ENGR. RANULFO C.

FELICIANO, in his capacity as General Manager of the Leyte

Metropolitan Water District (LMWD) vs. COMMISSION ON AUDIT et. al.

G.R. NO. 147402; January 14, 2004

CARPIO, J.:

Facts:

COA audited LMWD. LMWD received a letter from COA requesting payment of
auditing fees. Petitioner sent a reply that the water district could not pay the auditing
fees. COA’s RD denied petitioner’s request.

COA’s RULING:

In Davao City Water District v. Civil Service Commission and Commission on Audit:
Petitioners are not private corporations. The COA also denied petitioners request for
COA to stop charging auditing fees as well as petitioners request for COA to refund
all auditing fees already paid.

Issue:

Whether a Local Water District ("LWD") created under PD 198, as amended, is a

government-owned or controlled corporation subject to the audit jurisdiction of
COA.

Ruling:

LWDs are not private corporations because they are not created under the
Corporation Code. LWDs are not registered with the Securities and Exchange
Commission. Petitioners are not created under the Corporation Code, but on the
contrary, they were created pursuant to a special law and are governed primarily by
its provision.

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. Thus:

From the foregoing pronouncement, it is clear that what has been excluded
from the coverage of the CSC are those corporations created pursuant to the
Corporation Code.

Hence, subject to COA’s jurisdiction.

SC explained the general framework under the fundamental law. The Constitution
recognizes two classes of corporations. The first refers to private corporations created
under a general law. The second refers to government owned or controlled
corporations created by special charters. Section 16, Article XII of the Constitution
provides:

Sec.16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability.

The Constitution emphatically prohibits the creation of private corporations except

by a general law applicable to all citizens. The purpose of this constitutional provision
is to ban private corporations created by special charters, which historically gave
certain individuals, families or groups special privileges denied to other citizens.

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.

LWDs derive their legal existence and power from PD 198 provides:

Section 6. Formation of District. This Act is the source of authorization and

power to form and maintain a district. For purposes of this Act, a district shall
be considered as a quasi-public corporation performing public service and
supplying public wants. As such, a district shall exercise the powers, rights and
privileges given to private corporations under existing laws, in addition to the
powers granted in, and subject to such restrictions imposed, under this Act.

XXX.

The phrase "government-owned and controlled corporations with original charters"

means GOCCs created under special laws and not under the general incorporation
law. There is no difference between the term "original charters" and "special
charters."
 Manila International Airport Authority v. Court of Appeals
GR No. 155650

Facts:
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA). As operator of the international airport, MIAA administers
the land, improvements and equipment within the NAIA Complex. The MIAA Charter
transferred to MIAA approximately 600 hectares of land. The MIAA Charter further
provides that no portion of the land transferred to MIAA shall be disposed of
through sale or any other mode unless specifically approved by the President
of the Philippines.
Office of the Gov’t Corporate Counsel contends that the Local Government
Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section
21 of the MIAA Charter. Thus, MIAA negotiated with City of Parañaque to pay the real
estate tax imposed by the City. MIAA then paid some of the real estate tax already due.
MIAA received Final Notices of Real Estate Tax Delinquency from the City of
Parañaque
The Mayor of the City of Parañaque threatened to sell at public auction the Airport
Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA filed
with the Court of Appeals an original petition for prohibition and injunction to
restrain the City of Parañaque from imposing real estate tax on, levying against, and
auctioning for public sale the Airport Lands and Buildings.
Court of Appeal: dismissed the petition because MIAA filed it beyond the 60-day
reglementary period and denied motion for reconsideration.
MIAA contends that it is exempt from real estate tax under Section 234 of the
Local Government Code because the Airport Lands and Buildings are owned by the
Republic.
Respondents invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government Code.

Issues:
Whether the Airport Lands and Buildings of MIAA are exempt from real estate tax
under existing laws.

Ruling:
The court ruled that MIAA's Airport Lands and Buildings are exempt from real estate
tax imposed by local governments. MIAA is neither a stock nor a non-stock
corporation thus MIAA does not qualify as a government-owned or controlled corporation.

First, MIAA is not a government-owned or controlled corporation but an

instrumentality of the National Government and thus exempt from local taxation.
Second, the real properties of MIAA are owned by the Republic of the Philippines
and thus exempt from real estate tax.
MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government instrumentality,
the only difference is that MIAA is vested with corporate powers.
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers.
MIAA exercises the governmental powers of eminent domain, police authority...
and the levying of fees and charges. At the same time, MIAA exercises "all the powers of
a corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order."
 G.R. No. 58168 December 19, 1989

CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAY-CABRERA, LUISA MAGSAYSAY-

CORPUZ, assisted be her husband, Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES
MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY, Special Administratrix of
the Estate of the late Genaro F. Magsaysay respondents.

FACTS:

On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the

estate of the late Senator Genaro Magsaysay, brought before the then CFI of Olongapo an
action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's
Bank (FILMANBANK) and the Register of Deeds of Zambales.

In her complaint, she alleged that in 1958, she and her husband acquired, thru conjugal
funds, a parcel of land with improvements, known as "Pequena Island", covered by TCT No.
3258. After the death of her husband, she discovered:

[a] an annotation at the back of TCT No. 3258 that "the land was acquired by her
husband from his separate capital;
[b] the registration of a Deed of Assignment dated June 25, 1976 purportedly executed
by the late Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and TCT
No. 22431 issued in the name of SUBIC; and
[c] the registration of Deed of Mortgage dated April 28, 1977 in the amount of P
2,700,000.00 executed by SUBIC in favor of FILMANBANK.

She alleged that the foregoing acts were void and prayed that the Deed of Assignment and the
Deed of Mortgage be annulled and that the Register of Deeds be ordered to cancel TCT No.
22431 and to issue a new title in her favor.

Petitioners, sisters of the late senator, filed a motion for intervention on the ground that on
June 20, 1978, their brother conveyed to them one-half (1/2 ) of his shareholdings in SUBIC.
They argue that their ownership of 41.66% of the entire outstanding capital stock of SUBIC
entitles them to a significant vote in the corporate affairs.

However, the court denied the motion holding that petitioners are not entitled to intervene
because SUBIC has a personality separate and distinct from its stockholders. The Court of
Appeals affirmed the decision.

ISSUE:
Whether or not the Petitioners have a legal interest in the matter in litigation.
HELD:

No, the petitioners do not have a legal interest.

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, to be permitted to
intervene in a pending action, the party must have a legal interest in the matter in litigation, or
in the success of either of the parties or an interest against both, or he must be so situated as to
be adversely affected by a distribution or other disposition of the property in the custody of the
court or an officer thereof.

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in
litigation, or otherwise qualified; and [b] consideration must be given as to whether the
adjudication of the rights of the original parties may be delayed or prejudiced, or whether the
intervenor's rights may be protected in a separate proceeding or not. Both requirements must
concur.

The words "an interest in the subject" mean a direct interest in the cause of action as pleaded,
and which would put the intervenor in a legal position to litigate a fact alleged in the complaint,
without the establishment of which plaintiff could not recover.

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,

conjectural, consequential and collateral. While a share of stock represents a proportionate or
aliquot interest in the property of the corporation, it does not vest the owner thereof with any
legal right or title to any of the property, his interest in the corporate property being equitable
or beneficial in nature. Shareholders are in no legal sense the owners of corporate property,
which is owned by the corporation as a distinct legal person.

The petitioners cannot claim the right to intervene on the strength of the transfer of shares
allegedly executed by the late Senator. The corporation did not keep books and
records. Perforce, no transfer was ever recorded, much less effected as to prejudice third
parties. The transfer must be registered in the books of the corporation to affect third persons.
The law on corporations is explicit. Section 63 of the Corporation Code provides, thus: "No
transfer, however, shall be valid, except as between the parties, until the transfer is recorded in
the books of the corporation showing the names of the parties to the transaction, the date of
the transfer, the number of the certificate or certificates and the number of shares
transferred."

And even assuming arguendo that there was a valid transfer, petitioners are nonetheless
barred from intervening inasmuch as their rights can be ventilated and amply protected in
another proceeding.
 #04 G.R. No. L-31061 August 17, 1976
SULO NG BAYAN INC., plaintiff-appellant, vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS & SEWERAGE
AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF BULACAN, defendants-
appellees.
ANTONIO, J.:

FACTS:
On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of
First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against Gregorio Araneta Inc.
(GAI), Paradise Farms Inc., National Waterworks & Sewerage Authority (NAWASA), Hacienda
Caretas Inc., and the Register of Deeds of Bulacan to recover the ownership and possession of a
large tract of land in San Jose del Monte, Bulacan, containing an area of 27,982,250 sq. ms., more
or less, registered under the Torrens System in the name of GAI, et. al.'s predecessors-in-interest
(who are members of the corporation).

PLAINTIFF-APPELLANT: Sulo ng Bayan, Inc.

 a corporation organized and existing under the laws of the Philippines, with its principal office and place of
business at San Jose del Monte, Bulacan;
 that its membership is composed of natural persons residing at San Jose del Monte, Bulacan;
 that the members of the plaintiff corporation, through themselves and their predecessors-in-interest, had
pioneered in the clearing of the fore-mentioned tract of land, cultivated the same since the Spanish regime
and continuously possessed the said property openly and public under concept of ownership adverse
against the whole world;
 that defendant-appellee Gregorio Araneta, Inc., sometime in the year 1958, through force and intimidation,
ejected the members of the plaintiff corporation from their possession of the aforementioned vast tract of
land;
 that upon investigation conducted by the members and officers of plaintiff corporation, they found out for
the first time in the year 1961 that the land in question "had been either fraudelently or erroneously
included, by direct or constructive fraud, in Original Certificate of Title No. 466 of the Land of Records of
the province of Bulacan", issued on May 11, 1916, which title is fictitious, non-existent and devoid of legal
efficacy due to the fact that "no original survey nor plan whatsoever" appears to have been submitted as a
basis thereof and that the Court of First Instance of Bulacan which issued the decree of registration did not
acquire jurisdiction over the land registration case because no notice of such proceeding was given to the
members of the plaintiff corporation who were then in actual possession of said properties; that as a
consequence of the nullity of the original title, all subsequent titles derived therefrom are therefore void.

DEFENDANT-APPELLEE: Gregorio Araneta, Inc.

 On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended
complaint on the grounds that
o (1) the complaint states no cause of action; and
o (2) the cause of action, if any, is barred by prescription and laches

ISSUES:

1. Whether the corporation (non-stock) may institute an action in behalf of its individual members
for the recovery of certain parcels of land allegedly owned by said members, among others.
 2. Whether the complaint filed by the corporation in behalf of its members may be treated as a class
suit.

HELD:

1. NO.
It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct
legal entity to be considered as separate and apart from the individual stockholders or members who
compose it, and is not affected by the personal rights, obligations and transactions of its stockholders
or members. The property of the corporation is its property and not that of the stockholders, as owners,
although they have equities in it. Properties registered in the name of the corporation are owned by it as
an entity separate and distinct from its members. Conversely, a corporation ordinarily has no interest in
the individual property of its stockholders unless transferred to the corporation, "even in the case of a
one-man corporation." The mere fact that one is president of a corporation does not render the property
which he owns or possesses the property of the corporation, since the president, as individual, and the
corporation are separate similarities.
It has not been claimed that the members have assigned or transferred whatever rights they may
have on the land in question to the plaintiff-corporation. Absent of any showing of interest, therefore, a
corporation, like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its
stockholders or members for the purpose of recovering property which belongs to said stockholders or
members in their personal capacities.

2. NO.
In order that a class suit may prosper, the following requisites must be present:
(1) that the subject matter of the controversy is one of common or general interest to
many persons; and
(2) that the parties are so numerous that it is impracticable to bring them all before court.

Here, there is only one plaintiff, and the plaintiff corporation does not even have an interest in
the subject matter of the controversy, and cannot, therefore, represent its members or stockholders who
claim to own in their individual capacities ownership of the said property. Moreover, a class suit does not
lie in actions for the recovery of property where several persons claim partnership of their respective
portions of the property, as each one could alleged and prove his respective right in a different way for
each portion of the land, so that they cannot all be held to have identical title through
acquisition/prescription.

OTHER TOPICS:

A. JURISDICTION

 Jurisdiction implies the power of the court to decide a case, while venue the place of action. There
is no question that respondent court has jurisdiction over the case. The venue of actions in the
Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying
of venue is not left to the caprice of plaintiff, but must be in accordance with the aforesaid
provision of the rules.
 The mere fact that a request for the transfer of a case to another branch of the same court has
been approved by the Secretary of Justice does not divest the court originally taking cognizance
 thereof of its jurisdiction, much less does it change the venue of the action. As correctly observed
by the trial court, the indorsement of the Undersecretary of Justice did not order the transfer of
the case to the Malolos Branch of the Bulacan Court of First Instance, but only "authorized" it for
the reason given by plaintiff's counsel that the transfer would be convenient for the parties.
 The trial court is not without power to either grant or deny the motion, especially in the light of a
strong opposition thereto filed by the defendant. We hold that the court a quo acted within its
authority in denying the motion for the transfer the case to Malolos notwithstanding the
authorization" of the same by the Secretary of Justice.

B. ELEMENTS OF CAUSE OF ACTION

(1) the right of the plaintiff; and

(2) the violation of such right by the defendant.

For these reasons, the rules require that every action must be prosecuted and defended in the name
of the real party in interest and that all persons having an interest in the subject of the action and in
obtaining the relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In the amended complaint, the
people whose rights were alleged to have been violated by being deprived and dispossessed of their land
are the members of the corporation and not the corporation itself. The corporation has a separate. and
distinct personality from its members, and this is not a mere technicality but a matter of substantive law.

C. What constitute COMMON INTEREST IN THE SUBJECT MATTER OF THE CONTROVERSY

The interest that will allow parties to join in a bill of complaint, or that will enable the court to dispense
with the presence of all the parties, when numerous, except a determinate number, is not only an interest
in the question, but one in common in the subject Matter of the suit; ... a community of interest growing
out of the nature and condition of the right in dispute; for, although there may not be any privity between
the numerous parties, there is a common title out of which the question arises, and which lies at the
foundation of the proceedings ... (Scott v. Donald)
G.R. No. 142435 April 30, 2003
ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners,
vs.
PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON
CITY and the Heirs of EUGENIO D. TRINIDAD, respondents.
FACTS :
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Bela's Export Trading
(BET), a single proprietorship engaged in the manufacture of garments for domestic and foreign
consumption, as well as Mystical Fashions in the United States, which sells goods imported from
the Philippines through BET.
Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the Philippines while
she was managing Mystical Fashions in the United States.
December 14, 1978, Estelita executed an SPA appointing Teresita as her attorney-in-fact to
obtain loans and other credit accommodations from respondent Pacific Banking Corporation
(Pacific Bank).
April 1979, Teresita was able to secure from Pacific Bank a loan of P583,854.00 for business
operations which was secured by a Real Estate Mortgage over their property located in QC where
BET's principal office was located.
The property was likewise made to secure other additional or new loans, discounting lines,
overdrafts and credit accommodations.
In September 5 1979, BET was incorporated into a family corporation named Belas Export
Corporation (BEC);
Eventually, the prior and subsequent loans were restructured in the name of BEC with the
corresponding promissory notes duly executed by Teresita on behalf of the corporation.
Trust receipt and export bills were also executed for additional finances. All transactions were
all secured by the real estate mortgage over the Lipats property.
The promissory notes, export bills, and trust receipt eventually became due and demandable.
Unfortunately, BEC defaulted in its payments.
Consequently, the real estate mortgage was foreclosed and the mortgaged property was sold
at public auction.
TRIAL :
Petitioners filed before the RTC a complaint for annulment of the real estate mortgage,
extrajudicial foreclosure and the certificate of sale issued over the property against Pacific Bank
and Eugenio D. Trinidad (highest bidder).
The complaint alleged among others, that the promissory notes, trust receipt, and export bills
were all ultra vires acts of Teresita as they were executed without the requisite board resolution
of the Board of Directors of BEC. The Lipats also averred that assuming said acts were valid and
binding on BEC, the same were the corporations sole obligation, it having a personality distinct
and separate from spouses Lipat.
 RTC pierced the veil of corporate fiction and held that Belas Export Corporation and
petitioners (Lipats) are one and the same. Pacific Bank had transacted business with both BET
and BEC on the supposition that both are one and the same. Hence, the Lipats were estopped
from disclaiming any obligations on the theory of separate personality of corporations, which is
contrary to principles of reason and good faith. Thus dismissing the complaint.
CA dismissed the appeal.
ISSUE :
W/N DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE.
HELD :
Yes. The judgment of the RTC and the resolution of the appellate court show that in finding
petitioners mortgaged property liable for the obligations of BEC, both courts below relied upon
the alter ego doctrine or instrumentality rule, rather than fraud in piercing the veil of corporate
fiction. When the corporation is the mere alter ego or business conduit of a person, the separate
personality of the corporation may be disregarded. This is commonly referred to as the
instrumentality rule or the alter ego doctrine, which the courts have applied in disregarding the
separate juridical personality of corporations.
Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of
the instrumentality may be disregarded. The control necessary to invoke the rule is not majority
or even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal.
It is noted that:
- Lipat spouses are the owners and majority shareholders of BET and BEC, respectively;
- Both firms were managed by their daughter, Teresita;
- Both firms were engaged in the garment business, supplying products to Mystical Fashion, a
U.S. firm established by Estelita Lipat;
- Both firms held office in the same building owned by the Lipats;
- BEC is a family corporation with the Lipats as its majority stockholders;
- The business operations of the BEC were so merged with those of Mrs. Lipat such that they
were practically indistinguishable;
- The corporate funds were held by Estelita Lipat and the corporation itself had no visible
assets;
- The board of directors of BEC was composed of the Burgos and Lipat family members;
- Estelita had full control over the activities of and decided business matters of the
corporation;
- Estelita Lipat had benefited from the loans secured from Pacific Bank to finance her business
abroad and from the export bills secured by BEC for the account of "Mystical Fashion.
BET and BEC are one and the same and the latter is a conduit of and merely succeeded the
former. Petitioners attempt to isolate themselves from and hide behind the corporate personality
of BEC so as to evade their liabilities to Pacific Bank is precisely what the doctrine of piercing the
veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere continuation and
successor of BET, and petitioners cannot evade their obligations in the mortgage contract secured
under the name of BEC on the pretext that it was signed for the benefit and under the name of
BET.
Times Transportation Company, Inc. vs Santos Sotelo, et al.
G.R. NO. 163786 February 16, 2005

Facts:

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

In response to Times' alleged attempt to form a rival union and its dismissal of the employees
identified to be active union members, TEU held a strike. Then Labor Secretary Leonardo A.
Quisumbing assumed jurisdiction over the case upon petition by Times and referred the matter
to the NLRC for compulsory arbitration.

In a certification election, TEU was then certified as the sole and exclusive collective bargaining
agent in Times. Consequently, TEU's president wrote the management of Times and requested
for collective bargaining. Times refused and another conciliation/mediation proceeding was
conducted for the purpose of settling the brewing dispute.

In the meantime, Times' management implemented a retrenchment program and notices of

retrenchment were sent to some of its employees, including the respondents herein, informing
them of their retrenchment. TEU held another strike on grounds of unfair labor practice. For
alleged participation in what it deemed was an illegal strike, Times terminated all the striking
employees. When the strike was ended, the employees were no longer admitted back to work.

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

After the closure of Times, the retrenched employees filed cases for illegal dismissal, money
claims and unfair labor practices against Times, Mencorp and the Spouses Reynaldo and Virginia
Mendoza before the National Capital Region Arbitration Branch.

Labor Arbiter Renaldo O. Hernandez rendered a decision finding that the dismissals of
complainants by respondent Times effected, participated in, authorized or ratified by respondent
Santiago Rondaris constituted the prohibited act of unfair labor practice and hence, illegal and
that the sale of said respondent company to respondents Mencorp and/or Virginia Mendoza and
Reynaldo Mendoza was simulated and/or effected in bad faith.

Times, Mencorp, and the Spouses Mendoza filed Motions for Reconsideration, which were
denied. Hence, this Petition for Review.

Issue: Whether or not the Doctrine of Piercing the Corporate Veil in this case is proper

Held:

Yes. The Court has held that piercing the corporate veil is warranted only in cases when the
separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, such that in the case of two corporations, the law will regard the corporations as merged
into one. It may be allowed only if the following elements concur: (1) control not mere stock
control, but complete domination not only of finances, but of policy and business practice in
respect to the transaction attacked; (2) such control must have been used to commit a fraud or
a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and
an unjust act in contravention of a legal right; and (3) the said control and breach of duty must
have proximately caused the injury or unjust loss complained of.

In this case, the sale was transferred to a corporation controlled by V. Mendoza, the daughter of
respondent S. Rondaris of Times where she is also a director, as proven by the articles of
incorporation of Mencorp. Also, all of the stockholders/incorporators of Mencorp are all relatives
of respondent S. Rondaris.

The timing of the sale evidently was to negate the employees’ right to organization as it was
effected when TEU was just organized and requesting Times to bargain. Further, Mencorp never
obtained a franchise since its supposed incorporation but at present, all the buses of Times are
already being run/operated by respondent Mencorp, the franchise of Times having been
transferred to it.

The SC upholds the findings of the labor arbiter and the Court of Appeals. The sale of Times'
franchise as well as most of its bus units to a company owned by Rondaris' daughter and family
members, right in the middle of a labor dispute, is highly suspicious. It is evident that the
transaction was made in order to remove Times' remaining assets from the reach of any
judgment that may be rendered in the unfair labor practice cases filed against it.
 [ G.R. NO. 168306, June 19, 2007 ]

WILLIAM C. YAO, SR., LUISA C. YAO, RICHARD C. YAO, WILLIAM C.

YAO JR., AND ROGER C. YAO, PETITIONERS, VS. THE PEOPLE OF

THE PHILIPPINES, PETRON CORPORATION AND PILIPINAS SHELL

PETROLEUM CORP., AND ITS PRINCIPAL, SHELL INT'L PETROLEUM

CO. LTD., RESPONDENTS.

FACTS:

Petitioners William Yao, Sr. and several others were incorporators and officers of Masagana Gas
Corporation.

In 2003, the NBI, acting on reports that petitioners unlawfully and in violation of intellectual property
rights of Petron Corporation and Pilipinas Shell, produce, sell, distribute LPG products using LPG
cylinders owned by Petron and Shell and by virtue of search warrants, raided the premises of Masagana
and confiscated, among other things, the motor compressor and refilling machine owned by Masagana.

