No. L-23145. November 29, 1968.

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary

administrator-appellee, vs. BENGUET CONSOLIDATED. INC., oppositor-appellant.

Corporation law; Corporation; Concept and nature.—A corporation is an artificial being created by operation

of law (Sec. 2, Act No. 1459). A corporation as known to Philippine jurisprudence is a creature without any existence
until it has received the imprimatur of the state acting according to law. It is logically inconceivable therefore that it
will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse
to yield obedience to acts of its state organs, certainly not excluding the judiciary. whenever called upon .to do so.
A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process of
fiction, or by regarding it as an artificial person distinct and separate from its individual stockholders (1 Fletcher,
Cyclopedia Corporations, pp. 19-20).

RULING:
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from
Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition and
concession."  A corporation as known to Philippine jurisprudence is a creature without any existence until it
21

has received the imprimatur of the state acting according to law. It is logically inconceivable therefore that it
will have rights and privileges of a higher priority than that of its creator. More than that, it cannot
legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary,
whenever called upon to do so.
As a matter of f act, a corporation once it comes into being, following American law still of persuasive
authority in our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate
branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not immune from
judicial control in those instances, where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not
autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may, when so
minded, overrule the state, the source of its very existence; it is to contend that what any of its governmental
organs may lawfully require could be ignored at will. So extravagant a claim cannot possibly merit approval.

G.R. No. 120138. September 5, 1997. *

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L. JOCSON, JR., MELVIN
S. JURISPRUDENCIA, AUGUSTUS CESAR AZURA and EDGARDO D. PABALAN,
petitioners, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, TORMIL
REALTY & DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR., MA. CRISTINA T.
CARLOS, MA. LUISA T. MORALES and DANTE D. MORALES, respondents.

Corporation Law; Corporate Secretary; It is the corporate secretary’s duty and obligation to register valid transfers
of stocks and if said corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel
performance.—It is precisely the brewing family discord between Judge Torres and private respondents-his nephew
and nieces that should have placed Judge Torres on his guard. He should have been more careful in ensuring that his
actions (particularly the assignment of qualifying shares to his nominees) comply with the requirements of the law.
Petitioners cannot use the flimsy excuse that it would have been a vain attempt to force the incumbent corporate
secretary to register the aforestated assignments in the stock and transfer book because the latter belonged to the
opposite faction. It is the corporate secretary’s duty and obligation to register valid transfers of stocks and if said
corporate officer refuses to comply, the transferor-stockholder may rightfully bring suit to compel performance. In
other words, there are remedies within the law that petitioners could have availed of, instead of taking the law in their
own hands, as the cliché goes.

Same; Same; In the absence of (any) provision to the contrary, the corporate secretary is the custodian of corporate
records—he keeps the stock and transfer book and makes proper and necessary entries therein.—Thus, we agree with
the ruling of the SEC en banc as affirmed by the Court of Appeals: We likewise sustain respondent SEC when it ruled,
interpreting Section 74 of the Corporation Code, as follows (Rollo, p. 45): In the absence of (any) provision to the
contrary, the corporate secretary is the custodian of corporate records. Corollarily, he keeps the stock and transfer
book and makes proper and necessary entries therein.
Same; All corporations, big or small, must abide by the provisions of the Corporation Code, and being a simple
family corporation is not an exemption.—All corporations, big or small, must abide by the provisions of the
Corporation Code. Being a simple family corporation is not an exemption. Such corporations cannot have rules and
practices other than those established by law.

G.R. No. 125469. October 27, 1997. *

PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS,

SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND, INC., respondents.

Corporation Law; Securities and Exchange Commission; Stock Exchanges; The SEC is the entity with the primary
say as to whether or not securities, including shares of stock of a corporation, may be traded or not in the stock
exchange.—We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares
of stock of a corporation, may be traded or not in the stock exchange. This is in line with the SEC’s mission to ensure
proper compliance with the laws, such as the Revised Securities Act and to regulate the sale and disposition of
securities in the country. As the appellate court explains: “Paramount policy also supports the authority of the public
respondent to review petitioner’s denial of the listing. Being a stock exchange, the petitioner performs a function that
is vital to the national economy, as the business is affected with public interest. As a matter of fact, it has often been
said that the economy moves on the basis of the rise and fall of stocks being traded. By its economic power, the
petitioner certainly can dictate which and how many users are allowed to sell securities thru the facilities of a stock
exchange, if allowed to interpret its own rules liberally as it may please. Petitioner can either allow or deny the entry
to the market of securities. To repeat, the monopoly, unless accompanied by control, becomes subject to abuse; hence,
considering public interest, then it should be subject to government regulation.”

Same; Same; Same; Philippine Stock Exchange; The PSE’s management prerogatives are not under the absolute
control of the SEC, for the PSE is, after all, a corporation authorized by its corporate franchise to engage in its
proposed and duly approved business.—This is not to say, however, that the PSE’s management prerogatives are
under the absolute control of the SEC. The PSE is, after all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business. One of the PSE’s main concerns, as such, is still the generation of
profit for its stockholders. Moreover, the PSE has all the rights pertaining to corporations, including the right to sue
and be sued, to hold property in its own name, to enter (or not to enter) into contracts with third persons, and to
perform all other legal acts within its allocated express or implied powers.

Same; Same; Same; Same; Questions of policy and of management are left to the honest decision of the officers and
directors of a corporation, and the courts are without authority to substitute their judgment for that of the board of
directors—the board is the business manager of the corporation, and so long as it acts in good faith, its orders are
not reviewable by the courts.—A corporation is but an association of individuals, allowed to transact under an
assumed corporate name, and with a distinct legal personality. In organizing itself as a collective body, it waives no
constitutional immunities and perquisites appropriate to such a body. As to its corporate and management decisions,
therefore, the state will generally not interfere with the same. Questions of policy and of management are left to the
honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their
judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long
as it acts in good faith, its orders are not reviewable by the courts.

G.R. No. 147402. January 14, 2004. *

ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte Metropolitan Water
District (LMWD), Tacloban City, petitioner, vs. COMMISSION ON AUDIT, Chairman CELSO D.
GANGAN, Commissioners RAUL C. FLORES and EMMANUEL M. DALMAN, and Regional Director of
COA Region VIII, respondents.

Corporation Law; Congress cannot enact a law creating a private corporation with a special charter; 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.—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.

Same; Local Water Districts; Local Water Districts (LWDs) are not private corporations because they are not
created under the Corporation Code.—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.

Same; Same; LWDs can validly exist only if they are government-owned or controlled.—LWDs exist by virtue of PD
198, which constitutes their special charter. Since under the Constitution only government-owned or controlled
corporations may have special charters, LWDs can validly exist only if they are government-owned or controlled. To
claim that LWDs are private corporations with a special charter is to admit that their existence is constitutionally
infirm.

Same; Same; LWDs derive their legal existence and power from PD 198.—Unlike private corporations, which derive
their legal existence and power from the Corporation Code, LWDs derive their legal existence and power from PD
198.

G.R. No. 175048. February 10, 2009.*

EXCELLENT QUALITY APPAREL, INC., petitioner, vs. WIN MULTI-RICH BUILDERS, INC.,
represented by its President, WILSON G. CHUA, respondent.

Same; Same; Same; Mercantile Law; A sole proprietorship is not vested with juridical personality to file or defend an
action.—The original petition was instituted by Win, which is a SEC-registered corporation. It filed a collection of
sum of money suit which involved a construction contract entered into by petitioner and Multi-Rich, a sole
proprietorship. The counsel of Win wanted to change the name of the plaintiff in the suit to Multi-Rich. The change
cannot be countenanced. The plaintiff in the collection suit is a corporation. The name cannot be changed to that of a
sole proprietorship. Again, a sole proprietorship is not vested with juridical personality to file or defend an action.

[No. 22619. December 2, 1924]

NATIONAL COAL COMPANY, plaintiff and appellee, vs. THE COLLECTOR OF INTERNAL
REVENUE, defendant and appellant.

THE NATIONAL COAL COMPANY, A PRIVATE CORPORATION; SUBJECT TO THE PAYMENT OF

INTERNAL REVENUE UNDER THE PROVISIONS OF SECTION 1496 OF THE ADMINISTRATIVE CODE.
—The National Coal Company is a private corporation. The fact that the Government happens to be a stockholder
therein does not make it a public corporation. It is subject to all the provisions of the Corporation Law in so far as
they are not inconsistent with Act No. 2705. As a private corporation, it has no greater rights, powers, or privileges
than any other corporation which might be organized for the same purpose under the Corporation Law. It was not
the intention of the legislature to give it a preference, or right, or privilege over other legitimate private
corporations in the mining of coal. The law made no provision for its occupation and operation of coal-bearing
lands, to the exclusion of other persons or corporations, under proper permission. The National Coal Company
being a private corporation, neither the lessee nor the owner of the lands upon which it mined coal for the year in
question, is subject to the payment of the internal revenue duty provided for in section 1496 of the Administrative
Code.

G.R. No. 72807. September 9, 1991. *

MARILAO WATER CONSUMERS ASSOCIATION, INC., petitioners, vs. INTERMEDIATE APPELLATE

COURT, MUNICIPALITY OF MARILAO, BULACAN, SANGGUNIANG BAYAN, MARILAO,
BULACAN, and MARILAO WATER DISTRICT, respondents.
Corporation Law; Securities and Exchange Commission; Jurisdiction; Juridical entities known as water districts
created by PD 198 although considered as quasi-public corporations are entirely distinct from corporations
organized under the Corporation Code, PD 902-A as amended; The SEC which is charged with enforcement of the
Corporation Code as regards corporations, partnerships and associations formed or operating under its provisions
has no power of supervision or control over the activities of water districts.—The juridical entities known as water
districts created by PD 198, although considered as quasi-public corporations and authorized to exercise the powers,
rights and privileges given to private corporations under existing laws, are entirely distinct from corporations
organized under the Corporation Code, PD 902-A, as amended. The Corporation Code has nothing whatever to do
with their formation and organization, all the terms and conditions for their organization and operation being
particularly spelled out in PD 198. The resolutions creating them, their charters, in other words, are filed not with the
Securities and Exchange Commission but with the LWUA. It is these resolutions qua charters, and not articles of
incorporation drawn up under the Corporation Code, which set forth the name of the water districts, the number of
their directors, the manner of their selection and replacement, their powers, etc. The SEC which is charged with
enforcement of the Corporation Code as regards corporations, partnerships and associations formed or operating under
its provisions, has no power of supervision or control over the activities of water districts;

Same; Same; Same; Same; The function of supervision or control over water districts is entrusted to the Local Water
Utilities Administration.—The function of supervision or control over water districts is entrusted to the Local Water
Utilities Administration. Consequently, as regards the activities of water districts just mentioned, the SEC obviously
can have no claim to any expertise.

Same; Same; Same; Same; Under Section 45 of PD 198, it is the LWUA which is the administrative body involved in
the voluntary dissolution of a water district; it is with it that the resolution of dissolution is filed not with the
Securities and Exchange Commission.—Under this provision, it is the LWUA which is the administrative body
involved in the voluntary dissolution of a water district it is with it that the resolution of dissolution is filed, not the
Securities and Exchange Commission. And this provision is evidently quite distinct and different from those on
dissolution of corporations “formed or organized under the provisions of x x (the Corporation) Code” set out in
Sections 117 to 121, inclusive, of said Code, under which dissolution may be voluntary (by vote of the stockholders or
members), generally effected by the filing of the corresponding resolution with the Securities and Exchange
Commission, or involuntary, commenced by the filing of a verified complaint also with the SEC.

Same; Same; Same; There can be no such thing in a water district as intra-corporate or partnership relations,

between and among stockholders, members or associates between any or all of them and the corporation, partnership
or association of which they are stockholders, members or associates respectively within the contemplation of Section
5 of the Corporation Code so as to bring controversies involving them within the competence and cognizance of the
SEC.—All these argue against conceding jurisdiction in the Securities and Exchange Commission over proceedings
for the dissolution of water districts. For although described as quasi-public corporations, and granted the same
powers as private corporations, water districts are not really corporations. They have no incorporators, stockholders or
members, who have the right to vote for directors, or amend the articles of incorporation or by-laws, or pass
resolutions, or otherwise perform such other acts as are authorized to stockholders or members of corporations by the
Corporation Code. In a word, there can be no such thing as a relation of corporation-and-stockholders or members in a
water district for the simple reason that in the latter there are no stockholders or members. Between the water district
and those who are recipients of its water services there exists not the relationship of corporation-and-stockholder, but
that of a service agency and users or customers. There can therefore be no such thing in a water district as “intra-
corporate or partnership relations, between and among stockholders, members or associates (or) between any or all of
them and the corporation, partnership or association of which they are stockholders, members or associates,
respectively,” within the contemplation of Section 5 of the Corporation Code so as to bring controversies involving
them within the competence and cognizance of the SEC.

G.R. No. 177131. June 7, 2011.*

BOY SCOUTS OF THE PHILIPPINES, petitioner, vs. COMMISSION ON AUDIT, respondent.

Corporation Law; Commission on Audit; Boy Scouts of the Philippines; The Boy Scouts of the Philippines (BSP) is a
public corporation and its funds are subject to the Commission on Audit’s (COA’s) audit jurisdiction.—After looking
at the legislative history of its amended charter and carefully studying the applicable laws and the arguments of both
parties, we find that the BSP is a public corporation and its funds are subject to the COA’s audit jurisdiction.
Same; Same; Same; Boy Scouts of the Philippines (BSP) as presently constituted under Republic Act No. 7278, falls
under the second classification of juridical persons under Article 44 of the Civil Code.—There are three classes of
juridical persons under Article 44 of the Civil Code and the BSP, as presently constituted under Republic Act No.
7278, falls under the second classification. Article 44 reads: Art. 44. The following are juridical persons: (1) The
State and its political subdivisions; (2) Other corporations, institutions and entities for public interest or purpose
created by law; their personality begins as soon as they have been constituted according to law; (3) Corporations,
partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate
and distinct from that of each shareholder, partner or member.

