Corp Digests Midterms KP

Balmes. Callo. Dela Torre. Elgaran. Hong. Gamboa. Gonzales. Jundez. Malig. Masa. Mendiola. Tac-an. Tan. Ybañez.
Corporation Law Digests | Atty. Maribeth Lipardo
KRABBY PATTIES DIGESTS | B2025
Hi! The references for these digests are:
1. Dean CLV’s Corporation Law Syllabus

2. Notes from Dean CLV’s Corporation Law Book
3. Block D 2022 Digests
4. Block C 2020 Comprehensive Digests
These are made for sharing because life is short and law school is hard-
don’t be a crab!
Good luck!
All the best,
The Krabby Patties
Last updated:
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TOPIC IN THE SYLLABUS *copy from Dean CLV’s Outline
[CASE NAME] GR NO, DATE
FACTS: Essay format, use only SALIENT FACTS
ISSUE: (Question type, ex: Did the Court pierce the veil of corporate
fiction? ANSWER (YES/NO)
RULING:
NOTES: If you have any additional things you want to add to the digest,
ex: explanations that made it easier for you to understand the case, etc.,
violent emotions kung mahirap yung case, comments you want to put, you
can add them here
Start the next case on the next page
CLV OUTLINE: Just copy paste what CLV said in the syllabus 🙂
TOPIC IN CLV SYLLABUS
CASE CITATION
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CORPORATE NATIONALITY 60% of the capital stock outstanding and entitled to vote is owned and held
by citizens of the Philippines, is considered Philippine National. As such,
the corporation may acquire disposable lands in the Philippines.
Unchuan v. Lozada, 585 SCRA 421 (2009)
Therefore, the sale of the lot to Antonio being intended to be part
FACTS:
of a Philippine National Corporation is not violative of the public policy
Sisters, Anita and Peregrina, who were based in the US sold their prohibiting aliens from owning lands in PH.
lot to their nephew Antonio under a deed of sale. Dr. Lozada, an
American Citizen, agreed to advance the purchase price.
The Deed of Sale was then recorded with the Register of Deeds Foreign Investment Act (FIA) Test of “Philippine National”:
of Cebu. Pending the registration of Deed, Petitioner, Marissa caused the Section 3 of R.A. 7042 considers for purpose of investment a
annotation of an adverse claim on the lots, claiming that Anita Donated her “Philippine National ” as a corporation organized under the laws of
undivided share in the lot under an unregistered Deed of Donation. the Philippines of which at least 60% of the capital stock outstanding
and entitled to vote is owned and held by Filipino citizens, or a
Antonio and Anita brought the case against Marissa for quieting of trustee of funds for pension or other employee retirement/separation
title. The RTC ruled in favor of Antonio. CA affirmed with modification. benefits, where the trustee is a Philippine National and at least 60%
Hence this petition, Marisa claims that Antonio is merely a dummy of the fund will
for Dr. Lozada.
It is to be noted that the subject property is to be eventually
infused in the capitalization of Damasa Corporation, where Dr. Lozada and
Antonio are to have 40% and 60% stake, respectively.
ISSUE:
W/N the sale between the sisters and Antonio violated the public
policy prohibiting aliens from owning lands in the Philippines. NO
RULING:
The Court noted that even as Dr. Lozada advanced the money for
the payment of Antonio’s share, at no point were the lots registered in Dr.
Lozada’s name, nor was it contemplated to be placed under Dr. Lozada’s
control.
According to their agreement, Antonio and Dr. Lozada are to hold
60% & 40% share in the corporation, respectively. Under RA 7042, a
corporation organized under the laws of the Philippines of which at least
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Gamboa v. Teves, 652 SCRA 690 (2011), RULING:

1. The Supreme Court ruled in favor of Gamboa. The Court ruled
FACTS:
that the term “capital” in Sec. 11 Art XII of the Constitution only
The subject of the dispute in this case is the foreign-Filipino
refers to total COMMON shares, since “Capital” in Sec. 11, Art. XII
ownership of PLDT, a public utility. Below is a summary of the distribution
refers only to shares of stock entitled to vote in the election of
of share:
directors, as it is through voting that control is exercised.
2. The Constitution only refers to common shares, and NOT to the
total outstanding capital stock comprising both common and non-
voting preferred shares. The term “capital” includes preferred
shares only IF such shares have the right to vote in the election of
directors. This interpretation is consistent with the framers’ intent
to place control & management of public utilities to Filipino
citizens.
Preferred shares constitute 77.85% of the authorized capital stock 3. The SC further ruled that mere legal title is insufficient to meet the
of PLDT. Moreover, the 99.4% preferred shares owned by Filipinos, have 60% Filipino capital requirement under the Constitution. Full
no voting rights. The contention of the respondents is that the term capital beneficial ownership of 60% of the outstanding capital stock,
in the Constitution that regulates the ownership of public utilities refer to coupled with 60% of the voting rights, is required.
the total outstanding capital stock. If this interpretation is adhered to, then 4. The 60-40 ownership requirement in favor of Filipino citizens in the
clearly, there would be no violation of the Constitution as seen on the Constitution to engage in certain activities applies not only to
summarized statistics. Petitioner on the other hand contends that capital voting control of the corporation, but also to the beneficial
structure of PLDT violates the Constitutional provision on Filipinization of ownership of the corporation. Both the Voting Control Test and the
public utility, stated in Section 11, Article XII of the 1987 Philippine Beneficial Ownership Test must be applied to determine whether a
Constitution, which limits foreign ownership of the capital of a public utility corporation is a “Philippine national.” The right to elect directors,
to not more than 40%. Petitioner also contends that capital should refer coupled with beneficial ownership translates to effective control.
only to common shares for these are the shares entitled to vote. Full beneficial ownership of the stocks, coupled with appropriate
voting rights, is essential. Furthermore, the Court ruled that even
ISSUE: Whether the term “capital” in Section 11, Article 12 of the preferred shares must be 60% owned by Filipinos. This is because
Constitution refers to the total common shares only or to the total preferred shares, denied the right to vote in the election of
outstanding capital stock (combined total of common and non-voting directors, are anyway still entitled to vote on the eight specific
preferred shares) of PLDT, a public utility? CAPITAL REFERS TO corporate matters mentioned in the Corporation Code. In short,
VOTING SHARES. the 60-40 requirement in favor of Filipino citizens must apply
separately to each class of shares, whether common, preferred
non-voting, preferred non-voting, preferred voting, or any other
class of shares.
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CLV OUTLINE: The Constitution “provides for the Filipinization of public

utilities by requiring that any form of authorization for the operation of
public utilities should be granted only to ‘citizens of the Philippines or to
corporation or associations organized under the laws of the Philippines at
least sixty per centum of whose capital is owned by such citizens.’ The
provision is [an express] recognition of the sensitive and vital position of
public utilities both in the national economy and for national security.” The
evident purpose of the citizenship requirement is to prevent aliens from
assuming control of public utilities, which may be inimical to the national
interest. The term “capital” in Sec. 11, Art. XII of the Constitution should (a)
the control test that covers only shares entitled to vote in the election of
directors, and (b) the beneficial interest test that shall apply to each class
of shares, voting and non-voting.
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Gamboa v. Teves, 682 SCRA 397 (2012) The court also said that since a specific class of shares may have
RULING: rights and privileges or restrictions different from the rest of the shares in a
corporation, the 60-40 ownership requirement in favor of Filipino citizens in
In its Resolution, the Court noted the SEC en banc rulings
conforms to the 2011 Decision that the 60-40 ownership requirement in Section 11, Article 12 of the Constitution must apply not only to shares with
voting rights but also to shares without voting rights. Preferred shares,
favor of Filipino citizens in the Constitution to engage in certain activities
applies not only to voting control of the corporation, but also to the denied the right to vote in the election of directors, are anyway still entitled
to vote on the eight specific corporate matters mentioned above.
beneficial ownership of the corporation. Both the Voting Control Test and
the Beneficial Ownership Test must be applied to determine whether a
Thus, if a corporation, engaged in a partially nationalized industry,
corporation is a “Philippine national.”
issues a mixture of common and preferred non-voting shares, at least 60%
of the common shares and at least 60% of the preferred non-voting shares
The 1987 Constitution reserves the ownership and operation of
public utilities exclusively to (1) Filipino citizens, or (2) corporations or must be owned by Filipinos.
associations at least 60% of whose “capital” is owned by Filipino citizens.
Hence, in the case of individuals, only Filipino citizens can validly own and In short, the 60-40 requirement in favor of Filipino citizens must
apply separately to each class of shares, whether common, preferred non-
operate a public utility. In the case of corporations or associations, at least
60% of their “capital” must be owned by Filipino citizens. In other words, voting, preferred non-voting, preferred voting, or any other class of shares.
Applying uniformly the 60-40 ownership requirement in favor of Filipino
under Section 11, Article 12 of the 1987 Constitution, to own and operate a
public utility a corporation’s capital must at least be 60% owned by citizens to each class of shares, regardless of differences of voting rights,
privileges, and restrictions, guarantees effective Filipino control of public
Philippine nationals.
utilities, as mandated by the Constitution.
The SC reiterated and emphasized that the right to elect directors, The Court also said that even if foreigners who own more than
coupled with beneficial ownership translates to effective control. Full
40% of the voting shares elect an all-Filipino board of directors, this
beneficial ownership of the stocks, coupled with appropriate voting rights,
situation does not guarantee Filipino control and does not in any way cure
is essential.
thee violation of the Constitution. The independence of the Filipino board
members so elected by such foreign shareholders is highly doubtful.
Since the constitutional requirement of at least 60% Filipino
ownership applies not only to voting control of the corporation but also to Allowing foreign shareholders to elect a controlling majority of the
the beneficial ownership of the corporation, it is therefore imperative that board, even if all the directors are Filipinos, grossly circumvents the letter
such requirement apply uniformly and across the board to all classes of and intent of the Constitution and defeats the very purpose of our
shares, regardless of nomenclature and category, comprising the capital of nationalization laws.
a corporation.
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stocks, 60% of preferred voting stocks (if any), and 60% of preferred
SEC Memorandum Circular No. 8, s. 2013 non-voting stocks, should all be owned by Filipino citizens.
Section 2. All covered corporations shall, at all times, observe the

constitutional or statutory ownership requirement. For purposes of ISSUE:
determining compliance therewith, the required percentage of Filipino
W/N the SEC Memorandum Circular No. 8, s. 2013, was issued in grave
ownership shall be applied to BOTH abuse of discretion by the SEC? – NO.
(a) the total number of outstanding shares of stock entitled to vote in the
election of directors; ANDi
RULING:
(b) the total number of outstanding shares of stock, whether or not entitled
This Memorandum is not inconsistent with the ruling of the court in the
to vote in the election of directors. Gamboa Decision and Resolution. The SEC Memorandum clearly
incorporates the Voting Control Test, or the controlling interest
Roy III v. Herbosa, 810 SCRA 1 (2016) requirement, when it required the percentage of Filipino ownership to the
total number of outstanding shares of stock entitled to vote. It in fact goes
Roy III v. Herbosa, 823 SCRA 133 (2017) beyond a 60-40 ratio in the voting stocks, but also in the total number of
outstanding shares of stock, whether voting or not. SEC MC No. 8
implements the decision in Gamboa.
FACTS:
The decision in Gamboa v. Teves, and its 2012 Resolution, has become
final and executory. SEC issued SEC Memorandum Circular No. 8, s. The Gamboa Decision (2011) and Resolution (2012)
2013, pursuant to the declarations of the court in Gamboa. This The 2011 Gamboa Decision had the following fallo:
Memorandum mandated covered corporations to maintain the required
WHEREFORE, we PARTLY GRANT the petition and rule that the
percentage of Filipino ownership (60%) BOTH to (a) the total number of
term "capital" in Section 11, Article XII of the 1987 Constitution refers only
outstanding shares of stock entitled to vote in the election of directors; and
to shares of stock entitled to vote in the election of directors, and thus in
(b) the total number of outstanding shares of stock, including those entitled
the present case only to common shares, and not to the total outstanding
to vote and those not entitled to vote.
capital stock (common and non-voting preferred shares). Respondent
Chairperson of the Securities and Exchange Commission is DIRECTED to
Roy protested this, citing the statement made in the 2012 Gamboa apply this definition of the term "capital" in determining the extent of
Resolution that “the 60-40 ownership requirement in favor of Filipino allowable foreign ownership in respondent Philippine Long Distance
citizens must apply separately to each class of shares, whether common, Telephone Company, and if there is a violation of Section 11, Article XII of
preferred non-voting, preferred voting, or any other class of shares.” He the Constitution, to impose the appropriate sanctions under the law.
insists that the proper interpretation should then be that 60% of common
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The decision was directed at SEC and not PLDT, as the SEC was the ○ Voting shares = 100 Common shares + 100 Class A
administrative agency tasked to enforce the 60-40 ownership requirement. Preferred Shares = 200 Total Voting Shares
In both the Decision and the 2012 Resolution, it was consistent in its ○ 60% of 200 = 120; therefore, 120 of the voting shares
definition of “capital” under Sec. 11, Art. XII, as those referring only to should belong to Filipinos.
shares of stock entitled to vote in the election of directors. This is ○ TOTAL Shares = 100 Common Shares + 100 Class A
consistent with the intent and the letter of the Constitution that the “State preferred shares + 100 Class B preferred shares = 300
shall develop a self-reliant and independent national economy effectively total shares
controlled by Filipinos”. ○ 60% of 300 = 180.
○ Therefore, following the SEC-MC No. 8, the company
needs to have 120 of its voting shares, and 180 of its total
If Filipinos own at least 60% of the outstanding shares of stock entitled to shares, voting and non-voting, to belong to Filipinos, in
vote directors, then the Filipino stockholders control the corporation. order to comply with the requirement
● SEC simply implemented the Gamboa Decision and Resolution
The assailed SEC-MC No. 8
Sec. 2 of SEC-MC No. 8 reads: “Sec. 2. All covered corporations shall, at ISSUE: W/N the 60-40 requirement should also apply to each class of
all times, observe the constitutional or statutory ownership requirement. shares, as stated in the 2012 Gamboa Resolution? – NO.
For purposes of determining compliance therewith, the required
RULING
percentage of Filipino ownership shall be applied to BOTH (a) the total
number of outstanding shares of stock entitled to vote in the election of The Full Beneficial Ownership Test
directors; AND (b) the total number of outstanding shares of stock,
The SRC-IRR defines beneficial owner as “any person who, direct
whether or not entitled to vote in the election of directors. x x x
or indirectly, through any contract, arrangement, understanding,
● Section 2 clearly incorporates the Voting Control Test, or the relationship, or otherwise, has or shares voting power (which includes the
controlling interest requirement, when it required the percentage of power to vote or direct the voting of such security) and/or investment
Filipino ownership to the total number of outstanding shares of returns or power (which includes the power to dispose of, or direct the
stock entitled to vote disposition of such security).
● It in fact goes beyond a 60-40 ratio in the voting stocks, but also in
Given that beneficial ownership of the outstanding capital stock
the total number of outstanding shares of stock, whether voting or
has to be determined for purposes of compliance with the 60% Filipino
not
ownership requirement, the definition in the SRC-RR can now be applied
● Illustration: If a certain company has 100 common voting shares; to resolve only the question of who is the beneficial owner of each specific
100 Class A Preferred Shares (voting shares); and 100 Class B
stock of the said corporation. Thus, if a specific stock is owned by a
preferred shares (nonvoting shares)
Filipino in the books of the corporation, but the voting power belongs to a
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foreigner, then that specific stock will not be deemed as beneficially owned actions as significant in resolving the issue of the proper interpretation of
by the Filipino. the word “capital.”
● These 8 corporate actions still require favorable recommendation
by the management to the board.
The restrictive reinterpretation of “capital” as insisted by
● The management, as required by Sec. 11, Art. XII, must be
Petitioners is unwarranted
composed of Filipinos.
Petitioners argue that the 60-40 ownership requirement must be ● In short, even if foreigners held >40% of the non-voting preferred
applied to each class of shares. This is beyond the literal text and shares (which still have a right to vote in the 8 specific corporate
contemplation of Art. XII, Sec. 11. actions), it still wouldn’t matter if the Filipino officers, directors, and
shareholders will not approve of the corporate act.
The fact that all shares have the right to vote in 8 specific
corporate actions does not, by itself, justify the adoption of a restrictive Moreover, a restrictive interpretation of the term “capital” will have
reinterpretation of “capital.” a tremendous impact on the country as a whole–and to all Filipinos. If we
● In Sec. 6 of the RRC, even non-voting stocks are entitled to vote were to apply this restrictive interpretation and redefine what capital
in eight specific corporate actions. means, then hundreds of billions of pesos worth of stocks will be deemed
● The eight specific corporate actions are: (1) amendment of the in excess of the foreign ownership limits, according to data submitted by
articles of incorporation; (2) the adoption and amendment of the PSE.
by-laws; (3) the sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate property; (4)
Hence, the pronouncement of the court in the Gamboa resolution–
incurring, creating or increasing bonded indebtedness; (5) the
that “the 60-40 ownership requirement in favor of Filipino citizens must
increase or decrease of capital stock; (6) the merger or
apply separately to each class of shares, whether common, preferred
consolidation of the corporation with another corporation or other
corporations; (7) the investment of corporate funds in another non-voting, preferred voting, or any other class of shares” – is clearly an
obiter dictum.
corporation or business in accordance with this Code; and (8) the
dissolution of the corporation. [Sec. 6, RRC]
CLV Syllabus: As a result of the Gamboa rulings, SEC Memorandum
Circular No. 8, s. 2013, was issued and provides that: All covered
The Gamboa Decision held that preferred shares are to be
corporations shall, at all times, observe the constitutional or statutory
factored in only if they are entitled to vote in the election of directors. If
ownership requirement in that “the required percentage of Filipino
preferred shares have no voting rights, then they cannot elect members of
ownership shall be applied to BOTH (a) the total number of outstanding
the board, which wields control of the corporation. But the Gamboa
shares of stock entitled to vote in the election of directors; AND (b) the
Decision did not find the entitlement to voting in the 8 specific corporate
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total number of outstanding shares of stock, whether or not entitled to vote

in the election of directors.” Roy III v. Herbosa, 810 SCRA 1 (2016).
The definition of “beneficial owner or beneficial ownership” in the
SRC-IRR, which is in consonance with the concept of “full beneficial
ownership” in the FIA-IRR, is relevant is resolving the question of who is
the beneficial owner of each “specific stock” of the public utility. If the
Filipino has the voting power of the “specific stock”, i.e., he can vote the
stock or direct another to vote for him, or the Filipino has the investment
power over the “specific stock”, i.e., he can dispose of that “specific stock”
or direct another to vote or dispose it for him, then such Filipino is the
“beneficial owner” of that “specific stock.” Being considered Filipino, that
“specific stock” is them to be counted as part of the 60% Filipino
ownership requirement under the Constitution. The right to the dividends,
jus fruendi — a right emanating from ownership of that “specific stock”
necessary accrues to its Filipino “beneficial owner.” Roy III v. Herbosa,
823 SCRA 133 (2017).
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Beneficial Test Through “Corporate Layering”

Narra Nickel Mining and Dev. Corp. v. Redmont Consolidated Mines RULING:
Corp., 722 SCRA 382 (2014)
The grandfather rule applies as a supplement to the liberal control test.
The control test states that if a corporation is at least 60% Filipino-owned,
it is Filipino. If there is doubt, a stricter test (grandfather) will apply, wherein
FACTS:
only the shares of stock that corresponds to Filipino shareholders will be
Redmont Consolidated Mines was interested in applying with the deemed to have Filipino nationality. Applying this rule, it can be seen that
DENR for a mining agreement in the province of Palawan. After inquiries, MBMI can utilize dummy corporations in order to acquire the petitioners
Redmont learned that there was a contemporaneous Mineral Production and run the MPSA Agreement.
Sharing Agreement or MPSA existing as applied by Narra Nickel Mining or
Nara, McArthur, and Tesoro- all allegedly Filipino companies.
CLV Syllabus -
Redmont is questioning the nationality of these three companies. He is
Although the control test is the prevailing mode of determining whether a
citing Art XII Section 2 requiring the State to only seek out at least 60%
corporation is a Filipino corporation entitled under Sec. 2, Art. II of 1987
Filipino corporations in production sharing agreements for the utilization of
Constitution to undertake the exploration, development and utilization of
natural resources, including mining. Redmont filed a complaint with the
the natural resources of the Philippines, when there is doubt in the minds
Panel of Arbiters of POA which issued a resolution declaring the
of the courts, based on the attendant facts and circumstances of the case,
companies to be owned by a Canadian corporation called MBMI. The
in the 60%-40% Filipino-foreign equity of the corporation, they may apply
petitioners Narra, McArthur, and Tesoro appealed with the Mines
the grandfather rule.
Adjudication Board (MAB) because they suddenly changed their statuses
from individual MPSA applications into Financial and Technical Assistance The “grandfather rule” does not eschew, but in fact supplements the
Agreements or FTAAs, which are a recognized exception to utilize mines “control test”, as the latter implements Filipinization provisions of the
for foreign corporations. Constitution. There should be a distinction between the “beneficial
ownership” test from the “control test”. As further defined by Dean Cesar
Pending the Mines Adjudication Board (MAB) appeal by the petitioners,
Villanueva, the grandfather rule is “the method by which the percentage of
Redmont filed a complaint in the RTC to issue a preliminary injunction and
Filipino equity in a corporation engaged in nationalized and/or partly
TRO against the MAB to defer their proceedings, since it filed an SEC
nationalized areas of activities, provided for under the Constitution and
complaint to revoke the petitioners’ certificates of registration, which was
other nationalization laws, is computed, in cases where corporate
granted and affirmed in the CA. The CA used the grandfather rule due to
shareholders are present, by attributing the nationality of the second or
suspicion of the FTAA conversion, and ruled that the petitioners were all
even subsequent tier of ownership to determine the nationality of the
owned by MBMI (since sold ownership to DMCI Properties).
corporate shareholder.” [Narra Nickel Mining Corp. v. Redmont
Consolidated Mines Corp., (Resolution), 748 SCRA 455 (2015), citing
ISSUE: Whether the Grandfather Rule Applies. YES. VILLANUEVA, PHILIPPINE CORPORATE LAW (2011 ed.).]
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Narra Nickel Mining and Dev. Corp. v. Redmont Consolidated Mines

Corp., (Resolution), 748 SCRA 455 (2015)
Sara Marie
Filipino participation in petitioner Tesoro: 40.01%
FACTS
66.67 (Filipino equity in Sara Marie) x59.97 (Sara Marie’s
In the motion for reconsideration, the claim was that the case had become share in Tesoro) = 39.98%
moot as there was already a change into the FTAA agreement from an
39.98% + .03% (shares of individual Filipino shareholders
MPSA agreement.
[SHs] in Tesoro)
McArthur
ISSUE
Whether the Court should not have ruled anymore applying the
grandfather test.
RULING
The Court wants to avoid future incidences wherein MBMI could use this
as a medium to create future dummy corporations. The Court then applied
the formula of dummy corporations.
The Grandfather Formula

Madridejos
Tesoro
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Filipino participation in petitioner McArthur: 40.01% PLMDC
66.67 (Filipino equity in Madridejos) x 59.97 (Madridejos’ share in

McArthur) = 39.98%
100
39.98% + .03% (shares of individual Filipino SHs in McArthur)

=40.01%
Narra Nickel
Filipino participation in petitioner Narra: 39.64%
66.02 (Filipino equity in PLMDC) x 59.97 (PLMDC’s

share in Narra) = 39.59%
100
39.59% + .05% (shares of individual Filipino SHs in

McArthur)
=39.64%
As further defined by Dean Cesar Villanueva, the grandfather rule is “the

method by which the percentage of Filipino equity in a corporation
engaged in nationalized and/or partly nationalized areas of activities,
provided for under the Constitution and other nationalization laws, is
computed, in cases where corporate shareholders are present, by
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attributing the nationality of the second or even subsequent tier of

ownership to determine the nationality of the corporate shareholder.
NOTES
See
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RULING:
Register of Deeds of Rizal v. Ung Sui Si Temple, 97 Phil. 58 (1955) 1. CFI was correct because the terms of section 5 Art XIII are
absolute. “Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to
FACTS: individuals, corporations or associations qualified to acquire or
RD in Rizal refused to accept for record a deed of donation executed hold lands of the public domain in the Philippines.” The Provisions
by Jesus Dy, a Filipino citizen conveying a parcel of land in Rizal in favor of Act No. 271 of the Old PH Commission was repealed since the
of UNREGISTERED RELIGIOUS ORGANIZATION “Ung Siu Si Temple.” Constitution was enacted. The Constitution makes no exception in
This organization was operating through 3 trustees who were Chinese favor of religious associations. The fact that the appellant religious
Nationals. The donation was accepted by Yu Juan (Chinese), who was the organization has no capital stock does not suffice to escape the
founder and deaconess of the Temple. Constitutional inhibition, since it is admitted that its members are
of foreign nationality. The purpose of the sixty per centum
Not satisfied with the ruling of the Court of First Instance, counsel
requirement is obviously to ensure that corporations or
for the donee Uy Siu Si Temple has appealed to this Court, claiming:
associations allowed to acquire agricultural land or to exploit
(1) that the acquisition of the land in question, for religious purposes, is natural resources shall be controlled by Filipinos; and the spirit of
authorized and permitted by Act No. 271 of the old Philippine the Constitution demands that in the absence of capital stock, the
Commission controlling membership should be composed of Filipino citizens.
The refusal of the RD was elevated en Consultato and the CFI of Manila 2. SC was not convinced (nor has it been shown) that land tenure is
upheld the Rizal RD saying “this Court is of the opinion and so hold that in indispensable to the free exercise and enjoyment of religious
view of the provisions of the sections 1 and 5 of Article XIII of the profession or worship; or that one may not worship the Deity
Constitution of the Philippines limiting the acquisition of land in the according to the dictates of his own conscience unless upon land
Philippines to its citizens, or to corporations or associations at least sixty held in fee simple.
per centum of the capital stock of which is owned by such citizens”
Hence this appeal. CLV OUTLINE:
Ownership of Private Land (Sec. 7, Art. XII, 1987 Constitution)
ISSUE: W/N 1) the acquisition of the land in question, for religious Donation of land to an unincorporated religious organization, whose
purposes, is authorized and permitted by Act No. 271 of the old Philippine trustees are foreigners, would violate constitutional prohibition. The
Commission (NO-This is repealed) and 2) that the refusal of the Register fact that the religious association “has no capital stock does not suffice
of Deeds violates the freedom of religion clause of our Constitution [Art. III, to escape the constitutional inhibition, since it is admitted that its
Sec. 1(7)] (NO) members are of foreign nationality … and the spirit of the Constitution
demands that in the absence of capital stock, the controlling
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membership should be composed of Filipino citizens.” ✔Register of

Deeds of Rizal v. Ung Sui Si Temple, 97 Phil. 58 (1955).
APPLICATIONS OF THE CONTROL TESTtt RULING:
Roman Catholic Apostolic Administrator of Davao, Inc. v. LRC and
1. A corporation sole being a creature prior to the constitution, has
the Register of Deeds of Davao, 102 Phil. 596 (1957)
no nationally. If a nationality is sought to be determined, the same
depends on the nationality of the majority of the lay members and
not on the nationality of the sole corporator.
FACTS:
a. When the specific provision of the Constitution invoked by
Petitioner, The Roman Catholic Apostolic Administrator of Davao the respondent Commissioner (section 1, Art. XIII), was
is a corporation sole organized and existing in accordance with Philippine under consideration, the framers of the same did not have
laws and its then incumbent was a Canadian citizen. It purchased a parcel in mind or overlooked this particular form of corporation. If
of land from Mateo Rodis. When the deed of sale was presented for this were so, as the facts and circumstances already
registration with the Register of Deeds of Davao, petitioner was required to indicated tend to prove it to be so, then the inescapable
submit an affidavit stating that 60 percent of the members of the conclusion would be that this requirement of at least 60
corporation were Filipino citizens. percent of Filipino capital was never intended to apply to
The Register of Deeds elevated the matter to the Land corporations sole, and the existence or not of a vested
Registration Commission which issued a Resolution holding that in view of right becomes unquestionably immaterial.
the provisions of Sections 1 and 5 of Article XIII of the Philippine 2. We would find undeniable proof that the members of the Roman
Constitution, the vendee-petitioner is not qualified to acquire lands in the Catholic Apostolic faith within the territory of Davao are
Philippines in the absence of proof that at least 60 per centum of the predominantly Filipino citizens. As indicated before, petitioner has
capital, properties or assets of The Roman Catholic Apostolic presented evidence to establish that the clergy and lay members
Administrator of Davao is actually owned or controlled by Filipino citizens of this religion fully covers the percentage of Filipino citizens
and there being no question that the present incumbent of the corporation required by the Constitution.
sole was a Canadian citizen. Registration of the deed of sale was denied
in the absence of proof of compliance with such requisite.
CLV OUTLINE: A corporation sole being a creature prior to the

ISSUE: W/N Roman, a corporation sole, is qualified to acquire private constitution, has no nationality. If a nationality is sought to be determined,
agricultural lands in the Philippines pursuant to the provisions of Article XIII the same depends on the nationality of majority of the lay members and
of the Constitution? - YES not on the nationality of the sole corporator
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17 | TKP 2025
Applications of the Control Test: Ownership of Private Land 5. PNCC shall assign to Radstock or its assignee 50% of the
PNCC’s 6% share in the gross toll revenue of the Manila North
Strategic Alliance Dev. Corp. v. Radstock Securities Ltd., 607 SCRA
Tollways Corporation for the next 27 years
413 (2009)
FACTS:
ISSUE:
Strategic Alliance (STRADEC) and Sison were challenging the
validity of the Compromise Agreement between PNCC and Radstock. Whether or not the compromise agreement between PNCC and Radstock
PNCC, formerly named as Construction Development Corporation of the was valid? NO.
Philippines (CDCP), was incorporated in 1966 for a term of 50 years under
the Corporation Code and the same was granted a 30-year franchise to RULING:
construct, operate and maintain toll facilities in the North and South Luzon
Tollways. Basay Mining, whose name was later changed to CDCP Mining, The compromise agreement is void for being contrary to the constitution,
an affiliate of PNCC, obtained a loan from Marubeni Corporation. existing laws, and public policy.
Marubeni then assigned its entire credit to Radstock to which the latter
immediately sent a notice and demand letter to PNCC. The franchise of PNCC has already expired in 2007. With the
franchise’s expiration, the assets and facilities of PNCC were automatically
turned over, by operation of law, to the government at no cost. Moreover
In 2006, PNCC and Radstock entered into a compromise
the toll fees and the net income derived from these toll assets and facilities
agreement where both parties agreed to reduce the liability from P17
form part of the national government’s general fund. By forming part of the
Billion to P6 Billion to which the court agreed after getting the COA’s
general fund, the toll fees can only now be disposed of in accordance with
approval as well. The petitioner was assailing the validity of the
the fundamental principles governing financial transactions and operations
agreement. The content of the compromise agreement provides that:
of any government agency.
1. Radstock is a private corporation in the British Virgin Islands
2. Radstock agrees to receive and accept from PNCC in full and In order for PNCC to get the total of P6 Billion to return the debt to
complete settlement of the debt which was reduced to P6 Billion Radstock, a law must first be enacted by the congress appropriating the
3. PNCC shall assign to a third party assignee to be designated by said amount as compromise money before the payment can be made.
Radstock all its rights and interests to 19 properties provided the Because government funds or property shall be spent or used solely for
assignee shall be duly qualified to own real properties in the public funds, but the debt of the CDCP mining is a private debt. Without
Philippines the appropriation law, the payment using the toll fees will constitute
4. PNCC shall issue to Radstock or its assignee common shares of malversation of public funds.
the capital stock of PNCC which shall comprise of 20% of the
outstanding capital stock of PNCC Aside from the toll fees, Radstock is also not qualified to own land
in the Philippines because it is a foreign corporation, with unknown owners
18 | TKP 2025
whose nationalities are also unknown. Moreover, aside from not qualifying
to own lands, the same is also not qualified to own the rights to the
ownership of lands in the Philippines because Radstock cannot lawfully
own land itself. Otherwise, there will be a blatant circumvention of the
Constitution, which prohibits a foreign corporation from owning lands in the
Philippines. Radstock cannot transfer the rights to ownership of the lands
as well if it cannot own the land itself. It is basic that an assignor or seller
cannot assign or sell something he or she does not own at the time the
ownership, or the rights to the ownership, are to be transferred to the
assignee or buyer.
CLV OUTLINE: Radstock, a foreign corporation with unknown owners

whose nationalities are also unknown, is not qualified to own land in the
Philippines, and therefore also disqualified to own the rights to ownership
of lands in the Philippines — it is basic that an assignor or seller cannot
assign or sell something he does not own at the time the ownership, or the
rights to the ownership, are to be transferred to the assignee or buyer. The
assignment by PNCC of the real properties to a nominee to be designated
by Radstock is a circumvention of the constitutional prohibition against a
private foreign corporation owning lands in the Philippines.
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PUBLIC UTILITIES
The determination of who can own land in the Philippines appears to be
SEC Opinion No. 16-15, 1 June 2016 more straightforward for individuals as it simply requires that they be
Re: Nationality of Non-Stock Corporation; Acquisition of Land by a classified as citizens of the Philippines falling under the definition of the
Non-Stock Corporation Constitution on citizenship.
Summary from Grant Thornton Tax Brief The challenge might be more apparent when it comes to determining
Under Philippine jurisdiction, the primary test in determining nationality of a whether a juridical person, like a corporation, is considered a Philippine
corporation is always the place of incorporation test since we adhere to corporation qualified to own land in the Philippines. Section 22 of
the doctrine that a corporation is a creature of the state whose laws it has Commonwealth Act No. 141 is instructive in that only corporations of which
been created. at least 60 percent of the capital stock belongs wholly to citizens of the
Philippines are qualified to own a land within the limits provided by the law.
However, other tests such as the control test must be used for purposes of
compliance with the provisions of the constitution and of other laws on In SEC-OGC Opinion No. 16-15 dated June 1, 2016, the Securities and
nationality requirements. The nationality of the non-stock corporation, in Exchange Commission (SEC), through its Office of the General Counsel
relation to the constitutional provision on land acquisition, is computed on (OGC), had the opportunity to opine on whether a non-stock, non-profit,
the basis of the nationality of its members and not premised on the foreign corporation organized solely to conduct charitable activities
membership contribution. Pursuant to Section 2-A of the Anti-Dummy Law, (“Foundation”) can acquire land in the Philippines. About 90 percent of the
foreigners should not constitute more than 40% of the members of the total initial capital of the Foundation is contributed by foreign nationals,
BOT. Instances where 60% of Filipino membership requirement is not met, while the remaining 10 percent is contributed by Filipinos. The Foundation
a foundation may resort to increase Filipino membership until requirement has seven board members with four foreigners and three Filipinos. The
is met. These facts however are not considered basis on allowing aliens to Foundation seeks to expand the coverage of its activities which would,
own lands under the Philippine Constitution. They may however be however, require it to acquire land in the Philippines.
granted temporary rights such as lease contracts of lands, this being
considered not forbidden by the constitution. In our jurisdiction, there are different tests being applied to determine the
nationality of a corporation. Primarily, it is the place of incorporation test (or
Article from Philippine Star explaining the SEC Circular “Are you simply, incorporation test) which should be applied in determining the
Filipino enough to own land?” nationality of a corporation since the Philippines adhere to the doctrine that
a corporation is a creature of the state whose laws it has been created. A
The 1987 Constitution reserves ownership of Philippine lands to Filipinos, corporation organized under the laws of a foreign country, irrespective of
whether individuals or a juridical entities, such as corporations. In fact, the nationality of the persons who control it is necessarily a foreign
Section 7, Article XII of the 1987 Constitution is clear in that generally, corporation. In fact, the incorporation test is enshrined under Section 123
private lands shall be transferred only to individuals, corporations, or of the Corporation Code of the Philippines (“Corporation Code”) which
associations qualified to acquire or hold lands of public domain. states that a foreign corporation is one formed, organized or existing under
20 | TKP 2025
any laws other than those of the Philippines, regardless of the nationality number, all or majority of the voting powers would be held by them and
of the people comprising it. In other words, under the incorporation test, a none or less from the 60 percent Filipino members, so that the corporation
corporation duly organized under Philippine laws is considered a would in effect be in alien control.
Philippine corporation. Conversely, a corporation duly organized under the
laws of a foreign country is considered a foreign corporation. In this connection, Section 89 of the Corporation Code provides that the
rights of the members of any class or classes to vote may be limited,
However, while the incorporation test serves as the primary test, other broadened, or denied to the extent specified in the articles of incorporation
tests such as the control test must be used for purposes of compliance or by-laws. Unless so limited, broadened, or denied, each member,
with the provisions of the Constitution and of other laws on nationality regardless of class, shall be entitled to one vote.
requirements. Even if the corporation is a creature of the state, there is a
need to further safeguard and regulate certain areas of investment and In a non-stock corporation, the general rule is that each member shall be
activities for the protection and interests of Filipinos. The control test is entitled to one vote, regardless of the amount of the contribution. The
used to determine the eligibility of a corporation, which has foreign equity exception is when the right of members of any class to vote is limited,
participation in its ownership structure, to engage in nationalized or partly broadened, or denied to the extent specified in the articles of incorporation
nationalized activities. Simply put, since owning a land in the Philippines is or the by-laws.
a partly nationalized activity, the control test will be applied in determining
if the Foundation is qualified to own land. Assuming that all of the guidelines described above have been complied
with and thus, the Foundation is qualified to own land in the Philippines, it
The SEC-OGC Opinion provides for further guidelines to determine the is worthy to note that foreigners should not constitute more the 40 percent
nationality of the Foundation for purposes of compliance with the 1987 of the members of the board of trustees of the Foundation, pursuant to
Constitution and Commonwealth Act No. 141 on the nationality Section 2-A of the Anti-Dummy Law.
requirements in owning a land in the Philippines.
Establishing whether a corporation is qualified to own a land in the
First, the nationality of a non-stock corporation is computed on the basis of Philippines may require a multi-step process and strict compliance.
the nationality of its members and not premised on the membership However, we should be mindful that all these requirements are intended to
contribution. ensure that the interests of the Filipino people are protected and the
Constitutional limits on ownership of land are strictly imposed.
Second, the extent of voting power of the members should be taken into
consideration, not only the number of members, because the power to
vote determines control in a corporation. The opinion went further into the
reason why the second guideline is important. To compute the required
ratio merely on the basis of the number of members without taking into
account the voting rights of the members may give rise to a possible
situation where although foreign interest is only 40 percent of the total
21 | TKP 2025
People v Quasha. 93 Phil 333 (1953) This is not actually the case. The Court clarified that the purpose of that
portion of the constitution is not to prevent the mere formation of a public
FACTS: utility corporation without the required formation of Filipino capital. What it
sought to prohibit was the granting of a franchise or any other
William Quasha, a member of the Philippine Bar was charged with the authorization for the operation of a public utility to a corporation already in
crime of falsification of a public and commercial document. He was existence but without the required proportion of Filipino capital.
entrusted with the preparation of the articles of incorporation of Pacific
Airways, a domestic corporation engaged in the business as a common What the Constitutional provision referred to here meant the secondary
carrier. Quasha made it appear in the AOI that one Arsenio Baylon, a franchise which gives the corporation the privilege to operate as a public
Filipino citizen, had subscribed to and was the owner of 60.005% of the utility, and not the primary franchise, which invests in a group, as in this
subscribed capital stock of the corporation when in reality, he was a mere case the co-incorporators, a corporate existence.
trustee as several American citizens (whose names did not appear in the
AOI) were actually the ones who paid for his share of the corporation’s That being said, Quasha was not under the obligation to disclose that
stocks, in contravention of the constitutional mandate that no corporation Baylon was a trustee of the Americans since it was not required by the
shall be authorized to operate as a public utility in the Philippines unless Corporation Law, so he cannot be held guilty for falsifying the AOI. Even if
60% of its capital stock is owned by Filipinos. it is urged that the fact that the corporation was formed under
circumstances (non-disclosure + issue that Baylon was a trustee for the
In explaining why Arsenio was made trustee, Quasha explained that the Americans), it cannot be assumed that what they were doing was a
American stockholders were having difficulty resolving their respective preparatory step to the subversion of the constitutional provision.
shareholdings and thus decided to make Arsenio the trustee until they
could settle the issue amongst themselves. To quote: For a corporation to be entitled to operate a public utility it is not
necessary that it be organized with 60 percent of its capital owned by
ISSUE: Filipinos from the start. A corporation formed with capital that is entirely
Is Quasha guilty of falsifying the Articles of Incorporation? NO. alien may subsequently change the nationality of its capital through
transfer of shares to Filipino citizens.
RULING:
According to the court, the falsification lies in the non-disclosure of the fact Conversely, a corporation originally formed with Filipino capital may
that Baylon was a trustee of the American co-incorporators. However, the subsequently change the national status of said capital through transfer of
lower court interpreted Quasha’s actions in contravention of Section 8 shares to foreigners. What need is there then for a corporation that intends
Article XIV of the Constitution, which provides that “no franchise, to operate a public utility to have, at the time of its formation, 60 percent of
certificate, or any other form of authorization for the operation of a public its capital owned by Filipinos alone? That condition may anytime be
utility shall be granted except to citizens of the Philippines or to corporation attained through the necessary transfer of stocks.
or other entities organized under the law of the Philippines, sixty per
centum of the capital of which is owned by citizens of the Philippines.”
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The moment for determining whether a corporation is entitled to operate

as a public utility is when it applies for a franchise, certificate, or any other
form of authorization for that purpose. And that can be done after the
corporation has already come into being and not while it is still being
formed.
And at that moment, the corporation must show that it has complied not
only with the requirement of the Constitution as to the nationality of its
capital, but also with the requirements of the Civil Aviation Law if it is a
common carrier by air, the Revised Administrative Code if it is a common
carrier by water, and the Public Service Law if it is a common carrier by
land or other kind of public service
NOTES: Keep in mind that the constitution here was the 1943 constitution
and there was no Revised Corp Code yet, it was the Corporation Law that
was being used.
CLV OUTLINE: The nationality test for public utilities applies not at the
time of the grant of the primary franchise that makes a corporation a
juridical person, but at the grant of the secondary franchise that authorizes
the corporation to engage in a nationalized industry.
23 | TKP 2025
Tatad v. Garcia, Jr., 243 SCRA 436 (1995) constitutes a public utility is not their ownership but their use to serve the
public.
FACTS: The Constitution, in no uncertain terms, requires a franchise for

DOTC planned to construct an LRT line along EDSA covering a the operation of a public utility. However, it does not require a franchise
number of cities in Metro Manila. Later, RA No. 6957 was passed which before one can own the facilities needed to operate a public utility so
provided for two schemes for the financing and construction of government long as it does not operate them to serve the public.
projects: Build-Operate-Transfer (BOT) and Build-Transfer (BT). Out of five
The Supreme Court distinguished between the operation of a
groups who responded to the invitation, only the EDSA LRT Consortium
public utility and the ownership of the facilities and equipment used to
(composed of foreign and domestic corporations), duly organized under
serve the public:
the laws of HongKong, met the standards of the Prequalification Bids and
Awards Committee (PBAC). The exercise of the rights encompassed in ownership is limited by
As per the LRT III Agreement, the LRT shall use light rail vehicles law so that a property cannot be operated and used to serve the public as
from the Czech and Slovak Federal Republics. The Consortium shall also a public utility unless the operator has a franchise. The operation of a rail
undertake and finance the entire project to complete the operational light system as a public utility includes the transportation of passengers from
rail transit system. one point to another point, their loading and unloading at designated
places and the movement of the trains at pre-scheduled times
Petitioners argue that since the EDSA LRT III is a public utility, its
ownership and operation is limited to Filipino citizens and domestic
The right to operate a public utility may exist independently and
corporations. EDSA LRT Corporation, being a foreign corporation, is
separately from the ownership of the facilities thereof. One can own said
prohibited to own and operate the LRT system under the Constitution.
facilities without operating them as a public utility, or conversely, one may
operate a public utility without owning the facilities used to serve the
ISSUE: public. The devotion of property to serve the public may be done by the
owner or by the person in control thereof who may not necessarily be the
Can EDSA LRT Corporation, a foreign corporation “own” EDSA owner thereof.
LRT III, a public utility? YES
It is the DOTC who shall operate the LRT system, not EDSA
LRT Corporation. The latter would not be running the vehicles or
RULING:
collecting fees; they would have no dealings with the public.
The phrasing of the question is erroneous; it is loaded. What
private respondent owns are the rail tracks, rolling stocks like the CLV OUTLINE:
coaches, rail stations, terminals and the power plant, not a public
utility. While a franchise is needed to operate these facilities to serve The Constitution requires a franchise for operating a public utility;
the public, they do not by themselves constitute a public utility. What however, it does not require a franchise before one can own the facilities
24 | TKP 2025
needed to operate a public utility so long as it does not operate them to

serve the public. There is a clear distinction between “operation” of a
public utility and ownership of the facilities used to serve the public.
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GOOD CORPORATE CITIZENS RULING:

Upon its examination, the Court finds that TRB’s rectification is not
Simex International, Inc. v. CA, 183 SCRA 360 (1990)
sufficient to discard its negligence. In the first place, such an error should
not have been committed. TRB did not provide any explanation as to
FACTS: why it had committed such an error – if anything, the checks should
have been paid immediately upon presentment; its payment made in
Simex International was a private corporation exporting food
less than a month is immaterial. The CFI and CA’s decision ignored the
products, with its exports purchased on credit. It was also a depositor
prejudice suffered by Simex, specifically Simex’s business having been
maintaining a checking account with Traders Royal Bank. In 1981, Simex
declined and its reputation being tarnished. Due to the actual injury
had deposited P100,000 to its account with Traders Royal Bank (TRB),
sustained by Simex as a result of the dishonored checks, its claim for
increasing its balance to P190,380. Subsequently, Simex had issued
moral damages shall all the more be granted [as provided by Article 2205
several checks against its deposit in favor of multiple suppliers, only to find
of the Civil Code which provides that “actual or compensatory damages
out that the checks had been dishonored for lack of sufficient funds. Due
may be received (2) for injury to the plaintiff’s business standing or
to this, Simex received demand letters for payment from its suppliers for
commercial credit.”]
the dishonored checks, resulting in the cancellation of its credit line and
the withholding of its orders (among others). Simex then complained to
TRB and upon investigation, it was found that its P100,000 deposit was As a business affected with public interest, TRB as a bank is
not credited to its account by the said bank. Eventually, TRB rectified its under the obligation to treat the accounts of its depositors with
error and the dishonored checks were paid after they were re-deposited. utmost care, always keeping in mind the fiduciary nature of their
Subsequently, Simex demanded reparation from TRB for its “gross relationship. In every case, the depositor expects the bank to treat his
and wanton negligence” which was not met. Simex then filed a complaint account with utmost fidelity, regardless of the amount in his account. In
with the CFI of Rizal claiming P1M for moral damages and P500k for this case, it is obvious that TRB was remiss in its said duty and violated
exemplary damages from TRB. The Court found that although TRB was such fiduciary relationship. Not only did TRB not immediately correct its
guilty of negligence, Simex was not entitled to moral damages given that mistake after having been informed of it but also, it did not provide any
TRB’s rectification of its error negated any imputation of bad faith and satisfactory explanation of why it made such error and why it did not
negligence on its part. The CA affirmed this ruling hence this petition. correct it immediately. Such action comes under the concept of “wanton
manner” under the Civil Code that calls for the imposition of damages.
ISSUE: Whether or not Simex Intl is entitled to moral damages due to

TRB’s negligence? YES. CLV OUTLINE:
The banking system is an indispensable institution in the modern world
and plays a vital role in the economic life of every civilized nation. Whether
as mere passive entities for the safekeeping and saving of money or as
26 | TKP 2025
active instruments of business and commerce, banks have become

ubiquitous presence among the people, who have come to regard them
with respect and even gratitude and, most of all, confidence. The point is
that as a business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature
of their relationship. In the case at bar, it is obvious that the respondent
bank was remiss in that duty and violated that relationship. What is
especially deplorable is, having been informed of its error in not crediting
the deposit in question to the petitioner, the respondent bank did not
immediately correct it but did so only one week later or twenty-three days
after the deposit was made.
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PNB v. Pike, 470 SCRA328 (2005) ISSUE:

FACTS:
Did PNB exercise the degree of diligence required of them in dealing with
Pike had a US Dollar Savings Account in PNB for which he was
their clients? → NO, SC affirmed the CA decision
issued a passbook. Upon arriving in Manila from Japan, he found that his
passbook, along with other valuables, had been stolen. Pike’s talent
manager and choreographer Joy Davasol was prosecuted for the theft of RULING:
The court found that the negligence in this case lies in the
Pike’s things. Pike found out that Davasol also made two (2) unauthorized
lackadaisical attitude exhibited by the employees of PNB in their treatment
withdrawals from his US Dollar Savings Account.
of Pike’s account. Although it's the bank’s employees who were negligent,
Pike protested the unauthorized withdrawals and demanded the
a bank’s liability as an obligor is not merely vicarious but primary, as banks
return of the withdrawn amount from PNB, asserting that he never
are expected to exercise the highest degree of diligence in the
authorized anybody to withdraw from his account and that the signatures
selection and supervision of their employees.
on the withdrawal slips were forgeries. PNB, on the other hand, did not
want to credit the amount back to the account, asserting that they In this case, PNB does not deny that the withdrawal slips used
were in a breach of standard operating procedures of banks in the ordinary
exercised due diligence in the handling of the account. PNB alleged that
Pike & Davasol went to see PNB AVP Lorenzo Bal to withdraw $2k with and usual course of business because the employees approved the
withdrawal transaction without asking for any proof of identification and did
verbal instructions to honor all withdrawals transmitted by his Talent
not ask the authorization portion of the pre-signed withdrawal slip to be
Manager and Choreographer Joy Davasol who shall present pre-signed
signed by Pike. The bank employees allowed the withdrawal simply
withdrawal slips bearing Pike’s signature.
because Davasol had the withdrawal slip. The bank employees admitted
PNB is also asserting that Pike wrote a letter asking to withdraw
that pre-signed withdrawal slips do not constitute normal procedure
the remaining balance of the passbook and which also included a promise
with respect to withdrawals by representatives. Clearly, the bank did
not to hold responsible the bank and its officers for the withdrawal made
on my dollar savings passbook as a result of the loss of his passbook. not exercise the degree of diligence that it ought to have exercised in
dealing with their clients.
However, Pike’s counsel sent a letter denying that his client made any
Direct quote from case: With banks, the degree of diligence required is
such promise. The bank contended that Pike’s withdrawal of the remaining
MORE THAN that of a good father of a family considering that the
balance of his account with the bank estops him from claiming on the
business of banking is imbued with public interest due to the nature of their
alleged unauthorized withdrawals.
functions. The stability of banks largely depends on the confidence of the
RTC found the bank negligent in the performance of its duties for
people in the honesty and efficiency of banks. Thus, the law imposes on
the unauthorized withdrawals and ruled in favor of Pike. The CA affirmed
the decision of the RTC. banks a high degree of obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of
banking.
CLV OUTLINE: Since the banking business is impressed with public

interest, of paramount importance is the trust and confidence of the public
28 | TKP 2025
in general. The diligence required of banks is more than that of a good

father of a family, but the highest degree of diligence, and high standards
of integrity and performance are even required. The nature of bank’s
functions require it “to treat its depositors’ accounts with meticulous care,
always having in mind the fiduciary nature of their relationship.” Here, even
if withdrawals were made before passage of GBL**, its Sec. 2 categorical
declaration of the “fiduciary nature of banking that requires high standards
of integrity and performance,” is a statutory affirmation of Supreme Court
decisions in esse at time of such withdrawals. ✔PNB v. Pike, 470 SCRA
328 (2005).
NOTES: The SC said that the petition of PNB is anchored on a plea to

review the factual conclusions reached by the trial court (whether the
signature were forgeries and whether the letter constituted as a waiver
absolving the bank from liability). The Sc held that they cannot do this as
they are not a trier of facts so they affirmed the finding of the CA that PNB
was negligent in allowing the unauthorized withdrawals.
**GBL: General Banking Law
There was also an issue about the damages. PNB was saying that its
actions were done in good faith and so there is no basis for the damages
awarded to Pike. Court said PNB is wrong because in breach of contract,
as in this case, moral damages are recoverable only if the defendant has
acted fraudulently or in bad faith, or in wanton disregard of his contractual
obligations. As the bank was negligent in the treatment of Pike’s account,
the award for moral damages is proper.
Exemplary damages was awarded as well as a warning to PNB not to

recklessly disregard their obligation to exercise the highest and strictest
diligence in serving their depositors.
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Professional Services, Inc. v. CA, 611 SCRA 282 (2010) between Dr. Ampil, but under the principle of OSTENSIBLE AGENCY for
the negligence of Dr. Ampil, and under the principle of CORPORATE
FACTS:
NEGLIGENCE for its failure to perform its duties as a hospital.
PSI, Dr. Ampil, and Dr. Fuentes were impleaded by the Agana
spouses in a complaint for damages filed in the RTC for the injuries
suffered by Natividad Agana when Dr. Ampil and Dr. Fuentes neglected to As a juridical entity, a hospital cannot practice medicine, however,
remove 2 pieces of gauze from her body which were used in her surgery.
it utilizes doctors, surgeons, and medical practitioners in the conduct of its
Natividad died due to two gauzes that were left in her stomach.
business. It has 3 legal relationships: (1) Between the hospital and the
PSI and Dr. Ampil were held liable for damages under the principle doctor practicing within its premises, (2) between the hospital and the
of respondeat superior. There existed an employer-employee relationship, patient being treated within its premises, and (3) between the patient and
that “for purposes of allocating responsibility in medical negligence cases, the doctor.
an employer-employee relationship exists between hospitals and their
consultants.” By accrediting Dr. Ampil’s qualifications, PSI created the Regardless of its relationship with the doctor, the hospital may be
public impression that he was its agent. PSI was bound by its duty to held directly liable to the patient for its own negligence or failure to follow
provide comprehensive medical services to Natividad, to exercise established standard of conduct to which it should conform as a
reasonable care, to supervise all persons who practiced medicine within its corporation. PSI defined the standards of its corporate conduct under the
walls, and to take steps in fixing any form of negligence committed within circumstances of this case: (1) It had a corporate duty to Natividad even
its premises. PSI committed a serious breach of its corporate duty after her operation to ensure her safety as a patient, (2) its corporate duty
when it failed to conduct an immediate investigation into the reported
was not limited to having its nursing staff note or record the two missing
missing gauzes.
gauzes, and (3) that its corporate duty extended to determining Dr. Ampil’s
role in it, bringing the matter to his attention, and correcting his negligence.
Manila Medical Services Inc., Asian Hospital Inc., and Private PSI’s admission eventually barred itself from the argument that the
Hospital Association of the Philippines intervened and invoked the concept of “corporate responsibility” was not yet in existence at the time
common ground that, unless modified, the assailed decision and resolution Natividad underwent treatment.
will jeopardize the financial viability of private hospitals and jack up the
cost of health care. PSI took no heed of the record of operation and consequently did
not initiate a review of what transpired during Natividad’s operation.
Rather, it shirked its responsibility and passed it on to others – to Dr. Ampil
ISSUE: Whether a hospital may be held liable for the negligence of its whom it expected to inform Natividad, and to Natividad herself to complain
physicians-consultants who are allowed to practice on its premises? - YES before it took any meaningful step. By its inaction, PSI failed its own
standard of hospital care. It committed corporate negligence.
RULING:
The SC held PSI liable to the Aganas, not under the principle of
respondeat superior for lack of evidence of an employment relationship
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CLV OUTLINE:
While in theory a hospital as a juridical entity cannot practice medicine, in
reality it utilizes doctors, surgeons, and medical practitioners in the
conduct of its business of facilitating medical and surgical treatment.
Within that reality, three legal relationships crisscross:
1. Between the hospital and the doctor practicing within the premises
2. Between the hospital and the patient being treated or examined
within its premises
3. Between the patient and the doctor
Regardless of its relationship with the doctor, the hospital may be held
directly liable to the patient for its own negligence or failure to follow
established standard of conduct to which it should conform as a
corporation.
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SEPARATE JURIDICAL PERSONALITY AND THE DOCTRINE OF

PIERCING THE VEIL OF CORPORATE FICTION ISSUE:
Did the NLRC commit grave abuse of discretion in declaring that private
Azcor Manufacturing Inc. v. NLRC, 303 SCRA 26 (1999)
respondent Capulso was illegally dismissed and in holding petitioners
DOCTRINE: Separate juridical personalities made separate for jointly and solidarily liable to Capulso for back wages? YES. [ps no
convenience, confusion, and to subvert the ends of justice by though, since SC affirmed NLRC’s decision?]
evading obligations will be viewed as one single entity, with one
corporation acting as an avenue of the other, and potentially RULING:
incurring solidary liabilities in complaints. To constitute a resignation, it must be unconditional and with the
intent to operate as such. The fact Capulso filed the illegal dismissal case
FACTS: with the labor arbiter, and later the NLRC, does not show intent. Capulso
In 1989, deceased Candido Capulso’s daily wage was deduced by signified his desire to resume his work when he went back to AZCOR after
P50.00 a day without explanation. Around this time, due to the lack of recuperating from his illness, and actively pursued his case for illegal
safety conditions of the ceramic factory of AZCOR, Capulso went on dismissal.
medical leave but was not allowed to return- and AZCOR claimed he filed
a letter of resignation, while Capulso claimed he tried to return five times to Furthermore the letters of recognition had the same content addressed to
work but was not given approval by his superior. AZCOR and Filipinas Paso in English, which Capulso was not very fluent
in due to his educational background. No other plausible explanation can
AZCOR also claims that by 1990 when Capulso filed the case, the real be drawn from these than that the letters of resignation were prepared by
employer was Filipinas Paso and not AZCOR, which is owned by the persons other than Capulso. Court cannot give credence to those letters in
same sole shareholder Arturo Zuluaga absence of any showing that Capulso was aware that he was signing then
were in fact resignation letters or that he fully understood the contents
Capulso presented the following documentary evidence in support of his thereof.
claim: (a) His affidavit and testimony to prove that he was terminated
without just cause and without due process; (b) Identification card issued Petitioners also content that they could not be held jointly and severally
by AZCOR which he continued to use even after his supposed liable to Capulso for back wages since AZCOR and Filipinas Paso are
employment by Filipinas Paso; (c) Certification of SSS premium payments; separate and distinct corporations with different corporate personalities;
(d) SSS Member Assistance Form wherein he stated that he worked with mere fact that the businesses of these corporations are interrelated and
AZCOR from March 1989 to April 1991; (e) Certification of Employee both owned and controlled by a single stockholder are not sufficient
Contribution with SSS; and, (f) Payslips issued by AZCOR.cräläwvir grounds to disregard their separate entities - court is not persuaded!!!
Labor arbiter granted a refund for unpaid wages of 200 to Capulso- but on The doctrine that a corporation is a legal entity or a person in law distinct
appeal the NLRC declared that illegal dismissal occurred. During the from the persons composing it is merely a legal fiction for purposes of
pendency of this case, Capulso died of asthma and heart disease. convenience and to subserve the ends of justice. This fiction cannot be
32 | TKP 2025
extended to a point beyond its reason and policy. Where, as in this case,
the corporate fiction was used as a means to perpetrate a social injustice
or as a vehicle to evade obligations or confuse the legitimate issues, it
would be discarded and the two (2) corporations would be merged as one,
the first being merely considered as the instrumentality, agency, conduit or
adjunct of the other.
Just because there is one stockholder owns two of the same companies
does not mean AZCOR and Paso lose their separate personalities.
However if the split personalities are based on convenience and a means
to subvert the ends of justice, they are combined into one entity.
Clearly, Capulso used an AZCOR ID, showing he did not know of Filipino
Paso’s acquisition; he was paid the same salary and he performed the
same kind of job, in the same work area, in the same location, using the
same tools and under the same supervisor; his payslip contained the
name of AZCOR, giving the impression that AZCOR was paying his
salary; his boss was from AZCOR, and his employment contract stated
AZCOR hired Capulso to work for Filipino Paso. The distinction is
immaterial.
CLV OUTLINE:
Such legal fiction is only for purposes of convenience and to subserve the
ends of justice — it cannot be extended to a point beyond its reason and
policy. Where, as in this case, the corporate fiction was used to perpetrate
a social injustice or as a vehicle to evade obligations or confuse the
legitimate issues, it would be discarded and the two corporations would be
merged as one, the first being merely considered as the instrumentality,
agency, conduit or adjunct of the other.
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Lanuza, Jr. v. BF Corp., 737 SCRA 275 (2014) Corporation Code. Section 31 makes directors solidarily liable for
fraud, gross negligence, and bad faith.
● The Court of Appeals ruled Lanuza and Olbes are interested third
Facts: parties, and not including them would cause a multiplicity of suits.
● BF Corporation and Shangri-la Properties entered into agreements
where BF would construct Shangri-la a mall and a multilevel parking
structure along EDSA Issue: Whether Lanuza and Olbes should be made parties to the
● Shangri-la defaulted in payments, it misrepresented to BF that it had arbitration proceedings, pursuant to the arbitration clause present in their
funds to pay the obligation but asked BF to continue with the agreement?
construction of the buildings using BF’s own funds and credit Held: [The case was moot and academic because the Arbitral Tribunal’s
● After the completion of the project, Shangri-la took possession of the decision absolved Lanuza and Olbes from liability and the ruling binds BF
building without paying and refusing to pay BF saying BF lied about Corporation- Court found an exception to guide the bench, bar, and public
their claims and they already paid in full, there should be no balance. and upheld the CA, which originally required Lanuza and Olbes to submit
● BF filed a collection complaint against Shangri-la and the members of to the tribunal’s jurisdiction, which they actually did and won.] “We rule
the Board of Directors (Lanuza, Olbes, etc.) that petitioners may be compelled to submit to the arbitration
● The case was brought to arbitration because of the arbitration proceedings in accordance with Shangri-La and BF Corporation’s
clause in the contract agreement, in order to determine if the distinction between
○ [“parties” - in essence the only issue here is whether Shangri-La’s personality and their personalities should be
Lanuza (as director of Shangri-La) should be part of the disregarded”
arbitration proceedings]
Ratio:
● Petitioners Lanuza argue that they had resigned as members of
Shangri-La’s Board of Directors at the time of filing the complaint, and ● A corporation is only a creature of law. It has a personality separate
also did not take part in the agreement. from its stockholders, officers, directors, representatives, and other
● Still, the RTC ruled that Lanuza and Olbes who were retired were still juridical entities. It can only exercise its rights and powers through its
interested parties who must also be served with a demand for officers.
arbitration to give them the opportunity to ventilate their side of the ● A consequence of a corporation’s separate personality is that consent
controversy, safeguard their interest and fend off their respective by a corporation, through its representatives, is not consent of the
positions representative.
● Lanuza argues that they cannot be held personally liable for corporate ● GENERALLY – representatives are not bound by the terms of the
acts or obligations. Neither did they bind themselves personally nor contract executed by the corporation. They are not personally liable for
did they undertake to shoulder Shangri-La’s obligations should it fail in obligations and liabilities incurred on or in behalf of the corporation
its obligations. ● GENERAL RULE – A corporation’s officer who did not personally bind
● BF Corporation argues that while Lanuza and Olbes were not parties himself to an arbitration agreement cannot be forced to participate in
to the agreement, they were still impleaded under Section 31 of the
34 | TKP 2025
arbitration proceedings because of an agreement that the corporation the same as its directors, stockholders, officers, and agents. It
entered into. does not result in an absolute confusion of personalities of
● However, piercing the veil of corporate fiction is when the the corporation and the persons composing or representing
distinction of the personalities of the corporation and the officers are it. Courts merely discount the distinction and treat them as one, in
disregarded. relation to a specific act, in order to extend the terms of the
● When there are allegations of bad faith or malice against corporate contract and the liabilities for all damages to erring corporate
directors or representatives, it becomes the duty of courts or tribunals officials who participated in the corporation’s illegal acts. This is
to determine if these persons and the corporation should be treated as done so that the legal fiction cannot be used to perpetrate
one. illegalities and injustices.
● If malice or bad faith is found, the corporation’s distinct personality is ● Piercing the corporate veil is warranted when "[the separate
disregarded and the corporation is seen as a mere aggregation of personality of a corporation] is used as a means to perpetrate
persons undertaking a business under the collective name of the fraud or an illegal act, or as a vehicle for the evasion of an existing
corporation obligation, the circumvention of statutes, or to confuse legitimate
● Therefore, these persons must necessarily be part of the proceeding issues, or in alter ego cases- cannot use leg fic to perpetrate illeg
(current reps and those persons whose personalities are impliedly the ● Sec. 31, Corp. Code: Liability of directors, trustees or officers. -
same as the corporation) Directors or trustees who willfully and knowingly vote for or assent
● Hence when the directors are impleaded in a case against a to patently unlawful acts of the corporation or who are guilty of
corporation, alleging malice or bad faith on their part in directing gross negligence or BF in directing the affairs of the corporation or
the affairs of the corporation, complainants are effectively acquire any personal or pecuniary interest in conflict with their
alleging that the directors and corporation are not acting as duty as such directors or trustees shall be liable jointly and
separate entities. They are alleging that the acts or omissions by severally for all damages resulting therefrom suffered by the
the corporation that violated their rights are also the directors’ corporation, its stockholders or members and other persons.
acts or omissions
● The Arbitral Tribunal already rendered a decision, finding that BF
Corporation failed to prove the existence of circumstances that render CLV OUTLINE:
petitioners and other directors solidarily liable. Furthermore, the As a consequence of a corporation’s separate personality:
petitioners participated in this hearing with objections- but won.- The
“The corporation’s consent made through its representatives is not the
Court will respect this decision.
consent of the representative, personally. Its obligations, incurred through
official acts of its representatives, are its own. A director or officer does not
NICE TO KNOW: become a party to a contract just because a corporation executed a
contract through such individuals. Hence, a corporation’s representatives
● However, when the courts disregard the corporation’s distinct and are not personally bound by the terms of the contract executed on behalf
separate personality from its directors or officers, the courts do not
of the corporation.”
say that the corporation, in all instances and for all purposes, is
35 | TKP 2025
Pacific Rehouse Corp. v. Court of Appeals, 719 SCRA 665 (2014) corporate fiction. The principle of piercing the veil of corporate fiction
applies to the determination of liability not of jurisdiction.
FACTS:
Therefore before the court may pierce the veil of corporate fiction
On a prior case, a complaint was instituted against E-securities for
the court must first acquire jurisdiction over the parties. In this case, Export
unauthorized sale of around 32M shares of DMCI owned by Pacific
and Industry Bank was neither served wit summons, nor has it voluntarily
Rehouse et. al. In the prior case, the RTC ordered E-securities to return
appeared in court. Hence it is not under RTCs jurisdiction.
the shares of Pacific Rehouse.
The Court also stated that the Alter Ego Doctrine is not applicable
A writ of execution was issued, however it was returned
in this case. The Court has laid down a 3-pronged control test to establish
unsatisfied. So Pacific Rehouse moved for the issuance of writ of
when the alter ego doctrine should be operative:
execution to hold Export and Industry Bank liable for the judgment
obligation since E-securities is a wholly-owned controlled and 1. Control, not mere majority or complete stock control, but complete
denominated subsidiary of Export and Industry Bank Inc., thus, a mere domination, not only of finances but of policy and business
alter ego or business conduit. practices in respect to the transaction attacked so that the
RTC concluded E-Securities is a mere alter ego, which justifies corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;
the piercing of the veil of corporate fiction, and issued Writ of Execution
against Export and Industry Bank. 2. Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
Export and Industry Bank filed an appeal. And CA nullified the positive legal duty, or dishonest and unjust act in contravention of
ruling of RTC with regard to the Writ of Execution against Export and plaintiff’s legal right; and
Industry bank. 3. The aforesaid control and breach of duty must [have] proximately
CA explained that the alter ego theory cannot be sustained caused the injury or unjust loss complained of
because ownership of a subsidiary by the parent company is not enough The absence of any one of these elements prevents piercing the
justification to pierce the veil of corporate fiction. There must be proof, corporate veil in applying the instrumentality or alter ego doctrine.
apart from ownership, that Export Bank exploited or misused the corporate
The RTC relied heavily on the fact that E-securities is controlled
fiction of E-Securities.
by Export and Industry Bank. However, the Court said that “control, by
ISSUE: itself, does not mean that the controlled corporation is a mere
May RTC enforce the writ of execution against Export and Industry instrumentality or a business conduit of the mother company. Even control
Bank? NO over the financial and operational concerns of a subsidiary company does
not by itself call for disregarding its corporate fiction. There must be a
RATIO:
perpetuation of fraud behind the control or at least a fraudulent or illegal
The Court in deciding this case made reference to a purpose behind the control in order to justify piercing the veil of corporate
Jurisprudence which provides that a corporation not impleaded in a suit fiction. Such fraudulent intent is lacking in this case.”
cannot be subject to the court’s process of piercing the veil of its
36 | TKP 2025
In addition, the Court noted that there was nothing on record is

demonstrative of Export’s Bank’s wrongful intent. If used to perform
legitimate functions, a subsidiary’s separate existence shall be respected.
Lastly the Court said that while the courts have been granted the
colossal authority to wield the sword which pierces through the veil of
corporate fiction, concomitant to the exercise of this power, is the
responsibility to uphold the doctrine of separate entity, when rightly so; as
it has for so long encouraged businessmen to enter into economic
endeavors fraught with risks and where only a few dared to venture.
Hence, any application of the doctrine of piercing the corporate
veil should be done with caution. A court should be mindful of the milieu
where it is to be applied. It must be certain that the corporate fiction was
misused to such an extent that injustice, fraud, or crime was committed
against another, in disregard of its rights. The wrongdoing must be clearly
and convincingly established; it cannot be presumed. Otherwise, an
injustice that was never unintended may result from an erroneous
application.
NOTE: In 3-pronged test of Alter Ego, it was fraudulent intent which was
missing – NOT PIERCED.
CLV OUTLINE: Mere ownership by a single shareholder or by another

corporation of all or nearly all the capital stocks is not, by itself, a sufficient
ground for disregarding the separate corporate personality. Other
circumstances have to be proven showing that the corporation is being
used to commit fraud or proof of existence of absolute control over the
corporation. In short, before the corporate fiction can be disregarded,
alter-ego elements must first be sufficiently established. [Pacific Rehouse
Corp. v. Court of Appeals, 719 SCRA 665 (2014)]
37 | TKP 2025
DBP v. NLRC, 186 SCRA 841 (1990) with PSC’s employees, and thus in absence of such relationship, the labor
arbiter has no jurisdiction over the matter; however, DBP’s appeal to the
FACTS:
NLRC over the labor arbiter’s decision cured the defect in jurisdiction.
hilippine Smelters Corp, a GOCC created by virtue of EO 81, obtained a
P
loan from DBP which is secured by real properties with all the buildings
and improvements and chattels with PSC president, Marcelo, as DBP, as foreclosing creditor, cannot be held liable to the unpaid wages
co-obligor. By virtue of the loan agreement, DBP became a major and benefits of the employees of the mortgagor. Such claims must be
stockholder of PSC, and later took over management. properly asserted in an insolvency proceeding against the employer,
as such, in the case at bar, is already pending with the RTC.
When PSC defaulted on its loan obligation, DBP foreclosed the PSC
properties.
40 of the unpaid employees filed a petition for Involuntary Insolvency in the CLV OUTLINE:
RTC against PSC and DBP. They also filed another complaint with DOLE
Ownership of majority of the capital stock and the fact that majority of
against PSC for non-payment of salaries, 13th month pay, incentive leave
directors of a corporation are the directors of another corporation creates
pay and separation pay. The complaint was amended to include DBP as
no employer-employee relationship with the latter’s employees, ✔DBP v.
respondent, being PSC’s major stockholder.
NLRC, 186 SCRA 841 (1990)
The case was submitted for arbitration to the NLRC. The labor arbiter
rendered a decision holding DBP’s liability to pay the unpaid wages and
benefits as a foreclosing creditor. On DBP’s appeal, the NLRC affirmed the
decision of the labor arbiter that DBP is liable not as a major stockholder of
PSC, but as foreclosing creditor.
DBP argues that it has no liability to the unpaid employees in the absence
of employer-employee relationship.
ISSUE: W/N DBP is liable for the unpaid wages and benefits of the PSC
employees based on the fact that DBP is a major stockholder of PSC and
that the majority of members of the board of PSC are from DBP? NO
RULING: NO.
DBP’s ownership of majority of the capital stock and the fact that majority
of PSC’s BOD are from DBP creates no employer-employee relationship
38 | TKP 2025
SEPARATE JURIDICAL PERSONALITY AND THE DOCTRINE OF reports with the DOLE every time a project or phase was completed is an
PIERCING THE VEIL OF CORPORATE FICTION | APPLICATION OF indication that respondent was not a project employee.
THE RULES EMANATING FROM THE PRIMARY DOCTRINE:
MAJORITY OR INTERLOCKING EQUITY OWNERSHIP,
DIRECTORSHIP, OR OFFICERSHIP NLRC RULING - the NLRC reversed and set aside the LA's decision,
holding that respondent was a project employee whose services ended
Freyssinet Filipinas Corp. v. Lapuz, 897 SCRA 265 (2019) upon completion of a specific project. It pointed out that FFC was primarily
engaged in the construction industry whose workers are hired for specific
phases of work in the project site, and that respondent was made aware of
FACTS:
the nature of his employment and the duration thereof.
1. Respondent Amado R. Lapuz (respondent) worked as warehouse
supervisor for petitioner Freyssinet Filipinas Corporation (FFC),
now Frey-Fil Corporation, a domestic corporation engaged in the CA RULING - the CA reversed and set aside the NLRC ruling and instead,
business of general construction, pre-stressed, post-tensioning, reinstated the LA ruling. It did not give credence to petitioners' claim that
among others. FF Interior, FPTSPI, and Filsystems were separate and distinct
2. Sometime in December 2011, respondent averred that he was corporations from FFC, noting that the said corporations were ran by the
verbally informed of his termination from work by the project same people and that the same merely evolved into different names from
manager. its establishment in 1972 until its present name as FFC.
3. Believing to have been dismissed without substantive and
procedural due process, respondent filed a complaint for illegal
ISSUE:
dismissal with prayer for reinstatement and payment of attorney's
fees. Are FF Interior, FPTSPI, and Filsystems separate and distinct corporations
4. For their part, petitioners Frey-Fil Corp maintained that respondent from FFC to warrant corporate officers not liable for illegal dismissal of the
was not illegally dismissed as his project employment contract respondent? YES.
merely expired. They further averred that the corporate officers
should not be held liable in view of the separate personality of the
corporation from its officers and absent showing of bad faith on RULING:
their part. Note: Court ruled that respondent is a regular - not a project - employee;
as such, he is entitled to security of tenure and may only be dismissed for
just or authorized causes. Thus, not having been dismissed for a valid and
LA RULING - the LA declared respondent to be a regular employee of legal cause, the CA was correct in declaring respondent to have been
FFC and as such, was dismissed without just or authorized cause. The LA illegally dismissed.
ruled that petitioners' failure to adduce proof of the filing of termination
39 | TKP 2025
CA upheld the assertion that FF Interior, FPTSPI/Filsystem, and FFC alleged in the complaint that the director or officer assented to patently
merely changed their names and that all companies are managed and unlawful acts of the corporation or that the officer was guilty of gross
owned by the same people. However, the CA's conclusion is belied by the negligence or bad faith; and (2) there must be proof that the officer acted
records. Having been issued separate certificates of registration, the FFC, in bad faith. Here, the twin requirements of allegation and proof of bad
FPTSPI, and Filsystems Tower 1, Inc., are by law deemed to be separate faith necessary to hold the impleaded corporate officers liable for the
and distinct corporate personalities. monetary awards are clearly lacking.
It is well settled that the mere ownership by a single stockholder or by CLV OUTLINE: Ownership of majority of the capital stock and the fact that
another corporation of all or nearly all of the capital stock of a corporation majority of directors of a corporation are the directors of another
is not of itself sufficient ground for disregarding the separate corporate corporation creates no employer-employee relationship with the latter’s
personality. Neither is the existence of interlocking directors, corporate employees, [DBP v. NLRC, 186 SCRA 841 (1990)]; nor would it justify
officers, and shareholders enough justification to pierce the veil of the tacking of the years of services with both corporations to determine
corporate fiction in the absence of fraud or other public policy employment rights and benefits. [Freyssinet Filipinas Corp. v. Lapuz,
considerations. It must be shown that the separate and distinct 897 SCRA 265 (2019).]
personalities of the corporations are set up to justify a wrong, protect
fraud, or perpetrate a deception. Hence, the wrongdoing must be clearly
and convincingly established by substantial evidence; it cannot be
presumed.
Thus, since there was no basis for the CA to disregard the separate
juridical personality of FFC under the doctrine of piercing the corporate
veil, and considering further that respondent was deemed a regular
employee of FFC having been consistently hired as warehouse supervisor
since April 11, 2007, and terminated without a valid cause on January 5,
2012, the awards of backwages and separation pay in lieu of
reinstatement 68 are in accord with Article 294 of the Labor Code.
As to the liability of the impleaded corporate officers, the Court equally

finds error on the part of the CA in holding them jointly and severally liable
to respondent. Case law states that to hold a director or officer personally
liable for corporate obligations, two requisites must concur: (1) it must be
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Good Earth Emporium, Inc. v. Court of Appeals, 194 SCRA 544 (1991) In the case at bar, the supposed payments were not made to
Roces-Reyes Realty, Inc. or to its successor in interest nor is there
FACTS:
positive evidence that the payment was made to a person authorized to
A lease contract was entered into between ROCES and Good receive it. No such proof was submitted but merely inferred by the
Earth Emporioum (GEE). A five-storey building was the subject of the said Regional Trial Court from Marcos Roces having signed the Lease Contract
contract, which upon failure of the latter to pay its rentals, ROCES filed an asPresident which was witnessed by Jesus Marcos Roces. On the other
ejectment case against the petitioner. The MTC of Manila rendered a hand, Jesus Marcos Roces testified that the amount of P1 million
decision ordering GEE and all persons under him to vacate the premises evidenced by the receipt is the payment for a loan extended by him and
and surrender the same to ROCES and pay the plaintiffs the rental. Marcos Roces in favor of Lim Ka Ping. The assertion is home by the
GEE filed a motion to quash the writ of execution but the same receipt itself whereby they acknowledged payment of the loan in their
was denied by the MTC for lack of merit. In 1987 the RTC of Manila names and in no other capacity. A corporation has a personality
reversed the decision of the MTC finding that the amount of P1 million distinct and separate from its individual stockholders or members.
evidenced by Exhibit "I" and another P1 million evidenced by the pacto de As a consequence of the separate juridical personality of a
retro sale instrument were in full satisfaction of the judgment obligation. corporation, the corporate debt or credit is not the debt or credit of
These payments were made to the two Roces brothers, which RTC ruled the stockholder, nor is the stockholder’s debt or credit that of the
to be part of the debt to ROCES. corporation.
On further appeal, the CA reversed the decision of the RTC and The fact that at the time payment was made to the two Roces
reinstated the Resolution of the MTC of Manila. GEE’s m/r was denied, brothers, GEE was also indebted to respondent corporation for a larger
hence this petition. amount, is not supportive of the Regional Trial Court's conclusions that the
payment was in favor of the latter, especially in the case at bar where the
ISSUE: Whether or not there was full satisfaction of the judgment debt in
amount was not receipted for by respondent corporation and there is
favor of the respondent corporation.
absolutely no indication in the receipt from which it can be reasonably
RULING: inferred, that said payment was in satisfaction of the judgment debt.
There is no indication in the receipt, that it was in payment, full or Likewise, no such inference can be made from the execution of the pacto
partial, of the judgment obligation. Likewise, there is no indication in the de retro sale which was not made in favor of respondent corporation but in
pacto de retro sale which was drawn in favor of Jesus Marcos Roces and favor of the two Roces brothers in their individual capacities without any
Marcos V. Roces and not the respondent corporation, that the obligation reference to the judgment obligation in favor of respondent corporation.
embodied therein had something to do with petitioners'judgment obligation
with respondent corporation.
CLV OUTLINE: Being officer or shareholder does not by itself make one’s
Article 1240 of the Civil Code of the Philippines provides that: property also that of the corporation, and vice-versa, for they are separate
“Payment shall be made to the person in whose favor the obligation has entities, and that shareholders who are officers are in no legal sense the
been constituted, or his successor in interest, or any person authorized to owners of corporate property which is owned by the corporation as a
receive it.” distinct legal person.
41 | TKP 2025
DOCTRINES EMANATING FROM THE PRIMARY ATTRIBUTE OF corporations as stockholders, are subject to the payment of the income
SEPARATE JURIDICAL PERSONALITY tax, the exemption clause in the charter of the corporation notwithstanding.
Manila Gas Corp. v. CIR, 62 Phil. 895 (1936)
Manila Gas Corporation operates business entirely within the Philippines.
Its earnings come from local sources. The place of material delivery of the
FACTS:
interest to the foreign corporation paid out of the revenue of the domestic
Manila Gas Corporation operates a gas plant in Manila and corporation is of particular moment. The place of payment even if
furnishes gas service by virtue of a franchise granted to it by the conceded to be outside of the country cannot alter the fact that the income
government. Such franchise contains a provision exempting Manila Gas was derived from the Philippines. The word “source” = origin of the income
Corporation from the payment of taxes. Associated with the Manila Gas = Philippines.
Corporation are the Island Gas and Electric Company, and the General
Finance Company.
CLV OUTLINE: On Privileges Enjoyed: The tax exemption clause in the
For the years 1930-1932, dividends in the sum of 1.3M were paid
by Manila Gas Corporation to the Islands Gas and Electric Company charter of a corporation cannot be extended to, nor be enjoyed even by
the controlling shareholders. !Manila Gas Corp. v. CIR, 62 Phil. 895
(domiciled in New York) in the capacity of stockholders upon which
(1936).
withholding income taxes were paid to CIR amounting to P40k.
Manila Gas Corporation now contends that the dividends paid by it
to its stockholders, the Island Gas and Electric Company, were not subject
to tax because to impose a tax thereon would to do so on the Manila Gas
Corporation, in violation of its franchise.
ISSUE: Whether the dividends received by the stockholders are also

exempt from taxes? NO
RULING:
A corporation has a personality distinct from that of its stockholders,
enabling the taxing power to reach the latter when they receive dividends
from the corporation.
It must be considered as settled in this jurisdiction that dividends of a
domestic corporation, which are paid and delivered in cash to foreign
42 | TKP 2025
On Suits For, or Against, the Coporation RULING:

Sulo ng Bayan v. Araneta, Inc., 72 SCRA 347 (1976) It has not been claimed that the members have assigned or
transferred whatever rights they may have on the land in question to the
FACTS: plaintiff corporation. Absent any showing of interest, therefore, a
Sulo ng Bayan, a Philippine corporation, filed an accion de corporation, like plaintiff herein, has no personality to bring an action for
reivindicacion with the CFI against the defendants to recover the and on behalf of its stockholders or members for the purpose of recovering
ownership and possession of a large tract of land that is registered under property which belongs to said stockholders or members in their personal
the Torrens System in the name of the defendants’ capacities.
predecessors-in-interest. The members of Sulo, through themselves and
their predecessors-in-interest, had pioneered in the clearing of the tract of It is fundamental that there cannot be a cause of action without an
land, cultivated the same since the Spanish Regime and constinuously antecedent primary legal right conferred by law upon a person. The
possessed it openly and publicly under the concept of ownership adverse essential elements of a cause of action are legal right of the plaintiff,
against the whole world. correlative obligation of the defendant, an act or omission of the
defendant in violation of the aforesaid legal right. Clearly, no right of
Gregorio Araneta, one of the defendants, through force and action exists in favor of plaintiff corporation, for as shown heretofore it
intimidation, ejected the members of Sulo from their possession of the does not have any interest in the subject matter of the case which is
land. And upon investigation, the plaintiff found out that in 1961, the land in material and direct so as to entitle the same to file the suit as a real party
question had been either fraudulently or erroneously included, by direct or in interest. Therefore, the plaintiff cannot represent its members who claim
constructive fraud, in OCT of the Land Records of the Province of to own in their individual capacities ownership of the property
Bulacan. Thus, makes the title fictitious, non-existent and devoid of
legal efficacy due to the fact that no original survey nor plan
whatsoever appears to have been submitted as a basis thereof and CLV OUTLINE: A corporation has no legal standing to file a suit for
that the court which issued the decree of registration had no jurisdiction recovery of certain parcels of land owned by its members in their individual
over the land registration case. Plaintiff consequently prayed that the OCT, capacity, even when the corporation is organized for the benefit of the
as well as all the transfer certificates of title issued and derived therefrom , members.
be nullified and to declare the Sulo’s members as the absolute owners in
common and the certificate of title be issued to plaintiff.
ISSUE: Whether or not plaintiff corporation may institute an action on

behalf of its individual members for the recovery of certain parcels of land
allegedly owned by said members? NO.
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On Suits For, or Against, the Coporation damages. This right could not also be asserted by the Cuencas and
Stronghold Insurance Co. v. Cuenca, 692 SCRA 473 (2013) Tayactac unless they did so in the name of the corporation itself. But that
did not happen herein, because Arc Cuisine, Inc. was not even joined in
FACTS: the action either as an original party or as an intervenor.
Marañon filed a complaint for collection of sum of money w/ an Given the separate and distinct legal personality of Arc
application for the issuance of the writ of preliminary attachment against Cuisine, Inc., the Cuencas and Tayactac lacked the legal personality
the Cuencas. The RTC granted the application w/ the condition that a P1 to claim the damages sustained from the levy of the former’s
million bond be executed in favor of the Cuencas. Maranon later amended properties. According to Asset Privatization Trust v. Court of Appeals,
the complaint and impleaded Tayactac as a co-defendant. even when the foreclosure on the assets of the corporation was wrongful
Later, the bond was later posted by Stronghold Insurance. The and done in bad faith the stockholders had no standing to recover for
RTC also granted the writ of preliminary attachment. The sheriff then themselves moral damages; otherwise, they would be appropriating and
levied upon the equipment and supplies of Arc Cuisine, Inc. that were distributing part of the corporation’s assets prior to the dissolution of the
found in the premises of the corporation. The Cuencas and Tayactac corporation and the liquidation of its debts and liabilities.
wanted to quash the writ of preliminary attachment contending that CLV OUTLINE: Shareholders have no standing to recover damages
the action involved intra-corporate matters under the SEC’s arising from the wrongful attachment of the corporation’s assets.
jurisdiction. CA granted this petition and ordered the case remanded to
the RTC to rule on the Cuencas’ and Tayactac’s claim for damages.
The RTC ruled in favor of the respondents, holding Marañon and
Stronghold Insurance liable for damages.
ISSUE:
Can the Cuencas and Tayactac claim for damages based on the
wrongful attachment of assets of Arc Cuisine? NO.
RULING:
There is no dispute that the properties subject to the levy on
attachment belonged to Arc Cuisine, Inc. alone, not to the
Cuencas and Tayactac in their own right. They were only
stockholders of Arc Cuisine, Inc., which had a personality distinct
and separate from that of any or all of them. The damages
occasioned to the properties by the levy on attachment, wrongful or
not, prejudiced Arc Cuisine, Inc., not them. As such, only Arc Cuisine,
Inc. had the right under the substantive law to claim and recover such
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Common Law Doctrine of “Piercing the Veil of Corporate Fiction”: To further support this claim, the majority of MRTC’s stock is
Source of Incantation owned by persons who also own brewing company stock. But the
U.S. v. Milwaukee Refrigerator Transit Co., 142 Fed. 247 (1905) brewing company pays its freight in full, receives no rebates, and is not a
party to the contracts between the refrigerator and the railroad
FACTS: companies.
Milwaukee Refrigerator Transit Co. (MRTC) is a company
incorporated to lease refrigerator boxes to trains to facilitate interstate Allegedly, the defendant railroad companies, with the intent of
traffic of goods. Its acts are allegedly in violation of the Elkins Act (this evading the law, have entered into such contracts w:th the refrigerator
law prohibits any person or corporations to receive any rebate from company, and thereunder have paid to the refrigerator company from
transportation companies in transporting goods) and corporate one-tenth to one-eighth of the freight money on all traffic controlled by the
personality is put into question in this case (no backstory of how the case refrigerator company.
ended up in court).
It was also claimed that the defendant carriers well knew that the
According to the Elkins Act: Common carriers, and the officers of transit company was organized in the interest of the brewing company,
such as are corporations, receivers, agents, etc., of such corporations, and for the purpose of evading the law, and paid such rebates with the like
are prohibited from giving rebates, preferences, and advantages, and purpose and intent. The transit company claims and pretends that such
making unjust discriminations, and are punishable by fine and repayments were made and accepted as compensation for its services in
imprisonment. Under this section only the agents of corporate carriers, soliciting and procuring freight for carriage by defendants.
and not the carriers themselves, were punishable.
ISSUE: Whether or not Pabst Brewing Company and MRTC are so united
Upon the passage of that Elkins Act, the brewing company (Pabst) in interest, control and management as to make them substantially the
was no longer able to directly secure rebates, and cast about for some same – YES.
device to evade the statute, and the Pabsts, as such officers, and one
Howe, as traffic manager, intending to contrive and operate a device for RULING:
such evasion, caused the transit company to be formed.
Pabst and MRTC are to be treated as one corporation, and
The government is claiming Pabst brewing company merely thus Pabst violated the Elkins Act.
incorporated the refrigerator company (MRTC) as a dummy to take
advantage of the money (received as rebates) it gets from the railroad The bill states several facts tending to show unlawful purpose:
companies. In other words, they’re claiming that MRTC is a dummy Such as prior habitual violations of former laws, not then sufficiently
corporation and it is operated by this unnamed brewing company so that punishable, and later the creation of a dummy corporation to escape from
the brewing company will indirectly benefit from the money MRTC the strictness of an amended statute.
receives from the railroad companies.
It clearly appears that the shipper practically controls the transit
45 | TKP 2025
company, and his shows a sufficient identity of interest among the other words, when the notion of legal entity is used to defeat public
shareholders of both in these repayments to make them rebates, if paid convenience, justify wrong, protect fraud, or defend crime, the law will
and received with unlawful intent. regard the corporation as an association of persons.
MRTC is a mere separate name for the Pabst brewing

CLV OUTLINE - [NO REFERENCE]
company, being in fact the same collection of persons and
interests. [BUT AS DISCUSSED IN THE CASE ITSELF]: Corporations and
Business Organizations; Disregarding Corporate Entity; Piercing
A corporation will be looked upon as a legal entity as a general Corporate Veil; Reasons and Justifications; In general; Justice and
rule until sufficient reason to the contrary appears; but, when the notion equity in general; Fraud or illegal acts in general. “A corporation will be
of legal entity is used to defeat public convenience, justify wrong, protect looked upon as a legal entity, as a general rule, and until sufficient reason
fraud, or defend crime, the law will regard the corporation as an to the contrary appears; but, when the notion of legal entity is used to
association of persons, and where one corporation was organized defeat public convenience, justify wrong, protect fraud, or defend crime,
and is owned by the officers and stockholders of another, making the law will regard the corporation as an association of persons; and,
their interests identical, they may be treated as identical when the where one corporation was organized and is owned by the officers and
interests of justice require it. stockholders of another, making their interests identical, they may be
treated as identical when the interests of justice require it.”
Question of Corporate Identity and Control:
It is argued that the averments show that the transit company is

merely the alter ego of the brewing corporation; both being substantially
identical in interest and control, and the brewing company the ultimate
beneficiary.
A corporation is an artificial person, a mere legal entity, invisible

and intangible. It was not reasonable that those who deal with corporate
affairs or agents should be deprived of the valuable privilege of litigating
in the federal courts by a syllogism, or rather sophism, which deals subtly
with words and names, without regard to the things or persons they are
used to represent. For certain purposes, the law will recognize the
corporation as an entity distinct from the individual stockholders; but that
fiction is only resorted to for the purpose of working out the lawful objects
of the corporation. It is never resorted to when it would work an injury to
anyone, or allow the corporation to perpetrate a fraud upon anybody. In
46 | TKP 2025
Common Law Doctrine of Piercing the Veil of Corporate Fiction - sue; and (3) the Youngs' causes of action were barred by the Statute of
Source of Incantation Limitations. The motion was opposed by the Youngs. On 29 March 1994,
Gochan v. Young, 354 SCRA 207 (2001) the Gochans filed a Motion for cancellation of Notice of Lis Pendens. The
[Derivative suit - stockholders have standing] Youngs opposed the said motion.
FACTS: On 9 December 1994, the SEC, through its Hearing Officer, granted the
Felix Gochan and Sons Realty Corporation (Gochan Realty) was motion to dismiss and ordered the cancellation of the notice of lis pendens
registered with the SEC on June 1951, with Felix Gochan, Sr., Maria Pan annotated upon the titles of the corporate lands; holding that the Youngs
Nuy Go Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and never been stockholders of record of FGSRC to confer them with the legal
Crispo Gochan as its incorporators. Felix Gochan Sr.'s daughter, Alice capacity to bring and maintain their action, and thus, the case cannot be
inherited 50 shares of stock in Gochan Realty from the former. considered as an intra-corporate controversy within the jurisdiction of the
SEC; and that on the allegation that the Youngs brought the action as a
Alice died in 1955, leaving the 50 shares to her husband, John Young, Sr. derivative suit on their own behalf and on behalf of Gochan Realty, the
In 1962, the Regional Trial Court of Cebu adjudicated 6/14 of these shares failure to comply with the jurisdictional requirement on derivative action
to her children, Richard Young, David Young, Jane Young Llaban, John necessarily result in the dismissal of the complaint. The Youngs filed a
Young Jr., Mary Young Hsu and Alexander Thomas Young (the Youngs). Petition for Review with the Court of Appeals.
At which time all the children had reached the age of majority, their father
John Sr., requested Gochan Realty to partition the shares of his late wife On 28 February 1996, the Court of Appeals ruled that the SEC had no
by canceling the stock certificates in his name and issuing in lieu thereof, jurisdiction over the case as far as the heirs of Alice Gochan were
new stock certificates in the names of the Youngs. concerned, because they were not yet stockholders of the corporation. On
the other hand, it upheld the capacity of Cecilia Gochan Uy and her
On 17 October 1979, Gochan Realty refused, citing as reason, the right of spouse Miguel Uy. It also held that the Intestate Estate of John Young Sr.
first refusal granted to the remaining stockholders by the Articles of was an indispensable party. The appellate court further ruled that the
Incorporation. In 1990, John, Sr. died, leaving the shares to the Youngs. cancellation of the notice of lis pendens on the titles of the corporate real
On 8 February 1994, Cecilia Gochan Uy and Miguel Uy filed a complaint estate was not justified. Moreover, it declared that the Youngs' Motion for
with the SEC for issuance of shares of stock to the rightful owners, Reconsideration before the SEC was not pro forma; thus, its filing tolled
nullification of shares of stock, reconveyance of property impressed with the appeal period. The Gochans moved for reconsideration but were
trust, accounting, removal of officers and directors and damages against denied in a Resolution dated 18 December 1997. The Gochans filed the
Virginia Gochan, et. al. (Gochans) A Notice of Lis Pendens was annotated Petition for Review on Certiorari.
to the real properties of the corporation.
ISSUE: Could the Spouses Uy bring a derivative suit in the name of
On 16 March 1994, the Gochans moved to dismiss the complaint alleging Gochan Realty to redress wrongs allegedly committed against it for which
that: (1) the SEC had no jurisdiction over the nature of the action; (2) the the directors refused to sue? YES
the Youngs were not the real parties-in-interest and had no capacity to
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RULING: Petitioners contend that the action filed by Sps Uy was not a
derivative suit because SPs Uy and not the corporation were the injured
parties.
Complaint showed allegations of injury to the corporation itself. This Court

has recognized the right of a single stockholder to file derivative suits. In
its words:
Where corporate directors have committed a breach of trust either by their

frauds, ultra vires acts, or negligence, and the corporation is unable or
unwilling to institute suit to remedy the wrong, a single stockholder may
institute that suit, suing on behalf of himself and other stockholders and for
the benefit of the corporation, to bring about a redress of the wrong done
directly to the corporation and indirectly to the stockholders.
The allegations of injury to the Spouses Uy can coexist with those

pertaining to the corporation. The personal injury suffered by the spouses
cannot disqualify them from filing a derivative suit on behalf of the
corporation. The personal injury suffered by Sps Uy cannot disqualify them
from filing a derivative suit on behalf of the corporation. It merely gives rise
to an additional cause of action for damages against erring directors.
In this case, it is alleged that the aforementioned corporations are mere

alter egos of the directors-petitioners, and that the former acquired the
properties sought to be reconveyed to FGSRC in violation of the directors-
petitioners' fiduciary duty to FGSRC.
CLV OUTLINE: The notion of corporate entity will be pierced or

disregarded and the individuals composing it will be treated as identical, if
the corporate entity is being used as a cloak or cover for fraud or illegality;
as a justification for a wrong; or as an alter ego, an adjunct, or a business
conduit for the sole benefit of the shareholders. Gochan v. Young, 354
SCRA 207 (2001).
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PNB v. Andrada Electric & Engineering Co., 381 SCRA 244 (2002) After due proceedings, the Trial Court rendered judgment in favor of AEEC
[alter ego piercing; not pierced - elements (particularly, control) not and against PNB, NASUDECO and PASUMIL. PNB and NASUDECO
present] appealed. The Court of Appeals affirmed the decision of the trial court.
PNB and NASUDECO filed the petition for review.
FACTS: Philippine National Bank (PNB) acquired the assets of the
Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed by the ISSUE: Whether PNB and NASUDECO may be held liable for PASUMIL’s
Development Bank of the Philippines (DBP) under LOI 311. The PNB liability to AEEC? NO
organized the National Sugar Development Corporation (NASUDECO), to
take ownership and possession of the assets and ultimately to nationalize RULING: Basic is the rule that a corporation has a legal personality distinct
and consolidate its interest in other PNB controlled sugar mills. and separate from the persons and entities owning it. The corporate veil
may be lifted only if it has been used to shield fraud, defend crime, justify a
Prior, PASUMIL engaged the services of the Andrada Electric & wrong, defeat public convenience, insulate bad faith or perpetuate
Engineering Company (AEEC) for electrical rewinding and repair, most of injustice.
which were partially paid by PASUMIL, leaving several unpaid accounts
with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a Thus, the mere fact that the Philippine National Bank (PNB) acquired
contract for AEEC. Aside from the work contract, PASUMIL required AEEC ownership or management of some assets of the Pampanga Sugar Mill
to perform extra work, and provide electrical equipment and spare parts. (PASUMIL), which had earlier been foreclosed and purchased at the
Out of the total obligation of P777,263.80, PASUMIL had paid only resulting public auction by the Development Bank of the Philippines (DBP),
P264,000.00, leaving an unpaid balance of P513,263.80. will not make PNB liable for the PASUMIL's contractual debts to Andrada
Electric & Engineering Company (AEEC).
PASUMIL and PNB, and now NASUDECO, allegedly failed and refused to
pay AEEC their just, valid and demandable obligation (The President of Piercing the veil of corporate fiction may be allowed only if the following
the NASUDECO is also the Vice-President of the PNB. AEEC besought elements concur: (1) control — not mere stock control, but complete
said official to pay the outstanding obligation of PASUMIL, inasmuch as domination — not only of finances, but of policy and business practice in
PNB and NASUDECO now owned and possessed the assets of respect to the transaction attacked, must have been such that the
PASUMIL, and these defendants all benefited from the works, and the corporate entity as to this transaction had at the time no separate mind,
electrical, as well as the engineering and repairs, performed by AEEC). will or existence of its own; (2) such control must have been used by the
defendant to commit a fraud or a wrong to perpetuate the violation of a
Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO statutory or other positive legal duty, or a dishonest and an unjust act in
to pay their obligations, AEEC filed a complaint for collection of sum of contravention of plaintiff's legal right; and (3) the said control and breach of
money and damages. PNB and NASUDECO filed a joint motion to dismiss duty must have proximately caused the injury or unjust loss complained of.
on the ground that the complaint failed to state sufficient allegations to The absence of the foregoing elements in the present case precludes the
establish a cause of action against PNB and NASUDECO, inasmuch as piercing of the corporate veil.
there is lack or want of privity of contract between the them and AEEC.
49 | TKP 2025
First, other than the fact that PNB and NASUDECO acquired the assets of
PASUMIL, there is no showing that their control over it warrants the
disregard of corporate personalities. Second, there is no evidence that
their juridical personality was used to commit a fraud or to do a wrong; or
that the separate corporate entity was farcically used as a mere alter ego,
business conduit or instrumentality of another entity or person. Third,
AEEC was not defrauded or injured when PNB and NASUDECO acquired
the assets of PASUMIL. Hence, although the assets of NASUDECO can
be easily traced to PASUMIL, the transfer of the latter's assets to PNB and
NASUDECO was not fraudulently entered into in order to escape liability
for its debt to AEEC. Neither was there any merger or consolidation with
respect to PASUMIL and PNB. The procedure prescribed under Title IX of
the Corporation Code 59 was not followed. In fact, PASUMIL's corporate
existence had not been legally extinguished or terminated. Further, prior to
PNB's acquisition of the foreclosed assets, PASUMIL had previously made
partial payments to AEEC for the former's obligation in the amount of
P777,263.80. As of 27 June 1973, PASUMIL had paid P250,000 to AEEC
and, from 5 January 1974 to 23 May 1974, another P14,000. Neither did
PNB expressly or impliedly agree to assume the debt of PASUMIL to
AEEC. LOI 11 explicitly provides that PNB shall study and submit
recommendations on the claims of PASUMIL's creditors. Clearly, the
corporate separateness between PASUMIL and PNB remains, despite
AEEC's insistence to the contrary.
CLV Outline: This Court has pierced the corporate veil to ward off a
judgment credit, to avoid inclusion of corporate assets as part of the estate
of the decedent, to escape liability arising for a debt, or to perpetuate fraud
and/or confuse legitimate issues either to promote or to shield unfair
objectives to cover up an otherwise blatant violation of the prohibition
against forum shopping. Only is these and similar instances may the veil
be pierced and disregarded. PNB v. Andrada Electric & Engineering Co.,
381 SCRA 244 (2002).
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Rovels Enterprises, Inc. v. Ocampo, 391 SCRA 176 (2002) RULING:
FACTS: Rovels is bound by the previous SEC decisions. Santos, the president of
The Tagaytay Taal Tourist Development Coporation (TTTDC) Rovels, was one of the respondents in both SEC cases. Being the
engaged in the services of Rovels, a domestic corporation engaged in president of the corporation, it shared an identity of interests with the
construction work. To pay for the services, TTTDC issued a resolution corporation sufficient to make them privies-in-law.
authorizing the payment with the unissued shares of the corporation. The
Resolution was signed by Roxas, the president of TTTDC but the Rovel cannot take refuge in the argument that, as a corporation, it is
signatures of 2 other directors did not appear. After the issuance of the imbued with personality separate and distinct from that of the respondents
resolution , Santos, the president of Rovels, filed with the SEC an in the SEC cases. Rovels petition in this case is barred by estoppel,
application for exemption from registration of the unissued shares of stock prescription, and laches. There is no merit to Rovels’ claim that it was only
which were transferred to the petitioner corporation as payment, to which after 20 years when it became aware of the Resolution which repealed the
the SEC granted. first resolution and the nullification of the transfer of its shares of stock.
A year after the first resolution, 2 directors of TTTDC filed a It is undisputed that Santos was present in the Board meeting when the
complaint against Roxas and Santos, alleging that no meeting was held first resolution was repealed. Therefore, as the president of Rovels,
and the signatures of 2 other directors in the resolution was obtained Santos is considered as Rovels’ agent. As such, his knowledge of the
through fraud and misrepresentation, to which they prayed that the first repeal of the first resolution, under the theory of imputed knowledge, is
resolution shall be repealed and to have the shares transferred back to ascribed to his principal, who is Rovels.
TTTDC. The SEC hearing officer ruled in favor of it and the decision
became final and executory. And then the Respondents were declared as CLV OUTLINE: The legal fiction of separate corporate existence is not
the lawful stockholders of TTTDC and the decision became final and invincible; it may be pierced when employed as a means to perpetrate a
executory. fraud, confuse legitimate issues, used as a means to promote unfair
objectives, or to shield an otherwise blatant violation of the prohibition
2 years after the said decision , Rovels then prayed that it be declared as against forum-shopping. While piercing of the corporate veil has to be
the majority stockholder of the TTTDC and alleged that it only found out done with caution, the corporate fiction may be disregarded when
about the SEC decision. But the hearing officer dismissed Rovels’ petition necessary for the interest of justice.
on the grounds of cause of action, res judicata, estoppel, laches and
prescription.
ISSUE: Whether or not Rovels can be bound by the decision of the SEC
and the court represented by its corporate officers, specifically Santos?
YES.
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Suldao v. Cimech System Construction, Inc., 506 SCRA 256 (2006) impossible so as to foreclose any choice on his part except to resign from
such employment.
FACTS:
Suldao was employed by Cimech as their machinist for a period of The court considered the transfer of Suldao valid, the manner by which the
5 months but he continued to work beyond the 5-month period and respondent unjustifiably prevented him from returning to work on several
became a permanent employee. Suldao then took leave of absence as occasions runs counter to the claim of good faith on the part of the
ordered by Labocay. When he reported back to work, he was then barred respondent corporation. By reporting for work, petitioner manifested his
from entering by the security guard which made him file an instant willingness to comply with the regulations of the corporation and his desire
complaint for constructive dismissal. to continue working without any explanation. This is a clear manifestation
of disdain and insensibility on the part of an employer towards a particular
Respondent contended that Suldao was temporarily transferred to employee and a veritable hallmark of constructive dismissal.
the fabrication department due to the lack of available work in the machine
shop and it was Suldao who refused to accept the same and insisted to As a general rule, a corporation will be looked upon as a legal entity,
continue working as a machinist. But he later accepted but only worked for unless and until sufficient reason to the contrary appears. When the notion
a day. Moreover, Suldao also demanded a salary increase and demanded of a legal entity is used to defeat public convenience, wrong justice,
to get his salary but he failed to get the clearance as instructed. protect fraud, or defend crime, the law will regard the corporation as an
association of persons. Also, the corporate entity may be disregarded
The NLRC concurred with the Labor Arbiter that Suldao was in the interest of justice in such cases as fraud that may work
indeed constructively dismissed but the decision was later reversed by the inequities among members of the same corporation internally,
CA. involving no rights of the public or third persons. In both instances,
there must have been fraud and proof of it. For the separate juridical
ISSUE: personality of a corporation to be disregarded, the wrongdoing must
1. Whether or not the petitioner was constructively dismissed? YES. clearly and convincingly be established, it cannot be presumed.
2. Whether or not Labocay, the president and general manager of
the respondent, shall be held solidarily liable. NO. While the liability of the respondent corporation for the constructive
dismissal of the petitioner has been clearly established, the same does not
RULING: hold true with Labucay. No reason exists that will justify the piercing of the
veil of corporate fiction such as to hold Labuca solidarily liable. Thus, only
Constructive dismissal or a constructive discharge has been defined as the respondent corporation should be held liable.
quitting because continued employment is rendered impossible,
unreasonable or unlikely, as an offer involving demotion in rank and a
diminution in pay. In the instance case, there is constructive dismissal CLV OUTLINE: When the notion of legal entity is used to defeat public
because the continued employment of the petitioner is rendered convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons. The corporate entity
52 | TKP 2025
may also be disregarded in the interest of justice in such cases as fraud

that may work inequities among members internally, involving no rights of
the public or third persons. In both instances, for the separate juridical
personality of a corporation to be disregarded, the wrongdoing must be
clearly and convincingly established; it cannot be presumed.
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General Credit Corp. v. Alsons Dev. and Investment Corp. Trial court found Equity as a mere instrumentality or adjunct of
513 SCRA 225 (2007) GCC and ruled in favor of Alsons and ordered GCC to pay. CA affirmed
this, hence the petition.
FACTS:
GCC organized Equity Corporation (EQUITY) as well, for the

management of various franchise companies. Alsons Development and ISSUE:
Investment Corp. (ALSONS) and the Alcantara family each owned shares
in the GCC companies. Whether or not the doctrine of piercing GCC's corporate veil is
properly applied? - YES.
ALSONS and the Alcantara family sold their shareholdings in the
CCC franchise companies to EQUITY, to which EQUITY issued ALSONS
a "bearer" promissory note for P2M. The Alcantara family had also
assigned its rights and interest over the bearer promissory note to RULING:
ALSONS. However, EQUITY was unable to pay the stipulated interest
when letters of demand to pay interest were sent. Under the doctrine – "piercing the veil of corporate fiction" – the
court will often look at the corporation as a mere collection of individuals or
Hence, Alsons filed a complaint for a sum of money against Equity an aggregation of persons undertaking business as a group, disregarding
and GCC with the RTC of Makati. GCC was impleaded a party-defendant the separate juridical personality of the corporation unifying the group.
under the doctrine of piercing the veil of corporate fiction, alleging that Another formulation of this doctrine is that when two (2) business
Equity has been organized as a tool and mere conduit of GCC. GCC enterprises are owned, conducted and controlled by the same parties,
answered that it is a distinct and separate entity from Equity. both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct entities
Alson presented over 60 documentary pieces of evidence among and treat them as identical or one and the same.
which are as follows:Equity and GCC had common directors/officers as
well as stockholders. When [EQUITY’s President] Labayen sold the Authorities are agreed on at least three (3) basic areas where
shareholdings of EQUITY in said franchise companies, practically the piercing the veil, with which the law covers and isolates the corporation
entire proceeds thereof were surrendered to GCC, and not received by from any other legal entity to which it may be related, is allowed. These
EQUITY. President Villanueva communicated to Equity President Labayen are: 1) defeat of public convenience; 2) fraud ; or 3) alter ego cases.
that GCC Board denied the Alcantaras’ request to be paid out but
authorized to pay interest out of Equity’s operation income. Per the Court’s count, the trial court enumerated no less than 20
documented circumstances and transactions, which, taken as a package,
strongly supported the conclusion that respondent EQUITY was but an
adjunct, an instrumentality or business conduit of petitioner GCC. This
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relation provides a justifying ground to pierce petitioner’s corporate

existence as to ALSONS’ claim in question. The trial court also noted the
commonality of directors, officers and stockholders and even sharing of
office between petitioner GCC and respondent EQUITY; certain financing
and management arrangements between the two, allowing the petitioner
to handle the funds of the latter; the virtual domination if not control
wielded by the petitioner over the finances, business policies and practices
of respondent EQUITY; and the establishment of respondent EQUITY by
the petitioner to circumvent CB rules.
As the relationships binding herein [respondent EQUITY and

petitioner GCC] have been that of "parent- subsidiary corporations" the
foregoing principles and doctrines find suitable applicability in the case at
bar; and, it having been satisfactorily and indubitably shown that the said
relationships had been used to perform certain functions not characterized
with legitimacy, this Court … feels amply justified to "pierce the veil of
corporate entity" and disregard GCC's separate existence. GCC was the
entity which initiated and benefited immensely from the fraudulent scheme
perpetrated in violation of the law.
NOTE: Case of Alter-Ego piercing - PIERCED.
CLV OUTLINE: Authorities are agreed on at least three (3) basic areas
where piercing the veil, with which the law covers and isolates the
corporation from any other legal entity to which it may be related, is
allowed: (1) defeat of public convenience, as when the corporation is used
as vehicle for the evasion of existing obligation; (2) fraud cases or when
the corporate entity is used to justify wrong, protect fraud, or defend a
crime; or (3) alter ego cases, where the 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.
55 | TKP 2025
agreements between MPEI and such individual companies, and did not
Republic v. Mega Pacific eSolutions, Inc. even denote any intent to form a consortium; (3) MPEI was incorporated
794 SCRA 414 (2016) only 11 days prior to the bidding itself; (4) COMELEC bidding rules were
not followed, specifically the failure to pass the accuracy test, and the
FACTS: failure to include in its Eligibility Envelope a copy of a Joint Venture
Agreement or any other proof that there was a JV/Consortium. (5) Despite
RA 8436 authorized COMELEC to use an automated election No. 4, COMELEC still awarded the project to MPEI; and (6) Lastly, MPEI
system for the May 1998 elections; however, the system failed to failed to comply with the terms of the contract.
materialize and votes were canvassed manually during the 1998 and 2001
elections. Willy Yu, et. al. now claim that the factual findings or conclusions
in the 2004 case cannot be used against them since they not parties
For the 2004 elections, COMELEC again attempted to implement therein. Hence, they cannot be bound by the judgment. They claim that
the system. It invited bidders to apply for the procurement of supplies, their fundamental right to due process would be violated if their properties
equipment and services. MPEI (as lead company) purportedly formed a were to be attached for a purported corporate debt on the basis of a court
joint venture known as the Mega Pacific Consortium (with other ruling in a case in which they were not given the right or opportunity to be
companies) and thus, submitted its bid proposal. heard.
COMELEC awarded the project to MPC. Despite this however,

COMELEC and MPEI executed an automaticon contract, wherein MPEI ISSUE:
agreed to supply and deliver materials necessary for the computerized
electoral system in 2004. The Court eventually rendered this contract null Whether or not the application of piercing the veil of corporate
and void, ruling that COMELEC violated the law and disregarded its own entity is proper? – YES.
bidding rules and procedure when it awarded the project to MPC, an entity
which had not participated in the bidding and entered into a contract with
MPEI, a company which did not meet the eligibility requirements. The RULING:
Court thus found such scheme to be an indication of fraud, designed to
eliminate fair competition. In essence, COMELEC had subverted the Veil-piercing in fraud cases requires that the legal fiction of
essence of public bidding. separate juridical personality is used for fraudulent or wrongful ends.
"For reasons discussed below, We see red flags of fraudulent schemes in
The SC found that: (1) Although MPC was awarded the project, it public procurement, all of which were established in the 2004 Decision, the
was MPEI who entered into the contract with COMELEC; (2) MPEI’s claim totality of which strongly indicate that MPEI was a sham corporation
that it was a “consortium” of MPC and other companies was a falsity – formed merely for the purpose of perpetrating a fraudulent scheme."
there were 4 Memorandum of Agreements (MOAs) between MPEI and
other companies, but the SC found that such MOAs were individual
56 | TKP 2025
The red flags are as follows: (1) overly narrow specifications; (2) companies” often hide the interests of project or government
unjustified recommendations and unjustified winning bidders; (3) failure to officials, concealing a conflict of interest and opportunities for
meet the terms of the contract; and (4) shell or fictitious company: money laundering. Also, by definition, they have no experience. In
this case, MPEI obviously had “no experience” because it was
1. Overly narrow specifications – where in a competitive market incorporated only 11 days prior to the actual bidding. As a new
for goods and services, any specifications that seem to be drafted company, it was not eligible to participate as a bidder, which is
in a way that favors a particular company deserve closer scrutiny way it pretended that it was “acting as an agent of the putative
– specifications that are too narrow can be used to exclude other consortium.”
qualified bidders or justify improper sole source awards. In this
case, the accuracy test required a percentage of 99.9995%. Without the incorporation of MPEI, the defraudation of the
2. Unjustified recommendations and unjustified winning bidders government would not have been possible. Furthermore, the doctrine of
– It was MPEI that actually participated in the bidding process, but piercing the veil of corporate fiction applies mainly because it was
t was not qualified to be a bidder in the first place. Its ACMs failed shown that individual respondents Willy Yu et. al. were directly
the accuracy requirement set by COMELEC. Despite such MPC, involved in the contract.
the “nonentity,” obtained a favorable recommendation from the
Bids and Awards Committee (BAC), and the automation contract Furthermore, in their pleadings they admitted involvement but
was awarded thereto. claimed that they “dealt with the COMELEC with full transparency and
3. Failure to meet contract terms – the SC had, in the 2004 in utmost good faith.”
Decision, already found the ACMs to be substandard and did not
comply with the terms set by COMELEC – (1) could not prevent Evidence of fraud having been established, and involvement by
reenter of previous results; (2) could not provide receipts to show the individual respondents Willy Yu, et. al. having been proven and
who was/were operating the machine; (3) failed the accuracy test. admitted, piercing the veil of corporate fiction is warranted.
Such was reiterated in the 2005 and 2006 resolutions; (4) the
bidding process required the bidder to show audited financial NOTE: Case of Fraud Piercing – PIERCED.
statements for the last 3 calendar years – but MPEI could not
have had such document since it was incorporated only 11 days CLV OUTLINE: The main effect of disregarding the corporate fiction is that
prior to actual bidding; and (5) MPEI’s claim that it had delivered shareholders will be held personally liable for the acts and contracts of the
1,991 ACMs does not suffice, as such were proven to be corporation, whose existence, at least for the situation involved, is ignored.
substandard. Considering this, it is justified to pierce the corporate veil in this case.
4. [MAIN ARGUMENT] Shell or fictitious company – “Fictitious MPEI must be treated as a mere association of persons whose assets are
companies” involve corrupt government officials creating a unshielded by corporate fiction. Such persons’ individual liability shall now
fictitious company that will serve as a “vehicle” to secure contract be determined with respect to the matter at hand.
awards. Often, the fictitious – or ghost – company will subcontract
work to lower cost and sometimes unqualified firms. “Shell
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6. Union argues that the two entities are engaged in the:

§ Same kind of business
Indophil Textile Mill Workers Union-PTGWO v. Voluntary Arbitrator Calica
§ Practically the same incorporators, directors, and officers
and Indophil Textile Mills
205 SCRA 697 (1992) § Situated in the same compound
§ Uses the same machineries
Topic: Legal Objectives and Effects of Piercing – Attempts to Narrow the § Employees are the same persons manning and servicing units of
Objectives for Availing of Piercing Acrylic
7. Union argues that the veil should be pierced since the creation of Acrylic
CLV Syllabus: Piercing is not allowed unless the remedy sought is to make the is only a devise to evade the application of the CBA between Union and
officer or another corporation pecuniarily liable for corporate debts, unlike here Indophil
where it is resorted to determine proper jurisdiction of court.
Issue: Whether the operations of Acrylic are an extension or expansion of
Type of piercing: Alter Ego
Indophil/Whether the rank-and-file employees working at Acrilyic should be
Pierced? NO – no imposition of a claim against members of Acrylic
recognized as part of and/or within the scope of the bargaining unit?
Commentary: The imposition of a claim is a fraud piercing characteristic, the case
at bar being Alter Ego and so the claim is not exactly necessary
Held: NO, Acrylic is a separate entity and there is no reason to pierce the veil in
this case.
Notable qualities:
· Allegations of interlocking directors, incorporators as well as
1. Under the doctrine of piercing the veil of corporate entity, when valid
employees
grounds therefore exist, the legal fiction that a corporation is an entity
· Both companies in the same compound with a juridical personality separate and distinct from its members or
· Both companies using the same machinery stockholders may be disregarded
· One company (Indophil) offering services to the other (Acrylic) a. The corporation will be considered as a mere association of
persons & the liability will attach directly to the officers and
Facts: stockholders
1. The Union is the legitimate labor organization of the Indophil Textile b. The doctrine is used when corporate fiction is used to defeat
Mills,, a corporation engaged in the manufacture, sale, and export of public convenience, justify wrong, protect fraud, or defend
yarns crime, or when it is made as a shield to confuse the
2. In 1987, Indophil Acrylic Manufacturing Corporation was formed and legitimate issues, or where a corporation is the mere alter
registered with SEC ego or business conduit of a person, or where the
3. The workers of Acrylic unionized corporation is so organized and controlled and its affairs are
4. A year after, Indophil Union (petitioner) claims that the plant facilities built so conducted as to make it merely an instrumentality,
and set up by Acrylic should be considered as an extension or expansion agency, conduit or adjunct of another corporation
of the facilities of Indophil and that Acrylic is part of the Indophil 2. The fact that the businesses of private respondent and Acrylic are
bargaining unit related, that some of the employees of the private respondent are the
5. Indophil argues that Acrylic is a separate juridical entity distinct from the same persons manning and providing for auxiliary services to the
former units of Acrylic, and that the physical plants, offices and facilities are
58 | TKP 2025
situated in the same compound, it is our considered opinion that

these facts are not sufficient to justify the piercing of the corporate
veil of Acrylic.
3. "the legal corporate entity is disregarded only if it is sought to hold
the officers and stockholders directly liable for a corporate debt or
obligation." (Umali v. CA). In the instant case, petitioner does not
seek to impose a claim against the members of the Acrylic.
4. Hence, the Acrylic not being an extension or expansion of private
respondent, the rank-and-file employees working at Acrylic should
not be recognized as part of, and/or within the scope of the petitioner,
as the bargaining representative of private respondent.
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· Gregorio filed the counterclaim against the Corporation (Francisco

Motors)
Francisco Motors Corporation v. CA and Spouses Gregorio and Librada
Manuel · Francisco Motors questions being made party because it is not a real
309 SCRA 72 (1999) party in interest but the individual members of the Francisco family
concerned with the intestate case.
Topic: Legal Objectives and Effects of Piercing – Attempts to Narrow the · CA pierced the veil
Objectives for Availing of Piercing
Issue: Whether it was correct for CA to pierce the veil?
CLV Syllabus: The rationale for piercing is to remove the barrier between the
corporation and the persons comprising it to thwart the fraudulent schemes of Held: NO.
those who use the corporate personality as a shield for undertaking proscribed
activities. IN the case at bar, however, instead of holding certain individuals or · under the doctrine of piercing the veil of corporate entity, the
persons responsible for an alleged corporate act, the situation has been corporation's separate juridical personality may be disregarded, for
reversed: it is the corporation that is being ordered to answer for the personal example, when the corporate identity is used to defeat public
liability of certain directors and officers. Hence, it appears that the doctrine has convenience, justify wrong, protect fraud, or defend crime. Also,
been turned upside down because of it erroneous invocation. where the corporation is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and
its affairs are so conducted as to make it merely an instrumentality,
Type of piercing: Fraud or Equitable? // Reverse Piercing?
agency, conduit or adjunct of another corporation, then its distinct
Pierced? NO – The liability here is personal to the family and the Corpo has no
personality may be ignored. In these circumstances, the courts will
business there
treat the corporation as a mere aggrupation of persons and the
liability will directly attach to them.
Notable qualities:
· The legal fiction of a separate corporate personality in those cited
· Gregorio was employed in the corporation and receiving salary and
instances, for reasons of public policy and in the interest of justice,
yet hired by the family in their personal capacity and the latter in his
will be justifiably set aside.
private capacity to be their lawyer
· the doctrine of piercing the corporate veil has no relevant
Facts: application here.
· Gregorio was the assistant legal officer in Francisco Motors · The rationale behind piercing a corporation's identity in a given case
Corporation is to remove the barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes of those
· Gregorio represented the Francisco family in the intestate estate
who use the corporate personality as a shield for undertaking certain
proceedings of the late Benita Trinidad but he remains unpaid
proscribed activities.
· Francisco Motors filed a complaint against Gregorio for the sum of
· However, in the case at bar, instead of holding certain individuals or
P3,412 for the balance of the jeep body purchased by Gregorio from
persons responsible for an alleged corporate act, the situation has
the Corporation and the sum of P20,454 for the repair of the vehicle
been reversed. It is the petitioner as a corporation which is being
· Gregorio filed a counterclaim for the amount of P50,000 which was
ordered to answer for the personal liability of certain individual
not paid by the incorporators, directors, and officers of the petitioner.
directors, officers and incorporators concerned. Hence, it appears to
60 | TKP 2025
us that the doctrine has been turned upside down because of its
erroneous invocation.
· Note that according to private respondent Gregorio Manuel his
services were solicited as counsel for members of the Francisco
family to represent them in the intestate proceedings over Benita
Trinidad's estate. These estate proceedings did not involve any
business of petitioner.
· His move to recover unpaid legal fees through a counterclaim against
Francisco Motors Corporation, to offset the unpaid balance of the
purchase and repair of a jeep body could only result from an obvious
misapprehension that petitioner's corporate assets could be used to
answer for the liabilities of its individual directors, officers, and
incorporators. Such result if permitted could easily prejudice the
corporation, its own creditors, and even other stockholders; hence,
clearly inequitous to petitioner.
· whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal capacity.
When directors and officers of a corporation are unable to
compensate a party for a personal obligation, it is far-fetched to
allege that the corporation is perpetuating fraud or promoting
injustice, and be thereby held liable therefor by piercing its corporate
veil. While there are no hard and fast rules on disregarding separate
corporate identity, we must always be mindful of its function and
purpose.
· The personality of the corporation and those of its incorporators,
directors and officers in their personal capacities ought to be kept
separate in this case. The claim for legal fees against the concerned
individual incorporators, officers and directors could not be properly
directed against the corporation without violating basic principles
governing corporations. Moreover, every action — including a
counterclaim — must be prosecuted or defended in the name of the
real party-in-interest. 20 It is plainly an error to lay the claim for legal
fees of private respondent Gregorio Manuel at the door of petitioner
(FMC) rather than individual members of the Francisco family.
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International Academy of Management and Economics v. Litton and

Company, Inc., G.R. No. 191525, December 13, 2017 RULING:
[Reversed Piercing] In general, corporations, whether stock or non-stock, are treated
as separate and distinct legal entities from the natural persons comprising
FACTS: them. The privilege of being considered a separate and distinct entity is
Atty. Santos is the lessee of 2 buildings owned by Litton. Atty. confined to legitimate uses, and is subject to equitable limitations to
Santos owed Litton rental arrears and his share of the payment of realty prevent its being exercised for fraudulent, unfair, or illegal purposes. Once
taxes. Litton filed a complaint for unlawful detainer against Santos before equitable limitations are breached using the coverture of the corporate veil,
the MeTC of Manila. The MeTC ruled in favor of Litton; Santos was courts may step in to pierce the same.
ordered to vacate the 2 buildings and to pay various sums of money
representing the unpaid arrears, realty taxes, penalties, and attorney’s In order to pierce the corporate veil, a corporation must have been
fees. The judgment was not executed so Litton filed an action for revival of properly served with summons or properly subjected to the jurisdiction of
judgment with the RTC. Santos appealed the RTC decision but the CA the court. However, if it is shown “by clear and convincing proof that the
affirmed the RTC decision, so the decision became final and executory. In separate and distinct personality of the corporation was purposefully
order to execute the judgment against Santos, the sheriff of the MeTC of employed to evade a legitimate and binding commitment and perpetuate a
Manila levied a piece of real property and registered it in the name of fraud or like wrongdoings”.
International Academy of Management and Economics Incorporated
(I/AME). The annotations on the TCT only indicated the levy was “only up Santos had an existing obligation that he owed monthly rentals and unpaid
to the extent of the share of Emmanuel T. Santos”. realty taxes under a lease contract, and he was unable, and actually
refused, to comply with the obligation. He used I/AME as a means to
I/AME filed a Motion to remove the annotations from the TCT, claiming that defeat judicial processes and to evade his obligation to Litton. Even if
it was a SEPARATE and DISTINCT personality from Santos; its properties I/AME was not impleaded in the main case, it is still vulnerable to the
should not be made to answer for Santos’ liabilities. The motion was piercing of its corporate veil.
denied. I/AME filed a motion for reconsideration so MeTC reversed its
ruling and ordered the cancellation of the annotations of the levy and the The Corporation is considered an alter ego of a natural person.
writ of execution. Litton elevated the case to the RTC and the RTC a. The doctrine of alter ego is based upon the misuse of a
reinstated the initial decision of the MeTC. I/AME then filed a petition with corporation by an individual for wrongful or equitable purposes,
the CA to contest the judgment of the RTC, which was later on denied. the court merely disregards the corporate entity and holds the
individual responsible for acts KNOWINGLY and INTENTIONALLY
ISSUE: done in the name of the corporation.
Whether or not the CA committed grave abuse of discretion in b. Santos formed I/AME, using the non-stock corporation, to evade
upholding the RTC’s decision to pierce the corporate veil of I/AME? - NO paying his judgment creditor, Litton.
62 | TKP 2025
c. 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.
Reverse-piercing flows in the opposite direction and makes the corporation
liable for the debt of the shareholders.
Outsider reverse piercing - party with a claim against an

individual/corporation attempts to be repaid with assets of a corporation
owned or substantially controlled by the defendant.
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.
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.
CLV OUTLINE: Although piercing of the corporate veil is premised on the

fact that the corporation must have been properly served with summons or
properly subjected to the jurisdiction of the court a quo, there is 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.”
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As a general rule, a corporation will looked at as a legal entity until there is

sufficient reason to the contrat. When the notion of legal entity is used to
Koppel (Phil) v. Yatco, G.R. No. L-47673, October 10, 1946 defeat public convenience, justify wrong, protect fraud, or defend crime,
the law will regard the corporation as an association of persons.
FACTS:
Koppel Philippines, Inc. (KPI) is duly licensed to engage in ISSUE:
business as a merchant and commercial broker in the Philippines. It has a 1. Whether or not KPI is a domestic corporation distinct and separate
capital stock divided into P1,000 shares of P100 each. The Koppel from, and not a mere branch of KICEC? - NO
Industrial Car and Equipment Company (KICEC) owns 995 shares of the 2. Whether or not the application of piercing the corporate veil is
total capital stock. KICEC is organized under US laws and not licensed to proper? - YES
do business in the Philippines. The remaining 5 shares are owned one
each by the officers of KPI. When a local buyer is interested in the RULING:
purchase of railway materials, machinery, and supplies, it asks price KPI is a mere branch or dummy or agency of KICEC. The amount
quotations from KPI, KPI retrieves the quotation from KICEC. KPI quoted of the “share in the profits” of KPI was ultimately left to the sole, unbridled
to a purchaser a selling price beyond the amount quoted by KICEC. Based control of KICEC. If KPI was intended to function as a bona fide separate
on the higher price, the orders were placed by the local purchasers. corporation, we cannot conceive how this arrangement could have been
adopted.
CIR demanded from KPI a sum of P64,122.51 as merchants’ sales tax of
1% on the amount of P3,772,403.82, representing the total gross value of The contracts of sale involved were all perfected in the Philippines. The
the sales. KPI paid under protest in order to avoid further penalties, levy, purchasers had to wait for KICEC to communicate its cost prices to KPI.
and distraint proceedings. CIR overruled KPI’s protest and refused to The contracting parties were in the Philippines and the consent was given
return to KPI the paid sum or any part thereof. here. Thus, they are subject to local revenue laws.
KPI contends it is only a broker of KICEC, that they shall perform only the KPI and KICEC were treated as one and the same so the taxes could
functions of a broker as set forth, and shall not take possession of any of appropriately collected. The Court disregarded the corporate fiction to
the materials or equipment applying to orders or perform any acts or duties prevent KICEC, through KPI, from evading its taxes by contravening the
outside the scope of a broker. The CFI found that KPI is a mere dummy or local internal revenue laws.
branch of KICEC, and the transactions involved would amount to tax
evasion unless resort is had to the doctrine of disregard of the corporate The Court did not deny the legal personality of KPI, however, the doctrine
fiction. KPI asserts it is a domestic corporation distinct and separate from of piercing the corporate veil was done only to adjudge the rights and
and not a mere branch of KICEC. It contends that its corporate existence liabilities of each parties in these kinds of transactions.
as a Philippine corporation can not be collaterally attacked and that the
government is estopped from doing so.
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CLV OUTLINE: Piercing Has Only Res Judicata Effect: Application of

the doctrine to a particular case does not deny the corporation of legal
personality for all purposes, but only for the particular transaction or
instance, or the obligation for which the doctrine was applied.
21. PNB v. Ritratto Group, Inc., 362 SCRA 216 (2001)

22. Umali v. CA, 189 SCRA 529 (1990)
23. Gregorio Araneta, Inc. v. Tuason de Paterno, 91 Phil. 786 (1952)
24. DBP v. Court of Appeals, 363 SCRA 307 (2001)
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Traders Royal Bank v. Court of Appeals, 269 SCRA 15 (1997) RULING: Petitioner cannot put up the excuse of piercing the veil of
(NOT PIERCED, ALTER EGO; no fraud, no complete control) corporate entity, as this merely an equitable remedy, and may be awarded
only in cases when the corporate fiction is used to defeat public
FACTS: Filriters executed a “Detached Assignment” where the former convenience, justify wrong, protect fraud or defend crime or where a
transferred to Philfinance all its rights and title to Central Bank Certificates corporation is a mere alter ego or business conduit of a person.
of Indebtedness (CBCI) worth P500,000 and having an aggregate value of
P3,500,000. The corporate separateness between Filriters and Philfinance
remains, despite the petitioners insistence on the contrary. For one,
Traders Royal Bank (TRB) entered into a Repurchase Agreement with other than the allegation that Filriters is 90% owned by Philfinance,
Philfinance involving the aforementioned CBCI. TRB purchased the CBCI, and the identity of one shall be maintained as to the other, there is
but Philfinance failed to repurchase on the date of maturity. This prompted nothing else which could lead the court under circumstance to
Philfinance to execute a Detached Assignment enabling TRB to have its disregard their corporate personalities.
title registered with the Central Bank. However, the Central Bank refused
to do so despite TRB’s insistence that it has complied with all the The fact that Filfinance owns majority shares in Filriters is not by
requirements necessary for registration. itself a ground to disregard the independent corporate status of
Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, the
Filriters now contends that it is still the registered owner of the CBCI. mere ownership by a single stockholder or by another corporation of
They state that the initial Detached Assignment was executed by all or nearly all of the capital stock of a corporation is not by itself a
their officers without authorization of their Board. They further argue sufficient reason for disregarding the fiction of separate corporate
that the assignment was a personal act of their officer. They argue personalities.
that the detached assignment is void for being executed without the
consent and knowledge of their directors, and without a written In the case at bar, there is sufficient showing that the petitioner
authorization of their Board. was not defrauded at all when it acquired the subject certificate of
indebtedness from Philfinance. On its face the subject certificate states
Both the RTC and CA ruled against TRB, declaring the Detached that it is registered in the name of Filriters. This should have put the
Assignment null and void. TRB argues before the Supreme Court that petitioner on notice, and prompted it to inquire from Filriters as to
Philfinance owns 90% of Filriters equity and the two corporations Philfinance's title over the same or its authority to assign the certificate. As
have identical corporate officers. TRB demands the application of the it is, there is no showing to the effect that the petitioner had any dealings
doctrine of piercing the veil of corporate fiction to give validity to the whatsoever with Filriters, nor did it make inquiries as to the ownership of
transfer of the CBCI from registered owner to TRB. TRB argues that the certificate.
its payment to Philfinance constitutes payment to Filriters.
ISSUE: Should the veil of corporate fiction be pierced? - NO
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Boyer-Roxas v. CA, 211 SCRA 470 (1992) use of Guillermo; and that Guillermo’s possession over the house
(no piercing; did not rely on the test) and lot was only upon the tolerance of the respondent corporation.
FACTS: In two separate complaints for recovery of possession filed In both cases, the respondent corporation alleged that the
with the Regional Trial Court of Laguna against petitioners Rebecca petitioners never paid rentals for the use of the buildings and the
Boyer-Roxas and Guillermo Roxas respectively, respondent lots and that they ignored the demand letters for them to vacate the
corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the buildings.
ejectment of the petitioners from buildings inside the Hidden Valley
Springs Resort located in Laguna allegedly owned by the
The petitioners traversed the allegations in the complaint by
respondent corporation.
stating that they are heirs of Eugenia V. Roxas and therefore,
co-owners of the Hidden Valley Springs Resort; and as
(Heirs of Eugenia V. Roxas, Inc. was formed by Eugenia’s heirs to co-owners of the property, they have the right to stay within its
develop the properties she left behind. Originally, the corporation premises. The plaintiffs alleged, among others, that the veil of
was engaged in agriculture but the AOI was later amended to corporate fiction should be pierced.
include the resort business. Eufrocino Roxas was originally the
biggest shareholder.)
ISSUE: (1) Are Rebecca and Guillermo co-owners of the contested
property? - NO (2) Does the case warrant piercing of the corporate
In the case of petitioner Rebecca Boyer-Roxas, the respondent veil? - NO
corporation alleged that Rebecca is in possession of two (2)
houses, one of which is still under construction, built at the expense RULING: (1) The respondent is a bona fide corporation. As such, it
of the respondent corporation; and that her occupancy on the two has a juridical personality of its own separate from the members
(2) houses was only upon the tolerance of the respondent composing it. There is no dispute that title over the questioned land
corporation. where the Hidden Valley Springs Resort is located is registered in
the name of the corporation. The records also show that the staff
In the case of petitioner Guillermo Roxas, the respondent house being occupied by petitioner Rebecca Boyer-Roxas and the
corporation alleged that Guillermo occupies a house which was built recreation hall which was later on converted into a residential house
at the expense of the former during the time when Guillermo’s occupied by petitioner Guillermo Roxas are owned by the
father, Eriberto Roxas, was still living and was the general manager respondent corporation.
of the respondent corporation; that the house was originally
intended as a recreation hall but was converted for the residential
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Regarding properties owned by a corporation, the SC stated in the

case of Stockholders of F. Guanzon and Sons, Inc. v. Register of
Deeds of Manila:
“Properties registered in the name of the corporation are

owned by it as an entity separate and distinct from its
members. While shares of stock constitute personal property,
they do not represent property of the corporation. The
corporation has property of its own which consists chiefly of
real estate. A share of stock only typifies an aliquot part of the
corporation’s property, or the right to share in its proceeds to
that extent when distributed according to law and equity, but
its holder is not the owner of any part of the capital of the
corporation. Nor is he entitled to the possession of any definite
portion of its property or assets. The stockholder is not a
co-owner or tenant in common of the corporate property.”
(2) The petitioners’ suggestion that the veil of the corporate fiction
should be pierced is untenable. The separate personality of the
corporation may be disregarded only when the corporation is used
“as a cloak or cover for fraud or illegality, or to work injustice, or
where necessary to achieve equity or when necessary for the
protection of the creditors.” The circumstances in the present cases
do not fall under any of the enumerated categories.
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40. California Manufacturing Co., Inc. v. Advanced Technology

27. Siain Enterprises v. Cupertino Realty Corp., 590 SCRA 435 (2009) System, Inc., 824 SCRA 295 (2017) - alter ego, not pierced; 3 tests not
- alter ego, pierced present
28. Concept Builders, Inc. v. NLRC, 257 SCRA 149 (1996) - alter ego, 41. MR. Holdings, Ltd. V. Bajar, 380 SCRA 617 (2002) - alter ego, not
pierced pierced because subsidiary existence shall be respected when it is doing
29. Maricalum Mining Corp. v. Florentino, 872 SCRA 572 (2018) - its legitimate business; stock ownership, no other evidence that the
alter ego, not pierced - there is control, no fraud and harm subsidiary is an instrumentality of parent corporation
30. Lim v. Court of Appeals, 323 SCRA 102 (2000) - alter ego, not 42. Telephone Engineering and Service Co. v. WCC, 104 SCRA 354
pierced, mere ownership of the stockholder ownership of 1 individual is not (1981) - equity piercing
enough 43. Emilio Cano Enterprises v. CIR, 13 SCRA 291 (1965) - technically
31. *McLeod v. NLRC, 512 SCRA 222 (2007) - alter ego; president not piercing; corporation = party litigant..
and director - not solidary liable - merely cited when directors should be 44. Lee v. Samahang Manggagawa ng Super Lamination, 809 SCRA
held liable (but not applicable in this case); main doctrine of separate 313 (2016) - equity piercing, pierced
juridical personality, directors as agents acting within their authority
32. Arnold v. Willets and Patterson, Ltd., 44 Phil. 634 (1923) - alter
ego; pierced
33. Lipat v. Pacific Banking Corp., 402 SCRA 339 (2003) - alter ego,
pierced; mention of control
34. La Campana Coffee Factory v. Kaisahan ng Manggagawa, 93
Phil. 160 (1953) - alter ego, pierced; 3 tests present
35. Ramirez Telephone Corp. v. Bank of America, 29 SCRA 191
(1969) - equity, pierced
36. Sibagat Timber Corp. v. Garcia, 216 SCRA 70 (1992) - alter ego,
pierced on the basis of control
37. Reynoso IV v. Court of Appeals, 345 SCRA 335 (2000) - alter
ego, pierced
38. Mariano v. Petron Corp., 610 SCRA 487 (2010) - alter ego,
pierced; local is merely a branch, but it is control? Atty. Lipardo – If you
apply alter ego piercing correctly is to apply 3 tests (control, fraud, hard);
SC has not consistently applied the 3 tests; facts-sensitive.
39. ABS-CBN Broadcasting Corp. v. Hilario, 908 SCRA 203 (2019) -
alter ego, pierced
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Ratio: Wherever circumstances have shown that the corporate entity is

45. McConnel v. CA, 1 SCRA 722 (1961) - alter ego, pierced being used as an alter ego or business conduit for the sole benefit of the
stockholders, or else defeat public convenience, justify wrong, protect
Facts: fraud, or defend crime. Quoting the CA, the SC rules that there is no
● Park Rite Co., Inc., was a Philippine Corporation controlled by question that a wrong has been committed by the so-called Park Rite Co.,
petitioners Cirilo Paredes and Ursula Tolentino (who held 1496 out Inc. upon the Padillas when they occupied the lot without knowledge and
of 1500 shares) consent of the Padillas and without paying the reasonable rentals for the
● The corporation was leasing a vacant lot from Rafael Rosales occupation of the lot.
which it used as a pay parking lot.
● However, in operating the parking business, the corporation The corporation was a mere alter ego or business conduit of the
occupied and used not only the Samanillo lot it had leased but defendants Paredes and Tolentino and the incorporators before them. The
also an adjacent lot belonging to the Padillas who are the evidence clearly shows that these persons completely dominated and
respondents in this case without the Padillas’ knowledge and controlled the corporation and that the functions of the corporation were
consent. When the Padillas found out the use of Park Rite Co, solely for their benefits.
they demanded payment for the use and occupation of the lot.
● The corporation disclaimed liability, blaming the ORIGINAL The corporation was a mere extension of the shareholders personality,
incorporators, McConnel, Rodriguez, and Cochrane. shown by the fact that the offices of Paredes and that of Park Rite Co.,
● The Padillas filed a complaint for forcible entry. INc. were located in the same building, on the same floor, and in the same
● Municipal Court rendered judgment against the corporation, room in the same building. The funds of the corporation were also kept by
ordering it to pay damages but the corporation had insufficient Cirilo Paredes in his own name.
assets to satisfy the entire judgment, so the judgment creditors
filed in the CFI against the corporation and its past and present The corporation is a mere instrumentality of the individual stockholders,
stockholders, to recover from them, jointly and severally the hence the latter must individually answer for the corporate ob;igations.
unsatisfied balance of the judgment. While the mere ownership of all or nearly all of the capital stock of a
● CFI ruled in favor of Paredes and Tolentino but CA found that the corporation is a mere business conduit of the stockholders, that conclusion
corporation was a mere alter ego or business conduit of the is amply justified where it is shown, as in the case before us , that the
principal stockholders that controlled it for their own benefit, and operations of the corporation are so merged with those of the stockholders
adjudged them responsible for the amounts demanded by the lot as to be practically indistinguishable from them. To hold the stockholders
owners. Thus, the present petition. liable for the corporation’s obligations is not to ignore the corporation’s
separate entity, but merely to apply the established principle that such an
Issue: Whether the individual stockholders may be held liable for entity cannot be invoked or used for purposes that could not have been
obligations contracted by the corporation? YES intended by the law that created that separate personality.
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CLV Syllabus:
Alter Ego Piercing: The judgment debt against the corporation can be
pursued against the controlling shareholder when it has been shown that
the corporation had no existing assets of its own and the operation of the
corporation was so merged with those of the shareholders as to be
practically indistinguishable. Furthermore, they had the same office, the
funds were held by the shareholders, and the corporation had no visible
assets. ✔McConnel v. CA, 1 SCRA 722 (1961).
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46. Gabionza v. Court of Appeals, 565 SCRA 38 (2008) - fraud, complaints. Such dismissal was concurred by the assistant
pierced chief state prosecutor and approved by the chief state
prosecutor. Petitioners filed a motion for reconsideration but
Facts: it was denied.
● Betty Go Gabionza (Gabionza) and Isabelita Tan (Tan) filed ● With respect to the charges of estafa under Article 315(2) of
a complaint charging respondents Luke Roxas (Roxas) and the Revised Penal Code and of violation of the Revised
Evelyn Nolasco (Nolasco) with several criminal acts. Roxas Securities Act the Task Force concluded that the subject
was the president of ASB Holdings, Inc. (ASBHI) while transactions were loans which gave rise only to civil liability;
Nolasco was the senior vice president and treasurer of the that petitioners were satisfied with the arrangement x x x;
same corporation. that petitioners never directly dealt with Nolasco and Roxas;
● Gabionza and Tan previously placed monetary investment and that a check was not a security as contemplated by the
with the Bank of Southeast Asia (BSA). They alleged that Revised Securities Act.
they were convinced by the officers of ASBHI to lend or ● However, the DOJ made a Resolution alleging that it also
deposit money with the corporation. They were issued made it clear that the false representations have been made
receipts reflecting the name “ASB Realty Development” to petitioners prior to or simultaneously with the commission
which they were told was the same entity as BSA or was of the fraud. The assurance given to them by ASBHI that it
connected therewith but beginning in March 1998, the is a worthy credit partner occurred before they parted with
receipts were issued in the name of ASBHI. their money. Relevantly, ASBHI is not the entity with whom
● DBS Bank started to refuse to pay for the checks petitioners initially transacted with, and they averred that
purportedly by virtue of “stop payment” orders from ASBHI. they had to be convinced with such representations that
ASBHI filed a petition for rehabilitation and receivership with Roxas and the same group behind BSA were also involved
the Securities and Exchange Commission (SEC), and it was with ASBHI.
able to obtain an order enjoining it from paying its
outstanding liabilities. This led to the filing of complaints by Issue: Whether the charges against the corporation can also be
the petitioners and others against ASBHI. The complaints pinned against Roxas and Nolasco likewise? YES
were for estafa under Article 315(2)(a) and (2)(d) of the
Revised Penal Code, estafa under Presidential Decree No. Ratio:
1689, violation of the Revised Securities Act and violation of The material misrepresentations have been made by the agents or
the General Banking Act. employees of ASBHI to petitioners, to the effect that the corporation
● Task Force on Financial Fraud (Task Force), was created by was structurally sound and financially able to undertake the series
the Department of Justice (DOJ) which dismissed the said of loan transactions that it induced petitioners to enter into.
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Fraud Piercing: The DOJ Resolution explicitly identified the false

pretense, fraudulent act or fraudulent means perpetrated upon the
investing public who were made to believe that ASBHI had the financial
capacity to repay the loans it enticed petitioners to extend, despite the
deficient capitalization evidenced by its articles of incorporation, the
treasurer’s affidavit, the audited financial statements. “Moreover,
respondent’s argument assumes that there is legal obligation on the part
of petitioners to undertake an investigation of ASBHI before agreeing to
provide the loans. There is no such obligation. It is unfair to expect a
person to procure every available public record concerning an applicant for
credit to satisfy himself of the latter’s financial standing. At least, that is not
the way an average person takes care of his concerns.” ✔Gabionza v.
CA, 565 SCRA 38 (2008).
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47. Halley v. Printwell, Inc. 649 SCRA 116 (2011) - no need to pierce;
trust fund doctrine
48. Yutivo Sons Hardware v. Court of Tax Appeals 1 SCRA 160 (1961)
- alter ego, pierced
49. Padilla v. Court of Appeals, 370 SCRA 208 (2001) - alter ego
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● Marty asserted that the veil of corporate entity was pierced on the
50. Mayor v. Tiu, 810 SCRA 256 (2016) fraud not pierced [note: ground that it was a closed family corporation controlled by
discussed the issue of jurisdiction and due process] Rosario after her husband’s death. Marty is asserting that piercing
was proper in the case of Rosario’s estate because the
Facts: incorporation of Primrose was founded on a fraudulent
● Rosario passed away and left a holographic Last Will and consideration, having been done in contemplation of Primo’s
Testament wherein she named her sister Remedios and niece death.
Manuela as executors.
● Marty, claiming to be the adopted daughter of Rosario, filed a Issue: Whether the application of the doctrine of piercing the veil of
petition for letters of administration before the RTC but they were corporate fiction is warranted? NO
dismissed because of a separate proceedings filed by Marty in
Cebu. Ratio:
● Marty then filed her Verfied Urgent Manifestation and Motion, The probate court in this case has not acquired jurisdiction over Primrose
stating that Remedios kept Rosario a virtual hostage and that her and its properties. Piercing the veil of corporate entity applies to
family was financially dependent on Rosario. Marty further alleged determination of liability not of jurisdiction; it is basically applied only to
that Remedios did not have standing to possess or control the determine established liability. It is not available to confer on the court a
properties comprising the estate of the Villasins. She prayed for jurisdiction it has not acquired, in the first place, over a party not
the probate court to, 1)order an immediate inventory of all the impleaded in a case. This is so because the doctrine of piercing the veil of
properties subject of the proceedings; 2) direct the tenants of the corporate fiction comes to play only during the trial of the case after the
estate, namely Mercury Drug and Chowking, located at Primrose court has already acquired jurisdiction over the corporation.
Hotel, to deposit their rentals with the court, 3) direct Metrobank P.
Burgos Brancg to freeze the accounts in the name of Rosario, Hence, before this doctrine can be even applied, based on the evidence
Primrose Development Corporation or Remedios, and 4) lock up presented, it is imperative that the court must first have jurisdiction over
the Primrose Hotel in order to preserve the property until final the corporation. Hence, a corporation not impleaded in a suit cannot be
disposition by the court. subject to the court's process of piercing the veil of its corporate fiction.
● Remedios and Manuela averred that Marty was not the adopted Resultantly, any proceedings taken against the corporation and its
child and argued that the probate court had no jurisdiction over the properties would infringe on its right to due process.
properties mistakenly claimed by Marty as part of Rosario’s estate
because these properties were actually owned by, and titled, in the In the case at bench, the probate court applied the doctrine of piercing the
name of Primrose. They also said that probate court has no corporate veil ratiocinating that Rosario had no other properties that
jurisdiction over properties owned by third persons, particularly by comprise her estate other than her shares in Primrose. Although the
Primrose, the latter having a separate and distinct personality from probate court's intention to protect the decedent's shares of stock in
the estate of Rosario. Primrose from dissipation is laudable, it is still an error to order the
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corporation's tenants to remit their rental payments to the estate of

Rosario.
CLV Syllabus: Piercing the veil of corporate fiction is 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 the case. The doctrine comes into play only during the trial of
the case after the court has already acquired jurisdiction over the
corporation. Hence, before this doctrine can be even applied based on the
evidence presented, it is imperative that the court must first have
jurisdiction over the corporation. ✔Mayor v. Tiu, 810 SCRA 256 (2016).
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the stipulation of facts up to the presentation of evidence and the

51. Jacinto v. Court of Appeals, 198 SCRA 211 (1991) - alter ego, examination of witnesses, show that Metrobank sought to prove that
pierced Jacinto and Inland Industries, Inc. are one. Jacinto did not object at any
stage of the proceedings.
Facts:
● Roberto Jacinto was held solidarily liable with Inland Industries, Section 5 of Rule 10 of the Rules of Court provides that when evidence is
Inc. to Metrobank, for 380,000 pesos, with interest and attorney’s presented by one party, with the express or implied consent of the adverse
fees. Inland Industries was considered by the RTC to be his alter party, as to issues not alleged in the pleadings, judgment may be rendered
ego, because he was the President, General Manager, and owned validly as regards those issues, which shall be considered as if they have
52% equity with his wife. He also was the one who dealt with been raised in the pleadings. There is implied consent to the evidence
Metrobank entirely, by signing trust receipts. The CA affirmed the thus presented when the adverse parties fail to object.
RTC.
● Jacinto contends that the court was wrong for piercing the veil of CLV Syllabus: There is no denial of due process to hold officers liable
corporate fiction, despite no allegation in the complaint under the piercing doctrine, provided that evidential basis has been
questioning the separate identity and existence of Inland adduced during trial to apply the piercing doctrine. ✔Jacinto v. Court of
Industries. Appeals, 198 SCRA 211 (1991).
Issue: Whether the veil of corporate fiction may be pierced despite the
absence of any allegation in the complaint questioning the separate
identity and existence of Inland Industries, Inc.? YES
Ratio: In his stipulation of facts, he claimed that he was the President and
General Manager, when he signed the trust receipts BUT, in his direct
testimony, he claimed that Bienvenida Catabas was the President, while
Aurora Heresa was Chairman of the Board. He also admitted to owning
52% equity with his wife. These conflicting statements placed in extreme
doubt his credibility. There was no delimitation between the personality of
Jacinto as an individual and the personality of Inland Industries, Inc. as a
corporation. Therefore, the veil of corporate fiction may be pierced. When
the veil of corporate fiction is made as a shield to perpetuate fraud and or
confuse legitimate issues, the same should be pierced.
While on the face of the complaint there is no specific allegation that the
corporation is a mere alter ego of Jacinto, subsequent developments, from
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52. Arcilla v. Court of Appeals, 215 SCRA 120 (1992) - alter ego,
pierced
53. Violago v. BA Finance Corp., 559 SCRA 69 (2008) alter ego,
pierced; 3 tests
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Issues:
MODULE 4 - CONTRACTS WITH A 1. Does the Corporation have the juridical personality and capacity to
NON-EXISTING/DEFECTIVE enter into the contract? [note: at the time, they were still in the
process of incorporation] NO.
CORPORATION 2. Can promoters of a corporation act as agents of the corporation?
NO.
Pre-Incorporation/Promoter’s Contract - Liability Rules for
Promoter's Contract Ruling:
The transfer made by Tabora to the Cagayan Fishing
Cagayan Fishing Dev. Co., Inc. v. Teodoro Sandiko, 65 Phil. 223 (1937)
Development Co., Inc., was effected on May 31, 1930 and the actual
Facts: incorporation was effected later on October 22, 1930. In other words, the
● Manuel Tabora is the registered owner of 4 parcels of land in transfer was made almost five months before the incorporation of the
Cagayan, and he wanted to build a fishery. He obtained a loan Corporation.
from PNB, which was secured by a mortgage of the parcels of
A duly organized corporation has the power to purchase and hold
land. Three subsequent mortgages were executed in favor of the
such real property as the purposes for which such corporation was formed
same bank and to Severina Buzon, whom Tabora is indebted to.
may permit and for this purpose may enter into such contracts as may be
● Tabora sold the parcels of land to Cagayan Fishing Dev. Co
necessary. But before a corporation may be said to be lawfully organized,
(herein Corporation), said to be under process of incorporation, in
many things have to be done, such as the filing of articles of incorporation.
consideration of one peso (P1) subject to the mortgages in favor
Although there is a presumption that all the requirements of law have been
of PNB and Severina Buzon and, to the condition that the
complied with, in the case before us it can not be denied that the
certificate of title to said lands shall not be transferred to the name
Corporation was not yet incorporated when it entered into the contract of
of the plaintiff company until the latter has fully and completely
sale.
paid Tabora’s indebtedness to PNB.
● In 1930, the articles of incorporation were filed and the The contract itself referred to the plaintiff as “una sociedad en vias
Corporation, through its president Jose Ventura, sold the parcels de incorporacion” [t/n: a company in the process of incorporation]. It was
of land to Teodoro Sandiko on the reciprocal obligation that not even a de facto corporation at the time. Not being in legal existence
Sandiko will shoulder the three mortgages. then, it did not possess juridical capacity to enter into the contract.
● Sandiko executed a promissory note in favor of the Corporation, The contract executed between Tabora and the Corporation was
secured by the mortgage of the four parcels of land. entered into not only between Manuel Tabora and a non-existent
● Sandiko failed to pay. Corporation filed an action for a sum of corporation but between Manuel Tabora as owner of four parcels of land
money against Sandiko. Trial court dismissed the case on the on the one hand and the same Manuel Tabora, his wife and others, as
ground that the deed of sale [in favor of Sandiko] is invalid mere promoters of a corporation on the other hand. For reasons that are
because of vice in consent and repugnancy to law. self-evident, these promoters could not have acted as agents for a
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projected corporation since that which had no legal existence could have subsequently organized, but under the peculiar facts and circumstances of
no agent. A corporation, until organized, has no life and therefore no the present case we decline to extend the doctrine of ratification which
faculties. would result in the commission of injustice or fraud to the candid and
unwary. Cagayan Fishing Dev. Co., Inc. v. Teodoro Sandiko, 65 Phil.
However, this is not saying that under no circumstances may the acts of 223 (1937).
promoters of a corporation be ratified by the corporation if and when
subsequently organized. There are exceptions, but under the peculiar
facts and circumstances of this case, the Court declined to extend the
doctrine of ratification which would result in the commission of injustice or
fraud. Tabora, as mere promoter of a corporation, could not have acted as
an agent for the projected corporation which did not yet have any legal
existence and hence could not yet have an agent.
Take note that in this case, Tabora was the registered owner of the parcels
of land, which he mortgaged to PNB so that he might have necessary
funds to develop into fishery. But he appeared to have met financial
difficulties. He formed a corporation, composed of himself, his wife, and a
few others. Recall that Tabora sold the parcels of land to the Corporation,
yet based on the record, the lands remain inscribed to Tabora’s name.
When PNB filed an action against Tabora and threatened to foreclose the
mortgage, Tabora approached Sandiko and succeeded in making the latter
to assume the payment of Tabora’s indebtedness to PNB. The promissory
note executed by Sandiko was made payable to Cagayan Fishing Dev.
Co., so that it may not be attached by Tabora’s creditors who had already
obtained writs of attachment against the parcels of land. If Cagayan
Fishing Dev. Co,, could not and did not acquire the parcels of land, it
follows that it did not possess any resultant right to dispose of them by
sale to Sandiko.
CLV Outline: A corporation, until organized, has no being, franchise or

faculties, nor do those engaged in bringing it into being have any power to
bind it by contract — it is, as it were, a child in ventre sa mere. The acts of
promoters of a corporation may be ratified by the corporation when
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Liability Rules for Promoter's Contract Rizal Light filed a MR and alleged that its electric plant was
Rizal Light & Ice Co. v. Public Service Commission, 25 SCRA 285 burned, its services had greatly improved, and that it still had an existing
(1968) investment which the Commission should protect. While trial was pending,
it was discovered that Morong Electric was granted a municipal franchise
FACTS: by Morong, Rizal to install, operate, and maintain electric heat, light, and
Rizal Light & Ice Co. is a domestic corporation. The Public Service power service in the municipality. The franchise was filed with the
Commission granted Rizal Light a certificate of public convenience and Commission. Rizal Light opposed Morong Electric’s franchise claiming that
necessity for the installation, operation, and maintenance of an electric they were already a holder of a certificate of public convenience to operate
light, heat, and power service in the municipality of Morong, Rizal. the same services in the same municipality; that the approval of said
application would be contrary to public convenience and would cause
Rizal Light was alleged to have violated the conditions of its ruinous and wasteful competition. They also claimed that Morong Electric
certificate and the regulations of the Commission. The Commission was not yet incorporated at the time the franchise was granted. Until a
ordered for the cancellation and revocation of Rizal Light’s certificate of corporation has come into being, by the issuance of a certificate of
public convenience and necessity, and for the forfeiture of its franchise. incorporation by the SEC, it cannot enter into any contract as a
Rizal Light filed a MR on the ground that its manager, Juan Francisco, was corporation. The franchise was granted to Morong Electric on May 6,
not aware of the hearing on the case. The municipality of Morong opposed 1962, while it only received its certificate of incorporation on October 17,
the motion alleging that Rizal Light had not rendered sufficient and 1962. Thus, it should have been null and void.
satisfactory service, and had not complied with the requirements of the
Commission. ISSUE:
Whether or not the Commission erred in granting Morong Electric a
For failure to appear at the hearing, the sole basis of the certificate of public convenience and necessity since ME did not have a
revocation of Rizal Light’s certificate was really due to the illness of its corporate personality at the time it was granted a franchise? - NO
manager, Juan Francisco. The Commission set aside its order for
revocation so Morong filed a MR, but it was denied. RATIO:
Before any certificate may be granted, authorizing the operation of
Inspections were made of Rizal Light’s plant and installations to a public service, 3 requisites must be complied with:
further support Rizal Light’s claim that improvements have been made on (1) Applicant must be a citizen of the Philippines or of the US, or a
its services. However, the Commission discovered that Rizal Light failed to corporation or co-partnership, association or joint-stock company
comply with their directives and still had violated the conditions of its constituted and organized under the laws of the Philippines, at
certificate and the rules and regulations of the Commission. It ordered the least 60% of the stock or paid-up capital of which belongs entirely
cancellation and revocation of Rizal Light’s certificate of public to citizens of the Philippines or of the US;
convenience and the forfeiture of its franchise. (2) applicant must be financially capable of undertaking the proposed
service and meeting the responsibilities incident to its operation;
and
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(3) applicant must prove that the operation of the public service not only perfected a contract between the respondent municipality and
proposed and the authorization to do business will promote the Morong Electric but also cured the deficiency pointed out by the Rizal Light
public interest in a proper and suitable manner. in the application of Morong EIectric. Thus, the Commission did not err in
denying petitioner's motion to dismiss said application and in proceeding
Morong Electric is a corporation duly organized and existing under the to hear the same. The efficacy of the franchise, however, arose only upon
laws of the Philippines, the stockholders are Filipino citizens, it is its approval by the Commission on March 13, 1963.
financially capable of operating an electric light, heat, and power service at
the time there was an absence of electric service in Morong, Rizal. CLV OUTLINE: A franchise granted to a corporation still in the process of
incorporation would nevertheless constitute a valid contractual
The bulk of petitioner's arguments assailing the personality of Morong commitment, with the acceptance subsequently to the completion of
Electric dwells on the proposition that since a franchise is a contract, at incorporation.
least two competent parties are necessary to the execution thereof, and
parties are not competent except they are in being. Hence, it is contended
that until a corporation has come into being, in this jurisdiction, by the
issuance of a certificate of incorporation by the Securities and Exchange
Commission (SEC) it cannot enter into any contract as a corporation. On
the other hand, Morong Electric argued, and to which argument the
Commission agreed, that it was a de facto corporation at the time the
franchise was granted and, as such, it was not incapacitated to enter into
any contract or to apply for and accept a franchise.
Rizal Light’s contention regarding the fact Morong Electric did not have a
legal personality at the time the franchise was granted is correct. 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, since Morong Electric was able to obtain its certificate of
incorporation and then accepted the franchise in accordance with its
terms and conditions. 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.
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,
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Liability Rules for Promoter's Contract

Caram, Jr. v. CA, 151 SCRA 372 (1987) Clearly, there is no showing that the Filipinas Orient Airways was fictitious
and did not have a separate juridical personality, to justify making the
Facts: Carmas, as principal stockholders thereof, responsible for its obligations.
Barretto was in charge of the pre-organizational duties in the As a bona fide corporation, Filipinas Orient Airways should alone be liable
formation of a new company called, “Filipino Orient Airways” or FOA. for its corporate acts as duly authorized by its officers and directors.
Barretto then enticed multiple investors including siblings FERMIN Z.
CARAM, JR. and ROSA O. DE CARAM. Furthermore, to hold the Carams liable means to hold all other
Barretto, the prime mover or “moving spirit” of this company initiated a plan stockholders, including future investors, in the company liable, even if they
together with the Carams and Garcia, as the primary investors to pay only supported the corporation by providing more capital.
50,000 pesos to Alberto Arellano under a promoters contract for a project
study which included technical services to launch the company. Clearly in the promoter’s contract, it is the liability of the moving spirit or
Barretto, who was paid 200,000 pesos for his work and helped screen the
After the project study was conducted, Arellano claimed unpaid fees from
personnel, and also invited the plaintiff for project studies that may hold
the company and thus sued the three groups of owners – Garcia, Barretto,
him liable. On the other hand, mere investors cannot be solidarily liable.
and the Carams.
The corporation was incorporated through the project study, and only
In the lower court, the Carams and Garcia were declared solidarily liable, those who took part in the study rather than the plain investors can be held
and Garcia did not contest the decision. accountable. The most that can be said was that they benefited, but this
The Carams argue that they were only investors, and never collaborated does not justify their imposition of penalties.
with Arellano in the first place to be held liable; that they should not be
held solidary liable with Filipinas Orient Airwars, a separate juridical entity. CLV Outline: Promoter’s contracts can be pursued against the investors
who were the venture’s moving spirit, but NOT against those who were
merely convinced to invest in the corporate venture on the basis of the
Issues: feasibility study undertaken by the promoters.
Does the Corporation have the juridical personality and capacity to
be held distinct from the investors? YES.
Notes:
A promoter's contract is when a promoter becomes a part of a contract
Ruling: as a representative of a corporation to be formed. The promoter is
The Carams were really not involved in the initial steps that finally led to considered to be liable to fulfill the obligations of the corporation. It
incorporation of Filipinas Orient Airways. Barretto was described as the happens in case the corporation is not formed or does not adopt the
“moving spirit.” The finding of the respondent court (CA) is that the project contract. The promoter may be different from the incorporator.
study was undertaken by Arellano at the request of Barreto and Garcia
who, upon its completion, presented it to the Carams to induce them to
invest in the proposed airline.
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De Facto Corporation Doctrine; Elements Held:

Arnold Hall v. Piccio, 86 Phil. 634 (1950) 1. NO. Since the corporation has not obtained the certificate of
Incorporation, the Far Eastern Lumber & Commercial Co, even its
Facts: stockholders, may not probably claim “in good faith” to be a
1. Arnold Hall, Bradley Hall (Petitioners), Fred Brown, Emma Brown, corporation
Hipolita Chapman, and Ceferina Abella (Respondents) signed and ● Under our statute, it is the issuance of a certificate of
acknowledged the Articles of Incorporation of the Far Eastern incorporation by the Director of the Bureau of Commerce
Lumber and Commercial Co. Inc. and Industry which calls a corporation into being.
2. The Corporation was organized to engage in a general lumber ● Unless there has been an evident attempt to comply with
business to carry on as general contractors, operators, and the requirement of the law (Issuance of certificate), the
managers. claim to be a corporation “in good faith” cannot prosper.
3. Immediately after the execution of the articles, the corporation ● This is not a suit in which the corporation is a party. This is
proceeded to do business with the adoption of by-laws and a litigation between stockholders of the alleged
election of its officers. The Articles of Incorporation were filed with corporation to dissolve said corporation. Even the
the SEC later that year. existence of a de jure corporation may be terminated in a
4. While the articles of incorporation were pending action, private suit for its dissolution between stockholders,
Respondents filed a case against petitioners alleging that Far without the intervention of the state.
Eastern Lumber and Commercial Co was an unregistered
partnership; they wanted it dissolved because of bitter dissension 2. NO. The personality of a corporation begins to exist only from the
among the members; mismanagement and fraud by the managers moment such certificate is issued – not before.
and heavy financial losses. ● The respondents have not represented to the others that
5. The judge dissolved the company. they were incorporated
6. The petitioners filed this suit. ● No one was led to believe anything to his prejudice and
damage, therefore the principle of estoppel does not
Issues: apply
1. Whether the court had no jurisdiction to decree the dissolution of ● “Obviously, this is not an instance requiring the
the company because, it being a de facto corporation, dissolution enforcement of contracts with the corporation through the
can only be ordered in a quo warranto proceeding according to rule of estoppel.”
Section 19 of the Corpo law? – NO
2. Whether the respondents are estopped from claiming that it is a Section 19 now:
partnership and not a corporation since they signed the articles of SEC. 19. De facto Corporations. – The due incorporation of any
incorporation? – NO corporation claiming in good faith to be a corporation under this Code, and
its right to exercise corporate powers, shall not be inquired into collaterally
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in any private suit to which such corporation may be a party. Such inquiry
may be made by the Solicitor General in a quo warranto proceeding.
[~ the case itself is meh ~]

