HARDEN VS. BENGUET CONSOLIDATED
Out of
MINING 58 Phil 141 – Business Organization –
Corporation Law – Proper Action to File in Case
Violator is a Corporation
FACTS: In 1927, Benguet Consolidated Mining
Company, registered as a sociedad anonima under the
Spanish Law, agreed to invest and build capital
equipments in favor of Balatoc Mining Company, a
corporation registered under the then relatively new
Corporation Law of 1925. In exchange, Balatoc
Mining agreed to give Benguet Mining 600,000
shares.
The venture proved to be profitable and Balatoc
Mining earned and so did its stockholders, and of
course, Benguet Mining was earning big too because
it now owns 600k shares. This prompted, Fred
Harden a stockholder of Balatoc Mining who also
owns thousands of shares to sue Benguet Mining on
the ground that under the Corporation Law a
corporation like Benguet Mining which is engaged in
the mining industry is prohibited from being
interested in other corporations which are also
engaged in the mining industry like Balatoc Mining.
ISSUE: Whether or not Harden’s suit should prosper.
HELD: No. The Corporation Law of 1925 subjects
sociedades anonimas to its provisions “so far as such
provisions may be applicable”. In 1929, the
Corporation Law was amended and the prohibition
cited by Harden was so modified as merely to
prohibit any such corporation from holding more than
fifteen per centum of the outstanding capital stock of
another such corporation.
Further and more importantly, the Corporation Law
of 1925 provides that if the person who allegedly
violated the provisions of said law is a corporation,
the proper action is a quo warranto which should be
initiated by the Attorney-General or its deputized
provincial fiscal and not a private action as the one
filed by Harden
PNB vs. Andrada Electric & Engineering Co.Case
Digest
Philippine National Bank vs. Andrada Electric &
Engineering Co.
[GR 142936, 17 April 2002]
Facts: On 26 August 1975, the Philippine national
Bank (PNB) acquired the assets of the Pampanga
Sugar Mills (PASUMIL) that were earlier foreclosed
by the Development Bank of the Philippines (DBP)
under LOI 311. The PNB organized the ational Sugar
Development Corporation (NASUDECO) in
September 1975, to take ownership and possession of
the assets and ultimately to nationalize and
consolidate its interest in other PNB controlled sugar
mills. Prior to 29 October 1971, PASUMIL engaged
the services of the Andrada Electric & Engineering
Company (AEEC) for electrical rewinding and repair,
most of which were partially paid by PASUMIL,
leaving several unpaid accounts with AEEC. On 29
October 1971, AEEC and PASUMIL entered into a
contract for AEEC to perform the (a) Construction of
a power house building; 3 reinforced concrete
foundation for 3 units 350 KW diesel engine
generating sets, 3 reinforced concrete foundation for
the 5,000 KW and 1,250 KW turbo generator sets,
among others. Aside from the work contract,
PASUMIL required AEEC to perform extra work,
and provide electrical equipment and spare parts. Out
of the total obligation of P777,263.80, PASUMIL had
paid only P250,000.00, leaving an unpaid balance, as
of 27 June 1973, amounting to P527,263.80.
said unpaid balance of P527,263.80, PASUMIL made
a partial payment to AEEC of P14,000.00, in broken
amounts, covering the period from 5 January 1974 up
to 23 May 1974, leaving an unpaid balance of
P513,263.80. PASUMIL and PNB, and now
NASUDECO, allegedly failed and refused to pay
AEEC their just, valid and demandable obligation
(The President of the NASUDECO is also the Vice-
President of the PNB. AEEC besought said official to
pay the outstanding obligation of PASUMIL,
inasmuch as PNB and NASUDECO now owned and
possessed the assets of PASUMIL, and these
defendants all benefited from the works, and the
electrical, as well as the engineering and repairs,
performed by AEEC).
Because of the failure and refusal of PNB, PASUMIL
and/or NASUDECO to pay their obligations, AEEC
allegedly suffered actual damages in the total amount
of P513,263.80; and that in order to recover these
sums, AEEC was compelled to engage the
professional services of counsel, to whom AEEC
agreed to pay a sum equivalent to 25% of the amount
of the obligation due by way of attorney's fees. PNB
and NASUDECO filed a joint motion to dismiss on
the ground that the complaint failed to state sufficient
allegations to establish a cause of action against PNB
and NASUDECO, inasmuch as there is lack or want
of privity of contract between the them and AEEC.
Said motion was denied by the trial court in its 27
November order, and ordered PNB nad NASUDECO
to file their answers within 15 days. After due
proceedings, the Trial Court rendered judgment in
favor of AEEC and against PNB, NASUDECO and
PASUMIL; the latter being ordered to pay jointly and
severally the former (1) the sum of P513,623.80 plus
interest thereon at the rate of 14% per annum as
claimed from 25 September 1980 until fully paid; (2)
the sum of P102,724.76 as attorney's fees; and, (3)
Costs. PNB and NASUDECO appealed. The Court of
Appeals affirmed the decision of the trial court in its
decision of 17 April 2000 (CA-GR CV 57610. PNB
and NASUDECO filed the petition for review.
Issue: Whether PNB and NASUDECO may be held
liable for PASUMIL’s liability to AEEC.