Same; Same; Same; The Boy Scouts of the Philippines (BSP) which was created by a special law to serve a public
purpose in pursuit of a constitutional mandate, comes within the class of “public corporations” defined by paragraph
2, Article 44 of the Civil Code.—Evidently, the BSP, which was created by a special law to serve a public purpose in
pursuit of a constitutional mandate, comes within the class of “public corporations” defined by paragraph 2, Article 44
of the Civil Code and governed by the law which creates it, pursuant to Article 45 of the same Code.

Same; Same; Same; The Boy Scouts of the Philippines (BSP) is a public corporation or a government agency or
instrumentality with judicial personality, which does not fall within the constitutional prohibition in Article XII,
Section 16, notwithstanding the amendments to its charter; Not all corporations, which are not government owned or
controlled, are ipso facto to be considered private corporations, as there exists another distinct class of corporations
or chartered institutions which are otherwise known as “public corporations.”—The BSP is a public corporation or a
government agency or instrumentality with juridical personality, which does not fall within the constitutional
prohibition in Article XII, Section 16, notwithstanding the amendments to its charter. Not all corporations, which
are not government owned or controlled, are ipso facto to be considered private corporations as there exists another
distinct class of corporations or chartered institutions which are otherwise known as “public corporations.” These
corporations are treated by law as agencies or instrumentalities of the government which are not subject to the tests of
ownership or control and economic viability but to different criteria relating to their public purposes/interests or
constitutional policies and objectives and their administrative relationship to the government or any of its Departments
or Offices.
Same; Same; Same; The ownership and control test is likewise irrelevant for a public corporation like the Boy Scouts
of the Philippines (BSP).—The ownership and control test is likewise irrelevant for a public corporation like the BSP.
To reiterate, the relationship of the BSP, an attached agency, to the government, through the DECS, is defined in the
Revised Administrative Code of 1987. The BSP meets the minimum statutory requirement of an attached government
agency as the DECS Secretary sits at the BSP Board ex officio, thus facilitating the policy and program coordination
between the BSP and the DECS.

Same; Same; Same; Boy Scouts of the Philippines (BSP) is subject to the exercise by the Commission on Audit  (COA)
of its audit jurisdiction in the manner consistent with the provisions of the BSP charter.—Since the BSP, under its
amended charter, continues to be a public corporation or a government instrumentality, we come to the inevitable
conclusion that it is subject to the exercise by the COA of its audit jurisdiction in the manner consistent with the
provisions of the BSP Charter.

G.R. No. 141735. June 8, 2005. *

SAPPARI K. SAWADJAAN, petitioner, vs. THE HONORABLE COURT OF APPEALS, THE CIVIL

SERVICE COMMISSION and AL-AMANAH INVESTMENT BANK OF THE PHILIPPINES,
respondents.

Corporation Law; De Facto Corporation; By its failure to submit its by-laws on time, the AIIBP may be considered a
de facto corporation whose right to exercise corporate powers may not be inquired into collaterally in any private
suit to which such corporations may be a party.—The AIIBP was created by Rep. Act No. 6848. It has a main office
where it conducts business, has shareholders, corporate officers, a board of directors, assets, and personnel. It is, in
fact, here represented by the Office of the Government Corporate Counsel, “the principal law office of government-
owned corporations, one of which is respondent bank.” At the very least, by its failure to submit its by-laws on time,
the AIIBP may be considered a de facto corporation whose right to exercise corporate powers may not be inquired
into collaterally in any private suit to which such corporations may be a party.

Same; Same; A corporation which has failed to file its by-laws within the prescribed period does not ipso facto lose
its powers as such.—A corporation which has failed to file its by-laws within the prescribed period does not  ipso
facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of Registration of
Corporations, details the procedures and remedies that may be availed of before an order of revocation can be issued.
There is no showing that such a procedure has been initiated in this case.

G.R. No. 176579. June 28, 2011.*

WILSON P. GAMBOA, petitioner, vs. FINANCE SECRETARY MARGARITO B. TEVES, FINANCE
UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS
CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN
ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO
PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF
FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE,
respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, petitioners-in-intervention.

Corporation Law; Words and Phrases; “Capital”; The term “capital” in Section 11, Article XII of the Constitution
refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock comprising both common and non-voting preferred shares. —We
agree with petitioner and petitioners-in-intervention. The term “capital” in Section 11, Article XII of the Constitution
refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock comprising both common and non-voting preferred shares.

Same; Capital; Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision in
the articles of incorporation restricting the right of common shareholders to vote is invalid.—Indisputably, one of the
rights of a stockholder is the right to participate in the control or management of the corporation. This is exercised
through his vote in the election of directors because it is the board of directors that controls or manages the
corporation. In the absence of provisions in the articles of incorporation denying voting rights to preferred shares,
preferred shares have the same voting rights as common shares. However, preferred shareholders are often excluded
from any control, that is, deprived of the right to vote in the election of directors and on other matters, on the theory
that the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders.
In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to vote. Common
shares cannot be deprived of the right to vote in any corporate meeting, and any provision in the articles of
incorporation restricting the right of common shareholders to vote is invalid.

Same; Same; The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can
vote in the election of directors.—Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term “capital” in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election
of directors, then the term “capital” shall include such preferred shares because the right to participate in the control or
management of the corporation is exercised through the right to vote in the election of directors. In short, the term
“capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of
directors.
Same; Same; The term “capital” in Section 11, Article XII of the Constitution to include both voting and non-
voting shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to a
clear abdication of the State’s constitutional duty to limit control of public utilities to Filipino citizens; The Court
should never open to foreign control what the Constitution has expressly reserved to Filipinos for that would be a
betrayal of the Constitution and of the national interest.—Indisputably, construing the term “capital” in Section 11,
Article XII of the Constitution to include both voting and non-voting shares will result in the abject surrender of our
telecommunications industry to foreigners, amounting to a clear abdication of the State’s constitutional duty to limit
control of public utilities to Filipino citizens. Such an interpretation certainly runs counter to the constitutional
provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources as
well as the ownership of land, educational institutions and advertising businesses. The Court should never open to
foreign control what the Constitution has expressly reserved to Filipinos for that would be a betrayal of the
Constitution and of the national interest. The Court must perform its solemn duty to defend and uphold the intent and
letter of the Constitution to ensure, in the words of the Constitution, “a self-reliant and independent national
economy effectively controlled by Filipinos.”
 Same; Securities and Exchange Commission; The Securities and Exchange Commission (SEC) is vested with the
power and function to suspend or revoke, after proper notice and hearing, the franchise or certificate of registration
of corporations, partnerships or associations, upon any of the grounds provided by law.—Under Section 5(m) of the
Securities Regulation Code, the SEC is vested with the “power and function” to “suspend or revoke, after proper
notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of
the grounds provided by law.” The SEC is mandated under Section 5(d) of the same Code with the “power and
function” to “investigate x x x the activities of persons to ensure compliance” with the laws and regulations that SEC
administers or enforces. The GIS that all corporations are required to submit to SEC annually should put the SEC on
guard against violations of the nationality requirement prescribed in the Constitution and existing laws. This Court can
compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, to
hear and decide a possible violation of Section 11, Article XII of the Constitution in view of the ownership structure
of PLDT’s voting shares, as admitted by respondents and as stated in PLDT’s 2010 GIS that PLDT submitted to SEC.

G.R. No. 195580. April 21, 2014.*

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT,
INC., and MCARTHUR MINING, INC., petitioners, vs. REDMONT CONSOLIDATED MINES CORP.,
respondent.

Mercantile Law; Corporations; Control Test; Grandfather Rule; Basically, there are two acknowledged tests in
determining the nationality of a corporation: the control test and the grandfather rule.—Basically, there are two
acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule. Paragraph
7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural
resources owned by Filipino citizens, provides: Shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of Philippine nationality, 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. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino
citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital
stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be
counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens. The first part of
paragraph 7, DOJ Opinion No. 020, stating “shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of Philippine nationality,” pertains to the control
test or the liberal rule. On the other hand, the second part of the DOJ Opinion which provides, “if the percentage of the
Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality,” pertains to the stricter, more stringent grandfather rule.

Same; Same; Corporate Layering; “Corporate layering” is admittedly allowed by the Foreign Investments Act (FIA);
but if it is used to circumvent the Constitution and pertinent laws, then it becomes illegal.—“Corporate layering” is
admittedly allowed by the FIA; but if it is used to circumvent the Constitution and pertinent laws, then it becomes
illegal. Further, the pronouncement of petitioners that the grandfather rule has already been abandoned must be
discredited for lack of basis. Art. XII, Sec. 2 of the Constitution provides: Sec. 2. All lands of the public domain,
waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands,
all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture or production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period
not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions
as may be provided by law.

Partnership; Words and Phrases; A partnership is defined as two or more persons who bind themselves to contribute
money, property, or industry to a common fund with the intention of dividing the profits among themselves.—A
partnership is defined as two or more persons who bind themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among themselves. On the other hand, joint ventures have been
deemed to be “akin” to partnerships since it is difficult to distinguish between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a
partnership that it is ordinarily held that their rights, duties, and liabilities are to be tested by rules which are closely
analogous to and substantially the same, if not exactly the same, as those which govern partnership. In fact, it has been
said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law
being found applicable to one that does not apply to the other.

Mercantile Law; Corporations; Pseudo-Partnerships; As a rule, corporations are prohibited from entering into
partnership agreements; consequently, corporations enter into joint venture agreements with other corporations or
partnerships for certain transactions in order to form “pseudo partnerships.”—Though some claim that partnerships
and joint ventures are totally different animals, there are very few rules that differentiate one from the other; thus, joint
ventures are deemed “akin” or similar to a partnership. In fact, in joint venture agreements, rules and legal incidents
governing partnerships are applied. Accordingly, culled from the incidents and records of this case, it can be assumed
that the relationships entered between and among petitioners and MBMI are no simple “joint venture agreements.” As
a rule, corporations are prohibited from entering into partnership agreements; consequently, corporations enter into
joint venture agreements with other corporations or partnerships for certain transactions in order to form “pseudo
partnerships.” Obviously, as the intricate web of “ventures” entered into by and among petitioners and MBMI was
executed to circumvent the legal prohibition against corporations entering into partnerships, then the relationship
created should be deemed as “partnerships,” and the laws on partnership should be applied. Thus, a joint venture
agreement between and among corporations may be seen as similar to partnerships since the elements of partnership
are present. Considering that the relationships found between petitioners and MBMI are considered to be partnerships,
then the CA is justified in applying Sec. 29, Rule 130 of the Rules by stating that “by entering into a joint venture,
MBMI have a joint interest” with Narra, Tesoro and McArthur.

Mercantile Law; Corporations; Control Test; The “control test” is still the prevailing mode of determining whether
or not a corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to
undertake the exploration, development and utilization of the natural resources of the Philippines.—The “control test”
is still the prevailing mode of determining whether or not a corporation is a Filipino corporation, within the ambit of
Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the
natural resources of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and
circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the
“grandfather rule.”

No. L-33172. October 18, 1979. *

ERNESTO CEASE, CECILIA CEASE, MARION CEASE, TERESA CEASE-LACEBAL, and the F.L.
CEASE PLANTATION CO., INC. as Trustee of properties of the defunct TIAONG MILLING &
PLANTATION CO., petitioners, vs. HONORABLE COURT OF APPEALS, (Special Seventh Division),
HON. MANOLO L. MADDELA, Presiding Judge, Court of First Instance of Quezon, BENJAMIN CEASE
and FLORENCE CEASE, respondents.

A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil of
corporate fiction. Generally, a corporation is invested by law with a personality separate and distinct from that of the
persons composing it as well as from that of any other legal entity to which it may be related. By virtue of this
attribute, a corporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of the
legal entities to which it may be connected, and vice versa. This separate and distinct personality is, however, merely a
fiction created by law for convenience and to promote the ends of justice (Laguna Transportation Company vs. Social
Security System, L-14608, April 28, 1960; La Campana Coffee Factory, Inc. vs. Kaisahan ng mga Manggagawa sa La
Campana, L-5677, May 25, 1953). For this reason, it may not be used or invoked for ends subversive of the policy and
purpose behind its creation (Emiliano Cano Enterprises, Inc. vs. CIR, L-20502, Feb. 26, 1965) or which could not
have been intended by law to which it owes its being McConnel vs. Court of Appeals, L-10510, March 17, 1961, 1
SCRA 722). This is particularly true where the fiction is used to defeat public convenience, justify wrong, protect
fraud, defend crime (Yutivo Sons Hardware Company vs. Court of Tax Appeals, L-13203, Jan. 28, 1961, 1 SCRA
160), confuse legitimate legal or judicial issues (R.F. Sugay & Co. vs. Reyes, L-20451, Dec. 28, 1964), perpetrate
deception or otherwise circumvent the law (Gregorio Araneta, Inc. vs. Tuason de Pater-no, L-2886, Aug. 22, 1952, 49
O.G. 721). This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit
for the sole benefit of the stockholders or of another corporate entity (McConnel vs. Court of
Appeals, supra; Commissioner of Internal Revenue vs. Norton Harrison Co., L-7618, Aug. 31, 1964).
In any of these cases, the notion of corporate entity will be pierced or disregarded, and the corporation
will be treated merely as an association of persons or, where there are two corporations, they will be merged
as one, the one being merely regarded as part or the instrumentality of the other (Koppel [Phil.], Inc. vs.
Yatco, 77 Phil. 496; Yutivo Sons Hardware Company vs. Court of Tax Appeals, supra).
 So must the case at bar add to this jurisprudence. An indubitable deduction from the findings of the trial
court cannot but lead to the conclusion that the business of the corporation is largely, if not wholly, the
personal venture of Forrest L. Cease. There is not even a shadow of a showing that his children were
subscribers or purchasers of the stocks they own. Their participation as nominal shareholders emanated
solely from Forrest L. Cease’s gratuitous dole out of his own shares to the benefit of his children and
ultimately his family.

