Gokongwei, Jr. vs. SEC (G.R. No.

L-45911, April 11, 1979)

Gokongwei, a shareholder of San Miguel Corp., submitted a petition to the Securities and Exchange
Commission (SEC) seeking the annulment of its by-laws vis-à-vis the majority members of the Board of
Directors (BOD) and San Miguel Corp.

The by-laws stipulated that any changes or revisions to them could only be entrusted to the BOD through
a positive vote from shareholders constituting no less than 2/3 of the total subscribed capital stock of
the company. Gokongwei contended that the alteration was grounded in the 1961 authorization,
wherein the Board acted beyond its mandate and encroached upon the authority of shareholders when
amending the by-laws in 1976.

Furthermore, Gokongwei contended that the amendment deprived him of his entitlement to participate
in voting and candidacy as a shareholder due to the revised by-laws disqualifying competitors from being
nominated and elected to the BOD of San Miguel Corp.

In addition, Gokongwei alleged that the corporation had been employing corporate funds in other
entities and ventures beyond the scope of the corporation's primary purpose, which was in violation of
the Corporation Code.

As the petition was pending review, the corporation convened a shareholders' meeting to ratify the by-
laws amendments, prompting Gokongwei to seek a summary judgment. Nonetheless, the SEC declined
the request for summary judgment.

Issue:

The main issue is whether the amendments made to the by-laws were valid.

Ruling:

The Supreme Court has determined that the assessment of the validity and reasonableness of by-laws
primarily constitutes a legal question. If the by-laws are in conflict with prevailing laws, the corporation's
charter, or are legally unjustifiable and unreasonable, the matter is considered a legal issue. However,
this principle is circumscribed by situations where the determination of by-law reasonableness is a
subjective judgment. If there exists a situation where reasonable individuals might hold differing
opinions, the court should refrain from supplanting its judgment for that of the authorized by-law
creators who have exercised their prerogative. The Court's decision affirms that within the confines of
the authority conferred by its by-laws, a corporation holds the jurisdiction to establish the qualifications
for directors.

A corporation inherently possesses the authority to adopt by-laws governing its internal regulations, and
to manage the behavior, rights, and responsibilities of its members concerning its internal affairs. The
Corporation law further provides latitude for a corporation to stipulate in its by-laws the prerequisites,
obligations, and remuneration of directors, officers, and employees.

Anyone purchasing stock in a corporation does so cognizant of the fact that the majority of decisions are
influenced by the majority of stockholders. Implicit in this transaction is the understanding that the
majority's will shall govern within the boundaries of the company's articles of incorporation, legal by-
laws, and non-forbidden legal regulations. Consequently, a corporation possesses the authority to
amend its by-laws through the endorsement of the majority of subscribed stockholders.

The Court has upheld that petitioners lack an absolute entitlement, as shareholders, to secure directorial
positions. This stems from the fact that at the time of the stockholder's acquisition of this right, the law
specified that both the corporate charter and the by-laws are subject to modification, change, and
adjustment.

The Board of Directors (BOD) upholds a fiduciary relationship with the corporation and its shareholders,
representing a position of trust. An adjustment to the corporate by-laws that renders a shareholder
ineligible to become a director if they also hold a directorial position in a competing corporation has
been validated as lawful. This validation rests on the principle that a director cannot serve both entities if
they are engaged with a rival company; they must opt for one and, in doing so, relinquish the other. This
amendment advances the corporation's interests and is deemed legitimate.

Corporate officers are likewise proscribed from exploiting their fiduciary roles to further personal
interests. Actions undertaken in the service of personal interests are regarded as actions for the benefit
of the corporation, a doctrine referred to as the "corporate opportunity" doctrine.
•Tramat Mercantile vs. CA (238 SCRA 14 [1994])

**Facts:**

1. Melchor de la Cuesta, doing business as "Farmers Machineries," sold one HINOMOTO TRACTOR to
Tramat Mercantile, Inc.

2. David Ong, the President and Manager of Tramat, issued a check for P33,500 as payment, which was
meant to replace an earlier postdated check for P33,080.00.

3. Tramat subsequently sold the tractor, along with a lawn mower it had fabricated, to the Metropolitan
Waterworks and Sewerage System ("NAWASA") for P67,000.

4. David Ong stopped payment on the check when NAWASA refused to pay for the tractor and lawn
mower due to the discovery that the engine was a reconditioned unit and there were defects in the
attached lawn mower.

5. Melchor de la Cuesta filed a lawsuit seeking the recovery of P33,500.

**Issues:**

1. Whether or not David Ong is jointly and severally liable with Tramat Mercantile, Inc., for the payment
of P33,500.

**Ruling:**

The court ruled in favor of David Ong and held that he is not jointly and severally liable with Tramat
Mercantile, Inc., for the payment of P33,500.

David Ong acted not in his personal capacity but as an officer of a separate legal entity, Tramat
Mercantile, Inc. In such cases, it is the corporation and not the individual acting on its behalf that can be
made liable.

