, in 1997, petitioner filed with the Labor Arbiter a complaint
for illegal dismissal and non-payment of benefits.

IBC alleged that the Labor Arbiter had no jurisdiction over the case, that the petitioner was a
corporate officer who was duly elected by the Board of Directors of IBC; hence, the case qualifies as
an intra-corporate dispute falling within the jurisdiction of the Securities and Exchange Commission
(SEC).

Petitioner argues that he is not a corporate officer of the IBC but an employee thereof since he had
not been elected nor appointed as Comptroller and Assistant Manager by the IBC's Board of
Directors. He pointed out that he had actually been appointed on January 11, 1995 by the IBC's
General Manager, Ceferino Basilio.

Issue: Whether or not the Labor Arbiter had jurisdiction over the case for illegal dismissal and non-
payment of benefits filed by petitioner.

Held: Dismissal or non-appointment of a corporate officer is clearly an intra-corporate matter and

jurisdiction over the case properly belongs to the SEC, not to the NLRC. Under Presidential Decree
No. 902-A (the Revised Securities Act), Controversies in the election or appointment of directors,
trustees, officers, or managers of such corporations, partnerships or associations fall under the
exclusive of the SEC. Two elements are to be considered in determining whether the SEC has
jurisdiction over the controversy, to wit: (1) the status or relationship of the parties; and (2) the nature
of the question that is the subject of their controversy. Since complainant's appointment was
approved unanimously by the Board of Directors of the corporation, he is therefore considered a
corporate officer and his claim of illegal dismissal is a controversy that falls under the jurisdiction of
the SEC as contemplated by Section 5 of P.D. 902-A. That the position of Comptroller is not
expressly mentioned among the officers of the IBC in the By-Laws is of no moment, because the
IBC's Board of Directors is empowered under Section 25 of the Corporation Code and under the
corporation's By-Laws to appoint such other officers as it may deem necessary.

30. G.R. No. 117847. October 7, 1998

24
PEOPLES AIRCARGO AND WAREHOUSING CO. INC., petitioner, vs. COURT OF APPEALS and
STEFANI SAO, respondents.

Facts: Petitioner is a domestic corporation, which was organized in the middle of 1986 to operate a
customs bonded warehouse at the old Manila International Airport in Pasay City.
To obtain a license for the corporation from the Bureau of Customs, Antonio Punsalan Jr., the
corporation president, solicited a proposal from private respondent for the preparation of a feasibility
study. Private respondent submitted a letter-proposal (“First Contract”) to Punsalan. PAWCI, through
Punsalan, sent Saño a letter confirming their agreement. Saño sent PAWCI another letter proposal
("Second Contract”) formalizing its proposal for consultancy services. Villaceren, vice president of
PAWCI, received the operations manual prepared by Saño. PAWCI submitted said operations
manual to the Bureau of Customs in connection with the former's application to operate a bonded
warehouse; thereafter, the Bureau issued to it a license to operate, enabling it to become one of the
three public customs bonded warehouses at the international airport.
Meanwhile, Punsalan sold his shares in PAWCI and resigned as its president. Saño filed a
collection suit against PAWCI. He alleged that he had prepared an operations manual for PAWCI,
conducted a seminar workshop for its employees and delivered to it a computer program; but that,
despite demand, PAWCI refused to pay him for his services. PAWCI, in its answer, alleged that the
letter agreement was signed by Punsalan without authority.

The RTC rendered a Decision declaring the Second Contract unenforceable or simulated. On
appeal, the CA modified the decision of the trial court, and declared the Second Contract valid and
binding on PAWCI, which was held liable to Saño. Motion for Reconsideration was denied. Hence,
this petition.

Issue: Whether a single instance where the corporation had previously allowed its president to enter
into a contract with another without a board resolution expressly authorizing him, has clothed its
president with apparent authority to execute the subject contract.

Ruling: Yes. A single instance where the corporation had previously allowed its president to enter
into a contract with another without a board resolution expressly authorizing him, has clothed its
president with apparent authority to execute the subject contract.

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,
whether within or beyond the scope of his ordinary powers. It is no the quantity of similar acts which
establishes apparent authority, but the vesting of a corporate officer with the power to bind the
corporation. Herein, PAWCI, through its president Antonio Punsalan Jr., entered into the First
Contract without first securing board approval. Despite such lack of board approval, PAWCI did not
object to repudiate said contract, thus "clothing" its president with the power to bind the corporation.
The grant of apparent authority to Punsalan is evident in the testimony of Yong senior vice
president, treasurer and major stockholder of PAWCI. The First Contract was consummated,
implemented and paid without a hitch. Hence, Sano should not be faulted for believing that
Punsalan's conformity to the contract in dispute was also binding on petitioner. It is familiar doctrine
that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of
an apparent authority, it holds him out to the public as possessing the power to do those acts; and
thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agent's authority.

Furthermore, Saño prepared an operations manual and conducted a seminar for the employees of
PAWCI in accordance with their contract. PAWCI accepted the operations manual, submitted it to the
Bureau of Customs and allowed the seminar for its employees. As a result of its aforementioned
actions, PAWCI was given by the Bureau of Customs a license to operate a bonded
warehouse. Granting arguendo then that the Second Contract was outside the usual powers of the
president, PAWCI's ratification of said contract and acceptance of benefits have made it binding,
nonetheless. The enforceability of contracts under Article 1403(2) is ratified "by the acceptance of
benefit under them" under Article 1405.
25
31. G.R. No. 159795. July 30, 2004

SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP, INC., petitioners, vs.
CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION and SPS. NARCISO & AIDA
QUIAMBAO, respondents.

FACTS: Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged in the construction
business, with petitioner-spouses ROBERTO and EVELYN DAVID as its President and Treasurer,
respectively.

The records reveal that on October 7, 1997, respondent-spouses NARCISO and AIDA QUIAMBAO
engaged the services of petitioner CGI to design and construct a five-storey concrete office/residential
building on their land in Tondo, Manila. The Design/Build Contract of the parties provided that: (a)
petitioner CGI shall prepare the working drawings for the construction project; (b) respondents shall
pay petitioner CGI the sum of Seven Million Three Hundred Nine Thousand Eight Hundred Twenty-
One and 51/100 Pesos (P7,309,821.51) for the construction of the building, including the costs of labor,
materials and equipment, and Two Hundred Thousand Pesos (P200,000.00) for the cost of the design;
and (c) the construction of the building shall be completed within nine (9) months after securing the
building permit.

The completion of the construction was initially scheduled on or before July 16, 1998 but was
extended to November 15, 1998 upon agreement of the parties. It appears, however, that petitioners
failed to follow the specifications and plans as previously agreed upon. Respondents demanded the
correction of the errors but petitioners failed to act on their complaint. Consequently, respondents
rescinded the contract on October 31, 1998, after paying 74.84% of the cost of construction.

Respondents then engaged the services of another contractor, RRA and Associates, to inspect the
project and assess the actual accomplishment of petitioners in the construction of the building. It was
found that petitioners revised and deviated from the structural plan of the building without notice to or
approval by the respondents.

Respondents filed a case for breach of contract against petitioners before the Regional Trial Court
(RTC) of Manila. At the pre-trial conference, the parties agreed to submit the case for arbitration to the
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC). Respondents filed a request for
arbitration with the CIAC and nominated Atty. Custodio O. Parlade as arbitrator. Atty. Parlade was
appointed by the CIAC as sole arbitrator to resolve the dispute. With the agreement of the parties, Atty.
Parlade designated Engr. Loreto C. Aquino to assist him in assessing the technical aspect of the
case. The RTC of Manila then dismissed the case and transmitted its records to the CIAC.

ISSUE:

I. Whether or not there was no basis, in fact and in law, to allow respondents to unilaterally rescind
the design/built contract, after petitioners have substantially performed their obligation under the said
contract.

II. Whether or not the honorable court of appeals erred in finding petitioners jointly and severally liable
with co-petitioner coordinated (group, inc.), in clear violation of the doctrine of separate juridical
personality.

RULING: We find no merit in the petition.

Executive Order No. 1008 entitled, Construction Industry Arbitration Law provided for an arbitration
mechanism for the speedy resolution of construction disputes other than by court litigation. It recognized
the role of the construction industry in the country’s economic progress as it utilizes a large segment of
the labor force and contributes substantially to the gross national product of the country. Thus, E.O.
No. 1008 vests on the Construction Industry Arbitration Commission (CIAC) original and exclusive
jurisdiction over disputes arising from or connected with construction contracts entered into by parties
who have agreed to submit their case to voluntary arbitration. Section 19 of E.O. No. 1008 provides
that its arbitral award shall be appealable to the Supreme Court only on questions of law.
26
 In the case at bar, it is readily apparent that petitioners are raising questions of fact. In their first
assigned error, petitioners claim that at the time of rescission, they had completed 80% of the
construction work and still have 15 days to finish the project. They likewise insist that they constructed
the building in accordance with the contract and any modification on the plan was with the consent of
the respondents.

The second assigned error likewise involves a question of fact. It is contended that petitioner-
spouses David cannot be held jointly and severally liable with petitioner CGI in the payment of the
arbitral award as they are merely its corporate officers.

At first glance, the issue may appear to be a question of law as it would call for application of the
law on the separate liability of a corporation. However, the law can be applied only after establishing a
factual basis, i.e., whether petitioner-spouses as corporate officers were grossly negligent in ordering
the revisions on the construction plan without the knowledge and consent of the respondent-
spouses. On this issue, the Court of Appeals again affirmed the factual findings of the arbitrator, thus:

As a general rule, the officers of a corporation are not personally liable for their official acts unless
it is shown that they have exceeded their authority. However, the personal liability of a corporate
director, trustee or officer, along with corporation, may so validly attach when he assents to a patently
unlawful act of the corporation or for bad faith or gross negligence in directing its affairs.

Clearly, the case at bar does not raise any genuine issue of law. We reiterate the rule that factual
findings of construction arbitrators are final and conclusive and not reviewable by this Court on appeal,
except when the petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or
other undue means; (2) there was evident partiality or corruption of the arbitrators or of any of them;
(3) the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause
shown, or in refusing to hear evidence pertinent and material to the controversy; (4) one or more of the
arbitrators were disqualified to act as such under section nine of Republic Act No. 876 and willfully
refrained from disclosing such disqualifications or of any other misbehavior by which the rights of any
party have been materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the subject matter submitted to them was
not made. Petitioners failed to show that any of these exceptions applies to the case at bar.

The petition is DISMISSED for lack of merit.

32. BENJAMIN A. SANTOS vs. NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR
ARBITER FRUCTUOSO T. AURELLANO and MELVIN D. MILLENA
G.R. No. 101699. March 13, 1996
J. Vitug

Facts:
Private respondent Melvin D. Millena, on 01 October 1985, was hired to be the project accountant for
MMDCs mining operations in Gatbo, Bacon, Sorsogon. On 12 August 1986, private respondent sent to Mr. Gil
Abao, the MMDC corporate treasurer, a memorandum calling the latters attention to the failure of the company
to comply with the withholding tax requirements of, and to make the corresponding monthly remittances to, the
Bureau of Internal Revenue (BIR) on account of delayed payments of accrued salaries to the companys laborers
and employees. [1]

In a letter, dated 08 September 1986, Abano advised private respondent thusly:

Regarding Gatbo operations, as you also are aware, the rainy season is now upon us and the peace and order
condition in Sorsogon has deteriorated. It is therefore, the boards decision that it would be useless for us to
continue operations, especially if we will always be in the hole, so to speak. Our first funds receipts will be used
to pay all our debts. We will stop production until the advent of the dry season, and until the insurgency problem
clears. We will undertake only necessary maintenance and repair work and will keep our overhead down to the
minimum manageable level. Until we resume full-scale operations, we will not need a project accountant as there
will be very little paper work at the site, which can be easily handled at Makati.
We appreciate the work you have done for Mana and we will not hesitate to take you back when we resume
work at Gatbo. However it would be unfair to you if we kept you in the payroll and deprive you of the opportunity
to earn more, during this period of Manas crisis. Private respondent expressed shock over the termination of his
employment. He requested that he be reimbursed the advances he had made for the company and be paid his
accrued salaries/claims.

27
The claim was not heeded; on 20 October 1986, private respondent filed with the NLRC Regional Arbitration,
Branch No. V, in Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th month pay, overtime pay,
separation pay and incentive leave pay against MMDC and its two top officials, namely, herein petitioner
Benjamin A. Santos (the President) and Rodillano A. Velasquez (the executive vice-president). In his complaint-
affidavit (position paper), submitted on 27 October 1986, Millena alleged, among other things, that his dismissal
was merely an offshoot of his letter of 12 August 1986 to Abao about the companys inability to pay its workers
and to remit withholding taxes to the BIR. [

On 27 July 1988, Labor Arbiter Fructouso T. Aurellano, finding no valid cause for terminating complainants
employment, ruled, citing this Courts pronouncement in Construction & Development Corporation of the
Philippines vs. Leogardo, Jr. that a partial closure of an establishment due to losses was a retrenchment measure
[6]

that rendered the employer liable for unpaid salaries and other monetary claims.

The Labor Arbiter adjudged: The respondents are hereby ordered to pay the petitioner the amount of P37,132.25
corresponding to the latters unpaid salaries and advances: P5,400.00 for petitioners 13th month pay; P3,340.95
as service incentive leave pay; and P5,400.00 as separation pay. The respondents are further ordered to pay the
petitioner 10% of the monetary awards as attorney’s fees.
Alleging abuse of discretion by the Labor Arbiter, the company and its co-respondents filed a motion for
reconsideration and/or appeal. The motion/ appeal was forthwith indorsed to the Executive Director of the NLRC
[8]

in Manila.
In a resolution, dated 04 September 1989, the NLRC affirmed the decision of the Labor Arbiter. It held that the
[9]

reasons relied upon by MMDC and its co-respondents in the dismissal of Millena, i.e., the rainy season,
deteriorating peace and order situation and little paperwork, were not causes mentioned under Article 282 of the
Labor Code of the Philippines and that Millena, being a regular employee, was shielded by the tenurial clause
mandated under the law.
On 16 August 1991, the NLRC dismissed the motion for reconsideration. Santos then filed a petition for
[11]

certiorari.

Issue: Whether Santos should be made solidarily liable with MMDC

Ruling: No, Santos is not liable with MMDC.

A corporation is a juridical entity with legal personality separate and distinct from those acting for and, in its
behalf, and, in general, from the people comprising it. The rule is that obligations incurred by the corporation,
acting through its directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit done
sparingly, the disregard of its independent being and the lifting of the corporate veil. As a rule, this situation might
arise when a corporation is used to evade a just and due obligation or to justify a wrong, to shield or perpetrate
fraud, to carry out similar other unjustifiable aims or intentions, or as a subterfuge to commit injustice and so
circumvent the law.
In Tramat Mercantile, Inc. vs. Court of Appeals, the Court has collated the settled instances when, without
necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a
corporate director, trustee or officer; to wit: When—
(1) He assents
(a) to a patently unlawful act of the corporation, or
(b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; “
(2) He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto;
(3) He agrees to hold himself personally and solidarily liable with the corporation; or
(4) He is made, by a specific provision of law, to personally answer for his corporate action.

The basic rule is still that which can be deduced from the Court’s pronouncement in Sunio v. National Labor
Relations Commission, thus: “It is basic that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any other legal entity to which it may be
related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock
of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Petitioner
Sunio, therefore, should not have been made personally answerable for the payment of private respondents’ back
salaries.” The Court, to be sure, did appear to have deviated somewhat in Gudez vs. NLRC; however, it should

28
be clear from our recent pronouncement in Mam Realty Development Corporation and Manuel Centeno vs. NLRC
that the Sunio doctrine still prevails.

WHEREFORE, the instant petition for certiorari is given DUE COURSE and the decision of the Labor Arbiter,
affirmed by the NLRC, is hereby MODIFIED insofar as it holds herein petitioner Benjamin Santos personally
liable with Mana Mining and Development Corporation, which portion of the questioned judgment is now SET
ASIDE. In all other respects, the questioned decision remains unaffected. No costs.

33. BENJAMIN A. SANTOS vs. NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR
ARBITER FRUCTUOSO T. AURELLANO and MELVIN D. MILLENA
G.R. No. 101699. March 13, 1996

Facts: Private respondent Melvin D. Millena, on 01 October 1985, was hired to be the project
accountant for MMDCs mining operations in Gatbo, Bacon, Sorsogon. On 12 August 1986, private
respondent sent to Mr. Gil Abao, the MMDC corporate treasurer, a memorandum calling the latters
attention to the failure of the company to comply with the withholding tax requirements of, and to make
the corresponding monthly remittances to, the Bureau of Internal Revenue (BIR) on account of delayed
payments of accrued salaries to the companys laborers and employees. [1]

In a letter, dated 08 September 1986, Abano advised private respondent thusly:

Regarding Gatbo operations, as you also are aware, the rainy season is now upon us and the
peace and order condition in Sorsogon has deteriorated. It is therefore, the boards decision that it would
be useless for us to continue operations, especially if we will always be in the hole, so to speak. Our
first funds receipts will be used to pay all our debts. We will stop production until the advent of the dry
season, and until the insurgency problem clears. We will undertake only necessary maintenance and
repair work and will keep our overhead down to the minimum manageable level. Until we resume full-
scale operations, we will not need a project accountant as there will be very little paper work at the site,
which can be easily handled at Makati.
We appreciate the work you have done for Mana and we will not hesitate to take you back when
we resume work at Gatbo. However it would be unfair to you if we kept you in the payroll and deprive
you of the opportunity to earn more, during this period of Manas crisis. Private respondent expressed
shock over the termination of his employment. He requested that he be reimbursed the advances he
had made for the company and be paid his accrued salaries/claims.
The claim was not heeded; on 20 October 1986, private respondent filed with the NLRC Regional
Arbitration, Branch No. V, in Legazpi City, a complaint for illegal dismissal, unpaid salaries, 13th month
pay, overtime pay, separation pay and incentive leave pay against MMDC and its two top officials,
namely, herein petitioner Benjamin A. Santos (the President) and Rodillano A. Velasquez (the
executive vice-president). In his complaint-affidavit (position paper), submitted on 27 October 1986,
Millena alleged, among other things, that his dismissal was merely an offshoot of his letter of 12 August
1986 to Abao about the companys inability to pay its workers and to remit withholding taxes to the BIR. [

On 27 July 1988, Labor Arbiter Fructouso T. Aurellano, finding no valid cause for terminating
complainants employment, ruled, citing this Courts pronouncement in Construction & Development
Corporation of the Philippines vs. Leogardo, Jr. that a partial closure of an establishment due to losses
[6]

was a retrenchment measure that rendered the employer liable for unpaid salaries and other monetary
claims.

The Labor Arbiter adjudged: The respondents are hereby ordered to pay the petitioner the amount
of P37,132.25 corresponding to the latters unpaid salaries and advances: P5,400.00 for petitioners
13th month pay; P3,340.95 as service incentive leave pay; and P5,400.00 as separation pay. The
respondents are further ordered to pay the petitioner 10% of the monetary awards as attorney’s fees.
Alleging abuse of discretion by the Labor Arbiter, the company and its co-respondents filed a motion
for reconsideration and/or appeal. The motion/ appeal was forthwith indorsed to the Executive Director
[8]

of the NLRC in Manila.

In a resolution, dated 04 September 1989, the NLRC affirmed the decision of the Labor Arbiter. It
[9]

held that the reasons relied upon by MMDC and its co-respondents in the dismissal of Millena, i.e., the
rainy season, deteriorating peace and order situation and little paperwork, were not causes mentioned
under Article 282 of the Labor Code of the Philippines and that Millena, being a regular employee, was
shielded by the tenurial clause mandated under the law.

29
 On 16 August 1991, the NLRC dismissed the motion for reconsideration. Santos then filed a
[11]

petition for certiorari.

Issue: Whether Santos should be made solidarily liable with MMDC

Ruling: No, Santos is not liable with MMDC.

A corporation is a juridical entity with legal personality separate and distinct from those acting
for and, in its behalf, and, in general, from the people comprising it. The rule is that obligations incurred
by the corporation, acting through its directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to
warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate
veil. As a rule, this situation might arise when a corporation is used to evade a just and due obligation
or to justify a wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable aims or
intentions, or as a subterfuge to commit injustice and so circumvent the law.
In Tramat Mercantile, Inc. vs. Court of Appeals, the Court has collated the settled instances
when, without necessarily piercing the veil of corporate fiction, personal civil liability can also be said to
lawfully attach to a corporate director, trustee or officer; to wit: When—
(1) He assents
(a) to a patently unlawful act of the corporation, or
(b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the corporation, its stockholders or other
persons; “
(2) He consents to the issuance of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
(3) He agrees to hold himself personally and solidarily liable with the corporation; or
(4) He is made, by a specific provision of law, to personally answer for his corporate action.

The basic rule is still that which can be deduced from the Court’s pronouncement in Sunio v.
National Labor Relations Commission, thus: “It is basic that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it as well as from that of any
other legal entity to which it may be related. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been
made personally answerable for the payment of private respondents’ back salaries.” The Court, to be
sure, did appear to have deviated somewhat in Gudez vs. NLRC; however, it should be clear from our
recent pronouncement in Mam Realty Development Corporation and Manuel Centeno vs. NLRC that
the Sunio doctrine still prevails.

WHEREFORE, the instant petition for certiorari is given DUE COURSE and the decision of the
Labor Arbiter, affirmed by the NLRC, is hereby MODIFIED insofar as it holds herein petitioner Benjamin
Santos personally liable with Mana Mining and Development Corporation, which portion of the
questioned judgment is now SET ASIDE. In all other respects, the questioned decision remains
unaffected. No costs.

34.MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (MSMG-UWP) vs.

HON. CRESENCIO J. RAMOS
GR No. 113907, April 20, 2001

FACTS: A motion for reconsideration of the Supreme Court’s decision dated February 28, 2000 was
filed by the petitioner.

The facts from such decision are the following:

The petitioner, Malayang Samahan ng mga Manggagawa sa M. Greenfield, Inc., (B) (MSMG),
hereinafter referred to as the "local union", is an affiliate of the private respondent, United Lumber
and General Workers of the Philippines (ULGWP), referred to as the "federation". A collective
bargaining agreement between MSMG and M. Greenfield.
On September 12, 1986, a local union election was held wherein the herein petitioner,
Beda Magdalena Villanueva, and the other union officers were proclaimed as winners. On
March 21, 1987, a Petition for Impeachment was filed with the national federation ULGWP
by the defeated candidates in the aforementioned election.
30
The federation advised respondent company of the expulsion of the 30 union officers and demanded
their separation from employment pursuant to the Union Security Clause in their collective
bargaining agreement. The expelled union officers assigned in the first shift were physically or
bodily brought out of the company premises by the company's security guards. Likewise, those
assigned to the second shift were not allowed to report for work. This provoked some of the
members of the local union to demonstrate their protest for the dismissal of the said union
officers.
Thereafter, the Federation filed a Notice of Strike with the National Conciliation and
Mediation Board to compel the company to effect the immediate termination of the expelled
union officers.
On March 7, 1989, under the pressure of a threatened strike, respondent company
terminated the 30 union officers from employment, serving them identical copies of the
termination letter
On that same day, the expelled union officers assigned in the first shift were physically or
bodily brought out of the company premises by the company's security guards. Likewise,
those assigned to the second shift were not allowed to report for work. This provoked some
of the members of the local union to demonstrate their protest for the dismissal of the said
union officers. Some union members left their work posts and walked out of the company
premises.
On the other hand, the Federation, having achieved its objective, withdrew the Notice of
Strike filed with the NCMB.
On March 8, 1989, the petitioners filed a Notice of Strike with the NCMB, DOLE, Manila,
docketed as Case No.
Petitioners alleged that this Court committed patent and palpable error in holding that the respondent
company officials cannot be held personally liable for damages on account of employees dismissal
because the employer corporation has a personality separate and distinct from its officers who merely
acted as its agents whereas the records clearly established that respondent company officers Saul
Tawil, Carlos T. Javelosa and Renato C. Puangco have caused the hasty, arbitrary and unlawful
dismissal of petitioners from work.
Petitioner contended that respondent company officials should be made personally liable for damages
on account of petitioners dismissal.
ISSUE:
Whether or not the respondent company official can be held liable for damages on the account of the
employees’ dismissal.
HELD:
No. The respondent company cannot be held liable for damages on the account of the employees’
dismissal because the employer coroporation has a personality separate and distinct from itys officers
who merely acted as agents.
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.
Solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as,
generally, in the following cases:
(1) When directors and trustees or, in appropriate cases, the officers of a
corporation
(a) Vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons.
(2) When a director or officer has consented to the issuance of watered stocks or
who, having knowledge thereof, did not forthwith file with the corporate secretary
his written objection thereto.

31
 (3) When a director, trustee or officer has contractually agreed or stipulated to hold
himself personally and solidarily liable with the Corporation.
(4) When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.
In labor cases, particularly, the Court has held corporate directors and officers solidarily liable with the
corporation for the termination of employment of corporate employees done with malice or in bad faith.
Bad faith or negligence is a question of fact and is evidentiary. It has been held that bad faith does not
connote bad judgement or negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it
partakes of the nature of fraud.
In the case at bar, there is nothing substantial on record to show that respondent officers acted in patent
bad faith or were guilty of gross negligence in terminating the services of petitioners so as to warrant
personal liability.

35.G.R. No. 125778, June 10, 2003, INTER-ASIA INVESTMENTS INDUSTRIES, INC., Petitioner,
vs. COURT OF APPEALS and ASIA INDUSTRIES, INC., Respondents
FACTS: On September 1, 1978, Inter-Asia Industries, Inc. (petitioner), by a Stock Purchase Agreement
(the Agreement), sold to Asia Industries, Inc. (private respondent) for and in consideration of the sum
of P19,500,000.00 all its right, title and interest in and to all the outstanding shares of stock of
FARMACOR, INC. (FARMACOR).The Agreement was signed by Leonides P. Gonzales and Jesus J.
Vergara, presidents of petitioner and private respondent, respectively.
Under paragraph 7 of the Agreement, petitioner as seller made warranties and representations among
which were "(iv.) [t]he audited financial statements of FARMACOR at and for the year ended December
31, 1977... and the audited financial statements of FARMACOR as of September 30, 1978 being
prepared by S[ycip,] G[orres,] V[elayo and Co.]... fairly present or will present the financial position of
FARMACOR and the results of its operations as of said respective dates; said financial statements
show or will show all liabilities and commitments of FARMACOR, direct or contingent, as of said
respective dates . . ."; and "(v.) [t]he Minimum Guaranteed Net Worth of FARMACOR as of September
30, 1978 shall be Twelve Million Pesos (P12,000,000.00)."
Respondent paid petitioner a total amount of P 12,000,000.00: P5,000,000.00 upon the signing of the
Agreement, and P7,000,000.00 on November 2, 1978.
Petitioner thereafter proposed, by letter of January 24, 1980, signed by its president, that private
13

respondent’s claim for refund be reduced to P4,093,993.00, it promising to pay the cost of the Northern
Cotabato Industries, Inc. (NOCOSII) superstructures in the amount of P759,570.00. To the proposal
respondent agreed. Petitioner, however, weiched on its promise. Petitioner’s total liability thus stood at
P4,853,503.00 (P4,093,993.00 plus P759,570.00) exclusive of interest.
14

Petitioner argued that the January 24, 1980 letter-proposal (for the reduction of private respondent’s
claim for refund upon petitioner’s promise to pay the cost of NOCOSII superstructures in the amount of
P759,570.00) which was signed by its president has no legal force and effect against it as it was not
authorized by its board of directors, it citing the Corporation Law which provides that unless the act of
the president is authorized by the board of directors, the same is not binding on it.
ISSUE:
Whether or not the letter-proposal which was signed by its president has no legal force and effect
against it as it was not authorized by its board of directors.
HELD:
No. The letter-proposal is valid and binding.
The general rule is that, in the absence of authority from the board of directors, no person, not even its
officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct from its
stockholders and members, "having x x x powers, attributes and properties expressly authorized by law
or incident to its existence.
Being a juridical entity, a corporation may act through its board of directors, which exercises almost all
corporate powers, lays down all corporate business policies and is responsible for the efficiency of
management.

32
A corporate officer or agent may represent and bind the corporation in transactions with third persons
to the extent that [the] authority to do so has been conferred upon him, and this includes powers as, in
the usual course of the particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually pertaining to the particular
officer or agent, and such apparent powers as the corporation has caused person dealing with the
officer or agent to believe that it has conferred.
[A]pparent 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.
It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other
parties. It is not the quantity of similar acts which establishes apparent authority, but the vesting of
a corporate officer with power to bind the corporation.
In the case at bar, it was correctly argued by the private respondent that an officer of a corporation who
is authorized to purchase the stock of another corporation has the implied power to perform all other
obligations arising therefrom, such as payment of the shares of stock. By allowing its president to sign
the Agreement on its behalf, petitioner clothed him with apparent capacity to perform all acts which are
expressly, impliedly and inherently stated therein.

36. G.R. No. 126006. January 29, 2004 LAPULAPU FOUNDATION, INC. and ELIAS Q.
TAN, petitioners, vs. COURT OF APPEALS (Seventeenth Division) and ALLIED BANKING
CORP., respondents

FACTS:

Sometime in 1977, petitioner Elias Q. Tan, then President of the co-petitioner Lapulapu Foundation,
Inc., obtained four loans from the respondent Allied Banking Corporation covered by four promissory
notes in the amounts of P100,000 each.

As of January 23, 1979, the entire obligation amounted to P493,566.61 and despite demands made
on them by the respondent Bank, the petitioners failed to pay the same. The respondent Bank was
constrained to file with the Regional Trial Court of Cebu City, Branch 15, a complaint seeking payment
by the petitioners, jointly and solidarily, of the sum of P493,566.61 representing their loan obligation,
exclusive of interests, penalty charges, attorneys fees and costs.
\
In its answer to the complaint, the petitioner Foundation denied incurring indebtedness from the
respondent Bank alleging that the loans were obtained by petitioner Tan in his personal capacity, for
his own use and benefit and on the strength of the personal information he furnished the respondent
Bank. The petitioner Foundation maintained that it never authorized petitioner Tan to co-sign in his
capacity as its President any promissory note and that the respondent Bank fully knew that the loans
contracted were made in petitioner Tans personal capacity and for his own use and that the petitioner
Foundation never benefited, directly or indirectly, therefrom. The petitioner Foundation then interposed
a cross-claim against petitioner Tan alleging that he, having exceeded his authority, should be solely
liable for said loans, and a counterclaim against the respondent Bank for damages and attorneys fees.

For his part, petitioner Tan admitted that he contracted the loans from the respondent Bank in his
personal capacity. The parties, however, agreed that the loans were to be paid from the proceeds of
petitioner Tans shares of common stocks in the Lapulapu Industries Corporation, a real estate firm.
The loans were covered by promissory notes which were automatically renewable (rolled-over) every
year at an amount including unpaid interests, until such time as petitioner Tan was able to pay the same
from the proceeds of his aforesaid shares.

According to petitioner Tan, the respondent Banks employee required him to affix two signatures
on every promissory note, assuring him that the loan documents would be filled out in accordance with
their agreement. However, after he signed and delivered the loan documents to the respondent Bank,
these were filled out in a manner not in accord with their agreement, such that the petitioner Foundation

33
was included as party thereto. Further, prior to its filing of the complaint, the respondent Bank made no
demand on him.

ISSUE:
Whether the CA correctly held the petitioners jointly and solidarily liable therefor.

RULING:

In disclaiming any liability for the loans, the petitioner Foundation maintains that these were
contracted by petitioner Tan in his personal capacity and that it did not benefit therefrom. On the other
hand, while admitting that the loans were his personal obligation, petitioner Tan avers that he had an
unwritten agreement with the respondent Bank that these loans would be renewed on a year-to-year
basis and paid from the proceeds of his shares of stock in the Lapulapu Industries Corp.

These contentions are untenable.

The Court particularly finds as incredulous petitioner Tans allegation that he was made to sign
blank loan documents and that the phrase IN MY OFFICIAL/PERSONAL CAPACITY was
superimposed by the respondent Banks employee despite petitioner Tans protestation. The Court is
hard pressed to believe that a businessman of petitioner Tans stature could have been so careless as
to sign blank loan documents.

Finally, the appellate court did not err in holding the petitioners jointly and solidarily liable as it
applied the doctrine of piercing the veil of corporate entity. The petitioner Foundation asserts that it has
a personality separate and distinct from that of its President, petitioner Tan, and that it cannot be held
solidarily liable for the loans of the latter.

The Court agrees with the CA that the petitioners cannot hide behind the corporate veil under the
following circumstances:

The evidence shows that Tan has been representing himself as the President of Lapulapu
Foundation, Inc. He opened a savings account and a current account in the names of the corporation,
and signed the application form as well as the necessary specimen signature cards (Exhibits A, B and
C) twice, for himself and for the foundation. He submitted a notarized Secretarys Certificate (Exhibit G)
from the corporation, attesting that he has been authorized, inter alia, to sign for and in behalf of the
Lapulapu Foundation any and all checks, drafts or other orders with respect to the bank; to transact
business with the Bank, negotiate loans, agreements, obligations, promissory notes and other
commercial documents; and to initially obtain a loan for P100,000.00 from any bank (Exhibits G-1 and
G-2). Under these circumstances, the defendant corporation is liable for the transactions entered into
by Tan on its behalf.

Per its Secretary’s Certificate, the petitioner Foundation had given its President, petitioner Tan,
ostensible and apparent authority to inter aliadeal with the respondent Bank. Accordingly, the petitioner
Foundation is estopped from questioning petitioner Tans authority to obtain the subject loans from the
respondent Bank. It is a familiar doctrine that if a corporation knowingly permits one of its officers, or
any other agent, to act within the scope of an apparent authority, it holds him out to the public as
possessing the power to do those acts; and thus, the corporation will, as against anyone who has in
good faith dealt with it through such agent, be estopped from denying the agents authority.
In fine, there is no cogent reason to deviate from the CAs ruling that the petitioners are jointly and
solidarily liable for the loans contracted with the respondent Bank.

WHEREFORE, premises considered, the petition is DENIED.

37. HYDRO RESOURCES CONTRACTORS CORPORATION vs. NATIONAL IRRIGATION

ADMINISTRATION
[G.R. No. 160215. November 10, 2004]
J. YNARES-SANTIAGO
Facts:

34
 In a competitive bidding conducted by the National Irrigation Administration (NIA) in 1978, Hydro
Resources Contractors Corporation (Hydro) was awarded Contract MPI-C-2 involving the main civil
[5]

work of the Magat River Multi-Purpose Project.

