1 | Page
BALTAZAR G. CAMPOREDONDO, petitioner,
vs. NATIONAL LABOR RELATIONS
COMMISSION (NLRC), Fifth Division, Cagayan de
Oro City, THE PHILIPPINE NATIONAL RED
CROSS (PNRC), represented by GOVERNOR
ROMEO C. ESPINO and DR. CELSO SAMSON,
respondents,
G.R. No. 129049, August 6, 1999.
FACTS:
In 1980, petitioner was employed with the
PNRC as the administrator of the Surigao del Norte
Chapter, Philippine National Red Cross.
Sometime in July 1995, a field auditor of the
PNRC conducted an audit of the books of account of the
Surigao del Norte Chapter headed by petitioner and
found him short in the total sum of P109,000.00. Thus,
Dr. Celso Samson, Secretary General of the PNRC wrote
to petitioner, requiring him to restitute within seventy
two (72) hours from notice, the total sum of P135,927.78
representing cash shortage, technical shortage and
unremitted collections.
Later that year, petitioner applied for early
retirement from the service, and later wrote Dr. Samson
requesting for a re-audit by an independent auditor of his
accounts. However, Dr. Samson denied the request.
On May 28, 1996, petitioner filed with the
National Labor Relations Commission a complaint for
illegal dismissal, damages and underpayment of wages
against the Philippine National Red Cross and its key
officials.
PNRC countered with a motion to dismiss the
complaint for lack of jurisdiction over the subject matter
of the case because the PNRC is a government
corporation whose employees are members of the
Government Service Insurance System (GSIS), and
embraced within the Civil Service Law and regulations.
Petitioner filed an opposition to motion to
dismiss arguing that there was between the PNRC and its
duly appointed paid staff, an employer-employee
relationship, governed by the Labor Code of the
Philippines.
Thereafter, the Labor Arbiter issued an order
dismissing the complaint for lack of jurisdiction, finding
that the Philippine National Red Cross is a government
corporation with an original charter, having been created
by Republic Act No. 95. Petitioner's MR and resulting
appeal were denied.
Hence, Camporedondo's petition.
ISSUE:
Whether the PNRC is a government owned and
controlled corporation or it has been impliedly
converted to a private organization subject to the
jurisdiction of labor tribunals.
HELD:
The Philippine National Red Cross (PNRC) is a
government owned and controlled corporation, with an
original charter under Republic Act No. 95, as amended.
TEST: Is it created by its own charter for the
exercise of a public function, or by incorporation under
the general corporation law? Those with special
charters are government corporations subject to its
provisions, and its employees are under the jurisdiction
of the Civil Service Commission, and are compulsory
members of the Government Service Insurance System.
The PNRC was not "impliedly converted to a private
corporation" simply because its charter was amended to
vest in it the authority to secure loans, be exempted from
payment of all duties, taxes, fees and other charges of all
kinds on all importations and purchases for its exclusive
use, on donations for its disaster relief work and other
services and in its benefits and fund raising drives, and
be alloted one lottery draw a year by the Philippine
Charity Sweepstakes Office for the support of its disaster
relief operation in addition to its existing lottery draws
for blood program.
Having served in the Philippine National Red
Cross for a number of years since his initial
employment, he must know that it is a government
corporation with its own charter and that he was covered
by compulsory membership in the Government Service
2 | Page

Insurance System, which is why he could apply, as he

did, for "early" retirement from the service under
Presidential Decree No. 1146 or Republic Act No. 1616. ***********

Thus, the decision of the NLRC was uphled.

BENECO v. NLRC G.R. No. 89070, May 18, 1992

3 | Page
FELICIANO, J.:
Facts:
Private respondent Peter Cosalan was the
General Manager of Petitioner Benguet Electric
Cooperative, Inc. (Beneco), having been elected as
such by the Board of Directors of Beneco, with the
approval of the National Electrification
Administrator, Mr. Pedro Dumol, effective 16 October
1982.
Respondent Cosalan received Audit
Memorandum No. 1 issued by the Commission on
Audit (COA). This Memorandum noted that cash
advances received by officers and employees of
petitioner Beneco in the amount of P129,618.48 had
been virtually written off in the books of Beneco. In the
Audit Memorandum, the COA directed petitioner
Beneco to secure the approval of the National
Electrification Administration (NEA) before writing
off or condoning those cash advances, and recommended
the adoption of remedial measures.
On 12 November 1982, COA issued another
Memorandum Audit Memorandum No. 2
addressed to respondent Peter Cosalan, inviting attention
to the fact that the audit of per diems and allowances
received by officials and members of the Board of
Directors of Beneco showed substantial inconsistencies
with the directives of the NEA. The Audit Memorandum
once again directed the taking of immediate action in
conformity with existing NEA regulations.
On 19 May 1983, petitioner Beneco received the
COA Audit Report on the financial status and operations
of Beneco for the eight (8) month period ended 30
September 1982. This Audit Report noted and
enumerated irregularities in the utilization of funds
amounting to P37 Million released by NEA to Beneco,
and recommended that appropriate remedial action
be taken.
Having been made aware of the serious financial
condition of Beneco and what appeared to be
mismanagement, respondent Cosalan initiated
implementation of the remedial measures recommended
by the COA. The respondent members of the Board of
Beneco reacted by adopting a series of resolutions
during the period from 23 June to 24 July 1984. These
Board Resolutions abolished the housing allowance of
respondent Cosalan; reduced his salary and his
representation and commutable allowances; directed him
to hold in abeyance all pending personnel disciplinary
actions; and struck his name out as a principal signatory
to transactions of petitioner Beneco.
During the period from 28 July to 25 September
1984, the respondent Beneco Board members adopted
another series of resolutions which resulted in the
ouster of respondent Cosalan as General Manager of
Beneco and his exclusion from performance of his
regular duties as such, as well as the withholding of
his salary and allowances.
Respondent Cosalan nevertheless continued to
work as General Manager of Beneco, in the belief that
he could be suspended or removed only by duly
authorized officials of NEA, in accordance with
provisions of P.D. No, 269, as amended by P.D. No.
1645 (the statute creating the NEA, providing for its
capitalization, powers and functions and organization),
the loan agreement between NEA and petitioner Beneco
2 and the NEA Memorandum of 2 July 1980.
Accordingly, on 5 October and 10 November 1984,
respondent Cosalan requested petitioner Beneco to
release the compensation due him. Beneco, acting
through respondent Board members, denied the
written request of respondent Cosalan.
4 | Page
The Labor Arbiter rendered a decision (a)
confirming Cosalans reinstatement; (b) ordering
payment to Cosalan of his backwages and allowances by
petitioner Beneco and respondent Board members,
jointly and severally, for a period of three (3) years
without deduction or qualification, amounting to
P344,000.00; and (3) ordering the individual Board
members to pay, jointly and severally, to Cosalan moral
damages of P50,000.00 plus attorneys fees of ten
percent (10%) of the wages and allowances awarded
him.
Respondent Board members appealed to the
NLRC, and there filed a Memorandum on Appeal.
Petitioner Beneco did not appeal, but moved to dismiss
the appeal filed by respondent Board members and for
execution of judgment. By this time, petitioner Beneco
had a new set of directors.
In a decision, public respondent NLRC modified
the award rendered by the Labor Arbiter by declaring
that petitioner Beneco alone, and not respondent Board
members, was liable for respondent Cosalans
backwages and allowances, and by ruling that there was
no legal basis for the award of moral damages and
attorneys fees made by the Labor Arbiter.
Beneco, through its new set of directors, moved
for reconsideration of the NLRC decision, but without
success.
Respondent Cosalan then filed a complaint with
the National Labor Relations Commission (NLRC)
against respondent members of the Beneco Board,
challenging the legality of the Board resolutions which
ordered his suspension and termination from the service
and demanding payment of his salaries and allowances.
Cosalan amended his complaint to implead petitioner
Beneco and respondent Board members, the latter in
their respective dual capacities as Directors and as
private individuals.
In the course of the proceedings before the
Labor Arbiter, Cosalan filed a motion for reinstatement
which, although opposed by petitioner Beneco, was
granted by Labor Arbiter Amado T. Adquilen. Petitioner
Beneco complied with the Labor Arbiters order on 28
October 1987 through Resolution No. 10-90.
Issue:
Benecos principal contentions are two-fold:
first, that the NLRC had acted with grave abuse of
discretion in accepting and giving due course to
respondent Board members appeal although such appeal
had been filed out of time; and second, that the NLRC
had acted with grave abuse of discretion amounting
to lack of jurisdiction in holding petitioner alone
liable for payment of the backwages and allowances
due to Cosalan and releasing respondent Board
members from liability therefor.
Ruling:
Respondent Board members contention runs
counter to the established rule that transmission through
a private carrier or letter-forwarder instead of the
Philippine Post Office is not a recognized mode of
filing pleadings. The established rule is that the date of
delivery of pleadings to a private letter-forwarding
agency is not to be considered as the date of filing
thereof in court, and that in such cases, the date of actual
receipt by the court, and not the date of delivery to the
private carrier, is deemed the date of filing of that
pleading.
There, was, therefore, no reason grounded upon
substantial justice and the prevention of serious
miscarriage of justice that might have justified the
NLRC in disregarding the ten-day reglementary period
for perfection of an appeal by the respondent Board
members. Accordingly, the applicable rule was that the
ten-day reglementary period to perfect an appeal is
mandatory and jurisdictional in nature, that failure to file
an appeal within the reglementary period renders the
assailed decision final and executory and no longer
subject to review. The respondent Board members had
thus lost their right to appeal from the decision of the
Labor Arbiter and the NLRC should have forthwith
dismissed their appeal memorandum.
5 | Page
The applicable general rule is clear enough. The
Board members and officers of a corporation who
purport to act for and in behalf of the corporation, keep
within the lawful scope of their authority in so acting,
and act in good faith, do not become liable, whether
civilly or otherwise, for the consequences of their acts,
those acts, when they are such a nature and are done
under such circumstances, are properly attributed to the
corporation alone and no personal liability is incurred by
such officers and Board members.
The major difficulty with the conclusion reached
by the NLRC is that the NLRC clearly overlooked or
disregarded the circumstances under which respondent
Board members had in fact acted in the instant case. As
noted earlier, the respondent Board members responded
to the efforts of Cosalan to take seriously and implement
the Audit Memoranda issued by the COA explicitly
addressed to the petitioner Beneco, first by stripping
Cosalan of the privileges and perquisites attached to his
position as General Manager, then by suspending
indefinitely and finally dismissing Cosalan from such
position. As also noted earlier, respondent Board
members offered no suggestion at all of any just or
lawful cause that could sustain the suspension and
dismissal of Cosalan. They obviously wanted to get rid
of Cosalan and so acted, in the words of the NLRC
itself, with indecent haste in removing him from his
position and denying him substantive and procedural
due process. Thus, the record showed strong
indications that respondent Board members had
illegally suspended and dismissed Cosalan precisely
because he was trying to remedy the financial
irregularities and violations of NEA regulations which
the COA had brought to the attention of Beneco. The
conclusion reached by the NLRC that the records do
not disclose that the individual Board members were
motivated by malice or bad faith flew in the face of the
evidence of record. At the very least, a strong
presumption had arisen, which it was incumbent upon
respondent Board members to disprove, that they had
acted in reprisal against respondent Cosalan and in an
effort to suppress knowledge about and remedial
measures against the financial irregularities the COA
Audits had unearthed. That burden respondent Board
members did not discharge.
We agree with the Solicitor General, firstly, that
Section 31 of the Corporation Code is applicable in
respect of Beneco and other electric cooperatives
similarly situated. Section 4 of the Corporation Code
renders the provisions of that Code applicable in a
supplementary manner to all corporations, including
those with special or individual charters so long as those
provisions are not inconsistent with such charters. We
find no provision in P.D. No. 269, as amended, that
would exclude expressly or by necessary implication the
applicability of Section 31 of the Corporation Code in
respect of members of the boards of directors of electric
cooperatives. Indeed, P.D. No. 269 expressly describes
these cooperatives as corporations:
We agree with the Solicitor General, secondly,
that respondent Board members were guilty of gross
negligence or bad faith in directing the affairs of the
corporation in enacting the series of resolutions
noted earlier indefinitely suspending and dismissing
respondent Cosalan from the position of General
Manager of Beneco. Respondent Board members, in
doing so, acted belong the scope of their authority as
such Board members. The dismissal of an officer or
employee in bad faith, without lawful cause and
without procedural due process, is an act that is
contra legem. It cannot be supposed that members of
boards of directors derive any authority to violate the
express mandates of law or the clear legal rights of their
officers and employees by simply purporting to act for
the corporation they control.
We believe and so hold, further, that not only
are Beneco and respondent Board members properly
held solidarily liable for the awards made by the
Labor Arbiter, but also that petitioner Beneco which
was controlled by and which could act only through
respondent Board members, has a right to be
reimbursed for any amounts that Beneco may be
compelled to pay to respondent Cosalan. Such right
of reimbursement is essential if the innocent
members of Beneco are not to be penalized for the
acts of respondent Board members which were both
done in bad faith and ultra vires. The liability-
6 | Page

generating acts here are the personal and individual

acts of respondent Board members, and are not
properly attributed to Beneco itself.

