Corpo 57 - Digest Pool (1) (Repaired)

Color in blue if repeated case, input number MAKE SURE ISSUE & RULING ALIGNED WITH SYLLABUS
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1. 1 20 39
2. AQUINO, Rafael 2 21 40 59 79 100 119 138 157
3. BARTOLOME, 3 22 41 60 80 101 120 139 158

Ceaazar
4. CARANAY, Nadrev 4 23 42 61 81 102 121 140 159
5. RIVERA, Jean 43 62 82 103 122 141 160

Pauline
6. GALLO, Audrey 6 25 44 63 83 104 123 142 161
7.GARGARITANO, 7 26 45 64 84 105 124 143 162

Angelo
8. SARMIENTO, Jan 8 27 46 65 85 106 125 144 163
9. YANG, Antonio 9 28 47 66 86 107 126 145 164
10. ARMILLO, Joyce 10 29 48 67 87 108 127 146 165
11. ELAURIA, Clarisse 11 24 49 68 88 109 128 147 166

30
12. CARLOS, Kaira 12 31 50 69 89 110 129 148 167

Marie
13. OLMILLA, Alyza 13 32 51 70 90 111 130 149 168

Mariel
14. PAGUYO, Scarlet 14 33 52 71 91 112 131 150 169
15. PARAS, Lorique 15 34 53 72 92 113 132 151 170
16. ATIENZA, Micah 16 35 54 73 93 114 133 152 171

Yurielle
17.SANTOSIDAD, 17 36 55 74 94 115 134 153 172

Jonella
18. PAYUMO, Kane 18 37 56 75 95 116 135 154 173

Nielsen
19. TRIVINO, Reycy 5 24 57 76 96 117 136 155 174

Ruth 19 38 39 58
20. CRUZ, Luis 77 78 97 98 99 118 137 156 175

Antonio
DUE ON THURS, SEPT. 22, 11PM
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1. Mangila vs Court of Appeals (GR No 124027, 12 August 2002)
Digested by: YANG, Antonio III Pe
PETITIONER/s: Anita Mangila RESPONDENT/s: Court of Appeals and Loretta Guina
FACTS:
Petitioner Anita Mangila, owner of seafood export business Seafood Products, contracted the services of private respondent Loreta Guina‘s
freight forwarding business Air Swift International, a single registered proprietorship, for transporting goods to Guam. However, petitioner
failed to pay the service fees amounting to P109,376.95 despite multiple demands, so Guina filed a civil action for payment of a sum of money
before the Pasay City RTC, where respondent’s business was located. The sheriff was unable to serve summons on the petitioner’s residence, as
she had allegedly moved to Sto. Niño, Guagua, Pampanga, and had left the Philippines for Guam.
Suspecting that the petitioner had left to avoid paying her debts, respondent filed for and was granted petition for preliminary attachment (PA);
A notice of levy was served by the Pampanga RTC sheriff on petitioner’s household help in San Fernando, Pampanga. Petitioner filed for and
was granted Motion to Discharge Attachment upon the filing of a counter-bond, and also filed a motion to dismiss the civil action on the
grounds of improper venue.
According to the petitioner, there was a clause in the transport service invoice saying that if court litigation was needed to compel payment, the
venue should be in Makati. The RTC eventually ruled in favor of the respondent and ordered the petitioner to pay the money owed. On appeal
to the Court of Appeals, the CA affirmed the RTC ruling, and the filing of the complaint in Pasay City. Hence the current petition for Certiorari
under Rule 45 before the SC, wherein one of the grounds alleged by the petitioner is that the case should be dismissed due to improper venue.
ISSUE/S: Whether the case was improperly filed in Pasay City, rather than the residence of complainant *(Paranaque City).
RULING/DOCTRINE:
Petition granted on the grounds of improper venue, but not for reasons alleged by petitioner.
Petitioner resides in San Fernando, Pampanga while private respondent resides in Parañaque City. However, this case was brought in Pasay City,
where the business of private respondent is found. This would have been permissible had the private respondent's business been a corporation.
However, the business of the private respondent is a sole proprietorship, and as such, does not have a separate juridical personality that could
enable it to file a suit in court.
A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the enterprise. The law
merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual and
requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to the national government. The law does
not vest a separate legal personality on the sole proprietorship or empower it to file or defend an action in court.
Thus, not being vested with legal personality to file this case, the sole proprietorship is not the plaintiff in this case but rather Loreta Guina in
her personal capacity.
Doctrine: Unlike a corporation, a sole proprietorship does not possess a juridical personality separate and distinct from the personality of the
owner of the enterprise.
2. Mendiola vs Court of Appeals (497 SCRA 346)
Digested by: Rafael Carlos R. Aquino
PETITIONER/s: RESPONDENT/s:
Arsenio T. Mendiola Court of Appeals
FACTS:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing under the laws of California, USA.
Private respondent Pacfor entered into a "Side Agreement on Representative Office known as Pacific Forest Resources (Phils.), Inc." with
petitioner Arsenio T. Mendiola (ATM). The Side Agreement outlines the business relationship of the parties with regard to the Philippine
operations of Pacfor. Private respondent will establish a PacFor or representative office in the Philippines, to be known as Pacfor Phils, and
Arsenio will be its President. In July 2000, Arsenio wrote to the Vice President for Asia of Pacfor, seeking confirmation of his 50% equity of
Pacfor Phils. Private respondent Pacfor replied that petitioner is not a part-owner of Pacfor Phils. because the latter is merely Pacfor-USA's
representative office and not an entity separate and distinct from Pacfor-USA. "It's simply a 'theoretical company' with the purpose of dividing
the income 50-50." Arsenio presumably knew of this arrangement from the start, having been the one to propose to private respondent PacFor the
setting up of a representative office, and "not a branch office" in the Philippines to save on taxes.Arsenio claimed that he was all along made to
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believe that he was in a joint venture with them.
On November 27, 2000, private respondent PacFor, through counsel, ordered Arsenio to turn over to it all papers, documents, files, records, and
other materials in his or ATM Marketing Corporation's possession that belong to PacFor or PacFor Phils.On December 18, 2000, private
respondent Pacfor also required petitioner to remit more than three hundred thousand-peso Christmas giveaway fund for clients of Pacfor Phils.
Lastly, private respondent Pacfor withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it possession of the
service car. Private respondent PacFor likewise sent letters to its clients in the Philippines, advising them not to deal with Pacfor Phils.
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own PacFor Phils. Thus, it follows that he and Pacfor
likewise own, on a 50/50 basis, Pacfor Phils.' office furniture and equipment and the service car. He also reiterated his demand for unpaid
commissions, and proposed to offset these with the remaining Christmas giveaway fund in his possession. On February 2, 2001, private
respondent Pacfor placed the petitioner on preventive suspension and ordered him to show cause why no disciplinary action should be taken
against him. Private respondent Pacfor charged petitioner with willful disobedience and serious misconduct for his refusal to turn over the
service car and the Christmas giveaway fund which he applied to his alleged unpaid commissions. Private respondent also alleged loss of
confidence and gross neglect of duty on the part of petitioner for allegedly allowing another corporation owned by petitioner's relatives, High
End Products, Inc. (HEPI), to use the same telephone and facsimile numbers of Pacfor, to possibly steal and divert the sales and business of
private respondent for HEPI's principal, International Forest Products, a competitor of private respondent.
Arsenio denied the charges. He reiterated that he considered the import of Pacfor President William Gleason's letters as a "cessation of his
position and of the existence of Pacfor Phils." He likewise informed private respondent Pacfor that ATM Marketing Corp. now occupies Pacfor
Phils.' office premises, and demanded payment of his separation pay. On February 15, 2001, petitioner filed his complaint for illegal dismissal,
recovery of separation pay, and payment of attorney's fees with the NLRC
ISSUE/S: WON there is a partnership between Pacfor and Arsenio T. Mendiola?
RULING/DOCTRINE:
None, a partnership, the members become co-owners of what is contributed to the firm capital and of all property that may be acquired thereby
and through the efforts of the members.The property or stock of the partnership forms a community of goods, a common fund, in which each
party has a proprietary interest.In fact, the New Civil Code regards a partner as a co-owner of specific partnership property. This essential
element, the community of interest, or co-ownership of, or joint interest in partnership property is absent in the relations between petitioner and
private respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason, private respondent Pacfor's President established this
fact when he said that Pacfor Phils. is simply a "theoretical company" for the purpose of dividing the income 50-50. A corporation cannot become
a member of a partnership in the absence of express authorization by statute or charter.This doctrine is based on the following considerations: (1)
that the mutual agency between the partners, whereby the corporation would be bound by the acts of persons who are not its duly appointed and
authorized agents and officers, would be inconsistent with the policy of the law that the corporation shall manage its own affairs separately and
exclusively; and, (2) that such an arrangement would improperly allow corporate property to become subject to risks not contemplated by the
stockholders when they originally invested in the corporation. No such authorization has been proved in the case at bar.
The court held that on the basis of the evidence, an employer-employee relationship is present in the case at bar. The elements to determine the
existence of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer's power to control the employee's conduct. The most important element is the employer's control of the
employee's conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.
3. JM Tuason & Co., Inc. vs Bolanos (95 Phil 106)
Digested by: Ceazar Leo A. Bartolome
J. M. TUASON & CO., INC., represented by it Managing PARTNER, QUIRINO BOLAÑOS
GREGORIA ARANETA, INC., plaintiff-appellee,
FACTS:
Appellee JM Tuason & Co, Inc, represented by its Managing Partner, Gregorio Araneta, Inc., filed an action before the Court of First Instance
(CFI) to recover the possession of registered land situated in Tatalon, Quezon City. In his answer, Appellant Quirino Bolaños sets up the
prescription and title himself through open, continuous, exclusive, and public, and notorious possession of the subject land under claim of
ownership. Further, the registration of the land in dispute was obtained by the Appellee or its predecessors-in-interest through fraud or error and
without knowledge or interest either personal or through publication to him or his predecessors-in-interest. After the trial, the CFI rendered
judgment in favor of the Appellee, declaring the Appellant to be without any right to the land in question.
Hence, this Petition whereby the Appellant claimed that the CFI erred in dismissing the case on the ground that the case was not brought by the
real property-in-interest. He claimed that Gregorio Aranata, Inc. cannot act as managing partner for the plaintiff because it is illegal for two
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corporations to enter into a partnership.
ISSUE/S:
Whether or not Gregorio Araneta, Inc. can represent the Appellee as Managing Partner in the present case.
RULING/DOCTRINE:
DOCTRINE
Though a corporation has no power to enter into a partnership, it may nevertheless enter into a joint venture with another where the nature of
that venture is in line with the business authorized by its charter.
RULING
The Supreme Court ruled in the affirmative. The Court ruled that there is nothing to the contention that the present case is not brought by the
real party-in-interest, who is the Appellee. What the Rules of Court require is that an action be brought in the name of, but not necessarily by,
the real party-in-interest. Further, there is nothing against one corporation being represented by another person, natural or juridical, in a suit.
Well-settled is the rule that though a corporation has no power to enter into a partnership, it may nevertheless enter into a joint venture with
another where the nature of that venture is in line with the business authorized by its charter. In the present case, there is no showing that
indicated the venture in which the Appellee is represented by Gregorio Araneta, Inc as its managing partner is not in line with the corporate business
of either of them.
4. Aurbach vs. Sanitary Wares Manufacturing Corporation (189 SCRA 130)
Digested by: Nadrev Rufino Caranay
PETITIONER/s: Wolfgang Aurbach, John Griffin, David p. RESPONDENT/s: Sanitary Wares Manufacturing Corporation, Ernesto
Whittingham and Charles Chamsay v. Lagdameo, Ernesto R. Lagdameo, jr., Enrique R. Lagdameo, George
F. Lee, Raul a. Boncan, Baldwin Young and Avelino V. Cruz
FACTS:Saniwares, a domestic corporation, was incorporated for the primary purpose of manufacturing and marketing sanitary wares. ASI, a
foreign corporation domiciled in Delaware, United States entered into an Agreement with Saniwares and some Filipino investors agreed to
participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here
and abroad.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. But disagreements between the Filipino
investors and American investors soon happened. There were protests against the action of the Chairman and heated arguments ensued. These
incidents triggered the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). Two petitions were filed
and were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the Lagdameo Group and
dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which
affirmed the hearing officer's decision. The CA in its decision ordered the remand of the case to the Securities and Exchange Commission with
the directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as possible, under the supervision of the Commission.
Upon a MR, the CA rendered the questioned amended decision.
ISSUE/S: Whether or not the nature of the business established by the parties was a joint venture or a corporation
RULING: The Supreme Court held that the business established by the parties was a joint venture. The rule is that whether the parties to a
particular contract have thereby established among themselves a joint venture or some other relation depends upon their actual intention which
is determined in accordance with the rules governing the interpretation and construction of contracts. The ASI Group and petitioner Salazar
contend that the actual intention of the parties should be viewed strictly on the "Agreement" wherein it is clearly stated that the parties' intention
was to form a corporation and not a joint venture. Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and
Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties. The evident intention of the
Philippine Investors and ASI in entering into the Agreement is to enter into a joint venture enterprise, and if some words in the Agreement
appear to be contrary to the evident intention of the parties, the latter shall prevail over the former (Art. 1370, New Civil Code).
The legal concept of a joint venture is of common law origin. It has no precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. It is in fact hardly distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual right of control. The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the joint venture is
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formed for the execution of a single transaction, and is thus of a temporary nature. A joint venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held
that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others.
DOCTRINE:
Partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. A joint venture is a form of partnership and should thus be governed by the law of partnerships.
5. LBC Express vs. CA (236 SCRA 602)
Digested by: Reycy Ruth Sia Trivino
LBC Express HE COURT OF APPEALS, ADOLFO M. CARLOTO, AND RURAL
BANK OF LABASON, INC.,
FACTS:
The private respondent is the incumbent President and Manager of a corporation who was at Cebu City he was directed by the corporation to
submit a rediscounting document with the Central Bank in Manila. His sister then sent pack cash and some of the rediscounting documents via
LBC, however, the private respondent only received the rediscounting documents and not the cash pack; several follow-ups were made by the
private respondent but were unavailing. He then instituted moral damage on behalf of the corporation for the Damages Arising from Non-
performance of Obligation and that resulted in the penalty for the corporation for its failure to submit rediscounting documents. He also alleged that
he suffered embarrassment and humiliation.
LBC contends that the consignee was not around when during the delivery of the cash pack. The RTC and CA ruled in favor of the private
respondent.
ISSUE/S: Whether the corporation may claim moral damages.
RULING/DOCTRINE:
No, the court held that a corporation is an artificial being and having existence only in legal contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and mental anguish.
Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life - all of which
cannot be suffered by the respondent bank as an artificial person.
Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury.
The court ruled that in breach of contract cases where the defendant is not shown to have acted fraudulently or in bad faith, liability for damages
is limited to the natural and probable consequences of the breach of the obligation which the parties had foreseen or could reasonably have
foreseen. The damages, however, will not include liability for moral damages.
6. Filipinas Broadcasting vs. Ago Medical Center (GR No. 141954, January 17, 2005)
Digested by: Gallo, Audrey Nicole
Filipinas Broadcasting Network Inc Ago Medical and Educational Center-Bicol Christian College of
Medicine
FACTS:
"Exposé" is a radio documentary program hosted by Carmelo ‘Mel’ Rima ("Rima") and Hermogenes ‘Jun’ Alegre ("Alegre"). Exposé is aired every
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morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi City, the Albay
municipalities and other Bicol areas.
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against
Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMEC’s College of Medicine, filed a complaint for damages against FBNI, Rima and
Alegre
ISSUE/S: Whether or not AMEC is entitled to moral damages
RULING/DOCTRINE:
Yes, a juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. The Court of Appeals cites Mambulao Lumber Co. v.
PNB, et al. to justify the award of moral damages. However, the Court’s statement in Mambulao that "a corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral damages" is an obiter dictum.
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.
7. Ong vs. Court of Appeals (GR No. 119858, 29 April 2003)
Digested by: Gargaritano, Angelo Gabriel I.
PETITIONER/s: Edward C. Ong RESPONDENT/s: Court of Appeals and the People of the Philippines
FACTS:
A petition for review on certiorari seeking to nullify the Court of Appeals’ decision affirming Ong’s Conviction for estafa for violating the Trust
Receipts Law.
1. Ong, representing ARMAGRI International Corporation (ARMAGRI), applied for a letter of credit for P2,532,500 with SOLIDBANK
Corporation (SOLIDBANK) to purchase differential assemblies from Metropole Industrial Sales.
- Trust Receipt 9 was executed to acknowledge receipt from SOLIDBANK of the goods valued at P2,532,500.
2. Subsequently, Ong, again representing ARMAGRI, applied for another letter of credit for P2,050,000 (to purchase merchandise from Fertphil
Corporation).
- Trust Receipt 10 was executed in favor of SOLIDBANK acknowledging receipt of the merchandise.
3. The Trust Receipts contained the following stipulations—

a. ARMAGRI undertakes to account for the good held in trust for SOLIDBANK or to turn over the proceeds;
b.To keep the proceeds in the form of money, bills, or receivables as the separate property of SOLIDBANK;
c. Return to SOLIDBANK the goods upon demand, if not sold.
4. When the Trust Receipts became due and demandable, ARMAGRI failed to pay or deliver the goods despite demand letters.
5. The prosecution charged Ong with 2 counts of estafa alleging that he, representing ARMAGRI, defrauded SOLIDBANK Corporation.
- As of 31 May 1991, the unpaid account under the first Trust Receipt amounted to P1,527,180.66 while the unpaid account under the second
was P1,449,395.71.
- Ong was under the express obligation to account for said goods to SOLIDBANK.
6. RTC convicted Ong and upon appeal, the CA affirmed the conviction.
ISSUE/S:
Whether or not Ong can be made liable for the offense committed by ARMAGRI.
RULING/DOCTRINE:
Doctrine: Liability of directors, officers, employees, or other officials or persons for violations committed by a corporation.
Yes.
The CA ruled—
“It is not disputed that [Ong transacted with SOLIDBANK on behalf of ARMAGRI. This is because the Corporation cannot by itself transact
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business or sign document, it being an artificial person. It has to accomplish these through its agents. A corporation has a personality separate and
distinct from those acting on its behalf. In the fulfillment of its purpose, the corporation by necessity has to employ persons to act on its behalf.”
“Being a mere artificial person, the law recognizes the impossibility of imposing the penalty of imprisonment on the corporation itself. For this
reason, it is the officers or employees or other persons whom the law holds responsible.”
In affirming the decision of the CA, the SC ruled—

Section 13 of the Trust Receipts Law provides that, “if the violation is committed by a corporation xxx, the penalty provided for xxx shall be in
imposed upon the directors, officers, employees, or other officials or persons therein responsible for the offense, without prejudice to the civil
liabilities arising from the offense.”
The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a corporation. This is because corporations,
partnerships, associations, and other juridical entities cannot be put to jail. Hence, the criminal liability falls on the human agent responsible for the
violation.
As to the civil liability—
In Prudential Bank v IAC, the Court ruled that the person signing the trust receipt for the corporation is not solidarily liable with the entrustee-
corporation. He may, however, be personally liable if he bound himself to pay the debt of the corporation under a separate contract of surety or
guaranty.
In the instant case, Ong signed an Additional Undertaking without indicating that he was signing on behalf of ARMAGRI. He therefore signed
in his personal capacity to pay “jointly and severally” a month penalty of 1% in case of ARMAGRI’s default. Thus, he is liable only to
SOLIDBANK for the stipulated interest of 1% on the outstanding amount of each trust receipt computed from 15 July 1991 (when Demand Letter
was received) until full payment of the debt.
Ong, being the agent of ARMAGRI, is held liable for the criminal offense. The decision of the CA is affirmed with modification.
8. Gamboa vs Teves (GR No. 176579 28 June 2011; 9 October 2012)
Digested by:
FACTS:
PLDT was granted a franchise to engage in the telecommunications business in 1928 through Act. No. 3436. During Martial Law 26 percent of the
outstanding common shares were sold by General Telephone and Electronics Corporation (GTE) (an American company) to Philippine
Telecommunications Investment Corporation (PTIC), who in turn assigned 111,415 shares of stock of PTIC (46 percent of outstanding capital
stock) to Prime Holdings Inc. (PHI). These shares of PTIC were later sequestered by PCGG and adjudged by the court to belong to the Republic.
54 percent of PTIC shares were sold to Hong Kong-based firm First Pacific, and the remaining 46 percent was sold through public bidding by the
Inter-Agency Privatization Council, and eventually ended up being bought by First Pacific subsidiary Metro Pacific Asset Holdings Inc. (MPAH)
after the corporation exercised its right of first refusal. The transaction was an indirect sale of 12 million shares or 6.3 percent of the outstanding
common shares of PLDT, making First Pacific’s common shareholdings of PLDT to 37 percent and the total common shareholdings of foreigners
in PLDT to 81.47 percent. Japanese NTT DoCoMo owns 51.56 percent of the other foreign shareholdings/equity.
Petitioner Gamboa, alleged that the sale of 111,415 shares to MPAH violates Sec. 11 of Art. XII of the Constitution, which limits foreign
ownership of the capital of a public utility to not more than 40 percent.
ISSUE/S:(1) Whether petitioner’s choice of remedy was proper?
(2) Whether the term “capital” under Sec. 11, Article XII of the Constitution refers only to the total common shares or to the total outstanding
stock of PLDT (public utility)?
RULING/DOCTRINE:(1) NO. However, since the threshold and purely legal issue on the definition of the term “capital” in Section 11, Article XII
of the Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory relief as one for
mandamus. It is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has far-reaching
implications.
(2) The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the electio ors , and thus in the
present case only to common shares, and not to the total outstanding capital stock comprising both common and non-voting preferred shares.
The SC directed the SEC to apply this definition in determining what was the extent of allowable foreign ownership in PLDT, and in case of violation,
impose the appropriate penalty under the law.
Consistent with the constitutional mandate that the “State shall develop a self-reliant and independent national economy effectively controlled
by Filipinos,” the term "capital" means the outstanding capital stock entitled to vote (voting stock), coupled with beneficial ownership, both of
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which results to "effective control."
"Mere legal title is insufficient to meet the 60 percent Filipino owned “capital” required in the Constitution for certain industries. Full beneficial
ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required." In this case, such twin
requirements must apply uniformly and across the board to all classes of shares comprising the capital. Thus, "the 60-40 ownership requirement
in favor of Filipino citizens must apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other
class of shares." This guarantees that the “controlling interest” in public utilities always lies in the hands of Filipino citizens.
A broader definition would unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public
utility would be contrary to Sec. 11, Art. XII, a self-executing provision of the Constitution.
A similar definition is found in Section 10, Article XII of the Constitution, the Foreign Investments Act of 1991 and it’s IRR, Regulation of Award
of Government Contracts or R.A. No. 5183, Philippine Inventors Incentives Act or R.A. No. 3850, Magna Carta for Micro, Small and Medium
Enterprises or R.A. No. 6977, Philippine Overseas Shipping Development Act or R.A. No. 7471, Domestic Shipping Development Act of 2004 or
R.A. No. 9295, Philippine Technology Transfer Act of 2009 or R.A. No. 10055, and Ship Mortgage Decree or P.D. No. 1521.
9. Narra Nickel Mining vs Redmont Mines (36)
PETITIONER/s: Narra Nickel Mining and Development, Tesoro Mining and RESPONDENT/s: Redmont Consolidated Mines Corp
Development, and McArthur Mining
FACTS:
Respondent Redmont Consolidated Mines Corp. (Redmont), a domestic mining corporation, learned that certain areas of Palawan it was planning to
explore for mining were already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioner corporations Narra Nickel Mining
And Development, Tesoro Mining and Development, and McArthur Mining. Redmont subsequently petitioned the Panel of Arbitrators (POA) of the
DENR to deny petitioners’ applications for MPSA, on the grounds that at least 60% of the capital stock of the petitioners are owned and controlled by
MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the
driving force behind petitioners’ filing of the MPSAs over the areas covered by applications since it knows that it can only participate in mining activities
through corporations which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.
POA ruling: Petitioners disqualified from MPSA application as they were considered foreign corporations being "effectively controlled" by MBMI;
Redmont’s EPAs approved.
Mines Adjudication Board (MAB) Ruling: POA ruling reversed and set aside;
RTC Ruling: Grants respondent request for TRO and preliminary injunction against MAB.
CA: Respondent petition partially granted – MAB ruling reversed and set aside, POA findings affirmed.
Hence current petition for review before the SC.
ISSUE/S: Whether the use of the Grandfather rule eschews the use of the Control test in determining if a corporation is Filipino owned.
RULING/DOCTRINE:
Grandfather Rule defined:
According to Dean Cesar Villanueva whom the SC ruling cited, the Grandfather Rule is “the method by which the percentage of Filipino equity in a
corporation engaged in nationalized and/or partly nationalized areas of activities, provided for under the Constitution and other nationalization laws, is
computed, in cases where corporate shareholders are present, by attributing the nationality of the second or even subsequent tier of ownership to
determine the nationality of the corporate shareholder.” To arrive at the actual Filipino ownership and control in a corporation, both the direct and
indirect shareholdings in the corporation are determined.
Applicability of Control test and Grandfather Rule
The Control Test and the Grandfather Rule can, if appropriate, be used cumulatively in the determination of the ownership and control of corporations
engaged in fully or partly nationalized activities, as the mining operation involved in this case or the operation of public utilities as in Gamboa vs Teves.
It is only when the Control Test is first complied with that the Grandfather Rule may be applied. If the subject corporation’s Filipino equity falls below
the threshold 60%, the corporation is immediately considered foreign-owned, in which case, the need to resort to the Grandfather Rule disappears.
On the other hand, a corporation that complies with the 60-40 Filipino to foreign equity requirement can be considered a Filipino corporation if there is
no doubt as to who has the “beneficial ownership” and “control” of the corporation. In that instance, there is no need for the application of the
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Grandfather Rule. As a corollary rule, even if the 60-40 Filipino to foreign equity ratio is apparently met by the subject corporation, a resort to the
Grandfather Rule is necessary if doubt exists as to the locus of the “beneficial ownership” and “control.”
Doctrine: The Control Test and the Grandfather Rule can be used cumulatively in the determination of the ownership and control of corporations
engaged in fully or partly nationalized activities, and it is only when the Control Test is first complied with that the Grandfather Rule may be applied.
10. Roy III vs Herbosa (GR No 207246, 11 November 2016; 18 April 2017)
Digested by: Armillo, Joyce
FACTS:
On June 28, 2011, the Court issued the Gamboa Decision,... that the term "capital" in Section 11,Article XII of the 1987 Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding
capital stock (common and non-voting preferred shares).The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was
thereafter issued on December 11, 2012On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa, issued SEC-MC No.
8Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes of
determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to
vote in the election of directors. On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the Petition,[15] assailing the validity of SEC-
MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision and Resolution and for having been issued by the SEC with grave
abuse of discretion
ISSUE/S:
Whether or not the SEC gravely abused its discretion in ruling that PLDT is compliant with the limitation set for by the Constitution?
RULING/DOCTRINE:
No. The heart of the issue is the Constitution’s words under Section 11, Art. XII which states that “No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except citizens of the Philippines xxx at least 60% of whose capital is owned by
such citizens.”
And in the Gamboa Decision, it has been decided that the SEC-MC No. 8 requires that a corporation requires full and legal beneficial ownership
of 60% of the outstanding capital stock, coupled with 60% of the voting rights must rest in the hands of Filipino nationals.
Subject to The Decision, the SC defines what the words “Full Beneficial Ownership,” “Beneficial Ownership,” and “Beneficial Owner” mean.
Full beneficial ownership as construed from the Implementing Rules and Regulations of the Foreign Investment Act of 1991 (FIA-IRR) states
that: “For stocks to be deemed owned and held by the Philippine citizens or Philippine Nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights
of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.”
On the other hand, the Implementing Rules and Regulations of the Securities Regulation Code (SRC-IRR) states that: “Any person who, directly
or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power (which includes the power
to vote or direct the voting of such security) and/or investment returns or power (which includes power to dispose of, or direct the disposition of
such security).
Thus, the definition of what a beneficial owner is in the SRC-IRR is in consonance with that of FIA-IRR’s. However, it is only relevant in
resolving as to who is the beneficial owner of each “specific stock” of the public utility company.
Hence, if the Filipino has the voting power of the specific stock (he can vote the stock or direct another to vote for him) or the Filipino has the
investment power over the specific stock (he can dispose of the stock or direct another to dispose for him), or both (he can vote and dispose), then
such Filipino is the beneficial owner of that specific stock. Being considered as Filipino, that specific stock is then to be counted as part of the
60% Filipino ownership requirement under the Constitution.
However, it is to be noted that the way on how the SEC will classify certain stocks with voting rights held by a trust fund with the limitation on
foreign ownership under the Constitution is speculative as of the moment.
The Court still awaits the SEC’s prior determination of the citizenship of specific shares of stock held in trust before the SC fully passes upon a
final decision.
Wherefore, the SC resolves to deny the motion with finality.
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11. Collector of Internal Revenue vs. Club Filipino de Cebu (5 SCRA 312)
Digested by: Elauria, Clarisse
CIR’ Solicitor General CLUB FILIPINO, INC. DE CEBU, V. Jaime & L. E. Petilla
FACTS:
Respondent Club Filipino de Cebu operates a clubhouse, a bowling alley, a golf course and a bar restaurant where it sells wines, liquors, soft-
drinks, meals and short orders to its members and their guests. The bar and restaurant were a necessary incident to the operation of the Club and
its golf course is operated mainly with funds derived from membership fees and dues. Whatever profits it has were used to defray its overhead
expenses and to improve its golf course. In 1951, as a result of capital surplus arising from the revaluation of its real properties, the Club declared
stock dividends.
In 1952, the BIR assessed percentage taxes on the gross receipt of the Club’s bar and restaurant pursuant to Sec. 182 of the Tax Code: “unless
otherwise provided, every person engaging in a business on which the percentage tax is imposed shall pay in full a fixed annual tax of P10 for
each calendar year or a fraction thereof” and under Sec. 191: “keepers of restaurant, refreshment parlors and other eating places shall pay a tax of
3% of their gross receipts.”
ISSUE/S:
Whether or not Club Filipino de Cebu is a stock corporation
RULING/DOCTRINE:
NO. The fact that the capital of the Club is divided into shares does not detract from the finding of the trial court that is not engaged in the
business of operator of bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its object or purpose
as stated in its articles and by-laws.
Under the Revised Corporation Code, the definition of Stock corporations are those which have capital stock divided into shares and are
authorized to distribute to the holders of such shares, dividends, or allotments of the surplus profits on the basis of the shares held. Moreover, for
a stock corporation to exist, two requisites must be complied with: (1) a capital stock divided into shares; and (2) an authority to distribute to the
holders of such shares, dividends or allotments of surplus profits on the basis of the shares held.
In the case at bar, nowhere in its AOI or by-laws could be found an authority for the distribution of its dividends or surplus profits. Strictly
speaking, it cannot therefore, be considered as a stock corporation, within the contemplation of the Corporation Code.
12. PNOC-EDC vs. NLRC (201 SCRA 487)
Digested by: Carlos, Kaira Marie
PETITIONER/s: PNOC-Energy Development Corporation RESPONDENT/s: National Labor Relations Commission and Danilo
Mercado
FACTS:
Danilo Mercado, an employee of the Philippine National Oil Company- Energy Development Corporation, was dismissed on the grounds of
serious acts of dishonesty and violation of company rules and regulations allegedly committed as follows:
1. Withdrew P1680.00 from company funds, appropriated P680.00 for personal use and paid the nipa supplier P1000.00.
2. Withdrew P28.66 as payment for the fabrication of rubber stamp but appropriated the P8.66 for personal use.
3. Absence without leave and without proper turn-over thus disrupting and delaying company work activities.
4. Vacation leave without prior leave.
Mercado filed a complaint against PNOC-EDC before the NLRC Regional Arbitration Branch. After considerations of position papers presented
by both parties, the labor arbiter ruled in favour of Mercado.
ISSUE/S: Whether or not matters of employment of PNOC-EDC is within the jurisdiction of the Labor Arbiter and the NLRC.
RULING/DOCTRINE:
No.
This Court ruled that the doctrine that employees of government-owned and/or controlled corporations, whether created by special law or
formed as subsidiaries under the General Corporation law are governed by the Civil Service Law and not by the Labor Code, has been
supplanted by the present Constitution.
The test whether a government-owned or controlled corporation is subject to Civil Service Law is the manner of its creation. Those created by
special charter are subject to its provision while those created under General Corporation Law are not within its coverage.
The PNOC-EDC, having been incorporated under General Corporation Law, is subject to the provisions of the Labor Law.
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13. Hacienda Luisita, Incorporated vs PARC (GR No. 171101, July 5, 2011)
Digested by: Alyza Olmilla
Hacienda Luisita, Incorporated Presidential Agrarian Reform Council (PARC)
FACTS:
Tarlac Development Corporation or TADECO owned by Jose Cojuangco Sr., bought the 6,000 hectares land of Haciend Luisita in Tarlac and the
sugar mill within the hacienda from the original owner TABACALERA. Prior to the transfer of ownership, the Philippine government, thru
GSIS assisted and extended loans to TADECO for the payment of the land. One of the conditions on the loan agreement between them was that
the lots comprising the hacienda shall be distributed and sold to its tenants ten years after.
Marcos’ administration filed an expropriation suit against TADECO to surrender the Hacienda to the then Ministry of Agrarian Reform so that
the land can be distributed to the farmers at cost. Tadec, on the other hand, alleged that Hacienda Luisita does not have tenants, besides which
sugar lands –– of which the hacienda consisted––are not covered by existing agrarian reform legislations. The RTC rendered judgment ordering
TADECO to surrender Hacienda Luisita to the MAR.
In 1988, RA 6657 or the CARP law was passed. It is a program aimed at redistributing public and private agricultural lands to farmers and farm
workers who are landless. One of the lands covered by this law is the Hacienda Luisita. In 1988, the OSG moved to dismiss the government’s
case against TADECO. The CA dismissed it, but the dismissal was subject to the condition that TADECO shall obtain the approval of farm
worker beneficiaries to the SDP Stock Distribution Plan and to ensure its implementation Section 31 of the CARP Law which allows either land
transfer or stock transfer as two alternative modes in distributing land ownership to the FWBs. Since the stock distribution scheme is the
preferred option of TADECO, it organized a spin-off corporation, the Hacienda Luisita Inc. (HLI), as a vehicle to facilitate stock acquisition by
the farmers. Then the Presidential Agrarian Reform Council (PARC), led by then DAR Secretary Miriam Santiago, approved the SDP of
TADECO/HLI.
From 1989 to 2005, the HLI claimed to have extended those benefits to the farm workers. This was contested by two groups representing the
interests of the farmers – the HLI Supervisory Group and the AMBALA. They claimed that they haven’t actually received those benefits in full,
that HLI violated the terms, and that their lives haven’t really improved contrary to the promise and rationale of the SDOA.
The DAR created a Special Task Force to attend to the issues and to review the terms of the SDOA. On its resolution, PARC revoked the HLI
Stock Distribution Plan (SDP) and placed the subject land in HL under compulsory coverage of the CARP of the government.
HLI assails the jurisdiction of the PARC to recall the SDOA. It argues that the parties to the SDOA should now look to the Corporation Code,
instead of to RA 6657, in determining their rights, obligations and remedies. The Code, it adds, should be the applicable law on the disposition
of the agricultural land of HLI.
ISSUE/S:
WHETHER PARC HAVE JURISDICTION, POWER AND/OR AUTHORITY TO NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA
RULING/DOCTRINE:
Yes. It should abundantly be made clear that HLI was precisely created in order to comply with RA 6657, which the OSG aptly described as the
"mother law" of the SDOA and the SDP. It is, thus, paradoxical for HLI to shield itself from the coverage of CARP by invoking exclusive
applicability of the Corporation Code under the guise of being a corporate entity.
Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI are also stockholders, its applicability is limited as
the rights of the parties arising from the SDP should not be made to supplant or circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation of private corporations. On the
other hand, RA 6657 is the special law on agrarian reform. As between a general and special law, the latter shall prevail.
Besides, the present impasse between HLI and the private respondents is not an intra- corporate dispute which necessitates the application of the
Corporation Code. What private respondents questioned before the DAR is the proper implementation of the SDP and HLI’s compliance with
RA 6657. Evidently, RA 6657 should be the applicable law to the instant case.
14. Tuna Processing, Inc. vs. Phil. Kingford Inc. (GR No. 185582, February 29, 2012)
Digested by:
PETITIONER/s: TUNA PROCESSING, INC RESPONDENT/s:. PHILIPPINE KINGFORD, INC
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FACTS:
Tuna Processing, Inc. (TPI) is a foreign corporation not licensed to do business in the Philippines while Philippine Kingsford, Inc. (Kingsford) is
a corporation duly organized and existing under the laws of the Philippines.
Kanemitsu Yamaoka (“licensor”), co-patentee the “Yamaoka Patent “and five (5) Philippine tuna processors, Angel Seafood Corporation, East
Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford (the “sponsors”/“licensees) entered into
MOA.
Kingsford withdrew from petitioner TPI and correspondingly, reneged on their obligations.
Petitioner submitted the dispute for arbitration before the International Centre for Dispute Resolution in the State of California, United States
and won the case against respondent. To enforce the award, petitioner TPI filed a Petition for Confirmation, Recognition, and Enforcement of
Foreign Arbitral Award before the RTC of Makati City. The RTC dismissed the petition on the ground that the petitioner lacked legal capacity to
sue in the Philippines.
ISSUE/S: Whether or not a foreign corporation not licensed to do business in the Philippines, but which collects royalties from entities in the
Philippines, sue here to enforce a foreign arbitral award.
RULING/DOCTRINE:
Yes.
In several cases, this Court had the occasion to discuss the nature and applicability of the Corporation Code of the Philippines, a general law, viz-
a-viz other special laws.
Thus, in Koruga v. Arcenas, Jr., this Court rejected the application of the Corporation Code and applied the New Central Bank Act. It
ratiocinated:
Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar antecedents, we ruled that: “The
Corporation Code, however, is a general law applying to all types of corporations, while the New Central Bank Act regulates specifically banks
and other financial institutions, including the dissolution and liquidation thereof. As between a general and special law, the latter shall prevail –
generalia specialibus non derogant.
Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform
Council, this Court held: Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation of
private corporations. On the other hand, RA 6657 is the special law on agrarian reform. As between a general and special law, the latter shall
prevail—generalia specialibus non derogant.
Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act, as its title - An Actto
Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes - would suggest, is a law especially enacted “to actively promote party autonomy in the resolution of
disputes or the freedom of the party to make their own arrangements to resolve their disputes.” It specifically provides exclusive grounds
available to the party opposing an application for recognition and enforcement of the arbitral award.
15. Litonjua, Jr. vs. Eternit Corporation (490 SCRA 204)
Digested by: PARAS, Lorique Alexis
Litonjua, Jr. (2006) Eternit Corporation
FACTS: The Eternit Corporation is a corporation duly organized and registered under the Philippine laws, Since, 1950, it had been engaged in
the manufacture of roofing materials and pipe products Its manufacturing operations were conducted on eight parcels of land with a total area of
47,233 square meters. The properties, located in Mandaluyong City, Metro Manila, Ninety (90%) percent of the shares of stocks of EC were
owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its operations in the
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country it instructed Michael Adams a member of EC Board of Director to dispose the eight parcel of land.
Adams engaged the services of realtor/broker Lauro G. Marquez. Marquez who thereafter offered the parcels of land and the improvements
thereon to Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. Marquez declaring that he was authorized to sell the properties for
P27,000,000 and that the terms of sale were subject to negotiation. Upon renegotiation, The Litonjua brothers deposited the amount of
US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.
Upon the assumption of Cory Aquino, Marquez received a telephone call from Glanville, advising that the sale would no longer proceed.
Marquez relayed to Litonjua of the “the decision has been taken at a Board Meeting not to sell the properties on which Eternit Corporation is
situated.”
When Litonjua apprised of the situation, they wrote EC demanding payment for damages they had suffered on account of the aborted sale. EC,
however, rejected their demand. They then filed for specific performance and damages against EC. In Answer, EC alleged that since
Eteroutremer was not doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders
of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of
Jack Glanville was his own personal making which did not bind EC.
ISSUE/S:
Whether or not Marquez, Glanville and Delsaux were authorized by Eternit to act as its agents
RULING/DOCTRINE:
No. The general principles of agency governs the relation between the corporation and its officers or agents, subject to the articles of
incorporation, by-laws or relevant provisions of the law.
A corporation is a juridical person separate and distinct from its members or stockholders and is not affected bu the personal rights, obligations
and transactions of the latter. It may act only through its board of director or when authorized either by its by-laws or by its board resolutions,
through its officers or agents in the normal course of the business. An unauthorized act of an officer of the corporation is not binding on it unless
the latter ratifies the same expressly or impliedly by its board of directors.
The property of a corporation, however, is not the property of the stockholders or members, and as such, may not be sold without express
authority from the board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without
written authority from the corporation is null and void. Hence, consent of both principal and agent is necessary to create an agency. The
declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority.
However, to create or convey real rights over immovable property, a special power of attorney is necessary.Thus, when a sale of a piece of land or
any portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors of respondent EC
empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf. While it is true that petitioners
accepted the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was not bound by
such acceptance. persons dealing with an assumed agent are bound at their peril, and if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove
it.46 In this case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.
16. Phil. National Construction Corporation vs Pabion (GR No. 131715, December 8, 1999)
Digested by: ATIENZA, Micah Yurielle P.
PETITIONER/s: PHILIPPINE NATIONAL CONSTRUCTION RESPONDENT/s: ERNESTO PABION and LOUELLA RAMIRO
CORPORATION
FACTS: Private respondents Ernesto Pabion and Louella Ramiro, claims that they are the stockholders of the Philippine National Construction
Company (PNCC), filed with the Securities and Exchange Commission (SEC) a verified petition, alleging that for a period of twelve (12) years,
since 1982 there has been no stockholders meetin.g of the PNCC to elect the corporation's board of directors, thus enabling the incumbent
directors to hold on to their positions beyond the 1-year term.
The respondents then prayed the SEC to issue an order, ordering the officers of the PNCC, or to authorize the petitioners as an alternative, to call
and hold a meeting of the stockholders for the purpose of electing new directors.
PNCC filed its answer and claimed that it is a government-owned corporation whose organizational and functional management, administration,
and supervision are governed by Administrative Order (AO) No. 59, issued by then President Corazon Aquino on February 16, 1988. PNCC
asserts that its board of directors does not hold office by virtue of a stockholder’s election but by appointment of the President of the
Philippines.
The Commission en banc held that PNCC being incorporated under the Corporation Code is therefore, subject to Section 50 of the Corporation
Code that requires the holding of regular stockholders’ meeting for the purpose of selecting PNCC’s Board of Directors.
ISSUE/S:
a. Whether or not the SEC can determine the corporate status of PNCC.
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b. Whether or not the SEC has jurisdiction over government-owned and controlled corporations and does SEC have the authority to
compel PNCC to hold a stockholders’ meeting for the purpose of electing members of the Board of Directors.
c. Whether or not PNCC is an acquired-asset corporation.
RULING/DOCTRINE:
a. YES. The SEC can determine the corporate status of PNCC. It is certainly absurd to say that the SEC is without jurisdiction to
determine if PNCC is a GOCC simply because the latter claims to be one. The President does not determine whether a corporation is a
GOCC or not. It is the law that does. PNCCs status as a GOCC can be ruled upon by SEC, as well as by other competent authorities for
that matter, based on law.
b. YES. GOCCs may either be 1) with original charter or created by special law; or 2) incorporated under general law, via either with the
Old Corporation Code or the New Corporation Code. As held, the SEC has no jurisdiction over corporations on the first type, because
they are governed by their said charters. But even if this is not absolute, since the Corporation Code may apply suppletory, either by
operation of law or through express provision in the charter.
The SEC can exercise its jurisdiction over GOCCs established or organized under Corporation Code. These GOCCs are regarded as
private corporations despite common misconceptions. That the government may own the controlling shares in the corporation does not
diminish the fact that the latter owes its existence to the Corporation Code. More pointedly, Section 143 of the Corporation Code gives
SEC the authority and power to implement its provisions, specifically for the purpose of regulating the entities created pursuant to
such provisions. These entities include corporations in which the controlling shares are owned by the government or its agencies. And
from such premise, this necessarily follows that SEC can compel PNCC to hold a stockholder’s meeting for the purpose of electing
members of the latter’s Board of Directors as clearly as provided for by Section 50 of the Corporation Code.
c. YES. PNCC is an acquired-asset corporation as defined under Section 2(a) of A.O. 59, “a corporation “under private ownership, the
voting or outstanding shares of which (i) were conveyed to the government financial institutions in satisfaction of debts”.
Moreover, there is no inconsistency between AO 59 and EO 292 otherwise known as Revised Administrative Code. AO 59 does not
purport to have established a new kind of corporation that supersedes EO 292. Neither does the former seek to revise the definition of
GOCC given in the latter. What AO 59 in fact does is to distinguish GOCCs in general from those that are sought to be privatized.
In fact, the definition given in EO 292 itself stated that the GOCCs “may be further categorized”. This caveat suggests that the
definition is broad enough to admit distinctions as to the kinds of GOCCs defined under AC 59. Hence, PNCC is a GOCC under EO
292. However, for purposes of AO 59, particularly in the application of Section 16 thereof, PNCC is an acquired asset corporation. In
this light, the alleged inconsistency is more apparent than real.
17. Republic vs. Paranaque (GR No. 191109, July 18, 2012)
Digested by: Santosidad, Jonella Marie B.
PETITIONER/s: Philippine Reclamation Authority (PRA) RESPONDENT/s: CIty of Parañaque
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FACTS: The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree (P.D.) No. 1084 (Creating the
Public Estates Authority, Defining its Powers and Functions, Providing Funds Therefor and For Other Purposes) which took effect on February 4,
1977 to provide a coordinated, economical and efficient reclamation of lands, and the administration and operation of lands belonging to,
managed and/or operated by, the government with the object of maximizing their utilization and hastening their development consistent with
public interest. In 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President Ferdinand Marcos, PEA was designated as the
agency primarily responsible for integrating, directing and coordinating all reclamation projects for and on behalf of the National Government.
In 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming PEA into Philippine Reclamation Authority (PRA), which
shall perform all the powers and functions of the PEA relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portiotns of the foreshore and offshore areas in Parañaque City. Parañaque City treasurer
Liberato Carabeo issued Warrants of Levy on PRA’s reclaimed properties (Central Business Park and Barangay San Dionisio) located in
Parañaque City based on the assessment for delinquent real property taxes. PRA filed a petition for prohibition with prayer for temporary
restraining order (TRO) which the RTC denied.
After an exchange of several pleadings and the failure of both parties to arrive at a compromise agreement, PRA filed a Motion for Leave to File
and Admit Attached Supplemental Petition which sought to declare as null and void the assessment for real property taxes, the levy based on the
said assessment, the public auction sale conducted on April 7, 2003, and the Certificates of Sale issued pursuant to the auction sale.
The RTC rendered its decision dismissing PRA’s petition since PRA was not exempt from payment of real property taxes as it was a GOCC
under Section 3 of P.D. No. 1084.
ISSUE/S: Whether PRA is a stock or non-stock corporation subject to tax
RULING/DOCTRINE: No
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute
to the holders of such shares dividends x x x." Section 87 thereof defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." Further, Section 88 provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like
trade, industry, agriculture and like chambers."
Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has capital stock divided into shares; and (2)
that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be
properly classified as a stock corporation. As for non-stock corporations, they must have members and must not distribute any part of their
income to said members.
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot be considered as a stock corporation
because although it has a capital stock divided into no par value shares as provided in Section 7 of P.D. No. 1084, it is not authorized to distribute
dividends, surplus allotments or profits to stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the subsequent executive
issuances pertaining to PRA, particularly, E.O. No. 525, E.O. No. 654 and EO No. 798 7 that authorizes PRA to distribute dividends, surplus
allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have members. A non-stock corporation must have members.
Moreover, it was not organized for any of the purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created to manage
all government reclamation projects.
18. Manila International Airport Authority vs. CA (GR No. 155650, July 20, 2006)
Digested by: Payumo, Kane
Manila International Airport Authority Court of Appeals, City of Parañaque, et al.
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FACTS:
Background
● Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) complex in Parañaque City
in accordance with the revised charter of the MIAA.’
● As operator, MIAA administers, among other matters, the land within the NAIA complex. The MIAA charter transferred to MIAA
approximately 600 hectares of land, including the runways and buildings.
● The MIAA charter also provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode
unless specifically approved by the President.
Taxing of MIAA
● MIAA received notices of real estate tax delinquency from the City of Parañaque for the taxable years 1992 to 2001. MIAA’s real estate
tax delinquency has ballooned to P624,506,725.42.
● The Office of the Government Corporate Counsel (OGCC) issued an Opinion stating that the Local Government Code withdrew the
exemption from real estate tax granted to MIAA.
● Thus, MIAA negotiated with respondent city of Parañaque to pay the real estate tax imposed by the city. MIAA then paid some of the
real estate tax already due.
● The City of Parañaque then issued notices of levy and warrants of levy on the airport lands and buildings.
● The Mayor of the City of Parañaque threatened to sell at public auction the airport lands and buildings should MIAA fail to pay the
real estate tax delinquency.
Contentions:
City of Parañaque:
● Section 193 of the LGC expressly withdrew the tax exemption privileges of “government-owned and-controlled corporations” upon the
effectivity of the Local Government Code.
● An international airport is not among the exceptions mentioned in Section 193 of the LGC.
● Thus, MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.
MIAA:
● Airport Lands and Buildings are owned by the Republic. The government cannot tax itself.
● The reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax
debtor is also the tax creditor.
ISSUE/S:
1. WON MIAA is a GOCC
2. WON the airport lands and buildings are exempt from real estate tax.
RULING/DOCTRINE:
1. MIAA is a government instrumentality, not a GOCC
Granted, a GOCC is not exempt from real estate tax. However, MIAA is not a GOCC. Government-owned or controlled corporations must be
organized as a stock or non-stock corporation. MIAA is not organized as any.
As regards being stock:
● MIAA is not a stock corporation because it has no capital stock divided into shares (as found in Section 10 of the MIAA charter).
● MIAA has no stockholders or voting shares.
As regards being non-stock:
● MIAA is also not a non-stock corporation because it has no members.

● Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. This
prevents MIAA from qualifying as a non-stock corporation.
As regards its legal status:
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● MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions.
● MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers.
● MIAA exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time,
MIAA exercises "all the powers of a corporation under the Corporation Law."
● The MIAA Charter also expressly states that MIAA is a "separate and autonomous body" not integrated with the department
framework of Government.
2. Government instrumentalities, such as MIAA, are exempted from local taxation under the LGC
● “SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units.”
● Local governments cannot tax national government instrumentalities for rendering essential public services to inhabitants of local
governments.
EXCEPTION: When the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for
sound and compelling policy considerations.
3. Government instrumentalities, like MIAA, are exempted from levy
● Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale.
● Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy.
● Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw from public use the Airport Lands and
Buildings.
● Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This
will happen if the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-
payment of real estate tax.
19. Republic vs Heirs of Bernabe (GR No. 237663, 6 October 2020)
Digested by: Trivino, Reycy Ruth Sia
Republic of the Philippines through Office of Solicitor General PETITIONER, VS. HEIRS OF MA. TERESITA A. BERNABE AND
COOPERATIVE RURAL BANK OF BULACAN
FACTS:
On August 23, 2004, a Complaint for Cancellation of Title and Reversion was filed by [the Republic] through the [OSG] against [respondent] Ma.
Teresita E. Bernabe [(Bernabe)].
It alleges that Governor General of the Philippines, James F. Smith, issued an unnumbered proclamation reserving certain parcels of land in the
province of Pampanga for military purposes however one of the subdivided lots was registered by Francisco Garcia and was sold to others until
it and subsequently sold to Bernabe. Fort Stotsenburg Military Reservation was being used as a target range by Clark Air Force Military
personnel and so the prosecutor contended that the land was not alienable and disposable therefore Original Certificate of Title No. 83 issued to
Garcia is null and void, the Transfer Certificate of Title No. 107736 registered under the name of Bernabe is without valid and binding effect.
Pending the case the heirs of Barnabe sold the property to CRBB which was later on was also impleaded. CRBB contended that the case should
be dismissed not being filed by the proper party. The trial court dismissed the complaint, and ruled in favor of CRBB.
The CA agreed with the RTC that the Republic is not the real party in interest and also affirmed the Resolution of the RTC dismissing the
Second Amended Complaint for reversion and cancellation of title on the ground that the BCDA President cannot sign the Verification Case and
Forum Shopping.
ISSUE/S:
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Whether the BCDA is a real party in interest in this case.
RULING/DOCTRINE:
No, the court held that the BCDA itself is owned solely by the Republic and that R.A. 7227, the law creating the BCDA, provides that "[w]ith
respect to the military reservations and their extensions, the President upon recommendation of the [BCDA] x x x shall likewise be authorized to
sell or dispose those portions of lands which the [BCDA] x x x may find essential for the development of [its] projects,"36 then it is the Republic
that has retained the beneficial ownership of the CAB Lands pursuant to Article 428 of the Civil Code, which provides that only the owner has
the right to dispose of a thing. Since the BCDA cannot dispose of the CAB Lands, the BCDA does not own the military reservations and their
extensions, including the CAB Lands, that were transferred to it.
The BCDA's status as a mere trustee of the Clark Air Base Lands is made obvious by the fact that under the law creating it, its executive head
cannot even sign the deed of conveyance on behalf of the Republic and only the President of the Republic is authorized to sign a deed of
conveyance, which is a recognition that the property being disposed of belongs to the Republic pursuant to Section 48, Chapter 12, Book I of the
Administrative Code
The higher court ruled the Republic is the real party in interest in this case and not BDCA, The court held that the Republic has the beneficial
ownership of the land. The Court clarifies that the BCDA has limited ownership rights and disposing power under Section 5(h) of R.A. 7227
The petition of the OSG was granted and the higher court reversed and set aside the ruling of the CA the case was remanded to the RTC.
20. National Coal Corp. vs. CIR (146 SCRA 583)
Digested by: AQUINO, Kent
PETITIONER/s: The Court clarifies that the BCDA has limited RESPONDENT/s: THE COLLECTOR OF INTERNAL REVENUE
ownership right and disposing power. This is recognized as one of the
powers of the BCDA under Section 5(h) of R.A. 7227: "To acquire, own,
hold, administer, and lease real and personal properties, including
agricultural lands, property rights and interests and encumber, lease,
mortgage, sell, alienate or otherwise dispose of the same at fair market
value it may deem appropriate.
FACTS:
National Coal Company (NCC) is a corporation created by Act No. 2705 of the Philippine Legislature for the purpose of developing the coal
industry in the Philippine Islands and is actually engaged in coal mining on reserved lands belonging to the Government. Under Act No. 2705,
the Government of the Philippine Islands is made the majority stockholder wherein out of the 30,000 shares of stock issued by the company, the
Government of the Philippine Islands is the owner of 29,809 shares or 99 1/3 % of the whole capital stock.
It filed an action against the CIR before the CFI Manila for the recovery of the sum P12, 044.68 alleged to have been paid by it under protest as
specific tax on 24,089.3 tons of coal claiming exemption from taxes under the provisions of Act No. 2719 and alleged that being the owner of the
land from which it has mined the coal in question, it is therefore subject to the provisions of Act No. 2719 and not to the provisions of the Sec.
1496 of the Administrative Code.
The defendant alleged that said sum of money was due and owing from the plaintiff to the Government of the Philippine Islands under the
provisions of Sec. 1496 of the Administrative Code which provides that "on all coal and coke there shall be collected, per metric ton, fifty
centavos."
The trial court held that a tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted therefrom was the only tax which should be collected
from the plaintiff on the basis of Act No. 2719 and sentenced the defendant to refund to the plaintiff the difference between the amount collected
under Sec. 1496 of the Administrative Code and the amount which should have been collected under the provisions of said section 15 of Act No.
2719.
ISSUE/S: Is the National Coal Company a public corporation on the basis of Act No. 2705?
RULING/DOCTRINE: No.
The plaintiff is a private corporation. The mere fact that the Government happens to be the majority stockholder does not make it a public
corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the provisions of the Corporation Law, in so far as they are not
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inconsistent with said Act (No. 2705). No provisions of Act No. 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.
It having been demonstrated that the plaintiff has produced coal in the Philippine Islands, it is subject to pay the internal revenue tax under the
provisions of Sec. 1496 of the Administrative Code, and is not subject to the payment of the internal revenue tax under section 15 of Act No. 2719,
nor to any other provisions of said Act.
Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby relieved from all responsibility under the complaint.
And, without any finding as to costs, it is so ordered.
21. Maricalum Mining Corporation vs Ely Florentino (GR No 221813, 23 July 2018)
PETITIONER/s: Maricalum Mining Corporation RESPONDENT/s: Ely G. Florentino, Et. Al
Ely G. Florentino, Et. Al. G Holdings, Et. Al.
FACTS:
The Philippine National Bank and the Development Bank of the Philippines transferred its ownership of Maricalum Mining to the National
Government for disposition or privatization because it had become a non-performing asset. On October 2, 1992, the National Government thru
the Asset Privatization Trust executed a Purchase and Sale Agreement (PSA) with G Holdings, a domestic corporation primarily engaged in the
business of owning and holding shares of stock of different companies. G Holding bought 90% of Maricalum Mining’s shares and financial
claims. G Holdings also assumed Maricalum Mining’s liabilities in the form of company notes. The said financial liabilities were converted into
three Promissory Notes, which were secured by mortgages over some of Maricalum Mining’s properties. Upon signing of the PSA and paying
the stipulated down payment, G Holdings immediately took physical possession of Maricalum Mining’s Sipalay Mining Complex, as well as its
facilities, and took full control of the latter’s management and operations. The Sipalay General Hospital, Inc. was duly incorporated to provide
medical services and facilities to the general public. In July 2001, the properties of Maricalum Mining, which had been mortgaged to secure the
Promissory Notes, were extrajudicially foreclosed and eventually sold to G Holdings.
On September 23, 2010, some of Maricalum Mining's workers, including complainants, and some of Sipalay General Hospital's employees
jointly filed a Complaint with the LA against G Holdings, its president, and officer-in-charge, and the cooperatives and its officers for illegal
dismissal, underpayment and nonpayment of salaries, underpayment of overtime pay, underpayment of premium pay for holiday, nonpayment
of separation pay, underpayment of holiday pay, nonpayment of service incentive leave pay, nonpayment of vacation and sick leave,
nonpayment of 13th month pay, moral and exemplary damages, and attorneys fees.
Complainants claim that they have not received any increase in wages since they were allegedly rehired except for Sipalay Hospital's employees;
they worked as an augmentation force to the security guards charged with securing Maricalum Mining's assets which were acquired by G
Holdings. Also Maricalum Mining's assets have been exposed to pilferage by some of its rank-and-file employees whose claims for collective
bargaining benefits were undergoing litigation and the Sipalay Hospital is purportedly "among the assets" of Maricalum Mining acquired by G
Holdings and the payrolls for their wages were supposedly prepared by G Holdings' accounting department. Since the second half of April 2007,
they have not been paid their salary; and some of their services were dismissed without any due process. Based on these factual claims,
complainants posited that: the manpower cooperatives were mere alter egos of G Holdings organized to subvert the "tenurial rights" of the
complainants; G Holdings implemented a retrenchment scheme to dismiss the caretakers it hired before the foreclosure of Maricalum Mining's
assets; and G Holdings was their employer because it allegedly had the power to hire, pay wages, control working methods and dismiss them.
G Holdings filed its Position Paper maintaining that: it was Maricalum Mining who entered into an agreement with the manpower corporations
for the employment of complainants' services for auxiliary or seasonal mining activities; the manpower cooperatives were the ones who paid the
wages, deducted social security contributions, withheld taxes, provided medical benefits and had control over the working means and methods
of complainants; despite Maricalum Mining's decision to stop its mining and milling operations, complainants still continued to render their
services for the orderly winding down of the mines' operations; Maricalum Mining should have been impleaded because it is supposed to be the
indispensable party in the present suit; (e) Maricalum Mining, as well as the manpower cooperatives, each have distinct legal personalities and
that their individual corporate liabilities cannot be imposed upon each other; and there was no employer-employee relationship between G
Holdings and complainants.
ISSUE/S: WON G Holdings can be held liable for the acts of its subsidiary?
RULING/DOCTRINE:
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No, A parent or holding company is a corporation which owns or is organized to own a substantial portion of another company's voting shares
of stock enough to control or influence the latter's management, policies or affairs thru election of the latter's board of directors or otherwise. In
other words, a "holding company" is organized and is basically conducting its business by investing substantially in the equity securities of
another company for the purposes of controlling their policies and "holding" them in a conglomerate or umbrella structure along with other
subsidiaries. Significantly, the holding company itself-being a separate entity-does not own the assets of and does not answer for the liabilities
of the subsidiary or affiliate. The management of the subsidiary or affiliate still rests in the hands of its own board of directors and corporate
officers. It is in keeping with the basic rule a corporation is a juridical entity which is vested with a legal personality separate and distinct from
those acting for and in its behalf and, in general, from the people comprising it. The corporate form was created to allow shareholders to invest
without incurring personal liability for the acts of the corporation.
A holding company may be held liable for the acts of its subsidiary only when it is adequately proven that: a) there was control over the
subsidiary; (b) such control was used to protect a fraud (or gross negligence amounting to bad faith) or evade an obligation; and c) fraud was the
proximate cause of another's existing injury. Further, an employee is duly-burdened to prove the crucial test or factor of control through
substantial evidence in order to establish the existence of an employment relationship-especially as against an unaffiliated corporation alleged to
be exercising control.
A subsidiary company's separate corporate personality may be disregarded only when the evidence shows that such separate personality was
being used by its parent or holding corporation to perpetrate a fraud or evade an existing obligation. Concomitantly, employees of a corporation
have no cause of action for labor-related claims against another unaffiliated corporation, which does not exercise control over them.
In this case, complainants have not successfully proven that G Holdings fraudulently exercised its control over Maricalum Mining to
fraudulently evade any obligation. They also fell short of proving that G Holdings had exercised operational control over the employees of
Sipalay Hospital.
22. Feliciano vs COA (GR No. 147402, 14 January 2004)
Digested by: Ceazar Leo Bartolome
ENGR. RANULFO C. FELICIANO, in his capacity as General Manager COMMISSION ON AUDIT, Chairman CELSO D. GANGAN,
of the Leyte Metropolitan Water District (LMWD) Commissioners RAUL C. FLORES and EMMANUEL M. DALMAN,
and Regional Director of COA Region VIII
FACTS:
COA audited the accounts of LMWD. Subsequently, LMWD received a letter from COA dated 19 July 1999 requesting payment of
auditing fees. As General Manager of LMWD, petitioner sent a reply dated 12 October 1999 informing COAs Regional Director that the water
district could not pay the auditing fees. Petitioner cited as basis for his action Sections 6 and 20 of Presidential Decree 198 (“PD 198”) 2, as well as
Section 18 of Republic Act No. 6758 (“RA 6758”). The Regional Director referred petitioners reply to the COA Chairman on 18 October 1999.
On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously paid
to COA.
On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3 January 2000 denying his requests.
Petitioner filed a motion for reconsideration on 31 March 2000, which COA denied on 30 January 2001.
Hence, petitioner filed this instant petition.
ISSUE/S:
Whether a Local Water District (“LWD”) created under PD 198, as amended, is a government-owned or controlled corporation subject
to the audit jurisdiction of COA
RULING/DOCTRINE:
DOCTRINE:
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good
and subject to the test of economic viability.
RULING:
Yes. The Constitution and existing laws mandate COA to audit all government agencies, including government-owned and controlled
corporations (“GOCCs”) with original charters. An LWD is a GOCC with an original charter. The COAs audit jurisdiction extends not
only to government “agencies or instrumentalities,” but also to “government-owned and controlled corporations with original
charters” as well as “other government-owned or controlled corporations” without original charters. LWDs exist by virtue of PD 198,
which constitutes their special charter. Since under the Constitution only government-owned or controlled corporations may have
special charters, LWDs can validly exist only if they are government-owned or controlled. To claim that LWDs are private corporations
with a special charter is to admit that their existence is constitutionally infirm
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23. Forest Hills Golf and Country Club, Inc. vs Gardpro, Inc. (GR No. 164686, 22 October 2014)
PETITIONER/s: Forest Hills Golf and Country Club, Inc. RESPONDENT/s:Gardpro, Inc.
FACTS: Petitioner Forest Hills is a non profit stock corporation, it constructed and maintained golf courses, tennis courts, swimming pools, and
other indoor and outdoor sports and recreational facilities. Fil-Estate Properties, Inc., a party to a Project Agreement to develop the Forest Hills
club and marketed the golf club shares of Forest Hills for a fee. The marketing associates of Fil-Estate Properties or FEPI was tasked to market
and offer for sale the shares of stocks of Forest Hills. They reminded the potential buyers of shares that membership in the Club is not
automatic. One must apply for and comply with all the requirements in order to qualify them for membership, subject to the approval of the
Board of Directors. Gardpro Inc. bought class “C” common shares of stock, which were special corporate shares that entitled the registered owner
to designate two nominees or representatives for membership in the Club. Gardpro designated Fernando R. Martin and Rolando N. Reyes to be
its corporate nominees; hence, the two applied for membership in the Club. Forest Hills charged them membership fees of P50,000.00 each,
prompting Martin to immediately call up Albert and complain about being thus charged despite having been assured that no such fees would be
collected from them. Gardpro initially paid the amount but asked to replace his nominee and Forrest Hills explained that there is another fee for
the changing of nominee. Gardpro refused to pay, thus replacement did not take place. Gardpro Inc filed a complaint in the SEC and argued that
nothing about payment of membership fees was explained to them and that they were not furnished copies of the by-laws of Forest Hills.
The SEC ruled in favor of Gardpro Inc. and restrained the defendant (FOrrest Hills) from collecting additional fees. The SEC en banc affirmed
the decision. Forest Hills appealed to the CA but the CA affirmed the ruling of the SEC. The CA held that Gardpro should not be required to pay
membership fees again as it has already paid such fees for the original designated nominees. As the real Club members, respondents should not
be assessed membership fees every time it changes its nominees. Nowhere in the By-Laws of the petitioner is it provided that it is authorized to
collect membership fees every time a nominee of a corporate shareholder is to be replaced. The motion for reconsideration was likewise denied
by the CA. Hence this petition
ISSUE/S: Whether or not the Court of Appeals erred in encroaching upon the prerogative of Forest Hills to determine its own rules and
procedure governing membership
RULING:No, the Supreme Court held that the CA did not encroach upon the prerogative of Forest Hills to determine its own rules and
procedures and to decide all questions on the construction of its articles of incorporation and by-laws. On the contrary, the CA acted entirely
within its legal competence to decide the issues between the parties. The complaint of Gardpro stated a cause of action, and thus contained the
operative acts that gave rise to its remedial right against Forest Hills. If Forest Hills were allowed to charge nominees membership fees, and then
to still charge their replacement nominees every time a corporate member changed its nominees, Gardpro would be unduly deprived of its full
enjoyment and control of its property even as the former (Forest Hills) would be unjustly enriched. The interpretation and application of laws
have been assigned to the Judiciary under our system of constitutional government. Indeed, defining and interpreting the laws are truly a
judicial function. Hence, the CA could not be denied the authority to interpret the provisions of the articles of incorporation and by-laws of
Forest Hills, because such provisions, albeit in the nature of private laws, impacted on the definition of the rights and obligations of the parties.
This, notwithstanding that Section 16.4 of the by-laws gave to the Board of Directors of Forest Hills the authority to decide all questions on the
construction of its articles of incorporation and by-laws, and its rules and regulations.
DOCTRINE: The interpretation and application of laws have been assigned to the Judiciary under our system of constitutional government.
Indeed, defining and interpreting the laws are truly a judicial function. Hence, the CA could not be denied the authority to interpret the
provisions of the articles of incorporation and by-laws of Forest Hills, because such provisions, albeit in the nature of private laws, impacted on
the definition of the rights and obligations of the parties.
24. Red Line Transport vs. Rural Transit (60 Phil 549)
RED LINE TRANSPORTATION CO. RURAL TRANSIT CO., LTD
FACTS:
Rural Transit Co. (Rural) applied for a certificate of public convenience with the Public Service Commission (PSC) to engage in transportation
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between Tuguegarao and Ilagan. Red Line Transit Co. (Red Line) opposed the application as it is already engaged in said line, being granted
with a certificate prior to Rural‟s Application. However, PSC issued the certificate in the name of Bachrach Motors Inc., as Rural is only being
used as a trade name.
ISSUE/S: Whether the issued certificate in the name of Bachrach Motors Inc is valid?
RULING/DOCTRINE:
No, in order for the certificate to be valid, the applicant must be a real party in interest. A corporation cannot use a name other than what the law
authorized them to use. It can only use another name if it change its name in accordance with law. No law authorizes the corporation to use or
assume a trade name. As it is established that “Rural” is not a real party in interest, the application and the subsequent certificate are fictitious.
Doctrine :
The corporation cannot assume a trade name as it will result in confusion.
25. Universal Mills vs. Universal Textile Mills (78 SCRA 62)
Digested by: GALLO, AUDREY NICOLE R.
UNIVERSAL MILLS CORPORATION UNIVERSAL TEXTILE MILLS, INC
FACTS:
The Universal Textile Mills, Inc. was organ on December 29, 1953, as a textile manufacturing firm for which it was issued a certificate of
registration on January 8, 1954. The Universal Mills Corporation, on the other hand, was registered in this Commission on October 27, 1954,
under its original name, Universal Hosiery Mills Corporation, having as its primary purpose the "manufacture and production of hosieries and
wearing apparel of all kinds." On May 24, 1963, it filed an amendment to its articles of incorporation changing its name to Universal Mills
Corporation, its present name, for which this Commission issued the certificate of approval on June 10, 1963
The Security and Exchange Commission held that from the facts proved and the jurisprudence on the matter, it appears necessary under the
circumstances to enjoin the respondent Universal Mills Corporation from further using its present corporate name. Judging from what has
already happened, confusion is not only apparent, but possible. It does not matter that the instance of confusion between the two corporate
names was occasioned only by a fire or an extraordinary occurrence. It is precisely the duty of this Commission to prevent such confusion at all
times and under all circumstances not only for the purpose of protecting the corporations involved but more so for the protection of the public.
ISSUE/S: Whether or not SEC has jurisdiction to resolve in the first instance.
RULING/DOCTRINE:
The corporate names in question are not Identical, but they are indisputably so similar that even under the test of "reasonable care and
observation as the public generally are capable of using and may be expected to exercise" invoked by appellant, We are apprehensive confusion
will usually arise, considering that under the second amendment of its articles of incorporation on August 14, 1964, appellant included among its
primary purposes the "manufacturing, dyeing, finishing and selling of fabrics of all kinds" in which respondent had been engaged for more than
a decade ahead of petitioner. Factually, the Commission found existence of such confusion, and there is evidence to support its conclusion. Since
respondent is not claiming damages in this proceeding, it is, of course, immaterial whether or not appellant has acted in good faith, but We
cannot perceive why of all names, it had to choose a name already being used by another firm engaged in practically the same business for more
than a decade enjoying well earned patronage and goodwill, when there are so many other appropriate names it could possibly adopt without
arousing any suspicion as to its motive and, more importantly, any degree of confusion in the mind of the public which could mislead even its
own customers, existing or prospective. Premises considered, there is no warrant for our interference.
26. Lyceum of the Philippines vs. CA (219 SCRA 610)
Digested by: GARGARITANO, Angelo Gabriel I.
PETITIONER/s: Lyceum of the Philippines RESPONDENT/s: Court of Appeals, Lyceum of Aparri, Lyceum of
Cabagan, Lyceum of Camalaniguan, Lyceum of Callo, Inc., Lyceum of
Tuao, Inc. Buhi Lyceum, Central Lyceum of Catanduanes, Lyceum of
Southern Philippines, Lyceum of Eastern Mindanao, Inc., and Western
Pangasinan Lyceum, Inc.
FACTS:
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A Petition for Review seeking to set aside the decision of the CA affirming the SEC En Banc’s decision finding that the word “Lyceum” is not
just identified with Lyceum of the Philippines.
1. Lyceum of the Philippines is registered with the SEC on 21 September 1950 using the corporate name Lyceum of the Philippines, Inc. and has
used that name ever since.
2. In a Minute Resolution in G.R. No. L-46595, Lyceum won against Lyceum of Baguio, Inc. denying the latter’s petition for review.
- The assailed decision stated that the two parties’ corporate name was substantially identical because of the presence of the dominant word,
i.e. “Lyceum.”
3. Lyceum used such Resolution to write to all educational institutions it could find with “Lyceum” as part of their corporate name and advised
them to discontinue such use.
4. After the failed attempt, Lyceum then instituted proceedings before the SEC against the private respondents (also educational institutions)—
a. to delete the word “Lyceum” from their corporate names; and
b. permanently enjoin them from using “Lyceum.”
5. Some of the private respondents participated in the proceedings, listed below opposite their respective registration dates:
a. Western Pangasinan Lyceum – 27 October 1950
b. Lyceum of Cabagan – 31 October 1962
c. Lyceum of Lallo, Inc. – 26 March 1972
d. Lyceum of Aparri – 28 March 1972
e. Lyceum of Tuao , Inc – 28 March 1972
f. Lyceum of Camanlaniugan – 28 March 1972
- Others were declared in default for failure to file an Answer while others motu proprio changed their names.
6. The SEC hearing officer relied on the SC Resolution and sustained Lyceum’s claim to an exclusive right o use the word “Lyceum.”
7. On appeal with the SEC En Banc, the decision was reversed.
- Lyceum is not identified with just Lyceum of the Philippines as to render the use thereof by other institutions as productive of confusion
about the identity of the schools.
- Attaching the geographical names to the word “Lyceum” served sufficiently top distinguish the schools from one another.
8. The Court of Appeals affirmed the Decision of the SEC En Banc.
ISSUE/S: Whether or not the use of “Lyceum” by the private respondents was contrary to the imposition under Section 17 of the Revised
Corporation Code.
RULING/DOCTRINE:
Imposition on selection of corporate name under Section 17 of the Revised Corporation Code, i.e.
1) cannot be identical or confusingly similar to that of any existing corporation or to any other name already protected by law;
2) cannot be patently deceptive, confusing, or contrary to existing laws.
No.
The Articles of Incorporation of a corporation must set out the name of the corporation. And Section 18 (Now Section 17, RCC) of the Corporation
Code establishes a restrictive rule insofar as corporate names are concerned—
“No corporate name may be allowed by the SEC if the proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. xxx”
The imposition is made for—

a. the avoidance of fraud upon the public which could have the occasion to deal with the entity concerned
b. the evasion of legal obligations and duties, and
c. the reduction of difficulties of administration and supervision over corporations.
The SC did not consider the corporate names of private respondents “identical with, or deceptively or confusingly similar” to that of Lyceum of
the Philippines.
- While the corporate names carry “Lyceum,” confusion and deception are effectively precluded by the appending of geographic names.
Lyceum further claims that the word “Lyceum” has acquired a secondary meaning in relation to it and has become appropriable to it to the
exclusion of other institutions.
The doctrine of secondary meaning originates from the field of trademark law, but has been extended to corporate names since the right to use a
corporate name to the exclusion of others is based upon the same principle.
- “A word or phrase originally incapable of exclusive appropriation with reference to an article on the market, because geographically or
otherwise descriptive, might nevertheless have been used to long and so exclusively by one producer with reference to his article that, in that
trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product.”
- “The doctrine, however, cannot be made to apply where the evidence did not prove that the business has continued for so long a time that it
has become consequence and acquired a good will of considerable value such that is article and produce have acquired a well-known
reputation, and confusion will result by the use of the disputed name.”
Lyceum only proved that it has been using the name for a long time. Nevertheless, it did not amount to mean that the said word had acquired
secondary meaning in its favor.
Lyceum failed to show any reversible errors and the petition is denied. The decision of the CA is affirmed.
*In case attorney asks–
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Lyceum is the latin word for the Greek lykeion referring to a locality on the river Ilissius in ancient Athens “comprising an enclosure dedicated
to Aollo and adorned with fountains and buildings erected by Pisistratus, Pericles, and Lycurgus frequented by the youth for exercise and by the
philosopher Aristotle and his followers for teaching.”
27. Philipps Export B.V. vs. CA (206 SCRA 457)
Digested by:
FACTS:FACTS: Petitioner is the registered owner of the trademark PHILIPS and PHILIPS SHIELD EMBLEM issued by the Philippine Patent
Office. Philips Electric Lamp Inc. and Philips Industrial Development Inc., also petitioners, are the authorized users of such trademark.
Petitioner filed a case with SEC praying for a writ of injunction to prohibit herein respondent Standard Philips Corporation from using the word
“PHILIPS” in its corporate name, which was denied. On appeal, the CA affirmed the SEC.
ISSUE/S:WON Standard Philips should be directed to delete the word PHILIPS from its corporate name.
RULING/DOCTRINE:
YES. As early as Western Equipment and Supply Co. v. Reyes, 51 Phil. 115 (1927), the Court declared that a corporation's right to use its corporate
and trade name is a property right, a right in rem, which it may assert and protect against the world in the same manner as it may protect its
tangible property, real or personal, against trespass or conversion. It is regarded, to a certain extent, as a property right and one which cannot be
impaired or defeated by subsequent appropriation by another corporation in the same field (Red Line Transportation Co. vs. Rural Transit
Co.,September 8, 1934, 20 Phil 549). A name is peculiarly important as necessary to the very existence of a corporation (American Steel Foundries
vs. Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First National Bank vs. Huntington Distilling Co.
40 W Va 530, 23 SE 792). Its name is one of its attributes, an element of its existence, and essential to its identity (6 Fletcher [Perm Ed], pp. 3-4).
The general rule as to corporations is that each corporation must have a name by which it is to sue and be sued and do all legal acts. The name of
a corporation in this respect designates the corporation in the same manner as the name of an individual designates the person (Cincinnati
Cooperage Co. vs. Bate. 96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird. 10 NH 123); and the right to use its corporate name is as
much a part of the corporate franchise as any other privilege granted (Federal Secur. Co. vs. Federal Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR
934; Paulino vs. Portuguese Beneficial Association, 18 RI 165, 26 A 36). A corporation acquires its name by choice and need not select a name
identical with or similar to one already appropriated by a senior corporation while an individual's name is thrust upon him (See Standard Oil
Co. of New Mexico, Inc. v. Standard Oil Co. of California, 56 F 2d 973, 977). A corporation can no more use a corporate name in violation of the
rights of others than an individual can use his name legally acquired so as to mislead the public and injure another (Armington vs. Palmer, 21 RI
109. 42 A 308).
28. Indian Chamber of Commerce Phils., Inc. vs Filipino Indian Chamber ofCommerce in the Philippines, Inc. (GR No. 184008, 3 August
2016)
PETITIONER/s: Indian Chamber of Commerce, Philippines, Inc. RESPONDENT/s: Filipino Indian Chamber of Commerce in the
Philippines, Inc.
FACTS:
Petitioner corporation was originally registered with the SEC as Indian Chamber of Commerce of Manila, Inc. on November 24, 1951. Its name
was amended into Filipino-Indian Chamber of Commerce of the Philippines, Inc. (defunct FICCPI) on March 4, 1977. Respondent's term of
existence expired on November 24, 2001. Mr. Naresh Mansukhani (Mansukhani) later reserved the corporate name "Filipino Indian
Chamber of Commerce in the Philippines, Inc." (FICCPI) despite opposition from Mr. Ram Sitaldas (Sitaldas), who claimed to represent the
defunct FICCPI.
Meanwhile, Mr. Pracash Dayacanl, who allegedly represented the respondent, filed an application with the CRMD to reserve the corporate name
"Indian Chamber of Commerce Phils., Inc." Mansukhani formally opposed the application, citing the SEC En Banc decision recognizing him as
the one possessing the better right over the corporate name "Filipino Chamber of Commerce in the Philippines, Inc. The CRMD ruled in favor of
respondent, stating that "Indian Chamber of Commerce Phils., Inc." is not deceptively or confusingly similar to "Filipino Indian Chamber of
Commerce in the Philippines, Inc." On appeal, the SEC En Banc reversed and set aside the CRMD ruling, and the CA affirmed the En Banc
Ruling.
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Hence the current petition.
kabnfkj
ISSUE/S: Whether ICCPI's name is identical and deceptively or confusingly similar to that of FICCPI.
RULING/DOCTRINE: Yes.
Section 18 of the Coporation Code expressly prohibits the use of a corporate name which is identical or deceptively or confusingly similar to that
of any existing corporation.
In Philips Export B. V. v. Court of Appeals, the Court ruled that to fall within the prohibition, two requisites must be proven:
1. That the complainant corporation acquired a prior right over the use of such corporate name; and
2. The proposed name is either:
(a) identical; or
(b) deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or
(c) patently deceptive, confusing or contrary to existing law.46
These two requisites are present in this case.
1. Prior right over the use of such corporate name
When the term of existence of the (petitioner) defunct FICCPI expired on November 24, 2001, its corporate name cannot be used by other
corporations within three years from that date, until November 24, 2004. FICCPI (respondent) reserved its nameon January 20, 2005, or beyond
the three-year period. Thus, the SEC was correct when it allowed FICCPI to use the reserved corporate name.
2. Propose name is identical and deceptively or confusingly similar
the word 'Filipino' in the corporate name of the respondent [FICCPI] is merely descriptive and can hardly serve as an effective differentiating
medium necessary to avoid confusion. The other two words alluded to by petitioner [ICCPI] that allegedly distinguishes its corporate name from
that of the respondent are the words 'in' and 'the' in the respondent's corporate name. The presence of the words 'in' and 'the' in respondent's
corporate name does not, in any way, make an effective distinction to that of petitioner.
Petitioner cannot argue that the combination of words in respondent's corporate name is merely descriptive and generic, and consequently
cannot be appropriated as a corporate name to the exclusion of the others. Save for the words "Filipino," "in the," and "Inc.," the corporate names
of petitioner and respondent are identical in all other respects.
29. Heirs of Antonio Pael vs Court of Appeals (GR No 133547, 7 December 2001)
HEIRS OF ANTONIO PAEL and ANDREA ALCANTARA and COURT OF APPEALS, JORGE H. CHIN and RENATO B. MALLARI
CRISANTO PAEL
FACTS:
Spouses Maria and Pedro Destura together with private respondents executed a Memorandum of Agreement (MOA) which provided that Chin
and Mallari, as first parties; Pedro Destura, as second party; and a certain Jaime B. Lumasag, Jr., as third party, whereby the parties agreed to sell
the property subject of this petition to an interested buyer and to share in the proceeds, with Lumasag acting as broker of the sale. However, the
prospective buyer of Lumasag backed out and the sale did not materialize. However, Pedro filed for the nullification of the said MOA but was
dismissed by the RTC.
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Inspite of the decision against her husband, Maria Destura filed a similar action one month after the decision before the Regional Trial Court.
The trial court in the Maria case, rendered judgment by default nullifying the MOA and ordering the cancellation of Chin's and Mallari's titles
and did not award any affirmative relief to Maria but instead, ordered the reinstatement of TCT in the names of the Paels, who were non-parties
in the case.
From the adverse decision and order of the trial court, Chin and Mallari filed a petition for annulment of judgment before the CA and rendered
the assailed decision, declaring as null and void both the cancellation of the their titles over the subject property and reinstatement of the title in
the names of the Paels.
While the petition for annulment was pending before the CA, or on January 28, 1998, a certain corporation called PFINA Properties, Inc. filed a
motion for leave of court to intervene and to admit petition-in-intervention. It alleged that PFINA acquired the property subject of the litigation
for substantial and valuable consideration from the Paels, by virtue of a deed of assignment dated January 25, 1983, and that the title was issued
in its name by the Paels. This motion was opposed by Chin and Mallari. They cite the fact that the alleged acquisition of the property by PFINA
supposedly occurred as early as January 25, 1983, and for fifteen (15) years, inspite of numerous proceedings before different courts and agencies
involving the disputed property, both the Paels and PFINA were silent about the alleged change of ownership. No steps to register the sale or
secure transfer titles were undertaken during this period.
The new title was obtained by PFINA by the RD despite its knowledge that there was a pending case for annulment before the appellate court.
Atty. Cleofe, the RD of QC who cancelled the TCT in the names of Paels, and issued the new title in the name of PFINA acted in gross and
evident bad faith. Not only was the Register a party respondent fully knowledgeable and served with all processes in the annulment case, but
the petition before the CA was also annotated at the back of the title of the Paels.
Only after a period of fifteen (15) years did PFINA come forward to present the deed and claim the subject properties. The said deed and the
circumstances surrounding its issuance are suspect. The deed may be fabricated and the signatures of the parties and witnesses forged.
The CA gave credence to the objections interposed by private respondents. In its Resolution, it cited badges or indicia of fraud in the alleged
acquisition of the property by PFINA as well as the cancellation of the title of the Paels and issuance of a new title in favor of PFINA.
ISSUE/S:
Whether or not PFINA can acquired the property subject of the litigation for substantial and valuable consideration from the Paels by virtue of a
deed of assignment?
RULING/DOCTRINE:
No. The Court held that the trial-court's decision is not only erroneous but is void from the beginning as the title was given to the Paels despite
the fact that they were not parties and have been total strangers to the said case. They were never impleaded nor did they intervene in the case
wherein the disputed property was awarded to them.
The Court also upheld the appellate court in ruling that Maria Destura's complaint should have been dismissed on the ground of litis pendentia
and res judicata, considering that her husband Pedro Destura had earlier filed a complaint against respondents Chin and Mallari, for, among
others, annulment of their titles and annulment of the MOA.
The highly anomalous and deplorable conduct of the Register of Deeds of Quezon City in registering the reinstated title in favor of the Paels
who were non-parties to the case, inspite of his being a defendant in the case, resulted in the sale of this vast tract of land by the Paels to
anybody right and left, including Letty Sy, PFINA, and presumably others who have not come forward to intervene in this case.
The Paels, having no longer any right over the subject property, had nothing to sell to PFINA. Therefore, the title obtained by PFINA allegedly
by virtue of the deed of assignment executed by the Paels in its favor is a nullity. Worse, the Register of Deeds of Quezon City connived and
conspired with PFINA when the former registered the deed of assignment on the basis of fake and spurious documents.
The Court of Appeals also found it unbelievable for PFINA to acquire extremely valuable real estate in Quezon City for only P30.00 per square
meter. In 1983, PFINA Mining and Exploration, Inc. was a mining company. It changed its corporate name to PFINA Properties, Inc., only on
January 22, 1998, six (6) days before filing its petition-in-intervention with the Court of Appeals. In its petition, PFINA claimed to have bought
urban real estate in 1983, notwithstanding that at the time it was still a mining company which had no business dabbling in the highly
speculative urban real estate trade.
30. Gala vs Ellice Agro-Industrial Corporation (GR No. 156819, 11 December 2003)
Digested by: ELAURIA, Clarisse
Alicia and Rita Gala ELLICE AGRO-INDUSTRIAL CORPORATION, MARGO
MANAGEMENT AND DEVELOPMENT CORPORATION, RAUL
GALA et al.
FACTS:
Spouses Manuel and Alicia Gala, their four (4) children n Guia Domingo, Ofelia Gala, Raul Gala, and Rita Benson, and their encargados Virgilio
Galeon and Julian Jader formed and organized the Ellice AgroIndustrial Corporation totalling 35,000 number of shares with a total amount of
28 | P a g e
P3,500,000.00. As payment for their subscriptions, the Gala spouses transferred several parcels of land located in the provinces of Quezon and
Laguna to Ellice.
Subsequently, on September 16, 1982, Guia Domingo, Ofelia Gala, Raul Gala, Virgilio Galeon and Julian Jader incorporated the Margo
Management and Development Corporation (Margo).
On June 23, 1990, a special stockholders’ meeting of Margo was held, where a new board of directors was elected. That same day, the newly-
elected board elected a new set of officers. Raul Gala was elected as chairman, president and general manager.
On March 27, 1990, respondents filed against petitioners with the Securities and Exchange Commission (SEC) a petition for the appointment of a
management committee or receiver, accounting and restitution by the directors and officers, and the dissolution of Ellice Agro-Industrial
Corporation for alleged mismanagement, diversion of funds, financial losses and the dissipation of assets.
In turn, petitioners initiated a complaint against the respondents for the nullification of the elections of directors and officers of both Margo
Management and Development Corporation and Ellice Industrial Corporation.
ISSUE/S:
Whether or not the SEC has authority to inquire on the matters.
RULING/DOCTRINE:
NO. If a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has no authority to inquire whether the
corporation has purposes other than those stated. The best proof of the purpose of a corporation is its articles of incorporation and by-laws. The
articles of incorporation must state the primary and secondary purposes of the corporation, while the by-laws outline the administrative
organization of the corporation, which, in turn, is supposed to insure or facilitate the accomplishment of said purpose. In the case at bar, a
perusal of the Articles of Incorporation of Ellice and Margo shows no sign of the allegedly illegal purposes that petitioners are complaining of. It
is well to note that, if a corporation’s purpose, as stated in the Articles of Incorporation, is lawful, then the SEC has no authority to inquire
whether the corporation has purposes other than those stated, and mandamus will lie to compel it to issue the certificate of incorporation.
31. Clavecilla Radio System vs. Antillon (19 SCRA 379)
Digested by:
PETITIONER/s: Clavecilla Radio System RESPONDENT/s: HON. AGUSTIN ANTILLON, as City Judge of the
Municipal Court of Cagayan de Oro City
and NEW CAGAYAN GROCERY
FACTS:
1. New Cagayan Grocery (NECAGRO) filed a complaint for damages against Clavecilla Radio system. They alleged that Clavecilla omitted the
word “NOT” in the letter addressed to NECAGRO for transmittal at Clavecilla Cagayan de Oro Branch.
2. NECAGRO alleged that the omission of the word “not” between the word WASHED and AVAILABLE altered the contents of the same
causing them to suffer from damages.
3. Clavecilla filed a motion to dismiss on the ground of failure to state a cause of action and improper venue.
4. City Judge of CDO denied the Motion to Dismiss. Clavecilla filed a petition for prohibition with preliminary Injunction with the CFI
praying that the City Judge be enjoined from further proceeding with the case because of improper venue.
5. CFI – dismissed the case and held that Clavecilla may be sued either in Manila (principal office) or in CDO (branch office).
6. Clavecilla appealed to the SC contending that the suit against it should be filed in Manila where it holds its principal office.
ISSUE/S:
Whether or not the present case against Clavecilla should be filed in Manila where it holds its principal office.
RULING/DOCTRINE:
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YES
It is clear that the case from damages is based upon a written contract.
Under paragraph. (b)(3) Sec. 1 Rule 4 of the New Rules of Court, when an action is not upon a written contract then the case should be filed in
the municipality where the defendant or any of the defendant resides or maybe served upon with summons.
In Corporation Law, the residence of the corporation is the place where the principal office is established. Since Clavecilla’s principal office is in
Manila, then the suit against it may properly be file in the City of Manila.
As stated in Evangelista v. Santos, the laying of the venue of an action is not left to plaintiff’s caprice because the matter is regulated by the Rules
of Court.
Since it is not disputed that Clavecilla Radio System has its principal office in Manila, it follows that the suit against it may properly be filed in
the City of Manila.
The fact that CRS maintains branch office in some parts of the country does not mean that it can be sued in any of these places. To allow such
would create confusion and work untold inconveniences to the corporation.
32. Enano-Bote, et.al. vs Alvarez (G.R. No. 223572, 10 November 2022)
Jennifer Enato-Bote, et. al Alvarez, CAIR, SBMA
FACTS:
On February 3, 1999, Subic Bay Metropolitan Authority (SBMA) entered into a Lease Agreement with Centennial Air, Inc. (CAIR), represented
by defendant Roberto Lozada (Lozada), for the lease of Building 8324 located at Subic Bay International Airport (SBIA) for a period of five (5)
years commencing on February 1, 1999 until midnight of January 31, 2004.
For the duration of the lease, CAIR became delinquent and was constantly remiss in the payment of its obligations. As a result, SBMA sent a
letter dated November 9, 1999 to CAIR demanding the latter to settle its outstanding obligation which, as of October 31, 1999, amounted to
₱119,324.51. Despite repeated demands, CAIR still failed to comply. On January 14, 2004, a Final Demand Letter was sent requiring the latter to
pay its outstanding obligation. In the same letter, the Lease Agreement between SBMA and CAIR was terminated, and the latter was ordered to
vacate the premises.
Due to the continuous refusal of CAIR to settle its debts, SBMA was compelled to file a Complaint against the former and its stockholders
asking for the payment of their obligation. Subsequently, summonses were served on defendants-appellants Enano-Bote, et al. (stockholders),
Lozada and CAIR.
On September 3, 2004, Enano-Bote, et al. filed their Answer denying any liability to SBMA arguing that they were no longer stockholders of the
corporation at the time the Lease Agreement was executed. Allegedly, on December 1, 1998, they entered into a Deed of Assignment of
Subscription Rights [DASR] with Jose Ch. Alvarez (Alvarez).
ISSUE/S:
Whether the CA committed an error of law in applying the trust fund doctrine to make petitioners personally and solidarily liable with CAIR for
the unpaid rentals.
RULING/DOCTRINE:
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The trust fund doctrine was not correctly applied in this case.
The trust fund doctrine states that a corporation’s capital stock (including unpaid subscriptions), property, and other assets are held in trust, from
which creditors can claim satisfaction. Evolving from Wood v. Drummer, it has been held that a corporation holds its properties in trust for its
stockholders during its life, and for its creditors during insolvency. This is an equity remedy that protects creditors from fraud. When a
corporation is insolvent, its creditors may compel the payment of stockholders’ unpaid subscriptions to satisfy their claims.
The Halley case recognized two instances when the creditor is allowed to maintain an action upon any unpaid subscriptions based on the trust
fund doctrine. These are:
a. Where the debtor corporation released the subscriber to its capital stock from the obligation of paying for their shares, in whole or in part,
without a valuable consideration, or fraudulently, to the prejudice of creditors; and,
b. Where the debtor corporation is insolvent or has been dissolved without providing for the payment of its rcreditors.
In Halley, the directors and stockholders of BMPI moved to dissolve the corporation after its failure to pay its liabilities to Printwell. This was
seen as an attempt to defraud Printwell, which triggered the latter to implead the stockholders and make a claim over their unpaid subscriptions.
This justified the piercing of the corporate veil.
The trust fund doctrine could not be properly applied to this case. The lower courts appreciated the trust fund doctrine in SBMA’s favor, finding
that (1) the transfer of stocks from Enano-Bote et al. to Alvarez was not done strictly in accordance with the requisites of the Corporation Code
(e.g. recorded in the books showing the names of the parties, date of transfer, no. of certificates, no. of transferred shares; Sec. 63); (2) there were
still unpaid capital subscriptions which could be used to satisfy the claim. It cited the Halley case as basis.
However, here, CAIR did not release its subscribers from the obligation of paying for their shares, so the first instance in Halley could not be the
basis of SBMA’s argument. The second instance could have been used, i.e. CAIR’s insolvency. However, in its complaint, SBMA failed to allege
CAIR’s insolvency. Instead, based on the complaint, it simply sought to collect on the overdue balance.
a. SBMA only proved that CAIR owed money.
b. It was unable to prove that CAIR had unpaid subscriptions, from which SBMA could draw.
SBMA was unable to make a case for the application of the trust fund doctrine against the petitioners, so the Court will not provide the basis for
them. The CA gravely erred in applying the trust fund doctrine. Without any evidence to controvert the factual finding of the lower courts on the
balance of US$163,341.89., only CAIR should be liable. Award of damages in favor of petitioner is vacated.
33. Salido vs. Aramaywan Metals Development Corporation, et. al., GR No. 233857, 18 March 2001
Digested by:
AGAPITO A. SALIDO, JR., ARAMAYWAN METALS DEVELOPMENT CORPORATION,
CERLITO SAN JUAN, CORAZON SANJUAN, CRISTINA MARIE
SAN JUAN
FACTS:
San Juan, Mangune, and Salido, along with four other individuals (Salido faction), agreed to form two mining corporations, namely Aramaywan
and Narra Mining Corporation. They agreed that San Juan would advance the paid-up subscription for Aramaywan amounting to P2.5 M and
would assure payment of the subscription of the capital stock of Narra Mining. In exchange, San Juan would own 55% of the stocks of
Aramaywan and 35% of the stocks of Narra Mining.
San Juan then advanced the P2.5M paid-up subscription of Aramaywan. This is evidenced by a Standard Chartered Bank Certificate indicating
that the amount of P2.5M was deposited in San Juan's name as treasurer, held by him in trust for the corporation.
Thereafter, the Board of Directors of Aramaywan had its first Board Meeting. In the said meeting, the Salido faction claimed that San Juan
delivered only P932,209.16 in cash during the incorporation process of the corporation. The Salido faction claimed that the rest of the P2.5M
remained undelivered as it remained under San Juan's name. Thus, the Salido faction claimed that San Juan was in breach of his undertaking to
advance the payment of Aramaywan's capital stock. As regards the incorporation of Narra Mining, it is undisputed that San Juan has yet to
register the same, although San Juan claimed that the Salido faction has not yet demanded its registration. Because of these supposed breaches
by San Juan of his obligations under the Agreement, Salido made a proposal to reduce San Juan's shares in Aramaywan from 55% to 15%.
The San Juan faction filled with the RTC a complaint which sought to invalidate the acts of the Salido faction. RTC dismissed the complaint. CA
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affirmed. However, on MR filed by the San Juan faction, the CA reversed its earlier decision.
ISSUE/S:
Whether or not San Juan’s shares reduction is valid.
RULING/DOCTRINE:
No.
Batas Pambansa Blg. 68, or the Corporation Code, the law applicable at the time the events in this case occurred, clearly sets out the parameters
when a corporation may reacquire its shares and convert them into treasury shares. According to Section 9 of the Corporation Code, "treasury
shares are shares of stock which have been
issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other
lawful means." Apart from reacquiring the shares through some lawful means, the Corporation Code is also explicit that while a corporation has
the power to purchase or acquire its own shares, the corporation must have unrestricted retained earnings in its books to cover the shares to be
purchased or acquired. In addition, in cases where the reason for reacquiring the shares is because of the unpaid subscription, the Corporation
Code is likewise explicit that the corporation must purchase the same during a delinquency sale. All the foregoing requirements were not met in
the reduction of San Juan's shares.
At the outset, the records are bereft of any showing that Aramaywan had unrestricted retained earnings in its books at the time the reduction of
shares was made. During that time, Aramaywan had just been existing for a few months, and had not in fact been able to perform mining
activities yet. It is thus both highly doubtful and unsupported by the record that Aramaywan had unrestricted retained earnings to be able to
purchase its own shares. The Court has observed that, "The trust fund doctrine backstops the requirement of unrestricted retained earnings to
fund the payment of the shares of stocks of the withdrawing stockholders." Under the trust fund doctrine, "the capital stock, property, and other
assets of a corporation are regarded as equity in trust for the payment of corporate creditors, who are preferred in the distribution of corporate
assets." Thus, "the creditors of a corporation have the right to assume that the board of directors will not use the assets of the corporation to
purchase its own stock for as long as the corporation has outstanding debts and liabilities.
There can be no distribution of assets among the stockholders without first paying corporate debts." In this case, there was no showing that, at
the time the reduction of San Juan's shares was made, Aramaywan had unrestricted retained earnings in its books. Neither was it shown that it
did not have creditors or that they were already paid before the agreement to release San Juan was made. Moreover, it must be emphasized that
San Juan's subscriptions have already been fully paid by him, and as such, Aramaywan cannot validly reduce his shareswithout giving a
corresponding return of his investment. As earlier stated, San Juan contributed P2,500,000.00 evidenced by a Standard Chartered Bank certificate
in SanJuan's name which indicates that he holds that money in trust for Aramaywan
In any event, if it were true that San Juan had unpaid subscriptions, the Corporation Code has provided a procedure for the demand of such
payment and the holding of a delinquency sale in case of continued non-payment. Thus, even assuming it was true that San Juan had unpaid
subscriptions, simply agreeing in a meeting for their reduction, thereby releasing the stockholder from his obligation to pay the unpaid
subscriptions, cannot be the mode by which said unpaid subscriptions are settled. To allow corporations to do such an act would violate the
aforementioned trust fund doctrine in corporation law. Verily, if it were true that San Juan had unpaid subscriptions, it was invalid for the Board
of Directors to waive such payment, for it would amount to a decrease in the corporation's capital stock which could not be accomplished
without the formalities under Section 38 of the Corporation Code Section 37 under the Revised Corporation Code) which includes, among others,
the prior approval of the SEC. In light of the foregoing principles and findings, the Court holds that the reduction of San Juan's shares was
invalid. This remains true even assuming that San Juan had consented to the said reduction.
34. Commissioner vs. Manning (66 SCRA 14)
Digested by: PARAS, LORIQUE ALEXIS V.
PETITIONER/s: COMMISSIONER OF INTERNAL REVENUE RESPONDENT/s: JOHN L. MANNING, W.D MCDONALDS, E.E
SIMMONS, CTA
FACTS: In 1952, Manila Trading and Supply. Co (MANTRASCO) had an authorized capital stock of P2,500,000 divided into 25,000 common
shares; 24,700 of these were owned by Julius S. Reese, and the rest, at 100 shares each, by the three respondents.
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On, Feb 1952, in view of Reese’s desire that upon his death, MANTRASCO and its two subsidiaries, MANTRASCO Guam and Port Motors , Inc.
would continue under the management of the respondents, a trust agreement on his and the respondents' interests in MANTRASCO was
executed by and among Reese, MANTRASCO, the law firm of Ross, Selph, Carrascoso and Janda (trustees), and the respondents (managers)
When Reese died, , the transfer could not immediately effect the agreement for lack of funds, after it paid partial payment, the certificate for
Ree’s share was cancelled and new certificate was issued in the name of MANTRASCO the new certificate was endorsed to the law firm of Ross,
Selph, Carrascoso and Janda, as TRUSTEES for and in behalf of MANTRASCO\
On a special meeting, a resolution was passed reverting the 24,700 shares o f MANTRASCO back to the capital account of the company as a stock
dividend to be distributed to shareholders of record at the close of business on Dec. 22, 1958. On Nov. 25, 1963, MANTRASCO finally paid the
full amount of Reese’s interest hence trust agreement was terminated and the trustees delivered to MANTRASCO all the shares which they were
holding in trust.
BIR examined MANTRASCO’s books which revealed that the 24, 700 shared declared as dividends had been proportionately distributed to the
respondents, representing a total book value or acquisition cost of P7,973,660; (b) the respondents failed to declare the said stock dividends as
part of their taxable income for the year 1958; (c) from 1956 to 1961 amounts were paid by MANTRASCO to Reese's estate by virtue of the trust
agreement - They concluded that the distribution of Reese's shares as stock dividends was in effect a distribution of the "asset or property of the
corporation.
ISSUE/S: Whether or not the 24,700 shares declared as stock dividends were treasury shares
RULING/DOCTRINE:
NO. The said shares were not, on December 22, 1958 or at anytime before or after that date, treasury shares. • Both parties assume that the stock
dividends were treasury shares. TREASURY SHARES are stocks issued and fully paid for and re-acquired by the corporation either by purchase,
donation, forfeiture or other means
Although authorities may differ on the exact legal and accounting status of so-called “treasury shares,” they are more or less in agreement that
treasury shares are stocks issued and fully paid for and re-acquired by the corporation either by purchase, donation, forfeiture or other means.
Treasury shares are therefore issued shares, but being in the treasury they do not have the status of outstanding shares. Consequently, although a
treasury share, not having been retired by the corporation re-acquiring it, may be reissued or sold again, such share, as long as it is held by the
corporation as a treasury share, participates neither in dividends, because dividends cannot be declared by the corporation to itself, nor in the
meetings of the corporation as voting stock, for otherwise equal distribution of voting powers among stockholders will be effectively lost and the
directors will be able to perpetuate their control of the corporation, though it still represents a paid-for interest in the property of the corporation.
Thus, (a) under paragraph 4(c) of the trust agreement, the trustees were authorized to vote all stock standing in their names x x x; (b) under
paragraph 4(d) “Any and all dividends paid on said shares after the death of the OWNER shall be subject to the provisions of this Agreement;”
(c) under paragraph 5(b) the amount of retained earnings to be declared as dividends was made subject to the approval of the trustees of the
24,700 shares; x x x. The manifest intention of the parties to the trust agreement was, in sum and substance, to treat the 24,700 shares of Reese as
absolutely outstanding shares of Reese’s estate until they were fully paid. Such being the true nature of the 24,700 shares, their declaration as
treasury stock dividend in 1958 was a complete nullity and plainly violative of public policy.
35. Heirs of Gamboa vs. Teves (GR No. 176579, October 9, 2012)
PETITIONER/s: WILSON P. GAMBOA RESPONDENT/s: FINANCE SECRETARY

