CORPORATION CASE DIGEST Tesoro and Mining and Development, Inc.
, is composed, among others, by
Grandfather Rule
1. Narra Nickel Mining and Dev. Corp. vs. Redmont
Consolidated Mines, G.R. No. 195580, April 21, 2014
The “control test” is still the prevailing mode of determining whether or
not a corporation is a Filipino corporation, within the ambit of Sec. 2, Art.
II of the 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines.
When in the mind of the Court there is doubt, based on the attendant facts
and circumstances of the case, in the 60-40 Filipino-equity ownership in the
corporation, then it may apply the “grandfather rule.”
Facts:
Redmont Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in mining and
exploring certain areas of the province of Palawan. After inquiring with the
Department of Environment and Natural Resources (DENR), it learned that
the areas where it wanted to undertake exploration and mining activities
were already covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur.
Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of
Arbitrators (POA) of the DENR separate petitions for denial of McArthur
Mining, Inc. (McArthur), Tesoro and Mining and Development, Inc.
(Tesoro), and Narra Nickel Mining and Development Corporation (Narra)
applications Mineral Production Sharing Agreement (MPSA) on the ground
that they are not “qualified persons” and thus disqualified from engaging in
mining activities through MPSAs reserved only for Filipino citizens.
McArthur Mining, Inc., is composed, among others, by Madridejos Mining
Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI
Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also
owns 3,331 out of 10,000 shares of Madridejos Mining Corporation;
Sara Marie Mining, Inc. (Filipino) owning 5,997 out of 10,000 shares, and
MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares;
MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.;
Narra Nickel Mining and Development Corporation, is composed, among
others, by Patricia Louise Mining & Development Corporation (Filipino)
owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian)
owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000
shares of Patricia Louise Mining & Development Corporation;
Issue/s:
1.       Is the Grandfather Rule applicable?
2.       Whether McArthur, Tesoro and Narra are Filipino nationals?
Held:
1. YES. The instant case presents a situation which exhibits a scheme
employed by stockholders to circumvent the law, creating a cloud
of doubt in the Court’s mind. To determine, therefore, the actual
participation, direct or indirect, of MBMI, the grandfather rule
must be used.
The Strict Rule or the Grandfather Rule pertains to the portion in
Paragraph 7 of the 1967 SEC Rules which states, “but if the
percentage of Filipino ownership in the corporation or partnership
is less than 60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality.” Under
the Strict Rule or Grandfather Rule Proper, the combined totals in
the Investing Corporation and the Investee Corporation must be
traced (i.e., “grandfathered”) to determine the total percentage of
Filipino ownership.
2. NO. Petitioners McArthur, Tesoro and Narra are not Filipino since
MBMI, a 100% Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from grandfathering
petitioners’ corporate owners. xxx Noticeably, the ownership of
the “layered” corporations’ boils down to xxx group wherein
 MBMI has joint venture agreements with, practically exercising
majority control over the corporations mentioned. In effect,
whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are
NOT Filipino nationals and must be considered foreign since 60%
or more of their capital stocks or equity interests are owned by
MBMI.
Piercing the Veil
2. Shrimp Specialists, Inc., vs. Fuji-Triumph Agri-Industrial
Corporation
G.R. No. 168756, December 7, 2009
A corporation is vested by law with a personality separate and distinct from
the people comprising it. Ownership by a single or small group of
stockholders of nearly all of the capital stock of the corporation is not by
itself a sufficient ground to disregard the separate corporate personality.
Thus, obligations incurred by corporate officers, acting as corporate
agents, are direct accountabilities of the corporation they represent.
The general rule is that obligations incurred by the corporation, acting
through its directors, officers, and employees, are its sole liabilities.
However, solidary liability may be incurred, but only under the following
exceptional circumstances:
1. When directors and trustees or, in appropriate cases, the officers of a
corporation: (a) vote for or assent to patently unlawful acts of the
corporation; (b) act in bad faith or with gross negligence in directing the
corporate affairs; (c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered
stocks or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto;
When a director, trustee or officer has contractually agreed or stipulated to
hold himself personally and solidarily liable with the corporation; or
3. When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.
Facts:
Shrimp Specialists and Fuji entered into a Distributorship Agreement, under
which Fuji agreed to supply prawn feeds on credit basis to Shrimp
Specialists. Fuji then delivered prawn feeds, and Shrimp Specialists issued 9
postdated checks as payment. Shrimp Specialists alleges that it issued a
stop-payment order for the checks because it discovered that earlier
deliveries were contaminated. Shrimp Specialists claims that it verbally
informed Fuji about the contamination and Fuji promised to send stocks of
better quality. Shrimp Specialists states that it continued to purchase prawn
feeds from Fuji, but the stocks were still contaminated. Fuji denies that the
feeds were contaminated. Fuji asserts that Shrimp Specialists requested to
put on hold the deposit of the checks due to insufficient funds. Ervin Lim,
Fuji’s Vice-President and owner, and Edward Lim, Shrimp Specialists’
Finance Officer, met to discuss the unpaid deliveries. Both agreed that
Shrimp Specialists would issue another set of checks to cover the ones
issued earlier. This agreement was reduced into writing and signed by both
parties on behalf of their corporations. However, upon presentment of the
replacement checks, these were again dishonored due to another stop-
payment order issued by Shrimp Specialists. Fuji filed a civil complaint for
sum of money against Shrimp Specialists and Eugene Lim. The Regional
Trial Court rendered a decision finding Shrimp Specialists and Eugene Lim
solidarily liable to pay Fuji. Shrimp Specialists and Eugene Lim elevated
the case to the CA. The CA affirmed the trial court’s decision to hold
Shrimp Specialists liable to pay Fuji but absolved Eugene Lim from any
liability. Aggrieved by the decision, both Shrimp Specialists and Fuji
elevated the case before this Court. Fuji alleges that Eugene Lim, as
President of Shrimp Specialists, was the one who solicited and negotiated
with Fuji for the purchase of prawn feeds. Fuji contends that it was
primarily because of Eugene Lim’s representation that Fuji entered into the
Distributorship Agreement with Shrimp Specialists and agreed to supply
prawn feeds on credit. Shrimp Specialists asserts that Fuji has not presented
any evidence to show that Eugene Lim acted in bad faith. Fuji also failed to
present any evidence to prove that Eugene Lim had maliciously and
deliberately caused Shrimp Specialists to default on its obligation without
any valid reason. Hence, Eugene Lim cannot be made personally liable for
the obligations of Shrimp Specialists.
Issue:
Whether the CA erred in dismissing the case against respondent Eugene
Lim and freeing him from solidary liability with Shrimp Specialists.
Held:
No, the CA was correct in dismissing the case against Eugene Lim. A
corporation is vested by law with a personality separate and distinct from
the people comprising it. Ownership by a single or small group of
stockholders of nearly all of the capital stock of the corporation is not by
itself a sufficient ground to disregard the separate corporate personality.
Thus, obligations incurred by corporate officers, acting as corporate agents,
are direct accountabilities of the corporation they represent. The general rule
is that obligations incurred by the corporation, acting through its directors,
officers, and employees, are its sole liabilities. However, solidary liability
may be incurred, but only under the following exceptional circumstances:
1. When directors and trustees or, in appropriate cases, the officers of a
corporation: (a) vote for or assent to patently unlawful acts of the
corporation; (b) act in bad faith or with gross negligence in directing the
corporate affairs; (c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered
stocks or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto;
When a director, trustee or officer has contractually agreed or stipulated to
hold himself personally and solidarily liable with the corporation; or
3. When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.
In this case, none of these exceptional circumstances is present. In its
decision, the trial court failed to provide a clear ground why Eugene Lim
was held solidarily liable with Shrimp Specialists. The trial court merely
stated that Eugene Lim signed on behalf of the Shrimp Specialists as
President without explaining the need to disregard the separate corporate
personality. The CA correctly ruled that the evidence to hold Eugene Lim
solidarily liable should be more than just signing on behalf of the
corporation because artificial entities can only act through natural persons.
Thus, the CA was correct in dismissing the case against Eugene Lim.
3. Edsa Shangri-La Hotel And Resort, Inc., Rufo B. Colayco, Rufino L.
Samaniego, Kuok Khoon Chen, And Kuok Khoon Tsen vs. Bf
Corporation
G.R. No. 145842, June 27, 2008
Section 31. Directors or trustees who willfully or knowingly vote for or
assent to patently unlawful acts of the corporation or acquire any pecuniary
interest in conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom suffered by
the corporation, its stockholders or members and other persons.
Facts:
EDSA SHANGRI-LA HOTEL AND RESORT, INC. (ESHRI) and BF
Corporation entered into an agreement denominated as Agreement for the
Execution of Builder's Work for the EDSA Shangri-la Hotel Project for the
construction of the EDSA Shangri-la Hotel. The contract stipulated for the
payment of the contract price on the basis of the work accomplished as
described in the monthly progress billings. Under this arrangement, BF shall
submit a monthly progress billing to ESHRI which would then re-measure
the work accomplished and prepare a Progress Payment Certificate for that
month's progress billing. BF submitted a total of 19 progress billings
following the procedure agreed upon. The Progress Billing Nos. 1 to 13,
were paid by ESHRI. According to BF, however, ESHRI, for Progress
Billing Nos. 14 to 19, did not re-measure the work done, did not prepare the
Progress Payment Certificates, let alone remit payment for the inclusive
periods covered. In this regard, BF claimed having been misled into
working continuously on the project by ESHRI which gave the assurance
about the Progress Payment Certificates already being processed. After
several futile attempts to collect the unpaid billings, BF filed before the
RTC a suit for a sum of money and damages. In its defense, ESHRI claimed
having overpaid BF for Progress Billing Nos. 1 to 13 and, by way of
counterclaim with damages, asked that BF be ordered to refund the excess
payments. ESHRI also charged BF with incurring delay and turning up with
inferior work accomplishment. RTC found for BF and held the defendants
jointly and severally liable to the petitioner. Roxas-del Castillo alleged that
the RTC’s decision does not provide the factual or legal basis for holding
her personally liable under the premises. In fact, only in the dispositive
portion of the decision did her solidary liability crop up. And save for her
inclusion as party defendant in the underlying complaint, no reference is
made in other pleadings thus filed as to her liability. CA affirmed RTC’s
decision.
Issue:
Whether petitioner Roxas-del Castillo as former Director, cannot be held
personally liable for any alleged breach of a contract entered into by the
corporation.
Held:
No, petitioner cannnot be held personally liable. The Court notes that the
appellate court, by its affirmatory ruling, effectively recognized the
applicability of the doctrine on piercing the veil of the separate corporate
identity. Under the circumstances of this case, the Court cannot allow such
application. A corporation, upon coming to existence, is invested by law
with a personality separate and distinct from those of the persons
composing it. Ownership by a single or a small group of stockholders of
nearly all of the capital stock of the corporation is not, without more,
sufficient to disregard the fiction of separate corporate personality. Thus,
obligations incurred by corporate officers, acting as corporate agents, are
not theirs but direct accountabilities of the corporation they represent.
Solidary liability on the part of corporate officers may at times attach, but
only under exceptional circumstances, such as when they act with malice or
in bad faith. Also, in appropriate cases, the veil of corporate fiction shall be
disregarded when the separate juridical personality of a corporation is
abused or used to commit fraud and perpetrate a social injustice, or used as
a vehicle to evade obligations. In this case, no act of malice or like
dishonest purpose is ascribed on petitioner Roxas-del Castillo as to warrant
the lifting of the corporate veil. The above conclusion would still hold even
if petitioner Roxas-del Castillo, at the time ESHRI defaulted in paying BF's
monthly progress bill, was still a director, for, before she could be held
personally liable as corporate director, it must be shown that she acted in a
manner and under the circumstances contemplated in Sec. 31 of the
Corporation Code, which reads:
Section 31. Directors or trustees who willfully or knowingly vote for or
assent to patently unlawful acts of the corporation or acquire any pecuniary
interest in conflict with their duty as such directors or trustees shall be liable
jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.
