ALFREDO CHING vs.THE SECRETARY OF JUSTICE, ASST.

CITY
PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of
the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL
BANKING CORP. and THE PEOPLE OF THE PHILIPPINES.

Corporation Law; The law specifically makes the officers, employees or other
officers or persons responsible for the offense, without prejudice to the civil
liabilities of such corporation and/or board of directors, officers, or other officials
or employees responsible for the offense.—Though the entrustee is a corporation,
nevertheless, the law specifically makes the officers, employees or other officers or
persons responsible for the offense, without prejudice to the civil liabilities of such
corporation and/or board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such officers or employees are
vested with the authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held criminally accountable;
thus, they have a responsible share in the violations of the law.

Same; Same; If the crime is committed by a corporation or other juridical entity,

the directors, officers, employees or other officers thereof responsible for the
offense shall be charged and penalized for the crime; A corporation may be
charged and prosecuted for a crime if the imposable penalty is fine.—If the crime
is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged
andenalized for the crime, precisely because of the nature of the crime and the
penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot
be penalized for a crime punishable by imprisonment. However, a corporation may
be charged and prosecuted for a crime if the imposable penalty is fine. Even if the
statute prescribes both fine and imprisonment as penalty, a corporation may be
prosecuted and, if found guilty, may be fined.

Same; Same; When a penal statute does not expressly apply to corporations, it
does not create an offense for which a corporation may be punished; Corporate
officers or employees, through whose act, default or

omission the corporation commits a crime, are themselves individually guilty of the
crime.—When a criminal statute designates an act of a corporation or a crime and
prescribes punishment therefor, it creates a criminal offense which, otherwise,
would not exist and such can be committed only by the corporation. But when a
penal statute does not expressly apply to corporations, it does not create an offense
for which a corporation may be punished. On the other hand, if the State, by
statute, defines a crime that may be committed by a corporation but prescribes the
penalty therefor to be suffered by the officers, directors, or employees of such
corporation or other persons responsible for the offense, only such individuals will
suffer such penalty. Corporate officers or employees, through whose act, default or
omission the corporation commits a crime, are themselves individually guilty of
the crime.

Facts:

Alfredo Ching was the Senior Vice-President of Philippine Blooming

Mills, Inc. (PBMI). Sometime in September to October 1980, PBMI, through
Ching, applied with the Rizal Commercial Banking Corporation for the
issuance of commercial letters of credit to finance its importation of
assorted goods.

RCBC approved the application, and irrevocable letters of credit were

issued in favor of Ching. The goods were purchased and delivered in trust
to PBMI. Ching signed 13 trust receipts as surety, acknowledging delivery
of the goods.

Under the receipts, Ching agreed to hold the goods in trust for the said
bank, with authority to sell but not by way of conditional sale, pledge or
otherwise; and in case such goods were sold, to turn over the proceeds
thereof as soon as received, to apply against the relative acceptances and
payment of other indebtedness to respondent bank. In case the goods
remained unsold within the specified period, the goods were to be
returned to respondent bank without any need of demand. Thus, said
"goods, manufactured products or proceeds thereof, whether in the form
of money or bills, receivables, or accounts separate and capable of
identification" were respondent bank’s property.

When the trust receipts matured, Ching failed to return the goods to
RCBC, or to return their value amounting to P6,940,280.66 despite
demands. Thus, the bank filed a criminal complaint for estafa against
Ching in the Office of the City Prosecutor of Manila.

Petitioner posits that, except for his being the Senior Vice-President of
the PBMI, there is no iota of evidence that he was a participes crimines in
violating the trust receipts sued upon; and that his liability, if at all, is
purely civil because he signed the said trust receipts merely as a xxx
surety and not as the entrustee.

Issue: Whether or not Ching should be held criminally liable.

Ruling:

Section 13 of PD 115 states in part, viz: ‘xxx If the violation or offense is

committed by a corporation, partnership, association or other judicial
entities, the penalty provided for in this Decree shall be imposed upon
the directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense.’

"There is no dispute that it was the respondent, who as senior vice-

president of PBM, executed the thirteen (13) trust receipts. As such, the
law points to him as the official responsible for the offense. Since a
corporation cannot be proceeded against criminally because it cannot
commit crime in which personal violence or malicious intent is required,
criminal action is limited to the corporate agents guilty of an act
amounting to a crime and never against the corporation itself (West Coast
Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303).
Thus, the execution by respondent of said receipts is enough to indict him
as the official responsible for violation of PD 115.

Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills

does not exculpate him from any liability. Petitioner having participated
in the negotiations for the trust receipts and having received the goods
for PBM, it was inevitable that the petitioner is the proper corporate
officer to be proceeded against by virtue of the PBM’s violation of P.D.
No. 115.

In the case at bar, the transaction between petitioner and respondent

bank falls under the trust receipt transactions envisaged in P.D. No. 115.
Respondent bank imported the goods and entrusted the same to PBMI
under the trust receipts signed by petitioner, as entrustee, with the bank
as entruster.

Though the entrustee is a corporation, nevertheless, the law specifically

makes the officers, employees or other officers or persons responsible for
the offense, without prejudice to the civil liabilities of such corporation
and/or board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such officers or
employees are vested with the authority and responsibility to devise
means necessary to ensure compliance with the law and, if they fail to do
so, are held criminally accountable; thus, they have a responsible share
in the violations of the law.

If the crime is committed by a corporation or other juridical entity, the

directors, officers, employees or other officers thereof responsible for
the offense shall be charged and penalized for the crime, precisely
because of the nature of the crime and the penalty therefor. A
corporation cannot be arrested and imprisoned; hence, cannot be
penalized for a crime punishable by imprisonment. However, a
corporation may be charged and prosecuted for a crime if the imposable
penalty is fine. Even if the statute prescribes both fine and imprisonment
as penalty, a corporation may be prosecuted and, if found guilty, may be
fined.

A crime is the doing of that which the penal code forbids to be done, or
omitting to do what it commands. A necessary part of the definition of
every crime is the designation of the author of the crime upon whom the
penalty is to be inflicted. When a criminal statute designates an act of a
corporation or a crime and prescribes punishment therefor, it creates a
criminal offense which, otherwise, would not exist and such can be
committed only by the corporation. But when a penal statute does not
expressly apply to corporations, it does not create an offense for which a
corporation may be punished. On the other hand, if the State, by statute,
defines a crime that may be committed by a corporation but prescribes
the penalty therefor to be suffered by the officers, directors, or
employees of such corporation or other persons responsible for the
offense, only such individuals will suffer such penalty. Corporate officers
or employees, through whose act, default or omission the corporation
commits a crime, are themselves individually guilty of the crime.
The principle applies whether or not the crime requires the consciousness
of wrongdoing. It applies to those corporate agents who themselves
commit the crime and to those, who, by virtue of their managerial
positions or other similar relation to the corporation, could be deemed
responsible for its commission, if by virtue of their relationship to the
corporation, they had the power to prevent the act.53 Moreover, all
parties active in promoting a crime, whether agents or not, are
principals.54 Whether such officers or employees are benefited by their
delictual acts is not a touchstone of their criminal liability. Benefit is not
an operative fact.

In this case, petitioner signed the trust receipts in question. He cannot,

thus, hide behind the cloak of the separate corporate personality of PBMI.
In the words of Chief Justice Earl Warren, a corporate officer cannot
protect himself behind a corporation where he is the actual, present and
efficient actor.

J.R.S. Business Corporation vs. Imperial Insurance Inc

Corporation law; Secondary franchise; Messenger service.—The right to operate a

messenger and delivery service by virtue of a legislative enactment is a secondary
franchise.

Same; Same; Subject to execution sale.—A secondary franchise is subject to levy

and sale on execution together with all the property necessary for the enjoyment
thereof.
Same; Same; Same; Procedure.—A secondary franchise and the property
necessary for its enjoyment can be sold under execution only when such sale is
especially decreed and ordered in the judgment and it becomes effective only when
such sale is confirmed by the Court after due notice.

Same; Same; Same; Effect of absence of special decree.—Where the judgment

does not contain any special decree making the franchise of a private corporation
answerable for its judgment debt, the inclusion of said corporation's franchise,
trade name and capital stocks in the execution sale of its properties has no
justification and such sale should be set aside in so far as it authorizes such levy
and sale.