No. L-17618. August 31, 1964.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. NORTON & HARRISON COMPANY,
respondent.

Corporations; Doctrine of piercing veil of corporate fiction; Circumstances of case at bar.—The circumstances of the
case at bar where: (a) N. corporation owned all the outstanding stocks of J. corporation: (b) the board of directors of N
corporation is constituted in such a way to enable it to actual-ly direct and manage the other corporation's affairs by
making the same officers of the board for both companies: (c) N corporation financed the operations of the other: (d)
N corporation treats the other employees as its own; (e) Compensation given to board members of corporation, who
are also board members and or employees of N indicate that J is only a department of N; and (f) the offices of both
corporations are located in the same compound; all lead to the conclusion that J corporation is merely an adjunct,
business conduit or alter ego of N corporation and that the fiction of separate and distinct corporate entities should be
disregarded.

Taxation; Corporate fiction may not be used to evade taxes.—The revenue officers, in proper cases, may disregard the
separate corporate entity where it serves but as a shield for tax evasion.

Same; When sales taxes to be based on sale to the public and not on intermediate sale to another corpóration .—
Where it is proven that two corporations are in reality but one entity and that the veil of corporate fiction is being used
as a shield for tax evasion by making it appear that the original sale was that from one corporation to the other in order
to gain a tax advantage, it is held that the basis of the sales tax should be the sale by the latter corporation to the
public.

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.

Corporation Law; As a rule, a corporation that purchases the assets of another will not be liable for the debts of the
selling corporation, provided the former acted in good faith and paid adequate consideration for such assets;
Exceptions.—As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling
corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any
of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts,
(2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing
corporation is merely a continuation of the selling corporation, and (4) where the selling corporation fraudulently
enters into the transaction to escape liability for those debts.

Same; Words and Phrases; “Consolidation,” and “Merger,” Defined; The parties to a merger or consolidation are
called constituent corporations; The surviving or consolidated corporation assumes automatically the liabilities of the
dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.—
Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated
corporation. It is a combination by agreement between two or more corporations by which their rights, franchises, and
property are united and become those of a single, new corporation, composed generally, although not necessarily, of
the stockholders of the original corporations. Merger, on the other hand, is a union whereby one corporation absorbs
one or more existing corporations, and the absorbing corporation survives and continues the combined business. The
parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are
dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving
corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations,
and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders
usually become its stockholders. The surviving or consolidated corporation assumes automatically the liabilities of the
dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.

Same; Same; Doctrine of Piercing the Veil of Corporate Existence; 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.—A corporation is an artificial being invested
by law with a personality separate and distinct from that of its stockholders and from that of other corporations to
which it may be connected. 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.

Same; Same; Same; The existence of interlocking incorporators, directors, and officers is not enough justification to
pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations.—The existence of
interlocking incorporators, directors, and officers is not enough justification to pierce the veil of corporate fiction, in
the absence of fraud or other public policy considerations. In Del Rosario v. NLRC, 187 SCRA 777 (1990), the Court
ruled that substantial identity of the incorporators of corporations does not necessarily imply fraud.

Same; Same; Same; 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.—On Patricio’s personal liability, 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.

Same; Same; Same; Bad faith does not connote bad judgment or negligence—it imports a dishonest purpose or some
moral obliquity and conscious wrongdoing.—The records are bereft of any evidence that Patricio acted with malice or
bad faith. Bad faith is a question of fact and is evidentiary. Bad faith does not connote bad judgment or negligence. It
imports a dishonest purpose or some moral obliquity and conscious wrongdoing. It means breach of a known duty
through some ill motive or interest. It partakes of the nature of fraud. In the present case, there is nothing substantial
on record to show that Patricio acted in bad faith in terminating McLeod’s services to warrant Patricio’s personal
liability. PMI had no other choice but to stop plant operations. The work stoppage therefore was by necessity. The
company could no longer continue with its plant operations because of the serious business losses that it had suffered.
The mere fact that Patricio was president and director of PMI is not a ground to conclude that he should be held
solidarily liable with PMI for McLeod’s money claims.

Same; Same; Same; The rule is still that the doctrine of piercing the corporate veil applies only when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime.—The rule is still that the
doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat public convenience,
justify wrong, protect fraud, or defend crime. In the absence of malice, bad faith, or a specific provision of law making
a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. Neither
Article 212(c) nor Article 273 (now 272) of the Labor Code expressly makes any corporate officer personally liable
for the debts of the corporation.

No. L-61549. May 27, 1985. *

FRANCISCO DE ASIS & CO., INC., FRANCISCO DE ASIS and LEOCADIO DE ASIS,
petitioners, vs. THE COURT OF APPEALS, and MERCEDES PRIETO DELGADO, respondents.
Evidence; Corporation Law; Claim of corporation that it had not authorized its President to obtain a loan from
respondent belied by the fact that it used the money involved.—The claim of the corporation that it had not authorized
Francisco de Asis to obtain loan for the company from the private respondent is belied by the fact that upon deposit of
the sum of P200,000.00 in its current account, it had retained and disbursed the said amount. And, assuming that it had
not really authorized Francisco de Asis to borrow money from private respondent, the company is still obliged to
return the same under Article 2154 of the Civil Code which provides: “If something is received when there is no right
to demand it, and it was unduly delivered through mistake, the obligation to return it arises.”

Corporation Law; Stock Exchanges; Contracts; The stockholders of a stock brokerage firm, who signs the required
joint and several undertaking for membership in the Makati Stock Exchange are also solidarily liable for the
brokerage firm’s debts.—Relative to the argument that Francisco and Leocadio de Asis’ liability under their “Joint
and Several Undertaking” is limited to the obligation of the corporation in connection with its membership at the
Makati Stock Exchange, their liability is spelled out by Exhibit “A” as follows: “NOW, THEREFORE, for and in
consideration of the foregoing premises, the Owners hereby jointly and severally warrant the equitable payment of all
valid and legitimate corporate liabilities of the Francisco de Asis & Co., Inc. in connection with its membership at the
Makati Stock Exchange Exhibit “A” (page 33, Rollo).

Same; Same; Same.—The execution of the foregoing instrument is a requirement for membership in the Makati Stock
Exchange. Subdivision 2, Section 1 of Article XIII of the Constitution of the Makati Stock Exchange clearly states:
“that stockholders owning at least 95% of the outstanding capital stock of the applicant corporation shall execute a
public instrument making themselves jointly and severally liable without limitation for all the transactions and
dealings of said corporation and a copy of said document shall he filed with the Commission; provided, however, that
if the 95% outstanding capital stock is owned by only one person, another stockholder shall be required to execute
with him the said public instrument or guaranty.” (page 34, Rollo), (Italics supplied).

G.R. No. 131673. September 10, 2004. *

RUBEN MARTINEZ,  substituted by his heirs, MENA CONSTANTINO MARTINEZ, WILFRIDO C.

**

MARTINEZ, EMMA M. NAVA, and EDNA M. SAKHRANI, vs. COURT OF APPEALS and BPI

INTERNATIONAL FINANCE, respondents.

Corporation Law; Piercing of the Veil of Corporate Entity; The general rule is that a corporation is clothed with a
personality separate and distinct from the persons composing it—this separate and distinct personality of a
corporation is a fiction created by law for convenience and to prevent injustice.—The general rule is that a
corporation is clothed with a personality separate and distinct from the persons composing it. Such corporation may
not be held liable for the obligation of the persons composing it; and neither can its stockholders be held liable for
such obligation. A corporation has a separate personality distinct from its stockholders and from other corporation to
which it may be connected. This separate and distinct personality of a corporation is a fiction created by law for
convenience and to prevent injustice.

Same; Same; The veil of separate corporate personality may be lifted when such personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime.—The veil of separate corporate personality may be lifted
when such personality is used to defeat public convenience, justify wrong, protect fraud or defend crime; or used as a
shield to confuse the legitimate issues; or when the corporation is merely an adjunct, a business conduit or an alter ego
of another corporation 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; or when the corporation is used
as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or for the
protection of the creditors. In such cases where valid grounds exist for piercing the veil of corporate entity, the
corporation will be considered as a mere association of persons. The liability will directly attach to them.

Same; Same; To disregard the separate juridical personality of a corporation, the wrongdoing must be proven
clearly and convincingly.—Mere ownership by a single stockholder or by another corporation of all or nearly all of
the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate personality.
The substantial identity of the incorporators of two or more corporations does not warrantly imply that there was fraud
so as to justify the piercing of the writ of corporate fiction. To disregard the said separate juridical personality of a
corporation, the wrongdoing must be proven clearly and convincingly.

G.R. No. 153535. July 28, 2005. *

SOLIDBANK CORPORATION, petitioner, vs. MINDANAO FERROALLOY CORPORATION, Spouses
JONG-WON HONG and SOO-OK KIM HONG,  TERESITA CU, and RICARDO P. GUEVARA and
**

Spouse,  respondents.
***

Corporation Law; Corporate officers cannot be held personally liable for the consequences of their acts, for as long
as these are for and on behalf of the corporation, within the scope of their authority and in good faith .—Basic is the
principle that a corporation is vested by law with a personality separate and distinct from that of each person
composing or representing it. Equally fundamental is the general rule that corporate officers cannot be held personally
liable for the consequences of their acts, for as long as these are for and on behalf of the corporation, within the scope
of their authority and in good faith. The separate corporate personality is a shield against the personal liability of
corporate officers, whose acts are properly attributed to the corporation.

Same; Piercing the Veil of Corporate Fiction; To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established; it cannot be presumed.— Under certain circumstances,
courts may treat a corporation as a mere aggroupment of persons, to whom liability will directly attach. The distinct
and separate corporate personality may be disregarded, inter alia, when the corporate identity is used to defeat public
convenience, justify a wrong, protect a fraud, or defend a crime. Likewise, the corporate veil may be pierced when the
corporation acts as a mere alter ego or business conduit of a person, or when it is so organized and controlled and its
affairs so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. But to
disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly
established; it cannot be presumed.

G.R. No. 150283. April 16, 2008.*

RYUICHI YAMAMOTO, petitioner, vs. NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO,
respondents.

Corporation Law; Board of Directors; Under the Corporation Law, unless otherwise provided, corporate powers are
exercised by the Board of Directors.—The resolution of the petition hinges, in the main, on whether the advice in the
letter of Atty. Doce that Yamamoto may retrieve the machineries and equipment, which admittedly were part of his
investment, bound the corporation. The Court holds in the negative. Indeed, without a Board Resolution authorizing
respondent Nishino to act for and in behalf of the corporation, he cannot bind the latter. Under the Corporation Law,
unless otherwise provided, corporate powers are exercised by the Board of Directors.

Same; Doctrine of Piercing the Veil of Corporate Fiction; Elements.—While the veil of separate corporate personality
may be pierced when the corporation is merely an adjunct, a business conduit, or alter ego of a person, the mere
ownership by a single stockholder of even all or nearly all of the capital stocks of a corporation is not by itself a
sufficient ground to disregard the separate corporate personality. The elements determinative of the applicability of the
doctrine of piercing the veil of corporate fiction follow: “1. Control, not mere majority or complete stock control,
but complete domination, not only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its
own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust act in contravention of the plaintiff’s legal rights; and 3.
The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The
absence of any one of these elements prevents “piercing the corporate veil.”   In applying the ‘instrumentality’ or
‘alter ego’ doctrine, the courts are concerned with reality and not form, with how the corporation operated and the
individual defendant’s relationship to that operation.” (Italics in the original; emphasis and underscoring supplied)

Obligations and Contracts; Without acceptance, a mere offer produces no obligation.—It bears noting, however, that
the aforementioned paragraph 12 of the letter is followed by a request for Yamamoto to give his “comments on all the
above, soonest.” What was thus proffered to Yamamoto was not a promise, but a mere offer, subject to his acceptance.
Without acceptance, a mere offer produces no obligation. Thus, under Article 1181 of the Civil Code, “[i]n
conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall
depend upon the happening of the event which constitutes the condition.” In the case at bar, there is no showing of
compliance with the condition for allowing Yamamoto to take the machineries and equipment, namely, his agreement
to the deduction of their value from his capital contribution due him in the buy-out of his interests in NLII.
Yamamoto’s allegation that he agreed to the condition remained just that, no proof thereof having been presented.

Corporation Law; Trust Fund Doctrine; Words and Phrases; Under the trust fund doctrine, the capital stock,
property, and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors
which are preferred over the stockholders in the distribution of corporate assets.—It is settled that the property of a
corporation is not the property of its stockholders or members. Under the trust fund doctrine, the capital stock,
property, and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors which
are preferred over the stockholders in the distribution of corporate assets. The distribution of corporate assets and
property cannot be made to depend on the whims and caprices of the stockholders, officers, or directors of the
corporation unless the indispensable conditions and procedures for the protection of corporate creditors are followed.

G.R. No. 158086. February 14, 2008. *

ASJ CORPORATION and ANTONIO SAN JUAN, petitioners, vs. SPS. EFREN & MAURA
EVANGELISTA, respondents.

Actions; Corporation Law; Piercing the Veil of Corporate Fiction; Factors.—Although no hard and fast rule can be
accurately laid down under which the juridical personality of a corporate entity may be disregarded, the following
probative factors of identity justify the application of the doctrine of piercing the veil of corporate fiction in this case:
(1) San Juan and his wife own the bulk of shares of ASJ Corp.; (2) The lot where the hatchery plant is located is
owned by the San Juan spouses; (3) ASJ Corp. had no other properties or assets, except for the hatchery plant and the
lot where it is located; (4) San Juan is in complete control of the corporation; (5) There is no bona fide intention to
treat ASJ Corp. as a different entity from San Juan; and (6) The corporate fiction of ASJ Corp. was used by San Juan
to insulate himself from the legitimate claims of respondents, defeat public convenience, justify wrong, defend crime,
and evade a corporation’s subsidiary liability for damages. These findings, being purely one of fact, should be
respected. We need not assess and evaluate the evidence all over again where the findings of both courts on these
matters coincide.