Masagana Corporation intervened in the case and asked for the return of said pieces of equipment. It
argued that even if the same was being used by petitioners in their unlawful activity, the equipment
cannot be confiscated because having a personality separate and distinct from that of its incorporators,
directors and officers, said properties are owned by the corporation and not by the petitioners.

The court denied Masagana’s motion.

ISSUE:

Whether or not the doctrine of piercing the veil of corporate entity is applicable in the case.

RULING:

YES. It is an elementary and fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders, directors or officers. However, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons, or in the case of two corporations merge them into
one.[46] In other words, the law will not recognize the separate corporate existence if the corporation is
being used pursuant to the foregoing unlawful objectives. This non-recognition is sometimes referred to
as the doctrine of piercing the veil of corporate entity or disregarding the fiction of corporate entity.
Where the separate corporate entity is disregarded, the corporation will be treated merely as an
association of persons and the stockholders or members will be considered as the corporation, that is,
liability will attach personally or directly to the officers and stockholders.
The findings of the Court show that petitioners, as director/officers of Masagana were utilizing the
corporation in violating the intellectual property rights of Petron and Pilipinas Shell. As such, the
doctrine of piercing the veil of corporate entity applies.
8. Filipinas Broadcasting Network Inc. vs. Ago Medical and Educational Center-Bicol Christian College
of Medicine (AMEC-BCCM)
GR 141994, 17 January 2005

Facts:

“Exposé” is a radio documentary program hosted by Carmelo ‘Mel’ Rima (“Rima”) and
Hermogenes ‘Jun’ Alegre (“Alegre”). Exposé is aired every morning over DZRC-AM which is owned by
Filipinas Broadcasting Network, Inc. (“FBNI”). “Exposé” is heard over Legazpi City, the Albay
municipalities and other Bicol areas.

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged
complaints from students, teachers and parents against Ago Medical and Educational Center-Bicol
Christian College of Medicine (“AMEC”) and its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago (“Ago”), as Dean of AMEC’s College of Medicine, filed a
complaint for damages against FBNI, Rima and Alegre on 27 February 1990. The complaint further
alleged that AMEC is a reputable learning institution.

With the supposed exposés, FBNI, Rima and Alegre “transmitted malicious imputations, and as
such, destroyed plaintiffs’ (AMEC and Ago) reputation.” AMEC and Ago included FBNI as defendant
for allegedly failing to exercise due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed
an Answer alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre
claimed that they were plainly impelled by a sense of public duty to report the “goings-on in AMEC,
[which is] an institution imbued with public interest.” Thereafter, trial ensued. During the presentation
of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a
Motion to Dismiss on FBNI’s behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed
a separate Answer claiming that it exercised due diligence in the selection and supervision of Rima
and Alegre.

FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application;
(2) be interviewed; and (3) undergo an apprenticeship and training program after passing the
interview. FBNI likewise claimed that it always reminds its broadcasters to “observe truth, fairness and
objectivity in their broadcasts and to refrain from using libelous and indecent language.” Moreover,
FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas (“KBP”)
accreditation test and to secure a KBP permit.

On 14 December 1992, the trial court rendered a Decision finding FBNI and Alegre liable for libel
except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the
broadcasters’ claim that their utterances were the result of straight reporting because it had no factual
basis. The broadcasters did not even verify their reports before airing them to show good faith. In
holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection
and supervision of its employees. In absolving Rima from the charge, the trial court ruled that Rima’s
only participation was when he agreed with Alegre’s exposé.

The trial court found Rima’s statement within the “bounds of freedom of speech, expression,
and of the press.” Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on
the other, appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial
court’s judgment with modification. The appellate court made Rima solidarily liable with FBNI and
Alegre. The appellate court denied Ago’s claim for damages and attorney’s fees because the
broadcasts were directed against AMEC, and not against her. FBNI, Rima and Alegre filed a motion
for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution. Hence, FBNI
filed the petition for review.

Issue: Whether AMEC is entitled to moral damages.

Held:

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. Nevertheless, 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. Moreover, where the broadcast is libelous per se,
the law implies damages. In such a case, evidence of an honest mistake or the want of character or
reputation of the party libeled goes only in mitigation of damages. Neither in such a case is the plaintiff
required to introduce evidence of actual damages as a condition precedent to the recovery of some
damages. In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, the Court found the award of P300,000 moral damages unreasonable. The record shows
that even though the broadcasts were libelous per se, AMEC has not suffered any substantial or
material damage to its reputation. Therefore, the Court reduced the award of moral damages from
P300,000 to P150,000.
 Lyceum of the Philippines vs Court of Appeals
G.R. No. 101897
Facts:
Petitioner is an educational institution duly registered with the Securities and Exchange Commission
("SEC"). When it first registered with the SEC on 21 September 1950, it used the corporate name Lyceum
of the Philippines, Inc. and has used that name ever since.
Lyceum of the Philippines had commenced before the SEC a proceeding against the Lyceum of Baguio to
change its corporate name alleging that the two names are substantially identical because of the word
“Lyceum”. SEC found for petitioner and the Supreme Court denied the consequent appeal of Lyceum of
Baguio in a resolution.
Petitioner then basing its ground on the resolution, instituted proceedings before the SEC to compel the
private respondents, which are also educational institutions, to delete the word "Lyceum" from their
corporate names and permanently to enjoin them from using "Lyceum" as part of their respective names.
Petitioner moved before the SEC to enforce its exclusive use of the word ‘Lyceum.’ Petitioner further
claimed that the word ‘Lyceum’ has acquired a secondary meaning in its favor. The SEC Hearing Officer
found for petitioner. Both SEC En Banc and CA ruled otherwise.
Issue:
(1) Whether or not the Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R.
No. L-46595 did not constitute stare decisis as to apply to this case
(2) Whether or not ‘Lyceum’ is a generic word which cannot be appropriated by petitioner to the exclusion
of others.
(3) Whether or not the word ‘Lyceum’ has acquired a secondary meaning in favor of petitioner.
(4) Whether or not petitioner is infringed by respondent institutions’ corporate names.
Ruling:
(1) The Resolution of the Court in G.R. No. L-46595 does not, of course, constitute res adjudicata in respect
of the case at bar, since there is no identity of parties
(2) “Lyceum” is in fact as generic in character as the word “university.” In the name of the petitioner,
“Lyceum” appears to be a substitute for “university;” in other places, however, “Lyceum,” or “Liceo” or
“Lycee” frequently denotes a secondary school or a college. It may be that the use of the word “Lyceum”
may not yet be as widespread as the use of “university,” but it is clear that a not inconsiderable number
of educational institutions have adopted “Lyceum” or “Liceo” as part of their corporate names. Since
“Lyceum” or “Liceo” denotes a school or institution of learning, it is not unnatural to use this word to
designate an entity which is organized and operating as an educational institution.
(3) Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or otherwise descriptive
might nevertheless have been used so long and so exclusively by one producer with reference to this
article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean
that the article was his produce. With the foregoing as a yardstick, [we] believe the appellant failed to
satisfy the aforementioned requisites. While the appellant may have proved that it had been using the
word ‘Lyceum’ for a long period of time, this fact alone did not amount to mean that the said word had
acquired secondary meaning in its favor because the appellant failed to prove that it had been using the
same word all by itself to the exclusion of others. More so, there was no evidence presented to prove that
confusion will surely arise if the same word were to be used by other educational institutions.
(4) We do not consider that the corporate names of private respondent institutions are “identical with, or
deceptively or confusingly similar” to that of the petitioner institution. True enough, the corporate names
of private respondent entities all carry the word “Lyceum” but confusion and deception are effectively
precluded by the appending of geographic names to the word “Lyceum.” Thus, we do not believe that the
“Lyceum of Aparri” can be mistaken by the general public for the Lyceum of the Philippines, or that the
“Lyceum of Camalaniugan” would be confused with the Lyceum of the Philippines. We conclude and so
hold that petitioner institution is not entitled to a legally enforceable exclusive right to use the word
“Lyceum” in its corporate name and that other institutions may use “Lyceum” as part of their corporate
names.
 10

Ang Mga Kaanib sa Iglesia ng Dios vs. Iglesia ng Dios Kay Kristo
December 12, 2001

FACTS: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan, is a
non-stock religious society or corporation registered in 1936. In 1976, Eliseo Soriano and
several other members of respondent corporation disassociated themselves from the
latter and succeeded in registering in 1977 a new non-stock religious society or
corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.

In 1979, respondent corporation filed with the SEC a petition to compel the Iglesia
ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name.
In 1988, the SEC rendered judgment in favor of respondent, ordering the Iglesia ng Dios
Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to change its corporate name to
another name that is not similar or identical to any name already used by a corporation,
partnership or association registered with the Commission. No appeal was taken from
said decision.

During the pendency of the SEC petition, Soriano, et al., caused the registration
in 1980 of petitioner corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus,
H.S.K., sa Bansang Pilipinas. The acronym H.S.K. stands for Haligi at Saligan ng
Katotohanan. In 1994, respondent corporation filed before the SEC a petition, praying
that petitioner be compelled to change its corporate name and be barred from using
the same or similar name on the ground that the same causes confusion among their
members as well as the public.

In 1995, the SEC rendered a decision ordering petitioner to change its corporate
name. Petitioner appealed to the SEC En Banc. The SEC En Banc affirmed the above
decision, upon a finding that petitioner's corporate name was identical or confusingly or
deceptively similar to that of respondents’ corporate name. Petitioner filed a petition for
review with the Court of Appeals. On October 1997, the CA rendered the assailed
decision affirming the decision of the SEC En Banc. Petitioners motion for reconsideration
was denied by the CA on February 1992.

Hence, the instant petition for review.

ISSUE: 1) Whether or not the CA failed to properly apply the exceptions established by
jurisprudence in the application of Sec. 18 of the Corporation Code to the instant case

2) Whether or not the CA failed to properly appreciate the scope of the

Consitutional guarantee on religious freedom
HELD:

1. The Court held that parties organizing a corporation must choose a name at their
peril; and the use of a name similar to one adopted by another corporation,
whether a business or a nonprofit organization, if misleading or likely to injure in the
exercise of its corporate functions, regardless of intent, may be prevented by the
corporation having a prior right, by a suit for injunction against the new
corporation to prevent the use of the name.
The additional words Ang Mga Kaanib and Sa Bansang Pilipinas, Inc. in
petitioners name are, as correctly observed by the SEC, merely descriptive of and
also referring to the members, or kaanib, of respondent who are likewise residing
in the Philippines. These words can hardly serve as an effective differentiating
medium necessary to avoid confusion or difficulty in distinguishing petitioner from
respondent. This is especially so, since both petitioner and respondent
corporations are using the same acronym H.S.K.; not to mention the fact that both
are espousing religious beliefs and operating in the same place.
Significantly, the only difference between the corporate names of
petitioner and respondent are the words SALIGAN and SUHAY. These words are
synonymous. Furthermore, the wholesale appropriation by petitioner of
respondent's corporate name cannot find justification under the generic word
rule. We agree with the Court of Appeals conclusion that a contrary ruling would
encourage other corporations to adopt verbatim and register an existing and
protected corporate name, to the detriment of the public.
2. The Court held that ordering petitioner to change its corporate name is not a
violation of its constitutionally guaranteed right to religious freedom. In so doing,
the SEC merely compelled petitioner to abide by one of the SEC guidelines in the
approval of partnership and corporate names, namely its undertaking to manifest
its willingness to change its corporate name in the event another person, firm, or
entity has acquired a prior right to the use of the said firm name or one deceptively
or confusingly similar to it.
 JG SUMMIT HOLDINGS, INC., petitioner vs.COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, its Chairman and
Members; ASSET PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC., respondents
412 SCRA 10, G.R. No. 124293 September 24, 2003
FACTS: The National Investment and Development
Corporation (NIDC), a government corporation, entered into a
Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. of Kobe, Japan (KAWASAKI) for the
construction, operation and management of the Subic
National Shipyard Inc., (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation (PHILSECO).
Under the JVA, the NDC and KAWASAKI will contribute P330M
for the capitalization of PHILSECO in the proportion of 60%-
40% respectively. One of its salient features is the grant to the
parties of the right of first refusal should either of them decide
to sell, assign or transfer its interest in the joint venture.
NIDC transferred all its rights, title and interest in PHILSECO to
the Philippine National Bank (PNB). Such interests were
subsequently transferred to the National Government
pursuant to an Administrative Order.
When the former President Aquino issued Proclamation No. 50
establishing the Committee on Privatization (COP) and the
Asset Privatization Trust (APT) to take title to, and possession
of, conserve, manage and dispose of non-performing assets of
the National Government, a trust agreement was entered into
between the National Government and the APT wherein the
latter was named the trustee of the National Government’s
share in PHILSECO.
In the interest of the national economy and the government,
the COP and the APT deemed it best to sell the National
Government’s share in PHILSECO to private entities. After a
series of negotiations between the APT and KAWASAKI , they
agreed that the latter’s right of first refusal under the JVA be
“exchanged” for the right to top by 5%, the highest bid for the
said shares. They further agreed that KAWASAKI would be
entitled to name a company in which it was a stockholder,
which could exercise the right to top. KAWASAKI then
informed APT that
Philyards Holdings, Inc. (PHI) would exercise its right to top.
At the public bidding, petitioner J.G. Summit Holdings Inc.
submitted a bid of Two Billion and Thirty Million Pesos
(Php2,030,000,000.00) with an acknowledgement
ofKAWASAKI/PHILYARDS right to top. As petitioner was
declared the highest bidder, the COP approved the sale
“subject to the right of Kawasaki Heavy Industries, Inc. /
PHILYARDS Holdings Inc. to top JG’s bid by 5% as specified in
the bidding rules.”
On the other hand, the respondent by virtue of right to top by
5%, the highest bid for the said shares timely exercised the
same.
Petitioner informed APT that it was protesting the offer of PHI
to top its bid
Petitioner was notified that PHI had fully paid the balance of
the purchase price of the subject bidding. APT notified
petitioner that PHI had exercised its option to top the highest
bid and that the COP had approved the same. Hence, APT and
PHI executed a Stock Purchase Agreement.
Consequently, petitioner filed with this Court a Petition for
Mandamus under G.R. No. 114057. On May 11, 1994, said
petition was referred to the Court of Appeals. On July 18, 1995,
the Court of Appeals denied the same for lack of merit. It
ruled that the petition for mandamus was not the proper
remedy to question the constitutionality or legality of the right
of first refusal and the right to top that was exercised by
KAWASAKI/PHI.
Petitioner filed a Motion for Reconsideration of said Decision
which was denied on March 15, 1996. Petitioners, in their
motion for reconsideration, raised, inter alia, the issue on the
maintenance of the 60%-40% relationship between the NIDC
and KAWASAKI arising from the Constitution because
PHILSECO is a landholding corporation and need not be a
public utility to be bound by the 60%-40% constitutional
limitation.
Petitioner thus filed a Petition for Certiorari with this Court
alleging grave abuse of discretion on the part of the appellate
court.
On November 20, 2000, this Court rendered the now assailed
Decision. Said decision ruled among others that a shipyard like
PHILSECO is a public utility whose capitalization must be sixty
percent (60%) Filipino-owned. Consequently, the right to
top granted to KAWASAKI under the Asset Specific Bidding
Rules (ASBR) drafted for the sale of the 87.67% equity of the
National Government in PHILSECO is illegal---not only because
it violates the rules on competitive bidding--- but more so,
because it allows foreign corporations to own more than 40%
equity in the shipyard. Thus, this Court voided the transfer of
the national governments 87.67% share in PHILSECO to
Philyard Holdings, Inc., and upheld the right of JG Summit, as
the highest bidder, to take title to the said shares.
Now, Respondents filed motion for reconsideration raising the
issues
ISSUES:
1. Whether PHILSECO is a public utility – NO.
2. Whether under the 1977 Joint Venture Agreement, KAWASAKI
can purchase only a maximum of 40% of PHILSECO’s total
capitalization. – NO.
3. Whether the right to top granted to KAWASAKI in exchange for
its right of first refusal violates the principles of competitive
bidding. – NO.
HELD:
Motion for Reconsideration is hereby GRANTED. The
impugned Decision and Resolution of the Court of Appeals are
AFFIRMED.
1. No. PHILSECO is not a public utility
Reasons:
First. By nature, a shipyard is not a public utility. A public
utility is a business or service engaged in regularly supplying
the public with some commodity or service of public
consequence such as electricity, gas, water, transportation,
telephone or telegraph service. To constitute a public utility,
the facility must be necessary for the maintenance of life and
occupation of the residents. term public utility implies public
use and service to the public. The principal determinative
characteristic of a public utility is that of service to, or
readiness to serve, an indefinite public or portion of the
public as such which has a legal right to demand and receive
its services or commodities. Stated otherwise, the owner or
person in control of a public utility must have devoted it to
such use that the public generally or that part of the public
which has been served and has accepted the service, has the
right to demand that use or service so long as it is continued,
with reasonable efficiency and under proper charges. Unlike a
private enterprise which independently determines whom it
will serve, a public utility holds out generally and may not
refuse legitimate demand for service
Second. There is no law declaring a shipyard as a public
utility. A shipyard has been considered a public utility merely
by legislative declaration (sections 13 (b) and 15 of C.A. No. 146
were repealed in so far as the former law included shipyards in
the list of public utilities). Absent this declaration, there is no
more reason why it should continuously be regarded as such.
Thus, a shipyard reverts back to its status as non-public utility
prior to the enactment of the Public Service Law.
2. NO. 1977 Joint Venture Agreement reveals that
there is nothing that prevents KAWASAKI from acquiring
more than 40% of PHILSECOs total capitalization.
 Under section 1.3, the parties agreed to the amount
of P330 million as the total capitalization of their joint venture.
There was no mention of the amount of their initial
subscription. What is clear is that they are to infuse the needed
capital from time to time until the total subscribed and paid-
up capital reaches P312 million. The phrase maintaining a
proportion of 60%-40% refers to their respective share of the
burden each time the Board of Directors decides to increase
the subscription to reach the target paid-up capital of P312
million. It does not bind the parties to maintain the sharing
scheme all throughout the existence of their partnership.
 The non-selling party is given the right of first
refusal under section 1.4 to have a preferential right to buy or
to refuse the selling parties shares. The right of first refusal is
meant to protect the original or remaining joint venturer(s) or
shareholder(s) from the entry of third persons who are not
acceptable to it as co-venturer(s) or co-shareholder(s). The
joint venture between the Philippine Government and
KAWASAKI is in the nature of a partnership36 which, unlike an
ordinary corporation, is based on delectus personae.
Of course, this presupposes that there are no other
restrictions in the maximum allowable share that the non-
selling partner may acquire such as the constitutional
restriction on foreign ownership in public utility. The theory
that KAWASAKI can acquire, as a maximum, only 40% of
PHILSECOs shares is correct only if a shipyard is a public
utility. In such instance, the non-selling partner who is an alien
can acquire only a maximum of 40% of the total capitalization
of a public utility despite the grant of first refusal. The partners
cannot, by mere agreement, avoid the constitutional
proscription.
PHILSECO is not a public utility and no other
restriction is present that would limit the right of KAWASAKI
to purchase the Governments share to 40% of Philsecos total
capitalization
 the parties also have preemptive rights under
section 1.5 in the unissued shares of Philseco. Unlike the Rright
of first refusal, this situation does not contemplate transfer of
a partners shares to third parties but the issuance of new
Philseco shares. The grant of preemptive rights preserves the
proportionate shares of the original partners so as not to dilute
their respective interests with the issuance of the new shares.
Unlike the right of first refusal, a preemptive right gives a
partner a preferential right over the newly issued shares only
to the extent that it retains its original proportionate share in
the joint venture.
The case at bar does not concern the issuance of new
shares but the transfer of a partners share in the joint
venture. Verily, the operative protective mechanism is the
right of first refusal which does not impose any limitation in
the maximum shares that the non-selling partner may
acquire.
3. No. the right to top granted to KAWASAKI and
exercised by private respondent did not violate the rules of
competitive bidding.
The word bidding in its comprehensive sense means making an
offer or an invitation to prospective contractors whereby the
government manifests its intention to make proposals for the
purpose of supplies, materials and equipment for official
business or public use, or for public works or repair.
The three principles of public bidding are: (1) the offer to the
public; (2) an opportunity for competition; and (3) a basis for
comparison of bids.39 As long as these three principles are
complied with, the public bidding can be considered valid and
legal.
In the instant case, the sale of the Government shares in
PHILSECO was publicly known. All interested bidders were
welcomed. The basis for comparing the bids were laid down.
All bids were accepted sealed and were opened and read in the
presence of the COAs official representative and before all
interested bidders. The only question that remains is whether
or not the existence of KAWASAKIs right to top destroys the
essence of competitive bidding so as to say that the bidders
did not have an opportunity for competition. We hold that it
does not.
The essence of competition in public bidding is that the bidders
are placed on equal footing. This means that all qualified
bidders have an equal chance of winning the auction through
their bids. In the case at bar, all of the bidders were exposed
to the same risk and were subjected to the same
condition, i.e., the existence of KAWASAKIs right to top. This
reservation or qualification was made known to the bidders in
a pre-bidding conference. They all expressly accepted this
condition in writing without any qualification.
Furthermore, when the Committee on Privatization notified
petitioner of the approval of the sale of the National
Government shares of stock in PHILSECO, it specifically stated
that such approval was subject to the right of KAWASAKI
Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs
bid by 5% as specified in the bidding rules. Clearly, the
approval of the sale was a conditional one. Since Philyards
eventually exercised its right to top petitioners bid by 5%, the
sale was not consummated. Had Philyards Holdings, Inc. failed
or refused to exercise its right to top, the sale between the
petitioner and the National Government would have been
consummated.
In the instant case, the highest bidder was well aware that
the acceptance of its bid was conditioned upon the non-
exercise of the right to top.
If at all, the obvious consideration for the exchange of the right
of first refusal with the right to top is that KAWASAKI can name
a nominee, which it is a shareholder, to exercise the right to
top. This is a valid contractual stipulation; the right to top is an
assignable right and both parties are aware of the full legal
consequences of its exercise. As aforesaid, all bidders were
aware of the existence of the right to top, and its possible
effects on the result of the public bidding was fully disclosed
to them. The petitioner, thus, cannot feign ignorance nor can
it be allowed to repudiate its acts and question the
proceedings it had fully adhered to.
CECILIA CASTILLO, OSCAR DEL ROSARIO, MEDICAL CENTER PARAÑAQUE, INC., et. al. vs.
ANGELES BALINGHASAY, RENATO BERNABE et. al.

G.R. No. 150976; October 18, 2004

QUISUMBING, J.:

Facts:

For review on certiorari is the Partial Judgment of RTC Parañaque City dismissing petitioners’
first cause of action to annul election of the board of directors of the Medical Center
Parañaque, Inc. (MCPI) depriving “Class B” shareholders their voting rights and to be voted
on as members of the board.