On November 6, 1978, the parties signed Amendment No. 1 of the contract whereby NIA agreed
[6]

to increase the foreign currency allocation for equipment financing from US$28,000,000.00 for the first
and second years of the contract to US$38,000,000.00, to be made available in full during the first year
of the contract to enable the contractor to purchase the needed equipment and spare parts, as
approved by NIA, for the construction of the project.
On April 9, 1980, the parties entered into a Memorandum of Agreement (MOA) whereby they
[7]

agreed that Hydro may directly avail of the foreign currency component of the contract for the sole
purpose of purchasing necessary spare parts and equipment for the project. This was made in order
for the contractor to avoid further delays in the procurement of the said spare parts and equipment.
After MOA was signed, NIA and Hydro entered into a Supplemental Memorandum of Agreement
(Supplemental MOA) to include among the items to be financed out of the foreign currency portion of
the Contract construction materials, supplies and services as well as equipment and materials for
incorporation in the permanent works of the Project. [8]

Hydro substantially completed the project in 1982 and the final acceptance was made by NIA.
During the period of the execution of the contract, the foreign exchange value of the peso against
the US dollar declined and steadily deteriorated. Whenever Hydros availment of the foreign currency
component exceeded the amount of the foreign currency payable to Hydro for a particular period, NIA
charged interest in dollars based on the prevailing exchange rate instead of the fixed exchange rate of
P7.3735 to the dollar. Yet when Hydro received payments from NIA in Philippine Pesos, NIA made
deductions from Hydros foreign currency component at the fixed exchange rate of P7.3735 to US$1.00
instead of the prevailing exchange rate.
Upon completion of the project, a final reconciliation of the total entitlement of Hydro to the foreign
currency component of the contract was made. The result of this final reconciliation showed that the
total entitlement of Hydro to the foreign currency component of the contract exceeded the amount of
US dollars required by Hydro to repay the advances made by NIA for its account in the importation of
new equipment, spare parts and tools. Hydro then requested a full and final payment due to the
underpayment of the foreign exchange portion caused by price escalations and extra work orders. In
1983, NIA and Hydro prepared a joint computation denominated as the MPI-C-2 Dollar Rate Differential
on Foreign Component of Escalation. Based on said joint computation, Hydro was still entitled to a
[10]

foreign exchange differential of US$1,353,771.79 equivalent to P10,898,391.17.

Hydro then presented its claim for said foreign exchange differential to NIA on August 12, 1983 but
[11]

the latter refused to honor the same. Hydro made several demands to recover its claim until the same
[12]

was turned down with finality by then NIA Administrator Federico N. Alday, Jr.
On December 7, 1994, Hydro filed a request for arbitration with the Construction Industry Arbitration
Commission (CIAC)
NIA filed its Answer with Compulsory Counterclaim raising laches, estoppel and lack of jurisdiction
by CIAC as its special defenses.
On March 13, 1995, NIA filed a Motion to Dismiss questioning CIACs jurisdiction to take
[17]

cognizance of the case.

Dissatisfied, NIA filed a petition for certiorari and prohibition with the Court of Appeals where
the petition was dismissed.
The CIAC promulgated a decision in favor of Hydro. NIA filed a Petition for Review on Appeal
before the Court of Appeals.
The Court of Appeals reversed the judgment of the CIAC on the grounds that: (1) Hydros claim has
prescribed; (2) assuming that Hydro was entitled to its claim, the rate of exchange should be based on
a fixed rate; (3) Hydros claim is contrary to R.A. No. 529; (4) NIAs Certification of Non-Forum-Shopping
was proper even if the same was signed only by counsel and not by NIAs authorized representative;
and (5) NIA did not engage in forum-shopping.
Hydros Motion for Reconsideration was denied in Resolution of September 24, 2003. Hence, this
petition.
35
Issue:
a. Whether Administrator Cesar L. Tech has the authority to bind NIA in the joint computation of
the foreign currency differential.
Ruling:
1. Yes. As early as April 1983, Hydro and NIA, through its Administrator Cesar L. Tech, prepared
the Joint Computation which shows that Hydro is entitled to the foreign currency differential. As correctly
found by the CIAC, this computation constitutes a written acknowledgment of the debt by the debtor
under Article 1155 of the Civil Code, which states: ART. 1155. The prescription of actions is interrupted
when they are filed before the court, when there is a written extrajudicial demand by the creditors, and
when there is any written acknowledgment of the debt by the debtor.
Instead of upholding the CIAC’s findings on this point, the Court of Appeals ruled that Cesar L.
Tech’s act of signing the Joint Computation was an ultra vires act. This again is patent error. It must be
noted that the Administrator is the highest officer of the NIA. Furthermore, Hydro has been dealing with
NIA through its Administrator in all of its transactions with respect to the contract and subsequently the
foreign currency differential claim. The NIA Administrator is empowered by the Contract to grant or
deny foreign currency differential claims. It would be preposterous for the NIA Administrator to have the
power of granting claims without the authority to verify the computation of such claims.
Finally, the records of the case will show that NIA itself never disputed its Administrator’s
capacity to sign the Joint Computation because it knew that the Administrator, in fact, had such
capacity.
WHEREFORE, the petition is GRANTED. The decision and resolution of CA was REVERSED
and SET ASIDE. The Decision of the Construction Industry Arbitration Commission (CIAC)
REINSTATED.

39. G.R. No. 146667 January 23, 2007

JOHN F. McLEOD, Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (First Division), FILIPINAS SYNTHETIC FIBER
CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS, INC., STA. ROSA TEXTILES, INC.,
(PEGGY MILLS, INC.), PATRICIO L. LIM, and ERIC HU, Respondents.

Facts:

On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave
benefits, nonpayment of unused airline tickets, holiday pay, underpayment of salary and 13th month
pay, moral and exemplary damages, attorney’s fees plus interest against Filipinas Synthetic
Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu.

Complainant alleged that he was absorbed by Peggy Mills as its Vice President and Plant Manager of
the plant at Sta. Rosa, Laguna. Peggy Mills closed operations due to irreversible losses but its assets
were acquired by Sta. Rosa Textile Corporation. Complainant was hired as consultant by Sta. Rosa
Textile in November 1992 but he resigned on November 30, 1993 and while complainant was Vice
President and Plant Manager of Peggy Mills, the union staged a strike up resulting in closure of
operations due to irreversible losses as per Notice. The complainant was relied upon to settle the labor
problem but due to his lack of attention and absence the strike continued resulting in closure of the
company. He contends that the corporations are solidarily liable to him.

The Labor Arbiter rendered his decision holding all respondents as jointly and solidarily liable for
complainant’s money claims. Private Respondents, Filipinas Synthetic Fiber Corporation (Filsyn), Far
Eastern Textile Mills, Inc. (FETMI), Sta. Rosa Textiles, Inc. (SRTI), Patricio L. Lim (Patricio), and Eric
Hu appealed to the NLRC. NLRC reversed decision and a new one is entered ordering respondent
Peggy Mills, Inc. to pay complainant his retirement pay equivalent to 22.5 days for every year of service
for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495.00 a month.
All other claims are DISMISSED for lack of merit.

36
John F. McLeod (McLeod) filed a motion for reconsideration which the NLRC denied. McLeod thus filed
a petition for certiorari before the CA assailing the decision and resolution of the NLRC. CA rendered
judgment affirming NLRC decision with the modification that respondent Patricio Lim is jointly and
solidarily liable with Peggy Mills, Inc., to petitioner John F. McLeod. Hence, this petition.

Issue:

Whether or not Patricio Lim must be solidarily liable with PMI.

Ruling:

No. Patricio Lim cannot be solidarily liable with PMI.

It is settled that in the absence of malice, bad faith, or specific provision of law, a stockholder or an
officer of a corporation cannot be made personally liable for corporate liabilities. To reiterate, 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.

Personal liability of corporate directors, trustees or officers attaches only when (1) 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; (2) 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;
(3) they agree to hold themselves personally and solidarily liable with the corporation; or (4) they are
made by specific provision of law personally answerable for their corporate action.

Considering that McLeod failed to prove any of the foregoing exceptions in the present case, McLeod
cannot hold Patricio solidarily liable with PMI.

WHEREFORE, we DENY the petition and AFFIRM the Decision of the Court of Appeals in CA-G.R. SP
No. 55130, with the following MODIFICATIONS: (a) the retirement pay of John F. McLeod should be
computed at ½ month salary for every year of service for 12 years based on his salary rate of P50,495
a month; (b) Patricio L. Lim is absolved from personal liability; and (c) the awards for moral and
exemplary damages and attorney’s fees are deleted. No pronouncement as to costs.

40. ANTONIO CARAG VS NLRC ET. AL., G.R NO. 147590, APRIL 2, 2007

FACTS:
National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union
(MACLU), on behalf of all of MAC’s rank and file employees, filed a complaint against MAC for illegal
dismissal brought about by its illegal closure of business. They included in their complaint Mariveles
Apparel Corporation’s Chairman of the Board Antonio Carag in order to be solidarily liable for the illegal
dismissal and illegal closure of business. According to the Labor Union of MAC, the Corporation
suddenly closed its business without following the notice as laid down in the Labor Law of the
Philippines. The Labor Arbiter decided in favor of the Labor Union and held that Antonio Carag being
the owner of the corporation be solidarily liable for the payment of separation pay and backwages of
the rank and file employees. Antonio Carag questioned the decision of the Labor Arbiter and alleged
that the Corporation and its officers have separate and distinct personality and the latter cannot be held
liable solidarily in cases of payment of damages.

Issue:
Whether or not Antonio Carag be held solidarily liable for the payment of the illegally dismissed
employees.

Held:

37
 The Supreme Court held that the rule is that a director is not personally liable for the debts of
the corporation, which has a separate legal personality of its own. Section 31 of the Corporation Code
lays down the exceptions to the rule, as follows:

Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly vote
for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence
or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors or trustees shall be liable jointly and severally
for all damages resulting therefrom suffered by the corporation, its stockholders or members
and other persons.
Section 31 makes a director personally liable for corporate debts if he wilfully and knowingly votes
for or assents to patently unlawful acts of the corporation. Section 31 also makes a director
personally liable if he is guilty of gross negligence or bad faith in directing the affairs of the
corporation.
Complainants did not allege in their complaint that Carag wilfully and knowingly voted for or
assented to any patently unlawful act of MAC. Complainants did not present any evidence showing
that Carag wilfully and knowingly voted for or assented to any patently unlawful act of MAC. Neither
did Arbiter Ortiguerra make any finding to this effect in her Decision.
For a wrongdoing to make a director personally liable for debts of the corporation, the
wrongdoing approved or assented to by the director must be a patently unlawful act. Mere failure to
comply with the notice requirement of labor laws on company closure or dismissal of employees does
not amount to a patently unlawful act. Patently unlawful acts are those declared unlawful by
law which imposes penalties for commission of such unlawful acts. There must be a law declaring the
act unlawful and penalizing the act.

Wherefore, Antonio Carag is not liable to the debt of the Corporation as to the illegally dismissed
employees of MAC.
41. NIELSON & COMPANY, INC., vs. LEPANTO CONSOLIDATED MINING COMPANY,
G. R. No. L-21601; December 28, 1968

FACTS:
On January 30, 1937, the parties have entered into an operating agreement wherein Nielson & Co.
would operate and manage the mining properties owned by Lepanto Consolidated Mining Co. for a
period of five years. Before the lapse of the five year period, the parties have renewed the contract for
another five years with modifications made by Lepanto on the management fee.

On its modified contract Nielson will receive (1) 10% of the dividends declared and paid, when and
as paid during the period of the contract and at the end of each year, (2) 10% of any depletion reserve
that may set up, and (3) 10% of any amount expended during the year out of surplus earnings for capital
account.

In January, 1942 operation of the mining properties was disrupted on account of the war. The
Japanese forces thereafter occupied the mining properties, operated the mines during the continuance
of the war, and who were ousted from the mining properties only in August of 1945.

After the mining properties were liberated from the Japanese forces, Lepanto took possession
thereof and embarked in rebuilding and reconstructing the mines and mill. The restoration lasted for
nearly three years and the mines have resumed its operation under the exclusive management of
Lepanto.

38
 Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement arose
between NIELSON and LEPANTO over the status of the operating contract in question which as
renewed expired in 1947.

ISSUE: Whether or not Nielson is entitled to his share in the stock dividends.

HELD: Stock dividends cannot be issued to a person who is not a stockholder in payment of services
rendered.

Section 16 of the Corporation Law, in part, provides a follows:

No corporation organized under this Act shall create or issue bills, notes or other evidence of
debt, for circulation as money, and no corporation shall issue stock or bonds except in exchange for
actual cash paid to the corporation or for: (1) property actually received by it at a fair valuation equal to
the par or issued value of the stock or bonds so issued; and in case of disagreement as to their value,
the same shall be presumed to be the assessed value or the value appearing in invoices or other
commercial documents, as the case may be; and the burden or proof that the real present value of the
property is greater than the assessed value or value appearing in invoices or other commercial
documents, as the case may be, shall be upon the corporation, or for (2) profits earned by it but not
distributed among its stockholders or members; Provided, however, That no stock or bond dividend
shall be issued without the approval of stockholders representing not less than two-thirds of all stock
then outstanding and entitled to vote at a general meeting of the corporation or at a special meeting
duly called for the purpose.

In the case at bar Nielson can not be paid in shares of stock which form part of the stock dividends
of Lepanto for services it rendered under the management contract. We sustain the contention of
Lepanto that the understanding between Lepanto and Nielson was simply to make the cash value of
the stock dividends declared as the basis for determining the amount of compensation that should be
paid to Nielson, in the proportion of 10% of the cash value of the stock dividends declared. In other
words, Nielson must still be paid his 10% fee using as the basis for computation the cash value of the
stock dividends declared.

Moreover, from the above-quoted provision of Section 16 of the Corporation Law, the
consideration for which shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed
profits. Shares of stock are given the special name “stock dividends” only if they are issued in lieu of
undistributed profits. If shares of stocks are issued in exchange of cash or property then those shares
do not fall under the category of “stock dividends”. A corporation may legally issue shares of stock in
consideration of services rendered to it by a person not a stockholder, or in payment of its indebtedness.
A share of stock issued to pay for services rendered is equivalent to a stock issued in exchange of
property, because services is equivalent to property. Likewise a share of stock issued in payment of
indebtedness is equivalent to issuing a stock in exchange for cash. But a share of stock thus issued
should be part of the original capital stock of the corporation upon its organization, or part of the stocks
issued when the increase of the capitalization of a corporation is properly authorized. In other words, it
is the shares of stock that are originally issued by the corporation and forming part of the capital that
can be exchanged for cash or services rendered, or property; that is, if the corporation has original
shares of stock unsold or unsubscribed, either coming from the original capitalization or from the
increased capitalization. Those shares of stock may be issued to a person who is not a stockholder, or
to a person already a stockholder in exchange for services rendered or for cash or property. But a share
of stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a
corporation.

A “stock dividend” is any dividend payable in shares of stock of the corporation declaring or
authorizing such dividend. So, a stock dividend is actually two things: (1) a dividend, and (2) the
enforced use of the dividend money to purchase additional shares of stock at par. When a corporation
issues stock dividends, it shows that the corporation’s accumulated profits have been capitalized
instead of distributed to the stockholders or retained as surplus available for distribution, in money or
kind, should opportunity offer. Far from being a realization of profits for the stockholder, it tends rather
to postpone said realization, in that the fund represented by the new stock has been transferred from
surplus to assets and no longer available for actual distribution. Thus, it is apparent that stock dividends
39
are issued only to stockholders. This is so because only stockholders are entitled to dividends. They
are the only ones who have a right to a proportional share in that part of the surplus which is declared
as dividends. A stock dividend really adds nothing to the interest of the stockholder; the proportional
interest of each stockholder remains the same. If a stockholder is deprived of his stock dividends – and
this happens if the shares of stock forming part of the stock dividends are issued to a non-stockholder
— then the proportion of the stockholder’s interest changes radically. Stock dividends are civil fruits of
the original investment, and to the owners of the shares belong the civil fruits.

42. ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and SECURITIES &
EXCHANGE COMMISSION, petitioners, vs.COURT OF APPEALS and IGLESIA NI CRISTO,
respondents.
FACTS:
In 1971, the ISLAMIC DIRECTORATE OF THE PHILIPPINES ("IDP") was incorporated with the
primary purpose of establishing a mosque, school, and other religious infrastructures in Quezon City.
IDP purchased a 49,652-square meter lot in Tandang Sora, QC, which was covered by TCT Nos. RT-
26520 (176616) and RT-26521 (170567). When President Marcos declared martial law in 1972, most
of the members of the 1971 Board of Trustees ("Tamano Group")flew to the Middle East to escape
political persecution. Thereafter, two contending groups claiming to be the IDP Board of Trustees
sprung: the Carpizo group and Abbas group. In a suit between the two groups, SEC rendered a decision
in 1986 declaring both groups to be null and void. SEC recommeded that the a new by-laws be
approved and a new election be conducted upon the approval of the by-laws. However, the SEC
recommendation was not heeded. In 1989, the Carpizo group passed a Board Resolution authorizing
the sale of the land to Iglesia Ni Cristo ("INC"), and a Deed of Sale was eventually executed. In 1991,
the Tamano Group filed a petition before the SEC questioning the sale. Meanwhile, INC filed a suit for
specific performance before RTC Branch 81 against the Carpizo group. INC also moved to compel a
certain Leticia Ligon (who is apparently the mortgagee of the lot) to surrender the title. The Tamano
group sought to intervene, but the intervention was denied despite being informed of the pending SEC
case. In 1992, the Court subsequently ruled that the INC as the rightful owner of the land, and ordered
Ligon to surrender the titles for annotation. Ligon appealed to CA and SC, but her appeals were denied.
In 1993, the SEC ruled that the sale was null and void . On appeal CA reversed the SEC ruling.
ISSUE: W/N the sale between the Carpizo group and INC is null and void.
RULING:
YES. Since the SEC has declared the Carpizo group as a void Board of Trustees, the sale it entered
into with INC is likewise void. Without a valid consent of a contracting party, there can be no valid
contract. In this case, the IDP, never gave its consent, through a legitimate Board of Trustees, to the
disputed Deed of Absolute Sale executed in favor of INC. Therefore, this is a case not only of vitiated
consent, but one where consent on the part of one of the supposed contracting parties is totally wanting.
Ineluctably, the subject sale is void and produces no effect whatsoever. Further, the Carpizo group
failed to comply with Section 40 of the Corporation Code, which provides that: " ... a corporation may,
by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or
otherwise dispose of all or substantially all of its property and assets... when authorized by the vote of
the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in case of
non-stock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholders' or
members' meeting duly called for the purpose...."
The subject lot constitutes the only property of IDP. Hence, its sale to a third-party is a sale or disposition
of all the corporate property and assets of IDP. For the sale to be valid, the majority vote of the legitimate
Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the corporation
should have been obtained. These twin requirements were not met in the case at bar.
43. G.R. No. L-60502 July 16, 1991
PEDRO LOPEZ DEE, petitioner,

40
vs. SECURITIES AND EXCHANGE COMMISSION, HEARING OFFICER EMMANUEL SISON,
NAGA TELEPHONE CO., INC., COMMUNICATION SERVICES, INC., LUCIANO MAGGAY,
AUGUSTO FEDERIS, NILDA RAMOS, FELIPA JAVALERA, DESIDERIO SAAVEDRA,
respondents.
G.R. No. L-63922 July 16, 1991
JUSTINO DE JESUS, SR., PEDRO LOPEZ DEE, JULIO LOPEZ DEE, and VICENTE TORDILLA,
JR., petitioners, vs. INTERMEDIATE APPELLATE COURT, LUCIANO MAGGAY, NILDA I. RAMOS,
DESIDERIO SAAVEDRA, AUGUSTO FEDERIS, ERNESTO MIGUEL, COMMUNICATION
SERVICES, INC., and NAGA TELEPHONE COMPANY, INC., respondents.
Preemptive Rights (Sec.39) (Corporate Law)

Facts:
In 1954, Naga Telephone Company, Inc. (Natelco) was organized, the authorized capital was
P100,000.00. Natelco decided to increase its authorized capital to P3,000,000.00 in 1974. As required
by the Public Service Act, Natelco filed an application for the approval of the increased authorized
capital with the then Board of Communications under BOC Case 74-84. On 8 January 1975, a decision
was rendered in said case, approving the said application subject to certain conditions, among which
was "That the issuance of the shares of stocks will be for a period of one year from the date hereof,
'after which no further issues will be made without previous authority from this Board." Pursuant to the
approval given by the then Board of Communications, Natelco filed its Amended Articles of
Incorporation with the Securities and Exchange Commission (SEC). When the amended articles were
filed with the SEC, the original authorized capital of P100,000.00 was already paid. Of the increased
capital of P2,900,000.00 the subscribers subscribed to P580,000.00 of which P145,000 was fully paid.

The capital stock of Natelco was divided into 213,000 common shares and 87,000 preferred shares,
both at a par value of P10.00 per shares. On 12 April 1977, Natelco entered into a contract with
Communication Services, Inc. (CSI) for the "manufacture, supply, delivery and installation" of telephone
equipment. In accordance with this contract, Natelco issued 24,000 shares of common stocks to CSI
on the same date as part of the downpayment. On 5 May 1979, another 12,000 shares of common
stocks were issued to CSI. In both instances, no prior authorization from the Board of Communications,
now the National Telecommunications Commission, was secured pursuant to the conditions imposed
by the decision in BOC Case 74-84. On 19 May 1979, the stockholders of the Natelco held their annual
stockholders' meeting to elect their seven directors to their Board of Directors, for the year 1979-1980.
In this election Pedro Lopez Dee was unseated as Chairman of the Board and President of the
Corporation, but was elected as one of the directors, together with his wife, Amelia Lopez Dee. In the
election CSI was able to gain control of Natelco when the latter's legal counsel, Atty. Luciano Maggay
won a seat in the Board with the help of CSI. In the reorganization Atty. Maggay became president.
Dee having been unseated in the election, filed a petition in the SEC (SEC Case 1748), questioning
the validity of the elections of 19 May 1979 upon the main ground that there was no valid list of
stockholders through which the right to vote could be determined.

As prayed for in the petition, a restraining order was issued by the SEC placing Dee and the other
officers of the 1978-1979 Natelco Board in hold-over capacity. The SEC restraining order was elevated
to the Supreme Court in GR 50885 where the enforcement of the SEC restraining order was restrained.
Maggay, et. al. replaced the hold-over officers. During the tenure of the Maggay Board, from 22 June
1979 to 10 March 1980, it did not reform the contract of 12 April 1977, and entered into another contract
with CSI for the supply and installation of additional equipment but also issued to CSI 113,800 shares
of common stock. Subsequently, the Supreme Court dismissed the petition in GR 50885 upon the
ground that the same was premature and the Commission should be allowed to conduct its hearing on
the controversy. The dismissal of the petition resulted in the unseating of the Maggay group from the
board of directors of Natelco in a "hold-over" capacity. In the course of the proceedings in SEC Case
1748, SEC Hearing officer Emmanuel Sison issued an order on 23 June 1981, declaring: (1) that CSI
is a stockholder of Natelco and, therefore, entitled to vote; (2) that unexplained 16,858 shares of Natelco
appear to have been issued in excess to CSI which should not be allowed to vote; (3) that 82
shareholders with their corresponding number of shares shall be allowed to vote; and (4) consequently,
41
ordering the holding of special stockholder' meeting to elect the new members of the Board of Directors
for Natelco based on the findings made in the order as to who are entitled to vote. From the foregoing
order dated 23 June 1981, Dee filed a petition for certiorari/appeal with the SEC en banc (SEC-AC
036). Thereafter, the Commission en banc rendered a decision on 5 April 1982, sustaining the order of
the Hearing Officer; dismissing the petition/appeal for lack of merit; and ordering new elections as the
Hearing Officer shall set after consultations with Natelco officers, among others. On 21 April 1982, Dee
and Natelco filed their respective motions for reconsideration. Pending resolution of the motions for
reconsideration, on 4 May 1982, the hearing officer without waiting for the decision of the commission
en banc, to become final and executory rendered an order stating that the election for directors would
be held on 22 May 1982. On 20 May 1982, the SEC en banc denied the motions for reconsideration.

Meanwhile on 20 May 1982 (GR 63922), Antonio Villasenor filed Civil Case 1507 with the Court of First
Instance of Camarines Sur, Naga City, against Luciano Maggay, Nildo I. Ramos, Desirerio Saavedra,
Augusto Federis, Ernesto Miguel, Justino de Jesus St., Vicente Tordilla, Pedro Lopez Dee and Julio
Lopez Dee, which was raffled to Branch I, presided over by Judge Delfin Vir. Sunga. Villasenor claimed
that he was an assignee of an option to repurchase 36,000 shares of common stocks of Natelco under
a Deed of Assignment executed in his favor. The Maggay group allegedly refused to allow the
repurchase of said stocks when Villasenor offered to CSI the repurchase of said stocks by tendering
payment of its price. The complaint therefore, prayed for the allowance to repurchase the aforesaid
stocks and that the holding of the 22 May 1982 election of directors and officers of Natelco be enjoined.
A restraining order dated 21 May 1982 was issued by the lower court commanding desistance from the
scheduled election until further orders. Nevertheless, on 22 May 1982, as scheduled, the controlling
majority of the stockholders of the Natelco defied the restraining order, and proceeded with the
elections, under the supervision of the SEC representatives. On 25 May 1982, the SEC recognized the
fact that elections were duly held, and proclaimed that the following are the "duly elected directors" of
the Natelco for the term 1982-1983: Felipa T. Javalera, Nilda I. Ramos, Luciano Maggay, Augusto
Federis, Daniel J. Ilano, Nelin J. Ilano, Sr., and Ernesto A. Miguel. The following are the recognized
officers to wit: Luciano Maggay (President), Nilda I. Ramos (Vice-President), Desiderio Saavedra
(Secretary), Felipa Javalera (Treasurer), and Daniel Ilano (Auditor). Despite service of the order of 25
May 1982, the Lopez Dee group headed by Messrs. Justino De Jesus and Julio Lopez Dee kept
insisting no elections were held and refused to vacate their position. On 28 May 1982, the SEC issued
another order directing the hold-over directors and officers to turn over their respective posts to the
newly elected directors and officers and directing the Sheriff of Naga City, with the assistance of PC
and INP of Naga City, and other law enforcement agencies of the City or of the Province of Camarines
Sur, to enforce the aforesaid order. On 29 May 1982, the Sheriff of Naga City, assisted by law
enforcement agencies, installed the newly elected directors and officers of the Natelco, and the hold-
over officers peacefully vacated their respective offices and turned-over their functions to the new
officers. On 2 June 1982, a charge for contempt was filed by Villasenor alleging that Maggay, et. al.
have been claiming in press conferences and over the radio airlanes that they actually held and
conducted elections on 22 May 1982 in the City of Naga and that they have a new set of officers, and
that such acts of Maggay, et. al. constitute contempt of court. On 7 September 1982, the lower court
rendered judgment on the contempt charge, declaring CSI, Nilda Ramos, Luciano Maggay, Desiderio
Saavedra, Augusto Federis and Ernesto Miguel, guilty of contempt of court, and accordingly punished
with imprisonment of 6 months and to pay fine of P1,000.00 each: and ordering rNilda Ramos, Luciano
Maggay, Desiderio Saavedra, Augusto Federis and Ernesto Miguel, and those now occupying the
positions of directors and officers of NATELCO to vacate their respective positions therein, and ordering
them to reinstate the hold-over directors and officers of NATELCO, such as Pedro Lopez Dee as
President, Justino de Jesus, Sr., as Vice President, Julio Lopez Dee as Treasurer and Vicente Tordilla,
Jr. as Secretary, and others referred to as hold-over directors and officers of NATELCO in the order
dated 28 May 1982 of SEC Hearing Officer Emmanuel Sison, in SEC Case 1748, by way of
RESTITUTION, and consequently, ordering said respondents to turn over all records, property and
assets of NATELCO to said hold-over directors and officers.

The trial judge issued an order dated 10 September 1982 directing the respondents in the contempt
charge to "comply strictly, under pain of being subjected to imprisonment until they do so." Maggay, et.
al. filed on 17 September 1982, a petition for certiorari and prohibition with preliminary injunction or
restraining order against the CFI Judge of Camarines Sur, Naga City and de Jesus, Sr., et.a al., with
the then Intermediate Appellate Court which issued a resolution ordering de Jesus, Sr., et. al. to
comment on the petition, which was complied with, and at the same time temporarily refrained from
42
implementing and or enforcing the questioned judgment and order of the lower court. On 14 April 1983,
the then Intermediate Appellate Court, rendered a decision, annuling the judgment dated 7 September
1982 rendered by the trial judge on the contempt charge, and his order dated 10 September 1982,
implementing said judgment; ordering the 'hold-over' directors and officers of NATELCO to vacate their
respective offices; directing respondents to restore or re-establish Maggay, et. al. who were ejected on
22 May 1982 to their respective offices in the NATELCO; and prohibiting whoever may be the successor
of the Judge from interfering with the proceedings of the Securities and Exchange Commission in SEC-
AC 036. The order of re-implementation was issued, and, finally, the Maggay group has been restored
as the officers of the Natelco.

Lopez Dee, et. al. filed the petitions for certiorari with preliminary injunction and/or restraining order. In
the resolution of the Court En Banc dated 23 August 1983, GR 63922 was consolidated with GR 60502.

Issue:
(1) Whether the issuance of 113,800 shares of Natelco to CSI, made during the pendency of SEC Case
1748 in the Securities and Exchange Commission was valid.

(2) Whether Natelco stockholders have a right of preemption to the 113,800 shares in question; else,
whether the Maggay Board, in issuing said shares without notifying Natelco stockholders, violated their
right of pre-emption to the unissued shares .

Ruling:
(1) The issuance of 113,800 shares of Natelco stock to CSI made during the pendency of SEC Case
1748 in the Securities and Exchange Commission was valid. The findings of the SEC En Banc as to
the issuance of the 113,800 shares of stock was stated as follows: "But the issuance of 113,800 shares
was pursuant to a Board Resolution and stockholders' approval prior to 19 May 1979 when CSI was
not yet in control of the Board or of the voting shares. There is distinction between an order to issue
shares on or before 19 May 1979 and actual issuance of the shares after 19 May 1979. The actual
issuance, it is true, came during the period when CSI was in control of voting shares and the Board (if
they were in fact in control) - but only pursuant to the original Board and stockholders' orders, not on
the initiative to the new Board, elected 19 May 1979, which petitioners are questioning. The
Commission en banc finds it difficult to see how the one who gave the orders can turn around and
impugn the implementation of the orders he had previously given. The reformation of the contract is
understandable for Natelco lacked the corporate funds to purchase the CSI equipment.... Appellant had
raise the issue whether the issuance of 113,800 shares of stock during the incumbency of the Maggay
Board which was allegedly CSI controlled, and while the case was sub judice, amounted to unfair and
undue advantage. This does not merit consideration in the absence of additional evidence to support
the proposition." In effect, therefore, the stockholders of Natelco approved the issuance of stock to CSI.
(2) The issuance of the 113,800 stocks is not invalid even assuming that it was made without notice to
the stockholders as claimed by Dee, et. al.. The power to issue shares of stocks in a corporation is
lodged in the board of directors and no stockholders meeting is required to consider it because
additional issuance of shares of stocks does not need approval of the stockholders. Consequently, no
pre-emptive right of Natelco stockholders was violated by the issuance of the 113,800 shares to CSI.
45.LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION INC. VS CA

FACTS: Loyola Grand Villas Homeowners Association (LGVHAI) was organized as the association of
homeowners and residents of the Loyola Grand Villas. It was registered with the Home Financing
Corporation, the predecessor Home Insurance and Guaranty Corporation (HIGC), as the sole
homeowners' organization in the subdivision. It was organized by the developer and its first president
was Soliven, himself the owner of the developer. However, LGVHAI did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so. To their
consternation, they discovered that there were two other organizations within the subdivision, a
LGVHAI North, and a LGVHAI South Association.
43
In July1989, when Soliven inquired about the status of LGVHAI, the head of the legal dept. of the HIGC,
informed him that LGVHAI had been automatically dissolved for two reasons: First, it did not submit its
by-laws within the period required by the Corporation Code and, second, there was non-user of
corporate charter because HIGC had not received any report on the association's activities.
These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They
questioned the revocation of LGVHAI's certificate of registration without due notice and hearing and
concomitantly prayed for the cancellation of the North and South Associations by reason of the earlier
issuance of a certificate of registration in favor of LGVHAI.
After due notice and hearing, LGVHAI obtained a favorable ruling from HIGC recognizing them as the
duly registered and existing homeowners association, and declared the North and South Associations
as revoked or cancelled, among others.
The South Association appealed to the Appeals Board which dismissed the appeal for lack of merit.
The South Association in turn appealed to the Court of Appeals. However the Court of Appeals affirmed
the Resolution. The South Association filed the petition for review on certiorari.
ISSUE:
WON failure by LGVHAI 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.
RULING:
No. Section 46 reveals the legislative intent to attach a directory, and not mandatory, meaning for the
word ''must" in the first sentence thereof. The second paragraph of the law which allows the filing of by-
laws even prior to incorporation. This provision in the same section of the Code rules out mandatory
compliance with the requirement of filing the by-laws, “within 1 month after receipt of official notice of
the issuance of its certificate of incorporation by the SEC." It necessarily follows that failure to file the
by-laws within that period does not imply the "demise" of the corporation. Nonetheless, failure to file
them within the period required by law by no means tolls the automatic dissolution of a corporation.
ByLaws are indispensable to corporations, since they are required by law for an orderly management
of corporations. However, failure to file them within the period prescribed does not equate to the
automatic dissolution of a corporation.
47. CASE TITLE: Associated Bank vs. Court of Appeals G.R. No. 123793 June 29, 1998
ASSOCIATED BANK vs. COURT OF APPEALS and LORENZO SARMIENTO, JR.

FACTS:
Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) merged to form
just one banking corporation known as Associated Citizens Bank (later renamed Associated Bank), the
surviving bank. After the merger agreement had been signed, but before a certificate of merger was
issued, respondent Lorenzo Sarmiento, Jr. executed in favor of Associated Bank a promissory note,
promising to pay the bank P2.5 million on or before due date at 14% interest per annum, among other
accessory dues. For failure to pay the amount due, Sarmiento was sued by Associated Bank.



Respondent argued that the plaintiff is not the proper party in interest because the promissory
note was executed in favor of CBTC. Also, while respondent executed the promissory note in favor of
CBTC, said note was a contract pour autrui, one in favor of a third person who may demand its
fulfillment. Also, respondent claimed that he received no consideration for the promissory note and, in
support thereof, cites petitioner's failure to submit any proof of his loan application and of his actual
receipt of the amount loaned.


Based on the evidences presented, the Trial Court ruled in favor of the petitioner Associated
Bank and orders respondent Sarmiento to pay petitioner the remaining balance plus interests and
attorney’s fees. Upon appeal, the Court of Appeals reversed the decision of the lower court and held
that Associated Bank had no cause of action against Lorenzo Sarmiento, Jr. and said bank was not a
privy to the promissory note executed by Sarmiento in favor of the CBTC. It also held that the merger
of the two banks could not have vested Associate Bank with any interest arising from the promissory
note executed in favor of CBTC
after such merger.
44
ISSUES:
1.) Whether or not Associated Bank, the surviving corporation, may enforce the promissory note
made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had
been signed, but before a certificate of merger was issued



 2.) Whether or not the promissory note was a contract pour autrui and was issued without
consideration
RULING:

The Supreme Court ruled in the affirmative.
Associated Bank assumed all the rights of CBTC.
Although absorbed corporations are dissolved, there is no winding up of their affairs or liquidation of
their assets, because the surviving corporation automatically acquires all their 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 Securities and Exchange Commission (SEC) and
majority of the respective stockholders of the constituent corporations must have approved the merger.
(Section 79, Corporation Code) It will be effective only upon the issuance by the SEC of a certificate of
merger. Records do not show when the SEC approved the merger.



Granting arguendo that the effectivity date of the merger was the date of its execution, we still
cannot agree that petitioner no longer has any interest in the promissory note. The agreement itself
clearly provides that all contracts — irrespective of the date of execution — entered into in the name of
CBTC shall be understood as pertaining to the surviving bank, herein petitioner. Such must have been
deliberately included in the agreement in order to avoid giving the merger agreement a farcical
interpretation aimed at evading fulfillment of a due obligation. Thus, although the subject promissory
note names CBTC as the payee, the reference to CBTC in the note shall be construed, under the very
provisions of the merger agreement, as a reference to petitioner bank.