No. L-19118. January 30, 1965.

MARIANO A. ALBERT, plaintiff-appellant, vs. UNIVERSITY PUBLISHING CO., INC., defendant-
appellee.

Corporations; Principle of corporation by estoppel; Not invokable by one who misrepresented corporation as duly

organized against his victim.—One who has induced another to act upon his wilful misrepresentation that a
corporation was duly organized and existing under the law, cannot thereafter set up against his victim the principle of
corporation by estoppel.

Same; Person acting for corporation with no valid existence is personally liable for contracts entered into as such
agent.—A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such
agent.

Parties to Action; Suit against corporation with no valid existence; Real defendant is person who has control of its
proceedings.—In a suit against a corporation with no valid existence the person who had and exercised the rights to
control the proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a decision, is the
real defendant, and .the enforcement of a judgment against the corporation upon him is substantial observance of due
process of law.

Same; Real party in interest; Person who acted as representative of non-existent principal and who reaped benefits
from its contracts.—A person who acted as representative of a non-existent principal, who reaped the benefits
resulting from a contract entered into by him as such, and who violated its terms, thereby precipitating a suit, is the
real party to the contract sued upon.

G.R. No. 128690. January 21, 1999. *

ABS-CBN BROADCASTING CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS,

REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO,
respondents.

Commercial Law; Corporation Code; Board of Directors; Under the Corporation Code, unless otherwise provided
by said Code, corporate powers, such as the power to enter into contracts, are exercised by the Board of Directors.
However, the Board may delegate such powers to either an executive committee or officials or contracted managers.
— Under the Corporation Code, unless otherwise provided by said Code, corporate powers, such as the power to enter
into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to either an
executive committee or officials or contracted managers. The delegation, except for the executive committee, must be
for specific purposes. Delegation to officers makes the latter agents of the corporation; accordingly, the general rules
of agency as to the binding effects of their acts would apply. For such officers to be deemed fully clothed by the
corporation to exercise a power of the Board, the latter must specially authorize them to do so. That Del Rosario did
not have the authority to accept ABS-CBN’s counter-offer was best evidenced by his submission of the draft contract
to VIVA’s Board of Directors for the latter’s approval. In any event, there was between Del Rosario and Lopez III no
meeting of minds.

G.R. No. 118692. July 28, 2006.*

COASTAL PACIFIC TRADING, INC., petitioner, vs. SOUTHERN ROLLING MILLS, CO., INC. (now
known as Visayan Integrated Steel Corporation), FAR EAST BANK & TRUST COMPANY, PHILIPPINE
COMMERCIAL INDUSTRIAL1 BANK, EQUITABLE BANKING CORPORATION, PRUDENTIAL
BANK, BOARD OF TRUSTEES-CONSORTIUM OF BANKS-VISCO, UNITED COCONUT
PLANTER’S BANK, CITYTRUST BANKING CORPORATION, ASSOCIATED BANK, INSULAR
BANK OF ASIA AND AMERICA, INTERNATIONAL CORPORATE BANK, COMMERCIAL BANK
OF MANILA, BANK OF THE PHILIPPINE ISLANDS, NATIONAL STEEL CORPORATION, THE
PROVINCIAL SHERIFF OF BOHOL, and DEPUTY SHERIFF JOVITO DIGAL, 2 respondents.

Same; 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.—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.

G.R. No. 141994. January 17, 2005.*

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

Libel; Damages; Corporations; Obiter Dictum; The Court’s statement in Mambulao Lumber Co. v. PNB, 22 SCRA
359 (1968), that “a corporation may have a good reputation which, if besmirched, may also be a ground for the
award of moral damages” is an obiter dictum.—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. The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al. to justify the
award of moral damages. However, the Court’s statement in Mambulao that “a corporation may have a good
reputation which, if besmirched, may also be a ground for the award of moral damages” is an obiter dictum.

Same; Same; Same; Since Article 2219(7) of the Civil Code does not qualify whether the plaintiff is a natural or
juridical person, a juridical person such as a corporation may validly complain for libel or any other form of
defamation and claim for moral damages.— AMEC’s 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(7) 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.

No. L-27155. May 18, 1978.*

PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF APPEALS, RITA GUECO TAPNIO,
CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC.,
respondents.

Torts; Corporation Law; Corporations can be liable in same manner as natural persons, for tort.—A corporation is
civilly liable in the same manner as natural persons for torts, because “generally speaking, the rules governing the
liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or
master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the
authorities agree that a principal or master is liable for every tort which he expressly directs or authorizes, and this is
just as true of a corporation as of a natural person.

G.R. No. 126297. February 2, 2010.*

PROFESSIONAL SERVICES, INC., petitioner, vs. THE COURT OF APPEALS and NATIVIDAD and
ENRIQUE AGANA, respondents.
G.R. No. 126467. February 2, 2010.*
NATIVIDAD [substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma Agana-Andaya,
Jesus Agana and Raymund Agana] and ENRIQUE AGANA, petitioners, vs. THE COURT OF APPEALS
and JUAN FUENTES, respondents.
G.R. No. 127590. February 2, 2010.*
MIGUEL AMPIL, petitioner, vs. NATIVIDAD and ENRIQUE AGANA, respondents.

Medical Negligence; Corporate Negligence; Ostensible Agency; Court holds that Professional Services, Inc. (PSI) is
liable to the Aganas not under the principle of respondent superior for lack of evidence of an employment relationship
with Dr. Ampil but under the principle of ostensible agency for the negligence of Dr. Ampil and pro hac vice under
the principle of corporate negligence for its failure to perform its duties as a hospital.—After gathering its thoughts
on the issues, this Court holds that PSI is liable to the Aganas, not under the principle of respondeat superior for lack
of evidence of an employment relationship with Dr. Ampil but under the principle of ostensible agency for the
negligence of Dr. Ampil and, pro hac vice, under the principle of corporate negligence for its failure to perform its
duties as a hospital.

Same; Same; Same; While in theory a hospital as a juridical entity cannot practice medicine, in reality it utilizes
doctors, surgeons and medical practitioners in the conduct of its business of facilitating medical and surgical
treatment; Three legal relationships crisscross within that reality.—While in theory a hospital as a juridical entity
cannot practice medicine, in reality it utilizes doctors, surgeons and medical practitioners in the conduct of its business
of facilitating medical and surgical treatment. Within that reality, three legal relationships crisscross: (1) between the
hospital and the doctor practicing within its premises; (2) between the hospital and the patient being treated or
examined within its premises and (3) between the patient and the doctor. The exact nature of each relationship
determines the basis and extent of the liability of the hospital for the negligence of the doctor.

Same; Same; Same; Regardless of its relationship with the doctor, the hospital may be held directly liable to the
patient for its own negligence or failure to follow established standard of conduct to which it should conform as a
corporation.—Where an employment relationship exists, the hospital may be held vicariously liable under Article
2176 in relation to Article 2180 of the Civil Code or the principle of respondeat superior. Even when no employment
relationship exists but it is shown that the hospital holds out to the patient that the doctor is its agent, the hospital may
still be vicariously liable under Article 2176 in relation to Article 1431 and Article 1869 of the Civil Code or the
principle of apparent authority. Moreover, regardless of its relationship with the doctor, the hospital may be held
directly liable to the patient for its own negligence or failure to follow established standard of conduct to which it
should conform as a corporation.

Same; Same; Same; Employer-Employee Relationship; Court still employs the “control test” to determine the
existence of an employer-employee relationship between hospital and doctor.—This Court still employs the “control
test” to determine the existence of an employer-employee relationship between hospital and doctor. In Calamba
Medical Center, Inc. v. National Labor Relations Commission, et al., 571 SCRA 585 (2008), it held: Under the
“control test,” an employment relationship exists between a physician and a hospital if the hospital controls both the
means and the details of the process by which the physician is to accomplish his task.

Same; Same; Same; Same; Control as a determinative factor in testing the employer-employee relationship between
doctor and hospital under which the hospital could be held vicariously liable to a patient in medical negligence cases
is a requisite fact to be established by preponderance of evidence.—To allay the anxiety of the intervenors, the Court
holds that, in this particular instance, the concurrent finding of the RTC and the CA that PSI was not the employer of
Dr. Ampil is correct. Control as a determinative factor in testing the employer-employee relationship between doctor
and hospital under which the hospital could be held vicariously liable to a patient in medical negligence cases is a
requisite fact to be established by preponderance of evidence. Here, there was insufficient evidence that PSI exercised
the power of control or wielded such power over the means and the details of the specific process by which Dr. Ampil
applied his skills in the treatment of Natividad. Consequently, PSI cannot be held vicariously liable for the negligence
of Dr. Ampil under the principle of respondeat superior.

Same; Same; Same; Same; Factors that Determine Apparent Authority.—There is, however, ample evidence that the
hospital (PSI) held out to the patient (Natividad) that the doctor (Dr. Ampil) was its agent. Present are the two factors
that determine apparent authority: first, the hospital’s implied manifestation to the patient which led the latter to
conclude that the doctor was the hospital’s agent; and second, the patient’s reliance upon the conduct of the hospital
and the doctor, consistent with ordinary care and prudence.

G.R. No. 164317. February 6, 2006. *

ALFREDO CHING, petitioner, vs. THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR

CECILYN BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila,
Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIP-PINES,
respondents.

Same; Corporation Law; The law specifically makes the officers, employees or other officers or persons responsible
for the offense, without prejudice to the civil liabilities of such corporation and/or board of directors, officers, or
other officials or employees responsible for the offense.—Though the entrustee is a corporation, nevertheless, the law
specifically makes the officers, employees or other officers or persons responsible for the offense, without prejudice to
the civil liabilities of such corporation and/or board of directors, officers, or other officials or employees responsible
for the offense. The rationale is that such officers or employees are vested with the authority and responsibility to
devise means necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable;
thus, they have a responsible share in the violations of the law.

Same; Same; If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or
other officers thereof responsible for the offense shall be charged and penalized for the crime; A corporation may be
charged and prosecuted for a crime if the imposable penalty is fine.—If the crime is committed by a corporation or
other juridical entity, the directors, officers, employees or other officers thereof responsible for the offense shall be
charged and penalized for the crime, precisely because of the nature of the crime and the penalty therefor. A
corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment.
However, a corporation may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute
prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined.

Same; Same; When a penal statute does not expressly apply to corporations, it does not create an offense for which a
corporation may be punished; Corporate officers or employees, through whose act, default or omission the
corporation commits a crime, are themselves individually guilty of the crime.—When a criminal statute designates an
act of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense which, otherwise,
would not exist and such can be committed only by the corporation. But when a penal statute does not expressly apply
to corporations, it does not create an offense for which a corporation may be punished. On the other hand, if the State,
by statute, defines a crime that may be committed by a corporation but prescribes the penalty therefor to be suffered
by the officers, directors, or employees of such corporation or other persons responsible for the offense, only such
individuals will suffer such penalty. Corporate officers or employees, through whose act, default or omission the
corporation commits a crime, are themselves individually guilty of the crime.

G.R. No. 182729. September 29, 2010.*

KUKAN INTERNATIONAL CORPORATION, petitioner, vs. HON. AMOR REYES, in her capacity as
Presiding Judge of the Regional Trial Court of Manila, Branch 21, and ROMEO M. MORALES, doing
business under the name and style “RM Morales Trophies and Plaques,” respondents.

Same; Same; Same; Making another corporation, thru the medium of a writ of execution, answerable for an adjudged
liability against another is a clear case of altering a decision, an instance of granting relief not contemplated in the
decision sought to be executed.—As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to
pay the aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of execution, answerable for
the above judgment liability is a clear case of altering a decision, an instance of granting relief not contemplated in the
decision sought to be executed. And the change does not fall under any of the recognized exceptions to the doctrine of
finality and immutability of judgment. It is a settled rule that a writ of execution must conform to the  fallo of the
judgment; as an inevitable corollary, a writ beyond the terms of the judgment is a nullity.
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; Words and Phrases; Under the doctrine of
“piercing the veil of corporate fiction,” the court looks at the corporation as a mere collection of individuals or an
aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the
corporation unifying the group.—In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations
Commission, 581 SCRA 598 (2009), the Court revisited the subject principle of piercing the veil of corporate fiction
and wrote: Under the doctrine of “piercing the veil of corporate fiction,” the court looks at the corporation as a mere
collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate
juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two
business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and
treat them as identical or as one and the same. Whether the separate personality of the corporation should be pierced
hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done
with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in
the interest of justice. x x x

Same; Same; Due Process; A corporation not impleaded in a suit cannot be subject to the court’s process of piercing
the veil of its corporate fiction—in that situation, the court has not acquired jurisdiction over the corporation and,
hence, any proceedings taken against that corporation and its property would h resulting treatment of two
related corporations as one and the same juridical person with respect to a given transaction, is basically applied only
to determine established liability; it is not available to confer on the court a jurisdiction it has not acquired, in the first
place, over a party not impleaded in a case. Elsewise put, a corporation not impleaded in a suit cannot be subject to the
court’s process of piercing the veil of its corporate fiction. In that situation, the court has not acquired jurisdiction over
the corporation and, hence, any proceedings taken against that corporation and its property would infringe on its right
to due process.

