CORPO LAW WKS 1 and 2 CASE DIGESTS

CORPORATION LAW: WKS 1&2 JUDGE BASTES
FELICIANO vs COA
[G.R. No. 147402. January 14, 2004]
CARPIO, J.:
FACTS:
COA audited the accounts of LMWD and charged it auditing fees. Petitioner, as general
manager, requested for COA to cease all audit services and to stop charging auditing fees. It also
requested for COA to refund all auditing fees previously paid by LMWD. Petitioner contends that
LWDs are not government-owned and controlled corporations with original charters. He argues
that LWDs are private corporations hence not subject to the audit jurisdiction of COA
ISSUE: Whether LWDs are Private or Government-Owned and Controlled Corporations with
Original Charters.
HELD: An LWD is a GOCC with an original charter.

The Constitution recognizes two classes of corporations. The first refers to private
corporations created under a general law. The second refers to government-owned or controlled
corporations created by special charters.
Private corporations may exist only under a general law. If the corporation is private, it
must necessarily exist under a general law. Stated differently, only corporations created under a
general law can qualify as private corporations. Under existing laws, that general law is the
Corporation Code.
LWDs are not private corporations because they are not created under the Corporation
Code. LWDs are not registered with the Securities and Exchange Commission. LWDs have no
articles of incorporation, no incorporators and no stockholders or members. There are no
stockholders or members to elect the board directors of LWDs as in the case of all corporations
registered with the SEC. The local mayor or the provincial governor appoints the directors of
LWDs for a fixed term of office.
LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the
Constitution only GOCCs may have special charters, LWDs can validly exist only if they are
government-owned or controlled. To claim that LWDs are private corporations with a special
charter is to admit that their existence is constitutionally infirm.
Manila International Airport Authority vs CA

GR No. 155650, July 20, 2006, 495 SCRA 591
Facts:
Manila International Airport Authority (MIAA) is the operator of the Ninoy International
Airport located at Paranaque City. The Officers of Paranaque City sent notices to MIAA due to real
estate tax delinquency. MIAA then settled some of the amount. When MIAA failed to settle the
entire amount, the officers of Paranaque city threatened to levy and subject to auction the land
and buildings of MIAA, which they did. MIAA sought for a Temporary Restraining Order from
the CA but failed to do so within the 60 days reglementary period, so the petition was dismissed.
MIAA then sought for the TRO with the Supreme Court a day before the public auction, MIAA
was granted with the TRO but unfortunately the TRO was received by the Paranaque City officers
3 hours after the public auction.
MIAA claims that although the charter provides that the title of the land and building are with
MIAA still the ownership is with the Republic of the Philippines. MIAA also contends that it is an
instrumentality of the government and as such exempted from real estate tax. That the land and
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buildings of MIAA are of public dominion therefore cannot be subjected to levy and auction sale.
On the other hand, the officers of Paranaque City claim that MIAA is a government owned and
controlled corporation therefore not exempted to real estate tax.
Issues:
Whether or not MIAA is an instrumentality of the government and not a government owned and
controlled corporation and as such exempted from tax.
Whether or not the land and buildings of MIAA are part of the public dominion and thus cannot
be the subject of levy and auction sale.
Ruling:
Under the Local government code, government owned and controlled corporations are not
exempted from real estate tax. MIAA is not a government owned and controlled corporation, for
to become one MIAA should either be a stock or non stock corporation. MIAA is not a stock
corporation for its capital is not divided into shares. It is not a non stock corporation since it has
no members. MIAA is an instrumentality of the government vested with corporate powers and
government functions.
Under the civil code, property may either be under public dominion or private ownership.
Those under public dominion are owned by the State and are utilized for public use, public service
and for the development of national wealth. The ports included in the public dominion pertain
either to seaports or airports. When properties under public dominion cease to be for public use
and service, they form part of the patrimonial property of the State.
The court held that the land and buildings of MIAA are part of the public dominion. Since
the airport is devoted for public use, for the domestic and international travel and transportation.
Even if MIAA charge fees, this is for support of its operation and for regulation and does not
change the character of the land and buildings of MIAA as part of the public dominion. As part of
the public dominion the land and buildings of MIAA are outside the commerce of man. To subject
them to levy and public auction is contrary to public policy. Unless the President issues a
proclamation withdrawing the airport land and buildings from public use, these properties
remain to be of public dominion and are inalienable. As long as the land and buildings are for
public use the ownership is with the Republic of the Philippines.
Magsaysay-Labrador vs CA Case Digest

Magsaysay-Labrador, et. al. vs. Court of Appeals
[GR 58168, 19 December 1989]
Facts: On 9 February 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of