Personal liability of a corporate officer can typically only attach under specific circumstances, such as
when they assent to a patently unlawful act of the corporation, act in bad faith or with gross negligence
in directing its affairs, engage in a conflict of interest resulting in damages, consent to the issuance of
watered stocks, or are made personally accountable by a specific provision of law. None of these
circumstances were present in this case.

Therefore, the court found that there was no valid basis to hold David Ong personally accountable for
the payment of P33,500. The decision of the trial court was modified to exclude Ong's personal liability,
and in all other respects, the decision was affirmed.
•Cebu Country Club vs. Elizagaque (542 SCRA 65 [2008])

**Facts:**

Cebu Country Club, Inc. (CCCI), a domestic corporation operating as a non-profit and non-stock private
membership club, received an application for proprietary membership from the respondent in 1996. This
application was endorsed by two proprietary members of CCCI, Edmundo T. Misa and Silvano Ludo.

The price of a proprietary share at CCCI was approximately P5 million. However, the then-president of
CCCI, Benito Unchuan, offered to sell a share to the respondent for P3.5 million. The respondent opted
to purchase a share from a third party, Dr. Butalid, for P3 million. Subsequently, CCCI issued Proprietary
Ownership Certificate No. 1446 to the respondent.

The CCCI Board of Directors conducted several meetings to deliberate on the respondent's application
for proprietary membership. During a meeting on July 30, 1997, a secret ballot system known as the
"black ball system" was used for voting. In this system, a white ball signified approval, and a black ball
indicated disapproval. The CCCI bylaws required a unanimous vote of the directors for approval. One
black ball was cast during the vote, leading to the disapproval of the respondent's application.

Despite the disapproval, the respondent, through Edmundo T. Misa, wrote letters seeking
reconsideration, but CCCI did not respond. The respondent then filed a complaint for damages against
the petitioners (members of the CCCI Board of Directors) on December 23, 1998.

**Issue:**

Whether the petitioners, in disapproving the respondent's application for proprietary membership with
CCCI, are liable to the respondent for damages, and if so, whether their liability is joint and several.

**Ruling:**

Yes, the petitioners are liable to the respondent for damages, and their liability is joint and several.

The CCCI Board of Directors had the right to approve or disapprove an application for proprietary
membership. However, this right should not be exercised arbitrarily. Articles 19 and 21 of the Civil Code
on Human Relations provide restrictions on the exercise of such rights.

Article 19 requires individuals to act with justice, give everyone their due, and observe honesty and good
faith. Article 21 states that any person who causes loss or injury to another in a manner contrary to
morals, good customs, or public policy shall compensate the latter for the damage.

In this case, the CCCI Board's rejection of the respondent's application was found to be in violation of
these principles. The trial court and the Court of Appeals ruled that the petitioners had acted
fraudulently and in evident bad faith when disapproving the application, which was contrary to morals,
good customs, and public policy. As a result, the petitioners were held liable for damages pursuant to
Article 19 in relation to Article 21 of the Civil Code.

The liability of the petitioners is joint and several, meaning they are collectively responsible for the
damages awarded to the respondent.
•Reynoso IV vs. CA (345 SCRA 335 [2000

**Facts:**

Commercial Credit Corporation (CCC), a financing and investment firm, decided to organize franchise
companies throughout the country, where CCC would hold a 30% equity interest. CCC designated some
of its employees, including Bibiano Reynoso IV, as resident managers of these franchise companies.
Reynoso was designated as the resident manager of CCC-QC.

To comply with the DOSRI (Directors, Officers, Stockholders, and Related Interests) Rule, which prohibits
lending of funds by a corporation to its directors, officers, shareholders, and related parties, CCC decided
to establish CCC Equity Corporation, a wholly-owned subsidiary. CCC transferred its 30% equity in CCC-
QC to CCC Equity Corporation, including two seats on the Board of Directors. In this new arrangement,
several employees of CCC also became employees of CCC Equity.

Later, CCC-QC filed a complaint for a sum of money against Reynoso, who had been dismissed from CCC
Equity. The complaint alleged embezzlement of funds that were used to purchase a house in Valle Verde.
Reynoso claimed that the money he used represented his money placements in CCC-QC, supported by
23 checks he issued to CCC-QC.

The Regional Trial Court (RTC) dismissed the case against Reynoso and granted his counterclaim for
damages. CCC-QC's appeal to the Intermediate Appellate Court (IAC) was dismissed due to failure to pay
docket fees, making the RTC decision final and executory. However, the judgment remained unsatisfied,
prompting Reynoso to file a Motion for Alias Writ of Execution.