Same; Same; Same; Where the motion to pierce the veil of corporate fiction states a new cause of action, i.e., for the
liability of defendant corporation to be borne by another entity on the alleged identity of the two corporations, such
new cause of action should be properly ventilated in another complaint and subsequent trial where the doctrine of
piercing the corporate veil can, if appropriate, be applied, based on the evidence adduced—the matter could hardly
be the subject, under the premises, of a mere motion interposed after the principal action against the defendant
corporation alone had peremptorily been terminated.—Morales espouses the application of the principle of piercing
the corporate veil to hold KIC liable on theory that Kukan, Inc. was out to defraud him through the use of the separate
and distinct personality of another corporation, KIC. In net effect, Morales’ adverted motion to pierce the veil of
corporate fiction dated January 3, 2007 stated a new cause of action, i.e., for the liability of judgment debtor Kukan,
Inc. to be borne by KIC on the alleged identity of the two corporations. This new cause of action should be properly
ventilated in another complaint and subsequent trial where the doctrine of piercing the corporate veil can, if
appropriate, be applied, based on the evidence adduced. Establishing the claim of Morales and the corresponding
liability of KIC for Kukan Inc.’s indebtedness could hardly be the subject, under the premises, of a mere motion
interposed after the principal action against Kukan, Inc. alone had peremptorily been terminated. After all, a complaint
is one where the plaintiff alleges causes of action.

Same; Same; To justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof
that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and
binding commitment and perpetuate a fraud or like wrongdoings.—In fine, to justify the piercing of the veil of
corporate fiction, it must be shown by clear and convincing proof that the separate and distinct personality of the
corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like
wrongdoings. To be sure, the Court has, on numerous occasions, applied the principle where a corporation is dissolved
and its assets are transferred to another to avoid a financial liability of the first corporation with the result that the
second corporation should be considered a continuation and successor of the first entity.

Same; Same; Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a
corporation does not, standing alone, provide sufficient justification for disregarding the separate corporate
personality.—As is apparent from its disquisition, the RTC brushed aside the separate corporate existence of Kukan,
Inc. and KIC on the main argument that Michael Chan owns 40% of the common shares of both corporations,
obviously oblivious that overlapping stock ownership is a common business phenomenon. It must be remembered,
however, that KIC’s properties were the ones seized upon levy on execution and not that of Kukan, Inc. or of Michael
Chan for that matter. Mere ownership by a single stockholder or by another corporation of a substantial block of
shares of a corporation does not, standing alone, provide sufficient justification for disregarding the separate corporate
personality. For this ground to hold sway in this case, there must be proof that Chan had control or complete dominion
of Kukan and KIC’s finances, policies, and business practices; he used such control to commit fraud; and the control
was the proximate cause of the financial loss complained of by Morales. The absence of any of the elements prevents
the piercing of the corporate veil. And indeed, the records do not show the presence of these elements.

Same; Same; Words and Phrases; Paid-up capital is merely seed money to start a corporation or a business entity;
Paid-up capitalization of PhP 5,000 is not and should not be taken as a reflection of the firm’s capacity to meet its
recurrent and long-term obligations—the equity portion cannot be equated to the viability of a business concern, for
the best test is the working capital which consists of the liquid assets of a given business relating to the nature of the
business concern.—The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up
capital of PhP 5,000 is not an indication of the intent on the part of its management to defraud creditors. Paid-up
capital is merely seed money to start a corporation or a business entity. As in this case, it merely represented the
capitalization upon incorporation in 1997 of Kukan, Inc. Paid-up capitalization of PhP 5,000 is not and should not be
taken as a reflection of the firm’s capacity to meet its recurrent and long-term obligations. It must be borne in mind
that the equity portion cannot be equated to the viability of a business concern, for the best test is the working capital
which consists of the liquid assets of a given business relating to the nature of the business concern.

Same; Same; The circumstance that a single stockholder owns 40% of the outstanding capital stock of two
corporations, standing alone, is insufficient to establish identity—there must be at least a substantial identity of
stockholders for both corporations in order to consider this factor to be constitutive of corporate identity.—The
suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as they are by the same
stockholders, stands without factual basis. It is true that Michael Chan, a.k.a. Chan Kai Kit, owns 40% of the
outstanding capital stock of both corporations. But such circumstance, standing alone, is insufficient to establish
identity. There must be at least a substantial identity of stockholders for both corporations in order to consider this
factor to be constitutive of corporate identity.

Same; Same; Piercing the veil of corporate fiction is frowned upon.—It bears reiterating that piercing the veil of
corporate fiction is frowned upon. Accordingly, those who seek to pierce the veil must clearly establish that the
separate and distinct personalities of the corporations are set up to justify a wrong, protect fraud, or perpetrate a
deception. In the concrete and on the assumption that the RTC has validly acquired jurisdiction over the party
concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter KIC
purposely formed and operated to defraud him. Morales has not to us discharged his burden.

G.R. No. 147629.  July 28, 2010.*

JAKA INVESTMENTS CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,
respondent.

ISSUE:
Whether petitioner is entitled to a partial refund of the documentary stamp tax and surcharges it paid on the execution
of the Amended Subscription Agreement.

RULING:
Ordinarily, when a corporation issues a certificate of stock (representing the ownership of stocks in the corporation
to fully paid subscription) the certificate of stock can be utilized for the exercise of the attributes of ownership over the
stocks mentioned on its face. The stocks can be alienated; the dividends or fruits derived therefrom can be enjoyed,
and they can be conveyed, pledged or encumbered. The certificate as issued by the corporation, irrespective of
whether or not it is in the actual or constructive possession of the stockholder, is considered issued because it is with
value and hence the documentary stamp tax must be paid as imposed by Section 212 of the National Internal Revenue
Code, as amended.

G.R. No. 144476. April 8, 2003. *

ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T.
ONG, and JULIE ONG ALONZO, petitioners, vs. DAVID. S. TIU, CELY Y. TIU, MOLY YU GAW,
BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES
DEVELOPMENT CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY,
and the SECURITIES AND EXCHANGE COMMISSION, respondents.
G.R. No. 144629. April 8, 2003. *
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU, JOHN YU,
LOURDES C. TIU, and INTRALAND RESOURCES DEVELOPMENT CORP., petitioners, vs. ONG
YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L.

Corporation Law; Corporation Code; Remedies; The Corporation Code, SEC Rules and even the Rules of Court
provide for appropriate and adequate intra-corporate remedies, other than rescission.—The Corporation Code, SEC
rules and even the Rules of Court provide for appropriate and adequate intra-corporate remedies, other than rescission,
in situations like this. Rescission is certainly not one of them, specially if the party asking for it has no legal
personality to do so and the requirements of the law therefor have not been met. A contrary doctrine will tread on
extremely dangerous ground because it will allow just any stockholder, for just about any real or imagined offense, to
demand rescission of his subscription and call for the distribution of some part of the corporate assets to him without
complying with the requirements of the Corporation Code.
Same; Same; Trust Fund Doctrine; This doctrine is the underlying principle in the procedure for the distribution of
capital assets.—The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co. vs.
Rivera provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a
right to look for the satisfaction of their claims. This doctrine is the underlying principle in the procedure for the
distribution of capital assets, embodied in the Corporation Code, which allows the distribution of corporate capital
only in three instances: (1) amendment of the Articles of Incorporation to reduce the authorized capital stock, (2)
purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings, and (3)
dissolution and eventual liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the
power of a corporation to acquire its own shares and in Section 122 on the prohibition against the distribution of
corporate assets and property unless the stringent requirements therefor are complied with.

Same; Same; Same; The distribution of corporate assets and property cannot be made to depend on the whims and
caprices of the stockholders, officers and directors of the corporation, or by the court.—The distribution of corporate
assets and property cannot be made to depend on the whims and caprices of the stockholders, officers or directors of
the corporation, or even, for that matter, on the earnest desire of the court a quo “to prevent further squabbles and
future litigations” unless the indispensable conditions and procedures for the protection of corporate creditors are
followed. Otherwise, the “corporate peace” laudably hoped for by the court will remain nothing but a dream because
this time, it will be the creditors’ turn to engage in “squabbles and litigations” should the court order an unlawful
distribution in blatant disregard of the Trust Fund Doctrine.

Same; Same; “Business Judgment Rule”; Definition.—Truth to tell, a judicial order to decrease capital stock without
the assent of FLADC’s directors and stockholders is a violation of the “business judgment rule” which states that: xxx
xxx xxx (C)ontracts intra vires entered into by the board of directors are binding upon the corporation and courts will
not interfere unless such contracts are so unconscionable and oppressive as to amount to wanton destruction to the
rights of the minority, as when plaintiffs aver that the defendants (members of the board), have concluded a
transaction among themselves as will result in serious injury to the plaintiffs stockholders.

Same; Same; Same; Rationale; The social contract in the corporate family to decide the course of the corporate
business has been vested in the board and not with courts.—Courts and other tribunals are wont to override the
business judgment of the board mainly because, courts are not in the business of business, and the laissez faire rule or
the free enterprise system prevailing in our social and economic set-up dictates that it is better for the State and its
organs to leave business to the businessmen; especially so, when courts are ill-equipped to make business decisions.
More importantly, the social contract in the corporate family to decide the course of the corporate business has been
vested in the board and not with courts.

ISSUE:
Whether the pre-Subscription Agreement executed by the Ongs is actually a subscription contract.

RULING:
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.

No. L-23606. July 29, 1968.

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC.,
petitioner, vs. SECURITIES & EXCHANGE COMMISSION, respondent.

Corporation law; Term of existence; Amendment of articles of incorporation after expiration of its corporate

life.—A corporation cannot extend its life by amendment of its articles of incorporation effected during the three-year
statutory period for liquidation when its original term of existence had already expired.
Since the privilege of extension is purely statutory, all of the statutory conditions precedent must be complied
with in order that the extension may be effectuated. And, generally, these conditions must be complied with, and the
steps necessary to effect the extension must be taken, during the life of the corporation, and before the expiration of
its term of existence as originally fixed by its charter or the general law, since, as a rule, the corporation is ipso facto
dissolved as soon as that time expires (8 Fletcher, Cyclopedia of Corporations, Perm. ed., 1931, pp. 559-560).

G.R. No. 63201. May 27, 1992.*

PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF FIRST INSTANCE OF RIZAL, PASIG
—BRANCH XXI, PRESIDED BY JUDGE GREGORIO G. PINEDA, CHUNG SIONG PEK @
BONIFACIO CHUNG SIONG PEK AND VICTORIA CHING GENG TY @ VICTORIA CHENG GENG
TY, AND THE REGISTER OF DEEDS OF RIZAL, PASIG, METRO MANILA AND/OR HIS DEPUTIES
AND AGENTS, respondents.

Corporation Law; When the period of corporate life expires, the corporation ceases to be a body corporate for the
purpose of continuing the business for which it was organized.—Section 11 of Corporation Code provides that a
corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner
dissolved or unless said period is extended. Upon the expiration of the period fixed in the articles of incorporation in
the absence of compliance with the legal requisites for the extension of the period, the corporation ceases to exist and
is dissolved ipso facto (16 Fletcher 671 cited by Aguedo F. Agbayani, Commercial Laws of the Philippines, Vol. 3,
1988 Edition p. 617). When the period of corporate life expires, the corporation ceases to be a body corporate for the
purpose of continuing the business for which it was organized. But it shall nevertheless be continued as a body
corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its
property and to divide its assets (Sec. 122, Corporation Code),

Same; Involuntary Dissolution; Grounds for the involuntary dissolution of a corporation under a quo warranto
proceedings.—The quo warranto proceeding under Rule 66 of the Rules of Court, as amended, may be instituted by
the Solicitor General only for the involuntary dissolution of a corporation on the following grounds: a) when the
corporation has offended against a provision of an Act for its creation or renewal; b) when it has forfeited its
privileges and franchises by non-user; c) when it has committed or omitted an act which amounts to a surrender of its
corporate rights, privilege or franchises; d) when it has misused a right, privileges or franchise conferred upon it by
law, or when it has exercised a right, privilege or franchise in contraven-tion of law.

G.R. No. 157802. October 13, 2010.*

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER,
CATHERINE SPENCER, AND ALEX MANCILLA, petitioners, vs. RICARDO R. COROS, respondent.

Same; Corporation Code; Corporate Officers; The creation of an office pursuant to or under a By-Law enabling
provision is not enough to make a position a corporate office.—Conformably with Section 25, a position must be
expressly mentioned in the By-Laws in order to be considered as a corporate office. Thus, the creation of an office
pursuant to or under a By-Law enabling provision is not enough to make a position a corporate office.  Guerrea v.
Lezama, 103 Phil. 553 (1958), the first ruling on the matter, held that the only officers of a corporation were those
given that character either by the Corporation Code or by the By-Laws; the rest of the corporate officers could be
considered only as employees or subordinate officials.
Same; Same; Same; The power to elect the corporate officers was a discretionary power that the law exclusively
vested in the Board of Directors, and could not be delegated to subordinate officers or agents.—The Board of
Directors of Matling could not validly delegate the power to create a corporate office to the President, in light of
Section 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate officers. Verily, the
power to elect the corporate officers was a discretionary power that the law exclusively vested in the Board of
Directors, and could not be delegated to subordinate officers or agents. The office of Vice President for Finance and
Administration created by Matling’s President pursuant to By-Law No. V was an ordinary, not a corporate, office.

Same; Same; Same; The statement in Tabang, to the effect that offices not expressly mentioned in the By-Laws but
were created pursuant to a By-Law enabling provision were also considered corporate offices, was plainly obiter
dictum.—The petitioners’ reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that offices
not expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling provision were also
considered corporate offices, was plainly obiter dictum due to the position subject of the controversy being mentioned
in the By-Laws. Thus, the Court held therein that the position was a corporate office, and that the determination of the
rights and liabilities arising from the ouster from the position was an intra-corporate controversy within the SEC’s
jurisdiction.