the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance
of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas
Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment
of the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which
TCT 3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the
Deed of Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the
amount of P 2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the
latter to issue a new title in her favor. On 7 March 1979, Concepcion Magsaysay-Labrador, Soledad
Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-
Diaz, sisters of the late senator, filed a motion for intervention on the ground that on 20 June
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1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6
shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC,
they have a substantial and legal interest in the subject matter of litigation and that they have a
legal interest in the success of the suit with respect to SUBIC. On 26 July 1979, the trial court
denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever
in the matter in litigation and their being alleged assignees or transferees of certain shares in
SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and
distinct from its stockholders.
On appeal, the Court of Appeals found no factual or legal justification to disturb the findings of
the lower court. The appellate court further stated that whatever claims the Magsaysay sisters
have against the late Senator or against SUBIC for that matter can be ventilated in a separate
proceeding. The motion for reconsideration of the Magsaysay sisters was denied. Hence, the
petition for review on certiorari.
Issue: Whether the Magsaysay sister, allegedly stockholders of SUBIC, are interested parties in
a case where corporate properties are in dispute.
Held: Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay
sisters have no legal interest in the subject matter in litigation so as to entitle them to intervene
in the proceedings. To be permitted to intervene in a pending action, the party must have a legal
interest in the matter in litigation, or in the success of either of the parties or an interest against
both, or he must be so situated as to be adversely affected by a distribution or other disposition of
the property in the custody of the court or an officer thereof . Here, the interest, if it exists at all,
of the Magsaysay sisters is indirect, contingent, remote, conjectural, consequential and collateral.
At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the
management of the corporation and to share in the profits thereof and in the properties and assets
thereof on dissolution, after payment of the corporate debts and obligations. While a share of
stock represents a proportionate or aliquot interest in the property of the corporation, it does not
vest the owner thereof with any legal right or title to any of the property, his interest in the
corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the
owners of corporate property, which is owned by the corporation as a distinct legal person.
Sulo ng Bayan, Inc vs Araneta, Inc. No. L-31061. August 17, 1976
Facts:
Plaintiff-appellant Sulo ng Bayan, Inc. filed an action against defendant-appellees to
recover the ownership and possession of a large tract of land in Bulacan, registered under Torrens
System in the name of the defendants-appellees predecessors-in-interest. The plaintiff is a
corporation organized and existing under the laws of the Philippines.
Issues:
1. Whether or not Plaintiff Corporation (non-stock) may institute an action in behalf of its
individual members for the recovery of certain parcels of land allegedly owned by said members.
2. Whether the complaint filed by the corporation in behalf of its members may be treated as
class suit.
Ruling:
1. No.
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It is a doctrine well-established and obtains both at law and in equity that a corporation is a
distinct legal entity to be considered as separate and apart from the individual stockholders or
members who compose it, and is not affected by the personal rights, obligations and transactions
of its stockholders or members. The property of the corporation is its property and not that of the
stockholders, as owners, although they have equities in it. Properties registered in the name of the
corporation owned by it as an entity separate and distinct from its members. Conversely, a
corporation ordinarily has no interest in the individual property of its stockholders unless
transferred to the corporation even in the case of a one-man corporation.
It has not been claimed that the members have assigned or transferred whatever rights
they may have on the land in question to the plaintiff-corporation. Absent of any showing of
interest, therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an
action for and in behalf of its stockholders or members for the purpose of recovering property
which belongs to said stockholders or members in their personal capacities.
2. No.
In order that a class suit may prosper, the following requisites must be present: (1) that the subject
matter of the controversy is one of common or general interest to many persons; and (2) that the
parties are so numerous that it is impracticable to bring them all before court.
Here, there is only one plaintiff, and the plaintiff corporation does not even have an
interest in the subject matter of the controversy, and cannot, therefore, represent its members or
stockholders who claim to own in their individual capacities ownership of the said property.
Issue: Whether or not the plaintiff corporation can represent the stockholders in the proceeding
for the properties involved.
Held: No. It is a doctrine well established and obtains both at law and equity that a corporation is
a distinct legal entity to be considered as separate and apart from the individual stockholders a
members who compose it, and is not affected by the personal rights, obligations and transactions
of its stockholders or members. The property of the corporation is its property and not that of the
stockholders as owners although they have equities in it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members. Conversely, a
corporation ordinarily has no interest in the individual property of its stockholders unless
transferred to the corporation, even in the case of a one-man corporation. The mere fact that one
is president of a corporation does not render the property which he owns or possesses the property
of the corporation, since the president as individual, and the corporation are separate similarities.
Sincerely, stockholders in a corporation engaged in buying and dealing in real estate whose
certificates of stock entitled the holder thereof, to an allotment in the distribution of the land of
the corporation upon surrender of their stock certificates were considered not to have such legal
or equitable title or interest in the land, as would support a suit for title, especially against parties
other than corporation.
It must be noted, however, that the juridical personality of the corporation,as separate and
distinct from the persons composing it, is but a legal fiction introduced for the purpose of
convenience and to subserve the ends of justice. This separate personality of the corporation may
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be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak for fraud
or illegality, or to work an injustice, or where necessary to achieve equity.
Thus when the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation as an association of persons, or in the
case of two corporations, merge them into one, the one being merely regarded as part or
instrumentality of the other. The same is true where a corporation is a dummy and serves no
business purpose and is intended only as blind, or an alter ego or business conduct for the sole
benefit of the stockholders. This doctrine of disregarding the distinct personality of the
corporation has been applied by the courts in those cases when the corporate entity is used for the
evasion of taxes. Or when the veil of corporate fiction is used to confuse legitimate issue of
employer-employee relationship or when necessary for the protection of creditors, in which case
the veil of corporate fiction may be pierced and the funds of the corporation may be garnished to
satisfy the debts of a principal stockholder. The aforecited principle is resorted to by the courts as
a measure protection for third parties to prevent fraud illegality or injustice.
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, vs.

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT.
Facts:
Challenged in this special civil action of certiorari and prohibition by a private corporation known
as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2,
promulgated by President Corazon C. Aquino on February 28, 1986 and March 12, 1986,
respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in
accordance with said executive orders by the Presidential Commission on Good Government
and/or its Commissioners and agents, affecting said corporation.
The PCGG was tasked to sequester the BASECO thru Executive Orders 1 and 2 of President Cory
Aquino.
The PCGG was able to take over the BASECO and terminate its executive employees and requested
to have the following documents of the said company. Such as (Stock transfer book, Legal
documents, Minutes of the meetings, Financial statements, and the likes)
Petitioner contends that he cannot produce the said documents due to it is an infringement of its
right against self incrimination.
ISSUE:
WON documents ask in by PCGG would vitiate their right against self incrimination.
RULING:
BASECO also contends that its right against self incrimination and unreasonable searches and
seizures had been transgressed by the Order of April 18, 1986 which required it "to produce
corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do
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so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of
the PCGG's power to "issue subpoenas requiring * * the production of such books, papers,
contracts, records, statements of accounts and other documents as may be material to the
investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing
with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or
properties, whether located in the Philippines or abroad, in their names as nominees, agents or
trustees, to make full disclosure of the same * *." The contention lacks merit.
it is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with special privileges and
franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures
protection to individuals required to produce evidence before the PCGG against any possible
violation of his right against self-incrimination. It gives them immunity from prosecution on the
basis of testimony or information he is compelled to present. As amended, said Section 4 now
provides that —
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege against self-
incrimination; but no testimony or other information compelled under the order (or any
information directly or indirectly derived from such testimony, or other information) may be used
against the witness in any criminal case, except a prosecution for perjury, giving a false statement,
or otherwise failing to comply with the order.
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections which private individuals
have. * * They are not at all within the privilege against self-incrimination, although this court
more than once has said that the privilege runs very closely with the 4th Amendment's Search and
Seizure provisions.It is also settled that an officer of the company cannot refuse to produce its
records in its possession upon the plea that they will either incriminate him or may incriminate
it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of
the public. It received certain special privileges and franchises, and holds them subject to the laws
of the state and the limitations of its charter. Its powers are limited by law. It can make no contract
not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it
obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts
and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state,
having chartered a corporation to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed, and whether they had been abused,
and demand the production of the corporate books and papers for that purpose. The defense
amounts to this, that an officer of the corporation which is charged with a criminal violation of
the statute may plead the criminality of such corporation as a refusal to produce its books. To state
this proposition is to answer it. While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not follow that a corporation, vested
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with special privileges and franchises may refuse to show its hand when charged with an abuse of
such privileges.
The constitutional safeguard against unreasonable searches and seizures finds no application to
the case at bar either. There has been no search undertaken by any agent or representative of the
PCGG, and of course no seizure on the occasion thereof.
Luxuria Homes vs CA
G.R. No. 125986 January 28, 1999
Facts:
Petitioner Posadas entered into negotiations with private respondent Jaime T. Bravo regarding
the development of a property in Sucat, Muntinlupa into a residential subdivision. After 7 months,
through a Deed of Assignment, assigned the said property to petitioner Luxuria Homes, Inc.,
purportedly for organizational and tax avoidance purposes. Respondent Bravo signed as one of
the witnesses to the execution of the Deed of Assignment and the Articles of Incorporation of
petitioner Luxuria Homes, Inc.
Bravo could not accept the management contracts to develop the 1.6 hectare property into a
residential subdivision and he demanded for the payment of services rendered in connection with
the development of the land. Petitioner Posadas refused to pay the amount demanded. He also
sought recovery against the corporation Luxuria Homes Inc just formed.
Issue:
Can petitioner Luxuria Homes, Inc., be held liable to private respondents for the transactions
supposedly entered into between petitioner Posadas and private respondents?
Ruling:
No. It cannot be said then that the incorporation of petitioner Luxuria Homes and the eventual
transfer of the subject property to it were in fraud of private respondents as such were done with
the full knowledge of respondent Bravo himself.
Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria Homes, Inc., as
erroneously stated by the lower court. The Articles of Incorporation of petitioner Luxuria Homes,
Inc., clearly show that petitioner Posadas owns approximately 33% only of the capital stock.
Hence petitioner Posadas cannot be considered as an alter ego of petitioner Luxuria Homes, Inc.
To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly
and convincingly established. It cannot be presumed.
Obviously in the instant case, private respondents failed to show proof that petitioner Posadas
acted in bad faith. Consequently since private respondents failed to show that petitioner Luxuria
Homes, Inc., was a party to any of the supposed transactions, not even to the agreement to
negotiate with and relocate the squatters, it cannot be held liable, nay jointly and in solidum, to
pay private respondents. In this case since it was petitioner Aida M. Posadas who contracted
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respondent Bravo to render the subject services, only she is liable to pay the amounts adjudged
herein.
Concept Builders Inc., v. NLRC and Marabe et. al., G.R. No. 108734 May 29, 1996
HERMOSISIMA, JR., J.:
Facts:
Petitioner Concept Builders, Inc., a domestic corporation, engaged in the construction business
employed Private respondents as laborers, carpenters and riggers. After the project in which they
were hired had been completed, they were served individual written notices of termination of
employment by petitioner stating that their contracts of employment had expired.
Public respondent found it to be, the fact, however, that at the time of the termination of private
respondent's employment, the project in which they were hired had not yet been finished and
completed. Petitioner had to engage the services of sub-contractors whose workers performed the
functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and
nonpayment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.
The Labor Arbiter rendered judgment ordering petitioner to reinstate private respondents and to
pay them back wages equivalent to one year or three hundred working days.The National Labor
Relations Commission (NLRC) dismissed the motion for reconsideration filed by petitioner on
the ground that the said decision had already become final and executory. The Labor Arbiter
issued a writ of execution and was partially satisfied through garnishment of sums from
petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority with the amount
turned over to the cashier of the NLRC. As to the balance of the award, two alias writs of execution
were issued but to no avail since the properties stated were alleged to be owned by another
corporation, of Hydro Pipes Philippines, Inc. (HPPI).
In the light of such circumstances, a "break-open order was issued inspite of a third-party claim
filed Dennis Cuyegkeng in behalf of HPPI. It was alleged that HPPI and petitioner corporation
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 private
respondents were willing to post an indemnity bond to answer for any damages which petitioner
and HPPI may suffer because of the issuance of the break-open order.
Issue:
Whether the National Labor Relations Commission committed grave abuse of discretion when it
issued a "break-open order" to the sheriff to be enforced against personal property found in the
premises of petitioner's sister company.
Held:
Yes. The 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. The piercing of the corporate veil comes into play.
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Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of back wages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner corporation.
The conditions under which the juridical entity may be disregarded vary according to the peculiar
facts and circumstances of each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil.
ISSUE: Whether or not the doctrine of piercing the corporate veil should apply in this case?
RULING: YES.
RATIO:
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. This is true likewise when the corporation is merely an adjunct,
a business conduit or an alter ego of another corporation.
There is no hard and fast rule but there are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, to wit:
Stock ownership by one or common ownership of both corporations.

