JURISDICTION
as such may violate, still the courts are not authorized to go to
WEST COAST LIFE INSURANCE CO. VS. GEO HURD,
JUDGE OF COURT OF FIRST INSTANCE
March 30, 1914
G.R. No. L-8527
Facts:
Petitioner is a foreign life-insurance corporation, duly
organized under and by virtue of the laws of the State of
California, doing business regularly and legally in the
Philippine Islands pursuant to its laws. The assistant
prosecuting attorney of the city of Manila filed an information
in a criminal action in the Court of First Instance of that city
against the plaintiff, said corporation, and also against John
Northcott and Manuel C. Grey, charging said corporation and
said individuals with the crime of libel. The defendant in his
official capacity as judge of the court of First Instance signed
and issued a process directed to the plaintiff and the other
accused in said criminal action, summoning them to appear
before him to answer the charges filed.
However, the plaintiff, together with the other
persons named as accused in said process filed with the clerk
of the court a motion to quash said summons and the service
thereof, on the ground that the court had no jurisdiction over
the said company, there being no authority in the court for the
issuance of the process, the order under which it was issued
being void. Plaintiffs argue that under the laws of the
Philippine Islands, to proceed against a corporation, as such,
criminally, to bring it into court for the purpose of making it
amenable to the criminal laws. The plaintiff, further attacking
said process, alleges that the process is a mixture of civil and
criminal process, that it is not properly signed, that it does not
direct or require an arrest; that it is an order to appear and
answer on a date certain without restraint of the person, and
that it is not in the form required by law. The court denied the
motion and proceeded to hear the case.
Issue: Whether or not he court may, of itself and on its own
motion, create not only a process but a procedure by which the
process may be made effective.
Held:
While having the inherent powers which usually go
with courts of general jurisdiction, they have only such
authority in criminal matters as is expressly conferred upon
them by statute or which it is necessary to imply from such
authority in order to carry out fully and adequately the express
authority conferred. The Courts of First Instance do not have
authority to create new procedure and new processes in
criminal law. The exercise of such power verges too closely
on legislation. Even though it be admitted that there are
various penal laws in the Philippine Islands which corporation
the extent of creating special procedure and special processes
for the purpose of carrying out those penal statutes, when the
legislature itself has neglected to do so. To bring a corporation
into court criminally requires many additions to the present
criminal procedure. While it may be said to be the duty of
courts to see to it that criminals are punished, it is no less their
duty to follow prescribed forms of procedure and to go out
upon unauthorized ways or act in an unauthorized manner.
There are many cases cited by counsel for the
defendant which show that corporations have been proceeded
against criminally by indictment and otherwise and have been
punished as malefactors by the courts. Of this, of course, there
can be no doubt; but it is clear that, in those cases, the statute,
by express words or by necessary intendment, included
corporations within the persons who could offend against the
criminal laws; and the legislature, at the same time established
a procedure applicable to corporations.
It is adjudged that the Court of First Instance of the
city of Manila be and it is enjoined and prohibited from
proceeding further in the criminal case so far as said
proceedings relate to the said West Coast Life Insurance
Company, a corporation, the plaintiff in the case.
ABEJO VS. DE LA CRUZ
G.R. No. L-63558
May 19,1987
Facts:
 Pocket Bell Philippines, Inc.  is a tone and voice
paging corporation, with petitioner spouses Jose Abejo and
Aurora Abejo as its principal stockholders. Telectronic
Systems, Inc. purchased their 133,000 minority shareholdings
for P5 million and 63,000 shares registered in the name of
Virginia Braga which were covered by five stock certificates
endorsed in blank by her for P1,674,450.00. The spouses
Agapito Braga and Virginia Braga were the majority
stockholders, but with the said purchases, Telectronics would
become the majority stockholder, holding 56% of the
outstanding stock and voting power of Pocket Bell.
With the said purchases, Telectronics requested the
corporate secretary of the corporation, Norberto Braga, to
register and transfer to its name, and those of its nominees the
total 196,000 Pocket Bell shares in the corporation's transfer
book, cancel the surrendered certificates of stock and issue the
corresponding new certificates of stock. However, Braga
refused to do so asserting and claiming pre-emptive rights
over the 133,000 Abejo shares and that Virginia Braga never
transferred her 63,000 shares to Telectronics but had lost the
five stock certificates representing those shares. The parties
filed independent actions with different jurisdictions. The
Bragas assert that the regular civil court has original and
exclusive jurisdiction as against the Securities and Exchange
Commission, while the Abejos claim the contrary.
Issue: Who, between the CFI (RTC) and the SEC, has
original and exclusive jurisdiction over the dispute?
Held:
The SEC has jurisdiction over the matter as
supported by the applicable provisions of P.D. No. 902-A
which reorganized the SEC with additional powers including a
more active public participation in the affairs of private
corporations and enterprises through which desirable activities
may be pursued for the promotion of economic development.
Nowhere does the law empower any CFI to interfere with the
orders of the Commission and consequently any ruling by the
trial court on the issue of ownership of the shares of stock is
not binding on the Commission for want of jurisdiction. A
petition for mandamus in the SEC to compel the corporate
secretary to register the transfers and issue new certificates in
favor of Telectronics and its nominees was properly resorted
to under Rule XXI, Section 1 of the SEC's New Rules of
Procedure, which provides for the filing of such petitions with
the SEC. Section 3 of said Rules further authorizes the SEC to
issue orders expediting the proceedings and to grant a
preliminary injunction for the preservation of the rights of the
parties pending such proceedings.
The dispute falls within the general classification of
cases within the SEC's original and exclusive jurisdiction to
hear and decide, under Section 5 of the said law. Insofar as the
Bragas and their corporate secretary's refusal on behalf of the
corporation Pocket Bell to record the transfer of the 56%
majority shares to Telectronics may be deemed a device or
scheme amounting to fraud and misrepresentation employed
by them to keep themselves in control of the corporation to the
detriment of Telectronics (as buyer and substantial investor in
the corporate stock) and the Abejos (as substantial
stockholders-sellers), the case falls under paragraph (a). The
dispute is likewise an intra-corporate controversy between and
among the majority and minority stockholders as to the
transfer and disposition of the controlling shares of the
corporation, failing under paragraph (b). An intra-corporate
controversy is one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any
exemption whatsoever. The provision is broad and covers all
kinds of controversies between stockholders and corporations.
The issue of whether or not a corporation is bound to replace a
stockholder's lost certificate of stock is a matter purely
between a stockholder and the corporation. It is a typical intra-
corporate dispute.  exempt therefrom, becomes a necessary averment in the
TIME, INC.ET.AL. VS. VILLEGAS
G.R. No. L-28882
May 31, 1971
Facts:
Time, Inc. is an American corporation with principal
offices at Rocketfeller Center, New York City, N. Y., and is
the publisher of "Time", a weekly news magazine.
Antonio J. Villegas and Juan Ponce Enrile seek to
recover from the herein petitioner damages upon an alleged
libel arising from a publication of Time (Asia Edition)
magazine, in its issue of 18 August 1967, of an essay, entitled
"Corruption in Asia".
On motion of the respondents-plaintiffs, the
respondent judge, issued a writ of attachment on the real and
personal estate of Time, Inc. When petitioner received the
summons and a copy of the complaint at its offices in New
York, it filed a motion to dismiss the complaint for lack of
jurisdiction and improper venue, relying upon the provisions
of Republic Act 4363. Private respondents opposed the
motion. Respondent judge issued an order re-affirming the
previous order of deferment for the reason that "the rule laid
down under Republic Act. No. 4363, amending Article 360 of
the Revised Penal Code, is not applicable to actions against
non-resident defendants, and because questions involving
harassment and inconvenience, as well as disruption of public
service do not appear indubitable.
Issues:
I. Whether or not the jurisdiction of the CFI, a
Philippine Court may be challenged by a foreign corporation
by writ of certiorari or prohibition; and
II. Whether or not Republic Act 4363 is applicable to
action against a foreign corporation or non-resident defendant.
Held:
I. The dismissal of the present petition is asked on the
ground that the petitioner foreign corporation failed to allege
its capacity to sue in the courts of the Philippines.
Respondents rely on section 69 of the Corporation law.
They also invoke the ruling in Marshall-Wells Co. vs.
Elser & Co., Inc. that no foreign corporation may be permitted
to maintain any suit in the local courts unless it shall have the
license required by the law, and the ruling in Atlantic Mutual
Ins. Co., Inc. vs. Cebu Stevedoring Co., Inc. that "where ... the
law denies to a foreign corporation the right to maintain suit
unless it has previously complied with a certain requirement,
then such compliance or the fact that the suing corporation is
complaint." These doctrines cannot be a propos in the case at
bar, since the petitioner is not "maintaining any suit" but is
merely defending one against itself; it did not file any
complaint but only a corollary defensive petition to prohibit
the lower court from further proceeding with a suit that it had
no jurisdiction to entertain.
Petitioner's failure to aver its legal capacity to
institute the present petition is not fatal, for a foreign
corporation may, by writ of prohibition, seek relief against the
wrongful assumption of jurisdiction. And a foreign
corporation seeking a writ of prohibition against further
maintenance of a suit, on the ground of want of jurisdiction in
which jurisdiction is not bound by the ruling of the court in
which the suit was brought, on a motion to quash service of
summons, that it has jurisdiction.
II. That respondents-plaintiffs could not file a
criminal case for libel against a non-resident defendant does
not make Republic Act No. 4363 incongruous of absurd, for
such inability to file a criminal case against a non-resident
natural person equally exists in crimes other than libel. It is a
fundamental rule of international jurisdiction that no state can
by its laws, and no court which is only a creature of the state,
can by its judgments or decrees, directly bind or affect
property or persons beyond the limits of the state. Not only
this, but if the accused is a corporation, no criminal action can
lie against it, whether such corporation or resident or non-
resident. At any rate, the case filed by respondents-plaintiffs is
case for damages.
VETERAN FOUNDATION OF THE PHILIPPINES VS.
REYES
GR No. 155027
February 28, 2006
Facts:
Petitioner in this case is the Veterans Federation of
the Philippines (VFP), a corporate body organized under
Republic Act No. 2640, dated 18 June 1960, as amended, and
duly registered with the Securities and Exchange Commission.
Respondent Angelo T. Reyes was the Secretary of National
Defense (DND Secretary) who issued the assailed Department
Circular No. 04, dated 10 June 2002. Respondent Edgardo E.
Batenga was the DND Undersecretary for Civil Relations and
Administration who was tasked by the respondent DND
Secretary to conduct an extensive management audit of the
records of petitioner. Petitioner claims that it is not a public
nor a governmental entity but a private organization, and
advances this claim to prove that the issuance of DND
Department Circular No. 04 is an invalid exercise of
respondent Secretary’s control and supervision.
Issue: Whether or not petitioner is a private corporation.
Held:
1. Petitioner claims that the VFP does not possess the
elements which would qualify it as a public office, particularly
the possession/delegation of a portion of sovereign power of
government to be exercised for the benefit of the public;
In Laurel v. Desierto, we adopted the definition of
Mechem of a public office, that it is "the right, authority and
duty, created and conferred by law, by which, for a given
period, either fixed by law or enduring at the pleasure of the
creating power, an individual is invested with some portion of
the sovereign functions of the government, to be exercised by
him for the benefit of the public." In the same case, we went
on to adopt Mechem’s view that the delegation to the
individual of some of the sovereign functions of government is
"[t]he most important characteristic" in determining whether a
position is a public office or not. Such portion of the
sovereignty of the country, either legislative, executive or
judicial, must attach to the office for the time being, to be
exercised for the public benefit. Unless the powers conferred
are of this nature, the individual is not a public officer. The
most important characteristic which distinguishes an office
from an employment or contract is that the creation and
conferring of an office involves a delegation to the individual
of some of the sovereign functions of government, to be
exercised by him for the benefit of the public; – that some
portion of the sovereignty of the country, either legislative,
executive or judicial, attaches, for the time being, to be
exercised for the public benefit. Unless the powers conferred
are of this nature, the individual is not a public officer. The
issue, therefore, is whether the VFA’s officers have been
delegated some portion of the sovereignty of the country, to be
exercised for the public benefit. In several cases, we have
dealt with the issue of whether certain specific activities can
be classified as sovereign functions. These cases, which deal
with activities not immediately apparent to be sovereign
functions, upheld the public sovereign nature of operations
needed either to promote social justiceor to stimulate patriotic
sentiments and love of country. The growing complexities of
modern society, however, have rendered this traditional
classification of the functions of government [into constituent
and ministrant functions] quite unrealistic, not to say obsolete.
The areas which used to be left to private enterprise and
initiative and which the government was called upon to enter
optionally, and only "because it was better equipped to
administer for the public welfare than is any private individual
or group of individuals," continue to lose their well-defined
boundaries and to be absorbed within activities that the
government must undertake in its sovereign capacity if it is to
meet the increasing social challenges of the times. Here[,] as
almost everywhere else[,] the tendency is undoubtedly
towards a greater socialization of economic forces. Here, of
course, this development was envisioned, indeed adopted as a
national policy, by the Constitution itself in its declaration of
principle concerning the promotion of social justice. In the
case at bar, the functions of petitioner corporation enshrined in
Section 4 of Rep. Act No. 2640 should most certainly fall
within the category of sovereign functions. The protection of
the interests of war veterans is not only meant to promote
social justice, but is also intended to reward patriotism. All of
the functions in Section 4 concern the well-being of war
veterans, our countrymen who risked their lives and lost their
limbs in fighting for and defending our nation. It would be
injustice of catastrophic proportions to say that it is beyond
sovereignty’s power to reward the people who defended her.

2. Petitioner claims that VFP funds are not public funds.
The fact that no budgetary appropriations have been released
to the VFP does not prove that it is a private corporation. The
DBM indeed did not see it fit to propose budgetary
appropriations to the VFP, having itself believed that the VFP
is a private corporation. If the DBM, however, is mistaken as
to its conclusion regarding the nature of VFP’s incorporation,
its previous assertions will not prevent future budgetary
appropriations to the VFP. The erroneous application of the
law by public officers does not bar a subsequent correct
application of the law. It is important to note here that the
membership dues collected from the individual members of
VFP’s affiliate organizations do not become public funds
while they are still funds of the affiliate organizations. A close
reading of Section 1 of Rep. Act No. 2640 reveals that what
has been created as a body corporate is not the individual
membership of the affiliate organizations, but merely the
aggregation of the heads of the affiliate organizations. Thus,
only the money remitted by the affiliate organizations to the
VFP partake in the public nature of the VFP funds. In
Republic v. COCOFED, we held that the Coconut Levy Funds
are public funds because, inter alia, (1) they were meant to be
for the benefit of the coconut industry, one of the major
industries supporting the national economy, and its farmers;
and (2) the very laws governing coconut levies recognize their
public character. The same is true with regard to the VFP
funds. No less public is the use for the VFP funds, as such use
is limited to the purposes of the VFP which we have ruled to
be sovereign functions. Likewise, the law governing VFP
funds (Rep. Act No. 2640) recognizes the public character of
the funds as shown in the enumerated provisions above.
3. Petitioner argues that it is a civilian federation where
membership is voluntary.
Neither is the civilian nature of VFP relevant in this case. The
Constitution does not contain any prohibition, express or
implied, against the grant of control and/or supervision to the
Secretary of National Defense over a civilian organization.
The Office of the Secretary of National Defense is itself a
civilian office, its occupant being an alter ego of the civilian
Commander-in-Chief. This set-up is the manifestation of the
constitutional principle that civilian authority is, at all times,
supreme over the military. There being no such constitutional
prohibition, the creation of a civilian public organization by
Rep. Act No. 2640 is not rendered invalid by its being placed
under the control and supervision of the Secretary of National
Defense.
4. Petitioner claims that the Administrative Code of 1987 does
not provide that the VFP is an attached agency, and nor does it
provide that it is an entity under the control and supervision of
the DND in the context of the provisions of said code.
The Administrative Code, by giving definitions of the
various entities covered by it, acknowledges that its
enumeration is not exclusive. The Administrative Code could
not be said to have repealed nor enormously modified Rep.
Act No. 2640 by implication, as such repeal or enormous
modification by implication is not favored in statutory
construction.
5. Petitioner offers as evidence the DBM opinion that the VFP
is a non-government organization in its certification that the
VFP "has not been a direct recipient of any funds released by
the DBM."
Respondents claim that the supposed declaration of
the DBM that petitioner is a non-government organization is
not persuasive, since DBM is not a quasi-judicial agency.
They aver that what we have said of the Bureau of Local
Government Finance (BLGF) in Philippine Long Distance
Telephone Company (PLDT) v. City of Davao can be applied
to DBM: In any case, it is contended, the ruling of the Bureau
of Local Government Finance (BLGF) that petitioner’s
exemption from local taxes has been restored is a
contemporaneous construction of Section 23 [of R.A. No.
7925 and, as such, is entitled to great weight. The ruling of the
BLGF has been considered in this case. But unlike the Court
of Tax Appeals, which is a special court created for the
purpose of reviewing tax cases, the BLGF was created merely
to provide consultative services and technical assistance to
local governments and the general public on local taxation and
other related matters. Thus, the rule that the "Court will not set
aside conclusions rendered by the CTA, which is, by the very
nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed
an expertise on the subject, unless there has been an abuse or
improvident exercise of authority" cannot apply in the case of
the BLGF. On this score, though, we disagree with
respondents and hold that the DBM’s appraisal is considered
persuasive. Respondents misread the PLDT case in asserting
that only quasi-judicial agencies’ determination can be
considered persuasive. What the PLDT case points out is that,
for an administrative agency’s opinion to be persuasive, the
administrative agency involved (whether it has quasi-judicial
powers or not) must be an expert in the field they are giving
their opinion on.
CORPORATE PERSONALITY AND EXISTENCE
ALHAMBRA CIGAR vs. SEC
G.R. No. L-23606
July 29, 1968
24 SCRA 269
Facts:
Alhambra Cigar was incorporated Jan 15, 1912.
Under its articles, it had a corporate life of 50 years and on Jan
15, 1962, its term of existence expired. On that date it ceased
transacting business and entered into a state of liquidation. On
June 20, 1963, Republic Act 3531 was enacted empowering
corporations to extend their life beyond the period fixed by its
articles for a term not exceeding 50 years. Prior to the law,
Corporations had a non-extendable life of 50 years. On July
15, 1963, the Board of Alhambra resolved to amend the life of
the Corporation for another 50 years which was approved by
the stockholders on August 1963. The amended articles were
then filed with the SEC but the SEC returned the amended
articles and said that the law has no retroactive effect.
Issue:
Whether or not the SEC correctly denied the
amended articles of Alhambra
Held:
Supreme Court affirms the decision of the SEC.
Continuance of a dissolved corporation for 3 years has only
for its purpose the closure of its affairs and no other. The
Corporation is enjoined from doing business for which it was
established. Liquidation is necessary because the Corp’s life
has ended. For this reason alone, the Corp’s life may no longer
be extended. An extension, which is in fact an amendment,
must be made during the life of the Corp and before the
expiration of the term of existence as fixed by the Articles.
Moreover, the filing of the certificate of extension cannot
retroact to the date of the passing of the resolution extending
the life.
LINTONJUA, JR. vs ETERNIT CORPORATION
GR. 144805
June 8, 2006
Facts:
The Eternit Corporation (EC) manufactures roofing
materials and pipe products. Ninety (90%) percent of the
shares of stocks of EC were owned by Eteroutremer SA
Corporation (ESAC), a corporation registered under the laws
of Belgium. Glanville was the General Manager and President
of EC, while Delsaux was the Regional Director for Asia of
ESAC. In 1986, because of the political situation in the
Philippines the management of ESAC wanted to stop its
operations and to dispose the land in Mandaluyong City. They
engaged the services of realtor/broker Lauro G. Marquez.
Marquez thereafter offered the land to Eduardo B.
Lintojua, Jr. for PhP 27,000,000.00. Lintonjua counter offered
PhP 20,000,000.00 cash. Marquez apprised Glanville and
Delsaux of the offer. Delsaux sent a telex stating that, based
on nthe “Belgian/Swiss decision,” the final offer was
“US$1,000,000.00 and PhP 2,500,000.00. The Lintonjua
brothers deposited US$1,000,000.00 with the Security Bank &
Trust Company, and drafted an Escrow Agreement to expedite
the sale.
Meanwhile, with the assumption of Corazon C.
Aquino as President, the political situation improved. Marquez
received a leet from Delsaux that the ESAC Regional Office
decided not to proceed with the sale. When informed of this,
the Lintonjuas, filed a complaint for specific performance and
payment of damages on account of the aborted sale. Both the
trial court and appellate court rendered a judgement in favor of
defendants and dismissed the complaint.
Issue:
Whether or not the appellate court committed a grave
error in holding that Marquez needed a written authority from
respondent ETERNIT before the sale can be perfected.
Held:
Respondents maintain that Glanville, Delsaux and
Marquez had no authority from the stockholders of EC and its
Board of Directors to offer the properties for sale to the
petitioners.
Petitioners assert that there was no need for a written
authority from the Board of Directors of EC for Marquez to
validly act as broker. As broker, Marquez was not an ordinary
agent because his only job as a broker was to look for a buyer
and to bring together the parties to the transaction. He was not
authorized to sell the properties; hence, petitioners argue,
Article 1874 of the New Civil Code does not apply.
A corporation is a juridical person separate and
distinct from its stockholders and is not affected by the
personal rights, obligations and transactions of the latter. It
may act only through its board of directors or, when
authorized by its board resolution, through its officers or
agents. The general principles of agency govern the relation
between the corporation and its officers or agents, subject to
the articles of incorporation, by-laws, or relevant provisions of
law. Agency may be oral unless the law requires a specific
form. However, to create or convey real rights over
immovable property, a special power of attorney is necessary.
Thus, when a sale of a piece of land or any portion thereof is
through an agent, the authority of the latter shall be in writing,
otherwise, the sale shall be void.
In this case, the petitioners failed to adduce in
evidence any resolution of the Board of Directors of EC
empowering Marquez, Glanville or Delsaux as its agents, to
sell, let alone offer for sale, for and its behalf, the eight parcels
of land owned by it. Moreover, the evidence of petitioners
shows that Adams and Glanville acted on the authority of
Delsaux, who, in turn, acted on authority of ESAC, through its
Committee for Asia, and the Belgian/Swiss component of the
management of ESAC. The offer of Delsaux emanated only
form the “Belgian/Swiss Decision,” and not the entire
management of Board of Directors of ESAC. While it is true
that petitioners accepted the counter-offer of ESAC was not a
party to the transaction between them; hence, EC was not
bount by such acceptance.
 SULO NG BAYAN vs. ARANETA
GR L-31061
August 17, 1976
Facts:
On April 26, 19966, Sulo ng Bayan, Inc. filed an
accion de revindicacion with the Court of First Instance of
Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms
Inc., Nationa Waterworks & Sewage Authority (NAWASA),
Hacienda Caretas Inc., and the Register of Deeds of Bulacan
to recover the ownership and possession of a large tract of
land in San Jose del Monte, Bulacan containing an area of
27,982,250 sq.ms., more or less, registered under the Torrens
System in the name of GAI, et. Al’s predecessors-in-interest
(who are members of the corporation). On September 2, 1966,
GAI filed a motion to dismiss the amended complaint on the
grounds that (1) the complaint states no cause of action; and
(2) the cause of action, if any, is barred by prescription and
laches. Paradise Farms Inc. and Hacienda Caretas Inc. filed
motions to dismiss on the same grounds. NAWASA did not
file any motion to dismiss. However, it pleaded in its answer
as special and affirmative defense lack of cause of action by
Sulo ng Bayan Innc. And the barring of such action by
prescription and laches.
Issue:
Whether the corporation (non-stock) may institute an
action in behalf of its individual members for the recovery of
certain parcels of land allegedly owned by said members,
among others.
Held:
It is a doctrine well-established and obtains both at
law and in equity that a corporation is a distinct legal entity to
be considered as separate and apart from the stockholders or
members who compose it, and is not affected by the personal
rights, obligations and transactions of its stockholders or
members. The property of the corporation is its property and
not that of the stockholders, as owners, although they have
equities in it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct
from its members. Conversely, a corporation, “even in the
case of a one-man corporation.” The mere fact that one is
president of a corporation does not render the property which
he owns or possesses the property of the corporation, since the
president, as individual, and the corporation are separate
similatities. Similarly, stockholders in a corporation engaged
in buying and dealing in real estate whose certificates of stock
entitled the holder thereof to an allotment in the distribution of
the land of the corporation upon surrender of the stock
certificated were considered not to have such legal or
equitable title or interest in the land, as would support a suit
for title, especially against parties other than the corporation. It
must be noted, however, that the juridical personality of the
corporation, as separate and distinct from the persons
composing it, is but a legal fiction introduced for the purpose
of convenience.
This separate personality of the corporation may be
disregarded, or the veil of corporate fiction pierced, in cases
where it is used as a cloak or cover for fraud or illegality, or to
work an injustice, or where necessary to achieve equity. It has
not been claimed that the members have assigned or
transferred whatever rights they may have on the land in
question to the corporation. Absent any showing of interest,
therefore, a corporation, has no personality to bring the action
for and in behalf of its stockholders or members for the
purpose of recovering property which belongs to said
stockholders or members in their personal capacities.
WOODCHILD HOLDINGS, INC. VS.
ROXAS ELECTRIC AND CONSTRUCTION
COMPANY, INC.
G.R. No. 140667
August 12, 2004
Facts:
The respondent Roxas Electric and Construction
Company, Inc. (RECCI), formerly the Roxas Electric and
Construction Company, was the owner of two parcels of land,
Lots A and B. A portion of a lot A (Lot No. 491-A-3-B-2) was
a dirt road accessing to the Sumulong Highway, Antipolo,
Rizal.
The respondent's Board of Directors approved a
resolution authorizing the corporation, through its president,
Roberto B. Roxas, to sell Lot No. 491-A-3-B-2 at a price and
under such terms and conditions which he deemed most
reasonable and advantageous to the corporation; and to
execute, sign and deliver the pertinent sales documents and
receive the proceeds of the sale for and on behalf of the
company. Petitioner wanted to buy Lot No. 491-A-3-B-2 to
construct its warehouse building, and a portion of the
adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot
container van would be able to readily enter or leave the
property. In a Letter to Roxas, WHI President Dy offered to
buy Lot No. 491-A-3-B-2 under stated terms and conditions
for P7,213,000. Roxas indicated his acceptance of the offer on
page 2 of the deed. Less than a month later Roxas, as
President of RECCI, as vendor, and Dy, as President of WHI,
as vendee, executed a contract to sell in which RECCI bound
and obliged itself to sell to Dy Lot No. 491-A-3-B-2. A Deed
of Absolute Sale in favor of WHI was issued, under which Lot
No. 491-A-3-B-2 was sold for P5,000,000, receipt of which
was acknowledged by Roxas.
 WHI complained to Roberto Roxas that the vehicles
of RECCI were parked on a portion of the property over which
WHI had been granted a right of way. Roxas promised to look
into the matter. Dy and Roxas discussed the need of the WHI
to buy a 500-square-meter portion of Lot No. 491-A-3-B-1
covered by TCT No. 78085 as provided for in the deed of
absolute sale. However, Roxas died soon thereafter. WHI
wrote the RECCI, reiterating its verbal requests to purchase a
portion of the said lot as provided for in the deed of absolute
sale, and complained about the latter's failure to eject the
squatters within the three-month period agreed upon in the
said deed. The WHI demanded that the RECCI sell a portion
of Lot No. 491-A-3-B-1 covered by TCT No. 78085 for its
beneficial use within 72 hours from notice thereof, otherwise
the appropriate action would be filed against it. RECCI
rejected the demand of WHI. WHI reiterated its demand in a
Letter dated May 29, 1992. There was no response from
RECCI.
WHI filed a complaint against the RECCI with the
Regional Trial Court of Makati, for specific performance and
damages.
Issue:
Whether the respondent is bound by the provisions in
the deed of absolute sale granting to the Petitioner beneficial
use and a right of way over a portion of Lot No. 491-A-3-B-1
accessing to the Sumulong Highway and granting the option to
the petitioner to buy a portion thereof, and, if so, whether such
agreement is enforceable against the respondent
Held:
A corporation is a juridical person separate and
distinct from its stockholders or members. Accordingly, the
property of the corporation is not the property of its
stockholders or members and may not be sold by the
stockholders or members without express authorization from
the corporation's board of directors. Section 23 of BP 68,
otherwise known as the Corporation Code of the Philippines.\
Generally, the acts of the corporate officers within
the scope of their authority are binding on the corporation.
However, under Article 1910 of the New Civil Code, acts
done by such officers beyond the scope of their authority
cannot bind the corporation unless it has ratified such acts
expressly or tacitly, or is estopped from denying them.
Evidently, Roxas was not specifically authorized
under the said resolution to grant a right of way in favor of the
petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to
sell to the petitioner a portion thereof. The authority of Roxas,
under the resolution, to sell Lot No. 491-A-3-B-2did not
include the authority to sell a portion of the adjacent lot, Lot
No. 491-A-3-B-1, or to create or convey real rights thereon.
Neither may such authority be implied from the authority
granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner
"on such terms and conditions which he deems most
reasonable and advantageous." Under paragraph 12, Article
1878 of the New Civil Code, a special power of attorney is
required to convey real rights over immovable property.
Article 1358 of the New Civil Code requires that contracts
which have for their object the creation of real rights over
immovable property must appear in a public document. The
petitioner cannot feign ignorance of the need for Roxas to
have been specifically authorized in writing by the Board of
Directors to be able to validly grant a right of way and agree to
sell a portion of Lot No. 491-A-3-B-1. The rule is that if the
act of the agent is one which requires authority in writing,
those dealing with him are charged with notice of that fact.
Powers of attorney are generally construed strictly
and courts will not infer or presume broad powers from deeds
which do not sufficiently include property or subject under
which the agent is to deal. The general rule is that the power
of attorney must be pursued within legal strictures, and the
agent can neither go beyond it; nor beside it. The act done
must be legally identical with that authorized to be done. In
sum, then, the consent of the respondent to the assailed
provisions in the deed of absolute sale was not obtained;
hence, the assailed provisions are not binding on it.
WENSHA SPA CENTER, INC. and/or XU ZHI JIE vs.
LORETA T. YUNG
Facts:
Loreta stated that she used to be employed by
Manmen Services Co., Ltd. (Manmen) where Xu was a client.
Xu was apparently impressed by Loreta’s performance. After
he established Wensha, he convinced Loreta to transfer and
work at Wensha. . Enticed, Loreta resigned from Manmen and
transferred to Wensha. Loreta was later on asked to resign
from Wensha because according to the Feng Shui master, her
aura did not match that of Xu. Loreta refused but was
informed that she could no longer continue working at
Wensha. That same afternoon, Loreta went to the NLRC and
filed a case for illegal dismissal against Xu and Wensha.
The Labor Arbiter dismissed Loreta’s complaint for
lack of merit. He found it more probable that Loreta was
dismissed from her employment due to Wensha’s loss of trust
and confidence in her. This ruling was affirmed by the NLRC.
The CA reversed the decision and orered Wensha Spa Center,
Inc. and Xu Zhi Jie to, jointly and severally, pay Loreta T.
Yung her full backwages, other privileges, and benefits.
Issue: Whether Xu Zhi Jie should be held jointly and severally
liable with Wensha Spa Center.
Held:
Elementary is the rule that a corporation is invested
by law with a personality separate and distinct from those of
the persons composing it and from that of any other legal
entity to which it may be related. "Mere ownership by a single
stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground
for disregarding the separate corporate personality."
In labor cases, corporate directors and officers may
be held solidarily liable with the corporation for the
termination of employment only if done with malice or in bad
faith. Bad faith does not connote bad judgment or negligence;
it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong. In the subject decision, the CA
concluded that petitioner Xu and Wensha are jointly and
severally liable to Loreta. However there is no evidence
proving bad faith or malice on the part of Xu. There is,
therefore, no justification for such a ruling. To sustain such a
finding, there should be an evidence on record that an officer
or director acted maliciously or in bad faith in terminating the
services of an employee. Moreover, the finding or indication
that the dismissal was effected with malice or bad faith should
be stated in the decision itself.
TAYAG VS. BENGUET CONSOLIDATED INC.
GR NO. L-23145
NOVEMBER 29, 1968
Facts:
Idonah Slade Perkins, who died on March 27, 1960 in
New York City, left among others, two stock certificates
covering 33,002 shares of appellant, the certificates being in
the possession of the County Trust Company of New York,
which as noted, is the domiciliary administrator of the estate
of the deceased. Then came this portion of the appellant's
brief: "On August 12, 1960, Prospero Sanidad instituted
ancillary administration proceedings in the Court of First
Instance of Manila; Lazaro A. Marquez was appointed
ancillary administrator, and on January 22, 1963, he was
substituted by the appellee Renato D. Tayag. A dispute arose
between the domiciary administrator in New York and the
ancillary administrator in the Philippines as to which of them
was entitled to the possession of the stock certificates in
question. On January 27, 1964, the Court of First Instance of
Manila ordered the domiciliary administrator, County Trust
Company, to "produce and deposit" them with the ancillary
administrator or with the Clerk of Court. The domiciliary
administrator did not comply with the order, and on February
11, 1964, the ancillary administrator petitioned the court to
"issue an order declaring the certificate or certificates of
stocks covering the 33,002 shares issued in the name of
Idonah Slade Perkins by Benguet Consolidated, Inc., be
declared [or] considered as lost." The court granted the petion.
Issue: Whether or not the respondent can refuse to follow the
lawful order of the court on the grounds that the stock
certificates cannot be declared or considered as lost and that
hat there was a failure to observe certain requirements of its
by-laws before new stock certificates could be issued
Held:
A corporation is an artificial being created by
operation of law....It owes its life to the state, its birth being
purely dependent on its will. As Berle so aptly stated:
Classically, a corporation was conceived as an artificial
person, owing its existence through creation by a sovereign
power."As a matter of fact, the statutory language employed
owes much to Chief Justice Marshall, who in the Dartmouth
College decision defined a corporation precisely as "an
artificial being, invisible, intangible, and existing only in
contemplation of law." The well-known authority Fletcher
could summarize the matter thus: "A corporation is not in fact
and in reality a person, but the law treats it as though it were a
person by process of fiction, or by regarding it as an artificial
person distinct and separate from its individual stockholders....
It owes its existence to law. It is an artificial person created by
law for certain specific purposes, the extent of whose
existence, powers and liberties is fixed by its charter." Dean
Pound's terse summary, a juristic person, resulting from an
association of human beings granted legal personality by the
state, puts the matter neatly.
As a matter of fact, a corporation once it comes into
being, following American law still of persuasive authority in
our jurisdiction, comes more often within the ken of the
judiciary than the other two coordinate branches. It institutes
the appropriate court action to enforce its right. Correlatively,
it is not immune from judicial control in those instances,
where a duty under the law as ascertained in an appropriate
legal proceeding is cast upon it. To assert that it can choose
which court order to follow and which to disregard is to confer
upon it not autonomy which may be conceded but license
which cannot be tolerated. It is to argue that it may, when so
minded, overrule the state, the source of its very existence; it
is to contend that what any of its governmental organs may
lawfully require could be ignored at will. So extravagant a
claim cannot possibly merit approval.
NON-ENTITLEMENT TO MORAL DAMAGES
ABS-CBN VS. CA AND VIVA FILMS
G.R. No. 128690
January 21, 1999
Facts:
In 1990, ABS-CBN and Viva executed a Film
Exhibition Agreement whereby ABS-CBN was given 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. Consequently,
Viva, through defendant Del Rosario, offered ABS-CBN,
through its vice-president Charo Santos-Concio, a list of
three(3) film packages (36 titles) from which ABS-CBN may
exercise its right of first refusal under the afore-said
agreement. ABS CBN rejected said list. On February 27,
1992, Del Rosario approached Ms. Concio, with a list
consisting of 52 original movie titles, as well as 104 re-runs
from which ABS-CBN may choose another 52 titles, or a total
of 156 titles, proposing to sell to ABS-CBN airing rights over
this package of 52 originals and 52 re-runs for
P60,000,000.00. The package was rejected by ABS-CBN. On
April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS
discussed the terms and conditions of Viva’s offer to sell the
104 films. On April 07, 1992, defendant Del Rosario received
through his secretary, a handwritten note from Ms. Concio
which reads: “Here’s the draft of the contract. I hope you find
everything in order,” to which was attached a draft exhibition
agreement, a counter-proposal covering 53 films for a
consideration of P35 million. The said counter-proposal was
however rejected by Viva’s Board of Directors. On April 29,
1992, Viva granted RBS the exclusive right to air 104 Viva-
produced and/or acquired films including the fourteen (14)
films subject of the present case. ABS-CBN then filed a a
complaint for specific performance. RTC rendered a decision
in favor of RBS and VIVA and against ABS-CBN, ruling that
there was no meeting of minds on the price and terms of the
offer. Furthermore, the right of first refusal under the 1990
Film Exhibition Agreement had previously been exercised per
Ms. Concio’s letter to Del Rosario ticking off ten titles
acceptable to them, which would have made the 1992
agreement an entirely new contract. The Court of Appeals
affirmed the decision of the RTC. Hence, this petition.
ISSUES:
1. WHETHER THE CONTRACT BETWEEN LOPEZ
AND DEL ROSARIO WAS PERFECTED
2. WHETHER THE RESPONDENT RBS IS
ENTITLED TO MORAL DAMAGES
HELD:
1. Contracts that are consensual in nature are perfected
upon mere meeting of the minds, once there is
concurrence between the offer and the acceptance
upon the subject matter, consideration, and terms of
payment a contract is produced. The offer must be
certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the
terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from
the proposal. A qualified acceptance, or one that
involves a new proposal, constitutes a counter-offer
and is a rejection of the original offer. Consequently,
when something is desired which is not exactly what
is proposed in the offer, such acceptance is not
sufficient to generate consent because any
modification or variation from the terms of the offer
annuls the offer.  Under Corporation Code,  unless
otherwise provided by said Code, corporate powers,
such as the power; to enter into contracts; are
exercised by the Board of Directors. However, the
Board may delegate such powers to either an
executive committee or officials or contracted
managers. The delegation, except for the executive
committee, must be for specific purposes,   Delegation
to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the
bindings effects of their acts would apply. For such
officers to be deemed fully clothed by the corporation
to exercise a power of the Board, the latter must
specially authorize them to do so. That Del Rosario
did not have the authority to accept ABS-CBN's
counter-offer was best evidenced by his submission
of the draft contract to VIVA's Board of Directors for
the latter's approval. In any event, there was between
Del Rosario and Lopez III no meeting of minds.
2. Moral damages are in the category of an award
designed to compensate the claimant for actual injury
suffered. And not to impose a penalty on the
wrongdoer.  The award is not meant to enrich the
complainant at the expense of the defendant, but to
enable the injured party to obtain means, diversion,
or amusements that will serve to obviate then moral
suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate
to the suffering inflicted.  Trial courts must then
guard against the award of exorbitant damages; they
should exercise balanced restrained and measured
objectivity to avoid suspicion that it was due to
passion, prejudice, or corruption on the part of the
trial court. The award of moral damages cannot be
granted in favor of a corporation because, being an
 artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no
senses, It cannot, therefore, experience physical
suffering and mental anguish, which call be
experienced only by one having a nervous
system.  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.
ASSET PRIVATIZATION TRUST VS. COURT OF
APPEALS
Facts:
The Philippine Government undertook to support the
financing of Marinduque Mining and Industrial Corporation
(MMIC). the Philippine Government obtained a firm
commitment from the DBP and/or other government financing
institutions. DBP approved guarantees in favor of MMIC and
subsequent requests for guarantees were based on the
unutilized portion of the Government commitment. Thereafter,
the Government extended accommodations to MMIC in
various amounts.
MMIC, PNB and DBP executed a Mortgage Trust
Agreement whereby MMIC, as mortgagor, agreed to
constitute a mortgage in favor or PNB and DBP as
mortgagees, over all MMIC's assets.
MMIC was having a difficult time meeting its
financial obligations. MMIC had an outstanding loan with
DBP in the amount of P13.7 billion and with PNB in the
amount of P8.7 billion. Thus, a financial restructuring plan
(FRP was drafted by the Sycip Gorres Velayo accounting
firm.
The various loans and advances made by DBP and
PNB to MMIC had become overdue. DBP and PNB as
mortgagees of MMIC assets, decided to exercise their right to
extrajudicially foreclose the mortgages in accordance with the
Mortgage Trust Agreement.
Jesus S. Cabarrus, Sr., together with the other
stockholders of MMIC, filed a derivative suit against DBP and
PNB before the RTC of Makati, Branch 62, for Annulment of
Foreclosures, Specific Performance and Damages. APT, as
successor of the DBP and the PNB's interest in MMIC,
mutually agreed to submit the case to arbitration. The issues to
be submitted for the Committee's resolution shall be (a)
Whether plaintiffs have the capacity or the personality to
institute this derivative suit in behalf of the MMIC or its
directors, (b) Whether or not the actions leading to, and
including,. the PNB-DBP foreclosure of the MMIC assets
were proper, valid and in good.
The Committee finds, there is no foreclosure at all as
it was not legally and validly done. APT was ordered to pay
Marinduque Mining and Industrial Corporation the sum of
P13,000.000.00, as and for moral and exemplary damages.
On appeal, the Court of Appeals denied due course
and dismissed the petition for certiorari.
Issues: Whether MMIC was entitled to moral damages.
Held:
The MMIC cannot be entitled to a big amount of
moral damages when its credit reputation was not exactly
something to be considered sound and wholesome. Under
Article 2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may possibly
suffer. A corporation whose overdue and unpaid debts to the
Government alone reached a tremendous amount of P22
Billion Pesos cannot certainly have a solid business reputation
to brag about.
It must be pointed out that when the supposed
wrongful act of foreclosure was done, MMIC's credit
reputation was no longer a desirable one. The company then
was already suffering from serious financial crisis which
definitely projects an image not compatible with good and
wholesome reputation. So it could not be said that there was a
"reputation" besmirched by the act of foreclosure.
DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY
HI-CEMENT CORPORATION VS. INSULAR BANK OF
ASIA AND AMERICA
G.R. No. 132403
September 28, 2007
Facts:
Petitioners Enrique Tan and Lilia Tan were the
controlling stockholders of E.T. Henry & Co., Inc., a company
engaged in the business of processing and distributing bunker
fuel. Among E.T. Henry's customers were petitioner Hi-
Cement Corporation, Riverside Mills Corporation and Kanebo
Cosmetics Philippines, Inc. For their purchases, these
corporations issued postdated checks to E.T. Henry.
Respondent Insular Bank of Asia and America (later PCIB and
now Equitable PCI-Bank) granted E.T. Henry a credit facility
known as “Purchase of Short Term Receivables.” Through this
arrangement, E.T. Henry was able to encash, with pre-
deducted interest, the postdated checks of its clients (re-
discounting of checks). For every transaction, respondent
required E.T. Henry to execute a promissory note and a deed
of assignment bearing the conformity of the client to the re-
discounting.
E.T. Henry was able to re-discount its clients' checks
(with deeds of assignment) with respondent. However, when
20 checks of Hi-Cement (which were crossed and which bore
the restriction “deposit to payee’s account only”), Riverside,
and Kanebo were dishonoured, respondent filed a complaint
for sum of money in the then Court of First Instance of Rizal
against E.T. Henry, the spouses Tan, Hi-Cement (including its
general manager and its treasurer as signatories of the
postdated crossed checks), Riverside and Kanebo. Respondent
sought for the payment of actual damages and for the
collection from E.T. Henry and the spouses Tan other loan
obligations (amounting to P1,661,266.51 and P4,900,805,
respectively) as deficiencies resulting from the foreclosure of
the real estate mortgage on E.T. Henry's property in
Sucat, Parañaque.
Hi-Cement filed its answer alleging, among others,
that: (1) its general manager and treasurer were not authorized
to issue the postdated crossed checks in E.T. Henry's favor; (2)
the deed of assignment purportedly executed by Hi-Cement
assigning them to respondent only bore the conformity of its
treasurer and (3) respondent was not a holder in due course as
it should not have discounted them for being “crossed
checks.” In their answer (with counterclaim against
respondent and cross-claims against Hi-Cement, Riverside and
Kanebo), E.T. Henry and the spouses Tan claimed that: (1) the
drawers of the postdated checks failed to honor them due to
the adverse economic conditions prevailing at the time
respondent presented them for payment; (2) the extra-judicial
sale of the mortgaged Sucat property was void due to gross
inadequacy of the bid price and (3) their loans were subjected
to a usurious interest rate of 21% p.a.  For their part, Riverside
and Kanebo sought the dismissal of the case against them,
arguing that they were not privy to the re-discounting
arrangement between respondent and E.T. Henry. The trial
court rendered judgment in favor of respondent and against
E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo.
Only petitioners appealed the decision to the CA which
affirmed it in toto.
Issues: (1) Whether or not petitioners may be held liable for
the dishonoured postdated cross checks.
(2) Whether or not the doctrine of piercing the veil of
corporate entity is applicable herein.
Held: (1) Both the general manager and treasurer of Hi-
Cement were authorized to issue the subjects checks. Hi-
Cement was already estopped from denying such authority
since it never objected to the signatories' issuance of all
previous checks to E.T. Henry which the latter, in turn, was
able to re-discount with respondent. However,
notwithstanding such fact, respondent could not be considered
a holder in due course. Absent any of the elements set forth in
Section 52, the holder is not a holder in due course. In the case
at bar, the last two requirements were not met.
The respondent's claim that it acted in good faith
when it accepted and discounted Hi-Cement’s postdated
crossed checks from E.T. Henry (as payee therein) is
unconvincing. Good faith becomes inconsequential amidst
proof of respondent's grossly negligent conduct in dealing
with the subject checks. Respondent was all too aware that
subject checks were crossed and bore restrictions that they
were for deposit to payee's account only; hence, they could
not be further negotiated to it. The records likewise reveal that
respondent completely disregarded a telling sign of
irregularity in the re-discounting of the checks when the
general manager did not acquiesce to it as only the treasurer's
signature appeared on the deed of assignment. As a banking
institution, it behooved respondent to act with extraordinary
diligence inevery transaction. Its business is impressed with
public interest, thus, it was not expected to be careless and
negligent, specially so where the checks it dealt with were
crossed.
Here, there was no doubt that it was E.T. Henry that
re-discounted Hi-Cement's checks and received their value
from respondent. Since E.T. Henry had no justification to
refuse payment, it should pay respondent. Hi-Cement could
not also be made solidarily liable with Riverside and Kanebo
for the face value of their checks. Hi-Cement had nothing to
do with the checks of these two corporations. However,
although the language of the trial court decision's dispositive
portion seemed confusing, a reading of the decision in its
entirety reveals that the fallo was for each corporation to be
liable solidarily with E.T. Henry and/or  the spouses Tan for
the respective values of their checks. At any rate, the issue has
become moot in view of our ruling that Hi-Cement is not
liable for the checks.
(2) The general rule is that the corporation will be
looked upon as a legal entity until sufficient reasons to the
contrary appear.  It is only when the fiction or notion of legal
entity is used to defeat public convenience, justify wrong,
perpetuate fraud or defend crime that the law will shred the
corporate legal veil and regard it as a mere association of
persons. This is referred to as the doctrine of piercing the veil
of corporate entity.
However, said doctrine may not be applied herein.
First, the trial court failed to provide a clear ground why the
doctrine was used. It merely stated that it agreed with
respondent’s arguments but did not explain why the doctrine
was relevant to petitioner E.T. Henry's and the spouses Tan’s
case. Similarly, the CA left a gaping hole by failing to provide
the basis for its ruling that E.T. Henry and the spouses Tan
defrauded respondent. It did not also state what act
constituted the fraud. Fraud is an  allegation  of  fact  that
demands clear and convincing evidence. It is never presumed.
Second, the 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. For this
ground to stand in this case, there must be proof that the
spouses Tan: (1) had control or complete domination of E.T.
Henry’s finances and that the latter had no separate existence
with respect to the act complained of; (2) used such control to
commit fraud or wrong and (3) the control was the proximate
cause of the loss or injury complained of by respondent. The
records of this case do not show that these elements were
present.
Third, mere inadequacy of the price obtained at the
sheriff’s sale, unless shocking to the conscience, was not
sufficient to set aside the sale if there was no
showing  that,  in  the  event   of  a  regular  sale,  a  better  pri
ce  could  be obtained.” Furthermore, in the absence of any
irregularity in the foreclosure proceeding or proof that it was
carried out without strict observance of the procedure, an
assumption as to its regularity shall stay.
TAN BOON BEE VS. JARENCIO
163 SCRA 205
 
