Case Digest Compilation
Dulawan, Whinston
PART I – PROMOTION, FORMATION AND ORGANIZATION OF CORPORATIONS
1 Petron v. NCBA, 516 S 168
FACTS: Sometime in 1969, the V. Mapa properties, then owned by Felipe and Enrique
Monserrat, Jr., were mortgaged to the Development Bank of the Philippines (DBP) as part of
the security for the loan of Manila Yellow Taxicab Co., Inc. (MYTC) and Monserrat Enterprises
Co. MYTC, for its part, mortgaged four parcels of land located in Quiapo, Manila.
On March 31, 1975, however, Felipe’s ½ undivided interest in the V. Mapa properties was
levied upon in execution of a money judgment rendered by the Regional Trial Court of Manila
in Filoil Marketing Corporation v. MYTC, Felipe Monserrat, and Rosario Vda. De Monserrat
(the Manila case). DBP challenged the levy through a third-party claim asserting that the V.
Mapa properties were mortgaged to it and were, for that reason, exempt from levy or
attachment. The RTC quashed it.
On June 18, 1981, MYTC and the Monserrats got DBP to accept a dacion en pago
arrangement whereby MYTC conveyed to the bank the four mortgaged Quiapo properties as
full settlement of their loan obligation. But despite this agreement, DBP did not release the V.
Mapa properties from the mortgage.
On May 21, 1982, Felipe, acting for himself and as Enrique’s attorney-in-fact, sold the V. Mapa
properties to respondent NCBA. Part of the agreement was that Felipe and Enrique would
secure the release of the titles to the properties free of all liens and encumbrances including
DBP’s mortgage lien and Filoil’s levy on or before July 31, 1982. But the Monserrats failed to
comply with this undertaking. Thus, on February 3, 1983, NCBA caused the annotation of an
affidavit of adverse claim on the TCTs covering the V. Mapa properties.
Shortly thereafter, NCBA filed a complaint against Felipe and Enrique for specific performance
with an alternative prayer for rescission and damages in the RTC of Manila. The case was
raffled to Branch 30 and docketed as Civil Case No. 83-16617. On March 30, 1983, NCBA had
a notice of lis pendens inscribed on the TCTs of the V. Mapa properties. A little over two years
later, NCBA impleaded DBP as an additional defendant in order to compel it to release the V.
Mapa properties from mortgage.
Page 1 of 148
On February 28, 1985, during the pendency of Civil Case No. 83-16617, Enrique’s ½
undivided interest in the V. Mapa properties was levied on in execution of a judgment of the
RTC of Makati (the Makati case) holding him liable to Petron (then known as Petrophil
Corporation) on a 1972 promissory note. On April 29, 1985, the V. Mapa properties were sold
at public auction to satisfy the judgments in the Manila and Makati cases. Petron, the highest
bidder, acquired both Felipe’s and Enrique’s undivided interests in the property. The final
deeds of sale of Enrique’s and Felipe’s shares in the V. Mapa properties were awarded to
Petron in 1986. Sometime later, the Monserrats’ TCTs were cancelled and new ones were
issued to Petron. Thus, it was that, towards the end of 1987, Petron intervened in NCBA’s suit
against Felipe, Enrique and DBP (Civil Case No. 83-16617) to assert its right to the V. Mapa
properties.
The RTC rendered judgment on March 11, 1996. It ruled, among other things, that Petron
never acquired valid title to the V. Mapa properties as the levy and sale thereof were void and
that NCBA was now the lawful owner of the properties.
ISSUE: The sole question raised in this petition for review on certiorari is whether petitioner
Petron Corporation (Petron) should be held liable to pay attorney’s fees and exemplary
damages to respondent National College of Business and Arts (NCBA).
RULING: Article 2208 lays down the rule that in the absence of stipulation, attorney’s fees
cannot be recovered except in the following instances:
a) When exemplary damages are awarded;
b) When the defendant’s act or omission has compelled the plaintiff to litigate
with third persons or to incur expense to protect his interest;
c) In criminal cases of malicious prosecution against the plaintiff;
d) In case of a clearly unfounded civil action or proceeding against the plaintiff;
e) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff’s plainly valid, just and demandable claim;
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f) In actions for legal support;
g) In actions for the recovery of wages of household helpers, laborers and
skilled workers;
h) In actions for indemnity under workmen’s compensation and employer’s
liability laws;
i) In a separate civil action to recover civil liability arising from a crime;
j) When at least double judicial costs are awarded;
k) In any other case where the court deems it just and equitable that attorney’s
fees and expenses of litigation should be recovered.
The RTC held Petron liable to NCBA for attorney’s fees under Article 2208(5), which allows
such an award "where the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiff’s plainly valid, just, and demandable claim." However, the only justification given
for this verdict was that Petron had no reason to claim the V. Mapa properties because, in the
RTC’s opinion, the levy and sale thereof were void. This was sorely inadequate and it was
erroneous for the CA to have upheld that ruling built on such a flimsy foundation.
Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident bad
faith to satisfy another’s plainly valid, just and demandable claim, compelling the latter
needlessly to seek redress from the courts. In such a case, the law allows recovery of money
the plaintiff had to spend for a lawyer’s assistance in suing the defendant – expenses the
plaintiff would not have incurred if not for the defendant’s refusal to comply with the most basic
rules of fair dealing. It does not mean, however, that the losing party should be made to pay
attorney’s fees merely because the court finds his legal position to be erroneous and upholds
that of the other party, for that would be an intolerable transgression of the policy that no one
should be penalized for exercising the right to have contending claims settled by a court of law.
In fact, even a clearly untenable defense does not justify an award of attorney’s fees unless it
amounts to gross and evident bad faith.
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Dulawan, Whinston
Page 2 of 148
Petron’s claim to the V. Mapa properties, founded as it was on final deeds of sale on
execution, was far from untenable. No gross and evident bad faith could be imputed to Petron
merely for intervening in NCBA’s suit against DBP and the Monserrats in order to assert what
it believed (and had good reason to believe) were its rights and to have the disputed
ownership of the V. Mapa properties settled decisively in a single lawsuit.
With respect to the award of exemplary damages, the rule in this jurisdiction is that the plaintiff
must show that he is entitled to moral, temperate or compensatory damages before the court
may even consider the question of whether exemplary damages should be awarded. In other
words, no exemplary damages may be awarded without the plaintiff’s right to moral,
temperate, liquidated or compensatory damages having first been established. Therefore, in
view of our ruling that Petron cannot be made liable to NCBA for compensatory damages (i.e.,
attorney’s fees), Petron cannot be held liable for exemplary damages either.
2 APT v. CA, 300 S 582
FACTS: Pursuant to a Mortgage Trust Agreement, the Development Bank of the Philippines
and the Philippine National Bank foreclosed the assets of the Marinduque Mining and
Industrial Corporation. The assets were sold to Philippine National Bank and later transferred
to the Asset Privatization Trust (APT).
In February 1985, Jesus Cabarrus, Sr., together with other stockholders of Marinduque Mining
and Industrial Corporation, filed a derivative suit against Development Bank of the Philippines
and Philippine National Bank before the Regional Trial Court of Makati for Annulment of
Foreclosures, Specific Performance and Damages. In the course of the trial, Marinduque
Mining and Industrial Corporation and Asset Privatization Trust as successor in interest of
Development Bank of the Philippines and Philippine National Bank, agreed to submit the case
to arbitration by entering into a Compromise and Arbitration Agreement. This agreement was
approved by the trial court and the complaint was corollarily dismissed.
Thereafter, the Arbitration Committee rendered a decision ordering Asset Privatization Trust to
pay Marinduque Mining and Industrial Corporation damages and arbitration costs in the
amount of P2.5 billion, P13,000,000.00 of which is for moral and exemplary damages.
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

On motion of Cabarrus and the other stockholders of Marinduque Mining and Industrial
Corporation, the trial court confirmed the Arbitration Committee’s award. Its motion for
reconsideration having been denied, Asset Privatization Trust filed a special civil action for
certiorari with the Court of Appeals. It was likewise denied.
Hence, the petition for review on certiorari.
ISSUE: Whether or not the Marinduque Mining and Industrial Corporation is entitled to moral
damages?
RULING: The arbiters exceeded their authority in awarding damages to MMIC, which is not
impleaded as a party to the derivative suit.
Civil Case No. 9900 filed before the RTC being a derivative suit, MMIC should have been
impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of
the proceedings. As it is, the award of damages to MMIC, which was not a party before the
Arbitration Committee, is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while
the stockholder filing suit for the corporation's behalf is only a nominal party. The corporation
should be included as a party in the suit.
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials
of the corporation refuse to sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest.
It is a condition sine qua non that the corporation be impleaded as a party because —
. . . Not only is the corporation an indispensable party, but it is also the present rule that it must
be served with process. The reason given is that the judgment must be made binding upon the
corporation in order that the corporation may get the benefit of the suit and may not bring a
subsequent suit against the same defendants for the same cause of action. In other words, the
corporation must be joined as party because it is its cause of action that is being litigated and
because judgment must be a res ajudicata against it.
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Dulawan, Whinston
Page 3 of 148
The reasons given for not allowing direct individual suit are:
(1) "the universally recognized doctrine that a stockholder in a corporation has no title legal or
equitable to the corporate property; that both of these are in the corporation itself for the
benefit of the stockholders." In other words, to allow shareholders to sue separately would
conflict with the separate corporate entity principle;
(2) that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the
case of Evangelista v. Santos, that "the stockholders may not directly claim those damages for
themselves for that would result in the appropriation by, and the distribution among them of
part of the corporate assets before the dissolution of the corporation and the liquidation of its
debts and liabilities, something which cannot be legally done in view of section 16 of the
Corporation Law;
(3) the filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on
the damages recoverable by the corporation for the same act.
If at all an award was due MMIC, which it was not, the same should have been given sans
deduction, regardless of whether or not the party liable had equity in the corporation, in view of
the doctrine that a corporation has a personality separate and distinct from its individual
stockholders or members. DBP's alleged equity, even if it were indeed 87%, did not give it
ownership over any corporate property, including the monetary award, its right over said
corporate property being a mere expectancy or inchoate right. Notably, the stipulation even
had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus,
Sr.
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The majority decision of the Arbitration Committee sought to justify its award of moral
damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the
government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the
majority stockholder.
It is a basic postulate that a corporation has a personality separate and distinct from its
stockholders. 63 The properties foreclosed belonged to MMIC, not to its stockholders. Hence,
if wrong was committed in the foreclosure, it was done against the corporation. Another reason
is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result
in the appropriation by, and the distribution to, him part of the corporation's assets before the
dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters nor submitted to it. Moreover, said cause of action
had already been decided in a separate case. It is thus quite patent that the arbitration
committee exceeded the authority granted to it by the parties' Compromise and Arbitration
Agreement by awarding moral damages to Jesus S. Cabarrus, Sr.
3 Mambulao Lumber v. PNB, 22 S 359
FACTS: Plaintiff Mambulao obtained a loan from PNB. As security of the said loan, Mambulao
offered real estate, machinery, logging and transportation equipment as collaterals. The
industrial loan was covered by a mortgage contract wherein it was stipulated that in the event
that Mambulao failed to settle its obligation on time, the corresponding complaint for
foreclosure or the petition for sale should be filed with the courts or the sheriff of the City of
Manila.
For failure of Mabulao to pay its obligation on time, PNB filed an extrajudicial foreclosure
before the Sheriff of Camarines Norte. Despite the protest of Mabulao, the extrajudicial
foreclosure proceeded and certificates of sale for the real estate mortgage and the chattel
mortgage were issued in favor of PNB. The chattels were then sold by PNB to a certain
Mariano Bundok, who was able to haul the properties originally mortgaged by the plaintiff to
the PNB.
Mambulao filed a case before the RTC of Manila which dismissed the complaint against both
defendants and sentencing the plaintiff to pay to defendant Philippine National Bank the sum
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Dulawan, Whinston
Page 4 of 148
of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 until
fully paid, and the costs of suit.
ISSUE: That for the acts of the PNB in proceeding with the sale of the chattels, in utter
disregard of plaintiff's vigorous opposition thereto, and in taking possession thereof after the
sale thru force, intimidation, coercion, and by detaining its "man-in-charge" of said properties,
the PNB is liable to plaintiff for damages and attorney's fees.
RULING: Herein appellant's claim for moral damages, however, seems to have no legal or
factual basis. Obviously, an artificial person like herein appellant corporation cannot
experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings,
moral shock or social humiliation which are basis of moral damages. A corporation may have a
good reputation which, if besmirched, may also be a ground for the award of moral damages.
The same cannot be considered under the facts of this case, however, not only because it is
admitted that herein appellant had already ceased in its business operation at the time of the
foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the
foreclosure sale of the chattels could have upon its reputation or business standing would
undoubtedly be the same whether the sale was conducted at Jose Panganiban, Camarines
Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in
proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila
as provided for in the mortgage contract, to which their attentions were timely called by herein
appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00,
herein appellant should be awarded exemplary damages in the sum of P10,000.00. The
circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein
appellant.
4 Hanil v. CA, 362 S 1
FACTS: In the early seventies, the Ministry of Public Works and Highways (MPWH) awarded
petitioner Hanil Development Co., Ltd. (Hanil) the contract to construct the 200-kilometer
Iligan-Cagayan de Oro-Butuan Highway Project. On November 14, 1976, Hanil sub-let the
rock-blasting work portion of the contract to private respondent M.R. Escobar Explosive
Engineers, Inc.
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School of Law
Saint Louis University

A conflict arises as to the payment between Hanil and Escobar with regard to the issue that
Hanil still partially owes Escobar (P1,341,727.40) pesos for blasting done in the B-2, B-3 and
C-1 areas.
Consequently, Escobar instituted a civil case for recovery of a sum of money with damages
against Hanil before the then Court of First Instance of Rizal. Hanil filed its answer with
counterclaim for damages. Trial thereafter ensued and the CFI handed down a Decision
ordering Hanil to pay P1,341,727.40 for the value of rocks blasted by Escobar; 10% of the
amount due for attorney's fees; and the costs of suit.
Thereafter, upon Escobar's motion, the CFI garnished the bank accounts of Hanil and levied
its equipment. The CFI also granted Escobar's Ex-parte Motion to Deposit Cash praying that
the Finance Manager of the National Power Corporation (NAPOCOR) be directed to withdraw
Hanil's funds from the NAPOCOR and deposit the same with the Clerk of Court. Hanil
challenged the issuance of the two orders before the Court of Appeals. The appellate court, in
its decision voided the challenged two orders by the CFI.
ISSUE: We now discuss the merit of Hanil's petition. For its part, it seeks an increase in the
grant of nominal damages and attorney's fees. It also prays for additional awards of moral and
exemplary damages.
RULING: Hanil's plea for additional amount in the form of temperate damages in lieu of the
nominal damages awarded to it must be denied. We agree with the appellate court's ruling that
the amount of twenty thousand pesos (P20,000.00) is just. Hanil failed to prove the actual
value of pecuniary injury which it sustained as a consequence of Escobar's institution of an
unfounded civil suit. The testimony of one of its witnesses presented in the CFI, to the effect
that "the filing of the complaint affected Hanil's reputation and that it affected the management
and engineers working in the site," is not enough proof. The institution of the suit, unfounded
though it may be, does not always lead to pecuniary loss as to warrant an award of actual or
temperate damages. The link between the cause (the suit) and the effect (the loss) must be
established by the required proof.
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So, too, must its demand for payment of moral damages fail. The rule is that moral damages
can not be granted in favor of a corporation. Being an artificial person and having existence
only in legal contemplation, a corporation has no feelings, no emotions, no senses. It cannot,
therefore, experience physical suffering, mental anguish, fright, serious anxiety, wounded
feelings or moral shock or social humiliation, which can be suffered only by one having a
nervous system.
Hanil's prayer for exemplary damages must likewise be denied. It must be remembered that
this kind of damages cannot be recovered as a matter of right. Its allowance rests in the sound
discretion of the court, and only upon a showing of its legal foundation. Under the Civil Code,
the claimant must first establish that he is entitled to moral, temperate, compensatory or
liquidated damages before it may be imposed in his favor. Hanil failed to do so, hence, it
cannot claim exemplary damages.
On the basis of the evidence presented, Hanil is entitled to temperate damages in the amount
of five hundred thousand pesos (P500,000.00). As a consequence of the illegal writ, Hanil
suffered the following damages: (1) some of the checks it issued were dishonored after its
bank accounts were garnished; (2) its operation stopped temporarily for five days because it
was prevented from using its equipment and machineries; and (3) its goodwill, reputation and
commercial standing as one of the top multi-national construction firms in Asia was tarnished.
In light of Escobar's bad faith in procuring the attachment and garnishment orders, we grant
the additional award of exemplary damages in the amount of one million pesos
(P1,000,000.00) by way of example or correction for public good. This should deter parties in
litigations from resorting to baseless and preposterous allegations to obtain writs of
attachments from gullible judges. The misuse of our legal processes cannot be tolerated
especially if they victimize persons and institutions of foreign nationality doing legitimate
business in our jurisdiction. While as a general rule, the liability on the attachment bond is
limited to actual (or in some cases, temperate or nominal) damages, exemplary damages may
be recovered where the attachment was established to be maliciously sued out.
5 Bache and Co. v. Ruiz, 37 S 823
FACTS: On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal
Revenue, wrote a letter addressed to respondent Judge Vivencio M. Ruiz requesting the
Corporation Law JD2-2023
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School of Law
Saint Louis University

issuance of a search warrant against petitioners for violation of Section 46(a) of the National
Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly
Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of
herein respondents, to make and file the application for search warrant which was attached to
the letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness,
respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with
them the following papers: respondent Vera’s aforesaid letter-request; an application for
search warrant already filled up but still unsigned by respondent De Leon; an affidavit of
respondent Logronio subscribed before respondent De Leon; a deposition in printed form of
respondent Logronio already accomplished and signed by him but not yet subscribed; and a
search warrant already accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he
instructed his Deputy Clerk of Court to take the depositions of respondents De Leon and
Logronio. After the session had adjourned, respondent Judge was informed that the
depositions had already been taken. The stenographer, upon request of respondent Judge,
read to him her stenographic notes; and thereafter, respondent Judge asked respondent
Logronio to take the oath and warned him that if his deposition was found to be false and
without legal basis, he could be charged for perjury. Respondent Judge signed respondent de
Leon’s application for search warrant and respondent Logronio’s deposition, Search Warrant
No. 2-M-70 was then sign by respondent Judge and accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the
search warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati,
Rizal. Petitioners’ lawyers protested the search on the ground that no formal complaint or
transcript of testimony was attached to the warrant. The agents nevertheless proceeded with
their search which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying
that the search warrant be quashed, dissolved or recalled, that preliminary prohibitory and
mandatory writs of injunction be issued, that the search warrant be declared null and void, and
that the respondents be ordered to pay petitioners, jointly and severally, damages and
attorney’s fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an
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answer to the petition. After hearing, the court, presided over by respondent Judge, issued on
July 29, 1970, an order dismissing the petition for dissolution of the search warrant. In the
meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on
petitioner corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the
documents thus seized. Petitioners came to this Court.
ISSUE: WON a corporation is not entitled to protection against unreasonable search and
seizures. Again, we find no merit in the contention.
RULING: The SC cited the US case of Hale v. Henkel, 201 U.S. 43, which says "Although, for
the reasons above stated, we are of the opinion that an officer of a corporation which is
charged with a violation of a statute of the state of its creation, or of an act of Congress passed
in the exercise of its constitutional powers, cannot refuse to produce the books and papers of
such corporation, we do not wish to be understood as holding that a corporation is not entitled
to immunity, under the 4th Amendment, against unreasonable searches and seizures. A
corporation is, after all, but an association of individuals under an assumed name and with a
distinct legal entity. In organizing itself as a collective body it waives no constitutional
immunities appropriate to such body. Its property cannot be taken without compensation. It
can only be proceeded against by due process of law, and is protected, under the 14th
Amendment, against unlawful discrimination.”
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a
corporation to object against unreasonable searches and seizures, thus:
"As regards the first group, we hold that petitioners herein have no cause of action to assail the
legality of the contested warrants and of the seizures made in pursuance thereof, for the
simple reason that said corporations have their respective personalities, separate and distinct
from the personality of herein petitioners, regardless of the amount of shares of stock or the
interest of each of them in said corporations, whatever, the offices they hold therein may be.
Indeed, it is well settled that the legality of a seizure can be contested only by the party whose
rights have been impaired thereby, and that the objection to an unlawful search and seizure is
purely personal and cannot be availed of by third parties. Consequently, petitioners herein may
not validly object to the use in evidence against them of the documents, papers and things
seized from the offices and premises of the corporations adverted to above, since the right to
object to the admission of said papers in evidence belongs exclusively to the corporations, to
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School of Law
Saint Louis University

whom the seized effects belong, and may not be invoked by the corporate officers in
proceedings against them in their individual capacity . . ."
In the Stonehill case only the officers of the various corporations in whose offices documents,
papers and effects were searched and seized were the petitioners. In the case at bar, the
corporation to whom the seized documents belong, and whose rights have thereby been
impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different
footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by
petitioners — at least partly — as in effect admitted by respondents — based on the
documents seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that the
assessments were made some one and one-half months after the search and seizure on
February 25, 1970, is a strong indication that the documents thus seized served as basis for
the assessments. Those assessments should therefore not be enforced.
6 Sulo ng Bayan v. Araneta, 72 SCRA 347
FACTS: On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed a case with the Court of
First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-
appellees to recover the ownership and possession of a large tract of land in San Jose del
Monte, Bulacan, containing an area of 27,982,250 square meters, more or less, registered
under the Torrens System in the name of defendants-appellees' predecessors-in-interest. The
complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a corporation
organized and existing under the laws of the Philippines, with its principal office and place of
business at San Jose del Monte, Bulacan; that its membership is composed of natural persons
residing at San Jose del Monte, Bulacan; that the members of the plaintiff corporation, through
themselves and their predecessors-in-interest, had pioneered in the clearing of the fore-
mentioned tract of land, cultivated the same since the Spanish regime and continuously
possessed the said property openly and public under concept of ownership adverse against
the whole world.
On January 24, 1967, the trial court issued an Order dismissing the amended complaint.
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On September 3, 1969, the Court of Appeals, upon finding that no question of fact was
involved in the appeal but only questions of law and jurisdiction, certified this case to this Court
for resolution of the legal issues involved in the controversy.
ISSUE: 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; for the nullification of the transfer certificates of title issued in favor of defendants
appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's members as
absolute owners of the property" and the issuance of the corresponding certificate of title; and
for damages.
RULING: 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 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.
Similarly, stockholders in a corporation engaged in buying and dealing in real estate whose
certificates of stock entitled the holder thereof to an allotment in the distribution of the land of
the corporation upon surrender of 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 the corporation.
It must be noted, however, that the juridical personality of the corporation, as separate and
distinct from the persons composing it, is but a legal fiction introduced for the purpose of
convenience and to subserve the ends of justice. This separate personality of the corporation
may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

cloak or cover 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 a blind, or an alter ego or
business conduit 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.
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 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.
It is fundamental that there cannot be a cause of action 'without an antecedent primary legal
right conferred' by law upon a person. Evidently, there can be no wrong without a
corresponding right, and no breach of duty by one person without a corresponding right
belonging to some other person. Thus, the essential elements of a cause of action are legal
right of the plaintiff, correlative obligation of the defendant, an act or omission of the defendant
in violation of the aforesaid legal right. Clearly, no right of action exists in favor of plaintiff
corporation, for as shown heretofore it does not have any interest in the subject matter of the
case which is material and, direct so as to entitle it to file the suit as a real party in interest.
7 Citizen’s United v. FEC and Hillary Clinton, 558 US 310
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FACTS: The Federal Election Campaign Act ("the Act") prohibits corporations and labor unions
from using their general treasury funds to make electioneering communications or for speech
that expressly advocates the election or defeat of a federal candidate. In
January 2008, Citizens United, a non-profit corporation, released a film about then Senator
Hillary Clinton, who was a candidate in the Democratic Party’s 2008
Presidential primary elections. Citizens United wanted to pay cable companies to make the
film available for free through video-on-demand, which allows digital cable subscribers to
select programming from various menus, including movies. Citizens United planned to make
the film available within 30 days of the 2008 primary elections, but feared that the film would
be covered by the Act’s ban on corporate- funded electioneering communications that are the
functional equivalent of express advocacy, thus subjecting the corporation to civil and criminal
penalties. Citizens United sought declaratory and injunctive relief against the Commission in
the U.S. District Court for the District of Columbia, arguing that the ban on corporate
electioneering communications at 2 U.S.C. §441b was unconstitutional as applied to the film
and that disclosure and disclaimer requirements were unconstitutional as applied to the film
and the three ads for the movie.
ISSUE: Whether the ban in 441b, based on the narrow reasons advanced by Citizens United,
would have the overall effect of stifling political expression.
RULING: The court reconsiders the rule made in Austin case. The Court noted that 441b’s
prohibition on corporate independent expenditures and electioneering communications is a
ban on speech and "political speech must prevail against laws that would suppress it, whether
by design or inadvertence." Accordingly, laws that burden political speech are subject to "strict
scrutiny," which requires the government to prove that the restriction furthers a compelling
interest and is narrowly tailored to achieve that interest. the majority held that under the First
Amendment corporate funding of independent political broadcasts in candidate elections
cannot be limited. The majority maintained that political speech is indispensable to a
democracy, which
is no less true because the speech comes from a corporation. The majority also held that the
BCRA's disclosure requirements as applied to The Movie were constitutional, reasoning that
disclosure is justified by a "governmental interest" in providing the "electorate with information"
about election-related spending resources. The Court also upheld the disclosure requirements
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

for political advertising sponsors and it upheld the ban on direct contributions to candidates
from corporations and unions.
8 Hobby Lobby v. Burwell, 573 U.S. (2014)
FACTS: The Green family owns and operates Hobby Lobby Stores, Inc., a national arts and
crafts chain with over 500 stores and over 13,000 employees. The Green family has organized
the business around the principles of the Christian faith and has explicitly expressed the desire
to run the company according to Biblical precepts, one of which is the belief that the use of
contraception is immoral. Under the Patient Protection and Affordable Care Act (ACA),
employment-based group health care plans must provide certain types of preventative care,
such as FDA-approved contraceptive methods. While there are exemptions available for
religious employers and non-profit religious institutions, there are no exemptions available for
for-profit institutions such as Hobby Lobby Stores, Inc.
On September 12, 2012, the Greens, as representatives of Hobby Lobby Stores, Inc., sued
Kathleen Sebelius, the Secretary of the Department of Health and Human Services, and
challenged the contraception requirement. The plaintiffs argued that the requirement that the
employment-based group health care plan cover contraception violated the Free Exercise
Clause of the First Amendment and the Religious Freedom Restoration Act of 1993 (RFRA).
The plaintiffs sought a preliminary injunction to prevent the enforcement of tax penalties, which
the district court denied, and a two-judge panel of the U.S. Court of Appeals for the Tenth
Circuit affirmed. The Supreme Court also denied relief, and the plaintiffs filed for an en banc
hearing of the Court of Appeals. The en banc panel of the Court of Appeals reversed and held
that corporations were "persons" for the purposes of RFRA and had protected rights under the
Free Exercise Clause of the First Amendment.
ISSUE: Does the Religious Freedom Restoration Act of 1993 allow a for-profit company to
deny its employees’ health coverage of contraception to which the employees would otherwise
be entitled based on the religious objections of the company's owners?
RULING: Yes. Justice Samuel A. Alito, Jr. delivered the opinion for the 5-4 majority. The Court
held that Congress intended for the RFRA to be read as applying to corporations since they
are composed of individuals who use them to achieve desired ends. Because the
contraception requirement forces religious corporations to fund what they consider abortion,
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which goes against their stated religious principles, or face significant fines, it creates a
substantial burden that is not the least restrictive method of satisfying the government's
interests. In fact, a less restrictive method exists in the form of the Department of Health and
Human Services' exemption for non-profit religious organizations, which the Court held can
and should be applied to for-profit corporations such as Hobby Lobby. Additionally, the Court
held that this ruling only applies to the contraceptive mandate in question rather than to all
possible objections to the Affordable Care Act on religious grounds, as the principal dissent
fears.
In his concurrence, Justice Anthony M. Kennedy wrote that the government had not met its
burden to show that there was a meaningful difference between non-profit religious institutions
and for-profit religious corporations under the RFRA. Because the contraception requirement
accommodates the former while imposing a more restrictive requirement on the later without
showing proper cause, the requirement violates the RFRA.
Justice Ruth Bader Ginsburg wrote a dissent in which she argued that the majority's decision
was precluded by the Court's decision in Employment Division, Department of Human
Resources of Oregon v. Smith in which the Court held that there is no violation of the freedom
of religion when an infringement on that right is merely an incidental consequence of an
otherwise valid statute. Additionally, judicial precedent states that religious beliefs or
observances must not impinge on the rights of third parties, as the sought-after exemption
would do to women seeking contraception in this case. Justice Ginsburg also wrote that the
majority opinion misconstrued the RFRA as a bold legislative statement with sweeping
consequences. Because for-profit corporations cannot be considered religious entities, the
burden the respondents claim is not substantial, and the government has shown a sufficiently
compelling interest, Justice Ginsburg argued that the contraception mandate does not violate
the RFRA. Justice Sonia Sotomayor, Justice Stephen G. Breyer, and Justice Elena Kagan
joined in the dissent. In their separate dissent, Justice Breyer and Justice Kagan wrote that the
Court need not decide whether for-profit corporations or their owners may sue under the
RFRA.
9 Diocese of Bacolod v. COMELEC, 21 January 2015
FACTS: Bishop Vicente M. Navarra posted two (2) tarpaulins, each with approximately six feet
(6′) by ten feet (10′) in size, for public viewing within the vicinity of San Sebastian Cathedral of
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Bacolod. One of the tarpaulins stated: “Conscience Vote” and lists of candidates as either
“(Anti-RH) Team Buhay” with a check mark or “(Pro-RH) Team Patay” with an “X” mark. The
electoral candidates were classified according to their vote on the adoption of the RH Law.
Those who voted for the passing of the law were classified as comprising “Team Patay,” while
those who voted against it form “Team Buhay.
When the said tarpaulin came to the attention of Comelec, it sent a letter to Bishop Navarra
ordering the immediate removal of the tarpaulin because it was in violation of Comelec
Resolution No. 9615 as the lawful size for election propaganda material is only two feet (2’) by
three feet (3’); otherwise, it will be constrained to file an election offense against the latter.
Concerned about the imminent threat of prosecution for their exercise of free speech, Bishop
Navarra, et al. prayed for the Court to declare the questioned orders of Comelec as
unconstitutional, and permanently restraining the latter from enforcing them after notice and
hearing.
ISSUE: Whether or not the controversial tarpaulin is an election propaganda which the
Comelec has the power to regulate; otherwise its prohibition shall constitute an abridgment of
freedom of speech.
RULING: It is not election propaganda. While the tarpaulin may influence the success or failure
of the named candidates and political parties, this does not necessarily mean it is election
propaganda. The tarpaulin was not paid for or posted “in return for consideration” by any
candidate, political party, or party-list group.
Personal opinions, unlike sponsored messages, are not covered by the second paragraph of
Sec. 1(4) of Comelec Resolution No. 9615 defining “political advertisement” or “election
propaganda.”
The caricature, though not agreeable to some, is still protected speech. That petitioners chose
to categorize them as purveyors of death or of life on the basis of a single issue—and a
complex piece of legislation at that—can easily be interpreted as an attempt to stereotype the
candidates and party- list organizations. Not all may agree to the way their thoughts were
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expressed, as in fact there are other Catholic dioceses that chose not to follow the example of
petitioners.
But, the Bill of Rights enumerated in our Constitution is an enumeration of our fundamental
liberties. It is not a detailed code that prescribes good conduct. It provides space for all to be
guided by their conscience, not only in the act that they do to others but also in judgment of the
acts of others.
10 Ching v. Secretary of Justice, GR No. 164317, Feb. 6, 2006
FACTS: Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI).
Sometime in September to October 1980, PBMI, through petitioner, applied with the Rizal
Commercial Banking Corporation (respondent bank) for the issuance of commercial letters of
credit to finance its importation of assorted goods.
Respondent bank approved the application, and irrevocable letters of credit were issued in
favor of petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed
13 trust receipts as surety, acknowledging delivery of the goods.
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to
return their value amounting to ₱6,940,280.66 despite demands. Thus, the bank filed a
criminal complaint for estafa against petitioner in the Office of the City Prosecutor of Manila.
After the requisite preliminary investigation, the City Prosecutor found probable cause estafa
under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree
(P.D.) No. 115, otherwise known as the Trust Receipts Law. Thirteen (13) Informations were
filed against the petitioner before the Regional Trial Court (RTC) of Manila.
Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The
appeal was dismissed in a Resolution dated March 17, 1987, and petitioner moved for its
reconsideration. On December 23, 1987, the Minister of Justice granted the motion, thus
reversing the previous resolution finding probable cause against petitioner. The City
Prosecutor was ordered to move for the withdrawal of the Informations.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

This time, respondent bank filed a motion for reconsideration, which, however, was denied on
February 24, 1988. The RTC, for its part, granted the Motion to Quash the Informations filed by
petitioner on the ground that the material allegations therein did not amount to estafa.
On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against
petitioner before the Office of the City Prosecutor of Manila.
On December 8, 1995, the City Prosecutor ruled that there was no probable cause to charge
petitioner with violating P.D. No. 115, as petitioner’s liability was only civil, not criminal, having
signed the trust receipts as surety. Respondent bank appealed the resolution to the
Department of Justice (DOJ).
On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition
and reversing the assailed resolution of the City Prosecutor.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13
Informations against petitioner for violation of P.D. No. 115 before the RTC of Manila.
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing
the resolutions of the Secretary of Justice.
On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on
procedural grounds.
ISSUE: Whether or not Ching is liable for Estafa.
RULING: In the case at bar, the transaction between petitioner and respondent bank falls
under the trust receipt transactions envisaged in P.D. No. 115. Respondent bank imported the
goods and entrusted the same to PBMI under the trust receipts signed by petitioner, as
entrustee, with the bank as entruster.
An entrustee is one having or taking possession of goods, documents or instruments under a
trust receipt transaction, and any successor in interest of such person for the purpose of
payment specified in the trust receipt agreement.
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The entruster shall be entitled to the proceeds from the sale of the goods, documents or
instruments released under a trust receipt to the entrustee to the extent of the amount owing to
the entruster or as appears in the trust receipt, or to the return of the goods, documents or
instruments in case of non-sale, and to the enforcement of all other rights conferred on him in
the trust receipt; provided, such are not contrary to the provisions of the document.
Failure of the entrustee to turn over the proceeds of the sale of the goods covered by the trust
receipts to the entruster or to return said goods if they were not disposed of in accordance with
the terms of the trust receipt is a crime under P.D. No. 115, without need of proving intent to
defraud. The law punishes dishonesty and abuse of confidence in the handling of money or
goods to the prejudice of the entruster, regardless of whether the latter is the owner or not. A
mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal
offense that causes prejudice, not only to another, but more to the public interest.
The Court rules that although petitioner signed the trust receipts merely as Senior Vice-
President of PBMI and had no physical possession of the goods, he cannot avoid prosecution
for violation of P.D. No. 115.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under
paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It
may be committed by a corporation or other juridical entity or by natural persons.
However, the penalty for the crime is imprisonment for the periods provided in said Article 315.
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for the offense, without prejudice to the civil
liabilities of such corporation and/or board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such officers or employees are vested with
the authority and responsibility to devise means necessary to ensure compliance with the law
and, if they fail to do so, are held criminally accountable; thus, they have a responsible share
in the violations of the law.
If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and penalized
for the crime, precisely because of the nature of the crime and the penalty therefor. A
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime
punishable by imprisonment. However, a corporation may be charged and prosecuted for a
crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment
as penalty, a corporation may be prosecuted and, if found guilty, may be fined.
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it
commands. A necessary part of the definition of every crime is the designation of the author of
the crime upon whom the penalty is to be inflicted. When a criminal statute designates an act
of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense
which, otherwise, would not exist and such can be committed only by the corporation. But
when a penal statute does not expressly apply to corporations, it does not create an offense
for which a corporation may be punished. On the other hand, if the State, by statute, defines a
crime that may be committed by a corporation but prescribes the penalty therefor to be
suffered by the officers, directors, or employees of such corporation or other persons
responsible for the offense, only such individuals will suffer such penalty.51 Corporate officers
or employees, through whose act, default or omission the corporation commits a crime, are
themselves individually guilty of the crime.
The principle applies whether or not the crime requires the consciousness of wrongdoing. It
applies to those corporate agents who themselves commit the crime and to those, who, by
virtue of their managerial positions or other similar relation to the corporation, could be
deemed responsible for its commission, if by virtue of their relationship to the corporation, they
had the power to prevent the act. Moreover, all parties active in promoting a crime, whether
agents or not, are principals. Whether such officers or employees are benefited by their
delictual acts is not a touchstone of their criminal liability. Benefit is not an operative fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the
cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl Warren,
a corporate officer cannot protect himself behind a corporation where he is the actual, present
and efficient actor.
11 Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center, GR
No. 141994, Jan. 17, 2005
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FACTS: "Exposé" is a radio documentary program hosted by Carmelo 'Mel' Rima and
Hermogenes 'Jun' Alegre. Exposé is aired every morning over DZRC-AM which is owned by
Filipinas Broadcasting Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi City, the Albay
municipalities and other Bicol areas.
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged
complaints from students, teachers and parents against Ago Medical and Educational Center-
Bicol Christian College of Medicine ("AMEC") and its administrators. Claiming that the
broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMEC's College of
Medicine, filed a complaint for damages against FBNI, Rima and Alegre on 27 February 1990.
The complaint further alleged that AMEC is a reputable learning institution. With the supposed
exposés, FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed
plaintiffs' (AMEC and Ago) reputation." AMEC and Ago included FBNI as defendant for
allegedly failing to exercise due diligence in the selection and supervision of its employees,
particularly Rima and Alegre.
On 14 December 1992, the trial court rendered a Decision finding FBNI and Alegre liable for
libel except Rima. The trial court held that the broadcasts are libelous per se.
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other,
appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial court's
judgment with modification. The appellate court made Rima solidarily liable with FBNI and
Alegre. The appellate court denied Ago's claim for damages and attorney's fees because the
broadcasts were directed against AMEC, and not against her.
ISSUE: Whether or Not AMEC is entitled to moral damages since it is a corporation.
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. The Court of Appeals cites
Mambulao Lumber Co. v. PNB, et al. to justify the award of moral damages. However, the
Court's statement in Mambulao that "a corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages" is an obiter dictum.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Nevertheless, AMEC's claim for moral damages falls under item 7 of Article 2219 of the Civil
Code. This provision expressly authorizes the recovery of moral damages in cases of libel,
slander or any other form of defamation. Article 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 implies 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. Neither in such a case is the plaintiff required to introduce
evidence of actual damages as a condition precedent to the recovery of some damages. In
this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 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 from
P300,000 to P150,000.
A libel is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary,
or any act or omission, condition, status, or circumstance tending to cause the dishonor,
discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is
dead.
There is no question that the broadcasts were made public and imputed to AMEC defects or
circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegre's
remarks such as "greed for money on the part of AMEC's administrators"; "AMEC is a dumping
ground, garbage of xxx moral and physical misfits"; and AMEC students who graduate "will be
liabilities rather than assets" of the society are libelous per se. Taken as a whole, the
broadcasts suggest that AMEC is a money-making institution where physically and morally
unfit teachers abound.
Every defamatory imputation is presumed malicious. Rima and Alegre failed to show
adequately their good intention and justifiable motive in airing the supposed gripes of the
students. As hosts of a documentary or public affairs program, Rima and Alegre should have
presented the public issues "free from inaccurate and misleading information." Hearing the
students' alleged complaints a month before the exposé, they had sufficient time to verify their
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sources and information. However, Rima and Alegre hardly made a thorough investigation of
the students' alleged gripes. Neither did they inquire about nor confirm the purported
irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified
that he merely went to AMEC to verify his report from an alleged AMEC official who refused to
disclose any information. Alegre simply relied on the words of the students "because they were
many and not because there is proof that what they are saying is true." This plainly shows
Rima and Alegre's reckless disregard of whether their report was true or not.
Contrary to FBNI's claim, the broadcasts were not "the result of straight reporting."
12 Bataan Shipyard & Engineering Co., Inc. vs. Presidential Commission on Good
Government, GR. No. L-75885
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 sequestration order which, in the view of the petitioner corporation, initiated all its misery
was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista.
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG,
addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm,
reiterating an earlier request for the production of certain documents such as Stock Transfer
Book and other Legal documents (Articles of Incorporation, By-Laws, etc.)
Orders were also issued in connection with the sequestration and takeover, such as
termination of Contract for Security Services and abortion of contract for Improvement of
Wharf at Engineer Island; Change of Mode of Payment of Entry Charges; Operation of
Sesiman Rock Quarry, Mariveles, Bataan; disposal of scrap, etc.; and the provisional takeover
by the PCGG of BASECO, “the Philippine Dockyard Corporation and all their affiliated
companies.”
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

While BASECO concedes that “sequestration without resorting to judicial action, might be
made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the
Freedom Constitution was promulgated, under the principle that the law promulgated by the
ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the
same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under
Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing,
among others, that “No person shall be deprived of life, liberty and property without due
process of law.” (Const., Art. I V, Sec. 1).”
It declares that its objection to the constitutionality of the Executive Orders “as well as the
Sequestration Order * * and Takeover Order * * issued purportedly under the authority of said
Executive Orders, rests on four fundamental considerations: First, no notice and hearing was
accorded * * (it) before its properties and business were taken over; Second, the PCGG is not
a court, but a purely investigative agency and therefore not competent to act as prosecutor
and judge in the same cause; Third, there is nothing in the issuances which envisions any
proceeding, process or remedy by which petitioner may expeditiously challenge the validity of
the takeover after the same has been effected; and Fourthly, being directed against specified
persons, and in disregard of the constitutional presumption of innocence and general rules and
procedures, they constitute a Bill of Attainder.”
It argues that the order to produce corporate records from 1973 to 1986, which it has
apparently already complied with, was issued without court authority and infringed its
constitutional right against self-incrimination, and unreasonable search and seizure. 14
BASECO further contends that the PCGG had unduly interfered with its right of dominion and
management of its business affairs.
ISSUE: Whether or not the sequestration order dated April 14, 1986, and all other orders
subsequently issued, and acts done on the basis thereof, inclusive of the takeover order of
July 14, 1986 and the termination of the services of the BASECO executives are valid;
RULING: Yes. The petition cannot succeed. The writs of certiorari and prohibition prayed for
will not be issued. Other evidence submitted to the Court by the Solicitor General proves that
President Marcos not only exercised control over BASECO, but also that he actually owns one
hundred percent of its outstanding stock.
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Executive Orders Not a Bill of Attainder – In the first place, nothing in the executive orders can
be reasonably construed as a determination or declaration of guilt. On the contrary, the
executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any
judgment of guilt in the amassing or acquisition of “ill-gotten wealth” is to be handed down by a
judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the
PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest
glance at their provisions will immediately make apparent. In no sense, therefore, may the
executive orders be regarded as a bill of attainder.
No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures – 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 of such privileges.
Scope and Extent of Powers of the PCGG – PCGG cannot exercise acts of dominion over
property sequestered, frozen or provisionally taken over. AS already earlier stressed with no
little insistence, the act of sequestration; freezing or provisional takeover of property does not
import or bring about a divestment of title over said property; does not make the PCGG the
owner thereof.
The PCGG may thus exercise only powers of administration over the property or business
sequestered or provisionally taken over, much like a court-appointed receiver, such as to bring
and defend actions in its own name; receive rents; collect debts due; pay outstanding debts;
and generally, do such other acts and things as may be necessary to fulfill its mission as
conservator and administrator.
Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him;
Limitations Thereon – Now, in the special instance of a business enterprise shown by
evidence to have been “taken over by the government of the Marcos Administration or by
entities or persons close to former President Marcos,” the PCGG is given power and authority,
as already adverted to, to “provisionally take (it) over in the public interest or to prevent * * (its)
disposal or dissipation;” and since the term is obviously employed in reference to going
concerns, or business enterprises in operation, something more than mere physical custody is
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School of Law
Saint Louis University

connoted; the PCGG may in this case exercise some measure of control in the operation,
running, or management of the business itself. But even in this special situation, the intrusion
into management should be restricted to the minimum degree necessary to accomplish the
legislative will, which is “to prevent the disposal or dissipation” of the business enterprise.
Voting of Sequestered Stock; Conditions Therefor – So, too, it is within the parameters of
these conditions and circumstances that the PCGG may properly exercise the prerogative to
vote sequestered stock of corporations, granted to it by the President of the Philippines
through a Memorandum dated June 26, 1986.
In the case at bar, there was adequate justification to vote the incumbent directors out of office
and elect others in their stead because the evidence showed prima facie that the former were
just tools of President Marcos and were no longer owners of any stock in the firm, if they ever
were at all.
No Sufficient Showing of Other Irregularities -As to the other irregularities complained of by
BASECO, i.e., the cancellation or revision, and the execution of certain contracts, inclusive of
the termination of the employment of some of its executives, this Court cannot, in the present
state of the evidence on record, pass upon them. It is not necessary to do so. The issues
arising therefrom may and will be left for initial determination in the appropriate action.
The petition is dismissed. The temporary restraining order issued on October 14, 1986, is
lifted.
13 Boy Scouts of the Phil v. COA, 7 June 2011
FACTS: This case arose when the COA issued Resolution a with the subject "Defining the
Commission’s policy with respect to the audit of the Boy Scouts of the Philippines." In its
whereas clauses, the COA Resolution stated that the BSP was created as a public corporation
under Commonwealth Act No. 111, as amended by Presidential Decree No. 460 and Republic
Act No. 7278; that in Boy Scouts of the Philippines v. National Labor Relations Commission,
the Supreme Court ruled that the BSP, as constituted under its charter, was a "government-
controlled corporation within the meaning of Article IX(B)(2)(1) of the Constitution"; and that
"the BSP is appropriately regarded as a government instrumentality under the 1987
Administrative Code." The COA Resolution also cited its constitutional mandate under Section
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2(1), Article IX (D). Finally, the COA Resolution states that for purposes of audit supervision,
the Boy Scouts of the Philippines shall be classified among the government corporations
belonging to the Educational, Social, Scientific, Civic and Research Sector under the
Corporate Audit Office I, to be audited, similar to the subsidiary corporations, by employing the
team audit approach.
ISSUES: BSP is neither a unit of the Government; a department which refers to an executive
department as created by law (Section 2[7] of the Administrative Code); nor a bureau which
refers to any principal subdivision or unit of any department (Section 2[8], Administrative
Code).
Whether the BSP falls under the COA’s audit jurisdiction.
RULING: After looking at the legislative history of its amended charter and carefully studying
the applicable laws and the arguments of both parties, we find that the BSP is a public
corporation and its funds are subject to the COA’s audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled "An
Act to Create a Public Corporation to be Known as the Boy Scouts of the Philippines, and to
Define its Powers and Purposes" created the BSP as a "public corporation" to serve the
following public interest or purpose.
The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as
presently constituted under Republic Act No. 7278, falls under the second classification. Article
44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose created by law;
their personality begins as soon as they have been constituted according to law;
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School of Law
Saint Louis University

(3) Corporations, partnerships and associations for private interest or purpose to which the law
grants a juridical personality, separate and distinct from that of each shareholder, partner or
member. (Emphases supplied.)
The BSP, which is a corporation created for a public interest or purpose, is subject to the law
creating it under Article 45 of the Civil Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by
the laws creating or recognizing them.
Private corporations are regulated by laws of general application on the subject.
Partnerships and associations for private interest or purpose are governed by the provisions of
this Code concerning partnerships. (Emphasis and underscoring supplied.)
The purpose of the BSP as stated in its amended charter shows that it was created in order to
implement a State policy declared in Article II, Section 13 of the Constitution, which reads:
ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES
Section 13. The State recognizes the vital role of the youth in nation-building and shall
promote and protect their physical, moral, spiritual, intellectual, and social well-being. It shall
inculcate in the youth patriotism and nationalism, and encourage their involvement in public
and civic affairs.
Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of
a constitutional mandate, comes within the class of "public corporations" defined by paragraph
2, Article 44 of the Civil Code and governed by the law which creates it, pursuant to Article 45
of the same Code.
The BSP’s Classification Under the Administrative Code of 1987
The public, rather than private, character of the BSP is recognized by the fact that, along with
the Girl Scouts of the Philippines, it is classified as an attached agency of the DECS under
Executive Order No. 292, or the Administrative Code of 1987.
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The scope and coverage of Section 16, Article XII of the Constitution can be seen from the
aforementioned declaration of state policies and goals which pertains to national economy and
patrimony and the interests of the people in economic development.
Section 16, Article XII deals with "the formation, organization, or regulation of private
corporations," which should be done through a general law enacted by Congress, provides for
an exception, that is: if the corporation is government owned or controlled; its creation is in the
interest of the common good; and it meets the test of economic viability. The rationale behind
Article XII, Section 16 of the 1987 Constitution was explained in Feliciano v. Commission on
Audit, in the following manner:
The Constitution emphatically prohibits the creation of private corporations except by a general
law applicable to all citizens. The purpose of this constitutional provision is to ban private
corporations created by special charters, which historically gave certain individuals, families or
groups special privileges denied to other citizens.
It may be gleaned from the above discussion that Article XII, Section 16 bans the creation of
"private corporations" by special law. The said constitutional provision should not be construed
so as to prohibit the creation of public corporations or a corporate agency or instrumentality of
the government intended to serve a public interest or purpose, which should not be measured
on the basis of economic viability, but according to the public interest or purpose it serves as
envisioned by paragraph (2), of Article 44 of the Civil Code and the pertinent provisions of the
Administrative Code of 1987.
The BSP is a public corporation or a government agency or instrumentality with juridical
personality, which does not fall within the constitutional prohibition in Article XII, Section 16,
notwithstanding the amendments to its charter. Not all corporations, which are not government
owned or controlled, are ipso facto to be considered private corporations as there exists
another distinct class of corporations or chartered institutions which are otherwise known as
"public corporations." These corporations are treated by law as agencies or instrumentalities of
the government which are not subject to the tests of ownership or control and economic
viability but to different criteria relating to their public purposes/interests or constitutional
policies and objectives and their administrative relationship to the government or any of its
departments or Offices.
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School of Law
Saint Louis University

While the BSP may be seen to be a mixed type of entity, combining aspects of both public and
private entities, we believe that considering the character of its purposes and its functions, the
statutory designation of the BSP as "a public corporation" and the substantial participation of
the Government in the selection of members of the National Executive Board of the BSP, the
BSP, as presently constituted under its charter, is a government-controlled corporation within
the meaning of Article IX (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that the Administrative Code of 1987
designates the BSP as one of the attached agencies of the Department of Education, Culture
and Sports ("DECS"). An "agency of the Government" is defined as referring to any of the
various units of the Government including a department, bureau, office, instrumentality,
government-owned or -controlled corporation, or local government or distinct unit therein.
"Government instrumentality" is in turn defined in the 1987 Administrative Code in the following
manner:
Instrumentality - refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy
usually through a charter. This term includes regulatory agencies, chartered institutions and
government-owned or controlled corporations.
We believe that the BSP is appropriately regarded as "a government instrumentality" under the
1987 Administrative Code.
It thus appears that the BSP may be regarded as both a "government controlled corporation
with an original charter" and as an "instrumentality" of the Government within the meaning of
Article IX (B) (2) (1) of the Constitution.
14 Liban v. Gordon, 15 July 2009 as reconsidered on 18 January 2011
FACTS: Petitioners Liban, et al., who were officers of the Board of Directors of the Quezon
City Red Cross Chapter, filed with the Supreme Court what they styled as “Petition to Declare
Richard J. Gordon as Having Forfeited His Seat in the Senate” against respondent Gordon,
who was elected Chairman of the Philippine National Red Cross (PNRC) Board of Governors
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during his incumbency as Senator. Gordon filed a motion for partial reconsideration on a
Supreme Court decision which ruled that being chairman of the Philippine National Red Cross
(PNRC) did not disqualify him from being a Senator, and that the charter creating PNRC is
unconstitutional as the PNRC is a private corporation and the Congress is precluded by the
Constitution to create such. The Court then ordered the PNRC to incorporate itself with the
SEC as a private corporation. Gordon takes exception to the second part of the ruling, which
addressed the constitutionality of the statute creating the PNRC as a private corporation.
Gordon avers that the issue of constitutionality was only touched upon in the issue of locus
standi. It is a rule that the constitutionality will not be touched upon if it is not the lis mota of the
case.
ISSUE: Was it proper for the Court to have ruled on the constitutionality of the PNRC statute?
Whether respondent should be automatically removed as a Senator pursuant to Section 13,
Article VI of the Philippine Constitution
RULING: No, it was not correct for the Court to have decided on the constitutional issue
because it was not the very lis mota of the case. The PNRC is sui generis in nature; it is
neither strictly a GOCC nor a private corporation. The office of the PNRC Chairman is not a
government office or an office in a government-owned or controlled corporation for purposes of
the prohibition in Section 13, Article VI of the 1987 Constitution.
A government-owned or controlled corporation must be owned by the government, and in the
case of a stock corporation, at least a majority of its capital stock must be owned by the
government. In the case of a non-stock corporation, by analogy at least a majority of the
members must be government officials holding such membership by appointment or
designation by the government. Under this criterion, and as discussed earlier, the government
does not own or control PNRC. Facts: Liban and other petitions filed a Petition to Declare
Gordon as having forfeited his seat in the Senate. They allege that respondent ceased to be a
member of the Senate by accepting the chairmanship of the PNRC Board of Governors as
provided under Section 13, Article VI of the Constitution.
Petitioners cite Camporedondo v. NLRC, which held that the PNRC is a government-owned or
controlled corporation. Issue:
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School of Law
Saint Louis University

whether the office of the PNRC Chairman is a government office or an office in a government-
owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the
Constitution. Ruling: No.
To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot be
owned or controlled by the government. Indeed, the Philippine government does not own the
PNRC. The PNRC does not have government assets and does not receive any appropriation
from the Philippine Congress. The PNRC is financed primarily by contributions from private
individuals and private entities obtained through solicitation campaigns organized by its Board
of Governor The government does not control the PNRC. Under the PNRC Charter, as
amended, only six of the thirty members of the PNRC Board of Governors are appointed by
the President of the Philippines. Clearly, an overwhelming majority of four-fifths of the PNRC
Board are elected or chosen by the private sector members of the PNRC.
A government-owned or controlled corporation must be owned by the government, and in the
case of a stock corporation, at least a majority of its capital stock must be owned by the
government. In the case of a non-stock corporation, by analogy at least a majority of the
members must be government officials holding such membership by appointment or
designation by the government. Under this criterion, and as discussed earlier, the government
does not own or control PNRC.
In sum, we hold that the office of the PNRC Chairman is not a government office or an office in
a government-owned or controlled corporation for purposes of the prohibition in Section 13,
Article VI of the 1987 Constitution. However, since the PNRC Charter is void insofar as it
creates the PNRC as a private corporation, the PNRC should incorporate under the
Corporation Code and register with the Securities and Exchange Commission if it wants to be
a private corporation.
15 Baluyot v. Holganza, 325 S 248
DOCTRINE: The test to determine whether a corporation is government owned or controlled,
or private in nature is simple. Is it created by its own charter for the exercise of a public
function, or by incorporation under the general corporation law? Those with special charters
are government corporations subject to its provisions, and its employees are under the
jurisdiction of the Civil Service Commission, and are compulsory members of the Government
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Service Insurance System. The PNRC was not "impliedly converted to a private corporation"
simply because its charter was amended to vest in it the authority to secure loans, be
exempted from payment of all duties, taxes, fees and other charges of all kinds on all
importations and purchases for its exclusive use, on donations for its disaster relief work and
other services and in its benefits and fund raising drives, and be allotted one lottery draw a
year by the Philippine Charity Sweepstakes Office for the support of its disaster relief operation
in addition to its existing lottery draws for blood program. FACTS: During a spot audit
conducted on March 21, 1977 by a team of auditors from the Philippine National Red Cross
(PNRC) headquarters, a cash shortage of P154,350.13 was discovered in the funds of its
Bohol chapter. The chapter administrator, petitioner Francisca S. Baluyot, was held
accountable for the shortage. Thereafter, private respondent Paul E. Holganza, in his capacity
as a member of the board of directors of the Bohol chapter, filed an affidavit-complaint before
the Office of the Ombudsman charging petitioner of malversation under Article 217 of the
Revised Penal Code. However, upon recommendation by respondent Anna Marie P. Militante,
Graft Investigation. Officer I, an administrative docket for dishonesty was also opened against
petitioner. On March 14, 1998, petitioner filed her counter-affidavit, raising principally the
defense that public respondent had no jurisdiction over the controversy. She argued that the
Ombudsman had authority only over government-owned or controlled corporations, which the
PNRC was not, or so she claimed. Petitioner contends that the Ombudsman has no
jurisdiction over the subject matter of the controversy since the PNRC is allegedly a private
voluntary organization. The following circumstances, she insists, are indicative of the private
character of the organization: (1) the PNRC does not receive any budgetary support from the
government, and that all money given to it by the latter and its instrumentalities become private
funds of the organization; (2) funds for the payment of personnel's salaries and other
emoluments come from yearly fund campaigns, private contributions and rentals from its
properties; and (3) it is not audited by the Commission on Audit. Petitioner states that the
PNRC falls under the International Federation of Red Cross, a Switzerland based organization,
and that the power to discipline employees accused of misconduct, malfeasance, or immorality
belongs to the PNRC Secretary General by virtue of its by-laws. She threatens that "to classify
the PNRC as a governmentowned or controlled corporation would create a dangerous
precedent as it would lose its neutrality, independence and impartiality.
ISSUE: Whether the Philippine National Red Cross is a Government-Owned and Controlled
Corporation.
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School of Law
Saint Louis University

RULING: Yes. Following the ruling in Camporedondo v. National Labor Relations Commission,
et. al., Philippine National Red Cross (PNRC) is a government owned and controlled
corporation, with an original charter under Republic Act No. 95, as amended. The test to
determine whether a corporation is government owned or controlled, or private in nature is
simple. Is it created by its own charter for the exercise of a public function, or by incorporation
under the general corporation law? Those with special charters are government corporations
subject to its provisions, and its employees are under the jurisdiction of the Civil Service
Commission, and are compulsory members of the Government Service Insurance System.
The PNRC was not "impliedly converted to a private corporation" simply because its charter
was amended to vest in it the authority to secure loans, be exempted from payment of all
duties, taxes, fees and other charges of all kinds on all importations and purchases for its
exclusive use, on donations for its disaster relief work and other services and in its benefits
and fund raising drives, and be allotted one lottery draw a year by the Philippine Charity
Sweepstakes Office for the support of its disaster relief operation in addition to its existing
lottery draws for blood program.
16 Vet. Fel. of the Phil. v. Reyes, 483 S 526
FACTS: Petitioner Veterans Federation of the Philippines (VFP) is a corporate body organized
under Republic Act No. 2640. Sometime in August 2002, petitioner received a letter from
Undersecretary of the Department of National Defense (DND) to conduct Management Audit
of VFP pursuant to RA 2640, where it stated that VFP is under the supervision and control of
the Secretary of National Defense. Petitioner complained about the broadness of audit and
requested suspension until issues are threshed out, which was subsequently denied by DND.
As a result, petitioner sought relief under Rule 65 assailing that it is a private non-government
corporation.
ISSUE: Whether or not veterans federation created by law is a public office, considering that it
does not possess a portion of the sovereign functions of the government and considering
further that, it has no budgetary appropriation from DBM and that its funds come from
membership dues.
RULING: Yes, petitioner is a public corporation. In Laurel v. Desierto, public office is defined
as the right, authority and duty, created and conferred by law, by which, for a given period, is
invested with some portion of the sovereign functions of the government, to be exercised for
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the benefit of the public. In the instant case, the functions of VFP – the protection of the
interests of war veterans which promotes social justice and reward patriotism – certainly fall
within the category of sovereign functions.
The fact that VFP has no budgetary appropriation is only a product of erroneous application of
the law by public officers in the DBM which will not bar subsequent correct application. Hence,
placing it under the control and supervision of DND is proper.
In sum, the assailed DND Department Circular No. 04 does not supplant nor modify and is, on
the contrary, perfectly in consonance with Rep. Act No. 2640. Petitioner VFP is a public
corporation. As such, it can be placed under the control and supervision of the Secretary of
National Defense, who consequently has the power to conduct an extensive management
audit of the petitioner corporation.
17 MIA v. CA, 495 S 591
FACTS: 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.
MIAA then sought for a Temporary Restraining Order (TRO) 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
On the other hand, the officers of Paranaque City claim that MIAA is a GOCC (government
owned and controlled corporation) therefore not exempted to real estate tax.
ISSUE: Whether or not:
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School of Law
Saint Louis University