Held: Basic is the rule that a corporation has a legal
personality distinct and separate from the persons and
entities owning it. The corporate veil may be lifted
only if it has been used to shield fraud, defend crime,
justify a wrong, defeat public convenience, insulate
bad faith or perpetuate injustice. Thus, the mere fact
that the Philippine National Bank (PNB) acquired
ownership or management of some assets of the
Pampanga Sugar Mill (PASUMIL), which had earlier
been foreclosed and purchased at the resulting public
auction by the Development Bank of the Philippines
(DBP), will not make PNB liable for the PASUMIL's
contractual debts to Andrada Electric & Engineering
Company (AEEC). Piercing the veil of corporate
fiction may be allowed only if the following elements
concur: (1) control — not mere stock control, but
complete domination — not only of finances, but of
policy and business practice in respect to the
transaction attacked, must have been such that the
corporate entity as to this transaction had at the time
no separate mind, will or existence of its own; (2)
such control must have been used by the defendant to
commit a fraud or a wrong to perpetuate the violation
of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of
plaintiff's legal right; and (3) the said control and
breach of duty must have proximately caused the
injury or unjust loss complained of. The absence of
the foregoing elements in the present case precludes
the piercing of the corporate veil. First, other than the
fact that PNB and NASUDECO acquired the assets
of PASUMIL, there is no showing that their control
over it warrants the disregard of corporate
personalities. Second, there is no evidence that their
juridical personality was used to commit a fraud or to
do a wrong; or that the separate corporate entity was
farcically used as a mere alter ego, business conduit
or instrumentality of another entity or person. Third,
AEEC was not defrauded or injured when PNB and
NASUDECO acquired the assets of PASUMIL.
Hence, although the assets of NASUDECO can be
easily traced to PASUMIL, the transfer of the latter's
assets to PNB and NASUDECO was not fraudulently
entered into in order to escape liability for its debt to
AEEC. Neither was there any merger or
consolidation with respect to PASUMIL and PNB.
The procedure prescribed under Title IX of the
Corporation Code 59 was not followed. In fact,
PASUMIL's corporate existence had not been legally
extinguished or terminated. Further, prior to PNB's
acquisition of the foreclosed assets, PASUMIL had
previously made partial payments to AEEC for the
former's obligation in the amount of P777,263.80. As
of 27 June 1973, PASUMIL had paid P250,000 to
AEEC and, from 5 January 1974 to 23 May 1974,
another P14,000. Neither did PNB expressly or
impliedly agree to assume the debt of PASUMIL to
AEEC. LOI 11 explicitly provides that PNB shall
study and submit recommendations on the claims of
PASUMIL's creditors. Clearly, the corporate
separateness between PASUMIL and PNB remains,
despite AEEC's insistence to the contrary.
PASCUAL and SANTOS, INC. v. THE
MEMBERS OF THE TRAMO
WAKAS NEIGHBORHOOD ASSOCIATION,
INC.
The Director of the Land Managment Bureau
(LMB) granted the petition of respondent, The
Members of the Tramo
Wakas Neighborhood Association, Inc. (TRAMO
WAKAS) which prayed for the grant of ownership
over 3 parcels of land situated in Paranaque City. The
same property is being claimed by petitioner Pascual
and Santos Inc. (PSI). PSI appealed the
said decision to higher adjudicatory bodies but was
denied and dismissed for lack of merit.
The Court of Appeals (CA) likewise dismissed
the petition on the ground of Infirm Verification and
Certification of Non-forum Shopping for the same
does not show proof that the persons who signed
therein were duly authorized by the corporation. The
Courtfurther ruled that the petition has not been filed
on time.
ISSUE:
Whether or not the persons who executed
the verification and certification of non-forum
shopping attached to PSI‘s petition were authorized
to do so
HELD:
Section 6 (d) of Rule 43 in relation to Section 2 of
Rule 42 of the Rules of Court mandates that a petition
for review shall contain a sworn certification against
forum shopping in which the Pascual and Santos Inc.
shall attest that he has not commenced any other
action involving the same issues in this Court, the
Court of Appeals or different divisions thereof, or
any other tribunal or agency; if there is such other
action or proceeding, he must state the status of the
same; and if he should thereafter learn that a similar
action or proceeding has been filed or is pending
before this Court, the Court of Appeals, or
different divisions thereof, or any other tribunal or
agency, he undertakes to promptly inform the
aforesaid courts and other tribunal or agency thereof
within five days therefrom.
For failure to comply with this mandate, Section 7 of
Rule 43 provides that the failure of the petitioner
to comply with any of the foregoing requirements
regarding the payment of the docket and other lawful
fees, the deposit for costs, proof of service of the
petition, and the contents of and the documents which
should accompany the petition shall be sufficient
ground for the dismissal thereof.
The Court has ruled that the subsequent submission
of proof of authority to act on behalf of a petitioner
corporation justifies the relaxation of the Rules for
the purpose of allowing its petition to be given due
course.
It must also be kept in mind that while the
requirement of the certificate of non-forum shopping
is mandatory, nonetheless the requirements must not
be interpreted too literally and thus defeat the
objective of preventing the undesirable practice of
forum shopping.
TAYGA VS BENGUET 26 SCRA 242 – Business
Organization – Corporation Law – Domicile of a
Corporation – By Laws Must Yield To a Court
Order – Corporation is an Artificial Being
In March 1960, Idonah Perkins died in New York.
She left behind properties here and abroad. One
property she left behind were two stock certificates
covering 33,002 shares of stocks of the Benguet
Consolidated, Inc (BCI). Said stock certificates were
in the possession of the Country Trust Company of
New York (CTC-NY). CTC-NY was the domiciliary
administrator of the estate of Perkins (obviously in
the USA). Meanwhile, in 1963, Renato Tayag was
appointed as the ancillary administrator (of the
properties of Perkins she left behind in the
Philippines).
A dispute arose between CTC-NY and Tayag as to
who between them is entitled to possess the stock
certificates. A case ensued and eventually, the trial
court ordered CTC-NY to turn over the stock
certificates to Tayag. CTC-NY refused. Tayag
then filed with the court a petition to have said stock
certificates be declared lost and to compel BCI to
issue new stock certificates in replacement thereof.
The trial court granted Tayag’s petition.
