Tayag vs Benguet

In March 1960, Idonah Perkins died in New York. She left behind properties here and
abroad. One property she left behind were two stock certificates covering 33,002 shares of
stocks of the Benguet Consolidated, Inc (BCI). Said stock certificates were in the
possession of the Country Trust Company of New York (CTC-NY). CTC-NY was the
domiciliary administrator of the estate of Perkins (obviously in the USA). Meanwhile, in
1963, Renato Tayag was appointed as the ancillary administrator (of the properties of
Perkins she left behind in the Philippines).
A dispute arose between CTC-NY and Tayag as to who between them is entitled to possess
the stock certificates. A case ensued and eventually, the trial court ordered CTC-NY to turn
over the stock certificates to Tayag. CTC-NY refused. Tayag then filed with the court a
petition to have said stock certificates be declared lost and to compel BCI to issue new
stock certificates in replacement thereof. The trial court granted Tayags petition.
BCI assailed said order as it averred that it cannot possibly issue new stock certificates
because the two stock certificates declared lost are not actually lost; that the trial court as
well Tayag acknowledged that the stock certificates exists and that they are with CTC-NY;
that according to BCIs by laws, it can only issue new stock certificates, in lieu of lost,
stolen, or destroyed certificates of stocks, only after court of law has issued a final and
executory order as to who really owns a certificate of stock.
ISSUE: Whether or not the arguments of Benguet Consolidated, Inc. are correct.
HELD: No. Benguet Consolidated is a corporation who owes its existence to Philippine
laws. It has been given rights and privileges under the law. Corollary, it also has obligations
under the law and one of those is to follow valid legal court orders. It is not immune from
judicial control because it is domiciled here in the Philippines. BCI is a Philippine
corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts.
Its shares of stock cannot therefore be considered in any wise as immune from lawful court
orders. Further, to allow BCIs opposition is to render the court order against CTC-NY a
mere scrap of paper. It will leave Tayag without any remedy simply because CTC-NY, a
foreign entity refuses to comply with a valid court order. The final recourse then is for our
local courts to create a legal fiction such that the stock certificates in issue be declared lost
even though in reality they exist in the hands of CTC-NY. This is valid. As held time and
again, fictions which the law may rely upon in the pursuit of legitimate ends have played an
important part in its development.

Further still, the argument invoked by BCI that it can only issue new stock certificates in
accordance with its bylaws is misplaced. It is worth noting that CTC-NY did not appeal the
order of the court it simply refused to turn over the stock certificates hence ownership can
be said to have been settled in favor of estate of Perkins here. Also, assuming that there
really is a conflict between BCIs bylaws and the court order, what should prevail is the
lawful court order. It would be highly irregular if court orders would yield to the bylaws of a
corporation. Again, a corporation is not immune from judicial orders.

ROXAS VS. CA
G.R. No. 118436
March 21, 1997
FACTS: This is a petition for review of the CA decision dated December 8,
1994alleging reversible error committed by respondent appellate court when
it affirmed the decision of the RTC of Cavite.

On July 1990, herein private respondent Maguesun Management and

Development Corporation (Maguesun Corporation) filed an Application for
Registration of two parcels of unregistered land located in Tagaytay City. In
support of its application for registration, Maguesun Corporation presented a
Deed of Absolute Sale dated June 10, 1990, executed by Zenaida Melliza as
vendor and indicating the purchase price to be P170,000.00. Zenaida Melliza
in turn, bought the property from the original petitioner herein (because she
was substituted by her heirs in the proceedings upon her death), Trinidad de
Leon vda. de Roxas for P200,000.00 two and a half months earlier, as
evidenced by a Deed of Sale and an Affidavit of Self-Adjudication.

Notices of the initial hearing were sent by the Land Registration Authority
(LRA) on the basis of Maguesun Corporations application for registration
enumerating adjoining owners, occupants or adverse claimants; Since
Trinidad de Leon vda. de Roxas was not named therein, she was not sent a
notice of the proceedings. After an Order of general default was issued, the
trial court proceeded to hear the land registration case. Eventually, on
February 1991 the RTC granted Maguesun Corporations
application for registration.

It was only when the caretaker of the property was being asked to vacate the
land that petitioner Trinidad de Leon Vda. de Roxas learned of its sale and the
registration of the lots in Maguesun Corporations name.
Hence, on April 1991, petitioner filed a petition for review before the RTC to
set aside the decree of registration on the ground that Maguesun Corporation
committed actual fraud. She alleged that the lots were among the properties
she inherited from her husband, former President Manuel A. Roxas and that
her family had been in open, continuous, adverse and uninterrupted
possession of the subject property in the concept of owner for more than thirty
years before they applied for its registration under the Torrens System of land
titling (in which no decision has been rendered thereon). Petitioner further
denied that she sold the lots to Zenaida Melliza whom she had never met
before and that her signature was forged in both the Deed of Sale and the
Affidavit of Self-Adjudication. She also claimed that Maguesun Corporation
intentionally omitted her name as an adverse claimant, occupant or adjoining
owner in the application for registration submitted to the LRA such that the
latter could not send her a Notice of Initial Hearing.
A document examiner from the PNP concluded that there was no
forgery.Upon petitioners motion, the signatures were re-examined by another
expert from NBI. The latter testified that the signatures on the questioned and
sample documents were, however, not written by the same person.
Despite the foregoing testimonies and pronouncements, the trial
court dismissed the petition for review of decree of registration. Placing
greater weight on the findings and testimony of the PNP document examiner,
it concluded that the questioned documents were not forged and if they were,
it was Zenaida Melliza, and not Maguesun Corporation, who was responsible.
Accordingly, Maguesun Corporation did not commit actual fraud.
In a decision dated December 8, 1994, respondent court denied the
petition for review and affirmed the findings of the trial
court. The CA held that petitioner failed to and demonstrate
that there was actual or extrinsic fraud, not merely
constructive or intrinsic fraud, a prerequisite for purposes of
annuling a judgment or reviewing a decree of registration.
Hence, the instant petition for review where it is alleged that the CA erred in
ruling that Maguesun Corporation did not commit actual fraud warranting the
setting aside of the registration decree and in resolving the appeal on the basis
of Maguesun Corporations good faith. Petitioners pray that the registration of
the subject lots in the name of Maguesun Corporation be cancelled, that said

property be adjudicated in favor of petitioners and that respondent

corporation pay for damages.
ISSUE: WON private respondent Maguesun Corporation committed actual
fraud (signature forgery) in obtaining a decree of registration over the two
parcels of land, actual fraud being the only ground to reopen or
review a decree of registration.
HELD: WHEREFORE, the instant petition is hereby GRANTED. The
Decision of the CA is hereby REVERSED AND SET AS
1. The Court here finds that respondent Maguesun Corporation committed
actual fraud in obtaining the decree of registration sought to be reviewed by
petitioner. A close scrutiny of the evidence on record leads the Court to the
irresistible conclusion that forgery was indeed attendant in the case at bar.
Although there is no proof of respondent Maguesun Corporations direct
participation in the execution and preparation of the forged instruments, there
are sufficient indicia which proves that Maguesun Corporation is not the
innocent purchaser for value who merits the protection of the law. Even to a
laymans eye, the documents, as well as the enlarged photographic exhibit of
the signatures, reveal forgery. Additionally, Zenaida Mellizas non-appearance
raises doubt as to her existence
Petitioner and her family also own several other pieces of property, some of
which are leased out as restaurants. This is an indication that petitioner is not
unaware of the value of her properties. Hence, it is unlikely that indication
that she would sell over 13,000 sqm of prime property in Tagaytay City to a
stranger for a measly P200,000.00. Would an ordinary person sell more than
13,000 sqm of prime property for P170,000.00 when it was earlier purchased
for P200,000.00?
3. Petitioner Vda. de Roxas contended that Maguesun Corporation
intentionally omitted their name, or that of the Roxas family, as having a claim
to or as an occupant of the subject property.
The names in full and addresses, as far as known to the undersigned, of the
owners of all adjoining properties; of the persons mentioned in paragraphs 3
and 5 (mortgagors, encumbrancers, and occupants) and of the person shown
on the plan (original application submitted in LRC No) as claimants are as
follows:
Hilario Luna, Jose Gil, Leon Luna, Provincial Road
all at Tagaytay City (no house No.) 30

The highlighted words are typed in with a different typewriter, with the first
five letters of the word provincial typed over correction fluid. Maguesun
Corporation, however, annexed a differently-worded application for
the petition to review case. In the copy submitted to the trial court, the
answer to the same number is as follows:
Hilario Luna, Jose Gil, Leon Luna, Roxas.
The discrepancy which is unexplained appears intentional. If the word
Roxas were indeed erased and replaced with Provincial Road all at Tagaytay
City (no house No.) in the original application submitted in LRC No.
TG-373 BUT the copy with the word Roxas was submitted to the trial court,
it is reasonable to assume that the reason is to mislead the court into thinking
that Roxas was placed in the original application as an adjoining owner,
encumbrancer, occupant or claimant, the same application which formed the
basis for the LRA Authority in sending out notices of initial hearing. (Section
15 of PD No. 1529 actually requires the applicant for registration to state the
full names and addresses of all occupants of the land and those of adjoining
owners, if known and if not known, the extent of the search made to find
them. Respondent corporation likewise failed to comply with this requirement
of law.)
Respondent corporations intentional concealment and representation of
petitioners interest in the subject lots as possessor, occupant and
claimant constitutes actual fraud justifying the reopening and
review of the decree of registration. Through such misfeasance, the
Roxas family was kept ignorant of the registration proceedings involving their
property, thus effectively depriving them of their day in court

The truth is that the Roxas family had been in possession of the property
uninterruptedly through their caretaker, Jose Ramirez. Respondent
Maguesun Corporation also declared in number 5 of the same application that
the subject land was unoccupied when in truth and in fact, the Roxas family
caretaker resided in the subject property.
To conclude, it is quite clear that respondent corporation cannot tack its
possession to that of petitioner as predecessor-in-interest. Zenaida Melliza
conveyed not title over the subject parcels of land to Maguesun Corporation as
she was not the owner thereof. Maguesun Corporation is thus not
entitled to the registration decree which the trial court
granted in its decision.
Petitioner has not been interrupted in her more than thirty years of open,
uninterrupted, exclusive and notorious possession in the concept of an owner

over the subject lots by the irregular transaction to Zenaida Melliza. She
therefore retains title proper and sufficient for original registration over
the two parcels of land in question pursuant to Section 14 of PD No. 1529.
NOTES:
1.
1.
Registration of untitled land under the Torrens System is done
pursuant to PD No. 1529, the Property Registration Decree which
amended and codified laws relative to registration of
property. 15 Adjudication of land in a registration (or cadastral)
case does not become final and incontrovertible until the
expiration of one year after the entry of the final decree. Before
such time, the decision remains under the control and sound
discretion of the court rendering the decree, which court after
hearing, may set aside the decision or decree and adjudicate the
land to another party. 16 Absence, minority or other disability of
any person affected, or any proceeding in court for reversing
judgments, are not considered grounds to reopen or revise said
decree. s. 17 It is further required that a petition for reopening and
review of the decree of registration be filed within one year from
the date of entry of said decree, that the petitioner has a real and
dominical right and the property has not yet been transferred to
an innocent purchaser.
2.
2.
Fraud is of two kinds: actual or constructive. Actual or positive
fraud proceeds from an intentional deception practiced by means
of the misrepresentation or concealment of a material
fact. 19 Constructive fraud is construed as a fraud because of
its detrimental effect upon public interests and public or
private confidence, even though the act is not done or committed
with an actual design to commit positive fraud or injury upon
other persons.
Fraud may also be either extrinsic or intrinsic. Fraud is regarded as intrinsic
where the fraudulent acts pertain to an issue involved in the original action, or
where the acts constituting the fraud were or could have been litigated therein,
and is regarded as extrinsic where it prevents a party from having a trial or
from presenting his entire case to the court, or where it operates upon matters
pertaining not to the judgment itself but to the manner in which it is procured,
so that there is not a fair submission of the controversy. 21 Extrinsic fraud is
also actual fraud, but collateral to the transaction sued upon. 22
The distinctions are significant because only actual fraud or extrinsic fraud
has been accepted as grounds for a judgment to be annulled or, as in this case,
a decree of registration reopened and reviewed.

1.

Disclosure of petitioners adverse interest, occupation and

possession should be made at the appropriate time, i.e., at the
time of the application for registration, otherwise, the persons
concerned will not be sent notices of the initial hearing and will,
therefore, miss the opportunity to present their opposition or
claims.

1.

Also, Publication of the Notice of Initial Hearing was made in

the Official Gazette and in the Record Newsweekly, admittedly
not a newspaper of general circulation. While publication of the
notice in the Official Gazette is sufficient to confer jurisdiction
upon the court, publication in a newspaper of general circulation
remains an indispensable procedural requirement. Couched in
mandatory terms, it is a component of procedural due process
and aimed at giving as wide publicity as possible so that all
persons having an adverse interest in the land subject of the
registration proceedings may be notified thereof. Although
jurisdiction of the court is not affected, the fact that publication
was not made in a newspaper of general circulation is material
and relevant in assessing the applicants right or title to the land.

2.

GOOD EARTH EMPORIUM VS CA

(194 SCRA 544)

3. Good Earth Emporium Inc. vs Court of Appeals

194 SCRA 544 [GR No. 82797 February 27, 1991]
4. Facts: A lease contract, dated October 16, 1981, was entered
into by and between Roces-Reyes Realty Inc. as lessor, and
Good Earth Emporium Inc. (GEE) as lessee for a term of three
years beginning November 1, 1981 and ending October 31,
1984 at a monthly rental of Php65,000. The building which was
the subject of the contract of lease is a five story building
located at the corner of Rizal Avenue and Bustos Street in Sta.
Cruz, Manila. From March 1983 up to the complaint was filed,
the lessee had defaulted in the payment of rentals, as a
consequence of which, private respondent Roces-Reyes Realty
Inc. filed on October 14, 1984 an ejectment case against herein
petitioners, Good Earth Emporium Inc. and Lim Ka Ring. After
the latter had tendered their responsive pleading, the lower
court on motion of Roces rendered judgement on the pleadings

5.
6.

7.