Commentary: “The implication of the Hall v. Piccio ruling is that the
corporation by estoppel doctrine applies only when at least one party to a
contract was under the impression that the corporate party was a duly
incorporated entity”
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Seventh Day Adventist Conference, etc. v. Northeastern Mindanao inexistent at the time it was made. Nor could it have been accepted as
Mission of Seventh Day Adventist, Inc., 496 SCRA 215 (2006) there was no one to accept it.
In this case, the donation was made in favor of SDAC-Bayugan
Facts: which at the time the donation was made, had neither juridical personality
Sps. Casio donated a parcel of land to South Philippine Union nor capacity to accept such gift.
Mission of Seventh Day Adventist Church of Bayugan (SDAC-Bayugan) The petitioners claim that they are a de facto corporation and
with a stipulation that it can only be used as a church site. It was accepted should be benefited from the donation, but the Court disagreed.
by Liberato Rayos, one of the elders of SDAC-Bayugan. There are stringent requirements before on can qualify as de
21 years later, the same property was sold by Sps. Casio to facto corporation:
Seventh Day Adventist Church of Northeastern Mindanao 1. The existence of a valid law under which it may be
(SDAC-Mindanao), the respondents. incorporated;
The petitioners who are claiming to be the successors-in-interest 2. An attempt in good faith to incorporate;
of SDAC-Bayugan asserted ownership over the property, which was 3. Assumption of corporate powers.
opposed by the respondents arguing that at the time of the donation, While there existed the old corporation in which SDAC-Bayugan
SDAC-Bayugan could not legally be a donee, not having been could have been organized, there is no proof that there was an attempt to
incorporated yet, it had no juridical personality. Neither were petitioners incorporate at that time. Petitioner themselves that at the time of the
members of the local church then, hence, the donation could not have donation, they were not registered with SEC, nor did they even attempt to
been made particularly to them. organize to comply with legal requirements.
Petitioners filed a case for cancellation of title and quieting of
The filing of articles of incorporation and the issuance of the
ownership and possession among others. The trial court ruled in favor of certificate of incorporation are essential for the existence of a de
SDAC-Mindanao, which was affirmed by the CA. Cosio also argued he facto corporation. It has been held that an organization not registered
never wanted to donate. Otherwise he would have sole the land to
with SEC cannot be considered a corporation in any concept, not even as
SDAC-Mindanao for more than 2,000 pesos, around 60,000 pesos.
a corporation de facto.
Hence this petition.
The Court also said, corporate existence begins only from the
Issue: moment a certificate of incorporation is issued. No such certificate was
Should SDAC-Mindanao’s ownership of the subject property be ever issued to the petitioners at the time of the donation. Petitioners
upheld? YES obviously could not have claimed succession to an entity that never came
to exist. Neither could the principle of separate juridical personality apply
Ratio: since there was never any corporation to speak of.
The Court ruled that the alleged donation to the petitioner was NOTE: The de facto doctrine thus effects a compromise between two
void. Donation is an act of liberality whereby a person disposes conflicting public interests - the one opposed to an unauthorized
gratuitously of a thing or right in favor of another person who accepts it. assumption of corporate privileges; the other in favor of doing justice to the
Hence, the donation could not have been made in favor of an entity that is
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parties ance of establishing a general assurance of security in business

dealing with corporations.
CLV Outline: The 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 the Certificate of Incorporation that marks the beginning of an
entity’s corporate existence. Thus, a donation made in favor of the
corporation after the filing of its incorporation papers with the SEC, but
before the issuance of the SEC Certificate of Incorporation requires the
application, not of the de facto corporation doctrine, but rather of the
corporation by estoppel doctrine under Sec. 21.
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NATURE OF CORPORATION BY ESTOPPEL DOCTRINE registered with the SEC and therefore has no juridical personality and
cannot legally accept the donation.
Missionary Sisters of Our Lady of Fatima v. Alzona, 876 SCRA 309
(2018) ISSUE: Whether the Religious Group has the legal capacity, as donee, to
accept the donation? YES
FACTS:
The Missionary Sisters of Our Lady of Fatima is a religious and charitable RULING:
group with Concepcion as its Superior General. Purificacion on the other First, the religious group is not a de facto corporation. Jurisprudence
hand, is a registered owner of parcels of land located in Laguna, who provides that the filing of articles of incorporation and the issuance of the
became a nun, and a benefactor of the religious charitable group. certificate of incorporation are essential for the existence of a de facto
corporation. It is the act of registration with the SEC through the issuance
When Purificacion found out that she was suffering from lung cancer, she of the Certificate of Incorporation that marks the beginning of an entity’s
gave a letter to the Superior General stating that she wanted to donate her corporate existence.
house and lot to the religious group through the Superior General, as a
token of gratitude. In this case, it filed its Articles of Incorporation and by-laws on August 28,
2001. However, the SEC issued the corresponding Certificate of
At the request of Purificacion, Superior General went to see Atty. Arcillas. Incorporation only on August 31, 2001, two (2) days after Purificacion
Atty. Arcillas advised her to have the religious group be registered with the executed a Deed of Donation on August 29, 2001. Clearly, at the time the
SEC, the Superior General then filed the corresponding registration donation was made, it cannot be considered a corporation de facto.
application in the SEC. A day after the registration to the SEC, Purificacion
executed a Deed of Donation Inter Vivos in favor of the religious group, Rather, a review of the attendant circumstances reveals that it calls for the
conveying her properties. 2 days after the donation, the SEC then issued a application of the doctrine of corporation by estoppel as provided for under
Certificate of Incorporation. Section 21 of the Corporation Code.
Then, Superior General filed an application before the BIR that the The doctrine of corporation by estoppel is founded on principles of equity
religious group be exempted from donor's tax as a religious organization. and is designed to prevent injustice and fairness. The doctrine of
The application was granted by the BIR. However, upon filing an corporation by estoppel rests on the idea that if the Court were to
application in the Register of Deeds, such application was denied due to disregard the existence of an entity which entered into a transaction with a
an adverse claim by Purificacion's brother Alzona. 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 brother then filed a Complaint before the RTC, seeking to annul the the Court affords upon the unorganized entity corporate fiction and juridical
Deed executed between Purificacion and the religious group, on the personality for the sole purpose of upholding the contract or transaction.
ground that at the time the donation was made, the latter was not
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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 The filing of articles of incorporation and the issuance of the certificate of
Purificacion, as the donor failed to acquire any benefit therefrom so as to incorporation are essential for the existence of a de facto corporation. In
prevent the application of the doctrine of corporation by estoppel. To recall, fine, it is the act of registration with SEC through the issuance of the
the subject properties were given by Purificacion, as a token of Certificate of Incorporation that marks the beginning of an entity’s
appreciation for the services rendered to her during her illness.Therefore, corporate existence.
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."
Precisely, the existence of the petitioner as a corporate entity is upheld in

this case for the purpose of validating the Deed to ensure that the primary
objective for which the donation was intended is achieved. Furthermore,
the subsequent act by Purificacion of re-conveying the property in favor of
the petitioner is a ratification by conduct of otherwise defective donation. In
this case, while initial conveyance is defective, the genuine intent of
Purificacion to donate the subject properties in favor of the petitioner is
indubitable. Also, while the petitioner is yet to be incorporated, it cannot be
said that the initial conveyance was tainted with fraud or
misrepresentation. Accordingly, the acceptance of Mother Concepcion (the
Superior General) for the sisters comprising the congregation is sufficient
to perfect the donation and transfer the title to the property to the
petitioner. Ultimately, the subsequent incorporation of the petition and its
affirmation of Mother Concepcion’s authority to accept on its behalf cured
whatever defect that may have attended the acceptance of donation.
CLV OUTLINE:
The corporation by estoppel doctrine 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 that 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. (Emphasis)
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DE FACTO CORPORATION (Sec. 19) circumstances to warrant the application doctrine were alleged or proved
by Spouses Galang.
HSBC, Ltd. Staff Retirement Plan v. Spouses Galang, G.R.
They simply claimed that HSBC-SRP and HSBC acted in bad faith
Nos. 199565 & 199635, 30 June 2021 when they foreclosed the mortgaged property though they (Spouses
FACTS: Galang) were up to date in their payments.
1. Maria Galang was a regular employee of HSBC, a foreign bank
duly licensed to do business in the Philippines. HSBC offered Furthermore, the insistence of Spouses Galang that HSBC was
benefit plans for its employees, including housing loans, privy to the Mortgage Agreement for its interests are so intertwined with
administered and managed by HSBC Staff Retirement Plan those of HSBC-SRP that they have become identical constitutes a
(HSBC-SRP). collateral attack on the corporate personality of HSBC-SRP which is
2. Maria Galang applied for a P400k housing loan with HSBC-SRP. prohibited by the Corporation Code of the Philippines. Such an inquiry into
But after her dismissal from the corporation, she was not able to the legal personality of a corporation may only be made by the Solicitor
satisfy the monthly amortizations for the housing loans. General in a Quo Warranto proceeding.
3. Spouses Galang were then given demand letters and Installment
Overdue Reminders. However, they were unable to pay. This At any rate, HSBC correctly argues that it had no participation in
resulted in the foreclosure of their mortgage by HSBC-SRP. the foreclosure proceedings. The parties even stipulated during the
4. During the court proceedings, Spouses Galang alleged that while pre-trial that HSBC was not a signatory to any contract between Spouses
the named mortgagee is HSBC-SRP, not HSBC, the HSBC cannot Galang and HSBC-SRP. Its role was limited to determining who among its
deny privity to the foreclosure of the mortgage because its employees were eligible to apply for housing loans, processing and
interests are so closely intertwined with those of HSBC-SRP that approval of which were left to the discretion of HSBC-SRP.
they practically have the same interests in the loan collection and Considering, too, that spouses Galang are not entitled to
foreclosure. damages, there is simply no reason to pierce the corporate veil as they
5. The Court of Appeals resolved that when two business enterprises would have nothing to collect or regain from HSBC. Otherwise stated,
are owned, conducted, and controlled by the same parties, both Spouses Galang do not have a cause of action against HSBC.
law and equity will, when necessary to protect the rights of third CLV Outline:
parties, disregard the legal fiction that two corporations are distinct The insistence that HSBC was privy to the Mortgage Agreement for its
entities and treat them as identical or one and the same. interests are so intertwined with those of HSBC-SRP that they have
become identical — constitutes a collateral attack on the corporate
ISSUE: Are HSBC-SRP and HSBC distinct from each other? YES personality of HSBC-SRP which is prohibited by the Corporation Code.
Such an inquiry into the legal personality of a corporation may only be
RULING: Yes. HSBC-SRP and HSBC are separate entities. Though a made by the Solicitor General in a quo warranto proceeding. ✔HSBC,
subsidiary company's separate corporate personality may be pierced Ltd. Staff Retirement Plan v. Spouses Galang, G.R. Nos. 199565 &
through the doctrine of piercing the corporate veil, none of the 199635, 30 June 2021.
90 | TKP 2025
of or involving such contract or dealing, unless its existence is attacked for

causes which have arisen since making the contract or other dealing relied
on as an estoppel and this applies to foreign as well as to domestic
corporations.
CORPORATION BY ESTOPPEL DOCTRINE - JURISPRUDENTIAL

BACKGROUND Since Standard Products, Inc. have recognized the corporate
existence of Asia Banking by making a promissory note in its favor and
Asia Banking Corp. v. Standard Products, 46 Phil. 145 (1924) making partial payments on the same, it is therefore estopped to deny said
Asia Banking’s corporate existence. It is, of course, also estopped from
FACTS denying its own corporate existence.
Standard Products Co., Inc. executed a promissory note through Under these circumstances it was unnecessary for Asia Banking
its president George H. Seaver in favor of Asia Banking Corporation. to present other evidence of the corporate existence of either of the
Standard Products Co., Inc. defaulted in their payment so Asia Banking parties. It may be noted that there is no evidence showing circumstances
Corporation brought this action to recover the sum of P24,736.47 which is taking the case out of the rules stated.
the balance due on such note. The lower court rendered judgment in favor
of Asia Banking Corporation, to which the Standard Products Co., Inc.
CLV Outline: In the absence of fraud, a person who has contracted or
appealed.
otherwise dealt with an association in such a way as to recognize and in
At trial, Asia Banking Corporation failed to prove affirmatively the corporate
effect admit its legal existence as a corporate body is thereby estopped to
existence of the parties, and Standard Products Co. argued that the lower
deny its corporate existence in any action leading out of or involving such
court erred in finding that the parties were corporations with judicial
contract. Asia Banking Corp. v. Standard Products, 46 Phil. 145 (1924).
personality.
ISSUE
Was the judgment by the lower court a reversible error despite Asia
Banking Corporation’s failure to present evidence of its corporate
existence? NO
RULING
The general rule is that in the absence of fraud, a person who has
contracted or otherwise dealt with an association in such a way as to
recognize and in effect admit its legal existence as a corporate body is
thereby estopped to deny its corporate existence in any action leading out
91 | TKP 2025
of the net income realized from the last harvest. If the defendants fail to
Vda. De Salvatierra v. Garlitos, 103 Phil. 757 (1958) abide by this rule, the gross income would be fixed at P4,200 or a net
income of P3,200 after deducting the expenses for production, 30% of
FACTS
which or P960 was due the plaintiff pursuant to the contract of lease,
Petitioner - Manuela T. Vda. Salvaterria which was declared rescinded.
The court then issued a writ of execution causing the
Respondent - Lorenzo Grlitos (Judge of CFI) & Segundino Refuerzo attachment of 3 parcels of land registered in the name of Segundino
(President of Philippine Fibers Producers Co Inc.) Refuerzo as there was no available property of PFPC for attachment.
Refuerzo claimed that the decision was null and void with respect to him,
there being no allegation in the complaint pointing to his personal liability
Petition for certiorari filed by Salvaterria which sought to nullify the
and that the liability be limited to the defendant corporation. The court then
order of the CFI in Leyte in 1956 relieving Refuerzo (President) of liability
ordered the release of all properties belonging to Refuerzo
for a contract entered into between Petitioner and Philippine Fibers
Plaintiff Salvaterria refute this averment by contending that her
Producers Co Inc. (PFPC)
failure to specify Refuerzo’s personal liability was due to the facts that all
Petitioner appeared to be the owner of a parcel of land located in
the time she was under the impression that the Corporation, represented
Leyte. On March 7,1954 Petitioner entered into a lease contract with
by Refuerzo, was a duly registered corporation as appearing in the
(PFPC). PFPC was allegedly a Corporation “duly organized and
contract, but subsequent inquiry from SEC yielded otherwise.
existing under PH laws, domiciled in Leyte and Respondent as
President.”
ISSUE: W/N Refuerzo should be held liable? YES
Provided on the contract is that (1) the lifetime lease would be for
a 10 yr period and such land would be planted with various crops, (2)
RULING
Petitioner as lessor would get 30% of net income accruing from the
Refuerzo, as president of the unregistered corporation PFPC, was
harvest of any crop without being responsible for the cost of production
the moving spirit behind the consummation of the lease agreement by
thereof; and that after every harvest, the lessee was bound to declare at
acting as its representative. His liability cannot be limited or restricted than
the earliest possible time the income derived therefrom and to deliver the
that imposed upon corporate shareholders. In acting on behalf of a
corresponding share due the lessor.
corporation which he knew to be unregistered, he assumed the risk of
However, the obligations imposed were not complied with by
reaping the consequential damages or resultant rights, if any, arising out of
the alleged corporation. Salvatierra filed for accounting, rescission
such a transaction.
and damages. She claimed that the defendant corporation planted
While as a general rule, a person who deals with an
the land with kenaf but it refused to render an accounting of the
association in such a way as to recognize its existence as a
income it derived and to deliver the lessor's share (share 4,500
corporate body is estopped from denying the same in an action
deductibles 1,000).
arising out of such transaction, yet this doctrine may not be held to
The court granted plaintiff’s prayer and required defendants to
be applicable where fraud takes a part in the said transaction. In the
render a complete accounting of the harvest of the land and to deliver 10%
instant case, on plaintiff’s charge that she was unaware of the fact that the
92 | TKP 2025
defendant corporation had no juridical personality, its president (Refuerzo) *Corporation by estoppel refers to someone contracting and dealing
gave no confirmation or denial of the same and the circumstance with a business as if it were a corporation. In so doing, it is an
surrounding the execution of the contract lead to the inescapable admission that the entity is a corporation and therefore estopped to
deny its incorporation should an action arise out of the contract or
conclusion that plaintiff was really made to believe that such corporation
course of dealing.
was duly organized in accordance with law.
A corporation has a juridical personality separate and distinct from
its component members or stockholders; officers cannot be held liable -
this rule is understood to refer merely to registered corporations and
cannot be made applicable to the liability of members of an unincorporated
association.
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 (Fay v. Noble, 7 Cushing [Mass. ] 188. Cited in II
Tolentino’s Commercial Laws of the Philippines, Fifth Ed., p. 689-690).
CLV Outline:
Corporation by Estoppel Doctrine (Sec. 20)
The corporation by estoppel doctrine cannot be applied against
the claims of an innocent third-party who seeks to enforce the contract
against the person who entered to a contract on behalf of a non-existent
corporation on the ground of separate juridical personality. The doctrine
that is application is one found in the Law on Agency, i.e., a purported
agent who enters to a contract in the name of the non-existing principal
shall be personally liable for contract so entered into. ✔Vda. De
Salvatierra v. Garlitos, 103 Phil. 757 (1958).
Corp by estoppel - no corp but liability will attach
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Corporation by Estoppel Doctrine: Jurisprudential Background it cannot be considered a corporation, not even a corporation de facto
Albert v. University Publishing Co., 13 SCRA 84 (1965) (Hall vs. Piccio, 86 Phil. 603. It has therefore no personality separate from
Jose M. Aruego; it cannot be sued independently.
FACTS:
The University Publishing Co. Inc. through its President Jose While the corporation by estoppel doctrine has not been invoked, the
Aruego entered into a contract with Mariano Albert. In their contract, same is inapplicable.
University Publishing Co. agreed to pay Albert 30,000php for the exclusive
right to publish Albert’s revised commentaries in the RPC and for his share One who has induced another to act upon his wilful misrepresentation that
in the previous sale of the book’s first edition. University Publishing Co. a corporation was duly organized and existing under the law, cannot
failed to pay the second installment thereby making the whole amount due thereafter set up against his victim the principle of corporation by estoppel.
and demandable as stipulated in their contract.
Albert then sued the corporation. He alleged that University Aruego represented a non-existent entity and induced not only Albert but
Publishing Co. is a corporation duly organized and existing under the laws even the court to believe in such representation. He signed the contract as
of the PH. The lower court ruled in favor of Albert and ordered the "President" of "University Publishing Co., Inc.," stating that this was "a
issuance of an execution writ against University Publishing Co., Inc. corporation duly organized and existing under the laws of the Philippines,"
However, Albert petitioned for a writ of execution against Jose and obviously misled plaintiff (Mariano A. Albert) into believing the same.
Aruego as the real defendant, stating that there is no such entity as
University Publishing Co. Albert attached to his petition a certification from University Publishing Co., Inc." purported to come to court, answering the
the SEC attesting that “The records of this Commission do not show the complaint and litigating upon the merits, But as stated, "University
registration of the UNIVERSITY PUBLISHING CO., INC., either as a Publishing Co., Inc." has no independent personality; it is just a name.
corporation or partnership.” Jose M. Aruego was, in reality, the one who answered and litigated,
The corporation countered by saying that Aruego is not a party through his own law firm as counsel. He was in fact, if not in name, the
to this case and that, therefore, Albert’s petition should be denied. Albert’s defendant. The evidence is patently clear that Jose M. Aruego, acting as
petition was denied by the court. representative of a non-existent principal, was the real party to the contract
sued upon.
ISSUE: Can the University Publishing Co be sued independently? NO
Even with regard to corporations duly organized and existing under the
RULING: law, we have in many cases pierced the veil of corporate fiction to
The fact of non-registration of University Publishing Co., Inc., in the administer the ends of justice.* And in Salvatierra vs. Garlitos, supra, p.
Securities and Exchange Commission has not been disputed. Defendant 3073, we ruled: "A person acting or purporting to act on behalf of a
would only raise the point that "University Publishing Co., Inc.," and not corporation which has no valid existence assumes such privileges and
Jose M. Aruego, is the party defendant; thereby assuming that "University obligations and becomes personally liable for contracts entered into or for
Publishing Co., Inc." is an existing corporation with an independent other acts performed as such agent.”
juridical personality. Precisely, however, on account of the non-registration
94 | TKP 2025
NOTES: (irrelevant facts but jic)

In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we
found plaintiff entitled to damages (for breach of contract but reduced the
amount from P23,000.00 to P15,000.00.
Then in Albert vs. University Publishing Co., Inc., L-15275, October 24,
1960, we held that the judgment for P15,000.00 which had become final
and executory, should be executed to its full amount, since in fixing it,
payment already made had been considered.
CLV OUTLINE: We reiterate Salvatiera in that one who has induced

another to act upon his willful 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. For even when there is
an existing corporate entity, we have applied the doctrine of piercing of the
veil of corporate fiction to make the actors behind the corporation
personally liable for the contract entered in the name of the corporation.
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Corporation by Estoppel Doctrine: Nature of Doctrine The grant of jurisdiction to the SEC must be viewed in the light of its nature
Lozano v. De Los Santos, 274 SCRA 452 (1997) and function under the law. The jurisdiction is determined by a
concurrence of 2 elements: 1. The status and relationship of the parties;
and 2. The nature of the question that is the subject of the controversy.
FACTS:
Petitioner Lozano is the president of the KAMAJDA, a Jeepney Drivers’
The first element requires that the controversy must arise out of
Association in Pampanga, and Respondent Anda is the President of
intracorporate or partnership relations between and among stockholders
another Jeepney Drivers’ Association in Pampanga called SAMAJODA.
Upon the request of the Sangguniang Bayan, both parties agreed to members or associates; between any or all of them and the corporation,
partnership or association of which they are stockholes, members or
consolidate their associations and form UMAJODA.
associates, respectively; and between such corporations, partnership or
The parties agreed that they will elect a set of officers to collect the daily association and the state in so far as it concerns their individual
dues from the members of the consolidated association. Lozano won franchises. The second element requires that the dispute among parties
be intrinsically connected with the regulation of the corporation,
when both parties ran for President. Due to Anda’s refusal to accept the
partnership or association or deal with the internal affairs of the
result, he protested and alleged that there was fraud. At the same time,
corporation, partnership or association.
Anda refused to abide by the agreement they made and started collecting
the daily dues of his members.
There is no intracorporate nor partnership between the parties because
the controversy between them arose out of their plan to consolidate their
Anda’s actions made Lozano file a case with the MCTC to restrain Anda
associations into a single one. However, the unified association is still a
and also for damages. However, Anda contended that the case shall be
dismissed due to the lack of jurisdiction and that it should be filed with the proposal because it has not been approved by the SEC nor have the
SEC instead. officers or members submitted their articles of consolidation in accordance
with the Corporation Code. And the consolidation becomes effective only
upon the issuance of the certificate of consolidation by the SEC.
ISSUE: Whether or not the dispute between the parties falls under the
jurisdiction of the SEC. NO.
The doctrine of corporation by estoppel advanced by Anda cannot override
RULING: jurisdictional requirements. Jurisdiction is fixed by law and is not subject to
the agreement of the parties, it cannot be acquired through or waived,
The SEC has no jurisdiction over the complaint because the parties have
enlarged or diminished by, any act or omission of the parties, neither can it
no intracorporate relation much less do they have an intracorporate
be conferred by the acquiescence of the court.
dispute. Both of the associations are two separate entities that are duly
registered with the SEC. The dispute between the parties are not within
CLV OUTLINE: Founded on the principle of equity and designed to
either of the associations but between members of separate and distinct
prevent injustice and unfairness, the doctrine applies when persons
associations.
assume to form a corporation and exercise corporate functions and enter
to business relations with third persons. Where no third person is involved
96 | TKP 2025
in the conflict, there is no corporation by estoppel. A failed consolidation

therefore cannot result in a consolidated corporation by estoppel.
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Paz v. New Int’l Environmental Universality, Inc., 756 SCRA 284 (2015)
ISSUE: Is Paz estopped from denying that he contracted with New Int’l as
FACTS: a corporation? YES. And was Clarke an indispensable party to the suit?
In this case, Priscilo B. Paz, in his capacity as officer-in-charge of NO
the Aircraft Hangar at Davao International Airport entered into a MOA with
Captain Allan J. Clarke, the President of International Environmental RULING: Paz obligated and contracted with New Int’l as a corporation.
Universality for the use of an aircraft hangar. The MOA stipulated that From the very language of the MOA, he allowed Clarke to use the space
Clarke could use it for four years exclusively for company/aircraft for COMPANY aircraft/helicopter. He was aware of the fact that New Int’l
helicopters. Sometime after however, Paz repeatedly sent complaint was a corporation. Further, his last demand letter urged Clarke to vacate
letters to Clarke since Clarke was using the hangar space not for aircraft the hangar space that the “COMPANY is occupying/utilizing.”
or helicopters but for trucks, vehicles and other equipment for Section 21 of the Corporation Code explicitly provides that one who
maintenance and fabrication. Paz threatened to cancel the MOA despite assumes an obligation to an ostensible corporation cannot resist
the agreed upon 6-months advance notice clause if the welding and other performance thereof on the ground that there was in fact no corporation.
fabrication jobs did not stop. Despite offering another space along the Clearly Paz is bound not just by the agreement, but even by law.
airport road for Clarke’s operations to transfer to, Clarke did not heed the
demand letters and upon an accident (a van drove into the left wing of an What about Clarke’s liability? During the pendency of the suit, he died and
aircraft parked inside the hangar), Paz sent another letter addressed Paz prompted that this was a reason to dismiss the case. The Court did
against Mr. Allan Clarke, CEO of New International Environmental not agree. Clarke, according to the Court, was acting as an agent of New
Universality (*please mention this during recit it’s important), International. He may have signed the MOA but it was in representation of
demanding them to vacate and when they did not, he disconnected their New Int’l as the principal, thus he acquired no rights nor incurred any
electricity and prevented them from entering the hangar. liabilities because of the MOA. That said, the case could not be dismissed
because of his death, and Paz could not deny that he contracted with New
New Int’l Environmental Universality filed a complaint against him for Int’l as a corporation because of estoppel.
breach of contract for doing so, but Paz raised the defense that the latter
had no cause of action against him as the MOA was between him and CLV OUTLINE: What is now Sec. 20 of RCC explicitly provides that one
Clarke in their personal capacities and there was no need to honor the who assumes an obligation to an ostensible corporation cannot resist
MOA or the 6-months notice clause because Clarke used the premises performance thereof on the ground that there was no corporation. Clearly
differently from what they agreed upon, endangering the other aircraft in petitioner is bound by his obligation under the MOA not only on estoppel
the area. but by express provision of law.
The RTC ruled in favor of New Int’l, saying that while Paz and Clarke were
the first party and second party respectively, they were also
representatives of their respective corporations. (MOA was executed in
2000, New Int’l. Was incorporated in 2001)
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Corporation by Estoppel Doctrine: Nature of Doctrine TESDA intervened in the case reiterating Bronio’s arguments, adding that
TESDA v. Abragar, G.R. No. 201022 (17 March 2021) it (TESDA) was never impleaded in the case. TESDA argued that the
(disclaimer: i disregarded most civpro discussions in the case bc not Center should not have been impleaded, being a non-juridical entity. The
pertinent to lesson) Center therefore cannot sue or be sued.
FACTS: ISSUE: Does the Marble Center have juridical personality? Does the
Abragar filed a complaint against Marble Center (the Center) and Bronio doctrine of corporation by estoppel apply? - NO
(his supervisor) with the NLRC for nonpayment of salaries, service
incentive leave, retirement pay, etc. Abragar described Marble Center as a RULING:
corporation duly organized and existing under Philippine laws, situated in Abragar alleged that it would be unjust for a third person to be allowed to
the TESDA Compound in Guiguinto, Bulacan. He claimed that he was a circumvent labor laws by claiming that a person or company who acted as
marble operator and that the Center reduced his work schedule and pay, an employer is a non-juridical entity which cannot sue or be sued. To be
constituting a constructive dismissal. sure, the Court, in the interest of preventing injustice and unfairness,
has previously prevented non-existent corporations from raising its
The Labor Arbiter ruled in favor of Abragar. Bronio filed an MR claiming lack of juridical personality as a means to avoid fulfillment of its
that there was no employer-employee relationship between Abragar and contracts or obligations by applying the doctrine of corporation by
the Marble Center, the latter being a mere cooperative and training center estoppel. This doctrine has been codified in Section 20 of the Corporation
of TESDA under the cooperation of the Department of Trade and Industry Code, which provides that all persons who assume to act as a
(DTI), Provincial Gov’t of Bulacan. The Center was essentially a training corporation knowing it to be without the authority to do so shall be
ground for workers who intend to work in the private sector. The MR was liable as general partners for all debts, liabilities, and damages
not acted upon. incurred or arising as a result thereof.
Bronio filed another motion reiterating that the Center is a non-juridical BUT: said doctrine cannot apply in this case. While it is true that the
entity but a mere training facility created pursuant to a MOA executed by Center was managed by TESDA in collaboration with the other parties in
DTI, Provincial Gov’t of Bulacan, Marble Association of the PH (MAP), and the MOA, records do not show that the parties represented that the Center
TESDA. The purpose of the MOA was for the parties to pool their had its own juridical personality when dealing with third persons. Further,
resources and facilities to establish the training center. Bronio further the contract of employment of Abragar was with MAP.
argued that he is a mere employee, which means that he cannot be held
liable for the acts of the Center, and Abragar is not an employee but a The Court is also not inclined to rule that TESDA and the other parties to
trainee of the Center. The motion was denied and a writ of execution was the MOA shall be held liable as general partners to respondent's claims
issued in Abragar’s favor. The sheriff and Abragar proceeded to the Tesda against the Center for non-payment of wages, benefits, and illegal
Compound to levy on the properties but were denied entry. dismissal without giving them their day in court. It is a basic tenet of due
process of law that a person cannot be prejudiced by a ruling rendered in
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an action or proceeding in which he was not made a party. (TESDA was

an indispensable party.)
CLV OUTLINE: Respondent alleged that it would be unjust for a third

person to be allowed to circumvent labor laws by claiming that a person or
company who acted as an employer is a non-juridical entity which cannot
sue or be sued. To be sure, the Court, in the interest of preventing injustice
and unfairness, has previously prevented non-existent corporations from
raising its lack of juridical personality to avoid fulfillment of its contracts or
obligations by applying the doctrine of corporation by estoppel. This
doctrine has been codified in what is now Sec. 20 of the RCC, which
provides that 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.
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Corporation by Estoppel Doctrine: Two Levels: (i) With in holding him jointly responsible for the illegal recruitment activities of
“Fraud”; and (ii) Without “Fraud Garcia.
People v. Garcia, 271 SCRA 621 (1997)
ISSUE:
FACTS: Whether or not Botero should be held liable with Garcia for illegal
Accused-appellant Carlos Garcia, together with Patricio Botero recruitment? – YES.
and Luisa Miraples (who remained at large) were charged with the crime
of illegal recruitment on large scale. It was claimed by the complainants
that the three represented themselves as officers of Ricorn Philippine RULING:
International Shipping Lines (aka RICORN), a corporation which recruits All the essential elements of the crime of illegal recruitment in
large scale are present in this case, to wit:
workers for overseas employment. The complainants had coursed their
application to Garcia who had allegedly represented himself as president (1) the accused engages in the recruitment and placement of
of Ricorn. They were then assured of employment by Garcia and Botero. workers, as defined under Article 13 (b) or in any prohibited
activities under Article 34 of the Labor Code;
Upon inquiry regarding their employment, the complainants
discovered that Ricorn had abandoned its office due to non-payment of (2) accused has not complied with the guidelines issued by the
rentals and that Ricorn was not yet incorporated with the SEC. They also Secretary of Labor and Employment, particularly with respect to
discovered that Ricorn was not licensed by the DOLE to engage in the securing of a license or an authority to recruit and deploy
recruitment activities. Garcia denied these allegations, claiming that he workers, either locally or overseas; and
denied Ricorn’s offer to become its President after his discovery that
(3) accused commits the same against three (3) or more persons,
Ricorn was not licensed by the POEA nor was it incorporated with the individually or as a group.
SEC.
Meanwhile, Botero (vice president of Ricorn) claimed that he was It is a fact that Ricorn had no license to recruit from DOLE. In the
a mere applicant of Ricorn and that he only became its employee after office of Ricorn, a notice was posted informing job applicants that its
gaining the trust of Garcia. As a former seaman, he was familiar with the recruitment license is still being processed. Yet, Ricorn already entertained
processing of passport, seaman's book, Survival of Life at Sea applicants and collected fees for processing their travel documents.
(SOLAS) and conducting interviews and so his job at Ricorn only
Evidence also showed that Botero was introduced to the
consisted of performing these “minimal activities”. However, he left
applicants as the vice president of Ricorn. When he was receiving
Ricorn after discovering its issues with POEA and SEC. Despite this, he
applicants, he was receiving them behind a desk which had a nameplate
admitted that he gave money to Garcia for Ricorn’s incorporation with the
representing his name and his position as VP of Ricorn. He procured the
SEC but the latter did not do so.
passports, seaman's books and SOLAS for the applicants. It was from him
Trial court found Garcia and Botero guilty of illegal recruitment on that the complainants inquired about the status of their applications. He
large scale. Botero appealed to the CA, arguing that the lower court erred also admitted he gave money to Garcia for Ricorn's incorporation.
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Section 25 of the Corporation Code provides that "(a)ll

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 the 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."
Despite its non-incorporation, Garcia and Botero held themselves
out to the public as officers of Ricorn. They received money from
applicants who availed of their services. For these acts, Botero cannot
therefore escape from his liabilities with Garcia as a fellow incorporator of
Ricorn.
NOTE: Corporation by Estoppel Doctrine is applied in this case given that

Botero and Garcia were held liable as general partners.
CLV OUTLINE: When the incorporators represent themselves to be

officers of the corporation which was never registered with SEC, and
engaged in the name of the purported corporation in illegal recruitment,
they are estopped from claiming that they are not liable as corporate
officers under what is now Sec. 20 of RCC which provides that 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 the debts, liabilities and
damages incurred or arising as a result thereof.
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CORPORATION BY ESTOPPEL DOCTRINE - Two Levels: (i) With By virtue of RA 3135 (Charter of the Philippine Amateur Athletic
“Fraud;” and (ii) Without “Fraud” Federation) and PD 604 (Creating a Department of Youth and Sports
Development), national sports associations can have a juridical existence.
Int’l Express Travel & Tour Services v. Court of Appeals, 343 SCRA
In fact, it confers on these associations the ability to purchase, sell, lease
674 (2000)
and encumber property, which are acts which may only be done by
Facts: persons, whether natural or juridical with juridical personality. However, the
International Express Travel and Tour Services, Inc. was the travel corporate status of national sports associations is not automatically
agency of the Philippine Football Federation. The Federation failed to fully conferred by the laws. The laws require that before an entity may be
pay for their tickets and for the services rendered by International Express recognized as a national sports association, such entity must be
Travel despite repeated demands. International Express Travel then sued recognized by the accrediting organization such as the Philippine Mateur
Henri Kahn in his personal capacity and as President of the Federation Athletic Federation or the Departmet of Youth and Sports Development.
and impleaded the Federation as an alternative defendant. International In this case, Henri Kahn failed to substantiate that the Philippine
Express Travel wanted to hold Henri Kahn liable for the unpaid balance for Football Federation has been duly accredited. He merely showed the
the tickets purchased by the Federation on the ground that Henri Kahn constitution and by-laws of the Federation but did not show any
allegedly guaranteed the obligation. accreditation or recognition by either of the two organizations.
Henri Kahn asserted that International Express did not have a The court ruled that the Philippine Football Federation is NOT a
cause of action against him either in his personal capacity or in his official national sports association and does not have a corporate existence on its
capacity as president of the Federation because he did not guarantee the own. Thus, it held that Henri Kahn was personally liable for the unpaid
payment but merely acted as an agent of the Federation which has a obligations of the Federation. It is a settled principle in corporation law that
separate and distinct juridical personality. In ruling against International any person acting or purporting the act on behalf of a corporation which
Express Travel, the CA applied the doctrine of corporation by estoppel. has no valid existence assumes such privileges and becomes personally
The CA said that International Express Travel can no longer deny the liable for contracts entered into or for other acts performed as such an
corporate existence of Philippine Football Federation because it had agent. As president of the Federation, Henri Kahn is presumed to have
contracted and dealt with the Federation in such a manner as to recognize known about the corporate existence or non-existence of the Federation.
and in effect admit its existence.
International Express is not estopped from denying the
Issue: corporate existence of the Federation just because it dealt with it.
1. Whether the Philippine Football Federation has a juridical The doctrine of corporation by estoppel was mistakenly applied by
personality? NO the CA to Int’l Express. The application of the doctrine applies to a
2. Whether the CA appropriately applied the doctrine of third party only when he tries to escape liabilities on a contract from
corporation by estoppel? NO which he has benefitted on the irrelevant ground of defective
corporation. IN this case, Int’l Express is not trying to escape liability
Ruling:
from the contract but rather is the one claiming from the contract.
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CLV Syllabus: Application of the doctrine applies to a third party only

when he tries to escape liabilities on a contract from which he has
benefited on the irrelevant ground of defective incorporation. In the case at
bar, the petitioner is not trying to escape liability from the contract but
rather is the one claiming from the contract. However, one who deals with
an unincorporated association is not estopped to deny its corporate
existence when his purpose is not to avoid liability, but precisely to enforce
the contract against the action for the purported corporation. ✔Int’l
Express Travel & Tour Services v. Court of Appeals, 343 SCRA 674
(2000).
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CORPORATION BY ESTOPPEL DOCTRINE - Can a Defective Attempt aircrafts. Pioneer filed an action for judicial foreclosure with a writ of
to Form a Corporation Result at Least into a Partnership? preliminary attachment against Lim, the Cervanteses, Bormaheco, and
Maglana.
Pioneer Insurance v. Court of Appeals, 175 SCRA 668 (1989)
Maglana, Bormaheco, and the Cervanteses filed cross-claims
FACTS:
against Lim alleging that they were not privies to the contracts signed by
Jacob S. Lim was engaged in the airline business as
Lim, they sought damages for being exposed to litigation, and for recovery
owner-operator of Southern Air Lines (SAL), a single proprietorship. Lim of the money they advanced to Lim for the purchase of the aircrafts. Lim
entered into a sales contract with Japan Domestic Airlines (JDA) for the
was held liable to pay Pioneer but dismissed Pioneer’s complaint against
sale and purchase of 2 aircrafts and 1 set of necessary spare parts for the
the other defendants. The CA modified the decision, dismissing the
total price of $109,000.00 to be paid in installments. complaint against ALL the defendants. Lim sought to be reimbursed by his
co-defendants claiming that they were liable as de facto partners. Hence,
Pioneer Insurance and Surety Corporation, as surety, executed this petition.
and issued its Surety Bond in favor of JDA, on behalf of its principal, Lim,
for the balance price of the aircrafts and spare parts. It appeared that ISSUE:
Border Machinery & Heavy Equipment Company (Bormaheco), the
1. Whether or not there was a corporation formed between Lim,
Cervantes spouses, and Maglana contributed some funds used in the
Magalana, Bormaheco, and the Cervanteses? - NO
transaction between JDA and Lim. The funds were alleged to be their
2. Whether or not there was a de facto partnership? - NO
contributions to a new corporation proposed by Lim to expand his airline
business. They executed 2 indemnity agreements in favor of Pioneer, 1
signed by Maglana, and the other jointly signed by Lim for SAL, RATIO:
Bormaheco and the Cervanteses. The agreements stipulated that the Pioneer claimed that the failure of Lim, Bormaheco, Magalana,
parties principally agree and bind themselves jointly and severally to and the Cervanteses’ to incorporate resulted in a de facto partnership. As
indemnify and hold Pioneer harmless from and against any/all damages, a consequence, all must share in the losses and/or gains of the venture in
losses, costs, taxes, and penalties of whatever kind and nature that proportion to their contribution.
Pioneer may incur as a surety.
HOWEVER, while it has been held that as between themselves, the rights
Lim executed a deed of chattel mortgage in favor of Pioneer as of the stockholders in a defectively incorporated association should be
security. It stipulated that Lim transferred and conveyed the 2 aircrafts to governed by the supposed charter and the laws of the state relating
Pioneer. Lim defaulted on his installments, prompting JDA to request thereto and not by the rules governing partners, persons who attempt
payments from Pioneer, which it paid. Pioneer filed a petition for but fail to form a corporation and who carry on the business under
extrajudicial foreclosure of the chattel mortgage. The Cervanteses and the corporate name occupy the position of partners.
Maglana filed a third party claim alleging that they were co-owners of the
105 | TKP 2025

Where persons associate themselves together under articles to purchase proposed corporation which is never legally formed does not become a
property to carry on a business, and their organization is so defective as to partner with other subscribers who engage in business under the name of
come short of creating a corporation within the statute, they become in the pretended corporation, to be liable as such in an action for settlement
legal effect partners, and their rights as members of the company to the of the alleged partnership and contribution. A partnership relation between
property acquired by the company will be recognized. HOWEVER, a certain shareholders and other shareholders, who were also directors, will
partnership relation between certain stockholders and other not be implied in the absence of an agreement, to make the former liable
stockholders, who were also directors, will not be implied in the to contribute for payment of debts illegally contracted by the latter.
absence of an agreement, so as to make the former liable to
contribute for payment of debts illegally contracted by the latter.
In this case, Lim denied having received any amount from Bormaheco,
Maglana, and the Cervanteses. However, the RTC and CA found evidence
that Lim received amounts representing the participation of Bormaheco
and Maglana in the ownership of the airplanes and spare parts. It was also
shown that Maglana gave funds to Lim through the Cervanteses.
It is clear that Lim never had the intention to form a corporation with the B,
M & C’s despite his representations to the contrary. B, M, & C’s were
induced and lured by Lim to make contributions to a proposed corporation
which was never formed because Lim abandoned their agreement. No de
facto partnership was created among the parties which would entitle
Lim to a reimbursement of the supposed losses of the proposed
corporation. Records show Lim was acting on his own and not on behalf
of his other would-be incorporators in transacting the sale of the airplanes
and spare parts.
CLV OUTLINE: While ordinarily persons who attempt, but fail, to form a
corporation and who carry on business under the corporate name occupy
the position of partners inter se; such a relation, however, does not
necessarily exist, for ordinarily persons cannot be made to assume the
relation of partners when their purpose is that no partnership shall exist,
and it should be implied only when necessary to do justice between the
parties. Thus, one who takes no part except to subscribe for stock in a
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Lim Tong Lim v. Phils. Fishing Gear Industries, Inc., 317 SCRA 728
(1999) CLV OUTLINE: Under the law on estoppel including that under Sec. 21,
FACTS: those acting on behalf of an ostensible corporation and those benefited by
it, knowing it to be without valid existence, are held liable as general
Ocean Quests Fishing Corp., (OQFC) through Chua and Yao, entered into
partners.
a Contract for the purchase of fishing nets from PH Fishing Gear
Industries (PFGI). OQFC claims that they were engaged in a business
Venture with Lim, who was not a signatory. OQFC never paid for the gear
and Lim enjoyed the nets that was applied on its F/B Lourdes fishing boat.
PFGI then filed a collection suit against Chua, Yao, and Lim with a prayer
for preliminary attachment. The suit was brought against the 3 in their
capacities as general partners, on the allegation that OQFC was a
non-existent corporation as shown by a SEC certification.
The trial court issued a writ of preliminary attachment which was enforced
against the buyers, declaring that a partnership among Lim, Chua, and
Yao existed. The CA affirmed the RTC. Lim argued that under the doctrine
of corporation by estoppel, liability can be imputed only to Chua and Yao,
and not to him.
ISSUE: Can Lim be held liable with Chua and Yao under the Doctrine
of Corporation by estoppel which applies to estopped,
unincorporated associations/”corporations”? YES.
Ruling:
Those who received benefits from an ostensible corporation are liable to
third parties who believed the corporation to be actual. This is an
exception to ostensible corporations.
The exception to the exception is if the third party was fully aware of the
status of the corporation. Furthermore, all who benefited from the
unincorporated and fake corporation are estopped from denying its
corporate existence.
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PART 5: ARTICLES OF INCORPORATION (AOI) · SEC said proceed with the meeting on the basis of the stockholdings reflected
in the AoI
Lanuza v. Court of Appeals

Issue: Whether it is the company’s stock and transfer book, or its 1952 AoI, which
454 SCRA 54 (2005)
determines stockholders’ shareholdings and provides the basis for computing the
quorum? AoI
Topic: Nature of charter
Held: The stockholdings in the AoI should be the ones used as basis for
CLV Syllabus: The articles of incorporation has been described as one that
quorum
defines the charter of the corporation and the contractual relationships between
· The articles of incorporation has been described as one that defines the
the State and the corporation, the stockholders and the State, and between the
charter of the corporation and the contractual relationships between the State
corporation and its stockholders
and the corporation, the stockholders and the State, and between the
corporation and its stockholders
Facts: · Here, it indicated that there are a total of 776 shares issued and outstanding,
· Philippine Merchant Marine School (PMMSI) was incorporated in 1952 with 700 founders’ shares and 76 common shares
the following shares indicated in its AoI (total of 776 shares) · The Stock and Transfer Book on the other hand is just a record of the names
o 700 founders’ shares and addresses of all stockholders arranged alphabetically
o 76 common shares o It is only to provide a certain and accurate method of establishing the
· However, the respondents and predecessors who were in control of PMMSI transactions and ownership of stock and like manner
registered the company’s stock and transfer book for the first time only in o However, it is not a public record nor is it exclusive evidence of the
1978. It registered: matters and things written therein. They are only, at best, prima facie
o 33 common shares as the only issued and outstanding shares of evidence and can be impeached or contradicted by competent
PMMSI evidence.
· A special stockholders’ meeting was called and held on the basis of what was · Quorum is based on the totality of shares which have been subscribed and
considered as a quorum of 27 common shares, representing more than 2/3 of issued, whether founders’ shares or common shares
common shares issued and outstanding (using as basis the book) o The quorum must be based on the AoI.
· In 1982 Petitioners filed with the SEC a registration for the property rights over o The stock and transfer book of PMMSI cannot be used as the sole
120 founders’ shares and 12 common shares owned by their father, one of the basis for determining the quorum as it does not reflect the totality of
incorporators of PMMSI shares which have been subscribed, more so when the articles of
· Ownership was awarded to the petitioners incorporation show a significantly larger amount of shares issued and
· A special stockholders’ meeting was had once again but the private outstanding as compared to that listed in the stock and transfer book
respondents filed afterwards a petition with the SEC questioning the validity of o To use the ones in the stock and transfer book, which is inaccurate,
said meeting since the quorum for that meeting should be based on the issued would work injustice to the owners of said shares
and outstanding shares under the AoI (776 shares) and not under what was
indicated in the stock and transfer book (165 shares)
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SEC Memorandum Circular No. 16-2020 (Guidelines on (40%) foreign equity shall be accompanied by an application for
Authentication of AOI) registration of investments of non-Philippine national using SEC Form
https://docs.google.com/document/d/1OxCWG9FTMrWzbgYuP3xo_p F-100, if applicable. The SEC Form F-100 must be authenticated in
accordance with Section 4 above only if the same is executed outside the
WN19ckI610WSBCOohiBL0/edit
Philippines. Otherwise, no further authentication of said form is required.
SEC 1.Scope.-These Guidelines shall apply to the registration of new
domestic corporations. SEC.6.Obtaining Corporate Registration Through Fraud Or
Misrepresentation. –The registration of a corporation, which has
SEC.2.Authentication by Incorporators.–The Commission will accept for
procured its Certificate of Registration through fraud or misrepresentation,
registration Articles of Incorporation that are accompanied by a
shall be revoked.Furthermore, those responsible for the formation of a
Certificate of Authentication signed by all incorporators in the form
corporation through fraud, or who assisted directly or indirectly therein,
prescribed by the Commission. The prescribed format of the Certificate
of Authentication referred to in the immediately preceding paragraph is shall be punished with a fine ranging from Two hundred thousand pesos
(P200,000.00) to Two million pesos (P2,000,000.00). When the violation
provided in Annex "A" of these guidelines, or as may be revised
is injurious or detrimental to the public, the penalty shall be a fine ranging
hereafter.Through the mode of authentication provided under this
section, both the Articles of Incorporation and the Certificate of from Four hundred thousand pesos (P400,000.00) to Five million
Authentication need not be notarized nor consularized. pesos (P5,000,000.00).
SEC.7.Willful Certification of Incomplete, Inaccurate, False, or
SEC.3.Acknowledgment Before A Notary Public.–Notwithstanding
the provisions of Section 2, the incorporators, if they so choose, may Misleading Statements or Reports.-Willfully certifying a report
acknowledge theArticles of Incorporation before a notary public in required under the Revised Corporation Code, knowing that the same
contains incomplete, inaccurate, false, or misleading information or
accordance with the applicable laws and rules, and the same will likewise
statements, shall be punished with a fine ranging from Twenty
be accepted by the Commission.
thousand pesos (P20,000.00) to Two hundred thousand pesos
SEC.4.Authentication of Articles of Incorporation Executed Abroad. (P200,000.00). When the wrongful certification is injurious or detrimental to
–Ifexecuted outside the Philippines,the Articles of Incorporation may be: the public, the responsible person may also be punished with a fine
1. apostilled in accordance with the 1961 Hague Convention ranging from Forty thousand pesos (P40,000.00) to Four hundred
Abolishing the Requirement of Legalisation for Foreign thousand pesos(P400,000.00).
Public Documents, otherwise known as the “Apostille SEC.8.Separate Liability.-Liability for any of the foregoing offenses shall
Convention;” or be separate from any other administrative, civil, or criminal liability
under the Revised Corporation Code and other laws.
2. notarized or authenticated by a Philippine diplomatic or consular
SEC.9.Effectivity.-This Memorandum Circular shall take effect
officer, as the case may be.
immediately after its publication.
SEC.5.Registration of Foreign Investments. -The application for
registration of a new domestic corporation with more than forty percent
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SEC Memorandum Circular No. 16-2019 (Guidelines on the Number Section 4. Partnerships as Incorporators
and Qualifications of Incorporators under the RCC) In the event that an SEC-recorded partnership is made an incorporator,
the application for registration must be accompanied by a Partners'
Affidavit, duly executed by all the partners, to the effect that they have
Section 1. Number of Incorporators
authorized the partnership to invest in the corporation about to be formed
For the purpose of forming a new domestic corporation under the Revised and that they have designated one of the partners to become a signatory
Corporation Code, two (2) or more persons, but not more than fifteen (15), to the incorporation documents.
may organize themselves and form a corporation.
Partnerships under " dissolved" or " expired" status with the SEC shall not
Only a One Person Corporation (OPC) may have a single stockholder, as be authorized to become an incorporator.
well as a sole director. Accordingly, its registration must comply with the
corresponding separate guidelines on the establishment of an OPC.
Section 5. Domestic Corporations or Associations as Incorporators
In the event that an SEC-registered domestic corporation or association is
Section 2. Definition of Incorporators
made an incorporator, its investment in the new corporation must be
Incorporators are those stockholders or members mentioned in the Articles approved by a majority of the board of directors or trustees and ratified by
of Incorporation as originally forming and composing the corporation, and the stockholders representing at least two-thirds (2/3) of the outstanding
who are signatories thereof. capital stock, or by at least two thirds (2/3) of the members in the case of
nonstock corporations, at a meeting duly called for the purpose.
Section 3. Qualifications of Incorporators A Directors'/Trustees' Certificate or a Secretary's Certificate, indicating the
necessary approvals, as well as the authorized signatory to the
Each incorporator of a stock corporation must own, or be a subscriber to,
incorporation documents, shall be executed under oath and submitted by
at least one (1) share of the capital stock. Each incorporator of a nonstock
the applicant.
corporation must be a member of the corporation.
Domestic corporations under “delinquent”, “suspended”, “revoked”, or
The incorporators may be composed of any combination of natural
“expired” status with the SEC shall not be authorized to become an
person/s, SEC-registered partnership/s, SEC-registered domestic
incorporator.
corporation/s or association/s, as well as foreign corporation/s.
Incorporators who are natural persons must be of legal age, and must sign
the Articles of Incorporation/ Bylaws. Section 6. Foreign Corporations as Incorporators
In the event that a foreign corporation is made an incorporator, the
application for registration must be accompanied by a copy of a document
(i.e. Board Resolution, Directors' Certificate, Secretary's Certificate, or its
equivalent), duly authenticated by a Philippine Consulate or with an
110 | TKP 2025

apostille affixed thereto, authorizing the foreign corporation to invest in the said individual is also the owner of at least one (1) share of stock, or is
corporation being formed and specifically naming the designated signatory also a member, of the corporation being formed.
on behalf of the foreign corporation. Section 9. Foreign Nationals in the Articles of Incorporation
The inclusion of foreign nationals in the Articles of Incorporation shall be
Section 7. Signatories of the Articles of Incorporation subject to the applicable constitutional, statutory, and regulatory
restrictions, as well as conditions, with respect to foreign participation in
Each individual signing the Articles of Incorporation/ Bylaws must indicate
certain investment areas or activities.
the capacity upon which he/she is affixing his/her signature thereto, (i.e.
Incorporator or Representative ofXYZ Corp.)
An individual designated to sign the Articles of Incorporation/ Bylaws on Section 10. Additional Requirements for Certain Corporations
behalf of an incorporator, which is not a natural person, must also indicate
No Articles of Incorporation of banks, banking and quasi-banking
the corporate or partnership name of the entity being represented and for
institutions, preneed, insurance and trust companies, NSSLAS,
whom he/she is executing the Articles of Incorporation/ Bylaws.
pawnshops, and other financial intermediaries shall be approved unless
The Taxpayer Identification Number (TIN) of the principal, as well as the accompanied by a favorable recommendation of the appropriate
designated signatory, should both be indicated in the Articles of government agency to the effect that the Articles of Incorporation are in
Incorporation. accordance with law.
No application for incorporation shall be accepted unless the registration
documents reflect the TIN or passport number of all its foreign investors
Section 11. Processing of Applications
other than foreign corporations which have not yet been issued a Taxpayer
Identification Number. The processing of applications for registration in accordance with the new
provisions of the Revised Corporation Code shall be done manually by the
After incorporation, all the foreign investors, natural or juridical, shall
Company Registration and Monitoring Department and the Extension
secure a Taxpayer Identification Number. All documents to be filed with the
Offices of the SEC, until further notice.
SEC after incorporation (e.g. General Information Sheets) shall not be
accepted unless the TIN of all its foreign investors, natural or juridical,
resident or non-resident, are indicated therein. Section 12. Repealing Clause
This Memorandum Circular shall amend all issuances, orders, rules and
Section 8. Designation of Incorporators as Directors or Trustees regulations of the Commission that may be inconsistent with it.
An individual who signs the Articles of Incorporation on behalf of an

incorporator, which is not a natural person, may not be named as a Section 13. Effectivity This Memorandum Circular shall take effect
director or trustee in the same Articles of Incorporation, unless when the immediately upon its publication in a newspaper of general circulation.
111 | TKP 2025

Nautica Canny Corp. v. Yumul, 473 SCRA 415 (2005) corporation is non-existent as far as the corporation is concerned. As
Facts: between the corporation on one hand, and its shareholders and third
Yumul was appointed Chief Operating Officer/General Manager of persons on the other, the corporation looks only to its books for the
purpose of determining who its shareholders are. It is only when the
Nautica. First Dominion Prime Holdings, Inc., Nautica’s parent company,
transfer has been recorded in the stock and transfer book that a
through its Chairman Alvin Y. Dee, granted Yumul an Option to Purchase
corporation may rightfully regard the transferee as one of its stockholders.
up to 15% of the total stocks it subscribed from Nautica. A Deed of Trust
From this time, the consequent obligation on the part of the corporation to
and Assignment was executed between First Dominion Prime Holdings,
recognize such rights as it is mandated by law to recognize arises.
Inc. and Yumul whereby the former assigned 14,999 of its subscribed
shares in Nautica to the latter. After Yumul’s resignation from Nautica, he
In the case at bar, the SEC and the Court of Appeals correctly found
wrote a letter to Dee requesting the latter to formalize his offer to buy
Yumul’s 15% share in Nautica and demanding the issuance of the Yumul to be a stockholder of Nautica, of one share of stock recorded in
corresponding certificate of shares in his name should Dee refuse to buy Yumul's name, although allegedly held in trust for Dee. Nautica's Articles
of Incorporation and By-laws, as well as the General Information Sheet
the same. Dee denied the request claiming that Yumul was not a
filed with the SEC indicated that Yumul was an incorporator and subscriber
stockholder of Nautica. Yumul requested that the Deed of Trust and
of one share. 16 Even granting that there was an agreement between
Assignment be recorded in the Stock and Transfer Book of Nautica, and
Yumul and Dee whereby the former is holding the share in trust for Dee,
that he, as a stockholder, be allowed to inspect its books and records.
the same is binding only as between them. From the corporation's vantage
Yumul’s requests were denied. Yumul filed a petition for mandamus
point, Yumul is its stockholder with one share, considering that there is no
praying that the Deed of Trust and Assignment be recorded in the Stock
showing that Yumul transferred his subscription to Dee, the alleged real
and Transfer Book of Nautica and that the certificate of stocks
corresponding thereto be issued in his name. owner of the share, after Nautica's incorporation.
ISSUE: WON Yumul is a stockholder.
HELD: YES Indeed, it is possible for a business to be wholly owned by

one individual. The validity of its incorporation is not affected when such
individual gives nominal ownership of only one share of stock to each of
the other four incorporators. This is not necessarily illegal. But, this is valid
only between or among the incorporators privy to the agreement. It does
bind the corporation which, at the time the agreement is made, was
non-existent. Thus, incorporators continue to be stockholders of a
corporation unless, subsequent to the incorporation, they have validly
transferred their subscriptions to the real parties in interest. A transfer of
shares of stock not recorded in the stock and transfer book of the
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SEC Memorandum Circular No. 13-2019 (Amended Guidelines and ● The policy behind Sec. 18 which expressly prohibits the use of a
Procedures on the Use of Corporate and Partnership Names) 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
LINK: contrary to existing laws,” is to avoid fraud upon the public that will
https://www.sec.gov.ph/mc-2019/mc-no-13-s-2019-amended-guideline occasion to deal with the entity concerned, the evasion of legal
s-and-procedures-on-the-use-of-corporate-and-partnership-names/#g obligations and duties, and the reduction of difficulties of
sc.tab=0 administration and supervision over corporations. Industrial
Refractories Corp. v. Court of Appeals, 390 SCRA 252 (2002).
● Enforcement of protection accorded by Sec. 18 to corporate
CLV Outline:
names is lodged exclusively in the SEC which has absolute
(1) Guidelines on the Use of Corporate Names (SEC Memo jurisdiction, supervision and control over all corporations. It is the
Circular No. 13-2019) SEC’s duty to prevent confusion in the use of corporate names not
● Similarity in corporate names between two corporations would only for the protection of the corporations involved, but more so for
cause confusion to the public especially when the purposes stated the protection of the public. It has authority to de-register at all
in their charter are also the same type of business. Universal Mills times, and under all circumstances corporate names which in its
Corp. v. Universal Textile Mills Inc., 78 SCRA 62 (1977). estimation are likely to generate confusion.” GSIS Family Bank v.
● To fall within the prohibition of the law Revised Guidelines in the BPI Family Bank, 771 SCRA 284 (2015).
Approval of Corporate and Partnership Names, two requisites
must be proven, to wit: (a) That the complainant corporation
(2) No Corporate Name Shall Be Allowed If: SEC Memo Circular
acquired a prior right over the use of such corporate name; and (b)
No. 13-2019
the proposed name is either: (i) identical, or (ii) deceptively or
confusingly similar to that of any existing corporation or to any ● “Not Distinguishable from that Already Reserved or Registered”
other name already protected by law; or (iii) patently deceptive, ● “Name Already Protected by Law”
confusing or contrary to existing laws. Philips Export B.V. v. Court ● “When Use of Name is Contrary to Law”
of Appeals, 206 SCRA 457 (1992).
● Incorporators must choose a name at their peril; and the use of a
name similar to the one adopted by another corporation, whether
a business or a nonprofit organization, if misleading or likely to
injure the exercise of its corporate functions, regardless of intent,
may be prevented by the corporation having a prior right. Ang Mga
Kaanib sa Iglesia ng Dios Kay Kristo Hesus v. Iglesia ng Dios Kay
Kristo Jesus, 372 SCRA 171 (2001).
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SEC Memorandum Circular No. 22-2020 (Guidelines on SEC Memorandum Circular No. 23-2019 (Guidelines on the
Corporate Term) Revival of Expired Corporations)
Link:https://www.sec.gov.ph/wp-content/uploads/2020/08/202
0MCNo22_.pdf
CLV Syllabus:
e. Corporate Term (Sec. 11; SEC Memo Circular No.
22-2020):
(1) Default Rule: Perpetual Term
(2) Retention/Choosing of Definite Corporate Term
(3) Extension of Definite Corporate Term: No term extension
can be pursued once dissolution s has been reached, as it
constitutes new business. Alhambra Cigar v. SEC, 24 SCRA
269 (1968).
Article 605 of Civil Code “clearly limits any usufruct constituted in
favor of a corporation or association to 50 years. A usufruct is
meant only as a lifetime grant. Unlike a natural person, a
corporation’s lifetime may be extended indefinitely. The
usufruct would then be perpetual. This is especially insidious
in cases where the usufruct given to a corporation covers
public land.” National Housing Authority v. Court of Appeals,
456 SCRA 17 (2005).
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Part 6 - BY-LAWS Other respondents denied the allegations of petitioner and the power of
Nature and Function and Contents of Bylaws the corporation to amend its bylaws is broad, subject only to the condition
that the bylaws adopted should not be inconsistent with any existing laws.
Gokongwei, Jr. v. SEC, 89 SCRA 337 (1979)
Moreover, the corporation should not be precluded from adopting
Facts: Gokongwei is one of the stockholders of SMC and he filed a protective measures to minimize or eliminate situations where its directors
petition for the declaration of nullity of amended by laws, cancellation of might be tempted to put their personal interests over that of the
certificate of filing of amended by laws, injunction and damages with corporation. And that the questioned amended by laws is a matter of
prayer for a preliminary injunction against the Board of SMC and against internal policy and the judgment of the board should not be interfered with
SMC, with the SEC. Petitioner alleged that prior to the amendment of the and that the by laws are valid and binding and are intended to prevent the
bylaws, he had all the qualifications to be a director of SMC since he is a possibility of violation of criminal and civil laws prohibiting combinations in
substantial stockholder. And being a stockholder he claimed that he has restraint of trade. The respondents also prayed that the petition be
the right to vote and be voted upon the election of directors. By amending dismissed as well.
the bylaws, the respondents purposely provided for petitioner’s
disqualification and deprived him of his vested rights.
Respondents Soriano also contended that Universal Robina Corporation,
a corporation that is competitive to that of SMC, began to acquire shares
Petitioner alleged that the corporation has no inherent power to disqualify as well as Consolidated Foods Corporation. And the petitioner, who is the
a stockholder from being elected as a director and the act is ultra vires and present and controlling shareholder of both corporations, also purchased
void. Petitioners also included respondents Soriano, alleging that the latter stocks of SMC in order to secure himself and in representation of Robina
are already representing other corporations but the same still entered into and CFC interests, a seat in the Board of SMC. However, petitioner was
management contracts with SMC, which was avowed because the rejected by the stockholders in his bid to secure a seat because the
questioned amendment gave the board the prerogative of determining petitioner was engaged in a competitive business and by securing a seat
whether the people are engaged in competitive or antagonistic business. in the Board of SMC would have subjected the SMC to grave
Petitioner also added that the amended bylaw also included a portion disadvantages.
which states that in determining whether or not a person is engaged in
competitive business, the Board may consider such factors as business
and family relationship, is considered unreasonable and oppressive and Issue: Whether or not the amended bylaws of SMC disqualifying a
the same has to be void. He also pointed out that the portion which competitor from nomination or election to the Board of Directors of SMC
requires all the nominations for election of directors shall be submitted in are valid and reasonable? YES.
writing to the BOD at least 5 days before the annual meeting is also Ruling:
unreasonable and oppressive. Finally, petitioner prayed that the amended
by laws be declared null and void and that the certificate of filing be Every corporation has the inherent power to adopt its by laws for
canceled. the internal government, and to regulate the conduct and prescribe the
115 | TKP 2025

rights and duties of its members towards itself and among themselves in protection. And as part of the member of the Board of SMC, one will have
reference to the management of its affairs. Section 21 of the Corporation access to sensitive and highly confidential information. If a competitor gets
Code provides that a corporation may prescribe its bylaws the access to these confidential information regarding marketing strategies
qualifications, duties and compensation of directors, officers and and pricing policies of SMC, it would put the latter in a competitive
employees, which refers to those qualification in addition to those specified disadvantage and unjustly enrich the competitor.
under section 30 of the same law (that every director must own at least 1
The court also noted that another consideration would be the
share of the capital stock of the corporation of which he is a director).
constitution and law which prohibit combinations in restraint of trade or
There is neither a vested right of stockholder to be elected as the unfair competition because it aims to preserve free and unfettered
director. Any person who buys the corporation’s stock has the knowledge competition as the rule of trade. The court is neither persuaded by
that its affairs are dominated by a majority of the stockholders and that the petitioner’s claim that the by laws was intended to prevent the candidacy
person impliedly contracts that the will of the majority shall govern in all of petitioner for election to the board because it applies to all stockholders
matters within the limits of the act of incorporation and lawfully enacted and not to just one stockholder. And before petitioner can be declared as
bylaws and provided that the same is not forbidden by the law. Therefore, ineligible to run for director, there must be hearing and also evidence to be
the stockholder may be considered as one who has parted with his submitted to bring the case within the ambit of disqualification. Sound
personal right or privilege to regulate the disposition of his property which principles of public policy and management support the view that a by law
he has invested in the capital stock of the corporation and surrendered it to which disqualifies a competition from election to the Board of another
the will of the majority. corporation is considered as valid and reasonable.
The character of the directors of a corporation is that of a fiduciary
insofar as the corporation and the stockholders as a body are concerned.
CLV Syllabus: The power to adopt bylaws is an inherent power on the
An amendment which renders ineligible, or if elected, subjects to removal,
part of those forming a corporation or any other form of association.
a director if he be also a director in a corporation whose business is in
competition with oe is antagonistic to the other corporation is valid
because of the principle that where the director is so employed in the
service of a rival company, he cannot serve both, but must betray one or
the other. Therefore, the amendment advances the benefit of the
corporation and is considered good. And this is why the corporation code
expressly provides that the corporation may make bylaws for the
qualifications of directors.
The doctrine of “corporate opportunity” is precisely a recognition
by the courts that the fiduciary standards could not be upheld where the
fiduciary was acting for two entities with competing interests as it would be
unfair for an officer or director to take advantage of this opportunity for his
own personal profit when the interest of the corporation justly calls for
116 | TKP 2025

Loyola Grand Villas Homeowners South Association v. CA, 276 SCRA ISSUE: Does the failure of LGVHAI to file its by-laws within the prescribed
681 (1997) period have the effect of automatically dissolving the said corporation? NO
FACTS: Loyola Grand Villas Homeowners Association Inc or LGVHAI RULING: In line with the CA’s decision, the Court also agreed that the
organized and had itself registered as the sole homeowner’s association word MUST cannot be construed to mean that failure to file by-laws results
for Loyola Grand Villas with the Home Financing Corporation (which later in the automatic dissolution of a corporation. While the word “must”
on became Home Insurance Guarantee Corporation). Unfortunately connotes a duty to be enforced, it cannot always be construed as
however, LVGHAI failed to file its by-laws on the prescribed date in line imperative. By laws are indispensable to corporations but the failure to file
with the provisions of the Corporation Code them cannot be understood as to result in their automatic dissolution. They
are, according to the decision, subordinate to the articles of incorporation,
the Corporation Code, and other statutes.
Sec. 46: “Every corporation formed under this code MUST within 1 month
after receipt of official notice of the issuance of its certificate of
incorporation by SEC, adopt a code of by-laws for its government, not Failure to file the by-laws simply creates a ground upon which the
inconsistent with this Code.” corporation may be dissolved, but even then this can only be done after a
proper hearing has been held where the incorporators can explain why the
have filed to file their by-laws.
Later on LVGHAI found out that there were other homeowners’
associations organized within the subdivision (The North and South
Association respectively), and upon further inquiry with the HIGC, it was CLV SYLLABUS: As the “rules and regulations or private laws enacted by
discovered that the LGVHAI was dissolved for its failure to submit the said the corporation to regulate, govern and control its own actions, affairs and
by-laws. Aggrieved, LGVHAI lodged a complaint and questioned the concerns and its stockholders/members and directors and officers with
dissolution of their corporation. The hearing officer of HIGC ruled in their relation thereto and among themselves in their relation to it,” bylaws are
favor and revoked the registration of the other two associations. indispensable to corporations. These may not be essential to corporate
birth but certainly these are required for an orderly governance and
management of corporations.
The South Association (herein petitioners) argued that the failure to submit
the by-laws resulted in the dissolution of the corporation as the
Corporation Code provides that every corporation MUST adopt a code of NOTES: The CLV syllabus diverges from the actual ruling in the case lol
by-laws within 1 month of incorporation. Further, they argued that since the but the idea is the same: by-laws are important to corporations because
subdivision is “sprawling” there could be more than one association. they govern the corporation. HOWEVER, non-filing does not result in the
dissolution of the corporation.
117 | TKP 2025

San Miguel Corp. v. Mandaue Packing Products Plants Union-FFW, compliance with all the documentary requirements, the Regional Office or Bureau
467 SCRA 107 (2005) shall issue in favor of the local/chapter a certificate indicating that it is included in
the roster of legitimate labor organizations.
FACTS: Mandaue Packing, identifying itself as an affiliate of Federation of IMPT: Sec. 1 also provides that both the entity’s constitution and bylaws
Free Workers (FFW), filed a petition for certification election with the must be submitted by the national union.
DOLE. Mandaue wanted to be certified and to represent the permanent The issuance of the certificate of registration by the Bureau or Regional Office is
rank-and-file employees of FFW. The following documents were attached not the operative act that vests legal personality upon a local/chapter under
(take note): a Charter Certificate issued by FFW certifying that Department Order No. 9. Such legal personality is acquired from the filing of the
Mandaue is a local chapter of the former, 2) a copy of Mandaue’s complete documentary requirements enumerated in Section 1, Rule VI. Admittedly,
constitution, 3) a list of FFW’s officers and their respective addresses, 4) the manner by which respondent was deemed to have acquired legal personality
a certification that FFW was just organized and that no fees have been by the DOLE and the Court of Appeals was not in strict conformity with the
collected from members, and 5) a list of all the rank-and-file monthly paid provisions of Department Order No. 9.
employees of the Mandaue Packaging Products Plants and Mandaue Mandaue never submitted a separate by-laws, nor does it appear that respondent
Glass Plant. ever intended to prepare a set thereof. Department Order No. 9 provides that the
San Miguel Corporation (SMC) filed a motion to dismiss the petition submission of both a constitution and a set of by-laws is required, or at least an
indication that the local/chapter is adopting the constitution and by-laws of the
arguing that Mandaue Packing is not included in the list of legitimate labor
federation or national union. A literal reading of the provision might indicate
organizations as certified by the DOLE Regional Office.
that the failure to submit a specific set of by-laws is fatal to the recognition
In the lower courts, Mandaue’s petition for certification election was initially of the local/chapter. A more critical analysis of this requirement though is in
dismissed on the ground that as of the date of filing the petition, Mandaue order, especially as it should apply to this petition.
has not acquired legal personality. This dismissal was later reversed on
(SEE CLV OUTLINE PORTION; define bylaws)
the ground that Mandaue acquired legal personality when they submitted
the required documents, citing the Labor Code provision where a local An examination of Mandaue’s constitution reveals it is sufficiently
chapter is given legal personality from the date of the complete comprehensive in establishing the necessary rules for its operation. Article IV
documentary requirements. establishes the requisites for membership in the local/chapter. Articles V and VI
name the various officers and what their respective functions are. The procedure
ISSUE: Did Mandaue Packing acquire legal personality? YES for election of these officers, including the necessary vote requirements, is
RULING: provided for in Article IX, while Article XV delineates the procedure for the
impeachment of these officers. Article VII establishes the standing committees of
Section 3, Rule VI of Department Order No. 9 provides when the local/chapter the local/chapter and how their members are appointed. Article VIII lays down the
acquires legal personality: rules for meetings of the union, including the notice and quorum requirements
thereof. Article X enumerates with particularity the rules for union dues, special
Section 3. Acquisition of legal personality by local chapter. 'A local/chapter assessments, fines, and other payments. Article XII provides the general rule for
constituted in accordance with Section 1 of this Rule shall acquire legal personality quorum in meetings of the Board of Directors and of the members of the
from the date of filing of the complete documents enumerated therein. Upon local/chapter, and cites the applicability of the Robert's Rules of Order in its
118 | TKP 2025

meetings. And finally, Article XVI governs and institutes the requisites for the
amendment of the constitution. (no need to memorize provisions, just say that
the constitution is sufficient in establishing internal governance)
In the ordinary course, it should have been FFW, and not respondent, which
should have submitted the subject documents to the Regional Office. Nonetheless,
there is no good reason to deny legal personality or defer its conferral to the
local/chapter if it is evident at the onset that the federation or national union
itself has already through its own means established the local/chapter. In this
case, such is evidenced by the Charter Certificate dated 9 June 1998, issued by
FFW, and attached to the petition for certification election. The Charter Certificate
expressly states that respondent has been issued the said certificate "to
operate as a local or chapter of the [FFW]". The Charter Certificate expressly
acknowledges FFW's intent to establish respondent as of 9 June 1998. This being
the case, we consider it permissible for respondent to have submitted the
required documents itself to the Regional Office, and proper that
respondent's legal personality be deemed existent as of 15 June 1998, the
date the complete documents were submitted.
CLV OUTLINE: Bylaws are traditionally defined as regulations,

ordinances, rules or laws adopted for a corporation’s internal governance,
including rules for routine matters such as calling meetings and the like. If
those key bylaw provisions on matters such as quorum, meetings, or on
the internal governance of the local/chapter are themselves already
provided for in the constitution, then it would be feasible to overlook the
requirements for bylaws. In such an event, to insist on the submission of a
separate “Bylaws” would be an undue technicality, as well as a
redundancy.
NOTES:
Long labor case, just focus on discussions on by-laws and how they relate
to the requirements submitted by Mandaue to acquire legal personality.
119 | TKP 2025

BYLAWS: Nature and Function and Contents of Bylaws Board, to which Section 35(a) of the By-Laws of respondent Club -
Ching v. Quezon City Sports Club, Inc., 807 SCRA 46 (2016) requiring notice and hearing prior to the member's suspension - should
have applied:
FACTS:
Because respondent Club was not in a financial position to pay the SUSPENSION AND EXPULSION
monetary awards for the illegal dismissal case of its employees, Sec. 35. (a) For violating these By-Laws or rules and regulations of
respondent BOD approved Board Resolution No. 7- 2001, resolving to the Club, or resolution and orders duly promulgated at Board or
"seek the assistance of its members by assessing each member the stockholders' meeting, or for any other causes and acts of a member
amount of TWO THOUSAND FIVE HUNDRED PESOS (P2,500.00) which in the opinion of the Board are serious or prejudicial to the Club
payable in five (5) equal monthly payments starting the month of such as acts or conduct of a member or the immediate members of his
September 2001." family, his guest or visitors, which the Board may deem disorderly or
injurious to the interest or hostile to the objects of the Club, the offending
Petitioner Catherine was duly notified of the implementation of the
member may be suspended, or expelled by a two-thirds (2/33) vote of
special assessment through a Letter dated September 25, 2001 from the
the Board of Directors upon proper notice and hearing.
Treasurer of respondent Club. The amount of P500.00 was debited and/or
charged to Catherine's account each month from September 2001 to
Respondents, on the other hand, invoke Section 33(a) of the
January 2002. Petitioner Catherine believed that the imposition of the
By-Laws of respondent Club, which allows the suspension of a member
special assessment in Board Resolution No. 7-2001 was unjust and/or
with unpaid bills after notice:
illegal, however, she took no action against the same.
Sec. 33. (a) Billing of Members, Posting of Suspended Accounts As soon
as possible after the end of every month, a statement showing the account
Petitioner simply avoided paying the special assessment by
or bill of a member for said month will be prepared and sent to them. If the
settling the amounts due in her Statements of Account from September
bill of any regular member remains unpaid by the 20th of the month
2001 to January 2002 short of P500.00. Respondent BOD then passed
following that in which the bill was incurred, the Treasurer shall
Board Resolution No. 3-2002 on April 18, 2002 which suspended the
notify him that if his bill is not paid in full by the end of the same
privileges of the members of respondent Club who had not yet paid the
month, his name will be posted as suspended the following day at the
special assessment.
Clubhouse Bulletin Board. While posted, a regular member together
with the immediate members of his family may not use the facilities
Petitioners instituted before the RTC a Complaint for damages
or avail of the privileges of the Club.
against respondents, based on Articles 19, 20, and 21 of the Civil Code.
The RTC found no evidence of bad faith on the part of the respondents in
ISSUE:
adopting the Board Resolution. CA ruled in favor of respondent.
Whether or not there was a violation of petitioner’s right to due
Petitioners now argue that Catherine's nonpayment of the special process? – YES.
assessment of P2,500.00 was a violation of a resolution of the respondent
120 | TKP 2025

RATIO: Section 35(a) of the By-Laws requires notice and hearing

Petitioner Catherine's right to due process was clearly violated. prior to a member's suspension. Definitely, in this case, petitioner
Catherine did not receive notice specifically advising her that she
The P2,500.00 special assessment that petitioner Catherine could be suspended for nonpayment of the special assessment
did not pay was not an ordinary account or bill incurred by imposed by Board Resolution No. 7-2001 and affording her a hearing
petitioners in respondent Club, as contemplated in Section 33(a) of prior to her suspension through Board Resolution No. 3-2002.
the By-Laws. Respondents merely relied on the general notice printed in petitioner
Catherine's Statements of Account from September 2001 to April 2002
Section 33(a) of the By-Laws refers to the regular dues and warning of automatic suspension for accounts of over P20,000.00 which
ordinary accounts or bills incurred by members as they avail of the are past due for 60 days, and accounts regardless of amount which are 75
services at respondent Club, and for which the members are charged in days in arrears. While said general notice in the Statements of
their monthly Statement of Account. The immediate payment or collection Account might have been sufficient for purposes of Section 33(a) of
of the amount charged in the member's monthly Statement of Account is the By-Laws, it fell short of the stricter requirement under Section
essential so respondent Club can carry-on its day-today operations, which 35(a) of the same By-Laws.
is why Section 33(a) allows for the automatic suspension of a nonpaying
member after a specified period and notification. NOTES: Despite the violation of petitioner’s right to due process, the Court
finds no evidence of bad faith on the part of Respondent Club in
The special assessment in the instant case arose from an implementing petitioner’s suspension of privileges in the club thus,
extraordinary circumstance, i.e., the necessity of raising payment for petitioners are NOT ENTITLED TO MORAL DAMAGES (due to lack of
the monetary judgment against respondent Club in an illegal sufficient basis). However, petitioner is ENTITLED TO NOMINAL
dismissal case. The special assessment of P2,500.00 was imposed upon DAMAGES due to respondent Club’s violation of her right to due process.
the members by respondent BOD through Board Resolution No. 7-2001
dated September 20, 2001; it only so happened that said Board
Resolution was implemented by directly charging the special CLV OUTLINE: Bylaws are self-imposed rules resulting from the
agreement between the country club and its members to conduct the
assessment, in P500.00 installments, in the members' Statements of
corporate business in a particular way. In that sense, the bylaws are the
Account for five months.
private “statutes” by which the country club is regulated. Bylaws constitute
a binding contract as between the country club and its members, and as
Thus, petitioner Catherine's nonpayment of the special
among the members themselves. The prevailing rule is that the provisions
assessment was, ultimately, a violation of Board Resolution No.
of the articles of incorporation and the bylaws must be strictly complied
7-2001, covered by Section 35(a) of the By-Laws. This much was
with and applied to the letter.
acknowledged by respondent BOD itself when it mentioned in Board
Resolution No. 3-2002 that "to enforce Board Resolution No. 7-2001," it
was suspending the members who did not pay the special assessment.
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Common Law Intramural Limitations on Bylaws: Bylaws Cannot Be The SICD held the meeting invalid and nullified Bernas’ expulsion
Contrary to Law, Public Policy or the Charter and his sale of shares. SEC En Banc validated the meetings while the CA
5. Bernas v. Cinco, 761 SCRA 104 (2015) declared the special stockholders’ meeting as invalid for being improperly
called out.
FACTS:
Makati Sports Club (MSC) is a domestic corporation duly [Aggrieved by the disquisition of the Court of Appeals, both parties
organized for recreational activities. Jose A. Bernas and others are the elevated the case before this Court by filing their respective Petitions for
incumbent members of the board of directors whose terms will expire Review on Certiorari. While the Bernas Group agrees with the disquisition
either in 1998 or in 1999. Due to rumored anomalies in handling corporate of the appellate court that the Special Stockholders' Meeting is invalid for
funds, MSC Oversight Committee (MSCOC) demanded for the resignation being called by the persons not authorized to do so, they urge the Court to
of the Bernas group to make way for the election of new officers. likewise invalidate the holding of the subsequent Annual Stockholders'
Meetings invoking the application of the holdover principle. The Cinco
Pursuant to this, MSCOC called for a Special Stockholders’ Group, for its part, insists that the holding of the Special Stockholders'
Meeting which eventually proceeded after the Bernas group’s failure to Meeting is valid and binding, underscoring the overwhelming ratification
secure an injunction with the SEC. Cinco, along with many others, were made by the stockholders during the subsequent annual stockholders'
then elected. Aggrieved by this, the Bernas group initiated an action with meetings and the previous refusal of the Corporate Secretary to call a
the Securities Investigation and Clearing Dept (SICD) seeking the special stockholders' meeting despite demand.]
nullification of the 1997 Special Stockholders Meeting. The group argued
that the authority to call a meeting lies with the Corporate Secretary, not ISSUES:
the MSCOC which functions merely as an oversight body and is not 1. Whether or not the Special Stockholders’ Meeting was invalid? —
vested with the power to call corporate meetings. YES.
2. Whether or not the CA erred in failing to nullify the holding of the
The Cinco Group, on the other hand, insisted that the meeting was annual stockholders’ meeting on April 20, 1998, April 19, 1999 and
sanctioned by the Corp Code and MSC by-laws. In justifying the call April 17, 2000? – NO.
effected by the MSCOC, they invoked Sec. 25 of the MSC by-laws which
RULING:
merely authorized the Corporate secretary to issue notices of meeting;
there is no mention that the authority for calling a meeting belonged solely 1. The meeting is null and void and thus, produces no effect. The
to him. removal of the Bernas group and the subsequent auction of the said
group’s shares are also void from the beginning and thus, cannot be
Upon Cinco group’s investigation, they found Bernas guilty of ratified.
irregularities, resulting in his expulsion and the sale of his shares at a
The MSC by-laws provide that “Special meetings of
public auction. Prior to the resolution of the case filed by the Bernas group,
stockholders shall be held at the Clubhouse when called by the
3 annual stockholders’ meetings were already held, resolved to ratify the
calling of the Special Stockholders’ Meeting.
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President or by the Board of Directors or upon written request of the Sec. 8. Annual Meetings. The annual meeting of stockholders
stockholders representing not less than one hundred (100) shares.” shall be held at the Clubhouse on the third Monday of April of every
year unless such day be a holiday in which case the annual meeting
Textually, only the President and the Board of Directors are shall be held on the next succeeding business day. At such meeting,
authorized by the by-laws to call a special meeting. In cases where the
the President shall render a report to the stockholders of the clubs.
person authorized to call a meeting refuses, fails or neglects to call a
meeting, then the stockholders representing at least 100 shares, upon Second, the 19 April 1999 Annual Stockholders Meeting is
written request, may file a petition to call a special stockholder's meeting. likewise valid because in addition to the fact that it was conducted in
accordance to Section 8 of the MSC bylaws, such meeting was supervised
In the instant case, there is no dispute that the 17 December 1997
by the SEC in the exercise of its regulatory and administrative powers to
Special Stockholders' Meeting was called neither by the President nor by
implement the Corporation Code.
the Board of Directors but by the MSCOC. While the MSCOC, as its name
suggests, is created for the purpose of overseeing the affairs of the Needless to say, the conduct of SEC supervised Annual
corporation, nowhere in the by-laws does it state that it is authorized to Stockholders Meeting gave rise to the presumption that the corporate
exercise corporate powers, such as the power to call a special meeting, officers who won the election were duly elected to their positions and
solely vested by law and the MSC by-laws on the President or the Board therefore can be rightfully considered as de jure officers. As de jure
of Directors. officials, they can lawfully exercise functions and legally perform such acts
that are within the scope of the business of the corporation except
The Corporation Code also provides that “A special meeting of the
ratification of actions that are deemed void from the beginning.
stockholders or members of a corporation for the purpose of removal of
directors or trustees, or any of them, must be called by the secretary on Considering that a new set of officers were already duly elected in
order of the president or on the written demand of the stockholders 1998 and 1999 Annual Stockholders Meetings, the Bernas Group cannot
representing or holding at least a majority of the outstanding capital stock”. be permitted to use the holdover principle as a shield to perpetuate in
Given that the MSC oversight committee’s act is clearly not in office. Members of the group had no right to continue as directors of the
accordance with either of the provisions stated above, such is ultra vires corporation unless reelected by the stockholders in a meeting called for
and thus, cannot be ratified. that purpose every year. They had no right to hold-over brought about by
the failure to perform the duty incumbent upon them.
2. First, the 20 April 1998 Annual Stockholders Meeting was valid SUMMARILY, the subsequent Annual Stockholders' Meeting held
because it was sanctioned by Section 8 of the MSC bylaws. Unlike in on 20 April 1998, 19 April 1999 and 17 April 2000 are valid and binding
Special Stockholders Meeting wherein the bylaws mandated that such except the ratification of the removal of the Bernas Group and the sale of
meeting shall be called by specific persons only, no such specific Bernas' shares at the public auction effected by the body during the said
requirement can be obtained under Section 8. meetings.
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NOTES: Relative to the powers of the Board of Directors, nowhere in the to the stockholders or members by any stockholder or
Corporation Code or in the MSC by-laws can it be gathered that the member of the corporation signing the demand.
Oversight Committee is authorized to step in wherever there is breach of - Sec. 50. Regular and special meetings of stockholders or
fiduciary duty and call a special meeting for the purpose of removing the members – Whenever, for any cause, there is no person
existing officers and electing their replacements even if such call was authorized to call a meeting, the Securities and Exchange
made upon the request of shareholders. Needless to say, the MSCOC is Commission, upon petition of a stockholder or member on a
neither empowered by law nor the MSC by-laws to call a meeting and showing of good cause therefor, may issue an order to the
the subsequent ratification made by the stockholders did not cure petitioning stockholder or member directing him to call a
the substantive infirmity, the defect having set in at the time the void meeting of the corporation by giving proper notice required by this
act was done. The defect goes into the very authority of the persons who Code or by the by-laws.
made the call for the meeting. It is apt to recall that illegal acts of a
corporation which contemplate the doing of an act which is contrary to law,
CLV OUTLINE: Board of Directors should act in the manner and within the
morals or public order, or contravenes some rules of public policy or public
formalities, if any, prescribed in its charter or bylaws. Thus, Board must act
duty, are, like similar transactions between individuals, void. They cannot
as a body in a meeting called pursuant to the law or the corporation’s
serve as basis for a court action, nor acquire validity by performance,
bylaws; otherwise, any action taken therein may be questioned by the
ratification or estoppel.The same principle can apply in the present case.
objecting director or shareholder. Certainly, the rules set in the bylaws are
The void election of 17 December 1997 cannot be ratified by the
mandatory for every member to respect; they are the fundamental law with
subsequent Annual Stockholders' Meeting.
which the corporation and its officers and members must comply. It is on
Separate Opinion of Justice Bernabe: this score that we cannot sustain the Bernas Group’s stance that the
subsequent annual shareholders’ meetings were valid.
- Agrees that the 1997 Special Stockholders’ Meeting was invalid
- BUT Section 28 should have applied, NOT Section 50 of the Corp.
Code
- Sec. 28. Removal of directors or trustees – A special meeting
of the stockholders or members of a corporation for the purpose
of removal of directors or trustees, or any of them, must be
called by the secretary on order of the president or on the
written demand of the stockholders representing or holding
at least a majority of the outstanding capital stock…. Should
the secretary fail or refuse to call the special meeting upon such
demand or fail or refuse to give the notice, or if there is no
secretary, the call for the meeting may be addressed directly
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Generally, Bylaws Are Not Binding on the Dealing Public Issue: Is the resolution authorizing the deed of assignment valid even
though it was only attended by only 3 of the 5 members of the Board of
6. Peña v. Court of Appeals, 193 SCRA 717 (1991)
Directors of PAMBUSCO? NO, RESOLUTION IS INVALID.
Ruling:
Facts:
The by-laws of a corporation are its own private laws which
PAMBUSCO (Pampanga Bus Company) mortgaged parcels of substantially have the same effect as the laws of the corporation.
land to Development Bank of the Philippines (DBP). The petitioner in this They are in effect, written into the charter. In this sense they become
case, Rosita Peña was the highest bidder in the foreclosure sale and so all part of the fundamental law of the corporation with which the
the properties were awarded to her. corporation and its directors and officers must comply.
Subsequently, the board of directors of PAMBUSCO resolved to Only 3 out of the five members of the board of directors of
assign its right of redemption over the lots and authorized one of its respondent PAMBUSCO conveyed by virtue of a prior notice of a special
members to execute and sign a deed of assignment for and on behalf of meeting. Thus, there was no quorum to validly transact business since,
PAMBUSCO in favor of any interested party. Pursuant to this, a Deed of under the amended by-laws, at least 4 members must be present to
Assignment of PAMBUSCO’s redemption right was executed and signed constitute a quorum in a special meeting of the board of directors of
in favor of Marcelino Enriquez and he later redeemed the properties. respondent PAMBUSCO. Section 25 of the then Corporation Code
Eventually, Enriquez sold the subject properties in favor of the Spouses provided that any number less than the number provided in the AOI or
Yap. by-laws cannot constitute a quorum and any act therein would not bind the
Peña wrote the Sheriff notifying him that the redemption was not corporation.
valid as it was made under a void deed of assignment and that the one The Court also found that the corporation ceased to operate in
year period of redemption has elapsed without a VALID redemption having 1949 (the foreclosure sale happened in 1974). Being a dormant
been exercised. The Spouses Yap sent a letter to Peña, asking her to pay corporation for several years, it was highly irregular, if not anomalous, for a
rentals on the land or to vacate the premises. Peña remained in the group of three (3) individuals representing themselves to be the directors
possession of the lots so the Spouses Yap filed this case. of respondent PAMBUSCO to pass a resolution disposing of the only
Peña is contending that the deed of assignment executed by remaining asset of the corporation in favor of a former corporate officer.
PAMBUSCO in favor or Eriquez was void ab initio for being an ultra vires As a matter of fact, the three alleged directors who attended the
act so it could not have had any legal effect. The by-laws of PAMBUSCO special meeting were not listed as directors of PAMBUSCO in the latest
provides that “No failure or irregularity of notice of meeting shall invalidate general information sheet. Thus, the deed of assignment to Enriquez
any regular meeting or proceeding provided a quorum of the Board is should be struck down as null and void.
present, nor of any special meeting; provided at least four Directors are
CLV Syllabus: Bylaw provisions on the required quorum for special
present.”
meetings of the Board have the force of law and are binding even on third
126 | TKP 2025

