Lanuza vs Court of Appeals

G.R. No. 131394 March 28, 2005

 J. Tinga

Facts: In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven
hundred (700) founders’ shares and seventy-six (76) common shares as its initial capital stock
subscription reflected in the articles of incorporation. However, private respondents and their
predecessors who were in control of PMMSI registered the company’s stock and transfer book for the
first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding shares
of PMMSI. Sometime in 1979, a special stockholders’ meeting was called and held on the basis of what
was considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds
(2/3) of the common shares issued and outstanding.

On 06 May 1992, a special stockholders’ meeting was held to elect a new set of directors. Private
respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992
stockholders’ meeting, alleging that the quorum for the said meeting should not be based on the 165
issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital
stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation.

Issue: Whether or not the quorum should be based on the outstanding capital stock as indicated in the
Articles of Incorporation.

Held: Yes. The articles of incorporation has been described as one that defines the charter of the
corporation and the contractual relationships between the State and the corporation, the stockholders
and the State, and between the corporation and its stockholders.  When PMMSI was incorporated, the
prevailing law was Act No. 1459, otherwise known as “The Corporation Law.” 

There is no gainsaying that the contents of the articles of incorporation are binding, not only on the
corporation, but also on its shareholders. In theinstant case, the articles of incorporation indicate that at
the time ofincorporation, the incorporators were bona fide stockholders of seven hundred (700)
founders’ shares and seventy-six (76) common shares. Hence, at thattime, the corporation had 776
issued and outstanding shares.

On the other hand, a stock and transfer book is the book which records the names and addresses of all
stockholders arranged alphabetically, the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment thereof; a statement of every alienation, sale or
transfer of stock made, the date thereof and by and to whom made; and such other entries as may be
prescribed by law. A stock and transfer book is necessary as a measure of precaution, expediency and
convenience since it provides the only certain and accurate method of establishing the various
corporate acts and transactions and of showing the ownership of stock and like matters. However, a
stock and transfer book, like other corporate books and records, is not in any sense a public record, and
thus is not exclusive evidence of the matters and things which ordinarily are or should be written
therein. In fact, it is generally held that the records and minutes of a corporation are not conclusive even
against the corporation but are prima facie evidence only, and may be impeached or even contradicted
by other competent evidence. Thus, parol evidence may be admitted to supply omissions in the records
or explain ambiguities, or to contradict such records.
Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it
be founders’ shares or common shares. In the instant case, two figures are being pitted against each
other — those contained in the articles of incorporation, and those listed in the stock and transfer book.

To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and
transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles
of incorporation would work injustice to the owners and/or successors in interest of the said shares. This
case is one instance where resort to documents other than the stock and transfer books is necessary.
The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it
does not reflect the totality of shares which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and outstanding as compared to that
listed in the stock and transfer book. As aptly stated by the SEC in its Order dated 15 July 1996:

It is to be explained, that if at the onset of incorporation a corporation has 771 shares subscribed, the
Stock and Transfer Book should likewise reflect 771 shares. Any sale, disposition or even reacquisition of
the company of its own shares, in which it becomes treasury shares, would not affect the total number
of shares in the Stock and Transfer Book. All that will change are the entries as to the owners of the
shares but not as to the amount of shares already subscribed.

This is precisely the reason why the Stock and Transfer Book was not given probative value. Did the
shares, which were not recorded in the Stock and Transfer Book, but were recorded in the Articles of
Incorporation just vanish into thin air? . . . . 
 Lee v. Court of Appeals
G.R. No. 93695, 4 February 1992
FACTS:

A complaint was filed and the trial court issued an order requiring the issuance of an alias summons
upon ALFA through the DBP as a consequence of the petitioner’s letter informing the court that the
summons for ALFA was erroneously served upon them considering that the management of ALFA had
been transferred to the DBP. 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. Subsequently, the trial court issued an order advising the private respondents
to take the appropriate steps to serve the summons to ALFA.

The petitioners filed a motion for reconsideration submitting that since they were no longer officers of
ALFA, the private respondents should have availed of another mode of service which is through
publication to effect proper service upon ALFA. The private respondents argued that the voting trust
agreement did not divest the petitioners of their positions as president and executive vice-president of
ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper.
The trial court upheld the validity of the service of summons on ALFA through the petitioners.