1. MIAA is an instrumentality of the government and not a government owned and controlled
corporation and as such exempted from tax.
2. The land and buildings of MIAA are part of the public dominion and thus cannot be the
subject of levy and auction sale.
RULING:
1. Under the Local government code, (GOCCs) government owned and controlled corporation
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. When properties under public
dominion cease to be for public use and service, they form part of the patrimonial property of
the State.
2. 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.
18 Funa v. MEC, 4 February 2014
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FACTS: On 23 August 2010, petitioner sent a letter to the COA requesting for a “copy of the
latest financial and audit report” of the MECO invoking, for that purpose, his “constitutional
right to information on matters of public concern.” The petitioner made the request on the belief
that the MECO, being under the “operational supervision” of the Department of Trade and
Industry (DTI), is a government owned and controlled corporation (GOCC) and thus subject to
the audit jurisdiction of the COA.
Petitioner’s letter was received by COA Assistant Commissioner Jaime P. Naranjo, the
following day. On 25 August 2010, Assistant Commissioner Naranjo issued a memorandum
referring the petitioner’s request to COA Assistant Commissioner Emma M. Espina for “further
disposition.” In this memorandum, however, Assistant Commissioner Naranjo revealed that the
MECO was “not among the agencies audited by any of the three Clusters of the Corporate
Government Sector.”
ISSUE: Whether or not MECO is a GOCC covered by the auditing power of COA.
RULING: No. Government instrumentalities are agencies of the national government that, by
reason of some “special function or jurisdiction” they perform or exercise, are allotted
“operational autonomy” and are “not integrated within the department framework.” Subsumed
under the rubric “government instrumentality” are the following entities:
1. regulatory agencies,
2. Chartered institutions,
3. government corporate entities or government instrumentalities with corporate
powers (GCE/GICP), and
4. GOCCs
The Administrative Code defines a GOCC:
Government-owned or controlled corporation refers to any agency organized as a
stock or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or
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Saint Louis University

through its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) per cent of its capital stock: . . . .
The above definition is, in turn, replicated in the more recent Republic Act No. 10149 or the
GOCC Governance Act of 2011 m, to wit:
Government-Owned or -Controlled Corporation (GOCC) refers to any agency
organized as a stock or non-stock corporation, vested with functions relating to public
needs whether governmental or proprietary in nature, and owned by the Government
of the Republic of the Philippines directly or through its instrumentalities either wholly
or, where applicable as in the case of stock corporations, to the extent of at least a
majority of its outstanding capital stock: . . . .
GOCCs, therefore, are “stock or non-stock” corporations “vested with functions relating to
public needs” that are “owned by the Government directly or through its instrumentalities.” By
definition, three attributes thus make an entity a GOCC: first, its organization as stock or non-
stock corporation; second, the public character of its function; and third, government
ownership over the same.
Possession of all three attributes is necessary to deem an entity a GOCC.
In this case, there is not much dispute that the MECO possesses the first and second
attributes. It is the third attribute, which the MECO lacks.
The MECO is not a GOCC or government instrumentality. It is a sui generis private entity
especially entrusted by the government with the facilitation of unofficial relations with the
people in Taiwan without jeopardizing the country’s faithful commitment to the One China
policy of the PROC. However, despite its non-governmental character, the MECO handles
government funds in the form of the “verification fees” it collects on behalf of the DOLE and the
“consular fees” it collects under Section 2 (6) of EO No. 15, s. 2001. Hence, under existing
laws, the accounts of the MECO pertaining to its collection of such “verification fees” and
“consular fees” should be audited by the COA.
19 March II Marketing v. Joson, 12 December 2011
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FACTS: Petitioner Marc II Marketing, Inc. (petitioner corporation) is a corporation duly
organized and existing under and by virtue of the laws of the Philippines. It is primarily
engaged in buying, marketing, selling and distributing in retail or wholesale for export or import
household appliances and products and other items.5It took over the business operations of
Marc Marketing, Inc. which was made non-operational following its incorporation and
registration with the Securities and Exchange Commission (SEC). Petitioner Lucila V. Joson
(Lucila) is the President and majority stockholder of petitioner corporation. She was also the
former President and majority stockholder of the defunct Marc Marketing, Inc. Respondent
Alfredo M. Joson (Alfredo), on the other hand, was the General Manager, incorporator, director
and stockholder of petitioner corporation. Prior to the incorporation of the petitioner
corporation, respondent was already working with Lucila as General Manager of Marc
Marketing, as it was formalized by a Management Contract which he entered under the
letterhead of Marc Marketing. Respondent was a corporate officer by the express provision of
Section 1, Article IV of its by-laws. As the petitioner corporation officially incorporated, Marc
Marketing stopped its operation and respondent continued to function as General Manager in
the petitioner corporation as he was appointed on 29 August 1994 as one of the corporate
officers as evidence by the undated Secretary’s Certificate. On 30 June 1997, petitioner
corporation decided to stop and cease its operations, as evidenced by an Affidavit of Non-
Operation due to poor sales collection aggravated by the inefficient management of its affairs.
It formally informed respondent of the cessation of its business operation and was apprised of
the termination of his services since his services as such would no longer be necessary for the
winding up of its affairs. Aggrieved respondent filed a Complaint for Reinstatement and Money
Claim against petitioners before the Labor Arbiter. Parties were not settled amicably hence
L.A. ordered them to submit their respective Position Papers. Petitioners opted to file a Motion
to Dismiss grounded on the Labor Arbiter’s lack of jurisdiction as the case involved an intra-
corporate controversy, which jurisdiction belongs to the SEC [now with the Regional Trial
Court (RTC)]. Consequently, petitioners failed to submit their Position Paper despite the
extension they asked. Accordingly, the case was submitted for resolution and treated their
Motion to Dismiss as their Position Paper.
Findings of L.A.: Respondent was a mere employee of the petitioner corporation, thus the
existence of employer-employee relationship falls its jurisdiction under the L.A.
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School of Law
Saint Louis University

Findings of NLRC: Respondent was a corporate officer as evidence by the undated
Secretary’s Certificated,that on the Board of Directors’ meeting, the former was appointed as
such.
Findings of CA: Affirmed the findings of LA. Hence, this appeal.
ISSUE: Whether or not respondent as General Manager of petitioner corporation is a
corporate officer or a mere employee of the latter. Which between the Labor Arbiter or the
RTC, has jurisdiction over respondent’s dismissal as General Manager of petitioner
corporation.
RULING: In this case respondent as General Manager is not a corporate officer. In the context
of PD No. 902-A, corporate officers are those officers of a corporation who are given that
character either by the Corporation Code or by the corporation’s by-laws. Section 25 of the
Corporation Code specifically enumerated who are these corporate officers, to wit: (1)
president; (2) secretary; (3) treasurer; and (4) such other officers as may be provided for in the
by-laws.
The aforesaid Section 25 of the Corporation Code, particularly the phrase "such other officers
as may be provided for in the by-laws," has been clarified and elaborated in the cases of
Matling Industrial and Commercial Corporation v. Coros, where it held, thus: Conformably with
Section 25, a position must be expressly mentioned in the by-laws in order to be considered as
a corporate office. Thus, the creation of an office pursuant to or under a by-laws enabling
provision is not enough to make a position a corporate office. Guerrea v. Lezama, it was held
that the only officers of a corporation were those given that character either by the Corporation
Code or by the by-laws; the rest of the corporate officers could be considered only as
employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc. v.
King: An "office" is created by the charter of the corporation and the officer is elected by the
directors or stockholders. On the other hand, an employee occupies no office and generally is
employed not by the action of the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid to such employee. This
interpretation is the correct application of Section 25 of the Corporation Code, which plainly
states that the corporate officers are the President, Secretary, Treasurer and such other
officers as may be provided for in the by -laws. Accordingly, the corporate officers in the
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context ofPD No. 902-A are exclusively those who are given that character either by the
Corporation Code orby the corporation’s by-laws.
Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the
corporate officers enumerated in the by-laws are the exclusive Officers of the corporation and
the Board has no power to create other Offices without amending first the corporate by-laws.
However, the Board may create appointive positions other than the positions of corporate
Officers, but the persons occupying such positions are not considered as corporate officers
within the meaning of Section 25 of the Corporation Code and are not empowered to exercise
the functions of the corporate Officers, except those functions lawfully delegated to them. Their
functions and duties are to be determined by the Board of Directors/Trustees.
A careful perusal of petitioner corporation’s by-laws, particularly paragraph 1, Section 1,Article
IV,37 would explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2)
President; (3) one or more Vice-President; (4) Treasurer; and (5) Secretary. The position of
General Manager was not among those enumerated. Paragraph 2, Section 1, Article IV of
petitioner corporation’s by-laws, empowered its Board of Directors to appoint such other
officers as it may determine necessary or proper. It is by virtue of this enabling provision that
petitioner corporation’s Board of Directors allegedly approved a resolution to make the position
of General Manager a corporate office, and, thereafter, appointed respondent thereto making
him one of its corporate officers. All of these acts were done without first amending its by-laws
so as to include the General Manager in its roster of corporate officers.
This Court rules that respondent was not a corporate officer of petitioner corporation because
his position as General Manager was not specifically mentioned in the roster of corporate
officers in its corporate by-laws. The enabling clause in petitioner corporation’s by-laws
empowering its Board of Directors to create additional officers, i.e., General Manager, and the
alleged subsequent passage of a board resolution to that effect cannot make such position a
corporate office. Matling clearly enunciated that the board of directors has no power to create
other corporate offices without first amending the corporate by-laws so as to include therein
the newly created corporate office. Though the board of directors may create appointive
positions other than the positions of corporate officers, the persons occupying such positions
cannot be viewed as corporate officers under Section 25 of the Corporation Code.
Respondent, though occupying the General Manager position, was not a corporate officer of
petitioner corporation rather he was merely its employee occupying a high-ranking position.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Accordingly, respondent’s dismissal as petitioner corporation’s General Manager did not
amount to an intra-corporate controversy. Jurisdiction therefore properly belongs with the
Labor Arbiter and not with the RTC.
20 Cagayan Fishing v. Sandiko, 65 P 223
FACTS: Manuel Tabora is the registered owner of four parcels of land and he wanted to build
a Fishery. He loaned from PNB P8,000 and to guarantee the payment of the loan, he
mortgaged the said parcels of land. Three subsequent mortgages were executed in favor of
the same bank and to Severina Buzon, whom Tabora is indebted to.
Tabora sold the four parcels of land to the plaintiff company, said to be under process of
incorporation, in consideration of one peso (P1) subject to the mortgages in favor of PNB and
Severina Buzon 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 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.
He executed a promissory note that he shall be 25,300 after a year with interest and on the
promissory notes, the parcels were mortgage as security.
A promissory note for P25,300 was drawn by the defendant in favor of the plaintiff, 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. All these three instruments were dated February 15, 1932.
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.
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ISSUES: Whether Cagayan Fishing Development has juridical capacity to enter into the
contract, and Can promoters of a corporation act as agents of a corporation?
RULING: First, the transfer made by Tabora to the Cagayan Fishing Development Co., Inc.,
plaintiff herein, was effected on M1930,1, 1930 and the actual incorporation of said company
was effected later on October 22, 1930. In other words, the transfer was made almost five
months before the incorporation of the company.
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. Although there is a presumption that all the requirements of law have
been complied with, in the case before us it can not be denied that the plaintiff was not yet
incorporated when it entered into the contract of sale.
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.”
“That a corporation should have a full and complete organization and existence as an entity
before it can enter into any kind of a contract or transact any business, would seem to be self-
evident. A corporation, until organized, has no being, franchises or faculties. Nor do those
engaged in bringing it into being have any power to bind it by contract, unless so authorized by
the charter. Until organized as authorized by the charter there is not a corporation, nor does it
possess franchises or faculties for it or others to exercise, until it acquires a complete
existence.”
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Second, the contract here was entered into not only between Manuel Tabora and a non-
existent corporation but between Manuel Tabora as owner of four parcels of land on the one
hand and the same Manuel Tabora, his wife and others, as mere promoters of a corporation
on the other hand. For reasons that are self-evident, these promoters could not have acted as
agents for a projected corporation since that which had no legal existence could have no
agent. A corporation, until organized, has no life and therefore no faculties. It is, as it were, a
child in ventre sa mere. This is not saying that under no circumstances may the acts of
promoters of a corporation be ratified by the corporation if and when subsequently organized.
There are, of course, exceptions , but under the peculiar facts and circumstances of the
present case we decline to extend the doctrine of ratification which would result in the
commission of injustice or fraud to the candid and unwary.
The transfer by Manuel Tabora to the Cagayan Fishing Development Company, Inc. was null
because at the time it was effected the corporation was non-existent, we deem it unnecessary
to discuss this point.
21 Caram v. CA, 151 S 372
FACTS: Petitioners were ordered jointly and severally to pay the plaintiff P50,000 for the
preparation of the project study and his technical services that led to the organization of the
defendant corporation. The petitioners questioned the order stating that they are mere
subsequent investors in the corporation that was later created, that they should not be held
solidarily liable with the Filipinas Orient Airways, a separate juridical entity, and with co-
defendants who were the ones who requested the said services from the private respondent.
ISSUE: Whether or not petitioners can be held personally liable for such expenses.
RULING: No. Petitioners were not involved in the initial stages of the organization of the
airline, which were being directed by Baretto, respondent, as the main promoter. It was he who
was putting all the pieces together, so to speak.
The petitioners were merely among the financiers whose interest was to be invited and who
were in fact persuaded, on the strength of the project study, to invest in the proposed airline.
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Significantly, there was no showing that the Filipinas Orient Airways was a fictitious
corporation and did not have a separate juridical personality, to justify making the petitioner, as
principal stockholder thereof, responsible for its obligations.
As a bona fide corporation, the Filipinas Orient Airways should alone be liable for its corporate
acts as duly authorized by its directors and officers. The most that can be said is that they
benefited from the services, but that surely is no justification to hold them personally liable
therefor. Otherwise, all other stockholders of the corporation, including those who came in
later, and regardless of the amount of their stockholdings would be equally and personally
liable also with the petitioners for the claims of the private respondents.
Petitioners are not liable under the challenged decision.
22 Pioneer Insurance v. CA, 175 S 668
FACTS: In 1965, Jacob S. Lim was engaged in the airline business as owner-operator of
Southern Air Lines (SAL), a single proprietorship. On May 17, 1965, Japan Domestic Airlines
(JDA) and Lim entered into and executed a sales contract for the sale and purchase of two
aircrafts and one set of necessary spare parts for the total agreed price of US $109,000.00 to
be paid in installments. On May 22, 1965, Pioneer Insurance and Surety Corporation as surety
executed and issued its Surety Bond No. 6639 in favor of JDA, on behalf of its principal, Lim,
for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco),
Francisco
and Modesto Cervantes (Cervanteses) and Constancio Maglana contributed some funds used
in the purchase of the above aircrafts and spare parts. The funds were supposed to be their
contributions to a new corporation proposed by Lim to expand his airline business. On June
10,
1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as
deed
of chattel mortgage as security for the latter's suretyship in favor of the former. It was
stipulated therein that Lim transfer and convey to the surety the two aircrafts.
However, Lim defaulted on his subsequent installment payments prompting JDA to request
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

payments from the surety. Hence, Pioneer paid a total sum of P298,626.12. Pioneer then filed
a petition for the extrajudicial foreclosure of the said chattel mortgage. On July 19, 1966,
Pioneer
filed an action for judicial foreclosure with an application for a writ of preliminary attachment
against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
RTC held Lim liable to pay Pioneer but dismissed Pioneer's complaint against Maglana,
Bormaheco and the Cervanteses. On appeal, the CA reversed the lower court's decision. Lim
contends that as a result of the failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was
created, and that as a consequence of such relationship all must share in the losses and/or
gains of the venture in proportion to their contribution.
ISSUE: Whether or not Maglana, Bormaheco and the Cervanteses must share in the loss of
the
venture in proportion to their contribution.
RULING: No. Maglana, Bormaheco and the Cervanteseswill not share in the loss of the
venture in proportion to their contribution because there's no de facto partnership. Ordinarily,
when co-investors agreed to do business through a corporation but failed to incorporate, a de
facto partnership would have been formed, and as such, all must share in the losses and/or
gains of the venture in proportion to their contribution. Thus, where persons associate
themselves together under articles to purchase property to carry on a business, and their
organization is so defective as to come short of creating a corporation within the statute, they
become in legal effect partners inter se, and their rights as members of the company to the
property acquired by the company will be recognized However, such a relation does not
necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as
between themselves, when their purpose is that no partnership shall exist.
In the instant case, it is to be noted that the petitioner denied having received any amount from
respondents Bormaheco, the Cervanteses and Maglana.It is therefore clear that the petitioner
never had the intention to form a corporation with the respondents despite his representations
to them. This gives credence to the cross-claims of the respondents to the effect that they
were induced and lured by the petitioner to make contributions to a proposed corporation
which was never formed because the petitioner reneged on their agreement.
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Therefore, no de facto partnership was created among the parties which would entitle the
petitioner to a reimbursement of the supposed losses of the proposed corporation. The record
shows that the petitioner was acting on his own and not in behalf of his other would-be
incorporators in transacting the sale of the airplanes and spare parts.
23 Rizal Light v. Municipality of Morong, 25 S 285
FACTS: Rizal Light & Ice Co., Inc. is a domestic corporation conducting business in Morong,
Rizal. On August 15, 1949, it was granted by the Commission (Public Service Commission) a
certificate of public convenience and necessity for the installation, operation and maintenance
of an electric light, heat and power service in the said municipality.
In a petition dated June 25, 1958, the municipality formally asked the Commission to revoke
Rizal Light's certificate of public convenience and to forfeit its franchise on the ground, among
other things, that it failed to comply with the conditions of said certificate and franchise.
On August 20, 1962, the Commission found that Rizal Light had failed to comply with the
directives to raise its service voltage and maintain them within the limits prescribed in the
Revised Order No. 1 of the Commission, and to acquire and install a kilowattmeter to indicate
the load in kilowatts at any particular time of the generating unit. Rizal Light was also found to
have violated the conditions of its certificate of public convenience as well as the rules and
regulations of the Commission. The Commission concluded that Rizal Light "cannot render the
efficient, adequate and satisfactory electric service required by its certificate and that it is
against public interest to allow it to continue its operation." Accordingly, it ordered the
cancellation and revocation of Rizal Light's certificate of public convenience and the forfeiture
of its franchise.
On September 18, 1962, Rizal Light moved for reconsideration of the decision, alleging that
before its electric plant was burned on July 29, 1962, its service was greatly improved and that
it had still existing investment which the Commission should protect. But eight days before said
motion for reconsideration was filed, Morong Electric, having been granted a municipal
franchise on May 6, 1962 by the municipality to install, operate and maintain an electric heat,
light and power service in said municipality, filed with the Commission an application for a
certificate of public convenience and necessity for said service.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Rizal Light asked for the dismissal of the application of Morong Electric upon the ground that
applicant Morong Electric had no legal personality when it filed its application on September
10,
1962, because its certificate of incorporation was issued by the Securities and Exchange
Commission only on October 17, 1962.
This motion to dismiss was denied by the Commission on the premise that Morong Electric
was a de facto corporation. The Commission, in its decision dated March 13, 1963, found that
there was an absence of electric service in the municipality of Morong and that applicant
Morong Electric, a Filipino-owned corporation duly organized and existing under the laws of
the Philippines, has the financial capacity to maintain said service. The Commission approved
the application of Morong
Electric and ordered the issuance in its favor of the corresponding certificate of public
convenience and necessity.
ISSUE: Can Morong Electric be granted the certificate of public convenience and necessity
even
though it did not have a corporate personality at the time it was granted a franchise and when
it
applied for said certificate?
RULING: Yes, the Supreme Court said that Rizal Light is correct in asserting that Morong
Electric did not yet have a legal personality on May 6, 1962 when a municipal franchise was
granted to it and that the juridical personality and legal existence of Morong Electric began
only on October 17, 1962 when its certificate of incorporation was issued by the SEC. Before
that date, or pending the issuance of said certificate of incorporation, the incorporators cannot
be considered as de facto corporation.
However, the fact that Morong Electric had no corporate existence on the day the franchise
was
granted in its name does not render the franchise invalid, because later Morong Electric
obtained its certificate of incorporation and then accepted the franchise in accordance with the
terms and
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conditions thereof. The incorporation of Morong Electric on October 17, 1962 and its
acceptance of the franchise as shown by its action in prosecuting the application filed with the
Commission for the approval of said franchise, not only perfected a contract between the
municipality and Morong Electric but also cured the deficiency pointed out by Rizal Light in the
application of Morong Electric.
Thus, the Commission did not err in denying Rizal Light’s motion to dismiss said application.
The efficacy of the franchise, however, arose only upon its approval by the Commission on
March 13, 1963. The reason is that —
Under Act No. 667, as amended by Act No. 1022, a municipal council has the power to grant
electric franchises, subject to the approval of the provincial board and the President. However,
under Section 16(b) of Commonwealth Act No. 146, as amended, the Public Service
Commission is empowered "to approve, subject to constitutional limitations any franchise or
privilege granted under the provisions of Act No. 667, as amended by Act No. 1022, by any
political subdivision of the Philippines when, in the judgment of the Commission, such
franchise or privilege will properly conserve the public interests and the Commission shall in so
approving impose such conditions as to construction, equipment, maintenance, service, or
operation as the public interests and convenience may reasonably require, and to issue
certificates of public convenience and necessity when such is required or provided by any law
or franchise." Thus, the efficacy of a municipal electric franchise arises, therefore, only after
the approval of the Public Service Commission.
The Supreme Court went on to cite the case of Cagayan Fishing Development Co., Inc. vs.
Teodoro Sandiko wherein the Court held that a corporation should have a full and complete
organization and existence as an entity before it can enter into any kind of a contract or
transact any business. It should be pointed out, however, that this Court did not say in that
case that the rule is absolute or that under no circumstances may the acts of promoters of a
corporation be ratified or accepted by the corporation if and when subsequently organized. Of
course, there are exceptions. It will be noted that American courts generally hold that a
contract made by the promoters of a corporation on its behalf may be adopted, accepted or
ratified by the corporation when organized.
Additional: American authorities sustaining the view: McQuiuin says: The fact that a company
is not completely incorporated at the time the grant is made to it by a municipality to use the
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

streets does not, in most jurisdictions, affect the validity of the grant. But such grants cannot
take effect until the corporation is organized. And in Illinois it has been decided that the
ordinance granting the franchise may be presented before the corporation grantee is fully
organized, where the organization is completed before the passage and acceptance.
Fletcher says: While a franchise cannot take effect until the grantee corporation is organized,
the franchise may, nevertheless, be applied for before the company is fully organized. A grant
of a street franchise is valid although the corporation is not created until afterwards and;
Thompson gives the reason for the rule: (I)n the matter of the secondary franchise the
authorities are numerous in support of the proposition that an ordinance granting a privilege to
a corporation is not void because the beneficiary of the ordinance is not fully organized at the
time of the introduction of the ordinance. It is enough that organization is complete prior to the
passage and acceptance of the ordinance. The reason is that a privilege of this character is a
mere license to the corporation until it accepts the grant and complies with its terms and
conditions.
24 Smartmatic v. COMELEC, 8 December 2015
FACTS: This is a petition for certiorari or prohibition under Rule 64 of the Rules of Court, with
prayer for injunctive relief, assailing the validity and seeking to restrain the implementation of
the Commission of Elections (COMELEC) en banc's June 29, 2015 Decision for allegedly
being repugnant to the provisions of Batas Pambansa Blg. 68 (BP 68), otherwise known as the
Corporation Code of the Philippines, and Republic Act No. 9184 (RA 9184) or the Government
Procurement Reform Act.
On October 27, 2014, the COMELEC en banc, through its Resolution No. 14-0715, released
the bidding documents for the "Two-Stage Competitive Bidding for the Lease of Election
Management System (EMS) and Precinct-Based Optical Mark Reader (OMR) or Optical Scan
(OP-SCAN) System." Specified in the published Invitation to Bid are the details for the lease
with option to purchase, through competitive public bidding, of twenty-three thousand (23,000)
new units of precinct-based OMRs or OP-SCAN Systems, with a total Approved Budget for
Contract of P2,503,518,000 to be used in the 2016 National and Local Elections. The
COMELEC Bids and Awards Committee (BAC) set the deadline for the submission by
interested parties of their eligibility requirements and initial technical proposal on December 4,
2014.
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The joint venture of Smartmatic-TIM Corporation (SMTC), Smartmatic International Holding
B.V., and Jarltech International Corporation (collectively referred to as "Smartmatic JV")
responded to the call and submitted bid for the project on the scheduled date. Indra Sistemas,
S.A. (Indra) and MIRU Systems Co. Ltd. likewise signified their interest in the project, but only
Indra, aside from Smartmatic JV, submitted its bid.
During the opening of the bids, Smartmatic JV, informed the BAC that one of its partner
corporations, SMTC, has a pending application with the Securities and Exchange Commission
(SEC) to amend its Articles of Incorporation (AOI), attaching therein all pending documents.
The amendments adopted as early as November 12, 2014, were approved by the SEC on
December 10, 2014. On even date, Smartmatic JV and Indra participated in the end-to-end
testing of their initial technical proposals for the procurement project before the BAC.
Upon evaluation of the submittals, the BAC, through its Resolution No. 1 dated December 15,
2014, declared Smartmatic JV and Indra eligible to participate in the second stage of the
bidding process. The BAC then issued a Notice requiring them to submit their Final Revised
Technical Tenders and Price proposals on February 25, 2015, to which the eligible participants
complied. Finding that the joint venture satisfied the requirements in the published Invitation to
Bid, Smartmatic JV, on March 26, 2015, was declared to have tendered a complete and
responsive Overall Summary of the Financial Proposal. Meanwhile, Indra was disqualified for
submitting a non-responsive bid.
Subsequently, for purposes of post-qualification evaluation, the BAC required Smartmatic JV
to submit additional documents and a prototype sample of its OMR. The prototype was
subjected to testing to gauge its compliance with the requirements outlined in the project's
Terms of Reference (TOR).
After the conduct of post-qualification, the BAC, through Resolution No. 9 dated May 5, 2015,
disqualified Smartmatic JV on two grounds, viz: failure to submit valid AOI; and the demo unit
failed to meet the technical requirement that the system shall be capable of writing all
data/files, audit log, statistics and ballot images simultaneously in at least two (2) data
storages.
The ruling prompted Smartmatic JV to move for reconsideration. In denying the motion, the
BAC, through Resolution No. 1017 dated May 15, 2015, declared that Smartmatic JV complied
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

with the requirements of Sec. 23.1(b) of the Revised Implementing Rules and Regulations of
RA 9184 (GPRA IRR), including the submission of a valid AOI, but was nevertheless
disqualified as it still failed to comply with the technical requirements of the project.
Aggrieved, Smartmatic JV filed a Protest, seeking permission to conduct another technical
demonstration of its SAES 1800 plus OMR (OMR+), the OMR Smartmatic JV presented during
the public bidding before the COMELEC en banc. Accordingly, on June 19, 2015, Smartmatic
JV was allowed to prove compliance with the technical specifications for the second time, but
this time before the electoral tribunal's Technical Evaluation Committee (TEC). This was
followed, on June 23, 2015, by another technical demonstration before the Commission en
banc at the Advanced Science and Technology Institute (ASTI) at the University of the
Philippines, Diliman, Quezon City.
Though initially finding that the OMR+'s ability to simultaneously write data in two storage
devices could not conclusively be established, the TEC, upon the use of a Digital Storage
Oscilloscope (DSO) during the second demonstration, determined that the OMR+ complied
with the requirements specified in the TOR. Adopting the findings of the TEC as embodied in
its Final Report, the COMELEC en banc, on June 29, 2015, promulgated the assailed Decision
granting Smartmatic JV's protest.
Notwithstanding Smartmatic JV's compliance with the technical requirements in the TOR,
Commissioner Luie Tito F. Guia (Guia) would nonetheless dissent in part, questioning the
sufficiency of the documents submitted by the Smartmatic JV. Taking their cue from
Commissioner Guia's dissent, petitioners now assail the June 29, 2015, Decision of the
COMELEC through the instant recourse.
Petitioners contend that an AOI is one of such mandatory documentary requirements and that
the failure of a bidder to furnish the BAG a valid one would automatically render the bidder
ineligible.
ISSUE: Whether or not the COMELEC acted with grave abuse of discretion in declaring
Smartmatic JV eligible in spite of the alleged nullity of, or defect in, SMTC's Articles of
Incorporation.
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RULING: Mere failure to file an AOI cannot automatically result in the bidder concerned being
declared ineligible, contrary to petitioners' claim.
In the case at bar, it was noted that during the opening of the bids on December 4, 2014,
Smartmatic JV already informed the BAC that SMTC was already in the process of amending
its AOI. The contents of the AOI, at that time, were immaterial since the AOI is not an eligibility
requirement that can be considered by the BAC on pre-qualification. By post-qualification,
however, the time the BAC can validly consider extraneous documents, SMTC's AOI has
already been duly amended, and the amendments approved by the SEC on December 10,
2014, for its updated primary purpose to read:
To sell, supply, lease, import, export, develop, assemble, repair and deal with automated
voting machines, canvassing equipment, computer software, computer equipment and all
other goods and supplies, and/or to provide, render and deal in all kinds of services, including
project management services for the conduct of elections, whether regular or special, in the
Philippine(s) and to provide Information and Communication Technology (ICT) goods and
services to private and government entities in the Philippines.
Hence, any doubt on SMTC's authorization to continue its business has already been dispelled
by December 10, 2014. It matters not that the amendments to the AOI took effect only on that
day for as long as it preceded post-qualification.
In the case at bar, notwithstanding the specific mention of the 2010 National and Local
Elections in SMTC's primary purpose, it is not, as earlier discussed, precluded from entering
into contracts over succeeding ones. Here, SMTC cannot be deemed to be overstepping its
limits by participating in the bidding for the 23,000 new optical mark readers for the 2016 polls
since upgrading the machines that the company supplied the COMELEC for the automation of
the 2010 elections and offering them for subsequent elections is but a logical consequence of
SMTC's course of business, and should, therefore, be considered included in, if not incidental
to, its corporate purpose. A restricted interpretation of its purpose would mean limiting SMTC's
activity to that of waiting for the expiration of its warranties in 2020. How then can the company
be expected to subsist and sustain itself until then if it cannot engage in any other project,
even in those similar to what the company already performed?
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

In the final analysis, there is no defect in the AOI that needed to be cured before SMTC could
have participated in the bidding as a partner in Smartmatic JV, the automation of the 2016
National and Local Elections being a logical inclusion of SMTC's corporate purpose.
Sec. 23 of the adverted GPRA IRR reads:
Section 23. Eligibility Requirements for the Procurement of Goods and Infrastructure Projects
23.1. For purposes of determining the eligibility of bidders using the criteria stated in Section
23.5 of this IRR, only the following documents shall be required by the BAC, using the forms
prescribed in the Bidding Documents:
a) Class "A" Documents
Legal Documents
i) Registration certificate from SEC, Department of Trade and Industry (DTI) for sole
proprietorship, or CDA for cooperatives, or any proof of such registration as stated in the
Bidding Documents.
ii) Mayor's permit issued by the city or municipality where the principal place of business of the
prospective bidder is located.
iii) Tax clearance per Executive Order 398, Series of 2005, as finally reviewed and approved
by the BIR.
Technical Documents
iv) Statement of the prospective bidder of all its ongoing government and private contracts,
including contracts awarded but not yet started, if any, whether similar or not similar in nature
and complexity to the contract to be bid; and Statement identifying the bidder's single largest
completed contract similar to the contract to be bid, except under conditions provided for in
Section 23.5.1.3 of this IRR, within the relevant period as provided in the Bidding Documents
in the case of goods. All of the above statements shall include all information required in the
PBDs prescribed by the GPPB.
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v) In the case of procurement of infrastructure projects, a valid Philippine Contractors
Accreditation Board (PCAB) license and registration for the type and cost of the contract to be
bid.
Financial Documents
vi) The prospective bidder's audited financial statements, showing, among others, the
prospective bidder's total and current assets and liabilities, stamped "received" by the BIR or
its duly accredited and authorized institutions, for the preceding calendar year which should
not be earlier than two (2) years from the date of bid submission.
vii) The prospective bidder's computation for its Net Financial Contracting Capacity (NFCC).
b) Class "B" Document
Valid joint venture agreement (JVA), in case the joint venture is already in existence. In the
absence of a JVA, duly notarized statements from all the potential joint venture partners
stating that they will enter into and abide by the provisions of the JVA in the instance that the
bid is successful shall be included in the bid. Failure to enter into, a joint venture in the event of
a contract award shall be ground for the forfeiture of the bid security. Each partner of the joint
venture shall submit the legal eligibility documents. The submission of technical and financial
eligibility documents by any of the joint venture partners constitutes compliance.
Clearly, the quoted provisions, as couched, do not require the submission of an AOI in order
for a bidder to be declared eligible. The requirement that bears the most resemblance is the
submission by each partner to the venture of a registration certificate issued by the Securities
and Exchange Commission, but compliance therewith was never disputed by the petitioners.
Moreover, it was never alleged that Smartmatic JV was remiss in submitting a copy of its joint
venture agreement pursuant to Sec. 23.1(b), which petitioners specifically invoked.
It may be that the procuring entity has the option to additionally require the submission of the
bidders' respective AOIs in order to substantiate the latter's claim of due registration with the
government entities concerned. However, a perusal of the bidding documents would readily
reveal that the procuring entity, the COMELEC in this case, did not impose such a
requirement.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The non-requirement of an AOI is further made evident by the Bid Data Sheet (BDS) which
provides a "complete list" of eligibility proposal documents to be submitted during the first
stage of the bidding process.
Even the furnished Schedule of Requirements does not mandate the submission of an AOI.
Verily, based on Sec. 23.1 (b) of the GPRA IRR, the Instruction to Bidders, the BDS, and the
Checklist of Requirements, the non-submission of an AOI is not fatal to a bidder's eligibility to
contract the project at hand. Thus, it cannot be considered as a ground for declaring private
respondent’s ineligible to participate in the bidding process. To hold otherwise would mean
allowing the BAC to consider documents beyond the checklist of requirements, in
contravention of their non-discretionary duty under Sec. 30(l) of the GPRA IRR.
Neither is the API a post-qualification requirement.
After the preliminary examination stage, the BAC opens, examines, evaluates and ranks all
bids and prepares the Abstract of Bids which contains, among others, the names of the
bidders and their corresponding calculated bid prices arranged from lowest to highest. The
objective of the bid evaluation is to identify the bid with the lowest calculated price or the
Lowest Calculated Bid. The Lowest Calculated Bid shall then be subject to post-qualification to
determine its responsiveness to the eligibility and bid requirements.
25 Lanuza v. CA, 454 S 54
DOCTRINE: The company’s stock and transfer book can not be used to determine quorum
records as it does not reflect the totality of shares that have been subscribed. Hence, injustice
will take place. Instead, the quorum should be based on the outstanding capital stocks as
indicated in the corporation’s Article of Incorporation, as it duly records all pertinent and
complete information about its stockholders and their shares.
FACTS: In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with
700 founders’ shares and 76 common shares as its initial capital stock subscription reflected in
the Articles of Incorporation. However, it was only in 1978 when the predecessors of PMMSI
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registered the company’s stock and transfer book, which records only 33 common shares as
the only issued and outstanding shares of PMMSI.
Sometime in 1979, a special stockholders’ meeting was called and held based on what was
considered a quorum of 27 common shares, representing more than 2⁄3 of the common shares
issued and outstanding.
In 1982, Juan Acayan, who is an heir of one of the original incorporators, filed a petition with
the SEC for the registration of their property rights over 120 founders’ shares and 12 common
shares owned by their father, which was later granted and the shares were recorded in the
stock and transfer book because the SEC hearing officer held that the heirs of Acayan were
entitled to the claimed shares and called for a special stockholders’ meeting to elect a new set
of officers.
On 06 May 1992, a special stockholders’ meeting was held to elect a new set of directors.
Private respondents after that filed a petition with the SEC questioning the validity of the 06
May 1992 stockholders’ meeting, alleging that the “quorum” for the said meeting should not be
based on the “165 issued and outstanding shares” as per the stock and transfer book, but it
should be on the initial subscribed capital stock of 776 shares as reflected in the “1952 Articles
of Incorporation.” However, this was denied.
Therefore, a petition for review was filed before the CA where the latter held that for purposes
of transacting business, the quorum should be based on the outstanding capital stock as found
in the articles of incorporation since the incorporators have already proved their stockholdings
through the provisions of the articles of incorporation.
ISSUE: Whether it is the outstanding capital stock as indicated in the 1952 Articles of
Incorporation should be the basis for computing the quorum for a stockholders’ meeting.
RULING: Yes. The Supreme Court denied the petition and affirmed the decision of the CA.
The Articles of Incorporation have 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, or “The Corporation Law.” Sec. 6
thereof states:
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Five or more persons, not exceeding fifteen, a majority of whom are residents of the
Philippines, may form a private corporation for any lawful purpose or purposes by
filing with the Securities and Exchange Commission articles of incorporation duly
executed and acknowledged before a notary public, setting forth:
While a stock and transfer book records the names and addresses of all stockholders
arranged alphabetically, the installments paid and unpaid on all stock for which subscription
has been made, and the date of payment thereof; a statement of every alienation, sale, or
transfer of stock made, the date thereof and by and to whom made; and such other entries as
may be prescribed by law. This is also necessary as a measure of precaution, expediency,
and convenience since it provides only a certain and accurate method of establishing the
various corporate acts and transactions and showing the ownership of stock and like matters.
However, a stock and transfer book, like other corporate books and records, is not a public
record and thus is not exclusive evidence of the matters and things that ordinarily are or
should be written therein. It is generally held that the records and minutes of a corporation are
“not conclusive” even against the corporation but are prima facie evidence only and may be
impeached or even contradicted by other competent evidence. Here, two figures are being
pitted against each other: those contained in the articles of incorporation and those listed in the
stock and transfer book. To base the computation of quorum solely on the obviously deficient,
if not inaccurate, stock and transfer book and completely disregarding the issued and
outstanding shares as indicated in the articles of incorporation would work injustice to the
owners and/or successors in the interest of the said shares. In this case, resorting to
documents other than the stock and transfer books is necessary. The stock and transfer book
of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect
the totality of shares that
have been subscribed, more so when the articles of incorporation show a significantly
larger amount of shares issued and outstanding as compared to that listed in the stock and
transfer book.
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 700
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founders’ shares and 76 common shares. Hence, the corporation had 776 issued and
outstanding shares at that time.
A stockholder cannot be denied his right to vote by the corporation merely because the
corporate officers failed to keep its records accurately. A corporation’s records are not the only
evidence of the ownership of stock in a corporation. The acts and conduct of the parties may
even constitute sufficient evidence of one’s status as a shareholder or member. In the instant
case, no less than the articles of incorporation declare the incorporators to have the founders
and several common shares in their name. Thus, disregarding the contents of the Articles of
Incorporation would be to pretend that the basic document that legally triggered the
corporation’s creation does not exist and, accordingly, to allow great injustice to be caused to
the incorporators and their heirs.
26 De La Salle v. De La Salle, February 7, 2018
FACTS: Petitioner reserved with the SEC its corporate name De La Salle Montessori
International Malolos, Inc after which the SEC indorsed petitioner's articles of incorporation
and by-laws to the Department of Education. The SEC issued a certificate of incorporation to
petitioner. DepEd Region III, City of San Fernando, Pampanga granted petitioner government
recognition for its pre-elementary and elementary courses and secondary courses.
Respondents filed a petition with the SEC seeking to compel petitioner to change its corporate
name on the ground that the petitioner's corporate name is misleading or confusingly like those
which respondents have acquired a prior right to use, and that respondents' consent to use
such name was not obtained. The petitioner's use of the dominant phrases "La Salle" and "De
La Salle" gives an erroneous impression that De La Salle Montessori International of Malolos,
Inc. is part of the "La Salle" group, which violates Section 18 of the Corporation Code of the
Philippines.
The SEC OGC issued an Order directing petitioner to change or modify its corporate name. It
held that respondents have acquired the right to the exclusive use of the name "La Salle" with
freedom from infringement by priority of adoption, as they have all been incorporated using the
name ahead of petitioner.
Hence, the SEC OGC concluded that respondents' use of the phrase "De La Salle" or "La
Salle" is arbitrary, fanciful, whimsical and distinctive, and thus legally protectable. As regards
petitioner's argument that its use of the name does not result to confusion, the SEC OGC held
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

otherwise as confusion is probably or likely to occur considering not only the similarity in the
parties' names but also the business or industry they are engaged in. The SEC OGC
disagreed with petitioner's argument that the case of Lyceum of the Philippines, Inc. v. Court of
Appeals applies since the word "lyceum" is clearly descriptive of the very being and defining
purpose of an educational corporation, unlike the term "De La Salle" or "La Salle." On appeal,
both SEC En Banc and CA affirmed the decision of SEC and OSG in toto.
ISSUE: Whether or not there exists a confusing similarity in the names of the petitioners and
the respondents.
RULING: Yes. There is a confusing similarity between petitioner's and respondents' corporate
names. While these corporate names are not identical, it is evident that the phrase "De La
Salle" is the dominant phrase used. The Supreme Court held that a corporation's right to use
its corporate and trade name is a property right, a right in rem, which it may assert and protect
against the world in the same manner as it may protect its tangible property, real or personal,
against trespass or conversion. 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.
The use of "Montessori International of Malolos, Inc." are four distinctive words, when used
with the name "De La Salle," can reasonably mislead a person using ordinary care and
discretion into thinking that petitioner is an affiliate or a branch of, or is likewise founded by,
any or all of the respondents, thereby causing confusion. Generic terms are those which
constitute "the common descriptive name of an article or substance," or comprise the "genus
of which the particular product is a species," or are "commonly used as the name or
description of a kind of goods," or "characters," or "refer to the basic nature of the wares or
services provided rather than to the more idiosyncratic characteristics of a particular product,"
and are not legally protectable.
It has been held that if a mark is so commonplace that it cannot be readily distinguished from
others, then it is apparent that it cannot identify a particular business; and he who first adopted
it cannot be injured by any subsequent appropriation or imitation by others, and the public will
not be deceived. A suggestive mark is a word, picture, or other symbol that suggests, but does
not directly describe something about the goods or services in connection with which it is used
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as a mark and gives a hint as to the quality or nature of the product. Suggestive trademarks
therefore can be distinctive and are registrable.
The Supreme Court affirmed that the phrase "De La Salle" is not merely a generic term.
Respondents' use of the phrase being suggestive and may properly be regarded as fanciful,
arbitrary and whimsical, it is entitled to legal protection. Petitioner's use of the phrase "De La
Salle" in its corporate name is patently similar to that of respondents that even with reasonable
care and observation, confusion might arise. The Court notes not only the similarity in the
parties' names, but also the business they are engaged in. They are all private educational
institutions offering pre-elementary, elementary and secondary courses. As aptly observed by
the SEC En Banc, petitioner's name gives the impression that it is a branch or affiliate of
respondents. It is settled that proof of actual confusion need not be shown. It suffices that
confusion is probable or likely to occur.
What are the requisites regarding the prohibition under Section 18 re corporate name?
In Philips Export B.V. v. Court of Appeals, the Court held that to fall within the prohibition of
Section 18, 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.
The policy underlying the prohibition in Section 18 against the registration of a corporate
name which is "identical or deceptively or confusingly similar" to that of any existing
corporation or which is "patently deceptive" or "patently confusing" or "contrary to existing
laws," is the avoidance of fraud upon the public which would have occasion to deal with the
entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of
administration and
supervision over corporations.
Does the Lyceum ruling apply?
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

No. The Lyceum of the Philippines, Inc., an educational institution registered with the SEC,
commenced proceedings before the SEC to compel therein private respondents who were all
educational institutions, to delete the word "Lyceum" from their corporate names. The Court
there held that the word "Lyceum" today generally refers to a school or institution of learning. It
is as generic in character as the word "university." Since "Lyceum" denotes a school or
institution of learning, it is not unnatural to use this word to designate an entity which is
organized and operating as an educational institution. Also, no evidence presented to prove
confusion. There is thus no similarity between the Lyceum of the Philippines case and this
case that would call for a similar ruling.
27 GSIS Family Bank v. BPI Family Bank, 23 September 2015
FACTS: Petitioner began operating in 1971 under the name Royal Savings Bank. However,
due to liquidity issues, it was placed under receivership, where GSIS took ownership. To
increase its marketability, the petitioner submitted an application to the SEC to alter its
corporate name to "GSIS Family Bank, a Thrift Bank" in the same manner as BSP and DTI.
According to the DTI Certificate of Registration and Monetary Board Circular Approval, the two
later entities approved the application, and the petitioner began operating under its new name.
The respondent, on the other hand, began using the name BPI Family Savings Bank in 1985,
following the merger of BPI and Family Bank and Trust Company. Since its inception, the bank
has been generally referred to as "Family Bank." BPI Family Savings Bank then registered
with the Bureau of Domestic Trade the trade or business name "BPI Family Bank," and gained
a reputation and goodwill under the moniker. After learning that the petitioner had applied for
the use of "Family Bank" as its corporate name, the respondent filed a petition with the SEC to
disallow or prevent the registration of the name "GSIS Family Bank" or any other corporate
name
containing the words "Family Bank." The respondent claimed sole ownership of the
aforementioned name, which will and is already causing public confusion between the two
banking organizations. The SEC CRMD made a decision in favor of the respondent, finding
that its extensive and widespread use of the corporate name gave it a prior claim to the name.
Following an appeal, the CA upheld the SEC's judgment. It further decided that the petitioner's
application's acceptance by the BSP and the DTI to use the name "GSIS Family Bank" did not
entitle the petitioner to its legitimate and lawful use. It was determined that the SEC had
complete authority, control, and oversight over all corporations. Hence, the petitioner's appeal.
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ISSUE: Is the “GSIS Family Bank, a Thrift Bank” registrable?
RULING: No. The Corporation Code outlines the corporate name rule, and the respondent
bank
in this instance satisfies both of the requirements for exclusive use of the corporate name. The
aforementioned bank successfully proved its prior ownership of the name the "Family Bank".
When it was founded in 1969, it was first known as Family Savings Bank and later changed its
name to BPI Family Savings Bank in 1985. In contrast, the petitioner was founded as GSIS
Family Bank-A Thrift Bank only 17 years later, or in 2002. The Court determined that
respondent has the first right to use the company name by adopting the priority rule. The
second requirement is also met in two ways: the proposed name is either (a) identical or (b)
deceptively or confusingly similar to that of any existing corporation or to any other name
currently protected by law. Section 3 of the Revised Guidelines for the Approval of Corporate
or Partnership Names states that if the proposed name is identical, misleading, or confusingly
similar to one already registered with the SEC by another corporation or partnership, the
proposed name must contain at least one distinctive word that is different from the name of the
company already registered.
In this case, the mere adding of the words “GSIS” and “Thrift” does not satisfy the
requirements provided. GSIS is merely an acronym of the proper name for which the petitioner
is identified and the word thrift merely indicates a classification or kind of bank the petitioner is.
Such adding of the word would not create much distinction simply because both entities are
involved in the banking business. The second point likewise exists. 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 even without such proof of
actual confusion between
the two corporate names, it suffices that confusion is probable or likely to occur.
Respondent has proved confusion not just on their employees but even on the public of the
change of name of the petitioner and its connection with the respondent bank. Furthermore, in
contrast to the allegation of the petitioner, “Family,” as used in respondent's corporate name, is
not generic. It cannot be separated from the word “bank”. SEC decisions are given much
accord by this Court especially if it is affirmed by the CA, as in this case. The SEC is the
government entity fully accorded with absolute jurisdiction as to the administration or
management of corporations in the country. It has the duty to prevent any confusion on the
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

corporate name not just for the sake of this entities but more so for the protection of the public.
There is a correct application of Section 18 of the Corporation Code by the SEC. the DTI AND
BSP decisions granting petitioner’s application must bow down to SEC’s decision
28 Samahan ng Manggagawa ng Hanjin v. BLR, 14 October 2015
Facts: On February 16, 2010, Samahan, through its authorized representative, Alfie
F. Alipio, filed an application for registration of its name “Samahan ng Mga
Manggagawa sa Hanjin Shipyard” with the DOLE. Attached to the application were
the list of names of the association’s officers and members, signatures of the
attendees of the February 7, 2010 meeting, copies of their Constitution and By-Laws. The
association had a total of 120 members. Eventually, DOLE-Pampanga issued the
corresponding certificate of registration in favor of the Samahan. On March 15, 2010, Hanjin
filed a petition with DOLE-Pampanga praying for the cancellation of registration of Samahan’s
association on the ground that its members did not fall under any of the types of workers
enumerated in the second sentence of Article 243 (now 249).HANJIN’S contentions- Only
ambulant, intermittent, itinerant, rural workers, self-employed, and those without
definite employers may form a workers’ association. It further posited that 1/3 of the members
of the association had definite employers and the continued existence and
registration of the association would prejudice the company’s goodwill.
Also, Samahan committed a misrepresentation in connection with the list of members
and/or voters who took part in the ratification of their constitution and by-laws. They made it
appear that its members were qualified to become members of the workers’ association.
DOLE Regional Director- ruled in favor of Hanjin. They found that based on the evidence
submitted, there was an admission on the part of the Samahan that all of its members were
employees of Hanjin. The same claim was made by Samahan in its motion to dismiss, but
failed to adduce evidence that the remaining 63 members were also employees of Hanjin. Its
admission bolstered Hanjin’s claim that Samahan committed misrepresentation in its
application for registration as it made an express representation that all of its members were
employees of the former.
Having a definite employer, these 57 members should have formed a labor union for collective
bargaining. The CERTIFICATE OF REGISTRATION in favor of Samahan was CANCELLED.
Labor Relations- granted Samahan’s appeal and reversed the ruling of the Regional Director.
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It statedt hat the law clearly afforded the right to self-organization to all workers including those
without definite employers but subject to limitation that it was only for mutual aid and
protection. Nowhere could it be found that to form a workers’ association was prohibited or that
the exercise of a workers’ right to self-organization was limited to collective bargaining. There
was also no misrepresentation on the part of the Samahan.
Should Hanjin feel that the use of its name had affected the goodwill of the
company, the remedy was not to seek the cancellation of the association’s registration. The
CA ruled in favor of Hanjin. There was misrepresentation since only 57 out of 120 members
were actually working in Hanjin while the phrase in the preamble of the
constitution and by-laws (KAMI, ang mga Manggagawa sa Hanjin Shipyard), created an
impression that all its members were employees of Hanjin.
ISSUE: Whether or not the Samahan cannot form a workers’ association of
employees in Hanjin and instead should have formed a union, hence their registration
should be cancelled.
RULING: No. Samahan can form a workers’ association and its registration should have not
been cancelled.
The right to choose whether to form or join a union or workers’ association belongs to workers
themselves. The right to form or join in a labor organization necessarily includes the right to
refuse or refrain from exercising the said right. Also inherent in the right to self-organization is
the right to choose whether to form a union for purposes of collective bargaining or a workers’
association for purposes of providing mutual aid and protection. More often than not, the right
to self-organization connotes unionism. Workers, however, can also form and join a workers’
association as well as labor management councils (LMC). Expressed in the highest law of
the land is the right of all workers to self-organization. Section 3, Article XIII of the
1987Constitution states:
Section 3. The State shall afford full protection to labor, local and overseas, organized
and unorganized, and promote full employment and equality of employment
opportunities for all.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

It shall guarantee the rights of all workers to self-organization, collective bargaining and
negotiations, and peaceful concerted activities, including the right to strike in accordance with
law. Section 8, Article III of the 1987 Constitution also states:
Section 8.The right of the people, including those employed in the public and private
sectors, to form unions, associations, or societies for purposes not contrary to law
shall not be abridged.
In relation thereto, Article 3 of the Labor Code provides:
Article 3. Declaration of basic policy. —The State shall afford protection to labor,
promote full employment, ensure equal work opportunities regardless of sex, race or
creed and regulate the relations between workers and employers. The State
shall assure the rights of workers to self-organization, collective bargaining,
security of tenure, and just and humane conditions of work.
As Article 246 (now 252) of the Labor Code provides, the right to self-organization includes
the right to form, join or assist labor organizations for the purpose of collective
bargaining through representatives of their own choosing and to engage in lawful concerted
activities for the same purpose for their mutual aid and protection. This is in line with the policy
of the State to foster the free and voluntary organization of a strong and united labor
movement as well as to make sure that workers participate in policy and decision-making
processes affecting their rights, duties and welfare. In this case, the Court cannot sanction the
opinion of the CA that Samahan should have formed a union for purposes of collective
bargaining instead of a workers’ association because the choice belonged to it.
The right to form or join a labor organization necessarily includes the right to refuse or refrain
from exercising the said right. It is self-evident that just as no one should be denied the
exercise of a right granted by law, so also, no one should be compelled to exercise such
conferred right. Also, inherent in the right to self-organization is the right to choose whether to
form a union for purposes of collective bargaining or a workers’ association for purposes of
providing mutual aid and protection. There is no provision in the labor code that states that
employees with definite employers may form, join, or assist unions only.
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DOCTRINE: The right to self-organization is not limited to unionism. Workers may
also form or join an association for mutual aid and protection and for other legitimate
purpose. Also, inherent in the right to self-organization is the right to choose whether to form a
union for purposes of collective bargaining or a workers’ association for purposes of providing
mutual aid and protection.
29 Industrial Refractories v. CA, 390 S 252
FACTS: Respondent Refractories Corporation of the Philippines (RCP) is a corporation duly
organized on October 13, 1976. On June 22, 1977, it registered its corporate and business
name with the Bureau of Domestic Trade.
Petitioner IRCP was incorporated on August 23, 1979 originally under the name "Synclaire
Manufacturing Corporation". It amended its Articles of Incorporation on August 23, 1985 to
change its corporate name to "Industrial Refractories Corp. of the Philippines".
Both companies are the only local suppliers of monolithic gunning mix.
Respondent RCP then filed a petition with the Securities and Exchange Commission to compel
petitioner IRCP to change its corporate name.
The SEC rendered judgment in favor of respondent RCP.
Petitioner appealed to the SEC En Banc. The SEC En Banc modified the appealed decision
and the petitioner was ordered to delete or drop from its corporate name only the word
"Refractories".
Petitioner IRCP filed a petition for review on certiorari to the Court of Appeals and the
appellate court upheld the jurisdiction of the SEC over the case and ruled that the corporate
names of petitioner IRCP and respondent RCP are confusingly or deceptively similar, and that
respondent RCP has established its prior right to use the word "Refractories" as its corporate
name.
Petitioner then filed a petition for review on certiorari
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

ISSUE: Are corporate names Refractories Corporation of the Philippines (RCP) and "Industrial
Refractories Corp. of the Philippines" confusingly and deceptively similar?
RULING: Yes, the petitioner and respondent RCP’s corporate names are confusingly and
deceptively similar.
The jurisdiction of the SEC is not merely confined to the adjudicative functions provided in
Section 5 of P.D. 902-A, as amended. By express mandate, it has absolute jurisdiction,
supervision and control over all corporations. It also exercises regulatory and administrative
powers to implement and enforce the Corporation Code, one of which is Section 18, which
provides:
“SEC. 18. Corporate name. — No corporate name may be allowed by the Securities and
Exchange Commission if the proposed name is 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. When a change in the corporate name is
approved, the Commission shall issue an amended certificate of incorporation under the
amended name.”
Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is
"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".
The policy behind said prohibition is to avoid fraud upon the public that will have occasion to
deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of
difficulties of administration and supervision over corporation.
It is the SEC’s duty to prevent confusion in the use of corporate names not only for the
protection of the corporations involved but more so for the protection of the public, and it has
authority to de-register at all times and under all circumstances corporate names which in its
estimation are likely to generate confusion. Clearly therefore, the present case falls within the
ambit of the SEC’s regulatory powers.
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There is confusing or deceptive similarity between petitioner and respondent RCP’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 on October 13, 1976 and since then has been using
the corporate name “Refractories Corp. of the Philippines”. Meanwhile, petitioner was
incorporated on August 23, 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 on August 23, 1985, or nine (9) years after
respondent RCP started using its name. Thus, being the prior registrant, respondent RCP 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.
While the word “refractories” is a generic term, its usage is not widespread and is limited
merely to the industry/trade in which it is used, and its continuous use by respondent RCP for
a considerable period has made the term so closely identified with it.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The Supreme Court denied the petition for review on certiorari due for lack of merit.
30 Ang Mga Kaanib Sa Iglesia ng Dios v. Iglesia, 12 December 2001
FACTS: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan
(Church of God in Christ Jesus, the Pillar and Ground of Truth), is a non-stock religious society
or corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several other
members of respondent corporation disassociated themselves from the latter and succeeded
in registering on March 30, 1977 a new non-stock religious society or corporation, named
Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan. Respondent corporation
filed with the SEC a petition to compel the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan
ng Katotohanan to change its corporate name to another name that is not similar or identical to
any name already used by a corporation, partnership or association registered with the
Commission. Petitioner is compelled to change its corporate name and be barred from using
the same or similar name on the ground that the same causes confusion among their
members as well as the public. SEC rendered a decision ordering petitioner to change its
corporate name. The Court of Appeals rendered the assailed decision affirming the decision of
the SEC En Banc.
ISSUE: Whether the court of appeals failed to properly appreciate the scope of the
constitutional guarantee on religious freedom.
RULING: The additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in
petitioner's name are, as correctly observed by the SEC, merely descriptive of and also
referring to the members, or kaanib, of respondent who are likewise residing in the Philippines.
These words can hardly serve as an effective differentiating medium necessary to avoid
confusion or difficulty in distinguishing petitioner from respondent. This is especially so, since
both petitioner and respondent corporations are using the same acronym — H.S.K.; not to
mention the fact that both are espousing religious beliefs and operating in the same place. The
fact that there are other non-stock religious societies or corporations using the names Church
of the Living God, Inc., Church of God Jesus Christ the Son of God the Head, Church of God
in Christ & By the Holy Spirit, and other similar names, is of no consequence. It does not
authorize the use by petitioner of the essential and distinguishing feature of respondent's
registered and protected corporate name. Ordering petitioner to change its corporate name is
not a violation of its constitutionally guaranteed right to religious freedom. In so doing, the SEC
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merely compelled petitioner to abide by one of the SEC guidelines in the approval of
partnership and corporate names, namely its undertaking to manifest its willingness to change
its corporate name in the event another person, firm, or entity has acquired a prior right to the
use of the said firm name or one deceptively or confusingly similar to it. The instant petition for
review is DENIED. The appealed decision of the Court of Appeals is AFFIRMED in toto.
31 Universal Mills v. Universal Textile Mills, 78 S 62
FACT: Universal Textile Mills Inc,(Appellant-respondent) register on December 29, 1953
appealed to the Securities and Exchange Commission ask it to enjoin Universal Mills
Corporation(Appellee-Petitioner) registered October 27, 1954, originally named Universal
Hosiery Mills Corporation change to the former in June 10, 1963. The immediate cause of this
present complaint, however, was the occurrence of a fire which gutted respondent’s spinning
mills in Pasig, Rizal. Petitioner alleged that as a result of this fire and because of the similarity
of respondent’s name to that of herein complainant, the news items appearing in the various
metropolitan newspapers carrying reports on the fire created uncertainty and confusion among
its bankers, friends, stockholders and customers prompting petitioner to make
announcements, clarifying the real Identity of the corporation whose property was burned.
Petitioner presented documentary and testimonial evidence in support of this allegation.
The SEC ruled that the similarity of the two names those constitute confusing, rendered a
decision, enjoining the petitioner in using its corporate name. Hence, the Petitioner went to the
SC to raise the issue below.
ISSUE: whether the order of the Commission enjoining petitioner to its corporate name
constitutes, in the light of the circumstances found by the Commission, a grave abuse of
discretion.
RULING: No. it cannot be said that the impugned order is arbitrary and capricious. Clearly, it
has rational basis. The corporate names in question are not Identical, but they are indisputably
so similar that even under the test of “reasonable care and observation as the public generally
are capable of using and may be expected to exercise” invoked by appellant, SC were
apprehensive confusion will usually arise, considering that under the second amendment of its
articles of incorporation on August 14, 1964, appellant included among its primary purposes
the “manufacturing, dyeing, finishing and selling of fabrics of all kinds” in which respondent had
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

been engaged for more than a decade ahead of petitioner. Factually, the Commission found
existence of such confusion, and there is evidence to support its conclusion.
It is obvious that the matter at issue is within the competence of the Securities and Exchange
Commission to resolve in the first instance in the exercise of the jurisdiction it used to possess
under Commonwealth Act 287 as amended by Republic Act 1055 to administer the application
and enforcement of all laws affecting domestic corporations and associations, reserving to the
courts only conflicts of judicial nature, and, of course, the Supreme Court’s authority to review
the Commissions actuations in appropriate instances involving possible denial of due process
and grave abuse of discretion.
It does not matter that the instance of confusion between the two corporate names was
occasioned only by a fire or an extraordinary occurrence. It is precisely the duty of this
Commission to prevent such confusion at all times and under all circumstances not only for the
purpose of protecting the corporations involved but more so for the protection of the public.
32 Lyceum of the Phil. v. CA, 219 S 610
FACTS: Petitioner Lyceum of the Philippines had commenced before the SEC a proceeding
against the Lyceum of Baguio to change its corporate name alleging that the 2 names are
substantially identical because of the word ‘Lyceum’. SEC found for petitioner and the SC
denied the consequent appeal of Lyceum of Baguio in a resolution. Petitioner then basing its
ground on the resolution, wrote to all educational institutions which made use of the word
‘Lyceum’ as part of their corporate name to discontinue their use. When this recourse failed,
petitioner moved before the SEC to enforce its exclusive use of the word ‘Lyceum.’ Petitioner
further claimed that the word ‘Lyceum’ has acquired a secondary meaning in its favor. The
SEC Hearing Officer found for petitioner. Both SEC En Banc and CA ruled otherwise.
ISSUES: (1) Whether or not ‘Lyceum’ is a generic word which cannot be appropriated by
petitioner to the exclusion of others.
(2) Whether or not the word ‘Lyceum’ has acquired a secondary meaning in favor of petitioner.
(3) Whether or not petitioner is infringed by respondent institutions’ corporate names.
RULING: (1) YES. “Lyceum” is in fact as generic in character as the word “university.” In the
name of the petitioner, “Lyceum” appears to be a substitute for “university;” in other places,
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however, “Lyceum,” or “Liceo” or “Lycee” frequently denotes a secondary school or a college.
It may be that the use of the word “Lyceum” may not yet be as widespread as the use of
“university,” but it is clear that a not inconsiderable number of educational institutions have
adopted “Lyceum” or “Liceo” as part of their corporate names. Since “Lyceum” or “Liceo”
denotes a school or institution of learning, it is not unnatural to use this word to designate an
entity which is organized and operating as an educational institution.
(2) 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.
(3) NO. We do not consider that the corporate names of private respondent institutions are
“identical with, or deceptively or confusingly similar” to that of the petitioner institution. True
enough, the corporate names of private respondent entities all carry the word “Lyceum” but
confusion and deception are effectively precluded by the appending of geographic names to
the word “Lyceum.” Thus, we do not believe that the “Lyceum of Aparri” can be mistaken by
the general public for the Lyceum of the Philippines, or that the “Lyceum of Camalaniugan”
would be confused with the Lyceum of the Philippines. We conclude and so hold that
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.
33 Indiana Aerospace University v. CHED, 4 April 2001
FACTS: Dr. Reynaldo Vera, Chairman, Technical Panel for Engineering, Architecture, and
Maritime Education (TPRAM) of CHED, received a letter from Douglas Macias, Chairman,
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Board of Aeronautical Engineering of PRC and Chairman, Technical Committee for
Aeronautical Engineering inquiring whether Indiana Aerospace University (Indiana) had
already acquired its University status in view of the its advertisement in the Manila Bulletin.
In response to said letter, Dr. Vera requested the concerned Regional Office to conduct an
investigation on the alleged misrepresentation. The investigation was then made by the
Regional Director of Cebu. The report made states that the Director met with Indiana’s
principal to advise them not to use “University” unless the school had complied with the basic
requirement of being a university as prescribed in CHED Memorandum (CMO) Order No. 48,
s. 1996.
CHED directed Indiana to desist from using the term “university” including the use of the same
in any of its branches. Subsequently, CHED found out that Indiana had filed a proposal to
amend its corporate name from “Indiana School of Aeronautics” to “Indiana Aerospace
University” which was supposedly favorably recommended by the Department of Education,
Culture and Sports (DECS) per its Indorsement dated 17 July 1995, and on that basis, SEC
issued to petitioner Certificate of Registration No. AS-083-002689 dated August 7, 1995.
However, SEC Chairman Perfecto Yasay, Jr. informed CHED in his letter that Indiana has not
filed any amended Articles of Incorporation that changed its corporate name.
Thereafter, Indiana filed an appeal for reconsideration of CHED’s order, promising to follow the
provisions of CMO No. 48. However, CHED rejected said appeal and ordered Indiana to cease
and desist from using the word “university” Consequently, Indiana filed a complaint for
damages with prayer for Writ of Preliminary injunction and TRO before the RTC. Said court
issued the Writ of Preliminary Injunction which was later dissolved by the CA.
The CA ruled that petitioner had no cause of action against respondent. Petitioner failed to
show any evidence that it had been granted university status by respondent as required under
existing law and CHED rules and regulations.
ISSUE: Is Indiana authorized to use the term “University” in its corporate name?
RULING: NO, because Indiana failed to establish a clear right to continue representing itself
to the public as a university.
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There is nothing in the Corporation Code and SEC laws which grants the power or authority to
confer University Status to an educational institution. Fundamental is the rule that when there
is no power granted, none exist[s], not even implied ones for there is none from where to infer.
The mere fact of securing an alleged Certificate of Incorporation under an unauthorized name
does not confer the right to use such name. Also, the SEC expressly stated that Indiana never
filed any Amended Articles of Incorporation so as to have a change of corporate name to
include the term “university” Accordingly, the establishment and the operation of schools are
subject to prior authorization from the government. No school may claim to be a university
unless it has first complied with the prerequisites provided in Section 34 of the Manual of
Regulations for Private Schools.
34 Philips Export BV v. CA, 206 S 457
FACTS: Petitioner is a foreign corporation organized under the laws of Netherlands although
not engaged in any business here in the Philippines, is the registered owner of the trademarks
Philips and Philips Shield Emblem. Petitioners Philips Electrical Lamps, Inc, and Philips
Industrial Development Inc are the authorized users of the trademark of petitioner Philips BV.
All petitioner corporations belong to the Philips Group of Companies.
Private respondent Standard Philips Corporation was issued a certificate of registration by the
respondent Securities and Exchange Commission. Petitioner filed a letter complaint with the
SEC asking for the cancellation of the word “Philips” from private respondent’s corporate name
in view of its prior registration with the Bureau of Patent alleging that private respondent’s use
of the word Philips amounts to an infringement and clear violation of petitioner’s exclusive right
to use the same considering that both parties are engaged in the same business.
ISSUE: Whether or not Standard Philips’ use of the word PHILIPS amounts to an infringement
and clear violation of Petitioner's exclusive right to use the same considering that both parties
engage in the same business.
RULING: YES. The requisite no less exists in this case. 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. In so doing, the Court must look to the record
as well as the names themselves. While the corporate names of Petitioners and Private
Respondent are not identical, a reading of Petitioner's corporate names, to wit: PHILIPS
EXPORT B.V., PHILIPS ELECTRICAL LAMPS, INC. and PHILIPS INDUSTRIAL
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