MARGARITO B. TEVES
FACTS: Petitioner Wilson Gamboa, was a stockholder of Philippine Long Distance Telephone Company (PLDT). According to him, Act. No. 3436
was enacted by the Philippine Legislature on November 28, 1928, granting PLDT a franchise and the right to engage in telecommunications
business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26% of the
outstanding common shares of PLDT to Philippine Trade and Investment Center (PTIC). In 1977, Prime Holdings, Inc. (PHI), became the owner of
111,415 shares which represent about 46.125% of the outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by PTIC
stockholders, Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the said shares of stock of PTIC held by PHI were sequestered by the Presidential
Commission on Good Government (PCGG), and were later declared by this Court to be owned by the Republic of the Philippines.
In 1999, First Pacific, Hong Kong-based investment firm, acquired the remaining 54% of the outstanding capital stock of PTIC. On November 20,
2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government sold the 111,415 PTIC shares in a public bidding where Parallax
was the winning bidder. Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder but it failed to do
so. Instead, it yielded its right to PTIC itself. On February 14, 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale
and Purchase Agreement of the 111,415 PTIC shares with the Philippine Government. The said sale was completed on February 28 of the same
year.
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Since PTIC was a stockholder of PLDT, the sale by the Philippine Government of the 46.125% of PTIC shares was actually an indirect sale of 12
million shares or about 6.3% of the outstanding common shares of PLDT. With the sale, First Pacific’s common shareholdings in PLDT increased
from 30.7% to 37%, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47%. This violated 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%.
The consummation of the sale will put the two largest foreign investors in PLDT – First Pacific and Japan’s NTT DoCoMo, which is the world’s
largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity. With the completion of the sale, data culled from the
official website of the New York Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least five percent of common
equity, will collectively own 81.47 percent of PLDT’s common equity.
Petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale of the 111,415 PTIC shares.
Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result in an increase in First Pacific’s common shareholdings in
PLDT from 30.7 percent to 37 percent, and this, combined with Japanese NTT DoCoMo’s common shareholdings in PLDT, would result to a total
foreign common shareholding in PLDT of 51.56 percent which is over the 40 percent constitutional limit.
Petitioners-in-intervention "join petitioner Wilson Gamboa in seeking, among others, to enjoin and/or nullify the sale by respondents of the
111,415 PTIC shares to First Pacific or assignee." Petitioners-in-intervention claim that, as PLDT subscribers, they have a "stake in the outcome of
the controversy where the Philippine Government is completing the sale of government owned assets in PLDT, unquestionably a public utility, in
violation of the nationality restrictions of the Philippine Constitution."
The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalf of the SEC, assailing the 28 June 2011 Decision.
However, it subsequently filed a Consolidated Comment on behalf of the State, declaring expressly that it agrees with the Court's definition of the
term "capital" in Section 11, Article XII of the Constitution.
ISSUE/S: Whether or not the term "capital" in Section 11, Article XII of the Constitution refers to the total common shares only or to the total
outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility.
RULING/DOCTRINE: NO. The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term "capital" as
referring to both voting and non-voting shares (combined total of common and preferred shares) are, in the first place, conflicting and
inconsistent. There is no basis whatsoever to the claim that the SEC and the DOJ have consistently and uniformly adopted a definition of the term
"capital" contrary to the definition that this Court adopted in its 28 June 2011 Decision.
In the DOJ Opinion the scope of the term "capital" in Section 9, Article XIV of the 1973 Constitution was raised, that is, whether the term "capital"
includes "both preferred and common stocks." The issue was raised in relation to a stock-swap transaction between a Filipino and a Japanese
corporation, both stockholders of a domestic corporation that owned lands in the Philippines. Then Minister of Justice Estelito P. Mendoza ruled
that the resulting ownership structure of the corporation would be unconstitutional because 60% of the voting stock would be owned by Japanese
while Filipinos would own only 40% of the voting stock, although when the non-voting stock is added, Filipinos would own 60% of the combined
voting and non-voting stock. This ownership structure is remarkably similar to the current ownership structure of PLDT.
Minister Mendoza categorically rejected the theory that the term "capital" in Section 9, Article XIV of the 1973 Constitution includes "both
preferred and common stocks" treated as the same class of shares regardless of differences in voting rights and privileges. Minister Mendoza
stressed that the 60-40 ownership requirement in favor of Filipino citizens in the Constitution is not complied with unless the corporation
"satisfies the criterion of beneficial ownership" and that in applying the same "the primordial consideration is situs of control."
SEC General Counsel Vernette G. Umali-Paco applied the Voting Control Test, that is, using only the voting stock to determine whether a
corporation is a Philippine national. The Opinion states that in applying the Control Test, MLRC is deemed as a Philippine National because of
two reasons: first is that sixty percent (60%) of its outstanding capital stock entitled to vote is owned by a Philippine national, the Trustee; and
second is that at least sixty percent (60%) of the ERF will accrue to the benefit of Philippine nationals. Still pursuant to the Control Test, MLRC’s
investment in 60% of BFDC’s outstanding capital stock entitled to vote shall be deemed as of Philippine nationality, thereby qualifying BFDC to
own private land.
These DOJ and SEC opinions are compatible with the Court’s interpretation of the 60-40 ownership requirement in favor of Filipino citizens
mandated by the Constitution for certain economic activities. At the same time, these opinions highlight the conflicting, contradictory, and
inconsistent positions taken by the DOJ and the SEC on the definition of the term "capital" found in the economic provisions of the Constitution.
Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules and opinions on behalf of the SEC, has adopted
even the Grandfather Rule in determining compliance with the 60-40 ownership requirement in favor of Filipino citizens mandated by the
Constitution for certain economic activities. This prevailing SEC ruling, which the SEC correctly adopted to thwart any circumvention of the
required Filipino "ownership and control," is laid down in the en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et
al., to wit: “The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our natural resources. Necessarily,
therefore, the Rule interpreting the constitutional provision should not diminish that right through the legal fiction of corporate ownership and
control. But the constitutional provision, as interpreted and practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of
the Constitution. Hence, the Grandfather Rule must be applied to accurately determine the actual participation, both direct and indirect, of
foreigners in a corporation engaged in a nationalized activity or business.
Compliance with the constitutional limitation(s) on engaging in nationalized activities must be determined by ascertaining if 60% of the investing
corporation’s outstanding capital stock is owned by "Filipino citizens", or as interpreted, by natural or individual Filipino citizens. If such an
investing corporation is in turn owned to some extent by another investing corporation, the same process must be observed. One must not stop
until the citizenships of the individual or natural stockholders of layer after layer of investing corporations have been established, the very
essence of the Grandfather Rule. Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule.”
This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership requirement in favor of Filipino citizens in the
Constitution to engage in certain economic activities applies not only to voting control of the corporation, but also to the beneficial ownership of
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the corporation.
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation is a "Philippine national."
The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions which respondents relied upon, is merely
preliminary and an opinion only of such officers. To repeat, any such opinion does not constitute an SEC rule or regulation.
The Court’s interpretation in these two cases of the terms "capital stock subscribed or paid," "capital stock" and "capital" does not pertain to, and
cannot control, the definition of the term "capital" as used in Section 11, Article XII of the Constitution, or any of the economic provisions of the
Constitution where the term "capital" is found. The definition of the term "capital" found in the Constitution must not be taken out of context. A
careful reading of these two cases reveals that the terms "capital stock subscribed or paid," "capital stock" and "capital" were defined solely to
determine the basis for computing the supervision and regulation fees under Section 40(e) and (f) of the Public Service Act.
36. Narra Mining vs. Redmont Mining (21 April 2014; 28 January 2015)
PETITIONER/s: Narra Nickel and Mining Development Corp., Tesoro RESPONDENT/s:

Mining and Development, Inc., and McArthur Mining Inc.
FACTS: Redmont Consolidated Mines Corp. (Redmont), a domestic corporation, wanted to undertake exploration and mining activities in the
province of Palawan but the area they wanted were already covered by Mineral Production Sharing Agreement (MPSA) applications of Narra
Nickel and Mining Development Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur).
McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA and Exploration Permit (EP)
with the DENR. SMMI was issued MPSA and EP which were then transferred to Madridejos Mining Corporation (MMC) and assigned to
McArthur.
Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining & Development Corporation
(PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, DENR. DENR issued MPSA and subsequently,
PLMDC conveyed, transferred and/or assigned its rights and interests over the MPSA application in favor of Narra.
Another MPSA was issued by DENR in favor of SMMI which the latter subsequently conveyed, transferred and assigned its rights and interest
over the said MPSA application to Tesoro.
Redmont filed three separate petitions for the denial of petitioners (Narra, Tesoro and McArthur) applications for MPSA. Redmont alleged that
at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing
of the MPSAs over the areas covered by applications since it knows that it can only participate in mining activities through corporations which
are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they were likewise
disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.
ISSUE/S: Whether the petitioners complied with the capital stock requirement to be granted MPSA
RULING/DOCTRINE: NO
Paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a corporation for purposes, among others, of
determining compliance with nationality requirements (the ‘Investee Corporation’). Such manner of computation is necessary since the shares in
the Investee Corporation may be owned both by individual stockholders (‘Investing Individuals’) and by corporations and partnerships
(‘Investing Corporation’). The said rules thus provide for the determination of nationality depending on the ownership of the Investee
Corporation and, in certain instances, the Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee Corporation. The first case is the ‘liberal
rule’, later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC
Rules which states, ‘(s)hares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality.’ Under the liberal Control Test, there is no need to further trace the ownership of the 60% (or more)
Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which
states, "but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding
to such percentage shall be counted as of Philippine nationality." Under the Strict Rule or Grandfather Rule Proper, the combined totals in the
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Investing Corporation and the Investee Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino
ownership. x x x
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only when the
60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with
less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less
Filipino). Stated differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis
supplied)
Here, this calls for the application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the
corporate ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra,
McArthur and Tesoro, since their common investor, the 100% Canadian corporation––MBMI, funded them. However, petitioners also claim that
there is "doubt" only when the stockholdings of Filipinos are less than 60%.
McArthur Mining, Inc.
To establish the actual ownership, interest or participation of MBMI in each of petitioners’ corporate structure, they have to be "grandfathered."
McArthur acquired its MPSA application from MMC, which acquired its application from SMMI.
Looking at the corporate structure of MMC, it has a similar structure and composition as McArthur. In fact, it would seem that MBMI is also a
major investor and "controls" MBMI and also, similar nominal shareholders were present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar
(Salazar), Michael T. Mason (Mason) and Kenneth Cawkell (Cawkell). Olympic Mines & Development Corporation (Olympic) did not pay any
amount with respect to the number of shares they subscribed to in the corporation, which is quite absurd since Olympic is the major stockholder
in MMC. MBMI’s 2006 Annual Report sheds light on why Olympic failed to pay any amount with respect to the number of shares it subscribed
to. It states that Olympic entered into joint venture agreements with several Philippine companies, wherein it holds directly and indirectly a 60%
effective equity interest in the Olympic Properties. Thus, McArthur, when it is "grandfathered," company layering was utilized by MBMI to gain
control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur, making the latter a foreign corporation.
Tesoro Mining and Development, Inc.
Tesoro acquired its MPSA application from SMMI. Except for the name "Sara Marie Mining, Inc.," it is shown that Tesoro has exactly the same
figures as the corporate structure of McArthur, down to the last centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra,
Agcaoili, Mason and Cawkell.
It is also noted that SMMI and MMC’s corporate structure has glaring similarity. After "grandfathering" petitioner Tesoro and factoring in
Olympic’s participation in SMMI’s corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or more equity interest in
Tesoro. This makes petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it to participate in the exploitation, utilization and
development of our natural resources.
Narra Nickel Mining and Development Corporation
Narra, which is the transferee and assignee of PLMDC’s MPSA application, whose corporate structure’s arrangement is similar to that of the first
two petitioners discussed. Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in Narra’s
corporate structure. Examining PLMDC’s corporate structure, the usual players in petitioners’ corporate structures are present. Similarly, the
amount of money paid by the 2nd tier majority stock holder, in this case, Palawan Alpha South Resources and Development Corp. (PASRDC), is
zero.
Conclusion
it is quite safe to say that petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more
of their equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC.
Going further and adding to the picture, MBMI’s Summary of Significant Accounting Policies statement– –regarding the "joint venture"
agreements that it entered into with the "Olympic" and "Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership
of the "layered" corporations boils down to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has joint venture
agreements with, practically exercising majority control over the corporations mentioned. In effect, whether looking at the capital structure or the
underlying relationships between and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60%
or more of their capital stocks or equity interests are owned by MBMI.
37. Cagayan Fishing vs. Sandiko (65 Phil 233, G.R. No. L-43350 December 23, 1937)
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Cagayan Fishing Development Co., Inc. Teodoro Sandiko
FACTS:
Manuel Tabora is the registered owner of four parcels of land. To guarantee the payment of a loan in the sum of P8,000, Manuel Tabora executed
in favor of the PNB a mortgage on four parcels of land. A second mortgage in favor of the same bank was executed by Tabora over the same
lands to guarantee the payment of another loan. A third mortgage on the same lands was executed in favor of Severina Buzon.
Tabora executed a public document by virtue of which the four parcels of land owned by him were sold to the Cagayan Fishing Co. in
consideration of one peso subject to the mortgages in favor of the PNB and Severina Buzon and, to the condition that the certificate of title to
said lands shall not be transferred to the name of the Cagayan Fishing until the latter has fully and completely paid Tabora's indebtedness to
PNB.
The plaintiff company filed its article incorporation with the Bureau of Commerce and Industry. A year later, it sold the four parcels of lands in
question to Teodoro Sandiko. The defendant having failed to pay the sum stated in the promissory note, plaintiff brought this action in the CFI
of Manila praying that judgment be rendered against the defendant.
ISSUE/S: WON Cagayan Fishing Dev’t. has juridical capacity to enter into the contract.
RULING/DOCTRINE:
The transfer was made almost five months before the incorporation of the company. Before a corporation may be said to be lawfully organized,
the law requires the filing of articles of incorporation. Although there is a presumption that all the requirements of law have been complied
with, in the case before us it cannot be denied that the plaintiff was not yet incorporated when it entered into a contract of sale. It was not even a
de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter into the contract.
“That a corporation should have a full and complete organization and existence as an entity before it can enter into any kind of a contract or
transact any business, would seem to be self-evident. A corporation, until organized, has no being, franchises or faculties. Nor do those engaged
in bringing it into being have any power to bind it by contract, unless so authorized by the charter. Until organized as authorized by the charter
there is not a corporation, nor does it possess franchises or faculties for it or others to exercise, until it acquires a complete existence,”
38. Missionary Sisters of Our Lady of Fatima vs Alzona et al. (GR No. 224307, 6 August 2018
Missionary Sisters of Our Lady of Fatima AMANDO V. ALZONA
FACTS:
Missionary Sisters of Our Lady of Fatima (petitioner), otherwise known as the Peach Sisters of Laguna through mother conception received a
parcels of land from Purification through a donation inter vivos whom later on died. The brother of Purification contended the validity of the
donation because according to him the petitioner was not yet registered to SEC when it became a recipient of the donation. Therefore, lacking of
Juridical personality it cannot validly accept the donation.
The Regional Trial court ruled that all the essentials elements of the donation were present in this case and set aside the allegation of incapacity
of the parties in the donation. The trial court ruled that the the the petitioner as de facto corporation has the personality to be a beneficiary and
has the power to acquire and possess property. Further then, the petitioner's incapacity cannot be questioned or assailed in the instant case as it
constitutes a collateral attack which is prohibited by the Corporation Code of the Philippines. In this regard, the RTC found that the recognition
by the petitioner of Mother Concepcion's authority is sufficient to vest the latter of the capacity to accept the donation.
The Court of Appeals set aside the decision of the RTC and declared that the donation is void.
ISSUE/S:
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Whether a de facto corporation may validly accept the donation.
RULING/DOCTRINE:
Yes, the subsequent incorporation of the petitioner and the affirmation of Mother Concepcion's authority to accept on its behalf cured the defect
that may have attended the acceptance of the donation.
The court ruled that the acceptance of Mother Concepcion for the sisters comprising the congregation is sufficient to perfect the donation and
transfer title to the property to the petitioner.
The Deed sought to be enforced having been validly entered into by Purificacion, the respondents' predecessor-in-interest, binds the
respondents who succeed the latter as heirs.
The court applies the law with justice.
The promotion of charitable works is a laudable objective. While not mentioned in the Constitution, the Court recognizes benevolent giving as
an important social fabric that eliminates inequality. As such, charitable giving must be encouraged through support from society and the Court.
39. Municipality of Malabang vs. Benito (27 SCRA 452)
THE MUNICIPALITY OF MALABANG, LANAO DEL SUR, and AMER PANGANDAPUN BENITO, HADJI NOPODIN MACAPUNUNG,
MACAORAO BALINDONG HADJI HASAN MACARAMPAD, FREDERICK V. DUJERTE
MONDACO ONTAL, MARONSONG ANDOY, MACALABA INDAR
LAO
FACTS:
Amer Macario Balindong, as mayor and in behalf of Malabang, Lanao del Sur (petitioners) filed an action for prohibition to nullify EO 386 and
to restrain Mayor Pangandapun Benito and the councilors of Balabagan, Lanao del Sur (respondents) from performing functions of respective
offices. Petitioners rely on the ruling in Pelaez v. Auditor General, where the Court ruled that Sec. 68 of the Administrative Code, which gives
the President the power to create municipalities is unconstitutional as
a) It is an undue delegation of legislative powers;
b) It violates the limitation on the President‟s power over local government is merely supervisory; and
c) It shall be deemed repealed due to the 1935 Constitution, as the Administrative Code was approved on 1917
Respondents on the other hand rely on its being a de facto corporation, being granted existence due to a statute prior to its declaration of being
unconstitutional, and that it cannot be collaterally attacked, and Balindong is merely an individual who cannot attack its existence.
ISSUE/S:
Whether the Municipality of Balabagan is a de facto corporation.
RULING/DOCTRINE:
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No. The ruling in Pelaez correctly declared that EO 386 is unconstitutional, and as a similar ruling in Municipality of San Jose and Siva,
Balabagan must be restrained from acting further. An unconstitutional act is not a law, hence confers no rights, no duties, no protection, no
office. It is as if the law had never been passed. While it is true that the first consideration is to consider any other statute that may uphold the
validity of the corporation, such is wanting in this case as it is only through the Administrative Code that it was created. Furthermore, even
considering other aspects such as relationship, the invalidity of Balabagan would not result in the unsettling of many acts it did.
Notes :
The color of authority requisite to the organization of a de facto municipal corporation may be:
1. A valid law enacted by the legislature.
2. An unconstitutional law, valid on its face, which has either (a) been upheld for a time by the courts or (b) not yet been declared void; provided
that a warrant for its creation can be found in some other valid law or in the recognition of its potential existence by the general laws or
constitution of the state.
DOCTRINE
There can be no color of authority in an unconstitutional statute alone. Hence there is no de facto corporation
40. Hall vs. Piccio (86 Phil 603)
C. ARNOLD HALL and BRADLEY P. HALL EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte,
FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his
capacity as receiver of the Far Eastern Lumber and Commercial Co., Inc.,
respondents.
FACTS:
Arnold Hall (petitioner), Emma and Fred Brown, Hipolita Chapman, and Ceferino Abella (respondents) acknowledged and signed the AOI,
adopted by-laws, and elected officers of Far East Lumber and Commercial Co. (FELC) on 28 May 1947. But submitted the AOI to the Sec after 7
months, or on December 1947. Pending action on said articles, respondents filed against petitioner for the dissolution of the unregistered
partnership with the CFI due to dissension, mismanagement, financial losses and feud among managers, which the CFI granted. Petitioner
questioned the CFI decision, on the ground that the entity is a de facto corporation to which only a direct proceeding by the State may prosper.
ISSUE/S:
Whether FELC is a De Facto Corporation.
RULING/DOCTRINE:
NO. FELC cannot be considered as a de facto corporation for two reasons:
a) Issuance of CoI calls a corporation into being; and
b) The suit is NOT against the corporation, but rather between stockholders.
On the first ground, de facto corporations exist by virtue of errors or irregularity, but NOT from total or substantial disregard of the law.
On the other hand, the State’s intervention, whether de jure or de facto, is not needed to acquire dissolution of the corporation.
Furthermore, the doctrine of estoppel would not apply as the stockholders are deemed to know regarding the existence of the corporation, and
that no third parties are damaged by entering into transactions.
41. Lozano vs. Delos Santos (274 SCRA wq2)
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REYNALDO M. LOZANO HON. ELIEZER R. DE LOS SANTOS
FACTS:
Reynaldo Lozano (Lozano) and Antonio Anda (Anda) are both presidents of jeepney driver‟s associations with routes to and from Angeles and
Mabalacat. Upon the request of the Sanggunian, they agreed to consolidate their associations as United Mabalacat-Angeles Jeepney Operators
and Driver‟s Association (UMAJODA). In line with the agreement, set of officers shall be elected, to which Lozano won. Anda protested, and
kept collecting dues from his members. Hence, Lozano filed a case with the trial court to restrain Anda from such acts. However, the trial court
found that it is an intra-corporate dispute, which is under the jurisdiction of the SEC.
ISSUE/S:
Whether the doctrine of corporation by estoppel

may be applied to UMAJODA Corporation.
RULING/DOCTRINE:
No. At the moment, there is no UMAJODA to speak of, as the certificate of consolidation has not been submitted, hence nothing to approve. As
no corporate existence is present, they remain as two different entities. Likewise, the doctrine of estoppel will not apply as there is no third
parties involved. It will only apply as a matter of equity to avoid injustice and unfairness. As it is a case where it is only among those who
incorporates, knowingly that it has not been registered, there is no corporation by estoppel.
42. Albert vs. University Publishing (13 SCRA 84)
PETITIONER/s:Mariano A. Albert RESPONDENT/s:University Publishing
FACTS:Mariano A. Albert sued University Publishing Co., Inc. Albert alleged that defendant was a corporation duly organized and existing
under the laws of the Philippines. Defendant, through Jose M. Aruego, its President, entered into a contract with Albert, the plaintiff. Defendant
had agreed to pay plaintiff P30,000.00 for the exclusive right to publish his revised Commentaries on the Revised Penal Code and for his share in
previous sales of the book’s first edition. defendant had to pay in eight quarterly instalments. Defendant had failed to pay the second
installment. Defendant admitted plaintiff’s allegation of defendant’s corporate existence but alleged that it was plaintiff who breached their
contract by failing to deliver his manuscript. After which, defendant counterclaimed for damages.
The RTC of Manila rendered a decision in favor of the plaintiff and against the defendant the University Publishing ordering the defendant to
pay. The counterclaim was dismissed for lack of evidence. The court a quo ordered issuance of an execution writ against University Publishing
Co. Plaintiff however, petitioned for a writ of execution against Jose M. Aruego, as the real defendant, stating, "plaintiff’s counsel and the Sheriff
of Manila discovered that there is no such entity as University Publishing Co., Inc." Plaintiff annexed to his petition a certification from the
Security and Exchange Commission attesting; "The records of this Commission do not show the registration of UNIVERSITY PUBLISHING CO.,
INC., either as a corporation or partnership." "University Publishing Co., Inc." countered by filing, through counsel (Jose M. Aruego’s own law
firm), a "manifestation" stating that "Jose M. Aruego is not a party to this case"
The court a quo denied the petition by order and from this, plaintiff has appealed.
ISSUE/S:Whether or not the Corporation can be sued
RULING:
No, the Supreme Court held that on account of the non-registration it cannot be considered a corporation, not even a corporation de facto. It has
therefore no personality separate from Jose M. Aruego; it cannot be sued independently. The corporation-by estoppel doctrine has not been
invoked. At any rate, the same is inapplicable here. Aruego represented a non-existent entity and induced not only the plaintiff but even the
court to believe in such representation. He signed the contract as "President" of "University Publishing Co., Inc.," stating that this was "a
corporation duly organized and existing under the laws of the Philippines," and obviously misled plaintiff Albert into believing the same. One
who has induced another to act upon his wilful misrepresentation that a corporation was duly organized and existing under the law, cannot
thereafter set up against his victim the principle of corporation by estoppel.
"A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and
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becomes personally liable for contracts entered into or for other acts performed as such agent."
DOCTRINE:One who has induced another to act upon his wilful misrepresentation that a corporation was duly organized and existing under the
law, cannot thereafter set up against his victim the principle of corporation by estoppel.
A person acting or purporting to act on behalf of a corporation which has no valid existence assumes each privileges and obligations and
becomes personally liable for contracts entered into or for other acts performed as such agent.
43. Salvattierra vs. Garlitos (103 Phil 757)
Digested by: Rivera, Jean Pauline S.
Manuela T. Vda. De Salvatierra Hon. Lorenzo C. Garlitos and Segundino Refuerzo
FACTS:
Vda. de Salvatierra owns a parcel of land at Burauen, Leyte. In 1954, Salvatierra entered into a contract of lease with the Philippine Fibers
Producers Co. allegedly a corporation "duly organized and existing under the laws of the Philippines, with business address at Burauen, Leyte,
Philippines, represented by Mr. Segundino Q. Refuerzo, the President". It was agreed, that the lease would be for a period of 10 years; that the
land be planted to kenaf, ramie or other crops suitable to the soil; that the lessor would be entitled to 30 percent of the net income accruing from
the harvest of any, crop without being responsible for the cost of production thereof; and that after every harvest, the lessee was bound to declare
at the earliest possible time the income derived therefrom and to deliver the corresponding share due the lessor.
Apparently, the obligations imposed were not complied with because on April 1955, Salvatierra filed with CFI Leyte a complaint against the
Philippine Fibers Producers Co., Inc., and Segundino Q. Refuerzo, for accounting, rescission and damages. Averred that in April, 1954,
defendants planted kenaf on 3 hectares of the leased property which crop was, already harvested, processed and sold by defendants; that
defendants refused to render an accounting of the income derived therefrom and to deliver the lessor's share; that as defendants' refusal to
undertake such task was in violation of the terms of the covenant entered into between the plaintiff and defendant corporation, a rescission was
but proper plus damages against the purported corporation and Refuerzo.
ISSUE/S:
Whether Refuerzo can be exonerated from personal liability resulting from the non-fulfillment of the obligation of defendant Philippine Fibers
being a signatory to the lease contract, his capacity as president of the corporation.
RULING/DOCTRINE:
No. While as a general rule a person who has contracted or dealt with an association in such a way as to recognize its existence as a corporate body is
estopped from denying the same in an action arising out of such transaction or dealing, yet this doctrine may not be held to be applicable where
fraud takes a part in the said transaction. In the instant case, on plaintiff's charge that she was unaware of the fact that the Philippine Fibers
Producers Co., Inc., had no juridical personality, defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the
execution of the contract lead to the inescapable conclusion that plaintiff Vda. de Salvatierra was really made to believe that such corporation
was duly organized in accordance with law.
The rule on the separate personality of a corporation is understood to refer merely to registered corporations and cannot be made applicable to
the liability of members of an unincorporated association. The reason behind this doctrine is obvious – since an organization which before the
law is non existent has no personality and would be incompetent to act on its behalf; thus, those who act or purport to act as its representatives or
agent do so without authority and at their own risk. And, as is it elementary principle of law that a person who acts as an agent without authority
or without principal is himself regarded as the principal, a person acting or purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such
agents.
In acting on behalf of a corporation which he knew to be unregistered, the president of the unregistered corporation Refuerzo, assumed the risk
of reaping the consequential damages, if any, arising out of such a transaction.
44. Chiang Kai Shiek vs. CA (172 SCRA 389)
Digested by:
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FACTS:
ISSUE/S:
RULING/DOCTRINE:
45. Asia Banking Corp. vs. Standard Products (46 Phil 144)
Digested by: GARGARITANO, Angelo Gabriel I.
FACTS: ASIA BANKING CORPORATION v. STANDARD PRODUCTS, CO., INC.