Torres, Jr. v. Court of Appeals

G.R. No. 120138, September 5, 1997
KAPUNAN, J.:

Facts:
The late Manuel A. Torres, Jr. (Judge Torres for
brevity) was the majority stockholder of Tormil Realty
& Development Corporation while private respondents
who are the children of Judge Torres deceased brother
Antonio A. Torres, constituted the minority stockholders.
7 | Page
In 1984, Judge Torres, in order to make
substantial savings in taxes, adopted an estate
planning scheme under which he assigned to Tormil
Realty & Development Corporation (Tormil for brevity)
various real properties he owned and his shares of stock
in other corporations in exchange for 225,972 Tormil
Realty shares. Hence, on various dates in July and
August of 1984, ten (10) deeds of assignment were
executed by the late Judge Torres
Consequently, the properties assigned were duly
recorded in the inventory of assets of Tormil Realty and
the revenues generated by the said properties were
correspondingly entered in the corporations books of
account and financial records.
Likewise, all the assigned parcels of land were
duly registered with the respective Register of Deeds in
the name of Tormil Realty, except for the ones located in
Makati and Pasay City.
At the time of the assignments and exchange,
however, only 225,000 Tormil Realty shares remained
unsubscribed, all of which were duly issued to and
received by Judge Torres (as evidenced by stock
certificates Nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25).
Due to the insufficient number of shares of stock
issued to Judge Torres and the alleged refusal of private
respondents to approve the needed increase in the
corporations authorized capital stock (to cover the
shortage of 972 shares due to Judge Torres under the
estate planning scheme), Judge Torres revoked the two
(2) deeds of assignment covering the properties in
Makati and Pasay City.
Noting the disappearance of the Makati and
Pasay City properties from the corporations inventory
of assets and financial records, private respondents were
constrained to file a complaint with the Securities and
Exchange Commission (SEC) to compel Judge Torres to
deliver to Tormil Corporation the two (2) deeds of
assignment covering the Makati and Pasay City
properties which he had unilaterally revoked and to
cause the registration of the corresponding titles in the
name of Tormil. Private respondents alleged that
following the disappearance of the properties from the
corporations inventory of assets, they found that, Judge
Torres, together with Edgardo Pabalan and Graciano
Tobias, then General Manager and legal counsel,
respectively, of Tormil, formed and organized a
corporation named Torres-Pabalan Realty and
Development Corporation and that as part of Judge
Torres contribution to the new corporation, he executed
in its favor a Deed of Assignment conveying the same
Makati and Pasay City properties he had earlier
transferred to Tormil.
The second controversy--involving the same
parties--concerned the election of the 1987 corporate
board of directors.
The 1987 annual stockholders meeting and
election of directors of Tormil corporation was
scheduled on 25 March 1987 in compliance with the
provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his
own shares, one (1) share each to petitioners Tobias,
Jocson, Jurisprudencia, Azura and Pabalan. These
assigned shares were in the nature of qualifying
shares, for the sole purpose of meeting the legal
requirement to be able to elect them (Tobias and
company) to the Board of Directors as Torres nominees.
The assigned shares were covered by
corresponding Tormil Stock Certificates Nos. 030, 029,
028, 027, 026
The reason behind the aforestated action was to
remedy the inequitable lopsided set-up obtaining in the
corporation, where, notwithstanding his controlling
interest in the corporation, the late Judge held only a
single seat in the nine-member Board of Directors and
was, therefore, at the mercy of the minority, a
combination of any two (2) of whom would suffice to
overrule the majority stockholder in the Boards decision
making functions.
Consequently, private respondents
instituted a complaint with the SEC praying in the main,
that the election of petitioners to the Board of
Directors be annulled.
Private respondents alleged that the
petitioners-nominees were not legitimate
stockholders of Tormil because the assignment of
8 | Page
shares to them violated the minority stockholders
right of pre-emption as provided in the corporations
articles and by-laws.
Upon motion of petitioners, SEC Cases Nos.
3153 and 3161 were consolidated for joint hearing and
adjudication.
Petitioners promptly appealed to the SEC en
banc (docketed as SEC-AC No. 339). Thereafter, during
the pendency of said appeal, petitioner Manuel A.
Torres, Jr. died. However, notice thereof was brought to
the attention of the SEC not by petitioners counsel but
by private respondents in a Manifestation.
Petitioners filed a Motion to Suspend
Proceedings on grounds that no administrator or legal
representative of the late Judge Torres estate has yet
been appointed by the Regional Trial Court of Makati
where Sp. Proc. No. M-1768 (In Matter of the Issuance
of the Last Will and Testament of Manuel A. Torres, Jr.)
was pending. Two similar motions for suspension were
filed by petitioners.
The SEC en banc issued an Order denying
petitioners aforecited motions on the following ground:
Before the filing of these motions, the
Commission en banc had already completed all
proceedings and had likewise ruled on the merits of the
appealed cases. Viewed in this light, we thus feel that
there is nothing left to be done except to deny these
motions to suspend proceedings.
On the same date, the SEC en banc rendered a
decision.
From the said decision, petitioners filed a
motion for reconsideration which was denied in a
resolution issued by the Court of Appeals.
Issues:
WON the decisions of the SEC and the Court of
Appeals are null and void for being rendered without the
necessary substitution of parties.
WON the assignment of qualifying shares to
the nominees of the late Judge Torres (herein petitioners)
partake of the real nature of a transfer or conveyance of
shares of stock as would call for the imposition of
stringent requirements (with respect to the) recording of
the transfer of said shares..
Ruling:
1) It can readily be observed therefore that
the parties involved in the present controversy are
virtually the same parties fighting over the
representation of the late Judge Torres estate. It should
be recalled that the purpose behind the rule on
substitution of parties is the protection of the right of
every party to due process. It is to ensure that the
deceased party would continue to be properly
represented in the suit through the duly appointed legal
representative of his estate. In the present case, this
purpose has been substantially fulfilled (despite the lack
of formal substitution) in view of the peculiar fact that
both proceedings involve practically the same
parties. Both parties have been fiercely fighting in the
probate proceedings of Judge Torres holographic will
for appointment as legal representative of his
estate. Since both parties claim interests over the estate,
the rights of the estate were expected to be fully
protected in the proceedings before the SEC en banc and
the Court of Appeals. In either case, whoever shall be
appointed legal representative of Judge Torres estate
(petitioner Pabalan or private respondents) would no
longer be a stranger to the present case, the said
parties having voluntarily submitted to the
jurisdiction of the SEC and the Court of Appeals and
having thoroughly participated in the proceedings.
It is appropriate to mention here that when Judge
Torres died on April 3, 1991, the SEC en banc had
already fully heard the parties and what remained was
the evaluation of the evidence and rendition of the
judgment.
Further, petitioners filed their motions to
suspend proceedings only after more than two (2) years
from the death of Judge Torres. Petitioners counsel was
even remiss in his duty under Sec. 16, Rule 3 of the
Revised Rules of Court. Instead, it was private
respondents who informed the SEC of Judge Torres
death through a manifestation dated 24 April 1991.
9 | Page

For the SEC en banc to have suspended the
proceedings to await the appointment of the legal
representatives by the estate was impractical and
would have caused undue delay in the proceedings
and a denial of justice. There is no telling when the
probate court will decide the issue, which may still be
appealed to the higher courts.
the corporate secretarys duty and obligation to register
valid transfers of stocks and if said corporate officer
refuses to comply, the transferor-stockholder may
rightfully bring suit to compel performance. In other
words, there are remedies within the law that petitioners
could have availed of, instead of taking the law in their
own hands, as the cliche goes.

In any case, there has been no final disposition All corporations, big or small, must abide by the
of the properties of the late Judge Torres before the SEC. provisions of the Corporation Code. Being a simple
On the contrary, the decision of the SEC en banc as family corporation is not an exemption. Such
affirmed by the Court of Appeals served to protect and corporations cannot have rules and practices other than
preserve his estate. Consequently, the rule that when a those established by law
party dies, he should be substituted by his legal
representative to protect the interest of his estate in
observance of due process was not violated in this case
in view of its peculiar situation where the estate was
fully protected by the presence of the parties who claim
interest thereto either as directors, stockholders or heirs.

2) Petitioners insist that the assignment of

qualifying shares to the nominees of the late Judge
Torres (herein petitioners) does not partake of the real
nature of a transfer or conveyance of shares of stock as
would call for the imposition of stringent requirements
(with respect to the) recording of the transfer of said
shares. Anyway, petitioners add, there was substantial
compliance with the above-stated requirement since said
assignments were entered by the late Judge Torres
himself in the corporations stock and transfer book on 6 Republic v. Iglesia ni Cristo
March 1987, prior to the 25 March 1987 annual
stockholders meeting and which entries were confirmed G.R. No. L-61145, 20 February 1984
on 8 March 1987 by petitioner Azura who was appointed Second Division, Aquino, J.:
Assistant Corporate Secretary by Judge Torres.

Petitioners contentions lack merit.

It is precisely the brewing family discord
between Judge Torres and private respondents--his
nephew and nieces that should have placed Judge Torres
on his guard. He should have been more careful in
ensuring that his actions (particularly the assignment of
qualifying shares to his nominees) comply with the
requirements of the law. Petitioners cannot use the
flimsy excuse that it would have been a vain attempt to
force the incumbent corporate secretary to register the
aforestated assignments in the stock and transfer book
because the latter belonged to the opposite faction. It is
Facts:
3. MERCANTILE LAW; CORPORATION LAW; IGLESIA NI
CRISTO, REGISTERED AS A CORPORATION SOLE, NOT
AS A TRUSTEE; NOT QUALIFIED TO REGISTER LAND AS
TRUSTEE IN THE CASE AT BAR. Iglesia ni Cristo
contends that it is entitled to register the lands as a trustee.
This contention is erroneous. The unarguable fact is that it is
a corporation sole governed by section 109 et sequitur of the
Corporation Code. It did not apply for registration as a
trustee. As stated at the outset, the matter is subject to the
governing principle of stare decisis et non quieta movere
10 | P a g e
(follow past precedents and do not disturb what has been
settled).
This case is about the same issue which was resolved against
the Iglesia ni Cristo and is, therefore, res judicata: that, as a
corporation sole, (1) it is not entitled to register lands under
section 48(b) of the Public Land Law, which refers only to
Filipino citizens, and (2) that it is disqualified under section
11, Article XIV of the Constitution to hold alienable public
lands except by lease..com.ph : virtual law library
The Iglesia on November 6, 1976 filed an application for
confirmation and registration of its title over two parcels
of land located at Barrio Calabaca and the poblacion of
Capalonga, Camarines Norte with areas of 300 and 599
square meters used as sites of its chapels.
The town lot was purchased by the Iglesia on May 30,
1955 from Josefina Diezmo who in turn purchased it from
Esteban Arcea who had used the lot for residential
purposes since 1920. The realty taxes had been paid up to
the time Diezmo possessed the lot.
The Calabaca lot was purchased by the Iglesia on July 18,
1973 from Basilio Parale who inherited it from his father
Simeon. It used to be coconut land. Simeon possessed the
lot since 1920 and used it for residential purposes. He
paid realty taxes on the land.
The Iglesia and its predecessors claimed to have actual,
public, peaceful, continuous and uninterrupted possession
of the two lots in the concept of an owner for more than
thirty years preceding the filing of the application. No
realty taxes were paid by the Iglesia because it is an
exempt corporation.
The Director of Lands opposed the application.
TC: granted it, confirmed the title of the applicant and
ordered the lands registered "in the name of Iglesia ni
Cristo, with its Executive Minister Erao G. Manalo, as
corporation sole, with office and postal address at corner
Central and Don Mariano Marcos Avenues, Diliman,
Quezon City, Metro Manila."cralaw virtua1aw library
The Republic appealed under Republic Act No. 5440 in
relation to Rule 45 of the Rules of Court.
Issue:
1. Whether Iglesia ni Cristo is entitled to register the land in
its name as a trustee.
Ruling:
1. NO. Because Iglesia ni Cristo is registered as a
corporation. It did not register as a trustee.
The trial court found, and it is a matter of judicial notice,
that the Iglesia "is a duly registered corporation sole".
As the application is for confirmation of an imperfect or
incomplete title, that application is necessarily subject to
the following provisions of the Public Land Law,
Commonwealth Act No. 141:
- "SEC. 48. The following described citizens of the
Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein,
but whose titles have not been perfected or
completed, may apply to the Court of First Instance
of the province where the land is located for
confirmation of their claims and the issuance of a
certificate of title therefor, unless the Land
Registration Act, to wit: al 1aw library
- (b) Those who by themselves or through their
predecessors in interest have been in open,
continuous, exclusive, and notorious possession and
occupation of agricultural lands of the public domain,
under a bona fide claim of acquisition of ownership,
for at least thirty years immediately preceding the
filing of the application for confirmation of title
except when prevented by war or force majeure.
These shall be conclusively presumed to have
performed all the conditions essential to a
Government grant and shall be entitled to a certificate
of title under the provisions of this chapter."
- "Sec. 49. No person claiming title to lands of the
public domain not in possession of the qualifications
specified in the last preceding section may apply for
the benefits of this chapter." a1aw library
The Iglesia is not a Filipino citizen, The lands in
question are still public lands until registered.
Moreover, under the aforecited section 11 of Article
XIV, it is disqualified as a corporation to hold lands of
the public domain except by lease.
The Iglesia in its appellees brief has not shown that it
is not covered by the said constitutional and statutory
provisions. Its statement on page 2 of its brief that it
"is not a religious corporation" when it filed its
application is belied by the facts.
It contends that it is entitled to register the lands as a
trustee. This contention is erroneous. The unarguable
fact is that it is a corporation sole governed by section
109 et sequitur of the Corporation Code. It did not
apply for registration as a trustee.
As stated at the outset, the matter is subject to the
governing principle of stare decisis et non quieta movere
(follow past precedents and do not disturb what has been
settled).
11 | P a g e

