Asynch02 Tampico

CASE DIGESTS (CORPORATION) – TAMPICO, E.L.
Gamboa vs. Teves

GR No. 176579
June 28, 2011
Doctrine:
No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such citizens.
Facts:
Petitioner Wilson P. Gamboa is a stockholder of Philippine Long Distance Telephone Company, a
corporation which was granted franchise in 1928. Philippine Telecommunication Investment Corporation
is one of the stockholders holding 111,415 shares which was later on acquired by Prime Holdings, Inc. In
1986, the shares of PHI were sequestered by the PCGG as part of the ill-gotten wealth of former President
Ferdinand Marcos. Later on, the 111,415 shares were acquired by Metro Pacific Assets Holdings, Inc., an
affiliate of First Pacific Company Limited through a bidding conducted by the Philippine government.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares
is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of
PLDT. With the sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37
percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent.
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to
common shares because such shares are entitled to vote and it is through voting that control over a
corporation is exercised. Petitioner posits that the term "capital" in Section 11, Article XII of the
Constitution refers to "the ownership of common capital stock subscribed and outstanding, which class
of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of
directors."
Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11, Article XII
of the Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not
dispute that more than 40 percent of the common shares of PLDT are held by foreigners.
Issue:
Does the term "capital" in Section 11, Article XII of the Constitution refers to the total common shares
only or to the total outstanding capital stock of PLDT, a public utility?
Ruling:
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the
Filipinization of public utilities, to wit: “No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose capital is
owned by such citizens…”
The intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized
and partially nationalized activities is for Filipino nationals to be always in control of the corporation
pg. 1
undertaking said activities. Otherwise, if the Trial Court’s ruling upholding respondents’ arguments were
to be given credence, it would be possible for the ownership structure of a public utility corporation to be
divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Thus, the
40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the
controlling interest.
The Supreme Court ruled that the term "capital" in Section 11, Article XII of the 1987 Constitution refers
only to shares of stock entitled to vote in the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock (common and non-voting preferred shares).
Narra Nickel Mining and Development Corporation vs. Redmont

Consolidated Mines Corporation
GR No. 195580
April 21, 2014
Doctrine:
If the percentage of the Filipino ownership in the corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as Philippine nationality.
Facts:
In 2006, respondent Redmont Consolidated Mines Corp., a domestic corporation organized and existing
under Philippine laws, inquired with the DENR in connection with its interest in mining and exploring
certain areas of the province of Palawan, wherein it learned that the areas where it wanted to undertake
exploration and mining activities where already covered by Mineral Production Sharing Agreement
applications of petitioners Narra, Tesoro and McArthur.
On January 2, 2007, Redmont filed before the Panel of Arbitrators of the DENR three separate petitions
for the denial of petitioners’ applications for MPSA, alleging that at least 60% of the capital stock of
McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc., a 100% Canadian
corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the
driving force behind petitioners’ filing of the MPSAs over the areas covered by applications since it knows
that it can only participate in mining activities through corporations which are deemed Filipino citizens.
Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they were
likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for
Filipino citizens.
In their Answers, petitioners averred that they were qualified persons under Section 3 of RA No. 7942 or
the Philippine Mining Act of 1995 which provided: "Qualified person" means any citizen of the Philippines
with capacity to contract, or a corporation, partnership, association, or cooperative organized or
authorized for the purpose of engaging in mining, with technical and financial capability to undertake
mineral resources development and duly registered in accordance with law at least sixty per cent (60%)
of the capital of which is owned by citizens of the Philippines: Provided, That a legally organized foreign-
owned corporation shall be deemed a qualified person for purposes of granting an exploration permit,
financial or technical assistance agreement or mineral processing permit.
pg. 2
In 2007, the POA issued a Resolution disqualifying the petitioners from gaining MPSAs.
Issue:
Should the petitioners be granted MPSA?
Ruling:
No. After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application
of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in
the corporate ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino
equity ownership of petitioners Narra, McArthur and Tesoro, since their common investor, the 100%
Canadian corporation––MBMI, funded them.
Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the controlling interests in enterprises
engaged in the exploitation of natural resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such percentage
shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50%
of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens,
only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as
belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality," pertains to the control test or the liberal rule. On the other hand, the second part
of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage shall be
counted as Philippine nationality," pertains to the stricter, more stringent grandfather rule.
Halley vs. Printwell, Inc.

GR No. 157549
May 30, 2011
Doctrine:
Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid
subscriptions.
Facts:
Petitioner Donnina Halley petitioner was an incorporator and original director of Business Media
Philippines, Inc. Respondent Printwell Inc. on the other hand is engaged in commercial and industrial
printing. BMPI commissioned Printwell for the printing of the magazine Philippines, Inc. (together with
pg. 3
wrappers and subscription cards) that BMPI published and sold. For that purpose, Printwell extended 30-
day credit accommodations to BMPI.
In the period from October 11, 1988 until July 12, 1989, BMPI placed with Printwell several orders on
credit, evidenced by invoices and delivery receipts totaling ₱316,342.76. Considering that BMPI
paidonly₱25,000.00, Printwell sued BMPI on January 26, 1990 for the collection of the unpaid balance in
the RTC. Printwell further amended the complaint in order to implead as defendants all the original
stockholders and incorporators to recover on their unpaid subscriptions
The petitioner maintains that the CA and the RTC erroneously pierced the veil of corporate fiction despite
the absence of cogent proof showing that she, as stockholder of BMPI, had any hand in transacting with
Printwell; that the CA and the RTC failed to appreciate the evidence that she had fully paid her
subscriptions; and the CA and the RTC wrongly relied on the articles of incorporation in determining the
current list of unpaid subscriptions despite the articles of incorporation being at best reflective only of the
pre-incorporation status of BMPI.
Issue:
Can the trust fund doctrine be applied?
Ruling:
No. Although a corporation has a personality separate and distinct from those of its stockholders,
directors, or officers, such separate and distinct personality is merely a fiction created by law for the sake
of convenience and to promote the ends of justice. The corporate personality may be disregarded, and
the individuals composing the corporation will be treated as individuals, if the corporate entity is being
used as a cloak or cover for fraud or illegality; as a justification for a wrong; as an alter ego, an adjunct, or
a business conduit for the sole benefit of the stockholders. As a general rule, a corporation is looked upon
as a legal entity, unless and until sufficient reason to the contrary appears. Thus, the courts always
presume good faith, and for that reason accord prime importance to the separate personality of the
corporation, disregarding the corporate personality only after the wrongdoing is first clearly and
convincingly established. It thus behooves the courts to be careful in assessing the milieu where the
piercing of the corporate veil shall be done.
Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievements or perfection of monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or stockholders who compose it will
be lifted to allow for its consideration merely as an aggregation of individuals. Moreover, under this
doctrine, the corporate existence may be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligations or to justify wrong.
It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to
which creditors have a right to look up to 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.
pg. 4
Seaoil Petroleum Corporation vs. Autocorp Group

GR No. 164326
October 17, 2008
Doctrine:
Corporate veil may be pierced in cases where the corporate vehicle is being used to defeat public
convenience, justify wrong, protect fraud, or defend crime.
Facts:
In 1994, Seaoil Petroleum purchased one unit of excavator from Autocorp Group. The original cost of the
unit was P2,500,000.00 but was increased to P3,112,519.94 because it was paid in 12 monthly
installments. The sales agreement was embodied in the Vehicle Sales Invoice and Vehicle Sales
Confirmation, both signed by Francis Yu, president of Seaoil, on behalf of said corporation. Furthermore,
it was agreed that despite delivery of the excavator, ownership thereof was to remain with Autocorp until
the obligation is fully settled. In this light, Yu, on behalf of Seaoil, signed and issued 12 postdated checks
with Autocorp as payee. The excavator was subsequently delivered and was received by Seaoil in its depot
in Batangas. The first check, however, bounced, but it was remedied when Seaoil replaced it with a good
check. The second check likewise was also good when presented for payment. However, the remaining
10 checks were not honored by the bank since Seaoil requested that payment be stopped. Despite
repeated demands, Seaoil refused to pay the remaining balance of P2,593,766.20. Hence, Autocorp filed
a complaint for recovery of personal property with damages and replevin in the Regional Trial Court of
Pasig. The trial court ruled for Autocorp.
Seaoil claims that the real transaction is that Uniline, through Rodriguez, owed money to Focus. In lieu of
payment, Uniline instead agreed to convey the excavator to Focus. This was to be paid by checks issued
by Seaoil but which in turn were to be funded by checks issued by Uniline.
Issue:
Should the corporate veil be pierced?
Ruling:
No. It is settled that a corporation has a personality separate and distinct from its individual stockholders
or members, and is not affected by the personal rights, obligations and transactions of the latter. The
corporation may not be held liable for the obligations of the persons composing it, and neither can its
stockholders be held liable for its obligation. The Court has recognized instances when the corporation's
separate personality may be disregarded. However, the same may only be done in cases where the
corporate vehicle is being used to defeat public convenience, justify wrong, protect fraud, or defend
crime. Moreover, the wrongdoing must be clearly and convincingly established. It cannot be presumed.
The transaction under the Vehicle Sales Invoice is separate and distinct from that under the Lease
Purchase Agreement. In the former, it is Seaoil that owes Autocorp, while in the latter, Uniline incurred
obligations to Focus. There was never any allegation, much less any evidence, that Autocorp was merely
an alter ego of Uniline, or that the two corporations' separate personalities were being used as a means
to perpetrate fraud or wrongdoing.
pg. 5
Sarona vs. NLRC