G.R. No. 22106
11 September 1924
OSTRAND, J.
Corporation by estoppel – a person who has contracted with an association in such a way as to recognize and admit its legal existence is estopped
from denying its existence in an action involving such action or dealing.
FACTS
1. Standard Products, Co., Inc. (SPCI) was able to obtain a loan with Asia Banking Corporation in the amount of P24,147.34.
- This was secured by a Promissory Note in favor of Asia Banking.
2. Upon demand, SPCI failed to pay. Asia Baking filed a case for recovery of sum of money.
3. The trial court rendered judgment in favor of Asia Baking.
- SPCI insists that the court erred in finding that Asia Banking is a corporation with juridical personality.
ISSUE
Whether or not SPCI is estopped from denying its corporate existence.
RULING
Yes.
The general rule is that IN THE ABSENCE OF FRAUD, a person who has contracted or otherwise dealt with an association in such a way as to
recognize and in effect admit its legal existence as a corporate body, is estopped from denying its corporate existence in any action leading out of
or involving such contract or dealing.
- Unless its existence is attacked for cause which have arisen since making the contract or other dealing relied on as an esoppel and this applies
to foreign as well as domestic corporations.
In the instant case, SPCI recognized the corporate existence of Asia Banking by making a promissory note in its favor and making partial
payments.
- SPCI is now estopped from denying Asia Banking’s corporate existence.
The judgment appealed from is affirmed.
ISSUE/S:
RULING/DOCTRINE:
46. International Express Travel vs. CA (343 SCRA 674)
Digested by:
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FACTS:
ISSUE/S:
RULING/DOCTRINE:
47. Georg Grotjahn vs. Isnani (G.R. No. 109272 August 10, 1994. 235 SCRA 216)
PETITIONER/s: Georg Grotjahn GMBH & CO. RESPONDENT/s: Hon. Lucia violago isnani, Presiding Judge, Makati
RTC; Romana R. Lanchinebre; and Teofilo A. Lanchinebre,
respondents.
FACTS:
Petitioner is a multinational company registered in Germany. On July 6, 1983, petitioner filed for and was approved by the SEC to establish a
regional headquarters in the Philippines, pursuant to Presidential Decree No. 218. On September 20, 1983, the SEC issued a Certificate of
Registration and License to petitioner.
Private respondent Romana R. Lanchinebre was a sales representative of petitioner from 1983 to mid-1992. She secured loans from the petitioner
totaling thirty-five thousand pesos (P35,000.00), of which twelve thousand one hundred seventy pesos and thirty-seven centavos (P12,170.37)
remained unpaid. Romana failed to settle the balance despite petitioner’s demands.
At the Manila NLRC, private respondent filed a Complaint for illegal suspension, dismissal and non-payment of commissions against petitioner;
while petitioner in turn filed a complaint for damages totaling P120,000.00 against the respondent. The two cases were consolidated.
Petitioner also filed in the Makati RTC a civil case for collection of sum of money against private respondents spouses Romana and Teofilo
Lanchinebre (Civil Case No. 92-2486). Respondents filed for a motion to dismiss the case, which was granted by the RTC. Hence the current
petition.
ISSUE/S:
Whether the petitioner has no capacity to sue and be sued in the Philippines despite the fact that petitioner is duly licensed by the securities and
exchange commission to set up and operate a regional or area headquarters in the country and that it has continuously operated as such for the
last nine (9) years.
RULING/DOCTRINE:
There is no general rule or governing principle as to what constitutes "doing" or "engaging in" or "transacting" business in the Philippines. Each
case must be judged in the light of its peculiar circumstances. In the case at bench, petitioner does not engage in commercial dealings or activities
in the country because it is precluded from doing so by P.D. No. 218, under which it was established. Nonetheless, it has been continuously,
since 1983, acting as a supervision, communications and coordination center for its home office's affiliates in Singapore, and in the process has
named its local agent and has employed Philippine nationals like private respondent Romana Lanchinebre. From this uninterrupted
performance by petitioner of acts pursuant to its primary purposes and functions as a regional/area headquarters for its home office, it is clear
that petitioner is doing business in the country. Moreover, private respondents are estopped from assailing the personality of petitioner. So we
held in Merrill Lynch Futures, Inc. vs. Court of Appeals, 211 SCRA 824, 837 (1992):
The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract
with it. And the "doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations;" "one who has dealth
with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity." The principle "will be applied
to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes chiefly in cases
where such person has received the benefits of the contract
48. Pioneer Insurance and Surety Corporation vs CA (GR No 84197, 298 July 1989)
Digested by: Armillo, Joyce A.
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FACTS:
In 1965, Jacob S. Lim was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. Then, Japan
Domestic Airlines (JDA) and Lim in Tokyo, Japan entered into and executed a sales contract for the sale and purchase of 2 aircrafts and 1 set of
necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. The 2 aircrafts arrived in Manila. Pioneer Insurance
and Surety Corporation as surety executed and issued its surety bond in favor of JDA, in behalf of its principal, Lim, for the balance price of the
aircrafts and spare parts. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes
(Cervanteses) and Constancio Maglana contributed some funds used in the purchase of the above aircrafts and spare parts. The funds were
supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. They executed 2 separate indemnity
agreements in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The
indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally in favor of Pioneer.
Thereafter, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for the
latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and convey to the surety the two aircrafts. Lim defaulted on
his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid a total sum of P298,626.12. Pioneer filed
a petition for the extrajudicial foreclosure of the chattel mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however, filed
a third party claim alleging that they are co-owners of the aircrafts, Then, Pioneer filed an action for judicial foreclosure with an application for a
writ of preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts
signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and for recovery of the sums of money they
advanced to Lim for the purchase of the aircrafts in question. After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer
but dismissed
Pioneer's complaint against all other defendants. The appellate court modified the trial court's decision in that the plaintiffs complaint against
all the defendants was dismissed. In all other respects the trial court's decision was affirmed. Hence the petition which was consolidated by the
Court.
ISSUE/S: Whether a de facto Corporation exists ?
RULING/DOCTRINE: No. Maglana, Bormaheco and the Cervanteses will not share in the loss of the venture in proportion to their
contribution because there’s no de facto partnership. Ordinarily, when co-investors agreed to do business through a corporation but failed
to incorporate, a de facto partnership would have been formed, and as such, all must share in the losses and/or gains of the venture in
proportion to their contribution. Thus, where persons associate themselves together under articles to purchase property to carry on a business,
and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners
inter se, and their rights as members of the company to the property acquired by the company will be recognized. However, such a relation does
not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their purpose
is that no partnership shall exist.
In the instant case, it is to be noted that the petitioner denied having received any amount from respondents Bormaheco, the Cervanteses and
Maglana.It is therefore clear that the petitioner never had the intention to form corporation with the respondents despite his representations
to them. This gives credence to the cross- claims of the respondents to the effect that they were induced and lured by the petitioner to
make contributions to a proposed corporation which was never formed because the petitioner reneged on their agreement. Therefore, no de
facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed
corporation. The record shows that the petitioner was acting on his own and not in be half of his other would - be incorporators in transacting the
sale of the airplanes and spare parts.
49. Lim Tong vs Philippine Fishing Gear Industries (GR No. 136448, 3 November 1999)
FACTS:
Antonio Chua and Peter Yao represented "Ocean Quest Fishing Corp." entered a Contract for the purchase of fishing nets of various sizes from
Phil. Fishing Gear Industries , Inc., claiming they engaged into a business venture with Lim Tong Tim who, however, was not a signatory to the
agreement.
The buyers failed to pay, causing the private respondent to file a collection suit against Chua, Yao, and Lim in their capacities as general partners
that the said company was a non-existent corp. shown by a Certification from SEC.
Lower court issued a Writ to enforce the sheriff in attaching the fishing nets on board F/B Lourdes which was docked at Navotas, Metro
Manila. Chua admitted his liability, while Yao deemed to waive right to present as witness, while Lim answered to lift the Writ.
RTC Ruled that the three were jointly liable to pay, that there existed a partnership due to the testimonies presented, and on a Compromise
Agreement (but was silent as to the nature of obligations), but the joint liability could be presumed on the profit and loss.
CA affirmed and held that Lim was a partner of Chua and Yao and is thus liable on the fishing nets and floats purchased for the use of the
partnership. They undertook a partnership for a specific undertaking. That they divided the profits among themselves which was a partnership
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essentially is.
ISSUE/S:
Whether the CA erred in imputing liability to Lim, since it was only Chua who represented who was acting for Ocean Quest Fishing Corp. when
he bought nets from Phil. Fishing (Corporation by Estoppel)
RULING/DOCTRINE:
NO, petitioner is wrong to argue under the doctrine of corporation by estoppel, liability can be implied only to Chua and Yao, and not to him.
As provided under Sec. 21, all persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general
partner for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, that when any such ostensible corporation
is sued on any transaction entered by it as a corporation or on any tort committed, it shall not be allowed to use as a defense on lack of
corporate personality.
Petitioner benefited from the use of the nts found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the
partnership. He questions the attachment of the nets, because the writ has effectively stopped his use of the fishing vessel. Clearly, under the
law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as
general partners.
It is true the petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the
doctrine of corporation by estoppel.
50. Macasaet vs. Francisco (GR No. 156759, 5 June 2013)
PETITIONER/s: Allen A. Macasaet, Nicolas V. Quijano, Jr., Isaias RESPONDENT/s: Francisco R. Co, Jr
Albano, Lily Reyes, Janet Bay, Jesus R. Galang, And Randy Hagos
FACTS:
Respondent sued pertitioners, including Abante Tonite, claiming damages because of an allegedly libelous article petitioner published said
tabloid. RTC issued summons to be served on each petitioners, including Abante Tonite, at their business address. RTC Sheriff Medina
proceeded to the address to effect the personal service of the summons. But his efforts to personally serve each were futile because the
petitioners were out of the office and unavailable. He returned in the afternoon on the same day to make a second attempt at serving the
summons, but he was informed that petitioners were still out of the office. He decided to resort to substituted service of the summons.
Respondent sued pertitioners, including Abante Tonite, claiming damages because of an allegedly libelous article petitioner published said
tabloid. RTC issued summons to be served on each petitioners, including Abante Tonite, at their business address.
RTC Sheriff Medina proceeded to the address to effect the personal service of the summons. But his efforts to personally serve each were futile
because the petitioners were out of the office and unavailable. He returned in the afternoon on the same day to make a second attempt at serving
the summons, but he was informed that petitioners were still out of the office. He decided to resort to substituted service of the summons.
ISSUE/S: Whether or not Abante Tonite can be considered as a corporation by estoppel?
RULING/DOCTRINE:
Yes. Nor can we sustain petitioners’ contention that Abante Tonite could not be sued as a defendant due to its not being either a natural or a
juridical person. In rejecting their contention, the CA categorized Abante Tonite as a corporation by estoppel as the result of its having represented
itself to the reading public as a corporation despite its not being incorporated.
Thereby, the CA concluded that the RTC did not gravely abuse its discretion in holding that the non-incorporation of Abante Tonite with the
Securities and Exchange Commission was of no consequence, for, otherwise, whoever of the public who would suffer any damage from the
publication of articles in the pages of its tabloids would be left without recourse. We cannot disagree with the CA, considering that the editorial
box of the daily tabloid disclosed that basis, nothing in the box indicated that Monica Publishing Corporation had owned Abante Tonite.
51. Sulo ng Bayan vs. Araneta (72 SCRA 347)
Digested by: Olmilla, Alyza Mariel S.
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Sulo ng Bayan Gregorio Araneta Inc
FACTS:
On 26 April 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District,
Valenzuela, Bulacan, against Gregorio Araneta Inc. (GAI), Paradise Farms Inc., National Waterworks & Sewerage Authority (NAWASA),
Hacienda Caretas Inc., and the Register of Deeds of Bulacan to recover the ownership and possession of a large tract of land in San Jose del
Monte, Bulacan, containing an area of 27,982,250 sq. ms., more or less, registered under the Torrens System in the name of GAI, et. al.'s
predecessors-in-interest (who are members of the corporation).
On 2 September 1966, GAI filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no cause of action; and
(2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based
on the same grounds. NAWASA did not file any motion to dismiss.
However, it pleaded in its answer as special and affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and the barring of such action
by prescription and laches.
On 24 January 1967, the trial court issued an Order dismissing the (amended) complaint.
On 14 February 1967, Sulo ng Bayan filed a motion to reconsider the Order of dismissal, arguing among others that the complaint states a
sufficient cause of action because the subject matter of the controversy in one of common interest to the members of the corporation who are so
numerous that the present complaint should be treated as a class suit. The motion was denied by the trial court in its Order dated 22 February
1967.
Sulo ng Bayan appealed to the Court of Appeals. On 3 September 1969, the Court of Appeals, upon finding that no question of fact was involved
in the appeal but only questions of law and jurisdiction, certified the case to the Supreme Court for resolution of the legal issues involved in the
controversy.
ISSUE/S:
Whether Sulo ng Bayan, Inc. may institute the action for recovery of property in behalf of its individual members
RULING/DOCTRINE:
NO. It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate
and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions
of its stockholders or members. The property of a corporation is its property and not that of the stockholders, as owners, although they have
equities in it.
Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. Conversely, a
corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, “even in the case of a
one-man corporation”.
Absent any showing of interest, therefore, a corporation, like plaintiff- appellant herein, has no personality to bring an action for and in behalf
of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal
capacities.
It is fundamental that there cannot be a cause of action without an antecedent primary legal right conferred by law upon a person. Evidently,
there can be no wrong without a corresponding right, and no breach of duty by one person without a corresponding right belonging to some
other person.
DOCTRINE: Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. Conversely,
a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, “even in the case of a
one-man corporation”.
Absent any showing of interest, therefore, a corporation, like plaintiff- appellant herein, has no personality to bring an action for and in behalf
of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal
capacities.
52. Caram vs. CA (151 SCRA 372)
Digested by: Paguyo, Scarlet Nicole
PETITIONER/s: FERMIN Z. CARAM, JR. and ROSA O. DE CARAM RESPONDENT/s:THE HONORABLE COURT OF APPEALS and
ALBERTO V. ARELLANO
FACTS: This petition focus on the question of the solidary liability of the petitioners with their co-defendants in the lower court because of the
challenge to the following paragraph in the dispositive portion of the decision of the respondent court: 1. Defendants are hereby ordered to jointly
and severally pay the plaintiff the amount of P50,000.00 for the preparation of the project study and his technical services that led to the
organization of the defendant corporation, plus P10,000.00 attorney's fees;
The petitioners claim that the order of the CA that defendants are solidary liable to the petitioner has no support in fact and law because they
had no contract whatsoever with the private respondent regarding the above-mentioned services. Their position is that as mere subsequent
investors in the corporation that was later created, they should not be held solidarily liable with the Filipinas Orient Airways, a separate juridical
entity, and with Barretto and Garcia, their co-defendants in the lower court, who were the ones who requested the said services from the private
respondent.
46 | P a g e
ISSUE/S: Whether or not the petitioners themselves are also and personally liable for such expenses incurred in the project study of prospective
incorporation.
RULING/DOCTRINE:
No. It would appear from the above justification that the petitioners were not really involved in the initial steps that finally led to the
incorporation of the Filipinas Orient Airways. Elsewhere in the decision, Barretto was described as "the moving spirit." The finding of the
respondent court is that the project study was undertaken by the private respondent at the request of Barretto and Garcia who, upon its
completion, presented it to the petitioners to induce them to invest in the proposed airline. The study could have been presented to other
prospective investors. At any rate, the airline was eventually organized on the basis of the project study with the petitioners as major
stockholders and, together with Barretto and Garcia, as principal officers.
The above finding bolsters the conclusion that the petitioners were not involved in the initial stages of the organization of the airline, which
were being directed by Barretto as the main promoter. It was he who was putting all the pieces together, so to speak. The petitioners were merely
among the financiers whose interest was to be invited and who were in fact persuaded, on the strength of the project study, to invest in the
proposed airline. Significantly, there was no showing that the Filipinas Orient Airways was a fictitious corporation and did not have a separate
juridical personality, to justify making the petitioners, as principal stockholders thereof, responsible for its obligations. As a bona fide
corporation, the Filipinas Orient Airways should alone be liable for its corporate acts as duly authorized by its officers and directors.
Petitioners cannot be held personally liable for the compensation claimed by the private respondent for the services performed by him in the
organization of the corporation. To repeat, the petitioners did not contract such services. It was only the results of such services that Barretto and
Garcia presented to them and which persuaded them to invest in the proposed airline. The most that can be said is that they benefited from such
services, but that surely is no justification to hold them personally liable therefor. Otherwise, all the other stockholders of the corporation,
including those who came in later, and regardless of the amount of their shareholdings, would be equally and personally liable also with the
petitioners for the claims of the private respondent.
53. Rustan Pulp and Paper Mills vs. CA (214 SCRA 665)
Digested by:
RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. TANTOCO, THE INTERMEDIATE APPELLATE COURT and ILIGAN DIVERSIFIED
SR., and ROMEO S. VERGARA PROJECTS, INC., ROMEO A. LLUCH and ROBERTO G. BORROMEO
FACTS:
In 1966, Rustan Pulp and Paper Mills (Rustan) established a pulp and paper mill in Baloi, Lanao del Norte; In April 1968, petitioner Rustan and
private respondent Romeo Lluch (a holder of forest product license) executed a contract where respondent Lluch would supply petitioner Rustan
with pulp wood raw materials; petitioner Rustan agreed to pay respondent Lluch the price of P30.00 per cubic meter of pulp wood raw materials
to be delivered at Rustan’s plant in Baloi, Lanao del Norte;
Pertinent stipulations in the contract are as follow: “ 3. That the BUYER shall have the option to buy form other SELLERS who are equally
qualified… xxx xxx xxx 7. That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by this contract
when supply if the same shall become sufficient until such time when need for said raw materials shall have become necessary provided,
however, that the SELLER is given sufficient notice.”
On September 30, 1968, the petitioner Rustan issued a letter to private respondent Lluch and other suppliers stopping the deliveries of pulp raw
materials, stating that the supply of raw material has become sufficient. The real reason however was the machinery line had major defects upon
test run of the pulp mill and the Japanese supplier of the machinery advised petitioner Rustan to stop the delivery of the raw materials from the
suppliers.
Private respondent Lluch tried to clarify the tenor (terms) of the September 30 letter whether what was intended was the stoppage of delivery or
complete termination of the contract; but it continued deliveries to Romeo Vergara, the resident manager of the pulp mill but delivery was
ultimately stopped on December 23. It was established that Rustan had taken in materials from other suppliers after the stoppage.
A complaint of breach of contractwas filed by the private respondents Lluch et.al., at the court of origin but was dismissed. This was appealed to
the Intermediate Appellate Court where the private respondent Lluch won with modified decision directing the petitioner Rustan to pay the
private respondent Lluch the sum of P30,000 as moral damages and P15,000 as attorney’s fees.
ISSUE/S:
Whether or not BIENVENIDO R. TANTOCO, SR be hold personally liable under the contract of sale when they signed merely as representative
of Rustan ., and ROMEO S. VERGARA who did not sign at all
RULING/DOCTRINE:
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No. The President and Manager of a corporation who entered into and signed a contract in his official capacity, cannot be made liable thereunder
in his individual capacity in the absence of stipulation to that effect due to the personality of the corporation being separate and distinct from the
person composing it. Vergara's supposed non-participation in the contract of sale although he signed the letter dated September 30, 1968 is
completely immaterial. The two exceptions contemplated by Article 1897 of the New Civil Code where agents are directly responsible are absent
and wanting.
Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds
the limits of his authority without giving such party sufficient notice of his powers.
54. Cruz vs. Dalisay (152 SCRA 482)
Digested by: Atienza, Micah Yurielle P.
PETITIONER/s: ADELIO C. CRUZ RESPONDENT/s: QUITERIO L. DALISAY, Deputy Sheriff, RTC,

Manila
FACTS: Adelio Cruz charged Quiterio Dalisay, Senior Deputy Sheriff of Manila, with malfeasance in office, corrupt practices and serious
irregularities when the respondent sheriff attached and/or levied the money belonging to complainant Cruz when he was not himself the
judgment debtor in the final judgment of NLRC sought to be enforced but rather the company known as Qualitrans Limousine Service, Inc., a
duly registered corporation.
ISSUE/S: Whether or not the charge against the respondent should be upheld for attaching personal property of the corporate president.
RULING/DOCTRINE: YES. The respondent’s action in enforcing judgment against complaint who is not the judgment debtor in the case calls for
disciplinary action. Considering the ministerial duty in enforcing writs of execution, what is incumbent upon him is to ensure that only that
portion of a decision ordered or decreed in the dispositive part should be the subject of execution. No more, no less. That the title of the case
specifically names complaint as one of the respondents is of no moment as execution must conform to that directed in the dispositive portion and
not in the title of the case. The tenor of the NLRC judgment and the implementing writ are clear enough. It directed Qualitrans to reinstate the
discharged employee and pay the full back wages. Respondent, however, chose to “pierce the veil of corporate entity” usurping a power
belonging to the court and assumed improvidently that since the complainant is the owner/president, they are one and the same. It is well-settled
doctrine, both in law and in equity that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or
members. The mere fact that one is president of a corporation does not render the property he owns or possesses the property of the corporation,
since the president, as individual, and the corporation are separate entities.
55. Palay Inc. vs. Clave (124 SCRA 638)
PETITIONER/s: PALAY, INC. and ALBERT ONSTOTT RESPONDENT/s: JACOBO C. CLAVE, Presidential Executive
Assistant NATIONAL HOUSING AUTHORITY and NAZARIO
DUMPIT
FACTS: Petitioner Palay, Inc. through its president Albert Onstott, executed in favor of respondent Naario Dumpit a Contract to Sell a parcel of
land which provided for automatic rescission upon default in payment of any monthly amortization without need of notice and forfeiture of all
instalments paid. Respondent failed to pay some instalments and later offered to update all his overdue account but was informed that the
contract has already been rescinded. Respondent filed with the NHA a complaint questioning the validity of the rescission which decided in its
favor holding Palay, Inc. and Alberto Onstott, in his capacity as president, jointly and severally liable.
ISSUE/S: WON the corporate president is liable to refund the amount state in the NHA ruling.
RULING/DOCTRINE: NO. As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the
legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to
further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience,
justify wrong, protect fraud, or defend crime; or to perpetuate fraud or confuse legitimate issues; or to circumvent the law or perpetuate
deception; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders.
We find no badges of fraud on petitioners’ part. They had literally relied, albeit mistakenly, on its contract with private respondent when it
rescinded the contract to sell extrajudicially and had sold it to another person. No sufficient proof exists on record that said petitioner used the
corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he “appears to be the controlling
stockholder”. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not, of
itself, sufficient ground for disregarding the separate corporate personality.
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56. Soriano vs. CA (174 SCRA 195, G.R. No. L-49834 June 22, 1989)
PETITIONER/s: Paulino Soriano, Nenita C. Esperanza and Jandro G. RESPONDENT/s: Court of Appeals and Gervacio Cu
Macadangdang
FACTS:
Petitioners, officers of Bacarra FaCoMa Inc., entered into a deal with Gervacio Uy. Conflict arose when the private respondent was not paid his
tobacco, prompting him to file a complaint for the collection of a sum of money against all the signatories to the receipt.
Petitioners’ contention:
1. They should not be made accountable for the controversial contract in their personal capacity but, if ever, as officers of the corporation,
them having entered into the "deal" with the private respondent as such.
2. Even if their liability proves to be personal in character, still the same should only be joint and not solidary.
3. Inasmuch as their co-defendant Bienvenido E. Acosta acted without their authority and consent, he alone should be held responsible
for whatever loss the private respondent may have incurred.
During the course of the trial, it became apparent from the testimony of the private respondent's only witness that the said tobacco was diverted
by defendant Bienvenido E. Acosta to another re-drying plant. The petitioners professed lack of knowledge of Acosta's act of diverting the
tobacco and not having authorized or consented to its diversion.
ISSUE/S: WON the transaction between the plaintiff and defendants was a sale on credit to the officers of the Baccara FaCoMa Inc. in their
private capacities.
RULING/DOCTRINE:
The subject receipt itself states that the conditions contained therein were between the private respondent and the "Association." It is quite plain
and we are convinced that the "Association is none other than the Bacarra (I.N.) FaCoMa, Inc., which is a farmers' cooperative marketing
association. Not only that, but we also cannot find any cogent reason why the petitioners (and their co-defendants) used the word "Association"
when they could have more easily and conveniently placed "the undersigned" or words to the same effect in its stead. Private respondent's lone
witness, the driver of the truck used in transporting the tobacco, testified that the receipt and invoices used in transporting the private
respondent's tobacco were in the name of the Bacarra (I.N.) FACOMA, Inc. and not in the names of the signatories to the controversial document.
As pointed out by the petitioners, the signatories to the receipt in question comprise the majority of the Board of Directors of Bacarra (I.N.)
FaCoMa, Inc. There was thus no further need for a separate authorization to bind the corporation to the transaction. To pass such a separate
resolution, the petitioners would only be seeking authorization from themselves to enter into the transaction which is clearly a redundancy.
The alleged departure from the established business practice of the corporation with respect to the execution of the controversial receipt on the
other hand, could be traced to the uncontroverted fact that the private respondent, aside from being a non-member of the Bacarra (I.N.) FaCoMa,
Inc., is also an alien, a Chinese national. While the petitioners admit that the FaCoMa accepted consignments of produce even from non-
members, that privilege was not extended to aliens like the private respondent. Hence, the private respondent's citizenship presented a problem.
It is precisely for this reason that the receipt was executed in the manner it was done.
In the light of the foregoing, it is clear that the liability of the petitioners under the document subject of the instant case, is not personal but
corporate, and therefore attached to the Bacarra (I.N.) FaCoMa, Inc. which, being a corporation, has a personality distinct and separate from that
of the petitioners who are only its officers.
It is the general rule that the protective mantle of a corporation's separate and distinct personality could only be pierced and liability attached
directly to its officers and/or members-stockholders, when the same is used for fraudulent, unfair or illegal purpose. In the case at bar, there is no
showing that the Association entered into the transaction with the private respondent for the purpose of defrauding the latter of his goods or the
payment thereof. More importantly, there is no proof whatsoever that the majority of the directors used the distinct and separate personality of
Bacarra (I.N.) FaCoMa, Inc. as a protective shield for any wrongdoing. Therefore, the general rule on corporate liability, not the exception, should
be applied in resolving this case.
57. International Academy of Management and Economics (I/AME) vs. Litton and Co., Inc. (848 SCRA 437)
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International Academy of Management and Economics (I/AME) Litton and Company, Inc. (Litton)
FACTS:
Atty. Emmanuel T. Santos (Santos) failed to pay Litton rental arrears as well as his share of the payment of realty taxes. Litton filed a complaint
for unlawful detainer against Santos before the MeTC of Manila.
The lower courts ruled in Litton's favor and ordered Santos to vacate and to pay various sums of money representing unpaid arrears, realty taxes,
penalty, and attorney's fees.
Upon the finality of the case the sheriff levied on a piece of real property covered by Transfer Certificate of Title (TCT) No. 187565 and registered
in the name of International Academy of Management and Economics Incorporated (I/AME), in order to execute the judgment against Santos.
I/AME alleged that it has separate and distinct personality from Santos and the former cannot therefore be held liable for the liability of the
latter.
ISSUE/S: Whether the veil of the I/AME can be pierced to satisfy the claims of Litton.
RULING/DOCTRINE:
Yes, the court ruled that Piercing the corporate veil is warranted when "the separate personality of a corporation is used as a means to perpetrate
fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues."
Piercing the corporate veil is also warranted in alter ego cases "where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation."
When the corporate veil is pierced, the corporation and persons who are normally treated as distinct from the corporation are treated as one
person, such that when the corporation is adjudged liable, these persons, too, become liable as if they were the corporation.
The court confirms the lower courts' findings that Santos had an existing obligation based on a court judgment that he owed monthly rentals and
unpaid realty taxes under a lease contract he entered into as lessee with the Littons as lessor. He was not able to comply with this particular
obligation, and in fact, refused to comply therewith.
the court likewise explained the difference between traditional piercing of corporate veil and the Reverse Piercing of the Corporate Veil.
In a traditional veil-piercing action, a court disregards the existence of the corporate entity so a claimant can reach the assets of a corporate
insider. In a reverse piercing action, however, the plaintiff seeks to reach the assets of a corporation to satisfy claims against a corporate insider.
The Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing) and makes the corporation liable for the debt of the
shareholders."
The court further explains that it has two (2) types: outsider reverse piercing and insider reverse piercing.
Outsider reverse piercing occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of a corporation
owned or substantially controlled by the defendant.
In insider reverse piercing, the controlling members will attempt to ignore the corporate fiction in order to take advantage of a benefit available
to the corporation, such as an interest in a lawsuit or protection of personal assets.
Outsider reverse veil-piercing is applicable in the instant case, the court granted the prayer of Litton to pierce the corporate veil of I/AME in
order to make its Makati real property answer for a judgment against Santos, who formerly owned and still substantially controls I/AME.
58. Palacio vs. Fely Transportation Co. (5 SCRA 1011)
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R
FACTS:
CFI of QC convicted Alfredo Carillo (Alfredo) guilty for reckless imprudence as he ran over Mario Palacio, son of Gregorio Palacio (Palacio),
which required the former to be hospitalized. Hence, Alfredo was sentenced for imprisonment and indemnity. Alfredo drives for Isabelo
Calingasan (Calingasan), while the latter is the president and general manager of Fely Transportation Company (FTC). Interestingly, the jeep
drove by Alfredo was sold to FTC after the incident. Out of these facts, the civil case for the above incident instituted in CFI Manila against FTC,
the latter court ruled that Calingasan is subsidiarily liable as Alfredo is insolvent, and NOT the defendant corporation. Hence an appeal was
filed by Palacio, stating that FTC should be held subsidiarily liable.
ISSUE/S:
Whether the veil of the FTC can be pierced.
RULING/DOCTRINE:
Yes. The veil of the FTC should be pierced for being an alter ego of Calingasan.
In this case the court explained that Calingasan and FTC are one and the same person, and the latter had been used only as a shield to further
an end subversive of justice.
The following evidence had been observed:

1. The incorporators of FTC include:
a. Calingasan; b. His wife; c. His son; and d. His two (2) daughters;
2. No proof as to other properties of FTC other than the jeep.
In this case, FTC was organized in order for Calingasan to avoid subsidiary liability, as the latter has transferred the jeep to the former in order
for the property be placed out of reach of claimants, which led to the Court piercing the veil of FTC. Further, establishing their identity as one,
Calingasan can be substituted as the real-party-in interest despite not being the party in the original case, to avoid multiplicity of suits.
59. Marvel Bldg. vs. David (94 SCRA 376)
PETITIONER/s: Marvel Building Corporation RESPONDENT/s: Collector of Internal Revenue (Saturnino David)
FACTS:
This action was brought by the stockholders of the Marvel Building Corporation (plaintiff) to enjoin the CIR from selling the seized properties
from the Corporation to collect war profits taxes assessed against plaintiff Maria B. Castro. The CIR (defendant) claims that seized properties
belong to Maria B. Castro and not to Marvel Bldg. Corporatop, the defendant also claims that Maria B. Castro is the true and sole owner of all the
the subscribed stock of the Corporation, including those appearing to have been subscribed and paid by the other members. Also, from the book
of accounts of the corporation, advances to the corporation of P125,000.00 were made by Maria Castro in 1947, P 102,916.05 in 1948, and
P160,910.95 in 1949.
ISSUE/S: WON Maria B. Castro is the true and sole owner of all the shares of stock of the Marvel Bldg. Corp. and the other stockholders are mere
dummies?
RULING/DOCTRINE:
Yes, Maria B. Castro is the sole and exclusive owner of all the shares of stock of the Marvel Bldg. Corp. and the other partners of her dummies.
The court finds that the other stockholders did not have sufficient income during the time of the organization of the corporation to pay in full for
their supposed subscriptions. Maria B. Castro had been found to have made enormous gains or profits in her business and also the defendant
showed that Maria B. Castro had furnished all the money that the Corporation had. With this, it is evident that Maria B. Castro had the motive to
hide them to evade the payment of taxes.
Maria B. Castro also advanced big sums of money without any previous arrangement or accounting, and the fact that the books of accounting
were kept by Maria Castro as if they belonged to her. And the stockholder or the directors never met to discuss the business of meeting.
Therefore, the Doctrine of Piercing the Veil of Corporate Fiction can be applied because it was proved that the stockholders are mere dummies
and with that, she is the sole and exclusive owner of Marvel Building Corporation. It was also proved that Maria B. Castro had the motive to
evade tax.
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60. Yutivo and Sons vs. CTA (1 SCRA 160)
FACTS:
ISSUE/S:
RULING/DOCTRINE:
61. Commissioner vs. Norton & Harrison (11 SCRA 714) August 31, 1964
PETITIONER/s:Commissioner of Internal Revenue RESPONDENT/s:Norton & Harrison Company
FACTS:Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale and retail, all kinds of goods, wares, and
merchandise; (2) to act as agents of manufacturers in the United States and foreign countries; and (3) to carry on and conduct a general wholesale
and retail mercantile establishment in the Philippines. Jackbilt is, likewise, a corporation primarily for the purpose of making, producing and
manufacturing concrete blocks. Norton and Jackbilt entered into an agreement whereby Norton was made the sole and exclusive distributor of
concrete blocks manufactured by Jackbilt. Whenever an order for concrete blocks was received by the Norton & Harrison Co. from a customer,
the order was transmitted to Jackbilt which delivered the merchandise direct to the customer. Payment for the goods is, however, made to
Norton, which in turn pays Jackbilt the amount charged the customer less a certain amount, as its compensation or profit. A management
agreement between the parties was entered into. The management agreement provided that Norton would sell concrete blocks for Jackbilt, for a
fixed monthly fee
During the existence of the distribution or agency agreement, or on June 10, 1949, Norton & Harrison acquired by purchase all the outstanding
shares of stock of Jackbilt. Apparently, due to this transaction, the Commissioner of Internal Revenue, after conducting an investigation,
assessed the respondent Norton & Harrison for deficiency sales tax and surcharges in the amount of P32,662.90, making as basis thereof the sales
of Norton to the Public. The Commissioner considered the sale of Norton to the public as the original sale and not the transaction from Jackbilt.
The Commissioner of Internal Revenue contends that since Jackbilt was owned and controlled by Norton & Harrison, the corporate personality
of the former (Jackbilt) should be disregarded for sales tax purposes, and the sale of Jackbilt blocks by petitioner to the public must be
considered as the original sales from which the sales tax should be computed. The Norton & Harrison Company contended otherwise, the
transaction subject to tax is the sale from Jackbilt to Norton.
ISSUE/S: Whether or not the acquisition of all the stocks of the Jackbilt by the Norton & Harrison Co., merged the two corporations into a single
corporation
RULING: Yes, the Supreme Court held found that there is sufficient grounds to support the theory that the separate identities of the two
companies should be disregarded.
Among these circumstances, which we find not successfully refuted by appellee Norton are: (a) Norton and Harrison owned all the outstanding
stocks of Jackbilt; of the 15,000 authorized shares of Jackbilt on March 31, 1958, 14,993 shares belonged to Norton and Harrison and one each to
seven others; (b) Norton constituted Jackbilt's board of directors in such a way as to enable it to actually direct and manage the other's affairs by
making the same officers of the board for both companies. (c) Norton financed the operations of the Jackbilt, and this is shown by the fact that
the loans obtained from the RFC and Bank of America were used in the expansion program of Jackbilt, to pay advances for the purchase of
equipment, materials rations and salaries of employees of Jackbilt and other sundry expenses, (d) Norton treats Jackbilt employees as its own.
Evidence shows that Norton paid the salaries of Jackbilt employees and gave the same privileges as Norton employees, an indication that
Jackbilt employees were also Norton's employees and lastly (e) Compensation given to board members of Jackbilt, indicate that Jackbilt is
merely a department of Norton
Based from the evidences, the SC concluded that Jackbilt is merely an adjunct, business conduit or alter ego, of Norton and Harrison and that the
fiction of corporate entities, separate and distinct from each, should be disregarded. This is a case where the doctrine of piercing the veil of
corporate fiction, should be made to apply.
It may not be amiss to state in this connection, the advantages to Norton in maintaining a semblance of separate entities. If the income of Norton
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should be considered separate from the income of Jackbilt, then each would declare such earning separately for income tax purposes and thus
pay lesser income tax. The combined taxable Norton-Jackbilt income would subject Norton to a higher tax. It would be to the advantages of
Norton that the corporations should be regarded as separate entities. Thus, the SC held that Norton & Harrison is liable for the deficiency sales
taxes assessed against it by the appellant Commissioner of Internal Revenue, plus 25% surcharge thereon.
To allow a taxpayer to deny tax liability on the ground that the sales were made through another and distinct corporation when it is proved that
the latter is virtually owned by the former or that they are practically one and the same is to sanction a circumvention of our tax law.
(DOCTRINE)
62. La Campana Coffee vs. Kaisahan ng Manggagawa (93 Phil 160)
La Campana Coffee Factory, Inc. Kaisahan ng mga Manggagawa sa La Campana
FACTS:
Petitioner Tan Tong is doing business under the name of La Campana GauGau Packing which is engaged in buying and selling of gaugau. He
and his family organized a family corporation known as La Campana Coffee Factory Co., Inc., its principal office at the same place as that of La
campana GauGau Packing.
Petitioner’s employees formed a union, Kaisahan Ng Mga Manggagawa Sa La Campana (KAISAHAN) through which they demanded from both
companies, higher salaries and more privileges. Kaisahan members were workers of both La Campana Gaugau Packing and La Campana Coffee
Factory Co., Inc. Their demands were not granted, and mediation did not prosper, the Department of Labor certified the dispute to the Court of
Industrial Relations (CIR). The motion to dismiss filed by the Petitioners was dismissed.
ISSUE/S:
Whether or not the corporate entity of La Campana Coffee Factory, Inc. may be disregarded.
RULING/DOCTRINE:
Yes. La Campana GauGau Packing and La Campana Coffee Factory are operating under single management, that is, as one business though with
two trade names. True, the coffee factory is a corporation and, by legal fiction, an entity existing separate and apart from the persons composing
it. But it is settled that this fiction of law, which has been introduced as a matter of convenience and to subserve ends of justice cannot be
invoked to further an end subversive of that purpose. The doctrine that a corporation is a legal entity existing separate and apart from the person
composing it is a legal theory introduced for purposes of convenience and to subserve the ends of justice. The concept cannot, therefore, be
extended to a point beyond its reason and policy, and when invoked in support of an end subversive of this policy, will be disregarded by the
courts. Thus, in an appropriate case and in furtherance of the ends of justice, a corporation and the individual or individuals owning all its stocks and
assets will be treated as identical, the corporate entity being disregarded where used as a cloak or cover for fraud or illegality . A subsidiary or
auxiliary corporation which is created by a parent corporation merely as an agency for the latter may sometimes be regarded as identical with the
parent corporation, especially if the stockholders or officers of the two corporations are substantially the same or their system of operation
unified. Here, two factories have one office, one management and one payroll. Further, their laborers are interchangeable. In view of all these,
the attempt to make two factories appear as two separate businesses, when in reality they are but one, is but a device to defeat the ends of the law
and should not be permitted to prevail.
63. Emilio Cano vs. CIR (13 SCRA 290)
Digested by:
FACTS:
ISSUE/S:
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RULING/DOCTRINE:
64. Telephone Engineering vs. WCC (104 SCRA 354)
Digested by: Gargaritano, ANgelo Gabriel I.
TELEPHONE ENGINEERING & SERVICE COMPANY, INC. WORKMEN’S COMPENSATION COMMISSION, ET. AL.
FACTS:
G.R. No. L-28694
13 May 1981
MELENCIO-HERRERA, J.
FACTS
1. TESCO is a domestic corporation engaged in the business of manufacturing telephone equipment with an office address in Rizal.
- It has a sister company, Utilities Management Corporation (UMACOR).
2. UMACOR employed Pacifico L. Gatus as purchasing agent.
- Pacifico subsequently died due to an illness, i.e. liver cirrhosis with malignant degeneration.
3. The widow, Leonila S. Gatus filed a Notice of Claim for Compensation with the Regional Office No. 4, QC, Workmen’s Compensation
Section.
- She alleged that her deceased husband was an employee of TESCO and died of liver cirrhosis.
4. WCC required TESCO to submit an Employer’s Report of Accident or Sickness pursuant to the Workmen’s Compensation Act (Act No. 3428).
- A report was submitted but UMACOR was indicated as employer.
5. After investigation, it was found that the deceased employee contracted the illness is regular occupation.
- TESCO was ordered to pay death benefits in favor of Pacifico’s heirs.
ISSUE/S:
Whether or not TESCO is liable for the compensation in favor of Pacifico’s heirs.
RULING/DOCTRINE:
Although respect for the corporate personality is the general rule, there are exceptions. In appropriate cases, the veil of corporate fiction may be
pierced as when the same is made to shield to confuse the legitimate issues.
- TESCO’s denial at this late stage is obviously an afterthought—a devise to defeat the law and evade its obligations.
Yes.
TESCO takes the position that the Commission has no jurisdiction over it because there was no valid employer-employee relationship between
it and Pacifico, the latter being an employee of UMACOR.
It is only in the instant petition that TESCO denied the employer-employee relationship. In the documents (Motion for Reconsideration, Motion
to Set Aside Award, Urgent Motion to Compel the Referee to Elevate the Records o the Commission for Review) TESCO filed from the
beginning of the case until the instant petition, it represented and defended itself as the employer of Pacifico. Nowhere in the documents
submitted did it allege that it was not the employer.
- TESCO even admitted that UMACOR is its sister company operating under one single management and housed in the same building.
Although respect for the corporate personality is the general rule, there are exceptions. In appropriate cases, the veil of corporate fiction may be
pierced as when the same is made to shield to confuse the legitimate issues.
While jurisdiction cannot be conferred by acts or omissions by the parties, TESCO’s denial at this late stage is obviously an afterthought—a
devise to defeat the law and evade its obligations.
The petition is dismissed.
65. Claparols vs. CIR (65 SCRA 613)
Digested by:
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FACTS:
A complaint for unfair labor practice was filed by herein private respondent Allied Workers' Association, respondent Demetrio
Garlitos and ten (10) respondent workers against herein petitioners on account of the dismissal of respondent workers from petitioner Claparols
Steel and Nail Plant. On September 16, 1963, respondent Court rendered its decision finding "Mr. Claparols guilty of union busting and" of
having "dismissed said complainants because of their union activities," and ordering respondents "(1) To cease and desist from committing
unfair labor practices against their employees and laborers; (2) To reinstate said complainants to their former or equivalent jobs, as soon as
possible, with back wages from the date of their dismissal up to their actual reinstatement". Counsel for herein respondent workers filed a
motion for execution which was granted. On January 23, 1965, petitioners filed an opposition alleging that under the circumstances presently
engulfing the company, petitioner Claparols could not personally reinstate respondent workers; that assuming the workers are entitled to back
wages, the same should only be limited to three months pursuant to the court ruling in the case of Sta. Cecilia Sawmills vs. CIR; and that since
Claparols Steel Corporation ceased to operate on December 7, 1962, re-employment of respondent workers cannot go beyond December 7, 1962.
On the other had respondent workers, contended that Claparols Steel and Nail Plant and Claparols Steel and Nail Corporation are one and the
same corporation controlled by petitioner Claparols, with the latter corporation succeeding the former.
ISSUE/S:
Whether or not the amount of back wages recoverable by respondent workers from petitioners should be the amount accruing up to
December 7, 1962 when the Claparols Steel Corporation ceased operations.
RULING/DOCTRINE:
yes . It is not disputed that Claparols Steel and Nail Plant, which ceased operation of June 30, 1957, was succeeded by the Claparols Steel
Corporation effective the next day, July 1, 1957 up to December 7, 1962. It is very clear that the latter corporation was a continuation and successor
of the first entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its predecessor, the Claparols
Steel and Nail Plant. Both predecessors and successor were owned and controlled by the petitioner Eduardo Claparols and there was no break in
the succession and continuity of the same business. This "avoiding-the-liability" scheme is very patent, considering that 90% of the subscribed
shares of stocks of the Claparols Steel Corporation (the second corporation) was owned by respondent (herein petitioner) Claparols himself, and
all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation. It is very obvious
that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case could, and should, be pierced as it was
deliberately and maliciously designed to evade its financial obligation to its employees. Furthermore, the Court cited Yutivo & Sons Hardware
Company vs. Court of Tax Appeals where it held that when the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation as an association or persons, or, in the case of two corporations, will merge them into
one.
66. Nat'l Federation vs. Ople (G.R. No. L-68661 July 22, 1986. 143 SCRA 124)
Digested by: Yang, Antonio III Pe
PETITIONER/s: National Federation Of Labor Union (NAFLU) And RESPONDENT/s: Hon. Minister Blas Ople, as Minister of Labor and
Teresita Lorenzo, et al., Employment; Lawman Industrial/Libra Garments/Dolphin Enterprises
FACTS: On September 8, 1982, petitioner National Federation of Labor Union (NAFLU) filed a request for conciliation before the Bureau of
Labor Relations requesting for the intervention in its dispute with the management of private respondent Lawman Industrial involving certain
money claims, refusal to conclude a collective agreement after such has been negotiated and run-away shop undertaken by management in order
to bust the union.
Several conferences were conducted by the Bureau to settle the dispute amicably. In the course of the proceedings, however, management
unilaterally declared a temporary shutdown on September 15, 1982. The union filed a complaint for unfair labor practice against the management
of Lawman sometime pending before the Metro Manila Branch of the NLRC.
Meanwhile, the management of Lawman extended their shutdown past the provisional deadline of the March 15, 1983, without notifying the
Bureau of Labor Relations; The company (Lawman) alleged further that it had no more plant and building because they were allegedly
repossessed by the Pioneer Texturizing Corporation for the failure of respondent to pay rentals. Nonetheless, the company offered to pay every
employee affected by the shutdown a separation pay of P328.95 each.
On June 6, 1983, petitioner submitted a position paper alleging that it was certified by the Bureau of Labor Relations as the sole and exclusive
bargaining agent of all the rank and file employees of the factory. It was also discovered that while the temporary shutdown was scheduled for
September 15, 1982, a partial shutdown began in August 1982. It appears moreover that at night, machines were dismantled, hauled out and then
installed at No. 43 Engineering Road, Araneta University compound, Malabon, Metro Manila and the name of Lawman was changed to LIBRA
GARMENTS. Under that name, new applicants for employment were called even as the company continued to manufacture the same products
but under the name of LIBRA GARMENTS. When this was discovered by the workers, LIBRA GARMENTS was changed to DOLPHIN
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GARMENTS.
ISSUE/S: Whether Lawman may be compelled to reinstate its employees despite cessation of operations
RULING/DOCTRINE:
The findings of the Minister of Labor and Employment embodied in its July 31, 1984 decision are categorical:
It is clear from the records of this case that the company bargained in bad faith with the union when pending the negotiation of their collective
agreement, the company declared a temporary cessation of its operations which in reality was an illegal lockout. Evidently, the company also
maintained run-away shop when it started transferring its machine first to Libra and then to Dolphin Garments. Failure on the part of the company
to comply with the requirements of notice and due process to the employees and the Labor Ministry one month before the intended 'closure' of the
firm is clearly against the law.
There is also evidence on the record that even after the alleged 'shutdown' the company was still operating in the name of Lawman Industrial
although production was being carried out by another firm called Libra Garments (later Dolphin Garments). When the company declared in its
position paper dated May 20, 1983 that all the machines of Lawman had been repossessed by the owner, Pioneer Texturizing Corporation, it
admitted the fact that it has violated the 17 March Order of this Office enjoining any encumbrance or transfer of the properties of Lawman without
prior clearance from this Office. The evident bad faith, fraud and deceit committed by the company to the prejudice of both the union and the
employees who have existing wage claims, some of which are due for execution, leads us to affirm the union's position that the veil of corporate
fiction should be pierced in order to safeguard the right to self-organization and certain vested rights which had accrued in favor of the union.
Its veil in the present case should, therefore, be pierced as it was deliberately and maliciously designed to evade its financial obligations to its
employees. It is an established principle that when the veil of corporate fiction is made as a shield to perpetrate a fraud or to confuse legitimate
issues (here, the relation of employer-employee), the same should be pierced.
Thus, as Lawman Industrial Corporation was guilty of unfair labor practice, the public respondent's order for reinstatement should follow as a
matter of right. It is an established rule that an employer who commits an unfair labor practice may be required to reinstate with fun backwages
the workers affected by such act. After finding that Lawman Industrial Corporation had transferred its business operations to Libra Garments
Enterprises, which later changed its name to Dolphin Garments Enterprises, the public respondent cannot deny reinstatement to the petitioners
simply because Lawman Industrial Corporation has ceased its operations. As Libra/Dolphin Garments is but an alter-ego of the old employer,
Lawman Industrial, the former must bear the consequences of the latter's unfair acts by reinstating the petitioners to their former positions
without loss of seniority rights.
67. A.C. Ransom vs. CA (150 SCRA 498)
A.C. RANSOM LABOR UNION NLRC, A.C. RANSOM PHILS. CORP., RUBEN HERNANDEZ ET. AL.
FACTS: A. C. RANSOM (Phils.) Corp. (RANSOM), was established in 1933 by Maximo Hernandez Sr. It was a family corporation so
stockholders are members of Hernandez family and engaged in manufacture mainly of ink and articles related to ink.
- In 1961, employees of RANSOM, most members of herein petitioner UNION, went on strike and established a picket line. When it was lifted,
most were allowed to resume to work except for the 22 workers, which the Company refused to reinstate.
- In 1969, Hernandez family organized Rosario Industrial Corp. (ROSARIO) in same compound and nature of business with RANSOM. In 1972,
the Court of Industrial Relations ordered RANSOM, its officers and agents to reinstate the 22 workers, but in 1973, RANSOM applied for
clearance to close, which was granted by the Ministry of Labor and Employment without prejudice to the right of employees to seek redress of
grievance.
- In 1974, backwages of the 22 workers were computed (164K) so petitioner UNION filed motions for execution (up to 10 motions) but could not
be implemented for failure to find leviable assets of RANSOM.
- Hence, last Motion of Execution filed asked its officers and agents to be held personally liable for the payment of backwages. LA (GENILO
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ORDER) granted and ordered 7 officers and directors of the Company liable (herein private respondents). NLRC affirmed LA with modification
that in absence of proof that the officers exceeded their authority, writ of execution cannot be enforced against them. Hence, this petition.
ISSUE/S: WON the judgment against the Corporation to reinstate employees with back wages enforceable against its agents and officers in their
individual, private and personal capacities?
RULING/DOCTRINE: YES. Court set aside NLRC ruling and reinstated GENILO ORDER with modification that personal liability for the
backwages of the 22 strikers be limited to Ruben Hernandez (President of RANSOM in 1974), jointly and severally with other Presidents of
RANSOM from 1972 up to the time corporate life was terminated.
If the employer is a corporation, Article 212 (c) of the Labor Code provides: 'Employer includes any person acting in the interest of an employer
directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer. Since
RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the "person acting in the interest of the
employer". The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of
back wages, which is provided in the Minimum Wage Law, Section 15(b): If any violation of this Act is committed by a corporation, trust,
partnership or association, the manager or in his default, the person acting as such when the violation took place, shall be responsible. In the
case of a government corporation, the managing head shall be made responsible, except when shown that the violation was due to an act or
commission of some other person, over whom he has no control, in which case the latter shall be held responsible.
In PD 525, where a corporation fails to pay the emergency allowance therein provided, the prescribed penalty "shall be imposed upon the guilty
officer or officers" of the corporation. The record does not clearly Identify "the officer or officers" of RANSOM directly responsible for failure to
pay the back wages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that the responsible
officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA 602, criminal responsibility is with
the "Manager" or in his default, the person acting as such. In RANSOM, the President appears to be the Manager. Since non-payment of the back
wages of the 22 strikers has been a continuing situation, personal liability of the RANSOM President, at the time the back wages were ordered
should also be a continuing joint and several personal liabilities of all who may have thereafter succeeded to the office of president. Otherwise,
the 22 strikers may be deprived of their rights by the election of a president without leviable assets.
68. Concept Builders vs. NLRC (257 SCRA 149)
Digested by: ELAURIA, Clarisse V
FACTS:
Private respondents were employees of petitioner Concept Builders, Inc, who were served termination letters stating that the project for which
they were hired was already completed and that their contracts have already expired. Finding that the project was not actually completed yet, and
that the petitioner employed a subcontractor whose employees performed the duties of private respondents, the latter filed a complaint for
illegal dismissal with the Labor Arbiter who held that the dismissal was illegal. A writ of execution was issued but was partially satisfied only.
The sheriff sought levy upon the properties in the head office of Concept Builders, inc. but was not allowed to do so on the ground that it was
occupied by Hydro Pipes Philippines, Inc. and not concept builders. Unable to remove the personal properties he found thereat, the Sheriff
asked for a ―break-open‖ order which was denied by the Labor Arbiter after a third party claim was filed by Hydro, which was reversed by the
NLRC on appeal.
ISSUE/S:
Whether or not the break-open order should be issued
RULING/DOCTRINE:
Yes. The conditions under which the juridical entity may be disregarded vary according to the particular facts and circumstances of each case.
No hard and fast rule can be accurately laid down, but certainly there are some probative factors of identity that will justify the application of the
doctrine of piercing the veil of corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations;
2. Identity of directors and officers;
3. The manner of keeping corporate books and records;
4. Methods of conducting the business.
The SEC en banc explained the ―instrumentality rule which the courts have applied in disregarding separate juridical personality of
corporations as follows:
―Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the instrumentality may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies, and practices that the controlled corporation has, so to speak, no separate
mind, will or existence of its own and is a business conduit of its principal. It must be kept in mind that the control must be shown to have been
exercised at the time the acts complained of took place.
Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made. The test in
determining the applicability of piercing the veil of corporate fictions is as follows: 1. Control, not mere majority or complete stock control, but
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complete domination, not only in finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as
to this transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty or dishonest and unjust act in contravention of plaintiff’s legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of one of the elements prevents piercing the corporate veil. In applying the instrumentality or alter-ego doctrine, the courts are
concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation. Thus, the
question of whether a corporation is mere alter-ego, a mere sheet of paper corporation, a sham or a subterfuge is purely one of fact.
In this case, while petitioner claimed that it ceased operations on April 29, 1986, it filed an information sheet with the SEC on May 15, 1987
stating that its office address is at 355 Maysan Road, Valenzuela Metro Manila. On the other hand, third-party claimant Hydro, on the same day,
filed an information sheet with the same address, both information sheets filed by the same Virgilio O. Casino. Both companies have the same
president, the same BOD, the same corporate officers and substantially the same subscribers. Clearly, petitioner ceased its business operations in
order to evade the payment to private respondents of back wages and to bar their reinstatement to their former position. Hydro is obviously a
business conduit of petitioner corporation and its emergence was skilfully orchestrated to avoid the financial liability attached to petitioner
corporation.
69. Mc Connel vs. CA (1 SCRA 722)
M. MC CONNEL, W. P. COCHRANE, RICARDO RODRIGUEZ, ET AL THE COURT OF APPEALS and DOMINGA DE LOS REYES, assisted by
her husband, SABINO PADILLA
FACTS:
1. Park Rite Co. Inc. leased from Rafael Perez Rosales y Samanillo a vacant lot on Juan Luna street (Manila) which it used for parking motor
vehicles for a consideration.
2. In operating its parking business, Park Rite occupied and used not only the Samanillo lot it had leased but also an adjacent lot belonging to
the respondents-appellees Padilla, without the owners' knowledge and consent. When the latter discovered the truth, they demanded payment
for the use and occupation of the lot.
3. Park Rite (then controlled by petitioners Cirilo Parades and Ursula Tolentino) disclaimed liability, blaming the original incorporators,
McConnel, Rodriguez and Cochrane. Padilla filed against Park Rite a complaint for forcible entry.
4. Judgment was rendered ordering the Park Rite Co., Inc. to damages until the return of the lot. Upon execution, the corporation was found
without any assets other than P550.00 deposited in Court.
5. The judgment creditors then filed suit in the CFI of Manila against the corporation and its past and present stockholders, to recover from them,
jointly and severally, the unsatisfied balance of the judgment, plus legal interest and costs.
6. The CFI denied recovery; but on appeal, the CA reversed this, finding that the corporation was a mere alter ego or business conduit of the
principal stockholders that controlled it for their own benefit, and held them liable for the amounts demanded by the lot owners.
ISSUE/S:
Whether or not the individual stockholders may be held liable for obligations contracted by the corporation?
RULING/DOCTRINE:
Yes.
1. The Court ruled in favor of respondents Padilla et al. There is no question that a wrong has been committed by the so-called Park Rite Co.,
Inc., when it occupied the lot of the latter without its prior knowledge and consent and without paying the reasonable rentals for the occupation
of said lot.
2. There is also no doubt in our mind that the corporation was a mere alter ego or business conduit of the defendants Cirilo Paredes and Ursula
Tolentino, and before them — the defendants M. McConnel, W. P. Cochrane, and Ricardo Rodriguez. The evidence clearly shows that these
persons completely dominated and controlled the corporation and that the functions of the corporation were solely for their benefits.
3. When Park Rite was originally organized, McConnel, Cochrane, and Rodriguez owned most of the capital stock and merely invited 2 persons
to own qualifying shares worth 1 peso each (only 1 share each).
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4. Then, when the defendants Cirilo Paredes and Ursula Tolentino purchased 1,496 shares of the said corporation, another 4 people acquired one
share each. It is obvious that the last four shares bought by these four persons were merely qualifying shares and that the spouses Paredes and
Tolentino composed the so-called Park Rite Co., Inc.
5. The corporation itself had no visible assets, as correctly found by the trial court, except perhaps the toll house, the wire fence around the lot
and the signs thereon. It was for this reason that the judgment against it could not be fully satisfied
DOCTRINE: Individual stockholders may be held liable for obligations contracted by the corporation, this Court has already answered the
question in the affirmative wherever circumstances have shown that the corporate entity is being used as an alter ego or business conduit for the
sole benefit of the stockholders, or else to defeat public convenience, justify wrong, protect fraud, or defend crime
70. Tan Boon Bee vs. Jarencio (163 SCRA 205)
Tan Boon Bee THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE
OF BRANCH XVIII of the Court of First Instance of Manila, GRAPHIC
PUBLISHING, INC., and PHILIPPINE AMERICAN CAN DRUG
COMPANY
FACTS:
In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered into a contract of sale with Graphic Publishing Inc. (GPI) whereby ASC shall
deliver paper products to GPI. GPI paid a down payment but defaulted in paying the rest despite demand from ASC. ASC sued GPI and ASC
won.
To satisfy the indebtedness, the trial court, presided by Judge Hilarion Jarencio, ordered that one of the printing machines of GPI be auctioned.
But before the auction can be had, Philippine American Drug Company (PADCO) notified the sheriff that PADCO is the actual owner of said
printing machine.
Notwithstanding, the sheriff still went on with the auction sale where Tan Boon Bee was the highest bidder. Later, PADCO filed with the same
court a motion to nullify the sale on execution. The trial court ruled in favor of PADCO and it nullified said auction sale.
Tan Boon Bee assailed the order of the trial court. Tan Boon Bee averred that PADCO holds 50% of GPI; that the board of directors of PADCO
and GPI is the same; that the veil of corporate fiction should be pierced based on the premises.
PADCO on the other hand asserts ownership over the said printing machine; that it is merely leasing it to GPI.
ISSUE/S:
Whether the veil of corporate fiction should be pierced.
RULING/DOCTRINE:
Yes. The separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak
or cover for fraud or illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors.
Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of
injustice and inequity. Likewise, this is true when the corporation is merely an adjunct, business conduit or alter-ego of another corporation. In
such case, the fiction of separate and distinct corporate entities should be disregarded.
Petitioner's evidence established that PADCO was never engaged in the printing business; that the board of directors and the officers of
GRAPHIC and PADCO were the same; and that PADCO holds 50% share of stock of GRAPHIC. Petitioner likewise stressed that PADCO's own
evidence shows that the printing machine in question had been in the premises of GRAPHIC since May, 1965, long before PADCO even
acquired its alleged title on July 11, 1966 from Capitol Publishing.
That the said machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966, even before PADCO purchased it from Capital
Publishing on July 11, 1966, only serves to show that PADCO's claim of ownership over the printing machine is not only farce and sham but also
unbelievable.
Considering the aforestated principles and the circumstances established in this case, respondent judge should have pierced PADCO's veil of
corporate Identity.
DOCTRINE; Petitioner's evidence established that PADCO was never engaged in the printing business; that the board of directors and the
officers of GRAPHIC and PADCO were the same; and that PADCO holds 50% share of stock of GRAPHIC. Petitioner likewise stressed that
PADCO's own evidence shows that the printing machine in question had been in the premises of GRAPHIC since May, 1965, long before
PADCO even acquired its alleged title on July 11, 1966 from Capitol Publishing.
That the said machine was allegedly leased by PADCO to GRAPHIC on January 24, 1966, even before PADCO purchased it from Capital
Publishing on July 11, 1966, only serves to show that PADCO's claim of ownership over the printing machine is not only farce and sham but also
unbelievable.
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71. Cease vs. CA (93 SCRA 483)
ERNESTO CEASE, CECILIA CEASE, MARION CEASE, TERESA HONORABLE COURT OF APPEALS, (Special Seventh Division), HON.
CEASE-LACEBAL and the F.L. CEASE PLANTATION CO., INC. as MANOLO L. MADDELA, Presiding Judge, Court of First Instance of
Trustee of properties of the defunct TIAONG MILLING & Quezon, BENJAMIN CEASE and FLORENCE CEASE
PLANTATION CO.,
FACTS:
Forrest L. Cease common predecessor in interest of the parties together with five (5) 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 Forrest L. 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 13 August 1959, Forrest L.
Cease died and by extrajudicial partition of his shares, among the children
ISSUE/S: Whether or not the properties owned by the corporation are also the properties of the estate of Cease.
RULING/DOCTRINE: No. In reposing ownership to the estate of Forrest L. Cease, the trial court indeed found strong support, one that is based
on a well-entrenched principle of law. In sustaining respondents' 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, share and share alike 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. In shredding the fictitious corporate veil, the trial judge
narrated the undisputed factual premise, thus:
While the records showed that originally its incorporators were aliens, friends or third-parties in relation of one to another, in the course of its
existence, it developed into a close family corporation. The Board of Directors and stockholders belong to one family the head of which Forrest L.
Cease always retained the majority stocks and hence the control and management of its affairs. In fact, during the reconstruction of its records in
1947 before the Security and Exchange Commission only 9 nominal shares out of 300 appears in the name of his 3 eldest children then and
another person close to them. It is likewise noteworthy to observe that as his children increase or perhaps become of age, he continued
distributing his shares among them adding Florence, Teresa and Marion until at the time of his death only 190 were left to his name. Definitely,
only the members of his family benefited from the Corporation.
A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil of corporate fiction. Generally, a
corporation is invested by law with a personality separate and distinct from that of the persons composing it as well as from that of any other
legal entity to which it may be related. By virtue of this attribute, a corporation may not, generally, be made to answer for acts or liabilities of its
stockholders or those of the legal entities to which it may be connected, and vice versa.
This separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice. For this
reason, it may not be used or invoked for ends subversive of the policy and purpose behind its creation or which could not have been intended
by law to which it owes its being . This is particularly true where the fiction is used to defeat public convenience, justify wrong, protect fraud,
defend crime, confuse legitimate legal or judicial, perpetrate deception or otherwise circumvent the law. This is in where the corporate entity is
being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity.
In any of these cases, the notion of corporate entity will be pierced or disregarded, and the corporation will be treated merely as an association of
persons or, where there are two corporations, they will be merged as one, the one being merely regarded as part or the instrumentality of the
otter.
So must the case at bar add to this jurisprudence. An indubitable deduction from the findings of the trial court cannot but lead to the conclusion
that the business of the corporation is largely, if not wholly, the personal venture of Forrest L. Cease. There is not even a shadow of a showing
that his children were subscribers or purchasers of the stocks they own. Their participation as nominal shareholders emanated solely from
Forrest L. Cease's gratuitous dole out of his own shares to the benefit of his children and ultimately his family.
Were we sustain the theory of petitioners that the trial court acted in excess of jurisdiction or abuse of discretion amounting to lack of
jurisdiction in deciding Civil Case No. 6326 as a case for partition when the defendant therein, Tiaong Milling and Plantation Company, Inc. as
registered owner asserted ownership of the assets and properties involved in the litigation, which theory must necessarily be based on the
assumption that said assets and properties of Tiaong Milling and Plantation Company, Inc. now appearing under the name of F. L. Cease
Plantation Company as Trustee are distinct and separate from the estate of Forrest L. Cease to which petitioners and respondents as legal heirs of
said Forrest L. Cease are equally entitled share and share alike, then that legal fiction of separate corporate personality shall have been used to
delay and ultimately deprive and defraud the respondents of their successional rights to the estate of their deceased father. For Tiaong Milling
and Plantation Company shall have been able to extend its corporate existence beyond the period of its charter which lapsed in June, 1958 under
the guise and cover of F. L, Cease Plantation Company, Inc. as Trustee which would be against the law, and as Trustee shall have been able to
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use the assets and properties for the benefit of the petitioners, to the great prejudice and defraudation. of private respondents. Hence, it becomes
necessary and imperative to pierce that corporate veil.
72. Wensha Spa Center, Inc. vs. Yung. (GR No. 185122, August 10, 2010)
Digested by: Paras, Lorique Alexis
LORETA T. YUNG
WENSHA SPA CENTER, INC. and/or XU ZHI JIE
FACTS:
Wensha Spa Center, Inc. in Quezon City is in the business of sauna bath and massage services.
Loreta T. Yung (Loreta) was its administrative manager at the time of her termination from employment. In her position paper, Loreta stated that
she used to be employed by Manmen where Xu was a client. Xu was apparently impressed by Loreta's performance. Xu convinced Loreta to
transfer and work at Wensha. Loreta introduced positive changes to Wensha which resulted in increased business. This pleased Xu so that on
May 18, 2004, she was promoted to the position of Administrative Manager. Loreta recounted that on August 10, 2004, she was asked to leave her
office because Xu and a Feng Shui master were exploring the premises. Later that day, Xu asked Loreta to go on leave with pay for one month.
She did so and returned on September 10, 2004. Upon her return, Xu and his wife asked her to resign from Wensha because, according to the
Feng Shui master, her aura did not match that of Xu. That same afternoon, Loreta went to the NLRC and filed a case for illegal dismissal against
Xu and Wensha.
Wensha and Xu denied illegally terminating Loreta's employment. They claimed that two months after Loreta was hired, they received various
complaints against her from the employees so that on August 10, 2004, they advised her to take a leave of absence for one month while they
conducted an investigation on the matter. The Labor Arbiter (LA) Francisco Robles dismissed Loreta's complaint for lack of merit. He found it
more probable that Loreta was dismissed from her employment due to Wensha's loss of trust and confidence in her. This ruling was affirmed by
the NLRC in its December 29, 2006 Resolution Loreta moved for a reconsideration of the NLRC's ruling but her motion was denied. Loreta then
went to the CA on a petition for certiorari. The CA reversed the ruling of the NLRC on the ground that it gravely abused its discretion in
appreciating the factual bases that led to Loreta's dismissal. The CA noted that there were irregularities and inconsistencies in Wensha's position
and rendered decision Wensha Spa Center, Inc. and Xu Zhi Jie are ORDERED to, jointly and severally, pay Loreta T. Yung her full backwages,
other privileges, and benefits, or their monetary equivalent, corresponding to the period of her dismissal from September 1, 2004 up to the
finality of this decision, and damages
ISSUE/S:
Whether or not CA committed grave abuse of discretion and serious errors when it held that petitioner XU ZHI JIE to be solidarily liable with
WENSHA, assuming that respondent was illegally dismissed
RULING/DOCTRINE:
Yes. Elementary is the rule that a corporation is invested by law with a personality separate and distinct from those of the persons composing it
and from that of any other legal entity to which it may be related. “Mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality
In labor cases, corporate directors and officers may be held solidarily liable with the corporation for the termination of employment only if done
with malice or in bad faith. Bad faith does not connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud. In the
subject decision, the CA concluded that petitioner Xu and Wensha are jointly and severally liable to Loreta. We have read the decision in its
entirety but simply failed to come across any finding of bad faith or malice on the part of Xu. There is, therefore, no justification for such a ruling
73. General Credit Corp. vs. Alsons Development, et. al. (GR 154975, January 29, 2007)
PETITIONER/s: GENERAL CREDIT CORPORATION (now PENTA RESPONDENT/s: ALSONS DEVELOPMENT and INVESTMENT
CAPITAL FINANCE CORPORATION) CORPORATION and CCC EQUITY CORPORATION
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FACTS: Petitioner General Credit Corporation (GCC), formerly known as Commercial Credit Corporation (CCC), was able to secure a license
from the Central Bank (CB) and SEC to engage in quasi-banking activities. On the other hand, respondent CCC Equity Corporation (EQUITY)
was organized by GCC for the purpose of taking over the operations and management of various franchise companies. Alsons Development and
Investment Corporation (ALSONS) and the Alcantara family, each owned shares in the GCC franchise companies. ALSONS and the Alcantara
family, for a consideration of P2M, sold their shareholdings (101,953shares), in the CCC franchise companies to EQUITY.
EQUITY issued ALSONS a "bearer “promissory note for P2M with a one year maturity date. 4 years later, the Alcantara family assigned its rights
and interests over the bearer note to ALSONS which became the holder thereof. But even before the execution of the assignment deal, letters of
demand for interest payment were already sent to EQUITY.
EQUITY no longer having assets or property to settle its obligation nor being extended financial support by GCC, pleaded inability to pay.
ALSONS, having failed to collect on the bearer note aforementioned, filed a complaint for a sum of money against EQUITY and GCC. GCC is
being impleaded as party-defendant for any judgment ALSONS might secure against EQUITY and, under the doctrine of piercing the veil of
corporate fiction, against GCC, EQUITY having been organized as a tool and mere conduit of GCC.
However, EQUITY contended that it acted merely as an intermediary or bridge for loan transactions and other dealings of GCC to its franchises
and the investing public and is solely dependent upon GCC for its funding requirements.
RTC held that EQUITY was but an instrumentality or adjunct of GCC and considering the legal consequences and implications of such
relationship, rendered judgment for Alson. Consequently, CA affirmed the court’s decision.
ISSUE/S: Whether or not the doctrine of "Piercing the Veil of Corporate Fiction" should be applied.
RULING/DOCTRINE: YES. The court held that there are three (3) basic areas where piercing the veil, with which the law covers and isolates the
corporation from any other legal entity to which it may be related, is allowed.
These are: 1) defeat of public convenience, as when the corporate fiction is used as vehicle for the evasion of an existing obligation; 2) fraud cases
or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce
since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
Further, the court enumerated no less than 20 documented circumstances and transactions, which, taken as a package, indeed strongly supported
the conclusion that respondent EQUITY was but an adjunct, an instrumentality or business conduit of petitioner GCC. This provides a justifying
ground to pierce petitioner’s corporate existence as to ALSONS’ claim in question. Foremost of what the trial court referred to as "certain
circumstances" are the commonality of directors, officers and stockholders and even sharing of office between petitioner GCC and respondent
EQUITY; certain financing and management arrangements between the two, allowing the petitioner to handle the funds of the latter; the virtual
domination if not control wielded by the petitioner over the finances, business policies and practices of respondent EQUITY; and the
establishment of respondent EQUITY by the petitioner to circumvent CB rules.
Finally, the relationships binding EQUITY and GCC have been that of parent subsidiary corporations, making the doctrine of piercing the
corporate veil applicable.
74. Remo, Jr. vs. IAC (172 SCRA 405)
Digested by: Santosidad, Jonella Marie
JOSE REMO, JR THE HON. INTERMEDIATE APPELLATE COURT and E.B.
MARCHA TRANSPORT COMPANY, INC., represented by
APIFANIO B. MARCHA,
FACTS:
Petitioner Feliciano Coprada, as president of Akron, purchased 13 trucks from private respondent (EB Marcha Transport Co., Inc.) for and in
consideration of P525,000 as evidenced by a deed of absolute sale. In a side agreement, the parties agreed on a down payment of P50,000 and the
balance to be paid within 60 days. They further agreed that until the balance is paid, the down payment shall accrue as rentals for the 13 trucks;
and in case of failure to pay the balance shall constitute a chattel mortgage lien; and the parties may allow 30 day extension; and private
respondent may ask for the revocation of the contract and re-conveyance of the said trucks. The obligation is further secured by a promissory
note executed by Coprada, where it is stated that the balance shall be paid from the proceeds of a loan from DBP which was never applied for. A
complaint was later on filed by private respondent for the recovery of the P525, 000 or the return of the 13 trucks against Akron and its officers
and directors including herein petitioner which was granted by the CFI of Rizal. Petitioner denied any participation the transaction and alleging
that Akron has distinct corporate personality. He was, however, declared in default for failure to attend pre- trial.
ISSUE/S:
WON Petitioner Remo, Jr. is jointly and severally liable
RULING/DOCTRINE:
NO. The facts of the case show that there is no cogent basis to pierce the corporate veil of Akron and hold petitioner personally liable for its
obligation to private respondent. While it is true that he is a member of
the board at the time the resolution to purchase the trucks were adopted, it does not appear that said resolution was intended to defraud anyone.
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It was Coprada who negotiated with respondent and the one who signed the promissory note. The word “We” in the said promissory note must
refer to the corporation and Coprada and not of its stockholders and directors. Petitioner did not sign such note so he cannot be personally bound
thereby. Thus, if there was any fraud or misrepresentation that was foisted on private respondent in that there was forthcoming loan from the
DBP when in fact there as none, it is Coprada who should account for the same and not the petitioner.
75. Del Rosario vs. NLRC (187 SCRA 777)
Francisco V. Del Rosario National Labor Relations Commission and Leonardo V. Atienza
FACTS:
POEA ordered Philsa Construction and Trading Co., Inc. (the recruiter) and Arieb Enterprises (the foreign employer) to jointly and severally pay
private respondent salary differentials and vacation leave benefits. A writ of execution was issued by the POEA but it was returned unsatisfied
as Philsa was no longer operating and was financially incapable of satisfying the judgment. Private respondent moved for the issuance of an
alias writ against the officers of Philsa.
This motion was opposed by the officers, led by petitioner, the president and general manager of the corporation.
The POEA however afformed the alias writ against the officers of Philsa. Petitioner appealed to the NLRC, which dismissed the appeal.
Thus, this petition alleging that the NLRC gravely abused its discretion.
ISSUE/S: WON the charge against the officers in their personal capacity is allowed.
RULING:
At the time Philsa allowed its license to lapse in 1985 and even at the time it was delisted in 1986, there was yet no judgment in favor of private
respondent. An intent to evade payment of his claims cannot therefore be implied from the expiration of Philsa's license and its delisting.
Neither will the organization of Philsa International Placement and Services Corp. and its registration with the POEA as a private employment
agency imply fraud since it was organized and registered in 1981, several years before private respondent filed his complaint with the POEA in
1985. The creation of the second corporation could not therefore have been in anticipation of private respondent's money claims and the
consequent adverse judgment against Philsa. Likewise, substantial identity of the incorporators of the two corporations does not necessarily
imply fraud.
DOCTRINE:
Under the law a corporation is bestowed juridical personality, separate and distinct from its stockholders. But when the juridical personality of
the corporation is used to defeat public convenience, justify wrong, protect fraud or defend crime, the corporation shall be considered as a mere
association of persons and its responsible officers and/or stockholders shall be held individually liable. For the same reasons, a corporation shall
be liable for the obligations of a stockholder or a corporation and its successor-in-interest shall be considered as one and the liability of the
former shall attach to the latter.
But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It
cannot be presumed. The conclusion that Philsa allowed its license to expire so as to evade payment of private respondent's claim is not
supported by the facts. Philsa's corporate personality therefore remains inviolable.
76. Indophil Textile Mills vs. Galica (205 SCRA 697)
INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO VOLUNTARY ARBITRATOR TEODORICO P. CALICA and INDOPHIL
TEXTILE MILLS, INC.
FACTS:
In April, 1987, petitioner Indophil Textile Mill Workers Union-PTGWO and private respondent Indophil Textile Mills, Inc. executed a collective
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bargaining agreement effective from April 1, 1987 to March 31, 1990.
Petitioner's contention that Acrylic is part of the Indophil bargaining unit.
The petitioner's contention was opposed by private respondent which submits that it is a juridical entity separate and distinct from Acrylic.
Petitioner stresses that the articles of incorporation of the two corporations establish that the two entities are engaged in the same kind of
business, which is the manufacture and sale of yarns of various counts and kinds and of other materials of kindred character or nature.
Contrary to petitioner's assertion, the public respondent through the Solicitor General argues that the Indophil Acrylic Manufacturing
Corporation is not an alter ego or an adjunct or business conduit of private respondent because it has a separate legitimate business purpose. In
addition, the Solicitor General alleges that the primary purpose of private respondent is to engage in the business of manufacturing yarns of
various counts and kinds and textiles. On the other hand, the primary purpose of Indophil Acrylic is to manufacture, buy, sell at wholesale basis,
barter, import, export and otherwise deal in yarns of various counts and kinds. Hence, unlike private respondent, Indophil Acrylic cannot
manufacture textiles while private respondent cannot buy or import yarns. Two corporations cannot be treated as a single bargaining unit even if
their businesses are related. It submits that the fact that there are as many bargaining units as there are companies in a conglomeration of
companies is a positive proof that a corporation is endowed with a legal personality distinctly its own, independent and separate from other
corporations.
ISSUE/S: Whether the veil of corporate entity of Acrylic can be pierced.
RULING/DOCTRINE:
Ruling : Piercing the veil of the Acrylic is not justified even businesses of two corporations are related, that some of the employees of the
corporations are the same persons manning and providing for auxiliary services to the other, and that the physical plants, offices and facilities
are situated in the same compound, it is not sufficient to justify the piercing of the corporate veil of Acrylic.
The legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or
obligation." In the instant case, petitioner does not seek to impose a claim against the members of the Acrylic.
Therefore, Acrylic not being an extension or expansion of private respondent, the rank-and-file employees working at Acrylic should not be
recognized as part of, and/or within the scope of the petitioner, as the bargaining representative of private respondent.
Doctrine : Without legal claim for or against officers and stockholders directly liable for a corporate debt or obligation piercing the veil of the
corporation is not warranted.
PERSONAL NoteS that is not included in the case :
Grounds Grounds for piercing the veil:

1. Purpose of convenience/ to defeat public convenience;
2. Subserve ends of justice;
3. Justify wrong;
4. Protect fraud;
5. Defend crime; or
6. Alter-ego or business conduit for the sole benefit of the stockholders.
Kinds of piercing :
1. Traditional piercing happens when a court disregards the existence of the corporate entity so a claimant can reach assets of a corporate insider.
2. Reverse - happens when a plaintiff seeks to reach the assets of a corporation to satisfy claims against a corporate insider.
a. Outsider Reverse - occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of a corporation
owned or substantially controlled by the defendant.
b. Insider Reverse - occurs when controlling members will attempt to ignore the corporate fiction in order to take advantage of a benefit
available to the corporation (e.g. interest in a lawsuit or protection of personal assets.
Test to determine the applicability of piercing:

1. Control, not merely of stocks, but complete domination of: a. Finances b. Policy c. Business practice
2. Control used by defendant to a. Commit fraud or wrong b. Perpetuate violation of legal duty
3. Control must proximately cause the injury or unjust loss.
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77. PNB vs. Ritratto Group (362 SCRA 216)
Digested by:
FACTS:
RULING/DOCTRINE:
78. Pacific Rehaus Corp. vs. CA (719 SCRA 665)
Digested by: Cruz, Luis Antonio D.
PETITIONER/s: PACIFIC REHOUSE CORPORATION RESPONDENT/s: COURT OF APPEALS and EXPORT AND
INDUSTRY BANK, INC
FACTS: The present case is stemmed from a complaint filed by the RTC of Makati against E-Securities for the unauthorized sale of DMCI shares
of herein petitioner. A judgement was then rendered ordering Export and Industry Bank to return to petitioner the shares. Petitioner being
unsatisfied of the writ of execution moved for the issuance of an alias writ of execution to hold herein respondent, Export and Industry Bank,
Inc. lto be liable for a judgement obligation, which in turn, included E-Securities. Petitioner claiming that Export and Industry Bank is a mere
alter-ego of E-Securities. E-Securities then opposed such motion claiming that it has a separate juridical personality with that of Export and
Industry Bank. On July 29, 2011, the RTC concluded that E-Securities is a mere business conduit or alter ego of petitioner and that E-Securities
was a subsidiary wholly dominated by the Export and Industry Bank. However upon appeal to the CA, the CA eventually disposed of the case
and stated that the alter-ego theory would not apply as the piercing the veil of corporate fiction may not be done through the claim that
ownership of a subsidiary by a parent company is sufficient reason.
ISSUE/S: WoN Piercing the veil of corporate fiction would apply to E-Securities being a parent company of Export and Industry Bank
RULING/DOCTRINE: Piercing the Veil of Corporate Fiction (Alter Ego Doctrine - Three-Pronged Rule)
The SC rules in the negative. The court has established and laid the foundation of which a corporation may be deemed an alter-ego or not. The
three-pronged rule states that the following must be present to be operative:
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must [have] proximately caused the injury or unjust loss complained
It is vital that all three requisites must be present and proved for such doctrine to be applicable. In the present case, the control and domination
of Export and Industry Bank over E-Securities with regard to its business operations, is still not sufficient to pierce the veil of corporate fiction as
the elements of fraud via control is not present. Control over a subsidiary, no matter how great, is a matter completely acceptable provided that
no wrong is committed.
79. Yu vs. NLRC (245 SCRA 134)
Digested by:
FACTS:
ISSUE/S:
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RULING/DOCTRINE:
80. Francisco Motors Corporation vs. Court of Appeals (GR. No. 100812, June 25, 1999)
FACTS:
ISSUE/S:
RULING/DOCTRINE:
81. Pioneer Insurance vs. Morning Star Travel and Tours, Inc. (FR No. 198436, 8 July 2015)
PETITIONER/s:PIONEER INSURANCE SURETY CORPORATION RESPONDENT/s: MORNING STAR TRAVEL & TOURS, INC.,
ESTELITA CO WONG, BENNY H. WONG, ARSENIO CHUA, SONNY
CHUA, AND WONG YAN TAK, Respondents.
FACTS: Morning Star is a travel and tours agency with Benny Wong, Estelita Wong, Arsenio Chua, Sonny Chua, and Wong Yan Tak as
shareholders and members of the board of directors. International Air Transport Association is a Canadian corporation licensed to do business in
the Philippines "to promote safe, regular and economical air transport. International Air Transport Association appointed Morning Star as an
accredited travel agent.
Morning Star and International Air Transport Association entered a Passenger Sales Agency Agreement such that Morning Star must report all
air transport ticket sales to International Air Transport Association and account all payments received through the centralized system called
Billing and Settlement Plan. Morning Star only holds in trust all monies collected as these belong to the airline companies. International Air
Transport Association obtained a Credit Insurance Policy from Pioneer to assure itself of payments by accredited travel agents for ticket sales
and monies due to the airline companies under the Billing and Settlement Plan.
The policy was made known to the accredited travel agents. Morning Star, through its President, Benny Wong, was among those that declared
itself liable to indemnify Pioneer for any and all claims under the policy. He executed a registration form under the Credit Insurance Program for
BSP-Philippines Agents.
Morning Star failed to remit 49,051,641.80 and US$325,865.35 through the Billing and Settlement Plan, prompting the International Air Transport
Association to send a letter, but to no avail. Pioneer filed a Complaint for Collection of Sum of Money and Damages against Morning Star and its
shareholders and directors. Morning Star, Benny Wong, and Estelita Wong were served with summons and a copy of the Complaint on
November 22, 2005, while Arsenio Chua, Sonny Chua, and Wong Yan Tak were unserved.
The trial court granted Pioneer's Motion to Declare Respondents in Default for failure to file an Answer within the period. Pioneer presented its
evidence ex-parte. Morning Star was declared in default for failure to file an Answer within the period.
Morning Star filed a Motion for Leave of Court to File Attached Answer explaining that it only received a copy of the Complaint on February 5,
2007.
The trial court denied their motion and ruled in favor of Pioneer and ordered respondents (morning star and Defendants-Appellants Estelita Co
Wong, Benny H. Wong, Arsenio Chua, Sonny Chua and Wong Yan Tak) to jointly and severally pay Pioneer.
The Court of Appeals affirmed the trial court with modification in that only Morning Star was liable to pay petitioner.
Pioneer argues that "the individual respondents were, at the very least, grossly negligent in running the affairs of respondent Morning Star by
knowingly allowing it to amass huge debts to [International Air Transport Association] despite its financial distress, thus, giving sufficient
ground for the court to pierce the corporate veil and hold said individual respondents personally liable." Pioneer also cites jurisprudence on the
requisites for the doctrine of piercing the corporate veil to apply. It submits that all requisites are present, thus, the individual respondents
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should be held solidarity liable with Morning Star. It cites at length the testimony of its witness Atty. Vincenzo Nonato M. Taggueg (Atty.
Taggueg) that based on Morning Star's General Information Sheet and financial statements.
Thus Pioneer filed a MR but was denied. Hence this petition
ISSUE/S:Whether or not the doctrine of piercing the corporate veil applies to hold the individual respondents solidarily liable with respondent
Morning Star Travel and Tours, Inc. to pay the award in favor of petitioner Pioneer Insurance & Surety Corporation.
RULING: No, the Supreme Court held that in piercing the corporate veil in order to hold corporate officers personally liable for the corporation's
debts requires that "the bad faith or wrongdoing of the director must be established clearly and convincingly [as] [b]ad faith is never presumed."
The Supreme Court finds that petitioner was not able to clearly and convincingly establish bad faith by the individual respondents, nor
substantiate the alleged badges of fraud.
In Oria v. McMicking, it enumerates several badges of fraud.
1. The fact that the consideration of the conveyance is fictitious or is inadequate.
2. A transfer made by a debtor after suit has been begun and while it is pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially.
6. The fact that the transfer is made between father and son, when there are present other of the above circumstances.
7. The failure of the vendee to take exclusive possession of all the property.74 (Emphasis supplied)
Petitioner failed to substantiate the fourth badge of fraud on "[e]vidence of large indebtedness or complete insolvency."
In 1993, International Air Transport Association appointed respondent Morning Star as an accredited travel agent with the privilege of getting
air tickets on credit, and they entered a Passenger Sales Agency Agreement. None of the parties made allegations on the financial status or
business standing of respondent Morning Star during the first five years from its accreditation in 1993. Petitioner relies on Atty. Taggueg's
testimony regarding respondent Morning Star's financial statements with the Securities and Exchange Commission. But Petitioner did not
present Securities and Exchange Commission documents on respondent Morning Star's total assets as of December 2002. It did not present
respondent Morning Star's financial statements for December 2002, the year it incurred obligations from International Air Transport Association.
The financial statements for years 1998 to 1999 and 1999 to 2000 testified on by Atty. Taggueg are not representative of the financial status of
respondent Morning Star's business.
Petitioner's reliance on Atty. Taggueg's testimony on respondent Morning Star's financial statements for previous years fails to clearly and
convincingly establish bad faith by the individual respondents.
Petitioner also failed to substantiate the fifth badge of fraud on the "transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially."
Allegations alone do not prove that the individual respondents were transferring respondent Morning Star's properties in fraud of its creditors.
The Supreme Court likewise held that the "existence of interlocking directors, corporate officers and shareholders is not enough justification to
pierce the veil of corporate fiction in the absence of fraud or other public policy considerations."
Petitioner also failed to substantiate the sixth badge of fraud that "the transfer is made between father and son. The Supreme Court has held that
"compliance with the recognized modes of acquisition of jurisdiction cannot be dispensed with even in piercing the veil of corporate fiction."
Morning Star Tour Planners, Inc. is not a party in this case. It would offend due process rights if what petitioner ultimately seeks in its allegation
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is to hold Morning Star Tour Planners, Inc. responsible for respondent Morning Star's liability.
The records do not show that the individual respondents controlled Morning Star Tour Planners, Inc. and that such control was used to commit
fraud against petitioner. Neither does this suspicion support petitioner's position that the individual respondents were in bad faith or gross
negligence in directing the affairs of respondent Morning Star.
DOCTRINE:As a general rule, a corporation has a separate and distinct personality from those who represent it. Its officers are solidarily liable
only when exceptional circumstances exist, such as cases enumerated in Section 31 of the Corporation Code. The liability of the officers must be
proven by evidence sufficient to overcome the burden of proof borne by the plaintiff.
82. Phil. First Insurance vs. Hartigan (74 SCRA 2520)
Philippine First Insurance Co. Maria Carmen Hartigan, CGH and O. Engkee
FACTS:
Plaintiff changed its name from “The Yek Tong Lin Fire and Marine Insurance Co., Ltd” (Yek Tong). The complaint alleges that under its old
name, PFIC signed as co-maker together with Hartigan, a promissory note for P5,000 in favor of China Banking Corporation (Chinabank).
Plaintiff agreed to act as such upon application of the defendant, who together with Antonio Chua and Chang Ka Fu, signed an indemnity
agreement in favor of the plaintiff. Defendants admitted the execution of the indemnity agreement but argued that it was made in favor of Yek
Tong and not PFIC. They claim that there was no privity of contract between plaintiff and defendants and consequently, the plaintiff has no
cause of action against them considering that the plaintiff does not allege that PFIC and Yek Tong are one and the same or that the plaintiff has
acquired the rights of the latter. CFI of Manila dismissed the complaint.
ISSUE/S:
Whether or not the trial court correctly dismissed the case
RULING/DOCTRINE:
No. The Revised Corporation Code explicitly permits the articles of incorporation to be amended. The law does not only authorize corporations
to amend their charter; it also lays down the procedure for such amendment; and, what is more relevant to the present discussion, it contains
provisos restricting the power to
amend when it comes to the term of their existence and the increase or decrease of the capital stock. There is no prohibition therein against the
change of name. The inference is clear that such a change is allowed, for if the legislature had intended to enjoin corporations from changing
names, it would have expressly stated so in this section or in any other provision of the law.
The name of the corporation is peculiarly important as necessary to the very existence of a corporation. The general rule as to corporation is that
each corporation shall have a name by which it is to sue and be sued and
do all legal acts. The name of the corporation in this respect designates the corporation in the same manner as the name of an individual
designates the person. Since an individual has the right to change his name under certain conditions, there is no compelling reason why a
corporation may not enjoy the same right. The sentimental considerations which individuals attach to their names are not present in corporations
and partnerships. Of course, as in the case of an individual, such change may not be made exclusively by the
corporation’s own act. It has to follow the procedure prescribed by law for the purpose, and this is what is important and indispensably
prescribed – strict adherence to such procedure.
A mere change in the name of a corporation, either by the legislature or by the corporators or stockholders under legislative authority, does not,
generally speaking, affect the identity of the corporation, nor in any way affect the rights, privileges, or obligations previously acquired or
incurred by it. Indeed, it has been said that a change of name by a corporation has no more effect upon the identity of the corporation than a
change of name by a natural person has upon the identity of such a person. The corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original one, but remains and continues to be the original corporation. It is the same corporation with a
different name, and its character is in no respect changed.
83. Alhambra Cigar vs. SEC (24 SCRA 269)
Digested by:
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FACTS:
ISSUE/S:
RULING/DOCTRINE:
84. CRMD and SEC vs. Ching Bee Trading Corporation (GR No 205291)
PETITIONER/s: CRMD and SEC RESPONDENT/s: CHING BEE TRADING CORPORATION
FACTS:
G.R. No. 205291
21 November 2014
Second Division of the SC
FACTS
1. Ching Bee Trading Corporation (CBTC) was registered with the SEC on 23 December 1960, its corporate existence being limited to a period of
50 years (to expire on 23 December 2010).
2. On 22 December 2010, a day before its last day of corporate existence, it filed with the Company Registration and Monitroing Department
(CRMD) an application seeking to amend its Articles of Incorporation to extend its corporate life for another 50 years.
- CRMD refused because CBTC failed to state in the Director’s Certificate that at least 2/3 of its stockholders voted and approved the
amendment.
- It was suggested that a Letter be submitted requesting an extension to file the requirements.
4. On the same date, hours later, CBTC filed such letter. The SEC denied the request citing SEC Resolution No, 394.
- The Resolution contained SEC’s policy of denying the filing of any amended AOI extending the corporate life of a corporation whose
original term had expired.
5. On appeal with the SEC En Banc, the request was denied.
6. CBTC then went t the CA. In its Decision, the CA ordered the SEC to admit CBTC’s Amended AOI.
- It reasoned that CBTC should have been given reasonable time within which to correct or modify any portion of the AOI citing Section 17
(Now Section 16) of the Corporation Code as a ground.
ISSUE/S:
Whether or not the SEC erred in not giving reasonable time to CBTC to amend its AOI.
RULING/DOCTRINE:
Requiring that all steps must be undertaken while life still subsists (a corporation’s), is both the responsibility of the State, acting through the SEC,
and the corporation.
The Corporation Code is silent as to how early within the 5 year period the application for extension should be made. Reading the provision plainly
would reveal that an applicant make seek for its life’s extension at any time within the 5-year period. Evidently, the Corporation may do so a day
prior to its last day.
Yes.
The rule in this jurisdiction is that a corporation ceases to exist upon the expiration of the corporate term indicated in its AOI,
- Once that occurs, all corporate acts, except those conferred by law, are considered ultra vires, if not outright invalid.
The Corporation Code provides that a corporation shall exist for a period not exceeding 50 years xxx the corporate term xxx may be extended for
periods not exceeding 50 years in any single instance by an amendment of the AOI xxx. Provided, that no extension can be made earlier than 5
years prior to the original or subsequent expiry date(s) xxx(Section 11, Corporation Code/RCC).
The privilege must be done within the limited period of 5 years prior to the original or subsequent expiry date. This is where the SEC’s argument
lies, i.e. that CBTC should have done it earlier, not a day prior its last day of existence.
The SC, however, acts on the matter with liberality.