A second motion for reconsideration was filed 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 and in support thereof, they attached a copy
of the voting trust agreement between all the stockholders of ALFA and the DBP whereby the
management and control of ALFA became vested upon the DBP. The trial court then reversed itself and
declared that service upon the petitioners cannot be considered as proper service of summons on ALFA.
The case was elevated to the CA which reversed the Orders holding that there was proper service of
summons on ALFA through the petitioners.

ISSUES:

1. Whether the execution of the voting trust agreement by a stockholder, whereby all his shares to the
corporation have been transferred to the trustee, deprives the stockholder of his position as director of
the corporation.
2. Whether the service of summons on ALFA, effected through the petitioners as president and vice-
president of the subject corporation, after the execution of the voting trust agreement is valid and
effective.

RULING:

1. Yes. Under Sec. 59 of the Corporation Code and by its very nature, a voting trust agreement results in
the separation of the voting rights of a stockholder from his other rights. The execution of a voting trust
agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the
corporate shares of stockholders, on the one hand, and the legal title thereto on the other hand. In the
instant case, the petitioners maintain that with the execution of the voting trust agreement between
them and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former
assigned and transferred all their shares in ALFA to DBP, as trustee and thus, they can no longer be
considered directors of ALFA.
Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely
affected by the simple act of such director being a party to a voting trust agreement inasmuch as he
remains owner (although beneficial or equitable only) of the shares subject of the voting trust
agreement pursuant to which a transfer of the stockholder’s shares in favor of the trustee is required.
No disqualification arises by virtue of the phrase “in his own right” provided under the old Corporation
Code. With the omission of the phrase “in his own right” the election of trustees and other persons who
in fact are not beneficial owners of the shares registered in their names on the books of the corporation
becomes formally legalized. Hence, this is a clear indication that in order to be eligible as a director,
what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of
the corporation.

The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981
disposed of all their shares through assignment and delivery in favor of the DBP, as trustee.
Consequently, the petitioners ceased to own at least one share standing in their names on the books of
ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to
do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer
of the petitioners’ shares to the DBP created vacancies in their respective positions as directors of ALFA.
Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of
the stock covered by the agreement to the DBP as trustee, the latter became the stockholder of record
with respect to the said shares of stocks. Both parties, ALFA and the DBP, were aware at the time of the
execution of the agreement that by virtue of the transfer of shares of ALFA to the DBP, all the directors
of ALFA were stripped of their positions as such.

There can be no reliance on the inference that 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 the petitioners as beneficial owners pursuant to the 6th paragraph of
section 59 of the new Corporation Code which reads:

“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 certificate 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.”

On the contrary, 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. There is evidence on record that at the time of the service of summons on ALFA
through the petitioners on August 21, 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.

2. No. Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:

“Sec. 13. Service upon private domestic corporation or partnership. — If the defendant is a corporation
organized under the laws of the Philippines or a partnership duly registered, service may be made on
the president, manager, secretary, cashier, agent or any of its directors.”

It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from
the officers or members who compose it. Thus, the above rule on service of processes of a corporation
enumerates the representatives of a corporation who can validly receive court processes on its behalf.
Not every stockholder or officer can bind the corporation considering the existence of a corporate entity
separate from those who compose it. The petitioners in this case do not fall under any of the
enumerated officers. The service of summons upon ALFA, through the petitioners, therefore, is not
valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle that
a corporation can only be bound by such acts which are within the scope of the officer’s or agent’s
authority.
 DONNINA C. HALLEY vs. PRINTWELL, INC.,
G.R. No. 157549 May 30, 2011