On the issue that the promissory note was a contract pour autrui and was issued without
consideration, the Supreme Court held it was not. In a contract pour autrui, an incidental benefit or
interest, which another person gains, is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person. The "fairest test" in determining whether the third
person's interest in a contract is a stipulation pour autrui or merely an incidental interest is to examine
the intention of the parties as disclosed by their contract. It did not indicate that a benefit or interest was
created in favor of a third person. The instrument itself says nothing on the purpose of the loan, only
the terms of payment and the penalties in case of failure to pay.



Private respondent also claims that he received no consideration for the promissory note, citing
petitioner's failure to submit any proof of his loan application and of his actual receipt of the amount
loaned. These arguments deserve no merit. Res ipsa loquitur. The instrument, bearing the signature of
private respondent, speaks for itself. Respondent Sarmiento has not questioned the genuineness and
due execution thereof. That he partially paid his obligation is itself an express acknowledgment of his
obligation.
WHEREFORE, the petition is GRANTED. The assailed Decision is SET ASIDE and the Decision of
RTC-Manila, Branch 48, in Civil Case No. 26465 is hereby REINSTATED.
49.MINDANAO SAVINGS AND LOAN ASSOCIATION INC. V. EDWARD WILLKOM
GR No. 178618; October 11, 2010
FACTS: This is a petition for review on Certiorari under rule 45 of the Rules of Court.
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan
Association, Inc. (DSLAI) are entities duly registered with the Securities and Exchange Commission,
generally serving as banks. They entered into a merger sometime in 1985, with DSLAI as the surviving
corporation. The articles of merger were not registered with the SEC due to incomplete documentation.
DSLAI eventually changed its corporate name to MSLAI by amending the article I of its article of
incorporation. The amendment was approved by the SEC. Meanwhile, the Board of Directors of FISLAI
passed a resolution, assigning its assets in favor of DSLAI which in turn assumed the former’s liabilities.
45
The business of MSLAI, however, failed was ordered its closure and placed under receivership. Prior
to the closure of MSLAI, Uy filed an action for collection of sum of money against FISLAI. The RTC
issued a summary decision in favor of Uy, directing defendants therein (which included FISLAI) to pay
the former the sum of P136, 801.70. Thereafter, sheriff Bantuas levied on six (6) parcels of land owned
by FISLAI and Willkom was the highest bidder. New certificates of title covering the subject properties
were issued in favor of Willkom who sold one of the subject parcels of land to Go. MSLAI, represented
by PDIC, filed a complaint for Annulment of Sheriff’s Sale, Cancellation of Title and Reconveyance of
Properties :
ISSUE:
Whether or not the merger between FISLAI and DSLAI (now MSLAI) valid and in effect?
HELD:
NO. In merger, one of the corporations survives 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 their rights, privileges, and powers, as well as their
liabilities. The merger, however, does not become effective upon the mere agreement of the
constituent. Since a merger or consolidation involves fundamental changes in the corporation, as well
as in the rights of stockholders and creditors, there must be an express provision of law authorizing
them. The steps necessary to accomplish a merger or consolidation, as provided for in sections 76,[24]
77,[25] 78,[26] and 79[27] Of the corporation code, are:
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include,
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 berespected;
(3) Execution of the formal agreement, referred to as the articles of merger or 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
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. 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 and at
such the merger is still incomplete and thus invalid.

50. REPUBLIC OF THE PHILIPPINES v. SANDIGANBAYAN

The PCGG cannot vote sequestered shares to elect the ETPI Board of Directors or to amend the
Articles of Incorporation for the purpose of increasing the authorized capital stock unless there is a
prima facie evidence showing that said shares are ill-gotten and there is an
imminent danger of dissipation.
FACTS: Two sets of board and officers of Eastern Telecommunications, Philippines, Inc. (ETPI) were
elected, one by the Presidential Commission on Good Government (PCGG) and the other by
the registered ETPI stockholders. Victor Africa, a stockholder of ETPI filed a petition for Certiorari
before the Sandiganbayan alleging that the PCGG had been “illegally exercising the rights of
stockholders of ETPI,” in the election of the members of the board of directors. The Sandiganbayan
ruled that only the registered owners, their duly authorized representatives or their proxies may vote
their corresponding shares.
46
 The PCGG filed a petition for certiorari, mandamus and prohibition before the Court which was
granted. The Court referred the PCGG’s petition to hold the special stockholders’ meeting to the
Sandiganbayan for reception of evidence and resolution. The Sandiganbayan granted the PCGG “
authority to cause the holding of a special stockholders’ meeting of ETPI and held that there was an
urgent necessity to increase ETPI’s authorized capital stock; there existed a prima facie factual
foundation for the issuance of the writ of sequestration covering the Class “A” shares of stock; and
the PCGG was entitled to vote the sequestered shares of stock. The PCGG-controlled ETPI board of
directors held a meeting and the increase in ETPI’s authorized capital stock from P250 Million to P2.6
Billion was “unanimously approved”.

Africa filed a motion to nullify the stockholders meeting, contending that only the Court, and not
the Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and vote
the sequestered shares. The Sandiganbayan denied the motions for reconsideration of prompting
Africa to file before the Court a second petition, challenging the Sandiganbayan Resolutions
authorizing the holding of a stockholders meeting and the one denying the motion for reconsideration.

ISSUE: Whether the PCGG can vote the sequestered ETPI Class “A” shares in the stockholders
meeting for the election of the board of directors.
RULING: The principle laid down in Baseco vs. PCGG was further enhanced in the subsequent
cases of Cojuangco v. Calpo and Presidential Commission on Good Government v. Cojuangco, Jr.,
where the Court developed a “two-tiered” test in determining whether the PCGG may vote
sequestered shares. The issue of whether PCGG may vote the sequestered shares in SMC
necessitates a determination of at least two factual matters: a.) whether there is prima facie evidence
showing that the said shares are ill-gotten and thus belong to the state; and b.) whether there is an
immediate danger of dissipation thus necessitating their continued sequestration and voting by the
PCGG while the main issue pends with the Sandiganbayan.

The two-tiered test, however, does not apply in cases involving funds of “public character.” In
such cases, the government is granted the authority to vote said shares, namely: (1) Where
government shares are taken over by private persons or entities who/which registered them in their
own names, and (2) Where the capitalization or shares that were acquired with public funds somehow
landed in private hands. In short, when sequestered shares registered in the names of private
individuals or entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered test
is applied. However, when the sequestered shares in the name of private individuals or entities are
shown, prima facie, to have been (1) originally government shares, or (2) purchased with public funds
or those affected with public interest, then the two-tiered test does not apply.
The rule in the jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict
ownership of sequestered property. It is a mere conservator. It may not vote the shares in a
corporation and elect members of the board of directors. The only conceivable exception is in a case
of a takeover of a business belonging to the government or whose capitalization comes from public
funds, but which landed in private hands as in BASECO. In short, the Sandiganbayan held that the
public character exception does not apply, in which case it should have proceeded to apply the two-
tiered test. This it failed to do. The questions thus remain if there is prima facie evidence showing that
the subject shares are ill- gotten and if there is imminent danger of dissipation. The Court is not,
however, a trier of facts, hence, it is not in a position to rule on the correctness of the PCGG’
s contention. Consequently, the issue must be remanded to the Sandiganbayan for resolution.

51. REPUBLIC OF THE PHILIPPINES v. SANDIGANBAYAN

47
 The PCGG cannot vote sequestered shares to elect the ETPI Board of Directors or to amend
the Articles of Incorporation for the purpose of increasing the authorized capital stock unless there is a
prima facie evidence showing that said shares are ill-gotten and there is an imminent danger of
dissipation.

FACTS: Two sets of board and officers of Eastern Telecommunications, Philippines, Inc. (ETPI) were
elected, one by the Presidential Commission on Good Government (PCGG) and the other by the
registered ETPI stockholders. Victor Africa, a stockholder of ETPI filed a petition for Certiorari before
the Sandiganbayan alleging that the PCGG had been “illegally exercising the rights of stockholders of
ETPI,” in the election of the members of the board of directors. The Sandiganbayan ruled that only the
registered owners, their duly authorized representatives or their proxies may vote their corresponding
shares.
The PCGG filed a petition for certiorari, mandamus and prohibition before the Court which was granted.
The Court referred the PCGG’s petition to hold the special stockholders’ meeting to the Sandiganbayan
for reception of evidence and resolution. The Sandiganbayan granted the PCGG “authority to cause
the holding of a special stockholders’ meeting of ETPI and held that there was an urgent necessity to
increase ETPI’s authorized capital stock; there existed a prima facie factual foundation for the issuance
of the writ of sequestration covering the Class “A” shares of stock; and the PCGG was entitled to vote
the sequestered shares of stock. The PCGG-controlled ETPI board of directors held a meeting and the
increase in ETPI’s authorized capital stock from P250 Million to P2.6 Billion was “unanimously
approved”.
Africa filed a motion to nullify the stockholders meeting, contending that only the Court, and not the
Sandiganbayan, has the power to authorize the PCGG to call a stockholders meeting and vote the
sequestered shares. The Sandiganbayan denied the motions for reconsideration of prompting Africa to
file before the Court a second petition, challenging the Sandiganbayan Resolutions authorizing the
holding of a stockholders meeting and the one denying the motion for reconsideration.

ISSUE: Whether the PCGG can vote the sequestered ETPI Class “A” shares in the stockholders
meeting for the election of the board of directors.

RULING: The principle laid down in Baseco vs. PCGG was further enhanced in the subsequent cases
of Cojuangco v. Calpo and Presidential Commission on Good Government v. Cojuangco, Jr., where
the Court developed a “two-tiered” test in determining whether the PCGG may vote sequestered
shares. The issue of whether PCGG may vote the sequestered shares in SMC necessitates a
determination of at least two factual matters: a.) whether there is prima facie evidence showing that the
said shares are ill-gotten and thus belong to the state; and b.) whether there is an immediate danger of
dissipation thus necessitating their continued sequestration and voting by the PCGG while the main
issue pends with the Sandiganbayan.
The two-tiered test, however, does not apply in cases involving funds of “public character.” In such
cases, the government is granted the authority to vote said shares, namely: (1) Where government
shares are taken over by private persons or entities who/which registered them in their own names,
and (2) Where the capitalization or shares that were acquired with public funds somehow landed in
private hands. In short, when sequestered shares registered in the names of private individuals or
entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered test is applied.
However, when the sequestered shares in the name of private individuals or entities are shown, prima
facie, to have been (1) originally government shares, or (2) purchased with public funds or those
affected with public interest, then the two-tiered test does not apply.
The rule in the jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of
sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect
members of the board of directors. The only conceivable exception is in a case of a takeover of a
business belonging to the government or whose capitalization comes from public funds, but which
landed in private hands as in BASECO. In short, the Sandiganbayan held that the public character
exception does not apply, in which case it should have proceeded to apply the two-tiered test. This it
failed to do. The questions thus remain if there is prima facie evidence showing that the subject shares
are ill- gotten and if there is imminent danger of dissipation. The Court is not, however, a trier of facts,
hence, it is not in a position to rule on the correctness of the PCGG’s contention. Consequently, the
issue must be remanded to the Sandiganbayan for resolution.

52.G.R. No. 147062-64 December 14, 2001

48
REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG), petitioner, vs.COCOFED, ET AL. and BALLARES, ET AL.,1 EDUARDO
M. COJUANGCO JR. and the SANDIGANBAYAN (First Division) respondents.
FACTS:

Immediately after the 1986 EDSA Revolution, then President Corazon C. Aquino issued Executive
Order (EO) Nos. 1,5 26 and 14.7

"On the explicit premise that 'vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad,' the Presidential Commission on Good Government (PCGG) was created by Executive Order
No. 1 to assist the President in the recovery of the ill-gotten wealth thus accumulated whether located
in the Philippines or abroad.

Pursuant to these laws, the PCGG issued and implemented numerous sequestrations, freeze orders
and provisional takeovers of allegedly ill-gotten companies, assets and properties, real or personal.

Among the properties sequestered by the Commission were shares of stock in the United Coconut
Planters Bank (UCPB) registered in the names of the alleged "one million coconut farmers," the so-
called Coconut Industry Investment Fund companies (CIIF companies) and Private Respondent
Eduardo Cojuangco Jr. (hereinafter "Cojuangco").

In connection with the sequestration of the said UCPB shares, the PCGG instituted an action for
reconveyance, reversion, accounting, restitution and damages in the Sandiganbayan.

Upon Motion of Private Respondent COCOFED, the Sandiganbayan issued a Resolution lifting the
sequestration of the subject UCPB shares on the ground that herein private respondents – in particular,
COCOFED and the so-called CIIF companies – had not been impleaded by the PCGG as parties-
defendants in its Complaint for reconveyance, reversion, accounting, restitution and damages.

This Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari in the Supreme
Court (SC). Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding of elections
for the Board of Directors of UCPB. However, the PCGG applied for and was granted by the SC a
restraining order enjoining the holding of the election. Subsequently, SC lifted the Restraining Order
and ordered the UCPB to proceed with the election of its board of directors. Furthermore, it allowed the
sequestered shares to be voted by their registered owners.

The victory of the registered shareholders was fleeting because the SC, acting on the solicitor general's
Motion for Clarification/Manifestation, issued a Resolution declaring that "the right of petitioners [herein
private respondents] to vote stock in their names at the meetings of the UCPB cannot be conceded at
this time. That right still has to be established by them before the Sandiganbayan. Until that is done,
they cannot be deemed legitimate owners of UCPB stock and cannot be accorded the right to vote
them.

The SC rendered its final Decision nullifying and setting aside the Resolution of the Sandiganbayan
which, as earlier stated, lifted the sequestration of the subject UCPB shares

Six years later, the Board of Directors of UCPB received from the ACCRA Law Office a letter written
on behalf of the COCOFED and the alleged nameless one million coconut farmers, demanding the
holding of a stockholders' meeting for the purpose of, among others, electing the board of directors. In
response, the board approved a Resolution calling for a stockholders' meeting on March 6, 2001 at
three o'clock in the afternoon.
49
Later, "COCOFED, et al. and Ballares, et al." filed the "Class Action Omnibus Motion" asking the court
a quo:

1. To enjoin the PCGG from voting the UCPB shares of stock registered in the respective names of the
more than one million coconut farmers; and

2. To enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIIF holding
companies including those registered in the name of the PCGG.

Respondent court, after hearing the parties on oral argument, issued the assailed Order.

Hence, this Petition by the Republic of the Philippines represented by the PCGG.

ISSUE: Whether the PCGG can vote the sequestered UCPB shares.

RULING: Yes. The registered owner of the shares of a corporation exercises the right and the privilege
of voting. This principle applies even to shares that are sequestered by the government, over which the
PCGG as a mere conservator cannot, as a general rule, exercise acts of dominion. On the other hand,
it is authorized to vote these sequestered shares registered in the names of private persons and
acquired with allegedly ill-gotten wealth, if it is able to satisfy the two-tiered test devised by the Court in
Cojuangco v. Calpo and PCGG v. Cojuangco Jr.

Two clear “public character” exceptions under which the government is granted the authority to vote
the shares exist (1) Where government shares are taken over by private persons or entities who/which
registered them in their own names, and (2) Where the capitalization or shares that were acquired with
public funds somehow landed in private hands. The exceptions are based on the common-sense
principle that legal fiction must yield to truth; that public property registered in the names of non-owners
is affected with trust relations; and that the prima facie beneficial owner should be given the privilege
of enjoying the rights flowing from the prima facie fact of ownership. In short, when sequestered shares
registered in the names of private individuals or entities are alleged to have been acquired with ill-gotten
wealth, then the two-tiered test is applied. However, when the sequestered shares in the name of
private individuals or entities are shown, prima facie, to have been (1) originally government shares, or
(2) purchased with public funds or those affected with public interest, then the two-tiered test does not
apply. Rather, the public character exceptions in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail;
that is, the government shall vote the shares.

Herein, the money used to purchase the sequestered UCPB shares came from the Coconut Consumer
Stabilization Fund (CCSF), otherwise known as the coconut levy funds. The sequestered UCPB shares
are confirmed to have been acquired with coco levies, not with alleged ill-gotten wealth. As the coconut
levy funds are not only affected with public interest, but are in fact prima facie public funds, the Court
believes that the government should be allowed to vote the questioned shares, because they belong
to it as the prima facie beneficial and true owner.

Hence, the Sandiganbayan committed grave abuse of discretion in grossly contradicting and effectively
reversing existing jurisprudence, and in depriving the government of its right to vote the sequestered
UCPB shares which are prima facie public in character.
53. EVANGELISTA vs. SANTOS
Facts: Plaintiffs are minority stockholders of the Vitali Lumber Company, Inc., a Philippine
corporation organized for the exploitation of a lumber concession in Zamboanga, Philippines; that
defendant holds more than 50 per cent of the stocks of said corporation and also is and always has
been the president, manager, and treasurer thereof; and that defendant, in such triple capacity,
50
through fault, neglect, and abandonment allowed its lumber concession to lapse and its properties
and assets to disappear, thus causing the complete ruin of the corporation and total depreciation of
its stocks. Their complaint therefore prays for judgment requiring defendant: (1) to render an account
of his administration of the corporate affairs and assets: (2) to pay plaintiffs the value of their
respective participation in said assets on the basis of the value of the stocks held by each of them;
and (3) to pay the costs of suit.
The complaint does not give plaintiffs’ residence, but, for purposes of venue, alleges that defendant
resides at 2112 Dewey Boulevard, corner Libertad Street, Pasay, province of Rizal. Having been
served with summons at that place, defendant filed a motion for the dismissal of the complaint on the
ground of improper venue and also on the ground that the complaint did not state a cause of action in
favor of plaintiffs.
In support of the objection to the venue, defendant states that he is a resident of Iloilo City and not of
Pasay, defendant also presented further affidavit to the effect that while he has a house in Pasay,
where members of his family who are studying in Manila live and where he himself is sojourning for
the purpose of attending to his interests in Manila, yet he has his permanent residence in the City of
Iloilo where he is registered as a voter for election purposes and has been paying his residence
certificate.
Issue: Whether or not the plaintiffs have the right as shareholders may claim damages.
Ruling: As a general rule, no, because in the present case, the plaintiff stockholders have brought
the action not for the benefit of the corporation but for their own benefit, since they ask that the
defendant make good the losses occasioned by his mismanagement and pay to them the value of
their respective participation in the corporate assets on the basis of their respective holdings. Clearly,
this cannot be done until all corporate debts, if there be any, are paid and the existence of the
corporation terminated by the limitation of its charter or by lawful dissolution in view of the provisions
of section 16 of the Corporation Law.
It results that plaintiff's complaint shows no cause of action in their favor so that the lower court did
not err in dismissing the complaint on that ground.
However, this is not absolute because while plaintiffs ask for remedy to which they are not entitled
unless the requirement of section 16 of the Corporation Law be first complied with, we note that the
action stated in their complaint is susceptible of being converted into a derivative suit for the benefit of
the corporation by a mere change in the prayer. Such amendment, however, is not possible now,
since the complaint has been filed in the wrong court, so that the same last to be dismissed.

54. Chua vs. Court of Appeals [GR 150793, 19 November 2004]

Facts: On 28 February 1996, Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit with the
City Prosecutor of Manila charging Francis Chua and his wife, Elsa Chua, of four counts of falsification of public
documents pursuant to Article 172[3] in relation to Article 171[4] of the Revised Penal Code. The charge reads: "That
on or about May 13, 1994, in the City of Manila, Philippines, the said accused, being then a private individual, did then
and there willfully, unlawfully and feloniously commit acts of falsification upon a public document, to wit: the said
accused prepared, certified, and falsified the Minutes of the Annual Stockholders meeting of the Board of Directors of
the Siena Realty Corporation, duly notarized before a Notary Public, Atty. Juanito G. Garcia and entered in his Notarial
Registry as Doc No. 109, Page 22, Book No. IV and Series of 1994, and therefore, a public document, by making or
causing it to appear in said Minutes of the Annual Stockholders Meeting that one LYDIA HAO CHUA was present and
has participated in said proceedings, when in truth and in fact, as the said accused fully well knew that said Lydia C.
Hao was never present during the Annual Stockholders Meeting held on April 30, 1994 and neither has participated
in the proceedings thereof to the prejudice of public interest and in violation of public faith and destruction of truth as
therein proclaimed. Contrary to Law."

Thereafter, the City Prosecutor filed the Information (Criminal Case 285721) for falsification of public document, before
the Metropolitan Trial Court (MeTC) of Manila, Branch 22, against Francis Chua but dismissed the accusation against
Elsa Chua. Francis Chua, was arraigned and trial ensued thereafter. During the trial in the MeTC, Atty. Evelyn Sua-
Kho and Atty. Ariel Bruno Rivera appeared as private prosecutors and presented Hao as their first witness. After Hao’s
testimony, Chua moved to exclude Hao’s counsels as private prosecutors in the case on the ground that Hao failed
to allege and prove any civil liability in the case. In an Order, dated 26 April 1999, the MeTC granted Chua’s motion
and ordered the complainant’s counsels to be excluded from actively prosecuting Criminal Case 285721. Hao moved

51
for reconsideration but it was denied. Hao filed a petition for certiorari (SCA 99-94846), before the Regional Trial Court
(RTC) of Manila, Branch 19. The RTC gave due course to the petition and on 5 October 1999, the RTC in an order
reversed the MeTC Order. Chua moved for reconsideration which was denied. Dissatisfied, Chua filed before the
Court of Appeals a petition for certiorari. On 14 June 2001, the appellate court promulgated its Decision denying the
petition. The Court of Appeals held that the action was indeed a derivative suit, for it alleged that petitioner falsified
documents pertaining to projects of the corporation and made it appear that Chua was a stockholder and a director of
the corporation. According to the appellate court, the corporation was a necessary party to the petition filed with the
RTC and even if Hao filed the criminal case, her act should not divest the Corporation of its right to be a party and
present its own claim for damages. Chua moved for reconsideration but it was denied in a Resolution dated 20
November 2001. Hence, the petition by Chua.

Issue: Whether the criminal complaint was in the nature of a derivative suit.

Held: Under Section 36 of the Corporation Code, read in relation to Section 23, where a corporation is an injured
party, its power to sue is lodged with its board of directors or trustees. An individual stockholder is permitted to institute
a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation.
In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest.
A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary
party to the suit. And the relief which is granted is a judgment against a third person in favor of the corporation.
Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and
defend on behalf of the corporation. Under the Revised Penal Code, every person criminally liable for a felony is also
civilly liable. When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense
charged shall be deemed instituted with the criminal action, unless the offended party waives the civil action, reserves
the right to institute it separately or institutes the civil action prior to the criminal action. Not every suit filed in behalf of
the corporation is a derivative suit. For a derivative suit to prosper, it is required that the minority stockholder suing for
and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf
of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It is a condition
sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party,
but it is also the present rule that it must be served with process. The judgment must be made binding upon the
corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the
same defendants for the same cause of action. In other words, the corporation must be joined as party because it is
its cause of action that is being litigated and because judgment must be a res adjudicata against it. Herein, the
complaint was instituted by Hao against Chua for falsifying corporate documents whose subject concerns corporate
projects of Siena Realty Corporation. Clearly, Siena Realty Corporation is an offended party. Hence, Siena Realty
Corporation has a cause of action. And the civil case for the corporate cause of action is deemed instituted in the
criminal action. However, the board of directors of the corporation in this case did not institute the action against Chua.
Hao was the one who instituted the action. Nowhere is it stated that she is filing the same in behalf and for the benefit
of the corporation. Thus, the criminal complaint including the civil aspect thereof could not be deemed in the nature of
a derivative suit.

55. Expertravel & Tours, Inc. vs CA

FACTS
Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and
licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim,
while its appointed counsel was Atty. Mario Aguinaldo and his law firm.
On September 6, 1999, KAL, through Atty. Aguinaldo, filed a Complaint against ETI for the collection
of the principal amount of P260,150.00, plus attorney’s fees and exemplary damages. The verification
and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that he
was the resident agent and legal counsel of KAL and had caused the preparation of the complaint.
ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to
execute the verification and certificate of non-forum shopping. KAL opposed the motion, contending
that Atty. Aguinaldo was its resident agent and was registered as such with the SEC. It was further
alleged that Atty. Aguinaldo was also the corporate secretary of KAL.
The petitioner on the other hand, maintains that the RTC cannot take judicial notice of the said
teleconference without prior hearing, nor any motion therefore. KAL submitted an Affidavit alleging that
the board of directors conducted a special teleconference on June 25, 1999, which Suk Kyoo Kim and
Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of directors
approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and

52
to file the complaint. Suk Kyoo Kim also alleged, however, that the corporation had no written copy of
the aforesaid resolution.
Issue: Whether or not a special teleconference would authorize Atty. Aguinaldo to certify a certification
against non-forum shopping
Ruling
In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf
of the said corporation, by a specifically authorized person, including its retained counsel, who has
personal knowledge of the facts required to be established by the documents. If the authority of a party’s
counsel to execute a certificate of non-forum shopping is disputed by the adverse party, the former is
required to show proof of such authority or representation.
In this case, the petitioner, as the defendant in the RTC, assailed the authority of Atty. Aguinaldo to
execute the requisite verification and certificate of non-forum shopping as the resident agent and
counsel of the respondent. It was, thus, incumbent upon the respondent, as the plaintiff, to allege and
establish that Atty. Aguinaldo had such authority to execute the requisite verification and certification
for and in its behalf. The respondent, however, failed to do so.
In this age of modern technology, the courts may take judicial notice that business transactions may be
made by individuals through teleconferencing. Teleconferencing is interactive group communication
(three or more people in two or more locations) through an electronic medium. In general terms,
teleconferencing can bring people together under one roof even though they are separated by hundreds
of miles. This type of group communication may be used in a number of ways, and have three basic
types: (1) video conferencing—television-like communication augmented with sound; (2) computer
conferencing—printed communication through keyboard terminals, and (3) audio-conferencing—verbal
communication via the telephone with optional capacity for telewriting or telecopying. A teleconference
represents a unique alternative to face-to-face (FTF) meetings. It was first introduced in the 1960’s with
American Telephone and Telegraph’s Picturephone. At that time, however, no demand existed for the
new technology. Travel costs were reasonable and consumers were unwilling to pay the monthly
service charge for using the picturephone, which was regarded as more of a novelty than as an actual
means for everyday communication. In time, people found it advantageous to hold teleconferencing in
the course of business and corporate governance, because of the money saved, among other
advantages.
In the Philippines, teleconferencing and videoconferencing of members of board of directors of private
corporations is a reality, in light of Republic Act No. 8792. The Securities and Exchange Commission
issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be
complied with related to such conferences. Thus, the Court agrees with the RTC that persons in the
Philippines may have a teleconference with a group of persons in South Korea relating to business
transactions or corporate governance.
However, even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a
teleconference along with the respondent’s Board of Directors, the Court is not convinced that one was
conducted; even if there had been one, the Court is not inclined to believe that a board resolution was
duly passed specifically authorizing Atty. Aguinaldo to file the complaint and execute the required
certification against forum shopping.
56. RAMON A. GONZALES vs. THE PHILIPPINE NATIONAL BANK , 122 SCRA 489
FACTS: Petitioner Gonzales instituted a suit, as a taxpayer, against Secretary of Public Works and
Communications, the Commissioner of Public Highways, and PNB for alleged anomalies committed
regarding the bank’s extension of credit to import public works equipment intended for the massive
development program. The petitioner’s standing was questioned because he did not owned any share
in PNB. Consequently, Petitioner bought one share of PNB stocks in order to gain standing as a
stockholder. Petitioner thereafter sought to inquire and ordered PNB to produce its books and records
which the Bank refused, invoking the provisions from its charter created by Congress. The petitioner
filed petition for mandamus to compel PNB to produce its books and records.
The RTC dismissed the petition and it ruled that the right to examine and inspect corporate books is
not absolute, but is limited to purposes reasonably related to the interest of the stockholder, must be
asked for in good faith for a specific and honest purpose and not gratify curiosity or for speculative or
53
vicious purposes; that such examination would violate the confidentiality of the records of the
respondent bank as provided in Section 16 of its charter, Republic Act No. 1300, as amended; and that
the petitioner has not exhausted his administrative remedies.
ISSUE: Whether or not Petitioner may compel PNB to produce its books and records.
RULING: No. As may be noted from the Sec 74 of BP Blg. 68, among the changes introduced in the
new Code with respect to the right of inspection granted to a stockholder are the following: the records
must be kept at the principal office of the corporation; the inspection must be made on business days;
the stockholder may demand a copy of the excerpts of the records or minutes; and the refusal to allow
such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities.
However, while seemingly enlarging the right of inspection, the new Code has prescribed limitations to
the same. 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 through a prior examination, and that the
person asking for such examination must be "acting in good faith and for a legitimate purpose in making
his demand."
Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the
books of the respondent bank, he has not set forth the reasons and the purposes for which he desires
such inspection, except to satisfy himself as to the truth of published reports regarding certain
transactions entered into by the respondent bank and to inquire into their validity. The circumstances
under which he acquired one share of stock in the respondent bank purposely to exercise the right of
inspection do not argue in favor of his good faith and proper motivation. Admittedly he sought to be a
stockholder in order to pry into transactions entered into by the respondent bank even before he
became a stockholder. His obvious purpose was to arm himself with materials which he can use against
the respondent bank for acts done by the latter when the petitioner was a total stranger to the same.
He could have been impelled by a laudable sense of civic consciousness, but it could not be said that
his purpose is germane to his interest as a stockholder. The inspection sought to be exercised by the
petitioner would be violative of the provisions of its charter of PNB. The Philippine National Bank
is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule, by the
Corporation Code of the Philippines. Section 4 of the said Code provides:

SEC. 4. Corporations created by special laws or charters. — Corporations created by special laws or
charters shall be governed primarily by the provisions of the special law or charter creating them or
applicable to them, supplemented by the provisions of this Code, insofar as they are applicable. The
provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to the
right of a stockholder to demand an inspection or examination of the books of the corporation may not
be reconciled with the abovequoted provisions of the charter of the respondent bank. It is not correct
to claim, therefore, that the right of inspection under Section 74 of the new Corporation Code may apply
in a supplementary capacity to the charter of the respondent bank.
WHEREFORE, the petition is hereby DISMISSED, without costs.

57 G.R. No. L-28120 November 25, 1976

RICARDO A. NAVA, petitioner-appellant. vs. PEERS MARKETING CORPORATION, RENATO R.
CUSI and AMPARO CUSI, respondents-appellees.
Facts:
Teofilo Po, as an incorporator, subscribed to eighty shares of Peers Marketing Corporation at P180 a
share or a total par value of 8000. No certificate of stock was issued to him or, for that matter, to any
incorporator, subscriber or stockholder.
On April 2, 1966 Po sold to Ricardo A. Nava for two thousand pesos twenty of his eighty shares. In the
deed of sale Po represented that he was "the absolute and registered owner of twenty shares" of Peers
Marketing Corporation.

54
Nava requested the officers of the corporation to register the sale in the books of the corporation. The
request was denied because Po has not paid fully the amount of his subscription. Nava was informed
that Po was delinquent in the payment of the balance due on his subscription and that the corporation
had a claim on his entire subscription of eighty shares which included the twenty shares that had been
sold to Nava.
On December 21, 1966 Nava filed this mandamus action in the Court of First Instance of Negros
Occidental, Bacolod City Branch to compel the corporation and Renato R. Cusi and Amparo Cusi, its
executive vice-president and secretary, respectively, to register the said twenty shares in Nava's name
in the corporation's transfer book.
The respondents in their answer pleaded the defense that no shares of stock against which the
corporation holds an unpaid claim are transferable in the books of the corporation.

ISSUE: Whether the officers of Peers Marketing Corporation can be compelled by mandamus to enter
in its stock and transfer book the sale made by Po to Nava of the twenty shares .
RULING:
The Court hold that the transfer made by Po to Nava is not the "alienation, sale, or transfer of stock"
that is supposed to be recorded in the stock and transfer book, as contemplated in section 52 of the
Corporation Law.
As a rule, the shares which may be alienated are those which are covered by certificates of stock.
As prescribed in section 35, shares of stock may be transferred by delivery to the transferee of the
certificate properly indorsed. "Title may be vested in the transferee by delivery of the certificate with a
written assignment or indorsement thereof" There should be compliance with the mode of transfer
prescribed by law.
However, the procedure cannot be followed in the instant case because, as already noted, the twenty
shares in question are not covered by any certificate of stock in Po's name. Moreover, the corporation
has a claim on the said shares for the unpaid balance of Po's subscription. A stock subscription is a
subsisting liability from the time the subscription is made. The subscriber is as much bound to pay his
subscription as he would be to pay any other debt. The right of the corporation to demand payment is
no less incontestable.
Under the facts of this case, there is no clear legal duty on the part of the officers of the corporation to
register the twenty shares in Nava's name. Hence, there is no cause of action for mandamus.

58. Lim Tay Vs. CA

G.R. No. 126891
Date: August 5, 1998

Sy Guiok secured a loan from Lim Tay in the amount of P40,000 payable within 6 months. To secure
the payment of the aforesaid loan and interest thereon, Guiok executed a Contract of Pledge in favor
of Lim Tay. He pledged his 300 shares of stock in the Go Fay & Company Inc. Guiok obliged himself
to pay interest on said loan at the rate of 10% per annum from the date of said contract of pledge.

On the same date, Alfonso Sy Lim secured a loan, from Lim Tay in the amount of P40,000 payable in
6 months. To secure the payment of his loan, Sy Lim executed a "Contract of Pledge" covering his 300
shares of stock in Go Fay & Co. Under said contract, Sy Lim obliged himself to pay interest on his loan
at the rate of 10% per annum from the date of the execution of said contract.

The contract provided that Lim Tay was merely authorized to foreclose the pledge upon maturity of the
loans, not to own them. The foreclosure is not automatic, for it must be done in a public or private sale.

55
Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered the same to Lim
Tay. However, Guiok and Sy Lim failed to pay their respective loans and the accrued interests thereon
to Lim Tay.

In October 1990, Lim Tay filed a "Petition for Mandamus" against Go Fay & Co., with SEC praying that
an order be issued directing the corporate secretary to register the stock transfers and issue new
certificates in favor of Lim Tay; and ordering the corporation to pay all dividends due and unclaimed on
the said certificates to Lim Tay. In the interim, Sy Lim died. Guiok and the Intestate Estate of Alfonso
Sy Lim, represented by Conchita Lim, filed their Answer-In-Intervention with the SEC.

The SEC hearing officer dismissed Lim Tay's Complaint on the ground that although the SEC had
jurisdiction over the action, he failed to prove the legal basis for the secretary of the Corporation to be
compelled to register stock transfers in favor of Lim Tay and to issue new certificates of stock under his
name. His appeal was denied by SEC. He appealed with CA.

The CA debunked Lim Tay's claim that he had acquired ownership over the shares by virtue of novation,
holding that Guiok's and Sy Lim's endorsement and delivery of the shares were pursuant to Articles
2093 and 2095 of the Civil Code and that Lim Tay's receipt of dividends was in compliance with Article
2102 of the same Code.

Arguments of Lim Tay: He contends that it has acquired ownership of the shares "through extraordinary
prescription," pursuant to Article 1132 of the Civil Code, and through respondents' subsequent acts,
which amounted to a novation of the contracts of pledge. Petitioner also claims that there was dacion
en pago, in which the shares of stock were deemed sold to petitioner, the consideration for which was
the extinguishment of the loans and the interests thereon. Petitioner likewise claims that laches bars
respondents from recovering the subject shares.