MCPI is a domestic corporation organized when the old Corporation Law was still in force
and effect. In the original Articles of Incorporation the shares were classified as Class A and
Class B.

On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was amended inserting the
following clause: “Only holders of Class A shares have the right to vote and the right to be elected as
directors or as corporate officers.”

On September 9, 1992, Article VII was again amended to provide as follows: “Except when
otherwise provided by law, only holders of Class "A" shares have the right to vote and the right to be
elected as directors or as corporate officers.”

On February 9, 2001, the shareholders of MCPI held their annual stockholders’ meeting and
election for directors.

During the course of the proceedings, a respondent citing Article VII, as amended declared
over the objections of herein petitioners, that no Class "B" shareholder was qualified to run or
be voted upon as a director. Notwithstanding, MCPI’s past, that had seen holders of Class "B"
shares voted for and serve as members of the corporate board and some Class "B" share
owners were in fact nominated for election as board members.

The candidates holding Class "A" shares were the winners of all seats in the corporate board.

Thus, Class B shareholders filed before the RTC of Parañaque City complaint founded on 2
principal causes of action, namely:

a. Annulment of the declaration of directors of the MCPI made during the February 9, 2001
Annual Stockholders’ Meeting, and for the conduct of an election whereat all stockholders,
irrespective of the classification of the shares they hold, should be afforded their right to vote
and be voted for; and

b. Stockholders’ derivative suit challenging the validity of a contract entered into by the
Board of Directors of MCPI for the operation of the ultrasound unit.

RTC rendered the Partial Judgment that the election is valid as holders of CLASS "B" shares are
not entitled to vote and be voted for and this case based on the First Cause of Action. RTC
held hat corporations had the power to classify their shares of stocks, such as "voting and
non-voting" shares, conformably with Section 67 of the Corporation Code of the Philippines.

Petitioners’ contention: Section 6 prohibits the deprivation of voting rights except as to

preferred and redeemable shares only.

Respondents’ contention: the grant of exclusive voting rights to Class "A" shares is clearly
provided in the Articles of Incorporation and is in accord with Section 59 of the Corporation
Law (Act No. 1459), prevailing law during MCPI’s incorporations. Likewise submit that as the
Articles of Incorporation of MCPI is in the nature of a contract between the corporation and
its shareholders and Section 6 of the Corporation could not retroactively apply without
violating non-impairment clause.

Issue:

Whether or not Class B shares of MCPI can be deprived of the right to vote and be voted
upon.

Ruling:

No. At the time of the incorporation of MCPI in 1977, the right of a corporation to classify its
shares of stock was sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459,
B.P. Blg. 68, retained the same grant of right of classification of stock shares to corporations,
but with a significant change.

Under Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights were explicitly
provided for, such that "no share may be deprived of voting rights except those classified
and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code"
and that "there shall always be a class or series of shares which have complete voting rights."
Nothing in the Articles of Incorporation nor an iota of evidence on record to show that Class
"B" shares were categorized as either "preferred" or "redeemable" shares. The only possible
conclusion is that Class "B" shares fall under neither category and thus, under the law, are
allowed to exercise voting rights.

The right to vote is a right inherent in and incidental to the ownership of corporate stock, and
as such is a property right. The stockholder cannot be deprived of the right to vote his stock
nor may the right be essentially impaired, either by the legislature or by the corporation,
without his consent, through amending the charter, or the by-laws

The non-impairment clause is inapplicable in this instance. When Article VII of the Articles of
Incorporation of MCPI were amended in 1992, the board of directors and stockholders must
have been aware of Section 6 of the Corporation Code and intended that Article VII be
construed in harmony with the Code, which was then already in force and effect. Since
Section 6 of the Corporation Code expressly prohibits the deprivation of voting rights, except
as to "preferred" and "redeemable" shares, then Article VII of the Articles of Incorporation
cannot be construed as granting exclusive voting rights to Class "A" shareholders, to the
prejudice of Class "B" shareholders, without running afoul of the letter and spirit of the
Corporation Code.
 Grace Christian High School v. Court Of Appeals
G.R. No. 108905

Facts:
Grace Christian High School is an educational institution located at the Grace
Village in Quezon City
Grace Village Association, Inc. is an organization of lot and/or building owners,
lessees and residents at Grace Village
The original 1968 by-laws provide that the Board of Directors, composed of eleven
(11) members, shall serve for one (1) year until their successors are duly elected and
have qualified. On 20 December 1975, a committee of the board of directors prepared a
draft of an amendment to the by-laws which provides that "GRACE CHRISTIAN HIGH
SCHOOL representative is a permanent Director of the ASSOCIATION."
However, this draft was never presented to the general membership for approval.
Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board of
directors of the association.
On 13 February 1990, the association's committee on election sought to change
the by-laws and informed the Petitioner's school principal "the proposal to make the Grace
Christian High School representative as a permanent director of the association, although
previously tolerated in the past elections should be re-examined."
Following this advice, notices were sent to the members of the association that
the provision on election of directors of the 1968 by-laws of the association would be
observed. Petitioner requested the chairman of the election committee to change the
notice to honor the 1975 by-laws provision, but was denied.
The school then brought suit for mandamus in the Home Insurance and Guaranty
Corporation (HIGC) to compel the board of directors to recognize its right to a permanent
seat in the board.
The SEC rendered an opinion to the effect that the practice of allowing
unelected members in the board was contrary to the existing by-laws of the
association and the Corporation Code (B.P. Blg. 68). This was adopted by the
association in its Answer in the mandamus filed with the HIGC.
The HIGC hearing officer ruled in favor of the association, which decision was
affirmed by the HIGC Appeals Board and the Court of Appeals.
Issue:
Whether or not the 1975 provision giving the petitioner a permanent board seat
was valid.

Ruling:
No. Section 23 of the Corporation Code (and its predecessor Section 28 and 29 of
the Corporation Law) leaves no room for doubt that the Board of Directors of a
Corporation must be elected from among the stockholders or members.
There may be corporations in which there are unelected members in the board but
it is clear that in these instances, the unelected members sit as ex officio members,
i.e., by virtue of and for as long as they hold a particular office (e.g. whoever is the
Archbishop of Manila is considered a member of the board of Cardinal Santos Memorial
Hospital, Inc.)
But in the case of petitioner, there is no reason at all for its representative to be
given a seat in the board nor does petitioner claim a right to such seat by virtue of an
office held. In fact it was not given such seat in the beginning. It was only in 1975 that
a proposed amendment to the by-laws sought to give it one.
Since the provision in question is contrary to law, the fact that it has gone
unchallenged for fifteen years cannot forestall a later challenge to its validity. Neither can
it attain validity through acquiescence because, if it is contrary to law, it is beyond the
power of the members of the association to waive its invalidity. It is more accurate to say
that the members merely tolerated petitioner's representative and tolerance cannot be
considered ratification nor can petitioner claim a vested right to sit in the board on the
basis of "practice." Practice, no matter how long continued, cannot give rise to any vested
right if it is contrary to law.
 G.R. No. L-45911 April 11, 1979

JOHN GOKONGWEI, JR., petitioner,

vs.
SECURITIES AND EXCHANGE COMMISSION et. al, respondents.

FACTS:
This is a petition for “declaration of nullity of amended by-laws, cancellation of certificate of filing of
amended by-laws and damages” filed by petitioner John Gokongwei against the majority of the members of the
Board of Directors.
The first cause of action is that the Board acted without authority and usurpation of the power of the
stockholders because it amended the by-laws on 1976 based on a voted made according to the 1961 shares and
not on the 1976 shares.
The second cause of action is that the authority granted in 1961 had already been exercised in 1962 and
1963, after which the authority of the Board ceased to exist,
The third cause of action is that the membership of the Board of Directors changed since 1961, there are
6 new directors.
The fourth cause of action states that the petitioner had all the qualifications to be a director, being a
Substantial stockholder thereof and that in amending the by-laws, respondents purposely provided for petitioner’s
disqualification, hence the amended by-laws are null and void.
Another cause of action is that a corporation has no inherent power to disqualify a stockholder from
being elected as director and, therefore, the questioned act is ultra vires and void.
It was prayed that the amended by-laws be declared null and void and the certificate of filing thereof be
cancelled and that the individual respondents be made to pay damages, in specified amounts.
Respondents filed their answer to the petition, denying the substantial allegations therein and stating,
that "the action taken by the Board of Directors on September 18, 1976 resulting in the amendments is valid and
legal because the power to 'amend, modify, repeal or adopt new By-laws' was delegated to said Board on March
13, 1961 and long prior thereto has never been revoked, withdrawn or otherwise nullified by the stockholders of
SMC". It further contend that contrary to petitioner's claim, "the vote requirement for a valid delegation of the
power to amend, repeal or adopt new by-laws is determined in relation to the total subscribed capital stock at the
time the delegation of said power is made, not when the Board opts to exercise said delegated power. It also
content that the petition is premature because the petitioner has not availed of his intra-corporate remedy for the
nullification of the amendment, which is to secure its repeal by vote of the stockholders representing a majority of
the subscribed capital stock at any regular or special meeting, as provided in Article VIII, section I of the by-laws
and section 22 of the Corporation law.
In August 1972, the Universal Robina Corporation (URC), a corporation engaged in business competitive to
that of respondent corporation, began acquiring shares amounting to 622,987 shares. In October 1972, the
Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent corporation that amounted
to P543,959.00. On January 12, 1976, petitioner, who is president and controlling shareholder of URC and CFC
(both closed corporations) purchased 5,000 shares of stock of respondent corporation, and thereafter, in behalf of
himself, CFC and URC, "conducted malevolent and malicious publicity campaign against SMC" to generate support
from the stockholder "in his effort to secure for himself and in representation of URC and CFC interests, a seat in
the Board of Directors of SMC". Petitioner was rejected by the stockholders in his bid to secure a seat in the Board
of Directors on the basic issue that petitioner was engaged in a competitive business and his securing a seat would
have subjected respondent corporation to grave disadvantages.
A TRO was issued by the Court, restraining private respondents from disqualifying or preventing
petitioner from running or from being voted as director of respondent corporation and from submitting for
ratification or confirmation or from causing the ratification or confirmation of the amendment. SEC held that
petitioner should be allowed to run as a director but that he should not sit as such until SEC has decided on the
validity of the by-laws in dispute.
Respondents reason out that petitioner is engaged in businesses competitive and antagonistic to that of
respondent SMC and that the Board realized the clear and present danger in competitors being directors because
they would have easy and direct access to SMC’s business and trade secrets.
ISSUE:
Whether or not the provisions of the amended by- laws of respondent corporation, disqualifying a
competitor from nomination or election to the Board of Directors are valid and reasonable.
HELD:
Yes, the provisions of the amended by-laws of respondent corporation, disqualifying a competitor from
nomination or election to the Board of Directors are valid and reasonable.
Petitioner: claims that the amended by-laws are invalid and unreasonable because they were tailored to
suppress the minority and prevent them from having representation in the Board", at the same time depriving
petitioner of his "vested right" to be voted for and to vote for a person of his choice as director.
Respondents: contend that exclusion of a competitor from the Board is legitimate corporate purpose,
considering that being a competitor, petitioner cannot devote an unselfish and undivided Loyalty to the
corporation; that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of
reasonable protective from the unrestrained self-interest of those charged with the promotion of the corporate
enterprise; that access to confidential information by a competitor may result either in the promotion of the
interest of the competitor at the expense of the San Miguel Corporation, or the promotion of both the interests of
petitioner and respondent San Miguel Corporation, which may, therefore, result in a combination or agreement in
violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the
consuming public.
Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by
a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all
matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law."
Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by
a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the
corporation. If the amendment changes, diminishes or restricts the rights of the existing shareholders, then the
dissenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share."
Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal
any by-law or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be elected
director, in the face of the fact that the law at the time such right as stockholder was acquired contained the
prescription that the corporate charter and the by-law shall be subject to amendment, alteration and modification.
Although in the strict and technical sense, directors of a private corporation are not regarded as trustees,
there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders
as a body are concerned. As agents entrusted with the management of the corporation, they should act for the
collective benefit of the stockholders.
It is a settled state law in the United States that corporations have the power to make by-laws declaring a
person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. ". . .
(A)n amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a
corporation whose business is in competition with or is antagonistic to the other corporation is valid." This is based
upon the principle that where the director is so employed in the service of a rival company, he cannot serve both,
but must betray one or the other. Such an amendment "advances the benefit of the corporation and is good."
 The doctrine of "corporate opportunity" is precisely a recognition that fiduciary standards could not be
upheld where the fiduciary was acting for two entities with competing interests. It is not denied that a member of
the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information.
It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the
information which he acquires as director to promote his individual or corporate interests to the prejudice of San
Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly,
where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for
the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the
performance of his corporation duties above his personal concerns.
In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the
corporation in adopting measures to protect legitimate corporate interests. The test must be whether the business
does in fact compete, not whether it is capable of an indirect and highly unsubstantial duplication of an isolated or
non-characteristic activity.
 #15 G.R. No. 113032 August 21, 1997
WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ,
PRESTON F. VILLASIS & REGINALD F. VILLASIS, petitioner, vs.
RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS,
RICHARD S. SALAS & HON. JUDGE PORFIRIO PARIAN, respondents.
HERMOSISIMA, JR., J.:

FACTS:
Private respondents are the majority and controlling members of the Board of Trustees
of Western Institute of Technology, Inc. a stock corporation engaged in the operation, among
others, of an educational institution. Then, the board of directors amended their by-laws giving
the members of board of directors a compensation. The ten per centum of the net profits shall
be distributed equally among the ten members of the Board of Trustees. Few years later, the
private respondents were charged of falsification of public documents and estafa. The charge for
falsification of public document was anchored on the private respondents’ submission of WIT’s
income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission
(SEC) reflecting therein the disbursement of corporate funds making it appear that the same was
passed by the board on March 30, 1986, when in truth, the same was actually passed on June 1,
1986, a date not covered by the corporation’s fiscal year 1985-1986. After a full-blown hearing
TC handed down a verdict of acquittal on both counts without imposing any civil liability against
the accused therein.

ISSUE:
WON the compensation of the board of directors as stated in their by-laws violates the
corporation code?

HELD:
NO. There is no argument that directors or trustees, as the case may be, are not entitled
to salary or other compensation when they perform nothing more than the usual and ordinary
duties of their office. This rule is founded upon a presumption that directors/trustees render
service gratuitously, and that the return upon their shares adequately furnishes the motives for
service, without compensation.
Under the foregoing section, there are only two (2) ways by which members of the board
can be granted compensation apart from reasonable per diems:
(1) when there is a provision in the by-laws fixing their compensation; and
(2) when the stockholders representing a majority of the outstanding capital stock at a
regular or special stockholders’ meeting agree to give it to them.
In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to
private respondents not in their capacity as members of the board, but rather as officers of the
corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of
Western Institute of Technology. Clearly, therefore, the prohibition with respect to granting
compensation to corporate directors/trustees as such under Section 30 is not violated in this
particular case.
OTHER TOPICS:

DERRIVATIVE SUIT

Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of
WIT for and on behalf of the corporation to annul Resolution No. 48, s. 1986 which is prejudicial to the
corporation. A: NO

A derivative suit is an action brought by minority shareholders in the name of the corporation
to redress wrongs committed against it, for which the directors refuse to sue.
It is a remedy designed by equity and has been the principal defense of the minority shareholders
against abuses by the majority.
Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of
Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public
document. 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.
This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the allegations
in the complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the subject
matter and nature of the action. This was not complied with by the petitioners either in their complaint
before the court a quo nor in the instant petition which, in part, merely states that "this is a petition for
review on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal Cases
Nos. 37097 and 37098" since the trial court's judgment of acquittal failed to impose any civil liability
against the private respondents. By no amount of equity considerations, if at all deserved, can a mere
appeal on the civil aspect of a criminal case be treated as a derivative suit.
The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based on reasonable doubt
but rather on a finding that the accused-private respondents did not commit the criminal acts complained
of.
Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which
it is not, the same is outrightly dismissible for having been wrongfully filed in the regular court devoid of
any jurisdiction to entertain the complaint. The case should have been filed with the Securities and
Exchange Commission (SEC) which exercises original and exclusive jurisdiction over derivative suits.
G.R. No. 159795 July 30, 2004
SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP, INC., petitioners,
vs.
CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION and SPS. NARCISO & AIDA QUIAMBAO,
respondents.
FACTS :
Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged in the construction business, with
petitioner-spouses ROBERTO and EVELYN DAVID as its President and Treasurer, respectively. Respondent-
spouses NARCISO and AIDA QUIAMBAO engaged the services of petitioner CGI to design and construct a
five-storey concrete office/residential building on their land in Tondo, Manila. The Design/Build Contract
of the parties provided that:
(a) petitioner CGI shall prepare the working drawings for the construction project;
(b) respondents shall pay petitioner CGI the sum of Seven Million Three Hundred Nine Thousand Eight
Hundred Twenty-One and 51/100 Pesos (P7,309,821.51) for the construction of the building, including the
costs of labor, materials and equipment, and Two Hundred Thousand Pesos (P200,000.00) for the cost of
the design; and
(c) the construction of the building shall be completed within nine (9) months after securing the building
permit.
The completion of the construction was initially scheduled on or before July 16, 1998 but was extended to
November 15, 1998 upon agreement of the parties but petitioners failed to follow the specifications and
plans as previously agreed upon. Respondents demanded the correction of the errors but petitioners
failed to act on their complaint. Consequently, respondents rescinded the contract on October 31, 1998,
after paying 74.84% of the cost of construction.
Respondents then engaged the services of another contractor, RRA and Associates, It was found that
petitioners revised and deviated from the structural plan of the building without notice to or approval by
the respondents.
TRIAL :
Respondents filed a case for breach of contract against petitioners before the Regional Trial Court (RTC) of
Manila. At the pre-trial conference, the parties agreed to submit the case for arbitration to
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC). Atty. Parlade was appointed by the CIAC
as sole arbitrator to resolve the dispute and Engr. Loreto C. Aquino assisted him in assessing the technical
aspect of the case. The RTC of Manila then dismissed the case and transmitted its records to the CIAC.
The arbitrator rendered judgment against petitioners. Petitioners appealed to the Court of Appeals which
affirmed the arbitrator’s Decision but deleted the award for lost rentals.
ISSUE :
I. THERE WAS NO BASIS, IN FACT AND IN LAW, TO ALLOW RESPONDENTS TO UNILATERALLY RESCIND
THE DESIGN/BUILT CONTRACT, AFTER PETITIONERS HAVE (SIC) SUBSTANTIALLY PERFORMED THEIR
OBLIGATION UNDER THE SAID CONTRACT.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS JOINTLY AND SEVERALLY
LIABLE WITH CO-PETITIONER COORDINATED (GROUP, INC.), IN CLEAR VIOLATION OF THE DOCTRINE OF
SEPARATE JURIDICAL PERSONALITY.
HELD:
Executive Order No. 1008 entitled, "Construction Industry Arbitration Law" provided for an arbitration
mechanism for the speedy resolution of construction disputes other than by court litigation. It recognized
the role of the construction industry in the country’s economic progress as it utilizes a large segment of
the labor force and contributes substantially to the gross national product of the country. Thus, E.O. No.
1008 vests on the CIAC original and exclusive jurisdiction over disputes arising from or connected with
construction contracts entered into by parties who have agreed to submit their case to voluntary
arbitration. Section 19 of E.O. No. 1008 provides that its arbitral award shall be appealable to the Supreme
Court only on questions of law.
There is a question of law when the doubt or difference in a given case arises as to what the law is on a
certain set of facts, and there is a question of fact when the doubt arises as to the truth or falsity of the
alleged facts.
In the case at bar, it is readily apparent that petitioners are raising questions of fact.
In their first assigned error, petitioners claim that at the time of rescission, they had completed 80% of the
construction work and still have 15 days to finish the project. They likewise insist that they constructed the
building in accordance with the contract and any modification on the plan was with the consent of the
respondents. These claims of petitioners are refuted by the evidence on record. In holding that
respondents were justified in rescinding the contract, the Court of Appeals upheld the factual findings of
the sole arbitrator.
The second assigned error likewise involves a question of fact. It is contended that petitioner-spouses
David cannot be held jointly and severally liable with petitioner CGI in the payment of the arbitral award
as they are merely its corporate officers.
At first glance, the issue may appear to be a question of law as it would call for application of the law on
the separate liability of a corporation. However, the law can be applied only after establishing a factual
basis, i.e., whether petitioner-spouses as corporate officers were grossly negligent in ordering the
revisions on the construction plan without the knowledge and consent of the respondent-spouses. On
this issue, the Court of Appeals again affirmed the factual findings of the arbitrator.
As a general rule, the officers of a corporation are not personally liable for their official acts unless it is
shown that they have exceeded their authority. However, the personal liability of a corporate director,
trustee or officer, along with corporation, may so validly attach when he assents to a patently unlawful
act of the corporation or for bad faith or gross negligence in directing its affairs.
Clearly, the case at bar does not raise any genuine issue of law. We reiterate the rule that factual findings
of construction arbitrators are final and conclusive and not reviewable by this Court on appeal, EXCEPT
when the petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or other
undue means; (2) there was evident partiality or corruption of the arbitrators or of any of them; (3) the
arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or
in refusing to hear evidence pertinent and material to the controversy; (4) one or more of the arbitrators
were disqualified to act as such under section nine of Republic Act No. 876 and willfully refrained from
disclosing such disqualifications or of any other misbehavior by which the rights of any party have been
materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that
a mutual, final and definite award upon the subject matter submitted to them was not made. Petitioners
failed to show that any of these exceptions applies to the case at bar. Petition is DISMISSED for lack of
merit.
Hydro Resources Contractors Corporation vs National Irrigation Administration
G.R. No. 160215 November 10, 2004

Facts:

The National Irrigation Administration (NIA) and Hydro Resources Contractors Corporation
(Hydro) entered into a contract involving the main civil work of the Magat River Multi-Purpose
Project. The contract price is to be payable partly in Philippine peso and US dollars at the
exchange rate of P7.3735 to the dollar.

During the period of the execution of the contract, the foreign exchange value of the peso against
the US dollar declined and steadily deteriorated. Upon completion of the project, a final
reconciliation of the total entitlement of Hydro to the foreign currency component of the
contract was made. The result of this final reconciliation showed that the total entitlement of
Hydro to the foreign currency component of the contract exceeded the amount of US dollars
required by Hydro to repay the advances made by NIA for its account in the importation of new
equipment, spare parts and tools. Hydro then requested a full and final payment due to the
underpayment of the foreign exchange portion caused by price escalations and extra work
orders.