BERSAMIN, J:
Topic: Piercing the Veil of Corporate Fiction; Trust Fund Doctrine
Doctrine: Stockholders of a corporation are liable for the debts of the corporation up to the extent of
their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability,
because the veil may be lifted to avoid defrauding corporate creditors.
Facts: Petitioner Halley was an incorporator and original director of Business Media Phil. Inc.
(BMPI) while respondent was engaged in commercial and industrial printing. BMPI commissioned
respondent for the printing of magazine Philippines together with wrappers and subscription cards
that the former published and sold.
BMPI placed several orders on credit to respondent but failed to pay the balance. Thus,
respondent sued BMPI for the collection of the unpaid balance of P291,342.76 in the RTC.
Printwell amended the complaint in order to implead as defendants all the original stockholders and
incorporators to recover on the unpaid subscriptions.
Petitioner argued that she had paid her subscriptions, evidenced by several official receipts
and that BMPI had a personality separate from its stockholders which personality should not be
disregarded. RTC and CA pierced the veil of corporate fiction and held the stockholders of BMPI as
personally liable for corporate debts up to the extent of their unpaid subscriptions under the Trust
Fund doctrine. Both courts also found some irregularities in the issuance of official receipts.
Issues: (1) Whether the separate personalities of BMPI and its stockholders should be
disregarded.
(2) Whether the trust fund doctrine is applicable.
Ruling:
(1)Yes. Corporate personality should not be used to foster injustice. Printwell impleaded the
petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the unpaid
subscriptions because it appeared that such subscriptions were the remaining visible assets of
BMPI; and (b) to avoid multiplicity of suits.
In the present case, personal liabilities of petitioner with other stockholders remained
because they were in charge of the operations of BMPI at the time the unpaid obligation was
transacted. To deny respondent from recovering from petitioner would place the latter in a limbo on
where to assert their right to collect from BMPI since the stockholders who are petitioners are
availing the defense of corporate fiction to evade payment of its obligation.
(2)Yes. the petitioner was liable pursuant to the trust fund doctrine for the corporate obligation of
BMPI by virtue of her subscription being still unpaid.
The trust fund doctrine states that subscriptions to the capital of a corporation constitute a
fund to which creditors have a right to look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for
the payment of its debts. The scope of the doctrine when the corporation is insolvent encompasses
not only the capital stock, but also other property and assets generally regarded in equity as a trust
fund for the payment of corporate debts.
Thus, Printwell, as BMPIs creditor, had a right to reach petitioner's unpaid subscription in
satisfaction of its claim. The liability of stockholder for corporate debt is up to the extent of their
unpaid subcription. In view of petitioner's unpaid subscription of 265, 500 , she was liable up to that
amount.

Bank of Commerce v. Radio Philippine Network, Inc.

G.R. No. 195615, 21 April 2014
FACTS:

Traders Royal Bank (TRB) proposed to sell to petitioner Bank of Commerce (Bancommerce) for its
banking business consisting of specified assets and liabilities. Bancommerce agreed subject to prior
BSP’s approval of their Purchase and Assumption (P & A) Agreement.

The BSP approved that agreement subject to the condition that Bancommerce and TRB would set up an
escrow fund of P5O million with another bank to cover TRB liabilities for contingent claims that may
subsequently be adjudged against it, which liabilities were excluded from the purchase.

Bancommerce acquired TRB’s specified assets and liabilities, excluding liabilities arising from judicial
actions which were to be covered by the BSP-mandated escrow of ₱50 million, which shall be kept for
15 years in the trust department of any other bank acceptable to the BSP.

The BSP finally approved such agreement.

Shortly after, in Traders Royal Bank v. Radio Philippines Network (TRB v. RPN), this Court ordered TRB to
pay respondents RPN, et al. actual damages plus 12% legal interest and some amounts.

RPN, et al.filed a motion for execution against TRB before the RTC, and a Supplemental Motion for
Execution where they described TRB as “now Bank of Commerce” based on the assumption that TRB
had been merged into Bancommerce.

Bancommerce questioned the jurisdiction of the RTC over it and denied that there was a merger
between TRB and Bancommerce.

The RTC issued an Order granting and issuing the writ of execution to cover any and all assets of TRB,
“including those subject of the merger/consolidation in the guise of a Purchase and Sale Agreement with
Bank of Commerce, and/or against the Escrow Fund established by TRB and Bank of Commerce with the
MetroBank.”

This prompted Bancommerce to file a petition for certiorari with the CA assailing the RTC’s Order. The
CA denied the petition. The CA pointed out that the Decision of the RTC was clear in that Bancommerce
was not being made to answer for the liabilities of TRB, but rather the assets or properties of TRB under
its possession and custody.

The RTC granted RPN’s motion for alias writ of execution against Bancommerce based on the CA
Decision. The RTC issued the alias writ, hence, Bancommerce filed on a motion to quash the same.

The RTC issued the assailed Order denying Bancommerce’s pleas. It ordered the release to the Sheriff of
Bancommerce’s “garnished monies and shares of stock or their monetary equivalent” and for the sheriff
to pay to the respondents’ attorney’s fees, appearance fees and litigation expenses.
Aggrieved, Bancommerce immediately assailed the RTC Orders to the CA via a petition for certiorari
under Rule 65. The CA dismissed the petition outright and denied Bancommerce’s motion for
reconsideration prompting it to come to this Court.