Issue: Whether Lim Tay is the owner of the shares previously subjected to pledge, for him to cause
the registration of said shares in his own name.

Held: Lim Tay's ownership over the shares was not yet perfected when the Complaint was filed. The
contract of pledge certainly does not make him the owner of the shares pledged. Further, whether
prescription effectively transferred ownership of the shares, whether there was a novation of the
contracts of pledge, and whether laches had set in were difficult legal issues, which were unpleaded
and unresolved when Lim Tay asked the corporate secretary of Go Fay to effect the transfer, in his
favor, of the shares pledged to him.

Lim Tay has failed to establish a clear legal right. Lim Tay's contention that he is the owner of the said
shares is completely without merit. Lim Tay does not have any ownership rights at all. At the time Lim
Tay instituted his suit at the SEC, his ownership claim had no prima facie leg to stand on. At best, his
contention was disputable and uncertain.

Lim Tay cannot claim to have acquired ownership over the certificates of stock through extraordinary
prescription, as provided for in Article 1132 of the Civil Code.

What is required by Article 1132 is possession in the concept of an owner. Herein, Lim Tay's possession
of the stock certificates came about because they were delivered to him pursuant to the contracts of
pledge. His possession as a pledgee cannot ripen into ownership by prescription. Lim Tay expressly
repudiated the pledge, only when he filed his Complaint and claimed that he was not a mere pledgee,
but that he was already the owner of the shares. Based on the foregoing, Lim Tay has not acquired the
certificates of stock through extraordinary prescription. Neither did Lim Tay acquire the shares by virtue
of a novation of the contract of pledge. Novation cannot be presumed by Guiok's and Sy Lim's
indorsement and delivery of the certificates of stock covering the 600 shares, nor Lim Tay's receipt of
dividends from 1980 to 1983, nor the fact that Guiok and Sy Lim have not instituted any action to
recover the shares since 1980. Novation is never presumed inferred.
59. The Rural Bank of Lipa City Inc. vs. CA, GR 124535, 28, September 28, 2001

Facts:

56
Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed of Assignment,
wherein he assigned his shares, as well as those of 8 other shareholders under his control with a total
of 10,467 shares, in favor of the stockholders of the Bank represented by its directors Bernardo
Bautista, Jaime Custodio and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his
wife, Avelina, executed an Agreement wherein they acknowledged their indebtedness to the Bank in
the amount of P4M, and stipulated that said debt will be paid out of the proceeds of the sale of their
real property described in the Agreement. At a meeting of the Board of Directors of the Bank on 15
November 1993, the Villanueva spouses assured the Board that their debt would be paid on or before
December 31 of that same year; otherwise, the Bank would be entitled to liquidate their shareholdings,
including those under their control. In such an event, should the proceeds of the sale of said shares fail
to satisfy in full the obligation, the unpaid balance shall be secured by other collateral sufficient therefor.
When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board
sent them a letter demanding: (1) the surrender of all the stock certificates issued to them; and (2) the
delivery of sufficient collateral to secure the balance of their debt amounting to P3,346,898.54.
The Villanuevas ignored the bank's demands, whereupon their shares of stock were converted into
Treasury Stocks. Later, the Villanuevas, through their counsel, questioned the legality of the conversion
of their shares. On 15 January 1994, the stockholders of the Bank met to elect the new directors and
set of officers for the year 1994. The Villanuevas were not notified of said meeting. Atty. Amado Ignacio,
counsel for the Villanueva spouses, questioned the legality of the meeting and the validity of all the
proceedings therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that the
Villanuevas were no longer entitled to notice of the said meeting since they had relinquished their rights
as stockholders in favor of the Bank. Consequently, the Villanueva spouses filed with SEC, a petition
for annulment of the stockholders' meeting and election of directors and officers, with damages and
prayer for preliminary injunction Joining them as co-petitioners were Villanueva, et al. Named
respondents were the newly-elected officers and directors of the Rural Bank,. On 6 April 1994, the
Villanuevas' application for the issuance of a writ of PI was denied by the SECon the ground of lack of
sufficient basis for the issuance thereof.
However, a motion for reconsideration was granted, upon finding that since the Villanuevas' have not
disposed of their shares, whether voluntarily or involuntarily, they were still stockholders entitled to
notice of the annual stockholders' meeting was sustained by the SEC. Accordingly, a writ of PI was
issued enjoining Bautista, et. al. from acting as directors and officers of the bank. Thereafter, Bautista,
et al. filed an urgent motion to quash the writ of PI, challenging the propriety of the said writ considering
that they had not yet received a copy of the order granting the application for the writ of PI. With the
impending 1995 annual stockholders' meeting only 9 days away, the Villanuevas filed an Omnibus
Motion praying that the said meeting and election of officers be suspended or held in abeyance, and
that the 1993 Board of Directors be allowed, in the meantime, to act as such. 1 day before the scheduled
stockholders meeting, the SEC Hearing Officer granted the Omnibus Motion by issuing a TRO
preventing Bautista, et al. from holding the stockholders meeting and electing the board of directors
and officers of the Bank. A petition for Certiorari and Annulment with Damages was filed by the Rural
Bank. The SEC en banc denied the petition for certiorari. A subsequent MR was likewise denied by the
SEC en banc. A petition for review was filed before the CA assailing the Order and Resolutiojn of SEC
en banc. The appellate court upheld the ruling of the SEC. Bautista, et al.'s motion for reconsideration
was likewise denied by the CA. The bank, Bautista, et al. filed the instant petition for review.
Issue:
Whether or not there was valid transfer of the shares to the Bank.
Held:
No.
The Supreme Court held that for a valid transfer of stocks, there must be strict compliance with the
mode of transfer prescribed by law. The requirements are: (a) There must be delivery of the stock
certificate: (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and (c) To be valid against third parties, the transfer must be
recorded in the books of the corporation. As it is, compliance with any of these requisites has not been
clearly and sufficiently shown. Still, while the assignment may be valid and binding on the bank, et al.
and the Villanuevas, it does not necessarily make the transfer effective. Consequently, the bank et al.,
as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not
57
be entitled to dividends, insofar as the assigned shares are concerned. Parenthetically, the Villanuevas
cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and
transfer of the shares in question is resolved with finality.
60. VICENTE C. PONCE, PETITIONER, VS. ALSONS CEMENT CORPORATION, AND FRANCISCO
M. GIRON, JR., RESPONDENTS.
G.R. NO. 139802, December 10, 2002

FACTS:

On January 25, 1996, plaintiff (now petitioner) Vicente C. Ponce, filed a complaint with the SEC for
mandamus and damages against defendants Alsons Cement Corporation and its corporate secretary
Francisco M. Giron, Jr. In his complaint, petitioner alleged, among others that: the late Fausto G. Gaid
an incorporator of Victory Cement Corporation (VCC) (which was subsequently renamed into Alsons
Cement), subscribed AND fully paid 239,500 shares of said corporation and transferred the same to
Ponce. As evidence thereof ,Ponce presented among others a “Deed of Undertaking” and
“Indorsement” whereby Ponce acknowledges that Gaid is the owner of said shares and he was
therefore assigning/endorsing the same to the plaintiff.

He further alleged that from the time of incorporation up to the present, no certificates of stock
corresponding to the shares of Gaid were issued in the name of Fausto G. Gaid and/or the plaintiff.
And that despite repeated demands, the defendants refused and continue to refuse without any
justifiable reason to issue to plaintiff the certificates of stocks corresponding to the 239,500 shares of
Gaid, in violation of plaintiff’s right to secure the corresponding certificate of stock in his name

The Defendants moved to dismiss the case on the following grounds: the complaint states no cause of
action; and mandamus is improper and not available to petitioner. The Defendants argues that that
there being no allegation that the alleged “INDORSEMENT” was recorded in the books of the
corporation, said indorsement by Gaid to the plaintiff of the shares of stock in question—assuming that
the indorsement was in fact a transfer of stocks—was not valida gainst third persons such as ALSONS
under Section 63 of the Corporation Code. There was, therefore, no specific legal duty on the part of
the respondents to issue the corresponding certificates of stock, and mandamus will not lie.

SEC: granted the motion to dismiss

CA: “the complaint for mandamus should be dismissed for failure to state a cause of action.” Petitioner’s
.

MR was likewise denied. Hence the instant petition

ISSUE:

WON petitioner has a cause of action for a writ of mandamus considering that it did not allege that the
transfer of the shares (subject matter of the complaint) was registered in the stock and transfer book of
the corporation as stated in Sec 63 of the corporation code.

HELD: We find the instant petition without merit. The Court of Appeals did not err in ruling that petitioner
had no cause of action, and that his petition for mandamus was properly dismissed.

There is no question that Fausto Gaid was an original subscriber of respondent corporation’s 239,500
shares. This is clear from the numerous pleadings filed by either party. It is also clear from the Amended
Articles of Incorporation approved on August 9, 1995 that each share had a par value of P1.00 per
share. And, it is undisputed that petitioner had not made a previous request upon the corporate
secretary of ALSONS, respondent Francisco M. Giron Jr., to record the alleged transfer of stocks.
The Corporation Code states that:

Pursuant to Sec 63, a transfer of shares of stock not recorded in the stock and transfer book of the
corporation is non-existent as far as the corporation is concerned. As between the corporation on the
one hand, and its shareholders and third persons on the other, the corporation looks only to its books
for the purpose of determining who its shareholders are It is only when the transfer has been recorded
in the stock and transfer book that a corporation may rightfully regard the transferee as one of its
58
stockholders. From this time, the consequent obligation on the part of the corporation to recognize such
rights as it is mandated by law to recognize arises.
Hence, without such recording, the transferee may not be regarded by the corporation as one among
its stockholders and the corporation may legally refuse the issuance of stock certificates in the name
of the transferee even when there has been compliance with the requirements of Section 64 of the
Corporation Code. This is the import of Section 63 which states that “No transfer, however, shall be
valid, except 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.” The situation would be different if the petitioner was
himself the registered owner of the stock which he sought to transfer to a third party, for then he would
be entitled to the remedy of mandamus.

WHEREFORE, the petition is DENIED for lack of merit. The decision of the Court of Appeals, in CA-
G.R. SP No. 46692, which set aside that of the Securities and Exchange Commission En Banc in SEC-
AC No. 545 and reinstated the order of the Hearing Officer, is hereby AFFIRMED.

61. Ong Yong, et al. vs. Tiu, et al. [GR 144476, 8 April 2003]; also Tiu, et al. vs. Ong Yong, et al.
[GR 144629]

Facts: In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage
and incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which
was owned by David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and
Lourdes C. Tiu (the Tius), encountered dire financial difficulties. It was heavily indebted to the Philippine
National Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on the two lots where
the mall was being built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong,
William T. Ong and Julia Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription
Agreement they entered into, the Ongs and the Tius agreed to maintain equal shareholdings in FLADC:
the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to
subscribe to an additional 549,800 shares at P100.00 each in addition to their already existing
subscription of 450,200 shares. Furthermore, they agreed that the Tius were entitled to nominate the
Vice-President and the Treasurer plus 5 directors while the Ongs were entitled to nominate the
President, the Secretary and 6 directors (including the chairman) to the board of directors of FLADC.
Moreover, the Ongs were given the right to manage and operate the mall.

Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000 shares of stock while
the Tius committed to contribute to FLADC a four-storey building and two parcels of land respectively
valued at P20 million (for 200,000 shares), P30 million (for 300,000 shares) and P49.8 million (for
49,800 shares) to cover their additional 549,800 stock subscription therein. The Ongs paid in another
P70 million 3 to FLADC and P20 million to the Tius over and above their P100 million investment, the
total sum of which (P190 million) was used to settle the P190 million mortgage indebtedness of FLADC
to PNB. The business harmony between the Ongs and the Tius in FLADC, however, was shortlived
because the Tius, on 23 February 1996, rescinded the Pre-Subscription Agreement. The Tius accused
the Ongs of (1) refusing to credit to them the FLADC shares covering their real property contributions;
(2) preventing David S. Tiu and Cely Y. Tiu from assuming the positions of and performing their duties
as Vice-President and Treasurer, respectively, and (3) refusing to give them the office spaces agreed
upon. The controversy finally came to a head when the case was commenced by the Tius on 27
February 1996 at the Securities and Exchange Commission (SEC), seeking confirmation of their
rescission of the Pre-Subscription Agreement.

After hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr., issued a decision on 19
May 1997 confirming the rescission sought by the Tius. On motion of both parties, the above decision
was partially reconsidered but only insofar as the Ongs' P70 million was declared not as a premium on
capital stock but an advance (loan) by the Ongs to FLADC and that the imposition of interest on it was
correct. Both parties appealed to the SEC en banc which rendered a decision on 11 September 1998,
affirming the 19 May 1997 decision of the Hearing Officer. The SEC en banc confirmed the rescission
of the Pre-Subscription Agreement but reverted to classifying the P70 million paid by the Ongs as
premium on capital and not as a loan or advance to FLADC, hence, not entitled to earn interest. On
59
appeal, the Court of Appeals (CA) rendered a decision on 5 October 1999, modifying the SEC order of
11 September 1998.

Their motions for reconsideration having been denied, both parties filed separate petitions for review
before the Supreme Court. On 1 February 2002, the Supreme Court promulgated its Decision, affirming
the assailed decision of the Court of Appeals but with the modifications that the P20 million loan
extended by the Ongs to the Tius shall earn interest at 12% per annum to be computed from the time
of judicial demand which is from 23 April 1996; that the P70 million advanced by the Ongs to the FLADC
shall earn interest at 10% per annum to be computed from the date of the FLADC Board Resolution
which is 19 June 1996; and that the Tius shall be credited with 49,800 shares in FLADC for their
property contribution, specifically, the 151 sq. m. parcel of land. The Court affirmed the fact that both
the Ongs and the Tius violated their respective obligations under the Pre-Subscription Agreement.

On 15 March 2002, the Tius filed before the Court a Motion for Issuance of a Writ of Execution. Aside
from their opposition to the Tius' Motion for Issuance of Writ of Execution, the Ongs filed their own
"Motion for Reconsideration; Alternatively, Motion for Modification (of the February 1, 2002 Decision)"
on 15 March 2002. Willie Ong filed a separate "Motion for Partial Reconsideration" dated 8 March 2002,
pointing out that there was no violation of the Pre-Subscription Agreement on the part of the Ongs,
among others. On 29 January 2003, the Special Second Division of this Court held oral arguments on
the respective positions of the parties. On 27 February 2003, Dr. Willie Ong and the rest of the movants
Ong filed their respective memoranda. On 28 February 2003, the Tius submitted their memorandum.

Issue:
Whether the pre-Subscription Agreement executed by the Ongs is actually a subscription contract.
Whether the rescission of Pre-Subscription Agreement would result in unauthorized liquidation.
Held:

1. FLADC was originally incorporated with an authorized capital stock of 500,000 shares with the Tius
owning 450,200 shares representing the paid-up capital. When the Tius invited the Ongs to invest in
FLADC as stockholders, an increase of the authorized capital stock became necessary to give each
group equal (50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. The authorized
capital stock was thus increased from 500,000 shares to 2,000,000 shares with a par value of P100
each, with the Ongs subscribing to 1,000,000 shares and the Tius to 549,800 more shares in addition
to their 450,200 shares to complete 1,000,000 shares. Thus, the subject matter of the contract was the
1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since these were unissued shares,
the parties' Pre-Subscription Agreement was in fact a subscription contract as defined under Section
60, Title VII of the Corporation Code. A subscription contract necessarily involves the corporation as
one of the contracting parties since the subject matter of the transaction is property owned by the
corporation its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-
Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was,
from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius.
Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they were
not selling any of their own shares to them. It was FLADC that did. Considering therefore that the real
contracting parties to the subscription agreement were FLADC and the Ongs alone, a civil case for
rescission on the ground of breach of contract filed by the Tius in their personal capacities will not
prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not the Tius) had the legal
personality to file suit rescinding the subscription agreement with the Ongs inasmuch as it was the real
party in interest therein. Article 1311 of the Civil Code provides that "contracts take effect only between
the parties, their assigns and heirs." Therefore, a party who has not taken part in the transaction cannot
sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest
affected thereby.

2. The rescission of the Pre-Subscription Agreement will effectively result in the unauthorized
distribution of the capital assets and property of the corporation, thereby violating the Trust Fund

60
Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the
instances when distribution of capital assets and property of the corporation is allowed. Rescission will,
in the final analysis, result in the premature liquidation of the corporation without the benefit of prior
dissolution in accordance with Sections 117, 118, 119 and 120 of the Corporation Code
62. [GRs 134963-64, 27 September 2001];
Lim Che Boon vs. Basa [GRs 135152-53], Lim Che Boon vs. Basa [GR 137135]
Facts: In 1973, a religious group known as "The Church In Quezon City (Church Assembly Hall),
Incorporated" (CHURCH), located at 140 Talayan St., Talayan Village, Quezon City, was organized as
"an entity of the brotherhood in Christ.'' It was registered in the same year with the Securities and
Exchange Commission (SEC) as a non-stock, non-profit religious corporation for the administration of
its temporalities or the management of its properties. The Articles of Incorporation and By-laws of the
CHURCH decree that its affairs and operation shall be managed by a Board of Directors consisting of
6 members, 3 who shall be members of the CHURCH. Zealous in upholding and guarding their
Christian faith, and to ensure unity and uninterrupted exercise of their religious belief, the members of
the CHURCH vested upon the Board of Directors the absolute power "(to preserve and protect the(ir)
faith" and to admit and expel a member of the CHURCH. Admission for membership in the CHURCH
is so exacting.

Only "persons zealous of the Gospel, faithful in Church work and of sound knowledge of the Truth, as
the Board of Directors shall admit to membership, shall be members of the (CHURCH)." The procedure
for the expulsion of an erring or dissident member is prescribed in Article VII (paragraph 4) of the
CHURCH By-laws, which provides that "If it is brought to the notice of the Board of Directors that any
member has failed to observe any regulations and By-laws of the Institution (CHURCH) or the conduct
of any member has been dishonorable or improper or otherwise injurious to the character and interest
of the Institution, the Board of Directors may by resolution without assigning any reason therefor expel
such member from such Institution and he shall then forfeit his interest, rights and privileges in the
Institution."

As early as 1988, the Board of Directors observed that certain members of the CHURCH, including
Alfredo Long, Joseph Lim, Liu Yek See, and Felix Almeria, exhibited "conduct which was dishonorable,
improper and injurious to the character and interest of the (CHURCH)" by "introducing (to the members)
doctrines and teachings which were not based on the Holy Bible" and the Principles of Faith embraced
by the CHURCH. Confronted with this situation, Lydia Basa, Anthony Sayheeliam and Yao Chek, as
members of the Board of Directors, and some responsible members of the CHURCH, advised Long, et
al. "to correct their ways" and warned them that if they persist in their highly improper conduct, they will
be dropped from the membership of the CHURCH; during Sunday worship gatherings, "in small group
meetings and even one-on-one personal talk with them." Long et al. ignored these repeated
admonitions. Alarmed that Long, et al.'s conduct will continue to undermine the integrity of the Principles
of Faith of the CHURCH, the Board of Directors, during its 30 August 1993 regular meeting held for the
purpose of reviewing and updating the membership list of the CHURCH, removed from the said list
certain names of members, including the names of Joseph Lim, Liu Yek See, Alfredo Long and Felix
Almeria.

They were removed for espousing doctrines inimical or injurious to the Principles of Faith of the
CHURCH. The Board also updated the list by removing the names of those who have migrated to other
countries, those deceased and those whom the CHURCH had lost contact with. All the then 6 members
of the Board, namely, Directors Lim Che Boon, Tan Hon Koc, Anthony Sayheeliam, Leandro Basa, Yao
Chec and Lydia L. Basa "were duly informed" of that meeting. However, Directors Lim Che Boon and
Tan Hon Koc did not appear. Thus, the resolution was signed only by Directors Anthony Sayheeliam,
Leandro Basa, Yao Chec and Lydia L. Basa who composed the majority of the Board. The updated
membership list approved by the Board on 30 August 1993, together with the minutes of the meeting,
were duly filed with the SEC on 13 September 1993. On 29 September 1993, Lim Che Boon, Tan Hon
Koc, Joseph Lim, Liu Yek See and others questioned their expulsion by filing with the SEC Securities

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Investigation and Clearing Department a petition (SEC Case 09 93-4581, and later a supplemental
petition) against Directors Yao Chek, Leandro Basa, Lydia Basa and Anthony Sayheeliam.

It sought mainly the annulment of the 30 August 1993 membership list and the reinstatement of the
original list on the ground that the expulsion was made without prior notice and hearing; and prayed for
the issuance of a temporally restraining order (TRO) and a writ of preliminary injunction principally to
enjoin the Board of Directors from holding any election of a new set of directors among the members
named in the 30 August 1993 list of corporate membership. After conducting a hearing on the
application for a writ of preliminary injunction, SEC Hearing Officer Manuel Perea denied the same in
an order dated 22 February 1994. Lim Che Boon, et al. elevated Perea's order to the SEC en banc via
a petition for certiorari (SEC EB Case 389). The SEC, in an en banc decision dated 11 July 1994,
affirmed the Perea ruling and "dismissed for lack of merit" the petition. Lim Che Boon et al. did not
appeal from the decision of the SEC en banc.

Subsequently, the SEC, through a hearing panel, conducted further proceedings to hear and decide
the permissive counterclaim and third-party complaint incorporated in Basa, et al.'s supplemental
answer, including their prayer for injunctive relief to prevent Long, Lim Che Boon, et al. from interfering
and usurping the functions of the Board of Directors. Long, et al. subsequently filed motions to
dismiss/strike out the counterclaim and third-party complaint. The hearing panel in its omnibus order
dated 2 October 1995 denied the motions, and declined to act on Basa, et al.'s third-party complaint's
prayer for injunctive relief since there is a case pending before another Hearing Officer in SEC Case
4994 for the declaration of nullity of the general membership meeting held on 12 February 1995. Upon
denial of the separate motions for reconsideration of both parties, Basa, et al. filed with the SEC en
banc a petition for review on certiorari (SEC EB Case 484), which interposed the issue as to the validity
of the questioned expulsion already resolved by the SEC en banc in its decision dated 11 July 1994 in
SEC EB Case 389 which had attained finality.

On 31 July 1996, the SEC en banc, issued an order in SEC EB Case 484, setting aside the expulsion
of certain members of the CHURCH approved by its Board of Directors on 30 August 1993 for being
void and ordering the reinstatement of Long, et al. as members of the CHURCH. Promptly, Sayheeliam
and Basa filed a petition for review with the Court of Appeals (CA-GR SP 41551). Yao Check, for his
part, filed a motion for reconsideration of the same order. Upon denial of his motion he also filed with
the Court of Appeals a petition for review (CA-GR SP 43389), which was consolidated with CA-GR SP
41551). On 29 May 1998, the Court of Appeals promulgated its decision granting Basa, et al.'s
consolidated petitions and reversing the 31 July 1996 order of the SEC en banc in SEC EB Case 484.
Long, et al. filed a motion for reconsideration but was denied by the appellate court in a resolution dated
18 August 1998. Long, Lim Che Boon, et al. filed the petitions for review, which were subsequently
consolidated.

Issue: Whether the expulsion of Joseph Lim, Liu Yek See, Alfredo Long and Felix Almeria from the
membership of the CHURCH by its Board of Directors through a resolution issued on August 30, 1993
is in accordance with law.

Held: The By-laws of the CHURCH, which the members have expressly adhered to, does not require
the Board of Directors to give prior notice to the erring or dissident members in cases of expulsion. In
the By-law provision, the only requirements before a member can be expelled or removed from the
membership of the CHURCH are: (a) the Board of Directors has been notified that a member has failed
to observe any regulations and By-laws of the CHURCH, or the conduct of any member has been
dishonorable or improper or otherwise injurious to the character and interest of the CHURCH, and (b)
a resolution is passed by the Board expelling the member concerned, without assigning any reason
therefor. Thus, a member who commits any of the causes for expulsion enumerated in paragraph 4 of
Article VII may be expelled by the Board of Directors, through a resolution, without giving that erring
member any notice prior to his expulsion. The resolution need not even state the reason for such action.
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The CHURCH By-law provision on expulsion, as phrased, may sound unusual and objectionable as
there is no requirement of prior notice to be given to an erring member before he can be expelled; but
that is how peculiar the nature of a religious corporation is vis-a-vis an ordinary corporation organized
for profit. It must be stressed that the basis of the relationship between a religious corporation and its
members is the latter's absolute adherence to a common religious or spiritual belief . Once this basis
ceases, membership in the religious corporation must also cease. Thus, generally, there is no room for
dissension in a religious corporation. And where any member of a religious corporation is expelled from
the membership for espousing doctrines and teachings contrary to that of his church, the established
doctrine in this jurisdiction is that such action from the church authorities is conclusive upon the civil
courts. Obviously recognizing the peculiarity of a religious corporation, the Corporation Code leaves
the matter of ecclesiastical discipline to the religious group concerned. Section 91 of the Corporation
Code, which has been made explicitly applicable to religious corporations by the second paragraph of
Section 109 of the same Code, provides for the termination of membership. It provides that
"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." In fact, Long, et al. really have no reason to bewail the lack of prior notice
in the By-laws. They have waived such notice by adhering to those By-laws. They became members
of the CHURCH voluntarily. They entered into its covenant and subscribed to its rules. By doing so,
they are bound by their consent. Even assuming that Long, et al.'s expulsion falls within the
Constitutional provisions on "prior notice" or "due process," still the Court can not conclude that Basa,
et al. committed a constitutional infraction. Long, et al. were given more than sufficient notice of their
impending expulsion, as shown by the records.

63.Sta. Clara Homeowners' Association vs. Spouses Gaston

[GR 141961, 23 January 2002]
Facts: Spouses Victor Ma. Gaston and Lydia M. Gaston were residents of San Jose Avenue, Sta. Clara
Subdivision, Mandalagan, Bacolod City. They purchased their lots in the said subdivision sometime in
1974, and at the time of purchase, there was no mention or requirement of membership in any
homeowners' association. From that time on, they have remained non-members of SCHA. They also
stated that an arrangement was made wherein homeowners who were non-members of the association
were issued "non-member" gatepass stickers for their vehicles for identification by the security guards
manning the subdivision's entrances and exits. This arrangement remained undisturbed until sometime
in the middle of March 1998, when SCHA disseminated a board resolution which decreed that only its
members in good standing were to be issued stickers for use in their vehicles. Thereafter, on three
separate incidents, Victor M. Gaston, the son of the spouses Gaston who lives with them, was required
by the guards on duty employed by SCHA to show his driver's license as a prerequisite to his entrance
to the subdivision and to his residence therein despite their knowing him personally and the exact
location of his residence.
On 29 March 1998, Victor Ma. Gaston was himself prevented from entering the subdivision and
proceeding to his residential abode when security guards Roger Capillo and a "John Doe" lowered the
steel bar of the KAMETAL gate of the subdivision and demanded from him his driver's license for
identification. On 1 April 1998, Spouses Victor Ma. Gaston and Lydia M. Gaston filed a complaint for
damages with preliminary injunction/preliminary mandatory injunction and temporary restraining order
before the Regional Trial Court in Negros Occidental at Bacolod City against Santa Clara Homeowners
Association (SCHA) thru its Board of Directors, namely: Arneil Chua, Luis Sarrosa, Jocelyn Garcia, Ma.
Milagros Vargas, Lorenzo Lacson, Ernesto Piccio, Dindo Ilagan, Danilo Gamboa, Jr., Rizza de la Rama
and Security Guard Capillo and 'John Doe', and Santa Clara Estate, Incorporated (Civil Case 98-10217,
RTC-Branch 49, Bacolod City); alleging that the acts of SCHA, et al., done in the presence of other
subdivision owners had caused the spouses Gaston to suffer moral damage. On 8 April 1998, SCHA,
et al. filed a motion to dismiss arguing that the trial court had no jurisdiction over the case as it involved
an intra-corporate dispute between SCHA and its members pursuant to Republic Act 580, as amended
by Executive Orders 535 and 90, much less, to declare as null and void the subject resolution of the
board of directors of SCHA, the proper forum being the Home insurance and Guaranty Corporation
(HIGC). To support their claim of intra-corporate controversy, SCHA, et al. stated that the Articles of
Incorporation of SCHA, which was duly approved by the Securities and Exchange Commission (SEC)
on 4 October 1973, provides "that the association shall be a non-stock corporation with all homeowners
63
of Sta. Clara constituting its membership"; and that its by-laws contains a provision that "all real estate
owners in Sta. Clara Subdivision automatically become members of the association"; among others.
On 6 July 1998, the lower court resolved to deny SCHA et al.'s motion to dismiss, finding that there
existed no intra-corporate controversy since the Spouses Gaston alleged that they had never joined
the association.
On 18 July 1998, SCHA, et al. submitted a Motion for Reconsideration, adding lack of cause of action
as ground for the dismissal of the case. On 17 August 1998, the trial court denied the said motion
without however ruling on the additional ground of lack of cause of action. On 18 August 1998, SCHA,
et al. filed a motion to resolve its motion to dismiss on ground of lack of cause of action. On 8 September
1998, the trial court issued an order denying the motion. On 24 September 1998, SCHA. et al. elevated
the matter to the Court of Appeals via a Petition for Certiorari. On 31 August 1999, the Court of Appeals
dismissed the Petition and ruled that the RTC had jurisdiction over the dispute. The appellate court
likewise denied SCHA, et al.'s motion for reconsideration in a resolution dated 11 February 2000.
SCHA, et al. filed the petition for review.
Issue: Whether the Spouses Gaston are members of the SCHA.
Ruling: The constitutionally guaranteed freedom of association includes the freedom not to associate.
The right to choose with whom one will associate oneself is the very foundation and essence of that
partnership. Further, the Spouses Gaston cannot be compelled to become members of the SCHA by
the simple expedient of including them in its Articles of Incorporation and By-laws without their express
or implied consent. True, it may be to the mutual advantage of lot owners in a subdivision to band
themselves together to promote their common welfare, but that is possible only if the owners voluntarily
agree, directly or indirectly, to become members of the association. True also, memberships in
homeowners' associations may be acquired in various ways — often through deeds of sale, Torrens
certificates or other forms of evidence of property ownership. Herein, however, other than the said
Articles of Incorporation and By-laws, there is no showing that the Spouses Gaston have agreed to be
SCHA members. The approval by the SEC of the said documents is not an operative act which bestows
membership on the Spouses Gaston because the right to associate partakes of the nature of freedom
of contract which can be exercised by and between the homeowners amongst themselves, the
homeowners' association and a homeowner, and the subdivision owner and a homeowner/lot buyer.
Clearly, there is no privity of contract exists between SCHA and Spouses Gaston. When the Spouses
Gaston purchased their property in 1974 and obtained Transfer Certificates of Titles T-126542 and T-
127462 for Lots 11 and 12 of Block 37 along San Jose Avenue in Sta. Clara Subdivision, there was no
annotation showing their automatic membership in the SCHA. Furthermore, the records are bereft of
any evidence that would indicate that the Spouses Gaston intended to become members of the SCHA.
Prior to the implementation of the aforesaid Resolution, they and the other homeowners who were not
members of the association were issued non-member gate pass stickers for their vehicles; a fact not
disputed by SCHA. Thus, the SCHA recognized that there were subdivision landowners who were not
members thereof, notwithstanding the provisions of its Articles of Incorporation and By-laws.
64. Padcom Condominium Corporation vs. Ortigas Center Association, Inc.
G.R. No. 146807. May 9, 2002.

Facts: Padcom Condominium Corporation (PADCOM) owns and manages the Padilla Office
Condominium Building (PADCOM BUILDING). The land on which the building stands was originally
acquired from the Ortigas & Company, Limited Partnership, by Tierra Development Corporation (TDC)
under a Deed of Sale with a condition that the transferee and its successor-in-interest must become
members of an association for realty owners and long-term lessees in the area later known as the
Ortigas Center. Subsequently, the said lot, together with the improvements thereon, was conveyed by
TDC in favor of PADCOM in a Deed of Transfer.

Thereafter, respondent Ortigas Center Association, Inc. (ASSOCIATION) was organized to

advance the interests and promote the general welfare of the real estate owners and long-term lessees
of the lots in the Ortigas Center and sought the collection of membership dues from PADCOM. In view
of PADCOM'S failure and refusal to pay its arrears in monthly dues, the Association filed a complaint
for collection of sum of money before the trial court, but the same was dismissed. On appeal, the Court
of Appeals reversed and set aside the trial court's dismissal.

Issue: Whether or not PADCOM is unjustly enriched by the improvements made by the Association,
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thus requiring the former to pay dues to the latter.

Held: YES. The Court held that as resident and lot owner in the Ortigas area, PADCOM was definitely
benefited by the Association's acts and activities to promote the interests and welfare of those who
acquire property therein or benefit from the acts or activities of the Association.

Generally, it may be said that a quasi-contract is based on the presumed will or intent of the
obligor dictated by equity and by the principles of absolute justice. Examples of these principles are:
(1) it is presumed that a person agrees to that which will benefit him;
(2) nobody wants to enrich himself unjustly at the expense of another; or
(3) one must do unto others what he would want others to do unto him under the same
circumstances.

Hence, PADCOM's argument that the collection of monthly dues has no basis since there was
no board resolution defining how much fees are to be imposed deserves scant consideration. Suffice it
is to say that PADCOM never protested upon receipt of the earlier demands for payment of membership
dues. In fact, by proposing a scheme to pay its obligation, PADCOM cannot belatedly question the
Association's authority to assess and collect the fees in accordance with the total land area owned or
occupied by the members, which finds support in a resolution dated 6 November 1982 of the
Association's incorporating directors and Section 2 of its By-laws.

65. G.R. No. 153468 August 17, 2006

PAUL LEE TAN, ANDREW LIUSON, ESTHER WONG, STEPHEN CO, JAMES TAN, JUDITH TAN, ERNESTO TANCHI
JR., EDWIN NGO, VIRGINIA KHOO, SABINO PADILLA JR., EDUARDO P. LIZARES and GRACE CHRISTIAN HIGH
SCHOOL, Petitioners,vs.PAUL SYCIP and MERRITTO LIM, Respondents.
FACTS: Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with 15
regular members, who also constitute the board of trustees. During the annual members’ meeting, there
were only 11 living member-trustees, as 4 have already died. Out of the 11, 7 attended the meeting
through their respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr.
over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum. In the meeting,
Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four
deceased member-trustees. The controversy reached SEC and the petitioners maintained that the
deceased member-trustees should not be counted in the computation of the quorum because, upon
their death, members automatically lost all their rights (including the right to vote) and interests in the
corporation. SEC declared the meeting null and void and ruled that the phrase “entitled to vote” under
Sec 24 should be read with Sec 89 of Corpo Code.
ISSUE: In a non-stock corporation, should dead members still be counted in determination of quorum
for purposed of conducting the Annual Members’ Meeting?
HELD: 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. Dead members shall not be counted.
One of the most important rights of a qualified shareholder or member is the right
to vote -- either personally or by proxy -- for the directors or trustees who are to manage the corporate
affairs. The right to vote is inherent in and incidental to the ownership of corporate stocks. In nonstock
corporations, the voting rights attach to membership. The principle for determining the quorum for stock
corporations is applied by analogy to nonstock corporations, only those who are actual members with
voting rights should be counted. Under Section 52, the majority of the members representing the actual
number of voting rights, not the number or numerical constant that may originally be specified in the
articles of incorporation, constitutes the quorum.
Having thus determined that the quorum in a members’ meeting is to be reckoned as the actual number
of members of the corporation, the next question to resolve is what happens in the event of the death
of one of them. In stock corporations, the executor or administrator duly appointed by the Court is
65
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 "dead members" are entitled to exercise their voting rights (through
their executor or administrator), depends on those articles of incorporation or bylaws.
Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the
death of the member. Applying Section 91, dead members who are dropped from the membership
roster in the manner and for the cause provided for in the By-Laws of GCHS are not to be counted in
determining the requisite vote in corporate matters or the requisite quorum for the annual members’
meeting. With 11 remaining members, the quorum in the present case should be 6. Therefore, there
being a quorum, the annual members’ meeting was valid.