CCC had undergone a name change and became known as General Credit Corporation (GCC). When the
RTC ordered GCC to comment on Reynoso's petition, GCC claimed it was not a party to the case and
suggested Reynoso direct his claims against CCC-QC. Reynoso argued that CCC-QC was an adjunct
instrumentality, conduit, and agency of CCC and cited a previous Supreme Court ruling (Ramoso v. GCC)
that declared GCC, CCC Equity, and other franchised companies, including CCC-QC, as a single
corporation. Reynoso contended that GCC was merely the new name for CCC, and therefore both should
be treated as one entity. Cases were filed in both Pasig and QC RTCs to levy on GCC's properties. The
Court of Appeals (CA) enjoined the auction sale of GCC's properties.

**Issue:**

Whether or not piercing the veil of corporate fiction was proper.

**Held:**

The CA decision is reversed and set aside. The injunction against levying on GCC's properties and their
auction sale is lifted.

Piercing the veil of corporate fiction is appropriate in this case. CCC-QC's use of the same name as
Commercial Credit Corporation was intended to publicly identify it as part of the CCC group of
companies engaged in the same business of investment and financing. When a mother corporation and
its subsidiary cease to act in good faith and honest business judgment, and when the corporate fiction is
used to perpetuate fraud or promote injustice, the law intervenes to remedy the injustice. The corporate
character is not necessarily abrogated but is pierced to remedy injustices.
A court judgment becomes useless and ineffective if the employer, in this case, CCC (later GCC), is placed
beyond the legal reach of the judgment creditor who, after protracted litigation, has been found entitled
to relief. Courts are established to put an end to controversies, and this purpose should not be negated
by an improper use of the corporate veil.

The defense of separateness will be disregarded when the business affairs of a subsidiary corporation are
so controlled by the mother corporation that it becomes an instrument or agent of its parent. However,
even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of
corporate fiction applies only when used to defeat public convenience, justify wrong, protect fraud, or
defend crime.

Factually and legally, CCC had dominant control of CCC-QC's business operations, including:

1. An exclusive management contract that ensured CCC-QC was managed and controlled by CCC;

2. CCC's appointment of its own employee as the resident manager of CCC-QC;

3. Salaries, pensions, benefits, etc., paid by CCC, which later became GCC;

4. Unity of interest, management, control, intensive auditing functions of CCC over CCC-QC, and sharing
of office space;

5. The lawyers representing CCC-QC were all in-house counsels of CCC.

Given these circumstances, the court ruled that the veil of corporate fiction should be pierced to address
the injustice and hold GCC (formerly CCC) liable for the judgment against CCC-QC.
•Querubin, et.al. vs. Comelec, et.al. (G.R. No. 218787, Dec.8, 2015)

In October 2014, the COMELEC issued a bidding invitation for the lease of election management and
optical scan systems to be used in the 2016 National and Local Elections. The joint venture of
Smartmatic-TIM Corporation (SMTC), Smartmatic International Holding B.V., and Jarltech International
Corporation (collectively referred to as "Smartmatic JV") and Indra Sistemas, S.A. expressed interest in
the project and submitted their bids. Smartmatic JV informed the COMELEC that one of its partner
corporations, SMTC, had pending amendments to its Articles of Incorporation with the Securities and
Exchange Commission (SEC).

The COMELEC's Bids and Awards Committee (BAC) declared both Smartmatic JV and Indra eligible to
participate in the second stage of the bidding process. After further evaluations and post-qualification
checks, Smartmatic JV was initially disqualified by the BAC based on technical grounds.

Smartmatic JV filed a protest and was allowed to conduct another technical demonstration to prove
compliance with the technical specifications. The Technical Evaluation Committee (TEC) determined that
Smartmatic JV's system met the requirements, leading the COMELEC en banc to grant the protest and
declare Smartmatic JV as the lowest bidder.

However, Commissioner Luie Tito F. Guia dissented, questioning the sufficiency of documents submitted
by Smartmatic JV. Despite this, the majority of the COMELEC en banc upheld Smartmatic JV's bid as
compliant with the technical specifications. Petitioners now challenge this decision in their legal
recourse.

Issue:

Whether or not Smartmatic JV misrepresented itself by leading the BAC to believe that it is Filipino
corporation when it is infact 100% foregin owned

Ruling:

The petitioners' claim that Smartmatic-TIM Corporation (SMTC) is 100% foreign-owned is refuted, as it is
revealed that SMTC maintains 60-40 Filipino ownership, negating any need for further confirmation
through the grandfather rule. The case lacks credible challenges to SMTC's ownership, relying solely on
vague assertions and baseless claims from the petitioners. SMTC, on the other hand, provides evidence
of its Filipino ownership through its General Information Sheet (GIS) and Articles of Incorporation (AOI).

Regarding the nationality of the other joint venture partners, the court defers to the findings of the
COMELEC and BAC, recognizing Smartmatic JV as eligible to participate in the bidding process.
Petitioners failed to provide evidence that the aggregate Filipino equity of the joint venture partners
does not meet the 60% requirement. The petition is dismissed for lack of merit, affirming the COMELEC
en banc's decision.
•Calubad vs. Ricarcen Dev. Corp. (838 SCRA 303 [2017])

Facts

The case involves a dispute over a loan secured by a real estate mortgage obtained by Marilyn R.
Soliman, the former president of Ricarcen Development Corporation (Ricarcen), on behalf of the
corporation. Marilyn obtained multiple loans using Ricarcen's property as collateral, totaling
P7,000,000.00. Ricarcen later discovered these transactions and filed a complaint for the annulment of
the mortgage contracts, extrajudicial foreclosure, and sale by public auction.

