MERCANTILE LAW REVIEW || Corporation Law 1

Cases 17-37 (Except: 19, 22, 24, 29)

RESIDENCE OF A CORPORATION
17.
HYATT ELEVATORS INC. vs. GOLDSTAR ELEVATORS PHILS.
G.R. No. 161026 October 24, 2005 J. PANGANIBAN
Jurisprudence has settled that the place where the principal office
of a corporation is located, as stated in the articles, indeed
establishes its residence.
YES. Although the Rules of Court do not provide that
when the plaintiff is a corporation, the complaint should be filed
in the location of its principal office as indicated in its articles of
incorporation, jurisprudence has, however, settled that the place
where the principal office of a corporation is located, as stated in
the articles, indeed establishes its residence. This ruling is
important in determining the venue of an action by or against a
corporation.

FACTS:

Petitioner Hyatt and Respondent Goldstar are both

engaged in the business of importing, installing and maintaining
elevators and escalators. Hyatt filed a complaint for unfair trade
practice and damages against LG Elevators and Goldstar
Elevators claiming to be the sole distributor of LG elevators and
escalators.

Goldstar then filed a motion to dismiss the amended

complaint on the grounds that venue was improperly laid. The
case was originally filed in Mandaluyong City where none of
Hyatt, LG or Goldstar resided. The RTC denied the motion. The
CA dismissed the case and held that Makati was the principal
place of business of both respondent and petitioner, as stated in
the latter’s Articles of Incorporation, that place was controlling
for purposes of determining the proper venue.

ISSUE:

Whether the “residence” of the corporation is the same

one as stated in the Articles of Incorporation.

HELD:
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Cases 17-37 (Except: 19, 22, 24, 29)

CLAIM FOR MORAL DAMAGES
18.
ABS-CBN BROADCASTING CORPORATION vs. HONORABLE
COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA
PRODUCTION, INC., and VICENTE DEL ROSARIO
G.R. No. 128690 January 21, 1999 CJ Davide
RBS asserts that it was entitled to the cost of
advertisement for the canceled showing of the film “Maging Sino
Ka Man” and moral damages for harassing and prejudicing its
business as they operate nationwide and viewers expected
whatever they announce or advertise.
ISSUE:

Moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer. The award is not meant to
enrich the complainant at the expense of the defendant, but to
enable the injured party to obtain means, diversion, or
amusements that will serve to obviate then moral suffering he has
undergone. It is aimed at the restoration, within the limits of the
possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted. Trial courts must then
guard against the award of exorbitant damages; they should
exercise balanced restrained and measured objectivity to avoid
suspicion that it was due to passion, prejudice, or corruption on
the part of the trial court.  Manero and Mambulao Lumber vs PNB is a mere obiter dictum
FACTS:
Whether or not a corporation, like RBS, is entitled to an
award of moral damages upon grounds of debased reputation.
RULING:
NO. The award of moral damages cannot be granted in
favor of a corporation because, being an artificial person and
having existence only in legal contemplation, it has no feelings,
no emotions, no senses, It cannot, therefore, experience physical
suffering and mental anguish, which call be experienced only by
one having a nervous system. No moral damages can be awarded
to a juridical person. The statement in the case of People vs
hence it is not binding as a jurisprudence.

When ABS-CBN and Viva through Mr. Vic del Rosario did
not come into an agreement with regard to the 104 films that will
be aired in ABS-CBN, Viva entered a contract with RBS instead
and allowed them to play the said films. When this information
came to ABS-CBN’s attention, it immediately filed an injunction
with the RTC to stop the airing of certain films, “Maging Sino Ka
Man” is one of those.

Through the course of the case and its pendency to the

court, Viva alongside with RBS filed a case against ABS-CBN
MERCANTILE LAW REVIEW || Corporation Law 3
Cases 17-37 (Except: 19, 22, 24, 29)

DOCTRINE OF APPARENT AUTHORITY TRUST FUND DOCTRINE

19. 20.
ADVANCE PAPER CORP., ET AL. vs. ARMA TRADERS CORP., DONNINA C. HALLEY vs. PRINTWELL, INC.
ET AL. G.R. No. 157549 May 30, 2011 J. BERSAMIN
G.R. No. 176897 December 11, 2013 J. BERSAMIN
The trust fund doctrine is not limited to reaching the stockholder’s
unpaid subscriptions. The scope of the doctrine when the
corporation is insolvent encompasses not only the capital stock,
but also other property and assets generally regarded in equity as
a trust fund for the payment of corporate debts. All assets and
property belonging to the corporation held in trust for the benefit
of creditors that were distributed or in the possession of the
stockholders, regardless of full payment of their subscriptions, may
be reached by the creditor in satisfaction of its claim.

FACTS:

The petitioner was an incorporator and original director

of Business Media Philippines, Inc. (BMPI). Printwell engaged in
commercial and industrial printing. BMPI commissioned
Printwell for the printing of the magazine Philippines, Inc. that
BMPI published and sold. For that purpose, Printwell extended
30-day credit accommodations to BMPI. BMPI placed with
Printwell several orders on credit, evidenced by invoices and
delivery receipts totalingP316,342.76. Considering that BMPI
paid onlyP25,000.00, Printwell sued BMPI for the collection of
the unpaid balance of P291,342.76 in the RTC.

Printwell amended the complaint in order to implead as

defendants all the original stockholders and incorporators to
recover on their unpaid subscriptions. The defendants filed a
consolidated answer, averring that they all had paid their
subscriptions in full and that BMPI had a separate personality
from those of its stockholders. To prove payment of their
MERCANTILE LAW REVIEW || Corporation Law 4
Cases 17-37 (Except: 19, 22, 24, 29)

subscriptions, the defendant stockholders submitted in evidence establish that the stockholders have not in good faith paid the
BMPI official receipt (OR) no. 217, OR no. 218, OR no. 220, OR no. par value of the stocks of the corporation.
221, OR no. 222, OR no. 223, and OR no. 227.

ISSUE:

Whether or not the Trust Fund doctrine will apply even

when the grounds therefor have not been satisfied.

RULING:

YES. The trust fund doctrine enunciates a –

xxx rule that the property of a corporation is a trust fund for the
payment of creditors, but such property can be called a trust
fund ‘only by way of analogy or metaphor.’ As between the
corporation itself and its creditors it is a simple debtor, and as
between its creditors and stockholders its assets are in equity a
fund for the payment of its debts.

The trust fund doctrine is not limited to reaching the

stockholder’s unpaid subscriptions. The scope of the doctrine
when the corporation is insolvent encompasses not only the
capital stock, but also other property and assets generally
regarded in equity as a trust fund for the payment of corporate
debts.

