1. PNB vs.

Andrada, 381 SCRA 244

FACTS:
This case is a petition for review assailing the decision of the Court of Appeals in CA-GR
CV No. 57610. The plaintiff therein, Andrada Electric and Engineering Company performed
construction works and provided electrical equipments to PASUMIL (Pampanga Sugar Mills).
The latter was foreclosed by DBP ( Development Bank of Philippines) . It was later then
taken over by PNB (Philippine National Bank) through its sugar arm, the National Sugar
Development Corporation, therein defendants.
PASUMIL had a total obligation of P777, 263. 80. It initially paid P250,000 and later
P14,000 in broken amounts. In its complaint, plaintiff demands from the defendants the
payment of the rest of the obligation on the grounds that PNB and NASUDECO now owned
the assets of PASUMIL and that they all benefited from the works rendered by plaintiff.
Both defendants filed a motion to dismiss but were both denied. In their answers, they
reiterated the same grounds in the motion to dismiss such as they were not privy to the
contract entered by Andrada and PASUMIL, that pursuant to LOI No. 189-A, as amended by
LOI No. 311 they were not authorized to assume corporate obligations of the latter, and that
the takeover is solely for the purpose of reconditioning the sugar mill and make a study of
and submit recommendation on the problems concerning the claims of PASUMIL creditors.
The Trial Court ruled in favor of the plaintiff and which was later affirmed by the CA.
Hence, this instant Petiton.
ISSUE:
Whether or not the corporate existence of PASUMIL was legally extinguished upon
the take-over by PNB and NASUDECO.
DECISION:
It is basic that a corporation maintains a separate and distinct personality from the
persons composing it and from other legal entities related to it. Also is the tenet that the
corporate veil may be pierced when a corporation is just an alter ego of another corporation.
Piercing the corporate veil to determine if whether a corporation is a mere alter ego,
the following elements must concur: (1) one corporation must have control over another
corporation, not just mere control but complete domination, (2) such control must have
been used by the defendant to commit a fraud or a wrong against the plaintiffs legal right,
(3) that said control must have proximately caused the injury or loss complained of.
In the case at bar, the foregoing are absent. Despite PNBs control over PASUMIL,
there is no showing that corporate personalities were disregarded and that control was used
to commit fraud. Respondent was neither defrauded upon the acquisition of the assets of
PASUMIL by PNB.
The Court is not convinced that the transfer of assets was entered to defraud and to
escape liability to respondent Andrada. The latter likewise failed to present clear and
convincing evidence to set aside separate corporate personality rule.
There is also no merger or consolidation that took place as claimed by respondent
Andrada despite being authorized by LOI Nos. 189-A and 311 since the procedure
prescribed in Title IX of the Corporation Code was not followed. PNB also neither expressly
or impliedly agreed to assume the debts of PASUMIL to respondent. As explicitly stated in
LOI No. 11, PNB shall only study and submit recommendations on the claims of PASUMILs
creditors. It is clear from the foregoing that the corporate separateness of PNB and PASUMIL
remains. Hence, PNB nor NASUDECO can be held liable to the unpaid obligations of
PASUMIL.
Wherefore, petition is granted and assailed decision set aside.

2. Stockholders of F. Guanzon vs. Register of Deeds (6 SCRA 373)

FACTS:
F. Guanzon and Sons, Inc. has been dissolved by virtue of a stockholders resolution.
Five stockholders of the latter corporation executed a certificate of liquidation of assets. It is
stated in the document that they have distributed, among other things, real properties
owned by the corporation located in Manila.
The stockholders then applied for registration with the Register of Deeds. Upon
presentation of the certificate of liquidation, it was denied due to lacking requirements.
Upon consulta elevated by the stockholders, one of the original requirements was overruled
yet three are sustained for them to comply. The remaining three are: the number of parcels
not certified to in the acknowledgment; P430.50 Reg. fees need be paid; P940.45
documentary stamps need be attached to the document.
Hence, the stockholders interpose this present appeal.
ISSUE:
Whether or not the certificate of liquidation merely involves a transfer of assets or is
a transfer or conveyance?
DECISION:
Appellants contend that the certificate of liquidation is not a conveyance or transfer
but merely a distribution of assets of a corporation which has been dissolved. Hence, the
aforementioned requirements are not applicable to their registration.
But the Commissioner of Land Registration has a different view. Though extrinsically
a distribution of assets, in substance it is a transfer from the corporation to the
stockholders.
Properties owned and registered in the name of the corporation is separate and
distinct from properties of its members. While stockholders own shares of stock of the
corporation, they do not represent property of the corporation specifically real estate.
Despite owning shares of stock, the holder is not an owner of any part of the capital of the
corporation nor is entitled to possession of its property.
It is clear from the foregoing that the act of liquidation of the appellants is not a
partition of community property but rather a transfer or conveyance of title of the
corporations assets to the individual stockholders. It is only then logical that they comply
with the said requirements if they seek to obtain a registration with the Register of Deeds.
The resolution appealed from is affirmed.
3. Manacop vs. Equitable PCIB, 468 SCRA
FACTS:

256

against
Lavine
fire
with
Loungewear
Philippine
Manufacturing,
Fire
and
Marine
Inc.
Insurance
("Lavine")
Corporation
insured
its
("PhilFire"),
buildings
and
Rizal
supplies
Surety
andPolicy
Lepanto-Taisho
Insurance
Company
Insurance
("Rizal
Corporation
Surety"),
("First
Tabacalera
Insurance
Equitable
Company
Insurance
("TICO"),
Corporation
First
("Equitable
for
No.
Insurance"),
13798
issued
and
by
Reliance
First
Lepanto,
Insurance
all Lepanto"),
the
Corporation
policies
provide
("Reliance
that:
Insurance").
Except

Branch, asunder
theirthis
interest
warranties
policy. may appear subject to the terms, conditions, clauses and
On proceeds
August
1998,
a fire
gutted
Lavine's
buildings
andInsurance
their contents
thus claims
were made
insurance
against1,payable
the
policies.
to
Lavine
As
found
is P112,245,324.34.
by the Office
of the
Commission,
the
against
Lavine
fire
with
Loungewear
Philippine
Manufacturing,
Fire
and
Marine
Inc.
Insurance
("Lavine")
Corporation
insured
its
("PhilFire"),
buildings
and
Rizal
supplies
Surety
and
Lepanto-Taisho
Insurance
Company
Insurance
("Rizal
Corporation
Surety"),
("First
Tabacalera
Insurance
Equitable
Company
Insurance
("TICO"),
Corporation
First
("Equitable
for
Policy
No.
Insurance"),
13798
issued
and
by
Reliance
First
Lepanto,
Insurance
all Lepanto"),
the
Corporation
policies
provide
("Reliance
that:
Insurance").
Except
Branch,Loss,
asunder
their
if any,
interest
under
this
may
policy
appear
is payable
subject
to Equitable
to the terms,
Banking
conditions,
Corporation-Greenhills
clauses and
warranties
this
policy.
On proceeds
August
1998,
a fire
gutted
Lavine's
buildings
andInsurance
their contents
thus claims
were made
insurance
against1,payable
the
policies.
to
Lavine
As
found
is P112,245,324.34.
by the Office
of the
Commission,
the

against
Lavine
fire
with
Loungewear
Philippine
Manufacturing,
Fire
and
Marine
Inc.
Insurance
("Lavine")
Corporation
insured
its
("PhilFire"),
buildings
and
Rizal
supplies
Surety
and
Lepanto-Taisho
Insurance
Company
Insurance
("Rizal
Corporation
Surety"),
("First
Tabacalera
Insurance
Equitable
Company
Insurance
("TICO"),
Corporation
First
for
("Equitable
Policy
No.
Insurance"),
13798
issued
and
by
Reliance
First
Lepanto,
Insurance
all Lepanto"),
the
Corporation
policies
provide
("Reliance
that:
Insurance").
Except
Branch,Loss,
asunder
their
if any,
interest
under
this
may
policy
appear
is payable
subject
to Equitable
to the terms,
Banking
conditions,
Corporation-Greenhills
clauses and
warranties
this
policy.
On proceeds
August
1998,
a fire
gutted
Lavine's
buildings
andInsurance
their contents
thus claims
were made
insurance
against1,payable
the
policies.
to
Lavine
As
found
is P112,245,324.34.
by the Office
of the
Commission,
the

Lavine
Loungewear
Manufacturing,
Inc.
("Lavine")
insured
its
buildings
and
supplies
against
and
Insurance
fire
with
Company
Philippine
("Rizal
Fire
and
Surety"),
Marine
Tabacalera
Insurance
Corporation
Insurance
Company
("PhilFire"),
("TICO"),
Rizal
Surety
First
Lepanto-Taisho
("Equitable
Insurance"),
Insurance
and
Corporation
Reliance
Insurance
("First
Corporation
Equitable
("Reliance
Insurance
Insurance").
Corporation
Except
for
Policy
No.
13798
issued
by
First
Lepanto,
all Lepanto"),
the
policies
provide
that:
if any,
under
this
policy
is payable
to Equitable
Banking
Corporation-Greenhills
Branch,Loss,
warranties
asunder
their
this
interest
policy.
may
appear
subject
to the terms,
conditions,
clauses and
were made
On proceeds
August
against1,payable
the
1998,
policies.
a fire
As
gutted
found
Lavine's
by the Office
buildings
of the
andInsurance
their contents
Commission,
thus claims
the
insurance
to
Lavine
is P112,245,324.34.
Lavine Loungewear Manufacturing, Inc. ("Lavine") insured its buildings and supplies
against fire with Philippine Fire and Marine Insurance Corporation ("PhilFire"), Rizal Surety
and Insurance Company ("Rizal Surety"), Tabacalera Insurance Company ("TICO"), First
Lepanto-Taisho Insurance Corporation ("First Lepanto"), Equitable Insurance Corporation
("Equitable Insurance"), and Reliance Insurance Corporation ("Reliance Insurance"). Except
for Policy No. 13798 issued by First Lepanto, all the policies provide that:
Loss, if any, under this policy is payable to Equitable Banking Corporation-Greenhills
Branch, as their interest may appear subject to the terms, conditions, clauses and
warranties under this policy.
On August 1, 1998, a fire gutted Lavine's buildings and their contents thus claims
were made against the policies. As found by the Office of the Insurance Commission, the
insurance proceeds payable to Lavine is P112,245,324.34.
Lavine was then represented by Harish C. Ramnani ("Harish") but his authority was
withdrawn on March 17, 2000 by the Board of Directors. Chandru C. Ramnani ("Chandru")
was appointed in his stead and was designated, together with Atty. Mario A. Aguinaldo, as
Lavine's
representatives
in
negotiating
with
the
insurance
companies.
Prior to the release of the proceeds, the insurance companies required Lavine to sign
a Sworn Statement in Proof of Loss and Subrogation Agreement [2] whereby the former
would be absolved from their liabilities upon payment of the proceeds to Equitable Bank.
Only Harish signed the document while the rest of Lavine's directors refused to sign.
Chandru's requested that Insurance Companies that payments be made first to
Lavine who shall thereafter pay Equitable Bank as the latter's interest may appear. Certain
insurance companies released the proceeds directly to Equitable Bank thus Chandru filed, in
behalf of Lavine, a Petition for the Issuance of a Writ of Preliminary Injunction with Prayer
for a Temporary Restraining Order before the Regional Trial Court (RTC) of Pasig City,
against PhilFire, Rizal Surety, TICO, First Lepanto and Equitable Bank.
Harish, Jose F. Manacop, Chandru P. Pessumal, Maureen M. Ramnani and Salvador
Cortez, moved to intervene claiming they were Lavine's incumbent directors and that Harish
was Lavine's authorized representative. They disclaimed Chandru's designation as president
of Lavine as well as his and Atty. Aguinaldo's authority to file the action
On February 14, 2001, the trial court granted the motion for intervention and
thereafter denied Lavine's (represented by Chandru) motion for reconsideration.
Equitable Bank alleged it had sufficiently established the amount of its claim and as
beneficiary of the insurance policies, it was entitled to collect the proceeds
The intervenors in their Amended Answer-in-Intervention with cross-claim against
the insurance companies alleged that as of August 1, 1998, Lavine's obligations to Equitable
Bank amounted to P71,000,000.00 and since Equitable Insurance and Reliance Insurance
have already paid the bank more than this amount, respondent insurance companies should