Facts:

Petitioner is JR Da Silva, president of JRS Business Corporation, an establishment

duly franchised by the Congress of the Philippines, to conduct a messenger and
delivery express service. The respondent, Imperial Insurance Inc., presented with
the CFI of Manila a complaint for the sum of money against the petitioner
corporation. After the submission of the answer of the defendants, a compromise
agreement was entered into by the parties with the following provisions:

1. The Defendants (JRS Business Corporation) admit and confess their joint
and solidary indebtedness to the Plaintiff in the sum of P61, 172. 32)

2. The Defendants bind themselves, jointly and severally, and hereby promise
to pay the obligation to plaintiff at their business address located at Escolta
Manila within sixty (60) days from March 16, 1962 or on or before May 14,
1962.

3. In the event the defendants fail to pay in full the total amount mentioned
above, for ANY reason whatsoever, Plaintiff shall be entitled, as a matter of
right, to move for the execution of the decision rendered in the above-
entitled case by the honorable court based on the Compromise Agreement. 


On March 17, the court approved the compromise agreement and rendered
judgment enjoining the parties to comply faithfully and strictly with the terms and
conditions thereof, without special pronouncements as to the cost.

On May 15, 1962, the debt was not paid which prompted Imperial Insurance Inc to
file a Motion for the Insurance of a Writ of Execution. On May 23, 1962, a Writ of
Execution was issued by the Sheriff of Manila and on May 26, a Notice of Sale
was sent out for the auction of the personal properties of JRS Business
Corporation.

On June 2, a Notice of Sale of the whole capital stocks of the defendants JRS
Business Corporation, the business name, right of operation, the whole assets,
furniture and equipment, the total liabilities, and Net Worth, books of accounts, etc
of the petitioner corporation was handed down. JRS filed an Urgent Petition for
Postponement of Auction Sale and Release of Levy in the Business Name and
Right to Operate. In addition, the counsel of petitioner filed a Supplemental
Motion for Release of Execution claiming that capital stocks cannot be levied upon
and sold under execution. Another Very Urgent Motion for Postponement of
Auction Sale was filed. The auction sale was set for June 21, 1962; however,
respondents opposed and the lower court denied the motion for postponement.

In the sale, all the properties of the corporation were bought by the respondent
Imperial Insurance Inc for ten thousand pesos which was the highest bid.
Immediately after the sale, respondent Insurance company took possession of the
properties and started running the affairs and operating the business of JRS
Business Corporation.

Issues:

(a) W/N the respondent judge acted without or in excess of his jurisdiction or with
grave abuse of discretion? (b) W/N the business name or trade name, franchise
(right to operate) and capital stocks of the petitioner are

properties or property rights which could be subject of levy, execution and sale?
Ruling:

On the first issue:

The respondent court’s act of postponing the scheduled sale was within the
discretion of the respondent judge, the exercise of which, one way or the other, did
not constitute grave abuse of discretion and/or excess of jurisdiction. Respondent
judge had jurisdiction over the matter and erroneous conclusions of law or fact, if
any, committed in the exercise of such jurisdiction are merely errors of judgment,
not correctible by certiorari.
The corporation law, on forced sale of franchises, provides:

property necessary for the enjoyment, the exercise of the powers, and the
receipt of the proceeds of said franchise or right of way is especially decreed and
ordered in the judgment: And provided, further, That the sale shall not become
effective until confirmed by the court after due notice. (Sec. 56, Corporation Law.)

In order to reach a conclusion, the word franchise must be understood. It is defined

as:

A franchise is a special privilege conferred by governmental authority, and which

does not belong to citizens of the country generally as a matter of common right. ...
Its meaning depends more or less upon the connection in which the word is
employed and the property and corporation to which it is applied. It may have
different significations.