Same; Same; Same; Elements in order to determine whether a dispute constitutes an intra-corporate controversy or
not.—True it is that the Court pronounced in Tabang as follows: “Also, an intra-corporate controversy is one which
arises between a stockholder and the corporation. There is no distinction, qualification or any exemption whatsoever.
The provision is broad and covers all kinds of controversies between stockholders and corporations.” However,
the Tabang pronouncement is not controlling because it is too sweeping and does not accord with reason, justice, and
fair play. In order to determine whether a dispute constitutes an intra-corporate controversy or not, the Court considers
two elements instead, namely: (a) the status or relationship of the parties; and (b) the nature of the question that is the
subject of their controversy.

G.R. No. 151969. September 4, 2009.*

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY GAMBOA, AMADO M.
SANTIAGO, JR., FORTUNATO DEE, AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS
III, ERIC ROXAS, in their capacities as members of the Board of Directors of Valle Verde Country Club,
Inc., and JOSE RAMIREZ, petitioners, vs. VICTOR AFRICA, respondent.

Corporation Law; Board of Directors; Holdover; Words and Phrases; “Term” and “Tenure,” Distinguished; Term is
distinguished from tenure in that an officer’s “tenure” represents the term during which the incumbent actually holds
office—the tenure may be shorter (or, in case of holdover, longer) than the term for reasons within or beyond the
power of the incumbent.—The word “term” has acquired a definite meaning in jurisprudence. In several cases, we
have defined “term” as the time during which the officer may claim to hold the office as of right, and fixes the interval
after which the several incumbents shall succeed one another. The term of office is not affected by the holdover. The
term is fixed by statute and it does not change simply because the office may have become vacant, nor because the
incumbent holds over in office beyond the end of the term due to the fact that a successor has not been elected and has
failed to qualify. Term is distinguished from tenure in that an officer’s “tenure” represents the term during which the
incumbent actually holds office. The tenure may be shorter (or, in case of holdover, longer) than the term for reasons
within or beyond the power of the incumbent.
Same; Same; Same; Same; When Section 23 of the Corporation Code declares that “the board of directors…shall
hold office for one (1) year until their successors are elected and qualified,” it means that the term of the members of
the board of directors shall be only for one year—their term expires one year after election to the office; The holdover
period—that time from the lapse of one year from a member’s election to the Board and until his successor’s election
and qualification—is not part of the director’s original term of office, nor is it a new term.—Based on the above
discussion, when Section 23 of the Corporation Code declares that “the board of directors…shall hold office for one
(1) year until their successors are elected and qualified,” we construe the provision to mean that the term of the
members of the board of directors shall be only for one year; their term expires one year after election to the office.
The holdover period—that time from the lapse of one year from a member’s election to the Board and until his
successor’s election and qualification—is not part of the director’s original term of office, nor is it a new term; the
holdover period, however, constitutes part of his tenure. Corollary, when an incumbent member of the board of
directors continues to serve in a holdover capacity, it implies that the office has a fixed term, which has expired, and
the incumbent is holding the succeeding term.

Same; Same; Theory of Delegated Power; The board of directors, in drawing to themselves the powers 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 corporate affairs.—VVCC’s
construction of Section 29 of the Corporation Code on the authority to fill up vacancies in the board of directors, in
relation to Section 23 thereof, effectively weakens the stockholders’ power to participate in the corporate governance
by electing their representatives to 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 themselves the powers 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 corporate affairs.

Same; Same; Same; The theory of delegated power of the board of directors similarly explains why, under Section 29
of the Corporation Code, in cases where the vacancy in the corporation’s board of directors is caused not by the
expiration of a member’s term, the successor “so elected to fill in a vacancy shall be elected only for the unexpired
term of his predecessor in office.”—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. Only in that way can the directors’ continued accountability to
shareholders, and the legitimacy of their decisions that bind the corporation’s stockholders, be assured. The
shareholder vote is critical to the theory that legitimizes the exercise of power by the directors or officers over
properties that they do not own. This theory of delegated power of the board of directors similarly explains why, under
Section 29 of the Corporation Code, in cases where the vacancy in the corporation’s board of directors is caused not
by the expiration of a member’s term, the successor “so elected to fill in a vacancy shall be elected  only for the
unexpired term of his predecessor in office.” The law has authorized the remaining members of the board to fill in a
vacancy only in specified instances, so as not to retard or impair the corporation’s operations; yet, in recognition of the
stockholders’ right to elect the members of the board, it limited the period during which the successor shall serve only
to the “unexpired term of his predecessor in office.”

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.

Corporation Law; Acts of management pertain to the board of directors, and those of ownership, to the stockholders
or members.—Under the Corporation Code, stockholders or members periodically elect the board of directors or
trustees, who are charged with the management of the corporation. The board, in turn, periodically elects officers to
carry out management functions on a day-to-day basis. As owners, though, the stockholders or members have residual
powers over fundamental and major corporate changes. While stockholders and members (in some instances) are
entitled to receive profits, the management and direction of the corporation are lodged with their representatives and
agents—the board of directors or trustees. In other words, acts of management pertain to the board; and those of
ownership, to the stockhold ers or members. In the latter case, the board cannot act alone, but must seek approval of
the stockholders or members.

Same; 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.—Conformably with the foregoing
principles, 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 choose the
persons who will direct, manage and operate the corporation is significant, because it is the main way in which a
stockholder can have a voice in the management of corporate affairs, or in which a member in a nonstock corporation
can have a say on how the purposes and goals of the corporation may be achieved. Once the directors or trustees are
elected, the stockholders or members relinquish corporate powers to the board in accordance with law.

Same; Quorum; In stock corporations, the presence of a quorum is ascertained and counted on the basis of the
outstanding capital stock.—In stock corporations, the presence of a quorum is ascertained and counted on the basis of
the outstanding capital stock, as defined by the Code thus: “SEC-TION 137. Outstanding capital stock defined.—The
term ‘outstanding capital stock’ as used in this Code, means the total shares of stock issued under binding subscription
agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares.”

Same; Same; Only stock actually issued and outstanding may be voted—neither the stockholders nor the corporation
can vote or represent shares that have never passed to the ownership of stockholders, or, having so passed, have again
been purchased by the corporation.—The right to vote is inherent in and incidental to the ownership of corporate
stocks. It is settled that unis-sued stocks may not be voted or considered in determining whether a quorum is present in
a stockholders’ meeting, or whether a requisite proportion of the stock of the corporation is voted to adopt a certain
measure or act. Only stock actually issued and outstanding may be voted. Under Section 6 of the Corporation Code,
each share of stock is entitled to vote, unless otherwise provided in the articles of incorporation or declared delinquent
under Section 67 of the Code. Neither the stockholders nor the corporation can vote or represent shares that have
never passed to the ownership of stockholders; or, having so passed, have again been purchased by the corporation.
These shares are not to be taken into consideration in determining majorities. When the law speaks of a given
proportion of the stock, it must be construed to mean the shares that have passed from the corporation, and that may
be voted.

Same; Same; When 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.—In nonstock corporations,
the voting rights attach to membership. Members vote as persons, in accordance with the law and the bylaws of the
corporation. Each member shall be entitled to one vote unless so limited, broadened, or denied in the articles of
incorporation or bylaws. We hold that when the principle for determining the quorum for stock corporations is applied
by analogy to non-stock corporations, only those who are actual members with voting rights should be counted. Under
Section 52 of the Corporation Code, 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.

Same; Same; In stock corporations, shareholders may generally transfer their shares; The determination of whether
or not “dead members” are entitled to exercise their voting rights (through their executor or administrator), depends
on the articles of incorporation or bylaws.—In stock corporations, shareholders may generally transfer their shares.
Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the legal
title to the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of the
decedent are held by the administrator or executor. On the other hand, membership in and all rights arising from a
nonstock corporation are personal and non-transferable, unless the articles of incorporation or the bylaws of the
corporation provide otherwise. In other words, the determination of whether or not “dead mem-bers” are entitled to
exercise their voting rights (through their executor or administrator), depends on those articles of incorporation or
bylaws.

Same; Same; Dead members who are dropped from the membership ros-ter in the manner and for the cause provided
for in the By-Laws of Grace Christian High School, a nonstock corporation, are not to be counted in determining the
requisite vote in corporate matters or the requisite quorum.—Under the By-Laws of GCHS, membership in the
corporation shall, among others, be terminated by the death of the member. Section 91 of the Corporation Code further
provides that termination extinguishes all the rights of a member of the corporation, unless otherwise provided in the
articles of incorporation or the bylaws. Applying Section 91 to the present case, we hold that 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, conducted with six members present, was valid.

Same; Same; Words and Phrases; The phrase “may be filled” in Section 29 of the Corporation Code shows that the
filling of vacancies in the board by the remaining directors or trustees constituting a quorum is merely permissive, not
mandatory—corporations, therefore, may choose how vacancies in their respective boards may be filled up.—
Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still constitute a quorum. The
phrase “may be filled” in Section 29 shows that the filling of vacancies in the board by the remaining directors or
trustees constituting a quorum is merely permissive, not mandatory. Corporations, therefore, may choose how
vacancies in their respective boards may be filled up—either by the remaining directors constituting a quorum, or by
the stockholders or members in a regular or special meeting called for the purpose. The By-Laws of GCHS prescribed
the specific mode of filling up existing vacancies in its board of directors; that is, by a majority vote of the remaining
members of the board.

Same; Same; There is a well-defined distinction between a corporate act to be done by the board and that by the
constituent members of the corpora-tion.—While a majority of the remaining corporate members were present,
however, the “election” of the four trustees cannot be legally upheld for the obvious reason that it was held in an
annual meeting of the members, not of the board of trustees. We are not unmindful of the fact that the members of
GCHS themselves also constitute the trustees, but we cannot ignore the GCHS bylaw provision, which specifically
prescribes that vacancies in the board must be filled up by the remaining trustees. In other words, these remaining
member-trustees must sit as a board in order to validly elect the new ones. Indeed, there is a well-defined distinction
between a corporate act to be done by the board and that by the constituent members of the corporation. The board of
trustees must act, not individually or separately, but as a body in a lawful meeting. On the other hand, in their annual
meeting, the members may be represented by their respective proxies, as in the contested annual members’ meeting of
GCHS.

G.R. No. 174938. October 1, 2014.*

 
GERARDO LANUZA, JR. and ANTONIO O. OLBES, petitioners, vs. BF CORPORATION, SHANGRI-
LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO, MAXIMO G. LICAUCO III, and
BENJAMIN C. RAMOS, respondents.
Corporations; Separate Legal Personality; A corporation, in the legal sense, is an individual with a personality that is
distinct and separate from other persons including its stockholders, officers, directors, representatives, and other
juridical entities.—A corporation is an artificial entity created by fiction of law. This means that while it is not a
person, naturally, the law gives it a distinct personality and treats it as such. A corporation, in the legal sense, is an
individual with a personality that is distinct and separate from other persons including its stockholders, officers,
directors, representatives, and other juridical entities. The law vests in corporations rights, powers, and attributes as if
they were natural persons with physical existence and capabilities to act on their own. For instance, they have the
power to sue and enter into transactions or contracts.

Same; Same; A corporation’s representatives are generally not bound by the terms of the contract executed by the
corporation. They are not personally liable for obligations and liabilities incurred on or in behalf of the corporation.
—Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers through its
directors, officers, or agents, who are all natural persons. A corporation cannot sue or enter into contracts without
them. A consequence of a corporation’s separate personality is that consent by a corporation through its
representatives is not consent of the representative, personally. Its obligations, incurred through official acts of its
representatives, are its own. A stockholder, director, or representative does not become a party to a contract just
because a corporation executed a contract through that stockholder, director or representative. Hence, a corporation’s
representatives are generally not bound by the terms of the contract executed by the corporation. They are not
personally liable for obligations and liabilities incurred on or in behalf of the corporation.

Same; Same; Arbitration; As a general rule, therefore, a corporation’s representative who did not personally bind
himself or herself to an arbitration agreement cannot be forced to participate in arbitration proceedings made
pursuant to an agreement entered into by the corporation.—As a general rule, therefore, a corporation’s representative
who did not personally bind himself or herself to an arbitration agreement cannot be forced to participate in arbitration
proceedings made pursuant to an agreement entered into by the corporation. He or she is generally not considered a
party to that agreement. However, there are instances when the distinction between personalities of directors, officers,
and representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate fiction.

Same; Same; Piercing the Veil of Corporate Fiction; Piercing the corporate veil is warranted when “[the separate
personality of a corporation] is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion
of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.”—Piercing the corporate veil
is warranted when “[the separate personality of a corporation] is used as a means to perpetrate fraud or an illegal act,
or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.”
It is also warranted in alter ego cases “where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make
it merely an instrumentality, agency, conduit or adjunct of another corporation.” When corporate veil is pierced, the
corporation and persons who are normally treated as distinct from the corporation are treated as one person, such that
when the corporation is adjudged liable, these persons, too, become liable as if they were the corporation. Among the
persons who may be treated as the corporation itself under certain circumstances are its directors and officers.

Same; Same; Same; Section 31 of the Corporation Code provides the instances when directors, trustees, or officers
may become liable for corporate acts.—Section 31 of the Corporation Code provides the instances when directors,
trustees, or officers may become liable for corporate acts: Sec. 31. Liability of directors, trustees or officers.—
Directors or trustees who willfully 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. When a
director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a
disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for
the profits which otherwise would have accrued to the corporation. (n)
Same; Same; Same; Cases When a Director, Trustee, or Officer of a Corporation May Be Made Solidarily Liable With
it for All Damages Suffered by the Corporation, its Stockholders or Members, and Other Persons.—A director, trustee,
or officer of a corporation may be made solidarily liable with it for all damages suffered by the corporation, its
stockholders or members, and other persons in any of the following cases: a) The director or trustee willfully and
knowingly voted for or assented to a patently unlawful corporate act; b) The director or trustee was guilty of gross
negligence or bad faith in directing corporate affairs; and c) The director or trustee acquired personal or pecuniary
interest in conflict with his or her duties as director or trustee. Solidary liability with the corporation will also attach in
the following instances: a) “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”; b) “When a
director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with
the corporation”; and c) “When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate action.”