Identity of directors and officers.
The manner of keeping corporate books and records.
Methods of conducting the business.
Likewise, the Court laid down the test in determining the applicability of the doctrine of piercing
the veil of corporate fiction is as follows:
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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 this transaction had at the time no separate mind, will or existence of its
own;
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 plaintiffs legal rights; and
The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The absence of any one 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 defendants relationship to that operation.
In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations
on April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on
May 15, 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.
Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of backwages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner corporation.
Also, in view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject
of the execution, private respondents had no other recourse but to apply for a break-open order
after the third-party claim of HPPI was dismissed for lack of merit by the NLRC.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open
order issued by the Labor Arbiter.
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April
23, 1992 and December 3, 1992, are AFFIRMED.
VILLA REY TRANSIT, INC., plaintiff-appellant vs. FERRER, PANTRANCO and PSC,
defendants-appellants.
PANTRANCO, third-party plaintiff-appellant, vs. VILLARAMA, third-party
defendant-appellee.
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G.R. No. L-23893 October 29, 1968

ANGELES, J.:
FACTS: Jose Villarama was an operator of a bus transportation pursuant to two certificates of
public convenience granted him by the Public Service Commission (PSC). Later, he sold the
certificates to the Pangasinan Transportation Company, Inc. (Pantranco) with the condition that
the seller (Villarama) "shall not for a period of 10 years, apply for any TPU service identical or
competing with the buyer."
Barely three months thereafter, a corporation called Villa Rey Transit, Inc. (the
Corporation) was organized with a capital stock of P500,000.00 divided into 5,000 shares of the
par value of P100.00 each; P200,000.00 was the subscribed stock; Natividad Villarama (wife of
Jose Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of
P199,000.00 was subscribed by the brother and sister-in-law of Jose Villarama; of the subscribed
capital stock, P105,000.00 was paid to the treasurer of the corporation, Natividad.
In less than a month after its registration with the SEC, the Corporation bought five
certificates of public convenience and 49 buses from one Valentin Fernando. Later, the Sheriff of
Manila levied on 2 of the 5 certificates, in favor of Eusebio Ferrer, judgment creditor, against
Fernando, judgment debtor. A public sale was conducted. Ferrer was the highest bidder. Ferrer
sold the two certificates to Pantranco.
The Corporation filed a complaint against Ferrer, Pantranco and the PSC for the
annulment of the sheriff's sale. Pantranco, on its part, filed a third-party complaint against
Villarama, alleging that Villarama and/or the Corporation was disqualified from operating the
two certificates in question by virtue of the previous agreement. The trial court declared null and
void the sheriff's sale of two certificates of public convenience in favor of Ferrer and the
subsequent sale thereof by the latter to Pantranco and declaring Villa Rey Transit, Inc., to be the
lawful owner of the said certificates of public convenience.
Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit,
Inc. (Corporation) is a distinct and separate entity from Villarama. Ferrer, for his part, challenges
the decision insofar as it holds that the sheriff's sale is null and void.
ISSUE: Whether the stipulation between Villarama and Pantranco binds Villa Rey Transit, Inc.
HELD: YES. The restrictive clause in the contract entered into by the Villarama and
Pantranco is also enforceable and binding against the said Corporation. The rule is that a seller or
promisor may not make use of a corporate entity as a means of evading the obligation of his
covenant. The evidence has disclosed that Villarama, albeit was not an incorporator or
stockholder of the Corporation, his wife, however, was an incorporator and was elected treasurer
of the Corporation. The evidence further shows that the initial cash capitalization of the
corporation was mostly financed by Villarama; he supplied the organization expenses and the
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assets of the Corporation, such as trucks and equipment; there was no actual payment by the
original subscribers of the amounts of P95,000.00 and P100,000.00 as appearing in the books;
Villarama made use of the money of the Corporation and deposited them to his private accounts;
and the Corporation paid his personal accounts. The foregoing circumstances are strong
persuasive evidence showing that Villarama has been too much involved in the affairs of the
Corporation to altogether negate the claim that he was only a part-time general manager. They
show beyond doubt that the Corporation is his alter ego.
The doctrine that a corporation is a legal entity distinct and separate from the members
and stockholders who compose it is recognized and respected in all cases which are within reason
and the law. When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement
or perfection of a 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.
Francisco Motors Corporation vs CA Case Digest