CENON S. CERVANTES, V. THE AUDITOR GENERAL

Facts:
In 1949 herein petitioner was the manager of
National Abaca and Other Fibers Corporation (NAFCO)
with a salary of P15,000 a year. By a resolution of the
Board of Directors of said corporation, he was granted
quarters allowance of not exceeding P400 a month.
Submitted to the Control Committee of the Government
Enterprises Council for approval, the said resolution was
disapproved on the strength of the recommendation of
the NAFCO auditor, concurred in by the Auditor
General, because of the following reasons:
(1) that quarters allowance constituted additional
compensation prohibited by the charter of the NAFCO,
which fixes the salary of the general manager thereof at
a sum not to exceed P15,000 a year, and
(2) that the precarious financial condition of the
corporation did not warrant the granting of such
allowance.
Petitioner asked the Control Committee to
reconsider its action and approve his claim for allowance
for January to June 15, 1949, amounting to P1,650. The
claim was again referred by the Control Committee to
the Auditor General for comment. The latter, in turn
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referred it to the NAFCO auditor, who reaffirmed his
previous recommendation and emphasized that fact that
the corporation's finances had not improved. In view of
this, the Auditor General also reiterated his previous
opinion against the granting of petitioner's claim and so
informed both the Control Committee and the petitioner.
But as the petitioner insisted on his claim the Auditor
General informed him on June 19, 1950, of his refusal to
modify his decision. Hence this petition for review.
Issue:
WON the Auditor General committed an error in
refusing to approve the claim of petitioner.
Ruling:
NO.
The NAFCO was created by Commonwealth
Act No. 332, approved on June 18, 1939, with a capital
stock of P20,000,000, 51 per cent of which was to be
subscribed by the National Government and the
remainder to be offered to provincial, municipal, and
city governments and to the general public. The
management of the corporation was vested in a board of
directors of not more than 5 members appointed by the
President of the Philippines with the consent of the
Commission on Appointments. But the corporation was
made subject to the provisions of the corporation law in
so far as they were compatible with the provisions of its
charter and the purposes for which it was created and
was to enjoy the general powers mentioned in the
corporation law in addition to those granted in its
charter. The members of the board were to receive each a
per diem of not to exceed P30 for each day of meeting
actually attended, except the chairman of the board, who
was to be at the same time the general manager of the
corporation and to receive a salary not to exceed
P15,000 per annum.
On October 4, 1946, Republic Act No. 51 was
approved authorizing the President of the
Philippines, among other things, to effect such
reforms and changes in government-owned and
controlled corporations for the purpose of promoting
simplicity, economy and efficiency in their operation.
Pursuant to this authority, the President, on October
4, 1947, promulgated Executive Order No. 93
creating the Government Enterprises Council to be
composed of the President of the Philippines as
chairman, the Secretary of Commerce and Industry as
vice-chairman, the chairman of the board of directors
and managing heads of all such corporations as ex-
officio members, and such additional members as the
President might appoint from time to time with the
consent of the Commission on Appointments. The
council was to advise the President in the exercise of his
power of supervision and control over these corporations
and to formulate and adopt such policy and measures as
might be necessary to coordinate their functions and
activities. The Executive Order also provided that the
council was to have a Control Committee composed of
the Secretary of Commerce and Industry as chairman, a
member to be designated by the President from among
the members of the council as vice-chairman and the
secretary as ex- officio member, and with the power,
among others -
"(1) To supervise, for and under the direction of the
President, all the corporations owned or controlled by
the Government for the purpose of insuring efficiency
and economy in their operations;
"(2) To pass upon the program of activities and the
yearly budget of expenditures approved by the
respective Boards of Directors of the said corporations;
and
"(3) To carry out the policies and measures formulated
by the Government Enterprises Council with the
approval of the President". (Sec. 3, Executive Order No.
93.)
With its controlling stock owned by the
Government and the power of appointing its
directors vested in the President of the Philippines,
there can be no question that the NAFCO is a
Government controlled corporation subject to the
provisions of Republic Act No. 51 and the executive
order (No. 93) promulgated in accordance therewith.
Consequently, it was also subject to the powers of the
Control Committee created in said executive order,
among which is the power of supervision for the
purpose of insuring efficiency and economy in the
operations of the corporation and also the power to
pass upon the program of activities and the yearly
budget of expenditures approved by the board of
directors. It can hardly be questioned that under
these powers the Control Committee had the right to
pass upon, and consequently to approve or
disapprove, the resolution of the NAFCO board of
directors granting quarters allowance to the
petitioners as such allowance necessarily constituted
an item of expenditure in the corporation's budget.
That the Control Committee had good grounds for
disapproving the resolution is also clear, for, as
pointed out by the Auditor General and the NAFCO
auditor, the granting of the allowance amounted to an
illegal increase of petitioner's salary beyond the limit
fixed in the corporate charter and was furthermore
not justified by the precarious financial condition of
the corporation.
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It is argued, however, that Executive Order No. order just mentioned, quarters allowance is considered
93 is null and void, not only because it is based on a law additional compensation and, therefore, prohibited.
that is unconstitutional as an illegal delegation of
legislative power to the executive, but also because it
was promulgated beyond the period of one year limited
in said law.
The rule is that so long as the Legislature "lays
down a policy and a standard is established by the
statute" there is no undue delegation. Republic Act No.
51 in authorizing the President of the Philippines, among
others, to make reforms and changes in government-
controlled corporations, lays down a standard and policy
that the purpose shall be to meet the exigencies attendant
upon the establishment of the free and independent
Government of the Philippines and to promote
simplicity, economy and efficiency in their operations.
The standard was set and the policy fixed. The President
had to carry the mandate. This he did by promulgating
the executive order in question which, tested by the rule
above cited, does not constitute an undue delegation of
legislative power.
It is also contended that quarters allowance is
not compensation and so the granting of it to the
petitioner by the NAFCO board of directors does not
contravene the provisions of the NAFCO charter that the
salary of the chairman of said board who is also to be
general manager shall not exceed P15,000 per annum. PNOC-ENERGY DEVELOPMENT
But regardless of whether quarters allowance should CORPORATION, v. NLRC
be considered as compensation or not, the resolution FACTS:
of the board of directors authorizing payment thereof Private respondent Danilo Mercado was first
to the petitioner cannot be given effect since it was employed by herein petitioner Philippine National Oil
disapproved by the Control Committee in the Company-Energy Development Corporation (PNOC-
exercise of the powers granted to it by Executive EDC for brevity) on August 13, 1979. He held various
Order No. 93. And in any event, petitioner's contention positions during his employment at its Cebu office until
that quarters allowance is not compensation, a his transfer to its establishment in Oriental Negros on
proposition on which American authorities appear September 5, 1984. On June 30, 1985, private
divided, cannot be insisted on behalf of officers and respondent Mercado was dismissed.
employees working for the Government of the The grounds for the dismissal of Mercado are
Philippines and its instrumentalities, including, naturally, allegedly serious acts of dishonesty, all pertaining to the
government-controlled corporations. This is so because conversion of company money into his personal use.
Executive Order No. 332 of 1941, which prohibits the In addition, he was said to have violated
payment of additional compensation to those working company rules and regulations, by committing absences
for the Government and its instrumentalities, including and vacations without leave.
government-controlled corporations, was in 1945 On September 23, 1985, private respondent
amended by Executive Order No. 77 by expressly Mercado filed a complaint for illegal dismissal,
exempting from the prohibition the payment of quarters retirement benefits, separation pay, unpaid wages, etc.
allowance "in favor of local government officials and against petitioner PNOC-EDC before the NLRC.
employees entitled to this under existing law." The After private respondent Mercado filed his
amendment is a clear indication that quarters allowance position paper, petitioner PNOC-EDC filed its Position
was meant to be included in the term "additional Paper/Motion to Dismiss on January 15, 1986, praying
compensation", for otherwise the amendment would not for the dismissal of the case on the ground that the Labor
have expressly excepted it from the prohibition. This Arbiter and/or the NLRC had no jurisdiction over the
being so, we hold that, for the purposes of the executive case.
14 | P a g e
The Labor Arbiter ruled in favor of private
respondent Mercado.
The consequent appeal to the NLRC was
dismissed for lack of merit and the assailed decision was
affirmed.
Hence, the recourse to the Supreme Court.
ISSUE:
Whether or not matters of employment affecting
the PNOC-EDC, a government-owned and controlled
corporation, are within the jurisdiction of the Labor
Arbiter and the NLRC.
HELD: *Petitioner's arguments:
1. PNOC-EDC is a corporation wholly owned and
controlled by the government;
2. The Energy Development Corporation is a subsidiary
of the Philippine National Oil Company which is a
government entity created under Presidential Decree No.
334, as amended;
3. That being a government-owned and controlled
corporation, it is governed by the Civil Service Law as
provided for in Section 1, Article XII-B of the 1973
Constitution, Section 56 of Presidential Decree No. 807
(Civil Service Decree) and Article 277 of Presidential
Decree No. 442, as amended (Labor Code), and
4. Since Labor Arbiter Minoria rendered the decision at
the time when the 1973 Constitution was in force, said
decision is null and void because under the 1973
Constitution, government-owned and controlled
corporations were governed by the Civil Service
Law.Even assuming that PNOC-EDC has no original or
special charter and Section 2(i), Article IX-B of the
1987 Constitution.
***The 1973 Constitution provides:
The Civil Service embraces every branch, agency,
subdivision and instrumentality of the government
including government-owned or controlled
corporations.
***The 1987 Constitution provides:
The Civil Service embraces all branches, subdivision,
instrumentalities and agencies of the Government,
including government-owned or controlled
corporations with original charters.
>>Thus, PNOC-EDC concluded that such circumstances
cannot give validity to the decision of the Labor Arbiter.
*Supreme Court: This issue has already been laid to
rest in the case of PNOC-EDC vs. Leogardo, 175
SCRA 26 (July 5, 1989), involving the same petitioner
and the same issue.
Doctrine laid down: Employees of
government-owned and/or controlled corporations,
whether created by special law or formed as subsidiaries
under the General Corporation law are governed by the
Civil Service Law and not by the Labor Code, has been
supplanted by the present Constitution. "Thus, under the
present state of the law, the test in determining whether a
government-owned or controlled corporation is subject
to the Civil Service Law are the manner of its creation,
such that government corporations created by special
charter are subject to its provisions while those
incorporated under the General Corporation Law are not
within its coverage."
Specifically, the PNOC-EDC having been
incorporated under the General Corporation Law was
held to be a government owned or controlled corporation
whose employees are subject to the provisions of the
Labor Code .
The fact that the case arose at the time when the
1973 Constitution was still in effect, does not deprive the
NLRC of jurisdiction on the premise that it is the 1987
Constitution that governs because it is the Constitution
in place at the time of the decision (NASECO v. NLRC,
G.R. No. 69870, 168 SCRA 122 [1988]).
Therefore, in the case at bar, the decision of the
NLRC was promulgated on July 3, 1987. Accordingly,
this case falls squarely under the rulings of the
aforementioned cases.
Torres, Jr. v. Court of Appeals
Facts:
The late Manuel A. Torres, Jr. (Judge Torres for
brevity) was the majority stockholder of Tormil Realty
& Development Corporation while private respondents
who are the children of Judge Torres deceased brother
Antonio A. Torres, constituted the minority stockholders.
In 1984, Judge Torres, in order to make
substantial savings in taxes, adopted an estate
planning scheme under which he assigned to Tormil
Realty & Development Corporation (Tormil for brevity)
various real properties he owned and his shares of stock
in other corporations in exchange for 225,972 Tormil
Realty shares. Hence, on various dates in July and
August of 1984, ten (10) deeds of assignment were
executed by the late Judge Torres.
Consequently, the properties assigned were duly
recorded in the inventory of assets of Tormil Realty and
the revenues generated by the said properties were
correspondingly entered in the corporations books of
account and financial records.
Likewise, all the assigned parcels of land were
15 | P a g e
duly registered with the respective Register of Deeds in
the name of Tormil Realty, except for the ones located in
Makati and Pasay City.
At the time of the assignments and exchange,
however, only 225,000 Tormil Realty shares remained
unsubscribed, all of which were duly issued to and
received by Judge Torres (as evidenced by stock
certificates Nos. 17, 18, 19, 20, 21, 22, 23, 24 & 25).
Due to the insufficient number of shares of stock
issued to Judge Torres and the alleged refusal of private
respondents to approve the needed increase in the
corporations authorized capital stock (to cover the
shortage of 972 shares due to Judge Torres under the
estate planning scheme), Judge Torres revoked the two
(2) deeds of assignment covering the properties in
Makati and Pasay City.
Noting the disappearance of the Makati and
Pasay City properties from the corporations inventory
of assets and financial records, private respondents were
constrained to file a complaint with the Securities and
Exchange Commission (SEC) to compel Judge Torres to
deliver to Tormil Corporation the two (2) deeds of
assignment covering the Makati and Pasay City
properties which he had unilaterally revoked and to
cause the registration of the corresponding titles in the
name of Tormil. Private respondents alleged that
following the disappearance of the properties from the
corporations inventory of assets, they found that, Judge
Torres, together with Edgardo Pabalan and Graciano
Tobias, then General Manager and legal counsel,
respectively, of Tormil, formed and organized a