The Court did not find to indicate that Roxas-del Castillo made any
misrepresentation respecting the payment of the bills in question and in no
instance was bad faith imputed on Roxas-del Castillo. Not lost on the Court
are some material dates. As it were, the controversy between the principal
parties started in July 1992 when Roxas-del Castillo no longer sat in the
ESHRI Board, a reality BF does not appear to dispute. In fine, she no longer
had any participation in ESHRI's corporate affairs when what basically is
the ESHRI-BF dispute erupted. Familiar and fundamental is the rule that
contracts are binding only among parties to an agreement. In the instant
case, Roxas-del Castillo could not plausibly be held liable for breaches of
contract committed by ESHRI nor for the alleged wrongdoings of its
governing board or corporate officers occurring after she severed official
ties with the hotel management.
4. ZAMBRANO, et. al., vs. PHILIPPINE CARPET
FACTS:
The petitioners averred that they were employees of private respondent Phil
Carpet. On January 3, 2011, they were notified of the termination of their
employment effective February 3, 2011 on the ground of cessation of
operation due to serious business losses. They were of the belief that their
dismissal was without just cause and in violation of due process because the
closure of Phil Carpet was a mere pretense to transfer its operations to its
wholly owned and controlled corporation, Pacific Carpet. They claimed
that the job orders of some regular clients of Phil Carpet were transferred to
Pacific Carpet; and that from October to November 2011, several machines
were moved from the premises of Phil Carpet to Pacific Carpet. They
asserted that their dismissal constituted unfair labor practice as it involved
the mass dismissal of all union officers and members of the PHILCEA. In
its defense, Phil Carpet countered that it permanently closed and totally
ceased its operations because there had been a steady decline in the demand
for its products due to global recession, stiffer competition, and the effects
of a changing market. Based on the Audited Financial
Statements5 conducted by SGV & Co., it incurred losses of ₱4.1M in 2006;
₱12.8M in 2007; ₱53.28M in 2008; and ₱47.79M in 2009. As of the end of
October 2010, unaudited losses already amounted to ₱26.59M. Thus, in
order to stem the bleeding, the company implemented several cost-cutting
measures, including voluntary redundancy and early retirement programs.
In 2007, the car carpet division was closed. Moreover, from a high
production capacity of about 6,000 square meters of carpet a month in 2002,
its final production capacity steadily went down to an average of 350 square
meters per month for 2009 and 2010. The petitioners and the Department of
Labor and Employment (DOLE) were served written notices one (1) month
before the intended closure of the company. The petitioners ·were also paid
their separation pay and they voluntarily executed their respective Release
and Quitclaim before the DOLE officials. LA dismissed which was
affirmed by both the NLRC and CA.
ISSUE:
Should the doctrine of piercing the corporate veil be applied?
RULING:
NO. A corporation is an artificial being created by operation of law. It
possesses the right of succession and such powers, attributes, and properties
expressly authorized by law or incident to its existence. It has a personality
separate and distinct from the persons composing it, as well as from any
other legal entity to which may be related. Equally well-settled is the
principle that the corporate mask may be removed or the corporate veil
pierced when the corporation is just an alter ego of a person or of another
corporation. For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled only when it becomes a shield for
fraud, illegality or inequity committed against third persons.  Maricalum Mining to the National Government for disposition or
Although ownership by one corporation of all or a great majority of stocks
of another corporation and their interlocking directorates may serve
as indicia of control, by themselves and without more, these circumstances
are insufficient to establish an alter ego relationship or connection between
Phil Carpet on the one hand and Pacific Carpet on the other hand, that will
justify the puncturing of the latter's corporate cover. This Court has declared
that "mere ownership by a single stockholder or by another corporation of
all or nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality." It has likewise
ruled that the "existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate
fiction in the absence of fraud or other public policy considerations." It must
be noted that Pacific Carpet was registered with the Securities and
Exchange Commission on January 29, 1999, such that it could not be said
that Pacific Carpet was set up to evade Phil Carpet's liabilities. As to the
transfer of Phil Carpet's machines to Pacific Carpet, settled is the rule that
"where one corporation sells or otherwise transfers all its assets to another
corporation for value, the latter is not, by that fact alone, liable for the debts
and liabilities of the transferor. " All told, the petitioners failed to present
substantial evidence to prove their allegation that Pacific Carpet is a
mere alter ego of Phil Carpet.
5. Maricalum Mining Corporation vs. Florentino, et. al. G.R. No.
221813, July 23, 2018
Doctrine: While the veil of corporate fiction may be pierced under certain
instances, mere ownership of a subsidiary does not justify the imposition of
liability on the parent company. It must further appear that to recognize a
parent and a subsidiary as separate entities would aid in the
consummation of a wrong. Thus, a holding corporation has a separate
corporate existence and is to be treated as a separate entity; unless the
facts show that such separate corporate existence is a mere sham, or has
been used as an instrument for concealing the truth.
Facts:
The dispute traces its roots back to when the Philippine National Bank
(PNB, a former government-owned-and-controlled corporation) and the
Development Bank of the Philippines (DBP) transferred its ownership of
privatization because it had become a non-performing asset.
On October 2, 1992, the National Government thru the Asset
Privatization Trust (APT) executed a Purchase and Sale Agreement (PSA)
with G Holdings, a domestic corporation primarily engaged in the business
of owning and holding shares of stock of different companies.
Upon the signing of the PSA and paying the stipulated down
payment, G Holdings immediately took physical possession of Maricalum
Mining's Sipalay Mining Complex, as well as its facilities, and took full
control of the latter's management and operations.
On January 26, 1999, the Sipalay General Hospital, Inc. (Sipalay
Hospital) was duly incorporated to provide medical services and facilities to
the general public.
In 2000, each of the said cooperatives executed identical sets of
Memorandum of Agreement with Maricalum Mining wherein they
undertook, among others, to provide the latter with a steady supply of
workers, machinery and equipment for a monthly fee.
 On June 1, 2001, Maricalum Mining's Vice President and Resident
Manager Jesus H. Bermejo wrote a Memorandum to the cooperatives
informing them that Maricalum Mining has decided to stop its mining and
milling operations effective July 1, 2001 in order to avert continuing losses
brought about by the low metal prices and high cost of production.
 July 2001, the properties of Maricalum Mining, which had been
mortgaged to secure the PNs, were extrajudicially foreclosed and eventually
sold to G Holdings as the highest bidder on December 3, 2001.
On September 23, 2010, some of Maricalum Mining's workers,
including complainants, and some of Sipalay General Hospital's employees
jointly filed a Complaint with the LA against G Holdings, its president, and
officer-in-charge, and the cooperatives and its officers for illegal dismissal,
underpayment and nonpayment of salaries, underpayment of overtime pay,
underpayment of premium pay for holiday, nonpayment of separation pay,
underpayment of holiday pay, nonpayment of service incentive leave pay,
nonpayment of vacation and sick leave, nonpayment of 13th month pay,
moral and exemplary damages, and attorneys fees.
In its decision, the LA ruled in favor of complainants. It held that
G Holdings is guilty of labor-only contracting with the manpower
cooperatives thereby making all of them solidarily and directly liable to
complainants.
The NLRC modified the LA ruling. It held that Dr. Welilmo T.
Neri, Erlinda L. Fernandez and Edgar M. Sobrino are not entitled to the
monetary awards because they were not able to establish the fact of their
employment relationship with G Holdings or Maricalum Mining because
Sipalay Hospital has a separate and distinct corporate personality. As to the
remaining complainants, it found that no evidence was adduced to prove
that the salaries/wages and the 13th month pay had been paid.
The CA denied the petitions and affirmed the decision of the
NLRC. It ratiocinated that factual issues are not fit subjects for review via
the extraordinary remedy of certiorari. The CA emphasized that the
NLRC's factual findings are conclusive and binding on the appellate courts
when they are supported by substantial evidence. Thus, it maintained that it
cannot review and re-evaluate the evidence all over again because there was
no showing that the NLRC's findings of facts were reached arbitrarily.  Labor Arbiter against G Holdings.
Issue/s: Did the CA erred in affirming the NLRC’s ruling which allowed
the piercing of the corporate veil against the Maricalum Mining but not
against Sipalay Hospital?
Held: No, Sipalay Hospital was incorporated by Romulo G. Zafra, Eleanore
B. Gutierrez, Helen Grace B. Fernandez, Evelyn B. Badajos and Helen
Grace L. Arbolario. However, there is absence of indication that G Holdings
subsequently acquired the controlling interests of Sipalay Hospital. There is
also no evidence that G Holdings entered into a contract with Sipalay
Hospital to provide medical services for its officers and employees. This
lack of stockholding or contractual connection signifies that Sipalay
Hospital is not affiliated with G Holdings. Thus, due to this absence of
affiliation, the Court must apply the tests used to determine the existence of
an employee-employer relationship; rather than piercing the corporate veil.
         It is immediately apparent that Sipalay Hospital, even if its
facilities are located inside the Sipalay Mining Complex, does not limit its
medical services only to the employees and officers of Maricalum Mining
and/or G Holdings. Its act of holding out services to the public reinforces
the fact of its independence from either Maricalum Mining or G Holdings
because it is free to deal with any client without any legal or contractual
restriction. Moreover, G Holdings is a holding company primarily engaged
in investing substantially in the stocks of another company-not in directing
and managing the latter's daily business operations. Because of this
corporate attribute, the Court can reasonably draw an inference that G
Holdings does not have a considerable ability to control means and
methods of work of Sipalay Hospital employees. Markedly, the records
are simply bereft of any evidence that G Holdings had, in fact, used its
ownership to control the daily operations of Sipalay Hospital as well as the
working methods of the latter's employees. There is no evidence showing
any subsequent transfer of shares from the original incorporators of Sipalay
Hospital to G Holdings. Worse, it appears that complainants Dr. Welilmo T.
Neri, Erlinda L. Fernandez, Wilfredo C. Taganile, Sr. and Edgar M. Sobrino
are trying to derive their employment connection with G Holdings merely
on an assumed premise that the latter owns the controlling stocks of
Maricalum Mining.
On this score, the CA committed no reversible error in allowing
the NLRC to delete the monetary awards of Dr. Welilmo T. Neri, Erlinda L.
Fernandez, Wilfredo C. Taganile, Sr. and Edgar M. Sobrino imposed by the
A holding company may be held liable for the acts of its subsidiary
only when it is adequately proven that: a) there was control over the
subsidiary; (b) such control was used to protect a fraud (or gross negligence
amounting to bad faith) or evade an obligation; and c) fraud was the
proximate cause of another's existing injury. Further, an employee is duly-
burdened to prove the crucial test or factor of control thru substantial
evidence in order to establish the existence of an employment relationship-
especially as against an unaffiliated corporation alleged to be exercising
control.
In this case, complainants have not successfully proven that G
Holdings fraudulently exercised its control over Maricalum Mining to
fraudulently evade any obligation. They also fell short of proving that G
Holdings had exercised operational control over the employees of
Sipalay Hospital. Due to these findings, the Court sees no reversible error
on the part of the CA, which found no grave abuse of discretion and
affirmed in toto the factual findings and legal conclusions of the NLRC.