The Regional Trial Court ruled in favor of Ricarcen, declaring the mortgage contracts null and void and
ordering the cancellation of the title issued to the creditor, Arturo Calubad. The Court of Appeals
affirmed the decision, emphasizing the need for clear and convincing proof to overcome the
presumption of the validity of notarized documents. The court also rejected Calubad's claims of estoppel
and laches, stating that Ricarcen acted promptly upon discovering the transactions.

Ultimately, the Court of Appeals dismissed Calubad's appeal, affirming the decision in its entirety.

Issue:

Whether or not the petitioner is liable under the Doctrine of Apparent Authority

Ruling:

Yes. Marilyn, in her capacity as the former president of Ricarcen Development Corporation, operated
well within her authorized boundaries on behalf of the company. Her authority wasn't just implied; it
was substantiated through various means. She held a position of trust and was entrusted with blank,
pre-signed sheets of paper by the corporate secretary, underscoring her extensive authority. Moreover,
her possession of the owner's duplicate copy of the land title related to the mortgaged property further
confirmed her authority, which was granted by Ricarcen.

The transaction records reveal a series of actions that strongly support Marilyn's apparent authority. On
October 15, 2001, Mr. Calubad issued two checks payable to Ricarcen as loan proceeds, both of which
were successfully deposited into Ricarcen's bank account and subsequently honored by the drawee
bank. This demonstrated Marilyn's apparent capacity to execute and oversee these financial transactions
on behalf of Ricarcen.

Between December 15, 2001, and April 15, 2002, several checks were issued by Ricarcen, bearing the
signatures of Erlinda and Marilyn, to cover monthly interest payments on the mortgage loans. These
checks, drawn on Banco de Oro, consistently cleared. Furthermore, an additional loan of P2,000,000.00,
obtained on May 8, 2002, led to the issuance of additional checks as payments for both the loan and its
monthly interest.

However, it's essential to note that a set of checks were dishonored due to insufficient funds in June,
July, and August 2002. This prompted Marilyn to request that Mr. Calubad no longer deposit some
subsequent checks, citing insufficiency of funds. Despite these financial setbacks, Calubad continued to
engage in transactions with Marilyn, even agreeing to provide additional loans. This ongoing interaction
between the parties strongly attests to Marilyn's apparent authority, as perceived by Calubad and
anyone dealing with her on behalf of Ricarcen.
While Ricarcen may assert that it never explicitly authorized Marilyn to engage in these actions, the
evidence suggests otherwise. It is evident that Ricarcen's officers, through their actions and inaction,
contributed to the appearance of Marilyn's authority in their dealings with third parties. This situation
underscores the doctrine of apparent authority, which dictates that even without explicit authorization,
an agent's acts, within the apparent scope of authority, can bind the principal. In this case, Mr. Calubad
reasonably believed in Marilyn's authority to act for Ricarcen due to the conduct of Ricarcen and its
officers, and therefore, Ricarcen should not evade responsibility for her actions. This principle aligns with
the precedent set in the Yao Ka Sin Trading case.
•Yasuma vs. Heirs of Cecilio S. De Villa (499 SCRA 466 [2006])

**Facts:**

- On September 15, 1988, October 21, 1988, and December 5, 1988, Cecilio S. de Villa obtained loans
from petitioner Koji Yasuma, totaling P1.3 million. These loans were evidenced by promissory notes
signed by de Villa as the borrower. The last promissory note canceled the first two.

- The loans were initially secured by three separate real estate mortgages on a property owned by
respondent East Cordillera Mining Corporation. Deeds of mortgage were executed on the dates the loans
were obtained, signed by de Villa as the president of the respondent corporation.

- For failure to pay, petitioner filed a collection suit against de Villa and respondent corporation. The
Regional Trial Court (RTC) initially ruled in favor of the petitioner, but the judgment was annulled on
appeal due to improper service of summons. The case was remanded for retrial.

- During the case's pendency, de Villa passed away, and petitioner amended the complaint to include de
Villa's heirs as defendants.

- The RTC rendered judgment in favor of the petitioner, ordering respondent corporation to pay the loan
amount, interest, attorney's fees, damages, and costs of suit. The complaint was dismissed against de
Villa's heirs.

- The Court of Appeals (CA) reversed the RTC's decision, stating that the loan was personal to de Villa and
the mortgage was null and void due to the lack of authority from the corporation.