Same; Same; Same; When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons and the corporation should be
treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of corporate
fiction should be pierced.—When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons and the corporation should be
treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of corporate fiction
should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the courts or tribunals must first
determine whether circumstances exist to warrant the courts or tribunals to disregard the distinction between the
corporation and the persons representing it. The determination of these circumstances must be made by one tribunal or
court in a proceeding participated in by all parties involved, including current representatives of the corporation, and
those persons whose personalities are impliedly the same as the corporation. This is because when the court or tribunal
finds that circumstances exist warranting the piercing of the corporate veil, the corporate representatives are treated as
the corporation itself and should be held liable for corporate acts. The corporation’s distinct personality is disregarded,
and the corporation is seen as a mere aggregation of persons undertaking a business under the collective name of the
corporation.

G.R. No. 132981. August 31, 2004. *

MAMITUA SABER, substituted by his HEIRS, represented by ORFIA ALICER SABER,

petitioners, vs. COURT OF APPEALS, PHILIPPINE AMANAH BANK and ASGARI ARADJI,
respondents.

ISSUE:
Whether or not a separate committee should be formed to investigate on the allegations against petitioner, Saber

RULING:
Yes. We agree with the petitioners that a person other than respondent Aradji should have been designated as
Chairperson of the Investigating Committee to investigate the pilgrimage fiasco. This is so because in his
Memorandum to the Board of Directors of the PAB on February 21, 1975, respondent Aradji had declared
that the 1974 Mecca pilgrimage under the supervision of Saber was mishandled and there were indications
then that there was an apparent lack of exercise of effective leadership which was so vital and essential to
make the bank truly responsive to the needs of the Filipino Muslims. Respondent Aradji then proposed that
Saludo exercise the powers of the president of the respondent bank in place of Saber. In fine, respondent
Aradji attributed the problems attendant to the pilgrimage fiasco to Saber. But then Saber did not oppose the
designation by the Board of Directors for respondent Aradji to be the Chairman of the Investigating
Committee, or even asked for the latters inhibition. Saber must have believed that he could still prove that he
acted in good faith, and was not guilty of any wrongdoing regardless of any misconception of respondent
Aradji. Besides, respondent Aradji was only the chairman of the committee, and there were four (4) other
members who could rule in Sabers favor. As it was, Saber even appeared before the committee and adduced
testimonial and documentary evidence in his behalf.

The respondent PAB cannot be faulted, nor can it be ordered to pay damages and attorneys fees for issuing a
conditional clearance to Saber after his resignation from respondent PAB. Saber had not yet liquidated his
accountability of P 1,012,000 when his leave of absence from the university had expired. The Investigating
Committee had yet to commence and terminate its investigation of Sabers accountability, administrative or
civil, for the pilgrimage fiasco. The respondent PAB had no discretion to issue a clearance to Saber. It bears
stressing that a public officer, in the discharge of his duties has to use prudence, caution and attention in the
management of his affairs. In fact, the respondent PAB was duty bound to withhold such clearance to Saber
pending final determination of his monetary accountabilities. Even assuming that Saber and/or the
petitioners sustained economic difficulties on account of the conditional clearance issued by the respondent
PAB, the petitioners are not entitled to moral and exemplary damages. The act of the respondent PAB was
not wrongful. It is a case of damnum absque injuria and not of damnum et injuria.
To constitute malicious prosecution, there must be proof that the prosecutor was prompted by a sinister or
devious design to vex and humiliate a person, and that it was initiated deliberately, knowing that the charges
are false and groundless. Malice with probable cause must both be clearly established to justify an award of
damages based on malicious prosecution. Lack of probable cause is an element separate and distinct from
that of malice. One cannot be held liable for damages for malicious prosecution where he acted with
probable cause. We also held that a determination that there is no probable cause cannot be made to rest
solely on the fact that the trial court after trial decided to acquit the accused. Neither can lack of probable
cause be made to rest on the fact that the finding of probable cause of the Special Counsel was reversed by
the Secretary of Justice or the Ombudsman as the case may be. The mere act of submitting the case to the
authorities for prosecution does not make one liable for malicious prosecution. Moreover, the adverse result
of an action does not per se make the action wrongful and subject the action to damages, for the law could
not have meant to impose a penalty on the right to litigate. If damages result from a persons exercise of a
right, it is damnum absque injuria.

G.R. No. 154366. November 17, 2010.*

CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA, petitioners, vs. DEVELOPMENT BANK OF
THE PHILIPPINES, JOSE TO CHIP, PATRICIO YAP and ROGER BALILA, respondents.
Corporation Law; Corporate Powers; Except for the powers which are expressly conferred on it by the Corporation
Code and those that are implied by or are incidental to its existence, a corporation has no powers; Physical acts, like
the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-
laws or by a specific act of the board of directors.—Except for the powers which are expressly conferred on it by the
Corporation Code and those that are implied by or are incidental to its existence, a corporation has no powers. It
exercises its powers through its board of directors and/or its duly authorized officers and agents. Thus, its power to sue
and be sued in any court is lodged with the board of directors that exercises its corporate powers. Physical acts, like
the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-
laws or by a specific act of the board of directors.

G.R. No. 150694. March 13, 2009.*

ZOMER DEVELOPMENT COMPANY, INC., petitioner, vs. INTERNATIONAL EXCHANGE BANK and
SHERIFF IV ARTHUR R. CABIGON, respondents.

Corporation Law; Ultra Vires; Words and Phrases; The plea of “ultra vires” will not be allowed to prevail, whether
interposed for or against a corporation, when it will not advance justice but, on the contrary, will accomplish a legal
wrong to the prejudice of another who acted in good faith.—The plea of “ultra vires” will not be allowed to prevail,
whether interposed for or against a corporation, when it will not advance justice but, on the contrary, will accomplish a
legal wrong to the prejudice of another who acted in good faith.

No. L-18062. February 28, 1963.

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. ACOJE MINING COMPANY, INC., defendant-
appellant.

Corporations; Ultra vires act defined; When corporate acts may be performed outside the scope of powers expressly
conferred.—While as a rule an ultra vires act is one committed outside the object for which a corporation is
created as defined by the law of its organization and therefore beyond the powers conferred upon it by law (19
C.J.S., Section 965, p. 419), there are however certain corporate acts that may be performed outside of the scope of
the powers expressly conferred if they are necessary to promote the interest or welfare of the corporation, such as
 the establishment, in the case at bar, of a local post office in a mining camp which is far removed from the postal
facilities or means of communications accorded to- people living in a city or municipality.

Same; Same; Ultra vires act distinguished from illegal act; Enforcement of ultra vires act on the ground of estoppel.
—An illegal act is void and cannot be validated, while an ultra vires act is merely voidable and can be enforced by
performance, ratification or estoppel, or on equitable grounds. In the present case the validity of the resolution of
the Board of Directors of the corporation accepting full responsibility in connection with funds to be received by
its postmaster, should be upheld on the ground of estoppel.

Same; Assumption of responsibility; Responsibility in present case that of principal and not that of guarantor.—That
the responsibility of the defendant corporation is not just that of a guarantor but of a principal is clear from the
resolution of its Board of Directors in which the corporation assumed “full responsibility for all cash received by
the Postmaster”.

G.R. No. 132390. May 21, 2004. *

BPI FAMILY SAVINGS BANK, INC., petitioner, vs. FIRST METRO INVESTMENT CORPORATION,

respondent.

Same; Corporation Law; If a corporation knowingly permits its officer, or any other agent, to perform acts within the
scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation
will, as against any person who has dealt in good faith with the corporation through such agent, be estopped from
denying such authority.—Going back to the unauthorized transfer of respondent’s funds to Tevesteco, in its attempt to
evade any liability therefor, petitioner now impugns the validity of the subject agreement on the ground that its Branch
Manager, Jaime Sebastian, overstepped the limits of his authority in accepting respondent’s deposit with 17% interest
per annum. We have held that if a corporation knowingly permits its officer, or any other agent, to perform acts within
the scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation
will, as against any person who has dealt in good faith with the corporation through such agent, be estopped from
denying such authority.

WESTMONT BANK (formerly ASSOCIATED CITIZENS BANK and now UNITED OVERSEAS BANK,
PHILS.) AND THE PROVINCIAL SHERIFF OF RIZAL, petitioners, vs. INLAND CONSTRUCTION
AND DEVELOPMENT CORP., respondent

 Corporation Law; Doctrine of Apparent Authority; The general rule remains that, in the absence of authority from
the board of directors, no person, not even its officers, can validly bind a corporation.- The general rule remains that,
in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation.
If a corporation, however, consciously lets one of its officers, or any other agent, to act within the scope of an apparent
authority, it will be estopped from denying such officer’s authority. The records show that Calo was the one assigned
to transact on petitioner’s behalf respecting the loan transactions and arrangements of Inland as well as those of Hanil-
Gonzales and Abrantes. Since it conducted business through Calo, who is an Account Officer, it is presumed that he
had authority to sign for the bank in the Deed of Assignment.
 Same; Same; Pleadings and Practice; Burden of Evidence; A corporation should first prove by clear evidence that
its corporate officer is not in fact authorized to act on its behalf before the burden of evidence shifts to the other party
to prove, by previous specific acts, that an officer was clothed by the corporation with apparent authority.- Petitioner
relies heavily, however, on the Court’s pronouncement in Yao Ka Sin Trading that it was incumbent upon, in this
case, Inland to prove that petitioner had clothed its account officer with apparent power to conform to the Deed of
Assignment. Petitioner’s simplistic reading of Yao Ka Sin Trading v. Court of Appeals (209 SCRA 763 [1992]) does
not impress. In Yao Ka Sin Trading, the therein respondent cement company had shown by clear and convincing
evidence that its president was not authorized to undertake a particular transaction. It presented its by-laws stating that
only its board of directors has the power to enter into an agreement or contract of any kind. The company’s board of
directors even forthwith issued a resolution to repudiate the contract. Thus, it was only after the company successfully
discharged its burden that the other party, the therein petitioner Yao Ka Sin Trading, had to prove that indeed the
cement company had clothed its president with the apparent power to execute the contract by evidence of similar acts
executed in its favor or in favor of other parties. Unmistakably, the Court’s directive in Yao Ka Sin Trading is that a
corporation should first prove by clear evidence that its corporate officer is not in fact authorized to act on its behalf
before the burden of evidence shifts to the other party to prove, by previous specific acts, that an officer was clothed
by the corporation with apparent authority.
 Corporation Law; Doctrine of Apparent Authority; Words and Phrases; Under the doctrine of apparent authority,
the principal is liable only as to third persons who have been led reasonably to believe by the conduct of the principal
that such actual authority exists, although none has been given.-I note that the Deed of Assignment was essentially a
bi-partite agreement between the assignor (Aranda and Inland) and the assignee (Abrantes and Hanil-Gonzales) who
agreed “to obtain the conformity of the ASSOCIATED CITIZENS BANK to the foregoing arrangement.” The Deed
was duly notarized with the parties, other than Calo, signing the notarial acknowledgment. Notably, Calo merely
signed to give conformity; he was not a direct party to the deed, and he did not likewise indicate or attache proof of his
authority to sign for the bank. Thus, on the face of this Deed, Inland had the burden to prove that there was valid
consent by the bank so that it (Inland) could be freed of liability, i.e., by proving that Calo had the authority to sign
and bind the bank. This is highlighted by the fact that the bank placed its binding participation in the Deed in issue. In
the absence of any direct evidence of such authority, Inland could have proven this authority only by proof that the
bank had given Calo apparent authority. Under the doctrine of apparent authority, the principal is liable only as to
third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists,
although none has been given.
 Same; Same; In the absence of proof of the bank’s consent given through an officer expressly or impliedly and
adduced at the first instance by the debtor to support its plea to restrain the bank from foreclosing on the mortgage
given, then no burden of evidence shifts to the bank to prove anything, particularly the fact that its officer was not
authorized to sign for the bank and bind the bank.- There was no reference in the ponencia to past acts of the bank
sufficient to create the impression that Calo was clothed with apparent authority, i.e., specific instances in the past
showing that the bank allowed Calo, as a bank officer, to act with authority to bind the corporation, and that he did so
without the bank’s objection. Such apparent authority may be established by proof of the course of business, the
usages and practices of the bank and by the knowledge which the board of directors had, or must be presumed to have,
of acts of Calo in and about the bank’s affairs. Interestingly, the ponencia could only name Calo as the officer in
charge of the accounts of Inland and Hanil-Gonzales with the bank, and point out that he signed the deed of
assignment. Thus, the inevitable question was: what was the extent of Calo’s duties as an account officer? If these
involve merely the ordinary, routine administrative aspects of handling the accounts of the bank’s clients (as opposed
to managerial and discretionary transactions), then there is no basis to recognize in Calo the authority to consent a
substitution of debtors that would novate Inland’s and the bank’s loan and accessory security agreements. What this
authority really was, the local courts and the ponencia did not say. To reiterate, in the absence of proof of the bank’s
consent given through an officer expressly or impliedly and adduced at the first instance by Inland to support its plea
to restrain the bank from foreclosing on the mortgage given, then no burden of evidence shifts to the bank to prove
anything, particularly the fact that Calo was not authorized to sign for the bank and bind the bank. Apparently, the
lower courts duly recognized that no evidentiary basis existed to recognize Calo’s binding authority; hence, the lower
courts simply relied on evidence that the bank ratified the assignment Inland made, thus freeing Inland from the
obligation to pay the bank.

G.R. No. 152392. May 26, 2005. *

EXPERTRAVEL & TOURS, INC., petitioner, vs. COURT OF APPEALS and KOREAN AIRLINES,

respondents.