be ordered to immediately deliver to Lavine the remaining insurance proceeds through the
intervenors and to pay interests thereon from the time of submission of proof of loss.
Rizal Surety stated its willingness to pay the insurance proceeds but only to the
rightful claimant. PhilFire, TICO, First Lepanto and Equitable Bank has released some
payment to Equitable Bank but withheld paying the balance until the rightful claimant has
been determined.
On April 2, 2002, the trial court rendered a decision in favor of Intervenors which
includes ORDERING the Equitable Bank to refund to Levine through the Intervenors the
amount of P65,819,936.05 representing the overpayment as actual or compensatory
damages, with legal rate of interest at six (6%) per cent per annum from the date of this
decision until full payment and ORDERING PhilFire, Rizal Surety, First Lapanto, and TICO to
pay Levine through Intervenors the certain amount representing unpaid insurance proceeds
as actual or compensatory damages, with twenty-nine (29%) per cent interest per annum
from October 1, 1998 until full payment.
Counterclaims filed by Equitable Bank against intervenors and cross-claims filed by
all insurance companies against intervenors and counterclaims are hereby DISMISSED for
lack of merit.
On April 3, 2002, the intervenors filed a Motion for Execution Pending Appeal on the
following grounds: (a) TICO was on the brink of insolvency; (b) Lavine was in imminent
danger of extinction; and (c) any appeal from the trial court's judgment would be merely
dilatory.
Judge Lavia granted intervenors' motion for execution pending appeal and issued a
writ of execution on May 20, 2002 which was implemented the following day.
In view of the issuance of the writ of execution by the trial court, Equitable Bank filed
an Amended and/or Supplemental Petition for Certiorari, Prohibition and Mandamus in Court
of Appeals G.R. SP No. 70298 on June 11, 2002, assailing the trial court's order granting
execution pending appeal as well as the issuance of the writ of execution. In due course, the
Court of Appeals promulgated a consolidated decision, the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
(1) SETTING ASIDE the decision dated April 2, 2001;
(2) declaring NULL and VOID the Special Order dated May 17, 2002 and the Writ of
Execution dated May 20, 2002;
(3) remanding the case to the lower court for the conduct of pre-trial conference on the
Second Amended Answer-in-Intervention and the subsequent pleadings filed in relation
thereto; and
(4) in the event that the lower court decides that Lavine is the one entitled to the proceeds
of the insurance policies, payment thereof should be withheld, subject to the outcome of the
decision on the issue on the rightful members of the Board of Directors of Lavine which is
pending before the intra-corporate court.
The intervenors took recourse at the Supreme Court.
SUPREME COURT RULING
The petitioners assert that Lavine's financial distress is sufficient reason to order
execution pending appeal. Citing Borja v. Court of Appeals, they claim that execution
pending appeal may be granted if the prevailing party is already of advanced age and in
danger of extinction.
Borja is not applicable to the case at bar because its factual milieu is different. In
Borja, the prevailing party was a natural person who, at 76 years of age, "may no longer
enjoy the fruit of the judgment before he finally passes away." Lavine, on the other hand, is
a juridical entity whose existence cannot be likened to a natural person. Its precarious
financial condition is not by itself a compelling circumstance warranting
immediate execution and does not outweigh the long standing general policy of
enforcing only final and executory judgments.
Lavine
Loungewear
Manufacturing,
Inc.
("Lavine")
insured
its
buildings
and
supplies
against
and
Insurance
fire
with
Company
Philippine
("Rizal
Fire
and
Surety"),
Marine
Tabacalera
Insurance
Corporation
Insurance
Company
("PhilFire"),
("TICO"),
Rizal
Surety
First
Lepanto-Taisho
("Equitable
Insurance"),
Insurance
and
Corporation
Reliance
Insurance
("First
Corporation
Equitable
("Reliance
Insurance
Insurance").
Corporation
Except
for
Policy
No.
13798
issued
by
First
Lepanto,
all Lepanto"),
the
policies
provide
that:
if any,
under
this
policy
is payable
to Equitable
Banking
Corporation-Greenhills
Branch,Loss,
warranties
asunder
their
this
interest
policy.
may
appear
subject
to the terms,
conditions,
clauses and
were made
On proceeds
August
against1,payable
the
1998,
policies.
a fire
As
gutted
found
Lavine's
by the Office
buildings
of the
andInsurance
their contents
Commission,
thus claims
the
insurance
to
Lavine
is P112,245,324.34.

against
Lavine
fire
with
Loungewear
Philippine
Manufacturing,
Fire
and
Marine
Inc.
Insurance
("Lavine")
Corporation
insured
its
("PhilFire"),
buildings
and
Rizal
supplies
Surety
and
Lepanto-Taisho
Insurance
Company
Insurance
("Rizal
Corporation
Surety"),
("First
Tabacalera
Insurance
Equitable
Company
Insurance
("TICO"),
Corporation
First
for
("Equitable
Policy
No.
Insurance"),
13798
issued
and
by
Reliance
First
Lepanto,
Insurance
all Lepanto"),
the
Corporation
policies
provide
("Reliance
that:
Insurance").
Except
Branch,Loss,
asunder
their
if any,
interest
under
this
may
policy
appear
is payable
subject
to Equitable
to the terms,
Banking
conditions,
Corporation-Greenhills
clauses and
warranties
this
policy.

were made
against payable
the policies.
As found
by the Office of the Insurance Commission, the
insurance
proceeds
to Lavine
is P112,245,324.34.
Lavine
Loungewear
Manufacturing,
Inc.
("Lavine")
insured
its
buildings
and
supplies
against
and
Insurance
fire
with
Company
Philippine
("Rizal
Fire
and
Surety"),
Marine
Tabacalera
Insurance
Corporation
Insurance
Company
("PhilFire"),
("TICO"),
Rizal
Surety
First
Lepanto-Taisho
("Equitable
Insurance"),
Insurance
and
Corporation
Reliance
Insurance
("First
Corporation
Equitable
("Reliance
Insurance
Insurance").
Corporation
Except
for
Policy
No.
13798
issued
by
First
Lepanto,
all Lepanto"),
the
policies
provide
that:
if any,
under
this
policy
is payable
to Equitable
Banking
Corporation-Greenhills
Branch,Loss,
warranties
asunder
their
this
interest
policy.
may
appear
subject
to the terms,
conditions,
clauses and
were made
On proceeds
August
against1,payable
the
1998,
policies.
a fire
As
gutted
found
Lavine's
by the Office
buildings
of the
andInsurance
their contents
Commission,
thus claims
the
insurance
to
Lavine
is P112,245,324.34.
Lavine
Loungewear
Manufacturing,
Inc.
("Lavine")
insured
its
buildings
and
supplies
against
and
Insurance
fire
with
Company
Philippine
("Rizal
Fire
and
Surety"),
Marine
Tabacalera
Insurance
Corporation
Insurance
Company
("PhilFire"),
("TICO"),
Rizal
Surety
First
Lepanto-Taisho
("Equitable
Insurance"),
Insurance
and
Corporation
Reliance
Insurance
("First
Corporation
Equitable
("Reliance
Insurance
Insurance").
Corporation
Except
for
Policy
No.
13798
issued
by
First
Lepanto,
all Lepanto"),
the
policies
provide
that:
if any,
under
this
policy
is payable
to Equitable
Banking
Corporation-Greenhills
Branch,Loss,
warranties
asunder
their
this
interest
policy.
may
appear
subject
to the terms,
conditions,
clauses and
were made
On proceeds
August
against1,payable
the
1998,
policies.
a fire
As
gutted
found
Lavine's
by the Office
buildings
of the
andInsurance
their contents
Commission,
thus claims
the
insurance
to
Lavine
is P112,245,324.34.
Lavine
Loungewear
Manufacturing,
Inc.
("Lavine")
insured
its
buildings
and
supplies
against
and
Insurance
fire
with
Company
Philippine
("Rizal
Fire
and
Surety"),
Marine
Tabacalera
Insurance
Corporation
Insurance
Company
("PhilFire"),
("TICO"),
Rizal
Surety
First
Lepanto-Taisho
("Equitable
Insurance"),
Insurance
and
Corporation
Reliance
Insurance
("First
Corporation
Equitable
("Reliance
Insurance
Insurance").
Corporation
Except
for
Policy
No.
13798
issued
by
First
Lepanto,
all Lepanto"),
the
policies
provide
that:
if any,
under
this
policy
is payable
to Equitable
Banking
Corporation-Greenhills
Branch,Loss,
warranties
asunder
their
this
interest
policy.
may
appear
subject
to the terms,
conditions,
clauses and
were made
On proceeds
August
against1,payable
the
1998,
policies.
a fire
As
gutted
found
Lavine's
by the Office
buildings
of the
andInsurance
their contents
Commission,
thus claims
the
insurance
to
Lavine
is P112,245,324.34.

4. Firme vs Bukal, 414 SCRA190

Facts:
Petitioner Spouses Constante and Azucena Firme are the registered owners of a
property located in Dahlia Avenue, Fairview Park, Quezon City. Renato de Castro, vice
president of Bukal Enterprises and Development Corporation, authorized Teodoro Aviles to
negotiate with the petitioners for the purchase of their property.
On March 28, 1995, respondent corporation filed a complaint for specific
performance against the petitioners, alleging that they reneged on their agreement to sell
the property. During the trial, respondent presented five witnesses including Aviles.
Aviles alleged that he twice met with the petitioners to discuss the purchase of the
property. The first meeting was on February wherein he presented to the petitioners the
First Draft of the deed of sale. Petitioners rejected it due to several objectionable conditions.
On their second meeting on March 1995, he presented a Second Draft which was allegedly
accepted by the petitioners due to the deletion of the objectionable conditions contained in
the First Draft.
Due to the alleged agreement, respondent corporation fenced the property,
constructed posts, relocated the squatters, and obtained a loan to purchase the property.
In petitioners defense, Dr. Firme testified that they did met twice but they did not
accept the offer because they were reserving their property for their property. In their
second meeting, Dr. Firme further alleged that they were presented a Third Draft which they
did not accept for they found the provisions one-sided.
The trial court rendered judgment against respondent. The decision was later
reversed on appeal. Hence, this instant petition.
ISSUE:
Whether or not that it was not legally and factually possible for respondent to perfect
a contract of sale?

DECISION:
Based on the testimony of Aviles, it was only De Castro who asked him to negotiate
with the Spouses Firme to buy the Property. De Castro affirmed this by testifying that he
authorized Aviles to buy the property. But there was no Board Resolution authorizing this
act.
As provided in Sec. 23 of the Corporation Code, it is the board of directors or
trustees which exercises almost all the corporate powers in a corporation, including the
power to purchase real property. The corporation may appoint agents to negotiate the
purchase but it is the Board which has the final say and its approval finalizes the
transaction.
Furthermore, none of the deeds of sale were signed by the president of Bukal
Enterprises. De Castro had not even met the Spouses Firme. Considering the circumstances,
it would have been improbable for Aviles to finalize any transaction with the Spouses Firme
pertaining to the sale of property.

5. Great Asian Sales vs. CA, 381 SCRA 557

Facts:
Petitioner Great Asian secured a loan from respondent Bancasia in an amount not to
exceed P1.0 million. Arsenio who is the Treasurer and General Manager was authorized by
the board to sign all necessary papers to secure the loan. Another loan was approved by the
board in an amount not exceeding P2.0 million. Arsenio was again the authorized signatory
of all necessary papers.
The other petitioner, Tan Chong Lin, signed two surety agreements in favor of
respondent to guarantee, solidarily, the debts of Great Asian.
Great Asian signed four deed of assignments, assigning fifteen postdated checks. All
checks were endorsed by Arsenio. All checks were dishonored amounting to P1.042,005.00.
Respondent through its lawyer, Atty Eladia Reyes, notified Tan Chiong Lin twice of
this matter and demanded payment by registered mail and by personal delivery. None of the
petitioners paid respondent the dishonored checks.
Respondent filed a complaint for a collection of a sum of money against petitioners.
The trial court rendered its decision in favor of respondent and was later sustained by the
Court of Appeals.
ISSUES:
Whether or not Arsenio had authority to execute the deed of assignment and thus
bind Great Asian?
DECISION:
The Corporation Code of the Philippines provides through Section 23 that it is the
board of directors that exercise the corporate powers of the corporation except for those
specific acts where the Code requires the stockholders approval. In order for a corporation
to borrow funds authority of the board of directors is required. Normally, the board
designates one or more corporate officers to sign the necessary documents.

As evidenced by the two board resolutions authorizing Arsenio to sign in behalf of

petitioner corporation, there is no doubt that Great Asian gave full authority to Arsenio to
transact with respondent. Arsenio having the proper and necessary authority from the board
of directors clearly proves that Great Asian is liable to pay respondent Biancasia.