To resolve the issue NIA, thru its Administrator Cesar L. Tech, and Hydro prepared a joint
computation and based on said joint computation, Hydro was still entitled to a foreign exchange
differential of US$1,353,771.79 equivalent to P10,898,391.17. Hydro then presented its claim for
said foreign exchange differential to NIA but the latter refused to honor the same contending
that Tech has no authority to participate into a joint computation of the foreign currency
differential and that he has no authority to bind NIA.

Hydro filed a request for arbitration with the Construction Industry Arbitration Commission
(CIAC) which promulgated a decision in favor of Hydro. Thereafter, the Court of Appeals rendered
a decision reversing the judgment of the CIAC.

Issue: Whether or not NIA Administrator has the authority to bind NIA in the joint computation
of the foreign currency differential.

Held:

Yes. Instead of upholding the CIAC's findings on this point, the Court of Appeals ruled that Cesar
L. Tech's act of signing the Joint Computation was an ultra vires act. This again is patent error. It
must be noted that the Administrator is the highest officer of the NIA. Furthermore, Hydro has
been dealing with NIA through its Administrator in all of its transactions with respect to the
contract and subsequently the foreign currency differential claim. The NIA Administrator is
empowered by the Contract to grant or deny foreign currency differential claims. It would be
preposterous for the NIA Administrator to have the power of granting claims without the
authority to verify the computation of such claims. Finally, the records of the case will show that
NIA itself never disputed its Administrator's capacity to sign the Joint Computation because it
knew that the Administrator, in fact, had such capacity.

Even assuming for the sake of argument that the Administrator had no authority to bind NIA, the
latter is already estopped after repeatedly representing to Hydro that the Administrator had such
authority. A corporation may be held in estoppel from denying as against third persons the
authority of its officers or agents who have been clothed by it with ostensible or apparent
authority. Indeed – . . . The rule is of course settled that "although an officer or agent acts without,
or in excess of, his actual authority if he acts within the scope of an apparent authority with which
the corporation has clothed him by holding him out or permitting him to appear as having such
authority, the corporation is bound thereby in favor of a person who deals with him in good faith
in reliance on such apparent authority, as where an officer is allowed to exercise a particular
authority with respect to the business, or a particular branch of it, continuously and publicly, for
a considerable time.". . .
[ G.R. No. 152542 & 155472, July 08, 2004 ]

MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, AS REPRESENTED BY MA.

ANTONIA M. SALVATIERRA, PETITIONER, VS. ANTONIO B. MONFORT III, MA. LUISA MONFORT
ASCALON, ILDEFONSO B. MONFORT, ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY
FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ AND
COURT OF APPEALS, RESPONDENTS.

[G.R. NO. 155472. JULY 8, 2004]

ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT, ALFREDO
B. MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R.
PAYLADO, JOSE MARTIN M. RODRIGUEZ, PETITIONERS, VS. HON. COURT OF APPEALS, MONFORT
HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, AS REPRESENTED BY MA. ANTONIA
M. SALVATIERRA, AND RAMON H. MONFORT, RESPONDENTS.

FACTS:

Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the

registered owner of a farm, fishpond and sugar cane plantation known as Haciendas San Antonio
II, Marapara, Pinanoag and Tinampa-an, all situated in Cadiz City. It also owns one unit of motor
vehicle and two units of tractors. The same allowed Ramon H. Monfort, its Executive Vice
President, to breed and maintain fighting cocks in his personal capacity at Hacienda San Antonio.
In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took
possession of the 4 Haciendas, the produce thereon and the motor vehicle and tractors, as well
as the fighting cocks of Ramon H. Monfort.

On April 10, 1997, the Corporation, represented by its President, Ma. Antonia M. Salvatierra, and
Ramon H. Monfort, in his personal capacity, filed against the group of Antonio Monfort III, a
complaint for delivery of motor vehicle, tractors and 378 fighting cocks, with prayer for injunction
and damages.

On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint for
forcible entry, preliminary mandatory injunction with temporary restraining order and damages
against the group of Antonio Monfort III, before the Municipal Trial Court (MTC) of Cadiz City. It
contended that the latter through force and intimidation, unlawfully took possession of the 4
Haciendas and deprived the Corporation of the produce thereon.

ISSUE:

Whether or not Ma. Antonia M. Salvatierra has the legal capacity to sue on behalf of the
Corporation.

RULING:

NO. A corporation has no power except those expressly conferred on it by the Corporation Code
and those that are implied or incidental to its existence. In turn, a corporation exercises said
powers through its board of directors and/or its duly authorized officers and agents. Thus, it
has been observed that the power of a corporation to sue and be sued in any court is lodged
with the board of directors that exercises its corporate powers. In turn, physical acts of the
corporation, like the signing of documents, can be performed only by natural persons duly
authorized for the purpose by corporate bylaws or by a specific act of the board of directors.

Corollary thereto, corporations are required under Section 26 of the Corporation Code to submit
to the SEC within thirty (30) days after the election the names, nationalities and residences of
the elected directors, trustees and officers of the Corporation. In order to keep stockholders
and the public transacting business with domestic corporations properly informed of their
organizational operational status, the SEC issued the following rules:

x x x x x x xx x

2. A General Information Sheet shall be filed with this Commission within thirty (30) days
following the date of the annual stockholders’ meeting. No extension of said period shall
be allowed, except for very justifiable reasons stated in writing by the President,
Secretary, Treasurer or other officers, upon which the Commission may grant an extension
for not more than ten (10) days.

2.A. any manner, cease to hold office, the corporation shall report such fact to the
Commission with fifteen (15) days after such death, resignation or cessation of office.

3. If for any justifiable reason, the annual meeting has to be postponed, the company
should notify the Commission in writing of such postponement.

The General Information Sheet shall state, among others, the names of the elected directors and
officers, together with their corresponding position title… (Emphasis supplied)

In the case at bar, the fact that four of the six Members of the Board listed in the 1996
General Information Sheet are already dead at the time the March 31, 1997 Board Resolution
was issued, does not automatically make the four signatories (i.e., Paul M. Monfort, Yvete M.
Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board Resolution (whose name
do not appear in the 1996 General Information Sheet) as among the incumbent Members of the
Board. This is because it was not established that they were duly elected to replace the said
deceased Board Members.

To correct the alleged error in the General Information Sheet, the retained accountant of the
Corporation informed the SEC in its November 11, 1998 letter that the noninclusion of the
lawfully elected directors in the 1996 General Information Sheet was attributable to its oversight
and not the fault of the Corporation. This belated attempt, however, did not erase the doubt as
to whether an election was indeed held. As previously stated, a corporation is mandated to
inform the SEC of the names and the change in the composition of its officers and board of
directors within 30 days after election if one was held, or 15 days after the death, resignation or
cessation of office of any of its director, trustee or officer if any of them died, resigned or in
any manner, ceased to hold office. This, the Corporation failed to do. The alleged election of
the directors and officers who signed the March 31, 1997 Board Resolution was held on October
16, 1996, but the SEC was informed thereof more than two years later, or on November 11,
1998. The 4 Directors appearing in the 1996 General Information Sheet died between the years
1984 – 1987, but the records do not show if such demise was reported to the SEC.
What further militates against the purported election of those who signed the March 31, 1997
Board Resolution was the belated submission of the alleged Minutes of the October 16, 1996
meeting where the questioned officers were elected. The issue of legal capacity of Ma. Antonia
M. Salvatierra was raised before the lower court by the group of Antonio Monfort III as early as
1997, but the Minutes of said October 16, 1996 meeting was presented by the Corporation only
in its September 29, 1999 Comment before the Court of Appeals. Moreover, the Corporation
failed to prove that the same October 16, 1996 Minutes was submitted to the SEC. In fact, the
1997 General Information Sheet[28] submitted by the Corporation does not reflect the names of
the 4 Directors claimed to be elected on October 16, 1996.

Considering the foregoing, we find that Ma. Antonia M. Salvatierra failed to prove that four of
those who authorized her to represent the Corporation were the lawfully elected Members of
the Board of the Corporation. As such, they cannot confer valid authority for her to sue on
behalf of the corporation.
19. Nielson & Co. Inc. vs. Lepanto Consolidated Mining Co.
GR L-21601, 28 December 1968

FACTS:

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

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

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

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

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

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

HELD:

Stock dividends cannot be issued to a person who is not a stockholder in payment of

services rendered.

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

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

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

Moreover, from the above-quoted provision of Section 16 of the Corporation Law, the
consideration for which shares of stock may be issued are: (1) cash; (2) property; and (3)
undistributed profits. Shares of stock are given the special name “stock dividends” only if they
are issued in lieu of undistributed profits. If shares of stocks are issued in exchange of cash or
property then those shares do not fall under the category of “stock dividends”. A corporation
may legally issue shares of stock in consideration of services rendered to it by a person not a
stockholder, or in payment of its indebtedness. In other words, it is the shares of stock that are
originally issued by the corporation and forming part of the capital that can be exchanged
for cash or services rendered, or property; that is, if the corporation has original shares of stock
unsold or unsubscribed, either coming from the original capitalization or from the increased
capitalization. Those shares of stock may be issued to a person who is not a stockholder, or to
a person already a stockholder in exchange for services rendered or for cash or property. But
a share of stock coming from stock dividends declared cannot be issued to one who is not a
stockholder of a corporation.
 ISLAMIC DIRECTORATE OF THE PHILIPPINES vs.COURT OF APPEALS and IGLESIA NI CRISTO
G.R. No. 117897
FACTS:
IDP-Tamano Group alleges that sometime in 1971, Islamic leaders of all Muslim major tribal groups in the
Philippines organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary
purpose of which is to establish an Islamic Center in Quezon City for the construction of a “Mosque (prayer
place), Madrasah (Arabic School), and other religious infrastructures" so as to facilitate the effective
practice of Islamic faith in the area.
In the same year, the Libyan government donated money to the IDP to purchase land at Culiat, Tandang
Sora, Quezon City, to be used as a Center for the Islamic populace. The land, with an area of 49,652 square
meters, was covered by two titles, both registered in the name of IDP.
After the purchase of the, Martial Law was declared by the late President Ferdinand Marcos. Most of the
members of the 1971 Board of Trustees flew to the Middle East to escape political persecution.
Thereafter, two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and the
Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the
legitimate IDP. The SEC, in a suit between these two contending groups, came out with a decision
declaring the election of both the Carpizo Group and the Abbas Group as IDP board members to be null
and void for being violative of the Articles of Incorporation of petitioner corporation.
To remedy this unfortunate situation that the association has found itself in, the members of the
petitioning corporation are hereby authorized to prepare and adopt their by-laws for submission to the
Commission. Once approved, an election of the members of the Board of Trustees shall immediately be
called pursuant to the approved by-laws. Neither group, however, took the necessary steps prescribed by
the SEC in its decision, and, thus, no valid election of the members of the Board of Trustees of IDP was
ever called.
Without having been properly elected as new members of the Board of Trustee of IDP, the Carpizo Group
caused to be signed an alleged Board Resolution of the IDP, authorizing the sale of the subject two parcels
of land to the INC for a consideration of P22,343,400.00.
The 1971 IDP Board of Trustees headed by the Tamano Group, filed a petition before the SEC seeking to
declare null and void the Deed of Absolute Sale since the Carpizo group was not the legitimate Board of
Trustees of the IDP.
The IDP-Tamano Group sought to intervene. RTC-Quezon City, denied the motion to intervene on the
ground of lack of juridical personality of the IDP-Tamano Group and that the issues being raised by way
of intervention are intra-corporate in nature, jurisdiction thereto properly pertaining to the SEC.
The SEC, finally came out with a decision declaring the by-laws submitted by the respondents as
unauthorized, and hence, null and void and declaring the sale of the two (2) parcels of land in Quezon City
covered by the Deed of Absolute Sale entered into by Iglesia ni Kristo and the Islamic Directorate of the
Philippines, Inc. null and void
INC filed a Motion for Intervention but the same was denied on account of the fact that the decision of
the case had become final and executory, no appeal having been taken therefrom.
INC elevated the case to Court of Appeals by way of a special civil action for certiorari. The court a quo
promulgated a granting INC's petition. The portion of the SEC Decision which declared the sale of the two
(2) lots in question to INC as void was ordered set aside by the Court of Appeals. Thus, the IDP-Tamano
Group brought the instant petition for review.
ISSUE:
Whether or not the sale of two (2) parcels of land in Quezon City between the IDP-Carpizo Group and INC
is null and void?
RULING:
We rule in the affirmative.
There can be no question as to the authority of the SEC to pass upon the issue as to who among the
different contending groups is the legitimate Board of Trustees of the IDP since this is a matter properly
falling within the original and exclusive jurisdiction of the SEC by virtue of Sections 3 and 5(c) of
Presidential Decree No. 902-A.
If the SEC can declare who is the legitimate IDP Board, then by parity of reasoning, it can also declare who
is not the legitimate IDP Board. This is precisely what the SEC did when it adjudged the election of the
Carpizo Group to the IDP Board of Trustees to be null and void. By this ruling, the SEC in effect made the
unequivocal finding that the IDP-Carpizo Group is a bogus Board of Trustees. Consequently, the Carpizo
Group is bereft of any authority whatsoever to bind IDP in any kind of transaction including the sale or
disposition of ID property.
Premises considered, all acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora
property, allegedly in the name of the IDP, have to be struck down for having been done without the
consent of the IDP thru a legitimate Board of Trustees.
In this case, the IDP, owner of the subject parcels of land, never gave its consent, thru a legitimate Board
of Trustees, to the disputed Deed of Absolute Sale executed in favor of INC. This is, therefore, a case not
only of vitiated consent, but one where consent on the part of one of the supposed contracting parties is
totally wanting. Ineluctably, the subject sale is void and produces no effect whatsoever.
The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Group's failure
to comply with Section 40 of the Corporation Code pertaining to the disposition of all or substantially all
assets of the corporation.
A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if
thereby the corporation would be rendered incapable of continuing the business or accomplishing the
purpose for which it was incorporated.
The Tandang Sora property, it appears from the records, constitutes the only property of the IDP. Hence,
its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP falling
squarely within the contemplation of the foregoing section. For the sale to be valid, the majority vote of
the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the
corporation should have been obtained. These twin requirements were not met as the Carpizo Group
which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose names and
signatures were affixed by the Carpizo Group together with the sham Board Resolution authorizing the
negotiation for the sale were, from all indications, not bona fide members of the IDP as they were made
to appear to be. Apparently, there are only fifteen (15) official members of the petitioner corporation
including the eight (8) members of the Board of Trustees.
 Dee vs SEC
199 SCRA 238

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

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

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

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

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

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

Issue:
 1. Whether the issuance of 113,800 shares of Natelco to CSI, made during the
pendency of SEC Case 1748 in the Securities and Exchange Commission was
valid.
2. Whether Natelco stockholders have a right of preemption to the 113,800
shares in question; else, whether the Maggay Board, in issuing said shares without
notifying Natelco stockholders, violated their right of pre-emption to the unissued
shares .
Held:

1. The issuance of 113,800 shares of Natelco stock to CSI made during the pendency of
SEC Case 1748 in the Securities and Exchange Commission was valid. The findings of the
SEC En Banc as to the issuance of the 113,800 shares of stock was stated as follows: "But
the issuance of 113,800 shares was pursuant to a Board Resolution and stockholders'
approval prior to 19 May 1979 when CSI was not yet in control of the Board or of the
voting shares. There is distinction between an order to issue shares on or before 19 May
1979 and actual issuance of the shares after 19 May 1979. The actual issuance, it is true,
came during the period when CSI was in control of voting shares and the Board (if they
were in fact in control) - but only pursuant to the original Board and stockholders' orders,
not on the initiative to the new Board, elected 19 May 1979, which petitioners are
questioning. The Commission en banc finds it difficult to see how the one who gave the
orders can turn around and impugn the implementation of the orders he had previously
given. The reformation of the contract is understandable for Natelco lacked the
corporate funds to purchase the CSI equipment.... Appellant had raise the issue whether
the issuance of 113,800 shares of stock during the incumbency of the Maggay Board
which was allegedly CSI controlled, and while the case was sub judice, amounted to
unfair and undue advantage. This does not merit consideration in the absence of
additional evidence to support the proposition." In effect, therefore, the stockholders of
Natelco approved the issuance of stock to CSI.

2. The issuance of the 113,800 stocks is not invalid even assuming that it was made without
notice to the stockholders as claimed by Dee, et. al.. The power to issue shares of stocks
in a corporation is lodged in the board of directors and no stockholders meeting is
required to consider it because additional issuance of shares of stocks does not need
approval of the stockholders. Consequently, no pre-emptive right of Natelco
stockholders was violated by the issuance of the 113,800 shares to CSI.
 LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner, vs. HON. COURT OF
APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO
AYCARDO, respondent.
G.R. No. 117188 August 7, 1997
 The legislative deliberations demonstrate that automatic even prior to incorporation. Ordinarily, the word "must"
corporate dissolution for failure to file the bylaws on time was connotes an imposition of duty which must be enforced.
never the intention of the legislature However, the word
 By-laws may be necessary for the “government” of the "must" in a statute, like "shall," is not always imperative. It may
corporation but these are subordinate to the articles of be consistent with an ecercise of discretion. If the language of a
incorporation as well as to the Corporation Code and related statute, considered as a whole with due regard to its nature and
statutes object, reveals that the legislature intended to use the words
 Due Process; There can be no automatic corporate dissolution "shall" and "must" to be directory, they should be given that
simply because the incorporators failed to abide by the required meaning.
filing of by-laws—the incorporators must be given the chance to
explain their neglect or omission and to remedy the same
The legislative deliberations of the Corporation Code reveals that
 Failure to file the by-laws within the period required by law by
it was not the intention of Congress to automatically dissolve a
no means tolls the automatic dissolution of a corporation.—
corporation for failure to file the By-Laws on time.
FACTS:
Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was Moreover, By-Laws may be necessary to govern the corporation,
but By-Laws are still subordinate to the Articles of Incorporation
organized on 8 February 1983 as the home owners' association for
and the Corporation Code. In fact, there are cases where By-Laws
Loyola Grand Villas. It was also registered as the sole
are unnecessary to the corporate existence and to the valid
homeowners' association in the said village with the Home
Financing Corporation (which eventually became Home Insurance exercise of corporate powers, thus: “In the absence of charter or
Guarantee Corporation ["HIGC"]). However, the association was statutory provisions to the contrary, by-laws are not necessary
not able file its corporate by-laws. either to the existence of a corporation or to the valid exercise of
the powers conferred upon it, certainly in all cases where the
charter sufficiently provides for the government of the body; and
The LGVHAI officers then tried to registered its By-Laws in 1988,
even where the governing statute in express terms confers upon
but they failed to do so. They then discovered that there were two
the corporation the power to adopt by-laws, the failure to
other homeowners' organizations within the subdivision - the
exercise the power will be ascribed to mere non action which will
Loyola Grand Villas Homeowners (North) Association, Inc. [North
not render void any acts of the corporation which would
Association] and herein Petitioner Loyola Grand Villas
otherwise be valid.”
Homeowners (South) Association, Inc. ["South Association].
The Corporation Code does not expressly provide for the effects
Upon inquiry by the LGVHAI to HIGC, it was discovered that
of non-filing of By-Laws. However, these have been rectified by
LGVHAI was dissolved for its failure to submit its by-laws within
Section 6 of PD 902-A which provides that SEC shall possess the
the period required by the Corporation Code and for its non-user
power to suspend or revoke, after proper notice and hearing, the
of corporate charter because HIGC had not received any report on
franchise or certificate of registration of corporations upon failure
the association's activities. These paved the way for the formation
to file By-Laws within the required period. There is no outright
of the North and South Associations.
“demise” of corporate existence. Proper notice and hearing are
cardinal components of due process in any democratic institution,
LGVHAI then lodged a complaint with HIGC Hearing Officer Danilo
agency or society. In other words, the incorporators must be given
Javier, and questioned the revocation of its registration. Hearing
the chance to explain their neglect or omission and remedy the
Officer Javier ruled in favor of LGVHAI, revoking the registration
same.
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: W/N LGVHAI's failure to file its by-laws within the period
prescribed by Section 46 of the Corporation Code had the effect
of automatically dissolving the said corporation.
Ruling:
No.
The pertinent provision of the Corporation Code that is the focal
point of controversy in this case states:
Sec. 46. Adoption of by-laws. - Every corporation formed under
this Code, must within one (1) month after receipt of official
notice of the issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a code of by-laws for
its government not inconsistent with this Code.
This shows that there must be notice and hearing before a
corporation is dissolved for failure to file its By-Laws. Even
assuming that the existence of a ground, the penalty is not
necessarily revocation, but may only be suspension.
By-Laws are indispensable to corporations, since they are
required by law for an orderly management of corporations.
However, failure to file them within the period prescribed does
not equate to the automatic dissolution of a corporation.
As the “rules and regulations or private laws enacted by the
corporation to regulate, govern and control its own actions, affairs
and concerns and its stockholders or members and directors and
officers with relation thereto and among themselves in their
relation to it,” by-laws are indispensable to corporations in this
jurisdiction. These may not be essential to corporate birth but
certainly, these are required by law for an orderly governance
and management of corporations. Nonetheless, failure to file
them within the period required by law by no means tolls the
automatic dissolution of a corporatio

Under the principle that the best interpreter of a statute is the

statute itself (optima statuli interpretatix est ipsum statutum),
Section 46 of the Corporation Code reveals the legislative intent
to attach a directory, and not mandatory, meaning for the word
“must” in the first sentence thereof. Note should be taken of the
second paragraph of the law which allows the filing of the by-laws
CHINA BANKING CORPORATION vs. COURT OF APPEALS, and VALLEY GOLF and
COUNTRY CLUB, INC.,

G.R. No. 117604; March 26, 1997

KAPUNAN, J.:

Facts:

Galicano Calapatia, Jr. a stockholder of private respondent Valley Golf & Country
Club, Inc. (VGCCI) pledged his Stock Certificate No. 1219 to petitioner China
Banking Corporation (CBC).

CBC informed VGCCI of the pledge and it be recorded in its books. VGCCI replied
that such was duly noted in its corporate books.

Calaptia obtained a loan from CBC, secured by the existing pledge agreement.
Calaptia failed to pay, hence, CBC extrajudicially foreclosed the pledged stock.
CBC informed VGCCI of the said foreclosure and requested the latter to transfer the
same in its name. VGCCI wrote petitioner expressing its ability to accede to
petitioner's request in view of Calapatia's unsettled accounts with the club.

VGCCI demanded from Calaptia the full payment of his overdue account. VGCCI
through public auction, for reason of delinquency, acquired the stocks under the
name of Calaptia.