Same; Same; Same; Same; Same; Foreign Corporations; Resident Agents; Being a resident agent of a foreign

corporation does not mean that he is authorized to execute the requisite certification against forum shopping—while a
resident agent may be aware of actions filed against his principal (a foreign corporation doing business in the
Philippines), he may not be aware of actions initiated by its principal, whether in the Philippines against a domestic
corporation or private individual, or in the country where such corporation was organized and registered, against a
Philippine registered corporation or a Filipino citizen.—While Atty. Aguinaldo is the resident agent of the respondent
in the Philippines, this does not mean that he is authorized to execute the requisite certification against forum
shopping. Under Section 127, in relation to Section 128 of the Corporation Code, the authority of the resident agent of
a foreign corporation with license to do business in the Philippines is to receive, for and in behalf of the foreign
corporation, services and other legal processes in all actions and other legal proceedings against such corporation,
thus: * * * Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-forum
shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent may be aware
of actions filed against his principal (a foreign corporation doing business in the Philippines), such resident may not be
aware of actions initiated by its principal, whether in the Philippines against a domestic corporation or private
individual, or in the country where such corporation was organized and registered, against a Philippine registered
corporation or a Filipino citizen.

Same; Evidence; Judicial Notice; The principal guide in determining what facts may be assumed to be judicially
known is that of notoriety.—Generally speaking, matters of judicial notice have three material requisites: (1) the
matter must be one of common and general knowledge; (2) it must be well and authoritatively settled and not doubtful
or uncertain; and (3) it must be known to be within the limits of the jurisdiction of the court. The principal guide in
determining what facts may be assumed to be judicially known is that of notoriety. Hence, it can be said that judicial
notice is limited to facts evidenced by public records and facts of general notoriety. Moreover, a judicially noticed fact
must be one not subject to a reasonable dispute in that it is either: (1) generally known within the territorial
jurisdiction of the trial court; or (2) capable of accurate and ready determination by resorting to sources whose
accuracy cannot reasonably be questionable.

Same; Same; Same; A court cannot take judicial notice of any fact which, in part, is dependent on the existence or
non-existence of a fact which the court has no constructive knowledge.—Things of “common knowledge,” of which
courts take judicial matters coming to the knowledge of men generally in the course of the ordinary experiences of
life, or they may be matters which are generally accepted by mankind as true and are capable of ready and
unquestioned demonstration. Thus, facts which are universally known, and which may be found in encyclopedias,
dictionaries or other publications, are judicially noticed, provided, they are of such universal notoriety and so
generally understood that they may be regarded as forming part of the common knowledge of every person. As the
common knowledge of man ranges far and wide, a wide variety of particular facts have been judicially noticed as
being matters of common knowledge. But a court cannot take judicial notice of any fact which, in part, is dependent
on the existence or non-existence of a fact of which the court has no constructive knowledge.

Same; Same; Same; Telecommunications; Teleconferencing; Types; Words and Phrases; 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, bringing people together under one roof even though they are separated by
hundreds of miles.—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.

Same; Same; Same; Same; Same; Corporation Law; In the Philippines, teleconferencing and videoconferencing of

members of the board of directors of private corporations is a reality in light of R.A. No. 8792.—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.

G.R. No. 174353. September 10, 2014.*

NESTOR CHING and ANDREW WELLINGTON, petitioners, vs. SUBIC BAY GOLF AND
COUNTRY CLUB, INC., HU HO HSIU LIEN alias SUSAN HU, HU TSUNG CHIEH alias JACK HU,
HU TSUNG HUI, HU TSUNG TZU and REYNALD R. SUAREZ, respondents.

Corporation Law; Derivative Suits; It is settled that a stockholder’s right to institute a derivative suit is not based
on any express provision of the Corporation Code, or even the Securities Regulation Code, but is impliedly
recognized when the said laws make corporate directors or officers liable for damages suffered by the corporation
and its stockholders for violation of their fiduciary duties.—As minority stockholders, petitioners do not have any
statutory right to override the business judgments of SBGCCI’s officers and Board of Directors on the ground of the
latter’s alleged lack of qualification to manage a golf course.  Contrary to the arguments of petitioners, Presidential
Decree No. 902-A, which is entitled REORGANIZATION OF THE SECURITIES AND EXCHANGE
COMMISSION WITH ADDITIONAL POWERS AND PLACING THE SAID AGENCY UNDER THE
ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE PRESIDENT, does not grant minority stockholders
a cause of action against waste and diversion by the Board of Directors, but merely identifies the jurisdiction of the
SEC over actions already authorized by law or jurisprudence. It is settled that a stockholder’s right to institute a
derivative suit is not based on any express provision of the Corporation Code, or even the Securities Regulation Code,
but is impliedly recognized when the said laws make corporate directors or officers liable for damages suffered by the
corporation and its stockholders for violation of their fiduciary duties.

Same; Same; The legal standing of minority stockholders to bring derivative suits is not a statutory right, there being
no provision in the Corporation Code or related statutes authorizing the same, but is instead a product of
jurisprudence based on equity.—We should take note that while there were allegations in the Complaint of fraud in
their subscription agreements, such as the misrepresentation of the Articles of Incorporation, petitioners do not pray
for the rescission of their subscription or seek to avail of their appraisal rights. Instead, they ask that defendants be
enjoined from managing the corporation and to pay damages for their mismanagement. Petitioners’ only possible
cause of action as minority stockholders against the actions of the Board of Directors is the common law right to file a
derivative suit. The legal standing of minority stockholders to bring derivative suits is not a statutory right, there being
no provision in the Corporation Code or related statutes authorizing the same, but is instead a product of jurisprudence
based on equity. However, a derivative suit cannot prosper without first complying with the legal requisites for its
institution.

Same; Same; Even if petitioners thought it was futile to exhaust intra-corporate remedies, they should have stated the
same in the Complaint and specified the reasons for such opinion.—We find that petitioners failed to state with
particularity in the Complaint that they had exerted all reasonable efforts to exhaust all remedies available under the
articles of incorporation, bylaws, and laws or rules governing the corporation to obtain the relief they desire. The
Complaint contained no allegation whatsoever of any effort to avail of intra-corporate remedies. Indeed, even if
petitioners thought it was futile to exhaust intra-corporate remedies, they should have stated the same in the Complaint
and specified the reasons for such opinion. Failure to do so allows the RTC to dismiss the Complaint, even motu
proprio, in accordance with the Interim Rules. The requirement of this allegation in the Complaint is not a useless
formality which may be disregarded at will.

G.R. No. 172843. September 24, 2014.*

 
ALFREDO L. VILLAMOR, JR., petitioner, vs. JOHN S. UMALE, in substitution of HERNANDO F.
BALMORES, respondent.
G.R. No. 172881. September 24, 2014.*
 
RODIVAL E. REYES, HANS M. PALMA and DOROTEO M. PANGILINAN,
petitioners, vs. HERNANDO F. BALMORES, respondent.
Corporation Law; Derivative Suits; Words and Phrases; A derivative suit is an action filed by stockholders to enforce
a corporate action.—A derivative suit is an action filed by stockholders to enforce a corporate action. It is an
exception to the general rule that the corporation’s power to sue is exercised only by the board of directors or trustees.
Individual stockholders may be allowed to sue on behalf of the corporation whenever the directors or officers of the
corporation refuse to sue to vindicate the rights of the corporation or are the ones to be sued and are in control of the
corporation. It is allowed when the “directors [or officers] are guilty of breach of . . . trust, [and] not of mere error of
judgment.” In derivative suits, the real party-in-interest is the corporation, and the suing stockholder is a mere nominal
party.

Same; Same; Five Requisites for Filing a Derivative Suit.—Rule 8, Section 1 of the Interim Rules of Procedure for
Intra-Corporate Controversies (Interim Rules) provides the five (5) requisites for filing derivative suits:  SECTION 1.
Derivative action.—A stockholder or member may bring an action in the name of a corporation or association, as the
case may be, provided, that: (1) He was a stockholder or member at the time the acts or transactions subject of the
action occurred and at the time the action was filed; (2) He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under the articles of incorporation, bylaws, laws or
rules governing the corporation or partnership to obtain the relief he desires; (3) No appraisal rights are available for
the act or acts complained of; and (4) The suit is not a nuisance or harassment suit. In case of nuisance or harassment
suit, the court shall forthwith dismiss the case. The fifth requisite for filing derivative suits, while not included in the
enumeration, is implied in the first paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the
stockholder or member must be “in the name of [the] corporation or association. . . .” This requirement has already
been settled in jurisprudence.

Same; Same; Among the basic requirements for a derivative suit to prosper is that the minority shareholder who
is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is suing on
a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to
join him.—In Western Institute of Technology, Inc., et al. v. Salas, et al., 278 SCRA 216 (1997), this court said that
“[a]mong the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and
on behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause
of action on behalf of the corporation and all other shareholders similarly situated who wish to join [him].”
This principle on derivative suits has been repeated in, among other cases,  Tam Wing Tak v. Hon. Makasiar and De
Guia, 350 SCRA 475 (2001), and in Chua v. Court of Appeals, 443 SCRA 259 (2004), which was cited in Hi-Yield
Realty, Incorporated v. Court of Appeals, 590 SCRA 548 (2009).

Same; Same; Indispensable Parties; Not only is the corporation an indispensable party, but it is also the present rule
that it must be served with process.—This court explained in Asset Privatization Trust v. Court of Appeals, 300 SCRA
579 (1998), why it is a condition sine qua non that the corporation be impleaded as party in derivative suits. Thus: Not
only is the corporation an indispensible party, but it is also the present rule that it must be served with process. The
reason given is that 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 a 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 judicata against it.

Same; Same; Reasons for Disallowing a Direct Individual Suit.—In the same case, this court enumerated the reasons
for disallowing a direct individual suit. The reasons given for not allowing direct individual suit are: (1) . . . “the
universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate
property; that both of these are in the corporation itself for the benefit of the stockholders.” In other words, to allow
shareholders to sue separately would conflict with the separate corporate entity principle; (2) . . . that the prior rights
of the creditors may be prejudiced. Thus, our Supreme Court held in the case of Evangelista v. Santos, that ‘the
stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and
the distribution among them of part of the corporate assets before the dissolution of the corporation and the liquidation
of its debts and liabilities, something which cannot be legally done in view of Section 16 of the Corporation Law. . .’;
(3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and (5) it would involve confusion in ascertaining the effect of
partial recovery by an individual on the damages recoverable by the corporation for the same act. While it is true that
the basis for allowing stockholders to file derivative suits on behalf of corporations is based on equity, the above legal
requisites for its filing must necessarily be complied with for its institution.

Same; Same; Appraisal Right; An allegation that appraisal rights were not available for the acts complained of is
another requisite for filing derivative suits under Rule 8, Section 1(3) of the Interim Rules.—An allegation that
appraisal rights were not available for the acts complained of is another requisite for filing derivative suits under Rule
8, Section 1(3) of the Interim Rules. Section 81 of the Corporation Code provides the instances of appraisal right:
SEC. 81. Instances of appraisal right.—Any stockholder of a corporation shall have the right to dissent and demand
payment of the fair value of his shares in the following instances: 1. In case any amendment to the articles of
incorporation has the effect of changing or restricting the rights of any stockholders or class of shares, or of
authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or
shortening the term of corporate existence; 2. In case of sale, lease, exchange, transfer, mortgage, pledge or other
disposition of all or substantially all of the corporate property and assets as provided in this Code; and 3. In case of
merger or consolidation. Section 82 of the Corporation Code provides that the stockholder may exercise the right if he
or she voted against the proposed corporate action and if he made a written demand for payment on the corporation
within thirty (30) days after the date of voting.

Same; Same; Individual suits are filed when the cause of action belongs to the individual stockholder personally, and
not to the stockholders as a group or to the corporation, e.g., denial of right to inspection and denial of dividends to a
stockholder.—Individual suits are filed when the cause of action belongs to the individual stockholder personally, and
not to the stockholders as a group or to the corporation, e.g., denial of right to inspection and denial of dividends to a
stockholder. If the cause of action belongs to a group of stockholders, such as when the rights violated belong to
preferred stockholders, a class or representative suit may be filed to protect the stockholders in the group.
 Same; Same; The essence of a derivative suit is that it must be filed on behalf of the corporation .—The essence
of a derivative suit is that it must be filed on behalf of the corporation. This is because the cause of action belongs,
primarily, to the corporation. The stockholder who sues on behalf of a corporation is merely a nominal party.
Same; Same; Separate Legal Personality; Corporations have a personality that is separate and distinct from
their stockholders and directors.—Corporations have a personality that is separate and distinct from their stockholders
and directors. A wrong to the corporation does not necessarily create an individual cause of action. “A cause of action
is the act or omission by which a party violates the right of another.” A cause of action must pertain to complainant if
he or she is to be entitled to the reliefs sought.
Same; Same; Receivership; A corporation may be placed under receivership, or management committees may
be created to preserve properties involved in a suit and to protect the rights of the parties under the control and
supervision of the court.—A corporation may be placed under receivership, or management committees may be
created to preserve properties involved in a suit and to protect the rights of the parties under the control and
supervision of the court. Management committees and receivers are appointed when the corporation is in imminent
danger of “(1) [d]issipation, loss, wastage or destruction of assets or other properties; and (2) [p]aralysation of its
business operations that may be prejudicial to the interest of the minority stockholders, parties-litigants, or the general
public.”
Same; Same; Same; Courts; Regional Trial Courts; The Regional Trial Court (RTC) has original and exclusive
jurisdiction to hear and decide intra-corporate controversies, including incidents of such controversies.—The Court
of Appeals has no power to appoint a receiver or management committee. The Regional Trial Court has original and
exclusive jurisdiction to hear and decide intra-corporate controversies, including incidents of such controversies.
These incidents include applications for the appointment of receivers or management committees. “The receiver and
members of the management committee . . . are considered officers of the court and shall be under its control and
supervision.” They are required to report to the court on the status of the corporation within sixty (60) days from their
appointment and every three (3) months after.