The right to operate a messenger and express delivery service, by virtue of a

legislative enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled
"An Act granting the JRS Business Corporation a franchise to conduct a messenger
and express service)" and, as such, under our corporation law, is subject to levy and
sale on execution together and including all the property necessary for the
enjoyment thereof. The law, however, indicates the procedure under which the
same may be sold under execution. Said franchise can be sold under execution,
when such sale is especially decreed and ordered in the judgment and it becomes
effective only when the sale is confirmed by the Court after due notice (Sec. 56,
Corp. Law). The compromise agreement and the judgment based thereon, do not
contain any special decree or order making the franchise answerable for the
judgment debt. The same thing may be stated with respect to petitioner's trade
name or business name and its capital stock. Incidentally, the trade name or
business name corresponds to the initials of the President of the petitioner
corporation and there can be no serious dispute regarding the fact that a trade name
or business name and capital stock are necessarily included in the enjoyment of the
franchise. Like that of a franchise, the law mandates, that property necessary for
the enjoyment of said franchise, can only be sold to satisfy a judgment debt if the
decision especially so provides. As we have stated heretofore, no such directive
appears in the decision. Moreover, a trade name or business name cannot be sold
separately from the franchise, and the capital stock of the petitioner corporation or
any other corporation, for the matter, represents the interest and is the property of
stockholders in the corporation, who can only be deprived thereof in the manner
provided by law (Therbee v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In re Wells'
Estate, 144 N.W. 174, 177, Wis. 294, cited in 6 Words and Phrases, 109).
It, therefore, results that the inclusion of the franchise, the trade name and/or
business name and the capital stock of the petitioner corporation, in the sale of the
properties of the JRS Business Corporation, has no justification. The sale

ANG-ABAYA v. FRANCIS JASON ANG, HANNAH ZORAYDA A.

ANG, and VICENTE G. GENATO

Corporation Law; Stockholder’s Right of Inspection; 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, but the inspection has to be germane to
his interest as a stockholder, and has to be proper and lawful in character and not
inimical to the interest of the corporation.—In Gokongwei, Jr. v. Securities and
Exchange Commission, 89 SCRA 336 (1979), this Court explained the rationale
behind a stockholder’s right to inspect corporate books, to wit: 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. In Republic v. Sandiganbayan, 199
SCRA 39 (1991), the Court declared that the right to inspect and/or examine the
records of a corporation under Section 74 of the Corporation Code is
circumscribed by the express limitation contained in the succeeding proviso, which
states that: [I]t shall be a defense to any action under this section 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.

Same; Same; Criminal Law; Violation of Section 74 of the Corporation Code;

Elements.—In order therefore 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.

Same; Same; Same; Justifying Circumstances; Criminal Procedure; Preliminary

Investigations; 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; If justifying circumstances are claimed as a defense, they should at least
be raised during preliminary investigation—the consideration and determination
of justifying circumstances as a defense is a relevant subject of preliminary
investigation.—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. In the past we
have declared that if justifying circumstances are claimed as a defense, they should
have at least been raised during preliminary investigation; which settles the view
that the consideration and determination of justifying circumstances as a defense is
a relevant subject of preliminary investigation.

Same; Same; Same; Same; Same; Same; In the appraisal of the case presented to
him for resolution, the duty of a prosecutor is more to do justice and less to
prosecute.—A preliminary investigation is in effect a realistic judicial appraisal of
the merits of the case; sufficient proof of the guilt of the criminal respondent must
be adduced so that when the case is tried, the trial court may not be bound, as a
matter of law, to order an acquittal. Although a preliminary investigation is not a
trial and is not intended to usurp the function of the trial court, it is not a casual
affair; the officer conducting the same investigates or inquires into the facts
concerning the commission of the crime with the end in view of determining
whether or not an information may be prepared against the accused. After all, the
purpose of preliminary investigation is not only to determine whether there is
sufficient ground to engender a well-founded belief that a crime has been
committed and the respondent therein is probably guilty thereof and should be held
for trial; it is just as well for the purpose of securing the innocent against hasty,
malicious and oppressive prosecution, and to protect him from an open and public
accusation of a crime, from the trouble, expense and anxiety of a public trial. More
importantly, in the appraisal of the case presented to him for resolution, the duty of
a prosecutor is more to do justice and less to prosecute.
FACTS

Vibelle Manufacturing Corporation (VMC) and Genato Investments, Inc.

(Genato) are family-owned corporations, where petitioners and private
respondent Eduardo G. Ang are shareholders, officers and members of the
board of directors.

VMC and Genato filed an action for damages with prayer for issuance of a
writ of preliminary injunction against Eduardo for allegedly conniving to
fraudulently wrest control and management of the corporations. Eduardo
allegedly borrowed substantial amounts of money from the said
corporations without any intention to repay; that he harassed petitioner
Flordeliza to transfer and/or sell certain corporate and personal properties
in order to pay off his personal obligations; that he attempted to forcibly
evict petitioner Jason from his office and claim it as his own, and; that he
interfered with and disrupted the daily business operations of the
corporations.