corporation named Torres-Pabalan Realty and
Development Corporation and that as part of Judge
Torres contribution to the new corporation, he executed
in its favor a Deed of Assignment conveying the same
Makati and Pasay City properties he had earlier
transferred to Tormil.
The second controversy--involving the same
parties--concerned the election of the 1987 corporate
board of directors.
The 1987 annual stockholders meeting and
election of directors of Tormil corporation was
scheduled on 25 March 1987 in compliance with the
provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his
own shares, one (1) share each to petitioners Tobias,
Jocson, Jurisprudencia, Azura and Pabalan. These
assigned shares were in the nature of qualifying
shares, for the sole purpose of meeting the legal
requirement to be able to elect them (Tobias and
company) to the Board of Directors as Torres nominees.
The assigned shares were covered by
corresponding Tormil Stock Certificates Nos. 030, 029,
028, 027, 026
The reason behind the aforestated action was to
remedy the inequitable lopsided set-up obtaining in the
corporation, where, notwithstanding his controlling
interest in the corporation, the late Judge held only a
single seat in the nine-member Board of Directors and
was, therefore, at the mercy of the minority, a
combination of any two (2) of whom would suffice to
overrule the majority stockholder in the Boards decision
making functions.
Consequently, private respondents instituted a
complaint with the SEC praying in the main, that the
election of petitioners to the Board of Directors be
annulled.
Private respondents alleged that the
petitioners-nominees were not legitimate
stockholders of Tormil because the assignment of
shares to them violated the minority stockholders
right of pre-emption as provided in the corporations
articles and by-laws.
Upon motion of petitioners, SEC Cases Nos.
3153 and 3161 were consolidated for joint hearing and
adjudication.
Petitioners promptly appealed to the SEC en
banc (docketed as SEC-AC No. 339). Thereafter, during
the pendency of said appeal, petitioner Manuel A.
Torres, Jr. died. However, notice thereof was brought to
the attention of the SEC not by petitioners counsel but
by private respondents in a Manifestation.
Petitioners filed a Motion to Suspend
Proceedings on grounds that no administrator or legal
representative of the late Judge Torres estate has yet
been appointed by the Regional Trial Court of Makati
where Sp. Proc. No. M-1768 (In Matter of the Issuance
of the Last Will and Testament of Manuel A. Torres, Jr.)
was pending. Two similar motions for suspension were
filed by petitioners.
The SEC en banc issued an Order denying
petitioners aforecited motions on the following ground:
Before the filing of these motions, the
Commission en banc had already completed all
proceedings and had likewise ruled on the merits of the
appealed cases. Viewed in this light, we thus feel that
there is nothing left to be done except to deny these
motions to suspend proceedings.
On the same date, the SEC en banc rendered a
decision.
From the said decision, petitioners filed a
motion for reconsideration which was denied in a
resolution issued by the Court of Appeals.
Issues:
WON the assignment of qualifying shares to
16 | P a g e
the nominees of the late Judge Torres (herein petitioners)
partake of the real nature of a transfer or conveyance of
shares of stock as would call for the imposition of
stringent requirements (with respect to the) recording of
the transfer of said shares..
Ruling:
Petitioners insist that the assignment of
qualifying shares to the nominees of the late Judge
Torres (herein petitioners) does not partake of the real
nature of a transfer or conveyance of shares of stock as
would call for the imposition of stringent requirements
(with respect to the) recording of the transfer of said
shares. Anyway, petitioners add, there was substantial
compliance with the above-stated requirement since said
assignments were entered by the late Judge Torres
himself in the corporations stock and transfer book on 6
March 1987, prior to the 25 March 1987 annual
stockholders meeting and which entries were confirmed
on 8 March 1987 by petitioner Azura who was appointed
Assistant Corporate Secretary by Judge Torres.
Petitioners contentions lack merit.
It is precisely the brewing family discord
between Judge Torres and private respondents--his
nephew and nieces that should have placed Judge Torres
on his guard. He should have been more careful in
ensuring that his actions (particularly the assignment of
qualifying shares to his nominees) comply with the
requirements of the law. Petitioners cannot use the
flimsy excuse that it would have been a vain attempt to
force the incumbent corporate secretary to register the
aforestated assignments in the stock and transfer book
because the latter belonged to the opposite faction. It is
the corporate secretarys duty and obligation to register
valid transfers of stocks and if said corporate officer
refuses to comply, the transferor-stockholder may
rightfully bring suit to compel performance. In other
words, there are remedies within the law that petitioners
could have availed of, instead of taking the law in their
own hands, as the cliche goes.
All corporations, big or small, must abide by the
provisions of the Corporation Code. Being a simple
family corporation is not an exemption. Such
corporations cannot have rules and practices other than
those established by law.
FERMIN Z. CARAM, JR. and ROSA O. DE
CARAM
vs.
THE HONORABLE COURT OF APPEALS and
ALBERTO V. ARELLANO,
G.R. No. L-48627 June 30, 1987 FIRST
DIVISION CRUZ, J.:
FACTS:
Upon the request of Barretto and Garcia,
Arellano handled the preparation of the project study
which was presented to Caram so the latter was
convinced to invest in the proposed airlines. The project
study was revised for purposes of presentation to
financiers and the banks. It was on the basis of this study
that the corporation was actually organized and rendered
operational. Garcia, Caram, and Barretto became
members of the Board and/or officers of the corporation.
Thus, respondent court held that not only the defendant
corporation but all the other defendants who were
involved in the preparatory stages of the incorporation,
who caused the preparation and/or benefited from the
project study and the technical services of Arellano must
be liable for the amount of P50,000.
Respondent court reiterated that Barretto was the
moving spirit in the pre-organization work of defendant
corporation based on his experience and expertise, hence
he was compensated in the amount of P200,000.00
shares of stock not as industrial partner but more for his
technical services that brought to fruition the
corporation. Arellano should be similarly compensated
not only for having actively participated in the
preparation of the project study for several months and
17 | P a g e
its subsequent revision but also in his having been
involved in the pre-organization of the defendant
corporation, in the preparation of the franchise, in
inviting the interest of the financiers and in the training
and screening of personnel.
Herein petitioners claim that the lower courts order has
no support in fact and law because they had no contract
with Arellano regarding the preparation of the project
study and technical services that led to the organization
of the defendant corporation. Their position is that as
mere subsequent investors in the corporation that was
later created, they should not be held solidarily liable
with the Filipinas Orient Airways, a separate juridical
entity, and with Barretto and Garcia, their co-defendants
in the lower court, who were the ones who requested the
said services from the private respondent.
ISSUE:
Whether or not the petitioners are also and
personally liable for the alleged expenses and, if so, to
what extent.
RULING:
NO. The petitioners are not liable at all,
personally, jointly or jointly and severally, for the
compensation claimed by the private respondent for the
services performed by him in the organization of the
corporation. The petitioners did not contract such
services. It was only the results of such services that
Barretto and Garcia presented to them and which
persuaded them to invest in the proposed airline. They
benefited from such services, but that is no justification
to hold them personally liable therefor.
Otherwise, all the other stockholders of the corporation,
including those who came in later, and regardless of the
amount of their share holdings, would be equally and
personally liable also with the petitioners for the claims
of the private respondent.
The petitioners were not really involved in the initial
steps that finally led to the incorporation of the Filipinas
Orient Airways. Barretto was described as "the moving
spirit." It was Barretto who was putting all the pieces
together. The finding of the respondent court is that the
project study was undertaken by the private respondent
at the request of Barretto and Garcia who, upon its
completion, presented it to the petitioners to induce them
to invest in the proposed airline. The study could have
been presented to other prospective investors. The airline
was eventually organized on the basis of the project
study with the petitioners as major stockholders and,
together with Barretto and Garcia, as principal officers.
The petitioners were merely among the financiers whose
interest was to be invited and who were in fact
persuaded, on the strength of the project study, to invest
in the proposed airline. There was no showing that the
Filipinas Orient Airways was a fictitious corporation and
did not have a separate juridical personality, to justify
making the petitioners, as principal stockholders thereof,
responsible for its obligations. As a bona fide
corporation, the Filipinas Orient Airways should alone
be liable for its corporate acts as duly authorized by its
officers and directors.
The petition is granted. The petitioners are declared not
liable.
MANUELA T. VDA. DE SALVATIERRA v. HON. LORENZO C.
GARLITOS, and SEGUNDINO REFUERZO, Respondents.
FACTS:
Vda. de Salvatierra: owner of a parcel of land in
Leyte.
March 7, 1954: contract of lease with the Philippine
Fibers Producers Co., Inc., allegedly a corporation "duly
organized and existing under the laws of the Philippines,
domiciled at Burauen, Leyte, Philippines, and with
business address therein, represented in this instance by
Mr. Segundino Q. Refuerzo, the President." It was
provided in said contract, among other things, that the
lifetime of the lease would be for a period of 10 years;
that the land would be planted to kenaf, ramie or other
crops suitable to the soil; that the lessor would be
entitled to 30 per cent of the net income accruing from
the harvest of any crop without being responsible for the
cost of production thereof; and that after every harvest,
the lessee was bound to declare at the earliest possible
time the income derived therefrom and to deliver the
corresponding share due the lessor.
Apparently, the aforementioned obligations imposed on
the alleged corporation were not complied with because
on April 5, 1955, Manuela T. Vda. de Salvatierra filed
with the Court of First Instance of Leyte a complaint
against the Philippine Fibers Producers Co., Inc., and
Segundino Q. Refuerzo, for accounting, rescission and
damages (Civil Case No. 1912). She averred that
sometime in April, 1954, defendants planted kenaf on 3
hectares of the leased property which crop was, at the
time of the commencement of the action, already
harvested, processed and sold by defendants; that
notwithstanding that fact, defendants refused to render
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an accounting of the income derived therefrom and to
deliver the lessors share; that the estimated gross
income was P4,500, and the deductible expenses a
mounted to P1,000; that as defendants refusal to
undertake such task was in violation of the terms of the
covenant entered into between the plaintiff and
defendant corporation, a rescission was but proper.
>>in default; deci against def
No appeal -- upon motion: a writ of execution, in virtue
of which the Provincial Sheriff of Leyte caused the
attachment of 3 parcels of land registered in the name of
Segundino Refuerzo. No property of the Philippine
Fibers Producers Co., Inc., was found available for
attachment.
Segundino Refuerzo filed a motion claiming that the
decision rendered in said Civil Case No. 1912 was null
and void with respect to him, there being no
allegation in the complaint pointing to his personal
liability and thus prayed that an order be issued
limiting such liability to defendant corporation.
---granted; ordered the Provincial Sheriff of Leyte to
release all properties belonging to the movant that
might have already been attached, after finding that
the evidence on record made no mention or referred
to any fact which might hold movant personally
liable therein.
>>>pers liab?
SC: Yes.
Refuerzo's def: while it was stated therein that he was a
signatory to the lease contract, he did so in his capacity
as president of the corporation.
Plaintiff: her failure to specify defendants personal
liability was due to the fact that all the time she was
under the impression that the Philippine Fibers
Producers Co., Inc., represented by Refuerzo was a
duly registered corporation as appearing in the
contract, but a subsequent inquiry from the
Securities & Exchange Commission yielded
otherwise. While as a general rule a person who has
contracted or dealt with an association in such a way as
to recognize its existence as a corporate body is estopped
from denying the same in an action arising out of such
transaction or dealing, (Asia Banking Corporation v.
Standard Products Co., 46 Phil., 144; Compaia
Agricola de Ultramar v. Reyes, 4 Phil., 1; Ohta
Development Co. v. Steamship Pompey, 49 Phil., 117),
yet this doctrine may not be held to be applicable
where fraud takes a part in the said transaction. In
the instant case, on plaintiffs charge that she was
unaware of the fact that the Philippine Fibers Producers
Co., Inc., had no juridical personality, defendant
Refuerzo gave no confirmation or denial and the
circumstances surrounding the execution of the contract
lead to the inescapable conclusion that plaintiff Manuela
T. Vda. de Salvatierra was really made to believe that
such corporation was duly organized in accordance with
law.
GR (liab): corp <> SH/mem [v-v]
But this rule is understood to refer merely to registered
corporations and cannot be made applicable to the
liability of members of an unincorporated association.
The reason behind this doctrine is obvious since an
organization which before the law is non-existent has no
personality and would be incompetent to act and
appropriate for itself the powers and attribute of a
corporation as provided by law; it cannot create agents
or confer authority on another to act in its behalf; thus,
those who act or purport to act as its representatives or
agents do so without authority and at their own risk. And
as it is an elementary principle of law that a person who
acts as an agent without authority or without a principal
is himself regarded as the principal, possessed of all the
rights and subject to all the liabilities of a principal, a
person acting or purporting to act on behalf of a
corporation which has no valid existence assumes
such privileges and obligations and becomes
personally liable for contracts entered into or for
other acts performed as such agent
Considering that defendant Refuerzo, as president of the
unregistered corporation Philippine Fibers Producers
Co., Inc., was the moving spirit behind the
consummation of the lease agreement by acting as its
representative, his liability cannot be limited or restricted
to that imposed upon corporate shareholders. In acting
on behalf of a corporation which he knew to be
unregistered, he assumed the risk of reaping the
consequential damages or resultant rights, if any, arising
out of such transaction.
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REYNALDO M. LOZANO v. HON. ELIEZER R.