Facts:
Petitioner, doing business under the name and style
of Anchor Supply Co., sold on credit to herein private
respondent Graphic Publishing, Inc. paper products. For
failure of Graphic to pay any installment, as agreed on the
contract of sale, petitioner filed with the CFI of Manila a
collection suit for a sum of money to which the latter rendered
judgment ordering Graphic to pay the petitioner. On motion of
petitioner, a writ of execution was issued and the executing
sheriff levied upon one unit printing machine identified as
"Original Heidelberg Cylinder Press" Type H 222, NR 78048,
found in the premises of Graphic. However, private
respondent, Philippine American Drug Company (PADCO),
later informed the sheriff that the printing machine is its
property and not that of Graphic. Nevertheless, the sheriff
proceeded with the scheduled auction sale, and sold the
property to the petitioner. PADCO filed an "Affidavit of Third
Party Claim" with the Office of the City Sheriff and thereafter
a Motion to Nullify Sale on Execution (With Injunction) with
the CFI. Despite petitioner’s opposition, the CFI ruled in favor
of PADCO. Petitioner contends that the controlling
stockholders of the PADCO are also the same controlling
stockholders of the Graphic and, therefore, the levy upon the
said machinery which was found in the premises occupied by
the Graphic should be upheld. In addition, petitioner contends
that respondent judge gravely exceeded, if not, acted without
jurisdiction, in nullifying the sheriff’s sale not only because
Section 17, Rule 39 of the Rules of Court was not complied
with, but more importantly because PADCO could not have
litigated its claim in the same case, but in an independent civil
proceeding.
Issue: Whether or not there is a need to pierce the corporate
veil.
Held:
The doctrine that a corporation is a legal entity
distinct and separate from the members and stockholders who
compose it is recognized and respected in all cases which are
within reason and the law. However, this separate and distinct
personality is merely a fiction created by law for convenience
and to promote justice. Accordingly, this separate personality
of the corporation may be disregarded, or the veil of corporate
fiction pierced, in cases where it is used as a cloak or cover for
fraud or illegality, or to work an injustice, or where necessary
to achieve equity or when necessary for the protection of
creditors. Corporations are composed of natural persons and
the legal fiction of a separate corporate personality is not a
shield for the commission of injustice and inequity. Likewise,
this is true when the corporation is merely an adjunct, business
conduit or alter ego of another corporation. In such case, the
fiction of separate and distinct corporation entities should be
disregarded.
In the instant case, petitioner’s evidence established
that PADCO was never engaged in the printing business; that
the board of directors and the officers of GRAPHIC and
PADCO were the same; and that PADCO holds 50% share of
stock of GRAPHIC. Petitioner likewise stressed that
PADCO’s own evidence shows that the printing machine in
question had been in the premises of GRAPHIC since May,
1965, long before PADCO even acquired its alleged title on
July 11, 1966 from Capitol Publishing. That the said machine
was allegedly leased by PADCO to GRAPHIC on January 24,
1966, even before PADCO purchased it from Capital
Publishing on July 11, 1966, only serves to show that
PADCO’s claim of ownership over the printing machine is not
only farce and sham but also unbelievable.
A.C. RANSOM LABOR UNION-CCLU vs. NATIONAL
LABOR RELATIONS COMMISSION, First Division
 A.C. RANSOM (PHIIS.) CORPORATION RUBEN
HERNANDEZ, MAXIMO C. HERNANDEZ, SR.,
PORFIRIO R. VALENCIA, LAURA H. CORNEJO,
FRANCISCO HERNANDEZ, CELESTINO C.
HERNANDEZ and MA. ROSARIO HERNANDEZ.
Facts:
Motions were filed by petitioner for the collection of
back wages of the 22 employees of the corporation which
RANSOM opposed stressing due to its financial
condition. The officers of Ransom later on organized another
corporation named Rasario Industrial Corporation which is
substantially the same as Ransom but the officers declared that
ROSARIO is a distinct and separate corporation, which was
organized long before these instant cases were decided by the
CIR adversely against RANSOM.
The Labor arbiter held Ransom and its officers liable
for the amount being demanded, but the NLRC modified the
decision limiting the liability to the president of Ransom,
Ruben Hernandez together with the other presidents of the
same corporation who was elected subsequently up to the
termination of the life of the corporation.
The UNION in its Motion for Reconsideration, prays
that the veil of corporate fiction be pierced and that all the
individual private respondents and not only the President,
should be held jointly and severally liable with RANSOM.
Issue: Whether the officers together with Ransom should be
held liable.
Held:
When the notion of legal entity is used as a means to
perpetrate fraud or an illegal act or as a vehicle for the evasion
of an existing obligation, the circumvention of statutes, and or
confuse legitimate issues the veil which protects the
corporation will be lifted.
The alleged bankruptcy of RANSOM furnishes no
justification for non-payment of back wages to the employees
concerned taking into consideration Article 110 of the Labor
Code, which gives preference to the claim of employees for
back wages.
Aggravating RANSOM's clear evasion of payment of
its financial obligations is the organization of a “run-away”
corporation, ROSARIO at the time the unfair labor practice
case was pending before the CIR by the same persons who
were the officers and stockholders of RANSOM, engaged in
the same line of business as RANSOM, producing the same
line of products, occupying the same compound, using the
same machineries, buildings, laboratory, bodega and sales and
accounts departments used by RANSOM, and which is still in
existence. Both corporations were closed corporations owned
and managed by members of the same family. Its organization
proved to be a convenient instrument to avoid payment of
backwages and the reinstatement of the 22 workers. This is
another instance where the fiction of separate and distinct
corporate entities should be disregarded.
PNB vs. ANDRADA ELECTRIC AND ENGINEERING
COMPANY
GR No. 142936
Facts:
On 26 August 1975, the Philippine national Bank
(PNB) acquired the assets of the Pampanga Sugar Mills
(PASUMIL)that were earlier foreclosed by the Development
Bank of the Philippines (DBP) under LOI311. The PNB
organized the National Sugar Development Corporation
(NASUDECO) in September 1975, to take ownership and
possession of the assets and ultimately to nationalize and
consolidate its interest in other PNB controlled sugar mills.
Prior to 29 October 1971, PASUMIL engaged the services of
the Andrada Electric & Engineering Company (AEEC) for
electrical rewinding and repair, most of which were partially
paid by PASUMIL, leaving several unpaid accounts with
AEEC. On 29 October 1971, AEEC and PASUMIL entered
into a contract for AEEC to perform the (a) Construction of a
power house building;3 reinforced concrete foundation for 3
units 350 KW diesel engine generating sets, 3 reinforced
concrete foundation for the5,000 KW and 1,250 KW
turbo generator sets, among others. Aside from the
work contract, PASUMIL required AEEC to perform extra
work, and provide electrical equipment and spare parts. Out of
the total obligation of P777,263.80, PASUMIL had paid only
P250,000.00, leaving an unpaid balance, as of 27 June1973,
amounting toP527,263.80. Out of said unpaid balance of
P527,263.80, PASUMIL made a partial payment to AEEC of
P14,000.00, in broken amounts, covering the period from 5
January 1974 up to 23 May1974, leaving an unpaid balance
of P513,263.80. PASUMIL and PNB, and now
NASUDECO, allegedly failed and refused to pay AEEC their
just, valid and demandable obligation (The President of the
NASUDECO is also the Vice-President of the PNB. AEEC
besought said official to pay the outstanding obligation of
PASUMIL, inasmuch as PNB and NASUDECO now owned
and possessed the assets of PASUMIL, and these defendants
all benefited from the works, and the electrical, as well as the
engineering and repairs, performed by AEEC). Because of
the failure and refusal of PNB, PASUMIL
and/or  NASUDECO to pay their obligations, AEEC allegedly
suffered actual damages in the total amount of P513,263.80;
and that in order to recover these sums, AEEC was compelled
to engage the professional services of counsel, to whom
AEEC agreed to pay a sum equivalent to 25% of the amount
of the obligation due by way of attorney's fees.PNB
and NASUDECO filed a joint motion to dismiss on the ground
that the complaint failed to state sufficient allegations to
establish a cause of action against PNB and NASUDECO,
inasmuch as there is lack or want of privity of
contract between the them and AEEC. Said motion was denied
by the trial court in its 27November order, and ordered PNB
and NASUDECO to file their answers within 15 days. After
due proceedings, the Trial Court rendered judgment in favor
of AEEC and against PNB, NASUDECO and PASUMIL; the
latter being ordered to pay jointly and severally the former (1)
the sum of P513,623.80 plus interest thereon at the rate of
14% per annum as claimed from 25 September 1980 until
fully paid; (2) the sum of P102,724.76 as attorney's fees; and,
(3) Costs. PNB and NASUDECO appealed. The Court
of Appeals affirmed the decision of the trial court in its
decision of 17 April 2000 (CA-GR CV 57610. PNB and
NASUDECO filed the petition for review
ISSUE: Whether PNB and NASUDECO may be held liable
for PASUMIL’s liability to AEEC.
HELD:
Basic is the rule that a corporation has a legal
personality distinct and separate from the persons and entities
owning it. The corporate veil may be lifted only if it has been
used to shield fraud, defend crime, justify a wrong, defeat
public convenience, insulate bad faith or perpetuate injustice.
Thus, the mere fact that the Philippine National Bank
(PNB)acquired ownership or management of some assets of
the Pampanga Sugar Mill (PASUMIL), which had earlier been
foreclosed and purchased at the resulting public auction by the
Development Bank of the Philippines (DBP), will not make
PNB liable for the PASUMIL's contractual debts to Andrada
Electric & Engineering Company (AEEC). Piercing the veil of
corporate fiction may be allowed only if the following
elements concur: (1) control ² not mere stock control, but
complete domination² not only of finances, but of policy and
business practice in respect to the transaction attacked, must
have been such that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its own;
(2) such control must have been used by the defendant to
commit a fraud or a wrong to perpetuate the violation of a
statutory or other positive legal duty, or a dishonest and an
unjust act in contravention of plaintiff's legal right; and (3) the
said control and breach of duty must have proximately caused
the injury or unjust loss complained of. The absence of the
foregoing elements in the present case precludes the piercing
of the corporate veil. First, other than the fact that PNB and
NASUDECO acquired the assets of PASUMIL, there is no
showing that their control over it warrants the disregard of
corporate personalities. Second, there is no evidence that their
juridical personality was used to commit a fraud or to do a
wrong; or that the separate corporate entity was farcically used
as a mere alter ego, business conduit or instrumentality of
another entityor person. Third, AEEC was not defrauded
or injured when PNB and NASUDECO acquired the assets of
PASUMIL. Hence, although the assets of NASUDECO can be
easily traced to PASUMIL, the transfer of the 15latter's assets
to PNB and NASUDECO was not fraudulently entered into in
order to escape liability for its debt to AEEC. Neither was
there any merger or consolidation with respect to PASUMIL
and PNB. The procedure prescribed under Title IX of
the Corporation Code 59 was not followed. In fact,
PASUMIL's corporate existence had not been legally
extinguished or terminated. Further, prior to PNB's acquisition
of the foreclosed assets, PASUMIL had previously made
partial payments to AEEC for the former's obligation in the
amount of P777,263.80. As of 27 June1973, PASUMIL had
paid P250,000 to AEEC and, from 5 January1974 to 23 May
1974, another P14,000. Neither did PNB expressly or
impliedly agree to assume the debt of PASUMIL to AEEC.
LOI 11 explicitly provides that PNB shall study and
submit recommendations on the claims of PASUMIL's
creditors. Clearly, the corporate separateness between
PASUMIL and PNB remains despite AEEC's insistence to the
contrary.
SITUS / NATIONALITY OF CORPORATION
SEC En Banc Case No. 09-09-177
For: Review of CED Ruling
Redmont Consolidated Mines Corporation vs. McArthur
Mining Inc., Tesoro Mining and Development, Inc., Narra
Nickel Mining and Development Inc., Sara Marie Mining
Inc., Patricia Louise Mining and Development
Corporation, Madridejos Mining Corporation, Bethlehem
Nickel Corporation, San Juanico Nickel Corpoatration
and MBMI Resources, Inc.
Facts:
Redmont is a domestic corporation engaged in the
mining business with a SEC Registration No. Respondent
corporations are likewise corporations incorporated in the
Philippines to engage in mining with their respective SEC
Registration Nos. MBMI is a Canadian mining company
focused on the exploration and development of nickel mineral
properties in the Philippines.
Redmont filed a Complaint for Revocation before the CED,
praying that the certificates for registration of respondent
corporations be revoked on the ground that they violated the
constitutional and statutory restriction on the foreign
ownership of corporations engaged in the exploitation,
development and utilization of natural resources. According to
Redmont:: (1) MBMI actually funded 99.78864%, 99.78571%
and 99.80039% of the paid up capital of Madridejos, Patricia
Louise, Sara Marie and an Juanico, respectively; (2) MBMI
actually funded 69.35204%, 69.35204%, and 69.41678% of
the paid up capital of McArthur, Tesoro and Bethlehem,
respectively; in both cases, way above the maximum cap for
foreign ownership of 40% as shown by the corporations’
respective Articles of Incorporation. Further, respondent
corporations employed fraudulent schemes of cascading or
company layering, hiding its actual direct ownership of stocks
through a first layer corporation. Redmont arrived at such
figures using the Grandfather Rule, which it argued must be
observed in determining the nationality of a corporation
instead of the Control Test.
The Compliance and Enforcement Department
(CED) of SEC issued a Letter-Resolution disposing of the
Redmont’s Complaint for revocation of certificates of
registration against respondents, finding McArthur, Tesoro,
Sara Marie, Madridejos, and Bethlehem to have not yet started
their commercial operations, while Narra and Patricia Louise
were directed to cease from small-scale mining activity unless
they amend their Articles of Incorporation and pay the
penalties to SEC pursuant to the violations recorded. It also
held that respondent corporations were in fact Philippine
nationals, as defined under Section 3 of the Foreign
Investments Act of 1991 (R.A. 7042 as amended by R.A.
8179), except for MBMI which is registered in Canada.
Issues: (1) As to McArthur, Tesoro and Narra: Whether or
not appellee-corporations are Philippine nationals qualified to
engage in mining.
(2) As to Madridejos, Patricia Louise, Sara Marie,
San Juanico and Bethlehem: Which between the Grandfather
Rule and the Control Test should be used in the case at bar to
determine the said corporations’ nationalities?
Held: (1) In deference to the CA (where Redmont currently
has an appeal pending therein regarding the same matter,
originating from the POA and MAB of the DENR which both
declared the corporations to be Filipino nationals) the ruling of
the CED that McArthur, Tesoro and Narra are Philippine
nationals, are set aside and thus the complaint for revocation
against said corporations is dismissed.
(2) Under DOJ Opinion No. 020, Series of 2005,
which adopted the 1967 SEC Rules, the requirement of the
Constitution and other laws that the controlling interests in
enterprises engaged in the exploitation of natural resources
shall be owned by Filipino citizens is implemented. It is
provided therein that there are two cases in determining the
nationality of the Investee Corporation. The first case is the
“liberal rule,” later coined by the SEC as the Control Test,
and pertains to “the shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine
nationality. Under the liberal Control Test, there is no need to
further trace the ownership of the 60% or more Filipino
stockholdings of the Investing Corporation since a corporation
which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the
Grandfather Rule Proper and pertains to the portion referred
to in the SEC Rules as the percentage of Filipino ownership in
the corporation or partnership which is less than 60%, only the
number of shares corresponding to such percentage shall be
counted as of Philippine nationality. Thus, the combined totals
in the Investing Corporation and the Investee Corporation
must be traced to determine the total percentage of Filipino
ownership. Thus, based on the said SEC Rule and DOJ
Opinion, applies only when the 60-40 Filipino-foreign equity
ownership is in doubt.
Such doubt exists in this case because the foreign
investor, MBMI, provided practically all the funds of the
remaining appellee-corporations. The legal fiction under the
Control Test that the 60% investment o the investing
corporation is deemed Filipino actually favors foreigners
because their indirect interest in the investee corporation
through their ownership of 40% in the investing corporation is
unduly ignored. On the other hand, if we apply the
Grandfather Rule, the foreigners would be barred from
participating in such nationalized area of investment, their
actual and true participation having been established. Hence,
the Grandfather Rule must be applied to accurately determine
the actual participation, both direct and indirect, of foreigners
in a corporation engaged in a nationalized activity or business.
Lastly, it was the intent of the framers of the 1987
Constitution to adopt the Grandfather Rule as may be gleaned
from in the discussions on Article XII.
The case is thus remanded to the CED for further
proceedings and the CRMD is directed to assist the CED. The
CED Letter-Resolution is thus set aside.
*Note:
CONTROL TEST:
60% (Filipino equity in Corp. A) x 60% (Corp. A’s
equity in Corp. C) = 36% Filipino
__________________________________________
100
40% (Filipino equity in Corp. A) x 60% (Corp. A’s
equity in Corp. C) = 24% Filipino
__________________________________________
 100
24% foreign + 40% (direct foreign investment in
Corp. C) = 64% total foreign investment
CERTIFICATES OF STOCK
SAN MIGUEL CORPORATION VS. SANDIGANBAYAN
G.R. Nos. 104637-38
 September 14, 2000
Facts:
San Miguel Corporation involved the sale by the 14
CIIF Companies, through the United Coconut Planters Bank
(UCPB), of 33,133,266 SMC shares, to the SMC. Before the
perfection of the sale, however, the said shares were
sequestered. Thus, the SMC group suspended payment of the
purchase price of the shares, while the UCPB group rescinded
the sale. Later, the SMC and UCPB groups entered into
a Compromise Agreement and Amicable Settlement, whereby
they undertook to continue with the sale of the subject shares
of stock. They likewise agreed to pay an "arbitration fee" of
5,500,000 SMC shares composed of 3,858,831 “A” shares and
1,641,169 “B” shares to the PCGG to be held in trust for the
Comprehensive Agrarian Reform Program. The Republic and
COCOFED opposed the said agreement contending that the
involved coco-levy funds, whether in the form of earnings or
dividends therefrom, or in the form of the value of liquidated
corporate assets represented by all sequestered shares (like the
value of assets sold/mortgaged to finance the P500M first
installment), or in the form of cash, or, as in the case of
subject "Settlement," in the form of "proceeds" of sale or of
"payments" of certain alleged obligations are public funds. As
public funds, the coco-levy funds, in any form or
transformation, are beyond or "outside the commerce," and
perforce not within the private disposition of private
individuals.
Nevertheless, the parties moved for the approval of
this agreement by the Sandiganbayan where the case was then
pending.  Later, UCPB and the SMC groups implemented
their agreement extra-judicially, withdrawing, at the same
time, their petition for the approval of their aforementioned
compromise agreement. Thereafter, the Sandiganbayan issued
an Order dated August 5, 1991, directing the SMC to deliver
to the graft court the sequestered SMC shares that it bought
from UCPB. This was followed by another Order dated March
18, 1992, for the delivery to the court of dividends pertaining
to the subject SMC shares. It was these two delivery Orders
that were submitted for the consideration of the SC.
SMC contends that the questioned orders would
deprive SMC of property already paid for. They unduly
protect the claimants of sequestered companies, at the expense
of SMC. The fact of sequestration, by itself, does not mean
that the possessor of the sequestered assets must be
dispossessed thereof at all costs. In the present case, there are
weighty reasons why the treasury shares and any "dividends"
thereon should remain with SMC. The purported issue of
ownership does not justify the dispossession of SMC of these
shares.
According to private respondent COCOFED, the
transformation of the SMC shares into treasury shares is but
part and parcel of the compromise agreement which has not
yet been approved. Thus, it is premature for the SMC Group to
treat these shares as such and to refuse to turn over the same as
well as the accrued dividends thereon to the PCGG, as ordered
by the Sandiganbayan. Moreover, the transformation is
extremely disadvantageous to the CIIF Companies. Further,
the CIIF Companies, being the disputed owners of the SMC
shares, are entitled to have the dividends on the SMC shares
applied to its indebtedness to UCPB. On the other hand, until
the question of which entity is entitled thereto is settled, the
SMC shares corresponding to the P500 million first
installment and the dividends thereon should be turned over to
the PCGG.
Issue: Whether or not the certificates of stock of SMC
shares and the dividends thereon should be delivered to the
PCGG.
Held:
First. The cases at bar do not merely involve
a compromise agreement dealing with private interest. The
Compromise Agreement here involves sequestered shares of
stock now worth more than nine (9) billions of pesos, per
estimate given by COCOFED. Their ownership is still under
litigation. It is not yet known whether the shares are part of the
alleged ill-gotten wealth of former President Marcos and his
"cronies." Any Compromise Agreement concerning these
sequestered shares falls within the unquestionable jurisdiction
of and has to be approved by the Sandiganbayan. The parties
themselves recognized this jurisdiction. In the Compromise
Agreement itself, the petitioners and the UCPB Group
expressly acknowledged the need to obtain the approval by the
Sandiganbayan of its terms and conditions. The PCGG
Resolution of June 15, 1990 also imposed the approval of the
Sandiganbayan as a condition sine qua non for the transfer of
these sequestered shares of stock. Thus, the petitioners
voluntarily submitted to the jurisdiction of the Sandiganbayan
by asking for the approval of the said Compromise
Agreement.
Second. Given its undisputed jurisdiction, the
Sandiganbayan ordered that the treasury shares should be
delivered to PCGG and that their dividends should be
paid pending determination of their real ownership which is
the key to the question whether they are part of the alleged ill-
gotten wealth of former President Marcos and his "cronies."
In the exercise of its discretion, the Sandiganbayan can require
a party-litigant to deliver a sequestered property to the PCGG.
The order of the Sandiganbayan regarding the subject treasury
shares is merely preservative in nature - for the purpose of
preventing the destruction, concealment or dissipation of, and
otherwise conserving and preserving the same. the
Sandiganbayan cautioned that "the PCGG, the UCPB and the
SMC Group shall always act with due regard to the
sequestered character of the shares of stock involved as well
as the fruits thereof, more particularly to prevent the loss or
dissipation of their value.
The Sandiganbayan observed that the conversion of
the SMC shares to treasury shares will result in a change in the
status of the sequestered shares in that: (1) When the SMC
converts these common shares to treasury stock, it is
converting those outstanding shares into the corporation's
property for which reasontreasury shares do not earn
dividends; (2) The retained dividends which would have
accrued to those shares if converted to treasury would go into
the corporation and enhance the corporation as a whole. The
enhancement to the specific sequestered shares, however,
would be only to the extent aliquot in relation to all the other
outstanding SMC shares; (3) By converting the 26.45 million
shares of stock into treasury shares, the SMC has altered not
only the voting power of those shares of stock since treasury
shares do not vote, but the SMC will have actually enhanced
the voting strength of the other outstanding shares of stock to
the extent that these 26.45 million shares no longer vote.
As to the payment to the PCGG of an arbitration
fee in the form of 5,500,000 of SMC shares is denounced as
illegal, shocking and unconscionable. COCOFED, et al. have
assailed the legal right of PCGG to act as arbiter as well as the
fairness of its acts as arbiter. COCOFED, et al. estimate that
the value of the SMC shares given to PCGG as arbitration fee
which allegedly is not deserved, can run
toP1,966,635,000.00. This is a serious allegation and the
Sandiganbayan cannot be charged with grave abuse of
discretion when it ordered that SMC should
be temporarily dispossessed of the subject treasury shares and
that SMC should pay their dividends while the Compromise
Agreement involving them is still under question.
PAID-UP CAPITAL
MSCI VS. NATIONAL WAGE AND PRODUCTIVITY
COMMISSION
G.R. No. 125198
Facts:
Monomer Sugar Central Inc. (MSCI) was created by
the merger of Asturias Sugar Central,Inc. (ASCI) and tries,
Inc. (MTII). MSCI applied for exemption from the coverage
of Wage Order No. RO VI-01 issued by the Board on the
ground that it is a distressed employer. However, the
Petitioners, local union of MSCI, contested the application
saying that the documents submitted by the company does not
reflect its true and valid financial status and that the paid-up
capital would have been higher than P5 million and thus
impairment would have been lower than 25% had the pre-
organization agreement between ASCI and MTII been
complied with. Petitioners argue that the paid-up capital
should be P64M rather than P5M thus making it impossible
for the corporation to apply for a distressed employer because
at P64M, the loss would only be at 5.25% which does not
reach the required 25% loss.
Issue: Whether or not the paid up capital is P64M or P5M.
Held:
Since the paid-up capital is the portion of the capital
which has been subscribed and paid, the assets transferred to
and the loans extended to a corporation should not be
considered in computing the paid-up capital of
the corporation. Not all funds or assets received by the
corporation can be considered as paid-up capital for this term
has a technical signification in Corporation Law. Such must
form part of the authorized capital of the corporation,
subscribed and then actually paid-up. The same test should
also be applied in determining if the paid-up capital of the
Corporation has been impaired so as to qualify it for the
exemption from the increase in the minimum wages. The paid-
up capital stock of MSCI for the period covered by the
application for exemption still stood at P5M. The impairment
it has incurred reached 271.08% which is beyond the 25%
requirement to be an applicant.
QUORUM
TAN VS. SYCIP
G.R. No. 153468
August 17, 2006
Facts:
Grace Christian High School (GCHS) is a non-stock
non-profit educational corporation with 15 regular members,
who also constitute the board of trustees. During the annual
members’ meeting, there were only 11 living member-trustees
as 4 had already died. 7 attended the meeting through their
respective proxies. The meeting was convened and chaired by
Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C.
Pacis who argued that there was no quorum. In the meeting,
Petitioners Ernesto Tanchi, Edwin Ngo, Virgin Khoo, and
Judith Tan were voted to replace the 4 deceased member-
trustees. According to the SEC, the meeting was void due to
lack of quorum based on the AIC, also applying Section 24
and Section 89 of the Corporation Code. When it reached the
CA, the latter dismissed the case due to technicalities.
Issue: Whether or not the dead members should still be
counted in the quorum.
Held:
Based on the By-Laws of the corporation, the
remaining members of the board of trustees of the GCHS may
convene and fill up the vacancies in the board. Except as
provided, the vote necessary to approve a particular corporate
act as provided in this Code shall be deemed to refer only to
stocks with voting rights: (1) Amendment of the articles of
incorporation; (2) Adoption and amendment of by-laws; (3)
Sale, lease, exchange, mortgage, pledge or other disposition of
all or substantially all of the corporation property; (4)
Incurring, creating or increasing bonded indebtedness; (5)
Increase or decrease of capital stock; (6) Merger or
consolidation of the corporation with another corporation or
other corporations; (7) Investment of corporate funds in
another corporation or business in accordance with this Code;
and (8) Dissolution of the corporation. A quorum in a
members’ meeting is to be reckoned as the actual number of
members of the corporation.
In stock corporations, the shareholders may generally
transfer their shares on the death of a shareholder, the executor
or administrator duly appointed by the Court is vested with the
legal title to the stock and entitled to vote it. Until a settlement
and division of the estate is effected, the stocks of the
decedent are held by the administrator or executor. As to non-
stock corporations, the same is personal and non-
transferable unless the articles of incorporation or the bylaws
of the corporation provide otherwise.
Under Section 91 of the Corporation Code,
termination extinguishes all the rights of a member of the
corporation, unless otherwise provided in the articles of
incorporation or the bylaws. Whether or not "dead members"
are entitled to exercise their voting rights (through their
executor or administrator), depends on those articles of
incorporation or bylaws. Under the By-Laws of GCHS,
membership in the corporation shall be terminated by the
death of the member. Hence, with 11 remaining members, the
quorum is 6.  was then submitted to the SEC. The latter however, returned
Under Section 29, vacancies in the office of the
director or trustee is to be filled by a majority vote of the
remaining directors or trustees if still constituting a quorum.
Otherwise, said vacancies must be filled by the stockholders in
a regular or special meeting called for that purpose. A director
or trustee so elected to fill a vacancy shall be elected only for
the unexpired term of his predecessor in office.
The filling of vacancies in the board by the remaining
directors or trustees constituting a quorum is merely
permissive, not mandatory; either by the remaining directors
constituting a quorum, or by the stockholders or members in a
regular or special meeting called for the purpose. The By-
Laws of GCHS prescribed the specific mode of filling up
existing vacancies in its board of directors; that is, by a
majority vote of the remaining members of the board. The said
remaining member-trustees must sit as a board (as a body in a
lawful meeting) in order to validly elect the new ones.
TERM OF EXISTENCE
ALHAMBRA CIGAR VS. SEC
G.R. No. L-23606
July 29, 1968
Facts:
Petitioner Alhambra Cigar and Cigarette
Manufacturing Company, Inc. was duly incorporated under
Philippine laws on January 15, 1912. By its corporate articles
it was to exist for 50 years from incorporation. When it
expired, it ceased transacting business and entered into a state
of liquidation. Thereafter, a new corporation, Alhambra
Industries, Inc., was formed to carry on the business of
Alhambra. Alhambra’s stockholders, by resolution, named
Angel S. Gamboa trustee to take charge of its liquidation. On
June 20, 1963, within Alhambra’s three-year statutory period
for liquidation, Republic Act 3531 was enacted into law. It
amended Section 18 of the Corporation Law by empowering
domestic private corporations to extend their corporate life
beyond the period fixed by the articles of incorporation for a
term not to exceed fifty years in any one instance. Previous to
Republic Act 3531, the maximum non-extendible term of such
corporations was fifty years.
At a special meeting, Alhambra’s board of directors
resolved to amend paragraph “Fourth” of its articles of
incorporation to extend its corporate life for an additional fifty
years, or a total of 100 years from its incorporation.
Alhambra’s stockholders, representing more than two-thirds of
its subscribed capital stock, voted to approve the foregoing
resolution. Alhambra’s articles of incorporation, as amended,
said amended articles of incorporation to Alhambra’s counsel
with the ruling that Republic Act 3531 “which took effect only
on June 20, 1963, cannot be availed of by the said corporation,
for the reason that its term of existence had already expired
when the said law took effect in short, said law has no
retroactive effect.”
Issue: May a corporation extend its life by amendment of its
articles of incorporation effected during the three-year
statutory period for liquidation when its original term of
existence had already expired?
Held:
When Alhambra made its attempt to extend its
corporate existence, its original term of fifty years had already
expired and it was in the midst of the three-year grace period
statutorily fixed in Section 77 of the Corporation Law. Plain
from the language of the provision is its meaning: continuance
of a “dissolved” corporation as a body corporate for three
years has for its purpose the final closure of its affairs, and no
other; the corporation is specifically enjoined from
“continuing the business for which it was established”. The
liquidation of the corporation’s affairs set forth in said section
became because its life had ended. For this reason alone, the
corporate existence and juridical personality of that
corporation to do business may no longer be extended.
Since the privilege of extension is purely statutory,
all of the statutory conditions precedent must be complied
with in order that the extension may be effectuated during the
life of the corporation, and before the expiration of the term of
existence as original fixed by its charter or the general law,
since, as a rule, the corporation is ipso facto dissolved as soon
as that time expires. The filing and recording of a certificate of
extension after that time cannot relate back to the date of the
passage of the stockholders’ resolution. The contrary is true,
however, and the doctrine of relation will apply, where the
delay is due to the neglect of the officer with whom the
certificate is required to be filed, or to a wrongful refusal to
receive it.
A distinction is to be made between the extension of
a charter and the grant of a new one. To renew a charter is to
revive a charter which has expired, or, in other words, “to give
a new existence to one which has been forfeited, or which has
lost its vitality by lapse of time”. To “extend” a charter is “to
increase the time for the existence of one which would
otherwise reach its limit at an earlier period”. Nowhere in
Section 18 is the word “renew.” The law limits itself to
extension of corporate existence.
BY LAWS
FLEISCHER VS. BOTICA NOLASCO
Facts:
The plaintiff filed an amended complaint against the
Botica Nolasco, Inc., alleging that he became the owner of
five shares of stock of said corporation, by purchase from their
original owner, one Manuel Gonzalez; that the said shares
were fully paid; and that the defendant refused to register said
shares in his name in the books of the corporation in spite of
repeated demands to that effect made by him upon said
corporation, which refusal caused him damages amounting to
P500. Plaintiff prayed for a judgment ordering the Botica
Nolasco, Inc. to register in his name in the books of the
corporation the five shares of stock recorded in said books in
the name of Manuel Gonzalez, and to indemnify him in the
sum of P500 as damages, and to pay the costs. The defendant
again filed a demurrer on the ground that the amended
complaint did not state facts sufficient to constitute a cause of
action, and that said amended complaint was ambiguous,
unintelligible, uncertain, which demurrer was overruled by the
court.
The defendant answered the amended complaint
denying generally and specifically each and every one of the
material allegations thereof, and, as a special defense, alleged
that the defendant, pursuant to article 12 of its by-laws, had
preferential right to buy from the plaintiff said shares at the
par value of P100 a share, plus P90 as dividends
corresponding to the year 1922, and that said offer was refused
by the plaintiff. The defendant prayed for a judgment
absolving it from all liability under the complaint and
directing the plaintiff to deliver to the defendant the five
shares of stock in question, and to pay damages in the sum of
P500, and the costs.
Upon the issue presented by the pleadings above
stated, the cause was brought on for trial, at the conclusion of
which, and on August 21, 1924, the Honorable N. Capistrano,
judge, held that, in his opinion, article 12 of the by-laws of the
corporation which gives it preferential right to buy its shares
from retiring stockholders, is in conflict with Act No. 1459
(Corporation Law), especially with section 35 thereof; and
rendered a judgment ordering the defendant corporation,
through its board of directors, to register in the books of said
corporation the said five shares of stock in the name of the
plaintiff, Henry Fleischer, as the shareholder or owner thereof,
instead of the original owner, Manuel Gonzalez, with costs
against the defendant.
Issue:
Whether or not article 12 of the by-laws of the corporation is
in conflict with the provisions of the Corporation Law (Act
No. 1459)
Held:
As a general rule, the by-laws of a corporation are
valid if they are reasonable and calculated to carry into effect
the objects of the corporation, and are not contradictory to the
general policy of the laws of the land. (Supreme Commandery
of the Knights of the Golden Rule vs. Ainsworth, 71 Ala., 436;
46 Am. Rep., 332.)
On the other hand, it is equally well settled that by-
laws of a corporation must be reasonable and for a corporate
purpose, and always within the charter limits. They must
always be strictly subordinate to the constitution and the
general laws of the land. They must not infringe the policy of
the state, nor be hostile to public welfare. (46 Am. Rep., 332.)
They must not disturb vested rights or impair the obligation of
a contract, take away or abridge the substantial rights of
stockholder or member, affect rights of property or create
obligations unknown to the law. (People's Home Savings
Bank vs. Superior Court, 104 Cal., 649; 43 Am. St. Rep., 147;
Ireland vs. Globe Milling Co., 79 Am. St. Rep., 769.)
The validity of the by-law of a corporation is purely a
question of law. (South Florida Railroad Co. vs. Rhodes, 25
Fla., 40.)
The power to enact by-laws restraining the sale and
transfer of stock must be found in the governing statute or the
charter. Restrictions upon the traffic in stock must have their
source in legislative enactment, as the corporation itself cannot
create such impediments. By-law are intended merely for the
protection of the corporation, and prescribe regulation and not
restriction; they are always subject to the charter of the
corporation. The corporation, in the absence of such a power,
cannot ordinarily inquire into or pass upon the legality of the
transaction by which its stock passes from one person to
another, nor can it question the consideration upon which a
sale is based. A by-law cannot take away or abridge the
substantial rights of stockholder. Under a statute authorizing
by- laws for the transfer of stock, a corporation can do no
more than prescribe a general mode of transfer on the
corporate books and cannot justify an unreasonable restriction
upon the right of sale. (4 Thompson on Corporations, sec.
4137, p. 674.
The right of unrestrained transfer of shares inheres in
the very nature of a corporation, and courts will carefully
scrutinize any attempt to impose restrictions or limitations
upon the right of stockholders to sell and assign their
stock. The right to impose any restraint in this respect must be
conferred upon the corporation either by the governing statute
or by the articles of the corporation. It cannot be done by a by-
law without statutory or charter authority.
PREFFERED AND COMMON STOCKS
PHILIPPINE COCONUT PRODUCERS FEDERATION,
INC. (COCOFED),et. al. vs. RP
G.R. Nos. 177857-58
September 17, 2009
Facts:
COCOFED seeks the Court’s approval of the
conversion of 753,848,312 Class “A” and Class “B” common
shares of San Miguel Corporation (SMC) registered in the
names of Coconut Industry Investment Fund and the so-called
“14 Holding Companies” into 753,848,312 SMC Series 1
Preferred Shares.
COCOFED proposes to constitute a trust fund to be
known as the “Coconut Industry Trust Fund (CITF) for the
Benefit of the Coconut Farmers,” with respondent Republic,
acting through the Philippine Coconut Authority (PCA), as
trustee. As proposed, the constitution of the CITF shall be
subject to terms and conditions which, for the most part,
reiterate the features of SMC’s conversion offer, albeit
specific reference is made to the shares of the 14 CIIF
companies.
Republic of the Philippines filed its Comment
questioning COCOFED’s personality to seek the Court’s
approval of the desired conversion. Respondent Republic also
disputes COCOFED’s right to impose and prescribe terms and
conditions on the proposed conversion, maintaining that the
CIIF SMC common shares are sequestered assets and are in
ustodial egis under Presidential Commission on Good
Government’s (PCGG’s) administration. It postulates that,
owing to the sequestrated status of the said common shares,
only PCGG has the authority to approve the proposed
conversion and seek the necessary Court approval.
Jovito R. Salonga and four others sought leave to
intervene asserting that the government bears the burden of
showing that the conversion is indubitably advantageous to the
public interest or will result in clear and material benefit.
Failure of the government to carry the burden means that the
current status of the sequestered stocks should be maintained
pending final disposition of G.R. Nos. 177857-58. They
further postulate that “even assuming that the proposal to
convert the SMC shares is beneficial to the government, it
cannot pursue the exchange offer because it is without power
to exercise acts of strict dominion over the sequestered shares.
Lastly, they argue that “the proposed conversion x x x is not
only not advantageous to the public interest but is in fact
positively disadvantageous.