8.

dated April 17, 1984 to which petitioners were ordered to

vacate the premises and surrender the same to the plaintiffs.
On May 16, 1984, Roces filed a motion for execution which was
opposed by petitioners on May 28, 1984 simultaneous with the
latters filing of a notice of appeal. However, on August 15,
1984, GEE thru counsel filed a motion to withdraw said appeal
citing as reason that they are satisfied with the decision of the
lower court.
Issue: Whether or not the payment made by GEE to the Roces
brothers constitute payment to private respondent corporation
which would result to the extinguishment of the obligation.
Held: No. Under article 1240 of the civil code of the Philippines
Payment shall be made to the person in whose favor the
obligation has been constituted, on his successor in interest or
any person authorized to receive it.
In the case at bar, the supposed payments were not made to
Roces-Reyes Realty Inc. or to its successors in interest nor is
there positive evidence that payment was made to a person
authorized to receive it. No such proof was submitted but
merely inferred by the RTC from Marcos Roces having signed
the lease contract as President which was witnessed by Jesus
Marcos Roces. The later, however, was no longer President or
even an officer of the Roces-Realty Inc at the time he received
the money and signed the sale with pacto de retro. He, in fact
denied being in possession of authority to receive payment for
the respondent corporation nor does the receipt show that he
signed in the same capacity as he did in the lease contract at a
time when he was President for respondent corporation.
A corporation has a personality distinct and separate from its
individual stockholders or members. Being an officer or
stockholder of a corporation does not make ones property also
of the corporation, and vice-versa, for they are separate
entities. Share owners are in no legal sense the owners
corporate property which is owned by the corporation as a
distinct legal person. As a consequence of the separate
juridical personality of a corporation, the corporate debt or
credit is not the debt or credit of the stockholder, nor is the
stockholders debt or credit that of the corporation.

Stonehill vs Diokno (20 SCRA 383)

Posted by taxcasesdigest on Tuesday, July 14, 2009
Labels: constitutional law, corporation, general warrant, search and seizure

Facts: Respondents issued, on different dates, 42 search warrants against petitioners personally,
and/or corporations for which they are officers directing peace officers to search the persons of
petitioners and premises of their offices, warehouses and/or residences to search for personal
properties books of accounts, financial records, vouchers, correspondence, receipts, ledgers,
journals, portfolios, credit journals, typewriters, and other documents showing all business
transactions including disbursement receipts, balance sheets and profit and loss statements and
Bobbins(cigarettes) as the subject of the offense for violations of Central Bank Act, Tariff and
Customs Laws, Internal Revenue Code, and Revised Penal Code.
Upon effecting the search in the offices of the aforementioned corporations and on the
respective residences of the petitioners, there seized documents, papers, money and
other records. Petitioners then were subjected to deportation proceedings and were
constrained to question the legality of the searches and seizures as well as the
admissibility of those seized as evidence against them.
On March 20, 1962, the SC issued a writ of preliminary injunction and partially lifted the
same on June 29, 1962 with respect to some documents and papers.
Held:
a. Search warrants issued were violative of the Constitution and the Rules, thus,
illegal or being general warrants. There is no probable cause and warrant did not
particularly specify the things to be seized. The purpose of the requirement is to
avoid placing the sanctity of the domicile and the privacy of communication and
correspondence at the mercy of the whims, caprice or passion of peace officers.
b. Document seized from an illegal search warrant is not admissible in court as
a fruit of a poisonous tee. However, they could not be returned, except if
warranted by the circumstances.

c. Petitioners were not the proper party to question the validity and return of those
taken from the corporations for which they acted as officers as they are treated
as personality different from that of the corporation.

d. WHITE LIGHT CORPORATION, TITANIUM CORPORATION and

STA. MESA TOURIST & DEVELOPMENT CORPORATION, Petitioners,
vs.
CITY OF MANILA, represented by DE CASTRO, MAYOR ALFREDO S.
LIM, Respondent.
e. Facts:
f. On December 3, 1992, City Mayor Alfredo S. Lim signed into law Manila City
Ordinance No. 7774 entitled An Ordinance Prohibiting Short-Time
Admission, Short-Time Admission Rates, and Wash-Up Rate Schemes in
Hotels, Motels, Inns, Lodging Houses, Pension Houses, and Similar
Establishments in the City of Manila (the Ordinance). The ordinance
sanctions any person or corporation who will allow the admission and charging
of room rates for less than 12 hours or the renting of rooms more than twice a
day.
g. The petitioners White Light Corporation (WLC), Titanium Corporation (TC),
and Sta. Mesa Tourist and Development Corporation (STDC), who own and
operate several hotels and motels in Metro Manila, filed a motion to intervene
and to admit attached complaint-in-intervention on the ground that the
ordinance will affect their business interests as operators. The respondents, in
turn, alleged that the ordinance is a legitimate exercise of police power.
h. RTC declared Ordinance No. 7774 null and void as it strikes at the personal
liberty of the individual guaranteed and jealously guarded by the Constitution.
Reference was made to the provisions of the Constitution encouraging private
enterprises and the incentive to needed investment, as well as the right to
operate economic enterprises. Finally, from the observation that the illicit
relationships the Ordinance sought to dissuade could nonetheless be
consummated by simply paying for a 12-hour stay,
When elevated to CA, the respondents asserted that the ordinance is a valid
exercise of police power pursuant to Section 458 (4)(iv) of the Local
Government Code which confers on cities the power to regulate the
establishment, operation and maintenance of cafes, restaurants, beerhouses,
hotels, motels, inns, pension houses, lodging houses and other similar
establishments, including tourist guides and transports. Also, they contended
that under Art III Sec 18 of Revised Manila Charter, they have the power to
enact all ordinances it may deem necessary and proper for the sanitation and
safety, the furtherance of the prosperity and the promotion of the morality,

i.

j.
k.
l.
m.
n.
o.

p.

peace, good order, comfort, convenience and general welfare of the city and its
inhabitants and to fix penalties for the violation of ordinances.
Petitioners argued that the ordinance is unconstitutional and void since it
violates the right to privacy and freedom of movement; it is an invalid exercise
of police power; and it is unreasonable and oppressive interference in their
business.
CA, in turn, reversed the decision of RTC and affirmed the constitutionality of
the ordinance. First, it held that the ordinance did not violate the right to
privacy or the freedom of movement, as it only penalizes the owners or
operators of establishments that admit individuals for short time stays. Second,
the virtually limitless reach of police power is only constrained by having a
lawful object obtained through a lawful method. The lawful objective of the
ordinance is satisfied since it aims to curb immoral activities. There is a lawful
method since the establishments are still allowed to operate. Third, the adverse
effect on the establishments is justified by the well-being of its constituents in
general.
Hence, the petitioners appeared before the SC.
Issue:
Whether Ordinance No. 7774 is a valid exercise of police power of the State.
Held:
No. Ordinance No. 7774 cannot be considered as a valid exercise of police
power, and as such, it is unconstitutional.
The facts of this case will recall to mind not only the recent City of Manila v
Laguio Jr ruling, but the 1967 decision in Ermita-Malate Hotel and Motel
Operations Association, Inc., v. Hon. City Mayor of Manila. The common
thread that runs through those decisions and the case at bar goes beyond the
singularity of the localities covered under the respective ordinances. All three
ordinances were enacted with a view of regulating public morals including
particular illicit activity in transient lodging establishments. This could be
described as the middle case, wherein there is no wholesale ban on motels and
hotels but the services offered by these establishments have been severely
restricted. At its core, this is another case about the extent to which the State
can intrude into and regulate the lives of its citizens
The test of a valid ordinance is well established. A long line of decisions
including City of Manila has held that for an ordinance to be valid, it must not
only be within the corporate powers of the local government unit to enact and
pass according to the procedure prescribed by law, it must also conform to the
following substantive requirements: (1) must not contravene the Constitution or
any statute; (2) must not be unfair or oppressive; (3) must not be partial or
discriminatory; (4) must not prohibit but may regulate trade; (5) must be
general and consistent with public policy; and (6) must not be unreasonable.

q. The ordinance in this case prohibits two specific and distinct business practices,
namely wash rate admissions and renting out a room more than twice a day.
The ban is evidently sought to be rooted in the police power as conferred on
local government units by the Local Government Code through such
implements as the general welfare clause.
r. Police power is based upon the concept of necessity of the State and its
corresponding right to protect itself and its people. Police power has been used
as justification for numerous and varied actions by the State.
s. The apparent goal of the ordinance is to minimize if not eliminate the use of the
covered establishments for illicit sex, prostitution, drug use and alike. These
goals, by themselves, are unimpeachable and certainly fall within the ambit of
the police power of the State. Yet the desirability of these ends do not sanctify
any and all means for their achievement. Those means must align with the
Constitution.
t. SC contended that if they were to take the myopic view that an ordinance
should be analyzed strictly as to its effect only on the petitioners at bar, then it
would seem that the only restraint imposed by the law that they were
capacitated to act upon is the injury to property sustained by the petitioners.
Yet, they also recognized the capacity of the petitioners to invoke as well the
constitutional rights of their patrons those persons who would be deprived of
availing short time access or wash-up rates to the lodging establishments in
question. The rights at stake herein fell within the same fundamental rights to
liberty. Liberty as guaranteed by the Constitution was defined by Justice
Malcolm to include the right to exist and the right to be free from arbitrary
restraint or servitude. The term cannot be dwarfed into mere freedom from
physical restraint of the person of the citizen, but is deemed to embrace the
right of man to enjoy the facilities with which he has been endowed by his
Creator, subject only to such restraint as are necessary for the common welfare,
u. Indeed, the right to privacy as a constitutional right must be recognized and the
invasion of it should be justified by a compelling state interest. Jurisprudence
accorded recognition to the right to privacy independently of its identification
with liberty; in itself it is fully deserving of constitutional protection.
Governmental powers should stop short of certain intrusions into the personal
life of the citizen.
v. An ordinance which prevents the lawful uses of a wash rate depriving patrons
of a product and the petitioners of lucrative business ties in with another
constitutional requisite for the legitimacy of the ordinance as a police power
measure. It must appear that the interests of the public generally, as
distinguished from those of a particular class, require an interference with
private rights and the means must be reasonably necessary for the
accomplishment of the purpose and not unduly oppressive of private rights. It

must also be evident that no other alternative for the accomplishment of the
purpose less intrusive of private rights can work. More importantly, a
reasonable relation must exist between the purposes of the measure and the
means employed for its accomplishment, for even under the guise of protecting
the public interest, personal rights and those pertaining to private property will
not be permitted to be arbitrarily invaded.
w. Lacking a concurrence of these requisites, the police measure shall be struck
down as an arbitrary intrusion into private rights.
The behavior which the ordinance seeks to curtail is in fact already prohibited
and could in fact be diminished simply by applying existing laws. Less
intrusive measures such as curbing the proliferation of prostitutes and drug
dealers through active police work would be more effective in easing the
situation. So would the strict enforcement of existing laws and regulations
penalizing prostitution and drug use. These measures would have minimal
intrusion on the businesses of the petitioners and other legitimate merchants.
Further, it is apparent that the ordinance can easily be circumvented by merely
paying the whole day rate without any hindrance to those engaged in illicit
activities. Moreover, drug dealers and prostitutes can in fact collect wash
rates from their clientele by charging their customers a portion of the rent for
motel rooms and even apartments.
x. SC reiterated that individual rights may be adversely affected only to the extent
that may fairly be required by the legitimate demands of public interest or
public welfare. The State is a leviathan that must be restrained from needlessly
intruding into the lives of its citizens. However well-intentioned the ordinance
may be, it is in effect an arbitrary and whimsical intrusion into the rights of the
establishments as well as their patrons. The ordinance needlessly restrains the
operation of the businesses of the petitioners as well as restricting the rights of
their patrons without sufficient justification. The ordinance rashly equates wash
rates and renting out a room more than twice a day with immorality without
accommodating innocuous intentions.
y. WHEREFORE, the Petition is GRANTED. The Decision of the Court of
Appeals is REVERSED, and the Decision of the Regional Trial Court of
Manila, Branch 9, is REINSTATED. Ordinance No. 7774 is hereby declared
UNCONSTITUTIONAL. No pronouncement as to costs.
z. ADELIO
C.
CRUZ, complainant,
vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.
aa.
ab. R E S O L U T I O N
ac. FERNAN, J.:
ad. In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged Quiterio L.
Dalisay, Senior Deputy Sheriff of Manila, with malfeasance in office, corrupt
practices and serious irregularities allegedly committed as follows:

ae. 1. Respondent sheriff attached and/or levied the money belonging to complainant
Cruz when he was not himself the judgment debtor in the final judgment of NLRC
NCR Case No. 8-12389-91 sought to be enforced but rather the company known as
Qualitrans Limousine Service, Inc., a duly registered corporation; and,
af. 2. Respondent likewise caused the service of the alias writ of execution upon
complainant who is a resident of Pasay City, despite knowledge that his territorial
jurisdiction covers Manila only and does not extend to Pasay City.
ag. In his Comments, respondent Dalisay explained that when he garnished
complainants cash deposit at the Philtrust bank, he was merely performing a
ministerial duty. While it is true that said writ was addressed to Qualitrans Limousine
Service, Inc., yet it is also a fact that complainant had executed an affidavit before
the Pasay City assistant fiscal stating that he is the owner/president of said
corporation and, because of that declaration, the counsel for the plaintiff in the labor
case advised him to serve notice of garnishment on the Philtrust bank.
ah. On November 12, 1984, this case was referred to the Executive Judge of the
Regional Trial Court of Manila for investigation, report and recommendation.
ai. Prior to the termination of the proceedings, however, complainant executed an
affidavit of desistance stating that he is no longer interested in prosecuting the case
against respondent Dalisay and that it was just a misunderstanding between them.
Upon respondents motion, the Executive Judge issued an order dated May 29, 1986
recommending the dismissal of the case.
aj. It has been held that the desistance of complainant does not preclude the taking of
disciplinary action against respondent. Neither does it dissuade the Court from
imposing the appropriate corrective sanction. One who holds a public position,
especially an office directly connected with the administration of justice and the
execution of judgments, must at all times be free from the appearance of
impropriety.1
ak. We hold that respondents actuation in enforcing a judgment against complainant
who is not the judgment debtor in the case calls for disciplinary action. Considering
the ministerial nature of his duty in enforcing writs of execution, what is incumbent
upon him is to ensure that only that portion of a decision ordained or decreed in the
dispositive part should be the subject of execution. 2 No more, no less. That the title of
the case specifically names complainant as one of the respondents is of no moment
as execution must conform to that directed in the dispositive portion and not in the
title of the case.
al. The tenor of the NLRC judgment and the implementing writ is clear enough. It
directed Qualitrans Limousine Service, Inc. to reinstate the discharged employees
and pay them full backwages. Respondent, however, chose to pierce the veil of
corporate entity usurping a power belonging to the court and assumed improvidently
that since the complainant is the owner/president of Qualitrans Limousine Service,
Inc., they are one and the same. It is a well-settled doctrine both in law and in equity
that as a legal entity, a corporation has a personality distinct and separate from its
individual stockholders or members. The mere fact that one is president of a
corporation does not render the property he owns or possesses the property of the
corporation, since the president, as individual, and the corporation are separate
entities.3
am.
Anent the charge that respondent exceeded his territorial jurisdiction, suffice it
to say that the writ of execution sought to be implemented was dated July 9, 1984,
or prior to the issuance of Administrative Circular No. 12 which restrains a sheriff

from enforcing a court writ outside his territorial jurisdiction without first notifying in
writing and seeking the assistance of the sheriff of the place where execution shall
take place.
an. ACCORDINGLY,
we
find
Respondent
Deputy
Sheriff
Quiterio
L.
Dalisay NEGLIGENT in the enforcement of the writ of execution in NLRC Case-No.
8-12389-91, and a fine equivalent to three [3] months salary is hereby imposed with
a stern warning that the commission of the same or similar offense in the future will
merit a heavier penalty. Let a copy of this Resolution be filed in the personal record
of the respondent.
ao. SO ORDERED.
ap. Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.