**Issues:**

1. Whether the loans were personal liabilities of de Villa or debts of respondent corporation.

2. Whether the mortgage on respondent corporation's property was null and void for lack of authority.

**Rulings:**

1. The loans were personal liabilities of de Villa:

- A corporation is a separate juridical person from its stockholders, acting through its board of
directors or corporate officers. Corporate officers may be authorized either expressly or impliedly.

- Ratification by the corporation can validate unauthorized acts of its officers, either expressly or
impliedly. However, ratification requires full knowledge of the unauthorized act, and in this case, no
proof was presented that the corporation knew about the loans obtained by de Villa on its behalf.

- The promissory notes appeared to be personal loans of de Villa, with no mention of the corporation.
The demand letters were addressed to de Villa personally. The corporation received the money but in
good faith, as good faith is presumed.

- Therefore, the loans were personal to de Villa, and the corporation was not liable for the loss of the
money.
2. The mortgage was null and void:

- A special power of attorney is required to create or convey real rights over immovable property, and
it must appear in a public document.

- In the absence of a special power of attorney, no valid mortgage could have been executed by de
Villa, even if it was considered an accessory contract to the loan.

- Since the mortgage was void, it could not be ratified.

3. Personal liability of de Villa:

- De Villa's liability for the loan was personal, and the case was correctly dismissed against his heirs.

- Petitioner's remedy is to file a money claim in the settlement proceedings of de Villa's estate, as
indicated in Rule 86 of the Rules of Court.

The petition was denied, and the CA's decision affirming the dismissal of the case was upheld.
•Lipat vs. Pacific Banking Corp. (402 SCRA 339 [2003])

**Facts:**

- The petitioner spouses owned Bela’s Export Trading (BET), a single proprietorship engaged in garment
manufacturing for domestic and foreign markets.

- Through a Special Power of Attorney (SPA), the spouses authorized their daughter to obtain a loan from
the respondent Pacific Bank. A loan was obtained, and a Real Estate Mortgage (REM) was executed,
using the spouses' property as security.

- BET was later incorporated into Bela’s Export Corporation (BEC), a family corporation. The loan was
restructured in BEC's name, and subsequent loans were obtained on behalf of BEC, all secured by the
previous REM.

- BEC defaulted on its payments, leading to the foreclosure and sale of the mortgaged property.

- The spouses sought to annul the sale, claiming that BEC was a distinct and separate entity from them,
and the REM was executed solely to secure BET's loan.

- Both the trial court and the Court of Appeals (CA) ruled to pierce the corporate veil, holding the
petitioner spouses liable for BEC's obligations.

**Issue:**

Whether or not the doctrine of piercing the corporate veil is applicable in this case.

**Ruling:**

Yes, the doctrine of piercing the corporate veil is applicable.

- The evidence on record undermines the contention that BET and BEC are separate entities. Estelita
Lipat admitted that she and her husband, Alfredo, were the owners of BET and were also two of the
incorporators and majority stockholders of BEC.

- Estelita Lipat executed a special power of attorney authorizing her daughter to obtain loans on her
behalf. Her daughter was designated as the executive-vice president and general manager of both BET
and BEC.

- BET and BEC were closely intertwined in terms of ownership, business purpose, and management,
suggesting that they were essentially the same entity, with BEC merely succeeding BET.

- The attempt to isolate themselves from the corporate personality of BEC to evade liabilities is precisely
what the doctrine of piercing the corporate veil seeks to prevent and remedy.

- BEC is viewed as a mere continuation and successor of BET, and the petitioners cannot avoid their
obligations in the mortgage contract secured under BEC's name on the pretext that it was signed for
BET's benefit.
- The Court of Appeals correctly applied the instrumentality doctrine in piercing the corporate veil of
BEC.

The Court upheld the application of the doctrine of piercing the corporate veil, finding that BEC was a
mere continuation and successor of BET, and the petitioner spouses were liable for BEC's obligations.
•BPI Family Savings Bank vs. First Metro Investment Corp. (429 SCRA 30 [2004])

**Facts:**

- First Metro Investment Corporation (FMIC) is an investment house, while Bank of Philippine Islands
Family Savings Bank, Inc. (BPI FB) is a banking corporation, both organized under Philippine laws.

- On August 25, 1989, FMIC deposited P100 million into a current account with BPI FB. This deposit was
made at the request of Ador de Asis, a close acquaintance of BPI FB's Branch Manager, Jaime Sebastian.

- BPI FB, through Sebastian, guaranteed the payment of 17% per annum interest on this deposit and
received assurance from FMIC that the deposit would be maintained for one year in exchange for the
interest being paid in advance.

- This agreement was communicated in writing between the parties.

- Subsequently, BPI FB paid FMIC the 17% interest upon clearance of FMIC's check deposit.

- However, on August 29, 1989, BPI FB transferred P80 million from FMIC's account to Tevesteco Arrastre
Stevedoring, Inc. (Tevesteco) based on an unauthorized Authority to Debit, allegedly signed by FMIC's
Executive Vice President, Antonio Ong, and Ma. Theresa David, a Senior Manager of FMIC. FMIC claimed
these signatures were falsified.