DE LOS SANTOS, and ANTONIO ANDA

FACTS:
Reynaldo Lozano was the president of the
Kapatirang Mabalacat-Angeles Jeepney Drivers'
Association, Inc. (KAMAJDA) while Antonio Anda was
the president of the Samahang Angeles-Mabalacat
Jeepney Operators' and Drivers' Association, Inc.
(SAMAJODA).
Lozano and Anda agreed to consolidate their respective
associations and will form the Unified Mabalacat-
Angeles Jeepney Operators' and Drivers Association,
Inc. (UMAJODA). Also agreed to elect one set of
officers who shall be given the sole authority to collect
the daily dues from the members of the consolidated
association.
Subsequently, an election was held and fortunately
Lozano won. However, Anda protested and, alleged that
there was fraud and refused to recognize the results of
the election. Anda also refused to abide by their
agreement and continued collecting the dues from the
members of his association despite several demands to
desist.
Due to the said circumstances, Lozano filed a complaint
to restrain Anda from collecting the dues and to order
him to pay damages. However, Anda moved to dismiss
the complaint for lack of jurisdiction and claims that the
Securities and Exchange Commission (SEC) has the
jurisdiction over the complaint.
The MCTC denied the motion and the subsequent
reconsideration filed by Anda. As a consequence, Anda
filed a petition for certiorari before the RTC. RTC found
the dispute to be intracorporate and subject to the
jurisdiction of SEC. Hence this petition.

ISSUE:
W/N SEC has jurisdiction over the case of
damages between two associations who intended to
consolidate their associations even not yet approved and
registered with it.

RULING:

No, SEC does not have jurisdiction

The jurisdiction of the Securities and Exchange
20 | P a g e
Commission (SEC) is set forth in Section 5 of
Presidential Decree No. 902-A. Section 5 reads as
follows: Sec. 5. . . . [T]he Securities and Exchange
Commission [has] original and exclusive jurisdiction to
hear and decide cases involving:
(a) Devices or schemes employed by or any acts of the
board of directors, business associates, its officers or
partners, amounting to fraud and misrepresentation
which may be detrimental to the interest of the public
and/or of the stockholders, partners, members of
associations or organizations registered with the
Commission.
(b) Controversies arising out of intracorporate or
partnership relations, between and among stockholders,
members or associates; 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 it concerns their individual
franchise or right to exist as such entity.
(c) Controversies in the election or appointment of
directors, trustees, officers or managers of such
corporations, partnerships or associations.
(d) Petitions of corporations, partnerships or associations
to be declared in the state of suspension of payments in
cases where the corporation, partnership or association
possesses sufficient property to cover all its debts but
foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation,
partnership or association has no sufficient assets to over
its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee
created pursuant to this Decree.
The grant of jurisdiction to the SEC must be viewed in
the light of its nature and function under the law.
This jurisdiction is determined by a concurrence of two
elements:
1) the status or relationship of the parties; and
2) the nature of the question that is the subject of their
controversy.
The first element requires that the controversy must arise
out of intracorporate or partnership relations between
and among stockholders, members, or associates;
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 in so far as it concerns their individual
franchises.
The second element requires that the dispute among the
parties be intrinsically connected with the regulation of
the corporation, partnership or association or deal with
the internal affairs of the corporation, partnership or
association.
After all, the principal function of the SEC is the
supervision and control of corporations, partnership and
associations with the end in view that investments in
these entities may be encouraged and protected, and
their entities may be encouraged and protected, and their
activities pursued for the promotion of economic
development.
There is no intracorporate nor partnership relation
between petitioner and private respondent.
The controversy between them arose out of their plan to
consolidate their respective jeepney drivers' and
operators' associations into a single common association.
This unified association was, however, still a proposal.
It had not been approved by the SEC, neither had its
officers and members submitted their articles of
consolidation is accordance with Sections 78 and 79 of
the Corporation Code. Consolidation becomes effective
not upon mere agreement of the members but only upon
issuance of the certificate of consolidation by the SEC.
When the SEC, upon processing and examining the
articles of consolidation, is satisfied that the
consolidation of the corporations is not inconsistent with
the provisions of the Corporation Code and existing
laws, it issues a certificate of consolidation which makes
the reorganization official. The new consolidated
corporation comes into existence and the constituent
corporations dissolve and cease to exist.
The KAMAJDA and SAMAJODA to which petitioner
and private respondent belong are duly registered with
the SEC, but these associations are two separate entities.
The dispute between petitioner and private respondent is
not within the KAMAJDA nor the SAMAJODA. It is
between members of separate and distinct associations.
Petitioner and private respondent have no intracorporate
relation much less do they have an intracorporate
dispute.
The SEC therefore has no jurisdiction over the
complaint.
The doctrine of corporation by estoppel advanced by
private respondent cannot override jurisdictional
requirements. Jurisdiction is fixed by law and is not
subject to the agreement of the parties. It cannot be
acquired through or waived, enlarged or diminished by,
any act or omission of the parties, neither can it be
conferred by the acquiescence of the court.
Corporation by estoppel is founded on principles of
equity and is designed to prevent injustice and
unfairness. It applies when persons assume to form a
corporation and exercise corporate functions and enter
into business relations with third person. Where there
is no third person involved and the conflict arises only
21 | P a g e

among those assuming the form of a corporation, who

therefore know that it has not been registered, there is no
corporation by estoppel.

PP v. GARCIA

FACTS:
[illegal recruitment in large scale -- 16 persons]
Garcia, Patricio Botero (VP), Luisa Miraples (T ...at
large)
On various dates in March 1992 - Ricorn Philippine
International Shipping Lines, Inc. (hereinafter Ricorn),
an entity which recruits workers for overseas
employment
Garcia represented himself as president of Ricorn. [6]
Complainants were required to submit their NBI and
police clearance, birth certificate, passport, seaman's
book and Survival of Life at Sea (SOLAS).[7] As they
did not have the last three (3) documents, they were
asked to pay five thousand pesos (P5,000.00) as
processing fee. They paid to Ricorn's treasurer, Luisa
Miraples.[8] They were issued receipts signed by
Miraples. The receipts were under Ricorn's heading.[9]
Garcia and Botero assured complainants of employment
after the May 11, 1992 election. After the election,
complainants went back to Ricorn to check on their
applications. They discovered that Ricorn had
abandoned its office at Jovan Building for non-payment
of rentals.[10] Hoping against hope, they went back to
the building several times to recover their money. Their
persistence was to no avail for Garcia and Botero were
nowhere to be found. They then went to the
Mandaluyong Police Station and filed their complaints.
[11] They also checked with the Securities and Exchange
Commission (SEC) and discovered that Ricorn was not
yet incorporated. They also found that Ricorn was not
licensed by the Department of Labor and Employment
(DOLE) to engage in recruitment activities.[12]

Garcia's def: he was asked to contib 100k (5 persons,

incldg B and M).
Later, they asked him to become Ricorn's president and
to contribute only twenty thousand pesos (P20,000.00).
He declined the offer. Allegedly, he already knew that
Ricorn was not licensed by the Philippine Overseas
Employment Agency (POEA) or registered as a
corporation with the Securities and Exchange
Commission (SEC). He denied he issued receipts to
complainants in this case.[13]

Botero: applied as machinist abroad through Ricorn;

later gained trust of Garcia as he dealt, then worked with
him; thus, VP.
22 | P a g e