West Coast Life Insurance vs hurd

27 Phil 401 Business Organization Corporation Law No Criminal Actions Against A
Corporation
In 1912, West Coast Life Insurance caused the distribution of printed materials which
impressed among the readers thereof that Insular Life Insurance Company is in bad shape.
Insular Life then filed a criminal case for libel against West Coast Insurance. Judge Geo
Hurd took cognizance of the case.
West Coast Insurance opposed the same as it alleged that it the filing is against prevailing
rules of criminal procedure.
ISSUE: Whether or not West Coast Life Insurance is correct.
HELD: Yes. There is no provision in the prevailing rules of criminal procedure to support the
said criminal case filed against West Coast Life Insurance. A corporation cannot be
proceeded against criminally in court primarily because a corporation cannot possibly
commit a crime absent the essential element of malicious intent. The rule is to proceed
against the officials of the corporation and not the corporation itself.

Sia vs. People

Post under case digests, Commercial Law at Monday, February 27, 2012 Posted by Schizophrenic Mind

Facts: Jose Sia, president and GM of Metal

Manufacturing Company of the Phil., on behalf of said
company, obtained delivery of 150 cold rolled steel sheets
valued at P71,023.60 under a trust receipt agreement.
Said sheets were consigned to the Continental Bank,
under the express obligation on the part of Sia of holding
the sheets in trust and selling them and turning over the
proceeds to the bank. Sia, however, allegedly failed and

refused to return the sheets or account for the proceeds

thereof if sold, converting it to his own personal use
and benefit. Continental Bank filed a complaint
for estafa against Sia. The trial court and CA ruled against
Sia.
Issue: Whether or not Sia, acting as President of MMCP,
may be held liable for estafa
Held: Sia was acquitted. CA decision is reversed.
An officer of a corporation can be held criminally liable for
acts or omissions done in behalf of the corporation only
where the law directly requires the corporation to do an act
in a given manner. In he absence of a law making a
corporate officer liable for a criminal offense committed by
the corporation, the existence of the criminal liability of he
former may not be said to be beyond doubt. Hence in
the absence of an express provision of law making Sia
liable for the offense done by MMCP of which he is
President, as in fact there is no such provision under the
Revised Penal Code, Sia cannot be said to be liable
for estafa.
People vs. Chowdury [G.R. No. 129577-80 February 15,
2000]
Post under case digests, labor law at Monday, March 19, 2012 Posted by Schizophrenic Mind

Facts: Bulu Chowdury was charged with the crime of

illegal recruitment in large scale by recruiting Estrella B.
Calleja, Melvin C. Miranda and Aser S. Sasis for
employment in Korea. Evidence shows that accused
appellant interviewed private complainant in 1994 at
Craftrades office. At that time, he was an interviewer of
Craftrade which was operating under temporary authority
given by POEA pending the renewal of license. He was
charged based on the fact that he was not registered with
the POEA as employee of Craftrade and he is not in his
personal capacity, licensed to recruit overseas workers.
The complainants also averred that during their
applications for employment for abroad, the license of
Craftrade was already expired.
For his defense Chowdury testified that he worked as
interviewer at Craftrade from 1990 until 1994. His primary
duty was to interview job applicants for abroad. As a mere
employee, he only followed the instructions given by his
superiors, Mr. Emmanuel Geslani, the agency's President
and General Manager, and Mr. UtkalChowdury, the
agency's Managing Director.
Issue: Whether or not accused-appellant knowingly and
intentionally participated in the commission of the crime
charged.

Held: No, an employee of a company or corporation

engaged in illegal recruitment may be held liable as
principal, together with his employer, if it is shown that he
actively and consciously participated in illegal recruitment.
In this case, Chowdury merely performed his tasks under
the supervision of its president and managing director. The
prosecution failed to show that the accused-appellant is
conscious and has an active participation in the
commission of the crime of illegal recruitment. Moreover,
accused-appellant was not aware of Craftrade's failure to
register his name with the POEA and the prosecution
failed to prove that he actively engaged in recruitment
despite this knowledge. The obligation to register its
personnel with the POEA belongs to the officers of the
agency. A mere employee of the agency cannot be
expected to know the legal requirements for its operation.
The accused-appellant carried out his duties as
interviewer of Craftrade believing that the agency was duly
licensed by the POEA and he, in turn, was duly authorized
by his agency to deal with the applicants in its behalf.
Accused-appellant in fact confined his actions to his job
description. He merely interviewed the applicants and
informed them of the requirements for deployment but he
never received money from them. Chowdury did not
knowingly and intentionally participated in the commission
of illegal recruitment being merely performing his task and
unaware of illegality of recruitment.

Pioneer Insurance & Surety

Corporation vs Court of
Appeals
Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim
convinced Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border
Machinery and Heavy Equipment Company (BORMAHECO) to contribute funds and to buy
two aircrafts which would form part a corporation which will be the expansion of Southern
Air Lines. Maglana et al then contributed and delivered money to Lim.
But instead of using the money given to him to pay in full the aircrafts, Lim, without the
knowledge of Maglana et al, made an agreement with Pioneer Insurance for the latter to
insure the two aircrafts which were brought in installment from Japan Domestic Airlines
(JDA) using said aircrafts as security. So when Lim defaulted from paying JDA, the two
aircrafts were foreclosed by Pioneer Insurance.
It was established that no corporation was formally formed between Lim and Maglana et al.
ISSUE: Whether or not Maglana et al must share in the loss as general partners.
HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do
business through a corporation but failed to incorporate, a de facto partnership would have
been formed, and as such, all must share in the losses and/or gains of the venture in
proportion to their contribution. But in this case, it was shown that Lim did not have the
intent to form a corporation with Maglana et al. This can be inferred from acts of unilaterally
taking out a surety from Pioneer Insurance and not using the funds he got from Maglana et
al. The record shows that Lim was acting on his own and not in behalf of his other would-be
incorporators in transacting the sale of the airplanes and spare parts.

Cagayan Fishing Development Co., Inc., vs. Sandiko, [G.R.

No. L-43350 December 23, 1937]
Post under case digests, Commercial Law at Thursday, February 23, 2012 Posted by Schizophrenic Mind

Facts: Manuel Tabora is the registered owner of four

parcels of land. To guarantee the payment of two loans,
Manuel Tabora, executed in favor of PNB two mortgages
over the four parcels of land between August, 1929, and

April 1930. Later, a third mortgage on the same lands was

executed also on April, 1930 in favor of Severina Buzon to
whom Tabora was indebted.
On May, 1930, Tabora executed a public document
entitled "Escritura de Transpaso de Propiedad Inmueble"
(Exhibit A) by virtue of which the four parcels of land
owned by him was sold to the plaintiff company, said to
under process of incorporation. The plaintiff company filed
its article incorporation with the Bureau of Commerce and
Industry only on October, 1930 (Exhibit 2).
A year later, the board of directors of said company
adopted a resolution authorizing its president to sell the
four parcels of lands in question to Teodoro Sandiko.
Exhibits B, C and D were thereafter made and executed.
Exhibit B is a deed of sale where the plaintiff sold ceded
and transferred to the defendant all its right, titles, and
interest in and to the four parcels of land. Exhibit C is a
promissory note drawn by the defendant in favor of the
plaintiff, payable after one year from the date thereof.
Exhibit D is a deed of mortgage executed where the four
parcels of land were given a security for the payment of
the promissory note, Exhibit C.
The defendant having failed to pay the sum stated in the
promissory note, plaintiff, brought this action in the Court
of First Instance of Manila praying that judgment be

rendered against the defendant for the sum stated in the

promissory note. After trial, the court rendered judgment
absolving the defendant. Plaintiff presented a motion for
new trial, which motion was denied by the trial court. After
due exception and notice, plaintiff has appealed to this
court and makes an assignment of various errors.
Issue: Whether Exhibit B, the deed of sale executed in
favor of Teodoro Sandiko, was valid.
Held: No, it was not.
The transfer made by Tabora to the Cagayan fishing
Development Co., Inc., plaintiff herein, was affected on
May 31, 1930 (Exhibit A) and the actual incorporation of
said company was affected later on October 22, 1930
(Exhibit 2). In other words, the transfer was made almost
five months before the incorporation of the company.
Unquestionably, a duly organized corporation has the
power to purchase and hold such real property as the
purposes for which such corporation was formed may
permit and for this purpose may enter into such contracts
as may be necessary. But before a corporation may be
said to be lawfully organized, many things have to be
done. Among other things, the law requires the filing of
articles of incorporation.

In the case before us it can not be denied that the plaintiff

was not yet incorporated when it entered into a contract of
sale, Exhibit A. Not being in legal existence then, it did not
possess juridical capacityto enter into the contract.
Boiled down to its naked reality, the contract here (Exhibit
A) was entered into not between Manuel Tabora and a
non-existent corporation but between the Manuel Tabora
as owner of the four parcels of lands on the one hand and
the same Manuel Tabora, his wife and others, as mere
promoters of a corporations on the other hand.
For reasons that are self-evident, these promoters could
not have acted as agent for a projected corporation since
that which no legal existence could have no agent. A
corporation, until organized, has no life and therefore no
faculties.
This is not saying that under no circumstances may the
acts of promoters of a corporation be ratified by the
corporation if and when subsequently organized.
There are, of course, exceptions, but under the peculiar
facts and circumstances of the present case we decline to
extend the doctrine of ratification which would result in the
commission of injustice or fraud to the candid and unwary.

Lim Tong Lim vs Philippine Fishing Gear

It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing
with him and one Antonio Chua. The three agreed to purchase two fishing boats but since
they do not have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim).
They again borrowed money and they agreed to purchase fishing nets and other fishing
equipments. Now, Yao and Chua represented themselves as acting in behalf of Ocean
Quest Fishing Corporation (OQFC) they contracted with Philippine Fishing Gear Industries
(PFGI) for the purchase of fishing nets amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some
time to pay. Yao waived his rights. Lim Tong Lim however argued that hes not liable
because he was not aware that Chua and Yao represented themselves as a corporation;
that the two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats worth
P3.35 million, financed by a loan secured from Jesus Lim. In their Compromise Agreement,
they subsequently revealed their intention to pay the loan with the proceeds of the sale of
the boats, and to divide equally among them the excess or loss. These boats, the purchase
and the repair of which were financed with borrowed money, fell under the term common
fund under Article 1767. The contribution to such fund need not be cash or fixed assets; it
could be an intangible like credit or industry. That the parties agreed that any loss or profit
from the sale and operation of the boats would be divided equally among them also shows
that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be
imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets
found in his boats, the boat which has earlier been proven to be an asset of the partnership.
Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid existence, are held
liable as general partners.

International Express Travel

& Tour Services, Inc. vs
Court of Appeals
In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the Philippine
Football Federation (PFF) its travel services for the South East Asian Games. PFF, through
Henri Kahn, its president, agreed. IETTI then delivered the plane tickets to PFF, PFF in turn
made a down payment. However, PFF was not able to complete the full payment in
subsequent installments despite repeated demands from IETTI. IETTI then sued PFF and
Kahn was impleaded as a co-defendant.
Kahn averred that he should not be impleaded because he merely acted as an agent of
PFF which he averred is a corporation with separate and distinct personality from him. The
trial court ruled against Kahn and held him personally liable for the said obligation (PFF was
declared in default for failing to file an answer). The trial court ruled that Kahn failed to prove
that PFF is a corporation. The Court of Appeals however reversed the decision of the trial
court. The Court of Appeals took judicial notice of the existence of PFF as a national sports
association; that as such, PFF is empowered to enter into contracts through its agents; that
PFF is therefore liable for the contract entered into by its agent Kahn. The CA further ruled
that IETTI is in estoppel; that it cannot now deny the corporate existence of PFF because it
had contracted and dealt with PFF in such a manner as to recognize and in effect admit its
existence.
ISSUE: Whether or not the Court of Appeals is correct.
HELD: No. PFF, upon its creation, is not automatically considered a national sports
association. It must first be recognized and accredited by the Philippine Amateur Athletic
Federation and the Department of Youth and Sports Development. This fact was never
substantiated by Kahn. As such, PFF is considered as an unincorporated sports
association. And under the law, any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and becomes personally
liable for contract entered into or for other acts performed as such agent. Kahn is therefore
personally liable for the contract entered into by PFF with IETTI.
There is also no merit on the finding of the CA that IETTI is in estoppel. The application of
the doctrine of corporation by estoppel applies to a third party only when he tries to escape
liability on a contract from which he has benefited on the irrelevant ground of defective
incorporation. In the case at bar, IETTI is not trying to escape liability from the contract but
rather is the one claiming from the contract.

Albert vs University Publishing

G.R. No. L-19118

13 Scra 84

January 30, 1965

By: Karen P. Lustica

Facts: In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to
damages (for breach of contract) but reduced the amount from P23, 000.00 to P15, 000.00.

Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the
judgment for P15,000.00 which had become final and executory, should be executed to its full amount,
since in fixing it, payment already made had been considered.

15 years ago, Mariano Albert entered into a contract with University Publishing Co., Inc. through Jose
M. Aruego, its President, whereby University would pay plaintiff for the exclusive right to publish his
revised Commentaries on the Revised Penal Code. The contract stipulated that failure to pay one
installment would render the rest of the payments due. When University failed to pay the second
installment, Albert sued for collection and won.