GR No. 185280
January 18, 2012
Doctrine:
When two business enterprises are owned, conducted and controlled by the same parties, both law and
equity will, when necessary to protect the rights of third parties, disregard the legal fiction that these two
entities are distinct and treat them as identical or as one and the same.
Facts:
Petitioner Timoteo Sarona is a security guard from Sceptre since 1976. In 2003, he was asked to submit a
resignation letter as part of a requirement in applying to Royale. While in a floating status for several
weeks already, he was assigned to Wide Wide World Express, Inc. Later on, he was informed that his
assignment in Royale was terminated due to Royale having been replaced by another security agency, in
which he later discovered to be untrue. He was once again assigned at Highlight Metal for only 9 days
until the day that he was informed that he would no longer be given any assignment. He then filed a
complaint for illegal dismissal.
The petitioner claimed that Royale and Sceptre are not separate legal persons for purposes of computing
the amount of his separation pay and other benefits under the Labor Code. The piercing of Royale’s
corporate personality is justified by several indicators that Royale was incorporated for the sole purpose
of defeating his right to security of tenure and circumvent payment of his benefits to which he is entitled
under the law
Issue:
Should Royale’s corporate fiction should be pierced for the purpose of compelling it to recognize the
petitioner’s length of service with Sceptre and for holding it liable for the benefits that have accrued to
him arising from his employment with Sceptre?
Ruling:
Yes. Royale is a continuation or successor of Sceptre.
A corporation is an artificial being created by operation of law. It possesses the right of succession and
such powers, attributes, and properties expressly authorized by law or incident to its existence. It has a
personality separate and distinct from the persons composing it, as well as from any other legal entity to
which it may be related.
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced
when the corporation is just an alter ego of a person or of another corporation. For reasons of public
policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a
shield for fraud, illegality or inequity committed against third persons.
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court
should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was
misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of
pg. 6
rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise,
an injustice that was never unintended may result from an erroneous application.
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2)
fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3)
alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation.
Marques vs. Far East Bank

GR No. 171379
January 10, 2011
Doctrine:
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay
for the damage done.
Facts:
The petitioner in this case is Jose Marques, the President and controlling stockholder of Maxilite Tech.
Inc., a domestic corporation engaged in the imporation and trading of equipment for energy-efficiency
systems. The respondent Far East Bank and Trust Co. is a local bank which handled the financing and
related requirements of Marques and Maxilite. Far East Bank Insurance Brokers, Inc. is a local insurance
brokerage corporation while Makati Insurance Company is a local insurance company, both are
subsidiaries of FEBTCS.
Marques and Far East Bank entered into a trust receipt transaction for the shipment of high technology
equipments from the US, with the merchandise serving as collateral. in their trust receipt document,
Marques agreed to keep said merchandise insured against fire to its full value, payable to said bank.
In 1995, a fire burned down the building where Maxilite's office and warehouse were located, resulting
for Maxilite to suffer at least 2.1million loss. Maxilite then claimed against MIC but both the MIC, FEBTC,
and FEBIBI denied the claim on the ground of non-payment of premium amounting to 8,265.60.
The CA affirmed RTC's decision to render the respondents solidarily liable to pay 2.1M and modified the
interest from 12% to 6% per annum.
Issues:
Is the reduction of interest proper?
May the respondents be held solidarily liable?
Ruling:
Yes, the reduction of interest is proper. The obligation to pay does not arise from a loan or forbearance
of money. In Eastern Shipping Lines, Inc. v. Court of Appeals, the SC held that when an obligation, not
pg. 7
constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per annum.
No, the respondents may not be held solidarily liable. Both the trial and appellate courts basically agree
that FEBTC is estopped from claiming that the insurance premium has been unpaid. FEBTC induced
Maxilite and Marques to believe that the insurance premium has in fact been debited from Maxilite’s
account. FEBTC should have debited Maxilite’s account as what it had repeatedly done, as an established
practice, with respect to the previous insurance policies. However, FEBTC failed to debit and instead
disregarded the written reminder from FEBIBI to debit Maxilite’s account. FEBTC’s conduct clearly
constitutes negligence in handling Maxilite’s and Marques’ accounts.
Powton Conglomerate, Inc. vs. Agcolicol

GR No. 150978
April 3, 2003
Doctrine:
A corporation is invested by law with a personality separate and distinct fromthose of the persons
composing it.
Facts:
In 1990, respondent Johnny Agcolicol, proprietor of Japerson Engineering, entered into an "Electrical
Installation Contract" with Powton Conglomerate, Inc. thru its President and Chairman of the Board, Philip
C. Chien. For a contract price of P5,300,000.00, Agcolicol undertook to provide electrical works as well as
the necessary labor and materials for the installation of electrical facilities at the Ciano Plaza Building
owned by Powton, located along M. Reyes Street, corner G. Mascardo Street, Bangkal, Makati, Metro
Manila. In 1992, the City Engineer's Office of Makati inspected the electrical installations at the Ciano
Plaza Building and certified that the same were in good condition. Hence, it issued the corresponding
certificate of electrical inspection.
In 1994, Agcolicol filed a complaint for sum of money against Powton and Chien, alleging that despite the
completion of the electrical works, the latter only paid the amount of P5,031,860.40, leaving a balance of
P268,139.80. Agcolicol likewise claimed the amount of P722,730.38 as additional electrical works which
were necessitated by the alleged revisions in the structural design of the building.
In their answer, petitioners contended that they cannot be obliged to pay the balance of the contract
price because the electrical installations were defective and were completed beyond the agreed period.
During the trial, Chien testified that they should not be held liable for the additional electrical works
allegedly performed by Powton because they never authorized the same. At the pre-trial conference, the
parties stipulated, inter alia, that the unpaid balance claimed by the respondent is P268,139.60 and the
cost of additional work is P722,730.38. In 1999, a decision was rendered awarding Agcolicol the total
award of P990,867.38 representing the unpaid balance and the costs of additional works. The CA affirmed
the RTC decision.
Issue:
Can Chien be made solidarily liable with Powton?
pg. 8
Ruling:
No. The settled rule is that, a corporation is invested by law with a personality separate and distinct from
those of the persons composing it, such that, save for certain exceptions, corporate officers who entered
into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter.
Personal liability of a corporate director, trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when (1) he assents to a patently unlawful act of the
corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when there is a
conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) he
consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith
file with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally
and solidarily liable with the corporation; or (4) he is made by a specific provision of law personally
answerable for his corporate action. Considering that none of the foregoing exceptions was established
in the present case, Chien, who entered into a contract with Agcolicol in his capacity as President and
Chairman of the Board of Powton, cannot be held solidarily liable with the latter.
Eric Godfrey Stanley Livesey vs. Binswanger Philippines, Inc.