He left Ricorn when he discovered it was not licensed by association or entity responsible for violation; x x x"[30]
the POEA nor was it registered with the SEC.[15] He he evidence shows that appellant Botero was one of the
denied he recruited the complainants and received any incorporators of Ricorn. For reasons that cannot be
money from them.[16] However, on cross-examination, discerned from the records, Ricorn's incorporation was
he admitted that in February 1992, he met Garcia in not consummated. Even then, appellant cannot avoid
TADE recruitment agency. Garcia convinced him to his liabilities to the public as an incorporator of
become one of the incorporators of Ricorn. He gave Ricorn. He and his co-accused Garcia held themselves
money to Garcia for Ricorn's registration with the SEC. out to the public as officers of Ricorn. They received
They held office at Jovan Building from March 2, 1992 money from applicants who availed of their services.
to April 20, 1992.[17] They are thus estopped from claiming that they are not
liable as corporate officials of Ricorn.[31] Section 25 of
>>>>Convicted the Corporation Code provides that "(a)ll persons who
assume to act as a corporation knowing it to be
Issue: correct? without authority to do so shall be liable as general
partners for all the debts, liabilities and damages
Held: incurred or arising as a result thereof: Provided,
Yes. Beyond any reasonable doubt, appellant however, That when any such ostensible corporation
Botero engaged in recruitment and placement activities is sued on any transaction entered by it as a
in that he, through Ricorn, promised the complainants corporation or on any tort committed by it as such, it
employment abroad. Under the Labor Code, recruitment shall not be allowed to use as a defense its lack of
and placement refers to "any act of canvassing, enlisting, corporate personality."
contracting, transporting, utilizing, hiring or procuring
workers, and includes referrals, contract services,
promising or advertising for employment, locally or
abroad whether for profit or not: Provided, That any
person or entity which in any manner, offers or promises
for a fee employment to two or more persons shall be
deemed engaged in recruitment and placement."[27]
essential elements:
"(1) the accused engages in the recruitment and
placement of workers, as defined under Article 13 (b) or
in any prohibited activities under Article 34 of the Labor
Code;
"(2) accused has not complied with the guidelines issued
by the Secretary of Labor and Employment, particularly
with respect to the securing of a license or an authority
to recruit and deploy workers, either locally or overseas;
and
"(3) accused commits the same against three (3) or more
persons, individually or as a group."[28]

It is a fact that Ricorn had no license to recruit from

DOLE. In the office of Ricorn, a notice was posted
informing job applicants that its recruitment license is
still being processed. Yet, Ricorn already entertained
applicants and collected fees for processing their travel
documents.[29]
For engaging in recruitment of workers without
obtaining the necessary license from the POEA, Botero
should suffer the consequences of Ricorn's illegal act for
"(i)f the offender is a corporation, partnership,
association or entity, the penalty shall be imposed upon
the officer or officers of the corporation, partnership,
23 | P a g e
SOFRONIO T. BAYLA, ET AL., petitioners, v.
SILANG TRAFFIC CO., INC.,
Facts:
Petitioners in G.R. No. 48195 instituted this
action in the Court of First Instance of Cavite against the
respondent Silang Traffic Co., Inc. (cross-petitioner in
G.R. No. 48196), to recover certain sums of money
which they had paid severally to the corporation on
account of shares of stock they individually agreed to
take and pay for under certain specified terms and
conditions, of which the following referring to the
petitioner Josefa Naval, is typical:
AGREEMENT FOR INSTALLMENT SALE OF
SHARES IN THE "SILANG TRAFFIC COMPANY,
INC.,"
Petitioners' action for the recovery of the sums above
mentioned is based on a resolution by the board of
directors of the respondent corporation. (other members
- allowed refund)
The respondent corporation set up the following
defenses: (1) That the above-quoted resolution is not
applicable to the petitioners Sofronio T. Bayla, Josefa
Naval, and Paz Toledo because on the date thereof "their
subscribed shares of stock had already automatically
reverted to the defendant, and the installments paid by
them had already been forfeited"; and (2) that said
resolution of August 1, 1937, was revoked and cancelled
by a subsequent resolution of the board of directors of
the defendant corporation dated August 22, 1937.
The trial court absolved the defendant from the
complaint and declared canceled (forfeited) in favor of
the defendant the shares of stock in question. It held that
the resolution of August 1, 1937, was null and void,
citing Velasco vs. Poizat (37 Phil., 802), wherein this
Court held that "a corporation has no legal capacity to
release an original subscriber to its capital stock from
the obligation to pay for shares; and any agreement to
this effect is invalid" Plaintiffs below appealed to the
Court of Appeals, which modified of the trial court.
SC:
The parties litigant, the trial court, and the Court of
Appeals have interpreted or considered the said
agreement as a contract of subscription to the capital
stock of the respondent corporation. It should be noted,
however, that said agreement is entitled "Agreement
for Installment Sale of Shares in the Silang Traffic
Company, Inc.,"; that while the purchaser is
designated as "subscriber," the corporation is
described as "seller"; that the agreement was entered
into on March 30, 1935, long after the incorporation and
organization of the corporation, which took place in
1927; and that the price of the stock was payable in
24 | P a g e
quarterly installments spread over a period of five years.
It also appears that in civil case No. 3125 of the Court of
First Instance of Cavite mentioned in the resolution of
August 1, 1937, the right of the corporation to sell the
shares of stock to the person named in said resolution
(including herein petitioners) was impugned by the
plaintiffs in said case, who claimed a preferred right to
buy said shares.
Whether a particular contract is a subscription or a
sale of stock is a matter of construction and depends
upon its terms and the intention of the parties (4
Fletcher, Cyclopedia of Corporation [permanent
edition], 29, cited in Salmon, Dexter & Co. vs. Unson
(47 Phil. 649, 652). In the Unson case just cited, this
Court held that a subscription to stock in an existing
corporation is, as between the subscriber and the
corporation, simply a contract of purchase and sale.
It seems clear from the terms of the contracts in question
that they are contracts of sale and not of subscription.
The lower courts erred in overlooking the distinction
between subscription and purchase "A subscription,
properly speaking, is the mutual agreement of the
subscribers to take and pay for the stock of a
corporation, while a purchase is an independent
agreement between the individual and the corporation to
buy shares of stock from it at stipulated price." (18 C. J.
S., 760.) In some particulars the rules governing
subscriptions and sales of shares are different. For
instance, the provisions of our Corporation Law
regarding calls for unpaid subscription and assessment
of stock (sections 37-50) do not apply to a purchase of
stock. Likewise the rule that corporation has no legal
capacity to release an original subscriber to its capital
stock from the obligation to pay for his shares, is
inapplicable to a contract of purchase of shares.
The next question to determine is whether under the
contract between the parties the failure of the purchaser
to pay any of the quarterly installments on the purchase
price automatically gave rise to the forfeiture of the
amounts already paid and the reversion of the shares to
the corporation. The contract provides for interest of the
rate of six per centum per annum on deferred payments.
It is also provides that if the purchaser fails to pay any of
said installments when due, the said shares are to revert
to the seller and the payments already made are to be
forfeited in favor of said seller. The respondent
corporation contends that when the petitioners failed to
pay the installment which fell due on or before July 31,
1937, forfeiture automatically took place, that is to say,
without the necessity of any demand from the
corporation, and that therefore the resolution of August
1, 1937, authorizing the refund of the installments
already paid was inapplicable to the petitioners, who had
already lost any and all rights under said contract. The
contention is, we think, untenable. The provision
regarding interest on deferred payments would not
have been inserted if it had been the intention of the
parties to provide for automatic forfeiture and
cancelation of the contract. Moreover, the contract did
not expressly provide that the failure of the
purchaser to pay any installment would give rise to
forfeiture and cancelation without the necessity of
any demand from the seller; and under article 1100 of
the Civil Code persons obliged to deliver or do
something are not in default until the moment the
creditor demands of them judicially or extrajudicially the
fulfillment of their obligation, unless (1) the obligation
or the law expressly provides that demand shall not be
necessary in order that default may arise, (2) by reason
of the nature and circumstances of the obligation it shall
appear that the designation of the time at which that
thing was to be delivered or the service rendered was the
principal inducement to the creation of the obligation.
Is the resolution of August 1, 1937, valid? The contract
in question being one of purchase and not subscription
as we have heretofore pointed out, we see no legal
impediment to its rescission by agreement of the parties.
According to the resolution of August 1, 1937, the
recission was made for the good of the corporation and
in order to terminate the then pending civil case
involving the validity of the sale of the shares in
question among others. To that rescission the herein
petitioners apparently agreed, as shown by their demand
for the refund of the amounts they had paid as provided
in said resolution. It appears from the record that said
civil case was subsequently dismissed, and that the
purchasers of shares of stock, other than the herein
petitioners, who were mentioned in said resolution were
able to benefit by said resolution. It would be an unjust
discrimination to deny the same benefit to the herein
petitioners.
We may add that there is no intimation in this case that
the corporation was insolvent, or that the right of any
creditor of the same was in any way prejudiced by the
rescission.
The attempted revocation of said rescission by the
resolution of August 22, 1937, was invalid, it not having
been agreed to by the petitioners.
25 | P a g e
CIR v. CTA, CA, ANSCOR
FACTS: Sometime in the 1930s, Don Andres
Soriano, a citizen and resident of the United States,
formed the corporation A. Soriano Y Cia, predecessor
of ANSCOR with a 1,000,000.00 capitalization divided
into 10,000 common shares at a par value of P100/share.
ANSCOR is wholly owned and controlled by the family
of Don Andres, who are all non-resident aliens. In 1937,
Don Andres subscribed to 4,963 shares of the 5,000
shares originally issued.
On September 12, 1945, ANSCORs authorized
capital stock was increased to P2,500,000.00 divided
into 25,000 common shares with the same par value. Of
the additional 15,000 shares, only 10,000 was issued
which were all subscribed by Don Andres, after the other
stockholders waived in favor of the former their pre-
emptive rights to subscribe to the new issues. This
increased his subscription to 14,963 common shares. A
month later, Don Andres transferred 1,250 shares each to
his two sons, Jose and Andres Jr., as their initial
investments in ANSCOR. Both sons are foreigners.
By 1947, ANSCOR declared stock dividends.
Other stock dividend declarations were made between
1949 and December 20, 1963. On December 30, 1964
Don Andres died. As of that date, the records revealed
that he has a total shareholdings of 185,154 shares.
50,495 of which are original issues and the balance of
134,659 shares as stock dividend declarations.
Correspondingly, one-half of that shareholdings or
92,577 shares were transferred to his wife, Doa Carmen
Soriano, as her conjugal share. The offer half formed
part of his estate.
A day after Don Andres died, ANSCOR
increased its capital stock to P20M and in 1966 further
increased it to P30M. In the same year (December
1966), stock dividends worth 46,290 and 46,287 shares
were respectively received by the Don Andres estate and
Doa Carmen from ANSCOR. Hence, increasing their
accumulated shareholdings to 138,867 and 138,864
common shares each.
On December 28, 1967, Doa Carmen requested
a ruling from the United States Internal Revenue Service
(IRS), inquiring if an exchange of common with
preferred shares may be considered as a tax avoidance
scheme. By January 2, 1968, ANSCOR reclassified its
existing 300,000 common shares into 150,000 common
and 150,000 preferred shares.
In a letter-reply dated February 1968, the IRS
opined that the exchange is only a recapitalization
scheme and not tax avoidance. Consequently, on March
31, 1968 Doa Carmen exchanged her whole 138,864
common shares for 138,860 of the preferred shares. The
estate of Don Andres in turn exchanged 11,140 of its
common shares for the remaining 11,140 preferred
shares.
In 1973, after examining ANSCORs books of
account and record Revenue examiners issued a report
proposing that ANSCOR be assessed for deficiency
26 | P a g e

withholding tax-at-source, for the year 1968 and the 2nd
quarter of 1969 based on the transaction of exchange and
redemption of stocks. BIR made the corresponding
assessments. ANSCORs subsequent protest on the
assessments was denied in 1983 by petitioner. ANSCOR
filed a petition for review with the CTA, the Tax Court
reversed petitioners ruling. CA affirmed the ruling of the
CTA. Hence this petition.
SC: red/canc
For the exempting clause of Section 83(b) to apply, it is
indispensable that: (a) there is redemption or
cancellation; (b) the transaction involves stock dividends
and (c) the time and manner of the transaction makes
it essentially equivalent to a distribution of taxable
dividends. Of these, the most important is the third.
Redemption is repurchase, a reacquisition of stock by a
corporation which issued the stock[89] in exchange for
property, whether or not the acquired stock is cancelled,
retired or held in the treasury.[90] Essentially, the
corporation gets back some of its stock, distributes cash
or property to the shareholder in payment for the stock,
and continues in business as before. The redemption of
stock dividends previously issued is used as a veil for the
constructive distribution of cash dividends. In the instant
case, there is no dispute that ANSCOR redeemed shares
of stocks from a stockholder (Don Andres) twice (28,000
and 80,000 common shares). But where did the shares
redeemed come from? If its source is the original capital
subscriptions upon establishment of the corporation or
from initial capital investment in an existing enterprise,
its redemption to the concurrent value of acquisition may
not invite the application of Sec. 83(b) under the 1939
Tax Code, as it is not income but a mere return of
capital. On the contrary, if the redeemed shares are from
stock dividend declarations other than as initial capital
investment, the proceeds of the redemption is additional
wealth, for it is not merely a return of capital but a gain
thereon.
violating the trust fund doctrine wherein the capital
stock, property and other assets of the corporation
are regarded as equity in trust for the payment of the
corporate creditors.[93] Once capital, it is always
capital.[94] That doctrine was intended for the
protection of corporate creditors.[95]
****Discuss the trust fund doctrine
SUGGESTED ANSWER:
The Trust Fund Doctrine refers to the principle that the
capital stock, property and other assets of the
corporation are regarded as equity in trust for payment
of corporate creditors. This doctrine is the underlying
principle in the procedure for the distribution of capital
assets, embodied in Corporation Code, which allows the
distribution of corporate capital only in three instances:
(1) amendment of the Articles of Incorporation to reduce
the authorized capital stock, (2) purchase of redeemable
shares by the corporation, regardless of the existence of
unrestricted retained earnings, and (3) dissolution and
eventual liquidation of the corporation. Furthermore, the
doctrine is articulated in Section 41 on the power of a
corporation to acquire its own shares and in Section 122
on the prohibition against the distribution of corporate
assets and property unless the stringent requirements
therefore are complied with. (Ong Yong v. Tiu, G.R.
No. 144476, April 8, 2003)
****