During the pendency of the case Eduardo sought permission to inspect the
corporate books of VMC and Genato. Petitioners denied the request
claiming that Eduardo would use the information obtained from said
inspection for purposes inimical to the corporations’ interests.

The case was eventually decided in Eduardo's favor. Thereafter, he filed a

complaint against petitioners for violation of Section 74, in relation to
Section 144, of the Corporation Code of the Philippines.

Petitioners denied violating Section 74 of the Corporation Code. Petitioners

blamed Eduardo’s lavish lifestyle, which is funded by personal loans and
cash advances from the family corporations. They alleged that Eduardo
consistently pressured petitioner Flordeliza, his daughter, to improperly
transfer ownership of the corporations’ V.A.G. Building to him.

The City Prosecutor found probable cause and recommended that

petitioners be charged with two counts of violation of Section 74 of the
Corporation Code.

Department of Justice reversed the recommendation of the Prosecutor. CA

reversed DOJ decision.

ISSUE/S
1. Whether or not there is probable cause.

2. Whether or not Eduardo is guilty of bad faith.

3. Whether or not Eduardo can demand inspection of books

RULING

1. NO. Probable cause, for purposes of filing a criminal information, has

been defined as such facts as are sufficient to engender a well-founded
belief that a crime has been committed and that respondent is probably
guilty thereof.

In order therefore for the penal provision under Section 144 of the
Corporation Code to apply, 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.

Eduardo failed to comply with the fourth requisite.

2. YES. Petitioner’s serious allegations 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.
3. Contrary to Eduardo’s insistence, the stockholder’s right to inspect
corporate books is not without limitations.

In the instant case, the Court finds that the Court of Appeals erred in
declaring that the Secretary of Justice exceeded his authority when he
conducted an inquiry on the petitioners’ defense of improper use and
motive on Eduardo’s part.

In the instant case, requires that an inquiry into the motive behind
Eduardo’s attempt at inspection should have been made even during the
preliminary investigation stage, just as soon as petitioners set up the
defense of improper use and motive.

Specifically, petitioners accuse Eduardo of the following:

1. He is a spendthrift, using the family corporations’ resources to sustain his

extravagant lifestyle.

2. He is exercising undue pressure upon petitioners in order to acquire
ownership, through the forced execution of a deed of donation,

4. At one time, he coerced Flordeliza for the latter to sell her Wack-Wack
Golf Proprietary Share;

(Out of many accusations)

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.

WHEREFORE, the Petition for Review on Certiorari is GRANTED.

PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO
ANIMALS vs. COA. G.R. No. 169752 September 25, 2007

Corporation Law; Amendments introduced by C.A. No. 148 made it clear that the
petitioner was a private corporation and not an agency of the government.—The
amendments introduced by C.A. No. 148 made it clear that the petitioner was a
private corporation and not an agency of the government. This was evident in
Executive Order No. 63, issued by then President of the Philippines Manuel L.
Quezon, declaring that the revocation of the powers of the petitioner to appoint
agents with powers of arrest “corrected a serious defect” in one of the laws existing
in the statute books.

Same; A reading of petitioner’s charter shows that it is not subject to control or

supervision by any agency of the State, unlike government- owned and -controlled
corporations.—A reading of petitioner’s charter shows that it is not subject to
control or supervision by any agency of the State, unlike government-owned and -
controlled corporations. No government representative sits on the board of trustees
of the petitioner. Like all private corporations, the successors of its members are
determined voluntarily and solely by the petitioner in accordance with its by-laws,
and may exercise those powers generally accorded to private corporations, such as
the powers to hold property, to sue and be sued, to use a common seal, and so
forth. It may adopt by-laws for its internal operations: the petitioner shall be
managed or operated by its officers “in accordance with its by-laws in force.”

Same; Fact that employees of the petitioner are registered and covered by the
Social Security System at the latter’s initiative, and not through the Government
Service Insurance System which should be the case if the employees are
considered government employees is another indication of petitioner’s nature as a
private entity.—The employees of the petitioner are registered and covered by the
Social Security System at the latter’s initiative, and not through the Government
Service Insurance System, which should be the case if the employees are
considered government employees. This is another indication of petitioner’s nature
as a private entity.