However, upon execution, it was found that the records of this Commission do not show the
registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership. Albert
petitioned for a writ of execution against Jose M. Aruego as the real defendant. University opposed, on
the ground that Aruego was not a party to the case.

Issue: WON the non-registration of University Publishing Co., Inc. in the SEC is an existing corporation
with an independent juridical personality.

Held: No.

Ratio: On account of the non-registration it cannot be considered a corporation, not even a

corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M.
Aruego; it cannot be sued independently.

In the case at bar, Aruego represented a non-existent entity and induced not only Albert but the court
to believe in such representation. He signed the contract as President of University Publishing Co.,
Inc., stating that this was a corporation duly organized and existing under the laws of the
Philippines.

A person acting or purporting to act on behalf of a corporation which has no valid existence assumes
such privileges and obligations and becomes personally liable for contracts entered into or for other
acts performed as such agent.

Aruego, acting as representative of such non-existent principal, was the real party to the contract sued
upon, and thus assumed such privileges and obligations and became personally liable for the contract
entered into or for other acts performed as such agent.

The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be set up against
Albert since it was Aruego who had induced him to act upon his (Aruegos) willful representation that
University had been duly organized and was existing under the law.

Lozano Vs delos santos

Reynaldo Lozano was the president of KAMAJDA (Kapatirang Mabalacat-Angeles Jeepney
Drivers Association, Inc.). Antonio Anda was the president of SAMAJODA (Samahang
Angeles-Mabalacat Jeepney Operators and Drivers Association, Inc.). In 1995, the two
agreed to consolidate the two corporations, thus, UMAJODA (Unified Mabalacat-Angeles
Jeepney Operators and Drivers Association, Inc.). In the same year, elections for the
officers of UMAJODA were held. Lozano and Anda both ran for president. Lozano won but
Anda alleged fraud and the elections and thereafter he refused to participate with
UMAJODA. Anda continued to collect fees from members of SAMAJODA and refused to
recognize Lozano as president of UMAJODA. Lozano then filed a complaint for damages
against Anda with the MCTC of Mabalacat (and Magalang), Pampanga. Anda moved for the
dismissal of the case for lack of jurisdiction. The MCTC judge denied Andas motion. On
certiorari, Judge Eliezer De Los Santos of RTC Angeles City reversed and ordered the
dismissal of the case on the ground that what is involved is an intra-corporate dispute which
should be under the jurisdiction of the Securities and Exchange Commission (SEC).

ISSUE: Whether or not the RTC Judge is correct.

HELD: No. The regular courts have jurisdiction over the case. The case between Lozano
and Anda is not an intra-corporate dispute. UMAJODA is not yet incorporated. It is yet to
submit its articles of incorporation to the SEC. It is not even a dispute between KAMAJDA or
SAMAJODA. The controversy between Lozano and Anda does not arise from intracorporate relations but rather from a mere conflict from their plan to merge the two
associations.

Seventh Day Adventist Conference Church of Southern

Philippines vs. North Eastern Mindanao Mission of Seventh
Day Adventist, Inc. (496 SCRA 215)
FACTS:
Spouses Felix Cosio and Felisa Cuysona donate a parcel of land to South Philippine [Union] Mission of
Seventh Day Adventist Church, and was received by Liberato Rayos, an elder of the Seventh Day
Adventist Church, on behalf of the donee.
However, twenty years later, the spouses sold the same land to the Seventh Day Adventist Church of
Northeastern Mindanao Mission.
Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the
property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA
Bayugan could not legally be a donee because, not having been incorporated yet, it had no juridical
personality. Neither were petitioners members of the local church then, hence, the donation could not
have been made particularly to them.
ISSUE:
Should the Seventh Day Adventist Church of Northeastern Mindanao Mission's ownership of the lot be
upheld?
HELD:
We answer in the affirmative.
Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership of a
property may be transferred by tradition as a consequence of a sale.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another person who accepts it. The donation could not have been made in favor of an entity yet inexistent
at the time it was made. Nor could it have been accepted as there was yet no one to accept it.
The deed of donation was not in favor of any informal group of SDA members but a supposed SPUMSDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept
such gift.
(With questions regarding de facto corporation and law of sales.)

Petition Denied.

Sawadjaan v. CA (G.R. No. 141735)

4

Jun by Jai Cdn

Facts:
Petitioner Sappari K. Sawadjaan was among the first employees of the
Philippine Amanah Bank (PAB) when it was created by virtue of Presidential
Decree No. 264. Sometime in 1988, while still designated as
appraiser/investigator, he was assigned to inspect the properties offered as
collaterals by Compressed Air Machineries and Equipment Corporation
(CAMEC) for a credit line of Five Million Pesos (P5,000,000.00). The
properties consisted of two parcels of land covered by Transfer Certificates of
Title (TCTs). On the basis of his Inspection and Appraisal Report, the PAB
granted the loan application. When the loan matured, CAMEC requested an
extension to repay the loan.
In January 1990, Congress passed Republic Act 6848 creating the AIIBP and
repealing P.D. No. 264 (which created the PAB). All assets, liabilities and
capital accounts of the PAB were transferred to the AIIBP, and the existing
personnel of the PAB were to continue to discharge their functions unless
discharged. In the ensuing reorganization, Sawadjaan was among the
personnel retained by the AIIBP.
When CAMEC failed to pay despite the given extension, the bank, now
referred to as the AIIBP, discovered that one of the TCT was spurious, the
property described therein non-existent, and that the property covered by the
other TCT had a prior existing mortgage.
The Board of Directors of the AIIBP created an Investigating Committee to
look into the CAMEC transaction, which had cost the bank Six Million Pesos

(P6,000,000.00) in losses. The Board of Directors of AIIBP adopted

Resolution No. 2309 finding petitioner guilty of Dishonesty in the
Performance of Official Duties and/or Conduct Prejudicial to the Best Interest
of the Service and imposing the penalty of Dismissal from the Service. On
reconsideration, they adopted the Resolution No. 2332 reducing the penalty
imposed on petitioner from dismissal to suspension for a period of six (6)
months and one (1) day.
Petitioner filed a notice of appeal to the Merit System Protection Board
(MSPB). The CSC adopted Resolution No. 94-4483 dismissing the appeal for
lack of merit and affirming Resolution No. 2309 of the Board of Directors of
AIIBP. The CSC adopted Resolution No. 95-2574 denying petitioners Motion
for Reconsideration. Hence this petition for certiorari under Rule 65 of the
Rules of Court.
Issue:
Whether or not the failure of AIIBP to file its by-laws within the period
prescribed results to a nullity of all actions and proceedings it has initiated.
Ruling:
Petitioners efforts are unavailing, and we deny his petition for its procedural
and substantive flaws. Petitioners recurrent argument, tenuous at its very
best, is premised on the fact that since respondent AIIBP failed to file its bylaws within the designated 60 days from the effectivity of Rep. Act No. 6848,
all proceedings initiated by AIIBP and all actions resulting therefrom are a
patent nullity. Petitioner already raised the question of AIIBPs corporate
existence and lack of jurisdiction in his Motion for New Trial/Motion for
Reconsideration and was denied by the Court of Appeals. Despite the volume
of pleadings he has submitted thus far, he has added nothing substantial to his
arguments.

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

Timoteo Sarona vs. National Labor Relations Commission,

Royale Security Agency, et.al. [GR No. 185280, January 18,
2012]
Post under case digests, labor law at Wednesday, February 17, 2016 Posted by Schizophrenic Mind

FACTS: The petitioner, who was hired by Sceptre as a security guard, was asked by Karen Therese Tan,
Sceptre's Operations Manager, to submit a resignation letter as the same was supposedly required for
applying for a position at Royale.

Martin informed him that he would no longer be given any assignment per the instructions
of Aida Sabalones-Tan, general manager of Sceptre. This prompted him to file a complaint for illegal
dismissal. While complainant is entitled to backwages, we are aware that his stint with respondent Royale
lasted only for one (1) month and three (3) days such that it is our considered view that his backwages
should be limited to only three (3) months. The petitioner does not deny that he has received the full

amount of his backwages and separation pay as provided under the NLRC's November 2005 Decision.
However, he claims that this does not preclude this Court from modifying a decision that is tainted with
grave abuse of discretion or issued without jurisdiction.

ISSUE: Whether the petitioner's backwages should be limited to his salary for three (3) months

RULING: No. In case separation pay is awarded and reinstatement is no longer feasible, backwages shall
be computed from the time of illegal dismissal up to the finality of the decision should separation pay not
be paid in the meantime. It is the employee's actual receipt of the full amount of his separation pay that
will effectively terminate the employment of an illegaly dismissed employee. Otherwise, the employeremployee relationship subsists and the illegally dismissed employee is entitled to backwages, taking into
account the increases and other benefits, including the 13 th month pay, that were received by his coemployees who are not dismissed. It is the obligation of the employer to pay an illegally dismissed
employee or worker the whole amount of the salaries or wages, plus all other benefits and bonuses and
general increases, to which he would have been normally entitled had he not been dismissed and had not
stopped working.

HEIRS OF FE TAN UY v. INTERNATIONAL EXCHANGE BANK, G.R. No. 166283, February

13, 2013
Corporation law; Personal liability of a director or officer. Before a director or officer of a corporation
can be held personally liable for corporate obligations, however, the following requisites must concur:
(1) the complainant must allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2)
the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.
While it is true that the determination of the existence of any of the circumstances that would warrant
the piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a
petition for review on certiorari under Rule 45, this Court can take cognizance of factual issues if the
findings of the lower court are not supported by the evidence on record or are based on a
misapprehension of facts.
In this case, petitioners are correct to argue that it was not alleged, much less proven, that Uy
committed an act as an officer of Hammer that would permit the piercing of the corporate veil. A
reading of the complaint reveals that with regard to Uy, iBank did not demand that she be held liable
for the obligations of Hammer because she was a corporate officer who committed bad faith or gross

negligence in the performance of her duties such that the lifting of the corporate mask would be
merited. What the complaint simply stated is that she, together with her errant husband Chua, acted
as surety of Hammer, as evidenced by her signature on the Surety Agreement which was later found
by the RTC to have been forged.
Considering that the only basis for holding Uy liable for the payment of the loan was proven to be a
falsified document, there was no sufficient justification for the RTC to have ruled that Uy should be
held jointly and severally liable to iBank for the unpaid loan of Hammer. Neither did the CA explain its
affirmation of the RTCs ruling against Uy. The Court cannot give credence to the simplistic
declaration of the RTC that liability would attach directly to Uy for the sole reason that she was an
officer and stockholder of Hammer.

Francisco Motors
Corporation vs Court of
Appeals
In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to recover from a
him a sum of money in the amount of P23,000.00+. Said amount was allegedly owed to
them by Manuel for the purchase of a jeep body plus repairs thereto. Manuel filed a
counterclaim in the amount of P50,000.00. In his counterclaim, Manuel alleged that he was
the Assistant Legal Officer for FMC; that the Francisco Family, owners of FMC, engaged his
services for the intestate estate proceedings of one Benita Trinidad; that he was not paid for
his legal services; that he is filing the counterclaim against FMC because said corporation
was merely a conduit of the Francisco Family. The trial court as well as the Court of Appeals
granted Manuels counterclaim on the ground that the legal fees were owed by the
incorporators of FMC (an application of the doctrine of piercing the veil of corporation fiction
in a reversed manner).
ISSUE: Whether or not the doctrine of piercing the veil of corporate fiction was properly
used by the Court of Appeals.
HELD: No. In the first place, the doctrine is to be used in disregarding corporate fiction and
making the incorporators liable in appropriate circumstances. In the case at bar, the doctrine
is applied upside down where the corporation is held liable for the personal obligations of
the incorporators such was uncalled for and erroneous. It must be noted that that Atty.
Manuels legal services were secured by the Francisco Family to represent them in the
intestate proceedings over Benita Trinidads estate. The indebtedness was incurred by the
Francisco Family in their separate and personal capacity. These estate proceedings did not
involve any business of FMC. The proper remedy is for Manuel to sue the concerned
members of the Francisco Family in their individual capacity.

EVER ELECTRICAL MANUFACTURING, INC., (EEMI) and VICENTE GO,

Petitioners, v. SAMAHANG MANGGAGAWA NG EVER ELECTRICAL/ NAMAWU
LOCAL 224 Represented by Felimon Panganiban,Respondents.
MENDOZA, J.:
FACTS:
Ever Electrical Manufacturing, Inc. (EEMI) closed its business operations on October
11, 2006 resulting in the termination of the services of its employees. Aggrieved,
respondents, who are members of Samahang Manggagawa ng Ever
Electrical/NAMAWU Local 224, filed a complaint for illegal dismissal with prayer for
payment of 13th month pay, separation pay, damages, and attorney fees.
Respondents alleged that the closure was made without any warning, notice or
memorandum and in full disregard of the requirements of the Labor Code.
In its defense, EEMI explained that it had closed the business due to various factors,
most of which included huge financial loss all the way back from 1995. EEMI
business suffered further losses due to the continued entry of cheaper goods from
China and other Asian countries. Adding to EEMI financial woes was the closure of
Orient Bank where most of its resources were invested. As a result, EEMI was not
able to meet its loan obligations with UCPB.
In an attempt to save the company, EEMI entered into a dacion en pago
arrangement with UCPB which, in effect, transferred ownership of the company
property to UCPB. Originally, EEMI wanted to lease the premises to continue its
business operation but under UCPB policy, a previous debtor who failed to settle its
loan obligation was not eligible to lease its acquired assets. Thus, UCPB agreed to
lease it to an affiliate corporation, EGO Electrical Supply Co, Inc. (EGO), for and in
behalf of EEMI. On February 2, 2002, a lease agreement was entered into between
UCPB and EGO. The said lease came to a halt when UCPB instituted an unlawful
detainer suit against EGO before the MeTC of Makati, who ruled in favor of UCPB
and ordered EGO to vacate the leased premises and pay rentals to UCPB in the
amount of P21,473,843.65. On September 19, 2006, a writ of execution was
issued.Consequently, on October 11, 2006, the Sheriff implemented the writ by
closing the premises and, as a result, EEMI employees were prevented from
entering the factory.
The Labor Arbiter (LA) ruled that respondents were not illegally dismissed but
ordered EEMI and its President, Vicente Go to pay their employees separation pay
and 13th month pay respectively.
On September 15, 2008, the NLRC reversed and set aside the decision of the LA.