6. Consolidated Bank (Solidbank) vs.CA 356 SCRA 671

FACTS:
Respondent Continental Cement Corporation and its Executive Vice President Gregory
Lim obtained from petitioner Solidbank a letter of credit amounting to P1,068,150.00 on
July 13, 1982. On the same date, respondent corporation paid a marginal deposit of
P320,445.00 to petitioner. The letter of credit was used to purchase around five hundred
thousand liters of bunker fuel oil from Petrophil Corporation. The latter directly delivered the
fuel to respondent corporation in its Bulacan plant. A trust receipt was also executed by
respondent Corporation with Lim as signatory. The trust receipt amounted to
P1,001,520.93.
Petitioner filed a complaint for sum of money with application of preliminary
attachment against respondents alleging that the latter failed to turn over the goods
covered by the trust receipt or the proceeds thereof. In their answer, respondents averred
that the transaction between them was a simple loan and not a trust receipt. Further, Lim
denied any personal liability in the subject transactions.
The trial court dismissed the complaint and ordered petitioner the amounts prayed
for in the counterclaim of respondents. Upon appeal, the Court of Appeals partially modified
the lower courts decision and instead ordered respondents to pay attorneys fees and
litigation expenses.
ISSUES:
Whether or not private respondent are liable under the trust receipt?
DECISION:
Private respondents Lim and his spouse cannot be held personally liable for Lim
entered into the subject transaction in his capacity as Executive Vice President of
respondent corporation. It is basic tenet that corporate personality is a shield against
personal liability of its officers. Lim signed the contract in behalf of the corporation and not

in his personal capacity making him not liable. His personality is separate and distinct from
the corporation he is an officer of.
7. Malayang Samahan vs. Ramos, 357 SCRA 77
FACTS:
The case at bar is a motion for partial reconsideration of the Courts decision dated
February 28, 2000. Petitioners allege that the Court erred in not making respondent
company officials liable for damages on account of employees dismissal. They further
contend that the corporate officers should not be considered as mere agents but the actual
wrongdoers. Also that the respondent officials are the officers and incorporators of the
satellite companies wherein jobs intended for regular employees are diverted and that they
are also engaged in the manufacture of garments. They also prayed for the inclusion of
names omitted in the caption.
ISSUE:
Whether or not respondent company officials should be made personally liable for
damages on account of petitioners dismissal?
DECISION:
This petition is not impressed with merit. It cannot be stressed enough that a
corporations has a separate and distinct personality from the people composing it.
Obligations incurred by the corporation through its directors or officers are its sole liabilities.
It is only during exceptional circumstances that solidary liabilities are incurred as when a
director consented to the issuance of watered stocks or a director contractually agreed to
hold himself personally and solidarily liable with Corporation.
The Court in labor cases would hold corporate directors and officers solidarily liable
with the corporation for termination of employees when it attended with malice or bad faith.
In the instant case, there is no substantial evidence to prove that the respondent officers
acted in bad faith.
8. Remo vs. IAC, 172 SCRA 405
FACTS:
Petitioner is a member of the board of directors of Akron Customs Brokerage
Corporation. They adopted a resolution to purchase thirteen trucks to be used in their
business. The purchase shall be paid out from a loan to be secured by the corporation from
any lending institution.
Private respondent, representing E.B. Marcha Transport Company, Inc. sold thirteen
trucks to Feliciano Coprada, President and Chairman of Akron, for a consideration of
P525,000.00. It evidenced by a deed of absolute sale. A downpayment of P50,000.00 was
also agreed upon and the balance of P475,000.00 shall be paid with sixty days from the
date of execution. Further that until the balance is fully paid, the P50,000.00 shall accrue as
rentals for the thirteen trucks and if Akron fails to pay within the sixty day period, the
balance shall constitute a chattel mortgage lien covering the said trucks. An extension of
thirty days may be allowed and after that period private respondent may ask for the
revocation of contract and reconveyance of said trucks.
A promissory note executed by Coprada in favor of Akron further secured the
obligation. The promissory note states that the balance shall be paid from a loan obtained
from the DBP within sixty days. After ninety days, private respondent tried to collect from
Coprada the proceeds of the loan by sending a letter of demand. Coprada replied by
reiterating that he was applying for a loan from the DBP.
Concurrently, two of the subject trucks were sold under pacto de retro sale to a Mr.
Bais of Perpetual Loans and Savings Bank at Baclaran. The sale was authorized by a board
resolution dated March 15, 1978.

Subsequently, private respondent found out that no loan from DBP was ever filed for
by Akron. No rentals of P500.00 per day were then paid after the period from April 27, 1978
to May 31, 1978.
Coprada wrote private respondent begging for a grace period and promising to pay
the obligation. Private respondent through counsel demanded the return of the thirteen
trucks and payment of back rentals amounting to P25,000.00. Coprada again wrote asking
for a grace period informing that ten trucks were returned, and a deed of assignment to
private respondent amounting to P475,000 was authorized by the board through a
resolution.
Private respondent filed a complaint against Akron and its officers seeking the
recovery of P525,000.00 or the return of the thirteen trucks with damages. Only petitioner
Remo answered the complaint denying his participation to any of the transaction. However,
he was declared in default for being absent at the pre-trial.
Petitioner later sold all his shares in Akron to Coprada. Akron then amended it
articles of incorporation and changed its name into Akron Transport International, Inc. which
assumed liability to private respondent.
Trial court rendered decision in favor of respondent. Petitioner filed a motion for new
trial but was denied so appealed to then IAC. The latter decided in favor of petitioner but
was set aside and affirmed the appealed decision due to motion for reconsideration raised
by private respondent.
ISSUE:
Whether or not the petitioner is personally liable for the obligation of the
Corporation.
DECISION:
The factual milieu of the instant case does not provide a strong ground to pierce the
corporate veil of Akron and hold petitioner personally liable for its obligation to private
respondent. For this to take place, the corporate fiction must be used to perpetuate fraud
and commit wrong. While petitioner was still a member of the board of directors when they
adopted a resolution to purchase thirteen trucks, it is not apparent that it was intended to
defraud private respondent.
Moreover, private respondent only negotiated with Coprada. The latter was also the
signatory in the promissory note. It was executed in behalf of the corporation as the word
WE was used to refer to it. Petitioner did not sign the promissory note so he cannot be
personally liable. Same as to the resolution authorizing the pacto de retro sale, petitioner
asserts that he did not sign said resolution.
Coprada should be the one accounted for fraud or misrepresentation as he was the
one who promised a forthcoming from the DBP.
The fact that petitioner sold his shares in Akron to Coprada during the case also has
no bearing. Since he does not have any personal obligation to private respondent, it is his
inherent right as stockholder to dispose of his shares of stock whenever he shall please.
Furthermore, private respondent failed to establish clear and convincing evidence of
petitioners liability. Petition is granted.
9. PHILIPPINE NATIONAL BANK, PETITIONER, VS. RITRATO GROUP INC., RIATTO
INTERNATIONAL, INC., AND DADASAN GENERAL MERCHANDISE, RESPONDENT.
FACTS
Transactions

Petitioner Philippine National Bank (PNB) is a domestic corporation organized and

existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto
International, Inc. and Dadasan General Merchandise are domestic corporations, likewise,
organized and existing under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL), a subsidiary company of
PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the
respondents in the amount of US$300,000.00 secured by real estate mortgages constituted
over four (4) parcels of land in Makati City. This credit facility was later increased
successively to US$1,140,000.00 in September 1996 and reaching to US$1,421,316.18 in
April 1998; Respondents made repayments of the loan incurred by remitting those amounts
to their loan account with PNB-IFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at
US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its
attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate
mortgages and that the properties subject thereof were to be sold at a public auction on
May 27, 1999 at the Makati City Hall.
Complaints and Motions
On May 25, 1999, respondents filed a complaint for injunction with prayer for the
issuance of a writ of preliminary injunction and/or temporary restraining order before the
Regional Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati
issued a 72-hour temporary restraining order.
On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of
Makati. The trial judge then set a hearing on June 8, 1999.
On June 15, 1999, petitioner filed an opposition to the application for a writ of
preliminary injunction to which the respondents filed a reply.
On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to
state a cause of action and the absence of any privity between the petitioner and
respondents.
On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of
preliminary injunction, which writ was correspondingly issued on July 14, 1999.
On October 4, 1999, the motion to dismiss was denied by the trial court judge for
lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance
of the writ of preliminary injunction before the Court of Appeals but the court dismissed the
petition.
ISSUE: Whether or not the PNB is merely an alter ego or a business conduit of PNB-IFL
SUPREME COURT RULING
The general rule is that as a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members, and is not affected by the personal
rights, obligations and transactions of the latter. The mere fact that a corporation owns all
of the stocks of another corporation, taken alone is not sufficient to justify their being
treated as one entity. If used to perform legitimate functions, a subsidiary's separate
existence may be respected, and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective business. The courts may in
the exercise of judicial discretion step in to prevent the abuses of separate entity privilege
and pierce the veil of corporate entity.
The court has held that the doctrine of piercing the corporate veil is an equitable
doctrine developed to address situations where the separate corporate personality of a
corporation is abused or used for wrongful purposes. The doctrine applies when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend

crime, or when it is made as a shield to confuse the legitimate issues, or where a

corporation is the mere alter ego or business conduit of a person, or where the corporation
is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.
In Concept Builders, Inc. v. NLRC, the Court laid the test in determining the
applicability of the doctrine of piercing the veil of corporate fiction, to wit:
1.
Control, not mere majority or complete 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 rights; and,
3.
The aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality
and not form, with how the corporation operated and the individual defendant's relationship
to the operation.
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB,
there is no showing of the indicative factors that the former corporation is a mere
instrumentality of the latter are present. Neither is there a demonstration that any of the
evils sought to be prevented by the doctrine of piercing the corporate veil exist.
Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or
instrumentality doctrine finds no application in the case at bar.

10. STRATEGIC ALLIANCE DEVELOPMENT CORPORATION, PETITIONER, VS. RADSTOCK

SECURITIES LIMITED AND PHILIPPINE NATIONAL CONSTRUCTION CORPORATION,
RESPONDENTS. ASIAVEST MERCHANT BANKERS BERHAD, INTERVENOR.
FACTS

Construction Development Corporation of the Philippines (CDCP) was incorporated in

1966. It was granted a franchise to construct, operate and maintain toll facilities in the
North and South Luzon Tollways and Metro Manila Expressway. CDCP Mining Corporation
(CDCP Mining), an affiliate of CDCP, obtained loans from Marubeni Corporation of Japan
(Marubeni). A CDCP official issued letters of guarantee for the loans although there was no
CDCP Board Resolution authorizing the issuance of such letters of guarantee. CDCP Mining
secured the Marubeni loans when CDCP and CDCP Mining were still privately owned and
managed. In 1983, CDCPs name was changed to Philippine National Construction
Corporation (PNCC) in order to reflect that the Government already owned 90.3% of PNCC
and only 9.70% is under private ownership. Meanwhile, the Marubeni loans to CDCP Mining
remained unpaid. On 20 October 2000 and 22 November 2000, the PNCC Board of Directors
(PNCC Board) passed Board Resolutions admitting PNCCs liability to Marubeni. Previously,
for two decades the PNCC Board consistently refused to admit any liability for the Marubeni
loans. In January 2001, Marubeni assigned its entire credit to Radstock Securities Limited
(Radstock), a foreign corporation. Radstock immediately sent a notice and demand letter to
PNCC. PNCC and Radstock entered into a Compromise Agreement. Under this agreement,
PNCC shall pay Radstock the reduced amount of P6,185,000,000.00 in full settlement of
PNCCs guarantee of CDCP Minings debt allegedly totaling P17,040,843,968.00 (judgment

debt as of 31 July 2006). To satisfy its reduced obligation, PNCC undertakes to (1) "assign
to a third party assignee to be designated by Radstock all its rights and interests" to the
listed real properties of PNCC; (2) issue to Radstock or its assignee common shares of the
capital stock of PNCC issued at par value which shall comprise 20% of the outstanding
capital stock of PNCC; and (3) assign to Radstock or its assignee 50% of PNCCs 6% share,
for the next 27 years, in the gross toll revenues of the Manila North Tollways Corporation.
Strategic Alliance Development Corporation (STRADEC) moved for reconsideration.
STRADEC alleged that it has a claim against PNCC as a bidder of the National Governments
shares, receivables, securities and interests in PNCC.
ISSUE
Whether or not the Compromise Agreement between PNCC and Radstock is valid in relation
to the Constitution, existing laws, and public policy.
SUPREME COURT RULING
Radstock is a private corporation incorporated in theBritish Virgin Islands. Its office
address is at Suite 14021Duddell Street, Central Hongkong. As a foreign corporation, with
unknown owners whose nationalities are also unknown, Radstock is not qualified to own
land inthe Philippines pursuant to Section 7, in relation to Section3, Article XII of the
Constitution. Consequently, Radstock is also disqualified to own the rights to ownership of
lands in the Philippines. Contrary to the OGCCs claim, Radstock cannot own the rights to
ownership of any land in the Philippines because Radstock cannot lawfully own the land
itself. Otherwise, there will be a blatant circumvention of the Constitution, which prohibits a
foreign private corporation from owning land in the Philippines. In addition, Radstock cannot
transfer the rights to ownership of land in the Philippines if it cannot own the land itself. It is
basic that an assignor or seller cannot assign or sell something he does not own at the time
the ownership, or the rights to the ownership, are to be transferred to the assignee or
buyer.