Respondent Republic filed a Supplemental Comment
in which it cited the Partial Summary Judgment rendered by
the Sandiganbayan on May 27, 2004 in Civil Case No. 33-F,
declaring the Republic as owner, in trust for the coconut
farmers, of the subject CIIF SMC shares (27%). The same
comment also referred to Resolution No. 365-2009 passed on
August 28, 2009 by the United Coconut Planters Bank
(UCPB) Board of Directors expressing the sense that “the
proposed conversion of the CIIF SMC common shares to
SMC Series I preferred shares is financially beneficial.” By
way of relief, respondent Republic prayed that the PCGG be
allowed to proceed and effect the conversion.
Issue:
Whether or not PCGG, not COCOFED, was the
authorized party to seek the imprimatur on the conversion of
the Series 1 preferred shares
Held:
As records show, PCGG sequestered the 753,848,312
SMC common shares registered in the name of CIIF
companies on April 7, 1986. From that time on, these
sequestered shares became subject to the management,
supervision, and control of PCGG, pursuant to Executive
Order No. (EO) 1, Series of 1986. Eventually, the coconut
levy funds that were used to acquire the sequestered CIIF
SMC common shares in question were peremptorily
determined to be prima facie public funds.
PCGG’s authority to vote the sequestered shares
acquired from the coconut levy is based on the principle that
voting is an act of dominion that should be exercised by the
share owner. One of the recognized rights of an owner is the
right to vote at meetings of the corporation. The right to vote
is classified as the right to control. Voting rights may be for
the purpose of, among others, electing or removing directors,
amending a charter, or making or amending by laws. Because
the subject UCPB shares were acquired with government
funds, the government becomes their prima facie beneficial
and true owner.
Ownership includes the right to enjoy, dispose of,
exclude and recover a thing without limitations other than
those established by law or by the owner. X x x And the right
to vote shares is a mere incident of ownership. In the present
case, the government has been shown to be the prima facie
owner of the funds used to purchase the shares. Hence, it
should be allowed the rights and privileges flowing from such
fact.
TRANSFER OF STOCKS
REYES VS. RTC OF MAKATI
561 SCRA 593 (2008)
Facts:
Oscar and Rodrigo C. Reyes are two of the four
children of the spouses Pedro and Anastacia Reyes. Pedro,
Anastacia, Oscar, and Rodrigo; each owned shares of stock of
Zenith Insurance Corporation. Zenith is a domestic
corporation established by their family. When Pedro and
Anastacia died, Pedro's estate was judicially partitioned
among his heirs but not with Anastacia's estate, which
included her shareholdings in Zenith.
Zenith and Rodrigo filed a complaint with the SEC
against Oscar, stating that it is "a derivative suit initiated and
filed by the complainant Rodrigo C. Reyes to obtain an
accounting of the funds and assets of Zenith” which are now
or formerly in the control, custody, and/or possession of Oscar
and to determine the shares of stock of deceased spouses
Pedro and Anastacia Reyes that were arbitrarily and
fraudulently appropriated by Oscar for himself and which
were not collated and taken into account in the partition,
distribution, and/or settlement of the estate of the deceased
spouses, for which he should be ordered to account for all the
income from the time he took these shares of stock, and
should now deliver to his brothers and sisters their just and
respective shares.
Oscar denied the charge and asserted, as a defense
asserted that he purchased the subject shares with his own
funds from the unissued stocks of Zenith. He claimed that the
complaint is a mere nuisance or harassment suit and should,
according to the Interim Rules of Procedure for Intra-
Corporate Controversies, be dismissed; and that it is not
a bona fide derivative suit as it partakes of the nature of a
petition for the settlement of estate of the deceased Anastacia
that is outside the jurisdiction of a special commercial court.
The trial court ruled that it is not a derivative suit and should
properly be threshed out in a petition for settlement of estate.
This was affirmed by the Court of Appeals.
Issues: Whether or not there exists herein an intra-corporate
controversy.
Held:
Initially, the main consideration in determining
whether a dispute constitutes an intra-corporate controversy
was limited to a consideration of the intra-corporate
relationship existing between or among the parties. The types
of relationships embraced under Section 5(b), were as follows:
(a) between the corporation, partnership, or
association and the public;
 (b) between the corporation, partnership, or
association and its stockholders, partners, members, or
officers;
(c) between the corporation, partnership, or
association and the State as far as its franchise, permit or
license to operate is concerned; and
(d) among the stockholders, partners, or associates
themselves. The existence of any of the above intra-corporate
relations was sufficient to confer jurisdiction to the SEC,
regardless of the subject matter of the dispute.
This came to be known as the relationship test.
However, in the 1984 case of DMRC Enterprises v.
Esta del Sol Mountain Reserve, Inc., the Court introduced
the nature of the controversy test. The Court declared in this
case that it is not the mere existence of an intra-corporate
relationship that gives rise to an intra-corporate controversy;
to rely on the relationship test alone will divest the regular
courts of their jurisdiction for the sole reason that the dispute
involves a corporation, its directors, officers, or stockholders.
Under the nature of the controversy test, the incidents of that
relationship must also be considered for the purpose of
ascertaining whether the controversy itself is intra-
corporate. The controversy must not only be rooted in the
existence of an intra-corporate relationship, but must as well
pertain to the enforcement of the parties' correlative rights and
obligations under the Corporation Code and the internal and
intra-corporate regulatory rules of the corporation. If the
relationship and its incidents are merely incidental to the
controversy or if there will still be conflict even if the
relationship does not exist, then no intra-corporate controversy
exists.
The Court then combined the two tests and declared
that jurisdiction should be determined by considering not only
the status or relationship of the parties, but also the nature of
the question under controversy. Thus under the relationship
test, the transfer of title by means of succession, though
effective and valid between the parties involved (i.e. between
the decedent’s estate and her heirs) does not bind the
corporation and third parties. The transfer must be registered
in the books of the corporation to make the transferee-heir a
stockholder entitled recognition as such both by the
corporation and by third parties. Therefore, each of the
decedent’s heirs holds only an undivided interest in the shares.
This interest is still inchoate and subject to the outcome of a
settlement proceeding; the right of the heirs to specific,
distributive shares of inheritance will not will not be
determined until all the debts of the estate of the decedent are
paid. Insofar as the subject shares of stock are concerned—the
heir of the deceased stockholder cannot be considered a
stockholder of the corporation. Applying the nature of the
controversy test, an accounting of funds and assets of the
corporation to determine the extent and value of the
decedent’s shareholdings will be undertaken by the probate
court and not by a special commercial court is consistent with
the probate court’s limited jurisdiction. Hence, the case is not
considered intra-corporate controversy even if the dispute is
among stockholders if the issue is determination and
distribution of successional rights to the shareholdings of a
deceased shareholder.
TCL SALES CORP. VS. COURT OF APPEALS
G.R. No. 129777
January 5, 2001
Facts:
Ting Ping Lay, not one of the original subscribers of
the shares of stock of TCL Sales Corporation, acquired his
shares by purchasing those of some of the original
subscribers.  In order to protect his shareholdings with TCL,
Lay requested Anna Teng, TCL Corporate Secretary to enter
the transfer of shares of stock for proper recording of his
acquisitions in the Stock & Transfer Book of TCL.  He too
demanded issuance of new certificates of stock in his favor.
TCL, however, even after repeated demands, refused.  Lay
filed a case with the SEC for mandamus against TCL and
Teng.  This was in turn granted by the SEC denying a later
MR as well.  The CA dismissed TCL’s petition as well for
being filed out of time.
Issues:
(1 )Whether or not SEC has jurisdiction over the
petition for mandamus filed by Lay.
(2) Whether or not the alleged transfer of shares in
favor of Lay are valid and can be ordered recorded.
Held:
(1) The principal function of SEC is supervision and
control of corps, partnerships, associations with the view of
protecting and encouraging investments for the protection of
economic development.  SEC has power of control &
supervision over all corps to encourage active public
participation in the affairs of private corps through
investments. Jurisdiction over an action for mandamus lies
with the SEC even if the proponent is not yet a shareholder of
record, as in the case of Abejo v. de la Cruz.  SEC by express
mandate has absolute jurisdiction to enforce the provisions of
the Corp Code among which is the stock purchaser’s right to
secure the corresponding certificate of stock in his name.
 (2) Even if Lay were not a Share Holder, he is still a
member of the public whose investment in the corporate the
law seeks to protect and encourage, as his purchase of shares
of stock has been established. Determination of whether or not
a Share Holder is entitled to exercise the rights of a Share
Holder is within jurisdiction of the SEC.  The SEC en banc
found that TCL did not refute the validity of the transfers of
the shares of stock – they conceded that they could not assail
the documents evincing the transfer of the shares to Lay.  Lay
was able to establish prima facie ownership through the deeds
of transfer of shares of stock of TCL.  A listing of TCL’s
Share Holders & their respective shares before & after the
execution of a certain deed of assignment shows that Lay is
indeed listed as a Share Holder of TCL.
The dispute is an intra-corp controversy involving
Share Holders of TCL. The duty of the corporate secretary to
record transfers of stocks is ministerial.  It however, cannot be
compelled when the transferee’s title has no prima facie
validity or is uncertain.  Mandamus will not issue to establish
a right but only to enforce one already established. Although
during the trial before the SEC, TCL admitted that they
ignored Lay’s request was based simply on the fact that they
did not want to grant it.  Having been capricious, whimsical &
unwarranted, it constitutes bad faith.  However, the SEC en
banc modified & deleted the said award for damages imposed
on the corp.  The matter of damages now concerns only Teng,
the corporate secretary.  It was Teng’s refusal as corp
secretary to record the transfer of the shares, without evidence
that such refusal was authorized by TCL’s Board of Directors
that caused damage
RURAL BANK OF LIPA CITY VS. COURT OF
APPEALS
GR No. 124535
September 28, 2001
Facts: Private respondent Reynaldo Villanueva, Sr., a
stockholder of the Rural Bank of Lipa City, executed a Deed
of Assignment, wherein he assigned his shares, as well as
those of eight (8) other shareholders under his control with a
total of 10,467 shares, in favor of the stockholders of the Bank
represented by its directors Bernardo Bautista, Jaime Custodio
and Octavio Katigbak. Sometime thereafter, Reynaldo
Villanueva, Sr. and his wife, Avelina, executed an Agreement
wherein they acknowledged their indebtedness to the Bank in
the amount of Four Million Pesos (P4,000,000.00), and
stipulated that said debt will be paid out of the proceeds of the
sale of their real property described in the Agreement. At a
meeting of the Board of Directors of the Bank on November
15, 1993, the Villanueva spouses assured the Board that their
debt would be paid on or before December 31 of that same
year; otherwise, the Bank would be entitled to liquidate their
shareholdings, including those under their control. In such an
event, should the proceeds of the sale of said shares fail to
satisfy in full the obligation, the unpaid balance shall be
secured by other collateral sufficient therefor. When the
Villanueva spouses failed to settle their obligation to the Bank
on the due date, the Board sent them a letter demanding: (1)
the surrender of all the stock certificates issued to them; and
(2) the delivery of sufficient collateral to secure the balance of
their debt amounting to P3,346,898.54. The Villanuevas
ignored the bank's demands, whereupon their shares of stock
were converted into Treasury Stocks. Later, the Villanuevas,
through their counsel, questioned the legality of the
conversion of their shares. On January 15, 1994, the
stockholders of the Bank met to elect the new directors and set
of officers for the year 1994. The Villanuevas were not
notified of said meeting. In a letter dated January 19, 1994,
Atty. Amado Ignacio, counsel for the Villanueva spouses,
questioned the legality of the said stockholders' meeting and
the validity of all the proceedings therein. In reply, the new set
of officers of the Bank informed Atty. Ignacio that the
Villanuevas were no longer entitled to notice of the said
meeting since they had relinquished their rights as
stockholders in favor of the Bank. Consequently, the
Villanueva spouses filed with the Securities and Exchange
Commission (SEC), a petition for annulment of the
stockholders' meeting and election of directors and officers on
January 15, 1994, with damages and prayer for preliminary
injunction.
Issue: Whether or not there is a valid transfer of shares of
stocks from private respondents to petitioners resulting to the
withdrawal of the rights of the former as a shareholder.
Held:
The Supreme Court have uniformly held that for a
valid transfer of stocks, there must be strict compliance with
the mode of transfer prescribed by law. The requirements are:
(a) There must be delivery of the stock certificate: (b) The
certificate must be endorsed by the owner or his attorney-in-
fact or other persons legally authorized to make the transfer;
and (c) To be valid against third parties, the transfer must be
recorded in the books of the corporation. As it is, compliance
with any of these requisites has not been clearly and
sufficiently shown. It may be argued that despite non-
compliance with the requisite endorsement and delivery, the
assignment was valid between the parties, meaning the private
respondents as assignors and the petitioners as assignees.
While the assignment may be valid and binding on the
petitioners and private respondents, it does not necessarily
make the transfer effective. Consequently, the petitioners, as
mere assignees, cannot enjoy the status of a stockholder,
cannot vote nor be voted for, and will not be entitled to
dividends, insofar as the assigned shares are concerned
Parenthetically, the private respondents cannot, as yet, be
deprived of their rights as stockholders, until and unless the
issue of ownership and transfer of the shares in question is
resolved with finality.