The NLRC dismissed the complaint for lack of merit and ruled that since EEMI
cessation of business operation was due to serious business losses, the employees
were not entitled to separation pay. Respondents moved for reconsideration of the
NLRC decision, but the NLRC denied the motion in its March 23, 2009 Resolution.
Unperturbed, respondents elevated the case before the CA via a petition for
certiorari under Rule 65. The appellate court granted the petition and nullified the
decision of the NLRC and reinstated the LA decision.
ISSUES:
1. Whether the CA erred in finding that the closure of EEMI operation was not due to
business losses?
2. Whether the CA erred in finding Vicente Go solidarily liable with EEMI?
HELD: The petition is partly meritorious.
LABOR LAW
Article 283 of the Labor Code identifies closure or cessation of operation of the
establishment as an authorized cause for terminating an employee. Similarly, the
said provision mandates that employees who are laid off from work due to closures
that are not due to business insolvency should be paid separation pay equivalent to
one-month pay or to at least one-half month pay for every year of service, whichever
is higher. A fraction of at least six months shall be considered one whole year.
Although business reverses or losses are recognized by law as an authorized
cause, it is still essential that the alleged losses in the business operations be
proven convincingly; otherwise, this ground for termination of employment would be
susceptible to abuse by conniving employers, who might be merely feigning
business losses or reverses in their business ventures in order to ease out
employees.
In this case, EEMI failed to establish that the main reason for its closure was
business reverses. As aptly observed by the CA, the cessation of EEMI business
was not directly brought about by serious business losses or financial reverses, but
by reason of the enforcement of a judgment against it. Thus, EEMI should be
required to pay separation pay to its affected employees.
LABOR LAW
As a general rule, corporate officers should not be held solidarily liable with the
corporation for separation pay for it is settled that a corporation is invested by law
with a personality separate and distinct from those of the persons composing it as

well as from that of any other legal entity to which it may be related. Mere ownership
by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personality.
The LA was of the view that Go, as President of the corporation, actively participated
in the management of EEMI corporate obligations, and, accordingly, rendered
judgment ordering EEMI and Go "in solidum to pay the complainants" their due. He
explained that "[r]espondent Go negligence in not paying the lease rental of the plant
in behalf of the lessee EGO Electrical Supply, Inc., where EEMI was operating and
reimburse expenses of UCPB for real estate taxes and the like, prompted the bank
to file an unlawful detainer case against the lessee, EGO Electrical Supply Co. The
CA affirmed the LA decision citing the case of Restaurante Las Conchas v.
Llego,where it was held that "when the employer corporation is no longer existing
and unable to satisfy the judgment in favor of the employees, the officers should be
held liable for acting on behalf of the corporation."
A study of Restaurante Las Conchas case, however, bares that it was an application
of the exception rather than the general rule. As stated in the said case, "as a rule,
the officers and members of a corporation are not personally liable for acts done in
the performance of their duties." The Court therein explained that it applied the
exception because of the peculiar circumstances of the case. If the rule would be
applied, the employees would end up in an empty victory because as the restaurant
had been closed for lack of venue, there would be no one to pay its liability as the
respondents therein claimed that the restaurant was owned by a different entity, not
a party in the case.
In Mandaue Dinghow Dimsum House, Co., Inc., the Court declined to apply the
ruling in Restaurante Las Conchas because there was no evidence that the
respondent therein, Henry Uytrengsu, acted in bad faith or in excess of his authority.
It stressed that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any other
legal entity to which it may be related. For said reason, the doctrine of piercing the
veil of corporate fiction must be exercised with caution.Citing Malayang Samahan ng
mga Manggagawa sa M. Greenfield v. Ramos, the Court explained that corporate
directors and officers are solidarily liable with the corporation for the termination of
employees done with malice or bad faith. It stressed that bad faith does not connote
bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious doing of wrong; it means breach of a known duty through some
motive or interest or ill will; it partakes of the nature of fraud.
In Pantranco Employees Association, the Court also rejected the invocation of
Restaurante Las Conchas and refused to pierce the veil of corporate fiction. It
explained:

As between PNB and PNEI, petitioners want us to disregard their separate

personalities, and insist that because the company, PNEI, has already ceased
operations and there is no other way by which the judgment in favor of the
employees can be satisfied, corporate officers can be held jointly and severally liable
with the company.
This reliance fails to persuade. The aforesaid decisions are inapplicable to the
instant case.
In the said cases, the persons made liable after the company cessation of
operations were the officers and agents of the corporation. The rationale is that,
since the corporation is an artificial person, it must have an officer who can be
presumed to be the employer, being the person acting in the interest of the
employer. The corporation, only in the technical sense, is the employer. In the
instant case, what is being made liable is another corporation (PNB) which acquired
the debtor corporation (PNEI).
More importantly, as aptly observed by this Court in A.C. Ransom Labor UnionCCLU v. NLRC, it appears that Ransom, foreseeing the possibility or probability of
payment of backwages to its employees, organized Rosario to replace Ransom, with
the latter to be eventually phased out if the strikers win their case. The execution
could not be implemented against Ransom because of the disposition posthaste of
its leviable assets evidently in order to evade its just and due obligations. Hence, the
Court sustained the piercing of the corporate veil and made the officers of Ransom
personally liable for the debts of the latter.
Clearly, what can be inferred from the earlier cases is that the doctrine of piercing
the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; 2) fraud cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another corporation.
In the absence of malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally liable for corporate
liabilities.
Similarly, in the case at bench, the records do not warrant an application of the
exception. The rule, which requires the presence of malice or bad faith, must still
prevail. In the recent case of Wensha Spa Center and/or Xu Zhi Jie v. Yung,the
Court absolved the corporation president from liability in the absence of bad faith or
malice. In the said case, the Court stated:
In labor cases, corporate directors and officers may be held solidarily liable with the

corporation for the termination of employment only if done with malice or in bad faith.
Bad faith does not connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it means breach of a
known duty through some motive or interest or ill will; it partakes of the nature of
fraud.
In the present case, Go may have acted in behalf of EEMI but the company failure to
operate cannot be equated to bad faith. Cessation of business operation is brought
about by various causes like mismanagement, lack of demand, negligence, or lack
of business foresight. Unless it can be shown that the closure was deliberate,
malicious and in bad faith, the Court must apply the general rule that a corporation
has, by law, a personality separate and distinct from that of its owners. As there is no
evidence that Go, as EEMI President, acted maliciously or in bad faith in handling
their business affairs and in eventually implementing the closure of its business, he
cannot be held jointly and solidarily liable with EEMI.
PARTIALLY GRANTED
CA AFFIRMED AND MODIFIED

Philippine National Bank vs. Andrada Electric & Engineering Co. [GR 142936, 17
April 2002] Third Division, Panganiban (J): 3 concur, 1 on official leave Facts: On 26
August 1975, the Philippine national Bank (PNB) acquired the assets of the
Pampanga Sugar Mills (PASUMIL) that were earlier foreclosed by the Development
Bank of the Philippines (DBP) under LOI 311. The PNB organized the ational Sugar
Development Corporation (NASUDECO) in September 1975, to take ownership and
possession of the assets and ultimately to nationalize and consolidate its interest in
other PNB controlled sugar mills. Prior to 29 October 1971, PASUMIL engaged the
services of the Andrada Electric & Engineering Company (AEEC) for electrical
rewinding and repair, most of which were partially paid by PASUMIL, leaving several
unpaid accounts with AEEC. On 29 October 1971, AEEC and PASUMIL entered into a
contract for AEEC to perform the (a) Construction of a power house building; 3
reinforced concrete foundation for 3 units 350 KW diesel engine generating sets, 3
reinforced concrete foundation for the 5,000 KW and 1,250 KW turbo generator sets,
among others. Aside from the work contract, PASUMIL required AEEC to perform
extra work, and provide electrical equipment and spare parts. Out of the total
obligation of P777,263.80, PASUMIL had paid only P250,000.00, leaving an unpaid
balance, as of 27 June 1973, amounting to P527,263.80. Out of said unpaid balance
of P527,263.80, PASUMIL made a partial payment to AEEC of P14,000.00, in broken
amounts, covering the period from 5 January 1974 up to 23 May 1974, leaving an
unpaid balance of P513,263.80. PASUMIL and PNB, and now NASUDECO, allegedly
failed and refused to pay AEEC their just, valid and demandable obligation (The
President of the NASUDECO is also the Vice-President of the PNB. AEEC besought
said official to pay the outstanding obligation of PASUMIL, inasmuch as PNB and
NASUDECO now owned and possessed the assets of PASUMIL, and these defendants
all benefited from the works, and the electrical, as well as the engineering
Commercial Law - Corporation Law, 2005 ( 9 ) Narratives (Berne Guerrero) and

repairs, performed by AEEC). Because of the failure and refusal of PNB, PASUMIL
and/or NASUDECO to pay their obligations, AEEC allegedly suffered actual damages
in the total amount of P513,263.80; and that in order to recover these sums, AEEC
was compelled to engage the professional services of counsel, to whom AEEC
agreed to pay a sum equivalent to 25% of the amount of the obligation due by way
of attorney's fees. PNB and NASUDECO filed a joint motion to dismiss on the ground
that the complaint failed to state sufficient allegations to establish a cause of action
against PNB and NASUDECO, inasmuch as there is lack or want of privity of contract
between the them and AEEC. Said motion was denied by the trial court in its 27
November order, and ordered PNB nad NASUDECO to file their answers within 15
days. After due proceedings, the Trial Court rendered judgment in favor of AEEC and
against PNB, NASUDECO and PASUMIL; the latter being ordered to pay jointly and
severally the former (1) the sum of P513,623.80 plus interest thereon at the rate of
14% per annum as claimed from 25 September 1980 until fully paid; (2) the sum of
P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The
Court of Appeals affirmed the decision of the trial court in its decision of 17 April
2000 (CA-GR CV 57610. PNB and NASUDECO filed the petition for review. Issue:
Whether PNB and NASUDECO may be held liable for PASUMILs liability to AEEC.
Held: Basic is the rule that a corporation has a legal personality distinct and
separate from the persons and entities owning it. The corporate veil may be lifted
only if it has been used to shield fraud, defend crime, justify a wrong, defeat public
convenience, insulate bad faith or perpetuate injustice. Thus, the mere fact that the
Philippine National Bank (PNB) acquired ownership or management of some assets
of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and
purchased at the resulting public auction by the Development Bank of the
Philippines (DBP), will not make PNB liable for the PASUMIL's contractual debts to
Andrada Electric & Engineering Company (AEEC). Piercing the veil of corporate
fiction may be allowed only if the following elements concur: (1) control not mere
stock control, but complete domination not only of finances, but of policy and
business practice in respect to the transaction attacked, must have been such 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 a fraud or a wrong to perpetuate the violation of a statutory or other
positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's
legal right; and (3) the said control and breach of duty must have proximately
caused the injury or unjust loss complained of. The absence of the foregoing
elements in the present case precludes the piercing of the corporate veil. First,
other than the fact that PNB and NASUDECO acquired the assets of PASUMIL, there
is no showing that their control over it warrants the disregard of corporate
personalities. Second, there is no evidence that their juridical personality was used
to commit a fraud or to do a wrong; or that the separate corporate entity was
farcically used as a mere alter ego, business conduit or instrumentality of another
entity or person. Third, AEEC was not defrauded or injured when PNB and
NASUDECO acquired the assets of PASUMIL. Hence, although the assets of
NASUDECO can be easily traced to PASUMIL, the transfer of the latter's assets to
PNB and NASUDECO was not fraudulently entered into in order to escape liability for
its debt to AEEC. Neither was there any merger or consolidation with respect to
PASUMIL and PNB. The procedure prescribed under Title IX of the Corporation Code
59 was not followed. In fact, PASUMIL's corporate existence had not been legally
extinguished or terminated. Further, prior to PNB's acquisition of the foreclosed

assets, PASUMIL had previously made partial payments to AEEC for the former's
obligation in the amount of P777,263.80. As of 27 June 1973, PASUMIL had paid
P250,000 to AEEC and, from 5 January 1974 to 23 May 1974, another P14,000.
Neither did PNB expressly or impliedly agree to assume the debt of PASUMIL to
AEEC. LOI 11 explicitly provides that PNB shall study and submit recommendations
on the claims of PASUMIL's creditors. Clearly, the corporate separateness between
PASUMIL and PNB remains, despite AEEC's insistence to the contrary.

Heirs of Roman Durano, Sr. vs Spouses Uy, et al.