GR No. 177493
March 19, 2014
Doctrine:
Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the
separate corporate personality of a corporation is abused or used for wrongful purposes.
Facts:
CBB Philippines Strategic Property Services, Inc. was a domestic corporation engaged in real estate
brokerage. Petitioner Eric Godfrey Stanley Livesey alleged that on April 2001, CBB hired him as Director
and Head of Business Space Development, with a monthly salary of US$5,000; shareholdings in CBB’s
offshore parent company; and other benefits. In August of the same year, he was appointed as Managing
Director and his salary was increased to US$16,000.00 a month. However, Livesey alleged that despite the
several deals for CBB he drew up, CBB failed to pay him a significant portion of his salary. For this reason,
he was compelled to resign on December 18, 2001. He claimed CBB owed him US$23,000.00 in unpaid
salaries. He filed a complaint for illegal dismissal with money claims against CBB and its President Paul
Dwyer.
CBB denied liability alleging that it engaged Livesey as a corporate officer in April 2001: he was elected
Vice–President (with a salary of P75,000.00/month), and thereafter, he became President (at
P1,200,000.00/year). It claimed that Livesey was later designated as Managing Director when it became
an extension office of its principal in Hongkong. CBB posited that the labor arbiter had no jurisdiction as
the complaint involved an intra–corporate dispute.
In his decision, LA Jaime M. Reyno found that Livesey had been illegally dismissed. LA Reyno ordered CBB
to reinstate Livesey to his former position as Managing Director and to pay him US$23,000.00 in accrued
salaries from July to December 2001, and US$5,000.00 a month in back salaries from January 2002 until
reinstatement; and 10% of the total award as attorney’s fees.
pg. 9
Thereafter, the parties entered into a compromise agreement wherein Livesey was to receive US$31,000.
The agreement also provided that unless and until the agreement is fully satisfied, CBB shall not: (1) sell,
alienate, or otherwise dispose of all or substantially all of its assets or business; (2) suspend, discontinue,
or cease its entire, or a substantial portion of its business operations; (3) substantially change the nature
of its business; and (4) declare bankruptcy or insolvency.
Issue:
May the doctrine of piercing the corporate veil be applied?
Ruling:
Yes. It has long been settled that the law vests a corporation with a personality distinct and separate from
its stockholders or members. In the same vein, a corporation, by legal fiction and convenience, is an entity
shielded by a protective mantle and imbued by law with a character alien to the persons comprising it. 43
Nonetheless, the shield is not at all times impenetrable and cannot be extended to a point beyond its
reason and policy. Circumstances might deny a claim for corporate personality, under the “doctrine of
piercing the veil of corporate fiction.”
Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the
separate corporate personality of a corporation is abused or used for wrongful purposes. Under the
doctrine, the corporate existence may be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or
perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable aims or
intentions, in which case, the fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical.
There is an indubitable link between CBB’s closure and Binswanger’s incorporation. CBB ceased to exist
only in name; it re-emerged in the person of Binswanger for an urgent purpose — to avoid payment by
CBB of the last two installments of its monetary obligation to Livesey, as well as its other financial
liabilities. Freed of CBB’s liabilities, especially that owing to Livesey, Binswanger can continue, as it did
continue, CBB’s real estate brokerage business.
Concept Builders, Inc. vs. NLRC

GR No. 108734
May 29, 1996
Doctrine:
Where a sister corporation is used as a shield to evade a corporation's subsidiary liability for damages, the
corporation may not be heard to say that it has a personality separate and distinct from the other
corporation.
Facts:
Concept Builders, Inc., a domestic corporation, is engaged in the construction business while private
respondents were employed by said company as laborers, carpenters and riggers. In 1981, private
respondents were served individual written notices of termination of employment by CBI, stating that
their contracts of employment had expired and the project in which they were hired had been completed.
pg. 10
The National Labor Relations Commission (NLRC) found it to be, the fact, however, that at the time of the
termination of their employment, the project in which they were hired had not yet been finished and
completed. CBI had to engage the services of sub-contractors whose workers performed the functions of
the private respondents. Aggrieved, they filed a complaint for illegal dismissal, unfair labor practice and
non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against CBI. On 19
December 1984, the Labor Arbiter rendered judgment ordering CBI to reinstate private respondents and
to pay them back wages equivalent to 1 year or 300 working days.
The NLRC dismissed the motion for reconsideration filed by CBI on the ground that the said decision had
already become final and executory. In 1986, the NLRC Research and Information Department made the
finding that private respondents’ back wages amounted to P199,800.00. The Labor Arbiter issued a writ
of execution directing the sheriff to execute the Decision. The writ was partially satisfied through
garnishment of sums from CBI's debtor, the Metropolitan Waterworks and Sewerage Authority, in the
amount of P81,385.34. Said amount was turned over to the cashier of the NLRC. In 1989, an Alias Writ of
Execution was issued by the Labor Arbiter directing the sheriff to collect from CBI the sum of P117,414.76,
representing the balance of the judgment award, and to reinstate private respondents to their former
positions. The sheriff then issued a report stating that he tried to serve the alias writ of execution on
petitioner through the security guard on duty but the service was refused on the ground that CBI no longer
occupied the premises. Upon motion, the Labor Arbiter issued a second alias writ of execution, but was
not able to be executed because all the employees inside CBI's premises claimed that they were
employees of Hydro Pipes Philippines, Inc. (HPPI) and not by CBI; that levy was made upon personal
properties he found in the premises; and that security guards with high-powered guns prevented him
from removing the properties he had levied upon. The said special sheriff recommended that a "break-
open order" be issued to enable him to enter CBI's premises so that he could proceed with the public
auction sale of the aforesaid personal properties.
A certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties
sought to be levied upon by the sheriff were owned by HPPI, of which he is the Vice-President. Private
respondents filed a"Motion for Issuance of a Break-Open Order," alleging that HPPI and CBI were owned
by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its
business operations in order to evade its legal obligations to them and that they were willing to post an
indemnity bond to answer for any damages which CBI and HPPI may suffer because of the issuance of the
break-open order. The Labor Arbiter issued an Order which denying the motion for break-open order.
Issue:
Is the NLRC correct?
Ruling:
No. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. But, this separate and
distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as: (1)
Control, not mere majority or complete stock control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction attacked so that the corporate entity as to
pg. 11
this transaction had at the time no separate mind, will or existence of its own; (2) Such control must have
been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and (3) The
aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The
absence of anyone of these elements prevents "piercing the corporate veil."
In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not
form, with how the corporation operated and the individual defendant's relationship to that operation.
Here, while CBI claimed that it ceased its business operations on 29 April 1986, it filed an Information
Sheet with the Securities and Exchange Commission on 15 May 1987, stating that its office address is at
355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant,
submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan
Road, Valenzuela, Metro Manila. Further, both information sheets were filed by the same Virgilio O.
Casiño as the corporate secretary of both corporations. Both corporations had the same president, the
same board of directors, the same corporate officers, and substantially the same subscribers. From the
foregoing, it appears that, among other things, the CBI and the HPPI shared the same address and/or
premises. Under these circumstances, it cannot be said that the property levied upon by the sheriff were
not of CBI's. Clearly, CBI ceased its business operations in order to evade the payment to the private
respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously a
business conduit of CBI and its emergence was skillfully orchestrated to avoid the financial liability that
already attached to CBI.
Philippine National Bank vs. Ritratto Group, Inc.

GR No. 142616
July 31, 2001
Facts:
Petitioner Philippine National Bank and respondents Ritratto Group, Inc., Riatto International, Inc. and
Dadasan General Merchandise are all domestic corporations, organized and existing under Philippine law.
In 1996, PNB International Finance Ltd., a subsidiary company of PNB, organized and doing business in
Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00
secured by real estate mortgages constituted over four parcels of land in Makati City. This credit facility
was later increased successively while respondents made repayments of the loan incurred by remitting
those amounts to their loan account with PNB-IFL in Hong Kong until 1998, where their outstanding
obligations stood at US$1,497,274.70. PNB-IFL notified the respondents of the foreclosure of all the real
estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27,
1999 at the Makati City Hall. On May 25, 1999, respondents filed a complaint for injunction with prayer
for the issuance of a writ of preliminary injunction and/or temporary restraining order before Makati RTC.
Petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of
any privity between the petitioner and respondents, in which the court denied for lack of merit. Petitioner
assailed the issuance of the writ of preliminary injunction, raising the fact that considering the allegations
of the complaint, no cause of action exists against them since they are not real party in interest being a
mere attorney in fact authorized to enforce an ancillary contract.
pg. 12
Respondents, on the other hand, argued that even assuming that petitioner and PNB-IFL are two separate
entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is
tasked to commit acts of foreclosing respondents' properties. Respondents maintain that the entire credit
facility is void as it contains stipulations in violation of the principle of mutuality of contracts. In addition,
respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate
Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.
The trial court ruled that since PNB-IFL, is a wholly owned subsidiary of defendant Philippine National
Bank, the suit against the defendant PNB is a suit against PNB-IFL. In justifying its ruling, the trial court,
citing the case of Koppel Phil. Inc. vs. Yatco, reasoned that the corporate entity may be disregarded where
a corporation is the mere alter ego, or business conduit of a person or where the corporation is so
organized and controlled and its affairs are so conducted, as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.
Issue:
Does a cause of action exist against petititoner?
Ruling:
The general rule is that as a legal entity, a corporation has a personality distinct and separate from its
individual stockholders or members, and is not affected by the personal rights, obligations and
transactions of the latter. The mere fact that a corporation owns all of the stocks of another corporation,
taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate
functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation
as well as the subsidiary will be confined to those arising in their respective business. The courts may in
the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the
veil of corporate entity.
We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court
disregarded the separate existence of the parent and the subsidiary on the ground that the latter was
formed merely for the purpose of evading the payment of higher taxes. In the case at bar, respondents
fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded.
The doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where
the separate corporate personality of a corporation is abused or used for wrongful purposes. The doctrine
applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or
defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is
the mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.
pg. 13
Nautica Canning Corporation vs. Yumul

GR No. 164588
October 19, 2005
Doctrine:
The contents of the articles of incorporation bind the corporation and its stockholders.
Facts:
Respondent Roberto Yumul was appointed Chief Operating Officer/General Manager of Nautica
Canning Corporation. First Dominion Prime Holdings, Inc., Nautica’s parent company, through its
Chairman Alvin Y. Dee, granted Yumul an Option to Purchase up to 15% of the total stocks it
subscribed from Nautica. A Deed of Trust and Assignment was executed between First Dominion
Prime Holdings, Inc. and Yumul whereby the former assigned14,999 of its subscribed shares in
Nautica to the latter. After Yumul’s resignation from Nautica, he wrote a letter to Dee requesting
the latter to formalize his offer to buy Yumul’s 15% share in Nautica and demanding the issuance
of the corresponding certificate of shares in his name should Dee refuse to buy the same. Dee
denied the request claiming that Yumul was not a stockholder of Nautica. Yumul requested that
the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica, and
that he, as a stockholder, be allowed to inspect its books and records. Yumul’s requests were
denied.
Yumul filed a petition for mandamus praying that the Deed of Trust and Assignment be recorded
in the Stock and Transfer Book of Nautica and that the certificate of stocks corresponding thereto
be issued in his name.
Issue:
May a corporation be wholly owned by a single individual?
Ruling:
Yes. Indeed, it is possible for a business to be wholly owned by one individual. The validity of its
incorporation is not affected when such individual gives nominal ownership of only one share of
stock to each of the other four incorporators. This is not necessarily illegal. But, this is valid only
between or among the incorporators privy to the agreement. It does bind the corporation which,
at the time the agreement is made, was non-existent. Thus, incorporators continue to be
stockholders of a corporation unless, subsequent to the incorporation, they have validly
transferred their subscriptions to the real parties in interest. A transfer of shares of stock not
recorded in the stock and transfer book of the corporation is non-existent as far as the
corporation is concerned. As between the corporation on one hand, and its shareholders and
third persons on the other, the corporation looks only to its books for the purpose of determining
who its shareholders are. It is only when the transfer has been recorded in the stock and transfer
book that a corporation may rightfully regard the transferee as one of its stockholders. From this
time, the consequent obligation on the part of the corporation to recognize such rights as it is
mandated by law to recognize arises.
pg. 14
Gamboa vs. Teves

GR No. 176579
June 28, 2011
Doctrine:
No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such citizens.
Facts:
Petitioner Wilson P. Gamboa is a stockholder of Philippine Long Distance Telephone Company, a
corporation which was granted franchise in 1928. Philippine Telecommunication Investment Corporation
is one of the stockholders holding 111,415 shares which was later on acquired by Prime Holdings, Inc. In
1986, the shares of PHI were sequestered by the PCGG as part of the ill-gotten wealth of former President
Ferdinand Marcos. Later on, the 111,415 shares were acquired by Metro Pacific Assets Holdings, Inc., an
affiliate of First Pacific Company Limited through a bidding conducted by the Philippine government.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares
is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of
PLDT. With the sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37
percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent.
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to
common shares because such shares are entitled to vote and it is through voting that control over a
corporation is exercised. Petitioner posits that the term "capital" in Section 11, Article XII of the
Constitution refers to "the ownership of common capital stock subscribed and outstanding, which class
of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of
directors."
Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11, Article XII
of the Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not
dispute that more than 40 percent of the common shares of PLDT are held by foreigners.
Issue:
Does the term "capital" in Section 11, Article XII of the Constitution refers to the total common shares
only or to the total outstanding capital stock of PLDT, a public utility?
Ruling:
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the
Filipinization of public utilities, to wit: “No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose capital is
owned by such citizens…”
The intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized
and partially nationalized activities is for Filipino nationals to be always in control of the corporation
pg. 15
undertaking said activities. Otherwise, if the Trial Court’s ruling upholding respondents’ arguments were
to be given credence, it would be possible for the ownership structure of a public utility corporation to be
divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Thus, the
40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the
controlling interest.
The Supreme Court ruled that the term "capital" in Section 11, Article XII of the 1987 Constitution refers
only to shares of stock entitled to vote in the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital stock (common and non-voting preferred shares).
Cagayan Fishing Development Co. Inc. vs. Sandiko

GR No. L-43350
December 23, 1937
Doctrine:
A corporation, until organized, has no life and therefore no faculties.
Facts:
Manuel Tabora is the registered owner of four parcels of land. In order to build a fishery, he loaned from
Philippine National Bank P8,000 and to guarantee the payment of the loan, three mortgages were
executed with the said parcels of land as subject, in favor of the said bank and of Severina Buzon. Tabora
sold the four parcels of land to Cagayan Fishing Development Co. Inc., said to be under process of
incorporation, in consideration of P1 subject to the said mortgages and, to the condition that the
certificate of title to said lands shall not be transferred to the name of the plaintiff company until the
latter has fully and completely paid Tabora’s indebtedness to PNB.
The articles of incorporation were filed and the company sold the parcels of land to Teodoro Sandiko on
the reciprocal obligation that Sandiko will shoulder the three mortgages. A deed of sale executed before
a notary public by the terms of which the plaintiff sold, ceded and transferred to the defendant all its
rights, titles and interest in and to the four parcels of land. A promissory note for P25,300 was drawn by
the Sandiko in favor of the Cagayan Fishing, payable after one year from the date thereof. Further, a deed
of mortgage executed before a notary public in accordance with which the four parcels of land were given
as security for the payment of the said promissory note.
Sandiko failed to pay, thus the action for payment. The lower court held that deed of sale was invalid. The
corporation filed a motion for reconsideration.
Issue:
Does Cagayan Fishing have a juridical capacity to enter into the contract?
Ruling:
No. The transfer made by Tabora to the Cagayan Fishing Development Co., Inc., plaintiff herein, was
effected on May 31, 1930 and the actual incorporation of said company was effected later on October 22,
1930. The transfer was made almost five months before the incorporation of the company.
pg. 16
A duly organized corporation has the power to purchase and hold such real property as the purposes for
which such corporation was formed may permit and for this purpose may enter into such contracts as
may be necessary. But before a corporation may be said to be lawfully organized, many things have to be
done. Among other things, the law requires the filing of articles of incorporation.
The contract itself referred to the plaintiff as “una sociedad en vias de incorporacion.” It was not even a
de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to
enter into the contract.
Corporations are creatures of the law, and can only come into existence in the manner prescribed by law.
As has already been stated, general laws authorizing the formation of corporations are general offers to
any persons who may bring themselves within their provisions; and if conditions precedent are prescribed
in the statute, or certain acts are required to be done, they are terms of the offer, and must be complied
with substantially before legal corporate existence can be acquired.
Salmon, Dexter, & Co. vs. Timoteo Unson

GR No. L-23608
March 17, 1925
Doctrine:
After incorporation, one may become a shareholder by subscription, or by purchasing stock directly from
the corporation, or from individual owners thereof.
Facts:
Salmon, Dexter and Company is a domestic corporation organized under the name of C.S. Salmon and
Company on May 28, 1918, with a capital stock of P250,000. Pursuant to a resolution of the board of
directors of the corporation, a meeting of the stockholders was held on July 14, 1920, at which the capital
stock of C.S. Salmon and Company was increased to P500,000. The certificate of increase of capital stock
from P250,000 to P500,000, and articles of incorporation, as amended, of Salmon, Dexter and Company
were filed with the Mercantile Registry of the Bureau of Commerce and Industry on September 16, 1920.
In 1920, Timoteo Unson signed an agreement with Salmon, Dexter & Co. stating the following: a) that the
authorized capital is 250,000 and 100 shares each; b) that he subscribes 10 shares of the capital at par
value and agrees to pay it on or before December 15, 1920; c) that the dividends will be prorated and
payable only from the date of actual payment of the subscription.
However, two weeks before such agreement, the stockholders of C.S. Salmon and company, without the
acquiescence or participation of Unson, had authorized an increase of the capital stock of the corporation
to P500,000. Salmon, Dexter & Co. now seeks to recover from the Unson the sum of P1,000 with legal
interest on a subscription for capital stock contract. On his defense, Unson claimed that he is released
from his obligation on the subscription agreement by virtue of the increase of the capital stock of the
plaintiff from P250,000, the amount mentioned in the agreement, to P500,000, the amount agreed upon
the stockholders prior to the defendant's signing the agreement.
pg. 17
Issue:
Should Unson be liable to pay the sum of P1,000 with legal interest?
Ruling:
No. After incorporation, one may become a shareholder by subscription, or by purchasing stock directly
from the corporation, or from individual owners thereof. A distinction is drawn by the authorities between
a subscription to the capital stock of the corporation after its organization and a sale of shares by it.
Whether a particular contract is a subscription or a sale of stock is a matter of construction, and depends
upon its terms and the intention of the parties. It has been held that a subscription to stock in an existing
corporation is, as between the subscriber and the corporation, simply a contract of purchase and sale.
The Supreme Court held that a contract different from that which was entered into cannot be made for
the parties and imposed upon Unson. Unson has the right to stand upon the contract he has made. Also
there was such a non-disclosure of a material fact as was equivalent to false representation. This
representation was of a character that the party to whom it was made had a right to rely upon it.
Philippine Trust Company vs. Marciano Rivera

GR No. L-19761
January 29, 1923
Doctrine:
Subscription to the capital of a corporation constitute a find 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.
Facts:
Cooperativa Naval Filipina was duly incorporated under the laws of the Philippine Islands in 1918 with a
capital of P100,000, divided into one thousand shares of a par value of P100 each. Among the
incorporators of this company was numbered the defendant Mariano Rivera, who subscribed for 450
shares representing a value of P45,000, the remainder of the stock being taken by other persons.
In the course of time the company became insolvent and went into the hands of the Philippine Trust
Company, as assignee in bankruptcy; and by it this action was instituted to recover one-half of the stock
subscription of the defendant, which admittedly has never been paid.
The reason given for the failure of the defendant to pay the entire subscription is, that not long after the
Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at which a
resolution was adopted to the effect that the capital should be reduced by 50 per centum and the
subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50
per centum of the same.
Issue:
Is the resolution valid?
pg. 18
Ruling:
No. It is an established doctrine that subscription to the capital of a corporation constitute a find 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.
A corporation has no power to release an original subscriber to its capital stock from the obligation of
paying for his shares, without a valuable consideration for such release; and as against creditors a
reduction of the capital stock can take place only in the manner an under the conditions prescribed by the
statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory
regulations is necessary. The resolution releasing the shareholders from their obligation to pay 50 per
centum of their respective subscriptions was an attempted withdrawal of so much capital from the fund
upon which the company's creditors were entitled ultimately to rely and, having been effected without
compliance with the statutory requirements, was wholly ineffectual.
Lanuza vs. CA
GR No. 131394
March 28, 2005
Doctrine:
The articles of incorporation 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.
Facts:
In 1952, the Philippine Merchant Marine School, Inc. was incorporated, with seven hundred founders’
shares and seventy-six 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
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 common shares, representing more than two-thirds of the common shares issued and outstanding.
In 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 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
shares, as reflected in the 1952 Articles of Incorporation.
Petitioners on the other hand claim that the 1992 stockholders’ meeting was valid and legal. They submit
that reliance on the 1952 articles of incorporation for determining the quorum negates the existence and
validity of the stock and transfer book which private respondents themselves prepared.
Issue:
Should the quorum be based on the 165 outstanding capital stock as provided in the Articles of
Incorporation?
pg. 19
Ruling:
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 the instant case, the articles of incorporation indicate that at
the time of incorporation, the incorporators were bona fide stockholders of seven hundred founders’
shares and seventy-six common shares. Hence, at that time, the corporation had 776 issued and
outstanding shares.
One who is actually a stockholder cannot be denied his right to vote by the corporation merely because
the corporate officers failed to keep its records accurately. Thus, quorum is based on the totality of the
shares which have been subscribed and issued, whether it be founders’ shares or common shares.
Industrial Refractories Corporation of the Philippines vs. CA

GR No. 122174
October 3, 2002
Doctrine:
Identical or deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive, confusing or contrary to existing laws, are prohibited.
Facts:
Respondent Refractories Corporation of the Philippines a corporation duly organized in 1976 for the
purpose of engaging in the business of manufacturing, producing, selling, exporting and otherwise dealing
in any and all refractory bricks, its by-products and derivatives. In 1977, it registered its corporate and
business name with the Bureau of Domestic Trade. Petitioner Industrial Refractories Corporation of the
Philippines, on the other hand, was incorporated on on 1979 originally under the name “Synclaire
Manufacturing Corporation”, engaged in the business of manufacturing all kinds of ceramics and other
products, except paints and zincs.. It amended its Articles of Incorporation in 1985 to change its corporate
name to “Industrial Refractories Corp. of the Philippines”. Both companies are the only local suppliers of
monolithic gunning mix.
Discovering that petitioner was using such corporate name, respondent RCP filed with the Securities and
Exchange Commission a petition to compel petitioner to change its corporate name on the ground that
its corporate name is confusingly similar with that of petitioner’s such that the public may be confused or
deceived into believing that they are one and the same corporation.
Issue:
Are the names of the petitioner corporation and the private respondent confusingly similar in such a
way that the public may be confused or deceived into believing that they are one and the same
corporation?
pg. 20
Ruling:
Yes, there is confusing or deceptive similarity between petitioner and respondent’s corporate names.
As held in Philips Export B.V. vs. Court of Appeals, to fall within the prohibition of the law, two requisites
must be proven, to wit:
(1) that the complainant corporation acquired a prior right over the use of such corporate
name; and
(2) the proposed name is either: (a) identical, or (b) deceptively or confusingly similar to that
of any existing corporation or to any other name already protected by law; or (c) patently
deceptive, confusing or contrary to existing law.
As regards the first requisite, it has been held that the right to the exclusive use of a corporate name with
freedom from infringement by similarity is determined by priority of adoption. In this case, respondent
RCP was incorporated in 1976 and since then has been using the corporate name “Refractories Corp. of
the Philippines”. Meanwhile, petitioner was incorporated in 1979 originally under the name “Synclaire
Manufacturing Corporation”. It only started using the name “Industrial Refractories Corp. of the
Philippines” when it amended its Articles of Incorporation in 1985 , 9 years after respondent started using
its name. Thus, being the prior registrant, respondent has acquired the right to use the word
“Refractories” as part of its corporate name.
Anent the second requisite, in determining the existence of confusing similarity in corporate names, the
test is whether the similarity is such as to mislead a person using ordinary care and discrimination and the
Court must look to the record as well as the names themselves. Petitioner’s corporate name is “Industrial
Refractories Corp. of the Phils.”, while respondent’s is “Refractories Corp. of the Phils.” Obviously, both
names contain the identical words “Refractories”, “Corporation” and “Philippines”. The only word that
distinguishes petitioner from respondent RCP is the word “Industrial” which merely identifies a
corporation’s general field of activities or operations. It must be noted that both cater to the same
clientele, i.e.¸ the steel industry. And even without proof of actual confusion between the two corporate
names, it suffices that confusion is probable or likely to occur.
Lyceum of the Philippines vs. CA

GR No. 101897
March 5, 1993
Doctrine:
The doctrine of secondary meaning is a word or phrase originally incapable of exclusive appropriation
with reference to an article on the market, because geographically or otherwise descriptive, might
nevertheless have been used so long and so exclusively by one producer with reference to his article that,
in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the
article was his product.
Facts:
Petitioner Lyceum of the Philippines is an educational institution duly registered with the Securities and
Exchange Commission. When it first registered with the SEC in 1950, it used the corporate name Lyceum
of the Philippines, Inc. and has used that name ever since. In 1984, it instituted before the SEC a
pg. 21
proceeding against the Lyceum of Baguio and the rest of the respondents which are all educational
institutions to change their corporate name alleging that their names are substantially identical because
of the word ‘Lyceum’; to delete the word "Lyceum" from their corporate names and permanently to enjoin
them from using "Lyceum" as part of their respective names.
Issue:
Has the word “Lyceum” acquired a secondary meaning?
Ruling:
No. Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or otherwise descriptive
might nevertheless have been used so long and so exclusively by one producer with reference to this
article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean
that the article was his produce. With the foregoing as a yardstick, [we] believe the appellant failed to
satisfy the aforementioned requisites. While the appellant may have proved that it had been using the
word ‘Lyceum’ for a long period of time, this fact alone did not amount to mean that the said word had
acquired secondary meaning in its favor because the appellant failed to prove that it had been using the
same word all by itself to the exclusion of others. More so, there was no evidence presented to prove that
confusion will surely arise if the same word were to be used by other educational institutions.
The petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum"
in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To
determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with
another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both
names. One must evaluate corporate names in their entirety and when the name of petitioner is
juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or
"confusingly or deceptively similar" with each other.
Golden Arches Development Corporation vs. St. Francis Square