6. Manuel C. Espiritu, Jr., et al. vs. Petron Corp., et al., G.R. No.
170891, Nov. 24, 2009  its possession. Jose observed on almost a daily basis, however, that Bicol
Doctrine: [I]n  a corporation, the management of its business is generally
vested in its board of directors, not its stockholders. Stockholders are
basically investors in a corporation. They do not have a hand in running
the day-to-day business operations of the corporation unless they are at the
same time directors or officers of the corporation. Before a stockholder
may be held criminally liable for acts committed by the corporation,
therefore, it must be shown that he had knowledge of the criminal act
committed in the name of the corporation and that he took part in the same
or gave his consent to its commission, whether by action or inaction.
Facts: Respondent Petron Corporation (Petron) sold and distributed
liquefied petroleum gas (LPG) in cylinder tanks that carried its trademark
"Gasul." Respondent Carmen J. Doloiras owned and operated Kristina
Patricia Enterprises (KPE), the exclusive distributor of Gasul LPGs in the
whole of Sorsogon Jose Nelson Doloiras (Jose) served as KPE’s manager.
Bicol Gas Refilling Plant Corporation (Bicol Gas) was also in the
business of selling and distributing LPGs in Sorsogon but theirs carried the
trademark "Bicol Savers Gas." Petitioner Audie Llona managed Bicol Gas.
In the course of trade and competition, any given distributor of
LPGs at times acquired possession of LPG cylinder tanks belonging to other
distributors operating in the same area. They called these "captured
cylinders." According to Jose, KPE’s manager, in April 2001 Bicol Gas
agreed with KPE for the swapping of "captured cylinders" since one
distributor could not refill captured cylinders with its own brand of LPG. At
one time, in the course of implementing this arrangement, KPE’s Jose
visited the Bicol Gas refilling plant. While there, he noticed several Gasul
tanks in Bicol Gas’ possession. He requested a swap but Audie Llona of
Bicol Gas replied that he first needed to ask the permission of the Bicol Gas
owners. That permission was given and they had a swap involving around
30 Gasul tanks held by Bicol Gas in exchange for assorted tanks held by
KPE.
KPE’s Jose noticed, however, that Bicol Gas still had a number of
Gasul tanks in its yard. He offered to make a swap for these but Llona
declined, saying the Bicol Gas owners wanted to send those tanks to
Batangas. Later Bicol Gas told Jose that it had no more Gasul tanks left in
Gas’ trucks which plied the streets of the province carried a load of Gasul
tanks. He noted that KPE’s volume of sales dropped significantly from June
to July 2001.
On August 4, 2001 KPE’s Jose saw a particular Bicol Gas truck on
the Maharlika Highway. While the truck carried mostly Bicol Savers LPG
tanks, it had on it one unsealed 50-kg Gasul tank and one 50-kg Shellane
tank. Jose followed the truck and when it stopped at a store, he asked the
driver, Jun Leorena, and the Bicol Gas sales representative, Jerome Misal,
about the Gasul tank in their truck. They said it was empty but, when Jose
turned open its valve, he noted that it was not. Misal and Leorena then
admitted that the Gasul and Shellane tanks on their truck belonged to a
customer who had them filled up by Bicol Gas. Misal then mentioned that
his manager was a certain Rolly Mirabena.
Because of the above incident, KPE filed a complaint for violations
of Republic Act (R.A.) 623 (illegally filling up registered cylinder tanks), as
amended, and Sections 155 (infringement of trade marks) and 169. (unfair
competition) of the Intellectual Property Code (R.A. 8293). 
The provincial prosecutor ruled that there was probable cause only
for violation of R.A. 623 and that only the four Bicol Gas employees,
Mirabena, Misal, Leorena, and petitioner Llona, could be charged. The
charge against the other petitioners who were the stockholders and directors
of the company was dismissed.
 Dissatisfied, Petron and KPE filed a petition for review with the
Office of the Regional State Prosecutor which initially denied the petition
but partially granted it on motion for reconsideration.
Undaunted, Petron and KPE filed a special civil action for
certiorari with the Court of Appeals. The Appellate Court reversed the
Secretary of Justice’s ruling. Since the Bicol Gas employees presumably
acted under the direct order and control of its owners, the Court of Appeals
also ordered the inclusion of the stockholders of Bicol Gas in the various
charges, bringing to 16 the number of persons to be charged, now including
collectively, petitioners Espiritu, et al. The court denied the motion for
reconsideration of these employees and stockholders.
Issue/s: Are the stockholders and members of the Board of Directors of
Bicol Gas liable with respect to the charge of unlawfully filling up a steel
cylinder or tank that belonged to Petron?
Held: No, Bicol Gas is a corporation. As such, it is an entity separate and
distinct from the persons of its officers, directors, and stockholders. It has
been held, however, that corporate officers or employees, through whose
act, default or omission the corporation commits a crime, may themselves
be individually held answerable for the crime.
Jose claimed in his affidavit that, when he negotiated the swapping
of captured cylinders with Bicol Gas, its manager, petitioner Audie Llona,
claimed that he would be consulting with the owners of Bicol Gas about it.
Subsequently, Bicol Gas declined the offer to swap cylinders for the reason
that the owners wanted to send their captured cylinders to Batangas. The
Court of Appeals seized on this as evidence that the employees of Bicol Gas
acted under the direct orders of its owners and that "the owners of Bicol Gas
have full control of the operations of the business."
The "owners" of a corporate organization are its stockholders and
they are to be distinguished from its directors and officers. The petitioners
here, with the exception of Audie Llona, are being charged in their
capacities as stockholders of Bicol Gas. But the Court of Appeals forgets
that in a corporation, the management of its business is generally vested
in its board of directors, not its stockholders. Stockholders are basically
investors in a corporation. They do not have a hand in running the day-to-
day business operations of the corporation unless they are at the same time
directors or officers of the corporation. Before a stockholder may be held
criminally liable for acts committed by the corporation, therefore, it must be
shown that he had knowledge of the criminal act committed in the name of
the corporation and that he took part in the same or gave his consent to its
commission, whether by action or inaction.
The finding of the Court of Appeals that the employees "could not
have committed the crimes without the consent, [abetment], permission, or
participation of the owners of Bicol Gas" is a sweeping speculation
especially since, as demonstrated above, what was involved was just one
Petron Gasul tank found in a truck filled with Bicol Gas tanks. Although the
KPE manager heard petitioner Llona say that he was going to consult the
owners of Bicol Gas regarding the offer to swap additional captured
cylinders, no indication was given as to which Bicol Gas stockholders Llona
consulted. It would be unfair to charge all the stockholders involved, some
of whom were proved to be minors. No evidence was presented establishing
the names of the stockholders who were charged with running the
operations of Bicol Gas. The complaint even failed to allege who among the
stockholders sat in the board of directors of the company or served as its
officers.
7. Queensland-Tokyo Commodities, Inc., Romeo Y. Lau, and Charlie
Collado vs. Thomas George
G.R. No. 172727, September 08, 2010
Piercing the Veil of Corporate Fiction; Doctrine dictates that a corporation
is invested by law with a personality separate and distinct from those of the
persons composing it, such that, save for certain exceptions, corporate
officers who entered into contracts in behalf of the corporation cannot be
held personally liable for the liabilities of the latter.
Facts:
Queensland-Tokyo Commodities, Inc. (QTCI) is a duly licensed broker
engaged in the trading of commodity futures. In 1995, Guillermo Mendoza,
Jr. (Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with respondent
Thomas George (respondent), encouraging the latter to invest with QTCI.
On July 7, 1995, upon Mendoza's prodding, respondent finally invested
with QTCI. On the same day, Collado, in behalf of QTCI, and respondent
signed the Customer's Agreement.
On June 20, 1996, the Securities and Exchange Commission (SEC) issued a
Cease-and-Desist Order (CDO) against QTCI.  Alarmed by the issuance of
the CDO, respondent demanded from QTCI the return of his investment,
but it was not heeded. Respondent filed a complaint for Recovery of
Investment with Damages with the SEC against QTCI, Lau, and Collado
(petitioners), and against the unlicensed salesmen, Mendoza and Lontoc.
Only petitioners answered the complaint, as Mendoza and Lontoc had since
vanished into thin air. The Petitioners averred that QTCI only assigned duly
qualified persons to handle the accounts of its clients; and denied allowing
unlicensed brokers or agents to handle respondent's account.  They claimed
that they were not aware of, nor were they privy to, any arrangement which
resulted in the account of respondent being handled by unlicensed brokers.  specific provision of law personally answerable for his corporate action.”
They added that even assuming that the subject account was handled by an
unlicensed broker, respondent is now estopped from raising it as a ground
for the return of his investment. They pointed out that respondent transacted
business with QTCI for almost a year, without questioning the license or
the authority of the traders handling his account.  It was only after it became
apparent that QTCI could no longer resume its business transactions by
reason of the CDO that respondent raised the alleged lack of authority of the
brokers or traders handling his account. The losses suffered by respondent
were due to circumstances beyond petitioners' control and could not be
attributed to them.  account is within the knowledge of Collado. The presence of seven (7)
The SEC Hearing Officer rendered a decision in favor of
respondent and was ordered to jointly and severally pay the respondent.
Petitioners appealed to the Commission en banc, but the appeal was
dismissed because the Notice of Appeal and the Memorandum on Appeal
were not verified. Petitioners then went to the CA via a petition for review
under Rule 43, faulting the Commission en banc for dismissing their appeal
on purely technical ground. The CA dismissed the petition for lack of merit
and affirmed the decision Commission en banc.
Issue:
Can the petitioners be held solidarily liable to pay the respondent?
Held:
Yes, the petitioners be held solidarily liable to pay the respondent. The
Supreme Court held that the “Doctrine dictates that a corporation is invested
by law with a personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions, corporate officers who
entered into contracts in behalf of the corporation cannot be held personally
liable for the liabilities of the latter.  Personal liability of a corporate
director, trustee, or officer, along (although not necessarily) with the
corporation, may validly attach, as a rule, only when - (1) he assents to a
patently unlawful act of the corporation, or when he is guilty of bad faith or
gross negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders, or other
persons; (2)  he consents to the issuance of watered down stocks or who,
having knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto; (3) he agrees to hold himself
personally and solidarily liable with the corporation; or (4) he is made by a
As Explained by the SEC Hearing Officer,
“The Commission also took into consideration the fact that Collado, who is
not a licensed commodity salesman, himself violated the provisions of the
Revised Rules and Regulations on Commodity Futures Trading when he
admitted having participated in the execution of the customers orders
without giving any exception thereto, which presumably includes his
participation in the execution of customers orders of the respondent. Such
being the case, Mendoza's participation in the trading of [respondent's]
unlicensed investment consultants within QTCI apart from x x x Mendoza,
and Collado's participation in the unlawful execution of orders under the
[respondent's] account clearly established the fact that the management of
QTCI failed to implement the rules and regulations against the hiring of,
and associating with, unlicensed consultants or traders.  How these
unlicensed personnel been able to pursue their unlawful activities is a
reflection of how negligent the management was.
Romeo Lau, as president of QTCI, cannot feign innocence on the existence
of these unlawful activities within the company, especially so that Collado,
himself a ranking officer of QTCI, is involved in the unlawful execution of
customers orders.  [Petitioner] Lau, being the chief operating officer, cannot
escape the fact that had he exercised a modicum of care and discretion in
supervising the operations of QTCI, he could have detected and prevented
the unlawful acts of [petitioner] Collado and Mendoza.
It is therefore safe to conclude that although Lau may not have participated
nor been aware of the unlawful acts, he is however deemed to have been
grossly negligence in directing the affairs of QTCI.