11. J.G. SUMMIT HOLDINGS, INC., PETITIONER, VS. COURT OF APPEALS; COMMITTEE
ON PRIVATIZATION, ITS CHAIRMAN AND MEMBERS; ASSET PRIVATIZATION TRUST;
AND PHILYARDS HOLDINGS, INC., RESPONDENTS.
FACTS
Joint Venture
On January 27, 1977, the National Investment and Development Corporation (NIDC),
a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and
management of the Subic National Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and
KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the proportion
of 60%-40% respectively.
One of its salient features is the grant to the parties of the right of first refusal
should either of them decide to sell, assign or transfer its interest in the joint venture but it
shall not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or
by a KAWASAKI affiliate. On November 25, 1986, NIDC transferred all its rights, title and
interest in PHILSECO to the Philippine National Bank (PNB).
Such interests were subsequently transferred to the National Government pursuant
to Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued
Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset
Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose
of non-performing assets of the National Government.
Thereafter, on February 27, 1987, a trust agreement was entered into between the
National Government and the APT wherein the latter was named the trustee of the National
Governments share in PHILSECO. In 1989, as a result of a quasi-reorganization of

PHILSECO to settle its huge obligations to PNB, the National Governments shareholdings in
PHILSECO increased to 97.41% thereby reducing KAWASAKIs shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT
deemed it best to sell the National Governments share in PHILSECO to private entities.
After a series of negotiations between the APT and KAWASAKI, they agreed that the latters
right of first refusal under the JVA be exchanged for the right to top by five percent (5%)
the highest bid for the said shares. They further agreed that KAWASAKI would be entitled to
name a company in which it was a stockholder, which could exercise the right to top. On
September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would
exercise its right to top.
Bidding
At the pre-bidding conference held on September 18, 1993, interested bidders were
given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding
Rules (ASBR) drafted for the National Governments 87.6% equity share in PHILSECO
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.
submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an
acknowledgement of KAWASAKI/Philyards right to top. On February 7, 1994, the APT
notified petitioner that PHI had exercised its option to top the highest bid and that the COP
had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI
executed a Stock Purchase Agreement.
Petitions
Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No.
114057. On May 11, 1994, said petition was referred to the Court of Appeals. On July 18,
1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition for
mandamus was not the proper remedy to question the constitutionality or legality of the
right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the
matter must be brought by the proper party in the proper forum at the proper time and
threshed out in a full blown trial.
The Court of Appeals further ruled that the right of first refusal and the right to top
are prima facie legal and that the petitioner, by participating in the public bidding, with full
knowledge of the right to top granted to KASAWASAKI/Philyards is . . . estopped from
questioning the validity of the award given to Philyards after the latter exercised the right to
top and had paid in full the purchase price of the subject shares, pursuant to the ASBR.
Petitioner filed a Motion for Reconsideration of said Decision which was denied on March 15,
1996.
Petitioner thus filed a Petition for Certiorari with Supreme Court alleging grave abuse
of discretion on the part of the appellate court.
On November 20, 2000, Supreme Court ruled that a shipyard like PHILSECO is a
public utility whose capitalization must be sixty percent (60%) Filipino-owned.
Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding
Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in
PHILSECO is illegal---not only because it violates the rules on competitive bidding--- but
more so, because it allows foreign corporations to own more than 40% equity in the
shipyard.
It also held that although the petitioner had the opportunity to examine the ASBR
before it participated in the bidding, it cannot be estopped from questioning the
unconstitutional, illegal and inequitable provisions thereof.
Thus, Supreme Court voided the transfer of the national governments 87.67% share
in PHILSECO to Philyard Holdings, Inc., and upheld the right of JG Summit, as the highest
bidder, to take title to the said shares.
Respondents filed separate Motions for Reconsideration. In a Resolution dated
September 24, 2003, Supreme Court ruled in favor of the respondents. The Court held that
PHILSECO is not a public utility and that no law declares a shipyard to be a public utility. It
also ruled that they found nothing in the 1977 Joint Venture Agreement (JVA) which
prevents KAWASAKI from acquiring more than 40% of PHILSECOs total capitalization. The
Court held also that the right to top granted to KAWASAKI in exchange for its right of first
refusal did not violate the principles of competitive bidding.
ISSUE: Whether or not KAWASAKI, a foreign corporation, can exercise the right of first
refusal even it will exceed 40% shares of PHILSECOs total capitalization

SUPREME COURT RULING

The Court upholds the validity of the mutual rights of first refusal under the JVA
between KAWASAKI and NIDC. First of all, the right of first refusal is a property right of
PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA. This right
allows them to purchase the shares of their co-shareholder before they are offered to a third
party. The agreement of co-shareholders to mutually grant this right to each other, by itself,
does not constitute a violation of the provisions of the Constitution limiting land ownership
to Filipinos and Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still owns
land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to
maintain the 60%-40% ratio. This transfer, by itself, does not amount to a violation of the
Anti-Dummy Laws, absent proof of any fraudulent intent. The transfer could be made either
to a nominee or such other party which the holder of the right of first refusal feels it can
comfortably do business with. Alternatively, PHILSECO may divest of its landholdings, in
which case KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECOs
equity. In fact, it can even be said that if the foreign shareholdings of a landholding
corporation exceeds 40%, it is not the foreign stockholders ownership of the
shares which is adversely affected but the capacity of the corporation to own land
that is, the corporation becomes disqualified to own land. This finds support under
the basic corporate law principle that the corporation and its stockholders are separate
juridical entities. In this vein, the right of first refusal over shares pertains to the
shareholders whereas the capacity to own land pertains to the corporation. Hence,
the fact that PHILSECO owns land cannot deprive stockholders of their right of first refusal.
No law disqualifies a person from purchasing shares in a landholding corporation
even if the latter will exceed the allowed foreign equity, what the law disqualifies
is the corporation from owning land.

12. MARISSA R. UNCHUAN, PETITIONER, VS. ANTONIO J.P. LOZADA, ANITA LOZADA
AND THE REGISTER OF DEEDS OF CEBU CITY, RESPONDENTS.
FACTS

Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the registered coowners of Lot Nos. 898-A-3 and 898-A-4 covered by Transfer Certificates of Title (TCT) Nos.
53258 and 53257 in Cebu City.
The sisters, who were based in the United States, sold the lots to their nephew
Antonio J.P. Lozada (Antonio) under a Deed of Sale dated March 11, 1994. Armed with a
Special Power of Attorney from Anita, Peregrina went to the house of their brother, Dr.
Antonio Lozada (Dr. Lozada), located at Long Beach California. Dr. Lozada agreed to
advance the purchase price of US$367,000 or P10,000,000 for Antonio, his nephew, in
preparation for their plan to form a corporation. The lots are to be eventually infused in the
capitalization of Damasa Corporation, where he and Antonio are to have 40% and 60%
stake, respectively. The Deed of Sale was later notarized and authenticated at the Philippine
Consul's Office. Dr. Lozada then forwarded the deed, special power of attorney, and owners'
copies of the titles to Antonio in the Philippines. Upon receipt of said documents, the latter
recorded the sale with the Register of Deeds of Cebu. Accordingly, TCT Nos. 128322 and
128323 were issued in the name of Antonio Lozada.
Pending registration of the deed, petitioner Marissa R. Unchuan caused the
annotation of an adverse claim on the lots claiming that Anita donated an undivided share in
the lots to her under an unregistered Deed of Donation dated February 4, 1987.
Filing of Cases
Antonio and Anita brought a case against Marissa for quieting of title with application
for preliminary injunction and restraining order. Marissa for her part, filed an action to
declare the Deed of Sale void and to cancel TCT Nos. 128322 and 128323. On motion, the
cases were consolidated and tried jointly.
On June 9, 1997, RTC Judge Leonardo B. Caares held in favor of the plaintiff
Antonio and Anita.
On motion for reconsideration by petitioner, the RTC of Cebu City, Branch 10, with
Hon. Jesus S. dela Pea as Acting Judge, issued an Order dated April 5, 1999 declaring the
Deed of Sale void and declared the Deed of Donation in favor of Marissa valid. The RTC gave
credence to the medical records of Peregrina.

Respondents moved for reconsideration. On July 6, 2000, now with Hon. Soliver C.
Peras, as Presiding Judge, the RTC of Cebu City, Branch 10, reinstated the Decision dated
June 9, 1997.
Petitioner appealed to the Court of Appeals. On February 23, 2006 the appellate
court affirmed with modification the July 6, 2000 Order of the RTC.
Petitioner raised the case at the Supreme Court. One of her contention is she finds it
anomalous that Dr. Lozada, an American citizen, had paid the lots for Antonio. Thus, she
accuses the latter of being a mere dummy of the former.
ISSUE: Whether or not Dr. Lozada, an American, can own a lot in the Philippines
SUPREME COURT RULING
The Court finds nothing to show that the sale between the sisters Lozada and their
nephew Antonio violated the public policy prohibiting aliens from owning lands in the
Philippines. Even as Dr. Lozada advanced the money for the payment of Antonio's share, at
no point were the lots registered in Dr. Lozada's name. Nor was it contemplated that the lots
be under his control for they are actually to be included as capital of Damasa Corporation.
According to their agreement, Antonio and Dr. Lozada are to hold 60% and 40% of the
shares in said corporation, respectively. Under Republic Act No. 7042, particularly Section 3,
a corporation organized under the laws of the Philippines of which at least 60% of the
capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines, is considered a Philippine National. As such, the corporation may acquire
disposable lands in the Philippines.

13. Arnold Hall vs. Piccio, 86 SCRA 634

FACTS:
This a petition seeking to set aside all the proceedings had in Civil Case No. 381 of
the Court of First Instance of Leyte and to enjoin the respondent judge to further act on the
same.
The antecedent facts are that petitioners together with private respondents signed
and acknowledged the articles of incorporation of Far Eastern Lumber and Commercial Co.,
Inc., attaching a treasurers affidavit, adopted by-laws, and elected its officers. Then said
articles were filed in the office of the Securities and Exchange Commissioner for the
issuance of certificate of incorporation.
However, pending action of said articles, respondents filed a civil case against
petitioners alleging that Far Eastern Lumber and Commercial Co., Inc. was an unregistered
partnership and that they wished its dissolution due to various reasons. Petitioners filed a
motion to dismiss but no avail respondent judge ordered the dissolution and as requested
by respondents, appointed Capuciong as receiver upon filing of twenty thousand bond.
Petitioners offered a counter bond for the discharge of the receiver but respondent
judge refused. Hence, this instant petition.
ISSUE:
Whether or not the court has jurisdiction to decree the dissolution of the company,
because it being a de facto corporation, dissolution thereof may only be ordered in a quo
warranto proceeding.
DECISION:
As provided by Sec. 19, the due incorporation of any corporation claiming in good
faith to be a corporation under the Corporation Code and its right to exercise corporate
powers shall not be inquired into in any private suit which the corporation is a party may be
had at the suit of the Insular Government on information of the Attorney-General.
However, this provision is not applicable in this case for subject corporation is not yet
incorporated. It is basic that the issuance of a certificate of incorporation grants a

corporation its being. Neither can petitioner or even the stockholders claim that their
corporation is in good faith to be a corporation.
Another reason is that the corporation is not a party to the present suit. The case is
between the stockholders for the purpose of alleged corporations dissolution.
The alleged corporation clearly being not a de facto corporation holds valid the
jurisdiction of the court as exercised by respondent judge.
The petition is dismissed.

14. Asia Banking Corp vs. Standard, 46 Phil 145

FACTS:
Plaintiff-appellee filed a complaint for sum of money against defendant-appelant as
evidenced by a promissory note executed by the latter. Trial court rendered decision in favor
of plaintiff-appellee.
During the trial, defendant-appellant alleges that plaintiff-appellee failed to prove
affirmatively the corporate existence of the parties and assigns the same error to the trial
court. The defendant-appellant reiterates this in its appeal.
ISSUE:
Whether or not the court erred in finding that the parties were corporations.
DECISION:
As derived from acts of defendant-appellant such as making a promissory note in
favor of plaintiff-appellee and making partial payments to the same clearly signifies
recognition of the latters corporate existence.
By dealing with plaintiff-appellee, the defendant-appellant is estopped from denying
its corporate existence,

15.Lim Tong Lim vs. Philippine Fishing, 317 SCRA 728

Facts of the Case:

On behalf of Ocean Quest Fishing Corporation, Antonio Chua and Peter Yao entered
into Contract with Philippine Fishing Gear Industries, Inc. (herein respondent) for purchase
of fishing nets of various sizes amounting to P532,045.00 and four hundred floats worth
P68,000.00. Chua and Yao represent themselves that they were engaged in a business
venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement.

The buyers failed to pay their obligation causing private respondent to file a
collection suit against Chua, Yao and petitioner Lim in their capacities as general partners on
the allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as
shown by a Certification from the Securities and Exchange Commission. The lower court
issued a Writ of Preliminary Attachment, attaching the fishing nets. Chua filed a
Manifestation admitting his liability and request for a reasonable time to pay. He also turned
over some of the nets in his possession. Peter Yao filed an Answer, but deemed to have
waived his right to cross examine witnesses and to present evidence. Lim Tong Lim filed an
Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment. The trial court rendered it decision ruling that Philippine Fishing Gear Industries
was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners,
were jointly liable to pay. The trial court noted of the Compromise Agreement entered by
the Chua, Yao and petitioner Lim where their nature of obligation was silent but joint liability
could be presumed from the equal distribution of profit and loss. Lim appealed the decision
to the Court of Appeals but the same was affirmed by the CA.

Issues Related to the Topic:

Whether or not Lim Tong Lim is liable for the transaction entered into by Chua and
Yao with Philippine Fishing Gear Industries, Inc. under the doctrine of corporation by
estoppel.

Decision of the Supreme Court:

Section 21 of the Corporation Code of the Philippines provides:

"Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all debts,
liabilities and damages incurred or arising as a result thereof: Provided however, That when
any such ostensible corporation is sued on any transaction entered by it as a corporation or
on any tort committed by it as such, it shall not be allowed to use as a defense its lack of
corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation."