Also, under the trust fund doctrine, a corporation has no

legal capacity to release an original subscriber to its capital stock
from the obligation of paying for his shares, in whole or in part,
without a valuable consideration, or fraudulently, to the
prejudice of creditors. To make out a prima facie case in a suit
against stockholders of an insolvent corporation to compel them
to contribute to the payment of its debts by making good unpaid
balances upon their subscriptions, it is only necessary to
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
CAPITAL
21.
WILSON P. GAMBOA vs. FINANCE SECRETARY MARGARITO B.
TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND
COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT (PCGG)
GR No. 176579, June 28, 2011, J. CARPIO
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.
FACTS:
The Philippine Legislature enacted Act No. 3436 which
gave PLDT a franchise and engage in it telco business. GTE, an
American company and major stockholder of PLDT sold 26% of
the outstanding common shares of PLDT to PTIC. Later on, PHI
was incorporated by several persons including Gapud and
Campos, Jr. PHI acquired 111,415 shares of PTIC by viture of 3
Deeds of Assignment executed by PTIC stockholders Cojuangco
and Rivilla. In 1986, the shares of stock of PTIC were sequestered
by the PCGG. These shares of stock which constitute 46.125% of
the outstanding capital stock of PTIC were later declared by the
court to belong to the Republic of the Philippines. PLDT sold the
shares to First Pacific which actually was an indirect sale of 12
million shares or 6.3% of the outstanding common shares of
PLDT which increased the common shareholdings in PLDT to
about 81.47% which is a violation of Section 11, Article XII of the
Constitution which limits foreign ownership of the capital of a
public utility to not more than 40%.
ISSUE:
5
Whether or not the term “capital” in Section 11, Article
XII of the Constitution only refers to common shares.
HELD:
YES. The term “capital” only refers to common shares.
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.
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
MERCANTILE LAW REVIEW || Corporation Law 6
Cases 17-37 (Except: 19, 22, 24, 29)

Section 11, Article XII of the Constitution refers only to shares of BOARD OF DIRECTORS/POWER OF THE BOD
stock that can vote in the election of directors.
22.
VALLE VERDE COUNTRY CLUB, INC. vs. VICTOR AFRICA
G.R. No. 151969 September 4, 2009
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
23.
FILIPINAS PORT SERVICES INC. vs. VICTORIANO S. GO, ET AL
G.R. No. 161886 March 16, 2007 J. GARCIA
The determination of the necessity for additional offices and/or
positions in a corporation, if authorized under the by-laws is a
management prerogative which the courts are wont to review in
the absence of any proof that such prerogative was exercised in
bad faith or with malice. Similarly, the Board of Directors may
create an executive committee or other board committees as part
of its management prerogative provided that such board
committees do not function as an executive committee as
contemplated by Section 35 of the Corporation Code, in which case
authority in the by-laws is required. Questions of policy or of
management are left solely to the honest decision of the board as
the business manager of the corporation, and the court is without
authority to substitute its judgment for that of the board, and as
long as it acts in good faith and in the exercise of honest judgment
in the interest of the corporation, its orders are not reviewable by
the courts.
FACTS:
Eliodoro C. Cruz (Cruz) was president of Filipinas Port
Services, Inc. (Filport) since 1968. He lost his bid for re-election
in 1991. A year thereafter, Cruz wrote a letter to the
corporation’s Board of Directors questioning the creation of six
(6) positions and the election of certain members of the board
thereto. It would seem that Cruz was unhappy with the Board’s
action or actions on the matter, for a year later he filed a petition
with the Securities and Exchange Commission (SEC), joined by
Mindanao Terminal and Brokerage Services, Inc. (Minterbro) as
co-petitioner, what he calls a “derivative suit” supposedly in
representation of Filport and its stockholders.
7
It is Cruz’s contention that the creation of an executive
committee is not provided for in the by-laws and the increase in
the emoluments of several members of the board is greatly
disproportionate to the volume and character of work of said
directors. Further, he questions the re-creation of the positions
of Assistant Vice President for corporate planning, operations,
finance and administration and additional positions where those
holding said offices are not doing any work but earning
compensation. These acts of mismanagement according to Cruz
are detrimental to the corporation and its stockholders and so
the board must account for the amounts incurred in creating
these positions and made to pay damages.
This intra-corporate case was in hibernation until the
enactment on July 19, 2000 of the Securities Regulation Code. It
was transferred from the SEC to the Manila Regional Trial Court
(RTC) (sitting as a corporate court) and eventually landing in the
Davao RTC. Though the RTC found that Filport’s Board of
Directors had the power to create positions not provided for in
the by-laws and the increases in salaries are reasonable,
nevertheless it ordered the directors holding the positions of
Assistant Vice President for Corporate Planning, Special
Assistant to the President and Special Assistant to the Board
Chairman to refund to the corporation the salaries they have
received as such officers “considering that Filipinas Port Services
is not a big corporation requiring multiple executive positions”
and that said positions “were just created for accommodation.”
Upon appeal to the Court of Appeals (CA), the RTC
decision was reversed and set aside and thus the so called
derivative suit was dismissed.
ISSUE:
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
Whether or not the creation of an executive committee
and other offices in the corporation with corresponding
remunerations are within the powers of the Board of Directors.
HELD:
YES. The acts are within the powers of the Board of
Directors.
The governing body of a corporation is its board of
directors. Section 23 of the Corporation Code explicitly provides
that unless otherwise provided therein, the corporate powers of
all corporations formed under the Code shall be exercised, all
business conducted and all property of the corporation shall be
controlled and held by a board of directors. Thus, with the
exception only of some powers expressly granted by law to
stockholders (or members, in case of non-stock corporations),
the board of directors (or trustees, in case of non-stock
corporations) has the sole authority to determine policies, enter
into contracts, and conduct the ordinary business of the
corporation within the scope of its charter, i.e., its articles of
incorporation, by-laws and relevant provisions of law. Verily, the
authority of the board of directors is restricted to the
management of the regular business affairs of the corporation,
unless more extensive power is expressly conferred.
The raison d’etre behind the conferment of corporate
powers on the board of directors is not lost on the Court. Indeed,
the concentration in the board of the powers of control of
corporate business and of appointment of corporate officers and
managers is necessary for efficiency in any large organization.
Stockholders are too numerous, scattered and unfamiliar with
the business of a corporation to conduct its business directly.
And so the plan of corporate organization is for the stockholders
8
to choose the directors who shall control and supervise the
conduct of corporate business.
In the present case, the board’s creation of the positions
of Assistant Vice Presidents for Corporate Planning, Operations,
Finance and Administration, and those of the Special Assistants
to the President and the Board Chairman, was in accordance with
the regular business operations of Filport as it is authorized to
do so by the corporation’s by-laws, pursuant to the Corporation
Code.
The election of officers of a corporation is provided for
under Section 25 of the Code which reads:
Sec. 25. Corporate officers, quorum. – Immediately after
their election, the directors of a corporation must
formally organize by the election of a president, who
shall be a director, a treasurer who may or may not be a
director, a secretary who shall be a resident and citizen
of the Philippines, and such other officers as may be
provided for in the by-laws.
In turn, the amended Bylaws of Filport provides the
following: Officers of the corporation, as provided for by the by-
laws, shall be elected by the board of directors at their first
meeting after the election of Directors.
The officers of the corporation shall be a Chairman of the
Board, President, a Vice-President, a Secretary, a Treasurer, a
General Manager and such other officers as the Board of
Directors may from time to time provide, and these officers shall
be elected to hold office until their successors are elected and
qualified.
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Cases 17-37 (Except: 19, 22, 24, 29)

Likewise, the fixing of the corresponding remuneration for the
positions in question is provided for in the same by-laws of the
corporation, viz: xxx The Board of Directors shall fix the
compensation of the officers and agents of the corporation.
Unfortunately, the bylaws of the corporation are silent as
to the creation by its board of directors of an executive
committee. Under Section 35 of the Corporation Code, the
creation of an executive committee must be provided for in the
bylaws of the corporation.
virtually precluded from suing to declare such acts of the board
as invalid or illegal. And it makes no difference that he sues in
behalf of himself and of the other stockholders. Indeed, as his
voice was not heard in protest when he was still Filport’s
president, raising a hue and cry only now leads to the inevitable
conclusion that he did so out of spite and resentment for his non-
re-election as president of the corporation.