DEVELOPMENT, INC., inevitably leads one to conclude that "PHILIPS" is, indeed, the
dominant word in that all the companies affiliated or associated with the principal corporation,
PEBV, are known in the Philippines and abroad as the PHILIPS Group of Companies. It is
settled that proof of actual confusion need not be shown.
It suffices that confusion is probably or likely to occur. Under the Guidelines in the Approval of
Corporate and Partnership Names formulated by the SEC, the proposed name "should not be
similar to one already used by another corporation or partnership. If the proposed name
contains a word already used as part of the firm name or style of a registered company, the
proposed name must contain two other words different from the company already registered".
Private Respondents' name, however, contains only a single word, that is, "STANDARD",
different from that of Petitioners inasmuch as the inclusion of the term "Corporation" or "Corp."
merely serves the purpose of distinguishing the corporation from partnerships and other
business organizations. It is obvious that private respondent’s choice of Philips as part of its
corporate name tends to show said respondent’s intention to ride on the popularity and
established goodwill of the said petitioner’s business throughout the world. The subsequent
appropriator of the name or one-confusingly similar thereto usually seeks an unfair advantage,
a free ride on another’s goodwill.
Besides, there is showing that private respondent not only manufactured and sold ballasts for
fluorescent lamps with their corporate name printed thereon but also advertised the same as
Standard Philips.
35 Laureano Investment v. CA, 272 S 253
FACTS: Spouses Reynaldo Laureano and Florence Laureano are majority stockholders of
LAUREANO INVESTMENT & DEVELOPMENT CORPORATION. They entered into a series
of loan and credit transactions with Philippine National Cooperative Bank (PNCB). To secure
payment of the loans, they executed Deeds of Real Estate Mortgage. In view of their failure to
pay their indebtedness, PNCB applied for extrajudicial foreclosure of the real estate
mortgages.
Bormaheco, Inc. became the successor of the obligations and liabilities of PNCB over subject
lots by virtue of a Deed of Sale/Assignment.
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Bormaheco, Inc. filed an ex-parte petition with the Registry of Deeds of Makati for the issuance
of a writ of possession over various lots that it bought from a bank.
A motion for intervention was filed by LIDECO Corporation for certain adverse claims.
Bormaheco opposed the motion on the ground that Lideco has no personality to sue because
it is not a juridical entity. Apparently, Lideco is not a corporation registered with the Securities
and Exchange Commission. Bormaheco’s opposition was granted.
Lideco assailed the decision on the ground that LIDECO is an acronym for Laureano
Investment & Development Corporation which is a duly organized corporation.
Both the lower court and CA rendered a decision in favor of Bormaheco.
ISSUE: May a plaintiff/petitioner which purports to be a corporation validly bring suit under a
name other than that registered with the Securities and Exchange Commission?
RULING: Section 1, Rule 3 of the Rules of Court provides that only natural or juridical persons
or entities authorized by law may be parties to a civil action. Under the Civil Code, a
corporation has a legal personality of its own (Article 44), and may sue or be sued in its name,
in conformity with the laws and regulations of its organization (Article 46). Additionally, Article
36 of the Corporation Code similarly provides:
Art. 36. Corporate powers and capacity. — Every corporation incorporated under this Code
has the power and capacity:
1. To sue and be sued in its corporate name;
In the case at bar, “Lideco Corporation” had no personality to intervene since it had not been
duly registered as a corporation. If petitioner legally and truly wanted to intervene, it should
have used its corporate name as the law requires and not another name which it had not
registered. Indeed, as the Respondent Court found, nowhere in the motion for intervention and
complaint in intervention does it appear that “Lideco Corporation” stands for Laureano
Investment and Development Corporation. Bormaheco, Inc., thus, was not estopped from
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

questioning the juridical personality of “Lideco Corporation,” even after the trial court had
allowed it to intervene in the case.
A corporation cannot sue under a name other than that registered with the SEC. The
contention that Laureano Investment & Development Corporation merely used the
abbreviation is not tenable. “Lideco Corporation” had no personality to intervene since it had
not been duly registered as a corporation.
36 Gala v. Ellice, 418 S 431
FACTS: Ellice Agro-Industrial Corporation was formed by spouses Manuel and Alicia Gala,
their children Guia Domingo, Ofelia Gala, Raul Gala, and Rita Benson, and their encargados
Virgilio Galeon and Julian Jader. The spouses transferred several parcels of land as payment
of their subscriptions. Subsequently, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio Galeon
and Julian Jader incorporated the Margo Management and Development Corporation. Manuel
Gala then transferred his shares in Ellice to Margo and Raul Gala. Alicia transferred her
shares to de Villa, Ofelia, Raul and Margo. de Villa later on transferred his shares to Margo.
A special stockholders meeting of Margo was held where Raul Gala was elected as chairman.
During the meeting, the board approved several actions, including the commencement of
proceedings to annul certain dispositions of Margos’ property made by Alicia Gala. The board
also resolved to change the name of the corporation to MRG Management and Development
Corporation. Similarly, a special stockholders meeting of Ellice was held to elect a new board
of directors where Raul Gala, likewise, was elected as chairman.
Respondents filed against petitioners with the SEC a petition for the appointment of a
management committee or receiver, accounting and restitution by the directors and officers,
and the dissolution of Ellice Agro-Industrial Corporation for alleged mismanagement, diversion
of funds, financial losses and the dissipation of assets. Petitioners initiated a complaint against
the respondents praying for, among others, the nullification of the elections of directors and
officers of both Margo Management and Development Corporation and Ellice Industrial
Corporation and the return of all titles to real property in the name of Margo and Ellice, as well
as all corporate papers and records of both Margo and Ellice which are in the possession and
control of the respondents.
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ISSUE: Whether or not SEC has authority to inquire on the matters
RULING: The Court holds that petitioners’ contentions impugning the legality of the purposes
for which Ellice and Margo were organized, amount to collateral attacks which are prohibited in
this jurisdiction.
The best proof of the purpose of a corporation is its articles of incorporation and by-laws. The
articles of incorporation must state the primary and secondary purposes of the corporation,
while the by-laws outline the administrative organization of the corporation, which, in turn, is
supposed to insure or facilitate the accomplishment of said purpose.
In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign
of the allegedly illegal purposes that petitioners are complaining of.
If a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has
no authority to inquire whether the corporation has purposes other than those stated, and
mandamus will lie to compel it to issue the certificate of incorporation.
Assuming there was even a grain of truth to the petitioners’ claims regarding the legality of
what are alleged to be the corporations’ true purposes, we are still precluded from granting
them relief. We cannot address here their concerns regarding circumvention of land reform
laws, for the doctrine of primary jurisdiction precludes a court from arrogating unto itself the
authority to resolve a controversy the jurisdiction over which is initially lodged with an
administrative body of special competence.
With regard to their claim that Ellice and Margo were meant to be used as mere tools for the
avoidance of estate taxes, suffice it say that the legal right of a taxpayer to reduce the amount
of what otherwise could be his taxes or altogether avoid them, by means which the law
permits, cannot be doubted.
Thus, even if Ellice and Margo were organized for the purpose of exempting the properties of
the Gala spouses from the coverage of land reform legislation and avoiding estate taxes, we
cannot disregard their separate juridical personalities.
Corporation Law JD2-2023
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School of Law
Saint Louis University

37 Heirs of Pael v. CA, 7 December 2001
FACTS: Maria Destura filed a complaint against Jorge Chin, Renato Mallari and her own
husband, Pedro Destura in the RTC.
Previously, Pedro, had filed a substantially similar complaint against the same defendants,
Chin and Mallari, for annulment of title, reconveyance and SP, damages and nullification of the
MOA. The trial court issued an Order dismissing the complaint for lack of cause of action.
Pedro appealed to the CA.
Inspite of the decision against her husband, Maria filed a similar action one month after the
decision was rendered. The trial court in the Maria case, rendered judgment by default
nullifying the MOA and ordering the cancellation of Chin's and Mallari's titles and did not award
any affirmative relief to Maria but instead, ordered the reinstatement of TCT in the names of
the Paels, who were non-parties in the case.
From the adverse decision and order of the trial court, Chin and Mallari filed a petition for
annulment of judgment before the CA and rendered the assailed decision, declaring as null
and void both the cancellation of their titles over the subject property and reinstatement of the
title in the names of the Paels.
While the petition for annulment was pending before the CA, or on January 28, 1998, a certain
corporation called PFINA Properties, Inc. filed a motion for leave of court to intervene and to
admit petition-in-intervention. It alleged that PFINA acquired the property subject of the
litigation for substantial and valuable consideration from the Paels, by virtue of a deed of
assignment dated January 25, 1983, and that the title was issued in its name by the Paels.
This motion was opposed by Chin and Mallari. They cite the fact that the alleged acquisition of
the property by PFINA supposedly occurred as early as January 25, 1983, and for fifteen (15)
years, inspite of numerous proceedings before different courts and agencies involving the
disputed property, both the Paels and PFINA were silent about the alleged change of
ownership. No steps to register the sale or secure transfer titles were undertaken during this
period.
The new title was obtained by PFINA by the RD despite its knowledge that there was a
pending case for annulment before the appellate court.
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Atty. Cleofe, the RD of QC who cancelled the TCT in the names of Paels, and issued the new
title in the name of PFINA acted in gross and evident bad faith. Not only was the Register a
party respondent fully knowledgeable and served with all processes in the annulment case, but
the petition before the CA was also annotated at the back of the title of the Paels.
Only after a period of fifteen (15) years did PFINA come forward to present the deed and claim
the subject properties. The said deed and the circumstances surrounding its issuance are
suspect. The deed may be fabricated and the signatures of the parties and witnesses forged.
The CA gave credence to the objections interposed by private respondents. In its Resolution, it
cited badges or indicia of fraud in the alleged acquisition of the property by PFINA as well as
the cancellation of the title of the Paels and issuance of a new title in favor of PFINA.
ISSUE: Whether or not PFINA can acquired the property subject of the litigation for substantial
and valuable consideration from the Paels by virtue of a deed of assignment
RULING: NO. The Court ruled that the trial court's decision is not only erroneous but is void
from the beginning as the title was given to the Paels despite the fact that they were not
parties and had been total strangers to the said case. They were never impleaded nor did they
intervene in the case wherein the disputed property was awarded to them. The Court also
upheld the appellate court in ruling that Maria Destura's complaint should have been dismissed
on the ground of litis pendentia and res judicata, considering that her husband Pedro Destura
had earlier filed a complaint against respondents Chin and Mallari, for, among others,
annulment of their titles and annulment of the MOA.
The highly anomalous and deplorable conduct of the RD in registering the reinstated title in
favor of the Paels who were non-parties to the case, inspite of his being a defendant in the
case, resulted in the sale of this vast tract of land by the Paels to anybody right and left,
including PFINA, and presumably others who have not come forward to intervene in this case.
The Paels, having no longer any right over the subject property, had nothing to sell to PFINA.
Therefore, the title obtained by PFINA allegedly by virtue of the deed of assignment executed
by the Paels in its favor is a nullity. Worse, the RD connived and conspired with PFINA when
the former registered the deed of assignment on the basis of fake and spurious documents.
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School of Law
Saint Louis University

Further, the CA also found it unbelievable for PFINA to acquire extremely valuable real estate
in Quezon City for only P30.00 per square meter. In 1983, PFINA Mining and Exploration, Inc.
was a mining company. It changed its corporate name to PFINA Properties, Inc., only on
January 22, 1998, six (6) days before filing its petition-in-intervention with the CA. In its
petition, PFINA claimed to have bought urban real estate in 1983, notwithstanding that at the
time it was still a mining company which had no business dabbling in the highly speculative
urban real estate trade.
38 Uy Siulong v. Director, 40 P 541
FACTS: The purpose of this action is to obtain the writ of mandamus to require the respondent
to file and register... a certificate under the seal of the office of said respondent, certifying that
the articles of incorporation have been duly filed and registered in his office in accordance with
the law.
petitioners had been associated together as partners, which partnership was known as a
"mercantil regular colectiva," under the style and firm name of "Siuliong y Cia... the petitioners
herein, who had theretofore been members of said partnership of "Siuliong y Cia.," desired to
dissolve said partnership and to form a corporation composed of the same persons as
incorporators, to be known as "Siuliong y Compania, Incorporada;"... the purpose of said
corporation, "Siuliong y Cia., Inc.," is (a) to acquire the business of the partnership theretofore
known as Siuliong & Co., and (5) to continue said business with some of its objects or
purposes;... the articles of incorporation of "Siuliong y Cia., Inc." states that its purpose is to
acquire and continue the business, with some of its objects or purposes, of Siuliong & Co.,...
upon an examination of the purposes enumerated in the proposed articles... of incorporation of
"Siuliong y Cia., Inc.," that some of the purposes of the original partnership of "Siuliong y Cia."
have been omitted. For example, the articles of partnership of "Siuliong y Cia." gave said
company the authority to purchase and sell all classes "de fmcas... rusticas y urbanas [of rural
and city real estate]" as well as the right to act as agents for the establishment of any other
business which it might esteem convenient for the interests of "la compania [the company]"
The respondent in his argument in support of the demurrer contends (a) that the proposed
articles of incorporation presented for file and registry permitted the petitioners to engage in a
business which had for its end more than one purpose; (6) that it permitted the petitioners... to
engage in the banking business, and (c) to deal in real estate, in violation of the Act of
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Congress of July 1, 1902... petitioners in this case are desirous of forming a corporation to
take over and continue a business which for a number of years has been conducted in the city
of Manila as an ordinary collective mercantile partnership under the name of "Siuliong y
Compania." To this end it... is necessary that the articles of incorporation should be filed in the
office of the Director of Commerce and Industry, who, it appears, has withheld approval of the
articles submitted to him and has refused to file the same in his office.
The position taken by the Director of Commerce and Industry is that the articles of the
proposed corporation state more than one corporate purpose, contrary to the provisions of Act
No. 1459 (the Corporation Law).
The object for which said corporation is organized are: to acquire the business of the regular
partnership 'Siuliong y Compafiia,' and to continue operating said business in all its parts, and,
incidental to the principal object, the corporation shall... have powers to transact the following:
the buying and selling, importation and exportation, of native as well as foreign merchandise;
the discount of promissory notes, bills of exchange and other negotiable instruments; the
buying and selling of bills of exchange, bonds, shares,... and interests in mercantile and
industrial partnerships; commissions; consignments; life, maritime, and fire insurance: the
buying and selling of vessels of all kinds and charterage of same; and the buying and selling of
industrial or mercantile plants.
ISSUES: Whether... or not a corporation organized for commercial purposes in the Philippine
Islands can be organized for more than one purpose.
RULING: A corporation may be organized under the laws of the Philippine Islands for
mercantile purposes, and to engage in such incidental business as may be necessary and
advisable to give effect to, and aid in, the successful operation and conduct of the principal
business.
In the present case... all of the power and authority included in the articles of incorporation of
Siuliong y Cia., Inc.," enumerated above in paragraph 4 (Exhibit A) are only incidental to the
principal purpose of said proposed incorporation, to wit: "mercantile business."... the proposed
articles of incorporation do not authorize the petitioners to engage in a business with more
than one purpose, we do not mean to be understood as having decided that corporations
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University
 Case Digest Compilation
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Page 44 of 148

under the laws of the Philippine Islands... may not engage in a business with more than one
purpose. Such an interpretation might work a great injustice to corporations. Whether or not the chief of the division of archives has authority
under the corporation law on being presented with articles of incorporation for registration to
The court ruled that the proposed articles of incorporation did not violate the laws of the decide not only as to the sufficiency of the form
Philippines. A corporation in the Philippines could be organized for mercantile purposes and of the articles but also as to the lawfulness of the purposes of the proposed corporation.
engage in incidental businesses necessary and advisable to support its principal purpose,
which was mercantile business. RULING: The purpose of the incorporation as stated in the articles is:
That the object of the corporation is:
The powers and authority included in the articles of incorporation of "Siuliong y Compania,
Incorporada" were considered incidental to the primary purpose of mercantile business. a. To organize and regulate the management, disposition, administration and control
which the barrio of Pulo or San Miguel or its inhabitants or residents have over the
The court emphasized that the proposed articles, while somewhat loosely worded, primarily common property of said residents or inhabitants or property belonging to the whole
aimed at engaging in mercantile activities, and the other mentioned activities were subsidiary barrio as such; and
to this primary purpose. b. To use the natural products of the said property for institutions, foundations, and
charitable works of common utility and advantage to the barrio or its inhabitants.
The court clarified that it did not decide whether corporations in the Philippines could be
organized for more than one purpose, but they found that this particular corporation's purposes The municipality of Pasig as recognized by law contains within its limits several barrios or
were not in violation of the law. small settlements, like Pulo or San Miguel, which have no local government of their own but
are governed by the municipality of Pasig through its municipal president and council. The
president and members of the
39 Asuncion v. De Yriarte, 28 P 67 municipal council are elected by a general vote of the municipality, the qualified electors of all
FACTS: Manuel De Yriarte (respondent), the Chief of Division of Archives of the Executive the barrios having the right to participate.
Bureau, refused to file certain articles of incorporation on the ground that the object of the
corporation was not lawful and were not registerable. The municipality of Pasig is a municipal corporation organized by law. It has the control of all
property of the municipality. The various barrios of the municipality have no right to own or
The proposed incorporators filed a complaint before the CFI of Manila to compel the chief of hold property, they are not being recognized as legal entities by any law. The residents of the
the division of archives to receive and register the articles of incorporation and to do any and barrios participate in the advantages which accrue to the municipality from public property and
all acts necessary to complete the incorporation of the persons named in the articles. receive all the benefits incident to residence in a municipality organized by law. If there is any
public property situated in the barrio of Pulo or San Miguel not belonging to the general
The CFI ruled in favor of the respondent and refused to order the registration of the AOI. It government or the province, it belongs to the municipality of Pasig and the sole authority to
maintained that the defendant had the authority to determine both the sufficiency of the form of manage and administer the same resides in that municipality. Until the present laws upon the
the articles as well as the legality of the object of the proposed corporation. subject are charged no other entity can be the owner of such property or control or administer
it.
ISSUE: Whether or not the purposes of the corporation as stated in the AOI are lawful within
the meaning of the Corporation Law.

Corporation Law JD2-2023

Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The object of the proposed corporation, as appears from the articles offered for registration, is
to make the barrio of Pulo or San Miguel a corporation which will become the owner of and
have
the right to control and administer any property belonging to the municipality of Pasig found
within the limits of that barrio. This clearly cannot be permitted. Otherwise, municipalities as
now established by law could be deprived of the property which they now own and administer.
Each barrio of the municipality would become under the scheme proposed, a separate
corporation, would take over the ownership, administration, and control of that portion of the
municipal territory within its limits. This would disrupt, in a sense, the municipalities of the
Islands by dividing them into a series of smaller municipalities entirely independent of the
original municipality.
What the law does not permit cannot be obtained by indirection. The object of the proposed
corporation is clearly repugnant to the provisions of the Municipal Code and the governments
of
municipalities as they have been organized thereunder.
40 Pilipinas Shell v. Royal, 1 February 2017
FACTS: On August 28, 2005, Royal Ferry Services Inc. filed a petition for Voluntary Insolvency
before the Regional Trial Court of Manila. In its Petition stated therein , in the year 2000, the
company suffered business losses. Efforts were made to revive its financial condition but
failed. The business ceased its operations. A special board meeting was held and was
approved and authorized by the members of the board to allow the company to file a Petition
for insolvency.
In retrospect of the company, it is a corporation duly organized and existing under the
Philippine Laws and was holding its principal business office address in Bangkal Street, Makati
City but holds its Office at Room 203 at Bf condominium Building , Intramuros , Manila at the
time the Petition was filed.
On December 19, 2005, the Regional Trial Court of Manila issued an order, granting the
petition declaring the Royal Ferry Services insolvent.
The Court orders:
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The Branch Sheriff to take possession of, and safely keep until the appointment, of an
Assignee all the deeds, vouchers, books of accounts, papers, notes, bills and
securities of the petitioner and all its real and personal properties, estates and effects
not exempt from execution;
All persons and entities owing money to petitioner are hereby forbidden to make
payment for its accounts or to deliver or transfer any property to petitioner except to
the duly elected Assignee;
All civil proceedings against petitioner are deemed stayed;
For purposes of electing an Assignee, a meeting of all creditors of the petitioner is
hereby set on February 24, 2006 at 8:30 a.m. before this Court, at Room 435, Fourth
Floor, Manila City Hall Building.
The said order was published in a newspaper of general circulation for three consecutive
weeks furnishing copies to all creditors of the company in the schedule of creditors.
On December 23, 2005, Pilipinas Shell Petroleum filed before the Regional Trial Court of
Manila a Formal Notice of Claim and a Motion to Dismiss claiming that the respondent Royal
Ferry Services Inc owes them the amount of P 2,769,387.67 and the Petition for Insolvency
was filed erroneously filed in a wrong venue. The petitioners argued that in Insolvency Law, a
petition for Insolvency should be filed before he Court with territorial jurisdiction over the
company's residence. In its Article of Incorporation, respondent's principal business address is
situated in Makati City would it be the Petition for Insolvency should be filed before the Court of
Makati.
The petitioners Motion was denied by the Court on January 30, 2006 for lack of merit.
Thereafter, Pilipinas Shell moved for a reconsideration on February 24, 2006.
On June 15, 2006, Regional Trial Court reconsidered the denial of Pilipinas Shell Motion to
Dismiss and reconsider its order dated January 30, 2006. The Petition for Voluntary Insolvency
was ordered DISMISSED.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The respondent filed a Notice of Appeal on October 26, 2006 and the records was forwarded
to the Court of Appeals.
The Appellate Court ruled reinstating the Insolvency proceedings setting aside the Trial Court
order dated June 15, 2006.
ISSUES: Whether or not the Petition for Voluntary Insolvency was filed in a proper venue
where the company's residence is situated.
RULING: The Supreme Court ruled, AFFIRMED the decision of the Court of Appeals
reinstating the Petition for Voluntary Insolvency filed by the respondent before the Regional
Trial Court of Manila.
The Petition for certiorari filed by Pilipinas Shell was ordered Denied.
The respondent Royal Ferry Services is a resident of Manila in its actual operations of its
business when the Petition for Insolvency was filed. It was not opposed as stated in the
Articles of Incorporation of the respondent that its principal business address is situated in
Makati is no longer accurate and existing.
Facts has been proven that the actual use and venue of the respondent's business operations
is in Manila when the Court Sheriff implemented the order of the Court dated December 19,
2005.
The Petition for Insolvency was properly filed before the Regional Trial Court of Manila.
Jurisdiction is "the power to hear and determine cases of the general class to which the
proceedings in question belong." Jurisdiction is a matter of substantive law. Thus, an action
may be filed only with the court or tribunal where the Constitution or a statute says it can be
brought. Objections to jurisdiction cannot be waived and may be brought at any stage of the
proceedings, even on appeal. When a case is filed with a court which has no jurisdiction over
the action, the court shall motu proprio dismiss the case.
On the other hand, venue is "the place of trial or geographical location in which an action or
proceeding should be brought." In civil cases, venue is a matter of procedural law. A party's
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objections to venue must be brought at the earliest opportunity either in a motion to dismiss or
in the answer; otherwise, the objection shall be deemed waived. When the venue of a civil
action is improperly laid, the court cannot motu proprio dismiss the case.
Wrong venue is merely a procedural infirmity, not a jurisdictional impediment. Jurisdiction is a
matter of substantive law, while venue is a matter of procedural law. Jurisdiction is conferred
by law, and the Insolvency Law vests jurisdiction in the Court of First Instance—now the
Regional Trial Court.
Section 14 of the Insolvency Law specifies that the proper venue for a petition for voluntary
insolvency is the Regional Trial Court of the province or city where the insolvent debtor has
resided in for six (6) months before the filing of the petition. In this case, the issue of which
court is the proper venue for respondent's Petition for Voluntary Insolvency comes from the
confusion on an insolvent corporation's residence.
SECTION 4. When Rule not applicable. — This Rule shall not apply. (a) In those cases where
a specific rule or law provides otherwise; or(b) Where the parties have validly agreed in writing
before the filing of the action on the exclusive venue thereof. As there is a specific law that
covers the rules on venue, the Rules of Court do not apply.
The old Insolvency Law provides that in determining the venue for insolvency proceedings, the
insolvent corporation should be considered a resident of the place where its actual place of
business is located six (6) months before the filing of the petition: Sec. 14. Application. — An
insolvent debtor, owing debts exceeding in amount the sum of one thousand pesos, may apply
to be discharged from his debts and liabilities by petition to the Court of First Instance of
province or city in which he has resided for six months next preceding the filing of such
petition. In his petition he shall set forth his place of residence, the period of his residence
therein immediately prior to filing said petition, his inability to pay all his debts in full, his
willingness to surrender all his property, estate, and effects not exempt from execution for the
benefit of his creditors, and an application to be adjudged an insolvent. He shall annex to his
petition a schedule and inventory in the form herein-after provided. The filing of such petition
shall be an act of insolvency.
To determine the venue of an insolvency proceeding, the residence of a corporation should be
the actual place where its principal office has been located for six (6) months before the filing
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

of the petition. If there is a conflict between the place stated in the articles of incorporation and
the physical location of the corporation's main office, the actual place of business should
control. Requiring a corporation to go back to a place it has abandoned just to file a case is the
very definition of inconvenience. There is no reason why an insolvent corporation should be
forced to exert whatever meager resources it has to litigate in a city it has already left.
In any case, the creditors deal with the corporation's agents, officers, and employees in the
actual place of business. To compel a corporation to litigate in a city it has already abandoned
would create more confusion. Moreover, the six (6)-month qualification of the law's
requirement of residence shows intent to find the most accurate location of the debtor's
activities. If the address in a corporation's articles of incorporation is proven to be no longer
accurate, then legal fiction should give way to fact.
Respondent is a resident of Manila. The law should be read to lay the venue of the insolvency
proceeding in the actual location of the debtor's activities. If it is uncontroverted that
respondent's address in its Articles of Incorporation is no longer accurate, legal fiction should
give way to fact. Thus, the Petition was correctly filed before the Regional Trial Court of
Manila.
41 Davao Light and Power Co. v. CA, 20 August 2001
FACTS: On April 10, 1992, Davao Light & Power Co., Inc. filed a complaint for damages
against Francisco Tesorero before the RTC of Cebu City, Branch 11. The complaint prayed for
damages in the amount of P11M.
In lieu of an answer, Tesorero filed a motion to dismiss, claiming that: (a) the complaint did not
state a cause of action; (b) Davao Light's claim has been extinguished or otherwise rendered
moot and academic; (c) there was non-joinder of indispensable parties; and (d) venue was
improperly laid. Of these four (4) grounds, the last mentioned is most material in the case at
bar.
On August 3, 1992, the RTC issued a Resolution dismissing Davao Light's complaint against
Tesorero on the ground of improper venue. The court ruled that because Davao Light
indicated in its previous contracts with NAPOCOR that its principal office was in Davao City, it
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was therefore barred from claiming that its principal office was in Banilad, Cebu City. As such,
the complaint should have been filed in Davao City.
CA affirmed RTC's ruling. Hence, the instant petition.
ISSUE: Whether Davao Light's filing of a personal action for damages against Tesorero
before the Cebu City RTC was proper.
RULING: Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred
by consent or waiver upon a court which otherwise would have no jurisdiction over the subject-
matter of an action; but the venue of an action as fixed by statute may be changed by the
consent of the parties and an objection that the plaintiff brought his suit in the wrong county
may be waived by the failure of the defendant to make a timely objection. In either case, the
court may render a valid judgment. Rules as to jurisdiction can never be left to the consent or
agreement of the parties, whether or not a prohibition exists against their alteration.
It is private respondents contention that the proper venue is Davao City, and not Cebu City
where petitioner filed the civil case for damages. Private respondent argues that petitioner is
estopped from claiming that its residence is in Cebu City, in view of contradictory statements
made by petitioner prior to the filing of the action for damages.
First, private respondent adverts to several contracts entered into by petitioner with the
National Power Corporation (NAPOCOR) where in the description of personal circumstances,
the former states that its principal office is at 163-165 P. Reyes St., Davao City. According to
private respondent the petitioner’s address in Davao City, as given in the contracts, is an
admission which should bind petitioner.
In addition, private respondent points out that petitioner made several judicial admissions as to
its principal office in Davao City consisting principally of allegations in pleadings filed by
petitioner in a number of civil cases pending before the RTC of Davao in which it was either a
plaintiff or a defendant.
As held by this Court in Young Auto Supply Co. v. CA, in the Regional Trial Courts, all
personal actions are commenced and tried in the province or city where the defendant or any
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University
 Case Digest Compilation
Dulawan, Whinston
Page 48 of 148

of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, Clavecilla filed a motion to dismiss on the ground of failure to state a cause of action and
at the election of the plaintiff. improper venue.

It cannot be disputed that petitioners principal office is in Cebu City, per its amended articles of
incorporation and by-laws.
An action for damages being a personal action, venue is determined pursuant to Rule 4,
section 2 of the Rules of Court, to wit:
Venue of personal actions. All other actions may be commenced and tried where the plaintiff
or any of the principal plaintiffs resides, or where the defendant or any of the principal
defendants resides, or in the case of a non-resident defendant where he may be found, at the
election of the plaintiff.
Private respondent is not a party to any of the contracts presented before us. He is a complete
stranger to the covenants executed between petitioner and NAPOCOR, despite his
protestations that he is privy thereto, on the rather flimsy ground that he is a member of the
public for whose benefit the electric generating equipment subject of the contracts were leased
or acquired.
We are likewise not persuaded by his argument that the allegation or representation made by
petitioner in either the complaints or answers it filed in several civil cases that its residence is
in Davao City should estop it from filing the damage suit before the Cebu courts. Besides there
is no showing that private respondent is a party in those civil cases or that he relied on such
representation by petitioner.
City Judge of CDO denied the MTD. Clavecilla filed a petition for prohibition with preliminary
Injunction with the CF praying that the City Judge be enjoined from further proceeding with the
case because of improper venue.
CFI - dismissed the case and held that Clavecilla may be sued either in Manila (principal
office)
or in CDO (branch office)
Clavecilla appealed to the SC contending that the suit against it should be filed in Manila
where
it holds its principal.
ISSUE: Whether or not the present case against Clavecilla should be filed in Manila where it
holds its principal office.
RULING: Yes. It is clear that the case from damages is based upon a written contract. Under
par. b) (3) Sec. 1 Rule 4 of the New Rules of Court, when an action is not upon a written
contract then the case should be tiled in the municipality where the defendant or any of the
defendant resides or maybe served upon with summons.
In corporation law the residence of the corporation is the place where the principal office is
established. Since Clavecilla's principal office is in Manila. then the suit against it may properly
be filed in the City of Manila

42 Clavecilla Radio System v. Antillon, 19 S 379
FACTS: New Cagayan Grocery (NECAGRO) filed a complaint for damages against Clavecilla
Radio system. They alleged that Clavecilla omitted the word "NOT" in the letter addressed to
NECAGRO for transmittal at Clavecilla Cagayan.
NECAGO alleged that the omission of the word "not" between the word WASHED and
AVAILABLE altered the contents or the same causing them to suffer from damages.
As stated in Evangelista v. Santos, the laying of the venue of an action is not left to plaintiff's
caprice because the matter is regulated by the Rules of Court.
Corporation Law note: Domicile of a corporation. - The residence of a corporation is the place
where its principal office is established. It can be sued in that place, not in the place where its
branch office is located.

Corporation Law JD2-2023

Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

43 Sy v. Tyson Enterprises, 119 S 367
FACTS: In 1979, Tyson Enterprises, Inc. filed a collection suit against Universal Parts Supply
Corporation and its president John Sy. The suit was filed in Pasig, Rizal. John Sy filed a
motion to file for a bill of particulars which was denied. Subsequently, Sy filed a motion to
dismiss on the ground of improper venue. Sy alleged that Tyson Enterprises should have filed
the case either in Bacolod City (business address of Universal Parts) or in Manila (business
address of Tyson Enterprises). Sy alleged that it is improper for Tyson Enterprises to file the
case in Pasig even if it is the residence of Tyson’s president and general manager, Dominador
Ti.
The trial court as well as the Court of Appeals denied Sy’s motion on the ground that he
waived the defense of improper venue when he filed his motion to file for a bill of particulars;
that the prior motion placed Sy under the jurisdiction of the trial court.
ISSUE: Whether or not a plaintiff-corporation may file a civil case not in its business address
nor the business address/residence of the defendant but in the place of residence of its
incorporators/officers.
RULING: No. A corporation has a separate and distinct personality from its incorporators. Its
place of business is its residence and not the residence of its president or any other officer.
Hence, venue is improperly laid in this case. The trial court of Pasig has no jurisdiction.
Anent the issue that there was a waiver, as a rule, the defense of improper venue is waived if it
is not alleged in a motion to dismiss. In the case at bar, Sy was able to file his motion to
dismiss in a timely manner. It is of no moment that there was a prior motion for a bill of
particulars that was filed. There is nothing in the rule that states that no other motion should
have been filed prior to filing a motion to dismiss before a motion to dismiss grounded on
improper venue may be allowed.
44 Young Auto Supply v. CA, 223 S 670
FACTS: On 28 October 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio
Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in
Consolidated Marketing & Development Corporation (CMDC) to George C. Roxas. The
purchase price was P8,000,000.00 payable as follows: a down payment of P4,000,000.00 and
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the balance of P4,000,000.00 in four postdated checks of P1,000,000.00 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. The first check of P4,000,000.00, representing
the down payment, was honored by the drawee bank but the four other checks representing
the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the
markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00,
leaving a balance of P3,400,000.00.
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. On 10 June 1988, YASCO and Garcia
filed a complaint against Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that
Roxas be ordered to pay them the sum of P3,400,000.00 or that full control of the three
markets be turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of
the partial payment of P4,600,000.00 and the payment of attorney's fees and costs. Failing to
submit his answer, and on 19 August 1988, the trial court declared Roxas in default. The order
of default was, however, lifted upon motion of Roxas. On 22 August 1988, Roxas filed a
motion to dismiss.
After a hearing, wherein testimonial and documentary evidence were presented by both
parties, the trial court in an Order dated 8 February 1991 denied Roxas' motion to dismiss.
After receiving said order, Roxas filed another motion for extension of time to submit his
answer. He also filed a motion for reconsideration, which the trial court denied in its Order
dated 10 April 1991 for being pro-forma. Roxas was again declared in default, on the ground
that his motion for reconsideration did not toll the running of the period to file his answer. On 3
May 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not
accompanied with the required affidavit of merit. But without waiting for the resolution of the
motion, he filed a petition for certiorari with the Court of Appeals. The Court of Appeals
dismissal of the complaint on the ground of improper venue. A subsequent motion for
reconsideration by YASCO was to no avail. YASCO and Garcia filed the petition.
ISSUE: Whether the venue for the case against YASCO and Garcia in Cebu City was
improperly laid.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

RULING: 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
Corporation Code precisely requires each corporation to specify in its articles of incorporation
the "place where the principal office of the corporation is to be located which must be within
the Philippines." The purpose of this requirement is to fix the residence of a corporation in a
definite place, instead of allowing it to be ambulatory. Actions cannot be filed against a
corporation in any place where the corporation maintains its branch offices. 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. With the
finding that the residence of YASCO for purposes of venue is in Cebu City, where its
principal place of business is located, it becomes unnecessary to decide whether Garcia is
also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice
of Cebu City as the venue. The decision of the Court of Appeals was set aside.
45 Alhambra Cigar and Cigarette Mfg. v. SEC, 24 S 269
FACTS: Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter
referred to simply as Alhambra) was duly incorporated under Philippine laws on January 15,
1912. By its corporate articles it was to exist for fifty (50) years from incorporation. Its term of
existence expired on January 15, 1962. On that date, it ceased transacting business, entered
into a state of liquidation. Thereafter, a new corporation. — Alhambra Industries, Inc. — was
formed to carry on the business of Alhambra. On May 1, 1962, Alhambra’s stockholders, by
resolution named Angel S. Gamboa trustee to take charge of its liquidation. On June 20, 1963
— within Alhambra’s three-year statutory period for liquidation – Republic Act 3531 was
enacted into law. It amended Section 18 of the Corporation Law; it empowered domestic
private corporations to extend their corporate life beyond the period fixed by the articles of
incorporation for a term not to exceed fifty years in any one instance. Previous to Republic Act
3531, the maximum non-extendible term of such corporations was fifty years. On July 15,
1963, at a special meeting, Alhambra’s board of directors resolved to amend paragraph
“Fourth” of its articles of incorporation to extend its corporate life for an additional fifty years, or
a total of 100 years from its incorporation. On August 26, 1963, Alhambra’s stockholders,
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representing more than two-thirds of its subscribed capital stock, voted to approve the
foregoing resolution. On October 28, 1963, Alhambra’s articles of incorporation as so
amended certified correct by its president and secretary and a majority of its board of directors,
were filed with respondent Securities and Exchange Commission (SEC). On November 18,
1963, SEC, however, returned said amended articles of incorporation to Alhambra’s counsel
with the ruling that Republic Act 3531 “which took effect only on June 20, 1963, cannot be
availed of by the said corporation, for the reason that its term of existence had already expired
when the said law took effect in short, said law has no retroactive effect.”
ISSUE: Whether or not the corporate life of a corporation be extended during the period of
winding up or after it’s charter has already expired.
RULING: No. The common law rule, at the beginning, was rigid and inflexible in that upon its
dissolution, a corporation became legally dead for all purposes. Statutory authorizations had to
be provided for its continuance after dissolution “for limited and specified purposes incident to
complete liquidation of its affairs”. Thus, the moment a corporation’s right to exist as an
“artificial person” ceases, its corporate powers are terminated “just as the powers of a natural
person to take part in mundane affairs cease to exist upon his death”. There is nothing left but
to conduct, as it were, the settlement of the estate of a deceased juridical person.
From July 15 to October 28, 1963, when Alhambra made its attempt to extend its corporate
existence, its original term of fifty years had already expired (January 15, 1962); it was in the
midst of the three-year grace period statutorily fixed in Section 77 of the Corporation Law,
thus: .
SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for three years after the
time when it would have been so dissolved, for the purpose of prosecuting and defending suits
by or against it and of enabling it gradually to settle and close its affairs, to dispose of and
convey its property and to divide its capital stock, but not for the purpose of continuing the
business for which it was established.
Plain from the language of the provision is its meaning: continuance of a “dissolved”
corporation as a body corporate for three years has for its purpose the final closure of its
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School of Law
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affairs, and no other; the corporation is specifically enjoined from “continuing the business for
which it was established”. The liquidation of the corporation’s affairs set forth in Section 77
became necessary precisely because its life had ended. For this reason alone, the corporate
existence and juridical personality of that corporation to do business may no longer be
extended.
Silence of the law on the matter is not hard to understand. Specificity is not really necessary.
The authority to prolong corporate life was inserted by Republic Act 3531 into a section of the
law that deals with the power of a corporation to amend its articles of incorporation. (For, the
manner of prolongation is through an amendment of the articles.) And it should be clearly
evident that under Section 77 no corporation in a state of liquidation can act in any way, much
less amend its articles, “for the purpose of continuing the business for which it was
established”.
All these dilute Alhambra’s position that it could revivify its corporate life simply because when
it attempted to do so, Alhambra was still in the process of liquidation. It is surely impermissible
for us to stretch the law — that merely empowers a corporation to act in liquidation — to inject
therein the power to extend its corporate existence.
The pari materia rule of statutory construction, in fact, commands that statutes must be
harmonized with each other. So harmonizing, the conclusion is clear that Section 18 of the
Corporation Law, as amended by Republic Act 3531 in reference to extensions of corporate
existence, is to be read in the same light as Republic Act 1932. Which means that domestic
corporations in general, as with domestic insurance companies, can extend corporate
existence only on or before the expiration of the term fixed in their charters.
46 Republic Planters Bank vs. Hon. Enrique Agana, G.R. No. 51765
FACTS: On September 18, 1961, private respondent secured a loan from petitioner in the
amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were
issued to private respondent Corporation, through its officers then, private respondent Adalia
F. Robes and one Carlos F. Robes. Instead of giving the legal tender totaling to the full amount
of the loan, which is P120,000.00, petitioner lent such amount partially in the form of money
and partially in the form of stock certificates numbered 3204 and 3205, each for 400 shares
with a par value of P10.00 per share, or for P4,000.00 each, for a total of P8,000.00. Said
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stock certificates were in the name of private respondent Adalia F. Robes and Carlos F.
Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes. Said
certificates of stock bear the following terms and conditions: "The Preferred Stock shall have
the following rights, preferences, qualifications and limitations, to wit: 1. Of the right to receive
a quarterly dividend of One Per Centum (1%), cumulative and participating. 2. That such
preferred shares may be redeemed, by the system of drawing lots, at any time after two (2)
years from the date of issue at the option of the Corporation." On January 31, 1979, private
respondents proceeded against petitioner and filed a Complaint alleging its rights to collect
dividends under the preferred shares in question and to have petitioner redeem the same
under the terms and conditions of the stock certificates. Petitioner filed a Motion to Dismiss on
the following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the
action; (2) that the action was unenforceable under substantive law; and (3) that the action
was barred by the statute of limitations and/or laches. The trial court denied the Motion to
Dismiss and assailed decision in favour of private respondents. In ordering petitioner to pay
private respondents the face value of the stock certificates as redemption price, plus 1%
quarterly interest thereon until full payment. Hence, this petition.
ISSUE: 1. Whether or not the respondent judge committed a grave abuse of discretion in
disregarding the order of the Central Bank to petitioner to desist from redeeming its preferred
shares and from paying dividends.
2. Whether or not the respondent judge committed a grave abuse of discretion in ordering
petitioner to pay respondent Adalia F. Robes interests on her preferred shares.
RULING: 1. YES, the respondent judge committed a grave abuse of discretion in disregarding
the order of the Central Bank to petitioner to desist from redeeming its preferred shares and
from paying dividends. What respondent judge failed to recognize was that while the stock
certificate does allow redemption, the option to do was clearly vested in the petitioner bank.
The redemption therefore is clearly the type known as “optional.” Thus, except as otherwise
provided in the stock certificate, the redemption rests entirely with the corporation and the
stockholder is without right to either compel or refuse the redemption of its stock. Furthermore,
the terms and conditions set forth therein use the word “may.” It is a settled doctrine in
statutory construction that the word “may” denotes discretion, and cannot be construed as
having mandatory effect. We fail to see how respondent judge can ignore what, in his words,
are the “very wordings of the terms and conditions in said stock certificates” and construe what
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School of Law
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is clearly a mere option to be his legal basis for compelling the petitioner to redeem the shares
in question. The redemption of said shares cannot be allowed. As pointed out by the petitioner,
the Central Bank made a finding that said petitioner has been suffering from chronic reserve
deficiency, and that such finding resulted in a directive on the ground that said redemption
would reduce the assets of the bank to the prejudice of its depositors and creditors.
Redemption of preferred shares was prohibited for a just and valid reason.
2. YES, the respondent judge committed a grave abuse of discretion in ordering petitioner to
pay respondent Adalia F. Robes interests on her preferred shares. Both Sec.16 of the
Corporation Law and Sec. 43 of the present Corporation Code prohibit the issuance of any
stock dividend without the approval of stockholders, representing not less than 2/3 of the
outstanding capital stock at a regular or special meeting duly called for the purpose. These
provisions underscore the fact that payment of dividends to a stockholder is not a matter of
right but a matter of consensus. Furthermore, “interest bearing stocks,” on which the
corporation agrees absolutely to pay interest before dividends are paid to common
stockholders, is legal only when construed as requiring payment of interest as dividends from
net earnings or surplus only. Clearly, the respondent judge, in compelling the petitioner to
redeem the shares in question and to pay the corresponding dividends, committed grave
abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the terms and
conditions specified in the stock certificate, as well as the clear mandate of law.
47 Zuellig Freight v. NLRC, 22 July 2013, on effects of change of name,
FACTS: Ronaldo San Miguel worked as a checker/customs representative of Zeta Brokerage
Corporation (Zeta). He was subsequently terminated upon the supposed cessation of
operations of the corporation, which, following amendments to its articles of incorporation, was
renamed Zuellig Freight and Cargo Systems (Zuellig). San Miguel filed a complaint before the
Labor Arbiter for illegal dismissal, arguing that the amendments of the articles of incorporation
of Zeta were for the purpose of changing its corporate name, broadening its primary functions,
and increasing its capital stocks, all of which did not mean that Zeta had been thereby
dissolved. The LA, NLRC, and the CA all ruled in favor of San Miguel. The SC affirmed the
uniform holdings of the LA, NLRC, and the CA, ruling that the change of name of Zeta into
Zuellig did not give it the license to terminate San Miguel without just or authorized cause.
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ISSUE: Whether the amendments of the articles of incorporation of Zeta to change its
corporate name to Zuellig Freight and Cargo Systems, Inc., resulted in the dissolution of Zeta
as a corporation.
RULING: A change in the corporate name does not make a new corporation, whether effected
by a special act or under a general law. It has no effect on the identity of the corporation, or on
its property, rights, or liabilities. The corporation, upon such change in its name, is in no sense
a new corporation, nor the successor of the original corporation. It is the same corporation with
a different name, and its character is in no respect changed.
The changing of the name of a corporation is no more the creation of a corporation than the
changing of the name of a natural person is begetting of a natural person. The act, in both
cases, would seem to be what the language which we use to designate it imports – a change
of name, and not a change of being.
The Corporation Code defined and delineated the different modes of dissolving a corporation,
and amendment of the articles of incorporation was not one of such modes. In other words, the
mere change in the corporate name is not considered under the law as the creation of a new
corporation.
As such, the effect of Zeta’s change of name to Zuellig was not a change of its corporate
being.
Whether San Miguel was illegally dismissed. – YES.
Where there is no showing of a clear, valid, and legal cause for the termination of employment,
the law considers the matter a case of illegal dismissal and the burden is on the employer to
prove that the termination was for a valid or authorized cause.
Despite its new name, Zuellig remains to be the mere continuation of Zeta’s corporate being.
As such, it has the obligation to honor all of Zeta’s obligations, one of which was to respect
San Miguel’s security of tenure. The dismissal of San Miguel from employment on the pretext
that Zuellig, being a different corporation, had no obligation to accept him as its employee, was
illegal and ineffectual.
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Saint Louis University

Zuellig’s defense that San Miguel’s dismissal was due to his failure to receive the termination
letter from Zeta despite due notice and from there sign a new employment contract with Zuellig
is of no moment in view of the circumstances.
The dismissal remained illegal for the said condition (i.e., accepting the termination letter and
signing a new employment contract) was null and void. In point of facts and law, San Miguel
remained an employee of Zuellig.
DOCTRINE:
A change in the corporate name does not make a new corporation, whether effected by a
special act or under a general law. It has no effect on the identity of the corporation, or on its
property, rights, or liabilities. The corporation, upon such change in its name, is in no sense a
new corporation, nor the successor of the original corporation. It is the same corporation with a
different name, and its character is in no respect changed.
48 Republic Planters Bank v. CA, 216 S 738
FACTS: Defendants Shozo Yamaguchi and Fermin Canlas were President/ Chief Operating
Officer and Treasurer, respectively, of Worldwide Garment Manufacturing, Inc. By virtue of a
board resolution, the defendants were authorized to apply for credit facilities with the petitioner
Republic Planters Bank in the forms of export advances and letters of credit/ trust receipts
accommodations. Petitioner bank issued nine promissory notes, each of which were uniformly
worded and stated: “… I/we jointly and severally promise to pay to the order of the Republic
Planters Bank…” On the right bottom margin of the promissory notes appeared the signature
of the defendants above their printed names with the phrase “and (in) his personal capacity”
typewritten below.
ISSUE: Is defendant Fermin Canlas solidarily liable with Shozo Yamaguchi on each of the nine
promissory notes?
RULING: Yes, he is solidarily liable on each of the promissory notes bearing his signature for
the following reasons:
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(a) Under the negotiable instruments law, persons who write their names on the face of
promissory notes are makers and are liable as such. By signing the notes, the maker
promise to pay to the order of the payee or any holder according to the tenor thereof.
(b) Where an instrument containing the words “I promise to pay” is signed by two or more
persons they are deemed to be jointly and severally liable thereon. An instrument
which begins with “I”, “We” or “Either of us” promise to pay, when signed by two or
more persons, makes them solidarily liable.
By signing the notes, the maker promises to pay to the order of the payee or any... holder[4]
according to the tenor thereof. Based on the above provisions of law, there is no denying that
private respondent Fermin Canlas is one of the co-makers of the promissory... notes. As such,
he cannot escape liability arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.
The fact that the singular pronoun is used indicates that the promise is individual as to each
other; meaning that each of the co-signers is... deemed to have made an independent singular
promise to pay the notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer
and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as
describing the unconditional promise to pay to the order of Republic Planters Bank.
By making a joint and several promise to pay to the order of Republic Planters Bank, private
respondent Fermin Canlas assumed the solidary liability of a debtor and the payee may
choose to enforce the notes against him alone or jointly with Yamaguchi... and Pinch
Manufacturing Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the
signatures of the makers in the notes will affect the liability of the makers... it is immaterial
and... will not affect the liability of private respondent Fermin Canlas as a joint and several
debtor of the notes.
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School of Law
Saint Louis University

A change in the corporate name does not make a new corporation, and whether effected by
special act or under a general law, has no effect on the identity of the corporation, or on its
property, rights, or liabilities
Under the Negotiable Instruments Law, the liability of a person signing as an agent is
specifically provided for as follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a
person adds to his signature words indicating that he signs for or on behalf of a principal, or in
a representative capacity, he is not liable on the instrument if... he was duly authorized; but the
mere addition of words describing him as an agent, or as filling a representative character,
without disclosing his principal, does not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that
he is acting in a representative capacity or the name of the third party for whom he might have
acted as agent, the agent is personally liable to the holder of the instrument and... cannot be
permitted to prove that he was merely acting as agent of another and parol or extrinsic
evidence is not admissible to avoid the agent's personal liability.
On the private respondent's contention that the promissory notes were delivered to him in
blank for his signature, we rule otherwise.
Such printed notes are incomplete because there are blank spaces to be filled up on material
particulars
An incomplete instrument which has been delivered to the borrower for his signature is
governed by Section 14 of the Negotiable Instruments Law which provides, in so far as...
relevant to this case, thus:
Sec. 14. Blanks; when may be filled. -- Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it by filling
up the blanks therein. x x x x In order, however, that any such... instrument when completed
may be enforced against any person who became a party thereto prior to its completion, it
must be filled up strictly in accordance with the authority given and within a reasonable time. x
x x x.
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We chose to believe the bank's testimony that the notes were filled up before they were given
to private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures as
joint and several promissors. For signing the notes above their typewritten names, they bound
themselves as... unconditional makers.
When the notes were given to private respondent Fermin Canlas for his signature, the notes
were complete in the sense that the spaces for the material particular... had been filled up by
the bank as per agreement.
the private respondent Fermin Canlas is hereby held jointly and solidarily liable with
defendants for the amounts found by the Court a quo.
49 Hall v. Piccio, 86 P 603
FACTS: On May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed
and acknowledged in Leyte, the articles 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, etc. Attached to the articles 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 described in a list appended thereto.
Immediately after the execution of said articles of incorporation, the corporation proceeded to
do business with the adoption of by-laws and the election of its officers. On December 2, 1947,
the said articles of incorporation were filed in the office of the Securities and Exchange
Commission for the issuance of the corresponding certificate of incorporation.
On March 22, 1948, pending action on the articles of incorporation by the SEC, respondents
Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed a suit against
petitioners before the Court of First Instance of Leyte alleging among other things that the Far
Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to
have it dissolved because of bitter dissension among the members, mismanagement and
fraud by the managers and heavy financial losses.
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School of Law
Saint Louis University

The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to
dismiss, contesting the court’s jurisdiction and the sufficiency of the cause of action.
After hearing the parties, the Hon. Edmundo S. Piccio ordered the dissolution of the company;
and at the request of plaintiffs, appointed the respondent Pedro A. Capuciong as receiver of
the properties thereof, upon the filing of a P20,000 bond.
The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of
the receiver, but the respondent judge refused to accept the offer and to discharge the
receiver.
Hence, this petition.
ISSUE: Whether or not the trial court has jurisdiction over the case?
RULING: No. The court had no jurisdiction in civil case No. 381 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.
Under our statute it is to be noted 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 of collateral attack is granted to corporations ‘claiming in good faith to be a
corporation under this act.’
Further, 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
existence of a de jure corporation may be terminated in a private suit for its dissolution
between stockholders, without the intervention of the state.
The petition is dismissed.
50 Seventh Day Adventist Conference Church of Southern Philippines, Inc. vs.
Northeastern Mindanao Mission of Seventh Day Adventist, Inc., GR No. 150416
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FACTS: Spouses Felix Cosio and Felisa Cuysona donate a parcel of land to South Philippine
[Union] Mission of Seventh Day Adventist Church, and was received by Liberato Rayos, an
elder of the Seventh Day Adventist Church, on behalf of the donee.
However, twenty years later, the spouses sold the same land to the Seventh Day Adventist
Church of Northeastern Mindanao Mission.
Claiming to be the alleged donee’s successors-in-interest, petitioners asserted ownership over
the property. This was opposed by respondents who argued that at the time of the donation,
SPUM-SDA Bayugan could not legally be a donee because, not having been incorporated yet,
it had no juridical personality. Neither were petitioners members of the local church then,
hence, the donation could not have been made particularly to them.
ISSUE: Should the Seventh Day Adventist Church of Northeastern Mindanao Mission's
ownership of the lot be upheld?
RULING: Yes. Donation is undeniably one of the modes of acquiring ownership of real
property. Likewise, ownership of a property may be transferred by tradition as a consequence
of a sale.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in
favor of another person who accepts it. The donation could not have been made in favor of an
entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet
no one to accept it.
The deed of donation was not in favor of any informal group of SDA members but a supposed
SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor
capacity to accept such gift.
Declaring themselves a de facto corporation, petitioners allege that they should benefit from
the donation.
But there are stringent requirements before one can qualify as a de facto corporation:
(a) the existence of a valid law under which it may be incorporated;
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School of Law
Saint Louis University