BCI assailed said order as it averred that it cannot
possibly issue new stock certificates because the two
stock certificates declared lost are not actually lost;
that the trial court as well Tayag acknowledged that
the stock certificates exists and that they are with
CTC-NY; that according to BCI’s by laws, it can
only issue new stock certificates, in lieu of lost,
stolen, or destroyed certificates of stocks, only after
court of law has issued a final and executory order as
to who really owns a certificate of stock.
ISSUE: Whether or not the arguments of Benguet
Consolidated, Inc. are correct.
HELD: No. Benguet Consolidated is a corporation
who owes its existence to Philippine laws. It has been
given rights and privileges under the law. Corollary,
it also has obligations under the law and one of those
is to follow valid legal court orders. It is not immune
from judicial control because it is domiciled here in
the Philippines. BCI is a Philippine corporation
owing full allegiance and subject to the unrestricted
jurisdiction of local courts. Its shares of stock cannot
therefore be considered in any wise as immune from
lawful court orders.
Further, to allow BCI’s opposition is to render the
court order against CTC-NY a mere scrap of paper. It
will leave Tayag without any remedy simply because
CTC-NY, a foreign entity refuses to comply with a
valid court order. The final recourse then is for our
local courts to create a legal fiction such that the
stock certificates in issue be declared lost even
though in reality they exist in the hands of CTC-NY.
This is valid. As held time and again, fictions which
the law may rely upon in the pursuit of legitimate
ends have played an important part in its
development.
Further still, the argument invoked by BCI that it can
only issue new stock certificates in accordance with
its bylaws is misplaced. It is worth noting that CTC-
NY did not appeal the order of the court – it simply
refused to turn over the stock certificates hence
ownership can be said to have been settled in favor of
estate of Perkins here. Also, assuming that there
really is a conflict between BCI’s bylaws and the
court order, what should prevail is the lawful court
order. It would be highly irregular if court orders
would yield to the bylaws of a corporation. Again, a
corporation is not immune from judicial orders.
ANG PUE & COMPANY, ET AL.,
V SECRETARY OF COMMERCE AND
INDUSTRY
Facts:
On May 1, 1953, Ang Pue and Tan Siong, both
Chinese citizens, organized the partnership Ang Pue
& Company for a term of five years. Prior to the
expiration of the five-year term, the partners amended
the original articles of partnership so as to extend the
term of life of the partnership to another five years.
However, when the amended articles were presented
for registration in the Office of the SEC, registration
was refused upon the ground that the extension was
in violation of RA1180
–
an act prohibiting the extension of the term of a
partnership not wholly formed by Filipinos.
Law:
On June 19, 1954 Republic Act No. 1180 was enacted
to regulate the retail business. It provided, among
other things, that, after its enactment, a partnership
not wholly formed by Filipinos could continue to
engage in the retail business until the expiration of its
term.
Ruling:
To organize a corporation or a partnership that could
claim a juridical personality of its own and transact
business as such, is not a matter of absolute right but
a privilege which may be enjoyed only under such
terms as the State may deem necessary to impose
INTERNATIONAL EXPRESS TRAVEL &
TOURS 343 SCRA 674 – Business Organization –
Corporation Law – Corporation by Estoppel –
When Applied
FACTS: In 1989, International Express Travel &
Tour Services, Inc. (IETTI), offered to the Philippine
Football Federation (PFF) its travel services for the
South East Asian Games. PFF, through Henri Kahn,
its president, agreed. IETTI then delivered the plane
tickets to PFF, PFF in turn made a down payment.
However, PFF was not able to complete the full
payment in subsequent installments despite repeated
demands from IETTI. IETTI then sued PFF and Kahn
was impleaded as a co-defendant.
Kahn averred that he should not be impleaded
because he merely acted as an agent of PFF which he
averred is a corporation with separate and distinct
personality from him. The trial court ruled against
Kahn and held him personally liable for the said
obligation (PFF was declared in default for failing to
file an answer). The trial court ruled that Kahn failed
to prove that PFF is a corporation. The Court of
Appeals however reversed the decision of the trial
court. The Court of Appeals took judicial notice of
the existence of PFF as a national sports association;
that as such, PFF is empowered to enter into contracts
through its agents; that PFF is therefore liable for the
contract entered into by its agent Kahn. The CA
further ruled that IETTI is in estoppel; that it cannot
now deny the corporate existence of PFF because it
had contracted and dealt with PFF in such a manner
as to recognize and in effect admit its existence.
ISSUE: Whether or not the Court of Appeals is
correct.
HELD: No. PFF, upon its creation, is not
automatically considered a national sports
association. It must first be recognized and accredited
by the Philippine Amateur Athletic Federation and
the Department of Youth and Sports Development.
This fact was never substantiated by Kahn. As such,
PFF is considered as an unincorporated sports
association. And under the law, any person acting or
purporting to act on behalf of a corporation which has
no valid existence assumes such privileges and
becomes personally liable for contract entered into or
for other acts performed as such agent. Kahn is
therefore personally liable for the contract entered
into by PFF with IETTI.
There is also no merit on the finding of the CA that
IETTI is in estoppel. The application of the doctrine
of corporation by estoppel applies to a third party
only when he tries to escape liability on a contract
from which he has benefited on the irrelevant ground
of defective incorporation. In the case at bar, IETTI is
not trying to escape liability from the contract but
rather is the one claiming from the contract.
 TORRES VS CA 278 SCRA 793 – Business
Organization – Corporation Law – Transfer of
Shares of Stocks – Corporate Records
FACTS: Judge Manuel Torres, Jr. owns about 81% of
the capital stocks of Tormil Realty & Development
Corporation (TRDC). TRDC is a small family owned
corporation and other stockholders thereof include
Judge Torres’ nieces and nephews. However, even
though Judge Torres owns the majority of TRDC and
was also the president thereof, he is only entitled to
one vote among the 9-seat Board of Directors, hence,
his vote can be easily overridden by minority
stockholders. So in 1987, before the regular election
of TRDC officers, Judge Torres assigned one share
(qualifying share) each to 5 “outsiders” for the
purpose of qualifying them to be elected as directors
in the board and thereby strengthen Judge Torres’
power over other family members.