CBC filed a case with RTC. RTC dismissed due to lack of jurisdiction over the subject
matter.

SEC ruled in favor of VGCCI. SEC en banc held CBC has prior right over the pledged
share. CA reversed SEC en banc’s decision.

Issues:

1.) Whether or not petitioner is a stockholder of VGCCI

2.) Whether or not VGCCI’s by-laws is binding upon the petitioner

Ruling:

1.) Yes, there is no question that the purchase of the subject share or membership
certificate at public auction by petitioner and the issuance to it of the
corresponding Certificate of Sale transferred ownership of the same to the
latter and thus entitled petitioner to have the said share registered in its name
as a member of VGCCI. It is readily observed that VGCCI did not assail the
 transfer directly and has in fact, in its letter of 27 September 1974, expressly
recognized the pledge agreement executed by the original owner,
Calapatia, in favor of petitioner and has even noted said agreement in its
corporate books.25 In addition, Calapatia, the original owner of the subject
share, has not contested the said transfer.

By virtue of the afore-mentioned sale, petitioner became a bona fide

stockholder of VGCCI and, therefore, the conflict that arose between
petitioner and VGCCI aptly exemplies an intracorporate controversy between
a corporation and its stockholder under Sec. 5(b) of P.D. 902-A.

2.) No. Appellant-petitioner bank as a third party cannot be bound by appellee-

respondent's by-laws.

It must be recalled that when appellee-respondent communicated to

appellant petitioner bank that the pledge agreement was duly noted in the
club's books there was no mention of the shareholder-pledgor's unpaid
accounts.

In order to be bound, the third party must have acquired knowledge of the
pertinent by-laws at the time the transaction or agreement between said third
party and the shareholder was entered into, in this case, at the time the
pledge agreement was executed. VGCCI could have easily informed
petitioner of its by-laws when it sent notice formally recognizing petitioner as
pledgee of one of its shares registered in Calapatia's name. Petitioner's
belated notice of said by-laws at the time of foreclosure will not suffice. The
ruling of the SEC en banc is particularly instructive:

By-laws signifies the rules and regulations or private laws enacted by the
corporation to regulate, govern and control its own actions, affairs and
concerns and its stockholders or members and directors and officers with
relation thereto and among themselves in their relation to it. In other words,
by-laws are the relatively permanent and continuing rules of action adopted
by the corporation for its own government and that of the individuals
composing it and having the direction, management and control of its affairs,
in whole or in part, in the management and control of its affairs and activities.

The purpose of a by-law is to regulate the conduct and define the duties of
the members towards the corporation and among themselves. They are self-
imposed and, although adopted pursuant to statutory authority, have no
status as public law.
Therefore, it is the generally accepted rule that third persons are not bound by
by-laws, except when they have knowledge of the provisions either actually
or constructively.
 Associated Bank v. Court of Appeals
G. R. No. 123793

Facts:
Associated Banking Corporation and Citizens Bank and Trust Company
(CBTC) merged to form just one banking corporation known as Associated Citizens
Bank (Associated Bank), the surviving bank.
After the merger agreement had been signed, but before a certificate of merger
was issued, respondent Lorenzo Sarmiento(private respondent), Jr. executed in favor of
Associated Bank a promissory note, promising to pay the bank P2.5 million on or before
due date at 14% interest per annum, among other accessory dues. For failure to pay the
amount due, Sarmiento was sued by Associated Bank.
Sarmiento argued that the Associated Bank is not the proper party in interest
because the promissory note was executed in favor of CBTC. Also, while Sarmiento
executed the promissory note in favor of CBTC, said note was a contract pour autrui,
one in favor of a third person who may demand its fulfilment. Also, respondent claimed
that he received no consideration for the promissory note and, in support thereof, cites
petitioner's failure to submit any proof of his loan application and of his actual receipt of
the amount loaned.

Issue:
1.) Whether or not Associated Bank, the surviving corporation, may enforce the
promissory note made by private respondent in favor of CBTC, the absorbed company,
after the merger agreement had been signed, but before a certificate of merger was
issued?
2.) Whether or not the promissory note was a contract pour autrui and was issued without
consideration?

Held:
Associated Bank assumed all the rights of CBTC. Although absorbed
corporations are dissolved, there is no winding up of their affairs or liquidation of their
assets, because the surviving corporation automatically acquires all their rights, privileges
and powers, as well as their liabilities.
The merger, however, does not become effective upon the mere agreement of the
constituent corporations. The Securities and Exchange Commission (SEC) and majority of
the respective stockholders of the constituent corporations must have approved the
merger. (Section 79, Corporation Code) It will be effective only upon the issuance
by the SEC of a certificate of merger. Records do not show when the SEC approved
the merger.
The court cannot agree that Associated Bank no longer has any interest in the
promissory note. The agreement itself clearly provides that all contracts — irrespective
of the date of execution — entered into in the name of CBTC shall be understood as
pertaining to the surviving bank, herein petitioner. Such must have been deliberately
included in the agreement in order to avoid giving the merger agreement a farcical
interpretation aimed at evading fulfilment of a due obligation. Thus, although the subject
promissory note names CBTC as the payee, the reference to CBTC in the note shall be
construed, under the very provisions of the merger agreement, as a reference to
petitioner bank.
On second issue that the promissory note was not a contract pour autrui and was
issued with consideration. In a contract pour autrui, an incidental benefit or interest,
which another person gains, is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person. The "fairest test" in determining
whether the third person's interest in a contract is a stipulation pour autrui or merely an
incidental interest is to examine the intention of the parties as disclosed by their contract.
It did not indicate that a benefit or interest was created in favor of a third
person. The instrument itself says nothing on the purpose of the loan, only the terms of
payment and the penalties in case of failure to pay. Res ipsa loquitur. The instrument,
bearing the signature of private respondent, speaks for itself. Respondent Sarmiento has
not questioned the genuineness and due execution thereof. That he partially paid his
obligation is itself an express acknowledgment of his obligation.
 G.R. No. 93695 February 4, 1992
RAMON C. LEE and ANTONIO DM. LACDAO, petitioners,
vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR.
and THOMAS GONZALES, respondents.

FACTS:
On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank,
Inc. against the private respondents who, in turn, filed a third party complaint against ALFA and the
petitioners. The petitioners filed a motion to dismiss the third party complaint which the RTC of Makati,
Branch 58 denied.

On July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA
through the DBP as a consequence of the petitioner's letter informing the court that the summons for
ALFA was erroneously served upon them considering that the management of ALFA had been
transferred to DBP. DBP claimed that it was not authorized to receive summons on behalf of ALFA since
the DBP had not taken over the company which has a separate and distinct corporate personality and
existence.

The petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised Rules
of Court is not applicable since they were no longer officers of ALFA and that the private respondents
should have availed of another mode of service under Rule 14, Section 16 of the said Rules.

Respondents contend that the voting trust agreement dated March 11, 1981 did not divest the petitioners
of their positions as president and executive vice-president of ALFA so that service of summons upon
ALFA through the petitioners as corporate officers was proper.

The trial court upheld the validity of the service of summons. The petitioners filed a second motion for
reconsideration where a copy of the voting trust agreement between all the stockholders of ALFA and the
DBP whereby the management and control of ALFA became vested upon the DBP. The court, in an
Order dated April 25, 1989, reversed itself and declared that service upon the petitioners who were no
longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA.

A motion for reconsideration was filed but the Court affirmed the April 25, 1989 Order in its Order dated
August 14, 19189.

A petition for certiorari was belatedly submitted by the private respondent before the public but since the
trial court was not notified of the same, it declared as final the Order. Private respondent then filed a
motion for reconsideration wherein the court set aside the Orders dated April 25, 1989 and August 14,
19189.

The petitioners filed certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction
on the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August
14, 1989.

ISSUE:
Whether or not the petitioners can no longer be considered directors of ALFA by virtue of the voting trust
agreement.

HELD:
The petitioners can no longer be considered as directors of ALFA by virtue of the voting trust agreement.

Section 59 of the new Corporation Code reads:

 Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a voting
trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to
the share for a period not exceeding five (5) years at any one time. X x x

A voting trust agreement results in the separation of the voting rights of a stockholder from his other rights
such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell
certain interests in the assets of the corporation and other rights to which a stockholder may be entitled
until the liquidation of the corporation.

Three criteria or tests to determine whether there is a voting agreement

(1) that the voting rights of the stock are separated from the other attributes of ownership;
(2) that the voting rights granted are intended to be irrevocable for a definite period of time;
(3) that the principal purpose of the grant of voting rights is to acquire voting control of the
corporation.

Petitioners: maintain that with the execution of the voting trust agreement between them and the other
stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and transferred
all their shares in ALFA to DBP, as trustee. In support of their contention, the petitioners invoke section
23 of the Corporation Code which provides, in part, that:

Every director must own at least one (1) share of the capital stock of the corporation of
which he is a director which share shall stand in his name on the books of the
corporation. Any director who ceases to be the owner of at least one (1) share of the
capital stock of the corporation of which he is a director shall thereby cease to be
director. . .

Private respondents: insist that the voting trust agreement between ALFA and the DBP had all the more
safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general
object of voting trust is to insure permanency of the tenure of the directors of a corporation.

We find the petitioners' position meritorious.

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981
disposed of all their shares through assignment and delivery in favor of the DBP, as trustee.
Consequently, the petitioners ceased to own at least one share standing in their names on the books of
ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to
do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of
the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA.
The transfer of shares from the stockholder of ALFA to the DBP is the essence of the subject voting trust
agreement
.
It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from
the officers or members who compose it. Thus, the above rule on service of processes of a corporation
enumerates the representatives of a corporation who can validly receive court processes on its behalf.
Not every stockholder or officer can bind the corporation considering the existence of a corporate entity
separate from those who compose it.

The rationale of the aforecited rule is that service must be made on a representative so integrated with
the corporation sued as to make it a priori supposable that he will realize his responsibilities and know
what he should do with any legal papers served on him. The petitioners in this case do not fall under any
of the enumerated officers. The service of summons upon ALFA, through the petitioners, therefore, is not
valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle that a
corporation can only be bound by such acts which are within the scope of the officer's or agent's authority.
 # 26 G.R. No. L-1721 May 19, 1950
JUAN D. EVANGELISTA ET AL., plaintiffs-appellants,vs.
RAFAEL SANTOS, defendant-appellee.
Antonio Gonzales for appellants.
Benjamin H. Tirol for appellee.
REYES, J.:

FACTS:
Plaintiffs Evangelista et. Al were minority stockholders of the Vitali Lumber Company,
Inc. (Vitali Lumber), a corporation organized for exploitation of lumber concessions in
Zamboanga.
Defendant Santos holds more than 50% of the stocks of Vitali Lumber. He was also the
President, Manager and Treasurer of the corporation.
Plaintiffs Evangelista et. Al. filed an action for damages, alleging that through Santos`
fault, neglect and abandonment, he allowed its lumber concession to lapse and its properties
(machineries, buildings, etc.) to disappear. They alleged that such mismanagement of affairs
and misuse of its assets caused the ruin of the corporation and depreciation of its stocks.
Their complaint prayed for a judgement requiring Santos to render an account of his
administration of corporate affairs and asset, and to pay Evangelista et. Al. the value of their
respective participation in said assets on the basis of the value of their stocks.
The complaint did not give the plaintiffs` residence but alleged that Santos resides in
Pasay, Province of Rizal. Having been served summons in Pasay, Santos filed an MTD on the
ground of improper venue, and that the complaint did not state a cause of action in favor of the
plaintiffs.
Santos alleged that he was a resident of Iloilo. While he had a house in Pasay in order to
easily attend to his interest in Manila, he has permanent residence in Iloilo where he is a
registered voter and has been paying his residence certificate.
The lower court granted the MTD on both grounds. Hence, this appeal to this Court.

ISSUE:
1. WON Evangelista et. Al. correctly brought the cease to the proper venue in Pasay;
2. WON Evangelista et. Al. had the right to bring this action for their benefits.

HELD:
1. NO. Venue of the action was incorrect

1. Laying of venue of the action is not left to plaintiff`s caprice as it is a matter regulated by
the Rules of the Court. This action is one in personam, in which Sec. 1 of Rule 5 can be
applied, which provides:
“Civil actions in Courts of First Instance may be commenced and tried
where the defendant or any of the defendants resides or may be found,
or where the plaintiff or any of the plaintiffs resides, at the election of
the plaintiff.”
 2. The lower court found, based on Santos` sworn statement not rebutted by contrary
proof that he resided in Iloilo, and not in Pasay.

3. At first blush, such provision may seem to authorize laying of venue in the province
where defendant “may be found”. However, jurisprudence has already construed such
phrase to only be applicable where defendant has no residence in the Philippine islands.
This applies to a domestic corporation.(Cohen vs. Benguet Commercial Co.)

4. The facts that Santos was sojourning in Pasay when he was served summons does not
make him a resident of such place for purposes of venue. “Residence” – permanent
home, the place to which one intends to return.

2. NO. Evangelista et. al. had no cause of action to file the case

1. Generally, if the injury complained of is primarily to the corporation, the suit for
damages should be claimed only by the corporation. The stockholders may not directly
claim those damages for themselves, as that would result in the appropriation by and
liquidation. Such cannot be done in view of Sec. 16 of the Corporation Law:
“No shall corporation shall make or declare any stock or bond dividend
or any dividend whatsoever from the profits arising from its business, or
divide or distribute its capital stock or property other than actual profits
among its members or stockholders until after the payment of its debts
and the termination of its existence by limitation or lawful dissolution.”
2. However, if the officers of the corporation refuse to sue, or where the demand upon
them to file a suit would be futile as they are the very ones to be sued, or because the
are the controlling interest, the stockholders may be allowed to bring the suit. But in
such derivative suit, the stockholder is the nominal party plaintiff for the benefit of the
corporation (the damages recovered should still pertain to the corporation.
3. In this case, Evangelista et. al. brought this action not for the benefit of the corporation,
but for their own benefit since they pray that Santos make good the losses accrued by
his mismanagement and for him to pay the value with respect to their respective shares.
Clearly, this cannot be done until there is a lawful dissolution and liquidation.
G.R. No. 150793 November 19, 2004

FRANCIS CHUA, petitioner,

vs.

HON. COURT OF APPEALS and LYDIA C. HAO, respondents.

FACTS :

Private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a compliant-affidavit charging
Francis Chua and his wife, Elsa Chua, of four counts of falsification of public documents. The said
accused prepared, certified and falsified the Minutes of the Annual Stockholder’s meeting of the Board
of Directors of the corporation. The document made it appear in the Minutes that Lydia Hao was
present.

The accused prepared, certified, and falsified the Minutes of the Annual Stockholders meeting of the
Board of Directors of the Siena Realty Corporation, duly notarized before a Notary Public, Atty. Juanito
G. Garcia and entered in his Notarial Registry as Doc No. 109, Page 22, Book No. IV and Series of 1994,
and therefore, a public document, by making or causing it to appear in said Minutes of the Annual
Stockholders Meeting that one LYDIA HAO CHUA was present and has participated in said proceedings,
when in truth and in fact, as the said accused fully well knew that said Lydia C. Hao was never present
during the Annual Stockholders Meeting held on April 30, 1994 and neither has participated in the
proceedings thereof to the prejudice of public interest and in violation of public faith and destruction of
truth as therein proclaimed.

TRIAL :

Thereafter, the City Prosecutor filed the information for falsification of public document before the
MeTC against Francis Chua but dismissed the accusation against his wife, Elsa Chua. During the trial,
private prosecutors Atty. Evelyn Sua-Kho and Atty. Ariel Bruno Rivera appeared as private prosecutors
and presented Hao as witness. Chua moved to exclude complainant’s counsels as private prosecutors in
the case on the ground that Hao failed to allege and prove any civil liability. The MeTC granted Chua’s
motion and ordered the private counsels excluded. Hao moved for reconsideration but was denied.

Due MeTC’s grant of exclusion, Hao filed a petition for certiorari entitled Lydia C. Hao, in her own behalf
and for the benefit of Siena realty Corporation v. Francis Chua, and the Honorable Hipolito dela Vega,
Presiding Judge, Branch 22, Metropolitan Trial Court of Manila, before the RTC of Manila branch 19. The
RTC gave due course to the petition and reversed the MeTC order allowing the private prosecutors to
intervene in the civil aspect of the criminal case.

Chua moved for reconsideration but was denied. He then filed a petition for certiorari, alleging among
others that the court acted with grave abuse of discretion for allowing Siena Realty Corporation to be
impleaded as co-petitioner although it was not party to the criminal complaint. The CA denied the
petition.

Petitioner, Chua, had argued before the CA that respondent had no authority to bring suit in behalf of
the Corporation since there was no Board Resolution authorizing her to file the suit. Respondent, Hao,
countered that the suit was brought under the concept of a derivative suit.
ISSUE :

I. Whether or not the criminal complaint was in the nature of a derivative suit.

II. Is the corporation a proper party in the petition for certiorari under Rule 65 before the RTC?

III. Did the Court of Appeals and the lower court err in allowing private prosecutors to actively
participate in the trial of Criminal Case No. 285721?

HELD :

I. NO. The criminal case was not in the nature of a derivative suit.

Under Section 36 of the Corporation Code, read in relation to Section 23, where a corporation is an
injured party, its power to sue is lodged with its board of directors or trustees. An individual stockholder
is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order
to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are
the ones to be sued, or hold the control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in interest.

A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a
necessary party to the suit. And the relief which is granted is a judgment against a third person in favor
of the corporation. Similarly, if a corporation has a defense to an action against it and is not asserting it,
a stockholder may intervene and defend on behalf of the corporation.

Not every suit filed in behalf of the corporation is a derivative suit. For a derivative suit to prosper, it
is required that the minority stockholder suing for and on behalf of the corporation must allege in his
complaint that he is suing on a derivative cause of action on behalf of the corporation and all other
stockholders similarly situated who may wish to join him in the suit.

Furthermore, the SC stated that the appeal lacked the basic requirement of an allegation in the
complaint that the shareholder is suing on a derivative cause of action for and in behalf of the
corporation and other shareholders who wish to join. In the criminal complaint filed by the
respondent, nowhere is it stated that she is filing the same in behalf and for the benefit of the
corporation either in their complaint before the court a quo nor in the instant petition which, in part,
merely sates that this is a petition for review on certiorari on pure questions of law to set aside a portion
of the RTC decision in the said criminal cases since the trial courts judgment of acquittal failed to impose
civil liability against the private respondents. By no amount of equity considerations, if at all deserved,
can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit.

II. YES. The petition was brought in her own name and in behalf of the Corporation. Although, the
corporation was not a complainant in the criminal action, the subject of the falsification was the
corporation's project and the falsified documents were corporate documents. Therefore, the
corporation is a proper party in the petition for certiorari because the proceedings in the criminal case
directly and adversely affected the corporation.

Rule 65 of the Rules of Civil Procedure, when a trial court commits a grave abuse of discretion
amounting to lack or excess of jurisdiction, the person aggrieved can file a special civil action for
certiorari. The aggrieved parties in such a case are the State and the private offended party or
complainant.

In Pastor, Jr. v. Court of Appeals26 we held that if aggrieved, even a non-party may institute a petition
for certiorari.

Appellate court committed grave abuse of discretion when it sanctioned the standing of a corporation to
join said petition for certiorari, despite the finality of the trial court's denial of its Motion for
Intervention and the subsequent Motion to Substitute and/or Join as Party/Plaintiff.

III. NO. When the civil action is instituted with the criminal action, evidence should be taken of the
damages claimed and the court should determine who are the persons entitled to such indemnity. The
civil liability arising from the crime may be determined in the criminal proceedings if the offended
party does not waive to have it adjudged or does not reserve the right to institute a separate civil
action against the defendant. Accordingly, if there is no waiver or reservation of civil liability, evidence
should be allowed to establish the extent of injuries suffered.

In the case before us, there was neither a waiver nor a reservation made; nor did the offended party
institute a separate civil action. It follows that evidence should be allowed in the criminal proceedings
to establish the civil liability arising from the offense committed, and the private offended party has the
right to intervene through the private prosecutors.
Ricardo A. Nava vs Peers Marketing Corporation, Renato R. Cusi And Amparo Cusi
G.R. No. L-28120 November 25, 1976

Facts:

Teofilo Po as an incorporator subscribed to 80 shares of Peers Marketing Corporation (Peers) at

P100.00 a share or a total par value of P8,000.00. Po paid P2,000.00 or 25% of the amount of his
subscription. No certificate of stock was issued to him or, for that matter, to any incorporator,
subscriber or stockholder.

Later, Po sold to Ricardo A. Nava 20 of his 80 shares for P2,000.00. In the deed of sale Po
represented that he was "the absolute and registered owner of twenty shares" of Peers
Marketing Corporation.

Nava requested the officers of the corporation to register the sale in the books of the corporation.
The request was denied because Po has not paid fully the amount of his subscription. Nava was
informed that Po was delinquent in the payment of the balance due on his subscription and that
the corporation had a claim on his entire subscription of 80 shares which included the 20 shares
that had been sold to Nava.

Nava filed this mandamus action in the CFI of Negros Occidental, Bacolod City Branch to compel
the corporation and Renato R. Cusi and Amparo Cusi, its executive vice-president and secretary,
respectively, to register the said 20 shares in Nava's name in the corporation's transfer book.

The respondents in their answer pleaded the defense that no shares of stock against which the
corporation holds an unpaid claim are transferable in the books of the corporation.

The trial court dismissed the petition applying the ruling in Fua Cun vs. Summers and China
Banking Corporation, 44 Phil. 705 which states that payment of ½ of the subscription does not
entitle the subscriber to a certificate of stock for one-half of the number of shares subscribed.

Issue: Whether or not the officers of Peers can be compelled by mandamus to enter in its stock
and transfer book the sale made by Po to Nava of the 20 shares forming part of Po's subscription
of 80 shares, with a total par value of P8,000 and for which Po had paid only P2,000, it being
admitted that the corporation has an unpaid claim of P6,000 as the balance due on Po's
subscription and that the twenty shares are not covered by any stock certificate

Held:

No. The SC holds that the transfer made by Po to Nava is not the "alienation, sale, or transfer of
stock" that is supposed to be recorded in the stock and transfer book, as contemplated in section
52 of the Corporation Law. As a rule, the shares which may be alienated are those which are
covered by certificates of stock s shown in the following provisions of the Corporation Law:

SEC. 35. The capital stock of stock corporations shall be divided into shares for
which certificates signed by the president or the vice-president, countersigned by the
secretary or clerk 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 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 entered and noted upon 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, and the number of shares transferred.
 No share of stock against which the corporation holds any unpaid claim shall be
transferable on the books of the corporation.