(b) an attempt in good faith to incorporate; and
(c) assumption of corporate powers.
There is no proof that there was an attempt to incorporate at that time. The filing of articles of
incorporation and the issuance of the certificate of incorporation are essential for the existence
of a de facto corporation.
Petitioners themselves admitted that at the time of the donation, they were not registered with
the SEC, nor did they even attempt to organize to comply with legal requirements.
Corporate existence begins only from the moment a certificate of incorporation is issued. No
such certificate was ever issued to petitioners or their supposed predecessor-in-interest at the
time of the donation. Petitioners obviously could not have claimed succession to an... entity
that never came to exist.
Petitioners were not even members of the local church then, thus, they could not even claim
that the donation was particularly for them.
Principles:
"The de facto doctrine thus effects a compromise between two conflicting public interest[s]-the
one opposed to an unauthorized assumption of corporate privileges; the other in favor of doing
justice to the parties and of establishing a general assurance... of security in business dealing
with corporations."
Generally, the doctrine exists to protect the public dealing with supposed corporate entities,
not to favor the defective or non-existent corporation.
51 The Missionary Sisters of Our Lady Of Fatima (Peach Sisters Of Laguna), V.
Amando V. Alzona, et al., G.R. No. 224307, August 6, 2018
FACTS: The Missionary Sisters of Our Lady of Fatima is a religious and charitable group
whose primary mission is to take care of the abandoned and neglected elderly persons. In
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October 1999, through a letter, Purificacion, a spinster donated her parcels of land to
petitioner Missionary through Mother Concepcion, the petitioner’s Superior General who took
care of her during her illness.
In August 2001, Mother Concepcion was advised by a lawyer to register their group to the
Securities and Exchange Commission. On August 28, 2001 she applied for the registration of
the Missionary. The next day, Purificacion executed a Deed of Donation Intervivos in favor of
petitioner conveying her properties. Two days later, the Certificate of Incorporation was issued
by the SEC.
ISSUE: Was the donation valid given that the time the donation was made, the Missionary was
not yet registered with the SEC?
RULING: Yes, the donation was valid and has complied with all the requisites of a valid
donation.
Elements of Donation
In order that a donation of an immovable property be valid, the following elements must be
present:
(a) the essential reduction of the patrimony of the donor;
(b) the increase in the patrimony of the donee;
(c) the intent to do an act of liberality or animus donandi;
(d) the donation must be contained in a public document; and
(e) that the acceptance thereof be made in the same deed or in a separate public instrument; if
acceptance is made in a separate instrument, the donor must be notified thereof in an
authentic form, to be noted in both instruments.
In spite of the fact that the Missionary was not yet registered with the SEC when the properties
were donated, the donation would still be valid because Purificacion, applying the doctrine of
corporation by estoppel, was aware that the Missionary was not yet incorporated and
registered with the SEC. Purificacion dealt with the petitioner as if it were a corporation. This is
evident from the fact that Purificacion executed two (2) documents conveying her properties in
favor of the petitioner – first, on October 11, 1999 via handwritten letter, and second, on
August 29, 2001 through a Deed; the latter having been executed the day after the petitioner
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filed its application for registration with the SEC. She is estopped to deny the Missionary’s
legal existence in any action involving the transfer of her property by way of donation. She has
assumed an obligation in favor of a non-existent corporation, having transacted with the latter
as if it was duly incorporated. The doctrine of corporation by estoppel is founded on principles
of equity and is designed to prevent injustice and unfairness. It applies when a non-existent
corporation enters into contracts or dealings with third persons.The doctrine of corporation by
estoppel applies for as long as there is no fraud
The doctrine of corporation by estoppel rests on the idea that if the Court were to disregard the
existence of an entity which entered into a transaction with a third party, unjust enrichment
would result as some form of benefit have already accrued on the part of one of the parties.
Thus, in that instance, the Court affords upon the unorganized entity corporate fiction and
juridical personality for the sole purpose of upholding the contract or transaction.
In this case, while the underlying contract which is sought to be enforced is that of a donation,
and thus rooted on liberality, it cannot be said that Purificacion, as the donor failed to acquire
any benefit therefrom so as to prevent the application of the doctrine of corporation by
estoppel. To recall, the subject properties were given by Purificacion, as a token of
appreciation for the services rendered to her during her illness.[46] In fine, the subject deed
partakes of the nature of a remuneratory or compensatory donation, having been made “for
the purpose of rewarding the donee for past services, which services do not amount to a
demandable debt.”
NOTES:
Under Article 737 of the Civil Code, “[t]he donor’s capacity shall be determined as of the time
of the making of the donation.” By analogy, the legal capacity or the personality of the donee,
or the authority of the latter’s representative, in certain cases, is determined at the time of
acceptance of the donation.
Article 738, in relation to Article 745, of the Civil Code provides that all those who are not
specifically disqualified by law may accept donations either personally or through an
authorized representative with a special power of attorney for the purpose or with a general
and sufficient power.
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Jurisprudence settled that “[t]he filing of articles of incorporation and the issuance of the
certificate of incorporation are essential for the existence of a de facto corporation.” In fine, it is
the act of registration with SEC through the issuance of a certificate of incorporation that marks
the beginning of an entity’s corporate existence.
Donations:
Past services constitute considerations
As elucidated by the Court in Pirovano, et al. v. De La Rama Steamship Co.: In donations
made to a person for services rendered to the donor, the donor’s will is moved by acts which
directly benefit him. The motivating cause is gratitude, acknowledgment of a favor, a desire to
compensate. A donation made to one who saved the donor’s life, or a lawyer who renounced
his fees for services rendered to the donor, would fall under this class of donations. Therefore,
under the premises, past services constitutes consideration, which in tum can be regarded as
“benefit” on the part of the donor, consequently, there exists no obstacle to the application of
the doctrine of corporation by estoppel; although strictly speaking, the petitioner did not
perform these services on the expectation of something in return.
Contracts:
Express or implied ratification is recognized by law as a means to validate a defective contract.
Ratification cleanses or purges the contract from its defects from constitution or establishment,
retroactive to the day of its creation. By ratification, the infirmity of the act is obliterated thereby
making it perfectly valid and enforceable.
The principle and essence of implied ratification require that the principal has full knowledge at
the time of ratification of all the material facts and circumstances relating to the act sought to
be ratified or validated. Also, it is important that the act constituting the ratification is
unequivocal in that it is performed without the slightest hint of objection or protest from the
donor or the donee, thus producing the inevitable conclusion that the donation and its
acceptance were in fact confirmed and ratified by the donor and the donee.
52 Bustos v. Millions Shoes, 24 April 2017 (Corporation Sole)
FACTS: Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by
Transfer Certificate of Title (TCT) No. N-126668. On 6 January 2004, the City Government of
Marikina levied the property for non-payment of real estate taxes. Petitioner then applied for
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School of Law
Saint Louis University

the cancellation of TCT of the property. Marikina City RTC, rendered a final and executory
Decision ordering the cancellation of the previous title and the issuance of a new one under
the name of petitioner.
On 26 September 2006, petitioner moved for the exclusion of the subject property from the
Stay Order. He claimed that the lot belonged to Spouses Cruz who were mere stockholders
and officers of MSL He further argued that since he had won the bidding of the property before
the annotation of the title, the auctioned property could no longer be part of the Stay Order.
The RTC denied the entreaty of petitioner. It ruled that because the period of redemption
hadnot yet lapsed at the time of the issuance of the Stay Order, the ownership thereof had not
yet been transferred to petitioner.
Petitioner moved for reconsideration, but to no avail. He then filed an action for certiorari
before the CA. He asserted that the Stay Order undermined the taxing powers of the local
government unit. He also reiterated his arguments that Spouses Cruz owned the property, and
that the lot had already been auctioned to him.
The said parcel of land which secured several mortgage liens for the account of MSI remains
to be an asset of the Cruz Spouses, who are the stockholders and officers of MSI, a close
corporation. Incidentally, as an exception to the general rule, in a close corporation, the
stockholders and/or officers usually manage the business of the corporation and are subject to
all liabilities of directors, i.e. personally liable for corporate debts and obligations. Thus, the
Cruz Spouses being stockholders of MSI are personally liable for the latter's debt and
obligations. Petitioner unsuccessfully moved for reconsideration. The CA maintained its ruling
and even held that his prayer to exclude the property was time-barred by the 10-day
reglementary period to oppose rehabilitation petitions under Rule 4, Section 6 of the Interim
Rules of Procedure on Corporate Rehabilitation Before this Court, petitioner maintains three
points: (1) the Spouses Cruz are not liable for the debts of MSI; (2) the Stay Order undermines
the taxing power of Marikina City; and (3) the time bar rule does not apply to him, because he
is not a creditor of MSI. 12 In their Comment, 13 respondents do not contest that Spouses
Cruz own the subject property. Rather, respondents assert that as stockholders and officers of
a close corporation, they are personally liable for its debts and obligations. Furthermore, they
argue that since the Rehabilitation Plan of MSI has been approved, petitioner can no longer
assail the same.
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ISSUE: Whether or not the CA correctly considered the properties of Spouses Cruz
answerable for the obligations of MSI.
RULING: Yes. In finding the subject property answerable for the obligations of MSI, the CA
characterized respondent spouses as stockholders of a close corporation who, as such, are
liable for its debts. To be considered a close corporation, an entity must abide by the
requirements laid out in Section 96 of the Corporation Code, which reads: Sec. 96. Definition
and applicability of Title. - A close corporation, within the meaning of this Code, is one whose
articles of incorporation provide that: (1) All the corporation's issued stock of all classes,
exclusive of treasury shares, shall be held of record by not more than a specified number of
persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to
one or more specified restrictions on transfer permitted by this Title; and (3) The corporation
shall not list in any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at
least two thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code.
Furthermore, we find that the CA seriously erred in portraying the import of Section 97 of the
Corporation Code. Citing that provision, the CA concluded that "in a close corporation, the
stockholders and/or officers usually manage the business of the corporation and are subject to
all liabilities of directors, i.e. personally liable for corporate debts and obligations."
However, Section 97 of the Corporation Code only specifies that "the stockholders of the
corporation shall be subject to all liabilities of directors." Nowhere in that provision do we find
any inference that stockholders of a close corporation are automatically liable for corporate
debts and obligations.
53 International Express v. CA, 343 S 674
FACTS: On June 30, 1989, petitioner International Express Travel and Tours Services Inc.,
through its managing director, wrote a letter to the Philippine Football Federation through its
President 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 the People’s Republic of China and Brisbane. The total cost of the tickets
Corporation Law JD2-2023
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School of Law
Saint Louis University

amounted to Php449,654.83. For the tickets received, the Federation made two partial
payments, both in September of 1989 in the total amount of Php176,467.50. On October 4,
1989, petitioner wrote the Federation, through the private respondent a demand letter
requesting for the amount of Php265,844.33. On October 30, 1989, the Federation, through
the project gintong alay, paid the amount of Php31,603. On December 27, 1989, Henri Kahn
issued a personal check in the amount of Php50,000 as partial payment for the outstanding
balance of the Federation. Thereafter, no further payments were made despite repeated
demands. Hence, this petition.
ISSUE: Whether or not private respondent can be made personally liable for the liabilities of
the Philippines Football Federation.
RULING: Yes. A voluntary unincorporated association, like defendant Federation has no
power to enter into, or to ratify a contract. The contract entered into by its officers or agents on
behalf of such association is binding or, as enforceable against it. The officers or agents are
themselves personally liable.
In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his
motion for reconsideration 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. Accordingly, 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.
Thus, being said, it follows that private respondent Henri Kahn should be 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 the corporation which
has no valid existence assumed such privileges and becomes personally liable for contract
entered into or for other acts performed as such agent.
54 Lim Tong v. PFGI, Inc. 317 S 728
FACTS: This case is petition for review on Certiorari. On behalf of "Ocean Quest Fishing
Corporation," Antonio Chua and Peter Yao entered into a Contract dated 7 February 1990, for
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the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc.
(PFGI). They claimed that they were engaged in a business venture with Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the nets amounted to
P532,045. 400 pieces of floats worth P68, 000 were also sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and the floats; hence, PFGI filed a
collection suit against Chua, Yao and Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as general partners, on
the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown
by a Certification from the Securities and Exchange Commission.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and
requesting a reasonable time within which to pay. He also turned over to PFGI some of the
nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to
have waived his right to cross-examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand,
filed an Answer with Counterclaim and Cross claim and moved for the lifting of the Writ of
Attachment. The trial court maintained the Writ, and upon motion of PFGI, ordered the sale of
the fishing nets at a public auction. PFGI won the bidding and deposited with the said court the
sales proceeds of P900, 000.
On 18 November 1992, the trial court rendered its Decision, ruling in favor of PFGI and that
Chua, Yao and Lim, as general partners, were jointly liable to pay PFGI. Lim appealed to the
Court of Appeals (CA) which, affirmed the RTC. Hence, Lim filed the Petition for Review on
Certiorari arguing that under the doctrine of corporation by estoppel, liability can be imputed
only to Chua and Yao, and not to him.
ISSUE: Whether Lim should be held jointly liable with Chua and Yao under the Doctrine of
Corporation by estoppel.
RULING: Yes. The Supreme Court held that although technically, it is true that petitioner did
not directly act on behalf of the corporation. Still, a person who has reaped the benefits of a
contract entered into by persons with whom he previously had an existing relationship is
deemed to be part of said association and is covered by the scope of the doctrine of
corporation by estoppel.
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A partnership may be deemed to exist among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise therefrom, even if it is shown that
they have not contributed any capital of their own to a "common fund."
Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets.
Being partners, they are all liable for debts incurred by or on behalf of the partnership. The
liability for a contract entered into on behalf of an unincorporated association or... ostensible
corporation may lie in a person who may not have directly transacted on its behalf, but reaped
benefits from that contract.
Corporation by Estoppel
Section 21 of the Corporation Code of the Philippines provides:
"Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it
to be without authority to do so shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof: Provided... however, That when any such
ostensible corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.
"One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation."
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. "The reason behind this doctrine is obvious -
an unincorporated association has no personality and would be incompetent to act and...
appropriate for itself the power and attributes of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its behalf; thus, those who act or purport
to act as its representatives or agents do so without authority and at their own risk.
And as it is an elementary principle of law that a person who acts as an agent without authority
or without a principal is himself regarded as the principal, possessed of all the right and subject
to all the liabilities of a principal, a person acting or purporting to act on... behalf of a
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corporation which has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts performed as such
agent."
Section 21 of the Corporation Code of the Philippines provides:
"Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it
to be without authority to do so shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof: Provided... however, That when any such
ostensible corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.
"One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation."
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. "The reason behind this doctrine is obvious -
an unincorporated association has no personality and would be incompetent to act and...
appropriate for itself the power and attributes of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its behalf; thus, those who act or purport
to act as its representatives or agents do so without authority and at their own risk.
And as it is an elementary principle of law that a person who acts as an agent without authority
or without a principal is himself regarded as the principal, possessed of all the right and subject
to all the liabilities of a principal, a person acting or purporting to act on... behalf of a
corporation which has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts performed as such
agent."... an unincorporated association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a... third person who relied
in good faith on such representation. It cannot allege lack of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of which it received advantages and
benefits.
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

On the other hand, a third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from it, may be barred from
denying its corporate existence in a suit brought against the alleged corporation.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it 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.
55 Albert v. University Publishing, 13 S 84
FACTS: Mariano A. Albert sued University Publishing Co., Inc. Plaintiff alleged inter alia that
defendant was a corporation duly organized and existing under the laws of the Philippines; that
on July 19, 1948, defendant, through Jose M. Aruego, its President, entered into a contract
with plaintiff; that defendant had thereby agreed to pay plaintiff P30,000.00 for the exclusive
right to publish his revised Commentaries on the Revised Penal Code and for his share in
previous sales of the book's first edition;... that defendant had undertaken to pay in eight
quarterly installments of P3,750.00 starting July 15, 1948; that per contract failure to pay one
installment would render the rest due; and that defendant had failed to pay the second
installment.
Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted for him.
The Court of First Instance of Manila, after trial, rendered decision... he Court renders
judgment in favor of the plaintiff and against the defendant the University Publishing Co., Inc.,
ordering the defendant to pay the administrator Justo R. Albert
Plaintiff however, on August 10, 1961, petitioned for a writ of... execution against Jose M.
Aruego, as the real defendant, stating, "plaintiff's counsel and the Sheriff of Manila discovered
that there is vo such entity as University Fublishina Co., Inc." Plaintiff annexed to his petition a
certification from the Security and Exchange Commission
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"University Publishing Co., Inc." countered by filing, through counsel (Jose M. Aruego's own
law... firm), a "manifestation" stating that "Jose M. Aruego is not a party to this case," and that,
therefore, plaintiff's petition should be denied.
The court a quo denied the petition
ISSUES: Whether the judgment may be executed against Jose M. Aruego, supposed
President of University Publishing Co., Inc., as the real defendant.
RULING: The fact of non-registration of University Publishing Co., Inc. in the Securities and
Exchange Commission has not been disputed. Defendant would only raise the point that
"University Publishing Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby
assuming that
"University Publishing Co., Inc." is an existing corporation with an independent juridical
personality. Precisely, however, on account of the non-registration it cannot be considered a
corporation, not even a corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore... no
personality separate from Jose M, Aruego; it cannot be sued independently.
The corporation by estoppel doctrine has not been invoked. At any rate, the same is
inapplicable here. Aruego represented a non-existent entity and induced not only the plaintiff
but even the court to believe in such representation. He signed the contract as "President" of
"University Publishing Co., Inc.," stating that this was "a corporation duly organized and
existing under the laws of the Philippines," and obviously misled plaintiff (Mariano A. Albert)
into believing the same. One who has induced another to act upon his wilful...
misrepresentation that a corporation was duly organized and existing under the law, cannot
thereafter set up against his victim the principle of corporation by estoppel
Even with regard to corporations duly organized and existing under the law, we have in many
a case pierced the veil of corporate fiction to administer the ends of justice.
"A person... acting or purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for contracts entered
into or for other acts performed as such agent".
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Had Jose M. Aruego been named as party defendant... instead of, or together with, "University
Publishing Co., Inc.," there would be no room for debate as to his personal liability. Since he
was not so named, the matters of "day in court" and "due process" have arisen.
In this connection, it must be realized that parties to a suit are "persons who have a right to
control the proceedings, to make defense, to adduce and cross-examine witnesses, and to
appeal from a decision" (67 C.J.S. 887) and Aruego was, in reality, the person who had and...
exercised these rights. Clearly, then, Aruego had his day in court as the real defendant;
The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent
principal, was the real party to the contract sued upon; that he was the one who reaped the
benefits resulting from it, so much so that partial payments of the consideration were... made
by him; that he Violated its terms, thereby precipitating the suit in question; and that in the
litigation he was the real defendant. Perforce, in line with the ends of justice, Responsibility
under the judgment falls on him.
We need hardly state that should there be persons who under the law are liable to Aruego for
reimbursement or contribution with respect to the payment he makes under the judgment in
question, he may, of course, proceed against them through proper remedial measures.
Premises considered, the order appealed from is hereby set aside and the case remanded
ordering the lower court to hold supplementary proceedings for the purpose of carrying the
judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego.
56 Loyola Grand Villas v. Ca, 276 S 681
FACTS: Loyola Grand Villas Homeowners Association, Inc. (LGVHAI) was organized on 8
February 1983 as the homeowners’ association for Loyola Grand Villas. It was also registered
as the sole homeowners' association in the said village with the Home Financing Corporation
(which eventually became Home Insurance Guarantee Corporation ["HIGC"]). However, the
association was not able file its corporate by-laws.
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The LGVHAI officers then tried to register its By-Laws in 1988, but they failed to do so. They
then discovered that there were two other homeowners' organizations within the subdivision -
the Loyola Grand Villas Homeowners (North) Association, Inc. [North Association] and herein
Petitioner Loyola Grand Villas Homeowners (South) Association, Inc.["South Association].
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 and for its non-
user of corporate charter because HIGC had not received any report on the association's
activities. These paved the way for the formation of the North and South Associations.
LGVHAI then lodged a complaint with HIGC Hearing Officer Danilo Javier, and questioned the
revocation of its registration. Hearing Officer Javier ruled in favor of LGVHAI, revoking the
registration of the North and South Associations.
Petitioner South Association appealed the ruling, contending that LGVHAI's failure to file its by-
laws within the period prescribed by Section 46 of the Corporation Code effectively
automatically dissolved the corporation. The Appeals Board of the HIGC and the Court of
Appeals both rejected the contention of the Petitioner affirmed the decision of Hearing Officer
Javier.
ISSUE: Whether or not LGVHAI's failure to file its by-laws within the period prescribed by
Section 46 of the Corporation Code had the effect of automatically dissolving the said
corporation.
RULING: No. The pertinent provision of the Corporation Code that is the focal point of
controversy in this case states:
Sec. 46. Adoption of by-laws. - Every corporation formed under this Code, must within one (1)
month after receipt of official notice of the issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a code of by-laws for its government not
inconsistent with this Code.
Ordinarily, the word "must" connotes an 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
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School of Law
Saint Louis University

nature and object, reveals that the legislature intended to use the words "shall" and "must" to
be directory, they should be given that meaning.
The legislative deliberations of the Corporation Code reveals that it was not the intention of
Congress to automatically dissolve a corporation for failure to file the By-Laws on time.
Moreover, By-Laws may be necessary to govern the corporation, but By-Laws are still
subordinate to the Articles of Incorporation and the Corporation Code. In fact, there are cases
where By-Laws are unnecessary to the corporate existence and to the valid exercise of
corporate powers.
The Corporation Code does not expressly provide for the effects of non-filing of By-Laws.
However, these have been rectified by Section 6 of PD 902-A which provides that SEC shall
possess the power to suspend or revoke, after proper notice and hearing, the franchise or
certificate of registration of corporations upon failure to file By-Laws within the required period.
This shows that there must be notice and hearing before a corporation is dissolved for failure
to file its By-Laws. Even assuming that the existence of a ground, the penalty is not
necessarily revocation, but may only be suspension.
By-Laws are indispensable to corporations since they are required by law for an orderly
management of corporations. However, failure to file them within the period prescribed does
not equate to the automatic dissolution of a corporation.
57 Bustos v. Millan Shoes, G.R. No. 185024, April 24, 2017 (Doctrine of Corporate
Entity)
FACTS: Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by
Transfer Certificate of Title (TCT) No. N-126668. On 6 January 2004, the City Government of
Marikina levied the property for non-payment of real estate taxes. Joselito Hernand M. Bustos
(Bustos) then applied for the cancellation of the TCT of the property. Marikina City RTC
rendered a final and executory Decision ordering the cancellation of the previous title and the
issuance of a new one under the name of Bustos. On September 26, 2006, Bustos moved for
the exclusion of the subject property from the Stay Order. He claimed that the lot belonged to
the Cruz Spouses who were mere stockholders and officers of Millians Shoe, Inc. (MSI) He
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further argued that since he had won the bidding of the property before the annotation of the
title, the auctioned property could no longer be part of the Stay Order.
The RTC denied the entreaty of Bustos. It ruled that because the period of redemption had not
yet lapsed at the time of the issuance of the Stay Order, the ownership thereof had not yet
been transferred to Bustos. Bustos moved for reconsideration but to no avail. He then filed an
action or certiorari before the CA. He asserted that the Stay Order undermined the taxing
powers of the local government unit. He also reiterated his arguments that the Cruz Spouses
owned the property and that the lot had already been auctioned to him. The said parcel of land
which secured several mortgage liens for the account of MSI remains to be an asset of the
Cruz Spouses, who are the stockholders and officers of MSI, a close corporation. Incidentally,
as an exception to the general rule, in a close corporation, the stockholders and/or officers
usually manage the business of the corporation and are subject to all liabilities of directors, i.e.
personally liable for corporate debts and obligations. Thus, the Cruz Spouses being
stockholders of MSI are personally liable for the latter's debt and obligations. Bustos
unsuccessfully moved for reconsideration.
The CA maintained its ruling and even held that his prayer to exclude the property was time-
barred by the 10-day reglementary period to oppose rehabilitation petitions under Rule 4,
Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation Before the Supreme
Court, Bustos maintains three points: (1) the Spouses Cruz are not liable for the debts of MSI;
(2) the Stay Order undermines the taxing power of Marikina City; and (3) the time bar rule
does not apply to him, because he is not a creditor of MSI. In their Comment, MSI, et. al. do
not contest that the Cruz Spouses own the subject property. Rather, respondents assert that
as stockholders and officers of a close corporation, they are personally liable for its debts and
obligations. Furthermore, they argue that since the Rehabilitation Plan of MSI has been
approved, Bustos can no longer assail the same.
ISSUE: Whether or not MSI is a close corporation.
RULING: No, MSI is not a close corporation. To be considered a close corporation, an entity
must abide by the requirements laid out in Section 96 of the Corporation Code, which reads:
Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning
of this Code, is one whose articles of incorporation provide that: (1) All the
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Saint Louis University

corporation's issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding twenty (20);
(2) all the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The corporation shall not list in
any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at
least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation that is not a close corporation within the meaning of this Code. A narrow
distribution of ownership does not, by itself, make a close corporation. Courts look into the
articles of incorporation to find provisions expressly stating:
(1) the number of stockholders shall not exceed 20; or
(2) preemption of shares is restricted in favor of any stockholder or of the corporation;
or
(3) the listing of the corporate stocks in any stock exchange or making a public
offering of those stocks is prohibited.
Here, neither the CA nor the RTC showed its basis for finding that MSI is a close corporation.
The courts a quo did not at all refer to the Articles of Incorporation of MSI. The Petition
submitted by MSI in the rehabilitation proceedings before the RTC did not even include those
Articles of Incorporation among its attachments. In effect, the CA and the RTC deemed MSI a
close corporation based on the allegation of the Cruz Spouses that it was so. However, mere
allegation is not evidence and is not equivalent to proof.
58 WPM International Trading v. Labayen, 17 September 2014
DOCTRINE: For the piercing of the corporate veil to apply it must be clearly established that
the separate and distinct personality of the corporation is used to justify a wrong, protect fraud,
or perpetrate a deception. The court must be certain that the corporate fiction was misused to
such an extent that injustice, fraud, or crime was committed against another. It cannot be
presumed.
FACTS: The petitioner, WPM International Trading, Inc. (WPM), is a domestic corporation
engaged in the restaurant business, while Warlito P. Manlapaz is its president. Sometime in
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1990, WPM entered into a management agreement with Labayen, by virtue of which the
respondent was authorized to operate, manage and rehabilitate Quickbite, a restaurant owned
and operated by WPM. As part of her tasks, the respondent looked for a contractor who would
renovate the two existing Quickbite outlets in Divisoria, Manila and Lepanto St., University
Belt, Manila.
Pursuant to the agreement, the respondent engaged the services of CLN Engineering
Services (CLN) to renovate Quickbite-Divisoria at the cost of P432,876.02.On June 13, 1990,
Quickbite-Divisoria’s renovation was finally completed, and its possession was delivered to the
respondent. However, out of the P432,876.02 renovation cost, only the amount of
P320,000.00 was paid to CLN, leaving a balance of P112,876.02
On October 19, 1990, CLN filed a complaint for sum of money and damages before the RTC
against the respondent and Manlapaz. The respondent was declared in default for her failure
to file a responsive pleading.
The RTC found the respondent liable to pay CLN actual damages in the amount of
P112,876.02 with 12% interest per annum from June 18, 1990 (the date of first demand) and
20% attorney’s fees.
Respondent instituted a complaint for damages against the petitioners, WPM and Manlapaz.
Respondent alleged that in the previous RTC case, she was adjudged liable for a contract that
she entered into for and in behalf of the petitioners, to which she should be entitled to
reimbursement. Her participation in the management agreement was limited only to
introducing Manlapaz to Engineer Carmelo Neri, CLN’s general manager. It was actually
Manlapaz and Neri who agreed on the terms and conditions of the agreement and that when
the complaint for damages was filed against her. She was abroad and that she did not know of
the case until she returned to the Philippines and received a copy of the decision of the RTC.
In his defense, Manlapaz claims that the respondent had exceeded her authority as agent of
WPM, the renovation agreement should only bind her and since WPM has a separate and
distinct personality, Manlapaz cannot be made personally liable for the respondent’s claim.
RTC held that the respondent is entitled to indemnity from Manlapaz. Based on the records,
there is a clear indication that WPM is a mere instrumentality or business conduit of Manlapaz.
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School of Law
Saint Louis University

The RTC also found that Manlapaz had complete control over WPM considering that he is its
chairman, president and treasurer at the same time.
CA affirmed and held that the petitioners are barred from raising as a defense the
respondent’s alleged lack of authority to enter into the renovation agreement in view of their
tacit ratification of the contract.
ISSUE: Whether or not WPM is a mere instrumentality, alter-ego, and business conduit of
Manlapaz?
Whether or not Manlapaz is jointly and severally liable with WPM to the respondent for
reimbursement, damages and interest?
RULING: Piercing the corporate veil based on the alter ego theory requires the concurrence of
three elements, namely: a) 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 ;b) 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 right; and c) The
aforesaid control and breach of duty must have proximately caused the injury or unjust loss
complained of. The absence of any of these elements prevents piercing the corporate veil.
In the present case, the attendant circumstances do not establish that WPM is a mere alter
ego of Manlapaz. Aside from the fact that Manlapaz was the principal stockholder of WPM,
records do not show that WPM was organized and controlled, and its affairs conducted in a
manner that made it merely an instrumentality, agency, conduit or adjunct of Manlapaz. The
respondent failed to prove that Manlapaz, acting as president, had absolute control over WPM.
Even granting that he exercised a certain degree of control over the finances, policies and
practices of WPM, in view of his position as president, chairman and treasurer of the
corporation, such control does not necessarily warrant piercing the veil of corporate fiction
since there was not a single proof that WPM was formed to defraud CLN or the respondent, or
that Manlapaz was guilty of bad faith or fraud.
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On the contrary, the evidence establishes that CLN and the respondent knew and acted on the
knowledge that they were dealing with WPM for the renovation of the latter’s restaurant, and
not with Manlapaz. That WPM later reneged on its monetary obligation to CLN, resulting to the
filing of a civil case for sum of money against the respondent, does not automatically indicate
fraud, in the absence of any proof to support it.
It is emphasized that the piercing of the veil of corporate fiction is frowned upon and thus, must
be done with caution. It can only be done if it has been clearly established that the separate
and distinct personality of the corporation is used to justify a wrong, protect fraud, or perpetrate
a deception. The court 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 its rights; it
cannot be presumed.
NOTES: The doctrine of piercing the corporate veil applies only in three (3) basic instances,
namely: a) when the separate and distinct corporate personality defeats public convenience,
as when the corporate fiction is used as a vehicle for the evasion of an existing obligation b) in
fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend
a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it
is a mere alter ego or business conduit of a person, or where the corporation isso organized
and controlled and its affairs so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.
59 Rp V. Sandiganbayan, Estate of Marcos, G.R. No. 152154. July 15, 2003
FACTS: Petitioner Republic, through the Presidential Commission on Good Government
(PCGG), represented by the Office of the Solicitor General (OSG), filed a petition for forfeiture
before the Sandiganbayan. Petitioner sought the declaration of the aggregate amount of
US$356 million (now estimated to be more than US$658 million inclusive of interest) deposited
in escrow in the PNB, as ill-gotten wealth. The funds were previously held by the following five
account groups, using various foreign foundations in certain Swiss banks. Moreover, the
petition sought the forfeiture of US$25 million and US$5 million in treasury notes which
exceeded the Marcos couple’s salaries, other lawful income as well as income from
legitimately acquired property.
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The treasury notes are frozen at the Central Bank of the Philippines, now Bangko Sentral ng
Pilipinas, by virtue of the freeze order issued by the PCGG. Before the case was set for pre-
trial, a General Agreement and the Supplemental Agreements were executed by the Marcos
children and then PCGG Chairman Magtanggol Gunigundo for a global settlement of the
assets of the Marcos family to identify, collate, cause the inventory of and distribute all assets
presumed to be owned by the Marcos family under their conditions contained therein.
ISSUE: Whether or not the Swiss funds can be forfeited in favour of the Republic, on the basis
of the Marcoses’ lawful income.
RULING: Yes. R.A. No. 1379 raises the prima facie presumption that a property is unlawfully
acquired, hence subject to forfeiture, if its amount or value is manifestly disproportionate to the
official salary and other lawful income of the public officer who owns it.
The following facts must be established in order that forfeiture or seizure of the Swiss deposits
may be effected:
(1) ownership by the public officer of money or property acquired during his
incumbency, whether it be in his name or otherwise, and
(2) the extent to which the amount of that money or property exceeds, i. e., is grossly
disproportionate to, the legitimate income of the public officer.
Herein, the spouses Ferdinand and Imelda Marcos were public officials during the time
material to the present case was never in dispute.
The spouses accumulated salary of $304,372.43 should be held as the only known lawful
income of the Marcoses since they did not file any Statement of Assets and Liabilities (SAL),
as required by law, from which their net worth could be determined.
Besides, under the 1935 Constitution, Ferdinand E. Marcos as President could not receive
“any other emolument from the Government or any of its subdivisions and instrumentalities”.
Likewise, under the 1973 Constitution, Ferdinand E. Marcos as President could “not receive
during his tenure any other emolument from the Government or any other source.” Their only
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known lawful income of $304,372.43 can therefore legally and fairly serve as basis for
determining the existence of a prima facie case of forfeiture of the Swiss funds. The Republic
did not fail to establish a prima facie case for the forfeiture of the Swiss deposits.
The Swiss deposits which were transferred to and are deposited in escrow at the Philippine
National Bank in the estimated aggregate amount of US$658,175,373.60 as of 31 January
2002, plus interest, were forfeited in favor of the Republic.
60 Villa Rey Transit v. Ferrer, 29 October 1968
FACTS: Jose M. Villarama was an operator of a bus transportation, under the business name
of Villa Rey Transit, pursuant to certificates of public convenience granted him by the Public
Service Commission which authorized him to operate a total of thirty-two (32) units on various
routes or lines from Pangasinan to Manila, and vice-versa.
On January 8, 1959, he sold the aforementioned two certificates of public convenience to the
Pangasinan Transportation Company, Inc. for P 350,000.00 with the condition, among others,
that the seller "shall not for a period of 10 years from the date of this sale, apply for any TPU
service identical or competing with the buyer."
Barely three months thereafter, or on March 6, 1959, a corporation called Villa Rey Transit,
Inc. was organized. Natividad R. Villarama (wife of Jose M. Villarama) was one of the
incorporators and treasurer as well.
In less than a month after its registration with the Securities and Exchange Commission the
Corporation, on April 7, 1959, bought five certificates of public convenience, forty-nine buses,
tools and equipment from one Valentin Fernando.
The very same day that the aforementioned contract of sale was executed, the parties thereto
immediately applied with the PSC for its approval, with a prayer for the issuance of a
provisional authority in favor of the vendee Corporation to operate the service therein involved.
On May 19, 1959, the PSC granted the provisional permit prayed for, upon the condition that
"it may be modified or revoked by the Commission at any time, shall be subject to whatever
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

action that may be taken on the basic application and shall be valid only during the pendency
of said application."
Before the PSC could take final action on said application for approval of sale, however, the
Sheriff of Manila, levied on two of the five certificates of public convenience involved therein,
pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil
Case No. 13798, in favor of Eusebio Ferrer, plaintiff, judgment creditor, against Valentin
Fernando, defendant, judgment debtor. A public sale was conducted by the Sheriff of the said
two certificates of public convenience and Ferrer was the highest bidder, and a certificate of
sale was issued in his name.
Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly
submitted for approval their corresponding contract of sale to the PSC.
The corporation filed against Ferrer, Pantranco, and PSC for annulment of the sheriff’s sale.
Pantranco alleged that the corporation was disqualified from operating the CPCs in question
by virtue of the condition, alleging that Villlarama was using the corporation to circumvent the
agreement.
ISSUES: Whether or not Villarama and Villa Rey Transit, Inc. are one and the same, and if so,
does the restriction clause apply?
RULING: YES. 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.
In this case, Villarama supplied the organization's expenses and the assets of the Corporation,
such as trucks and equipment. Villarama made use of the money of the Corporation and
deposited it into his private accounts, and the Corporation paid his personal accounts. He
likewise admitted that he mingled the corporate funds with his own money.
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The foregoing circumstances are strong persuasive evidence showing that Villarama has been
too much involved in the affairs of the Corporation to altogether negative the claim that he was
only a part-time general manager. They show beyond doubt that the Corporation is his alter
ego.
Thus, Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that the restrictive clause
in the contract entered into by the latter and Pantranco is also enforceable and binding against
the said Corporation.
61 First International Bank v. CA, 252 S 259
FACTS: In the course of its banking operations, the defendant Producer Bank of the
Philippines acquired 6 parcels of land with a total area of 101 hectares located at Don Jose,
Sta. Rosa, Laguna and covered by TCT No. T-106932 to T-106937. The property used to be
owned by BYME Investment and Development Corporation which hd them mortgaged with the
bank as collateral for a loan. The plaintiff originals, Demetrio Demetria and Jose Janolo
wanted to purchase the property and thus initiated negotiations for that purpose. In the early
part of August 1987 said plaintiffs, upon the suggestion of BYME investment’s legal counsel,
Fajardo met with defendant Mercurio Rivera, manager of the property management
department of the defendant bank. The meeting was held in pursuant to plaintiffs’ plan to buy
the property. After the meeting, plaintiff Janolo, following the advice of defendant Rivera made
a formal purchase offer to the Bank through a letter dated August 30,1987. Negotiations took
place and an offer price was fixed at P5.5million. During the course of the negotiations, the
defendant bank was placed under conservatorship and a new conservator was appointed to
which the name has been refused to recognize. A derivative suit has been filed against Rivera
for the damages suffered from the alleged perfect contract of sale involving the 6 parcels of
land.
ISSUE: Whether or not a derivative suit may lie involving the bank and its stockholders.
RULING: No. An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever
the officials of the corporation refuse to sue, or are the ones, to be sued or hold the control of
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

the corporation. In such actions, the suing stockholder is regarded as a nominal party with the
corporation as the real party in interest.
In the face of the damaging admissions taken from the complaint in the second case,
petitioners, quite strangely, sought to deny that the second case was a derivative suit,
reasoning that it was brought not by the minority shareholders, but by Henry Co. et al. who not
only hold or control over 80% of the outstanding capital stock, but also constitute the majority
in the board of directors of petitioner’s bank. That being so, then they really represent the
bank, so whether they sued derivatively or directly, there is undeniably an identity of
interest/entity represented.
In addition to the many cases, where the corporate fiction has been regarded, we now add the
instant case, and declare herewith that the corporate veil cannot be used to shield an
otherwise blatant violation of the prohibition against forum shopping. Shareholders, whether
suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed
to trifle with court processes particularly where, as in this case, the corporation itself has not
been remiss in vigorously prosecuting or defending corporate causes and in using and
applying remedies available to it. To rule otherwise would be to encourage corporate litigants
to use their shareholders as fronts to circumvent the stringent rules against forum shopping.
From the facts, the official bank price, at any rate, the bank placed its official, Rivera is a
position of authority to accept offers to buy and negotiate the sale by having the offer officially
acted upon by the bank. The bank cannot turn around and say, as it now does, that what
Rivera states as the bank’s action on the matter is not in fact so. It is a familiar doctrine, the
doctrine of ostensible authority, that if a corporation on knowingly permits one of its officers, or
any other agent, to do acts within the scope of apparent authority, and thus holds him out to
the public as possessing power to do those acts, the corporation will, as against any one who
has in good faith dealt with the corporation through such agent, he estopped from denying his
authority.
A bank is liable for wrongful acts of its officers done in the interest of the bank or in the course
of dealings of the officers in their representative capacity but not for acts outside the scope of
their authority. A bank holding out its officers and agents as worthy of confidence will not be
permitted to profit by the frauds, they may thus be enabled to perpetrate in the apparent scope
of their employment; nor will it be permitted to shrink its responsibility for such fraud even
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through no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is
liable to innocent third persons where the representation is made in the course of its business
by an agent acting within the general scope of its authority even though, in the particular case,
the agent is secretly abusing his authority and attempting to perpetrate fraud upon his principal
or some other person, for his own ultimate benefit.
Section 28-A of BP 68 merely gives the conservator power to revoke contracts that are, under
existing law, deemed not to be effective – i.e. void, voidable, unenforceable or rescissible.
Hence, the conservator merely takes the place of a bank’s board of directors. What the said
board cannot do – such as repudiating a contract validly entered into under the doctrine of
implied authority – the conservator cannot do either.
62 Symex v. Rivera, November 08, 2017
FACTS: Respondents, Rivera, Jr. and Yago, are security guards employed under petitioner
Symex sometime in May 1999. Petitioner Symex is engaged in the business of investigation
and security services. Its President and Chairman of the Board is petitioner Arcega. The
former allege that they were not paid for their overtime pay and other bonuses and worker's
benefits, thus they failed a complaint for nonpayment of holiday pay, premium for rest day,
13th month pay, illegal deductions and damages. Because of this complaint, Capt. Arcego
Cura (Capt. Cura), the Operations Manager of petitioner Symex, summoned respondents and
told they would be relieved from the post because there will be a reduced the number of
guards on duty. Capt. Cura told them to go back on March 17, 2003 for their reassignment. But
upon expiration of said date Capt. Cura instructed Rivera and Y ago that unless they withdrew
their complaint, they would not be given any duty assignments thus forcing the respondents to
choose between resignation or forcible leave.
Due to these events respondents amended their complaint before the Labor Arbiter to include
illegal dismissal. The NLRC ruled in favor of the respondents stating that they were illegally
dismissed by Capt. Cura, the Operations Manager of petitioner Symex which ruling was later
affirmed by the Court of Appeals.
ISSUE: Should petitioner Arcega, as President of Symex, be held solidarily liable with
petitioner Symex for respondents' monetary awards.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

RULING: No, Petitioner Arcega is not liable for obligations of petitioner Symex absent showing
of gross negligence or bad faith on his part. The Court notes that there was no showing that
Arcega, as President of Symex, willingly and knowingly voted or assented to the unlawful acts
of the соmpany.
In Guillermo v. Uson, the Court resolved the twin doctrines of piercing the veil of corporate
fiction
and personal liability of company officers in labor cases. According to the Court, the key
element is the presence of fraud, malice or bad faith. Bad faith, in this instance, does not
connote bad judgment or negligence but imparts a dishonest purpose or some moral obliquity
and conscious
doing of wrong; it means breach of a known duty through some motive or interest or ill will; it
partakes of the nature of fraud.
A corporation is a juridical entity with a legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it. Thus, as a general
rule, an officer may not be held liable for the corporation's labor obligations unless he acted
with evident malice and/or bad faith in dismissing an employee. Section 31 of the Corporation
Code is the governing law on personal liability of officers for the debts of the corporation.
To hold a director or officer personally liable for corporate obligations, two requisites must
concur:
(1) it must be alleged in the complaint that the director or officer assented to patently
unlawful acts of the corporation or that the officer was guilty of gross negligence or
bad faith; and
(2) there must be proof that the officer acted in bad faith.
Based on the records, respondents failed to specifically allege either in their complaint or
position paper that Arcega, as an officer of Symex, willfully and knowingly assented to the acts
of Capt. Cura, or that Arcega had been guilty of gross negligence or bad faith in directing the
affairs of the corporation. Arcega is merely one of the officers of Symex and to single him out
and require him to personally answer for the liabilities of Symex are without basis. To
disregard the separate juridical personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be presumed.
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63 Linden Suites v. Meridien Far East, 4 October 2021
FACTS: The Linden Suites Inc (petitioner) filed on November 18. 2005 a complaint for
damages against respondent Meridien Far East Properties, Inc. (respondent) before the RTC.
Petitioner averred that while doing excavation works for the construction of the Linden Suites
in Ortigas, Pasig City, it discovered that the concrete retaining wall of the adjacent building,
One Magnificent Mile (OMM), owned by respondent, had encroached on its property line.
Petitioner then informed respondent about the encroachment which, in turn, immediately
instructed its workers to remove the same. However, respondent's workers were unable to
finish it and a substantial part still needed to be removed. Petitioner was consequently
compelled to hire a contractor to complete the demolition. It then demanded payment of the
cost of the additional works it conducted in the amount of P3,980,468.50, but respondent
refused, which led to the filing of the complaint.
The RTC, in its Decision, adjudged respondent liable for the cost of the demolition, actual and
compensatory damages, and attorney's fees.
The CA affirmed the RTC's Decision but modified it by deleting the award of actual and
compensatory damages.
Considering that the RTC Decision had already attained finality, petitioner filed a motion for
issuance of a writ of execution before the RTC, which it granted in its Order.
Thereafter, Sheriff Marco A. Boco attempted to serve the writ on respondent in its office
address in Makati City but failed. Petitioner then advised the sheriff to serve the writ to
respondent at 2/F, Soho Central Condominium located in Mandaluyong City, its registered
address in its 2006 General Information Sheet (GIS) that was tiled before the Securities and
Exchange Commission (SEC).
On June 3, 2010, Sheriff Boco proceeded to the said condominium to serve the writ. However,
Atty. Rufo B. Baculi (Atty. Baculi), the Legal and Administrative Officer of Meridien East Realty
and Development Corporation (MERDC), informed him that it was Meridien Development
Group, Inc. (MDGI), not respondent, which owned the office in the said address. Atty. Baculi
showed a GIS issued by the SEC as proof that the occupant of the said address was indeed
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

MDGI. As a result, Sheriff Boco returned the writ unserved as per Sheriffs Return dated June
18, 2010.
Petitioner observed that the 2006 GIS of respondent and 2009 GIS of MERDC stated the
same officers, to wit: (a) Jose E.B. Antonio as Chairman; (b) Ricardo P. Cueva as Chief
Executive Officer; (c) Rafael G. Yaptinchay as President; (d) Benito A. Obra, Jr. as Vice-
President and President; (e) Efrenilo C. Cayanga as Corporate Secretary; and (f) Ma. Melinda
A. Zuniga as Assistant Corporate Secretary. The officers were likewise shareholders of both
corporations and had similar residential addresses.
Thus, on November 8, 2010, petitioner filed an Urgent Motion to Examine Judgment
Obligor17 before RTC of Pasig City, the same trial court which rendered the final judgment. It
prayed that respondent's officers be directed to appear before the court for an examination of
the income and properties owned by respondent for the satisfaction of the RTC Decision.
Petitioner also sought the grant by the trial court of other reliefs as are just and equitable.
Respondent, on the other hand, argued for the dismissal of the motion alleging that the
persons sought to be examined are not the judgment obligors in the RTC Decision. It also
claimed that their examination is a violation of the doctrine of separate corporate personality.
Respondent further asserted that the officers cannot be required to appear before RTC Pasig
City as they reside in Makati City, where respondent's office sits.
The RTC denied petitioner's motion and ruled that respondent's officers cannot be subjected to
an examination as they do not reside in its territorial jurisdiction. Further, to call upon the
officers to ascertain the properties and income of respondent for purposes of satisfying the
execution of the final judgment would be violative of the doctrine of separate juridical entity.
The CA dismissed the petition for lack of grave abuse of discretion on the part of the RTC. It
held that under Section 36, Rule 39 of the Rules of Court, a judgment obligor cannot be
compelled to appear before a court or commissioner outside the province or city in which he or
she resides or is found.
ISSUE: May the RTC, as the court that rendered judgment on petitioner's complaint, examine
respondent's officers?
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RULING: It is settled that the court which rendered the judgment has supervisory control over
the execution of its judgment. It does not, however, give the court the power to alter or amend
a final and executory decision in the absence of the recognized exceptions, namely: (2) if there
is a need to correct clerical errors which cause no prejudice to any party, (b) void judgments,
and; (c) if circumstances transpire after the finality of the decision which render its execution
unjust and inequitable.
A case in which an execution has been issued is regarded as still pending so that all
proceedings on the execution are proceedings in the suit. There is no question that the court
which rendered the judgment has a general supervisory control over its process of execution,
and this power carries with it the right to determine every question of fact and law which may
be involved in the execution.
The judgment court's supervisory control over the case ensures the enforcement of a party's
rights or claims that it has duly recognized. Indeed, a court's mandate to resolve disputes ends
upon its adjudication of the litigation. It is only when the party that has secured favorable
judgment finally relishes the fruits of its legal calvary that justice may be said to have been duly
served. This tenet fortifies a judgment court's so-called supervisory control over decided suits.
Corollarily, Rule 39 of the Rules of Court lays down available remedies and guidelines for the
satisfaction of a judgment, including enforcement of a writ of execution, which the winning
party may avail of before the judgment court. Among the remedies available to such party to
fully enforce the writ of execution is the examination of a judgment obligor.
The doctrine of separate juridical personality provides that a corporation has a legal
personality separate and distinct from those individuals acting for and in its behalf and, in
general, from those comprising it. Any obligation incurred by the corporation, acting through its
directors, officers and employees, is therefore its sole liability. This legal fiction may only be
disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.
The well-settled doctrine is inapplicable in the case at bench. Petitioner wanted the officers to
be examined not for the purpose of passing unto them the liability of respondent as its
judgment obligor. In fact, it never averred in the motion any intention to make the officers liable
for respondent's obligation due to the latter's purported attempts to evade the execution of the
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School of Law
Saint Louis University

final judgment. What is clear therein is that the sole objective of the examination of the officers
was to ascertain the properties and income of respondent which can be subjected for
execution in order to satisfy the final judgment and nothing else.
64 Rogel N. Zaragoza V. Katherine L. Tan and Emperador Distillers, Inc., G.R. No.
225544. December 04, 2017
FACTS: Petitioner Rogel N. Zaragoza was the Area Sales Manager of Consolidated
Distillers of the Far East Incorporated (Condis) in the Bicol Region. He was dismissed on
December 3, 2007. On February 18, 2008, he filed an illegal dismissal case with money claims
against Condis, Winston Co and Dominador D. Hidalgo. On March 3, 2009, the Labor Arbiter
(LA) issued his Decision[3]finding that petitioner was illegally dismissed.
On May 11, 2009, Condis filed its Manifestation[5]by way of compliance with the LA alleging
that petitioner can no longer be reinstated as his former sales position no longer existed and
there was no equivalent position to which he could be reinstated pending appeal as the
company was no longer engaged in the manufacturing, selling and marketing of
Emperador Brandy and other liquor products; and that the Services Agreement which
Condis entered with Emperador Distillers, Inc. (EDI), the company that bought the former, to
market, sell and make logistic services was also terminated on June 1, 2008.Condis and
Hidalgo appealed the LA decision to the National Labor Relations Commission
(NLRC).
On April 13, 2010, the NLRC affirmed with modification the LA decision by deleting the
award of nominal damages and reducing to P50,000.00 the award of moral and
exemplary damages. Their motion for reconsideration was denied in a Resolution dated July
30, 2010. They filed a petition for certiorari with the CA which issued its Decision dated
November 22, 2010, partly granting the petition. The CA affirmed with modification the
NLRC Decision and Resolution, and absolved Hidalgo of liability and deleted the award of
moral and exemplary damages. The CA denied the motion for reconsideration in a
Resolution dated March 7, 2011.
Condis filed a petition for review with the Court, which denied it in a Resolution dated June 22,
2011. The motion for reconsideration was denied in a Resolution dated January 18, 2012.
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The Resolution became final and executory on March 30, 2012 and an entry of judgment was
made.
Meanwhile, petitioner had already received a total amount of P454,986.98. He then filed
a motion for issuance of alias writ of execution with notice of appearance, arguing that he is
likewise entitled to accrued salaries by reason of the order of reinstatement, which as of
December 3, 2012 amounted to P2,294,897.47 He prayed that respondent Tan, as President
of Condis, should be held personally liable for the awards; and that respondent EDI
should also be held jointly and solidarily liable with Condis for the judgment award as
the transfer of manufacturing business of the latter to the former was done in bad faith in order
to evade payment/satisfaction of their liabilities in the labor case, applying the doctrine of
piercing the veil of corporate fiction.
In adjudging respondents Katherine Tan and EDI to be jointly and severally liable with
Condis, the LA found that the execution of the Asset Purchase Agreement and the
termination of the Services Agreement were purposely done by Condis and respondent EDI to
defraud petitioner. Thus, the corporate fiction is pierceable by reason of fraud.
In granting the petition, the NLRC found that respondents were never made parties in the
illegal dismissal case filed by petitioner; that they were merely dragged into the
proceedings when petitioner filed a motion for issuance of alias writ of execution with
notice of appearance; that an order of execution can only be issued against a party and not
against one who did not have his day in court.
The LA did not acquire jurisdiction over the respondents, since they were neither summoned
nor voluntarily appeared before the LA, and not being impleaded in the case, respondent EDI
cannot be subject to the LA's process of piercing the veil of corporate fiction, and
respondent Tan cannot also be subject to the LA's process of determining bad faith
which would make an officer personally liable for the claims of a dismissed employee.
ISSUE: Whether or not the monetary award in favor of petitioner in NLRC Case No. SRAB
V-07-00089-08 can still be enforced against respondent tan in her capacity as president
of CONDIS and against respondent EDI, even though they were not impleaded in said labor
case.?
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

RULING: NO, respondents were never impleaded in the illegal dismissal case, they
were never served with summons nor did they voluntarily appear in the arbitration level; thus,
the LA never acquired jurisdiction over them as to order the piercing of the veil of corporate
fiction, and to make them jointly and severally liable with Condis for the judgment
award to petitioner.
The Court already ruled that compliance with the recognized modes of acquisition of
jurisdiction cannot be dispensed with even in piercing the veil of corporate fiction, to wit:
The principle of piercing the veil of corporate fiction, and the resulting treatment of
two related corporations as one and the same juridical person with respect to
a given transaction, is basically applied only to determine established liability; it is not
available to confer on the court a jurisdiction it has not acquired, in the first place,
over a party not impleaded in a case.
Elsewise put, a corporation not impleaded in a suit cannot be subject to the court's process of
piercing the veil of its corporate fiction. In that situation, the court has not acquired
jurisdiction over the corporation and, hence, any proceedings taken against that
corporation and its property would infringe on its right to due process.
Piercing the veil of corporate entity applies to determination of liability not of
jurisdiction.
This is so because the doctrine of piercing the veil of corporate fiction comes to play
only during the trial of the case after the court has already acquired
jurisdiction over the corporation. Hence, before this doctrine can be applied,
based on the evidence presented, it is imperative that the court must first have
jurisdiction over the corporation.
From the preceding, it is therefore correct to say that the court must first and foremost acquire
jurisdiction over the parties; and only then would the parties be allowed to present evidence
for and/or against piercing the veil of corporate fiction. If the court has no jurisdiction
over the corporation, it follows that the court has no business in piercing its veil of corporate
fiction because such action offends the corporation's right to due process." Jurisdiction
over the defendant is acquired either upon a valid service of summons or the defendant's
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Page 72 of 148
voluntary appearance in court. When the defendant does not voluntarily submit to the
court's jurisdiction or when there is no valid service of summons, 'any judgment of the
court which has no jurisdiction over the person of the defendant is null and void.'" "The
defendant must be properly apprised of a pending action against him and assured of the
opportunity to present his defenses to the suit. Proper service of summons is used to protect
one's right to due process."
In any event, it is an elementary and fundamental principle of corporation law that a
corporation is an artificial being invested by law with a personality separate and distinct from
its stockholders and from other corporations to which it may be connected. A
corporation, as a juridical entity, may act only through its directors, officers and
employees. Obligations incurred as a result of the acts of the directors and officers as the
corporate agents are not their personal liability but the direct responsibility of the
corporation they represent.
While a corporation may exist for any lawful purpose, the law will regard it as an association of
persons, or in case of two corporations, merge them into one, when its corporate legal entity is
used as a cloak for fraud or illegality.
This is the doctrine of piercing the veil of corporate fiction which applies only when
such 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.
To disregard the separate juridical personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be presumed
65 Delpher Trades v. IAC, 26 January 1988
FACTS: In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169
square meters of real estate in the Municipality of Polo (now Valenzuela), Province of Bulacan
(now Metro Manila) The said co-owners leased to Construction Components International Inc.
the same property and providing that during the existence or after the term of this lease the
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

lessor should he decide to sell the property leased shall first offer the same to the lessee and
the letter has the priority to buy under similar conditions. On August 3, 1974, lessee
Construction Components International, Inc. assigned its rights and obligations under the
contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and
consent of lessors Delfin Pacheco and Pelagia Pacheco. On January 3, 1976, a deed of
exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher
Trades Corporation whereby the former conveyed to the latter the leased property together
with another parcel of land also located in Malinta Estate, Valenzuela, Metro Manila for 2,500
shares of stock of defendant corporation with a total value of P1,500,000.00
ISSUE: Whether or not the “Deed of Exchange” of the properties executed by the Pachecos on
the one hand and the Delpher Trades Corporation on the other was meant to be a contract of
sale.
RULING: We rule for the petitioners. In the case at bar, in exchange for their properties, the
Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher
Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by
subscription. “The essence of the stock subscription is an agreement to take and pay for
original unissued shares of a corporation, formed or to be formed.”
The records do not point to anything wrong or objectionable about this “estate planning”
scheme resorted to by the Pachecos. “The legal right of a taxpayer to decrease the amount of
what otherwise could be his taxes or altogether avoid them, by means which the law permits,
cannot be doubted.”
The “Deed of Exchange” of property between the Pachecos and Delpher Trades Corporation
cannot be considered a contract of sale. There was no transfer of actual ownership interests
by the Pachecos to a third party. The Pacheco family merely changed their ownership from
one form to another. The ownership remained in the same hands. Hence, the private
respondent has no basis for its claim of a light of first refusal under the lease contract.
66 Hacienda Luisita v. Presidential Agrarian Reform Council, 22 January 2011
FACTS: At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a
6,443-hectare mixed agricultural-industrial-residential expanse straddling several
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Page 73 of 148
municipalities of Tarlac and owned by Compañia General de Tabacos de Filipinas
(Tabacalera). On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares
of stocks of Centennary Holdings, Inc. (Centennary), ceded 300 hectares of the converted
area to the latter. Consequently, HLI’s Transfer Certificate of Title (TCT) was issued in the
name of Centennary. HLI transferred the remaining 200 hectares covered by TCT No. 287909
to Luisita Realty Corporation (LRC) in two separate transactions in 1997 and 1998, both
uniformly involving 100 hectares for PhP 250 million each. Centennary, a corporation with an
authorized capital stock of PhP 12,100,000 divided into 12,100,000 shares and wholly-owned
by HLI, had the following incorporators: Pedro Cojuangco, Josephine C. Reyes, Teresita C.
Lopa, Ernesto G. Teopaco, and Bernardo R. Lahoz. Subsequently, Centennary sold the entire
300 hectares to Luisita Industrial Park Corporation (LIPCO) for PhP 750 million. LIPCO’s titles
were canceled and new ones, TCT Nos. 391051 and 391052, were issued to RCBC.
Apart from the 500 hectares alluded to, another 80.51 hectares were later detached from the
area coverage of Hacienda Luisita which had been acquired by the government as part of the
Subic-Clark-Tarlac Expressway (SCTEX) complex. In absolute terms, 4,335.75 hectares
remained of the original 4,915 hectares Tadeco ceded to HLI. The DAR constituted a Special
Task Force to attend to issues relating to the SDP of HLI. Among other duties, the Special
Task Force was mandated to review the terms and conditions of the SDOA and PARC
Resolution No. 89-12-2 relative to HLI’s SDP; evaluate HLI’s compliance reports; evaluate the
merits of the petitions for the revocation of the SDP; conduct ocular inspections or field
investigations; and recommend appropriate remedial measures for approval of the Secretary.
After investigation and evaluation, the Special Task Force submitted its "Terminal Report:
Hacienda Luisita, Incorporated (HLI) Stock Distribution Plan (SDP) Conflict" dated September
22, 2005 (Terminal Report), finding that HLI has not complied with its obligations under RA
6657 despite the implementation of the SDP. The Terminal Report and the Special Task
Force’s recommendations were adopted by then DAR Sec. Nasser Pangandaman (Sec.
Pangandaman). Subsequently, Sec. Pangandaman recommended to the PARC Executive
Committee (Excom) (a) the recall/revocation of PARC Resolution No. 89-12-2 dated
November 21, 1989 approving HLI’s SDP; and (b) the acquisition of Hacienda Luisita through
the compulsory acquisition scheme.
Following review, the PARC Validation Committee favorably endorsed the DAR Secretary’s
recommendation afore-stated. Its motion notwithstanding, HLI has filed the instant recourse in
light of what it considers as the DAR’s hasty placing of Hacienda Luisita under CARP even
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

before PARC could rule or even read the motion for reconsideration. As HLI later rued, it "can
not know from the above-quoted resolution the facts and the law upon which it is based."
PARC. On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity
as "Sec-Gen. AMBALA," filed his Manifestation and Motion with Comment Attached dated
December 4, 2006 (Manifestation and Motion). In it, Mallari stated that he has broken away
from AMBALA with other AMBALA ex-members and formed Farmworkers Agrarian Reform
Movement, Inc. (FARM). Should this shift in alliance deny him standing, Mallari also prayed
that FARM be allowed to intervene. LIPCO later followed with a similar motion. In both
motions, RCBC and LIPCO contended that the assailed resolution effectively nullified the
TCTs under their respective names as the properties covered in the TCTs were veritably
included in the January 2, 2006 notice of coverage. In the main, they claimed that the
revocation of the SDP cannot legally affect their rights as innocent purchasers for value. Both
motions for leave to intervene were granted and the corresponding petitions-in-intervention
admitted.
ISSUES: Whether the rights, obligations and remedies of the parties to the SDOA are now
governed by the Corporation Code (Batas Pambansa Blg. 68) and not by the Comprehensive
Agrarian Reform Law.
RULING: While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP
are upheld, the revocation must, by application of the operative fact principle, give way to the
right of the original 6,296 qualified FWBs to choose whether they want to remain as HLI
stockholders or not. The Court cannot turn a blind eye to the fact that in 1989, 93% of the
FWBs agreed to the SDOA (or the MOA), which became the basis of the SDP approved by
PARC per its Resolution No. 89-12-2 dated November 21, 1989. From 1989 to 2005, the
FWBs were said to have received from HLI salaries and cash benefits, hospital and medical
benefits, 240-square meter homelots, 3% of the gross produce from agricultural lands, and
3% of the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare lot
sold to SCTEX. HLI shares totaling 118,391,976.85 were distributed as of April 22, 2005. 166
On August 6, 20l0, HLI and private respondents submitted a Compromise Agreement, in
which HLI gave the FWBs the option of acquiring a piece of agricultural land or remain as HLI
stockholders, and as a matter of fact, most FWBs indicated their choice of remaining as
stockholders. These facts and circumstances tend to indicate that some, if not all, of the FWBs
may actually desire to continue as HLI shareholders. A matter best left to their own
discretion.
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Dulawan, Whinston
Page 74 of 148
With respect to the other FWBs who were not listed as qualified beneficiaries as of November
21, 1989 when the SDP was approved, they are not accorded the right to acquire land but
shall, however, continue as HLI stockholders. All the benefits and homelots167 received by the
10,502 FWBs (6,296 original FWBs and 4,206 non-qualified FWBs) listed as HLI stockholders
as of August 2, 2010 shall be respected with no obligation to refund or return them since the
benefits (except the home lots) were received by the FWBs as farmhands in the agricultural
enterprise of HLI and other fringe benefits were granted to them pursuant to the existing
collective bargaining agreement with Tadeco. If the number of HLI shares in the names of the
original FWBs who opt to remain as HLI stockholders falls below the guaranteed allocation of
18,804.32 HLI shares per FWB, the HLI shall assign additional shares to said FWBs to
complete said minimum number of shares at no cost to said FWBs.
With regard to the home lots already awarded or earmarked, the FWBs are not obliged to
return the same to HLI or pay for its value since this is a benefit granted under the SDP. The
home lots do not form part of the 4,915.75 hectares covered by the SDP but were taken from
the 120.9234 hectare residential lot owned by Tadeco. Those who did not receive the home
lots as of the revocation of the SDP on December 22, 2005 when PARC Resolution No. 2005-
32-01 was issued, will no longer be entitled to home lots. Thus, in the determination of the
ultimate agricultural land that will be subjected to land distribution, the aggregate area of the
home lots will no longer be deducted.
There is a claim that, since the sale and transfer of the 500 hectares of land subject of the
August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot came after compulsory
coverage has taken place, the FWBs should have their corresponding share of the land’s
value. There is merit in the claim. Since the SDP approved by PARC Resolution No. 89-12-2
has been nullified, then all the lands subject of the SDP will automatically be subject of
compulsory coverage under Sec. 31 of RA 6657. Since the Court excluded the 500-hectare lot
subject of the August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot acquired
by the government from the area covered by SDP, then HLI and its subsidiary, Centennary,
shall be liable to the FWBs for the price received for said lots. HLI shall be liable for the value
received for the sale of the 200-hectare land to LRC in the amount of PhP 500,000,000 and
the equivalent value of the 12,000,000 shares of its subsidiary, Centennary, for the 300-
hectare lot sold to LIPCO for the consideration of PhP 750,000,000. Likewise, HLI shall be
liable for PhP 80,511,500 as consideration for the sale of the 80.51- hectare SCTEX lot.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the 500-
hectare land and 80.51-hectare SCTEX lot to the FWBs. We also take into account the
payment of taxes and expenses relating to the transfer of the land and HLI’s statement that
most, if not all, of the proceeds were used for legitimate corporate purposes. In order to
determine once and for all whether or not all the proceeds were properly utilized by HLI and its
subsidiary, Centennary, DAR will engage the services of a reputable accounting firm to be
approved by the parties to audit the books of HLI to determine if the proceeds of the sale of
the 500- hectare land and the 80.51-hectare SCTEX lot were actually used for legitimate
corporate purposes, titling expenses and in compliance with the August 14, 1996 Conversion
Order. The cost of the audit will be shouldered by HLI. If after such audit, it is determined that
there remains a balance from the proceeds of the sale, then the balance shall be distributed
to the qualified FWBs.
A view has been advanced that HLI must pay the FWBs yearly rent for use of the land from
1989. We disagree. It should not be forgotten that the FWBs are also stockholders of HLI, and
the benefits acquired by the corporation from its possession and use of the land ultimately
redounded to the FWBs’ benefit based on its business operations in the form of salaries, and
other fringe benefits under the CBA. To still require HLI to pay rent to the FWBs will result in
double compensation.
For sure, HLI will still exist as a corporation even after the revocation of the SDP although it
will no longer be operating under the SDP, but pursuant to the Corporation Code as a private
stock corporation. The non agricultural assets amounting to PhP 393,924,220 shall remain
with HLI, while the agricultural lands valued at PhP 196,630,000 with an original area of
4,915.75 hectares shall be turned over to DAR for distribution to the FWBs. To be deducted
from said area are the 500-hectare lot subject of the August 14, 1996 Conversion Order, the
80.51-hectare SCTEX lot, and the total area of 6,886.5 square meters of individual lots that
should have been distributed to FWBs by DAR had they not opted to stay in HLI.
HLI shall be paid just compensation for the remaining agricultural land that will be transferred
to DAR for land distribution to the FWBs. We find that the date of the "taking" is November 21,
1989, when PARC approved HLI’s SDP per PARC Resolution No. 89-12-2. DAR shall
coordinate with LBP for the determination of just compensation. We cannot use May 11, 1989
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Dulawan, Whinston
Page 75 of 148
when the SDOA was executed, since it was the SDP, not the SDOA, that was approved by
PARC.
The instant petition is treated pro hac vice in view of the peculiar facts and circumstances of
the case.
The instant petition is DENIED. PARC Resolution No. 2005-32-01 dated December 22, 2005
and Resolution No. 2006-34-01 dated May 3, 2006, placing the lands subject of HLI’s SDP
under compulsory coverage on mandated land acquisition scheme of the CARP, are hereby
AFFIRMED with the MODIFICATION that the original 6,296 qualified FWBs shall have the
option to remain as stockholders of HLI. DAR shall immediately schedule meetings with the
said 6,296 FWBs and explain to them the effects, consequences and legal or practical
implications of their choice, after which the FWBs will be asked to manifest, in secret voting,
their choices in the ballot, signing their signatures or placing their thumbmarks, as the case
may be, over their printed names.
Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is entitled to
18,804.32 HLI shares, and, in case the HLI shares already given to him or her is less than
18,804.32 shares, the HLI is ordered to issue or distribute additional shares to complete said
prescribed number of shares at no cost to the FWB within thirty (30) days from finality of this
Decision. Other FWBs who do not belong to the original 6,296 qualified beneficiaries are not
entitled to land distribution and shall remain as HLI shareholders. All salaries, benefits, 3%
production share and 3% share in the proceeds of the sale of the 500-hectare converted land
and the 80.51-hectare SCTEX lot and homelots already received by the 10,502 FWBs,
composed of 6,296 original FWBs and 4,206 non-qualified FWBs, shall be respected with no
obligation to refund or return them.
Within thirty (30) days after determining who from among the original FWBs will stay as
stockholders, DAR shall segregate from the HLI agricultural land with an area of 4,915.75
hectares subject of PARC’s SDP approving Resolution No. 89-12-2 the following: (a) the 500-
hectare lot subject of the August 14, l996 Conversion Order; (b) the 80.51-hectare lot sold to,
or acquired by, the government as part of the SCTEX complex; and (c) the aggregate area of
6,886.5 square meters of individual lots that each FWB is entitled to under the CARP had he
or she not opted to stay in HLI as a stockholder. After the segregation process, as indicated,
is done, the remaining area shall be turned over to DAR for immediate land distribution to the
original qualified FWBs who opted not to remain as HLI stockholders.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The aforementioned area composed of 6,886.5-square meter lots allotted to the FWBs who
stayed with the corporation shall form part of the HLI assets.
HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000 received by it
from Luisita Realty, Inc. for the sale to the latter of 200 hectares out of the 500 hectares
covered by the August 14, 1996 Conversion Order, the consideration of PhP 750,000,000
received by its owned subsidiary, Centennary Holdings, Inc. for the sale of the remaining 300
hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and the
price of PhP 80,511,500 paid by the government through the Bases Conversion Development
Authority for the sale of the 80.51-hectare lot used for the construction of the SCTEX road
network. From the total amount of PhP 1,330,511,500 (PhP 500,000,000 + PhP 750,000,000
+ PhP 80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of the total gross sales
from the production of the agricultural land and the 3% of the proceeds of said transfers that
were paid to the FWBs, the taxes and expenses relating to the transfer of titles to the
transferees, and the expenditures incurred by HLI and Centennary Holdings, Inc. for
legitimate corporate purposes. For this purpose, DAR is ordered to engage the services of a
reputable accounting firm approved by the parties to audit the books of HLI and Centennary
Holdings, Inc. to determine if the PhP 1,330,511,500 proceeds of the sale of the three (3)
aforementioned lots were used or spent for legitimate corporate purposes. Any unspent or
unused balance as determined by the audit shall be distributed to the 6,296 original FWBs.
HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to
be reckoned from November 21, 1989 per PARC Resolution No. 89-12-2. DAR and LBP are
ordered to determine the compensation due to HLI.
67 Cordon v. Balicanta, 4 October 2002
FACTS: Rosaura Cordon, the complainant, filed a complaint for respondent Balicanta's
disbarment with this court. The IBP was asked by the court to look into the situation and make
recommendations. The parties filed their respective position papers as agreed upon after the
complainant filed a supplemental complaint that was legally allowed. She and her daughter
received 21 pieces of land in Zamboanga City as a result of her complaint. The responder
assisted her in handling her late husband's estate. In order to form a corporation that would
develop the aforementioned real estate, the respondent persuaded the complainant and her
daughter.
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Dulawan, Whinston
Page 76 of 148
After then, the respondent operated the corporation alone while serving as Chairman of the
Board, President, General Manager, and Treasurer. Additionally, the respondent forced the
complaint to sign what turned out to be a voting trust agreement. Additionally, the respondent
was successful in getting the complainant to consent to the sale and mortgage of some of the
real estate that she received as an inheritance from her late husband. Over time, the firm ran
up debt and was about to go into foreclosure. When the complainant attempted to assume
control of the corporation's management, the respondent refused to work with it. The
respondent absolved himself and placed the blame for the corporation's failure on the
stockholders.
ISSUE: Can the respondent can invoke the separate personality of the corporation to absolve
him from exercising these duties over the properties turned over to him by complainant?
RULING: No, the Court holds that respondent cannot invoke the separate personality of the
corporation to absolve him from exercising these duties over the properties turned over to him
by complainant. He blatantly used the corporate veil to defeat his fiduciary obligation to his
client, the complainant. Toleration of such fraudulent conduct was never the reason for the
creation of said corporate fiction. The massive fraud perpetrated by respondent on the
complainant leaves us no choice but to set aside the veil of corporate entity. For purposes of
this action therefore, the properties registered in the name of the corporation should still be
considered as properties of complainant and her daughter. The respondent merely held them
in trust for complainant (now an ailing 83-year-old) and her daughter. The properties
conveyed fraudulently and/or without the requisite authority should be deemed as never to
have been transferred, sold or mortgaged at all. Respondent shall be liable, in his personal
capacity, to third parties who may have contracted with him in good faith.
68 Concept Builders v. NLRC, 257 S 149
FACTS: Concept Builders, Inc. (petitioner) is a domestic corporation engaged in the
construction business.
Private respondents were employed by Concept Builders as laborers, carpenters, and riggers.
Private respondents were served with notices of termination of employment by Concept
Builders, citing the completion of their project as the reason.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The Labor Arbiter found that at the time of termination, the project was not yet completed, and
therefore, their termination was illegal. The Labor Arbiter ordered Concept Builders to reinstate
private respondents and pay them back wages.
The National Labor Relations Commission (NLRC) affirmed the decision, and a writ of
execution was issued.
The special sheriff encountered difficulties in executing the writ due to security guards and
claims that the property belonged to Hydro Pipes Philippines, Inc. (HPPI), a sister company of
Concept Builders.
Private respondents filed a motion for the issuance of a break-open order to enforce the writ
of execution.
HPPI claimed that it was a separate and distinct corporation from Concept Builders.
The NLRC issued the break-open order, and HPPI's third-party claim was dismissed.
Concept Builders filed a petition alleging that the NLRC committed grave abuse of discretion.
ISSUES: Whether the NLRC committed grave abuse of discretion when it ordered the
execution of its decision despite a third-party claim on the levied property.
Whether the doctrine of piercing the corporate veil should apply in this case.
RULING: The Supreme Court upheld the NLRC's decision and dismissed Concept Builders'
petition.
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:
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.
Case Digest Compilation
Dulawan, Whinston
Page 77 of 148
Likewise, the Court laid down 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 plaintiffs 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 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.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