Notwithstanding the silence of Filport’s bylaws on the

matter, we cannot rule that the creation of the executive
committee by the board of directors is illegal or unlawful. One
reason is the absence of a showing as to the true nature and
functions of said executive committee considering that the
“executive committee,” referred to in Section 35 of the
Corporation Code which is as powerful as the board of directors
and in effect acting for the board itself, should be distinguished
from other committees which are within the competency of the
board to create at anytime and whose actions require ratification
and confirmation by the board. Another reason is that,
ratiocinated by both the two (2) courts below, the Board of
Directors has the power to create positions not provided for in
Filport’s bylaws since the board is the corporation’s governing
body, clearly upholding the power of its board to exercise its
prerogatives in managing the business affairs of the corporation.

As well, it may not be amiss to point out that, as testified

to and admitted by petitioner Cruz himself, it was during his
incumbency as Filport president that the executive committee in
question was created, and that he was even the one who moved
for the creation of the positions of the AVPs for Operations,
Finance and Administration. By his acquiescence and/or
ratification of the creation of the aforesaid offices, Cruz is
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
CORPORATE OFFICER
24.
MATLING IND’L and COMMERCIAL CORP., ET AL. vs.
RICARDO R. COROS
G.R. No. 157802 October 13, 2010
10
25.
MARC II MARKETING, INC. vs. ALFREDO M. JOSON
G.R. No. 171993 December 12, 2011 J. PEREZ
FACTS:
Respondent, Alfredo M. Joson was the General Manager
of Marc II Marketing, Inc. Before Marc II Marketing, Inc. was
officially incorporated, Joson has already been engaged as the
General Manager of Marc Marketing, Inc. by its President, Lucia
Joson.
However, the corporation decided to stop and cease its
operation wherein the respondent’s (Alferdo Joson) services
were terminated. Feeling aggrieved, Joson filed a complaint
before the Labor Arbiter for Reinstatement and money claim,
where the Labor Arbiter ruled in favor of him.
On the other hand, the NLRC reversed the decision of the
Labor Arbiter, saying that the latter has no jurisdiction over the
subject matter because Joson is a corporate officer of Marc II
Marketing, Inc.
ISSUE:
Whether Joson is a corporate officer, in which case,
jurisdiction falls within the RTC, or he is not a corporate officer
and jurisdiction over such case lies before the Labor Arbiter.
HELD:
According to Section 25, of the Corporation Code of the
Philippines, corporate officers enumerated in the by-laws are the
exclusive officers of the corporation. The Board has no power to
create other officers without amending its by-laws.
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
However, the Board may create APPOINTIVE POSITIONS
other than the positions of corporate officers, but such person os
not considered a corporate officer under Section 25 of the
Corporation Code.
Said appointive positions are not allowed to exercise functions of
corporate officers EXCEPT those functions delegated to them.
According to Article 27 of the Labor Code, it is the Labor
Arbiter who has original and exclusive jurisdiction over cases
involving termination or dismissal of employees. In case the
person terminated is a corporate officer, jurisdiction falls within
the RTC.
In the case at bar, Alfredo Joson was not a corporate officer
because his position as General Manager was not mentioned in
the by-laws of Marc II Marketing, Inc. Thus, Joson can only be
regarded as an emplpoyee of the said corpotation. Therefore,
jurisdiction lies before the Labor Arbiter.
11
26.
LESLIE OKOL vs. SLIMMERS WORLD INTERNATIONAL,
BEHAVIOR MODIFICATIONS, INC., and RONALD JOSEPH MOY
G.R. No. 160146 December 12, 2011 J. CARPIO
A corporate officer’s dismissal is always a corporate act, or a intra-
corporate controversy which arises between a stockholder and a
corporation.
FACTS:
Leslie Okol from being a management trainee in
Slimmers World she rose up the ranks and became the vice
president up to the time of her unfortunate dismissal due to the
alleged undervaluation of certain imported gym equipments
which happened to be named under Leslie Okol’s name together
with two (2) custom brokers that resulted to the seizure of said
equipments by the Bureau of Customs.
Because of her dismissal Okol filed a complaint with the
Arbitration branch of the NLRC against Slimmers World.
The respondent Slimmers World filed a motion to
dismiss on the ground that the NLRC had no jurisdiction over the
subject matter of the complaint.
The labor arbiter granted the motion to dismiss and
ruled that Okol was the Vice President of Slimmers World at the
time of her dismissal. Since it involved a corporate officer, the
dispute was an intra-corporate controversy falling outside the
jurisdiction of the Arbitration branch.
Petitioner Okol contends that even as vice president the
work she performed conforms to that of an employee rather than
a corporate officer. Mere title or designation in a corporation will
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
not by itself determine the existence of an employee-employer
relationship.
Respondents on the other hand presented the General
Information Sheet (GIS) and director’s affidavit that petitioner
was an officer. Respondent also assert that petitioner was not
only an officer but also a stockholder and director; which facts
provide further basis that petitioner’s separation from Slimmers
World does not come under NLRC’s jurisdiction.
ISSUE:
Whether petitioner was an employee or a corporate
officer of Slimmers World.
HELD:
From the documents submitted by respondents;
petitioner was a director and officer of Slimmers World. The
charges filed by the petitioner against respondents fall squarely
within the ambit of inta-corporate disputes.
In a number of cases the court ruled that a corporate
officer’s dismissal is always a corporate act, or a intra-corporate
controversy which arises between a stockholder and a
corporation. The question of remuneration involving a
stockholder and officer, not a mere employee, is not a simple
labor problem but a matter that comes within the area of
corporate affairs and management and is a corporate
controversy in contemplation of the Corporation Code.
12
27.
GLORIA V. GOMEZ vs. PNOC DEVELOPMENT AND
MANAGEMENT CORP. (PDMC)
G.R. No. 174044 November 27, 2009 J. ABAD
FACTS:
Petitioner Gloria V. Gomez used to work as Manager of
the Legal Department of Petron Corporation,Then a government-
owned corporation. With Petron’s privatization, she availed of
the company’s early retirement program and left that
organization on April 30,1994. On the following day, May 1,1994,
however, Filoil Refinery Corporation (Filoil), also a government-
owned corporation, appointed her as its Corporate Secretary and
Legal Counsel, with the same managerial rank, compensation,
and benefits taht she used to enjoy at Petron. However, the
privatization did not materialize so Gomez continued to serve as
corporate secretary of respondent PDMC. On September
23,1996. Its president re-hired her as administrator and legal
counsel of the company.
On March 29,1999 the new board of directors of
respondent PDMC removed petitioner Gomez as corporate
secretary. Further, at the board’s meeting on October 21,1999
the board questioned her continued employment as
administrator. In answer, she presented the former president’s
May 24,1998 letter that extended her term. Dissatisfied with this,
the board sought the advice of its legal department, which
expressed the view that Gomez’s term extension was an ultra
vires act of the former president. It readoned that, since her
position was functionally that of a vice-president or general