ISSUE:

Whether or not the CA gravely erred in failing to rule that the RTC’s Order of execution against
Bancommerce was a nullity because TRB v. RPN held that TRB had not been merged into Bancommerce
as to make the latter liable for TRB’s judgment debts.

RULING:

Merger is a re-organization of two or more corporations that results in their consolidating into a single
corporation, which is one of the constituent corporations, one disappearing or dissolving and the other
surviving.

To put it another way, merger is the absorption of one or more corporations by another existing
corporation, which retains its identity and takes over the rights, privileges, franchises, properties, claims,
liabilities and obligations of the absorbed corporation(s). The absorbing corporation continues its
existence while the life or lives of the other corporation(s) is or are terminated.

The Corporation Code requires the following steps for merger or consolidation:

(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include
any amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case of
consolidation, all the statements required in the articles of incorporation of a corporation.
(2) Submission of plan to stockholders or members of each corporation for approval. A meeting must be
called and at least two (2) weeks’ notice must be sent to all stockholders or members, personally or by
registered mail. A summary of the plan must be attached to the notice. Vote of two-thirds of the
members or of stockholders representing two thirds of the outstanding capital stock will be needed.
Appraisal rights, when proper, must be respected.
(3) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation, by the
corporate officers of each constituent corporation. These take the place of the articles of incorporation
of the consolidated corporation, or amend the articles of incorporation of the surviving corporation.
(4) Submission of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks
before.
(6) Issuance of certificate of merger or consolidation.

Indubitably, it is clear that no merger took place between Bancommerce and TRB as the requirements
and procedures for a merger were absent. A merger does not become effective upon the mere
agreement of the constituent corporations. All the requirements specified in the law must be complied
with in order for merger to take effect. Section 79 of the Corporation Code further provides that the
merger shall be effective only upon the issuance by the Securities and Exchange Commission (SEC) of a
certificate of merger.
Here, Bancommerce and TRB remained separate corporations with distinct corporate personalities.
What happened is that TRB sold and Bancommerce purchased identified recorded assets of TRB in
consideration of Bancommerce’s assumption of identified recorded liabilities of TRB including booked
contingent accounts. There is no law that prohibits this kind of transaction especially when it is done
openly and with appropriate government approval.

In strict sense, no merger or consolidation took place as the records do not show any plan or articles of
merger or consolidation. More importantly, the SEC did not issue any certificate of merger or
consolidation.
On the other hand, the idea of a de facto merger came about because, prior to the present Corporation
Code, no law authorized the merger or consolidation of Philippine Corporations, except insurance
companies, railway corporations, and public utilities. And, except in the case of insurance corporations,
no procedure existed for bringing about a merger.

In his book, Philippine Corporate Law, Dean Cesar Villanueva explained that under the Corporation
Code, “a de facto merger can be pursued by one corporation acquiring all or substantially all of the
properties of another corporation in exchange of shares of stock of the acquiring corporation. The
acquiring corporation would end up with the business enterprise of the target corporation; whereas, the
target corporation would end up with basically its only remaining assets being the shares of stock of the
acquiring corporation.”

No de facto merger took place in the present case simply because the TRB owners did not get in
exchange for the bank’s assets and liabilities an equivalent value in Bancommerce shares of stock.
Bancommerce and TRB agreed with BSP approval to exclude from the sale the TRB’s contingent judicial
liabilities, including those owing to RPN, et al. Herein petition is granted.
 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.
 Alabang Development Corporation v. Alabang Hills Village Association
G.R. No. 187456, 2 June 2014
FACTS:

The Complaint alleged that [petitioner] is the developer of Alabang Hills Village and still owns certain
parcels of land therein that are yet to be sold, as well as those considered open spaces that have not yet
been donated to [the] local government of Muntinlupa City or the Homeowner’s Association. Sometime
in September [2006], ADC learned that AHVAI started the construction of a multi-purpose hall and a
swimming pool on one of the parcels of land still owned by ADC without the latter’s consent and
approval, and that despite demand, AHVAI failed to desist from constructing the said improvements.
ADC thus prayed that an injunction be issued enjoining defendants from constructing the multi-purpose
hall and the swimming pool at the Alabang Hills Village.

In its Answer With Compulsory Counterclaim, AHVAI denied ADC’s asseverations and claimed that the
latter has no legal capacity to sue since its existence as a registered corporate entity was revoked by the
Securities and Exchange Commission (SEC) on May 26, 2003; that ADC has no cause of action because by
law it is no longer the absolute owner but is merely holding the property in question in trust for the
benefit of AHVAI as beneficial owner thereof.