- FMIC issued a check to recover its deposit, but BPI FB dishonored it due to insufficient funds.

- FMIC filed a civil case against BPI FB to recover its deposit.

**Issues:**

Whether or not BPI FB's Branch Manager, Jaime Sebastian, had apparent authority to enter into the
agreement with FMIC.

**Rulings:**

BPI FB is estopped from denying the apparent authority of its Branch Manager, Jaime Sebastian, to enter
into the agreement with FMIC. If a corporation permits its officer to perform acts within the scope of
apparent authority, it will be estopped from denying such authority against third parties dealing in good
faith. BPI FB ratified the transaction by paying FMIC the interest in advance.

Also, BPI FB could not evade liability for the unauthorized transfer of funds. The transfer was deemed
unauthorized, and BPI FB's attempt to impugn the agreement's validity due to overstepped authority
was futile.

The award of interest was proper since the obligation involved was the payment of money, and the
parties had stipulated in writing that the deposit would earn interest at 17% per annum. Interest due
would earn legal interest from the time of judicial demand.

The Court of Appeals was not required to order the consolidation of related cases, as the unauthorized
transfer of funds was already established as unauthorized and fraudulent.

This case highlights the doctrine of apparent authority, emphasizing that a corporation is bound by the
acts of its officers or agents when they are perceived by third parties to have the authority to perform
such acts, even if the officers or agents may have exceeded their actual authority. It underscores the
importance of maintaining confidence in the representations made by a corporation's officers or agents
in the course of its business dealings with third parties. Additionally, the ruling affirms that when a
deposit is made with a bank and there is a written agreement specifying the terms of interest, that
agreement will be enforced, and interest will accrue from the time of judicial demand.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals in
are hereby AFFIRMED.
•Caltex (Phils.), Inc. vs. PNOC Shipping and Transport Corp. (498 SCRA 400 [2006])

**Facts:**

On July 6, 1979, PSTC and Luzon Stevedoring Corporation (LUSTEVECO) entered into an Agreement of
Assumption of Obligations. Under this agreement, PSTC assumed all obligations of LUSTEVECO
concerning specific claims detailed in Annexes "A" and "B." These claims included a lawsuit between
Caltex and LUSTEVECO, which had been affirmed with modifications by the Intermediate Appellate Court
(IAC). The decision became final and executory. The Regional Trial Court (RTC) issued a writ of execution
in favor of Caltex, but it could not be satisfied due to LUSTEVECO's property foreclosures.

Caltex discovered the agreement between PSTC and LUSTEVECO, and after several demands, PSTC
refused to pay LUSTEVECO's judgment debt, stating it was not a party to the original lawsuit and advised
Caltex to demand payment from LUSTEVECO. Subsequently, Caltex filed a complaint for the sum of
money against PSTC.

**Issues:**

1. Whether or not PSTC is bound by the Agreement when it assumed all the obligations of LUSTEVECO.

**Rulings:**

**1. PSTC is bound by the Agreement:**

- The Agreement explicitly provided that PSTC would assume all obligations of LUSTEVECO concerning
the specified claims. This assumption of obligations was part of the consideration for the transfer of
LUSTEVECO's assets to PSTC.

- PSTC cannot accept the benefits of the Agreement without fulfilling the obligations it explicitly
assumed. To renege on its commitment would amount to defrauding LUSTEVECO's creditors.

When a corporation acquires the assets of another corporation, it generally assumes the liabilities
attached to those assets, unless otherwise specified and agreed upon. Failure to do so can lead to fraud
against creditors.

- Although Caltex was not a party to the Agreement, it had a real interest in the performance of PSTC's
obligations under the Agreement because non-performance would defraud Caltex.

- The transfer of LUSTEVECO's assets to PSTC, without the knowledge and consent of creditors like
Caltex, could not work to defraud LUSTEVECO's creditors.

Parties not privy to a contract may still have a real interest in enforcing it if they can demonstrate that
their interests are affected by its performance or non-performance, particularly in cases of fraud against
creditors.

In summary, the court ruled that PSTC was bound by the Agreement and must fulfill the obligations it
assumed. Furthermore, Caltex was considered a real party in interest to enforce the judgment debt
against PSTC due to the potential fraud against creditors involved in the asset transfer. These rulings
emphasize the importance of adherence to corporation law principles related to the assumption of
liabilities when acquiring corporate assets and protecting the rights of creditors.
Ong Yong vs. Tiu (401 SCRA 1 [2003])

https://lawphil.net/judjuris/juri2003/apr2003/gr_144476_2003.html

Facts:

In 1994, the construction of Masagana Citimall in Pasay City, owned by First Landlink Asia Development
Corporation (FLADC), faced potential stoppage due to FLADC's heavy indebtedness of P190 million to the
Philippine National Bank (PNB). To prevent foreclosure, FLADC's owners, the Tius, invited the Ongs to
invest in FLADC. They agreed to maintain equal shareholdings, with the Ongs subscribing to 1,000,000
shares, and the Tius subscribing to an additional 549,800 shares. Both parties had specific roles in the
management and operation of the mall.