manager, her term could be extended under the company’s by-
laws only with the approval of the board. The legal department
held that her “de facto” tenure could be legally put to an end.
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Cases 17-37 (Except: 19, 22, 24, 29)
Petitioner Gomez for her part conceded taht as corporate
secretary, she served only as a corporate officer. But, when they
named her administrator, she became a regular managerial
employee. Consequently, the respondent PDMC’s board did not
have to approve either her appointment as such or the extension
of her term in 1998.
ISSUE:
Whether or not Gomez is an ordinary employee and her
complaint is within the jurisdiction of the NLRC.
HELD:
YES. The relationship of a person to a corporation,
whether as officer or agent or employee, is not determined by
the nature of the services he performs but by the incidents of his
relationship with the corporation as theu acyually exist. That the
employee served concurrently as corporate secretary for a time
is immaterial. A corporation is not prohibited from hiring a
corporate officer to perform services under circumstances which
will make him an employee. Indeed, it is possible for one to have
a dual role of officer and employee. NLRC has jurisdiction over a
complaint filed by one who served both as corporate officer and
employee, when the money claims were made as an employee
and not as a corporate officer.
13
LIABILITY OF CORPORATE OFFICER
28.
RODOLFO LABORTE and PHILIPPINE TOURISM AUTHORITY
vs.
PAGSANJAN TOURISM CONSUMERS COOPERATIVE and
LELIZA S. FABRICIO, ET AL.
G.R. No. 183860 January 15, 2014 J. REYES
The officer cannot be held personally liable with the
corporation, whether civilly or otherwise, for the consequences of
his acts, if acted for and in behalf of the corporation, within the
scope of his authority and in good faith.
FACTS:
Petitioner Philippine Tourism Authority (PTA) is a
government-owned and controlled corporation that administers
tourism zones, on the other hand, respondent Pagsanjan Tourism
Consumers’ Cooperative (PTCC) is a cooperative organized since
1988 under Republic Act No. 6938, or the "Cooperative Code of
the Philippines." The other individual respondents are PTCC
employees, consisting of restaurant staff and boatmen at the PTA
Complex.
In 1989, in order to help the PTCC as a cooperative, the
PTA allowed it to operate a restaurant business located at the
main building of the PTA Complex and the boat ride services to
ferry guests and tourists to and from the Pagsanjan Falls, paying
a certain percentage of its earnings to the PTA.
In 1993, the PTA implemented a reorganization and
reshuffling in its top level management. Herein petitioner
Rodolfo Laborte (Laborte) was designated as Area Manager,
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Cases 17-37 (Except: 19, 22, 24, 29)
CALABARZON area with direct supervision over the PTA
Complex and other entities at the Southern Luzon.
On October 22, 1993, Laborte served a written notice
upon the respondents to cease the operations of the latter’s
restaurant business and boat ride services in view of the
rehabilitation, facelifting and upgrading project of the PTA
Complex. Consequently, on November 9, 1993, the PTCC filed
with the RTC, Branch 28, Santa Cruz, Laguna a Complaint for
Prohibition, Injunction and Damages with Temporary
Restraining Order (TRO) and Preliminary Injunction against
Laborte.
In an Order dated November 11, 1993, the trial court
issued the TRO prayed for, prohibiting Laborte from (a) causing
the PTCC to cease operations; (b) doing the threatened act of
closing the operation of the PTCC’s restaurant and other
activities; (c) evicting the PTCC’s restaurant from the main
building of the PTA Complex; and (d) demolishing the said
building.
ISSUE:
Whether or not petitioner Laborte can be held personally
liable with the corporation while acting in his official and
personal capacity as corporate officer.
HELD:
NO. Laborte cannot be held personally liable as he was
simply implementing the lawful order of the PTA management.
The PTA is a government owned and controlled
corporation which was mandated to administer tourism zones.
Based on this mandate, it was the PTA’s obligation to adopt a
14
comprehensive program and project to rehabilitate and upgrade
the facilities of the PTA Complex as shown in Annexes "H-2" to
"H-4" of the petition. The Court finds that there was indeed a
renovation of the Pagsanjan Administration Complex which was
sanctioned by the PTA main office; and such renovation was
done in good faith in performance of its mandated duties as
tourism administrator. In the exercise of its management
prerogative to determine what is best for the said agency, the
PTA had the right to terminate at any moment the PTCC’s
operations of the restaurant and the boat ride services since the
PTCC has no contract, concession or franchise from the PTA to
operate the above-mentioned businesses. As shown by the
records, the operation of the restaurant and the boat ride
services was merely tolerated, in order to extend financial
assistance to its PTA employee-members who are members of
the then fledging PTCC.
The respondents failed to show any contract, concession
agreement or franchise to operate the restaurant and boat ride
services. While the PTCC has been operating the restaurant and
boat ride services for almost ten (10) years until its closure, the
same was by mere tolerance of the PTA. In the consolidated case
of Phil. Ports Authority v. Pier 8 Arrastre & Stevedoring Services,
Inc., the Court upheld the authority of government agencies to
terminate at any time hold-over permits. Thus, considering that
the PTCC’s operation of the restaurant and the boat ride services
was by mere tolerance, the PTA can, at any time, terminate such
operation.
With respect to Laborte's liability in his official and
personal capacity, the Court finds that Laborte was simply
implementing the lawful order of the PTA Management. As a
general rule the officer cannot be held personally liable with the
corporation, whether civilly or otherwise, for the consequences
MERCANTILE LAW REVIEW || Corporation Law 15
Cases 17-37 (Except: 19, 22, 24, 29)

of his acts, if acted for and in behalf of the corporation, within the 29.
scope of his authority and in good faith. MAM REALTY DEVELOPMENT CORPORATION vs. NLRC
314 Phil. 838 (1995)
MERCANTILE LAW REVIEW || Corporation Law 16
Cases 17-37 (Except: 19, 22, 24, 29)

30. theirs but the direct accountabilities of the corporation they

HARPOON MARINE SERVICES, INC., ET AL. vs. FERNAN H. represent. As such, they should not be generally held jointly and
FRANCISCO solidarily liable with the corporation. The rule is grounded on
G.R. No. 167751 March 2, 2011 the theory that a corporation has a legal personality separate and
distinct from the persons comprising it. To warrant the piercing
FACTS: of the veil of corporate fiction, the officers bad faith or
wrongdoing must be established clearly and convincingly as bad
Petitioner Harpoon originally hired the respondent, faith is never presumed.
Hernan Francisco in 1992 as yard supervisor. Sometime in 1998,
respondent left his job for employment elsewhere but was
rehired by Harpoon a year after. On June 15, 2001, co-petitioner
and President of Harpoon, President Rosit, informed Francisco
that the company could no longer afford to pay his salary and
that he would be paid his separation pay and accrued
commissions. Respondent nonetheless continued to report fork
until he was barred from entering the company premises.
Relying on the promises of Rosit, respondent went to the office to
receive his separation pay and commission but Rosit offered only
his separation pay. Respondent refused to accept the offer but
instead filed a illegal dismissal case against Harpoon. The lower
court held that the dismissal is illegal and that President Rosit is
solidarily liable with Harpoon.