CORPORATION BY ESTOPPEL
LIM TONG LIM V. PHILIPPINE FISHING GEAR
INDUSTRIES, INC.
G.R. No. 136448
Facts:
On behalf of "Ocean Quest Fishing Corporation,"
Antonio Chua and Peter Yao entered into a Contract for the
purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (PFGI). They claimed that they
were engaged in a business venture with Lim Tong Lim, who
however was not a signatory to the agreement. The total price
of the nets amounted to P532,045. 400 pieces of floats worth
P68,000 were also sold to the Corporation. The buyers,
however, failed to pay for the fishing nets and the floats;
hence, PFGI filed a collection suit against Chua, Yao and Lim
Tong Lim with a prayer for a writ of preliminary attachment.
The suit was brought against the three in their capacities as
general partners, on the allegation that "Ocean Quest Fishing
Corporation" was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission.
The lower court issued a Writ of Preliminary Attachment,
which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries
Port, Navotas, Metro Manila. Lim Tong Lim, on the other
hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment. Lim argues,
among others, that under the doctrine of corporation by
estoppel, liability can be imputed only to Chua and Yao, and
not to him, the formers being those who dealt in the name of
the ostensible corporation.
Issue: Whether Lim should be held jointly liable with Chua
and Yao.
Held:
In the first instance, an unincorporated association,
which represented itself to be a corporation, will be estopped
from denying its corporate capacity in a suit against it by a
third person who relied in good faith on such representation. It
cannot allege lack of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of
which it received advantages and benefits. On the other hand,
a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and
received benefits from it, may be barred from denying its
corporate existence in a suit brought against the alleged
corporation. In such case, all those who benefited from the
transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of. Although
technically it is true that Lim did not directly act on behalf of
the corporation; however, having reaped the benefits of the
contract entered into by persons with whom he previously had
an existing relationship, he is deemed to be part of said
association and is covered by the scope of the doctrine of
corporation by estoppel.
CORPORATION SOLE
ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR
OF DAVAO VS. THE LRC
G.R. No. L-8451
Facts:
Mateo Rodis, a Filipino citizen and resident of
Davao, executed a deed of sale of a parcel of land located in
the same city in favour of the Roman Catholic Administrator
of Davao, a “corporation sole” organized and existing in
accordance with Philippine laws whose incumbent
administrator is Msgr. Clovis Thibault, a Canadian citizen.
When the deed was presented to the Register of Deeds for
registration, it required them to submit an affidavit stating that
the ownership of the corporation is 60% Filipino citizens as
required under the Constitution. The Roman Catholic stated
that it was a corporation sole and that the totality of the
Catholic population in Davao would become the owner of the
property. The Register of Deeds doubted this and submitted
the case of en consulta in the Land Registration Commission.
The LRC ruled that the requirement of the Constitution must
be followed. Hence, since the 60% cannot be complied with,
the registration should be denied.
Issue: Whether or not the Roman Catholic Apostolic
Church, being a corporation sole, can lawfully acquire lands in
the Philippines.
Held:  
A corporation sole is a special form of corporation
usually associated with the clergy designed to facilitate the
exercise of the functions of ownership of the church which
was registered as property owner. It is created not only to
administer the temporalities of the church or religious society
where the corporator belongs, but also to hold and transmit the
same to his successor in said officer.
The incumbent administrator is not the actual owner
of the land but the constituents or those that make up the
church, thus it is their nationality that has to be taken into
consideration. The corporation sole only holds the property in
trust for the benefit of the Roman Catholic faithful.
 The Roman Catholic Church is a corporation by
prescription, with acknowledged juridical personality
inasmuch as it is an institution which antedated almost a
thousand years any other personality in Europe. Since it is a
corporation by prescription, it has no nationality, and hence,
the nationality test does not apply.
CORPORATE ACTS
GOKONGWEI VS. SECURITIES AND EXCHANGE
COMMISSION
GR L-45911
11 April 1979
Facts:
[SEC Case 1375] On 22 October 1976, John
Gokongwei Jr., as stockholder of San Miguel Corporation,
filed with the Securities and Exchange Commission (SEC) a
petition for "declaration of nullity of amended by-laws,
cancellation of certificate of filing of amended by-laws,
injunction and damages with prayer for a preliminary
injunction" against the majority of the members of the Board
of Directors and San Miguel Corporation as an unwilling
petitioner. As a first cause of action, Gokongwei alleged that
on 18 September 1976, Andres Soriano, Jr., Jose M. Soriano,
Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B.
Conde, Miguel Ortigas, and Antonio Prieto amended by
bylaws of the corporation, basing their authority to do so on a
resolution of the stockholders adopted on 13 March 1961,
when the outstanding capital stock of the corporation was only
P70,139.740.00, divided into 5,513,974 common shares at
P10.00 per share and 150,000 preferred shares at P100.00 per
share. At the time of the amendment, the outstanding and paid
up shares totalled 30,127,043, with a total par value of
P301,270,430.00. It was contended that according to section
22 of the Corporation Law and Article VIII of the by-laws of
the corporation, the power to amend, modify, repeal or adopt
new by-laws may be delegated to the Board of Directors only
by the affirmative vote of stockholders representing not less
than 2/3 of the subscribed and paid up capital stock of the
corporation, which 2/3 should have been computed on the
basis of the capitalization at the time of the amendment. Since
the amendment was based on the 1961 authorization,
Gokongwei contended that the Board acted without authority
and in usurpation of the power of the stockholders. As a
second cause of action, it was alleged that the authority
granted in 1961 had already been exercised in 1962 and 1963,
after which the authority of the Board ceased to exist. As a
third cause of action, Gokongwei averred that the membership
of the Board of Directors had changed since the authority was
given in 1961, there being 6 new directors. As a fourth cause
of action, it was claimed that prior to the questioned
amendment, Gokogwei had all the qualifications to be a
director of the corporation, being a substantial stockholder
thereof; that as a stockholder, Gokongwei had acquired rights
inherent in stock ownership, such as the rights to vote and to
be voted upon in the election of directors; and that in
amending the by-laws, Soriano, et. al. purposely provided for
Gokongwei's disqualification and deprived him of his vested
right as afore-mentioned, hence the amended by-laws are null
and void. As additional causes of action, it was alleged that
corporations have no inherent power to disqualify a
stockholder from being elected as a director and, therefore, the
questioned act is ultra vires and void; that Andres M. Soriano,
Jr. and/or Jose M. Soriano, while representing other
corporations, entered into contracts (specifically a
management contract) with the corporation, which was
avowed because the questioned amendment gave the Board
itself the prerogative of determining whether they or other
persons are engaged in competitive or antagonistic business;
that the portion of the amended by-laws which states that in
determining whether or not a person is engaged in competitive
business, the Board may consider such factors as business and
family relationship, is unreasonable and oppressive and,
therefore, void; and that the portion of the amended by-laws
which requires that "all nominations for election of directors
shall be submitted in writing to the Board of Directors at least
five (5) working days before the date of the Annual Meeting"
is likewise unreasonable and oppressive. It was, therefore,
prayed that the amended by-laws be declared null and void
and the certificate of filing thereof be cancelled, and that
Soriano, et. al. be made to pay damages, in specified amounts,
to Gokongwei. On 28 October 1976, in connection with the
same case, Gokongwei filed with the Securities and Exchange
Commission an "Urgent Motion for Production and Inspection
of Documents", alleging that the Secretary of the corporation
refused to allow him to inspect its records despite request
made by Gokongwei for production of certain documents
enumerated in the request, and that the corporation had been
attempting to suppress information from its stockholders
despite a negative reply by the SEC to its query regarding their
authority to do so. The motion was opposed by Soriano, et. al.
The Corporation, Soriano, et. al. filed their answer, and their
opposition to the petition, respectively. Meanwhile, on 10
December 1976, while the petition was yet to be heard, the
corporation issued a notice of special stockholders' meeting
for the purpose of "ratification and confirmation of the
amendment to the By-laws", setting such meeting for 10
February 1977. This prompted Gokongwei to ask the SEC for
a summary judgment insofar as the first cause of action is
concerned, for the alleged reason that by calling a special
stockholders' meeting for the aforesaid purpose, Soriano, et.
al. admitted the invalidity of the amendments of 18 September
1976. The motion for summary judgment was opposed by
Soriano, et. al. Pending action on the motion, Gokongwei filed
an "Urgent Motion for the Issuance of a Temporary
Restraining Order", praying that pending the determination of
Gokongwei's application for the issuance of a preliminary
injunction and or Gokongwei's motion for summary judgment,
a temporary restraining order be issued, restraining Soriano,
et. al. from holding the special stockholders' meeting as
scheduled. This motion was duly opposed by Soriano, et. al.
On 10 February 1977, Cremation issued an order denying the
motion for issuance of temporary restraining order. After
receipt of the order of denial, Soriano, et. al. conducted the
special stockholders' meeting wherein the amendments to the
by-laws were ratified. On 14 February 1977, Gokongwei filed
a consolidated motion for contempt and for nullification of the
special stockholders' meeting. A motion for reconsideration of
the order denying Gokongwei's motion for summary judgment
was filed by Gokongwei before the SEC on 10 March 1977.
[SEC Case 1423] Gokongwei alleged that, having
discovered that the corporation has been investing corporate
funds in other corporations and businesses outside of the
primary purpose clause of the corporation, in violation of
section 17-1/2 of the Corporation Law, he filed with SEC, on
20 January 1977, a petition seeking to have Andres M.
Soriano, Jr. and Jose M. Soriano, as well as the corporation
declared guilty of such violation, and ordered to account for
such investments and to answer for damages. On 4 February
1977, motions to dismiss were filed by Soriano, et. al., to
which a consolidated motion to strike and to declare Soriano,
et. al. in default and an opposition ad abundantiorem cautelam
were filed by Gokongwei. Despite the fact that said motions
were filed as early as 4 February 1977, the Commission acted
thereon only on 25 April 1977, when it denied Soriano, et. al.'s
motions to dismiss and gave them two (2) days within which
to file their answer, and set the case for hearing on April 29
and May 3, 1977. Soriano, et. al. issued notices of the annual
stockholders' meeting, including in the Agenda thereof, the
"reaffirmation of the authorization to the Board of Directors
by the stockholders at the meeting on 20 March 1972 to invest
corporate funds in other companies or businesses or for
purposes other than the main purpose for which the
Corporation has been organized, and ratification of the
investments thereafter made pursuant thereto." By reason of
the foregoing, on 28 April 1977, Gokongwei filed with the
SEC an urgent motion for the issuance of a writ of preliminary
injunction to restrain Soriano, et. al. from taking up Item 6 of
the Agenda at the annual stockholders' meeting, requesting
that the same be set for hearing on 3 May 1977, the date set
for the second hearing of the case on the merits. The SEC,
however, cancelled the dates of hearing originally scheduled
and reset the same to May 16 and 17, 1977, or after the
scheduled annual stockholders' meeting. For the purpose of
urging the Commission to act, Gokongwei filed an urgent
manifestation on 3 May 1977, but this notwithstanding, no
action has been taken up to the date of the filing of the instant
petition.
Gokongwei filed a petition for petition for certiorari,
mandamus and injunction, with prayer for issuance of writ of
preliminary injunction, with the Supreme Court, alleging that
there appears a deliberate and concerted inability on the part
of the SEC to act.
Issue:
Whether the corporation has the power to provide for
the (additional) qualifications of its directors.
Held:
It is recognized by all authorities that "every
corporation has the inherent power to adopt by-laws 'for its
internal government, and to regulate the conduct and prescribe
the rights and duties of its members towards itself and among
themselves in reference to the management of its affairs.'" In
this jurisdiction under section 21 of the Corporation Law, a
corporation may prescribe in its by-laws "the qualifications,
duties and compensation of directors, officers and employees."
This must necessarily refer to a qualification in addition to that
specified by section 30 of the Corporation Law, which
provides that "every director must own in his right at least one
share of the capital stock of the stock corporation of which he
is a director." Any person "who buys stock in a corporation
does so with the knowledge that its affairs are dominated by a
majority of the stockholders and that he impliedly contracts
that the will of the majority shall govern in all matters within
the limits of the act of incorporation and lawfully enacted by-
laws and not forbidden by law." To this extent, therefore, the
stockholder may be considered to have "parted with his
personal right or privilege to regulate the disposition of his
property which he has invested in the capital stock of the
corporation, and surrendered it to the will of the majority of
his fellow incorporators. It can not therefore be justly said that
the contract, express or implied, between the corporation and
the stockholders is infringed by any act of the former which is
authorized by a majority." Pursuant to section 18 of the
Corporation Law, any corporation may amend its articles of
incorporation by a vote or written assent of the stockholders
representing at least two-thirds of the subscribed capital stock
of the corporation. If the amendment changes, diminishes or
restricts the rights of the existing shareholders, then the
dissenting minority has only one right, viz.: "to object thereto
in writing and demand payment for his share." Under section
22 of the same law, the owners of the majority of the
subscribed capital stock may amend or repeal any by-law or
adopt new by-laws. It cannot be said, therefore, that
Gokongwei has a vested right to be elected director, in the
face of the fact that the law at the time such right as
stockholder was acquired contained the prescription that the
corporate charter and the by-law shall be subject to
amendment, alteration and modification.
Issue [2]:
Whether the disqualification of a competitor from
being elected to the Board of Directors is a reasonable
exercise of corporate authority.
Held[2]:
Although in the strict and technical sense, directors of
a private corporation are not regarded as trustees, there cannot
be any doubt that their character is that of a fiduciary insofar
as the corporation and the stockholders as a body are
concerned. As agents entrusted with the management of the
corporation for the collective benefit of the stockholders, "they
occupy a fiduciary relation, and in this sense the relation is
one of trust." "The ordinary trust relationship of directors of a
corporation and stockholders is not a matter of statutory or
technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and
hence of the property interests of the stockholders. Equity
recognizes that stockholders are the proprietors of the
corporate interests and are ultimately the only beneficiaries
thereof." A director is a fiduciary. Their powers are powers in
trust. He who is in such fiduciary position cannot serve
himself first and his cestuis second. He cannot manipulate the
affairs of his corporation to their detriment and in disregard of
the standards of common decency. He cannot by the
intervention of a corporate entity violate the ancient precept
against serving two masters. He cannot utilize his inside
information and strategic position for his own preferment. He
cannot violate rules of fair play by doing indirectly through
the corporation what he could not do so directly. He cannot
violate rules of fair play by doing indirectly through the
corporation what he could not do so directly. He cannot use
his power for his personal advantage and to the detriment of
the stockholders and creditors no matter how absolute in terms
that power may be and no matter how meticulous he is to
satisfy technical requirements. For that power is at all times
subject to the equitable limitation that it may not be exercised
for the aggrandizement, preference, or advantage of the
fiduciary to the exclusion or detriment of the cestuis. The
doctrine of "corporate opportunity" is precisely a recognition
by the courts that the fiduciary standards could not be upheld
where the fiduciary was acting for two entities with competing
interests. This doctrine rests fundamentally on the unfairness,
in particular circumstances, of an officer or director taking
advantage of an opportunity for his own personal profit when
the interest of the corporation justly calls for protection. It is
not denied that a member of the Board of Directors of the San
Miguel Corporation has access to sensitive and highly
confidential information, such as: (a) marketing strategies and
pricing structure; (b) budget for expansion and diversification;
(c) research and development; and (d) sources of funding,
availability of personnel, proposals of mergers or tie-ups with
other firms. It is obviously to prevent the creation of an
opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing
corporation, from taking advantage of the information which
he acquires as director to promote his individual or corporate
interests to the prejudice of San Miguel Corporation and its
stockholders, that the questioned amendment of the by-laws
was made. Certainly, where two corporations are competitive
in a substantial sense, it would seem improbable, if not
impossible, for the director, if he were to discharge effectively
his duty, to satisfy his loyalty to both corporations and place
the performance of his corporation duties above his personal
concerns. The offer and assurance of Gokongwei that to avoid
any possibility of his taking unfair advantage of his position as
director of San Miguel Corporation, he would absent himself
from meetings at which confidential matters would be
discussed, would not detract from the validity and
reasonableness of the by-laws involved. Apart from the
impractical results that would ensue from such arrangement, it
would be inconsistent with Gokongwei's primary motive in
running for board membership — which is to protect his
investments in San Miguel Corporation. More important, such
a proposed norm of conduct would be against all accepted
principles underlying a director's duty of fidelity to the
corporation, for the policy of the law is to encourage and
enforce responsible corporate management.
Issue [3]:
Whether the SEC gravely abused its discretion in
denying Gokongwei's request for an examination of the
records of San Miguel International, Inc., a fully owned
subsidiary of San Miguel Corporation.
Held [3]:
Pursuant to the second paragraph of section 51 of the
Corporation Law, "(t)he record of all business transactions of
the corporation and minutes of any meeting shall be open to
the inspection of any director, member or stockholder of the
corporation at reasonable hours." The stockholder's right of
inspection of the corporation's books and records is based
upon their ownership of the assets and property of the
corporation. It is, therefore, an incident of ownership of the
corporate property, whether this ownership or interest be
termed an equitable ownership, a beneficial ownership, or a
quasi-ownership. This right is predicated upon the necessity of
self-protection. It is generally held by majority of the courts
that where the right is granted by statute to the stockholder, it
is given to him as such and must be exercised by him with
respect to his interest as a stockholder and for some purpose
germane thereto or in the interest of the corporation. In other
words, the inspection has to be germane to the petitioner's
interest as a stockholder, and has to be proper and lawful in
character and not inimical to the interest of the corporation.
The "general rule that stockholders are entitled to full
information as to the management of the corporation and the
manner of expenditure of its funds, and to inspection to obtain
such information, especially where it appears that the
company is being mismanaged or that it is being managed for
the personal benefit of officers or directors or certain of the
stockholders to the exclusion of others." While the right of a
stockholder to examine the books and records of a corporation
for a lawful purpose is a matter of law, the right of such
stockholder to examine the books and records of a wholly-
owned subsidiary of the corporation in which he is a
stockholder is a different thing. Stockholders are entitled to
inspect the books and records of a corporation in order to
investigate the conduct of the management, determine the
financial condition of the corporation, and generally take an
account of the stewardship of the officers and directors.
herein, considering that the foreign subsidiary is wholly
owned by San Miguel Corporation and, therefore, under Its
control, it would be more in accord with equity, good faith and
fair dealing to construe the statutory right of petitioner as
stockholder to inspect the books and records of the corporation
as extending to books and records of such wholly owned
subsidiary which are in the corporation's possession and
control.
Issue [4]:
Whether the SEC gravely abused its discretion in
allowing the stockholders of San Miguel Corporation to ratify
the investment of corporate funds in a foreign corporation.
Held [4]:
Section 17-1/2 of the Corporation Law allows a
corporation to "invest its funds in any other corporation or
business or for any purpose other than the main purpose for
which it was organized" provided that its Board of Directors
has been so authorized by the affirmative vote of stockholders
holding shares entitling them to exercise at least two-thirds of
the voting power. If the investment is made in pursuance of
the corporate purpose, it does not need the approval of the
stockholders. It is only when the purchase of shares is done
solely for investment and not to accomplish the purpose of its
incorporation that the vote of approval of the stockholders
holding shares entitling them to exercise at least two-thirds of
the voting power is necessary. As stated by the corporation,
the purchase of beer manufacturing facilities by SMC was an
investment in the same business stated as its main purpose in
its Articles of Incorporation, which is to manufacture and
market beer. It appears that the original investment was made
in 1947-1948, when SMC, then San Miguel Brewery, Inc.,
purchased a beer brewery in Hongkong (Hongkong Brewery
& Distillery, Ltd.) for the manufacture and marketing of San
Miguel beer thereat. Restructuring of the investment was made
in 1970-1971 thru the organization of SMI in Bermuda as a
tax free reorganization. Assuming arguendo that the Board of
Directors of SMC had no authority to make the assailed
investment, there is no question that a corporation, like an
individual, may ratify and thereby render binding upon it the
originally unauthorized acts of its officers or other agents.
This is true because the questioned investment is neither
contrary to law, morals, public order or public policy. It is a
corporate transaction or contract which is within the corporate
powers, but which is defective from a purported failure to
observe in its execution the requirement of the law that the
investment must be authorized by the affirmative vote of the
stockholders holding two-thirds of the voting power. This
requirement is for the benefit of the stockholders. The
stockholders for whose benefit the requirement was enacted
may, therefore, ratify the investment and its ratification by
said stockholders obliterates any defect which it may have had
at the outset. Besides, the investment was for the purchase of
beer manufacturing and marketing facilities which is
apparently relevant to the corporate purpose. The mere fact
that the corporation submitted the assailed investment to the
stockholders for ratification at the annual meeting of 10 May
1977 cannot be construed as an admission that the corporation
had committed an ultra vires act, considering the common
practice of corporations of periodically submitting for the
ratification of their stockholders the acts of their directors,
officers and managers.
ISLAMIC DIRECTORATE OF THE PHILIPPINES VS.
COURT OF APPEALS
GR 117897
14 May 1997
Facts:
Sometime in 1971, Islamic leaders of all Muslim
major tribal groups in the Philippines headed by Dean Cesar
Adib Majul organized and incorporated the ISLAMIC
DIRECTORATE OF THE PHILIPPINES (IDP), the primary
purpose of which is to establish an Islamic Center in Quezon
City for, the construction of a "Mosque (prayer place,
Madrasah (Arabic School), and other religious infrastructures"
so as to facilitate the effective practice of Islamic faith in the
area. Towards this end, that is, in the same year, the Libyan
government donated money to the IDP to purchase land at
Culiat, Tandang Sora, Quezon City, to be used as a Center for
the Islamic populace. The land, with an area of 49,652 square
meters, we covered by two titles: TCTs RT-26520 (176616)
and RT-26521 (170567), both registered in the name of IDP.
In 1971, the Board of Trustees of the IDP was composed of
Senator Mamintal Tamano, Congressman Ali Dimaporo,
Congressman Salipada Pendatun, Dean Cesar Adib Majul,
Sultan Harun Al-Rashid Lucman, Delegate Ahmad Alonto,
Commissioner Datu Mama Sinsuat and Mayor Aminkadra
Abubakar. In 1972, after the purchase of the land by the
Libyan government in the name of IDP, Martial Law was
declared by the late President Ferdinand Marcos. Most of the
members of the 1971 Board of Trustees like Senators
Mamintal Tamano, Salipada Pendatun, Ahmad Alonto, and
Congressman Al-Rashid Lucman flew to the Middle East to
escape political persecution. Thereafter, two Muslim groups
sprung, the Carpizo Group, headed by Engineer Farouk
Carpizo, and the Abbas Group, led by Mrs. Zorayda Tamano
and Atty. Firdaussi Abbas. Both groups claimed to be the
legitimate IDP. Significantly, on 3 October 1986, the SEC, in
a suit between these two contending groups, came out with a
Decision in SEC Case 2687 declaring the election of both the
Carpizo Group and the Abbas Group as IDP board members to
be null and void. Neither group, however, took the necessary
steps prescribed by the SEC in its 3 October 1986 Decision,
and no valid election of the members of the Board of Trustees
of IDP was ever called. Although the Carpizo Group
attempted to submit a set of by-laws, the SEC found that, aside
from that Engineer Farouk Carpizo and Atty. Musib Buat,
those who prepared and adopted the by-laws were not bona
fide members of the IDP, thus rendering the adoption of the
by-laws likewise null and void. On 20 April 1989, without
having been properly elected as new members of the Board of
Trustees of IDP, the Carpizo Group caused to be signed an
alleged Board Resolution of the IDP, authorizing the sale of
the subject two parcels of land to the Iglesia ni Cristo (INC)
for a consideration of P22,343,400.00, which sale was
evidenced by a Deed of Absolute Sale 12 dated 20 April 1989.
On 30 May 1991, the 1971 IDP Board of Trustees headed by
former Senator Mamintal Tamano, or the Tamano Group, filed
a petition before the SEC (SEC Case 4012) seeking to declare
null and void the Deed of Absolute Sale signed by the Carpizo
Group and the INC since the group of Engineer Carpizo was
not the legitimate Board of Trustees of the IDP. Meanwhile,
INC, pursuant to the Deed of Absolute Sale executed in its
favor, filed an action for Specific Performance with Damages
against the vendor, Carpizo Group, before Branch 81 of the
Regional Trial Court of Quezon City (Civil Case Q-90-6937)
to compel said group to clear the property of squatters and
deliver complete and full physical possession thereof to INC.
Likewise, INC filed a motion in the same case to compel one
Mrs. Leticia P. Ligon to produce and surrender to the Register
of Deeds of Quezon City the owner's duplicate copy of TCTs
RT-26521 and RT-26520 covering the two parcels of land, so
that the sale in INC's favor may be registered and new titles
issued in the name of INC. Mrs. Ligon was alleged to be the
mortgagee of the two parcels of land executed in her favor by
certain Abdulrahman R.T. Linzag and Rowaida Busran-
Sampaco claimed to be in behalf of the Carpizo Group. Judge
Celia Lipana-Reyes of Branch 81, Regional Trial Court of
Quezon City, denied IDP's motion to intervene on the ground
of lack of juridical personality of the IDP-Tamano Group and
that the issues being raised by way of intervention are intra-
corporate in nature, jurisdiction thereto properly pertaining to
the SEC. Apprised of the pendency of SEC Case 4012
involving the controverted status of the IDP-Carpizo Group
but without waiting for the outcome of said case, Judge Reyes,
on 12 September 1991, rendered Partial Judgment in Civil
Case Q-90-6937 ordering the IDP-Carpizo Group to comply
with its obligation under the Deed of Sale of clearing the
subject lots of squatters and of delivering the actual possession
thereof to INC. Thereupon Judge Reyes in another Order,
dated 2 March 1992, pertaining also to Civil Case Q-90-6937,
treated INC as the rightful owner of the real properties and
disposed. On 6 April 1992, the Order was amended by Judge
Reyes directing Ligon "to deliver the owner's duplicate copies
of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to
the Register of Deeds of Quezon City for the purposes stated
in the Order of March 2, 1992." Mortgagee Ligon went to the
Court of Appeals, thru a petition for certiorari (CA-GR SP-
27973), assailing the Orders of Judge Reyes. The appellate
court dismissed her petition on 28 October 1992. Undaunted,
Ligon filed a petition for review before the Supreme Court
(GR 107751). In the meantime, the SEC, on 5 July 1993,
finally came out with a Decision in SEC Case 4012, Declaring
the by-laws submitted by the IDP-Caprizo group as
unauthorized, and hence, null and void; declaring the sale of
the two (2) parcels of land in Quezon City covered by the
Deed of Absolute Sale entered into by Iglesia ni Kristo and the
Islamic Directorate of the Philippines, Inc. null and void;
declaring the election of the Board of Directors 23 of the
corporation from 1986 to 1991 as null and void; and Declaring
the acceptance of the respondents, except Farouk Carpizo and
Musnib Buat, as members of the IDP null and void. The INC
filed a Motion for Intervention, dated 7 September 1993, in
SEC Case 4012, but the same was denied on account of the
fact that the decision of the case had become final and
executory, no appeal having been taken therefrom. INC
elevated SEC Case 4012 to the Court of Appeals by way of a
special civil action for certiorari (CA-GR SP 33295). On 28
October 1994, the appeallate court promulgated a Decision
granting INC's petition. The portion of the SEC Decision in
SEC Case 4012 which declared the sale of the two (2) lots in
question to INC as void was ordered set aside by the Court of
Appeals. Thus, the IDP-Tamano Group brought the petition
for review, dated 21 December 1994, to the Supreme Court.
While the petition was pending, however, the Supreme Court
rendered judgment in GR 107751 on the petition filed by Mrs.
Leticia P. Ligon. The Decision, dated 1 June 1995, denied the
Ligon petition and affirmed the 28 October 1992 Decision of
the Court of Appeals in CA-GR SP-27973 which sustained the
Order of Judge Reyes compelling mortgagee Ligon to
surrender the owner's duplicate copies of TCTs RT-26521
(170567) and RT-26520 (176616) to the Register of Deeds of
Quezon City so that the Deed of Absolute Sale in INC's favor
may be properly registered.
Issue:
Whether the Tandang Sora property was legitimately
sold to the INC.
Held:
As far back as 3 October 1986, the SEC, in Case
2687, in a suit between the Carpizo Group and the Abbas
Group, already declared the election of the Carpizo Group (as
well as the Abbas Group) to the IDP Board as null and void
for being violative of the Articles of Incorporation. Nothing
thus becomes more settled than that the IDP-Carpizo Group
with whom INC contracted is a fake Board. Premises
considered, all acts carried out by the Carpizo Board,
particularly the sale of the Tandang Sora property, allegedly in
the name of the IDP, have to be struck down for having been
done without the consent of the IDP thru a legitimate Board of
Trustees. Article 1318 of the New Civil Code lays down the
essential requisites of contracts, and where all these elements
must be present to constitute a valid contract. For, where even
one is absent, the contract is void. Specifically, consent is
essential for the existence of a contract, and where it is
wanting, the contract is non-existent. Herein, the IDP, owner
of the subject parcels of land, never gave its consent, thru a
legitimate Board of Trustees, to the disputed Deed of Absolute
Sale executed in favor of INC. This is, therefore, a case not
only of vitiated consent, but one where consent on the part of
one of the supposed contracting parties is totally wanting.
Ineluctably, the subject sale is void and produces no effect
whatsoever. The Carpizo Group-INC sale is further deemed
null and void ab initio because of the Carpizo Group's failure
to comply with Section 40 of the Corporation Code pertaining
to the disposition of all or substantially all assets of the
corporation. The Tandang Sora property, it appears from the
records, constitutes the only property of the IDP. Hence, its
sale to a third-party is a sale or disposition of all the corporate
property and assets of IDP falling squarely within the
contemplation of the foregoing section. For the sale to be
valid, the majority vote of the legitimate Board of Trustees,
concurred in by the vote of at least 2/3 of the bona fide
members of the corporation should have been obtained. These
twin requirements were no met as the Carpizo Group which
voted to sell the Tandang Sora property was a fake Board of
Trustees, and those whose names and signatures were affixed
by the Carpizo Group together with the sham Board
Resolution authorizing the negotiation for the sale were, from
all indications, not bona fide members of the IDP as they were
made to appear to be. Apparently, there are only 15 official
members of the IDP including the 8 members of the Board of
Trustees. All told, the disputed Deed of Absolute Sale
executed by the fake Carpizo Board and INC was intrinsically
void ab initio.
LIABILITY OF CORPORATION
PEPSI-COLA DISTRIBUTORS VS. NLRC
G.R. No. 100686
Facts:
This case involves a maintenance electrician (private
respondent Yute), an employee of petitioner PCD, who was
dismissed from his employment on the alleged ground of
abandonment and/or absence without leave. When the private
respondent filed with the Labor Arbiter a case for illegal
dismissal, the latter rendered a favorable decision to Yute and
against his employer. He was reinstated and included in the
payroll from May 22, 1989 pending PDC's appeal with the
NLRC, only to be dismissed again on July 24, 1989 on the
alleged ground that his employer, PCD, sold its business
interest to PCPPI which, however, denied liability on the
ground that it is a new entity separate and distinct from PCD.
The NLRC rendered judgment in favour of private respondent.
It is the contention of petitioner PCD that the
dismissal of private respondent was premised on a just cause
after affording him due process because as early as the first
two years of his employment, he was twice reprimanded for
being absent without permission and when he was required to
explain his absenc, he failed to appear before the
administrative committee despite personal service of notice
which he refused to sign. While petitioner asserts that the
second dismissal of private respondent was due to closure of
PCD as a result of business losses, it however argues that
public respondent NLRC gravely abused its discretion when it
assumed jurisdiction and ruled on the validity of the second
dismissal. Petitioner maintains that its right to due process of
law was violated considering that there was no formal
complaint as regard's the second dismissal and no hearing was
ever conducted to enable petitioner PCD to present evidence
on an issue which is separate and distinct from the first
dismissal. Corollary to the argument on violation of its right to
due process of law, petitioner PCD further contends that Pepsi
Cola Products Philippines, Inc. (PCPPI), a corporation
separate and distinct from PCDPI, should not be held liable for
reinstatement with backwages of private respondent since it is
not a party to this case.
Issue: Who may be held liable for illegal acts committed by
the PCD?
Held:
Pepsi Cola Distributors of the Philippines may have
ceased business operations and Pepsi-Cola Products
Philippines, Inc. may be a new company but it does not
necessarily follow that no one may now be held liable for
illegal acts committed by the earlier firm. The complaint was
filed when PCD was still in existence. Pepsi-Cola never
stopped doing business in the Philippines. The same soft
drinks products sold when the complaint was initiated
continue to be sold now. The sale of products, purchases of
materials, payment of obligations, and other business acts did
not stop at the time PCD bowed out and PCPPI came into
being. There is no evidence presented showing that PCPPI, as
the new entity or purchasing company is free from any
liabilities incurred by the former corporation.
DR. ALFAFARA VS. ACEBEDO OPTICAL
G.R. No. 148384
Facts:
Petitioners were duly licensed optometrists and were all
members of the Samahan ng Optometrists ng Pilipinas (SOP)-
Cebu Chapter. The SOP-Cebu Chapter was a chapter of SOP
Incorporated, a national organization which had a program
called “Sight Saving Month.” This program is implemented
nationwide which provided free consultations. Respondent
was a corporation with several outlets in Cebu, selling optical
products and “ready-to-wear” eyeglasses of limited grades,
advertising its services and products. Respondent hired
optometrists who conducted eye examinations, prescribed
ophthalmic lenses, and rendered other optometry services.
While the hired optometrists received their salary from
respondent, they are not precluded from seeking other sources
of income.
Petitioners brought an injunctive suit in the Regional
Trial Court to enjoin respondent Acebedo from practicing
optometry in the province of Cebu on the main ground of
violation of the Code of Ethics for Optometrists.  In addition,
petitioners contend that respondent is engaged in the practice
of optometry by its act of employing licensed agents.  Thus, an
optometrist who is employed by a corporation, such as
Acebedo, is not acting on his own capacity but as an employee
or agent of the corporation.  They contend that, as a mere
employee or agent, such optometrist cannot be held personally
liable for his acts done in the course of his employment as an
optometrist under the provisions of the Civil Code. 
Respondent denies being engaged in the practice of
optometry and argues that incidental to its business of selling
optical products, it hired duly licensed optometrists who
conducted eye examination, prescribed ophthalmic lenses, and
rendered other services; that it exercised neither control nor
supervision over the optometrists under its employ; and that
the hired optometrists exercised neither control nor
supervision in the sale of optical products and accessories by
respondent.  
The trial court at first dismissed the suit but, on
motion of petitioners, reinstated the action and granted their
prayer for a writ of preliminary injunction and/or restraining
order. After hearing, judgment was rendered in favor of
petitioners.  The Court of Appeals reversed the trial court
holding that respondent was illegally engaged in the practice
of Optometry.
Issue: Whether or not respondent corporation Acebedo was
engaged in the practice of optometry and is thus liable for the
acts of its optometrist employees.
Held:
An “optometrist” is a person who has been certified
by the Board of Optometry and registered with the
Professional Regulation Commission as qualified to practice
optometry in the Philippines. Thus, only natural persons can
engage in the practice of optometry and not
corporations. Respondent, which is not a natural person,
cannot take the licensure examinations for optometrist and,
therefore, it cannot be registered as an optometrist under R.A.
No. 1998.  There is no reason to deviate from the ruling that a
duly licensed optometrist is not prohibited from being
employed by respondent and that respondent cannot be said to
be exercising the optometry profession by reason of such
employment.
While the optometrists are employees of respondent,
their practice of optometry is separate and distinct from the
business of respondent of selling optical products.  They are
personally liable for acts done in the course of their practice in
the same way that if respondent is sued in court in connection
with its business of selling optical products, the optometrists
need not be impleaded as party defendants.  In that regard, the
Board of Optometry and the Professional Regulation
Commission regulate their practice and have exclusive
original jurisdiction over them.
ONG YONG vs. DAVID S. TIU
G.R. No. 144476
April 8, 2003
Facts:
The construction of the Masagana Citimall was
threatened with stoppage and incompletion when its owner,
the First Landlink Asia Development Corporation (FLADC),
which was owned by the Tius, encountered dire financial
difficulties. To prevent foreclosure of the mortgage on the two
lots where the mall was being built, the Tius invited the Ongs,
to invest in FLADC through a Pre-Subscription Agrrement.
 Tius committed to contribute a four-storey building
and two parcels of land to cover their additional stock
subscription. The Tuis subsequently rescinded the Pre-
Subscription Agreement.and alleged that the Ongs refused to
give them the shares corresponding to their property
contributions of a four-story building, a 1,902.30 square-meter
lot and a 151 square-meter lot. Hence, they felt they were
justified in setting aside their Pre-Subscription Agreement
with the Ongs who allegedly refused to comply with their
undertakings.
The Ongs later on discovered that FLADC had in
reality owned the property all along, even before their Pre-
Subscription Agreement was executed. This meant that the
151 square-meter property was at that time already the
corporate property of FLADC for which the Tius were not
entitled to the issuance of new shares of stock.
Issue: Whether the Tuis were correct in choosing rescission as
remedy.
Held:
The parties' Pre-Subscription Agreement was in fact a
subscription contract as defined under Section 60, Title VII of
the Corporation Code:
Any contract for the acquisition
of unissued stock in an existing
corporation or a corporation still to be
formed shall be deemed a subscription
within the meaning of this Title,
notwithstanding the fact that the parties refer
to it as a purchase or some other contract.
A subscription contract necessarily involves the
corporation as one of the contracting parties since the subject
matter of the transaction is property owned by the corporation
– its shares of stock. Considering therefore that the real
contracting parties to the subscription agreement were FLADC
and the Ongs alone, a civil case for rescission on the ground of
breach of contract filed by the Tius in their personal capacities
will not prosper. Assuming it had valid reasons to do so, only
FLADC had the legal personality to file suit rescinding the
subscription agreement with the Ongs inasmuch as it was the
real party in interest therein.
Granting that the Tius possess the legal standing to
sue for rescission based on breach of contract, said action will
still not prosper since rescission will violate the Trust Fund
Doctrine and the procedures for the valid distribution of assets
and property under the Corporation Code. In the instant case,
the rescission of the Pre-Subscription Agreement will
effectively result in the unauthorized distribution of the capital
assets and property of the corporation, thereby violating the
Trust Fund Doctrine and the Corporation Code, since
rescission of a subscription agreement is not one of the
instances when distribution of capital assets and property of
the corporation is allowed.
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR
DEVELOPMENT CORPORATION VS. ANDRADA
ELECTRIC & ENGINEERING COMPANY
G.R. No. 142936
April 17, 2002
Facts:
Pampanga Sugar Mills (PASUMIL) hired the
services of respondent, since the latter is engaged in the
business of general construction for repairs of buildings and
machineries. The Development Bank of the Philippines (DBP)
has foreclosed the assets of PASUMIL. At the foreclosure
sale, Philippine National Bank (PNB) was the highest bidder,
hence it acquired the assets of PASUMIL. PNB organized the
National Sugar Development Corporation (NASUDECO) to
take ownership and possession of the assets of the PASUMIL.
The latter failed to pay the balance of its total obligation to the
respondent when PASUMIL hired the services of the
respondent. Consequently, the respondent filed a case against
PNB, NASUDECO and PASUMIL.
Issue: Whether or not PNB is liable for corporate debts.
Held:
As a rule, a corporation that purchases the assets of
another will not be liable for the debts of the selling
corporation, provided the former acted in good faith and paid
adequate consideration for such assets, except when any of the
following circumstances is present: (1) where the purchaser
expressly or impliedly agrees to assume the debts, (2) where
the transaction amounts to a consolidation or merger of the
corporations, (3) where the purchasing corporation is merely a
continuation of the selling corporation, and (4) where the
transaction is fraudulently entered into in order to escape
liability for those debts.
While we agree with respondent’s claim that the assets of the
National Sugar Development Corporation (NASUDECO) can
be easily traced to PASUMIL, we are not convinced that the
transfer of the latter’s assets to petitioners was fraudulently
entered into in order to escape liability for its debt to
respondent.
A careful review of the records reveals that DBP foreclosed
the mortgage executed by PASUMIL and acquired the assets
as the highest bidder at the public auction conducted. The
bank was justified in foreclosing the mortgage, because the
PASUMIL account had incurred arrearages of more than 20
percent of the total outstanding obligation. Thus, DBP had not
only a right, but also a duty under the law to foreclose the
subject properties.
MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO
E. DULAY AND NEPOMUCENO REDOVAN VS.
COURT OF APPEALS, EDGARDO D. PABALAN,
MANUEL A. TORRES, JR., MARIA THERESA V.
VELOSO AND CASTRENSE C. VELOSO
G.R. No. 91889
August 27, 1993
225 SCRA 678
FACTS:
Manuel Dulay Enterprises, Inc. (Dulay Corporation,
for brevity) obtained several loans for the construction of its
hotel project. Dulay Corporation borrowed money from Atty.
Virgilio Dulay, its vice-president for the continuance of said
project. As a result of the said loan, Virgilio occupied one of
the unit apartments of the subject property. Thereafter, by
virtue of a board resolution, Dulay Corporation, through its
president Manuel Dulay, sold the subject property in favor of
spouses Maria Theresa and Castrense Veloso in the amount of
P300,000.00 as evidenced by the Deed of Absolute Sale. The
parties executed a Memorandum to the Absolute Deed of Sale
giving Manuel Dulay two years within which to repurchase
the property from Spouses Veloso. However, a day after the
property was sold to the spouses, the spouses, in order to
obtain a loan, mortgaged the same to Manuel Torres without
the knowledge of Manuel Dulay.
By reason of the failure of Spouses Veloso to pay
Torres, the said property was sold to the latter, as the highest
bidder in an extrajudicial foreclosure sale. Maria Veloso
executed an Absolute Deed of Assignment of the Right to
Redeem in favor Manuel Dulay, but neither of them was able
to redeem the property within one year. As a result, Torres
filed an action against Dulay Corporation for the recovery of
possession. Dulay Corporation, in turn, filed an action for the
cancellation of the Certificate of Sheriff’s Sale against
Spouses Veloso and Torres.
Issue: Whether or not the sale of the subject property by its
president, Manuel Dulay in favor of spouses Veloso is null
and void as the alleged Board Resolution was passed without
the knowledge and consent of the other members of the board
of directors
Held:
Consequently, petitioner corporation is liable for the
act of Manuel Dulay and the sale of the subject property to
private respondents by Manuel Dulay is valid and binding.
Petitioners' contention that private respondent Torres
never acquired ownership over the subject property since the
latter was never in actual possession of the subject property
nor was the property ever delivered to him is also without
merit.
Paragraph 1, Article 1498 of the New Civil Code
provides: “When the sale is made through a public instrument,
the execution thereof shall be equivalent to the delivery of the
thing which is the object of the contract, if from the deed the
contrary do not appear or cannot clearly be inferred.”
Under the aforementioned article, the mere execution
of the deed of sale in a public document is equivalent to the
delivery of the property.Therefore, prior physical delivery or
possession is not legally required since the execution of the
Deed of Sale in deemed equivalent to delivery.
SIA VS. PEOPLE
Facts:
Accused Jose 0. Sia sometime prior to 24 May, 1963,
was General Manager of the Metal Manufacturing Company
of the Philippines, Inc. engaged in the manufacture of steel
office equipment; on 31 May, 1963, because his company was
in need of raw materials to be imported from abroad, he
applied for a letter of credit to import steel sheets from Mitsui
Bussan Kaisha, Ltd. of Tokyo, Japan, the application being
directed to the Continental Bank, herein complainant, Exhibit
B and his application having been approved, the letter of credit
was opened on 5 June, 1963 in the amount of $18,300, Exhibit
D; and the goods arrived sometime in July, 1963 according to
accused himself, tsn. II:7; now from here on there is some
debate on the evidence; according to Complainant Bank, there
was permitted delivery of the steel sheets only upon execution
of a trust receipt, Exhibit A; while according to the accused,
the goods were delivered to him sometime before he executed
that trust receipt in fact they had already been converted into
steel office equipment by the time he signed said trust receipt,
tsn. II:8; but there is no question - and this is not debated - that
the bill of exchange issued for the purpose of collecting the
unpaid account thereon having fallen due (see Exh. B) neither
accused nor his company having made payment thereon
notwithstanding demands, Exh. C and C-1, dated 17 and 27
December, 1963, and the accounts having reached the sum in
pesos of P46,818.68 after deducting his deposit valued at
P28,736.47; that was the reason why upon complaint by
Continental Bank, the Fiscal filed the information after
preliminary investigation as has been said on 22 October,
1964.
Issue:
Whether petitioner Jose O. Sia, having only acted for
and in behalf of the Metal Manufacturing Company of the
Philippines (Metal Company, for short) as President thereof in
dealing with the complainant, the Continental Bank, (Bank for
short) may be liable for the crime charged.
Held:
The case cited by the Court of Appeals in support of
its stand-Tan Boon Kong case, supra-may however not be
squarely applicable to the instant case in that the corporation
was directly required by law to do an act in a given manner,
and the same law makes the person who fails to perform the
act in the prescribed manner expressly liable criminally. The
performance of the act is an obligation directly imposed by the
law on the corporation. Since it is a responsible officer or
officers of the corporation who actually perform the act for the
corporation, they must of necessity be the ones to assume the
criminal liability; otherwise this liability as created by the law
would be illusory, and the deterrent effect of the law, negated.
In the present case, a distinction is to be found with the Tan
Boon Kong case in that the act alleged to be a crime is not in
the performance of an act directly ordained by law to be
performed by the corporation. The act is imposed by
agreement of parties, as a practice observed in the usual
pursuit of a business or a commercial transaction. The offense
may arise, if at all, from the peculiar terms and condition
agreed upon by the parties to the transaction, not by direct
provision of the law. The intention of the parties, therefore, is
a factor determinant of whether a crime was committed or
whether a civil obligation alone intended by the parties. With
this explanation, the distinction adverted to between the Tan
Boon Kong case and the case at bar should come out clear and
meaningful. In the absence of an express provision of law
making the petitioner liable for the criminal offense
committed by the corporation of which he is a president as in
fact there is no such provisions in the Revised Penal Code
under which petitioner is being prosecuted, the existence of a
criminal liability on his part may not be said to be beyond any
doubt. In all criminal prosecutions, the existence of criminal
liability for which the accused is made answerable must be
clear and certain. The maxim that all doubts must be resolved
in favor of the accused is always of compelling force in the
prosecution of offenses. This Court has thus far not ruled on
the criminal liability of an officer of a corporation signing in
behalf of said corporation a trust receipt of the same nature as
that involved herein. In the case of Samo vs. People, L-17603-
04, May 31, 1962, the accused was not clearly shown to be
acting other than in his own behalf, not in behalf of a
corporation.
THE BOARD OF DIRECTORS
GRACE CHRISTIAN HIGH SCHOOL vs. COURT OF
APPEALS, GRACE VILLAGE ASSOCIATION, INC.,
ALEJANDRO G. BELTRAN, and ERNESTO L. GO
G.R. No. 108905
October 23, 1997
281 SCRA 133
Facts:
Grace Christian High School (Grace School, for
brevity) is an educational institution located in Quezon City
while Grace Village Association, Inc. (Grace Association, for
short) on the other hand, is an organization of lot and/or
building owners, lessees and residents at Grace Village, while
private respondents Alejandro G. Beltran and Ernesto L. Go
were its president and chairman of the committee on election,
respectively, in 1990, when this suit was brought.
Sometime in 1968, the by-laws of Grace Association
provided that the Board of Directors were composed of 11
members to serve for 1 year until their successors are duly
elected. However, in 1975, the board of directors prepared a
draft of an amendment to the by-laws, which granted Grace
School representative to be a permanent director of Grace
Association.The said draft was never presented to the general
membership for approval but it was presumably submitted to
the board. Until the year 1990, Grace School was given a
permanent seat in the board of directors of the association.
However, on February 13, 1990, Grace Association’s
committed on election informed the principal of Grace School
that to make an entity a permanent Director would deprive the
right of the voters to vote for 15 members of the Board and it
is undemocratic for an entity to hold office in perpetuity.
Grace School made a request on the committee on election
that the latter should follow the procedures in the previous
elections claiming that the notice issued for the 1990 elections
will run counter to the practice in the previous years and was
in violation of the by-laws of 1975. It further claimed that the
proposal of the committee on election would unlawfully
deprive Grace School of its vested right to a permanent seat in
the Board.
As a result of the denial of Grace Association of its
request, Grace School brought suit for mandamus in the Home
Insurance and Guaranty Corporation to compel the board of
directors of the association to recognize its right to a
permanent seat in the board.
The officer of the Home Insurance and Guaranty
Corporation dismissed the action filed by Grace school stating
among others that the by-laws of 1975 was merely a proposal
although implemented in the past, had not yet been ratified by
the members of the association nor approved by competent
authority. In 1990, the Board of Directors of Grace
Association declared the said proposed by-laws as null and
void.
Issue: Whether or not Grace School has acquired a vested
right to a permanent seat in the Board of Directors.
Held:
The present Corporation Code (B.P. Blg. 68), which
took effect on May 1, 1980, similarly provides: “23. The
Board of Directors or Trustees. - Unless otherwise provided in
this Code, the corporate powers of all corporations formed
under this Code shall be exercised, all business conducted and
all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1)
year and until their successors are elected and qualified.”
These provisions of the former and present
corporation law leave no room for doubt as to their meaning:
the board of directors of corporations must be elected from
among the stockholders or members. There may be
corporations in which there are unelected members in the
board but it is clear that in the examples cited by petitioner the
unelected members sit as ex officio members, i.e., by virtue of
and for as long as they hold a particular office. But in the case
of petitioner, there is no reason at all for its representative to
be given a seat in the board. Nor does petitioner claim a right
to such seat by virtue of an office held. In fact it was not
given such seat in the beginning. It was only in 1975 that a
proposed amendment to the by-laws sought to give it one.
Since the provision in question is contrary to law, the
fact that for fifteen years it has not been questioned or
challenged but, on the contrary, appears to have been
implemented by the members of the association cannot
forestall a later challenge to its validity. Neither can it attain
validity through acquiescence because, if it is contrary to law,
it is beyond the power of the members of the association to
waive its invalidity. For that matter the members of the
association may have formally adopted the provision in
question, but their action would be of no avail because no
provision of the by-laws can be adopted if it is contrary to law.
It is probable that, in allowing petitioner’s
representative to sit on the board, the members of the
association were not aware that this was contrary to law. It
should be noted that they did not actually implement the
provision in question except perhaps insofar as it increased the
number of directors from 11 to 15, but certainly not the
allowance of petitioner’s representative as an unelected
member of the board of directors. It is more accurate to say
that the members merely tolerated petitioner’s representative
and tolerance cannot be considered ratification.
Nor can petitioner claim a vested right to sit in the
board on the basis of “practice.” Practice, no matter how long
continued, cannot give rise to any vested right if it is contrary
to law. Even less tenable is petitioner’s claim that its right is
“coterminus with the existence of the association.”
MID-PASIG LAND DEVELOPMENT CORPORATION
vs. MARIO TABLANTE
G.R. No. 162924
February 4, 2010
Facts:
Mid-Pasig Land Development Corporation,
represented by its Chairman and President, Ronaldo Salonga,
and ECRM Enterprises, represented by its proprietor, Mario P.
Tablante, executed a lease agreement over a parcel of land.
When the lease agreement expired, Tablante assigned all his
rights and interests under the said agreement to Litam and/or
Rockland Construction Company, Inc. under a Deed of
Assignment. Mid-Pasig Land Development Corporation later
on discovered that Tablante had executed a Contract of Lease
with respondent MC Home Depot, Inc. over the same parcel
of land and consequently demanded that MC Home Depot
vacate the land.
When the matter reached the Court of Appeals via
petition for certiorari, the appellate court dismissed the
petition because the verification and certification against non-
forum shopping was signed by Antonio A. Merelos as General
Manager of the petitioner-corporation without attaching
therewith a Corporate Secretary’s certificate or board
resolution that he is authorized to sign for and on behalf of the
petitioner.
Issue:
Whether or not a verification and certification by a
General Manager requires a board resolution and/or a
secretary’s certificate for its validity and admissibility
Held:
Sec. 23, in relation to Sec. 25 of the Corporation
Code, clearly enunciates that all corporate powers are
exercised, all business conducted, and all properties controlled
by the board of directors. A corporation has a separate and
distinct personality from its directors and officers and can only
exercise its corporate powers through the board of directors.
Thus, it is clear that an individual corporate officer cannot
solely exercise any corporate power pertaining to the
corporation without authority from the board of directors.
However, the Supreme Court has recognized the authority of
the following corporate officers to sign the verification and
certification against forum shopping without need of a board
resolution: (1) the Chairperson of the Board of Directors, (2)
the President of a corporation, (3) the General Manager or
Acting General Manager, (4) Personnel Officer, and (5) an
Employment Specialist in a labor case.
The determination of the sufficiency of the authority
was done on a case to case basis. This is to justify the
authority of corporate officers or representatives of the
corporation to sign the verification or certificate against forum
shopping, being in a position to verify the truthfulness and
correctness of the allegations in the petition.
From the foregoing, it is thus clear that the failure to
attach the Secretary’s Certificate, attesting to General
Manager Antonio Merelos’s authority to sign the Verification
and Certification of Non-Forum Shopping, should not be
considered fatal to the filing of the petition. Nonetheless, the
requisite board resolution was subsequently submitted to the
CA, together with the pertinent documents.
AUTHORITY OF AN OFFICER TO ACT ON BEHALF
OF THE CORPORATION
ST. MARY’S FARM, INC., VS. PRIMA REAL
PROPERTIES, INC.ET.AL.
G.R. No. 158144
July 31, 2008
Facts:
St. Mary’s Farm, Inc. was the registered owner of an
originally twenty-five thousand five hundred ninety-eight
(25,598) square meters of land at, Las Piñas City. In
compliance with a final court decision of the RTC in a civil
case, St. Mary’s Farm Inc. passed and approved a board
resolution authorizing defendant Agana to cede to T.S. Cruz
Subdivision four thousand (4,000) square meters of the land.
However, Agana then did not return to St. Mary the borrowed
title and forged a board resolution of the corporation making it
appear that he was authorized to sell the remaining twenty-one
thousand five hundred ninety-eight (21,598) square meters of
the subject property. Agana and Prima Real Properties, Inc.
later on signed an absolute deed of sale, with Prima as the
vendee. Prima then caused the transfer of the title in its name.
In its complaint, St. Mary alleged that the
authorization certified by its Corporate Secretary and used by
Agana in selling the subject property to defendant Prima was a
forged and that Prima wasn’t a buyer in good faith.
Issue:
Whether or not a Corporation is liable for the acts of
its agent and must necessarily bear whatever damage may
have been caused by this alleged breach of trust to buyer in
good faith and for value, who relied on the authority of a
notarized board resolution
Held:
A buyer in good faith has every reason to rely on a
person’s authority to sell a particular property owned by a
corporation on the basis of a notarized board resolution.
Being a buyer in good faith, he buys the property with the
well-founded belief that the person from whom he receives the
thing had title to the property and capacity to convey it.
Agana presented to Prima:
1. A notarized board resolution
which stated that at a special
meeting held on June 27, 1988
the board of directors
authorized Agana, Treasurer,
to sell the subject property;
2. A separate Certification by the
St. Mary’s president,
authorizing its Treasurer,
Agana, to sell said property;
and
3. The title of the subject
property.
When a document under scrutiny is a special power
of attorney that is duly notarized, acknowledgement is prima
facie evidence of the fact of its due execution – a buyer
presented with such document would have no choice between
knowing and finding out whether a forger lurks beneath the
signature on it. A person dealing with a seller who has [in his]
possession title to the property but whose capacity to sell is
restricted, qualifies as a buyer in good faith if he proves that
he inquired into the title of the seller as well as into the latter's
capacity to sell; and that in his inquiry, he relied on the
notarial acknowledgment found in the seller's duly notarized
special power of attorney. He need not prove anything more
for it is already the function of the notarial acknowledgment to
establish the appearance of the parties to the document, its due
execution and authenticity.
The board resolution further averred that he was
"authorized and empowered to sign any and all documents,
instruments, papers or writings which may be required and
necessary for this purpose to bind the Corporation in this
undertaking." The certification of St. Mary’s President also
attests to this fact. With this notarized board resolution,
respondent Agana, undeniably, had the authority to cede the
subject property, carrying with it all the concomitant powers
necessary to implement said transaction.
 ESPIRITU JR. et. al vs. PETRON CORPORATION and
CARMEN J. DOLOIRAS, doing business under the name
"KRISTINA PATRICIA ENTERPRISES (KPE)"
GR No. 170891
November 24, 200
Facts:
KPE and Bicol Gas Refilling Plant Corporation
(Bicol Gas) were in the business of selling and distributing
LPGs in Sorsogon. The former was owned and operated by
Carmen Dolorais but was manged by Jose Dolorais. The latter
carried the trademark "Bicol Savers Gas" managed by Llona.
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." In one
occasion, 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 driverand the Bicol
Gas sales representative about the Gasul tank in their truck
who later admitted that the Gasul and Shellane tanks on their
truck belonged to a customer who had them filled up by Bicol
Gas.
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
169.1 (unfair competition) of the Intellectual Property Code
(R.A. 8293) against the directors, officers, and stockholders of
Bicol Gas.
Issue:
Whether or not the stockholders and members of the
board of directors of Bicol Gas are liable with respect to the
charge of unlawfully filling up a steel cylinder or tank that
belonged to Petron
Held:
Corporate officers or employees through whose act,
default or omission the corporation commits a crime may
themselves be answerable for the crime. This is an exception
to the general rule that a corporation has entity separate and
distinct from the persons of its officers, directors, and
stockholders.
Before a stockholder may be held criminally liable
for acts committed by a corporation, 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 "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.
SAN MIGUEL BUKID HOMEOWNERS
ASSOCIATION, INC. vs. THE CITY OF
MANDALUYONG
G.R. No. 153653
October 2, 2009
Facts:
San Miguel Bukid Homeowners Association, Inc.
entered into a Memorandum of Agreement with the City of
Mandaluyong whereby the City purchased lots and then
transferred the same to petitioner with a first real estate
mortgage in favor of the City. When the work on the project
stopped, petitioner filed the complaint praying that the City
and its contractor be ordered to perform their respective
undertakings and obligations under the Contract Agreement
and to pay petitioner attorney’s fees, exemplary damages and
litigation expenses.
The City filed an Answer within the extended period
granted by the trial court. When the trial court dismissed
petitioner’s petition to declare the City in default, the matter
was elevated by petitioner to the Court of Appeals via a
petition for certiorari. However Court of Appeals dismissed
the petition because the person who signed the
Verification/Certification of Non-Forum Shopping thereof did
not appear to be authorized by San Miguel Bukid
Homeowners Association, Inc.
Issue:
Whether or not a Board Resolution authorizing an
officer to initiate, sign, file and prosecute a complaint
sufficient for a special civil action of certiorari
Held:
Certiorari is an original and independent action that
is not part of the trial or the proceedings on the complaint filed
before the trial court – hence, a Board Resolution authorizing
an officer to initiate, sign, file and prosecute the complaint is
not and cannot be considered as an authorization to initiate,
sign, file, and prosecute another case for the special civil
action of certiorari.
Evidently, petitioner only authorized its President,
Evelio Barata, to initiate, sign, file and prosecute the
Complaint for specific performance. Certiorari, as a special
civil action, is an original action invoking the original
jurisdiction of a court to annul or modify the proceedings of a
tribunal, board or officer exercising judicial or quasi-judicial
functions. It is an original and independent action that is not
part of the trial or the proceedings on the complaint filed
before the trial court. The petition for certiorari before the CA
is, therefore, a separate and distinct action from the action for
specific performance instituted before the RTC, as the writ of
certiorari being prayed for is directed against the judicial or
quasi-judicial body, not against the private parties in the
original action for specific performance. Such being the case,
the Resolution of the Board of Directors of petitioner
association is not and cannot be considered as an authorization
for its President, Evelio Barata, to initiate, sign, file and
prosecute another case for the special civil action of certiorari.
The submission of a Secretary’s Certificate with the
Motion for Reconsideration is also insufficient to cure the
initial defect because there was no certification as to when
petitioner’s Board of Trustees originally granted Mr. Barata
authority to show that as of the date of the filing of the petition
for certiorari, Mr. Barata had been authorized to perform such
acts.
LIABILITY OF BOARD OF DIRECTORS
FLIGHT ATTENDANTS AND STEWARDS
ASSOCIATION OF THE PHILIPPINES VS.
PHILIPPINE AIRLINES, PATRICIA CHIONG AND
COURT OF APPEALS
G.R. No. 178083
July 23, 2008
569 SCRA 252
Facts:
The Flight Attendants and Stewards Association of
the Philippines (FASAP, for brevity) is the duly certified
collective bargaining representative of PAL’s flight attendants
and stewards, while PAL, is a domestic corporation operating
as a common carrier transporting passengers and cargo
through aircraft.
PAL adopted the retrenchment scheme due to its alleged
financial losses and as a result of the adoption of such
retrenchment scheme, PAL retrenched 5,000 of its employees
and a thousand of its cabin crew personnel.
During the said period, PAL was placed under
corporate rehabilitation and a rehabilitation plan was approved
by the Securities and Exhange Commission (SEC, for short).
Thereafter, PAL, through its Chairman and C.E.O, Lucio Tan,
made an offer to transfer shares of stock to its employees and
three seats in its Board of Directors, on the condition that all
the existing Collective Bargaining Agreements (CBAs) with
its employees would be suspended for 10 years, however, the
proposal was rejected by its employees.
Consequently, PAL ceased its operations and sent notices of
termination to its employees. After sometime, PAL submitted
a "stand-alone" rehabilitation plan to the SEC by which it
undertook a recovery on its own while keeping its options
open for the entry of a strategic partner in the future.
Accordingly, it submitted an amended rehabilitation plan to
the SEC with a proposed revised business and financial
restructuring plan, which required the infusion of US$200
million in new equity into the airline.
The SEC approved the proposed "Amended and
Restated Rehabilitation Plan" of PAL and appointed a
permanent rehabilitation receiver for the latter. The former,
later on, issued an Order approving the foregoing plan.
However, FASAP, filed a complaint against PAL and
Patricia Chiong for unfair labor practice, illegal retrenchment
with claims for reinstatement and payment of salaries,
allowances and backwages of affected FASAP members and
damages, and prayer to enjoin the retrenchment program then
being implement.
Issue: Whether or not PAL was suffering from substantial
actual and imminent losses to justify the adoption of the
retrenchment program.
Held:
What further belied PAL's allegation that it was
suffering from substantial actual and imminent losses was the
fact that in December 1998, PAL submitted a "stand-alone"
rehabilitation plan to the SEC, and on June 4, 1999, or less
than a year after the retrenchment, the amount of US$200
million was invested directly into PAL by way of additional
capital infusion for its operations.[81] These facts betray
PAL's claim that it was in dire financial straits. By submitting
a "stand-alone" rehabilitation plan, PAL acknowledged that it
could undertake recovery on its own and that it possessed
enough resources to weather the financial storm, if any.
 Thus said, it was grave error for the Labor Arbiter,
the NLRC and the Court of Appeals, to have simply assumed
that PAL was in grievous financial state, without requiring the
latter to substantiate such claim. It bears stressing that in
retrenchment cases, the presentation of proof of financial
difficulties through the required documents, preferably audited
financial statements prepared by independent auditors, may
not summarily be done away with.
ANTONIO C. CARAG vs. NATIONAL LABOR
RELATIONS COMMISSION, ISABEL G.
PANGANIBAN-ORTIGUERRA, as Executive Labor
Arbiter, NAFLU and MARIVELES APPAREL
CORPORATION LABOR UNION
G.R. No. 147590
April 2, 2007
520 SCRA 28
Facts:
The National Federation of Labor Unions (NAFLU)
and Mariveles Apparel Corporation Labor Union (MACLU),
on behalf of the rank and file employees of Mariveles Apparel
Corporation (MAC) filed a complaint against MAC for illegal
dismissal brought about by its illegal closure of business.
The dispute started when, in the absence of the
required notice of cessation of its business, MAC ceased its
operations with the intention of completely closing its shop or
factory. Such intention was manifested in a letter, allegedly
claimed by MAC as its notice was filed only on the same day
that the operations closed. As a result of the said business
closure, the workers who rendered their services were not paid
their salaries or wages. Hence, the rank and file employees
claimed that the manner of closure of the operations of MAC
was illegal.
While the complaint was lodged before the Labor
Arbiter, the complaintant filed a motion to implead MAC’s
Chairman of the Board Antonio Carag and MAC’s President
Armando David. The inclusion of Carag and David in the
complaint is to guarantee the satisfaction of any judgment
favorable to the complainants.
However, the counsel for respondents, submitted a position
paper and stated that complainants should not have impleaded
Carag and David because MAC is actually owned by a
consortium of banks. Carag and David own shares in MAC
only to qualify them to serve as MAC's officers.
Issue: Whether or not Carag and David could be held
personally liable for corporate debts.
Held:
This case also raises this issue: when is a director
personally liable for the debts of the corporation? The rule is
that a director is not personally liable for the debts of the
corporation, which has a separate legal personality of its own.
Section 31 of the Corporation Code lays down the exceptions
to the rule, as follows: “Liability of directors, trustees or
officers. - Directors or trustees who wilfully and knowingly
vote for or assent to patently unlawful acts of the corporation
or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors
or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its
stockholders or members and other persons.”
Section 31 makes a director personally liable for
corporate debts if he wilfully and knowingly votes for or
assents to patently unlawful acts of the corporation. Section 31
also makes a director personally liable if he is guilty of gross
negligence or bad faith in directing the affairs of the
corporation.
Complainants did not allege in their complaint that Carag
wilfully and knowingly voted for or assented to any patently
unlawful act of MAC. Complainants did not present any
evidence showing that Carag wilfully and knowingly voted for
or assented to any patently unlawful act of MAC. Neither did
Arbiter Ortiguerra make any finding to this effect in her
Decision.
Complainants did not also allege that Carag is guilty
of gross negligence or bad faith in directing the affairs of
MAC. Complainants did not present any evidence showing
that Carag is guilty of gross negligence or bad faith in
directing the affairs of MAC. Neither did Arbiter Ortiguerra
make any finding to this effect in her Decision. To hold a
director personally liable for debts of the corporation, and thus
pierce the veil of corporate fiction, the bad faith or
wrongdoing of the director must be established clearly and
convincingly. Bad faith is never presumed. Bad faith does not
connote bad judgment or negligence. Bad faith imports a
dishonest purpose. Bad faith means breach of a known duty
through some ill motive or interest. Bad faith partakes of the
nature of fraud.
Neither does bad faith arise automatically just
because a corporation fails to comply with the notice
requirement of labor laws on company closure or dismissal of
employees. The failure to give notice is not an unlawful act
because the law does not define such failure as unlawful. Such
failure to give notice is a violation of procedural due process
but does not amount to an unlawful or criminal act.
For a wrongdoing to make a director personally liable
for debts of the corporation, the wrongdoing approved or
assented to by the director must be a patently unlawful act.
Mere failure to comply with the notice requirement of labor
laws on company closure or dismissal of employees does not
amount to a patently unlawful act. Patently unlawful acts are
those declared unlawful by law which imposes penalties for As provided for in Section 31 of the Corporation
commission of such unlawful acts. There must be a law Law, a corporate director, a trustee or an officer, may be held
declaring the act unlawful and penalizing the act. solidarily liable with the corporation in the following
instances:
GARCIA vs. SOCIAL SECURITY COMMISSION
LEGAL AND COLLECTION, 1. When directors and
SOCIAL SECURITY SYSTEM trustees or, in appropriate
G .R. No. 170735 cases, the officers of
Dece mb er 17, 2007 a corporation--
(a) vote for or
Facts: assent to patently
Garcia was one of the directors of Impact unlawful acts of
Corporation, a corporation engaged in manufacturing the corporation;
aluminum tube containers and operated two factories. Due to (b) act in bad
financial problems, Impact filed with the SEC a Petition for faith or with
Suspension of Payments. SSS, through its Legal and gross negligence
Collection Division (LCD), filed a case before the SSC for the in directing the
collection of unremitted SSS premium contributions withheld corporate affairs;
by Impact Corporation from its employees. (c) are guilty of
conflict of
Impact Corporation, through its then Vice President interest to the
Ricardo de Leon, explained that its operations had been prejudice of the
suspended and that it was waiting for the resolution on its corporation, its
Petition for Suspension of Payments by the SEC. The Petition stockholders or
for Suspension of Payments, however, was dismissed. Impact members, and
Corporation resumed operations but only for its winding up other persons.
and dissolution. SSS-LCD later filed an amended Petition
impleading the directors of Impact including Garcia who 2. When a director or
insisted that she was a mere director without managerial officer has consented to
functions, and she ceased to be such in 1982. Even as a the issuance of watered
stockholder and director of Impact Corporation, she contended stocks or who, having
that she cannot be made personally liable for the corporate knowledge thereof, did not
obligations of Impact Corporation since her liability extended forthwith file with the
only up to the extent of her unpaid subscription, of which she corporate secretary his
had none since her subscription was already fully paid. written objection thereto.