The Tius contributed a 4-story building and two parcels of land, totaling P49.8 million, while the Ongs
paid P190 million to settle FLADC's mortgage indebtedness to PNB. On February 23, 1996, the Tius
rescinded the Pre-Subscription Agreement, and on February 27, 1996, they filed for confirmation of the
rescission at the Securities and Exchange Commission (SEC). The SEC confirmed the rescission, leading to
the Ongs filing for reconsideration.

The SEC en banc affirmed that the P70 million paid by the Ongs was a premium on capital stock, not an
advance loan. The Court of Appeals (CA) held that both parties were in pari delicto but decided to
rescind the Pre-Subscription Agreement due to their inability to work together, awarding most of the
benefits to the Tius.

Issue:

Whether or not Tius could legally rescind the Pre-Subscription Agreement

Held:

In this court ruling, the central issue is whether the Tius have the legal grounds to rescind the Pre-
Subscription Agreement. The court emphasizes the Trust Doctrine, which holds that subscriptions to a
corporation's capital stock constitute a fund that creditors can rely on for satisfaction of their claims. The
court rules that the Tius cannot legally rescind the agreement.

The background of the case involves FLADC, initially incorporated with the Tius owning 450,200 shares.
To equalize shareholdings with the Ongs, the authorized capital stock was increased, and the Pre-
Subscription Agreement was formed. The court classifies this agreement as a subscription contract
involving FLADC and the Ongs, not between the Tius and the Ongs.

The Tius argue that there are two contracts within the Pre-Subscription Agreement: a shareholders'
agreement and a subscription contract. The court dismisses this argument as strained and points out
that the Tius lack the legal standing to rescind the agreement since they were not parties to the
subscription contract between FLADC and the Ongs.

The Tius claim that the Ongs' breach is a breach by FLADC since they represent FLADC. However, the
court upholds the separate juridical personality of FLADC.
The Tius allege that they were prevented from participating in the management of the corporation, but
rescission is deemed an inappropriate remedy for such personal grievances. The Corporation Code
provides other intra-corporate remedies for such situations.

The court emphasizes that rescission would violate the Trust Fund Doctrine, which governs the
distribution of corporate assets and property. The distribution of corporate assets cannot be arbitrary
and should follow specific legal procedures. Rescission would result in an unauthorized distribution of
capital assets, violating the Trust Fund Doctrine and the Corporation Code.

Additionally, the court argues that rescission would effectively lead to the premature liquidation of the
corporation without following the proper legal procedures for dissolution and liquidation.

The Tius' claim that rescission is a petition to decrease capital stock is dismissed, as it doesn't comply
with the formal requirements for capital stock reduction.

The court stresses that judicial intervention in corporate affairs should be minimal, and the Tius' request
for rescission infringes on the "business judgment rule." The court concludes that rescission would be
unjust, as it could lead to significant financial benefits for the Tius at the expense of the Ongs, FLADC,
and its creditors.

In the final verdict, the court grants the Ongs' motion for reconsideration, dismissing the petition for
confirmation of rescission, declaring the Tius' rescission null and void, and denying the motion for the
issuance of a writ of execution.

In summary, the court emphasized the Trust Fund Doctrine to argue against the rescission of the Pre-
Subscription Agreement. Rescission, in this case, would have effectively resulted in an unauthorized
distribution of corporate assets, which would have violated the Trust Fund Doctrine and the Corporation
Code. The court's decision was based on the principle that corporate assets and capital should not be
distributed arbitrarily and should be protected to satisfy the legitimate claims of creditors.
•Halley vs. Printwell, Inc. (649 SCRA 116 [2011])

**Facts:**

- The petitioner was an incorporator and original director of Business Media Philippines, Inc. (BMPI),
which had an authorized capital stock of P3,000,000.00.

- BMPI commissioned Printwell for printing services and extended credit accommodations to BMPI.

- BMPI placed several orders on credit with Printwell, totaling P316,342.76, but paid only P25,000.00.

- Printwell sued BMPI for the unpaid balance. Later, Printwell amended the complaint to include all
original stockholders and incorporators as defendants.

- Defendants argued they had paid their subscriptions in full, and BMPI had a separate legal personality
from its stockholders.

**Issues:**

1. Whether or not the corporate personality of BMPI be invoked to avoid liability, and can it be pierced
when used to foster injustice?

2. Whether or not the unpaid creditor can be satisfy its claim from unpaid subscriptions, and must
stockholders prove full payment of their subscriptions?

3. . Whether or not stockholders are liable for corporate debts?

**Rulings:**

- The court recognized that corporations have a separate legal personality but noted that this
separation is a legal fiction.

- The corporate personality can be disregarded when it is used as a cover for fraud, illegality, or to
justify wrongdoing.