Same; Fact that a certain juridical entity is impressed with public interest does not,
by that circumstance alone, make the entity a public corporation, inasmuch as a
corporation may be private though its charter contains provisions of a public
character incorporated solely for the public good.—The respondents contend that
the petitioner is a “body politic” because its primary purpose is to secure the
protection and welfare of animals which, in turn, redounds to the public good. This
argument, is, at best, specious. The fact that a certain juridical entity is impressed
with public interest does not, by that circumstance alone, make the entity a public
corporation, inasmuch as a corporation may be private although its charter contains
provisions of a public character, incorporated solely for the public good. This class
of corporations may be considered quasi-public corporations, which are private
corporations that render public service, supply public wants, or pursue other
eleemosynary objectives. While purposely organized for the gain or benefit of its
members, they are required by law to discharge functions for the public benefit.
Examples of these corporations are utility, railroad, warehouse, telegraph,
telephone, water supply corporations and transportation companies. It must be
stressed that a quasi-public corporation is a species of private corporations, but
the qualifying factor is the type of service the former renders to the public: if it
performs a public service, then it becomes a quasi-public corporation.

Same; The true criterion to determine whether a corporation is public or private is

found in the totality of the relation of the corporation to the State.— The true
criterion, therefore, to determinewhether a corporation is public or private is found
in the totality of the relation of the corporation to the State. If the corporation is
created by the State as the latter’s own agency or instrumentality to help it in
carrying out its governmental functions, then that corporation is considered
public; otherwise, it is private. Applying the above test, provinces, chartered cities,
and barangays can best exemplify public corporations. They are created by the
State as its own device and agency for the accomplishment of parts of its own
public works.