69 Gold Line Tours v. Heirs of Lacsa, 18 June 2012
FACTS: Ma. Concepcion Lacsa (Concepcion) boarded a Gold Line passenger bus owned and
operated by Travel &Tours Advisers, Inc. Before reaching their destination, the Goldline bus
collided with a passenger jeepneys and as a result, a metal part of the jeepney was detached
and struck Concepcion in the chest, causing her instant death. Then, Concepcion’s heirs,
represented by Teodoro Lacsa, instituted in the RTC a suit against Travel & Tours Advisers
Inc. to recover damages arising from breach of contract of carriage. The RTC ruled in favor of
the heirs of Concepcion and thereafter, Gold Line appealed the decision to the CA but the CA
dismissed the appeal for failure of the defendants to pay the docket and other lawful fees
within the required period as provided in Rule 41, Section 4 of the Rules of Court. The
dismissal became final.
Thereafter, the heirs of Concepcion moved for the issuance of a writ of execution to
implement the decision and RTC granted their motion. Petitioner submitted a verified third
party claim, claiming that the tourist bus be returned to petitioner because it was the and that
petitioner was a corporation entirely different from Travel & Tours Advisers, Inc. then RTC
dismissed petitioner’s verified third-party claim, observing that the identity of Travel & Tours
Adivsers, Inc. could not be divorced from that of petitioner considering that Cheng had
claimed to be the operator as well as the President/Manager/incorporator of both entities; and
that Travel & Tours Advisers, Inc. had been known in Sorsogon as Goldline. They (Goldline)
appealed the decision to CA but CA dismissed their petition and affirmed the decision of RTC.
Hence this appeal to the Supreme Court where petitioner seeks to reverse the decision of
CA.
ISSUE: Whether or not the proposition of the third party claimant by the petitioner where
Travel & Tours Advises, Inc. has an existence separate and/or distinct from Gold Line Tours,
Inc.
RULING: NO. The two corporations are liable to the death of Ma. Concepcion Lacsa. The
Court was not persuaded by the proposition of the third party claimant that a corporation has
an existence separate and/or distinct from its members insofar as this case at bar is
concerned, for the reason that whenever necessary for the interest of the public or for the
protection of enforcement of their rights, the notion of legal entity should not and is not to be
used to defeat public convenience, justify wrong, protect fraud or defend crime.
Case Digest Compilation
Dulawan, Whinston
Page 78 of 148
In the case of Palacio vs. Fely Transportation Co., the Supreme Court held that: "Where the
main purpose in forming the corporation was to evade one’s subsidiary liability for damages in
a criminal case, the corporation may not be heard to say that it has a personality separate and
distinct from its members, because to allow it to do so would be to sanction the
use of fiction of corporate entity as a shield to further an end subversive of justice (La
Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., L-5677, May
25, 1953).
This is what the third party claimant wants to do including the defendant in this case, to use
the separate and distinct personality of the two corporation as a shield to further an end
subversive of justice by avoiding the execution of a final judgment of the court.
The RTC thus rightly ruled that petitioner might not be shielded from liability under the final
judgment through the use of the doctrine of separate corporate identity. Truly, this fiction of
law could not be employed to defeat the ends of justice.
70 Collector of Internal Revenue vs Norton and Harrison Company, 11 S 74
FACTS: Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at
wholesale and retail, all kinds of goods, wares, and merchandise; (2) to act as agents of
manufacturers in the United States and foreign countries; and (3) to carry on and conduct a
general wholesale and retail mercantile establishment in the Philippines. Jackbilt is, likewise, a
corporation organized on February 16, 1948 primarily for the purpose of making, producing
and manufacturing concrete blocks. Under date of July 27, 1948. Norton and Jackbilt entered
into an agreement whereby Norton was made the sole and exclusive distributor of concrete
blocks manufactured by Jackbilt. Pursuant to this agreement, whenever an order for concrete
blocks was received by the Norton & Harrison Co. from a customer, the order was transmitted
to Jackbilt which delivered the merchandise direct to the customer. Payment for the goods is,
however, made to Norton, which in turn pays Jackbilt the amount charged the customer less a
certain amount, as its compensation or profit. To exemplify the sales procedures adopted by
the Norton and Jackbilt, the following may be cited. In the case of the sale of 420 pieces of
concrete blocks to the American Builders on April 1, 1952, the purchaser paid to Norton the
sum of P189.00 the purchase price. Out of this amount Norton paid Jackbilt P168.00, the
difference obviously being its compensation. As per records of Jackbilt, the transaction was
considered a sale to Norton. It was under this procedure that the sale of concrete blocks
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

manufactured by Jackbilt was conducted until May 1, 1953, when the agency agreement was
terminated and a management agreement between the parties was entered into. The
management agreement provided that Norton would sell concrete blocks for Jackbilt, for a
fixed monthly fee of P2,000.00, which was later increased to P5,000.00. During the existence
of the distribution or agency agreement, or on June 10, 1949, Norton & Harrison acquired by
purchase all the outstanding shares of stock of Jackbilt. Apparently, due to this transaction, the
Commissioner of Internal Revenue, after conducting an investigation, assessed the
respondent Norton & Harrison for deficiency sales tax and surcharges in the amount of
P32,662.90, making as basis thereof the sales of Norton to the Public. In other words, the
Commissioner considered the sale of Norton to the public as the original sale and not the
transaction from Jackbilt.
ISSUE: Whether or not the doctrine of piercing the corporate veil should be applied in order to
make respondent corporation liable for the sales deficiency tax.
RULING: Yes. Jackbilt is merely an adjunct, business conduit or alter ego, of Norton and
Harrison and that the fiction of corporate entities, separate and distinct from each, should be
disregarded. This is a case where the doctrine of piercing the veil of corporate fiction, should
be made to apply.
Where a corporation is a dummy, is unreal or a sham and serves no business purpose and is
intended only as a blind, the corporate form may be ignored for the law cannot countenance a
form that is bald and a mischievous fictions.
A taxpayer may gain advantage of doing business thru a corporation if he pleases, but the
revenue officers in proper cases, may disregard the separate corporate entity where it serves
but as a shield for tax evasion and treat the person who actually may take benefits of the
transactions as the person accordingly taxable.
It has been settled that the ownership of all the stocks of a corporation by another corporation
does not necessarily breed an identity of corporate interest between the two companies and
be considered as a sufficient ground for disregarding the distinct personalities (Liddell & Co.,
Inc. v. Coll. of Int. Rev. L-9687, June 30, 1961).
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However, in the case at bar, we find sufficient grounds to support the theory that the separate
identities of the two companies should be disregarded. Among these circumstances, which we
find not successfully refuted by appellee Norton are: (a) Norton and Harrison owned all the
outstanding stocks of Jackbilt; of the 15,000 authorized shares of Jackbilt on March 31, 1958,
14,993 shares belonged to Norton and Harrison and one each to seven others; (b) Norton
constituted Jackbilt’s board of directors in such a way as to enable it to actually direct and
manage the other’s affairs by making the same officers of the board for both companies. For
instance, James E. Norton is the President, Treasurer, Director and Stockholder of Norton. He
also occupies the same positions in Jackbilt corporation, the only change being, in the Jackbilt,
he is merely a nominal stockholder.
The same is true with Mr. Jordan, F. M. Domingo, Mr. Mantaring, Gilbert Golden and Gerardo
Garcia, while they are merely employees of the North they are Directors and nominal
stockholders of the Jackbilt (c) Norton financed the operations of the Jackbilt, and this is
shown by the fact that the loans obtained from the RFC and Bank of America were used in the
expansion program of Jackbilt, to pay advances for the purchase of equipment, materials
rations and salaries of employees of Jackbilt and other sundry expenses. There was no limit to
the advances given to Jackbilt so much so that as of May 31, 1956, the unpaid advances
amounted to P757,652.45, which were not paid in cash by Jackbilt, but was offset by shares of
stock issued to Norton, the absolute and sole owner of Jackbilt; (d) Norton treats Jackbilt
employees as its own.
Evidence shows that Norton paid the salaries of Jackbilt employees and gave the same
privileges as Norton employees, an indication that Jackbilt employees were also Norton’s
employees. Furthermore service rendered in any one of the two companies were taken into
account for purposes of promotion; (e) Compensation given to board members of Jackbilt,
indicate that Jackbilt is merely a department of Norton. The income tax return of Norton for
1954 shows that as President and Treasurer of Norton and Jackbilt, he received from Norton
P56,929.95, but received from Jackbilt the measly amount of P150.00, a circumstance which
points out that remuneration of purported officials of Jackbilt are deemed included in the
salaries they received from Norton.
The same is true in the case of Eduardo Garcia, an employee of Norton but a member of the
Board of Jackbilt. His Income tax return for 1956 reveals that he received from Norton in
salaries and bonuses P4,220.00, but received from Jackbilt, by way of entertainment,
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

representation, travelling and transportation allowances P3,000.00. However, in the
withholding statement (Exh. 28-A), it was shown that the total of P4,200.00 and P3,000.00
(P7,220.00) was received by Garcia from Norton, thus portraying the oneness of the two
companies. The Income Tax Returns of Albert Golden and Dioscoro Ramos both employees
of Norton but board members of Jackbilt, also disclose the game method of payment of
compensation and allowances. The offices of Norton and Jackbilt are located in the same
compound. Payments were effected by Norton of accounts for Jackbilt and vice versa.
Payments were also made to Norton of accounts due or payable to Jackbilt and vice versa.
It may not be amiss to state in this connection, the advantages to Norton in maintaining a
semblance of separate entities. If the income of Norton should be considered separate from
the income of Jackbilt, then each would declare such earning separately for income tax
purposes and thus pay lesser income tax. The combined taxable Norton-Jackbilt income would
subject Norton to a higher tax. Based upon the 1954-1955 income tax return of Norton and
Jackbilt, and assuming that both of them are operating on the same fiscal basis and their
returns are accurate, we would have the following result: Jackbilt declared a taxable net
income of P161,202.31 in which the income tax due was computed at P37,137.00; whereas
Norton declared as taxable, a net income of P120,101.59, on which the income tax due was
computed at P25,628.00. The total of these liabilities is P50,764.84. On the other hand, if the
net taxable earnings of both corporations are combined, during the same taxable year, the tax
due on their total which is P281,303.90 would be P70,764.00. So that, even on the question of
income tax alone, it would be to the advantages of Norton that the corporations should be
regarded as separate entities.
71 Tan Boon Bee v. Jarencio, 163 S 205
FACTS: In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered into a contract of
sale with Graphic Publishing Inc. (GPI) whereby AC shall deliver paper products to GPI. GPI
paid a down payment but defaulted in paying the rest despite demand from ASC. ASC sued
GPI and ASC won.
To satisfy the indebtedness, the trial court, presided by Judge Hilarion Jarencio, ordered that
one of the printing machines of GPI be auctioned. But before the auction can be had,
Philippine American Drug Company (PADCO) notified the sheriff that PADCO is the actual
owner of said printing machine. Notwithstanding, the sheriff still went on with the auction sale
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where Tan Boon Bee was the highest bidder. Later, PADCO filed with the same court a motion
to nullify the sale on execution. The trial court ruled in favor of PADCO and it nullified said
auction sale.
Tan Boon Bee assailed the order of the trial court. Tan Boon Bee averred that PADCO holds
50% of GPI; that the board of directors of PADCO and GPI is the same; that the veil of
corporate fiction should be pierced based on the premises. PADCO on the other hand asserts
ownership over the said printing machine; that it is merely leasing it to GPI.
ISSUE: Whether or not the veil of corporate fiction should be pierced.
RULING: Yes. PADCO, as its name suggests, is a drug company not engaged in the printing
business. So it is dubious that it really owns the said printing machine regardless of PADCO's
title over it. Further, the printing machine, as shown by evidence, has been in GPI's premises
even before the date when PADCO alleged that it acquired ownership thereof. Premises
considered, the veil of corporate fiction should be pierced; PADCO and GPI should be
considered as one. When a corporation is merely an adjunct, business conduit or alter ego of
another corporation the fiction of separate and distinct corporation entities should be
disregarded.
72 WPM International v. Labayen, 17 September 2014
FACTS: Fe Corazon Labayen (Labayen) is the owner of a management and consultant firm.
WPM International Trading, Inc. (WPM) is a domestic corporation engaged in the restaurant
business, while Warlito P. Manlapaz (Manlapaz) is its President.
WPM entered a management agreement with Labayen where Labayen was authorized to
operate, manage, and rehabilitate Quickbite. As part of her tasks, Labayen engaged the
services of CLN Engineering Services (CLN) to renovate one branch. When the renovation
was finally completed, only Php320,000.00 was paid, leaving a balance of Php112,000.00.
CLN filed a complaint for a sum of money and damages before the RTC. RTC found Labayen
liable to pay CLN actual damages. Labayen then instituted a complaint for damages against
the WPM and Manlapaz.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Labayen alleged that she was adjudged liable for a contract that she entered for and on behalf
of the WPM and Manlapaz, to which she should be entitled to reimbursement. In his defense,
Manlapaz claims that since Labayen had exceeded her authority as agent of WPM, the
renovation agreement should only bind her; and since WPM has a separate and distinct
personality, Manlapaz cannot be made liable for Labayen’s claim.
The RTC held that Labayen is entitled to indemnity from Manlapaz. CA affirmed the decision.
ISSUES: Whether or not WPM is a mere instrumentality, alter-ego, and business conduit of
Manlapaz.
Whether or not Manlapaz is jointly and severally liable with WPM to Labayen for
reimbursement, damages, and interest.
RULING: No, Manlapaz is absolved. The rule is settled that a corporation has a personality
separate and distinct from the persons acting for and on its behalf and, in general, from the
people comprising it. The doctrine of piercing the corporate veil applies only to three (3) basic
instances:
a) When the separate and distinct corporate personality defeats public convenience, as when
the corporate fiction is used as a vehicle for the evasion of an existing obligation;
b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or
defend a crime; or
c) is used in alter ego cases, i.e., where a corporation is essentially 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 so conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation.
Piercing the corporate veil based on the alter ego theory requires the concurrence of three
elements:
(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
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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 the plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of. The absence of any of these elements prevents piercing the corporate
veil.
Aside from the fact that Manlapaz was the principal stockholder of WPM, records do not show
that WPM was organized and controlled, and its affairs conducted in a manner that made it
merely an instrumentality, agency, conduit, or adjunct of Manlapaz. As held in Martinez v.
Court of Appeals, the mere ownership by a single stock holder of even all or nearly all of the
capital stocks of a corporation is not by itself a sufficient ground to disregard the separate
corporate personality. To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established.
73 Gesolgon and Santos v. Cyberone Ph., Inc., G.R. No. 210741, October 14, 2020
FACTS: Maria Lea Jane Gesolgon and Marie Stephanie Santos (Petitioners) alleged that they
were hired by Maciej Mikrut (Mikrut), the CEO of both respondents CyberOne AU and
CyberOne PH, as part-time home-based remote CSR of CyberOne AU.
Later, they became full-time and permanent employees of CyberOne AU and were eventually
promoted as supervisors. In 2009, Mikrut asked them to become dummy directors and/or
incorporators of CyberOne PH to which they agreed. Consequently, they were promoted as
managers with increased benefits. Their salary increases were made to appear as paid for by
CyberOne PH.
In 2011, they were notified by CyberOne AU of their dismissal through furlough notifications
placing their employment on hold in view of the company’s cost-cutting measure. Thus, they
filed a complaint against respondents Cyberone PH Inc., Maciej Mikrut and CyberOne AU for
illegal dismissal and money claims.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The CA reversed the ruling of the National Labor Relations Commission which applied the
doctrine of piercing the corporate veils of CyberOne AU and CyberOne Ph.
ISSUE: Is the doctrine of piercing the corporate veil applicable in this case?
RULING: CyberOne AU is a foreign corporation organized and existing under the laws of
Australia and is not licensed to do business in the Philippines. CyberOne AU did not appoint
and authorize CyberOne PH, a domestic corporation, and Mikrut as its agents in the
Philippines to act in its behalf. Also, it was not shown that CyberOne AU is doing business in
the Philippines.
While it is true that CyberOne AU owns majority of the shares of CyberOne PH, this,
nonetheless, does not warrant the conclusion that CyberOne PH is a mere conduit of
CyberOne AU.
The doctrine of piercing the corporate veil applies only in three basic instances, namely:
(a) when the separate distinct corporate personality defeats public convenience, as when the
corporate fiction is used as a vehicle for the evasion of an existing obligation;
(b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or
defend a crime; or
(c) is used in alter ego cases, i.e., where a corporation is essentially 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 conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.
First, no evidence was presented to prove that CyberOne PH was organized for the purpose of
defeating public convenience or evading an existing obligation. Second, petitioners failed to
allege any fraudulent acts committed by CyberOne PH in order to justify a wrong, protect a
fraud, or defend a crime. And lastly, the mere fact that CyberOne PH’s major stockholders are
CyberOne AU and respondent Mikrut does not prove that CyberOne PH was organized and
controlled and its affairs conducted in a manner that made it merely an instrumentality,
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agency, conduit or adjunct of CyberOne AU. In order to disregard the separate corporate
personality of a corporation, the wrongdoing must be clearly and convincingly established.
Moreover, petitioners failed to prove that CyberOne AU and Mikrut, acting as the managing
director of both corporations, had absolute control over CyberOne PH. Even granting that
CyberOne AU and Mikrut exercised a certain degree of control over the finances, policies and
practices of CyberOne PH, such control does not necessarily warrant piercing the veil of
corporate fiction since there was not a single proof that CyberOne PH was formed to defraud
petitioners or that CyberOne PH was guilty of bad faith or fraud.
Hence, the doctrine of piercing the corporate veil cannot be applied in the case. This means
that CyberOne AU cannot be considered as doing business in the Philippines through its local
subsidiary CyberOne PH. This means as well that CyberOne AU is to be classified as a non-
resident corporation not doing business in the Philippines.
74 Kho, SR. v. Magbanua, et. al. GR No. 237246, July 24, 2019
FACTS: A complaint for illegal dismissal was filed by respondents before the Labor Arbiter
(LA) against Holy Face Cell Corporation (Corporation), Tres Pares Fast Food (Tres Pares)
and the Corporation’s stockholders including its alleged President, Hayden Kho Sr and the
latter’s wife, Irene Kho. The Respondents claimed that they were employed by the
Corporation as cooks, cashiers or dishwashers, respectively. They received information,
through the daughter of petitioners, MS. Sheryl Kho,by posting a notice in the company
premises posited that on 14 of January, 2011, the said restaurant would close down on 19th
of January 2011. Due to the fear of losing their jobs, they requested an audience with MR.
Kho, thru the daughter, but to no avail. The restaurant closed on schedule, thus the
respondents filed the complaint for illegal dismissal with payment of separation pay, salary
differentials, nominal damages, differentials on overtime pay, service incentive leave pay, and
holiday pay, including damages and attorney’s fees as well.
The LA ruled in favour of the Respondents that the Corporation failed to prove that it closed
down its business due to financial distress as it did not offer financial documents to
corroborate its claim. It also failed to comply with the notice requirement prior to such closure
as laid down under Article 298 of the Labor Code.
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The NLRC reversed the findings of the LA, and dismissed the case, on the contention that
Petitioenrs cannot be held solidarily liable with the Corporation, absent the acts that would
justify piercing the veil of corporate fiction.
In the Decision of the CA, it held Petitioners solidary liable, on the account of the admission of
Kho, that he managed the corporation, that his daughter posted the notice of closure and
lastly; the respondent sought audience to discuss the closure. It found out that Kho, Acted in
bad faith despite the absence of a board resolution authorizing the closure as such.
ISSUE: Whether or not petitioners are solidarily liable.
RULING: In cases of Corporations, they are juridical entities which have a separate and
distinct personality with their stockholders. Hence, The Board of Directors cannot be held liable
for the liabilities incurred by the Corporation, since it has a separate, independent personality
of its own. In order to pierce the veil of Corporate fiction,
The court reiterated three instances:
a) when an act is intended to defeat public convenience or as a vehicle for the evasion of an
existing obligation
b) to justify wrong, protect or perpetuate fraud, defend crime, or as a shield to confuse
legitimate issues and
c) as mere alter ego or business conduit of a person so organized and controlled and its affairs
are so conducted as to make it merely as an instrumentality, agency, conduit or adjunct of
another corporation.
Fundamental in the realm of labor law that corporate directors, trustees, or officers can be held
solidarily liable with the corporation when they assent to a patently unlawful act of the
corporation, or when they are 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.
However, it bears emphasis that a finding of personal liability against a director, trustee, or a
corporate officer requires the concurrence of these two (2) requisites, namely: (a) a clear
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allegation in the complaint of gross negligence, bad faith or malice, fraud, or any of the
enumerated exceptional instances; and (b) clear and convincing proof of said grounds relied
upon in the complaint sufficient to overcome the burden of proof borne by the complainant.
In this case, the evidence on record do not support the findings of both the LA and the CA that
Kho was the Corporation's President at the time of its closure, and that he assented to a
patently unlawful act, thereby exposing him to solidary liability with the Corporation. A plain
reading of the Corporation's GIS for the years 2007 and 2008 show that Kho was not the
Corporation's President as he was merely its Treasurer, while the GIS for the year 2009
indicates that he is no longer a corporate officer of the Corporation. More importantly, aside
from respondents' bare allegations, there is a dearth of evidence on record that would indicate
that Kho was a corporate officer at the time the restaurant, where respondents worked, closed
down.
Absent any finding that Kho was a corporate officer of the Corporation who willfully and
knowingly assented to patently unlawful acts of the latter, or who is guilty of bad faith or gross
negligence in directing its affairs, or is guilty of conflict of interest resulting in damages thereto,
he cannot be held personally liable for the corporate liabilities arising from the instant case.
75 ABS-CBN v. Hiilario, et. al. GR No. 193136, July 10, 2019
FACTS: Petitioner is a domestic corporation primarily engaged in the business of international
and local broadcasting of television and radio content. ABS-CBN’s Scenic Department initially
handled the design, construction and provision of the props and sets for its different shows and
programs. Subsequently, petitioner engaged independent contractors to create, provide and
construct its different sets and props requirements. One of the independent contractors
engaged by petitioner was Mr. Edmund Ty (Ty). In 1995, CCI was formed and incorporated by
Ty together with some officers of petitioner, namely, Mr. Eugenio Lopez III, Charo Santos-
Concio, Felipe S. Yalong and Federico M. Garcia. It was organized to engage in the business
of conceptualizing, designing and constructing sets and props for use in television programs,
theater presentations, concerts, conventions and/or commercial advertising. Ty became the
Vice-President and Managing Director of CCI. On or about the time of CCI’s incorporation, the
Scenic Department of petitioner was abolished and CCI was engaged by petitioner to provide
props and set design for its shows and programs.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

On March 6, 1995, respondent Honorato was hired by CCI as Designer. He rose from the
ranks until he became Set Controller, receiving a monthly salary of P9,973.24 as of October 5,
2003. Respondent Banting, on the other hand, was engaged by CCI as Metal Craftsman in
April 1999. He likewise rose from the ranks and became Assistant Set Controller, with a
monthly salary of P8,820.73 as of October 5, 2003.
Ty decided to retire as an officer of CCI, by virtue of his retirement, and his paramount
contribution to the company has been missing due to his absence, the board of directors of
CCI, decided to shorten the corporate existence of CCI,by amending the articles, and such
amendment was approved by the Board of directors. TY decided to create a new corporation,
engaged in similar business with CCI, namely Ty organized and created Dream Weaver Visual
Exponents, Inc. (DWVEI). Like CCI, DWVEI is primarily engaged in the business of
conceptualizing, designing and constructing sets and props for use in television programs and
similar projects. With the incorporation of DWVEI, petitioner engaged the services of DWVEI.
Due to the cessation of the corporate business, the respondents received a letter informing
them that they are now dismissed from work due to the cessation of the business, though not
performing badly to incur losses, but the business is merely on a break-even scenario, hence
is justified for its closure. The respondent’s received separation pay and quitclaims, however,
they filed an illegal dismissal against the petitioner,and contended that the foreclosure of the
said corporation was intended to circumvent labor laws, and unduly violated the security of
tenure, under the guise of a valid cessation of business. The LA, NLRC and CA, affirmed in
consensus and contended that Petitioner, indeed, illegally dismissed the private respondents.
ISSUE: Whether or Not the Petitioner illegally dismissed the respondents.
RULING: Yes, The Court held that the private respondents were illegally dismissed. The
Contention of Petitioner that the cessation of CCI weire done in good faith failed to convince
the court of such. It can be shown from the facts that cessation of business must fulfil the
requirements provided for by law. Specifically under Art 298. It provided three requirements; a)
service of a written notice to the employees and to the DOLE at least one month before the
intended date thereof; (b) the cessation of business must be bona fide in character; and (c)
payment of the employees of termination pay amounting to one month pay or at least one-half
month pay for every year of service, whichever is higher.
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Though the requirements were present it must be done in good faith. As can be shown, there
is a necessity to pierce the veil of corporate fiction, as such would tend to circumvent existing
laws.
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely:
(1) defeat 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.
CCI and DWEIVEX consists of the same set of board of directors and employees, and are
employed by Petitioner ABS CBN, which the board of directors of the latter is also the board of
directors of CCI, which the cessation of CCI shows that it is only intended to unduly remove
some of its employees, while hiding under the corporate fiction so as to avoid liability. Since
the third instance of piercing the veil is present, it is only proper to see to it, that CCI and Ty,
be treated as one and the same person, together with the petitioner, thereby the court,
rendered its judgment holding the petitioner guilty of illegal dismissal of private respondents.
76 Zambrano, et. al., v. Phil. Carpet, GR No. 224099, June 21, 2017
FACTS: The petitioners averred that they were employees of private respondent Philippine
Carpet Manufacturing Corporation (Phil Carpet). They were notified of the termination of their
employment on the ground of cessation of operation due to serious business losses.
They belief that their dismissal was without just x x x because the closure of Phil Carpet was a
mere pretense to transfer its operations to its wholly owned and controlled corporation, Pacific
Carpet Manufacturing Corporation (PacificCarpet).
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

They claimed that the job orders of some regular clients of PhilCarpet were transferred to
Pacific Carpet; and that from October to November 2011, several machines were moved from
the premises of Phil Carpet to Pacific Carpet.
In its defense, Phil Carpet countered that it permanently closed and totally ceased its
operations because there had been a steady decline in the demand for its products due to
global recession, stiffer competition, and the effects of a changing market.
Thus, in order to stem the bleeding, the company implemented several cost-cutting measures,
including voluntary redundancy and early retirement programs. In 2007, the car carpet division
was closed.
ISSUES: Whether or not Pacific Carpet is a mere alter ego of Phil Carpet.
RULING: Case law lays down a three-pronged test to determine the application of the alter
ego theory, namely:
(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 plaintiffs legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or
unjust loss complained of.
The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be
completely under the control and domination of the parent. It examines the parent
corporation's relationship with the subsidiary. It inquires whether a subsidiary corporation is so
organized and controlled and its affairs are so conducted as to make it a mere instrumentality
or agent of the parent corporation such that its separate existence as a distinct corporate
entity will be ignored. It seeks to establish whether the subsidiary corporation has no
autonomy and the parent corporation, though acting through the subsidiary in form and
appearance, "is operating the business directly for itself."
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The second prong is the "fraud" test. This test requires that the parent corporation's conduct in
using the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship
of the plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent
corporation uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a
showing of "an element of injustice or fundamental unfairness."
The third prong is the "harm" test. This test requires the plaintiff to show that the defendant's
control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm
suffered. A causal connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff
should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will
have been treated unjustly by the defendant's exercise of control and improper use of the
corporate form and, thereby, suffer damages.
To summarize, piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements: control of the corporation by the stockholder or parent
corporation; fraud or fundamental unfairness imposed on the plaintiff; and harm or damage
caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of
these elements prevents piercing the corporate veil.
The Court finds that none of the tests has been satisfactorily met in this case.
Although ownership by one corporation of all or a great majority of stocks of another
corporation and their interlocking directorates may serve as indicia of control, by themselves
and without more, these circumstances are insufficient to establish an alter ego relationship or
connection between Phil Carpet on the one hand and Pacific Carpet on the other hand, that
will justify the puncturing of the latter's corporate cover.
This Court has declared that "mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality." It has likewise ruled that the
"existence of interlocking directors, corporate officers and shareholders is not enough
justification to pierce the veil of corporate fiction in the absence of fraud or other public policy
considerations."
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

It must be noted that Pacific Carpet was registered with the Securities and Exchange
Commission on January 29, 1999, such that it could not be said that Pacific Carpet was set up
to evade Phil Carpet's liabilities. As to the transfer of Phil Carpet's machines to Pacific Carpet,
settled is the rule that "where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable for the debts and
liabilities of the transferor. "
All told, the petitioners failed to present substantial evidence to prove their allegation that
Pacific Carpet is a mere alter ego of Phil Carpet.
77 CMCI v. ATSI, G.R. NO. 202454, April 25, 2017
FACTS: Petitioner CMCI is a domestic corporation engaged in the food and beverage
manufacturing business. Respondent ATSI is also a domestic corporation that fabricates and
distributes food processing machinery and equipment, spare parts, and its allied products.
CMCI leased from ATSI a Prodopak machine which was used to pack products in 20-ml.
pouches. The parties agreed to a monthly rental of P98,000 exclusive of tax. In November
2003, ATSI filed a Complaint for Sum of Money against CMCI to collect unpaid rentals for the
months of June, July, August, and September 2003.
CMCI averred that ATSI was one and the same with Processing Partners and Packaging
Corporation (PPPC), which was a toll packer of CMCI products. CMCI pointed out that ATSI
was even a stockholder of PPPC as shown in the latter's GIS.
CMCI alleged that PPPC agreed to transfer the processing of CMCI's product line from its
factory in Meycauayan to Malolos, Bulacan. Upon the request of PPPC, through its Executive
Vice President Felicisima Celones, CMCI advanced P4 million as mobilization fund. PPPC
President and Chief Executive Officer Francis Celones allegedly committed to pay the amount
in 12 equal installments deductible from PPPC's monthly invoice to CMCI beginning in October
2000.
CMCI likewise claims that Felicisima proposed to set off PPPC's obligation to pay the
mobilization fund with the rentals for the Prodopak machine. CMCI argued that the proposal
was binding on both PPPC and ATSI because Felicisima was an officer and a majority
stockholder of the two corporations.
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Based on the above, CMCl argued that legal compensation had set in and that ATSI was even
liable for the balance of PPPC's unpaid obligation after deducting the rentals for the Prodopak
machine.
ISSUE: Whether the two corporations were mere alter egos or business conduits of each
other.
RULING: ATSI is distinct and separate from PPPC, or from the Spouses Celones. Whether
one corporation is merely an alter ego of another, a sham or subterfuge, and whether the
requisite quantum of evidence has been adduced to warrant the puncturing of the corporate
veil are questions of fact. This rule alone wan-ants the denial of the petition, which essentially
asks us to reevaluate the evidence adduced by the parties and the credibility of the witnesses
presented.
As the CA had con-ectly observed, 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
rights.
Sarona v. NLRC24 instructs, thus:
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.
CMCI 's alter ego theory rests on the alleged interlocking boards of directors and stock
ownership of the two corporations. The CA, however, rejected this theory based on the settled
rule that mere ownership by a single stockholder of even all or nearly all of the capital stocks of
a corporation, by itself, is not sufficient ground to disregard the corporate veil. We can only
sustain the CA's ruling. The instrumentality or control test of the alter ego doctrine requires not
mere majority or complete stock control, but complete domination of finances, policy and
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

business practice with respect to the transaction in question. The corporate entity must be
shown to have no separate mind, will, or existence of its own at the time of the transaction.
Without question, the Spouses Celones are incorporators, directors, and majority stockholders
of the ATSI and PPPC. But that is all that CMCI has proven. There is no proof that PPPC
controlled the financial policies and business practices of ATSI. Nothing in the narration above
supports CMCI's claim that it had been led to believe that ATSl and PPPC were one and the
same; or, that ATSI's collectible was intertwined with the business transaction of PPPC with
CMCI. It even appears that CMCI faithfully discharged its obligation to ATSI for a good two
years without raising any concern about its relationship to PPPC.
The fraud test, which is the second of the three-prong test to determine the application of the
alter ego doctrine, requires that the parent corporation's conduct in using the subsidiary
corporation be unjust, fraudulent or wrongful. Under the third prong, or the harm test, a causal
connection between the fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the plaintiff has to be established.
None of these elements have been demonstrated in this case.
Hence, we can only agree with the CA and RTC in ruling out mutuality of parties to justify the
application of legal compensation in this case. The uncertainty in the supposed debt of PPPC
to CMCI negates the latter's invocation of legal compensation as justification for its non-
payment of the rentals for the subject Prodopak machine.
78 Ang Lee, Doing Business As "Super Lamination Services" v. SMSLSNAFLU-KMU,
GR No. 193816, November 21 2016
FACTS: Erson Ang Lee (the petitioner), through his business Super Lamination, provides
lamination services to the public.
The Samahan ng mga Manggagawa ng Super Lamination Services (Union A) filed a Petition
for Certification Election to represent the rank-and-file employees of Super Lamination.
Express Lamination Workers' Union (Union B) and Samahan ng mga Manggagawa ng
Express Coat Enterprises, Inc. (Union C) also filed petitions to represent rank-and-file
employees of Express Lamination and Express Coat, respectively.
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The three companies (Super Lamination, Express Lamination, and Express Coat) argued that
there was no employer-employee relationship between them and the unions or their
members.
All three petitions for certification election were denied at the regional level.
The unions appealed, and the Department of Labor and Employment (DOLE) consolidated
their appeals.
DOLE ordered the conduct of a certification election, treating the rank-and-file employees of
the three companies as one bargaining unit.
The petitioner appealed to the Court of Appeals (CA), which affirmed DOLE's decision. The
petitioner then filed a Petition for Review on Certiorari before the Supreme Court.
ISSUES: Whether the doctrine of piercing the corporate veil is warranted in this case.
Whether the rank-and-file employees of the three companies constitute an appropriate
bargaining unit.
RULING: The Supreme Court held that the application of the doctrine of piercing the corporate
veil was warranted in this case. The Court found that the three companies (Super Lamination,
Express Lamination, and Express Coat) were effectively under the control and management
of the same person (the petitioner) and were engaged in a work-pooling scheme. This
scheme aimed to frustrate or defeat the rights of workers and unions to collective bargaining.
Therefore, the separate juridical personalities of these companies were disregarded, and they
were treated as one entity for the purpose of holding a certification election.
The Supreme Court ruled that the rank-and-file employees of the three companies constituted
an appropriate bargaining unit. Despite their different geographical locations, these
employees had substantial communal or mutual interests in wages, hours, working conditions,
and other subjects of collective bargaining. Their employment status and working conditions
were substantially similar, justifying the conclusion that they shared a community of interest.
The Court affirmed DOLE's decision to treat them as one bargaining unit.
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

RULING: A settled formulation of the doctrine of piercing the corporate veil is that 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.
This formulation has been applied by this Court to cases in which the laborer has been put in a
disadvantageous position as a result of the separate juridical personalities of the employers
involved. Pursuant to veil-piercing, we have held two corporations jointly and severally liable
for an employee's back wages. We also considered a corporation and its separately
incorporated branches as one and the same for purposes of finding the corporation guilty of
illegal dismissal. These rulings were made pursuant to the fundamental doctrine that the
corporate fiction should not be used as a subterfuge to commit injustice and circumvent labor
laws.
Here, a certification election was ordered to be held for all the rank-and-file employees of
Super Lamination, Express Lamination, and Express Coat. The three companies were
supposedly distinct entities based on the fact that Super Lamination is a sole proprietorship
while Express Lamination and Express Coat were separately registered with the SEC. The
directive was therefore, in effect, a piercing of the separate juridical personalities of the
corporations involved. We find the piercing to be proper and in accordance with the law as will
be discussed below.
The following established facts show that Super Lamination, Express Lamination, and Express
Coat are under the control and management of the same party — petitioner Ang Lee.
We hold that if we allow petitioner and the two other companies to continue obstructing the
holding of the election in this manner, their employees and their respective unions will never
have a chance to choose their bargaining representative. We take note that all three
establishments were unorganized. That is, no union therein was ever duly recognized or
certified as a bargaining representative.
Therefore, it is only proper that, in order to safeguard the right of the workers and Unions A, B,
and C to engage in collective bargaining, the corporate veil of Express Lamination and
Express Coat must be pierced. The separate existence of Super Lamination, Express
Lamination, and Express Coat must be disregarded. In effect, we affirm the lower tribunals in
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ruling that these companies must be treated as one and the same unit for purposes of holding
a certification election.
In this case, not only were Super Lamination, Express Lamination, and Express Coat found to
be under the control of petitioner, but there was also a discernible attempt to disregard the
workers' and unions' right to collective bargaining.
79 PNB v. Hydro Resources, 13 March 2013
The principle that a 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.
FACTS: Petitioners DBP and PNB foreclosed certain mortgages on the properties of
Marinduque Mining and Industrial Corporation (MMIC). Consequently, DBP and PNB acquired
substantially all the assets of MMIC and resumed the business operations of defunct MMIC by
organizing NMIC. DBP and PNB owned 57% and 43% of the shares of NMIC, respectively,
except for five qualifying shares. As of September 1984, members of the Board of Directors of
NMIC (Tengco, Jr., Zosa, Ancheta, Agulto, and Agbada) were either from DBP or PNB.
Subsequently, NMIC engaged the services of Hercon Inc., for NMIC’s Mine Stripping and
Road Construction Program in 1985 however, the latter found that NMIC still had an unpaid
balance. Hercon, Inc. made several demands on NMIC but these were not heeded. Thus, a
complaint for a sum of money was filed in the RTC seeking to hold petitioners NMIC, PNB and
DBP solidarily liable for the amount owed to Hercon Inc. Subsequent to the filing of the
complaint, Hercon Inc. was acquired by HRCC in a merger.
Thereafter, then President Aquino issued Proclamation No. 50 creating the Asset Privatization
Trust (APT) for the expeditious disposition and privatization of certain government corporations
and/or assets thereof. Pursuant to the said proclamation, DBP and PNB executed their
respective stakes in NMIC. In turn, the National Government transferred the said assets and
liabilities to the APT as trustee under a Trust Agreement.
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

NMIC and DBP claimed that HRCC had no cause of action and asserted that the contract with
HRCC was entered into by its President without any authority. It also failed to comply with the
rules and regulations concerning government contracts. DBP asserts that it is not privy to the
contract with NMIC and NMIC’s juridical capacity is separate from DBP.
RTC pierced the veil of NMIC and held DBP and PNB solidarily liable with NMIC.
ISSUE: Whether or not there is sufficient ground to pierce the veil of corporate fiction.
RULING: The doctrine of piercing the corporate veil applies only in three (3) basic areas:
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.
Piercing the corporate veil based on the alter ego theory requires the concurrence of three
elements (three-pronged test): control of the corporation by the stockholder or parent
corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or damage
caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of
these elements prevents piercing the corporate veil. These elements are not present in this
case.
While ownership by one corporation of all or a great majority of stocks of another corporation
and their interlocking directorates may serve as indicia of control, by themselves and without
more, however, these circumstances are insufficient to establish an alter ego relationship or
connection between DBP and PNB on the one hand and NMIC on the other hand, that will
justify the puncturing of the latter’s corporate cover. The Court has declared that "mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital
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stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality." It likewise ruled that the "existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate fiction in the absence of
fraud or other public policy consideration.”
For the separate juridical personality of a corporation to be disregarded, the wrongdoing must
be clearly and convincingly established. It cannot be presumed. There being a total absence of
evidence pointing to a fraudulent, illegal or unfair act committed against HRCC by DBP and
PINB under the guise of NMIC, there is no basis to hold that NMIC was a mere alter ego of
DBP and PNB. Thus, DBP and PNB may not be held solidarily liable with NMIC, no contingent
liability may be imputed to the APT as well. Only NMIC as a distinct and separate legal entity is
liable to pay its corporate obligation to HRCC in the amount of P8,370,934.74, with legal
interest thereon from date of demand.
Notes:
Three-pronged test to determine the application of the alter ego theory or instrumentality
theory:
1) Instrumentality or Control Test - 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) Fraud Test - 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 right; and
3) Harm Test - The aforesaid control and breach of duty must have proximately caused the
injury or unjust loss complained of.
80 Maricalum Mining v. Florentino, 15 August 2018
FACTS: The dispute traces its roots back to when the Philippine National Bank (PNB, a former
government-owned-and-controlled corporation) and the Development Bank of the Philippines
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

(DBP) transferred its ownership of Maricalum Mining to the National Government for
disposition or privatization because it had become a non-performing asset.
National Government thru the Asset Privatization Trust (APT), executed a Purchase and Sale
Agreement (PSA) with G Holdings, a domestic corporation primarily engaged in the business
of owning and holding shares of stock of different companies. G Holding bought 90% of
Maricalum Mining's shares and financial claims in the form of company notes. Concomitantly,
G Holdings also assumed Maricalum Mining's liabilities in the form of company notes.
Upon the signing of the PSA and paying the stipulated down payment, G Holdings immediately
took physical possession of Maricalum Mining's Sipalay Mining Complex, as well as its
facilities, and took full control of the latter's management and operations.
In 1999, the Sipalay General Hospital, Inc. was duly incorporated to provide medical services
and facilities to the general public.
Each of the said cooperatives executed identical sets of Memorandum of Agreement with
Maricalum Mining wherein they undertook, among others, to provide the latter with a steady
supply of workers, machinery, and equipment for a monthly fee.
Maricalum wrote a Memorandum to the cooperatives informing them that Maricalum Mining
has decided to stop its mining and milling operations effective July 1, 2001, in order to avert
continuing losses brought about by the low metal prices and high cost of production.
The properties of Maricalum Mining, which had been mortgaged to secure the PNs, were
extrajudicially foreclosed and eventually sold to G Holdings as the highest bidder.
Some of Maricalum Mining's workers, including complainants, and some of Sipalay General
Hospital's employees jointly filed a Complaint with the LA against G Holdings, its president,
and officer-in-charge, and the cooperatives and its officers for illegal dismissal, underpayment,
and nonpayment of salaries, underpayment of overtime pay, underpayment of premium pay for
the holiday, nonpayment of separation pay, underpayment of holiday pay, non-payment of
service incentive leave pay, nonpayment of vacation and sick leave, non-payment of 13th-
month pay, moral and exemplary damages, and attorney’s fees.
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Complainants and CeMPC Chairman Alejandro H. Sitchon surprisingly filed his complaint for
illegal dismissal and corresponding monetary claims with the LA against G Holdings, its officer-
in-charge, and CeMPC.
Complainants posited that the manpower cooperatives were mere alter egos of G Holdings
organized to subvert the "tenurial rights" of the complainants; G Holdings implemented a
retrenchment scheme to dismiss the caretakers it hired before the foreclosure of Maricalum
Mining's assets; and G Holdings was their employer because it allegedly had the power to hire,
pay wages, control working methods and dismiss them.
Correspondingly, G Holdings argued that it was Maricalum Mining who entered into an
agreement with the manpower corporations for the employment of complainants' services for
auxiliary or seasonal mining activities, among others.
The LA ruled in favor of the complainants. The LA reasoned that G Holdings connived with
Marcalum Mining in orchestrating the formation of manpower cooperatives to circumvent
complainants' labor standards rights.
The NLRC modified the LA ruling. They imposed the liability of paying the monetary awards
imposed by the LA against Maricalum Mining, instead of G Holdings, based on the following
observations: it was Maricalum Mining-not G Holdings-who entered into service contracts by
way of a Memorandum of Agreement with each of the manpower cooperatives; complainants
continued rendering their services at the insistence of Maricalum Mining through their
cooperatives; Maricalum Mining never relinquished possession over the Sipalay Mining
Complex; Maricalum Mining continuously availed of the services of complainants through their
respective manpower cooperatives.
The CA denied the petitions and affirmed the decision of the NLRC.
ISSUE: Whether the CA erred in allowing the piercing of the corporate veil against Maricalum.
RULING: Yes. The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: (a) defeat of public convenience as when the corporate fiction is used as a vehicle for
the evasion of an existing obligation; (b) fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or (c) alter ego cases, where a corporation is
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

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.
In the case at bench, complainants mainly harp their cause on the alter ego theory. Under this
theory, piercing the veil of corporate fiction 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, must have been
such that the corporate entity as to this transaction had at the time no separate mind,
will, or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or a dishonest and
unjust act in contravention of plaintiffs’ legal right, and
3. The said control and breach of duty must have proximately caused the injury or
unjust loss complained of.
To summarize, piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements: control of the corporation by the stockholder or parent
corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or damage
caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of
these elements prevents piercing the corporate veil.
Control test: In the instant case, there is no doubt that G Holdings, being the majority and
controlling stockholder, had been exercising significant control over Maricalum Mining.
Fraud test: The complainants did not satisfy the requisite quantum of evidence to prove fraud
on the part of G Holdings. They merely offered allegations and suppositions that, since
Maricalum Mining's assets appear to be continuously depleting and that the same corporation
is a subsidiary, G Holdings could have been guilty of fraud. As emphasized earlier, bare
allegations do not prove anything.
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Harm test: In the case at bench, complainants have not yet even suffered any monetary injury.
They have yet to enforce their claims against Maricalum Mining.
Accordingly, complainants failed to satisfy the second and third tests to justify the application
of the alter ego theory.
81 Virata v. Ng Wee, 5 July 2017
DOCTRINE: The Board of Directors is expected to be more than a mere rubber stamp of the
corporation and its subordinate departments. It wields all corporate powers bestowed by the
Corporation Code, including the control over its properties and the conduct of its business.
Being stewards of the company, the Board is primarily charged with protecting the assets of
the corporation in behalf of its stakeholders.
FACTS: Before the Court are the Motion for Reconsiderations filed in view of its 5 July 2017
Decision holding the directors and officers of Wincorp jointly and severally liable with the
company for the unpaid investments of Ng Wee made to Power Merge through Wincorp.
[From the 5 July 2017 Decision] Ng Wee, as a valued client of Westmont Bank, was enticed
by the bank manager to make investments with Westmont Investment Corporation (Wincorp).
Wincorp would match a corporate borrower with an investor willing to provide funds.
Ng Wee’s initial investments were matched with Hottick Holdings Corporation whose majority
shares were owned by Halim Saad. The Credit Facility extended to Hottick by Wincorp was
secured by, among others, a Suretyship Agreement executed by Luis Juan Virata and another
Suretyship Agreement by Halim Saad.
Hottick fully availed of the loan facility but defaulted in payment during the Asian financial
crisis. Wincorp filed collection suits against Hottick but Virata eventually brokered a
compromise.
Ng Wee confronted Wincorp about the default of Hottick. Wincorp assured Ng Wee that it will
absorb the losses from Hottick and Ng Wee’s investments will be transferred to another
borrower, Power Merge. Virata is the majority stockholder of Power Merge owning 374,996
out of its 375,000 subscribed capital stock. In a special meeting of Wincorp’s board of
directors held on 9 February 1999, Wincorp approved Power Merge’s application for a P1.3bn
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School of Law
Saint Louis University

credit line. On 15 February 1999, Wincorp President Antonio Ong and Vice-President for
Operations Anthony Reyes executed the Credit Line Agreement in favor of Power Merge.
On 11 March 1999, Wincorp, through another board meeting, increased the credit limit to
P2.5bn and an Amendment to the Credit Line Agreement was executed. Power Merge drew a
total of P2,183,755,253.11 from the line covered by Promissory Notes (PN) in favor of
Wincorp for itself or as agent in behalf of investors which included Ng Wee who put in the total
amount of P213,290,410.36.
Unknown to Ng Wee, however, on the same date the two Agreements were separately
signed, Side Agreements were also entered between Wincorp (represented by Ong and
Reyes) and Power Merge absolving Power Merge of liability on the PNs.
Ng Wee was not able to collect his investment from Power Merge. On 19 October 2000, he
instituted a Complaint for Sum of Money with Damages against 17 defendants of which only
Virata, Power Merge, UPDI, UEM-MARA, Wincorp, Ong, Reyes, Cua, Tankiansee, Santos
Tan, Vicente and Henry Cualoping, and Estrella were duly served with summons. The last six
were board directors of Wincorp. Virata filed a cross claim against Wincorp and its board of
directors.
On 5 July 2017, the Court issued its Decision in the present consolidated cases. The Court
held that the actuations of Wincorp establishes actionable fraud for which it can be held liable
while Power Merge is liable to Ng Wee based on the promissory notes even as an
accommodation party.
On the basis of fraud, the Court pierced the veil of Wincorp and held the directors and officers
personally liable to Ng Wee. The basis of the liability was Section 31 of the Corporation Code
when they assented to the grant of the Credit Line Agreement and its Amendment to Power
Merge.
The cross claim of Virata against Ong, Reyes and the board members were also granted and
Wincorp, Ong and Reyes together with the board members were ordered jointly and severally
liable to pay and reimburse Virata for any payment or contribution he made to Ng Wee.
Petitioners filed for an MR which is the basis of this Resolution.
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The Court notes that the grounds relied upon by Virata, Estrella, Ng Wee, Cua and the
Cualopings, Reyes, and Wincorp are the same or substantially similar to those raised in their
respective petitions thus were denied.
Santos-Tan however did not appeal the decision of the CA holding her liable with her co-
parties to Ng Wee and was only participating in the proceedings in her plea of
reconsideration. She argues that the cross-claim should not have been granted because the
Side Agreements which served as the basis thereof never got the imprimatur of the Board of
Directors. Moreover, considering the P2.18bn drawdowns of Power Merge, she found it
iniquitous and immoral to require her and her co-directors to reimburse Virata of whatever he
was required to pay Ng Wee.
ISSUE: Are the board of directors personally liable to Ng Wee for the investment he placed
with Power Merge through Wincorp?
RULING: The MRs were denied. In its 5 July 2017 decision, the Court explained the liabilities
of the board directors in view of Section 31 of the Corporation Code. Section 31 of the
Corporation Code provides: Section 31. Liability of directors, trustees or officers . — Directors
or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquire, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he
shall be liable as a trustee for the corporation and must account for the profits which otherwise
would have accrued to the corporation.
For Cua and the Cualopings, the totality of circumstances proves that they are either complicit
to the fraud, or at the very least guilty of gross negligence. The board is charged with a
fiduciary duty which it failed to fulfill when it did not heed the warning signs which would have
cautioned it from approving the loan in haste: (1) Power Merge has only been in existence for
two years when it was granted a credit facility; (2) Power Merge was thinly capitalized with
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School of Law
Saint Louis University

only P37,500,000.00 subscribed capital; (3) Power Merge was not an ongoing concern since it
never secured the necessary permits and licenses to conduct business, it never engaged in
any lucrative business, and it did not file the necessary reports with the SEC; and (4) no
security other than its Promissory Notes was demanded by Wincorp or was furnished by
Power Merge in relation to the latter's drawdowns. Further, prior to Power Merge’s application
for a credit facility, Virata had outstanding unpaid transactions with Wincorp for its Hottick
obligations. Instead of impleading Virata in the Hottick account, however, Wincorp released
him from liability and granted him a credit facility in the amount of P1.3bn. It is immaterial if
Cua and the Cualopings approved or not the Side Agreements or authorized its signing.
Wincorp could have avoided its troubles if they were vigilant enough to disapprove the Power
Merge credit application.
Tankiansee was absolved because his immigration records clearly show that he was outside
the country during the dates when the Agreements were approved by the board. Estrella tried
to echo the same defense as Tankiansee although the minutes of both board meetings
indicate his presence. He claims to have left the meeting before the matter of Power Merge’s
application was discussed. He however failed to offer concrete evidence for this alibi. The
Court likewise did not allow him to use as defense his being a mere nominee and that he only
had one nominal share as well as whether or not he received compensation or honoraria for
attending the board meetings.
The liability of Santos-Tan is no different from Cua and the Cualopings in their personal
capacity under Section 31 of the Corporation Code.
The contention that the Side Agreements were without the imprimatur of its board of directors
cannot be given credence. The totality of circumstances supports the conclusion that the
Wincorp directors impliedly ratified, if not furtively authorized, the signing of the Side
Agreements in order to lay the groundwork for the fraudulent scheme. Virata had existing
obligations to Wincorp from the Hottick account. However, the board excluded Virata as a
party respondent to its collection suit against Hottick and, on the same day, approved the
P1.3bn credit line to Power Merge. Proceeds of the credit line were released to Power Merge
before the corresponding Agreements were signed. This lends credence to Virata’s claim that
Wincorp did not intend for Power Merge to be strictly bound by the terms of the credit facility.
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82 Livesey v. Binswanger, 19 March 2014
FACTS: In December 2001, petitioner Eric Godfrey Stanley Livesey filed a complaint for illegal
dismissal with money claims against CBB Philippines Strategic Property Services, Inc. (CBB)
and Paul Dwyer. CBB was a domestic corporation engaged in real estate brokerage and
Dwyer was its President.
Thereafter, the parties entered into a compromise agreement which LA Reyno approved in an
order dated November 6, 2002. Under the agreement, Livesey was to receive US$31,000.00
in full satisfaction of LA Reyno’s decision, broken down into US$13,000.00 to be paid by CBB
to Livesey or his authorized representative upon the signing of the agreement; US$9,000.00
on or before June 30, 2003; and US$9,000.00 on or before September 30, 2003. Further, the
agreement 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.
CBB paid Livesey the initial amount of US$13,000.00, but not the next two installments as the
company ceased operations. In reaction, Livesey moved for the issuance of a writ of
execution. LA Eduardo G. Magno granted the writ, but it was not enforced. Livesey then filed
a motion for the issuance of an alias writ of execution, alleging that in the process of serving
respondents the writ, he learned “that respondents, in a clear and willful attempt to avoid their
liabilities to complainant . . . have organized another corporation, [Binswanger] Philippines,
Inc.” He claimed that there was evidence showing that CBB and Binswanger Philippines, Inc.
(Binswanger) are one and the same corporation, pointing out that CBB stands for Chesterton
Blumenauer Binswanger. Invoking the doctrine of piercing the veil of corporate fiction, Livesey
prayed that an alias writ of execution be issued against respondents Binswanger and Keith
Elliot, CBB’s former President, and now Binswanger’s President and Chief Executive Officer
(CEO).
ISSUE: Whether or not the doctrine of piercing the corporate veil may 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
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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.
83 Lanuza v. BF Corporation, 1 October 2014
FACTS: Gerardo Lanuza, Jr and Antonio Olbes are members of the Board of Directors of
Shangri-La.
This is an Appeal on Certiorari, assailing the CA's decision and resolution that affirmed the trial
court's decision holding that petitioners, as directors, should submit themselves as parties to
the arbitration proceedings between BF Corporation and Shangri-La Properties, Inc. (Shangri-
La). BF Corporation alleged that it entered into agreements with Shangri-La wherein it
undertook to construct for Shangri-La a mall and a multilevel parking structure along EDSA.
Shangri-La had been consistent in paying BF Corp in accordance with its progress billing
statements. However, Shangri-La started defaulting in payment. BF Corp filed a complaint
against Shangri-La and its board of directors.
BF Corp alleged that Shangri-La misrepresented it had funds to pay and that it was simply a
matter of delayed processing of BF’s progress billing statements. Construction eventually was
completed but despite demands, Shangri-La refused to pay the balance. BF also alleged that
Shangri-La’s directors were in bad faith so they should be held jointly and severally liable with
Shangri-La. Shangri-La and respondent board members filed a motion to suspend the
proceedings in view of BF’s failure to submit its dispute to arbitration. RTC denied the motion,
however. Petitioners filed an answer saying they are resigned members of the board since
July 15, 1991.
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Shangri-La and respondents then filed certiorari with CA which granted their petition and
ordered submission to arbitration.
ISSUE: Whether petitioners be made parties to the arbitration proceedings, pursuant to the
arbitration clause provided in the contract between BF Corporation and Shangri-La.
RULING: Yes. Petitioners point out, their personalities as directors of Shangri-La are separate
and distinct from Shangri-La. Because a corporation's existence is only by fiction of law, it can
only exercise its rights and powers through its directors, officers, or agents, who are all natural
persons. A corporation cannot sue or enter into contracts without them.
A Consequence of a corporation's separate personality is that consent by a corporation
through its representatives is not consent of the representative, personally. Its obligations,
incurred through official acts of its representatives, are its own. A stockholder, director, or
representative does not become a party to a contract.
However, when there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons and
the
corporation should be treated as one. Section 31 of the Corporation Code provides the
instances when directors, trustees, or officers may become solidarily liable for corporate acts:
a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful
corporate act;
b) The director or trustee was guilty of gross negligence or bad faith in directing corporate
affairs; and
c) The director or trustee acquired personal or pecuniary interest in conflict with his or her
duties as director or trustee.
When the courts disregard the corporation’s distinct and separate personality from its directors
or officers, the courts do not say that the corporation, in all instances and for all purposes, is
the same as its directors, stockholders, officers, andagents. It does not result in an absolute
confusion of personalities of the corporation and the persons composing or representing it.
Courts merely discount the distinction and treat them as one, in relation to a specific act, in
order to extend the terms of the contract and the liabilities for all damages to erring corporate
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officials who participated in the corporation's illegal acts. This is done so that the legal fiction
cannot be used to perpetrate illegalities and injustices.
Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the
corporate veil, parties who are normally treated as distinct individuals should be made to
participate in the arbitration proceedings in order to determine if such distinction should indeed
be disregarded and, if so, to determine the extent of their liabilities
Hence, the issue of whether the corporation's acts in violation of complainant's rights, and the
incidental issue of whether piercing of the corporate veil is warranted, should be determined in
a single proceeding.
84 Ramirez v. Mar Fishing, Inc, 13 June 2012
FACTS: On 28 June 2001, respondent Mar Fishing Co., Inc. (Mar Fishing), engaged in the
business of fishing and canning of tuna, sold its principal assets to co-respondent Miramar
Fishing Co., Inc. (Miramar) through public bidding.
The proceeds of the sale were paid to the Trade and Investment Corporation of the
Philippines (TIDCORP) to cover Mar Fishing’s outstanding obligation in the amount of ₱
897,560,041.26.In view of that transfer, Mar Fishing issued a Memorandum dated 23 October
2001 informing all its workers that the company would cease to operate by the end of the
month. On 29 October 2001 or merely two days prior to the month’s end, it notified the
Department of Labor and Employment (DOLE) of the closure of its business operations.
Thereafter, Mar Fishing’s labor union, Mar Fishing Workers Union – NFL – and Miramar
entered into a Memorandum of Agreement. The Agreement provided that the acquiring
company, Miramar, shall absorb Mar Fishing’s regular rank and file employees whose
performance was satisfactory, without loss of seniority rights and privileges previously
enjoyed.
Unfortunately, petitioners, who worked as rank and file employees, were not hired or given
separation pay by Miramar.7 Thus, petitioners filed Complaints for illegal dismissal with money
claims before the Arbitration Branch of the National Labor Relations Commission (NLRC).
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In its 30 July 2002 Decision, the Labor Arbiter (LA) found that Mar Fishing had necessarily
closed its operations, considering that Miramar had already bought the tuna canning plant. By
reason of the closure, petitioners were legally dismissed for authorized cause. In addition,
even if Mar Fishing reneged on notifying the DOLE within 30 days prior to its closure, that
failure did not make the dismissals void. Consequently, the LA ordered Mar Fishing to give
separation pay to its workers.
Aggrieved, petitioners pursued the action before the NLRC, which modified the LA’s Decision.
Noting that Mar Fishing notified the DOLE only two days before the business closed, the labor
court considered petitioners’ dismissal as ineffectual. Hence, it awarded, apart from
separation pay, full back wages to petitioners from the time they were terminated on 31
October 2001 until the date when the LA upheld the validity of their dismissal on 30 July
2002.
Additionally, the NLRC pierced the veil of corporate fiction and ruled that Mar Fishing and
Miramar were one and the same entity, since their officers were the same. Hence, both
companies were ordered to solidarily pay the monetary claims.
On reconsideration, the NLRC modified its ruling by imposing liability only on Mar Fishing. The
labor court held that petitioners had no cause of action against Miramar, since labor contracts
cannot be enforced against the transferee of an enterprise in the absence of a stipulation in
the contract that the transferee assumes the obligation of the transferor.
Despite the award of separation pay and back wages, petitioners filed a Petition before the
CA. This time, they argued that both Mar Fishing and Miramar should be made liable for their
separation pay, and that their back wages should be up to the time of their actual
reinstatement. However, finding that only 3 of the 228 petitioners signed the Verification and
Certification against forum shopping, the CA instantly dismissed the action for certiorari
against the 225 other petitioners without ruling on the substantive aspects of the case.
Basing their conclusion on the Memorandum of Agreement and Supplemental Agreement
between Miramar and Mar Fishing’s labor union, as well as the General Information Sheets
and Company Profiles of the two companies, petitioners assert that Miramar simply took over
the operations of Mar Fishing. In addition, they assert that these companies are one and the
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same entity, given the commonality of their directors and the similarity of their business
venture in tuna canning plant operations.
ISSUE: Whether one corporation is merely an alter ego of another.
RULING: The Supreme Court sustains the ruling of the LA as affirmed by the NLRC that
Miramar and Mar Fishing are separate and distinct entities, based on the marked differences
in their stock ownership. Also, the fact that Mar Fishing’s officers remained as such in Miramar
does not by itself warrant a conclusion that the two companies are one and the same.
The mere showing that the corporations had a common director sitting in all the boards
without more does not authorize disregarding their separate juridical personalities.
Neither can the veil of corporate fiction between the two companies be pierced by the rest of
petitioners’ submissions, namely, the alleged take-over by Miramar of Mar Fishing’s operations
and the evident similarity of their businesses. At this point, it bears emphasizing that since
piercing the veil of corporate fiction is frowned upon, those who seek to pierce the veil must
clearly establish that the separate and distinct personalities of the corporations are set up to
justify a wrong, protect a fraud, or perpetrate a deception. This, unfortunately, petitioners have
failed to do.
Having been found by the trial courts to be a separate entity, Mar Fishing – and not Miramar –
is required to compensate petitioners. Indeed, the back wages and retirement pay earned
from the former employer cannot be filed against the new owners or operators of an
enterprise.
85 Sarona v. NLRC, 18 January 2012
FACTS: In 1976, Timoteo Sarano was a security guard hired by Sceptre. On 20 June 2003,
Sarona was asked by the Sceptre’s Operation Manager, Karen Therese Tan, to submit a
resignation letter as the same was supposedly required for applying for a position at Royale.
Sarona was also asked to fill out Royale’s employment application form, which was handed to
him by Royale’s General Manager, Cesar Antonio Tan II.
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After several weeks of being in a “floating status,” Royale’s Security Officer, Martin Gono,
assigned Sarona to Highlight Metal Craft, Inc., from 29 July 2003 to 8 August 2003. After that,
Sarona was transferred and assigned to Wide Wide World Express, Inc. (WWWE, Inc.).
On 17 September 2003, Sarona was informed that his assignment at WWWE, Inc. had been
withdrawn because another security agency had allegedly replaced Royale. However, Sarona
discovered that Royale was never replaced as WWWE, Inc.’s security agency. When he
placed a call at WWWE, Inc., he learned that his fellow security guard was not relieved from
his post.
On 21 September 2003, Sarona was again assigned at Highlight Metal, albeit for a short
period from 22 September 2003 to 30 September 2003. Thereon, when Sarona reported at
Royale’s office on 1 October 2003, Martin Gono informed him that he would no longer be given
any assignment per the instructions of the General Manager of Sceptre, Aida Sabalones-Tan.
Therefore, on 4 October 2003, Sarona filed a complaint for illegal dismissal.
On 11 May 2005, Labor Arbiter Jose Gutierrez ruled in favor of Sarona and held that he was
illegally dismissed. As a result, LA ordered Royale to pay Sarona back wages and separation
pay. In this regard, LA Gutierrez refused to pierce Royale’s corporate veil for considering
Sarona’s length of service with Sceptre in the computation of his separation pay. LA Gutierrez
ruled that Royale’s corporate personality, which is separate and distinct from that of Sceptre, a
sole proprietorship owned by the late Roso Sabalones and later, Aida, cannot be pierced
absent clear and convincing evidence that Sceptre and Royale share the same stockholders
and incorporators and that Sceptre has complete control and dominion over the finances and
business affairs of Royale.
ISSUE: Whether Royale’s corporate fiction should be pierced to compel it to recognize
Sarona’s length of service with Sceptre and hold it liable for the benefits he accrued from his
employment with Sceptre.
RULING: Yes. The doctrine of piercing the corporate veil is applicable in alter ego cases,
wherein 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.
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Saint Louis University