ISSE:

Whether or not the president of Harpoon, is solidarily

liable with Harpoon for illegal dismissal of Francisco.

HELD:

Although the Supreme Court find no error on the part of

NLRC and CA in declaring the dismissal of respondent as illegal.
The court is not in accord with the ruling that petitioner Rosit
should be solidarily liable with petitioner Harpoon. Obligations
incurred by corporate officers acting as corporate agents are not
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
31.
SPI TECHNOLOGIES, INC. and LEA VILLANUEVA vs. VICTORIA
K. MAPUA
G.R. No. 191154 April 7, 2014 J. REYES
Personal liability of corporate directors, trustees or officers
attaches only when: (a) they assent to a patently unlawful act of
the corporation, or when they are guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders
or other persons; (b) they consent to the issuance of watered down
stocks or when, having knowledge of such issuance, do not
forthwith file with the corporate secretary their written objection;
(c) they agree to hold themselves personally and solidarily liable
with the corporation; or (d) they are made by specific provision of
law personally answerable for their corporate action.
FACTS:
In 2003, Victoria K. Mapua (Mapua) was hired by SPI
Technologies, Inc. (SPI) as its Corporate Development’s
Research/Business Intelligence Unit Head and Manager. In
August 2006, then Peter Maquera (Maquera), Vice President and
Corporate Development Head, hired Elizabeth Nolan (Nolan) as
Mapua’s supervisor.
On November 13, 2006, upon retrieving lost data from
the hard disk of Mapua’s laptop, Nolan informed her that she was
realigning Mapua’s position to become subordinate of co-
manager Sameer Raina (Raina) due to her missing a work
deadline. Nolan also disclosed that Mapua’s colleagues were
“demotivated” [sic] because she was “taking things easy while
they were working very hard,” and that she was “frequently
absent, under timing, and coming in late every time [Maquera]
goes on leave or on vacation.”
17
On November 16, 2006, Mapua obtained a summary of
her attendance for the last six months to prove the allegations of
Nolan against her were unfounded. However, she was bypassed.
Moreover, Nolan and Raina started giving out majority of her
research work and other duties under Healthcare and Legal
Division to the rank-and-file staff. Mapua lost about 95% of her
work projects and job responsibilities.
Mapua consulted with Lea Villanueva (Villanueva), SPI’s
Human Resource Director, and requested to be transferred to
another department within SPI. Villanueva scheduled her for an
exploratory interview but did not materialize due to
postponements not made by Mapua.
On February 28, 2007, Mapua allegedly saw the table of
organization of the Corporate Development Division which
would be renamed as the Marketing Division. The new structure
showed that Mapua’s level will be again downgraded because a
new manager will be hired and positioned between her rank and
Raina’s.
On March 21, 2007, Raina informed Mapua over the
phone that her position was considered redundant and that she
is terminated form employment effective immediately.
Villanueva notified Mapua that she should cease reporting for
work the next day. Her laptop and company mobile phone were
taken right away and her office phone ceased to function.
Mapua filed a complaint for illegal dismissal before the
Labor Arbiter (LA) claiming reinstatement and/or separation
pay. After meeting with SPI, she was given a second termination
letter which is similar to the first one. A third Notice of
Termination dated March 21, 2007 was given to her on April 25,
2007. The date of effectivity was changed from March 21 to April
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
25, 2007 wherein it stated that her separation pay will be
released on May 20, 2007 and a notation, “refused to sign and
acknowledge” with unintelligible signatures of witnesses was
included.
On May 13, 2007, a recruitment advertisement of SPI was
published in the Philippine Daily Inquirer including the position
for Marketing Communications Manager under Corporate
Support – the same group where Mapua previously belonged.
Moreover, on July 16, 2007, Prime Manpower Resources
Development (Prime Manpower) posted a job vacancy for
Corporate Development Manager in an unnamed Business
Processing Outsourcing (BPO) company located in Parañ aque
City on the website of Jobstreet Philippines. Mapua applied
under the pseudonym of “Jeanne Tesoro.” She was interviewed
by Portia Dimatulac (Dimatulac), Prime Manpower’s consultant,
who revealed that SPI contracted Prime Manpower to search for
applicants for the Corporate Development Manager position.
To SPI’s defense, it alleges that it underwent
reorganization of its structure to streamline its operations as
embodied in its Inter-Office Memorandum dated August 28,
2008 issued by SPI’s Chief Executive Officer (CEO). Further,
based on SPI’s assessment and evaluation, the duties of a
Corporate Development Manager could be performed by other
officers/managers/departments of the company as proved by
Villanueva’s affidavit. Further, SPI denied contracting the
services of Prime Manpower for the hiring of a Corporate
Development Manager.
The LA ruled that Mapua was illegally dismissed and
awarded her with backwages, separation pay in lieu of
reinstatement, moral and exemplary damages and attorney’s
fees. Upon appeal to the NLRC, it reversed and set aside the LA
18
Decision. It held that it is management prerogative to decide the
necessity of the position of Corporate Development Manager.
Before the CA, it reinstated the LA Decision. Hence, this petition.
ISSUE:
Whether or not petitioner Villanueva can be held solidary
liable with SPI for Mapua’s illegal dismissal.
HELD:
NO. Mapua’s averments against Villanueva, Nolan,
Maquera and Raina, although detailed and exhaustive, are mostly
suppositions on her part. It is hornbook principle that the
personal liability of corporate directors, trustees or officers
attached only when:
(a) they assent to a patently unlawful act of the
corporation, or when they are guilty of bad faith or
gross negligence in directing its affairs, or when there
is a conflict of interest resulting in damages to the
corporation, its stockholders or other persons;
(b) they consent to the issuance of watered down stocks
or when, having knowledge of such issuance, do not
forthwith file with the corporate secretary their
written objection;
(c) they agree to hold themselves personally and
solidarily liable with the corporation; or
(d) they are made by specific provision of law personally
answerable for their corporate action.
In addition, the determination of the continuing necessity
of a particular officer or position in a business corporation is a
management prerogative, and the courts will not interfere unless
arbitrary or malicious action on the part of management is
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
shown. Indeed, an employer has no legal obligation to keep more
employees than are necessary for the operation of its business.
However, in AMA Computer College, Inc. v. Garcia, et al.,
substantial evidence is required to prove that the positions of
retrenched employees are redundant and inadequate to support
the company’s redundancy program.
In the case, redundancy was negated when SPI published
job vacancies after Mapua was terminated without explanation
as to how the functions of a Marketing Communications Manager
differ from a Corporate Development Manager nor why Mapua
was not considered for the position. SPI, being the employer, has
possession of valuable information concerning the functions of
the offices within its organization. Nevertheless, it did not bother
to differentiate the two positions.
19
32.
MIRANT (PHILIPPINES) CORPORATION AND EDGARDO A.
BAUTISTA, Petitioners, vs. JOSELITO A. CARO, Respondent.
G.R. No. 181490, April 23, 2014, VILLARAMA, JR., J.
A corporation has a personality separate and distinct from its
officers and board of directors who may only be held personally
liable for damages if it is proven that they acted with malice or
bad faith in the dismissal of an employee
FACTS:
Caro was an employee of Mirant Corp in which Bautista
was the president. Caro was terminated for non-compliance with
the drug testing requirement arranged and effected by Bautista.
This led Caro to commence a case for illegal dismissal contending
that the petitioners failed to comply with the twin-notice rule by
failure to serve notice of hearing on the charges against him. The
Labor Arbiter ruled in favor of Caro finding that the execution of
quit claims was a clear attempt to misled its office that Caro has
no cause of action against Mirant. On appeal, NLRC ruled in favor
of Mirant finding the inconsistencies contained in Caro's
statement. MR has been file by Caro but was dismissed.
ISSUE:
Whether or not Mirant and Bautista are liable for the
claims?
HELD:
A corporation has a personality separate and distinct
from its officers and board of directors who may only be held
personally liable for damages if it is proven that they acted with
malice or bad faith in the dismissal of an employee. Absent any
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
evidence on record that petitioner Bautista acted maliciously or
in bad faith in effecting the termination of respondent, plus the
apparent lack of allegation in the pleadings of respondent that
petitioner Bautista acted in such manner, the doctrine of
corporate fiction dictates that only petitioner corporation should
be held liable for the illegal dismissal of respondent
20
STOCKHOLDERS
33.
JOSELITO MUSNI PUNO vs. PUNO ENTERPRISES, INC., ET AL.
G.R. No. 177066 September 11, 2009 J. NACHURA
Upon the death of a shareholder, the heirs do not automatically
become stockholders of the corporation and acquire the rights and
privileges of the deceased as shareholder of the corporation. The
stocks must be distributed first to the heirs in estate proceedings,
and the transfer of the stocks must be recorded in the books of the
corporation.
FACTS:
Carlos L. Puno, who died on June 25, 1963, was an
incorporator of respondent Puno Enterprises, Inc. On March 14,
2003, petitioner Joselito Musni Puno, claiming to be an heir of
Carlos L. Puno, initiated a complaint for specific performance
against respondent. Petitioner averred that he is the son of the
deceased with the latters common-law wife, Amelia Puno. As
surviving heir, he claimed entitlement to the rights and
privileges of his late father as stockholder of respondent. The
complaint thus prayed that respondent allow petitioner to
inspect its corporate book, render an accounting of all the
transactions it entered into from 1962, and give petitioner all the
profits, earnings, dividends, or income pertaining to the shares of
Carlos L. Puno.
Respondent filed a motion to dismiss on the ground that
petitioner did not have the legal personality to sue because his
birth certificate names him as Joselito Musni Muno. 
The lower court granted the plaintiff to his avails. On
appeal, the CA ordered the dismissal of the complaint was not
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
able to establish the paternity of and his filiation to Carlos L.
Puno since his birth certificate was prepared without the
intervention of and the participatory acknowledgment of
paternity by Carlos L. Puno. Accordingly, the CA said that
petitioner had no right to demand that he be allowed to examine
respondent’s books. Moreover, petitioner was not a stockholder
of the corporation but was merely claiming rights as an heir of
Carlos L. Puno, an incorporator of the corporation.  profit or loss of statement for said taxable year,
ISSUE:
Whether or not the petitioner is entitled to his request to
inspect the books and receive the shares of stocks?
HELD:
NO. He is not entitled to such claims.
In any case, Sections 74 and 75 of the Corporation Code
enumerate the persons who are entitled to the inspection of
corporate books, thus
 