parties who deal with the properties of the corporation. ✔Peña v. Court of
Appeals, 193 SCRA 717 (1991).
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7. China Banking Corp. v. Court of Appeals, 270 SCRA 503 Calapatia’s stock by VGCCI. The SEC Hearing Officer ruled in favor of
(1997) VGCCI, stating that “considering that the said share is delinquent, VGCCI
had valid reason not to transfer the share in the name of CBC in its books
until liquidation of delinquency.” The SEC en banc ruled that CBC has a
FACTS:
prior right over the pledged share.
Galicano Calapatia is a stockholder of Valley Golf & Country Club,
Inc., (VGCCI). He pledged his stock certificate to China Banking
ISSUE: Whether or not CBC is the valid transferee of Calapatia’s share of
Corporation (CBC). Calapatia requested that VGCCI record the pledge
stock? - YES
agreement in its books. As a response, VGCCI replied that the deed of
pledge executed by Calapatia was duly noted.
HELD:
Calapatia obtained a loan of P20,000 from CBC, the payment of There is no question that the purchase of the subject share at
which was secured by the pledge agreement. Due to his failure to pay his public auction by CBC transferred ownership of the same to CBC. Thus,
CBC is entitled to have the share registered in its name as a member of
obligation, CBC filed a petition for extrajudicial foreclosure, requesting the
VGCCI. VGCCI did not assail the transfer directly and has expressly
Notary Public to conduct a public auction sale of the pledged stock. CBC
recognized the pledge agreement executed by Calapatia in favor of CBC,
notified VGCCI of the foreclosure and requested that VGCCI transfer the
it has even noted the agreement in its corporate books. Calapatia, as the
pledged stock to CBC’s name and that the transfer be recorded in the
original owner, has also not contested the transfer.
corporate books. However, VGCCI wrote back and stated that it could not
comply since Calapatia still had unsettled accounts with the club.
By virtue of the auction sale, CBC became a bona fide stockholder
A public auction was held and CBC was the highest bidder for the of VGCCI, and the conflict that arose between CBC and VGCCI
pledged stock. CBC was issued a certificate of sale. VGCCI sent Calapatia exemplifies an intra-corporate controversy between a corporation and its
stockholder.
a notice demanding full payment of his overdue account in the amount of
P18,783.24. It also published in a newspaper a notice of auction sale of its
VGCCI claims a prior right over the subject share based on its
stock certificates, including Calapatia’s share of stock. CBC informed
by-laws that, “after a member shall be posted as delinquent, the Board
VGCCI that it is already the new owner of Calapatia’s stock certificate by
may order his/her/its share sold to satisfy the claims of the club”. VGCCI
virtue of being the highest bidder, and they requested that a new certificate
asserts that its corporate by-laws should prevail. However, VGCCI began
be issued in its name. VGCCI informed CBC that Calapatia’s stock was
sending notices of delinquencies to Calapatia AFTER it was informed by
sold at the 2nd public auction “for reason of delinquency”.
CBC of the foreclosure proceedings against Calapatia’s pledged share.
VGCCI had officially recognized CBC as the pledgee, but it was neither
CBC protested the sale by VGCCI of the subject share of stock
informed nor furnished copies of the letters of the overdue accounts until
and filed a case with the RTC for is nullification. RTC dismissed the
VGCCI itself sold the pledged share. VGCCI completely disregarded
complaint for lack of jurisdiction, that it involves an intra-corporate dispute.
CBC’s rights as pledgee. It even failed to give CBC a notice of the auction
CBC filed a complaint with the SEC for the nullification of the sale of
sale.
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The general rule is that 3rd persons are not bound by the by-laws
of a corporation since they are not privy thereto. The exception is when
3rd persons have actual or constructive knowledge of the same. In this
case, VGCCI claims that CBC had actual knowledge of the by-laws of
VGCCI when CBC foreclosed the pledge made by Calapatia and when it
purchased the share. Due to its knowledge, CBC was bound by VGCCI’s
by-laws. However, in order to be bound, the third party must have
acquired knowledge of the pertinent by-laws at the time the
transaction or agreement between said third party and the
shareholder was entered into, in this case, at the time the pledge
agreement was executed. VGCCI could have easily informed CBC of its
by-laws when it sent notice formally recognizing CVC as pledgee of one of
its shares registered in Calapatia's name. CBC’s belated notice of said
by-laws at the time of foreclosure will not suffice.
CBC as a third party can not be bound by VGCCI’s by-laws. It must be

recalled that when VGCCI communicated to appellant-petitioner bank that
the pledge agreement was duly noted in the club's books there was no
mention of the shareholder-pledgor's unpaid accounts. Hence, CBC is not
bound by VGCCI’s by-laws.
CLV OUTLINE: The nature of bylaws being intramural instruments would

mean that they are not binding on third parties, except those who have
actual knowledge of their contents.
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8. PMI Colleges v. NLRC, 277 SCRA 462 (1997) Neither can we concede that such contract would be invalid just because
Facts: the signatory thereon was not the Chairman of the Board which allegedly
violated petitioner’s by-laws. Since by-laws operate merely as internal
Philippine Marine Institute is a training school for seamen based mainly in rules among the stockholders, they cannot affect or prejudice third
Manila. It hired respondent Alejandro Galvan to teach students for the first persons who deal with the corporation, (XPN-unless they have
three periods, but decided not to pay him for succeeding rendition of knowledge of the same.)" No proof appears on record that private
services. Some classes were conducted by Galvan on board the Class 41 respondent ever knew anything about the provisions of said by-laws. In
on board MV "Sweet Glory" of Sweet Lines, Inc. and at the Cavite Naval fact, petitioner itself merely asserts the same.
Base. These were unsanctioned venues by PMI.
Private respondent’s claims, as expected, were resisted by petitioner. It
Thus, given the mandate of said rule, petitioner should have foreseen that
alleged that classes in the courses offered which complainant claimed to
the Labor Arbiter, in view of the non-litigious nature of the proceedings
have remained unpaid were not held or conducted in the school premises
before it, might not proceed at all to trial. The petitioners should not have
of PMI Colleges. Only private respondent, it was argued, knew whether
assumed that after they submitted their position papers, the Labor Arbiter
classes were indeed conducted. In the same vein, petitioner maintained
would call for a formal trial of hearing. The holding of a trial is discretionary
that it exercised no appropriate and proper supervision of the said classes
on the Labor Arbiter, it is not a matter of right of the parties, especially in
which activities allegedly violated certain rules and regulations of the
this case, where the private respondent/s had already presented their
Department of Education, Culture and Sports (DECS).
documentary evidence. The evidence is considered to be “self-serving”-
It was also revealed by board member Tomas Cloma that the chairman this does not mean it is selfish, but that respondent Galvan prepared them,
needs to sign contracts under the by-laws which was not done. and there was ample opportunity for petitioner PMI to rebut them but they
did not. Thus the Arbiter had the right to summarily rule on the case since
only four documents were given to them by PMI. In any event, any denial
A complaint was filed with the Labor Arbiter- who notice PMI only had four
made by petitioner cannot stand against the affirmative and fairly detailed
documents and decided to rule in favor of Galvan without need of trial or a
manner by which private respondent supported his claims, such as the
formal trial on the merits (ForTriM). PMI is assailing that there is a
places where he conducted his classes, on-the-job training and shipyard
GADALEJ.
and plant visits; the rate he applied and the duration of said rendition of
services. These evidence have never been refuted.
Issue: Is the contract invalid? NO.
CLV Syllabus: “Contracts entered on behalf of the corporation not signed
Ruling: by the Chairman in violation of the specific bylaw provision are not void,
since bylaws operate merely as internal rules among the shareholders,
The Court ruled that they cannot affect or prejudice third persons who deal with the corporation,
xxxx unless they have knowledge of the same.”
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Notes
No par share- company, buys, money is just capital cannot become
dividends,
For the buyer- everything is already bought- no subscribed/unsubscribed
Par share- may be subscribed or not yet paid, purchases may be
dividends
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·
PART 7 TRUST FUND DOCTRINE HOWEVER, the formalities for reducing the capital stock of a
corporation, outlined in Seciton 17 of the Corporation Law, was not
followed by CNF nor was any certificate filed with the Bureau of
1. Phil Trust Co. v. Rivera Commerce and Industry showing the reduction in stock
44 Phil. 469 (1923)
Issue:
Topic: Trust Fund Doctrine – Common Law Premise: Creditors have priority In spite of the resolution agreed upon by all the stockholders, which was not
over equity-holders to the Assets of the Business Enterprise registered with the Bureau of Commerce, can Rivera be held liable to pay for
his unpaid ½ share? YES
CLV Syllabus: The subscriptions to the capital stock constitute a fund to which
the creditors have a right to look for satisfaction of their claims and that the Held:
receiver in insolvency can maintain an action upon any unpaid subscription to · It is established doctrine that subscriptions to the capital of a
realize assets for the payment of its debts. Any resolution by the corporation constitute a fund to which creditors have a right to look for
shareholders or the Board releasing shareholders from the payment of satisfaction of their claims and that the assignee in insolvency can
their unpaid subscription without going to the formalities provided for maintain an action upon any unpaid stock subscription in order to
decrease in capital stock would be ineffectual and void. realized assets for the payment of its debts.
· A corporation has no power to release an original subscriber to its capital
Facts: stock from the obligation of paying for his shares, without a valuable
· In 1918, Cooperative Naval Filipina (CNF) was duly incorporated with a consideration for such release
capital of P100,00, dividend into 1,000 shares of a par value of P100 · As against creditors, a reduction of the capital stock can take place only in
each. the manner and under the conditions prescribed by the statute or the
· Marciano Rivera was an incorporator who subscribed for 450 shares charter or the articles of incorporation. Moreover, strict compliance with the
representing a value of P45,000 statutory regulations is necessary
· The AoI was duly registered in the Bureau of Commerce and Industry later · releasing the shareholder from their obligation to pay 50 per centum of
that year. their respective subscriptions was an attempted withdrawal of so much
capital from the fund upon which the company's creditors were entitled
· However, the company suddenly became insolvent and went into the hands
ultimately to rely and, having been effected without compliance with the
of the Philippine Trust Company, the receiver
statutory requirements, was wholly ineffectual.
· Philippine Trust then instituted this action against Rivera to recover ½ of
the stock subscription of the defendant, which Rivera never paid.
· The reason why Rivera did not pay ½ of his stock subscription is because not
long after the incorporation of CNF, the stockholders adopted a resolution
which stated that the capital of CNF shall be reduced by 50% and the
subscribers shall be released from the obligation to pay any unpaid balance of
their subscription in excess of the 50% retained
· The subscription of the subscribers were than reduced to half what they
promised and those who fully paid for the ½ were given certificates
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2. Garcia v. Lim Chu Sing. 59 Phil. 562 (1934) the company. The capital stock of a corporation is a trust fund to be used
more particularly for the security of its creditors.
FACTS:
Lim Chu Sing (Lim) executed and delivered to Mercantile Bank of
China a promissory note. One of the conditions stipulated in said
promissory note is that in case of defendant’s default the unpaid balance
with interest thereon.
Lim defaulted in the payment and so the remaining unpaid
balance of 9,105 became due and demandable. It is to be noted that Lim
owns shares of stock of Mercantile Bank of China amounting to P10,000.
And Mercantile Bank of China is at that time under liquidation.
ISSUE:
W/N it is proper to compensate the indebtedness of Lim with the sum
representing the value of shares of stock? NO.
RATIO:
The Court noted that a share of stock or the certificate is not an
indebtedness to the owner nor evidence of indebtedness and therefore it is
not a credit. And so Stockholders are not creditors of the corporation.
A prevailing doctrine of the American courts states that the capital stock
of a corporation is a trust fund to be used more particularly for the
security of creditors of the corporation, who presumably deal with it
on the credit of its capital stock.
Hence, the Court found no ground to justify compensation given that Lim is
not a creditor of Mercantile Bank of China.
CLV OUTLINE:
A share is not an indebtedness of the company to the owner, and
therefore, it is not a credit. Shareholders are not, as to their shares,
creditors of the company, which can be off-setted against their liabilities to
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Boman Environmental Dev. Corp. v. CA, 167 SCRA 540 (1988) ISSUE: Whether this case involves an issue arising from intra-corporate
relations. YES
FACTS: Respondent Nilcar Y. Fajilan resigned as President and Member RULING:

of the Board of Directors of petitioner, Boman Environmental Development 1. This case involves an intra-corporate controversy because the
Corporation (BEDECO), and to sell to the company all his shares, rights, parties are a stockholder and the corporation. As correctly
and interests therein for P300,000 plus the transfer to him of the observed by the trial court, the perfection of the agreement to sell
company's Isuzu pick-up truck which he had been using. Fajilan's participation and interests in BEDECO and the execution
of the promissory note for payment of the price of the sale did not
At a meeting of the Board of Directors of BEDECO, Fajilan's resignation as remove the dispute from the coverage of Section 5(b) of P.D. No.
president was accepted and his offer to sell his shares back to the 902, as amended, for both the said agreement and the promissory
corporation was approved, payment is to be on a staggered basis. note arose from intra-corporate relations.
2. Indeed, all the signatories of both documents were stockholders of
In order to assure the payment of the P300,000, the company executed a the corporation at the time of signing the same. It was an
promissory note. In addition to this, the Ford Courier Pick-up will belong to intra-corporate transaction, hence, this suit is an intra-corporate
him subject to his assumption of the outstanding obligation thereof with controversy.
Fil-Invest. It is understood that upon his full payment of the pick-up, 3. Fajilan's offer to resign as president and director "effective as soon
arrangement will be made and negotiated with Fil-Invest regarding the as his shares and interests thereto are sold and fully paid" implied
transfer of the ownership of the vehicle in his name. that he would remain a stockholder until his shares and interests
were fully paid for, for one cannot be a director or president of a
A promissory note, was signed by BEDECO'S new president, Alfredo corporation unless he is also a stockholder thereof.
Pangilinan, in the presence of two directors, committing BEDECO to pay 4. The fact that he was replaced as president of the corporation did
him P300,000 over a six-month period. not necessaryily mean that he ceased to be a stockholder
considering how the corporation failed to complete payment of the
However, BEDECO paid only P50,000 and another P50,000 and defaulted consideration for the purchase of his shares of stock and interests
in paying the balance of P200,000. in the goodwill of the business. There has been no actual transfer
of his shares to the corporation.
Fajilan filed a complaint in the RTC of Makati for collection of that balance 5. The SEC has exclusive supervision, control and regulatory
from BEDECO. jurisdiction to investigate whether the corporation has unrestricted
retained earnings to cover the payment for the shares, and
The trial court dismissed the complaint for lack of jurisdiction. It ruled that whether the purchase is for a legitimate corporate purpose as
the controversy arose out of intra-corporate relations, hence, the provided in Sections 415 and 1226 of the Corporation Code.
Securities and Exchange Commission has original and exclusive 6. These provisions of the Corporation Code should be deemed
jurisdiction to hear and decide it. written into the agreement between the corporation and the
134 | TKP 2025

stockholders even if there is no express reference to them in the

promissory note.
7. The requirement of unrestricted retained earnings to cover the
shares is based on the trust fund doctrine which means that the
capital stock, property and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors.
8. Creditors of a corporation are preferred over the stockholders in
the distribution of corporate assets. There can be no distribution of
assets among the stockholders without first paying corporate
creditors.
9. Hence, any disposition of corporate funds to the prejudice of
creditors is null and void. Creditors of a corporation have the right
to assume that so long as there are outstanding debts and
liabilities, the board of directors will not use the assets of the
corporation to purchase its own stock
CLV OUTLINE: The requirement of unrestricted retained earnings to cover

the shares is based on the trust fund doctrine which provides that the
capital stock, and to the property and other assets of a corporation
pertaining to the capital stock, are regarded as equity in trust for the
payment of corporate creditors.
Reason: creditors of a corporation are preferred over the shareholders in

the distribution of corporate assets. There can be no distribution of assets
among the shareholders without first paying corporate creditors; any
disposition of corporate funds to the prejudice of creditors is null and void.
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4. NTC v. Court of Appeals, 311 SCRA 508 (1999) 40 (e) on the “value of the property and equipment.” According to the
Facts: The case resulted from the assessment notices served by the Court, the proper basis for the computation of regulation fees is the
National Telecommunications Commission (NTC) to the PLDT. This is for “capital stock subscribed or paid and not alternatively the property and
equipment.”)
payment of certain fees imposed upon PLDT for the expenses in
supervision, regulation and authorization done by the NTC on public
services (in pursuant to Sec 40 of Public Service Act.) There are several
fees (regulation fees, permit fees) imposed, but for the purpose of this
case we only focus on the regulation fees. For the assessment of the
regulation fees, NTC based it on the outstanding capital stock, thus
arriving at the amount of around P7.4 million for the fees. With this, PLDT
filed a protest in the said commission claiming that the regulation fee
should be based on the par value instead. NTC denied the protest which
prompted PLDT to appeal in the CA. The CA ordered NTC to recompute
and base the regulation fees on the par value of the capital stock
subscribed or paid excluding stock dividends, premium or capital in excess
of par. NTC then now argued that the fee should be based on the market
value of PLDT’s capital stock including stock dividends and premium.
Issue:
W/N the computation of supervision and regulation fees under section 40
(e) of the public service act should be based on the par value of the
subscribed capital stock.
Held/Ratio:
NO. The Court held that the regulation fee should be based on the capital
stock subscribed or paid (nothing less nothing more.) According to the
trust fund doctrine, (which considers capital subscribed as trust for the
payment of debts of corporation) the dividends must never impair the
subscribed capital. With this, SC disallowed the computation of fees based
on the par value of capital stock subscribed (excluding premiums and
stock dividends) and it also rejected the idea of basing it on the market
value. (The decision was based on the case of PLDT v PSC. Here, the SC
rejected the assessment which based the regulation fees imposed in Sec
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Trust Fund Doctrine - Common Law Premise: Creditors Have Priority Both RTC and CA applied the trust fund doctrine against the defendant
over Equity-holders to the Assets of the Business Enterprise (Art. stockholders, Including Petitioner Halley. Petitioner Halley argued,
2236, Civil Code) however, that the trust fund doctrine was inapplicable because she had
already fully paid her subscriptions to the capital stock of BMPI. SC
Halley v. Printwell, Inc. 649 SCRA 116 (2011)
disagreed.
Facts:
Petitioner Halley was an incorporator and original director of Business
Trust Fund Doctrine -
Media Phil. Inc. (BMPI) while respondent Printwell was engaged in
commercial and industrial printing. BMPI commissioned Printwell for the ● xxx rule that the property of a corporation is a trust fund for
printing of magazine Philippines together with wrappers and subscription the payment of creditors, but such property can be called a trust
cards that the former published and sold. fund ‘only by way of analogy or metaphor.’ As between the
corporation itself and its creditors it is a simple debtor, and as
between its creditors and stockholders its assets are in equity a
BMPI placed several orders on credit to Printwell but failed to pay the fund for the payment of its debts.
balance. Thus, respondent sued BMPI for the collection of the unpaid ● It is established doctrine that subscriptions to the capital of a
balance of P291,342.76 in the RTC. Printwell amended the complaint in corporation constitute a fund to which creditors have a right
order to implead as defendants all the original stockholders and to look for satisfaction of their claims and that the assignee in
incorporators to recover on the unpaid subscriptions. insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts.
Petitioner Halley argued that she had paid her subscriptions, evidenced by
several official receipts and that BMPI had a personality separate from its The Court clarified that the trust fund doctrine is not limited to reaching the
stockholders which personality should not be disregarded. RTC and CA stockholder’s unpaid subscriptions. The scope of the doctrine when the
pierced the veil of corporate fiction and held the stockholders of BMPI as corporation is insolvent encompasses not only the capital stock, but also
personally liable for corporate debts up to the extent of their unpaid other property and assets generally regarded in equity as a trust fund for
subscriptions under the Trust Fund doctrine. Both courts also found some the payment of corporate debts. All assets and property belonging to the
irregularities in the issuance of official receipts. corporation held in trust for the benefit of creditors that were distributed or
in the possession of the stockholders, regardless of full payment of their
subscriptions, may be reached by the creditor in satisfaction of its claim.
Issue: Whether the trust fund doctrine is applicable. YES
Petitioner Halley failed to discharge her burden of proving that she actually
Ruling:
paid in full her subscription [there was irregularity with the ORs]. Thus,
Printwell, as BMPIs creditor, had a right to reach petitioner's unpaid
137 | TKP 2025

subscription in satisfaction of its claim. The liability of stockholder for

corporate debt is up to the extent of their unpaid subscription. In view of
petitioner's unpaid subscription of 265, 500 , she was liable up to that
amount.
CLV Outline: We clarify that the trust fund doctrine is not limited to
reaching the shareholders’ unpaid subscriptions. The scope of the doctrine
when the corporation is insolvent encompasses not only the capital stock,
but also other property and assets generally regarded in equity as a trust
fund for the payment of corporate debts. All assets and property belonging
to the corporation held in trust for the benefit of creditors that were
distributed or in the possession of the shareholders, regardless of full
payment of their subscriptions may be reached by the creditors in
satisfaction of its claim. Halley v. Printwell, Inc. 649 SCRA 116 (2011),
citing VILLANUEVA, PHILIPPINE CORPORATE LAW (2001), p. 558.
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CitingHalley v. Printwell, the SC held: The creditor is allowed to maintain

Enano-Bote v. Alvarez, G.R. No. 223572, 10 November 2020 an action upon any unpaid subscriptions and thereby steps into the shoes
of the corporation for the satisfaction of its debt. To make out a prima facie
FACTS: case in a suit against stockholders of an insolvent corporation to compel
On February 3, 1999, plaintiff-appellee Subic Bay Metropolitan Authority them to contribute to the payment of its debts by making good unpaid
(SBMA) entered into a Lease Agreement with defendant/third-party plaintiff balances upon their subscriptions, it is only necessary to establish that the
Centennial Air, Inc. (CAIR), represented by defendant Roberto Lozada stockholders have not in good faith paid the par value of the stocks of the
(Lozada), for the lease of Building 8324 (Property) located at Subic Bay corporation.
International Airport (SBIA), Subic Bay Freeport Zone (SBFZ), for a period Therefore, for the trust fund doctrine to apply, it must first be established
of five (5) years commencing on February 1, 1999 until midnight of that the corporation in question is insolvent or has dissolved. In the
January 31, 2004. present case, SBMA complaint was merely for a simple collection suit.
Central Air was remiss in the payment of its obligations. Due to the
continuous refusal of Central Air to pay, SBMA filed a complaint against
CLV Syllabus:
Central Air and its stockholders.
Summons were served upon Enano-Bote, et al. (original incorporators Trust Fund Doctrine
ofCentral Air) They argued that they were no longer stockholders when the a. Common Law Premise: Creditors Have Priority over
lease was executed and that they assigned subscription rights to Alvarez. Equity-holders to the Assets of the Business Enterprise (Art.
The Court of Appeals held that Central Air and Enano-Bote, et al are 2236, Civil Code)
solidarily liable for the unpaid rentals of the former. A corporate creditor cannot immediately invoke the trust fund doctrine to
proceed against unpaid subscriptions of stockholders of the debtor
ISSUE:
corporation without alleging and proving the corporation's insolvency or
(RELEVANT) (1) whether the CA committed an error of law in applying the any of the other acceptable grounds where the trust fund doctrine, theory
trust fund doctrine to make petitioners personally and solidarily liable with or principle has been applied. The observation that a corporation has the
CAIR for the unpaid rentals claimed by SBMA against CAIR because of beneficial or equitable as well as the legal title of its capital stock and is in
their supposedly unpaid subscriptions in CAIR's capital stock business to make money for itself and its stockholders and not for its
(2) whether under the Third-Party Complaint, Alvarez should be made creditors is well-taken. As well, the capital stock of a corporation is a trust
liable to independently and separately pay Jennifer and Virgilio moral to be managed during its corporate life for the benefit of stockholders. It is
damages in the amount of P300,000.00 and P200,000.00 as attorney's only in the event of its dissolution or insolvency, does the capital stock
fees, aside from cost of suit. become a trust fund for the benefit of its creditors. ✔Enano-Bote v.
Alvarez, G.R. No. 223572, 10 November 2020.
RULING:
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Trust Fund Doctrine: Power to Purchase Own Shares that the unrestricted retained earnings must exist at the time of the
Turner v. Lorenzo Shipping Corp., 636 SCRA 13 (2010) demand. The only restriction is that there must be sufficient funds to cover
the creditors after the dissenting stockholder is paid .
CA reversed the RTC decision, hence this petition
FACTS:
Petitioners Philip and Elnora Turner were the owners of 1,010,000
ISSUE: Whether or not Petitioner Philip and Elnora Turner has the right to
shares of stocks of Respondent Lorenzo Shipping Corporation, a domestic
demand payment of the fair value of his shares? NO
corporation engaged primarily in cargo shipping activities.
Respondent Corporation decided to amend its articles of
incorporation to remove the stockholders’ pre-emptive rights to newly RULING:
issued shares of stock. Feeling that the corporate move would be
A stockholder who dissents from certain corporate actions has the
prejudicial to their interest as stockholders, Petitioners Turner voted
right to demand payment of the fair value of his or her shares, provided
against such amendment and demanded payment of their shares at
that the corporation has unrestricted retained earnings in its book to cover
P2.276/share or a total of P2,298,760.
the payment.
Respondent Corporation found the fair value of the shares
Under common law, there were conflicting views on whether a
demanded unacceptable, insisting that the market value on the date
corporation had the power to purchase its own stocks. Only a few
before the action to remove the pre-emptive right was taken should be the
American jurisdictions adopted the strict English rule forbidding a
value, which is P0.41/share or a total of P414,100.
corporation from purchasing its own shares. In some American states
An appraisal committee was formed due to the disagreement on where the English rule used to be adopted, statutes granting authority to
the valuation of the shares. Such committee reported its valuation of purchase out of surplus funds were enacted, while in others, shares might
P2.54/share, or a total of P2,565,400. The petitioners turner demanded be purchased even out of capital provided the rights of creditors were not
payment based on the committee’s valuation. prejudiced. The reason underlying the limitation of share purchases
sprang from the necessity of imposing safeguards against the depletion by
In respondent’s corporation letter to the petitioners turner, it
refused the petitioners’ demand since it had no retained earnings at the a corporation of its assets and against the impairment of its capital needed
for the protection of creditors.
time of the demand, claiming that pursuant to the Corporation Code, the
dissenting stockholders exercising their appraisal rights could be paid only Now, however, a corporation can purchase its own shares,
when the corporation had unrestricted retained earnings to cover the fair provided payment is made out of surplus profits and the acquisition is for a
value of the shares. This led petitioner turner to file an action for collection legitimate corporate purpose.
of sum of money and damages with RTC Makati.
The trust fund doctrine backstops the requirement of unrestricted
RTC ruled in favor of the Petitioners Turner and ordered retained earnings to fund the payment of the shares of stocks of the
Respondent to pay. RTC held that the Corporation Code does not require withdrawing stockholders. Under the doctrine, the capital stock, property,
140 | TKP 2025

and other assets of a corporation are regarded as equity in trust for the
payment of corporate creditors, who are preferred in the distribution of
corporate assets. The creditors of a corporation have the right to assume
that the board of directors will not use the assets of the corporation to
purchase its own stock for as long as the corporation has outstanding
debts and liabilities. There can be no distribution of assets among the
stockholders without first paying corporate debts. Thus, any disposition of
corporate funds and assets to the prejudice of creditors is null and void.
In this case, the Respondent Corporation had no unrestricted
retained earnings in its books at the time the petitioners turner demanded
for the payment of the fair value of his shares, hence, petitioners turner did
not have the right to demand payment of the fair value of his shares.
CLV OUTLINE: Under common law, there were conflicting views on

whether a corporation had the power to purchase its own stocks. Only a
few American jurisdictions adopted the strict English rule forbidding a
corporation from purchasing its own shares. In some American states
where the English rule used to be adopted, statutes granting authority to
purchase out of surplus funds were enacted, while in others, shares might
be purchased even out of capital provided the rights of creditors were not
prejudiced. The reason underlying the limitation of share purchases
sprang from the necessity of imposing safeguards against the depletion by
a corporation of its assets and against the impairment of its capital needed
for the protection of creditors. ✔Turner v. Lorenzo Shipping Corp., 636
SCRA 13 (2010).
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Salido, Jr. v. Aramaywan Metals Dev. Corp., G.R. No. 233857, The RTC dismissed San Juan’s complaint and held that the 40%
18 March 2021 share that was reduced from San Juan’s initial share was converted to
FACTS: treasury shares in exchange for the termination of San Juan’s obligation to
pay for the remaining balance and also to incorporate Narra Mining. The
The parties agreed to form two mining corporations. One of them
CA initially affirmed the RTC’s decision. However, it later reversed its own
is named as Aramaywan and Narra Mining Corporation. In their
decision as it appeared that San Juan did not consent to the reduction and
Agreement to Incorporate, it stated that San Juan would pay in advance
that no conversion was made because San Juan;s investment was not
P2.5M for the paid-up subscription for Aramaywan, where he will own 55%
returned and the corporation did not have unrestricted earnings to pay for
of the corporation’s stocks and he would also assure the payment of the
the reacquired shares, if the company intends to do so.
subscription of the capital stock of the other corporation, owning 35% of
that company’s stocks.
San Juan advanced the payment of P2.5M evidenced by a ISSUE: Whether or not the CA erred in reversing its decision and held that
standard chartered bank certificate as his paid-up subscription to San Juan’s shares were not correctly reduced? NO.
Aramaywan deposited to himself as treasure and held by him in trust for
RULING:
the corporation. The same corporation was then incorporated with 9 other
The court held that San Juan’s shares were not validly converted
directors. The articles of incorporation of Aramaywan showed that 25,000
into treasury shares because Aramaywan did not have unrestricted
shares are subscribed and paid, where 13,750 shares belong to San
retained earnings. The court stated that treasury shares are shares of
Juan’s including his wife’s and daughter’s share, which constitutes the San
stock which have been issued and fully paid but the corporation
Juan faction. While 5 other directors, excluding Mangune, represent 35%
subsequently reacquires it either by purchase, redemption, donation or
of the corporation’s shares, named as the Salido faction.
San Juan became the corporation’s Chairman and Treasurer and other lawful means. And that the corporation must have unrestricted
Salido himself as the President. When the corporation held their first board retained earnings in its books in order to purchase or acquire it. If the
corporation wants to reacquire the same because of unpaid subscription,
meeting, Salido claimed that San Juan only delivered P900k cash during
the corporation must purchase it during a delinquency sale. However, the
the corporation’s incorporation process and the balance had yet to be
court ruled that the requirements were not met when they reduced San
delivered. Salido contended that San Juan breached his promise to
Juan’s shares.
advance the payment of P2.5M to Aramaywan and also has yet to register
The court also mentioned that under the trust fund doctrine, the
the incorporation of Narra Mining. Due to the said breach, Salido proposed
capital stock, property , and other assets of a corporation are
to reduce San Juan’s share instead from 55% down to 15%.
regarded as equity in trust for the payment of corporate creditors,
In the special board meeting, Salido passed the resolutions
who are preferred in the distribution of corporate assets. The
confirming the reduction of San Juan’s share from 55% to 15% instead,
creditors have the right to assume that the board of directors will not
and also canceled the share of San Juan’s wife and daughter due to the
use the assets of the corporation to purchase its own stocks for as
said reduction. The San Juan faction questioned the said approval so San
long as the corporation has outstanding debts and liabilities. There
Juan filed a complaint with the RTC to invalidate the acts of the Salido
can be no distribution of assets among stockholders without first
faction.
paying the corporate debts.
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There was no showing that the corporation had unrestricted

retained earnings at the time of its reduction and the court took into
consideration that the corporation existed only for a few months at that
time and it is both highly doubtful and unsupported that the corporation
had unrestricted retained earnings to purchase it. At the same time, if
failed to show that it has no creditors or that the creditors were already
paid before the agreement to release San Juan was made.
In fact, the court held that San Juan has fully paid his subscription
evidenced by the bank certificate in his name which states that he holds
the money intrust for Aramaywan and his share cannot be reduced without
returning to San Juan his investment. In terms of trust relationship, there
exists a separation of the legal title and the equitable ownership of the
property. The legal title is vested in the fiduciary or the trustee, who is San
Juan in this case, and the equitable ownership is vested in the beneficiary,
who is Aramaywan. Thus, San Juan only has a legal title over the money
but the ownership of the same remains with the corporation.
CLV OUTLINE: The Corporation Code clearly sets out the parameters
when a corporation may reacquire its shares and convert them into
treasury shares. According to Sec. 9, “treasurer share are shares of stock
which have been issued and fully paid for, but subsequently reacquired
through some lawful means, but that reacquisition of shares requires that
the corporation must have unrestricted retained earnings in its books to
cover the shared to be purchased or acquired. In addition, in cases where
the reason for reacquiring the shares is because of the unpaid
subscription, the Corporation Code is likewise explicit that the corporation
must purchase the same during a delinquency sale.
143 | TKP 2025

treasurer of the corporation and is authorized to sign checks for

PART 8 - ULTRA VIRES DOCTRINE the corporation. At the time of the issuance of the checks, there were
sufficient funds in the bank to cover payment of the amount of P2
Atrium Management Corp. v. Court of Appeals, 353 SCRA 23 (2001) million pesos.
FACTS: Hi-Cement, through its Chairman (De las Alas, who later died) It is the Court’s view that there is basis to rule that the act of issuing
and Treasurer (de Leon), issued checks in favor of E.T. Henry and Co. Inc. the checks was well within the ambit of a valid corporate act, for it
as payee. The latter endorsed the checks to Atrium for valuable was for securing a loan to finance the activities of the
consideration. When Atrium presented the checks for payment, the corporation, hence, not an ultra vires act.
drawee bank dishonored all four checks for the common reason “payment
stopped.” Atrium thus filed a case for collection of sum of money. (2) While the issuance of the checks was a corporate act, de Leon can
be held personally liable due to her gross negligence when she signed
The trial court ruled that the Treasurer de Leon, E.T. Henry, and the confirmation letter requested by Mr. Yap of Atrium and Mr. Henry of
Hi-Cement were jointly and severally liable to Atrium. The CA modified the E.T. Henry for the rediscounting of the crossed checks issued in favor
decision absolving Hi-Cement of its liability, alleging that the Treasurer and of E.T. Henry. She was aware that the checks were strictly endorsed
Chairman were unauthorized to issue the checks. Thus, the issuance of for deposit only to the payee's account and not to be further
the checks constituted ultra vires acts. negotiated.
ISSUE: (1) MAIN ISSUE: Was the issuance of the checks ultra vires? - CLV OUTLINE: An ultra vires act is one committed outside the object for
NO (2) Can de Leon be held personally liable? - YES which a corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law. The term “ultra vires”
RULING: is “distinguished from an illegal act for the former is merely voidable which
may be enforced by performance, ratification, or estoppel, while the latter
(1) The record reveals that Hi-Cement Corporation issued the four is void and cannot be validated.”
checks to extend financial assistance to E.T. Henry, not as payment of
the balance of the P30 million pesos cost of hydro oil delivered by E.T.
Henry to Hi-Cement.
Hi-Cement, however, maintains that the checks were not issued for
consideration and that de Leon and E.T. Henry engaged in a "kiting
operation" to raise funds for E.T. Henry, who admittedly was in need of
financial assistance. The Supreme Court finds that there was no
sufficient evidence to show that such is the case. De Leon is the
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General Judicial Attitude Towards the Ultra Vires Doctrine
2. Zomer Dev. Corp. v. Int’l Exchange Bank, 581 SCRA 115 ISSUE:
(2009) Whether or not the REM was null and void for being ultra vires
FACTS: given that Zomer was not empowered to mortgage its properties as
security for the payment of obligations of third parties? – NO.
Zomer Development Company Inc’s BoD approved a resolution
authorizing it to obtain a P60,000,000 credit line with International
Exchange Bank (IEB). BOD also authorized Zomer to mortgage its RULING:
properties as security for this credit line as well as to secure and
Although Zomer was not empowered by its by-laws to mortgage
guarantee the term loan of IDHI Prime Aggregates Corp (Prime
its properties as a security for the payment of obligations of third parties, it
Aggregates) with IEB.
is NOT proscribed from mortgaging its properties as security for the
payment of obligations of third parties.
Prime Aggregates obtained a term loan from IEB for P60M.
Zomer, through its treasurer (Amparo Zosa) and general manager (Manuel
A private corporation may give a third party mortgage provided
Zosa), executed a REM covering 3 parcels of land in favor of IEB to
that: 1) when the mortgage of corporate assets/properties shall be done in
secure accommodations obtained by Prime Aggregates. Prime
the furtherance of the corporation’s interest and in the usual and regular
Aggregates subsequently obtained several loans from IEB after.
course of the business; and 2) to secure the debt of a subsidiary.
Unfortunately, Prime Aggregates failed to settle its outstanding obligation
with IEB. IEB filed a petition for extra-judicial foreclosure of mortgage
before the Cebu RTC. In this case, Prime Aggregates was not only petitioner’s
subsidiary but rather, Zomer appeared to be a “family” corporation.
Petitioner filed a complaint for injunction, praying that the REM Its incorporators, stockholders and BOD membership are Zosa family.
and its extrajudicial foreclosure sale be nullified on the ground that its Francis and Rolando Zosa are directors of both Prime Aggregates and of
treasurer and general manager were one authorized to execute the REM Zomer. In authorizing its officers to execute a REM as security for the
to secure only one obligation of Prime Aggregates. payment of Prime Aggregates’ account, both corporations are promoting a
common interest, the interest of “family” having ownership of both
RTC denied petitioner's prayer, thus the appeal to CA. Petitioner corporations.
alleged that the executed REM was null and void for being ultra vires as it There was also no evidence on record that the REM executed by
was not empowered to mortgage its properties as security for the payment Zomer and Prime Aggregates was to prejudice corporate creditors of
of obligations of third parties, and that the officers were authorized to Zomer nor will it infringe the trust fund doctrine or hamper Zomer’s
mortgage its properties to secure only a P60M term loan and one credit business operations nor Prime Aggregates was insolvent.
facility of Prime Aggregates.
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The Resolution of the BOD authorized its treasurer and general

manager to execute a REM over its properties as security for the “term
loan and credit facility” of Prime Aggregates. The maximum amounts of
such term loan and credit facility were NOT FIXED in the resolution. Thus,
“long term agreements” and “credit agreements” executed by PA and IEB
were envisaged in the terms mentioned in the resolution.
The transactions between the Petitioner and the Private

Respondent over its properties are neither malum in se or malum
prohibitum. Hence, Zomer cannot hide behind the cloak of ultra vires for a
defense.
NOTES:
● The treasurer and general manager are directors of Zomer and
Prime Aggregates. Amparo Zosa is the biggest stockholder and is
the mother of practically all the other stockholders of the Zomer.
Manuel Zosa, Jr. is the General Manager and a son of Amparo.
● Prime Aggregates is a sister corporation of Zomer – Since when is
a private corporation, going to the aid of a sister corporation, not
for the best interest of both corporation?
CLV OUTLINE: The plea of “ultra vires” will not be allowed to prevail,
whether interposed for or against a corporation, when it will not advance
justice but, on the contrary, will accomplish a legal wrong to the prejudice
of another who acted in good faith.
Ultra Vires of the First Type: Classic Ultra Vires Acts (Secs. 2
and 44); b. Ratification of Ultra Vires Acts
Pirovano v. De la Rama Steamship Co., 96 Phil. 335 (1954)
Facts:
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Enrico Pirovano was the President of De la Rama Steamship Co. by gift and therefore the corporation acted beyond the scope of its
Under his management, the company grew and progressed until it became corporate powers.
a multi-million corporation. The corporation insured the life of Pirovano. The Pirovano children, represented by their mother, demanded the
However, Pirovano was executed by the Japanese during the occupation.
payment of the credit due them. They argued that the corporation can no
When he died, a resolution was adopted by the Board of Directors of the
longer set aside the donation because it has long been perfected and
company to grant special payment to the minor heirs of Pirovano. They
consummated. The company refused to pay so this action was instituted in
wanted to donate the proceeds of the insurance policies to the children of
the CFI.
Pirovano The resolution provided that the P400,000 grant be paid to the
children of Pirovano in the form of shares of stock. However, they did not Issue: Can De la Rama steamship give by way of donation the proceeds
realize that by paying through shares of stock, they would actually be of the insurance policies to the minor children of Pirovano under the law or
giving more than what they intended to give. The value of the shares of its articles of incorporation, or is that an ultra vires act? YES, it is not an
stock would actually be 3.6 times their par value, the donation, although ultra vires act. Even if it were, the acts of the stockholders have already
purporting to be only 400,000 would actually amount to a total of 1.4 ratified the act.
million. For this reason, the resolution was nullified by the Board. Ruling:
The board filed another resolution changing the form of donation After perusal of the articles of incorporation, the Court found that
to the Pirovano children. They instead renounced in favor of the children the corporation was given broad and almost unlimited powers to carry out
all the company’s right, title, and interest as beneficiary in and to the the purposes for which it was organized among them, “to invest and deal
proceeds of the life insurance policies but such is to be retained by the with the monies of the company not immediately required, in such manner
company as a loan drawing interest at the rate of 5% per annum and as from time to time may be determined” and “to lend money or credit to
payable to the Pirovano children after the company shall have first settled and to aid in any other manner any person, association, or corporation of
in full the balance of its present remaining bonded indebtedness in the which any obligation or in which any interest is held by the corporation or
sum of approximately P5M. Another resolution was passed, providing that in the affairs or prosperity of which this corporation has lawful interest”.
the interest may be paid to the children “whenever the company is in a The word deal is broad enough to include any manner of disposition, and
position to meet said obligation”. Mrs. Pirovano executed a public refers to moneys not immediately required by the corporation, and such
document in which she formally accepted the donation and the company may be made in such manner as from time to time may be determined by
took official notice of the formal acceptance. The stockholders of De la the corporation. The donation undoubtedly comes within the scope of this
Rama formally ratified the donation. broad power because it is a fact that the insurance proceeds were not
In 1950, the current President of the corporation, Sergio Osmeña, immediately required when they were given away.
Jr., addressed an inquiry to the Securities and Exchange Commission The Court also found that the corporation has made similar grants
asking for opinion regarding the validity of the donation of the proceeds of and donations to other beneficiaries. Further, the validity of these other
the insurance policies to the Pirovano children. The SEC held that the donations and even of the current donation was never questioned. If the
donation was void because the corporation could not dispose of its assets other donations have been sanctioned and considered valid, the COurt
147 | TKP 2025

sees no plausible reason why the current donation to Enrico Pirovano’s The court ruled that the donation is valid and binding and ordered that the
children should be deemed ultra vires. donation be paid.
Most importantly, to quote the SC, “Granting arguendo that the CLV Syllabus: Acts done by the Board of Directors which are ultra vires
donation given to the Pirovano children is outside the scope of the powers cannot be set-aside if the acts have been ratified by the shareholders.
of the defendant corporation, or the scope of the powers that it may ✔Pirovano v. De la Rama Steamship Co., 96 Phil. 335 (1954).
exercise under the law, or it is an ultra vires act, still it may be said that the
same cannot be invalidate, or declared legally ineffective for that reason
alone, it appearing that the donations represents not only the act of the
board of directors but of the stockholders themselves as shown by the fact
that the same has been expressly ratified in a resolution duly approved by
the latter. By this ratification, the infirmity of the corporate act, if any has
been obliterated thereby making the act perfectly valid and enforceable.
Thai is specially so if the donation is not merely executory but executed
and consummated and no creditors are prejudiced, or if there are creditors
affected, the latter have expressly given their conformity.
Two kinds of ultra vires:
1. An act performed merely outside the scope of the powers granted
to it by its articles of incorporation (not illegal, but are not within
the scope of the articles of incorporation, are merely voidable and
may become binding and enforceable when ratified by
stockholders)
2. One which is contrary to law or violative of any principle which
would void any contract whether done individually or collectively
(act which is contrary to law, morals, or public order)
Acts which are merely ultra vires, or acts which are not
illegal, may be ratified by the stockholders of a corporation.
Since the donation is not contended to be illegal nor contrary to the
express provisions of the AOI nor prejudicial to the creditors of the
corporation, the court rules that the donation, even if ultra vires, is not void,
and if voidable its infirmity has been cured by ratification and subsequent
acts of the defendant corporation. The corporation is now estopped from
contesting the validity of the donation.
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Ultra Vires of the Second Type: Doctrine of Centralized It is not, however, ultra vires for a corporation to enter into
Management contracts of guaranty or suretyship where it does so in the legitimate
furtherance of its purposes and business. And it is well settled that where
4. Carlos v. Mindoro Sugar Co., 57 Phil. 343 (1932) a corporation acquires commercial paper or bonds in the legitimate
transaction of its business it may sell them, and in furtherance of such a
FACTS: sale it may, in order to make them more readily marketable, indorse or
Mindoro Sugar Co., is a corporation constituted in accordance with guarantee their payment.
the laws of the Philippines and duly registered in 1917. According to its
articles of incorporation, one of its principal purposes was to acquire and A corporation which has power by its charter to issue its own
exercise the franchise granted to George Fairchild, to substitute Mindoro, bonds has power to guarantee the bonds of another corporation, which
and to acquire all the rights and and obligations of Fairchild, Havemeyer, has been taken in payment of a debt due to it, and which it sells or
and Welch. transfers in payment of its own debt, the guaranty being given to enable it
to dispose of the bond to better advantage. And so guarantees of payment
The Philippine Trust Company is another domestic corporation. of bonds taken by a loan and trust company in the ordinary course of its
Under its AOI, its principal purpose is to engage in the trust business. Its business, made in connection with their sale, are not ultra vires, and are
BoD purchased at par, and in the name and for the use of the trust binding.
corporation, all or such part as he may deem expedient, of the bonds in
the value of P3,000,000 that the Mindoro Sugar Co was about to issue, In the resolution of the BoD, the president of the Philippine Trust
and to resell them, with or without the guarantee of said trust corporation. Company was expressly authorized to purchase all or some of the bonds
and to guarantee them; it may be inferred that subsequent purchasers of
Mindoro executed a deed of trust in favor of PH Trust, transferring the bonds in the market relied upon the belief that they were acquiring
all of its property to it in consideration of the bonds it had issued. The securities of the Philippine Trust Company, guaranteed by this corporation.
bonds were later on sold by PH Trust. PH Trust paid Mindoro the stipulate
interest and it alleged that it was not bound to pay such interest or to CLV OUTLINE:
redeem the obligation because the guarantee given for the bonds was Even when a particular corporate act does not fall within the express or
illegal and void. implied powers of the corporation, it will not be set aside when, not being
malum prohibitum, the corporation, through its senior officers or its Board
ISSUE: of Directors, are estopped from questioning the legality of such act,
Whether or not the Philippine Trust Company has the power to legally contract or transaction.
guarantee the obligation of another juridical personality? - YES
HELD:
PH Trust was primarily organized as a trust corporation with full
power to acquire personal property such as the bonds in question. Thus, it
is given implied power to guarantee them in order to place them upon the
market under better, more advantageous conditions, and to secure the
profit derived from their sale.
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5. University of Mindanao v. Bangko Sentral ng Pilipinas, 778 Thus based on Ultra Vires #2- The mortgage contracts executed in
SCRA 458 (2016) favor of BSP do not bind the petitioner since they were executed
without authority from petitioner.
Thus it must be within the corporation’s powers- delegated to
Facts: The University of Mindanao was run by chairs Guillermo Torres and
his wife Dolores- the assistant treasurer. Petalcorin- or within its purpose.
Exception- if the acts are incidental to the purpose. How is an REM
Both also had their own incorporated thrift banks, First Iligan Savings &
with a loan incidental to education?
Loan Association, Inc. (FISLAI) Davao Savings and Loan Association, Inc.
(DSLAI). This also characterized the first kind of Ultra Vires, which are acts done
outside the by-laws but are still legal are not void ab initio- they are only
The BSP granted loans and emergency credits to the struggling banks.
voidable. They must be ratified. However, the spouses Torres claimed to
However, the Vice-President of Finance Saturnino Petalcorin showed have never known of the mortgage till they were informed by the BSP.
corporate secretary De Leon’s signed certificate alleging he had property (Busted)
to mortgage UM’s property for more loans.
The banks defaulted and BSP sent a letter to foreclose on UM. UM filed a
CLV Syllabus: Application of the First and Second Types of Ultra Vires:
complaint for nullification and cancellation of the mortgage.
Third persons must determine the corporation’s competence as expressly
defined by the law and its articles of incorporation. Corporate acts that are
Issue: Can UM be bound by the REM contracts of Petalcorin- the mere outside those express definitions under the law or articles of incorporation
VP of Finance? NO. or those “committed outside the object for which a corporation is created”
are ultra vires. The only exception to this rule is when acts are necessary
and incidental to carry out a corporation’s purposes, and to the exercise of
Ruling: powers conferred by the Corporation Code and under a corporation’s
Article 1317 of the Civil Code provides that there must be authority from articles of incorporation. This exception is specifically included in the
the principal before anyone can act in his or her name Hence, without general powers of a corporation under what is now Sec. 35 of the RCC.
delegation by the board of directors or trustees, acts of a person — ✓University of Mindanao v. BSP, 778 SCRA 458 (2016).
including those of the corporation's directors, trustees, shareholders, or Notes:
officers — executed on behalf of the corporation are generally not binding
Ultra Vires
on the corporation. Contracts entered into in another's name without
authority or valid legal representation are generally unenforceable. Doctrine of Centralized Management- A corporation's management is
centralized in the Board of Directors, to whom also are. granted corporate
powers as may be provided in its charter.- ie., follow the by-laws and
charter.
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Ultra Vires Guide:

First type- Classical, typical illegal acts
Second type- disobey by-laws/charter or BOD but are legal, may be
ratified to become valid XPN- if incidental to purpose- it probably
means one had the authority to act for the corporation
Third type- does not injure public rights and interests but involves
private interests who actually received benefits for both parties,
making them valid
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Ultra Vires of the Third Type: Benguet Company, to secure the capital necessary to the
Harden v. Benguet Consolidated Mining Co., 58 Phil. 140 (1933) development of the Balatoc property.
· A contract was entered into wherein Benguet will (1) construct a
Harden v. Benguet Consolidated Mining Co. milling plant for the Balatoc mine, of a capacity of 100 tons of ore per
58 Phil. 140 (1933) day, and with an extraction of at least 85 per cent of the gold content;
(2) erect an appropriate power plant. In return, Benguet will receive
Topic: Ultra Vires of the third type from Balatoc shares of a par value of P600,000.
· The total cost incurred by Benguet in developing Balatoc was
CLV Syllabus: Although arrangements between the two mining P1,417,952.15. A certificate for 600,000 shares of the stock of the
companies was prohibited under the terms of the old Corporation Law, Balatoc Company was given to Benguet and the excess value was
the SC did not declare the nullity of the agreements on the ground that paid to Benguet by Balatoc in cash. Due to the improvements made by
only private rights and interests, not public interests, were involved in Benguet, the value of shares of Balatoc increased in the market (from
the case. P1 to more than P11) and dividends enriched its stockholders. Harden,
the owner of thousands of shares of Balatoc, questioned the transfer
Facts: of 600,000 shares to Benguet with the success of the development.
· The complaint is to annul a certificate: · There is a provision in the Corporation Code which states that “it shall
o Covering 600,000 shares of stock of the Balatoc Mining Co., be unlawful for any member of a corporation engaged in agriculture or
issued to the Benguet Consolidated Mining Co., mining and for any corporation organized for any purpose, except
o To secure to the Balatoc Mining Co. the return of a large sum of irrigation, to be in anywise interested in any other corporation engaged
money unlawfully collected by Benguet Mining, with legal in agriculture or mining.”
interest
· Benguet Consolidated Mining Co. was organized in June, 1903, as a Issue: Whether Harden can maintain an action based upon the violation of
sociedad anonima in conformity with the provisions of the Spanish law supposedly committed by Benguet Company? NO
Law.
· Balatoc Mining Co. was organized in December 1925, as a Held:
corporation in conformity with the provisions of the Corporation Law · The penalties imposed in Section 190(A) can only be enforced by a
(Act No. 1459). criminal prosecution or by an action of quo warranto but these
· Both were organized for mining of gold and their respective properties proceedings can only be instituted by the Attoney-General in
are located only a few miles apart in Benguet. Balatoc capital stock representation of the government.
consists of one million shares of the par value of one peso (P1) each. · The defendant Benguet Company has committed no civil wrong
· When the Balatoc was first organized, its properties were largely against plaintiffs, and if a public wrong has been committed, the
undeveloped. To improve its operations, the company’s committee directors of the Balatoc Company, and Harden himself, were the active
approached A. W. Beam, then president and general manager of the inducers of that wrong.
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· The contract, supposing it to have been unlawful in fact, has been

performed on both sides, by the building of the Balatoc plant by the
Benguet Company and the delivery to the latter of the certificate of
600,000 shares of the Balatoc Company. There is no possibility of
really undoing what has been done. Nobody would suggest the
demolition of the mill.
Notes: Heavy discussion on socieded anomina vs. corporations + lots of

history on corporation law and how it wanted to abolish the socieded
anomina. the second issue was whether Benguet as a sociedad
anomina can be held liable under the corporation statute but the court
did not answer it anymore because it already tackled the issue above^
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W/N an authorization from Shipside’s Board of Directors needs to be

PART 9 - CORPORATE POWERS attached in the verification and certification in order for its resident
manager to institute or commence a legal action on behalf of the
AND CAPACITY corporation? - NO
1. Shipside Inc. v. Court of Appeals, 352 SCRA 334

RATIO:
(2001)
A Corporation, has no power except those expressly conferred on it by the
Corporation Code and those that are implied or incidental to its existence.
FACTS:
In turn, a corporation exercises said power through its board of directors
Galvez owns 4 parcels of land, 2 of which (Lot 1 and 4) were sold
and/or its duly authorized officers and agents. Thus, it has been observed
to Mamaril et. al., who subsequently sold it to Lepanto Consolidated
that the power of a corporation to sue and be sued in any court is lodged
Mining Company. Transfer Certificate titles for Lots 1 and 4 were issued in
with the board of directors that exercises its corporate powers. In turn,
favor of Lepanto.
physical acts of the corporation, like the signing of documents, can be
Unknown to Lepanto, the CFI of La Union issued an order
performed only by natural persons duly authorized for the purposes by
declaring the OCT of Galvez over the 4 parcels of lot, null and void.
corporate by-laws or by a specific act of the board of directors.
Subsequently, Lepanto sold Lot 1 and 4 to Shipside Inc. and a TCT was
issued in favor of Shipside Inc.
It is undisputed that on October 21, 1999, the time petitioner's Resident
About 10 years later, the declaration of Galvez’ titles as null and
Manager Balbin filed the petition, there was no proof attached thereto that
void became final and executory. And 24 years later, the OSG filed a
Balbin was authorized to sign the verification and non-forum shopping
complaint for cancellation of the title of Galvez and his
certification therein, as a consequence of which the petition was dismissed
successors-in-interest, including Shipside Inc.
by the Court of Appeals. However, subsequent to such dismissal,
Shipside instituted a petition for certiorari and prohibition, with the
petitioner filed a motion for reconsideration, attaching to said motion a
CA, which was dismissed by the CA on the ground that the verification and
certificate issued by its board secretary stating that on October 11, 1999,
certification in the petition, under the signature of Lorenzo Balbin Jr.,the
or ten days prior to the filing of the petition, Balbin had been authorized by
resident manager of Shipside, was made without authority, there being no
petitioner's board of directors to file said petition.
proof that Balbin was authorized to institute the petition for and in behalf of
Shipside Inc.
The Court has consistently held that the requirement regarding
Shipside filed for a MR attached to its motion a certificate issued
verification of a pleading is formal, not jurisdictional, hence
by board secretary that 10 days prior to filing of the petition, Balbin had
non-compliance of which does not necessarily render the pleading fatally
been authorized by Shipside Board to file said petition. But CA denied its
defective. The court may order the correction of the pleading if verification
MR.
is lacking or act on the pleading although it is not verified, if the attending
Hence this petition.
circumstances are such that strict compliance with the rules may be
dispensed with in order that the ends of justice may thereby be served.
ISSUE:
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On the other hand, the lack of certification against forum shopping is

generally not curable by the submission thereof after the filing of the
petition. However, in certain exceptional circumstances, the Court has
allowed the belated filing of the certification.
In the instant case, the merits of petitioner's case should be considered

special circumstances or compelling reasons that justify tempering the
requirement in regard to the certificate of non-forum shopping. The court
found reason to accept the submission of Shipside of their certification
despite the failure to show proof that Balbin was an authorized signatory.
CLV OUTLINE:
A corporation has no power except those expressly conferred by the
Corporation Code and those implied or incidental to its existence. In turn, a
corporation exercises said powers through its Board of Directors and/or its
duly authorized officers. In turn, physical acts of the corporation, like the
signing of documents, can be performed only by natural persons duly
authorized by corporate bylaws or by a specific act of the Board.
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Pilipinas Loan Co. v. SEC, 356 SCRA 193 (2001) RULING:

FACTS: 1. A corporation, under the Corporation Code, has only such powers
Private respondent Filipinas Pawnshop, Inc. is a duly organized as are expressly granted to it by law and by its articles of
incorporation, those which may be incidental to such conferred
corporation registered with the Securities and Exchange Commission on
powers, those reasonably necessary to accomplish its purposes
February 9, 1959. The articles of incorporation of private respondent
and those which may be incident to its existence.
states that its primary purpose is to extend loans at legal interest on the
security of either personal properties or on the security of real properties,
2. In the case at bar, the limit of the powers of petitioner as a
and to finance installment sales of motor vehicles, home appliances and
corporation is very clear, it is categorically prohibited from
other chattels.
"engaging in pawnbroking as defined under PD114". Hence, in
Petitioner is a lending corporation duly registered with the SEC on July 27, determining what constitutes pawn brokerage, the relevant law to
1989. Based on its articles of incorporation, the primary purpose of consider is PD 114.
petitioner is to act as a lending investor or, otherwise, to engage in the
3. Indispensable therefore to the determination of whether or not
practice of lending money or extending loans on the security of real or
petitioner had violated its articles of incorporation, was an inquiry
personal, tangible or intangible properties whether as pledge, real or
by the SEC if petitioner was holding out itself to the public as a
chattel mortgage or otherwise, xxx without, however, engaging in
pawnshop. It must be stressed that the determination of whether
pawnbroking as defined under PD 114."
petitioner violated PD 114 was merely incidental to the regulatory
Private respondent filed a complaint with the Prosecution and Enforcement powers of the SEC, to see to it that a corporation does not go
Department (PED) of the SEC and alleged that: (1) petitioner, contrary to beyond the powers granted to it by its articles of incorporation.
the restriction set by the Commission, has been operating and doing
business as a pawnbroker, pawnshop or "sanglaan" in the same CLV OUTLINE: A corporation organized to engage as a lending investor
neighborhood where private respondent has had its own pawnshop for 30 cannot engage in pawnbroker.
years in violation of its primary purpose and without the imprimatur of the
Central Bank to engage in the pawnshop business thereby causing unjust
A corporation has only such powers as are expressly granted by law and
and unfair competition with private respondent. Petitioner denied that it is
its articles of incorporation (express powers), those which may be
engaged in the pawnshop business, alleging that it is a lending investor
incidental to such conferred powers, those reasonably necessary to
duly registered with the Central Bank.
accomplish its purposes (implied powers), and those which may be
incident to its existence as a juridical entity (incidental powers). Pilipinas
Loan Co. v. SEC, 356 SCRA 193 (2001).
ISSUE: Whether Pilipinas Loan Co. violated its primary franchise. YES
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Atrium Management Corp. v. Court of Appeals, 353 SCRA 23 (2001) It is, however, our view that there is basis to rule that the act of issuing
the checks was well within the ambit of a valid corporate act, for it
FACTS: Hi-Cement, through its Chairman (De las Alas, who later died) was for securing a loan to finance the activities of the corporation,
and Treasurer (de Leon), issued checks in favor of E.T. Henry and Co. Inc. hence, not an ultra vires act.
as payee. The latter endorsed the checks to Atrium for valuable
consideration. When Atrium presented the checks for payment, the NOTE: The Treasurer De Leon was held personally liable for her gross
drawee bank dishonored all four checks for the common reason “payment negligence when she signed the confirmation letter requested by Atrium
stopped.” Atrium thus filed a case for collection of sum of money. and ET Henry for the rediscounting of the crossed checks issued in favor
of ET Henry. She was aware that the checks were strictly endorsed for
The trial court ruled that the Treasurer De Leon, E.T. Henry, and deposit only to the payees’ account and not to be further negotiated.
Hi-Cement were jointly and severally liable to Atrium. The CA modified the
decision absolving Hi-Cement of its liability, alleging that the Treasurer and CLV Outline:
Chairman were unauthorized to issue the checks. Thus, the issuance of Incidental Powers: The act of issuing checks is within the ambit of a valid
the checks constituted ultra vires acts. corporate act, for it is for securing a loan to finance the activities of the
corporation, hence, not an ultra vires act. ✔Atrium Management Corp. v.
ISSUE: Whether the issuance of the checks was an ultra vires act. NO Court of Appeals, 353 SCRA 23 (2001).
RULING: The record reveals that Hi-Cement Corporation issued the four
(4) checks to extend financial assistance to E.T. Henry, not as payment of
the balance of the P30 million pesos cost of hydro oil delivered by E.T.
Henry to Hi-Cement. Why else would petitioner de Leon ask for
counterpart checks from E.T. Henry if the checks were in payment for
hydro oil delivered by E.T. Henry to Hi-Cement?
Hi-Cement, however, maintains that the checks were not issued for
consideration and that Lourdes and E.T. Henry engaged in a "kiting
operation" to raise funds for E.T. Henry, who admittedly was in need of
financial assistance. The Court finds that there was no sufficient evidence
to show that such is the case. Lourdes M. de Leon is the treasurer of the
corporation and is authorized to sign checks for the corporation. At the
time of the issuance of the checks, there were sufficient funds in the bank
to cover payment of the amount of P2 million pesos.
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Sell, Dispose, Mortgage or Encumber All or Substantially All Assets

(Sec. 39; SEC Memo Circular No. 12-2020)
● Corporate property is not property of the shareholders or
SEC Memorandum Circular No. 12-2020 (Shareholders’ Approval of
members, and as such, may not be sold without express authority
Sale of Corporate Assets for Publicly Listed Companies)
from the Board of Directors. Litonjua v. Eternit Corp., 490 SCRA
204 (2006).
Link: ● Sale by Board of the only corporate property without compliance
https://www.sec.gov.ph/mc-2020/mc-no-12-s-2020shareholderss-appr with Sec. 40 requiring ratification of members representing at least
oval-on-sale-of-corporate-assets/#gsc.tab=0 two-thirds of the membership, would make the sale null and void.
Islamic Directorate v. CA, 272 SCRA 454 (1997); Peña v. Court of
Appeals, 193 SCRA 717 (1991).
(1)The sale or disposal of corporate property and assets amounting to at ● The Corporation Code defines a sale or disposition of substantially
least 51% of the corporation’s total assets shall be considered as sale of all assets and property of a corporation as one by which the
all or substantially all of corporate property and assets, whether such corporation “would be rendered incapable of continuing the
sale accrued in a single transaction or in several transactions taking business or accomplishing the purpose for which it was
place within one (1) year from the date of the first transaction(aggregate incorporated” – any sale or disposition short of this will not need
sale transactions). shareholder ratification and may be pursued by the majority vote
(2)In sale of corporate assets or property falling under the preceding of the Board of Directors. Strategic Alliance Dev. Corp. v.
paragraph, the vote of the stockholders representing at least Radstock Securities Ltd., 607 SCRA 413 (2009).
two-thirds (2/3) of the outstanding capital stock in a stockholders’
meeting duly called for the purpose shall be required prior to the
execution of the sale transaction.
(3)In aggregate sale transactions, shareholder approval shall be required
for the sale transaction that breaches the 51%corporate asset threshold.
(4)The determination of whether or not the sale amounts to at least
51% of the corporation’s assets must be computed based on its total
assets as shown in its latest audited financial statements, provided
that the computation may also be based on the latest quarterly
financial statement or a special purpose financial statement prepared
in connection with the execution of the transaction.
CLV Outline:
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De la Rama v. Ma-ao Sugar Central Co., 27 SCRA 247 (1969) main purpose, and done so without the authority of the stockholders of the
corporation – YES
FACTS:
RULING:
This was a representative or derivative suit filed by four minority
The SC agreed with the trial court that the corporations which Ma-ao
stockholders against the Ma-ao Sugar Central Co., Inc. and J. Amado
Sugar invested in were necessary to accomplish its purpose stated in the
Araneta and three other directors of the corporation. The complaint stated
articles of incorporation (Ex. Philippine Fiber: they manufacture sugar bags
five causes of action, to wit (1) for alleged illegal and ultra-vires acts
which is still within the context of the sugar business). Such investments
consisting of self-dealing irregular loans, and unauthorized investments;
still fall within the corporation’s primary purpose which means
(2) for alleged gross mismanagement; (3) for alleged forfeiture of
ratification by the stockholders are not necessary in order for a
corporate rights warranting dissolution; (4) for alleged damages and
attorney's fees; and (5) for receivership. corporation to exercise this action.
In addition, such investments (to Philippine Fiber Processing Co., Inc.) The ruling of the court in this case cited Professor Guevarra who
were made without the approval of the stockholders who are entitled to reconciled Sec 17 and Sec 13 of Corp law provisions.
vote (initially wala rin approval ng board of directors pero late sila nag
submit ng resolution to approve it, when payments were already made but Power to acquire or dispose of shares and securities — Such an act, if
still without the approval of its stockholders). It is argued that such an act done in pursuance of the corporate purpose (does not distinguish between
primary and secondary purpose), does not need the approval of the
is contrary to Sec. 17 1⁄2 of the Corporation Law in that investing funds of
stockholders (See Notes* Ma'am interprets this as PRIMARY PURPOSE);
a corporation cannot be done unless with the approval of the board of but when the purchase of shares of another corporation is done solely for
directors and its stockholders who are entitled to vote. On the other hand, investment and not to accomplish the purpose of its incorporation, the vote
Ma-ao argues Sec. 13 of the Corp. Law to justify that the investments they of approval of the stockholders is necessary. (Ma'am interprets this as
made, although not directly connected to the main purpose, were still SECONDARY PURPOSE/ANY OTHER PURPOSE )
pursuant to the purpose of the corporation – sugar central business.
Power to invest corporate funds — When the investment is necessary to
accomplish its purpose (See Notes* Ma'am interprets this as PRIMARY
Respondents admit to investing P655k in shares of stock to Philippine
PURPOSE) for purposes as stated in its articles of incorporation, the
Fiber but such act was ratified by the BOD and they contend that approval of the stockholders is not necessary (pero sa Board need pa rin
Philippine Fiber was engaged in the manufacture of sugar bags, it was FYI).
legitimate for Ma-ao Sugar to invest in a corporation that could
manufacture sugar bags for them.*** See Notes for interpretation of Ratio Therefore, the court agreed with the finding of the Lower Court that the
by Ma’am Lipardo in light of Sec 41. RCC investment in question does not fall under the purview of Sec. 17- ½ of the
Corporation Law.
Investment by a sugar central in the equity of a jute-bag manufacturing

ISSUE: WoN the board of directors were correct in investing corporate company used in packing sugar falls within the implied powers of the
funds in various corporations that do not have a direct connection with its
159 | TKP 2025

sugar central as part of its primary purpose; it does not need shareholders’ mortgage, pledge or dispose of shares, board of directors has been so
ratification. bonds, securities, and other evidences of authorized in a resolution by the
indebtedness of any domestic or foreign affirmative vote of stockholders holding
corporation. Such an act, if done in shares in the corporation entitling them
CLV Syllabus: pursuance of the corporate purpose, to exercise at least two-thirds of the
does not need the approval of the voting power on such a proposal at a
2. Express Powers Requiring Shareholders’ Ratification stockholders; but when the purchase of stockholders' meeting called for that
shares of another corporation is done purpose,' and provided further, that no
E. Invest Corporate Funds for Non-Primary Purpose Endeavor (Sec. solely for investment and not to agricultural or mining corporation shall in
41) accomplish the purpose of its anywise be interested in any other
incorporation, the vote of approval of agricultural or mining corporation.When the
Investment by a sugar central in the equity of a jute-bag manufacturing the stockholders is necessary. investment is necessary to accomplish its
purpose or purposes as stated in its articles
company used in packing sugar falls within the implied powers of the of incorporation, the approval of the
sugar central as part of its primary purpose; it does not need shareholders’ stockholders is not necessary."
ratification. ✔De la Rama v. Ma-ao Sugar Central Co., 27 SCRA 247
(1969). Court agreed with the finding of the Lower Court that the investment in question does not fall
under the purview of Sec. 17-1/2 of the Corporation Law.
Notes: *Notes:
Plaintiff invoked Section 17-½ of the Corporation Code: "No corporation organized under
this act shall invest its funds in any other corporation or business, or for any purpose other SEE SECTION 41 RCC (MA’AM CLARIFIES THIS CASE THROUGH
than the main purpose for which it was organized, unless its board of directors has been so THIS SEC)
authorized in a resolution by the affirmative vote of stockholders holding shares in the
corporation entitling them to exercise at least two-thirds of the voting power on such proposal RULES FOR INVESTMENT OF CORP FUNDS:
at a stockholders' meeting called for the purpose (doesn't say secondary of primary)
PRIMARY PURPOSE - BOARD APPROVAL ALWAYS
Defendants invoked Section 13, Par. 10 of the Corporation Code:
SECONDARY PURPOSE - ⅔ STOCKHOLDERS + BOARD
(9) To enter into any obligation or contract essential to the proper administration of its
corporate affairs or necessary for the proper transaction of the business or accomplishment IF NONE OF THESE - ULTRA VIRES, EVEN WHEN THEY WANT TO
of the purpose for which the corporation was organized; (doesn't say secondary of primary)
VOTE
(10) Except as in this Section otherwise provided, and in order to accomplish its purpose as
stated in the articles of incorporation, to acquire, hold, mortgage, pledge or dispose of shares, *case doesn't really explain the diff w PRIMARY AND SECONDARY
bonds, securities and other evidence of indebtedness of any domestic or foreign corporation."
PURPOSE, i think because this was still old Corp Law and terminology
wasn’t what it is now….. all the facts mention was that the BOD ratified the
Power to acquire or dispose of shares Power to invest corporate funds
or securities
investment in Phil Fiber
(If you’re like me, u can't really infer these Rules from the jump but MA’AM
A private corporation, in order to A private corporation has the power to
accomplish its purpose as stated in its invest its corporate funds 'in any other LIPARDO SAYS GR: BOARD APPROVAL IS ALWAYS NECESSARY
articles of incorporation, and subject to the corporation or business, or for any EVEN SA PRIMARY PURPOSE)
limitations imposed by the Corporation purpose other than the main purpose for
Law, has the power to acquire, hold, which it was organized,' provided that 'its
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ISSUE: Whether or not the management agreement is a contract of

Nielson & Co. v. Lepanto Consolidated Mining, 26 SCRA 540 (1968) agency, hence, revocable at will? NO
RULING:
FACTS: Lepanto argues that the management contract is one of agency because:
(Facts from the 1966 case) 1) Nielson was to manage and operate the mining properties and
Nielson and Lepanto entered into an operating agreement in 1937 mill on behalf and for the account of Lepanto.
whereby Nielson will operate the mines owned by Lepanto for a 2) Nielson was authorized to represent Lepanto on its behalf to
management fee of P2,000 and 10% of the net profits. The contract was enter into contracts.
for a period of 5 years, from 1937 – 1942. In 1941, before the contract According to Lepanto, this only shows that Nielson was destined
expired, the parties renewed the contract for another 5 years, from 1942 to to execute juridical acts not on its own behalf but on behalf of Lepanto "at
1947. all times". Hence Lepanto claims that the contract is one of agency.
However, in 1941 war broke out in the Pacific, and the mine, Lepanto then maintains that an agency is revocable at the will of the
equipment, everything was destroyed by order of the US army to prevent principal.
the Japanese army from utilizing the mines. The Japanese forces then However, it appears from the contract that the principal and
occupied the mines until 1945. It was only in 1948 when the mines again paramount undertaking of Nielson under the management contract was
became operational but by then, Lepanto was already the one managing the operation and development of the mine and the operation of the mill. In
the mines and refused Nielson from operating it contending that the performing its principal undertaking Nielson was not acting as an agent of
contract had already expired in 1947. Nielson argued that it was Lepanto, in the sense that the term agent is interpreted under the law of
suspended because of the war and hence, the period in which Nielson agency, but as one who was performing material acts for an employer, for
was unable to operate the mines should not be included. a compensation.
The Court ruled in favor of Nielson in that the contract was It is seen, from the provision of paragraph XI of the management
suspended and hence, ran from 1948-1953, entitling Nielson to its contract, that Lepanto could not terminate the agreement at will. Lepanto
management fee and 10% of the net profits. could terminate or cancel the agreement by giving notice of termination
(Present Case) From this ruling of the Court, Lepanto filed a ninety days in advance only in the event that Nielson should prosecute in
motion for reconsideration and for the first time on appeal, it raised the bad faith and not in accordance with approved mining practice the
issue that the Court failed to apply the law on agency or management operation and development of the mining properties of Lepanto. Lepanto
contract wherein the principal may revoke the agency at will. According to could not terminate the agreement if Nielson should cease to prosecute
Lepanto, the Court had overlooked the real nature of the management the operation and development of the mining properties by reason of acts
contract between the parties as being a contract of agency and as such, it of God, strike and other causes beyond the control of Nielson.
had the right to revoke and terminate the agency. We can gather from the foregoing statements in the annual report
for 1936, and from the provision of paragraph XI of the Management
contract, that the employment by Lepanto of Nielson to operate and
161 | TKP 2025

manage its mines was principally in consideration of the know-how and

technical services that Nielson offered Lepanto. The contract thus entered
into pursuant to the offer made by Nielson and accepted by Lepanto was a
"detailed operating contract". It was not a contract of agency. Nowhere in
the record is it shown that Lepanto considered Nielson as its agent and
that Lepanto terminated the management contract because it had lost its
trust and confidence in Nielson.
It is Our considered view that by express stipulation of the parties,
the management contract in question is not revocable at the will of
Lepanto. We rule that this management contract is not a contract of
agency as defined in Article 1709 of the old Civil Code, but a contract of
lease of services as defined in Article 1544 of the same Code. This
contract can not be unilaterally revoked by Lepanto.
CLV OUTLINE:
A management contract is not an agency contract, and therefore is not
revocable at will. ✔Nielson & Co. v. Lepanto Consolidated Mining, 26
SCRA 540 (1968
162 | TKP 2025

Other Corporate Powers: Sell Land and Other Properties ISSUE: Whether or not there was a valid and binding contract between the
two corporations? NO.
San Juan Structural v. Court of Appeals, 296 SCRA 631 (1998)
RULING:
FACTS:
The court ruled that there was no valid and binding contracting
San Juan Structural and Steel Fabricators entered into an
between the corporations because Motorich, the owner of the property,
agreement with Motorich to transfer to the former a parcel of land. The
never authorized or ratified the sale.
agreement contains that San Juan will pay P100k as downpayment and
the balance to be paid on March 2. On March 1, Co, the president of San
Based on the doctrine that a corporation is a juridical person with
Juan, requested for a computation of the balance to be paid from the
a separate and distinct personality, the property owned by the corporation
broker of Motorich. On the day itself, Nenita, the corporate treasurer, did is not owned by the stockholders or members. A corporation may only act
not appear in the agreed meeting place and despite repeated demands, through its board of directors or, when authorized either by its bylaws or its
the same refused to transfer the certificate of title to San Juan.
board resolution, through its officers or agents in the normal course of
business. The general principles of agency govern the relation between
Motorich and Nenita argued that the President and Chairman of
the corporation and its officers or agents, subject to the articles of
Motorich did not sign the agreement and the signature of Nenita in the
incorporation, bylaws, or relevant provisions of the law.
agreement is inadequate to bind Motorich as well. And it was also San
Juan who drafted the agreement and insisted Nenita accept the payment
First, real estate sale is not within the normal business of Motorich
of 100k as earnest money. Moreover, San Juan failed to pay the legal
whose activity is marketing, distribution, export and import of merchandise.
tender on the agreed date since the agreement stated that the transfer or Second, Nenita, who holds the position of a treasurer and whose job is to
deed of assignment will only be signed upon the receipt of cash payment receive and keep the funds of the corporation and to disperse them in
and if the payment is in check, San Juan will encash the same and sign
accordance with the authority given to her by the board or the properly
the transfer of deed. However, San Juan only informed Nenita the
authorized officers, does not assume that she is authorized to sell property
availability of the check after banking hours.
of the corporation whe the same is obviously foreign to the position’s
function. Neither did San Juan show any provision of Motorich’s articles of
RTC dismissed the case because there was no evidence showing
incorporation, bylaws or board of resolution which proves that Nenita
that Nenita was authorized by Motorich to dispose of the property that is
possesses such power. Moreover, the function of a treasurer is not
clearly owned by Motorich. Neither did Nenita obtain enough vote for the
cloaked with actual or apparent authority to buy and sell real property,
proposed sale nor evidence that the transaction was ratified by Motorich.
which is beyond the scope of her general authority.
And that San Juan should have known about these because it owns
several corporations which makes him knowledgeable on these matters.
Motorich also denied that it authorized Nenita, the corporation’s
The CA affirmed the ruling of the RTC and ordered Nenita to remit the
treasurer, to sell the land and San Juan had the burden of proving that
amount paid by San Juan.
Nenita was authorized to represent and bind Motorich in the transaction.
163 | TKP 2025

However, San Juan failed to prove the same. And the handwritten
document, not a corporate receipt, which included Nenita’s signature, is
not enough to prove that her acts were authorized or ratified by Motorich.
Therefore, the agreement between the parties is void and the same cannot
be ratified.
CLV OUTLINE: When the corporation’s primary purpose is to market,

distribute, export and import merchandise, the sale of land is not within the
actual or apparent authority of the corporation acting through its officers,
much less when acting through the treasurer. Articles 1874 and 1878 of
Civil Code requires that when land is sold through an agent, the agent’s
authority must be in writing, otherwise the sale is void.
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Aguenza v. Metropolitan Bank & Trust Co., 271 SCRA 1 (1997) letters of credit which had already been fully paid. However the court said
that they could not believe Arguenza, since it was shown that the BoD and
FACTS: even the stockholders met to discuss the obligation and that the suretyship
Sometime in 1977, the BoD of Intertrade through a Board is aptly named A CONTINUING SURETYSHIP so it remains in force until
Resolution empowered and authorized Aguenza and one Vitiliado Arrieta, written notice is given to the bank that it has been revoked by the surety,
Intertrade’s President and VP respectively, to apply for credit lines with but no cancellation was made.
Metrobank and thereafter they issued several trust receipts with Intertrade
as the entrustee and private respondent Metrobank as the entruster. ISSUE: Was the promissory note made by Arrieta and Perez a corporate
Arrieta and Aguenza then executed a Continuing Suretyship Agreement liability of Intertrade and Aguenza? NO
where they bound themselves liable with Intertrade to pay Metrobank
when the obligation occurs with a limitation of 750,000 pesos. Metrobank RULING: Intertrade has a distinct personality from its members and as
then issued to Intertrade documents showing that the letter of credit had such they transact their business only through their officers or agents, who
already been settled. derive their authority from their Board of Directors or other governing body,
who therefore derive their power from the statute, charter, or by-laws
A year later, Arrieta along with a certain Perez (Perez was a bookkeeper delegating such power to them. The appellate court erred in saying that
of Intertrade) loaned from Metrobank. They executed promissory notes for Intertrade is liable for the loans since the only proof of the transaction is
the loan, which stated that the purpose of the loan is for “operating capital” the promissory note signed by Arrieta and Perez. There was no indication
and said that they would pay jointly and severally the loan, however they as to their capacity as officers of Intertrade when they signed the notes.
defaulted, making the entire amount due and demandable. Metrobank
then filed a suit against Intertrade, Arrieta, and Perez who loaned from “In the case at bench, only respondent Arrieta, together with a bookkeeper
them. of the corporation, signed the promissory notes, without the participation
and approval of petitioner Aguenza. Moreover, the enabling corporate act
A year after such complaint, they amended it and impleaded Arguenza as on this particular transaction has not been obtained. Neither has it been
liable for the loan made by the private respondents notwithstanding the shown that any provision of the charter or any other act of the Board of
fact that such liability is being claimed on the Continuing Suretyship Directors exists to confer power on the Executive Vice President acting
Agreement (which guaranteed the credit line opened by Arrieta, and even alone and without the concurrence of its President, to execute the disputed
if these were already fully paid.) The trial court dismissed it initially and document.”
absolved Arguenza of liability. The CA reversed and held Arguenza liable.
Notably in the CA decision it was mentioned that there was no dispute as “Thus, proceeding from the premise that the subject loan was not the
to the existence of the promissory note or the suretyship agreement. What responsibility of Intertrade, it follows that the undertaking of Arrieta and the
is in controversy is whether the note was a corporate undertaking and if bookkeeper was not an undertaking covered by the Continuing Suretyship
the surety covers that note (REMEMBER: note was issued by Arrieta). Agreement. The rule is that a contract of surety is never presumed; it must
Arguenza feigned ignorance of the note and claimed that he only found out be express and cannot extend to more than what is stipulated, It is strictly
about it later on and he also said that the suretyship was executed for the
165 | TKP 2025

construed against the creditor, every doubt being resolved against

enlarging the liability of the surety.”
“The present obligation incurred in the subject contract of loan, as secured

by the Arrieta and Perez promissory note, is not the obligation of the
corporation and petitioner Aguenza, but the individual and personal
obligation of private respondents Arrieta and Lilia Perez.”
CLV SYLLABUS: The power to borrow money is one of those cases

where a special power of attorney is required under Art. 1878 of the Civil
Code. There is invariably a need of an enabling act of the corporation to
be approved by its Board of Directors. The argument that the obtaining of
the loan was in accordance with the ordinary course of business usages
and practices of the corporation is devoid of merit because the prevailing
practice is to the effect that the Board must explicitly authorize an officer to
contract loans on behalf of the corporation.
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It is true that the complaint also states that the plaintiff is "represented
Other Corporate Powers: To Enter into a Partnership, Joint herein by its Managing Partner Gregorio Araneta, Inc.", another
Venture, and Other Commercial Agreements with Natural corporation, but there is nothing against one corporation being
and Juridical Persons represented by another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. cannot act as managing
Tuason & Co. v. Bolaños, 95 Phil. 106 (1954) partner for plaintiff on the theory that it is illegal for two corporations
to enter into a partnership is without merit, for the true rule is that
FACTS: "though a corporation has no power to enter into a partnership, it
JM Tuason & Co., represented by its Managing Partner Gregorio may nevertheless enter into a joint venture with another where the
Araneta, Inc., filed an action to recover possession of registered land in nature of that venture is in line with the business authorized by its
Quezon City. Bolaños sets up the defense of ownership by prescription charter." There is nothing in the record to indicate that the venture in
through open, continuous, exclusive, and notorious possession of the land which plaintiff is represented by Gregorio Araneta, Inc. as "its managing
under claim of ownership, by him and his predecessors-in-interest, since partner" is not in line with the corporate business of either of them.
time immemorial. He further argues that the registration of the land by JM
Tuason was through fraud or error or without due notice. CFI ruled in favor CLV OUTLINE: While a corporation has no inherent power to enter into a
of JM Tuason. partnership, it may enter into a joint venture arrangement.
Bolaños now argues that the CFI erred in ruling in favor of JM Tuason
because Gregorio Araneta, Inc., as Managing Partner, is not a real
party-in-interest, since the law prohibits two corporations from entering into
a partnership.
ISSUE: Is there a partnership between the two corporations? - NONE
RULING:
There is nothing to the contention that the present action is not brought by
the real party in interest, that is, by J. M. Tuason and Co., Inc. What the
Rules of Court require is that an action be brought in the name of, but not
necessarily by, the real party-in-interest. In fact the practice is for an
attorney-at-law to bring the action, that is to file the complaint, in the name
of the plaintiff. That practice appears to have been followed in this case,
since the complaint is signed by the law firm of Araneta and Araneta,
"counsel for plaintiff" and commences with the statement "comes now
plaintiff, through its undersigned counsel."
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In this jurisdiction, a corporation’s board of directors is understood to be

X. BOARD OF that body which (1) exercises all powers provided for under the
DIRECTORS/TRUSTEES AND Corporation Code; (2) conducts all business of the corporation; and (3)
controls and holds all property of the corporation. Its members have been
OFFICERS characterized as trustees or directors clothed with a fiduciary character. It
is clearly separate and distinct from the corporate entity itself.
Hornilla v. Salunat, 405 SCRA 220 (2003)
Facts:
Where corporate directors have committed a breach of trust either by their
Complainants in this case are members of the Philippine Public School
frauds, ultra vires acts, or negligence, and the corporation is unable or
Teachers Association or PPSTA. The members (on behalf of PPSTA) filed
unwilling to institute suit to remedy the wrong, a stockholder may sue on
in the SEC an intra-corporate case against the Board of Directors of the
behalf of himself and other stockholders and for the benefit of the
PPSTA. The respondent Salunat was the managing partner of ASSA Law
corporation, to bring about a redress of the wrong done directly to the
Firm which was the retained counsel of the PPSTA. Despite this, Salunat
corporation and indirectly to the stockholders. This is what is known as a
acted as counsel for the Board of Directors of PPSTA. The complainants
derivative suit, and settled is the doctrine that in a derivative suit, the
are asserting that Salunat is guilty of conflict of interest because he was
corporation is the real party in interest while the stockholder filing the suit
engaged by PPSTA and was being paid out of its corporate funds and
for the corporation’s behalf is only the nominal party. The corporation
despite being told by PPSTA members of the said conflict of interest,
should be included as a party in the suit
Salunat refused to withdraw his appearance in the cases. The aver that he
violated Rule 15.06 of the Code of Professional Responsibility when he
Thus, in a derivative suit, outside counsel must be retained to represent
appeared at the meeting of the PPSTA Board and assured its members
one of the defendants. The restriction on dual representation should not be
that he will win the PPSTA cases.
waivable by consent in the usual way; the corporation should be
presumptively incaspable of giving consent.
Issue: Can a lawyer engaged by a corporation defend members of the
board of the same corporation in a derivative suit? NO. There is conflict
A lawyer engaged as counsel for a corporation cannot represent members
of interest.
of the same corporation’s board of directors in a derivative suit brought
against them. To do so would be tantamount to representing conflicting
Ruling:
interests, which is prohibited by the Code of Professional Responsibility.
There is conflict of interest when a lawyer represents inconsistent interests
of two or more opposing parties. Such as if the acceptance of the new
The SEC case was filed by the PPSTA against its own board of directors.
retainer will require the attorney to perform an act which will injuriously
Salunat even admitted that ASSA Law Firm of which he is the managing
affect his first client in any matter in which he represents him and also
partner, was the retained counsel of PPSTA. By filing the pleading on
whether he will be called upon in his new relation to use against his first
behalf of the board of directors of PPSTA, Salunat necessarily entered his
client any knowledge acquired from their connection.
appearance. Clearly, he is guilty of conflict of interest when he represented
the parties against whom his other client, PPSTA, filed suit.
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CLV Syllabus:
Whatever may be the term used in the company charter, the “Board of
Directors” is the body which (1) exercises all powers provided for under
the Corporation Code; (2) conducts all business of the corporation; and (3)
controls and holds all properties of the corporation. Its members have
been characterized as clothed with a fiduciary character. Hence, the
corporation’s general counsel cannot represent the members of the Board
who have been sued by the shareholders in a derivative suit, for clearly
the Board is separate and distinct from the corporate entity itself.
✔Hornilla v. Salunat, 405 SCRA 220 (2003).
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DOCTRINE OF CENTRALIZED MANAGEMENT of the elected corporate officials refund their salaries considering that
Filipinas Port Services v. Go, 518 SCRA 453 (2007) Filport is not a big corporation requiring multiple executive positions, and
that said positions were just created for accommodation. On appeal, the
FACTS: CA ruled in favor of the respondents and reversed the decision of the
Filport’s president, Eliodoro Cruz, wrote a letter to the RTC.
corporation’s Board of Directors questioning the board’s creation of an
executive committee and several positions with a monthly remuneration of ISSUE:
P13,050.00 each, as well as the election of certain members to the board. 1. Whether or not Filport’s Board of Directors acted within its powers
Cruz requested that the board take necessary actions to recover from in creating the executive committee and the assailed executive
those elected the salaries they have received. positions, as well as increasing the salaries of certain positions? -
YES
The board met and took up Cruz’s letter. However, the records do 2. Whether or not the CA erred in finding no evidence that the
not show what specific actions the board had taken on the letter. executive positions were created merely for accommodation? -
Disappointed, Cruz filed a petition with the SEC against Filport’s Board of NO
Directors for alleged acts of mismanagement that were detrimental to the
interest of the corporation and its shareholders. Cruz alleged that despite RATIO:
demands made upon the members of the board to desist from creating the The governing body of a corporation is its board of directors.
positions in question and to account for the amounts incurred in creating Section 22 of the Corp. Code provides that unless otherwise provided,
the same, the demands were unanswered. Cruz claimed that the members the corporate powers of all corporations formed under the Corp.
of the board of directors be made to pay Filport, jointly and severally, the Code shall be exercised, all business conducted and all property of
sums of money for damages incurred as a result of creating the the corporation shall be controlled and held by a board of directors.
offices/positions complained of and the aggregate amount of the With the exception of some powers expressly granted by law to
questioned increased salaries. stockholders or members, the board of directors (or trustees) has the sole
authority to determine policies, enter into contracts, and conduct the
The board denied the allegations of mismanagement and claimed ordinary business of the corporation within the scope of its charter (i.e.,
that the creation of the positions and the grant of allowance are allowed AOI, by-laws, relevant provisions of law). The authority of the BoD is
under the Filport’s by-laws, that the salary increase was well-within the restricted to the management of the regular business affairs of the
financial capacity of the corporation and is well-deserved by the elected corporation, unless more extensive power is expressly conferred.
officers, and that some of the contended positions were already in
existence during the tenure of Cruz as president. The board asserted that The concentration of the powers of control of corporate business
Cruz had no authority nor standing to file the “derivative suit” for and on in the board and of appointment of corporate officers and managers is
behalf of the corporation with the SEC, and there was no demand to cease necessary for efficiency in any large organization. The stockholders shall
and desist from further committing the acts complained of was made upon choose the directors who shall control and supervise the conduct of
the board. corporate business.
The SEC was unable to render a decision so the case was turned In this case, the board’s creation of the assailed executive
over to the RTC. Although the RTC stated that the board has the authority positions was in accordance with the regular business operations of Filport
to create executive positions not provided for in the by-laws since it is the as it is authorized to do so by the corporation’s by-laws, pursuant to the
governing body, the RTC still ruled in favor of Cruz and ordered that some Corp. Code. Likewise, the fixing of the corresponding remunerations for
170 | TKP 2025

the positions in question is provided for in the same by-laws of Filport. choose the directors who shall control and supervise the conduct of
However, the by-laws of the corporation are silent as to the creation by its corporate business.
board of directors of an executive committee. Under the Corp. Code, the
creation of an exec. committee must be provided for in the by-laws.
However, the Court cannot rule that the creation of the executive
committee is illegal or unlawful. The Board of Directors has the power
to create positions not provided for in Filport’s bylaws since the board is
the corporation’s governing body, clearly upholding the power of its board
to exercise its prerogatives in managing the business affairs of the
corporation
After a judicious scrutiny of the increase of salaries vis-a-vis the

value of the services rendered to the corporation by the officers
concerned, the Court agrees with the findings of the lower courts as to the
reasonableness and fairness of such remunerations.
The argument of mismanagement is bereft of any foundation.