A corporation is said to be an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law or incidental
to its existence. It has a personality separate and distinct from the persons composing it and
any other legal entity to which it may be related. It is also a well-settled 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 another corporation.” For public policy reasons 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.
The respondents' scheme reeks of bad faith, fraud, and compassionate justice dictates that
Royale and Sceptre be merged as a single entity, compelling Royale to credit and recognize
Sarona’s length of service with Sceptre. The respondents cannot use the legal fiction of a
separate corporate personality for ends subversive of the policy and purpose behind its
creation or which could not have been intended by law to which it owed its being.
Sceptre and Royale have the same “principal place of business.” As early as 14 October 1994,
Aida and Wilfredo became the owners of the property used by Sceptre as its principal place of
business by virtue of a Deed of Absolute Sale they executed with Roso. Shortly after its
incorporation, Royale started to hold office in the same property. These, the respondents failed
to dispute.
Royale further claimed a right to the cash bond, which Sarona posted when he was still with
Sceptre. If Sceptre and Royale are separate entities, Sceptre should have released Sarona’s
cash bond when he resigned, and Royale would have required Sarona to post a new cash
bond in its favor.
Thus, the way Sarona was made to resign from Sceptre and later made an employee of
Royale reflects the legal fiction of the separate corporate personality and is an implication of
continued employment. Evidence abound showing that Royale is a continuation or successor
of Sceptre since the employees of Sceptre and Royale are the same, and said companies
have the same principal place of business.
86 Pantranco Employees Asso., et al. vs. NLRC, 17 March 2009
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FACTS: The Gonzales family owned two corporations, namely, the PNEI and Macris Realty
Corporation (Macris). The Gonzales family later incurred huge financial losses despite
attempts of rehabilitation and loan infusion. In March 1975, their creditors took over the
management of PNEI and Macris. By 1978, full ownership was transferred to one of their
creditors, the National Investment Development Corporation (NIDC), a subsidiary of the PNB.
Macris was later renamed as the National Realty Development Corporation (Naredeco) and
eventually merged with the National Warehousing Corporation (Nawaco) to form the new PNB
subsidiary, the PNB-Madecor.
In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by
Gregorio Araneta III.
In 1986, PNEI was among the several companies placed under sequestration by the
Presidential Commission on Good Government (PCGG) shortly after the historic events in
EDSA. In January 1988, PCGG lifted the sequestration order to pave the way for the sale of
PNEI back to the private sector through the Asset Privatization Trust (APT). APT thus took
over the management of PNEI.
Eventually, PNEI ceased its operation. Along with the cessation of business came the various
labor claims commenced by the former employees of PNEI where the latter obtained
favorable decisions.
On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution commanding the
NLRC Sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its
former employees, as full and final satisfaction of the judgment awards in the labor cases. The
sheriffs were likewise instructed to proceed against PNB, PNB-Madecor and Mega Prime. In
implementing the writ, the sheriffs levied upon the four valuable pieces of real estate. Motions
to quash the writ were separately filed by PNB-Madecor and Mega Prime, and PNB. For its
part, PNB sought the nullification of the writ on the ground that it was not a party to the labor
case.
ISSUE: Whether the former PNEI employees can attach the properties (specifically the
Pantranco properties) of PNB, PNB Madecor and Mega Prime to satisfy their unpaid labor
claims against PNEI.
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RULING: First, the subject property is not owned by the judgment debtor, that is, PNEI.
Nowhere in the records was it shown that PNEI owned the Pantranco properties. Petitioners,
in fact, never alleged in any of their pleadings the fact of such ownership. What was
established, instead, in PNB MADECOR v. Uy and PNB v. Mega Prime Realty and Holdings
Corporation/Mega Prime Realty and Holdings Corporation v. PNB was that the properties
were owned by Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued
against by the creditors of PNEI.
We would like to stress the settled rule that the power of the court in executing judgments
extends only to properties unquestionably belonging to the judgment debtor alone. To be
sure, one man’s goods shall not be sold for another man’s debts. A sheriff is not authorized to
attach or levy on property not belonging to the judgment debtor, and even incurs liability if he
wrongfully levies upon the property of a third person.
Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate
and distinct from that of PNEI. PNB is sought to be held liable because it acquired PNEI
through NIDC at the time when PNEI was suffering financial reverses. PNB-Madecor is being
made to answer for petitioners’ labor claims as the owner of the subject Pantranco properties
and as a subsidiary of PNB. Mega Prime is also included for having acquired PNB’s shares
over PNB-Madecor.
The general rule is that a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. This is a fiction created by
law for convenience and to prevent injustice. Obviously, PNB, PNB-Madecor, Mega Prime,
and PNEI are corporations with their own personalities. The "separate personalities" of the
first three corporations had been recognized by this Court in PNB v. Mega Prime Realty and
Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB where we stated
that PNB was only a stockholder of PNB-Madecor which later sold its shares to Mega Prime;
and that PNB Madecor was the owner of the Pantranco properties. Moreover, these
corporations are registered as separate entities and, absent any valid reason, we maintain
their separate identities and we cannot treat them as one.
Neither can we merge the personality of PNEI with PNB simply because the latter acquired the
former. Settled is the rule that where one corporation sells or otherwise transfers all its assets
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to another corporation for value, the latter is not, by that fact alone, liable for the debts and
liabilities of the transferor.
Lastly, while we recognize that there are peculiar circumstances or valid grounds that may
exist to warrant the piercing of the corporate veil, none applies in the present case whether
between PNB and PNEI; or PNB and PNB-Madecor.
Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation
as a mere collection of individuals or an aggregation of persons undertaking business as a
group, disregarding the separate juridical personality of the corporation unifying the group.
Another formulation of this doctrine is that 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 two corporations are distinct
entities and treat them as identical or as one and the same.
Whether the separate personality of the corporation should be pierced hinges on obtaining
facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be
done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is
misused or when necessary in the interest of justice. After all, the concept of corporate entity
was not meant to promote unfair objectives.
Since the corporation is an artificial person, it must have an officer who can be presumed to
be the employer, being the person acting in the interest of the employer. The corporation, only
in the technical sense, is the employer. In the instant case, what is being made liable is
another corporation (PNB) which acquired the debtor corporation (PNEI).
Moreover, in the recent cases Carag v. National Labor Relations Commission and McLeod v.
National Labor Relations Commission, the Court explained the doctrine laid down in AC
Ransom relative to the personal liability of the officers and agents of the employer for the
debts of the latter. In AC Ransom, the Court imputed liability to the officers of the corporation
on the strength of the definition of an employer in Article 212(c) (now Article 212[e]) of the
Labor Code. Under the said provision, employer includes any person acting in the interest of
an employer, directly or indirectly, but does not include any labor organization or any of its
officers or agents except when acting as employer. It was clarified in Carag and McLeod that
Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable
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for the debts of the corporation. It added that the governing law on personal liability of
directors or officers for debts of the corporation is still Section 31 of the Corporation Code.
More importantly, as aptly observed by this Court in AC Ransom, it appears that Ransom,
foreseeing the possibility or probability of payment of backwages to its employees, organized
Rosario to replace Ransom, with the latter to be eventually phased out if the strikers win their
case. The execution could not be implemented against Ransom because of the disposition
posthaste of its leviable assets evidently in order to evade its just and due obligations. Hence,
the Court sustained the piercing of the corporate veil and made the officers of Ransom
personally liable for the debts of the latter.
Clearly, what can be inferred from the earlier cases is that 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. In the absence of malice, bad faith, or a specific provision of law
making a corporate officer liable, such corporate officer cannot be made personally liable for
corporate liabilities.
Applying the foregoing doctrine to the instant case, we quote with approval the CA disposition
in this wise:
It would not be enough, then, for the petitioners in this case, the PNEI employees, to rest on
their laurels with evidence that PNB was the owner of PNEI. Apart from proving ownership, it
is necessary to show facts that will justify us to pierce the veil of corporate fiction and hold
PNB liable for the debts of PNEI. The burden undoubtedly falls on the petitioners to prove
their affirmative allegations. In line with the basic jurisprudential principles we have explored,
they must show that PNB was using PNEI as a mere adjunct or instrumentality or has
exploited or misused the corporate privilege of PNEI.
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We do not see how the burden has been met. Lacking proof of a nexus apart from mere
ownership, the petitioners have not provided us with the legal basis to reach the assets of
corporations separate and distinct from PNEI.
Assuming, for the sake of argument, that PNB may be held liable for the debts of PNEI,
petitioners still cannot proceed against the Pantranco properties, the same being owned by
PNB-Madecor, notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The
general rule remains that PNB-Madecor has a personality separate and distinct from PNB.
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 shall be respected, and the liability of the parent corporation
as well as the subsidiary will be confined to those arising in their respective businesses.
In PNB v. Ritratto Group, Inc., we outlined the circumstances which are useful in the
determination of whether a subsidiary is but a mere instrumentality of the parent-corporation,
to wit:
1. The parent corporation owns all or most of the capital stock of the subsidiary;
2. The parent and subsidiary corporations have common directors or officers; 3
3. The parent corporation finances the subsidiary;
4. The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation;
5. The subsidiary has grossly inadequate capital;
6. The parent corporation pays the salaries and other expenses or losses of the
subsidiary;
7. The subsidiary has substantially no business except with the parent corporation or no
assets except those conveyed to or by the parent corporation;
8. In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporation’s own;
9. The parent corporation uses the property of the subsidiary as its own;
10. The directors or executives of the subsidiary do not act independently in the interest
of the subsidiary, but take their orders from the parent corporation;
11. The formal legal requirements of the subsidiary are not observed.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

None of the foregoing circumstances is present in the instant case. Thus, piercing of PNB
Madecor’s corporate veil is not warranted. Being a mere successor-in-interest of PNB-
Madecor, with more reason should no liability attach to Mega Prime.
87 Cagayan Valley Drug Corp v. CIR, 545 S 10
DOCTRINE: Corporate officers or representatives of the corporation have the authority to sign
the verification or certificate against forum shopping, being “in a position to verify the
truthfulness and correctness of the allegations in the petition.”
FACTS: Domestic corporation Cagayan Valley Drug Corporation is a legally authorized
distributor of pharmaceuticals and other medical supplies. Cagayan claimed that, in 1995, in
accordance with Republic Act No. (RA) 7432, it had given qualified older citizens 20% sales
discounts on purchases of medications. Instead of considering the 20% sales discounts given
to eligible elderly citizens in 1995 as a tax credit as required by Section 4 of RA 7432,
Cagayan handled them as deductions from the gross sales in order to arrive at the net sales
in accordance with Revenue Regulation No. (RR) 2-94.
Thereafter, Cagayan filed with the BIR a claim for tax refund/tax credit of the full amount of the
20% sales discount it granted to senior citizens for the year 1995 in accordance with Sec. 4 of
RA 7432. The BIR’s inaction on its claim for refund/tax credit compelled Cagayan to file a
petition for review before the CTA.
The CTA rendered a Decision dismissing the petition for review for lack of merit. It ruled that
the 20% sales discounts Cagayan granted to qualified senior citizens should be deducted
from its income tax due and not from petitioner’s gross sales as erroneously provided in RR 2-
94. However, notwithstanding Cagayan’s entitlement to a tax credit, the CTA denied the tax
credit to Cagayan on the ground that it had suffered net loss in 1995.
The CTA ratiocinated that on matters of tax credit claim, the government applies the amount
determined to be reimbursable after proper verification against any sum that may be due and
collectible from the taxpayer. However, if no tax has been paid or if no amount is due and
collectible from the taxpayer, then a tax credit is unavailing.
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ISSUE: Can Cagayan’s president sign the subject verification and certification sans the
approval of its Board of Directors?
RULING: Yes, the president can sign the verification and certification. The Court has
recognized the authority of some corporate officers to sign the verification and certification
against forum shopping. In Mactan-Cebu International Airport Authority v. CA , the court
recognized the authority of a general manager or acting general manager to sign the
verification and certificate against forum shopping; in Pfizer v. Galan, we upheld the validity of
a verification signed by an “employment specialist” who had not even presented any proof of
her authority to represent the company; in Novelty Philippines, Inc., v. CA, we ruled that a
personnel officer who signed the petition but did not attach the authority from the company is
authorized to sign the verification and non-forum shopping certificate; and in Lepanto
Consolidated Mining Company v. WMC Resources International Pty. Ltd. (Lepanto) , we ruled
that the Chairperson of the Board and President of the Company can sign the verification and
certificate against non-forum shopping even without the submission of the board’s
authorization.
In sum, the court held that the following officials or employees of the company can sign the
verification and certification without need of a board resolution: (1) the Chairperson of the
Board of Directors, (2) the President of a corporation, (3) the General Manager or Acting
General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case.
While the above cases do not provide a complete listing of authorized signatories to the
verification and certification required by the rules, the determination of the sufficiency of the
authority was done on a case-to-case basis.
88 Arcilla v. CA, G.R. No. 89804, 23 October 1992, 215 SCRA 12
FACTS: This petition is a belated attempt to avoid the adverse amended decision of public
respondent, promulgated on 31 May 1989 in C.A.-G.R. No. 11389, on the ground that
petitioner is not personally liable for the amount adjudged since the same constitutes a
corporate liability which nevertheless cannot even bind or be enforced against the corporation
because it is not a party in the collection suit filed before the trial court.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

On 4 June 1985, private respondent filed with the Regional Trial Court (RTC) of a complaint for
a sum of money against petitioner. In its Decision, the trial court made the following findings of
fact:
Defendant admitted the genuineness (sic) and due execution of Exhibits "A" to "DD"
but, according to him, he already paid plaintiff P56,098.00 thru PNB Virac Branch, per
Cash Voucher dated September 28, 1982 (Exh. 3) and then P42,363.75 also thru
PNB Virac Branch, per PNB check No. 628861K dated December 16, 1982 (Exh. 1).
Analyzing the evidence adduced by both parties, it ruled that since Exhibit "3" is dated 28
September 1982 and the "vales", Exhibits "A" to "DD", with the exception of Exhibits "K" in the
amount of P1,730.00 and "Q" in the amount of P10,765.00, were issued after said date, it
could not have been in payment of the "vales" other than that evidenced by Exhibits "K" and
"Q" Considering, however, that the "vales" remained in the possession of the private
respondent, they are presumed to remain unpaid; in fact, private respondent so testified that
they were not paid at all. The court therefore ordered petitioner to pay private respondent:
(a) the total amount of P92,358.43 covered by the "vales", plus interest thereon at the rate of
twelve (12%) per cent per annum from June 4, 1985 when the complaint was filed;
(b) P9,000.00 for and as attorney's fees; and
(c) the cost of suit.
Petitioner appealed this decision to the CA. The CA affirmed the trial court's decision.
ISSUE: Whether the petitioner is personally liable for the amount adjudged in the complaint.
Whether the corporation, CSAR Marine Resources, Inc., should be held liable for the debt.
RULING: By its clear and unequivocal language, it is the petitioner who was declared liable
therefor and consequently made to pay. That the latter was ordered to do so as president of
the corporation would not free him from the responsibility of paying the due amount simply
because according to him, he had ceased to be corporate president; such conclusion stems
from the fact that the public respondent, in resolving his motion for clarificatory judgment,
pierced the veil of corporate fictional and cast aside the contention that both he and the
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corporation have separate and distinct personalities. In short, even if We are to
assume arguendo that the obligation was incurred in the name of the corporation, the
petitioner would still be personally liable therefor because for all legal intents and purposes, he
and the corporation are one and the same. Csar Marine Resources, Inc. is nothing more than
his business conduit and alter ego. The fiction of a separate juridical personality conferred
upon such corporation by law should be disregarded.
Significantly, petitioner does not seriously challenge the public respondent's application of the
doctrine which permits the piercing of the corporate veil and the disregarding of the fiction of a
separate juridical personality; this is because he knows only too well that from the very
beginning, he merely used the corporation for his personal purposes.
Petitioner neglected to set up in his Answer the defense that he is not personally liable to
private respondent because the "vales" were corporate obligations of Csar Marine Resources,
Inc.. Of course, that defense would have been inconsistent with his volunteered admission that
the KKK loan — which resulted in the procurement of the pro-forma invoice from the private
respondent — was for his benefit. In any case, the failure to set it up as an affirmative defense
amounted to a waiver thereof. Section 2, Rule 9 of the Rules of Court expressly proved that
defenses and objections, other than the failure to state a cause of action and lack of
jurisdiction, not pleaded either in a motion to dismiss or in the answer are deemed waved.
Petitioner's volunteered admission that he procured the pro-forma invoice from the private
respondent in connection with his loan from the KKK, using his family corporation in the
process, and his deliberate waiver of the aforementioned defense provide an insurmountable
obstacle to the viability of this petition.
89 I/AME v. Litton Co., G.R. No. 191525, December 13, 2017
FACTS: Atty. Emmanuel T. Santos, a lessee to two (2) buildings owned by Litton, owed the
latter rental arrears as well as his share of the payment of realty taxes. Litton filed a complaint
for unlawful detainer against Santos before the MeTC of Manila. The MeTC ruled in Litton’s
favor and ordered Santos to vacate A.I.D. Building and Litton Apartments and to pay various
sums of money.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The decision became final and the sheriff of the MeTC of Manila levied on a piece of real
property and registered in the name of International Academy of Management and Economics
Incorporated (I/AME), in order to execute the judgment against Santos. I/AME filed a motion
to lift or remove annotations, claiming that it has a separate and distinct personality from
Santos; hence, its properties should not be made to answer for the latter’s liabilities. Upon
motion for reconsideration of I/AME, the Me TC reversed its earlier ruling and ordered the
cancellation of the annotations of levy as well as the writ of execution. Litton appealed to RTC,
which in turn reversed the order granting I/AME’s motion. On appeal, the CA upheld the order
of the RTC. The CA concluded that Santos merely used I/ AME as a shield to protect his
property from the coverage of the writ of execution; therefore, piercing the veil of corporate
fiction is proper. I/AME argues that the doctrine of piercing the corporate veil applies only to
stock corporations, and not to non-stock.
ISSUE: Whether or not it was proper for the court to pierce the veil of I/AME and its property
was made to answer for the liability of Santos.
RULING: NO. In general, corporations, whether stock or non-stock, are treated as separate
and distinct legal entities from the natural persons composing them. The privilege of being
considered a distinct and separate entity is confined to legitimate uses, and is subject to
equitable limitations to prevent its being exercised for fraudulent, unfair or illegal purposes.
However, once equitable limitations are breached using the coverture of the corporate veil,
courts may step in to pierce the same.
The piercing of the corporate veil is premised on the fact that the corporation concerned must
have been properly served with summons or properly subjected to the jurisdiction of the court
a quo. Corollary thereto, it cannot be subjected to a writ of execution meant for another in
violation of its right to due process.
There exists, however, an exception to this rule: if it is shown "by clear and convincing proof
that the separate and distinct personality of the corporation was purposefully employed to
evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings."
The resistance of the Court to offend the right to due process of a corporation that is a
nonparty in a main case, may disintegrate not only when its director, officer, shareholder,
trustee or member is a party to the main case, but when it finds facts which show that piercing
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of the corporate veil is merited. Thus, as the Court has already ruled, a party whose
corporation is vulnerable to piercing of its corporate veil cannot argue violation of due
process.
In determining the propriety of applicability of piercing the veil of corporate fiction, this Court,
in a number of cases, did not put in issue whether a corporation is a stock or non-stock
corporation.
The piercing of the corporate veil may apply to corporations as well as natural persons
involved with corporations. This Court has held that the "corporate mask may be lifted and the
corporate veil may be pierced when a corporation is just but the alter ego of a person or of
another corporation."
This Court agrees with the CA that I/AME is the alter ego of Santos and Santos - the natural
person - is the alter ego of I/AME. Santos falsely represented himself as President of I/AME in
the Deed of Absolute Sale when he bought the Makati real property, at a time when I/ AME
had not yet existed. Uncontroverted facts in this case also reveal the findings of Me TC
showing Santos and I/ AME as being one and the same person.
"Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing) and
makes the corporation liable for the debt of the shareholders."
It has two (2) types: outsider reverse piercing and insider reverse piercing. Outsider reverse
piercing occurs when a party with a claim against an individual or corporation attempts to be
repaid with assets of a corporation owned or substantially controlled by the defendant. In
contrast, in insider reverse piercing, the controlling members will attempt to ignore the
corporate fiction in order to take advantage of a benefit available to the corporation, such as
an interest in a lawsuit or protection of personal assets.
Outsider reverse veil-piercing is applicable in the instant case. Litton, as judgment creditor,
seeks the Court's intervention to pierce the corporate veil of I/AME in order to make its Makati
real property answer for a judgment against Santos, who formerly owned and still substantially
controls I/AME.
Reverse corporate piercing is an equitable remedy which if utilized cavalierly, may lead to
disastrous consequences for both stock and non-stock corporations.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University
 Case Digest Compilation
Dulawan, Whinston
Page 103 of 148

In the instant case, it may be possible for this Court to recommend that Litton run after the PART II – OTHER KINDS OF CORPORATIONS
other properties of Santos that could satisfy the money judgment - first personal, then other
real properties other than that of the school. However, if we allow this, we frustrate the
decades-old yet valid MeTC judgment which levied on the real property now titled under the 90 Chinese YMCA v. Ching, 71 S 460
name of the school. Moreover, this Court will unwittingly condone the action of Santos in FACTS: Respondent Victor Ching is a member of the Board of Directors of the Chinese
hiding all these years behind the corporate form to evade paying his obligation under the YMCA, while petitioners, William Golangco and Juanito K. Tan, are its president and recording
judgment in the court a quo. This we cannot countenance without being a party to the secretary, respectively;
injustice.
That in the campaign for membership for the year 1966, a rivalry had developed between two
groups in the association, one headed by respondent Ching and the other by petitioner
Golangco;

That on the last day of the membership campaign, November 26, 1965, respondent Ching and
herein petitioner Golangco were in the office of the Chinese YMCA located at Room 336,
Republic Supermarket Building, Florentino Torres, Manila;

That respondent Ching, after it was agreed upon that there was going to be no extension of
the membership campaign and that no application would be received after 5 o'clock that
afternoon of November 26, 1965, caused to be counted the number of applications actually in
the possession of the General Secretary of the association, at the close of office hours, 5:00
o'clock p.m. or thereabout, and the number of applications thus submitted was 175; and that
two (2) days thereafter, it was reported in the November 28, 1965, issue of the Chinese
Commercial News that some 240 applications for membership were received by the Chinese
YMCA during the last day of its membership campaign, November 26,1965,5:00 o'clock p.m.

The trial court rendered a decision in favor of the respondent declaring that only 174
applications constitute the present active membership of the association.

ISSUE: Whether or not the trial court is justified in stripping members of their membership in a
non-stock corporation.

RULING: No. The documentary evidence itself as cited by the trial court, consisting of the
applications and the receipts for payment of the membership fees show that they were filed

Corporation Law JD2-2023

Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

and paid not later than the November 26, 1965 deadline, and this was further supported by the
bank statement of the petitioner YMCA deposit account with the China Banking Corporation
and the checks paid by certain members to the YMCA which show that the application fees
corresponding to the questioned 74 applications (that raised the total to 249 from 175) were
already paid to petitioner YMCA as the time of the said deadline.
175 membership applications were undisputedly filed within the deadline (including the 75
withdrawn by respondent) and yet the 100 remaining unquestioned memberships were
nullified by the questioned decision without the individuals concerned ever having been
impleaded or heard (except the individual petitioners president and secretary).
Lesson applicable: On non-stock corporations;
The courts cannot strip a member of a non-stock non-profit corporation of his membership
therein without cause. Otherwise, that would be an unwarranted and undue interference with
the well-established right of a corporation to determine its membership, as announced by
Fletcher, as follows:
Compliance with provisions of charter, constitution or by-laws. - In order that
membership may be acquired in a non-stock corporation and valid by-laws must be
complied with, except in so far as they may be and are waived.
91 CIR v. Club Filipino, 5 S 321
FACTS: Club Filipino, Inc. de Cebu is a civic corporation with an original authorized capital
stock of P22,000.00, which was subsequently increased to P200,000.00, among others, to it
"provide, operate, and maintain xxx all sorts of games not prohibited under general laws and
general ordinances; and develop and cultivate sports of every kind and any denomination for
recreation and healthy training of its members and shareholders.
The Club owns and operates a club house, a bowling alley, a golf course, and a bar restaurant
for its members and their guests, which was a necessary incident to the operation of the club.
The club is operated mainly with funds derived from membership fees and dues. As a result of
a capital surplus, arising from the increased value due to the revaluation of its real properties,
the Club declared stock dividends; but no actual cash dividends were distributed to the
stockholders.
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A BIR agent discovered that the Club has never paid percentage tax on the gross receipts of
its bar and restaurant. The Collector of Internal Revenue assessed against and demanded
from the Club the unpaid percentage tax on the gross receipts plus surcharges. The Club
requested for the cancellation of the assessment. The request having been denied, the Club
filed the instant petition for review.
ISSUE: Whether or not Club Filipino is a stock corporation.
RULING: No. It is a non-stock corporation. The fact that the capital stock of the respondent
Club is divided into shares does not detract from the finding of the trial court that it is not
engaged in the business of operator of bar and restaurant. What is determinative of whether
or not the Club is engaged in such business is its object or purpose, as stated in its articles
and by-laws. It is a familiar rule that the actual purpose is not controlled by the corporate form
or by the commercial aspect of the business prosecuted, but may be shown by extrinsic
evidence, including the by-laws and the method of operation. from the extrinsic evidence
adduced, the lax Court concluded that the Club is not engaged in the business as a barkeeper
and restaurateur. Moreover, for a stock corporation to exist, two requisites must be complied
with, to wit:
a. capital stock divided into shares and
b. an authority to distribute to the holders of such shares, dividends or allotments of
the surplus profits on the basis of the shares held (sec. 3, Act No. 1459).
In the case at bar, nowhere in its articles of incorporation or by-laws could be found an
authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot,
therefore, be considered a stock corporation, within the contemplation of the corporation law.
92 Litonjua v. CA, 286 S 136
FACTS: Respondent Wack Wack Golf and Country Club is a non-profit corporation which
offers sports, recreational and social activities to its members. Petitioner Antonio Litonjua is an
Associate Member of said corporation and his son, co-petitioner Arnold Litonjua, is a Junior
Member thereof. The individual respondents are the members of the Board of Directors and
Membership Committee of Wack Wack. On January 10, 1985, pursuant to its by-laws,
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

respondent club posted the monthly list of delinquent members on its premises. Included
therein was petitioner Antonio Litonjua.
On January 13, 1985, after Antonio Litonjua discovered that his name was on the January1985
delinquent list, he proceeded to the Cashier's Office of the club and was informed therein that
the reason behind his delinquency was his failure to pay his November 1984 dues (which
should have been paid before the end of December 1984 as provided in the corporate by-
laws). Antonio Litonjua alleged that he was not able to pay his monthly bill on time because he
has not received his statement of account for November 1984. As proof, he presented a
sealed envelope which he allegedly presumed to be the November 1984 bill (but was actually
the December 1984 statement of account) and explained that he received it only on 12
January 1985.
A check with the accounting office, however, revealed that the November 1984 statement of
account had already been delivered to Antonio Litonjua's office and was received by his
employee allegedly named "Aquino." Petitioner asserted that, he did not receive said account
and had no employee by the name of "Aquino." Based on the foregoing, Antonio Litonjua was
able to convince the auxiliary clerks in the Cashier's Office to delete his name from the list of
delinquent members. Consequently, Antonio Litonjua continued to avail of the club facilities.
Later, Antonio Litonjua was advised of another outstanding balance in the amount of
P9,414.00. Again, he issued a check in payment thereof. As a result, his name was deleted
from the February 1985 list of delinquent members.
ISSUE: Whether or not the statement of account for November 1984 was duly delivered to and
received by Antonio Litonjua's office on December 12, 1984.
RULING: The Court held that SEC committed an error in apprehending the facts. The Court
judiciously studied Mr. Limbo's testimony on record and failed to find therein any statement
that he delivered the November 1984 account to Antonio Litonjua himself. Mr. Limbo was
consistent in his testimony to the effect that on December 12, 1984, hedelivered the November
1984 statement of account at the office of Antonio Litonjua and it was received by an
employee of the latter who signed the Special Delivery Receipt. On cross-examination, Mr.
Limbo did not waver from his testimony that Antonio Litonjua's November 1984 bill was duly
received by the latter's employee. Against the testimony of Mr. Victor Limbo, coupled with
documentary evidence in the form of the signed Special Delivery Receipt, petitioners
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presented no proof other than the bare denial of Antonio Litonjua that he never received his
statement of account for November 1984 and that he has no "Aquino" in his employ.
Petitioners could have readily offered in evidence a record or list of Antonio Litonjua's
employees to prove that he has no employee by the name of "Aquino" but, strangely, beyond
his mere say-so no such evidence was adduced.
93 PPSTA v. Apostol, 55 S 743
FACTS: Respondent Eufemia San Luis (San Luis), a member of the Philippine Public School
Teachers Association (PPSTA), filed a complaint with preliminary injunction for the annulment
of the 1972 annual elections of the PPSTA Board of Directors held at Teachers Camp in
Baguio City for having been held outside its principal office at Quezon City.
The trial court rendered judgment without further hearing and trial held that the meeting held in
Baguio City is contrary to the by-laws of the corporation and the Corporation Law; that
whatever acts made therein, including the elections of the Board of Directors, are null and
void.
ISSUE: Is San Luis’ right to vote violate?
RULING: No, San Luis was duly represented at the convention by her chapter delegates who
acceded to the elections. As she was duly represented, she is barred from raising any
objection as to the place of the convention or elections, aside from the fact that there is no
showing that such irregularity affected her substantial rights or of the other members duly
represented at the convention.
Corporation Law provides that the holding of meetings of a corporation’s members or
stockholders "at the place where the principal office of the corporation is established or
located" is not applicable to non-stock or fraternal associations.”
PPSTA is a national fraternal and non-stock association. Under its by-laws affiliate or
provincial chapters is entitled to proportionate representation by means of official delegates at
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

the annual conventions held to elect the board of directors, which in turn elects the officers of
the association, and to enact resolutions for the teachers’ common welfare.
Outside meetings, like the one held in Baguio City, are deemed best adapted to the purposes
for which the PPSTA was created and conducive to the furtherance of its objectives by holding
the annual representative assemblies, as near to the membership in the different regions of
the country
Accordingly, Article IX, section 5 of the PPSTA’s by-laws expressly provides that "only official
delegates to the representative assembly are entitled to take part in the discussions and to
vote."
Therefore, San Luis has no personality and standing as a single individual member out of
thousands of members of the PPSTA to bring the action to annul the PPSTA 1972 annual
convention and elections, as she was not even a chapter and she was duly represented
thereat.
94 Dulay Enterprises v. CA, 225 S 658
FACTS: Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as
members of its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as
president, treasurer and general manager, Atty. Virgilio E. Dulay with 10 shares and
designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10
shares; and Atty. Plaridel C. Jose with 10 shares and designated as secretary, owned a
property covered by TCT No. 17880 and known as Dulay Apartment consisting of sixteen (16)
apartment units on a six hundred eighty nine (689) square meters lot, more or less, located at
Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the
construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to
borrow money from petitioner Virgilio Dulay to be able to continue the hotel project. As a result
of said loan, petitioner Virgilio Dulay occupied one of the unit apartments of the subject
property since property since 1973 while at the same time managing the Dulay Apartment at
his shareholdings in the corporation was subsequently increased by his father.
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Manuel Dulay by virtue of Board Resolution petitioner corporation sold the subject property to
private respondents spouses Maria Theresa and Castrense Veloso in the amount of
P300,000.00 as evidenced by the Deed of Absolute Sale.Subsequently, private respondent
Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to
private respondent Manuel A. Torres for a loan of P250,000.00 which was duly
annotated.Upon the failure of private respondent Maria Veloso to pay private respondent
Torres, the subject property was sold on April 5, 1978 to private respondent Torres as the
highest bidder in an extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's
Sale issued on April 20, 1978.
ISSUE: Whether or not the doctrine of piercing the veil of corporate entity is applicable.
RULING: No. Petitioner Corporation is classified as a close corporation and consequently a
board resolution authorizing the sale or mortgage of the subject property is not necessary to
bind the corporation for the action of its president. At any rate, corporate action taken at a
board meeting without proper call or notice in a close corporation is deemed ratified by the
absent director unless the latter promptly files his written objection with the secretary of the
corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulay
failed to do. It is relevant to note that although a corporation is an entity which has a
personality distinct and separate from its individual stockholders or members,the veil of
corporate fiction may be pierced when it is used to defeat public convenience justify wrong,
protect fraud or defend crime.
The privilege of being treated as an entity distinct and separate from its stockholder or
members is therefore confined to its legitimate uses and is subject to certain limitations to
prevent the commission of fraud or other illegal or unfair act. When the corporation is used
merely as an alter ego or business conduit of a person, the law will regard the corporation as
the act of that person.
95 San Juan Structural Steel v. CA, 296 S 63
FACT: On February 14, 1989, the Plaintiff entered into an agreement with Motorich Sales
Corporation (the "Defendant") for the transfer of a parcel of land known as Lot 30, Block 1 of
the Acropolis Greens Subdivision in Quezon City, Metro Manila. The land had an area of 414
square meters and was covered by Transfer Certificate of Title No. (362909) 2876.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Pursuant to the agreement, the Plaintiff paid a downpayment of P100,000.00 (One Hundred
Thousand Pesos) and was required to pay the balance on or before March 2, 1989.
On March 1, 1989, the President of the Plaintiff, Mr. Andres T. Co, wrote a letter to the
Defendant requesting a computation of the remaining balance. This letter was sent through
the Defendant's broker, Linda Aduca, who provided the computation.
On March 2, 1989, the Plaintiff had the amount corresponding to the balance ready and
issued Metrobank Cashier's Check No. 004223, payable to the Defendant. They were
supposed to meet at the Plaintiff's office to complete the transaction, but the Defendant's
treasurer, Nenita Lee Gruenberg, did not appear.
Despite repeated demands, the Defendant refused to execute the Transfer of Rights/Deed of
Assignment required to transfer the certificate of title to the Plaintiff.
On April 6, 1989, the Defendant, Motorich Sales Corporation, entered into a Deed of Absolute
Sale with defendant ACL Development Corporation, transferring the subject property. As a
result, a new title under Transfer Certificate of Title No. 3571 was issued in the name of
Motorich Sales Corporation.
The Plaintiff claimed that the Defendant's refusal to execute the necessary documents caused
them to suffer moral and nominal damages, totaling P500,000.00 (Five Hundred Thousand
Pesos). They also sought exemplary damages of P100,000.00 (One Hundred Thousand
Pesos) and claimed they lost the opportunity to construct a residential building worth
P100,000.00 (One Hundred Thousand Pesos). Additionally, the Plaintiff incurred legal fees of
P100,000.00 (One Hundred Thousand Pesos) due to the legal proceedings.
In response, the Defendant argued that Nenita Lee Gruenberg did not have the authority to
dispose of the property and that Mr. Reynaldo Gruenberg, the President and Chairman of
Motorich Sales Corporation, did not sign the agreement. They also claimed that the Plaintiff
failed to pay the balance in legal tender within the stipulated period, and the understanding
was that the Transfer of Rights/Deed of Assignment would only be signed upon receipt of
cash payment.
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The trial court ruled in favor of the Defendant, stating that there was no evidence showing that
Nenita Lee Gruenberg was authorized to sell the property and that the sale did not comply
with the requirements of the Corporation Code of the Philippines. The court also found no
substantial evidence to hold Nenita Lee Gruenberg liable for damages.
The Court of Appeals affirmed the trial court's decision with the modification that Nenita Lee
Gruenberg was ordered to refund the P100,000 downpayment to the Plaintiff.
Dissatisfied with the Court of Appeals' decision, the Plaintiff filed a petition for review before
the Supreme Court.
ISSUES:
1. Whether the Agreement between the petitioner (San Juan Structural and Steel Fabricators,
Inc.) and the respondent (Motorich Sales Corporation) for the sale of a parcel of land was
valid and binding.
2. Whether the corporate veil of Motorich Sales Corporation should be pierced, and its officers
held personally liable for the transaction.
3. Whether the challenged portion of the transcript of stenographic notes (TSN) is material to
the case.
4. Whether the petitioner is entitled to damages and attorney's fees.
RULING:
1. The Agreement between the petitioner and respondent was not valid and binding because
the corporate treasurer of Motorich Sales Corporation, Nenita Lee Gruenberg, did not have
the authority to sell the property, and there was no evidence of authorization or ratification by
the corporation's board of directors. The contract was found to be void under Article 1874 of
the Civil Code.
2. Piercing the corporate veil of Motorich Sales Corporation was not justified as it was not a
close corporation, and the ownership by Spouses Reynaldo and Nenita Gruenberg did not
automatically grant Nenita Gruenberg the authority to sell the property. The court found no
evidence of fraud or illegal activity that would warrant piercing the corporate veil.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

3. The challenged portion of the transcript of stenographic notes (TSN) was considered
immaterial to the case, and it did not change the fact that Nenita Gruenberg did not have the
authority to sell the property.
4. The petitioner was not entitled to damages and attorney's fees as there was no evidence of
fraud or bad faith on the part of the respondents, and the earnest money paid by the petitioner
was ordered to be returned by Nenita Gruenberg.
In summary, the Court ruled against the petitioner, affirming the decision that the Agreement
was not valid, and there were no grounds to pierce the corporate veil or award damages and
attorney's fees.
96 Naguiat v. NLRC, 269 S 54
FACTS: Petitioner CFTI held a concessionaire's contract with the Army Air Force Exchange
Services ("AAFES") for the operation of taxi services within Clark Air Base. Sergio F. Naguiat
was CFTI's president, while Antolin T. Naguiat was its vice president. Like Sergio F. Naguiat
Enterprises, Incorporated ("Naguiat Enterprises"), a trading firm, it was a family-owned
corporation.
Individual respondents were previously employed by CFTI as taxicab drivers. Due to the
phase-out of the US military bases in the Philippines, from which Clark Air Base was not
spared, the AAFES was dissolved, and the services of individual respondents were officially
terminated on November 26, 1991.
The AAFES Taxi Drivers Association ("drivers' union"), through its local president, Eduardo
Castillo, and CFTI held negotiations as regards separation benefits that should be awarded in
favor of the drivers. They arrived at an agreement that the separated drivers will be given
P500.00 for every year of service as severance pay. Most of the drivers accepted said amount
in December 1991 and January 1992. However, individual respondents herein refused to
accept theirs.
Instead, after disaffiliating themselves from the drivers' union and filed a complaint against
"Sergio F. Naguiat doing business under the name and style Sergio F. Naguiat Enterprises,
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Inc., and CFTI with Antolin T. Naguiat as vice president and general manager, as party
respondent.
ISSUE: Whether or not Sergio Naguiat may be held liable for the claims instituted by the taxi
drivers against his company.
RULING: As provided for under the fifth paragraph of Section 100 of the Corporation Code
specifically imposes personal liability upon the stockholder actively managing or operating the
business and affairs of the close corporation.
In fact, in posting the surety bond required by this Court for the issuance of a temporary
restraining order enjoining the execution of the assailed NLRC Resolutions, only Sergio F.
Naguiat, in his individual and personal capacity, principally bound himself to comply with the
obligation thereunder, i.e., "to guarantee the payment to private respondents of any damages
which they may incur by reason of the issuance of a temporary restraining order sought, if it
should be finally adjudged that said principals were not entitled thereto.
The Court here finds no application to the rule that a corporate officer cannot be held solidarily
liable with a corporation in the absence of evidence that he had acted in bad faith or with
malice. In the present case, Sergio Naguiat is held solidarily liable for corporate tort because
he had actively engaged in the management and operation of CFTI, a close corporation.
Antolin Naguiat, however, could not be held liable. Although he carried the title of "general
manager" as well, it had not been shown that he had acted in such capacity. Furthermore, no
evidence on the extent of his participation in the management or operation of the business
was preferred. In this light, he cannot be held solidarily liable for the obligations of CFTI and
Sergio Naguiat to the private respondents.
97 Florete v. Florete, G.R.No. 223321, 2 April 2018
FACTS: On October 7, 1966, Marsal & Co., Inc. (Marsal) was organized as a close corporation
by Marcelino, Sr., Salome, Rogelio, Marcelino, Jr., Ma. Elena, and Teresita (all surnamed
Florete). Since its incorporation, the Articles of Incorporation (AOI) had been amended several
times to increase its authorized capital stocks of P500,000.00 to P5,000,000.00.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Notwithstanding the amendments, paragraph 7 of their AOI which provides for the procedure
in the sale of the shares of stocks of a stockholder remained the same.
On September 19, 1989, Teresita Florete Menchavez died. In 1992, Ephraim Menchavez,
Teresita’s husband, filed a Petition for Issuance of Letters of Administration over her estate.
In 1995, Ephraim, the special administrator, entered into a Compromise Agreement and Deed
of Assignment with petitioner Rogelio ceding all the shareholdings of Teresita in various
corporations owned and controlled by the Florete family, which included the 3,464 shares in
Marsal corporation, as well as her shares, interests and participation as heir in all the real and
personal properties of her parents to petitioner Rogelio.
Respondents Marcelino Jr. and Ma. Elena filed with the Regional Trial Court (RTC), Branch
39, Iloilo City, a case for annulment/rescission of sale of shares of stocks and the exercise of
their preemptive rights in Marsal corporation and damages.
Respondents claimed that the sale of Teresita’s 3,464 Marsal shares of stocks made by
petitioner estate to petitioner Rogelio was void ab initio as it violated paragraph 7 of Marsal’s
AOI, since the sale was made sans written notice to the Board of Directors who was not able
to notify respondents in writing of the petitioner estate and heirs’ intention to sell and convey
the Marsal shares and depriving respondents of their preemptive rights.
ISSUE: Whether or not the subject share transfer restriction can be enforced in light of the
Corporation Code provision which recognizes as valid only such restrictions in a close
corporation as defined in the Code.
RULING: As Marsal is a close corporation, it is allowed under the Corporation Code to provide
for restrictions on the transfer of its stocks. We quote the pertinent provisions of the Code as
follows:
Sec. 97. Articles of incorporation.—The articles of incorporation of a close corporation may
provide:
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1. For a classification of shares or rights and the qualifications for owning or holding the
same and restrictions on their transfers as may be stated therein, subject to the provisions of
the following section;
xxxx
Sec. 98. Validity of restrictions on transfer of shares.—Restrictions on the right to transfer
shares must appear in the articles of incorporation and in the bylaws as well as in the
certificate of stock; otherwise, the same shall not be binding on any purchaser thereof in good
faith.
Thus, the stockholder seller must notify in writing the Board of Directors of his intention to sell,
who, in turn, must notify all the stockholders of records within 5 days upon receipt of such
letter, and the stockholder must exercise the preemptive right within ten days from notice of
the Board, otherwise, the sale shall be null and void.
While it would appear that petitioner Rogelio, did not comply with the procedure on the sale of
Teresita’s Marsal shares as stated under paragraph 7 of the AOI, however, it appeared in the
records that there was already substantial compliance with paragraph 7 of the AOI when
respondents obtained actual knowledge of the sale of Teresita’s 3,464 Marsal shares to
petitioner Rogelio as early as 1995. In fact, respondents had already given their consent and
conformity to such sale by their inaction for 17 years despite knowledge of the sale.
Section 99 of the Corporation Code provides for the effects of transfer of stock in breach of
qualifying conditions, to wit:
Sec. 99. Effects of issuance or transfer of stock in breach of qualifying conditions.—
xxxx
3. If a stock certificate of any close corporation conspicuously shows a restriction on transfer
of stock of the corporation, the transferee of the stock is conclusively presumed to have notice
of the fact that he has acquired stock in violation of the restriction, if such acquisition violates
the restriction.
4. Whenever any person to whom stock of a close corporation has been issued or
transferred has, or is conclusively presumed under this section to have, notice either (a) that
he is a person not eligible to be a holder of stock of the corporation, or (b) that transfer of stock
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

to him would cause the stock of the corporation to be held by more than the number of
persons permitted by its articles of incorporation to hold stock of the corporation, or (c) that the
transfer of stock is in violation of a restriction on transfer of stock, the corporation may, at its
option, refuse to register the transfer of stock in the name of the transferee.
Clearly, under the above quoted provision, even if the transfer of stocks is made in violation of
the restrictions enumerated under Section 99, such transfer is still valid if it has been
consented to by all the stockholders of the close corporation and the corporation cannot refuse
to register the transfer of stock in the name of the transferee. In this case, We find that the sale
of Teresita’s 3,464 Marsal shares had already been consented to by respondents as we have
discussed, and may be registered in the name of petitioner Rogelio.
We find that there is indeed no violation of paragraph 7 of Marsal’s Articles of Incorporation.
98 Roman Catholic Apostolic Administration of Davao, Inc. vs. LRC, Roman Catholic
Apostolic Administration of Davao, Inc. vs. LRC, 20 Dec. 1957
FACTS: Mateo Rodis sold a parcel of land in Davao City to the petitioner, the Roman Catholic
Apostolic Administrator of Davao, Inc., on Oct. 4, 1954.
The petitioner is a corporation sole with Msgr. Clovis Thibault, a Canadian citizen, as the
actual incumbent.
The Register of Deeds of Davao required the petitioner to submit an affidavit declaring that at
least 60 percent of its members were Filipino citizens before registering the deed of sale. This
requirement was based on a similar case involving the Carmelite Nuns of Davao.
The petitioner argued that its case was different from that of the Carmelite Nuns because it
was a corporation sole with only one incorporator (the incumbent bishop), unlike the Nuns
who had five incorporators. Furthermore, the petitioner contended that the land's owner would
be the Catholic population of Davao, not the corporation sole.
The matter was referred to the Land Registration Commissioner, who ruled that the petitioner
was not qualified to acquire private lands in the Philippines without 60 percent Filipino
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ownership, as per the provisions of Section 1 and 5 of Article XIII of the Philippine
Constitution.
After the motion for reconsideration was denied, the petitioner filed a mandamus action with
the Supreme Court, claiming that, under the Corporation Law, the deed of sale was in favor of
the Catholic Church, which was qualified to acquire private agricultural lands for places of
worship.
ISSUE: Whether corporations sole are qualified to acquire lands in the Philippines in light of
the provisions of Section 1 and 5 of Article XIII of the 1935 Constitution.
RULING: The Supreme Court ruled that the framers of the Constitution did not intend to apply
the provisions of Section 1 and 5 of Article XIII to corporations sole.
The key factor in determining intent is the language used in the Constitution. The Corporation
Law and Canon Law clearly state that a corporation sole is not the owner of properties it
acquires but merely an administrator.
Church temporalities are owned by the Catholic Church as a "moral person" or by dioceses as
minor "moral persons," with the ordinary or bishop serving as an administrator.
Corporations sole are composed of only one person (usually the bishop) and are not subject to
expansion to meet the 60 percent Filipino ownership requirement.
The purpose of the constitutional provisions was to prevent foreigners or foreign-financed
corporations from exploiting natural resources in the Philippines, preserving them for Filipino
benefit. This was not applicable to corporations sole, which administered properties for the
benefit of the faithful.
The Court applied principles of equity and progressive interpretation, emphasizing that the
Constitution should not be an obstruction to a country's development and foreign relations.
The Court concluded that the petitioner, the Roman Catholic Apostolic Administrator of Davao,
Inc., had the right to acquire and register real properties for charitable, benevolent, and
educational purposes.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The Land Registration Commission's resolution was reversed, and the Register of Deeds of
Davao City was ordered to register the deed of sale.
Conclusion:
The Supreme Court ruled in favor of the petitioner, the Roman Catholic Apostolic Administrator
of Davao, Inc., holding that corporations sole were not subject to the 60 percent Filipino
ownership requirement for land acquisition as per the Constitution. This decision allowed the
petitioner to register the deed of sale for the parcel of land in question.
99 RP v. IAC, 15 January 1988
FACTS: The Roman Catholic Bishop of Lucena, represented by Msgr. Jose T. Sanchez, filed
an application for confirmation of title to four (4) parcels of land situated in the Municipality of
Candelaria, Quezon Province. As basis for the application, the applicant claimed title to the
various properties through either purchase or donation dating as far back as 1928.
At the initial hearing held on November 13, 1979, only the Provincial Fiscal in representation of
the Solicitor General appeared to interpose personal objection to the application. Hence, an
Order of General Default against the whole world was issued by the Court a quo except for the
Director of Lands and the Director of the Bureau of Forest Development. For his part, the
Fiscal, said the State will not adduce evidence in support of its opposition and will submit the
instant case for decision.
Accordingly, the court ordered the registration of the four parcels together with the
improvements thereon "in the name of the ROMAN CATHOLIC BISHOP OF LUCENA, INC., a
religious corporation sole duly registered and existing under the laws of the Republic of the
Philippines.”
Consequently, the Solicitor General filed a Motion for reconsideration which was denied by the
lower court for lack of merit, based on the following grounds:
1. Article XIV, Section 11 of the New Constitution (1973) disqualifies a private corporation from
acquiring alienable lands for the public domain.
2. The application was filed after the effectivity of the New Constitution on January 17, 1973.
ISSUE: Whether or not the Roman Catholic Bishop of Lucena, as a corporation sole, can
acquire alienable land of the public domain.
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RULING: In Director of Lands v. IAC, the Court stated that if the lands were still part of the
public domain at the time of institution of the registration, it must be answered in the negative.
If, on the other hand, they were already private lands, the constitutional prohibition against
their acquisition by private corporations or associations obviously does not apply.
In Roman Catholic Apostolic Administration of Davao, Inc. vs. Land Registration Commission,
et al. the Court provided that: A corporation sole is a special form of corporation usually
associated with the clergy designed to facilitate the exercise of the functions of ownership
carried on by the clerics for and on behalf of the church which was regarded as the property
owner.
The 4 parcels of land subject in this case were already private property at the time the
application for confirmation of title was filed. There is no doubt that a corporation sole by the
nature of its Incorporation is vested with the right to purchase and hold real estate and
personal property. It need not therefore be treated as an ordinary private corporation because
whether or not it be so treated as such, the Constitutional provision involved will, nevertheless,
be not applicable.
100 Director of Lands v. CA, 14 March 1988
FACTS: In 1973, private respondent Iglesia ni Cristo filed an application with the then Court of
First Instance of Cavite for registration in its name a parcel of land. Private respondent alleged
inter alia that it was the owner in fee simple of the land, having acquired title thereto by virtue
of a Deed of Absolute Sale executed in 1947 by Aquelina dela Cruz in its favor and that
applicant and its predecessors-in-interest had been in actual, continuous, public, peaceful and
adverse possession and occupation of the said land in the concept of owner for more than 30
years.
The Republic of the Philippines, represented by the Director of Lands, opposed the
application.
After trial, the Court of First Instance of Cavite rendered judgment granting the private
respondent’s application for registration of title.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The Director of Lands appealed the decision of the land registration court to the Court of
Appeals by reason of its failure to submit the original tracing cloth plan and that the private
respondent was disqualified from holding, except by lease, alienable lands of the public
domain under Section 11, Article XIV of the 1973 Constitution.
The appellate court, however, affirmed in toto the assailed decision. Hence, this petition.
ISSUE: Whether or not respondent Iglesia ni Cristo, a corporation sole, has an alleged
alienable piece of public land registered in its name under the 1973 Constitution.
RULING: Yes. Under section 48[b] of Commonwealth Act No. 141, as amended, "those who
by themselves or through their predecessors-in-interest have been in open, continuous,
exclusive and notorious possession and occupation of agricultural lands of the public domain,
under a bona fide claim of acquisition or ownership, for at least thirty years immediately
preceding the filing of the application for confirmation of title except when prevented by war or
force majeure" may apply to the Court of First Instance of the province where the land is
located for confirmation of their claims, and the issuance of a certificate of title therefor, under
the Land Registration Act. said paragraph [b] further provides that "these shall be conclusively
presumed to have performed all the conditions essential to a Government grant and shall be
entitled to a certificate of title under the provisions of this chapter."
Taking the year 1936 as the reckoning point, there being no showing as to when the Ramoses
first took possession and occupation of the land in question, the 30-year period of open,
continuous, exclusive, and notorious possession and occupation required by law was
completed in 1966.
If, in 1966, the land in question was converted ipso jure into private land, it remained so in
1974 when the registration proceedings were commenced. This being the case, the prohibition
under the 1973 Constitution would have no application. Otherwise construed, if in 1966, the
private respondent could have its title to the land confirmed, then it had acquired a vested right
thereto, which the 1973 Constitution can neither impair nor defeat.
101 Bustos v. Millians Shoes, 24 April 2017
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FACTS: Sps Fernando and Amelia Cruz owned a parcel of land that was levied for
nonpayment of real estate taxes. The City Treasurer of Marikina auctioned off the property,
with Petitioner as the winning bidder. He then applied for the cancellation of TCT. The
Regional Trial Court granted the cancellation of the previous title and issued a new one under
the name of petitioner.
Subsequently, notices of lis pendens were annotated to Bustos’s Title indicating that SEC
Corp. Case No. 036-04, which was filed before the RTC involved the rehabilitation
proceedings for MSI, covered the subject property and included it in the Stay Order issued by
the RTC. Petitioner moved for the exclusion of the subject property from the Stay Order. He
claimed that the lot belonged to Spouses Cruz who were mere stockholders and officers of
MSL. He further argued that since he had won the bidding of the property, the auctioned
property could no longer be part of the Stay Order. The RTC denied the entreaty of petitioner
on the ground that the period of redemption has not yet lapsed.
CA ruled that the subject land which secured several mortgage liens for the account of MSI
remains to be an asset of the Cruz Spouses, who are the stockholders and/or officers of MSI,
a close corporation. Incidentally, as an exception to the general rule, in a close corporation,
the stockholders and/or officers usually manage the business of the corporation and are
subject to all liabilities of directors. Thus, the Cruz Spouses being stockholders of MSI are
personally liable for the latter's debt and obligations.
ISSUE: Whether the CA correctly considered the properties of Spouses Cruz answerable for
the obligations of MSI.
RULING: No, CA’s decision characterized respondent spouses as stockholders of a close
corporation who, as such, are liable for its debts. There is no basis for finding that MSI is a
close corporation.
(1) The courts a quo did not at all refer to the Articles of Incorporation of MSI. For this reason
alone, the CA rulings should be set aside.
(2) CA seriously erred in portraying the import of Section 97 of the Corp Code making the
stockholders automatically liable for Corp’s debts.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

(3) Stay orders only cover claims against the corporation, guarantors and sureties. Properties
merely owned by stockholders cannot be included in the inventory of assets of a corporation
under rehabilitation.
CA seriously erred in portraying the import of Section 97 of the Corporation Code. Citing that
provision, the CA concluded that "in a close corporation, the stockholders and/or officers
usually manage the business of the corporation and are subject to all liabilities of directors,
i.e. personally liable for corporate debts and obligations."
However, Section 97 of the Corporation Code only specifies that "the stockholders of the
corporation shall be subject to all liabilities of directors." Nowhere in that provision do we find
any inference that stockholders of a close corporation are AUTOMATICALLY liable for
corporate debts and obligations.
Parenthetically, only Sec. 100, par 5, of the Corp Code explicitly provides for personal liability
of stockholders of close corporation: To the extent that the stockholders are actively engaged
in the management or operation of the business and affairs of a close corporation, the
stockholders shall be held to strict fiduciary duties to each other and among themselves. Said
stockholders shall be personally liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance.
In the case at bar, neither RTC nor the CA discussed the factual circumstance required
above. Thus, general doctrine of separate juridical personality should be applied. Being an
officer or a stockholder of a corporation does not make one's property the property also of the
corporation.
In addition: Stay orders should only cover those claims directed against corporations or their
properties, against their guarantors, or their sureties who are not solidarily liable with them, to
the exclusion of accommodation mortgagors. To repeat, properties merely owned by
stockholders cannot be included in the inventory of assets of a corporation under
rehabilitation. Given that the true owner of the subject property is not the corporation,
petitioner cannot be considered a creditor of MSI but a holder of a claim against respondent
spouses.
102 Iglesia Filipina Independente v. Heirs of Taeza, 3 February 2014
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FACTS: Iglesia Filipina Independiente (IFI), a religious corporation owned a parcel of land
which was transferred by Rev. Macario Ga in his capacity as the Supreme Bishop of IFI to
Bernardino Taeza under a deed of sale with mortgage on February 5, 1976. The officers of
the Laymen’s Committee of the Parish Council filed a complaint for annulment of said deed of
sale but the complaint was dismissed by the trial court. Rev. Ga’s term as Supreme Bishop of
the IFI terminated on May 8, 1981. Meanwhile Bernardino Taeza registered the subject
parcels of land and Transfer Certificate of Sale was issued to him.
On January 1990, a complaint for annulment of sale was again filed by IFI through the newly-
appointed Supreme Bishop. The trial court rendered a decision in favor of petitioner declaring
that the deed of sale was null and void. On appeal, the appellate court reversed the RTC’s
decision ruling that IFI, being a corporation sole validly transferred ownership over the land
through it Supreme Bishop who was the administrator of all properties and the official
representative of the church.
ISSUE: Is then Supreme Bishop Rev. Ga authorized to enter into a contract disposing a
property in behalf of IFI?
RULING: No. Section 113 (now Section 111) provides that in cases where the rules,
regulations, and discipline of the religious denomination, sect or church, religious society, or
order concerned represented by such corporation sole regulate the method of acquiring,
holding, selling, and mortgaging real estate and personal property, such rules, regulations and
discipline shall govern. Article IV (a) of their Canons provides that “All real properties of the
Church located or situated in such parish can be disposed of only with the approval and
conformity of the laymen’s committee, the parish priest, the Diocesan Bishop, with sanction of
the Supreme Council, and finally with the approval of the Supreme Bishop, as administrator of
all the temporalities of the Church.” The Laymen’s Committee made its objection to the sale
known to the Supreme Bishop. Since the Canons require that all the church entities listed in
Article IV (a) of the Canons should give its approval to the transaction, in executing the sale,
Supreme Bishop Rev. Ga had acted beyond his powers making the contract of sale with
mortgage unenforceable.
103 IEMELIF, Inc., et al. v. Bishop Lazaro, et al., 6 July 2010
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