Francisco Motors Corporation vs. Court of Appeals
[GR 100812, 25 June 1999]
Facts: On 23 January 1985, Francisco Motors Corp. filed a complaint against Spouses Gregorio
and Librada Manuel to recover P3,412.06, representing the balance of the jeep body purchased
by the Manuels from Francisco Motors; an additional sum of P20,454.80 representing the unpaid
balance on the cost of repair of the vehicle; and P6,000.00 for cost of suit and attorney's fees. To
the original balance on the price of jeep body were added the costs of repair. In their answer, the
Manuel spouses interposed a counterclaim for unpaid legal services by Gregorio Manuel in the
amount of P50,000 which was not paid by the incorporators, directors and officers of Francisco
Motors. The trial court decided the case on 26 June 1985, in favor of Francisco Motors in regard
to its claim for money, but also allowed the counter-claim of the Manuel spouses. Both parties
appealed. On 15 April 1991, the Court of Appeals sustained the trial court's decision. Hence, the
present petition for review on certiorari.
Issue: Whether the Francisco Motors Corporation should be liable for the legal services of
Gregorio Manuel rendered in the intestate proceedings over Benita Trinidad’s estate (of the
Francisco family).
Held: Basic in corporation law is the principle that a corporation has a separate personality
distinct from its stockholders and from other corporations to which it may be connected.
However, under the doctrine of piercing the veil of corporate entity, the corporation's separate
juridical personality may be disregarded, for example, when the corporate identity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the
corporation 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, then its distinct personality may be ignored.
In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and
the liability will directly attach to them.
The legal fiction of a separate corporate personality in those cited instances, for reasons of public
policy and in the interest of justice, will be justifiably set aside. Herein, however, given the facts
and circumstances of this case, the doctrine of piercing the corporate veil has no relevant
RFCABIDOG/2019 12
application. The rationale behind piercing a corporation's identity in a given case is to remove the
barrier between the corporation from the persons comprising it to thwart the fraudulent and
illegal schemes of those who use the corporate personality as a shield for undertaking certain
proscribed activities. In the present case, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed. It is the Francisco Motors
Corporation (FMC) as a corporation which is being ordered to answer for the personal liability of
certain individual directors, officers and incorporators concerned. Hence, the doctrine has been
turned upside down because of its erroneous invocation. In fact, the services of Gregorio Manuel
were solicited as counsel for members of the Francisco family to represent them in the intestate
proceedings over Benita Trinidad's estate. These estate proceedings did not involve any business
of FMC. Manuel's move to recover unpaid legal fees through a counterclaim against FMC, to offset
the unpaid balance of the purchase and repair of a jeep body could only result from an obvious
misapprehension that FMC's corporate assets could be used to answer for the liabilities of its
individual directors, officers, and incorporators. Such result if permitted could easily prejudice
the corporation, its own creditors, and even other stockholders; hence, clearly inequitous to FMC.
Furthermore, considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their
personal capacity. When directors and officers of a corporation are unable to compensate a party
for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or
promoting injustice, and be thereby held liable therefor by piercing its corporate veil. While there
are no hard and fast rules on disregarding separate corporate identity, we must always be mindful
of its function and purpose. A court should be careful in assessing the milieu where the doctrine
of piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may
result from its erroneous application. The personality of the corporation and those of its
incorporators, directors and officers in their personal capacities ought to be kept separate in this
case. The claim for legal fees against the concerned individual incorporators, officers and directors
could not be properly directed against the corporation without violating basic principles
governing corporations. Moreover, every action — including a counterclaim — must be prosecuted
or defended in the name of the real party in interest. It is plainly an error to lay the claim for legal
fees of private respondent Gregorio Manuel at the door of FMC rather than individual members
of the Francisco family.
RFCABIDOG/2019 13
Lipat v. Pacific Banking Corporation (G.R. No. 142435)
Facts:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned “Bela’s Export Trading”
(BET), a single proprietorship engaged in the manufacture of garments for domestic and foreign
consumption, which was managed by their daughter Teresita B. Lipat. The spouses also owned
the “Mystical Fashions” in the United States, which sells goods imported from the Philippines
through BET, managed by Mrs. Lipat. In order to facilitate the convenient operation of BET, a
special power of attorney was executed appointing Teresita Lipat to obtain loans and other credit
accommodations from respondent Pacific Banking Corporation (Pacific Bank) and to execute
mortgage contracts on properties owned or co-owned by her as security for the obligations. By
virtue of the special power of attorney, a loan was secured for and in behalf of Mrs. Lipat and BET,
a Real Estate Mortgage was executed over their property.
BET was then incorporated into a family corporation named Bela’s Export Corporation (BEC)
engaged in the business of manufacturing and exportation of all kinds of garments and utilized
the same machineries and equipment previously used by BET. Eventually, the loan was later
restructured in the name of BEC and subsequent loans were obtained with the corresponding
promissory notes duly executed by Teresita on behalf of the corporation. BEC defaulted in
payments when it became due and demandable. Consequently, the real estate mortgage was
foreclosed and was sold at public auction to respondent Eugenio D. Trinidad as the highest bidder.
The spouses Lipat filed a complaint alleging, among others, that the promissory notes, trust
receipt, and export bills were all ultra vires acts of Teresita as they were executed without the
requisite board resolution of the Board of Directors of BEC. They also averred that assuming said
acts were valid and binding on BEC, the same were the corporation’s sole obligation, it having a
personality distinct and separate from the spouses.
The trial court ruled that there was convincing and conclusive evidence proving that BEC was a
family corporation of the Lipats. As such, it was a mere extension of petitioners’ personality and
business and a mere alter ego or business conduit of the Lipats established for their own benefit.
The Lipats timely appealed which however, was dismissed by the appellate court for lack of merit.
Hence, this petition.
Issue:
Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case.
Ruling:
Petitioners’ contentions fail to persuade this Court.
A careful reading of the judgment of the RTC and the resolution of the appellate court show that
in finding petitioners’ mortgaged property liable for the obligations of BEC, both courts below
relied upon the alter ego doctrine or instrumentality rule, rather than fraud in piercing the veil of
corporate fiction. When the corporation is the mere alter ego or business conduit of a person, the
separate personality of the corporation may be disregarded. This is commonly referred to as the
RFCABIDOG/2019 14
“instrumentality rule” or the alter ego doctrine, which the courts have applied in disregarding the
separate juridical personality of corporations.
We find that the evidence on record demolishes, rather than buttresses, petitioners’ contention
that BET and BEC are separate business entities. Note that Estelita Lipat admitted that she and
her husband, Alfredo, were the owners of BET and were two of the incorporators and majority
stockholders of BEC. It is also undisputed that Estelita Lipat executed a special power of attorney
in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf.
Incidentally, Teresita was designated as executive-vice president and general manager of both
BET and BEC, respectively. We note further that: (1) Estelita and Alfredo Lipat are the owners
and majority shareholders of BET and BEC, respectively; (2) both firms were managed by their
daughter, Teresita; (3) both firms were engaged in the garment business, supplying products to
“Mystical Fashion,” a U.S. firm established by Estelita Lipat; (4) both firms held office in the same
building owned by the Lipats; (5) BEC is a family corporation with the Lipats as its majority
stockholders; (6) the business operations of the BEC were so merged with those of Mrs. Lipat such
that they were practically indistinguishable; (7) the corporate funds were held by Estelita Lipat
and the corporation itself had no visible assets; (8) the board of directors of BEC was composed
of the Burgos and Lipat family members; (9) Estelita had full control over the activities of and
decided business matters of the corporation; and that (10) Estelita Lipat had benefited from the
loans secured from Pacific Bank to finance her business abroad and from the export bills secured
by BEC for the account of “Mystical Fashion.” It could not have been coincidental that BET and
BEC are so intertwined with each other in terms of ownership, business purpose, and
management. Apparently, BET and BEC are one and the same and the latter is a conduit of and
merely succeeded the former. Petitioners’ attempt to isolate themselves from and hide behind the
corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the
classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our view,
BEC is a mere continuation and successor of BET and petitioners cannot evade their obligations
in the mortgage contract secured under the name of BEC on the pretext that it was signed for the
benefit and under the name of BET. We are thus constrained to rule that the Court of Appeals did
not err when it applied the instrumentality doctrine in piercing the corporate veil of BEC.
Wherefore, the petition is denied.
RFCABIDOG/2019 15
piercing the corporate veil, to wit: 1. Stock ownership by one or common ownership of both
corporations; 2. Identity of directors and officers;3. The manner of keeping corporate books and
records; 4. Methods of conducting the business. In addition, The SEC en banc explained the
"instrumentality rule" which the courts have applied in disregarding the separate juridical
personality of corporations as follows: Where one corporation is so organized and controlled and
its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the
fiction of the corporate entity of the "instrumentality" may be disregarded. The test in determining
the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 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 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 any one 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.
TIMES TRANSPORTATION COMPANY, INC. vs. SANTOS SOTELO