Cruz’s testimony consists merely of insinuations of alleged wrongdoings
on the part of the board. To hold the board members liable, there must be
a clear showing of bad faith and that they acted with malice in doing the
assailed acts. Bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of a known duty through some
motive or interest or ill-will partaking of the nature of fraud. There was no
evidence to show the fact that the executive positions were created for
“mere accommodation”. Questions of policy or of management are left
solely to the honest decision of the board as the business manager of the
corporation, and the court is without authority to substitute its judgment for
that of the board, and as long as it acts in good faith and in the exercise of
honest judgment in the interest of the corporation, its orders are not
reviewable by the courts.
CLV OUTLINE: The raison d’etre [t/n: purpose] behind conferment of

corporate powers on the Board is not lost on the Court — indeed, the
concentration in the Board of the powers of control of corporate business
and appointment of corporate officers and managers is necessary for
efficiency in any large organization. Shareholders are too numerous,
scattered and unfamiliar with the corporate business to conduct its affairs
directly — so the plan of corporate organization is for the shareholders to
171 | TKP 2025

Doctrine of Centralized Management repurchase the property. The deposit of P725,000 was accepted
by PNB on the condition that the purchase price is still subject
Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006)
to the approval of the PNB Board.
9. In a letter date November 14, 1984, PNB management informed
FACTS: Manila Metal that it was rejecting the offer and the
recommendation of the SAMD. It was suggested that the petitioner
1. The subject property is an eight thousand fifteen (8,015) square purchase the property for P2, 660, 000, its minimum market value.
meter land located at Dansalan St., Barrio Barranca, PNB gave Manila Metal until December 15, 1984 to act on the
Mandaluyong, Metro Manila, originally registered in the name of proposal; otherwise, its P725, 000 deposit would be returned and
Manila Metal Container Corporation (MMCC) under Transfer the property would be sold to other interested buyers.
Certificate of Title No. 332098 of the Registry of Deeds for the 10. Petitioner Manila Metal did not agree with PNB’s proposal. Manila
Province of Rizal. To secure a loan it had obtained from PNB, Metal maintained that PNB had agreed to sell the property for P1,
Manila Metal executed a real estate mortgage over the lot. 574, 560 and that since its P725, 000 downpayment had been
2. On August 5, 1982, the Philippine National Bank (PNB) filed with accepted, PNB was proscribed from increasing the purchase price
the Provincial Sheriff of Rizal a petition for extrajudicial foreclosure of the property. Manila Metal averred that it had a net balance
and sale of the subject property under Act No. 3135, as amended, payable in the amount of P643, 452. However, when Manila Metal
and Presidential Decree No. 385 to satisfy the mortgage offered to pay said amount, PNB rejected the offer.
indebtedness of MMCC in the amount of P911,532.21 plus interest 11. Manila Metal filed a complaint against PNB for “Annulment of
at the rate of 21% per annum on the amount of P679,768.29 and Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific
3% penalty charge as well as 10% attorney's fees on the total Performance with Damages.”
amount due and the Sheriff's fees. 12. In its Answer, PNB averred, as a special and affirmative defense,
3. At the public auction sale held on September 28, 1982, the that it had acquired ownership over the property after the period to
Provincial Sheriff of Rizal sold the subject property to PNB as the redeem had elapsed. It claimed that no contract of sale was
sole and highest bidder for P1,056,924.40. perfected between it and Manila Metal after the period to redeem
4. The period of redemption of the property was until February 17, the property had expired.
1984. 13. RTC and CA ruled that there was no perfected contract as there
5. On August 25, 1983, Manila Metal sent a letter to PNB, requesting was no meeting of the minds between parties as to the price or
that it be granted an extension of time to redeem/repurchase the consideration of the sale.
property. On August 30, 1983, MMCC's said letter was referred by
PNB to its Pasay City Branch for appropriate action. ISSUE:
6. On March 1, 1984, TCT No. 332078 in the name of MMCC was Whether there was a perfected contract between Manila Metal and PNB?
canceled. In its stead, the Register of Deeds of Mandaluyong NO.
issued TCT No. 43792 in the name of PNB.
7. On June 8, 1984, the Special Assets Management Department RATIO:
(SAMD) of PNB prepared an updated Statement of Account A contract is a meeting of minds between two persons whereby one binds himself, with
showing MMCC's total liability to PNB as of June 25, 1984 to be respect to the other, to give something or to render some service. Under Article 1318 of the
New Civil Code, there is no contract unless the following requisites concur:
P1,574,560.47 and recommended this amount as the repurchase
price of the subject property. (1) Consent of the contracting parties;
8. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to (2) Object certain which is the subject matter of the contract;
172 | TKP 2025

(3) Cause of the obligation which is established.

Section 23 (now Section 22, RCC) of the Corporation Code expressly
Contracts are perfected by mere consent which is manifested by the meeting of the offer and provides that the corporate powers of all corporations shall be exercised
the acceptance upon the thing and the cause which are to constitute the contract. Once by the board of directors. Just as a natural person may authorize another
perfected, they bind other contracting parties and the obligations arising therefrom have the to do certain acts in his behalf, so may the board of directors of a
form of law between the parties and should be complied with in good faith. corporation validly delegate some of its functions to individual officers or
By the contract of sale, one of the contracting parties obligates himself to agents appointed by it. Thus, contracts or acts of a corporation must be
transfer the ownership of and deliver a determinate thing, and the other to made either by the board of directors or by a corporate agent duly
pay therefor a price certain in money or its equivalent. The absence of any authorized by the board. Absent such valid delegation/authorization, the
of the essential elements will negate the existence of a perfected contract rule is that the declarations of an individual director relating to the affairs of
of sale. A contract of sale is consensual in nature and is perfected upon the corporation, but not in the course of, or connected with the
mere meeting of the minds. When there is merely an offer by one party performance of authorized duties of such director, are held not binding on
without acceptance of the other, there is no contract. When the contract of the corporation.
sale is not perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation between the parties. Thus, a corporation can only execute its powers and transact its business
A negotiation is formally initiated by an offer, which, however, must be certain. At any time
through its Board of Directors and through its officers and agents when
prior to the perfection of the contract, either negotiating party may stop the negotiation. At this authorized by a board resolution or its by-laws.
stage, the offer may be withdrawn; the withdrawal is effective immediately after its
manifestation. To convert the offer into a contract, the acceptance must be absolute and must It appears that the SAMD had prepared a recommendation for respondent
not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without
variance of any sort from the proposal.
to accept petitioner's offer to repurchase the property even beyond the
one-year period; it recommended that petitioner be allowed to redeem the
A qualified acceptance or one that involves a new proposal constitutes a property and pay P1,574,560.00 as the purchase price. Respondent later
counter-offer and a rejection of the original offer. A counter-offer is approved the recommendation that the property be sold to petitioner. But
considered in law, a rejection of the original offer and an attempt to end the instead of the P1,574,560.47 recommended by the SAMD and to which
negotiation between the parties on a different basis. Consequently, when petitioner had previously conformed, respondent set the purchase price at
something is desired which is not exactly what is proposed in the offer, such acceptance is
not sufficient to guarantee consent because any modification or variation from the terms of
P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was
the offer annuls the offer. The acceptance must be identical in all respects with that of the qualified, hence can be at most considered as a counter-offer. If petitioner
offer so as to produce consent or meeting of the minds. had accepted this counter-offer, a perfected contract of sale would have
The statement of account prepared by the SAMD stating that the net arisen; as it turns out, however, petitioner merely sought to have the
claim of respondent as of June 25, 1984 was P1,574,560.47 cannot be counter-offer reconsidered. This request for reconsideration would later be
considered an unqualified acceptance to petitioner's offer to rejected by respondent.
purchase the property. There is no evidence that the SAMD was
authorized by respondent's Board of Directors to accept petitioner's Court does not agree with petitioner's contention that the P725,000.00 it
offer and sell the property for P1,574,560.47. Any acceptance by the had remitted to respondent was "earnest money" which could be
SAMD of petitioner's offer would not bind respondent. considered as proof of the perfection of a contract of sale under Article
1482 of the New Civil Code. Thus, the P725,000.00 was merely a deposit
to be applied as part of the purchase price of the property, in the event that
As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight respondent would approve the recommendation of SAMD for respondent
Services, Inc.: to accept petitioner's offer to purchase the property for P1,574,560.47.
173 | TKP 2025

Unless and until the respondent accepted the offer on these terms, no
perfected contract of sale would arise. Absent proof of the concurrence of
all the essential elements of a contract of sale, the giving of earnest money
cannot establish the existence of a perfected contract of sale.
It appears that although respondent requested petitioner to conform to its

amended counter-offer, petitioner refused and instead requested
respondent to reconsider its amended counter-offer. Petitioner's request
was ultimately rejected and respondent offered to refund its P725,000.00
deposit.
In sum, then, there was no perfected contract of sale between petitioner

and respondent over the subject property.
CLV OUTLINE: Manila Metal Container Corp. v. PNB, held that contracts
or acts of a corporation must be made either by the Board of Directors or
by a corporate agent duly authorized by the Board; and that absent such
valid delegation/ authorization, the rule is that the declaration of an
individual director relating to the affairs of the corporation, but not in the
course of, or connected with the performance of authorized duties of such
director, are held not binding on the corporation. An individual director per
se is not an agent of the corporation having any implied powers to bind the
corporation.
174 | TKP 2025

Stradcom Corp. v. Pilapil, A.C No. 11783 (Notice), 28 March 2022 that all corporate powers are exercised, all business conducted, and all
properties controlled by the board of directors. An individual corporate
Facts:
officer cannot solely exercise any corporate power pertaining to the
● Disbarment case against Atty. Pilapil corporation without authority from the board of directors. Guided by the
● This stems from an intra-corporate controversy between the foregoing, as Corporate Secretary and Vice President of Legal of
Quiambao group and the Sumbilla group, both who claim to be the Stradcom, Atty. Pilapil was duty-bound to protect Stradcom's interests and
duly constituted Board of Directors and officers of Stradcom, the correct any misrepresentation of parties who purport to represent
information and technology service provider of LTO. Stradcom despite lacking authority from its board. This includes preventing
● Sumbilla Group engaged the services of CLTPSJ Law Firm to file any individual from hiring a counsel to represent Stradcom despite lack of
a petition of an interim measure of protection authority from the corporation.
● Sumbilla attached a Secretary’s Certificate executed by Rodolfo
the power of a corporation to sue and be sued in any court is lodged with
Millare, alleged assistant of Stradcom, to attest that Sumbilla was
the board of directors that exercises its corporate powers. Thus, if a
authorized to institute suits on behalf of Stradcom
● The Law firm then received a letter from Atty. Pilapil demanding complaint is filed for and on behalf of the plaintiff who is not authorized to
do so, the complaint does not produce any legal effect and the court must
that they cease and desist from representing themselves as
dismiss the complaint on the ground that it has no jurisdiction over the
counsel of Stradcom otherwise they will file suits against them. It
complaint and the plaintiff.
stated that CLTPSJ has never been engaged as counsel by
Stradcom Considering CLTPSJ's purported authority to file the suit springs only from
● Because of this, CLPTSJ withdrew as the Sumbilla group’s Sumbilla, who purportedly has no authority to represent the corporation,
counsel Atty. Pilapil's demand for CLTPSJ to cease from representing Stradcom is
● Sumbilla filed a disbarment complaint against Atty Pilapil because relevant to the suits instituted by CLTPSJ, or any counsel engaged by
of his harassment with CLTPSJ with baseless suits to prevent Sumbilla purportedly on behalf of Stradcom, since it is a ground for the
them from representing Stradcom dismissal of the said suits. In sending the letter, Atty. Pilapil was merely
● In addition, Atty. Pilapil allegedly confronted Sumbilla and told him protecting his client's interests within the bounds of the law.
to “stop what he was doing, pretending that he (Sumbilla) was the
CLV Outline: Section 22, in relation to Sec. 24 of the RCC clearly states
owner of Stradcom.”
that all corporate powers are exercised, all business conducted, and all
● Atty. Pilapil is the corporate secretary and VP for Legal of properties controlled by the board of directors. Therefore, an individual
Stradcom corporate officer cannot solely exercise any corporate power pertaining to
● He asserts that the Secretary’s Certificate authorizing Sumbilla is
the corporation without authority from the board of directors. In view of
fake
this, the demand from another entity to desist from representing Stradcom
Issue: Whether atty Pilapil should be held administratively liable? NO in view of its lack of authority to represent the corporation is based on
legitimate cause of actions, and that the Corporate Secretary and Vice
President of Stradcom were duty-bound to protect Stradcom’s interest and
Ratio:
correct any misrepresentation of parties who purport to represent
Atty. Pilapil's demand for CLTPSJ to desist from representing Stradcom in Stradcom despite lacking authority from its board, and includes any
view of its lack of authority to represent the corporation, is based on a individual from hiring a counsel to represent Stradcom despite lack of
legitimate cause and is at the heart of the Quiambao Group's primary authority from the corporation. Stradcom Corp. v. Pilapil, A.C No. 11783
claim that it has the rightful control and management over Stradcom. (Notice), 28 March 2022.
Section 23, in relation to Section 25 of the Corporation Code, clearly states
175 | TKP 2025

Ramirez v. Orientalist Co., 38 Phil. 634 (1918) The Court in deciding this case first made a discussion as to the
binding effect of Fernandez signing for the Orientalist Company. The Court
FACTS: made reference to the Rules of Court, since the Orientalist Company failed
Orientalist Company is a domestic corporation engaged in the to deny specifically the authority of Fernandez as the representative of the
business of maintaining and conducting a theater in the city of Manila. Orientalist Company, it is deemed admitted that he is authorized to
Under its AOI the company is authorized to manufacture, buy or otherwise represent the company.
obtain all accessories necessary for conducting such business.
However, the Court discussed that the fact that Fernandez is the
J.F Ramirez a resident of the city of Paris was engaged in the treasurer of the company does not give him the independent authority to
business of marketing films for the manufacturer, there engaged in the bind the company by signing its name to the letters. The power to make
production or distribution of cinematographic material. J.F Ramirez, was corporate contracts is vested in the board of directors, but it doesn’t
represented by his son, Jose Ramirez. always need to be in a formal vote. In a jurisprudence referred to by the
Court, it has been held that the authority of the subordinate agent of a
Directors of the Orientalist Company found out that Ramirez is in corporation maybe established without reference to official record of the
control of 2 mark films, and negotiation with the agent of Ramirez (his son) proceeding of the board, but may be proved by the acquiescence of the
ensued. Fernandez, one of the directors of the Orientalist Company board charged with the duty of supervising and controlling the company’s
received an offer from the agent of Ramirez stating the terms for the business.
supply of the films from Paris; however such offer lasts only about 2 days.
In this case, Fernandez has the approval of all of the members of
On July 30, Fernandez then had an informal meeting with all the the Board except one. And the actions of the Board subsequent to the
members of the board except one and the present directors approved the receipt of the films show their acquiescence such as the attempt to secure
offer. Subsequent to this Fernandez sent a letter to the agent of Ramirez credit from BPI as well as the agreement that members of the Board will
accepting the offer. These letters were signed by Fernandez as the import the said films on their own accounts and risk. This shows that the
representative of the Orientalist Company and below it by Fernandez in his Board accepted the offer in the name of the Orientalist Company.
personal capacity.
The films arrived in Manila, and for the first few films, Ramirez was
paid accordingly. However, subsequently, the drafts for the films were not CLV Outline: Theory of State-Vested Powers: The Board of Directors
accepted hence there was a non-payment for the films. Because of this, generally has a right to ignore the resolutions of the shareholders on
Ramirez instituted this action. The trial court ruled in favor of Ramirez corporate matters, for contracts between a corporation and the public must
making the Orientalist Company principally liable and Fernandez be made by the Board in the exercise of its business judgment, and not by
subsidiarily liable as a guarantor for the payment of Ramirez. the shareholders. A Director-Treasurer has no power to bind the company
even in transactions that are pursuant to the primary purpose its
ISSUE: corporation, especially when the bylaws specifically provided that the acts
W/N the Orientalist Company shall be held liable for the payment can only be done by the Board of Directors. Ramirez v. Orientalist Co.,
of Ramirez? YES 38 Phil. 634 (1918).
RATIO:
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Toms vs. Rodriguez, 761 SCRA 679 (2015); 797 SCRA 60 (2016) Cu then executed an SPA in favour of Cezar Mancao constituting the latter
as his daily authorised representative to exercise the powers granted to
FACTS: him to perform all acts of management and control over Golden Dragon.
Golden Dragon International Terminals, inc. (Golden Dragon) is the However, a month after, Cu wrote a letter to Mancao expressly revoking
exclusive Shore Reception Facility Service Provider of the Philippine Ports the authority he had previously granted to Mancao under the SPA and
Authority (PPA) tasks to collect, treat, and dispose of all ship-generated oil other relating documents. Moreover, that he reinstates the power to
wastes in all bases and private ports under the PPA’s jurisdiction. control and manage the affairs of Golden Dragon unto himself.
Oo
Thus, Mancao and others filed a complaint for Specific Performance
The following were elected as officers of Golden Dragon: Lim (President alleging that Cu had authorised him to exercise control and management
and Chairman of the Board), Basalo (VP for Visayas and Mindanao), Ong over the Golden Dragon.
(Treasurer and VP for Luzon), and Gunnacao (Director).
Thereafter, Samuel Rodriguez filed a Complaint-in-Intervention
A group of individuals who were not elected as office including Toms, as alleging that in a Memorandum of agreement, The group of Mancao
led by Ramos forcibly took over the Golden Dragon offices and performed authorised him to take over, manage, and control the operations of
the functions of its officers. Golden Dragon in the Luzon area.
This prompted Golden Dragon through its duly-elected Chairman and RTC then granted Rodriguez’s complaint and ordered the parties to place
President, Lim, to file an action for injunction and damages against management and control of the Golden Dragon in Luzon to Rodriguez as
Ramos, et al., before the RTC of Manila. representative of Basalo
Cu (who is an owner of several shares of Golden Dragon) intervened in ISSUE: Whether Rodriguez can be placed by the court to manage and
the injunction case claiming that, he was an unpaid seller of shares of control Golden Dragon based on the MOA agreement between the latter
Golden Dragon, and that he was still the legal owner of the shares of stock and Basalo — NO. This would violate Section 23 of the Corporation
subject of the previous contracts of sale he entered into with buyers Code which states that these powers are held by the Board of
Ramos, Lim, Ong, and Gunnacao. Directors.
The RTC granted Cu’s application for injunction and ordered Lim, Ong, RULING:
Guannacao, and Ramos to cease and desist from performing or causing
the performance or any and all acts of management and control over A corporation exercises its powers through its board of directors and/or its
Golden Dragon. Cu was also given the opportunity to put in order duly authorized officers and agents, except in instances where the
Golden Dragon’s business operations. Corporation Code requires stockholders’ approval for certain specific acts.
177 | TKP 2025

According to Section 23 of the Corporation Code, and academic with the execution of the MOA dated May 25, 2015 signed
by himself, Tom, and Mancao.
Unless otherwise provided in this Code, the corporate powers of
all corporations formed under this Code shall be exercised, all Pursuant to the MOA, Rodriguez, Tom, and Mancao have come to an
business conducted and all property of such corporations agreement with respect to the operation, control, and management of the
controlled and held by the board of directors or trustees to be ports operated by Golden Dragon
elected from among the holders of stocks, or where there is no
stock, from among the members of the corporation, who shall hold The SC reiterated that it granted the writ of preliminary injunction on the
office for one (1) year until their successors are elected and ground that a corporation can only exercise its powers and transact its
qualified. business through its board of directors and through its officers and agents
when authorized by a board resolution or its bylaws.
Hence, the management and control of Golden Dragon, being a stock As the provisions of the MOA are in direct contravention of the foregoing
corporation, are vested in its duly elected Board of Directors, the body law, which the Court had earlier espoused in the July 6, 2015 Decision, its
that: (1) exercises all powers provided for under the Corporation Code; (2) execution cannot in any way affect, change, or render the Court’s previous
conducts all business of the corporation; and (3) controls and holds all disquisitions moot and academic. In fact, the MOA is, clearly and in all
property of the corporation. Its members have been characterized as respects, contrary to law. Therefore, the writ of preliminary injunction must
trustees or directors clothed with a fiduciary character stand.
Therefore, the lower courts clearly committed grave abuse of discretion by

allowing an Order placing the management and control of Golden Dragon
to Rodriguez, a mere intervenor, on the basis of a MOA.

CLV OUTLINE: The powers granted to the Board of Directors are directly
vested to them by law pursuant to what is now Sec. 22 of RCC. Thus, the
MOA executed among the feuding shareholders that arranges that the
affairs of the corporation shall be in the hands of one set of shareholders
would be void and cannot serve to oust the duly elected Board of Directors
from the exercise of corporate powers.
NOTES:
2016 RULING
In a Motion for Reconsideration with Motion to Dissolve the Injunctive Writ,
Rodriguez asserts that the Court’s 2015 Decision has been rendered moot
178 | TKP 2025

Theory of Shareholder-Delegated Powers minority of the stock in the sense that the board should exercise good
faith, care and diligence in the administration of the affairs of the
Angeles v. Santos, 64 Phil. 697 (1937)
corporation and should protect not only the interests of the majority but
FACTS: also those of the majority of the stock.
Angeles et. al. and Santos are stockholders of Paranaque Rice Also, the Corporation Law, as amended, in Secs. 29 to 34,
Mills (PRM), who constitute minority and majority of the BOD, respectively. provides for the election and removal of the directors of a corporation.
An investigation committee was formed to investigate the The Corporation law does not confer expressly upon the courts
properties, operations, and losses of the corporation. the power to remove a director of a corporation. HOWEVER, there are
However, Santos et. al. denied access to the properties, book, and abundant authorities which hold that if the court has acquired jurisdiction to
records. Then, Santos, in violation of the by-laws, took possession of the appoint a receiver because of the mismanagement of directors, these may
books, vouchers, and corporate records, as well as the funds and income thereafter be removed and others appointed in their place by the court in
of PRM, all of which should be under the control and possession of the the exercise of its equity jurisdiction. In this case, there is ample evidence
secretary-treasurer. to show that Santos et. all have been guilty of breach of trust as directors
of the corporation.
Santos also appropriated his own benefit properties and funds and
refused to sign and issue certificates of stock for the 600 fully paid-up Thus, the court, in the exercise of its equity jurisdiction, and upon
shares of Angeles. showing that intra corporate remedy is unavailing, will entertain a suit led
by the minority members of the BOD, for and on behalf of the corporation
The majority refused to hold meetings of the board. Santos, as to prevent waste and the commission of illegal acts.
president, was disposing of properties and records of PRM without board
authorization. Angeles prays that Melchor be appointed as a receiver and
that Santos render a detailed accounting. CLV Doctrine:
Further, he asks for the members of the board to be removed and Theory of Shareholder-Delegated Powers: The Board of Directors is
an extraordinary meeting of stockholders be called for the purpose of a creation of the shareholders and controls and directs the affairs of the
electing a new BOD. The trial court ruled in favor of Angeles and corporation by delegation of the shareholders. By drawing themselves the
appointed Benigno and ordered Santos to render an accounting of the powers of the corporation, they occupy positions of trusteeship in relation
properties. Santos et. al. were also dismissed from their positions as to the shareholders. ✔Angeles v. Santos, 64 Phil. 697 (1937).
directors.
ISSUE: WON Paranaque Rice Mills is a necessary party in this case
RULING:
NO, the lower courts did not err in ordering the destitution of the
defendants from their office as members of the BOD until the new election
of stockholders, since the board of directors of a corporation is a creation
of the stockholders and controls and directs the affairs of the corporation
by delegation of the stockholders.
But the board of directors, in drawing to themselves the powers of
the corporation, occupies a position of trusteeship in relation to the
179 | TKP 2025

Tan v. Sycip, 499 SCRA 216 (2006) the Corporation Code, referred only to the living members of a
non-stock corporation.
FACTS:
● Petitioner Grace Christian High School (GCHS) is a non-stock,
non-profit educational corporation with fifteen (15) regular ISSUE:
members, who also constitute the board of trustees.
In a non-stock corporation, should dead members still be counted in
● During the annual members meeting held on April 6, 1998, there determination of quorum for purposed of conducting the Annual Members’
were only eleven (11) living member-trustees, as four (4) had
Meeting? NO, dead members shall not be counted.
already died. Out of the eleven, seven (7) attended the meeting
through their respective proxies.
● The meeting was convened and chaired by Atty. Sabino Padilla Jr. RULING:
over the objection of Atty. Antonio C. Pacis, who argued that there
was no quorum. For stock corporations, the "quorum" referred to in Section 52 of the
● In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Corporation Code is based on the number of outstanding voting stocks.
Khoo, and Judith Tan were voted to replace the four deceased For nonstock corporations, only those who are actual, living members with
member-trustees. voting rights shall be counted in determining the existence of a quorum
● When the controversy reached the Securities and Exchange during members' meetings. Dead members shall not be counted.
Commission (SEC), petitioners maintained that the deceased
member-trustees should not be counted in the computation of the
quorum because, upon their death, members automatically lost all One of the most important rights of a qualified shareholder or member is
their rights (including the right to vote) and interests in the the right to vote – either personally or by proxy – for the directors or
corporation. trustees who are to manage the corporate affairs. The right to choose the
● SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 persons who will direct, manage, and operate the corporation is significant,
meeting null and void for lack of quorum. She held that the basis because it is the main way in which a stockholder can have a voice in the
for determining the quorum in a meeting of members should be management of corporate affairs, or in which a member in a nonstock
their number as specified in the articles of incorporation, not corporation can have a say on how the purpose and goals of the
simply the number of living members. She explained that the corporation may be achieved.
qualifying phrase entitled to vote in Section 24 of the Corporation Section 52 of the Corporation Code: Quorum in Meetings. — Unless
Code, which provided the basis for determining a quorum for the otherwise provided for in this Code or in the by-laws, a quorum shall
election of directors or trustees, should be read together with consist of the stockholders representing a majority of the outstanding
Section 89. capital stock or a majority of the members in the case of non-stock
○ The hearing officer also opined that Article III (2) of the corporations."
By-Laws of GCHS, insofar as it prescribed the mode of
In stock corporations, the presence of a quorum is ascertained and
filling vacancies in the board of trustees, must be
counted on the basis of the outstanding capital stock, as defined by the
interpreted in conjunction with Section 29 of the
Section 137 of the Code [only stock actually issued and outstanding may
Corporation Code.
be voted].
● The SEC en banc denied the appeal of petitioners and affirmed
the Decision of the hearing officer in toto. It found to be untenable In nonstock corporations, the voting rights attach to membership. The
their contention that the word members, as used in Section 52 of principle for determining the quorum for stock corporations is applied by
180 | TKP 2025

analogy to nonstock corporations, only those who are actual members with Board in accordance with law. Tan v. Sycip, 499 SCRA 216 (2006).
voting rights should be counted. Under Section 52, the majority of the
members representing the actual number of voting rights, not the number
or numerical constant that may originally be specified in the articles of Note: As to the vacancy of the Board of Trustees –
incorporation, constitutes the quorum. As regards the filling of vacancies in the board of trustees, Section 29 of the Corporation
Code provides:
Having thus determined that the quorum in a members' meeting is to be
reckoned as the actual number of members of the corporation, the next "SECTION 29. Vacancies in the office of director or trustee. — Any vacancy occurring in the
board of directors or trustees other than by removal by the stockholders or members or by
question to resolve is what happens in the event of the death of one of expiration of term, may be filled by the vote of at least a majority of the remaining directors or
them. trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the
stockholders in a regular or special meeting called for that purpose. A director or trustee so
In stock corporations, shareholders may generally transfer their shares. elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in
Thus, on the death of a shareholder, the executor or administrator duly office."
appointed by the Court is vested with the legal title to the stock and Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still
entitled to vote it. Until a settlement and division of the estate is effected, constitute a quorum. The phrase "may be filled" in Section 29 shows that the filling of
the stocks of the decedent are held by the administrator or executor. vacancies in the board by the remaining directors or trustees constituting a quorum is merely
permissive, not mandatory. Corporations, therefore, may choose how vacancies in their
On the other hand, membership in and all rights arising from a nonstock respective boards may be filled up — either by the remaining directors constituting a quorum,
corporation are personal and non-transferable, unless the articles of or by the stockholders or members in a regular or special meeting called for the purpose.
incorporation or the bylaws of the corporation provide otherwise. In other The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its
words, the determination of whether or not "dead members" are entitled to board of directors; that is, by a majority vote of the remaining members of the board.
exercise their voting rights (through their executor or administrator), While a majority of the remaining corporate members were present, however, the "election" of
depends on those articles of incorporation or bylaws. the four trustees cannot be legally upheld for the obvious reason that it was held in an annual
meeting of the members, not of the board of trustees. We are not unmindful of the fact that
Under the By-Laws of GCHS, membership in the corporation shall, among the members of GCHS themselves also constitute the trustees, but we cannot ignore the
others, be terminated by the death of the member. Applying Section 91, GCHS bylaw provision, which specifically prescribes that vacancies in the board must be
dead members who are dropped from the membership roster in the filled up by the remaining trustees. In other words, these remaining member-trustees must sit
as a board in order to validly elect the new ones.
manner and for the cause provided for in the By-Laws of GCHS are not to
be counted in determining the requisite vote in corporate matters or the
requisite quorum for the annual members’ meeting. With 11 remaining
members, the quorum in the present case should be 6. Therefore, there
being a quorum, the annual members’ meeting was valid.
CLV Outline: One of the most important rights of a shareholder is the right
to vote for the directors who are to manage the corporate affairs. The right
to choose the persons who will direct and manage the corporation is
significant because it is the main way in which a shareholder can have a
voice in the management of corporate affairs or can have a say on how
the purposes and goals of the corporation may be achieved. Once the
directors are elected, the shareholders relinquish corporate powers to the
181 | TKP 2025

b. Board Must Act as a Body to Bind the Corporation (Sec. 52) settlements sum up toP1,343,274.52.
Board of Liquidators v. Heirs of Maximo M. Kalaw, 20 SCRA 987
(1967)
V.STATEMENT OF CASE:In this suit, NACOCO seeks to recover the
above sum of P1,343,274.52 from generalmanager and board chairman
Maximo M. Kalaw, and directors Juan Bocar, Casimiro
III.TOPIC:Board of Directors and Trustees – How Exercised – By the
Officers
Garcia and Leonor Moll. It charges Kalaw with negligence under Article
1902 of theold Civil Code (now Article 2176, new Civil Code); and
IV.STATEMENT OF FACTS:The National Coconut Corporation (NACOCO)
was chartered as a non-profit governmental organization avowedly for the defendant board members,including Kalaw, with bad faith and/or breach of
trust for having approved thecontracts. By Executive Order 372, dated
protection, preservation and development of the coconut industry in the
November 24, 1950, NACOCO, together with other government-owned
Philippines. On August 1, 1946, NACOCO's charter was amended
corporations, was abolished, and the Board of Liquidators was entrusted
[Republic Act 5] to grant that corporation the express power to buy and sell
copra. The charter amendment was enacted to stabilize copra prices, to with the function of settling and closing its affairs.
serve coconut producers by securing advantageous prices for them, to cut
down to a minimum, if not altogether eliminate, the margin of middlemen,
VI.ISSUE:Whether Kalaw validly entered into said contracts in behalf of
mostly aliens.General manager and board chairman was Maximo M.
NACOCO
Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the
Board; defendant Leonor Moll became director only on December 22,
1947. NACOCO, after the passage of Republic Act 5,embarked on copra VII.RULING:Yes, The movement of the market requires that sales
trading activities.Four devastating typhoons visited the Philippines in 1947. agreements be entered into, even though the goods are not yet in the
When it became clear that the contracts would be unprofitable, Kalaw hands of the seller. Known in business parlance as forward sales, it is
submitted them to the board for approval.It was not until December 22, concededly the practice of the trade. Above all, NACOCO's limited funds
1947 when the membership was completed. DefendantMoll took her oath necessitated a quick turnover. Copra contracts then had to be executed on
on that date. A meeting was then held. Kalaw made a full disclosure of the short notice — at times within twenty-four hours.To be appreciated then is
situation, apprising the board of the impending heavy losses. Noaction the difficulty of calling a formal meeting of the board So pleased was
was first taken on the contracts but not long thereafter, that is, on January NACOCO's board of directors that, on December 5, 1946, in Kalaw
30,1948, the board met again with Kalaw, Bocar, Garcia and Moll in Absence, it voted to grant him a special bonus "in recognition of the signal
attendance. They Unanimously approved the contracts hereinbefore achievement rendered by him in putting the Corporation's business on a
enumerated.As was to be expected, NACOCO but partially performed the self-sufficient basis within a few months after assuming office, despite
contracts. The buyers threatened damage suits, some of which were numerous handicaps and difficulties."
settled. But one buyer, Louis Dreyfus &Go. (Overseas) Ltd., did in fact sue
before the Court of First Instance of Manila. The Cases culminated in an These previous contract it should be stressed, were signed by Kalaw
out-of- court amicable settlement when the Kalawmanagement was without prior authority from the board. Existence of such authority is
already out. With particular reference to the Dreyfus claims, NACOCO put established, by proof of the course of business, the usage and
up the defenses that: (1) the contracts were void because Louis Dreyfus& practices of the company and by the knowledge which the board of
Co. (Overseas) Ltd. did not have license to do business here; and (2) directors has, or must be presumed to have, of acts and doings of its
failure to deliver was due to force majeure, the typhoons. All the subordinates in and about the affairs of the corporation. If the by-laws
182 | TKP 2025

were to be literally followed, the board should give its stamp of prior
approval on all corporate contracts. But that board itself, by its acts and
through acquiescence, practically laid aside the by-law requirement
of prior approval. Under the given circumstances, the Kalaw
contracts are valid corporate acts. Bad faith does not simply connote
bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it means breach of a known duty
thru some motive or interest or ill will; it partakes of the nature of fraud.
Applying this precept to the given facts herein, we find that there was no
"dishonest purpose," or "some moral obliquity," or "conscious doing of
wrong," or "breach of a known duty,"or "Some motive or interest or ill will"
that "partakes of the nature of fraud."
VIII.DISPOSITIVE PORTION:Viewed in the light of the entire record, the

judgment under review must be, as it is hereby, affirmed
Board must act as a body to bind corporation.

CLV OUTLINE: Exercise of powers by the Board of Directors may be
express and formal through the adoption of a board resolution in a
meeting called for the purpose; or it may be implied, where the Board
collectively and knowingly allows the President to contract in the pursuit of
the corporate business. Board of Liquidators v. Heirs of Maximo M.
Kalaw, 20 SCRA 987 (1967).
Notes:
Two ways:
Express
Implied - Ratification
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Safic Alcan & Cie v. Imperial Vegetable Oil Co., 355 SCRA 559 (2001) RULING:
The by-laws of IVO shows:
FACTS:
In 1986, Safic Alcan & Cie and Imperial Vegetable Oil Co., Inc. SECTION 3. Powers and Duties of the President. — The President shall
entered into several purchase contracts where Safic would buy crude be elected by the Board of Directors from their own number.
coconut oil from IVO to be delivered in 1987. However, IVO was unable to
deliver the order and instead, they offered a wash out settlement where
Safic would sell back to IVO the crude coconut oil order based on the He shall have the following duties:
prevailing international market price. As part of the wash out agreement,
IVO promised that they would pay Safic back for the difference between
the purchase price and prevailing international market price, which [g] Have direct and active management of the business and operation of
amounted to a total of USD 685,093.62. the corporation, conducting the same according to the orders, resolutions
and instruction of the Board of Directors and according to his own
Despite repeated oral and written demands, IVO failed to pay discretion whenever and wherever the same is not expressly limited by
Safic back, which led to Safic filing a case against IVO. In response, IVO such orders, resolutions and instructions
alleged that the The contracts were entered into by its then-President,
Dominador Monteverde, in contravention of the prohibition by the Board of
Directors (“BOD”) against engaging in speculative trading It can be seen in the by-laws of IVO that Monteverde had no blanket
The RTC ruled in favor of IVO because the contracts were ultra authority to bind IVO to any contract. He must act according to the
vires and entered into by Monteverde without authority from the BOD. The instructions of the Board of Directors. Although at times, as President, he
CA affirmed the RTC’s decision. was allowed to act according to his own discretion, his actions needed to
be in line with, and not against, prior Board orders
Safic argues that CA erred in holding that the 1986 forward
contracts were unauthorized acts of Dominador Monteverde which do not
bind IVO in whose name they were entered into and when it ignored its In this case, the IVO Board knew nothing of the 1986 contracts. It also did
own ﬁndings that Dominador Monteverde, as IVO's President, had "an not authorize Monteverde to enter into speculative contracts. In fact,
implied authority to make any contract necessary or appropriate to the Monteverde previously suggested to the BOD that IVO engage in
contract of the ordinary business of the company” speculative contracts, but the BOD rejected this proposal.
ISSUE: W/N Dominador Monteverde validly entered into the contracts It cannot rely on the doctrine of implied agency because before the
for and on behalf of IVO – NO controversial 1986 contracts, IVO did not enter into identical contracts with
Safic. Citing Bacaltos Coal Mines v. Court of Appeals, the Court explained
that the basis for agency is representation and a person dealing with an
agent is put upon inquiry and must discover upon his peril the authority of
the agent. If he does not make such inquiry, he is chargeable with
knowledge of the agent’s authority, and his ignorance of that authority will
not be any excuse.
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Also, Art. 1898 of the Civil Code provides that the acts of an agent beyond
his authority do not bind the principal unless the latter ratifies the actions
expressly or impliedly. But in this case, the IVO BOD never had the
chance to ratify the 1986 contracts since these were never reported in the
company’s books, records, or financial statements. The contracts were
also not submitted to the Board after their consummation.
Worth emphasizing, it is the Board of Directors, not Monteverde, that

exercises corporate power. All things considered, Monteverde's
speculative contracts with Safic never bound IVO and Safic can not
therefore enforce those contracts against IVO.
CLV OUTLINE: Where the President enters to speculative contracts

without prior nor subsequent Board approvals, nor were the transactions
included in the reports to the Board, such contracts do not bind the
corporation. It must be pointed out that the Board of Directors, not the
President, exercises corporate powers.
NOTES:
- In this case, the President was already prohibited from entering into
speculative contracts thus it CANNOT follow the ruling in Board of
Liquidators case - wherein the contracts entered into were within the
ordinary course of business, thus it was ratified by the board.
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11. Lopez Realty v. Fontecha, 247 SCRA 183 (1995) In addition, Gonzales are raised that she was not notified of
the special meetings held by the corporation on the said
FACTS:
dates.
Lopez Realty is a corporation that is engaged in real estate
business and Gonzales is one of its major stockholders along
with Lopez but Lopez is not a member of the BOD. Lopez ISSUE: Whether or not public respondent acted with grave abuse
proposed that certain assets of the corporation shall be of discretion in holding the private respondents are entitled to
distributed and one of it would be to reduce the employees receive their gratuity pay under the board resolutions. NO.
with provision for their gratuity pay. The proposal was
approved in a special meeting along with the approval of the
corporation or 2 other resolutions providing gratuity pay for the RATO:
employees. The general rule is that a corporation, through its board of
directors, should act in the manner and within the formalities, if
any, prescribed by its charter or general law. Thus, directors
While Gonzales was abroad, the rest of the BOD convened a must act as a body in a meeting called pursuant to the law or
special meeting and passed a resolution which elaborated
the corporation's bylaws, otherwise, any action taken therein
how the gratuity pay shall be released to the employees
may be questioned by any objecting director or shareholder.
including retained employees. Private respondents, who are
the retained employees of the corporation requested their
gratuity pay be paid in full instead of 3 different Jurisprudence tells us that an action of the BOD during a
disbursements. Even while being out of country, Gonzales meeting, which was illegal for lack of notice, may be
was able to send a cablegram to the corporation objecting to ratified either expressly, by the action of the directors in
certain matters tackled by the board in her absence. And subsequent legal meeting, or impliedly, by the
when she returned, she filed a derivative suit with the SEC corporation’s subsequent course of conduct.
against Lopez, one of the majority stockholder.
In this case, the corporation did not even issue any resolution
The issue was more on the release of the gratuity pay to the revoking or nullifying the board resolutions granting the
employees to which Gonzalez canceled the cash vouchers gratuity pay to the respondents. And instead, paid the first 2
prepared for them. Despite the repeated demands of the installments of the gratuity pay. Even if Gonzales assailed that
employees to release the gratuity pay, the corporation still there was a lack of notice when the resolutions were passed,
refused to pay the same. Petitioner was insisting that the it can be seen from the records that she was aware of the
payment of the gratuity made to the employees was a mere corporation’s obligation under the resolution. Gonzales, as
mistake and the same a]shall only be given during the pointed out by the respondents, affixed her signature in the
employee’s retirement. The petitioner was contending as well cash vouchers for the 2nd installment of the gratuity pay.
that the resolutions which. Sere not approved in the annual Given the conduct of the petitioners after the passage of the
stockholders meeting had no force and effect but the records resolutions, the parties are now estopped from assailing the
also show that the stockholder neither revoked nor nullified validity of the board resolutions.
these resolutions which granted gratuities to the respondents.
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CLV OUTLINE: A corporation, through its Board of Directors,

should act in the manner and within the formalities prescribed by
its charter or by the general law. Thus, directors must act as a
body in a meeting called pursuant, otherwise, any action taken
therein may be questioned by any objecting director or
shareholder. Be that as it may, jurisprudence tells us that an action
of the Board during a meeting, which was illegal for lack of notice,
may be ratified either expressly, by the action of the directors in
subsequent legal meeting, or impliedly, by the corporation’s
subsequent course of conduct.
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directors of the milling company. Trial court ruled in favor of Bacolod

Milling.
Montelibano v. Bacolod-Murcia Miling Co., 5 SCRA 36 (1962)
ISSUE: Is the resolution binding upon the milling company? YES.
FACTS: Petitioners Montelibano and the limited partnership of Gonzaga

and Company in this case were sugar planters adhered to Bacolod RULING: The resolution is binding upon the milling company simply
Milling’s sugar mill under identical milling contracts. The said contracts because it was already incorporated into the terms of the amended milling
stipulated that it would be in force for 30 years provided that the product contract before Montelibano et al. even signed it. The milling company
should be divided into 45% for the mill and 55% for the planters. argues that the resolution is a separate consideration from the contract
itself. This is not the case. The resolution was passed and then attached to
the PRINTED COPY OF THE AMENDED CONTRACT (!!!) BEFORE it
A couple of years later, the milling contracts were proposed to be was signed by Montelibano. From the foregoing therefore, it becomes
amended increasing the planter’s shares to 60% of the products along clear that the underlying consideration for the contract and the resolution
with an extension of the milling contract from 30 years to 45 years. The are similar.
amended contract was then drawn up and the Board of Directors of the
Milling Company passed a resolution granting further concessions to the
planters beyond what was agreed upon in the milling contract. As for the discussion on whether the acts of the BoD were ultra vires, that
would only be relevant if the resolution had a separate consideration apart
from the contract. But it doesn’t. So it’s not relevant, especially considering
In contention is par. 9 of the resolution which states that during the validity that BEFORE the contract was signed by Montelibano, the resolution was
of the contract, if the sugar mills of negros occidental, whose annual essentially a proposal that either party could accept or reject. There can be
production of sugar is more than a third of all the total production of all the no doubt that the directors had authority to modify the proposed terms of
sugar mills in negros occidental, grants their planters better conditions, the milling contract for the purpose of making its terms acceptable to the
these will also be granted to the suppliers who have agreed to the other contracting parties.
amended milling contract.
If the act is lawful in itself and not otherwise prohibited, it is done for
Montelibano et al the signed and executed the contract, but the milling serving corporated ends and is reasonably tributary to the promotion of
company alleged that a copy of the resolution was not added onto the those ends, it’s fairly considered within charter powers.
copy of the contract until much later on. The attachment mentioned that
the amendments via the resolution would now form part of the contract as
well. TEST TO BE APPLIED: Whether the act in question is in direct and
immediate furtherance of the corporation’s business, fairly incidental to the
express powers, and reasonably necessary to their exercise. Since the
Montelibano and the others then raised an action contending that since the board passed the resolution in good faith, it is valid and binding whether or
sugar mills in Negros Occidental granted better conditions to their planters, not it will cause losses or decrease the profits of the milling company
Bacolod Milling should also follow suit. Bacolod insisted that the resolution
and its concessions were null and void since the acts therein constituted a
donation that was ultra vires and beyond the powers of the corporate CLV SYLLABUS: When resolutions are passed in good faith by the
188 | TKP 2025

Board of Directors, it is valid and binding, whether it will cause losses or

decrease the corporation’s profits, the courts have no authority to review
them. Questions of policy or management are left solely to the honest
decision of officers and directors of a corporation and the court is without
authority to substitute its judgment for that of the Board. The Board is the
corporation’s business manager and so long as it acts in good faith, its
orders are not reviewable by the courts.
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Philippine Stock Exchange v. Court of Appeals, 281 SCRA 232 (1997) RULING:
The Court affirms that the SEC is the entity with the primary say as to
FACTS:
Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, sought whether or not securities, including shares of stock of a corporation, may
be traded or not in the stock exchange. This is in line with the SEC's
to offer its shares to the public to raise funds, allegedly to develop its
mission to ensure proper compliance with the laws, such as the Revised
properties and pay off its loans. SEC issued a Permit to Sell to PALI. PALI
wanted to course the trading of its shares through the PH Stock Exchange Securities Act and to regulate the sale and disposition of securities in the
(PSE), so it filed with it an application to list its shares with supporting country.
documents. This is not to say, however, that the PSE's management prerogatives
are under the absolute control of the SEC. The PSE is, after all, a
PSE’s Listing Committee recommended PALI’s application to PSE’s Board
corporation authorized by its corporate franchise to engage in its proposed
of Governors (BOG) for approval.
and duly approved business. One of the PSE's main concerns, as such, is
Before it could act on the application, the BOG received a letter from the still the generation of profit for its stockholders. Moreover, the PSE has all
heirs of Ferdinand Marcos, claiming that the late president was the legal the rights pertaining to corporations, including the right to sue and be
and beneficial owner of several PALI assets (such as properties on PALI’s sued, to hold property in its own name, to enter (or not to enter) into
hotel and resort), held in trust by a certain Panlilio. They request that contracts with third persons, and to perform all other legal acts within its
PALI’s application be deferred. allocated express or implied powers.
PALI argued that the properties within the hotel and resort belong to other As to its corporate and management decisions, therefore, the state
entities distinct from PALI. Therefore, they are not their assets. The will generally not interfere with the same. Questions of policy and of
Marcoses argued that even if that were the case, they are still asserting management are left to the honest decision of the officers and directors of
ownership over other PALI assets. a corporation, and the courts are without authority to substitute their
PSE’s BOG eventually decided to reject PALI’s application due to the judgment for the judgment of the board of directors. The board is the
controversies surrounding its assets and properties. Consequently, PALI business manager of the corporation, and so long as it acts in good faith,
wrote a letter to the SEC Chairman informing him of PSE’s decision. SEC its orders are not reviewable by the courts.
reversed PSE’s decision and demanded that the PALI shares be listed in Thus, notwithstanding the regulatory power of the SEC over the
the exchange. PSE, and the resultant authority to reverse the PSE's decision in
The CA rendered the decision that SEC had both jurisdiction and authority matters of application for listing in the market, the SEC may
to look into the decision of the petitioner PSE, for the purpose of ensuring exercise such power only if the PSE's judgment is attended by
fair administration of the exchange. Both as a corporation and as a stock bad faith. (MAIN DOCTRINE)
exchange, the petitioner is subject to public respondent's jurisdiction, In reaching its decision to deny the application for listing of PALI, the
regulation and control. PALI complied with all the requirements for public PSE considered important facts, which, in the general scheme,
listing, affirming the SEC's ruling. brings to serious question the qualification of PALI to sell its shares
to the public through the stock exchange. During the time for receiving
objections to the application, the PSE heard from the representative of the
ISSUE: Is the SEC reversal of the PSE’s Board of Governors’ ruling late President Ferdinand E. Marcos and his family who claim the
proper? - NO properties of the private respondent to be part of the Marcos estate. In
time, the PCGG confirmed this claim. In fact, an order of sequestration has
190 | TKP 2025

been issued covering the properties of PALI, and suit for reconveyance to
the state has been filed in the Sandiganbayan Court. How the properties
were effectively transferred, despite the sequestration order, from the other
entities to Panlilio, and to the private respondent PALI, in only a short span
of time, are not yet explained to the Court, but it is clear that such
circumstances give rise to serious doubt as to the integrity of PALI
as a stock issuer. PSE was in the right when it refused application of
PALI, for a contrary ruling was not to the best interest of the general
public.
CLV OUTLINE: While SEC is the agency with the primary say as to
whether securities, including shares of a corporation, may be traded or not
in the stock exchange, it does not mean that PSE’s management
prerogatives are under the absolute control of the SEC. The PSE is, after
all, a corporation authorized by its corporate franchise to engage in its
proposed and duly approved business. One of the PSE’s main concerns,
as such, is still the generation of profit for its shareholders.
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Ong Yong v. Tiu, 401 SCRA 1 (2003) a deed of assignment for the lots in question in favor of FLADC, the Tius
refused to pay for capital gains tax and documentary stamp tax which
prevented the SEC from approving the valuation of the Tiu’s property
FACTS: contribution which would also lead to the difficulty in securing the TCT for
After the construction of the Masagana City Mall was threatened the property in FLADC’s name.
with stoppage and incompletion when its owner First Landlink Asia The Tius contended that they were right in rescinding the
Development Corporation (FLADC) encountered financial difficulties, the Pre-Subscription agreement because of all the issues the Ongs were
Tius as owners invited the Ongs to invest in FLADC. They entered into a giving them. As to the TCT they also said that it was still being
pre-subscription agreement where they would maintain equal reconstituted by the party from whom they bought the property.
shareholdings with the Ongs subscribing to 1 million shares while the Tius
● BUT APPARENTLY: The properties were actually owned by the
were to subscribe to an additional 500k+ shares on top of their 450k
shares. Ongs all along even before the agreement with the Tius and it was
actually property of the corporation, making the Tius not entitled to
● Tius and Ongs divided control over the nomination of the board of the shares of stock at all
directors
● Ongs had the right to manage and operate the mall
The Ongs paid for their subscriptions in cash while the Tius ISSUE: W/N the Tius can rescind the pre-subscription agreement? NO.
committed to contribute a four storey building and two parcels of land to
cover the 500k+ stocks. The Ongs and the Tius agreed on further
RATIO:
settlements and all was going well until the Tius rescinded their
pre-subscription agreement after accusing the Ongs for refusing to credit The Court affirmed that both parties violated their respective
their shares to cover their real property contributions and causing issues obligations under the agreement, however the Tius cannot legally rescind
with the Tius who were appointed to board of directors to take their the agreement.
positions. When the Tius invited the Ongs to invest in FLADC, an increase of
● Tius said the Ongs refused to give their shares and refused to the capital stock was necessary to give each group equal shareholdings
provide office space for them so they couldn’t assume their as agreed upon. The subject matter of the contract was 1 million unissued
position on the Board of Directors shares allocated to the Ongs. Though FLADC was represented by the Tius
● Ongs said the Tius actually assumed their position but they were in the subscription contract, FLADC has a separate juridical personality
the ones who refused to comply with their corporate from the Tius.
responsibilities and the office space was a non-issue since they Rescission is not the proper remedy since there are other ways to
already had one but they wanted to move to a bigger space resolve intracorporate disputes as provided by the SEC rules, Corporation
As for the failure to credit the shares commensurate to the Tiu’s Code, and even the Rules of Court.
property contributions, the Ongs asserted that although the Tius executed
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The Tius in their personal capacities cannot seek the rescission as decision. They want this Court to make a corporate
well since they are not parties to the subscription contract between the decision for FLADC.
Ongs and FLADC. It is also in violation of the trust fund doctrine which
provides that the subscriptions to the capital stock of a corporation The SC declines to intervene and order corporate structural
constitute a fund to which the creditors have a right to look to for the changes not voluntarily agreed upon by its stockholders and directors.
satisfaction of their claims. If they rescind, it would result in the
unauthorized distribution of capital assets and property of the corporation. A judicial order to decrease capital stock without the assent
of FLADC’s directors and stockholders is a violation of the “business
judgment rule”. Apparently, the Tius do not realize the illegal
Contrary to the Tius’ allegation, rescission will result in the
consequences of seeking rescission and control of the corporation to the
premature liquidation of the corporation without the benefit of prior
exclusion of the Ongs. Such an act infringes on the law on reduction of
dissolution in accordance with Sections 117, 118, 119 and 120 of the
capital stock.
Corporation Code.
a. Section 122 of the law provides that “(e)xcept by NOTE: No court can, in resolving the issues between squabbling
decrease of capital stock..., no corporation shall distribute shareholders, order the corporation to undertake certain corporate acts (in
any of its assets or property except upon lawful dissolution this case to cancel the subscriptions issued pursuant to a
and after payment of all its debts and liabilities.” shareholders’ agreement, and for the corporation to pursue a
decrease in its authorized capital stock) since it would be in violation of
The Tius’ case for rescission cannot validly be deemed a the business judgment rule.
petition to decrease capital stock because such action never
complied with the formal requirements for decrease of capital stock
under Section 33 of the Corporation Code. CLV OUTLINE: No court can, in resolving the issues between squabbling
shareholders, order the corporation to undertake certain corporate acts,
Furthermore,it is an improper judicial intrusion to the internal since it would be in violation of the business judgment rule.
affairs of the corporation to compel FLADC to file at the SEC a
Violation of a Subscription Agreement do not constitute legal ground to
petition for the issuance of a certificate of decrease of stock.
rescind the underlying subscription agreement: “In the instant case, the
Decreasing a corporation’s authorized capital stock is an amendment
rescission of the Pre-Subscription Agreement will effectively result in the
of the Articles of Incorporation.
unauthorized distribution of the capital assets and property of the
● It is a decision that only the stockholders and the directors corporation, thereby violating the Trust Fund Doctrine and the Corporation
can make, considering that they are the contracting Code, since the rescission of a subscription agreement is not one of the
parties thereto. instances when distribution of capital assets and property of the
● In this case, the Tius are actually not just asking for a corporation is allowed.” Distribution of corporate assets among the
review of the legality and fairness of a corporate shareholders cannot even be resorted to achieve “corporate peace.”
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Virata v. Ng Wee, 830 SCRA 271 (2017) another board meeting, increased the credit limit to P2.5bn and an
FACTS: 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
1. Before the Court are the Motion for Reconsiderations filed in view of its Notes (PN) in favor of Wincorp for itself or as agent in behalf of investors
5 July 2017 Decision holding the directors and officers of Wincorp jointly which included Ng Wee who put in the total amount of P213,290,410.36.
and severally liable with the company for the unpaid investments of Ng
Wee made to Power Merge through Wincorp. 7. Unknown to Ng Wee, however, on the same date the two Agreements
were separately signed, Side Agreements were also entered between
2. [From the 5 July 2017 Decision] Ng Wee, as a valued client of Wincorp (represented by Ong and Reyes) and Power Merge absolving
Westmont Bank, was enticed by the bank manager to make investments Power Merge of liability on the PNs.
with Westmont Investment Corporation (Wincorp). Wincorp would match a
corporate borrower with an investor willing to provide funds. 8. 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
3. Ng Wee’s initial investments were matched with Hottick Holdings Damages against 17 defendants of which only Virata, Power Merge, UPDI,
Corporation whose majority shares were owned by Halim Saad. The UEM-MARA, Wincorp, Ong, Reyes, Cua, Tankiansee, Santos-Tan, Vicente
Credit Facility extended to Hottick by Wincorp was secured by, among and Henry Cualoping, and Estrella were duly served with summons. The
others, a Suretyship Agreement executed by Luis Juan Virata and another last six were board directors of Wincorp. Virata filed a cross claim against
Suretyship Agreement by Halim Saad. Wincorp and its board of directors.
4. Hottick fully availed of the loan facility but defaulted in payment during 9. [Start of Case] On 5 July 2017, the Court issued its Decision in the
the Asian financial crisis. Wincorp filed collection suits against Hottick but present consolidated cases. The Court held that the actuations of Wincorp
Virata eventually brokered a compromise. 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
5. Ng Wee confronted Wincorp about the default of Hottick. Wincorp accommodation party.
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 10. On the basis of fraud, the Court pierced the veil of Wincorp and held
is the majority stockholder of Power Merge owning 374,996 out of its the directors and officers personally liable to Ng Wee. The basis of the
375,000 subscribed capital stock. 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.
6. 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 credit 11. The cross claim of Virata against Ong, Reyes and the board members
line. On 15 February 1999, Wincorp President Antonio Ong and were also granted and Wincorp, Ong and Reyes together with the board
Vice-President for Operations Anthony Reyes executed the Credit Line members were ordered jointly and severally liable to pay and reimburse
Agreement in favor of Power Merge. On 11 March 1999, Wincorp, through
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Virata for any payment or contribution he made to Ng Wee. Petitioners the corporation, its stockholders or members and other persons. When a
filed for an MR which is the basis of this Resolution. 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
12. The Court notes that the grounds relied upon by Virata, Estrella, Ng has been reposed in him in confidence, as to which equity imposes a
Wee, Cua and the Cualopings, Reyes, and Wincorp are the same or disability upon him to deal in his own behalf, he shall be liable as a trustee
substantially similar to those raised in their respective petitions thus were for the corporation and must account for the profits which otherwise would
denied. have accrued to the corporation.
13. Santos-Tan however did not appeal the decision of the CA holding her 3. For Cua and the Cualopings, the totality of circumstances proves that
liable with her co-parties to Ng Wee and was only participating in the they are either complicit to the fraud, or at the very least guilty of gross
proceedings in her plea of reconsideration. She argues that the negligence in managing the affairs of the company, to the prejudice of its
cross-claim should not have been granted because the Side Agreements clients and stakeholders. It becomes immaterial whether or not they
which served as the basis thereof never got the imprimatur of the Board of approved of the Side Agreements or authorized Reyes to sign the same
Directors. Moreover, considering the P2.18bn drawdowns of Power Merge, since this could have all been avoided if they were vigilant enough to
she found it iniquitous and immoral to require her and her co-directors to disapprove the Power Merge Credit Application. Neither can the
reimburse Virata of whatever he was required to pay Ng Wee. business judgment rule apply herein for it is elementary in
corporation law that the doctrine admits of exceptions: bad faith
ISSUE: Are WinCorp’s board of directors personally liable to Ng Wee for being one of them, gross negligence, another. The CA then correctly
the investment he placed with Power Merge through Wincorp? YES held petitioners Cua and Cualopings liable to respondent Ng Wee in
their personal capacity.
RATIO:
a. 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
1. In its 5 July 2017 decision, the Court explained the liabilities of the
approving the loan in haste: (1) Power Merge has only been in existence
board directors in view of Section 31 of the Corporation Code.
for two years when it was granted a credit facility; (2) Power Merge was
thinly capitalized with only P37,500,000.00 subscribed capital; (3) Power
2. Section 31 of the Corporation Code provides:
Merge was not an ongoing concern since it never secured the necessary
permits and licenses to conduct business, it never engaged in any
Section 31. Liability of directors, trustees or officers . — Directors or
lucrative business, and it did not file the necessary reports with the SEC;
trustees who willfully and knowingly vote for or assent to patently unlawful
and (4) no security other than its Promissory Notes was demanded by
acts of the corporation or who are guilty of gross negligence or bad faith in
Wincorp or was furnished by Power Merge in relation to the latter's
directing the affairs of the corporation or acquire any personal or pecuniary
drawdowns.
interest in conflict with their duty as such directors or trustees shall be
b. Further, prior to Power Merge’s application for a credit facility, Virata had
liable jointly and severally for all damages resulting therefrom suffered by
outstanding unpaid transactions with Wincorp for its Hottick obligations.
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Instead of impleading Virata in the Hottick account, however, Wincorp existing obligations to Wincorp from the Hottick account. However, the
released him from liability and granted him a credit facility in the amount of board excluded Virata as a party respondent to its collection suit against
P1.3bn. c. It is immaterial if Cua and the Cualopings approved or not the Hottick and, on the same day, approved the P1.3bn credit line to Power
Side Agreements or authorized its signing. Wincorp could have avoided its Merge. b. Proceeds of the credit line were released to Power Merge before
troubles if they were vigilant enough to disapprove the Power Merge credit the corresponding Agreements were signed. This lends credence to
application. Virata’s claim that Wincorp did not intend for Power Merge to be strictly
bound by the terms of the credit facility.
The board of directors is expected to be more than mere rubber
stamps of the corporation and its subordinate departments. It wields RULING: The MRs were denied.
all corporate powers bestowed by the Corporation Code, including
the control over its properties and the conduct of its business. Being DISSENTING OPINION, Tijam, J. : In his dissent, Justice Tijam found no
stewards of the company, the board is primarily charged with basis in holding Cua, the Cualopings, Santos-Tan and Estrella jointly and
protecting the assets of the corporation on behalf of its stockholders. severally liable with Virata, Wincorp, Ong and Reyes to pay Ng Wee the
amount of his investment.
4. Tankiansee was absolved because his immigration records clearly show
that he was outside the country during the dates when the Agreements 1. Directors, Trustees or Officers can be held personally and solidarily
were approved by the board. liable with the corporation in situations enumerated by law and
jurisprudence. In this case, there was no proof showing that the approval
5. Estrella tried to echo the same defense as Tankiansee although the of the Credit Line Agreement and its Amendment were patently unlawful
minutes of both board meetings indicate his presence. He claims to have acts of the corporation.
left the meeting before the matter of Power Merge’s application was
discussed. He however failed to offer concrete evidence for this alibi. The 2. The directors did not willfully and knowingly vote for or assent to the
Court likewise did not allow him to use as defense his being a mere execution of the Side Agreements that exonerated Power Merge of its
nominee and that he only had one nominal share as well as whether or not liability on the promissory notes, except for the signatories who were Ong
he received compensation or honoraria for attending the board meetings. and Reyes.
6. The liability of Santos-Tan is no different from Cua and the Cualopings 3. Neither are the directors guilty of gross negligence or bad faith in
in their personal capacity under Section 31 of the Corporation Code. directing or dealing in the affairs of the corporation, they merely approved
the Credit Line Agreements because the screening committee of the
7. The contention that the Side Agreements were without the imprimatur of corporation and its subordinate departments approved the same.
its board of directors cannot be given credence. The totality of
circumstances supports the conclusion that the Wincorp directors impliedly 4. The Credit Line Agreements of Wincorp as approved by its officers may
ratified, if not furtively authorized, the signing of the Side Agreements in be merely called as a business strategy which turned out to be
order to lay the groundwork for the fraudulent scheme. a. Virata had unfavorable.
197 | TKP 2025

CLV Syllabus: It is elementary in Corporation Law that the business

judgment rule, which prohibits the courts from interfering in the judgment
made by the Board and its officers, admits of exceptions: bad faith being
one of them, gross negligence, another. ✔Virata v. Ng Wee, 830 SCRA
271 (2017).
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Acuna filed for an order of attachment to be issued against

COUNTERVAILING DOCTRINES TO PROTECT CORPORATE
the properties of Batac and that judgment be rendered condemning
CONTRACTS
Batac or the individual defendants to comply with their contractual
obligations to pay Acuna for his services and for the cash advances
DOCTRINE OF RATIFICATION OR ESTOPPEL made by him.
Acuña v. Batac Producers Cooperative Marketing Assn., 20 SCRA
526 (1967) The lower court ordered the issuance of a writ of preliminary
attachment against Batac’s properties. The defendants filed a motion to
FACTS: dismiss the complaint on the ground that it stated no cause of action, and
Emiliano Acuna filed a complaint against Batac Producers to discharge the preliminary attachment on the ground that it was
Cooperative Marketing Association. The complaint alleged that it was improperly issued. They asserted that the contract for Acuna’s services
tentatively agreed upon between Acuna and Verano, as manager of Batac, was never perfected because it was not approved or ratified, but rather
that Acuna would seek and obtain the sum of not less than P20,000, to be disapproved, by the Board of Directors. The contract is void and
advanced by Batac, to be utilized as additional funds for its Virginia unenforceable. They further denied that Acuna performed his part of the
tobacco buying operations during the redrying season. Acuna would be contract, stating that he had not in any manner intervened in the delivery
constituted as the corporation's representative in Manila to assist in and payment of tobacco owned by Batac.
handling and facilitating Batac’s shipments of tobacco and their delivery to
the redrying plants. The tentative agreement was favorably received by ISSUE: Whether or not the agreement between Acuna and Verano was
Batac’s Board of Directors. The board authorized Verano to execute any approved or ratified by the Board of Directors? - YES
agreement with any person or entity, on behalf of the corporation, for the
purpose of securing additional funds for the corporation, as well as to RATIO:
secure the services of such person or entity, in the collection of all The complaint reveals that it contains sufficient allegations
payments to the corporation from the PVTA for any tobacco sold and indicating that the Board of Directors had approved or at least had given
delivered, and as Manager, to have full and complete authority to bind the their ratification to the agreement between Acuna and Verano. Acuna had
corporation with such person or entity in any agreement. The formal met with each and all of the members of the Board of Directors and
agreement was executed between Acuna and Verano and authorized by discussed with them extensively the tentative agreement. Acuna was
the Board of Directors. Verano assured Acuna that a formal approval of made to understand that the agreement was acceptable to them, except
the Agreement by the Board was no longer necessary as it was a as to his remuneration, which they later on came to an agreement
mere “formality”. They claimed that the Board had already agreed to (P0.30/kilo of tobacco). The agreement was formally executed as he was
the Formal Agreement. assured by said Directors that there would be no need of a formal approval
by the Board. Although the contract required such approval, it did not
Acuna turned over to Batac the sum of P20,000 and furnished the specify in what manner the same should be given.
corporation 3,000 sacks which were used for the shipment of its tobacco
costing P6,000. Acuna also advanced P5,000 out of his personal funds Acuna delivered to Batac the sum of P20,000.00 as stated in their
with the full knowledge, acquiescence, and consent of the defendants. contract, Acuna rendered the services he was required to do, and he
Later on, the corporation was able to replenish its funds with continuous furnished Batac the 3,000 sacks and advanced sums of money. He did all
collections, however, the Agreement between Acuna and Verano was then these with the full knowledge, acquiescence and consent of all the
disapproved by Batac’s Board of Directors. members of the Board of Directors. Hence, there is overwhelming
199 | TKP 2025

evidence showing that the Board ratified the contract. Ratification may be
express or implied, and that implied ratification may take diverse
forms, such as by silence or acquiescence; by acts showing
approval or adoption of the contract, or by acceptance and retention
of benefits flowing therefrom.
CLV OUTLINE: Between the act of the Board as a body affirming

informally the perfection of a contract entered on behalf of the corporation
by a senior officer, and the subsequent formal board resolution rejecting
the same contract, the former must prevail under the doctrine of estoppel.
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LEO R. RIVERA - 1 share

Lopez Realty, Inc. v. Spouses Tanjangco, 739 SCRA 644 (2014)
Most Stockholders are also the Directors- The Principals are also the
Agents- dual capacity; Principals ratify resolution of Agents; TOTAL 23,498 Shares
Shareholders meeting Resolution Ratifies BOD meeting resolution
FACTS: She was not able to exercise within the stipulated 10 day period.
Lopez Realty and Jose Tanjangco co-owned the Trade Center Building,
Manila, with half to each.
While Asuncion was abroad, Arturo Lopez negotiated to sell the ½ share
to the Sps. Tanjangco, this was approved in the board meeting that made
Jose would transfer it to the Sps. Lopez-Tanjangco, his daughter-in-law the necessary resolution. This meeting was on August 17, 1981 a month
after Lopez’s agreement with Sps. Tanjangco. NOTE: Except Arturo and
Maria and son Reynaldo. Asuncion Lopez, is one of the stockholders,
board directors, and corporate secretary. Lopez Realty then agreed to sell Teresita- all are board members.
the remnant ½ shares of the building to the Sps. Tanjangco on July 27,
1981. Before it could be sold, Asuncion used her right to match the price of Asuncion is complaining that without the corporate secretary’s/her
the lot for a selling price of 5 million by 3 calls on the phone- seeing as the
signature, the board resolution is void.
Sps. Tanjangco did not agree, Asuncion was given 10 days to match the
offer, which she did not.
On July 30, 1982- Ratification was done by the stockholders- only
STOCKHOLDERS PRESENT: Rosendo, Benjamin, and Juanito- all stockholders signed their names in
the minutes- which were not prepared by Asuncion, as she refused to
TERESITA L. MARQUEZ 7,830 shares ratify the August 17, 1981 meeting. Only Leo- worth 1 share objected but
did not sign in the minutes. The lower court declared that the majority was
(recently deceased) -
thus reached among shareholders.
ASUNCION F. LOPEZ - 7,831 shares

ISSUE: So is the resolution void? NO, It’s valid because of the July 30
Ratification in the Stockholder’s meeting.- Pet. denied.
ARTURO F. LOPEZ - 7,830 shares
RULING: Skip to Summary

ROSENDO DE LEON - 5 share[s]
On the issue that Leo voted for the ratification of sale but did not sign so
Asuncion argued it means he never voted Yes, the Court notes that only
BENJAMIN B. BERNARDINO - 1 share Juanito, Benjamin and Rosendo signed the minutes of the meeting. It was
also not stated who prepared the minutes, given that Asuncion as the
corporate secretary refused to record the same. Also, it was not explained
201 | TKP 2025

why Leo was not able to affix his signature on the said minutes if he really members or holders of the needed shares of stock, but the ruling specified
voted in favor of the ratification of the sale. What’s more, Leo was not the need of the corporate secretary conducting the minutes. Unlike
presented to testify on the witness stand. Dumlao- signatures are needed in this case- since the Dumlao case was
for the corporate secretary to certify the minutes of the meeting, this is to
certify the votes made by Rosendo, Benjamin for the July 1982 ratification
Originally the August 17, 1981 meeting is invalid, as Sec. 53 of the RCC of the sale in the August 1981 meeting.
requires notice to all directors before the board meeting. Asuncion was
abroad and not informed so it was invalid. However the July 1982 meeting
ratified it. However, even without her vote, the voters in favor of Sps. Tanjangco
clearly were enough to secure ratification of the sale.
SEC. 53. Regular and special meetings of directors or trustees.—Regular Ms. [ASUNCION] LOPEZ 7, 831 shares
meetings of the board of directors or trustees of every corporation shall be
held monthly, unless the by-laws provide otherwise. Special meetings of
Mr. BENJAMIN B. BERNARDINO 1 share
the board of directors or trustees may be held at any time upon call of the
president oras provided in the by-laws. Meetings of directors or trustees of
corporations may be held anywhere in or outside of the Philippines, unless and representing Arturo F. Lopez 7, 831 shares
the by-laws provide otherwise. Notice of regular or special meetings
stating the date, time and place of the meeting must be sent to every
director or trustee at least one (1) day prior to the scheduled meeting, Mr. JUANITO L. SANTOS
unless otherwise provided by the by-laws. A director or trustee may waive
this requirement, either expressly or impliedly. (admin representing the Estate of the late Teresita 7, 830 shares
Lopez Marquez- legal to vote for her)
Hence, contrary to the position adopted by the CA, only those whose
signatures appear on the minutes of the meeting can be said to have Mr. LEO RIVERA 1 share
voted in favor of the ratification. This case must be differentiated from the
Court’s ruling in People v. Dumlao, et al. In Dumlao, the Court ruled that Mr. ROSENDO DE LEON 5 shares
the signing of the minutes by all the directors is not a requisite and that the
lack of signatures on the minutes does not mean that the resolution was
not passed by the board. However, there is a notable disparity between
the facts in Dumlao and the instant case. In Dumlao, the corporate TOTAL SHARES REPRESENTED 23, 499 shares
secretary therein recorded, prepared and certified the correctness of the
minutes of the meeting despite the fact that not all directors signed the In sum, whatever defect there was on the sale to the spouses Tanjangco
minutes. pursuant to the August 17, 1981 Board Resolution, the same was cured
through its ratification in the July 30, 1982 Board Resolution. It is of no
moment whether Arturo was authorized to merely negotiate or to enter into
Dumlao ruling stated that the signature of the corp secretary give probative a contract of sale on behalf of LRI as all his actions in connection to the
value to the minutes. There is no requisite on the majority of board sale were expressly ratified by the stockholders holding 67% of the
202 | TKP 2025

outstanding capital stock. practical use or value, or affect any of the rights of the parties,
because the subsequent shareholders’ resolution approving and
ratifying said acquisition and the manner in which PRCI shall
In summary, the August 1981 meeting/resolution violates Sec. 53 for not constitute the JTH Board of Directors, will still remain valid and
giving notice or informing a Director of the Board like Asuncion, who is binding. ✓Lopez Realty, Inc. v. Spouses Tanjangco, 739 SCRA 644
also a stockholder/corp secretary, of a sale and is void. However the (2014).
stockholders’ meeting on July 30, 1982 ratified the first meeting. This had
the signatures on the minutes of the majority stockholders- Rosendo,
Juanito, Benjamin- voting on the resolution in the first meeting. Thus it is
ratified. The Dumlao case said that the signature of the corporate
secretary certifying the minutes is sufficient. It did not require directors
to sign the minutes. In this case, the Dumlao ruling did not apply, since
the corporate secretary Asuncion did not sign the 1982 minutes, and
the issue was stockholder votes for ratifying a prior resolution by the
BOD. Thus the votes of the stockholders were needed to be shown
via minute signatures for the votes to count.
Finally, only the 1982 stockholders’ votes matter now in order to ratify the
acts of the Board at the August 17, 1981 Resolution. To count the Board
Directors’ votes for the 1982 resolution is wrong since they cannot vote to
ratify themselves. Given that in this unique case, most of the BOD also
happened to be the stockholders. Agent-Principal dual capacity roles.
CLV NOTES: Doctrine of Ratification- 1910 CC

Ratification means that the principal voluntarily adopts, confirms and
gives sanction to an unauthorized act of its agent on its behalf. The
substance of the doctrine is confirmation after conduct, amounting
to a substitute for a prior authority. Ratification can be made either
expressly or impliedly. Implied ratification may take various forms —
like silence or acquiescence, acts showing approval or adoption of
the act, or acceptance and retention of benefits flowing therefrom.
✓Lopez Realty v. Spouses Tanjangco, 739 SCRA 644 (2014).
Cua, Jr. v. Tan, 607 SCRA 645 (2009), held that by virtue of
ratification, the acts of the Board of Directors become the acts of the
shareholders themselves, even if those acts were, at the outset,
unauthorized. To declare the Board resolution void will serve no
203 | TKP 2025

authorized Roxas to sell the first lot and that was it. Therefore,
such agreement to sell the other lot is ultra vires.
Woodchild Holdings Inc. v. Roxas Electric Constructions Co. ● RTC ruled in favor of Woodchild stating that RECCI was estopped
436 SCRA 235 (2004) from disowning the apparent authority of Roxas under the
Resolution; it would prejudice Woodchild which transacted with
Topic: Doctrine of Ratification or Estoppel Roxas in good faith
CLV Syllabus: Under Art 1910 of Civil Code, acts done by such officers Issue: Whether the provision in deed of absolute sale over the other parcel
beyond the scope of their authority cannot bind the corporation unless of land to be sold in the future if needed is ultra vires? YES
it has ratified such acts expressly or tacitly or is estopped from denying
them. Contracts entered by corporate officers beyond the scope of Held:
authority are unenforceable against the corporation unless ratified by ● A corporation is a juridical person separate and distinct from its
the Board. stockholders or members. Accordingly, the property of the
corporation is not the property of its stockholders or members and
Facts: may not be sold by the stockholders or members without express
authorization from the corporation’s board of directors.
● RECCI (Roxas Electric) was the owner of two parcels of land
● Generally, the acts of the corporate officers within the scope of
● The BoD of RECCI approved a resolution authorizing the
their authority are binding on the corporation. However, under
corporation, through its President, Roxas,
Article 1910 of the New Civil Code, acts done by such officers
○ to sell one of the parcels of land at a price and under
beyond the scope of their authority cannot bind the corporation
such terms and conditions which he deemed most
unless it has ratified such acts expressly or tacitly, or is estopped
reasonable and advantageous to the corporation
from denying them
○ and to execute, sign, deliver the pertinent sales
documents and receive the proceeds of the sale for and ○ persons dealing with an assumed agency, whether the
assumed agency be a general or special one, are bound
on behalf of the company
at their peril, if they would hold the principal liable, to
● Petitioner Woodchild, represented by its President, Dy, wanted to
ascertain not only the fact of agency but also the nature
buy the lot to construct its warehouse and a portion of the
and extent of authority, and in case either is controverted,
adjoining lot so that its container van can readily leave or
the burden of proof is upon them to establish it.
enter the property.
● RECCI denied authorizing its then president Roberto B. Roxas to
● Roxas then executed a Deed of Absolute Sale, containing a
sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085,
provision that vendor agrees to sell additional square meters from
the other portion of land (that was not covered under the Reso) and to create a lien or burden thereon. The Woodchild was thus
burdened to prove that the respondent so authorized Roxas to sell
● Roxas died.
the same and to create a lien thereon.
● Woodchild then demanded that RECCI sell a portion of the other
● RECCI did not authorize Roxas to grant a right of way nor did
parcel of land as agreed because their van could not enter the
it include the authority to sell a portion of the lot. It cannot be
premises
implied from the authority granted to Roxas to sell one of the
● RECCI argues it never authorized the late Roxas to grant the
parcels of land.
beneficial use of any portion of the other lot nor agreed to sell any
○ Powers of attorney are generally construed strictly and
portion thereof or create a lien or burden thereon. It merely
courts will not infer or presume broad powers from deeds
204 | TKP 2025

which do not sufficiently include property or subject under option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No.
which the agent is to deal 78085, or to create a burden or lien thereon, or that the
● We reject the petitioner’s submission that, in allowing Roxas to respondent allowed him to do so.
execute the contract to sell and the deed of absolute sale and ● Ratification is based on waiver – the intentional relinquishment of
failing to reject or disapprove the same, the respondent thereby a known right.
gave him apparent authority to grant a right of way over Lot No. ● Ratification cannot be inferred from acts that a principal has a right
491-A-3-B-1 and to grant an option for the respondent to sell a to do independently of the unauthorized act of the agent.
portion thereof to the petitioner. Absent estoppel or ratification, Moreover, if a writing is required to grant an authority to do a
apparent authority cannot remedy the lack of the written power particular act, ratification of that act must also be in writing. Since
required under the statement of frauds the respondent had not ratified the unauthorized acts of Roxas,
● It bears stressing that apparent authority is based on the same are unenforceable. Hence, by the respondent’s retention
estoppel and can arise from two instances: of the amount, it cannot thereby be implied that it had ratified the
1. first, the principal may knowingly permit the agent to so unauthorized acts of its agent, Roberto Roxas
hold himself out as having such authority, and in this way,
the principal becomes estopped to claim that the agent
does not have such authority;
2. second, the principal may so clothe the agent with the
indicia of authority as to lead a reasonably prudent person
to believe that he actually has such authority.
● There can be no apparent authority of an agent without acts or
conduct on the part of the principal and such acts or conduct of
the principal must have been known and relied upon in good faith
and as a result of the exercise of reasonable prudence by a third
person as claimant and such must have produced a change of
position to its detriment. The apparent power of an agent is to be
determined by the acts of the principal and not by the acts of the
agent.
● For the principle of apparent authority to apply, the petitioner was
burdened to prove the following:
○ (a) the acts of the respondent justifying belief in the
agency by the petitioner;
○ (b) knowledge thereof by the respondent which is sought
to be held; and,
○ (c) reliance thereon by the petitioner consistent with
ordinary care and prudence.
● In this case, there is no evidence on record of specific acts made
by the respondent showing or indicating that it had full knowledge
of any representations made by Roxas to the petitioner that the
respondent had authorized him to grant to the respondent an
205 | TKP 2025