ISSUE:

Whether or not the petitioner has a capacity to sue despite revocation of its license by the Securities
and Exchange Commission.

RULING:

With respect to the second assigned error, Section 122 of the Corporation Code provides as follows:

SEC. 122. Corporate liquidation.– Every corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in
any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time
when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against
it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its
assets, but not for the purpose of continuing the business for which it was established.

At any time during said three (3) years, said corporation is authorized and empowered to convey all of
its property 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 property in trust for the benefit
of its stockholders, members, creditors and others in interest, all interest which the corporation had in
the property terminates, the legal interest vests in the trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in interest.

Upon 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.

This Court has held that:

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 there is no time limit within which the trustees must complete a
liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78 now Sec. 122]) 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 Sec. 78 [now Sec. 122] may sue and be sued as
such in all matters connected with the liquidation…

In the absence of trustees, this Court ruled, thus:

… Still in the absence of a board of directors or trustees, those having any pecuniary interest in the
assets, including not only the shareholders but likewise the creditors of the corporation, acting for and
in its behalf, might make proper representations with the Securities and Exchange Commission, which
has primary and sufficiently broad jurisdiction in matters of this nature, for working out a final
settlement of the corporate concerns.
 San Juan Structural and Steel Fabricators v. Court of Appeals
G.R. No. 129459, 29 September 1998
FACTS:

Plaintiff-appellant entered into an agreement with Motorich Sales Corporation (MSC) for the transfer to
it of a parcel of land located in Quezon City. As stipulated in the Agreement of 14 February 1989, SJSSFI
paid the downpayment in the sum of P100,000.00, the balance to be paid on or before 2 March 1989.
On 1 March 1989, Mr. Andres T. Co, SJSSFI president, wrote a letter to MSC requesting for a
computation of the balance to be paid. On 2 March 1989, SJSSFI was ready with the amount
corresponding to the balance. SJSSFI and MSC were supposed to meet in the office of SJSSFI but MSC’s
treasurer, Nenita Lee Gruenberg, did not appear. MSC, despite repeated demands and in utter disregard
of its commitments had refused to execute the Transfer of Rights/Deed of Assignment which is
necessary to transfer the certificate of title.

On 6 April 1989, ADC and MSC entered into a Deed of Absolute Sale whereby the former transferred to
the latter the subject property. SJSSFI filed the complaint for damages against MSC, and Nenita Lee
Gruenberg, as a result of the latter’s alleged bad faith in refusing to execute a formal Transfer of
Rights/Deed of Assignment. It impleaded ADC and JNM Realty & Development Corp. (JRDC) as necessary
parties, since Transfer Certificate of Title (362909) 2876 was in the name of ADC, and that JRDC is the
transferor of right in favor of MDC. In its answer, MSC and Nenita Lee Gruenberg interposed as
affirmative defense that the President and Chairman of Motorich did not sign the agreement adverted
to; that Mrs. Gruenberg’s signature on the agreement is inadequate to bind MSC as the other signature,
that of Mr. Reynaldo Gruenberg, President and Chairman of MSC, is required; that SJSSFI knew this from
the very beginning as it was presented a copy of the Transfer of Rights at the time the Agreement was
signed; that SJSSFI itself drafted the Agreement and insisted that Mrs. Gruenberg accept the
P100,000.00 as earnest money; that granting, without admitting, the enforceability of the agreement,
SJSSFI nonetheless failed to pay in legal tender within the stipulated period (up to 2 March 1989); that it
was the understanding between Mrs. Gruenberg and SJSSFI that the Transfer of Rights/Deed of
Assignment will be signed only upon receipt of cash payment; thus they agreed that if the payment be in
check, they will meet at a bank designated by SJSSFI where they will encash the check and sign the
Transfer of Rights/Deed, but that SJSSFI informed Mrs. Gruenberg of the alleged availability of the
check, by phone, only after banking hours.

On the basis of the evidence, the Regional Trial Court of Makati, Metro Manila rendered judgment,
dismissing SJSSFI’s complaint, finding that Nenita Lee Gutenberg was not authorized by the corporation
to dispose of the property as such disposition is governed by the requirements of Section 40,
Corporation Code; and that Nenita Lee Gutenberg did not in anyway misrepresent herself to be
authorized by the corporation to sell the property to SJSSFI. The Court of Appeals modified the decision
of the trial court by ordering Nenita Lee Gutenberg to refund or return to SJSSFI the downpayment of
P100,000.00 which she received from the latter. SJSSFI moved for reconsideration, which was denied.
Hence this petition.