SEC. 36. (re voting trust agreement) ...

The certificates of stock so transferred shall be surrendered and cancelled, and

new certificates therefor issued to such person or persons, or corporation, as such trustee
or trustees, in which new certificates it shall appear that they are issued pursuant to said
agreement.

xxx xxx xxx

As prescribed in section 35, shares of stock may be transferred by delivery to the transferee of
the certificate properly indorsed. The usual practice is for the stockholder to sign the form on the
back of the stock certificate. The certificate may thereafter be transferred from one person to
another. If the holder of the certificate desires to assume the legal rights of a shareholder to
enable him to vote at corporate elections and to receive dividends, he fills up the blanks in the
form by inserting his own name as transferee. Then he delivers the certificate to the secretary of
the corporation so that the transfer may be entered in the corporation's books. The certificate is
then surrendered and a new one issued to the transferee.

That procedure cannot be followed in the instant case because, as already noted, the twenty
shares in question are not covered by any certificate of stock in Po's name. Moreover, the
corporation has a claim on the said shares for the unpaid balance of Po's subscription. A stock
subscription is a subsisting liability from the time the subscription is made. The subscriber is as
much bound to pay his subscription as he would be to pay any other debt. The right of the
corporation to demand payment is no less incontestable.

As already stressed, in this case no stock certificate was issued to Po. Without stock certificate,
which is the evidence of ownership of corporate stock, the assignment of corporate shares is
effective only between the parties to the transaction. The delivery of the stock certificate, which
represents the shares to be alienated, is essential for the protection of both the corporation and
its stockholders

Under the facts of this case, there is no clear legal duty on the part of the officers of the
corporation to register the 20 shares in Nava's name. Hence, there is no cause of action for
mandamus.
 [ G.R. No. 144476, April 08, 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]

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. ONG, WILLIAM T. ONG, WILLIE T. ONG, AND
JULIA ONG ALONZO, RESPONDENTS.

FACTS:

In 1994, the construction of the Masagana Citimall in Pasay City was threatened with stoppage and
incompletion when its owner, the First Landlink Asia Development Corporation (FLADC), which was
owned by David S. Tiu, Cely Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C.
Tiu (the Tius), encountered dire financial difficulties. It was heavily indebted to the Philippine National
Bank (PNB) for P190 million. To stave off foreclosure of the mortgage on the two lots where the mall
was being built, the Tius invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong
and Julia Ong Alonzo (the Ongs), to invest in FLADC.

Under the Pre-Subscription Agreement they entered into, the Ongs and the Tius agreed to maintain
equal shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a par value of P100.00
each while the Tius were to subscribe to an additional 549,800 shares at P100.00 each in addition to
their already existing subscription of 450,200 shares. Furthermore, they agreed that the Tius were
entitled to nominate the Vice-President and the Treasurer plus 5 directors while the Ongs were entitled
to nominate the President, the Secretary and 6 directors (including the chairman) to the board of
directors of FLADC. Moreover, the Ongs were given the right to manage and operate the mall.

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

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

On appeal, the Court of Appeals (CA) rendered a decision on 5 October 1999, modifying the SEC order of
11 September 1998. Their motions for reconsideration having been denied, both parties filed separate
petitions for review before the Supreme Court. On 1 February 2002, the Supreme Court promulgated its
Decision, affirming the assailed decision of the Court of Appeals but with the modifications that the P20
million loan extended by the Ongs to the Tius shall earn interest at 12% per annum to be computed
from the time of judicial demand which is from 23 April 1996; that the P70 million advanced by the Ongs
to the FLADC shall earn interest at 10% per annum to be computed from the date of the FLADC Board
Resolution which is 19 June 1996; and that the Tius shall be credited with 49,800 shares in FLADC for
their property contribution, specifically, the 151 sq. m. parcel of land. The Court affirmed the fact that
both the Ongs and the Tius violated their respective obligations under the Pre-Subscription Agreement.

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

ISSUES:

1. Whether the pre-Subscription Agreement executed by the Ongs is actually a subscription

contract.
2. Whether the rescission of Pre-Subscription Agreement would result in unauthorized liquidation.
RULINGS:

1. YES. FLADC was originally incorporated with an authorized capital stock of 500,000 shares with
the Tius owning 450,200 shares representing the paid-up capital. When the Tius invited the
Ongs to invest in FLADC as stockholders, an increase of the authorized capital stock became
necessary to give each group equal (50-50) shareholdings as agreed upon in the Pre-Subscription
Agreement. The authorized capital stock was thus increased from 500,000 shares to 2,000,000
shares with a par value of P100 each, with the Ongs subscribing to 1,000,000 shares and the Tius
to 549,800 more shares in addition to their 450,200 shares to complete 1,000,000 shares. Thus,
the subject matter of the contract was the 1,000,000 unissued shares of FLADC stock allocated
to the Ongs.

Since these were unissued shares, the parties' Pre-Subscription Agreement was in fact a
subscription contract as defined under Section 60, Title VII of the Corporation Code. A
subscription contract necessarily involves the corporation as one of the contracting parties since
the subject matter of the transaction is property owned by the corporation — its shares of
stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription
Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the
viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius.
Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they
were not selling any of their own shares to them. It was FLADC that did. Considering therefore
that the real contracting parties to the subscription agreement were FLADC and the Ongs alone,
a civil case for rescission on the ground of breach of contract filed by the Tius in their personal
capacities will not prosper. Assuming it had valid reasons to do so, only FLADC (and certainly not
the Tius) had the legal personality to file suit rescinding the subscription agreement with the
Ongs inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code provides
that "contracts take effect only between the parties, their assigns and heirs. . ." Therefore, a
party who has not taken part in the transaction cannot sue or be sued for performance or for
cancellation thereof, unless he shows that he has a real interest affected thereby.

2. YES. The rescission of the Pre-Subscription Agreement will effectively result in the
unauthorized distribution of the capital assets and property of the corporation, thereby
violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription
agreement is not one of the instances when distribution of capital assets and property of the
corporation is allowed. Rescission will, in the final analysis, result in the premature liquidation of
the corporation without the benefit of prior dissolution in accordance with Sections 117, 118,
119 and 120 of the Corporation Code.
30. ALFREDO LONG VS. LYDIA BASA, et. al
GR Nos. 134963-64, 27 September 2001

Facts:
A religious group known as "The Church In Quezon City (Church Assembly Hall),
Incorporated" (CHURCH) was organized as "an entity of the brotherhood in Christ.'' It was
registered with the Securities and Exchange Commission (SEC) as a non-stock, non-profit
religious corporation for the administration of its temporalities or the management of its
properties. The Articles of Incorporation and By-laws of the CHURCH decree that its affairs and
operation shall be managed by a Board of Directors consisting of 6 members, 3 who shall be
members of the CHURCH.
Zealous in upholding and guarding their Christian faith, and to ensure unity and
uninterrupted exercise of their religious belief, the members of the CHURCH vested upon the
Board of Directors the absolute power "to preserve and protect their faith" and to admit and
expel a member of the CHURCH. Admission for membership in the CHURCH is so exacting.
Only "persons zealous of the Gospel, faithful in Church work and of sound knowledge of the
Truth, as the Board of Directors shall admit to membership, shall be members of the (CHURCH)."
The procedure for the expulsion of an erring or dissident member is prescribed in Article VII
(paragraph 4) of the CHURCH By-laws, which provides that "If it is brought to the notice of the
Board of Directors that any member has failed to observe any regulations and Bylaws of the
Institution (CHURCH) or the conduct of any member has been dishonorable or improper or
otherwise injurious to the character and interest of the Institution, the Board of Directors may
by resolution without assigning any reason therefor expel such member from such Institution
and he shall then forfeit his interest, rights and privileges in the Institution."
As early as 1988, the Board of Directors observed that certain members of the CHURCH,
including Alfredo Long, Joseph Lim, Liu Yek See, and Felix Almeria, exhibited "conduct which
was dishonorable, improper and injurious to the character and interest of the (CHURCH)" by
"introducing (to the members) doctrines and teachings which were not based on the Holy
Bible" and the Principles of Faith embraced by the CHURCH. Confronted with this situation,
Lydia Basa, Anthony Sayheeliam and Yao Chek, as members of the Board of Directors, and
some responsible members of the CHURCH, advised Long, et al. "to correct their ways" and
warned them that if they persist in their highly improper conduct, they will be dropped from
the membership of the CHURCH; during Sunday worship gatherings, "in small group meetings
and even one-on-one personal talk with them." Long et al. ignored these repeated
admonitions. Alarmed that Long, et al.'s conduct will continue to undermine the integrity of
the Principles of Faith of the CHURCH, the Board of Directors, during its 30 August 1993 regular
meeting held for the purpose of reviewing and updating the membership list of the CHURCH,
removed from the said list certain names of members, including the names of Joseph Lim, Liu
Yek See, Alfredo Long and Felix Almeria. They were removed for espousing doctrines inimical
or injurious to the Principles of Faith of the CHURCH. The Board also updated the list by
removing the names of those who have migrated to other countries, those deceased and
those whom the CHURCH had lost contact with. All the then 6 members of the Board, namely,
Directors Lim Che Boon, Tan Hon Koc, Anthony Sayheeliam, Leandro Basa, Yao Chec and
Lydia L. Basa "were duly informed" of that meeting. However, Directors Lim Che Boon and Tan
Hon Koc did not appear. Thus, the resolution was signed only by Directors Anthony Sayheeliam,
Leandro Basa, Yao Chec and Lydia L. Basa who composed the majority of the Board.
The updated membership list approved by the Board on 30 August 1993, together with
the minutes of the meeting, were duly filed with the SEC on 13 September 1993. On 29
September 1993, Lim Che Boon, Tan Hon Koc, Joseph Lim, Liu Yek See and others questioned
their expulsion by filing with the SEC Securities Investigation and Clearing Department a
petition (SEC Case 09 93-4581, and later a supplemental petition) against Directors Yao Chek,
Leandro Basa, Lydia Basa and Anthony Sayheeliam. It sought mainly the annulment of the 30
August 1993 membership list and the reinstatement of the original list on the ground that the
expulsion was made without prior notice and hearing; and prayed for the issuance of a
temporally restraining order (TRO) and a writ of preliminary injunction principally to enjoin the
Board of Directors from holding any election of a new set of directors among the members
named in the 30 August 1993 list of corporate membership.
After conducting a hearing on the application for a writ of preliminary injunction, SEC
Hearing Officer Manuel Perea denied the same in an order dated 22 February 1994. Lim Che
Boon, et al. elevated Perea's order to the SEC en banc via a petition for certiorari (SEC EB Case
389). The SEC, in an en banc decision dated 11 July 1994, affirmed the Perea ruling and
"dismissed for lack of merit" the petition. Lim Che Boon et al. did not appeal from the decision
of the SEC en banc.

Issue: Whether the expulsion of Joseph Lim, Liu Yek See, Alfredo Long and Felix Almeria from
the membership of the CHURCH by its Board of Directors through a resolution issued on August
30, 1993 is in accordance with law.
Held:
The By-laws of the CHURCH, which the members have expressly adhered to, does not
require the Board of Directors to give prior notice to the erring or dissident members in cases
of expulsion. In the By-law provision, the only requirements before a member can be expelled
or removed from the membership of the CHURCH are: (a) the Board of Directors has been
notified that a member has failed to observe any regulations and By-laws of the CHURCH, or
the conduct of any member has been dishonorable or improper or otherwise injurious to the
character and interest of the CHURCH, and (b) a resolution is passed by the Board expelling
the member concerned, without assigning any reason therefor. Thus, a member who commits
any of the causes for expulsion enumerated in paragraph 4 of Article VII may be expelled by
the Board of Directors, through a resolution, without giving that erring member any notice prior
to his expulsion. The resolution need not even state the reason for such action. The CHURCH
By-law provision on expulsion, as phrased, may sound unusual and objectionable as there is
no requirement of prior notice to be given to an erring member before he can be expelled;
but that is how peculiar the nature of a religious corporation is visa-vis an ordinary corporation
organized for profit.
 It must be stressed that the basis of the relationship between a religious corporation and
its members is the latter's absolute adherence to a common religious or spiritual belief. Once
this basis ceases, membership in the religious corporation must also cease. Thus, generally,
there is no room for dissension in a religious corporation. And where any member of a religious
corporation is expelled from the membership for espousing doctrines and teachings contrary
to that of his church, the established doctrine in this jurisdiction is that such action from the
church authorities is conclusive upon the civil courts.
Obviously recognizing the peculiarity of a religious corporation, the Corporation Code
leaves the matter of ecclesiastical discipline to the religious group concerned. Section 91 of
the Corporation Code, which has been made explicitly applicable to religious corporations
by the second paragraph of Section 109 of the same Code, provides for the termination of
membership. It provides that "Membership shall be terminated in the manner and for the
causes provided in the articles of incorporation or the by-laws. Termination of membership
shall have the effect of extinguishing all rights of a member in the corporation or in its property,
unless otherwise provided in the articles of incorporation or the by-laws." In fact, Long, et al.
really have no reason to bewail the lack of prior notice in the By-laws. They have waived such
notice by adhering to those By-laws. They became members of the CHURCH voluntarily. They
entered into its covenant and subscribed to its rules. By doing so, they are bound by their
consent. Even assuming that Long, et al.'s expulsion falls within the Constitutional provisions on
"prior notice" or "due process," still the Court cannot conclude that Basa, et al. committed a
constitutional infraction. Long, et al. were given more than sufficient notice of their impending
expulsion, as shown by the records.
 PADCOM CONDOMINIUM CORPORATION vs. ORTIGAS CENTER ASSOCIATION, INC.
G.R. No. 146807
FACTS:
Padcom Condominium Corporation (hereafter PADCOM) owns and manages the Padilla Office
Condominium Building (PADCOM Building). The land on which the building stands was originally acquired
from the Ortigas & Company, Limited Partnership (OCLP), by Tierra Development Corporation (TDC) under
a Deed of Sale. Among the terms and conditions in the deed of sale was the requirement that the
transferee and its successor-in-interest must become members of an association for realty owners and
long-term lessees in the area later known as the Ortigas Center. Subsequently, the said lot, together with
improvements thereon, was conveyed by TDC in favor of PADCOM in a Deed of Transfer.
Ortigas Center Association, Inc. (hereafter the Association) was organized to advance the interests and
promote the general welfare of the real estate owners and long-term lessees of lots in the Ortigas Center.
It sought the collection of membership dues in the amount P2,724.40 per month from PADCOM. The
corporate books showed that PADCOM owed the Association P639,961.47, representing membership
dues, interests and penalty charges. The letters exchanged between the parties through the years showed
repeated demands for payment, requests for extensions of payment, and even a settlement scheme
proposed by PADCOM.
The Association filed a complaint for collection of sum of money. The Association averred that purchasers
of lands within the Ortigas Center complex from OCLP are obligated under their contracts of sale to
become members of the Association. This obligation was allegedly passed on to PADCOM when it bought
the lot from TDC, its predecessor-in-interest.
PADCOM contended that it is a non-stock, non-profit association, and for it to become a special member
of the Association, it should first apply for and be accepted for membership by the latter's Board of
Directors. No automatic membership was apparently contemplated in the Association's By-laws. PADCOM
added that it could not be compelled to become a member without violating its right to freedom of
association. And since it was not a member of the Association, it was not liable for membership dues,
interests and penalties.
The trial court rendered a decision dismissing the complaint. The Court of Appeals reversed and set aside
the trial court's dismissal.
ISSUE:
Whether or not PADCOM can be compelled to join the association pursuant to the provision on automatic
membership appearing as a condition in the Deed of Sale and the annotation thereof on a Transfer
Certificate of Title.
Ruling:
The Court sees no reason to disturb the assailed decision. The petition should be denied.
Under the Torrens system of registration, claims and liens of whatever character, except those mentioned
by law, existing against the land binds the holder of the title and the whole world.
It is undisputed that when the land in question was bought by PADCOM's predecessor-in-interest, TDC,
from OCLP, the sale bound TDC to comply with paragraph (G) of the covenants, conditions and restrictions
of the Deed of Sale. Evidently, it was agreed by the parties that dues shall be collected from an automatic
member and such fees or assessments shall be a lien on the property.
The provision on automatic membership was annotated in the Certificate of Title and made a condition in
the Deed of Transfer in favor of PADCOM. Consequently, it is bound by and must comply with the
covenant.
Moreover, Article 1311 of the Civil Code provides that contracts take effect between the parties, their
assigns and heirs. Since PADCOM is the successor-in-interest of TDC, it follows that the stipulation on
automatic membership with the Association is also binding on the former.
As lot owner, PADCOM is a regular member of the Association. No application for membership is
necessary. If at all, acceptance by the Board of Directors is a ministerial function considering that PADCOM
is deemed to be a regular member upon the acquisition of the lot pursuant to the automatic membership
clause annotated in the Certificate of Title of the property and the Deed of Transfer.
Neither are we convinced by PADCOM's contention that the automatic membership clause is a violation
of its freedom of association. PADCOM was never forced to join the association. It could have avoided
such membership by not buying the land from TDC. Nobody forced it to buy the land when it bought the
building with the annotation of the condition or lien on the Certificate of Title thereof and accepted the
Deed. PADCOM voluntarily agreed to be bound by and respect the condition, and thus to join the
Association.
In addition, under the principle of estoppel, PADCOM is barred from disclaiming membership in the
Association. For having received the demands for payment, PADCOM not only acknowledged them, but
asked for and was granted repeated extensions, and even proposed a scheme for the settlement of its
obligation.
Finally, PADCOM's argument that the collection of monthly dues has no basis since there was no board
resolution defining how much fees are to be imposed deserves scant consideration. Suffice it is to say that
PADCOM never protested upon receipt of the earlier demands for payment of membership dues. In fact,
by proposing a scheme to pay its obligation, PADCOM cannot belatedly question the Association's
authority to assess and collect the fees in accordance with the total land area owned or occupied by the
members.
 Sta. Clara Homeowners’ Association vs Sps. Gaston
January 23, 2002

FACTS: Spouses Victor Ma. Gaston and Lydia Gaston, the private respondents, filed a
complaint for damages with preliminary injunction/preliminary mandatory injunction and
temporary restraining order before the Regional Trial Court against petitioners Sta Clara
Homeowners Association (SCHA).

The complaint alleged that the private respondents purchased their lots in Sta.
Clara Subdivision and at the time of the purchase, there was no mention or requirement
of membership in any homeowners’ association. From that time on, they have remained
non-members of the SCHA. They also stated that an arrangement was made wherein
homeowners who were non-members of the association were issued non-member gate
pass stickers for their vehicles for identification by the security guards manning the
subdivision’s entrances and exits. This arrangement remained undisturbed until sometime
in the middle of March 1998, when SCHA disseminated a board resolution which decreed
that only its members in good standing were to be issued stickers for use in their vehicles.

Petitioners filed a motion to dismiss arguing that the trial court had no jurisdiction
over the case as it involved an intra-corporate dispute between SCHA and its members.
The proper forum must be the Home Insurance and Guarantee Corporation (HIGC).
They stated that that the Articles of Incorporation of SCHA, which was duly approved by
the Securities and Exchange Commission, provides that the association shall be a non-
tock corporation with all the homeowners of Sta. Clara constituting its membership. Its
by-laws also contains a provision that all real estate owners automatically become
members of the association. Moreover, the private respondents allegedly enjoyed the
privileges of membership and abided by the rules of the association, and even attended
the general and special meetings of the association members.

ISSUE: Whether or not the private respondents are members of SCHA

HELD: The constitutionally guaranteed freedom of association includes the freedom not
to associate. The right to choose with whom one will associate oneself is the very
foundation and essence of the partnership. It should be noted that the provision
guarantees the right to form an association. It does not compel others to form or join
one.

Private respondents cannot be compelled to become members of SCHA by the

simple expedient of including them in its Articles of Incorporation and By-Laws without
their express or implied consent. It may be to the mutual advantage of lot owners in a
subdivision to band themselves together to promote their common welfare but that is
possible only if the owners voluntarily agree, directly or indirectly, to become members
of the association. Also, membership in homeowners’ association may be acquired in
various ways – often through deeds of sale, Torrens certificates or other forms of evidence
of property ownership. However, when private respondents purchased their property and
obtained Transfer Certificates of Title, there was no annotation showing automatic
membership in the SCHA. Thus, no privity of contract arising from the title certificate exists
between petitioners and private respondents.
 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.
G.R. No. 153468 August 17, 2006
 Act of management pertain to the board of directors,
and those of ownership, to the stockholders or members.
• 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 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.
.
FACTS: Grace Christian High School (GCHS) is a nonstock,
non-profit educational corporation with 15 regular members,
who also constitute the board of trustees. During the annual
members’ meeting, there were only 11 living member-
trustees, as 4 have already died. Out of the 11, 7 attended
the meeting through their respective proxies. The meeting
was convened and chaired by Atty. Sabino Padilla Jr. over the
objection of Atty. Antonio C. Pacis, who argued that there
was no quorum.
In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo,
Virginia Khoo, and Judith Tan were voted to replace the four
deceased member-trustees. The controversy reached SEC and
the petitioners maintained that the deceased member-
trustees should not be counted in the computation of the
quorum because, upon their death, members automatically
lost all their rights (including the right to vote) and interests
in the corporation.
SEC Hearing Officer Malthie G. Militar declared the April 6,
1998 meeting null and void for lack of quorum. She held that
the basis for determining the quorum in a meeting of
members should be their number as specified in the articles
of incorporation, not simply the number of living members.
She explained that the qualifying phrase "entitled to vote" in
Section 24 9 of the Corporation Code, which provided the
basis for determining a quorum for the election of directors
or trustees, should be read together with Section 89. The SEC
en banc denied the appeal of petitioners and affirmed the
Decision of the hearing officer in toto. It found to be
untenable their contention that the word "members," as
used in Section 52 of the Corporation Code, referred only to
the living members of a nonstock corporation. The CA
dismissed the appeal of petitioners, because the Verification
and Certification of Non-Forum Shopping had been signed
only by Atty. Sabino Padilla Jr. No Special Power of Attorney
had been attached to show his authority to sign for the rest
of the petitioners.
Hence this petition, Petitioners principally pray for the
resolution of the legal question of whether or not in NON-
STOCK corporations, dead members should still be counted in
determination of quorum for purposed of conducting the
Annual Members’ Meeting.
"Petitioners have maintained before the courts below that
the DEAD members should no longer be counted in
computing quorum primarily on the ground that members’
rights are ‘personal and non-transferable’ as provided in
• Dead members who are dropped from the membership
roster 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
• 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
Sections 90 and 91 of the Corporation Code of the
Philippines.
ISSUE: In a non-stock corporation, should dead members still
be counted in determination of quorum for purposed of
conducting the Annual Members’ Meeting?
HELD:
Petition is partly GRANTED. The assailed Resolutions of the
Court of Appeals are hereby REVERSED AND SET ASIDE. The
remaining members of the board of trustees of Grace
Christian High School (GCHS) may convene and fill up the
vacancies in the board, in accordance with this Decision. No
pronouncement as to costs in this instance.
QUORUM
For stock corporations, the "quorum" referred to in
Section 52 of the Corporation Code is based on the number of
outstanding voting stocks.
For nonstock corporations, only those who are
actual, living members with voting rights shall be counted in
determining the existence of a quorum during members’
meetings. Dead members shall not be counted.
One of the most important rights of a qualified
shareholder or member is the right
to vote -- either personally or by proxy -- for the directors or
trustees who are to manage the corporate affairs. The right
to vote is inherent in and incidental to the ownership of
corporate stocks. In nonstock corporations, the voting rights
attach to membership. The principle for determining the
quorum for stock corporations is applied by analogy to
nonstock corporations, only those who are actual members
with voting rights should be counted.
Under Section 52, the majority of the members
representing the actual number of voting rights, not the
number or numerical constant that may originally be
specified in the articles of incorporation, constitutes the
quorum.
DEATH OF MEMBER
Having thus determined that the quorum in a members’
meeting is to be reckoned as the actual number of members
of the corporation, the next question to resolve is what
happens in the event of the death of one of them.
 In stock corporations, the executor or administrator
duly appointed by the Court is vested with the legal title to
the stock and entitled to vote it. Until a settlement and
division of the estate is effected, the stocks of the decedent
are held by the administrator or executor.