However, the said assignment of shares were not
recorded by the corporate secretary, Ma. Christina
Carlos (niece) in the stock and transfer book of
TRDC. When the validity of said assignments were
questioned, Judge Torres ratiocinated that it is
impractical for him to order Carlos to make the
entries because Carlos is one of his opposition. So
what Judge Torres did was to make the entries
himself because he was keeping the stock and
transfer book. He further ratiocinated that he can do
what a mere secretary can do because in the first
place, he is the president.
Since the other family members were against the
inclusion of the five outsiders, they refused to take
part in the election. Judge Torres and his five
assignees then decided to conduct the election among
themselves considering that the 6 of them constitute a
quorum.
ISSUE: Whether or not the inclusion of the five
outsiders are valid. Whether or not the subsequent
election is valid.
HELD: No. The assignment of the shares of stocks
did not comply with procedural requirements. It did
not comply with the by laws of TRDC nor did it
comply with Section 74 of the Corporation Code.
Section 74 provides that the stock and transfer book
should be kept at the principal office of the
corporation. Here, it was Judge Torres who was
keeping it and was bringing it with him. Further, his
excuse of not ordering the secretary to make the
entries is flimsy. The proper procedure is to order the
secretary to make the entry of said assignment in the
book, and if she refuses, Judge Torres can come to
court and compel her to make the entry. There are
judicial remedies for this. Needless to say, the
subsequent election is invalid because the assignment
of shares is invalid by reason of procedural infirmity.
The Supreme Court also emphasized: 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.
Philippine Stock Exchange Inc. vs Court of
Appeals
281 SCRA 232 [GR No. 125469 October 27, 1997]
Facts: The Puerto Azul Land Inc. (PALI), a domestic
real estate corporation, had sought to offer its shares
to the public in order to raise funds allegedly to
develop its properties and pay its loans with several
banking institutions. In January, 1995, PALI was
issued a permit to sell its shares to the public by the
Securities and Exchange Commission (SEC). To
facilitate the trading of its shares among investors,
PALI sought to course the trading of its shares
through the Philippine Stock Exchange Inc. (PSEi),
for which purpose it filed with the said stock
exchange an application to list its shares, with
supporting documents attached pending the approval
of the PALI’s listing application, a letter was
received by PSE from the heirs of Ferdinand Marcos
to which the latter claims to be the legal and
beneficial owner of some of the properties forming
part of PALI’s assets. As a result, PSE denied PALI’s
application which caused the latter to file a complaint
before the SEC. The SEC issued an order to PSE to
grant listing application of PALI on the ground that
PALI have certificate of title over its assets and
properties and that PALI have complied with all the
requirements to enlist with PSE.
Issue: Whether or not the denial of PALI’s
application is proper.
Held: Yes. This is in accord with the “Business
Judgement Rule” whereby the SEC and the courts are
barred from intruding into business judgements of
corporations, when the same are made in good faith.
The same rule precludes the reversal of the decision
of the PSE, to which PALI had previously agreed to
comply, the PSE retains the discretion to accept of
reject applications for listing. Thus, even if an issuer
has complied with the PSE listing rules and
requirements, PSE retains the discretion to accept or
reject the issuer’s listing application if the PSE
determines that the listing shall not serve the interests
of the investing public.
It is undeniable that the petitioner PSE is not an
ordinary corporation, in that although it is clothed
with the markings of a corporate entity, it functions
as the primary channel through which the vessels of
capital trade ply. The PSEi’s relevance to the
continued operation and filtration of the securities
transaction in the country gives it a distinct color of
importance such that government intervention in its
affairs becomes justified, if not necessarily. Indeed,
as the only operational stock exchange in the country
today, the PSE enjoys monopoly of securities
transactions, and as such it yields a monopoly of
securities transactions, and as such, it yields an
immerse influence upon the country’s economy.
The SEC’s power to look into the subject ruling of
the PSE, therefore, may be implied from or be
considered as necessary or incidental to the carrying
out of the SEC’s express power to insure fair dealing
in securities traded upon a stock exchange or to
ensure the fair administration of such exchange. It is
likewise, observed that the principal function of the
SEC is the supervision and control over corporations,
partnerships and associations with the end in view
that investment in these entities may be encouraged
and protected and their activities for the promotion of
economic development.
A corporation is but an association of individuals,
allowed to transact under an assumed corporate
name, and with a distinct legal personality. In
organizing itself as a collective body, it waives no
constitutional immunities and requisites appropriate
to such a body as to its corporate and management
decisions, therefore, the state will generally not
interfere with the same. Questions of policy and
management are left to the honest decision of the
officers and directors of a corporation, and the courts
are without authority to substitute their judgements
for the judgement of the board of directors. The board
is the business manager of the corporation and so
long as it acts in good faith, its orders are not
reviewable by the courts.
In matters of application for listing in the market the
SEC may exercise such power only if the PSE’s
judgement is attended by bad faith.
The petitioner was in the right when it refused
application of PALI, for a contrary ruling was not to
the best interest of the general public.
TAN BOON BEE & CO V. JARENCIO 163
SCRA 205 – Business Organization – Corporation
Law – Piercing the Veil of Corporate Fiction –
Alter Ego Case
FACTS: In 1972, Anchor Supply Co. (ASC), through
Tan Boon Bee, entered into a contract of sale with
Graphic Publishing Inc. (GPI) whereby ASC shall
deliver paper products to GPI. GPI paid a down
payment but defaulted in paying the rest despite
demand from ASC. ASC sued GPI and ASC won. To
satisfy the indebtedness, the trial court, presided by
Judge Hilarion Jarencio, ordered that one of the
printing machines of GPI be auctioned. But before
the auction can be had, Philippine American Drug
Company (PADCO) notified the sheriff that PADCO
is the actual owner of said printing machine.