19. Francisco v. GSIS, 7 SCRA 577 (1963)
206 | TKP 2025

Lipat v. Pacific Banking Corp., 402 SCRA 339 (2003) and friends of the Lipats. Estelita Lipat was named president of BEC, while
Teresita became the vice-president and general manager. Eventually, the
FACTS: loan was later restructured in the name of BEC and subsequent loans
The Lipat Spouses owned Belas Export Trading (BET) which was were obtained by BEC with the corresponding promissory notes duly
engaged in the manufacture of garments for domestic & foreign executed by Teresita on behalf of the corporation. The promissory notes,
consumption. The Lipat Spouses also owned the Mystical Fashions in the export bills, and trust receipt eventually became due and
United States, which sells goods imported from the Philippines through demandable. Unfortunately, BEC defaulted in its payments.
BET. Consequently, the real estate mortgage was foreclosed and after
compliance with the requirements of the law the mortgaged property
Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in was sold at public auction, a certificate of sale was issued to Eugenio
the Philippines while she was managing Mystical Fashions in the United Trinidad (Trinidad) as the highest bidder.
States. Estelita Lipat executed a SPA appointing Teresita Lipat as her
attorney-in-fact to obtain loans and other credit accommodations from The spouses Lipat filed before the Quezon City RTC a complaint for
Pacific Banking. She likewise authorized Teresita to execute mortgage annulment of the real estate mortgage, extrajudicial foreclosure and the
contracts on properties owned or co-owned by her as security for the certificate of sale issued over the property against Pacific Bank and
obligations to be extended by Pacific Bank including any extension or Trinidad. The RTC stated that BEC was a mere extension of the Lipats
renewal thereof. personality and business and a mere alter ego or business conduit of the
Lipats established for their own benefit.
Teresita, by virtue of the special power of attorney, was able to secure for
and in behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank The trial court pierced the veil of corporate fiction and held that Belas
amounting to P583,854.00 to buy fabrics to be manufactured by BET and Export Corporation and the Lipats are one and the same. Pacific Bank had
exported to Mystical Fashions in the United States. As security therefor, transacted business with both BET and BEC on the supposition that both
the Lipat spouses, as represented by Teresita, executed a Real Estate are one and the same.Hence, the Lipats were estopped from disclaiming
Mortgage over their property located at No. 814 Aurora Blvd., Cubao, any obligations on the theory of separate personality of corporations,
Quezon City. which is contrary to principles of reason and good faith. The CA affirmed
such decision.
On September 1979, BET was incorporated into a family corporation
named Belas Export Corporation (BEC) in order to facilitate the
management of the business. BEC was engaged in the business of ISSUE:
manufacturing and exportation of all kinds of garments of whatever kind 1. WoN the doctrine of piercing the veil of corporate fiction is
and description and utilized the same machineries and equipment applicable in this case? YES.
previously used by BET. Its incorporators and directors included the Lipat
spouses who owned a combined 300 shares out of the 420 shares 2. WoN the Lipats property under the real estate mortgage is liable
subscribed, Teresita Lipat who owned 20 shares, and other close relatives not only for the amount of P583,854.00 but also for the value of
207 | TKP 2025

the promissory notes, trust receipt, and export bills subsequently were secured without any proper authorization or board resolution.
incurred by BEC? (RELEVANT)- YES because BEC merely They also blame the bank for its laxity and complacency in not
succeeded BET as Lipat Spouses alter ego thus the Lipat requiring a board resolution as a requisite for approving the loans.
Spouses mortgaged property must be held liable for the
subsequent loans & credit lines of BEC 3. It could not have been possible for BEC to release a board
resolution since per admissions by both Estelita Lipat and Alice
Burgos, Lipat Spouses rebuttal witness, no business or
RULING: stockholders meetings were conducted nor were there election of
RE: Piercing the Veil officers held since its incorporation. In fact, not a single board
1. The SC held yes since Estelita Lipat admitted that she and her resolution was passed by the corporate board and it was Estelita
husband, Alfredo, were the owners of BET and were two of the Lipat and/or Teresita Lipat who decided business matters.The
incorporators and majority stockholders of BEC. It is also principle of estoppel precludes Lipat Spouses from denying the
undisputed that Estelita Lipat executed a special power of attorney validity of the transactions entered into by Teresita Lipat with
in favor of her daughter, Teresita, to obtain loans and credit lines Pacific Bank, who in good faith, relied on the authority of the
from Pacific Bank on her behalf. Incidentally, Teresita was former as manager to act on behalf of Estelita Lipat and both BET
designated as executive-vice president and general manager of and BEC.
both BET and BEC, respectively. BEC is a mere continuation and
successor of BET, and Lipat Spouses cannot evade their 4. While the power and responsibility to decide whether the
obligations in the mortgage contract secured under the name of corporation should enter into a contract that will bind the
BEC on the pretext that it was signed for the benefit and under the corporation is lodged in its board of directors, subject to the
name of BET. articles of incorporation, by-laws, or relevant provisions of law, yet,
just as a natural person may authorize another to do certain acts
RE: Extent of Liability of Mortgage (RELEVANT) for and on his behalf, the board of directors may validly delegate
1. The extent to which the Lipats property can be held liable under some of its functions and powers to officers, committees, or
the real estate mortgage is not limited to P583,854.00. It can be agents. The authority of such individuals to bind the corporation is
held liable for the value of the promissory notes, trust receipt and generally derived from law, corporate by-laws, or authorization
export bills as well. For the mortgage was executed not only for from the board, either expressly or impliedly by habit, custom, or
the purpose of securing the Belas Export Tradings original loan of acquiescence in the general course of business. Apparent
P583,854.00, but also for other additional or new loans, authority, is derived not merely from practice. Its existence may be
discounting lines, overdrafts and credit accommodations, of ascertained through (1) the general manner in which the
whatever amount. corporation holds out an officer or agent as having the power to
act or, in other words, the apparent authority to act in general, with
2. The Lipat Spouses contend further that the mortgaged property which it clothes him; or (2) the acquiescence in his acts of a
should not bind the loans and credit lines obtained by BEC as they
208 | TKP 2025

particular nature, with actual or constructive knowledge thereof,

whether within or beyond the scope of his ordinary powers.
5. Teresita Lipat had dealt with Pacific Bank on the mortgage

contract by virtue of a special power of attorney executed by
Estelita Lipat.Recall that Teresita Lipat acted as the manager of
both BEC and BET and had been deciding business matters in the
absence of Estelita Lipat. Further, the export bills secured by BEC
were for the benefit of Mystical Fashion owned by Estelita Lipat.
6. Hence, Pacific Bank cannot be faulted for relying on the same

authority granted to Teresita Lipat by Estelita Lipat by virtue
of a special power of attorney. It is a familiar doctrine that if a
corporation knowingly permits one of its officers or any other
agent to act within the scope of an apparent authority, it holds
him out to the public as possessing the power to do those
acts; thus, the corporation will, as against anyone who has in
good faith dealt with it through such agent, be estopped from
denying the agents authority.
CLV OUTLINE: Estoppel precludes a corporation’s Board from denying

the validity of the transaction entered by its officer with a third party who in
good faith, relied on the authority of the former as manager to act on
behalf of the corporation
209 | TKP 2025

Associated Bank v. Pronstroller, 558 SCRA 113 (2008) bank be ordered to sell the subject property to them in accordance with
their letter-agreement of July 14, 1993.
FACTS:
While the case was pending, the bank sold the subject property to the
Spouses Vaca executed a REM in favor of Associated Bank over their
spouses Vaca, who eventually registered the sale and a new TCT was
land. For failure of the spouses' Vaca to pay their obligation, the subject
property was sold at public auction with Associated Bank as the highest issued in their names. As new owners, the Vacas started demolishing the
house on the subject property which, however, was not completed by
bidder.
virtue of the writ of preliminary injunction issued by the court.
However, the Vacas commenced an action which reached the SC and
while the parties were waiting for the resolution, Associated Bank
advertised the subject property for sale. ISSUE: WON Associated Bank is bound by the Letter-Agreement signed
by Atty. Soluta under the doctrine of apparent authority. YES
Pronstrollers offered to purchase the property. Said offer was made
through Atty. Soluta, the bank’s VP, and a member of its BoD.
Atty. Soluta, acting on behalf of the bank and the Pronstrollers executed a RULING: By virtue of the doctrine of apparent authority, the bank is
Letter-Agreement which states that the 10% deposit and the remaining obligated to recognize the second agreement signed by Atty. Soluta. The
balance will be deposited under escrow agreement. Said escrow deposit two agreements were both signed in the same paper with the same
shall be applied as payment upon delivery of the aforesaid property to the letterhead; that iin the first agreement, the bank recognized the authority of
buyers free from occupants. Atty. Soluta signed it and the bank acknowledged the binding effect of the
second agreement. Though the bank protested that Atty. Soluta had not
A month after the payment deadline had lapsed, the Pronstrollers and Atty.
been given the power to modify the second agreement, the Court said
Soluta, acting for the bank, executed another Letter-Agreement allowing
the former to pay the balance of the purchase price upon receipt of a final that, though there was no prior board resolution or authorization granted to
Atty. Soluta, the bank is estopped from stating that Atty. Soluta had no
order from the SC (Vaca case) and/or the delivery of the property to them
authority, by virtue of the first agreement.
free from occupants.
Towards the end of the year the bank reorganized its management. Atty.
Dayday became the bank’s Asst.VP, while Atty. Soluta was relieved of his CLV OUTLINE: Naturally, the third person has little or no information as to
responsibilities. Atty. Dayday reviewed bank’s records and discovered that what occurs in a corporate meeting, since what transpires in the Board
the Pronstrollers failed to deposit the balance of the purchase price of the room is entirely an internal matter and must necessarily rely upon the
subject property. Atty. Dayday informed the spouses of the rescission and external manifestations of corporate consent. The integrity of commercial
forfeiture of their deposit. The spouses gave him the second transactions can only be maintained by holding the corporation strictly to
Letter-Agreement to show that they were granted an extension the liability fixed upon it by its agents in accordance with law. Hence,
(They will only pay the purchase price upon the receipt of the final order petitioner may not impute negligence on the part of the respondents in
failing to find out the scope of Atty. Soluta’s authority. Indeed, the public
from SC). However, Atty. Dayday claimed that the letter was a mistake and
has the right to rely on the trustworthiness of bank officers and their acts.
that Atty. Soluta was not authorized to give such an extension. On July 14,
✔Associated Bank v. Pronstroller, 558 SCRA 113 (2008).
1994, in the Vaca case, the SC upheld the bank’s right to possess the
subject property.
The Pronstrollers commenced the suit by filing a Complaint for Specific Notes:
Performance before the RTC of Antipolo. The spouses prayed that the
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The authority of a corporate officer or agent in dealing with third persons

may be actual or apparent. The doctrine of "apparent authority", with
special reference to banks, had long been recognized in this jurisdiction.
Apparent authority is derived not merely from practice. Its existence may
be ascertained through 1) the general manner in which the corporation
holds out an officer or agent as having the power to act, or in other words,
the apparent authority to act in general, with which it clothes him; or 2) the
acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his ordinary powers.
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Doctrine of Apparent Authority ● The bank appealed that it did not ratify the Deed of Assignment
through the act of Lionel Calo. The bank issued an inter-office
Westmont Bank v. Inland Construction and Dev. Corp., 582 SCRA 230
memorandum pronouncing that Calo has no authority to sign the
(2009)
Conforme of the bank for he is only an accounts officer (but this
FACTS: inter-office memorandum was not presented to Inland and not
● Inland Construction and Development Corp (Inland) obtained even used as an evidence during the trial).
various loans and other credit accommodations from Westmont
Bank in 1977 executed with 3 real estate mortgages over 3 real
ISSUE
properties in Pasig City. Inland also issued promissory notes in
favor of the bank. When the 1st and 2nd promissory notes fell due, Whether or not Lionel Calo acted under the power of an apparent
Inland defaulted in its payments. It authorized the bank to deduct authority. YES
P350,000.00 from its savings account as partial payment.
● 14 December 1979 - Inland was served a Notice of Sheriff's Sale
foreclosing the real estate mortgages over the real properties. RULING
Inland filed a complaint for injunction against Westmont Bank and The general rule remains that, in the absence of authority from the board
Provincial Sheriff of Rizal at the RTC of Pasig City. The bank of directors, no person, not even its officers, can validly bind a corporation.
claimed that it had no knowledge over the deed of assignment If a corporation, however, consciously lets one of its officers, or any other
executed by Felix Aranda, President of Inland, in favor of Horacio agent, to act within the scope of an apparent authority, it will be estopped
Abrantes, EVP & General Manager of Hanil-Gonzales from denying such officer's authority.
Construction and Development Corporation, and that it did not
give its conformity to the said assignment of the obligation. In the The record showed that Calo was the one assigned to transact of the
said deed of assignment, it appeared that Abrantes assumed bank's behalf with respect to the loan transactions and arrangements of
Inland's obligation particularly the loan of Inland from Westmont Inland as well as those of Hanil-Gonzales and Abrantes. Since it
Bank amounting to P880,000.00. conducted business through Calo, who is an Account Officer, it is
● The trial court found that the bank ratified the deed of assignment. presumed that he had authority to sign for the bank in the Deed of
Lionel Calo, Westmont Bank's account officer, signed the deed for Assignment.
conformity and the bank failed to repudiate the assignment within Petitioner relies heavily, however, on the Court's pronouncement in Yao Ka
a reasonable time and even approved the restructuring of the Sin Trading that it was incumbent upon, in this case, Inland to prove that
Liberty Const. & Dev. Corp./Hanil-Gonzales Construction & petitioner had clothed its account officer with apparent power to conform to
Development Corp.’s obligations, which included the P880,000.00 the Deed of Assignment.
loan. The trial court ruled in favor of Inland and perpetually
restrained the bank and the sheriff from proceeding with the Petitioner's simplistic reading of Yao Ka Sin Trading v. Court of Appeals
foreclosure of the mortgage and conducting an auction sale. does not impress. Unmistakably, the Court's directive in Yao Ka Sin
● The bank appealed to the Court of Appeals. CA affirmed the Trading is that a corporation should first prove by clear evidence that its
findings of the trial court that the bank ratified the Deed of corporate officer is not in fact authorized to act on its behalf before the
Assignment but reversed all other judgment. CA ordered Inland to burden of evidence shifts to the other party to prove, by previous specific
pay the bank the sum of P186,241.86 with legal interest computed acts, that an officer was clothed by the corporation with apparent authority.
from December 21, 1979 until fully paid. In the present petitions, petitioner-bank failed to discharge its primary
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burden of proving that Calo was not authorized to bind it, as it did not
present proof that Calo was unauthorized. It did not present, much less
cite, any Resolution from its Board of Directors or its Charter or By-laws
from which the Court could reasonably infer that he indeed had no
authority to sign in its behalf or bind it in the Deed of Assignment. The May
20, 1985 inter-office memorandum stating that Calo had "no signing
authority" remains self-serving as it does not even form part of petitioner's
body of evidence.
Thus, the assertion that the petitioner cannot be faulted for its delay in
repudiating the apparent authority of Calo is similarly flawed, there being
no evidence on record that it had actually repudiated such apparent
authority. It should be noted that it was the bank which pleaded that
defense in the first place. What is extant in the records is a reasonable
certainty that the bank had ratified the Deed of Assignment.
The assumption that a ruling on the issue of ratification would affect any
and all foreclosure proceedings on the mortgaged properties remains
unfounded. For the challenged appellate court's Decision still mentioned
the possibility of foreclosing on the mortgaged properties as Inland was
still indebted to the bank in the amount of P186,241.86 covering the other
two promissory notes (No. BD-2739-77 and No. BD-2997)and other
obligations that Inland was not able to satisfy upon maturity.
Both the trial court's and the appellate court's inferences and conclusion
that petitioner ratified its account officer's act are thus rationally based on
evidence and circumstances duly highlighted in their respective decisions.
Absent any serious abuse or evident lack of basis or capriciousness of any
kind, the lower courts' findings of fact are conclusive upon this Court.
CLV Outline: The general rule remains that, in the absence of authority
from the Board of Directors, no person, not even its officers, can validly
bind a corporation. If a corporation, however, consciously lets one of its
officers, or any other agent, to act within the scope of an apparent
authority, it will be estopped from denying such officer’s authority. …
Unmistakably, the Court’s directive in Yao Ka Sin Trading is that a
corporation should first prove by clear evidence that its corporate officer is
not authorized to act on its behalf before the burden of evidence shifts to
the other party to prove, by previous specific acts, that an officer was
clothes by the corporation with apparent authority. Westmont Bank v.
Inland Construction and Dev. Corp., 582 SCRA 230 (2009).
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laxity and failed to prevent abuse by its officers; (4) Arma failed to prove
Advance Paper Corp. v. Arma Traders Corp., 712 SCRA 313 connivance between Advance Paper and Arma’s previous President and
(2013) Treasurer.
Arma Traders is a distributor of school supplies, and has been engaging Long answer
with Advance Paper as its supplier for 14 years. Arma Traders is liable to pay the loans on the basis of the doctrine of
apparent authority. The doctrine of apparent authority provides that
In 1994, Pres. Tan and Treasurer Uy, in representation of Arma Traders, a→corporation will be estopped from denying the agent’s authority if it
availed a total of P15.13M worth of paper products from Advance Paper knowingly permits one of its officers or any other agent to act within the
on credit. scope of an apparent authority, and it holds him out to the public as
possessing the power to do those acts.
As authorized signatories of Arma, Tan and Uy extended PDCs to AOI provides that they may borrow. Arma Traders’ Articles of
Advance Papers. The checks were dishonored due to lack of funds. Arma Incorporation provides that the corporation may borrow or raise
Traders failed to settle. money to meet the financial requirements of its business by the
issuance of bonds, promissory notes and other evidence of
Adv. Paper filed a collection of sum of money with preliminary attachment indebtedness.
against the corp and some officers, proved the credit through sales
invoices, and proved loan history through previous checks by Arma. Tan and Uy were incorporators. Also, Ng testified: the sole management of
Arma Traders was left to Tan and Uy and that he and the other officers
Arma’s defense was that (1) There was no delivery of the paper products never dealt with the business and management of Arma Traders for 14
and (2) Pres. Tan and Treas. Uy were the only ones responsible since they years. He also confirmed that since 1984 up to the filing of the complaint
acted in excess of their authority since and such are without approval of against Arma Traders, its stockholders and board of directors never had its
the BoD meeting.
Lower Courts: RTC Manila favored Advance Paper. CA reversed. Arma Traders allowed its officers and failed to take precautions to prevent
abuse. Thus, Arma Traders bestowed upon Tan and Uy broad powers by
Issue and Ruling: Did Arma Traders Pres. Tan and Treas. Uy have allowing them to transact with third persons without the necessary written
authority to obtain loans? – YES. authority from its non-performing board of directors. Arma Traders failed to
take precautions to prevent its own corporate officers from abusing their
Short answer powers. Because of its own laxity in its business dealings, Arma Traders is
Yes, because of the doctrine of Apparent Authority substantiated by the now estopped from denying Tan and Uy’s authority to obtain loan from
following 5 circumstances: (1) First, Arma’s AOI provides that the corp Advance Paper.
may borrow money; (2) Tan and Uy were incorporators and they alone had
made the decisions for the business since 1984. (3) Arma Corp is guilty of Debtor failed to show evidence of connivance between Haw and Tan/Uy.
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We also reject the respondents’ claim that Advance Paper, through Haw,
connived with Tan and Uy. The records do not contain any evidence to
prove that the loan transactions were personal to Tan and Uy. A different
conclusion might have been inferred had the cashier’s checks been issued
in favor of Tan and Uy, and had the postdated checks in favor of Advance
Paper been either Tan and/or Uy’s, or had the respondents presented
convincing evidence to show how Tan and Uy conspired with the
petitioners to defraud Arma Traders.84 We note that the respondents
initially intended to present Sharow Ong, the secretary of Tan and Uy, to
testify on how Advance Paper connived with Tan and Uy. As mentioned,
the respondents failed to present her on the witness stand.
CLV Syllabus:
The doctrine of apparent authority provides that a corporation will be
estopped from denying the agent’s authority if it knowingly permits one of
its officers or any other agent to act within the scope of an apparent
authority, and it holds him out to the public as possessing the power to do
those acts. The doctrine does not apply if the principal did not commit
any acts or conduct which a third party knew and relied upon in good faith
as a result of the exercise of reasonable prudence. Moreover, the agent’s
acts or conduct must have produced a change of position to the third
party’s detriment. ✔Advance Paper Corp. v. Arma Traders Corp., 712
SCRA 313 (2013).
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Georg v. Holy Trinity College, Inc., 797 SCRA 550 (2016) ISSUE: W/N Holy Trinity College is liable under the MOA, even if it
was not a party to it? YES
FACTS:
The Holy Trinity College Grand Chorale and Dance Company was
organized by Sister Medalle, the president of Holy respondent Holy Trinity RULING:
College. The Grand Chorale was slated to perform in Greece Italy.
The school administration of the Holy Trinity College has control
Enriquez, who allegedly represented Sr. Medalle, contacted petitioner and supervision of the Grand Chorale and Dance Company particularly in
Benjie Georg, who owns a German travel agency, to seek assistance for the selection and hiring of its trainers but as to their termination as well.
the payment of the Grand Chorale’s international airplane tickets.
With the foregoing, the court is convinced that Holy Trinity College Grand
Petitioner Benjie Georg asked her brother, Atty. Belarmino, to represent
Chorale and Dance Company do not have a life of its own and merely
her during the negotiation with Enriquez.
derive its creation, existence and continued operation or performance at
the hands of the school administration. Sr. Medalle, as President of Holy
On April 2001, MOA with Deed of Assignment was executed Trinity, is clothed with sufficient authority to enter into a loan agreement.
between Petitioner Georg, Grand Chorale and SC Roque Foundation, as
foundation guarantor. Under the said Agreement, Petitioner Georg,
Assuming arguendo that Sr. Medalle was not authorized by the
through her travel agency, will advance the payment of international
Holy Trinity College Board, the doctrine of apparent authority applies in
airplane tickets amounting to P4.6M in favor of the Grand Chorale on the
this case. The doctrine of apparent authority provides that a corporation
assurance of Grand Chorale through Enriquez that there is a confirmed
will be estopped from denying the agent's authority if it knowingly permits
financial allocation of P4.6M from the foundation grantor, SC Roque. one of its officers or any other agent to act within the scope of an apparent
Petitioner Georg paid for the Grand Chorale’s domestic and international
authority, and it holds him out to the public as possessing the power to do
airplane tickets. However, the Grand Chorale and the SC Roque,
those acts.
foundation grantor, failed to pay.
The existence of apparent authority may be ascertained through:

Hence, Georg filed for complaint for a sum of money. RTC ruled in
favor of Petitioner Georg, which the CA reversed. The CA relieved Holy 1. the general manner in which the corporation holds out an
Trinity College’s liability since it was not a party to the MOA. officer or agent as having the power to act or, in other
words, the apparent authority to act in general, with which
it clothes him; or
Hence, this Petition by George to the SC. Holy Trinity College 2. (2) the acquiescence in his acts of a particular nature, with
argues that Sr. Medalle was not authorized by the corporation to enter into actual or constructive knowledge thereof, whether within
any loan agreement, thus the MOA executed was null and void for being or beyond the scope of his ordinary powers.
ultra vires. They further claim that Holy Trinity College was not named in In this case, Sr. Medalle formed and organized the Group. She
the MOA; that Sr. Medalle was no longer president of Holy Trinity College;
had been giving financial support to the Group, in her capacity as
and that Sr. Medalle had not been authorized by a board resolution to
President of Holy Trinity College. Sr. Navarro admitted that the Board of
enter into such an agreement.
Trustees never questioned the existence and activities of the Group. Thus,
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any agreement or contract entered into by Sr. Medalle as President of Holy

Trinity College relating to the Group bears the consent and approval of
respondent. It is through these dynamics that we cannot fault petitioner for
relying on Sr. Medalle's authority to transact with petitioner.
Finding that Sr. Medalle possessed full mental faculty in affixing

her thumbmark in the MOA and that respondent is hereby bound by her
actions, we reverse the ruling of the Court of Appeals.
CLV OUTLINE:
The existence of apparent authority may be ascertained through (1) the
general manner by which the corporation holds out an officer or agent as
having the power to act or, in other words, the apparent authority to act in
general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, whether
within or beyond the scope of his ordinary powers
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Terp Construction Corp. v. Banco Filipino Savings and for additional interest in the bonds it purchased. NO.
Mortgage Bank, 920 SCRA 163 (2019
FACTS:
RATO:
Terp wanted to develop a house project and a condominium. To
A corporation exercises its corporate powers through its board of
finance the same, Terp, Home Insurance and Planters Bank
directors. The power may be validly delegated to its officers,
agreed to raise it through the issuance of bonds worth P400M committees, or agencies. The authority of such individuals to
called the Margarita Bonds. Three of them agreed that Terp
bind the corporation is generally derived from law, corporate
shall sell the bonds, Planters would be the trustee and Home
bylaws or authorization from the board, either expressly or
insurance as the guarantor and would pay the investors the
impliedly by habit, custom or acquiescence in the general
value upon maturity and 8.5% interest per year. Banco Filipino course of business
purchased the bonds for P100M and asked for additional
interest aside from the 8.5% based on the letter written by The authority of the BOD to delegate its corporate powers may
Esaclona, the vice president of Terp. either be actual or apparent. Actual authority may be done
expressly or impliedly. Express actual authority refers to the
corporate powers expressly delegated by the BOD.
The construction was not able to continue as Terp suffered Meanwhile, an implied actual authority can be measured by is
unrealized income due to the economic crisis. When the or her prior act which have been ratified by the corporation or
bonds matured, the funds in the asset pool were insufficient to whose benefits have been accepted by the corporation
pay the bond holders. But Home Insurance was able to pay
Terp’s subsequent act of twice paying the additional interest
Banco Filipino the earnings of 8.5%. However, Banco wrote to
Escalona committed during the term of the Margarita bonds is
Terp demanding the 15.5% interest as promised. However,
considered a ratification of Escalona’s acts.
Terp refused to pay the same and alleged that there was a
condition for the additional interest being asked for by Banco Due to Escalona’s vice president position in Terp, Banco Filipino
will only be paid when all the asset pool funds would be relied on Escalona’s apparent authority when the latter
released to Terp but the same could not be made to banco promised the interest patents over and above the guaranteed
since the funds in the asset pool were never released. 8.5%. The same was also demonstrated when Terp paid
banco Filipino the amount which Escalona promised.
When the petition was filed, Escalona also signed the verification
The RTC ruled in favor of Terp claiming that there was no
and certification as the President of Terp, signifying that the
evidence showing that Terp was obligated to pay the said
corporation did not consider his unauthorized acts fatal to his
interest and the act of Escalona, the vice president of Terop
continued involvement in the corporate affairs.
was not binding to the corporation as they were not ratified.
However, the CA set aside the decision of the lower court and CLV OUTLINE:A corporation exercises its corporate powers
asked Terp to pay for the differentials. through its board of directors. This power may be validly
delegated to its officers, committees, or agencies. “The
authority of such individuals to bind the corporation is
ISSUE: Whether or not the CA erred in ruling thst Terp generally derived from law, corporate bylaws or authorization
Construction expressly agreed to be bound to Banco Filipino from the board, either expressly or impliedly by habit, custom
218 | TKP 2025

or acquiescence in the general course of business.” Apparent

or implied authority "can be measured by his or her prior acts
which have been ratified by the corporation or whose benefits
have been accepted by the corporation.”
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Engineering Geoscience, Inc. v. Philippine Savings Bank, 890 SCRA RULING: EGI IS BOUND. According to the doctrine of apparent authority,
199 (2019) the acts and the contracts of the agent, if they are within the apparent
authority granted by the principal, they are binding upon the latter. As
such, the principal becomes bound and is liable to third persons who have
FACTS: been led to reasonably believe that the person they are entering into a
EGI obtained a loan from PSBANK and secured these with a REM over contract or agreement with was given the authority by their principal, even
two parcels of land. Unfortunately, EGI was only able to provide partial if no authority was actually given.
payments and after half of the amortizations, EGI stopped making
payments. PSB then invoked the acceleration clause and demanded full Further, a corporation acts through its board of directors. They exercise
payment. Upon failure to pay, they pushed to have the mortgage most, if not all corporate powers and lay down policies and manage the
foreclosed. However, the sale did not push through. The parties then affairs of the corporation. Thus, the general rule is that in the absence of
entered into a compromise agreement where they agreed that: the authority from the BoD, no person, not even officers, can validly bind a
corporation.
1. EGI would acknowledge its loan obligation along with the REM While there was no proof that EGI issued Santos the authority to enter into
2. EGI would settle their loan by paying around 38 million pesos in the Compromise Agreement, PSBANK doesn’t have any reason to doubt
full and his authority since he was the former president of EGI at the time the
3. If they made partial payments and the amount does not reach at compromise was entered into. As such, Santos was granted authority by
least 26 million pesos on the deadline of payment, they will virtue of the doctrine of apparent authority. Further, Santos was the party
execute a Deed of Absolute sale for the transfer and conveyance who was responsible for entering into several acts that bound EGI and
of the properties in consideration of the amount and PSBANK: the signing of the promissory notes, making of partial payments
4. The president of EGI and his family may still occupy and use the and more. They cannot therefore repudiate the compromise agreement
properties without having to pay rent or other charges to PSB but since they entered into it and even reaped the benefits therein.
in the event that they refuse to vacate after the expiration of the
agreement, PSBANK is entitled to the issuance of a writ of CLV OUTLINE:
possession and to demand their ejection Although the corporate officer was not duly authorized by the Board to
enter into the compromise agreement, nonetheless when the corporation
EGI eventually failed to comply so PSBANK filed a motion for execution of itself availed of the provisions thereof there is the proper application of the
the agreement. They filed a petition to annul the decision which approved doctrine of apparent authority, plus the fact that the Board questioned the
the compromise agreement saying that the officer who entered into it, Mr. authority of the corporate officer to sign the compromise agreement only
Santos, was without the authority to do so and thus the agreement is not after 12 years, laches had already set in.
binding upon the corporation. CA ruled that they had a hard time believing
that Santos, who was the former president of EGI, had no special power of
attorney or secretary’s certificate to attest to his authority to represent EGI.
ISSUE: W/N EGI can be bound by the terms and conditions under the
agreement even if it was entered into by Santos without their consent?
YES.
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MANAGEMENT AND OTHER CORPORATE OFFICERS the President, General Manager or Managing Partner, it is imperative
that it first be shown that he/she falls under the catch-all "such other
Board Power to Delegate its Authority: Management Handles the
officer charged with the management of the business affairs," before
Day-to-Day Affairs of the Company
he/she can be prosecuted. However, it must be stressed, that the matter
Federated Dealers Assn. v. Del Rosario, 808 SCRA 272 (2016) of being an officer charged with the management of the business affairs is
a factual issue which must be alleged and supported by evidence. Here,
there is no dispute that neither of the respondents was the President,
FACTS: Federated LPG Dealers Association (Federated) sought General Manager, or Managing Partner of ACCS. Hence, it becomes
assistance from the PNP in the surveillance, investigation, and prosecution incumbent upon petitioner to show that respondents were officers
of certain individuals and establishments who allegedly committed acts in charged with the management of the business affairs. However, the
violation of BP 33. Such acts include refilling LPG containers branded as Complaint-Affidavit attached to the records merely states that
Gasul/Shellane and underfilling for the purpose of distribution. It was later respondents were members of the Board of Directors based on the
confirmed that ACCS, one of the entities suspected of committing such AOI of ACCS. There is no allegation whatsoever that they were
illegal acts, had no authority to refill the containers. in-charge of the management of the corporation's business affairs.
After a test-buy operation, the police officers applied for search warrants At any rate, the Court has gone through the By-Laws of ACCS and
against Antonio Del Rosario and three other persons. Del Rosario found nothing therein which would suggest that respondents were
admitted that he was the General Manager of ACCS but denied the directly involved in the day-to-day operations of the corporation.
allegations. He also claimed that the other three persons are merely True, Section 1 of Article III thereof contains a general statement that the
incorporators who have no active participation in the operations of corporate powers of ACCS shall be exercised, all business conducted, and
ACCS. all property of the corporation controlled and held by the Board of
With regards to Del Rosario’s liability, the police officers argued that under Directors. Notably, however, the same provision likewise significantly vests
BP 33, the President, General manager, Managing Partner, or any other the Board with specific powers that were generally concerned with policy
officer charged with the management of the business shall be criminally making from which it can reasonably be deduced that the Board only
liable. As for the three other persons, the police officers argued that the concerns itself in the business affairs by setting administrative and
AOI considers the incorporators also as directors. And since the by-laws of operational policies. It is actually the President under Section 2, Article IV
ACCS provide that all business shall be conducted by the Board of of the said by-laws who is vested with wide latitude in controlling the
Directors, the three persons are also criminally liable. The incorporators business operations of the corporation. Among others, the President is
argued back that they are not officers in-charge with business operations. specifically empowered to supervise and manage the business affairs of
the corporation, to implement the administrative and operational policies of
ISSUE: Can the three incorporators be held criminally liable under BP 33? the corporation under his supervision and control, to appoint, remove,
- NO suspend or discipline employees of the corporation, prescribe their duties,
RULING: and determine their salaries. With these functions, the President
appears to be the officer charged with the management of the
The Court applied the ruling in Ty v. NBI Supervising Agent De Jemil,
business affairs of ACCS. But since there is no allegation or showing
which resolved an identical issue.
that any of the respondents was the President of ACCS, none of them,
As clearly enunciated in Ty, a member of the Board of Directors of a therefore, can be considered as an officer charged with the management
corporation, cannot, by mere reason of such membership, be held of the business affairs even insofar as the By-Laws of the subject
liable for the corporation's probable violation of BP 33. If one is not corporation is concerned.
221 | TKP 2025

Clearly, therefore, it is only Antonio, who undisputedly was the

General Manager – a position among those expressly mentioned as
criminally liable under paragraph 4, Section 3 of BP 33, as amended –
can be prosecuted for ACCS' perceived violations of the said law.
Respondents who were mere members of the Board of Directors and not
shown to be charged with the management of the business affairs were
thus correctly dropped as respondents in the complaints.
CLV OUTLINE: The Board of Directors is generally a policy making body.
Even if the corporate powers of a corporation are reposed in the Board
under what is now Sec. 22 of RCC, it is of common knowledge and
practice that the Board does not directly engage or take charge with the
running of the recurring business affairs of the corporation; its members
generally do not concern themselves with the corporation’s day-to-day
affairs, except those officers who charged with running the corporate
business and are concomitantly members of the Board, like the President.
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Colegio Medico-Farmaceutico de Filipinas, Inc. v. Lim, 869 SCRA 298 RATIO:

(2018) Based on jurisprudence, the Court sustained the authority of the
FACTS: president to bind the corporation for the reason that the president has the
Colegio Medico Farmaceutico de Filipinas Inc was the registered power to perform acts within the scope of his/her usual duties.
owner of a building in Sampaloc, Manila. Colegio filed a complaint for
ejectment with damages against respondent Lily Lim, president of St. John Under Section 23 of the Corp Code, the power and responsibility
school, alleging that it entered into a Contract of Lease for 2005-2006 with to decide whether the corporation should enter into a contract that will bind
Lim. After expiration of the lease period, Colegio through its then President the corporation is lodged in the board, subject to the AoI, by-laws or other
(Del Castillo), sent Lim another Contract of Lease for 2006-2007 for her relevant law provisions UNLESS otherwise provided. In the absence of a
approval but Lim did not return the said contract. Colegio eventually charter/by-law provision to the contrary, the president is presumed to have
informed respondent of its BoD’s decision not to renew its contract of the authority to act within the domain of the general objectives of its
lease, with Del Castilo demanding payment of her back rentals and business and within the scope of his/her usual duties.
requesting her to vacate the property. Lim refused to do so.
Hence, the president of a corporation possesses the power to
Lim alleged that St. John (represented by Li Yao), entered into a enter into a contract for the corporation “when the conduct on the part of
10-year contract of lease with Colegio, but due to financial difficulties, its both the president and corporation shows that he had been in the habit of
Board of Trustees assigned its rights to her favor. Such assignment was acting in similar matters on behalf of the company and that the company
allegedly approved by Colegio and that to ensure the advance payment of had authorized him so to act and had recognized, approved, and ratified
rentals, Colegio persuaded her to execute a one-year contract of lease but his former and similar actions.
with no intention of shortening/repealing the original 10-year period thus
the reason she occupied the property. Allegedly, her non-payment of In this case, the issuance of the demand letter for the collection of
rentals was due to Colegio’s refusal to act on her letters. unpaid rentals from Lim as well as the order to vacate the said property
was within the scope of the powers of Del Castillo. As president, he had
MTC dismissed the complaint for lack of a valid demand letter as the duty to manage the affairs of Colegio, including the collection of
Colegio failed to show that Del Castillo was authorized by the Board to receivables.
issue the same. RTC reversed MeTC decision, stating that such issuance
of the demand letter was done by Del Castillo in the usual course of Colegio’s by-laws also expressly stated that the President has the
business and this was ratified by Colegio upon the passage of its Board power to: 1) exercise general supervision, control and direction of the
Resolution. CA dismissed the complaint. business and affairs of Colegio, 2) execute in behalf of Colegio, bonds,
mortgages and all other contracts and agreements which the Colegio may
ISSUE: enter into, and 3) exercise/perform such other duties incident to his
Whether or not there was a valid written demand upon Lim to pay office/such powers and duties as the Board may prescribe from time to
the unpaid rentals and vacate the subject property? — YES. time
Accordingly, Del Castillo had the power and authority to issue the
223 | TKP 2025

demand letter even without a board resolution. The subsequent issuance

of the Board Resolution two months after the issuance of the demand
letter indicated that the Board ratified the issuance of the demand letter.
CLV OUTLINE: Just as natural person may authorize another to do certain

acts for and on his behalf, the Board, as the repository of corporate
powers, may validly delegate some of its functions and powers to officers,
committees, or agents. The authority of such individuals to bind the
corporation is generally derived from law, bylaws or authorization from the
Board, either expressly or impliedly by habit, custom or acquiescence in
the general course of business.
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People’s Aircargo v. Court of Appeals, 297 SCRA 170 (1998) Accordingly, the authority to act for and bind a corporation may be
presumed from acts of recognition in other instances, wherein the
Facts: power was in fact exercised without any objection from its board or
Antonio Punsalan, Jr. was the President of People’s Aircargo. He hired shareholders.
Saño for consultancy services as evidenced by a First Contract and for In this case, petitioner has previously allowed its president to enter in
which he was paid. A second contract was entered into by Saño and the first contact without a board resolution expressly authorizing him,
People’s Aircargo still through its President Punsalan. Saño filed a thus it has clothed its president with apparent authority to execute the
collection suit against People’s Aircargo alleging that pursuant to the subject contract.
second contract, he had prepared an operations manual, conducted a
seminar-workshop for its employees, and delivered to it a computer Apparent authority is derived not merely from practice. Its existence may
program; but that despite demand, petitioner refused to pay him for his be ascertained through (1) the general manner in which the corporation
services. holds out an officer or agent as having the power to act or, in other words,
People’s Aicargo alleged that the second contract was signed by Punsalan the apparent authority to act in general, with which it clothes him; or (2) the
without authority. acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond the scope of his ordinary
Issue: Whether the president of People’s Aircargo had apparent authority powers. It requires presentation of evidence of similar act(s) executed
to bind the petitioner to the second contract? YES either in its favor or in favor of other parties. It is not the quantity of similar
acts which establishes apparent authority, but the vesting of a corporate
Ratio: officer with the power to bind the corporation.
The general rule is that, in the absence of authority from the board of
directors, no person, not even its officers can validly bind a corporation. Hence, private respondent should not be faulted for believing that
Being a juridical entity, a corporation may act through its board of
Punsalan's conformity to the contract in dispute was also binding on
directors, which exercises almost all corporate powers, lays down all
corporate business policies and is responsible for the efficiency of petitioner.
management. It is familiar doctrine that if a corporation knowingly permits one of its
officers, or any other agent, to act within the scope of an apparent
It is the board of directors which has the power and responsibility to decide
whether the corporation should enter into a contract that will bind the authority, it holds him out to the public as possessing the power to do
corporation. those acts; and thus, the corporation will, as against anyone who has in
However, just as a natural person may authorize another to do certain acts good faith dealt with it through such agent, be estopped from denying the
for and on his behalf, the board of directors may validly delegate some of agent's authority.
its functions and powers to officers, committees, or agents. The authority
of such individuals to bind the corporation is generally derived from law, Inasmuch as a corporate president is often given general supervision and
corporate bylaws or authorization from the board, either expressly or
control over corporate operations, the strict rule that said officer has no
impliedly by habit, custom or acquiescence in the general course of
business. inherent power to act for the corporation is slowly giving way to the
realization that such officer has certain limited powers in the transaction of
the usual and ordinary business of the corporation. In the absence of a
225 | TKP 2025

charter or bylaw provision to the contrary, the president is presumed

to have the authority to act within the domain of the general
objectives of its business and within the scope of his or her usual
duties.
Hence, it has been held in other jurisdictions that the president of a
corporation possesses the power to enter into a contract for the
corporation, when the "conduct on the part of both the president and
the corporation [shows] that he had been in the habit of acting in
similar matters on behalf of the company and that the company had
authorized him so to act and had recognized, approved and ratified
his former and similar actions." Furthermore, a party dealing with the
president of a corporation is entitled to assume that he has the authority to
enter, on behalf of the corporation, into contracts that are within the scope
of the powers of said corporation and that do not violate any statute or rule
on public policy.
CLV Syllabus:
President: In the absence of a charter or bylaw provision to the contrary,
the President is presumed to have the authority to act within the domain of
the general objectives of the corporation’s business and within the scope
of his usual duties. The president of the corporation possesses the power
to enter in a contract for the corporation, when the “conduct on the part of
both the president and the corporation [shows] that he had been in the
habit of acting in similar matters on behalf of the company and that the
company had authorized him so to act and had recognized, approved and
ratified his former and similar actions.” ✔People’s Aircargo v. Court of
Appeals, 297 SCRA 170 (1998).
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MANAGEMENT AND OTHER CORPORATE OFFICERS indeed a quorum during the annual membership meeting, that Moldex is a
member of Condocor, and that the individual respondents, as Moldex’s
representatives, were entitled to exercise all membership rights including
RULES ON CORPORATE OFFICER’S POWER TO BIND THE
the right to vote and be voted. Hence, Lim filed an appeal.
CORPORATION
ISSUE:
(1) PRESIDENT
1. Whether or not Moldex is a member of Condocor and that it may
Lim v. Moldex Land, Inc., 815 SCRA 619 (2017)
appoint the respondents to represent it? - NO
2. Can the individual respondents be elected as directors of
FACTS:
Condocor? - NO
Mary Lim is a registered unit owner of 1322 Golden Empire Tower,
a condominium project of Moldex Land, a real estate company engaged in
the construction and development of high-end condominium projects and RATIO:
Membership in a condominium corporation is limited only to the
in the marketing and sale of units thereof to the general public. Condocor
unit owners of the condominium project, as provided in the Condominium
is the registered condominium corporation for the Golden Empire Tower.
Lim, as a unit owner, is a member of Condocor. Act. Although the Condominium Act provides for the minimum requirement
for membership in a condominium corporation, a corporation’s AOI or
by-laws may provide for other terms of membership, so long as they are
Lim claimed that the individual respondents are non-unit buyers,
not inconsistent with the provisions of the law, the enabling or master
but all are members of the Board of Directors of Condocor, having been
deed, or the declaration of restrictions of the condominium project.
elected during an organizational meeting. Moldex became a member of
Condocor on the basis of its ownership of the 220 unsold units in the
Lim claimed that under PD 957, a condominium corporation is an
Golden Empire Tower. The individual respondents acted as its
association of homeowners for the purpose of managing the condominium
representatives.
project. It must be composed of actual unit buyers or residents. She
Condocor held an annual general membership meeting. Its claimed that the ownership of Moldex was only in the nature of an
owner-developer and only for the sole purpose of selling the units.
corporate secretary and Chairman declared the existence of a quorum
However, there is no provision in PD 957 which states that an
even though only 29 of the 108 unit buyers were present. The quorum was
owner-developer cannot be a member of a condominium corporation. A
based on the presence of the majority of the voting rights, including those
condominium corporation is not just a management body, it also holds title
pertaining to the 220 unsold units held by Moldex through its
to the common areas. A homeowners association is different from a
representatives. Lim objected to the validity of the meeting. However, the
condominium corporation. PD 957 cannot be applied.
objection was denied. Thus, Lim and all the other unit owners present
walked out and left the meeting.
Moldex may appoint a duly authorized representative. A
corporation can act only through natural persons duly authorized for the
Despite the walkout, the individual respondents proceeded with
purpose or by a specific act of its board of directors. In order for Moldex to
the annual general membership meeting and elected the new Board of
exercise its membership rights and privileges, it necessarily has to appoint
Directors. All 4 individual respondents were voted as members. The newly
its representatives.
elected members of the board conducted an organizational meeting and
proceeded with the election of its officers. Lim then filed an election protest
Despite this, individual respondents who are non-members of
before the RTC. The RTC dismissed the complaint holding that there was
Condocor cannot be elected as directors and officers. The governance
227 | TKP 2025

and management of corporate affairs in a corporation lies with its board of

directors or board of trustees. As the board exercises all corporate
powers and authority expressly vested upon it by law and by the
corporations’ by-laws, there are minimum requirements set in order
to be a director or trustee, one of which is ownership of a share in
one’s name or membership in a non-stock corporation.
While Moldex may rightfully designate proxies or representatives,

they cannot, however, be elected as directors or trustees of Condocor.
First, the Corp. Code provides that a director/trustee must be a member of
record of the corporation. The power of the proxy is merely to vote. If
said proxy is not a member in his own right, he cannot be elected as
a director or trustee.
Following Section 25 of the Corporation Code, the election of individual

respondents, as corporate officers, was likewise invalid. Section 25 of the
Corporation Code mandates that the President must be a director. As
previously discussed, Jaminola could not be elected as a director.
Consequently, Jaminola's election as President was null and void. The
same provision allows the election of such other officers as may be
provided for in the by-laws. Condocor's By-Laws, however, require that the
Vice-President shall be elected by the Board from among its
member-directors in good standing, and the Secretary may be appointed
by the Board under the same circumstance. Like Jaminola, Milanes and
Macalintal were not directors and, thus, could not be elected and
appointed as President, Vice-President and Secretary, respectively.
The annual general membership meeting of Condocor was null

and void, all acts and resolutions emanating therefore are likewise null and
void.
CLV OUTLINE: Since what is now Sec. 24 of the RCC mandates that the
President shall be a director, it follows that a person who cannot qualify to
be a director cannot validly be appointed President.
228 | TKP 2025

Esguerra v. Court of Appeals, 267 SCRA 380 (1997) negotiate, contract, execute and sign such sale for and in behalf of the
corporation. VECCIs sale of all the properties mentioned in the
FACTS:
judicially-approved compromise agreement was done on the basis of its
Corporate Secretary’s Certification of these two resolutions.
Julieta Esguerra filed a complaint to partition conjugal property with her
husband Vicente, the president of V. Esguerra Construction Co. Inc.
The third party Sureste relied on the Secretary’s Certification which was
(VECCI). These were the respondents.
valid on its face. They did not need to check the facts behind the
The compromise agreement provided that VECCI shall certification otherwise business transactions of corporations become
unreasonably slow. Clearly, Sec. 40 of the RCC 2018 which requires a
sell/alienate/transfer or dispose of in any lawful and convenient manner,
stock corporation to have sufficient Unrestricted Retained Earnings (URE)
and under the terms and conditions in the resolutions of its Board of
in its books to cover acquired shares was validly fulfilled in this case.
Directors and stockholders the following properties: (a) two (2) real estate
and buildings in Makati, (b) two (2) real estate and improvements located
CLV NOTES
in Antipolo, Rizal, (c) real estate and improvements located in Cainta,
Rizal, and (d) real estate and improvements in San Mateo, Rizal. After A sale that fails to comply with what is now Sec. 39 of RCC, cannot
said properties have been sold or disposed of and after all the financial be invalidated when the buyer relies upon a Secretary’s Certificate
obligations of VECCI are completely paid, VECCI shall pay to Julieta the confirming authority. A Secretary’s Certificate regular on its face can
sum equivalent to fifty percent (50%) of the net resulting balance of such
be relied upon by a third party who does not have to investigate the
funds. One of the Makati Buildings, Makati Blg II was sold to respondent
Sureste Properties, Inc., a third party buyer. truths of the facts contained therein; otherwise, corporate business
transactions would become tortuously slow and unnecessarily
Julieta claims VECCI did not make the sale based on the agreed terms hampered.
and conditions in the enabling resolutions of VECCI’s BOD. VECCI is also
not the absolute owner, and thus she filed a nullification of the sale.
SEC. 39. Sale or Other Disposition of Assets. – Subject to the provisions
ISSUE: of Republic Act No. 10667, otherwise known as “Philippine Competition
1. Whether the sale of the Esguerra Makati Building II, a valid Act”, and other related laws, a corporation may, by a majority vote of its
exercise of corporate power and not ultra vires. YES. board of directors or trustees, sell, lease, exchange, mortgage, pledge, or
otherwise dispose of its property and assets, upon such terms and
conditions and for such consideration, which may be money, stocks,
RATIO: bonds, or other instruments for the payment of money or other property or
The first two resolutions are 1) dated November 9, 1989 where the consideration, as its board of directors or trustees may deem expedient.
stockholders authorized VECCI to sell and dispose the properties in a
manner the BOD will deem expedient; and 2) the resolution dated 9
November 1989, where the board of directors of VECCI authorized VECCI
to sell and/or dispose all or substantially all the property and assets of the
corporation, at the highest available price/s they could be sold or disposed
of in cash, and in such manner as may be held convenient under the
circumstances, and authorized the President Vicente B. Esguerra, Jr. to
229 | TKP 2025

Lim Tay v. Court of Appeals

Ratio:
1) The registration of shares in a stockholder's name, the issuance of
Topic: Officers of the Corporation – The Corporate Secretary
stock certificates, and the right to receive dividends which pertain to the
said shares are all rights that flow from ownership. The determination of
CLV Syllabus: The duty of a corporate secretary to record transfers of
whether or not a shareholder is entitled to exercise the above-mentioned
stocks is ministerial. However, he cannot be compelled to do so when
rights falls within the jurisdiction of the SEC. However, if ownership of the
the transferee's title to said shares has no prima facie validity or is
shares is not clearly established and is still unresolved at the time the
uncertain. More specifically, a pledgor, prior to foreclosure and sale,
action for mandamus is filed, then jurisdiction lies with the regular courts.
does not acquire ownership rights over the pledged shares and thus
cannot compel the corporate secretary to record his alleged ownership
According to Section 5 of PD 902-A, which sets forth the jurisdiction of the
of such shares on the basis merely of the contract of pledge. Mandamus
SEC, an intra-corporate issue is within the jurisdiction of the SEC.
will not issue to establish a right, but only to enforce one that is already
● An intra-corporate issue is a controversy among stockholders,
established.
partners, or associates themselves.
Facts: As a general rule, the jurisdiction of a court or tribunal over the subject
Private respondent Sy Guiok and Alfonso Sy Lim secured a loan from matter is determined by the allegations in the complaint. In the present
petitioner Lim Tay, securing their loans with contracts of pledge covering case, however, petitioner's claim that he was the owner of the shares of
their respective shares of stock in Go Fay & Company, Inc. Under said stock in question has no prima facie basis.
contracts of pledge, Guiok and Sy Lim agreed that in the event of their
failure to pay the amount within the period agreed upon, the pledgee, Lim The Contract for the pledge of stock clearly indicated:
Tay, was authorized to foreclose the pledge upon the said shares of stock. ● PLEDGEE is hereby authorized to foreclose the pledge upon the
said shares of stock hereby created by selling the same at public
Respondent Guiok and Sy Lim endorsed their respective shares of stock or private sale with or without notice to the PLEDGOR
in blank and delivered the same to Lim Tay. Guiok and Lim, however,
failed to pay their respective loans to Lim Tay. This contractual stipulation, which was part of the Complaint, shows that
plaintiff was merely authorized to foreclose the pledge upon maturity of the
Lim Tay filed a petition for mandamus with the Securities and Exchange loans, not to own them. Such foreclosure is not automatic, for it must be
Commission (SEC) against Go Fay & Company, praying that an order be done in a public or private sale. Nowhere did the Complaint mention that
issued directing the corporate secretary of the company to register the petitioner had in fact foreclosed the pledge and purchased the shares after
stock transfers and issue new certificates in his favor. Lim Tay alleged in such foreclosure. His status as a mere pledgee does not, under civil law,
his petition that the controversy between him as stockholder and the entitle him to ownership of the subject shares.
company was intra-corporate in view of the obstinate refusal of the
corporate secretary of the company to record the transfer of the shares of Unlike Abejo (case cited), however, petitioner's ownership over the shares
stock of Guiok and Sy Lim in favor of petitioner. in this case was not yet perfected when the Complaint was filed. The
contract of pledge certainly does not make him the owner of the shares
Issues: pledged.
1) Whether the SEC has jurisdiction over the case? NO
2) Whether petitioner is entitled to the relief of mandamus? NO 2) Petitioner prays for the issuance of a writ of mandamus, directing the
230 | TKP 2025

corporate secretary of respondent corporation to have the shares

transferred to his name in the corporate books, to issue new certificates of
stock and to deliver the corresponding dividends to him.
For a writ of mandamus to issue, it is essential that the petitioner has a

clear legal right to the thing demanded. In this case, petitioner failed to
establish such right since his contention that he is the owner of the said
shares is without merit. Without foreclosure and purchase at auction,
pledgor is not the owner of the pledged shares. There is no showing that
petitioner made any attempt to foreclose or sell the shares through
public/private auction, as stipulated in the contracts of pledge.
The duty of a corporate secretary to record transfers of stocks is

ministerial. However, he cannot be compelled to do so when the
transferee's title to said shares has no prima facie validity or is
uncertain. More specifically, a pledgor, prior to foreclosure and sale, does
not acquire ownership rights over the pledged shares and thus
cannot compel the corporate secretary to record his alleged
ownership of such shares on the basis merely of the contract of
pledge. Mandamus will not issue to establish a right, but only to enforce
one that is already established.
231 | TKP 2025

33. Lopez v. Lopez, G.R. No. 254957-58, 15 June 2022
232 | TKP 2025

Gurrea vs. Lezama, 103 Phil. 553 (1958) under the by-laws of the corporation, only officers of the corporation
(with the exception of the president) may be removed by the vote of 2/3 of
FACTS: the paid shares of stocks.
Ricardo Gurrea, the Plaintiff, instituted an action in the Court of First
Instance of Iloilo to have Resolution No. 65 of the Board of Directors of the Corollary, a manager is NOT an officer as envisioned by the
La Paz Ice Plant and Cold Storage Co., Inc., removing him from his Corporation Law, which only recognizes the president,
position of manager of said corporation declared null and void and to vice-president, secretary, and treasurer as officers of the corporation.
recover damages incident thereto. The action is predicated on the ground
that said resolution was adopted in contravention of the provisions of the RULING:
by-laws of the La Paz, of the Corporation Law and of the understanding,
intention and agreement reached among its stockholders. 1. Section 33 of the Corporation Law provides: "Immediately after the
election, the directors of a corporation must organize by the
Manuel Lezama (the new manager of the corporation) and other election of a president, who must be one of their number, a
Defendants answered the complaint, setting up as defense that plaintiff secretary or clerk who shall be a resident of the Philippines . . .
had been removed by virtue of a valid resolution. and such other officers as may be provided for in the by-laws."
The by-laws of the instant corporation in turn provide that in the
While the case was pending, the Plaintiff then moved for the issuance of a board of directors there shall be a president, a vice-president, a
writ of preliminary injunction to restrain defendant Jose Manuel Lezama secretary and a treasurer. These are the only ones mentioned
(the new manager) from managing the corporation pending the therein as officers of the corporation. The manager is NOT
determination of this case, but after hearing, the court denied the motion. included although the latter is mentioned as the person in whom
the administration of the corporation is vested, and with the
Thereafter, by agreement of the parties and without any trial on the merits, exception of the president, the by-laws provide that the officers of
the case was submitted for judgment on the sole legal question of whether the corporation may be removed or suspended by the affirmative
plaintiff could be legally removed as manager of the corporation merely by vote of 2/3 of the corporation.
resolution of the board of directors or whether the affirmative vote of 2/3 of
the paid shares of stocks was necessary for that purpose. 2. From the above the following conclusion is clear: that we can only
regard as officers of a corporation those who are given that
The Trial Court then held that the removal of the plaintiff was legal and character either by the Corporation Law or by its by-laws. The rest
dismissed the complaint. can be considered merely as employees or subordinate officials.
And considering that plaintiff has been appointed manager by the
ISSUE: Whether Guerra could be legally removed as manager of the board of directors and as such does not have the character of an
corporation merely by resolution of the board of directors or whether the officer, the conclusion is inescapable that he can be suspended or
affirmative vote of 2/3 of the paid shares of stocks was necessary for that removed by said board of directors under such terms as it may
purpose. - Only by the resolution of the board of directors because see fit and not as provided for in the by-laws. Evidently, the power
233 | TKP 2025

to appoint carries with it the power to remove, and it would be "officer" of the corporation. This liability flows from the nature of his duties
incongruous to hold that having been appointed by the board of which are delegated to him by the board of directors. He is paid for them.
directors he could only be removed by the stockholders. Hence, he has to answer for them should he use it in violation of law.
Furthermore, the SC cited jurisprudence saying that Common justice and
3. The general manager of a corporation is not ordinarily classed as common sense demand that, where those in charge and control of the
an officer, but his powers and influence may be quite as great as management of a corporation direct it along paths of wrongdoing, they
those of any person in the organization. should be held accountable by law.
4. One distinction between officers and agents of a corporation lies in Dissenting Opinion of Reyes:
the manner of their creation. An officer is created by the charter of Justice Reyes doesn’t think that it is correct to say that the president, the
the corporation, and the officer is elected by the directors or the vice-president, the secretary and the treasurer are the only ones
stockholders. An agency is usually created by the officers, or one mentioned in the by-laws officers of the corporation. For in truth, the
or more of them, and the agent is appointed by the same authority. by-laws do not say who shall be regarded as officers of the corporation.
It is clear that the two terms officers and agents are by no means
interchangeable. One, deriving its existence from the other, and Moreover, the above quoted portion of the majority opinion itself says that
being dependent upon that other for its continuation, is necessarily 'the manager . . . is mentioned as the person in whom the administration of
restricted in its powers and duties, and such powers and duties, the corporation is vested. . . ." Therefore, administering a corporation
are not necessarily the same as those pertaining to the authority involves the exercise of both authority and trust, so that one invested with
creating it. such function should be classified as an officer.
NOTES: There are, for sure in the by-laws several articles under the heading
RE: DISSENTING OPINION OF JUSTICE BENGZON: "Funcionarios". One would expect from this heading that those articles
The court also addressed the dissenting opinion of Justice Bengzon, which would enumerate the funcionaros or officers of the corporation. Actually,
primarily states that a manager should be considered as a principal however they do not, for they merely define the duties or functions of
executive officer because there are several statutes that have been certain officers the president, the vice-president, the secretary and the
enacted expressly making the "manager" criminally responsible for treasurer. If the duties of the manager are not defined in those articles, it
violations by the corporation. The premise behind this argument was that a must be because it is already stated elsewhere in the by-laws that the
corporation may not be criminally prosecuted for violations of the law corporation is to be administered by the general meeting of stockholders,
although their officials could be made liable therefor. Thus, if a manager the Board of Directors and the manager. It is not, therefore, correct to say
could be held liable for criminal violations of the corporations, then it could that the manager is not an officer just because his duties are not defined in
be considered as an officer of such corporation. However, the court said those articles.
that the fact that the "manager" of the corporation in the several statutes
enacted by Congress is held criminally liable for violation of any of the CLV OUTLINE: Who Is a “Corporate Officer” under the Power of the Board
penal provisions therein prescribed does not necessarily make him an to Hire and Fire? (Sec. 25): “Corporate officers” in the context of being the
234 | TKP 2025

business judgment powers of the Board to hire and fire are those officers
who are given that character by the Corporation Code or by the bylaws
235 | TKP 2025

Board Power to Appoint and Terminate Corporate Officers permanent” could have been used to distinguish the appointment
from acting capacity”.
Mita Pardo de Tavera v. Tuberculosis Society, 112 SCRA 243 (1982)
The absence of a fixed term in the letter addressed to petitioner
FACTS:
informing her of her appointment as Executive Secretary is very
De Tavera filed a complaint alleging that she was duly significant. This has no other implication than that petitioner held
appointed as Executive Secretary of respondent society when the an appointment at the pleasure of the appointing power. As such,
past Board of Directors removed her summarily from her position the protection afforded by Sec. 7.04 of the Code of By-Laws on
without any lawful cause. Removal of Officers and Employees, cannot be claimed by De
On the other hand, the corporation averred that under the Tavera.
Code of By-Laws of the Society, the said position is held at the
pleasure of the Board of Directors thus the incumbent has to
CLV OUTLINE: The position of Executive Secretary provided for
vacate because her term has expired.
in the bylaws is an “officer” position. Since the appointment of the
The court ruled in favor of the corporation. incumbent did not contain a fix term, the implication was that the
Reconsideration was denied & on appeal, the case was submitted appointee held the appointment at the pleasure of the Board, such
to Court. that when the Board opted to replace the incumbent, technically
ISSUE: WON De Tavera was lawfully dismissed from her position there was no removal but only an expiration of the term. ✔Mita
Pardo de Tavera v. Tuberculosis Society, 112 SCRA 243 (1982).
RULING:
NO, De Tavera was not illegally removed from her position
as Executive Secretary in violation of the Code of Bylaws of the
society, since an appointment held at the pleasure of the
appointing power is in essence temporary in nature.
It is co-extensive with the desire of the Board of Directors.
Hence, when the Board opts to replace the incumbent, technically
there is no removal but only an expiration of term and in an
expiration of term, there is no need of prior notice, due hearing or
sufficient grounds before the incumbent can be separated from
office. In this case, although the minutes of the organizational
meeting show that the Chairman mentioned the need of
appointing a “permanent” Executive Secretary, such statement
alone cannot characterize the appointment of petitioner without a
contract of employment definitely fixing her term because of the
specific provision of Section 7.02 of the Code of By-Laws that:
“The Executive Secretary, the Auditor, and all other officers and
employees of the Society shall hold office at the pleasure of the
Board of Directors, unless their term of employment shall have
been fixed in their contract of employment.” Besides the word
236 | TKP 2025

Board Power to Appoint and Terminate Corporate Officers

Matling Industrial and Commercial Corp. v. Coros, 633 SCRA 12 ISSUE
(2010)
Whether or not the respondent is a corporate officer within the jurisdiction
FACTS: of the regular courts. NO
● After his dismissal by Matling as its Vice President for Finance and
Administration, the respondent filed on August 10, 2000 a
RULING
complaint for illegal suspension and illegal dismissal against
Matling and some of its corporate officers (petitioners) in the As a rule, the illegal dismissal of an officer or other employee of a private
NLRC, Sub-Regional Arbitration Branch XII, Iligan City. employer is properly cognizable by the LA. This is pursuant to Article 217
● The petitioners moved to dismiss the complaint, raising the (a) 2 of the Labor Code, as amended.
ground, among others, that the complaint pertained to the
jurisdiction of the Securities and Exchange Commission (SEC)
due to the controversy being intracorporate inasmuch as the Where the complaint for illegal dismissal concerns a corporate officer,
respondent was a member of Matlings Board of Directors however, the controversy falls under the jurisdiction of the Securities and
aside from being its Vice-President for Finance and Exchange Commission (SEC), because the controversy arises out of
Administration prior to his termination. (Matling’s POV) intra-corporate or partnership relations between and among stockholders,
● The respondent opposed the petitioners motion to dismiss, members, or associates, or between any or all of them and the
insisting that his status as a member of Matlings Board of corporation, partnership, or association of which they are stockholders,
Directors was doubtful, considering that he had not been members, or associates, respectively; and between such corporation,
formally elected as such; (Coros’ POV) that he did not own a partnership, or association and the State insofar as the controversy
single share of stock in Matling, considering that he had been concerns their individual franchise or right to exist as such entity; or
made to sign in blank an undated indorsement of the certificate of because the controversy involves the election or appointment of a director,
stock he had been given in 1992; that Matling had taken back and trustee, officer, or manager of such corporation, partnership, or
retained the certificate of stock in its custody; and that even association. Such controversy, among others, is known as an
assuming that he had been a Director of Matling, he had been intra-corporate dispute.
removed as the Vice President for Finance and Administration, not
as a Director, a fact that the notice of his termination dated April
10, 2000 showed. Effective on August 8, 2000, upon the passage of Republic Act No. 8799,
● On October 16, 2000, the LA granted the petitioners motion to otherwise known as The Securities Regulation Code, the SECs jurisdiction
dismiss, ruling that the respondent was a corporate officer over all intra-corporate disputes was transferred to the RTC, pursuant to
because he was occupying the position of Vice President for Section 5.2 of RA No. 8799.
Finance and Administration and at the same time was a Member
of the Board of Directors of Matling; and that, consequently, his
Thus, pursuant to the above provision (Section 25 of the Corporation
removal was a corporate act of Matling and the controversy
Code), whoever are the corporate officers enumerated in the by-laws are
resulting from such removal was under the jurisdiction of the SEC,
the exclusive Officers of the corporation and the Board has no power to
pursuant to Section 5, paragraph (c) of Presidential Decree No.
create other Offices without amending first the corporate By-laws.
902.
However, the Board may create appointive positions other than the
237 | TKP 2025

positions of corporate Officers, but the persons occupying such positions Directors to circumvent the constitutionally guaranteed security of tenure
are not considered as corporate officers within the meaning of Section 25 of the employee by the expedient inclusion in the Bylaws of an enabling
of the Corporation Code and are not empowered to exercise the functions clause on the creation of just any corporate officer position.” The rulings in
of the corporate Officers, except those functions lawfully delegated to Tabang v. NLRC, 266 SCRA 462 (1997), and Nacpil v. International
them. Their functions and duties are to be determined by the Board of Broadcasting Corp., 379 SCRA 653 (2002), “should no longer be
Directors/Trustees. controlling.” Matling Industrial and Commercial Corp. v. Coros, 633 SCRA
12 (2010).
Moreover, the Board of Directors of Matling could not validly delegate the
power to create a corporate office to the President, in light of Section 25 of
the Corporation Code requiring the Board of Directors itself to elect the
corporate officers. Verily, the power to elect the corporate officers was a
discretionary power that the law exclusively vested in the Board of
Directors, and could not be delegated to subordinate officers or agents.
The office of Vice President for Finance and Administration created by
Matlings President pursuant to By Law No. V was an ordinary, not a
corporate, office.
The criteria for distinguishing between corporate officers who may be

ousted from office at will, on one hand, and ordinary corporate employees
who may only be terminated for just cause, on the other hand, do not
depend on the nature of the services performed, but on the manner of
creation of the office. In the respondents case, he was supposedly at once
an employee, a stockholder, and a Director of Matling. The circumstances
surrounding his appointment to office must be fully considered to
determine whether the dismissal constituted an intra-corporate controversy
or a labor termination dispute. We must also consider whether his status
as Director and stockholder had any relation at all to his appointment and
subsequent dismissal as Vice President for Finance and Administration.
CLV Outline: Even if bylaws provide expressly that the Board of Directors
“shall have full power to create new offices and to appoint the officers
thereto,” any office created, and any officer appointed pursuant to such
clause does not become a “corporate officer,” but is an employee and the
determination of the rights and liabilities relating to his removal are within
NLRC’s jurisdiction—they do not constitute intra-corporate controversies.
“A different interpretation can easily leave the way open for the Board of
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Cacho v. Batangas, 855 SCRA 11 (2018) contend that Balagtas was never dismissed and alleged that she was a
corporate officer, incorporator, and member of the North Star's Board of
Directors. Thus, the NLRC cannot take cognizance of her illegal dismissal
FACTS case, the same being an intra-corporate controversy, which properly falls
Respondent Virginia D. Balagtas filed a complaint of constructive dismissal within the original and exclusive jurisdiction of the ordinary courts.
against petitioners North Star International Travel, Inc. (North Star) and its
President Norma D. Cacho before the Labor Arbiter. Balagtas after 14
years of service in the said corporation, was placed under 30 days RULING OF NLRC:
preventive suspension pursuant to a Board Resolution passed by the
Board of Directors of the respondent Corporation due to her alleged
questionable transactions. The NLRC ruled in favor of the petitioners. The Decision of the
Labor Arbiter is REVERSED and SET ASIDE and the complaint is
DISMISSED for lack of jurisdiction. NLRC ruled that Balagtas was a
While under preventive suspension, she wrote a letter to Norma corporate officer of North Star at the time of her dismissal and not a mere
Cacho informing the latter that she was assuming her position as employee. NLRC also held that the petitioners North Star and Cacho were
Executive Vice-President/Chief Executive Officer effective on that date. not estopped from raising the issue of lack of jurisdiction. Labor Arbiter’s
however, she was prevented from re-assuming her position. Consequently, jurisdiction may be raised as an issue on appeal.
she filed a complaint claiming that she was constructively and illegally
dismissed effective on April 12, 2004.
RULING OF COURT OF APPEALS:
In their defense, Cacho and North Star averred that preventive

suspension was meant to prevent Balagtas from influencing potential The CA affirmed the Labor Arbiter’s Decision and set aside the
witnesses and to protect the respondent corporation's property. Decision of the NLRC.
Subsequently, the Board of Directors constituted an investigation
committee tasked with the duty to impartially assess the charges against
petitioner. Cacho alleged that Balagtas violated her suspension when, on ISSUE
several occasions, she went to the corporation's office and insisted on Whether or not the present case is an intra-corporate controversy within
working despite respondent Norma Cacho's protestation. They asserted the jurisdiction of the regular courts or an ordinary labor dispute that the
that petitioner was not illegally dismissed but was merely placed under Labor Arbiter may properly take cognizance of.
preventive suspension.
RATIO
DECISION OF THE LABOR ARBITER:
CA decision set aside.
The Labor Arbiter found that Balagtas was illegally dismissed from
North Star but the latter appealed to the NLRC for lack of jurisdiction. They Respondent Balagtas's dismissal is an intra-corporate controversy.
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A two-tier test must be employed to determine whether an indicates an intention to give petitioner North Star's Board ample freedom
intra-corporate controversy exists in the present case, (a) the relationship to make several vice president positions available as it may deem fit and in
test, and (b) the nature of the controversy test. consonance with sound business practice. To require that particular
designation/variation of each vice-president (i.e., executive vice
president) be specified and enumerated is to invalidate the by-laws'
A dispute is considered an intra-corporate controversy under the true intention and to encroach upon petitioner North Star's inherent
relationship test when the relationship between or among the disagreeing right and authority to adopt its own set of rules and regulations to
parties is any one of the following: (a) between the corporation, govern its internal affairs. By name, the Executive Vice President
partnership, or association and the public; (b) between the corporation, position is embraced by the phrase "one or more vice president" in
partnership, or association and its stockholders, partners, members, or North Star's by-laws.
officers; (c) between the corporation, partnership, or association and the
State as far as its franchise, permit or license to operate is concerned; and
( d) among the stockholders, partners, or associates themselves. We must Respondent Balagtas was appointed by the Board as petitioner North
now determine whether or not the Executive Vice President position is a Star's Executive Vice President
corporate office so as to establish the intra-corporate relationship between
While a corporate office is created by an express provision either
the parties. One shall be considered a corporate officer only if two
in the Corporation Code or the By-laws, what makes one a corporate
conditions are met, (1) the position occupied was created by
officer is his election or appointment thereto by the board of directors.
charter/by-laws, and (2) the officer was elected (or appointed) by the
Thus, there must be documentary evidence to prove that the person
corporation's board of directors to occupy said position.
alleged to be a corporate officer was appointed by action or with approval
of the board. Petitioners Cacho and North Star assert that respondent
Balagtas was elected as Executive Vice President by the Board as
The Executive Vice President position is one of the corporate
evidenced by the Secretary's Certificate dated April 22, 2003. The
offices provided in petitioner North Star's By-laws. Section 25 of the
above-cited Secretary's Certificate overcomes respondent Balagtas's
Corporation Code explicitly provides for the election of the
contention that she was merely the Executive Vice President by name and
corporation's president, treasurer, secretary, and such other officers
was never empowered to exercise the functions of a corporate officer.
as may be provided for in the by-laws. In interpreting this provision,
Notably, she did not offer any proof to show that her duties, functions, and
the Court has ruled that if the position is other than the corporate
compensation were all determined by petitioner Cacho as petitioner North
president, treasurer, or secretary, it must be expressly mentioned in
Star's President.
the bylaws in order to be considered as a corporate office. North
Star’s by-laws provides that there may be one or more vice president
positions in petitioner North Star and, by virtue of its by-laws, all
Respondent Balagtas also denies her status as one of petitioner
such positions shall be corporate offices. The next question is
North Star's corporate officers because she was not listed as such in
whether or not the phrase "one or more vice president" in the
petitioner North Star's 2003 General Information Sheet (GIS). But the GIS
above-cited provision of the by-laws includes the Executive Vice
neither governs nor establishes whether or not a position is an ordinary or
President position held by respondent Balagtas.
corporate office. At best, if one is listed in the GIS as an officer of a
corporation, his/her position as indicated therein could only be deemed a
regular office, and not a corporate office as it is defined under the
The use of the phrase "one or more" in relation to the
Corporation Code. To be considered an intra-corporate controversy, the
establishment of vice president positions without particular exception
241 | TKP 2025

dismissal of a corporate officer must have something to do with the duties

and responsibilities attached to his/her corporate office or performed in
his/her official capacity.
The termination complained of is intimately and inevitably linked to

respondent Balagtas's role as petitioner North Star's Executive Vice
President: first, the alleged misappropriations were committed by
respondent Balagtas in her capacity as vice president, one of the officers
responsible for approving the disbursements and signing the checks. And,
second, these alleged misappropriations breached petitioners Cacho's and
North Star's trust and confidence specifically reposed m respondent
Balagtas as vice president. That all these incidents are adjuncts of her
corporate office lead the Court to conclude that respondent Balagtas's
dismissal is an intra-corporate controversy, not a mere labor dispute.
All told, the issue in the present case is an intra-corporate

controversy, a matter outside the Labor Arbiter's jurisdiction.
CLV Syllabus:
Where the bylaws expressly provide for the positions of “one or more
vice-president”, then the appointment of the Executive Vice-President
pursuant to said bylaw provision would make the appointee a corporate
officer within the contemplation of our ruling in Matling Industrial and
commercial Corp v. Coros. ✔Cacho v. Balagtas, 855 SCRA 11 (2018).
242 | TKP 2025

Board Power to Appoint and Terminate Corporate Officers RULING:

De Rossi v. NLRC, 314 SCRA 245 (1999) In a string of cases this Court has consistently held that the SEC,
and not the NLRC, has original and exclusive jurisdiction over cases
involving the removal of corporate officers. The applicable provision in this
FACTS: case is Sec. 5, par. (c) of PD 902-A which unequivocally provides that
De Rossi was the Executive Vice President and General Manager SEC has jurisdiction over intra-corporate affairs regarding the election or
of private respondent Mating Industrial and Commercial Corporation appointment of officers of a corporation. We have earlier pronounced that
(MICC). He started work on July 1, 1985 and terminated on August 10, an "office" is created by the charter of the corporation under which a
1988 by MICC based on the ground that the petitioner failed to secure his corporation is organized, and the officer is elected by the directors or
employment permit, grossly mismanaged the business of the company, stockholders.
and misused corporate funds. Consequently, petitioner filed with the In the present case, petitioner is considered an officer of MICC,
NLRC, a complaint for illegal dismissal with corresponding damages. elected and/or designated by its Board of Directors, since such is
Labor Arbiter rendered a decision in favor of De Rossi , ordering MICC to prescribed by the corporation’s by-laws.
reinstate him.
Note that a corporate officer’s removal from his office is a
On appeal to the NLRC, MICC contended that the position of corporate act. if such removal occasions an intra-corporate controversy, its
exec. VP is an elective post, specifically provided by the corporate’s nature is not altered by the reason or wisdom, or lack thereof, with which
by-laws. Thus, the dismissal of the petitioner was an intra-corporate matter the board of directors might have in tasking such action.
within the jurisdiction of the SEC and not with the Labor Arbiter or the
When petitioner, as Exec. VP allegedly diverted company funds
NLRC. Hence, the NLRC rendered the decision dismissing the case since
for his personal use resulting in heavy financial losses to the company, this
the jurisdiction over the case rests with the SEC.
matter would amount to fraud. Such fraud would be detrimental to the
De Rossi now argues that the NLRC committed GADALEJ in interest not only of the corporation but also of its members. This type of
holding that SEC has jurisdiction over the case. He claims that he was fraud encompasses controversies in a relationship within the corporation
neither elected to the post nor stockholder of MICC. covered by SEC jurisdiction. Perforce, the matter would come within the
Respondent NLRC argues that under the Corporation Code, there area of corporate affairs and management, and such a corporate
is no requirement that an executive vice-president of a corporation should controversy would call for the adjudicative expertise of the SEC, not the
be a stockholder or a member of the Board of Directors. Further, as Labor Arbiter or the NLRC.
observed by the Solicitor General, Section 5 of P.D. 902-A did not limit the
jurisdiction of the SEC to controversies in the election or appointment of
directors and trustees, but also included officers or managers of such
corporations, partnerships or associations.
ISSUE:
Does SEC have jurisdiction over the complaint for illegal dismissal filed by
the petitioner? YES
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Wesleyan University-Philippines v. Maglaya, Sr., 815 SCRA allowances point to his being an employee and subordinate.
171 (2017)
ISSUE:
FACTS:
1. Whether Maglaya is a corporate officer or a mere employee.
WUP, non-stock, non-profit, non-sectarian education corporation, CORPORATE OFFICER.
appointed Maglaya as a corporate member and was elected as a member 2. Whether or not the NLRC has jurisdiction over the illegal dismissal
of the Board, both for a period of 5 years. He was elected as the presidnet case filed by Maglaya. NO.
of the university holding a five-year term and 2 years later, he was
re-elected again as a trustee.
RULING:
The Bishops apprised all the corporate members of the expiration
of their terms on Dec 2008, unless it has been renewed by the Bishops. 1. The President, Vice-President and Treasurer are comonly
The members, including Maglaya, sought for the renewal of their regarded as the principal or executive officers. However, other
membership in the Board. The chairman of the board informed the officers are sometimes created by the charter or bylaws of a
Bishops the cessation of corporate terms of some members trustees since corporation, or the board of directors may be empowered under
the bylaws provided that the vacancy shall not be filled by the Bishops the bylaws of a corporation to create additional offices as may be
upon the recommendation of the board. necessary. An “office” is created by the charter and the officer is
elected by the directors or shareholders, while an “employee”
Maglaya later learned about the ad hoc committee created by the
usually occupies no office and generally is employed not by action
Bishops for its efficient and orderly turnover as well as the Bishops’
of the directors or shareholders but by the managing officer who
appointment to incoming members and trustees. And claimed that no
also determines the compensation to be paid to such employee.
agreement was made nor was there a discussion of the tuirnover because
the corproate members still have valid and existing corporation terms. The creation of the position is under the charter or bylaws, and
that the election of the officer is by the Board must concur for an
In 2009, the Bishops, through a formal notice, informed the new
individual to be considered a corporate officer, as against an
corporate members, trustees and officers. And the new Chairman of the ordinary employee or officer. It is only when the officer claiming to
Board informed Maglaya the termination of his services and authority as
have been illegally dismissed is classified as such corporate
the president of the university.
officer that the issue is deemed an intra-corporate dispute which
Maglaya filed a complaint for damages before the RTC but the falls within the jurisdiction of the trial courts.
same was dismissed because the RTC held that it was clear from its
Under the Bylaws of the WUP, the president is an officer of the
by-laws that the membership in a corporation can only be given by the
corporation and an honorary member of the board. Maglaya was
Bishops, a precondition to a seat in the Board. And the expiration of the
appointed by the Board and not by the managing officer. Thus,
terms of the corporate members include their termination as members of
one who is included in the bylaws in its roster of corporate officers
the board.
is considered an officer of the corporation and not just a mere
Maglaya later filed an illegal dismissal case against the WUP, to employee.
which the latter claimed that the dismissal or removal of a corporate
Even if the Maglyaa was appointed instead of elected, the same
officer, is considered as a corporate act or intra-corproate controversy that
doesn’t convert the president of the university as a mere
falls under the jurisdiction of the RTC. Both the Labor Arbiter WUP but the
employee, nor amend its nature as a corporate officer.
NLRC reversed the decision because even if Maglaya held the position of
a President, the manner of his appointment and his duties, salaries, and
244 | TKP 2025

2. The NLRC erred in taking cognizance of the case when the office
was already specifically mentioned in the by-laws and concluding
that Maglaya is an employee based on the manner of his
appointment, responsibilities, salaries and allowances and others.
A corporate officer’s dismissal is always a corporate act, or an
intra-corporate controversy which arises between a stockholder
and a corporation. The issue of alleged termination involving a
corporate officer is not a simple labor problem but a matter that
comes within the area of corporate affairs and management and is
a crporate controversy in contemplation of the Corporation Code.
It has been a long established rule that the jurisdiction over that
subject matter is conferred by law to which the RTC exercises
exclusive jurisdiction over it. The determination of rights of a
corporate officer dismissed from his employment as well as the
corresponding liability of a corporation, is an intra-corproate
dispute subject to the jurisdiction of the regular courts.
CLV OUTLINE: The President, Vice-President and Treasurer are comonly

regarded as the principal or executive officers;however, other officers are
sometimes created by the charter or bylaws, or the Board may be
empowered under the bylaws of a corporation to create additional offices
as may be necessary. An “office” is created by the charter and the officer is
elected by the directors or shareholders, while an “employee” usually
occupies no office and generally is employed not by action of the directors
or shareholders but by the managing officer who also determines the
compensation to be paid to such employee. The creation of the position is
under the charter or bylaws, and that the election of the officer is by the
Board must concur for an individual to be considered a corporate officer,
as against an ordinary employee or officer. It is only when the officer
claiming to have been illegally dismissed is classified as such corporate
officer that the issue is deemed an intra-corporate dispute.
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Administrative Sactions (in addition to removal)

● Permanent cease and desist order
XI. CORPORATE GOVERNANCE ● Fines ranging from 10,000 pesos to 400,000 pesos for each
violation of the Comission’s orders, the provisions of the RCC on
PRINCIPLES OF “COMPETENCE disqualification and removal (taking into consideration the extent
of participation, nature, effects, frequency, and seriousness of the
AND INDEPENDENCE” violation
Close Corporations
SEC Memo Circular No. 04-2022 (Disqualification of Directors, ● If the AOI states that the stockholders manage the corporation
Trustees, and Officers of rather than a board of directors, the removed stockholders under
Corporations; and the Guidelines on the Procedure for their these rules are excluded from the governing body that controls the
Removal) corporation and exercises its powers
COVERAGE: Disqualification of officers and the procedure OPCs

GIST: It’s just like the pre trial procedure in Civ Proc (very similar, in fact ● In case of removal of the sole director, the nominee will take his
lifted word per word) place and will manage the corporation subject to the such rights
and obligations under Chapter III, Title XIII of the RCC (nominee
Relevant Sections in the Corporation Code must be qualified)
1. Sec. 26
2. Sec. 27 Other rules applicable
3. Sec. 96 ● ROP of the Comission and its amendments
4. Sec. 124 ● ROC
5. Sec. 158
6. Sec. 179 (a) and © CRITERIA FOR DISQUALIFICATION
● Applies either within 5 years prior to election or appointment OR
Coverage of the Memorandum Circular (governs pleadings, practice within the tenure of the director, trustee, or officer
and procedure in all matters of hearing and proceedings for): ● All convicted by final judgment
1. Independent administrative actions for the removal of directors, 1. An offense punishable by imprisonment for a period exceeding six
trustees and officers years
2. Removal of directors, trustees and officers as a sanction in the 2. For violating the Revised Corporation Code
Comission’s proceedings and 3. For violating the Securities Regulation Code
3. Imposition of sanctions on the board of directors or trustees who 4. Found administratively liable for fraudulent acts under the RCC,
with knowledge of the disqualification, failed to remove a the SRC, or other laws
disqualified director, trustee, or officer 5. Found administratively liable by a foreign court or an equivalent
** What is not covered: actions or proceedings to prohibit the nomination, foreign regulatory authority for acts, violations or misconduct
election or appointment of an individual as a director, trustee, or officer similar to those in paragraph (a) and (b) of Section 26 of the RCC
6. Found administratively liable for refusal to allow the inspection or
246 | TKP 2025

reproduction of corporate records 4. Verified Complaint

a. Real parties in interest can also commence a complaint
REMOVAL OF DIRECTORS TRUSTEES AND/OR OFFICERS for such removal by filing with the OD with jurisdiction
b. Can include as respondents the other directors or trustees
For independent administrative action c. Shall file 3 original copies of the complaint with supporting
1. Venue and Authority: main office of the SEC in Metro Manila, or document and an additional copy per respondent
any of the extension offices subject to their jurisdiction (without d. Filing fee of 3,060 pesos must be paid before filing,
prejudice to be transferred to the main office by the Comission en inclusive of legal research fee, DST, or other such amount
banc if necessary) deemed proper by the Comission en banc
a. Operating Departments: also known as the Company e. Must contain
Registration and Monitoring Department or the Extension i. Names and addresses of the parties
Offices ii. Grounds for removal or disqualification
i. have original jurisdiction over independent iii. Statement of material facts
administrative actions for such removal based on iv. Issues
Section 7 of these rules. Also has the power to v. Reliefs sought including prayer for removal
adjudicate on the case to the exclusion of all other vi. Proof of authority of hte representative of the
operating departments unless otherwise ordered juridical person if applicable
by the commission en banc vii. Documentary evidence
ii. Extension offices also have authority within their viii. Proof of payment of filing fee
respective geographical jurisdictions ix. Verification
iii. Without prejudice to the Comission en banc’s x. Certificate against forum shopping
power to create a Special Hearing Panel for the f. Must allege
conduct of proceedings for such removal i. That the allegations are true and based on
2. Commencement complainants personal knowledge or authentic
a. Removal shall be commenced upon the motu proprio documents
issuance of a formal charge by the operating department ii. Not filed to harass, cause delay, or increase cost
with jurisdiction or of litigation
b. The filing of a verified complaint with the operating iii. Factual allegations have evidentiary support or
department who had jurisdiction can be supported by evidence
3. Formal Charge g. Certificate of non forum shopping must certify that
a. If there is sufficient ground for dismissal, OD will issue a i. No other case involving the same issues and
formal charge and the person subject to it will be referred same parties have been filed/ no same case is
to as Respondent pending
b. Specifies grounds for removal, along with a statement of ii. If there is, what the present status of that case is
facts and it will also direct the respondent to reply with a iii. If there is, such fact should be reported within 5
Verified Answer (in accordance with Sec 14 of these rules) days to the respective OD
within 15 calendar days from the receipt iv. Failure to comply will result in dismissal without
c. Also contains documentary evidence, sworn statements, prejudice unless it’s proven that forum shopping
other evidence if necessary was wilfully done, then it will be with prejudice
247 | TKP 2025