Issue: 3. When a director, trustee

Whether or not the only surviving director of a or officer has
corporation can be made solely liable for the corporate contractually agreed or
obligations pertaining to unremitted SSS premium stipulated to hold himself
contributions and penalties personally and solidarily
liable with the
Held: Corporation.
A director, officer, and employee of a corporation are
generally not held liable for obligations incurred by the 4. When a director, trustee
corporation because corporation is invested by law with a or officer is made, by
personality separate and distinct from that of the persons specific provision of law,
composing it as well as from that of any other legal entity to personally liable for his
which it may be related. However, a corporate director, a corporate action.
trustee, or an officer, maybe held solidarily liable with the
corporation when he is made, by specific provision of a law, When said corporation failed to remit the SSS
personally liable for his corporate action. premium contributions falls exactly under the fourth situation.
Section 28(f) of the Social Security Law imposes a civil
liability for any act or omission pertaining to the violation of
the Social Security Law against its managing head, directors
or partners shall be liable to the penalties provided in this Act
for the offense.
Criminal actions for violations of the Social Security
Law are also provided under the Revised Penal Code. The
Social Security Law provides, in Section 28, that any
employer who, after deducting the monthly contributions or
loan amortizations from his employees’ compensation, fails to
remit the said deductions to the SSS within thirty (30) days
from the date they became due shall be presumed to have
misappropriated such contributions or loan amortizations and
shall suffer the penalties provided in Article Three hundred
fifteen of the Revised Penal Code.
The personal liability for the unremitted SSS
premium contributions and the late penalty thereof attaches to
the petitioner as a director of Impact Corporation during the
period the amounts became due and demandable by virtue of a
direct provision of law. Although a corporation once formed
is conferred a judicial personality separate and distinct from
the persons comprising it, it is but a legal fiction introduced
for purposes of convenience and to subserve the ends of
justice – the concept cannot be extended to a point beyond its
reasons and policy.
RIGHTS OF SHARE HOLDERS
REPUBLIC PLANTERS BANK VS. AGANA, SR
G.R. No. 51765
March 3, 1997
Facts:
Private respondent Robes-Francisco Realty &
Development Corporation secured a loan from petitioner in
the amount of P120,000.00. As part of the proceeds of the
loan, preferred shares of stocks were issued to private
respondent Corporation, through its officers then, private
respondent Adalia F. Robes and one Carlos F. Robes. In other
words, instead of giving the legal tender totaling to the full
amount of the loan, which is P120,000.00, petitioner lent such
amount partially in the form of money and partially in the
form of stock certificates numbered 3204 and 3205, each for
400 shares with a par value of P10.00 per share, or for
P4,000.00 each, for a total of P8,000.00. Said stock certificates
were in the name of private respondent Adalia F. Robes and
Carlos F. Robes, who subsequently, however, endorsed his
shares in favor of Adalia F. Robes.
Private respondents proceeded against petitioner and
filed a Complaint anchored on private respondents’ alleged
rights to collect dividends under the preferred shares in
question and to have petitioner redeem the same under the
terms and conditions of the stock certificates. Private
respondents attached to their complaint, a letter-demand dated
January 5, 1979 which, significantly, was not formally offered
in evidence.
Petitioner filed a Motion to Dismiss but was denied
by the trial court in an Order. The trial court rendered the
herein assailed decision in favor of private respondents
ordering petitioner to pay private respondents the face value of
the stock certificates as redemption price, plus 1% quarterly
interest thereon until full payment.
Issue: Whether or not redemption of shares should be allowed
Held:
Preferred share of stock, on one hand, is one which
entitles the holder thereof to certain preferences over the
holders of common stock. The preferences are designed to
induce persons to subscribe for shares of a corporation.
Preferred shares take a multiplicity of forms. The most
common forms may be classified into two: (1) preferred shares
as to assets; and (2) preferred shares as to dividends. The
former is a share which gives the holder thereof preference in
the distribution of the assets of the corporation in case of
liquidation; the latter is a share the holder of which is entitled
to receive dividends on said share to the extent agreed upon
before any dividends at all are paid to the holders of common
stock. There is no guaranty, however, that the share will
receive any dividends. The present Corporation Code provides
that the board of directors of a stock corporation may declare
dividends only out of unrestricted retained earnings. The
Code, in Section 43, adopting the change made in accounting
terminology, substituted the phrase “unrestricted retained
earnings,” which may be a more precise term, in place of
“surplus profits arising from its business” in the former law.
Thus, the declaration of dividends is dependent upon the
availability of surplus profit or unrestricted retained earnings,
as the case may be. Preferences granted to preferred
stockholders, moreover, do not give them a lien upon the
property of the corporation nor make them creditors of the
corporation, the right of the former being always subordinate
to the latter. Dividends are thus payable only when there are
profits earned by the corporation and as a general rule, even if
there are existing profits, the board of directors has the
discretion to determine whether or not dividends are to be
declared. 15 Shareholders, both common and preferred, are
considered risk takers who invest capital in the business and
who can look only to what is left after corporate debts and
liabilities are fully paid.
Redeemable shares, on the other hand, are shares
usually preferred, which by their terms are redeemable at a
fixed date, or at the option of either issuing corporation, or the
stockholder, or both at a certain redemption price. A
redemption by the corporation of its stock is, in a sense, a
repurchase of it for cancellation. The present Code allows
redemption of shares even if there are no unrestricted retained
earnings on the books of the corporation. This is a new
provision which in effect qualifies the general rule that the
corporation cannot purchase its own shares except out of
current retained earnings. However, while redeemable shares
may be redeemed regardless of the existence of unrestricted
retained earnings, this is subject to the condition that the
corporation has, after such redemption, assets in its books to
cover debts and liabilities inclusive of capital stock.
Redemption, therefore, may not be made where the
corporation is insolvent or if such redemption will cause
insolvency or inability of the corporation to meet its debts as
they mature.
CECILIA CASTILLO, ET AL. VS. ANGELES
BALINGHASAY, ET AL.
G.R. No. 150976
October 18, 2004
Facts:
Petitioners and respondents are stockholders of
Medical Center Paranaque, Inc. (MCPI, for brevity) with the
former holding class “B” shares while the latter owning class
“A” shares. MCPI was incorporated when the Old Corporation
Code was then in force. Under Article VII of its Articles of
Incorporation, only holders of class “A” shares have the right
to vote and be voted for during their annual stockholders
election. The said Articles of Incorporation was amended three
times, however, only holders of class “B” shares are still
deprived to vote and be voted for. The petitioners protested
claiming that Article VII was null and void for depriving
them, as holders of class “B” shares, of their right to vote and
be voted upon, in violation of the New Corporation Code.
They alleged that the phrase, under Artice VII, “except when
otherwise provided by law” grants them the right to vote under
the New Corporation Code.
Issue: Whether or not the law referred to in the amendment to
Article VII refers to the New Corporation Code and as such
holders of class “B” shares have the right to vote and be voted
upon
Held:
The Supreme Court found and so held that the law
referred to in the amendment to Article VII refers to the
Corporation Code and no other law. At the time of the
incorporation of MCPI in 1977, the right of a corporation to
classify its shares of stock was sanctioned by Section 5 of Act
No. 1459. The law repealing Act No. 1459, B.P. Blg. 68,
retained the same grant of right of classification of stock
shares to corporations, but with a significant change. Under
Section 6 of B.P. Blg. 68, the requirements and restrictions on
voting rights were explicitly provided for, such that "no share
may be deprived of voting rights except those classified and
issued as "preferred" or "redeemable" shares, unless otherwise
provided in this Code" and that "there shall always be a class
or series of shares which have complete voting rights." One of
the rights of a stockholder is the right to participate in the
control and management of the corporation that is exercised
through his vote. The right to vote is a right inherent in and
incidental to the ownership of corporate stock, and as such is a
property right. The stockholder cannot be deprived of the right
to vote his stock nor may the right be essentially impaired,
either by the legislature or by the corporation, without his
consent, through amending the charter, or the by-laws.
ANG-ABAYA vs ANG
G.R. No. 178511
December 4, 2008
Facts:
Vibelle Manufacturing Corporation and Genato
Investments, Inc. are family-owned corporations, where
petitioners Ma. Belen Flordeliza C. Ang-Abaya , Jason A.
Ang, Vincent G. Genato, Hanna Ang and private respondent
Eduardo G. Ang (Eduardo) are shareholders, officers and
members of the board of directors.
Prior to the instant controversy, VMC, Genato, and
Oriana Manufacturing Corporation (Oriana) filed a case for
damages with prayer for issuance of a TRO and/or writ of
preliminary injunction against Eduardo for allegedly
conniving to fraudulently wrest control/management of the
corporations. Eduardo allegedly borrowed substantial amounts
of money from the said corporations without any intention to
repay; that he repeatedly demanded for increases in his
monthly allowance and for more cash advances contrary to
existing corporate policies; that he harassed petitioner
Flordeliza to transfer and/or sell certain corporate and personal
properties in order to pay off his personal obligations etc.
Eduardo sought permission to inspect the corporate
books of VMC and Genato on account of petitioners’ alleged
failure and/or refusal to update him on the financial and
business activities of these family corporations. Petitioners
denied the request claiming that Eduardo would use the
information obtained from said inspection for purposes
inimical to the corporations’ interests, considering that: a) he
is harassing the corporation into writing off his advances; b)
he is unjustly demanding that he be given an office/position
already occupied and usurping corporate powers as well as
making demands with regard to corporate properties.
Because of petitioners’ refusal to grant his request to
inspect the corporate books of VMC and Genato, Eduardo
filed an Affidavit-Complaint against petitioners Flordeliza and
Jason, charging them with violation (two counts) of Section
74, in relation to Section 144, of the Corporation Code of the
Philippines.
The City Prosecutor issued a Resolution
recommending that petitioners be charged with two counts of
violation of Section 74 of the Corporation Code, but dismissed
the complaint against Belinda for lack of evidence. Petitioners
filed a Petition for Review before the DOJ, which reversed the
recommendation of the City Prosecutor. The DOJ denied
Eduardo’s Motion for Reconsideration. The Court of Appeals
reversed the DOJ.
Issue:
Whether or not the DOJ committed GADALEJ in
reversing the resolution of the prosecutor finding probable
cause against petitioners after preliminary investigation for
violation of section 74 of the corporation code of the
Philippines
Held:
In order for the penal provision under Section 144 of
the Corporation Code to apply in a case of violation of a
stockholder or member’s right to inspect the corporate
books/records as provided for under Section 74 of the
Corporation Code, the following elements must be present:
First. A director, trustee, stockholder or member has
made a prior demand in writing for a copy of excerpts from
the corporation’s records or minutes;
Second. Any officer or agent of the concerned
corporation shall refuse to allow the said director, trustee,
stockholder or member of the corporation to examine and
copy said excerpts;
Third. If such refusal is made pursuant to a resolution
or order of the board of directors or trustees, the liability under
this section for such action shall be imposed upon the directors
or trustees who voted for such refusal; and,
Fourth. Where the officer or agent of the corporation
sets up the defense that the person demanding to examine and
copy excerpts from the corporation’s records and minutes has
improperly used any information secured through any prior
examination of the records or minutes of such corporation or
of any other corporation, or was not acting in good faith or for
a legitimate purpose in making his demand, the contrary must
be shown or proved.
Thus, in a criminal complaint for violation of Section
74 of the Corporation Code, the defense of improper use or
motive is in the nature of a justifying circumstance that would
exonerate those who raise and are able to prove the same.
Accordingly, where the corporation denies inspection on the
ground of improper motive or purpose, the burden of proof is
taken from the shareholder and placed on the corporation. This
being the case, it would be improper for the prosecutor, during
preliminary investigation, to refuse or fail to address the
defense of improper use or motive, given its express statutory
recognition. Thus, contrary to Eduardo’s insistence, the
stockholder’s right to inspect corporate books is not without
limitations. It is now expressly required as a condition for such
examination that the one requesting it must not have been
guilty of using improperly any information secured through a
prior examination, or that the person asking for such
examination must be acting in good faith and for a legitimate
purpose in making his demand.
The serious allegations against Eduardo are
supported by official and other documents, such as board
resolutions, treasurer’s affidavits and written communication
from the respondent Eduardo himself, who appears to have
withheld his objections to these charges. His silence virtually
amounts to an acquiescence. Taken together, all these serve to
justify petitioners’ allegation that Eduardo was not acting in
good faith and for a legitimate purpose in making his demand
for inspection of the corporate books. Otherwise stated, there
is lack of probable cause to support the allegation that
petitioners violated Section 74 of the Corporation Code in
refusing respondent’s request for examination of the
corporation books.
RIGHT OF FIRST REFUSAL
J.G. SUMMIT HOLDINGS, INC. VS. COURT OF
APPEALS, ET.AL.
G.R. No. 124293
January 31, 2005
Facts:
The National Investment and Development
Corporation (NIDC), a government corporation, entered into a
Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. of Kobe, Japan (KAWASAKI) for the
construction, operation and management of the Subic National
Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation
(PHILSECO). Under the JVA, the NIDC and KAWASAKI
will contribute P330 million for the capitalization of
PHILSECO in the proportion of 60%-40% respectively. One
of its salient features was the grant to the parties of the right of
first refusal should either of them decide to sell, assign or
transfer its interest in the joint venture.
NIDC later transferred all its rights, title and interest
in PHILSECO to the Philippine National Bank (PNB). Such
interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14.
President Corazon C. Aquino then issued Proclamation No. 50
establishing the Committee on Privatization (COP) and the
Asset Privatization Trust (APT) to take title to, and possession
of, conserve, manage and dispose of non-performing assets of
the National Government. Thereafter, on February 27, 1987, a
trust agreement was entered into between the National
Government and the APT wherein the latter was named the
trustee of the National Government's share in PHILSECO. In
1989, as a result of a quasi-reorganization of PHILSECO to
settle its huge obligations to PNB, the National Government's
shareholdings in PHILSECO increased to 97.41% thereby
reducing KAWASAKI's shareholdings to 2.59%.
In the interest of the national economy and the
government, the COP and the APT deemed it best to sell the
National Government's share in PHILSECO to private entities.
After a series of negotiations between the APT and
KAWASAKI, they agreed that the latter's right of first refusal
under the JVA be "exchanged" for the right to top by five
percent (5%) the highest bid for the said shares. They further
agreed that KAWASAKI would be entitled to name a
company in which it was a stockholder, which could exercise
the right to top. On September 7, 1990, KAWASAKI
informed APT that Philyards Holdings, Inc. (PHI) would
exercise its right to top.
At the pre-bidding conference, interested bidders
were given copies of the JVA between NIDC and
KAWASAKI, and of the Asset Specific Bidding Rules
(ASBR) drafted for the National Government's 87.6% equity
share in PHILSECO. As petitioner was declared the highest
bidder, the COP approved the sale on December 3, 1993
"subject to the right of Kawasaki Heavy Industries,
Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5%
as specified in the bidding rules."
Petitioner protested the offer of PHI to top its bid
because it had no right of first refusal can be exercised in a
public bidding or auction sale. Petitioner was notified that PHI
had fully paid the balance of the purchase price of the subject
bidding. The APT notified petitioner that PHI had exercised
its option to top the highest bid and that the COP had
approved the same. The APT and PHI executed a Stock
Purchase Agreement.
Issue:
Whether KAWASAKI had a valid right of first
refusal over PHILSECO shares under the JVA considering
that PHILSECO owned land until the time of the bidding and
KAWASAKI already held 40% of PHILSECO’s equity
Held:
The Supreme Court upheld the validity of the mutual
rights of first refusal under the JVA between KAWASAKI
and NIDC. First of all, the right of first refusal is a property
right of PHILSECO shareholders, KAWASAKI and NIDC,
under the terms of their JVA. This right allows them to
purchase the shares of their co-shareholder before they are
offered to a third party. The agreement of co-shareholders to
mutually grant this right to each other, by itself, does not
constitute a violation of the provisions of the Constitution
limiting land ownership to Filipinos and Filipino corporations.
As PHILYARDS correctly puts it, if PHILSECO still owns
land, the right of first refusal can be validly assigned to a
qualified Filipino entity in order to maintain the 60%-40%
ratio. This transfer, by itself, does not amount to a violation of
the Anti-Dummy Laws, absent proof of any fraudulent intent.
The transfer could be made either to a nominee or such other
party which the holder of the right of first refusal feels it can
comfortably do business with. Alternatively, PHILSECO may
divest of its landholdings, in which case KAWASAKI, in
exercising its right of first refusal, can exceed 40% of
PHILSECO’s equity. In fact, it can even be said that if the
foreign shareholdings of a landholding corporation exceeds
40%, it is not the foreign stockholders’ ownership of the
shares which is adversely affected but the capacity of the
corporation to own land – that is, the corporation becomes
disqualified to own land.
This finds support under the basic corporate law
principle that the corporation and its stockholders are separate
juridical entities. In this vein, the right of first refusal over
shares pertains to the shareholders whereas the capacity to
own land pertains to the corporation. Hence, the fact that
PHILSECO owns land cannot deprive stockholders of their
right of first refusal. No law disqualifies a person from
purchasing shares in a landholding corporation even if the
latter will exceed the allowed foreign equity, what the law
disqualifies is the corporation from owning land.
As correctly observed by the public respondents, the
prohibition in the Constitution applies only to ownership of
land. It does not extend to immovable or real property as
defined under Article 415 of the Civil Code. Otherwise, we
would have a strange situation where the ownership of
immovable property such as trees, plants and growing fruit
attached to the land would be limited to Filipinos and Filipino
corporations only.
DISTRIBUTION OF DIVIDENDS
COMMISSIONER OF INTERNAL REVENUE VS. COURT OF
APPEALS
GR NO. 108576
JANUARY 20, 1999
Facts:
Don Andres Soriano, a citizen and resident of the
United States, formed the corporation “A. Soriano Y Cia”,
predecessor of ANSCOR. ANSCOR is wholly owned and
controlled by the family of Don Andres, who are all non-
resident aliens.  Don Andres died, but his estate continued to
receive stock dividends as well as his wife Doña Carmen
Soriano. Pursuant to a board resolution, ANSCOR redeemed a
considerable number of common shares from Don Andres’
estate. As stated in the Board Resolutions, ANSCOR’s
business purpose for both redemptions of stocks is to partially
retire said stocks as treasury shares in order to reduce the
company’s foreign exchange remittances in case cash
dividends are declared. ANSCOR also reclassified some of
Doña Carmen’s common shares to preferred shares. After
examining ANSCOR’s books of account and records,
Revenue examiners issued a report proposing that ANSCOR
be assessed for deficiency withholding tax-at-source based on
the transactions of exchange and redemption of stocks.  JOHN F. MCLEOD VS.NLRC, FILIPINAS SYNTHETIC
ANSCOR filed a petition for review with the CTA assailing
the tax assessments on the redemptions and exchange of
stocks. The CTA ruled that ANSCOR’s redemption and
exchange of the stocks of its foreign stockholders cannot be
considered as “essentially equivalent to a distribution of
taxable dividends” under Section 83(b) of the then 1939
Internal Revenue Act. ANSCOR avers that it has no duty to
withhold any tax either from the Don Andres estate or from
Doña Carmen based on the two transactions, because the same
were done for legitimate business purposes which are (a) to
reduce its foreign exchange remittances in the event the
company would declare cash dividends, and to (b)
subsequently “filipinized” ownership of ANSCOR, as
allegedly, envisioned by Don Andres. It likewise invoked the
amnesty provisions of P.D. 67.
Issues:
Whether ANSCOR’s redemption of stocks from its
stockholder and the exchange of stocks can be considered as
“essentially equivalent to the distribution of taxable dividend”
making the proceeds thereof taxable under the provisions of
the above-quoted law
Held:
The three elements in the imposition of income tax
are: (1) there must be gain or and profit, (2) that the gain or
profit is realized or received, actually or constructively, and
(3) it is not exempted by law or treaty from income tax. The
existence of legitimate business purposes in support of the
redemption of stock dividends is immaterial in income
taxation. The test of taxability under the exempting clause of
Section 83(b) is whether income was realized through the
redemption of stock dividends. The redemption converts into
money the stock dividends which become a realized profit or
gain and consequently, the stockholder’s separate
property.  Profits derived from the capital invested cannot
escape income tax. As realized income, the proceeds of the
redeemed stock dividends can be reached by income taxation
regardless of the existence of any business purpose for the
redemption. Hence, the proceeds are essentially considered
equivalent to a distribution of taxable dividends. As “taxable
dividend” under Section 83(b), it is part of the “entire income”
subject to tax under Section 22 ( tax on non-resident alien
individual) in relation to Section 21 (rates of tax on citizens or
residents) of the then 1939 Code. As income, it is subject to
income tax which is required to be withheld at source.
MERGER AND CONSOLIDATION
FIBER CORP. (FILSYN), FAR EASTERN TEXTILE
MILLS, INC., STA. ROSA TEXTILES, INC., (PEGGY
MILLS, INC.), PATRICIO L. LIM, AND ERIC HU.
Facts:
John F. McLeod filed a complaint for retirement and
several benefits plus damages against respondents.
Complainant alleged that respondent FILSYN has controlling
interest in PEGGY MILLS and that he was absorbed by Peggy
Mills as its Vice President and Plant Manager. He likewise
alleged that Filsyn sold Peggy Mills, Inc. to Far Eastern
Textile Mills, Inc and it was renamed Sta. Rosa Textile. The
owners of Far Eastern Textiles decided for cessation of
operations of Sta. Rosa Textiles consequently complainant
wrote letters requesting for his retirement and other benefits.
He alleged that respondents offered him compromise
settlement of only P300,000.00 which he rejected.
 Respondent alleged that the assets of PEGGY MILLS
were acquired by Sta. Rosa Textile Corporation but PEGGY
MILLS still exists. Respondents alleged that except for Peggy
Mills, the other respondents are not proper persons in interest
due to the lack of employer-employee relationship between
them and complainant.
The Labor Arbiter awarded complainant his back
wages plus moral damages which was deleted by the NLRC.
The Court of Appeals rejected McLeod’s theory that all
respondent corporations are the same corporate entity which
should be held solidarily liable for the payment of his
monetary claims. It upheld the NLRC’s finding that no
employer-employee relationship existed between McLeod and
respondent corporations except PEGGY MILLS and stated
that considering that PEGGY MILLS was no longer in
operation, its officer should be held liable for acting on behalf
of the corporation.
Issue: Whether there was a merger or consolidation resulting
into the assumption by Sta. Rosa of the liabilities of PEGGY
Mills.
Held:
What took place between PEGGY MILLS and Sta.
RosaI was dation in payment with lease. As a rule, a
corporation that purchases the assets of another will not be
liable for the debts of the selling corporation, provided the
former acted in good faith and paid adequate consideration for
such assets, except when any of the following circumstances is
present: (1) where the purchaser expressly or impliedly agrees
to assume the debts, (2) where the transaction amounts to a
consolidation or merger of the corporations, (3) where the
purchasing corporation is merely a continuation of the selling
corporation, and (4) where the selling corporation fraudulently
enters into the transaction to escape liability for those
debts.PEGGY MILLS transferred its assets to Sta. RosaI to
settle its obligation. PMI did not fraudulently transferred its
assets to escape its liability for any of its debts. PMI had
already paid its employees, except McLeod, their money
claims.
In the present case, there is no showing that the
subject dation in payment involved any corporate merger or
consolidation. Neither is there any showing of those indicative
factors that SRTI is a mere instrumentality of PMI. Moreover,
SRTI did not expressly or impliedly agree to assume any of
PMI’s debts. There being no proof of employer-employee
relationship between McLeod and respondent corporations,
McLeod’s cause of action is only against his former employer,
PMI.
ASSOCIATED BANK vs. CA
G. R. No. 123793
June 29, 1998
Facts:
Associated Banking Corporation and Citizens Bank
and Trust Company (CBTC) merged to form just one banking
corporation known as Associated Citizens Bank (later
renamed Associated Bank), the surviving bank. After the
merger agreement had been signed, but before a certificate of
merger was issued, respondent Lorenzo Sarmiento, Jr.
executed in favor of Associated Bank a promissory note,
promising to pay the bank P2.5 million on or before due date
at 14% interest per annum, among other accessory dues. For
failure to pay the amount due, Sarmiento was sued by
Associated Bank.
Respondent argued that the plaintiff is not the proper
party in interest because the promissory note was executed in
favor of CBTC. Also, while respondent executed the
promissory note in favor of CBTC, said note was a contract
pour autrui, one in favor of a third person who may demand its
fulfillment. Also, respondent claimed that he received no
consideration for the promissory note and, in support thereof,
cites petitioner's failure to submit any proof of his loan
application and of his actual receipt of the amount loaned.
Issues:
1.) Whether or not Associated Bank, the surviving
corporation, may enforce the promissory note made by private
respondent in favor of CBTC, the absorbed company, after the
merger agreement had been signed, but before a certificate of
merger was issued?
2.) Whether or not the promissory note was a contract
pour autrui and was issued without consideration?
Held:
1.) Associated Bank assumed all the rights of CBTC.
Although absorbed corporations are dissolved, there is no
winding up of their affairs or liquidation of their assets,
because the surviving corporation automatically acquires all
their rights, privileges and powers, as well as their liabilities.
The merger, however, does not become effective upon the
mere agreement of the constituent corporations. The Securities
and Exchange Commission (SEC) and majority of the
respective stockholders of the constituent corporations must
have approved the merger. (Section 79, Corporation Code) It
will be effective only upon the issuance by the SEC of a
certificate of merger. Records do not show when the SEC
approved the merger.
 But assuming that the effectivity date of the merger
was the date of its execution, we still cannot agree that
petitioner no longer has any interest in the promissory note.
The agreement itself clearly provides that all contracts —
irrespective of the date of execution — entered into in the
name of CBTC shall be understood as pertaining to the
surviving bank, herein petitioner. Such must have been
deliberately included in the agreement in order to avoid giving
the merger agreement a farcical interpretation aimed at
evading fulfillment of a due obligation. Thus, although the
subject promissory note names CBTC as the payee, the
reference to CBTC in the note shall be construed, under the
very provisions of the merger agreement, as a reference to
petitioner bank.
2.) On the issue that the promissory note was a
contract pour autrui and was issued without consideration, the
Supreme Court held it was not. In a contract pour autrui, an
incidental benefit or interest, which another person gains, is
not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person. The "fairest
test" in determining whether the third person's interest in a
contract is a stipulation pour autrui or merely an incidental
interest is to examine the intention of the parties as disclosed
by their contract. It did not indicate that a benefit or interest
was created in favor of a third person. The instrument itself
says nothing on the purpose of the loan, only the terms of
payment and the penalties in case of failure to pay.
Private respondent also claims that he received no
consideration for the promissory note, citing petitioner's
failure to submit any proof of his loan application and of his
actual receipt of the amount loaned. These arguments deserve
no merit. Res ipsa loquitur. The instrument, bearing the
signature of private respondent, speaks for itself. Respondent
Sarmiento has not questioned the genuineness and due
execution thereof. That he partially paid his obligation is itself
an express acknowledgment of his obligation.
BPI vs. BPI Employee’s Union
GR NO. 164301
Facts:
On March 23, 2000, the Bangko Sentral ng Pilipinas
approved the Articles of Merger executed on January 20, 2000
by and between BPI, herein petitioner, and FEBTC.[ This
Article and Plan of Merger was approved by the Securities and
Exchange Commission on April 7, 2000.Pursuant to the
Article and Plan of Merger, all the assets and liabilities of
FEBTC were transferred to and absorbed by BPI as the
surviving corporation. FEBTC employees, including those in
its different branches across the country, were hired by
petitioner as its own employees, with their status and tenure
recognized and salaries and benefits maintained. Respondent
BPI Employees Union-Davao Chapter - Federation of Unions
in BPI Unibank is the exclusive bargaining agent of BPI’s
rank and file employees in Davao City. The former FEBTC
rank-and-file employees in Davao City did not belong to any
labor union at the time of the merger. Prior to the effectivity
of the merger, or on March 31, 2000, respondent Union
invited said FEBTC employees to a meeting regarding the
Union Shop Clause of the existing CBA between petitioner
BPI and respondent Union After the meeting called by the
Union, some of the former FEBTC employees joined the
Union, while others refused. Later, however, some of those
who initially joined retracted their membership. Respondent
Union then sent notices to the former FEBTC employees who
refused to join, as well as those who retracted their
membership, and called them to a hearing regarding the
matter. When these former FEBTC employees refused to
attend the hearing, the president of the Union requested BPI to
implement the Union Shop Clause of the CBA and to
terminate their employment pursuant thereto. After two
months of management inaction on the request, respondent
Union informed petitioner BPI of its decision to refer the issue
of the implementation of the Union Shop Clause of the CBA
to the Grievance Committee. However, the issue remained
unresolved at this level and so it was subsequently submitted
for voluntary arbitration by the parties.
Issue: Whether or not the former FEBTC employees that were
absorbed by petitioner upon the merger between FEBTC and
BPI should be covered by the Union Shop Clause found in the
existing CBA between petitioner and respondent Union.
Held:
All employees in the bargaining unit covered by a
Union Shop Clause in their CBA with management are subject
to its terms. However, under law and jurisprudence, the
following kinds of employees are exempted from its coverage,
namely, employees who at the time the union shop agreement
takes effect are bona fide members of a religious organization
which prohibits its members from joining labor unions on
religious grounds;  employees already in the service and
already members of a union other than the majority at the time
the union shop agreement took effect confidential employees
who are excluded from the rank and file bargaining unit; [
and employees excluded from the union shop by express terms
of the agreement.
When certain employees are obliged to join a particular union
as a requisite for continued employment, as in the case of
Union Security Clauses, this condition is a valid restriction of
the freedom or right not to join any labor organization because
it is in favor of unionism.  This Court, on occasion, has even
held that a union security clause in a CBA is not a restriction
of the right of freedom of association guaranteed by the
Constitution.
         
          Moreover, a closed shop agreement is an agreement
whereby an employer binds himself to hire only members of
the contracting union who must continue to remain members
in good standing to keep their jobs.  It is “the most prized
achievement of unionism.”  It adds membership and
compulsory dues.  By holding out to loyal members a promise
of employment in the closed shop, it wields group solidarity.
                  
Indeed, the situation of the former FEBTC employees in this
case clearly does not fall within the first three exceptions to
the application of the Union Shop Clause discussed
earlier.  No allegation or evidence of religious exemption or
prior membership in another union or engagement as a
confidential employee was presented by both parties.  The sole
category therefore in which petitioner may prove its claim is
the fourth recognized exception or whether the former FEBTC
employees are excluded by the express terms of the existing
CBA between petitioner and respondent.   The lower court manifestly erred in declaring that,
 