It is not the stock dividends but the proceeds of its

redemption that may be deemed as taxable dividends.
Here, it is undisputed that at the time of the last
redemption, the original common shares owned by the
estate were only 25,247.5.[91] This means that from the
total of 108,000 shares redeemed from the estate, the
balance of 82,752.5 (108,000 less 25,247.5) must have
come from stock dividends. Besides, in the absence of
evidence to the contrary, the Tax Code presumes that
every distribution of corporate property, in whole or in
part, is made out of corporate profits,[92] such as stock
dividends. The capital cannot be distributed in the
form of redemption of stock dividends without
27 | P a g e
BOMAN ENVIRONMENTAL DEVELOPMENT
CORPORATION,
vs. HON. COURT OF APPEALS and NILCAR Y.
FAJILAN,
FACTS:
On May 7, 1984, respondent Nilcar Y. Fajilan
offered in writing to resign as President and Member of
the Board of Directors of petitioner, Boman
Environmental Development Corporation (BEDECO),
and to sell to the company all his shares, rights, and
interests therein for P 300,000 plus the transfer to him of
the company's Isuzu pick-up truck which he had been
using.
At a meeting of the Board of Directors of BEDECO on
June 14, 1984, Fajilan's resignation as president was
accepted and new officers were elected. Fajilan's offer to
sell his shares back to the corporation was approved, the
Board promising to pay for them on a staggered basis
from July 15, 1984 to December 15, 1984 The resolution
of the Board was communicated to Fajilan in the
following letter-agreement; pay uasing PNs.
However, BEDECO paid only P50,000 on July 15, 1984
and another P50,000 on August 31, 1984 and defaulted
in paying the balance of P200,000.
On April 30, 1985, Fajilan filed a complaint in the
Regional Trial Court of Makati for collection of that
balance from BEDECO.
RTC: dism; no J
CA: rev
Issue: jurisd?
SC: While it is true that the circumstances which led to
the execution of the promissory note by the Board of
Directors of respondent corporation was an intra-
corporate matter, there arose no controversy as to the
sale of petitioner's interests and rights as well as his
shares as Member of the Board of Directors and
President of respondent corporation. The intra-corporate
matter of the resignation of petitioner as Member of the
Board of Directors and President of respondent
corporation has long been settled without issue.
The Board of Directors of respondent corporation has
likewise long settled the sale by petitioner of all his
shares, rights and interests in favor of the corporation.
No controversy arose out of this transaction. The
jurisdiction of the Securities and Exchange Commission
therefore need not be invoked on this matter. (p. 196,
Rollo.)
Section 5(b) of P.D. No. 902-A, as amended, grants the
SEC original and exclusive jurisdiction to hear and
decide cases involving
b) Controversies arising out of intra-corporate or
partnership relations, between and among stockholders
members, or associates; between any or all of them and
the corporation, partnership or association of which they
are stockholders, members or associates, respectively; ...
(Emphasis supplied.)
This case involves an intra-corporate controversy
because the parties are a stockholder and the
corporation. Indeed, all the signatories of both
28 | P a g e
documents were stockholders of the corporation at the
time of signing the same. It was an intra-corporate
transaction, hence, this suit is an intra-corporate
controversy.
Fajilan's offer to resign as president and director
"effective as soon as my shares and interests thereto (sic)
are sold and fully paid" (Annex A-1, p. 239, Rollo)
implied that he would remain a stockholder until his
shares and interests were fully paid for, for one cannot
be a director or president of a corporation unless he is
also a stockholder thereof. The fact that he was replaced
as president of the corporation did not necessarily mean
that he ceased to be a stockholder considering how the
corporation failed to complete payment of the
consideration for the purchase of his shares of stock and
interests in the goodwill of the business. There has been
no actual transfer of his shares to the corporation. In the
books of the corporation he is still a stockholder.
**The SEC has exclusive supervision, control and
regulatory jurisdiction to investigate whether the
corporation has unrestricted retained earnings to cover
the payment for the shares, and whether the purchase is
for a legitimate corporate purpose as provided in
Sections 41 and 122 of the Corporation Code.
The requirement of unrestricted retained earnings to
cover the shares is based on the trust fund doctrine
which means that the capital stock, property and other
assets of a corporation are regarded as equity in trust for
the payment of corporate creditors. The reason is that
creditors of a corporation are preferred over the
stockholders in the distribution of corporate assets.
There can be no distribution of assets among the
stockholders without first paying corporate creditors.
Hence, any disposition of corporate funds to the
prejudice of creditors is null and void. "Creditors of a
corporation have the right to assume that so long as there
are outstanding debts and liabilities, the board of
directors will not use the assets of the corporation to
purchase its own stock ..."(Steinberg vs. Velasco, 52
Phil. 953
REPUBLIC PLANTERS BANK, v. CA and Canlas
FACTS:
Defendant Shozo Yamaguchi and private
respondent Fermin Canlas were President/Chief
Operating Officer and Treasurer respectively, of
Worldwide Garment Manufacturing, Inc.. By virtue of
Board Resolution No.1 dated August 1, 1979, defendant
Shozo Yamaguchi and private respondent Fermin Canlas
were authorized to apply for credit facilities with the
petitioner Republic Planters Bank in the forms of export
advances and letters of credit/trust receipts
accommodations. Petitioner bank issued nine promissory
notes.
On December 20, 1982, Worldwide Garment
Manufacturing, Inc. noted to change its corporate
name to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint
for the recovery of sums of money covered among
others, by the nine promissory notes with interest
thereon, plus attorney's fees and penalty charges. The
complainant was originally brought against Worldwide
Garment Manufacturing, Inc. inter alia, but it was later
amended to drop Worldwide Manufacturing, Inc. as
defendant and substitute Pinch Manufacturing
Corporation it its place. Defendants Pinch
Manufacturing Corporation and Shozo Yamaguchi did
not file an Amended Answer and failed to appear at the
scheduled pre-trial conference despite due notice. Only
private respondent Fermin Canlas filed an Amended
Answer wherein he, denied having issued the promissory
notes in question since according to him, he was not an
officer of Pinch Manufacturing Corporation, but instead
of Worldwide Garment Manufacturing, Inc., and that
when he issued said promissory notes in behalf of
Worldwide Garment Manufacturing, Inc., the same were
in blank, the typewritten entries not appearing therein
prior to the time he affixed his signature.
Issue:
whether private respondent Fermin Canlas is
solidarily liable with the other defendants, namely Pinch
Manufacturing Corporation and Shozo Yamaguchi, on
the nine promissory notes.
SC: We hold that private respondent Fermin Canlas is
solidarily liable on each of the promissory notes bearing
his signature for the following reasons:
The promissory motes are negotiable instruments and
must be governed by the Negotiable Instruments Law. 2
Under the Negotiable lnstruments Law, persons who
write their names on the face of promissory notes are
makers and are liable as such. 3 By signing the notes, the
maker promises to pay to the order of the payee or any
holder 4 according to the tenor thereof. 5 Based on the
above provisions of law, there is no denying that private
respondent Fermin Canlas is one of the co-makers of the
promissory notes. As such, he cannot escape liability
arising therefrom.
Where an instrument containing the words "I promise to
pay" is signed by two or more persons, they are deemed
to be jointly and severally liable thereon. 6 An
instrument which begins" with "I" ,We" , or "Either of
us" promise to, pay, when signed by two or more
persons, makes them solidarily liable. 7 The fact that the
singular pronoun is used indicates that the promise is
29 | P a g e
individual as to each other; meaning that each of the co-
signers is deemed to have made an independent singular
promise to pay the notes in full.
Finally, the respondent Court made a grave error in
holding that an amendment in a corporation's Articles of
Incorporation effecting a change of corporate name, in
this case from Worldwide Garment manufacturing Inc to
Pinch Manufacturing Corporation extinguished the
personality of the original corporation.
The corporation, upon such change in its name, is in
no sense a new corporation, nor the successor of the
original corporation. It is the same corporation with
a different name, and its character is in no respect
changed. 10
A change in the corporate name does not make a new
corporation, and whether effected by special act or
under a general law, has no affect on the identity of
the corporation, or on its property, rights, or
liabilities. 11
The corporation continues, as before, responsible in
its new name for all debts or other liabilities which it
had previously contracted or incurred. 12
As a general rule, officers or directors under the old
corporate name bear no personal liability for acts
done or contracts entered into by officers of the
corporation, if duly authorized. Inasmuch as such
officers acted in their capacity as agent of the old
corporation and the change of name meant only the
continuation of the old juridical entity, the corporation
bearing the same name is still bound by the acts of its
agents if authorized by the Board. Under the Negotiable
Instruments Law, the liability of a person signing as an
agent is specifically provided for as follows:
Sec. 20.Liability of a person signing as agent and so
forth. Where the instrument contains or a person adds to
his signature words indicating that he signs for or on
behalf of a principal , or in a representative capacity, he
is not liable on the instrument if he was duly authorized;
but the mere addition of words describing him as an
agent, or as filling a representative character, without
disclosing his principal, does not exempt him from
personal liability.
Where the agent signs his name but nowhere in the
instrument has he disclosed the fact that he is acting in a
representative capacity or the name of the third party for
whom he might have acted as agent, the agent is
personally liable to take holder of the instrument and
cannot be permitted to prove that he was merely acting
as agent of another and parol or extrinsic evidence is not
admissible to avoid the agent's personal liability. 13
UNIVERSAL MILLS CORPORATION, v.
UNIVERSAL TEXTILE MILLS, INC.
FACTS:
Universal Textile Mills, Inc. was organ on
December 29, 1953, as a textile manufacturing firm for
which it was issued a certificate of registration on
January 8, 1954. The Universal Mills Corporation, on
the other hand, was registered in this Commission on
October 27, 1954, under its original name, Universal
Hosiery Mills Corporation, having as its primary
purpose the "manufacture and production of hosieries
and wearing apparel of all kinds." On May 24, 1963, it
filed an amendment to its articles of incorporation
changing its name to Universal Mills Corporation, its
present name, for which this Commission issued the
certificate of approval on June 10, 1963.
>>fire which gutted respondent's spinning mills in Pasig,
Rizal. Petitioner alleged that as a result of this fire and
because of the similarity of respondent's name to that of
herein complainant, the news items appearing in the
various metropolitan newspapers carrying reports on the
fire created uncertainty and confusion among its
bankers, friends, stockholders and customers prompting
petitioner to make announcements, clarifying the real
Identity of the corporation whose property was burned.
>>resp: the names of the two corporations are not
similar and even if there be some similarity, it is not
confusing or deceptive; that the only reason that
respondent changed its name was because it
expanded its business to include the manufacture of
fabrics of all kinds; and that the word 'textile' in
petitioner's name is dominant and prominent enough
to distinguish the two. It further argues that
petitioner failed to present evidence of confusion or
deception in the ordinary course of business; that the
only supposed confusion proved by complainant
arose out of an extraordinary occurrence a
disastrous fire.
Commission: enjoined resp + took cognizance of the fact
that when respondent filed the amendment changing its
name to Universal Mills Corporation, it correspondingly
filed a written undertaking dated June 5, 1963 and
signed by its President, Mr. Mariano Cokiat, promising
to change its name in the event that there is another
person, firm or entity who has obtained a prior right to
the use of such name or one similar to it. That promise is
still binding upon the corporation and its responsible
officers. (pp. 17-18, Record.)
Issue: GAoD?
SC: No. Clearly, it has rational basis. The corporate
names in question are not Identical, but they are
indisputably so similar that even under the test of
"reasonable care and observation as the public generally
30 | P a g e
are capable of using and may be expected to exercise"
invoked by appellant, We are apprehensive confusion
will usually arise, considering that under the second
amendment of its articles of incorporation on August
14, 1964, appellant included among its primary
purposes the "manufacturing, dyeing, finishing and
selling of fabrics of all kinds" in which respondent
had been engaged for more than a decade ahead of
petitioner. Factually, the Commission found existence of
such confusion, and there is evidence to support its
conclusion. Since respondent is not claiming damages
in this proceeding, it is, of course, immaterial
whether or not appellant has acted in good faith, but
We cannot perceive why of all names, it had to choose
a name already being used by another firm engaged
in practically the same business for more than a
decade enjoying well earned patronage and goodwill,
when there are so many other appropriate names it
could possibly adopt without arousing any suspicion
as to its motive and, more importantly, any degree of
confusion in the mind of the public which could
mislead even its own customers, existing or
prospective. Premises considered, there is no warrant
for our interference.
LAUREANO INVESTMENT & DEVELOPMENT
CORPORATION, v. CA and BORMAHECO, INC.
FACTS:
Spouses Reynaldo Laureano and Florence
Laureano are majority stockholders of petitioner
Corporation who entered into a series of loan and credit
transactions with Philippine National Cooperative Bank
(PNCB for short). To secure payment of the loans, they
executed Deeds of Real Estate Mortgage dated
December 11, 1962, January 9, 1963, July 2, 1963 and
September 5, 1964, for the following amounts:
P100,000.00, P20,000.00, P70,000.00 and P13,424.04,
respectively. In view of their failure to pay their
indebtedness, PNCB applied for extrajudicial foreclosure
of the real estate mortgages. The bank was the purchaser
of the properties in question in the foreclosure sale and
titles thereof were consolidated in PNCBs name on
February 20, 1984. PNCB did not secure a writ of
possession nor did it file ejectment proceedings against
the Laureano spouses, because there were then pending
cases, such as x x x involving the titles of ownership of
subject two lots, which are situated at Bel-Air
Subdivision[,] Makati, Metro Manila.
Private respondent Bormaheco, Inc. became the
successor of the obligations and liabilities of PNCB over
subject lots by virtue of a Deed of Sale/Assignment on
September 26, 1988 wherein Bormaheco bought from
PNCB under a bulk sale 114 titled and untitled
properties including the two parcels of land in question,
formerly registered in the name of the Laureano spouses.
Transfer Certificate of Title Nos. 157724 and 157725
over the lots in question were issued on October 12,
1988 in the name of Bormaheco.
Five (5) days after securing titles over the said
properties, Bormaheco filed an Ex-Parte Petition for the
Issuance of Writ of Possession of Lots 4 and 5, Block 4
situated at Bel-Air Village, Makati, Metro Manila and
embraced in TCT Nos. 157724 and 157725 of the
Registry of Deeds of Makati, Metro Manila, docketed as
LRC Case No. M-1530 before respondent Court.
Petitioner Corporation filed on January 18, 1989 its
Motion for Intervention and to Admit Attached
Complaint in Intervention in said case. After an
exchange of pleadings, respondent Court issued its order
dated February 9, 1988, which reads:
There being a prima facie showing in the attached
complaint in intervention that herein intervenor LIDECO
CORPORATION has an interest which may eventually
and adversely be affected in whatever decision the Court
may render in the instant case; to enable the parties
concerned to properly ventilate and litigate all the issues
involving the subject property thereby avoid multiplicity
of suits, and in the interest of justice, the Motion for
Intervention, filed by LIDECO CORPORATION is
hereby GRANTED; and the attached complaint in
intervention ADMITTED.
On July 26, 1989, respondent Bormaheco filed its
Motion to Strike out the Complaint in Intervention and
all related pleadings filed by LIDECO Corporation. The
motion was granted for intervenors lack of personality
to intervene in the instant proceedings, petitioners
motion to strike out complaint in intervention is hereby
GRANTED.
another interv - denied...
ISSUE:
May a plaintiff/petitioner which purports to be a
31 | P a g e