5. Outright dismissal of complaint (when they can be dismissed) a. Doesn’t result in the outright dismissal of proceedings or
a. Not in compliance with Section 11 (aka the requirements the discharge of the respondent from the imposition of
above) adminsitratve sanctions or penalties if there is merit to the
b. OD or Comission has no jurisdiction over the subject charges or where there is documentary evidence to
matter warrant the continuation of the proceedings
c. There is a pending action or complaint involving the same b. In short, comission can continue the case against the
subject matter or issues in any court, tribunal or agency or respondent as if it were the complainant
d. OD finds insufficient evidence to establish claims 10. Submission of position papers
6. Summons a. Within 15 days after the termination of the clarificatory
a. After assessment by the OD + compliance with all hearing, parties may be required to submit position papers
requirements + confirmation that OD has jurisdiction over b. If no submission, case is deemed submitted for resolution
the issue, it shall issue corresponding summons together c. No other pleadings aside from complaint, answer and
with a copy of the complaint and all its attachments position can be filed unless with leave from the OD
7. Verified Answer 11. Decisions, Resolutions, Final Orders, Motions for Reconsideration,
a. Must be submitted within 15 calendar days from the Appeals and Execution
receipt of the formal charge a. Dcisions rendered shall be pursuant to the 2016 SEC
b. 3 original copies must be filed by respondent/respondents ROP and its amendments
c. Must allege the following b. Appeals and motions are also the same
i. Allegations in the document are true and based
on personal knowledge or authentic documents REMOVAL AS A SANCTION IN THE COMMISSION’S PROCEEDINGS
ii. Not filed to harass, cause delay, or increase 1. Removal as sanction
litigation costs a. Commission can remove offices if during administrative or
iii. Factual allegations have evidentiary support OR adjudicative proceedings their violation is established by
can be supported by evidence substantial evidence
iv. Should also be accompanied by proof of service 2. Show cause order
to the complainant/respondents if applicable and a. Prior to removal, officer concerned has 15 days to show
must also content the affidavits of witnesses and cause under oath why he should not be removed or
other evidence needed disqualified and why he should not be administratively
d. When the respondent fails to answer penalized
i. Same as the concept of DEFAULT in civproc 3. Verified Response
ii. OD can issue a judgment granting relief being
asked for or impose sanctions based on the
evidence presented
iii. Complainant can also be asked to submit
additional evidence
8. Clarificatiory Hearing
a. If a hearing is needed to clarify facts, the OD can call for
one before rendition of judgement
9. Effect of Withdrawal of Complaint
248 | TKP 2025

a. Must be filed with 3 original copies

b. Same requirements as the verified answer
REMOVED DIRECTORS, TRUSTEES AND OFFICERS INDEX

1. OD must furnish the Corporate Filing and Records division with a
copy of the final order
2. CFRD must maintain an index of the removed individuals with the
following details
a. Corporate name and SEC registration number
b. Complete name and position of the officer removed
c. Date of election or appointment
d. OD which issued the order
e. Case title and number
f. Date of issuance of the order
g. Grounds for removal
i. Date of finality of judgment (if applicable)
ii. Penalty imposed (if applicable)
iii. Specific qualification imposed by the comission or
the pcc
3. Confidentiality of the index
a. It cannot be accessed or queried upon by outside parties
without approval of the individual concerned and the
approval of the director of the OD or his representative,
provided that it does not prejudice the Comission to
release the information and provided further that the
authority of the concerned individual is duly notarized
🙂 done!
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adopting protective measures to minimize or eliminate situations where its

Gokongwei, Jr. v. SEC, 89 SCRA 336 (1979) directors might be tempted to put their personal interests over that of the
corporation. And that the questioned amended by laws is a matter of
FACTS: Gokongwei is one of the stockholders of SMC. He filed a petition
internal policy and the judgment of the board should not be interfered with
for the declaration of nullity of amended by laws, cancellation of certificate
of filing of amended by laws, injunction and damages with prayer for a and that the by laws are valid and binding and are intended to prevent the
preliminary injunction against the Board of SMC and against SMC, with the possibility of violation of criminal and civil laws prohibiting combinations in
SEC. Gokongwei alleged that prior to the amendment of the bylaws, he restraint of trade.
had all the qualifications to be a director of SMC since he is a substantial
They also contended that Universal Robina Corporation, a corporation that
stockholder. And being a stockholder he claimed that he has the right to
vote and be voted upon the election of directors. By amending the bylaws, is competitive to that of SMC, began to acquire shares as well as
the respondents purposely provided for petitioner’s disqualification and Consolidated Foods Corporation. Gokongwei, who is the present and
deprived him of his vested rights. controlling shareholder of both corporations, also purchased stocks of
SMC in order to secure himself, in representation of Robina and CFC
Gokongwei further alleged that the corporation has no inherent power to interests, a seat in the Board of SMC. However, he was rejected by the
disqualify a stockholder from being elected as a director and the act is stockholders in his bid to secure a seat because he was engaged in a
ultra vires and void. Petitioners also included respondents Soriano, competitive business and by securing a seat in the Board of SMC would
alleging that the latter are already representing other corporations but the have subjected the SMC to grave disadvantages.
same still entered into management contracts with SMC, which was ISSUE: Whether or not the amended bylaws of SMC disqualifying a
avowed because the questioned amendment gave the board the competitor from nomination or election to the Board of Directors of SMC
prerogative of determining whether the people are engaged in competitive are valid and reasonable? - YES
or antagonistic business. Petitioner also added that the amended bylaw
RULING:
also included a portion which states that in determining whether or not a
person is engaged in competitive business, the Board may consider such Every corporation has the inherent power to adopt its by laws for
factors as business and family relationship, is considered unreasonable the internal government, and to regulate the conduct and prescribe the
and oppressive and the same has to be void. He also pointed out that the rights and duties of its members towards itself and among themselves in
portion which requires all the nominations for election of directors shall be reference to the management of its affairs. Section 21 of the Corporation
submitted in writing to the BOD at least 5 days before the annual meeting Code provides that a corporation may prescribe its bylaws the
is also unreasonable and oppressive. Finally, petitioner prayed that the qualifications, duties and compensation of directors, officers and
amended by laws be declared null and void and that the certificate of filing employees, which refers to those qualification in addition to those specified
be canceled. under section 30 of the same law (that every director must own at least 1
share of the capital stock of the corporation of which he is a director).
The respondents denied the allegations of Gokongwei. They held that the
power of the corporation to amend its bylaws is broad, subject only to the There is neither a vested right of stockholder to be elected as
condition that the bylaws adopted should not be inconsistent with any the director. Any person who buys the corporation’s stock has the
existing laws. Moreover, the corporation should not be precluded from knowledge that its affairs are dominated by a majority of the stockholders
250 | TKP 2025

and that the person impliedly contracts that the will of the majority shall competition as the rule of trade. The court is neither persuaded by
govern in all matters within the limits of the act of incorporation and petitioner’s claim that the by laws was intended to prevent the candidacy
lawfully enacted bylaws and provided that the same is not forbidden by the of petitioner for election to the board because it applies to all stockholders
law. Therefore, the stockholder may be considered as one who has parted and not to just one stockholder. And before petitioner can be declared as
with his personal right or privilege to regulate the disposition of his ineligible to run for director, there must be hearing and also evidence to be
property which he has invested in the capital stock of the corporation and submitted to bring the case within the ambit of disqualification. Sound
surrendered it to the will of the majority. principles of public policy and management support the view that a by law
which disqualifies a competition from election to the Board of another
The character of the directors of a corporation is that of a
fiduciary insofar as the corporation and the stockholders as a body corporation is considered as valid and reasonable.
are concerned. An amendment which renders ineligible, or if elected, CLV OUTLINE: The qualifications provided for in the law are only
subjects to removal, a director if he be also a director in a minimum qualifications; additional qualifications and disqualifications can
corporation whose business is in competition with is antagonistic to be provided for but only by proper provisions in the bylaws.
the other corporation is valid because of the principle that where the
director is so employed in the service of a rival company, he cannot
serve both, but must betray one or the other. Therefore, the
amendment advances the benefit of the corporation and is
considered good. And this is why the corporation code expressly
provides that the corporation may make bylaws for the qualifications
of directors.
The doctrine of “corporate opportunity” is precisely a
recognition by the courts that the fiduciary standards could not be
upheld where the fiduciary was acting for two entities with competing
interests as it would be unfair for an officer or director to take
advantage of this opportunity for his own personal profit when the
interest of the corporation justly calls for protection. And as part of
the member of the Board of SMC, one will have access to sensitive
and highly confidential information. If a competitor gets access to
these confidential information regarding marketing strategies and
pricing policies of SMC, it would put the latter in a competitive
disadvantage and unjustly enrich the competitor.
The court also noted that another consideration would be the
constitution and law which prohibit combinations in restraint of trade or
unfair competition because it aims to preserve free and unfettered
251 | TKP 2025

Lee v. Court of Appeals, 205 SCRA 752 (1992) court then reversed itself and declared that service upon the petitioners
cannot be considered as proper service of summons on ALFA. The case
FACTS: was elevated to the CA which reversed the above-mentioned Orders
holding that there was proper service of summons on ALFA through the
A complaint for a sum of money was filed by the International
Corporate Bank, Inc. against the private respondents who, in turn, filed a petitioners.
third party complaint against ALFA (Alfa Integrated Textile Mills) and the
petitioners. The trial court issued an order requiring the issuance of an
alias summons upon ALFA through the DBP as a consequence of the ISSUE:
petitioner's letter informing the court that the summons for ALFA was W/N the execution of the voting trust agreement by a stockholder
erroneously served upon them considering that the management of ALFA whereby all his shares to the corporation have been transferred to the
had been transferred to the DBP. The DBP claimed that it was not trustee deprives the stockholder of his position as director of the
authorized to receive summons on behalf of ALFA since the DBP had not corporation? – YES.
taken over the company which has a separate and distinct corporate
personality and existence.
RATIO:
Subsequently, the trial court issued an order advising the private By its very nature, a voting trust agreement results in the
separation of the voting rights of a stockholder from his other rights. The
respondents to take the appropriate steps to serve the summons to ALFA.
execution of a voting trust agreement, therefore, may create a dichotomy
The petitioners filed a motion for reconsideration submitting that Rule 14, between the equitable or beneficial ownership of the corporate shares of
section 13 of the Revised Rules of Court is not applicable since they were stockholders, on the one hand, and the legal title thereto on the other
no longer officers of ALFA and that the private respondents should have hand.
availed of another mode of service i.e., through publication to effect proper
service upon ALFA. The private respondents argued that the voting trust In the instant case, the petitioners maintain that with the execution
agreement dated March 11, 1981 did not divest the petitioners of their of the voting trust agreement between them and the other stockholders of
positions as president and executive vice-president of ALFA so that ALFA, as one party, and the DBP, as the other party, the former assigned
service of summons upon ALFA through the petitioners as corporate and transferred all their shares in ALFA to DBP, as trustee and thus, they
officers was proper. can no longer be considered directors of ALFA.
The trial court upheld the validity of the service of summons on Under the old Corporation Code, the eligibility of a director, strictly
ALFA through the petitioners. A second motion for reconsideration was speaking, cannot be adversely affected by the simple act of such director
filed by the petitioners reiterating their stand that by virtue of the voting being a party to a voting trust agreement inasmuch as he remains owner
trust agreement they ceased to be officers and directors of ALFA, hence, (although beneficial or equitable only) of the shares subject of the voting
they could no longer receive summons for or on behalf of ALFA and in trust agreement pursuant to which a transfer of the stockholder's shares in
support thereof, they attached a copy of the voting trust agreement favor of the trustee is required. No disqualification arises by virtue of the
between all the stockholders of ALFA and the DBP whereby the phrase "in his own right" provided under the old Corporation Code. With
management and control of ALFA became vested upon the DBP. The trial the omission of the phrase "in his own right" the election of trustees
252 | TKP 2025

and other persons who in fact are not beneficial owners of the shares deemed cancelled and new certificates of stock shall be reissued
registered in their names on the books of the corporation becomes in the name of the transferors."
formally legalized. Hence, this is a clear indication that in order to be
eligible as a director, what is material is the legal title to, not On the contrary, it is manifestly clear from the terms of the
beneficial ownership of, the stock as appearing on the books of the voting trust agreement between ALFA and the DBP that the duration
corporation. of the agreement is contingent upon the fulfillment of certain
obligations of ALFA with the DBP. There is evidence on record that at
The facts of this case show that the petitioners, by virtue of the time of the service of summons on ALFA through the petitioners on
the voting trust agreement executed in 1981 disposed of all their August 21, 1987, the voting trust agreement in question was not yet
shares through assignment and delivery in favor of the DBP, as terminated so that the legal title to the stocks of ALFA, then, still
trustee. Consequently, the petitioners ceased to own at least one belonged to the DBP.
share standing in their names on the books of ALFA as required
under Section 23 of the new Corporation Code. They also ceased to CLV OUTLINE: Beneficial ownership under VTA no longer qualifies as a
have anything to do with the management of the enterprise. The director owning at least one share of stock in his name.
petitioners ceased to be directors. Hence, the transfer of the
NOTES: [FOR SUMMONS ISSUE]
petitioners' shares to the DBP created vacancies in their respective
positions as directors of ALFA. W/N the service of summons on ALFA effected through the petitioners, as
president and vice-president, of the subject corporation after the execution
Considering that the voting trust agreement between ALFA of the voting trust agreement valid and effective? – NO.
and the DBP transferred legal ownership of the stock covered by the
agreement to the DBP as trustee, the latter became the stockholder Under section 13, Rule 14 of the Revised Rules of Court, it is provided
that: "Sec. 13. Service upon private domestic corporation or partnership.
of record with respect to the said shares of stocks. Both parties,
— If the defendant is a corporation organized under the laws of the
ALFA and the DBP, were aware at the time of the execution of the Philippines or a partnership duly registered, service may be made on the
agreement that by virtue of the transfer of shares of ALFA to the DBP, president, manager, secretary, cashier, agent or any of its directors."
all the directors of ALFA were stripped of their positions as such.
There can be no reliance on the inference that the five-year period of the It is a basic principle in Corporation Law that a corporation has a
voting trust agreement in question had lapsed in 1986 so that the legal title personality separate and distinct from the officers or members who
to the stocks covered by the said voting trust agreement ipso facto compose it. Thus, the above rule on service of processes of a corporation
reverted to the petitioners as beneficial owners pursuant to the 6th enumerates the representatives of a corporation who can validly receive
court processes on its behalf. Not every stockholder or officer can bind the
paragraph of section 59 of the new Corporation Code which reads:
corporation considering the existence of a corporate entity separate from
“Unless expressly renewed, all rights granted in a voting trust those who compose it. The petitioners in this case do not fall under any of
agreement shall automatically expire at the end of the agreed the enumerated officers. The service of summons upon ALFA, through the
period, and the voting trust certificate as well as the certificates of petitioners, therefore, is not valid. To rule otherwise, as correctly argued by
stock in the name of the trustee or trustees shall thereby be the petitioners, will contravene the general principle that a corporation can
253 | TKP 2025

only be bound by such acts which are within the scope of the officer's or
agent's authority.
254 | TKP 2025

Lim v. Moldex Land, Inc., 815 SCRA 619 (2017) law and by the corporations’ by-laws, there are minimum requirements set
FACTS: in order to be a director or trustee, one of which is ownership of a share in
Lim is the registered owner of a unit in Golden Empire Tower, a one’s name or membership in a non-stock corporation. Section 23 of the
condominium project of Moldex. Condocor is the non-stock, non-profit Corporation Code provides that the Board of Directors or Trustees must be
corporation registered as the condominium corporation for the Golden elected from among the stockholders or in the case of non-stock
Empire Tower. As a unit owner, Lim is a member of Condocor. Moldex corporations, they must be elected among the members of the corporation.
became a member of Condocor on the basus of its ownership of the 220
unsold units in the Golden Empire Tower. The individual respondents While Moldex may rightfully designate proxies or representatives,
acted as its representatives. the latter, however, cannot be elected as directors or trustees of Condocor.
In July 2012, Condocor held its annual general membership First, the Corporation Code clearly provides that a director or trustee must
meeting. The corporate secretary and the chairman Jaminola declared the be a member of record of the corporation. Further, the power of the proxy
existence of a quorum even though only 29 of the 108 unit buyers were is merely to vote. If said proxy is not a member in his own right, he cannot
present. The declaration of quorum was based on the presence of the be elected as a director or proxy.
majority of the voting rights, including those pertaining to the 220 unsold
units held by Moldex through its representatives. Lim objected to the Therefore, the election of the respondents as corporate officers
validity of the meeting. The objection was denied. Thus, LIm, and all the was held invalid.
other unit owners present, except for one, walked out and left the meeting.
Despite the walkout, the individual respondents and the other unit owner CLV Syllabus: Thus, while a corporate shareholder or member may
proceeded with the annual general membership meeting and elected the rightfully designate proxies or representatives, the latter, however, cannot
new members of the Board of Directors. All four of the individual be elected as directors or trustees. First, the [Revised] Corporation Code
respondents (who are the representatives of Moldex) were voted as clearly provides that a director or trustee must be a member of record of
members of the board. the corporation. Further, the power of the proxy is merely to vote. If said
Due to this, Lim filed an election protest before the RTC. Lim also proxy is not a member in his own right, he cannot be elected as a director
claimed that the individual respondents are non-unit buyers. The RTC or proxy. ✔Lim v. Moldex Land, Inc., 815 SCRA 619 (2017).
dismissed the complaint and brought the petition to the Supreme Court.
ISSUES:
1. Whether the July 2012 membership meeting was valid?
2. Whether Moldex can be deemed a member of Condocor?
3. Whether a non-unit owner can be elected as a member of the
Board of Directors of Condocor? NO (this is the issue pertinent
to the topic, so only the discussion on this issue will be included in
this digest)
RATIO:
The Court held that the individual respondents who are
non-members of Condocor (as a non-stock corporation) cannot be elected
as directors and officers of the condominium corporation. Since the board
exercises all corporate powers and authority expressly vested upon it by
255 | TKP 2025

Valle Verde Country Club, Inc. v. Africa, 598 SCRA 202 (2009) fill up vacancies in the board of directors effectively weakens the
stockholders’ power to participate in the corporate governance by electing
FACTS: their representatives to the board of directors. The Board is the directing
In the Annual Stockholders’ Meeting of Valle Verde Country Club, and controlling body of the corporation. It is a creation of the stockholders
Inc., there were several persons elected as members of the VVCC Board and derives its power to control and direct the affairs of the corporation
of Directors. Some of which were Eduardo Makalintal and Jaime from them. The Board, in drawing to themselves the powers of the
Dinglasan. However, in the subsequent years, the requisite quorum for the corporation, occupies a position of trusteeship in relation to the
holding of the stockholders’ meeting could not be obtained. Regardless, stockholders. They should not only exercise care and diligence, they must
the directors continued to serve in the Board in a hold-over capacity. also exercise utmost good faith in the management of corporate affairs.
Later on, Makalintal and Dinglasan resigned as a member of the The law has authorized the remaining members of the board to fill
Board. They were replaced by Jose Ramirez and Eric Roxas, respectively, in a vacancy only in specified instances, so as not to impair the
who were elected by the remaining members of the Board on March 2001. corporation’s operations. However, in recognition of the stockholders’ right
Victor Africa, a member of VVCC, questioned the election of Roxas and to elect the members of the board, it limited the period during which the
Ramirez as members of the Board through the SEC and RTC. He claimed successor shall serve only to the “unexpired term of his predecessor in
that a year after Makalintal’s election as a member of the Board, his term – office.” Pursuant to law, the authority to fill in the vacancy caused by
as well as those of the other members of the Board – should be Makalintal’s leaving lies with the Valle Verde Country Club’s stockholders,
considered to have already expired. According to Africa, the resulting not the remaining members of its board of directors.
vacancy should have been filled by the stockholders in a regular or special
meeting called for that purpose, and not by the remaining members of the CLV OUTLINE: The underlying policy of the Corporation Code is that the
Board. He was alleging that Roxas’ election was contrary to the business and affairs of a corporation must be governed by a Board of
Corporation Code. The RTC ruled in favor of Africa. Directors whose members have stood for election, and who have been
elected by the shareholders, on an annual basis. Only in that way can the
In the Board’s appeal, they stated that they have the power to fill directors’ continued accountability to the shareholders, and the legitimacy
in a vacancy created by the resignation of a hold-over director is expressly of their decisions that bind the corporation’s shareholders, be assured.
granted to the remaining members of the corporation’s board of directors, The shareholder vote is critical to the theory that legitimizes the exercise of
as in accordance with Section 29 of the Corp. Code. Under Section 23, the power by the directors or officers over properties that they do not own.
Board claims that a member’s term shall be for 1 year AND until his This theory of delegated power of the Board explains why, under what is
successor is elected and qualified. As the vacancy was due to Makalintal’s now Sec. 28 of RCC, the remaining Board can fill a vacancy — it
resignation, not the expiration of his term, the Board insists that they have recognizes the shareholders’ right to elect the members of the Board by
rightfully appointed Ramirez to fill in the vacancy. limiting the period during which the successor shall serve only to the
“unexpired term of his predecessor in office.”
ISSUE: Whether the remaining directors of Valle Verde’s Board, still
constituting a quorum, can elect another director to fill in a vacancy by the
resignation of a hold-over director? - NO
RULING:
The powers of the corporation’s board of directors emanate from
its stockholders. The Board’s construction of Section 29 on the authority to
256 | TKP 2025

their directors and officers, then only those directors and officers
appearing in the General Information Sheet to the SEC are
Election of Directors and Trustees deemed legally constituted to bind the corporation, especially in
Premium Marble Resources v. CA, 264 SCRA 11 (1996)- SEC the bringing of suits on behalf of the corporation.
must know of changes in the BOD to make the authority valid
FACTS:
Premium sued International Bank for 3 deposited checks in favor
of Premium Officer Belen Jr. The case was filed by the officers Zavalla et
al. (NEW)
A motion to dismiss the case was filed by Belen Jr. et al. (OLD)
representing the former board members. They presented the General
Information Sheet GIS filed on March 4, 1981. On the other hand, NEW
showed their Board Resolution dated April Fools 1982. There was no
showing that the new resolution was filed with the SEC.
ISSUE: Whether the filing was authorized by a duly constituted Board of

Premium Marble- NO.
RULING:
Sec. 25 of the RCC states all corporations submit a formal SEC

report on changes in the directorship and the officers. The officers
appearing in the GIS are recognized to legally bind the corporation, to sue,
and to be sued in their official capacities.
Sec. 26 requires to give the public information, under sanction of oath of

responsible officers, of the nature of business, financial condition and
operational status of the company together with information on its key
officers or managers so that those dealing with it and those who intend to
do business with it may know or have the means of knowing facts
concerning the corporation's financial resources.
CLV OUTLINE:
Since under what is now Sec. 25 of RCC all corporations are
mandated to submit a formal report to the SEC on the changes in
257 | TKP 2025

· In the 1997 Board Resolution authorizing Salvatierra, four of the signatories

there do not appear in the 1996 GIS submitted by the Corporation to the
Monfort Hermanos Agricultural Development v. Court of Appeals SEC
· There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto,
Topic: Election of Directors and Trustees Jaqueline M. Yusay and Ester S. Monfort, were indeed duly elected Members
of the Board legally constituted to bring suit in behalf of the Corporation
CLV Syllabus: Since under what is now Section 25 of RCC, all corporations are · the fact that four of the six Members of the Board listed in the 1996 General
mandated to submit a formal report to the SEC on the charges in their directors Information Sheet are already dead at the time the March 31, 1997 Board
and officers, then only those directors and officers appearing in the General Resolution was issued, does not automatically make the four signatories
Information Sheet to the SEC are deemed legally constituted to bind the to the Board Resolution as among the incumbent Members of the Board.
corporation, especially in the bringing of suits on behalf of the corporation o This is because it was not established that they were duly elected to
replace the deceased board members.
· The accountant informed the SEC of the non-inclusion of the lawfully elected
Facts: directors in the 1996 GIS was due to his oversight and not of the
· Monfort Hermanos is a domestic private corporation and a registered owner of corporation’s. However, the letter was sent a year later during litigation. It did
a farm. The owner is Ramon H. Monfort not erase the doubt as to whether an election was held.
· In 1997, the group of Antonio Monfort III, through force and intimidation, · The Corporation failed to do what was mandated under the SEC.
allegedly took possession of the 4 haciendas, the produce, the motor vehicle, o a corporation is mandated to inform the SEC of the names and the
as well as the fighting cocks of Ramon Monfort. change in the composition of its officers and board of directors
· On April 1997, the Corporation, represented by Salvatierra as President and within 30 days after election if one was held, or 15 days after the
Ramon H. Monfort in his personal capacity filed against the group of Monfort death, resignation or cessation of office of any of its director, trustee
III a complaint for delivery of vehicle, tractors, etc. or officer if any of them died, resigned or in any manner, ceased to
· Antonio filed a motion to dismiss alleging that Slavatierra has no capacity to hold office.
sue on behalf of the corporation because the March 31, 1997 Board · The demise of the directors was not reported to the SEC
resolution is void as the purported members who authorized her were not · The 1997 GIF submitted by the Corporation does not reflect the names of the
validly elected officers of the Corporation 4 directors claimed to be elected
· Ma. Antonia M. Salvatierra failed to prove that four of those who authorized
Issue: WON they were validly elected and so could confer powers to Salvatierra to sue? NO
her to represent the Corporation were the lawfully elected Members of the
Board of the Corporation. As such, they cannot confer valid authority for her to
Ratio:
sue on behalf of the corporation.
· The power of the corporation is lodged with BoD.
· Corollary, corporations are required under what is now Section 25 of the
RCC to submit to the SEC within thirty (30) days after the election the names,
nationalities and residences of the elected directors, trustees and officers of
the Corporation. In order to keep stockholders and the public transacting
business with domestic corporations properly informed of their organizational
operational status
o Because of this rule, the SEC issued rules mandating that
Corporations issue a general information sheet within 30 days
following the date of the annual stockholders’ meeting. No
extension of the period shall be allowed.
o In addition, the rules state that should a director, trustee, or officer die,
resign or in any manner cease to hold office, the corporation shall
report such fact to the Commission within 15 days after such death,
resignation, or cessation of office
258 | TKP 2025

Rule 6, Interim Rules of Procedure for Intra-Corporate Controversies SECTION 6. Affidavits, Documentary and Other Evidence. — The parties
shall attach to the complaint and answer the affidavits of witnesses,
RULE 6: Election Contests documentary and other evidence in support thereof, if any.
SECTION 1. Cases Covered. — The provisions of this rule shall apply to SECTION 7. Effect of Failure to Answer. — If the defendant fails to file an
election contests in stock and non-stock corporations. answer within the period above provided, the court shall, within ten (10)
days from the lapse of said period, motu proprio or on motion, render
SECTION 2. Definition. — An election contest refers to any controversy or judgment as may be warranted by the allegations of the complaint, as well
dispute involving title or claim to any elective office in a stock or non- stock as the affidavits, documentary and other evidence on record. In no case
corporation, the validation of proxies, the manner and validity of elections, shall the court award a relief beyond or different from that prayed for.
and the qualifications of candidates, including the proclamation of winners,
to the office of director, trustee or other officer directly elected by the SECTION 8. Trial. — If the court deems it necessary to hold a hearing to
stockholders in a close corporation or by members of a non-stock clarify specific factual matters before rendering judgment, it shall, within
corporation where the articles of incorporation or by-laws so provide. ten (10) days from the filing of the last pleading, issue an order setting the
case for hearing for the purpose. The order shall, in clear and concise
SECTION 3. Complaint. — In addition to the requirements in section 4, terms, specify the factual matters the court desires to be clarified and the
Rule 2 of these Rules, the complaint in an election contest must state the witnesses, whose affidavits have been submitted, who will give the
following: necessary clarifications.
(1) The case was filed within fifteen (15) days from the date of the election The hearing shall be set on a date not later than ten days from the date of
if the by-laws of the corporation do not provide for a procedure for the order, and shall be completed not later than fifteen days from the date
resolution of the controversy, or within fifteen (15) days from the resolution of the first hearing. The affidavit of a witness who fails to appear for
of the controversy by the corporation as provided in its by-laws; and clarificatory questions of the court shall be ordered stricken off the record.
(2) The plaintiff has exhausted all intra-corporate remedies in election SECTION 9. Decision. — The Court shall render a decision within fifteen
cases as provided for in the by-laws of the corporation. (15) days from receipt of the last pleading, or from the date of the last
hearing as the case may be. The decision shall be based on the
SECTION 4. Duty of the Court Upon the Filing of the Complaint. — Within pleadings, affidavits, documentary and other evidence attached thereto
two (2) days from the filing of the complaint, the court, upon a and the answers of the witnesses to the clarificatory questions of the court
consideration of the allegations thereof, may dismiss the complaint outright given during the hearings.
if it is not sufficient in form and substance, or, if it is sufficient, order the
issuance of summons which shall be served, together with a copy of the CLV Syllabus: The proper remedy to question the legality and proper
complaint, on the defendant within two (2) days from its issuance. qualification of persons elected to the board is a quo warranto proceeding.
Ponce v. Encarnacion, 94 Phil. 81 (1953). – Now an election contest under
SECTION 5. Answer. — The defendant shall file his answer to the the Interim Rule of Procedure for Intra-Corporate Controversies
complaint, serving a copy thereof on the plaintiff, within ten (10) days from
service of summons and the complaint. The answer shall contain the
matters required in section 6, Rule 2 of these Rules.
259 | TKP 2025

Eizmendi Jr. v. Fernandez, Inc., 879 SCRA 379 (2018)

During the hearing, Judge Maria Rowena San Pedro of RTC of Pasig
Branch 158 stressed that she will not touch on the election contest aspect
FACTS: of the Complaint, but only on the issue of petitioners’ suspension from the
On November 28, 2013, respondent Teodorico P. Fernandez filed a VVCCI. Petitioners filed their Answer with Counterclaim and Grounds for
Complaint for Invalidation of Corporate Acts and Resolutions with Dismissal. Petitioners specifically denied the material allegations of
Application for Writ of Preliminary Injunction against the individual Fernandez's Complaint, and sought the dismissal thereof on the following
petitioners, namely: Francisco C. Eizmendi Jr., and others who allegedly grounds:
constituted themselves as new members of the Board of Directors (BOD)
of Valle Verde Country Club, Inc. (VVCCI), despite lack of quorum during (1) he has no cause of action against the individual petitioners
the annual members' meeting on February 23, 2013. VVCCI is a duly who acted as members of the BOD of VVCCI which is a collegial
organized non-stock corporation engaged in promoting sports, recreational body;
and social activities, and the operation and maintenance of a sports and (2) the case is an election contest filed more than 15 days
clubhouse, among other matters. from the date of election, in violation of Section 3, Rule 6 of
the Rules Governing Intra-Corporate Controversies;
Fernandez averred that the individual petitioners held a meeting on (3) non-exhaustion of intra-corporate remedies and
October 18, 2013 during which they supposedly acted for and in behalf of non-compliance with condition precedent under the By-Laws of
VVCCI, and found him guilty of less serious violations of the by-laws and VVCCI; and
imposed on him the penalty of suspension of membership for six (6). He (4) violation of rules on notarial practice.
asserted that since petitioners were not validly constituted as the new
BOD in the place of the hold-over BOD of VVCCI, they had no legal In an Order, the RTC pointed out that the application of a Writ of
authority to act as such BOD, to find him guilty and to suspend him. He Preliminary Injunction has been rendered moot. The RTC also reminded
added that he was not accorded due process, as petitioners failed to give the parties that it shall not entertain any issue respecting the February 23,
him opportunity to defend himself by notifying him of the charge and the 2013 elections; otherwise, the mandatory period within which to file an
verdict against him. Election Contest would be rendered nugatory. The trial court stressed that
is cannot allow indirectly what is barred directly by the Rules and,
In an Urgent Motion or Request for Production/Copying of Documents, accordingly, the only issue remaining is whether due process was
Fernandez cited Rule 27 of the Rules of Court and requested the VVCCI, observed in suspending Fernandez. Also in a Resolution, the RTC denied
as owner and custodian of corporate documents, to produce them and the Urgent Motion or Request for Production/Copying of Documents.
allow him to copy the matters in connection with the hearing of his
application for issuance of a writ of preliminary injunction. Petitioners Aggrieved by the RTC Order and Resolution, Fernandez filed a petition for
opposed the Urgent Motion or Request for Production/Copying of certiorari before the CA.
Documents, and prayed that it be denied for lack of merit, for being
unreasonable and for not being in their possession.
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In its decision, the CA granted Fernandez's petition for certiorari, nullified 2. The RTC committed no grave abuse of discretion in disallowing
and set aside the assailed Order and Resolution of the RTC insofar as it Fernandez from presenting evidence during the hearing of his
did not allow any evidence to be presented relating to the February 23, application for preliminary injunction, relative to the lack of
2013 elections of the board of directors of VVCCI. The CA ruled that in authority of the individual petitioners to suspend him because it
order to fully resolve the issue regarding the legality of the suspension of would inevitably question the validity of the February 23, 2013
Fernandez from VVCCI, it was also necessary for the trial court to admit election.
pieces of evidence which relate to the composition of the BOD of VVCCI
during the time when the penalty of suspension from club membership 3. The RTC's action of virtually dismissing the first cause of action in
was imposed upon petitioner. Fernandez's complaint for being an election contest filed beyond
the 15-day reglementary period, is indeed consistent with the
following provisions of the Interim Rules:
ISSUE: Whether or not Fernandez may question the authority of the (a) Section 3, Rule 1, because such act promotes the
petitioners to act as the BOD of VVCCI and approve the board resolution objective of securing a just, summary, speedy and
suspending his club membership. inexpensive determination of every action or proceeding;
and
NO. To allow Fernandez to indirectly question the validity of the February (b) Section 4, Rule 6, which authorizes the court to
23, 2013 election would be a clear violation of the 15-day reglementary dismiss outright the complaint if the allegations thereof is
period to file an election contest under the Interim Rules. not sufficient in form and substance.
RULING: 4. The RTC's action is, likewise, consistent with the inherent power
of courts to amend and control its process and orders so as to
1. The Court agrees with Fernandez that the 15-day reglementary make them conformable to law and justice, under Section 5, Rule
period within which to file an election contest under the Interim 135 of the Rules of Court.
Rules is meant to hasten the submission and resolution of
corporate election controversies, so that the state of uncertainty in 5. In sum, the CA gravely erred in allowing Fernandez to present
the corporate leadership is settled; and that the said period not evidence in connection with the election of the individual
meant to block suits questioning the unlawful acts of winning petitioners as members of the BOD of VVCCI conducted on
directors, including the legitimacy of their authority. However, if the February 23, 2013 to invalidate their claims to the office of
Court were to entertain one of the causes of action in Fernandez's director, because that is akin to entertaining an election contest
complaint, which is partly an election contest raised beyond the filed beyond the 15-day period under the Interim Rules.
said reglementary period, then the salutary purposes of the said
period under the Interim Rules would be rendered futile; the CLV OUTLINE: An action seeking to void the action of the Board of
floodgates to election contests would be opened, to the detriment Directors suspending a member on the ground that they did not have valid
of the regime of efficient and stable corporate governance. quorum at the time the action was taken since they invalidly constituted
261 | TKP 2025

themselves as the new members of the Board is an election contest, which

under the Interim Rules of Procedure would be available only within a
period of 15 days from the time the alleged election or constitution of the
new Board took place.
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10. SEC Memorandum Circular No. 06-2020 (Guidelines on Attendance

and Participation of Directors/Trustees in Meetings
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directors, as such directors, exceed ten (10%) percent of the net income
Compensation of Directors before income tax of the corporation during the preceding year."
Western Institute of Technology, Inc. v. Salas, 278 SCRA 216 (1997)
It is true that directors/trustees are not entitled to salary or other
FACTS: compensation when they perform nothing more than the usual and
Private respondents are the major and controlling members of the Board ordinary duties of their office. Sec. 30 provides that there are only 2 ways
of Trustees of Western Institute of Technology, Inc. (WIT), a stock by which board members can be granted compensation -
corporation engaged in the operation, among others, of an education 1. when there is a provision in the bylaws fixing their compensation;
institution. Petitioners, on the other hand, are the minority stockholders of and
WIT. 2. when the stockholders representing a majority of the OCS at a
regular or special stockholders’ meeting agree to give it to them.
In a Special Board Meeting, the Salases (PRs) were granted a monthly
compensation to the private respondents as corporate officers retroactive However, this is not a sweeping rule. It should be noted from the language
June 1, 1985. The private respondents were then charged with falsification of Section 30 which states - “The directors shall not receive any
of a public document and estafa on the ground of their submission of compensation, as such directors…”. The phrase “As such directors”
WIT’s income statement for years 1985-1986 with the SEC reflecting delimits the scope of the prohibition to compensation given to them for
therein the disbursement of corporate funds for their compensation, services performed purely in their capacity as directors or trustees. Thus, it
making it appear that the Resolution was passed on March 30, 1986 when is implied that members of the board may receive compensation when
in fact it was passed only on June 1, 1986. This is a date not covered by they render services to the corporation in a capacity other than as
the corporation’s fiscal year (beginning May 1, 1995 and ending April 30, directors/trustees.
1986).
In this case, the Resolution granted monthly compensation to the private
They were acquitted and also not held civilly liable. Hence, this petition (on respondents in their capacity as officers of the corporation, and not as
the civil aspect of the case). The petitioners argued that the Salases members of the board, more particularly as Chairman, Vice-Chairman,
should be held civilly liable because the grant of compensation is Treasurer and Secretary. Clearly therefore, the prohibition with respect to
proscribed under Section 30 of the Corporation Code and so they must granting compensation to corporate directors/trustees as such under
return the amounts they received to the corporation with interest. Section 30 is not violated in this particular case.
ISSUE
W/N the Salases can be held civilly liable? NO. CLV Outline: Directors and trustees are not entitled to salary or other
compensation when they perform nothing more than the usual and
RULING ordinary duties of their office, founded on the presumption that they render
"Sec. 30. Compensation of directors. — In the absence of any provision in service gratuitously, and that the return upon their shares adequately
the by-laws fixing their compensation, the directors shall not receive any furnishes the motives for service,. But they can receive remunerations for
compensation, as such directors, except for reasonable per diems: acting as executive officers, such as Chairman, President, or Corporate
Provided, however, That any such compensation (other than per diems) Secretary. Western Institute of Technology, Inc. v. Salas, 278 SCRA 216
may be granted to directors by the vote of the stockholders representing at (1997).
least a majority of the outstanding capital stock at a regular or special
stockholders' meeting. In no case shall the total yearly compensation of
264 | TKP 2025

Agdao Landless Residents Assn. v. Maramion, 806 SCRA 74 (2016)

[MY TAKE AWAY FROM THE CASE] Being the corporation's agents
and therefore, entrusted with the management of its affairs, the directors
or trustees and other officers of a corporation occupy a fiduciary relation
RECIT READY FROM C2023 towards it, and cannot be allowed to contract with the corporation,
directly or indirectly, or to sell property to it, or purchase property from it,
SUMMARY: Agdao Residents Inc. or ALRAI received a donation from where they act both for the corporation and for themselves.
Dakudao Inc. The said donation of parcels of land contained a
prohibition as to the transfer within 5 years without the authority (out of
the 6 deeds only 1 has the restriction). Within the said period of
Doctrines:
restriction ALRAI transferred the said land to its BOD and
Section 91 of the Corporation Code of the Philippines (Corporation Code)
non-members. Take note that in this case the relevant contention is the
provides that membership in a non-stock, non-profit corporation (as in
transfer of the BOD of the land to its President and Secretary.
petitioner ALRAI in this case) shall be terminated in the manner and for the
Respondents Maramion et.al who are also members of the said ALRAI
cases provided in its articles of incorporation or the by-laws.
assail the validity of the transfer of the lot and their expulsion as
members of the corporation. RTC ruled in favor of the members
Individual suits are filed when the cause of action belongs to the
declaring all the transfer as void, while CA affirmed the ruling with
stockholder personally, and not to the stockholders as a group, or to the
modification saying that the transfer to a certain Loy from Alcantara was
corporation, e.g. denial of right to inspection and denial of dividends to a
valid. Issues are: WoN there was a valid termination of membership of
stockholder.
respondents – No, it did not comply with the due process requirement of
the ALRAI constitution. WoN there was a valid transfer of lot – No, it
Section 32, CCP requires: that the contract should be ratified by a vote
violated the fiduciary nature of the corporation and its BOD when it
representing at least two-thirds of the members in a meeting called for the
transferred property (as way of compensation daw but without corporate
purpose; full disclosure of the adverse interest of the directors involved
purpose) to its President and Secretary. SC affirmed the CA decision
when the Resolution was approved; that the contract be fair and
with modification by saying all transfers were void, furthermore it
reasonable under the circumstances.
enunciated the following requisites before a valid transfer of property of
the corporation to its BOD can be effected is found in Sec. 32 of the
FACTS:
corporation code.
Petitioners are Agdao Landless Residents Association, Inc.
(ALRAI), a non-stock, non-profit corporation duly organized and existing
DOCTRINE: [AS PER THE SYLLABUS] It is well settled that directors
under and by virtue of the laws of the Republic of the Philippines and its
presumptively serve without compensation. Hence, even though director
board of directors. Respondents are allegedly ousted members of ALRAI.
assigning themselves additional duties which still fall within their power
much less do they amount to extraordinary or unusual services to the
Through ALRAI’s board it transferred 46 titled lots to different
company, they would then be acting in excess of their authority by
members and non-members of the corporation. The respondent members
voting for themselves compensation for such additional duties. In
of the corporation were removed as members of the corporation by the
addition, such transfer of properties of the corporation by way of
board for absences in the meetings regarding the transfer of said lots.
payment of compensation amounts to self-dealing covered by Section
Respondents question the validity of their removal as members and the
32 of the Corporation Code
transfer of said lots through individual suits filed with the court.
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ISSUES: should have been brought up through a derivative suit, the individual suits
WON the termination of respondents is valid. are treated as individual suits based on the following:
WON the individual suits are proper.
WON the transfer of the lots are valid. First, the RTC, where the case was originally filed, has jurisdiction over the
controversy. Second, petitioners did not object to the institution of the case
HELD: (on the ground that a derivative suit should have been lodged instead of
No, termination of respondents is not valid. an individual suit) in any of the proceedings before the court a quo or
before the CA. Third, a reading of the complaint shows that respondents
Section 91 of the Corporation Code of the Philippines (Corporation Code) do not pray for reliefs for their personal benefit; but in fact, for the benefit
provides that membership in a non-stock, non-profit corporation (as in of the corporation.
petitioner ALRAI in this case) shall be terminated in the manner and for the
cases provided in its articles of incorporation or the by-laws. In this case, any benefit that may be recovered is accounted for, not in
favor of respondents, but for the corporation, who is the real
In this case, Agdao’s constitution provides that in the removal of members party-in-interest. Therefore, the occasion for the strict application of the
“The Secretary shall give or cause to be given written notice of all rule that a derivative suit should be brought in order to protect and
meetings, regular or special to all members of the association at least vindicate the interest of the corporation does not obtain under the
three (3) days before the date of each meetings either by mail or circumstances of this case.
personally. Notice for special meetings shall specify the time and the
purposes or purpose for which it was called; x x x” For failing to meet said No, the transfer of lots is not valid for non-compliance of Section 32, CCP.
notice requirements the removal of the respondents as members is invalid.
Javonillo, as a director, signed the Board Resolutions confirming the
Moreover, the Court held that "respondents'' abrupt expulsion constitutes transfer of the corporate properties to himself, and to Armentano.
an infringement of their constitutional right to due process of law and is not Petitioners cannot argue that the transfer of the corporate properties to
in accord with the principles established in Article 19 of the Civil Code. them is valid by virtue of the Resolution by the general membership of
Agdao confirming the transfer for three reasons.
Thus, termination is not valid.
First, Section 32 (Dealings of directors, trustees or officers with the
Yes, the individual suits are proper. corporation) requires that the contract should be ratified by a vote
representing at least two-thirds of the members in a meeting called for the
Individual suits are filed when the cause of action belongs to the purpose. Records of this case do not show whether the Resolution was
stockholder personally, and not to the stockholders as a group, or to the indeed voted by the required percentage of membership. In fact,
corporation, e.g. denial of right to inspection and denial of dividends to a respondents take exception to the credibility of the signatures of the
stockholder. If the cause of action belongs to a group of stockholders, such persons who voted in the Resolution. They argue that, "from the alleged
as when the rights violated belong to preferred stockholders, a class or 134 signatures, 24 of which are non-members, 4 of which were signed
representative suit may be filed to protect the stockholders in the group. A twice under different numbers, and 27 of which are apparently proxies
derivative suit, on the other hand, is one which is instituted by a unequipped with the proper authorization. Obviously, on such alleged
shareholder or a member of a corporation, for and in behalf of the general membership meeting the majority of the entire membership was
corporation for its protection from acts committed by directors, trustees, not attained."Second, there is also no showing that there was full
corporate officers, and even third persons. Now, even though the action disclosure of the adverse interest of the directors involved when the
266 | TKP 2025

Resolution was approved. Full disclosure is required under Section 32 of

the Corporation Code.Third, Section 32 requires that the contract be fair
and reasonable under the circumstances. As previously discussed, we find
that the transfer of the corporate properties to the individual petitioners is
not fair and reasonable for (1) want of legitimate corporate purpose, and
for (2) the breach of the fiduciary nature of the positions held by Javonillo
and Armentano. Lacking any of these (full disclosure and a showing that
the contract is fair and reasonable), ratification by the two-thirds vote
would be of no avail.In view of the foregoing, we rule that the transfers of
ALRAI's corporate properties to Javonillo, Armentano, Dela Cruz,
Alcantara and Loy are void. We affirm the finding of the court a quo when
it ruled that "no proof was shown to justify the transfer of the titles, hence,
said transfer should be annulled."
CLV Syllabus: (Agdao is cited 3 times in the syllabus but this is the
doctrine that is pertinent to Principles of Competence and Independence)
7. Compensation of Directors (Sec. 29)
It is well settled that directors presumptively serve without compensation.

Hence, even though director assigning themselves additional duties which
still fall within their power much less do they amount to extraordinary or
unusual services to the company, they would then be acting in excess of
authority by voting for themselves compensation for such additional duties.
Thus, transfer of corporate properties by way of payment of compensation
amounts to self-dealing covered by what is now Sec. 31 of RCC. ✔Agdao
Landless Residents Assn. v. Maramion, 806 SCRA 74 (2016).
267 | TKP 2025

Compensation of Directors (Sec. 30) COA Proper upheld the disallowance. It ruled that payments
Land Bank of the Philippines v. COA, G.R. No. 213409, 5 October contravene Section 30 of the Corporation Code because: (a) the
2021 Subsidiaries' respective by-laws do not provide for any additional
compensation for its directors; (b) a resolution passed by a subsidiary's
Board cannot be equated to the approval of its stockholders representing
FACTS: at least a majority of the outstanding capital stock, even if the Board is
Landbank is a government financial institution created under RA composed of representatives from the Parent Company (LBP) that, in turn,
No. 3844. On the other hand, Land Bank Insurance Brokerage, Inc. (LIBI), owns the majority interest in the Subsidiaries; 23 and (c) a board's act of
Land Bank Realty Development Corporation (LBRDC), LBP Leasing voting to grant additional benefits to its own members has been held to be
Corporation (LLC), and Masaganang Sakahan, Inc. (MSI) are wholly in excess of the board's authority, and thus, void.
owned subsidiaries of LBP, while LBP Countryside Development
Foundation, Inc. (LCDFI) is a non-stock, non-profit corporate foundation Hence, LBP and the concerned Subsidiaries filed the present
(collectively, Subsidiaries) petition. They argue that the payment complies with the majority
stockholder vote requirement under Section 30 of the Corporation Code
In the 2003 Annual Audit Report of the LBP submitted by the COA because "the approval made by the Members of the Board during the
Supervising Auditor, the COA noted that certain individuals had been (a) Board meeting is equivalent to the approval by the stockholder";
officers and/or employees of the Parent Company LBP and, at the same
time (b) members of the Board and/or corporate officers in the ISSUE:
Subsidiaries. In exchange for their services in the latter, the Subsidiaries W/N the payment complies with the majority stockholder vote requirement
granted them various forms of benefits and allowances in violation of the under Section 30 of the Corporation Code because "the approval made by
constitutional prohibition against double compensation. the Members of the Board during the Board meeting is equivalent to the
approval by the stockholder"? NO
COA disallowed payments representing additional benefits and
allowances granted to the Board Members of LBP Subsidiaries, for lack of RULING:
legal basis. One of the grounds for the disallowance cited by COA was The compensation of Board members of corporations established
that: Section 30 of the Corporation Code of the Philippines provides that under the Corporation Code is governed by Section 30 thereof:
directors shall not receive compensation other than reasonable per diems
unless granted by the vote of the stockholders representing at least a SECTION 30. Compensation of Directors. — In the absence of any
majority of the outstanding capital stock. However, aside from the payment provision in the by-laws fixing their compensation, the directors shall not
of per diems, the Subsidiaries' respective by-laws do not provide for any receive any compensation, as such directors, except for reasonable per
grant of additional benefits and allowances in favor of members of the diems: Provided, however, That any such compensation (other than per
Board. diems) may be granted to directors by the vote of the stockholders
representing at least a majority of the directors, exceed ten (10%) percent
LBP and the concerned Subsidiaries filed a Petition for Review of the net income before income tax of the corporation during the
before the COA Proper to question the disallowance. They argued that preceding year.
each of the Subsidiaries is wholly-owned by LBP. In turn, the LBP
President/CEO sat as a member in the Subsidiaries' respective Boards. As a general rule, Board members shall receive no compensation
Thus, the individual Boards' approval of the subject payments "is other than reasonable per diems. By exception, they may receive
tantamount to the approval by LBP's majority stockholders." additional compensation when the corporate by-laws so provide or "when
268 | TKP 2025

the stockholders representing a majority of the outstanding capital stock at CLV OUTLINE: While corporate powers are lodged in the Board, certain
a regular or special stockholders' meeting agree to give it to them. corporate acts require the stockholders’ ratification. In particular, the
stockholders have the sole power to elect members to the Board and
Verily, the following circumstances are attendant in the present case: determine their additional compensation. The bylaws may provide
● The Subsidiaries are wholly-owned subsidiaries of the LBP/Parent additional compensation to Board members. However, even the adoption
Company. of the bylaws and any amendment thereto require the stockholders'
● Necessarily, the Parent Company is thelargest and only approval. Stockholders’ approval is indispensable since there will be a
stockholder in each of the Subsidiaries. conflict of interest if the Board is left to decide these matters for
● The Subsidiaries' respective Boards were composed of individuals themselves. In these lights, the Board resolutions granting additional
(majority of the petitioners) who were also key officials employed allowances and benefits to its own members are ultra vires acts,
by the largest stockholder. amounting to an arrogation of a power reserved to the stockholders.
✔Land Bank of the Philippines v. COA, G.R. No. 213409, 05 October
However, these cannot be taken to mean that the Boards' 2021.
approvalvia a resolution will take the place of the stockholder vote
requirement under Section 30. There is a dichotomy between the Board
and stockholders: the former is a body tasked with the management of
general corporate affairs and the latter are the owners of the corporation in
which they have invested capital.
To be sure, these officials from the parent company acted in their

capacity as Board members of the LBP subsidiaries and not as proxies of
the Parent Company to vote in stockholders' meetings. This is consistent
with the basic principle that a corporation, managed by the Board, has a
separate legal personality from its stockholders.
While the general corporate powers are lodged in the Board,

certain corporate acts require the stockholders' exclusive approval or their
concurrence/assent. In particular, the stockholders have the sole power to
elect members to the Board and determine their additional compensation.
Also, the corporation's by-laws may provide additional compensation to
Board members. However, even the adoption of the by-laws and any
amendment thereto require the stockholders' approval. Stockholders'
approval is indispensable, inasmuch as there will be a conflict of interest if
the Board is left to decide these matters for themselves.
In these lights, the Subsidiaries' Board resolutions granting

additional allowances and benefits to its own members are ultra vires acts.
These amount to an arrogation of a power reserved to the stockholders.
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SJP argued that it was a business enterprise enjoying parity rights under
XII. CORPORATE GOVERNANCE the ordinance appended to the constitution, which parity right, with respect
PRINCIPLES OF to mineral resources in the Philippines, may be exercised, pursuant to the
Laurel-Langley Agreement, only through the medium of a corporation
“TRANSPARENCY, organized under the laws of the Philippines, thus, registrant which is
allegedly qualified to exercise rights under the Parity amendment, had to
ACCOUNTABILITY AND do so through the medium of a domestic corporation, San Jose Oil
RESPONSIBILITY” Corporation.
Fiduciary Duties of Directors, Trustees and Officers: Directors as SJP refused the contention that the Corporation Law was being violated,
Fiduciaries by alleging that Section 13 applies only to foreign corporations doing
1. Palting v. San Jose Petroleum, 18 SCRA 924 (1966) business in the Philippines, and the registrant was not doing business
here. The mere fact that it was a holding company of the San Jose Oil and
FACTS: that the registrant undertook financing of and giving technical assistance to
San Juan Petroleum filed with the Philippine SEC a sworn registration said corporation did not constitute a transaction of business in the
statement, for the registration and licensing for sale in the Philippines Philippines. SJP also denied that the offering of the shares in the
Voting Trust Certificates representing 2 million shares of its capital stock. Philippines was fraudulent and would work or tend to work fraud on the
The entire proceeds of the sale of the securities will be sued or devoted investors.
exclusively to finance the operations of San Jose Oil Company (a
domestic mining corporation). It was the express condition of the sale that The court also looked into some provisions of the Articles of Incorporation
every purchaser of the securities will not receive a stock certificate but a of respondent SAN JOSE PETROLEUM that are noteworthy:
registered or bearer-voting-trust certificate from the voting trustees who (1) the director of the Company need not be share-holders;
are both foreigners. (2) that in the meeting of the board of directors, any director
may be represented and may vote through a proxy who also need not be a
While the application for registration was pending consideration by the director or stockholder; and
SEC, San Jose Petroleum (SJP) filed an amendment statement increasing (3) that no contract or transaction between the corporation and any other
the shares to 5 million and reducing its par value from P1 to P0.70. Palting association or partnership will be affected, except in case of fraud, by the
and others, allegedly prospective investors in the shares of SJP, filed an fact that any of the directors or officers of the corporation is interested in,
opposition to the registration and licensing of the securities on the ground or is a director or officer of, such other association or partnership, and that
that the tie up between SJP, an international corporation, and also San no such contract or transaction of the corporation with any other person or
Jose Oil, a domestic corporation violates the Constitution of the persons, firm, association or partnership shall be affected by the fact that
Philippines, the Corporation Law and the Petroleum Act. any director or officer of the corporation is a party to or has an interest in,
such contract or transaction, or has in anyway connection with such other
person or persons, firm, association or partnership; and finally, that all and
270 | TKP 2025

any of the persons who may become director or officer of the corporation themselves directly or other persons or entities in which they are
shall be relieved from all responsibility for which they may otherwise be interested, and with immunity because of the advance condonation or
liable by reason of any contract entered into with the corporation, whether relief from responsibility by reason of such acts. Theis and the other
it be for his benefit or for the benefit of any other person, firm, association provision which authorize the election of non-stockholders as directors,
or partnership in which he may be interested. completely disassociate the stockholders from the government and
management of the business in which they have invested.
ISSUE: Whether or not the sale of San Jose Petroleum’s securities is
fraudulent or would work, or tend to work fraud or purchasers of such
securities in the Philippines. YES. CLV OUTLINE: The following charter provisions are unlawful under the old
Corporation Law: that contracts and transactions with other corporations
RULING: shall not be affected by the fact that any of the directors or officers of the
The provisions are in direct opposition of the corporate law and corporate company may be interested in or are directors or officers of such other
practices in the Philippines. The provisions alone would utlaw any corporations; that persons who may become directors or officers this the
corporation locally organized or doing business in this jurisdiction. company are hereby relieved of all responsibilities which they would
Consider the unique and unusual provision that no contract or transaction otherwise incur by reason of any contracted entered into which this
between the company and any other association or corporation shall be company either for their own benefit or for the benefit of any person, firm,
affected except in case of fraud, by the fact that any of the directors or or corporation to which they may be interested. The impact of these
officers of such other association or corporation; and that none of such provisions upon the traditional fiduciary relationship between the directors
contracts or transactions of this company with any person or persons, and the shareholders of the company is too obvious to escape notice by
firms, association or corporations shall be affected by the fact that any the SEC which is called upon to protect the interests of investors
director or officer of this company is a party to or has an interest in such
contract or transaction or has any connection with such person or persons,
firms, associations or corporations; and that any and all persons who may
become directors or officers of this company are hereby relieved from all
responsibility which they would otherwise incur by reason of any contract
entered into which this company either for their own benefit, or for the
benefit of any person, firm, association or corporation in which they may
be interested.
The impact of these provisions upon the traditional judiciary relationship

between the directors and the stockholders of a corporation is too obvious
to escape notice by those who are called upon to protect the interest of
investors . The directors and officers of the company can do anything ,
short of actual fraud, with the affairs of the corporation even to benefit
271 | TKP 2025

Radstock, who is assigning such rights can own the land in the first place.
Strategic Alliance Dev. Corp. v. Radstock Securities Ltd., 607 SCRA As for the issue of director as fiduciaries, the members of the BoD have a
413 (2009) three-fold duty: obedience, diligence, and the duty of loyalty. They are also
expected to direct the affairs of the corporation according to its purpose
FACTS: The CDCP had a 30 year franchise to construct, operate and and they should not assent to acts that are patently unlawful. Nor can they
maintain toll facilities in the North and South Luzon Tollways. Basay Mining act with bad faith or with gross negligence and they cannot acquire an
which is an affiliate of CDCP obtained loans from Marubeni Corp personal or pecuniary interest in conflict with their duty as such directors or
(Japanese corporation) and CDCP issued letters of guarantee committing trustees. Entering into the agreement was a violation of the Constitution
to pay the loans solidarily in case of default. After some time, CDCP and also a violation of their duties mentioned above. Thus the agreement
changed their name to PNCC to reflect the government’s shareholding. was invalid and the directors of PNCC violated their duties.
The loan on the other hand remained unpaid. For a while, after being
renamed, PNCC refused to recognize the loan but after 20 years they CLV Syllabus: In Philippine jurisdiction, directors have a three-fold duty:
recognized it. Now as for Marubeni, they suddenly assigned their entire duty of obedience, duty of diligence, and the duty of loyalty. Accordingly,
credit to Radstock for less than 100 million pesos (when the loan was the Board members (1) shall direct the affairs of the corporation only in
worth 10 billion). accordance with the purpose for which it was organized (2) shall not
willfully and knowingly vote for or assent to patently unlawful acts of the
Radstock immediately sought to collect the loan and filed an action, which corporation or act in bad faith or with gross negligence in directing the
resulted into a compromise agreement between them and PNCC. In the affairs of thee corporation and (3) shall not acquire any personal or
said agreement, they reduced the loan to 6 billion and said that PNCC pecuniary interest in conflict with their duty as such directors or trustees.
would assign to a third party assignee chosen by Radstock its rights and
interest in certain real properties, provided that the assignee has a right to
hold such properties (Radstock is a foreign corporation). Thus 19
properties were specified and their appraised value altogether cost 6
billion pesos.
The agreement also directed that PNCC would assign to Radstock 20% of
its outstanding capital stock as well as 6% of the gross toll revenue of the
tollways that were constructed.
ISSUE: Was the compromise agreement valid? NO
RULING: Philippine law prohibits the ownership by foreign corporations of

properties in the Philippines. Thus Radstock’s argument that they can own
the rights to ownership of real property and designate the party to whom
the real property is assigned to is untenable since that would create a
circumvention of our constitution. The fact is, Radstock cannot have rights
to ownership of the land in the PH since it can’t even own land in the first
place. An assignor or seller cannot assign or sell something they don’t
have at the time. Thus the third party assignee can only own the land if
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DUTY OF DILIGENCE RULING:

Steinberg v. Velasco, 52 Phil. 953 (1929)
FACTS: Steinberg is the receiver of Sibuguey Trading Company. The Board of Directors of the corporation authorized the purchase of,
Defendants in this case are corporate officers (Velasco - President, del purchased and paid for, 330 shares of the capital stock of the
Castillo - VP, Navallo - Secretary-Treasurer, Manuel - Director). corporation at the agreed price of P3,300, and that at the time the
purchase was made, the corporation was indebted in the sum of
In a meeting of the Board of Directors, the defendants approved and P13,807.50, and that according to its books, it had accounts receivable in
authorized various purchases already made of a large portion of the the sum of P19,126.02. When the petition was filed for its dissolution upon
capital stock of the company from its various stockholders, thereby the ground that it was insolvent, its accounts payable amounted to
diverting its funds to the injury, damage and in fraud of the creditors of the P9,241.19, and its accounts receivable P12,512.47, or an apparent asset
corporation. Pursuant to such resolution, the corporation purchased of P3,271.28 over and above its liabilities. But it will be noted that there
shares of its capital stock from Ganzon, Mendaros, Saavedra, and Matias. is no stipulation or finding of facts as to what was the actual cash
The total amount of the capital stock unlawfully purchased was P3,300. It value of its accounts receivable. Neither is there any stipulation that
was also alleged that at the time of such purchase, the corporation had those accounts or any part of them ever have been or will be collected,
accounts payable amounting to P13,807.50, most of which were unpaid at and it does appear that after his appointment, the receiver made a diligent
the time the petition for dissolution of the corporation was filed, in effort to collect them, and that he was unable to do so, and it also appears
contemplation of an insolvency. from the minutes of the board of directors that the president and manager
"recommended that P3,000 — out of the surplus account to be set aside
Steinberg also alleged that the officers and directors of the corporation for dividends payable, and that payments be made in installments so as
approved a resolution for the payment of P3,000 as dividends to its not to affect the financial condition of the corporation."
stockholders, which was wrongfully done and in bad faith, and to the injury
and fraud of its creditors. That at the time the petition for the dissolution of If in truth and in fact the corporation had an actual bona fide surplus of
the corporation was presented it had accounts payable in the sum of P3,000 over and above all of its debt and liabilities, the payment of the
P9,241.19, "and practically worthless accounts receivable." P3,000 in dividends would not in the least impair the financial condition of
the corporation or prejudice the interests of its creditors.
Steinberg wants to collect P3,300 from the defendants Gregorio Velasco,
Felix del Castillo, Andres L. Navallo and Rufino Manuel, personally as The Court pointed out that the action of the board in purchasing the stock
members of the Board of Directors, or for the recovery from Ganzon, from the corporation and in declaring the dividends on the stock was all
Mendaros, Saavedra, and Matias. done at the same meeting of the board of directors, and it appears in
those minutes that the both Ganzon and Mendaros were formerly
Velasco argued that the purchase of shares was done when the business directors and resigned before the board approved the purchase and
of the company was doing well. He also argued that the release of declared the dividends, and that out of the whole 330 shares purchased,
dividends were approved by the board, and that the dividends actually Ganzon, sold 100 and Mendaros 200, or a total of 300 shares out of the
represented a surplus profit. 330, which were purchased by the corporation, and for which it paid
P3,300. In other words, that the directors were permitted to resign so
ISSUE: Are Velasco et al. liable for the repurchased stocks and released that they could sell their stock to the corporation. As stated, the
dividends? - YES authorized capital stock was P20,000 divided into 2,000 shares of the par
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value of P10 each, of which only P10,030 was subscribed and paid. not use the assets of the corporation to purchase its own stock, and
Deducting the P3,300 paid for the purchase of the stock, there would be that it will not declare dividends to stockholders when the
left P7,000 of paid up stock, from which deduct P3,000 paid in dividends, corporation is insolvent.
there would be left P4,000 only. In this situation and upon this state of
facts, it is very apparent that the directors did not act in good faith or CLV OUTLINE: The directors shall be personally liable to reimburse the
that they were grossly ignorant of their duties. corporation for the amounts of dividends wrongfully declared and paid to
shareholders, when they failed to consider that the recorded retained
The Court discussed Secs. 454 and 458 under Ruling Case Law: (sums earnings in the corporate books was illusory considering the various
up the entire case) accounts receivables that had to be written off as uncollectible.
454: General Duty to Exercise Reasonable Care. — The directors of a NOTES: A lot of computations but just focus on the doctrine: the directors
corporation are bound to care for its property and manage its affairs did not act in good faith or with reasonable care.
in good faith, and for a violation of these duties resulting in waste of
its assets or injury to the property they are liable to account the same
as other trustees. There can be no doubt that if they do acts clearly
beyond their power, whereby loss ensues to the corporation, or dispose of
its property or pay away its money without authority, they will be required
to make good the loss out of their private estates. This is the rule where
the disposition made of money or property of the corporation is one either
not within the lawful power of the corporation, or, if within the authority of
the particular officer or officers.
458: Want of Knowledge, Skill, or Competency. — It has been said that

directors are not liable for losses resulting to the corporation from want of
knowledge on their part; or for mistake of judgment, provided they were
honest, and provided they are fairly within the scope of the powers and
discretion confided to the managing body. But the acceptance of the
office of a director of a corporation implies a competent knowledge
of the duties assumed, and directors cannot excuse imprudence on
the ground of their ignorance or inexperience; and if they commit an
error of judgment through mere recklessness or want of ordinary prudence
or skill, they may be held liable for the consequences. Like a mandatory, to
whom he has been likened, a director is bound not only to exercise proper
care and diligence, but ordinary skill and judgment. As he is bound to
exercise ordinary skill and judgment, he cannot set up that he did not
possess them.
Creditors of a corporation have the right to assume that so long as

there are outstanding debts and liabilities, the board of directors will
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Carag v. NLRC, 520 SCRA 28 (2007) to comply with the notice requirement of labor laws on company closure or
dismissal of employees.
FACTS:
Section 31 of the Corporation Code lays down the exceptions to
The National Federation of Labor Unions (NAFLU) and Mariveles the rule, as follows:
Apparel Corporation Labor Union (MACLU), on behalf of the rank and file
employees of Mariveles Apparel Corporation (MAC) filed a complaint “Liability of directors, trustees or officers. – Directors or
against MAC for illegal dismissal brought about by its illegal closure of trustees who: 1) willfully and knowingly vote for or assent to
business. The dispute started when, in the absence of the required notice patently unlawful acts of the corporation or 2) who are guilty
of cessation of its business, MAC ceased its operations with the intention of gross negligence or bad faith in directing the affairs of the
of completely closing its shop or factory. Such intention was manifested in corporation or acquire any personal or pecuniary interest in
a letter, allegedly claimed by MAC as its notice BUT was filed only on the conflict with their duty as such directors or trustees shall be liable
same day that the operations closed. As a result of the said business jointly and severally for all damages resulting therefrom
closure, the workers who rendered their services were not paid their suffered by the corporation, its stockholders or members and other
salaries or wages. Hence, the rank and file employees claimed that the persons.”
manner of closure of the operations of MAC was illegal. While the
complaint was lodged before the Labor Arbiter, the complainant filed a Section 31 makes a director personally liable for corporate
motion to implead MAC‘s Chairman of the Board Antonio Carag and debts if he willfully and knowingly votes for or assents to patently
MAC‘s President Armando David. The inclusion of Carag and David in the unlawful acts of the corporation. Section 31 also makes a director
complaint is to guarantee the satisfaction of any judgment favorable to the personally liable if he is guilty of gross negligence or bad faith in
complainants. directing the affairs of the corporation.
However, the counsel for respondents, submitted a position paper Neither did Arbiter Ortiguerra make any finding to this effect in her
and stated that complainants should not have impleaded Carag and David Decision. Complainants did not also allege that Carag is guilty of
because MAC is actually owned by a consortium of banks. Carag and gross negligence or bad faith in directing the affairs of MAC. To hold
David own shares in MAC only to qualify them to serve as MAC’s officers. a director personally liable for debts of the corporation, and thus
pierce the veil of corporate fiction, the bad faith or wrongdoing of the
director must be established clearly and convincingly. Bad faith is
ISSUE: never presumed. Bad faith does not connote bad judgment or negligence.
Bad faith imports a dishonest purpose. Bad faith means breach of a known
W/N Carag and David could be held personally liable for corporate duty through some ill motive or interest. Bad faith partakes of the nature of
debts? – NO. fraud. Neither does bad faith arise automatically just because a
corporation fails to comply with the notice requirement of labor laws on
company closure or dismissal of employees. The failure to give notice is
RATIO: not an unlawful act because the law does not define such failure as
unlawful. Such failure to give notice is a violation of procedural due
Complainants did not allege in their complaint that Carag willfully process but does not amount to an unlawful or criminal act.
and knowingly voted for or assented to any patently unlawful act of MAC.
Neither does bad faith arise automatically just because a corporation fails For a wrongdoing to make a director personally liable for
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debts of the corporation, the wrongdoing approved or assented to by

the director must be a patently unlawful act. Mere failure to comply
with the notice requirement of labor laws on company closure or
dismissal of employees does not amount to a patently unlawful act.
Patently unlawful acts are those declared unlawful by law which imposes
penalties for commission of such unlawful acts. There must be a law
declaring the act unlawful and penalizing the act.
Bad faith does not arise automatically just because a corporation fails to
comply with the notice requirement of labor laws on company closure or
dismissal of employees. The failure to give notice is not an unlawful act
because the law does not define such failure as unlawful. Such failure to
give notice is a violation of procedural due process but DOES NOT
amount to an unlawful or criminal act. Such a procedural defect is called
illegal dismissal because it fails to comply with mandatory procedural
requirements, but it is not illegal in the sense that it constitutes an unlawful
or criminal act.
CLV OUTLINE: To make a director personally liable for corporate debts,

the wrongdoing approved or assented to by the director must be a patently
unlawful act. Mere failure to comply with the notice requirement of labor
laws on company closure or dismissal of employees does not amount to a
patently unlawful act. Patently unlawful acts are those declared unlawful
by law which imposes penalties for commission of such unlawful acts.
There must be a law declaring the act unlawful and penalizing the act.
NOTES:
- A director or trustee need not have voted for, BUT mere assent to
a patently wrongful act or contract would make him liable.
- Therefore, when an unlawful act or contract is for decision
of the Board, it should not be sufficient that the director
abstains from voting; it is important to cast a negative vote
and allow such to be placed of record in order to escape
personal liability.
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Kho, Sr. v. Magbanua, 911 SCRA 366 (2019) In this case, not only was Kho not shown to be the Corporation’s
President at the time of its closure, there was also no showing that he
FACTS: assented to a patently unlawful act, thereby exposing him to solidary
A complaint for illegal dismissal was filed by the cooks, cashiers, liability with the corporation.
and dishwashers of Holy Face Cell Corporation against the corporation
and its stockholders, including its alleged President/Manager, Kho and Even if Kho was a corporate officer, nowhere in the complaint nor
Kho’s wife Irene (Spouses Kho) to the Labor Arbiter. They posited that in in the respondents’ submissions before the labor tribunals did they allege
January 2011, Spouses Kho’s daughter, Sheryl posted a notice in the that Kho committed bad faith, fraud, negligence, or any of the
company premises that the restaurant would close down that same month. aforementioned exceptions to warrant his personal liability. Bad faith
They tried to dialogue with the Khos about the closure. When the cannot be ascribed on any of the corporation’s officers by the mere fact
restaurant closed as scheduled, the complainants-respondents filed the that the corporation failed to comply with the notice requirement before
complaint for illegal dismissal with payment of separation pay, salary closing down the restaurant. The failure to give notice is not an unlawful
differential, among others, including damages and attorney’s fees. act because the law does not define such failure as unlawful.
The Labor Arbiter ruled in favor of the respondents. The NLRC Absent any finding that Kho was a corporate officer of the
reversed and set aside the ruling of the Labor Arbiter and dismissed the corporation who willfully and knowingly assented to patently unlawful acts
complaint. The CA reversed the NLRC ruling and held the corporation and of the latter, or who is guilty of bad faith or gross negligence in directing its
Kho solidarily liable for the payment of the respondents’ separation pay. 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
ISSUE: instant case.
Whether or not the CA correctly ascribed grave abuse of discretion on the
part of the NLRC, and accordingly held Kho solidarily liable with the CLV Syllabus: Under what is now Sec. 30 of the RCC, personal liability
Corporation for the payment of respondents’ money claims? NO will attach to a director or officer only when guilty of any of the following:
(1) willfully or knowingly voting or assenting to patently unlawful acts of the
RATIO: corporation; (2) gross negligence; or (3) bad faith. It is only in these
Corporate directors, trustees, or officers can be held solidarily exceptional cases when officers are solidarily liable on the liabilities of the
liable with the corporation when they assent to a patently unlawful act of corporation. PCGG v. Gutierrez, 871 SCRA 148 (2018); ✔Kho, Sr. v.
the corporation, or when they are guilty of bad faith or gross negligence in Magbanua, 911 SCRA 366 (2019).
directing its affairs, or when there is a conflict of interest resulting in
damages to the corporation, its stockholders, or other persons. A finding
of personal liability against a director, trustee, or a corporate officer
requires the concurrence of these two requisites:
a. A clear 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.
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United Coconut Planters Bank v. Secretary of Justice, G.R. 209601, legislative intent is clear that Section 31 violations are excluded from the
12 January 2021 application of Section 144; and to apply Section 144 to acts committed
under Section 31 would unduly extend its application to situations not
FACTS: intended by the legislature and would also violate the principle of strict
UCPB, through its Legal Services Division Head, filed a Complaint construction of penal laws. The CA also ruled that Antiporda and Carreon,
against Antiporda and Carreon. They alleged that Antiporda and Carreon as members of UCPB's Board of Directors, could be held liable for
authorized the payment of bonuses to some of UCPB’s corporate officers violating Section 31 of the Corporation Code because Antiporda was sued
and directors amounting to around P118,000,000. Due to substantial in his capacity as UCPB's Chairman of the Board while Carreon was sued
losses, the Board resolved to shorten the corporate existence of UCPB in her capacity as Director, which were their designations at the time of the
Capital. When UCAP was absorbed by UCPB, Antiporda and Carreon alleged Section 31 violation.
declared bonuses in bad faith, with gross negligence and in violation of
UCPB’s by-laws which requires a board authority prior to declaration of ISSUE: Whether or not Section 144 of the Corporation Code applies to
bonuses. Section 31? - NO
Antiporda countered that his actions as Chairman and CEO were RULING:
not done in bad faith as he was merely guided by UCPB’s audited Applying the rule of lenity, any violation of Section 31 of the Corp.
Financial Statements, by-laws and policies; that the by-laws provided that Code was not considered as a violation of any provision of such Code not
10% of UCPB’s net profit is allotted as bonuses to its directors and otherwise specifically penalized therein pursuant to Section 144. Section
officers, and what is subject to Board approval is only the manner by which 144 did not apply to or include in its coverage Section 31. There is no
UCPB distributes the 4% of the net profit to other officers. It has also been provision in the Corp. Code that evinces a categorical legislative intent to
the practice of UCPB to pay bonuses without a board resolution since it treat as a criminal offense each and every violation of that law. There is no
was never questioned by BSP examiners. compelling reason for the Court to construe Section 144 as similarly
employing the term “penalized” or “penalty” solely in terms of criminal
A criminal case was filed against Antiporda and Carreon. The DOJ liability.
Task Force on Bank Fraud Cases found probable cause against Antiporda
and Carreon for violation of Section 31 in relation to Section 144 of the The Corporation Code was intended as a regulatory measure, not
Corporation Code. They also stated that a board resolution is required primarily as a penal statute. Sections 31 [and] 34 in particular were
before the grant of bonus as indicated in UCPB’s by-laws. intended to impose exacting standards of fidelity on corporate officers and
directors but without unduly impeding them in the discharge of their work
Later on, the DOJ Secretary ruled Section 144 was not applicable with concerns of litigation. Considering the object and policy of the
to violations of Section 31, and the action against Antiporda and Carreon Corporation Code to encourage the use of the corporate entity as a vehicle
had already prescribed. It held that the penalties in Section 144 apply only for economic growth, we cannot espouse a strict construction of Sections
when the other provisions of the Corp. Code do not provide penalties. 31 and 34 as penal offenses in relation to Section 144 in the absence of
Since Section 31 provides for the remedy of civil action for damages, unambiguous statutory language and legislative intent to that effect. When
Section 144 does not apply anymore. The act of “gross negligence and Congress intends to criminalize certain acts it does so in plain, categorical
bad faith in directing the affairs of the corporation” can be committed only language, otherwise such a statute would be susceptible to constitutional
by the directors and trustees of the corporation. attack.
According to the CA, by providing the remedy of damages, the CLV OUTLINE: Violation of what is now Sec. 30 of the RCC involves
278 | TKP 2025

purely civil liability, i.e., “all damages resulting from its violation suffered by
the corporation, its stockholders or members and other persons,” and the
criminal penalty imposed under what is now Sec. 170 of the RCC is not
imposable at all.
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Gokongwei v. SEC, Ayalas, and San Miguel, 89 SCRA 336 (1979) Other respondents denied the allegations of petitioner and the power of
the corporation to amend its bylaws is broad, subject only to the condition
Facts: Gokongwei is one of the stockholders of SMC and he filed a that the bylaws adopted should not be inconsistent with any existing laws.
petition for the declaration of nullity of amended by laws, cancellation of Moreover, the corporation should not be precluded from adopting
certificate of filing of amended by laws, injunction and damages with protective measures to minimize or eliminate situations where its directors
prayer for a preliminary injunction against the Board of SMC and against might be tempted to put their personal interests over that of the
SMC, with the SEC. Petitioner alleged that prior to the amendment of the corporation. And that the questioned amended by laws is a matter of
bylaws, he had all the qualifications to be a director of SMC since he is a internal policy and the judgment of the board should not be interfered with
substantial stockholder. And being a stockholder he claimed that he has and that the by laws are valid and binding and are intended to prevent the
the right to vote and be voted upon the election of directors. By amending possibility of violation of criminal and civil laws prohibiting combinations in
the bylaws, the respondents purposely provided for petitioner’s restraint of trade. The respondents also prayed that the petition be
disqualification and deprived him of his vested rights. dismissed as well.
Petitioner alleged that the corporation has no inherent power to Respondents Soriano also contended that Universal Robina Corporation,
disqualify a stockholder from being elected as a director and the act a corporation that is competitive to that of SMC, began to acquire shares
is ultra vires and void. Petitioners also included respondents Soriano, as well as Consolidated Foods Corporation. And the petitioner, who is the
alleging that the latter are already representing other corporations but the present and controlling shareholder of both corporations, also purchased
same still entered into management contracts with SMC, which was stocks of SMC in order to secure himself and in representation of Robina
avowed because the questioned amendment gave the board the and CFC interests, a seat in the Board of SMC. However, petitioner was
prerogative of determining whether the people are engaged in competitive rejected by the stockholders in his bid to secure a seat because the
or antagonistic business. Petitioner also added that the amended bylaw petitioner was engaged in a competitive business and by securing a seat
also included a portion which states that in determining whether or in the Board of SMC would have subjected the SMC to grave
not a person is engaged in competitive business, the Board may disadvantages.
consider such factors as business and family relationship, is
considered unreasonable and oppressive and the same has to be void.
Issue: Whether there can be the same director for the two companies?
He also pointed out that the portion which requires all the nominations
NO, it violates loyalty.- Pet. partly granted to check the STB, but not
for election of directors shall be submitted in writing to the BOD at
nullify the by-laws or grant ratification to the foreign investment of
least 5 days before the annual meeting is also unreasonable and
San Miguel
oppressive. Finally, petitioner prayed that the amended by laws be
declared null and void and that the certificate of filing be canceled.
Ruling: Sound principles of corporate management counsel against
sharing sensitive information with a director whose fiduciary duty of loyalty
280 | TKP 2025

may well require that he disclose this information to a competitive rival. person impliedly contracts that the will of the majority shall govern in all
These dangers are enhanced considerably where the common director matters within the limits of the act of incorporation and lawfully enacted
such as the petitioner is a controlling stockholder of two of the competing bylaws and provided that the same is not forbidden by the law. Therefore,
corporations. the stockholder may be considered as one who has parted with his
As stated in Travers, “The argument for prohibiting competing personal right or privilege to regulate the disposition of his property which
he has invested in the capital stock of the corporation and surrendered it to
corporations from sharing even one director is that the interlock permits
the will of the majority.
the coordination of policies between nominally independent firms to an
extent that competition between them may be completely eliminated. The character of the directors of a corporation is that of a fiduciary
Indeed, if a director, for example, is to be faithful to both corporations, insofar as the corporation and the stockholders as a body are concerned.
some accommodation must result. Suppose X is a director of both An amendment which renders ineligible, or if elected, subjects to removal,
Corporation A and Corporation B. X could hardly vote for a policy by A that a director if he be also a director in a corporation whose business is in
would injure B without violating his duty of loyalty to B at the same time he competition with their own and is antagonistic to such other corporation is
could hardly abstain from voting without depriving A of his best judgment. valid because of the principle that where the director is so employed in the
If the firms really do compete — in the sense of vying for economic service of a rival company, he cannot serve both, but must betray one or
advantage at the expense of the other — there can hardly be any reason the other. Therefore, the amendment advances the benefit of the
for an interlock between competitors other than the suppression of corporation and is considered good. And this is why the Corporation Code
competition.” expressly provides that the corporation may make bylaws for the
qualifications of directors.
Iowa CJ Theodore G. Garfield said, the doctrine "corporate
opportunity" is not new to the law and is but one phase of the cardinal rule The doctrine of “corporate opportunity” is precisely a recognition
of undivided loyalty on the part of the fiduciaries. by the courts that the fiduciary standards could not be upheld where the
fiduciary was acting for two entities with competing interests as it would be
Also as a minor issue, every corporation has the inherent power to adopt
unfair for an officer or director to take advantage of this opportunity for his
its by laws for the internal government, and to regulate the conduct and
own personal profit when the interest of the corporation justly calls for
prescribe the rights and duties of its members towards itself and among
protection. And as part of the member of the Board of SMC, one will have
themselves in reference to the management of its affairs. Section 21 of the
access to sensitive and highly confidential information. If a competitor gets
Corporation Code provides that a corporation may prescribe its bylaws the
access to these confidential information regarding marketing strategies
qualifications, duties and compensation of directors, officers and
employees, which refers to those qualification in addition to those specified and pricing policies of SMC, it would put the latter in a competitive
disadvantage and unjustly enrich the competitor.
under section 30 of the same law (that every director must own at least 1
share of the capital stock of the corporation of which he is a director). The court also noted that another consideration would be the
There is neither a vested right of stockholder to be elected as the constitution and law which prohibit combinations in restraint of trade or
unfair competition because it aims to preserve free and unfettered
director. Any person who buys the corporation’s stock has the knowledge
competition as the rule of trade. The court is neither persuaded by
that its affairs are dominated by a majority of the stockholders and that the
petitioner’s claim that the by laws was intended to prevent the candidacy
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of petitioner for election to the board because it applies to all stockholders

and not to just one stockholder. And before petitioner can be declared as
ineligible to run for director, there must be hearing and also evidence to be
submitted to bring the case within the ambit of disqualification. Sound
principles of public policy and management support the view that a by law
which disqualifies a competition from election to the Board of another
corporation is considered as valid and reasonable.
CLV Syllabus: Doctrine of Corporate Opportunity: It is well

established that corporate officers are not permitted to use their
position of trust and confidence to further their private interests. The
“doctrine of corporate opportunity” is precisely a recognition by the
courts that the fiduciary standards could not be upheld where the
fiduciary was acting for two entities with competing interests. The
doctrine rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking advantage of an
opportunity for his personal profit when the interest of the
corporation justly calls for protection.
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8. TOPROS, Inc. v. Chang, Jr., G.R. Nos. 200070-71, 7 December 2021 Yaona served as Treasurer and Jennifer Ty (Jennifer) stood as Corporate
Topic: Duty of Loyalty – Doctrine of Corporate Opportunity Secretary. Upon Chang's request, Elizabeth, Hector, and Cecilia Katigbak
CLV Outline: a claim for damages under what is now Section 33 of the (Cecilia), all Pantrade employees, were transferred to TOPROS.
RCC arises when the officer or director takes a business opportunity for
his own, provided that the following sufficiently show by the claimant: TOPROS grew into a multi-million enterprise; thus, Spouses Ty increased
(1) The corporation is financially able to exploit the opportunity; its authorized capital stock to Pl0,000,000.00 and Chang's share to 20%.
(2) The opportunity is within the corporate’s line of business; TOPROS included in its line of business the distribution of various office
(3) The corporation has an interest or expectancy in the equipment and supplies. However, despite its success, no substantial cash
opportunity; and dividends were distributed to the stockholders because, according to
(4) By taking the opportunity for his own, the corporate fiduciary Chang, the corporation was investing its funds in several real properties in
will be placed in a position inimical to his duties to the corporation. Metro Manila, Visayas, and Mindanao.
Facts: The Ty Family sensed irregularities in Chang's dealings when their friends
Total Office Products, Inc. (TOPROS) filed before the Securities and and relatives began questioning the manner in which products and
Exchange Commission (SEC) a Petition for Injunction, Mandatory services from TOPROS were issued receipts and vouchers from
Injunction, and Damages (With Urgent Motion for Issuance of Writ of TOPGOLD, et.al. The Ty Family requested Chang to return all corporate
Preliminary Attachment), which was later refiled as an Amended Petition records of TOPROS. However, Chang offered to buy them out of their
for Accounting and Damages with Prayer for the Issuance of a Writ of interest at TOPROS. This prompted the Ty Family to conduct an
Preliminary Attachment (Amended Petition) against TOPGOLD investigation which revealed that Chang, et.al. incorporated the
Philippines, Inc. (TOPGOLD), Golden Exim Trading and Commercial TOPGOLD, et.al. to siphon the assets, funds, goodwill, equipment, and
Corporation (Golden Exim), Identic International Corp. (Identic) resources of TOPROS. According to TOPROS, Chang used its properties
(TOPGOLD, et.al.), John Charles Chang, Jr. (Chang), Saul Mari Chang, in organizing the TOPGOLD, et.al. and obtained opportunities properly
Hector Katigbak (Hector), Cecilia Katigbak (Cecilia), Rosario Sarah belonging to it and its stockholders to their damage and prejudice. Chang
Fernando, and Elizabeth Jay (Elizabeth) (Chang, et.al.), who are all was, thereafter, ousted as Corporate Director and officer of TOPROS.
incorporators of the TOPGOLD, et.al.
The Regional Trial Court (RTC) rendered a Decision in favor of TOPROS.
Spouses Ramon (Ramon) and Yaona Ang Ty (Yaona) (Spouses Ty) The CA reversed and set aside the RTC Decision.
wanted to establish a corporation that would be the sole distributor of
Minolta plain paper copiers in the Philippines. Chang, a former employee Issue:
of Pantrade, Inc., (Pantrade), a company also owned by the Ty Family, Did Chang violate the “doctrine of corporate opportunity”? YES
was given the duty to manage the new corporation. The Ty Family gave
Chang 10% shares in the corporation with the assurance from Chang that Ratio:
he would render competent, exclusive, and loyal service. TOPROS was The elements of doctrine of corporate opportunity are:
incorporated with an authorized capital stock of P4,000,000.00. Among the (1) The corporation is financially able to exploit the opportunity;
incorporators, Chang was the only one who is not a member of the Ty (2) The opportunity is within the corporate’s line of business;
Family. (3) The corporation has an interest or expectancy in the
opportunity; and
The Ty Family elected Chang as President and General Manager and (4) By taking the opportunity for his own, the corporate fiduciary
entrusted to him the management and the funds of TOPROS. Meanwhile, will be placed in a position inimical to his duties to the corporation.
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There is no dispute that Chang established TOPGOLD, et.al. which were that the doctrine of "corporate opportunity" applies in the case.
in the same line of business and while still an officer and director of
TOPROS. The Articles of Incorporation of Golden Exim and TOPGOLD To determine the exact liability of Chang, however, the instant case should
showed that Chang owned 80% of the Golden Exim shares and 99.76 of be remanded to the trial court for the reception of additional evidence and
the TOPGOLD shares. The General Information Sheet of Identic also the reevaluation of evidence already submitted, guided by the parameters
showed that Chang owned 65% of Identic. aforementioned. That is, TOPROS as claimant bears the burden of
proving the specific business opportunities that gave rise to its claim of
The service report of Linde, as well as the provisional receipts issued by damages under Section 34 of the Corporation Code.
Golden Exim, showed that Golden Exim entered into a service contract
with the same client at the same time that TOPROS was servicing it.
TOPGOLD published printed advertisements which were strikingly similar
to those previously printed by TOPROS.
Chang, as President and General Manager of TOPGOLD, signed a deed

of assignment with Hector as Service and Operations Manager of
TOPROS which made it appear that TOPROS assigned its rights under
several rental agreements with different entities for the lease of various
kinds of office equipment to TOPGOLD. It also authorized the
corresponding rental payments on the rental agreements to be paid to
TOPGOLD. Furthermore, TOPGOLD used the same address as TOPROS
which not only gave it the opportunity to use TOPROS' resources but led
the public to believe that they are one and the same entity.
Even if admitted, the circumstances cited by Chang, which suggest of

knowledge, tolerance, or even acquiescence of TOPROS to his
establishment of the TOPGOLD, et.al. which are in the same business as
TOPROS, do not amount to the compliance required of Section 34 of the
Corporation Code to absolve a director of disloyalty. The law explicitly
requires that where a director, by virtue of his office, acquires for himself a
business opportunity which should belong to the corporation, he must
account to the latter for all profits by refunding them, unless his act has
been ratified by a vote of the stockholders owning or representing at least
two-thirds of the outstanding capital stock.
The Court ruled that even if the incorporation of TOPGOLD, et.al. were
with the full knowledge of the members of the Ty Family, this does not
equate to consent to the prejudicial transfer and acquisition of properties
and opportunities of TOPROS which Chang, through his corporations, has
shown to have committed. Indeed, TOPROS was correct in pointing out
284 | TKP 2025