- In this case, Printwell sought to hold stockholders liable to prevent injustice and reach unpaid
subscriptions, justifying the piercing of the corporate veil.

- Under the Trust Fund Doctrine, corporate property is considered a trust fund for the payment of
creditors.

- Creditors have the right to look to unpaid stock subscriptions to satisfy their claims.

- The doctrine extends beyond unpaid subscriptions to include other corporate assets regarded as a
trust fund for the payment of corporate debts.

- The prevailing rule is that stockholders are personally liable for corporate financial obligations to the
extent of their unpaid subscriptions.

- In this case, the petitioner was liable up to the amount of her unpaid subscription, which was
P262,500.00.
 - Interest is imposable on the unpaid obligation at a rate of 12% per annum from the date of the
amended complaint.

**Conclusion:**

This case highlights the importance of the Trust Fund Doctrine in corporate law, allowing creditors to
seek satisfaction of their claims from unpaid stock subscriptions and other corporate assets when
necessary to prevent injustice. It also reaffirms the extent of stockholders' liability for corporate debts
based on their unpaid subscriptions.
•Mobilia Products, Inc. vs. Umezawa (452 SCRA 736 [2005])

Facts:

Mobilia Products, Inc., a furniture manufacturer, is at the center of a controversy involving its President
and General Manager, Hajime Umezawa, and the creation of a rival entity known as Astem Philippines
Corporation. Mobilia primarily operates through its parent company, Mobilia Products Japan, which
handles marketing and order bookings. However, without the knowledge of Mobilia's Board of Directors,
Umezawa established Astem Philippines Corporation, a competitor in the same industry. Astem's
intention was to participate in the International Furniture Fair '95 in Singapore, a challenging endeavor
given its lack of equipment, personnel, and machinery.

Allegations against Umezawa and his associates include the theft of prototype furniture from Mobilia for
presentation as Astem's exhibits at the Singapore Fair. Umezawa is accused of masterminding these
thefts, which involved storing the stolen furniture in a warehouse owned by Henry Chua, one of
Mobilia's suppliers. Additionally, Umezawa is alleged to have committed further thefts of valuable
furniture from Mobilia's factory in February 1995, exploiting his position to facilitate these acts.
Furthermore, Umezawa is accused of directing the production of furniture using Mobilia's resources,
such as supplies, materials, machinery, labor, and time, all of which were intended exclusively for
Mobilia's use but were diverted for Astem's benefit or personal gain. These actions led to a legal
complaint against Umezawa and the initiation of a legal case. Initially, the prosecution sought a
preliminary attachment of Umezawa's properties, prompting him to file a motion to quash the charges,
discharge the attachment, and request a preliminary investigation. Parallelly, MPI filed additional
criminal complaints against Umezawa and others for theft and misappropriation. Despite Umezawa's
attempts to suspend the proceedings due to a petition with the Securities and Exchange Commission
(SEC), the trial court denied his request. Ultimately, the court dismissed the cases, arguing they were
intra-corporate disputes under the SEC's jurisdiction. However, this led to a petition for certiorari and
mandamus filed by the People of the Philippines, represented by the Office of the Solicitor General,
before the Court of Appeals, marking the continuation of the legal battle.

Issue:

Whether or not the SEC has jurisdiction of the case

Ruling:

The mere fact that the respondent held the positions of president and general manager within the
petitioner corporation at the time the alleged crimes occurred, along with being a stockholder, does not,
by itself, divest the lower court of its exclusive jurisdiction over the alleged offenses. It's important to
note that the corporation's property is distinct from the personal property of its stockholders or officers
who happen to be stockholders. As a guiding principle, the Court emphasized that assets registered
under the corporation's name are its own separate entity, wholly separate from its members. While
shares of stock constitute personal property, they do not equate to ownership of the corporation's
assets. Instead, a share of stock represents a proportionate interest in the corporation's property,
entailing the right to a share of its profits as legally and equitably distributed. Importantly, a stockholder
does not possess ownership of any portion of the corporation's capital or have a claim to specific parts of
its property or assets. Consequently, a stockholder does not hold the status of a co-owner or tenant in
common of the corporate property. The court also noted that disputes between corporations and their
stockholders can coexist, with criminal charges falling under the regular court's jurisdiction.

The Court of Appeals (CA) correctly determined that the Securities and Exchange Commission (SEC) did
not have jurisdiction over the cases filed in the lower court. The CA's reliance on Section 5(b) of
Presidential Decree No. 902 (P.D. No. 902) lacked factual and legal basis. The court explained that while
the SEC has authority over certain cases, the filing of a civil or intra-corporate case with the SEC does not
prevent simultaneous criminal proceedings in regular courts. In this case, the respondent could still be
prosecuted for estafa and qualified theft due to his alleged fraudulent actions, regardless of his position
as the corporation's president and general manager and his stockholder status. The court ultimately
reversed the CA's resolution and affirmed its decision.