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a

party may be estopped from denying its corporate existence. "The reason behind this
doctrine is obvious - an unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes of a corporation as
provided by law; it cannot create agents or confer authority on another to act in its behalf;
thus, those who act or purport to act as its representatives or agents do so without
authority and at their own risk. And as it is an elementary principle of law that a person who
acts as an agent without authority or without a principal is himself regarded as the principal,
possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for contracts entered into or for
other acts performed as such agent."

Petitioner contests that he should not be held liable since his name does not appear
in any of the contracts and never directly transacted with the respondent corporation.
However, petitioner was benefited from the use of the nets found on a boat proven to be
owned by the partnership. It is clear from the findings of the RTC and CA that Chua, Yao
and Lim decided to form a corporation but for unknown reasons it was not legally formed,
however, this does not preclude the liabilities of the three as contracting parties in
representation of it. Under the law on estoppels, 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. Eventhough, petitioner Lim did not act directly on behalf of the corporation, he has
reaped the benefits of the contract entered into by persons with whom he previously had an
existing relationship, he is deemed part of said associations and is therefore covered by the
scope of the doctrine of corporation by estoppels.

16. People vs. Garcia, 271 SCRA 621

FACTS:
Respondents are the accused in a criminal case for illegal recruitment decided by the
RTC of Mandaluyong. Six of the sixteen complainants in the criminal case testified as
witnesses. They testified that on various dates in March 1992, they went to Ricorn Philippine
International Shipping Lines, Inc., to apply as seamen, cook, waiter, chambermaid or
laundrywoman overseas. They passed requirements for application, paid the processing fee,
and were issued receipts under Ricorn's heading.
When the complainants returned to check on their applications, they discovered that
Ricorn had abandoned its office at Jovan Building for non-payment of rentals. They went
back to the building several times to recover their money but to no avail. Garcia and Botero
were also nowhere to be found. Thus they filed their complaints. They also found out with
the Securities and Exchange Commission that Ricorn was not yet incorporated and was not
licensed by the Department of Labor and Employment (DOLE) to engage in recruitment
activities.
After trial, accused Garcia and Botero were convicted. Only accused Botero, thru
counsel, filed a Notice of Appeal.
ISSUE:

Whether or not Botero shall be solidarily liable with the illegal acts of Ricorn.
DECISION:
Since the Ricorn engaged in the recruitment of workers despite lacking a POEA
license, Botero should suffer the consequences of Ricorn's illegal act for if 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.
Albeit Ricorn is not a duly incorporated corporation, Botera cannot avoid his liabilities to the
public for he held himself out as an incorporator and officer of Ricorn. Section 25 of the
Corporation Code provides that "(a)ll persons who assume to act as a corporation knowing it
to be without authority to do so shall be liable as general partners for all the debts, liabilities
and damages incurred or arising as a result thereof: Provided, however, That when any such
ostensible corporation is sued on any transaction entered by it as a corporation or on any
tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality."
17. NTC vs. CA 311 SCRA 508
FACTS:
Instant petition is for Review on Certiorari under Rule 45 of the Revised Rules of
Court seeking to modify the decision and resolution of the CA in CA-G.R. SP No. 34063
between the NTC and PLDT.
Sometime in 1988, the National Telecommunications Commission served on the
Philippine Long Distance Telephone Company various assessment notices and demands for
payment. These are the amount of P7,495,161.00 as supervision and regulation fee under
Section 40 (e) of the PSA for the said year, 1988, computed at P0.50 per P100.00 of the
PLDTs outstanding capital stock as at December 31, 1987 which then consisted of Serial
Preferred Stock amounting to P1,277,934,390.00 and Common Stock of P221,097,785 or a
total of P1,499,032,175.00; the amount of P9.0 Million as permit fee under Section 40 (f) of
the PSA for the approval of the protestant's increase of its authorized capital stock from
P2.7 Billion to P4.5 Billion; the amounts of P12,261,600.00 and P33,472,030.00 as permit
fees under Section 40 (g) of the PSA in connection with the Commission's decisions in NTC
Cases Nos. 86-13 and 87-008 respectively, approving the PLDTs equity participation in the
Fiber Optic Interpacific Cable systems and X-5 Service Improvement and Expansion
Program.
PLDT protested these assessments and alleged that they were being made to raise
revenues and not as mere reimbursements for ctual regulatory expenses in violation of the
doctrine in PLDT vs. PSC, 66 SCRA 341. Further that, the assessments should only have
been on the basis of the par values of private respondent's outstanding capital stock.
Moreover, that petitioner has no authority to compel private respondent's payment of the
assessed fees under Section 40 (f) for the increase of its authorized capital stock since
petitioner did not render any supervisory or regulatory activity and incurred no expenses in
relation thereto.
NTC denied PLDTs protest. The latter interposed a Motion for Reconsideration but is
likewise denied. Upon appeal, NTCs decision was modified hence this instant petition.
ISSUE:
Whether the the computation of supervision and regulation fees under section 40 (f)
of the public service act should be based on the par value of the subscribed capital stock.

DECISION:

As decided by this Court in the case of Philippine Long Distance Telephone Company
vs. Public Service Commission, 66 SCRA 341, that the basis for computation of the fee to be
charged by NTC on PLDT, is "the capital stock subscribed or paid and not, alternatively, the
property and equipment."
Capital refers to the value of the property or assets of a corporation. The capital
subscribed is the total amount of the capital that subscribers or shareholders have agreed to
take and pay for, equivalent or can be more than the par value of the shares. Briefly, it is
the amount that the corporation receives, inclusive of the premiums if any, in consideration
of the original issuance of the shares.
The "Trust Fund" doctrine considers this subscribed capital as a trust fund for the
payment of the debts of the corporation, to which the creditors may look for satisfaction.
Until the liquidation of the corporation, no part of the subscribed capital may be returned or
released to the stockholder without violating this principle.
Reiterating the aforesaid ruling of this Court in the case of Philippine Long Distance
Telephone Company vs. Public Service Commission, the proper basis for the computation of
subject fee under Section 40(e) of the Public Service Act, as amended by Republic Act No.
3792, is "the capital stock subscribed or paid and not, alternatively, the property and
equipment.
18.Ong Yong vs. Tiu, 401 SCRA 1
Facts of the Case:

In 1994, the construction of the Masagana Citimall in Pasay City was threatened with
stoppage and incompletion when its owner, the First Landlink Asia Development Corporation
(FLADC), which was owned by the Tius, encountered dire financial difficulties. It was heavily
indebted to the Philippine National Bank (PNB) for P190 million. To stave off foreclosure of
the mortgage on the two lots where the mall was being built, the Tius invited Ong Yong,
Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the
Ongs), to invest in FLADC. Under the Pre-Subscription Agreement they entered into, the
Ongs and the Tius agreed to maintain equal shareholdings in FLADC: the Ongs were to
subscribe to 1,000,000 shares at a par value of P100.00 each while the Tius were to
subscribe to an additional 549,800 shares at P100.00 each in addition to their already
existing subscription of 450,200 shares. Furthermore, they agreed that the Tius were
entitled to nominate the Vice-President and the Treasurer plus five directors while the Ongs
were entitled to nominate the President, the Secretary and six directors (including the
chairman) to the board of directors of FLADC. Moreover, the Ongs were given the right to
manage and operate the mall.

Accordingly, the Ongs paid P100 million in cash for their subscription to 1,000,000
shares of stock while the Tius committed to contribute to FLADC a four-storey building and
two parcels of land respectively valued at P20 million (for 200,000 shares), P30 million (for
300,000 shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800
stock subscription therein. The Ongs paid in another P70 million to FLADC and P20 million to
the Tius over and above their P100 million investment, the total sum of which (P190 million)
was used to settle the P190 million mortgage indebtedness of FLADC to PNB.

The business harmony between the Ongs and the Tius in FLADC, however, was
shortlived because the Tius, on February 23, 1996, rescinded the Pre-Subscription
Agreement. The Tius accused the Ongs of (1) refusing to credit to them the FLADC shares
covering their real property contributions; (2) preventing David S. Tiu and Cely Y. Tiu from
assuming the positions of and performing their duties as Vice-President and Treasurer,
respectively, and (3) refusing to give them the office spaces agreed upon.

The controversy was elevated to the Securities and Exchange Commission

(SEC) where then Hearing Officer Rolando G. Andaya issued a decision affirming the
rescission. Both parties appealed the decision to the SEC en banc. Unsatisfied with the
decision appeal to the Court of Appeals was made and then a petition for review with the
Supreme Court. The Courts decision (subject to the instant petition) is as follows:

1. the P20 million loan extended by the Ongs to the Tius shall earn interest at
twelve percent (12%) per annum to be computed from the time of judicial
demand which is from April 23, 1996;
2. the P70 million advanced by the Ongs to the FLADC shall earn interest at ten
percent (10%) per annum to be computed from the date of the FLADC Board
Resolution which is June 19, 1996; and
3. the Tius shall be credited with 49,800 shares in FLADC for their property
contribution, specifically, the 151 sq. m. parcel of land.
The Court also affirmed that both parties have violated their respective obligations under
the Pre-Subscription Agreement.

Tius filed before this Court a Motion for Issuance of a Writ of Execution, while the
Ongs filed a Motion for Reconsideration.

Issues Related to the Topic:

Whether or not the Tius has the right to rescind the Pre-Subscription
Agreement.

Decision of the Supreme Court:

First Landlink Asia Development Corporation (FLADC) was originally incorporated

with an authorized capital stock of 500,000 shares with the Tius owning 450,200 shares
representing the paid-up capital. Only due to the financial constraint that the company has
suffered that the Tius invited the Ongs to invest in FLDC. The authorized capital stocks of
FLADC was then increase to 2,000,000 to accommodate the investment of Ongs. The Ongs
subscribing 1,000,000 shares and the other 1,000,000 to Tius. Thus, the subject matter of
the contract was to 1,000,000 unissued shares of FLADC stock allocated to the Ongs. Since
these were unissued shares, the parties Pre-Subscription Contract was in fact a subscription
contract as defined under Section 60, Title VII of the Corporation Code:

Any contract for the acquisition of unissued stock in an existing corporation or a

corporation still to be formed shall be deemed a subscription within the meaning of this
Title, notwithstanding the fact that the parties refer to it as a purchase or some other
contract (Italics supplied).

A subscription contract involves the corporation as one of the contracting parties

since the subject matter of the transaction is the property owned by the corporation its
shares of stocks. The real contracting parties to the subscription agreement were FLADC
and the Ongs alone, therefore the civil case for rescission on the ground of breach of
contract filed by the Tui in their personal capacity will not prosper.

In addition, civil case for rescission on the ground of breach of contract filed by the
Tius in their personal capacity will violate the Trust Fund Doctrine and the procedures for the
valid distribution of assets and property under the Corporation Code.

The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine
Trust Co. vs. Rivera, provides that subscriptions to the capital stock of a corporation
constitute a fund to which the creditors have a right to look for the satisfaction of their
claims. This doctrine is the underlying principle in the procedure for the distribution of
capital assets, embodied in the Corporation Code, which allows the distribution of corporate
capital only in three instances: (1) amendment of the Articles of Incorporation to reduce the
authorized capital stock, (2) purchase of redeemable shares by the corporation, regardless
of the existence of unrestricted retained earnings, and (3) dissolution and eventual
liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the
power of a corporation to acquire its own shares and in Section 122 on the prohibition
against the distribution of corporate assets and property unless the stringent requirements
therefor are complied with. The distribution of corporate assets and property cannot be

made to depend on the whims and caprices of the stockholders, officers or directors of the
corporation, or even, for that matter, on the earnest desire of the court a quo to prevent
further squabbles and future litigations unless the indispensable conditions and procedures
for the protection of corporate creditors are followed. Otherwise, the corporate peace
laudably hoped for by the court will remain nothing but a dream because this time, it will be
the creditors turn to engage in squabbles and litigations should the court order an
unlawful distribution in blatant disregard of the Trust Fund Doctrine.

In the instant case, the rescission of the Pre-Subscription Agreement will effectively
result in the unauthorized distribution of the capital assets and property of the corporation,
thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a
subscription agreement is not one of the instances when distribution of capital assets and
property of the corporation is allowed. Contrary to the Tius allegation, rescission will, in the
final analysis, result in the premature liquidation of the corporation without the benefit of
prior dissolution in accordance with Sections 117, 118, 119 and 120 of the Corporation
Code.

Therefore, the Court uphold the Motion for Reconsideration filed by the Ongs that
there was no violation of the Pre-subscription and the Petition for Confirmation of the
Rescission of the Pre-Subscription Agreement filed by the Tius is dismissed.
19.Turner vs. Lorenzo, 636 SCRA 13
Facts of the Case:

Philip Turner and Elnora Turner, petitioners in this case, are holders of 1,010,000
shares of stock of Lorenzo Shipping Corporation, respondent, a domestic corporation
engaged primarily in cargo shipping activities. In June 1999, the respondent corporation
decided to amend it articles of incorporation to remove the stockholders pre-emptive right
to newly issued shares of stocks. The petitioners voted against the amendment and
demanded payment of their shares at the rate of P2.276/share based on the book value of
the shares or a total of P2,298,760.00.