          To reiterate, petitioner insists that the term “new
employees,” as the same is used in the Union Shop Clause of
the CBA at issue, refers only to employees hired by BPI
as non-regular employees who later qualify for regular
employment and become regular employees, and not those
who, as a legal consequence of a merger, are allegedly
automatically deemed regular employees of BPI.  However,
the CBA does not make a distinction as to how a regular
employee attains such a status.  Moreover, there is nothing in
the Corporation Law and the merger agreement mandating the
automatic employment as regular employees by the surviving
corporation in the merger.
DOCUMENTARY STAMP TAX
JOSE ANTONIO GABUCAN vs.HON. JUDGE LUIS D.
MANTA JOSEFA G. VDA. DE YSALINA and NELDA G.
ENCLONAR
Facts:
This case is about the dismissal of a petition for the
probate of a notarial will on the ground that it does not bear a
thirty-centavo documentary stamp.
The Court of First Instance in its "decision" in Special
Proceeding for the probate of the will of the late Rogaciano
Gabucan, dismissed the proceeding (erroneously characterizes
as an "action"). The proceeding was dismissed because the
requisite documentary stamp was not affixed to the notarial
acknowledgment in the will and, hence, according to
respondent Judge, it was not admissible in evidence.
Respondent Judge refused to reconsider the dismissal in spite
of petitioner's manifestation that he had already attached the
documentary stamp to the original of the will. The case was
brought to the Supreme by means of a petition for mandamus
to compel the lower court to allow petitioner's appeal from its
decision
Issue: Whether the probate of the will should be dismissed.
Held:
because no documentary stamp was affixed to the will, there
was "no will and testament to probate" and, consequently, the
alleged "action must of necessity be dismissed".
What the probate court should have done was to
require the petitioner or proponent to affix the requisite thirty-
centavo documentary stamp to the notarial acknowledgment of
the will which is the taxable portion of that document.
That procedure may be implied from the provision of
section 238 that the non-admissibility of the document, which
does not bear the requisite documentary stamp, subsists only
"until the requisite stamp or stamps shall have been affixed
thereto and cancelled."
Thus, it was held that the documentary stamp may be
affixed at the time the taxable document is presented in
evidence. If the promissory note does not bear a documentary
stamp, the court should have allowed plaintiff's tender of a
stamp to supply the deficiency. Note that the lack of the
documentary stamp on a document does not invalidate such
document.
VOTING TRUST AGREEMENT
LEE VS. COURT OF APPEALS
GR 93695
 4 February 1992
Facts:
On 15 November 1985, a complainant for sum of
money was filed by the International Corporate Bank, Inc.
against Sacoba Manufacturing Corp., Pablo Gonzales Jr., and
Tomas Gonzales who, in turn, filed a third party complaint
against Alfa Integrated Textile Mills (ALFA), Ramon C. Lee
(ALFA's president) and Antonio DM. Lacdao (ALFA's vice
president) on 17 March 1986. On 17 September 1987, Lee and
Lacdao filed a motion to dismiss the third party complaint
which the Regional Trial Court of Makati, Branch 58 denied
in an Order dated 27 June 1988. On 18 July 1988, Lee and
Lacdao filed their answer to the third party complaint.
Meanwhile, on 12 July 1988, the trial issued an order
requiring the issuance of an alias summons upon ALFA
through the DBP as a consequence of Lee and Lacdao's letter
informing the court that the summons for ALFA was
erroneously served upon them considering that the
management of ALFA had been transferred to the DBP. In a
manifestation dated 22 July 1988, the DBP claimed that it was
not authorized to receive summons on behalf of ALFA since
the DBP had not taken over the company which has a separate
and distinct corporate personality and existence. On 4 August
1988, the trial court issued an order advising Sacoba
Manufacturing, et. al. to take the appropriate steps to serve the
summons to ALFA. On 16 August 1988, Sacoba
Manufacturing, et. al. filed a Manifestation and Motion for the
Declaration of Proper Service of Summons which the trial
court granted on 17 August 1988. On 12 September 1988, Lee
and Lacdao filed a motion for reconsideration submitting that
the Rule 14, section 13 of the Revised Rules of Court is not
applicable since they were no longer officers of ALFA and
Sacoba Manufacturing, et. al. should have availed of another
mode of service under Rule 14, Section 16 of the said Rules,
i.e., through publication to effect proper service upon ALFA.
On 2 January 1989, the trial court upheld the validity of the
service of summons on ALFA through Lee and Lacdao, thus,
denying the latter's motion for reconsideration and requiring
ALFA to file its answer through Lee and Lacdao as its
corporate officers. On 19 January 1989, a second motion for
reconsideration was filed by Lee and Lacdao reiterating their
stand that by virtue of the voting trust agreement they ceased
to be officers and directors of ALFA, hence, they could no
longer receive summons or any court processes for or on
behalf of ALFA. In support of their second motion for
reconsideration, Lee and Lacdao attached thereto a copy of the
voting trust agreement between all the stockholders of ALFA
(Lee and Lacdao included), on the one hand, and the DBP, on
the other hand, whereby the management and control of
ALFA became vested upon the DBP. On 25 April 1989, the
trial court reversed itself by setting aside its previous Order
dated 2 January 1989 and declared that service upon Lee and
Lacdao who were no longer corporate officers of ALFA
cannot be considered as proper service of summons on ALFA.
On 15 May 1989, Sacoba Manufacturing, et. al. moved for a
reconsideration of the Order which was affirmed by the court
in is Order dated 14 August 1989 denying Sacoba
Manufacturing, et. al.'s motion for reconsideration. On 18
September 1989, a petition for certiorari was belatedly
submitted by Sacoba Manufacturing, et. al. before the Court of
Appeals which, nonetheless, resolved to give due course
thereto on 21 September 1989. On 17 October 1989, the trial
court, not having been notified of the pending petition for
certiorari with the appellate court issued an Order declaring as
final the Order dated 25 April 1989. Sacoba Manufacturing,
et. al. in the said Order were required to take positive steps in
prosecuting the third party complaint in order that the court
would not be constrained to dismiss the same for failure to
prosecute. Subsequently, on 25 October 1989 Sacoba
Manufacturing, et. al. filed a motion for reconsideration on
which the trial court took no further action. On 19 March
1990, after Lee and Lacdao filed their answer to Sacoba
Manufacturing, et. al.'s petition for certiorari, the appellate
court rendered its decision, setting aside the orders of trial
court judge dated 25 April 1989 and 14 August 1989. On 11
April 1990, Lee and Lacdao moved for a reconsideration of
the decision of the appellate court which resolved to deny the
same on 10 May 1990. Lee and Lacdao filed the petition for
certiorari. In the meantime, the appellate court inadvertently
made an entry of judgment on 16 July 1990 erroneously
applying the rule that the period during which a motion for
reconsideration has been pending must be deducted from the
15-day period to appeal. However, in its Resolution dated 3
January 1991, the appellate court set aside the aforestated
entry of judgment after further considering that the rule it
relied on applies to appeals from decisions of the Regional
Trial Courts to the Court of Appeals, not to appeals from its
decision to the Supreme Court pursuant to the Supreme
Court's ruling in the case of Refractories Corporation of the
Philippines v. Intermediate Appellate Court, 176 SCRA 539
[1989].
Issue:
(1) Whether the execution of the voting
trust agreement by Lee and Lacdao
whereby all their shares to the
corporation have been transferred to the
trustee deprives the stockholder of their
positions as directors of the corporation.
(2) Whether the five-year period of the
voting trust agreement in question had
lapsed in 1986 so that the legal title to
the stocks covered by the said voting
trust agreement ipso facto reverted to
Lee and Lacdao as beneficial owners
 pursuant to the 6th paragraph of section
59 of the new Corporation Code.
Held:
(1) Lee and Lacdao, by virtue of the voting trust
agreement executed in 1981 disposed of all their
shares through assignment and delivery in favor of
the DBP, as trustee. Consequently, Lee and Lacdao
ceased to own at least one share standing in their
names on the books of ALFA as required under
Section 23 of the new Corporation Code. They also
ceased to have anything to do with the management
of the enterprise. Lee and Lacdao ceased to be
directors. Hence, the transfer of their shares to the
DBP created vacancies in their respective positions as
directors of ALFA. The transfer of shares from the
stockholders of ALFA to the DBP is the essence of
the subject voting trust agreement. Considering that
the voting trust agreement between ALFA and the
DBP transferred legal ownership of the stocks
covered by the agreement to the DBP as trustee, the
latter because the stockholder of record with respect
to the said shares of stocks. In the absence of a
showing that the DBP had caused to be transferred in
their names one share of stock for the purpose of
qualifying as directors of ALFA, Lee and Lacdao can
no longer be deemed to have retained their status as
officers of ALFA which was the case before the
execution of the subject voting trust agreement.
There is no dispute from the records that DBP has
taken over full control and management of the firm.
(2) The 6th paragraph of section 59 of the new
Corporation Code reads that "Unless expressly
renewed, all rights granted in a voting trust
agreement shall automatically expire at the end of the
agreed period, and the voting trust certificates as well
as the certificates of stock in the name of the trustee
or trustees shall thereby be deemed cancelled and
new certificates of stock shall be reissued in the name
of the transferors." However, it is manifestly clear
from the terms of the voting trust agreement between
ALFA and the DBP that the duration of the
agreement is contingent upon the fulfillment of
certain obligations of ALFA with the DBP. Had the
five-year period of the voting trust agreement expired
in 1986, the DBP would not have transferred an its
rights, titles and interests in ALFA "effective June
30, 1986" to the national government through the
Asset Privatization Trust (APT) as attested to in a
Certification dated 24 January 1989 of the Vice
President of the DBP's Special Accounts Department
II. In the same certification, it is stated that the DBP,
from 1987 until 1989, had handled s account which
included ALFA's assets pursuant to a management
agreement by and between the DBP and APT. Hence,
there is evidence on record that at the time of the
service of summons on ALFA through Lee and
Lacdao on 21 August 1987, the voting trust
agreement in question was not yet terminated so that
the legal title to the stocks of ALFA, then, still
belonged to the DBP.
In Re: Petition for Assistance in the Liquidation in the
Rural Bank of Bokod (Benguet), PDIC
vs. Bureau of Internal Revenue
GR No. 158261
December 18, 2006
511 SCRA 123
Facts:
A special examination of Rural Bank of Bokod
(Benguet), Inc. (RBBI) was conducted by the Supervision and
Examination Sector (SES) Department III of what is now the
Bangko Sentral ng Pilipinas (BSP), wherein various loan
irregularities were uncovered. SES Department III required
the RRBI management to infuse fresh capital into the bank,
within 30 days from date of the advice, and to correct all the
exceptions noted. However, up to the termination of the
subsequent general examination conducted by the SES
Department III, no concrete action was taken by the RBBI
management. In view of the irregularities noted and the
insolvent condition of RBBI, the members of the RBBI Board
of Directors were called for a conference at the BSP. Only one
RBBI Director, a certain Mr. Wakit, attended the conference,
and the examination findings and related recommendations
were discussed with him.  In a letter, receipt of which was
acknowledged by Mr. Wakit, the SES Department III warned
the RBBI Board of Directors that, unless substantial remedial
measures are taken to rehabilitate the bank, it will recommend
that the bank be placed under receivership. In a subsequent
letter, a copy of which was sent to every member of th RBBI
Board of Directors via registered mail, the SES Department III
reiterated its warning that it would recommend the closure of
the bank, unless the needed fresh capital was immediately
infused. Despite these notices, the SES Department III
received no word from RBBI or from any of its Directors. 
In a meeting, the Monetary Board of the BSP decided
to take the following: forbid the bank to do business in the
Philippines and place its assets and affairs under receivership
in accordance with Section 29 of RA No. 265 as amended;
designate the Special Assistant to the Governor and Head,
SES Department III, as Receiver of the bank; refer the cases of
irregularities/frauds to the Office of Special Investigation for
further investigation and possible filing of appropriate charges
against the following present/former officers and employees of
the bank. A memorandum and report, were submitted by the
Director of the SES Department III concluding that the RBBI
remained in insolvent financial condition and it can no longer
safely resume business with the depositors, creditors, and the
general public. The Monetary Board, after determining and
confirming the said memorandum and report, ordered the
liquidation of the bank and designated the Director of the SES
Department III as liquidator. The designated BSP liquidator of
RBBI caused the filing with the RTC of a Petition for
Assistance in the Liquidation of RBBI. Subsequently, the
Monetary Board transferred to herein Philippine Deposit
Insurance Corporation (PDIC) the receivership/liquidation of
RBBI.  G.R. No. 164182
PDIC then filed a Motion for Approval of Project of
Distribution of the assets of RBBI, in accordance with Section
31, in relation to Section 30 of Republic Act No. 7653,
otherwise known as the New Central Bank Act. During the
hearing, the Bureau of Internal Revenue (BIR), through Atty.
Justo Reginaldo, manifested that PDIC should secure a tax
clearance certificate from the appropriate BIR Regional
Office, pursuant to Section 52(C) of the Tax Code of 1997
within 30 days from receipt of a copy of the said order.
Pending compliance therewith, the RTC held in abeyance the
Motion for Approval of Project of Distribution. In order
therefore that all taxes due the government should be paid,
petitioner should secure a tax clearance from the BIR.
Hence, PDIC filed the present Petition for Review on
Certiorari, under Rule 45 of the revised Rules of Court, raising
pure questions of law. PDIC argues that the closure of banks
under Section 30 of the New Central Bank Act is summary in
nature and procurement of tax clearance as required under
Section 52(C) of the Tax Code of 1997 is not a condition
precedent thereto; that under Section 30, in relation to Section
31, of the New Central Bank Act, asset distribution of a closed
bank requires only the approval of the liquidation court; and
that the BIR is not without recourse since, subject to the
applicable provisions of the Tax Code of 1997, it may
therefore assess the closed RBBI for tax liabilities, if any.  mail box, webpages of two (2) members, and lists of Business
Issue:
Whether or not RBBI, as represented by its
liquidator, PDIC, still needs to secure a tax clearance from the
BIR before the RTC could approve the Project of Distribution
of the assets of RBBI.
Held:
Section 30 of the New Central Bank Act lays down
the proceedings for receivership and liquidation of a bank. The
said provision is silent as regards the securing of a tax
clearance from the BIR. The omission, nonetheless, cannot
compel this Court to apply by analogy the tax clearance
requirement of the SEC, as stated in Section 52(C) of the Tax
Code of 1997 and BIR-SEC Regulations No. 1, since, again,
the dissolution of a corporation by the SEC is a totally
different proceeding from the receivership and liquidation of a
bank by the BSP. This Court cannot simply replace any
reference by Section 52(C) of the Tax Code of 1997 and the
provisions of the BIR-SEC Regulations No. 1 to the "SEC"
with the "BSP." To do so would be to read into the law and the
regulations something that is simply not there and would be
tantamount to judicial legislation.  The HOWEY TEST is the test established to
It should be noted that there are substantial
differences in the procedure for involuntary dissolution and
liquidation of a corporation under the Corporation Code, and
that of a banking corporation under the New Central Bank
Act, so that the requirements in one cannot simply be imposed
in the other.
POWER HOMES UNLIMITED CORPORATION vs.SEC
February 26, 2008
546 SCRA 567
Facts:
Petitioner is a domestic corporation duly registered
with public respondent SEC. Its primary purpose is: To
engage in the transaction of promoting, acquiring, managing,
leasing, obtaining options on, development, and improvement
of real estate properties for subdivision and allied purposes,
and in the purchase, sale and/or exchange of said subdivision
and properties through network marketing.”
Noel Manero requested public respondent SEC to
investigate petitioner’s business. He claimed that he attended a
seminar conducted by petitioner where the latter claimed to
sell properties that were inexistent and without any broker’s
license. One Romulo E. Munsayac, Jr. inquired from public
respondent SEC whether petitioner’s business involves
"legitimate network marketing." To address the issue, SEC
conducted a conference with the incorporators. Also,
thepetitioner submitted their marketing modules and their
letters of accreditation authority from Crown Asia, Fil-Estate
Network and Pioneer 29 Realty Corporation. SEC visited the
business premises of petitioner wherein it gathered documents
such as certificates of accreditation to several real estate
companies, list of members with web sites, sample of member
Center Owners who are qualified to acquire real estate
properties and materials on computer tutorials.
SEC found that the petitioner is engaged in the sale
or offer for sale or distribution of investment contracts, which
are considered securities under Sec. 3.1 (b) of Republic Act
(R.A.) No. 8799 (The Securities Regulation Code), but failed
to register them in violation of Sec. 8.1 of the same Act, and
issued a Cease and Desist Order. The order was appealed but
the Court of Appeals affirmed the SEC.
Issue:
Whether the business of petitioner involves an
investment contract that is considered security11 and thus,
must be registered prior to sale or offer for sale or distribution
to the public pursuant to Section 8.1 of R.A. No. 8799
Held:
Yes. The business of the petitioner involves an
investment contract. It is a “contract, transaction or scheme
(collectively ‘contract’) whereby a person invests his money
in a common enterprise and is led to expect profits primarily
from the efforts of others.” (R.A. 8799) 
determine whether a transaction falls within the scope of an
investment contract. It requires that a person:
 1. Makes an investment of money;
2. In a common enterprise;
3. With the expectation of profits;
4. To be derived primarily from the efforts of others.
 “We therefore rule that the business operation or the
scheme of petitioner constitutes an investment contract that is
a security under R.A. No. 8799. Thus, it must be registered
with public respondent SEC before its sale or offer for sale or
distribution to the public. As petitioner failed to register the
same, its offering to the public was rightfully enjoined by
public respondent SEC. The CDO was proper even without a
finding of fraud. As an investment contract that is security
under R.A. No. 8799, it must be registered with public
respondent SEC, otherwise the SEC cannot protect the
investing public from fraudulent securities. The strict
regulation of securities is founded on the premise that the
capital markets depend on the investing public’s level of
confidence in the system.”
The Mentholatum Co. Inc. vs. Mangaliman
GR 47701
27 June 1941
78 Phil. 525
Facts:
The Mentholatum Co., Inc., is a Kansas corporation
which manufactures "Mentholatum," a medicament and salve
adapted for the treatment of colds, nasal irritations, chapped
skin, insect bites, rectal irritation and other external ailments
of the body. The Philippine-American Drug Co., Inc., is its
exclusive distributing agent in the Philippines authorized by it
to look after and protect its interests. On 26 June 1919 and on
21 January 1921, the Mentholatum Co., Inc., registered with
the Bureau of Commerce and Industry the word,
"Mentholatum", as trade mark for its products. The
Mangaliman brothers prepared a medicament and salve named
"Mentholiman" which they sold to the public packed in a
container of the same size, color and shape as "Mentholatum."
As a consequence of these acts of the Mangalimans,
Mentholatum suffered damages from the diminution of their
sales and the loss of goodwill and reputation of their product
in the market. On 1 October 1935, the Mentholatum Co., Inc.,
and the Philippine-American Drug, Co., Inc. instituted an
action in the Court of First Instance (CFI) of Manila against
Anacleto Mangaliman, Florencio Mangaliman and the
Director of the Bureau of Commerce for infringement of trade
mark and unfair competition. Mentholatum prayed for the
issuance of an order restraining Mangalimans from selling
their product "Mentholiman," and directing them to render an
accounting of their sales and profits and to pay damages. After
a protracted trial, the Court of First Instance of Manila
rendered judgment in favor of Mentholatum. In the Court of
Appeals, the decision of the trial court was reversed, said
tribunal holding that the activities of the Mentholatum Inc.,
were business transactions in the Philippines, and that by
section 69 of the Corporation Law, it may not maintain the
suit. Hence, Mentholatum filed the instant petition for
certiorari.
Issue:
Whether Mentholatum could prosecute the instant
action without having secured the license required in section
69 of the Corporation Law.
Held:
No general rule or governing principle can be laid
down as to what constitutes "doing" or "engaging in" or
"transacting" business. The true test, however, seems to be
whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and
turned it over to another. The term implies a continuity of
commercial dealings and arrangements, and contemplates, to
that extent, the performance of acts or works or the exercise of
some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization.
Herein, Mentholatum Co., through its agent, the Philippine-
American Drug Co., Inc., has been doing business in the
Philippines by selling its products here since the year 1929, at
least. Whatever transactions the Philippine-American Drug
Co., Inc., had executed in view of the law, the Mentholatum
Co., Inc., being a foreign corporation doing business in the
Philippines without the license required by section 68 of the
Corporation Law, it may not prosecute this action for violation
of trade mark and unfair competition. Neither may the
Philippine-American Drug Co., Inc., maintain the action here
for the reason that the distinguishing features of the agent
being his representative character and derivative authority, it
cannot now, to the advantage of its principal, claim an
independent standing in court. Further, the recognition of the
legal status of a foreign corporation is a matter affecting the
policy of the forum, and the distinction drawn in Philippine
Corporation Law is an expression of the policy.
Agilent Technologies Singapore vs. Integrated Silicon
Techngology Philippines Corp.
GR 154618
14 April 2004
427 SCRA 593
Facts:
Agilent Technologies Singapore (Pte.), Ltd. is a
foreign corporation, which, by its own admission, is not
licensed to do business in the Philippines. Integrated Silicon
Technology Philippines Corporation is a private domestic
corporation, 100% foreign owned, which is engaged in the
business of manufacturing and assembling electronics
components. Teoh Kiang Hong, Teoh Kiang Seng and
Anthony Choo, Malaysian nationals, are current members of
Integrated Silicon’s board of directors, while Joanne Kate M.
dela Cruz, Jean Kay M. dela Cruz, and Rolando T. Nacilla are
its former members.
The juridical relation among the various parties in the
case can be traced to a 5-year Value Added Assembly
Services Agreement (VAASA), entered into on 2 April 1996
between Integrated Silicon and the Hewlett-Packard Singapore
(Pte.) Ltd., Singapore Components Operation (HP-Singapore).
Under the terms of the VAASA, Integrated Silicon was to
locally manufacture and assemble fiber optics for export to
HP-Singapore. HP-Singapore, for its part, was to consign raw
materials to Integrated Silicon; transport machinery to the
plant of Integrated Silicon; and pay Integrated Silicon the
purchase price of the finished products. The VAASA had a
five-year term, beginning on 2 April 1996, with a provision
for annual renewal by mutual written consent. On 19
September 1999, with the consent of Integrated Silicon, HP-
Singapore assigned all its rights and obligations in the
VAASA to Agilent. On 25 May 2001, Integrated Silicon filed
a complaint for “Specific Performance and Damages” against
Agilent and its officers Tan Bian Ee, Lim Chin Hong, Tey
Boon Teck and Francis Khor alleging that Agilent breached
the parties’ oral agreement to extend the VAASA. Integrated
Silicon thus prayed that Agilent be ordered to execute a
written extension of the VAASA for a period of five years as
earlier assured and promised; to comply with the extended
VAASA; and to pay actual, moral, exemplary damages and
attorney’s fees. On 1 June 2001, summons and a copy of the
complaint were served on Atty. Ramon Quisumbing, who
returned these processes on the claim that he was not the
registered agent of Agilent. Later, he entered a special
appearance to assail the court’s jurisdiction over the person of
Agilent. On 2 July 2001, Agilent filed a separate complaint
against Integrated Silicon, Teoh Kang Seng, Teoh Kiang
Gong, Anthony Choo, Joanne Kate M. dela Cruz, Jean Kay M.
dela Cruz and Rolando T. Nacilla, for “Specific Performance,
Recovery of Possession, and Sum of Money with Replevin,
Preliminary Mandatory Injunction, and Damages”, before the
Regional Trial Court, Calamba, Laguna, Branch 9). Agilent
prayed that a writ of replevin or, in the alternative, a writ of
preliminary mandatory injunction, be issued ordering
Integrated Silicon, et. al. to immediately return and deliver to
Agilent its equipment, machineries and the materials to be
used for fiber-optic components which were left in the plant of
Integrated Silicon; and that the latter be ordered to pay actual
and exemplary damages and attorney’s fees. Integrated
Silicon, et. al. filed a Motion to Dismiss in Civil Case No.
3123-2001-C, on the grounds of lack of Agilent’s legal
capacity to sue; litis pendentia; forum shopping; and failure to
state a cause of action. On 4 September 2001, the trial court
denied the Motion to Dismiss and granted Agilent’s
application for a writ of replevin. Without filing a motion for
reconsideration, Integrated Silicon, et. al. filed a petition for
certiorari with the Court of Appeals. In the meantime, upon
motion filed by Integrated Silicon, et. al., Judge Antonio S.
Pozas of Branch 92 voluntarily inhibited himself in Civil Case
3123-2001-C. The case was re-raffled and assigned to Branch
35, the same branch where Civil Case 3110-2001-C is
pending. On 12 August 2002, the Court of Appeals granted
Integrated Silicon, et. al.’s petition for certiorari, set aside the
assailed Order of the trial court dated 4 September 2001, and
ordered the dismissal of Civil Case 3123-2001-C. Agilent filed
the petition for review.
Issue [1]: Whether a foreign corporation without a license is
incapacitated from bringing an action in Philippine courts.
Held [1]: A foreign corporation without a license is not ipso
facto incapacitated from bringing an action in Philippine
courts. A license is necessary only if a foreign corporation is
“transacting” or “doing business” in the country. Section 133
of the Corporation Code provides that "No foreign corporation
transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation
may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action
recognized under Philippine laws." The aforementioned
provision prevents an unlicensed foreign corporation “doing
business” in the Philippines from accessing our courts. In a
number of cases, however, the Court held that an unlicensed
foreign corporation doing business in the Philippines may
bring suit in Philippine courts against a Philippine citizen or
entity who had contracted with and benefited from said
corporation. Such a suit is premised on the doctrine of
estoppel. A party is estopped from challenging the personality
of a corporation after having acknowledged the same by
entering into a contract with it. This doctrine of estoppel to
deny corporate existence and capacity applies to foreign as
well as domestic corporations. The application of this
principle prevents a person contracting with a foreign
corporation from later taking advantage of its noncompliance
with the statutes chiefly in cases where such person has
received the benefits of the contract. The principles regarding
the right of a foreign corporation to bring suit in Philippine
courts may thus be condensed in four statements: (1) if a
foreign corporation does business in the Philippines without a
license, it cannot sue before the Philippine courts; (2) if a
foreign corporation is not doing business in the Philippines, it
needs no license to sue before Philippine courts on an isolated
transaction or on a cause of action entirely independent of any
business transaction; (3) if a foreign corporation does business
in the Philippines without a license, a Philippine citizen or
entity which has contracted with said corporation may be
estopped from challenging the foreign corporation’s corporate
personality in a suit brought before Philippine courts; and (4)
if a foreign corporation does business in the Philippines with
the required license, it can sue before Philippine courts on any
transaction.
Issue [2]: Whether Agilent was doing business in the
Philippines.
Held [2]: The challenge to Agilent’s legal capacity to file suit
hinges on whether or not it is doing business in the
Philippines. However, there is no definitive rule on what
constitutes “doing”, “engaging in”, or “transacting” business
in the Philippines, the Corporation Code itself is silent as to
what acts constitute doing or transacting business in the
Philippines. An analysis of the relevant case law, in
conjunction with Section 1 of the Implementing Rules and
Regulations of the Foreign Investments Act of 1991 (FIA, as
amended by RA 8179), would demonstrate that the acts
enumerated in the VAASA do not constitute “doing business”
in the Philippines.
By and large, to constitute “doing business”, the
activity to be undertaken in the Philippines is one that is for
profit-making. Herein, by the clear terms of the VAASA,
Agilent’s activities in the Philippines were confined to (1)
maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by Integrated Silicon;
and (2) consignment of equipment with Integrated Silicon to
be used in the processing of products for export. As such,
Agilent cannot be deemed to be “doing business” in the
Philippines. Integrated Silicon, et. al.’s contention that Agilent
lacks the legal capacity to file suit is therefore devoid of merit.
As a foreign corporation not doing business in the Philippines,
it needed no license before it can sue before our court.
GELANO vs COURT of APPEALS
G.R. No. L-39050
February 24, 1981