Notwithstanding, the sheriff still went on with the
auction sale where Tan Boon Bee was the highest
bidder.
Later, PADCO filed with the same court a motion to
nullify the sale on execution. The trial court ruled in
favor of PADCO and it nullified said auction sale.
Tan Boon Bee assailed the order of the trial court.
Tan Boon Bee averred that PADCO holds 50% of
GPI; that the board of directors of PADCO and GPI
is the same; that the veil of corporate fiction should
be pierced based on the premises. PADCO on the
other hand asserts ownership over the said printing
machine; that it is merely leasing it to GPI.
ISSUE: Whether or not the veil of corporate fiction
should be pierced.
HELD: Yes. PADCO, as its name suggests, is a drug
company not engaged in the printing business. So it is
dubious that it really owns the said printing machine
regardless of PADCO’s title over it. Further, the
printing machine, as shown by evidence, has been in
GPI’s premises even before the date when PADCO
alleged that it acquired ownership thereof. Premises
considered, the veil of corporate fiction should be
pierced; PADCO and GPI should be considered as
one. When a corporation is merely an adjunct,
business conduit or alter ego of another corporation
the fiction of separate and distinct corporation entities
should be disregarded.
Corporate Law Case Digest: Remo Jr. V. IAC
(1989)
FACTS:
December, 1977: the BOD of Akron Customs
Brokerage Corporation (Akron), composed of Jose
Remo, Jr., Ernesto Bañares, Feliciano Coprada,
Jemina Coprada, and Dario Punzalan with Lucia
Lacaste as Secretary, adopted a resolution authorizing
the purchase of 13 trucks for use in its business to be
paid out of a loan the corporation may secure from
any lending institution
January 25, 1978: Feliciano Coprada, as President
and Chairman of Akron, purchased the trucks from
E.B. Marcha Transport Company, Inc. (Marcha) for P
525K as evidenced by a deed of absolute sale.
parties agreed on a downpayment in the amount of
P50K and that the balance of P 475K shall be paid
within 60 days from the date of the execution of the
agreement.
They also agreed that until balance is fully paid, the
down payment of P 50K shall accrue as rentals and
failure to pay the balance within 60 days, then the
balance shall constitute as a chattel mortgage lien
covering the cargo trucks and the parties may allow
an extension of 30 days and Marcha may ask for a
revocation of the contract and the reconveyance of all
trucks.
The obligation is further secured by a promissory
note executed by Coprada in favor of Akron. It is
stated that the balance shall be paid from the
proceeds of a loan obtained from the Development
Bank of the Philippines (DBP) within 60 days
After the lapse of 90 days, Marsha tried to collect
from Coprada but the Coprada promised to pay only
upon the release of the DBP loan.
Marsha sent Coprada a letter of demand dated May
10, 1978.
Coprada reiterated that he was applying for a loan
from the DBP from the proceeds of which payment
of the obligation shall be made.
Meanwhile, 2 of the trucks were sold under a pacto
de retro sale to a Mr. Bais of the Perpetual Loans and
Savings Bank at Baclaran.
March 15, 1978: sale was authorized by board
resolution
Marsha found that no loan application was ever filed
by Akron with DBP.
Akron paid rentals of P 500/day pursuant to a
subsequent agreement, from April 27, 1978 (the end
of the 90-days to pay the balance) to May 31, 1978.
Thereafter, no more rental payments were made.
June 17, 1978: Coprada wrote Marsha begging for a
grace period of until the end of the month to pay the
balance of the purchase price; that he will update the
rentals within the week; and in case he fails, then he
will return the 13 units should Marsha elect
August 1, 1978: Marsha through counsel, wrote
Akron demanding the return of the 13 trucks and the
payment of P 25K back rentals from June 1 to August
1, 1978.
August 8, 1978: Coprada asked for another grace
period of up to August 31, 1978 to pay the balance,
stating as well that he is expecting the approval of his
loan application from a financing company, and that
10 trucks have been returned to Bagbag, Novaliches.
December 9, 1978: Coprada informed Marsha that he
had returned 10 trucks to Bagbag and that a
resolution was passed by the board of directors
confirming the deed of assignment to Marsha of P
475K from the proceeds of a loan obtained by Akron
from the State Investment House, Inc.
In due time, Marsha filed a compliant for the
recovery of P 525K or the return of the 13 trucks with
damages against Akron and its officers and directors
Remo Jr. sold all his shares in Akron to Coprada. It
also appears that Akron amended its articles of
incorporation thereby changing its name to Akron
Transport International, Inc. which assumed the
liability of Akron to Marsha.
CA affirmed RTC: favor of Marsha
ISSUE: W/N Remo Jr. should be held personally
liable together with Akron Transport International,
Inc.
HELD: NO. Petition is granted.
The environmental facts of this case show that there
is no cogent basis to pierce the corporate veil of
Akron and hold petitioner personally liable
While it is true that in December, 1977 petitioner was
still a member of the board of directors of Akron and
that he participated in the adoption of a resolution
authorizing the purchase of 13 trucks for the use in
the brokerage business of Akron to be paid out of a
loan to be secured from a lending institution, it does
not appear that said resolution was intended to
defraud anyone
Coprada, President and Chairman of Akron, who
negotiated
The word "WE' in the said promissory note must
refer to the corporation which Coprada represented in
the execution of the note and not its stockholders or
directors. Petitioner did not sign the said promissory
note so he cannot be personally bound thereby.
