CORPORATION LAW

Case Digests
Atty. BJ Importante

Submitted by:

Robert V. Florin
rd
3 Year – Juris Doctor

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 TABLE OF CONTENTS

1. TAYAG vs. BENGUET CONSOLIDATED Inc. 5

G.R. No. L-23145, November 29, 1968

2. Torres and Baring vs. CA 6

G.R. No. 134559; December 9, 1999

3. Philippine Stock Exchange Inc. vs. CA 7

GR No. 125469 October 27, 1997

4. Feliciano vs. COA 9

GR No. 147402 January 14, 2004

6. MARILAO WATER CONSUMERS ASSOCIATION vs. IAC 11

G.R. No. 72807, September 9, 1991

7. Sawadjaan vs. CA 13
G.R. No. 141735, June 8, 2005

8. Gamboa vs. Teves et al. 14

GR No. 176579, October 9, 2012

9. Cease vs. CA 15
G.R. No. L-33172 October 18, 1979

10. CIR vs. Norton and Harrison Company 17

G.R. No. 17618, August 31, 1964

11. McLeod vs NLRC 18

G.R. No. 146667 January 23, 2007

12. Francisco De Asis & Co. Inc. vs. CA 19

G.R. No. L-61549 May 27, 1985

13. Martinez vs. CA 20

GR NO. 131673, September 10, 2004

14. Solidbank Corporation vs. Mindanao Ferroalloy Corporation 21

GR No. 153535, July 28, 2005

15. YAMAMOTO vs. NISHINO LEATHER INDUSTRIES, INC. 22

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GR No. 150283, April 16, 2008

16. ASJ Corporation vs. Sps. Evangelista 23

GR NO. 158086, February 14, 2008

17. Albert vs. University Publishing, Inc. 25

G.R. No. 10118, June 16, 1965

18. ABS-CBN vs. CA 26

GR NO. 128690, January 21, 1999

19. Filipinas Broadcasting vs. Ago Medical Center 28

GR No. 141994, January 17, 2005

20. PNB vs. CA 29

GR NO. 27155, May 18, 1978

21. Professional Services Inc. vs. CA 30

G.R. No. 126297, Feb. 2, 2010

22. Kukan International Corp. vs. Reyes 32

G.R No. 182729, Sept. 29, 2010

23. JAKA INVESTMENTS CORP vs. CIR 35

G.R. No. 147629, July 28, 2010

24. Ong Yong vs. Tiu 36

GR No. 144476, April 8, 2003

25. Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs. SEC 38
GR No. L-23606, July 29, 1968

26. PNB vs. CA 39

GR No. 63201, May 27, 1992

27. Seventh Day Adventist vs. Northeastern Mindanao Mission 42

GR No. 150416, July 21, 2006

28. Matling Industrial and Commercial Corporation vs. Coros 43

G.R. No. 157802, October 13, 2010

29. Valle Verde Country Club, Inc. vs. Africa 45

G.R. No.151969, September 4, 2009

30. Tan vs. Sycip 47

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G.R. No. 153468, August 17, 2006

31. Saber vs. Court of Appeals 49

G.R. No. 132981, August 31, 2004

32. Cebu Bionic Builders Supply, Inc. vs. DBP 51

GR No. 154366, November 17, 2010

33. Shipside Incorporated vs. CA 53

GR No. 143377, February 20, 2001

34. Zomer Development Co., Inc. vs. International Exchange Bank 55

GR No. 150694, March 13, 2009

35. Republic vs. Acoje Mining, Inc. 57

GR No. L- 18062, February 28, 1963

36. Westmont Bank vs. Inland Construction and Development Corp. 58

GR No. 123650, March 23, 2009

37. BPI Family Savings Bank vs. First Metro Investment Corp. 59
GR No. 132390, May 21, 2004

38. PMI Colleges vs. NLRC 60

GR NO. 121466, August 15, 1997

39. Expertravel & Tours, Inc. vs. Court of Appeals 61

G.R. No. 152392, May 26, 2005

40. LEE, ET AL. vs. CA 63

G.R. No. 117913, February 1, 2002

41. Palting vs San Jose Petroleum Inc. 64

G.R. No. L-14441, December 17, 1966

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1. TAYAG vs. BENGUET CONSOLIDATED Inc.
G.R. No. L-23145, November 29, 1968

FACTS:
Perkins died in New York. Because she has properties both in New York
and in the Philippines, a domiciliary administrator was appointed in New York
by the New York courts, and an ancillary administrator was appointed in the
Philippines by the Philippine courts. To satisfy the legitimate claims of local
creditors, the Philippine administrator asked the New York administrator to
surrender two stock certificates owned by the deceased in a Philippine
corporation, the Benguet Consolidated, Inc. Although said New York
administrator had the stock certificates, he refused to surrender them despite
the order of the Philippine court, prompting the court to consider said
certificates as LOST for all purposes in connection with the administration of
the deceased’s Philippine estate. The court then ordered the Benguet
Consolidated, Inc. to cancel said certificates and to issue new certificates
deliverable either to the ancillary administrator or to the Philippine probate
court. The company refused to issue the new certificates on the ground firstly,
that after all, the old certificates still really exist, although in the possession of
the New York administrator; and secondly, that in the future, the Company
may be held liable for damages because of the presence of conflicting
certificates.

ISSUE:
WON Benguet Consolidated should issue the new certificates.

RULING:
The Court ruled that the company must issue the new certificates
because of the following reasons: (a) While factually the old certificates still
exist, the same may by judicial fiction be considered as LOST — in view of the
refusal of the New York administrator to surrender them, despite a lawful order
of our courts. To deny the remedy would be derogatory to the dignity of the
Philippine judiciary. The ancillary Philippine administrator is entitled to the
possession of said certificates so that he can perform his duty as such
administrator. A contrary finding by any foreign court or entity would be
inimical to the honor of our country. After all, an administrator appointed in
one state has no power over property matters in another state; and (b) The
Company has nothing to fear about contingent liability should the new
certificates be issued. Its obedience to a lawful court order certainly constitutes
a valid defense.

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2. Torres and Baring vs. CA
G.R. No. 134559; December 9, 1999

FACTS:
Petitioners entered into a “joint venture agreement” with Manuel Torres
for the development of a parcel of land into a subdivision. Thus, the petitioners
sold the land in favor of the respondent who then registered the land in his
name. No inventory was made and attached to the public instrument.
Consequently, respondent mortgaged the property for a loan, and used the loan
to develop the subdivision surveying the land, and constructing roads, curbs,
and gutters. Ultimately, the development plan failed and the land was
foreclosed. The petitioners then tried to file a civil claim to relieve themselves of
their obligations but were denied by the court for having formed a partnership
saying that they should bear the loss as a partner pursuant to Art. 1797 of the
NCC.
The petitioners however contend that no partnership was formed due to
the joint venture agreement and the execution of the deed of sale. Furthermore,
they also contend that the joint venture agreement was void pursuant to Art.
1773 of the NCC.

ISSUES:
1. WON a partnership was formed due to the Joint Venture and Deed of
Sale execution of the deed of sale?
2. WON the joint venture agreement is void pursuant to Art. 1773?

RULING:
The Court held that a partnership was formed because: 1) petitioners
contributed property in the form of land to the partnership, which was to be
developed into a subdivision, and that the respondent contributed his industry
and his money for other costs; 2) the income from the said project was to be
divided according to a percentage. Furthermore, the respondent cannot be said
to have made no contribution to the partnership since a partner may not only
contribute money or property, but also industry according to Art. 1767 of the
NCC.
Furthermore, Art. 1773 cannot apply in this case. According to the
Court, Art. 1773 was primarily intended to protect third persons so that the
latter would not be prejudiced in case they are defrauded with the partnership
in the belief in the efficacy of the guaranty in which immovable may consist.

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3. Philippine Stock Exchange Inc. vs. CA
GR No. 125469 October 27, 1997

FACTS:
The Puerto Azul Land Inc. (PALI), a domestic real estate corporation, had
sought to offer its shares to the public in order to raise funds allegedly to
develop its properties and pay its loans with several banking institutions. In
January, 1995, PALI was issued a permit to sell its shares to the public by the
Securities and Exchange Commission (SEC). To facilitate the trading of its
shares among investors, PALI sought to course the trading of its shares
through the Philippine Stock Exchange Inc. (PSE), for which purpose it filed
with the said stock exchange an application to list its shares, with supporting
documents attached pending the approval of the PALI’s listing application. A
letter was received by PSE from the heirs of Ferdinand Marcos to which the
latter claims to be the legal and beneficial owner of some of the properties
forming part of PALI’s assets. As a result, PSE denied PALI’s application which
caused the latter to file a complaint before the SEC. The SEC issued an order
to PSE to grant listing application of PALI on the ground that PALI have
certificate of title over its assets and properties and that PALI have complied
with all the requirements to enlist with PSE.

ISSUE:
WON the denial of PALI’s application by the PSE is proper.

RULING:
The Court ruled in the affirmative.
This is in accord with the “Business Judgement Rule” whereby the SEC
and the courts are barred from intruding into business judgements of
corporations, when the same are made in good faith. The same rule precludes
the reversal of the decision of the PSE, to which PALI had previously agreed to
comply, the PSE retains the discretion to accept or reject applications for
listing. Thus, even if an issuer has complied with the PSE listing rules and
requirements, PSE retains the discretion to accept or reject the issuer’s listing
application if the PSE determines that the listing shall not serve the interests of
the investing public.

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 It is undeniable that the petitioner PSE is not an ordinary corporation, in
that although it is clothed with the markings of a corporate entity, it functions
as the primary channel through which the vessels of capital is trade. The PSE’s
relevance to the continued operation and filtration of the securities transaction
in the country gives it a distinct color of importance such that government
intervention in its affairs becomes justified, if not necessarily. Indeed, as the
only operational stock exchange in the country today, the PSE enjoys monopoly
of securities transactions, and as such it yields it yields an immense influence
upon the country’s economy.
The SEC’s power to look into the subject ruling of the PSE, therefore,
may be implied from or be considered as necessary or incidental to the carrying
out of the SEC’s express power to ensure fair dealing in securities traded upon
a stock exchange or to ensure the fair administration of such exchange. It is
likewise observed that the principal function of the SEC is the supervision and
control over corporations, partnerships and associations with the end in view
that investment in these entities may be encouraged and protected and their
activities for the promotion of economic development.
A corporation is but an association of individuals, allowed to transact
under an assumed corporate name, and with a distinct legal personality. In
organizing itself as a collective body, it waives no constitutional immunities
and requisites appropriate to such a body as to its corporate and management
decisions. Therefore, the state will generally not interfere with the same.
Questions of policy and management are left to the honest decision of the
officers and directors of a corporation, and the courts are without authority to
substitute their judgments for the judgment of the board of directors. The
board is the business manager of the corporation and so long as it acts in good
faith, its orders are not reviewable by the courts.
Consequently, in matters of application for listing in the market, the SEC
may exercise such power only if the PSE’s judgment is attended by bad faith.
The petitioner was in the right when it refused application of PALI in the
exercise of its corporate discretion, for a contrary ruling was not to the best
interest of the general public.

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4. Feliciano vs. COA
GR No. 147402 January 14, 2004

FACTS:
A special audit team from COA Regional office audited the accounts of
LMWD. Subsequently, LMWD received a letter from COA requesting payment of
auditing fees. As general manager of LMWD, petitioner sent a reply informing
COA’s regional director that the water district could not pay the auditing fees.
Petitioner cited as basis for his action section 6 and 20 of Presidential Decree
no. 198 as well as section 18 of RA 6758. The regional director referred
petitioner to reply to the COA Chairman. Thereafter, petitioner wrote COA
through the Regional Director asking for refund of all auditing fees LMWD
previously paid to COA. Petitioner received COA Chairman’s resolution denying
his request. Petitioner filed a motion for reconsideration which COA
subsequently denied.

ISSUE:
WON petitioner LMWD is a private corporation exempt from the auditing
jurisdiction of COA.

RULING:
The Court held that Local Water Districts (LWDs) are not private
corporations because they are not created under the corporation code. LWDs
are registered with the Securities and Exchange Commission (SEC). Section 14
of the corporation code states that all corporations under this code shall file
with the SEC articles of incorporation. LWDs have no articles of incorporation,
no incorporators and no stockholders or members. There are no stockholders
or members to elect the board of directors of LWDs as in the case of all
corporations registered with the SEC. The local mayor or the provincial
governor appoints the directors of LWDs for a fixed term of office. The Court
has ruled that LWDs are not created under the corporation code.

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 Certainly, the government owns and controls LWDs. The government
organizes LWDs in accordance with a specific law, PD 198. There is no private
party involved as co-owner in its creation. Just prior to the creation of LWDs,
the national or local government owns and controls all their assets. The
government controls LWDs because under PD 198 the municipal or city mayor,
or the provincial governor, appoints all the board of directors of an LWD for a
fixed term of six (6) years. The board of directors of LWDs are not co-owners of
the LWDs. LWD have no private stockholders or members. The board of
directors and other personnel of LWDs are government employees subject to
civil service laws.

5. National Coal Company vs. CIR

GR No. L-22619 December 2, 1924

FACTS:
The plaintiff corporation was created by Act No. 2705, for the purpose of
developing the coal industry in the Philippines in harmony with the general
plan of the government to encourage the development of natural resources of
the country. By the said act, the company was granted the general powers of a
corporation and such other powers as may be necessary to enable it to
prosecute the business of developing coal deposits in the country relative to
mining, extracting, transporting, and selling the coal contained in said
deposits. By the same law, the government is made the majority stockholder,
evidently in order to ensure proper government supervision and control and
thus to place the government in a position to render all possible assistance in
the prosecution and furtherance of the company’s business. Two months after
the passage of Act no. 2705, the legislature passed Act 2719, “to provide for the
leasing and development of coal lands in the Philippine islands.” Almost
immediately after the issuance of said proclamation the national coal company
took possession of the coal lands in the stipulated reservation sites with an
area of about 400 hectares, without any further formality. Of the 30,000 shares
of stock issued by the company, the government is the owner of 29,809 shares.

ISSUE:
WON plaintiff is a private corporation.

RULING:
The Court ruled that the plaintiff is a private corporation. The mere fact
that the government happens to be the majority stockholder does not make it a

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public corporation. Act 2705, as amended by Act 2822, makes it subject to all
the provisions of the corporation law, in so far as they are not inconsistent with
said act. No provisions of Act 2705 are found to be inconsistent with the
provisions of the corporation law. As a private corporation, it has no greater
rights, powers or privileges than any other corporation which might be
organized for the same purpose under the corporation law, and certainly it was
not the intention of the legislature to give it a preference or right or privilege
over other legitimate private corporations in the mining of coal in the country.

6. MARILAO WATER CONSUMERS ASSOCIATION vs. IAC

G.R. No. 72807, September 9, 1991

FACTS:
Pursuant to the provisions of P.D. 168 (Provincial Water Utilities Act of
1973), Marilao Water District (MWD) was formed by Resolution of the
Sangguniang Bayan of the Municipality of Marilao dated September 18, 1982,
which resolution was thereafter forwarded to the LWUA and "duly filed" by it on
October 4, 1982 after ascertaining that it conformed to the requirements of the
law. Marilao Waters Consumers Association, Inc. (MWCA), a non-stock,
non-profit corporation, filed a petition before the RTC of Malolos claiming that
the creation of the water district is defective and illegal. Impleaded as
respondents were the MWD as well as the Municipality of Marila; its
Sangguniang Bayan; and the Mayor. The petition prayed for the dissolution of
the water district. MWD filed its Answer with affirmative defenses that the RTC
lacked jurisdiction over the subject matter since the water district’s dissolution
fell under the original and exclusive jurisdiction of the SEC. MWCA countered
that since MWD had not been organized under the Corporation Code, the SEC
had no jurisdiction over a proceeding for its dissolution and that under Section
45 of PD 198, the proceeding to determine if the dissolution is for the best
interest of the people, is within the competence of a regular court of justice.
RTC dismissed MWCA’s suit ruling that it is the SEC which has exclusive and
original jurisdiction over the case.

ISSUE:

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 Which tribunal has jurisdiction over the dissolution of a water district
organized and operating as a quasi-public corporation under the
provisions of PD No.198, as amended: the RTC or the SEC.

RULING:
The present case does not fall within the limited jurisdiction of the
SEC, but within the general jurisdiction of RTC. PD 198 authorizes the
formation, lays down the powers and functions, and governs the operation of
water districts throughout the country. Once formed, it says, a district is
subject to its provisions and is not under the jurisdiction of any political
subdivision. The juridical entities thus created and organized under PD 198
are considered quasi-public corporations, performing public services
and supplying public wants.
The juridical entities known as water districts created by PD 198,
although considered as quasi-public corporations and authorized to
exercise the powers, rights and privileges given to private corporations under
existing laws are entirely distinct from corporations organized under the
Corporation Code. The Code has nothing to do whatsoever with their formation
and organization, all the terms and conditions for their organization and
operation being particularly spelled out in PD 198.The resolutions creating
them, their charters, in other words, are filed not with the Securities and
Exchange Commission but with the LWUA. The SEC which is charged with
enforcement of the Corporation Code as regards corporations,
partnerships and associations formed or operating under its provisions, has no
power of supervision or control over the activities of water districts. The
"Provincial Water Utilities Act of 1973" has a specific provision governing
dissolution of water districts created thereunder. This is Section 45 of
PD198. Under this provision, it is the LWUA which is the administrative body
involved in the voluntary dissolution of a water district; it is with it that the
resolution of dissolution is filed, not the SEC. And this provision is evidently
quite distinct and different from those on dissolution of corporations
formed or organized under the the Corporation Code under which
dissolution may be voluntary, by vote of the stockholders or members.
Although described as quasi-public corporations, and granted the same powers
as private corporations, water districts are not really corporations. They have
no incorporators, stockholders or members, who have the right to vote for
directors, or amend the articles of incorporation or by-laws, or pass
resolutions, or otherwise perform such other acts as are authorized to
stockholders or members of corporations. There can be no such thing
as a relation of corporation and stockholders or members in a water district
for the simple reason that in the latter there are no stockholders or members.
Between the water district and those who are recipients of its water services
there exists not the relationship of corporation-and-stockholder, but that
of a service agency and users or customers. There can therefore be no such
thing in a water district as intra-corporate or partnership relations,

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between and among stockholders, members or associates within the
contemplation of Section 5 of the Corporation Code so as to bring controversies
involving them within the competence and cognizance of the SEC.

7. Sawadjaan vs. CA
G.R. No. 141735, June 8, 2005

FACTS:
Petitioner Sawadjaan was an appraiser/investigator in the Philippine
Amanah Bank (PAB) when on the basis of his report, a credit line was granted
to Compressed Air Machineries and Equipment Corporation (CAMEC) by virtue
of the two parcels of land it offered as collaterals. Meanwhile, Congress passed
a law which created Al-Amanah Investment Bank of the Philippines (AIIBP) and
repealed the law creating PAB, transferring all its assets, liabilities and capital
accounts to AIIBP. Later, AIIBP discovered that the collaterals were spurious,
thus conducted an investigation and found petitioner Sawadjaan at fault.
Petitioner appealed before the SC which ruled against him. Petitioner moved for
a new trial claiming he recently discovered that AIIBP had not yet adopted its
corporate by-laws and since it failed to file within 60 days from the passage of
its law, it had forfeited its franchise or charter and thus has no legal standing
to initiate an administrative case. The motion was denied.

ISSUE:
WON the failure of AIIBP to file its by-laws within the period prescribed
results to a nullity of all actions and proceedings it has initiated.

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RULING:
The Court ruled in the negative.
The AIIBP was created by Rep. Act No. 6848. It has a main office where it
conducts business, has shareholders, corporate officers, a board of directors,
assets, and personnel. It is, in fact, here represented by the Office of the
Government Corporate Counsel, “the principal law office of government-owned
corporations, one of which is respondent bank.” At the very least, by its failure
to submit its by-laws on time, the AIIBP may be considered a de facto
corporation whose right to exercise corporate powers may not be inquired into
collaterally in any private suit to which such corporations may be a party.
Moreover, a corporation which has failed to file its by-laws within the
prescribed period does not ipso facto lose its powers as such. The SEC Rules
on Suspension/Revocation of the Certificate of Registration of Corporations,
details the procedures and remedies that may be availed of before an order of
revocation can be issued. There is no showing that such a procedure has been
initiated in this case.

8. Gamboa vs. Teves et al.

GR No. 176579, October 9, 2012

FACTS:
This is a petition to nullify the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government of the
Republic of the Philippines, acting through the Inter-Agency Privatization
Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First
Pacific Company Limited (First Pacific), a Hong Kong-based investment
management and holding company and a shareholder of the Philippine Long
Distance Telephone Company (PLDT).
The petitioner questioned the sale on the ground that it also involved an
indirect sale of 12 million shares (or about 6.3% of the outstanding common
shares) of PLDT owned by PTIC to First Pacific. With the this sale, First
Pacific’s common shareholdings in PLDT increased from 30.7% to 37%, thereby
increasing the total common shareholdings of foreigners in PLDT to about
81.47%. This, according to the petitioner, violates Section 11, Article XII of the
1987 Philippine Constitution which limits foreign ownership of the capital of a
public utility to not more than 40%,

ISSUE:

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 WON the Court made an erroneous interpretation of the term ‘capital’ in
its 2011 decision.

RULING:
The Court said that the Constitution is clear in expressing its State
policy of developing an economy ‘effectively controlled’ by Filipinos. Asserting
the ideals that our Constitution’s Preamble want to achieve, that is – to
conserve and develop our patrimony, hence, the State should fortify a Filipino-
controlled economy. In the 2011 decision, the Court finds no wrong in the
construction of the term ‘capital’ which refers to the ‘shares with voting rights,
as well as with full beneficial ownership’ (Art. 12, sec. 10) which implies that
the right to vote in the election of directors, coupled with benefits, is
tantamount to an effective control. Therefore, the Court’s interpretation of the
term ‘capital’ was not erroneous. Thus, the motion for reconsideration is
denied.

9. Cease vs. CA
G.R. No. L-33172 October 18, 1979

FACTS:
June 1908, Forrest Cease common predecessor in interest of the parties
together with five other American citizens organized the Tiaong Milling and
Plantation Company and in the course of its corporate existence the company
acquired various properties but at the same time all the other original
incorporators were bought out by Cease together with his children namely
Ernest, Cecilia, Teresita, Benjamin, Florence and one Bonifacia Tirante also
considered a member of the family. The charter of the company lapsed in June
1958; but whether there were steps to liquidate it, the record is silent. On
August 1959, Cease died and by extrajudicial partition of his shares, among
the children, this was disposed of on October 1959. It was here where the
trouble among them came to arise because it would appear that Benjamin and
Florence wanted an actual division while the other children wanted
reincorporation; and proceeding on that, these other children Ernesto, Teresita
and Cecilia and aforementioned other stockholder Bonifacia proceeded to
incorporate themselves into the F.L. Cease Plantation Company and registered

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it with the Securities and Exchange Commission on December, 1959. Benjamin
and Florence initiated a Special Proceeding for the settlement of the estate of
Cease on April 1960 and one month afterwards a civil case asking that the
Tiaong Milling and Plantation Corporation be declared Identical to F.L. Cease
and that its properties be divided among his children as his intestate heirs.
This Civil Case was resisted by the defendants and notwithstanding efforts of
the plaintiffs to have the properties placed under receivership, they were not
able to succeed because defendants filed a bond to remain in possession.
During the pendency of case and on the eve of the expiry of the three year
period provided by the law for the liquidation of corporations, the board of
liquidators of Tiaong Milling executed an assignment and conveyance of
properties and trust agreement in favor of F.L. Cease Plantation Co. Inc. as
trustee of the Tiaong Milling and Plantation Co. so that upon motion of the
plaintiffs trial Judge ordered that this alleged trustee be also included as party
defendant. Hence, there were two proceedings pending in the CFI but both of
these were assigned to Judge Maddela. The case was finally heard and
submitted and the Judge decided the case in favor of plaintiffs Benjamin and
Florence.

ISSUE:
Whether or not the properties of the Tiaong Milling and Plantation
Company forms part of the estate of Cease.

RULING:
The Court ruled in the affirmative.

It held that the theory of “merger of Forrest L. Cease and The Tiaong
Milling as one personality”, or that “the company is only the business conduit
and alter ego of the deceased Forrest L. Cease and the registered properties of
Tiaong Milling are actually properties of Forrest L. Cease and should be divided
equally among his six children, … “, the trial court did aptly apply the familiar
exception to the general rule by disregarding the legal fiction of distinct and
separate corporate personality and regarding the corporation and the
individual member one and the same.
Tiaong Milling adduced its defense and raised the issue of ownership, its
corporate existence already terminated through the expiration of its charter. It
is clear in Section 77 of Act No. 1459 (Corporation Law) that upon the
expiration of the charter period, the corporation ceases to exist and is dissolved
ipso facto except for purposes connected with the winding up and liquidation.
The provision allows a three year, period from expiration of the charter within
which the entity gradually settles and closes its affairs, disposes and convey its
property and to divide its capital stock, but not for the purpose of continuing
the business for which it was established. At this terminal stage of its
existence, Tiaong Milling may no longer persist to maintain adverse title and
ownership of the corporate assets as against the prospective distributees when

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at this time it merely holds the property in trust. Its assertion of ownership is
not only a legal contradiction, but more so, to allow it to maintain adverse
interest would certainly thwart the very purpose of liquidation and the final
distribute loll of the assets to the proper parties.

10. CIR v. Norton and Harrison Company

G.R. No. 17618, August 31, 1964

FACTS:
In 1911 Norton and Harrison entered into an agreement with Jackbuilt
to be the sole and exclusive distributor of concrete blocks manufactured by
Jackbuilt. Payment for the order is transmitted to Norton and then later to
Harrison less service charge effectively making Norton as the one selling them
on record. The agreement was later terminated and changed fixing a monthly
fee. During the existence of such agreement Norton acquired by purchase all
the shares of stock Jackbuilt, this caused the CIR to asses Norton of deficiency
in sales tax amounting to 32,000. The CIR considered the sale of Norton of the
blocks to the public as an original sale and not merely a transaction with
Jackbuilt. The CIR contends that since Jackbuilt was owned and controlled by
Norton & Harrison, the corporate personality of Jackbuilt should be
disregarded for sales tax purposes, and the sale of Jackbuilt blocks by
petitioner to the public must be considered as the original sales from which the
sales tax should be computed. The Tax Court ruled in favor of Norton, stating

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that the term "original sale" has been defined as the first sale by every
manufacturer, producer or importer. Subsequent sales by persons other than
the manufacturer, producer or importer are not subject to the sales tax”. They
further explained that there was no sale by Jackbuilt to Norton thus there was
no original sale and that they were merely agents thus the deficiency tax sales
should be assessed against Jackbuilt.

ISSUE:
Whether or not Norton and Jackbuilt should be considered as separate
and distinct in the computation of deficiency sales tax.

RULING:
The Court decided in the negative.
It has been settled that the ownership of all the stocks of a corporation
by another corporation does not necessarily breed an identity of corporate
interest between the two companies and be considered as a sufficient ground
for disregarding the distinct personalities However, in the case, the Court
found sufficient grounds to support the theory that the separate identities of
the two companies should be disregarded, Norton being the owner of all the
outstanding stocks; Norton being a member of the board of directors with
direct control and management among others.

11. McLeod vs NLRC

G.R. No. 146667 January 23, 2007

FACTS:
On February 1995, John McLeod filed a complaint for retirement
benefits, vacation and sick leave benefits, non-payment of unused airline
tickets, holiday pay, underpayment of salary and 13th month pay, moral and
exemplary damages, attorney’s fees plus interest against Filipinas Synthetic
Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc.,
Patricio Lim and Eric Hu.
McLeod was the former VP and Plant Manager of Peggy Mills, Inc. He was
hired in June 1980 and Peggy Mills closed operations due to irreversible losses
at the end of July 1992 but the corporation still exists at present. Its assets
were acquired by Sta. Rosa Textile Corporation which was established in April
1992 but still remains non-operational. Complainant was hired as consultant
by Sta. Rosa Textile in November 1992 but he resigned on November 30, 1993.
Filsyn and Far Eastern Textiles are separate legal entities and have no

18
employer relationship with complainant. Respondents Patricio Lim is the
President and Board Chairman of Sta. Rosa Textile Corporation, while Eric Hu,
a Taiwanese, is Director of Sta. Rosa Textiles, Inc.

ISSUE
Whether there exists a merger or consolidation between Sta. Rosa
Textiles, Inc. and Peggy Mills, Inc. that warrants both to be solidarily liable for
the unpaid salary of McLeod.

RULING
The Court held that there was no merger or consolidation of PMI and
SRTI.
It explained that consolidation is the union of two or more existing
corporations to form a new corporation called the consolidated corporation. It
is a combination by agreement between two or more corporations by which
their rights, franchises, and property are united and become those of a single,
new corporation, composed generally, although not necessarily, of the
stockholders of the original corporations. Merger, on the other hand, is a
union whereby one corporation absorbs one or more existing corporations, and
the absorbing corporation survives and continues the combined business. The
surviving or consolidated corporation assumes automatically the liabilities of
the dissolved corporations, regardless of whether the creditors have consented
or not to such merger or consolidation.
In this case, there was no showing that the subject dation in payment
involved any corporate merger or consolidation. Neither is there any showing of
those indicative factors that SRTI is a mere instrumentality of PMI.

12. Francisco De Asis & Co. Inc. vs. CA

G.R. No. L-61549 May 27, 1985

FACTS:
Francisco de Asis & Co., Inc. (Company) was organized with Francisco as
its president and Leocadio as one of the members of the Board of Directors. As
a stock brokerage company, it did business in the Makati Stock Exchange
wherein one becomes a member upon the execution of an undertaking by at
least 2 members of its Board of Directors who own 95% of the stocks to answer
solidarily for the corporation liabilities of the member company. Leocadio and
Francisco who owned 95% of the outstanding capital stock of the Company
executed a joint and several undertaking wherein they jointly and severally
warrant the equitable payment of all valid and legitimate corporate liabilities of
the Company. Later on, the Company thru its president Delgado for assistance

19
to secure a loan in the amount of P200,000.00 and agreed to provide the
amount as requested.

ISSUE:
Whether or not the Company should be held liable for the loan obtained
by its President, Francisco.

RULING:
The Court decided in the affirmative.
It ratiocinated that the necessity and urgency for the loan was not to
meet the personal needs of Francisc as there is no showing that he was in
financial difficulties but to resolve the cash flow problems of the Company.
Neither would the absence of the usual documents, i.e., promissory notes
and/or real estate or chattel mortgages, negate the existence of the loan.
Considering the relationship between the parties, being very good friends,
plaintiff-appellee dispensed with the customary documentation in her desire to
bail out a friend from the difficulties that his corporation is facing, 97% of the
capital stock of which he owned. But the loan of P200,000.00 is not totally
without any document. The deposit slip of the bank showing the deposit in the
account of defendant-corporation indicates the receipt of said amount. And the
record is bereft of any evidence disclosing that said funds were used other than
for corporate purposes.
The claim of the corporation that it had not authorized Francisco to
obtain loan for the company from the private respondent is belied by the fact
that upon deposit of the money in its account, it had retained and disbursed
the said amount. And, assuming that it had not really authorized Francisco to
borrow money, the company is still obliged to return the same under Article
2154 of the Civil Code which provides that if something is received when there
is no right to demand it, and it was unduly delivered through mistake, the
obligation to return arises in accordance with the Principle of Solutio Indibeti.

13. Martinez vs. CA

GR NO. 131673, September 10, 2004

FACTS:
BPI International Finance granted CLL a letter of credit for $3M. CLL
opened a money market placement with BPI with Wilfredo Martinez as the
authorized signatory in both accounts but the two signature cards also bore
Ruben Martinez, and Miguel Lacson’s signatures. The three of them became
the joint account holders.At times, the funds in these accounts were
transferred to CLL’s deposit account and vice versa. To resolve this, Wilfredo
executed a back-to-back credit facility. Wilfredo and the other owners of CLL
executed a suretyship agreement where they obliged themselves solidarily with
CLL in order to pay for CLL’s credit facility. Later problems came up regarding

20
these three accounts and the respondent pressured Wilfredo to pay the
US$340,000. Wilfredo had CLL’s account audited and it was confirmed that the
corporation owed the respondent this amount. Despite the respondent’s
demands, Wilfredo, Gonzales, Lacson and Ruben Martinez did not make any
remittance. Ruben even denied having knowledge of such liability. The
respondent then filed a suit to recover the sum stating that the CLL was merely
a paper company or an alter ego of Wilfredo and Ruben. The RTC and CA ruled
in its favor.

ISSUE:
WON the liability incurred by CLL can be attributed to Ruben Martinez
because CLL is merely their alterego.

RULING:
The Court decided in the negative.
It held that the general rule is that a corporation is clothed with a
personality separate and distinct from the persons composing it—this separate
and distinct personality of a corporation is a fiction created by law for
convenience and to prevent injustice. Such corporation cannot be liable for the
obligations of the persons composing it and vice versa. There are valid grounds
though to pierce this veil of corporate entity.

14. Solidbank Corporation vs. Mindanao Ferroalloy Corporation

GR No. 153535, July 28, 2005

FACTS:
Mindanao Ferroalloy corporation is the fruit of a joint venture
agreement between a Filipino Corporation and Korean Corporation. In its
operations, its liabilities ballooned over its assets that it had to secure
loans from petitioner Solidbank. The loans were later consolidated and
restructured, evidenced by a promissory note. The promissory note was signed
by Cu and Hong, both officers of the corporation. The corporation, through the
same officers also executed a deed of assignment. Thereafter, the corporation

21
stopped its operations and the loan was left unpaid. The bank was
prompted to file a complaint against the corporation, and with it,
impleading the officers who signed the agreement and promissory notes.
The trial court held in favor of the bank but didn't adjudge liability of the
officers. Both the trial court and CA held that there was no solidary liability on
the part of the officers impleaded by the bank.

ISSUE:
Whether or not the officers or corporation are solidarily liable with the
corporation’s unpaid loan.

RULING:
Though Hong and Cu signed above the “maker/borrower” and the
printed name of the corporation, without the word “by” preceding their
signatures, the fact that they signed in their personal capacities is negated by
the facts that name and address of the corporation also appeared on the
space provided for in the “maker/borrower” and their signatures only
appeared once when it should be twice if indeed it was in their personal
capacities. Further, they didn't sign on the portion allocated for the co-
maker, and there was also indicia of it being signed as authorized
representatives.

15. YAMAMOTO vs. NISHINO LEATHER INDUSTRIES, INC.

GR No. 150283, April 16, 2008

FACTS:
Ryuichi Yamamoto and Ikuo Nishino agreed to enter into a joint venture
wherein Nishino would acquire such number of shares of stock equivalent to
70% of the authorized capital stock of the corporation. However, Nishino and
his brother Yoshinobu Nishino acquired more than 70% of the authorized
capital stock. Negotiations subsequently ensued in light of a planned takeover

22
by Nishino who would buy-out the shares of stock of Yamamoto who was
advised through a letter that he may take all the equipment/ machinery he had
contributed to the company (for his own use and sale) provided that the value
of such machines is deducted from the capital contributions which will be paid
to him. However, the letter requested that he give his “comments on all the
above, soonest”. On the basis of the said letter, Yamamoto attempted to recover
the machineries but Nishino hindered him to do so, drawing him to file a Writ
of Replevin. The Trial Court issued the writ. However, on appeal, Nishino
claimed that the properties being recovered were owned by the corporation and
the above-said letter was a mere proposal which was not yet authorized by the
Board of Directors. Thus, the Court of Appeals reversed the trial court’s
decision despite Yamamoto’s contention that the company is merely an
instrumentality of the Nishinos.

ISSUE:
Whether or not Yamamoto can recover the properties he contributed to
the company in view of the Doctrine of Piercing the Veil of Corporate Fiction
and Doctrine of Promissory Estoppel.

RULING:
One of the elements determinative of the applicability of the doctrine of
piercing the veil of corporate fiction is that control must have been used by the
defendant to commit fraud or wrong, to perpetuate the violation of a statutory
or other positive legal duty, or dishonest and unjust act in contravention of the
plaintiff’s legal rights. To disregard the separate juridical personality of a
corporation, the wrongdoing or unjust act in contravention of a plaintiff’s legal
rights must be clearly and convincingly established; it cannot be presumed.
Without a demonstration that any of the evils sought to be prevented by the
doctrine is present, it does not apply. Estoppel may arise from the making of a
promise. However, it bears noting that the letter was followed by a request for
Yamamoto to give his “comments on all the above, soonest.” What was thus
presented to Yamamoto was not a promise, but a mere offer, subject to his
acceptance. Without acceptance, a mere offer produces no obligation. Thus, the
machineries and equipment, which comprised Yamamoto’s investment,
remained part of the capital property of the corporation.

16. ASJ Corporation vs. Sps. Evangelista

GR NO. 158086, February 14, 2008

FACTS:
The above-mentioned respondent are engaged in the large-scale business
of buying broiler eggs, hatching them, and selling their chicks and egg by-
products and availed the hatchery services of the the petitioner and agreed on
a service fee of 80 centavos per egg, whether successfully hatched or not, A

23
setting report indicates : the number of eggs delivered; date the eggs were
delivered and laid out in the incubators; the date of candling or the date the
eggs, through a lighting system, were inspected and determined if viable or
capable of being hatched into chicks; and the date of hatching, which is also
the date respondents would pick-up the chicks and by-products. Initially, the
service fees were paid upon release of the eggs and by-products to respondents.
But as their business went along, respondents’ delays on their payments were
tolerated by out of keeping goodwill with respondents.

Later, the respondent went to the hatchery to pick up the chicks but the
petitioner refused to release the same unless the former will fully settle their
account. Respondent tendered partial payment but still the latter insisted the
full settlement of the account believing that the chicks harvested can cover the
payment of the full account. Petitioner threatened to impound the vehicle of the
respondent when the former disliked the idea of proper accounting of the
chicks. Both parties tried to amicably settle the disputes to the police
authorities, but to no avail. Respondent filed an action for damages against the
petitioner due to the threats he received. The RTC ruled in Favor of the
respondent. The CA Denied the Appeals for lack of merits with Slight
modification including an exemplary damages and applying the doctrine of
piercing the veil of corporate fiction.

ISSUE:
Whether or not Bilateral Obligation/Reciprocal Obligation Exists between
ASJ Corp and Evangelista.

RULING:
The Court ratiocinated that reciprocal obligations are those which arise
from the same cause, wherein each party is a debtor and a creditor of the
other, such that the performance of one is conditioned upon the simultaneous
fulfillment of the other. From the moment one of the parties fulfills his
obligation, delay by the other party begins.
Petitioners’ obligation to deliver the chicks and by-products corresponds
to three dates: the date of hatching, the delivery/pick-up date and the date of
respondents’ payment. On several setting reports, respondents made delays on
their payments, but petitioners tolerated such delay. When respondents’
accounts accumulated because of their successive failure to pay on several
setting reports, petitioners opted to demand the full settlement of respondents’
accounts as a condition precedent to the delivery. However, respondents were
unable to fully settle their accounts.
Respondents’ offer to partially satisfy their accounts is not enough to
extinguish their obligation. Under Article 124827 of the Civil Code, the creditor
cannot be compelled to accept partial payments from the debtor, unless there
is an express stipulation to that effect. More so, respondents cannot substitute
or apply as their payment the value of the chicks and by-products they expect

24
to derive because it is necessary that all the debts be for the same kind,
generally of a monetary character. Needless to say, there was no valid
application of payment in this case.

17. Albert vs. University Publishing, Inc.

G.R. No. 10118, June 16, 1965

FACTS:
Mariano Albert entered into a contract with University Publishing Co.,
Inc. through Aruego, its President, whereby University would pay plaintiff for

25
the exclusive right to publish his revised Commentaries on the Revised Penal
Code. The contract stipulated that failure to pay one installment would render
the rest of the payments due. When University failed to pay the second
installment, Albert sued for collection and won. However, upon execution, it
was found that the records of this Commission do not show the registration of
UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership.
Albert petitioned for a writ of execution against Aruego as the real defendant.
University opposed, on the ground that Aruego was not a party to the case.

ISSUE:
Wether or not University Publishing Co., Inc. is an existing corporation
with an independent juridical personality despite its non-registration with the
SEC.

RULING:
The Court held that on account of the non-registration, University
cannot be considered a corporation, not even a corporation de facto. It has
therefore no personality separate from Aruego; thus, it cannot be sued
independently. Aruego represented a non-existent entity and induced not only
Albert but the court to believe in such representation. He signed the contract
as “President” of “University Publishing Co., Inc.,” stating that this was “a
corporation duly organized and existing under the laws of the Philippines”. 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.
Aruego, acting as representative of such non-existent principal, was the real
party to the contract sued upon, and thus assumed such privileges and
obligations and became personally liable for the contract entered into or for
other acts performed as such agent.
The Supreme Court likewise held that the doctrine of corporation by
estoppel cannot be set up against Albert since it was Aruego who had induced
him to act upon Aruego’s willful representation that University had been duly
organized and was existing under the law.

18. ABS-CBN vs. CA

GR NO. 128690, January 21, 1999

FACTS:

26
 In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement
whereby VIVA gave ABS-CBN an exclusive right to exhibit some VIVA films.
According to the agreement, ABS-CBN shall have the right of first refusal to the
next 24 VIVA films for TV telecast under such terms as maybe agreed upon by
the parties, however, such right shall be exercised by ABS-CBN from the actual
offer in writing. Sometime in December 1991, VIVA, through Vicente Del
Rosario, offered ABS-CBN through VP Charo Santos-Concio, a list of 3 film
packages from which ABS-CBN may exercise its right of first refusal. ABS-CBN,
however through Mrs. Concio, tick off only 10 titles they can purchase among
which is the film “Maging Sino Ka Man” which is one of the subjects of the
present case, therefore, it did not accept the said list as per the rejection letter
authored by Mrs. Concio sent to Del Rosario. Subsequently, Del Rosario
approached Mrs. Concio with another list consisting of 52 original movie titles
and 104 re-runs, proposing to sell to ABS-CBN airing rights for P60M (P30M in
cash and P30M worth of television spots). Del Rosario and ABS-CBN’s
General Manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in
QC to discuss the package proposal but to no avail. Four days later, Del
Rosario and Mr. Graciano Gozon of RBS Senior VP for Finance discussed the
terms and conditions of VIVA’s offer. A day after that, Mrs. Concio sent the
draft of the contract between ABS-CBN and VIVA which contained a counter-
proposal covering 53 films for P35M. VIVA’s Board of Directors rejected the
counter-proposal as it would not sell anything less than the package of 104
films for P60M. After said rejection, VIVA closed a deal with RBS including the
14 films previously ticked off by ABS-CBN. Consequently, ABS-CBN filed a
complaint for specific performance with prayer for a writ of preliminary
injunction and/or TRO against RBS, VIVA and Del Rosario. RTC then enjoined
the latter from airing the subject films. RBS posted a P30M counter bond to
dissolve the injunction. Later on, the trial court as well as the CA dismissed the
complaint holding that there was no meeting of minds between ABS-CBN
and VIVA, hence, there was no basis for ABS-CBN’s demand.
Furthermore, the right of first refusal had previously been exercised. Hence, in
the present petition, ABS-CBN argued that an agreement was made during the
meeting of Mr. Lopez and Del Rosario jotted down on a “napkin” (this was never
produced in court). Moreover, it had yet to fully exercise its right of first refusal
since only 10 titles were chosen from the first list. As to actual, moral and
exemplary damages, there was no clear basis in awarding the same.

ISSUE:
WON moral damages may be awarded to RBS.

RULING:
The Court ruled in the negative.
It held that moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a penalty

27
on the wrongdoer. The award is not meant to enrich the complainant at the
expense of the defendant, but to enable the injured party to obtain means that
will serve to obviate the moral suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the spiritual status quo ante,
and should be proportionate to the suffering inflicted. The award of moral
damages cannot be granted in favor of a corporation because, being an
artificial person and having existence only in legal contemplation, it has no
feelings, no emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only by one having a
nervous system. The statement in People v. Manero; and Mambulao Lumber
Co. v. PNB that a corporation may recover moral damages if it “has a good
reputation that was debased, resulting in social humiliation” is an obiter
dictum. On this score alone the award for damages must be set aside, since
RBS is a corporation.

19. Filipinas Broadcasting vs. Ago Medical Center

GR No. 141994, January 17, 2005

28
FACTS:
Petitioner’s broadcasters Rima ang Alegre broadcast in two separated
dates malicious and libelous remarks against the respondent and its owner.
Respondent filed an action against the petitioner for damages for the libelous
remarks. The RTC ruled in favor of the Respondent and award Moral damages
to the Respondent only and not its owners. Petitioner and Respondent went to
the CA to appeal the case. CA rendered in favor of the Respondent awarding
moral damages to it but not its owners. Petitioner went to SC raising the issue
that the respondent is Corporation and not entitled to Moral Damages.

ISSUE:
Whether the Respondent, a Corporation is entitled to Moral damages?

RULING:
The Court decided in the affirmative.
It explained that a juridical person is generally not entitled to moral
damages because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental
anguish or moral shock. However, the Court’s statement in the Mambulao case
that “a corporation may have a good reputation which, if besmirched, may also
be a ground for the award of moral damages” is an obiter dictum. Nevertheless,
AMEC’s claim for moral damages falls under item 7 of Article 2219 of the Civil
Code. This provision expressly authorizes the recovery of moral damages in
cases of libel, slander or any other form of defamation. Article 2219(7) does not
qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any
other form of defamation and claim for moral damages. Moreover, where the
broadcast is libelous per se, the law implies damages. In such a case, evidence
of an honest mistake or the want of character or reputation of the party libeled
goes only in mitigation of damages. Neither in such a case is the plaintiff
required to introduce evidence of actual damages as a condition precedent to
the recovery of some damages. In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.

20. PNB vs. CA

29
GR NO. 27155, May 18, 1978

FACTS:
PNB executed its bond with Rita Tapnio as principal, in favor of the PNB
to guarantee the payment of Tapnio's account with the former and executed an
Indemnity Agreement with 12% int. and 15% atty. Fees. On Sept 18 1957,
PNB sent a letter of demand for Tapnio to pay the reduced amount of 2,379.91.
PNB demanded both oral and written but to no avail. Tapnio mortgaged to the
bank her lease agreement with Jacobo Tuazon for her unused export sugar
quota at P2.80 per picular or a total of P2,800 which was more than the value
of the bond
PNB insisted on raising it to P3.00 per picular so Tuazon rejected the offer.

ISSUE:
Whether or not PNB should be liable for damages.

HELD:
The Court decided in the affirmative.
While Tapnio had the ultimate authority of approving or disapproving the
proposed lease since the quota was mortgaged to the bank, it certainly
CANNOT escape its responsibility of observing, for the protection of the interest
of Tapnio and Tuazon, that the degree of care, precaution and vigilance which
the circumstances justly demand in approving or disapproving the lease of said
sugar quota. Art. 21 of the Civil Code provides that any person who wilfully
causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.

30
21. Professional Services Inc. vs. CA
G.R. No. 126297, Feb. 2, 2010

FACTS:
Natividad Agana was rushed to the Medical City Hospital because of
difficulty of bowel movement and bloody anal discharge. Dr. Miguel Ampil,
diagnosed her to be suffering from “cancer of the sigmoid.” Dr. Ampil, assisted
by the medical staff of the Medical City Hospital, performed an anterior
resection surgery on Natividad. He found that the malignancy in her sigmoid
area had spread on her left ovary, necessitating the removal of certain portions
of it. Thus, Dr. Ampil obtained the consent of Natividad’s husband, Enrique
Agana, to permit Dr. Juan Fuentes, to perform hysterectomy on her.
After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over,
completed the operation and closed the incision. However, the operation
appeared to be flawed. After a couple of days, Natividad complained of
excruciating pain in her anal region. She consulted both Dr. Ampil and Dr.
Fuentes about it. They told her that the pain was the natural consequence of
the surgery. Two weeks after Natividad returned from the United States to
seek further treatment, her daughter found a piece of gauze protruding from
her vagina. Upon being informed about it, Dr. Ampil proceeded to her house
where he managed to extract by hand a piece of gauze measuring 1.5 inches in
width. He then assured her that the pains would soon vanish.
Dr. Ampil’s assurance did not come true. Instead, the pains intensified,
prompting Natividad to seek treatment at the Polymedic General Hospital.
While confined there, Dr. Ramon Gutierrez detected the presence of another
foreign object in her vagina — a foul-smelling gauze measuring 1.5 inches in
width which badly infected her vaginal vault. A recto-vaginal fistula had formed
in her reproductive organs which forced stool to excrete through the vagina.
Another surgical operation was needed to remedy the damage.
Natividad and her husband filed with the RTC a complaint for damages
against the Professional Services, Inc. (PSI), owner of the Medical City Hospital,
Dr. Ampil, and Dr. Fuentes. They alleged that the latter are liable for negligence
for leaving two pieces of gauze inside Natividad’s body and malpractice for
concealing their acts of negligence. Pending the outcome of the above cases,
Natividad died and was duly substituted by her children (the Aganas). The RTC
rendered its Decision in favor of the Aganas, finding PSI, Dr. Ampil and Dr.
Fuentes liable for negligence and malpractice.
The Court of Appeals rendered its Decision dismissing the case against
Dr. Fuentes with Dr. Ampil liable to reimburse Professional Services, Inc.,
whatever amount the latter will pay or had paid to the plaintiffs.

ISSUES:

31
 Whether or not PSI may be held solidarily liable for the negligence of Dr.
Ampil.

RULING:
The Court ruled in the affirmative.
Accordingly, PSI is solidarily liable for the negligence of Dr. Ampil. In
Ramos v. CA, the court held that private hospitals, hire, fire and exercise real
control over their attending and visiting ‘consultant’ staff. While ‘consultants’
are not, technically employees, the control exercised, the hiring, and the right
to terminate consultants all fulfill the important hallmarks of an employer-
employee relationship, with the exception of the payment of wages. The Court
held that for the purpose of allocating responsibility in medical negligence
cases, an employer-employee relationship in effect exists between hospitals and
their attending and visiting physicians. In addition to the pronouncement in
Ramos vs CA, its liability is also anchored upon the agency principle of
apparent authority or agency by estoppel and the doctrine of corporate
negligence.
In this case, PSI publicly displays in the lobby of Hospital the names and
specializations of the physicians associated or accredited by it, including those
of Dr. Ampil and Dr. Fuentes. It is now estopped from passing all the blame to
the physicians whose names it proudly paraded in the public directory leading
the public to believe that it vouched for their skill and competence. PSI’s act is
tantamount to holding out to the public that Medical City Hospital, through its
accredited physicians, offers quality health care services. By accrediting Dr.
Ampil and Dr. Fuentes and publicly advertising their qualifications, the
hospital created the impression that they were its agents, authorized to
perform medical or surgical services for its patients. As expected, these
patients, Natividad being one of them, accepted the services on the reasonable
belief that such were being rendered by the hospital or its employees, agents,
or servants.
Under the doctrine of corporate negligence or corporate responsibility,
PSI as owner, operator and manager of Medical City Hospital, did not perform
the necessary supervision nor exercise diligent efforts in the supervision of Drs.
Ampil and Fuentes and its nursing staff, resident doctors, and medical interns
who assisted Drs. Ampil and Fuentes in the performance of their duties as
surgeons. Premised on the doctrine of corporate negligence, the trial court held
that PSI is directly liable for such breach of duty. In the present case, it was
duly established that PSI operates the Medical City Hospital for the purpose
and under the concept of providing comprehensive medical services to the
public. Accordingly, it has the duty to exercise reasonable care to protect from
harm all patients admitted into its facility for medical treatment. Unfortunately,
PSI failed to perform such duty. Not only did PSI breach its duties to oversee
or supervise all persons who practice medicine within its walls, it also failed to
take an active step in fixing the negligence committed. This renders PSI, not

32
only vicariously liable for the negligence of Dr. Ampil under Article 2180 of the
Civil Code, but also directly liable for its own negligence under Article 2176.

22. Kukan International Corp. vs. Reyes

G.R No. 182729, Sept. 29, 2010

FACTS
Kukan, Inc. conducted a bidding worth PhP 3,388,502) for the supply
and installation of signages in a building being constructed in which was won
by Morales. Despite his compliance, Morales was only paid the amount of PhP
1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc.
refused to pay despite demands. Morales filed a Complaint with the RTC
against Kukan, Inc. for sum of money. However, afterwards Kukan, Inc. no
longer appeared and participated in the proceedings before the trial court,
prompting the RTC to declare Kukan, Inc. in default and paving the way for
Morales to present his evidence ex parte. The RTC rendered a Decision against
Kukan, Inc. Morales moved for and secured a writ of execution against Kukan,
Inc. The sheriff then levied upon various personal properties found at what was
supposed to be Kukan, Inc.’s office. Alleging that it owned the properties thus
levied and that it was a different corporation from Kukan, Inc., Kukan
International Corporation (KIC) filed an Affidavit of Third-Party Claim. Notably,
KIC was incorporated shortly after Kukan, Inc. had stopped participating in
Civil Case.
In reaction to KIC’s claim, Morales interposed an Omnibus Motion
praying, and applying the principle of piercing the veil of corporate fiction, that
an order be issued for the satisfaction of the judgment debt of Kukan, Inc. with
the properties under the name or in the possession of KIC, it being alleged that
both corporations are but one and the same entity. KIC opposed Morales’
motion. The court denied the omnibus motion.
In a bid to establish the link between KIC and Kukan, Inc., Morales filed
a Motion for Examination of Judgment Debtors which sought that subpoena be
issued against the primary stockholders of Kukan, Inc. This too was denied by
the court. Morales then sought the inhibition of the presiding Judge, Eduardo
Peralta, Jr., who eventually granted the motion. The case was re-raffled to
another branch presided by public respondent Judge, Reyes. Here, Morales
filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no
existence separate from Kukan, Inc. This time around, the RTC, granted the
motion. From the above order, KIC moved but was denied reconsideration. KIC
went to the CA on a petition for certiorari to nullify the aforesaid RTC Orders
but the CA denied the petition and affirmed the assailed Orders. The CA later

33
denied KIC’s MR in the assailed resolution. Hence, the instant petition for
review.

ISSUES
A. Whether the trial court can, after the judgment against Kukan, Inc.
has attained finality, execute it against the property of KIC;

B. Whether the trial court acquired jurisdiction over KIC;

C. Whether the trial and appellate courts correctly applied, under the
premises, the principle of piercing the veil of corporate fiction.
RULING:

A. No.
The Court said that a case in which an execution has been issued is
regarded as still pending so that all proceedings on the execution are
proceedings in the suit. There is no question that the court which rendered the
judgment has a general supervisory control over its process of execution, and
this power carries with it the right to determine every question of fact and law
which may be involved in the execution. The court’s supervisory control does
not, however, extend as to authorize the alteration or amendment of a final and
executory decision, save for certain recognized exceptions, among which is the
correction of clerical errors. Else, the court violates the principle of finality of
judgment and immutability.
As may be noted, the above decision, in unequivocal terms, directed
Kukan, Inc. to pay the aforementioned awards to Morales. Thus, making KIC,
thru the medium of a writ of execution, answerable for the above judgment
liability is a clear case of altering a decision, an instance of granting relief not
contemplated in the decision sought to be executed. And the change does not
fall under any of the recognized exceptions to the doctrine of finality and
immutability of judgment. It is a settled rule that a writ of execution must
conform to the fallo of the judgment; as an inevitable corollary, a writ beyond
the terms of the judgment is a nullity.

B. No.
In the instant case, KIC was not made a party-defendant in Civil Case.
Even if it is conceded that it raised affirmative defenses through its
aforementioned pleadings, KIC never abandoned its challenge, however
implicit, to the RTC’s jurisdiction over its person. The challenge was subsumed
in KIC’s primary assertion that it was not the same entity as Kukan, Inc.
Pertinently, in its Comment and Opposition to Plaintiff’s Omnibus Motion, KIC
entered its “special but not voluntary appearance” alleging therein that it was a
different entity and has a separate legal personality from Kukan, Inc. And KIC
would consistently reiterate this assertion in all its pleadings, thus effectively
resisting all along the RTC’s jurisdiction of its person. It cannot be

34
overemphasized that KIC could not file before the RTC a motion to dismiss and
its attachments in Civil Case, precisely because KIC was neither impleaded nor
served with summons. Consequently, KIC could only assert and claim through
its affidavits, comments, and motions filed by special appearance before the
RTC that it is separate and distinct from Kukan, Inc.

C. No.
The principle of piercing the veil of corporate fiction, and the resulting
treatment of two related corporations as one and the same juridical person
with respect to a given transaction, is basically applied only to determine
established liability; and it is not available to confer on the court a jurisdiction
it has not acquired, in the first place, over a party not impleaded in a case.
Elsewise put, a corporation not impleaded in a suit cannot be subject to the
court’s process of piercing the veil of its corporate fiction. In that situation, the
court has not acquired jurisdiction over the corporation and, hence, any
proceedings taken against that corporation and its property would infringe on
its right to due process.
To justify the piercing of the veil of corporate fiction, it must be 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. To be sure, the
Court has, on numerous occasions, applied the principle where a corporation
is dissolved and its assets are transferred to another to avoid a financial
liability of the first corporation with the result that the second corporation
should be considered a continuation and successor of the first entity. In those
instances when the Court pierced the veil of corporate fiction of two
corporations, there was a confluence of the following factors:

1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second

corporation to avoid a financial liability of the first corporation; and

3. Both corporations are owned and controlled by the same

persons such that the second corporation should be considered as a
continuation and successor of the first corporation.

In the instant case, however, the second and third factors are conspicuously
absent. There is, therefore, no compelling justification for disregarding the
fiction of corporate entity separating Kukan, Inc. from KIC. In applying the
principle, both the RTC and the CA miserably failed to identify the presence of
the abovementioned factors.

35
23. JAKA INVESTMENTS CORP vs. CIR
G.R. No. 147629, July 28, 2010

FACTS:
Petitioner proposed to subscribe shares through a tax-free exchange
wherein, as payment for its subscription, petitioner assigned and transferred
its shares from other corporations and paid in cash the remaining balance.
Petitioner, after seeing the certifications in one of the corporation, the total
amount of which was less than the actual amount it had paid as documentary
stamp tax; and concluded that it had overpaid. Petitioner subsequently sought
a refund. Petitioner’s contends that the tax base for the documentary stamp
tax should have been only the shares of stocks transferred as payment for its
subscription, and not the cash component of the payment for its subscription.
Later, petitioner filed a petition for refund before the CTA which was denied
and likewise denied petitioner’s Motion for Reconsideration. Petitioner appealed
to the Court of Appeals which sustained the CTA. Respondent maintains that
the DST imposed is on the original issue of certificates of stock on the
subscription by the petitioner and not on the shares of stock owned by
petitioner in the other corporations, which merely form part of the partial
payment of the subscribed shares.

ISSUE:
Whether or not DST computation should not include the cash
component as partial payment to its subscription.

RULING:
The Supreme Court ruled in favor of respondent. It reasoned out that a
documentary stamp is levied upon the privilege, the opportunity and the
facility offered at exchanges for the transaction of the business. This being the
case the documentary stamp tax or DST imposition is essentially addressed
and directly brought to bear upon the document evidencing the transaction of
the parties which establishes its rights and obligations, which in this case, was
established and enforceable upon the execution of the Amended Subscription

36
Agreement and Deed of Assignment of Property in Payment of Subscription.
The documentary stamp tax is imposed on the entire subscription which is the
amount of the capital stock subscribed whether fully paid or not. It connotes
an original subscription contract for the acquisition by a subscriber of
unissued shares in a corporation.

24. Ong Yong v. Tiu

GR No. 144476, April 8, 2003

FACTS:
The construction of the Masagana Citimall in Pasay City was threatened
with stoppage, when its owner, the First Landlink Asia Development
Corporation (FLADC), owned by the Tius, became heavily indebted to the
Philippine National Bank (PNB) for P190M. To save the 2 lots where the mall
was being built from foreclosure, the Tius invited Ong Yong, Juanita Tan Ong,
Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs),
to invest in FLADC; and agreed to maintain equal shareholdings in FLADC.
The Ongs subscribed to 1,000,000 shares and the Tius subscribed to an
additional 549,800 shares in addition to their already existing subscription of
450,200 shares. The Tius nominated the Vice-President and the Treasurer
plus 5 directors and the Ongs nominated the President, the Secretary and 6
directors (including the chairman) to the board of directors with the right to
manage and operate the mall. The Tius contributed to FLADC a 4-storey
building worth P20M for 200K shares and 2 parcels of land P30M for 300K
shares and P49.8M for 49,800 shares. The Ongs paid P190M to settle the
mortgage indebtedness of FLADC to PNB for their subscription to 1M shares.
Later on, the Tius rescinded the Pre-Subscription Agreement and filed at the
Securities and Exchange Commission (SEC) seeking confirmation of their
rescission which the SEC confirmed. On the otherhand, the Ongs filed
reconsideration that their P70M was not a premium on capital stock but an
advanced loan but the SEC en banc affirmed it was a premium on capital
stock. On appeal, the CA held that the Ongs and the Tius were in pari delicto
(which would not have legally entitled them to rescission) but, "for practical
considerations," that is, their inability to work together, it was best to separate
the two groups by rescinding the Pre-Subscription Agreement, returning the
original investment of the Ongs and awarding practically everything else to the
Tius.

37
ISSUE:
Whether or not specific performance and not rescission is the remedy.

RULING:
The Court decided in favor of the Ongs holding that the rescission of the
contract is not justified. Providing appropriate offices for David S. Tiu and Cely
Y. Tiu as Vice-President and Treasurer, respectively, had no bearing on their
obligations under the Pre-Subscription Agreement since the obligation
pertained to FLADC itself. Failure of the Ongs to credit shares of stock in favor
of the Tius for their property contributions also pertained to the corporation
and not to the Ongs. The principal objective of both parties in entering into the
Pre-Subscription Agreement in 1994 was to raise the P190 million. The law
requires that the breach of contract should be so "substantial or fundamental"
as to defeat the primary objective of the parties in making the agreement since
the cash and other contributions now sought to be returned already belong to
FLADC, an innocent third party, said remedy may no longer be availed of under
the law. Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed a subscription
within the meaning of the law, notwithstanding the fact that the parties refer to
it as a purchase or some other contract and allows the distribution of corporate
capital only in three instances: (1) amendment of the Articles of Incorporation
to reduce the authorized capital stock; (2) purchase of redeemable shares by
the corporation, regardless of the existence of unrestricted retained earnings;
and (3) dissolution and eventual liquidation of the corporation. The parties
wanted the Court to make a corporate decision for FLADC. The Ongs'
shortcomings were far from serious and certainly less than substantial; they
were in fact remediable and correctable under the law. It would be totally
against all rules of justice, fairness and equity to deprive the Ongs of their
interests on petty and tenuous grounds.

38
25. Alhambra Cigar & Cigarette Manufacturing Co., Inc. vs. SEC
GR No. L-23606, July 29, 1968

FACTS:
Alhambra Cigar and Cigarette Manufacturing Company, Inc. was duly
incorporated under Philippine laws on January 15, 1912. By its corporate
articles it was to exist for 50 years from incorporation. Its term of existence
expired on January 15, 1962. On that date, it ceased transacting business,
entered into a state of liquidation. Thereafter, a new corporation, Alhambra
Industries, Inc., was formed to carry on the business. On June 20, 1963,
within Alhambra's three-year statutory period for liquidation, RA 3531 was
enacted into law. It amended Section 18 of the Corporation Law empowering
domestic private corporations to extend their corporate life beyond the period
fixed by the articles of incorporation for a term not to exceed fifty years in any
one instance. Previous to RA 3531, the maximum non-extendible term of such
corporations was fifty years. On July 15, 1963, at a special meeting,
Alhambra's board of directors resolved to amend paragraph four of its articles
of incorporation to extend its corporate life for an additional fifty years, or a
total of 100 years from its incorporation. Alhambra's articles of incorporation
as so amended certified correct by its president and secretary and a majority
of its board of directors, were then filed with SEC. SEC, however, returned said
amended articles of incorporation to Alhambra's counsel with the ruling that
RA3531 "which took effect only on June 20, 1963, cannot be availed of by the
said corporation, for the reason that its term of existence had already expired
when the said law took effect. In short, said law has no retroactive effect.

ISSUE:

39
 Whether or not a corporation can extend its life by amendment of its
articles of incorporation effected during the three-year statutory period for
liquidation when its original term of existence had already expired.

RULING:
The Court expressed that it is plain from the language of the provision of
Section 77 of Corporation Law is its meaning: continuance of a "dissolved"
corporation as a body corporate for three years has for its purpose the final
closure of its affairs, and no other; the corporation is specifically enjoined from
"continuing the business for which it was established". The liquidation of the
corporation's affairs set forth in Section 77 became necessary precisely because
its life had ended. For this reason alone, the corporate existence and juridical
personality of that corporation to do business may no longer be extended. And
it should be clearly evident that no corporation in a state of liquidation can act
in any way, much less amend its articles, for the purpose of continuing the
business for which it was established.

26. PNB v. CA
GR No. 63201, May 27, 1992

FACTS:
Private respondents entered into a contract of lease with Philippine
Blooming Mills, Co., Inc., (PBM) whereby the latter shall lease parcels of land,
owned by the former, as factory site. PBM was duly organized and incorporated
on January 1952 with a corporate term of 25 years. The contract of lease
provides that the term of the lease is for 20 years beginning from the date of
the contract and is extendable for another term of 20 years at the option of the
LESSEE should its term of existence be extended in accordance with law. The
contract also states that the lessee agrees to use the property as factory site
and for that purpose to construct whatever buildings or improvements may be
necessary or convenient for any purpose it may deem fit; and before the
termination of the lease, to remove all such buildings and improvements.
Accordingly, PBM introduced on the land, buildings, machineries and other
useful improvements. These constructions and improvements were registered
with the Registry of Deeds. On October 1963, PBM executed in favor of
Philippine National Bank (PNB), petitioner herein, a deed of assignment,
conveying and transferring all its rights and interests under the contract of
lease which it executed with private respondents. The assignment was for and
in consideration of the loans granted by PNB to PBM. The deed of assignment
was registered and annotated at the back of the private respondents’
certificates of title. On November 1963 and December 1963 respectively, PBM
executed in favor of PNB a real estate mortgage for a loan of P100,000.00 and
an addendum to real estate mortgage for another loan of P1,590,000.00,
covering all the improvements constructed by PBM on the leased premises.

40
These mortgages were registered and annotated at the back of respondents’
certificates. On October 1981, respondents filed a motion in the same
proceedings which was given a different case number because of the payment
of filing fees for the motion. The motion sought to cancel the annotations on
respondents’ certificates of title pertaining to the assignment by PBM to PNB of
the former’s leasehold rights, inclusion of improvements and the real estate
mortgages made by PBM in favor of PNB, on the ground that the contract of
lease entered into between PBM and respondents-movants had already expired
by the failure of PBM and/or its assignee to exercise the option to renew the
second 20-year lease commencing on March 1974 and also by the failure of
PBM to extend its corporate existence in accordance with law. The motion also
states that since PBM failed to remove its improvements on the leased premises
before the expiration of the contract of lease, such improvements shall accrue
to respondents as owners of the land.

ISSUE:
Whether or not the corporate life of PBM was extended by the
continuance of the lease and subsequent registration of the title to the
improvements under its name.

RULING:
The Court ruled in the negative.
The contract of lease expressly provides that the term of the lease shall
be 20 years from the execution of the contract but can be extended for another
period of 20 years at the option of the lessee should the corporate term be
extended in accordance with law. Clearly, the option of the lessee to extend the
lease for another period of 20 years can be exercised only if the lessee as
corporation renews or extends its corporate term of existence in accordance
with the Corporation Code. Contracts are to be interpreted according to their
literal meaning and should not be interpreted beyond their obvious
intendment. Thus, in the case, the initial term of the contract of lease which
commenced on March 1954 ended on March 1974. PBM as lessee continued to
occupy the leased premises beyond that date with the acquiescence and
consent of the respondents as lessor. Records show however, that PBM as a
corporation had a corporate life of only 25 years which ended on January
1977. It should be noted however that PBM allowed its corporate term to expire
without complying with the requirements provided by law for the extension of
its corporate term of existence.
Section 11 of Corporation Code provides that a corporation shall exist for
a period not exceeding 50 years from the date of incorporation unless sooner
dissolved or unless said period is extended. Upon the expiration of the period
fixed in the articles of incorporation in the absence of compliance with the legal
requisites for the extension of the period, the corporation ceases to exist and is
dissolved ipso facto. When the period of corporate life expires, the corporation
ceases to be a body corporate for the purpose of continuing the business for

41
which it was organized. But it shall nevertheless be continued as a body
corporate for three years after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits by or against it and
enabling it gradually to settle and close its affairs, to dispose of and convey its
property and to divide its assets. There is no need for the institution of a
proceeding for quo warranto to determine the time or date of the dissolution of
a corporation because the period of corporate existence is provided in the
articles of incorporation. When such period expires and without any extension
having been made pursuant to law, the corporation is dissolved automatically
insofar as the continuation of its business is concerned. The quo warranto
proceeding under Rule 66 of the Rules of Court, as amended, may be instituted
by the Solicitor General only for the involuntary dissolution of a corporation on
the following grounds: a) when the corporation has offended against a provision
of an Act for its creation or renewal; b) when it has forfeited its privileges and
franchises by non-user; c) when it has committed or omitted an act which
amounts to a surrender of its corporate rights, privileges or franchises; d) when
it has mis-used a right, privilege or franchise conferred upon it by law, or when
it has exercised a right, privilege or franchise in contravention of law. Hence,
there is no need for the SEC to make an involuntary dissolution of a
corporation whose corporate term had ended because its articles of
incorporation had in effect expired by its own limitation.

Considering the foregoing in relation to the contract of lease between the

parties herein, when PBM’s corporate life ended on January 1977 and its 3-
year period for winding up and liquidation expired on January 1980, the option
of extending the lease was likewise terminated because PBM failed to renew or
extend its corporate life in accordance with law. From then on, the respondents
can exercise their right to terminate the lease pursuant to the stipulations in
the contract.

42
27. Seventh Day Adventist vs. Northeastern Mindanao Mission
GR No. 150416, July 21, 2006

FACTS:
Spouses Felix Cosio and Felisa Cuysona donated a parcel of land to
South Philippine Mission of Seventh Day Adventist Church, and was received
by Liberato Rayos, an elder of the Seventh Day Adventist Church, on behalf of
the donee. However, twenty years later, the spouses sold the same land to the
Seventh Day Adventist Church of Northeastern Mindanao Mission. Claiming to
be the alleged donee’s successors-in-interest, petitioners asserted ownership
over the property. This was opposed by respondents who argued that at the
time of the donation, SPUM-SDA Bayugan could not legally be a donee
because, not having been incorporated yet, it had no juridical personality.
Neither were petitioners members of the local church then, hence, the donation
could not have been made particularly to them.

ISSUE:
Whether or not the Seventh Day Adventist Church of Northeastern
Mindanao Mission's ownership of the lot be upheld?

RULING:

43
 The Court answered in the affirmative.
It ratiocinated that a donation is undeniably one of the modes of
acquiring ownership of real property. Likewise, ownership of a property may be
transferred by tradition as a consequence of a sale. Donation is an act of
liberality whereby a person disposes gratuitously of a thing or right in favor of
another person who accepts it. The donation could not have been made in favor
of an entity yet inexistent at the time it was made. Nor could it have been
accepted as there was yet no one to accept it.

28. Matling Industrial and Commercial Corporation vs. Coros

G.R. No. 157802, October 13, 2010

FACTS:
After his dismissal by Matling as its VP for Finance and
Administration, the respondent filed a complaint for illegal suspension
and illegal dismissal against Matling and some of its corporate officers in
the NLRC. The petitioners moved to dismiss the complaint, raising the
ground, among others, that the complaint pertained to the jurisdiction of the
SEC due to the controversy being intra-corporate in as much as the
respondent was a member of Matling’s Board of Directors, aside from being its
VP for Finance and Administration prior to his termination. The respondent
opposed the petitioners’ motion to dismiss, insisting that his status as a
member of Matling’s Board of Directors was doubtful, considering that he had
not been formally elected as such; that he did not own a single share of stock
in Matling, and considering that he had been made to sign in blank an undated
indorsement of the certificate of stock he had been given in 1992. Matling had
taken back and retained the certificate of stock in its custody; and that even
assuming that he had been a Director of Matling, he had been removed as

44
the Vice President for Finance and Administration, not as a Director, a fact
that the notice of his termination showed.

ISSUE:
Whether or not the SEC jurisdiction to hear the case.

RULING:
The Court decided in the negative.
It said that the SEC has no jurisdiction to hear the case. As a rule, the
illegal dismissal of an officer or other employee of a private employer is properly
cognizable by the NLRC. Where the complaint for illegal dismissal concerns a
corporate officer, however, the controversy falls under the jurisdiction of the
SEC, because the controversy arises out of intra-corporate or partnership
relations between and among stockholders, members, or associates, or between
any or all of them and the corporation, partnership, or association of
which they are stockholders, members, or associates, respectively; and
between such corporation, partnership, or association and the State
insofar as the controversy concerns their individual franchise or right to
exist as such entity; or because the controversy involves the election or
appointment of a director, trustee, officer, or manager of such
corporation, partnership, or association. Such controversy, among others, is
known as an intra-corporate dispute.

Upon the passage of Republic Act No. 8799, or the Securities Regulation
Code, the SEC’s jurisdiction over all intra-corporate dispute is transferred to
the jurisdiction of the Regional Trial Courts. In this case, whoever is
enumerated in the Corporation Code or the By-laws of Matlin are the
exclusive Officers of the corporation and the Board has no power to
create other offices without amending first the corporate by-laws of the
corporation. However, the Board may create appointive positions other
than the positions of corporate officers, but the person occupying such
positions are not considered as corporate officers within the meaning of
Section 25 of the Corporation Code and are not empowered to exercise the
functions of the corporate officers, except for those legally delegated to them. In
this case, respondent was appointed vice president for nationwide expansion
by Malonzo, petitioner’s general manager, not by the board of directors of
petitioner. It was also Malonzo who determined the compensation package
of respondent. Thus, respondent was an employee, not a corporate officer.
Therefore, the SEC has no jurisdiction to hear the case.

45
29. Valle Verde Country Club, Inc. vs. Africa
G.R. No.151969, September 4, 2009

FACTS:
On 1996, during the Annual Stockholders’ Meeting of petitioner Valle
Verde Country Club, Inc. (VVCC), the VVCC Board of Directors were elected
including Makalintal among others. In the years 1997, 1998, 1999, 2000, and
2001, however, the requisite quorum for the holding of the stockholders’
meeting could not be obtained. Consequently, the directors continued to serve
in the VVCC Board in a hold-over capacity. Later, Makalintal resigned as
member of the VVCC Board. He was replaced by Ramirez, who was elected by
the remaining members of the VVCC Board on 2001. Respondent Africa, a
member of VVCC, questioned the election of Ramirez as members of the VVCC
Board with the RTC. Africa claimed that a year after Makalintal’s election as
member of the VVCC Board in 1996, his term as well as those of the other
members of the VVCC Board should be considered to have already expired.
Thus, according to Africa, the resulting vacancy should have been filled by the

46
stockholders in a regular or special meeting called for that purpose, and not by
the remaining members of the VVCC Board, as was done in this case. The
RTC sustained Africa’s complaint.

ISSUE:
Whether the remaining directors of the corporation’s Board, still
constituting a quorum, can elect another director to fill in a vacancy caused by
the resignation of a hold-over director.

RULING:
The Court ruled in the negative.
When Section 23 of the Corporation Code declares that “the board of
directors…shall hold office for one (1) year until their successors are elected
and qualified,” we construe the provision to mean that the term of the members
of the board of directors shall be only for one year; their term expires one year
after election to the office. The holdover period – that time from the lapse of
one year from a member’s election to the Board and until his successor’s
election and qualification – is not part of the director’s original term of office,
nor is it a new term; the holdover period, however, constitutes part of his
tenure. Corollary, when an incumbent member of the board of directors
continues to serve in a holdover capacity, it implies that the office has a fixed
term, which has expired, and the incumbent is holding the succeeding term.
When the remaining members of the VVCC Board elected Ramirez to
replace Makalintal, there was no more unexpired term to speak of, as
Makalintal’s one-year term had already expired. Pursuant to law, the authority
to fill in the vacancy caused by Makalintal’s leaving lies with the VVCC’s
stockholders, not the remaining members of its board of directors. To assume –
as VVCC does – that the vacancy is caused by Makalintal’s resignation in 1998,
not by the expiration of his term in 1997, is both illogical and unreasonable.
His resignation as a holdover director did not change the nature of the
vacancy; the vacancy due to the expiration of Makalintal’s term had been
created long before his resignation.

47
30. Tan vs. Sycip
G.R. No. 153468, August 17, 2006

FACTS:
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit
educational corporation with 15 regular members, who also constitute the
board of trustees. During the annual members meeting held on April 1998,
there were only 11 living member-trustees, as four had already died. Out of the
eleven, seven attended the meeting through their respective proxies. The
meeting was convened and chaired by Atty. Padilla Jr. over the objection of
Atty. Pacis, who argued that there was no quorum. In the meeting, Petitioners
Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to
replace the four deceased member-trustees. When the controversy reached the
SEC, petitioners maintained that the deceased member-trustees should not be
counted in the computation of the quorum because, upon their death,

48
members automatically lost all their rights (including the right to vote) and
interests in the corporation.
SEC Hearing Officer Militar declared the April 1998 meeting null and void for
lack of quorum. She held that the basis for determining the quorum in a
meeting of members should be their number as specified in the articles of
incorporation, not simply the number of living members.

ISSUE:
Whether or not the dead members should still be counted in
determination of quorum for purpose of conducting the Annual Members
Meeting.

RULING:
In non-stock corporations, the voting rights attach to membership.
Members vote as persons, in accordance with the law and the bylaws of the
corporation. Each member shall be entitled to one vote unless so limited,
broadened, or denied in the articles of incorporation or bylaws. The Court held
that when the principle for determining the quorum for stock corporations is
applied by analogy to nonstock corporations, only those who are actual
members with voting rights should be counted.
Under Section 52 of the Corporation Code, 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 incorporation,
constitutes the quorum. Section 25 of the Code specifically provides that a
majority of the directors or trustees, as fixed in the articles of incorporation,
shall constitute a quorum for the transaction of corporate business (unless the
articles of incorporation or the bylaws provide for a greater majority). If the
intention of the lawmakers was to base the quorum in the meetings of
stockholders or members on their absolute number as fixed in the articles of
incorporation, it would have expressly specified so. Otherwise, the only logical
conclusion is that the legislature did not have that intention.

In stock corporations, shareholders may generally transfer their shares.

Thus, on the death of a shareholder, the executor or administrator duly
appointed by the Court is vested with the legal title to the stock and entitled to
vote it. Until a settlement and division of the estate is effected, the stocks of the
decedent are held by the administrator or executor. On the other hand,
membership in and all rights arising from a nonstock corporation are personal
and non-transferable, unless the articles of incorporation or the bylaws of the
corporation provide otherwise. In other words, the determination of whether or
not dead members are entitled to exercise their voting rights (through their
executor or administrator), depends on those articles of incorporation or
bylaws.
Under the By-Laws of GCHS, membership in the corporation shall,
among others, be terminated by the death of the member. Section 91 of the

49
Corporation Code further provides that termination extinguishes all the rights
of a member of the corporation, unless otherwise provided in the articles of
incorporation or the bylaws. Applying Section 91 to the present case, we hold
that dead members who are dropped from the membership roster in the
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, conducted with six members present, was valid.

31. Saber vs. Court of Appeals

G.R. No. 132981, August 31, 2004

FACTS:
On April 1974 then President Marcos appointed Dr. Saber as Executive
Vice-President of the Philippine Amanah Bank (PAB). He was also designated
as the Officer-in-Charge of the bank pending the election of its president by the
Board of Directors. Saber was surprised because he did not apply for
appointment to the position. He inquired from Executive Secretary Melchor
why he was appointed thereto, considering that he had no experience

50
whatsoever in the field of business and banking. He was told that he was
chosen by the President from among forty applicants because of his proven
personal integrity. Saber took a year-long leave of absence from the university
and assumed office at the PAB. From the serenity of the academe, he plunged
head-on into the turbulent and intricate world of business. One of the
members of the Board of Directors of the bank was Aradji who was also the
Acting Chairman of the Screening Committee for Personnel. Saludo, then
Senior Vice-President of the Philippine National Bank (PNB), was a
management consultant of PAB. Saber was sent to Malaysia to study how its
Malaysian government prepared and managed the annual Muslim pilgrimage
(Hajj) to Mecca, and thus, avoid the fiascos that plagued previous such
pilgrimages of Filipino Muslims in the past. After his stint in Malaysia, Saber
resumed his duties at the PAB. Saber decided to charter the M/V Sweet
Homes, owned by the Sweet Lines, Inc., for the trip. In behalf of the PAB, as
charter, Saber executed a Uniform Time-Charter on October 1974 under which
the PAB chartered the M/V Sweet Homes to transport the pilgrims to Mecca
and back to the Philippines for P 5,300,000 cash, the amount budgeted by the
PAB. The parties executed a Rider to Charter Party in which the PAB was
allowed to load cargoes in the cargo hold of the vessel up to 500 metric tons
free of freight. The vessel was scheduled to leave on November 28, 1974. There
was no time to lose; the PAB conducted a massive information drive to inform
the Muslims of the arrangements, including the accommodations on board the
vessel and urged them to join the Hajj through the bank. Prospective pilgrims,
including PAB depositors, made reservations for the voyage and made partial
payments for their tickets thereon. In a parallel development, Atty. Toro, the
Legal Counsel of PAB, prepared a Freight Contract which PAB, through Saber,
and the AGEAC, through Basman, its General Manager, executed without the
approval of the PAB Board of Directors. Under the contract, AGEAC was
allowed to load on the M/V Sweet Homes chartered by PAB,
exportable/importable goods and other cargoes on its trip to Saudi Arabia and
return, in consideration of a sum to be paid by AGEAC via a postdated check.
During the meeting of PAB Board of Directors, Saber was present. The Board,
after exhaustive deliberations, approved a resolution without any objection,
declaring Saber liable for the receivables on the ground that the Board did not
authorize him to sell tickets on credit payable via postdated checks, and to
execute the Freight Contract with AGEAC. The Board directed Saber to collect
the receivables himself, because of its perception that if the PAB endeavored to
collect the receivables, it would, thereby, be ratifying the unauthorized acts of
Saber.

ISSUE:
Whether or not a separate committee should be formed to investigate on
the allegations against petitioner, Saber.

RULING:

51
 The Court agreed with the petitioner that a person other than respondent
Aradji should have been designated as Chairperson of the Investigating
Committee to investigate the pilgrimage fiasco. This is so because in his
Memorandum to the Board of Directors of PAB, Aradji had declared that the
1974 Mecca pilgrimage under the supervision of Saber was mishandled and
there were indications then that there was an apparent lack of exercise of
effective leadership which was so vital and essential to make the bank truly
responsive to the needs of the Filipino Muslims. Aradji then proposed that
Saludo exercise the powers of the president of the respondent bank in place of
Saber. In fine, Aradji attributed the problems attendant to the pilgrimage fiasco
to Saber. But then Saber did not oppose the designation by the Board of
Directors for respondent Aradji to be the Chairman of the Investigating
Committee, or even asked for the latter’s inhibition. Saber must have believed
that he could still prove that he acted in good faith, and was not guilty of any
wrongdoing regardless of any misconception of Aradji. Besides, Aradji was only
the chairman of the committee, and there were four other members who could
rule in Sabers favor. As it was, Saber even appeared before the committee and
adduced testimonial and documentary evidence in his behalf.
PAB cannot be faulted, nor can it be ordered to pay damages and
attorney’s fees for issuing a conditional clearance to Saber after his resignation
from respondent PAB. Saber had not yet liquidated his accountability of
P1,012,000 when his leave of absence from the university had expired. The
Investigating Committee had yet to commence and terminate its investigation
of Sabers accountability, administrative or civil, for the pilgrimage fiasco. PAB
had no discretion to issue a clearance to Saber. It bears stressing that a public
officer, in the discharge of his duties has to use prudence, caution and
attention in the management of his affairs. In fact, PAB was duty bound to
withhold such clearance to Saber pending final determination of his monetary
accountabilities. Even assuming that Saber sustained economic difficulties on
account of the conditional clearance issued by PAB, the petitioners are not
entitled to moral and exemplary damages. The act of PAB was not wrongful. It
is a case of damnum absque injuria.

32. Cebu Bionic Builders Supply, Inc. vs. DBP

GR No. 154366, November 17, 2010

FACTS:
Spouses Robles entered into a mortgage contract with the DBP to create
the State Theatre Building in Cebu. Upon completion, Rudy Robles executed a
contract of lease in favor of Cebu Bionic Builders Supply. However, the spouses

52
defaulted on their obligation to pay and DBP extra-judicially foreclosed the
mortgage. DBP sent a letter to Cebu Bionic that if they were interested in
leasing the facilities, they would have to pay DBP. However, nothing came from
these correspondences. DBP then invited parties to bid on the property.
Initially, Cebu Bionic submitted their interest in bidding, but the price that
they gave was insufficient. DBP then awarded the auction to Respondents to
Chip, Yap and Balila. In response to several demand letters by the
Respondents, Cebu Bionic filed a petition for preliminary injunction,
cancellation of deed of sale and specific performance against DBP. Petitioners
then related that, without their knowledge, DBP sold the subject properties to
respondents. The sale was claimed to be simulated and fictitious, as DBP still
received rentals from petitioners until March 1991. By acquiring the subject
properties, petitioners contended that DBP was deemed to have assumed the
contract of lease executed between them and the Spouses Robles. They alleged
that the original leases clause of the Right of First Option to Buy should be
upheld.
The trial court granted their complaint. The Court of Appeals similarly
upheld the decision of the trial court. Cebu Bionic filed a motion for entry of
judgment, but Respondents filed a motion for reconsideration. The court
granted their MR, and reversed their judgment before. Hence this petition.

ISSUES:

1. Was there a contract of lease between petitioners and DBP? If in the

affirmative, did this contract contain a right of first refusal in favor of
petitioners?

2. Are respondents To Chip, Yap and Balila likewise bound by such right of
first refusal?

RULING:

The Court clarified that under Article 1305 of the Civil Code, a contract
is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. A contract
undergoes three distinct stages preparation or negotiation, its perfection, and
finally, its consummation. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at the
moment of agreement of the parties. The perfection or birth of the contract
takes place when the parties agree upon the essential elements of the contract.
The last stage is the consummation of the contract wherein the parties fulfill or
perform the terms agreed upon in the contract, culminating in the
extinguishment thereof. In the case, there was no concurrence of offer and
acceptance vis-vis the terms of the proposed lease agreement. In fact, after the
reply of petitioner’s counsel, there was no indication that the parties undertook

53
any other action to pursue the execution of the intended lease contract.
Petitioners even admitted that they merely waited for DBP to present the
contract to them, despite being instructed to come to the bank for the
execution of the same.

33. Shipside Incorporated vs. CA

GR No. 143377, February 20, 2001

54
FACTS:
Rafael Galvez conveyed two parcels of land to Filipina Mamaril, Cleopatra
Llana, Regina Bustos, and Erlinda Balatbat which in turn conveyed the said
lots to Lepanto Consolidated Mining Corporation. The latter then conveyed the
said lots to petitioner Shipside Incorporated. However, unknown to Lepanto
Consolidated Mining Corporation, the Court of First Instance declared the land
title of Rafael Galvez, including the two parcels of land, null and void. The
Court, in this case, issue a writ of execution of the judgment declaring the land
title of Rafael Galvez null and void.
Twenty four long years thereafter, the Office of the Solicitor General
received a letter from Mr. Victor G. Floresca, Vice-President, John Hay Poro
Point Development Corporation, stating that the aforementioned orders and
decision of the trial court have not been executed by the Register of Deeds, San
Fernando, La Union despite receipt of the writ of execution. The Office of the
Solicitor General filed a complaint for revival of judgment and cancellation of
titles before the Regional Trial Court. The Solicitor General, nonetheless,
argues that the States cause of action in the cancellation of the land title
issued to petitioners predecessor-in-interest is imprescriptible because it is
included in Camp Wallace, which belongs to the government.

ISSUE:
Whether nor not the Republic has a cause of action.

RULING:
The Court answered in the negative.
Explaining furher, the Court reiterated that while it is true that
prescription does not run against the State, the same may not be invoked by
the government in this case since it is no longer interested in the subject
matter. While Camp Wallace may have belonged to the government at the
time, Rafael Galvez’s title was ordered cancelled in Land Registration Case, the
same no longer holds true today. With the transfer of Camp Wallace to the
BCDA (Bases Conversion and Development Authority) under Section 2 of
Proclamation No. 216, the government no longer has a right or interest to
protect. Consequently, the Republic is not a real party in interest and it may
not institute the instant action. Nor may it raise the defense of
imprescriptibility, the same being applicable only in cases where the
government is a party in interest.
Furthermore, under Section 2 of Rule 3 of the 1997 Rules of Civil
Procedure, every action must be prosecuted or defended in the name of the real
party in interest. To qualify a person to be a real party in interest in whose
name an action must be prosecuted, he must appear to be the present real
owner of the right sought to be enforced. A real party in interest is the party
who stands to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit. And by real interest is meant a present
substantial interest, as distinguished from a mere expectancy, or a future,

55
contingent, subordinate or consequential. Being the owner of the areas
covered by Camp Wallace, it is the Bases Conversion and Development
Authority, not the Government, which stands to be benefited if the land with a
cerfiticate issued in the name of petitioner is cancelled.

34. Zomer Development Co., Inc. vs. International Exchange Bank

56
GR No. 150694, March 13, 2009

FACTS:
The Board of Directors of Zomer Development Company, Inc.
approved a resolution authorizing it to apply for and obtain a credit line
with respondent International Exchange Bank (IEB) in the amount of
P60,000,000 as well as temporary excesses or permanent increases
thereon as may be approved by IEB from time to time. The Board of Directors
also authorized petitioner to assign, pledge, or mortgage its properties as
security for this credit line; and to secure and guarantee the term loan
and other credit facility of IDHI Prime Aggregates Corporation (Prime) with
IEB. Prime Aggregates obtained a term loan from IEB in the amount of
P60,000,000 for which , ZOMER executed a real estate mortgage covering three
parcels of land in favor of IEB to secure the loan. Prime subsequently obtained
several loans from IEB from but failed to settle its outstanding obligation
which stood at P90,267,854.96 and US$211,547.12, drawing IEB to file a
petition for extra-judicial foreclosure of mortgage before the RTC. Petitioner
filed a complaint for Injunction, alleging that the real estate mortgage was null
and void because the same was executed mainly to secure only the P60M
obligation of Prime. Petitioner thus prayed the real estate mortgage and its
extrajudicial foreclosure sale as null and void.
The CA found that the trial court committed no grave abuse of discretion
in denying petitioner's prayer. It brushed aside petitioner's arguments
that the real estate mortgage was ultra vires and that mortgage properties
was intended only to secure the P60,000,000 term loan and one credit
facility of Prime Aggregates. Hence, the present petition for review.

ISSUE:
Whether or not a corporation can mortgage its properties as a security
for the payment of obligations of third parties?

RULING:
The Court ruled in the affirmative.
The Petitioner's shrill incantations that the "Resolution",
approved by its Board of Directors, authorizing its Treasurer and General
Manager to execute a "Real Estate Mortgage" as security for the payment
of the account of Prime, a sister corporation, is not for its best interest, is a
"puzzlement". Since when is a private corporation, going to the aid of a sister
corporation, not for the best interest of both corporation? For in doing so, the
two corporations are enhancing, boosting and promoting a common interest,
the interest of "family" having ownership of both corporations. In the second
place, Courts are loathe to overturn decisions of the management of a
corporation in the conduct of its business via its Board of Directors. There was
no evidence on record that the "Real Estate Mortgage" was executed by the

57
Petitioner and the Private Respondent to prejudice corporate
creditors of the Petitioner or will result in the infringement of the
trust fund doctrine or hamper the continuous business operation of
the Petitioner or that the Prime Aggregates was insolvent or incapable of
paying the Private Respondent. Indeed, the latter approved Prime’s
loan availments and credit facilities after its investigation of the
financial capability of Prime and its capacity to pay its account.

58
35. Republic vs. Acoje Mining, Inc.
GR No. L- 18062, February 28, 1963

FACTS:
Acoje Mining wrote the Director of Posts requesting the opening of a
telegraph and money order offices in its mining camp at Zambales to serve its
employees and their families that were living in the camp. Acting on the
request, the Director of Posts replied that if aside from free quarters, the
company would provide for all the essential equipment and assign responsible
employee to perform a postmasters duties. It is also indicated that the
company shall assure direct responsibility for whatever pecuniary loss the
Bureau of Post may suffer. The post office branch was opened at the camp with
one Sandrez as postmaster. The postmasters went on a 3 day leave but never
returned. The company immediately informed the Manila Post Office of
Sanchez's disappearance when the accounts were checked a shortage was
found. Several demands made upon the company for the payment of shortage
in line with the liability it has assumed having failed, the government brought
the present action.

ISSUE:
Whether or not an act outside the scope of powers expressly conferred
may be performed.

RULING:
The Court ruled in the affirmative.
It said that while as a rule an ultra vires act is one committed outside the
object for which a corporation is created as defined by the law of its
organization and therefore beyond the powers conferred upon it by law, there
are however certain corporate acts that may be performed outside the scope of
the powers expressly conferred if they are necessary to promote the interest
and welfare of the corporation, such as the establishment, in the case at bar, of
a local post office in a mining camp which is far removed from the postal
facilities or means of communication accorded to people living in a city or
municipality. An illegal act is void and cannot be validated, while an ultra vires
act is merely voidable and can be enforced by performance, ratification or
estoppel, or on equitable grounds. In the present case the validity of the
resolution of Board of Directors of the corporation accepting full responsibility
in connection with funds to be received by its postmaster, should be upheld on
the ground of estoppel.

59
36. Westmont Bank vs. Inland Construction and Development Corp.
GR No. 123650, March 23, 2009

FACTS:
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. Respondent Inland Construction and
Development Corp. (Inland) obtained various loans from petitioner Westmont
Bank (Westmont). To secure the payment of its obligations, Inland executed
Real Estate Mortgages over three real properties and issued promissory notes
in favor of the bank. By a Deed of Assignment, Conveyance and Release, one
Felix Aranda, assigned and conveyed all his rights and interests at Hanil-
Gonzales Construction & Development Phils. Corporation (HGCDP) in favor of
Horacio Abrante. Under the same Deed, it appears that HGCDP assumed the
obligations of Inland. Westmont’s Account Officer, Calo, signed for its
conformity to the deed. Inland was subsequently served with a Notice of
Sheriff’s Sale foreclosing the real estate mortgages over its real properties
prompting it to file a complaint for injunction against the Westmont. In its
answer, Westmont underscored that it had no knowledge, much less did it give
its conformity to the alleged assignment of the obligation. The trial court found
that Westmont ratified the act of Calo. It accordingly rendered judgment in
favor of Inland. On appeal, the appellate court affirmed the trial court’s
decision insofar as it finds Westmont to have ratified the Deed of Assignment.

ISSUE:
Whether or not Westmont Bank ratified the Deed of Assignment.