ISSUES:

1. Whether or not the corporation’s treasurer act can bind the corporation.
2. Whether or not the doctrine of piercing the veil of corporate entity is applicable.
RULING:

No. Such contract cannot bind Motorich, because it never authorized or ratified such sale.
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 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 provides 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 stockholders of stocks, or where there is no stock, from among
the members of the corporations, who shall hold office for 1 year and until their successors are elected
and qualified.

As a general rule, the acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions, cannot bind the corporation,
unless it has ratified such acts as is estopped from disclaiming them. 0Because Motorich had never given
a written authorization to respondent Gruenbeg to sell its parcel of land, we hold that the February 14,
1989 agreement entered into by the latter with petitioner is void under Article 1874 of the Civil Code.
Being inexistent and void from the beginning, said contract cannot be ratified.The statutorily granted
privilege of a corporate veil may be used only for legitimate purposes. On equitable consideration,the
veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity, defeat public
convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a person or
an instrumentality, agency or adjunct of another corporation.

We stress that the corporate fiction should be set aside when it becomes a shield against liability for
fraud, or an illegal act on inequity committed on third person. The question of piercing the veil of
corporate fiction is essentially, then a matter of proof. In the present case, however, the court finds no
reason to pierce the corporate veil of respondent Motorich. Petitioner utterly failed to establish the said
corporation was formed, or that it is operated for the purpose of shielding any alleged fraudulent or
illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or
inequity at the expense of third persons like petitioner.
 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.Inthe 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 thatthe 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 capacity to sue based on
failure to first acquire a local license is based on considerations of public policy.It was never intended to
favor nor insulate from suit unscrupulous establishments or nationals in case of breach of valid
obligations or violations of legal rights of unsuspecting foreign firms or entities simply because they are
not licensed to do business in the country.
 Hahn v. Court of Appeals
G.R. No. 113074, 22 January 1997
FACTS:

Alfred Hahn is a Filipino citizen doing business under the name and style “Hahn-Manila.” Bayerische
Motoren Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws
of the former Federal Republic of Germany, with principal office at Munich, Germany.

In 1963, Hahn executed in favor of BMW a Deed of Assignment with Special Power of Attorney which
essentially, makes Hahn as the exclusive dealer of BMW in the Philippines. Moreover, it stated there
that Hahn and BMW “shall continue business relations as has been usual in the past without a formal
contract.”

In 1993, BMW and Columbia Motors Corp (CMC) had a meeting which would grant CMC exclusive
dealership of BMW cars.

Hahn was informed later that BMW was dissatisfied with how it carrying its business. However, BMW
expressed willingness to continue business relations with the petitioner on the basis of a “standard
BMW importer” contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have
no alternative but to terminate petitioner’s exclusive dealership effective June 30, 1993.

Hahn protested alleging that such termination is a breach of the Deed of Assignment. Hahn insisted that
as long as the assignment of its trademark and device subsisted, he remained BMW’s exclusive dealer in
the Philippines because the assignment was made in consideration of the exclusive dealership. BMW,
however, went on to terminate its dealership with Hahn. Hahn filed a complaint for specific
performance and damages in the RTC. RTC issued a writ preliminary injunction. BMW appealed to the
CA. CA reversed on the ground that Hahn is not an agent of BMW and that BMW is “not doing business
in the Phils.” By virtue of the latter, the writ of preliminary injunction should not have been issued since
RTC did not have jurisdiction over it.

ISSUE:

W/N BMW is doing business here in the Philippines.

RULING:

Yes. Hahn and BMW had a Representative Agreement or a Licensing Agreement. This arrangement is
whereby a domestic corporation, by virtue of which the latter was appointed “exclusive representative”
in the Philippines for a stipulated commission. Pursuant to these contracts, the domestic corporation
sold products exported by the foreign corporation and put up a service center for the products sold
locally. This Court held that these acts constituted doing business in the Philippines. The arrangement
showed that the foreign corporation’s purpose was to penetrate the Philippine market and establish its
presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines, even
as it announced in the Asian region that Hahn was the “official BMW agent” in the Philippines.