The Court find no compelling reason to depart from the conclusion of the
SEC Hearing Officer, which was affirmed by the CA holding Lau and
Collado jointly and severally liable with QTCI for the payment of
respondent's claim.
8. Eric Godfrey Stanley Livesey, vs Binswanger Philippines, Inc. and
Keith Elliot
Piercing the Veil of Corporate Fiction; Piercing the veil of corporate
fiction is an equitable doctrine developed to address situations where the
separate corporate personality of a corporation is abused or used for
wrongful purposes.
Facts:
Eric Godfrey Stanley Livesey filed a complaint for illegal dismissal with
money claims4against CBB Philippines Strategic Property Services, Inc.
(CBB) and Paul Dwyer. CBB was a domestic corporation engaged in real
estate brokerage and Dwyer was its President. Livesey alleged that on April
12, 2001, CBB hired him as Director and Head of Business Space
Development, with a monthly salary of US$5,000.00; shareholdings in
CBB’s offshore parent company; and other benefits. In August 2001, he
was appointed as Managing Director and his salary was increased to
US$16,000.00 a month. Allegedly, despite the several deals for CBB he
drew up, CBB failed to pay him a significant portion of his salary. For this
reason, he was compelled to resign on December 18, 2001. He claimed
CBB owed him US$23,000.00 in unpaid salaries.
In the decision dated September 20, 2002, the Labor Arbiter found that
Livesey had been illegally dismissed. The Labor Arbiter ordered CBB to
reinstate Livesey to his former position as Managing Director and to pay
him US$23,000.00 in accrued salaries (from July to December 2001), and
US$5,000.00 a month in back salaries from January 2002 until
reinstatement; and 10% of the total award as attorney’s fees. the parties
entered into a compromise agreement which the Labor Arbiter
approved. Under the agreement, Livesey was to receive US$31,000.00,
broken down into US$13,000.00 to be paid by CBB to Livesey or his
authorized representative upon the signing of the agreement; US$9,000.00
on or before June 30, 2003; and US$9,000.00 on or before September 30,
2003.
CBB paid Livesey the initial amount of US$13,000.00, but not the next two
installments as the company ceased operations. Livesey moved for the
issuance of a writ of execution. The Labor Arbiter granted the writ, but it
was not enforced. Livesey then filed a motion for the issuance of an alias
writ of execution, alleging that in the process of serving respondents the
writ, he learned "that respondents, in a clear and willful attempt to avoid
their liabilities to complainant have organized another corporation,
Binswanger Philippines, Inc." He claimed that there was evidence showing
that CBB and Binswanger Philippines, Inc. are one and the same
corporation, pointing out that CBB stands for Chesterton Blumenauer
Binswanger. Invoking the doctrine of piercing the veil of corporate fiction,
Livesey prayed that an alias writ of execution be issued against respondents
Binswanger and Keith Elliot, CBB’s former President, and now
Binswanger’s President and Chief Executive Officer (CEO).
In an order, the Labor Arbiter denied Livesey’s motion for an alias writ of
execution, holding that the doctrine of piercing the corporate veil was
inapplicable in the case. Livesey filed an appeal which the National Labor
Relations Commission (NLRC) granted in its decision. The NLRC order
and declared the respondents jointly and severally liable with CBB. The
respondents moved for reconsideration but was denied. The respondents
appealed to the CA. The CA granted the petition and reversed the NLRC
decision.  The CA disagreed with the NLRC finding that the respondents
are jointly and severally liable with CBB in the case. It emphasized that the
mere fact that Binswanger and CBB have the same President is not in itself
sufficient to pierce the veil of corporate fiction of the two entities, and that
although Elliot was formerly CBB’s President, this circumstance alone does
not make him answerable for CBB’s liabilities, there being no proof that he
was motivated by malice or bad faith when he signed the compromise
agreement in CBB’s behalf; neither was there proof that Binswanger was
formed, or that it was operated, for the purpose of shielding fraudulent or
illegal activities of its officers or stockholders or that the corporate veil was
used to conceal fraud, illegality or inequity at the expense of third persons
like Livesey.
Issue:
Can the doctrine of piercing the corporate veil be apply in this case?
Held:
Yes, the doctrine of piercing the corporate veil is applicable in this case.
The Supreme Court held that it has long been settled that the law vests a
corporation with a personality distinct and separate from its stockholders or
members. In the same vein, a corporation, by legal fiction and convenience,
is an entity shielded by a protective mantle and imbued by law with a
character alien to the persons comprising it. Nonetheless, the shield is not at
all times impenetrable and cannot be extended to a point beyond its reason
and policy. Circumstances might deny a claim for corporate personality,
under the "doctrine of piercing the veil of corporate fiction."
Piercing the veil of corporate fiction is an equitable doctrine developed to
address situations where the separate corporate personality of a corporation
is abused or used for wrongful purposes. Under the doctrine, the corporate
existence may be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligation, or to justify
a wrong, to shield or perpetrate fraud or to carry out similar or inequitable
considerations, other unjustifiable aims or intentions, in which case, the
fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical.
In the present case, we see an indubitable link between CBB’s closure and
Binswanger’s incorporation. CBB ceased to exist only in name; it re-
emerged in the person of Binswanger for an urgent purpose that is to avoid
payment by CBB of the last two installments of its monetary obligation to
Livesey, as well as its other financial liabilities. Freed of CBB’s liabilities,
especially that owing to Livesey, Binswanger can continue, as it did
continue, CBB’s real estate brokerage business.
Livesey’s evidence, whose existence the respondents never denied,
converged to show this continuity of business operations from CBB to
Binswanger. It was not just coincidence that Binswanger is engaged in the
same line of business CBB embarked on: (1) it even holds office in the very
same building and on the very same floor where CBB once stood; (2)
CBB’s key officers, Elliot, no less, and Catral moved over to Binswanger,
performing the tasks they were doing at CBB; (3) notwithstanding CBB’s
closure, Binswanger’s Web Editor (Young), in an e-mail correspondence,
supplied the information that Binswanger is "now known" as either CBB
(Chesterton Blumenauer Binswanger or as Chesterton Petty, Ltd., in the
Philippines; (4) the use of Binswanger of CBB’s paraphernalia (receiving
stamp) in connection with a labor case where Binswanger was summoned
by the authorities, although Elliot claimed that he bought the item with his
own money; and (5) Binswanger’s takeover of CBB’s project with the PNB.
While the reason for Binswanger’s establishment is to continue CBB’s
business operations in the Philippines, which by itself is not illegal, the
close proximity between CBB’s disestablishment and Binswanger’s coming
into existence points to an unstated but urgent consideration which, as we
earlier noted, was to evade CBB’s unfulfilled financial obligation to
Livesey under the compromise agreement.
This wrongful intent we cannot and must not condone, for it will give a
premium to an iniquitous business strategy where a corporation is formed or
used for a non-legitimate purpose, such as to evade a just and due
obligation. Therefore, find Elliot as liable as Binswanger for CBB 's
unfulfilled obligation to Livesey.
9. Zuellig Freight and Cargo vs. NLRC and Ronaldo vs. San
Miguel, G.R. No. 157900, July 22, 2013
Doctrine:  The mere change in the corporate name is not considered under
the law as the creation of a new corporation; hence, the renamed
corporation remains liable for the illegal dismissal of its employee
separated under that guise.
Facts: Zeta filed a petition to amend its articles of incorporation for the
purposes of changing its name – to Zuellig - and to upgrade the stocks of
the corporation. After it successfully changed its corporate name, they
terminated the employment its several employees, including San Miguel, on
the ground of cessation of business operations.
The latter then filed a complaint for illegal dismissal before the NLRC
contending that change of name does not amount to creation of a
corporation; thus, in effect, the corporation merely continued its operations
under a new name.
The Labor Arbiter, NLRC, and Court of Appeals all ruled in favor of San
Miguel, the illegally dismissed employee prompting Zuellig to file a special
civil action for certiorari.
Issue/s: Whether change of corporate name creates a new corporation
Held: The unanimous conclusions of the CA, the NLRC and the Labor
Arbiter, being in accord with law, were not tainted with any abuse of
discretion, least of all grave, on the part of the NLRC. Verily, the
amendments of the articles of incorporation of Zeta to change the corporate
name to Zuellig Freight and Cargo Systems, Inc. did not produce the
dissolution of the former as a corporation. For sure, the Corporation Code
defined and delineated the different modes of dissolving a corporation, and
amendment of the articles of incorporation was not one of such modes. The
effect of the change of name was not a change of the corporate being, for, as
well stated in Philippine First Insurance Co., Inc. v. Hartigan: “The
changing of the name of a corporation is no more the creation of a
corporation than the changing of the name of a natural person is begetting
of a natural person. The act, in both cases, would seem to be what the
language which we use to designate it imports – a change of name, and not
a change of being.”
Zeta and petitioner remained one and the same corporation. The change of
name did not give petitioner the license to terminate employees of Zeta like
San Miguel without just or authorized cause. The situation was not similar
to that of an enterprise buying the business of another company where the
purchasing company had no obligation to rehire terminated employees of
the latter. Petitioner, despite its new name, was the mere continuation of
Zeta’s corporate being, and still held the obligation to honor all of Zeta’s
obligations, one of which was to respect San Miguel’s security of tenure.
The dismissal of San Miguel from employment on the pretext that
petitioner, being a different corporation, had no obligation to accept him as
its employee, was illegal and ineffectual.
Ultra Vires Acts
10. Jose Bernas, et. al. vs. Jovencio   Cinco, et. al., G.R. Nos.
163356-57, July 01, 2015
Doctrine: The general rule is that a corporation, through its board of
directors, should act in the manner and within the formalities, if any,
prescribed in its charter or by the general law. Thus, directors must act as
a body in a meeting called pursuant to the law or the corporation's by-laws,
otherwise, any action taken therein may be questioned by the objecting
director or shareholder.
Mere ultra vires acts, on the other hand, or those which are not illegal or
void ab initio, but are not merely within the scope of the articles of
incorporation, are merely voidable and may become binding and
enforceable when ratified by the stockholders.
Facts: Due to the rumored anomalies, the Oversight Committee of Makati
Sports Club called for a Special Stockholder’s Meeting wherein the then
incumbent corporate officers – Bernas  Group – were removed and replaced
by the Cinco Group. Their shares were also sold at public auction by the
newly elected corporate officers. This prompted the Bernas Group to initiate
an action before the SEC where they sought to nullify the said Special
Stockholder’s Meeting on the ground that it was improperly called for. They
alleged that under the Corporation Code, the power to call corporate
meetings is with the corporate secretary, not the oversight committee.
The Cinco Group on the other hand argued that given that the removal of
the Bernas Group on the Special Stockholder’s Meeting was invalid, it was
nonetheless ratified in a several subsequent valid Annual Stockholder’s
Meeting; hence, the removal of Bernas Group eventually became valid. 
Issue/s:
1) Whether the Special Stockholder’s Meeting called by the Oversight
Committee  is valid
2) Whether the Special Stockholder’s Meeting conducted on December 17,
1997 became valid by virtue of ratification by stockholders in a subsequent
valid Annual Stockholder’s Meeting
Held:
1) The general rule is that a corporation, through its board of directors,
should act in the manner and within the formalities, if any, prescribed in its
charter or by the general law. Thus, directors must act as a body in a
meeting called pursuant to the law or the corporation's by-laws, otherwise,
any action taken therein may be questioned by the objecting director or
shareholder.