Gr 136456
October 24, 2000
Facts:
Congressman Ramon Durano, Sr, and son Ramon Durano III and the latters
wife Elizabeth Hotchkiss Durano (herein petitioners) filed a case for damages
against respondents for allegedly officiating a hate campaign against them
by lodging complaints for invasion of the respondents properties in
Cahumayhumayan, Danao City. The complaints were filed with the Police
Department of Danao and the Office of the President. The said complaints
were investigated by the Department of Justice through the City Fiscal and the
Philippine Constabulary who later on dismissed the complaints for being
baseless. The petitioners added that the respondents spread false rumours and
tales which subjected them to public contempt and ridicule.
The respondents made a counterclaim demanding the return of their
properties claiming that in August 1970, they received mimeographed notices
signed by Durano Sr. informing them that the land they occupied is owned by
Cebu Portland Cement Company and was purchased by Durano & Co for
immediate turn over. However, before many of them could even receive the
notice, employees of Durano & Co. proceeded to bulldoze the land, destroying
plantings and improvements made therein. On September 15, 1970, Durano &
Co. sold the subject land to Durano III. Claiming that during that time, they
were not able to find local relief as Durano Sr.s wife was the Mayor at that
time causing them to send a letter to then President Marcos.
On April 22, 1975, petitioners moved to dismiss their own complaint granted
by the RTC without prejudice to the counterclaim of the respondents.
According to the petitioners, the property originally belonged to Cepoc and
was sold to Durano & Co., and later on to Durano III. But Durano III claimed
that he only learned of the bulldozing when complaints were already filed by
the respondents. He further claimed that they dismissed the complaints
against the respondents as a form of reconciliation with them but the latter
still pursued their counterclaim. According to him, the properties of the
claimants, except for Sepulveda Uy, daughter of former Mayor of Danao, were

occupants of the said property and Durano & Co. purchased the adjacent
property for mining coal.
The RTC ordered in their ruling that the petitioners are to pay damages to the
respondent and the return of the properties of Venancia Repaso, Hermogenes
Tito, and Marcelino Gonzales as well as the property of Angeles Sepulveda Uy
with respect to the are found outside of the Cepoc property. On appeal, the CA
affirmed the decision but modified the judgement ordering the return of all
properties to the respondents.
Issue:
Whether or not the respondents are builders in good faith.
Decision:
The court ruled that the records indicated that the respondents possession
has already ripened into ownership by acquisitive prescription. Acquisitive
prescription is acquired by possession in good faith with just tittle for a period
of ten years. One is considered in good faith when he is not aware of any flaw
in his tittle or mode of acquisition of the property and there is just title when
the adverse claimant came into possession of the property through one of the
modes of acquiring ownership provided by law.
In the case at bar, the respondents acquired the properties by purchase or
inheritance and ever since were in actual, continuous, open, and adverse
possession. The records showed that they were unaware of any claims over the
properties until the notices given on August 1970.
The petitioners on the other hand cannot claim good faith. The validity of the
certificates of title obtained by them were doubted by the courts as there was a
lack of registered title of Cepoc and the deed of sale between Cepoc and
Durano & Co. were not notarised and therefore unregisterable. Furthermore, a
buyer could not have been ignorant that the property they bought were
adversely possessed by the respondents nor did they investigate the property
the petitioners cannot be held to be buyers in good faith, nor builders in good
faith.
Under the Article 449 of the New Civil Code, he who builds etc. in bad faith on
the land of another, loses what is built etc. without right of indemnity.
Furthermore, Article 450 gives the landowner over which something was built
in bad faith the power to demolish the works to replace the property in their
former condition at the expense of the builder. And Article 451 gives him the
right to damages.
***non property issue: piercing the veil of corporate fiction
Test in determining the applicability of the doctrine of piercing the veil of
corporate fiction:
1. Control
2. Control myst have been used to commit fraud or a wrong

3. Control and breach of duty must proximately cause the injury or unjust loss
complained off.

Yao Ca sin vs ca

In 1973, Constancio Maglana, president of Prime White Cement Corporation, sent an offer
letter to Yao Ka Sin Trading. The offer states that Prime White is willing to sell 45,000 bags
of cement at P24.30 per bag. The offer letter was received by Yao Ka Sins manager, Henry
Yao. Yao accepted the letter and pursuant to the letter, he sent a check in the amount of
P243,000.00 equivalent to the value of 10,000 bags of cement. However, the Board of
Directors of Prime White rejected the offer letter sent by Maglana but it considered Yaos
acceptance letter as a new contract offer hence the Board sent a letter to Yao telling him
that Prime White is instead willing to sell only 10,000 bags to Yao Ka Sin and that he has
ten days to reply; that if no reply is made by Yao then they will consider it as an acceptance
and that thereafter Prime White shall deposit the P243k check in its account and then
deliver the cements to Yao Ka Sin. Henry Yao never replied.
Later, Yao Ka Sin sued Prime White to compel the latter to comply with what Yao Ka Sin
considered as the true contract, i.e., 45,000 bags at P24.30 per bag. Prime White in its
defense averred that although Maglana is empowered to sign contracts in behalf of Prime
White, such contracts are still subject to approval by Prime Whites Board, and then it still
requires further approval by the National Investment and Development Corporation (NIDC),
a government owned and controlled corporation because Prime White is a subsidiary of
NIDC.
Henry Yao asserts that the letter from Maglana is a binding contract because it was made
under the apparent authority of Maglana. The trial court ruled in favor of Yao Ka Sin. The
Court of Appeals reversed the trial court.

ISSUE: Whether or not the president of a corporation is clothed with apparent authority to
enter into binding contracts with third persons without the authority of the Board.
HELD: No. The Board may enter into contracts through the president. The president may
only enter into contracts upon authority of the Board. Hence, any agreement signed by the
president is subject to approval by the Board. Unlike a general manager (like the case of
Francisco vs GSIS), the president has no apparent authority to enter into binding contracts
with third persons. Further, if indeed the by-laws of Prime White did provide Maglana with
apparent authority, this was not proven by Yao Ka Sin.
As a rule, apparent authority may result from (1) the general manner, by which the
corporation holds out an officer or agent as having power to act or, in other words, the
apparent authority with which it clothes him to act in general or (2) acquiescence in his acts
of a particular nature, with actual or constructive knowledge thereof, whether within or
without the scope of his ordinary powers. These are not present in this case.
Also, the subsequent letter by Prime White to Yao Ka Sin is binding because Yao Ka Sins
failure to respond constitutes an acceptance, per stated in the letter itself which was not
contested by Henry Yao during trial.

Associated Bank V. Pronstroller (2008)

FACTS:

April 21, 1988: Spouses Eduardo and Ma. Pilar Vaca (spouses Vaca) executed a Real Estate Mortgage
(REM) in favor of the Associated Bank (Associated) over their parcel of residential land and house
Due to failure to pay its obligation, Associated won its bidding in the public auction and was issued
the title thereto
spouses Vaca commenced an action for the nullification of the REM and the foreclosure sale.
CA: favored Associated
During the pendency of the cases, Associated advertised the subject property for sale to interested
buyers for P9,700,000.00
Rafael and Monaliza Pronstroller (Pronstrollers) bought it for P7.5M with 10% as downpayment
March 18, 1993: Associated, through Atty. Soluta, and the Pronstrollers, executed a Letter-Agreement
Prior to the expiration of the 90-day period within which to make the escrow deposit, in view
of the pendency of the cases the Pronstrollers requested that the balance be payable upon service on them
of a final decision affirming Associated's right to possess the property
Atty. Soluta referred respondents' proposal to Associated's Asset Recovery and
Remedial Management Committee (ARRMC) who deferred action
July 14, 1993 (a month after they made the request and after the payment deadline had lapsed): Atty.
Soluta executed another Letter-Agreement allowing the request
Early 1994: Associated reorganized its management
Atty. Braulio Dayday (Atty. Dayday) became Assist. VP and Head of the Documentation
Section, while Atty. Soluta was relieved of his responsibilities

Atty. Dayday discovered that the Pronstrollers failed to deposit the balance and the request
March 4, 1994: It was resubmitted and disapproved at its ARRMC meeting
ARRMC referred the matter to the Legal Department for rescission or
cancellation due to breach of contract
May 5, 1994: Atty. Dayday informed the disapproval, rescinding and deposit forfeiture. They were
also asked to submit their new proposal if they were still interested
The Pronstrollers went to talked to Atty. Dayday and showed him the Letter-Agreement
showing that they were granted extension but Atty. Dayday told them it was a mistake and Atty. Soluta
was not authorized to give such extension
June 6, 1994: The Pronstrollers proposed to pay the balance with P3M upon the approval of their
proposal and the balance after 6 months but it was disapproved by Associated's President
June 9, 1994: They were advised that their proposal will be accepted if they will pay 24.5% per annum
interest and if they do not agree, they are allowed to refund the 750 K
July 14, 1994: Vaca Case: court upheld Associated's right to possess the subject property

July 28, 1994: The Pronstrollers commenced the instant suit by filing a Complaint for Specific
Performance before the RTC

During the pendency of the case, Associated sold the subject property to the spouses Vaca who started
demolishing the house which, however, was not completed by virtue of the writ of preliminary injunction
issued by the court

November 14, 1997:trial court favored the Pronstrollers (rescission of the Agreement to Sell to be null
and void for being contrary to law and public policy)

CA affirmed RTC
ISSUE: W/N Associated can rescind the contract

HELD: NO. CA Affirmed

GR: in the absence of authority from the board of directors, no person, not even its officers, can
validly bind a corporation

EX: board may validly delegate some of its functions and powers to officers, committees and agents

doctrine of apparent authority - with special reference to banks

existence may be ascertained through

1.
the general manner in which the corporation holds out an officer or agent as having the power
to act, or in other words, the apparent authority to act in general, with which it clothes him; or
2.
the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, within or beyond the scope of his ordinary powers
o
petitioner had previously allowed Atty. Soluta to enter into the first agreement without a
board resolution expressly authorizing him; thus, it had clothed him with apparent authority to modify the
same via the second letter-agreement

Admittedly, during the pendency of the case, respondents timely registered a notice of lis pendens to
warn the whole world that the property was the subject of a pending litigation:
1.

to keep the subject matter of the litigation within the power of the court until the entry of the final
judgment to prevent the defeat of the final judgment by successive alienations; and
2.
to bind a purchaser, bona fide or not, of the land subject of the litigation to the judgment or decree that
the court will promulgate subsequently.
o
This registration gives the court clear authority to cancel the title of the spouses Vaca, since
the sale of the subject property was made after the notice of lis pendens

Peoples Aircargo and Warehousing Co., Inc. vs. Court of

Appeals [October 7, 1998]
Post under case digests, Commercial Law at Wednesday, March 21, 2012 Posted by Schizophrenic Mind

Facts: Petitioner is a domestic corporation organized in

1986 to operate a customs bonded warehouse at the old
Manila International Airport (MIA). To obtain a license from
the Bureau of Customs, Antonio Punsalan, Jr., the
corporation president, solicited a proposal from private
respondent Stefani Sano for the preparation of a feasibility
study. Sano submitted a letter proposal dated October 17,
1986 (First Contract) to Punsalan regarding his request for
professional engineering consultancy services which
services are offered in the amount of P350,000.00. Initially,
Cheng Yang, the majority stockholder of petitioner,
objected to said offer as another company can provide for
the same service at a lower price. However, Punsalan
preferred
Sanos
services
because
of
latters membership in the task force, which task force was
supervising the transition of the Bureau from the Marcos to
the Aquino government. Petitioner, through Punsalan,
thereafter confirmed the contract.
On December 4, 1986, upon Punsalans request, private
respondent sent petitioner another letter-proposal (Second
Contract) which offers the same service already at
P400,000.00 instead of the previous P350,000.00 offer.
On January 10, 1987, Andy Villaceren, vice-president of
petitioner, received the operations manual prepared by
Sano and which manual operations was submitted by
petitioner to the Bureau in compliance for its application to

operate a bonded warehouse. Thereafter, in May 1987,

the Bureau issued to it a license to operate. Private
respondent also conducted in the third week of January
1987 in the warehouse of petitioner, a three-day training
seminar for the petitioners employees.
On February 9, 1988, private respondent filed a collection
suit against petitioner. He alleged that he had prepared an
operations manual for petitioner, conducted a seminarworkshop for its employees and delivered to it a computer
program but that despite demand, petitioner refused to
pay him for his services. Petitioner, on its part, denied that
Sano had prepared such manual operations and at the
same time alleged that the letter-agreement was signed by
Punsalan without authority and as such unenforceable. It
alleges that the disputed contract was not authorized by its
board of directors.
Issue: Whether or not the Second Contract signed by
Punsalan is enforceable and binding against petitioner.
Held: Yes, the Second Contract is binding and
enforceable. The general rule is that, in the absence of
authority from the board of directors, no person, not even
its officers, can validly bind a corporation. A corporation is
a juridical person, separate and distinct from its
stockholders
and
members
having
xxx
powers, attributesand properties expressly authorized by

law or incident to its existence. Being a juridical entity, a

corporation may act through its board of directors,
which exercises almost all corporate powers, lays down all
corporate business policies and is responsible for the
efficiency of management, as provided in Section 23 of the
Corporation Code.
However, it is familiar doctrine that if a corporation
knowingly permits one of its officers, or any other agent, to
act within the scope of an apparent authority, it holds him
out to the public as possessing the power to do those acts
and thus, the corporation witll, as against anyone who has
in good faith dealt with it through such agent, be estopped
from denying the agents authority. Thus private
respondent shall not be faulted for believing that
Punsalans conformity to the contract in dispute was also
binding on petitioner. In the case at bar, petitioner, through
its president Antonio Punsalan Jr., entered into the First
Contract without first securing board approval. Despite
such lack of board approval, petitioner did not object to or
repudiate said contract, thus "clothing" its president with
the power to bind the corporation. The grant of apparent
authority to Punsalan is evident in the testimony of Yong
senior vice president, treasurer and major stockholder
of petitioner. Furthermore, private respondent prepared an
operations manual and conducted a seminar for the
employees of petitioner in accordance with their contract.
Petitioner accepted the operations manual, submitted it to
the Bureau of Customs and allowed the seminar for its
employees. As a result of its aforementioned actions,

petitioner was given by the Bureau of Customs a license

to operate a bonded warehouse. Granting arguendo then
that the Second Contract was outside the usual powers of
the president, petitioner's ratification of said contract
and acceptance of benefits have made it binding,
nonetheless. The enforceability of contracts under Article
1403(2) is ratified "by the acceptance of benefits under
them" under Article 1405.

MWSS V. CA
143 SCRA 20
FACTS:
MWSS had an account from PNB.

Its treasurer, auditor, and General Manager are the ones

authorized to sign checks. During a period of time, 23 checks were drawn and debited against
the account of petitioner. Bearing the same check numbers, the amounts stated therein were
again
debited from the account of petitioner. The amounts drawn were deposited in the accounts of the
payees in PCIB. It was found out though that the names stated in the drawn checks were all
fictitious. Petitioner demanded the return of the amounts debited but the bank refused to do so.
Thus, it filed a complaint.

HELD:
There was no categorical finding that the 23 checks were signed by persons other than
those authorized to sign.

On the contrary, the NBI reports shows that the fraud was an inside

job and that the delay in the reconciliation of the bank statements and the laxity and loss of
records
control in the printing of the personalized checks facilitated the fraud. It further doesnt provide that
the signatures were forgeries.
Forgery cannot be presumed. It should be proven by clear, convincing and positive evidence. This
wasnt done in the present case.
The petitioner cannot invoke Section 23 because it was guilty of negligence not only before the
questioned checks but even after the same had already been negotiated.