Facts: Private respondent Insular Sawmill, Inc. is a
corporation organized on September 17, 1945 with a corporate
life of fifty (50) years, or up to September 17, 1995, with the
primary purpose of carrying on a general lumber and sawmill
business. To carry on this business, private respondent leased
the paraphernal property of petitioner-wife Guillermina M.
Gelano at the corner of Canonigo and Otis, Paco, Manila for
P1,200.00 a month. It was while private respondent was
leasing the aforesaid property that its officers and directors
had come to know petitioner-husband Carlos Gelano who
received from the corporation cash advances on account of
rentals to be paid by the corporation on the land.
Between November 19, 1947 to December 26, 1950
petitioner Carlos Gelano obtained from private respondent
cash advances of P25,950.00. The said sum was taken and
received by petitioner Carlos Gelano on the agreement that
private respondent could deduct the same from the monthly
rentals of the leased premises until said cash advances are
fully paid. Out of the aforementioned cash advances in the
total sum of P25,950.00, petitioner Carlos Gelano was able to
pay only P5,950.00 thereby leaving an unpaid balance of
P20,000.00 which he refused to pay despite repeated demands
by private respondent. Petitioner Guillermina M. Gelano
refused to pay on the ground that said amount was for the
personal account of her husband asked for by, and given to
him, without her knowledge and consent and did not benefit
the family.
On various occasions from May 4, 1948 to
September 11, 1949 petitioners husband and wife also made
credit purchases of lumber materials from private respondent
with a total price of P1,120.46 in connection with the repair
and improvement of petitioners' residence. On November 9,
1949 partial payment was made by petitioners in the amount
of P91.00 and in view of the cash discount in favor of
petitioners in the amount of P83.00, the amount due private
respondent on account of credit purchases of lumber materials
is P946.46 which petitioners failed to pay.
On July 14, 1952, in order to accommodate and help
petitioners renew previous loans obtained by them from the
China Banking Corporation, private respondent, through
Joseph Tan Yoc Su, executed a joint and several promissory
note with Carlos Gelano in favor of said bank in the amount of
P8,000.00 payable in sixty (60) days. For failure of Carlos
Gelano to pay the promissory note upon maturity, the bank
collected from the respondent corporation the amount of
P9,106.00 including interests, by debiting it from the
corporation's current account with the bank. Petitioner Carlos
Gelano was able to pay private respondent the amount of
P5,000.00 but the balance of P4,106.00 remained unsettled.
Guillermina M. Gelano refused to pay on the ground that she
had no knowledge about the accommodation made by the
corporation in favor of her husband.
On May 29, 1959 the corporation, thru Atty. German
Lee, filed a complaint for collection against herein petitioners
before the Court of First Instance of Manila. Trial was held
and when the case was at the stage of submitting
memorandum, Atty. Lee retired from active law practice and
Atty. Eduardo F. Elizalde took over and prepared the
memorandum.
In the meantime, private respondent amended its
Articles of Incorporation to shorten its term of existence up to
December 31, 1960 only. The amended Articles of
Incorporation was filed with, and approved by the Securities
and Exchange Commission, but the trial court was not notified
of the amendment shortening the corporate existence and no
substitution of party was ever made. On November 20, 1964
and almost four (4) years after the dissolution of the
corporation, the trial court rendered a decision in favor of
private respondent.
Issue: Whether or not a corporation, whose corporate life had
ceased by the expiration of its term of existence, could still
continue prosecuting and defending suits after its dissolution
and beyond the period of three years provided for under Act
No. 1459, otherwise known as the Corporation law, to wind up
its affairs, without having undertaken any step to transfer its
assets to a trustee or assignee.
Held: Yes. The complaint in this case was filed on May 29,
1959 when private respondent Insular Sawmill, Inc. was still
existing. While the case was being tried, the stockholders
amended its Articles of Incorporation by shortening the term
of its existence from December 31, 1995 to December 31,
1960, which was approved by the Securities and Exchange
Commission.
In American corporate law, upon which our
Corporation Law was patterned, it is well settled that, unless
the statutes otherwise provide, all pending suits and actions by
and against a corporation are abated by a dissolution of the
corporationSection 77 of the Corporation Law provides that
the corporation shall "be continued as a body corporate for
three (3) years after the time when it would have been ...
dissolved, for the purpose of prosecuting and defending suits
By or against it ...," so that, thereafter, it shall no longer enjoy
corporate existence for such purpose. For this reason, Section
78 of the same law authorizes the corporation, "at any time
during said three years ... to convey all of its property to
trustees for the benefit of members, Stockholders, creditors
and other interested," evidently for the purpose, among others,
of enabling said trustees to prosecute and defend suits by or
against the corporation begun before the expiration of said
period. Commenting on said sections, Justice Fisher said: “It is
to be noted that the time during which the corporation, through
its own officers, may conduct the liquidation of its assets and
sue and be sued as a corporation is limited to three years from
the time the period of dissolution commences; but that there is
no time limited within which the trustees must complete a
liquidation placed in their hands. It is provided only (Corp.
Law, Sec. 78) that the conveyance to the trustees must be
made within the three-year period. It may be found impossible
to complete the work of liquidation within the three-year
period or to reduce disputed claims to judgment. The
authorities are to the effect that suits by or against a
corporation abate when it ceased to be an entity capable of
suing or being sued (7 R.C.L. Corps., Par. 750); but trustees to
whom the corporate assets have been conveyed pursuant to the
authority of Section 78 may sue and be sued as such in all
matters connected with the liquidation. By the terms of the
statute the effect of the conveyance is to make the trustees the
legal owners of the property conveyed, subject to the
beneficial interest therein of creditors and stockholders.”
When Insular Sawmill, Inc. was dissolved on
December 31, 1960, under Section 77 of the Corporation Law,
it still has the right until December 31, 1963 to prosecute in its
name the present case. After the expiration of said period, the
corporation ceased to exist for all purposes and it can no
longer sue or be sued.
However, a corporation that has a pending action and
which cannot be terminated within the three-year period after
its dissolution is authorized under Section 78 to convey all its
property to trustees to enable it to prosecute and defend suits
by or against the corporation beyond the Three-year period
although private respondent (did not appoint any trustee, yet
the counsel who prosecuted and defended the interest of the
corporation in the instant case and who in fact appeared in
behalf of the corporation may be considered a trustee of the
corporation at least with respect to the matter in litigation
only. Said counsel had been handling the case when the same
was pending before the trial court until it was appealed before
the Court of Appeals and finally to this Court. We therefore
hold that there was a substantial compliance with Section 78
of the Corporation Law and as such, private respondent
Insular Sawmill, Inc. could still continue prosecuting the
present case even beyond the period of three (3) years from
the time of its dissolution.
From the above quoted commentary of Justice Fisher,
the trustee may commence a suit which can proceed to final
judgment even beyond the three-year period. No reason can be
conceived why a suit already commenced By the corporation
itself during its existence, not by a mere trustee who, by
fiction, merely continues the legal personality of the dissolved
corporation should not be accorded similar treatment allowed
— to proceed to final judgment and execution thereof. The
word "trustee" as sued in the corporation statute must be
understood in its general concept which could include the
counsel to whom was entrusted in the instant case, the
prosecution of the suit filed by the corporation. The purpose in
the transfer of the assets of the corporation to a trustee upon its
dissolution is more for the protection of its creditor and
stockholders. Debtors like the petitioners herein may not take
advantage of the failure of the corporation to transfer its assets
to a trustee, assuming it has any to transfer which petitioner
has failed to show, in the first place. To sustain petitioners'
contention would be to allow them to enrich themselves at the
expense of another, which all enlightened legal systems
condemn.
PHILIPPINE STOCK EXCHANGE, INC. vs. COURT OF
APPEALS
G.R. No. 125469
October 27, 1997
Facts: The Puerto Azul Land, Inc. (PALI), a domestic real
estate corporation, had sought to offer its shares to the public
in order to raise funds allegedly to develop its properties and
pay its loans with several banking institutions. In January,
1995, PALI was issued a Permit to Sell its shares to the public
by the Securities and Exchange Commission (SEC). To
facilitate the trading of its shares among investors, PALI
sought to course the trading of its shares through the
Philippine Stock Exchange, Inc. (PSE), for which purpose it
filed with the said stock exchange an application to list its
shares, with supporting documents attached. On February 8,
1996, the Listing Committee of the PSE, upon a perusal of
PALI's application, recommended to the PSE's Board of
Governors the approval of PALI's listing application. On
February 14, 1996, before it could act upon PALI's
application, the Board of Governors of the PSE received a
letter from the heirs of Ferdinand E. Marcos, claiming that the
late President Marcos was the legal and beneficial owner of
certain properties forming part of the Puerto Azul Beach Hotel
and Resort Complex which PALI claims to be among its
assets and that the Ternate Development Corporation, which is
among the stockholders of PALI, likewise appears to have
been held and continue to be held in trust by one Rebecco
Panlilio for then President Marcos and now, effectively for his
estate, and requested PALI's application to be deferred. PALI
was requested to comment upon the said letter.
PALI's answer stated that the properties forming part
of the Puerto Azul Beach Hotel and Resort Complex were not
claimed by PALI as its assets. On the contrary, the resort is
actually owned by Fantasia Filipina Resort, Inc. and the Puerto
Azul Country Club, entities distinct from PALI. Furthermore,
the Ternate Development Corporation owns only 1.20% of
PALI. The Marcoses responded that their claim is not
confined to the facilities forming part of the Puerto Azul Hotel
and Resort Complex, thereby implying that they are also
asserting legal and beneficial ownership of other properties
titled under the name of PALI. On February 20, 1996, the PSE
wrote Chairman Magtanggol Gunigundo of the Presidential
Commission on Good Government (PCGG) requesting for
comments on the letters of the PALI and the Marcoses. On
March 4, 1996, the PSE was informed that the Marcoses
received a Temporary Restraining Order on the same date,
enjoining the Marcoses from, among others, "further
impeding, obstructing, delaying or interfering in any manner
by or any means with the consideration, processing and
approval by the PSE of the initial public offering of PALI."
The TRO was issued by Judge Martin S. Villarama, Executive
Judge of the RTC of Pasig City in Civil Case No. 65561,
pending in Branch 69 thereof. In its regular meeting held on
March 27, 1996, the Board of Governors of the PSE reached
its decision to reject PALI's application, citing the existence of
serious claims, issues and circumstances surrounding PALI's
ownership over its assets that adversely affect the suitability of
listing PALI's shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC
addressed to the then Acting Chairman, Perfecto R. Yasay, Jr.,
bringing to the SEC's attention the action taken by the PSE in
the application of PALI for the listing of its shares with the
PSE, and requesting that the SEC, in the exercise of its
supervisory and regulatory powers over stock exchanges under
Section 6(j) of P.D. No. 902-A, review the PSE's action on
PALI's listing application and institute such measures as are
just and proper under the circumstances. On the same date, or
on April 11, 1996, the SEC wrote to the PSE, attaching thereto
the letter of PALI and directing the PSE to file its comments
thereto within five days from its receipt and for its authorized
representative to appear for an "inquiry" on the matter. On
April 22, 1996, the PSE submitted a letter to the SEC
containing its comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the
PSE's decision.
Issue: Whether or not SEC has the power or jurisdiction to
reverse the ruling of Philippine Stock Exchange in this case.
Held: No. The role of the SEC in our national economy
cannot be minimized. The legislature, through the Revised
Securities Act, Presidential Decree No. 902-A, and other
pertinent laws, has entrusted to it the serious responsibility of
enforcing all laws affecting corporations and other forms of
associations not otherwise vested in some other government
office. This is not to say, however, that the PSE's management
prerogatives are under the absolute control of the SEC. The
PSE is, alter all, a corporation authorized by its corporate
franchise to engage in its proposed and duly approved
business. One of the PSE's main concerns, as such, is still the
generation of profit for its stockholders. Moreover, the PSE
has all the rights pertaining to corporations, including the right
to sue and be sued, to hold property in its own name, to enter
(or not to enter) into contracts with third persons, and to
perform all other legal acts within its allocated express or
implied powers.
A corporation is but an association of individuals, allowed to
transact under an assumed corporate name, and with a distinct
legal personality. In organizing itself as a collective body, it
waives no constitutional immunities and perquisites
appropriate to such a body. 11 As to its corporate and
management decisions, therefore, the state will generally not
interfere with the same. Questions of policy and of
management are left to the honest decision of the officers and
directors of a corporation, and the courts are without authority
to substitute their judgment for the judgment of the board of
directors. The board is the business manager of the
corporation, and so long as it acts in good faith, its orders are
not reviewable by the courts.
Thus, notwithstanding the regulatory power of the
SEC over the PSE, and the resultant authority to reverse the
PSE's decision in matters of application for listing in the
market, the SEC may exercise such power only if the PSE's
judgment is attended by bad faith. In Board of Liquidators vs.
Kalaw, 13 it was held that bad faith does not simply connote
bad judgment or negligence. It imports a dishonest purpose or
some moral obliquity and conscious doing of wrong. It means
a breach of a known duty through some motive or interest of
ill will, partaking of the nature of fraud.
In reaching its decision to deny the application for
listing of PALI, the PSE considered important facts, which, in
the general scheme, brings to serious question the qualification
of PALI to sell its shares to the public through the stock
exchange. During the time for receiving objections to the
application, the PSE heard from the representative of the late
President Ferdinand E. Marcos and his family who claim the
properties of the private respondent to be part of the Marcos
estate. In time, the PCGG confirmed this claim. In fact, an
order of sequestration has been issued covering the properties
of PALI, and suit for reconveyance to the state has been filed
in the Sandiganbayan Court. How the properties were
effectively transferred, despite the sequestration order, from
the TDC and MSDC to Rebecco Panlilio, and to the private
respondent PALI, in only a short span of time, are not yet
explained to the Court, but it is clear that such circumstances
give rise to serious doubt as to the integrity of PALI as a stock
issuer. The petitioner was in the right when it refused
application of PALI, for a contrary ruling was not to the best
interest of the general public. The purpose of the Revised
Securities Act, after all, is to give adequate and effective
protection to the investing public against fraudulent
representations, or false promises, and the imposition of
worthless ventures.
Also, as the primary market for securities, the PSE
has established its name and goodwill, and it has the right to
protect such goodwill by maintaining a reasonable standard of
propriety in the entities who choose to transact through its
facilities. It was reasonable for the PSE, therefore, to exercise
its judgment in the manner it deems appropriate for its
business identity, as long as no rights are trampled upon, and
public welfare is safeguarded. In this connection, it is proper
to observe that the concept of government absolutism is a
thing of the past, and should remain so.
In any case, for the purpose of determining whether
PSE acted correctly in refusing the application of PALI, the
true ownership of the properties of PALI need not be
determined as an absolute fact. What is material is that the
uncertainty of the properties' ownership and alienability exists,
and this puts to question the qualification of PALI's public
offering. In sum, the Court finds that the SEC had acted
arbitrarily in arrogating unto itself the discretion of approving
the application for listing in the PSE of the private respondent
PALI, since this is a matter addressed to the sound discretion
of the PSE, a corporation entity, whose business judgments are
respected in the absence of bad faith.
The question as to what policy is, or should be relied
upon in approving the registration and sale of securities in the
SEC is not for the Court to determine, but is left to the sound
discretion of the Securities and Exchange Commission. In
mandating the SEC to administer the Revised Securities Act,
and in performing its other functions under pertinent laws, the
Revised Securities Act, under Section 3 thereof, gives the SEC
the power to promulgate such rules and regulations as it may
consider appropriate in the public interest for the enforcement
of the said laws. The second paragraph of Section 4 of the said
law, on the other hand, provides that no security, unless
exempt by law, shall be issued, endorsed, sold, transferred or
in any other manner conveyed to the public, unless registered
in accordance with the rules and regulations that shall be
promulgated in the public interest and for the protection of
investors by the Commission. Presidential Decree No. 902-A,
on the other hand, provides that the SEC, as regulatory
agency, has supervision and control over all corporations and
over the securities market as a whole, and as such, is given
ample authority in determining appropriate policies. Pursuant
to this regulatory authority, the SEC has manifested that it has
adopted the policy of "full material disclosure" where all
companies, listed or applying for listing, are required to
divulge truthfully and accurately, all material information
about themselves and the securities they sell, for the protection
of the investing public, and under pain of administrative,
criminal and civil sanctions. In connection with this, a fact is
deemed material if it tends to induce or otherwise effect the
sale or purchase of its securities. 15 While the employment of
this policy is recognized and sanctioned by the laws,
nonetheless, the Revised Securities Act sets substantial and
procedural standards which a proposed issuer of securities
must satisfy.
A reading of the foregoing grounds reveals the
intention of the lawmakers to make the registration and
issuance of securities dependent, to a certain extent, on the
merits of the securities themselves, and of the issuer, to be
determined by the Securities and Exchange Commission. This
measure was meant to protect the interests of the investing
public against fraudulent and worthless securities, and the
SEC is mandated by law to safeguard these interests,
following the policies and rules therefore provided. The
absolute reliance on the full disclosure method in the
registration of securities is, therefore, untenable. As it is, the
Court finds that the private respondent PALI, on at least two
points (nos. 1 and 5) has failed to support the propriety of the
issue of its shares with unfailing clarity, thereby lending
support to the conclusion that the PSE acted correctly in
refusing the listing of PALI in its stock exchange. This does
not discount the effectivity of whatever method the SEC, in
the exercise of its vested authority, chooses in setting the
standard for public offerings of corporations wishing to do so.
However, the SEC must recognize and implement the mandate
of the law, particularly the Revised Securities Act, the
provisions of which cannot be amended or supplanted by mere
administrative issuance.
In resume, the Court finds that the PSE has acted
with justified circumspection, discounting, therefore, any
imputation of arbitrariness and whimsical animation on its
part. Its action in refusing to allow the listing of PALI in the
stock exchange is justified by the law and by the
circumstances attendant to this case.
LITTON MILLS INC. vs COURT of APPEALS
GR NO. 9488
May 15,1996
Facts: Petitioner Litton Mills, Inc. (Litton) entered into an
agreement with Empire Sales Philippines Corporation
(Empire), as local agent of private respondent Gelhaar
Uniform Company (Gelhaar), a corporation organized under
the laws of the United States, whereby Litton agreed to supply
Gelhaar 7,770 dozens of soccer jerseys. The agreement
stipulated that before it could collect from the bank on the
letter of credit, Litton must present an inspection certificate
issued by Gelhaar's agent in the Philippines, Empire Sales,
that the goods were in satisfactory condition. Litton sent four
shipments totalling 4,770 dozens of the soccer jerseys between
December 2 and December 30, 1983. A fifth shipment,
consisting of 2,110 dozens of the jerseys, was inspected by
Empire from January 9 to January 19, 1984, but Empire
refused to issue the required certificate of inspection. Alleging
that Empire's refusal to issue a certificate was without valid
reason, Litton filed a complaint with the Regional Trial Court
of Pasig (Branch 158) on January 23, 1984, for specific
performance and prayed for the issuance of writ of preliminary
injunction to compel Empire to issue the inspection certificate
covering the 2,110 dozens of jerseys and for damages. The
trial court issued the writ which compelled Empire to issue the
inspection certificate. Atty. Noval filed on behalf of Gelhaar
Company a motion for extension of time to file an
answer/responsive pleading.
Afterwards, the law firm of Sycip, Salazar, Feliciano and
Hernandez entered a special appearance for the purpose of
objecting to the jurisdiction of the court over Gelhaar. On
February 4, 1985, it moved to dismiss the case and to quash
the summons on the ground that Gelhaar was a foreign
corporation not doing business in the Philippines, and as such,
was beyond the reach of the local courts. It contended that
Litton failed to allege and prove that Gelhaar was doing
business in the Philippines, which they argued was required by
the ruling in Pacific Micronisian Lines, Inc., v. Del Rosario, 1
before summons could be served under Rule 14, §14. It
likewise denied the authority of Atty. Noval to appear for
Gelhaar and contended that the answer filed by Atty. Noval on
June 15, 1984 could not bind Gelhaar and its filing did not
amount to Gelhaar's submission to the jurisdiction of the court.
Litton opposed the motion. On the other hand, Empire moved
to dismiss on the ground of failure of the complaint to state a
cause of action since the complaint alleged that Empire only
acted as agent of Gelhaar; that it was made party-defendant
only for the purpose of securing the issuance of an inspection
certificate; and that it had already issued such certificate and
the shipment had already been shipped on time. the trial court
issued an order denying for lack of merit Gelhaar's motion to
dismiss and to quash the summons. It held that Gelhaar was
doing business in the Philippines, and that the service of
summons on Gelhaar was therefore valid. Gelhaar filed a
motion for reconsideration, but its motion was denied. On
appeal, the Court of Appeals reversed the ruling of trial court.
The appellate court held that neither did the trial court acquire
jurisdiction over Gelhaar through voluntary submission
because the authority of Atty. Noval to represent Gelhaar had
been questioned. Hence, this appeal.
Issue: Whether or not respondent Gelhaar Uniform Company
is doing business for the purpose of applying Rule 14, Section
14 of Rules of Court?
Held: Yes. The trial court acquired jurisdiction over Gelhaar
by service of summons upon its agent pursuant to Rule 14,
§14. First. The appellate court invoked the ruling in Pacific
Micronisian, in which it was stated that the fact of doing
business must first be established before summons can be
served in accordance with Rule 14, §14. The Court of Appeals
quoted the following portion of the opinion in that case:
The above section [referring to Rule 14, Section 14] provides
for three modes of effecting service upon a private
corporation, namely: [enumerates the three modes of service
of summons]. But, it should be noted, in order that service
may be effected in the manner above stated said section also
requires that the foreign corporation be one which is doing
business in the Philippines. This is a sine qua non requirement.
This fact must first be established in order that summons can
made and jurisdiction acquired. (Emphasis by the Court of
Appeals)
In the later case of Signetics Corporation v. Court of Appeals,
3
however, we clarified the holding in Pacific Micronisian,
thus:
The petitioner opines that the phrase, "(the) fact (of doing
business in the Philippines) must first be established in order
that summons be made and jurisdiction acquired," used in the
above pronouncement, would indicate that a mere allegation to
that effect in the complaint is not enough — there must instead
be proof of doing business. In any case, the petitioner points
out, the allegations themselves did not sufficiently show the
fact of its doing business in the Philippines.
It should be recalled that jurisdiction and venue of actions are,
as they should so be, initially determined by the allegations of
the complaint. Jurisdiction cannot be made to depend on
independent pleas set up in a mere motion to dismiss,
otherwise jurisdiction would become dependent almost
entirely upon the defendant. The fact of doing business must
then, in the first place, be established by appropriate
allegations in the complaint. This is what the Court should be
seen to have meant in the Pacific Micronisian case. The
complaint, it is true, may have been vaguely structured but,
taken correlatively, not disjunctively as the petitioner would
rather suggest, it is not really so weak as to be fatally deficient
in the above requirement.
Hence, a court need not go beyond the allegations in the
complaint to determine whether or not a defendant foreign
corporation is doing business for the purpose of Rule 14, §14.
In the case at bar, the allegation that Empire, for and in behalf
of Gelhaar, ordered 7,770 dozens of soccer jerseys from Litton
and for this purpose Gelhaar caused the opening of an
irrevocable letter of credit in favor of Litton is a sufficient
allegation that Gelhaar was doing business in the Philippines.
Second. Gelhaar contends that the contract with Litton was a
single, isolated transaction and that it did not constitute "doing
business." Reference is made to Pacific Micronisian in which
the only act done by the foreign company was to employ a
Filipino as a member of the crew on one of its ships. This
court held that the act was an isolated, incidental or casual
transaction, not sufficient to indicate a purpose to engage in
business.
It is not really the fact that there is only a single act done that
is material. The other circumstances of the case must be
considered. Thus, in Wang Laboratories, Inc. v. Mendoza, 4 it
was held that where a single act or transaction of a foreign
corporation is not merely incidental or casual but is of such
character as distinctly to indicate a purpose on the part of the
foreign corporation to do other business in the state, such act
will be considered as constituting doing business. 5 This Court
referred to acts which were in the ordinary course of business
of the foreign corporation.
In the case at bar, the trial court was certainly correct in
holding that Gelhaar' s act in purchasing soccer jerseys to be
within the ordinary course of business of the company
considering that it was engaged in the manufacture of
uniforms. The acts noted above are of such a character as to
indicate a purpose to do business.
In accordance with Rule 14, §14, service upon Gelhaar could
be made in three ways: (1) by serving upon the agent
designated in accordance with law to accept service of
summons; (2) if there is no resident agent, by service on the
government official designated by law to that effect; and (3)
by serving on any officer or agent of said corporation within
the Philippines. 6 Here, service was made through Gelhaar's
agent, the Empire Sales Philippines Corp. There was,
therefore, a valid service of summons on Gelhaar, sufficient to
confer on the trial court jurisdiction over the person of
Gelhaar.
MR HOLDINGS INC. vs. BAJAR
GR No. 138104
April 11,2002
Facts: Marcopper Mining Corporation, a domestic corporation
whose 40% share capital are owned by Placer Dome Inc.,
obtained a loan from Asian Development Bank through the
support of Place Dome Inc. Placer Dome Inc. and its
subsidiary MR Holdings Inc. are both foreign corporations. To
secure the loan, Marcopper executed in favor of ADB a deed
of real estate and chattel mortgage. Upon default of payment
by Marcopper, Placer Dome in fulfillment of its undertaking
to support the loan agreed to have its subsidiary MR Holdings
assumed Marcopper’s obligation. Consequently, in an
"Assignment Agreement" 7 dated March 20, 1997, ADB
assigned to petitioner all its rights, interests and obligations
under the principal and complementary loan agreements.
Meanwhile, it appeared that Solidbank Corporation obtained
partial judgment against Marcopper from another RTC and
moved for the issuance of writ of execution pending appeal.
Thereafter, respondent Bajar issued two notices of levy on
Marcopper’s personal and real properties, and over all its
stocks of scrap iron and unserviceable mining equipment.
Together with sheriff Ferdinand M. Jandusay (also a
respondent) of the RTC, Branch 94, Boac, Marinduque,
respondent Bajar issued two notices setting the public auction
sale of the levied properties on August 27, 1998 at the
Marcopper mine site. Having learned of the scheduled auction
sale, petitioner MR Holdings Inc. served an "Affidavit of
Third-Party Claim" upon respondent sheriffs on August 26,
1998, asserting its ownership over all Marcopper’s mining
properties, equipment and facilities by virtue of the "Deed of
Assignment." Upon the denial of its "Affidavit of Third–Party
Claim" by the RTC of Manila, petitioner commenced with the
RTC of Boac, Marinduque, presided by Judge Leonardo P.
Ansaldo, a complaint for reivindication of properties, etc.,
with prayer for preliminary injunction and temporary
restraining order against respondents Solidbank, Marcopper,
and sheriffs Bajar and Jandusay. In an Order dated October 6,
1998, Judge Ansaldo denied petitioner’s application for a writ
of preliminary injunction on the ground that a) petitioner has
no legal capacity to sue, it being a foreign corporation doing
business in the Philippines without license; b) an injunction
will amount "to staying the execution of a final judgment by a
court of co-equal and concurrent jurisdiction;" and c) the
validity of the "Assignment Agreement" and the "Deed of
Assignment" has been "put into serious question by the timing
of their execution and registration." Unsatisfied, petitioner
appealed before the Court of Appeals which affirmed the
decision of RTC. Hence, this appeal.
Issue: Whether or not petitioner has legal capacity to sue and
seek redress from Philippine courts as it is a non-resident
foreign corporations not doing business in the Philippines and
suing on isolated transactions.
Held: Yes. The Court of Appeals ruled that petitioner has no
legal capacity to sue in the Philippine courts because it is a
foreign corporation doing business here without license. A
review of this ruling does not pose much complexity as the
principles governing a foreign corporation’s right to sue in
local courts have long been settled by our Corporation Law.
These principles may be condensed in three statements, to wit:
a) if a foreign corporation does business in the Philippines
without a license, it cannot sue before the Philippine courts;
b) if a foreign corporation is not doing business in the
Philippines, it needs no license to sue before Philippine courts
on an isolated transaction or on a cause of action entirely
independent of any business transaction; and c) if a foreign
corporation does business in the Philippines with the required
license, it can sue before Philippine courts on any transaction.
Apparently, it is not the absence of the prescribed license but
the "doing (of) business" in the Philippines without such
license which debars the foreign corporation from access to
our courts.
The task at hand requires us to weigh the facts vis-à-
vis the established principles. The question whether or not a
foreign corporation is doing business is dependent principally
upon the facts and circumstances of each particular case,
considered in the light of the purposes and language of the
pertinent statute or statutes involved and of the general
principles governing the jurisdictional authority of the state
over such corporations.
Batas Pambansa Blg. 68, otherwise known as "The
Corporation Code of the Philippines," is silent as to what
constitutes doing" or "transacting" business in the Philippines.
Fortunately, jurisprudence has supplied the deficiency and has
held that the term "implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent,
the performance of acts or works or the exercise of some of
the functions normally incident to, and in progressive
prosecution of, the purpose and object for which the
corporation was organized."23 In Mentholatum Co. Inc., vs.
Mangaliman,24 this Court laid down the test to determine
whether a foreign company is "doing business," thus:
" x x x The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of
the business or enterprise for which it was organized or
whether it has substantially retired from it and turned it
over to another. (Traction Cos. vs. Collectors of Int. Revenue
[C.C.A., Ohio], 223 F. 984,987.) x x x."
The traditional case law definition has metamorphosed into a
statutory definition, having been adopted with some
qualifications in various pieces of legislation in our
jurisdiction. For instance, Republic Act No. 7042, otherwise
known as the "Foreign Investment Act of 1991," defines
"doing business" as follows:
"d) The phrase ‘doing business’ shall include soliciting orders,
service contracts, opening offices, whether called ‘liaison’
offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay
in the country for a period or periods totalling one hundred
eight(y) (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity,
or corporation in the Philippines; and any other act or acts
that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the
performance of acts or works; or the exercise of some of
the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and
object of the business organization; Provided, however, That
the phrase ‘doing business’ shall not be deemed to include
mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or
the exercise of rights as such investor, nor having a nominee
director or officer to represent its interests in such corporation,
nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for
its own account." (Emphasis supplied)25
Likewise, Section 1 of Republic Act No. 5455,26 provides that:
"SECTION. 1. Definition and scope of this Act. - (1) x x x the
phrase ‘doing business’ shall include soliciting orders,
purchases, service contracts, opening offices, whether called
‘liaison’ offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in
any calendar year stay in the Philippines for a period or
periods totaling one hundred eighty days or more;
participating in the management, supervision or control of any
domestic business firm, entity or corporation in the
Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business
organization."
There are other statutes27 defining the term "doing business" in
the same tenor as those above-quoted, and as may be
observed, one common denominator among them all is the
concept of "continuity."
In the case at bar, the Court of Appeals categorized as "doing
business" petitioner’s participation under the "Assignment
Agreement" and the "Deed of Assignment." This is simply
untenable. The expression "doing business" should not be
given such a strict and literal construction as to make it apply
to any corporate dealing whatever. 28 At this early stage and
with petitioner’s acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended
to continue the business for which it was organized. It may
not be amiss to point out that the purpose or business for
which petitioner was organized is not discernible in the
records. No effort was exerted by the Court of Appeals to
establish the nexus between petitioner’s business and the
acts supposed to constitute "doing business." Thus,
whether the assignment contracts were incidental to
petitioner’s business or were continuation thereof is
beyond determination. We cannot apply the case cited by the
Court of Appeals, Far East Int’l Import and Export Corp. vs.
Nankai Kogyo Co., Ltd.,29 which held that a single act may
still constitute "doing business" if "it is not merely incidental
or casual, but is of such character as distinctly to indicate a
purpose on the part of the foreign corporation to do other
business in the state." In said case, there was an express
admission from an official of the foreign corporation that he
was sent to the Philippines to look into the operation of mines,
thereby revealing the foreign corporation’s desire to continue
engaging in business here. But in the case at bar, there is no
evidence of similar desire or intent. Unarguably, petitioner
may, as the Court of Appeals suggested, decide to operate
Marcopper’s mining business, but, of course, at this stage, that
is a mere speculation. Or it may decide to sell the credit
secured by the mining properties to an offshore investor, in
which case the acts will still be isolated transactions. To see
through the present facts an intention on the part of
petitioner to start a series of business transaction is to rest
on assumptions or probabilities falling short of actual
proof. Courts should never base its judgments on a state of
facts so inadequately developed that it cannot be
determined where inference ends and conjecture begins.
Indeed, the Court of Appeals’ holding that petitioner was
determined to be "doing business" in the Philippines is based
mainly on conjectures and speculation. In concluding that the
"unmistakable intention" of petitioner is to continue
Marcopper’s business, the Court of Appeals hangs on the
wobbly premise that "there is no other way for petitioner to
recover its huge financial investments which it poured into
Marcopper’s rehabilitation without it (petitioner) continuing
Marcopper’s business in the country."30 This is a mere
presumption. Absent overt acts of petitioner from which we
may directly infer its intention to continue Marcopper’s
business, we cannot give our concurrence. Significantly, a
view subscribed upon by many authorities is that the mere
ownership by a foreign corporation of a property in a certain
state, unaccompanied by its active use in furtherance of the
business for which it was formed, is insufficient in itself to
constitute doing business.31 In Chittim vs. Belle Fourche
Bentonite Products Co.,32 it was held that even if a foreign
corporation purchased and took conveyances of a mining
claim, did some assessment work thereon, and endeavored
to sell it, its acts will not constitute the doing of business so
as to subject the corporation to the statutory requirements
for the transacting of business. On the same vein, petitioner,
a foreign corporation, which becomes the assignee of mining
properties, facilities and equipment cannot be automatically
considered as doing business, nor presumed to have the
intention of engaging in mining business.
One important point. Long before petitioner assumed
Marcopper’s debt to ADB and became their assignee under the
two assignment contracts, there already existed a "Support and
Standby Credit Agreement" between ADB and Placer Dome
whereby the latter bound itself to provide cash flow support
for Marcopper’s payment of its obligations to ADB. Plainly,
petitioner’s payment of US$ 18,453,450.12 to ADB was more
of a fulfillment of an obligation under the "Support and
Standby Credit Agreement" rather than an investment. That
petitioner had to step into the shoes of ADB as Marcopper’s
creditor was just a necessary legal consequence of the
transactions that transpired. Also, we must hasten to add that
the "Support and Standby Credit Agreement" was executed
four (4) years prior to Marcopper’s insovency, hence, the
alleged "intention of petitioner to continue Marcopper’s
business" could have no basis for at that time, Marcopper’s
fate cannot yet be determined.
In the final analysis, we are convinced that petitioner was
engaged only in isolated acts or transactions. Single or isolated
acts, contracts, or transactions of foreign corporations are not
regarded as a doing or carrying on of business. Typical
examples of these are the making of a single contract, sale,
sale with the taking of a note and mortgage in the state to
secure payment therefor, purchase, or note, or the mere
commission of a tort.33 In these instances, there is no purpose
to do any other business within the country.
ABACUS SECURITIES CORPORATION VS. RUBEN
AMPIL
G.R. NO. 160016 FEBRUARY 27, 2006
Panganiban, C.J. :
Facts: Ruben Ampil opened a cash account with Abacus
Securities Corporation (Abacus, for brevity). Abacus is
engaged in a business as a broker and dealer of securities of
listed companies at the Philippine Stock Exchange Center.
Ampil actively traded his account, and as a result of such
trading activities, he accumulated an outstanding obligation in
favor of Abacus in the sum of P6,617,036.22. The purchases
of Ampil were continuously unpaid, but notwithstanding
Ampil’s failure to cover his initial deficiency, Abacus
subsequently purchased and sold securities for Ampil’s
account. Abacus did not cancel or liquidate a substantial
amount of Ampil’s stock transactions. The RTC of Makati
City ruled that Abacus violated Secs. 23 and 25 of the Revised
Securities Act (SRA) when Abacus failed to require Ampil to
pay for his stock purchases within 3 or 4 days from trading
and request from the appropriate authority an extension of
time for the payment of Ampil’s cash purchases. According to
the lower court, by allowing Ampli to trade his account
actively without cash, Abacus effectively induced him to
purchase securities thereby incurring excessive credits, hence,
both Abacus and Ampil were in pari delicto and they are
without recourse against each other.
Issue: Whether or not both Abacus and Ampil violated the
provisions of RSA, hence the pari delicto rule can be applied.
Ruling: Yes. In the present case, respondent cannot escape
payment of stocks validly traded by petitioner on his behalf.
These transactions took place before both parties violated the
trading law and rules. Hence, they fall outside the purview of
the pari delicto rule. The law places the burden of compliance
with margin requirements primarily upon the brokers and
dealers. Sections 23 and 25 and Rule 25-1, otherwise known
as the "mandatory close-out rule,” clearly vest upon petitioner
the obligation, not just the right, to cancel or otherwise
liquidate a customer’s order, if payment is not received within
three days from the date of purchase. For transactions
subsequent to an unpaid order, the broker should require its
customer to deposit funds into the account sufficient to cover
each purchase transaction prior to its execution. These duties
are imposed upon the broker to ensure faithful compliance
with the margin requirements of the law, which forbids a
broker from extending undue credit to a customer. The
obligation of respondent for stock transactions made and
entered into on April 10 and 11, 1997 remains outstanding.
These transactions were valid and the obligations incurred by
respondent concerning his stock purchases on these dates
subsist. At the time, there was no violation of the RSA yet. In
the final analysis, both parties acted in violation of the law and
did not come to court with clean hands with regard to
transactions subsequent to the initial trades made on April 10
and 11, 1997. Thus, the peculiar facts of the present case bar
the application of the pari delicto rule -- expressed in the
maxims "Ex dolo malo non oritur action" and "In pari delicto
potior est conditio defendentis" -- to all the transactions
entered into by the parties. The pari delecto rule refuses legal
remedy to either party to an illegal agreement and leaves them
where they were. In this case, the pari delicto rule applies only
to transactions entered into after the initial trades made on
April 10 and 11, 1997. Since the initial trades are valid and
subsisting obligations, respondent is liable for them. Justice
and good conscience require all persons to satisfy their debts.
Ours are courts of both law and equity; they compel fair
dealing; they do not abet clever attempts to escape just
obligations. Ineludibly, this Court would not hesitate to grant
relief in accordance with good faith and conscience.
Fallo: WHEREFORE, the assailed Decision and Resolution of
the Court of Appeals are hereby MODIFIED. Respondent is
ordered to pay petitioner the difference between the former’s
outstanding obligation as of April 11, 1997 less the proceeds
from the mandatory sell out of shares pursuant to the RSA
Rules, with interest thereon at the legal rate until fully paid.
EXPERTRAVEL & TOURS, INC. vs.
COURT OF APPEALS and KOREAN
AIRLINES
G.R. No. 152392 May 26, 2005
CALLEJO, SR., J.:
Facts: Korean Airlines (KAL) is a corporation established and
registered in the Republic of South Korea and licensed to do
business in the Philippines. Its general manager in the
Philippines is Suk Kyoo Kim, while its appointed counsel was
Atty. Mario Aguinaldo and his law firm.
KAL, through Atty. Aguinaldo, filed a Complaint against
Expert Travel & Tours, Inc. (ETI) with the RTC of Manila, for
the collection of the principal amount of P260,150.00, plus
attorney’s fees and exemplary damages. The verification and
certification against forum shopping was signed by Atty.
Aguinaldo, who indicated therein that he was the resident
agent and legal counsel of KAL and had caused the
preparation of the complaint.
ETI, on the other hand, filed a motion to dismiss the complaint
on the ground that Atty. Aguinaldo was not authorized to
execute the verification and certificate of non-forum shopping
as required by Section 5, Rule 7 of the Rules of Court. KAL
opposed the motion, contending that Atty. Aguinaldo was its
resident agent and was registered as such with the Securities
and Exchange Commission (SEC) as required by the
Corporation Code of the Philippines.
During the hearing of the case, Atty. Aguinaldo claimed that
he had been authorized to file the complaint through a
resolution of the KAL Board of Directors approved during a
special meeting.
Finally, KAL submitted an Affidavit executed by its general
manager Suk Kyoo Kim, alleging that the board of directors
conducted a special teleconference and in that same
teleconference, the board of directors approved a resolution
authorizing Atty. Aguinaldo to execute the certificate of non-
forum shopping and to file the complaint. Suk Kyoo Kim also
alleged, however, that the corporation had no written copy of
the aforesaid resolution.
Issue: Whether or not Atty. Aguinaldo, as the resident agent
of KAL has the authority to sign the certificate on non-forum
shopping.
Ruling: No. In a case where the plaintiff is a private
corporation, the certification may be signed, for and on behalf
of the said corporation, by a specifically authorized person,
including its retained counsel, who has personal knowledge of
the facts required to be established by the documents.
In turn, a corporation exercises said powers through its board
of directors and/or its duly-authorized officers and agents.
Physical acts, like the signing of documents, can be performed
only by natural persons duly-authorized for the purpose by
corporate by-laws or by specific act of the board of directors.
Indeed, the certificate of non-forum shopping may be
incorporated in the complaint or appended thereto as an
integral part of the complaint. The rule is that compliance
with the rule after the filing of the complaint, or the dismissal
of a complaint based on its non-compliance with the rule, is
impermissible. However, in exceptional circumstances, the
court may allow subsequent compliance with the rule. If the
authority of a party’s counsel to execute a certificate of non-
forum shopping is disputed by the adverse party, the former is
required to show proof of such authority or representation.
In this case, the petitioner, as the defendant in the RTC,
assailed the authority of Atty. Aguinaldo to execute the
requisite verification and certificate of non-forum shopping as
the resident agent and counsel of the respondent. It was, thus,
incumbent upon the respondent, as the plaintiff, to allege and
establish that Atty. Aguinaldo had such authority to execute
the requisite verification and certification for and in its behalf.
The respondent, however, failed to do so.
As gleaned from the aforequoted certification, there was no
allegation that Atty. Aguinaldo had been authorized to execute
the certificate of non-forum shopping by the respondent’s
Board of Directors; moreover, no such board resolution was
appended thereto or incorporated therein.
While Atty. Aguinaldo is the resident agent of the
respondent in the Philippines, this does not mean that he is
authorized to execute the requisite certification against
forum shopping.
Under Section 127, in relation to Section 128 of the
Corporation Code, the authority of the resident agent of a
foreign corporation with license to do business in the
Philippines is to receive, for and in behalf of the foreign
corporation, services and other legal processes in all actions
and other legal proceedings against such corporation.
Under the law, Atty. Aguinaldo was not specifically
authorized to execute a certificate of non-forum shopping as
required by Section 5, Rule 7 of the Rules of Court. This is
because while a resident agent may be aware of actions filed
against his principal (a foreign corporation doing business in
the Philippines), such resident may not be aware of actions
initiated by its principal, whether in the Philippines against a
domestic corporation or private individual, or in the country
where such corporation was organized and registered, against
a Philippine registered corporation or a Filipino citizen.
The respondent knew that its counsel, Atty. Aguinaldo, as its
resident agent, was not specifically authorized to execute the
said certification. It attempted to show its compliance with the
rule subsequent to the filing of its complaint by submitting, on
March 6, 2000, a resolution purporting to have been approved
by its Board of Directors during a teleconference held on June
25, 1999, allegedly with Atty. Aguinaldo and Suk Kyoo Kim
in attendance.
However, such attempt of the respondent casts veritable doubt
not only on its claim that such a teleconference was held, but
also on the approval by the Board of Directors of the
resolution authorizing Atty. Aguinaldo to execute the
certificate of non-forum shopping.
In the Philippines, teleconferencing and videoconferencing of
members of board of directors of private corporations is a
reality, in light of Republic Act No. 8792. The Securities and
Exchange Commission issued SEC Memorandum Circular
No. 15, on November 30, 2001, providing the guidelines to be
complied with related to such conferences. Thus, the Court
agrees with the RTC that persons in the Philippines may have
a teleconference with a group of persons in South Korea
relating to business transactions or corporate governance.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo
Kim participated in a teleconference along with the
respondent’s Board of Directors, the Court is not convinced
that one was conducted; even if there had been one, the Court
is not inclined to believe that a board resolution was duly
passed specifically authorizing Atty. Aguinaldo to file the
complaint and execute the required certification against forum
shopping.
Fallo: IN LIGHT OF ALL THE FOREGOING, the petition is
GRANTED. The Decision of the Court of Appeals in CA-
G.R. SP No. 61000 is REVERSED and SET ASIDE. The
Regional Trial Court of Manila is hereby ORDERED to
dismiss, without prejudice, the complaint of the respondent.
MERRILL LYNCH FUTURES, INC. VS. HON. COURT
OF APPEALS, AND THE SPOUSES PEDRO M. LARA
AND ELISA G. LARA
G.R. No. 97816, July 24, 1992
NARVASA, C.J.:
The capacity of a foreign corporation to maintain an action in
the Philippines against residents thereof, is the principal
question in the appellate proceedings at bar.
Facts: Merrill Lynch Futures, Inc. (MLF) filed a complaint
with the RTC of Quezon City against the Spouses Pedro Lara
and Elisa Lara for the recovery of a debt and interest thereon,
damages, and attorney's fees.
It also defined a "futures contract" as a "contractual
commitment to buy and sell a standardized quantity of a
particular item at a specified future settlement date and at a
price agreed upon, with the purchase or sale being executed on
a regulated futures exchange."
MLF alleged that: (1) MLF entered into a Futures Customer
Agreement with spouses Lara, in virtue of which it agreed to
act as the latter's broker for the purchase and sale of futures
contracts in the U.S.;
(2) that pursuant to the contract, orders to buy and sell futures
contracts were transmitted to MLFby the Lara Spouses
"through the facilities of Merrill Lynch Philippines, Inc., a
Philippine corporation and a company servicing plaintiff’s
customers;"
(3) that from the outset, the Lara Spouses "knew and were
duly advised that Merrill Lynch Philippines, Inc. was not a
broker in futures contracts," and that it "did not have a license
from the Securities and Exchange Commission to operate as a
commodity trading advisor (i.e., ‘an entity which, not being a
broker, furnishes advice on commodity futures to persons who
trade in futures contracts’);
(4) that in line with the above mentioned agreement and
through said Merrill Lynch Philippines, Inc., the Lara Spouses
actively traded in futures contracts, including "stock index
futures" for four years or so;
(5) that because of a loss amounting to US$160,749.69
incurred in respect of three (3) transactions involving "index
futures," and after setting this off against an amount of
US$75,913.42 then owing by ML FUTURES to the Lara
Spouses, said spouses became indebted to ML FUTURES for
the ensuing balance of US$84,836.27, which the latter asked
them to pay; and
(6) that the Lara Spouses however refused to pay this balance,
“alleging that the transactions were null and void because
Merrill Lynch Philippines, Inc., the Philippine company
servicing accounts of plaintiff, ** had no license to operate as
a ‘commodity and/or financial futures broker.’"
However, spouses Lara filed a motion to dismiss based on the
following grounds:
a) although not licensed to do so, MLF had been doing
business in the Philippines "at least for the last 4 years," this
being clear from the very allegations of the complaint;
consequently, ML FUTURES is prohibited by law "to
maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines;" and
b) they had never been informed that Merrill Lynch
Philippines, Inc. was not licensed to do business in this
country; and contrary to the allegations of the complaint, all
their transactions had actually been with MERRILL LYNCH
PIERCE FENNER & SMITH, INC., and not with ML
FUTURES (Merrill Lynch Futures, Inc.), in proof of which
they attached to their motion to dismiss copies of 8
agreements, receipts or reminders, etc., executed on standard
printed forms of said Merrill Lynch Pierce Fenner & Smith
Inc.
The RTC sustained the motion to dismiss, directing the
dismissal of the case and discharging the writ of preliminary
attachment.
On appeal to the Court of Appeals, the appellate court the
decision of the RTC.
Issue: Whether or not Merrill Lynch Futures, Inc. (MLF),
being a foreign corporation not licensed to do business in the
Philippines, has the capacity to maintain an action in the
Philippines against residents thereof (spouses Lara).
Ruling: Yes. The Court is satisfied that the facts on record
adequately establish that ML FUTURES, operating in the
United States, had indeed done business with the Lara Spouses
in the Philippines over several years, had done so at all times
through Merrill Lynch Philippines, Inc. (MLPI), a corporation
organized in this country and had executed all these
transactions without ML FUTURES being licensed to so
transact business here, and without MLPI being authorized to
operate as a commodity futures trading advisor.
These are the factual findings of both the Trial Court and the
Court of Appeals. These, too, are the conclusions of the
Securities & Exchange Commission which denied MLPI's
application to operate as a commodity futures trading advisor,
a denial subsequently affirmed by the Court of Appeals.
Prescinding from the proposition that factual findings of the
Court of Appeals are generally conclusive, this Court has been
cited to no circumstance of substance to warrant reversal of
said Appellate Court's findings or conclusions in this case.
The Court is satisfied, too, that the Laras did transact business
with ML FUTURES through its agent corporation organized
in the Philippines, it being unnecessary to determine whether
this domestic firm was MLPI (Merrill Lynch Philippines, Inc.)
or Merrill Lynch Pierce Fenner & Smith, (MLPI's alleged
predecessor).
The fact is that ML FUTURES did deal with futures contracts
in exchanges in the United States in behalf and for the account
of the Lara Spouses, and that on several occasions the latter
received account documents and money in connection with
those transactions.
In other words, if it be true that during all the time that
they were transacting with ML FUTURES, the Laras were
fully aware of its lack of license to do business in the
Philippines, and in relation to those transactions had made
payments to, and received money from it for several years,
the question is whether or not the Lara Spouses are now
estopped to impugn ML FUTURES’ capacity to sue them
in the courts of the forum.
The rule is that a party is estopped to challenge the personality
of a corporation after having acknowledged the same by
entering into a contract with it. And the "doctrine of estoppel
to deny corporate existence applies to foreign as well as to
domestic corporations;" “one who has dealt with a corporation
of foreign origin as a corporate entity is estopped to deny its
corporate existence and capacity.”
The principle "will be applied to prevent a person contracting
with a foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases where such
person has received the benefits of the contract where such
person has acted as agent for the corporation and has violated
his fiduciary obligations as such, and where the statute does
not provide that the contract shall be void, but merely fixes a
special penalty for violation of the statute.
The general rule that in the absence of fraud a person who has
contracted or otherwise dealt with an association in such a
way as to recognize and in effect admit its legal existence as a
corporate body is thereby estopped to deny its corporate
existence in any action leading out of or involving such
contract or dealing, unless its existence is attacked for causes
which have arisen since making the contract or other dealing
relied on as an estoppel and this applies to foreign as well as
domestic corporations.
Considerations of equity dictate that, at the very least, the
issue of whether the Laras are in truth liable to ML FUTURES
and if so in what amount, and whether they were so far aware
of the absence of the requisite licenses on the part of ML
FUTURES and its Philippine correspondent, MLPI, as to be
estopped from alleging that fact as a defense to such liability,
should be ventilated and adjudicated on the merits by the
proper trial court.
Fallo: WHEREFORE, the decision of the Court of Appeals in
CA-G.R. CV No. 16478 dated November 27, 1990 and its
Resolution of March 7, 1991 are REVERSED and SET
ASIDE, and the Regional Trial Court at Quezon City, Branch
84, is ORDERED to reinstate Civil Case No. Q-52360 and
forthwith conduct a hearing to adjudicate the issues set out in
the preceding paragraph on the merits.
B. VAN ZUIDEN BROS., LTD vs. GTVL
MANUFACTURING INDUSTRIES, INC.,
G.R. No. 147905
May 28, 2007
 
CARPIO, J.:
 
 Facts:
   On several occasions, GTVL purchased lace products from
Zuiden, a corporation, incorporated under the laws of Hong
Kong, not engaged in business in the Philippines, but is suing
before the Philippine Courts. The procedure for these
purchases, as per the instructions of GTVL, was that ZUIDEN
delivers the products purchased by GTVL, to a certain Hong
Kong corporation, known as Kenzar Ltd. and the products are
then considered as sold, upon receipt by KENZAR of the
goods purchased by GTVL. KENZAR had the obligation to
deliver the products to the Philippines and/or to follow
whatever instructions GTVL had on the matter. Insofar as
ZUIDEN is concerned, upon delivery of the goods to
KENZAR in Hong Kong, the transaction is concluded; and
GTVL became obligated to pay the agreed purchase price.
However, commencing October 31, 1994 up to the present,
GTVL has failed and refused to pay the agreed purchase price
for several deliveries ordered by it and delivered by ZUIDEN.
 
         Instead of filing an answer, respondent filed a Motion
to Dismiss on the ground that petitioner has no legal capacity
to sue. Respondent alleged that petitioner is doing business in
the Philippines without securing the required license.
Accordingly, petitioner cannot sue before Philippine
courts. The trial court issued an Order on 10 November 1999
dismissing the complaint. On appeal, the Court of Appeals
sustained the trial court’s dismissal of the complaint.
 
 Issue: Whether or not Zuiden is doing business in the
Philippines
 
 
Held:
 
       Section 133 of the Corporation Code is clear. An
unlicensed foreign corporation doing business in the
Philippines cannot sue before Philippine courts.  On the other
hand, an unlicensed foreign corporation not doing business in
the Philippines can sue before Philippine courts.  In the
present controversy, petitioner is a foreign corporation which
claims that it is not doing business in the Philippines.  As
such, it needs no license to institute a collection suit against
respondent before Philippine courts. The series of transactions
between petitioner and respondent cannot be classified as
“doing business” in the Philippines under Section 3(d) of RA
7042.  An essential condition to be considered as “doing
business” in the Philippines is the actual performance of
specific commercial acts within the territory of the Philippines
for the plain reason that the Philippines has no jurisdiction
over commercial acts performed in foreign territories.  Here,
there is no showing that petitioner performed within the
Philippine territory the specific acts of doing business
mentioned in Section 3(d) of RA 7042.  Petitioner did not also
open an office here in the Philippines, appoint a representative
or distributor, or manage, supervise or control a local business.
While petitioner and respondent entered into a series of
transactions implying a continuity of commercial dealings, the
perfection and consummation of these transactions were done
outside the Philippines.
 
         An exporter in one country may export its products to
many foreign importing countries without performing in the
importing countries specific commercial acts that would
constitute doing business in the importing countries.  The
mere act of exporting from one’s own country, without doing
any specific commercial act within the territory of the
importing country, cannot be deemed as doing business in the
importing country.  The importing country does not acquire
jurisdiction over the foreign exporter who has not performed
any specific commercial act within the territory of the
importing country.  Without jurisdiction over the foreign
exporter, the importing country cannot compel the foreign
exporter to secure a license to do business in the importing
country.  Court
         Otherwise, Philippine exporters, by the mere act alone of
exporting their products, could be considered by the importing
countries to be doing business in those countries.  This will
require Philippine exporters to secure a business license in
every foreign country where they usually export their
products, even if they do not perform any specific commercial
act within the territory of such importing countries.  Such a
legal concept will have a deleterious effect not only on
Philippine exports, but also on global trade.
 
         To be doing or “transacting business in the Philippines”
for purposes of Section 133 of the Corporation Code, the
foreign corporation must actually transact business in the
Philippines, that is, perform specific business transactions
within the Philippine territory on a continuing basis in its own
name and for its own account.  Actual transaction of business
within the Philippine territory is an essential requisite for the
Philippines to acquire jurisdiction over a foreign corporation
and thus require the foreign corporation to secure a Philippine
business license.  If a foreign corporation does not transact
such kind of business in the Philippines, even if it exports its
products to the Philippines, the Philippines has no jurisdiction
to require such foreign corporation to secure a Philippine
business license.   Held:
 
       
AVON INSURANCE PLC, BRITISH RESERVE
INSURANCE. CO. LTD. et.al. vs. COURT OF APPEALS,
et.al.
G.R. No. 97642
August 29, 1997
TORRES, JR., J.:
Facts:
Yupangco Cotton Mills engaged to secure with
Worldwide Security and Insurance Co. Inc., several of its
properties for the periods July 6, 1979 to July 6, 1980 as under
Policy No. 20719 for a coverage of P100,000,000.00 and from
October 1, 1980 to October 1, 1981, under Policy No. 25896,
also forP100,000,000.00.  Both contracts were covered by
reinsurance treaties between Worldwide Surety and Insurance
and several foreign reinsurance companies, including the
petitioners.  The reinsurance arrangements had been made
through international broker C.J. Boatright and Co. Ltd.,
acting as agent of Worldwide Surety and Insurance. The
properties therein insured were razed by fire , thereby giving
rise to the obligation of the insurer to indemnify the Yupangco
Cotton Mills.  Partial payments were made by Worldwide
Surety and Insurance and some of the reinsurance companies.
Worldwide Surety and Insurance, in a deed of Assignment,
acknowledge a remaining balance of P19,444,447.75 still due
Yupangco Cotton Mills, and assigned to the latter all
reinsurance proceeds still collectible from all the foreign
reinsurance companies.  Thus, in its interest as assignee and
original insured, Yupangco Cotton Mills instituted this
collection suit against the petitioners. Service of summons
upon the petitioners was made by notification to the Insurance
Commissioner, pursuant to Section 14, Rule 14 of the Rules of
Yupangco Cotton Mills filed a complaint against
several foreign reinsurance companies (among which are
petitioners) to collect their alleged percentage liability under
contract treaties between the foreign insurance companies and
the international insurance broker C.J. Boatright, acting as
agent for respondent Worldwide Surety and Insurance
Company.  Inasmuch as petitioners are not engaged in
business in the Philippines with no offices, places of business
or agents in the Philippines, the reinsurance treaties having
been rendered abroad, service of summons upon motion of
respondent Yupangco, was made upon petitioners through the
office of the Insurance Commissioner.  Petitioners, by counsel
on special appearance, seasonably filed motions to dismiss
disputing the jurisdiction of RTC and the extra-territorial
service of summons.  Respondent Yupangco filed its
opposition to the motion to dismiss, petitioners filed their
reply, and respondent Yupangco filed its rejoinder.  RTC
denied the motions to dismiss and directed petitioners to file
their answer.  
Issue: Whether or not the petitioners were determined to be
“doing business in the Philippines”
In relation with Article 44 of the Omnibus
Investments Code of 1987, “doing business” ordinarily
implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or
works or the exercise of the functions normally incident to and
in progressive prosecution of the purpose and object of its
organization. A single act or transaction made in the
Philippines, however, could not qualify a foreign corporation
to be doing business in the Philippines, if such singular act is
not merely incidental or casual, but indicates the foreign
corporation’s intention to do business in the Philippines. There
is no sufficient basis in the records which would merit the
institution of this collection suit in the Philippines.  More
specifically, there is nothing to substantiate the private
respondent’s submission that the petitioners had engaged in
business activities in this country.  This is not an instance
where the erroneous service of summons upon the defendant
can be cured by the issuance and service of alias summons, as
in the absence of showing that petitioners had been doing
business in the country, they cannot be summoned to answer
for the charges leveled against them.
The purpose of the law in requiring that foreign corporations
doing business in the country be licensed to do so, is to subject
the foreign corporations doing business in the Philippines to
the jurisdiction of the courts, otherwise, a foreign corporation
illegally doing business here because of its refusal or neglect
to obtain the required license and authority to do business may
successfully though unfairly plead such neglect or illegal act
so as to avoid service and thereby impugn the jurisdiction of
the local courts.
There is no showing that petitioners had performed
any act in the country that would place it within the sphere of
the court’s jurisdiction.  The assertion that a resident of the
Philippines will be inconvenienced by an out-of-town suit
against a foreign entity, is irrelevant and unavailing to sustain
the continuance of a local action, for jurisdiction is not
dependent upon the convenience or inconvenience of a party.
If the appearance of a party in a suit is precisely to question
the jurisdiction of the said tribunal over the person of the
defendant, then this appearance is not equivalent to service of
summons, nor does is constitute an acquiescence to the court’s
jurisdiction. Thus it cannot be argued that the petitioners had
abandoned their objections to the jurisdiction of the court, as
their motions to dismiss in the trial court, and all their
subsequent posturings, were all in protest of the private
respondent's insistence on holding them so answer a charge in
a forum where they believe they are not subject to.  Clearly, to
continue the proceedings in a case such as those before Us
would just “be useless and a waste of time.”
COLUMBIA PICTURES, INC., ORION PICTURES
CORPORATION, et.al. vs. COURT OF APPEALS
G.R. No. 110318
August 28, 1996
REGALADO, J.:
Facts:
Complainants lodged a formal complaint with the
NBI for violation of PD No. 49 and sought its assistance in
their anti-film piracy drive.  Agents of the NBI and private
researchers made discreet surveillance on various video
establishments in Metro Manila including Sunshine Home
Video Inc. (Sunshine for brevity), owned and operated by
Danilo A. Pelindario.
NBI Senior Agent Lauro C. Reyes applied for a
search warrant with the trial court against Sunshine seeking
the seizure, among others, for piracy.   In the course of the
search of the premises indicated in the search warrant, the NBI
Agents found and seized various video tapes of duly
copyrighted motion pictures/films owned or exclusively
distributed by private complainants, and machines, equipment,
television sets, paraphernalia, materials, accessories all of
which were included in the receipt for properties
accomplished by the raiding team.  Copy of the receipt was
furnished and/or tendered to Mr. Danilo A. Pelindario,
registered owner-proprietor of Sunshine Home Video.
A “Motion To Lift the Order of Search Warrant” was
filed but was later denied for lack of merit (p. 280, Records).
The motion however wa sltaer granted by the trial court.
Private respondents aver that being foreign corporations,
petitioners should have such license to be able to maintain an
action in Philippine courts under Section 1(f) (1) and (2), Rule
1 of the Rules of the Board of Investments as well as Section
133 of the Corporation Code.   
Issue: Whether or not private respondents are doing business
in the Philippines
Held:
The obtainment of a license prescribed by Section
125 of the Corporation Code is not a condition precedent to
the maintenance of any kind of action in Philippine courts by a
foreign corporation.  However, under the aforequoted
provision, no foreign corporation shall be permitted to transact
business in the Philippines, as this phrase is understood under
the Corporation Code, unless it shall have the license required
by law, and until it complies with the law in transacting
business here, it shall not be permitted to maintain any suit in
local courts. As thus interpreted, any foreign corporation not
doing business in the Philippines may maintain an action in
our courts upon any cause of action, provided that the subject
matter and the defendant are within the jurisdiction of the
court.  It is not the absence of the prescribed license but
“doing business” in the Philippines without such license which
debars the foreign corporation from access to our courts.  In
other words, although a foreign corporation is without license
to transact business in the Philippines, it does not follow that it
has no capacity to bring an action.  Such license is not
necessary if it is not engaged in business in the Philippines.
The true tests, however, seem to be whether the
foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized or whether it
has substantially retired from it and turned it over to another.
As a general proposition upon which many authorities agree in
principle, subject to such modifications as may be necessary in
view of the particular issue or of the terms of the statute
involved, it is recognized that a foreign corporation is “doing,”
“transacting,” “engaging in,” or “carrying on” business in the
State when, and ordinarily only when, it has entered the State
by its agents and is there engaged in carrying on and
transacting through them some substantial part of its ordinary
or customary business, usually continuous in the sense that it
may be distinguished from merely casual, sporadic, or
occasional transactions and isolated acts.
 Certainly, a corporation whose legal rights have been
violated is undeniably such, if not the only, real party-in-
interest to bring suit thereon although, for failure to comply
with the licensing requirement, it is not capacitated to
maintain any suit before our courts. The doctrine of lack of Under Article 133 of the Corporation Code, a foreign
capacity to sue based on failure to first acquire a local license corporation must first obtain  a license and a certificate from
is based on considerations of public policy.  It was never the appropriate government agency before it can transact
intended to favor nor insulate from suit unscrupulous business in the Philippines. Where a foreign corporation does
establishments or nationals in case of breach of valid business in the Philippines without the proper license, it
obligations or violations of legal rights of unsuspecting cannot maintain any action or proceeding
foreign firms or entities simply because they are not licensed before Philippine  courts .
to do business in the country.
Republic Act No. 7042 (RA 7042), otherwise known
CARGILL, INC.,vs. INTRA STRATA ASSURANCE as the  Foreign Investments Act of 1991, which repealed
CORPORATION Articles 44-56 of Book II of  the Omnibus Investments Code
G.R. No. 168266 of 1987, enumerated not only the acts or activities which
March 15, 2010 constitute “doing business” but also those  activities which are
not deemed “doing business.” Section 3(d) of RA 7042 states:
   
CARPIO, J.:            The phrase “doing
  business” shall include
Facts: “soliciting orders, service
Cargill, Inc. is a corporation organized and existing contracts, opening offices,
under the laws of the State of Delaware, United States of whether called ‘liaison’
America. Cargil and Northern Mindanao Corporation (NMC) offices or branches;
executed a contract NMC agreed to sell to petitioner 20,000 to appointing representatives
24,000 metric tons of molasses, to be delivered from or distributors domiciled
1 January  to 30 June 1990  at the price of $44 per metric ton. in the Philippines or who
The contract provides that petitioner would open a Letter of in any calendar year stay
Credit with the Bank of Philippine Islands. Under the “red in the country for a period
clause” of the Letter of Credit, NMC was permitted to draw up or periods totallingone
to $500,000 representing the minimum price of the contract hundred eighty (180) days
upon presentation of some documents. or more; participating in
  the management,
The contract was amended three times. In compliance supervision or control of
with the terms of the third amendment of the contract, any domestic business,
respondent Intra Strata Assurance Corporation issued a firm, entity or corporation
performance bondto guarantee NMC’s delivery of the 10,500 in the Philippines; and any
tons of molasses, and a surety bond[to guarantee the other act or acts that imply
repayment of downpayment as provided in the contract. NMC a continuity of
was only able to deliver 219.551 metric tons of molasses out commercial dealings or
of the agreed 10,500 metric tons. Thus, Cargil sent demand arrangements, and
letters to respondent claiming payment under the performance contemplate to that extent
and surety bonds. When respondent refused to pay, petitioner the performance of acts or
filed a complaint[for sum of money against NMC and works, or the exercise of
respondent. some of the functions
  normally incident to, and
Cargil, NMC, and respondent entered into a in progressive prosecution
compromise agreement,[which the trial court approved. The of, commercial gain or of
compromise agreement provides that NMC would pay the purpose and object of
petitioner P3,000,000 upon signing of the compromise the business
agreement and would deliver to petitioner 6,991 metric tons of organization: Provided,
molasses. However, NMC still failed to comply with its however, That the phrase
obligation under the compromise agreement. Hence, trial ‘doing business’ shall not
proceeded against respondent and the trial court ruled later for be deemed to include mere
Cargil. investment as a
  shareholder by a foreign
         On appeal, the Court of Appeals reversed the trial court’s entity in domestic
decision and dismissed the complaint.  corporations duly
registered to do business,
Issues: and/or the exercise of
Whether petitioner is doing or transacting business in rights as such investor; nor
the Philippines in contemplation of the law and established having a nominee director
jurisprudence; or officer to represent its
1 interests in such
Held: corporation; nor
 appointing a 8.  Performing services
representative or auxiliary to an existing
distributor domiciled in isolated contract of sale
the Philippines which which are not on a
transacts business in its continuing basis, such as
own name and for its own installing in the Philippines
account. machinery it has
  manufactured or exported
         Since respondent is relying on Section 133 of the to the Philippines,
Corporation Code to bar petitioner from maintaining an action servicing the same,
in Philippine courts, respondent bears the burden of proving training domestic workers
that petitioner’s business activities in the Philippines were not to operate it, and similar
just casual or occasional, but so systematic and regular as to incidental services.
manifest continuity and permanence of activity to constitute  
doing business in the Philippines. In this case, we find that  
respondent failed to prove that petitioner’s activities in the          Other factors which support the finding that petitioner is
Philippines constitute doing business as would prevent it from not doing business in the Philippines are: (1) petitioner does
bringing an action.The determination of  whether a foreign not have an office  in the Philippines; (2) petitioner imports
corporation is doing business in the Philippines must be based products from the Philippines through its non-exclusive local
on the facts of each case. broker, whose authority to act on behalf of petitioner is limited
to soliciting purchases of products from suppliers engaged in
The Implementing Rules and Regulations of RA 7042 the sugar trade in the Philippines; and (3) the local broker is an
provide under Section 1(f), Rule I, that “doing business” does independent contractor and not an agent of petitioner. In the
not include the following acts: present case, petitioner is a foreign company merely importing
  molasses from a Philipine exporter. A foreign company that
1.  Mere investment as a merely imports  goods  from a Philippine exporter, without
shareholder by a foreign opening an office or appointing an  agent in the Philippines, is
entity in domestic not doing business in the Philippines.
corporations duly  
registered to do business,
and/or the exercise of
rights as such investor;
2.  Having a nominee
director or officer to
represent its interests in
Philippine Veterans Bank Employees Union-NUBE vs.
such corporation;
3.  Appointing a Vega
representative or GR 105364 28 June 2001
distributor domiciled in
the Philippines which trans Facts: The Central Bank of the Philippines filed with the
acts business in the
representative's or RTC of Manila a Petition for Assistance in the Liquidation of
distributor's own name and the Philippine Veterans Bank. Thereafter, the Philippine
account; Veterans Bank Employees Union-N.U.B.E., represented by
4.  The publication of a Perfecto V. Fernandez, filed claims for accrued and unpaid
general advertisement employee wages and benefits with said court. After lengthy
through any print or proceedings, partial payment of the sums due to the employees
broadcast media;
were made. However, due to the piecemeal hearings on the
5.  Maintaining a stock of
goods in benefits, many remain unpaid. Fernandez moved to disqualify
the Philippines solely for the presiding judge thereat (RTC Br. 39), Judge Benjamin
the purpose of having the Vega, from hearing the case on grounds of bias and hostility
same processed by another towards petitioners.
entity in the Philippines; Congress enacted RA 7169 entitled "An Act To
6.  Consignment by a Rehabilitate The Philippine Veterans Bank Created Under
foreign entity of equipment
Republic Act 3518, Providing The Mechanisms Therefor, And
with a local company to be
used in the processing of For Other Purposes.” Thereafter, Fernandez filed with the
products for export; labor tribunals their residual claims for benefits and for
7.  Collecting information reinstatement upon reopening of the bank. RA 7169 provides
in the Philippines; and in part for the reopening of the Philippine Veterans Bank
together with all its branches within the period of 3 years from
the date of the reopening of the head office. The law likewise
provides for the creation of a rehabilitation committee in order
to facilitate the implementation of the provisions of the same.
Pursuant to thereto, the Rehabilitation Committee submitted
the proposed Rehabilitation Plan of the PVB to the Monetary
Board for its approval. Meanwhile, PVB filed a Motion to
Terminate Liquidation of Philippine Veterans Bank with
Judge Vega praying that the liquidation proceedings be
immediately terminated in view of the passage of RA 7169.
The Monetary Board issued Monetary Board
Resolution 348 which approved the Rehabilitation Plan
submitted by the Rehabilitation Committee. Thereafter, the
Monetary Board issued a Certificate of Authority allowing
PVB to reopen. The Central Bank issued a certificate of
authority allowing the PVB to reopen. Despite the legislative
mandate for rehabilitation and reopening of PVB, Judge Vega
continued with the liquidation proceedings of the bank. The
Central Bank was set to order the payment and release of
employee benefits upon motion of another lawyer, while
employees’ union claims have been frozen to their prejudice.
The liquidator filed A Motion for the Termination of the
Liquidation Proceedings of the Philippine Veterans Bank with
Judge Vega. Fernandez, on the other hand, filed the petition
for Prohibition with Petition for Preliminary Injunction and
application for Ex Parte Temporary Restraining Order. The
Supreme Court resolved to issue a Temporary Restraining
Order enjoining the trial court from further proceeding with
the case. MOP Security & Detective Agency (VOPSDA) and
its 162 security guards filed a Motion for Intervention with
prayer that they be excluded from the operation of the
Temporary Restraining Order issued by the Court. The
Philippine Veterans Bank opened its doors to the public and
started regular banking operations.
Issue: Whether a liquidation court can continue with
liquidation proceedings of the Philippine Veterans Bank when
Congress had mandated its rehabilitation and reopening.
Held: The enactment of Republic Act 7169, as well as the
subsequent developments has rendered the liquidation court
functus officio. Consequently, Judge Vega has been stripped
of the authority to issue orders involving acts of liquidation.
Liquidation, in corporation law, connotes a winding up or
settling with creditors and debtors. It is the winding up of a
corporation so that assets are distributed to those entitled to
receive them. It is the process of reducing assets to cash,
discharging liabilities and dividing surplus or loss. On the
opposite end of the spectrum is rehabilitation which connotes
a reopening or reorganization. Rehabilitation contemplates a
continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of
successful operation and solvency. It is crystal clear that the
concept of liquidation is diametrically opposed or contrary to
the concept of rehabilitation, such that both cannot be
undertaken at the same time. To allow the liquidation
proceedings to continue would seriously hinder the
rehabilitation of the subject bank.
Pepsi-Cola Products vs. Court of Appeals
G.R. No. 145855. November 24, 2004
Facts: Pepsi-Cola Products Philippines, Inc. Employees and
Workers Union (PCEWU) is a duly- registered labor union of
the employees of the Pepsi-Cola Distributors of the
Philippines (PCDP). PCEWU, through its local union
president Bombeo, filed a Complaint against PCDP with the
DOLE for payment of overtime pay of 53 of its members
working as salesman, warehousemen, truck helpers, route
salesmen, route sales workers, distributors, conductors and
forklift operators, on 8 days duly- designated as Muslim
holidays for 1985. PCDP maintained that there were only 5
legal Muslim holidays under the Muslim Code. It asserted that
under the law, the cities of Cagayan de Oro and Dipolog were
not included in the areas that officially observed the Muslim
holidays, and that the said holidays were only applicable to
Muslims. It also argued that even assuming that the employees
were entitled to such overtime pay, only the rank-and-file
employees and not the managerial employees should be given
such benefit.
The Executive Labor Arbiter (ELA) rendered a Decision
in favor of PCEWU while the NLRC, upon appeal, affirmed
the decision of the ELA with modification that the Labor
Arbiter is directed to conduct further proceedings and that the
monetary award is vacated.
The PCDP and the employees filed their respective
motions for partial reconsideration of the NLRC decision.
Pending resolution thereof, ownership of various Pepsi-Cola
bottling plants was transferred to petitioner Pepsi-Cola
Products Philippines, Inc. (PCPPI).  The PCDP alleged that it
had ceased to exist as a corporation and that it has winded up
its corporate affairs in accordance with law. It also averred
that it was now owned by PCPPI. Thus, the NLRC dismissed
the complaint of PCEWU ruling that it was not competent for
it to proceed against the PCDP because it had ceased to exist
as a juridical entity.
The petitioner filed a petition for the nullification of the
Resolution of the NLRC which the Supreme Court referred to
the Court of Appeals.  For its part, the respondent averred that
notwithstanding the dissolution of the PCDP while the
complaint was pending resolution by the NLRC, the latter
continued existing as a corporation for a period of three years
from the time when it would have been dissolved,
conformably to Section 122 of the Corporation Code. In its
comment on the petition, the Office of the Solicitor General
recommended that the petition be granted and that the NLRC
be ordered to resolve the motions for reconsideration of the
petitioner and respondent therein.
 The CA rendered judgment annulling the resolution of
the NLRC.  The CA declared that the PCDP was still in
existence when the complaint was filed, and that the
supervening dissolution of the corporation did not warrant the
dismissal of the complaint against it. Every corporation is
given 3 years to wind up its affairs.  Hence, in case any
litigation is filed by or against the corporation within the
period which could not be terminated within the expiration of
the same, such period must necessarily be prolonged until the
final determination of the case, for if the rule were otherwise,
corporations in liquidation would lose what should justly
belong to them or would be exempt from the payment of just
obligations through mere technicality, something that courts
should not countenance. The CA set aside the decision of the
NLRC and reinstated the decision of the ELA.
Issue: WON the PCDP was still in existence and thus
does not warrant dismissal of the labor complaint against
it.
Held: Yes. Under Section 122 of the Corporation Code, a
corporation whose corporate existence is terminated in any
manner continues to be a body corporate for 3 years after its
dissolution for purposes of prosecuting and defending suits by
and against it and to enable it to settle and close its affairs,
culminating in the disposition and distribution of its remaining
assets. It may, during the 3-year term, appoint a trustee or a
receiver who may act beyond that period.
At any time during the said 3 years, the corporation is
authorized and empowered to convey all of its properties to
trustees for the benefit of stockholders, members, creditors,
and other persons in interest. From and after any such
conveyance by the corporation of its properties in trust for the
benefit of its stockholders, members, creditors and others in
interest, all interest which the corporation had in the properties
terminates the legal interest vests in the trustees, and the
beneficial interest in the stockholders, members, creditors or
other persons in interest.
Upon the winding up of the corporate affairs, any
asset distributable to any creditor or stockholder or member,
who is unknown or cannot be found, shall be escheated to the
city or municipality where such assets are located. Except by
decrease of capital stock and as otherwise allowed by this
Code, no corporation shall distribute any of its assets or
property except upon lawful dissolution and after payment of
all its debts and liabilities.
The termination of the life of a corporate entity does not
by itself cause the extinction or diminution of the rights and
liabilities of such entity. If the three-year extended life has
expired without a trustee or receiver having been expressly
designated by the corporation, within that period, the board of
directors (or trustees) itself, may be permitted to so continue
as "trustees" by legal implication to complete the corporate
liquidation.
SEC vs. INTERPORT RESOURCES CORPORATION
G .R. No. 135808 O ctob er 6, 2008
 
Facts: The Board of Directors of IRC approved a
Memorandum of Agreement with GHB (Ganda Holdings
Berhad). Under said memorandum of agreement, IRC
acquired 100% of the entire capital stock of GEHI (Ganda
Energy Holdings Inc.) which would own and operate a 102
megawatt gas turbine power generating barge. In exchange,
IRC will issue to GHB 55% of the expanded capital stock of
IRC. On the side, IRC would acquire 67% of the entire capital
of PRCI (Philippine Racing Club).
It is alleged herein that a press release announcing the
approval of the agreement was sent to the Philippine Stock
Exchange through facsimile and the SEC, but the facsimile
machine of the SEC could not receive it. However, the SEC
received reports that the IRC failed to make timely public
disclosures of its negotiations with GHB and that some of its
directors, heavily traded IRC shares utilizing this material
insider information. For this reason, the SEC required the
directors to appear before the SEC to explain the alleged
failure to disclose material information as required by the
Rules on Disclosure of Material Facts. Unsatisfied with the
explanation, the SEC issued an order finding that the IRC
violated the Rules in connection with the then Old Securities
Act when it failed to make timely disclosures of its
negotiations with GHB. In addition, the SEC found that the
directors of IRC entered into transactions involving IRC
shares in violation of the Revised Securities Act.
Respondents, however, questioned the authority of
the SEC to investigate on said matter since according to PD
902-A, jurisdiction upon the matter was conferred upon the
PED (Prosecution and Enforcement Department) of the SEC –
however, this issue is already moot since pending the
disposition of the case, the Securities Regulation Code was
passed thereby effectively repealing PD 902-A and abolishing
the PED. They also contended that their right to due process
was violated when the SEC required them to appear before the
SEC to show cause why sanctions should not be imposed upon
them since such requirement shifted the burden of proof to
respondents.
The case reached the CA and said court ruled in favor
of the respondents and effectively enjoined the SEC from
filing any criminal, civil or administrative cases against
respondents. In its resolution, the CA stated that since there
are no rules and regulations implementing the rules regarding
disclosure, insider trading, or any of the provisions of the
Revised Securities Act, the SEC has no statutory authority to
file any suit against respondents. The CA, therefore,
prohibited the SEC from taking cognizance or initiating any
action against the respondents for the alleged violations of the
Revised Securities Act.
 While this case was pending in this Court, Republic
Act No. 8799, otherwise known as the Securities Regulation
Code, took effect on 8 August 2000. Section 8 of Presidential
Decree No. 902-A, as amended, which created the PED, was
already repealed as provided for in Section 76 of the Securities
Regulation Code
Issues: (1) Whether or not the SEC has authority to file suit
against respondents for violations of the RSA
(2) Whether or not their right to due process was
violated when the SEC denied the parties of their right to
cross-examination
Held: (1) Yes. Sections 8, 30 and 36 of the Revised
Securities Act do not require the enactment of implementing
rules to make them binding and effective. The provisions of
the RSA are sufficiently clear and complete by themselves.
The requirements are specifically set out and the acts which
are enjoined are determinable. To rule that absence of
implementing rules can render ineffective an act of Congress
would empower administrative bodies to defeat the legislative
will by delaying the implementing rules. Where the statute
contains sufficient standards and an unmistakable intent there
should be no impediment as to its implementation.
The provision explains in simple terms that the
insider's misuse of non-public and undisclosed information is
the gravamen of illegal conduct and that the intent of the law
is the protection of investors against fraud committed when an
insider, using secret information, takes advantage of an
uninformed investor. Insiders are obligated to disclose
material information to the other party or abstain from trading
the shares of his corporation. This duty to disclose or abstain
is based on 2 factors: (1) the existence of a relationship
giving access, directly or indirectly to information intended to
be available only for a corporate purpose and not for the
personal benefit of anyone; and (2) the inherent unfairness
involved when a party takes advantage of such information
knowing it is unavailable to those with whom he is dealing.
This obligation to disclose is imposed upon
"insiders" which are particularly officers, directors or
controlling stockholders but that definition has already been
expanded and does not include those persons whose
relationship of former relationship to the issuer or the security
that is not generally available and the one who learns such a
fact from an insider knowing that the person from whom he
learns such fact is an insider. In some case, however, there
may be valid corporate reasons for the nondisclosure of
material information but it should not be used for non-
corporate purposes.
Respondent contends that the terms "material fact",
"reasonable person", "nature and reliability" and
"generally available" are vaguely used in the RSA because
under the provision of the said law what is required to be
disclosed is a fact of special significance. But the court
dismissed said contention and stated that material fact is
already defined and explained as one which induces or tends
to induce or otherwise affect the sale or purchase of
securities. On the other hand, "reasonable person" has
already been used many times in jurisprudence and in law
since it is a standard on which most of legal doctrines stand
(even the doctrine on negligence uses such standard) and it
has been held to mean "a man who relies on the calculus of
common sense of which all reasonable men have in
abundance"
As to "nature and reliability" the proper
adjudicative body would be able to determine if facts of a
certain nature and reliability can influence a reasonable
person's decision to retain, buy or sell securities and thereafter
explain and justify its factual findings in its decision since the
same must be viewed in connection with the particular
circumstances of a case. As to "generally available", the
court held also that such is a matter which may be adjudged
given the particular circumstances of the case. The standards
of which cannot remain at a standstill.
(2) No. There is no violation of due process in this case
since the proceedings before the PED are summary in nature.
The hearing officer may require the parties to submit their
respective verified position papers together will all supporting
documents and affidavits of witnesses. A formal hearing is not
mandatory and it is within the discretion of the hearing officer
to determine whether or not there is a need for a formal
hearing. Moreover, the law creating the PED empowers it to
investigate violations of the rules and regulations and to file
and prosecute such cases. It does not have adjudicatory
powers. Thus, the PED need not comply with the provisions of
the Administrative Code on adjudication.
The SEC retained jurisdiction to investigate violations
of the RSA, reenacted in the Securities Regulations Code
despite the abolition of the PED. In this case, the SEC already
commenced investigating the respondents for violations of the
RSA but during the pendency of the case the Securities and
Regulations Code was passed thereby repealing the RSA.
However, the repeal cannot deprive the SEC of its jurisdiction
to continue investigating the case.
Investigations by the SEC is a requisite before a
criminal case may be referred to the DOJ since the SEC is an
administrative agency with the special competence to do so.
According to the doctrine of primary jurisdiction, the courts
will not determine a controversy involving a question within
the jurisdiction of an administrative tribunal where the
question demands the exercise of sound administrative
discretion requiring the specialized knowledge and expertise
of said administrative tribunal to determine technical and
intricate matters of fact.
 UNIVERSAL RUBBER PRODUCTS, INC., petitioner,  already answered this issue squarely in Our decision of the
vs. case of Converse Rubber Corporation vs. Jacinto Rubber &
HON. COURT OF APPEALS, CONVERSE RUBBER Plastic Co., Inc., where We explained:
CORPORARION, EDWARDSON MANUFACTURING
CO., INC. AND HON. PEDRO C.
NAVARRO, respondents. “The disability of a
foreign corporation from
suing in the Philippines is
FACTS:
limited to suits to enforce
any legal of contract rights
Two respondent corporations herein sued the present arising from, or growing
petitioner before the Court of First Instance of Rizal for unfair out, of any business which
competition with damages and attorney's fees. After they have it has transacted in the
presented about nine witnesses and various pieces of Philippine Islands ... On
documentary evidence, herein private respondents made a the other hand, where the
request to the respondent Judge to issue a subpoena duces purpose of the suit is "to
tecum against the treasurer of herein petitioner. Acting protect its reputation, its
favorably on that request, said respondent Judge issued a corporate name, its
subpoena duces tecum. Petitioner filed a motion in the court goodwill, whenever that
below praying that the subpoena duces tecum be quashed on reputation, corporate name
the grounds that: (1) the said subpoena is both unreasonable or goodwill have, through
and oppressive as the books and documents caned for are the natural development of
numerous and voluminous; (2) there is no good cause shown its trade, established
for the issuance thereof; and (3) the books and documents are themselves", an
not relevant to the case pending below. The private unlicensed foreign
respondents herein opposed that motion of the petitioner. corporation may sue in the
Acting on the said motion and on the opposition thereto, Philippines. So interpreted
respondent Judge issued the first controverted order denying by the Supreme Court, it is
the motion to quash the subpoena duces tecum. Consequently, clear that Section 29 of the
petitioner Universal Rubber Products, Inc. filed its present Corporation Law does not
petition for certiorari with preliminary injunction, alleging that disqualify plaintiff-
in so denying its motion to quash the subpoena duces appellee Converse
tecumand its subsequent motion for reconsideration, Rubber, which does not
respondent Judge acted with grave abuse of discretion have a branch office in
amounting to an excess of jurisdiction. The respondent Court any part of the Philippines
rendered its decision denying the petition for certiorari filed by and is not "doing
petitioner for lack of merit.  business" in the
Philippines, from filing
ISSUE: whether the issuance of the "subpoena duces tecum" is and prosecuting this action
proper in a suit for unfair competition. for unfair competition.”

HELD: LORENZO SHIPPING CORP., petitioner, vs. CHUBB

Well-settled is Our jurisprudence that, in order to entitle a
party to the issuance of a "subpoena duces tecum ", it must
appear, by clear and unequivocal proof, that the book or
document sought to be produced contains evidence relevant
and material to the issue before the court, and that the precise
book, paper or document containing such evidence has been
so designated or described that it may be identified.  A
"subpoena duces tecum once issued by the court may be
quashed upon motion if the issuance thereof is unreasonable
and oppressive or the relevancy of the books, documents or
things does not appear, or if the persons in whose behalf the
subpoena is issued fails to advance the reasonable cost of
production thereof. Petitioner also assails that private
respondent is a foreign corporation not licensed to do business
in the Philippines and that respondent Edwardson is merely its
licensee; that respondent Converse has no goodwill to speak of
and that it has no registrable right over its own name. We have
and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE
TRANSMARINE CARRIERS, INC.,respondents.
FACTS:
Mayer Steel Pipe Corporation of Binondo, Manila,
loaded 581 bundles of ERW black steel pipes on board the
vessel M/V Lorcon IV, owned by petitioner Lorenzo
Shipping, for shipment to Davao City.  Petitioner Lorenzo
Shipping issued a clean bill of lading designated for the
account of the consignee, Sumitomo Corporation of San
Francisco, California, USA, which in turn, insured the goods
with respondent Chubb and Sons, Inc. The M/V Lorcon IV
arrived at the Sasa Wharf in Davao City. Respondent
Transmarine Carriers received the subject shipment which was
discharged and discovered seawater in the hatch of M/V
Lorcon IV, and found the steel pipes submerged in it.   Del
Pan’s Survey Report showed that the subject shipment was no
longer in good condition, as in fact, the pipes were found with
rust formation on top and/or at the sides.   Due to its heavily
rusted condition, the consignee Sumitomo rejected the
damaged steel pipes and declared them unfit for the purpose
they were intended It then filed a marine insurance claim with
respondent Chubb and Sons, Inc. Respondent Chubb and
Sons, Inc. filed a complaint for collection of a sum of money,
against respondents Lorenzo Shipping, Gearbulk, and
Transmarine.  Respondent Chubb and Sons, Inc. alleged that it
is not doing business in the Philippines, and that it is suing
under an isolated transaction. Respondents Gearbulk and
Transmarine filed their answer with counterclaim and cross-
claim against petitioner Lorenzo Shipping denying liability on
the following grounds:  (a) respondent Chubb and Sons, Inc.
has no capacity to sue before Philippine courts; (b) the action
should be dismissed on the ground of forum non conveniens;
(c) damage to the steel pipes was due to the inherent nature of
the goods or to the insufficiency of packing thereof; (d)
damage to the steel pipes was not due to their fault or
negligence; and, (e) the law of the country of destination,
U.S.A., governs the contract of carriage. he Regional Trial
Court ruled in favor of the respondent Chubb and Sons, Inc.,
finding that:  (1) respondent Chubb and Sons, Inc. has the
right to institute this action; and, (2) petitioner Lorenzo
Shipping was negligent in the performance of its obligations
as a carrier. Petitioner Lorenzo Shipping appealed to the Court
of Appeals insisting that:  (a) respondent Chubb and Sons does
not have capacity to sue before Philippine courts; and, (b)
petitioner Lorenzo Shipping was not negligent in the
performance of its obligations as carrier of the goods.  The
appellate court denied the petition and affirmed the decision of
the trial court. Petitioner argues that respondent Chubb and
Sons is a foreign corporation not licensed to do business in
the Philippines, and is not suing on an isolated transaction.  It
contends that because the respondent Chubb and Sons is an
insurance company, it was merely subrogated to the rights of
its insured, the consignee Sumitomo, after paying the latter’s
policy claim.  Sumitomo, however, is a foreign corporation
doing business in the Philippines without a license and does
not have capacity to sue before Philippine courts.  Since
Sumitomo does not have capacity to sue, petitioner then
concludes that, neither the subrogee-respondent Chubb and
Sons could sue before Philippine courts
ISSUE: Whether the respondent has the right to sue in the
Philippines
HELD:
Yes. in the first place, petitioner failed to raise the
defense that Sumitomo is a foreign corporation doing business
in the Philippines without a license.  It is therefore estopped
from litigating the issue on appeal especially because it
involves a question of fact which this Court cannot
resolve.  Secondly, assuming arguendo that Sumitomo cannot
sue in the Philippines, it does not follow that respondent, as
subrogee, has also no capacity to sue in our jurisdiction.
Subrogation is the substitution of one person in the place of
another with reference to a lawful claim or right, so that he
who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or
securities. The principle covers the situation under which an
insurer that has paid a loss under an insurance policy is
entitled to all the rights and remedies belonging to the insured
against a third party with respect to any loss covered by the
policy. It contemplates full substitution such that it places the
party subrogated in the shoes of the creditor, and he may use
all means which the creditor could employ to enforce payment
When the insurer succeeds to the rights of the insured, he
does so only in relation to the debt.  The person substituted
(the insurer) will succeed to all the rights of the creditor (the
insured), having reference to the debt due the latter. In the
instant case, the rights inherited by the insurer, respondent
Chubb and Sons, pertain only to the payment it made to the
insured Sumitomo as stipulated in the insurance contract
between them, and which amount it now seeks to recover from
petitioner Lorenzo Shipping which caused the loss sustained
by the insured Sumitomo.  The capacity to sue of respondent
Chubb and Sons could not perchance belong to the group of
rights, remedies or securities pertaining to the
payment respondent insurer made for the loss which was
sustained by the insured Sumitomo and covered by the
contract of insurance.  Capacity to sue is a right personal to its
holder.  It is conferred by law and not by the parties. Lack of
legal capacity to sue means that the plaintiff is not in the
exercise of his civil rights, or does not have the necessary
qualification to appear in the case, or does not have the
character or representation he claims.  It refers to a plaintiff’s
general disability to sue, such as on account of minority,
insanity, incompetence, lack of juridical personality, or any
other disqualifications of a party. Respondent Chubb and Sons
who was plaintiff in the trial court does not possess any of
these disabilities.  On the contrary, respondent Chubb and
Sons has satisfactorily proven its capacity to sue, after having
shown that it is not doing business in the Philippines, but is
suing only under an isolated transaction, i.e., under the one (1)
marine insurance policy issued in favor of the consignee
Sumitomo covering the damaged steel pipes. 
 Art. 133 of the Corporation Code states:
Doing business without a license. – No foreign corporation
transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation
may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action
recognized under Philippine laws.
The law does not prohibit foreign corporations from
performing single acts of business.  A foreign corporation
needs no license to sue before Philippine courts on an isolated
transaction.
What is determinative of "doing business" is not really the
number or the quantity of the transactions, but more
importantly, the intention of an entity to continue the body of
its business in the country. The number and quantity are
merely evidence of such intention. The phrase "isolated
transaction" has a definite and fixed meaning, i.e. a transaction
or series of transactions set apart from the common business
of a foreign enterprise in the sense that there is no intention to
engage in a progressive pursuit of the purpose and object of
the business organization. Whether a foreign corporation is
"doing business" does not necessarily depend upon the
frequency of its transactions, but more upon the nature and
character of the transactions.

CEMCO HOLDINGS, INC. VS. NATIONAL LIFE
INSURANCE COMPANY OF THE PHILIPPINES, INC.
FACTS:
Union Cement Corporation (UCC), a publicly-listed
company, has two principal stockholders – UCHC, a non-
listed company, with shares amounting to 60.51%, and
petitioner Cemco with 17.03%.  Majority of UCHC’s stocks
were owned by BCI with 21.31% and ACC with
29.69%.  Cemco, on the other hand, owned 9% of UCHC
stocks. In a disclosure letter dated 5 July 2004, BCI informed
the Philippine Stock Exchange (PSE) that it and its subsidiary
ACC had passed resolutions to sell to Cemco BCI’s stocks in
UCHC equivalent to 21.31% and ACC’s stocks in UCHC
equivalent to 29.69%.  In the PSE Circular for Brokers No.
3146-2004 dated 8 July 2004, it was stated that as a result of
petitioner Cemco’s acquisition of BCI and ACC’s shares in
UCHC, petitioner’s total beneficial ownership, direct and
indirect, in UCC has increased by 36% and amounted to at
least 53% of the shares of UCC. As a consequence of this
disclosure, the PSE, in a letter to the SEC dated 15 July 2004,
inquired as to whether the Tender Offer Rule under Rule 19 of
the Implementing Rules of the Securities Regulation Code is
not applicable to the purchase by petitioner of the majority of
shares of UCC.  In a letter dated 16 July 2004,
Director Justina Callangan of the SEC’s Corporate Finance
Department responded to the query of the PSE that while it
was the stance of the department that the tender offer rule was
not applicable, the matter must still have to be confirmed by
the SEC en banc. Director Callangan confirmed that the
SEC en banc had resolved that the Cemco transaction was not
covered by the tender offer rule. Respondent, a minority
stockholder of UCC, sent a letter to Cemco demanding the
latter to comply with the rule on mandatory tender
offer. Cemco, however, refused. A Share Purchase Agreement
was executed by ACC and BCI, as sellers, and Cemco, as
buyer. Respondent filed a complaint with the SEC asking it to
reverse its 27 July 2004 Resolution and to declare the
purchase agreement of Cemco void and praying that the
mandatory tender offer rule be applied to its UCC
shares.  Impleaded in the complaint were Cemco, UCC,
UCHC, BCI and ACC, which were then required by the SEC
to file their respective comment on the complaint.  In their
comments, they were uniform in arguing that the tender offer
rule applied only to a direct acquisition of the shares of the
listed company and did not extend to an indirect acquisition
arising from the purchase of the shares of a holding company
of the listed firm. The SEC ruled in favor of the respondent by
reversing and setting aside its 27 July 2004 Resolution and
directed petitioner Cemco to make a tender offer for UCC
shares to respondent and other holders of UCC shares similar
to the class held by UCHC in accordance with Section 9(E),
Rule 19 of the Securities Regulation Code. Petitioner filed a
petition with the Court of Appeals challenging the SEC’s
jurisdiction to take cognizance of respondent’s complaint and
its authority to require Cemco to make a tender offer for UCC
shares, and arguing that the tender offer rule does not apply, or
that the SEC’s re-interpretation of the rule could not be made
to retroactively apply to Cemco’s purchase of UCHC shares.
The Court of Appeals rendered a decision affirming the ruling
of the SEC.  It ruled that the SEC has jurisdiction to render the
questioned decision and, in any event, Cemco was barred
by estoppel from questioning the SEC’s jurisdiction.  
ISSUE:
1.  Whether or not the SEC has jurisdiction
over respondent’s complaint and to
require Cemco to make a tender offer for
respondent’s UCC shares.
2.  Whether or not the rule on mandatory
tender offer applies to the indirect
acquisition of shares in a listed company, in
this case, the indirect acquisition
by Cemco of 36% of UCC, a publicly-listed
company, through its purchase of the shares
in UCHC, a non-listed company.
HELD:
1. YES. In taking cognizance of respondent’s complaint
against petitioner and eventually rendering a judgment which
ordered the latter to make a tender offer, the SEC was acting
pursuant to Rule 19(13) of the Amended Implementing Rules
and Regulations of the Securities Regulation Code, to wit:
13.  Violation
 
If there shall be violation of this
Rule by pursuing a purchase of equity shares
of a public company at threshold amounts
without the required tender offer, the
Commission, upon complaint, may nullify
the said acquisition and direct the holding of
a tender offer.  This shall be without
prejudice to the imposition of other
sanctions under the Code.
 
 
The foregoing rule emanates from the SEC’s power
and authority to regulate, investigate or supervise the
activities of persons to ensure compliance with the
Securities Regulation Code, more specifically the
provision on mandatory tender offer under Section 19
thereof.
Moreover, petitioner is barred from questioning
the jurisdiction of the SEC.  It must be pointed
out that petitioner had participated in all the
proceedings before the SEC and had prayed for
affirmative relief. 
2. Tender offer is a publicly announced
intention by a person acting alone or in
concert with other persons to acquire equity
securities of a public company.  A public
company is defined as a corporation which
 is listed on an exchange, or a corporation respect to the alleged foreign currency denominated accounts
with assets exceeding P50,000,000.00 and of CJ Corona.
with 200 or more stockholders, at least 200
of them holding not less than 100 shares of There are two requisite conditions for the issuance of a
such company[   Stated differently, a tender preliminary injunction:
offer is an offer by the acquiring person to
stockholders of a public company for them (1) the right to be protected exists prima facie, and
to tender their shares therein on the terms
specified in the offer. Tender offer is in (2) the acts sought to be enjoined are violative of that right.
place to protect minority shareholders It must be proven that the violation sought to be prevented
against any scheme that dilutes the share would cause an irreparable injustice.
value of their investments.  It gives the
A clear right to maintain the confidentiality of the foreign
minority shareholders the chance to exit the
currency deposits of the Chief Justice is provided under
company under reasonable terms, giving
Section 8 of Republic Act No. 6426, otherwise known as the
them the opportunity to sell their shares at
Foreign Currency Deposit Act of the Philippines (RA 6426).
the same price as those of the majority
This law establishes the absolute confidentiality of foreign
shareholders. Under existing SEC Rules, the
currency deposits:
15% and 30% threshold acquisition of
shares under the foregoing provision was Under R.A. No. 6426 there is only a single exception to the
increased to thirty-five percent (35%).  It is secrecy of foreign currency deposits, that is, disclosure is
further provided therein that mandatory allowed only upon the written permission of the depositor. In
tender offer is still applicable even if the Intengan v. Court of Appeals, the Court ruled that where the
acquisition is less than 35% when the accounts in question are U.S. dollar deposits, the applicable
purchase would result in ownership of over law is not Republic Act No. 1405 but RA 6426. Similarly, in
51% of the total outstanding equity the recent case of Government Service Insurance System v.
securities of the public company. 15th Division of the Court of Appeals, the Court also held that
RA 6426 is the applicable law for foreign currency deposits
and not Republic Act No. 1405. The written consent under RA
6426 constitutes a waiver of the depositor’s right to privacy in
relation to such deposit. In the present case, neither the
prosecution nor the Impeachment Court has presented any
PHILIPPINE SAVINGS BANK VS. SENATE such written waiver by the alleged depositor, Chief Justice
IMPEACHMENT COURT Renato C. Corona. Also, while impeachment may be an
exception to the secrecy of bank deposits under RA 1405, it is
G.R NO. 200238 not an exemption to the absolute confidentiality of foreign
currency deposits under RA 6426.
FACTS: Philippine Savings Bank (PS Bank) and its
President, Pascual M. Garcia III, filed before the Supreme
Court an original civil action for certiorari and prohibition
with application for temporary restraining order and/or writ of
preliminary injunction. The TRO was sought to stop the
Senate, sitting as impeachment court, from further
implementing the Subpoena Ad Testificandum et Duces
Tecum, dated February 6, 2012, that it issued against the
Branch Manager of PS Bank, Katipunan Branch. The
subpoena assailed by petitioners covers the foreign currency
denominated accounts allegedly owned by the impeached
Chief Justice Renato Corona of the Philippine Supreme Court.

ISSUE: Should a TRO be issued against the impeachment

court to enjoin it from further implementing the subpoena with
respect to the alleged foreign currency denominated accounts
of CJ Corona?

HELD:

YES, a TRO should be issued against the impeachment court

to enjoin it from further implementing the subpoena with