corporation validly bring suit under a name other than Corporation. Bormaheco, Inc., thus, was not estopped
that registered with the Securities and Exchange from questioning the juridical personality of Lideco
Commission? Corporation, even after the trial court had allowed it to
intervene in the case.
SC: Granting arguendo that the name Lideco Corporation
Petitioner contends that it was private respondent which could be used by petitioner corporation in its motion,
first made use of LIDECO as a shorter term for there is an even more cogent reason for denying the
Laureano Investment and Development Corporation
petition. The trial court concluded, and we have no
when it filed its first motion to strike dated January 9,
1989,[17] prior to the filing by Lideco Corporation of reason to disagree, that the intervention of Lideco or
its motion for intervention and complaint in petitioner corporation was not proper because neither
intervention[18] on January 18, 1989. Hence, private had any legal interest in the subject of litigation. The
respondent should be considered estopped from denying evidence (tax declarations) attached to the petition for
that petitioner and Lideco Corporation are one and the intervention and the complaint for intervention pertained
same corporation. to properties not being litigated in the instant case.
Examining the records of the case, we observe that the
Lideco and petitioner corporation both claimed to have
motion[21] adverted to indeed made use of LIDECO as
an acronym for Laureano Investment and Development an interest in two houses constructed in Lot 3, Block 4 in
Corporation. But said motion distinctly specified that Bel Air Village, Makati.[24] The subject matter of the
LIDECO was the shorter term for Laureano Investment instant petition, on the other hand, are Lots 4 and 5,
and Development Corporation. It is obvious that no Block 4, of Bel Air Village. This factual finding was
false representation or concealment can be attributed to affirmed by the Court of Appeals.
private respondent. Neither can it be charged with
conveying the impression that the facts are other than, or
inconsistent with, those which it now asserts since
LIDECO, as an acronym, is clearly different from
Lideco Corporation which represented itself as a
corporation duly registered and organized in accordance
with law.[22] Nor can it be logically inferred that
petitioner relied or acted upon such representation of
private respondent in thereafter referring to itself as
Lideco Corporation; for petitioner is presumed to
know by which name it is registered, and the legal
provisions on the use of its corporate name.
Section 1, Rule 3 of the Rules of Court provides that
only natural or juridical persons or entities authorized by
law may be parties to a civil action. Under the Civil
Code, a corporation has a legal personality of its own
(Article 44), and may sue or be sued in its name, in
conformity with the laws and regulations of its
organization (Article 46).[23] Additionally, Article 36 of
the Corporation Code similarly provides, as to powers
and capacity - to sue and be sued in its corpo name.
As the trial and appellate courts have held, Lideco
Corporation had no personality to intervene since it had
not been duly registered as a corporation. If
petitioner legally and truly wanted to intervene, it
should have used its corporate name as the law
requires and not another name which it had not
registered. Indeed, as the Respondent Court found,
nowhere in the motion for intervention and complaint in
intervention does it appear that Lideco Corporation
stands for Laureano Investment and Development
32 | P a g e
Pison-Arceo Agricultural and Development
Corporation vs National Labor Relations
Commission
Facts:
In 1988, a labor case for illegal dismissal was filed
against Jose Edmundo Pison and Hacienda Lanutan.
The labor arbiter issued a favorable for the
dismissed workers. Pison appealed and the National
Labor Relations Commission (NLRC) affirmed the
labor arbiter. However, in the NLRC ruling, it
ordered Pison-Arceo Agricultural and Development
Corporation (PADC) as solidarily liable together
with Pison and the Hacienda, PADC being the
owner of the Hacienda and in which Pison is a
majority stockholder. PADC assails the order of the
NLRC on due process grounds as it averred that it
was not issued summons hence it was not able to
defend itself in court and therefore the judgment
against it is void.
ISSUE: Whether or not the contention of PADC is
correct.
HELD: No. The Supreme Court emphasized that in
labor cases and other administrative cases, the Rule
of Civil Procedure are not strictly applied especially
so in the interest of laborers. So long as there is a
substantial compliance, a party can be placed under
the jurisdiction of the labor court. In the case at bar,
there is substantial compliance when summons was
served to Jose Edmundo Pison who was also the
administrator of the Hacienda. PADC is therefore
adequately represented by Pison in the proceedings
in the labor tribunal. If at all, the non-inclusion of
the corporate name of PADC in the case before the
executive labor arbiter was a mere procedural error
which did not at all affect the jurisdiction of the
labor tribunals.
G.R. No. L-23606 July 29, 1968
ALHAMBRA CIGAR & CIGARETTE
MANUFACTURING COMPANY,
INC., petitioner,
vs.
SECURITIES & EXCHANGE COMMISSION,
Facts:
On January 15, 1912, Alhambra Cigar & Cigarette
Manufacturing Company, Inc. was incorporated. Its
lifespan was for 50 years so on January 15, 1962, it
expired. Thereafter, its Board authorized its
liquidation. Under the prevailing law, Alhambra has
3 years to liquidate.
In 1963, while Alhambra was liquidating, Republic
Act 3531 was enacted. It amended Section 18 of the
33 | P a g e
Corporation Law; it empowered domestic private
corporations to extend their corporate life beyond
the period fixed by the articles of incorporation for
a term not to exceed fifty years in any one instance.
Previous to Republic Act 3531, the maximum non-
extendible term of such corporations was fifty
years.
Alhambra now amended its articles of incorporation
to extend its lifespan for another 50 years. The
Securities and Exchange Commission (SEC) denied
the amended articles of incorporation.
ISSUE: Whether or not a corporation under
liquidation may still amend its articles of
incorporation to extend its lifespan.
HELD: No. Alhambra cannot avail of the new law
because it has already expired at the time of its
passage. When a corporation is liquidating pursuant
to the statutory period of three years to liquidate, it
is only allowed to continue for the purpose of final
closure of its business and no other purposes. In
fact, within that period, the corporation is enjoined
from continuing the business for which it was
established. Hence, Alhambras board cannot
validly amend its articles of incorporation to extend
its lifespan.
G.R. No. L-56763 December 15, 1982
JOHN SY and UNIVERSAL PARTS SUPPLY
CORPORATION, petitioners,
vs.
TYSON ENTERPRISES, INC., JUDGE
GREGORIO G. PINEDA of the Court of First
Instance of Rizal, Pasig Branch XXI and
COURT OF APPEALS,
Facts:
In 1979, Tyson Enterprises, Inc. filed a collection
suit against Universal Parts Supply Corporation and
its president John Sy. The suit was filed in Pasig,
Rizal. John Sy filed a motion to file for a bill of
particulars which was denied. Subsequently, Sy
filed a motion to dismiss on the ground of improper
venue. Sy alleged that Tyson Enterprises should
have filed the case either in Bacolod City (business
address of Universal Parts) or in Manila (business
address of Tyson Enterprises). Sy alleged that it is
improper for Tyson Enterprises to file the case in
Pasig even if it is the residence of Tysons president
and general manager, Dominador Ti.
The trial court as well as the Court of Appeals
denied Sys motion on the ground that he waived
the defense of improper venue when he filed his
motion to file for a bill of particulars; that the prior
motion placed Sy under the jurisdiction of the trial
court.
ISSUE: Whether or not a plaintiff-corporation may
file a civil case not in its business address nor the
business address/residence of the defendant but in
the place of residence of its incorporators/officers.
HELD: No. A corporation has a separate and
distinct personality from its incorporators. Its place
of business is its residence and not the residence of
its president or any other officer. Hence, venue is
improperly laid in this case. The trial court of Pasig
has no jurisdiction.
Anent the issue that there was a waiver, as a rule,
the defense of improper venue is waived if it is not
alleged in a motion to dismiss. In the case at bar, Sy
was able to file his motion to dismiss in a timely
manner. It is of no moment that there was a prior
motion for a bill of particulars that was filed. There
is nothing in the rule that states that no other motion
should have been filed prior to filing a motion to
dismiss before a motion to dismiss grounded on
improper venue may be allowed.