[G.R. No. 163786. February 16, 2005]
YNARES-SANTIAGO, J.:
FACTS:
Petitioner (Times) is a corporation engaged in the business of land transportation. Prior to its
closure, the Times Employees Union (TEU) was formed.
Respondents were retrenched after Times’ management implemented a retrenchment program
in the height of a labor dispute between Times and TEU.
In the meantime, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over
Times’ Certificates of Public Convenience and a number of its bus units by virtue of several deeds
of sale. Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of Santiago
Rondaris, the majority stockholder of Times.
After the closure of Times, the retrenched employees filed cases for illegal dismissal, money claims
and unfair labor practices against Times. The Labor Arbiter ruled that Times and Rondaris are
liable for unfair labor practice.
ISSUE: WON the doctrine of piercing the veil of corporate fiction was properly applied.
HELD:
RFCABIDOG/2019 16
YES. Piercing the corporate veil may be allowed only if the following elements concur: (1)
control—not mere stock control, but complete domination—not only of finances, but of policy and
business practice in respect to the transaction attacked; (2) such control must have been used to
commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty,
or a dishonest and an unjust act in contravention of a legal right; and (3) the said control and
breach of duty must have proximately caused the injury or unjust loss complained of.
The sale of Times’ franchise as well as most of its bus units to a company owned by Rondaris’
daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is
evident that the transaction was made in order to remove Times’ remaining assets from the reach
of any judgment that may be rendered in the unfair labor practice cases filed against it.
Yao, Sr. vs. People

G.R. No. 168306/June 19, 2007
FACTS:
Petitioners William Yao, Sr. and several others were incorporators and officers of
Masagana Gas Corporation.
In 2003, the NBI, acting on reports that petitioners unlawfully and in violation of
intellectual property rights of Petron Corporation and Pilipinas Shell, produce, sell, distribute
LPG products using LPG cylinders owned by Petron and Shell and by virtue of search warrants,
raided the premises of Masagana and confiscated, among other things, the motor compressor and
refilling machine owned by Masagana.
Masagana Corporation intervened in the case and asked for the return of said pieces of
equipment. It argued that even if the same was being used by petitioners in their unlawful activity,
the equipment cannot be confiscated because having a personality separate and distinct from that
of its incorporators, directors and officers, said properties are owned by the corporation and not
by the petitioners.
The court denied Masagana’s motion.
ISSUE:
Whether or not the doctrine of piercing the veil of corporate entity is applicable in the case.
RULING:
The Supreme Court reiterated that it is a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders, directors or officers. However,
when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud
or defend crime, the law will regard the corporation as an association of persons or in the case of
RFCABIDOG/2019 17
two corporations merge them into one. Hence, in this case, liability will attach personally or
directly to the officers and stockholders.
The findings of the Court show that petitioners, as director/officers of Masagana were utilizing
the corporation in violating the intellectual property rights of Petron and Pilipinas Shell. As such,
the doctrine of piercing the veil of corporate entity applies.
SECTION 20
Sec. 20. De facto corporations. The due incorporation of any corporation claiming in good
faith to be a corporation under this Code, and its right to exercise corporate powers, shall not be
inquired into collaterally in any private suit to which such corporation may be a party. Such
inquiry may be made by the Solicitor General in a quo warranto proceeding.
HALL v PICCIO
86 Phil 603, GR No L-2598, June 29, 1950
Facts: On May 28, 1947, petitioners C. Arnold Hall and Bradley P. Hall, and respondents Fred
Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in
Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized
to engage in a general lumber business to carry on as general contractors, operators and
managers, . Attached to the article was an affidavit of the treasurer stating that 23,428 shares of
stock had been subscribed and fully paid with certain properties transferred to the corporation.
The said articles of incorporation was filed in the office of SEC. Pending action of the articles of
incorporation by SEC, the respondents filed a civil case against the petitioners alleging that Far
Eastern Lumber and Commercial Co was an unregistered partnership and that they wished it
dissolved because of bitter dissension among the members, mismanagement and fraud by the
managers and heavy financial losses. The court (thru Judge Piccio) ordered the dissolution of the
company. Halls offered to file a counter bond for the discharge of the receiver but the judge
refused to accept the offer and discharge the receiver.
Issue: W/N the court had jurisdiction to decree the dissolution of the company, because it being
a de facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding
instituted in accordance with section 19 of the Corporation Law.
Held: Yes, the court has jurisdiction to take cognizance of the case!
Section 20 of the Corporation Law does not apply in this situation
First, not having obtained the certificate of incorporation, the Far Eastern Lumber and
Commercial Co. — even its stockholders — may not probably claim "in good faith" to be a
corporation. (Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance
of a certificate of incorporation by the Director of the Bureau of Commerce and Industry which
calls a corporation into being. The immunity if collateral attack is granted to corporations
"claiming in good faith to be a corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or substantial disregard of the law.
Unless there has been an evident attempt to comply with the law the claim to be a corporation
"under this act" could not be made "in good faith." )
Second, this is not a suit in which the corporation is a party. This is a litigation between
stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the
RFCABIDOG/2019 18
existence of a de jure corporation may be terminated in a private suit for its dissolution between
stockholders, without the intervention of the state.
SEVENTH DAY ADVENTIST CONFERENCE CHURCH OF SOUTHERN