The respondent insist that the market value on the date before the action to remove
the pre-emptive right was taken should be the value or P0.41/share totaling to P414,100.00
as the shares were listed in the Philippine Stock Exchange. As the parties disagree as to the
valuation of the shares, an appraisal committee was constituted pursuant to Section 82 of
the Corporation Code and the appraisal committee came up with value of P2.54/share.

Petitioners demanded payment based on the appraisal committees valuation plus

2%/month penalty from the date of their original demand. The respondents refused to pay
for the reason that under the Corporation Code, the dissenting stockholders exercising their
appraisal rights could only be paid only when the corporation has unrestricted retained
earnings to cover the fair value of the shares but it had no retained earnings at the time of
the petitioners demand. Petitioners sued the respondent for collection and damages in the
RTC where it granted the petitioners motion.

Respondent filed a special civil action for certiorari on the Court of Appeals. The
decision of the CA was that the on the time when the complaint was filed the petitioners
have no right of actions since the company has no unrestricted retained earnings, therefore
the RTC judge has abused its discretion when it entertained the complaint issued the
assailed orders. The decision of the RTC was reversed. Hence, this petition for review.

Issues Related to the Topic:

Whether or not the petitioners have the right to demand payment of their
shares when the corporation has no unrestricted retained earnings.

Decision of the Supreme Court:

A stockholder who dissents from certain corporate actions has the right to demand
payment of the fair value of his or her shares. This right, known as the right of appraisal, is
expressly recognized in Section 81 of the Corporation Code, to wit:

Section 81. Instances of appraisal right. - Any stockholder of a corporation shall have
the right to dissent and demand payment of the fair value of his shares in the following
instances:

1. In case any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences in
any respect superior to those of outstanding shares of any class, or of extending or
shortening the term of corporate existence;

2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in the Code; and
3. In case of merger or consolidation. (n)

However, a corporation can purchase its own shares, provided payment is

made out of surplus profits and the acquisition is for legitimate corporate purposes.

Section 41 of the Corporation Code expressly provides for the procedure on how a
corporation can reacquire its shares, to wit:

Section 41. Power to acquire own shares. - A stock corporation shall have the power
to purchase or acquire its own shares for a legitimate corporate purpose or purposes,
including but not limited to the following cases: Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or acquired:

1. To eliminate fractional shares arising out of stock dividends;

2. To collect or compromise an indebtedness to the corporation, arising out of

unpaid subscription, in a delinquency sale, and to purchase delinquent shares
sold during said sale; and

1. To pay dissenting or withdrawing stockholders entitled to payment for

their shares under the provisions of this Code. (n)
The Corporation Code also defines how the right of appraisal is exercised, as well as
the implications of the right of appraisal, as follows:

1. The appraisal right is exercised by any stockholder who has voted against the
proposed corporate action by making a written demand on the corporation
within 30 days after the date on which the vote was taken for the payment of
the fair value of his shares. The failure to make the demand within the period
is deemed a waiver of the appraisal right.
2. If the withdrawing stockholder and the corporation cannot agree on the fair
value of the shares within a period of 60 days from the date the stockholders

approved the corporate action, the fair value shall be determined and
appraised by three disinterested persons, one of whom shall be named by the
stockholder, another by the corporation, and the third by the two thus chosen.
The findings and award of the majority of the appraisers shall be final, and
the corporation shall pay their award within 30 days after the award is made.
Upon payment by the corporation of the agreed or awarded price, the
stockholder shall forthwith transfer his or her shares to the corporation.
3. All rights accruing to the withdrawing stockholder's shares, including voting
and dividend rights, shall be suspended from the time of demand for the
payment of the fair value of the shares until either the abandonment of the
corporate action involved or the purchase of the shares by the corporation,
except the right of such stockholder to receive payment of the fair value of
the shares.
4. Within 10 days after demanding payment for his or her shares, a dissenting
stockholder shall submit to the corporation the certificates of stock
representing his shares for notation thereon that such shares are dissenting
shares. A failure to do so shall, at the option of the corporation, terminate his
rights under this Title X of the Corporation Code. If shares represented by the
certificates bearing such notation are transferred, and the certificates are
consequently canceled, the rights of the transferor as a dissenting stockholder
under this Title shall cease and the transferee shall have all the rights of a
regular stockholder; and all dividend distributions that would have accrued on
such shares shall be paid to the transferee.
5. If the proposed corporate action is implemented or effected, the corporation
shall pay to such stockholder, upon the surrender of the certificates of stock
representing his shares, the fair value thereof as of the day prior to the date
on which the vote was taken, excluding any appreciation or depreciation in
anticipation of such corporate action.
Therefore as explicitly stated in the Corporation Code, no payment shall be made to
any dissenting stockholder unless the corporation has unrestricted retained earnings in its
books to cover the payment. In case the corporation has no available unrestricted retained
earnings in its books, Section 83 of the Corporation Code provides that if the dissenting
stockholder is not paid the value of his shares within 30 days after the award, his voting and
dividend rights shall immediately be restored. The Trust Fund Doctrine also restricts the
distribution of a corporations share to its stockholders. Under the 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. The creditors of a corporation have the right to assume that the board of directors
will not use the assets of the corporation to purchase its own stock for as long as the
corporation has outstanding debts and liabilities. There can be no distribution of assets
among the stockholders without first paying corporate debts. Thus, any disposition of
corporate funds and assets to the prejudice of creditors is null and void.

The decision of the Court of Appeals was affirmed by the Court.

20. Nautica vs. Yumul, 473 SCRA 415

FACTS:
Respondent is the Chief Operating Officer/General Manager of Nautica. He was
granted an Option to Purchase[5] up to 15% of the total stocks it subscribed from Nautica.
On June 22, 1995, a Deed of Trust and Assignment[6] was executed between First Dominion
Prime Holdings, Inc. and Yumul whereby the former assigned 14,999 of its subscribed
shares in Nautica to the latter. The deed stated that the 14,999 "shares were acquired and
paid for in the name of the ASSIGNOR only for convenience, but actually executed in behalf
of and in trust for the ASSIGNEE."
The following year, Nautica declared a P35,000,000 cash dividend, P8,250,000 of
which
was
paid
to
Yumul
representing
his
15%
share.
Upon respondents resignation, he wrote a letter to Dee requesting the latter to
formalize his offer to buy Yumul's 15% share in Nautica on or before August 20, 1996; and
demanding the issuance of the corresponding certificate of shares in his name should Dee
refuse to buy the same. Deedenied the request claiming that Yumul was not a stockholder
of Nautica. Respondent then requested that the Deed of Trust and Assignment be recorded
in the Stock and Transfer Book of Nautica, and that he, as a stockholder, be allowed to
inspect
its
books
and
records.
His requests were denied allegedly because he neither exercised the option to purchase the
shares nor paid for the acquisition price of the 14,999 shares and that the cash dividend
received by him is only held in trust for First Dominion Prime Holdings, Inc.
This led respondent to file a a petition for mandamus with damages, with prayer that
the Deed of Trust and Assignment be recorded in the Stock and Transfer Book of Nautica
and that the certificate of stocks corresponding thereto be issued in his name.
The SEC decided in favor of respondent. Upon appeal, the CA affirmed in toto.
Hence, petitioner corporation is assailing decision of appellate court through this petition.
ISSUE:

Whether or not respondent is a stockholder of petitioner corporation

DECISION:
Surely, it is possible for a business to be completely controlled by one individual. The
validity of its incorporation is not impacted when such individual gives apparent obligation
regarding one offer of stock to each of the other four incorporators. This is not necessarily
illegal. But, this is just binding between or among the incorporators aware of the
agreement. It does not bind the corporation which, at the time the agreement is made, was
non-existent. Along these lines, incorporators continue being stockholders of unless,
following the incorporation, they have trasnferred their subscriptions to the real interested
partie. As between the corporation and its shareholders and third persons on the other, the
corporation just needs to look into its books to determine who its shareholders are.
The SEC and the Court of Appeals are correct to state that Yumul is a stockholder of
Nautica, of one stock recorded in Yumul's name, albeit supposedly held in trust for Dee.
Nautica's Articles of Incorporation and By-laws, and in addition the General Information
Sheet filed with the SEC presents that Yumul was an incorporator and incorporator of one
share. Conceding that there was an agreement between Yumul and Dee whereby the
previous is holding the stock in trust for Dee, the same is binding just between them.
In the eyes of the corporation, Yumul was the holder of one share of stock. As
indicated by the SEC, he has the privilege to examine the books and records of Nautica as
per Section 74 of BP Blg. 68 which expresses that the records of all business transactions of
the organization and the minutes of any meetings shall be reviewed by any interested
director, trustee, stockholder or member of the corporation.
21. Industrial Refractories vs. CA 390 SCRA 252

FACTS:
Both Petitioner and Respondent corporation are engaged in the business of supplying
monolithic gunning mix. Respondent filed on April 14, 1988 with the SEC a petition to
compel petitioner to change its corporate name on the ground that it is confusingly similar
with that of respondent so as that the public may not be confused into believing that they
are one and the same.
SEC decided in favor of respondent. Petitioner aggrieved, appealed to the SEC en
banc contending that the latter does not have jurisdiction over the case and that respondent
has no exclusive right over the use of the corporate name which is composed of generic or
common words.
SEC en banc modified the decision and ordered petitioner to drop the word
Refractories from its corporate name.
Petitioner then elevated decision on appeal. CA upheld the jurisdiction of the SEC and
that respondent had prior right over the use of the corporate name. Thus, this petition to
assail the CAs decision.
ISSUE:
Whether or not the SEC has jurisdiction over the case at bar.
DECISION:
As enclosed in Sec. 18 of the Corporation Code, It is the SEC's obligation to prevent
confusion in the use of corporate names not just for the security of the corporations
involved however all the more so for the protection of the public, and it has power to deregister at all times and under all circumstances corporate names which in its estimation are
prone to produce confusion. Clearly along these lines, the present case falls inside the
jurisdiction of the SEC's regulatory powers.
Section 18 of the Corporation Code expressly prohibits the use of a corporate name
which is identical or deceptively or confusingly similar to that of any existing corporation or
to any other name already protected by law or is patently deceptive, confusing or contrary
to existing laws. The policy behind the foregoing prohibition is to avoid fraud upon the
public that will have occasion to deal with the entity concerned, the evasion of legal
obligations and duties, and the reduction of difficulties of administration and supervision
over corporation.

22. Gala vs. Ellice Agro, 418 SCRA 431

FACTS:
The spouses Manuel and Alicia Gala, their children Guia Domingo, Ofelia Gala, Raul
Gala, and Rita Benson, together with Virgilio Galeon and Julian Jader formed the Ellice AgroIndustrial Corporation.
The Gala children Guia Domingo, Ofelia Gala, Raul Gala, together again with Virgilio
Galeon and Julian Jader formed the Margo Management and Development Corporation
(Margo).

Margo then held a special stockholders' meeting 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. During the meeting, the board
approved several actions, including the commencement of proceedings to annul certain
dispositions of Margo's property made by Alicia Gala. The board also resolved to change the
name of the corporation to MRG Management and Development Corporation.
Similarly, a special stockholders' meeting of Ellice was held on August 24, 1990 to
elect a new board of directors. In the ensuing organizational meeting later that day, a new
set of corporate officers was elected. Likewise, Raul Gala was elected as chairman,
president and general manager.
Respondents filed against petitioners with the SEC a petition for the appointment of a
management committee or receiver, accounting and restitution by the directors and officers,
and the dissolution of Ellice Agro-Industrial Corporation for alleged mismanagement,
diversion of funds, financial losses and the dissipation of assets, docketed as SEC Case No.
3747.
Thus, petitioners initiated a complaint against the respondents on June 26, 1991,
docketed as SEC Case No. 4027, praying for, among others, the nullification of the elections
of directors and officers of both Margo Management and Development Corporation and Ellice
Industrial Corporation; the nullification of all board resolutions issued by Margo from June
23, 1990 up to the present and all board resolutions issued by Ellice from August 24, 1990
up to the present; and the return of all titles to real property in the name of Margo and
Ellice, as well as all corporate papers and records of both Margo and Ellice which are in the
possession and control of the respondents.
The two cases were consolidated. SEC dismissed respondents case and issued orders
in favor of petitioners case. Upon appeal, the SEC en banc reversed and set aside the
decision. Hence, this instant petition.
ISSUE
Whether or not the lower court erred in not piercing the veils of corporate fiction of
Respondent Corporations?
DECISION:
the petitioners pray that the veil of corporate fiction that shroud both Ellice and
Margo be pierced, consistent with their earlier allegation that both corporations were formed
for purposes contrary to law and public policy. In sum, they submit that the respondent
corporations are mere business conduits of the deceased Manuel Gala and thus may be
disregarded to prevent injustice, the distortion or hiding of the truth or the "letting in" of a
just defense.
However, to warrant resort to the extraordinary remedy of piercing the veil of
corporate fiction, there must be proof that the corporation is being used as a cloak or cover
for fraud or illegality, or to work injustice, [47] and the petitioners have failed to prove that
Ellice and Margo were being used thus. They have not presented any evidence to show how
the separate juridical entities of Ellice and Margo were used by the respondents to commit
fraudulent, illegal or unjust acts. Hence, this contention, too, must fail.
It is always sad to see families torn apart by money matters and property disputes.
The concept of a close corporation organized for the purpose of running a family business or
managing family property has formed the backbone of Philippine commerce and industry.
Through this device, Filipino families have been able to turn their humble, hard-earned life
savings into going concerns capable of providing them and their families with a modicum of
material comfort and financial security as a reward for years of hard work. A family
corporation should serve as a rallying point for family unity and prosperity, not as a
flashpoint for familial strife. It is hoped that people reacquaint themselves with the

concepts of mutual aid and security that are the original driving forces behind the formation
of family corporations and use these tenets in order to facilitate more civil, if not more
amicable, settlements of family corporate disputes.