On the other hand, membership in and all rights

arising from a nonstock corporation are personal and non-
transferable, unless the articles of incorporation or the
bylaws of the corporation provide otherwise. In other
words, the determination of whether or not "dead
members" are entitled to exercise their voting rights
(through their executor or administrator), depends on those
articles of incorporation or bylaws.

Under the By-Laws of GCHS, membership in the

corporation shall, among others, be terminated by the
death of the member. Applying Section 91, dead members
who are dropped from the membership roster in the
manner and for the cause provided for in the By-Laws of
GCHS are not to be counted in determining the requisite
vote in corporate matters or the requisite quorum for the
annual members’ meeting. With 11 remaining members, the
quorum in the present case should be 6. Therefore, there
being a quorum, the annual members’ meeting was valid.

BY LAWS OF GCHS

However, 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. 50

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.
MANUEL R. DULAY ENTERPRISES, INC., et. al. vs. CA

G.R. No. 91889; August 27, 1993

NOCON, J.:

Facts:

Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation. Members of

its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as
president, treasurer and general manager; Atty. Virgilio E. Dulay with 10 shares
and designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay-
Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and
designated as secretary, owned a property known as Dulay Apartment consisting
of 16 apartment units in Pasay City.

Manuel Dulay by virtue of Board Resolution 18 of the corporation sold the subject
property to spouses Maria Theresa and Castrense Veloso. Subsequently, Manuel
Dulay and the spouses Veloso executed a Memorandum to the Deed of Absolute
Sale giving Manuel Dulay within 2 years to repurchase the subject propertywhich
was, however, not annotated.Thereafter, Maria Veloso, without the knowledge of
Manuel Dulay, mortgaged the subject property to Manuel A. Torres which was
duly annotated. Upon the failure of Maria Veloso to pay Torres, the subject
property was sold to Torres as the highest bidder in an extrajudicial foreclosure
sale.

Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in

favor of Manuel Dulay assigning her right to repurchase the subject property
from Torres. Neither Veloso nor her assignee Dulay was able to redeem the
subject property within the one year statutory period for redemption. Torres then
filed a petition for the issuance of a writ of possession against spouses Veloso
and Manuel Dulay. However, when Virgilio Dulay appeared in court to intervene
in said case alleging that Manuel Dulay was never authorized by the corporation
to sell or mortgage the subject property, the trial court ordered Torres to
implead the corporation as an indispensable. Torres and Edgardo Pabalan, real
estate administrator of Torres, filed an action against the corporation, Virgilio
Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment for the recovery
of possession, sum of money and damages with preliminary injunction.

ISSUE:

Whether the sale of the subject property between spouses Veloso and Manuel
Dulay has no binding effect on the corporation as Board Resolution 18 which
authorized the sale of the subject property was resolved without the approval of
all the members of the board of directors and said Board Resolution was
prepared by a person not designated by the corporation to be its secretary.

HELD:

The corporation's claim that the sale of the subject property by its president,
Manuel Dulay, to spouses Veloso is null and void as the alleged Board Resolution
18 was passed without the knowledge and consent of the other members of the
board of directors cannot be sustained.

Section 101 of the Corporation Code of the Philippines provides that "When board
meeting is unnecessary or improperly held. Unless the by-laws provide
otherwise, any action by the directors of a close corporation without a meeting
shall nevertheless be deemed valid if: (1) Before or after such action is taken,
written consent thereto is signed by all the directors; or (2) All the stockholders
have actual or implied knowledge of the action and make no prompt objection
thereto in writing; or (3) The directors are accustomed to take informal action
with the express or implied acquiesce of all the stockholders; or (4) All the
directors have express or implied knowledge of the action in question and none
of them makes prompt objection thereto in writing. If a directors' meeting is held
without proper call or notice, an action taken therein within the corporate powers
is deemed ratified by a director who failed to attend, unless he promptly files his
written objection with the secretary of the corporation after having knowledge
thereof."

Herein, the corporation is classified as a close corporation and consequently a

board resolution authorizing the sale or mortgage of the subject property is not
necessary to bind the corporation for the action of its president. At any rate, a
corporate action taken at a board meeting without proper call or notice in a close
corporation is deemed ratified by the absent director unless the latter promptly
files his written objection with the secretary of the corporation after having
knowledge of the meeting which, in this case, Virgilio Dulay failed to do.

In ordinary parlance, the said entity is loosely referred to as a "family

corporation." The nomenclature, if imprecise, however, fairly reflects the
cohesiveness of a group and the parochial instincts of the individual members of
such an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-
fifths of its incorporators being close relatives namely, 3 children and their father
whose name identifies their corporation. Besides, the fact that Virgilio Dulay
executed an affidavit that he was a signatory witness to the execution of the
post-dated Deed of Absolute Sale of the subject property in favor of Torres
indicates that he was aware of the transaction executed between his father and
Torres and had, therefore, adequate knowledge about the sale of the subject
property to Torres. Consequently, the corporation is liable for the act of Manuel
Dulay and the sale of the subject property to Torres by Manuel Dulay is valid and
binding.
 San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals
296 SCRA 631

Facts:
On February 14 1989, San Juan Structural and Steel Fabricators, Inc.'s (San
Juan) entered into an agreement with Motorich Sales Corporation (Motorich) for the
transfer to it of a parcel of land containing an area of 414 square meters. San Juan paid
the down payment of P100,000, the balance to be paid on or before March 2, 1989
On March 1, 1989, Mr. Andres T. Co, president of San Juan, wrote a letter course
through Motorich's broker requesting for a computation of the balance to be paid. One
Linda Aduca, wrote the computation of the balance as reply to Co.
On March 2, 1989, San Juan was ready with the amount corresponding to the balance,
covered by Metrobank Cashier's Check, payable to Motorich. They agreed to meet in the
office of San Juan but Motorich's treasurer, Nenita Lee Gruenberg, did not appear.
Motorich refused to execute the Transfer of Rights/Deed of Assignment which is
necessary to transfer the certificate of title. The following parties was impleaded:
1. ACL Development Corp. (ACL) as a necessary party since Transfer Certificate of
Title No. (362909) 2876 is still in its name.
2. JNM Realty & Development Corp. (JNM) as a necessary party in view of the fact
that it is the transferor of right in favor of Motorich.
On April 6, 1989, ACL and Motorich entered into a Deed of Absolute Sale. The Registry
of Deeds of Quezon City issued a new title in the name of Motorich Sales Corporation,
represented by Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer
Certificate of Title No. 3571.

Nenita Lee Gruenberg and Motorich's bad faith in refusing to execute a formal Transfer
of Rights/Deed of Assignment, San Juan suffered moral and nominal damages of
P500,000 and exemplary damages of P100,000.00 and P100,000 attorney’s fees. San
Juan lost the opportunity to construct a residential building in the sum of P100,000.00.
San Juan argues that the veil of corporate fiction of Motorich should be
pierced because it is a close corporation. Since "Spouses Reynaldo L. Gruenberg
and Nenita R. Gruenberg owned all or almost all or 99.866% to be accurate, of the
subscribed capital stock" of Motorich, San Juan argues that Gruenberg needed no
authorization from the board to enter into the subject contract, being solely owned by
the Spouses Gruenberg, the company can treated as a close corporation which can be
bound by the acts of its principal stockholder who needs no specific authority.
Issue:
Whether or not Motorich is a close corporation.

Held:
Motorich is not a close corporation.
Gruenberg, treasurer of Motorich, and Andres Co signed the contract but that cannot
bind Motorich, because it never authorized or ratified such sale or even the receipt of the
earnest money. The document is a hand-written one, not a corporate receipt, and it bears
only Nenita Gruenberg's signature.
Motorich is a juridical person separate and distinct from its stockholders or members.
San Juan failed to prove otherwise. General Rule: acts of corporate officers within the
scope of their authority are binding on the corporation. But when these officers exceed
their authority, their actions "cannot bind the corporation, unless it has ratified such acts
or is estopped from disclaiming them. The statutorily granted privilege of a corporate veil
may be used only for legitimate purposes and should not be utilized as a shield to commit
fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or serve
as a mere alter ego or business conduit of a person or an instrumentality, agency or
adjunct of another corporation.

Sec. 96. Definition and Applicability of Title. — A close corporation, within the meaning
of this Code, is one whose articles of incorporation provide that: (1) All of the
corporation's issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding twenty (20); (2)
All of the issued stock of all classes shall be subject to one or more specified restrictions
on transfer permitted by this Title; and (3) The corporation shall not list in any stock
exchange or make any public offering of any of its stock of any class. Notwithstanding
the foregoing, a corporation shall be deemed not a close corporation when at least two-
thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code.

The articles of incorporation of Motorich Sales Corporation does not contain any
provision stated in Sec. 96 thus the mere ownership by a single stockholder or by another
corporation of all or capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.
Even if veil is pierced it will then be a sale of conjugal property which Nenita alone
could not have effected. Gruenberg did not represent herself as authorized by
Respondent Motorich despite the receipt issued by the former specifically indicating that
she was signing on behalf of Motorich.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 184088 July 6, 2010

IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS (IEMELIF) (Corporation Sole),

et. al, Petitioners vs. BISHOP NATHANAEL LAZARO et. al Respondents.

FACTS:
In 1909, Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las Islas
Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its "General
Superintendent." Thirty-nine years later in 1948, the IEMELIF enacted and registered a by-laws that
established a Supreme Consistory of Elders (the Consistory), made up of church ministers, who
were to serve for four years. The by-laws empowered the Consistory to elect a General
Superintendent, a General Secretary, a General Evangelist, and a Treasurer General who would
manage the affairs of the organization. For all intents and purposes, the Consistory served as the
IEMELIF’s board of directors.

Apparently, although the IEMELIF remained a corporation sole on paper, it had always acted like a
corporation aggregate. The Consistory exercised IEMELIF’s decision-making powers without ever
being challenged. Subsequently, during its 1973 General Conference, the general membership
voted to put things right by changing IEMELIF’s organizational structure from a corporation sole to a
corporation aggregate. On May 7, 1973 SEC approved the vote. For some reasons, however, the
corporate papers of the IEMELIF remained unaltered as a corporation sole.

Only in 2001, the SEC replied to a query of IEMELIF on April 3, 2001 that, although the SEC
Commissioner did not in 1948 object to the conversion of the IEMELIF into a corporation aggregate,
that conversion was not properly carried out and documented. The SEC said that the IEMELIF
needed to amend its articles of incorporation for that purpose.

Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation aggregate.
The general membership approved the conversion, prompting the IEMELIF to file amended articles
of incorporation with the SEC. Bishop Lazaro filed an affidavit-certification in support of the
conversion.

Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support the
conversion, filed a civil case for "Enforcement of Property Rights of Corporation Sole, Declaration of
Nullity of Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate with
Application for Preliminary Injunction and/or Temporary Restraining Order" in IEMELIF’s name
against respondent members of its Consistory before the RTC of Manila. They claim that a complete
shift from IEMELIF’s status as a corporation sole to a corporation aggregate required, not just an
amendment of the IEMELIF’s articles of incorporation, but a complete dissolution of the existing
corporation sole followed by a re-incorporation.

RTC dismissed the action and held that Corporation Code on Religious Corporations, Section 109
provides that religious corporations shall be governed additionally "by the provisions on non-stock
corporations insofar as they may be applicable." The RTC thus held that Section 16 of the Code that
governed amendments of the articles of incorporation of non-stock corporations applied to
corporations sole as well. What IEMELIF needed to authorize the amendment was merely the vote
or written assent of at least two-thirds of the IEMELIF membership.
Petitioners Pineda, et al. appealed but CA affirmed the decision of the RTC. Petitioners moved for
reconsideration, but the CA denied it by its resolution of August 1, 2008, hence, the present petition
for review before this Court.

ISSUE:
Whether or not a corporation sole may be converted into a corporation aggregate by mere
amendment of its articles of incorporation.

HELD:
Religious corporations are governed by Sections 109 through 116 of the Corporation Code. In a
2009 case involving IEMELIF, the Court distinguished a corporation sole from a corporation
aggregate. Citing Section 110 of the Corporation Code, the Court said that a corporation sole is "one
formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a religious
denomination, sect, or church, for the purpose of administering or managing, as trustee, the affairs,
properties and temporalities of such religious denomination, sect or church." A corporation
aggregate formed for the same purpose, on the other hand, consists of two or more persons.

True, the Corporation Code provides no specific mechanism for amending the articles of
incorporation of a corporation sole. But, as the RTC correctly held, Section 109 of the Corporation
Code allows the application to religious corporations of the general provisions governing non-stock
corporations.

For non-stock corporations, the power to amend its articles of incorporation lies in its members.
Although a non-stock corporation has a personality that is distinct from those of its members who
established it, its articles of incorporation cannot be amended solely through the action of its board
of trustees. The amendment needs the concurrence of at least two-thirds of its membership. If such
approval mechanism is made to operate in a corporation sole, its one member in whom all the
powers of the corporation technically belongs, needs to get the concurrence of two-thirds of its
membership. The one member, here the General Superintendent, is but a trustee, according to
Section 110 of the Corporation Code, of its membership. 1avvphi1

Here, the evidence shows that the IEMELIF’s General Superintendent, respondent Bishop Lazaro,
who embodied the corporation sole, had obtained, not only the approval of the Consistory that drew
up corporate policies, but also that of the required two-thirds vote of its membership.
 #37 G.R. No. L-39050 February 24, 1981
CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO, petitioners, vs.
THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC., respondents.
DE CASTRO, J.:

FACTS:
Insular Sawmill was a corporation engaged in the general lumber and sawmill business
with a corporate life of fifty years, beginning Sept 17, 1945 – Sept 17, 1995.
To carry on the business, Insular Sawmill leased paraphernal property of petitioner
Guillerma Gelano. It was while leasing the property, that the Guillerma, and her husband
Carlos, incurred the following debts to the corporation:
1. For cash advances made by the corporation to Carlos which was supposed to be
deducted from the monthly rentals being paid by the corporation
2. For credit purchases of lumber materials from the company
3. For credit accommodation obtained by the spouses from China Banking Corporation, for
which the corporation executed a promissory note in favour of the bank from which the
bank collected Carlos’ debt from.

On May 22, 1959, the corporation, thru Atty. German Lee, filed a complaint for
collection against the spouses Gelano before CFI-Manila. Trial was held and when the case was
at the stage of submitting memorandum, Atty. Lee retired from active law practice and Atty.
Eduardo F. Elizalde took over and prepared the memorandum
While the case was pending, Insular Sawmill amended its Articles of Incorporation to
shorten its term of existence up to December 31, 1960 only. The amended Articles of
Incorporation was filed with, and approved by the Securities and Exchange Commission, but the
trial court was not notified of the amendment shortening the corporate existence and no
substitution of party was ever made.
On November 20, 1964 and almost four (4) years after the dissolution of the
corporation, the trial court rendered a decision in favor of Insular Sawmill. The CA modified the
decision, holding the spouses solidarily liable.
After the Gelanos received a copy of the decision on August 24, 1973, they came to
know that the Insular Sawmill Inc. was dissolved way back on December 31, 1960. Thus they
filed an MD on th ground that the case was prosecuted even after dissolution of Insular Sawmill
as a corporation and that a defunct corporation cannot maintain any suit for or against it
without first complying with the requirements of the winding up of the affairs of the
corporation and the assignment of its property rights within the required period.
Their MD was denied thus the present petition for review.
ISSUES:
Whether a corporation, whose corporate life had ceased by the expiration of its terms of
existence, could still continue prosecuting and defending suits after its dissolution and beyond the
period of 3 years provided for under Act 1459, otherwise known as the Corporation Law, to wind up its
affairs, without having undertaken any step to transfer its assets to a trustee or assignee.

HELD:

Yes . Pursuant to paragraph 1, Article 1408 of the Civil Code of 1889 which provision incidentally
can still found in Paragraph 1, Article 161 of the New Civil Code. The obligation/ debt contracted by
petitioner husband Carlos Gelano redounded to the benefit of the family. Hence the conjugal property is
liable for his debt.

When ISI was dissolved on 31 December 1960, under Section 77 of the Corporation Law, it still
has the right until 31 December 1963 to prosecute in its name the present case. After the expiration of
said period, the corporation ceased to exist for all purposes and it can no longer sue or be sued.
However, a corporation that has a pending action and which cannot be terminated within the 3-year
period after its dissolution is authorized under Section 78 to convey all its property to trustees to enable
it to prosecute and defend suits by or against the corporation beyond the 3-year period. Although ISI did
not appoint any trustee, yet the counsel who prosecuted and defended the interest of the corporation
in the present case and who in fact appeared in behalf of the corporation may be considered a trustee
of the corporation at least with respect to the matter in litigation only. Said counsel had been handling
the case when the same was pending before the trial court until it was appealed before the Court of
Appeals and finally to the Supreme Court.
G.R. No. L-15778 April 23, 1962
TAN TIONG BIO, ET AL., petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

FACTS :

Central Syndicate, thru its GM, David Sycip, sent a letter to CIR
• Advising the CIR that it purchased from Dee Hong Lue the entire stock of surplus properties, which the latter had
bought from the Foreign Liquidation Commission
• That as it assumed Dee Hong Lue’s obligation to pay the the 3 1/2 % sales tax on the said surplus goods, it was
remitting P43,750 in his behalf to answer for the payment of said sales tax with the understanding that it would
later be adjusted after the determination of the exact consideration of the sale

Central Syndicate again wrote the Collector

• Requesting the refund of P1,103.28 representing the alleged excess payment of sales tax due to the adjustment and
reduction of the purchase price

The 2nd letter was referred to agent for verification and report, and after a thorough investigation, the agent reported that:
1) Dee Hong Lue purchased the surplus goods as trustee for the Central Syndicate
2) It was the representatives of the Central Syndicate that removed the surplus goods from their base at Leyte
3) The syndicate must have realized a gross profit of 18.8% from its sales thereof
4) If the sales tax were to be assessed on its gross sales it would still be liable for the amount of P33,797.88 as
deficiency sales tax and surcharge

Based on the finding of the agent, the Collector decided that the Central Syndicate was the importer and original seller of
the surplus goods and therefore, the one liable to pay the sales tax. The Collector assessed against the Syndicate the
amount of P33,797.88 and P300 as deficiency sales tax. And also in a separate letter, he denied the request for the refund.

The Syndicate elevated the Case to the CTA.

CTA Decision: Central Syndicate has no personality to maintain the action then pending before it. (syndicate is already a
non­existing entity due to the expiration of its corporate existence)

Syndicate appealed to the SC, intimated that that the appeal should not be dismissed because it could be substituted but its
successors-in-interest (the petitioners).
• The SC ordered to permit the substitution of the officers and directors of the defunct Central Syndicate as
appellants, and to proceed with the hearing of the appeal upon its merits, under the premise that said officers and
directors "may be held personally liable for the unpaid deficiency assessments made by the Collector of Internal
Revenue against the defunct syndicate."

CTA Decision: Petitioners are ordered to pay to the CIR the sum of P33,797.88 as deficiency sales tax and surcharge.

ISSUES :
1) Whether the importer of the surplus goods in question the sale of which is subject to the present tax liability is Dee
Hong Lue or the Central Syndicate who has been substituted by the present petitioners;
2) Whether the deficiency sales tax has already prescribed
3) The Central Syndicate having already been dissolved because of the expiration of its corporate existence,
whether the sales tax in question can be enforced against its successors­in­interest who are the present
petitioners.
SC DECISION:

1) The importer is Central Syndicate. Petitioner contends that the Central Syndicate cannot be held liable for the deficiency
sales tax in question because it is not the importer.

The Court said that such contention could not be sustained. As correctly observed by the CTA, the overwhelming evidence
presented by the Collector points to the conclusion that Dee Hong Lue purchased the surplus goods in question not for
himself but for the Central Syndicate, which was then in the process of incorporation. The deed of sale which purports to
show that Dee Hong Lue sold said goods to the syndicate for a consideration of P1,250,000.00 (the same amount paid by
Dee Hong Lue to the Foreign Liquidation Commission) "is but a ruse to evade payment of a greater amount of percentage
tax."

2) No. Since the Central Syndicate was the importer, it was its duty under Sec. 183 of the Internal Revenue Code to file a
return of its gross sales within 20 days after the end of each quarter but, as the record shows, the Central Syndicate failed
to file any return of its quarterly sales on the pretext that it was Dee Hong Lue who imported the surplus goods and it
merely purchased them from said importer.

The letter sent by the Syndicate cannot be considered as a return that may set in operation the application of the
prescriptive period for the said letter if at all could only be considered as such in behalf of Dee Hong Lue and not in behalf of
the Central Syndicate because such is the only nature and import of the letter.

The syndicate having failed to file its quarterly returns the period that has to be reckoned with is that embodied in Section
332 of the same Code which provides that in case of failure to file the return the tax may be assessed within 10 years after
discovery of the falsity, fraud or omission of the payment of the proper tax. Since it appears that the Collector discovered
the failure of the syndicate to file the return only on September 12, 1951 he has therefore up to September 18, 1961 within
which to assess or collect the deficiency tax in question. Consequently the assessment made on January 4, 1952 was made
within the prescribed period.