1. The Corporation Code is silent as to how early within the 5 year period the application for extension should be made.
2. Reading the provision plainly would reveal that an applicant make seek for its life’s extension at any time within the 5-year period.
3. Evidently, the Corporation may do so a day prior to its last day.
CBTC filed its Amended AOI with the SEC a day prior its last day, but the application was disapproved due to a deficient Director’s Certificate.
- Under Section 17 of the Corporation Code (Art. 16, RCC), the SEC must give reasonable time to an applicant within which to make the
necessary corrections should there be objectionable portions in the amendment.
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- Reasonable time as in so much time as is necessary under the circumcstances for a reasonably prudent and diligent man to do, conveniently,
what the contract or duty requires.
The CRMD has failed to at least provide CBTC reasonable time within which to comply with its deficiencies.
While the Court agrees that the extension of a corporation’s existence is a burden to fall on the applicant, the Court also believes that it be a
burden shared by the SEC.
- In the case of Alhambra, requiring that all steps must be undertaken while life still subsists, is both the responsibility of the State, acting
through the SEC, and the corporation.
- To say that the corporation has this burden alone, is unfair as the Code does not impose this obligation solely on the corporation.
Petition is denied.
85. Ramirez vs. Orientalist (38 Phil 634)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
86. Barreto vs. La Previsora (G.R. No. L-34719. December 8, 1932. 57 Phil 649)
Digested by: Yang, Antonio III, Pe
PETITIONER/s: Alberto Barretto, et al. RESPONDENT/s: La Previsora Filipina
FACTS: Petitioners Alberto Barretto, Jose de Amusategui, and Jose Barretto, who had been directors of the defendant corporation from its
incorporation up to the month of March, 1929, to recover from the respondent corporation, La Previsora Filipina, a mutual building and loan
association, 1 per cent to each of the plaintiffs of the net profits of said corporation for the year 1929, which amount to P50,727.53, under and in
accordance with an amendment to the by-laws of the defendant corporation, which was made at a general meeting of the stockholders on
February 23, 1929.
The petitioners contend that the article in question is merely a provision for the compensation of directors, which is not only consistent with but
expressly authorized by section 21 of the Corporation Law.
The Manila CFI rendered its decision in this case holding that the respondent, by presenting its motion to dismiss the complaint, had impliedly
waived its right to present its evidence, and rendering judgment in favor of each of the petitioners and against the respondent for the sum of
P505.25, with legal interest thereon from May 2, 1930, until paid, with the costs of the action. After its motion for reconsideration and later motion
for new trial were denied by the court, the respondent appealed. Respondent alleged that article 68-A of its amended by-laws does not under the
law as applied to the express provisions thereof create any legal obligation on its part to pay to the persons named therein.
ISSUE/S: Whether article 68-A of respondent's amended by-laws create any legal obligation on its part to pay to the petitioners.
RULING/DOCTRINE: No.
The by-law cannot be held to establish a contractual relation between the parties to this action, because the essential elements of a contract are
lacking. The article which the appellees rely upon is merely a by-law provision adopted by the stockholders of the defendant corporation,
without any action having been taken in relation thereto by its board of directors. The law is settled that contracts between a corporation and
third persons must be made by or under the authority of its board of directors and not by its stockholders. Hence, the action of the stockholders
in such matters is only advisory and not in any wise binding on the corporation. (Ramirez vs. Orientalist Co. and Fernandez, 38 Phil., 634.) There
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could not be a contract without mutual consent, and it appears that the plaintiffs did not consent to the provisions of the by-law in question, but,
on the contrary, they objected to and voted against it in the stockholders' meeting in which it was adopted. Furthermore, the said by-laws shown
on its face that there was no valid consideration for the supposed obligation mentioned therein. It is clearly an attempt to give in the future to
certain directors compensation for past services gratuitously rendered by them to the corporation. Such a provision is without consideration, and
imposes no obligation on the corporation which can be enforced by action at law.
87. TERP Construction Corporation vs Banco Filipino Savings and Mortgage Bank (GR No. 221771, 18 Sept. 2019)
Digested by: Armillo. Joyce
TERP CONSTRUCTION CORPORATION BANCO FILIPINO SAVINGS AND MORTGAGE BANK
FACTS:
Sometime in 1995, Terp Construction planned to develop a housing project called the Margarita Eastville and a condominium called Margarita
Plaza. To finance the projects, Terp Construction, Home Insurance Guaranty Corporation, and Planters Bank agreed to raise funds through the
issuance of bonds worth P400 million called the Margarita Bonds. The three companies entered into a Contract of Guaranty in which they agreed
that Terp Construction would sell the Margarita Bonds and convey the funds generated into an asset pool named the Margarita Asset Pool
Formation and Trust Agreement. Planters Bank, as trustee, would be the custodian of the assets in the asset pool with the corresponding
obligation to pay the interests and redeem the bonds at maturity. Home Insurance Guaranty Corporation, as guarantor, would pay investors the
value of the bond at maturity plus 8.5% interest per year. Banco Filipino purchased Margarita Bonds for P100 million. It asked for additional
interest other than the guaranteed 8.5% per annum, based on the letters written by Terp Construction Senior Vice President Escalona.
Terp Construction began constructing Margarita Eastville and Margarita Plaza. After the economic crisis in 1997, however, it suffered unrealized
income and could not proceed with the construction. When the Margarita Bonds matured, the funds in the asset pool were insufficient to pay the
bond holders. Pursuant to the Contract of Guaranty, Planters Bank conveyed the asset pool funds to Home Insurance Guaranty Corporation,
which then paid Banco Filipino interest earnings of 8.5% per year. Banco Filipino, however, sent Terp Construction a demand letter alleging that
it was entitled to a 15.5% interest on its investment and that it was entitled to a 7% remaining unpaid interest. Terp Construction refused to pay
the demanded interest.
Terp Construction filed a Complaint for declaration of nullity of interest, damages, and attorney's fees against Banco Filipino. RTC ruled in favor
of Terp Construction. CA set aside the RTC decision.
ISSUE/S:
Whether or not the Terp Construction expressly agreed to be bound to respondent Banco Filipino Savings Mortgage Bank for additional interest
in the bonds it purchased.
RULING/DOCTRINE:
Whether or not the Terp Construction expressly agreed to be bound to respondent Banco Filipino Savings Mortgage Bank for additional interest
in the bonds it purchased.
A corporation's repeated payment of an allegedly unauthorized obligation contracted by one of its officers effectively ratifies that corporate
officer's allegedly unauthorized act.
A corporation exercises its corporate powers through its board of directors. This power may be validly delegated to its officers, committees, or
agencies. "The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the
board, either expressly or impliedly by habit, custom or acquiescence in the general course of business[.]”
The authority of the board of directors to delegate its corporate powers may either be: (1) actual; or (2) apparent. Actual authority may be express
or implied. Express actual authority refers to the corporate powers expressly delegated by the board of directors. Implied actual authority, on the
other hand, "can be measured by his or her prior acts which have been ratified by the corporation or whose benefits have been accepted by the
corporation.”
Petitioner's subsequent act of twice paying the additional interest Escalona committed to during the term of the Margarita Bonds is considered a
ratification of Escalona's acts. Petitioner's only defense that they were "erroneous payment[s]" since it never obligated itself from the start cannot
stand. Corporations are bound by errors of their own making.
88. Lee vs. CA (205 SCRA 572)
Digested by: ELAURIA, Clarisse V
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FACTS:
A complaint for a sum of money was filed against Sacoba Manufacturing Corp., which then filed a third-party complaint against Alfa Integrated
Textile Mills (ALFA) and its officers, Ramon Lee (president) and Antonio Lacdao (VP). The officers rejected the summons, claiming that they
were no longer officers and directors of ALFA and cannot accept summons on its behalf due to a voting trust agreement transferring effective
management of ALFA in favor of the DBP, but alias summons were likewise rejected by the DBP on the basis that it had not taken over the
company and that it had a separate and distinct personality from ALFA. The RTC and CA flip-flopped on considering service on Lee and Lacdao
as valid service on ALFA
ISSUE/S: Whether Lee and Lacdao are still directors of ALFA?
RULING/DOCTRINE:
No. According to the (Old) Corporation Code Sec. 23, every director must own at least one share of stock listed under their name in the books of
the corporation, and will cease to be a director upon losing ownership thereof. By comparison with the Old(er) Corporation Code Sec. 30, which
included the phrase "in his own right," it was determined that what is necessary to qualify for a seat on the board is legal title to a share of stock,
not just beneficial ownership thereof. A VTA separates the voting rights from the other rights of a shareholder, effectively severing beneficial
ownership from legal title thereto. By assigning legal title to the trustee, the director ceases to own a share, even if they retain beneficial
ownership, and so they are disqualified from sitting on the board, even if there are stipulations in the VTA that they may retain their positions.
89. Detective and Protective Bureau vs. Cloribel (26 SCRA 256)
PETITIONER/s: DETECTIVE & PROTECTIVE BUREAU, INC RESPONDENT/s:

THE HONORABLE GAUDENCIO CLORIBEL, in his capacity as
Presiding Judge of Branch VI, Court of First Instance of Manila, and
FAUSTINO S. ALBERTO,
FACTS:
A complaint was filed by herein petitioner-plaintiff Detective and Protective Bureau against defendantrespondent Fausto Alberto, alleging that
defendant illegally seized and took control of all the assets as well as the books, records, vouchers and receipt of the corporation from the
accountant- cashier, concealed them illegally and refused to allow any member of the corporation to see and examine the same.
That on a meeting, the stockholders removed defendant as managing director and elected Jose dela Rosa. Alberto, on the other hand, stated that
Jose dela Rosa could not be elected managing director because he did not own any stock in the corporation.
ISSUE/S:
Whether or not dela Rosa may be elected managing director?
RULING/DOCTRINE:
No.
There is no record showing that Jose dela Rosa owned a share of stock in the corporation. If he did not own any share of stock, certainly he could
not be a director pursuant to Sec. 30 of the Corporation Law and consequently he cannot be a managing director by virtue of the by-laws of the
corporation that the manager shall be elected by the BOD among its members.
Accordingly, Faustino Alberto could not be compelled to vacate his office and cede the same to dela Rosa because the by-laws provide that the
Directors shall serve until the election and qualification of their duly qualified successor.
90. Grace Christian High School vs CA (281 SCRA 133)
Digested by: Olmilla, Alyza Mariel S
Grace Christian High School THE COURT OF APPEALS,
GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN,
and ERNESTO
L. GO
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FACTS:
Petitioner Grace Christian High School is an educational institution located at the Grace Village in Quezon City, while Private respondent Grace
Village Association, Inc. ["Association'] is an organization of lot and/or building owners, lessees and residents at Grace Village.
The original 1968 by-laws provide that the Board of Directors, composed of eleven (11) members, shall serve for one (1) year until their
successors are duly elected and have qualified.
On 20 December 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws which provides that "GRACE
CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION."
However, this draft was never presented to the general membership for approval. Nevertheless, from 1975 to 1990, petitioner was given a
permanent seat in the board of directors of the association.
On 13 February 1990, the association's committee on election sought to change the by-laws and informed the Petitioner's school principal "the
proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the
past elections should be reexamined."
Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the
association would be observed. Petitioner requested the chairman of the election committee to change the notice to honor the 1975 by-laws
provision, but was denied.
The school then brought suit for mandamus in the Home Insurance and Guaranty Corporation (HIGC) to compel the board of directors to
recognize its right to a permanent seat in the board.
Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered an opinion to the effect that the practice of allowing
unelected members in the board was contrary to the existing by-laws of the association and to §92 of the Corporation Code (B.P. Blg. 68). This
was adopted by the association in its Answer in the mandamus filed with the HIGC.
The HIGC hearing officer ruled in favor of the association, which decision was affirmed by the HIGC Appeals Board and the Court of Appeals.
ISSUE/S:
Whether the 1975 provision giving the petitioner a permanent board seat was valid.
RULING/DOCTRINE:
It is actually Sections 28 and 29 of the Corporation Law — Section 23 of the present law; not sec 92 of the present law or sec 29 of the former one
— which require members of the boards of directors of corporations to be elected. The board of directors of corporations must be elected from
among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the
examples cited by the school, the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office.
But in the case of the school itself, there is no reason at all for its representative to be given a seat in the board. Nor does the school claim a right
to such seat by virtue of an office held.
In fact, it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. Since the
provision in question is contrary to law, the fact that for 15 years it has not been questioned or challenged but, on the contrary, appears to have
been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through
acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity.
For that matter, the members of the association may have formally adopted the provision in question, but their action would be of no avail
because no provision of the by-laws can be adopted if it is contrary to law. It is probable that, in allowing the school's representative to sit on the
board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the
provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of the school's
representative as an unelected member of the board of directors.
It is more accurate to say that the members merely tolerated the school's representative and tolerance cannot be considered ratification. Nor can
the school claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested
right if it is contrary to law. Even less tenable is the school's claim that its right is "co-terminus with the existence of the association."
DOCTRINE: Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law.
91. Tan vs Sycip (499 SCRA 216)
PETITIONER/s: PAUL LEE TAN, ANDREW LIUSON, ESTHER RESPONDENT/s:

WONG, STEPHEN CO, JAMES TAN, JUDITH TAN, ERNESTO PAUL SYCIP and MERRITTO LIM
TANCHI JR., EDWIN NGO, VIRGINIA KHOO, SABINO PADILLA JR.,
EDUARDO P. LIZARES and GRACE CHRISTIAN HIGH SCHOOL
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FACTS: Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen (15) regular members,
who also constitute the board of trustees. During the annual members’ meeting, there were only 11 living member-trustees, 4 already died. 7
attended the meeting through their respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over the objection of
Atty. Antonio C. 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, members automatically lost all their rights (including the right to vote) and interests in the corporation.
SEC declared 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. She explained that the qualifying phrase
"entitled to vote" in Section 24 of the Corporation Code, which provided the basis for determining a quorum for the election of directors or
trustees, should be read together with Section 89.
The SEC en banc denied the appeal of petitioners and affirmed the Decision of the hearing officer in toto. It found to be untenable their
contention that the word "members," as used in Section 52 of the Corporation Code, referred only to the living members of a nonstock
corporation. CA dismissed the appeal of petitioners.
ISSUE/S: Whether or not dead members should still be counted in the determination of the quorum, for purposes of conducting the annual
members’ meeting
RULING/DOCTRINE:
No. For stock corporations, the "quorum" referred to in Section 52 of the Corporation Code is based on the number of outstanding voting stocks. For
nonstock corporations, only those who are actual, living members with voting rights shall be counted in determining the existence of a quorum during
members’ meetings. Dead members shall not be counted.
.Having thus determined that the quorum in a members’ meeting is to be reckoned as the actual number of members of the corporation, the next
question to resolve is what happens in the event of the death of one of them.
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
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.
92. Yao Ka Sin Trading vs CA (209 SCRA 763)
Digested by:
YAO KA SIN TRADING
COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION
CONSTANCIO B. MALAGNA
FACTS:
Constancio Maglana, President and Chairman of the Board of Prime White Cement Corporation(PWCC) presented a letter-offer to Yao Ka Sin
Trading through its manager, Henry Yao. The letter-offer regarding the sale of 45,000 bags of prime white cement was accepted by YKS.
However, after its signing, the Board of Directors of PWCC disapproved the same. PWCC informed YKS regarding the disapproval.
Notwithstanding the issue regarding the letter-offer, PWCC delivered only 10,000 bags of white cement to YKS under a new and separate
contract (not as what was stated in the letter-offer).PWCC only committed the delivery of 10,000 bags but YKS insisted on the delivery of
45,000bags.YKS filed a Specific Performance with Damages against PWCC. In the Answer, PWCC alleged that YKS has no legal personality to
sue; the letter-offer was rejected by its BoD, hence it was never consummated, but instead only agreed to sell 10,000 bags of white cement under a
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separate contract.
RTC Decision: Defendant was ordered to complete the delivery of 45,000 bags. Under the By-Laws of PWCC, the President (Maglana) was
granted by the BoD to enter into an agreement or contract. Such contract or agreement is not be subject to the ratification of the BoD
, but subject only to thedeclared objects and purpose of the corporation and existing laws. Hence, it was validlyentered.CA Decision:CA reversed
the decision. The letter-offer was rejected by PWCC’s BOD. Maglana and Yao entered an unauthorized contract as Maglana was not authorized
by the BoD nor was his action ratified by the BoD. Nowhere in the AOI nor By-Laws was he empowered to enter into a contract. Having no cause
of action, YKS is not entitled to any relief.
ISSUE/S:
Whether or not Henry Yao has the capacity to sue on behalf of Yao Ka Sin Trading
Whether or not letter offer is binding with PWCC
RULING/DOCTRINE:
1. Under the law, only natural or juridical persons or entities authorized by law may be parties in a civil action A sole proprietorship is
neither a natural person nor a juridical person. A sole proprietorship as a form of business organization conducted for profit by a
single individual, and requires the proprietor or owner thereof to secure licenses and permits, register the business name, and pay
taxes to the national government.
It does not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an action in court.
Here, Henry Yao filed the complaint being the manager of Yao Ka Sin Trading, which isa sole proprietorship. Hence, the proper party
should be Yao Ka Sin, whose personality is not separate nor distinct from the sole proprietorship. Therefore, Henry Yao has no
capacity to sue and Yao Ka Sin should be impleaded as complainant
2. No. Under the law, a corporation can act only through its officers and agents who can bind the corporation in transactions with third
persons to the extent of the authority conferred upon them. Based on PWCC’s By-Laws, the President can execute and sign for and on
behalf of the corporation all contracts and agreements which the corporation may enter. The power to execute and sign presupposes a
prior act of the corporation through the BoD.
In this case, Mr. Maglana, the President of PWCC, entered into a contract with YKS for the corporation independently from the BOD or
without prior Board approval. Maglana also failed to prove that he has the apparent authority to execute the contract. Therefore, the
contract was not binding with PWCC
93. Lopez Realty vs. Fontecha (247 SCRA 183)
PETITIONER/s: LOPEZ REALTY, INC. RESPONDENT/s: FONTECHA
FACTS: Petitioner corporation approved two resolutions providing for the gratuity pay of its employees. Except for Asuncion Lopez-Gonzales,
who was then abroad, the remaining members of the board convened a special meeting and passed a resolution adopting the above-mentioned
resolutions. Private respondents requested for the full payment of the gratuity pay which was granted. At that time, however, petitioner
Asuncion was still abroad, and allegedly sent a cablegram objecting to certain matters taken up by the board in her absence.
Notwithstanding a corporate squabble between Asuncion and Arturo Lopez, the first two installments of the gratuity pay of private respondents
were paid. Also, the petitioner corporation had prepared the cash vouchers and checks for the third installment. For some reason, said voucher
was cancelled by petitioner Asuncion.
A complaint was filed before the labor arbiter who decided in favor of private respondents.
ISSUE/S: Whether or not the gratuity pay should be paid.
RULING/DOCTRINE: YES. The general rules are that a corporation, through its board of directors, should act in the manner and within the
formalities, if any, prescribed by its charter or by the general law. Thus, the directors must act as a body in a meeting called pursuant to the law
or the corporation’s by-laws, otherwise, any action taken therein may be questioned by any objecting director or shareholder.
Be that as it may, jurisprudence tells us that an action of the board of directors during a meeting, which was illegal for lack of notice, may be
ratified either (1) expressly, by the action of the directors in subsequent legal meeting, or (2) impliedly, by the corporations’ subsequent conduct.
Ratification by directors may be by an express resolution or vote to that effect, or it may be implied from adoption of the act, acceptance or
acquiescence. Moreover, the unauthorized acts of an officer of a corporation may be ratified by the corporation by conduct implying approval
and adoption of the act in question. Such ratification may be expressed or may be inferred from silence and inaction.
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In the case at bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying the board resolution
granting gratuity pay to private respondents. Instead, they paid the gratuity pay, particularly, the first two installments thereof.
94. Pua Casim vs. Neumark (46 Phil 242)
Digested by: Santosidad, Jonella Marie
PETITIONER/s: RESPONDENT/s:W. NEUMARK & CO.

PUA CASIM & CO.
FACTS:
W. Neumark, president of defendant corporation borrowed P15000 from plaintiff which was delivered by means of a check in favor of
defendant and deposited in BPI and the amount of it credited to the corporation’s current account.
ISSUE/S:
WON the corporation is responsible for the money borrowed by its president.
RULING/DOCTRINE:
YES. W. Neumark is the principal stockholder, president and general business manager of the defendant corporation. On behalf of the
corporation, he solicited a loan and was given a check, which was endorsed by him in his capacity as president and deposited to the corporation’s
account. It may be true that a large part of the amount so deposited was diverted by Neumark to his own use, but that does not alter that the
money was borrowed for the corporation and was placed in its possession. It is conceded that Neumark was not expressly authorized by the
board of directors to borrow the money in question and the general rule is that a business manager or other officer of a corporation, has no
implied power to borrow money on its behalf. But much depends upon the circumstances of each particular case and the rule state is subject to
important exceptions. Thus, where a general business manager of a corporation is clothed with apparent authority to borrow money and the
amount borrowed does not exceed the ordinary requirements of the business, it has often been held that the authority is implied and that the
corporation is bound.
95. Yu Chuck vs. Kong Li Po (46 Phil 208, G.R. No. L-22450, December 3, 1924)
Yu Chuck, Mack Yueng and Ding Moon Kong Li Po
FACTS:
Kong Li Po is a domestic corporation organized in accordance with the laws of the Philippine Islands and engaged in the publication of a
Chinese newspaper styled Kong Li Po.
Sometime during the year 1919, one C.C. Chen was appointed general business manager of the newspaper. During the month of December of
that year he entered into an agreement with the plaintiffs for the printing of the newspaper. Under this agreement the plaintiffs worked for the
defendant for two years when they were dismissed by the new manager who had been appointed after C.C. Chen left for China.
The plaintiffs thereupon brought the present action alleging that their contract of employment was for a term of three years.
Kong Li Po’s defense is that the plaintiffs failed in their obligation to deliver as per the contract, and that C.C. Chen was not authorized by the
defendant to execute such a contract in its behalf. The trial court, among other matters, found that the contract had been impliedly ratified by the
defendant and rendered judgment in favor of the plaintiffs for the sum of P13,340.
ISSUE/S: WON C.C. Chen had the power to bind the corporation by a contract of the character indicated.
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RULING/DOCTRINE:
As regards the authority of C.C. Chen to bind the corporation:
From what has been said, there can be no doubt that Chen, as general manager of the Kong Li Po, had implied authority to bind the defendant
corporation by a reasonable and usual contract of employment with the plaintiffs, but we do not think that the contract here in question can be
so considered. Not only is the term of employment unusually long, but the conditions are otherwise so onerous to the defendant. This fact in
itself was sufficient to put the plaintiffs upon inquiry as to the extent of the business manager's authority; they had not the rights to presume
that he or any other single officer or employee of the corporation had implied authority to enter into a contract of employment which might
bring about its ruin.
As regards the implied ratification of the contract:
Neither did the Court think that the contention that the corporation impliedly ratified the contract is supported by the evidence. Te Kim Hua,
then-president of the corporation, admitted that he saw the plaintiffs work as printers but denied any knowledge of the existence of the contract
and asserted that it was never presented. Before a contract can be ratified knowledge of its existence must, of course, be brought to the parties
who have authority to ratify it. No such knowledge or circumstances have been shown here. Moreover, a ratification by him would have been to
no avail. In order to validate a contract, a ratification by the board of directors was necessary. The fact that the president was required by the by-
laws to sign the documents evidencing contracts of the corporation, does not mean that he had power to make the contracts.
96. Francisco vs. GSIS (7 SCRA 557)
TRINIDAD J. FRANCISCO GOVERNMENT SERVICE INSURANCE SYSTEM
FACTS:
Trinidad Francisco loaned from GSIS an amount of money secured with the parcel of lands failure to pay the loaned amount, lands were
foreclosed in favor of GSIS, Francisco exercised her right of redemption through an offer on her behalf by her father Atty. Vicente J. Francisco,
which was accepted by Mr. Rodolfo P. Andal the general manager of GSIS. Payment was done and was evidenced by a receipt. However, some
time have passed, and the Asst. General Manager sent 3 letters to Francisco demanding payments for the allegedly unpaid loan obligation. Mr.
Andal alleged that the acceptance was made by his secretary without his consent. After trial, the court below found that the offer of Atty.
Francisco, dated 20 February 1959, made on behalf of his daughter, had been unqualifiedly accepted, and was binding upon the corproation, and
rendered judgment in favor of Francisco against GSIS.
ISSUE/S:
Whether the acceptance made by the board secretary in the name of the corporation’s manager is binding upon the corporation.
RULING/DOCTRINE:
Yes, the court explained that even if it were the board secretary who sent the telegram, the corporation could not evade the binding effect
produced by the telegram Hence, even if it were the board secretary who sent the telegram, the corporation could not evade the binding effect
produced by the telegram.
Knowledge of facts acquired or possessed by an officer or agent of a corporation in the course of his employment, and in relation to matters
within the scope of his authority, is notice to the corporation, whether he communicates such knowledge or not. (Ballentine, Law on
Corporations, section 112.)since a corporation cannot see, or know, anything except through its officers.
The defendant-appellant does not disown the telegram, and even asserts that it came from its offices, as may be gleaned from the letter, dated 31
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May 1960, to Atty. Francisco, and signed "R. P. Andal, general manager by Leovigildo Monasterial, legal counsel", wherein these phrases occur:
"the telegram sent ... by this office" and "the telegram we sent your" (emphasis supplied), but it alleges mistake in couching the correct wording.
This alleged mistake cannot be taken seriously, because while the telegram is dated 20 February 1959, the defendant informed Atty. Francisco of
the alleged mistake only on 31 May 1960, and all the while it accepted the various other remittances, starting on 28 February 1959, sent by the
plaintiff to it in compliance with her performance of her part of the new contract.
If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will
be estopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents.
DOCTRINE :
The actions of corporate officers within the authority given to him/her in the course of his employment bind the corporation.
97. Board of Liquidators vs. Kalaw (20 SCRA 987)
PETITIONER/s: THE BOARD OF LIQUIDATORS representing THE RESPONDENT/s: HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR,
GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES ESTATE OF THE DECEASED CASIMIRO GARCIA, and LEONOR
MOLL, defendants-appellees.
FACTS: The present case involves National Coconut Corporation (NACOCO), which was a non-profit corporation whose sole purpose was the
steady production and development of the coconut industry up until its charter was amended to include the express power to buy, sell, export or
barter coconut or copra so that such prices may be stabilized. Along with the passing of Republic Act 5, NACOCO, under the execution and
management of herein respondent Kalaw, contracted several contracts with regard to the delivery of copa. Unfortunately, in the midst of
business, 4 typhoons hit the Philippines, in which case ultimately destroyed volumes of trees that brought down along with it, the produce of
coconut and copas. Production was slim, harvestation was impossible and profit was calculated and stated to be non-profitable. Due to such
natural disaster, it has rendered many of the aforementioned contracts to be unfulfilled, in which case, Kalaw, after careful examination of the
projected numbers, sought to pull the contracts and send them to the board for approval. The buyers of the copa then sought to settle for
damages wherein the total amounted to P1,343,274.52. NACOCO now seeks to recover the total sum from Kalaw, as the general manager and
board chairman under the charge of negligence with bad faith and breach of trust for having approved the contracts.
ISSUE/S: WoN the acts executed by respondent are valid corporate acts
RULING/DOCTRINE: Validity and Binding Effects of Actions of Corporate Officers.
The SC ruled that respondent Kalaw's acts are binding and are valid corporate acts. Kalaw heavily relied upon Article IV (b), Chapter III wherein
it states the obligations of that of a general manager, "(b) To perform or execute on behalf of the Corporation upon prior approval of the Board, all
contracts necessary and essential to the proper accomplishment for which the Corporation was organized." The court stated that it has been a
standard principle and practice wherein corporate officers are granted the authority to perform actions and undergo certain procedures essential
to the continuation and progression of a corporation, provided that such acts are necessary. The SC further discusses the history of Kalaw as the
general manager for the corporation wherein the latter has performed duties and obligations prior to this case wherein he also had to act alone
for the benefit of the corporation to which no issue was raised. The authority granted upon the actions of Kalaw are valid and binding as such
actions were in the performance of a regular course of business.
98. Buenaseda vs. Bowen & Co. (110 Phil 464)
PETITIONER/s: FRANCISCO U. BUENASEDA RESPONDENT/s: BOWEN & CO., INC., and/or GEOFFREY BOWEN
FACTS: That
ISSUE/S: WoN the agreement between petitioner and respondent is binding upon the corporation
RULING/DOCTRINE: Validity and Binding Effects of Actions of Corporate Officers
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Yes. The SC ruled in the affirmative. The corporation may not deny the validity of the agreement given that Bowen together with his wife, along
with petitioner and 2 others were part of the Board of Directors of such corporation and that Bowen and his wife controlling the majority of the
stocks of the corporation. Also, even after the agreement has been set, the respondent corporation did not only repudiate the same agreement, but
also taking advantage of its conditions while also benefiting from it, thereby implicating that such acts are equivalent as to an implied
ratification on the part of the Board of Directors without the need for a formal resolution to be passed.
99. Philippine Heart Center vs Local Govt of Quezon City (GR No. 225409, 11 March 2020)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
100. Calubad vs Ricarcen Development Corporation (GR No. 202364, 30 August 2017)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
101. TERP Construction Corporation vs Banco Filipino Savings and Mortgage Bank (GR No. 221771, 18 September 2019)
FACTS:
ISSUE/S:
RULING/DOCTRINE:
102. Valle Verde Country Club vs. Africa (598 SCRA 201, September 2009)
PETITIONER/s:VALLE VERDE COUNTRY CLUB, INC., ERNESTO RESPONDENT/s: VICTOR AFRICA

VILLALUNA, RAY GAMBOA, AMADO M. SANTIAGO, JR.,
FORTUNATO DEE, AUGUSTO SUNICO, VICTOR SALTA,
FRANCISCO ORTIGAS III, ERIC ROXAS, in their capacities as members
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of the Board of Directors of Valle Verde Country Club, Inc., and JOSE
RAMIREZ,
FACTS: The Annual Stockholders' Meeting of petitioner Valle Verde Country Club, Inc. were held and Ernesto Villaluna, Jaime C. Dinglasan
(Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and
Ray Gamboa were elected as members of the VVCC Board of Directors. 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 above-named directors continued to serve in the
VVCC Board in a hold-over capacity. Dinglasan resigned from his position as member of the VVCC Board. In a meeting held on October 6, 1998,
the remaining directors, still constituting a quorum of VVCC's nine-member board, elected Eric Roxas (Roxas) to fill in the vacancy created by
the resignation of Dinglasan. A year later, Makalintal also resigned as member of the VVCC Board. He was replaced by Jose Ramirez (Ramirez),
who was elected by the remaining members of the VVCC Board.
Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as members of the VVCC Board. He alleged that
the election of Roxas was contrary to Section 29, in relation to Section 23, of the Corporation Code. Africa claimed that a year after Makalintal's
election as member of the VVCC Board in 1996, Makalintal's term - as well as those of the other members of the VVCC Board - should be
considered to have already expired. Further, Africa claimed the resulting vacancy should have been filled by the stockholders in a regular or
special meeting called for that purpose, and not by the remaining members of the VVCC Board, as was done in this case.
RTC ruled in favor of Africa and declared the election of Ramirez, as Makalintal's replacement, to the VVCC Board as null and void. the SEC
issued a similar ruling, nullifying the election.
ISSUE/S: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: No, the Supreme Court held that the holdover period is not part of the term of office of a member of the board of directors. "term" is
defined as the time during which the officer may claim to hold the office as of right, and fixes the interval after which the several incumbents
shall succeed one another. The term of office is not affected by the holdover. The term is fixed by statute and it does not change simply because
the office may have become vacant, nor because the incumbent holds over in office beyond the end of the term due to the fact that a successor
has not been elected and has failed to qualify.
Term is distinguished from tenure in that an officer's "tenure" represents the term during which the incumbent actually holds office. The tenure
may be shorter (or, in case of holdover, longer) than the term for reasons within or beyond the power of the incumbent.
Sec 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.
After the lapse of one year from his election as member of the VVCC Board in 1996, Makalintal's term of office is deemed to have already
expired. That he continued to serve in the VVCC Board in a holdover capacity cannot be considered as extending his term. To be precise,
Makalintal's term of office began in 1996 and expired in 1997, but, by virtue of the holdover doctrine in Section 23 of the Corporation Code, he
continued to hold office until his resignation on November 10, 1998. This holdover period, however, is not to be considered as part of his term,
which, as declared, had already expired.
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.
DOCTRINE:The holdover period is not part of the term of office of a member of the board of directors.
103. Central Cooperative Exchange vs. Tibe (33 SCRA 593)
CENTRAL COOPERATIVE EXCHANGE, INC. CONCORDIO TIBE, SR. and THE
HONORABLE COURT OF APPEALS
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FACTS:
The petitioner is a national federation of farmers' cooperative marketing associations, or FACOMAS, its single majority stockholder is the
former Agricultural Credit and Cooperative Financing Administration (ACCFA), now Agricultural Credit Administration (ACA). As a member of
the petitioner's board of directors, representing FACOMAS, respondent Concordio Tibe, Sr. drew and collected from petitioner CCE cash
advances amounting to P5,668.00.
Respondent Tibe had also drawn several sums, amounting to P14,436.95, representing commutable per diems for attending meetings of the
Board of Directors in Manila, per diems and transportation expenses for FACOMA visitations, representation expenses and commutable
discretionary funds. All these sums were disbursed with the approval of the general manager, treasurer and auditor of CCE.
Section 8 of the By-Laws of petitioner federation provides: The compensation, if any, and the per diems for attendance at meetings of the
members of the Board of Directors shall be determined by the members at any annual meeting or special meeting of the Exchange called for the
purpose.
In the annual meeting of the stockholders, it was resolved that: The members of the Board of Directors attending the CCE board meetings be
entitled to actual transportation expenses plus the per diems of P30.00 and actual expenses while waiting.
Petitioner CCE filed for the refund of certain amounts received by respondent when he served as member of the board of directors of CCE,
which were said to be per diems and transportation expenses, representation expenses and commutable discretionary funds.
ISSUE/S:
WON the BOD had the power to appropriate funds for the expenses claimed by the respondent?
RULING/DOCTRINE:
No. The questioned resolutions are contrary to the By-Laws of the federation and are not within the power of the board of directors to enact. The
By-Laws, in the Section 8, explicitly reserved unto the stockholders the power to determine the compensation of members of the board of
directors, and the stockholders did restrict such compensation to "actual transportation expenses plus the per diems of P30.00 and actual expenses
while waiting." Even without the express reservation of said power, the directors are not entitled to compensation, for the law is well-settled that
directors of corporations presumptively serve without compensation and in the absence of an express agreement or a resolution in relation, no claim
can be asserted. Thus it has been held that there can be no recovery of compensation, unless expressly provided for, when a director serves as
president or vice president, as secretary, as treasurer or cashier, as a member of an executive committee, as chairman of a building committee, or
similar offices.
Hence, the directors, in assigning themselves additional duties, such as the visitation of FACOMAS, acted within their power, but, by voting for
themselves compensation for such additional duties, they acted in excess of their authority, as expressed in the By- Laws.
104. Western Inst. of Tech. vs. Salas (278 SCRA 216)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
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105. Gov't vs. El Hogar Filipino (50 Phil 399)
PETITIONER/s: Government of the Philippines RESPONDENT/s: El Hogar Filipino
FACTS: THE GOVERNMENT OF THE PHILIPPINE ISLANDS v. EL HOGAR FILIPINO

G.R. No. L-26649
13 July 1927
Street, J.
FACTS
1. On 01 May 1906, Act No. 1459 or the Corporation Law was enacted. The law provided for building and loan associations, defining their objects
making various provisions governing their organization and administration (Sections 171 to 190).
2. El Hogar Filipino was one of the first corporations organized under said law.
3. Subsequently, a quo warranto proceeding instituted originally by the Government of the Philippines against El Hogar Filipino for the purpose
of depriving it of its corporate franchise, excluding it from all corporate rights and privileges, and effecting a final dissolution of said
corporation.
4. In the quo warranto proceeding, one of the causes of action against El Hogar was its alleged grant of large compensation to its directors,
varying in amount from time to time, out of its profits.
- “x x x instead of serving without pay, or receiving nominal pay or a fixed salary x x x.”
5. Under Section 92 of its By-laws, 5 per centum of the net profit shown by the annual balance sheet is distributed to the directors in proportion
to their attendance at meetings of the board.
6. The Attorney-General insists that the payment of such compensation is excessive and prejudicial to the interests of the shareholders at large.
ISSUE/S:
ISSUE
Whether or not the grant of alleged excessive compensation to directors is a valid ground for a corporation’s disenfranchisement.
RULING/DOCTRINE:
RULING
The Corporation Law does not undertake to prescribe the rate of compensation for the directors of corporations.
The power to fix the compensation they shall receive, if any, is left to the discretion of the corporation as determined in its By-laws.
No.
In so far as the Supreme Court is concerned, the question is not one concerning the propriety and wisdom of the measure of compensation
adopted by the corporation rather the question of the validity of the measure.
The Corporation Law does not undertake to prescribe the rate of compensation for the directors of corporations.
- The power to fix the compensation they shall receive, if any, is left to the discretion of the corporation as determined in its By-laws. (Section
21, Act No. 1459).
The justice and property (propriety?) of this provision was a proper matter for the shareholders when the By-laws were framed; and the
circumstances that, with the growth of the corporation, the amount paid as compensation to the directors has increased beyond what would
probably be necessary to secure adequate service from them is [a] matter that cannot be corrected in this action.
- It is neither a valid basis for depriving the corporation of its franchise, or even for enjoining it from compliance with the provisions of its
own By-laws.
“If a mistake has been made, or the rule adopted in the By-laws meeting to change the rule. The remedy, if any, seems to lie rather in publicity
and competition, rather than in a court proceeding.”
- I think what they meant was that the proper remedy if it seems that there is an error in the adopted By-laws of a corporation is to amend it.
(opinion, ag)
The sixth cause of action is, in the Court’s opinion, without merit.
106. Tramat Mercantile vs. CA (238 SCRA 214)
Digested by:
FACTS:
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ISSUE/S:
RULING/
107. Llamado vs. CA (270 SCRA 423)
Ricardo A. Llamado Court of Appeals; People of the Philippines
FACTS:
Accused Ricardo Llamado and his co-accused Jacinto Pascual were the Treasurer and President, respectively, of the Pan Asia Finance
Corporation. Private complainant, Leon Gaw, delivered P180,000.00 to accused, with the assurance of Aida Tan, the accused’s secretary, that it
will be repaid on 4 November 1983, plus 12% interests and a share in the profits of the corporation. Llamado took the money and placed it inside
a deposit box, and with Pascual signed a Philippine Trust Company Check (No. 047809), postdated 4 November 1983, in the amount of
P186,500.00 in the presence of private complainant. When Gaw deposited the check with Equitable Banking Corporation on the date, it was
dishonored by the drawee bank due to insufficient funds, and his current account was debited for the amount of P186,500.00 because of the
dishonor of the said check.
A week later (November 11), Gaw went to Llamado to inform him the check was dishonored, and Llamado offered in writing to pay 10% of the
amount on 14 or 15 November 1983, and the balance to be rolled over for a period of ninety (90) days. However, accused failed to pay the
equivalent 10%, and when Gaw demanded the payment of P186,500.00, the accused offered to return only 30%. Thus, the filing of the complaint
for violation of Batas Pambansa No. 22 against the accused. The Manila RTC convicted Llamado of violating BP 22, sentencing him to suffer
imprisonment for a period of one (1) year of prision correccional and to pay a fine of P200,000.00, with subsidiary imprisonment in case of
insolvency, and reimbursement of the P186,500.00 plus the costs of suit. The CA affirmed the RTC ruling, hence current petition, where among
several allegations, petitioner claims the respondent Court of Appeals erred because it held petitioner personally liable for the amount of the
check in question, although it was a check of the Pan Asia Finance Corporation and he signed the same in his capacity as Treasurer of the
corporation.
ISSUE/S: Whether Llamado should be held personally liable to pay the amount P186,500, although he signed the company check in his capacity
as Treasurer.
RULING/DOCTRINE:
Petitioner denies knowledge of the issuance of the check without sufficient funds and involvement in the transaction with private complainant.
However, knowledge involves a state of mind difficult to establish. Thus, the statute itself creates a prima facie presumption, i.e., that the drawer
had knowledge of the insufficiency of his funds in or credit with the bank at the time of the issuance and on the check's presentment for
payment. Petitioner failed to rebut the presumption by paying the amount of the check within five (5) banking days from notice of the dishonor.
His claim that he signed the check in blank which allegedly is common business practice, is hardly a defense. If as he claims, he signed the check
in blank, he made himself prone to being charged with violation of BP 22. It became incumbent upon him to prove his defenses. As Treasurer of
the corporation who signed the check in his capacity as an officer of the corporation, lack of involvement in the negotiation for the transaction is
not a defense.
Petitioner's argument that he should not be held personally liable for the amount of the check because it was a check of the Pan Asia Finance
Corporation and he signed the same in his capacity as Treasurer of the corporation, is also untenable. The third paragraph of Section 1 of BP Blg.
22 states:
Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be
liable under this Act.
108. Uichico vs. NLRC (273 SCRA 35)
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PETITIONER/s: ELENA F. UICHICO, SAMUEL FLORO, VICTORIA RESPONDENT/s:

F. BASILIO NATIONAL LABOR RELATIONS COMMISSION, LUZVIMINDA
SANTOS, SHIRLEY PORRAS, CARMEN ELIZARDE, ET. AL.,
FACTS:
Private respondents were employed by Crispa, Inc. for many years in the latter's garments factory. Private respondents' services were terminated
on the ground of retrenchment due to alleged serious business losses suffered by Crispa, Inc.,. Respondent employees, filed before the NLRC,
Manila, 3 separate complaints for illegal dismissal and diminution of compensation against Crispa, Inc., Valeriano Floro , and the petitioners.
Valeriano Floro was a major stockholder, incorporator and Director of Crispa, Inc., while the petitioners were high ranking officers and directors
of the company.
After due hearing, Labor Arbiter dismissed the complaints for illegal dismissal but ordering Crispa, Inc., Floro and the petitioners to pay
respondent employees separation pays equivalent to 17 days for every year of service.
Dissatisfied, private respondents appealed the matter to the NLRC. In a Resolution NLRC found Crispa, Inc., Valeriano Floro, together with the
petitioners liable for illegal dismissal and modified the award of separation pay in the amount of 1 month for every year of service.
Petitioners filed a Motion for Reconsideration on but the same was denied by the NLRC.
The NLRC, treating the Motion to Clarity Judgment as an Appeal, by respondents granted it include in the computation, 6 months backwages,
which was omitted in the dispositive portion.
Petitioners filed a Motion for Reconsideration, which was denied, hence this petition. According to petitioners, they are assailing the decision of
the NLRC holding them solidarily liable with the company for the payment of separation pay and backwages to the private respondents,
however the award of backwages and separation pay is a corporate obligation and must therefore be assumed by Crispa, Inc. alone.
ISSUE/S: Whether or not the Crispa, Inc., its board of directors are solidarily liable for backwages and separation pay awarded to respondents?
RULING/DOCTRINE:
DOCTRINE: Yes. A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in
general, from the people comprising it. The general rule is that obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. There are times, however, when solidary liabilities may be incurred but only when exceptional circumstances
warrant such as in the following cases:
“1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts of the
corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of
the corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto;
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation;
or
4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.”
In labor cases, particularly, corporate directors and officers are solidarily liable with the corporation for the termination of employment of
corporate employees done with malice or in bad faith. In this case, it is undisputed that petitioners have a direct hand in the illegal dismissal of
respondent employees. They were the ones, who as high-ranking officers and directors of Crispa, Inc., signed the Board Resolution retrenching
the private respondents on the feigned ground of serious business losses that had no basis apart from an unsigned and unaudited Profit and Loss
Statement which, to repeat, had no evidentiary value whatsoever. This is indicative of bad faith on the part of petitioners for which they can be
held jointly and severally liable with Crispa, Inc. for all the money claims of the illegally terminated respondent employees in this case.
Doctrine: In labor cases, particularly, corporate directors and officers are solidarily liable with the corporation for the termination of employment
of corporate employees done with malice or in bad faith.
109. Philippine Heart Center vs LGU of Quezon City (GR No. 225409, 11 March 2020)
Philippine Heart Center The Local Government of Quezon City, City Mayor of Quezon City,
City Treasurer of Quezon City and City Assessor of Quezon City
FACTS:
In 1975, the PHC was established under PD 173. PD 673 authorized the PHC to acquire properties, to
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enter into contracts, and to deal with such properties. It is also exempt from tax for a period of 10 years.
President Marcos issued an LOI extending the tax exemption. The LGU of QC issued notices of delinquency
against some real property taxes of PHC. The latter wrote to President Arroyo for condonation or reduction of
taxes which was not acted upon. It then entered into two MOAs with LGU of QC in order to compensate the tax
liabilities in exchange for healthcare. The implementation of the second MOA, however, was suspended when
Dr. Chua Chiaco Jr. became Executive Director. QC still demanded for PHC’s tax liability. Thereafter the
properties were sold to QC. PHC filed a petition for certiorari but QC contested the petition since the former
failed to comply with the formal requisites of verification and certification against forum shopping.
ISSUE/S:
Whether or not PHC complied with the requirements of verification and certification against forum shopping.
RULING/DOCTRINE:
Yes. It was substantially complied with. Although PHC did not expressly authorize Dr. Manzo to sign the petition’s verification and certification
against forum shopping on its behalf, as OIC Executive Director, he is indubitably in a position to verify the truthfulness of the allegations.
Verification and certification against forum shopping signed on behalf of a corporation without the requisite board resolution authorizing the same
are defective. However, such defect merely affects the form of the pleading and does not necessarily warrant the outright dismissal of the case.
110. People vs Garcia (GR No .117010, 18 April 1997)
Digested by: Carlos, Kaira Marie B
Plaintiff-Appellee : People of the Philippines Accused-Appellant: ENGR. CARLOS GARCIA y PINEDA, PATRICIO
BOTERO y VALES, LUISA MIRAPLES (at large),
FACTS:
In an Information dated July 21, 1992, accused-appellant Patricio Botero together with Carlos P. Garcia and Luisa Miraples were charged
with the crime of illegal recruitment in large scale defined by Article 38 (b) and penalized under Article 39 (a) of the Labor Code, as amended by
Presidential Decree Nos. 1920 and 2018. Accused Garcia and Botero pleaded not guilty upon arraignment on January 19, 1993 and
March 31, 1993, respectively. and became an employee of Ricorn. Accused Garcia and Botero pleaded not guilty upon arraignment on January 19,
1993 and March 31, 1993 respectively.
Six (6) out of the sixteen (16) complainants testified as prosecution witnesses. They testified that on various dates in March 1992, they went
to Ricorn Philippine International Shipping Lines, Inc. (hereinafter Ricorn), an entity which recruits workers for overseas
employment. All the other complainants coursed their application to accused Garcia who represented himself as president of
Ricorn. Complainants were required to submit their NBI and police clearance, birth certificate, passport, seaman's book and Survival
of Life at Sea (SOLAS).7 As they did not have the last three (3) documents, they were asked to pay five thousand pesos (P5,000.00) as processing
fee. They paid to Ricorn's treasurer, Luisa Miraples.8 They were issued receipts signed by Miraples. The receipts were under
Ricorn's heading
Garcia and Botero assured complainants of employment after the May 11, 1992 election. Accused Botero, as the vice-president of Ricorn,
followed-up their passports, seaman's book and SOLAS. He told some applicants to wait for their papers and informed the others that their
papers were in order.
After the election, complainants went back to Ricorn to check on their applications. They discovered that Ricorn had abandoned its office at
Jovan Building for non-payment of rentals. 10 Hoping against hope, they went back to the building several times to recover their money. Their
persistence was to no avail for Garcia and Botero were nowhere to be found. They found out that Ricorn was not licensed by the Department of
Labor and Employment (DOLE) to engage in recruitment activities.
Accused Garcia testified that he is an electrical engineer by profession. According to him, the group of Teresita Celso, Patricio Botero, Alice
Mayonte, Luisa Miraples and Edna Hemolaga approached him at a baptismal party to join Ricorn. They asked him to become
Ricorn's president and to contribute only twenty thousand pesos (P20,000.00). He declined the offer. Allegedly, he already knew that Ricorn
was not licensed by the Philippine Overseas Employment Agency (POEA) or registered as a corporation with the Securities and Exchange
Commission (SEC). He denied he issued receipts to complainants in this case. Accused-appellant Botero is a marine engineer by profession
but was working as a barber when the trial took place. He testified that he became acquainted with Ricorn when he applied for overseas
employment as a machinist. He dealt with accused Garcia who claimed to be the President of Ricorn. Eventually, he gained the trust of Garcia
and became an employee of Ricorn. Accused Carlos P. Garcia and Patricio Botero are found guilty by the RTC
ISSUE/S:
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Whether or not GARCIA and BOTERO should be held liable ?
RULING/DOCTRINE:
Yes.
For engaging in recruitment of workers without obtaining the necessary license from the POEA, Boteros should suffer the consequences of
Ricorn's illegal act for "(i)f the offender is a corporation, partnership, association or entity, the penalty shall be imposed upon the
officer or officers of the corporation, partnership, association or entity responsible for violation; . . . " The evidence shows that appellant
Botero was one of the incorporators of Ricorn. For reasons that cannot be discerned from the records, Ricorn's incorporation was not
consummated. Even then, appellant cannot avoid his liabilities to the public as an incorporator of Ricorn. He and his co- accused
Garcia held themselves out to the public as officers of Ricorn. They received money from applicants who availed of their services. They are thus
estopped from claiming that they are not liable as corporate officials of Ricorn. 31 Section 25 of the Corporation Code provides that
"(a)ll persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all the debts,
liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use asa defense its lack of corporate
personality.
111. UCPB vs. Secretary of Justice, et. al. (GR No. 209601, 12 January 2021)
UNITED COCONUT PLANTERS BANK SECRETARY OF JUSTICE, OFFICE OF THE CHIEF PROSECUTOR,
TIRSO ANTIPORDA, JR. AND GLORIA CARREON
FACTS:
UCPB, through its Legal Services Division Head, Jose A. Barcelon, filed the Complaint-Affidavit alleging that Antiporda and Carreon were
UCPB's former Chairman and CEO, and former President and COO, respectively. UCPB Capital, Inc. ("UCAP"), subsidiary of UCPB, was
engaged in trading, underwriting of securities and syndication of loans. However, due to substantial losses, UCPB's Board of Directors resolved
to shorten the corporate existence of UCAP and approved the takeover, purchase of assets and assumption of liabilities of UCAP by UCPB.
When UCAP was absorbed by UCPB, it had liabilities in the amount of Php 4.4 Billion; notwithstanding, Antiporda's and Carreon's knowledge
of UCAP's losses, they declared bonuses in 1998 in bad faith, with gross negligence and in violation of UCPB's by-laws which requires a board
authority prior to declaration of bonuses. Thus, Antiporda and Carreon are liable under Section 31 of the Corporation Code which provides for
the liability of directors or officers who conduct the affairs of a corporation in bad faith. In addition, Antiporda and Carreon are criminally liable
under Section 144 which provides for penalties for violations of the Corporation Code.
Antiporda filed a Counter-Affidavit and alleged that his actions were not done in bad faith as he was merely guided by UCPB's audited
Financial Statements, by-laws and policies and that it had been the practice of UCPB to pay bonuses without a board resolution. Antiporda
further alleged while UCAP suffered a loss in 1997, other subsidiaries and affiliates of UCPB earned profits.
Carreon filed a Counter-Affidavit and alleged that there was sufficient legal and factual justification for the grant of bonuses since (a) it was
expressly authorized by UCPB's by-laws, (b) it was the long-established policy and practice of UCPB, and (c) the financial condition of UCPB
allowed the grant of the bonuses; the bonuses given in a fiscal year are based on the net profit of [UCPB] in the immediately preceding fiscal
year, since [UCPB] had a net profit of Php 2.115 billion in 1997, there was a basis of bonus in 1998.
On 8 April 2008, the DOJ Task Force On Bank Fraud Cases issued the Resolution, finding probable cause against Antiporda and Carreon for
violation of Section 31 in relation to Section 144 of the Corporation Code. Carreon filed a petition for review with the DOJ Secretary. The DOJ
Secretary ruled Section 144 was not applicable to violations of Section 31 of the Corporation Code, and the action against Antiporda and Carreon
had prescribed.
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The CA, observed that there would be no basis to subject directors, trustees, or corporate officers liable under Section 31 to the penalties under
Section 144 of the Corporation Case because Section 31 itself provides for the proper remedy, which is civil sanction for damages rather than
criminal sanction under Section 144. The CA also ruled that Antiporda and Carreon, as members of UCPB's Board of Directors, could be held
liable for violating Section 31 of the Corporation Code because Antiporda was sued in his capacity as UCPB's Chairman of the Board while
Carreon was sued in her capacity as Director, which were their designations at the time of the alleged Section 31 violation.
ISSUE/S:
WON Antiporda and Carreon are liable under Section 144 and Section 31 of the Corporation Code.
RULING/DOCTRINE:
The present case calls for the application of Sections 31 and 144 of the Corporation Code. As noted at the outset, the Corporation Code has been
repealed by the Revised Corporation Code (RCC), which became effective on February 23, 2019. Despite the passage of the later law, the former
is to be applied in this case because the alleged violation committed by Antiporda and Carreon happened in 1998 while the Corporation Code
was in effect.
As mentioned at the outset, the Court has already ruled in Ient on the issue of the applicability of Section 144 to Section 31 of the Corporation
Code. The Court, applying the rule of lenity, ruled in Ient that any violation of Section 31 of the Corporation Code was not considered as a
violation of any provision of such Code not otherwise specifically penalized therein pursuant to Section 144. In other words, Section 144 did not
apply to or include in its coverage Section 31 of the Corporation Code. The Court justified its ruling in Ient, as follows:
After a meticulous consideration of the arguments presented by both sides, the Court comes to the conclusion that there is a textual ambiguity in
Section 144; moreover, such ambiguity remains even after an examination of its legislative history and the use of other aids to statutory
construction, necessitating the application of the rule of lenity in the case at bar.
xxxx
There is no provision in the Corporation Code using similarly emphatic language that evinces a categorical legislative intent to treat as a criminal
offense each and every violation of that law. Consequently, there is no compelling reason for the Court to construe Section 144 as similarly
employing the term "penalized" or "penalty" solely in terms of criminal liability.
xxxxxxx
We agree with petitioners that the lack of specific language imposing criminal liability in Sections 31 and 34 shows legislative intent to limit the
consequences of their violation to the civil liabilities mentioned therein. Had it been the intention of the drafters of the law to define Sections 31
and 34 as offenses, they could have easily included similar language as that found in Section 74.
In common law, the remedies available in the event of a breach of director's fiduciary duties to the corporation are civil remedies. If a director or
officer is found to have breached his duty of loyalty, an injunction may be issued or damages may be awarded. A corporate officer guilty of
fraud or mismanagement may be held liable for lost profits. A disloyal agent may also suffer forfeiture of his compensation. There is nothing in
the deliberations to indicate that drafters of the Corporation Code intended to deviate from common law practice and enforce the fiduciary
obligations of directors and corporate officers through penal sanction aside from civil liability.
In view of the foregoing, the Court finds that the CA did not err in ruling that Section 144 of the Corporation Code did not cover or apply to
Section 31 of the same Code.
112. Montelibano vs. Bacolod Murcia Milling (5 SCRA 36)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
113. Strong vs. Repide (41 Phil 947)
Digested by:
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FACTS:
ISSUE/S:
RULING/DOCTRINE:
114. Prime White Cement vs. IAC (220 SCRA 1030)
PETITIONER/s: Prime White Cement Corporation RESPONDENT/s: Intermediate Appellate Court
FACTS: July 1969, plaintiff and Defendant Corporation thru its President, entered into a dealership agreement whereby plaintiff was obligated
to act as the exclusive distributor of the cement products in Mindanao for 5 years.
As a result, some business associates propose to be a sub-dealer in Mindanao. Relying on the dealership agreement, plaintiff entered into a
written agreement with several hardware stores dealing in buying and selling white cement in Davao and Cagayan de Oro.
Later on, the defendant corporation decided to impose conditions which were answered by several demands from the plaintiff to comply with
the dealership agreement. However, the defendant refused to comply. After the trial court adjudged the corporation liable to Alejandro Te, the
CA affirmed the said decision based on: There is no dispute that when Zosimo R. Falcon and Justo B. Trazo signed the dealership agreement
Exhibit “A”, they was the President and Chairman of the Board, respectively, of defendant-appellant Corporation. Neither is the genuineness of
the said agreement contested. As a matter of fact, it appears on the face of the contract itself that both officers were duly authorized to enter into
the said agreement and signed the same for and on behalf of the corporation. When they, therefore, entered into the said transaction they created
the impression that they were duly clothed with the authority to do so. It cannot now be said that the disputed agreement which possesses all the
essential requisites of a valid contract was never intended to bind the corporation as this avoidance is barred by the principle of estoppel.
ISSUE/S: Whether or not the dealership agreement entered into by Te with his own corporation is valid and binding.
RULING/DOCTRINE: NO. In the instant case respondent Te was not an ordinary stockholder; he was a member of the Board of Directors and
Auditor of the corporation as well. He was what is often referred to as a "self-dealing" director.
A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. In case his interests’ conflict with
those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. As corporate managers, directors are committed to seek
the maximum amount of profits for the corporation. This trust relationship "is not a matter of statutory or technical law. It springs from the fact
that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders.
Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if entered into with a person other than a
director or officer of the corporation, the fact that the other party to the contract was a Director and Auditor of the petitioner corporation changes
the whole situation. First of all, we believe that the contract was neither fair nor reasonable. The "dealership agreement" entered into in July
1969, was to sell and supply to respondent Te 20,000 bags of white cement per month, for five years starting September 1970, at the fixed price of
P9.70 per bag.
Respondent Te is a businessman himself and must have known, or at least must be presumed to know, that at that time, prices of commodities in
general, and white cement in particular, were not stable and were expected to rise. At the time of the contract, petitioner corporation had not even
commenced the manufacture of white cement, the reason why delivery was not to begin until 14 months later. He must have known that within
that period of six years, there would be a considerable rise in the price of white cement. In fact, respondent Te's own Memorandum shows that in
September 1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag. Despite this, no provision was made in
the "dealership agreement" to allow for an increase in price mutually acceptable to the parties. Instead, the price was pegged at P9.70 per bag for
the whole five years of the contract. Fairness on his part as a director of the corporation from whom he was to buy the cement, would require
such a provision. In fact, this unfairness in the contract is also a basis which renders a contract entered into by the President, without authority
from the Board of Directors, void or voidable, although it may have been in the ordinary course of business. We believe that the fixed price of
P9.70 per bag for a period of five years was not fair and reasonable. Respondent Te, himself, when he subsequently entered into contracts to
resell the cement to his "new dealers" Henry Wee and Gaudencio Galang stipulated as follows:
“The price of white cement shall be mutually determined by us but in no case shall the same be less than P14.00 per bag (94 lbs)”
As director, especially since he was the other party in interest, respondent Te's bounden duty was to act in such a manner as not to unduly
prejudice the corporation. In the light of the circumstances of this case, it is to Us quite clear that he was guilty of disloyalty to the corporation;
he was attempting in effect, to enrich himself at the expense of the corporation.
There is no showing that the stockholders ratified the "dealership agreement" or that they were fully aware of its provisions. The contract was
therefore not valid, and this Court cannot allow him to reap the fruits of his disloyalty.
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115. Mead vs. Mc Cullough (21 Phil 95)
Digested by: Jonella Marie B. Santosidad
CHARLES W. MEAD E. C. McCULLOUGH, ET AL., and THE PHILIPPINE ENGINEERING
AND CONSTRUCTION COMPANY,
FACTS:
Herein plaintiff-appellant Mead with defendant McCullough formed the Philippine Engineering and Construction Company, the incorporators
being the only stockholders and directors of the company. When Mead left for China, the other directors entered into an agreement where all the
rights in a “wrecking contract” with the naval authorities were sold to defendant. The defendant, in turn, sold these rights with R.W. Brown,
HDC jones, John Macleod and TH Twentyman, and retaining one sixth interest, formed Manila Salvage Association.
ISSUE/S:
WON officers or directors of the corporation may purchase the corporate property.
RULING/DOCTRINE:
NO. While a corporation remains solvent, we can see no reason why a director or officer, by the authority of a majority of the stockholders or
board of managers, may not deal with the corporation, loan it money or buy property from it, in like manner as a stranger. So long as a purely
private corporation remains solvent, its directors are agents or trustees for the stockholders. They owe no duties or obligations to others. But the
moment such a corporation becomes insolvent, its directors are trustees of all the creditors, whether they are members of the corporation or not,
and must manage its property and assets with strict regard to their interest; and if they are themselves creditors while the insolvent corporation is
under their management, they will not be permitted to secure to themselves by purchasing the corporate property or otherwise any personal
advantage over the other creditors. Nevertheless, a director or officer may in good faith and for an adequate consideration purchase from a
majority of the directors or stockholders the property even of an insolvent corporation, and a sale thus made to him is valid and binding upon
the minority. (Beach et al. vs. Miller, supra; Twin-Lick Oil Company vs. Marbury, supra; Drury vs. Cross, 7 Wall., 299; Curran vs. State of
Arkansas, 15 How., 304; Richards vs. New Hamphshire Insurance Company, 43 N. H., 263; Morawetz on Corporations (first edition), sec. 579;
Haywood vs. Lincoln Lumber Company et al., 64 Wis., 639; Port vs. Russels, 36 Ind., 60; Lippincott vs. Shaw Carriage Company, 21 Fed. Rep., 577.)
In the case of the Twin-Lick Oil Company vs. Marbury, he court said: That a director of a joint-stock corporation occupies one of those fiduciary
relations where his dealings with the subject-matter of his trust or agency, and with the beneficiary or party whose interest is confided to his
care, is viewed with jealousy by the courts, and may be set aside on slight grounds, is a doctrine founded on the soundest morality, and which
has received the clearest recognition in this court and others. (Koehler vs. Iron., 2 Black, 715; Drury vs. Cross, 7 Wall., 299; R.R. Co. vs. Magnay, 25
Beav., 586; Cumberland Co vs. Sherman, 30 Barb., 553; Hoffman S. Coal Co. vs. Cumberland Co., 16 Md., 456.) The general doctrine, however, in
regard to contracts of this class, is, not that they are absolutely void, but that they are voidable at the election of the party whose interest has been
so represented by the party claiming under it. We say, this is the general rule; for there may be cases where such contracts would be void ab
initio; as when an agent to sell buys of himself, and by his power of attorney conveys to himself that which he was authorized to sell. but even
here, acts which amount t a ratification by the principal may validate the sale The sale or transfer of the corporate property in the case at bar was
made by three directors who were at the same time a majority of stockholders. If a majority of the stockholders have a clear and a better right to
sell the corporate property than a majority of the directors, then it can be said that a majority of the stockholders made this sale or transfer to the
defendant McCullough. What were the circumstances under which said sale was made? The corporation had been going from bad to worse. The
work of trying to raise the sunken Spanish fleet had been for several months abandoned. The corporation under the management of the plaintiff
had entirely failed in this undertaking. It had broken its contract with the naval authorities and the $10,000 Mexican currency deposited had been
confiscated. It had no money. It was considerably in debt. It was a losing concern and a financial failure. To continue its operation meant more
losses. Success was impossible. The corporation was civilly dead and had passed into the limbo of utter insolvency. The majority of the
stockholders or directors sold the assets of this corporation, thereby relieving themselves and the plaintiff of all responsibility. This was only the
wise and sensible thing for them to do. They acted in perfectly good faith and for the best interests of all the stockholders. "It would be a harsh
rule that would permit one stockholder, or any minority of stockholders to hold a majority to their investment where a continuation of the
business would be at a loss and where there was no prospect or hope that the enterprise would be profitable." We therefore conclude that the
sale or transfer made by the quorum of the board of directors — a majority of the stockholders — is valid and binding upon the majority-the
plaintiff.
116. Pascual vs. Orozco (19 Phil 83)
Candido Pascual
FACTS:
Plaintiff Candido Pascual, in his own right as a stockholder of Banco Español-Filipino sued on behalf of the corporation. Such is shown by the
prayer of the complaint which is that judgment be entered in favor of the bank.
Banco Español-Filipino is a banking corporation, constituted as such by royal decree of the Crown of Spain in the year 1854. From the first it has
been a bank of issue and was regarded as a quasi-public institution. The then-Captain-General of the Philippines was its protector and supreme
head. To him belonged the power to appoint its directors and other managing officers, remove them from office for cause, fix the rate of interest
demandable by the bank, resolve all doubts and controversies relating to its management, etc.
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It is alleged in the amended complaint that the only compensation provided for the managing officers of the bank was a certain per cent of the
net profits resulting from the bank's operations. In the years 1903, 1904, 1905, and 1907 the defendants, constituting majority of the Board of
Directors, without the knowledge or consent of the stockholders, deducted their respective compensation from the gross income instead of from
the net profits of the bank, thereby defrauding the bank and its stockholders of approximately P20,000 per annum; that though due demands has
been made upon them therefor, defendants refused to refund to the bank the sums so misappropriated.
ISSUE/S: WON Pascual may, as a stockholder of the corporation, file a derivative suit.
RULING/DOCTRINE:
General rule
In suits of this character the corporation itself and not the plaintiff stockholder is the real party in interest. The rights of the individual
stockholder are merged into that of the corporation. It is a universally recognized doctrine that a stockholder in a corporation has no title legal or
equitable to the corporate property; that both of these are in the corporation itself for the benefit of all the stockholders. Since, therefore, the
stockholder has no title, it is evident that what he does have, with respect to the corporation and his fellow stockholder, are certain rights sui
generis. The right of individual stockholders to maintain suits for and on behalf of the corporation was denied until within a comparatively short
time, but his right is now no longer doubted.
Answer: YES
Plaintiff Pascual, by reason of the fact that he is a stockholder in the bank (corporation) has a right to maintain a suit for and on behalf of the
bank, but the extent of such a right must depend upon when, how, and for what purpose he acquired the shares which he now owns. In the
determination of these questions, we cannot see how, if it be true that the bank is a quasi-public institution, it can affect in any way the final
result.
The Court also assumed, basing from the charter of the bank, that the dividends were declared to be paid at the end of the semester (six months).
Since Pascual only became a shareholder in November 1903, he was not entitled to the dividends for the first semester (January to July
1903) but he would have been entitled to the dividends for the second semester. Pascual was therefore a shareholder during all the time
for which he sought recovery in his first cause of action, except the first six months of the year 1903. If it was true that the defendant directors had
taken their salaries for the year 1903 at the close of the year, Pascual would then have had an interest and could have questioned the legality of
the defendant’s right to take such salary, inasmuch as his dividends would be directly affected, at least for the second semester.
117. Everette vs. Asia Banking (49 Phil 512)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
118. Republic Bank vs. Cuaderno (19 SCRA 671)
Digested by:
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FACTS:
ISSUE/S:
RULING/DOCTRINE:
119. Western Institute of Tech. vs. Salas (supra)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
120. San Miguel Corp. vs. Khan (176 SCRA 447)
FACTS:
ISSUE/S:
RULING/DOCTRINE:
121. Chase vs. Buencamino (136 SCRA 365)
PETITIONER/s:ELTON W. CHASE, as minority Stockholder and on RESPONDENT/s:DR. VICTOR BUENCAMINO, SR., VICTOR
behalf of other Stockholders similarly situated and for the benefit of BUENCAMINO, JR., JULIO B. FRANCIA and DOLORES A.
AMERICAN MACHINERY AND PARTS MANUFACTURING, INC. BUENCAMINO
FACTS:Defendant Dr. Buencamino, Sr., a Filipino and William Cranker, an American, were business associates. They owned two firms namely,
the Philippine American Machinery and Equipment Corporation (PAMEC) and the BUCRA (Buencamino and Cranker). Plaintiff Elton Chase, on
the other hand, was the owner of Production Manufacturing Company, of Portland, Oregon, USA, a corporation primarily dedicated the
production of tractor parts.
Chase faced expropriation from the lands in which his factory was built, and so he was advised to sell it. Luckily, Dr. Buencamino was interested
in establishing a manufacturing plant in the Philippines. Negotiations took place for the establishment of a new factory in Manila. In effect
Elton Chase was to be paid One Hundred Thousand Dollars ($100,000.00) and he would also be given a one-third interest in Amparts American
Machinery and Parts Manufacturing, Inc. With the other two, Dr. Buencamino and Cranker, as the owner of the other two-thirds (2/3) interest, 1/3
interest each; that in exchange for said $100,000.00 and the 1/3 interest, Chase was to transfer to Amparts his tractor plant, ship his machineries to
Manila.
Amparts was formally organized as a corporation on July 5, 1955. For some time the three maintained harmonious relations but later on distrust
came in until finally Chase tendered his letter of resignation as Production Manager, which was accepted by both Dr. Buencamino and Cranker.
Elton Chase in his capacity as director and minority stockholder of AMPARTS and in behalf of the other stockholders of said corporation
similarly situated and for the benefit of Amparts filed Civil Case before the CFI of Manila against Dr. Victor Buencamino, Sr. in his capacity as
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Director, President and General Manager of Amparts, Victor Buencamino, Jr., (in his capacity as Director, Treasurer and Liaison Officer) Julio B.
Francia (in his capacity as Director and Assistant General Manager) and Dolores A. Buencamino (in her capacity as Director)
The lower court issued an Order denying plaintiffs’ application for receivership but ordering defendants to file a bond in the amount of
P100,000.00 to answer for the damages
The lower court finds defendant Dr. Buencamino guilty of "breach of a legal obligation."
ISSUE/S: Whether or not defendant Dr. Buencamino is guilty of "fraud" and/or breach of a legal obligation
RULING: Yes, the Supreme Court held that the lower court correctly found that Buencamino and Cranker committed the following frauds and
profited from the same through overpricing, Amparts remitted to U.S. $312,500.00 for Chase’s factory. Only $80,000.00 was paid Chase for his
machineries at this time. The excess dollars were blackmarketed and the peso proceeds thereof went to pay the stocks subscription in Amparts of
Buencamino and his wife and Cranker and his wife.
That these profits from overpricing and remittance of dollars went to Buencamino and Cranker was testified to by no less than Buencamino’s
long time accountant Maximo Peñas, corroborated by the bank accounts which he kept for Buencamino and Cranker.
Through overpricing, Amparts remitted to U.S. $207,000.00 for forwarding costs, technical services and promotional expenses. But forwarding
costs were already paid from the $312,500.00 remittances for plant purchase price and Chase was never paid his salary for one year nor his
promotional expenses. The excess remittances of dollars were blackmarketed and the peso proceeds thereof totalling P434,000.00 were deposited
in Buencamino’s bank account at the Philippine Trust Company.
“It will above be noted that while the Court found Chase guilty on two counts, on the counterclaims the guilt referred to acts performed during
the litigation; they do not show that Chase had come to Court already guilty; as the Court has found, when he came to Court on 20 August, 1960,
he was an innocent party, and Amparts was the victim of fraud; on the other hand, while this really is true, the Court cannot see how under the
present circumstances, the correct equitable relief that the Court should grant should be to change over the management from Buencamino unto
Chase; especially considering that the Court has also seen that Chase pendente lite had performed an act that has virtually helped an Amparts
competitor; neither can the Court grant a dissolution because the action is a derivative one for the benefit of Amparts and not for the personal
benefit of Chase, and Amparts cannot be benefited by its extinction; as to the ouster of Dr. Buencamino from management, it should not be
forgotten that Dr. Buencamino is not only a manager, but is in fact 2/3 owner of Amparts and to oust him from management would amount to his
disenfranchisement as owner of the majority of the enterprise apart from the fact that it is also established in the proofs that Amparts is already
picking up and has been a going concern after Cranker left unto him the direction of its affairs; the Court therefore having in mind all these
finds that the solution most equitable and just would be to limit its decision to imposing a monetary judgment upon the guilty parties for the
benefit of Amparts.”
DOCTRINE: The removal of a stockholder (in this case a majority stockholder) from the management of the corporation and/or the dissolution of
a corporation in a suit filed by a minority stockholder is a drastic measure. It should be resorted to only when the necessity is clear which is not
the situation in the case at bar.
122. Reyes vs. Tan (3 SCRA 198)
Digested by:
CATALINA R. REYES HON. BIENVENIDO A. TAN, as Judge of the Court of First Instance of
Manila, Branch XIII and FRANCISCA R. JUSTINIANI
FACTS:
Several purchases were made by Roxas-Kalaw Textile Mills in NewYork for raw materials but were found to consist of already finished products
for which reason the Central Bank of the Philippines stopped all dollar allocations for raw materials for the corporation which necessarily led to
the paralyzation of the operations. It was alleged that the supplier of the said finished goods was United Commercial Company of New York in
which Dalamal, appointed by the BOD of the Textile Mills as co-manager, had interests and that the letter of credit for said goods were
guaranteed by the Indian Commercial Company and Indian Traders in which Dalamal likewise has interests. It was further alleged that the sale
of the finished products was the business of Indian Commercial Company of Manila who cannot obtain dollar allocations for importation of
finished goods .An action for the appointment of a receiver was filed before the trial court after the BOD refused to proceed against Dalamal,
which was granted.
ISSUE/S:
Whether Justiani may be allowed to institute the case for receivership and damages.
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RULING/DOCTRINE:
Yes. It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust — not of mere error of judgment or abuse of
discretion — and intra-corporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and
for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the
stockholders. Here, It is not denied by the petitioner that the allocation of dollars to the corporation for the importation of raw materials was
suspended. In the eyes of the court below, as well as in our own, the importation of textiles instead of raw materials, as well as the failure of the
Board of Directors to take action against those directly responsible for the misuse of dollar allocations constitute fraud, or consent thereto on the
part of the directors. Therefore, a breach of trust was committed which justified the derivative suit by a minority stockholder on behalf of the
corporation.
123. Gamboa vs. Victorino (90 SCRA 40)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
124. Evangelista vs. Santos (86 Phil 387)
Digested by: Gargaritano, Angelo gabriel I.
PETITIONER/s: JUAN D. EVANGELISTA, ET. AL. RESPONDENT/s: RAFAEL SANTOS
FACTS:
G.R. No. L-1721
19 May 1950
Reyes, J.
FACTS
1. An action was instituted by the minority stockholders of Vitali Lumber Company, Inc. (VITALI) against Rafael Santos for damages resulting
from his mismanagement of its affairs and misuse of its assets.
2. The complaint alleged that the plaintiffs are minority stockholders of VITALI, a corporation organized for the exploration of a lumber
concession in Zamboanga.
- Rafael Santos holds more than 50% of the stocks of VITALI and also is, and always have been, the president, manager, and treasurer.
- It is alleged that Santos, in such triple capacity, through fault, neglect, and abandonment allowed for the corporation’s ruin and total
depreciation of its stocks.
2. The trial court rendered a decision dismissing the complaint on the basis of improver venue and that no cause of action was stated. The
decision was appealed.
ISSUE/S: Whether or not the derivative suit instituted was proper.
RULING/DOCTRINE:
While it is to the corporation that the action should pertain in cases of this nature,
1. If the officers of the corporation who are the ones called upon to protect their rights, refuse to sue; or
2. Where a demand upon them to file the necessary suit would be futile because they are the very ones to be used to because they hold the
controlling interest in the corporation,
then in that case, any one of the stockholders is allowed to bring suit.
A Derivative Suit is brought by a stockholder as the nominal party plaintiff for the benefit of the corporation, which is the real property in interest.
No. [It was not proper because it was not made in the name of or for the benefit of the corporation.]
The action instituted is for damages resulting from mismanagement of the affairs and assets of the corporation. The injury complained of is
primarily that of the corporation, so the suit for the damages claimed should be by the corporation rather than by the stockholders.
- The stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution
among them of part of the corporate assets before the dissolution of the corporation and the liquidation of its debts and liabilities, something
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which cannot be legally done in view of Section 16 of the Corporation Law (Section 139, RCC).
While it is to the corporation that the action should pertain in cases of this nature,
1. If the officers of the corporation who are the ones called upon to protect their rights, refuse to sue; or
2. Where a demand upon them to file the necessary suit would be futile because they are the very ones to be used to because they hold the
controlling interest in the corporation,
then in that case, any one of the stockholders is allowed to bring suit.
- In such case, it is the corporation itself and not the plaintiff stockholder that is the real party in interest, so that such damages as may be
recovered shall pertain to the corporation.
- In other words, it is a derivative suit brought by a stockholder as the nominal party plaintiff for the benefit of the corporation, which is the
real property in interest.
In the instant case, Plaintiffs brought the action not for the benefit of the corporation but for their own.
It shows that the Plaintiff’s complaint shows no cause of action in their favor so the lower court did not err in dismissing the complaint on such
ground.
It is noted by the SC, however, that the action stated in their complaint is susceptible of being converted into a derivative suit for the benefit of
the corporation by mere change in the prayer.
The order appealed from is affirmed, but without prejudice to the filing of the proper action.
125. Villamor vs Umale (GR No. 172843, 24 September 2014)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
126. Delta Motor vs. Mangosing (G.R. No. L-41667 April 30, 1976. 70 SCRA 77)
PETITIONER/s: Delta Motor Sales Corporation RESPONDENT/s:
FACTS: On June 20, 1974, private respondent Jose Luis Pamintuan bought from petitioner Delta Motors a Toyota car, but discovered that it had
various leaks from its windshield, doors and windows that Delta Motor failed to stop. Pamintuan sued Delta Motor for the recovery of the sum
of P58,000 as damages and attorney's fees on the grounds that Delta failed to fulfill its warranty obligation.
The summons for Delta Motor was served on its employee, Dionisia G. Miranda, who acknowledged its receipt by signing on the lower portion
of the original summons. Delta Motor did not answer the complaint within the reglementary period, and Pamintuan subsequently filed a motion
to declare Delta Motor in default which the Manila court granted. Delta’s lawyers later filed a petition to lift the order of default, to set aside the
judgment and for new trial.
They alleged that Miranda was not the corporate secretary, but the secretary of Alberto Ramos of the personnel department who was on sick
leave and that service upon her was a mistake. The motion was supported by the affidavit of Miranda who alleged that, as there was no
instruction from the sheriff that the summons and complaint should be delivered to the officers of Delta Motor, she just kept the same "for
reference" to her immediate superior, Ramos, who, however, seldom went to office. Geldino S. Santos, the administrative officer of Delta Motor,
in his affidavit, also attached to the motion, confirmed that Dionisia G. Miranda was Ramos' secretary.
The lower court denied the motion on the ground that Miranda was a person of suitable age and discretion who could receive summons for
another person, as contemplated in section 8, Rule 14 of the Revised Rules of Court, and that although Delta Motor's legal department was
served with a copy of the motion to declare it in default, it did not oppose the motion.
The Manila court refused to give due course to Delta Motor's appeal and granted Pamintuan's motion for execution, and the sheriff levied upon a
Toyota mini-bus and a car to satisfy the judgment for damages against Delta Motor. Hence current petition.
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ISSUE/S: Whether Delta Motor was properly served with summons or whether the Manila court had jurisdiction to render the judgment by
default against it and to execute that judgment.
RULING/DOCTRINE: Held: No.
Rule 14 of the Revised Rules of Court provides:
SEC. 13. Service upon private domestic corporation or partnership. — If defendant is a corporation organized under the laws of the Philippines or a
partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of its directors.
For the purpose of receiving service of summons and being bound by it in accordance with Rule 14, a corporation is identified with its agent or
officer who under the rule is designated to accept service of process. "The corporate power to receive and act on such service, so far as to make it
known to the corporation, is thus vested in such officer or agent."
The SC cited the US case of Witeitown vs. Robinson, 69 Wis. 230, which the particular mode of service indicated in the statute should be
followed because ita lex scripta est. "There is no chance to speculate whether some other mode will not answer is as well too often held by this
court to require further citations When the statute designates a particular officer to who the process may be delivered and with whom it may be
left, a service upon the corporation, no other officer or person ca be substituted in his place. The designation of one particular officer upon whon
service may be made excludes all others."
In the instant case the Manila court did not acquire jurisdiction over Delta Motor because it was not properly served with summons. The service
of summons on Miranda, who is not among the persons mentioned in section 13 of Rule 14, was insufficient. It did not bind Delta Motor.
Consequently, the order of default, the judgment by default and the execution in Civil Case No. 97373 are void and should be set aside.
127. E.B. Villarosa & Partner Co. vs. Benito (GR 14926, August 6, 1999)
E. B. VILLAROSA & PARTNER CO., LTD HON. HERMINIO I. BENITO, in his capacity as Presiding Judge, RTC,
Branch 132, Makati City
and IMPERIAL DEVELOPMENT CORPORATION
FACTS:
Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal office address at 102 Juan Luna St., Davao City and with
branch offices at 2492 Bay View Drive, Tambo, Parañaque, Metro Manila and Kolambog, Lapasan, Cagayan de Oro City. private respondent, as
plaintiff, filed a Complaint for Breach of Contract and Damages against petitioner, as defendant, before the Regional Trial Court of Makati
allegedly for failure of the latter to comply with its contractual obligation in that, other than a few unfinished low cost houses, there were no
substantial developments therein. Summons, together with the complaint, were served upon the defendant, through its Branch Manager Engr.
Wendell Sabulbero at the stated address at Kolambog, Lapasan, Cagayan de Oro City 2 but the Sheriff’s Return of Service 3 stated that the
summons was duly served “upon defendant E.B. Villarosa & Partner Co., Ltd. thru its Branch Manager Engr. WENDELL SABULBERO on May 5,
1998 at their new office Villa Gonzalo, Nazareth, Cagayan de Oro City, and evidenced by the signature on the face of the original copy of the
summons.” plaintiff filed a Motion to Declare Defendant in Default alleging that defendant has failed to file an Answer despite its receipt
allegedly on May 5, 1998 of the summons and the complaint, as shown in the Sheriff’s Return. trial court issued an Order denying defendant’s
Motion to Dismiss as well as plaintiff’s Motion to Declare Defendant in Default. Defendant was given ten (10) days within which to file a
responsive pleading. The trial court stated that since the summons and copy of the complaint were in fact received by the corporation through its
branch manager Wendell Sabulbero, there was substantial compliance with the rule on service of summons and consequently, it validly acquired
jurisdiction over the person of the defendant. Defendant, by Special Appearance, filed a Motion for Reconsideration alleging that Section 11,
Rule 14 of the new Rules did not liberalize but, on the contrary, restricted the service of summons on persons enumerated therein; and that the
new provision is very specific and clear in that the word “manager” was changed to “general manager”, “secretary” to “corporate secretary”, and
excluding therefrom agent and director.
ISSUE/S:
Whether or not the trial court acquired jurisdiction over the person of the petitioner upon service of summons to its branch manager
RULING/DOCTRINE:
Ruling: The trial court did not acquire jurisdiction over the person of the petitioner
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When the complaint was filed by Petitioner on April 3, 1998, the 1997 Rules of Civil Procedure was already in force. The designation of persons
or officers who are authorized to accept summons for a domestic corporation or partnership is now limited and more clearly specified in Section
11, Rule 14 of the 1997 Rules of Civil Procedure.
The rule now states “general manager” instead of only “manager”; “corporate secretary” instead of “secretary”; and “treasurer” instead of
“cashier.” The phrase “agent, or any of its directors” is conspicuously deleted in the new rule. A strict compliance with the mode of service is
necessary to confer jurisdiction of the court over a corporation. The officer upon whom service is made must be one who is named in the statute;
otherwise the service is insufficient. . . . . The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice
in an action against it or to insure that the summons be served on a representative so integrated with the corporation that such person will know
what to do with the legal papers served on him. In other words, ‘to bring home to the corporation notice of the filing of the action.’ . . . .
The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal requirements as to the manner in which summons
should be served on a domestic corporation. we rule that the service of summons upon the branch manager of petitioner at its branch office at
Cagayan de Oro, instead of upon the general manager at its principal office at Davao City is improper.
Doctrine: A strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation. The officer upon whom
service is made must be one who is named in the statute; otherwise the service is insufficient. . . . . The purpose is to render it reasonably certain
that the corporation will receive prompt and proper notice in an action against it or to insure that the summons be served on a representative so
integrated with the corporation that such person will know what to do with the legal papers served on him.
128. Luneta Motors Co. vs. A.D. Santos Inc. (5 SCRA 809)
Digested by: ELAURIA, Clarisse V.
LUNETA MOTOR COMPANY A.D. SANTOS, INC., ET AL.
FACTS:
Nicolas Concepcion executed a chattel mortgage covering a certificate of public convenience granted to him to operate taxicab service of 27 units
in Manila, in favor of petitioner, to secure a loan evidenced by a promissory note guaranteed by Concepcion and one Placido Esteban.
Concepcion mortgaged the same certificate to cover a second loan with Rehabilitation Finance.
Petitioner filed an action to foreclose the mortgage. While it was pending, RF also foreclosed the second chattel mortgage where the certificate
was sold at a public auction in favor of AD Santos who applied for the approval of the sale which was granted by the Public Service
Commission.
Later on, the CFI rendered a judgment in favor of the petitioner, where the certificate was sold at a public auction in favor of the petitioner who
immediately filed for approval with the Commission. AD Santos Inc., recipient of the certificate from AD Santos, opposed the application for
approval.
ISSUE/S:
WON Petitioner may acquire the certificate of public convenience.
RULING/DOCTRINE:
No. Petitioner claims in this regard that its corporate purposes are to carry on a general mercantile and commercial business, etc., and that it is
authorized in its articles of incorporation to operate and otherwise deal in and concerning automobiles and automobile accessories' business in
all its multifarious ramification (petitioner's brief p. 7) and to operate, etc., and otherwise dispose of vessels and boats, etc., and to own and
operate steamship and sailing ships and other floating craft and deal in the same and engage in the Philippine Islands and elsewhere in the
transportation of persons, merchandise and chattels by water; all this incidental to the transportation of automobiles (id. pp. 7-8 and Exhibit B).
We find nothing in the legal provision and the provisions of petitioner's articles of incorporation relied upon that could justify petitioner's
contention in this case. To the contrary, they are precisely the best evidence that it has no authority at all to engage in the business of land
transportation and operate a taxicab service. That it may operate and otherwise deal in automobiles and automobile accessories; that it may
engage in the transportation of persons by water does not mean that it may engage in the business of land transportation — an entirely different
line of business. If it could not thus engage in the line of business, it follows that it may not acquire an certificate of public convenience to
operate a taxicab service, such as the one in question, because such acquisition would be without purpose and would have no necessary
connection with petitioner's legitimate business.
129. Gov't. vs. El Hogar Filipino (supra)
PLANTIFF: THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on DEFENDANT: EL HOGAR FILIPINO
relation of the Attorney-General)
FACTS:
● Original Action in the Supreme Court
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● Quo warranto proceeding by Govt. of the Philippine Islands against El Hogar Filipino – purpose is to deprive it of its corporate
franchise, exclude it from all corporate rights, and privileges, and effect a final dissolution of the corporation
● El Hogar organized under Sec. 171-190 Act No. 1459, devoted to the subject of building and loan associations, their organization and
administration.
● The capital of the corporation was not permitted to exceed P3M, but Act No. 2092 amended the statute, permitting capitalization to the
amount of ten millions.
● El Hogar amended its AOI stating that the amount of capital must not exceed what has been stated in Act No. 2092
● This resulted to El Hogar El Hogar having 5,826 shareholders, 125,750 shares with paid-up value of P8.7M, the corporation paid P7.16M
to its withdrawing stockholders
● The Government of the Philippine Islands filed an action against El Hogar due to the alleged illegal holding title to real property for a
period exceeding five (5) years after the same was bought in a foreclosure sale. Sec. 13(5) of the Corporation Law states that
corporations must dispose of real estate obtained within 5 years from receiving the title
● The Philippine Government now wants that El Hogar be excluded from all corporate rights and privileges and effect a final dissolution
of said corporation
BACKGROUND OF RECORDED MORTGAGE:
● El Hogar was the holder of a recorded mortgage on a San Clemente land as security for a P24K loan to El Hogar., but shareholders and
borrowers defaulted in payment so El Hogar foreclosed the mortgage and purchased the land during the auction sale.
● A deed of conveyance in favor of El Hogar was executed and sent to the Register of Deeds of Tarlac with a request that the certificate
of title be cancelled and a new one be issued in favor of El Hogar from the Register of Deeds of Tarlac.
● No reply was received so El Hogar filed a complaint with the Chief of the General Land Registration Office. The certificate of title to
the San Clemente land was received by El Hogar and a board resolution authorizing Benzon to find a buyer was issued
● Alcantara, the buyer of the land, was given extension of time to make payment but defaulted so the contract treated rescinded. Efforts
were made to find another buyer. El Hogar acquired title in December 1920 until the property was finally sold to Felipa Alberto in July
1926
● The interval exceeded 5 years but the period did not commence to run until May 7, 1921 when the register of deeds delivered the new
certificate of title.
ISSUE/S:
Do the acts of respondent corporation merit its dissolution or deprivation of its corporate franchise, and the exclusion from all its corporate
rights and privileges
RULING/DOCTRINE:
● NO. Court will not dissolve but will confine El Hogar to its legitimate purposes.
● “…confine El Hogar Filipino to its legitimate purposes and to force it to eliminate its illegitimate purposes and The government has
made out its case, but the defendant should be permitted a reasonable time to fulfill the conditions laid down in this decision.”
RATIO: LISTED BELOW ARE THE 17 CAUSES OF ACTIONS AND THE COURTS DECISION AND RATIO.
1) Alleged illegal holding of real property for a period exceeding five years from receipt of title-Cause of delay is not the respondent’s fault
2) That respondent is owning and holding a business lot with the structure in excess of its reasonable requirements and in contravention of Sec.
13(5) of Corpo. Law – COURT FINDS NO MERIT
Every corporation has the power to purchase, hold and lease such real property which they may reasonably and necessarily require.
3) That respondent is engaged in activities different to the purposes for which the corporation was created and not reasonably necessary to its
legitimate purpose – COURT FINDS MERIT
The administration of property, payment of real estate taxes, causing necessary repairs, managing real properties of non-borrowing shareholders
is more befitting to the business of a real estate agent or a trust company than a building and loan association.
4) That the by-laws of the association stating that, “the board of directors by the vote of an absolute majority of its members is empowered to
cancel shares and to return the balance to the owner by reason of their conduct or any other motive or liquidation” is in direct conflict with Sec.
187 of the Corporation Law which provides that the board of directors shall not have the power to force the surrender and withdrawal of
unmatured stock except in case of liquidation or forfeiture of stock for delinquency – COURT FINDS NO MERIT
There is no provision of law making it a misdemeanor to incorporate an invalid provision in the by-laws of a corporation; and if there were such,
the hazards incident to corporate effort would be largely increased.
5) Art. 61 of El Hogar’s by-laws states that “attendance in person or by proxy by shareholders owning one-half plus one of the shareholders shall
be necessary to constitute a quorum for the election of directors” is contrary to Sec. 31 of the Corpo Law which provides that owners of the
majority of the subscribed capital stock entitled to vote must be present either in person or by proxy at all elections of directors – COURT FINDS
NO MERIT
Corporation is not at fault for failure of the shareholders to attend the annual meetings and their non-attendance in meeting is not to be
interpreted as their assent to the way the corporation is being handled. Mere failure of a corporation to elect officers does not terminate the terms
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of existing officers nor dissolve the corporation.
The general rule is to allow the officer to holdover until his successor is duly qualified.
6) That the directors of El Hogar, instead of receiving nominal pay or serving without pay, have been receiving large compensation, varying in
amount from time to time, out of respondents’ profits – COURT FINDS NO MERIT
With the growth of the corporation, the amount paid as compensation to the directors has increased beyond what would probably – this cant be
corrected in this court. Nor can it properly be made a basis for depriving respondent of its franchise or enjoining it from compliance with the
provisions of its own by-laws. If a mistake has been made, the remedy is to lie rather in publicity and competition.
7) That the promoter and organizer of El Hogar was Mr. Antonio Melian and that in the early stages of the organization of the association, the
board of directors authorized the association to make a contract with him and that the royalty given to him as founder is “unconscionable,
excessive and out of proportion to the services rendered” – COURT FINDS NO MERIT
The mere fact that compensation is in excess of what may be considered appropriate is not a proper consideration for the court to resolve. That El
Hogar is in contact with its promoter did not affect the association’s legal character. The court is of the opinion that the traditional respect for the
sanctity of the contract obligation should prevail over the radical and innovating tendencies.
8) That Art. 70 of El Hogar’s by-laws, requiring persons elected as board of directors to be holders of shares of the paid up value of P5,000 which
shall be held as security, is objectionable since a poor member or wage earner cannot serve as a director irrespective of other qualifications –
COURT FINDS NO MERIT
Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualification of its directors and the requirement
of security from them for the proper discharge of the duties of their office in the manner prescribed in Art. 70 is highly prudent and in
conformity with good practice.
9) That respondent abused its franchise in issuing “special” shares alleged to be illegal and inconsistent with the plan and purposes of building
and loan associations – COURT FINDS NO MERIT
The said special shares are generally known as advance payment shares which were evidently created for the purpose of meeting the condition
caused by the prepayment of dues that is permitted. Sec. 178 of Corpo Law allows payment of dues or interest to be paid in advance but the
corporation shall not allow interest on advance payment grater than 6% per annum nor for a period longer than one year.
The amount is satisfied by applying a portion of the shareholder’s participation in the annual earnings. The mission of special shares does not
involve any violation of the principle that the shares must be sold at par.
10) That in making purchases at foreclosure sales constituting as security for 54 of the loans, El Hogar bids the full amount after deducting the
withdrawal value, alleged to be pursuing a policy of depreciating at the rate of 10 percent per annum, the value of the real properties it acquired
and that this rate is excessive – COURT FINDS NO MERIT
The board of directors possesses discretion in this matter. There is no provision of law prohibiting the association from writing off a reasonable
amount for depreciation on its assets for the purpose of determining its real profits. Art. 74 of its by-laws expressly authorizes the board of
directors to determine each year the amount to be written down upon the expenses for the installation and the property of the corporation. The
court cannot control the discretion of the board of directors about an administrative matter as to which they have no legitimate power of action.
11) That respondent maintains excessive reserve funds – COURT FINDS NO MERIT
The function of this fund is to insure stockholders against losses. When the reserves become excessive, the remedy is in the hands of the
Legislature.
No prudent person would be inclined to take a policy in a company which had conducted its affairs poorly that it only retained a fund barely
sufficient to pay its present liabilities and was in a condition where any change by the reduction of interest upon or depreciation in the value of
securities or increase of mortality would render it insolvent and subject to be placed in the hands of a receiver.
12) That the board of directors has settled upon the unlawful policy of paying a straight annual dividend of 10 percent per centum regardless of
losses suffered and profits made by the corporation, in contravention with the requirements of Sec. 188 of the Corporation law – COURT FINDS
NO MERIT
As provided in the previous cause of action, the board of directors shall determine the profits and losses and this means that they shall exercise
the usual discretion of good businessmen in allocating a portion of the annual profits to purposes needful of the welfare of the association. The
law contemplates distribution of earnings and losses after legitimate obligations have been met.
13) That El Hogar has made loans to the knowledge of its officers which were intended to be used by the borrowers for other purposes than the
building of homes and no attempt has been made to control the borrowers with respect to the use made of the borrowed funds – COURT FINDS
NO MERIT
There is no statute expressly declaring that loans may be made by these associations SOLELY for the purpose of building homes. The building of
homes in Sec. 171 of Corporation Law is only one among several ends which building and loan associations are designed to promote and Sec. 181
authorizes the board of directors of the association to fix the premium to be charged.
14) That the loans made by defendant for purposes other than building or acquiring homes have been extended in extremely large amounts and
to wealthy persons and large companies – COURT FINDS NO MERIT
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The question of whether the making of large loans constitutes a misuser of the franchise which would justify the court in depriving the
association of its corporate life; is a matter confided to the discretion of the board of directors.
The law states no limit as to the size of the loans to be made by the association. Resort should be had to the legislature because it is not a matter
amenable to judicial control
15) That when the franchise expires, supposing the corporation is not reorganized, upon final liquidation of the corporation, a reserve fund may
exist which is out of all proportion to the requirements that may fall upon it in the liquidation of the company – COURT FINDS NO MERIT
This matter may be left to the discretion of the board of directors or to legislative action if it should be deemed expedient to require the gradual
suppression of reserve funds as the time for dissolution approaches. It is no matter for judicial interference and much less could the resumption
of the franchise be justified on this ground.
16) That various outstanding loans have been made by the respondent to corporations and partnerships and such entities subscribed to
respondents’ shares for the sole purpose of obtaining such loans – COURT FINDS NO MERIT
Sec. 173 of Corporation Law declares that “any person” may become a stockholder in building and loan associations.
The phrase ANY PERSON does not prevent a finding that the phrase may not be taken in its proper and broad sense of either a natural or
artificial person.
17) That in disposing real estate purchased by it, some of the properties were sold on credit and the persons and entities to which it was sold are
not members nor shareholders nor were they made members or shareholders, contrary to the provision of Corporation Law requiring loans to be
stockholders only – COURT FINDS NO MERIT
The law does not prescribe that the property must be sold for cash or that the purchaser shall be a shareholder in the corporation. Such sales can
be made upon the terms and conditions approved by the parties
130. Director of Lands vs. CA (158 SCRA 568)
Director of Lands CA & Iglesia ni Cristo
FACTS:
On November 28, 1973, private respondent Iglesia ni Cristo filed an application with the then Court of First Instance of Cavite for registration in
its name of a parcel of land with an area of 379 square meters located at Poblacion, Municipality of Amadeo, Cavite. In said application, private
respondent alleged inter alia that it was the owner in fee simple of the land afore-described, having acquired title thereto by virtue of a Deed of
Absolute Sale executed in 1947 by Aquelina de la Cruz in its favor and that applicant and its predecessors-in-interest had been in actual,
continuous, public, peaceful and adverse possession and occupation of said land in the concept of owner for more than thirty [30] years. Private
respondent prayed that should the Land Registration Act not be applicable, the provisions of Chapter VIII of Commonwealth Act No. 141, as
amended by Republic Act No. 6236 be applied as applicant and its predecessors-in-interest had been in possession of the land for more than
thirty [30] years and had introduced improvements thereon, including the fencing thereof on all sides. 1
The Republic of the Philippines, represented by the Director of Lands, opposed the application on the following grounds: 1] the applicant and its
predecessors-in-interest did not possess sufficient title to acquire ownership in fee simple of the parcel of land applied for; 2] neither the
applicant nor its predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of the land in
question; and, 3] the subject parcel of land is a portion of the public domain belonging to the Republic of the Philippines not subject to private
appropriation. 2
After trial, the Court of First Instance of Cavite rendered judgment granting private respondent's application for registration of title. It found that
private respondent and its predecessors-in-interest had been in continuous, open and adverse possession of the subject property in the concept
of owner for more than forty [40] years and that the land was not within any military and naval reservation, nor covered by any kind of public
land application or patent, as it is within the proposed alienable or disposable block of the proposed LC Project No. 5-A of Amadeo, Cavite. 3
Believing that private respondent did not sufficiently Identify the land in question by reason of its failure to submit the original tracing cloth
plan thereof and that private respondent was disqualified from holding, except by lease, alienable lands of the public domain under Section 11,
Article XIV of the 1973 Constitution, the Director of Lands appealed the decision of the land registration court to the Court of Appeals. The
appellate court, however, affirmed in toto the assailed decision. Hence, this petition for review on certiorari, petitioner Director of Lands
reiterating as basis therefor the two [2] issues previously raised before the appellate court.
ISSUE/S:
Whether the corporation may acquire the land in question.
RULING/DOCTRINE:
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YES. As observed at the outset, had this case been resolved immediately after it was submitted for decision, the result may have been quite
adverse to private respondent. For the rule then prevailing under the case of Manila Electric Company v. Castro-Bartolome et al., 114 SCRA 799,
reiterated in Republic v. Villanueva, 114 SCRA 875 as well as the other subsequent cases involving private respondent adverted to above', is that
a juridical person, private respondent in particular, is disqualified under the 1973 Constitution from applying for registration in its name
alienable public land, as such land ceases to be public land "only upon the issuance of title to any Filipino citizen claiming it under section 48[b]"
of Commonwealth Act No. 141, as amended. These are precisely the cases cited by petitioner in support of its theory of disqualification.
Since then, however, this Court had occasion to re-examine the rulings in these cases vis-a-vis the earlier cases of Carino v. Insular Government,
41 Phil. 935, Susi v. Razon, 48 Phil. 424 and Herico v. Dar, 95 SCRA 437, among others.
Thus, in the recent case of Director of Lands v. Intermediate Appellate Court, 146 SCRA 509, We categorically stated that the majority ruling in
Meralco is "no longer deemed to be binding precedent".
"The correct rule is that alienable public land held by a possessor, personally or through his predecessors-in-interest, openly, continuously and
exclusively for the prescribed statutory period [30 years under the Public Land Act, as amended] is converted to private property by mere lapse or
completion of said period, ipso jure." We further reiterated therein the time-honored principle of non-impairment of vested rights.
The crucial factor to be determined therefore is the length of time private respondent and its predecessors-in-interest had been in possession of
the land in question prior to the institution of the instant registration proceedings. The land under consideration was acquired by private
respondent from Aquelina de la Cruz in 1947, who, in turn, acquired by same by purchase from the Ramos brothers and sisters, namely: Eusebia,
Eulalia, Mercedes, Santos and Agapito, in 1936. Under section 48[b] of Commonwealth Act No. 141, as amended, "those who by themselves or
through their predecessors- in-interest have been in open, continuous, exclusive and notorious possession and occupation of agricultural lands of
the public domain, under a bona fide claim of acquisition or ownership, for at least thirty years immediately preceding the filing of the
application for confirmation of title except when prevented by war or force majeure" may apply to the Court of First Instance of the province
where the land is located for confirmation of their claims, and the issuance of a certificate of title therefor, under the Land Registration Act.
Said paragraph [b] further provides that "these shall be conclusively presumed to have performed all the conditions essential to a Government
grant and shall be entitled to a certificate of title under the provisions of this chapter." Taking the year 1936 as the reckoning point, there being
no showing as to when the Ramoses first took possession and occupation of the land in question, the 30-year period of open, continuous,
exclusive and notorious possession and occupation required by law was completed in 1966.
The completion by private respondent of this statutory 30-year period has dual significance in the light of Section 48[b] of Commonwealth Act
No. 141, as amended and prevailing jurisprudence: [1] at this point, the land in question ceased by operation of law to be part of the public
domain; and [2] private respondent could have its title thereto confirmed through the appropriate proceedings as under the Constitution then in
force, private corporations or associations were not prohibited from acquiring public lands, but merely prohibited from acquiring, holding or
leasing such type of land in excess of 1,024 hectares.
If in 1966, the land in question was converted ipso jure into private land, it remained so in 1974 when the registration proceedings were
commenced. This being the case, the prohibition under the 1973 Constitution would have no application. Otherwise construed, if in 1966, private
respondent could have its title to the land confirmed, then it had acquired a vested right thereto, which the 1973 Constitution can neither impair
nor defeat.
131. Republic vs. Acoje Mining Co. (7 SCRA 361)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
132. Teresa Electric vs. PSC (21 SCRA 199)
Digested by:
FACTS:
ISSUE/S:
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RULING/DOCTRINE:
133. National Power Corporation vs. Vera (170 SCRA 721)
PETITIONER/s: National Power Corporation RESPONDENT/s: Abraham Vera
FACTS: Petitioner, National Power Corporation (NPC), seeks to annul the order of respondent judge dated June 8, 1988 issuing a writ of
preliminary injunction which enjoined NPC from further undertaking stevedoring and arrastre services in its pier located at the Batangas Coal-
Fired Thermal Power Plant at Calaca, Batangas and directing it either to enter into a contract for stevedoring and arrastre services or to conduct a
public bidding therefor. Private respondents were also allowed to continue stevedoring and arrastre services at the pier.
The instant petition arose from a complaint for prohibition and mandamus with damages filed by private respondent against NPC and
Philippine Ports Authority (PPA), wherein private respondent alleged that NPC had acted in bad faith and with grave abuse of discretion in not
renewing its Contract for Stevedoring Services for Coal-Handling Operations at NPC's plant, and in taking over its stevedoring services.
Soon after the filing of the private respondent's complaint, the respondent judge issued a restraining order against NPC enjoining the latter from
undertaking stevedoring services at its pier. Consequently, NPC filed an "Urgent Motion" to dissolve the restraining order, asserting, inter alia:
(1) that by virtue of Presidential Decree No. 1818, respondent judge had no jurisdiction to issue the order; and (2) that private respondent, whose
contract with NPC had expired prior to the commencement of the suit, failed to establish a cause of action for a writ of preliminary injunction.
Respondent judge issued the assailed Order denying NPC's motion and issuing a writ of preliminary injunction, after finding that NPC was not
empowered by its Charter, Republic Act No. 6395, as amended, to engage in stevedoring and arrastre services. Hence, the instant petition.
On June 15, 1988, the Court issued a temporary restraining order. After the private respondent filed its comment to the petition, and petitioner
filed its reply, the Court considered the issues and the case was submitted for decision.
ISSUE/S: Whether or not NPC may embark in stevedoring and arrastre services.
RULING/DOCTRINE: YES. The NPC was created and empowered not only to construct, operate and maintain power plants, reservoirs,
transmission lines and other works, but also: …to exercise such powers and do such things as may be reasonably necessary to carry out the
business and purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary, useful, incidental
or auxiliary to accomplish said purpose… (Sec. 3[1] of RA 6395, as amended)
To determine whether or not the NPC act falls within the purview of the above provision, the Court must decide whether or not a logical and
necessary relation exists between the act questioned and the corporate purpose expressed in the NPC charter. For if the act is one which is lawful
in itself and not otherwise prohibited, and is done for the purpose of serving corporate ends, and reasonably contributes to the promotion of
those ends in a substantial and not in a remote and fanciful sense, it may be fairly considered within the corporation’s charter powers
(Montelibano vs. Bacolod-Murcia Milling Co., Inc.)
In the instant case, it is an undisputed fact that the pier owned by NPC, receives various shipments of coal which is used exclusively to fuel the
Batangas Coal-Fired Thermal Power Plant of the NPC for the generation of electric power. The stevedoring services which involve the unloading
of the coal shipments into the NPC pier for its eventual conveyance to the power plant are incidental and indispensable to the operation of the
plant.
The Court holds that NPC is empowered under its Charter to undertake such services, it being reasonably necessary to the operation and
maintenance of the power plant.
134. Powers vs. Marshall (161 SCRA 176) G.R. No. L-48064 May 9, 1988
.
Digested by: Jonella Marie B. Santosidad
ANTHONY POWERS, BERTEL FASSNACHT, RICHARD I DONALD I. MARSHALL, CHARLES ANGEVINE, CARLOS D.
GUARDIAN, JOANN KELLY, LANDLESS, AMADO MACASAET, ARGUELLES, BRYCE F. BASTIAN, GABRIEL DIMACHE, JOSE
JAVIER MACICIORATUSHI NAKAI KAY NG, JAMES ROBERSON, FLORENTO, JAMES T. HODGE, ROSEMARY IYAS, EUSEBIO R.
FREDERICK SEGGERMAN, ARTHUR YANG, EZRA TOEG, ISIDRO LUZURIAGA, THOMAS C. NIBLOCK Board of Trustees of the
CO, In behalf of themselves and 316 other Associate Members all other International School, Inc., and MAX SNYDER Superintendent,
Associate Members similarly situated, and in behalf of and for the International School, Inc.
benefit of the INTERNATIONAL SCHOOL, INC.
FACTS:
Fourteen (14) plaintiffs, all associate members of the International School, Inc. brought an action for injunction against 10 members of the Board
of Trustees, after a letter of Donal Marshall, president of the board, was sent stating that the school would be collecting a “development fee” of
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P2,625 per enrollee for the purpose of constructing new buildings and remodel existing ones to accommodate the increasing enrollment in the
school which would need P35M. The CFI of Manila dismissed the complaint.
ISSUE/S:
WON the imposition of the development fee is within the powers of the school.
RULING/DOCTRINE:
YES. Section 2(b) of PD No. 732 granting certain rights to the sch0ol, expressly authorized the Board of Trustees “upon consultation with the
Secretary of Education and Culture” to determine the amount of fees and assessments which may be reasonably imposed upon its students, to
maintain or conform to the school’s standard of education. Such consultation complied with and the Secretary expressed his conformity with the
reasonableness of the assessment. The lower court observed that: x x x the expansion of the school facilities, which is to be done by improving
old buildings and/or constructing new ones, is an ordinary business transaction well within the competence of the Board of Trustees to act upon.
Xxx Being directly related to the purpose of elevating and maintaining the school’s standard of instruction, which is ordained in fact by PD 732,
the expansion cannot result in any radical or fundamental change in the kind of activity being conducted by the school that might require the
consent of the members composing it.
135. Philtrust vs. Rivera (44 Phil 469, G.R. No. L-19761, January 29, 1923)
Philippine Trust Company Marciano Rivera
FACTS:
In 1918 the Cooperativa Naval Filipina was duly incorporated under the laws of the Philippine Islands. Among the incorporators of this
company was the defendant Mariano Rivera, who subscribed for 450 shares representing a value of P45,000, the remainder of the stock being
taken by other persons. In the course of time the company became insolvent and went into the hands of the Philippine Trust Company, as
assignee in bankruptcy; and by it this action was instituted by Philippine Trust Company to recover one-half of the stock subscription of
Marciano Rivera, which admittedly has never been paid.
Respondent’s Defense:
The reason given for the failure of the defendant to pay the entire subscription is, that not long after the Cooperativa Naval Filipina had been
incorporated, a meeting of its stockholders occurred, at which a resolution was adopted to the effect that the capital should be reduced by 50 per
centum and the subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50 per centum of the same.
As a result of this resolution, it seems to have been supposed that the subscription of the various shareholders had been cancelled to the extent
stated; and fully paid certificate were issued to each shareholders for one-half of his subscription. It does not appear that the formalities relative
to the reduction of capital stock in corporations were observed, and in particular it does not appear that any certificate was at any time filed in
the Bureau of Commerce and Industry, showing such reduction.
ISSUE/S: WON it is possible to reduce capital by 50 per centum, and to release subscribers from the obligation to pay any unpaid balance of their
subscription in excess of 50 per centum.
RULING/DOCTRINE:
It is established doctrine that subscription to the capital of a corporation constitute a find to which creditors have a right to look for satisfaction
of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the
payment of its debts. A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares,
without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the manner an
under the conditions prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory
regulations is necessary.
In the case before us the resolution releasing the shareholders from their obligation to pay 50 per centum of their respective subscriptions was an
attempted withdrawal of so much capital from the fund upon which the company's creditors were entitled ultimately to rely and, having been
effected without compliance with the statutory requirements, was wholly ineffectual.
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136. Madrigal & Co. vs. Zamora (151 SCRA 3550)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
137. Benito vs. SEC (123 SCRA 722)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
138. Islamic Directorate of the Phils. vs. CA (272 SCRA 454)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
139. Edward Nell & Co. vs. Pacific Farms (15 SCRA 415)
[now known as the NELL DOCTRINE as held in Y1 Leisure vs CA]
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
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140. Steinberg vs. Velasco
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
141. De la Rama vs. Ma-ao Sugar Central (7 SCRA 247)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
142. John Gokongwei vs. SEC (89 SCRA 336)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
143. Nielson & Co. vs. Lepanto Consolidated Mining (26 SCRA 540)
Digested by:
FACTS:
ISSUE/S:
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RULING/DOCTRINE:
144. Privano vs. Dela Rama Steamship Co. (96 Phil 335)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
145. Carlos vs. Mindoro Sugar Co. (57 Phil 343)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
146. Japanese Warnotes Claimants Assn. vs. SEC (110 Phil 540)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
147. Crisologo - Jose vs. CA (117 SCRA 594)
ERNESTINA CRISOLOGO-JOSE, COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own
behalf and as Vice-President for Sales of Mover Enterprises, Inc
FACTS:
The Vice-president of Mover Enterprises, Inc. issued a check drawn against Traders Royal Bank, payable to petitioner Ernestina CrisologoJose,
for the accommodation of his client. Petitioner-payee was charged with the knowledge that the check was issued at the instance and for the
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personal account of the President who merely prevailed upon respondent vice-president to act as co-signatory in accordance with the
arrangement of the corporation with its depository bank. While it was the corporation's check which was issued to petitioner for the amount
involved, petitioner actually had no transaction directly with said corporation.
ISSUE/S:
WON private respondent, one of the signatories of the check issued under the account of Mover Enterprises, Inc., is an accommodation party
under NIL and a debtor of petitioner to the extent of the amount of said check.
RULING/DOCTRINE:
YES. The liability of an accommodation party to a holder for value, although such holder does not include nor apply to corporations which are
accommodation parties. This is because the issue or indorsement of negotiable paper by a corporation without consideration and for the
accommodation of another is ultra vires. One who has taken the instrument with knowledge of the accommodation nature thereof cannot recover
against a corporation where it is only an accommodation party. By way of exception, an officer or agent of a corporation shall have the power to
execute or indorse a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do
so.
Corollarily, corporate officers, such as the president and vice-president, have no power to execute for mere accommodation a negotiable
instrument of the corporation for their individual debts or transactions arising from or in relation to matters in which the corporation has no
legitimate concern. Since such accommodation paper cannot thus be enforced against the corporation, especially since it is not involved in any
aspect of the corporate business or operations, the signatories thereof (president and vice-president) shall be personally liable therefor, as well as
the consequences arising from their acts in connection therewith.
148. Fleisher vs Botica Nolasco (47 Phil 583)
Digested by: Carlos, Kaira
PLANTIFF-APPELEE, HENRY FLEISCHER DEFENDANT-APPELLANT, BOTICA NOLASCO CO., INC.,
FACTS:
This action was commenced in the CFI against the board of directors of the Botica Nolasco, Inc., a corporation duly organized and existing under
the laws of the Philippine Islands. The plaintiff prayed that said board of directors be ordered to register in the books of the corporation five
shares of its stock in the name of Henry Fleischer, the plaintiff, and to pay him the sum of P500 for damages sustained by him resulting from the
refusal of said body to register the shares of stock in question. (Basta na amend ung complaint) defendant answered the amended complaint
denying generally and specifically each and every one of the material allegations thereof, and, as a special defense, alleged that the defendant,
pursuant to article 12 of its by-laws, had preferential right to buy from the plaintiff said shares at the par value of P100 a share, plus P90 as
dividends corresponding to the year 1922, and that said offer was refused by the plaintiff.
Trial Court held that, in his opinion, article 12 of the by-laws of the corporation which gives it preferential right to buy its shares from retiring
stockholders, is in conflict with Act No. 1459 (Corporation Law), especially with section 35 thereof; and rendered a judgment in favor of plaintiff.
Hence, this appeal.
ISSUE/S:
Whether or not article 12 of the by-laws of the corporation is in conflict with the provisions of the Corporation Law (Act No. 1459).
RULING/DOCTRINE:
The particular provisions of the Corporation Law referring to transfer of shares of stock are as follows:
SEC. 13. Every corporation has the power:
(7) To make by-laws, not inconsistent with any existing law, for the fixing or changing of the number of its officers and directors within the limits
prescribed by law, and for the transferring of its stock, the administration of its corporate affairs, etc.
SEC. 35. The capital stock of stock corporations shall de divided into shares for which certificates signed by the president or the vice-president,
countersigned by the secretary or clerk and sealed with the seal of the corporation, shall be issued in accordance with the by-laws. Shares of
stock so issued are personal property and may be transferred by delivery of the certificate indorsed by the owner or his attorney in fact or other
person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is entered and
noted upon the books of the corporation so as to show the names of the parties to the transaction, that date of the transfer, the number of the
certificate, and the number of shares transferred.
106 | P a g e
No share of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation.
The holder of shares, as owner of personal property, is at liberty, under said section (Sec. 35), to dispose of them in favor of whomsoever he
pleases, without any other limitation in this respect, than the general provisions of law. Therefore, a stock corporation in adopting a by-law
governing transfer of shares of stock should take into consideration the specific provisions of section 35 of Act No. 1459, and said by-law should
be made to harmonize with said provisions. It should not be inconsistent therewith.
The by-law now in question was adopted under the power conferred upon the corporation by section 13, paragraph 7, above quoted; but in adopting
said by-law the corporation has transcended the limits fixed by law in the same section, and has not taken into consideration the provisions of section
35 of Act No. 1459.
As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation,
and are not contradictory to the general policy of the laws of the land.
On the other hand, it is equally well settled that by-laws of a corporation must be reasonable and for a corporate purpose, and always within the
charter limits. They must always be strictly subordinate to the constitution and the general laws of the land. They must not infringe the policy of
the state, nor be hostile to public welfare. They must not disturb vested rights or impair the obligation of a contract, take away or abridge the
substantial rights of stockholder or member, affect rights of property or create obligations unknown to the law.
The validity of the by-law of a corporation is purely a question of law. (South Florida Railroad Co. vs. Rhodes, 25 Fla., 40.)
The power to enact by-laws restraining the sale and transfer of stock must be found in the governing statute or the charter. Restrictions upon the
traffic in stock must have their source in legislative enactment, as the corporation itself cannot create such impediments. By-law are intended
merely for the protection of the corporation, and prescribe regulation and not restriction; they are always subject to the charter of the corporation.
The corporation, in the absence of such a power, cannot ordinarily inquire into or pass upon the legality of the transaction by which its stock
passes from one person to another, nor can it question the consideration upon which a sale is based. A by-law cannot take away or abridge the
substantial rights of stockholder. Under a statute authorizing by- laws for the transfer of stock, a corporation can do no more than prescribe a
general mode of transfer on the corporate books and cannot justify an unreasonable restriction upon the right of sale.
that a corporation has no power to prevent or to restrain transfers of its shares, unless such power is expressly conferred in its charter or governing
statute. This conclusion follows from the further consideration that by-laws or other regulations restraining such transfers, unless derived from
authority expressly granted by the legislature, would be regarded as impositions in restraint of trade.
The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459, quoted above, as follows: “No
transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation xxx This
restriction is necessary in order that the officers of the corporation may know who are the stockholders, which is essential in conducting
elections of officers, in calling meeting of stockholders, and for other purposes. But any restriction of the nature of that imposed in the by-law now
in question, is ultra vires, violative of the property rights of shareholders, and in restraint of trade.
And moreover, the by-laws now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were
assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract created by said by-law
between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser.
A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors, while it may be
enforced as a reasonable regulation for the protection of the corporation against worthless stockholders, cannot be made available to defeat the
rights of third persons. (Farmers’ and Merchants’ Bank of Lineville vs. Wasson, 48 Iowa, 336.)
Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to compel the officers of the
corporation to transfer said stock upon the books of the corporation.
Petition denied. Decision of trial court affirmed.
149. Loyola Grand Villas Assn. vs. CA (276 SCRA 681)
Digested by:
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FACTS:
ISSUE/S:
RULING/DOCTRINE:
150. Govt vs. El Hogar Filipino (supra)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
151. Gokongwei vs. SEC (89 SCRA 336)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
XI. MEETINGS
152. Board of Directors vs. Tan (105 Phil 426)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
153. Ponce vs. Encarnacion (91 Phil 81)