66. Dulay Enterprises vs CA

Manuel R.Dulay Enterprises, Inc., a domestic corporation with the following as members of its Board
of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general
manager; Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with
10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and
designated as secretary, owned a property covered by TCT 17880 4 and known as Dulay Apartment
consisting of 16 apartment units on a 689 square meter lot, more or less, located at Seventh Street
(now Buendia Extension) and F.B. Harrison Street, Pasay City. The corporation through its president,
Manuel Dulay, obtained various loans for the construction of its hotel project, Dulay Continental Hotel
(now Frederick Hotel). It even had to borrow money from Virgilio Dulay to be able to continue the hotel
project. As a result of said loan, Virgilio Dulay occupied one of the unit apartments of the subject
property since 1973 while at the same time managing the Dulay Apartment as his shareholdings in the
corporation was subsequently increased by his father.

On 23 December 1976, Manuel Dulay by virtue of Board Resolution 18 of the corporation sold the
subject property to spouses Maria Theresa and Castrense Veloso in the amount of P300,000.00 as
evidenced by the Deed of Absolute Sale. Thereafter, TCT 17880 was cancelled and TCT 23225 was
issued to Maria Theresa Veloso. Subsequently, Manuel Dulay and the spouses Veloso executed a
Memorandum to the Deed of Absolute Sale of 23 December 1976 dated 9 December 1977 giving
Manuel Dulay within 2 years or until 9 December 1979 to repurchase the subject property for
P200,000.00 which was, however, not annotated either in TCT 17880 or TCT 23225. On 24 December
1976, Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to Manuel
A. Torres for a loan of P250,000.00 which was duly annotated as Entry 68139 in TCT 23225. Upon the
failure of Maria Veloso to pay Torres, the subject property was sold on 5 April 1978 to Torres as the
highest bidder in an extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's Sale issued
on 20 April 1978.
On 20 July 1978, Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in
favor of Manuel Dulay assigning her right to repurchase the subject property from Torres as a result of
the extrajudicial sale. As neither Maria Veloso nor her assignee Manuel Dulay was able to redeem the
subject property within the one year statutory period for redemption, Torres filed an Affidavit of
Consolidation of Ownership 13 with the Registry of Deeds of Pasay City and TCT 24799 was
subsequently issued to Torres on 23 April 1979. On 1 October 1979, Torres filed a petition for the
issuance of a writ of possession against spouses Veloso and Manuel Dulay in LRC Case 1742-P.
However, when Virgilio Dulay appeared in court to intervene in said case alleging that Manuel Dulay
was never authorized by the corporation to sell or mortgage the subject property, the trial court ordered
Torres to implead the corporation as an indispensable party but the latter moved for the dismissal of
his petition which was granted in an Order dated 8 April 1980. On 20 June 1980, Torres and Edgardo
Pabalan, real estate administrator of Torres, filed an action against the corporation, Virgilio Dulay and
Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for the recovery of possession, sum
of money and damages with preliminary injunction in Civil Case 8198-P with the then Court of First
Instance of Rizal.

66
On 21 July 1980, the corporation filed an action against spouses Veloso and Torres for the cancellation
of the Certificate of Sheriff's Sale and TCT 24799 in Civil Case 8278-P with the then Court of First
Instance of Rizal. On 29 January 1981, Pabalan and Torres filed an action against spouses Florentino
and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with the corporation as intervenor for
ejectment in Civil Case 38-81 with the Metropolitan Trial Court of Pasay City which rendered a decision
on 25 April 1985, in favor of Pabalan, et al., ordering the spouses Manalastas and all persons claiming
possession under them to vacate the premises; and to pay the rents in the sum of P500.00 a month
from May 1979 until they shall have vacated the premises with interest at the legal rate; and to pay
attorney's fees in the sum of P2,000.00 and P1,000.00 as other expenses of litigation and for them to
pay the costs of the suit.
Thereafter or on 17 May 1985, the corporation and Virgilio Dulay filed an action against the presiding
judge of the Metropolitan Trial Court of Pasay City, Pabalan and Torres for the annulment of said
decision with the Regional Trial Court of Pasay in Civil Case 2880-P. Thereafter, the 3 cases were
jointly tried and the trial court rendered a decision in favor of Pabalan and Torres. Not satisfied with
said decision, the corporation, et al. appealed to the Court of Appeals which rendered a decision on 23
October 1989, affirming the trial court decision. On 8 November 1989, the corporation, et al. filed a
Motion for Reconsideration which was denied on 26 January 1990. The corporation, et al. filed the
petition for review on certiorari. During the pendency of the petition, Torres died on 3 April 1991 as
shown in his death certificate and named Torres-Pabalan Realty & Development Corporation as his
heir in his holographic will dated 31 October 1986.
ISSUE:
Whether the sale of the subject property between spouses Veloso and Manuel Dulay has no binding
effect on the corporation as Board Resolution 18 which authorized the sale of the subject property was
resolved without the approval of all the members of the board of directors and said Board Resolution
was prepared by a person not designated by the corporation to be its secretary.
HELD:
Section 101 of the Corporation Code of the Philippines provides that "When board meeting is
unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the directors of a
close corporation without a meeting shall nevertheless be deemed valid if: (1) Before or after such
action is taken, written consent thereto is signed by all the directors; or (2) All the stockholders have
actual or implied knowledge of the action and make no prompt objection thereto in writing; or (3) The
directors are accustomed to take informal action with the express or implied acquiesce of all the
stockholders; or (4) All the directors have express or implied knowledge of the action in question and
none of them makes prompt objection thereto in writing. If a directors' meeting is held without proper
call or notice, an action taken therein within the corporate powers is deemed ratified by a director who
failed to attend, unless he promptly files his written objection with the secretary of the corporation after
having knowledge thereof." Herein, the corporation is classified as a close corporation and
consequently a board resolution authorizing the sale or mortgage of the subject property is not
necessary to bind the corporation for the action of its president. At any rate, a corporate action taken
at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent
director unless the latter promptly files his written objection with the secretary of the corporation after
having knowledge of the meeting which, in this case, Virgilio Dulay failed to do. The corporation's claim
that the sale of the subject property by its president, Manuel Dulay, to spouses Veloso is null and void
as the alleged Board Resolution 18 was passed without the knowledge and consent of the other
members of the board of directors cannot be sustained. Virgilio E. Dulay's protestations of complete
innocence to the effect that he never participated nor was even aware of any meeting or resolution
authorizing the mortgage or sale of the subject premises is difficult to believe. On the contrary, he is
very much privy to the transactions involved. To begin with, he is an incorporator and one of the board
of directors designated at the time of the organization of Manuel R. Dulay Enterprises, Inc. In ordinary
parlance, the said entity is loosely referred to as a "family corporation." The nomenclature, if imprecise,
however, fairly reflects the cohesiveness of a group and the parochial instincts of the individual
members of such an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its
incorporators being close relatives namely, 3 children and their father whose name identifies their
corporation. Besides, the fact that Virgilio Dulay on 24 June 1975 executed an affidavit that he was a
signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in
favor of Torres indicates that he was aware of the transaction executed between his father and Torres
and had, therefore, adequate knowledge about the sale of the subject property to Torres. Consequently,
67
the corporation is liable for the act of Manuel Dulay and the sale of the subject property to Torres by
Manuel Dulay is valid and binding.
68. Iglesia Evangelica v. Bishop Nathanael Lazaro, July 06, 2010

DOCTRINE: A corporation sole, may be converted into a corporation aggregate by a mere amendment
of its articles of incorporation. Although the Corporation Code does not provide for a manner by which
a corporation sole may amend its articles of incorporation, Sec. 109 allows the application to religious
corporations of the general provisions governing non-stock corporations. Thus, a corporation sole may
amend its articles of incorporation by a decision of its lone member with the concurrence of 2/3 of its
membership.

Facts: Iglesia Evangelica Metodista En Las Filipinas(IEMELF) remained a sole corporation on paper, it
had always acted like a corporation aggregate, hence, in their 1973 General Conforence, the general
membership of IEMELIF voted to have IEMELIF reorganized from a corporation sole to a corporation
aggregate. In 2001, acting on the advice of the SEC, it amended its AOI with the approval of its general
membership to effect the conversion. A faction within said sole opposed the conversion and filed a case
in the RTC in the name of IEMELF. They opposed that the corporation sole must first be dissolved and
a new corporation must be incorporated.

Antecedents were as follows: Bishop Nicolas Zamora established IEMELF as corporation sole with said
Bishop as acting “General Superintendent (GSupt). 39 years later, IEMELF enacted and registered a
by-laws that established the Consistory which the latter was empowered to elect a GSupt,
General Secretary, General Evangelist, and a Treasurer General who would manage the affairs of the
organization. Apparently, although the IEMELIF remained a corporation sole on paper (with all
corporate powers theoretically lodged in the hands of one member, the General Superintendent), it had
always acted like a corporation aggregate.

Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support the
conversion, filed a civil case for "Enforcement of Property Rights of Corporation Sole, Declaration of
Nullity of Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate with
Application for Preliminary Injunction and/or TRO" in IEMELIF's name against Lazaro et al. (resp.),
members of its Consistory.
ISSUE: Whether or not a corporation may change its character as a corporation sole into a corporation
aggregate by mere amendment of its articles of incorporation without first going through the process of
dissolution?
HELD: Yes. Religious corporations are governed by Section 109 to 116 of the Corporation Code. Sec.
109 allows the application to religious corporations of the general provisions of governing non-stock
corporations.

For non-stock corporations, the power to amend its articles of incorporation lies in its members. The
code requires 2/3 of their votes for the approval of such an amendment. Although a non-stock
corporation has a personality that is distinct from those of its members who established it, its articles of
incorporation cannot be amended solely through the action of its board of trustees. The amendment
needs the concurrence of at least 1/3 of its membership.

Although a non-stock corporation has a personality that is distinct from those of its members who
established it, its articles of incorporation cannot be amended solely through the action of its board of
trustees. The amendment needs the concurrence of at least 1/3 of its membership.

Besides the IEMELIF worked out the amendment of its articles of incorporation upon the initiative and
advice of the SEC. Considering its experience and specialized capabilities in the area of corporation
law, the SEC's prior action on the IEMELIF issue should be accorded great weight.

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DISPOSITION: Petition DENIED. CA AFFIRMED.
69. CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO, petitioners,
vs. THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC., respondents.
(103 SCRA 90 Feb 24 1981)
Facts:
Insular Sawmill was a corporation engaged in the general lumber and sawmill business with a corporate
life of fifty years, beginning Sept 17, 1945 – Sept 17, 1995.
To carry on the business, Insular Sawmill leased paraphernal property of petitioner Guillerma Gelano.
It was while leasing the property, that the Guillerma, and her husband Carlos, incurred the following
debts to the corporation:
1. For cash advances made by the corporation to Carlos which was supposed to be deducted from
the monthly rentals being paid by the corporation
2. For credit purchases of lumber materials from the company
3. For credit accommodation obtained by the spouses from China Banking Corporation, for which the
corporation executed a promissory note in favour of the bank from which the bank collected Carlos’
debt from.
On May 22, 1959, the corporation, thru Atty. German Lee, filed a complaint for collection against the
spouses Gelano before CFI-Manila. Trial was held and when the case was at the stage of submitting
memorandum, Atty. Lee retired from active law practice and Atty. Eduardo F. Elizalde took over and
prepared the memorandum
While the case was pending, Insular Sawmill amended its Articles of Incorporation to shorten its term
of existence up to December 31, 1960 only. The amended Articles of Incorporation was filed with, and
approved by the Securities and Exchange Commission, but the trial court was not notified of the
amendment shortening the corporate existence and no substitution of party was ever made.
On November 20, 1964 and almost four (4) years after the dissolution of the corporation, the trial court
rendered a decision in favor of Insular Sawmill. The CA modified the decision, holding the spouses
solidarily liable.
After the Gelanos received a copy of the decision on August 24, 1973, they came to know that the
Insular Sawmill Inc. was dissolved way back on December 31, 1960. Thus they filed an MD on th
ground that the case was prosecuted even after dissolution of Insular Sawmill as a corporation and that
a defunct corporation cannot maintain any suit for or against it without first complying with the
requirements of the winding up of the affairs of the corporation and the assignment of its property rights
within the required period.
Their MD was denied thus the present petition for review.
ISSUE: WON Insular Sawmill, a defunct corporation, complied with the requirements for winding up
affairs and is entitled to the decision against the Gelanos?
RATIO: YES
Section 77 of Corp Law provides that the corporation shall "be continued as a body corporate for three
(3) years after the time when it would have been dissolved, for the purpose of prosecuting and
defending suits by or against it. For this reason, Sec 78 of the Corp Law authorizes the corporation, "at
any time during said three years to convey all of its property to trustees for the benefit of members,
stockholders, creditors and other interested," evidently for the purpose, among others, of enabling said
trustees to prosecute and defend suits by or against the corporation begun before the expiration of said
period.
American corporate law dictates that while there is no time limited limited 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.
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In this case, the SC held that the counsel who prosecuted and defended the interest of the corporation
in the instant case and who in fact appeared in behalf of the corporation may be considered a trustee
of the corporation at least with respect to the matter in litigation only. It deemed it substantial compliance
under Sec 78 of the Corp Law.
The word "trustee" as used in the corporation statute must be understood in its general concept which
could include the counsel to whom was entrusted the prosecution of the suit filed by the
corporation. The purpose in the transfer of the assets of the corporation to a trustee upon its
dissolution is more for the protection of its creditor and stockholders. Debtors like the spouses Gelano
may not take advantage of the failure of the corporation to transfer its assets to a trustee, assuming it
has any to transfer which petitioner has failed to show, in the first place. To sustain petitioners'
contention would be to allow them to enrich themselves at the expense of another, which all enlightened
legal systems condemn.
WHEREFORE, with the modification that only the conjugal partnership is liable, the appealed decision
is hereby affirmed in all other respects. Without pronouncement as to costs. SO ORDERED.
71.Philippine Veterans Bank Employees Union-NUBE vs. Vega, [GR 105364, 28 June 2001]

Facts: Sometime in 1985, the Central Bank of the Philippines filed with Branch 39 of the Regional Trial
Court of Manila a Petition for Assistance in the Liquidation of the Philippine Veterans Bank (Case SP-
32311). Thereafter, the Philippine Veterans Bank Employees Union-N.U.B.E. (PVBEU-NUBE),
represented by Perfecto V. Fernandez, filed claims for accrued and unpaid employee wages and
benefits with said court in SP-3231. After lengthy proceedings, partial payment of the sums due to the
employees were made. However, due to the piecemeal hearings on the benefits, many remain unpaid.
On 8 March 1991, PVBEU-NUBE Fernandez moved to disqualify the Judge Benjamin Vega, Presiding
Judge of Branch 39 of the Regional Trial Court of Manila, from hearing the above case on grounds of
bias and hostility towards petitioners. On 2 January 1992, the Congress enacted Republic Act 7169
providing for the rehabilitation of the Philippine Veterans Bank. Thereafter, PVBEU-NUBE and
Fernandez filed with the labor tribunals their residual claims for benefits and for reinstatement upon
reopening of the bank. Republic Act 7169 entitled "An Act To Rehabilitate The Philippine Veterans Bank
Created Under Republic Act 3518, Providing The Mechanisms Therefor, And For Other Purposes",
which was signed into law by President Corazon C. Aquino on 2 January 1992 and which was published
in the Official Gazette on 24 February 1992, provides in part for the reopening of the Philippine Veterans
Bank together with all its branches within the period of 3 years from the date of the reopening of the
head office.
The law likewise provides for the creation of a rehabilitation committee in order to facilitate the
implementation of the provisions of the same. Pursuant to said RA 7169, the Rehabilitation Committee
submitted the proposed Rehabilitation Plan of the PVB to the Monetary Board for its approval.
Meanwhile, PVB filed a Motion to Terminate Liquidation of Philippine Veterans Bank dated 13 March
1992 with Judge Vega praying that the liquidation proceedings be immediately terminated in view of
the passage of RA 7169. On 10 April 1992, the Monetary Board issued Monetary Board Resolution 348
which approved the Rehabilitation Plan submitted by the Rehabilitation Committee. Thereafter, the
Monetary Board issued a Certificate of Authority allowing PVB to reopen. Sometime in May 1992, the
Central Bank issued a certificate of authority allowing the PVB to reopen. Despite the legislative
mandate for rehabilitation and reopening of PVB, Judge Vega continued with the liquidation
proceedings of the bank. Moreover, PVBEU-NUBE and Fernandez learned that the Central Bank was
set to order the payment and release of employee benefits upon motion of another lawyer, while
PVBEU-NUBE's and Fernandez's claims have been frozen to their prejudice.
On 3 June 1992, the liquidator filed A Motion for the Termination of the Liquidation Proceedings of the
Philippine Veterans Bank with Judge Vega. PVBEU-NUBE and Fernandez, on the other hand, filed the
petition for Prohibition with Petition for Preliminary Injunction and application for Ex Parte Temporary
Restraining Order. In a Resolution, dated 8 June 1992, the Supreme Court resolved to issue a
Temporary Restraining Order enjoining the trial court from further proceeding with the case. On 22
June 1992, MOP Security & Detective Agency (VOPSDA) and its 162 security guards filed a Motion for
Intervention with prayer that they be excluded from the operation of the Temporary Restraining Order
issued by the Court. On 3 August 1992, the Philippine Veterans Bank opened its doors to the public
and started regular banking operations.

70
Issue: Whether a liquidation court can continue with liquidation proceedings of the Philippine Veterans
Bank (PVB) when Congress had mandated its rehabilitation and reopening.

Held: The enactment of Republic Act 7169, as well as the subsequent developments has rendered the
liquidation court functus officio. Consequently, Judge Vega has been stripped of the authority to issue
orders involving acts of liquidation. Liquidation, in corporation law, connotes a winding up or settling
with creditors and debtors. It is the winding up of a corporation so that assets are distributed to those
entitled to receive them. It is the process of reducing assets to cash, discharging liabilities and dividing
surplus or loss. On the opposite end of the spectrum is rehabilitation which connotes a reopening or
reorganization. Rehabilitation contemplates a continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of successful operation and solvency. It is
crystal clear that the concept of liquidation is diametrically opposed or contrary to the concept of
rehabilitation, such that both cannot be undertaken at the same time. To allow the liquidation
proceedings to continue would seriously hinder the rehabilitation of the subject bank.
72.Tan Tiong Bio vs. Commissioner of Internal Revenue
GR L-8800, October 23, 1956
4 SCRA 986

Facts: On or about 21 October 1946, the Central Syndicate, a corporation organized for the limited
period of two years, addressed a letter to the Collector of Internal Revenue advising the latter of a sale
of said corporation by one Dee Hong Lue of surplus properties purchased by the vendor from the
Foreign Liquidation Commission, with the condition that the vendee corporation would pay the 3 1/2%
sales tax on such surplus properties in the name and in behalf of the vendor Dee Hong Lue. In the
same letter, the Syndicate deposited with the Collector the amount of P43,750.00 to answer for the
sales tax collectible on the purchase, but representing that Dee Hong Lue expected a refund from the
U.S. Government on the original purchase price because of non-delivery of various items included in
the contract, and that therefore, the original sales tax due on the sales price was subject to readjustment
and reduction. Subsequently, on 31 January 1948, Dee Hong Lue, through counsel, wrote the Collector
advising him that the Foreign Liquidation Commission had given him a refund of P31,522.18 on the
purchase price of the aforesaid surplus properties, and requesting for the refund of an alleged
overpayment of sales tax in the amount of P1,103.28. The Collector ordered the case investigated.

Four years later, or on 4 January 1952, the Collector informed Dee Hong Lue of the denial of his request
for tax refund. On the same day, the Collector wrote the Central Syndicate, informing it that the
investigation made by the Bureau revealed that it was the Syndicate and not Dee Hong Lue that had
actually purchased the surplus goods in question (commonly known us the "Mystery Pile") from the
Foreign Liquidation Commission; that the properties were invoiced in the name of Dee Hong Lue in
trust for the Syndicate because it was then only in the process of incorporation; and that the Syndicate,
after it had been organized, made it appear that the goods were sold to it by Dee Hong Lue, to evade
payment of sales tax on its selling prices to the public; and assessed the Syndicate a deficiency sales
tax of P27,038.30 and 25% surcharge of P6,759.58 or a total sum of P33,797.88, plus the amount of
P300.00 as penalty. Because of the refusal of the Syndicate to pay the deficiency assessment, and the
findings of the Bureau that the corporation had no existing properties to satisfy the assessment, the
Collector wrote David Sycip and Yu Khe Thai, manager and president, respectively, of the Syndicate,
to pay the corporation's tax liability or else be held criminally liable under the Internal Revenue Code.

Ultimately, on 5 August 1954, the Collector issued a final definitive ruling reaffirming the deficiency
assessment against the Syndicate; from which ruling the latter appealed to the Court of Tax Appeals.
In the Court of Tax Appeals, the Solicitor-General moved for the dismissal of the appeal on the ground
that the Central Syndicate no longer had the capacity to sue because its term of existence had expired
on 15 August 1948, as shown by its Articles of Incorporation attached to the motion to dismiss. The
Syndicate opposed the motion, alleging that although the corporation had gone defunct, its officers and
directors not only stood liable for the assessment but had also been threatened to be held criminally
liable therefor; and offered to be substituted as appellants. After hearing the arguments of both parties,
the Court of Tax Appeals issued a resolution dismissing the appeal, on the ground that whatever
judgment it would render in favor of the Government would be unenforceable against the syndicate
because it is a non-existing entity. From this resolution, the Syndicate appealed to the Supreme Court
on petition for review.
71
Issue: Whether the government can insist on making a tax assessment against a corporation that no
longer exists and at the same time oppose the appeal questioning the legality of the assessment
precisely on the ground that the corporation is non-existent, and has no longer capacity to sue.

Held: It is true that sections 77 and 78 of our Corporation Law contemplate that corporate existence
can be prolonged only for three years from and after the termination of the corporate term, for the
purpose of winding up its affairs; and in the case of the Central Syndicate, the three years expired in
1951. On this basis, if it be true that the Syndicate thereafter had no personality to dispute the
assessment, it would be equally true that no valid assessment could be imposed on a corporation that
no longer had juridical personality. In any event, the government can not insist on making a tax
assessment against a corporation that no longer exists and then turn around and oppose the appeal
questioning the legality of the assessment precisely on the ground that the corporation is non- existent,
and has no longer capacity to sue. The government can not adopt inconsistent stands and thereby
deprive the officers and directors of the defunct corporation of the remedy to question the validity and
correctness of the assessment for which, if sustained, they would be held personally liable as
successors-in-interest to the corporate property. The appeal should not have been dismissed but that
the Court of Tax Appeals should have allowed the substitution of its former officers and directors as
parties-appellants, since they are proper parties in interest in so far as they may be (and in fact are)
held personally liable for the unpaid deficiency assessments made by the Collector of Internal Revenue
against the defunct Syndicate.

73. Rebollido vs. Court of Appeals, GR 91123, February 28, 1989

Facts: In June 1983, the Board of Directors and the stockholders of Pepsi Cola adopted its amended
articles of incorporation to shorten its corporate term in accordance with Section 120 of the Corporation
Code following the procedure laid down by Section 37 (power to extend or shorten the corporate term)
and Section 16 (amendment of the articles of incorporation) of the same Code. Immediately after such
amendment or on June 16, 23 and 30, 1983, Pepsi Cola caused the publication of a notice of dissolution
and the assumption of liabilities by PEPSICO in a newspaper of general circulation. Meanwhile, a
vehicular accident occured on 1 March 1984, involving a Mazda Minibus used as a schoolbus with
Plate Number NWK-353 owned and driven by Crisostomo Rebollido and Fernando Valencia,
respectively and a truck trailer with Plate Number NRH-522 owned at that time by Pepsi Cola Bottling
Company of the Philippines, Inc. and driven by Alberto Alva. The dissolution of Pepsi Cola as approved
by the Securities and Exchange Commission (SEC) materialized on 2 March 1984, one day after the
accident occurred.

On 7 August 1984, Crisostomo Rebollido, Valencia and Edwin Rebollido filed Civil Case 8113 for
damages against Pepsi Cola and Alva before the Regional Trial Court of Makati. On 21 September
1984, the sheriff of the lower court served the summons addressed to Pepsi Cola and Alva. It was
received by one Nenette Sison who represented herself to be the authorized person receiving court
processes as she was the secretary of the legal department of Pepsi Cola. Pepsi Cola failed to file an
answer and was later declared in default. The lower court heard the case ex-parte and adjudged Pepsi
Cola and Alva jointly and severally liable for damages in a decision rendered on 24 June 1985. They
were ordered to pay (1) P12,126.10, for the hospitalization and medical expenses of Valencia; (2)
P326.35 as expenses for the medical treatment of Edwin Rebollido; (3) P9,922.00, for the repair of and
cost of replacement parts of the Mazda Minibus belonging to Crisostomo Rebollido; (4) P16,200.00, for
the expenses incurred by Crisostomo Rebollido in hiring another vehicle to transport school pupils; (5)
P102,261.90, as unrealized monthly net income due Rebollido, et al. from June 1984 to 30 March 1985;
(6) P10,800.00, representing the unpaid salaries of Valencia for the period from March to December
1984; (7) P20,000.00, as moral damages due Valencia; (8) P20,000.00, as moral damages due
Crisostomo Rebollido; (9) A sum equivalent to 10% of the total amount due, as and for attorney's fees;
and (10) The costs of suit.

On 5 August 1985, when the default judgment became final and executory, Rebollido, et al. filed a
motion for execution, a copy of which was received no longer by Pepsi Cola but by PEPSICO, Inc., on
6 August 1985. At that time, PEPSICO was already occupying the place of business of Pepsi Cola at
Ricogen Building, Aguirre Street, Legaspi Village, Makati, Metro Manila. PEPSICO, a foreign
corporation organized under the laws of the State of Delaware, USA, held offices here for the purpose,
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among others, of settling Pepsi Cola's debts, liabilities and obligations which it assumed in a written
undertaking executed on 11 June 1983, preparatory to the expected dissolution of Pepsi Cola.
Realizing that the judgment of the lower court would eventually be executed against it, PEPSICO
opposed the motion for execution and moved to vacate the judgment on the ground of lack of
jurisdiction. PEPSICO questioned the validity of the service of summons to a mere clerk. It invoked
Section 13, Rule 14 of the Rules of Court on the manner of service upon a private domestic corporation
and Section 14 of the same rule on service upon a private foreign corporation. On 14 August 1985, the
lower court denied the motion of PEPSICO holding that despite the dissolution and the assumption of
liabilities by PEPSICO, there was proper service of summons upon Pepsi Cola.

On 27 August 1985, PEPSICO filed a special civil action for certiorari and prohibition with the appellate
court to annul and set aside the judgment of the lower court and its order denying the motion to vacate
the judgment, for having been issued without jurisdiction. On 29 December 1986, the Court of Appeals
granted the petition on the ground of lack of jurisdiction ruling that there was no valid service of
summons. The appellate court stated that any judgment rendered against Pepsi Cola after its
dissolution is a "liability" of PEPSICO within the contemplation of the undertaking, but service of
summons should be made upon PEPSICO itself in accordance with Section 14, Rule 14 of the Rules
of Court. It remanded the case to the lower court and ordered that PEPSICO be summoned and be
given its day in court. On 27 November 1987, a motion for reconsideration filed by Rebollido, et al. was
denied. Hence, the petition.

Issue: Whether Pepsi Cola, the dissolved corporation, is the real party in interest to whom summons
should be served in the civil case for damages.

Held: YES. Rebollido, et al. had a valid cause of action for damages against Pepsi Cola. The law
provides that a corporation whose corporate term has ceased can still he made a party to suit. Under
paragraph 1, Section 122 of the Corporation Code, a dissolved corporation "shall nevertheless be
continued as a body corporate for three (3) years after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its
affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of
continuing the business for which it was established." The rationale for extending the period of
existence of a dissolved corporation is that "this continuance of its legal existence for the purpose of
enabling it to close up its business is necessary to enable the corporation to collect the demands due
it as well as to allow its creditors to assert the demands against it. If this were not so, then a corporation
that became involved in liabilities might escape the payment of its just obligations by merely
surrendering its charter, and thus defeat its creditors or greatly hinder and delay them in the collection
of their demands. This course of conduct on the part of corporations the law in justice to persons dealing
with them does not permit. The person who has a valid claim against a corporation, whether it arises in
contract or tort should not be deprived of the right to prosecute an action for the enforcement of his
demands by the action of the stockholders of the corporation in agreeing to its dissolution. The
dissolution of a corporation does not extinguish obligations or liabilities due by or to it." Herein, the right
of action of Rebollido, et al. against Pepsi Cola and its driver arose not at the time when the complaint
was filed but when the acts or omission constituting the cause of action accrued, i.e. on March 1, 1984
which is the date of the accident and when Pepsi Cola allegedly committed the wrong.

74.CLARION PRINTING HOUSE, INC., and EULOGIO YUTINGCO vs. THE HONORABLE
NATIONAL LABOR RELATIONS COMMISSION (Third Division) and MICHELLE MICLAT
Facts: On 1997, Michelle Miclat was employed on a probationary basis as marketing assistant with a
monthly salary of P6,500.00 by Clarion Printing House (CLARION) owned by its Eulogio Yutingco. At
the time of her employment, she was not informed of the standards that would qualify her as a regular
employee.
On September 16, 1997, the EYCO Group of Companies of which CLARION formed part filed
with the Securities and Exchange Commission (SEC) a Petition for the Declaration of Suspension of
Payment, Formation and Appointment of Rehabilitation Receiver/ Committee, Approval of
Rehabilitation Plan with Alternative Prayer for Liquidation and Dissolution of Corporation which was
granted by the latter.

73
 Thereafter, EYCO Group of Companies issued to its employees the a Memorandum which
formally announce the entry of the Interim Receiver Group represented by SGV. On October 22, 1997,
the Assistant Personnel Manager of CLARION informed Miclat by telephone that her employment
contract had been terminated. No reason was given for the termination. The following day, on reporting
for work, Miclat was informed by the General Sales Manager that her termination was part of CLARIONs
cost-cutting measures.
Hence, Miclat filed a complaint for illegal dismissal against CLARION and Yutingco before the National
Labor Relations Commission (NLRC). In the meantime, the EYCO Group of Companies issued a
Memorandum addressed to company managers advising them of a temporary partial shutdown of some
operations of the Company.
NLRC rendered decision in favor of Miclat. Clarion contended that it was placed under receivership
thereby evidencing the fact that it sustained business losses to warrant the termination of Miclat from
her employment. Hence, this petition.
Issue: Whether or not Clarion was placed under the receivership thereby evidencing the fact that it
sustained business losses to warrant the termination of Miclat from her employment.
Ruling: According to P.D. No. 902-A, as amended, the appointment of a receiver or management
committee by the SEC presupposes a finding that, inter alia, a company possesses sufficient property
to cover all its debts but “foresees the impossibility of meeting them when they respectively fall due”
and “there is imminent danger of dissipation, loss, wastage or destruction of assets of other properties
or paralization of business operations.”
However, ART. 283 of the Labor Code states: CLOSURE OF ESTABLISHMENT AND REDUCTION
OF PERSONNEL. – The employer may also terminate the employment of any employee due to the
installation of labor saving devices, redundancy,retrenchment to prevent losses or the closing or
cessation of operation of the establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a written notice on the worker and the Ministry of
Labor and Employment at least one (1) month before the intended date thereof. x x x (Emphasis and
underscoring supplied) CLARION [however] failed to comply with the notice requirement provided for
in Article 283 of the Labor Code. Stated differently, Miclat’s termination is justified, because of financial
difficulties of the company, but failure to give the required notice by Clarion is sufficient to entitle her to
payment of 13th month pay, separation pay and others.
With the appointment of a management receiver, all claims and proceedings against CLARION,
including labor claims, were deemed suspended during the existence of the receivership. The labor
arbiter, the NLRC, as well as the CA should not have proceeded to resolve respondent’s complaint for
illegal dismissal and should instead have directed respondent to lodge her claim before the then duly-
appointed receiver of CLARION. To still require respondent, however, at this time to refile her labor
claim against CLARION under the peculiar circumstances of the case — that 8 years have lapsed since
her termination and that all the arguments and defenses of both parties were already ventilated before
the labor arbiter, NLRC and the CA; and that CLARION is already in the course of liquidation — this
Court deems it most expedient and advantageous for both parties that CLARION’s liability be
determined with finality, instead of still requiring respondent to lodge her claim at this time before the
liquidators of CLARION which would just entail a mere reiteration of what has been already argued and
pleaded. Furthermore, it would be in the best interest of the other creditors of CLARION that claims
against the company be finally settled and determined so as to further expedite the liquidation
proceedings. For the lesser number of claims to be proved, the sooner the claims of all creditors of
CLARION are processed and settled.