Sec. 74. Books to be kept; stock transfer
agent. x x x.
 
The records of all business transactions of
the corporation and the minutes of any meeting
shall be open to the inspection of any director,
trustee, stockholder or member of the
corporation at reasonable hours on business days
and he may demand, in writing, for a copy of
excerpts from said records or minutes, at his
expense.
 
xxxx
21
 
Sec. 75. Right to financial statements.
Within ten (10) days from receipt of a written
request of any stockholder or member, the
corporation shall furnish to him its most recent
financial statement, which shall include a balance
sheet as of the end of the last taxable year and a
showing in reasonable detail its assets and
liabilities and the result of its operations.
 
The stockholders right of inspection of the corporation’s
books and records is based upon his ownership of shares in the
corporation and the necessity for self-protection. After all, a
shareholder has the right to be intelligently informed about
corporate affairs. Such right rests upon the stockholders
underlying ownership of the corporation’s assets and property.
 
Similarly, only stockholders of record are entitled to
receive dividends declared by the corporation, a right inherent in
the ownership of the shares.
 
Upon the death of a shareholder, the heirs do not
automatically become stockholders of the corporation and
acquire the rights and privileges of the deceased as shareholder
of the corporation. The stocks must be distributed first to the
heirs in estate proceedings, and the transfer of the stocks must
be recorded in the books of the corporation. Section 63 of the
Corporation Code provides that no transfer shall be valid, except
as between the parties, until the transfer is recorded in the books
of the corporation. During such interim period, the heirs stand as
the equitable owners of the stocks, the executor or administrator
duly appointed by the court being vested with the legal title to
the stock. Until a settlement and division of the estate is effected,
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
the stocks of the decedent are held by the administrator or
executor. Consequently, during such time, it is the administrator
or executor who is entitled to exercise the rights of the deceased
as stockholder.
 
Thus, even if petitioner presents sufficient evidence in
this case to establish that he is the son of Carlos L. Puno, he
would still not be allowed to inspect respondent’s books and be
entitled to receive dividends from respondent, absent any
showing in its transfer book that some of the shares owned by
Carlos L. Puno were transferred to him. 
22
34.
DAVID C. LAO and JOSE C. LAO vs. DIONISIO C. LAO
G.R. No. 170585 October 6, 2008 J. REYES
A certificate of stock is the evidence of a holder’s interest and
status in a corporation. It is a written instrument signed by the
proper officer of a corporation stating or acknowledging that the
person named in the document is the owner of a designated
number of shares of its stock. It is prima facie evidence that the
holder is a shareholder of a corporation.
FACTS:
Petitioners filed a petition with the (SEC) against
respondent Lao, President of Pacific Foundry Shop Corporation
(PFSC), praying for a declaration as stockholders and directors of
PFSC, issuance of certificates of shares in their name and to be
allowed to examine the corporate books of PFSC. They claimed
that based on the General Information Sheet filed with the SEC,
they are named as stockholders and directors of PFSC.
Respondent denied petitioners’ claim, alleging that the inclusion
of their names in the corporation was inadvertently made. He
also claimed that petitioners did not acquire any shares in PFSC
by any of the modes recognized by law, namely subscription,
purchase, or transfer. Since they were neither stockholders nor
directors of PFSC, petitioners had no right to be issued
certificates or stocks or to inspect its corporate books.
RA 8799, otherwise known as the Securities Regulation
Code, was enacted, transferring jurisdiction over all intra-
corporate disputes from the SEC to the RTC. Pursuant to the law,
the petition with the SEC was transferred to the RTC in Cebu City.
The RTC rendered a decision denying the Petition of David Lao
and Jose Lao. Petitioners appeal with the CA, the appellate court
rendered a decision in favor of petitioners which later on was
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
amended and thus, affirming the decision of RTC in denying that
petitioners’ claim to be recognized as stockholders and directors
of PFCS. Petitioners filed a MR which was denied. Hence, the
present petition before the SC.
ISSUE:
WON mere inclusion as shareholder in the General
Information Sheet of a corporation sufficient proof that one is a
shareholder in such corporation.
HELD:
NO. Petitioners bank heavily on the General Information
Sheet submitted by PFSC to the SEC in which they were named as
shareholders of PFSC. They claim that respondent is now
estopped from contesting the General Information Sheet.
 