Relative to the powers of the Board of Directors, nowhere in the
Corporation Code or in the MSC by-laws can it be gathered that the
Oversight Committee is authorized to step in wherever there is breach of
fiduciary duty and call a special meeting for the purpose of removing the
existing officers and electing their replacements even if such call was made
upon the request of shareholders.
2) A distinction should be made between corporate acts or contracts which
are illegal and those which are merely ultra vires. The former contemplates
the doing of an act which are contrary to law, morals or public policy or
public duty, and are, like similar transactions between individuals, void:
They cannot serve as basis of a court action nor acquire validity by
performance, ratification or estoppel. Mere ultra vires acts, on the other
hand, or those which are not illegal or void ab initio, but are not merely
within the scope of the articles of incorporation, are merely voidable and
may become binding and enforceable when ratified by the stockholders. 32
The 1 7 December 1997 Meeting belongs to the category of the latter, that
is, it is void ab initio and cannot be validated.
Consequently, such Special Stockholders' Meeting called by the Oversight
Committee cannot have any legal effect. The removal of the Bernas Group,
as well as the election of the Cinco Group, effected by the assembly in that
improperly called meeting is void, and since the Cinco Group has no legal
right to sit in the board, their subsequent acts of expelling Bernas from the
club and the selling of his shares. at the public auction, are likewise invalid.
In fine, we hold that 17 December 1997 Special Stockholders' Meeting is
null and void and produces no effect; the resolution expelling the Bernas
Group from the corporation and authorizing the sale of Bernas
11. Magallanes Watercraft Association, Inc vs Auguis
G.R. No. 211485, May 30, 2016
A corporation may exercise its powers only within those definitions.
Corporate acts that are outside those express definitions under the law or
articles of incorporation or those "committed outside the object for which a
corporation is created" are ultra vires. The only exception to this rule is
when acts are necessary and incidental to carry out a corporation's
purposes, and to the exercise of powers conferred by the Corporation Code
and under a corporation's articles of incorporation.
Facts:
December 5, 2003, the Board of Trustees (Board) of MWAI passed
Resolution No. 1, Series of 2003, and thereafter issued Memorandum No.
001 suspending the rights and privileges of Auguis and Basnig as members
of the association for thirty (30) days for their refusal to pay their
membership dues and berthing fees because of their pending oral complaint
and demand for financial audit of the association funds. Auguis had an
accumulated unpaid obligation of P4,059.00 while Basnig had P7,552.00.
In spite of the suspension of their privileges as members, Auguis and
Basnig still failed to settle their obligations with MWAI. For said reason,
the latter issued Memorandum No. 002, Series of 2004, dated January 8,
2004, suspending their rights and privileges for another thirty (30) days.
On February 6, 2004y respondents filed an action for damages and
attorney's fees with a prayer for the issuance of a writ of preliminary
injunction before the RTC. In its January 11, 2007 decision, the trial court
ordered Auguis and Basnig to pay their unpaid accounts. It, nonetheless,
required MWAI to pay them actual damages and attorney's fees.
Issue:
Whether or not the act of Board of Trustees was ultra vires?
Held:
No, the act of the Board of Trustees was not ultra vires.
Based on the foregoing, MWAI can properly impose sanctions on Auguis
and Basnig for being delinquent members considering that the payment of
membership dues enables MWAI to discharge its duties and functions
enumerated under its charter. Moreover, respondents were obligated by the
by-laws of the association to pay said dues. The suspension of their rights
and privileges is not an ultra vires act as it is reasonably necessary or proper
in order to further the interest and welfare of MWAI. Also, the imposition
of the temporary ban on the use of MWAI's berthing facilities until Auguis
and Basnig have paid their outstanding obligations was a reasonable
measure that the former could undertake to ensure the prompt payment of
its membership dues. Otherwise, MWAI will be rendered inutile as it will
have no means of ensuring that its members will promptly settle their
obligations. It will be exposed to deleterious consequences as it will be
unable to continue with its operations if the members continue to be
delinquent in the payment of their obligations, without fear of possible
sanctions.
well aware of those circumstances. Assuming arguendo that they transacted
business with each other in the Mandaluyong office of petitioner, the fact
remains that, in law, the latter's residence was still the place indicated in its
Articles of Incorporation.
Residence of a corporation
12. Hyatt Elevators Inc. vs. Goldstar Elevators. Phils.,
G.R. No. 161026, Oct. 24, 2005
Doctrine: Jurisprudence has, however, settled that the place where the
principal office of a corporation is located, as stated in the articles, indeed
establishes its residence.
Facts: Goldstar Elevator Philippines, Inc. (GOLDSTAR for brevity) is a
domestic corporation primarily engaged in the business of marketing,
distributing, selling, importing, installing, and maintaining elevators and
escalators, with address at 6th Floor Jacinta II Building, Guadalupe, Makati
City.
On the other hand, Hyatt Elevators and Escalators Company (HYATT for
brevity) is a domestic corporation similarly engaged in the business of
selling, installing and maintaining/servicing elevators, escalators and
parking equipment, with address at the 6th Floor, Dao I Condominium,
Salcedo St., Legaspi Village, Makati, as stated in its Articles of
Incorporation.
On February 23, 1999, HYATT filed a Complaint for unfair trade practices
and damages under Articles 19, 20 and 21 of the Civil Code of the
Philippines against LG Industrial Systems Co. Ltd. (LGISC) and LG
International Corporation (LGIC), alleging among others, that: in 1988, it
was appointed by LGIC and LGISC as the exclusive distributor of LG
elevators and escalators in the Philippines under a "Distributorship
Agreement"; x x x LGISC, in the latter part of 1996, made a proposal to
change the exclusive distributorship agency to that of a joint venture
partnership; while it looked forward to a healthy and fruitful negotiation for
a joint venture, however, the various meetings it had with LGISC and
LGIC, through the latter's representatives, were conducted in utmost bad
faith and with malevolent intentions; in the middle of the negotiations, in
order to put pressures upon it, LGISC and LGIC terminated the Exclusive
Distributorship Agreement.
On December 4, 2000, HYATT filed a motion for leave of court to amend
the complaint, alleging that subsequent to the filing of the complaint, it
learned that LGISC transferred all its organization, assets and goodwill, as a
consequence of a joint venture agreement with Otis Elevator Company of
the USA, to LG Otis Elevator Company (LG OTIS, for brevity). Thus,
LGISC was to be substituted or changed to LG OTIS, its successor-in-
interest. Likewise, the motion averred that x x x GOLDSTAR was being
utilized by LG OTIS and LGIC in perpetrating their unlawful and
unjustified acts against HYATT. Consequently, in order to afford complete
relief, GOLDSTAR was to be additionally impleaded as a party-defendant.
Hence, in the Amended Complaint, HYATT impleaded x x x GOLDSTAR
as a party-defendant, and all references to LGISC were correspondingly
replaced with LG OTIS. 
On April 12, 2002, GOLDSTAR filed a Motion to Dismiss the amended
complaint, raising the following grounds: (1) the venue was improperly laid,
as neither HYATT nor defendants reside in Mandaluyong City, where the
original case was filed. The same was denied by the trial court. Upon appeal
to the CA, the decision was reversed citing the error in the venue.
Issue/s: Whether the venue was proper.
Held: No, the venue was not proper.
It now becomes apparent that the residence or domicile of a juridical person
is fixed by "the law creating or recognizing" it. Under Section 14(3) of the
Corporation Code, the place where the principal office of the corporation is
to be located is one of the required contents of the articles of incorporation,
which shall be filed with the Securities and Exchange Commission (SEC).
In the present case, there is no question as to the residence of respondent.
What needs to be examined is that of petitioner. Admittedly, the latter's
principal place of business is Makati, as indicated in its Articles of
Incorporation. Since the principal place of business of a corporation
determines its residence or domicile, then the place indicated in petitioner's
articles of incorporation becomes controlling in determining the venue for
this case.  Viva, through defendant Del Rosario, offered ABS-CBN, through its
Without merit is the argument of petitioner that the locality stated in its
Articles of Incorporation does not conclusively indicate that its principal
office is still in the same place. We agree with the appellate court in its
observation that the requirement to state in the articles the place where the
principal office of the corporation is to be located "is not a meaningless
requirement. That proviso would be rendered nugatory if corporations were
to be allowed to simply disregard what is expressly stated in their Articles
of Incorporation."
Inconclusive are the bare allegations of petitioner that it had closed its
Makati office and relocated to Mandaluyong City, and that respondent was
well aware of those circumstances. Assuming arguendo that they transacted
business with each other in the Mandaluyong office of petitioner, the fact
remains that, in law, the latter's residence was still the place indicated in its
Articles of Incorporation.
Claim for Moral Damages
13. ABS-CBN Broadcasting Corp. vs. CA,
G.R. No. 128690, Jan. 21, 1999
The award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses.  It cannot,
therefore, experience physical suffering and mental anguish, which can be
experienced only by one having a nervous system.
Facts:
In 1990, ABS-CBN and VIVA executed a Film Exhibition
Agreement whereby Viva gave ABS-CBN an exclusive right to exhibit
some Viva films.  Sometime in December 1991, in accordance with
paragraph 2.4 of said agreement stating that-
1.4 ABS-CBN shall have the right of first refusal to the next
twenty-four (24) Viva films  for TV telecast under such terms as may be
agreed upon by the parties hereto, provided, however, that such right shall
be exercised by ABS-CBN from the actual offer in writing.
vice-president Charo Santos-Concio, a list of three (3) film packages (36
title) from which ABS-CBN may exercise its right of first refusal under the
afore-said agreement.  ABS-CBN, however through Mrs. Concio, “can tick
off only ten (10) titles” (from the list) “we can purchase” and therefore did
not accept said list.  The titles ticked off by Mrs. Concio are not the subject
of the case at bar except the film “Maging Sino Ka Man.” For further
enlightenment, Mrs. Concio wrote a rejection letter dated January 06, 1992.
Subsequently, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-
president for Finance discussed the terms and conditions of Viva’s offer to
sell the 104 films, after the rejection of the same package by ABS-CBN.
After the rejection of ABS-CBN and following several negotiations and
meetings defendant Del Rosario and Viva’s President Teresita Cruz, in
consideration of P60 million, signed a letter of agreement granting RBS the
exclusive right to air 104 Viva-produced and/or acquired films including the
fourteen (14) films subject of the present case. As a result, ABS-CBN filed
before the RTC a complaint for specific performance with a prayer for a
writ of preliminary injunction and/or temporary restraining order against
private respondents Republic Broadcasting Corporation (hereafter RBS),
Viva Production (hereafter VIVA), and Vicente del Rosario.  The RTC
rendered a Decision in favor of RBS and VIVA and against ABS-CBN
wherein the private respondents were awarded moral damages in the
amount of P5 million pesos. Aggrived, ABS-CBN appealed to the Court of
Appeals. However, it affirmed the decision of the RTC. Hence, this petition.
Issue:
Whether or not the award of moral damages in favor of RBS is proper.
Ruling:
No. As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book
IV of the Civil Code.  Article 2217 thereof defines what are included in
moral damages, while Article 2219 enumerates the cases where they may be
recovered.  Article 2220 provides that moral damages may be recovered in
breaches of contract where the defendant acted fraudulently or in bad faith. 
RBS’s claim for moral damages could possibly fall only under item (10) of
Article 2219, thereof which reads:  whether the claimant be a natural or juridical person.
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30,
32, 34 and 35.
Moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer. The award is not meant to enrich the complainant
at the expense of the defendant, but to enable the injured party to obtain
means, diversion, or amusements that will serve to obviate the moral
suffering he has undergone.  It is aimed at the restoration, within the limits
of the possible, of the spiritual status quo ante, and should be proportionate
to the suffering inflicted. Trial courts must then guard against the award of
exorbitant damages; they should exercise balanced restrained and measured
objectivity to avoid suspicion that it was due to passion, prejudice, or
corruption or the part of the trial court.