FACTS: The present dispute resolves the issue of whether or not a corporation may change its
character as a corporation sole into a corporation aggregate by mere amendment of its articles
of incorporation without first going through the process of dissolution.
Apparently, although the IEMELIF remained a corporation sole on paper (with all corporate
powers theoretically lodged in the hands of one member, the General Superintendent), it had
always acted like a corporation aggregate. The Consistory exercised IEMELIF’s decision-
making powers without ever being challenged.
Subsequently, during its 1973 General Conference, the general membership voted to put
things right by changing IEMELIF’s organizational structure from a corporation sole to a
corporation aggregate. On May 7, 1973 the Securities and Exchange Commission (SEC)
approved the vote. For some reasons, however, the corporate papers of the IEMELIF
remained unaltered as a corporation sole.
Only in 2001, about 28 years later, did the issue reemerge. In answer to a query from the
IEMELIF, the SEC replied on April 3, 2001 that, although the SEC Commissioner did not in
1948 object to the conversion of the IEMELIF into a corporation aggregate, that conversion
was not properly carried out and documented. The SEC said that the IEMELIF needed to
amend its articles of incorporation for that purpose.
Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation
aggregate. Respondent Bishop Nathanael Lazaro, its General Superintendent, instructed all
their congregations to take up the matter with their respective members for resolution.
Subsequently, the general membership approved the conversion, prompting the IEMELIF to
file amended articles of incorporation with the SEC. Bishop Lazaro filed an affidavit-
certification in
support of the conversion.
Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support the
conversion, filed a civil case for "Enforcement of Property Rights of Corporation Sole,
Declaration of Nullity of Amended Articles of Incorporation from Corporation Sole to
Corporation Aggregate with Application for Preliminary Injunction and/or Temporary
Restraining Order " in IEMELIF’s name against respondent members of its Consistory before
the Regional Trial Court (RTC) of Manila.
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Petitioners claim that a complete shift from IEMELIF’s status as a corporation sole to a
corporation aggregate required, not just an amendment of the IEMELIF’s articles of
incorporation, but a complete dissolution of the existing corporation sole followed by a re-
incorporation.
ISSUE: Whether or not the CA erred in affirming the RTC ruling that a corporation sole may be
converted into a corporation aggregate by mere amendment of its articles of incorporation.
RULING: For non-stock corporations, the power to amend its articles of incorporation lies in its
members. The code requires two-thirds of their votes for the approval of such an amendment.
So how will this requirement apply to a corporation sole that has technically but one member
(the head of the religious organization) who holds in his hands its broad corporate powers over
the properties, rights, and interests of his religious organization?
Although a non-stock corporation has a personality that is distinct from those of its members
who established it, its articles of incorporation cannot be amended solely through the action of
its board of trustees. The amendment needs the concurrence of at least two-thirds of its
membership. If such approval mechanism is made to operate in a corporation sole, its one
member in whom all the powers of the corporation technically belongs, needs to get the
concurrence of two-thirds of its membership. The one member, here the General
Superintendent, is but a trustee, according to Section 110 of the Corporation Code, of its
Membership.
There is no point to dissolving the corporation sole of one member to enable the corporation
aggregate to emerge from it. Whether it is a non-stock corporation or a corporation sole, the
corporate being remains distinct from its members, whatever be their number. The increase in
the number of its corporate membership does not change the complexion of its corporate
responsibility to third parties.
The one member, with the concurrence of two-thirds of the membership of the organization for
whom he acts as trustee, can self-will the amendment. He can, with membership concurrence,
increase the technical number of the members of the corporation from "sole" or one to the
greater number authorized by its amended articles.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

The amendment of the articles of incorporation, as correctly put by the CA, requires merely
that a) the amendment is not contrary to any provision or requirement under the Corporation
Code, and that b) it is for a legitimate purpose. Section 17 of the Corporation Code provides
that amendment shall be disapproved if, among others, the prescribed form of the articles of
incorporation or amendment to it is not observed, or if the purpose or purposes of the
corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and
regulations, or if the required percentage of ownership is not complied with. These
impediments do not appear in the case of IEMELIF. Besides, as the CA noted, the IEMELIF
worked out the amendment of its articles of incorporation upon the initiative and advice of the
SEC. The latter’s
interpretation and application of the Corporation Code is entitled to respect and recognition,
barring any divergence from applicable laws. Considering its experience and specialized
capabilities in the area of corporation law, the SEC’s prior action on the IEMELIF issue should
be accorded great weight.
To convert a corporation sole to a corporation aggregate is to increase corporate membership
from one to two or more, and to transfer the duties of administering and managing the affairs,
properties and temporalities of the religious entity, from one to several trustees.
104 IEMELIF, Inc., et al. v. Juane, 18 September 2009
FACTS: These two consolidated cases arising from a Complaint, captioned "Unlawful
Detainer," filed by Iglesia Evangelica Metodista en las Islas Filipinas (IEMELIF), Inc. against
Reverend Natanael B. Juane (Juane), docketed as Civil Case No. 173711-CV, and raffled to
the Metropolitan Trial Court (MeTC) of Manila.
IEMELIF is a religious corporation existing and duly organized under Philippine laws. IEMELIF
is the absolute and registered owner of a parcels of land situated in Tondo, Manila.
On these lots the Cathedral of the Iglesia Evangelica Metodista en las Islas Filipinas is located
together with other improvements including the Pastor's residence and the church's school.
Juane is a former minister or pastor of IEMELIF. He was elected as one of the members of
the Highest Consistory of Elders (or Board of Trustees) of IEMELIF. Bishop Nathanael P.
Lazaro, the General Superintendent of the whole IEMELIF Church and the General
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Administrator of the IEMELIF Cathedral in Tondo, Manila, announced the appointment and
assignment of Juane as Resident Pastor of the Cathedral Congregation in Tondo, Manila. By
virtue, and as a consequence of such appointment, Defendant Rev. Juane was authorized to
stay at and occupy the Resident Pastor's residence inside the Cathedral complex. By the
same reason, he also took charge of the Cathedral facilities and other property of the church
in said premises.
On 03 March 2002, Bishop Lazaro, acting in his capacity as the General Superintendent of
IEMELIF Church as well as the General Administrator of the IEMELIF Cathedral in Tondo,
removed Juane as Resident Pastor of the Tondo Cathedral Congregation and assigned him
as Resident Pastor of the Sta. Mesa (Banal na Hapag) Congregation.
In view of this re-assignment, Juane's authority to occupy and to take charge and possession
of the premises of the IEMELIF Cathedral in Tondo ceased and expired. However, Juane
defied said re-assignment and continued to arrogate upon himself the position of Resident
Pastor of the Cathedral. He continues to defy the Church authorities and still has physical
possession and occupation of the Cathedral premises despite the expiration of his authority to
do so and illegally depriving herein Plaintiff [IEMELIF] physical possession thereof.
Further, on 10 May 2002, the Highest Consistory of Elders of the IEMELIF Church, upon
recommendation of IEMELIF's Committee on Relations, Examination and Ordination, and in
accordance with the Discipline of the Church, approved the expulsion of herein Juane as a
pastor of the IEMELIF Church for various acts of defiance and rebellion. This expulsion as a
pastor permanently took away from Juane any and all right or authority to occupy and
possess any property of the IEMELIF Church.
Still, Defendant Juane ignored said expulsion. His defiance continues. He is occupying the
IEMELIF Cathedral premises in Tondo in violation of [IEMELIF]'s right to physically possess
the subject property.
On 23 May 2002, Plaintiff's Highest Consistory of Elders, through the Secretary, Rev. Honorio
F. Rivera and Bishop Nathanael P. Lazaro, sent Juane a letter through registered mail,
demanding among others, that he vacate and turnover to the Church all Church property in
his possession, including the cathedral, pastoral house, the school and the church premises.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Despite receipt of the above-said demand to vacate the IEMELIF Cathedral premises, Juane
failed and refused, and continues to fail and refuse, to vacate the subject property and
continued its unlawful occupation thereof to the exclusion of [IEMELIF].
Due to Juane's unwarranted failure and unjust refusal to vacate the premises, [IEMELIF] is left
without recourse but to file legal action to enforce its right to have physical possession of the
Cathedral premises.
Juane filed a Motion to Dismiss Civil Case No. 173711-CV (G.R. No. 172447 (Motion to
Dismiss) contending that the Complaint therein actually involved intra-corporate controversies,
which, under Republic Act No. 8799, otherwise known as the Securities Regulation Code, fell
within the jurisdiction of the Regional Trial Court (RTC), not the MeTC.
In an Order dated 27 February 2003, the MeTC denied Juane's Motion to Dismiss. It held that
the case did not involve the issue of removal of a corporate officer, but rather the right to
possess the IEMELIF Cathedral in Tondo (subject property). Juane filed a Motion for
Reconsideration of the Order, but the same was denied by the MeTC.
The RTC rendered its Decision dismissing Juane's Petition. The RTC pointed out that the
primary and ultimate purpose of IEMELIF in filing the Complaint in Civil Case No. 173711-CV
was to seek recovery of physical possession over the subject property, a matter within the
jurisdiction of the MeTC.
Juane's appeal to the Court of Appeals. In a Decision, the Court of Appeals granted Juane's
appeal and set aside the RTC Decision. According to the Court of Appeals, the most
contentious issues raised in the Complaint of IEMELIF in Civil Case No. 173711-CV were
Juane's removal from office and reassignment, which were within the realm of intra-corporate
controversies and the exclusive jurisdiction of the RTC. Juane's purported loss of the right to
possess the subject property was merely incidental to his removal from office and
reassignment by IEMELIF, and could not be the subject of an action for unlawful detainer
under Rule 70 of the Rules of Court.
IEMELIF, thus, filed the present Petition for Review argues that the intra-corporate dispute
alleged by Juane is a completely extraneous matter that was never alleged or prayed for in
the Complaint. IEMELIF points out that the right to physically occupy the premises is derived
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from Juane's appointment as a church worker assigned to the Cathedral, and not from his
being a member of the corporation.
ISSUE: Whether the Complaint filed by IEMELIF against Juane constitutes an intra-corporate
dispute beyond the jurisdiction of the MeTC.
RULING: Even if the transformation of IEMELIF from a corporation sole to a corporation
aggregate was legally defective, its head or governing body, i.e., Bishop Lazaro, whose acts
were approved by the Highest Consistory of Elders, still did not change. A corporation sole is
one formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a
religious denomination, sect, or church, for the purpose of administering or managing, as
trustee, the affairs, properties and temporalities of such religious denomination, sect or
church. As opposed to a corporation aggregate, a corporation sole consists of a single
member, while a corporation aggregate consists of two or more persons. If the transformation
did not materialize, the corporation sole would still be Bishop Lazaro, who himself performed
the questioned acts of removing Juane as Resident Pastor of the Tondo Congregation. If the
transformation did materialize, the corporation aggregate would be composed of the Highest
Consistory of Elders, which nevertheless approved the very same acts. As either Bishop
Lazaro or the Highest Consistory of Elders had the authority to appoint Juane as Resident
Pastor of the IEMELIF Tondo Congregation, it also had the power to remove him as such or
transfer him to another congregation.
105 Juansing Hardware vs. The Honorable Rafael T. Mendoza, GR No. L-55687;
FACTS: On 17 August 1979, Juasing Hardware, alleging to be a single proprietorship duly
organized and existing under and by virtue of the laws of the Philippines and represented by
its manager Ong Bon Yong, filed a complaint for the collection of a sum of money against Pilar
Dolla that despite the repeated demands respondent Dolla refused to pay the purchase price
of items, materials and merchandise which she bought from Juasing Hardware.
In an Answer, Dolla stated that she has no knowledge about Juasing Hardware's legal
personality and capacity to sue as alleged in the complaint. After Juasing Hardware had
completed the presentation of its evidence and rested its case, Dolla then filed a Motion
Dismiss since Juasing Hardware lacked the legal capacity to sue. Dolla claimed that Juasing
Hardware is a single proprietorship, not a corporation or a partnership duly registered in
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

accordance with law, and therefore is not a juridical person with legal capacity to bring an
action in court. Juasing Hardware filed an opposition and moved for the admission of an
Amended Complaint to change the name.
Respondent Judge Mendoza dismissed the complaint and denied the admission of the
amended complaint by Juasing Hardware.
ISSUES: Whether Juasing Hardware has the capacity to sue.
Whether it was right for the respondent Judge to outright dismiss the complaint and deny the
petitioner the admission to amend the complaint.
RULING: No. Juasing Hardware has no capacity to sue. The Supreme Court ruled that Section
1, Rule 3 of the Revised Rules of Court provides that only natural or juridical persons or
entities are authorized by law to be parties in a civil action. Juasing Hardware is not a natural
person, it cannot also be considered as a juridical person because Article 44 of the New Civil
Code enumerates what are juridical persons. Being a single proprietorship, is it not included in
the enumeration.
Art. 44. The following are juridical persons:
1. The State and its political subdivisions;
2. Other corporations, institutions and entities for public interest or purpose, created
by law; their personality begins as soon as they have been constituted according to
law;
3. Corporations, partnerships and associations for private interest or purpose to which
the law grants a juridical personality, separate and distinct from that of each
shareholder, partner or member.
There is no law authorizing sole proprietorships like Juasing Hardware to bring suit in court.
The law merely recognizes the existence of a sole proprietorship as a form of business
organization conducted for profit by a single individual, and requires the proprietor or owner
thereof to secure licenses and permits, register the business name, and pay taxes to the
national government. It does not vest juridical or legal personality upon the sole proprietorship
nor empower it to file or defend an action in court. Hence, the complaint should have been filed
in the name of the owner of Juasing Hardware.
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No, it was not right for the respondent Judge to outright dismiss the complaint and deny the
petitioner the admission to amend the complaint. The allegations in the body of the complaint
would show that the suit is brought by such a person as a proprietor or owner of the business
conducted under the name and style “Juasing Hardware”. The descriptive words “doing
business as Juasing Hardware” may be added in the title of the case, as is customarily done.
Section 4, Rule 10 of the Revised Rules of Court provides: Formal Amendments. — A defect
in the designation of the parties may be summarily corrected at any stage of the action
provided no prejudice is caused thereby to the adverse party.
Contrary to the ruling of the respondent Judge, the defect of the complaint in the instant case
is merely formal, not substantial. Substitution of the party plaintiff would not constitute a
change in the Identity of the parties. No unfairness or surprise to private respondent Dolla,
defendant in the court a quo, would result by allowing the amendment, the purpose of which is
merely to conform to procedural rules or to correct a technical error. In the case of Shaffer vs.
Palma, the Court held that “the courts should be liberal in allowing amendments to pleadings
to avoid multiplicity of suits and in order that the real controversies between the parties are
presented and the case decided on the merits without unnecessary delay.” This rule applies
with more reason and with greater force when, as in the case at bar, the amendment sought to
be made refers to a mere matter of form and no substantial rights are prejudiced.
106 ALPS Transportation vs. Rodriguez
FACTS: Respondent Elpidio Rodriguez (Rodriguez) was previously employed as a bus
conductor. He entered into an employment contract with Contract Tours Manpower (Contact
Tours) and was assigned to work with petitioner bus company, ALPS Transportation.
Rodriguez alleged that he was dismissed from his employment on 27 January 2005, or the
day after the issuance of the last irregularity report. However, he did not receive any written
notice of termination. Rodriguez filed before the labor arbiter a complaint for illegal dismissal,
nonpayment of 13th month pay, and damages against ALPS Transportation and Alfredo
Perez, the proprietor of petitioner bus company. In response to the complaint, petitioners
stated that they did not have any prerogative to dismiss Rodriguez, as he was not their
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

employee, but that of Contact Tours. the labor arbiter dismissed the illegal dismissal complaint
for lack of merit. Rodriguez appealed the dismissal to the National Labor Relations
Commission (NLRC). On 28 February 2007, the NLRC set aside the decision of the labor
arbiter and entered a new one. In so concluding, the NLRC ruled that Contact Tours was a
labor-only contractor.
Thus, Rodriguez should be considered as a regular employee of ALPS Transportation.
Dissatisfied with the ruling of the NLRC, Rodriguez filed a Rule 65 Petition for Certiorari with
the CA. the CA concluded that the NLRC acted with grave abuse of discretion in rendering the
assailed decision. The appellate court ruled that, in termination cases, it is the employer who
bears the burden of proving that the employee was not illegally dismissed. Moreover, the CA
gave no credence to ALPS Transportation’s argument that Rodriguez had not yet been
terminated when he filed the illegal dismissal complaint, as he had not yet received any notice
of termination. The CA then ordered ALPS Transportation to reinstate Rodriguez and to pay
him full backwages.
Aggrieved by the appellate court’s decision, petitioners filed the instant Rule 45 Petition before
this Court.
ISSUES: Assuming that respondent was illegally dismissed, whether ALPS Transportation
and/or Alfredo E. Perez is liable for the dismissal.
RULING: Yes, ALPS Transportation and/or Alfredo E. Perez is liable for the dismissal. The CA
correctly ruled that since ALPS Transportation is a sole proprietorship owned by petitioner
Alfredo Perez, it is he who must be held liable for the payment of backwages to Rodriguez. A
sole proprietorship does not possess a juridical personality separate and distinct from that of
the owner of the enterprise. Thus, the owner has unlimited personal liability for all the debts
and obligations of the business, and it is against him that a decision for illegal dismissal is to
be enforced.
107 Avon v. CA, 29 August 1997
CA DOCTRINE:
The true test, however, seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized. The term ordinarily implies
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a continuity of commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of the functions normally incident to and in
progressive prosecution of the purpose and object of its organization.
FACTS: Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance
Co., Inc., several of its properties. Both contracts were covered by reinsurance treaties
between Worldwide Surety and Insurance and several foreign reinsurances company. The
reinsurance arrangements had been made through international broker C.J. Boatwright and
Co., Ltd. The properties therein insured were razed by fire, thereby giving rise to the obligation
of the insurer to indemnify the Yupangco Cotton Mills. Partial payments were made by
Worldwide Surety and Insurance. Worldwide Surety and Insurance, in a Deed of Assignment,
acknowledged a remaining balance of P19M still due and assigned to the latter all reinsurance
proceeds still collectible from all the foreign reinsurance companies.
Service of summons upon the reinsurance companies was made by notification to the
Insurance Commissioner. Yupangco Cotton Mills filed a complaint against several foreign
reinsurance companies to collect their alleged percentage liability under contract treaties
between the foreign insurance companies and the international insurance broker C.J.
Boatright. Inasmuch as the reinsurance companies are not engaged in business in the
Philippines with no offices, places of business or agents in the Philippines, the reinsurance
treaties having been entered abroad, service of summons upon motion of respondent
Yupangco, was made upon the reinsurance companies through the Office of the Insurance
Commissioner. The reinsurance companies, by counsel on special appearance, seasonably
filed motions to dismiss disputing the jurisdiction.
In a Petition for Certiorari before CA, the reinsurance companies submitted that respondent
Court has no jurisdiction over them, being all foreign corporations not doing business in the
Philippines with no office, place of business or agents in the Philippines.
ISSUE: Whether or not the reinsurance companies were determined to be “doing business in
the Philippines” or not?
RULING: The true test, however, seems to be whether the foreign corporation is continuing
the body or substance of the business or enterprise for which it was organized.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

There is no exact rule or governing principle as to what constitutes doing or engaging in or
transacting business. Indeed, such case must be judged in the light of its peculiar
circumstances, upon its peculiar facts and upon the language of the statute applicable. The
true test, however, seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized
The term ordinarily implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of the functions
normally incident to and in progressive prosecution of the purpose and object of its
organization.
A single act or transaction made in the Philippines, however, could qualify a foreign
corporation to be doing business in the Philippines, if such singular act is not merely incidental
or casual. (Far East International Import and Export Corporation vs. Nankai Kogyo Co.)
Yupangco Cotton has made no allegation or demonstration of the existence of the reinsurance
companies’ domestic agent, but avers simply that they are doing business not only abroad but
in the Philippines as well. It does not appear at all that the reinsurance companies had
performed any act which would give the general public the impression that it had been
engaging, or intends to engage in its ordinary and usual
business undertakings in the country.
The reinsurance treaties between the reinsurance companies and Worldwide Surety and
Insurance were made through an international insurance broker, and not through any entity or
means remotely connected with the Philippines.
108 San Jose Petroleum v. CA, 18 S 591
FACTS: In 1956, San Jose Petroleum, Inc. (SJP), a mining corporation organized under the
laws of Panama, was allowed by the Securities and Exchange Commission (SEC) to sell its
shares of stocks in the Philippines. Apparently, the proceeds of such sale shall be invested in
San Jose Oil Company, Inc. (SJO), a domestic mining corporation. Pedro Palting
opposed the authorization granted to SJP because said tie up between SJP and SJO
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is violative of the constitution; that SJO is 90% owned by SJP; that the other 10% is owned by
another foreign corporation; that a mining corporation cannot be interested in another mining
corporation. SJP on the other hand invoked that under the parity rights agreement (Laurel-
Langley Agreement), SJP, a foreign corporation, is allowed to invest in a domestic corporation.
ISSUE: Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, and
SAN JOSE OIL COMPANY, INC., is violative of the Constitution, the Laurel-Langley
Agreement, the Petroleum Act of 1949.
RULING: Yes. In the 1946 Ordinance Appended to the Constitution, this right was extended to
citizens of the United States; states that to all forms of business enterprises owned or
controlled, directly or indirectly, by citizens of the United States in the same manner as to, and
under the same conditions imposed upon, citizens of the Philippines or corporations or
associations owned or controlled by citizens of the Philippines, would have the privilege of
disposition, exploitation, development, and utilization of all Philippine natural resources.
However, respondent is owned, controlled, directly and indirectly by Panamanian Corporation.
The Laurel-Langley Agreement also states that with respect to natural resources in the public
domain in the Philippines, only through the medium of a corporation organized under the laws
of the Philippines and at least 60% of the capital stock of which is owned or controlled by
citizens of the United States.
Although it was claimed that the corporation has stockholders residing in United States, there
was no indication if they are all citizens of America, how much percentage do they occupy as
stockholders, and if they have the same rules that apply to the conditions mentioned. In the
circumstances, the court ruled that the respondent SAN JOSE PETROLEUM, as presently
constituted, is not a business enterprise that is authorized to exercise the parity privileges
under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up
with SAN JOSE OIL is, consequently, illegal.
The parity rights agreement is not applicable to SJP. The parity rights are only granted to
American business enterprises or enterprises directly or indirectly controlled by US citizens.
SJP is a Panamanian corporate citizen. The other owners of SJO are Venezuelan
corporations, not Americans. SJP was not able to show contrary evidence. Further, the
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Supreme Court emphasized that the stocks of these corporations are being traded in stocks
exchanges abroad which renders their foreign ownership subject to change from time to time.
This fact renders a practical impossibility to meet the requirements under the parity rights.
Hence, the tie up between SJP and SJO is illegal, SJP not being a domestic corporation or an
American business enterprise contemplated under the Laurel-Langley Agreement.
109 GMBH and Co. v. Isnani, 235 S 216
FACTS: Petitioner is a multinational company licensed to operate in PHL. Private respondent
Romana Lanchinebre was a sales representative of petitioner from 1983 to mid-1992. On
3/12/ 1992 she secured a loan of PHP 25K from petitioner. On 3/26/1992 and 6/10/1992
Lanchinebre made additional cash advances totaling PHP10K. Of the total amount, PHP
12,170.73 remained unpaid. Despite demand, private respondent Lanchinebre failed to pay.
On 7/22/1992 Lanchinebre filed with the RAB of NLRC Manila a complaint for illegal
suspension, dismissal and non-payment of commissions against petitioner. On 8/18/1992
petitioner filed against private respondent a complaint for damages amounting to PHP 120K
also with the AB NLRC Manila. The two cases were consolidated.
On 9/2/1992 petitioner filed a complaint for collection of sum of money against private
respondents Romana and Teofilo Lanchinebre and raffled to the sala of respondent Judge
Isnani. Instead of filing an answer, private respondents moved to dismiss the complaint.
On 12/21/1992, a motion to dismiss was granted. Motion for Reconsideration by petitioner was
denied.
ISSUE: Whether or not the petitioner does not have capacity to sue in the Philippines.
RULING: No. The trial court erred in holding that petitioner does not have capacity to sue in
the Philippines. It is clear that petitioner is a foreign corporation doing business in the
Philippines. Petitioner is covered by the Omnibus Investment Code of 1987.
There is no general rule or governing principle as to what constitutes “doing” or “engaging in”
or “transacting” business in the Philippines. Each case must be judged in the light of its
peculiar circumstances. In the case at bench, petitioner does not engage in commercial
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dealings or activities in the country because it is precluded from doing so by P.D. No. 218,
under which it was established. Nonetheless, it has been continuously, since 1983, acting as
a supervision, communications and coordination center for its home office’s affiliates in
Singapore, and in the process has named its local agent and has employed Philippine
nationals like private respondent Romana Lanchinebre. From this uninterrupted performance
by petitioner of acts pursuant to its primary purposes and functions as a regional/area
headquarters for its home office, it is clear that petitioner is doing business in the country.
Moreover, private respondents are estopped from assailing the personality of petitioner. So we
held in Merrill Lynch Futures, Inc. vs. Court of Appeals, 211 SCRA 824, 837, (1992): “The rule
is that a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the ‘doctrine of estoppel to
deny corporate existence applies to foreign as well as to domestic corporations;’ ‘one who has
dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate
existence and capacity.’ The principle ‘will be applied to prevent a person contracting with a
foreign corporation from later taking advantage of its noncompliance with the statutes chiefly in
cases where such person has received the benefits of the contract.”
110 New York Marine Managers v. CA, 249 S 417
FACTS: NEW YORK MARINE MANAGERS, INC., a foreign corporation organized under the
laws of the United States, seeks in this special civil action for certiorari under Rule 65 of the
Rules of Court1 the annulment of the decision of the Court of Appeals which reversed the
ruling of the trial court denying the motion to dismiss of private respondent Vlasons Shipping
Company, Inc.
On 25 July 1990 American Natural Soda Ash Corporation (ANSAC) loaded in Portland, U.S.A.,
a shipment of soda ash on board the vessel " MS Abu Hanna" for delivery to Manila. The
supplier/shipper insured the shipment with petitioner. Upon arrival in Manila the shipment was
unloaded and transferred to the vessel "MV Biyayang Ginto" owned by private respondent.
Since the shipment allegedly sustained wettage, hardening and contamination, it was rejected
as total loss by the consignees. When the supplier sought to recover the value of the cargo
loss from petitioner the latter paid the claim in the amount of US$58,323.96.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

On 20 November 1991 petitioner as subrogee filed with the Regional Trial Court of Manila a
complaint for damages against private respondent alleging among others that —
. . . 1.01. Plaintiff is a non-life foreign insurance corporation organized under the laws
of the State of New York with offices at 123 William Street, New York, N.Y. 10038
and engaged in an isolated transaction in this case; defendant is a local domestic
corporation organized under Philippine law with offices at Zobel Street, Isla de
Provisor, Paco, Metro Manila where it may be served with summons and other court
processes.
On 24 January 1992 private respondent filed a motion to dismiss the complaint alleging that:
(a) The complaint was filed by counsel who had no authority to sue for plaintiff; (b) The
complaint stated no cause of action or without a cause of action as (a) there was no privity of
contract between plaintiff and defendant; (b) the risks which allegedly caused damages on the
goods were not covered by the insurance issued by plaintiff, and (c) the charter agreement
between the consignee, ALCHEMCO PHILIPPINES, INC., and private respondent absolved
the latter from all kinds of claim whatsoever; (3) The claim of plaintiff was already extinguished,
waived, abandoned and/or had prescribed; and, (4) Plaintiff had no legal capacity to sue.
On 5 February 1992 petitioner opposed the motion to dismiss. On 10 April 1992 the trial court
denied the motion. On 18 August 1992 the motion to reconsider the denial was also denied.
The trial court ruled that since petitioner alleged in its complaint that it was suing on an isolated
transaction the qualifying circumstance of plaintiff's capacity to sue as an essential element
has been properly pleaded. The trial court also held that the grounds relied upon by private
respondent in its motion to dismiss were matters of defense.
On 28 September 1992 private respondent filed a petition for certiorari and prohibition with the
Court of Appeals alleging that the trial court gravely abused its discretion in issuing the orders
of 10 April 1992 and 18 August 1992 which amounted to lack or excess of jurisdiction.
On 29 July 1993 the appellate court granted the petition after finding the assailed orders to be
patently erroneous. While it found the allegation in the complaint that plaintiff was a non-life
foreign insurance corporation engaged in an isolated transaction to be a sufficient averment, it
nevertheless held the complaint to be fatally defective for failure to allege the duly authorized
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representative or resident agent of petitioner in the Philippines. Thus it enjoined the trial court
from further proceeding except to dismiss the case with prejudice.
ISSUE: Whether a foreign corporation can seek the aid of Philippine courts for relief.
RULING: A foreign corporation not engaged in business in the Philippines may exercise the
right to file an action in Philippine courts for an isolated transaction. However,
in Commissioner of Customs v. K.M.K. Gani et a1., citing Atlantic Mutual Insurance Company
v. Cebu Stevedoring, Inc., we ruled that to say merely that a foreign corporation not doing
business in the Philippines does not need a license in order to sue in our courts does not
completely resolve the issue. When the allegations in the complaint have a bearing on the
plaintiff's capacity to sue and merely state that the plaintiff is a foreign corporation existing
under the laws of the United States, such averment conjures two alternative possibilities: either
the corporation is engaged in business in the Philippines, or it is not so engaged. In the first,
the corporation must have been duly licensed in order to maintain the suit; in the second, and
the transaction sued upon is singular and isolated, no such license is required. In either case,
compliance with the requirement of license, or the fact that the suing corporation is exempt
therefrom, as the case may be, cannot be inferred from the mere fact that the party suing is a
foreign corporation.
The qualifying circumstance being an essential part of the plaintiff's capacity to sue must be
affirmatively pleaded. Hence, the ultimate fact that a foreign corporation is not doing business
in the Philippines must first be disclosed for it to be allowed to sue in Philippine courts under
the isolated transaction rule. Failing in this requirement, the complaint filed by petitioner with
the trial court, it must be said, fails to show its legal capacity to sue.
Petitioner's complaint is fatally defective for failing to allege its duly authorized representative
or resident agent in this jurisdiction. The pleadings filed by counsel for petitioner do not suffice.
True, a lawyer is generally presumed to be properly authorized to represent any cause in
which he appears, and no written power of attorney is required to authorize him to appear in
court for his client. But this presumption is disputable. Where said authority has been
challenged or attacked by the adverse party the lawyer is required to show proof of such
authority or representation in order to bind his client. The requirement of the production of
authority is essential because the client will be bound by his acquiescence resulting from his
knowledge that he was being represented by said attorney.
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In the instant case, the extent of authority of counsel for petitioner has been expressly and
continuously assailed but he has failed to show competent proof that he was indeed duly
authorized to represent petitioner.
111 Aetna Casualty v. Pacific Star, 29 December 1977
FACTS: On February 11, 1963, Smith Bell & Co. (Philippines), Inc. and Aetna Surety Casualty
& Surety Co. Inc., as subrogee, instituted Civil Case No. 53074 in the Court of First Instance
of Manila against Pacific Star Line, The Bradman Co. Inc., Manila Port Service and/or Manila
Railroad Company, Inc. to recover the amount of US $2,300.00 representing the value of the
stolen and damaged cargo plus litigation expenses and exemplary damages in the amounts of
P1,000.00 and P2,000.00, respectively, with legal interest thereon from the filing of the suit
and costs.
Pacific Star Line, as a common carrier, was operating the vessel SS Ampal on a commercial
run between United States and Philippine Ports including Manila; that the defendant, The
Bradman Co. Inc., was the ship agent in the Philippines for the SS Ampal and/or Pacific Star
Line; that the Manila Railroad Co. Inc. and Manila Port Service were the arrastre operators in
the port of Manila and were authorized to delivery cargoes discharged into their custody on
presentation of release papers from the Bureau of Customs and the steamship carrier and/or
its agents.
December 2, 1961, the SS Ampal took on board a consignment or cargo including 33
packages of Linen & Cotton Piece Goods for shipment to Manila for which Pacific Star Line
issued Bill of Lading No. 18 in the name of I. Shalom & Co., Inc., as shipper, consigned to the
order of Judy Philippines, Inc., Manila;
SS Ampal arrived in Manila on February 10, 1962 and in due course, discharged her cargo
into the custody of Manila Port Service; that due to the negligence of the defendants, the
shipment sustained damages valued at US $2,300.00 representing pilferage and seawater
damage;
Shalom & Co., Inc. immediately filed claim for the undelivered land damaged cargo with
defendant Pacific Star Line in New York, N.Y., but said defendant refused and still refuses to
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pay the said claim; that the cargo was insured by I. Shalom & Co., Inc. with plaintiff Aetna
Casualty & Surety Company for loss and/or damage; that upon demand, plaintiff Aetna
Casualty & Surety Company indemnified I. Shalom & Co., Inc. the amount of US $2,300.00;
that in addition to this, the plaintiffs had obligated themselves to pay attorney's fees and they
further anticipated incurring litigation expenses which may be assessed at P1,000.00;
Plaintiffs and/or their predecessor-in-interest sustained losses due to the negligence of Pacific
Star Line prior to delivery of the cargo to Manila or, in the alternative, due to the negligence of
Manila Port Service after delivery of the cargo to it by the SS Ampal; that despite repeated
demands, none of the defendants has been willing to accept liability for the claim of the
plaintiffs and/or I. Shalom & Co., Inc.; and that by reason of defendants' evident bad faith,
they should consequently be liable to pay exemplary damages in the amount of P2,000.00
RTC: DISMISSED THE COMPLAINT. "There has been a ruling that foreign corporation may
file a suit in the Philippines in isolated cases. But the case of the plaintiff here is not that. The
evidence shows that the plaintiff has been filing actions in the Philippines not just in isolated
instances, but in numerous cases and therefore, has been doing business in this country,
contrary to Philippine laws.'
ISSUE: Whether or not the appellant, Aetna Casualty & Surety Company, has been doing
business in the Philippines. It is a fact that said appellant has no license to transact business
in the Philippines as a foreign corporation.
RULING: Appellant Aetna Casualty & Surety Company is not engaged in the business of
insurance in the Philippines but is merely collecting a claim assigned to it by the consignee, it
is not barred from filing the instant case although it has not secured a license to transact
insurance business in the Philippines. Section 68 of the Corporation Law provides that "No
foreign corporation or corporation formed, organized, or existing under any laws other than
those of the Philippines shall be permitted to transact business in the Philippines until after it
shall have obtained a license for that purpose from the Securities and Exchange
Commissioners Section 69 of said Corporation Law "No foreign corporation or corporation
formed, organized, or existing under any laws other than those of the Philippines shall be
permitted to transact business in the Philippines or maintain by itself or assignee any suit for
the recovery of any debt, claim, or demand whatever, unless it shall have the license
prescribed in the section immediately preceding. It is settled that if a foreign corporation is not
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engaged in business in the Philippines, it may not be denied the right to file an action in
Philippine courts for isolated transactions.
The object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign
corporation from performing single acts, but to prevent it from acquiring a domicile for the
purpose of business without taking the steps necessary to render it amenable to suit in the
local courts. It was never the purpose of the Legislature to exclude a foreign corporation
which happens to obtain an isolated order for business from the Philippines, from securing
redress in the Philippine courts.
112 Bulakhidas v. Navarro, 7 April 1986
FACTS: Petitioner, a foreign partnership, filed a complaint against a domestic corporation,
Diamond Shipping Corporation, before the Court of First Instance of Rizal for the recovery of
damages allegedly caused by the failure of the said shipping corporation to deliver the goods
shipped to it by petitioner to their proper destination. Paragraph 1 of said complaint alleged
that plaintiff is "a foreign partnership firm not doing business in the Philippines" and that it is
"suing under an isolated transaction." Defendant filed a motion to dismiss the complaint on the
ground that plaintiff has no capacity to sue and that the complaint does not state a valid cause
of action against defendant.
Acting on said motion to dismiss, the CFI dismissed the complaint on the ground that plaintiff
being "a foreign corporation or partnership not doing business in the Philippines it cannot
exercise the right to maintain suits before our Courts."
Hence, this petition.
ISSUE: Whether or not a foreign corporation “not engaged in business in the Philippines” can
institute an action before Philippine courts.
RULING: In Aetna Casualty and Surety Co. vs. Pacific Star Lines, 80 SCRA 635 , a case
similar to the case at bar, the SC said:
It is settled that if a foreign corporation is not engaged in business in the Philippines, it may not
be denied the right to file an action in Philippine courts for isolated transactions. The object of
Sections 68 and 69 of the Corporation law was not to prevent the foreign corporation from
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performing single acts, but to prevent it from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to suit in the local courts. It was
never the purpose of the Legislature to exclude a foreign corporation which happens to obtain
an isolated order for business from the Philippines, from securing redress in the Philippine
courts.
In Mentholatum Co. Inc. et al. vs. Mangaliman, et al. , this Court ruled that: No general rule or
governing principle can be laid down as to what constitutes 'doing' or 'engaging' in or
'transacting' business. Indeed, each case must be judged in the light of its peculiar
environmental circumstances. The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to another. The term
implies a continuity of commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some of the functions normally
incident to, and in progressive prosecution of, the purpose and object of its organization.
And in Eastboard Navigation, Ltd. et al vs. Juan Ysmael & Co., Inc., this Court held that:
(d) While plaintiff is a foreign corporation without license to transact business in the
Philippines, it does not follow that it has no capacity to bring the present action. Such
license is not necessary because it is not engaged in business in the Philippines. In
fact, the transaction herein involved is the first business undertaken by plaintiff in the
Philippines, although on a previous occasion plaintiff's vessel was chartered by the
National Rice and Corn Corporation to carry rice cargo from abroad to the
Philippines. These two isolated transactions do not constitute engaging in business in
the Philippines within the purview of Sections 68 and 69 of the Corporation Law so as
to bar plaintiff from seeking redress in our courts.
Again, in Facilities Management Corporation vs. De la Osa 89 SCRA 131, 139 , following
Aetna Casualty & Surety Co. vs. Pacific Star Line , supra, held a foreign corporation not
engaged in business in the Philippines is not barred from seeking redress from the courts of
the Philippines.
Thus, the case of Atlantic Mutual Insurance Co. vs. Cebu Stevedoring Co., 17 SCRA 1037,
cited by respondent, finds no application to the case at bar. It must be observed in the Atlantic
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case that there was no allegation in the complaint that the two foreign corporations involved
therein were not engaged in business in the Philippines. All that was averred in the complaint
was that they were both foreign corporations existing under the laws of the United States.
Thus, the qualifying circumstance of the said foreign corporations' capacity to sue is wanting.
Contrary to the Atlantic case, the complaint filed by petitioner herein sufficiently alleged that it
is a foreign partnership (or corporation) not engaged in business in the Philippines and that it
was suing under an isolated transaction.
113 Schmid and Oberly v. RJL, 18 October 1988
FACTS: RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ
needed electric generators for some of its boats and SCHMIID sold electric generators of
different brands, negotiations between them for the acquisition thereof took place. The parties
had two separate transactions over "Nagata"-brand generators.The first transaction was the
sale of three (3) generators. In this transaction, it is not disputed that SCHMID was the vendor
of the generators. The company supplied the generators from its stockroom; it was also
SCHMID which invoiced the sale.
The second transaction, which gave rise to the present controversy, involves twelve (12)
"Nagata"-brand generators. As RJL MARTINEZ was canvassing for generators, SC gave RJL
MARTINEZ its Quotation dated August 19, 1975 [Exhibit 'A"] for twelve (12) "Nagata'-brand
generators with the specifications "NAGATA" Single phase AC Alternators, 110/220 V, 60
cycles, 1800 rpm, unity power factor, rectifier type and radio suppressor,, 5KVA (5KW)
$546.75.
It was stipulated that payment would be made by confirming an irrevocable letter of credit in
favor of NAGATA CO. Furthermore, among the General Conditions of Sale appearing on the
dorsal side of the Quotation. Agreeing with the terms of the Quotation, RJL MARTINEZ
opened a letter of credit in favor of NAGATA CO. Accordingly, on November 20,1975,
SCHMID transmitted to NAGATA CO. an order for the twelve (12) generators to be shipped
directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of lading and
its own invoice and, in accordance with the order, shipped the generators directly to RJL
MARTINEZ. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of
twelve sets was bought by order and for account risk of Messrs. RJL Martinez Fishing
Corporation.
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For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of
the twelve generators to RJL MARTINEZ. All fifteen (15) generators subject of the two
transactions burned out after continuous use. RJL MARTINEZ informed SCHMID about this
development. In turn, SCHMID brought the matter to the attention of NAGATA CO. In July
1976, NAGATA CO. sent two technical representatives who made an ocular inspection and
conducted tests on some of the burned out generators, which by then had been delivered to
the premises of SCHMID.
The tests revealed that the generators were overrated. As indicated both in the quotation and
in the invoice, the capacity of a generator was supposed to be 5 KVA (kilovolt amperes).
However, it turned out that the actual capacity was only 4 KVA. SCHMID replaced the three (3)
generators subject of the first sale with generators of a different brand.
As for the twelve (12) generators subject of the second transaction, the Japanese technicians
advised RJL MARTINEZ to ship three (3) generators to Japan, which the company did. These
three (3) generators were repaired by NAGATA CO. itself and thereafter returned to RJL
MARTINEZ; the remaining nine (9) were neither repaired nor replaced. NAGATA CO.,
however, wrote SCHMID suggesting that the latter check the generators, request for spare
parts for replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim
including the labor cost for repairs. In its reply letter, SCHMID indicated that it was not
agreeable to these terms.
As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded
that it be refunded the cost of the generators and paid damages. SCHMID in its reply
maintained that it was not the seller of the twelve (12) generators and thus refused to refund
the purchase price therefore. Hence, RJL MARTINEZ brought suit against SCHMID on the
theory that the latter was the vendor of the twelve (12) generators and, as such vendor, was
liable under its warranty against hidden defects.
ISSUE: Whether the transaction between the parties was a sale or an indent transaction.
RULING: There is no statutory definition of "indent" in this jurisdiction. However, the Rules and
Regulations to Implement Presidential Decree No. 1789 (the Omnibus Investments Code)
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lumps "indentors" together with "commercial brokers" and "commission merchants" in this
manner:
...A foreign firm which does business through the middlemen acting in their own
names, such as indentors, commercial brokers or commission merchants, shall not
be deemed doing business in the Philippines. But such indentors, commercial brokers
or commission merchants shall be the ones deemed to be doing business in the
Philippines [Part I, Rule I, Section 1, par. g (1).]
Therefore, an indentor is a middlemen in the same class as commercial brokers and
commission merchants. Webster defines an indent as "a purchase order for goods especially
when sent from a foreign country." It would appear that there are three parties to an indent
transaction, namely, the buyer, the indentor, and the supplier who is usually a non-resident
manufacturer residing in the country where the goods are to be bought [Commissioner of
Internal Revenue v. Cadwallader Pacific Company, G.R. No. L-20343, September 29, 1976,
73 SCRA 59.] An indentor may therefore be best described as one who, for compensation,
acts as a middleman in bringing about a purchase and sale of goods between a foreign
supplier and a local purchaser. In the case at bar, the admissions of the parties and the facts
appearing on record more than suffice to warrant the conclusion that SCHMID was not a
vendor, but was merely an indentor, in the questioned transaction.
It is argued that if SCHMID is considered as a mere agent of NAGATA CO., a foreign
corporation not licensed to do business in the Philippines, then the officers and employees of
the former may be penalized for violation of the old Corporation Law which provided:
Sec. 69 ... Any officer or agent of the corporation or any person transacting business
for any foreign corporation not having the license prescribed shall be punished by
imprisonment for not less than six months nor more than two years or by a fine 'of not
less than two hundred pesos nor more than one thousand pesos or both such
imprisonment and fine, in the discretion of the Court.
The afore-quoted penal provision in the Corporation Law finds no application to SCHMID and
its officers and employees relative to the transactions in the instant case. What the law seeks
to prevent, through said provision, is the circumvention by foreign corporations of licensing
requirements through the device of employing local representatives. An indentor, acting in his
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own name, is not, however, covered by the above-quoted provision. In fact, the provision of
the Rules and Regulations implementing the Omnibus Investments Code quoted above, which
was copied from the Rules implementing Republic Act No. 5455, recognizes the distinct role of
an indentor, such that when a foreign corporation does business through such indentor, the
foreign corporation is not deemed doing business in the Philippines.
Not being the vendor, SCHMID cannot be held liable for the implied warranty for hidden
defects under the Civil Code [Art. 1561, et seq.]
114 Air Canada v. CIR, G.R. NO. 169507, January 11, 2016
FACTS: Air Canada is a foreign corporation organized and existing under the laws of Canada.
On April 24, 2000, it was granted an authority to operate as an offline carrier by the Civil
Aeronautics Board, subject to certain conditions, which authority would expire on April 24,
2005. As an offline carrier, Air Canada does not have flights originating from or coming to the
Philippines and does not operate any airplane in the Philippines.
On July 1, 1999, Air Canada engaged the services of Aerotel Ltd., Corp. (Aerotel) as its
general sales agent in the Philippines. Aerotel sells Air Canada's passage documents in the
Philippines.
For the period ranging from the third quarter of 2000 to the second quarter of 2002, Air
Canada, through Aerotel, filed quarterly and annual income tax returns and paid the income
tax on Gross Philippine Billings in the total amount of P5, 185,676.77
On November 28, 2002, Air Canada filed a written claim for refund of alleged erroneously paid
income taxes amounting to P5,185,676.77 before the Burcau of Internal Revenue (BIR). It's
basis was found in the revised definition of Gross Philippine Billings under Section 28(A)(3)(a)
of the 1997 National Internal Revenue Code (NIRC) The CTA denied the petition. It found that
Air Canada was engaged in business in the Philippines through a local agent that sells airline
tickets on its behalf. As such, it held that while Air Canada was not liable for tax on its Gross
Philippine Billings under Section 28(A)(3), it was nevertheless liable to pay the 32% corporate
income tax on income derived from the sale of airline tickets within the Philippines pursuant
to Section 28(A)(1). On appeal, the CTA En Banc affirmed the ruling of the CTA First Division.
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ISSUES: Whether Air Canada is a resident foreign corporation engaged in trade or business
and thus, can be subject to the regular corporate income tax of 32% pursuant to Section 28(A)
(1).
RULING: YES. Petitioner falls within the definition of resident foreign corporation under
Section 28(A)(1), thus, it may be subject to 32% tax on its taxable income.
The Court in Commissioner of Internal Revenue v. British Overseas Airways Corporation
declared British Overseas Airways Corporation, an international air carrier with no landing
rights in the Philippines, as a resident foreign corporation engaged in business in the
Philippines through its local sales agent that sold and issued tickets for the airline company.
According to said case, there is no specific criterion as to what constitutes “doing or "engaging
in" or transacting" business. Each case must be judged in the light of its peculiar
environmental circumstances. The term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive prosecution of
commercial gain or for the purpose and object of the business organization.
An offline carrier is "any foreign air carrier not certificated by the Civil Aeronautics Board, but
who maintains office or who has designated or appointed agents or employees in the
Philippines, who sells or offers for sale any air transportation in behalf of said Foreign air
carrier and/or others, or negotiate for, or holds itself out by solicitation, advertisement, or
otherwise sells, provides, furnishes, contracts, or arranges for such transportation.”
Petitioner is undoubtedly "doing business" or "engaged in trade or business" in the
Philippines. In the case at hand, Acrotel performs acts or works or exercises functions that are
incidental and beneficial to the purpose of petitioner's business. The activities of Aerotel bring
direct receipts or profits to petitioner. Further, petitioner was issued by the Civil Aeronautics
Board an authority to operate as an offline carrier in the Philippines for a period of five years.
Petitioner is, therefore, a resident foreign corporation that is taxable on its income derived
from sources within the Philippines.
115 Steelcase, Inc. v. Design International, 18 April 2012
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FACTS: Petitioner Steelcase, Inc. (Steelcase) is a foreign corporation existing under the laws
of Michigan, United States of America (U.S.A.), and engaged in the manufacture of office
furniture with dealers worldwide.3 Respondent Design International Selections, Inc. (DISI) is a
corporation existing under Philippine Laws and engaged in the furniture business, including the
distribution of furniture.
Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement
whereby Steelcase granted DISI the right to market, sell, distribute, install, and service its
products to end-user customers within the Philippines. The business relationship continued
smoothly until it was terminated sometime in January 1999 after the agreement was breached
with neither party admitting any fault.
DISI alleged on Steelcase’s capacity to sue in the Philippines despite the fact that it
(Steelcase) was doing business in the Philippines without the required license to do so.
Consequently, it posited that the complaint should be dismissed because of Steelcase’s lack of
legal capacity to sue in Philippine courts.
ISSUE: Whether or not Steelcase is doing business in the Philippines without a license.
RULING: Steelcase is an unlicensed foreign corporation NOT doing business in the
Philippines.
The rule that an unlicensed foreign corporations doing business in the Philippine do not have
the capacity to sue before the local courts is well-established. Section 133 of the Corporation
Code of the Philippines explicitly states:
Sec. 133. Doing business without a license.—No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.
The appointment of a distributor in the Philippines is not sufficient to constitute “doing
business” unless it is under the full control of the foreign corporation. On the other hand, if the
distributor is an independent entity which buys and distributes products, other than those of the
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foreign corporation, for its own name and its own account, the latter cannot be considered to
be doing business in the Philippines. It should be kept in mind that the determination of
whether a foreign corporation is doing business in the Philippines must be judged in light of the
attendant circumstances.
It is undisputed that DISI was founded in 1979 and is independently owned and managed by
the spouses Leandro and Josephine Bantug. In addition to Steelcase products, DISI also
distributed products of other companies including carpet tiles, relocatable walls and theater
settings.
This clearly belies DISI’s assertion that it was a mere conduit through which Steelcase
conducted its business in the country. From the preceding facts, the only reasonable
conclusion that can be reached is that DISI was an independent contractor, distributing various
products of Steelcase and of other companies, acting in its own name and for its own account.
DISI was an independent contractor which sold Steelcase products in its own name and for its
own account. As a result, Steelcase cannot be considered to be doing business in the
Philippines by its act of appointing a distributor as it falls under one of the exceptions under
R.A. No. 7042.
116 PDIC v. Citibank, 11 April 2012
FACTS: PDIC is created under RA 3591 as amended by RA 9302. Citibank is a banking
corporation while Bank of America (BA) is a national banking association, both of which are
organized under the US and are licensed to do business in the Philippines. PDIC conducted
an examination of the books of account of Citibank and BA. The examination revealed that
Citibank received from its head office a total of P11,923,163,908 in dollars, while BA received
from its head office a total of P629,311,869 in dollars.
According to PDIC, the amounts received by the two banks were not reported as deposit
liabilities; hence, they were subject to assessment for insurance. Citibank was then assessed
for deficiency worth P1,595,081, while BA was assessed for deficiency premium worth
P109,264.
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This prompted both banks to file a petition for declaratory relief before the CFI on the ground
that the money they received from the head office were not deposits and it did not give rise to
insurable deposit liabilities as claimed by PDIC. RTC: Ruled in favor of Citibank and BA. The
subject money placements were not deposits and did not give rise to insurable deposit
liabilities, and that the deficiency assessments issued by PDIC were improper and erroneous.
Citibank and BA were not liable.
The money placements were not assessable for insurance purposes because they were
deposits made outside of the Philippines are therefore excluded from the computation of
liabilities under the PDIC Charter. Furthermore, there was no depositor-depository relationship
between respondents and their head office. Such deposits were considered as inter-branch
deposits which were excluded from assessment in accordance with the practice of the US
Federal Deposit after which PDIC was patterned.
CA: Affirmed the RTC. (1) The money were received as part of the bank’s internal dealings.
The head office and the Philippine branch were the same entity and thus no bank deposit
could have arisen because there did not exist two separate contracting parties to act as
depositor and depositary; (2) the purpose of PDIC is to protect the deposits of depositors and
not the deposits of the same bank through its head office or foreign branches; (3) no law or
jurisprudence on the treatment of inter-branch deposits for purposes of insurance; and (4)
according to the PDIC Charter, obligations payable at the office of the bank located outside
the Philippines is excluded from the definition of a deposit or an insured deposit.
ISSUES: Whether or not the money placed in the Philippine branch by the head office and
foreign branches of Citibank and BA are insurable deposits under the PDIC Charter and are
subject to assessment.
RULING: A branch has no separate legal personality. This Court is of the opinion that the key
to the resolution of this controversy is the relationship of the Philippine branches of Citibank
and BA to their respective head offices and their other foreign branches. The Court explain
how a foreign corporation can establish its presence in the Philippines:
1. Incorporate its own subsidiary as a domestic corporation wherein it would have its
separate and independent legal personality;
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2. Create a branch which would not be a legally independent unit and simply obtain a
license to do business.
In this case, Citibank and BA both did not incorporate a separate domestic corporation. They
are mere branches without separate legal personality from their parent company. Thus, being
one and the same entity, the funds placed by the respondents in their respective branches in
the Philippines should not be treated as deposits made by third parties subject to deposit
insurance under the PDIC Charter. PDIC must be reminded of the purpose for its creation
under the law. The purpose of the PDIC is to protect the depositing public in the event of a
bank closure. It has already been sufficiently established by US jurisprudence and Philippine
statutes that the head office shall answer for the liabilities of its branch.
Finally, the Court agrees with the CA ruling that there is nothing in the definition of a "bank"
and a "banking institution" in Section 3 (b) of the PDIC Charter which explicitly states that the
head office of a foreign bank and its other branches are separate and distinct from their
Philippine branches. Based on the foregoing, it is clear that the head office of a bank and its
branches are considered as one under the eyes of the law. While branches are treated
as separate business units for commercial and financial reporting purposes, in the end, the
head office remains responsible and answerable for the liabilities of its branches which are
under its supervision and control.
As such, it is unreasonable for PDIC to require the respondents, Citibank and BA, to insure
the money placements made by their home office and other branches. Furthermore, the funds
in question are not a deposit under the definition of PDIC charter. PDIC avers that the funds
are dollar deposits and not money placements. Citing R.A. No. 6848, it defines money
placement as a deposit which is received with authority to invest. However, as explained by
the respondents, the transfer of funds, which resulted from the inter branch transactions, took
place in the books of account of the respective branches in their head office located in the
United States. Hence, because it is payable outside of the Philippines, it is not considered a
deposit pursuant to Section 3 (f) of the PDIC Charter. The petition is denied.
117 Cargill, Inc. v. Intra Strata, 15 March 2010
FACTS: Cargill, Inc. is a corporation organized and existing under the laws of the State of
Delaware, United States of America. Cargill executed a contract with Northern Mindanao
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Corporation (NMC) (domestic), whereby NMC agreed to sell to petitioner 20,000 to 24,000
metric tons of molasses to be delivered from Jan 1 to 30, 1990 for $44 per metric ton.
The contract provided that CARGILL was to open a Letter of Credit with the BPI. NMC was
permitted to draw up $500,000 representing the minimum price of the contract upon
presentation of some documents The contract was amended 3 times (in relation to the amount
and the price). But the third amendment required NMC to put up a performance bond which
was intended to guarantee NMC's performance to deliver the molasses during the prescribed
shipment periods.
In compliance, INTRA STRATA Assurance Corporation (respondent) issued a performance
bond to guarantee NMC's delivery. NMC was only able to deliver 219.551 metric tons out of
the agreed 10,500. Thus CARGILL sent demand letters to INTRA claiming payment under the
performance and surety bonds. When INTRA failed to pay, CARGILL filed a complaint.
CARGILL NMC and INTRA entered into a compromise agreement approved by the court, such
provided that NMC would pay CARGILL 3 million upon signing and would deliver to CARGILL
6,991 metric tons of molasses. But NMC still failed to comply.
The RTC ruled in favor of CARGILL
While the CA ruled that CARGILL does not have capacity to file suit since it was a foreign
corporation doing business in the PH without the requisite license. The purchases of molasses
were in pursuance of its basic business and not just mere isolated and incidental transactions.
ISSUES: 1. Whether or not petitioner is doing or transacting business in the Philippines in
contemplation of the law and established jurisprudence.
2. Whether or not CARGILL, an unlicensed foreign corporation, has legal capacity to sue
before Philippine courts.
RULING: A foreign company that merely imports goods from a Philippine exporter, without
opening an office or appointing an agent in the Philippines, is not doing business in the
Philippines. Since the contract between petitioner and NMC involved the purchase of
molasses by petitioner from NMC, it was NMC, the domestic corporation which derived income
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Saint Louis University

from the transaction and not petitioner. To constitute “doing business,” the activity undertaken
in the Philippines should involve profit making.
A foreign company that merely imports goods from a Philippine exporter, without opening an
office or appointing an agent in the Philippines, is not doing business in the Philippines. Since
the contract between petitioner and NMC involved the purchase of molasses by petitioner from
NMC, it was NMC, the domestic corporation, which derived income from the transaction and
not petitioner. To constitute "doing business," the activity undertaken in the Philippines should
involve profit-making.
118 Sehwani v. In and Out Burger, 536 S 225
FACTS: Respondent IN-N-OUT Burger, Inc., a foreign corporation organized under the laws of
California, U.S.A., and not doing business in the Philippines, filed before the Bureau of Legal
Affairs of the IPO, an administrative complaint against petitioners Sehwani, Inc. and Benita’s
Frites, Inc. for violation of intellectual property rights, attorney’s fees and damages with prayer
for the issuance of a restraining order or writ of preliminary injunction.
Respondent alleged that it is the owner of the tradename “IN-N-OUT” and trademarks “IN-N-
OUT,” “IN-N-OUT Burger & Arrow Design,” and “IN-N-OUT Burger Logo,” which have been
used in its business since 1948 up to the present. These tradename and trademarks were
registered in the United States as well as in other parts of the world.
In 1997, the respondent applied with the IPO for the registration of its trademark “IN-N-OUT
Burger & Arrow Design” and servicemark “IN-N-OUT.” In the course of its application, the
respondent discovered that petitioner Sehwani, Inc. had obtained Trademark Registration No.
56666 for the mark “IN N OUT” on December 17, 1993, without its authority.
Respondent thus demanded that petitioner Sehwani, Inc. desist from claiming ownership of the
mark and voluntarily cancel its trademark registration. Petitioner Sehwani, Inc., however,
refused to accede to the demand and even entered into a Licensing Agreement granting its co-
petitioner Benita’s Frites, Inc. Hence, the respondent filed a complaint for violation of
intellectual property rights.
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Petitioners alleged that the respondent lacked the legal capacity to sue because it was not
doing business in the Philippines and that it had no cause of action because its mark is not
registered or used in the Philippines.
ISSUE: Whether or not the respondent has no legal capacity to sue for the protection of its
trademark as it was not doing business in the Philippines.
RULING: Contrary to the petitioner’s argument, the respondent has the legal capacity to sue
for the protection of its trademarks, albeit it is not doing business in the Philippines.
Section 160, in relation to Section 3 of R.A. No. 8293, provides:
SECTION 160. Right of Foreign Corporation to Sue in Trademark or Service Mark
Enforcement Action.—Any foreign national or juridical person who meets the requirements of
Section 3 of this Act and does not engage in business in the Philippines may bring a civil or
administrative action hereunder for opposition, cancellation, infringement, unfair competition,
or false designation of origin and false description, whether or not it is licensed to do business
in the Philippines under existing laws.
Section 3 thereof provides:
SECTION 3. International Conventions and Reciprocity.—Any person who is a national or who
is domiciled or has a real and effective industrial establishment in a country which is a party to
any convention, treaty, or agreement relating to intellectual property rights or the repression of
unfair competition, to which the Philippines is also a party, or extends reciprocal rights to
nationals of the Philippines by law, shall be entitled to benefits to the extent necessary to give
effect to any provision of such convention, treaty or reciprocal law, in addition to the rights to
which any owner of an intellectual property right is otherwise entitled by this Act.”
The fact that the respondent’s marks are neither registered nor used in the Philippines is of no
moment. The scope of protection initially afforded by Article 6 of the Paris Convention has
been expanded in the 1999 Joint Recommendation Concerning Provisions on the Protection of
Well-Known Marks, wherein the World Intellectual Property Organization (WIPO) General
Assembly and the Paris Union agreed to a nonbinding recommendation that a well-known
mark should be protected in a country even if the mark is neither registered nor used in that
country.
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

119 Lorenzo Shipping v. Chubb, 431 S 266
FACTS: Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise
shipping. Gearbulk ltd. is a foreign corporation licensed as a common carrier under the laws of
Norway and doing business in the Philippines through its agent Philippine Transmarine
Carrier Inc. Philippine Transmarine Carrier (PTC) is the agent of Gearbulk in the Philippines.
Sumitomo Corporation (SC), a foreign corporation organized under the laws of the USA is the
consignee. It insured the shipment with Chubb and Sons, Inc., a foreign corporation organized
and licensed to engage in insurance business under the laws of the United States of
America.
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581
bundles of black steel on board one of the vessels of LS for shipment to Davao City from
Manila. Upon reaching the Sasa Wharf in Davao on Dec.2, PTC discovered that the steels
were submerged in seawater. An inspector made a finding that the steel pipes were no longer
in good condition for rust were already forming.
Gearbulk noted the damage and shipped the pipes on its vessel to the USA . Due to its
heavily rusted condition, the consignee Sumitomo rejected the damaged steel pipes and
declared them unfit for the purpose they were intended. It then filed a marine insurance claim
with respondent Chubb and Sons, Inc.
ISSUE: Whether or not Chubb and Sons, as a mere assignee of a foreign corporation which
has no authority to sue in the Philippines, has capacity to sue before the Philippine courts.
RULING: YES. Subrogration contemplates full substitution such that it places the party
subrogated in the shoes of the creditor, and he may use all means which the creditor could
employ to enforce payment. The rights to which the subrogee succeeds are the same as, but
not greater than, those of the person for whom he is substituted. The law on corporations is
clear in depriving foreign corporations which are doing business in the Philippines without a
license from bringing or maintaining actions before, or intervening in Philippine courts but a
foreign corporation needs no license to sue before Philippine courts on an isolated
transaction.
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For "doing business" is not really the number or the quantity of the transactions, but more
importantly, the intention of an entity to continue the body of its business in the country. The
phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of
transactions set apart from the common business of a foreign enterprise in the sense that
there is no intention to engage in a progressive pursuit of the purpose and object of the
business organization. Whether a foreign corporation is "doing business" does not necessarily
depend upon the frequency of its transactions, but more upon the nature and character of the
transactions. Furthermore, respondent insurer Chubb and Sons, by virtue of the right of
subrogation provided for in the policy of insurance, is the real party in interest in the action for
damages before the court a quo against the carrier Lorenzo Shipping to recover for the loss
sustained by its insured.
It then, thus possesses the right to enforce the claim and the significant interest in the
litigation. In the case at bar, it is clear that respondent insurer was suing on its own behalf in
order to enforce its right of subrogation.
120 MR Holdings v. Bajar, 380 S 617
FACTS: Asian Development Bank (ADB), a multilateral development finance institution,
agreed to extend to respondent Marcopper Mining Corporation (Marcopper) a loan in the
aggregate amount of US$40,000,000.00 to finance the latter's mining project at Sta. Cruz,
Marinduque. To secure the loan, Marcopper executed in favor of ADB a "Deed of Real Estate
and Chattel Mortgage" covering substantially all of its (Marcopper's) properties and assets in
Marinduque. When Marcopper defaulted in the payment of its loan obligation, petitioner MR
Holdings, Ltd., assumed Marcopper's obligation to ADB in the amount of US$18,453,450.02.
Consequently, in an "Assignment Agreement", ADB assigned to petitioner all its rights,
interests and obligations under the principal and complementary loan agreements.
Respondent Marcopper likewise executed a "Deed of Assignment" in favor of petitioner. In the
meantime, respondent Solidbank Corporation obtained a Partial Judgment against Marcopper
from the RTC, Branch 26, Manila, in Civil Case No. 96- 80083 entitled "Solidbank Corporation
vs. Marcopper Mining Corporation, John E. Loney, Jose E. Reyes and Teodulo C. Gabor, Jr.,"
Having learned of the scheduled auction sale, petitioner filed an "Affidavit of Third Party
Claim" asserting its ownership over all Marcopper's mining properties, equipment and facilities
by virtue of the "Deed of Assignment."
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School of Law
Saint Louis University