While it may be true that petitioners were named as
shareholders in the General Information Sheet submitted to
the SEC, that document alone does not conclusively prove that
they are shareholders of PFSC. The information in the document
will still have to be correlated with the corporate books of
PFSC. As between the General Information Sheet and the
corporate books, it is the latter that is controlling. As correctly
ruled by the CA:
 
We agree with the trial court that mere
inclusion in the General Information Sheets
as stockholders and officers does not make
one a stockholder of a corporation, for this
may have come to pass by mistake,
expediency or negligence. As professed by
respondent-appellee, this was done merely
to comply with the reportorial
23
requirements with the SEC. This maybe
against the law but practice, no matter how
long continued, cannot give rise to any
vested right.
If a transferee of shares of stock who failed
to register such transfer in the Stock and
Transfer Book of the Corporation could not
exercise the rights granted unto him by law
as stockholder, with more reason that
such rights be denied to a person who is not
a stockholder of a corporation. Petitioners-
appellants never secured such a standing as
stockholders of PFSC and consequently,
their petition should be denied.
It should be stressed that the burden of proof is on
petitioners to show that they are shareholders of PFSC. This is so
because they do not have any certificates of shares in their
name. Moreover, they do not appear in the corporate books as
registered shareholders. If they had certificates of shares, the
burden would have been with PFSC to prove that they are not
shareholders of the corporation.
 
As discussed, petitioners failed to hurdle their
burden. There is no written document evidencing their claimed
purchase of shares. Records disclose that petitioners have no
certificates of shares in their name. A certificate of stock is the
evidence of a holders interest and status in a corporation. It is a
written instrument signed by the proper officer of a corporation
stating or acknowledging that the person named in the document
is the owner of a designated number of shares of its stock. It
is prima facie evidence that the holder is a shareholder of a
corporation.
 
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
Absent a written document, petitioners must prove, at
the very least, possession of the certificates of shares in the name
of the alleged seller. Again, they failed to prove possession. They
failed to prove the due delivery of the certificates of shares of the
sellers to them. Section 63 of the Corporation Code provides:
 
Sec. 63. Certificate of stock and transfer of
shares. The capital stock of stock
corporations shall be divided into shares
for which certificates signed by the
president or vice-president, countersigned
by the secretary or assistant secretary, and
sealed with the seal of the corporation shall
be issued in accordance with the by-
laws. Shares of stock so issued are personal
property and may be transferred by
delivery of the certificate or certificates
indorsed by the owner or his attorney-in-
fact or other person legally authorized to
make the transfer. No transfer, however,
shall be valid, except as between the
parties, until the transfer is recorded in the
books of the corporation so as to show the
names of the parties to the transaction, the
date of the transfer, the number of the
certificate or certificates and the number of
shares transferred.
24
BY-LAWS
35.
LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH)
ASSOCIATION, INC v. HON. COURT OF APPEALS, HOME
INSURANCE AND GUARANTY CORPORATION, EMDEN
ENCARNACION and HORATIO AYCARDO
G.R. No. 117188 August 7, 1997 J. ROMERO
Failure to file the by-laws does not automatically operate to
dissolve a corporation but is now considered only a ground for
such dissolution.
FACTS:
Loyola Grand Villas Homeowners Association, Inc.
(LGVHAI) was organized on 8 February 1983 as the
homeoenwers' association for Loyola Grand Villas. It was also
registered as the sole homeowners' association in the said village
with the Home Financing Corporation (which eventually became
Home Insurance Guarantee Corporation ["HIGC"]). However, the
association was not able file its corporate by-laws.
The LGVHAI officers then tried to register its By-Laws in
1988, but they failed to do so. They then discovered that there
were two other homeowners' organizations within the
subdivision - the Loyola Grand Villas Homeowners (North)
Association, Inc. [North Association] and herein Petitioner
Loyola Grand Villas Homeowners (South) Association, Inc.
["South Association].
Upon inquiry by the LGVHAI to HIGC, it was discovered
that LGVHAI was dissolved for its failure to submit its by-laws
within the period required by the Corporation Code and for its
non-user of corporate charter because HIGC had not received
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Cases 17-37 (Except: 19, 22, 24, 29)
any report on the association's activities. These paved the way
for the formation of the North and South Associations.
LGVHAI then lodged a complaint with HIGC Hearing
Officer Danilo Javier, and questioned the revocation of its
registration.  Hearing Officer Javier ruled in favor of LGVHAI,
revoking the registration of the North and South Associations.
Petitioner South Association appealed the ruling,
contending that LGVHAI's failure to file its by-laws within the
period prescribed by Section 46 of the Corporation Code
effectively automatically dissolved the corporation. The Appeals
Board of the HIGC and the Court of Appeals both rejected the
contention of the Petitioner affirmed the decision of Hearing
Officer Javier.
ISSUE:
May the failure of a corporation to file its by-laws within
one month from the date of its incorporation, as mandated by
Section 46 of the Corporation Code, result in its automatic
dissolution?
HELD:
NO. Failure to file the by-laws does not automatically
operate to dissolve a corporation but is now considered only a
ground for such dissolution.
Section 19 of the Corporation Law, part of which is now
Section 22 of the Corporation Code, provided that the powers of
the corporation would cease if it did not formally organize and
commence the transaction of its business or the continuation of
its works within two years from date of its incorporation. Section
20, which has been reproduced with some modifications in
25
Section 46 of the Corporation Code, expressly declared that
"every corporation formed under this Act, must within one
month after the filing of the articles of incorporation with the
Securities and Exchange Commission, adopt a code of by-laws."
Whether this provision should be given mandatory or only
directory effect remained a controversial question until it
became academic with the adoption of PD 902-A. Under this
decree, it is now clear that the failure to file by-laws within the
required period is only a ground for suspension or revocation of
the certificate of registration of corporations.
Non-filing of the by-laws will not result in automatic
dissolution of the corporation. Under Section 6(I) of PD 902-A,
the SEC is empowered to "suspend or revoke, after proper notice
and hearing, the franchise or certificate of registration of a
corporation" on the ground inter alia of "failure to file by-laws
within the required period." It is clear from this provision that
there must first of all be a hearing to determine the existence of
the ground, and secondly, assuming such finding, the penalty is
not necessarily revocation but may be only suspension of the
charter. In fact, under the rules and regulations of the SEC, failure
to file the by-laws on time may be penalized merely with the
imposition of an administrative fine without affecting the
corporate existence of the erring firm.
It should be stressed in this connection that substantial
compliance with conditions subsequent will suffice to perfect
corporate personality. Organization and commencement of
transaction of corporate business are but conditions subsequent
and not prerequisites for acquisition of corporate personality.
The adoption and filing of by-laws is also a condition subsequent.
Under Section 19 of the Corporation Code, a Corporation
commences its corporate existence and juridical personality and
is deemed incorporated from the date the Securities and
Exchange Commission issues certificate of incorporation under
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Cases 17-37 (Except: 19, 22, 24, 29)