3) YES. It should be stated at the outset that it was petitioners themselves who caused their substitution as parties in the
present case, being the successors­in­interest of the defunct syndicate, when they appealed this case to the Supreme Court.
In fact, because of this directive their substitution was effected. They cannot, therefore, be now heard to complain if they
are made responsible for the tax liability of the defunct syndicate whose representation they assumed and whose assets
were distributed among them.

There is good authority to the effect that the creditor of a dissolved corporation may follow its assets once they passed
into the hands of the stockholders. Thus, recognized are the following rules in American jurisprudence: The dissolution of a
corporation does not extinguish the debts due or owing to it. A creditor of a dissolve corporation may follow its assets, as
in the nature of a trust fund, into the hands of its stockholders

And it has been stated, with reference to the effect of dissolution upon taxes due from a corporation, "that the hands of the
government cannot, of course, collect taxes from a defunct corporation, it loses thereby none of its rights to assess taxes
which had been due from the corporation, and to collect them from persons, who by reason of transactions with the
corporation, hold property against which the tax can be enforced and that the legal death of the corporation no more
prevents such action than would the physical death of an individual prevent the government from assessing taxes against
him and collecting them from his administrator, who holds the property which the decedent had formerly possessed"

Petitioners are therefore the beneficiaries of the defunct corporation and as such should be held liable to pay the taxes in
question. However, there being no express provision requiring the stockholders of the corporation to be solidarily liable for
its debts which liability must be express and cannot be presumed, petitioners should be held to be liable for the tax in
question only in proportion to their shares in the distribution of the assets of the defunct corporation. The decision of the
trial court should be modified accordingly.
Clarion Printing House, Inc., and Eulogio Yutingco vs The Honorable National Labor Relations
Commission (Third Division) And Michelle Miclat
G.R. NO. 148372 June 27, 2005

Facts:

Respondent Michelle Miclat (Miclat) was employed on a probationary basis as marketing

assistant by petitioner Clarion Printing House (CLARION) owned by Eulogio Yutingco. At the time
of her employment, she was not informed of the standards that would qualify her as a regular
employee.

The EYCO Group of Companies of which CLARION formed part, filed with the Securities and
Exchange Commission (SEC) a "Petition for the Declaration of Suspension of Payment, Formation
and Appointment of Rehabilitation Receiver/ Committee, Approval of Rehabilitation Plan with
Alternative Prayer for Liquidation and Dissolution of Corporation". The SEC issued an Order
approving the creation of an interim receiver for the EYCO Group of Companies.

The Assistant Personnel Manager of CLARION informed Miclat by telephone that her
employment contract had been. The following day on reporting for work, Miclat was informed
by the General Sales Manager that her termination was part of CLARION's cost-cutting measures.

Miclat then filed a complaint for illegal dismissal against CLARION and Yutingco before the NLRC.
In her Position Paper, Miclat claimed that she was never informed of the standards which would
qualify her as a regular employee. She asserted, however, that she qualified as a regular
employee since her immediate supervisor even submitted a written recommendation in her
favor before she was terminated without just or authorized cause.

In any event, Miclat claimed that assuming that her termination was necessary, the manner in
which it was carried out was illegal, no written notice thereof having been served on her, and she
merely learned of it only a day before it became effective.

On the other hand, petitioners claimed that they could not be faulted for retrenching some of its
employees including Miclat, they drawing attention to the EYCO Group of Companies' being
placed under receivership, notice of which was sent to its supervisors and rank and file
employees.

The labor arbiter rendered decision finding that Miclat was illegally dismissed and directed her
reinstatement. The CA sustained the decision of the NLRC.

Issue: Whether or not the termination of Miclat is illegal

Held:

The SC set aside the CA decision and rendered the legality of the dismissal of respondent Miclat.
It is well-settled that for retrenchment to be justified, any claim of actual or potential business
losses must satisfy the following standards: (1) the losses are substantial and not de minimis; (2)
the losses are actual or reasonably imminent; (3) the retrenchment is reasonably necessary and
is likely to be effective in preventing expected losses; and (4) the alleged losses, if already
incurred, or the expected imminent losses sought to be forestalled, are proven by sufficient and
convincing evidence.

Sections 5 and 6 of Presidential Decree No. 902-A s amended, read:

 SEC. 5 In addition to the regulatory and adjudicative functions of THE SECURITIES
AND EXCHANGE COMMISSION over corporations, partnerships and other forms of
associations registered with it as expressly granted under existing laws and decrees, it
shall have original and exclusive jurisdiction to hear and decide cases involving:

xxx

(d) Petitions of corporations, partnerships or associations declared in the state of

suspension of payments in cases where the corporation, partnership or association
possesses sufficient property to cover all debts but foresees the impossibility of meeting
them when they respectively fall due or in cases where the corporation, partnership,
association has no sufficient assets to cover its liabilities, but is under the management of
a Rehabilitation Receiver or Management Committee created pursuant to this Decree.

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall

possess the following powers:

xxx

(c) To appoint one or more receivers of the property, real and personal, which is
the subject of the action pending before the Commission in accordance with the
provisions of the Rules of Court in such other cases whenever necessary in order to
preserve the rights of the parties-litigants and/or protect the interest of the investing
public and creditors: Provided, however, That the Commission may in appropriate cases,
appoint a rehabilitation receiver of corporations, partnerships or other associations not
supervised or regulated by other government agencies who shall have, in addition to
powers of the regular receiver under the provisions of the Rules of Court, such functions
and powers as are provided for in the succeeding paragraph (d) hereof: x x x

(d) To create and appoint a management committee, board or body upon petition
or motu propio to undertake the management of corporations, partnership or other
associations not supervised or regulated by other government agencies in appropriate
cases when there is imminent danger of dissipation, loss, wastage or destruction of assets
or other properties or paralization of business operations of such corporations or entities
which may be prejudicial to the interest of minority stockholders, parties-litigants of the
general public: x x x (Emphasis and underscoring supplied).

From the above-quoted provisions the appointment of a receiver or management committee by

the SEC presupposes a finding that, inter alia, a company possesses sufficient property to cover
all its debts but “foresees the impossibility of meeting them when they respectively fall due” and
“there is imminent danger of dissipation, loss, wastage or destruction of assets of other
properties or paralization of business operations.”

That the SEC, mandated by law to have regulatory functions over corporations, partnerships or
associations, appointed an interim receiver for the EYCO Group of Companies on its petition in
light of, as quoted above, the therein enumerated "factors beyond the control and anticipation
of the management" rendering it unable to meet its obligation as they fall due, and thus resulting
to "complications and problems . . . to arise that would impair and affect [its] operations . . ."
shows that CLARION, together with the other member-companies of the EYCO Group of
Companies, was suffering business reverses justifying, among other things, the retrenchment of
its employees.

CLARION, however, failed to comply with the notice requirement provided for in Article 283 of
the Labor Code. This Court thus deems it proper to award the amount equivalent to Miclat's one
(1) month salary of P6,500.00 as nominal damages to deter employers from future violations of
the statutory due process rights of employees.

With the appointment of a management receiver however, all claims and proceedings against
CLARION, including labor claims, were deemed suspended during the existence of the
receivership. The labor arbiter, the NLRC, as well as the CA should not have proceeded to resolve
respondent's complaint for illegal dismissal and should instead have directed respondent to
lodge her claim before the then duly-appointed receiver of CLARION.
 G.R. No. L-38649 March 26, 1979

FACILITIES MANAGEMENT CORPORATION, J. S. DREYER, and J. V. CATUIRA, petitioners, vs.

LEONARDO DE LA ROSA AND THE HONORABLE COURT OF INDUSTRIAL RELATIONS, respondents.

FACTS:

In a petition filed on July 1, 1967, Leonardo dela Osa sought his reinstatement. with full backwages, as
well as the recovery of his overtime compensation, swing shift and graveyard shift differentials.
Petitioner alleged that he was employed by respondents as follows: (1) painter with an hourly rate of
$1.25 from March, 1964 to November, 1964, inclusive; (2) houseboy with an hourly rate of $1.26 from
December, 1964 to November, 1965, inclusive; (3) houseboy with an hourly rate of $1.33 from
December, 1965 to August, 1966, inclusive; and (4) cashier with an hourly rate of $1.40 from August,
1966 to March 27, 1967, inclusive. He further averred that from December, 1965 to August, 1966,
inclusive, he rendered overtime services daily and that this entire period was divided into swing and
graveyard shifts to which he was assigned, but he was not paid both overtime and night shift premiums
despite his repeated demands from respondents.

Apropos before this Court were filed three (3) other cases involving the same petitioner.

Incidentally, this Court found strong evidence that petitioner therein, which is also the petitioner in the
case at bar, "twisted the arm" of private respondent, when the latter in his Manifestation dated July 3,
1975, stated:

3. ... Furthermore, since petitioner FMC is a foreign corporation domiciled in California, U.S.A.
and has never been engaged in business in the Philippines, nor does it have an agent or an office
in this country, there exists no valid reason for me to participate in the continuation and/or
prosecution of this case (p. 194, rollo).

— as if jurisdiction depends on the will of the parties to a case.

ISSUE:

Whether or not the plaintiff appellant has been doing business in the Philippines, considering the fact
that it has no license to transact business in the Philippines as a foreign corporation and therefore can
be sued in the Philippines.

RULING:

YES. The object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign corporation
from performing single acts, but to prevent it from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to suit in the local courts. It was never the
purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order
for business from the Philippines, from securing redress in the Philippine courts (Marshall Co. vs. Elser &
Co., 46 Phil 70,75).

In Mentholatum Co., Inc., et al vs- M Court rules that

No general rule or governing principle can be laid down as to what constitutes 'doing' or
'engaging in' or 'transacting' business. Indeed, each case must be judged in the light of its
 peculiar environmental circumstances. The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to another. (Traction
Cos. v. Collectors of Int Revenue [C.C.A Ohio], 223 F. 984, 987). The term implies a continuity of
commercial dealings and arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization (Griffin v. Implement Dealers' Mut.
Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118
Okl. III; Automotive Material Co. vs. American Standard Metal Products Corp., 158 N.E. 698, 703,
327 III. 367)'. 72 Phil. 524, 528-529.

And in Eastboard Navigation, Ltd., et al. vs. Juan Ysmael & Co., Inc., this Court held:

(d) While plaintiff is a foreign corporation without license to transact business in the Philippines,
it does not follow that it has no capacity to bring the present action. Such license is not
necessary because it is not engaged in business in the Philippines. In fact, the transaction herein
involved is the first business undertaken by plaintiff in the Philippines, although on a previous
occasion plaintiff's vessel was chartered by the National Rice and Corn Corporation to carry rice
cargo from abroad to the Philippines. These two isolated transactions do not constitute
engaging in business in the Philippines within the purview of Sections 68 and 69 of the
Corporation Law so as to bar plaintiff from seeking redress in our courts. (Marshall Wens Co. vs.
Henry W. Elser & Co. 49 Phil., 70; Pacific Vegetable Oil Corporation vs. Angel O. Singson, G.R. No.
L-7917, April 29, 1955)'. 102 Phil., pp. 1, 18.

Indeed, if a foreign corporation, not engaged in business in the Philippines, is not banned from
seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim
exemption from being sued in Philippine courts for acts done against a person or persons in the
Philippines.
41. Agilent Technologies Singapore vs. Integrated Silicon Technology Philippines
Corp.
GR 154618, 14 April 2004

Facts:
Agilent Technologies Singapore (Pte.), Ltd. is a foreign corporation, which,
by its own admission, is not licensed to do business in the Philippines. Integrated
Silicon Technology Philippines Corporation is a private domestic corporation,
100% foreign owned, which is engaged in the business of manufacturing and
assembling electronics components. Teoh Kiang Hong, Teoh Kiang Seng and
Anthony Choo, Malaysian nationals, are current members of Integrated Silicon’s
board of directors, while Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz, and
Rolando T. Nacilla are its former members. The juridical relation among the various
parties in the case can be traced to a 5-year Value Added Assembly Services
Agreement (VAASA), entered into on 2 April 1996 between Integrated Silicon and
the Hewlett-Packard Singapore (Pte.) Ltd., Singapore Components Operation
(HP-Singapore). Under the terms of the VAASA, Integrated Silicon was to locally
manufacture and assemble fiber optics for export to HP-Singapore.
HP-Singapore, for its part, was to consign raw materials to Integrated Silicon;
transport machinery to the plant of Integrated Silicon; and pay Integrated Silicon
the purchase price of the finished products. The VAASA had a five-year term,
beginning on 2 April 1996, with a provision for annual renewal by mutual written
consent. On 19 September 1999, with the consent of Integrated Silicon, HP-
Singapore assigned all its rights and obligations in the VAASA to Agilent. On 25
May 2001, Integrated Silicon filed a complaint for “Specific Performance and
Damages” against Agilent and its officers Tan Bian Ee, Lim Chin Hong, Tey Boon
Teck and Francis Khor (Civil Case 3110-01C), alleging that Agilent breached the
parties’ oral agreement to extend the VAASA. Integrated Silicon thus prayed that
Agilent be ordered to execute a written extension of the VAASA for a period of
five years as earlier assured and promised; to comply with the extended VAASA;
and to pay actual, moral, exemplary damages and attorney’s fees.
On 1 June 2001, summons and a copy of the complaint were served on
Atty. Ramon Quisumbing, who returned these processes on the claim that he was
not the registered agent of Agilent. Later, he entered a special appearance to
assail the court’s jurisdiction over the person of Agilent. On 2 July 2001, Agilent
filed a separate complaint against Integrated Silicon, Teoh Kang Seng, Teoh
Kiang Gong, Anthony Choo, Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz
and Rolando T. Nacilla, for “Specific Performance, Recovery of Possession, and
Sum of Money with Replevin, Preliminary Mandatory Injunction, and Damages”,
before the Regional Trial Court, Calamba, Laguna, Branch 92 (Civil Case 3123-
2001-C). Agilent prayed that a writ of replevin or, in the alternative, a writ of
preliminary mandatory injunction, be issued ordering Integrated Silicon, et. al. to
immediately return and deliver to Agilent its equipment, machineries and the
materials to be used for fiber-optic components which were left in the plant of
Integrated Silicon; and that the latter be ordered to pay actual and exemplary
damages and attorney’s fees. Integrated Silicon, et. al. filed a Motion to Dismiss
in Civil Case No. 3123-2001-C, on the grounds of lack of Agilent’s legal capacity
to sue; litis pendentia; forum shopping; and failure to state a cause of action. On
4 September 2001, the trial court denied the Motion to Dismiss and granted
Agilent’s application for a writ of replevin.
Issue [1]: Whether a foreign corporation without a license is incapacitated from
bringing an action in Philippine courts.
Issue [2]: Whether Agilent was doing business in the Philippines.

Held [1]:
A foreign corporation without a license is not ipso facto incapacitated from
bringing an action in Philippine courts. A license is necessary only if a foreign
corporation is “transacting” or “doing business” in the country. Section 133 of the
Corporation Code provides that "No foreign corporation transacting business in
the Philippines without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws." The aforementioned
provision prevents an unlicensed foreign corporation “doing business” in the
Philippines from accessing our courts.
In a number of cases, however, the Court held that an unlicensed foreign
corporation doing business in the Philippines may bring suit in Philippine courts
against a Philippine citizen or entity who had contracted with and benefited from
said corporation. Such a suit is premised on the doctrine of estoppel. A party is
estopped from challenging the personality of a corporation after having
acknowledged the same by entering into a contract with it. This doctrine of
estoppel to deny corporate existence and capacity applies to foreign as well as
domestic corporations.
The application of this principle prevents a person contracting with a
foreign corporation from later taking advantage of its noncompliance with the
statutes chiefly in cases where such person has received the benefits of the
contract.
The principles regarding the right of a foreign corporation to bring suit in Philippine
courts may thus be condensed in four statements:

(1) if a foreign corporation does business in the Philippines without a license, it

cannot sue before the Philippine courts;
(2) if a foreign corporation is not doing business in the Philippines, it needs no
license to sue before Philippine courts on an isolated transaction or on a cause of action
entirely independent of any business transaction;
(3) if a foreign corporation does business in the Philippines without a license, a
Philippine citizen or entity which has contracted with said corporation may be estopped
from challenging the foreign corporation’s corporate personality in a suit brought before
Philippine courts; and
(4) if a foreign corporation does business in the Philippines with the required
license, it can sue before Philippine courts on any transaction.

Held [2]:
The challenge to Agilent’s legal capacity to file suit hinges on whether or
not it is doing business in the Philippines. However, there is no definitive rule on
what constitutes “doing”, “engaging in”, or “transacting” business in the
Philippines, the Corporation Code itself is silent as to what acts constitute doing or
transacting business in the Philippines.
An analysis of the relevant case law, in conjunction with Section 1 of the
Implementing Rules and Regulations of the Foreign Investments Act of 1991 (FIA,
as amended by RA 8179), would demonstrate that the acts enumerated in the
VAASA do not constitute “doing business” in the Philippines.
Section 1 of the Implementing Rules and Regulations of the FIA (as
amended by RA 8179) provides that the following shall not be deemed “doing
business”: (1) Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such
investor; (2) Having a nominee director or officer to represent its interest in such
corporation; (3) Appointing a representative or distributor domiciled in the
Philippines which transacts business in the representative’s or distributor’s own
name and account; (4) The publication of a general advertisement through any
print or broadcast media; (5) Maintaining a stock of goods in the Philippines solely
for the purpose of having the same processed by another entity in the Philippines;
(6) Consignment by a foreign entity of equipment with a local company to be
used in the processing of products for export; (7) Collecting information in the
Philippines; and (8) Performing services auxiliary to an existing isolated contract of
sale which are not on a continuing basis, such as installing in the Philippines
machinery it has manufactured or exported to the Philippines, servicing the same,
training domestic workers to operate it, and similar incidental services.
By and large, to constitute “doing business”, the activity to be undertaken
in the Philippines is one that is for profit-making. Herein, by the clear terms of the
VAASA, Agilent’s activities in the Philippines were confined to (1) maintaining a
stock of goods in the Philippines solely for the purpose of having the same
processed by Integrated Silicon; and (2) consignment of equipment with
Integrated Silicon to be used in the processing of products for export. As such,
Agilent cannot be deemed to be “doing business” in the Philippines. Integrated
Silicon, et. al.’s contention that Agilent lacks the legal capacity to file suit is
therefore devoid of merit. As a foreign corporation not doing business in the
Philippines, it needed no license before it can sue before our courts.
 EXPERTRAVEL & TOURS, INC. v. COURT OF APPEALS and KOREAN AIRLINES
G.R. NO. 152392
FACTS:
Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and
licensed to do business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its
appointed counsel was Atty. Mario Aguinaldo and his law firm.
KAL, through Atty. Aguinaldo, filed a Complaint against ETI with the Regional Trial Court (RTC) of Manila,
for the collection of the principal amount of P260,150.00, plus attorney's fees and exemplary damages.
The verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated
therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the
complaint.
ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to
execute the verification and certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules
of Court. KAL opposed the motion, contending that Atty. Aguinaldo was its resident agent and was
registered as such with the Securities and Exchange Commission (SEC) as required by the Corporation
Code of the Philippines. It was further alleged that Atty. Aguinaldo was also the corporate secretary of
KAL.
Atty. Aguinaldo claimed that he had been authorized to file the complaint through a resolution of the KAL
Board of Directors approved during a special meeting. KAL submitted an Affidavit of executed by its
general manager Suk Kyoo Kim, alleging that the board of directors conducted a special teleconference
which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board
of directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum
shopping and to file the complaint. Suk Kyoo Kim also alleged, however, that the corporation had no
written copy of the aforesaid resolution.
The trial court issued an order denying the motion to dismiss. ETI then filed a Petition for Certiorari and
mandamus, assailing the orders of the RTC.
The CA rendered judgment dismissing the petition, ruling that the verification and certificate of non-forum
shopping executed by Atty. Aguinaldo was sufficient compliance with the Rules of Court. ETI comes to the
Court by way of Petition for Review on Certiorari. The petitioner also maintains that the RTC cannot take
judicial notice of the said teleconference without prior hearing, nor any motion therefor. The petitioner
reiterates its submission that the teleconference and the resolution adverted to by the respondent was a
mere fabrication.
ISSUE:
Whether or not the court should take judicial notice as to the use of teleconference as a means of
conducting meetings of board of directors for purposes of passing a resolution.
RULING:
The petition is meritorious.
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.
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. 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.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference along
with the respondent's Board of Directors, the Court is not convinced that one was conducted; even if
there had been one, the Court is not inclined to believe that a board resolution was duly passed specifically
authorizing Atty. Aguinaldo to file the complaint and execute the required certification against forum
shopping.
KAL, through Atty. Aguinaldo, announced the holding of the teleconference only during the hearing of
January 28, 2000; Atty. Aguinaldo then prayed for ten days within which to submit the board resolution
purportedly authorizing him to file the complaint and execute the required certification against forum
shopping. KAL failed to comply contending that it was with its main office in Korea. On, March 6, 2000,
KAL submitted an affidavit of its general manager Suk Kyoo Kim, stating, inter alia, that he and Atty.
Aguinaldo attended the said teleconference where the Board of Directors supposedly approved the
resolution.
But then, in the same affidavit, Suk Kyoo Kim declared that the KAL "does not keep a written copy of the
aforesaid Resolution" because no records of board resolutions approved during teleconferences were
kept. This belied the KAL’s earlier allegation in its motion for extension of time to submit the questioned
resolution that it was in the custody of its main office in Korea. The respondent gave the trial court the
impression that it needed time to secure a copy of the resolution kept in Korea, only to allege later that it
had no such written copy.
The Court is, thus, more inclined to believe that the alleged teleconference never took place, and that the
resolution allegedly approved by the respondent's Board of Directors during the said teleconference was
a mere concoction purposefully foisted on the RTC, the CA and this Court, to avert the dismissal of its
complaint against the petitioner.
***
It is settled that the requirement to file a certificate of non-forum shopping is mandatory and that the
failure to comply with this requirement cannot be excused. The certification must be accomplished by the
party himself because he has actual knowledge of whether or not he has initiated similar actions or
proceedings in different courts or tribunals. Even his counsel may be unaware of such facts. Hence, the
requisite certification executed by the plaintiff's counsel will not suffice.
In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf of
the said corporation, by a specifically authorized person, including its retained counsel, who has personal
knowledge of the facts required to be established by the documents.
There was no allegation that Atty. Aguinaldo had been authorized to execute the certificate of non-forum
shopping by the respondent's Board of Directors; moreover, no such board resolution was appended
thereto or incorporated therein.
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.
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.