Upon the denial of its "Affidavit of Third-Party Claim" by the RTC of Manila, petitioner
commenced with the RTC of Boac, Marinduque, a complaint for reivindication of properties,
etc., with prayer for preliminary injunction and temporary restraining order against
respondents Solidbank, Marcopper, and the sheriffs assigned in implementing the writ of
execution.
The trial court denied petitioner's application for a writ of preliminary injunction on the ground
that petitioner has no legal capacity to sue, it being a foreign corporation doing business in the
Philippines without license. Unsatisfied, petitioner elevated the matter to the Court of Appeals
on a Petition for Certiorari, Prohibition and Mandamus.
The Court of Appeals affirmed the ruling of the trial court that petitioner has no legal capacity
to sue in the Philippine courts because it is a foreign corporation doing business here without
license. Hence, the present petition. Petitioner alleged that it is not "doing business" in the
Philippines and characterized its participation in the assignment contracts (whereby
Marcopper's assets were transferred to it) as mere isolated acts that cannot foreclose its right
to sue in local courts.
ISSUE: Whether or not petitioner has no legal capacity to sue in the Philippine courts because
it is a foreign corporation doing business here without license.
RULING: The Supreme Court ruled in favor of petitioner and granted the petition. The Court
ruled that a foreign corporation, which becomes the assignee of mining properties, facilities
and equipment, cannot be automatically considered as doing business, nor presumed to have
the intention of engaging in mining business.
According to the Court, petitioner was engaged only in isolated acts or transactions. Single or
isolated acts, contracts, or transactions of foreign corporations are not regarded as a doing or
carrying on of business. Typical examples are the making of a single contract, sale, sale with
the taking of a note and mortgage in the state to secure payment therefor, purchase, or note,
or the mere commission of a tort. In the said instances, there is no purpose to do any other
business within the country.
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The Court further ruled that the Court of Appeals' holding that petitioner was determined to be
"doing business" in the Philippines is based mainly on conjectures and speculation. No effort
was exerted by the appellate court to establish the nexus between petitioner's business and
the acts supposed to constitute "doing business." Thus, whether the assignment contracts
were incidental to petitioner's business or were continuation thereof is beyond determination.
121 Commissioner of Customs v. KMK Gani, 182 S 591
FACTS: Two containers loaded with 103 cartons of merchandise covered by eleven airway
bills of several supposedly Singapore based consignees arrived at the Manila International
Airport.
The cargoes were consigned to different entities, among others, KMK Gani and Indrapal and
Company, private respondents.
While the cargoes were at the MIA, a “reliable source” tipped the Bureau of Customs that the
said cargoes were going to be unloaded to Manila.
The Suspected Cargo and Anti-Narcotics (SCAN) dispatched an agent to verify the
information.
The cargoes were seized and thereafter subject to Seizure and Forfeiture proceedings for
“technical smuggling.”
Atty. Armando Padilla entered his appearance for the consignees KMK and Indrapal.
Records of the case do not show any appearance of the consignees in person.
The Collector of Customs rules for the forfeiture of all the cargoes.
Appeal was made to the Commissioner of Customs. The Commissioner of Customs affirmed
the finding of the Collector of Customs of the presence of the intention to import the said goods
in violation of the dangerous drugs Act and a Central Bank Circular in relation to the Tariff and
Customs Code.
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Appeal was then made to the Court of Tax Appeals, which reversed the decision of the
Commissioner of Customs. Hence the petition to review.
ISSUE: Did private respondents fail to establish their personality to sue?
Can private respondents sue within Philippine jurisdiction under the “isolated transaction rule”?
RULING: No foreign corporation transacting in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such corporation may
be sued or proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws. (Section 133, Corporation Code of the
Philippines)
However, a foreign corporation not engaged in the in business in the Philippines may not be
denied the right to file an action in the Philippine courts for an isolated transaction.
The fact that a foreign corporation is not doing business in the Philippines must be disclosed if
it desires to sue in the Philippine courts under the “isolated transaction rule.” Without this
disclosure, the court may choose to deny it the right to sue.
In the case at bar, the private respondents KMK Gani and Indrapal aver that they are “suing
upon a singular and isolated transaction.” But they failed to prove their legal existence or
juridical personality as foreign corporations.
The “isolated transaction rule” refers only to foreign corporations. Here the petitioners are not
foreign corporations. They do not even pretend to be so. The first paragraph of their petition,
containing the allegation of their identities, does not even aver their corporate character. On
the contrary, KMK alleges that it is a “single proprietorship” while Indrapal hides under the
vague identification as a “firm”, although both describe themselves. With the phrase “Doing
business in accordance with the laws of Singapore.”
122 Communications and Materials Designs v. CA, 260 S 144
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FACTS: Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI, for brevity)
and ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are both domestic corporations, while
petitioner Francisco S. Aguirre is their President and majority stockholder. Private
Respondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC. (ITEC, for brevity) are
corporations duly organized and existing under the laws of the State of Alabama, United
States of America. There is no dispute that ITEC is a foreign corporation not licensed to do
business in the Philippines.
On August 14, 1987, ITEC entered into a contract with petitioner ASPAC referred to as
"Representative Agreement".1 Pursuant to the contract, ITEC engaged ASPAC as its
"exclusive representative" in the Philippines for the sale of ITEC's products, in consideration of
which, ASPAC was paid a stipulated commission. The agreement was signed by G.A. Clark
and Francisco S. Aguirre, presidents of ITEC and ASPAC respectively, for and in behalf of
their companies. The said agreement was initially for a term of twenty-four months. After the
lapse of the agreed period, the agreement was renewed for another twenty-four months.
Through a "License Agreement" entered into by the same parties on November 10, 1988,
ASPAC was able to incorporate and use the name "ITEC" in its own name. Thus , ASPAC
Multi Trade, Inc. became legally and publicly known as ASPAC-ITEC (Philippines).
By virtue of said contracts, ASPAC sold electronic products, exported by ITEC, to their sole
customer, the Philippine Long Distance Telephone Company, (PLDT, for brevity).
To facilitate their transactions, ASPAC, dealing under its new appellation, and PLDT executed
a document entitled "PLDT-ASPAC/ITEC PROTOCOL" which defined the project details for
the supply of ITEC's Interface Equipment in connection with the Fifth Expansion Program of
PLDT.
One year into the second term of the parties' Representative Agreement, ITEC decided to
terminate the same, because petitioner ASPAC allegedly violated its contractual commitment
as stipulated in their agreements.
ITEC charges the petitioners and another Philippine Corporation, DIGITAL BASE
COMMUNICATIONS, INC. (DIGITAL, for brevity), the President of which is likewise petitioner
Aguirre, of using knowledge and information of ITEC's products specifications to develop their
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own line of equipment and product support, which are similar, if not identical to ITEC's own,
and offering them to ITEC's former customer.
It is the petitioners' submission that private respondents are foreign corporations actually
doing business in the Philippines without the requisite authority and license from the Board of
Investments and the Securities and Exchange Commission, and thus, disqualified from
instituting the present action in our courts. It is their contention that the provisions of the
Representative Agreement, petitioner ASPAC executed with private respondent ITEC, are
similarly "highly restrictive" in nature as those found in the agreements which confronted the
Court in the case of Top-Weld Manufacturing, Inc. vs. ECED S.A. et al., as to reduce
petitioner ASPAC to a mere conduit or extension of private respondents in the Philippines.
ISSUE: Whether or not private respondent ITEC is an unlicensed corporation doing business
in the Philippines, and if it is, whether or not this fact bars it from invoking the injunctive
authority of our courts.
RULING: Business Corporations, according to Lord Coke, "have no souls." They do business
peddling goods, wares or even services across national boundaries in "souless forms" in
quest for profits albeit at times, unwelcomed in these strange lands venturing into uncertain
markets and, the risk of dealing with wily competitors.
It was ruled that respondent foreign corporations are doing business in the Philippines
because when the respondents entered into the disputed contracts with the petitioner, they
were carrying out the purposes for which they were created, i.e., to manufacture and market
welding products and equipment. The terms and conditions of the contracts as well as the
respondents' conduct indicate that they established within our country a continuous business,
and not merely one of a temporary character. The respondents could be exempted from the
requirements of Republic Act 5455 if the petitioner is an independent entity which buys and
distributes products not only of the petitioner, but also of other manufacturers or transacts
business in its name and for its account and not in the name or for the account of the foreign
principal. A reading of the agreements between the petitioner and the respondents shows that
they are highly restrictive in nature, thus making the petitioner a mere conduit or extension of
the respondents.
Section 133 of the Corporation Code, provides that "No foreign corporation, transacting
business in the Philippines without a license, or its successors or assigns, shall be permitted
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to maintain or intervene in any action, suit or proceeding in any court or administrative agency
of the Philippines; but such corporation may be sued or proceeded against before Philippine
Courts or administrative tribunals on any valid cause of action recognized under Philippine
laws."
Generally, a "foreign corporation" has no legal existence within the state in which it is foreign.
This proceeds from the principle that juridical existence of a corporation is confined within the
territory of the state under whose laws it was incorporated and organized, and it has no legal
status beyond such territory. Such foreign corporation may be excluded by any other state
from doing business within its limits, or conditions may be imposed on the exercise of such
privileges. Before a foreign corporation can transact business in this country, it must first
obtain a license to transact business in the Philippines, and a certificate from the appropriate
government agency. If it transacts business in the Philippines without such a license, it shall
not be permitted to maintain or intervene in any action, suit, or proceeding in any court or
administrative agency of the Philippines, but it may be sued on any valid cause of action
recognized under Philippine laws.
In a long line of decisions, this Court has not altogether prohibited foreign corporation not
licensed to do business in the Philippines from suing or maintaining an action in Philippine
Courts. What it seeks to prevent is a foreign corporation doing business in the Philippines
without a licensed from gaining access to Philippine Courts.
The purpose of the law in requiring that foreign corporations doing business in the Philippines
be licensed to do so and that they appoint an agent for service of process is to subject the
foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object
is not to prevent the foreign corporation from performing single acts, but to prevent it from
acquiring a domicile for the purpose of business without taking steps necessary to render it
amenable to suit in the local courts. The implication of the law is that it was never the purpose
of the legislature to exclude a foreign corporation which happens to obtain an isolated order
for business from the Philippines, and thus, in effect, to permit persons to avoid their contracts
made with such foreign corporations.
There is no exact rule or governing principle as to what constitutes "doing" or "engaging" or
"transacting" business. Indeed, such case must be judged in the light of its peculiar
circumstances, upon its peculiar facts and upon the language of the statute applicable. The
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true test, however, seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized.
It was concluded that private respondent had been "engaged in" or "doing business" in the
Philippines for some time now. This is the inevitable result after a scrutiny of the different
contracts and agreements entered into by ITEC with its various business contacts in the
country, particularly ASPAC and Telephone Equipment Sales and Services, Inc. (TESSI, for
brevity). The latter is a local electronics firm engaged by ITEC to be its local technical
representative, and to create a service center for ITEC products sold locally. Its
arrangements, with these entities indicate convincingly ITEC's purpose to bring about the
situation among its customers and the general public that they are dealing directly with ITEC,
and that ITEC is actively engaging in business in the country.
The uninterrupted performance by a foreign corporation of acts pursuant to its primary
purposes and functions as a regional area headquarters for its home office, qualifies such
corporation as one doing business in the country.
These foregoing instances should be distinguished from a single or isolated transaction or
occasional, incidental, or casual transactions, which do not come within the meaning of the
law, for in such case, the foreign corporation is deemed not engaged in business in the
Philippines.
Where a single act or transaction, however, is not merely incidental or casual but indicates the
foreign corporation's intention to do other business in the Philippines, said single act or
transaction constitutes "doing" or "engaging in" or "transacting" business in the Philippines.
In determining whether a corporation does business in the Philippines or not, aside from their
activities within the forum, reference may be made to the contractual agreements entered into
by it with other entities in the country. Thus, in the Top-Weld case ( supra), the foreign
corporation's LICENSE AND TECHNICAL AGREEMENT and DISTRIBUTOR AGREEMENT
with their local contacts were made the basis of their being regarded by this Tribunal as
corporations doing business in the country.
When ITEC entered into the disputed contracts with ASPAC and TESSI, they were carrying
out the purposes for which it was created, i.e., to market electronics and communications
products. The terms and conditions of the contracts as well as ITEC's conduct indicate that
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they established within our country a continuous business, and not merely one of a temporary
character.
Notwithstanding such finding that ITEC is doing business in the country, petitioner is
nonetheless estopped from raising this fact to bar ITEC from instituting this injunction case
against it.
A foreign corporation doing business in the Philippines may sue in Philippine Courts although
not authorized to do business here against a Philippine citizen or entity who had contracted
with and benefited by said corporation. To put it in another way, a party is estopped to
challenge the personality of a corporation after having acknowledged the same by entering
into a contract with it. And the doctrine of estoppel to deny corporate existence applies to a
foreign as well as to domestic corporations. One who has dealt with a corporation of foreign
origin as a corporate entity is estopped to deny its corporate existence and capacity:
The principle will be applied to prevent a person contracting with a foreign corporation
from later taking advantage of its noncompliance with the statutes chiefly in cases
where such person has received the benefits of the contract.
The rule is deeply rooted in the time-honored axiom of Commodum ex injuria sua non habere
debet — no person ought to derive any advantage of his own wrong. This is as it should be for
as mandated by law, "every person must in the exercise of his rights and in the performance
of his duties, act with justice, give everyone his due, and observe honesty and good faith."
Concededly, corporations act through agents, like directors and officers. Corporate dealings
must be characterized by utmost good faith and fairness. Corporations cannot just feign
ignorance of the legal rules as in most cases, they are manned by sophisticated officers with
tried management skills and legal experts with practiced eye on legal problems. Each party to
a corporate transaction is expected to act with utmost candor and fairness and, thereby allow
a reasonable proportion between benefits and expected burdens. This is a norm which should
be observed where one or the other is a foreign entity venturing in a global market.
By entering into the "Representative Agreement" with ITEC, Petitioner is charged with
knowledge that ITEC was not licensed to engage in business activities in the country, and is
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thus estopped from raising in defense such incapacity of ITEC, having chosen to ignore or
even presumptively take advantage of the same.
123 Columbia Pictures v. CA, 261 S 144
FACTS: Columbia Pictures, Inc. and other film companies, through counsel, filed a complaint
before the NBI for video piracy against the Private Respondent, Sunshine Home Video, Inc.
Afterwards, the NBI applied for a search warrant before the Regional Trial Court (RTC) for the
seizure of pirated videotapes of copyrighted films, and other paraphernalia intended for
unlawful exhibition and reproduction of these films. The RTC granted the application, and a
search warrant was issued. After a successful search, the Private Respondent filed a motion to
lift the order of search warrant but was denied for lack of merit. Nonetheless, a motion for
reconsideration was filed. The RTC granted the same, lifting the search warrant order.
The Petitioners appealed to the CA, but it was dismissed and denied the motion for
reconsideration. Hence, in the present petition, the Private Respondent reiterated that the
Petitioners needed the legal personality to bring an action before the Philippine courts because
they are foreign corporations doing business in the Philippines without a license.
ISSUES: Whether Columbia Pictures, Inc. were “doing business” in the Philippines, thus,
needs to be licensed before having a legal standing in Philippine courts.
RULING: No. Foreign film corporations do not transact or do business in the Philippines and,
therefore, do not need to be licensed in order to take recourse to our courts.
As acts constitutive of “doing business,” the fact that Columbia et al are admittedly copyright
owners or owners of exclusive distribution rights in the Philippines of motion pictures or films
does not convert such ownership into an indicium of doing business which would require them
to obtain a license before they can sue upon a cause of action in local courts. Neither is the
appointment of Atty. Rico V. Domingo as attorney-in-fact of Columbia et al., with express
authority pursuant to a special power of attorney.
The Corporation Code provides:
Sec. 133. Doing business without a license. — No foreign corporation transacting business in
the Philippines without a license, or its successors or assigns, shall be permitted to maintain or
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intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded against before Philippine courts
or administrative tribunals on any valid cause of action recognized under Philippine laws.
The obtainment of a license prescribed by Section 125 of the Corporation Code is not a
condition precedent to the maintenance of any kind of action in Philippine courts by a foreign
corporation, However, under the provision, no foreign corporation shall be permitted to
transact business in the Philippines, as this phrase is understood under the Corporation Code,
unless it shall have the license required by law, and until it complies with the law in transacting
business here, it shall not be permitted to maintain any suit in local courts. As thus interpreted,
any foreign corporation not doing business in the Philippines may maintain an action in our
courts upon any cause of action, provided that the subject matter and the defendant are within
the jurisdiction of the court.
It is not the absence of the prescribed license but “doing business” in the Philippines without
such license which debars the foreign corporation from access to our courts. In other words,
although a foreign corporation is without license to transact business in the Philippines, it does
not follow that it has no capacity to bring an action. Such license is not necessary if it is not
engaged in business in the Philippines.
No general rule or governing principles can be laid down as to what constitutes “doing” or
“engaging in” or “transacting” business. Each case must be judged in the light of its own
peculiar environmental circumstances. The true tests, however, seem to be whether the
foreign corporation is continuing the body or substance of the business or enterprise for which
it was organized or whether it has substantially retired from it and turned it over to another.
The Corporation Code does not itself define or categorize what acts constitute doing or
transacting business in the Philippines. Jurisprudence has, however, held that the term implies
a continuity of commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions normally incident to or in
progressive prosecution of the purpose and subject of its organization.
124 Eriks PTE Ltd. V. CA, 276 S 567
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Saint Louis University

FACTS: Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the
manufacture and sale of elements used in sealing pumps, valves and pipes for industrial
purposes, valves and control equipment used for industrial fluid control and PVC pipes and
fittings for industrial uses. The transfers of goods were perfected in Singapore, for private
respondent's account, F.O.B. Singapore, with a 90-day credit term.
Subsequently, demands were made by petitioner upon private respondent to settle his
account, but the latter failed/refused to do so.
Petitioner corporation filed with the Regional Trial Court for the recovery of S$41,939.63 or its
equivalent in Philippine currency, plus interest thereon and damages.
Private respondent responded with a Motion to Dismiss, contending that petitioner corporation
had no legal capacity to sue.
In an Order dated March 8, 1993, the trial court dismissed the action on the ground that
petitioner is a foreign corporation doing business in the Philippines without a license.
Respondent Court affirmed said order as it deemed the series of transactions between
petitioner, corporation and private respondent not to be an "isolated or casual transaction."
ISSUE: Whether petitioner corporation may maintain an action in Philippine courts considering
that it has no license to do business in the country.
RULING: It cannot maintain an action to sue but it can be sued in Philippine courts even
though it has no license to do business in the country.
The Corporation Code provides:
Sec. 133. Doing business without a license. — No foreign corporation transacting business in
the Philippines without a license, or its successors or assigns, shall be permitted to maintain
or intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded against before Philippine courts
or administrative tribunals on any valid cause of action recognized under Philippine laws.
The aforementioned provision prohibits, not merely absence of the prescribed license, but it
also bars a foreign corporation "doing business" in the Philippines without such license access
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to our courts. A foreign corporation without such license is not ipso facto incapacitated from
bringing an action. A license is necessary only if it is "transacting or doing business in the
country.
However, there is no definitive rule on what constitutes "doing," "engaging in," or "transacting"
business. The Corporation Code itself does not define such terms. To fill the gap, the evolution
of its statutory definition has produced a rather all-encompassing concept in Republic Act No.
7042 in this wise:
Sec. 3. Definitions. — As used in this Act:
(d) the phrase "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totalling one hundred eight(y) (180)
days or more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works,or the exercise of some
of the functions normally incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business organization: Provided, however,
That the phrase "doing business" shall not be deemed to include mere investment as
a shareholder by a foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor; nor having a nominee
director or officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which transacts business in
its own name and for its own account.
The accepted rule in jurisprudence is that each case must be judged in the light of its own
environmental circumstances. It should be kept in mind that the purpose of the law is to
subject the foreign corporation doing business in the Philippines to the jurisdiction of our
courts. It is not to prevent the foreign corporation from performing single or isolated acts, but
to bar it from acquiring a domicile for the purpose of business without first taking the steps
necessary to render it amenable to suits in the local courts.
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School of Law
Saint Louis University

Thus, the series of transactions in question could not have been isolated or casual
transactions. What is determinative of "doing business" is not really the number or the quantity
of the transactions, but more importantly, the intention of an entity to continue the body of its
business in the country. The number and quantity are merely evidence of such intention. The
phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of
transactions set apart from the common business of a foreign enterprise in the sense that
there is no intention to engage in a progressive pursuit of the purpose and object of the
business organization. Whether a foreign corporation is "doing business" does not necessarily
depend upon the frequency of its transactions, but more upon the nature and character of the
transactions.
The requirement of a license is not meant to put foreign corporations at a disadvantage.
Rather, the doctrine of lack of capacity to sue is based on considerations of sound public
policy. Thus, it has been ruled in Home Insurance that:
. . . The primary purpose of our statute is to compel a foreign corporation desiring to
do business within the state to submit itself to the jurisdiction of the courts of this
state. The statute was not intended to exclude foreign corporations from the state. . . .
The better reason, the wiser and fairer policy, and the greater weight lie with those
decisions which hold that where, as here, there is a prohibition with a penalty, with no
express or implied declarations respecting the validity of enforceability of contracts
made by qualified foreign corporations, the contracts . . . are enforceable . . . upon
compliance with the law.
125 Far East International v. Nankai Kogyo, 6 S 725
FACTS: Far East (Seller, PH Corp) entered into a contract of sale of steel scrap with Nankai
(Buyer, JP Corp). Nankai opened a letter of credit (LC) with China Bank. The steel scrap was
shipped through Everett (The Steamship Corp). Nankai acknowledged receipt. Far East
requested Everett for the Bill of Lading (BL) in order that payment will be affected
against the LC. Everett refused because the BL was issued and signed in Tokyo upon request
of Nankai. Far East filed a complaint for Specific Performance with damages against Nankai
and Everett for the issuance of the BL and a writ of preliminary injunction against the China
Bank and Nankai to maintain the LC.
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ISSUE: Whether or not the court has jurisdiction over Nankai, a foreign corporation.
HELD: Yes. It is true that as a rule the doing of a single act does not constitute “doing
business” within the meaning of the law. Indeed, Nankai only consummated one transaction in
the PH (the contract of sale). But a single act may bring the corporation under the purview of
“doing business” if such act is not merely incidental or casual, but is of such character as
distinctly to indicate a purpose on the part of the foreign corporation to do other business in
the state, and to make the state a basis of operations for the conduct of a part of corporation's
ordinary business.
In this case, Nankai representatives 1) made an inquiry as to the PH’s operation of mines and
2) allegedly set up an office in the Luneta Hotel. It reveals Nankai’s purpose to continue
engaging business in the PH even after receiving the steel scrap. It is clear that Nankai’s
transaction with the PH is only the beginning, as it indicates that Nankai intends to build a
base in this jurisdiction. Nankai and Everett should issue the BL so that payment will be
effected in favor of the Far East.
126 Facilities Management v. Dela Osa, 89 S 131
FACTS: Leonardo de la Osa, the private respondent, filed a petition on July 1, 1967, seeking
reinstatement with full back wages and the recovery of his overtime compensation, swing
shift, and graveyard shift differentials.
De la Osa alleged that he was employed by the petitioners (respondents in the case) in
various capacities over different periods, with varying hourly rates:
Painter with an hourly rate of $1.25 from March 1964 to November 1964.
Houseboy with an hourly rate of $1.26 from December 1964 to November 1965.
Houseboy with an hourly rate of $1.33 from December 1965 to August 1966.
Cashier with an hourly rate of $1.40 from August 1966 to March 27, 1967.
De la Osa claimed that during his employment, from December 1965 to August 1966, he
worked overtime daily, and during this period, his shifts were divided into swing and graveyard
Corporation Law JD2-2023
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School of Law
Saint Louis University

shifts. He alleged that despite his repeated demands, he was not paid overtime and night shift
premiums.
The petitioners, in their response filed on August 7, 1967, did not substantially deny the
material allegations but raised special defenses:
They claimed that they were domiciled in Wake Island, which was beyond the
territorial jurisdiction of the Philippine Government.
They argued that Jaime V. Catuira, an employee of the respondent corporation
stationed in Manila, lacked the power and authority of legal representation.
They asserted that the employment contract between de la Osa and the respondent
corporation had the approval of the Department of Labor of the Philippines.
Subsequently, the petitioners filed a motion to dismiss the petition on the grounds that the
Court of Industrial Relations had no jurisdiction over the case. 6. The motion to dismiss was
denied by the Court of Industrial Relations in its Order issued on July 12, 1968, sustaining
jurisdiction based on the prevailing doctrine of the Supreme Court in similar cases.
The hearing examiner, CIR (Dagupan City Branch), submitted a report, and the decision of
the Court of Industrial Relations on February 14, 1972, ordered the petitioners to pay de la
Osa his overtime compensation, as well as swing shift and graveyard shift premiums at the
rate of fifty (50%) per cent of his basic salary.
ISSUE: The primary issue in this case revolved around jurisdiction. The petitioners initially
contested jurisdiction, claiming that they were domiciled in Wake Island, which was beyond the
territorial jurisdiction of the Philippine Government. • Another issue raised was whether the
Court of Industrial Relations had the authority to affirm a judgment against persons domiciled
outside the Philippines and not engaged in business in the Philippines.
RULING: The Court held that despite the site of work being identified as Wake Island, the
place of hire was established in Manila. The contract of employment between the parties was
originally executed and subsequently renewed in Manila. Therefore, any dispute arising from
the contract should be determined in the place or venue where it was contracted.
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The Court found that the petitioners were conducting acts within the Philippines that
constituted "doing business," including appointing a representative in the Philippines and
negotiating or fixing terms and conditions of employment contracts.
The Court cited previous rulings that clarified that a foreign corporation not engaged in
business in the Philippines but conducting specific acts, such as the collection of claims, was
not barred from seeking redress in Philippine courts.
As a result, the petitioners' claim of exemption from being sued in Philippine courts was
denied.
127 HB Zachray and Co. v. CA, 232 S 29
FACTS: On 17 July 1987, VBC entered into a written Subcontract Agreement with Zachry, a
foreign corporation. The latter had been engaged by the United States Navy to design and
construct 264 Family Housing Units at the US Naval Base at Subic, Zambales. Under the
agreement, specifically under Section 3 on Payment, VBC was to perform all the construction
work on the housing project and would be paid “for the performance of the work the sum of
Six Million Four Hundred Sixty-eight Thousand U.S. Dollars (U.S.$6,468,000.00), subject to
additions and deductions for changes as hereinafter provided.”
This lump sum price is based on CONTRACTOR’S proposal, dated 21 May 1987 (including
drawings), submitted to OWNER for Alternate Design-Apartments.” It was also provided ‘that
substantial differences between the proposal and the final drawings and Specification
approved by the OWNER may be grounds for an equitable adjustment in price and/ or time of
performance if requested by either party in accordance with Section 6 [on] Changes.”
When VBC had almost completed the project, Zachry complained of the quality of work,
making it a reason for its decision to take over the management of the project, which
paragraph c, Section 7 of the Subcontract Agreement authorized. However, prior to such take-
over, the parties executed on 18 December 1989 a Supplemental Agreement.
In accordance with the above conditions, VBC submitted to Zachry on 10 January 1990 a
detailed computation of the cost to complete the subcontract on the housing project.
According to VBC’s computation, there remains a balance of $1,103,000.00 due in its favor as
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School of Law
Saint Louis University

of 18 January 1990. This amount includes the sum of $200,000.00 allegedly withheld by
Zachry and the labor escalation adjustment granted earlier by the US Navy in the amount of
$282,000.00 due VBC. Zachry, however, not only refused to acknowledge the indebtedness
but continually failed to submit to VBC a statement of accumulated costs, as a result of which
VBC was prevented from checking the accuracy of the said costs.
On 2 March 1990, VBC wrote Zachry a letter demanding compliance with its obligations.
Zachry still failed to do so. VBC made representations to pursue its claim, including a formal
claim with the Officer-in-Charge of Construction, NAVFAC Contracts, Southwest Pacific,
which also failed.
Hence, on 20 March 1990, VBC filed a Complaint with the Regional Trial Court (RTC) of
Makati against Zachry for the collection of the payments due it with a prayer for a writ of
preliminary attachment over Zachry’s bank account in Subic Base and over the remaining
thirty-one undelivered housing units which were to be turned over to the US Navy by Zachry
on 30 March 1990. The Complaint alleges that defendant Zachry “is a foreign corporation with
address at 527 Longwood Street, San Antonio, Texas, U.S.A. and has some of its officers
working at U.S. Naval Base, Subic Bay, Zambales where it may be served with summons.”
ISSUE: Whether the issuance of the writ of preliminary attachment prior to the service of the
summons and a copy of the amended complaint on the respondent is valid.
Whether resort to arbitration prior to filing a suit in court is required by the subcontract
agreement under the facts obtaining in the present cases.
RULING: Yes. It was error for the Court of Appeals to declare, on the ground of grave abuse of
discretion, the nullity of the writ of attachment issued by the trial court on 21 March 1990. In
the first place, the writ was in fact issued only on 26 March 1990 and served, together with the
summons, copy of the complaint, the Order of 21 March 1990, and the bond, on 27 March
1990 on Zachry at its field office in Subic Bay, Zambales, through one Ruby Apostol. What the
Court of Appeals referred to as having been issued on 21 March 1990 is the order granting the
application for the issuance of a writ of preliminary attachment upon the posting of a bond of
P24,266,000.00. In the second place, even granting arguendo that the Court of Appeals had
indeed in mind the 26 March 1990 writ of attachment, its issuance, as well as the issuance of
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the 21 March 1990 Order, did not suffer from any procedural or jurisdictional defect; the trial
court could validly issue both.
However, the enforcement of the preliminary attachment on 27 March 1990, although
simultaneous with the service of the summons and a copy of the complaint, did not bind
Zachry because the service of the summons was not validly made. When a foreign
corporation has designated a person to receive service of summons pursuant to the
Corporation Code, that designation is exclusive and service of summons on any other person
is inefficacious. The valid service of summons and a copy of the amended complaint was only
made upon it on 24 April 1990, and it was only then that the trial court acquired jurisdiction
over Zachry’s person. Accordingly, the levy on attachment made by the sheriff on 27 April
1990 was invalid. However, the writ of preliminary attachment may be validly served anew.
Although the order of the trial court denying the motion to dismiss did not clearly state so, it is
evident that the trial court perceived the ground of the motion to be not indubitable; hence, it
could defer its resolution thereon until the trial of the case. In deciding a motion to dismiss,
Section 3, Rule 16 of the Rules of Court grants the court four options: (1) to deny the motion,
(2) to grant the motion, (3) to allow amendment of pleadings, or (4) to defer the hearing and
determination of the motion until the trial, if the ground alleged therein does not appear to be
indubitable. Under the fourth option, the court is under no obligation to immediately hold a
hearing on the motion; it is vested with discretion to defer such hearing and the determination
of the motion until the trial of the case. The lack of indubitability of the ground involved in
Zachry’s motion to dismiss is confirmed by the Court of Appeals.
Indeed, the parties could not even agree on what controversies fall within Section 27.B, and,
perhaps, rightly so because the said Section 27.B excludes controversies controlled or
determined by Section 27.A and other provisions of the Subcontract Agreement, which are
themselves unclear.
Evidently, Section 3 of the Subcontract Agreement and the Supplemental Agreement are
excluded by Section 27.B. The trial court was, therefore, correct in denying Zachry’s motion to
dismiss.
However, we cannot give our assent to the Court of Appeals’ order directing the trial court to
conduct a hearing for the determination of the proper interpretation of the provisions of the
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School of Law
Saint Louis University

Subcontract Agreement. It would re open the motion to dismiss—which, upon the trial court’s
exercise of its discretion, was properly denied for lack of indubitability of the ground invoked—
and thereby unduly interfere with the trial court’s discretion. The proper interpretation could
only be done by the trial court after presentation of evidence during trial on the merits
pursuant to the tenor of its order denying the motion to dismiss.
128 Hutchison Ports v. SBMA, 31 August 2000
FACTS: Petitioner, a foreign corporation, was awarded by the Pre-Qualification, Bids and
Awards Committee (PBAC) of Subic Bay Metropolitan Authority (SBMA) the concession to
develop and operate a modern marine container terminal within theSubic Bay Freeport Zone.
A resolution was issued declaring the immediate commencement of negotiations with the
petitioner. Before the award, however, respondent RPSI sought the setting aside of ICTSI's bid
on the ground that ICTSI is legally barred from operating a second port pursuant to Executive
Order No. 212 and DOTC Order 95-863 as it already operates the Manila International
Container Port.
The issue reached the Office of the President which originally mandated the re-evaluation of
the bids butlater recommended that another bidding be conducted. ● SBMA was enjoined
from signing the concession contract with the petitioner. ● Feeling aggrieved, petitioner
resorted to a judicial action with the RTC for specific performance claiming that a binding and
legally enforceable contract had been established between petitioner and SBMA.
During the pendency of the case, SBMA opened the rebidding of the project. ○ This was
sought to be enjoined by the petitioner, but the trial court denied the same. - ruled that under
Section 21 of R.A. No. 7227, the implementation of projects shall not be restrained or enjoined
except by an order from the Supreme Court.
ISSUES: Whether or not petitioner HPPL has the legal capacity to even seek redress from the
Court.
Whether participating in the bidding is a mere isolated transaction, or did it constitute
"engaging in" or "transacting" business in the Philippines such that petitioner HPPL needed a
license to do business in the Philippines before it could... come to court.
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RULING: Petitioner, a foreign corporation, by participating in a bidding process is considered
as "doing business." It should have applied for a license to submit itself to the jurisdiction of the
courts of this state and to enable the government to exercise jurisdiction over it for the
regulation of its activities in this country. Having failed to secure one, it is held that the
petitioner is incapacitated to bring this petition.
It has often been held that a single act or transaction may be considered as "doing business"
when a corporation performs acts for which it was created or exercises some of the functions
for which it was organized.
Participating in the bidding process constitutes "doing business" because it shows the foreign
corporation's intention to engage in business here.
The bidding for the concession contract is but an exercise of the corporation's reason for
creation or existence.
Thus, it has been held that "a foreign company invited to bid for IBRD and ADB international
projects in the Philippines will be considered as doing business in the Philippines for which a
license is required."
The primary purpose of the license requirement is to compel a foreign corporation desiring to
do business within the Philippines to submit itself to the jurisdiction of the courts of the state
and to enable the government to exercise jurisdiction over them for the regulation of their
activities in this country.
If a foreign corporation operates a business in the Philippines without a license, and thus does
not submit itself to Philippine laws, it is only just that said foreign corporation be not allowed to
invoke them in our courts when the need arises.
Accordingly, petitioner HPPL must be held to be incapacitated to bring this petition for
injunction before the Court for it is a foreign corporation doing business in the Philippines
without the requisite license.
Corporation Law JD2-2023
Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

129 La Chemise Lacoste v. Fernandez, 129 S 373
FACTS: La Chemise Lacoste is a French corporation and the actual owner of the trademarks
"Lacoste," "Chemise Lacoste," "Crocodile Device" and a composite mark consisting of the
word "Lacoste" and a representation of a crocodile/alligator, used on clothings and other
goods sold in many parts of the world and which has been marketed in the Philippines since
1964. In 1975, Hemandas & Co., a duly licensed domestic firm applied for and was issued
Reg. No. SR-2225 (SR stands for Supplemental Register) for the trademark "CHEMISE
LACOSTE & CROCODILE DEVICE" by the Philippine Patent Office for use on T-shirts,
sportswear and other garment products of the company. Two years later, it applied for the
registration of the same trademark under the Principal Register. Thereafter, Hemandas & Co.
assigned to respondent Gobindram Hemandas all rights, title, and interest in the trademark
"CHEMISE LACOSTE & DEVICE" In 1980, La Chemise Lacoste filed for the registration of
the "Crocodile device" and "Lacoste". Games and Garments opposed the registration of
"Lacoste." In 1983, La Chemise Lacoste filed with the NBI a letter -complaint alleging acts of
unfair competition committed by Hemandas and requesting the agency's assistance. A search
warrant was issued by the trial court. Various goods and articles were seized upon the
execution of the warrants. Hemandas filed motion to quash the warrants, which the court
granted. The search warrants were recalled, and the goods ordered to be returned. La
Chemise Lacoste filed a petition for certiorari.
ISSUE: Whether or not petitioner has the right to maintain the present suit before our courts
for unfair competition or infringement of trademarks of a foreign corporation.
RULING: Yes. The petitioner has the right to maintain the present suit before our courts for
unfair competition or infringement of trademarks of a foreign corporation. As early as 1927,
this Court was, and it still is, of the view that a foreign corporation not doing business in the
Philippines needs no license to sue before Philippine courts for infringement of trademark and
unfair competition.
Thus, in Western Equipment and Supply Co. v. Reyes (51 Phil. 115), this Court held that a
foreign corporation which has never done any business in the Philippines and which is
unlicensed and unregistered to do business here, but is widely and favorably known in the
Philippines through the use therein of its products bearing its corporate and tradename, has a
legal right to maintain an action in the Philippines to restrain the residents and inhabitants
thereof from organizing a corporation therein bearing the same name as the foreign
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corporation, when it appears that they have personal knowledge of the existence of such a
foreign corporation, and it is apparent that the purpose of the proposed domestic corporation
is to deal and trade in the same goods as those of the foreign corporation.
Moreover, we are recognizing our duties and the rights of foreign states under the Paris
Convention for the Protection of Industrial Property to which the Philippines and France are
parties. Pursuant to this obligation, the Ministry of Trade issued a memorandum addressed to
the Director of the Patents Office directing the latter to reject all pending applications for
Philippine registration of signature and other world famous trademarks by applicants other
than its original owners or use
130 Marubeni Nederlands v. Tensuan, 28 September 1990
FACTS: Petitioner Marubeni Nederland B.V. and D.B. Teodoro Development Corporation
(DBT for short) entered into a contract whereby petitioner agreed to supply all the necessary
equipment, machinery, materials, technical know-how and the general design of the
construction of DBT's lime plant at the Guimaras Islands in Iloilo for a total contract price of
US$5,400,000.00 on a deferred payment basis. Simultaneously with the supply contract, the
parties entered into two financing contracts, namely a construction loan agreement in the
amount of US$1,600,000.00 and a cash loan agreement for US$1,500,000.00. The obligation
of DBT to pay the loan amortizations on their due dates under the three (3) contracts were
absolutely and unconditionally guaranteed by the National Investment and Development
Corporation (NIDC).
But before the first installment became due, DBT wrote a letter to the NIDC interposing certain
claims against the petitioner and at the same time requesting NIDC for a revision of the
repayment schedule and of the amounts due under the contracts on account of petitioners
delay in the performance of its contractual commitments. In due time, the problems regarding
the lime plant were ironed out and the parties signed a "Settlement Agreement" on July 2,
1981.
However, DBT through counsel, informed petitioner that it was rejecting the lime plant on the
ground that it has not been constructed in accordance with their agreement. DBT made a
formal demand for indemnification. In its letter dated June 1, 1982, petitioner refused to accept
DBT's unilateral rejection of the plant and reasoned that the alleged operation and technical
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School of Law
Saint Louis University

problems were "totally unrelated to the guaranteed capacity and specifications of the plant and
definitely are not attributable to any fault or omission on the part of Marubeni."
Before the first installment under the "Settlement Agreement" could be paid, private
respondent Artemio Gatchalian, a stockholder of DBT sued petitioner Marubeni for contractual
breach.
ISSUE: Whether or not petitioner Marubeni Nederland B.V. can be considered as "doing
business" in the Philippines and therefore subject to the jurisdiction of our courts.
RULING: Yes, the petitioner can be sued in the regular courts because it is doing business in
the Philippines. The applicable law is Republic Act No. 5455 as implemented by the following
rules and regulations of the Board of Investments which took effect on February 3, 1969.
Thus:
xxx xxx xxx
(f) the performance within the Philippines of any act or combination of acts enumerated in
Section 1 (1) of the Act shall constitute "doing business" therein. In particular, "doing business"
includes:
1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific
solicitations by a foreign firm amounting to negotiation or fixing of the terms and
conditions of sales or service contracts, regardless of whether the contracts are
actually reduced to writing, shall constitute doing business even if the enterprise has
no office or fixed place of business in the Philippines. . . .
2) Appointing a representative or distributor who is domiciled in the Philippines,
unless said representative or distributor has an independent status, i.e., it transacts
business in its name and for its own account, and not in the name or for the account
of the principal.
xxx xxx xxx
4) Opening offices whether called "liaison" offices, agencies or branches, unless proved
otherwise
xxx xxx xxx
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10) Any other act or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of some of the
functions normally incident to, or in the progressive prosecution of, commercial gain or of the
purpose and objective of the business organization.
It cannot be denied that the petitioner had solicited the lime plant business from DBT through
the Marubeni Manila branch. Records show that the "turn-key proposal for the . . . 300 T/D
Lime Plant" was initiated by the Manila office through its Mr. T. Hojo. In a follow-up letter dated
August 3, 1976, Hojo committed the firm to a price reduction of $200,000.00 and submitted the
proposed contract forms. As reflected in the letterhead used, it was Marubeni Corporation,
Tokyo, Japan which assumed an active role in the initial stages of the negotiation. Petitioner
Marubeni Nederland B.V. had no visible participation until the actual signing of the October 28,
1976 agreement in Tokyo and even there, in the space reserved for petitioner, it was the
signature. of "S. Adachi as General Manager of Marubeni Corporation, Tokyo on behalf of
Marubeni Nederland B.V." which appeared. Even assuming for the sake of argument that
Marubeni Nederland B.V. is a different and separate business entity from Marubeni Japan and
its Manila branch, in this particular transaction, at least, Marubeni Nederland B.V. through the
foregoing acts, had effectively solicited "orders, purchases (sales) or service contracts" as well
as constituted Marubeni Corporation, Tokyo, Japan and its Manila Branch as its representative
in the Philippines to transact business for its account as principal. These circumstances, taken
singly or in combination, constitute "doing business in the Philippines" within the contemplation
of the law.
At this juncture it must be emphasized that a foreign corporation doing business in the
Philippines with or without license is subject to process and jurisdiction of the local courts. If
such corporation is properly licensed, well and good. But it shall not be allowed, under any
circumstances, to invoke its lack of license to impugn the jurisdiction of our courts.
131 Phil. Columbia v. Lantin, 39 S 376
FACTS: Private respondent Katoh & Co.,Ltd, alleged in its civil complaint that it is a
corporation duly organized under the laws of Japan, with head office in Tokyo, Japan. The
complaint alleged ten (10) causes of action against the defendants Philippines Columbia
Enterprises Co., with principal place of business in Manila, and the general partners, thereof,
Rufino Dy Chin and Fermin Sy, who reside in Manila.
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School of Law
Saint Louis University

These ten (10) causes of action are for the collection of payment of ten(10) different shipments
of angle bars, mild steel bars, and cold rolled steel sheets allegedly ordered in May, July,
October and November, 1966 by the defendants from the plaintiff which plaintiff had duly
shipped and defendants duly received but which defendant refused to pay.
The complaint does not allege that plaintiff has secured a license to transact business in the
Philippines but its alleges that it” has not been and is not engaged in business in the
Philippines and that the transactions averred in this complaint were exports made and
consummated in Tokyo, Japan in pursuance of international trade.”
ISSUE: Whether plaintiff’s allegations in its complaint, particularly in its ten (10) causes of
action, constitute by themselves an admission that it is transacting business in the Philippines.
RULING: An examination of complaint will show that the same expressly avers that the
transactions upon which respondent plaintiff is suing were” consummated in Tokyo” and
hence, not in the Philippines. Petitioners defendant’s assertion that the contracts were made in
the Philippines squarely contradicts the averments in the complaint. And the basic and well-
known rule is that whether a cause of action is pleaded or not must be ascertained solely upon
the face of the complaint.
Since the petitioner’s averment that the plaintiff’s transactions were made in the Philippines,
being contradictory of the complaint, cannot be set up in motion to dismiss for lack of cause of
action, but must be pleaded in an answer, any reception of evidence on the point would merely
duplicate the trial on the merits, and should be deferred.
Therefore, the court below committed no abuse of discretion amounting to excess of
jurisdiction in resolving to defer action on motion to dismiss. The last objection of the
petitioners to the deferment order is that if they file a counterclaim in their answer against
respondent foreign corporation, they would be recognizing the legal capacity of said
corporation which they are precisely questioning. This fear is without legal basis, for actions by
foreign corporations are governed by rules different from those in actions against them.
A counterclaim partakes of the nature of a complaint and/or cause of action against the
plaintiff, so that if the petitioner’s-defendants should file a counterclaim, the private
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respondent-plaintiff Katoh & Co.,Ltd., would not be maintaining a suit and, consequently,
Section 69 of the Corporation Law would not apply.
132 Philip Morris v. Fortune Tobacco, 493 S 333
FACTS: Petitioner Philip Morris, Inc. a corporation organized under the laws of the state of
Virginia, USA, is the registered owner of the trademark MARK VII for cigarettes. Benson and
Hedges (Canada), Inc., a subsidiary of Philip Morris, Inc., is the registered owner of the
trademark MARK TEN for cigarettes. Another subsidiary of Philip Morris, Inc. the Swiss
Company Fabriques de Tabac Reunies, S.A., is the assignee of the trademark LARK. All are
evidenced by Trademark Certificate of Registration. On the other hand, Fortune Tobacco
Corporation, a company organized in the Philippines, manufactures and sells cigarettes using
the trademark MARK.
Philip Morris, Inc. filed a complaint for trademark infringement and damages against Fortune
Tobacco Corporation. The complaint was dismissed by the RTC Pasig City in its decision
dated January 21, 2003.
Maintaining to have the standing to sue in the local forum and that respondent has committed
trademark infringement, petitioners went on appeal to the CA but CA affirmed the trial court’s
decision. The CA found that MARK VII, MARK TEN and LARK do not qualify as well-known
marks entitled to protection even without the benefit of actual use in the local market and that
the similarities in the trademarks in question are insufficient as to cause deception or
confusion tantamount to infringement. With the motion for reconsideration denied in the CA,
the petitioners filed a petition for review with the Supreme Court.
ISSUES:
1.Whether or not petitioners, as Philippine registrants of trademarks, are entitled to enforce
trademark rights in the country.
2. Whether or not respondent has committed trademark infringement against petitioners by its
use of the mark MARK for its cigarettes, hence liable for damages.
RULING: A trademark is any distinctive word, name, symbol, emblem, sign, or device, or any
combination thereof adopted and used by a manufacturer or merchant on his goods to identify
and distinguish them from those manufactured, sold, or dealt in by others. Inarguably,
trademark deserves protection. It is for this reason that the petitioner’s recourse for their
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

entitlement to enforce trademark rights in this country and also the right to sue for trademark
infringement in Philippine courts and be accorded protection against unauthorized use of the
Philippine-registered trademarks is understandable. Their standing to sue in Philippine courts
had been recognized by the CA but such right to sue does not necessarily mean protection of
their trademarks in the absence of actual use in the Philippines.
But the petitioners are still foreign corporations. They may not sue on that basis alone of their
respective certificates of registration of trademarks unless their country grants similar rights
and privileges to Filipino citizens pursuant to Section 21-A of R.A. No. 166. This reciprocity
requirement is a condition to file a suit by a foreign corporation as ruled in Leviton Industries v.
Salvador.
The respective home country of the petitioner, namely, the United States, Switzerland and
Canada, together with the Philippines are members of the Paris Union. Philippines adherence
to the Paris Convention obligates the country to honor and enforce its provisions, however,
this does not automatically entitle petitioners to the protection of their trademark in our country
without actual use of the marks in local commerce and trade because any protection accorded
must be made subject to the limitations of Philippine laws.
Significantly, registration in the Philippines of trademarks does not convey an absolute right or
exclusive ownership thereof. In Shangri-la v. Development Group of Companies, the Court
emphasized that trademark is a creation of use and, therefore, actual use is a prerequisite to
exclusive ownership; registration is only an administrative confirmation of the existence of the
right of ownership of the mark but does not perfect such right.
With the foregoing perspective, it may be stated right off that the registration of a trademark
unaccompanied by actual use in the country accords the registrants only the standing to sue
for infringements in Philippine Courts but entitlement to protection of such trademark in the
country is entirely different matter.
On the main issue of infringement, the court, relying on the holistic test ruled against the
likelihood of confusion resulting in infringement arising from the respondent’s use of the
trademark MARK for its particular cigarette product. The striking dissimilarities are significant
enough to warn any purchaser that one is different from the other. This is upon considering
the entire marking as a whole.
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For lack of convincing proof on the part of the petitioners of actual use of their registered
trademark prior to respondents’ use of its mark and for petitioners failure to demonstrate
confusing similarity between said trademarks, the dismissal of their basic complaint of
infringement and the plea for damages are affirmed.
The petition is denied. The assailed decision and resolution of the Court of Appeals are
affirmed.
133 Puma v. IAC, 158 S 233
Facts: On July 25, 1985, a foreign corporation named PUMA SPORTSCHUHFABRIKEN,
organized under the laws of the Federal Republic of Germany and the manufacturer of
"PUMA PRODUCTS," filed a complaint for infringement of patent or trademark against a
private respondent in the Regional Trial Court of Makati, Philippines. Prior to this civil suit,
three cases were pending before the Philippine Patent Office, involving the same parties: one
opposing the registration of the petitioner's trademark 'PUMA and DEVICE,' one seeking the
cancellation of the petitioner's trademark registration, and one filed by the petitioner for the
cancellation of the private respondent's trademark registration.
ISSUES:
1. Whether the petitioner had the legal capacity to sue in the Philippines.
2. Whether the doctrine of lis pendens applies as a ground for dismissing the case. 3. Whether
the issuance of the writ of preliminary injunction was proper.
RULING:
The Court ruled that the petitioner had the legal capacity to sue in the Philippines. Even
though it was a foreign corporation not doing business in the Philippines, it did not need a
license to sue for trademark infringement and unfair competition. The Philippines was a
signatory to the Union Convention for the Protection of Industrial Property (Paris Convention),
and the petitioner's rights were protected under the convention. The court emphasized the
legal obligation to protect the rights of foreign nationals in the same way that the Philippines
expected its citizens and firms to be protected in other countries.
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School of Law
Saint Louis University

The Court held that the doctrine of lis pendens was not a valid ground for dismissing the case.
For lis pendens to apply, the other case pending between the same parties and with the same
cause of action must be a court action. Since the cases before the Patent Office were
administrative proceedings, they did not meet the criteria for lis pendens to be invoked.
The Court determined that the issuance of the writ of preliminary injunction was proper. The
private respondent was given the opportunity to present counter-evidence but refused to do
so, consistent with its theory that the civil case should be dismissed. Considering that "PUMA"
was an internationally known brand, the Court emphasized the need to protect consumers
from fake and counterfeit products flooding the market, highlighting the importance of
upholding commitments under international conventions and treaties to prevent intellectual
property infringement.
In conclusion, the Court reversed the decision of the Court of Appeals and reinstated the order
of the Regional Trial Court of Makati, allowing the civil case for trademark infringement to
proceed.
134 SBMA v. Universal International Group of Taiwan, 14 September 2000
FACTS: In 1995, a ‘Lease and Development Agreement’ was executed by respondent UIG
and petitioner SBMA under which respondent UIG shall lease from petitioner SBMA the
Binictican Golf Course and appurtenant facilities thereto to be transformed into a world class
18-hole golf course, golf club/resort, commercial tourism and residential center. The contract
in pertinent part contains pre-termination clauses, which provides in its Section 22 thereof the
acts which constitute what is “default”.
In 1997, Petitioner SBMA sent a letter to private respondent UIG calling its attention to its
alleged several contractual violations in view of private respondent UIG’s failure to deliver its
various contractual obligations, primarily its failure to complete the rehabilitation of the Golf
Course in time for the APEC Leader’s Summit, and to pay accumulated lease rentals and
utilities, and to post the required performance bond.
Respondent UIG, in its letter, interposed as an excuse the alleged default of its main
contractor FF Cruz, resulting in their filing of suit against the latter, and committed itself to
comply with its obligations within a few days. Private respondent UIG, however, failed to
comply with its undertakings.
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Petitioner SBMA sent a letter to private respondent UIG declaring the latter in default of its
contractual obligations to SBMA under Section 22.1 of the Lease and Development
Agreement and required it to show cause why petitioner SBMA should not pre-terminate the
agreement. Private respondents paid the rental arrearages but the other obligations remained
unsatisfied.
ISSUE: Whether or not respondents had the capacity to sue and possess material interest to
institute an action against petitioners.
RULING: Yes. As a general rule, unlicensed foreign non-resident corporations cannot file suits
in the Philippines as provided in Section 133 of the Corporation Code. A corporation has legal
status only within the state or territory in which it was organized. For this reason, a corporation
organized in another country has no personality to file suits in the Philippines. In order to
subject a foreign corporation doing business in the country to the jurisdiction of our courts, it
must acquire a license from the SEC and appoint an agent for service of process. Without
such license, it cannot institute a suit in the Philippines.
However, that the licensing requirement was “never intended to favor domestic corporations
who enter into solitary transactions with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do business in this country.” After
contracting with a foreign corporation, a domestic firm is estopped from denying the former’s
capacity to sue.
In this case, SBMA is estopped from questioning the capacity to sue of UIG. In entering into
the LDA with UIG, SBMA effectively recognized its personality and capacity to institute the suit
before the trial court.
The petition is partially granted. the writ of preliminary injunction is lifted and the case is to the
RTC for trial on the merits.
135 Time v. Reyes, 39 S 304
FACTS: In Time’s Asian Edition Magazine, Manila Mayor Antonio Villegas was accused of
having coffers containing “far more pesos than seemed reasonable in the light of his income.”
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University

Juan Ponce Enrile was dragged onto the article because he allegedly lent Villegas 30,000
pesos as he was his compadre and at that time, Enrile was the Secretary of Finance. Villegas
and Enrile sought to recver damages from Time Magazine, an American Corporation, so they
filed a complaint in the CFI of Rizal. Petitioner received the summons and a copy of the
complaint at its offices in New York on 13 December 1967 and, on 27 December 1967, it filed
a motion to dismiss the complaint for lack of jurisdiction and improper venue, relying upon the
provisions of Republic Act 4363. The judge deferred the proceedings for the reason that "the
rule laid down under Republic Act. No. 4363, amending Article 360 of the Revised Penal Code,
is not applicable to actions against non-resident defendants, and because questions involving
harassment and inconvenience, as well as disruption of public service do not appear
indubitable.
ISSUE: Whether or not Republic Act 4363 is applicable to action against a foreign corporation
or non-resident defendant.
RULING: The assertion that a foreign corporation or a non-resident defendant is not
inconvenienced by an out-of-town suit is irrelevant and untenable, for venue and jurisdiction
are not dependent upon convenience or inconvenience to a party; and moreover, venue was
fixed under Republic Act No. 4363, pursuant to the basic policy of the law that is, as previously
stated, to protect the interest of the public service when the offended party is a public officer,
by minimizing as much as possible any interference with the discharge of his duties.
That respondents-plaintiffs could not file a criminal case for libel against a non-resident
defendant does not make Republic Act No. 4363 incongruous of absurd, for such inability to
file a criminal case against a non-resident natural person equally exists in crimes other than
libel. It is a fundamental rule of international jurisdiction that no state can by its laws, and no
court which is only a creature of the state, can by its judgments or decrees, directly bind or
affect property or persons beyond the limits of the state. Not only this, but if the accused is a
corporation, no criminal action can lie against it, whether such corporation or resident or non-
resident. At any rate, the case filed by respondents-plaintiffs is case for damages.
136 Universal Rubber v. CA, 130 S 104
FACTS: Converse Rubber Corporation and Edwardson Manufacturing Corporation sued
Universal Rubber for unfair competition with damages and attorney's fees before the Court of
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First Instance of Rizal. The private respondents requested for the issuance of a subpoena
duces tecum against the treasurer of Universal Rubber which was granted.
Universal Rubber filed a motion in the court below praying that the subpoena duces tecum be
quashed on the grounds that the said subpoena is both unreasonable and oppressive as (a)
there is no good cause shown for the issuance thereof and (b) the question of liability should
be determined first before discovery by means of a subpoena duces tecum is allowed. It also
assails that private respondent is a foreign corporation not licensed to do business in the
Philippines and that respondent Edwardson is merely its licensee; that respondent Converse
has no goodwill to speak of and that it has no registrable right over its own name.
While this present petition remains pending before the Supreme Court, Universal Rubber
manifested on April 2, 19775 that their establishment was totally burned together with all the
records which were sought to be produced in court by the questioned "subpoena duces tecum"
on May 3, 1970. In effect, it renders the present petition moot and academic.
ISSUES: Whether the question of liability of petitioner should be determined first before
discovery by means of a subpoena duces tecum is allowed.
Whether Foreign corporation without license to do business in the Philippines are disqualified
from filing and prosecuting an action for unfair competition.
RULING: In order to entitle a party to the issuance of a "subpoena duces tecum", it must
appear, by clear and unequivocal proof, that the book or document sought to be produced
contains evidence relevant and material to the issue before the court, and that the precise
book, paper or document containing such evidence has been so designated or described that
it may be identified. A "subpoena duces tecum" once issued by the court may be quashed
upon motion if the issuance thereof is unreasonable and oppressive, or the relevancy of the
books, documents or things does not appear, or if the persons in whose behalf the subpoena
is issued fails to advance the reasonable cost of production thereof.
In recovering the loss suffered by the aggrieved party due to "unfair competition," Sec. 23 of
R.A. 166 grants the complainant three options within which to ascertain the amount of
damages recoverable, either (1) the reasonable profit which the complaining party would have
made, had the defendant not infringed his said rights; or (2) the profit which the defendant
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actually made out of the infringement; or (3) the court may award as damages a reasonable
percentage based upon the amount of gross sales of the defendant of the value of the services
in connection with which the mark or tradename was issued in the infringement of the rights of
the complaining party. In a suit for unfair competition, it is only through the issuance of the
questioned "subpoena duces tecum" that the complaining party is afforded his full rights of
redress.
The argument that the petitioner should first be found guilty of unfair competition before an
accounting for purposes of ascertaining the amount of damages recoverable can proceed,
stands without merit. The complaint for unfair competition is basically a suit for "injunction and
damages". Injunction, for the purpose of enjoining the unlawful competitor from proceeding
further with the unlawful competition, and damages, in order to allow the aggrieved party to
recover the damage he has suffered by virtue of the said unlawful competition. Hence, the
election of the complainant (private respondent herein) for the accounting of petitioner's
(defendant below) gross sales as damages per R.A. 166, appears most relevant. For Us, to
determine the amount of damages allowable after the final determination of the unfair labor
case would not only render nugatory the rights of complainant under Sec. 23 of R.A. 166 but
would be a repetitious process causing only unnecessary delay.
The sufficiency in the description of the books sought to be produced in court by the
questioned "subpoena duces tecum" is not disputed in this case, hence, We hold that the
same has passed the test of sufficient description.
(B) The disability of a foreign corporation from suing in the Philippines is limited to suits to
enforce any legal or contract rights arising from, or growing out, of any business which it has
transacted in the Philippine Islands. xxx On the other hand, where the purpose of a suit is 'to
protect its reputation, its corporate name, its goodwill, whenever that reputation, corporate
name or goodwill have, through the natural development of its trade, established themselves',
an unlicensed foreign corporation may sue in the Philippines. So interpreted by the Supreme
Court, it is clear that Section 29 of the Corporation Law does not disqualify plaintiff-appellee
Converse Rubber, which does not have a branch office in any part of the Philippines and is not
'doing business' in the Philippines, from filing and prosecuting this action for unfair
competition."
137 Van Zuiden v. GTVL Industries, 523 S 233
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FACTS: On 13 July 1999, petitioner filed a complaint for sum of money against respondent.
Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of Hong Kong. ZUIDEN is not
engaged in business in the Philippines, but is suing before the Philippine Courts. It is engaged
in the importation and exportation of several products, including lace products. On several
occasions, GTVL purchased lace products from ZUIDEN.
The procedure for these purchases, as per the instructions of GTVL, was that ZUIDEN delivers
the products purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar Ltd.
(KENZAR), and the products are then considered as sold, upon receipt by KENZAR of the
goods purchased by GTVL. KENZAR had the obligation to deliver the products to the
Philippines and/or to follow whatever instructions GTVL had on the matter. Insofar as ZUIDEN
is concerned, upon delivery of the goods to KENZAR in Hong Kong, the transaction is
concluded; and GTVL becomes obligated to pay the agreed purchase price.
However, commencing October 31, 1994 up to the present, GTVL has failed and refused to
pay the agreed purchase price for several deliveries ordered by it and delivered by ZUIDEN,
as above mentioned.
In spite of said demands and in spite of promises to pay and/or admissions of liability, GTVL
has failed and refused, and continues to fail and refuse, to pay the overdue amount of U.S.
$32,088.02 inclusive of interest.
Instead of filing an answer, respondent filed a Motion to Dismiss on the ground that petitioner
has no legal capacity to sue.
Respondent alleged that petitioner is doing business in the Philippines without securing the
required license. Accordingly, petitioner cannot sue before Philippine courts.
ISSUE: Whether petitioner, an unlicensed foreign corporation, has legal capacity to sue before
Philippine courts.
RULING: Yes, although the petitioner is not doing business in the Philippines, it has locus
standi to sue before Philippine courts. To be doing or "transacting business in the Philippines"
for purposes of Section 133 of the Corporation Code, the foreign corporation must actually
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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University
 Case Digest Compilation
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transact business in the Philippines, that is, perform specific business transactions within the
Philippine territory on a continuing basis in its own name and for its own account.

Actual transaction of business within the Philippine territory is an essential requisite for the
Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign
corporation to secure a Philippine business license. If a foreign corporation does not transact
such kind of business in the Philippines, even if it exports its products to the Philippines, the
Philippines has no jurisdiction to require such foreign corporation to secure a Philippine
business license.

Notes:
The mere act of exporting from one's own country, without doing any specific commercial act
within the territory of the importing country, cannot be deemed as doing business in the
importing country. The importing country does not acquire jurisdiction over the foreign exporter
who has not performed any specific commercial act within the territory of the importing country.
Without jurisdiction over the foreign exporter, the importing country cannot compel the foreign
exporter to secure a license to do business in the importing country.

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Atty. Leonardo Nick Gumabun
School of Law
Saint Louis University