As to the sale through pacto de retro of the two units
to a third person by the corporation by virtue of a
board resolution, Remo Jr. asserts that he never
signed the resolution.
Be that as it may, the sale is not inherently fraudulent
as the 13 units were sold through a deed of absolute
sale to Akron so that the corporation is free to dispose
of the same. Of course, it was stipulated that in case
of default , a chattel mortgage lien shall be
constituted on the 13 units.
the new corporation confirmed and assumed the
obligation of the old corporation. There is no
indication of an attempt on the part of Akron to evade
payment of its obligation
it is his inherent right as a stockholder to dispose of
his shares of stock anytime he so desires.
Fraud must be established by clear and convincing
evidence. If at all, the principal character on whom
fault should be attributed is Feliciano Coprada, the
President of Akron. Fortunately, a judgment against
him from the trial court has long been final and
executory.
Corporate Law Case Digest: Stockholders Of F.
Guanzon And Sons, Inc V. Register Of Deeds Of
Manila (1962)
FACTS:
Sept 19, 1960: 5 stockholders of the F. Guanzon and
Sons, Inc. executed a certificate of liquidation of the
assets of the corporation, dissolution and distribution
among themselves in proportion to their
shareholdings, as liquidating dividends, corporate
assets, including real properties
Register of Deeds of Manila denied the registration of
the certificate of liquidation:
The number of parcels not certified to in the
acknowledgment;
P430.50 Reg. fees need be paid;
P940.45 documentary stamps need be attached to the
document;
The judgment of the Court approving the dissolution
and directing the disposition of the assets of the
corporation need be presented
Commissioner of Land Registration overruled ground
No. 7 and sustained requirements Nos. 3, 5 and 6.
Stockholders appealed
contend that the certificate of liquidation is not a
conveyance or transfer but merely a distribution of
the assets of the corporation which has ceased to exist
for having been dissolved
ISSUE: W/N certificate merely involves a
distribution of the corporation's assets (or should be
considered a transfer or conveyance)
HELD: NO. affirm the resolution appealed from
Corporation - juridical person distinct from the
members composing it.
Properties registered in the name of the corporation
are owned by it as an entity separate and distinct from
its members.
While shares of stock constitute personal property
they do not represent property of the corporation.
A share of stock only typifies an aliquot part of the
corporation's property, or the right to share in its
proceeds to that extent when distributed according to
law and equity but its holder is NOT the owner of
any part of the capital of the corporation nor entitled
to possession
The stockholder is not a co-owner or tenant in
common of the corporate property.
 Spouses Firme vs. Bukal Enterprises and
Development Corp. Case Digest
Spouses Firme vs. Bukal Enterprises and
Development Corp.
[GR 146608, 23 October 2003]
Facts: Spouses Constante and Azucena Firme are the
registered owners of a parcel of land located on
Dahlia Avenue, Fairview Park, Quezon City. Renato
de Castro, the vice president of Bukal Enterprises and
Development Corporation authorized his friend,
Teodoro Aviles, a broker, to negotiate with the
Spouses Firme for the purchase of the Property. On
28 March 1995, Bukal Enterprises filed a complaint
for specific performance and damages with the trial
court, alleging that the Spouses Firme reneged on
their agreement to sell the Property. The complaint
asked the trial court to order the Spouses Firme to
execute the deed of sale and to deliver the title to the
Property to Bukal Enterprises upon payment of the
agreed purchase price. On 7 August 1998, the trial
court rendered judgment against Bukal Enterprises,
dismissing the case and ordering Bukal Enterprises to
pay the Spouses Constante and Azucena Firme (1)
the sum of P335,964.90 as and by way of actual and
compensatory damages; (2) the sum of P500,000.00
as and by way of moral damages; (3) the sum of
P100,000.00 as and by way of attorney’s fees; and (4)
the costs of the suit.
The trial court held there was no perfected contract of
sale as Bukal Enterprises failed to establish that the
Spouses Firme gave their consent to the sale of the
Property; and that Aviles had no valid authority to
bind Bukal Enterprises in the sale transaction. Bukal
Enterprises appealed to the Court of Appeals, which
reversed and set aside the decision of the trial court.
The appellate court ordered the Spouses Firme to
execute the Deed of Absolute Sale transferring the
ownership of the subject property to Bukal
Enterprises immediately upon receipt of the purchase
price of P3,224,000.00 and to perform all such acts
necessary and proper to effect the transfer of the
property covered by TCT 264243 to Bulak
Enterprises; and directed Bukal Enterprises to deliver
the payment of the purchase price of the property
within 60 days from the finality of the judgment. The
Court of Appeals held that the lack of a board
resolution authorizing Aviles to act on behalf of
Bukal Enterprises in the purchase of the Property was
cured by ratification; inasmuch as Bukal Enterprises
ratified the purchase when it filed the complaint for
the enforcement of the sale. The spouses Firme filed
the petition for review on certiorari before the
Supreme Court.
Issue: Whether there was a perfected contract
between the Spouses Firme and Bukal Enterprises,
the latter allegedly being represented by Aviles.
Held: There was no consent on the part of the
Spouses Firme. Consent is an essential element for
the existence of a contract, and where it is wanting,
the contract is non-existent. The essence of consent is
the conformity of the parties on the terms of the
contract, the acceptance by one of the offer made by
the other. The Spouses Firme flatly rejected the offer
of Aviles to buy the Property on behalf of Bukal
Enterprises. There was therefore no concurrence of
the offer and the acceptance on the subject matter,
consideration and terms of payment as would result
in a perfected contract of sale. Further, there was no
approval from the Board of Directors of Bukal
Enterprises as would finalize any transaction with the
Spouses Firme. Aviles did not have the proper
authority to negotiate for Bukal Enterprises. Aviles
testified that his friend, De Castro, had asked him to
negotiate with the Spouses Firme to buy the Property.