PHILIPPINES, INC., and/or represented by MANASSEH C. ARRANGUEZ, BRIGIDO
P. GULAY, FRANCISCO M. LUCENARA, DIONICES O. TIPGOS, LORESTO C.
MURILLON, ISRAEL C. NINAL, GEORGE G. SOMOSOT, JESSIE T. ORBISO,
LORETO PAEL and JOEL BACUBAS, petitioners vs. NORTHEASTERN MINDANAO
MISSION OF SEVENTH DAY ADVENTIST, INC., and/or represented by JOSUE A.
LAYON, WENDELL M. SERRANO, FLORANTE P. TY and JETHRO CALAHAT and/or
SEVENTH DAY ADVENTIST CHURCH [OF] NORTHEASTERN MINDANAO
MISSION, Respondents
G.R. No. 150416 July 21, 2006
FACTS: This case involves two supposed transfers of the lot previously owned by the spouses
Cosio. The first transfer was a donation to petitioners’ alleged predecessors-in-interest in 1959
while the second transfer was through a contract of sale to respondents in 1980. A TCT was later
issued in the name of respondents. Claiming to be the alleged donee’s successors-in-interest,
petitioners filed a case for cancellation of title, quieting of ownership and possession, declaratory
relief and reconveyance with prayer for preliminary injunction and damages against respondents.
Respondents, on the other hand, argued that at the time of the donation, petitioners’
predecessors-in-interest has no juridical personality to accept the donation because it was not yet
incorporated. Moreover, petitioners were not members of the local church then.
The RTC upheld the sale in favor of respondents, which was affirmed by the Court of
Appeals, on the ground that all the essential requisites of a contract were present and it also
applied the indefeasibility of title.
ISSUE: Whether or not the donation was void.
HELD: Yes, the donation was void because the local church had neither juridical personality nor
capacity to accept such gift since it was inexistent at the time it was made.
The Court denied petitioners’ contention that there exists a de facto corporation. While
there existed the old Corporation Law (Act 1459), a law under which the local church could have
been organized, petitioners admitted that they did not even attempt to incorporate at that time
nor the organization was registered at the Securities and Exchange Commission. Hence,
petitioners obviously could not have claimed succession to an entity that never came to exist. And
since some of the representatives of petitioner Seventh Day Adventist Conference Church of
Southern Philippines, Inc. were not even members of the local church then, it necessarily follows
that they could not even claim that the donation was particularly for them.
LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.
RFCABIDOG/2019 19
317 SCRA 728, G.R. No. 136448, Nov. 3, 1999, Panganiban, J.:p
FACTS: Antonio Chua and Peter Yap bought nets of various sizes and floats from Philippine
Fishing Gear (PFG) for Ocean Quest Fishing Corporation (OQF), saying that petitioner was also
involved with OQF despite not being a signatory to the agreement. They failed to pay the purchase
price, hence PFG filed a collection case against OQF. PFG also alleged that OQF is a non-existent
corporation by virtue of a certification by the SEC. RTC issued the writ of attachment on the nets,
and was sold at a public auction with the proceeds deposited to the court. RTC ruled there was
partnership between the three (Chua, Yao, Lim) anchoring on the Compromise Agreement they
executed in the civil case filed by Chua and Yao against Lim for the declaration of ownership of
the fishing boats, among other things. CA affirmed.
ISSUE: Whether or not by their acts, Lim, Chua, and Yao are deemed to have entered into a
partnership.
HELD: Yes. A partnership is a contract where two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves. The three engaged in a commercial venture for commercial fishing and contracted
loans to buy two fishing boats, and the nets and floats needed to operate the fishing business. In
their Compromise Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats,
the purchase and the repair of which were financed with borrowed money, fell under the term
"common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets;
it could be an intangible like credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among them also shows that they had
indeed formed a partnership. It extended to the fishing nets and the floats, both essential to
fishing, which were obviously acquired in furtherance of their business.
Petitioner’s defense that he was a mere lessor does not hold water. In effect, he would like this
Court to believe that he consented to the sale of his own boats to pay a debt of Chua and Yao, with
the excess of the proceeds to be divided among the three of them. No lessor would do what
petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership
among all three.
Corporation by estoppels: Although the partnership/corporation was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid existence, are held liable as
general partners.
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs.

HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION,
respondents.,
G.R. No. 119002
2000 Oct 19.
RFCABIDOG/2019 20
FACTS:
On June 30 1989, petitioner, through its managing director, wrote a letter to the Philippine
Football Federation (Federation), through its president private respondent Henri Kahn, wherein
the former offered its services as a travel agency to the latter. The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to
the South East Asian Games in Kuala Lumpur as well as various other trips to China and
Brisbane. The total cost of the tickets amounted to P449,654.83. The Federation made two
partial payments, both in September of 1989, in the total amount of P176,467.50.
On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand
letter requesting for the amount of P265,894.33. On 30 October 1989, the Federation, through
the Project Gintong Alay, paid the amount of P31,603.00.
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial
payment for the outstanding balance of the Federation. No further payments were made despite
repeated demands.
Petitioner to filed a civil case before RTC- Manila. Petitioner sued Henri Kahn in his personal
capacity and as President of the Federation and impleaded the Federation as an alternative
defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets
purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said
obligation.
Henri Kahn averred that the petitioner has no cause of action against him either in his personal
capacity or in his official capacity as president of the Federation because he did not guarantee
payment but merely acted as an agent of the Federation which has a separate and distinct juridical
personality. The Federation failed to file its answer, hence, was declared in default by the trial
court.
The trial court ruled in favor of the petitioner and declared Henri Kahn personally liable for the
unpaid obligation of the Federation. CA reversed the trial court. Hence this Petition.
ISSUE: WON the doctrine of corporation by estoppel applies in this case.
RULING:
1. CA cited RA 3135 (Revised Charter of the Philippine Amateur Athletic Federation), and PD
604 as the laws from which said Federation derives its existence. Both R.A. 3135 and P.D. No.
604 recognized the juridical existence of national sports associations. These laws granted to
national sports associations certain powers and functions which clearly indicate that these
entities may acquire a juridical personality. Among these powers is the power to purchase,
sell, lease and encumber property which are acts that may only be done by persons, whether
natural or artificial, with juridical capacity.
However, while we agree with the appellate court that national sports associations may be
accorded corporate status, such does not automatically take place by the mere passage of these
laws. It is a basic postulate that before a corporation may acquire juridical personality, the State
must give its consent either in the form of a special law or a general enabling act.
We cannot agree with the view of the CA and the private respondent that the Philippine Football
Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A.
3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely
recognized the existence of national sports associations and provided the manner by which these
entities may acquire juridical personality.
The said laws require that before an entity may be considered as a national sports association,
such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic
Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D.
604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove
RFCABIDOG/2019 21
the juridical existence of the Federation, Henri Kahn attached to his MR before the trial court a
copy of the constitution and by-laws of the Philippine Football Federation. Unfortunately, the
same does not prove that said Federation has indeed been recognized and accredited by either the
Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. We
rule that the Philippine Football Federation is not a national sports association within the purview
of the aforementioned laws and does not have corporate existence of its own.
It follows that private respondent Henry Kahn should be held liable for the unpaid obligations of
the unincorporated Philippine Football Federation. It is a settled principle in corporation law that
any person acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and becomes personally liable for contract entered into or for other acts
performed as such agent. As president of the Federation, Henri Kahn is presumed to have known
about the corporate existence or non-existence of the Federation.
We do not agree with the position taken by the CA that even assuming that the Federation was
defectively incorporated, the petitioner cannot deny the corporate existence of the Federation
because it had contracted and dealt with the Federation in such a manner as to recognize and in
effect admit its existence. The doctrine of corporation by estoppel is mistakenly applied by the
respondent court to the petitioner. The application of the doctrine applies to a third party
only when he tries to escape liability on a contract from which he has benefited on
the irrelevant ground of defective incorporation. In the case at bar, the petitioner is not
trying to escape liability from the contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE.
Filipinas Broadcasting vs. Ago Medical Center
GRN 141994 January 17, 2005
Carpio, J.:
FACTS:
Rima & Alegre were host of FBNI radio program “Expose”. Respondent Ago was the owner of the
Medical & Educational center, subject of the radio program “Expose”. AMEC claimed that the
broadcasts were defamatory and owner Ago and school AMEC claimed for damages. The
complaint further alleged that AMEC is a reputable learning institution. With the supposed
expose, FBNI, Rima and Alegre “transmitted malicious imputations and as such, destroyed
plaintiff’s reputation. FBNI was included as defendant for allegedly failing to exercise due
diligence in the selection and supervision of its employees. The trial court found Rima’s
statements to be within the bounds of freedom of speech and ruled that the broadcast was libelous.
It ordered the defendants Alegre and FBNI to pay AMEC 300k for moral damages.”
ISSUE:
RFCABIDOG/2019 22
Whether or not AMEC is entitled to moral damages.
RULING:
A juridical person is generally not entitled to moral damages because, unlike a natural person, it
cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock. Nevertheless, AMEC’s claim, or moral damages fall under item 7
of Art – 2219 of the NCC.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any
other form of defamation. Art 2219 (7) does not qualify whether the plaintiff is a natural or
juridical person. Therefore, a juridical person such as a corporation can validly complain for libel
or any other form of defamation and claim for moral damages. Moreover, where the broadcast is
libelous per se, the law implied damages. In such a case, evidence of an honest mistake or the
want of character or reputation of the party libeled goes only in mitigation of damages. In this
case, the broadcasts are libelous per se. thus, AMEC is entitled to moral damages. However, we
find the award P500,000 moral damages unreasonable. The record shows that even though the
broadcasts were libelous, per se, AMEC has not suffered any substantial or material damage to its
reputation. Therefore, we reduce the award of moral damages to P150k.
*JOIN TORT FEASORS are all the persons who command, instigate, promote, encourage,
advice countenance, cooperate in, aid or abet the commission of a tort, as who approve of it after
it is done, for its benefit.
Coastal Pacific Trading, Inc. vs. Southern Rolling Mills Co.

G.R. No. 118692 July 28, 2006
FACTS: Southern Rolling Mills was renamed into Visayan Integrated Steel Corp (VISCO). On
Dec. 11, 1961-VISCO obtained a loan from DBP amounting to P836,000. It was secured by a Real
Estate Mortgage covering VISCO's 3 parcels of land including the machinery and equipments
therein. Second Loan: VISCO entered a Loan Agreement with respondent banks ( referred as
"Consortium") to finance its importation for various raw materials. VISCO executed a second
mortgage over the previous properties mentioned, however they were unrecorded VISCO was
unable to pay its second mortgage with the consortium, which resulted in the latter acquiring 90%
of the equity of VISCO giving the Consortium the control and management of VISCO. Despite the
acquisition, VISCO still remained indebted to the Consortium.
Transaction to Coastal: Between 1964 to 1965, VISCO entered a processing agreement with
Coastal wherein Coastal delivered 3,000 metric tons of hot rolled steel coils which VISCO would
RFCABIDOG/2019 23
process into block iron sheets. However, VISCO was only able to return 1,600 metric tons of those
sheets.
On the loan to DBP: To pay its first mortgage with DBP, VISCO sold 2 of its generators to FILMAG
Phils, Inc. DBP executed a Deed of Assignment of the mortgage in favor of the consortium. The
Consortium foreclosed the mortgage and was the highest bidder in an auction sale of VISCO's
properties. The Consortium later sold the properties in favor of National Steel Corporation.
Coastal files a civil action for Annulment or Rescission of Sale, Damages with Preliminary
Injunction. Coastal imputes bad faith on the action of the Consortium, the latter being able to sell
the properties of VISCO despite the attachment of the properties, placing them beyond the reach
of VISCO's other creditors.
The lower court ruled in favor of VISCO, declaring the sale valid and legal. The CA affirmed this.
ISSUE 1: Whether the consortium disposed VISCO's assets in fraud of creditors?
HELD: Yes. What the consortium did was to pay to them the proceeds from the sale of the
generator sets which in turn they used to pay DBP. Due to the Deed of Assignment issued by DBP,
the respondent banks recovered what they remitted to DBP & it allowed the Consortium to acquire
DBP's primary lien on the mortgaged properties. Allowing them as unsecured creditors ( as the
mortgage was unrecorded) to foreclose on the assets of the corporation without regard to inferior
claims
ISSUE 2: Whether petitioner is entitled to moral damages?
No. As a rule, a corporation is not entitled to moral damages because, not being a natural person,
it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety,
mental anguish and moral shock. The only exception to this rule is when the corporation has a
good reputation that is debased, resulting in its humiliation in the business realm. In the present
case, the records do not show any evidence that the name or reputation of petitioner has been
sullied as a result of the Consortium's fraudulent acts. Accordingly, moral damages are not
warranted.
Petitioner was able to recover exemplary damages.
Tayag vs. Benguet consolidated INC
RFCABIDOG/2019 24
26 SCRA 242
Facts:
Idonah Slade Perkins died in New York on March 1960, the domestic administrator in
New York refused to give the Stock Certificates owned by Perkins in the Benguet Consolidated
Inc. to the Ancillary administrator here in the Philippines for the purpose of satisfying the
legitimate claims of local creditors. The Court of First Instance of Manila decided that the Stock
Certificates was considered lose because of the refusal of the domestic administrator in New York
to give such certificates to the ancilliary administrator here in the Philippines and ordered
Benguet Consolidated Inc to issue New Stock Certificates to the Ancilliary administrator. Benguet
refuses to obey the order of the CFI of Manila on the ground that it is in violation of the
Corporation By Laws.
Issue:
Whether or not the Benguet Consolidated Inc is covered by the orders of the COURT.
Held:
The Supreme Court Held that “a corporation is an artificial being created by operation of
law, it owes its life to the state, its birth being purely dependent on its will”. It is logically
inconceivable therefore that it will have rights and privileges of a higher priority than that of its
creator. More than that, it cannot legitimately REFUSE to yield obedience to acts of its state
organs, certainly not excluding the JUDICIARY, whenever called. It is not immune to judicial
control in those instances, where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.
ISSUE: Whether or not the order of the lower court is proper

HELD:
The appeal lacks merit.
Tayag, as ancillary administrator, has the power to gain control and possession of all assets of the
decedent within the jurisdiction of the Philippines
It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case,
set forth by Justice Malcolm. Thus: "It is often necessary to have more than one administration
of an estate. When a person dies intestate owning property in the country of his domicile as well
as in a foreign country, administration is had in both countries. That which is granted in the
jurisdiction of decedent's last domicile is termed the principal administration, while any other
administration is termed the ancillary administration. The reason for the latter is because a grant
of administration does not ex proprio vigore have any effect beyond the limits of the country in
which it is granted. Hence, an administrator appointed in a foreign state has no authority in the
[Philippines]. The ancillary administration is proper, whenever a person dies, leaving in a country
other than that of his last domicile, property to be administered in the nature of assets of the
deceased liable for his individual debts or to be distributed among his heirs."
RFCABIDOG/2019 25
Probate court has authority to issue the order enforcing the ancillary administrator’s right to the
stock certificates when the actual situs of the shares of stocks is in the Philippines.
It would follow then that the authority of the probate court to require that ancillary
administrator's right to "the stock certificates covering the 33,002 shares ... standing in her name
in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally beyond question.
For appellant is a Philippine corporation owing full allegiance and subject to the unrestricted
jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as
immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue finds application.
"In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation
being domiciled [here]." To the force of the above undeniable proposition, not even appellant is
insensible. It does not dispute it. Nor could it successfully do so even if it were so minded.
Manuel Torres, Jr. vs Court of Appeals
278 SCRA 793 – Business Organization – Corporation Law – Transfer of Shares of Stocks –
Corporate Records
Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development
Corporation (TRDC). TRDC is a small family owned corporation and other stockholders thereof
include Judge Torres’ nieces and nephews. However, even though Judge Torres owns the
majority of TRDC and was also the president thereof, he is only entitled to one vote among the 9-
seat Board of Directors, hence, his vote can be easily overridden by minority stockholders. So in
1987, before the regular election of TRDC officers, Judge Torres assigned one share (qualifying
share) each to 5 “outsiders” for the purpose of qualifying them to be elected as directors in the
board and thereby strengthen Judge Torres’ power over other family members.
However, the said assignment of shares were not recorded by the corporate secretary, Ma.
Christina Carlos (niece) in the stock and transfer book of TRDC. When the validity of said
assignments were questioned, Judge Torres ratiocinated that it is impractical for him to order
Carlos to make the entries because Carlos is one of his opposition. So what Judge Torres did was
to make the entries himself because he was keeping the stock and transfer book. He further
ratiocinated that he can do what a mere secretary can do because in the first place, he is the
president.
Since the other family members were against the inclusion of the five outsiders, they refused to
take part in the election. Judge Torres and his five assignees then decided to conduct the election
among themselves considering that the 6 of them constitute a quorum.
ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the
subsequent election is valid.
HELD: No. The assignment of the shares of stocks did not comply with procedural requirements.
It did not comply with the by laws of TRDC nor did it comply with Section 74 of the Corporation
RFCABIDOG/2019 26
Code. Section 74 provides that the stock and transfer book should be kept at the principal office
of the corporation. Here, it was Judge Torres who was keeping it and was bringing it with him.
Further, his excuse of not ordering the secretary to make the entries is flimsy. The proper
procedure is to order the secretary to make the entry of said assignment in the book, and if she
refuses, Judge Torres can come to court and compel her to make the entry. There are judicial
remedies for this. Needless to say, the subsequent election is invalid because the assignment of
shares is invalid by reason of procedural infirmity. The Supreme Court also emphasized: all
corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple
family corporation is not an exemption. Such corporations cannot have rules and practices other
than those established by law.
PSE v. Court of Appeals

G.R. No. 125469 281 SCRA 232
October 27, 1997
By: Karen P. Lustica
Facts: The Puerto Azul Land, Inc. (PALI) is a domestic real estate corporation. PALI sought to
offer its shares to the public in order to raise funds allegedly to develop its properties and pay its
loans with several banking institutions.
PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange
Commission (SEC). To facilitate the trading of its shares among investors, PALI sought to course
the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which purpose it
filed with the said stock exchange an application to list its shares, with supporting documents
attached.
The Listing Committee of the PSE, upon a perusal of PALI's application, recommended to the
PSE's Board of Governors the approval of PALI's listing application.
Before it could act upon PALI's application, the Board of Governors of the PSE received a letter
from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and
beneficial owner of certain assets of PALI which likewise appears to have been held and continue
to be held in trust by one Rebecco Panlilio for then President Marcos.
PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr.,
bringing to the SEC's attention the action taken by the PSE. SEC rendered its Order, reversing the
PSE's decision. SEC ordered to immediately cause the listing of the PALI shares in the Exchange.
The CA rendered the decision that SEC had both jurisdiction and authority to look into the
decision of the petitioner PSE, for the purpose of ensuring fair administration of the exchange.
Both as a corporation and as a stock exchange, the petitioner is subject to public respondent's
jurisdiction, regulation and control. PALI complied with all the requirements for public listing,
affirming the SEC's ruling.
Issue: WON SEC has the authority to order the PSE to list the shares of PALI in the stock
exchange.
Held: YES.
RFCABIDOG/2019 27
Ratio: A corporation is but an association of individuals, allowed to transact under an assumed

corporate name, and with a distinct legal personality. In organizing itself as a collective body, it
waives no constitutional immunities and perquisites appropriate to such a body.
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SECs
challenged control authority over the petitioner PSE even as it provides that the Commission shall
have absolute jurisdiction, supervision, and control over all corporations, partnerships or
associations, who are the grantees of primary franchises and/or a license or permit issued by the
government to operate in the Philippines.
The SECs power to look into the subject ruling of the PSE, therefore, may be implied from or be
considered as necessary or incidental to the carrying out of the SECs express power to insure fair
dealing in securities traded upon a stock exchange or to ensure the fair administration of such
exchange.
However, in the present case, the Court finds that the SEC had acted arbitrarily in arrogating unto
itself the discretion of approving the application for listing in the PSE of the private respondent
PALI, since this is a matter addressed to the sound discretion of the PSE, a corporation entity,
whose business judgments are respected in the absence of bad faith.
The Court also finds that the private respondent PALI, on at least two points (nos. 1 and 5) has
failed to support the propriety of the issue of its shares with unfailing clarity, thereby lending
support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock
exchange.
(1) The registration statement is on its face incomplete or inaccurate in any material respect
or includes any untrue statement of a material fact or omits to state a material facts
required to be stated therein or necessary to make the statements therein not misleading;
(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale
of its security would not work to the prejudice to the public interest or as a fraud upon the
purchaser or investors.
Dispositive: The decisions of the Court of Appeals and the Securities and Exchage Commission
dated July 27, 1996 and April 24, 1996, respectively, are hereby REVERSED and SET ASIDE, and
a new Judgment is hereby ENTERED, affirming the decision of the Philippine Stock Exchange to
deny the application for listing of the private respondent Puerto Azul Land, Inc.
RFCABIDOG/2019 28

CORPO LAW WKS 1 and 2 CASE DIGESTS

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CORPO LAW WKS 1 and 2 CASE DIGESTS

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CORPORATION LAW: WKS 1&2 JUDGE BASTES

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