RURAL BANK OF MILAOR v. OCFEMIA

RURAL BANK OF MILAOR v. OCFEMIA
G.R. No. 137686; February 8, 2000
Ponente: J. Vitug

FACTS:
The evidence presented by the respondents through the testimony of Marife O. Nio, shows
that she is the daughter of Francisca Ocfemia and the late Renato Ocfemia who died on July
23, 1994. The parents of her father, Renato Ocfemia, were Juanita Arellano Ocfemia and
Felicisimo
Ocfemia.
Marife O. Nio knows the five (5) parcels of land which are located in Bombon, Camarines
Sur and that they are the ones possessing them which were originally owned by her
grandparents. During the lifetime of her grandparents, respondents mortgaged the said five
(5) parcels of land and two (2) others to the Rural Bank of Milaor.
The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the
mortgaged properties consisting of 7 parcels of land and so the mortgage was foreclosed
and thereafter ownership thereof was transferred to the bank. Out of the 7 parcels that were

foreclosed, 5 of them are in the possession of the respondents because these 5 parcels of
land were sold by the bank to the parents of Marife O. Nio as evidenced by a Deed of Sale
executed
in
January
1988.
The aforementioned 5 parcels of land subject of the deed of sale, have not been, however
transferred in the name of the parents of Merife O. Nio after they were sold to her parents
by the bank because according to the Assessor's Office the five (5) parcels of land, subject of
the sale, cannot be transferred in the name of the buyers as there is a need to have the
document of sale registered with the Register of Deeds of Camarines Sur.
In view of the foregoing, Marife O. Nio went to the Register of Deeds of Camarines Sur with
the Deed of Sale in order to have the same registered. The Register of Deeds, however,
informed her that the document of sale cannot be registered without a board resolution of
the Bank. Marife Nio then went to the bank, showed to it the Deed of Sale, the tax
declaration and receipt of tax payments and requested the bank for a board resolution so
that the property can be transferred to the name of Renato Ocfemia the husband of
petitioner Francisca Ocfemia and the father of the other respondents having died already.
Despite several requests, the bank refused her request for a board resolution and made
many alibis. She was told that the bank had a new manager and it had no record of the
sale.

ISSUE:
Whether the board of directors of a rural banking corporation be compelled to confirm a
deed of absolute sale of real property which deed of sale was executed by the bank manager
without prior authority of the board of directors of the rural banking corporation
HELD:
Yes, the board of directors can be compelled to confirm a deed of absolute sale even though
the bank manager executed such deed without prior authority from the banking corporation.
The Supreme Court ruled that the bank acknowledged, by its own acts or failure to act, the
authority of the manager to enter into binding contracts. After the execution of the Deed of
Sale, respondents occupied the properties in dispute and paid the real estate taxes due
thereon. If the bank management believed that it had title to the property, it should have
taken some measures to prevent the infringement or invasion of its title thereto and
possession
thereof.
In this light, the bank is estopped from questioning the authority of the bank manager to
enter into the contract of sale. If a corporation knowingly permits one of its officers or any
other agent to act within the scope of an apparent authority, it holds the agent out to the
public as possessing the power to do those acts; thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be estopped from denying
the
agent's
authority.
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it

has a clear legal duty to issue the board resolution sought by respondents. Having
authorized her to sell the property, it behooves the bank to confirm the Deed of Sale so that
the buyers may enjoy its full use.

MATLING INDUSTRIAL VS COROS (G.R. NO. 157802 OCTOBER 13, 2010)

Matling Industrial and Commercial Corporation vs Coros

G.R. No. 157802 October 13, 2010
Facts: After his dismissal by Matling as its Vice President for Finance
and Administration, the respondent filed on August 10, 2000 a
complaint for illegal suspension and illegal dismissal against Matling
and some of its corporate officers (petitioners) in the NLRC, SubRegional Arbitration Branch XII, Iligan City. The petitioners moved to
dismiss the complaint, raising the ground, among others, that the
complaint pertained to the jurisdiction of the Securities and
Exchange Commission (SEC) due to the controversy being
intracorporate inasmuch as the respondent was a member of
Matlings Board of Directors aside from being its Vice-President for
Finance and Administration prior to his termination. The respondent
opposed the petitioners motion to dismiss, insisting that his status
as a member of Matlings Board of Directors was doubtful,
considering that he had not been formally elected as such; that he
did not own a single share of stock in Matling, considering that he
had been made to sign in blank an undated indorsement of the
certificate of stock he had been given in 1992; that Matling had
taken back and retained the certificate of stock in its custody; and
that even assuming that he had been a Director of Matling, he had
been removed as the Vice President for Finance and Administration,
not as a Director, a fact that the notice of his termination dated April
10, 2000 showed. On October 16, 2000, the LA granted the
petitioners motion to dismiss, ruling that the respondent was a
corporate officer because he was occupying the position of Vice
President for Finance and Administration and at the same time was a
Member of the Board of Directors of Matling; and that, consequently,
his removal was a corporate act of Matling and the controversy

resulting from such removal was under the jurisdiction of the SEC,
pursuant to Section 5, paragraph (c) of Presidential Decree No. 902.
Issue: Whether or not the respondent is a corporate officer within
the jurisdiction of the regular courts.
Held: No. As a rule, the illegal dismissal of an officer or other
employee of a private employer is properly cognizable by the LA.
This is pursuant to Article 217 (a) 2 of the Labor Code, as amended,
which provides as follows:
Article 217. Jurisdiction of the Labor Arbiters and the
Commission. (a) Except as otherwise provided under this Code,
the Labor Arbiters shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without extension,
even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-agricultural:
1.
Unfair
labor
practice
cases;
2.
Termination
disputes;
3. If accompanied with a claim for reinstatement, those cases that
workers may file involving wages, rates of pay, hours of work and
other
terms
and
conditions
of
employment;
4. Claims for actual, moral, exemplary and other forms of damages
arising
from
the
employer-employee
relations;
5. Cases arising from any violation of Article 264 of this Code,
including questions involving the legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security,
Medicare and maternity benefits, all other claims arising from
employer-employee relations, including those of persons in domestic
or household service, involving an amount exceeding five thousand
pesos (P 5,000.00) regardless of whether accompanied with a claim
for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over

all cases decided by Labor Arbiters. (c) Cases arising from the
interpretation
or
implementation
of
collective
bargaining
agreements and those arising from the interpretation or
enforcement of company personnel policies shall be disposed of by
the Labor Arbiter by referring the same to the grievance machinery
and voluntary arbitration as may be provided in said agreements.
Where the complaint for illegal dismissal concerns a corporate
officer, however, the controversy falls under the jurisdiction of the
Securities and Exchange Commission (SEC), because the
controversy arises out of intra-corporate or partnership relations
between and among stockholders, members, or associates, or
between any or all of them and the corporation, partnership, or
association of which they are stockholders, members, or associates,
respectively; and between such corporation, partnership, or
association and the State insofar as the controversy concerns their
individual franchise or right to exist as such entity; or because the
controversy involves the election or appointment of a director,
trustee, officer, or manager of such corporation, partnership, or
association. Such controversy, among others, is known as an intracorporate dispute.
Effective on August 8, 2000, upon the passage of Republic Act No.
8799, otherwise known as The Securities Regulation Code, the SECs
jurisdiction over all intra-corporate disputes was transferred to the
RTC, pursuant to Section 5.2 of RA No. 8799.
Thus, pursuant to the above provision (Section 25 of the Corporation
Code), whoever are the corporate officers enumerated in the bylaws are the exclusive Officers of the corporation and the Board has
no power to create other Offices without amending first the
corporate By-laws. However, the Board may create appointive
positions other than the positions of corporate Officers, but the
persons occupying such positions are not considered as corporate
officers within the meaning of Section 25 of the Corporation Code

and are not empowered to exercise the functions of the corporate

Officers, except those functions lawfully delegated to them. Their
functions and duties are to be determined by the Board of
Directors/Trustees.
Moreover, the Board of Directors of Matling could not validly
delegate the power to create a corporate office to the President, in
light of Section 25 of the Corporation Code requiring the Board of
Directors itself to elect the corporate officers. Verily, the power to
elect the corporate officers was a discretionary power that the law
exclusively vested in the Board of Directors, and could not be
delegated to subordinate officers or agents. The office of Vice
President for Finance and Administration created by Matlings
President pursuant to By Law No. V was an ordinary, not a
corporate, office.
The criteria for distinguishing between corporate officers who may
be ousted from office at will, on one hand, and ordinary corporate
employees who may only be terminated for just cause, on the other
hand, do not depend on the nature of the services performed, but on
the manner of creation of the office. In the respondents case, he was
supposedly at once an employee, a stockholder, and a Director of
Matling. The circumstances surrounding his appointment to office
must be fully considered to determine whether the dismissal
constituted an intra-corporate controversy or a labor termination
dispute. We must also consider whether his status as Director and
stockholder had any relation at all to his appointment and
subsequent dismissal as Vice President for Finance and
Administration.

Marc II Marketing, Inc. vs. Alfredo M. Joson [GR No. 171993,

December 12, 2011]
Post under case digests, Commercial Law, labor law at Tuesday, March 01, 2016 Posted by Schizophrenic Mind

FACTS: Respondent Alfredo Joson was the General Manager, incorporator, director and stockholder of
Marc II Marketing (petitioner corporation). Before petitioner corporation was officially incorporated,
respondent has already been engaged by petitioner Lucila Joson, in her capacity as President of Marc
Marketing Inc., to work as the General Manager of petitioner corporation through a management contract.

However, petitioner corporation decided to stop and cease its operation wherein respondent's services
were then terminated. Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money
Claim against petitioners before the Labor Arbiter which ruled in favor of respondent. The National Labor
and Relations Commission (NLRC) reversed said decision. The Court of Appeals (CA) however, upheld
the ruling of the Labor Arbiter. Hence, this petition.

ISSUE: Whether or nor the Labor Arbiter has jurisdiction over the controversy at bar

RULING: Yes. While Article 217(a) 229 of the Labor Code, as amended, provides that it is the
Labor Arbiter who has the original and exclusive jurisdiction over cases involving termination or dismissal
of workers when the person dismissed or terminated is a corporate officer, the case automatically falls
within the province of the Regional Trial Court (RTC). The dismissal of a corporate officer is always
regarded as a corporate act and/or an intra-corporate controversy.

In conformity with Section 25 of the Corporation Code, whoever are the corporate officers enumerated in
the by-laws are the exclusive officers of the corporation and the Board has no power to create other
officers

without

amending

first

the

corporate

by-laws.

However,

the

Board

may

create

appointive positions other than the positions of the corporate officers, but the persons occupying
such positions are not considered as corporate officers within the meaning of Section 25 of the
Corporation Code and are not empowered to exercise the functions of the corporate officers, except those
functions lawfully delegated to them. Their functioning and duties are to be determined by the Board of
Directors/Trustees.

In the case at bar, the respondent was not a corporate officer of petitioner corporation because his
position as General Manager was not specifically mentioned in the roster of corporate officers in its
corporate by-laws. Thus respondent, can only be regarded as its employee or subordinate official.
Accordingly, respondent's dismissal as petitioner corporation's General Manager did not amount to an
intra-corporate controversy. Jurisdiction therefore properly belongs with the Labor Arbiter and not with the
RTC.

Tan vs sycip

Lessons Applicable: Release from Subscription Obligation (Corporate Law)

FACTS:

Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation

w/ 15 regular members, who also constitute the board of trustees.

April 6, 1998: During the annual members meeting only 11 living

member-trustees, as 4 had already died.

7 attended the meeting through their respective proxies.

The meeting was convened and chaired by Atty. Sabino Padilla Jr.
over the objection of Atty. Antonio C. Pacis, who argued that there was no
quorum.

In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith
Tan were voted to replace the 4 deceased member-trustees.

SEC: meeting void due to lack of quorum (NOT living but based on AIC)

Sec 24 read together with Sec 89

CA: Dismissed due to technicalities

ISSUE: W/N dead members should still be counted in the quorum - NO based on by-laws
HELD: NO. remaining members of the board of trustees of GCHS may convene
and fill up the vacancies in the board

Except as provided, the vote necessary to approve a particular corporate act as provided
in this Code shall be deemed to refer only to stocks with voting rights:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or

substantially all of the corporation property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other

corporations;

7. Investment of corporate funds in another corporation or business in accordance

with this Code; and

8. Dissolution of the corporation.

quorum in a members meeting is to be reckoned as the actual number of members of the
corporation
stock corporations - shareholders may generally transfer their shares
on the death of a shareholder, the executor or administrator duly appointed by the
Court is vested with the legal title to the stock and entitled to vote it
Until a settlement and division of the estate is effected, the stocks of the decedent
are held by the administrator or executor
nonstock corporation - personal and non-transferable unless the articles of incorporation
or the bylaws of the corporation provide otherwise
Section 91 of the Corporation Code: termination extinguishes all the rights of a
member of the corporation, unless otherwise provided in the articles of incorporation or the
bylaws.
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
By-Laws of GCHS: membership in the corporation shall be terminated by
the death of the member
With 11 remaining members, the quorum = 6.
SECTION 29. Vacancies in the office of director or trustee. -- Any
vacancy occurring in the board of directors or trustees other than by
removal by the stockholders or members or by expiration of term, may be
filled by the vote of at least a majority of the remaining directors or
trustees, if still constituting a quorum; otherwise, said vacancies must be
filled by the stockholders in a regular or special meeting called for that
purpose. A director or trustee so elected to fill a vacancy shall be elected
only for the unexpired term of his predecessor in office.
the filling of vacancies in the board by the remaining directors or trustees
constituting a quorum is merely permissive, not mandatory
either by the remaining directors constituting a quorum, or by the
stockholders or members in a regular or special meeting called for the purpose
By-Laws of GCHS prescribed the specific mode of filling up
existing vacancies in its board of directors; that is, by a majority vote of the remaining
members of the board
remaining member-trustees must sit as a board (as a body in a lawful
meeting)
in order to validly elect the new ones

Lanuza vs. CA
GR No. 131394 | March 28, 2005

Facts:
Petitioners seek to nullify the Court of Appeals Decision in CAG.R. SP No. 414731 promulgated on 18
August 1997, affirming the SEC Order dated 20 June 1996, and the Resolution2 of the Court of Appeals
dated 31 October 1997 which denied petitioners motion for reconsideration.

In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred
(700) founders shares and seventy-six (76) common shares as its initial capital stock subscription
reflected in the articles of incorporation

Onrubia et. al, who were in control of PMMSI registered the companys stock and transfer book for the
first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding
shares of PMMSI.

In 1979, a special stockholders meeting was called and held on the basis of what was considered as a
quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3) of the common
shares issued and outstanding.

In 1982, Juan Acayan, one of the heirs of the incorporators filed a petition for the registration of their
property rights was filed before the SEC over 120 founders shares and 12 common shares owned by
their father

SEC Hearing Officer: heirs of Acayan were entitled to the claimed shares and called for a special
stockholders meeting to elect a new set of officers.

SEC en banc: affirmed the decision

As a result, the shares of Acayan were recorded in the stock and transfer book.