De Castro, as Bukal Enterprises’ vice president,
testified that he authorized Aviles to buy the
Property. However, there is no Board Resolution
authorizing Aviles to negotiate and purchase the
Property on behalf of Bukal Enterprises. It is the
board of directors or trustees which exercises almost
all the corporate powers in a corporation. Under
Sections 23 and 36 of the Corporation Code, the
power to purchase real property is vested in the board
of directors or trustees.
While a corporation may appoint agents to negotiate
for the purchase of real property needed by the
corporation, the final say will have to be with the
board, whose approval will finalize the transaction. A
corporation can only exercise its powers and transact
its business through its board of directors and through
its officers and agents when authorized by a board
resolution or its by-laws. Aviles, who negotiated the
purchase of the Property, is neither an officer of
Bukal Enterprises nor a member of the Board of
Directors of Bukal Enterprises. There is no Board
Resolution authorizing Aviles to negotiate and
purchase the Property for Bukal Enterprises. There is
also no evidence to prove that Bukal Enterprises
approved whatever transaction Aviles made with the
Spouses Firme. In fact, the president of Bukal
Enterprises did not sign any of the deeds of sale
presented to the Spouses Firme. Even De Castro
admitted that he had never met the Spouses Firme.
Considering all these circumstances, it is highly
improbable for Aviles to finalize any contract of sale
with the Spouses Firme. Furthermore, the Court notes
that in the Complaint filed by Bukal Enterprises with
the trial court, Aviles signed the verification and
certification of non-forum shopping. The verification
and certification of non-forum shopping was not
accompanied by proof that Bukal Enterprises
authorized Aviles to file the complaint on behalf of
Bukal Enterprises. The power of a corporation to sue
and be sued is exercised by the board of directors.
“The physical acts of the corporation, like the signing
of documents, can be performed only by natural
persons duly authorized for the purpose by corporate
by-laws or by a specific act of the board of directors.”
The purpose of verification is to secure an assurance
that the allegations in the pleading are true and
correct and that it is filed in good faith. True, this
requirement is procedural and not jurisdictional.
However, the trial court should have ordered the
correction of the complaint since Aviles was neither
an officer of Bukal Enterprises nor authorized by its
Board of Directors to act on behalf of Bukal
Enterprises.
Negotiable Instruments Case Digest: Great Asian
Sales Center Corp. V. CA (2002)
FACTS:
March 17, 1981: Great Asian BOD approved a
resolution authorizing its Treasurer and General
Manager, Arsenio Lim Piat, Jr. (Arsenio) to secure a
loan, not exceeding 1M, from Bancasia
February 10, 1982: Great Asian BOD approved a
resolution authorizing Great Asian to secure a
discounting line with Bancasia in an amount not
exceeding P2M also designated Arsenio as the
authorized signatory to sign all instruments,
documents and checks necessary to secure the
discounting line
Tan Chong Lin signed 2 surety agreements in favor
of Bancasia
Great Asian, through its Treasurer and General
Manager Arsenio, signed 4 Deeds of Assignment of
Receivables (Deeds of Assignment), assigning to
Bancasia 15 postdated checks:
9 checks were payable to Great Asian
3 were payable to "New Asian Emp."
3 were payable to cash
various customers of Great Asian issued these
postdated checks in payment for appliances and other
merchandise.
Deed of Assignments of assignment:
January 12, 1982: 4 post-dated checks of
P244,225.82 maturing March 17, 1982, 2 were
dishonored
January 12, 1982: 4 post-dated checks of P312,819
maturing April 1, 1982, all 4 were dishonored
February 11, 1982: 8 postdated checks of P344,475
maturing April 30, 1982, all 8 checks were
dishonoured
March 5, 1982: 1 postdated checks of P200K
maturing March 18, 1982 also dishonored
Great Asian assigned the postdated checks to
Bancasia at a discount rate of less than 24% of the
face value of the checks
Arsenio endorsed all the 15 dishonored checks by
signing his name at the back of the checks
8 dishonored checks bore the endorsement of Arsenio
below the stamped name of "Great Asian Sales
Center"
7 dishonored checks just bore the signature of
Arsenio
The drawee banks dishonored the 15 checks on
maturity when deposited for collection by Bancasia,
with any of the following as reason for the dishonor:
"account closed"
"payment stopped"
"account under garnishment"
"insufficiency of funds
March 18, 1982: Bancasia's lawyer,Atty. Eladia
Reyes, sent by registered mail to Tan Chong Lin a
letter notifying him of the dishonor and demanding
payment from him
June 16, 1982: Bancasia sent by personal delivery a
letter to Tan Chong Lin
May 21, 1982: Great Asian filed a case before the
CFI for insolvency listing Bancasia as one of the
creditors of Great Asian in the amount of
P1,243,632.00
June 23, 1982: Bancasia filed a complaint for
collection of a sum of money against Great Asian and
Tan Chong Lin
CFI: favored Bancasia ordering Great Asian and Tan
Chong Lin to pay jointly and severally
CA: deleted atty. Fees
ISSUE: W/N Bancasia and Tang Chon Lin should be
held liable under the Civil Code because it was a
separate and distinct deed of assignment
HELD: YES. Affirmed with Modification
As plain as daylight, the two board resolutions clearly
authorize Great Asian to secure a loan or discounting
line from Bancasia
Clearly, the discounting arrangements entered into by
Arsenio under the Deeds of Assignment were the
very transactions envisioned in the two board
resolutions of Great Asian to raise funds for its
business.