Holdings, Inc.
GR No. 183843
January 19, 2011
Doctrine:
Venue, in essence, concerns a rule of procedure.
Facts:
In June 1991, Golden Arches Development Corporation entered into a lease contract over a property
owned by Prince City Realty, Inc. located at the corner of Julia Vargas Avenue and Bank Drive, Ortigas
Center, Mandaluyong City. The lease contract is from June 27, 1991 until February 27, 2008. In 2006,
however, petitioner informed St. Francis Square Holdings, Inc., successor-in-interest of ASB Holdings, Inc.
by which Prince Realty, Inc. eventually became known, of its intention to discontinue the lease.
Amicable negotiations between the parties having failed, St. Francis Square filed on 2007 an action for
breach of contract and damages against petitioner before Mandaluyong RTC. Golden Arches filed a
pg. 22
motion to dismiss for lack of cause of action and improper venue, claiming that that respondent
maintained its principal address in Makati as records. Opposing the Motion to Dismiss, St. Francis Square
claimed that it had closed down its office in Makati effective December 31, 2005 as it now holds office in
Mandaluyong City of which petitioner is aware.
Issue:
Did St. Francis Square violate Sec. 2 Rule 4 of the Rules of Court in filing an action for breach of contract
and damages against Golden Arches in Mandaluyong RTC?
Ruling:
No. St. Francis Square’s complaint, being one for enforcement of contractual provisions and recovery of
damages, is in the nature of a personal action which, under Section 2, Rule 4 of the Rules of Court, shall
be filed at the plaintiff’s residence.
Specifically, with respect to a domestic corporation, it is “in a metaphysical sense a resident of the place
where its principal office is located as stated in the articles of incorporation.” The letters of Golden Arches
itself to St. Francis indicate the address of the latter to be at St. Francis Square Mall, Julia Vargas, Ortigas
Center, just as the letters of St. Francis Square to Golden Arches before the filing of the complaint indicate
its address to be at St. Francis Square Mall, Julia Vargas, Ortigas Center. Golden Arches was thus put on
notice that at St. Francis Square’s filing of the complaint, the latter’s business address has been at
Mandaluyong. Although, St. Francis Square’s Amended Articles of Incorporation of 2007 indicates that its
principal business address is at “Metro Manila”, venue was properly laid in Mandaluyong since that is
where it had actually been “residing” (or holding its principal office) at the time it filed its complaint.
Section 2, Rule 4 of the Rules of Court authorizes St. Francis Square to make a choice of venue for personal
actions – whether to file the complaint in the place where he resides or where defendant resides. St.
Francis Square’s choice must be respected as “the controlling factor in determining venue for cases is the
primary objective for which said cases are filed.” St. Francis Square’s purpose in filing the complaint in
Mandaluyong where it holds its principal office is obviously for its convenience and for orderly
administration of justice.
Lyceum of the Philippines vs. CA

GR No. 101897
March 5, 1993
Doctrine:
The doctrine of secondary meaning is a word or phrase originally incapable of exclusive appropriation
with reference to an article on the market, because geographically or otherwise descriptive, might
nevertheless have been used so long and so exclusively by one producer with reference to his article that,
in that trade and to that branch of the purchasing public, the word or phrase has come to mean that the
article was his product.
Facts:
Petitioner Lyceum of the Philippines is an educational institution duly registered with the Securities and
Exchange Commission. When it first registered with the SEC in 1950, it used the corporate name Lyceum
of the Philippines, Inc. and has used that name ever since. In 1984, it instituted before the SEC a
pg. 23
proceeding against the Lyceum of Baguio and the rest of the respondents which are all educational
institutions to change their corporate name alleging that their names are substantially identical because
of the word ‘Lyceum’; to delete the word "Lyceum" from their corporate names and permanently to enjoin
them from using "Lyceum" as part of their respective names.
Issue:
Has the word “Lyceum” acquired a secondary meaning?
Ruling:
No. Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or otherwise descriptive
might nevertheless have been used so long and so exclusively by one producer with reference to this
article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean
that the article was his produce. With the foregoing as a yardstick, [we] believe the appellant failed to
satisfy the aforementioned requisites. While the appellant may have proved that it had been using the
word ‘Lyceum’ for a long period of time, this fact alone did not amount to mean that the said word had
acquired secondary meaning in its favor because the appellant failed to prove that it had been using the
same word all by itself to the exclusion of others. More so, there was no evidence presented to prove that
confusion will surely arise if the same word were to be used by other educational institutions.
The petitioner institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum"
in its corporate name and that other institutions may use "Lyceum" as part of their corporate names. To
determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with
another entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both
names. One must evaluate corporate names in their entirety and when the name of petitioner is
juxtaposed with the names of private respondents, they are not reasonably regarded as "identical" or
"confusingly or deceptively similar" with each other.
Young Auto Supply vs. CA

GR No. 104175
June 25, 1993
Doctrine:
A corporation is in a metaphysical sense a resident of the place where its principal office is located as
stated in the articles of incorporation.
Facts:
In 1987, Young Auto Supply Co. Inc. represented by its President Nemesio Garcia, Nelson Garcia and
Vicente Sy, sold all of their shares of stock in Consolidated Marketing & Development Corporation to Roxas
for P8,000,000.00 payable at 4 million as down payment and the balance of 4 million in four postdated
checks of 1 million each. Immediately after the execution of the agreement, Roxas took full control of the
four markets of CMDC. However, the vendors held on to the stock certificates of CMDC as security pending
full payment of the balance of the purchase price.
pg. 24
The first check for the down payment was honored by the drawee bank but the four other checks
representing the balance were dishonored. In the meantime, Roxas sold one of the markets to a third
party. Out of the proceeds of the sale, petitioner YASCO received P600,000, leaving a balance of
P3,400,000. Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds
of the sale of the CMDC shares to Nemesio Garcia.
In 1988, petitioners filed a complaint against Roxas in the Regional Trial Court of Cebu City, praying that
Roxas be ordered to pay petitioners the sum of P3,400,000 or that full control of the three markets be
turned over to YASCO and Garcia; and for the forfeiture of the partial payment of P4,600,000 as well as
the payment of attorney's fees and costs.
Issue:
Is the venue of Cebu City RTC correct?
Ruling:
Yes. In the Regional Trial Courts, all personal actions are commenced and tried in the province or city
where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of
the plaintiffs resides, at the election of the plaintiff. There are two plaintiffs in the case at bench: a natural
person and a domestic corporation. Both plaintiffs aver in their complaint that they are residents of Cebu
City. A corporation has no residence in the same sense in which this term is applied to a natural person.
But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its
principal office is located as stated in the articles of incorporation.
The Court ruled that to allow an action to be instituted in any place where the corporation has branch
offices, would create confusion and work untold inconvenience to said entity. By the same token, a
corporation cannot be allowed to file personal actions in a place other than its principal place of business
unless such a place is also the residence of a co-plaintiff or a defendant.
Pilipinas Loan Company Inc. vs. SEC

GR No. 104720
April 4, 2001
Doctrine:
The certificate of incorporation that gives juridical personality to a corporation and places it within SEC
jurisdiction.
Facts:
Private respondent Filipinas Pawnshop, Inc. is a duly organized corporation registered with the Securities
and Exchange Commission in 1959 with its principal place of business located along Pedro Gil St Paco,
Metro Manila. The articles of incorporation of private respondent states that its primary purpose is to
extend loans at legal interest on the security of either personal properties or on the security of real
properties, and to finance installment sales of motor vehicles, home appliances and other chattels.
Petitioner Filipinas Pawnshop, Inc. is a lending corporation duly registered with the SEC in 1989 with some
of its places of business located along Pedro Gil, Sta. Ana, Manila and Onyx St., cor. Augusto Francisco St.,
pg. 25
San Andres, Paco, Manila, with its primary purpose to act as a lending investor or, otherwise, to engage
in the practice of lending money or extending loans on the security of real or personal, tangible or
intangible properties whether as pledge, real or chattel mortgage or otherwise.
In 1989, private respondent filed a complaint against petitioner alleging that alleged that: (1) petitioner,
contrary to the restriction set by the Commission, has been operating and doing business as a pawnbroker,
pawnshop or "sanglaan" in the same neighborhood where private respondent has had its own pawnshop
for 30 years in violation of its primary purpose and without the imprimatur of the Central Bank to engage
in the pawnshop business thereby causing unjust and unfair competition with private respondent; and (2)
the business name of petitioner, "PILIPINAS" Loan, bears similarity in spelling and phonetics with the
corporate name of private respondent, "FILIPINAS" Pawnshop, creating constant confusion in the minds
of the public and the customers of private respondent. In the same complaint, private respondent urged
the SEC to: (1) order petitioner to change its business name, Pilipinas Loan, and cease from using it in the
near future; (2) order Pilipinas Loan to cease and desist from engaging in the business of pawnbroking as
defined under PD No. 114; and (3) impose upon the director, officers, employees or persons responsible
such penalties as may be proper under the law.
In 1991, the SEC issued an Order directing the petitioner to amend its articles of incorporation by changing
the word "Pilipinas" in its corporate name, and to cease and desist from further engaging in the business
of pawnshop or "sanglaan".
Issue:
Does the SEC have jurisdiction to issue an Order directing the petitioner to amend its articles of
incorporation?
Ruling:
Yes. A corporation, under the Corporation Code, has only such powers as are expressly granted to it by
law and by its articles of incorporation, those which may be incidental to such conferred powers, those
reasonably necessary to accomplish its purposes and those which may be incident to its existence. In the
case at bar, the limit of the powers of petitioner as a corporation is very clear, it is categorically prohibited
from "engaging in pawn broking as defined under PD 114". Hence, in determining what constitutes pawn
brokerage, the relevant law to consider is PD 114.
Indispensable therefore to the determination of whether or not petitioner had violated its articles of
incorporation, was an inquiry by the SEC if petitioner was holding out itself to the public as a pawnshop.
It must be stressed that the determination of whether petitioner violated PD 114 was merely incidental
to the regulatory powers of the SEC, to see to it that a corporation does not go beyond the powers granted
to it by its articles of incorporation.
Jurisprudence has laid down the principle that it is the certificate of incorporation that gives juridical
personality to a corporation and places it within SEC jurisdiction. The case of Orosa, Jr. vs. Court of Appeals
teaches that this jurisdiction of the SEC is not affected even if the authority to operate a certain specialized
activity is withdrawn by the appropriate regulatory body other than the SEC. With more reason that we
cannot sustain the submission of petitioner that a declaration by the Central Bank that it violated PD 114
is a condition precedent before the SEC can take cognizance of the complaint against petitioner.
pg. 26
Loyola Grand Villas Homeowners Association, Inc. vs. CA

GR No. 117188
August 7, 1997
Doctrine:
Facts:
Loyola Grand Villas Homeowners Associatio, Inc. was organized on February 8, 1983 as the registered sole
homeowner’s association for Loyola Grand Villas with the Home Financing Corporation, which later
became Home Insurance Guarantee Corporation (HIGC). However, the association was not able to file its
corporate by-laws in the prescribed date as stated in the Corporation Code Sec. 46, Adoption of by-laws,
“Ever corporation formed under this code MUST within 1 month after receipt of official notice of the
issuance of its certificate of incorporation by SEC, adopt a code of by-laws for its government not
inconsistent with this Code.”
They then discovered that there were other homeowners’ organization within the subdivision – the North
and South Association, and upon inquiry by the LGVHAI to HIGC, it was discovered that LGVHAI was
dissolved for its failure to submit its by-laws within the period required by the Corporation Code. These
paved the way for the formation of the two other associations. LGVHAI then lodged a complaint and
questioned the revocation with the HIGC Hearing Officer Javier. Hearing Officer Javier ruled in favor of
LGVHAI and revoked the registration of the North and South Associations.
Issue:
Is the failure to file LGVHAI’s by-laws within the period prescribed by Sec. 46 of the Corporation Code
had the effect of automatically dissolving the said corporation?
Ruling:
No. Ordinarily, the word “must” connotes imposition of duty which must be enforced however, the word
“must” in a statute, (like “shall”) is not always imperative. It may be consistent with an exercise of
discretion. If the language of a statute, considered as a whole with due regard to its nature and object,
reveals that the legislature intended to use the words “shall” and “must” to be directory, they should be
given that meaning.
Under the Corporation Code, a private corporation commences to have corporate existence and juridical
personality from the date the Securities and Exchange Commission (SEC) issues a certificate of
incorporation under its official seal. There was no showing that the registration of LGVHAI had been validly
revoked, it continued to be the duly registered homeowners’ association in the Loyola Grand Villas. It has
been held that automatic corporate dissolution for failure to file the by-laws on time was never the
intention of the legislature. Taken as a whole and under the principle that the best interpreter of a statute
is the statute itself (optima statuli interpretatix est ipsum statutum), Section 46 of the Corporate Code
reveals the legislative intent to attach a directory, and not mandatory, meaning for the word “must” in
the first sentence thereof. Note should be taken of the second paragraph of the law which allows the filing
of the by-laws even prior to incorporation. This provision in the same section of the Code rules out
mandatory compliance with the requirement of filing the by-laws “within one (1) month after receipt of
official notice of the issuance of its certificate of incorporation by the Securities and Exchange
pg. 27
Commission.” It necessarily follows that failure to file the by-laws within that period does not imply the
“demise” of the corporation
Orendain vs. BF Homes, Inc

GR No. 146313
October 31, 2006
Doctrine:
If the nature of the controversy involves matters that are purely civil in character, necessarily, the case
does not involve an intra-corporate controversy.
Facts:
Respondent BF Homes, a domestic corporation involved in developing and selling residential lots filed a
petition for rehabilitation and suspension of payments as it incurred liabilities in the course of its
operations. The Securities and Exchange Commission ordered the appointment of a rehabilitation receiver
with herein petitioner Orendain as its Chairman. Sometime later, BF Homes represented by petitioner
Orendain sold a parcel of land to the Local Superior of the Franciscan Sisters of the Immaculate Phils. Inc.
SEC ordered a new committee of receivers and relieved petitioner of its duties. BF Homes then filed before
the court an action for reconveyance of the property sold to LSFSIPI alleging petitioner acted in its
individual capacity and therefore had no title over the property. Petitioner argues RTC had no jurisdiction
over the case since BF Homes’ suit was instituted against him as its former receiver.
The trial court and CA ruled in favor of BF Homes.
Issue:
Does the reconveyance suit involve an intra-corporate dispute cognizable by the SEC?
Ruling:
No. In Speed Distributing Corp. v. CA, we held that: Jurisdiction over the subject matter is conferred by
law. The nature of an action, as well as which court or body has jurisdiction over it, is determined based
on the allegations contained in the complaint of the plaintiff, irrespective of whether or not plaintiff is
entitled to recover upon all or some of the claims asserted therein. It cannot depend on the defenses set
forth in the answer, in a motion to dismiss, or in a motion for reconsideration by the defendant.
In 1996, Section 5 of PD No. 902-A,28 which was approved on March 11, 1976, was still the law in force—
whereby the SEC still had original and exclusive jurisdiction to hear and decide cases involving:
b) controversies arising out of intra-corporate or partnership relations, between and among stockholders,
members, or associates; between any and/or all of them and the corporation, partnership, or association
of which they are stockholders, members or associates, respectively; and between such corporation,
partnership or association and the state insofar as it concerns their individual franchise or right to exist as
such entity.
Clearly, the controversy involves matters purely civil in character and is beyond the ambit of the limited
jurisdiction of the SEC.
pg. 28
Lee vs. Bangkok Bank Public Company, LTD

GR No. 173349
February 9, 2011
Doctrine:
Contracts which were undertaken in fraud of creditors when the latter cannot in any other manner collect
the claims due them, are rescissible.
Facts:
Midas Diversified Export Corporation and Manila Home Textile, Inc., both owned by petitioners, entered
into two separate Credit Line Agreements with Respondent Bangkok Bank Public Company, Limited. The
Lee family executed guarantees in favor of Bangkok Bank. Prior to the granting of the CLAs, Bangkok Bank
conducted a property check on the Lee family and required Samuel to submit a list of his properties.
Bangkok Bank, however, did not require the setting aside, as collateral, of any particular property to
answer for any future unpaid obligation.
MDEC, MHI, and three other corporations owned by the Lee family filed before the Securities and
Exchange Commission a Consolidated Petition for the Declaration of a State of Suspension of Payments
and for Appointment of a Management Committee/Rehabilitation Receiver. The SEC issued a Suspension
Order enjoining the Lee corporations from disposing of their property.
Bangkok Bank instituted an action before the RTC Makati City to recover the loans extended to MDEC and
MHI under the guarantees and was granted writ of attachment. While enforcing the writs of preliminary
attachment, Bangkok Bank discovered that the spouses Lee had executed a real estate mortgage over the
subject Antipolo properties in favor of Asiatrust; and that the mortgage had previously been annotated
on the titles.
Believing the REM and the foreclosure sale to be fraudulent, Bangkok Bank did not redeem the subject
properties. As there had been no effort to redeem the properties, consequently, the TCTs covering the
subject properties were consolidated in the name of Asiatrust.
Bangkok filed a suit in the RTC, which found no concrete proof of the alleged fraud committed by the Lee
family and Asiatrust, more so, that of a collusion or conspiracy between them. Consequently, it ruled that
Art. 1381(3) of the Civil Code does not apply. The appellate court reversed this decision, holding that fraud
was perpetrated pursuant to the presumption in the second paragraph of Art. 1387 of the Civil Code,
which provides that “alienations by onerous title are also presumed fraudulent when made by persons
against whom … some writ of attachment has been issued.”
Issue:
Is the February 23, 1998 REM executed over the subject Antipolo properties and the April 15, 1998
foreclosure sale were committed in fraud of petitioners’ other creditors, and, as a consequence of such
fraud, the questioned mortgage could, therefore, be rescinded?
Ruling:
pg. 29
The presumption of fraud established under Art. 1387 does not apply to registered lands if “the judgment
or attachment made is not also registered.” In this case, while a judgment was made against the spouses
Lee in favor of SBC on January 30, 1998, this, however, was not annotated on the titles of the subject
properties. In fact, there is no showing that the judgment has ever been annotated on the titles of the
subject properties.
Even assuming that Art. 1387 of the Code applies, the execution of a mortgage is not contemplated within
the meaning of alienation by onerous title under the said provision. This term is “particularly applied to
absolute conveyances of real property” and must involve a “complete transfer from one person to
another.” A mortgage does not contemplate a transfer or an absolute conveyance of a real property.
Philippine Communications Satellite Corp. vs. Sandiganbayan

GR No. 203023
June 17, 2015
Doctrine:
Under the relationship test, the existence of any of the following relationships makes the conflict intra-
corporate: (1) between the corporation, partnership or association and the public; (2) between the
corporation, partnership or association and the State insofar as its franchise, permit or license to operate
is concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates themselves.
Facts:
PHC is a domestic corporation listed in the Philippine Stock Exchange (PSE). It was previously known as
Liberty Mines, Inc. and had been previously engaged in the discovery, exploitation, development and
exploration of oils. In 1995, Oliverio G.Laperal then Chairman of the Board and President of LMI, and
Honorio Poblador III, then President of PHILCOMSAT, signed a Memorandum of Agreement for the latter
to gain controlling interest in LMI through an increase in its authorized capital stock.
In 1996 Laperal and PHILCOMSAT executed a Supplemental Memorandum of Agreement reiterating the
increase in capital stock of LMI from six billion shares to100 billion shares with par value of P0.01 per share
equivalent to ₱1 billion. As part of its implementation of the Supplemental MOA, PHILCOMSAT subscribed
to ₱79,050,000,000 shares of LMI. Sometime in 1997, LMI changed its name to PHC. It declassified its
shares and amended its primary purpose to become a holding company. PHC then filed its application
with the PSE for listing the shares representing the increase in its capital stock. Included in this application
were the PHC shares owned by PHILCOMSAT.
Pending the PSE’s final approval of PHC’s application for listing of the shares, the PCGG on 2005, through
its then Chairman Camilo L. Sabio made a written request to suspend the listing of the increase in PHC’s
capital stock citing as reason the need to settle the conflicting claims of the two sets of board of directors
of the Philippine Overseas Telecommunication Corporation and PHILCOMSAT.
In a letter, the PSE informed the PCGG that the PSE Listing Committee deferred action on the company’s
listing application and instead referred the matter to the PSE General Counsel to ascertain the applicability
of the provisions on disqualifications for listing as provided under the PSE Revised Listing Rules. The PCGG
pg. 30
sent another letter to the PSE reiterating its request to defer the listing of PHC shares. In 2007, then
President Gloria Macapagal-Arroyo appointed new government nominees to the POTC and PHILCOMSAT
boards to replace Enrique Locsin, Manuel Andal, Julio Jalandoni and Guy de Leon. POTC owns 100% of
PHILCOMSAT.
On 1 February 2012, PHILCOMSAT filed a complaint before the Sandiganbayan against PCGG to compel
the latter to withdraw its opposition to the listing of the increase in PHC’s capital stock. PHILCOMSAT
argued that PCGG had already recognized the validity of the stockholders’ meetings in the two
corporations, which "practically erased" the alleged conflict between the two sets of directors.
The PCGG filed a motion to dismiss the complaint, which PHILCOMSAT subsequently opposed.
Issue:
Does the Sandiganbayan have jurisdiction over the case?
Ruling:
No, the Sandiganbayan has no jurisdiction over the case. The Complaint involves an intra-corporate
controversy. To determine if a case involves an intra-corporate controversy, the courts have applied two
tests: the relationship test and the nature of the controversy test.
Under the relationship test, the existence of any of the following relationships makes the conflict intra-
corporate: (1) between the corporation, partnership or association and the public; (2) between the
corporation, partnership or association and the State insofar as its franchise, permit or license to operate
is concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates themselves.
On the other hand, the nature of the controversy test dictates that "the controversy must not only be
rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of
the parties’ correlative rights and obligations under the Corporation Code and the internal and intra-
corporate regulatory rules of the corporation."
A combined application of the relationship test and the nature of the controversy test has become the
norm in determining whether a case is an intra-corporate controversy, to be "heard and decided by the
branches of the RTC specifically designated by the Court to try and decide such cases."
The controversy in the present case stems from the act of Chairman Sabio in requesting the PSE to suspend
the listing of PHC’s increase in capital stock because of still unresolved issues on the election of the POTC’s
and PHILCOMSAT’s respective boards of directors.
The act of Chairman Sabio in asking the SEC to suspend the listing of PHC’s shares was done in pursuit of
protecting the interest of the Republic of the Philippines, a legitimate stockholder in PHC’s controlling
parent company, POTC. The character of the shares held by the PCGG/Republic, on whose behalf the
PCGG Chairman is presumed to be acting, is irrelevant to Chairman Sabio’s actions. Any shareholder,
harboring any apprehensions or concerns, could have done the same or posed the same objection. It was
an act that had no relation to any proceeding or question of ill-gotten wealth or sequestration. The PCGG
was merely protecting the rights and interest of the Republic of the Philippines.
From the foregoing, it is clear that the dispute in the present case is an intra-corporate controversy.
pg. 31

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CASE DIGESTS (CORPORATION) – TAMPICO, E.L.

Gamboa vs. Teves

Narra Nickel Mining and Development Corporation vs. Redmont

Halley vs. Printwell, Inc.

Seaoil Petroleum Corporation vs. Autocorp Group

Sarona vs. NLRC

Marques vs. Far East Bank

Powton Conglomerate, Inc. vs. Agcolicol

Eric Godfrey Stanley Livesey vs. Binswanger Philippines, Inc.

Concept Builders, Inc. vs. NLRC

Philippine National Bank vs. Ritratto Group, Inc.

Nautica Canning Corporation vs. Yumul

Gamboa vs. Teves

Cagayan Fishing Development Co. Inc. vs. Sandiko

Salmon, Dexter, & Co. vs. Timoteo Unson

Philippine Trust Company vs. Marciano Rivera

Industrial Refractories Corporation of the Philippines vs. CA

Lyceum of the Philippines vs. CA

Golden Arches Development Corporation vs. St. Francis Square

Lyceum of the Philippines vs. CA

Young Auto Supply vs. CA

Pilipinas Loan Company Inc. vs. SEC

Loyola Grand Villas Homeowners Association, Inc. vs. CA

Orendain vs. BF Homes, Inc

The trial court and CA ruled in favor of BF Homes.

Lee vs. Bangkok Bank Public Company, LTD

Philippine Communications Satellite Corp. vs. Sandiganbayan

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