FACTS:
The petitioner was incorporated as a juridical entity over one hundred years ago by
virtue of Act No. 1285, enacted on January 19, 1905, by the Philippine
Commission. The petitioner, at the time it was created, was composed of animal
aficionados and animal propagandists. The objects of the petitioner, as stated in
Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted upon
animals or the protection of animals in the Philippine Islands, and generally, to do
and perform all things which may tend in any way to alleviate the suffering of
animals and promote their welfare.
At the time of the enactment of Act No. 1285, the original Corporation Law, Act
No. 1459, was not yet in existence. Act No. 1285 antedated both the Corporation
Law and the constitution of the SEC.
For the purpose of enhancing its powers in promoting animal welfare and
enforcing laws for the protection of animals, the petitioner was initially imbued
under its charter with the power to apprehend violators of animal welfare laws. In
addition, the petitioner was to share 1/2 of the fines imposed and collected through
its efforts for violations of the laws related thereto.
Subsequently, however, the power to make arrests as well as the privilege to retain
a portion of the fines collected for violation of animal-related laws were recalled
by virtue of C.A. No. 148. Whereas, the cruel treatment of animals is now an
offense against the State, penalized under our statutes, which the Government is
duty bound to enforce;
When the COA was to perform an audit on them they refuse to do so, by the reason
that they are a private entity and not under the said commission. It argued that
COA covers only government entities. On the other hand the COA decided that it is
a government entity.
ISSUE: WON the said petitioner is a private entity.
RULING:
YES. First, the Court agrees with the petitioner that the “charter test” cannot be
applied. Essentially, the “charter test” provides that the test to determine whether
a corporation is government owned or controlled, or private in nature is simple. Is
it created by its own charter for the exercise of a public function, or by
incorporation under the general corporation law? Those with special charters are
government corporations subject to its provisions, and its employees are under the
jurisdiction of the CSC, and are compulsory members of the GSIS.
And since the “charter test” had been introduced by the 1935 Constitution and not
earlier, it follows that the test cannot apply to the petitioner, which was
incorporated by virtue of Act No. 1285, enacted on January 19, 1905. Settled is the
rule that laws in general have no retroactive effect, unless the contrary is provided.
All statutes are to be construed as having only a prospective operation, unless the
purpose and intention of the legislature to give them a retrospective effect is
expressly declared or is necessarily implied from the language used. In case of
doubt, the doubt must be resolved against the retrospective effect.
 Second, a reading of petitioner’s charter shows that it is not subject to control
or supervision by any agency of the State, unlike GOCCs. No government
representative sits on the board of trustees of the petitioner. Like all private
corporations, the successors of its members are determined voluntarily and solely
by the petitioner in accordance with its by-laws, and may exercise those powers
generally accorded to private corporations, such as the powers to hold property, to
sue and be sued, to use a common seal, and so forth. It may adopt by-laws for its
internal operations: the petitioner shall be managed or operated by its officers “in
accordance with its by-laws in force.”
Third. The employees of the petitioner are registered and covered by the SSS
at the latter’s initiative, and not through the GSIS, which should be the case if the
employees are considered government employees. This is another indication of
petitioner’s nature as a private entity.
Fourth. The respondents contend that the petitioner is a “body politic”
because its primary purpose is to secure the protection and welfare of animals
which, in turn, redounds to the public good. This argument, is not tenable. The fact
that a certain juridical entity is impressed with public interest does not, by that
circumstance alone, make the entity a public corporation, inasmuch as a
corporation may be private although its charter contains provisions of a public
character, incorporated solely for the public good. This class of corporations may
be considered quasi-public corporations, which are private corporations that render
public service, supply public wants, or pursue other eleemosynary objectives.
While purposely organized for the gain or benefit of its members, they are
required by law to discharge functions for the public benefit. Examples of these
corporations are utility, railroad, warehouse, telegraph, telephone, water supply
corporations and transportation companies. It must be stressed that a quasi-public
corporation is a species of private corporations, but the qualifying factor is the type
of service the former renders to the public: if it performs a public service, then it
becomes a quasi-public corporation.
Authorities are of the view that the purpose alone of the corporation cannot be
taken as a safe guide, for the fact is that almost all corporations are nowadays
created to promote the interest, good, or convenience of the public. A bank, for
example, is a private corporation; yet, it is created for a public benefit. Private
schools and universities are likewise private corporations; and yet, they are
rendering public service. Private hospitals and wards are charged with heavy
social responsibilities. More so with all common carriers. On the other hand, there
may exist a public corporation even if it is endowed with gifts or donations from
private individuals.
The true criterion, therefore, to determine whether a corporation is public or
private is found in the totality of the relation of the corporation to the State. If the
corporation is created by the State as the latter’s own agency or instrumentality to
help it in carrying out its governmental functions, then that corporation is
considered public; otherwise, it is private. Applying the above test, provinces,
chartered cities, and barangays can best exemplify public corporations. They are
created by the State as its own device and agency for the accomplishment of parts
of its own public works.
Fifth. The respondents argue that since the charter of the petitioner requires
the latter to render periodic reports to the Civil Governor, whose functions have
been inherited by the President, the petitioner is, therefore, a government
instrumentality.
This contention is inconclusive. By virtue of the fiction that all corporations
owe their very existence and powers to the State, the reportorial requirement is
applicable to all corporations of whatever nature, whether they are public, quasi-
public, or private corporations—as creatures of the State, there is a reserved right
in the legislature to investigate the activities of a corporation to determine whether
it acted within its powers. In other words, the reportorial requirement is the
principal means by which the State may see to it that its creature acted according to
the powers and functions conferred upon it.
Atrium Management Corporation v. Court of Appeals, G.R. No.
109491, February 28, 2001.

Facts:

Hi-Cement Corporation through its corporate signatories, petitioner

Lourdes M. de Leon, treasurer, and the late Antonio de las Alas, Chairman,
issued checks in favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and
Co., Inc., in turn, endorsed the four checks to Atrium for valuable
consideration. Enrique Tan of E.T. Henry approached Atrium for financial
assistance, offering to discount four RCBC checks in the total amount of P2
million, issued by Hi-Cement in favor of E.T. Henry. Atrium agreed to
discount the checks, provided it be allowed to confirm with Hi-Cement the
fact that the checks represented payment for petroleum products which
E.T. Henry delivered to Hi-Cement. Upon presentment for payment, the
drawee bank dishonored all four checks for the common reason “payment
stopped”. As a result thereof, Atrium filed an action for collection of the
proceeds of 4 PDC in the total amount of 2M with RTC Manila. Judgment
was rendered in favor of Atrium ordering Lourdes and Rafael de Leon, E.T.
Henry and Co., and Hi-Cement to pay Atrium the said amount plus interest
and attorneys fees. CA absolved Hi-cement Corporation from liability. It
also ruled that since Lourdes was not authorized to issue the subjects
checks in favor of E.T. Henry Inc., the said act was ultra vires.

Issue: Whether the issuance of the questioned checks was an  ultra
vires act;

Ruling: Yes.

An  ultra vires  act is one committed outside the object for which a
corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law.  The term  “ultra
vires” is “distinguished from an illegal act for the former is merely voidable
which may be enforced by performance, ratification, or estoppel, while the
latter is void and cannot be validated.
Personal liability of a corporate director, trustee or officer along (although
not necessarily) with the corporation may so validly attach, as a rule, only
when:

1. He assents (a) to a patently unlawful act of the corporation, or (b) for

bad faith or gross negligence in directing its affairs, or (c) for conflict
of interest, resulting in damages to the corporation, its stockholders
or other persons;
2. He consents to the issuance of watered down stocks or who, having
knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the
corporation; or
4. He is made, by a specific provision of law, to personally answer for his
corporate action.
In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer
and Chairman of Hi-Cement were authorized to issue the checks. However,
Ms. de Leon was negligent when she signed the confirmation letter
requested by Mr. Yap of Atrium and Mr. Henry of E.T. Henry for the
rediscounting of the crossed checks issued in favor of E.T. Henry. She was
aware that the checks were strictly endorsed for deposit only to the payee’s
account and not to be further negotiated. What is more, the confirmation
letter contained a clause that was not true, that is, “that the checks issued to
E.T. Henry were in payment of Hydro oil bought by Hi-Cement from E.T.
Henry”. Her negligence resulted in damage to the corporation. Hence, Ms.
de Leon may be held personally liable therefor.
THE COLLECTOR OF INTERNAL REVENUE, petitioner, 

vs.

THE CLUB FILIPINO, INC. DE CEBU, respondent.

FACTS: The Club owns and operates a club house, a bowling alley, a golf
course (on a lot leased from the government), and a bar-restaurant where it
sells wines and liquors, soft drinks, meals and short orders to its members
and their guests. The  bar-restaurant  was a necessary incident to the
operation of the club and its golf-course. The club is operated mainly with
funds derived from membership fees and dues. Whatever profits it had,
were used to defray its overhead expenses and to improve its golf-course. In
1951. as a result of a capital surplus, arising from the re-valuation of its real
properties, the value or price of which increased, the Club declared stock
dividends; but no actual cash dividends were distributed to the
stockholders. In 1952, a BIR agent discovered that the Club has never paid
percentage tax on the gross receipts of its bar and restaurant. CIR assessed
against and demanded from the Club taxes allegedly due.

ISSUE: WON Club Filipino is liable for the taxes (WON it is a stock
corporation)

HELD: No (it is non-stock)

The Club was organized to develop and cultivate sports of all class and
denomination for the healthful recreation and entertainment of its
stockholders and members.   There was in fact, no cash dividend
distribution to its stockholders and whatever was derived on retail from its
bar and restaurants used were to defray its overhead expenses and to
improve its golf course.

For a stock corporation to exist, 2 requisites must be complied with:

(1) A capital stock divided into shares

(2) An authority to distribute to the holders of such shares, dividends or
allotments of the surplus profits on the basis of shares held.

In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be
found an authority for the distribution of its dividends or surplus
profits.  Strictly speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation law.

The fact that the capital stock of the respondent Club is divided into shares,
does not detract from the finding of the trial court that it is not engaged in
the business of operator of bar and restaurant. What is determinative of
whether or not the Club is engaged in such business is its object or purpose,
as stated in its articles and by-laws. It is a familiar rule that the actual
purpose is not controlled by the corporate form or by the commercial
aspect of the business prosecuted, but may be shown by extrinsic evidence,
including the by-laws and the method of operation.

It is conceded that the Club derived profit from the operation of its bar and
restaurant, but such fact does not necessarily convert it into a profit-
making enterprise. The bar and restaurant are necessary adjuncts of the
Club to foster its purposes and the profits derived therefrom are necessarily
incidental to the primary object of developing and cultivating sports for the
healthful recreation and entertainment of the stockholders and members.
That a Club makes some profit, does not make it a profit-making Club. As
has been remarked a club should always strive, whenever possible, to have
surplus