RULING:
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. The records showed that Calo was the one assigned to
transact on petitioner’s behalf respecting the loan transactions and
arrangements of Inland as well as those of Hanil-Gonzales and Abrantes. Since
it conducted business through Calo, who is an Account Officer, it is presumed
that he had authority to sign for the bank in the Deed of Assignment.
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 in fact
authorized to act on its behalf before the burden of evidence shifts to the other

60
party to prove, by previous specific acts, that an officer was clothed by the
corporation with apparent authority. In the present petitions, Westmont Bank
failed to discharge its primary burden of proving that Calo was not authorized
to bind it, as it did not present proof that Calo was unauthorized.

37. BPI Family Savings Bank vs. First Metro Investment Corp.
GR No. 132390, May 21, 2004

FACTS:
FMIC is an investment house, and through its EVP Ong, opened a
current account amounting P100M with petitioner’s San Francisco Del Monte
branch upon the request of his friend which is a close acquaintance of said
bank’s branch manager with the latter’s aim of increasing the deposit level in
his branch. Petitioner through its SFDM branch manager guaranteed the
payment of deposit by the FMIC with interest on the condition that the interest
is to be paid in advance. An agreement was reached between the parties and
subsequently petitioner paid FMIC upon clearance of the latter’s check deposit.
However, on the basis of an Authority to Debit signed by the EVP and Senior
Manager of FMIC, petitioner transferred P80M from FMCI’s current account to
the savings account of one Tevesteco, a stevedoring company. FMIC denied
having authorized the transfer of its funds claiming that the signatures were
falsified. In order to recover immediately its deposit, FMCI issued a check
payable to itself and drawn on its deposit but was dishonored upon upon
presentation for payment. Thus, FMIC filed a complaint with the RTC which
then ruled in their favor and affirmed by the CA.

ISSUE:
Whether or not petitioner was remiss in its fiduciary duty.

RULING:
Petitioner maintains that respondent should have first inquired whether
the deposit of P100 Million and the fixing of the interest rate were pursuant to
its (petitioner’s) internal procedures. Petitioner’s stance is a futile attempt to
evade an obligation clearly established by the intent of the parties. What
transpires in the corporate board room is entirely an internal matter. Hence,
petitioner may not impute negligence on the part of respondent’s representative
in failing to find out the scope of authority of petitioner’s Branch Manager.
Indeed, the public has the right to rely on the trustworthiness of bank
managers and their acts. Obviously, confidence in the banking system, which
necessarily includes reliance on bank managers, is vital in the economic life of
our society. Thus, the Court upheld then decisions both lower courts that
petitioner failed to exercise that degree of diligence required by the nature of its
obligations to its depositors. A bank is under obligation to treat the accounts of
its depositors with meticulous care, whether such account consists only of a

61
few hundred pesos or of millions of pesos. Here, petitioner cannot claim it
exercised such a degree of care required of it and must, therefore, bear the
consequence.

38. PMI Colleges vs. NLRC

GR NO. 121466, August 15, 1997

FACTS:
On July 7, 1991, petitioner, an educational institution offering courses on
basic seaman's training and other marine-related courses, hired private
respondent as contractual instructor with an agreement that the latter shall be
paid at an hourly rate of P30.00 to P50.00, depending on the description of
load subjects and on the schedule for teaching the same. Pursuant to this
engagement, private respondent then organized classes in marine engineering.
Initially, private respondent and other instructors were compensated
for services rendered during the first three periods of the abovementioned
contract. However, for reasons unknown to private respondent, he stopped
receiving payment for the succeeding rendition of services. This claim of non-
payment was embodied in a letter written by petitioner's Acting Director,
addressed to its President calling attention to and appealing for the early
approval and release of the salaries of its instructors including that of private
respondent. Private respondent's claims, were resisted by petitioner.
Later in the proceedings, PMI Colleges manifested that Mr. Tomas Cloma Jr.,
a member of the board of trustees write a letter to the Chairman of the Board,
clarifying the case of Galvan and stating therein, inter alia, that under PMI’s
by-laws only the Chairman is authorized to sign any contract and that Galvan,
in any event, failed to submit documents on the alleged shipyard and plant
visits in Cavite Naval Base

ISSUE:
Whether or not the contract of employment of Galvan is valid even if the
signatory therein was not the Chairman of the Board.

RULING:
The Court answered in the affirmative.
Explaining further, it clarified that the contract remained valid even if
the signatory thereon was not the chairman of the board which
allegedly violated petitioner’s by-laws. Since by-laws operate merely as
internal rules among the stockholders, they cannot affect or
prejudice third persons who deal with the corporation, unless they
have knowledge of the same. No proof appears on record that private

62
respondent ever knew anything about the provisions of the said by-laws. In
fact, petitioner itself merely asserts the same without even bothering to attach
a copy or excerpt thereof to show that there is such provision. That this
allegation has never been denied to private respondent nor necessarily signify
admission of its existence because technicalities of law and procedure and the
rules obtaining in the courts of law do not strictly apply to proceeding of this
nature.

39. Expertravel & Tours, Inc. vs. Court of Appeals

G.R. No. 152392, May 26, 2005

FACTS:
Korean Airlines (KAL) is a corporation established and registered in the
Republic of South Korea and licensed to do business in the Philippines. Its
general manager in the Philippines is Suk Kyoo Kim, while its appointed
counsel was Atty. Aguinaldo and his law firm. On September 6, 1999, KAL,
through Atty. Aguinaldo, filed a Complaint in RTC for the collection of the
principal amount etc. against Expertravel and Tours, Inc. (ETI). Where the
latter sought for the dismissal of the case. However, private respondent filed
the verification and certification against forum shopping was signed by Atty.
Aguinaldo, who indicated therein that he was the resident agent and legal
counsel of KAL and had caused the preparation of the complaint where He
claimed that he had been authorized to file the complaint through a resolution
of the KAL Board of Directors approved during a special meeting held on June
25, 1999. KAL also contended that Atty. Aguinaldo was its resident agent and
was registered as such with the SEC. It was further alleged that Atty.
Aguinaldo was also the corporate secretary of KAL, showing that he was the
lawyer of KAL.
The petitioner on the other hand, maintains that the RTC cannot take
judicial notice of the said teleconference without prior hearing, nor any motion
therefore. Finally, KAL submitted on March 6, 2000 an Affidavit of even date,
executed by its general manager Suk Kyoo Kim, alleging that the board of
directors conducted a special teleconference on June 25, 1999, which he and
Atty. Aguinaldo attended. It was also averred that in that same teleconference,
the board of directors approved a resolution authorizing Atty. Aguinaldo to
execute the certificate of non-forum shopping and to file the complaint. Suk
Kyoo Kim also alleged, however, that the corporation had no written copy of the
aforesaid resolution. But, the petitioner pointed out that there are no rulings
on the matter of teleconferencing as a means of conducting meetings of board
of directors for purposes of passing a resolution; until and after
teleconferencing is recognized as a legitimate means of gathering a quorum of
board of directors, such cannot be taken judicial notice of by the court. The
RTC and CA dismiss the petition, hence this appeal.

63
ISSUE:
Whether or not teleconferencing is a valid means of holding its corporate
meetings.

RULING:
The Court ruled in the negative.
In this age of modern technology, the courts may take judicial notice that
business transactions may be made by individuals through teleconferencing.
Teleconferencing is interactive group communication (three or more people in
two or more locations) through an electronic medium. In general terms,
teleconferencing can bring people together under one roof even though they are
separated by hundreds of miles. A teleconference represents a unique
alternative to face-to-face (FTF) meetings. It was first introduced in the 1960’s
with American Telephone and Telegraph’s Picture phone. At that time, however,
no demand existed for the new technology. Travel costs were reasonable and
consumers were unwilling to pay the monthly service charge for using the
picture phone, which was regarded as more of a novelty than as an actual
means for everyday communication. In time, people found it advantageous to
hold teleconferencing in the course of business and corporate governance,
because of the money saved.
In the Philippines, teleconferencing and videoconferencing of members of
board of directors of private corporations is a reality, in light of Republic Act
No. 8792. The Securities and Exchange Commission issued SEC Memorandum
Circular No. 15, on November 30, 2001, providing the guidelines to be
complied with related to such conferences. Thus, the Court agrees with the
RTC that persons in the Philippines may have a teleconference with a group of
persons in South Korea relating to business transactions or corporate
governance. Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim
participated in a teleconference along with the respondent’s Board of Directors,
the Court is not convinced that one was conducted; even if there had been one,
the Court is not inclined to believe that a board resolution was duly passed
specifically authorizing Atty. Aguinaldo to file the complaint and execute the
required certification against forum shopping.

64
40. LEE, Et al. vs. CA
G.R. No. 117913, February 1, 2002

FACTS:
Charles Lee, as President of MICO requested private respondent
Philippine Bank of Communications (PBCom) for a grant of a discounting
loan/credit line for the purpose of carrying out MICOs line of business and for
the purpose of opening letters of credit and trust receipts. As security for the
loans, MICO through its Vice-President and General Manager, Mariano Sio,
executed a Deed of Real Estate Mortgage over its properties situated in Manila.
Upon maturity of all credit availments obtained by MICO from PBCom, the
latter made a demand for payment. For failure of MICO to pay the obligations
incurred despite repeated demands, PBCom extra-judicially foreclosed MICOs
real estate mortgage and sold the said mortgaged properties in a public auction
sale. PBCom which emerged as the highest bidder in the auction sale, applied
the proceeds of the purchase price at public auction to the expenses of the
foreclosure, interest and charges and part of the principal of the loans. Aside
from the unpaid balance, MICO had another standing obligation representing
its trust receipts liabilities to private respondent. PBCom then demanded the
settlement of the aforesaid obligations from herein petitioners-sureties who,
however, refused to acknowledge their obligations to PBCom under the surety
agreements. Hence, PBCom filed a complaint with prayer for writ of preliminary
attachment. The trial court gave credence to the testimonies of herein
petitioners and dismissed the complaint filed by PBCom. The trial court said
that PBCom failed to adequately prove that the proceeds of the loans were ever
delivered to MICO.

ISSUE:
Whether or not it is presumed that said negotiable instruments were
issued for valuable consideration while the subject promissory notes and
letters of credit issued by the PBCom made no mention of delivery of cash.

65
RULING:
The Court said yes.
Under Section 3, Rule 131 of the Rules of Court, the following
presumptions are satisfactory if uncontradicted: a) That there was a sufficient
consideration for a contract and b) That a negotiable instrument was given or
indorsed for sufficient consideration. Negotiable instruments include
promissory notes, bills of exchange and checks. Letters of credit and trust
receipts are, however, not negotiable instruments. But drafts issued in
connection with letters of credit are negotiable instruments. Hence, petitioners
should have presented credible evidence to rebut that presumption, as well as
the evidence presented by private respondent PBCom. Respondent PBCom, as
plaintiff in the trial court, has in fact presented sufficient documentary and
testimonial evidence that proved by preponderance of evidence its subject
collection case against the defendants who are the petitioners herein.

41. Palting vs. San Jose Petroleum Inc.

G.R. No. L-14441, December 17, 1966

FACTS:
San Jose Petroleum a corporation organized and existing in the Republic
of Panama filed with the Philippine Securities and Exchange Commission a
sworn registration statement, for the registration and licensing for sale in the
Philippines Voting Trust Certificates. It was alleged that the entire proceeds of
the sale of said securities will be devoted or used exclusively to finance the
operations of San Jose Oil Company, Inc. which is a domestic mining
corporation. Pedro R. Palting and others, allegedly prospective investors in the
shares of SAN JOSE PETROLEUM, filed with the Securities and Exchange
Commission an opposition to registration and licensing of the securities on the
grounds that the tie-up between SAN JOSE PETROLEUM, and SAN JOSE OIL,
violates the Constitution of the Philippines, the Corporation Law and the
Petroleum Act of 1949.

ISSUE:
Whether or not the "tie-up" between the respondent SAN JOSE
PETROLEUM, and SAN JOSE OIL COMPANY, INC., is violative of the
Constitution, the Laurel-Langley Agreement, and the Petroleum Act of 1949.

RULING:
The Court said yes.
In the 1946 Ordinance Appended to the Constitution, this right was
extended to citizens of the United States; and provided that to all forms of
business enterprises owned or controlled, directly or indirectly, by citizens of
the United States in the same manner as to, and under the same conditions
imposed upon, citizens of the Philippines or corporations or associations owned

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or controlled by citizens of the Philippines, would have the privilege of
disposition, exploitation, development, and utilization of all Philippine natural
resources. However, respondent is owned, controlled, directly and indirectly by
a Panamanian Corporation.
The Laurel-Langley Agreement also stated that with respect to natural
resources in the public domain in the Philippines, only through the medium of
a corporation organized under the laws of the Philippines and at least 60% of
the capital stock of which is owned or controlled by citizens of the United
States.
Although it was claimed that the corporation has stockholders residing
in United States, there was no indication if they are all citizens of America, how
much percentage do they occupy as stockholders, and if they have the same
rules that apply to the conditions mentioned. In the circumstances, the court
ruled that the respondent SAN JOSE PETROLEUM, as presently constituted, is
not a business enterprise that is authorized to exercise the parity privileges
under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum
Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.
The parity rights agreement is not applicable to SJP. The parity rights
are only granted to American business enterprises or enterprises directly or
indirectly controlled by US citizens. SJP is a Panamanian corporate citizen. The
other owners of SJO are Venezuelan corporations, not Americans. SJP was not
able to show contrary evidence. Further, the Supreme Court emphasized that
the stocks of these corporations are being traded in stocks exchanges abroad
which renders their foreign ownership subject to change from time to time.
This fact renders a practical impossibility to meet the requirements under the
parity rights. Hence, the tie up between SJP and SJO is illegal, SJP not being a
domestic corporation or an American business enterprise contemplated under
the Laurel-Langley Agreement.

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