75.LINGKOD MANGGAGAWA SA RUBBERWORLD, ADIDAS-ANGLO, its officers and members

as LINGKOD MANGGAGAWA SA RUBBERWORLD, ADIDAS-ANGLO, its officers and members
as represented by SONIA ESPERANZA, Petitioners, vs. RUBBERWORLD (PHILS.) INC. and
ANTONIO YANG, LAYA MANANGHAYA SALGADO & CO., CPA’s (In its capacity as liquidator of
Rubberworld (Phils., Inc.), Respondents.
FACTS:
Rubberworld announced a company shutdown due to financial crisis, and a copy of which was
served on the recognized labor union of Rubberworld, the Bisig Pagkakaisa-NAFLU, the union wi h
74
which the corporation had a CBA. On September 1, 1994, Bisig Pagkakai sa-NAFLU staged a strike.
As a result, Rubberworld's premises closed prematurely even before the date set for the start of its
temporary partial shutdown. On September 9, 1994, petitioner union, represented by its President,
Sonia Esperanza, filed a complaint against Rubberworld and its Vice Chairperson for ULP, illegal
shutdown, and non-payment of salaries and separation pay. The said complaint was referred to Labor
Arbiter for appropriate action. On November 22, 1994, while the aforementioned complaint was
pending, Rubberworld filed with the SEC a Petition for Declaration of a State of Suspension of
Payments with Proposed Rehabilitation Plan. Notwithstanding the SEC's aforementioned suspension
order and despite Rubberworld's submission on January 10, 1995 of a Motion to Suspend Proceedings,
the Labor Arbiter went ahead with the ULP case and rendered his decision denying respondents motion
to suspend proceedings and declaring respondent Rubberworld Phils., Inc. to have committed ULP. Its
MR having been denied by the NLRC, Rubberworld directly went to the Supreme Court on a Petition
for Certiorari. The SEC issued an Order stating that the continuance in business of Rubberworld would
neither be profitable nor work to the best of interest of the parties and general public. Eventually, in the
assailed Decision, the CA granted Rubberworld‘s petition on the finding that the Labor Arbiter had
indeed committed grave abuse of discretion when it proceeded with the ULP case despite the SEC‘s
suspension, hence this petition.
ISSUES:
1) Whether the CA had committed grave abuse of discretion when it gave due course to the petition
filed by Rubberworld and annulled the decisions rendered by the labor arbiter, when the said decisions
had become final and executory warranting the outright dismissal of the aforesaid petition.
2) Whether the CA had committed grave abuse of discretion and reversible error when it applied Section
5(d) andSection 6 (c) of P.D. No. 902-A, as amended, to the case at bar;
RULING:
The Court ruled in the negative and stated that CA did not commit grave abuse of discretion. It
cannot be said that the decision of the Labor Arbiter, or the decision/dismissal order and writ of
execution issued by the NLRC, could ever attain final and executory status. The Labor Arbiter
completely disregarded and violated Section 6(c)of Presidential Decree 902-A, as amended, which
categorically mandates the suspension of all actions for claims against a corporation placed under a
management committee by the SEC. The proceedings before the Labor Arbiter and the order and writ
subsequently issued by the NLRC are all null and void for having been undertaken or issued in violation
of the SEC suspension Order. Acts executed against provisions of mandatory and prohibitory laws are
void, except
when the law itself authorizes their validity. The labor arbiters decision is void ab initio and a void
judgment is non-existent. The Court also believed that CA is correct in ruling the issue of applicability
in labor cases of the aforequoted provisions of PD 902-A. It is plain from the foregoing provisions of the
law that ―upon the appointment by SEC of a management committee or a rehabilitation receiver, all
actions for claims against the corporation pending before any court, tribunal or board shall ipso jure be
suspended. The justification for the automatic stay of all pending actions for claims ―is to enable the
management committee or the rehabilitation receiver to effectively exercise its/his powers free from
any judicial or extra-judicial interference that might unduly hinder or prevent the rescue of the debtor
company. The law states that upon the creation of a management committee or the appointment of a
rehabilitation receiver, all claims for actions ―shall be suspended accordingly. Since the law makes no
distinction or exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere debemos.
Allowing labor cases to proceed clearly defeats the purpose of the automatic stay and severely
encumbers the management committee's time and resources. The said committee would need to
defend against these suits, to the detriment of its primary and urgent duty to work towards rehabilitating
the corporation and making it viable again. Thus, when NLRC proceeded to decide the case despite
the SEC suspension order, the NLRC acted without or in excess of its jurisdiction to hear and decide
cases. As a consequence, any resolution, decision or order that it rendered or issued without jurisdiction
is a nullity.
76. Garcia and Dumago v. Philippine Airlines (G.R. No. 164856)

Facts: Petitioners-employees filed a complaint for illegal dismissal against respondent PAL who dismissed them

75
after they were allegedly caught in the act of sniffing shabu within its premises. The Labor Arbiter ruled for the
petitioners and ordered immediately for their reinstatement. Prior to this decision, SEC had placed PAL under an
Interim Rehabilitation Receiver, and subsequently under a Permanent Rehabilitation Receiver. PAL appealed and
the Labor Tribunal ruled in their favor. Subsequently, the Labor Arbiter issued a writ of execution for the
reinstatement and issued a notice of garnishment. The Labor Tribunal affirmed the writ and notice but suspended
and referred the action to the Rehabilitation Receiver of PAL. On appeal, CA found for respondent PAL.

Issue: Whether or not PAL being under corporate rehabilitation suspends any monetary claims to it.

Ruling: YES. It is settled that upon appointment by the SEC of a rehabilitation receiver, all actions for claims
before any court, tribunal or board against the corporation shall ipso jure be suspended. As stated early on, during
the pendency of petitioners’ complaint before the Labor Arbiter, the SEC placed respondent under an Interim
Rehabilitation Receiver. After the Labor Arbiter rendered his decision, the SEC replaced the Interim
Rehabilitation Receiver with a Permanent Rehabilitation Receiver.

While reinstatement pending appeal aims to avert the continuing threat or danger to the survival or even the life
of the dismissed employee and his family, it does not contemplate the period when the employer-corporation
itself is similarly in a judicially monitored state of being resuscitated in order to survive.

77. SPOUSES EDUARDO SOBREJUANITE and FIDELA SOBREJUANITE vs ASB DEVELOPMENT

CORPORATION,, G.R. NO. 165675 September 30, 2005

FACTS: Spouses Sobrejuanite filed a Complaint for rescission of contract, refund of payments and
damages, against ASB Development Corporation (ASBDC) before the Housing and Land Use
Regulatory Board (HLURB). The Spouses averred that despite full payment and demands for their
condominium unit and parking space, ASBDC failed to deliver the property on or before December
1999 as agreed.
ASBDC filed a motion to suspend proceedings in view of the approval by the Securities and Exchange
Commission (SEC) on April 26, 2001 of the rehabilitation plan of ASB Group of Companies including
ASBDC. However, HLURB arbiter denied the motion and ordered the continuation of the proceedings.
Consequently, the HLURB Board of Commissioners affirmed the ruling of the arbiter that the approval
of the rehabilitation plan and the appointment of a rehabilitation receiver by the SEC did not have the
effect of suspending the proceedings before the HLURB. The Board held that the HLURB could properly
take cognizance of the case since whatever monetary award that may be granted by it will be ultimately
filed as a claim before the rehabilitation receiver.
On appeal by ASBDC before the Office of the President, the same was dismissed for lack of merit.
However when their petition was elevated to the CA, the same was reversed. CA held that SEC’s
approval of the rehabilitation caused the suspension of the HLURB proceedings. The appellate court
noted that Sobrejuanite's complaint for rescission and damages is a claim under the contemplation of
Presidential Decree (PD) No. 902-A or the SEC Reorganization Act and A.M. No. 00-8-10-SC or
the Interim Rules of Procedure on Corporate Rehabilitation, because it sought to enforce a pecuniary
demand. Therefore, jurisdiction lies with the SEC and not HLURB. It also ruled that ASBDC was obliged
to deliver the property in December 1999 but its financial reverses warranted the extension of the
period.
ISSUE: WON the approval of the corporate rehabilitation plan and the appointment of a receiver had
the effect of suspending the proceeding in the HLURB
HELD: Yes. Section 6(c) of PD No. 902-A provides among others that all actions for claims against
corporations, partnerships or associations under management or receivership pending before
any court, tribunal, board or body shall be suspended accordingly.

The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an
advantage or preference over another and to protect and preserve the rights of party litigants as well
as the interest of the investing public or creditors. Such suspension is intended to give enough breathing
space for the management committee or rehabilitation receiver to make the business viable again,
76
without having to divert attention and resources to litigations in various fora. The suspension would
enable the management committee or rehabilitation receiver to effectively exercise its/his powers free
from any judicial or extra-judicial interference that might unduly hinder or prevent the 'rescue of the
debtor company. To allow such other action to continue would only add to the burden of the
management committee or rehabilitation receiver, whose time, effort and resources would be wasted
in defending claims against the corporation instead of being directed toward its restructuring and
rehabilitation.

The claim sought by the Spouses is the claim contemplated by PD No. 902-A as defined in Interim
Rules of Procedure on Corporate Rehabilitation. It defined the same as referring to all claims or
demands, of whatever nature or character against a debtor or its property, whether for money or
otherwise. The definition is all-encompassing as it refers to all actions whether for money or otherwise.
There are no distinctions or exemptions.Thus the complaint for rescission with damages would fall
under the category of claim considering that it is for pecuniary considerations.

WHEREFORE, the petition is DENIED. CA’s decision is affirmed.

78. RCBC v. IAC, GR No. 74851 ; December 9, 1999

Facts:
BF Homes filed a "Petition for Rehabilitation and for Declaration of Suspension of Payments" with SEC.
One of the creditors listed in its inventory of creditors and liabilities was RCBC.
RCBC requested the Provincial Sheriff to extra-judicially foreclose its real estate mortgage on some
properties of BF Homes. A notice of extra-judicial foreclosure sale was issued by the Sheriff. On motion
of BF Homes, the SEC issued a temporary restraining order, effective for 20 days, enjoining RCBC and
the sheriff from proceeding with the public auction sale. The sale was rescheduled to 29 January 1985.
On January 25, 1985, the SEC ordered the issuance of a writ of preliminary injunction upon petitioner's
filing of a bond. However, petitioner did not file a bond until January 29, 1985, the very day of the
auction sale, so no writ of preliminary injunction was issued by the SEC. Presumably, unaware of the
filing of the bond, the sheriffs proceeded with the public auction sale on January 29, 1985, in which
RCBC was the highest bidder for the properties auctioned. BF Homes filed in the SEC a consolidated
motion to annul the auction sale and to cite RCBC and the sheriff for contempt. RCBC opposed the
motion. Because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of a certificate
of sale covering the auctioned properties. On February 13, 1985, the SEC belatedly issued a writ of
preliminary injunction stopping the auction sale which had been conducted by the sheriff two weeks
earlier. Despite the issuance of writ of PI, RCBC filed with RTC an action for mandamus against the
provincial sheriff of Rizal and his deputy to compel them to execute in its favor a certificate of sale of
the auctioned properties.
In answer, the sheriffs alleged that they proceeded with the auction sale on January 29, 1985 because
no writ of preliminary injunction had been issued by SEC as of that date, but they informed the SEC
that they would suspend the issuance of a certificate of sale to RCBC.
On March 18, 1985, the SEC appointed a Management Committee for BF Homes. On RCBC's motion
in the mandamus case, the trial court issued on May 8, 1985 a judgment granting the petitioner’s Motion
for Judgment. On appeal, the SC affirmed CA’s decision (setting aside RTC’s decision dismissing the
mandamus case and suspending issuance to RCBC of new land titles until the resolution of the SEC
case) ruling that “whenever a distressed corporation asks the SEC for rehabilitation and suspension of
payments, preferred creditors may no longer assert such preference but stand on equal footing with
other creditors.” Hence, this Motion for Reconsideration.
Issue:
Whether or not the Court may depart from the words of the law which clearly provides that a creditor
may levy execution on a firm’s properties when such execution precedes SEC’s organization of a
Management Committee to act as its receiver
Held:
Paragraph (c), Section 6 of Presidential Decree 902-A, provides that that suspension of claims against
a corporation under rehabilitation is counted or figured up only upon the appointment of a management
77
committee or a rehabilitation receiver. The holding that suspension of actions for claims against a
corporation under rehabilitation takes effect as soon as the application or a petition for rehabilitation is
filed with the SEC — may, to some, be more logical and wise but unfortunately, such is incongruent
with the clear language of the law. To insist on such ruling, no matter how practical and noble, would
be to encroach upon legislative prerogative to define the wisdom of the law — plainly judicial legislation.
Once a management committee, rehabilitation receiver, board or body is appointed pursuant to PD
902-A, all actions for claims against a distressed corporation pending before any court, tribunal, board
or body shall besuspended accordingly; Suspension shall not prejudice or render ineffective the status
of a secured creditor as compared to a totally unsecured creditor. What it merely provides is that all
actions for claims against the corporation, partnership or association shall be suspended. This should
give the receiver a chance to rehabilitate the corporation if there should still be a possibility for doing
so. In the event that rehabilitation is no longer feasible and claims against the distressed corporation
would eventually have to be settled, the secured creditorsshall enjoy preference over the unsecured
creditors subject only to the provisions of the Civil Code on Concurrence and Preferences of Credit.
WHEREFORE, petitioner's motion for reconsideration is hereby GRANTED. The decision, dated
September 14, 1992 is vacated, the decision of Intermediate Appellate Court in AC-G.R. No. SP-06313
REVERSED and SET ASIDE, and the judgment of the Regional Trial Court National Capital Judicial
Region, Branch 140, in Civil Case No. 10042 REINSTATED.

79. Facilities Management Corporation vs. de la Osa [GR L-38649, 26 March 1979]

Facts: Facilities Management Corporation and J. S. Dreyer are domiciled in Wake Island while J. V.
Catuira is an employee of FMC stationed in Manila. Leonardo dela Osa was employed by FMC in
Manila, but rendered work in Wake Island, with the approval of the Department of Labor of the
Philippines. He further averred that from December, 1965 to August, 1966, inclusive, he rendered
overtime services daily, and that this entire period was divided into swing and graveyard shifts to which
he was assigned, but he was not paid both overtime and night shift premiums despite his repeated
demands from FMC, et al. In a petition filed on 1 July 1967, dela Osa sought his reinstatement with full
backwages, as well as the recovery of his overtime compensation, swing shift and graveyard shift
differentials. Subsequently on 3 May 1968, FMC, et al. filed a motion to dismiss for lack of jurisdiction
over the case. Said motion was denied. The Court of Industrial Relations, ordered FMC, et al. to pay
de la Osa his overtime compensation, as well as his swing shift and graveyard shift premiums at the
rate of 50% per cent of his basic salary. FMC, et al. filed the petition for review on certiorari.

Issue: Whether FMC has been "doing business in the Philippines" so that the service of summons
upon its agent in the Philippines vested the Court of First Instance of Manila with jurisdiction.

Held: FMC may be considered as "doing business in the Philippines" within the scope of Section 14
(Service upon private foreign corporations), Rule 14 of the Rules of Court which provides that "If the
defendant is a foreign corporation, or a non-resident joint stock company or association, doing
business in the Philippines, service may be made on its resident agent designated in accordance with
law for that purpose or, if there be no such agent, on the government official designated by law to that
effect, or on any of its officers or agents within the Philippines." Indeed, FMC, in compliance with Act
2486 as implemented by Department of Labor Order IV dated 20 May 1968 had to appoint Jaime V.
Catuira, 1322 A. Mabini, Ermita, Manila "as agent for FMC with authority to execute Employment
Contracts and receive, in behalf of that corporation, legal services from and be bound by processes of
the Philippine Courts of Justice, for as long as he remains an employee of FMC. In effect, Mr. Catuira
was alleged to be a liaison officer representing FMC in the Philippines. Hence, if a foreign corporation,
not engaged in business in the Philippines, is not barred from seeking redress from courts in the
Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine
courts for acts done against a person or persons in the Philippines.

80. G.R. No. L-34382 July 20, 1983

78
THE HOME INSURANCE COMPANY, petitioner, vs. EASTERN SHIPPING LINES and/or ANGEL
JOSE TRANSPORTATION, INC. and HON. A. MELENCIO-HERRERA, Presiding Judge of the
Manila Court of First Instance, Branch XVII, respondents.
G.R. No. L-34383 July 20, 1983
THE HOME INSURANCE COMPANY, petitioner, vs. N. V. NEDLLOYD LIJNEN; COLUMBIAN
PHILIPPINES, INC., and/or GUACODS, INC., and HON. A. MELENCIO-HERRERA, Presiding
Judge of the Manila Court of First Instance, Branch XVII, respondents.
FACTS:
In L-34382, S. Kajita & Co., on behalf of Atlas Consolidated Mining & Development Corporation,
shipped on board the SS "Eastern Jupiter' from Osaka, Japan, 2,361 coils of "Black Hot Rolled Copper
Wire Rods." The said VESSEL is owned and operated by defendant Eastern Shipping Lines
(CARRIER). The shipment was insured with plaintiff against all risks in the amount of P1,580,105.06
under its Insurance Policy No. AS-73633.
In L-34383, the Hansa Transport Kontor shipped from Bremen, Germany, 30 packages of Service Parts
of Farm Equipment and Implements on board the VESSEL, SS "NEDER RIJN" owned by the
defendant, N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the defendant
Columbian Philippines, Inc. (CARRIER). The shipment was insured with plaintiff company under its
Cargo Policy No. AS-73735 "with average terms" for P98,567.79.
In both cases, the petitioner-appellant made averments regarding its capacity to sue.Eastern Shipping
Lines, Inc., filed its answer and alleged that it denies the allegations of Paragraph I which refer to
plaintiff's capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth
thereof.Respondent-appellee, Angel Jose Transportation, Inc., in turn filed its answer admitting the
allegations of the complaint, regarding the capacity of plaintiff-appellant. In L-34383, the respondents-
appellees denied the petitioner-appellant's capacity to sue for lack of knowledge or information
sufficient to form a belief as to the truth thereof.
The respondent court dismissed the complaints in the two cases on the same ground, that the plaintiff
failed to prove its capacity to sue.
ISSUE:
Whether Home Insurance, a foreign corporation licensed to do business at he time of the filing of the
case, has the capacity to sue for claims on contracts made when it has no license yet to do business
in the Philippines.
RULING:
When the complaints in these two cases were filed, the petitioner had already secured the necessary
license to conduct its insurance business in the Philippines. It could already filed suits.
As early as 1924, this Court ruled in the leading case of Marshall Wells Co. v. Henry W. Elser & Co. that
the object of Sections 68 and 69 of the Corporation Law was to subject the foreign corporation doing
business in the Philippines to the jurisdiction of our courts. The Marshall Wells Co. decision referred to
a litigation over an isolated act for the unpaid balance on a bill of goods but the philosophy behind the
law applies to the factual circumstances of these cases.
To repeat, the objective of the law was to subject the foreign corporation to the jurisdiction of our courts.
The Corporation Law must be given a reasonable, not an unduly harsh, interpretation which does not
hamper the development of trade relations and which fosters friendly commercial intercourse among
countries.
The Corporation Law is silent on whether or not the contract executed by a foreign corporation with no
capacity to sue is null and void ab initio.
There is no question that the contracts are enforceable. The requirement of registration affects only the
remedy. The Court’s ruling that the lack of capacity at the time of the execution of the contracts was
cured by the subsequent registration is also strengthened by the procedural aspects of these cases.
81. THE MENTHOLATUM CO., INC., ET AL., vs ANACLETO MANGALIMAN, ET AL. , 73 Phil 524
79
FACTS: The petitioners instituted an action against respondents for infringement of trade mark and
unfair competition. Plaintiffs prayed for the issuance of an order restraining Anacleto and Florencio
Mangaliman from selling their product "Mentholiman,".
The complaint stated that the Mentholatum Co., Inc., is a Kansas corporation which manufactures
Mentholatum," a medicament for the treatment of colds and nasal irritations,; that the Philippine-
American Drug co., Inc., is its exclusive distributing agent in the Philippines; and that the
Mentholatum Co., Inc., registered with the Bureau of Commerce and Industry the word,
"Mentholatum," as trade mark for its products; that the Mangaliman brothers prepared a medicament
and salve named "Mentholiman" which they sold to the public packed in a container of the same size,
color and shape as "Mentholatum".
The Court of First Instance of Manilarendered judgment in favor of the complainants. On appeal, the
Court of Appeals reversed the decision and held that the activities of the Mentholatum Co., Inc., were
business transactions in the Philippines, and that, by section 69 of the Corporation Law, it may not
maintain the present suit. Hence, this petition for certiorari.

ISSUE: Whether or not the petitioners could prosecute the instant action without having secured the
license required in section 69 of the Corporation Law

RULING:
No. The Supreme Court ruled that the petitioners have not acquired the license required by section
68 of the Corporation Law, and hence could prosecute the present action.No general rule or
governing principle can be laid down as to what constitutes "doing" or "engaging in" or "transacting"
business. The true test, however, seems to be whether the foreign corporation is continuing the body
or substance of the business or enterprise for which it was organized or whether it has substantially
retired from it and turned it over to another. In the case, the Mentholatum Co., Inc., being a foreign
corporation doing business in the Philippines without the license required by section 68 of the
Corporation Law, may not prosecute this action for violation of trade mark and unfair competition. The
Supreme Court denied the petition.

82. ERIKS PTE., LTD VS COURT OF APPEALS AND DELFIN F. ENRIQUEZ, JR.
Petitioner Eriks Pte., Ltd. is a non-resident foreign corporation engaged in the manufacture and sale of
elements used in sealing pumps, valves and pipes for industrial purposes. It is organized and existing
under the laws of the Republic of Singapore.
Private respondent Delfin Enriquez, Jr. , doing business under the name and style of Derlene EB
Controls Center and/or EB Karmine Commercial, ordered and received from petitioner various
elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings.
The transfers of goods were perfected in Singapore, for private respondent’s account, F.O.B.
Singapore, with a 90-day credit term. Subsequently, demands were made by petitioner upon private
respondent to settle his account, but the latter failed/refused to do so.
Thus, petitioner corporation (Eriks), filed with the Regional Trial Court of Makati for the recovery of
S$41,939.63 or its equivalent in Philippine currency, plus interest thereon and damages. Private
respondent responded with a Motion to Dismiss, contending that petitioner corporation had no legal
capacity to sue. The trial court dismissed the action on the ground that petitioner is a foreign corporation
doing business in the Philippines without a license, hence, had no legal capacity to sue.
ISSUE
whether petitioner corporation may maintain an action in Philippine courts considering that it has no
license to do business in the country
RULING: The resolution of this issue depends on whether petitioner’s business with private respondent
may be treated as isolated transactions

The Corporation Code provides: “Sec. 133. Doing business without a license.—No foreign
corporation transacting business in the Philippines without a license, or its successors or assigns, shall
be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative

80
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.” The
aforementioned provision prohibits, not merely absence of the prescribed license, but it also bars a
foreign corporation “doing business” in the Philippines without such license access to our courts. A
foreign corporation without such license is not ipso facto incapacitated from bringing an action. A license
is necessary only if it is “transacting or doing business” in the country.
However, there is no definitive rule on what constitutes “doing,” “engaging in,” or “transacting” business.
The Corporation Code itself does not define such terms. To fill the gap, the evolution of its statutory
definition has produced a rather all-encompassing concept in Republic Act No. 70429 in this wise: " the
phrase ‘doing business’ shall include soliciting orders, service contracts, opening offices, whether called
liaison’ offices or branches; appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods totalling one hundred eight(y) (180)
days or more; participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and 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: Provided, however, That the phrase
‘doing business’ shall not be deemed to include mere investment as a shareholder by a foreign entity
in domestic corporations duly registered to do business, and/or the exercise of rights as such investor;
nor having a nominee director or officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which transacts business in its own name and
for its own account.”
In the durable case of The Mentholatum Co., Inc. vs. Mangaliman, this Court discoursed on the test to
determine whether a foreign company is “doing business” in the Philippines, thus: “x x x The true test,
however, seems to be whether the foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized or whether it has substantially retired from it and
turned it over to another.The term implies a continuity of commercial dealings and arrangements, and
contemplates, 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, the purpose and object of its organization
The transactions which occurred between January to August 1989, constitute a single act or isolated
business transaction, this being the ordinary business of appellant corporation, it can be said to be
illegally doing or transacting business without a license. x x x Here it can be clearly gleaned from the
four-month period of transactions between appellant and appellee that it was a continuing business
relationship, which would, without doubt, constitute doing business without a license.
Thus, we hold that the series of transactions in question could not have been isolated or casual
transactions. What is determinative of “doing business” is not really the number or the quantity of the
transactions, but more importantly, the intention of an entity to continue the body of its business in the
country. The number and quantity are merely evidence of such intention. The phrase “isolated
transaction” has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from
the common business of a foreign enterprise in the sense that there is no intention to engage in a
progressive pursuit of the purpose and object of the business organization. Whether a foreign
corporation is “doing business” does not necessarily depend upon the frequency of its transactions, but
more upon the nature and character of the transactions.

83. MR Holdings Ltd. vs. Sheriff Bajar, [GR 138104, April 11, 2002]

Facts: Under a "Principal Loan Agreement" and "Complementary Loan Agreement," both dated 4
November 1992, Asian Development Bank (ADB), a multilateral development finance institution,
agreed to extend to Marcopper Mining Corporation (Marcopper) a loan in the aggregate amount of
US$40,000,000.00 to finance the latter's mining project at Sta. Cruz, Marinduque. The principal loan of
US$15,000,000.00 was sourced from ADB's ordinary capital resources, while the complementary loan
of US$25,000,000.00 was funded by the Bank of Nova Scotia, a participating finance institution. On
even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign corporation which owns 40% of
Marcopper, executed a "Support and Standby Credit Agreement" whereby the latter. agreed to provide
Marcopper with cash flow support for the payment of its obligations to ADB. To secure the loan,

81
Marcopper executed in favor of ADB a "Deed of Real Estate and Chattel Mortgage" dated 11 November
1992, covering substantially all of its (Marcopper's) properties and assets in Marinduque.

It was registered with the Register of Deeds on 12 November 1992. When Marcopper defaulted in the
payment of its loan obligation, Placer Dome, in fulfillment of its undertaking under the "Support and
Standby Credit Agreement," and presumably to preserve its international credit standing, agreed to
have its subsidiary corporation, MR Holding, Ltd., assumed Marcopper's obligation to ADB in the
amount of US$18,453,450.02. Consequently, in an "Assignment Agreement" dated 20 March 1997
ADB assigned to MR Holdings all its rights, interests and obligations under the principal and
complementary loan agreements, ("Deed of Real Estate and Chattel Mortgage," and "Support and
Standby Credit Agreement"). On 8 December 1997, Marcopper likewise executed a "Deed of
Assignment" in favor of MR Holdings. Under its provisions, Marcopper assigns, transfers, cedes and
conveys to MR Holdings, its assigns and/or successors-in-interest all of its (Marcopper's) properties,
mining equipment and facilities. Meanwhile, it appeared that on 7 May 1997, Solidbank Corporation
(Solidbank) obtained a Partial Judgment against Marcopper from the RTC, Branch 26, Manila, in Civil
Case 96-80083, ordering Marcopper to pay Solidbank he amount if PHP 52,970,756.89, plus interest
and charges until fully paid; to pay an amount equivalent to 10% of above-stated amount as attorney's
fees; and to pay the costs of suit. Upon Solidbank's motion, the RTC of Manila issued a writ of execution
pending appeal directing Carlos P. Bajar, sheriff, to require Marcopper "to pay the sums of money to
satisfy the Partial Judgment." Thereafter, Bajar issued two notices of levy on Marcopper's personal and
real properties, and over all its stocks of scrap iron and unserviceable mining equipment. Together with
sheriff Ferdinand M. Jandusay of the RTC, Branch 94, Boac, Marinduque, Bajar issued two notices
setting the public auction sale of the levied properties on 27 August 1998 at the Marcopper mine site.
Having learned of the scheduled auction sale, MR Holdings served an "Affidavit of Third-Party Claim"
upon the sheriffs on 26 August 1998, asserting its ownership over all Marcopper's mining properties,
equipment and facilities by virtue of the "Deed of Assignment." Upon the denial of its "Affidavit of Third-
Party Claim" by the RTC of Manila, MR Holdings commenced with the RTC of Boac, Marinduque,
presided by Judge Leonardo P. Ansaldo, a complaint for reivindication of properties, etc., with prayer
for preliminary injunction and temporary restraining order against Solidbank, Marcopper, and sheriffs
Bajar and Jandusay (Civil Case 98-13).

In an Order dated 6 October 1998, Judge Ansaldo denied MR Holdings' application for a writ of
preliminary injunction on the ground that (a) MR Holdings has no legal capacity to sue, it being a foreign
corporation doing business in the Philippines without license; (b) an injunction will amount "to staying
the execution of a final judgment by a court of co-equal and concurrent jurisdiction;" and (c) the validity
of the "Assignment Agreement" and the "Deed of Assignment" has been "put into serious question by
the timing of their execution and registration." Unsatisfied, MR Holdings elevated the matter to the Court
of Appeals on a Petition for Certiorari, Prohibition and Mandamus (CA-GR SP 49226). On 8 January
1999, the Court of Appeals rendered a Decision affirming the trial court's decision. MR Holdings filed
the Petition for Review on Certiorari.

Issue: Whether MR Holdings' participation under the "Assignment Agreement" and the "Deed of
Assignment" constitutes “doing business.”

Held: Batas Pambansa 68, otherwise known as "The Corporation Code of the Philippines," is silent as
to what constitutes doing" or "transacting" business in the Philippines. Fortunately, jurisprudence has
supplied the deficiency and has held that the term "implies a continuity of commercial dealings and
arrangements, and contemplates, 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, the purpose and object
for which the corporation was organized." The traditional case law definition has metamorphosed into
a statutory definition, having been adopted with some qualifications in various pieces of legislation in
Philippine jurisdiction, such as Republic Act 7042 (Foreign Investment Act of 1991), and Republic Act
5455. There are other statutes defining the term "doing business," and as may be observed, one
common denominator among them all is the concept of "continuity." The expression "doing business"
should not be given such a strict and literal construction as to make it apply to any corporate dealing
whatever. At this early stage and with MR Holdings' acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended to continue the business for which it
was organized. Herein, at this early stage and with MR Holdings' acts or transactions limited to the
assignment contracts, it cannot be said that it had performed acts intended to continue the business
for which it was organized. It may not be amiss to point out that the purpose or business for which MR
82
Holdings was organized is not discernible in the records. No effort was exerted by the Court of Appeals
to establish the nexus between MR Holdings' business and the acts supposed to constitute "doing
business." Thus, whether the assignment contracts were incidental to MR Holdings' business or were
continuation thereof is beyond determination. The Court of Appeals' holding that MR Holdings was
determined to be "doing business" in the Philippines is based mainly on conjectures and speculation.
In concluding that the "unmistakable intention" of MR Holdings is to continue Marcopper's business,
the Court of Appeals hangs on the wobbly premise that "there is no other way for petitioner to recover
its huge financial investments which it poured into Marcopper's rehabilitation without it (petitioner)
continuing Marcopper's business in the country." Absent overt acts of MR Holdings from which we may
directly infer its intention to continue Marcopper's business, the Supreme Court cannot give its
concurrence. Significantly, a view subscribed upon by many authorities is that the mere ownership by
a foreign corporation of a property in a certain state, unaccompanied by its active use in furtherance of
the business for which it was formed, is insufficient in itself to constitute doing business. Further, long
before MR Holdings assumed Marcopper's debt to ADB and became their assignee under the two
assignment contracts, there already existed a "Support and Standby Credit Agreement" between ADB
and Placer Dome whereby the latter bound itself to provide cash flow support for Marcopper's payment
of its obligations to ADB. Plainly, MR Holdings' payment of US$18,453,450.12 to ADB was more of a
fulfillment of an obligation under the "Support and Standby Credit Agreement" rather than an
investment. That MR Holdings had to step into the shoes of ADB as Marcopper's creditor was just a
necessary legal consequence of the transactions that transpired. Also, the "Support and Standby Credit
Agreement" was executed 4 years prior to Marcopper's insolvency, hence, the alleged "intention of MR
Holdings to continue Marcopper's business" could have no basis for at that time, Marcopper's fate
cannot yet be determined. In the final analysis, MR Holdings was engaged only in isolated acts or
transactions. Single or isolated acts, contracts, or transactions of foreign corporations are not regarded
as a doing or carrying on of business. Typical examples of these are the making of a single contract,
sale, sale with the taking of a note and mortgage in the state to secure payment therefor, purchase, or
note, or the mere commission of a tort. In these instances, there is no purpose to do any other business within the
country.

84. HUTCHISON PORTS PHILIPPINES LIMITED v. SUBIC BAY METROPOLITAN AUTHORITY

G.R. No. 131367 August 31, 2000
Facts: The Subic Bay Metropolitan Authority (or SBMA) advertised in leading national daily newspapers
and in one international publication, an invitation offering to the private sector the opportunity to develop
and operate a modern marine container terminal within the Subic Bay Freeport Zone. Out of seven
bidders who responded to the published invitation, three were declared by the SBMA as qualified
bidders after passing the pre-qualification evaluation conducted by the SBMA’s Technical Evaluation
Committee (or SBMA-TEC). Among these is the petitioner.
Thereafter, the services of three (3) international consultants recommended by the World Bank for their
expertise were hired by SBMA to evaluate the business plans submitted by each of the bidders, and to
ensure that there would be a transparent and comprehensive review of the submitted bids. The SBMA
also hired the firm of Davis, Langdon and Seah Philippines, Inc. to assist in the evaluation of the bids
and in the negotiation process after the winning bidder is chosen. All the consultants, after such review
and evaluation unanimously concluded that HPPL’s Business Plan was “far superior to that of the two
other bidders.”
However, even before the sealed envelopes containing the bidders’ proposed royalty fees could be
opened at the appointed time and place, RPSI formally protested that ICTSI is legally barred from
operating a second port in the Philippines based on Executive Order No. 212 and Department of
Transportation and Communication (DOTC) Order 95-863.
ISSUE: Whether the petitioner HPPL has the legal capacity to seek redress from the Court.
RULING: No, as HPPL is a foreign corporation, organized and existing under the laws of the British
Virgin Islands. While the actual bidder was a consortium composed of HPPL, and two other
corporations, namely, Guoco Holdings (Phils.) Inc. and Unicol Management Services, Inc., it is only
HPPL that has brought the controversy before the Court, arguing that it is suing only on an isolated

83
transaction to evade the legal requirement that foreign corporations must be licensed to do business in
the Philippines to be able to file and prosecute an action before Philippines courts.
There is no general rule or governing principle laid down as to what constitutes "doing" or "engaging
in" or "transacting" business in the Philippines. Each case must be judged in the light of its peculiar
circumstances. Thus, it has often been held that a single act or transaction may be considered as "doing
business" when a corporation performs acts for which it was created or exercises some of the functions
for which it was organized.
The amount or volume of the business is of no moment, for even a singular act cannot be merely
incidental or casual if it indicates the foreign corporation's intention to do business. Participating in the
bidding process constitutes "doing business" because it shows the foreign corporation's intention to
engage in business here. The bidding for the concession contract is but an exercise of the corporation's
reason for creation or existence. Thus, it has been held that "a foreign company invited to bid for IBRD
and ADB international projects in the Philippines will be considered as doing business in the Philippines
for which a license is required."
In this regard, it is the performance by a foreign corporation of the acts for which it was created,
regardless of volume of business, that determines whether a foreign corporation needs a license or
not.
The primary purpose of the license requirement is to compel a foreign corporation desiring to do
business within the Philippines to submit itself to the jurisdiction of the courts of the state and to enable
the government to exercise jurisdiction over them for the regulation of their activities in this country. If
a foreign corporation operates a business in the Philippines without a license, and thus does not submit
itself to Philippine laws, it is only just that said foreign corporation be not allowed to invoke them in our
courts when the need arises.
"While foreign investors are always welcome in this land to collaborate with us for our mutual benefit,
they must be prepared as an indispensable condition to respect and be bound by Philippine law in
proper cases." The requirement of a license is not intended to put foreign corporations at a
disadvantage, for the doctrine of lack of capacity to sue is based on considerations of sound public
policy. Accordingly, HPPL must be held to be incapacitated to bring the petition for injunction before
the Supreme Court for it is a foreign corporation doing business in the Philippines without the requisite
license.
85. G.R. No. L-61523 July 31, 1986
ANTAM CONSOLIDATED, INC., TAMBUNTING TRADING CORPORATION and AURORA
CONSOLIDATED SECURITIES and INVESTMENT CORPORATION, petitioners,
vs. THE COURT OF APPEALS, THE HONORABLE MAXIMIANO C. ASUNCION (Court of First
Instance of Laguna, Branch II [Sta. Cruz]) and STOKELY VAN CAMP, INC., respondents.

FACTS: Respondent Stokely Van Camp. Inc. (Stokely) filed a complaint against Banahaw Milling
Corporation (Banahaw), Antam Consolidated, Inc., Tambunting Trading Corporation (Tambunting),
Aurora Consolidated Securities and Investment Corporation, and United Coconut Oil Mills, Inc.
(Unicom) for collection of sum of money.

In its complaint, Stokely alleged that it is a corporation organized and existing under the laws of the
state of Indiana, U.S.A. and has its principal office at 941 North Meridian Street, Indianapolis, Indiana,
U.S.A. and one of its subdivisions "Capital City Product Company" (Capital City) has its office in
Columbus, Ohio, U.S.A and that Capital City and Coconut Oil Manufacturing (Phil.) Inc. (Comphil) with
the latter acting through its broker Roths child Brokerage Company, entered into a contract wherein
Comphil undertook to sell and deliver and Capital City agreed to buy crude coconut oil but Comphil
failed to deliver the coconut oil so that Capital City covered its coconut oil needs in the open market at
a price substantially in excess of the contract and sustained a loss; that to settle Capital City's loss
under the contract, the parties entered into a second contract wherein Comphil undertook to buy and
Capital City agreed to sell coconut crude oil under the same terms and conditions; that the second
contract states that Comphil was supposed to repurchase the undelivered coconut oil; that Comphil
again failed to pay said amount, so to settle Capital City's loss, it entered into a third contract with
Comphil wherein the latter undertook to sell and deliver and Capital City agreed to buy the same
84
quantity of crude coconut oil; that Comphil failed to deliver the coconut oil so Capital City notified the
former that it was in default; that Capital City sustained damages; and that after repeated demands
from Comphil to pay the said amount, the latter still refuses to pay the same.

Respondent Stokely further prayed that a writ of attachment be issued against any and all the properties
of the petitioners in an amount sufficient to satisfy any lien of judgment that the respondent may obtain
in its action.

The trial court ordered the issuance of a writ of attachment in favor of the respondent upon the latter's
deposit of a bond in the amount of P l,285,000.00. But the respondent filed a motion for reconsideration
to reduce the attachment bond.

The petitioners filed a motion to dismiss the complaint on the ground that the respondent, being a
foreign corporation not licensed to do business in the Philippines, has no personality to maintain the
instant suit.

After the respondent had filed an opposition to the motion to dismiss and petitioner has opposed the
attachment and the motion to reduce the attachment bond, the trial court issued an order reducing the
attachment bond to P 500,000.00 and denying the motion to dismiss by petitioners on the ground that
the reason cited therein does not appear to be indubitable.

Petitioners filed a petition for certiorari before the Indianapolis intermediate Appellate Court.

The appellate court dismissed the petition

Petitioners filed a motion for reconsideration but the same was denied. Hence, they filed this instant
petition for certiorari and prohibition with prayer for temporary restraining order, questioning the
propriety of the appellate court's decision.

Petitioners maintain that the appellate court erred in denying their motion to dismiss since the ground
relied upon by them is clear and indubitable, that is, that the respondent has no personality to sue.
Petitioners argue that to maintain the suit filed with the trial court, the respondent should have secured
the requisite license to do business in the Philippines because, in fact, it is doing business here.
Petitioners anchor their argument that the respondent is a foreign corporation doing business in the
Philippines on the fact that by the respondent's own allegations, it has participated in three transactions,
either as a seller or buyer, which are by their nature, in the pursuit of the purpose and object for which
it was organized.

ISSUE: Whether or not the respondent is deemed as doing business in the Philippines.

RULING: No. The transactions entered into by the respondent with the petitioners are not a series of
commercial dealings which signify an intent on the part of the respondent to do business in the
Philippines but constitute an isolated one which does not fall under the category of "doing business."
The records show that the only reason why the respondent entered into the second and third
transactions with the petitioners was because it wanted to recover the loss it sustained from the failure
of the petitioners to deliver the crude coconut oil under the first transaction and in order to give the latter
a chance to make good on their obligation.

From these facts alone, it can be deduced that in reality, there was only one agreement between the
petitioners and the respondent and that was the delivery by the former of 500 long tons of crude coconut
oil to the latter, who in turn, must pay the corresponding price for the same. The three seemingly
different transactions were entered into by the parties only in an effort to fulfill the basic agreement and
in no way indicate an intent on the part of the respondent to engage in a continuity of transactions with
petitioners which will categorize it as a foreign corporation doing business in the Philippines.

Thus, the trial court, and the appellate court did not err in denying the petitioners' motion to dismiss not
only because the ground thereof does not appear to be indubitable but because the respondent, being
a foreign corporation not doing business in the Philippines, does not need to obtain a license to do
business in order to have the capacity to sue.

85
86. THE MENTHOLATUM CO., INC., ET AL., vs ANACLETO MANGALIMAN, ET AL.
FACTS: The petitioners instituted an action against respondents for infringement of trade mark and
unfair competition. Plaintiffs prayed for the issuance of an order restraining Anacleto and Florencio
Mangaliman from selling their product Mentholiman. The complaint stated that the Mentholatum Co.,
Inc., is a Kansas corporation which manufactures Mentholatum, a medicament for the treatment of
colds and nasal irritations, that the Philippine-American Drug co., Inc., is its exclusive distributing agent
in the Philippines and that the Mentholatum Co., Inc., registered with the Bureau of Commerce and
Industry the word, Mentholatum, as trade mark for its products that the Mangaliman brothers
prepared a medicament and salve named Mentholiman which they sold to the public packed in a
container of the same size, color and shape as Mentholatum . The Court of First Instance of Manila
rendered judgment in favor of the complainants. On appeal, the Court of Appeals reversed the decision
and held that the activities of the Mentholatum Co., Inc., were business transactions in the Philippines,
and that, by Section 69 of the Corporation Law, it may not maintain the present suit. Hence, this petition
for certiorari.
ISSUE: Whether or not the petitioners could prosecute the instant action without having secured the
license required in Section 69 of the Corporation Law
RULING: No. The Supreme Court ruled that the petitioners have not acquired the license required by
section 68 of the Corporation Law, and hence could prosecute the present action. No general rule or
governing principle can be laid down as to what constitutes doing or engaging in or transacting
business. The true test, however, seems to be whether the foreign corporation is continuing the body
or substance of the business or enterprise for which it was organized or whether it has substantially
retired from it and turned it over to another. In the case, the Mentholatum Co., Inc., being a foreign
corporation doing business in the Philippines without the license required by Section 68 of the
Corporation Law, may not prosecute this action for violation of trade mark and unfair competition. The
Supreme Court denied the petition.

88.AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., vs. INTEGRATED SILICON

TECHNOLOGY PHILIPPINES CORP et al, G.R. No. 154618, April 14, 2004
FACTS:
Agilent Technologies Singapore (PTE) LTD., is a foreign corporation, which, by its own admission, is
not licensed to do business in the Philippines. Respondent Integrated Silicon is a private domestic
corporation, 100% foreign owned, which is engaged in the business of manufacturing and assembling
electronics components. The juridical relation among the various parties in this case can be traced to
a 5-year Value Added Assembly Services Agreement (VAASA), between Integrated Silicon and HP-
Singapore. Under the terms of the VAASA, Integrated Silicon was to locally manufacture and assemble
fiber optics for export to HP-Singapore. HP-Singapore, for its part, was to consign raw materials to
Integrated Silicon. The VAASA had a five-year term with a provision for annual renewal by mutual
written consent. Later, with the consent of Integrated Silicon, HP-Singapore assigned all its rights and
obligations in the VAASA to Agilent. Later, Integrated Silicon filed a complaint for “Specific Performance
and Damages” against Agilent and its officers. It alleged that Agilent breached the parties’ oral
agreement to extend the VAASA. Agilent filed a separate complaint against Integrated Silicon for
“Specific Performance, Recovery of Possession, and Sum of Money with Replevin, Preliminary
Mandatory Injunction, and Damages”. Respondents filed a MTD in the 2nd case, on the grounds of lack
of Agilent’s legal capacity to sue; litis pendentia; forum shopping; and failure to state a cause of action.
The trial court denied the MTD and granted petitioner Agilent’s application for a writ of replevin. Without
filing a MR, respondents filed a petition for certiorari with the CA. The CA granted respondents’ petition
for certiorari, set aside the assailed Order of the trial court (denying the MTD) and ordered the dismissal
of the 2nd case. Hence, the instant petition.
ISSUE:
Whether or not an unlicensed foreign corporation not doing business in the Philippines lacks the legal
capacity to file suit.

HELD:

86
NO. A foreign corporation without a license is not ipso facto incapacitated from bringing an action in
Philippine courts. A license is necessary only if a foreign corporation is “transacting” or “doing business”
in the country. The Corporation Code provides:
Sec. 133. Doing business without a license. — No foreign corporation transacting business in the
Philippines without a license, or its successors or 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 law
The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be
condensed in four statements: (1)if a foreign corporation does business in the Philippines without a
license, it cannot sue before the Philippine courts; (2)if a foreign corporation is not doing business in
the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a
cause of action entirely independent of any business transaction; (3)if a foreign corporation does
business in the Philippines without a license, a Philippine citizen or entity which has contracted with
said corporation may be estopped from challenging the foreign corporation’s corporate personality in a
suit brought before Philippine courts; and (4)if a foreign corporation does business in the Philippines
with the required license, it can sue before Philippine courts on any transaction.
The challenge to Agilent’s legal capacity to file suit hinges on whether or not it is doing business in the
Philippines. However, there is no definitive rule on what constitutes “doing”, “engaging in”, or
“transacting” business in the Philippines. The Corporation Code itself is silent as to what acts constitute
doing or transacting business in the Philippines. The Foreign Investments Act of 1991 (the “FIA”;
Republic Act No. 7042, as amended), defines “doing business” as follows:
Sec. 3, par. (d). The phrase “doing business” shall include soliciting orders, service contracts, opening
offices, whether called “liaison” offices or branches; appointing representatives or distributors domiciled
in the Philippines or who in any calendar year stay in the country for a period or periods totaling one
hundred eighty (180) days or more; participating in the management, supervision or control of any
domestic business, firm, entity, or corporation in the Philippines; and 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 the progressive
prosecution of, commercial gain or of the purpose and object of the business organization.
By and large, to constitute “doing business”, the activity to be undertaken in the Philippines is one that
is for profit-making.
By the clear terms of the VAASA, Agilent’s activities in the Philippines were confined to (1) maintaining
a stock of goods in the Philippines solely for the purpose of having the same processed by Integrated
Silicon; and (2) consignment of equipment with Integrated Silicon to be used in the processing of
products for export. As such, we hold that, based on the evidence presented thus far, Agilent cannot
be deemed to be “doing business” in the Philippines. Respondents’ contention that Agilent lacks the
legal capacity to file suit is therefore devoid of merit. As a foreign corporation not doing business in the
Philippines, it needed no license before it can sue before our courts.

89. EXPERTRAVEL & TOURS, INC., petitioner, vsCOURT OF APPEALS and KOREAN AIRLINES, respondent.
G.R. No. 152392; May 26, 2005

Facts: Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do
business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was Atty.
Mario Aguinaldo and his law firm.

KAL, through Atty. Aguinaldo, filed a Complaint against ETI with the Regional Trial Court (RTC) of Manila, for the collection
of a sum of money. The verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated
therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint. ETI filed
a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to execute the verification and
certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. KAL later submitted an Affidavit
executed by its general manager Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference,
which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of directors approved
a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo
Kim also alleged, however, that the corporation had no written copy of the aforesaid resolution. The trial court issued an
Order denying the motion to dismiss, giving credence to the claims of Atty. Aguinaldo and Suk Kyoo Kim that the KAL Board
of Directors indeed conducted a teleconference during which it approved a resolution as quoted in the submitted affidavit.
ETI filed a motion for the reconsideration of the Order, contending that it was inappropriate for the court to take judicial
notice of the said teleconference without any prior hearing. However, the trial court denied the motion in its Order dated
August 8, 2000. ETI then filed a petition for certiorari and mandamus, assailing the orders of the RTC. CA afterwards
rendered judgment dismissing the petition, ruling that the verification and certificate of non-forum shopping executed by
87
Atty. Aguinaldo was sufficient compliance with the Rules of Court. According to the appellate court, Atty. Aguinaldo had
been duly authorized by the approved board resolution, and was the resident agent of KAL. As such, the RTC could not be
faulted for taking judicial notice of the said teleconference of the KAL Board of Directors. ETI filed a motion for
reconsideration of the said decision, which the CA denied.

Issue: Whether or not the courts can take judicial notice of said teleconference

Held: Yes. In this age of modern technology, the courts may take judicial notice that business transactions may be made
by individuals through teleconferencing. Teleconferencing is interactive group communication (three or more people in two
or more locations) through an electronic medium. It represents a unique alternative to face-to-face (FTF) meetings. In
general terms, teleconferencing can bring people together under one roof even though they are separated by hundreds of
miles. This type of group communication may be used in a number of ways, and have three basic types: (1) video
conferencing – television-like communication augmented with sound; (2) computer conferencing – printed communication
through keyboard terminals, and (3) audio-conferencing-verbal communication via the telephone with optional capacity for
telewriting or telecopying.

Teleconferencing and videoconferencing of members of board of directors of private corporations is a reality, in light of
Republic Act No. 8792. The Securities and Exchange Commission issued SEC Memorandum Circular No. 15, on November
30, 2001, providing the guidelines to be complied with related to such conferences. Thus, the Court agrees with the RTC
that persons in the Philippines may have a teleconference with a group of persons in South Korea relating to business
transactions or corporate governance.

90.B.Van Zuiden vs. GTVL MANUFACTURING INDUSTRIES

Petitioner: VAN ZUIDEN BROS., LTD. VS GTVL MANUFACTURING INDUSTRIES, INC.,

Facts: Petitioner, B.Van Zuiden (Zuiden, for brevity) is a corporation, incorporated under the laws of
Hong Kong, and engaged in the importation and exportation of several products, including lace
products. On 13 July 1999, petitioner filed a complaint for sum of money against respondent GTVL Mfg.
(GTVL). GTVL purchased lace products from Petitione. The agreement was that ZUIDEN delivers the
products purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar Ltd. (KENZAR),
and the products are then considered as sold, upon receipt by KENZAR of the goods purchased by
GTVL. Thereafter, KENZAR had the obligation to deliver the products to the Philippines and/or to follow
whatever instructions GTVL had on the matter.

However, commencing October 31, 1994 until the filing of the complaint, GTVL has failed and refused
to pay the agreed purchase price for several deliveries ordered by it and delivered by ZUIDEN, the
obligation amounts to U.S.$32,088.02, inclusive of interest. Instead of filing an answer, respondent filed
a Motion to Dismiss on the ground that petitioner has no legal capacity to sue. Respondent alleged that
petitioner is doing business in the Philippines without securing the required license. Accordingly,
petitioner cannot sue before Philippine courts.

On 10 November 1999, the trial court dismissed the complaint; the decision which the Court of
Appeals sustained. The Court of Appeals found that the parties entered into a contract of sale whereby
petitioner sold lace products to respondent in a series of transactions. While petitioner delivered the
goods in Hong Kong to Kenzar, another Hong Kong company, the party with whom petitioner transacted
was actually respondent, a Philippine corporation, and not Kenzar. The Court of Appeals believed
Kenzar is merely a shipping company and concluded that the delivery of the goods in Hong Kong did
not exempt petitioner from being considered as doing business in the Philippines.

Issue: Whether or not petitioner, an unlicensed foreign corporation, has a legal capacity to sue before
the Philippine courts?

Ruling:

The Supreme Court rules in the affirmative. Section 133 of the Corporation Code provides:

Doing business without license. No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the Philippines; but

88
such corporation may be sued or proceeded against before Philippine courts or administrative
tribunals on any valid cause of action recognized under Philippine laws.

The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue
before Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in
the Philippines can sue before Philippine courts.

Likewise, under Section 3(d) of Republic Act No. 7042 (RA 7042) or “The Foreign Investments
Act of 1991,” the phrase “doing business” includes:

x x x soliciting orders, service contracts, opening offices, whether called “liaison” offices
or branches; appointing representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totalling one hundred eighty (180) days
or more; participating in the management, supervision or control of any domestic business, firm, entity
or corporation in the Philippines; and 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:
Provided, however, That the phrase “doing business” shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its own account.

The series of transactions between petitioner and respondent cannot be classified as “doing
business” in the Philippines under Section 3(d) of RA 7042. An essential condition to be considered
as “doing business” in the Philippines is the actual performance of specific commercial acts
within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over
commercial acts performed in foreign territories.

In this case, there is no showing that petitioner performed within the Philippine territory the
specific acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open an
office here in the Philippines, appoint a representative or distributor, or manage, supervise or control a
local business. While petitioner and respondent entered into a series of transactions implying a
continuity of commercial dealings, the perfection and consummation of these transactions were done
outside the Philippines. Considering the given facts, it is worthy to note that the sale of lace products
was consummated in Hong Kong.

The Court also finds no single activity which petitioner performed here in the Philippines pursuant
to its purpose and object as a business organization. Moreover, petitioner’s desire to do business within
the Philippines is not discernible from the allegations of the complaint or from its attachments.
Therefore, there is no basis for ruling that petitioner is doing business in the Philippines.

We disagree with the Court of Appeals’ ruling that the proponents to the transaction determine
whether a foreign corporation is doing business in the Philippines, regardless of the place of delivery
or place where the transaction took place.

For example, in exporting. An exporter in one country may export its products to many foreign
importing countries without performing in the importing countries specific commercial acts that would
constitute doing business in the importing countries. The mere act of exporting from one’s own country,
without doing any specific commercial act within the territory of the importing country, cannot be
deemed as doing business in the importing country. Otherwise exporters, by the mere act alone of
exporting their products, could be considered by the importing countries to be doing business in those
countries and will require them to secure a business license in every foreign country where they usually
export their products. Such a legal concept will have a deleterious effect not only on Philippine exports,
but also on global trade.

Considering that petitioner is not doing business in the Philippines, it does not need a license in
order to initiate and maintain a collection suit against respondent for the unpaid balance of respondent’s
purchases.

91.YUJUICO vs. QUIAMBAO

89
FACTS: On July 27, 1998, the Securities and Exchange Commission (SEC) approved the amendment
of STRADEC’s Articles of Incorporation authorizing the change of its principal office from Pasig City to
Bayambang, Pangasinan. On March 1, 2004, STRADEC held its annual stockholders’ meeting in its
Pasig City office as indicated in the notices sent to the stockholders. At the said meeting, herein
petitioners and respondents were elected members of the Board of Directors. After five (5) months, or
on August 16, 2004, respondents filed with the Regional Trial Court (RTC), San Carlos City,
Pangasinan a Complaint against STRADEC (represented by herein petitioners as members of its Board
of Directors) praying that: (1) the March 1, 2004 election be nullified on the ground of improper venue,
pursuant to Section 51 of the Corporation Code; (2) all ensuing transactions conducted by the elected
directors be likewise nullified; and (3) a special stockholders’ meeting be held anew.
On November 25, 2004, RTC Judge Meliton G. Emuslan acting as pairing judge, issued an Order
granting respondents’ application for preliminary injunction ordering the holding of a special
stockholders’ meeting of STRADEC on December 10, 2004 "in the principal office of the corporation in
Bayambang, Pangasinan
A Petition for Certiorari was filed with the Court of Appeals assailing Judge Emuslan’s Order
contending that only the SEC, not the RTC, has jurisdiction to order the holding of a special
stockholders’ meeting involving an intra-corporate controversy. The CA dismissed the Petition for
Certiorari. Petitioners’ motion for reconsideration was likewise denied. Hence, the instant Petition for
Review on Certiorari.

ISSUE: WON the RTC has jurisdiction to order the holding of a special stockholders’ meeting involving
an intra-corporate controversy.

RULING: Yes. Upon the enactment of R.A. No. 8799, otherwise known as "The Securities Regulation
Code" which took effect on August 8, 2000, the jurisdiction of the SEC over intra-corporate
controversies and other cases enumerated in Section 5 of P.D. No. 902-A has been transferred to the
courts of general jurisdiction, or the appropriate RTC. Section 5.2 of R.A. No. 8799 provides:
5.2. The Commission’s jurisdiction over all cases enumerated in Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court,
Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial
Court branches that shall exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until
finally disposed.
Clearly, the RTC has the power to hear and decide the intra-corporate controversy of the parties herein.
Concomitant to said power is the authority to issue orders necessary or incidental to the carrying out of
the powers expressly granted to it. Thus, the RTC may, in appropriate cases, order the holding of a
special meeting of stockholders or members of a corporation involving an intra-corporate dispute under
its supervision.
92. Baviera vs. Paglinawan, Feb 8, 2007
Facts: SCB acted as a stock broker, soliciting from local residents foreign securities called GTPMF. These
securities were not registered with the SEC and were then remitted outwardly to SCB-Hong Kong and SCB-
Singapore. The Investment Capital Association of the Philippines (ICAP) filed with the SEC a complaint alleging
that SCB violated the Revised Securities Act, particularly the provision prohibiting the selling of securities
without prior registration with the SEC; and that its actions are potentially damaging to the local mutual fund
industry. Notwithstanding the BSP directive, SCB continued to offer and sell GTPMF securities in this country.
Petitioner learned that the SCB had been prohibited by the BSP to sell GPTMF securities. Petitioner filed with
the DOJ a complaint for violation of Section 8.1 of the Securities Regulation Code against private respondents
but was denied holding that it should have been filed with the SEC.
Issue: Whether the SEC has jurisdiction over the case.

90
Held: Yes. A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it
must first be referred to an administrative agency of special competence, i.e., the SEC. Under the doctrine of
primary jurisdiction, courts will not determine a controversy involving a question within the jurisdiction of the
administrative tribunal, where the question demands the exercise of sound administrative discretion requiring
the specialized knowledge and expertise of said administrative tribunal to determine technical and intricate
matters of fact. The Securities Regulation Code is a special law. Its enforcement is particularly vested in the
SEC. Hence, all complaints for any violation of the Code and its implementing rules and regulations should be
filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ
for preliminary investigation and prosecution.

93. SEC vs Performance Foreign Exchange Corporation, GR. No. 154131 July 20, 2006

FACTS:
Performance Foreign Exchange Corporation, respondent herein, is a domestic corporation duly
registered with SEC and engaged as its primary purpose to operate as a broker/agent between market
participants in transactions involving, but not limited to, foreign exchange, deposits, interest rate
instruments, and similar or derivative products, other than acting as a broker for the trading of securities
pursuant to the Revised Securities Act of the Philippines. The respondent secondary purpose is to
engage in money changer or exchanging foreign currencies.

The respondent received a letter from SEC requiring it to appear before the Compliance and e
nforcementDepartment (CED) for a clarificatory conference regarding its business operations. The
Director of CED issued a Cease and Desist Order for possible violation of R.A. No. 8799 (otherwise
known as The Securities Regulation Code) and that the outcome of the inquiry shows that respondent
is engaged in the trading of foreign currency futures contracts in behalf of its clients without the
necessary license; that such transaction can be deemed as a direct violation of Section 11 of R.A. No.
8799. The respondent filed a motion to SEC to lift the said order.

SEC Chairman Bautista, in her desire to know with certainty the nature of respondent’s
business, sent a letter to the BSP, requesting a definitive statement that respondent’s business
transactions are a form of financial derivatives and, therefore, can only be undertaken by banks or non-
bank financial intermediaries performing quasi-banking functions. However, SEC issued an Order
denying respondent’s motion for the lifting of the Cease and Desist Order without waiting for BSP’s
determination of the matter. Thereafter, SEC issued an order making the Cease and Desist
Order permanent.

Respondent filed with the Court of Appeals a Petition for Certiorari. It alleged that SEC grave
abuse of discretion when it issued the Cease and Desist Order and its subsequent Order making the
same permanent without waiting for the BSP’s determination of the real nature of its business
operations; and that petitioner’s Orders, issued without any factual basis, violated its (respondent’s)
fundamental right to due process.

BSP, in answer to SEC Chairman letter request stated that respondent’s business activity " does
not fall under the category of futures trading "and" cannot be classified as financial derivatives
transactions. CA ruled that SEC acted with grave abuse of discretion when it issued its challenged
Orders without a positive factual finding that respondent violated the Securities Regulation Code.
Hence, this petition.

ISSUE:
Whether or not SEC acted with grave abuse of discretion in issuing the Cease and Desist Order
and its subsequent Order making it permanent.

HELD:
YES. Section 64 of R.A. No. 8799, provides:

Sec. 64. Cease and Desist Order . – 64.1. The Commission, after proper
investigation or verification, motu proprio, or upon verified complaint by any aggrieved party, may
issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or

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practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause
grave or irreparable injury or prejudice to the investing public .xxx.

Under the above provision, there are two essential requirements that must be complied with by
the SEC before it may issue a cease and desist order: First, it must conduct proper investigation or
verification; and Second, there must be a finding that the act or practice, unless restrained, will operate
as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the
investing public.

Here, the first requirement is not present. Petitioner did not conduct proper investigation or
verification before it issued the challenged orders. The clarificatory conference undertaken by petitioner
regarding respondent’s business operations cannot be considered a proper investigation or verification
process to justify the issuance of the Cease and Desist Order. It was merely an initial stage of such
process, considering that after it issued the said order following the clarificatory conference, petitioner
still sought verification from the BSP on the nature of respondent’s business activity.

Petitioner’s act of referring the matter to the BSP is an essential part of the investigation and
verification process. In fact, such referral indicates that petitioner concedes to the BSP’s expertise in
determining the nature of respondent’s business. It bears stressing, however, that such investigation
and verification, to be proper, must be conducted by petitioner before, not after, issuing the Cease and
Desist Order in question. This, petitioner utterly failed to do. The issuance of such order even before
it could finish its investigation and verification on respondent’s business activity obviously
contravenes Section 64 of R.A. No. 8799 earlier quoted.

And worst, without waiting for BSP’s action, petitioner proceeded to issue its Order dated April
23, 2001 making the Cease and Desist Order permanent. In the same Order, petitioner further directed
respondent "to show cause x x x why its certificate of registration should not be revoked for alleged
violation of the Securities Regulation Code and/or Presidential Decree No. 902-A, specifically on the
ground of serious misrepresentation as to what the corporation can do or is doing to the great
prejudice or damage to the general public." Obviously, without BSP’s determination of the nature of
respondent’s business, there was no factual and legal basis to justify the issuance of such order.

Which brings us to the second requirement. Before a cease and desist order may be issued
by the SEC, there must be a showing that the act or practice sought to be restrained will operate as a
fraud on investors or is likely to cause grave, irreparable injury or prejudice to the investing public. Such
requirement implies that the act to be restrained has been determined after conducting the proper
investigation/verification. In this case, the nature of the act to be restrained can only be
determined after the BSP shall have submitted its findings to petitioner. However, there is nothing in
the questioned Orders that shows how the public is greatly prejudiced or damaged by respondent’s
business operation.

WHEREFORE, we DENY the petition. The challenged Decision and Resolution of the Court of
Appeals in CA-G.R. SP No. 65217 are AFFIRMED.

94. Narra Nickel Mining and Dev’t Corp., et al. v. Redmont Consolidated Mines Corp.,
G.R. No. 195580, 21 April 2014
FACTS: Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators (POA) of
the DENR separate petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro and Mining and
Development, Inc. (Tesoro), and Narra Nickel Mining and Development Corporation (Narra)
applications Mineral Production Sharing Agreement (MPSA) on the ground that they are not “qualified
persons” and thus disqualified from engaging in mining activities through MPSAs reserved only for
Filipino citizens.
McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino)
owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000
shares; MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporation;

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 Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining, Inc.
(Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out
of 10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.;
Narra Nickel Mining and Development Corporation, is composed, among others, by Patricia Louise
Mining & Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources,
Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000 shares of
Patricia Louise Mining & Development Corporation;
ISSUES: (1) Is the Grandfather Rule applicable?

(2) Whether McArthur, Tesoro and Narra are Filipino nationals.

RULINGS: (1) YES.
The instant case presents a situation which exhibits a scheme employed by stockholders to circumvent
the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation,
direct or indirect, of MBMI, the grandfather rule must be used.
The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7 of the 1967 SEC Rules
which states, “but if the percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be counted as of Philippine
nationality.” 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.
(2) NO. 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. xxx Noticeably, the ownership of the “layered” corporations boils down
to xxx group wherein MBMI has joint venture agreements with, practically exercising majority control
over the corporations mentioned. 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.

96. G.R. No. 179640, March 18, 2015

HACIENDA CATAYWA v. ROSARIO LOREZO
Facts: On October 22, 2002, respondent Rosario Lorezo received, upon inquiry, a letter from SSS
Western Visayas Group informing her that she cannot avail of their retirement benefits since per their
record she has only paid 16 months. Such is 104 months short of the minimum requirement of 120
months payment to be entitle to the benefit. She was also informed that their investigation of her alleged
employment under employer Hda. Cataywa could not be confirmed because Manuel Villanueva was
permanently residing in Manila and Joemarie Villanueva denied having managed the farm. She was
also advised of her options: continue paying contributions as voluntary member; request for refund;
leave her contributions in-trust with the System, or file a petition before the Social Security Commission
(SSC) so that liabilities, if any, of her employer may be determined.c

Aggrieved, respondent then filed her Amended Petition dated September 30, 2003, before the SSC.
She alleged that she was employed as laborer in Hda. Cataywa managed by Jose Marie Villanueva in
1970 but was reported to the SSS only in 1978. She alleged that SSS contributions were deducted
from her wages from 1970 to 1995, but not all were remitted to the SSS which, subsequently, caused
the rejection of her claim. She also impleaded Talisay Farms, Inc. by virtue of its Investment Agreement
with Mancy and Sons Enterprises. She also prayed that the veil of corporate fiction be pierced since
she alleged that Mancy and Sons Enterprises and Manuel and Jose Marie Villanueva are one and the
same.
Petitioners Manuel and Jose Villanueva refuted in their answer, the allegation that not all contributions
of respondent were remitted. Petitioners alleged that all farm workers of Hda. Cataywa were reported
and their contributions were duly paid and remitted to SSS. Consequently, the SSC rendered a
Resolution finding that Rosario M. Lorezo was a regular employee subject to compulsory coverage of
93
Hda. Cataywa/Manuel Villanueva/ Mancy and Sons Enterprises, Inc. within the period of 1970 to
February 25, 1990.
The SSC denied petitioners' Motion for Reconsideration. The petitioner, then, elevated the case before
the CA where the case was dismissed outrightly due to technicalities.
ISSUE: Whether or not there is a legal basis to pierce the corporate veil
HELD:The Court ruled in favor of the petitioners that there is no need to pierce the corporate veil.
Respondent failed to substantiate her claim that Mancy and Sons Enterprises, Inc. and Manuel and
Jose Marie Villanueva are one and the same. She based her claim on the SSS form wherein Manuel
Villanueva appeared as employer. However, this does not prove, in any way, that the corporation is
used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as
a shield to confuse the legitimate issues, warranting that its separate and distinct personality be set
aside. Also, it was not alleged nor proven that Mancy and Sons Enterprises, Inc. functions only for the
benefit of Manuel Villanueva, thus, one cannot be an alter ego of the other.
It was held in Rivera v. United Laboratories, Inc. that -
While a corporation may exist for any lawful purpose, the law will regard it as an association of persons
or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak
for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies
only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is
the mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation. To disregard the separate juridical personality of a corporation, the
wrongdoing must be established clearly and convincingly. It cannot be presumed.
This Court has cautioned against the inordinate application of this doctrine, reiterating the basic rule
that "the corporate veil may be pierced only if it becomes a shield for fraud, illegality or inequity
committed against a third person.
The Court has expressed the language of piercing doctrine when applied to alter ego cases, as follows:
Where the stock of a corporation is owned by one person whereby the corporation functions only for
the benefit of such individual owner, the corporation and the individual should be deemed the same.d

97. PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION (PHILCOMSAT) vs.

SANDIGANBAYAN. G.R. No.203023. June 17,2015
Facts: PHILCOMSAT Holdings Corporation (PHC) (formerly Liberty Mines, Inc. (LMI)) is a
domestic corporation engaged in the discovery, exploitation,development and exploration of oils.
LMI and PHILCOMSAT, signed a Memorandum of Agreement for the latter to gain controlling interest
in LMI through an increase in its authorized capital stock.
Sometime in 1997,LMI changed its name to PHC. It declassified its shares and amended its
primary purpose to become a holding company.
Pending the PSE's Final approval of PHC's application for listing of the shares, the PCGG made
a written request to suspend the listing of the increase in PHC's capital stock due to conflicting
claims of the two sets of board of directors of the Philippine Overseas Telecommunication
Corporation (POTC)and PHILCOMSAT.
In November 2007, then President Gloria Macapagal-Arroyo appointed new government
nominees to the POTC and PHILCOMSAT boards.POTC owns 100% of PHILCOMSAT. On 7 May
2008, the PCGG issued a resolution recognizing the validity of the POTC's and PHILCOMSAT's
respective stockholders' meetings and elections.
PHILCOMSAT sent a final demand letter reiterating its demand for PCGG to withdraw its objection to
the listing of the increase in PHC's capital stock.

94
On 1 February 2012, PHILCOMSAT filed a complaint before the Sandiganbayan against PCGG
to compel the latter to withdraw its opposition to the listing of the increase in PHC's capital stock.

The Sandiganbayan dismissed the complaint for lack of jurisdiction.

Petitioners insist that the PCGG is not a stockholder, partner, member or officer of the
corporation.
ISSUE: WON Sandiganbayan lack of jurisdiction on the ground that the action allegedly
involves an intracorporate controversy?
RULING: YES, Sandiganbayan has no jurisdiction but on regular courts as this involved a intra-
corporate dispute.
The PCGG, acting as representative of the Republic, was exercising a duty of a stockholder to
ensure the proper and lawful exercise of corporate acts.
On Relationship Test
As it stands today, the Republic of the Philippines owns 34.9% of POTC, which
wholly owns PHILCOMSAT, which in turn owns 81% of PHC. The Republic, then, has an interest in
the proper operations of the PHC, however indirect this interest may seem to be.
On the nature of the Controversy Test
The act of Chairman Sabio in asking the SEC to suspend the listing of PHC's shares was
done in pursuit of protecting the interest of the Republic of the Philippines, a legitimate
stockholder in PHC's controlling parent company, POTC. Any shareholder, harboring any
apprehensions or concerns, could have done the same or posed the same objection. It was an act
that had no relation to any proceeding or question of ill-gotten wealth or sequestration.
98.JOSE A. BERNAS, et al. vs JOVENCIO F. CINCO et al., G.R. Nos. 163356-57; G.R. NOS.
163368-69 July 01, 2015
Facts:
Makati Sports Club (MSC) is a domestic corporation duly organized and existing under Philippine laws
for the primary purpose of establishing, maintaining, and providing social, cultural, recreational and
athletic activities among its members.
Petitioners in G.R. Nos. 163356-57, Jose A. Bernas (Bernas), Cecile H. Cheng, Victor Africa, Jesus
Maramara, Jose T. Frondoso, Ignacio T. Macrohon and Paulino T. Lim (BERNAS GROUP) were among
the Members of the Board of Directors and Officers of the corporation whose terms were to expire
either in 1998 or 1999.
Petitioners in G.R. Nos. 163368-69, Jovencio Cinco, Ricardo Librea and Alex Y. Pardo (CINCO
GROUP) are the members and stockholders of the corporation who were elected Members of the Board
of Directors and Officers of the club during the 17 December 1997 Special Stockholders Meeting.

Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee
(MSCOC), composed of the past presidents of the club, demanded from the Bernas Group, who were
then incumbent officers of the corporation, to resign from their respective positions to pave the way for
the election of new set of officers.

Agreeing with this were the stockholders of the corporation representing at least 100 shares who sought
the assistance of the MSCOC to call for a special stockholders meeting for the purpose of removing
the sitting officers and electing new ones. Pursuant to such request, the MSCOC called a Special
Stockholders’ Meeting and sent out notices to all stockholders and members stating therein the time,
place and purpose of the meeting. For failure of the Bernas Group to secure an injunction before the
Securities Commission (SEC), the meeting proceeded wherein Bernas, Cheng, Africa, Maramara,
Frondoso, Macrohon, Jr. and Lim were removed from office and, in their place and stead, Cinco, Librea,
Pardo, Aguiling, Villarosa, David, Maronilla, de Leon-Herlihy and Altura, were elected.
95
Aggrieved by the turn of events, the BERNAS GROUP sought the nullification of the 17 December 1997
Special Stockholders Meeting on the ground that it was improperly called before the Securities
Investigation and Clearing Department (SICD) of the SEC. Citing Section 28 of the Corporation Code,
the Bernas Group argued that the authority to call a meeting lies with the Corporate Secretary and not
with the MSCOC which functions merely as an oversight body and is not vested with the power to call
corporate meetings. For being called by the persons not authorized to do so, the Bernas Group urged
the SEC to declare the 17 December 1997 Special Stockholders’ Meeting, including the removal of the
sitting officers and the election of new ones, be nullified.

For their part, the CINCO GROUP insisted that the 17 December 1997 Special Stockholders’ Meeting
is sanctioned by the Corporation Code and the MSC by-laws. In justifying the call effected by the
MSCOC, they reasoned that Section 25 of the MSC by-laws merely authorized the Corporate Secretary
to issue notices of meetings and nowhere does it state that such authority solely belongs to him. It was
further asseverated by the Cinco Group that it would be useless to course the request to call a meeting
thru the Corporate Secretary because he repeatedly refused to call a special stockholders’ meeting
despite demands and even filed a suit to restrain the holding of a special meeting.

The newly elected directors initiated an investigation on the alleged anomalies in administering the
corporate affairs and after finding Bernas guilty of irregularities, the Board resolved to expel him from
the club by selling his shares at public auction. Due to the filing of several petitions for and against the
removal of the Bernas Group from the Board pending before the SEC resulting in the piling up of legal
controversies involving MSC, the SEC En Banc resolved to supervise the holding of the 1999 Annual
Stockholders’ Meeting. During the said meeting, the stockholders once again approved, ratified and
confirmed the holding of the 17 December 1997 Special Stockholders’ Meeting.

The conduct of the 17 December 1997 Special Stockholders’ Meeting was likewise ratified by the
stockholders during the 2000 Annual Stockholders’ Meeting which was held on 17 April 2000. SICD
rendered a decision finding, among others, that the 17 December 1997 Special Stockholders’ Meeting
and the Annual Stockholders’ Meeting conducted on 20 April 1998 and 19 April 1999 are invalid. The
SICD likewise nullified the expulsion of Bernas from the corporation and the sale of his share at the
public auction.
Court of Appeals declared that 17 December 1997 Special Stockholders’ Meeting invalid for being
improperly called but affirmed the actions taken during the Annual Stockholders’ Meeting held on 20
April 1998, 19 April 1999 and 17 April 2000.
The BERNAS GROUP agrees with the disquisition of the appellate court that the Special Stockholders’
Meeting is invalid for being called by the persons not authorized to do so, they urge
the Court to likewise invalidate the holding of the subsequent Annual Stockholders’ Meetings invoking
the application of the holdover principle. The CINCO GROUP insists that the holding of 17 December
1997 Special Stockholders’ Meeting is valid and binding underscoring the overwhelming ratification
made by the stockholders during the subsequent annual stockholders’ meetings and the previous
refusal of the Corporate Secretary to call a special stockholders’ meeting despite demand.
Issues:
1. Whether or not the Court of Appeals erred in ruling that the 17 December 1997 Special
Stockholders’ Meeting is invalid.
2. Whether or not the Court of Appeals erred in failing to nullify the holding of the annual
stockholders’ meeting on 20 April 1998, 19 April 1999 and 17 April 2000.
Ruling:
1. YES. It is invalid.
The 17 December 1997 Special Stockholders’ Meeting is null and void and produces no effect; the
resolution expelling the Bernas Group from the corporation and authorizing the sale of Bernas’ shares
at the public auction is likewise null and void.
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The Corporation Code laid down the rules on the removal of the Directors of the corporation by
providing, inter alia, the persons authorized to call the meeting and the number of votes required for
the purpose of removal, thus:
Sec. 28. Removal of directors or trustees. - Any director or trustee of a corporation may be removed
from office by a vote of the stockholders holding or representing at least two-thirds (2/3) of the
outstanding capital stock, or if the corporation be a non-stock corporation, by a vote of at least two-
thirds (2/3) of the members entitled to vote: Provided, That such removal shall take place either at a
regular meeting of the corporation or at a special meeting called for the purpose, and in either case,
after previous notice to stockholders or members of the corporation of the intention to propose such
removal at the meeting. A special meeting of the stockholders or members of a corporation for the
purpose of removal of directors or trustees, or any of them, must be called by the secretary on order of
the president or on the written demand of the stockholders representing or holding at least a majority
of the outstanding capital stock, or, if it be a non-stock corporation, on the written demand of a majority
of the members entitled to vote. Should the secretary fail or refuse to call the special meeting upon
such demand or fail or refuse to give the notice, or if there is no secretary, the call for the meeting may
be addressed directly to the stockholders or members by any stockholder or member of the corporation
signing the demand. Notice of the time and place of such meeting, as well as of the intention to propose
such removal, must be given by publication or by written notice prescribed in this Code. Removal may
be with or without cause: Provided, that removal without cause may not be used to deprive minority
stockholders or members of the right of representation to which they may be entitled under Section 24
of this Code.

Textually, only the President and the Board of Directors are authorized by the by-laws to call a special
meeting. In cases where the person authorized to call a meeting refuses, fails or neglects to call a
meeting, then the stockholders representing at least 100 shares, upon written request, may file a
petition to call a special stockholder’s meeting.

In the instant case, there is no dispute that the 17 December 1997 Special Stockholders’ Meeting was
called neither by the President nor by the Board of Directors but by the MSCOC. While the MSCOC,
as its name suggests, is created for the purpose of overseeing the affairs of the corporation, nowhere
in the by-laws does it state that it is authorized to exercise corporate powers, such as the power to call
a special meeting, solely vested by law and the MSC by-laws on the President or the Board of Directors.

The board of directors is the directing and controlling body of the corporation. It is a creation of the
stockholders and derives its power to control and direct the affairs of the corporation from them. The
board of directors, in drawing to itself the power of the corporation, 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 the corporate affairs.
The underlying policy of the Corporation Code is that the business and affairs of a corporation must be
governed by a board of directors whose members have stood for election, and who have actually been
elected by the stockholders, on an annual basis. The shareholder vote is critical to the theory that
legitimizes the exercise of power by the directors or officers over the properties that they do not own.
SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate
powers of all the corporations formed under this Code shall be exercised, all business conducted and
all property of such corporations controlled and held by the board of directors and trustees x x x.

A corporation’s board of directors is understood to be that body which (1) exercises all powers provided
for under the Corporation Code; (2) conducts all business of the corporation; and (3) controls and holds
all the property of the corporation. Its members have been characterized as trustees or directors
clothed with fiduciary character.
It is ineluctably clear that the fiduciary relation is between the stockholders and the board of directors
and who are vested with the power to manage the affairs of the corporation. The ordinary trust
relationship of directors of a corporation and stockholders is not a matter of statutory or technical law.

97
It springs from the fact that directors have the control and guidance of corporate affairs and property
and hence of the property interests of the stockholders. Equity recognizes that stockholders are the
proprietors of the corporate interests and are ultimately the only beneficiaries thereof. Should the board
fail to perform its fiduciary duty to safeguard the interest of the stockholders or commit acts prejudicial
to their interest, the law and the bylaws provide mechanisms to remove and replace the erring director.
It is apt to recall that illegal acts of a corporation which contemplate the doing of an act which is contrary
to law, morals or public order, or contravenes some rules of public policy or public duty, are, like similar
transactions between individuals, void. The same principle can apply in the present case. The void
election of 17 December 1997 cannot be ratified by the subsequent Annual Stockholders’ Meeting.
A distinction should be made between corporate acts or contracts which are illegal and those which are
merely ultra vires. The former contemplates the doing of an act which are contrary to law, morals or
public policy or public duty, and are, like similar transactions between individuals, void. They cannot
serve as basis of a court action nor acquire validity by performance, ratification or estoppel. Mere ultra
vires acts, on the other hand, or those which are not illegal or void ab initio, but are not merely within
the scope of the articles of incorporation, are merely voidable and may become binding and enforceable
when ratified by the stockholders. The 17 December 1997 Meeting belongs to the category of the
cannot be validated.
Consequently, such Special Stockholders’ Meeting called by the Oversight Committee cannot have any
legal effect. The Cinco Group cannot invoke the application of de facto doctrine to justify the actions
taken after the invalid election since the operation of the principle is limited to third persons who were
originally not part of the corporation but became such by reason of voting of government- sequestered
shares.
Where there is an officer authorized to call a meeting and that officer refuses, fails, or neglects to call
a meeting, the SEC can assume jurisdiction and issue an order to the petitioning stockholder to call a
meeting pursuant to its regulatory and administrative powers to implement the Corporation Code. This
is clearly provided for by Section 50 of the Corporation Code
Sec. 50. Regular and special meetings of stockholders or members. – x x x
Whenever, for any cause, there is no person authorized to call a meeting, the Securities and Exchange
Commission, upon petition of a stockholder or member, and on a showing of good cause therefore,
may issue an order to the petitioning stockholder or member directing him to call a meeting of the
corporation by giving proper notice required by this Code or by the by-laws. The petitioning stockholder
or member shall preside thereat until at least majority of the stockholders or members present have
chosen one of their member[s] as presiding officer.
2. NO. CA did not err in failing to nullify the holding of the annual stockholders’ meeting on 20 April
1998, 19 April 1999 and 17 April 2000.
The subsequent Annual Stockholders’ Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000
are valid and binding except the ratification of the removal of the Bernas Group and the sale of Bernas’
shares at the public auction effected by the body during the said meetings. The expulsion of the Bernas
Group and the subsequent auction of Bernas’ shares are void from the very beginning and therefore
the ratifications effected during the subsequent meetings cannot be sustained. A void act cannot be
the subject of ratification.

The 19 April 1999 Annual Stockholders Meeting is likewise valid because in addition to the fact that it
was conducted in accordance to Section 8 of the MSC bylaws, such meeting was supervised by the
SEC in the exercise of its regulatory and administrative powers to implement the Corporation Code.
Needless to say, the conduct of SEC supervised Annual Stockholders Meeting gave rise to the
presumption that the corporate officers who won the election were duly elected to their positions and
therefore can be rightfully considered as de jure officers. As de jure officials, they can lawfully exercise
functions and legally perform such acts that are within the scope of the business of the corporation
except ratification of actions that are deemed void from the beginning.
Considering that a new set of officers were already duly elected in 1998 and 1999 Annual Stockholders
Meetings, the Bernas Group cannot be permitted to use the holdover principle as a shield to perpetuate
98
in office. Members of the group had no right to continue as directors of the corporation unless reelected
by the stockholders in a meeting called for that purpose every year. They had no right to hold-over
brought about by the failure to perform the duty incumbent upon them.
101. G.R. No. 165146. August 12, 2015
Securities and Exchange Commission vs. Baguio Country Club

FACTS:
This is a petition on certiorari for the decision and resolution of the Court of Appeals.

On December 17, 1998, the SEC approved the amended by-laws submitted by the Baguio
Country Club Corporation (BCCC).

On Sepember 22, 2002, Atty. Manuel Singson, acting for and in behalf of Ramon K. Ilusorio and
Erlinda Ilusorio, requested SEC via a letter-complaint, to compel BCCC to hold an annual election of
the board of directors for 2002, in view of the nullity of Art. 5, Sec. 2. SEC opined that the amendment
increasing the term of office to two (2) years is contrary to law, particularly Section 23 of the Corporation
Code. BCC then claimed that the SEC already approved the amended by-laws and that the petitioners
have no legal standing to question the said by-laws, not being stockholders of the BCCC.

On November 13, 2002, the SEC issued an order, ruling that Art. 5, Sec. 2 of the amended by-
laws of the BCCC violates Section 23 of the Corporation Code and should be amended to conform with
the rules.

On February 6, 2003, SEC ordered BCCC’s Chairman, President and Board Members, to show
cause order why they should not be charged with indirect contempt for defying its order. BCCC
submitted its compliance, claiming that it did not intend to ignore the order but was merely awaiting the
latter’s clarification regarding the order.

On March 18, 2003, Ramon Ilusorio, as stockholder of BCCC , filed a petition with the SEC. The
petition prayed for the SEC to call and conduct, under its control and supervision, a stockholder’s
meeting in the BCCC for the election of the members of the board of directors.

On August 15, 2003, the SEC ordered the calling and conduct of the stockholder’s meeting for
the election of the members of the board under its control and supervision.

On September 26, 2003, BCCC filed a petition for certiorari and prohibition with the Court of
Appeals, imputing that SEC committed grave abuse of discretion for issuing its order. BCCC also
claimed that the Ilusorios are not stockholders of the BCCC and therefore cannot file an action to
question the amended by-laws of the corporation.

The Court of Appeals granted BCCC’s petition, set aside the SEC’s orders and dismissed the
letter of complaint by Ilusorio. CA ruled that Ilusorio has legal standing to file the petition but agreed
with the BCCC that SEC had no jurisdiction over the unverified letter and their petition of the Ilusorios
for it is an intra-corporate dispute.

On September 1, 2004, the CA denied the SEC’s motion for reconsideration for lack of merit
hence these petitions.

In G.R. No. 165146, SEC filed through the OSG a petition. The OSG said that the 1-year term
rule is mandatory and thus, cannot be shortened or expanded and it is an administrative matter.

In G.R. No. 16209, the OSG maintained that the nullification of the BCCC by-laws is only
necessary effect of the act of the SEC in the exercise of its regulatory, supervisory and control power
over corporations.

99
ISSUE:
WON judicial review is necessary.

RULING:
NO, judicial review is not necessary. The SC ruled that the only issue that must be resolved in
the instant case is whether or not the SEC can call a stockholder’s meeting for the purpose of
conducting an election of the BCCC board of directors. The calling of the meeting for the conduct of
election was made to rectify the inadvertent approval of the 2-year term for the members of the board.
With the return of the 1-year term, there is no more actual controversy that warrants the exercise of our
judicial power. Thus, rendering the case moot and academic.

The power of judicial review can only be exercised in connection with bona fide controversy
which involves the statute sought to be reviewed.

102. G.R. No. 172301, August 19, 2015

PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Petitioner, v. ASIAVEST MERCHANT
BANKERS (M) BERHAD, Respondent.

FACTS: PNCC and Asiavest Holdings (M) Sdn. Bhd. (Asiavest Holdings) caused the incorporation of
an associate company known as Asiavest-CDCP Sdn. Bhd. (Asiavest-CDCP), through which they
entered into contracts to construct rural roads and bridges for the State of Pahang, Malaysia.

In connection with this construction contract, PNCC obtained various guarantees and bonds from
Asiavest Merchant Bankers (M) Berhad to guarantee the due performance of its obligations. The four
contracts of guaranty stipulate that Asiavest Merchant Bankers (M) Berhad shall guarantee to the State
of Pahang "the due performance by PNCC of its construction contracts . . . and the repayment of the
temporary advances given to PNCC[.]"11 These contracts were understood to be governed by the laws
of Malaysia.

There was failure to perform the obligations under the construction contract, prompting the State of
Pahang to demand payment against Asiavest Merchant Bankers (M) Berhad's performance bonds.

On April 12, 1994, Asiavest Merchant Bankers (M) Berhad filed a Complaint for recovery of sum of
money against PNCC before the Regional Trial Court of Pasig. It based its action on Malaysian laws.
Specifically, it invoked Section 98 of the Malaysian Contracts Act of 1950 and Section 1119 of the
Malaysian Civil Law Act of 1956.

On July 27, 1994, the trial court declared PNCC in default for failure to file any responsive pleading,
and allowed Asiavest Merchant Bankers (M) Berhad to present its evidence ex parte. The Regional
Trial Court, in its Decision dated November 29, 1994, rendered judgment in favor of Asiavest Merchant
Bankers (M).

The Court of Appeals, in its Decision dated June 10, 2005, dismissed PNCC's appeal for raising pure
questions of law exclusively cognizable by this court. It likewise denied reconsideration.

Petitioner insists that the issue on "the propriety of impleading the two Malaysian corporations as well
as their participant liability . . . involves a question of fact."

Petitioner argues that "[i]n view of the compelling necessity to implead the two foreign corporations, the
Trial Court should have refused to assume jurisdiction over the case on the ground of forum non-

100
conveniens, even if the Court might have acquired jurisdiction over the subject matter and over the
person of the petitioner."
ISSUE: Whether the trial court correctly assumed jurisdiction over the complaint.

HELD: Yes. Courts may choose to assume jurisdiction subject to the following requisites: "(1) that the
Philippine Court is one to which the parties may conveniently resort to; (2) that the Philippine Court is
in a position to make an intelligent decision as to the law and the facts; and (3) that the Philippine Court
has or is likely to have power to enforce its decision."

Petitioner is a domestic corporation with its main office in the Philippines. It is safe to assume that all
of its pertinent documents in relation to its business would be available in its main office. Most of
petitioner's officers and employees who were involved in the construction contract in Malaysia could
most likely also be found in the Philippines. Thus, it is unexpected that a Philippine corporation would
rather engage this civil suit before Malaysian courts. Our courts would be "better positioned to enforce
[the] judgment and, ultimately, to dispense"110 in this case against petitioner.

Also, petitioner failed to plead and show real and present danger that another jurisdiction commenced
litigation and the foreign tribunal chose to exercise jurisdiction.
104. MICROSOFT CORPORATION v. ROLANDO D. MANANSALA
GR No. 166391, Oct 21, 2015

This appeal seeks to overturn the decision promulgated on February 27, 2004, whereby the Court of
Appeals (CA) dismissed the petition for certiorari filed by petitioner to annul the orders of the
Department of Justice (DOJ) dated March 20, 2000, May 15, 2001, and January 27, 2003, dismissing
the criminal charge of violation of Section 29 of Presidential Decree No. 49 (Decree on Intellectual
Property) it had instituted against the respondents; and the resolution promulgated on December 6,
2004 denying its motion for reconsideration.

Facts: Petitioner (Microsoft Corporation) is the copyright and trademark owner of all rights relating to
all versions and editions of Microsoft software (computer programs) such as, but not limited to, MS-
DOS (disk operating system), Microsoft Encarta, Microsoft Windows, Microsoft Word, Microsoft Excel,
Microsoft Access, Microsoft Works, Microsoft Powerpoint, Microsoft Office, Microsoft Flight Simulator
and Microsoft FoxPro, among others, and their user's guide/manuals. Private Respondent-Rolando
Manansala is doing business under the name of DATAMAN TRADING COMPANY and/or COMIC
ALLEY with business address at 3rd Floor, University Mall Building, Tail Avc, Manila. Private
Respondent Manansala, without authority from petitioner, was engaged in distributing and selling
Microsoft computer software programs. On November 3, 1997, Mr. John Benedict A. Sacriz, a private
investigator accompanied by an agent from the National Bureau of Investigation (NBI) was able to
purchase six (6) CD-ROMs containing various computer programs belonging to petitioner. As a result
of the test-purchase, the agent from the NBI applied for a search warrant to search the premises of
the private respondent. On November 17, 1997, a Search Warrant was issued against the premises
of the private respondent. On November 19, 1997, the search warrant was served on the private
respondent's premises and yielded several illegal copies of Microsoft programs. Subsequently,
petitioner, through Atty. Teodoro Kalaw IV tiled an Affidavit-Complaint in the DOJ based on the
results of the search and seizure operation conducted on private respondent's premises. However, in
a Resolution dated March 20, 2000, public respondent State Prosecutor dismissed the charge against
private respondent for violation of Section 29 P.D. 49 in this wise, to quote:
'The evidence is extant in the records to show that respondent is selling Microsoft computer software
programs bearing the copyrights and trademarks owned by Microsoft Corporation. There is, however,
no proof that respondent was the one who really printed or copied the products of complainant for
sale in his store.

WHEREFORE, it is hereby, recommended that respondent be charged for violation of Article 189 of
the Revised Penal Code. The charge for violation of Section 29 of PD No. 49 is recommended
101
dismissed for lack of evidence.'
Petitioner filed a Motion for Partial Reconsideration arguing that printing or copying is not essential in
the crime of copyright infringement under Section 29 of PD No. 49.

On May 15, 2001, the public respondent issued a Resolution denying the Motion for Partial
Reconsideration.

Thereafter, petitioner filed a Petition for Review with the DOJ, which denied the petition for review.
Dissatisfied with the outcome of its appeal, the petitioner filed its petition for certiorari in the CA to
annul the DOJ's dismissal of its petition for review on the ground of grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the DOJ.

On February 27, 2004, the CA rendered the assailed decision affirming the dismissal by the DOJ

Issue: WON petitioner is correct in insisting that printing or copying was not essential in the
commission of the crime of copyright infringement under Section 29 of Presidential Decree No. 49;
hence, contrary to the holding of the DOJ, as upheld by the CA, the mere selling of pirated computer
software constituted copyright infringement?

Ruling: YES. The appeal is meritorious.

Although the general rule is that the determination of the existence of probable cause by the public
prosecutor is not to be judicially scrutinized because it is an executive function, an exception exists
when the determination is tainted with grave abuse of discretion.[10] Bearing this in mind, we hold
that the DOJ committed grave abuse of discretion in sustaining the public prosecutor's dismissal of
the charge of copyright infringement under Section 29 of Presidential Decree No. 49 on the ground of
lack of evidence because the public prosecutor thereby flagrantly disregarded the existence of acts
sufficient to engender the well-founded belief that the crime of copyright infringement had been
committed, and that the respondent was probably guilty thereof.

In the case at bar, petitioner failed to allege and adduce evidence showing that the private
respondent is the one who copied, replicated or reproduced the software programs of the petitioner.
In other words, 'sale' alone of pirated copies of Microsoft software programs does not constitute
copyright infringement punishable under P.D. 49.

The CA erred in its reading and interpretation of Section 5 of Presidential Decree No. 49. Under the
rules on syntax, the conjunctive word "and" denotes a "joinder or union" of words, phrases, or clause;
it is different from the disjunctive word "or" that signals disassociation or independence. However, a
more important rule of statutory construction dictates that laws should be construed in a manner that
avoids absurdity or unreasonableness.

It is of the essence of judicial duty to construe statutes so as to avoid such a deplorable result. That
has long been a judicial function. A literal reading of a legislative act which could be thus characterized
is to be avoided if the language thereof can be given a reasonable application consistent with the
legislative purpose.

The mere sale of the illicit copies of the software programs was enough by itself to show the existence
of probable cause for copyright infringement. There was no need for the petitioner to still prove who
copied, replicated or reproduced the software programs. Indeed, the public prosecutor and the DOJ
gravely abused their discretion in dismissing the petitioner's charge for copyright infringement against
the respondents for lack of evidence. There was grave abuse of discretion because the public
prosecutor and the DOJ acted whimsically or arbitrarily in disregarding the settled jurisprudential rules
on finding the existence of probable cause to charge the offender in court. Accordingly, the CA erred in
upholding the dismissal by the DOJ of the petitioner's petition for review. We reverse.

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DECISION: WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and
SETS ASIDE the decision promulgated on February 27, 2004 in C.A.-G.R. SP No. 76402; DIRECTS
the Department of Justice to render the proper resolution to charge respondent ROLANDO D.
MANANSALA and/or MEL MANANSALA, doing business as DATAMAN TRADING COMPANY and/or
COMIC ALLEY in accordance with this decision; and ORDERS the respondents to pay the costs of
suit.

106.G.R. No. 208844, November 10, 2015

F & S VELASCO COMPANY, INC., IRWIN J. SEVA, ROSINA B. VELASCO-SCRIBNER, MERCEDEZ

SUNICO, AND JOSE SATURNINO O. VELASCO*, Petitioners, v. DR. ROMMEL L. MADRID, PETER
PAUL L. DANAO, MANUEL L. ARIMADO, AND MAUREEN R. LABALAN, Respondents.

FACTS:

FSVCI was duly organized and registered as a corporation with Francisco O. Velasco (Francisco),
Simona J. Velasco (Simona), Angela V. Madrid (Angela), herein respondent Dr. Rommel L. Madrid
(Madrid), and petitioner Saturnino O. Velasco (Saturnino) as its incorporators. When Simona and
Francisco died, their daughter, Angela, inherited their shares, thereby giving her control of 70.82% of
FSVCI's total shares of stock.

During her tenure as Chairman of the Board of Directors of FSVCI, Angela died intestate and without
issue. Madrid, as Angela's spouse, executed an Affidavit of Self-Adjudication covering the latter's estate
which includes her 70.82% ownership of FSVCI's shares of stock. Believing that he is already the
controlling stockholder of FSVCI by virtue of such self-adjudication, Madrid called for a Special
Stockholders' and Re-Organizational Meeting to be held on November 18, 2009.

In preparation for said meeting, Madrid executed separate deeds of assignment transferring one share
each to Danao, Labalan, and Arimado (collectively, Madrid Group).

Meanwhile, as Madrid was performing the aforesaid acts, Seva, in his then-capacity as FSVCI
corporate secretary, sent a Notice of an Emergency Meeting to FSVCI's remaining stockholders for the
purpose of electing a new president and vice-president, as well as the opening of a bank account. Such
meeting was held on November 6, 2009 which was attended by Saturnino, Seva, and Sunico, during
which, Saturnino was recognized as a member of the FSVCI Board of Directors and thereafter, as
FSVCI President, while Scribner was elected FSVCI Vice-President (Saturnino Group).

Despite the election conducted by the Saturnino Group, the Madrid Group proceeded with the Special
Stockholders' and Re-Organizational Meeting on November 18, 2009, wherein: (a) the current
members of FSVCI Board of Directors (save for Madrid) were ousted and replaced by the members of
the Madrid Group; and (b) Madrid, Danao, Arimado, and Labalan were elected President, Vice-
President, Corporate Secretary, and Treaurer, respectively, of FSVCI.

In view of the November 18, 2009 Meeting, the Saturnino Group filed a petition for Declaration of Nullity
of Corporate Election with Preliminary Injunction and Temporary Restraining Order (TRO) against the
Madrid Group before the RTC, which was acting as a Special Commercial Court.

After the RTC denied the Saturnino Groups' prayer for TRO, the Madrid Group filed its Answer (with
Compulsory Counterclaims) which prayed for, among others, the declaration of nullity of the November
6, 2009 Meeting conducted by the Saturnino Group.

The RTC declared both the November 6, 2009 and November 18, 2009 Meetings null and void.

The CA modified the RTC ruling declaring the November 18, 2009 Meeting conducted by the Madrid
Group valid.

ISSUE:

103
Whether or not the CA correctly ruled that the November 18, 2009 Meeting organized by Madrid is legal
and valid.

RULING:

No. It must be clarified that Madrid's inheritance of Angela's shares of stock does not ipso facto afford
him the rights accorded to such majority ownership of FSVCI's shares of stock.

Section 63 of the Corporation Code governs the rule on transfers of shares of stock. It reads that all
transfers of shares of stock must be registered in the corporate books in order to be binding on the
corporation.

The case of Batangas Laguna Tayabas Bus Co., Inc. v. Bitanga38 instructs that an owner of shares of
stock cannot be accorded the rights pertaining to a stockholder - such as the right to call for a meeting
and the right to vote, or be voted for - if his ownership of such shares is not recorded in the Stock and
Transfer Book

In the case at bar, records reveal that at the time Madrid called for the November 18, 2009 Meeting, as
well as the actual conduct thereof, he was already the owner of 74.98% shares of stock of FSVCI as a
result of his inheritance of Angela's 70.82% ownership thereof. However, records are bereft of any
showing that the transfer of Angela's shares of stock to Madrid had been registered in FSVCFs Stock
and Transfer Book when he made such call and when the November 18, 2009 Meeting was held.

Thus, the CA erred in holding that Madrid complied with the required registration of transfers of shares
of stock through mere reliance on FSVCI's GIS dated November 18, 2009.

107. G.R. No. 192659, December 02, 2015

PHILIPPINE RACE HORSE TRAINER'S ASSOCIATION, INC., Petitioner, v. PIEDRAS NEGRAS
CONSTRUCTION AND DEVELOPMENT CORPORATION, Respondent.
DECISION
FACTS:

PRHTAI entered into pursuant to its housing project. On October 3, 2000, PRHTAI, through its
president, Rogelio J. Catajan, entered into a contract (first contract) with Fil-Estate Properties, Inc. for
the development of the Royal Homes Subdivision Project. Fil-Estate then later assigned its rights and
obligations under the project to PNCDC, its subcontractor. On October 13, 2004, a contract (second
contract) was forged between PRHTAI and PNCDC for P80,324,788.00. On August 23, 2005, PRHTAI
and PNCDC signed another contract (third contract) for the construction of the same housing units, but
for a revised amount. On April 25, 2007, PNCDC issued a Certificate of Completion and Acceptance
in favor of PRHTAI. Come January 18, 2008, PNCDC demanded for the payment of the remaining
balance. PRHTAI acknowledged its obligation but explained that it was experiencing financial
difficulties.

Meanwhile a new set of directors and officers was elected at PRHTAI. Subsequently, they initiated
inquiries on the subject housing project with the former officers and employees as well as the lending
institutions involved in said project. Unable to collect the remaining balance, PNCDC filed on March 4,
2009 a request for arbitration/complaint with the CIAC against PRHTAI for the payment of the remaining
balance.

A Notice of Award was issued, informing the parties that the CIAC Arbitral Tribunal has rendered its
Decision. It held that the third contract between PRHTAI and PNCDC is unenforceable and that there
was even overpayment on the part of PRHTAI. In addition, Claimant is also directed to reimburse to
the Respondent the amount PRHTAI had already paid to CIAC. After finality thereof, interest at the
rate of 12% per annum shall be paid thereon until full payment of the awarded amount shall have been
made, "this interim period being deemed to be at that time already a forbearance of credit." However,

104
the CA overturned the CIAC ruling. Aggrieved, PRHTAI filed a motion for reconsideration, but the same
was denied. Hence, this petition.
ISSUE:

Whether or not Catajan exceeded his authority when it agreed to pay PNCDC an increased
contractprice in the amount of P101,150,000.00.
RULING:
It was held that contracts entered into by a corporate officer or obligations assumed by such officer for
and in behalf of the corporation are binding on said corporation, if such officer has acted within the
scope of his authority, or even if such officer has exceeded the limits of his authority, the corporation
still ratifies such contracts or obligations. 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 or any other
agent 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, whether within or beyond the scope of his ordinary powers. It requires presentation
of evidence of similar acts executed either in its favor or in favor of other parties. It is not the quantity
of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power
to bind the corporation. The doctrine does not apply, however, if the principal did not commit any act or
conduct which a third party knew and relied upon in good faith as a result of the exercise of reasonable
prudence. In the present case, the aforementioned circumstances are lacking and, indubitably, neither
did PNCDC act in good faith. Also, it must be stressed that the board of directors, not the president,
exercises corporate power. While in the absence of a charter or bylaw provision to the contrary the
president is presumed to have authority, the questioned act should still be within the domain of the
general objectives of the company’s business and within the scope of his or her usual duties.
Here, PRHTAI is an association of professional horse trainers in the Philippine horse racing industry
organized as a non-stock corporation and it is committed to the uplifting of the economic condition of
the working sector of the racing industry. It is not in its ordinary course of business to enter into housing
projects, especially not in such scale and magnitude so massive as to amount to P101,150,000.00.
The petition is granted.

108. CAPITAL INSURANCE v. DEL MONTE MOTOR WORKS, GR No. 159979, Dec 09, 2015

FACTS:
On March 3, 1997, the respondent sued Vilfran Liner, Inc., Hilaria F. Villegas and Maura F. Villegas in
the Regional Trial Court in Quezon City (RTC) to recover the unpaid billings related to the fabrication
and construction of 35 passenger bus bodies. It applied for the issuance of a writ of preliminary
attachment. Branch 221 of the RTC, to which the case was assigned, issued the writ of preliminary
attachment, which the sheriff served on the defendants, resulting in the levy of 10 buses and three
parcels of land belonging to the defendants. The sheriff also sent notices of garnishment of the
defendants' funds in the Quezon City branches of BPI Family Bank, China Bank, Asia Trust Bank, City
Trust Bank, and Bank of the Philippine Island. The levy and garnishment prompted defendant Maura
F. Villegas to file an Extremely Urgent Motion to Discharge Upon Filing of a Counterbond, attaching
thereto CISCO Bond No. 00011-00005/JCL(3) dated June 10, 1997 and its supporting documents
purportedly issued by the petitioner.
On July 2, 1997, the RTC approved the counterbond and discharged the writ of preliminary attachment.
To enforce the decision against the counterbond dated June 10, 1997, the respondent moved for
execution. The RTC granted the motion,over the petitioner's opposition. Serving the writ of
execution, the sheriff levied against the petitioner's personal properties, and later issued the notice of

105
auction sale. On August 15, 2002, the sheriff also served a notice of garnishment against the security
deposit of the petitioner in the Insurance Commission.
On September 11, 2002, the respondent moved to direct the release by the depositary banks of funds
subject to the notice of garnishment from the accounts of the petitioner, and to transfer or release the
amount of P14,864,219.37 from the petitioner's security deposit in the Insurance Commission. On
September 26, 12002, the petitioner opposed the respondent's motion.

Prior to the filing of its opposition, the petitioner presented evidence in the RTC on September 12, 2002
in the form of the affidavits of its witnesses, namely: Sheila L. Padilla and Nelia C. Laxa, who were both
subjected to cross examination.
On December 18, 2002, the RTC, issued its assailed resolution. Thereafter, on December 27, 2002,
the sheriff served a copy of the assailed resolution on the then Insurance Commissioner Edgardo T.
Malinis, with the request for him to release the security deposit. However, Insurance Commissioner
Malinis turned down the request to release, citing Section 203 of the Insurance Code, which expressly
provided that the security deposit was exempt from execution.

On January 8, 2003, the respondent moved to cite Insurance Commissioner Malinis in contempt of
court for refusing to comply with the RTC's resolution.

On January 16, 2003, the RTC, finding no lawful justification for the Insurance Commissioner's refusal
to comply with the order of the RTC, declared him guilty of indirect contempt of court.

Meanwhile, on January 21, 2003, the petitioner filed a Motion for Reconsideration against the
December 18, 2002 resolution, but the RTC denied the motion on January 30, 2003.

On September 15, 2003, the CA dismissed the petitioner's petition for certiorari.

ISSUE: Whether or not the counterbond was valid.

RULING: YES. The petitioner cannot evade liability under the counterbond by hiding behind its own
internal rules. Although a prospective applicant seeking insurance coverage is expected to exercise
prudence and diligence in selecting the insurance provider, such responsibility does not require the
prospective applicant to know and be aware of the insurer's internal rules, policies and procedure
adopted for the conduct of its business. Considering that the petitioner has been a duly accredited
bonding company, the officers who signed the bonds were presumed to be acting within the scope of
their authority in behalf of the company, and the courts were not expected to verify the limits of the
authority of the signatories of the bonds submitted in the regular course of judicial business, in the same
manner that the applicants for the bonds were not expected to know the limits of the authority of the
signatories. To insist otherwise is absurd. It is reasonable to hold here, therefore, that as between the
petitioner and the respondent, the one who employed and gave character to the third person as its
agent should be the one to bear the loss. That party was the petitioner.

Likewise, the petitioner's argument that the counterbond was invalid because the counterbond was
unaccounted for and missing from its custody was implausible. The argument totally overlooks a simple
tenet that honesty, good faith, and fair dealing required it as the insurer to communicate such an
important fact to the assured, or at least keep the latter updated on the relevant facts. A contrary view
would place every person seeking insurance at the insurer's mercy because the latter would simply
claim so just to escape liability, thus causing uncertainty to the public and defeating the very purpose
for which the insurance was contracted.

106