There is nothing in the Negotiable Instruments Law
or in the Financing Company Act (old or new), that
prohibits Great Asian and Bancasia parties from
adopting the with recourse stipulation uniformly
found in the Deeds of Assignment. Instead of being
negotiated, a negotiable instrument may be assigned.
the endorsement does not operate to make the finance
company a holder in due course. For its own
protection, therefore, the finance company usually
requires the assignor, in a separate and distinct
contract, to pay the finance company in the event of
dishonor of the notes or checks. (only security)
Otherwise, consumers who purchase appliances on
installment, giving their promissory notes or checks
to the seller, will have no defense against the finance
company should the appliances later turn out to be
defective
As endorsee of Great Asian, Bancasia had the option
to proceed against Great Asian under the Negotiable
Instruments Law. Had it so proceeded, the Negotiable
Instruments Law would have governed Bancasia’s
cause of action. Bancasia, however, did not choose
this route.
Instead, Bancasia decided to sue Great Asian for
breach of contract under the Civil Code, a right that
Bancasia had under the express with recourse
stipulation in the Deeds of Assignment.
Great Asian, after paying Bancasia, is subrogated
back as creditor of the receivables. Great Asian can
then proceed against the drawers who issued the
checks. Even if Bancasia failed to give timely notice
of dishonor, still there would be no prejudice
whatever to Great Asian.
Under the Negotiable Instruments Law, notice of
dishonor is not required if the drawer has no right to
expect or require the bank to honor the check, or if
the drawer has countermanded payment
In the instant case, all the checks were dishonored for
any of the following reasons:
"account closed"
"account under garnishment"
"insufficiency of funds"
drawers had no right to expect or require the bank to
honor the checks
"payment stopped"
drawers had countermanded payment
Moreover, under common law, delay in notice of
dishonor, where such notice is required, discharges
the drawer only to the extent of the loss caused by the
delay.
Again, we reiterate that this obligation of Great Asian
is separate and distinct from its warranties as indorser
under the Negotiable Instruments Law.Civil Code are
applicable and not the Negotiable Instruments Law.
separate Deeds of Assignment - provisions of the
Civil Code are applicable (NOT Negotiable
Instruments Law)
Great Asian’s four contracts assigning its fifteen
postdated checks to Bancasia expressly stipulate the
suspensive condition that in the event the drawers of
the checks fail to pay, Great Asian itself will pay
Bancasia
The stipulations in the Surety Agreements undeniably
mandate the solidary liability of Tan Chong Lin with
Great Asian
Moreover, the stipulations in the Surety Agreements
are sufficiently broad, expressly encompassing "all
the notes, drafts, bills of exchange, overdraft and
other obligations of every kind which the
PRINCIPAL may now or may hereafter owe the
Creditor"
San Juan Structural and Steel Fabricators, Inc. vs
Court of Appeals
96 SCRA 631 – Business Organization –
Corporation Law – Piercing the Veil of Corporate
Fiction
FACTS: In 1989, San Juan Structural and Steel
Fabricators, Inc. (San Juan) alleged that it entered
into a contract of sale with Motorich Sales
Corporation (Motorich) through the latter’s treasurer,
Nenita Gruenberg. The subject of the sale was a
parcel of land owned by Motorich. San Juan
advanced P100k to Nenita as earnest money.
On the day agreed upon on which Nenita was
supposed to deliver the title of the land to Motorich,
Nenita did not show up. Nenita and Motorich did not
heed the subsequent demand of San Juan to comply
with the contract hence San Juan sued Motorich.
Motorich, in its defense, argued that it is not bound
by the acts of its treasurer, Nenita, since her act in
contracting with San Juan was not authorized by the
corporate board.
Consolidated Bank vs CA, GR No. 114286, 19
April 2001, 356 SCRA 671
FACTS
Continental Cement Corp obtained from
Consolidated Bank letter of credit used to purchased
500,000 liters of bunker fuel oil. Respondent
Corporation made a marginal deposit to petitioner. A
trust receipt was executed by respondent corporation,
with respondent Gregory Lim as signatory. Claiming
that respondents failed to turn over the goods or
proceeds, petitioner filed a complaint for sum of
money before the RTC of Manila. In their answer,
respondents aver that the transaction was a simple
loan and not a trust receipt one, and tht the amount
claimed by petitioner did not take into account
payments already made by them. The court dismissed
the complaint, CA affirmed the same.
ISSUE
Whether or not the marginal deposit should not be
deducted outright from the amount of the letter of
credit.
HELD
No. petitioner argues that the marginal deposit should
be considered only after computing the principal plus
accrued interest and other charges. It could be
onerous to compute interest and other charges on the
face value of the letter of credit which a bank issued,
without first crediting or setting off the marginal
deposit which the borrower paid to it-compensation is
proper and should take effect by operation of law
because the requisited in Art. 1279 are present and
should extinguish both debts to the concurrent
amount. Unjust enrichment.

San Juan raised the issue that Nenita was actually the
wife of the President of Motorich; that Nenita and her
husband owns 98% of the corporation’s capital
stocks; that as such, it is a close corporation and that
makes Nenita and the President as principal
stockholders who do not need any authorization from
the corporate board; that in this case, the corporate
veil may be properly pierced.

ISSUE: Whether or not San Juan is correct.

HELD: No. Motorich is right in invoking that it is

not bound by the acts of Nenita because her act in
entering into a contract with San Juan was not
authorized by the board of directors of Motorich.
Nenita is however ordered to return the P100k.

There is no merit in the contention that the corporate

veil should be pierced even though it is true that
Nenita and her husband own 98% of the capital
stocks of Motorich. The corporate veil can only be
pierced if the corporate fiction is merely used by the
incorporators to shield themselves against liability for
fraud, illegality or inequity committed on third
persons. It is incumbent upon San Juan to prove that
Nenita or her husband is merely using Motorich to
defraud San Juan. In this case however, San Juan
utterly failed to establish that Motorich was formed,
or that it is operated, for the purpose of shielding any
alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal
fraud, illegality or inequity at the expense of third
persons like San Juan.