23. Hyatt vs. Goldstar, 473 SCRA 705

FACTS:
Petitioner filed a Complaint for unfair trade practices and damages under Articles 19,
20 and 21 of the Civil Code of the Philippines against LG Industrial Systems Co. Ltd. and LG
International Corporation, alleging among others, that: in 1988, it was appointed by LGIC
and LGISC as the exclusive distributor of LG elevators and escalators in the Philippines
under a "Distributorship Agreement". That LGISC, in the latter part of 1996, made a
proposal to change the exclusive distributorship agency to that of a joint venture
partnership. However, the various meetings it had with LGISC and LGIC, through the latter's
representatives, were conducted in utmost bad faith and with malevolent intentions; in the
middle of the negotiations, in order to put pressures upon it, LGISC and LGIC terminated
the Exclusive Distributorship Agreement. As a consequence, Petitioner suffered
P120,000,000.00 as actual damages, representing loss of earnings and business
opportunities, P20,000,000.00 as damages for its reputation and goodwill, P1,000,000.00 as
and by way of exemplary damages, and P500,000.00 as and by way of attorney's fees.
Subsequently, petitioner filed a motion for leave of court to amend the complaint,
alleging that subsequent to the filing of the complaint, it learned that LGISC transferred all
its organization, assets and goodwill, as a consequence of a joint venture agreement with
Otis Elevator Company of the USA, to LG Otis Elevator Company (LG OTIS, for brevity).
Thus, LGISC was to be substituted or changed to LG OTIS, its successor-in-interest.
Likewise, the motion averred that respondent GOLDSTAR was being utilized by LG OTIS and
LGIC in perpetrating their unlawful and unjustified acts against petitioner. Consequently, in
order to afford complete relief, GOLDSTAR was to be additionally impleaded as a partydefendant. Hence, in the Amended Complaint, HYATT impleaded GOLDSTAR as a partydefendant, and all references to LGISC were correspondingly replaced with LG OTIS.
GOLDSTAR then filed a Motion to Dismiss the amended complaint, raising the
following grounds: (1) the venue was improperly laid, as neither HYATT nor defendants
reside in Mandaluyong City, where the original case was filed; and (2) failure to state a
cause of action against respondent, since the amended complaint fails to allege with
certainty what specific ultimate acts Goldstar performed in violation of Hyatt's rights. The
trial court denied the motion to dismiss.

GOLDSTAR filed a motion for reconsideration thereto but to no avail. On appeal, The
CA ruled that the trial court had committed palpable error amounting to grave abuse of
discretion when the latter denied respondent's Motion to Dismiss. The appellate court held
that the venue was clearly improper, because none of the litigants "resided" in Mandaluyong

City,

where

the

case

was

filed.

According to the appellate court, since Makati was the principal place of business of both
respondent and petitioner, as stated in the latter's Articles of Incorporation, that place was
controlling for purposes of determining the proper venue. The fact that petitioner had
abandoned its principal office in Makati years prior to the filing of the original case did not
affect the venue where personal actions could be commenced and tried.
ISSUE:

Whether or not the Court of Appeals, in reversing the ruling of the Regional Trial
Court, erred in holding that in the light of the peculiar facts of this case, venue was
improper.
DECISION:
Residence is the permanent home -- the place to which, whenever absent for
business or pleasure, one intends to return. Residence is vital when dealing with venue. A
corporation, however, has no residence in the same sense in which this term is applied to a
natural person. This is precisely the reason why the Court in Young Auto Supply Company v.
Court of Appeals ruled that "for practical purposes, a corporation is in a metaphysical sense
a resident of the place where its principal office is located as stated in the articles of
incorporation." Even before this ruling, it has already been established that the residence of
a corporation is the place where its principal office is established.
Petitioner argues that the Rules of Court do not provide that when the plaintiff is a
corporation, the complaint should be filed in the location of its principal office as indicated in
its articles of incorporation. Jurisprudence has, however, settled that the place where the
principal office of a corporation is located, as stated in the articles, indeed establishes its
residence. This ruling is important in determining the venue of an action by or against a
corporation, as
in
the
present
case.
Without merit is the argument of petitioner that the locality stated in its Articles of
Incorporation does not conclusively indicate that its principal office is still in the same place.
We agree with the appellate court in its observation that the requirement to state in the
articles the place where the principal office of the corporation is to be located "is not a
meaningless requirement. That proviso would be rendered nugatory if corporations were to
be allowed to simply disregard what is expressly stated in their Articles of Incorporation.
24. Lanuza vs. CA, 454 SCRA 54
FACTS:
The Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven
hundred founders shares and seventy-six common shares as its initial capital stock
subscription reflected in the articles of incorporation. However, private respondents and
their predecessors who were in control of PMMSI registered the companys stock and
transfer book for the first time in 1978, recording thirty-three common shares as the only
issued and outstanding shares of PMMSI. Sometime in 1979, a special stockholders meeting
was called and held on the basis of what was considered as a quorum of twenty-seven
common shares, representing more than two-thirds of the common shares issued and
outstanding.

In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition
with the SEC for the registration of their property rights over one hundred founders shares
and twelve common shares owned by their father. The SEC hearing officer held that the
heirs of Acayan were entitled to the claimed shares and called for a special stockholders
meeting to elect a new set of officers. The SEC En Banc affirmed the decision. As a result,
the shares of Acayan were recorded in the stock and transfer book.
In 1992, a special stockholders meeting was held to elect a new set of directors.
Private respondents thereafter filed a petition with the SEC questioning the validity of the
latter stockholders meeting, alleging that the quorum for the said meeting should not be
based on the 165 issued and outstanding shares as per the stock and transfer book, but on
the initial subscribed capital stock of seven hundred seventy-six shares, as reflected in the
1952 Articles of Incorporation.
The petition was dismissed. Appeal was made to the SEC En Banc, which granted
said appeal, holding that the shares of the deceased incorporators should be duly
represented by their respective administrators or heirs concerned. The SEC directed the
parties to call for a stockholders meeting on the basis of the stockholdings reflected in the
articles of incorporation for the purpose of electing a new set of officers for the corporation.
The consolidated petitions essentially raised the following issues, viz:
(a) whether
the basis the outstanding capital stock and accordingly also for determining the quorum at
stockholders meetings it should be the 1978 stock and transfer book or if it should be the
1952 articles of incorporation; and (b) whether the Court of Appeals gravely erred in
applying the Espejo Decision to the benefit of respondents.[8] The Espejo Decision is the
decision of the SEC en banc in SEC Case No. 2289 which ordered the recording of the
shares
of
Jose
Acayan
in
the
stock
and
transfer
book.
The Court of Appeals held that for purposes of transacting business, the quorum
should be based on the outstanding capital stock as found in the articles of incorporation.
Hence in the instant petition, petitioners claim that the 1992 stockholders meeting
was valid and legal. They submit that reliance on the 1952 articles of incorporation for
determining the quorum negates the existence and validity of the stock and transfer book
which private respondents themselves prepared. In addition, they posit that private
respondents cannot avail of the benefits secured by the heirs of Acayan, as private
respondents must show and prove entitlement to the founders and common shares in a
separate and independent action/proceeding.
ISSUE:
Whether or not it is the companys stock and transfer book, or its 1952 Articles of
Incorporation, which determines stockholders shareholdings, and provides the basis for
computing
the
quorum.
DECISION:
The articles of incorporation has been described as one that defines the charter of
the corporation and the contractual relationships between the State and the corporation, the
stockholders and the State, and between the corporation and its stockholders.
To base the computation of quorum solely on the obviously deficient, if not
inaccurate stock and transfer book, and completely disregarding the issued and outstanding
shares as indicated in the articles of incorporation would work injustice to the owners and/or
successors in interest of the said shares. This case is one instance where resort to
documents other than the stock and transfer books is necessary. The stock and transfer
book of PMMSI cannot be used as the sole basis for determining the quorum as it does not
reflect the totality of shares which have been subscribed, more so when the articles of
incorporation show a significantly larger amount of shares issued and outstanding as
compared to that listed in the stock and transfer book.

This is precisely the reason why the Stock and Transfer Book was not given probative
value.
At the time the corporation was set-up, there were already seven hundred seventy-six (776)
issued and outstanding shares as reflected in the articles of incorporation. No proof was
adduced as to any transaction effected on these shares from the time PMMSI was
incorporated up to the time the instant petition was filed, except for the thirty-three (33)
shares which were recorded in the stock and transfer book in 1978, and the additional one
hundred thirty-two (132) in 1982. But obviously, the shares so ordered recorded in the
stock and transfer book are among the shares reflected in the articles of incorporation as
the shares subscribed to by the incorporators named therein.
WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED.
25. Hornilla vs. Salunat, 405 SCRA 220
FACTS:
Complainants filed an administrative complaint with the Integrated Bar of the
Philippines Commission on Bar Discipline, against respondent for illegal and unethical
practice and conflict of interest. They alleged that respondent is a member of the ASSA Law
and Associates, which was the retained counsel of the Philippine Public School Teachers
Association. Respondent's brother, Aurelio S. Salunat, was a member of the PPSTA Board
which approved respondent's engagement as retained counsel of PPSTA.
Complainants, who are members of the PPSTA, filed an intra-corporate case against
its members of the Board of Directors for the terms 1992-1995 and 1995-1997 before the
Securities and Exchange Commission, which was docketed as SEC Case No. 05-97-5657,
and a complaint before the Office of the Ombudsman, docketed as OMB Case No. 0-970695, for unlawful spending and the undervalued sale of real property of the PPSTA.
Respondent entered his appearance as counsel for the PPSTA Board members in the said
cases. Complainants contend that respondent was guilty of conflict of interest because he
was engaged by the PPSTA, of which complainants were members, and was being paid out
of its corporate funds where complainants have contributed. Despite being told by PPSTA
members of the said conflict of interest, respondent refused to withdraw his appearance in
the said cases.
In his answer, respondent stressed that he entered his appearance as counsel for the PPSTA
Board Members for and in behalf of the ASSA Law and Associates. As a partner in the said law firm, he
only filed a "Manifestation of Extreme Urgency" in OMB Case No. 0-97-0695. On the other hand, SEC
Case No. 05-97-5657 was handled by another partner of the firm, Atty. Agustin V. Agustin.
Respondent claims that it was complainant Atty. Ricafort who instigated, orchestrated and
indiscriminately filed the said cases against members of the PPSTA and its Board.
[4]

After investigation, Commissioner Lydia A. Navarro recommended that respondent be

suspended from the practice of law for six months. The Board of Governors thereafter adopted
Resolution No. XV-3003-230 dated June 29, 2002, approving the report and recommendation of the
Investigating Commissioner.
Respondent filed with this Court a Motion for Reconsideration of the above Resolution of the
IBP Board of Governors.

ISSUE:
Whether or not a lawyer can be engaged by a corporation defend members of the board of
the same corporation in a derivative suit?
DECISION:
In this jurisdiction, a corporation's board of directors is understood to be that body which (1)
exercises all powers provided for under the Corporation Code; (2) conducts all business of the
corporation; and (3) controls and holds all property of the corporation. Its members have been
characterized as trustees or directors clothed with a fiduciary character. It is clearly separate and
distinct from the corporate entity itself.
Where corporate directors have committed a breach of trust either by their frauds, ultra
vires acts, or negligence, and the corporation is unable or unwilling to institute suit to remedy the
wrong, a stockholder may sue on behalf of himself and other stockholders and for the benefit of the
corporation, to bring about a redress of the wrong done directly to the corporation and indirectly to
the stockholders. This is what is known as a derivative suit, and settled is the doctrine that in a
derivative suit, the corporation is the real party in interest while the stockholder filing suit for the
corporation's behalf is only nominal party. The corporation should be included as a party in the suit.
In the case at bar, the records show that SEC Case No. 05-97-5657, entitled "Philippine Public
School Teacher's Assn., Inc., et al. v. 1992-1995 Board of Directors of the Philippine Public School
Teacher's Assn. (PPSTA), et al.," was filed by the PPSTA against its own Board of Directors.
Respondent admits that the ASSA Law Firm, of which he is the Managing Partner, was the retained
counsel of PPSTA. Yet, he appeared as counsel of record for the respondent Board of Directors in the
said case. Clearly, respondent was guilty of conflict of interest when he represented the parties against
whom his other client, the PPSTA, filed suit.
Therefore, respondent is guilty of representing conflicting interests.

26.