108 | P a g e
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
154. Expertravel & Tours, Inc. vs CA (GR No. 152393; 26 May 2005)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
155. NIDC vs. Aquino (160 SCRA 153)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
156. Lanuza, et. al., vs. CA (GR No. 131394; 28 March 2005)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
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IX. STOCK and STOCKHOLDERS
157. Halley vs Printwell, Inc. (GR No. 157549, 30 May 2011)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
158. Trillana vs Quezon College (93 Phil 383)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
159. National Exchange vs. Dexter (51 Phil 601)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
160. Uson vs. Diosomito (51 Phil 535)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
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161. Monserrat vs. Ceron (58 Phil 472)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
162. Chua Guan vs. Samahang Magsasaka (62 Phil 472)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
163. Padgett vs. Babcock & Templeton (59 Phil 232)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
164. Lambert vs. Fox (26 Phil 588)
Digested by:
FACTS:
ISSUE/S:
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RULING/DOCTRINE:
165. Embassy Farms vs. CA (188 SCRA 492)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
166. Razon vs IAC (207 SCRA 510)
ENRIQUE RAZON INTERMEDIATE APPELLATE COURT and VICENTE B.
CHUIDIAN, in his capacity as Administrator of the Estate of the
Deceased JUAN T. CHUIDIAN
FACTS:
E. Razon, Inc. was organized by petitioner Enrique Razon in 1962. However, it began operations only in 1966 since the other incorporators
withdrew from the said corporation. The petitioner then distributed the stocks previously placed in the names of the withdrawing nominal
incorporators to some friends, among them the late Juan T. Chuidian to whom he gave 1,500 shares.
The shares of stocks were registered in the name of Chuidian only as nominal stockholder and with the agreement that the said shares of stock
were owned and held by the petitioner but Chuidian was given the option to buy the same.
Chuidian delivered to petitioner the stock certificate in 1966, and since then petitioner had in his possession such certificate, until the time, he
delivered it for deposit with PBCom under the parties’ joint custody pursuant to their agreement embodied in the trial court’s order.
ISSUE/S:
WON petitioner Razon is the rightful owner of the shares
RULING/DOCTRINE:
NO. In the case of Embassy Farms, Inc. v. Court of Appeals (188 SCRA 492 [1990]) we ruled ... For an effective, transfer of shares of stock the
mode and manner of transfer as prescribed by law must be followed (Navea v. Peers Marketing Corp., 74 SCRA 65). As provided under Section 3
of Batas Pambansa Bilang, 68 otherwise known as the Corporation Code of the Philippines, shares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly indorsed certificate of stock (18
C.J.S. 928, cited in Rivera v. Florendo, 144 SCRA 643). However, no transfer shall be valid, except as between the parties until the transfer is
properly recorded in the books of the corporation (Sec. 63, Corporation Code of the Philippines; Section 35 of the Corporation Law)
In the instant case, there is no dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are in the name of the late Juan Chuidian in the
books of the corporation. Moreover, the records show that during his lifetime Chuidian was elected member of the Board of Directors of the
corporation which clearly shows that he was a stockholder of the corporation. (See Section 30, Corporation Code) From the point of view of the
corporation, therefore, Chuidian was the owner of the 1,500 shares of stock. In such a case, the petitioner who claims ownership over he
questioned shares of stock must show that the same were transferred to him by proving that all the requirements for the effective transfer of
shares of stock in accordance with the corporation's by laws, if any, were followed (See Nava v. Peers Marketing Corporation, 74 SCRA 65 [1976])
or in accordance with the provisions of law. The petitioner failed in both instances. The petitioner did not present any by- laws which could
show that the 1,500 shares of stock were effectively transferred to him. In the absence of the corporation's bylaws or rules governing effective
transfer of shares of stock, the provisions of the Corporation Law are made applicable to the instant case.
The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be properly indorsed and that title to such certificate
of stock is vested in the transferee by the delivery of the duly indorsed certificate of stock. (Section 35, Corporation Code) Since the certificate of
stock covering the questioned 1,500 shares of stock registered in the name of the late Juan Chuidian was never indorsed to the petitioner, the
inevitable conclusion is that the questioned shares of stock belong to Chuidian. The petitioner's asseveration that he did not require an
indorsement of the certificate of stock in view of his intimate friendship with the late Juan Chuidian cannot overcome the failure to follow the
112 | P a g e
procedure required by law or the proper conduct of business even among friends. To reiterate, indorsement of the certificate of stock is a
mandatory requirement of law for an effective transfer of a certificate of stock. Moreover, the preponderance of evidence supports the appellate
court's factual findings that the shares of stock were given to Juan T. Chuidian for value. Juan T. Chuidian was the legal counsel who handled
the legal affairs of the corporation. We give credence to the testimony of the private respondent that the shares of stock were given to Juan T.
Chuidian in payment of his legal services to the corporation. Petitioner Razon failed to overcome this testimony.
167. Rural Bank of Salinas vs. CA (210 SCRA 510)
RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA COURT OF APPEALS*, SECURITIES AND EXCHANGE
TRIAS and FRANCISCO TRIAS COMMISSION, MELANIA A. GUERRERO, LUZ ANDICO,
WILHEMINA G. ROSALES, FRANCISCO M. GUERRERO, JR., and
FRANCISCO GUERRERO , SR.,
FACTS:
Clemente, the President of the Rural Bank of Salinas, Inc., executed a Special Power of Attorney in favor of his wife, Melania, giving and
granting the latter full power of authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank registered in his name.
Before the death of Clemente, Melania, pursuant to the said SPA, executed Deed of Assignments for the shares of stock in favor of private
respondents. After the death of Clemente, Melania proceeded in presenting the said Deed with request for the transfer in the Bank’s stock and
transfer book of the 473 shares of stock so assigned, the cancelation of stock certificates in the name of Clemente and the issuance of new stock
certificates in the name of the new owners thereof. The Bank however denied the request. Melania then filed with SEC an action for Mandamus
against Rural Bank of Salinas, its President and Secretary. The latter bank contended in its answer that the shares of Clemente became the
property of his estate and thus must be first settled and liquidated before distribution. SEC nevertheless, issued mandamus against the bank.
ISSUE/S:
Whether petitioner may restrict the registration of shares of stock or its transfer.
RULING/DOCTRINE:
No. The corporation's obligation to register is ministerial and can be compelled by mandamus.
The Corporation Code provides under Sec. 63 that:
...Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until
the transfer is recorded in the books of the corporation...
Clemente assigned his rights over his shares to Melania and the right of a transferee or assignee to have stocks transferred to her name is an
inherent right flowing from her ownership of the stocks.
The corporation cannot impose restrictions or impediments to the transfer since their duty when it comes to transfer or registration of stocks is
purely ministerial. The only limitation found under Sec. 63 is when the corporation holds any unpaid claim against the shares intended to be
transferred. Such a limitation is absent in this case. Thus, petitioner may be compelled to register the stocks by mandamus.
168. Tay vs. CA (GR No. 126891, August 5, 1998)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
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169. Rural Bank of Lipa vs. CA (366 SCRA 740)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
170. Tan vs. SEC (206 SCRA 740)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
171. Nava vs. PEERS Marketing (74 SCRA 65)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
172. Won vs. Wack Wack Golf (104 Phil 466)
Digested by:
FACTS:
ISSUE/S:
114 | P a g e
RULING/DOCTRINE:
173. De los Santos vs. Mc Grath (95 Phil 577)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
174. Vicente Ponce vs. Alsons Cement Corporation (GR No. 139802; 10 December 2002)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
175. Fua Cun vs. Summers
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
176. Velasco vs. Poizat (37 Phil 802)
Digested by:
FACTS:
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ISSUE/S:
RULING/DOCTRINE:
177. De Silva vs. Aboitiz & Co. (44 Phil 755)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
178. Lingayen Gulf vs. Baltazar (93 Phil 746)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
179. Apocada vs. NLRC (175 SCRA 442)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
180. Lumanlan vs. Cura (59 Phil 746)
Digested by:
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FACTS:
ISSUE/S:
RULING/DOCTRINE:
181. PNB vs. Bitulok Sawmill (33 SCRA 136) G.R. Nos. L-24177-85, June 29, 1968
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
182. Edward Keller vs. COB Group (141 SCRA 86)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
183. W.G. Philpotts vs. Phil. Mfg. Corp. (49 Phil 471)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
184. Pardo vs Hercules Lumber (47 Phil 964)
Digested by:
117 | P a g e
FACTS:
ISSUE/S:
RULING/DOCTRINE:
185. Vegaruth vs. Isabela Sugar (57 Phil 266)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
186. Gokongwei vs. SEC (supra)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
187. Gonzales vs. PNB (122 Phil 489)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
188. PASAR vs. Lim (GR No. 172948, 5 October 2016)
118 | P a g e
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
189. Associated Bank vs. CA (GR 123793, June 29, 1998)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
190. Ong vs BPI Family Savings Bank (852 SCRA 614)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
191. BPI vs. BPI Employees Union (658 SCRA 569)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
192. Garcia vs. Suarez (67 Phil 441)

119 | P a g e
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
193. BCDA vs CIR (GR No. 205925, 20 June 2018)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
194. Chinese YMCA vs. Ching (71 SCRA 463)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
195. Cebu Country Club vs. Elizagaque (542 SCRA 65)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
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196. Lions Club Int'l vs. CA (121 SCRA 621)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
197. Dulay Enterprises vs. CA (225 SCRA 678)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
198. Naguiat Enterprises vs. NLRC (268 SCRA 546)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
199. Roman Catholic Apostolic Church vs. LRC (102 Phil 596)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
121 | P a g e
200. Director vs. CA (158 SCRA 568)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
201. Republic vs. IAC (168 SCRA 165)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
202. PNB vs. CFI (209 SCRA 294)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
203. Gov't vs. Phil. Sugar Estate (39 Phil 15)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
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204. Gov't vs. El Hogar Filipino (supra)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
205. Republic vs. Security Credit (19 SCRA 59)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
206. Republic vs. Visaya Land (81 SCRA 9)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
207. Financing Corporation vs. Teodoro (94 Phil 687)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
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208. Buenaflor vs. Camarines Sur Industry (108 Phil 427)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
209. Cebu Port Labor Union vs. State Marine (101 Phil 468)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
210. Gonzales vs. Sugar Regulatory Administration (174 SCRA 377)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
211. National Abaca vs. Pore (2 SCRA 989)
Digested by:
FACTS:
ISSUE/S:
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RULING/DOCTRINE:
212. Sumera vs. Valencia (67 Phil 721)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
213. Board of Liquidators vs. Kalaw (20 SCRA 987)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
214. Gelano vs. CA (103 SCRA 90)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
215. Republic vs. Marsman (44 SCRA 481)
Digested by:
FACTS:
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ISSUE/S:
RULING/DOCTRINE:
216. Chung Ka Bio vs IAC (163 SCRA 534)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
217. Clemente vs. CA (242 SCRA 717)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
218. Mentholatun vs. Mangaliman (72 Phil 524)
Digested by:
FACTS:
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RULING/DOCTRINE:
219. Marshall-Wells vs. Elser (46 Phil 70)
Digested by:
126 | P a g e
FACTS:
ISSUE/S:
RULING/DOCTRINE:
220. Bulakhids vs. Navarro (142 SCRA 1)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
221. Swedish East Asia vs. Manila Port Services (25 SCRA 632)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
222. Antam Consolidated vs. CA (143 SCRA 288)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
223. Facilities Management vs. Dela Osa (89 SCRA 131)
Digested by:
127 | P a g e
FACTS:
ISSUE/S:
RULING/DOCTRINE:
224. Far East International vs. Nankai Kogyo (6 SCRA 725)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
225. Communication Materials and Design vs. CA (260 SCRA 673)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
226. Western Equipment vs. Reyes (51 Phil 115)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
227. General Garments vs. Director (41 SCRA 50)
128 | P a g e
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
228. Puma Sportshufabriken vs. IAC (158 SCRA 233)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
229. Le Chemise Lacoste vs. Fernandez (120 SCRA 377)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
230. Atlantic Mutual Insurance vs. Cebu Stevedoring (17 SCRA 1037)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
231. Olympia Business Machines vs. E. Razon Inc. (155 SCRA 208)
129 | P a g e
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
232. Time vs. Reyes (39 SCRA 303)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
233. M.E. Gray vs. Insular Lumber (67 Phil 139)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
PART 2: PRESIDENTIAL DECREE 902-A
234. Medical Plaza Makati Condominium Corporation vs. Cullen (GR No. 181416; 11 November 2013)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
130 | P a g e
235. R.J. Jacinto vs. FWCC (410 SCRA 140)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
236. Sy Chim vs. Sy Siy Ho & Sons (480 SCRA 206)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
237. SEC vs Howey Co. 328 U.S. 293 (1946)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
238. SEC vs CJH Development Corp. (GR No. 210316, 28 Nov. 2016)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
131 | P a g e
239. Power Homes Unlimited Corp. vs SEC (GR No. 164182, 26 February 2008)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
240. SEC vs. Performance Foreign Exchange Corporation (GR No. 154131, 20 July 2006)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
241. Justee Terms Enterprise vs. SEC (CA GR. SP. No. 48013 , July 30, 1999)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
242. China Banking vs. CA (270 SCRA 503)
Digested by:
FACTS:
ISSUE/S:
132 | P a g e
RULING/DOCTRINE:
243. People vs. Petralba (439 SCRA 158)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
244. People vs Palmy Tibayan and Rico Z. Puerto (GR Nos. 209655-60, 14 January 2015)
Digested by:
FACTS:
ISSUE/S:
RULING/DOCTRINE:
133 | P a g e

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Color in blue if repeated case, input number MAKE SURE ISSUE & RULING ALIGNED WITH SYLLABUS

NAME CASE NUMBER highlight in yellow if done

2. AQUINO, Rafael 2 21 40 59 79 100 119 138 157

3. BARTOLOME, 3 22 41 60 80 101 120 139 158

4. CARANAY, Nadrev 4 23 42 61 81 102 121 140 159

5. RIVERA, Jean 43 62 82 103 122 141 160

6. GALLO, Audrey 6 25 44 63 83 104 123 142 161

7.GARGARITANO, 7 26 45 64 84 105 124 143 162

8. SARMIENTO, Jan 8 27 46 65 85 106 125 144 163

9. YANG, Antonio 9 28 47 66 86 107 126 145 164

10. ARMILLO, Joyce 10 29 48 67 87 108 127 146 165

11. ELAURIA, Clarisse 11 24 49 68 88 109 128 147 166

12. CARLOS, Kaira 12 31 50 69 89 110 129 148 167

13. OLMILLA, Alyza 13 32 51 70 90 111 130 149 168

14. PAGUYO, Scarlet 14 33 52 71 91 112 131 150 169

15. PARAS, Lorique 15 34 53 72 92 113 132 151 170

16. ATIENZA, Micah 16 35 54 73 93 114 133 152 171

17.SANTOSIDAD, 17 36 55 74 94 115 134 153 172

18. PAYUMO, Kane 18 37 56 75 95 116 135 154 173

19. TRIVINO, Reycy 5 24 57 76 96 117 136 155 174

20. CRUZ, Luis 77 78 97 98 99 118 137 156 175

DUE ON THURS, SEPT. 22, 11PM

1. Mangila vs Court of Appeals (GR No 124027, 12 August 2002)

Digested by: YANG, Antonio III Pe

PETITIONER/s: Anita Mangila RESPONDENT/s: Court of Appeals and Loretta Guina

2. Mendiola vs Court of Appeals (497 SCRA 346)

Digested by: Rafael Carlos R. Aquino

believe that he was in a joint venture with them.

ISSUE/S: WON there is a partnership between Pacfor and Arsenio T. Mendiola?

3. JM Tuason & Co., Inc. vs Bolanos (95 Phil 106)

Digested by: Ceazar Leo A. Bartolome

corporations to enter into a partnership.

4. Aurbach vs. Sanitary Wares Manufacturing Corporation (189 SCRA 130)

Digested by: Nadrev Rufino Caranay

5. LBC Express vs. CA (236 SCRA 602)

Digested by: Reycy Ruth Sia Trivino

ISSUE/S: Whether the corporation may claim moral damages.

Digested by: Gallo, Audrey Nicole

ISSUE/S: Whether or not AMEC is entitled to moral damages

7. Ong vs. Court of Appeals (GR No. 119858, 29 April 2003)

Digested by: Gargaritano, Angelo Gabriel I.

3. The Trust Receipts contained the following stipulations—

In affirming the decision of the CA, the SC ruled—

As to the civil liability—

8. Gamboa vs Teves (GR No. 176579 28 June 2011; 9 October 2012)

ISSUE/S:(1) Whether petitioner’s choice of remedy was proper?

which results to "effective control."

9. Narra Nickel Mining vs Redmont Mines (36)

Digested by: YANG, Antonio III Pe

Hence current petition for review before the SC.

Grandfather Rule defined:

Applicability of Control test and Grandfather Rule

Digested by: Armillo, Joyce

Wherefore, the SC resolves to deny the motion with finality.

Digested by: Elauria, Clarisse

12. PNOC-EDC vs. NLRC (201 SCRA 487)

Digested by: Carlos, Kaira Marie

Digested by: Alyza Olmilla

PETITIONER/s: TUNA PROCESSING, INC RESPONDENT/s:. PHILIPPINE KINGFORD, INC

15. Litonjua, Jr. vs. Eternit Corporation (490 SCRA 204)

Digested by: PARAS, Lorique Alexis

Digested by: ATIENZA, Micah Yurielle P.

Digested by: Santosidad, Jonella Marie B.