The award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no senses.  trial court rejected the broadcasters’ claim that their utterances were the
It cannot, therefore, experience physical suffering and mental anguish,
which can be experienced only by one having a nervous system. The
statement in People v. Manero and Mambulao Lumber Co. v. PNB that
a corporation may recover moral damages if it “has a good reputation
that is debased, resulting in social humiliation” is an obiter dictum.  On
this score alone the award for damages must be set aside, since RBS is a
corporation. It may be reiterated that the claim of RBS against ABS-
CBN is not based on contract, quasi-contract, delict, or quasi-delict. 
Hence, the claims for moral and exemplary damages can only be based
on Articles 19, 20, and 21 of the Civil Code.
14. Filipinas Broadcasting Network, Inc. vs. Ago Medical and
Educational Center-Bicol Christian College of Medicine, (AMEC-
BCCM) and Angelita F. Ago,
Doctrine: General rule is, Corporations as artificial beings cannot be
awarder Moral Damages, However if the claim for Moral damages is based
on Item 7 of 2216 of the Civil Code, wherein such provision did not specify
 
Facts: "Exposé" hosted by Carmelo ‘Mel’ Rima and Hermogenes ‘Jun’
Alegre exposed various alleged complaints from students, teachers and
parents against AMEC and its administrators. Claiming that the broadcasts
were defamatory, AMEC and Angelita Ago, Dean of AMEC’s College of
Medicine, filed a complaint for damages against Filipinas Broadcasting
Network Inc. 
The Complaing alleges that AMEC is a reputable learning institution.
Through such reporting  FBNI, Rima and Alegre "transmitted malicious
imputations, and as such, destroyed plaintiffs’, AMEC and Ago,
reputation." The plaintiffs on their part alleged that the broadcast network
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, an
institution imbued with public interest." 
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
result of straight reporting because it had no factual basis. The Court of
Appeals upheld the trial court’s ruling and awarded AMEC moral damages,
however FBNI contends that AMEC is not entitled to moral damages
because it is a corporation.
Issue/s:
Whether or not 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.
However 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.
Doctrine of Apparent Authority
15. Calubad v. Ricarcen Development Corp., G.R. No. 202364,
August 30, 2017
Doctrine: The doctrine of apparent authority provides that even if no actual
authority has been conferred on an agent, his or her acts, as long as they are
within his or her apparent scope of authority, bind the principal. However,
the principal’s liability is limited to third persons who are reasonably led to
believe that the agent was authorized to act for the principal due to the
principal’s conduct. Apparent authority is determined by the acts of the
principal and not by the acts of the agent.
Facts: Respondent Ricarcen Development Corporation was a domestic
corporation engaged in renting out real estate. It was the registered owner of
a parcel of land located at 53 Linaw St., Sta. Mesa Heights, Quezon City.
Ricarcen was a family corporation. Marilyn R. Soliman was its President
from 2001 to August 2003.  and annulled the mortgage contracts, extrajudicial foreclosure, and sale by
On October 15, 2001, Marilyn, acting on Ricarcen’s behalf as its president,
took out a P4,000,000.00 loan from Calubad. This loan was secured by a
real estate mortgage over Ricarcen’s Quezon City property. On December
6, 2001, Ricarcen, through Marilyn, and Calubad amended and increased
the loan to P5,000,000.00 in the Amendment of Deed of Mortgage with the
same property used as security. On May 8, 2002, Ricarcen, again acting
through Marilyn, took out an additional loan of 2,000,000.00 from Calubad,
as evidenced by the executed Second Amendment of Deed of Mortgage. To
prove her authority to execute the three (3) mortgage contracts in Ricarcen’s
behalf, Marilyn presented Calubad with a Board Resolution which
empowered her to borrow money and use the Quezon City property covered
by TCT No. RT-84937 (166018) as collateral for the loans. Marilyn also
presented two (2) Secretary’s Certificates dated December 6, 2001 and May
8, 2002, executed by Marilyn’s sister and Ricarcen’s Corporate Secretary,
Elizabeth.
Sometime in 2003, after Ricarcen failed to pay its loan, Calubad initiated
extrajudicial foreclosure proceedings on the real estate mortgage. Calubad
was the highest bidder during the scheduled auction sale; thus, on March 27,
2003, he was issued a Certificate of Sale. On April 10, 2003, the Certificate
of Sale was annotated on TCT No. RT-84937 (166018). Ricarcen claimed
that it only learned of Marilyn’s transactions with Calubad sometime in July
2003. Upon confirming that the Quezon City property had indeed been
mortgaged, foreclosed, and sold to Calubad as a result of Marilyn’s actions,
Ricarcen’s Board of Directors removed her as President and appointed
Josefelix as its new President. Josefelix was also authorized to initiate the
necessary court actions to protect Ricarcen’s interests over the Quezon City
property.
In its Complaint, Ricarcen claimed that it never authorized its former
President Marilyn to obtain loans from Calubad or use the Quezon City
property as collateral for the loans. On the other hand, Calubad insisted that
the incidents which led to the foreclosure and sale of the Quezon City
property were all above board and were not marked with irregularity.
Furthermore, he asserted that he exercised the necessary diligence required
under the circumstances by requiring Marilyn to submit the necessary
documents to prove her authority from Ricarcen. 
On January 6, 2009, the Regional Trial Court granted Ricarcen’s complaint
public auction. The Regional Trial Court held that Marilyn failed to present
a special power of attorney as evidence of her authority from Ricarcen.
However, the Court of Appeals dismissed Calubad’s appeal and affirmed
the Regional Trial Court Decision. The Court of Appeals emphasized that
the rule on the presumption of validity of a notarized board resolution and
of a secretary’s certificate is not absolute and may be validly overcome by
contrary evidence.
Petitioner claims that Ricarcen is barred by estoppel from denying
Marilyn’s authority to enter into a contract of loan and mortgage with
Calubad for several reasons. He argues that Ricarcen clothed Marilyn in
apparent authority to act in its behalf, that it benefited from the loans
proceeds, and that it impliedly agreed to the mortgage loans by paying the
monthly interest payments.
Issue/s:
Whether or not Ricarcen Development Corporation is estopped from
denying or disowning the authority of Marilyn R. Soliman, its former
President, from entering into a contract of loan and mortgage with Arturo C.
Calubad,
Held:
Yes. As the former President of Ricarcen, it was within Marilyn’s scope of
authority to act for and enter into contracts in Ricarcen’s behalf. Her broad
authority from Ricarcen can be seen with how the corporate secretary
entrusted her with blank yet signed sheets of paper to be used at her
discretion. She also had possession of the owner’s duplicate copy of the
land title covering the property mortgaged to Calubad, further proving her
authority from Ricarcen.
Actual authority can either be express or implied. Express actual authority
refers to the power delegated to the agent by the corporation, while an
agent’s implied authority can be measured by his or her prior acts which
have been ratified by the corporation or whose benefits have been accepted
by the corporation. On the other hand, apparent authority is based on the
principle of estoppel.
The doctrine of apparent authority provides that even if no actual authority
has been conferred on an agent, his or her acts, as long as they are within his
or her apparent scope of authority, bind the principal. However, the
principal’s liability is limited to third persons who are reasonably led to
believe that the agent was authorized to act for the principal due to the
principal’s conduct. Apparent authority is determined by the acts of the
principal and not by the acts of the agent. Thus, it is incumbent upon
Calubad to prove how Ricarcen’s acts led him to believe that Marilyn was
duly authorized to represent it.
Calubad could not be faulted for continuing to transact with Marilyn, even
agreeing to give out additional loans, because Ricarcen clearly clothed her
with apparent authority. Likewise, it reasonably appeared that Ricarcen’s
officers knew of the mortgage contracts entered into by Marilyn in
Ricarcen’s behalf as proven by the issued Banco De Oro checks as
payments for the monthly interest and the principal loan. Calubad, as an
innocent third party dealing in good faith with Marilyn, should not be made
to suffer because of Ricarcen’s negligence in conducting its own business
affairs. As held in Yao Ka Sin Trading: Also, “if a private corporation
intentionally or negligently clothes its officers or agents with apparent
power to perform acts for it, the corporation will be estopped to deny that
such apparent authority is real, as to innocent third persons dealing in good
faith with such officers or agents.”
16. Citystate Savings Bank v. Tobias, G.R. No. 227990, March
7, 2018)
Doctrine: The doctrine of apparent authority or what is sometimes referred
to as the “holding out” theory, or the doctrine of ostensible agency, imposes
liability, not “as the result of the reality of a contractual relationship, but
rather because of the actions of a principal or an employer in somehow
misleading the public into believing that the relationship or the authority
exists.” It is defined as: The power to affect the legal relations of another
person by transactions with third persons arising from the other’s
manifestations to such third person such that the liability of the principal for
the acts and contracts of his agent extends to those which are within the
apparent scope of the authority conferred on him, although no actual
authority to do such acts or to make such contracts has been conferred.
Facts: Rolando Robles, a certified public accountant, has been employed
with Citystate Savings Bank since July 1998 then as Accountant-trainee for
its Chino Roces Branch. On September 6, 2000, Robles was promoted as
Acting Manager for petitioner’s Bulacan Branch, and eventually as
Manager.
Sometime in 2002, respondent Teresita Tobias was introduced by her
youngest son to Robles. The latter persuaded Tobias to open an account
with the petitioner, and thereafter to place her money in some high interest
rate mechanism, to which the latter yielded. Thereafter, Robles would
frequent Tobias’ stall at the public market to deliver the interest earned by
her deposit accounts in the amount of P2,000.00. In turn, Tobias would
hand over her passbook to Robles for updating. The passbook would be
returned the following day with typewritten entries but without the
corresponding counter signatures.
Tobias was later offered by Robles to sign up in petitioner’s back-to-back
scheme which is supposedly offered only to petitioner’s most valued clients.
Under the scheme, the depositors authorize the bank to use their bank
deposits and invest the same in different business ventures that yield high
interest. Robles allegedly promised that the interest previously earned by
Tobias would be doubled and assured her that he will do all the paper work.
Tobias signed the pertinent documents without reading its contents and
invested a total of P1,800,000.00 to petitioner through Robles. Later, Tobias
became sickly, thus she included her daughter Shellidie Valdez as co-
depositor in her accounts with the petitioner.
In 2005, Robles failed to remit to respondents the interest as scheduled.
Respondents tried to reach Robles but he can no longer be found; their calls
were also left unanswered. In a meeting with Robles’ siblings, it was
disclosed to the respondents that Robles withdrew the money and
appropriated it for personal use. Robles later talked to the respondents,
promised that he would return the money by installments and pleaded that
they do not report the incident to the petitioner. Robles however reneged on
his promise.
On January 8, 2007, respondents filed a Complaint for sum of money and
damages against Robles and the petitioner. In their Complaint, respondents
alleged that Robles committed fraud in the performance of his duties when
he lured Tobias in signing several pieces of blank documents, under the
assurance that everything was in order. The RTC ordered Robles to pay
respondents, but it absolved the bank from any liabilities.
The CA in its Decision found the appeal meritorious and accordingly,
reversed and set aside the RTC’s decision. It held that petitioner and Robles
are jointly and solidarily liable to pay respondents.
Issue/s: Whether or not the petitioner be absolved in any liability as it
alleged that it has exercised a high degree of diligence in the selection and
supervision of its employees, including Robles, and that it took proper
measures in hiring the latter and that it complied with standard bank
operating procedures in the conduct of its operations.
Held: No, but petitioner was held to still be liable under Art. 1191 of the
Civil Code:
Art. 1911. Even when the agent has exceeded his authority, the principal is
solidarity liable with the agent if the former allowed the latter to act as
though he had full powers.
Respondents cannot be blamed for believing that Robles has the authority to
transact for and on behalf of the petitioner and for relying upon the
representations made by him. After all, Robles as branch manager is
recognized “within his field and as to third persons as the general agent and
is in general charge of the corporation, with apparent authority
commensurate with the ordinary business entrusted him and the usual
course and conduct thereof.” Consequently, petitioner is estopped from
denying Robles’ authority. As the employer of Robles, petitioner is
solidarity liable to the respondents for damages caused by the acts of the
former.
The business of banking is one imbued with public interest. As such,
banking institutions are obliged to exercise the highest degree of diligence
as well as high standards of integrity and performance in all its transactions.
The law expressly imposes upon the banks a fiduciary duty towards its
clients and to treat in this regard the accounts of its depositors with
meticulous care. It is without question that when the action against the bank
is premised on breach of contractual obligations, a bank’s liability as debtor
is not merely vicarious but primary, in that the defense of exercise of due
diligence in the selection and supervision of its employees is not available..
The bank, in its capacity as principal, may also be adjudged liable under the
doctrine of apparent authority. The principal’s liability in this case however,
is solidary with that of his employee.
The doctrine of apparent authority or what is sometimes referred to as the
“holding out” theory, or the doctrine of ostensible agency, imposes liability,
not “as the result of the reality of a contractual relationship, but rather
because of the actions of a principal or an employer in somehow misleading
the public into believing that the relationship or the authority exists.” It is
defined as: The power to affect the legal relations of another person by
transactions with third persons arising from the other’s manifestations to
such third person such that the liability of the principal for the acts and
contracts of his agent extends to those which are within the apparent scope
of the authority conferred on him, although no actual authority to do such
acts or to make such contracts has been conferred.
The liability of a bank to third persons for acts done by its agents or
employees is limited to the consequences of the latter’s acts which it has
ratified, or those that resulted in performance of acts within the scope of
actual or apparent authority it has vested.
In the case at bar, the evidence on record sufficiently established that
Robles as branch manager was ‘clothed’ or ‘held out’ as having the power
to enter into the subject agreements with the respondents. The existence of
apparent or implied authority is measured by previous acts that have been
ratified or approved or where the accruing benefits have been accepted by
the principal. It may also be established by proof of the course of business,
usages and practices of the bank; or knowledge that the bank or its officials
have, or is presumed to have of its responsible officers’ acts regarding bank
branch affairs. As aptly pointed by the CA, petitioner’s evidence bolsters
the case against it, as they support the finding that Robles as branch
manager, has been vested with the apparent or implied authority to act for
the petitioner in offering and facilitating banking transactions. Moreover,
petitioner admitted that for valued clients, the branch manager has the
authority to transact outside of the bank premises. In fact, Robles previously
transacted business on behalf of the petitioner as when it sought and
facilitated the opening of respondents’ accounts.
17. Banate v. Philippine Countryside Rural Bank (Liloan,
Cebu), Inc., G.R. No. 163825, July 13, 2010.   mortgage contract containing the cross-collateral stipulation. It ruled that
Doctrine: Apparent authority is determined only by the acts of the principal
and not by the acts of the agent. There can be no apparent authority of an
agent without acts or conduct on the part of the principal; such acts or
conduct must have been known and relied upon in good faith as a result of
the exercise of reasonable prudence by a third party as claimant, and such
acts or conduct must have produced a change of position to the third
party’s detriment
FACTS: On July 22, 1997, petitioner spouses Rosendo Maglasang and
Patrocinia Monilar (spouses Maglasang) obtained a loan (subject loan) from
PCRB for P1,070,000.00. To secure the payment of the subject loan, the
spouses Maglasang executed, in favor of PCRB a real estate mortgage over
their property, owned by petitioners Mary Melgrid and Bonifacio Cortel
(spouses Cortel).
Sometime in November 1997 the spouses Maglasang and the spouses Cortel
asked PCRB's permission to sell the subject properties. They likewise
requested that the subject properties be released from the mortgage. The
spouses Maglasang and the spouses Cortel claimed that the PCRB, acting
through its Branch Manager, Pancrasio Mondigo, verbally agreed to their
request. The spouses Maglasang and the spouses Cortel thereafter sold to
petitioner Violeta Banate the subject properties for P1,750,000.00. The
spouses Magsalang and the spouses Cortel used the amount to pay the
subject loan with PCRB. After settling the subject loan, PCRB gave the
owner's duplicate certificate of title of Lot 12868-H-3-C to Banate, who was
able to secure a new title in her name. The title, however, carried the
mortgage lien in favor of PCRB, prompting the petitioners to request from
PCRB a Deed of Release of Mortgage. As PCRB refused to comply with
the petitioners' request, the petitioners instituted an action for specific
performance before the RTC to compel PCRB to execute the release deed.
RTC ruled in favor of the petitioners.raSince the subject loan had been
fully paid, the RTC considered the petitioners as rightfully entitled to a deed
of release of mortgage, pursuant to the verbal agreement that the
petitioners made with PCRB's branch manager, Mondigo.
CA reversed the RTC's decision. The CA did not consider as valid the
petitioners' new agreement with Mondigo, which would novate the original
Mondigo cannot orally amend the mortgage contract between PCRB, and
the spouses Maglasang and the spouses Cortel.
Thus, petitioners filed instant petition.
ISSUES:
Whether or not the purported agreement between the petitioners and
Mondigo novated the mortgage contract over the subject properties and is
thus binding upon PCRB.
RULING:
NO. The essential requisites of an extinctive novations are: (1) a previous
valid obligation; (2) an agreement of all parties concerned to a new contract;
(3) the extinguishment of the old obligation; and (4) the birth of a valid new
obligation. The second requisite is lacking in this case. For the consequent
creation of a new contractual obligation, consent of both parties is, thus,
required.
Section 23 of the Corporation Code expressly provides that the corporate
powers of all corporations shall be exercised by the board of directors. The
power and the responsibility to decide whether the corporation should enter
into a contract that will bind the corporation are lodged in the board, subject
to the articles of incorporation, bylaws, or relevant provisions of law. In the
absence of authority from the board of directors, no person, not even its
officers, can validly bind a corporation. However, the board of directors
may validly delegate some of its functions and powers to its officers,
committees or agents. The authority of a corporate officer or agent in
dealing with third persons may be actual or apparent. The doctrine of
"apparent authority," with special reference to banks, had long been
recognized in this jurisdiction. The existence of apparent authority may be
ascertained through:
1) the general manner in which the corporation holds out an officer or agent
as having the power to act, or in other words, the apparent authority to act in
general, with which it clothes him; or
2) the acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, within or beyond the scope of his ordinary
powers.
Under the doctrine of apparent authority, acts and contracts of the agent, as
are within the apparent scope of the authority conferred on him, although no
actual authority to do such acts or to make such contracts has been
conferred, bind the principal. The principal’s liability, however, is limited
only to third persons who have been led reasonably to believe by the
conduct of the principal that such actual authority exists, although none was
given. In other words, apparent authority is determined only by the acts of
the principal and not by the acts of the agent. There can be no apparent
authority of an agent without acts or conduct on the part of the principal;
such acts or conduct must have been known and relied upon in good faith as
a result of the exercise of reasonable prudence by a third party as claimant,
and such acts or conduct must have produced a change of position to the
third party’s detriment.
In the present case, the decision of the trial court was utterly silent on the
manner by which PCRB, as supposed principal, has "clothed" or "held out"
its branch manager as having the power to enter into an agreement, as
claimed by petitioners. No proof of the course of business, usages and
practices of the bank about, or knowledge that the board had or is presumed
to have of, its responsible officers' acts regarding bank branch affairs, was
ever adduced to establish the branch manager's apparent authority to
verbally alter the terms of mortgage contracts. Neither was there any
allegation, much less proof, that PCRB ratified Mondigo's act or is estopped
to make a contrary claim. Also, being a mere branch manager alone is
insufficient to support the conclusion that Mondigo has been clothed with
"apparent authority" to verbally alter terms of written contracts. To put it
simply, the burden of proving the authority of Mondigo to alter or novate
the mortgage contract has not been established.
Business Judgment Rule
18. Balinghasay vs. Castillo, G.R. No. 185664, April 8, 2015
DOCTRINE: Under the "business judgment rule", the courts are barred
from intruding into the business judgments of the corporation, when the
same are made in good faith.
FACTS:
The MCPI, a domestic corporation organized in 1977, operates the Medical
Center Parañaque (MCP). Castillo, Oscar, Flores, Navarro, and Templo
are minority stockholders of MCPI. Each of them holds 25 Class B shares.
On the other hand, nine of the herein petitioners, namely, Balinghasay,
Bernabe, Alodia, Jimenez, Oblepias, Savet, Villamora,Valdez and
Villareal, are holders of Class A shares and were Board Directors of
MCPI. The other eight petitioners are holders of Class B shares. The
petitioners are part of a group who invested in the purchase of ultrasound
equipment, the operation of and earnings from which gave rise to the instant
controversy.
In 1997, the MCPI’s Board of Directors awarded the operation of the
ultrasound unit to a group of investors (ultrasound investors). The
ultrasound investors held either Class A or Class B shares of MCPI. Among
them were nine of the herein petitioners, who were then, likewise, MCPI
Board Directors. The group purchased a Hitachi model EUB-200 C
ultrasound equipment costing ₱850,000.00 and operated the same. Albeit
awarded by the Board of Directors, the operation was not yet covered by a
written contract.
On February 5, 1999, twelve (12) Board Directors attended the Board
meeting and eight (8) of them were among the ultrasound investors. A
Memorandum of Agreement (MOA) was entered into by and between
MCPI, represented by its President then, Bernabe, and the ultrasound
investors, represented by Oblepias. Per MOA, the gross income to be
derived from the operation of the ultrasound unit, minus the sonologists’
professional fees, shall be divided between the ultrasound investors and
MCPI, in the proportion of 60% and 40%, respectively. Come April 1,
1999, MCPI’s share would be 45%, while the ultrasound investors would
receive 55%. Further, the ownership of the ultrasound machine would
eventually be transferred to MCPI.
On October 6, 1999, Flores wrote MCPI’s counsel a letter challenging the
Board of Directors’ approval of the MOA for being prejudicial to MCPI’s
interest. Thereafter, on February 7, 2000, Flores manifested to MCPI’s
Board of Directors and President his view regarding the illegality of the
MOA, which, therefore, cannot be validly ratified. On March 22, 2001, the
herein respondents filed with the RTC a derivative suit against the
petitioners for violation of Section 31 of the Corporation Code.
RTC dismissed the complaint. The RTC found that MCPI had, in effect,
impliedly ratified the MOA by accepting or retaining benefits flowing
therefrom. Further, under the "business judgment rule," the trial court
cannot undertake to control the discretion of the corporation’s board as long
as good faith attends its exercise.
CA reversed and set aside the decision of the RTC and explained that
there was no quorum in the signing of the MOA. The RTC’s observation
that the respondents’ silence and acquiescence to the MOA impliedly
ratified the same is also belied by the fact that the respondents did not stop
questioning the validity of the MOA.The petitioners, who are ultrasound
investors, in violation of their duty as such directors, acquired an interest
adverse to the corporation when they entered into the ultrasound contract.
By doing so, they have unjustly profited from the transaction which
otherwise would have accrued to MCPI.
Hence, this instant Petition.
The Petitioners argue that: "questions of policy or of management are left
solely to the honest decision of the board as the business manager of the
corporation, and the court is without authority to substitute its judgment for
that of the board, and as long as its acts in good faith and in the exercise of
honest judgment in the interest of the corporation, its orders are not
reviewable by the courts."
ISSUE:
WON the CA committed an error of law in not applying the "business
judgment rule"
HELD:
NO. As acknowledged by the petitioners and aptly pointed out by the
respondents, the existence of the circumstances and urgent hospital
necessity justifying the purchase and operation of the ultrasound unit by the
investors were not at the outset offered as evidence. Having been belatedly
raised, the aforesaid defenses were not scrutinized during the trial and their
truth or falsity was not uncovered. This is fatal to the petitioners’ cause. The
CA thus cannot be faulted for ruling against the petitioners in the face of
evidence.
The petitioners harp on their lofty purpose, which had supposedly moved
them to purchase and operate the ultrasound unit. Unfortunately, their
claims are not evident in the records. Further, even if their claims were to be
assumed as true for argument’s sake, the fact remains that the Board
Directors, who approved the MOA, did not outrightly inform the
stockholders about it. The ultrasound equipment was purchased and had
been in operation since 1997, but the matter was only brought up for
ratification by the stockholders in the annual meetings held in the years
2000 to 2003. This circumstance lends no credence to the petitioners’ cause.
The Court thus finds the CA’s ruling anent the invalidity of the MOA as
amply supported by both evidence and jurisprudence. 

19. Ching v. Quezon City Sports Club, Inc., G.R. No. 200150,
[November 7, 2016
Doctrine: Articles of incorporation and bylaws of a country club are the
fundamental documents governing the conduct of the corporate affairs of
said club; they establish the norms of procedure for exercising rights, and
reflected the purposes and intentions of the incorporators.
Facts: Petitioner Catherine became a member and regular patron of
respondent Club in 1989. Per policy of respondent Club, petitioner
Catherine's membership privileges were extended to immediate family
members. Because respondent Club was not in a financial position to pay
the monetary awards in NLRC NCR Case No. 00-07-06219, respondent
BOD approved a Board Resolution resolving to "seek the assistance of its
members by assessing each member the amount of ₱2,500.00 payable in
five equal monthly payments starting the month of September 2001."
Petitioner did not pay, hence, her membership in the club was suspended.
         On May 2003, petitioner Laurence went to respondent Club
intending to avail himself of its services using the account of his mother,
petitioner Catherine. Respondent Club refused to accommodate petitioner
Laurence because his mother's membership privileges had been suspended.
The following day, May 23, 2003, petitioner Catherine went to respondent
Club to verify the suspension of her membership privileges.
         On July 2003, petitioners instituted before the RTC a Complaint
for damages against respondents.
         It was revealed during trial that a few days after the filing of the
Complaint, petitioner Catherine was refused access to respondent Club,
even as a mere guest of her daughter Noelle. To lift the suspension of her
membership privileges, petitioner Catherine finally paid "under protest" the
special assessment of ₱2,500.00.
         On September 21, 2006, respondent BOD issued Board Resolution
No. 10-2006, in which they resolved to expel petitioner Catherine as a
regular member of respondent Club due to her filing of the civil suit against
respondents. Petitioner Catherine's expulsion from respondent Club became
the subject matter of another case before the RTC.
         The RTC, based on the "Business Judgment Rule" and Philippine
Stock Exchange, Inc. v. Court of Appeals, held that questions of policy and
management are left to the honest decision of the officers and directors of a
corporation; and the courts are without authority to substitute their judgment
for that of the BOD unless said judgment had been attended with bad faith.
The RTC found no evidence of bad faith on the part of respondents in
adopting the Board Resolutions.
         The RTC though ruled that respondents failed to comply with the
By-Laws of respondent Club when they suspended petitioner Catherine's
privileges.
         In addition, the RTC adjudged that respondents acted in bad faith
or with malice in continuing to deprive petitioner Catherine her membership
privileges even after she had already paid the special assessment.
         Thus, the RTC ordered that the respondent Club pay moral and
exemplary damages, attorney's fees; and the costs of the suit to the
petitioners.
         On the other hand, the Court of Appeals ruled in favor of
respondents.
         The CA held that the Club's policy on the suspension of accounts
was implemented on the basis of the following annotations found in the
monthly Statement of Account, and that there was no bad faith or intent to
injure/humiliate on the part of respondents.
Issue/s: IS THE SUSPENSION OF CATHERINE CHING IN NOT
PAYING THE SPECIAL ASSESSMENT PURSUANT TO A BOARD
RESOLUTION CAN BE MADE UNDER ARTICLE 33 OF THE BY-
LAWS OF THE CLUB?
Held: YES
 By-laws are the private "statutes" by which the country club is
regulated, and will function. Until repealed, the by-laws are the continuing
rules for the government of the country club and its officers, the proper
function being to regulate the transaction of the incidental business of the
country club. The by-laws constitute a binding contract as between the
country club and its members, and as among the members themselves. The
by-laws are self-imposed private laws binding on all members, directors,
and officers of the country club. The prevailing rule is that the provisions of
the articles of incorporation and the by-laws must be strictly complied with
and applied to the letter.
The ₱2,500.00 special assessment was not an ordinary account or
bill incurred by petitioners in respondent Club, as contemplated in Section
33(a) of the By-Laws.
Section 33(a) of the By-Laws refers to the regular dues and
ordinary accounts or bills incurred by members as they avail of the services
at respondent Club, and for which the members are charged in their monthly
Statement of Account. The special assessment in the instant case arose from
an extraordinary circumstance. Thus, petitioner Catherine's nonpayment of
the special assessment was, ultimately, a violation of Board Resolution No.
7-2001, covered by Section 35(a) of the By-Laws.
Section 35(a) of the By-Laws requires notice and hearing prior to a
member's suspension. Petitioner Catherine did not receive notice
specifically advising her that she could be suspended for nonpayment of the
special assessment. Respondents merely relied on the general notice printed
in petitioner Catherine's Statements of Account warning of automatic
suspension for accounts over due. While said general notice in the
Statements of Account might have been sufficient for purposes of Section
33(a) of the By-Laws, it fell short of the stricter requirement under Section
35(a) of the same By-Laws. Petitioner Catherine's right to due process was
clearly violated.
Nevertheless, petitioner Catherine herself admitted violating Board
Resolution No. 7-2001 by not paying the ₱2,500.00 special assessment.
Despite being aware of the special assessment, petitioner Catherine simply
chose not to pay the same, without taking any other step to let respondents
know of her opposition to said special assessment, until the suspension of
her membership privileges. Consequently, there was ground for respondents
to suspend petitioner Catherine's membership privileges.
Thus, the court finds no bad faith on the part of respondents in
implementing petitioner Catherine's suspension. Petitioners utterly failed to
establish that respondents acted with malice or ill will or motive in the
issuance and distribution to the billing clerks and attendants of the list of
suspended members of respondent Club. In contrast, respondents were able
to explain that these were done in the ordinary course of business, i.e., to
implement Board Resolution Nos. 7-2001 and 3-2002. It was necessary that
the billing clerks and attendants had a list of the suspended members of
respondent Club as they were the ones on the frontline who directly deal
with the members and would bear the penalty if they mistakenly allowed
suspended members access to the services of respondent Club. There was
also no proof that respondents actually ordered the highlighting of petitioner
Catherine's name in the list and/or the posting of the list in the billing clerks'
work stations; these could have been easily done by the billing clerks
themselves on their own volition. Noticeably, there were also other names
highlighted in the list, not just petitioner Catherine's. In addition, the posting
of the list of suspended members in conspicuous places in respondent Club
did not necessarily connote bad faith on the part of respondents because
Section 33(a) of the By-Laws, which respondents misguidedly believed
applied to this case, authorized the posting of such a list on the Clubhouse
Bulletin Board.
Trust Fund Doctrine
20. Donnina C. Halley vs.  Printwell, Inc., G.R. No. 157549,
May 30, 2011
Doctrine: It is established doctrine that subscriptions to the capital of a
corporation constitute a fund to which creditors have a right to look for
satisfaction of their claims and that the assignee in insolvency can maintain
an action upon any unpaid stock subscription in order to realize assets for
the payment of its debts.
Stockholders of a corporation are liable for the debts of the corporation up
to the extent of their unpaid subscriptions. They cannot invoke the veil of
corporate identity as a shield from liability, because the veil may be lifted to
avoid defrauding corporate creditors.
Facts:
The petitioner was an incorporator and original director of Business Media
Philippines, Inc. (BMPI), which, at its incorporation on November 12, 1987,
[3] had an authorized capital stock of P3,000,000.00 divided into 300,000
shares each with a par value of P10.00,of which 75,000 were initially
subscribed.
Printwell engaged in commercial and industrial printing. BMPI
commissioned Printwell for the printing of the magazine Philippines, Inc.
(together with wrappers and subscription cards) that BMPI published and
sold.
For that purpose, Printwell extended 30-day credit... accommodations to
BMPI.
In the period from October 11, 1988 until July 12, 1989, BMPI placed with
Printwell several orders on credit, evidenced by invoices and delivery
receipts totaling P316,342.76. BMPI paid only P25,000.00, Printwell sued
BMPI on January 26, 1990 for the collection... of the unpaid balance of
P291,342.76 in the RTC.
Printwell amended the complaint in order to implead as defendants all the
original stockholders and incorporators to recover on their unpaid
subscriptions... defendants filed a consolidated answer,[6]averring that they
all had paid their subscriptions in full... that BMPI had a separate
personality from those of its stockholders.
To prove payment of their subscriptions, the defendant stockholders
submitted in evidence BMPI official receipt.
RTC rendered a decision in favor of Printwell, rejecting the allegation of
payment in full of the subscriptions in view of an irregularity in the issuance
of the ORs and observing that the defendants had used BMPI's corporate
personality to evade payment... and create injustice.
Assuming arguendo that the individual defendants have paid their unpaid
subscriptions, still, it is very apparent that individual defendants merely
used the corporate fiction as a cloak or cover to create an injustice; hence,
the alleged separate personality of defendant... corporation should be
disregarded
Applying the trust fund doctrine, the RTC declared the defendant
stockholders liable to Printwell pro rata
CA affirmed the RTC, holding that the defendants' resort to the corporate
personality would create an injustice because Printwell would thereby be at
a loss against whom it would assert the right to collect
Issues:
the propriety of disregarding the separate personalities of BMPI and its
stockholders by piercing the thin veil that separated them
Held:
Although a corporation has a personality separate and distinct from those of
its stockholders, directors, or officers,[26]such separate and distinct
personality is merely a fiction created by law for the sake of convenience
and to promote the ends of... justice.
The corporate personality may be disregarded, and the individuals
composing the corporation will be treated as individuals, if the corporate
entity is being used as a cloak or cover for fraud or illegality; as a
justification for a wrong; as an... alter ego, an adjunct, or a business conduit
for the sole benefit of the stockholders.
As a general rule, a corporation is looked upon as a legal entity, unless and
until sufficient reason to the contrary appears.
The prevailing rule is that a stockholder is personally liable for the financial
obligations of... the corporation to the extent of his unpaid subscription.
In view of the petitioner's unpaid subscription being worth P262,500.00, she
was liable up to that amount.
Principles:
Stockholders of a corporation are liable for the debts of the corporation up
to the extent of their unpaid subscriptions. They cannot invoke the veil of
corporate identity as a shield from liability, because the veil may be lifted
to avoid defrauding... corporate creditors.