its official seal. This may be done even before the filing of the by- 36.
laws, which under Section 46 of the Corporation Code, must be PETRONILO J. BARAYUGA vs. ADVENTIST UNIVERSITY OF
adopted "within one month after receipt of official notice of the THE PHILIPPINES
issuance of its certificate of incorporation G.R. No. 168008 August 17, 2011 J. BERSAMIN

The Corporation Code determines the membership and number of

trustees in an educational corporation which the second
paragraph of the provision contains a proviso expressly subjecting
the duration to what is otherwise provided in the articles of
incorporation or by-laws of the educational corporation. That
contrary provision controls the term of office.

FACTS:

AUP, a non-stock and non-profit domestic educational

institution incorporated under Philippine laws, was directly
under the North Philippine Union Mission (NPUM) of the
Southern Asia Pacific Division of the Seventh Day Adventists,
which elected the petitioner (Barayuga) as secretary for the
NPUM, and subsequently appointed him as President of AUP.
During his tenure as President, the audit revealed that the
petitioner committed several anomalies and serious violations.
The NPUM Executive Committee then called for a special meeting
for the purpose of deciding the petitioner’s case, and by secret
ballot was voted to be removed from his Presidency, and to
appoint an interim committee to assume the powers of the
President. Thereafter, the petitioner filed for a temporary
restraining order (TRO) alleging that he was removed as
President without valid grounds, despite his five (5) year term as
President of AUP as provided for in the latter’s Constitution and
by-laws. RTC issued the injunction and ruled in petitioner’s
favor, however the CA reversed the RTC’s decision, hence the
petition.

ISSUE:
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
Whether the removal of the petitioner as President of
respondent AUP was valid and whether his term in that office
was five years, as he insists, or only two years, as AUP insists.
HELD :
YES. The removal of the petitioner as President of AUP,
being made in accordance with the AUP Amended By-Laws, was
valid.
Section 108 of the Corporation Code determines the
membership and number of trustees in an educational
corporation which the second paragraph of the provision
contains a proviso expressly subjecting the duration to what
is otherwise provided in the articles of incorporation or by-laws
of the educational corporation. That contrary provision controls
the term of office.
In AUP’s case, its amended By-Laws provided the term of
the members of the Board of Trustees, and the period within
which to elect the officers, thusly:  Ineluctably, the petitioner, having assumed as President
Board of Trustees
Section 1. At the first meeting of the members of the
corporation, and thereafter every two years, a Board of
Trustees shall be elected. It shall be composed of fifteen
members in good and regular standing in the Seventh-
day Adventist denomination, each of whom shall hold
his office for a term of two years, or until his
successor has been elected and qualified. If a trustee
ceases at any time to be a member in good and regular
standing in the Seventh-day Adventist denomination, he
shall thereby cease to be a trustee.
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Officers
Section 1. Election of officers. – At their organization
meeting, the members of the Board of Trustees shall elect
from among themselves a Chairman, a Vice-Chairman, a
President, a Secretary, a Business Manager, and a
Treasurer. The same persons may hold and perform the
duties of more than one office, provided they are not
incompatible with each other.
In light of foregoing, the members of the Board of
Trustees were to serve a term of office of only two years; and the
officers, who included the President, were to be elected from
among the members of the Board of Trustees during their
organizational meeting, which was held during the election of the
Board of Trustees every two years. Naturally, the officers,
including the President, were to exercise the powers vested by
Section 2 of the amended By-Laws for a term of only two years,
not five years.
of AUP on January 23, 2001, could serve for only two years, or
until January 22, 2003. By the time of his removal for cause as
President on January 27, 2003, he was already occupying the
office in a hold-over capacity, and could be removed at any time,
without cause, upon the election or appointment of his successor.
His insistence on holding on to the office was untenable,
therefore, and with more reason when one considers that his
removal was due to the loss of confidence on the part of the
Board of Trustees.
MERCANTILE LAW REVIEW || Corporation Law
Cases 17-37 (Except: 19, 22, 24, 29)
37.
VALLEY GOLF & COUNTRY CLUB, INC. vs. ROSA O. VDA. DE
CARAM
G.R. No. 158805 April 16, 2009
By-laws are self-imposed private laws binding on all members,
directors and officers of the corporation.
FACTS:
Valley Golf Club is a non-stock corporation. It provides
for privilege for its members. Caram is a member of the Club. It
was stated that Caram has not been paying his monthly dues,
thus his membership was affected. According to the by-laws of
the club, delinquent members may be terminated. Thus, the Club
terminated his membership after 4 notices to Caram and sold his
shares for a value. Later on it was discovered that Caram died
before the Club has sent some of the notices. His heirs claim for
the corresponding value of the shares. Hence this case,
ISSUE:
Whether the Club as a non-stock corporation has the
right to terminate Caram’s membership on the basis of its By-
Laws
RULING:
YES. The prevailing rule is that the provisions of the
articles of incorporation or by-laws of termination of
membership must be strictly complied with and applied to the
letter. Thus, an association whose member fails to pay his
membership due and annual due as required in the by-laws, and
which provides for the termination or suspension of erring
members as well as prohibits the latter from intervening in any
manner in the operational activities of the association, must be
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observed because by-laws are self-imposed private laws binding
on all members, directors and officers of the corporation.
xxx However, there is a specific provision under the Title XI, on
Non-Stock Corporations of the Corporation Code dealing with
termination of membership. Section 91 of the Corporation Code
provides:
SEC. 91. Termination of membership.Membership shall be
terminated in the manner and for the causes provided in the
articles of incorporation or the by-laws. Termination of
membership shall have the effect of extinguishing all rights of a
member in the corporation or in its property, unless otherwise
provided in the articles of incorporation or the by-
laws. (Emphasis supplied)
Clearly, the right of a non-stock corporation such as Valley Golf to
expel a member through the forfeiture of the Golf Share may be
established in the by-laws alone, as is the situation in this case.
Thus, both the SEC and the appellate court are wrong in holding
that the establishment of a lien and the loss of the Golf Share
consequent to the enforcement of the lien should have been
provided for in the articles of incorporation.