On May 6, 1992, a special stockholders meeting was held to elect a new set of directors

Onrubia et al filed a petition with SEC questioning the validity of said 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 (776)
shares, as reflected in the 1952 Articles of Incorporation

Petition was dismissed

SC en banc: shares of the deceased incorporators should be duly represented by their respective
administrators or heirs concerned. Called 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

Lanuza, Acayan et al, who are PMMSI stockholders, filed a petition for review with the CA, raising the
following issues:
1.
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
(They contended that the basis is the stock and transfer book, not articles of incorporation in
computing the quorum)
2.
whether the Espejo decision (decision of SEC en banc ordering the recording of the shares of Jose
Acayan in the stock and transfer book) is applicable to the benefit of Onrubia et al

CA decision:
1.
For purposes of transacting business, the quorum should be based on the outstanding capital stock as
found in the articles of incorporation
2.
To require a separate judicial declaration to recognize the shares of the original incorporators would
entail unnecessary delay and expense. Besides. the incorporators have already proved their
stockholdings through the provisions of the articles of incorporation.

Appeal was made by Lanuza et al before the SC

Lanuza et al contention:
a.
1992 stockholders meeting was valid and legal

b.

Reliance on the 1952 articles of incorporation for determining the quorum negates the
existence and validity of the stock and transfer book Onrubia et al prepared

c.

Onrubia et al must show and prove entitlement to the founders and common shares in a
separate and independent action/proceeding in order to avail of the benefits secured by the heirs of
Acayan

Onrubia et als contention, based on the Memorandum: petition should be dismissed on the ground of
res judicata
Another appeal was made
Lanuza et als contention: instant petition is separate and distinct from G.R. No. 131315, there being
no identity of parties, and more importantly, the parties in the two petitions have their own distinct
rights and interests in relation to the subject matter in litigation
Onrubia et als manifestation and motion: moved for the dismissal of the case

Issue: What should be the basis of quorum for a stockholders meetingthe outstanding capital stock
as indicated in the articles of incorporation or that contained in the companys stock and transfer
book?

Ruling:
Articles of Incorporation
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.
Contents are binding, not only on the corporation, but also on its shareholders.
Stock and transfer book
Book which records the names and addresses of all stockholders arranged alphabetically, the
installments paid and unpaid on all stock for which subscription has been made, and the date of
payment thereof; a statement of every alienation, sale or transfer of stock made, the date thereof and
by and to whom made; and such other entries as may be prescribed by law
necessary as a measure of precaution, expediency and convenience since it provides the only certain
and accurate method of establishing the various corporate acts and transactions and of showing the
ownership of stock and like matters
Not public record, and thus is not exclusive evidence of the matters and things which ordinarily are or
should be written therein
In this case, the articles of incorporation indicate that at the time of incorporation, the incorporators
were bona fide stockholders of 700 founders shares and 76 common shares. Hence, at that time, the
corporation had 776 issued and outstanding shares.
According to Sec. 52 of the Corp Code, a quorum shall consist of the stockholders representing a
majority of the outstanding capital stock. As such, quorum is based on the totality of the shares which
have been subscribed and issued, whether it be founders shares or common shares
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.
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.
One who is actually a stockholder cannot be denied his right to vote by the corporation merely
because the corporate officers failed to keep its records accurately. A corporations records are not the
only evidence of the ownership of stock in a corporation.
It is no less than the articles of incorporation that declare the incorporators to have in their name the
founders and several common shares. Thus, to disregard the contents of the articles of incorporation
would be to pretend that the basic document which legally triggered the creation of the corporation
does not exist and accordingly to allow great injustice to be caused to the incorporators and their heirs
WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners

Corporate Law Case Digest: Valle Verde

Country Club V. Africa (2009)
G.R. No. 151969
September 4, 2009
Lessons Applicable: Election of Directors; Vacancy in the Board (Corporate Law)

FACTS:

February 27, 1996: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo

Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago,
Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa were elected as BOD
during the Annual Stockholders Meeting of petitioner Valle Verde Country Club,
Inc. (VVCC)

1997 - 2001: Requisite quorum could not be obtained so they continued in a hold

over capacity
September 1, 1998: Dinglasan resigned, BOD still constituting a quorom elected Eric
Roxas (Roxas)
November 10, 1998: Makalintal resigned
on March 6, 2001: Jose Ramirez (Ramirez) was elected by the remaining BOD
Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and
Ramirez as members of the VVCC Board with the Securities and Exchange Commission
(SEC) and the Regional Trial Court (RTC) as contrary to:
Sec. 23. The board of directors or trustees. - Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the board of
directors or trustees to be elected from among the holders of stocks, or where there is no
stock, from among the members of the corporation, who shall hold office for 1 year until
their successors are elected and qualified.
Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in
the board of directors or trustees other than by removal by the stockholders or members or by
expiration of term, may be filled by the vote of at least a majority of the remaining directors
or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the
stockholders in a regular or special meeting called for that purpose. A director or trustee so
elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in
office. xxx.
Makalintal's term should have expired after 1996 there being no unexpired term.
The vacancy should have been filled by the stockholders in a regular or special meeting
called for that purpose

RTC: Favored Africa - Ramirez as Makalintal's replacement = null and void

SEC: Roxas as Vice hold-pver director of Dinglasan = null and void

VVCC appealed in SC for certiorari being partially contrary to law and

jurisprudence
ISSUES:
1. W/N there is an unexpired term - NO
2. W/N the remaining directors of a corporations Board, still constituting a quorum, can elect

another director to fill in a vacancy caused by the resignation of a hold-over director. - NO

HELD: Petition Denied. RTC Affirmed.

1. NO

term time during which the officer may claim to hold the office as of right

not affected by the holdover

fixed by statute and it does not change simply because the office may have become vacant,
nor because the incumbent holds over in office beyond the end of the term due to the fact that a successor
has not been elected and has failed to qualify.

tenure
term during which the incumbent actually holds office.
Section 23 of the Corporation Code: term of BOD only 1 year - fixed and has expired (1
yr after 1996)

2. NO

underlying policy of the Corporation Code is that the business and affairs of a corporation
must be governed by a board of directors whose members have stood for election, and who
have actually been elected by the stockholders, on an annual basis. Only in that way can the
directors' continued accountability to shareholders, and the legitimacy of their decisions that
bind the corporation's stockholders, be assured. The shareholder vote is critical to the theory
that legitimizes the exercise of power by the directors or officers over properties that they do
not own.
theory of delegated power of the board of directors
Section 29 contemplates a vacancy occurring within the directors term of office
(unexpired)
vacancy caused by Makalintals leaving lies with the VVCCs stockholders, not the
remaining members of its board of directors

Ong Yong vs Tui

Lessons Applicable: Pre-incorporation Subscription (Corporate Law)
FACTS:

1994: construction of the Masagana Citimall in Pasay City was threatened with stoppage, when its
owner, the First Landlink Asia Development Corporation (FLADC), owned by the Tius, became heavily
indebted to the Philippine National Bank (PNB) for P190M

To save the 2 lots where the mall was being built from foreclosure, the Tius invited Ong Yong, Juanita
Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Ong Alonzo (the Ongs), to invest in
FLADC.

Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings in FLADC

Ongs: subscribe to 1,000,000 shares

Tius: subscribe to an additional 549,800 shares in addition to their already existing

subscription of 450,200 shares

Tius: nominate the Vice-President and the Treasurer plus 5 directors

Ongs nominate the President, the Secretary and 6 directors (including the chairman) to the board of
directors of FLADC and right to manage and operate the mall.

Tius: contribute to FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M
(for 300K shares) and P49.8M (for 49,800 shares)

Ongs: paid P190M to settle the mortgage indebtedness of FLADC to PNB (P100M in cash for their
subscription to 1M shares)

February 23, 1996: Tius rescinded the Pre-Subscription Agreement

February 27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking confirmation
of their rescission of the Pre-Subscription Agreement
SEC: confirmed recission of Tius

Ongs filed reconsideration that their P70M was not a premium on

capital stock but an advance loan
SEC en banc: affirmed it was a premium on capital stock
CA: Ongs and the Tius were in pari delicto (which would not have legally entitled

them to rescission) but, "for practical considerations," that is, their inability to work
together, it was best to separate the two groups by rescinding the Pre-Subscription
Agreement, returning the original investment of the Ongs and awarding practically
everything else to the Tius.
ISSUE: W/N Specific performance and NOT recission is the remedy
HELD: YES. Ongs granted.

did not justify the rescission of the contract

providing appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer,
respectively, had no bearing on their obligations under the Pre-Subscription Agreement since the
obligation pertained to FLADC itself

failure of the Ongs to credit shares of stock in favor of the Tius for their property contributions also
pertained to the corporation and not to the Ongs

the principal objective of both parties in entering into the Pre-Subscription Agreement in 1994 was to
raise the P190 million

law requires that the breach of contract should be so "substantial or fundamental" as to defeat the
primary objective of the parties in making the agreement

since the cash and other contributions now sought to be returned already belong to FLADC, an
innocent third party, said remedy may no longer be availed of under the law.

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be
formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other contract

allows the distribution of corporate capital only in three instances: (1) amendment of the Articles of
Incorporation to reduce the authorized capital stock,24 (2) purchase of redeemable shares by the
corporation, regardless of the existence of unrestricted retained earnings,25 and (3) dissolution and eventual
liquidation of the corporation.

They want this Court to make a corporate decision for FLADC.

The Ongs' shortcomings were far from serious and certainly less than substantial; they were in fact
remediable and correctable under the law. It would be totally against all rules of justice, fairness and
equity to deprive the Ongs of their interests on petty and tenuous grounds.

PLDT vs NTC

In 1958, Felix Alberto & Co., Inc (FACI) was granted by Congress a franchise to build radio
stations (later construed as to include telephony). FACI later changed its name to Express
Telecommunications Co., Inc. (ETCI). In 1987, ETCI was granted by the National
Telecommunications Commission a provisional authority to build a telephone system in
some parts of Manila. Philippine Long Distance Telephone Co. (PLDT) opposed the said
grant as it avers, among others, that ETCI is not qualified because its franchise has already

been invalidated when it failed to exercise it within 10 years from 1958; that in 1987, the
Albertos, owners of more than 40% of ETCIs shares of stocks, transferred said stocks to
the new stockholders (Cellcom, Inc.? not specified in the case); that such transfer
involving more than 40% shares of stocks amounted to a transfer of franchise which is void
because the authorization of Congress was not obtained. The NTC denied PLDT. PLDT
then filed a petition for certiorari and prohibition against the NTC.
ISSUE: Whether or not PLDTs petition should prosper.
HELD: No.
1.

PLDT cannot attack ETCIs franchise in a petition for certiorari. It cannot be

collaterally attacked. It should be directly attacked through a petition for quo warranto which
is the correct procedure. A franchise is a property right and cannot be revoked or forfeited
without due process of law. The determination of the right to the exercise of a franchise, or
whether the right to enjoy such privilege has been forfeited by non-user, is more properly
the subject of the prerogative writ of quo warranto. Further, for any violation of the franchise,
it should be the government who should be filing a quo warranto proceeding because it was
the government who granted it in the first place.

2.

The transfer of more than 40% of the shares of stocks is not tantamount to a transfer
of franchise. There is a distinction here. There is no need to obtain authorization of
Congress for the mere transfer of shares of stocks. Shareholders can transfer their shares
to anyone. The only limitation is that if the transfer involves more than 40% of the
corporations stocks, it should be approved by the NTC. The transfer in this case was shown
to have been approved by the NTC. What requires authorization from Congress is the
transfer of franchise; and the person who shall obtain the authorization is the grantee
(ETCI). A distinction should be made between shares of stock, which are owned by
stockholders, the sale of which requires only NTC approval, and the franchise itself which is
owned by the corporation as the grantee thereof, the sale or transfer of which requires
Congressional sanction. Since stockholders own the shares of stock, they may dispose of
the same as they see fit. They may not, however, transfer or assign the property of a
corporation, like its franchise. In other words, even if the original stockholders had
transferred their shares to another group of shareholders, the franchise granted to the
corporation subsists as long as the corporation, as an entity, continues to exist. The
franchise is not thereby invalidated by the transfer of the shares. A corporation has a
personality separate and distinct from that of each stockholder. It has the right of continuity
or perpetual succession.

Gamboa v. Teves etal., GR No. 176579, October 9, 2012

Facts:
The issue started when petitioner Gamboa questioned the indirect sale of shares involving almost 12
million shares of the Philippine Long Distance Telephone Company (PLDT) owned by PTIC to First
Pacific. Thus, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the total common shareholdings of foreigners in PLDT to about 81.47%. The petitioner
contends that it violates the Constitutional provision on filipinazation of public utility, stated in Section 11,
Article XII of the 1987 Philippine Constitution, which limits foreign ownership of the capital of a public
utility to not more than 40%. Then, in 2011, the court ruled the case in favor of the petitioner, hence this
new case, resolving the motion for reconsideration for the 2011 decision filed by the respondents.

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

Narra Nickel Mining and Devt Corp., et al. v.

Redmont Consolidated Mines Corp., G.R. No.
195580, 21 April 2014
18APR
[VELASCO, JR., J.]
FACTS
Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators (POA) of the DENR
separate petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro and Mining and Development,
Inc. (Tesoro), and Narra Nickel Mining and Development Corporation (Narra) applications Mineral
Production Sharing Agreement (MPSA) on the ground that they are not qualified persons and thus
disqualified from engaging in mining activities through MPSAs reserved only for Filipino citizens.
McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino) owning
5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares;
MBMI also owns 3,331 out of 10,000 shares of Madridejos Mining Corporation;
Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining, Inc.
(Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of
10,000 shares; MBMI also owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.;
Narra Nickel Mining and Development Corporation, is composed, among others, by Patricia Louise
Mining & Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources,
Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000 shares of
Patricia Louise Mining & Development Corporation;
ISSUES

(1) Is the Grandfather Rule applicable?

(2) Whether McArthur, Tesoro and Narra are Filipino nationals.
RULINGS
(1) YES.
The instant case presents a situation which exhibits a scheme employed by stockholders to circumvent
the law, creating a cloud of doubt in the Courts mind. To determine, therefore, the actual participation,
direct or indirect, of MBMI, the grandfather rule must be used.
The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7 of the 1967 SEC Rules
which states, but if the percentage of Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be counted as of Philippine
nationality. Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing
Corporation and the Investee Corporation must be traced (i.e., grandfathered) to determine the total
percentage of Filipino ownership.
(2) NO.
[P]etitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation,
owns 60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners
corporate owners. xxx Noticeably, the ownership of the layered corporations boils down to xxx group
wherein MBMI has joint venture agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships
between and among the corporations, petitioners are NOT Filipino nationals and must be considered
foreign since 60% or more of their capital stocks or equity interests are owned by MBMI.