Manila Metal vs. PNB, 511 SCRA 444

FACTS:
Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong City.
To secure a P900,000.00 loan it had obtained from respondent PNB, petitioner executed a real estate
mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation of
P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment of Real Estate
Mortgage over its property. On March 31, 1981, petitioner secured another loan of P653,000.00 from
respondent PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.
On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real
estate mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's
outstanding obligation to respondent PNB as of June 30, 1982, plus interests and attorney's fees.
The property was sold at public auction on September 28, 1982 where respondent PNB was
declared the winning bidder for P1,000,000.00.
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be
granted an extension of time to redeem/repurchase the property. However, Meanwhile, some PNB
Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not accept
"partial redemption."

Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of
account, and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the
bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes,
registration expenses, miscellaneous expenses and publication cost. When apprised of the statement
of account, petitioner remitted P725,000.00 to respondent PNB as "deposit to repurchase," and Official
Receipt No. 978191 was issued to it.
Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another
letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter
dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property for
P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner desire
to withdraw its offer to purchase the property. On February 25, 1985, petitioner, through counsel,
requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that it had
already agreed to the SAMD's offer to purchase the property for P1,574,560.47, and that was why it
had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should
PNB insist on the position.
On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had
accepted petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the
P725,000.00 already deposited with it.
Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that
respondent PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00
downpayment had been accepted, respondent PNB was proscribed from increasing the purchase price
of the property. Respondent PNB, however, rejected petitioner's offer to pay the balance of
P643,452.34 in a letter dated August 1, 1989.
On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of
Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages."
Petitioner later filed an amended complaint.
On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and
respondent PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit
petitioner had made. The trial court ruled that there was no perfected contract of sale between the
parties; hence, petitioner had no cause of action for specific performance against respondent. The trial
court declared that respondent had rejected petitioner's offer to repurchase the property. Petitioner, in
turn, rejected the terms and conditions contained in the June 4, 1985 letter of the SAMD. While
petitioner had offered to repurchase the property per its letter of July 14, 1988, the amount of
P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It further
declared that the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985 was a
"deposit," and not a downpayment or earnest money.
On appeal, The CA rendered judgment on May 11, 2000 affirming the decision of the RTC. It
declared that petitioner obviously never agreed to the selling price proposed by respondent PNB
(P1,931,389.53) since petitioner had kept on insisting that the selling price should be lowered to
P1,574,560.47. Clearly therefore, there was no meeting of the minds between the parties as to the
price or consideration of the sale.
Petitioner
filed
a
motion
for
reconsideration,
which
Thus, petitioner filed the instant petition for review on certiorari.
ISSUE:

the

CA

likewise

denied.

Whether or not petitioner and respondent PNB had entered into a perfected contract for
petitioner to repurchase the property from respondent.

DECISION:
The statement of account prepared by the SAMD stating that the net claim of respondent as of
June 25, 1984 was P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer
to purchase the property. The statement is but a computation of the amount which petitioner was
obliged to pay in case respondent would later agree to sell the property, including interests, advances
on insurance premium, advances on realty taxes, publication cost, registration expenses and
miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept
petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's
offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan
Freight Services, Inc.:
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations
shall be exercised by the board of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its
functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must
be made either by the board of directors or by a corporate agent duly authorized by the board. Absent
such valid delegation/authorization, the rule is that the declarations of an individual director relating to
the affairs of the corporation, but not in the course of, or connected with the performance of
authorized duties of such director, are held not binding on the corporation.
Thus, a corporation can only execute its powers and transact its business through its Board of
Directors and through its officers and agents when authorized by a board resolution or its by-laws.
In sum, then, there was no perfected contract of sale between petitioner and respondent over
the subject property.

27.

Woodchild vs. Roxax, 436 SCRA 235

FACTS:
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas
Electric and Construction Company, was the owner of two parcels of land, identified as Lot No. 491-A3-B-1 covered by Transfer Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by
TCT No. 78086. A portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was a dirt road
accessing to the Sumulong Highway, Antipolo, Rizal.
The respondents Board of Directors approved a resolution authorizing the corporation,
through its president, Roberto B. Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with
an area of 7,213 square meters, at a price and under such terms and conditions which he deemed
most reasonable and advantageous to the corporation; and to execute, sign and deliver the pertinent
sales documents and receive the proceeds of the sale for and on behalf of the company.
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2 covered by TCT
No. 78086 on which it planned to construct its warehouse building, and a portion of the adjoining lot,
Lot No. 491-A-3-B-1.

[3]

On July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as President of WHI, as
vendee, executed a contract to sell in which RECCI bound and obliged itself to sell to Dy Lot No. 491A-3-B-2 covered by TCT No. 78086 for P7,213,000.
Later, WHI complained to Roberto Roxas that the vehicles of RECCI were parked on a portion
of the property over which WHI had been granted a right of way. Roxas promised to look into the
matter. Dy and Roxas discussed the need of the WHI to buy a 500-square-meter portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085 as provided for in the deed of absolute sale. However, Roxas
died soon thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to
purchase a portion of the said lot as provided for in the deed of absolute sale, and complained about
the latters failure to eject the squatters within the three-month period agreed upon in the said deed.
The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085 for its beneficial use within 72 hours from notice thereof, otherwise the appropriate action
would be filed against it. RECCI rejected the demand of WHI. WHI reiterated its demand in a Letter
dated May 29, 1992. There was no response from RECCI.

On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional Trial Court of
Makati, for specific performance and damages.
On November 11, 1996, the trial court rendered judgment in favor of the WHI. The RECCI
appealed the decision to the CA, which rendered a decision on November 9, 1999 reversing that of the
trial court, and ordering the dismissal of the complaint.
ISSUE:
Whether or not the respondent is bound by the provisions in the deed of absolute sale granting
to the petitioner beneficial use and a right of way over a portion of Lot No. 491-A-3-B-1.
DECISION:
The petitioner avers that, under its Resolution of May 17, 1991, the respondent authorized
Roxas, then its president, to grant a right of way over a portion of Lot No. 491-A-3-B-1 in favor of the
petitioner, and an option for the respondent to buy a portion of the said property. The petitioner
contends that when the respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it
(respondent) was well aware of its obligation to provide the petitioner with a means of ingress to or
egress from the property to the Sumulong Highway, since the latter had no adequate outlet to the
public highway. The petitioner asserts that it agreed to buy the property covered by TCT No. 78085
because of the grant by the respondent of a right of way and an option in its favor to buy a portion of
the property covered by TCT No. 78085. It contends that the respondent never objected to Roxas
acceptance of its offer to purchase the property and the terms and conditions therein; the respondent
even allowed Roxas to execute the deed of absolute sale in its behalf.
For its part, the respondent posits that Roxas was not so authorized under the May 17, 1991
Resolution of its Board of Directors to impose a burden or to grant a right of way in favor of the
petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to the petitioner. Hence, the
respondent was not bound by such provisions contained in the deed of absolute sale. Besides, the
respondent contends, the petitioner cannot enforce its right to buy a portion of the said property since
there was no agreement in the deed of absolute sale on the price thereof as well as the specific
portion and area to be purchased by the petitioner.
Generally, the acts of the corporate officers within the scope of their authority are binding on
the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers beyond

the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or
tacitly, or is estopped from denying them.
As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
Thus, contracts entered into by corporate officers beyond the scope of authority are
unenforceable against the corporation unless ratified by the corporation.

28.

Filipinas Port vs. Go 518 SCRA 453

FACTS:
The case is actually an intra-corporate dispute involving Filport, a domestic corporation
engaged in stevedoring services with principal office in Davao City. It was initially instituted with the
Securities and Exchange Commission (SEC) where the case hibernated and remained unresolved for
several years until it was overtaken by the enactment into law, on 19 July 2000, of Republic Act (R.A.)
No. 8799, otherwise known as the Securities Regulation Code.
Petitioner Eliodoro C. Cruz, Filport's president from 1968 until he lost his bid for reelection as
Filport's president during the general stockholders' meeting in 1991, wrote a letter to the corporation's
Board of Directors questioning the board's creation of the certain positions with a monthly
remuneration of P13,050.00 each, and the election thereto of certain members of the board. In his
aforesaid letter, Cruz requested the board to take necessary action/actions to recover from those
elected to the aforementioned positions the salaries they have received.
On 15 September 1992, the board met and took up Cruz's letter. The records do not show
what specific action/actions the board had taken on the letter. Evidently, whatever action/actions the
board took did not sit well with Cruz.
On 14 June 1993, Cruz, purportedly in representation of Filport and its stockholders, among
which is herein co-petitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed with
the SEC a petition which he describes as a derivative suit against the herein respondents.
In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged that despite
demands made upon the respondent members of the board of directors to desist from creating the
positions in question and to account for the amounts incurred in creating the same, the demands were
unheeded. Cruz thus prayed that the respondent members of the board of directors be made to pay
Filport, jointly and severally, the sums of money variedly representing the damages incurred as a
result of the creation of the offices/positions complained of and the aggregate amount of the
questioned increased salaries.
The respondents denied the allegations of mismanagement and further averred that Cruz and
his co-petitioner Minterbro, while admittedly stockholders of Filport, have no authority nor standing to
bring the so-called "derivative suit" for and in behalf of the corporation; that respondent Mary Jean D.
Co has already ceased to be a corporate director and so with Fortunato V. de Castro, one of those
holding an assailed position; and that no demand to cease and desist from further committing the acts
complained of was made upon the board.
By way of affirmative defenses, respondents asserted that (1) the petition is not duly verified
by petitioner Filport which is the real party-in-interest; (2) Filport, as represented by Cruz and
Minterbro, failed to exhaust remedies for redress within the corporation before bringing the suit; and

(3) the petition does not show that the stockholders bringing the suit are joined as nominal parties. In
support of their counterclaim, respondents averred that Cruz filed the alleged derivative suit in bad
faith and purely for harassment purposes on account of his non-reelection to the board in the 1991
general stockholders' meeting.
RTC-Davao City rendered its decision against the respondents by ordering the directors holding
the positions of Assistant Vice President for Corporate Planning, Special Assistant to the President and
Special Assistant to the Board Chairman to refund to the corporation the salaries they have received
as such officers "considering that Filipinas Port Services is not a big corporation requiring multiple
executive positions"and that said positions "were just created for accommodation."
From the adverse decision of the trial court, herein respondents went on appeal. CA granted
the respondents' appeal, reversed and set aside the appealed decision of the trial court and
accordingly dismissed the so-called derivative suit filed by Cruz.
Hence, petitioners' present recourse.
ISSUE:
Whether the CA erred in holding that Filport's Board of Directors acted within its powers in
creating the executive committee and the positions of AVPs for Corporate Planning, Operations,
Finance and Administration, and those of the Special Assistants to the President and the Board
Chairman, each with corresponding remuneration, and in increasing the salaries of the positions of
Board Chairman, Vice-President, Treasurer and Assistant General Manager.
DECISION:
The governing body of a corporation is its board of directors. Section 23 of the Corporation
Code explicitly provides that unless otherwise provided therein, the corporate powers of all
corporations formed under the Code shall be exercised, all business conducted and all property of the
corporation shall be controlled and held by a board of directors. Thus, with the exception only of some
powers expressly granted by law to stockholders (or members, in case of non-stock corporations), the
board of directors (or trustees, in case of non-stock corporations) has the sole authority to determine
policies, enter into contracts, and conduct the ordinary business of the corporation within the scope of
its charter, i.e., its articles of incorporation, by-laws and relevant provisions of law. Verily, the authority
of the board of directors is restricted to the management of the regular business affairs of the
corporation, unless more extensive power is expressly conferred.

The raison d'etre behind the conferment of corporate powers on the board of directors is not
lost on the Court. Indeed, the concentration in the board of the powers of control of corporate
business and of appointment of corporate officers and managers is necessary for efficiency in any
large organization. Stockholders are too numerous, scattered and unfamiliar with the business of a
corporation to conduct its business directly. And so the plan of corporate organization is for the
stockholders to choose the directors who shall control and supervise the conduct of corporate
business.
In the present case, the board's creation of the positions of Assistant Vice Presidents for
Corporate Planning, Operations, Finance and Administration, and those of the Special Assistants to the
President and the Board Chairman, was in accordance with the regular business operations of Filport
as it is authorized to do so by the corporation's by-laws, pursuant to the Corporation Code.

29.

Tan vs. Sycip, 499 SCRA 216

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 held on April 6, 1998, there were only eleven (11) living member-trustees,
as four (4) had already died. Out of the eleven, seven (7) attended the meeting through their
respective proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. 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.
[4]

[5]

[6]

[7]

When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained
that the deceased member-trustees should not be counted in the computation of the quorum because,
upon their death, members automatically lost all their rights (including the right to vote) and interests
in the corporation.
Upon appeal, the CA dismissed the appeal of petitioners, because the Verification and
Certification of Non-Forum Shopping had been signed only by Atty. Sabino Padilla Jr. No Special Power
of Attorney had been attached to show his authority to sign for the rest of the petitioners.

Hence, this present petition.

ISSUE:
Whether or not in NON-STOCK corporations, dead members should still be counted in
determination of quorum for purposed of conducting the Annual Members' Meeting.
DECISION:
Membership in and all rights arising from a nonstock corporation are personal and nontransferable, 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.
[47]