SELF-DEALINGS OF DIRECTORS AND OFFICERS (SECTION 31)

Prime White Cement Corp. v. IAC, 220 SCRA 103 (1993) ISSUE
W/N the "dealership agreement" referred by the President and Chairman
FACTS of the Board of Prime White is a valid and enforceable contract? NO
● Alejandro Te, Auditor and member of the BoD of Prime White
Cement, entered into a dealership contract with the same RULING
corporation through its President, Mr. Falcon and Chairman of the Under the Corporation Law in force at the time this case arose, as well as
Board, Mr. Trazo. under the present Corporation Code, all corporate powers shall be
● Under the contract, Te was obligated to act as the corporation’s exercised by the Board of Directors, except as otherwise provided by law.
exclusive dealer and/or distributor of cement products in the entire The Board may expressly delegate specific powers to its President or any
Mindanao area for a term of five years. of its officers. In the absence of such express delegation, a contract
● Relying heavily on the dealership agreement, Te sometime in entered into by its President, on behalf of the corporation, may still bind
September, October, and December of 1969, entered into a the corporation if the board should ratify the same expressly or impliedly.
written agreement with several hardware stores engaged in buying Furthermore, even in the absence of express or implied authority by
and selling white cement in the cities of Davao and Cagayan de ratification, the President as such may, as a general rule, bind the
Oro, which would enable him to sell his allocation of 20,000 bags corporation by a contract in the ordinary course of business, provided the
regular supply of cement. He also entered into sub-dealership same is reasonable under the circumstances. These rules apply where the
contracts with other individuals. President or other officer, purportedly acting for the corporations, is dealing
● After Te was assured by his supposed buyers that his allocation of with a third person, i.e., a person outside the corporation.
20,000 bags of white cement can be disposed of, he informed the
corporation in a letter that he is making the necessary preparation The situation is different where a director or officer is dealing with his own
for the opening of the requisite letter of credit to cover the price of corporation. In the instant case, respondent Te was not an ordinary
the due initial delivery for the month of September, 1970. stockholder; he was also a member of the Board of Directors and an
However, the corporation replied, imposing different conditions auditor of the corporation. He was what is often referred to as a "self
than those agreed upon in the dealership contract. Several dealing" director. A director of a corporation holds a position of trust and
demands were made by Te for the corporation to comply with their as such, he owes a duty of loyalty to his corporation. In case his interests
prior agreement. conflict with those of the corporation, he cannot sacrifice the latter to his
● Due to their failure to heed such demand, he was constrained to own advantage and benefit. As corporate managers, directors are
cancel his agreement for the supply of white cement with third committed to seek the maximum amount of profits for the corporation. It
parties, which were concluded in anticipation of, and pursuant to springs from the fact that directors have the control and guidance of
the said dealership agreement. corporate affairs and property and hence of the property interests of the
● Notwithstanding the subsistence of the dealership agreement stockholders. But despite the existence of a director’s contract with his
between Te and the corporation, the corporation entered into an corporation, such will not be automatically void or voidable such as when
exclusive dealership agreement with a certain Napoleon Co for the the contract is fair and reasonable under the circumstances, it may be
marketing of white cement in Mindanao; hence, the suit. ratified by the stockholders as provided under Sec. 32 of the Corp. Code.
● The trial court held the Corporation liable for damages and the CA [Section 31 of RCC].
upheld such liability due to the doctrine of apparent authority.
In this case, the court ruled that the agreement between Te and the
Corporation was neither fair nor reasonable mainly due to the price of the
285 | TKP 2025

cement which was pegged at P9.70, with no provision to allow for an

increase in a price mutually acceptable to the parties. In essence, the price
was stuck at such for 5 years in relation to Te. In contrast, the
sub-dealership agreements he made with other parties contained a
stipulation that the price of the cement could still be discussed until
mutually acceptable to the parties but will not go below P14.00 per bag.
Why is this stipulation present in the sub-dealership agreements but not in
the agreement with the corporation? In short, why was this protection
afforded to third parties but not with the corporation to whom he owes
loyalty to?
As director, especially since he was the other party in interest, it was Te's
bounden duty to act in such manner as not to unduly prejudice the
corporation. In the light of the circumstances of this case, the court stated
that it was quite clear that he was guilty of disloyalty to the corporation; he
was attempting, in effect, to enrich himself at the expense of the
corporation. There is no showing that the stockholders ratified the
"dealership agreement" or that they were fully aware of its provisions. The
contract was therefore not valid.
CLV OUTLINE: What is now Sec. 31 of RCC on self-dealings by directors

and officers merely incorporate well-established principles in Corporate
Law. A director who enters into a distributorship agreement with the
corporation would make the contract voidable at the option of the
corporation especially when the terms are disadvantageous to the
corporation. Such director cannot claim the same doctrine as an outsider
dealing in good faith with the corporation. Prime White Cement Corp. v.
Intermediate Appellate Court, 220 SCRA 103 (1993).
286 | TKP 2025

10. SEC Memorandum Circular No. 10-2019 (Material Related Party

Transactions for Publicly Listed Companies)
Link:
https://www.sec.gov.ph/mc-2019/mc-no-10-s-2019-rules-on-material-relate
d-party-transactions-for-publicly-listed-companies/#gsc.tab=0
287 | TKP 2025

Contracts Between Corporations with Interlocking Directors

(Sec. 32)
Development Bank of the Phils. v. Court of Appeals, 363 SCRA 307
(2001)
CLV Outline:
The rule under what is now Sec. 32 of RCC allowing annulment of
contracts between corporations with interlocking directors resulting
in the prejudice to one of the corporations, has no application to
cases where fraud is alleged to have been committed to third parties.
✔Development Bank of the Phils. v. Court of Appeals, 363 SCRA 307
(2001).
288 | TKP 2025

To Keep, Maintain and Allow Inspection of Articles of Incorporation

and Other Corporate Books and Records under Sec. 73
SEC Memorandum Circular No. 15-2019 (Reporting in the GIS of
Beneficial Ownership)
Link:
https://www.sec.gov.ph/mc-2019/mc-no-15-s-2019-amendment-of-sec-me
morandum-circular-no-17-series-of-2018-on-the-revision-of-the-general-inf
ormation-sheet-gis-to-include-beneficial-ownership-information-2019-revisi
o/#gsc.tab=0
289 | TKP 2025

Keh v. People, 942 SCRA 609 (2020) 11. Unsatisfied, petitioners wanted the case to be dismissed
WITH PREJUDICE on the ground that the eventual refiling of
1. Petitioners Keh and Quiballo, respectively the chairman/president the case would amount to double jeopardy. Here, they
and the corporate secretary of Ferrotech Steel Corporation, were reiterated the supposed defective and insufficient allegations
charged before the Office of the City Prosecutor (OCP) of contained in the information, and insisted on its quashal, as well
Valenzuela City with violation of Section 74, in relation to Section as on the dismissal of the criminal case with prejudice.
144, of the Corporation Code, allegedly for their unjustified refusal 12. Denied.
to open the corporate books and records to one of their
stockholders, Ireneo C. Qudon.
2. The OCP found probable cause, and resolved to file the ISSUE: W/N the dismissal of the CA of the case was proper? [CA
Information before the RTC of Valenzuela City. JUDGMENT SET ASIDE, CASE WAS REMANDED] mostly because of
3. Petitioners filed MR but this was dismissed and they were procedural matters but the point of the case was that…..
subsequently sent for arraignment
4. Before they could be arraigned RULING:
5. Petitioners filed Omnibus Motions for inhibition of the presiding The underlying prosecution is for the alleged violation of Section 74
judge and for reconsideration of the June 15, 2010 Order on the of the Corporation Code (Now Section 177 of the RCC), in relation to
ground that the information did not contain all the elements of the Section 144 (Sec 161) thereof. Collectively, these provisions create
charge. the duty on the part of the corporation to keep and preserve a record
6. Denied the reconsideration sought on the ground that the of all business transactions and minutes of all meetings of
proffered arguments related to evidentiary matters which ought to stockholders, members, or the board of directors or trustees, along
be brought to trial. As to the determination of probable cause, the with the duty to make such record available to its stockholders or
trial court rightly declared that the trial court judge does determine members upon written request therefor; a violation of these duties
probable cause but only with respect to the propriety of issuing a invites criminal prosecution against the erring officers to allow the
warrant of a rest. eventual application of the prescribed penalties.
7. Again all their requests kept being denied hence filed petition for
certiorari and mandamus with CA Jurisprudence cites the elements of the subject offense as follows:
8. Petitioners were arraigned and tried in the interim. The
prosecution formally offered its evidence after having First. A director, trustee, stockholder or member has made a prior
presented the principal complainant and sole witness, Ireneo demand in writing for a copy of excerpts from the corporation's
Quizon, who openly professed the denial by petitioners of records or minutes;
access to the corporate books despite his two written
demands. Second. Any officer or agent of the concerned corporation shall
9. Petitioners then filed Omnibus Motions Ex Abundante Ad refuse to allow the said director, trustee, stockholder or member of
Cautelam and Demmurer to Evidence, still insisting on the quashal the corporation to examine and copy said excerpts;
of the supposed defective Information, as well as on the dismissal
of the case on improper venue and insufficiency of evidence. Third. If such refusal is made pursuant to a resolution or order of the
10. Agreeing with petitioners this time, the trial court, in its board of directors or trustees, the liability under this section for such
August 25, 2011 Order, directed the quashal of the action shall be imposed upon the directors or trustees who voted for
information for being defective. such refusal; and,
290 | TKP 2025

justifying circumstance – that must be pleaded by petitioners at the trial in

Fourth. Where the officer or agent of the corporation sets up the open court rather than at the indictment stage. Thus, as a justifying
defense that the person demanding to examine and copy excerpts circumstance which could potentially exonerate the accused from liability,
from the corporation's records and minutes has improperly used any its function is to merely take the burden of proof from the shareholder
information seemed through any prior examination of the records or and place it on the corporation.36 It suffices to say that these matters
minutes of such corporation or of any other corporation, or was not have already been put forth before and addressed by the OCP in the
acting in good faith or for a legitimate purpose in making his resolution from which the subject information took off.37
demand, the contrary must be shown or proved
Indeed, the sufficiency of the allegations in the information serves the
It is, indeed, fundamental that for purposes of a valid indictment, every fundamental right of the accused to be informed of the nature of the
element of which the offense is composed must be alleged in the charge and to enable him to suitably and adequately prepare his defense,
information.31 Be that as it may the criminal information is not meant to as he is presumed to have no independent knowledge of the facts that
contain a detailed resumé of the elements of the charge in verbatim. constitute the offense.38 In the instant petition, we find that petitioners, by
Section 6,32 Rule 110 of the Revised Rule of Court only requires, among the subject information, have been fully informed of the offense with which
others, that it must state the acts or omissions so complained of as they have been charged and to which they have pleaded and have thus far
constitutive of the offense. Thus, the fundamental test in determining the been tried. Given the undue termination of petitioners' prosecution before
sufficiency of the material averments in an information is whether or not the trial court, however, a remand for fmiher proceedings is in order.
the facts alleged therein, which are hypothetically admitted, would
establish the essential element of the crime defined by law. Evidence
aliunde or matters extrinsic of the information are not be considered.33 CLV Syllabus: (Keh was cited twice in the syllabus but this is the
doctrine under Principles of Accountability Transparency and
Scrutinizing the subject information, the Court finds the allegations therein Responsibility)
to be sufficient to propel a prosecution for the crime defined and punished
under Section 74, in relation to Section 144, of the Corporation Code. To Annually Submit to the SEC the General Information Sheet (GIS)
First, that the first element of the offense is missing on its face is belied by and Audited Financial Statements under Sec. 177;
the specific employment of the phrase "refuse, without showing any
justifiable cause[,] to open to inspection x x x the corporate books and For Corporations Vested with Public Interests: Also Submit Director
records," which reasonably implies that a prior request for access to Compensation Report and Director Appraisal and Performance
information has been made upon petitioners. To be sure, refusal is Report
understood quite simply as the act of refusing or denying; a rejection of
something demanded, solicited, or offered for acceptance.34 In some The underlying prosecution is for the alleged violation of Sec. 74 in relation
case, refusal is meant as a neglect to perform a duty which the party is to Sec. 144 of the Corporation Code. Collectively, these provisions create
required by law or his agreement to do.35 the duty on the part of the corporation to keep and preserve a record of all
business transactions and minutes of all meetings of stockholders,
Second, that the information, in order to validly charge petitioners, should members, or the board of directors or trustees, along with the duty to make
have alleged as well the fourth element of the offense is, to our mind, an such record available to its stockholders or members upon written request
undue exaction on the prosecutor to include extraneous matters that must therefor; a violation of these duties invites criminal prosecution against the
be properly addressed during the trial proper. The fourth element of the erring officers to allow the eventual application of the prescribed penalties.
offense unmistakably pertains to a matter of defense – specifically, a ✔Keh v. People, 942 SCRA 609 (2020).
291 | TKP 2025

SEC Memorandum Circular No. 19. s. 2016 (Code of Corporate

Governance for Publicly Listed Companies)
https://www.sec.gov.ph/mc-2016/mc-no-19-s-2016/#gsc.tab=0
292 | TKP 2025

Mead v. McCullough, 21 Phil. 95 (1911) the law and its articles of agreement, to sell or transfer to one of its
members the assets of the corporation? YES.
FACTS:
Plaintiff Mead, defendant McCullough, Hilbert, Green, and Hartigan RULING:
instituted the corporation “The Philippine Engineering and Construction Nothing in the AOI expressly prohibits the sale or transfer of the
Company. It was engaged in the general engineering and construction corporation asset to one of the stockholders. In fact, the transfer or sale of
work, primarily in the construction of warehouses and wharf for the US the asset to one of its members was made by the unanimous consent of
and attempted to raise the sunken Spanish Fleet. The five of them are all the directors in the corporation at that time because under the articles
directors and stockholders of the company with general ordinary of incorporation, the stockholders and directors had general ordinary
powers. Plaintiff was appointed as a general manager; he held powers. All the respondents were able to give their consent to the sale or
such a position until he took another job as an engineer in another transfer except for the petitioner who went abroad and took the position of
company located in China. According to the court plaintiff’s engineer of the Canton and Shanghai Railway Company knowing that the
acceptance of such a job effectively abandoned and vacated his same will require his whole time and attention which constitutes that an act
position as a director in the company because they were inconsistent with of abandoning or vacating his position as one of the director of the
each other, making him merely a stockholder. corporation. The sale was, therefore, made by the unanimous consent of
four-fifths of all the stockholders who were present at that time.
After Mead left for China the contracts secured by Mead were
taken over by McCullough. However, clients of the company While a corporation remains solvent, we can see no reason why a director
refused to transact with the old company unless McCullough agreed or officer, by the authority of the majority of the stockholders or board of
to form a new association. The remaining four directors and stockholders managers, may not deal with the corporation, loan it money or buy
held a meeting to determine the next course of action to be taken. property from it, in like manner as a stranger. So long as a purely private
As a result the company sold corporate property to McCullough in corporation remains solvent, its directors are agents or trustees for the
an attempt to save the company from further incurring losses and he stockholders. However, the moment it become insolvent, its directors are
formed another company which is now called the Manila Salvage considered trustees of all creditors, whether they are members of the
Company. However the latter company failed and McCullough incurred corporation or not , and must manage its property and assets with strict
losses. Plaintiff comes before the court questioning the propriety of the regard to their interest. If the directors are themselves creditors while the
course of action undertaken by the directors. Primarily he questioned the insolvent corporation is under their management, they will not be permitted
power of the stockholders to transfer corporate property to one of the to secure themselves by purchasing the corporate property or otherwise
members of the corporation considering that his consent was not obtained any personal advantage over the other creditors. Nevertheless, a director
to allow such transfer. or officer may in good faith and for an adequate consideration purchase
from a majority of the directors or stockholders the property even of an
ISSUE: Whether or not majority of the stockholders, who were at the same insolvent corporation, and a sale thus made to him is valid and binding
time a majority of the directors of the corporation, have the power under upon the minority.
293 | TKP 2025

In this case, the corporation had been going from bad to worse. The
corporation was civilly dead and has assessed the limo of utter insolvency.
The majority of the stockholders or directors sold the assets of the
corporation. This was the only wise and sensible thing for them to do.
They acted in perfectly good faith and for the best interests of all the
stockholders.
McCollough did not represent the corporation in this transaction. It was

represented by a quorum of the board of directors who were at the same
time a majority of the stockholders. Ordinarily, McCollough’s duties as
president were to preside at the meetings, rule on questions of order, vote
in case of a tie. But in this case, he could not have voted because there
was no tie in the first place. The acts of the respondents in this transaction,
in view of the relations which they bore to the corporation, are subject to
the most severe scrutiny. They are obliged to establish that they acted with
utmost candor and fair dealing for the interest of the corporation, and
without taint of selfish motives.
CLV OUTLINE: It would be a violation of the right of creditors under the

the trust fund doctrine to return to the shareholders of any portion of their
capital or declare dividends outside of the unrestricted retained earnings;
upon the corporation’s insolvency, the Board of Directors are duty bound
to hold its assets primarily of the payment of creditors.
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Virata v. Ng Wee, 830 SCRA 271 (2017); 860 SCRA 49 (2018) account for the profits he gained which would have otherwise been
acquired by the corporation. For the officers of Wincorp specifically, the
FACTS: (very salient only) In 1998 Ng Wee was enticed by Wincorp as facts are clear that they were complicit to the fraud or guilty of gross
one of its valued clients to make investments with Wincorp under his own negligence. They had the fiduciary duty to assess Power Merge before
name or those of his trustees. He agreed and eventually several Special granting them such a big loan. Power Merge at the time was not in good
Power of Attorneys were then prepared by Wincop for Ng Wee. Ng Wee’s standing (they had only been in existence for 2 years, they were thinly
investments were matched later on with Hottick Holdings Corporation and capitalized [aka konti lang yung capital nila], they hadn’t even secured the
a credit facility was granted to the latter, secured by several security permits and licenses necessary to conduct their business and in fact never
agreements, which included the Suretyship Agreement executed by Virata even engaged at all and they did not file any report with the SEC and
and Hottick. Wincorp also did not ask for additional security for their loans beyond the
promissory notes).
Afterwards, Hottick then defaulted in their payments so Wincorp filed a suit
for collection, but Virata was not impleaded because he offered to pay the The court also said that Wincorp should have been cautious considering
full amount of the loan. Alarmed, Ng Wee confronted Wincorp about that Virata, who had secured Hottick’s obligation, did not even pay the due
Hottick’s default but he was assured that the losses would be absorbed by amounts from the Hottick account. Whether or not the side agreements
the company and his investments would be matched and transferred with were decided by the board is of no moment considering that the
a new corporate borrower account. Ng wee’s investments were then circumstances show that the Wincorp directors impliedly ratified the side
matched with Power Merge who issued promissory notes in favor of agreements. Furthermore, the proceeds of Power Merge’s credit line were
Wincorp after they made several drawdowns from their credit line released to them before any agreements could have been signed, which
agreement. Wincorp then issued confirmation advices to Ng Wee and shows that Wincorp really did not intend for Power Merge to be strictly
other trustees and investors, but Wincorp also entered into a Side bound by the terms of their credit facility, prejudicing Ng Wee.
Agreement with Power Merge, absolving them of liability with regards to
the promissory notes. The side agreements prevented Ng Wee from CLV SYLLABUS: The Board of Directors is expected to be more than a
collecting Power Merge’s obligations under the confirmation advices, so he mere rubber stamp of the corporation and its subordinate departments. It
filed a complaint against Virata, Power Merge, Wincorp and other wields all corporate powers bestowed by the Corporation Code, including
defendants. the control over its properties and the conduct of its business. Being
stewards of the company, the Board is primarily charged with protecting
ISSUE: Are the board of directors personally liable to Ng Wee for the the corporate property and assets on behalf of its stakeholders. Although it
investment he placed with Power Merge through Wincorp? YES cannot be shown that the two directors approving the credit line where
unaware of the fraudulent intent for such transactions, nevertheless they
RULING: The Court discussed the liability of directors, trustees or officers were still liable for the defrauded investors for gross negligence in
of a corporation. According to section 31 of the RCC, if these officers managing the affairs of the company in not exercising more
willfully and knowingly vote or assent to patently unlawful acts or they act circumspection based on the facts already known to them that resulted to
with bad faith or with gross negligence, or acquire any personal or the prejudice of its clients and stakeholders. Neither can the business
pecuniary interest in conflict with their duty as officers, they become liable judgment rule apply herein for it is elementary in Corporation Law that the
jointly and severally for all damages resulting from their actions and doctrine admits of exception: bad faith being one of them, gross
suffered by their stockholders, members, or other persons. If an officer negligence, another.
acquires or attempts to acquire any adverse interest to the corporation in a
mater entrusted to him, he becomes liable to the corporation and has to
295 | TKP 2025

DUTY/OBLIGATIONS TO CREDITORS AND OTHER STAKEHOLDERS business, are duty-bound to make reasonable and proper periodic
Manila Electronic Co. v. Nordec Philippines, 861 SCRA 515 (2018) inspections of their equipment. If they are remiss in carrying out this duty
due to their own negligence, they risk forfeiting the amounts owed by the
FACTS: Meralco had an agreement with Marvex where the former would customers affected. MERALCO has the imperative duty to make a
provide the former with electricity. Meralco installed metering devices in reasonable and proper inspection of its apparatus and equipment to
Marvex’s facilities for which Marvex was billed monthly. Upon several ensure that they do not malfunction, and the due diligence to discover and
inspections by Meralco inspectors, they found out that the main meter repair defects therein. Failure to perform such duties constitutes
terminals and cover seals were tampered with. Subsequently, Meralco negligence.
assessed Marvex a differential billing of around 500,000 covering 9
months. Meralco disconnected the electricity when Marvex failed to pay It has been held that notice of a defect need not be direct and express; it is
despite repeated demands. enough that the same had existed for such a length of time that it is
reasonable to presume that it had been detected, and the presence of a
Later, Nordec, as the new owner of Marvex, sued Meralco for damages, conspicuous defect which has existed for a considerable length of time will
claiming that the inspectors conducted the inspection without consent and create a presumption of constructive notice thereof. Hence, MERALCO's
approval. Further, the inspectors gave an unnamed Nordec employee an failure to discover the defect, if any, considering the length of time,
order which did not mention the defects. Nordec claimed that the parties amounts to inexcusable negligence. Furthermore, we need not belabor
exchanged letters on an alleged unregistered electric bill, and that it the point that as a public utility, MERALCO has the obligation to
requested a recomputation, which Meralco denied. The subsequent discharge its functions with utmost care and diligence. Being a
disconnection resulted in loss of income and opportunities. Meralco public utility vested with vital public interest, MERALCO is impressed
argued that it repeatedly warned Nordec of impending disconnection. with certain obligations towards its customers and any omission on
its part to perform such duties would be prejudicial to its interest.
The RTC initially ruled in favor of Nordec, directing Meralco to restore their
connection. However, Nordec failed to prove that the inspectors falsified Here, as observed by the CA, Meralco itself claimed that the irregularities
their findings or that they were responsible for the tampering. The RTC in the electricity consumption recorded in Nordec's metering devices
also said that there was no contractual relationship between Meralco and covered January 18, 1985 to May 29, 1985. However, the alleged
Nordec because the contract was between Meralco and Marvex. tampering was only discovered during the May 29, 1985 inspection.
Considering that Nordec's meters were read monthly, Meralco's belated
The CA ruled that there was indeed a contractual relationship between discovery of the cause of the alleged irregularities, or four months after
Meralco and Nordec, and that Meralco was negligent for only discovering they purportedly started, can only lead to a conclusion of negligence.
the tampering four months after it first noticed irregularities. Meralco also Notice of a defect may be constructive when it has conspicuously existed
failed to give a 48-hour disconnection notice. for a considerable length of time. It is also worth noting that during a third
inspection on November 23, 1987, further irregularities in Nordec's
ISSUE: Was Meralco negligent when it disconnected Nordec’s power metering devices were observed, showing electricity consumption even
supply? - YES when Nordec's entire power supply equipment was switched off. Clearly,
Meralco had been remiss in its duty as required by law and
RULING: jurisprudence of a public utility.
It is well-settled that electricity distribution utilities, which rely on CLV OUTLINE: It is well-settled that electricity distribution utilities, which
mechanical devices and equipment for the orderly undertaking of their rely on mechanical devices and equipment for the orderly undertaking of
296 | TKP 2025

their business, are duty-bound to make reasonable and proper periodic

inspections of their equipment. If they are remiss in carrying out this duty
due to their own negligence, they risk forfeiting the amounts owed by the
customers affected. It must be emphasized that electricity is “a basic
necessity whose generation and distribution is imbued with public interest,
and its provider is a public utility subject to strict regulation by the State in
the exercise of police power;” it is a business vested with public interests.
The serious consequences on a consumer, whose electric supply has
been cut off, behoove a distribution utility to strictly comply with the legal
requisites before disconnection may be done. This is true considering
Meralco’s dominant position in the market compared to its customers'
weak bargaining position.
NOTE: SC deleted the award of moral damages, since corporations

cannot experience physical suffering nor mental anguish.
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BNI-US for the latter to settle its obligations under the Service Agreement
Bitmicro Networks, Inc. v. Cunanan, G.R. No. 224189, 06 December which BNI-US did not pay in full.
2021
Sante then filed a complaint for tortious interference and
FACTS:
quasi-delict with prayer for injunctive relief against Bruce, Cunanan, Ong
Petitioner Bitmicro Networks International Inc (BNII-PH) was contending that they have caused BNII-PH to violate its Service
incorporated by Rey Bruce (Bruce) and others in 2003. BNII-US owns Agreement with BNI-US.
100% of the shares of stocks of BNII-PH with its officers/directors only
owning nominal shares. BNII-PH and BNII-US entered into a Service Cunanan alleged in his motion to dismiss that an intra-corporate
Agreement which provided that all proprietary information developed and dispute is pending, concerning BNII-US and Uriarte and given such
produced by BNII-PH is exclusively owned by BNII-US.
pendency of this earlier filed intra-corporate case, Sante cannot institute
the complaint for BNII-PH. He also pointed out that Sante cannot claim an
Bruce and other individuals (the Bruce Group) were eventually
existing right to represent BNII-PH since their representation has yet to be
appointed as BNII-Ph’s directors. However, the BoD of BNII-US authorized
resolved in the intra-corporate case.
the removal of BNII-PH’s entire BoD and executive officers. Bruce, as
BNII-PH’s President, then sent a memorandum to its employees ordering
RTC denied the motion to dismiss on the basis that the case is
them not to disclose any proprietary information to outsiders given the
civil in character, not an intra-corporate controversy but the CA reversed
possibility of criminal prosecution and monetary damages.
this, ruling that the complaint originated from the power struggle between
the Bruce Group and Sante Group, hence an intra-corporate case.
Eventually, Bruce appointed Gilberto Cunanan as
Officer-In-Charge of BNII-PH. Jermyn Ong, who was BNII-PH’s IT Director
ISSUE:
resigned. Subsequently, BNI-US allegedly removed the members of the
Bruce Group as directors and officers of the BNII-PH. W/N the complaint involves an intra-corporate controversy which
BNII-PH allegedly held a Special Shareholders’ Meeting wherein new falls under the jurisdiction of the RTC acting as a special commercial
persons were elected as members of its BoD. Meanwhile, BNI-US court? — NO.
allegedly informed Cunanan that it will send Uriarte and Sante as the new
officers of BNII-PH to discharge their duties but Uriarte and Sante were not RATIO:
given full access to BNII-PH’s office. Ong also did not give them financial
The court adopted the “relationship test” and the “nature of the
and technical information they were asking for.
controversy test” to determine whether an intra-corporate dispute exists. A
careful scrutiny of petitioners’ allegations in the complaint shows that what
Cunanan demanded the BNI-US’s BoD to comply with its
is involved is a purely civil dispute.
obligations pursuant to their Service Agreement while BNII-PH instituted a
complaint against the Sante Group to nullify the Joint Special
According to the “relationship test”, there is an intra-corporate
Shareholders’ and BoD’s meeting. He also sent a final demand letter to
controversy when the conflict is: 1) between the corporation, partnership or
298 | TKP 2025

association and the public, 2) between the corporation, partnership, or CLV OUTLINE: In Bitmicro Networks, Inc. v. Cunanan, G.R. No.
association and the State insofar as its franchise, permit or license to 224189, 06 December 2021, the Supreme Court did not agree to include
operate is concerned, 3) between the corporation, partnership or the stakeholders within the intra-corporate relationship to determine the
jurisdiction of RTC Special Commercial Courts.
association and its stockholders, partners, members or officers, and 4)
among the stockholders, partners or associates themselves.
Under the “nature of the controversy” test, the dispute must not
only be rooted in the existence of an intra-corporate relationship but also
must refer to the enforcement of the parties’ correlative rights and
obligations under the Corp. Code as well as the internal and
intra-corporate regulatory rules of the corporation.
In this case, there is no intra-corporate relationship between the

parties. Ong and Cunanan were third parties when Bruce devised the
disruption of BNII-PH’s operations and prevented the management of the
Sarte group. The complaint contains no allegation that respondents are
stockholders of BNII-PH. Cunanan was merely identified as an
Officer-in-Charge appointed by Bruce. There was also no allegation that
Ong and Cunanan acted in their capacity as stockholders in depriving
petitioners access to BNII-PH’s office and IT system.
Even assuming there is compliance with the relationship test, the

case still fails to pass the “nature of the controversy test” since there is still
no intra-corporate dispute or relationship involved.
Additionally, nowhere in the complaint did petitioners ask for a

determination of the parties’ rights under the Corporation Code, its Articles
of Incorporation or its By-Laws. As the suit between the petitioners and
respondents neither arises from an intra-corporate relationship nor does it
refer to the enforcement of rights and obligations under the Corporation
Code, RTC’s jurisdiction will only be limited to the determination of
whether respondents are guilty of tortious interference, which can be
resolved without dealing with the election of the new BoD of BNII-PH.
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Heirs of Fe Tan Uy v. Int’l Exchange Bank, 690 SCRA 519 (2013) confuse legitimate issues.
Solidariliy liability will then attach to the directors, officers, or
FACTS: employees of the corporation in certain circumstances, such as:
International Exchange Bank (iBank), granted loans to Hammer
Garments Corporation. These were made pursuant to the 1. When directors and trustees or, in appropriate cases, the officers
Letter-Agreement between iBank and Hammer, represented by its of a corporation: (a) vote for or assent to patently unlawful acts of
President and General Manager, Manuel Chua, granting Hammer a P25M the corporation; (b) act in bad faith or with gross negligence in
Omnibus Line. The loans were secured by a real estate mortgage by directing the corporate affairs; and (c) are guilty of conflict of
Goldkey Development Corporation over several of its properties and a interest to the prejudice of the corporation, its stockholders or
P25M Surety Agreement signed by Chua and his wife, Fe Tan Uy. members, and other persons;
Hammer defaulted in the payment of its loans, prompting iBank to 2. When a director or officer has consented to the issuance of
foreclose on Goldkey’s third-party Real Estate Mortgage. The mortgaged watered stocks or who, having knowledge thereof, did not
properties were sold but there was still a deficiency. For failure of Hammer forthwith file with the corporate secretary his written objection
to pay the deficiency, iBank filed a complaint for a sum of money against thereto;
Hammer, Chua, Uy, and Goldkey. 3. When a director, trustee or officer has contractually agreed or
The RTC ruled that the signature of Uy on the Surety Agreement stipulated to hold himself personally and solidarily liable with the
was a forgery but it still held Uy liable for the outstanding obligation of corporation; or
Hammer because she was an officer and stockholder of the corporation. 4. When a director, trustee or officer is made, by specific provision of
The CA affirmed the RTC decision. law, personally liable for his corporate action.
The heirs of Uy argue that the latter could not be held liable for
being merely an officer of Hammer and Goldkey because it was not shown Before a director or officer of a corporation can be held personally liable
that she had committed any actionable wrong or that she had participated for corporate obligations, however, the following requisites must concur:
in the transaction between Hammer and iBank.
1. The complainant must allege in the complaint that the director or
ISSUE: officer assented to patently unlawful acts of the corporation, or that
Whether Uy can be held liable to iBank for the loan obligation of Hammer the officer was guilty of gross negligence or bad faith; and
as an officer and stockholder of the said corporation? NO 2. The complainant must clearly and convincingly prove such
unlawful acts, negligence, or bad faith.
RULING:
A corporation is a juridical entity which is vested with a legal In this case, petitioners are correct to argue that it was not alleged,
personality separate and distinct from those acting for and on its behalf much less proven, that Uy committed an act as an officer of Hammer that
and, in general, from the people comprising it. Following this principle, would permit the piercing of the corporate veil. The complaint simply
obligations incurred by the corporation, acting through its directors, stated that Uy, together with Chua, acted as surety of Hammer evidenced
officers, and employees, are its sole liabilities. A director, officer or by her signature on the Surety Agreement which was found by the RTC as
employee of a corporation is generally not held personally liable for a forgery. In the absence of any of the aforementioned requisites for
obligations incurred by the corporation. making a corporate officer, director, or stockholder personally liable for the
Nevertheless, this legal fiction may be disregarded if it is used as obligation of a corporation, Uy, as a treasurer and stockholder of Hammer,
a means to perpetrate fraud or an illegal act, or as a vehicle for the cannot be made to answer for the unpaid debts of the corporation.
evasion of an existing obligation, the circumvention of statutes, or to
300 | TKP 2025

CLV Syllabus:
GENERAL RULE: Corporate Officers Not Liable for Corporate Debts:
Since a corporation has a separate juridical personality from its directors
and officers, the obligations incurred as a result of the directors’ and
officers’ acts are not their personal liability but the direct responsibility of
the corporation they represent. ✔Heirs of Fe Tan Uy v. Int’l Exchange
Bank, 690 SCRA 519 (2013).
301 | TKP 2025

Price v. Innodata Phils., Inc., 567 SCRA 269 (2008) they entered into the contracts unknowingly and involuntarily, nor did
Innodata force them into signing the contract.
FACTS:
Innodata is a company that deals with data encoding and data ISSUE: Whether the HR manager and Project Manager are liable for the
conversion. They hired Price and others as formatters. Under the illegal dismissal of Price? - NO
employment contract, Price was hired for a fixed period of 1 year, which
would end on Feb. 16, 2000. On Feb. 16, 2000, the HR Manager, Leo RULING:
Rabang, informed them of their last day of work due to the end of their There were no valid fixed-term contracts and the petitioners were
contract. regular employees of Innodata who could not be dismissed except for just
or authorized cause. The employment status of a person is defined and
Price filed a complaint for illegal dismissal and damages against prescribed by law, and not by what the parties say it should be.
Innodata. They were alleging that they should be considered regular
employees since their positions as formatters were necessary and It is apparent that the period was imposed to preclude the
desirable to the usual business of Innodata. They also claimed that they acquisition of tenurial security by the employee, then it should be struck
should not be considered project employees since their employment was down as being contrary to law, morals, good customs, public order and
not coterminous with any project or undertaking. public policy. After considering petitioners’ contracts in their entirety, as
well as the circumstances surrounding petitioners’ employment at
Innodata argued that almost half of the employees were engaged Innodata, the Court is convinced that the terms fixed therein were meant
in data encoding. Due to the wide range of services rendered to its clients, only to circumvent petitioners’ right to security of tenure and are, therefore,
it was constrained to hire new employees for a fixed period of not more invalid.
than 1 year. They also argued that Price was not illegally dismissed since
their employment was merely terminated. They further stated that Price is Unless they have exceeded their authority, corporate officers are,
estopped from claiming a position contrary to the contracts which they as a general rule, not personally liable for their official acts, because a
signed knowingly, voluntarily, and willfully. corporation, by legal fiction, has a personality separate and distinct from its
officers, stockholders and members. Although as an exception, corporate
The Labor Arbiter ruled in favor of Price. They affirmed that their directors and officers are solidarily held liable with the corporation, where
jobs were necessary, desirable, and indispensable to the data processing terminations of employment are done with malice or in bad faith. In the
and encoding business of Innodata. They also ruled that they were entitled absence of evidence that they acted with malice or bad faith herein, the
to security of tenure and should only be terminated for just or authorized Court exempts the individual respondents, Leo Rabang and Jane
cause. Navarette, from any personal liability for the illegal dismissal of petitioners.
The NLRC reversed the Labor Arbiter’s decision, claiming that CLV OUTLINE: Unless they have exceeded their authority, corporate
Price and others were not regular employees, but fixed-term employees. officers are not personally liable for their official acts, because a
The determining factor of such a contract is not the duty of the employee, corporation, by legal fiction, has a personality separate and distinct from its
but the day certain agreed upon by the parties for the commencement and officers, shareholders and members.
termination of the employment relationship. Price entered into the contract
freely. Thus, there could be no illegal dismissal.
The CA sustained the NLRC’s ruling. There was no showing that
302 | TKP 2025

Tramat Mercantile, Inc. v. CA, 238 SCRA 14 (1994) acting for and on its behalf, that properly could be made liable thereon.
FACTS: Personal liability of a corporate director, trustee or officer along

(although not necessarily) with the corporation may so validly attach,
On 09 April 1984, Melchor de la Cuesta, doing business under the name as a rule, only when:
and style of "Farmers Machineries," sold to Tramat Mercantile, Inc. one (1) (SEC 30, RCC)
unit HINOMOTO TRACTOR Model MB 1100D powered by a 13 H.P. diesel 1) He assents: (a) to a patently unlawful act of the corporation,
engine. In payment, David Ong, Tramat's president and manager, or (b) for bad faith, or gross negligence in directing its affairs,
issued a check for P33,500.00 (apparently replacing an earlier postdated or (c) for conflict of interest, resulting in damages to the corporation, its
check for P33,080.00). Tramat, in turn, sold the tractor, together with an stockholders or other persons;
attached lawn mower fabricated by it, to the Metropolitan Waterworks and (SEC 64, RCC)
Sewerage System ("NAWASA") for P67,000.00. 2) He consents to the issuance of watered stocks or who, having
knowledge thereof, does not forthwith file with the corporate secretary his
David Ong caused a "stop payment" of the check when NAWASA refused written objection thereto;
to pay the tractor and lawn mower after discovering that, aside from (JURISPRUDENCE)
some stated defects of the attached lawn mower, the engine (sold by de 3) He agrees to hold himself personally and solidarily liable with the
la Cuesta) was a reconditioned unit. corporation;
or 4) He is made, by a specific provision of law, to personally answer for
On 28 May 1985, de la Cuesta filed an action for the recovery of his corporate action.
P33,500.00, as well as attorney's fees of P10,000.00, and the costs of suit.
Ong, in his answer, averred, among other things, that de la Cuesta In the case at bench, there is no indication that petitioner David Ong
had no cause of action; that the questioned transaction was between could be held personally accountable under any of the above
plaintiff and Tramat Mercantile, Inc., and not with Ong in his personal mentioned cases.
capacity; and that the payment of the check was stopped because the
subject tractor had been priced as a brand new, not as a reconditioned CLV OUTLINE:
unit. The RTC granted this and asked the above mentioned to pay jointly
and severally. The CA said the same. Officers are personally liable in limited instances. This is a breach of
duty of diligence.
ISSUE:
Whether Ong is solidarily liable as officer or President/corp officer? *Sorry I highlighted and edited lol recited this case - Alexa*
NO.
RULING:
Since it was, nevertheless, an error to hold David Ong jointly and severally
liable with TRAMAT to de la Cuesta under the questioned transaction.
Ong had therefore acted, not in his personal capacity, but as an
officer of a corporation, TRAMAT, with a distinct and separate
personality. As such, it should only be the corporation, not the person
303 | TKP 2025

or officer assented to patently unlawful acts of the corporation, or

19. Mactan Rock Industries v. Germo, 850 SCRA 532 (2018) that the officer was guilty of gross negligence or bad faith; and,
Topic: Breach of Duty of Diligence – Requisites to Hold Directors/Trustees (2) the complainant must clearly and convincingly prove such
CLV Outline: 🙂
or Officers Personally Liable unlawful acts, negligence or bad faith.
In this case, Tompar's assent to patently unlawful acts of the MRII or that
FACTS: his acts were tainted by gross negligence or bad faith was not alleged in
This case stemmed from a Complaint for sum of money and damages filed Germo's complaint, much less proven in the course of trial. Therefore, the
by Germo against MRII – a domestic corporation engaged in supplying deletion of Tompar's solidary liability with MRII is in order.
water, selling industrial maintenance chemicals, and water treatment and
chemical cleaning services– and its President/Chief Executive Officer
(CEO), Tompar.
MRII allegedly never paid Germo his rightful commissions amounting to

P2,225,969.56 as of December 2009, inclusive of interest. Hence, Germo
filed the instant complaint praying that MRII and Tompar be made to pay
him the amounts of P2,225,969.56 as unpaid commissions with legal
interest from the time they were due until fully paid, P1,000,000.00 as
moral damages, P1,000,000.00 as exemplary damages, and the costs of
suit.
ISSUE: Whether or not Tompar, MRII’s president, should be held solidarily

liable with MRII
RULING: No. Be that as it may, the Court finds that the courts a quo erred
in concluding that Tompar, in his capacity as then-President/CEO of MRII,
should be held solidarily liable with MRII for the latter's obligations to
Germo. It is a basic rule that a corporation is a juridical entity which is
vested with legal and personality separate and distinct from those acting
for and in behalf of, and from the people comprising it. As a general rule,
directors, officers, or employees of a corporation cannot be held personally
liable for the obligations incurred by the corporation, unless it can be
shown that such director/officer/employee is guilty of negligence or bad
faith, and that the same was clearly and convincingly proven.
Thus, before a director or officer of a corporation can be held personally

liable for corporate obligations, the following requisites must concur:
(1) the complainant must allege in the complaint that the director
304 | TKP 2025

Magaling v. Ong, 562 SCRA 152 (2008) On 7 October 1998, acting on Ongs prayer for the issuance of a writ of
preliminary attachment grounded on the allegation that Spouses Magaling
FACTS: were guilty of fraud in contracting the obligation subject of the complaint
On or about December 1994, defendant Reynaldo Magaling, approached for sum of money; and finding the same to be impressed with merit, the
plaintiff in his store at Lipa City and induced him to lend him money and/or RTC issued an Order directing the issuance of the writ prayed for upon
his company Termo Loans and Credit Corp. with undertaking to pay the filing of a bond in the amount of P390,000.00.
interest at the rate of two and a half (2 %) percent per month. Defendant
gave assurance that he and his company Termo Loans and Credit Corp. ISSUE: Whether or not Reynaldo Magaling should be held personally
will be able to pay the loan. Without the assurance plaintiff would not have responsible for the debts of Termo Loans. YES
lent the money.
RULING:
Based on the assurance and representation of Reynaldo Magaling, Peter
Ong extended the loan to defendants. As of September 1997, the principal 1. It is basic that a corporation is a juridical entity with legal
loan extended to defendants stands at P350,000.00. The interest thereon personality separate and distinct from those acting for and in its
computed at 2 % per month is P8,750.00 per month. behalf and, in general, from the people comprising it. The general
rule is that obligations incurred by the corporation, acting through
Despite demands, oral and written, defendants Sps. Reynaldo and Lucila its directors, officers and employees, are its sole liabilities, and
Magaling and/or Thermo Loans and Credit Corp. unjustifiably and illegally vice versa.
failed, refused and neglected and still fail, refuse and neglect to pay to the
prejudice and damage of plaintiff. As of June 30, 1998, defendant’s There are times, however, when solidary liabilities may be incurred
obligation stands at P389,043.96 inclusive of interest; It was alleged and the veil of corporate fiction may be pierced. Exceptional
further that Reynaldo Magaling, as President of Termo Loans, together circumstances warranting such disregard of a separate personality
with the corporation’s treasurer, a certain Mrs. L. Rosita, signed a are summarized as follows:
Promissory Note in favor of Ong for the amount of P300,000.00 plus a 1. When directors and trustees or, in appropriate case, the
monthly interest of 2.5%. officers of a corporation:
Because of the failure of Termo Loans to pay its outstanding obligation (a) vote for or assent to patently unlawful acts of
despite demand, Ong filed the above-mentioned complaint praying that the corporation;
Spouses Magaling and Termo Loans be ordered to pay, jointly and (b) act in bad faith or with gross negligence in
severally, the principal amount of P389,000.00, plus interest, attorneys directing the corporate affairs;
fees and costs of suit. In addition to the preceding entreaty, Ong asked for (c) are guilty of conflict of interest to the prejudice
the issuance of the writ of preliminary attachment pursuant to Section 1(d), of the corporation, its stockholders or members,
Rule 57 of the Rules of Court, as amended. and other persons;
2. When a director or officer has consented to the
issuance of watered down stocks or who, having
305 | TKP 2025

knowledge thereof, did not forthwith file with the corporate Loans. Likewise, bad faith does not arise just because a
secretary his written objection thereto; corporation fails to pay its obligations, because the inability to pay
3. When a director, trustee or officer has contractually ones obligation is not synonymous with fraudulent intent not to
agreed or stipulated to hold himself personally and honor the obligations.
solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific 5. The foregoing discussion notwithstanding, the Court still cannot
provision of law, personally liable for his corporate action. totally absolve Reynaldo Magaling from any liability considering
his gross negligence in directing the affairs of Termo Loans; thus,
2. In making the Spouses Magaling co-defendants of Termo Loans, he must be made personally liable for the debt of Termo Loans to
Ong alleged in his Complaint for Sum of Money filed with the RTC Ong.
that the spouses Reynaldo Magaling and Lucia Magaling were the
controlling stockholders and/or owners of Termo Loans, and that 6. In order to pierce the veil of corporate fiction, for reasons of
they had used the corporation to evade the payment of a valid negligence by the director, trustee or officer in the conduct of the
obligation. The appellate court eventually found the Spouses transactions of the corporation, such negligence must be gross.
Magaling equally liable with Termo Loans for the sum of money Gross negligence is one that is characterized by the want of even
sought to be collected by Ong. slight care, acting or omitting to act in a situation where there is a
duty to act, not inadvertently but willfully and intentionally with a
3. As explained above, to hold a director, a trustee or an officer conscious indifference to consequences insofar as other persons
personally liable for the debts of the corporation and, thus, pierce may be affected; and must be established by clear and convincing
the veil of corporate fiction, bad faith or gross negligence by the evidence. Parenthetically, gross or willful negligence could amount
director, trustee or officer in directing the corporate affairs must be to bad faith.
established clearly and convincingly. Bad faith is a question of fact
and is evidentiary. Bad faith does not connote bad judgment or CLV OUTLINE: “Bad faith” does not arise just because a corporation fails
negligence. It imports a dishonest purpose or some moral obliquity to pay its obligation, because the inability to pay one’s obligation is not
and conscious wrongdoing. It means breach of a known duty synonymous with fraudulent intent not to honor the obligations. To pierce
through some ill motive or interest. It partakes of the nature of the veil of corporate fiction, for reasons of negligence by the director,
fraud. trustee or officer in the conduct of the transactions of the corporation, such
negligence must be “gross”.
4. In the present case, there is nothing substantial on record to show
that Reynaldo Magaling, as President of Termo Loans, has,
indeed, acted in bad faith in inviting Ong to invest in Termo Loans
and/or in obtaining a loan from Ong for said corporation in order
to warrant his personal liability. From all indications, the proceeds
of the investment and/or loan were indeed utilized by Termo
306 | TKP 2025

Requisites to Hold Directors/Trustees or Officers Personally manager-administrator of the said establishment in favor of Ng as evidenced by
Liable- FRAUD the letter dated December 30, 1975 addressed to the latter; that Ng's appointment
as manager-administrator was terminated for violations of the terms and conditions
Paradise Sauna Massage Corp. v. Ng, 181 SCRA 719 (1990) of his appointment:
Facts: This case arose from the Paradise Sauna’s act of allegedly terminating Ng's 1. failure to pay water and electric bills
appointment as manager-administrator as a result of his alleged failure to comply 2. failure to pay the salaries of the employees of the petitioner
with the terms and conditions of his appointment. Ng filed a case for specific corporation
performance and damages against the Uy. The complaint was then amended to 3. failure to supply the provisions necessary for the conduct of the
one for breach of contract with damages with the same prayer for a writ of petitioners' sauna and massage business like lotion, towels and
preliminary injunction and attorney's fees. blankets
4. failure to perform efficiently as manager administrator of the
The complaint alleged that Paradise Sauna agreed to lease in favor of the private petitioner corporation by managing the Rajah Sauna Bath in Ermita,
respondent their business called "Paradise Sauna and Massage Corporation" and Manila simultaneously with his management of the petitioner
that they entered into a contract whereby the latter shall have full control and corporation and by inducing the petitioners' customers to patronize
management of the said business effective January 1976 until September 1979; the said Rajah Sauna Bath instead of the petitioner corporation.
that as lessee of the said business with full and sole control thereof.
The trial court ruled in favor of Ng, and such decision was affirmed by the Court of
Ng's principal obligation consists of only paying P8,000.00 not later than the first Appeals.
five (5) days of each month as rentals and remitting P16,000.00 as guarantee
bond; that as such lessee, Ng assumed control and management of Paradise Issue: Whether Uy, as President of Paradise Sauna, is personally liable to Ng
Sauna's business, hired and paid personnel to beef up its operations and tried for the contract? YES
religiously to comply with his obligations like paying for his account all government
licenses, permits, utilities and services; that Ng paid all the monthly rentals due the
petitioners until December 1976; that the petitioner refused to accept the rental for Ruling: In ruling that the subject contract is a lease contract and not a
January 1977 and asked the private respondent to vacate and leave the premises management contract, the Court adopted the findings of fact made by the
instead thereby terminating his services and forfeiting his guarantee bond of trial court and affirmed by the respondent court. The claim of the petitioners
sixteen thousand pesos (P16,000.00); that on January 16, 1977, the petitioners, that respondent Ng is their manager-administrator is untenable since it fails
assisted by Metrocom soldiers, entered the private respondent's office and through to pass the control test pertinent to the existence of an employer-employee
intimidations, forcibly ejected him from the premises, assumed full control and relationship. The control test asks whether the employer controls or has
supervision of the business and put another person in his place who immediately reserved the right to control the employee not only as to the result of the
took possession of all cash sales for the day; that the private respondent returned work but also as to the means and methods by which the said work is to be
to the business premises the following day but he was refused entry and there was accomplished. Such control by the petitioners over respondent Ng is
a notice to all the employees in front of the premises signed by the petitioners to lacking.
the effect that the private respondent's services had been terminated and that
another person had been appointed to take his place. Exhibit A is in the nature of a lease contract under Art. 1643 of the Civil Code
which states that in the lease of things, one of the parties binds himself to
In their answer, the petitioners alleged that the Paradise Sauna is the operator of give to another the enjoyment or use of a thing for a price certain, and for a
the sauna bath and massage establishment in question, that Uy was the former period which may be definite or indefinite. However, no lease for more than
manager and administrator of the said establishment which was then fully ninety-nine (99) years shall be valid.
equipped and staffed with more than thirty (30) personnel; that Paradise Sauna is
paying P4,000.00 as lease rentals for the premises occupied by it, that in his The Court held that the contract was a lease contract. The reasons given are:
capacity as President-Director, Uy relinquished his position as 1. The respondent paid the petitioners a fixed P8,000.00 monthly
307 | TKP 2025

even when the business suffers a loss. The P8,000.00 was paid
at the start of the month with no attention paid to operating
expenses, profits, and losses.
2. The monthly receipts received by the petitioners from Alejandro
Ng state that they were given for rentals from January to
October 1976. The receipts for November and December
substitute the word "commission" for "rental". The respondent
explained the change by stating that petitioner Uy changed the
receipt as he realized that subleasing the premises to Ng was a
violation of the contract with the owner and the latter might
discover the violation. The receipts were prepared by the
petitioners but signed in the presence of the respondent when
payment was made.
3. The respondent was responsible for all licenses, permits,
utilities and services, including the installation and repair of all
equipment such as airconditioning units. He had sole control
and management and did not report to anybody.
The CA, in holding petitioner Uy severally liable with the Paradise, departed
from the rule that a stockholder or officer of a corporation has a personality
distinct from the corporation, the Court concluded that the corporate entity
theory cannot apply in the instant case where it is being invoked as a cloak
or shield for illegality. There is proof obtained in the case at bar as to the real
nature of Exhibit A.
Being a party to a simulated contract of management, Uy cannot be

permitted to escape liability under the said contract by using the corporate
entity theory. This is one instance when the veil of corporate entity has to be
pierced to avoid injustice and inequity.
CLV Outline:
Fraud: An office who signs a fraudulent contract on behalf of the
corporation cannot claim the benefit of separate juridical entity: “Thus,
being a party to a simulated contract of management, petitioner Uy cannot
be permitted to escape liability under the said contract by using the
corporate entity theory. This is one instance when the veil of corporate
entity has to be pierced to avoid injustice and inequity.” ✔Paradise Sauna
Massage Corp. v. Ng, 181 SCRA 719 (1990).
308 | TKP 2025

Section 30 Does Not Encompass All “Breach of Duty of Diligence” remain unpaid to the present, to Suico’s damage and prejudice, may
Aratea v. Suico, 518 SCRA 501 (2007) Aratea and Canonigo, as SAMDECO’s controlling stockholders and/or
representatives, be nonetheless held personally and solidarily liable with
FACTS SAMDECO and its successors-in-interest for obligations the corporation
Petitioners Aratea and Canonigo are the controlling stockholders of Samar incurred under the facts herein obtaining? YES
Mining Development Corporation (SAMDECO). On the other hand, private
respondent Suico is a businessman engaged in export and general RULING
merchandise. Suico entered into a MOA with SAMDECO (represented by A corporation is a juridical entity with legal personality separate and
Aratea and Canonigo). Under the MOA, Suico would extend loans and distinct from those acting for and in its behalf and, in general, from the
cash advances to Samdeco. In exchange, SAMDECO would grant Suico people comprising it. The general rule is that obligations incurred by the
the following. corporation, acting through its directors, officers and employees, are its
1. the exclusive right to sell/ market of the 50% of the coal extracted sole liabilities. There are times, however, when solidary liabilities may be
by SAMDECO from its open pit mines in Samar2. incurred but only when exceptional circumstances warrant such as in the
2. Suico will be paid 5% interest per month on the loan/ cash following cases:
advances that he extends.
3. Suico was also given the right of first priority to operate the mining 1. When directors and trustees or, in appropriate cases, the officers of a
facilities in the event SAMDECO becomes incapable of coping corporation: [Section 30, RCC]
with the work demands. 1. vote for or assent to patently unlawful acts of the corporation;
2. act in bad faith or with gross negligence in directing the
He was also appointed as VP for Admin of Samdeco. Pursuant to the corporate affairs;
MOA, Suico started lending money to SAMDECO. Suico also started 3. are guilty of conflict of interest to the prejudice of the corporation,
selling the 50% of the coal. However he was never able to close a sale its stockholders or members, and other persons;
since all the offers from the clients he brought in were allegedly “too low”
for Aratea and Canonigo, despite being “competitive” and fair enough. 2. When a director or officer has consented to the issuance of watered
stocks or who, having knowledge thereof, did not forthwith file with the
In addition, SAMDECO never paid the loan principal and the 5% monthly corporate secretary his written objection thereto; [Section 64, RCC]
interest rate it promised. On the other hand, SAMDECO was able to sell
the other 50% share of the coal-produce. 3. When a director, trustee or officer has contractually agreed or stipulated
to hold himself personally and solidarily liable with the corporation; or
Aratea and Canonigo eventually sold the mining rights and passed on the
operations of SAMDECO to Southeast Pacific Marketing, Inc. (SPMI) 4. When a director, trustee or officer is made, by specific provision of law,
(owned by Dy) without notice to/ consent from Suico. Hence Suico filed a personally liable for his corporate action.
complaint for a Sum of Money and damages. RTC found Aratea and
Canonigo solidarily liable with SAMDECO and SPMI. Petitioners Aratea and Canonigo, despite having separate and distinct
personalities from SAMDECO may be held personally liable for the loans
ISSUE and advances made by Suico to SAMDECO which they represent on
Considering that the veil of corporate fiction cannot be pierced in this case account of their bad faith in carrying out the business of the
but the evidence indisputably established that Suico released loans and corporation.
cash advances in favor of SAMDECO, which loans and cash advances
309 | TKP 2025

Petitioners Aratea and Canonigo acted in bad faith when they, as officers
of SAMDECO, unreasonably prevented Suico from selling his part of the
coal-produce of the mining site, in gross violation of their MOA. This
resulted in Suico not being unable to realize profits from his 50% share of
the coal-produce, from which Suico could obtain part of the payment for
the loans and advances he made in favor of SAMDECO. Moreover,
petitioners also acted in bad faith when they sold, transferred and
assigned their proprietary rights over the mining area in favor of SPMI and
Dy, thereby causing SAMDECO to grossly violate its MOA with Suico.
Suico suffered grave injustice because he was prevented from acquiring
the opportunity to obtain payment of his loans and cash advances, while
petitioners Aratea and Canonigo profited from the sale of their
shareholdings in SAMDECO in favor of SPMI and Dy. These facts duly
established Aratea and Canonigo’s personal liability as
officers/stockholders of SAMDECO and their solidary liability with
SAMDECO for its obligations in favor of Suico for the loans and cash
advances received by the corporation.
CLV Outline: Officers of a corporation may become liable for its loans
when they have breached their duty of diligence under what is now Sec.
30 of RCC. Aratea v. Suico, 518 SCRA 501 (2007).
310 | TKP 2025

negligence or bad faith in directing the affairs of their corporations. Thus:

Sanchez v. Republic, 603 SCRA 229 (2009)
Sec. 31. Liability of directors, trustees or officers. - Directors or
The complaint alleged that Kahn and petitioner Sanchez, as key ULFI trustees who willfully and knowingly vote for or assent to patently unlawful
(University of Life Foundation, Inc. (ULFI), private non-stock, non-profit acts of the corporation or who are guilty of gross negligence or bad faith in
corporation devoted to non-formal education) officers, were remiss in directing the affairs of the corporation or acquire any personal or pecuniary
safekeeping ULFI’s corporate incomes and in accounting for them. They interest in conflict with their duty as such directors or trustees shall be
neither placed the incomes derived from the Complex in ULFI deposit liable jointly and severally for all damages resulting therefrom suffered by
account nor submitted the required financial statements detailing their the corporation, its stockholders or members and other persons
transactions. The underlying theory of the case is that Kahn and Sanchez
operated ULFI as if it were their own property, handled the collections and The DECS does not have to invoke the doctrine of piercing the veil
spent the money as if it were their personal belongings. The DECS asked of corporate fiction. Section 31 above expressly lays down petitioner
the RTC to order Kahn and Sanchez personally to pay it the Sanchez and Kahn’s liability for damages arising from their gross
P22,559,215.14 in rents due from ULFI with legal interest, exemplary negligence or bad faith indirecting corporate affairs. The doctrine
damages of P1,000,000.00, attorney's fees of P500,000.00, and costs. mentioned, on the other hand, is an equitable remedy resorted to only
when the corporate fiction is used, among others, to defeat public
In his answer, petitioner Sanchez alleged that, being a mere officer of convenience, justify wrong, protect fraud or defend a crime.
ULFI, he cannot be made personally liable for its adjudged corporate
liability. He took exception to the complaint, characterizing it as an attempt Moreover, in a piercing case, the test is complete control or
to pierce the corporate veil that cloaked ULFI. Both Kahn and petitioner domination, not only of finances, but of policy and business practice in
Sanchez appealed to the Court of Appeals. The latter court gave due respect of the transaction attacked. This is not the case here. Section 31,
course to Sanchez appeal but denied that of Kahn since it was filed out of under which this case was brought,makes a corporate director who may or
time. On February 21, 2006 the Court of Appeals rendered judgment, may not even be a stockholder or member accountable for his
wholly affirming the trial court’s decision, hence, this petition. management of the affairs of the corporation.
ISSUE: Whether petitioner Sanchez, a director and chief executive officer

of ULFI, can be held liable in damages under Section31 of the Corporation CLV Syllabus:
Code for gross neglect or bad faith in directing the corporation’s affairs.
(5) Section 30 Does Not Encompass All “Breach of Duty of Diligence”
HELD:YES. Petitioner Sanchez claims that there is no ground for the
courts below to pierce the veil of corporate identity and hold him and Kahn, Holding an officer personally liable for gross negligence or bad faith in
who were mere corporate officers, personally liable for ULFIs obligations directing the corporate affairs does not amount to an application of
to the DECS. But this isn't a case of piercing the veil of corporate fiction. piercing doctrine, for such personal liability is imposed directly under what
The DECS brought its action against Sanchez and Kahn underSection 31 is now Sec. 30 of RCC to directors and officers who are guilty of violating
of the Corporation Code, which should not be confused with actions their duty of diligence. ✔Sanchez v. Republic, 603 SCRA 229 (2009).
intended to pierce the corporate fiction.
But See: ✔Virata v. Ng Wee, 830 SCRA 271 (2017).
Section 31 of the Corporation Code makes directors-officers of ✔Spouses Fernandez v. Smart Communications, Inc., 909 SCRA 293
corporations jointly and severally liable even to third parties for their gross (2019).
311 | TKP 2025

franchisee or assignee for all charges for the use of the SMART cellphone
Civil Liabilities of Directors, Trustees and Officers: Breach of Duty of units acquired by Everything Online, Inc.
Diligence Vis-à-vis Section 30: When Directors/Trustees or Officers
Personally Liable for Corporate Transactions SMART averred that after the execution of the EOL Undertaking, its credit
Spouses Fernandez v. Smart Communications, Inc., 909 SCRA 293 and collection department sent, by email, phone bills to EOL that had been
(2019) previously returned to SMART. These bills were for the collection of the
monthly payment due on the lines that were supposedly given to EOL's
FACTS: franchisees. However, EOL allegedly refused to receive the bills, stating
Everything Online, Inc. (EOL) is a corporation that offers internet services that it was not liable for the payment of bills of phone lines assigned to
nationwide through franchisees. Smart, on the other hand, is a mobile franchisees. EOL officers were also reminded that under the EOL
phone service provider. Petitioner Nolasco Fernandez was the CEO of Undertaking and the Letter Agreements, it is bound to pay the bills of the
EOL, while petitioner Maricris Fernandez was a Member of the Board of franchisees, whether the phones were in the possession of the franchisees
directors of EOL. or not
As alleged in the Amended Complaint, EOL sought SMART sometime in SMART failed to collect from EOL despite repeated demands. Thus, on an
2006 to provide the mobile communication requirements for its expansion. Amended Complaint with an application for a writ of preliminary
Series of meetings ensued between the parties where it was determined attachment was filed by SMART before the RTC for Collection of Sum of
that EOL would be needing approximately 2,000 post-paid lines with Money against EOL and all its directors and officers including the
corresponding cell phone units. 19 of these lines shall be under the Spouses Fernandez.
corporate account of EOL while the rest of the lines and phones shall be
distributed to EOL's franchisees. ln view of this, EOL's corporate president Spouses Fernandez filed a Motion to Dismiss With a Very Urgent Motion
Samaco III, signed on separate occasions, two Corporate Service to Lift and Discharge Writ of Preliminary Attachment issued against them.
Applications (SAF) for the 2,000 postpaid lines with corresponding cell Petitioners averred that they are not the real party in interest in the case.
phone units. He also signed Letters of Undertaking to cover for the 1,119 Maricris claimed that the only allegation holding the directors and officers
phone lines issued by SMART to EOL thus far. Paragraph 8 of these personally and solidarily liable with EOL was the alleged provisions in the
Letters of Undertaking read: The President and each one of the directors Letter Agreements and EOL Undertaking. The Letter Agreements and
and officers of the corporation shall be held solidarily liable in their EOL Undertaking failed to show that she expressly agreed to be bound by
personal capacity with the SUBSCRIBER for all charges for the use of the the provisions contained therein. Accordingly, the complaint against her
SMART Celfones (sic) units acquired by the said SUBSCRIBER. must be dismissed.
In addition to a Letter Agreement where SMART specified the terms of the With respect to Nolasco, he contended that he is not the real party in
agreement over the 1,119 phone lines it already issued in favor of EOL, interest in this case because he was no longer an Officer/Director of EOL
EOL executed an undertaking where it affirmed its availment of 1,119 at the time the complaint was filed as their entire share was already
SMART cell phones and services. Such EOL undertaking was signed by assigned to one of EOL's directors.
President Samaco III and Petitioner Nolasco. One of its provision provides
that: RTC issued an Order granting the motions to dismiss. During appeal, CA
found grave abuse on the part of the trial court in dismissing the complaint
The President and each one of the directors and officers of Everything against individual defendants. It ruled that there was overwhelming
Online, Inc. shall be held solidarily liable in their personal capacity with the evidence indicating that Samaco IIl and Spouses Fernandez expressly
312 | TKP 2025

bound themselves to be solidarily liable with EOL to SMART. MR denied; corporation was purposefully employed to evade a legitimate and binding
hence this petition. commitment and perpetuate a fraud or like wrongdoings."
A corporate director, trustee, or officer is to be held solidarily liable with the

ISSUE: corporation in the following instances:
Whether or not Maricris as director and Nolasco as corporate officer can 1. When directors and trustees or, in appropriate cases, the officers
be held solidarily liable with EOL? Maricris is not solidarily liable while of a corporation:
Nolasco is. ● (a) vote for or assent to patently unlawful acts of the
corporation;
RULING: ● (b) act in bad faith or with gross negligence in directing the
It is basic in corporation law that a corporation is an artificial being corporate affairs;
invested by law with a personality separate and distinct from its ● (c) are guilty of conflict of interest to the prejudice of the
stockholders and from other corporations to which it may be connected. corporation, its stockholders or members, and other
Inferred from a corporation's separate personality is that "consent by a persons;
corporation through its representatives is not consent of the 2. When a director or officer has consented to the issuance of
representative, personally." The corporate obligations, incurred through watered stocks or who, having knowledge thereof, did not file with
official acts of its representatives, are its own. Corollarily, a stockholder, the corporate secretary his written objection thereto;
director, or representative does not become a party to a contract just 3. When a director, trustee or officer has contractually agreed or
because a corporation executed a contract through that stockholder, stipulated to hold himself personally and solidarily liable with the
director, or representative. Corporation; or
4. When a director, trustee or officer is made, by specific provision of
As a general rule, a corporation's representatives are not bound by the law, personally liable for his corporate action.
terms of the contract executed by the corporation. "They are not
personally liable for obligations and liabilities incurred on or in behalf of the These instances have not been shown in the case of Maricris. While the
corporation. " There are instances, however, when the distinction between Amended Complaint alleged that EOL fraudulently refused to pay the
personalities of directors, officers, and representatives, and of the amount due, nothing in the said pleading or its annexes would show the
corporation, are disregarded. This is piercing the veil of corporate fiction. basis of Maricris' alleged fraudulent act that warrants piercing the
corporate veil. No explanation or narration of facts was presented pointing
The doctrine of piercing the veil of corporate fiction is a legal precept that to the circumstances constituting fraud which must be stated with
allows a corporation's separate personality to be disregarded under certain particularity, thus rendering the allegation of fraud simply an unfounded
circumstances, so that a corporation and its stockholders or members, or a conclusion of law. Hence, The trial court correctly dismissed the complaint
corporation and another related corporation could be treated as a single against Maricris on the ground of failure to state cause of action.
entity. It is meant to apply only in situations where the separate corporate
personality of a corporation is being abused or being used for wrongful This is not the case with petitioner Nolasco. Nolasco, as CEO, he signed
purposes. the EOL Undertaking purportedly binding himself to be "held solidarily
liable in his personal capacity with the franchisee or assignee for all
The piercing of the corporate veil must be done with caution. To justify the charges for the use of SMART cell phone units acquired by Everything
piercing of the veil of corporate fiction, "it must be shown by clear and Online, Inc.". Verily, the trial court erred in dismissing the complaint against
convincing proof that the separate: and distinct personality of the petitioner Nolasco.
313 | TKP 2025

CLV OUTLINE:
Section 30 Does Not Encompass All “Breach of Duty of Diligence”
Officers of a corporation may become liable for its loans when they have
breached their duty of diligence under what is now Sec. 30 of RCC.
✔Aratea v. Suico, 518 SCRA 501 (2007).
Holding an officer personally liable for gross negligence or bad faith in

directing the corporate affairs does not amount to an application of
piercing doctrine, for such personal liability is imposed directly under what
is now Sec. 30 of RCC to directors and officers who are guilty of violating
their duty of diligence. ✔Sanchez v. Republic, 603 SCRA 229 (2009).
BUT SEE: ✔Virata v. Ng Wee, 830 SCRA 271 (2017).
✔Spouses Fernandez v. Smart Communications, Inc., 909 SCRA 293
(2019).
314 | TKP 2025

when they exceeded the scope of their authority, which was absent in this
Civil Liabilities of Directors, Trustees and Officers: Jurisprudence in case and the parties were not given the chance to be heard.
Labor Law
26. A.C. Ransom Labor Union-CCLU v. NLRC, 142 SCRA 269 (1986)
ISSUE: Is the judgment against a corporation to reinstate its dismissed
FACTS: employees with backwages, enforceable against its officers and agents, in
Ransom is a family corporation with the Harnandez family as the their individual private and personal capacities, who were not parties in the
stockholders of the said corporation. The employees went on a strike but case where the judgment was rendered? YES.
most of them later were allowed to resume their work by Ransom, except
for 22 strikers who were refused reinstatement by Ransom. The strike later RULING:
became the subject of the cases before the Court of Industrial Relations Ransom, being an artificial person, must have an officer who an
and ordered Ransom “its officers and agents,” to reinstate the 22 strikers be presumed to be the employer, being the person acting in the interest of
with back wages. the Ransom because the Corporation is an employer in the technical
sense. The responsible officer of a corporation can be held personally
The Ministry of Labor and Employment later granted Ransom’s liable for non-payment of back wages.
application to close or cease the operations. But the same was without
prejudice to the right of the employees who seek redress of grievance, if Article 212(c) of the Labor Code states that an employee includes
there is any. Despite its stopped operations, Ransom continued its any person acting in the interest of an employer, directly or indirectly, but it
personality as a corporation and the reinstatement of the 22 strikers has does not include labor organization or any of its officers agents EXCEPT
been precluded and its back wages were also computed. when acting as employer.
10 motions for execution against Ransom was made but the same The record did not clearly identify the officers of the officers of
were not implemented due to the failure to find leviable assets. But this Ransom who are directly responsible for the failure to pay the back wages.
case is related to the last motion for execution, filed by the petitioner Union Thus, the court believes that the responsible officers is the President of the
who prayed that the officers and agents of Ransom be held personally Corporation who can also be deemed the Chief Operating Officer. Since
liable for the back wages. The Labor Arbiter actually granted the prayer the non-payment of the back wages has been a continuing issue, the
and expressly authorized the issuance of the writ of execution against personality liability of the President should be continuing joint nad several
Ransom and seven officers and directors of Ransom, the respondents. personal liabilities of all who may succeed to the office of President.
Otherwise the strikers may be deprived of their rights by the election of a
Ransom then filed an appeal assailing the liabilities of the president without leviable assets.
respondents in their personal capacities when they were not the parties
when the case was rendered. To which the NLRC contended that, officers CLV OUTLINE: Under Art. 283 of the Labor Code, since a corporate
employer is an artificial person, it must have an officer who can be
of a corporation can pny be held personally liable for the official acts only
presumed to be the employer, “acting in the interest of (the) employer” and
therefore the highest officer becomes personally liable for labor claims.
315 | TKP 2025

27. SEC Memorandum Circular No. 25-2020 (Guidelines in the Filing,

Investigation and Resolution of Complaints for Violation of the Right
to Inspect and Reproduce Corporate Records)
https://www.sec.gov.ph/mc-2020/mc-no-25-s-2020/#gsc.tab=0
316 | TKP 2025

under Philippine laws.
Home Insurance Co. v. Eastern Shipping Lines, 123 SCRA 424 (1983)
FACTS: Two consolidated cases: it is, therefore, not necessary to declare the contract nun and void even as
against the erring foreign corporation. The penal sanction for the violation
Case 1: S Kajita & Co., on behalf of Atlas Consolidated Mining, shipped on and the denial of access to our courts and administrative bodies are
board a vessel from Osaka, Japan, 2,000 plus pieces of rolled copper sufficient from the viewpoint of legislative policy.
coils. The vessel is owned by Eastern Shipping Lines. The shipment was
insured with Home Insurance Co, against all risks in the amount of P1.5 Our ruling that the lack of capacity at the time of the execution of the
million in favor of the consignee, Phelps Dodge. Some of the coils arrived contracts was cured by the subsequent registration is also
with defects, so Home Insurance paid Phelps Dodge. The former strengthened by the procedural aspects of these cases.
demanded payment from Eastern Shipping Lines but the latter refused.
The petitioner averred in its complaints that it is a foreign insurance
Case 2: Similar to Case 1: Home Insurance Co demanded payment from company, that it is authorized to do business in the Philippines, that its
N.V. Nedlloyd Lijnen and its Philippine agent Columbian, the owner of the agent is Mr. Victor H. Bello, and that its office address is the Oledan
vessel which shipped defective goods to International Harvester. The latter Building at Ayala Avenue, Makati. These are all the averments required by
also refused to reimburse Home Insurance. Section 4, Rule 8 of the Rules of Court. The petitioner sufficiently alleged
its capacity to sue. The private respondents countered either with an
Home Insurance averred that they had the capacity to sue, being a foreign admission of the plaintiff's jurisdictional averments or with a general denial
insurance company authorized to do business in the Philippines through based on lack of knowledge or information sufficient to form a belief as to
its agent Bello. The lower court ruled against Home Insurance, arguing the truth of the averments.
that Home Insurance did not have the capacity to sue since it did not have
the necessary licenses yet when it entered into the insurance contracts. We find the general denials inadequate to attack the foreign corporations
The subsequent procurement of a license cannot validate the contracts. lack of capacity to sue in the light of its positive averment that it is
authorized to do so. Section 4, Rule 8 requires that "a party desiring to
ISSUE: Can Home Insurance sue based on the contracts when it did not raise an issue as to the legal existence of any party or the capacity of any
have the necessary licenses when it entered said contracts? - YES party to sue or be sued in a representative capacity shall do so by specific
denial, which shag include such supporting particulars as are particularly
RULING: within the pleader's knowledge. At the very least, the private respondents
should have stated particulars in their answers upon which a specific
Section 133 of the present Corporation Code provides: denial of the petitioner's capacity to sue could have been based or which
could have supported its denial for lack of knowledge. And yet, even if the
SEC. 133. Doing business without a license. - No foreign corporation plaintiff's lack of capacity to sue was not properly raised as an issue by the
transacting business in the Philippines without a license, or its successors answers, the petitioner introduced documentary evidence that it had the
or assigns, shag be permitted to maintain or intervene in any action, suit or authority to engage in the insurance business at the time it filed the
proceeding in any court or administrative agency in the Philippines; but complaints.
such corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action recognized CLV OUTLINE: Section 133 of the old Corporation Code, unlike its
317 | TKP 2025

counterpart Sec. 69 in the old Corporation Law which specifically provided

for penal sanctions for foreign corporations engaging in business in the
Philippines without obtaining the requisite license, should be deemed to
have a penal sanction by virtue of Sec. 144 of the (old) Corporation Code.
NOTES: Please read the discussions sa full-text, cannot put them all here
ty
318 | TKP 2025

lent v. Tullett Prebon (Phils.), Inc., 814 SCRA 184 (2017) with the Court of Appeals which in turn affirmed the Secretary of Justice
Resolution (CA G.R. SP No. 109094)
FACTS:
ISSUE:
James Ient (a British national) and Maharlika Schulze (a Filipino
W/N Ient and others are criminally liable under Sec. 31 and 34 of
German) filed with consolidated Petitions for Review assailing the Court of
the Corporation Code? — NO.
Appeals Decision dated August 12, 2009 (CA-GR SP-No. 109094)
affirming the Resolutions of the Secretary of Justice dated April 23, 2009
RATIO:
and May 15, 2009. The SOJ ruled that there was a probable cause to hold
Respondent Tullet commented that the petition can be dismissed
petitioners criminally liable under Section 31 and 34 in relation to Section
due to forum shopping. The Court held there is no cause to dismiss the
144 of the Corporation Code.
petition and defined forum shopping as an act of a party against whom an
adverse judgment order has been rendered in one forum, of seeking and
On October 15, 2008, Tullet filed a Complaint Affidavit with the
possibly getting a favorable opinion in another forum, other than by appeal
City Prosecutor Office of Makati against the officers of Tradition Group
or special civil action for certiorari.
Philippines Inc. for violation of Corporation Code. Ient, Schulze, Jaime
Villalon and Mercedes Chuidian, former officers of Tullet Prebon
The Corporation Code was intended as a regulatory measure,
Philippines Inc. were impleaded.
not as a penal statue. Section 31 and 34 were intended to impose
exacting standard of fidelity on corporate officers and directors
State Prosecutor Cresencio F. Delos Trinos, Jr. , dismissed the
without unduly impeding them to the discharge of their work with
criminal complaints, ruling that the respondents merely induced the
concerns of litigation.
brokers to transfer to Tradition. Respondents' acts were not prohibited acts
of directors or trustees as enunciated under Section 31. Inducements may
When Congress intends to criminalize certain acts, it does so in
only give rise to civil liability but no criminal liability.
plain language.
Tullet assailed the resolution of State Prosecutor Delos Trinos and
went to the Secretary of Justice who in turn reverses the State CLV OUTLINE: The lack of language imposing criminal liability in what are
Prosecutor’s resolution and directed him to file with the proper court, the now Secs. 30 and 33 of RCC shows the legislative intent to limit the
information for violation of Section 31 and 34 in relation to Section 144 of consequences of their violation to the civil liabilities mentioned therein. If
the Corporation Code against Ient and others. the drafters of the law intended to define as criminal offenses what are
now Secs. 30 and 33 of, they could have easily included similar language
as that found in what is now Sec. 73 of RCC. The old Corporation Code
Ient and Schulze moved for reconsideration with the Secretary of
was intended as a regulatory measure, not primarily as a penal statute.
Justice, but two information were filed at the Metropolitan Trial Court of
Makati City. The Secretary of Justice denied the Motion for
Reconsideration. This prompted the Ient and Schulze to file for Certiorari
319 | TKP 2025

Corp Digests Midterms KP

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Balmes. Callo. Dela Torre. Elgaran. Hong. Gamboa. Gonzales. Jundez. Malig. Masa. Mendiola. Tac-an. Tan. Ybañez.

Corporation Law Digests | Atty. Maribeth Lipardo

KRABBY PATTIES DIGESTS | B2025

Hi! The references for these digests are:

1. Dean CLV’s Corporation Law Syllabus

All the best,

The Krabby Patties

TOPIC IN THE SYLLABUS *copy from Dean CLV’s Outline

[CASE NAME] GR NO, DATE

FACTS: Essay format, use only SALIENT FACTS

Start the next case on the next page

Gamboa v. Teves, 652 SCRA 690 (2011), RULING:

CLV OUTLINE: The Constitution “provides for the Filipinization of public

Section 2. All covered corporations shall, at all times, observe the

total number of outstanding shares of stock, whether or not entitled to vote

Beneficial Test Through “Corporate Layering”

Narra Nickel Mining and Dev. Corp. v. Redmont Consolidated Mines

The Grandfather Formula

Filipino participation in petitioner McArthur: 40.01% PLMDC

66.67 (Filipino equity in Madridejos) x 59.97 (Madridejos’ share in

39.98% + .03% (shares of individual Filipino SHs in McArthur)

66.02 (Filipino equity in PLMDC) x 59.97 (PLMDC’s

39.59% + .05% (shares of individual Filipino SHs in

As further defined by Dean Cesar Villanueva, the grandfather rule is “the

attributing the nationality of the second or even subsequent tier of

membership should be composed of Filipino citizens.” ✔Register of

CLV OUTLINE: A corporation sole being a creature prior to the

CLV OUTLINE: Radstock, a foreign corporation with unknown owners

The moment for determining whether a corporation is entitled to operate

FACTS: The Constitution, in no uncertain terms, requires a franchise for

needed to operate a public utility so long as it does not operate them to

GOOD CORPORATE CITIZENS RULING:

ISSUE: Whether or not Simex Intl is entitled to moral damages due to

active instruments of business and commerce, banks have become

PNB v. Pike, 470 SCRA328 (2005) ISSUE:

CLV OUTLINE: Since the banking business is impressed with public

in general. The diligence required of banks is more than that of a good

NOTES: The SC said that the petition of PNB is anchored on a plea to

**GBL: General Banking Law

Exemplary damages was awarded as well as a warning to PNB not to

SEPARATE JURIDICAL PERSONALITY AND THE DOCTRINE OF

In addition, the Court noted that there was nothing on record is

CLV OUTLINE: Mere ownership by a single shareholder or by another

As to the liability of the impleaded corporate officers, the Court equally

ISSUE: Whether the dividends received by the stockholders are also

On Suits For, or Against, the Coporation RULING:

ISSUE: Whether or not plaintiff corporation may institute an action on

MRTC is a mere separate name for the Pabst brewing

It is argued that the averments show that the transit company is

A corporation is an artificial person, a mere legal entity, invisible

Complaint showed allegations of injury to the corporation itself. This Court

Where corporate directors have committed a breach of trust either by their

The allegations of injury to the Spouses Uy can coexist with those

In this case, it is alleged that the aforementioned corporations are mere

CLV OUTLINE: The notion of corporate entity will be pierced or

Rovels Enterprises, Inc. v. Ocampo, 391 SCRA 176 (2002) RULING:

may also be disregarded in the interest of justice in such cases as fraud

GCC organized Equity Corporation (EQUITY) as well, for the

relation provides a justifying ground to pierce petitioner’s corporate

As the relationships binding herein [respondent EQUITY and

NOTE: Case of Alter-Ego piercing - PIERCED.

COMELEC awarded the project to MPC. Despite this however,

6. Union argues that the two entities are engaged in the: