MERCANTILE REVIEW

A. CORPORATION DEFINED (Sec.2) Genossenschaft Theory

Corporation law; Corporation; Concept and nature.—A corporation is an artificial being created by operation of law (Sec.
2, Act No. 1459). A corporation as known to Philippine jurisprudence is a creature without any existence until it has received
the imprimatur of the state acting according to law. It is logically inconceivable therefore that it will have rights and privileges
of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state
organs, certainly not excluding the judiciary. whenever called upon to do so. A corporation is not in fact and in reality a
person, but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial icial person
distinct and separate from its individual stockholders (1 Fletcher, Cyclopedia Corporations, pp. 19-20). [Tayag vs. Benguet
Consolidated, Inc., 26 SCRA 242(1968)]

What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic
postulates of corporate theory.

We start with the undeniable premise that, “a corporation is an artificial being created by operation of law . . .” 16 It owes
its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: “Classically, a corporation was
conceived as an artificial person, owing its existence through creation by a sovereign power. 17 As a matter of fact, the
statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision, defined a
corporation precisely as “an artificial being invisible, intangible, and existing only in contemplation of law.” 18

The well-known authority Fletcher could summarize the matter thus: “A corporation is not in fact and in reality a person,
but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and
separate from its individual stockholders. It owes its existence to law. It is an artificial person created by law for certain
specific purposes, the extent of whose existence, powers and liberties is fixed by its charter.” 19 Dean Pound’s terse
summary, a juristic person, resulting from an association of human beings granted legal personality by the state, puts the
matter neatly. 20

There is thus a rejection of Gierke’s genosssenchaft theory, the basic theme of which to quote from Friedmann, “is the
reality of the group as a social and legal entity, independent of state recognition and concession.” 21 A corporation as known
to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state acting
according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its
creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the
judiciary, whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our
jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the
appropriate Court Action to enforce its rights. Correlatively, it is not immune from judicial control in those instances, where a
duty under the law as ascertained in an appropriate legal proceeding is cast upon it.

To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which
may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the
source of its very existence; it is to contend that what any of its governmental organs may lawfully require could be ignored at
will. So extravagant a claim cannot possibly merit approval.

Renato Tayag vs Benguet Consolidated, Inc.

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.

ANTONINA TORRES VS COURT OF APPEALS

FACTS:

Antonina Torres and Ermita Baring entered into a joint venture agreement with Manuel Torres. Under the
agreement , the sisters agreed to execute a deed of sale in favor of Manuel over the land, not cash payment was received by
the latter but the former promise of profits of 60%- said parcel of land is to developed as subdivision and the property was
mortgaged , under joint venture agreement that the proceed is used for development. The project was not push through and
the property was foreclosed by the bank because prospective buyers scared away to purchase the property because of the
adverse claim of the petitioner’s relatives caused the annotation of the title. Petitioners filed a civil case against Manuel
Baring for damages equivalent to 60% of the value of the property. The lower court ruled in favor Manuel and it was affirmed
by CA. They appealed before the SC and argued that the joint venture agreement was void therefore no partnership
between them exists.

ISSUE: Whether or not the partnership exist.

HELD: In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he
may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital,
he shall also receive a share in the profits in proportion to his capital. Clearly, the contract manifested the intention of the
parties to form a partnership. Therefore, both parties cannot be blamed and both parties bears the losses.

TORRES VS CA (278 SCRA 793)

Torres vs Court of Appeals

278 SCRA 793 [GR No. 120138 September 5, 1997]

Facts: The late Manuel A. Torres Jr. 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 had assigned to Tormil Realty & Development Corporation 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, 10 deeds of assignment were executed by the late Judge Torres. Consequently, the aforelisted properties were duly
recorded in the inventory of assets of Tormil realty and the revenues generated by the said properties were correspondingly
entered in the corporation’s books of account and financial records. Likewise, all the assigned parcel 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. Due to the insufficient number of shares of stock issued to Judge Torres and the alleged refusal to private respondents
to approved the needed increase in the corporations authorized capital stock, on September 11, 1986 Judge Torres revoked
the two 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, on March 31,
1987, were constrained to file a complaint with the Securites and Exchange Commission (SEC) docketed as SEC Case No.
3153 to compel Judge Torres to deliver to Tormil corporation the two deed of assignment covering the aforementioned Makati
and Pasay City properties which had unilaterally revoked and to cause the registration of the corresponding titles in the name
of Tormil. The 1987 annual stockholders meeting and election of directors of Tormil corporation was scheduled on March 25,
1987, in compliance with the provision of its by-laws. Pursuant thereto, Judge Torres assigned from his own shares, one
share each to petitioners. 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 to the Board of directors as Torres nominees.

Issues: Whether or not the revocation of the deeds of assignment involving the Makati and Pasay City properties are
valid.

Whether or not the issued qualifying shares are valid.

Held: No. The general rule is that rescission of a contract will not be permitted for a slight or carnal breach, but only for
substantial and fundamental breach as would defeat the very object of the parties in making the agreement.

The shortage of 972 shares definitely is not substantial and fundamental breach as would defeat the very object of the
parties in entering into contract. Art 1355 of the civil code also provides: “Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influences.” There being
no fraud, mistake, or undue influence exerted on respondent Torres by Tormil and the latter having already issued to the
former its 225,000 shares, the most logical course of action is to declare as null and void the deed of revocation on executed
by respondent Torres.

No. In the absence of any provision to the contrary, the corporate secretary is the custodian of corporate records,
corollarily, he keeps the stock and transfer book and makes proper and necessary entries therein.
 Contrary to the generally accepted corporate practice, the stock and transfer book of Tormil was not kept by Ms. Maria
Christina T. Carlos, the corporate secretary but by respondent Torres, the president and chairman of the board of directors of
Tormil. In contravention to the above cited provision, the stock and transfer book was not kept at the principal office of the
corporation either but at the place of respondent Torres.

These being the obtaining circumstances, any entries made in the stock and transfer book on March 8, 1987 by
respondent Torres of an alleged transfer of nominal shares to Pabalan and Company cannot therefore be given any valid
effect. Where the entries made are not valid, Pabalan and company cannot be considered stockholders of record of Tormil.
Because they are not stockholders, they cannot therefore be elected as directors of Tormil. The rule otherwise would not only
encourage violation of clear mandate of Rule 74 of the corporation code that stock and transfer book shall be kept in the
principal office of the corporation but would likewise open the flood gates of confusion in the corporation as to who has the
proper custody of the stock and transfer book and who are the real stockholders of records of a certain corporation as any
holder of the stock and transfer book, though not the corporate secretary, at pleasure would make entries therein.

The fact that Torres holds 81.28% of the outstanding capital stock of Tormil is of no moment and is not a license for him
to arrogate unto himself a duty lodged to the corporate secretary.

Philippine Stock Exchange, Inc. vs Court of Appeals

281 scra 232

FACTS: Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estate business. PALI was granted
permission by the Securities and Exchange Commission (SEC) to sell its shares to the public in order for PALI to develop its
properties. PALI then asked the Philippine Stock Exchange (PSE) to list PALI’s stocks/shares to facilitate exchange. The PSE
Board of Governors denied PALI’s application on the ground that there were multiple claims on the assets of PALI.
Apparently, the Marcoses, Rebecco Panlilio (trustee of the Marcoses), and some other corporations were claiming assets if
not ownership over PALI. PALI then wrote a letter to the SEC asking the latter to review PSE’s decision. The SEC reversed
PSE’s decisions and ordered the latter to cause the listing of PALI shares in the Exchange.

ISSUE: Whether or not it is within the power of the SEC to reverse actions done by the PSE.

HELD: Yes. The SEC has both jurisdiction and authority to look into the decision of PSE pursuant to the Revised
Securities Act and for the purpose of ensuring fair administration of the exchange. PSE, as a corporation itself and as a stock
exchange is subject to SEC’s jurisdiction, regulation, and control. In order to insure fair dealing of securities and a fair
administration of exchanges in the PSE, the SEC has the authority to look into the rulings issued by the PSE. The SEC is the
entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be traded or not in
the stock exchange. HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only reverse
decisions issued by the PSE if such are tainted with bad faith. In this case, there was no showing that PSE acted with bad
faith when it denied the application of PALI. Based on the multiple adverse claims against the assets of PALI, PSE deemed
that granting PALI’s application will only be contrary to the best interest of the general public. It was reasonable for the PSE
to exercise its judgment in the manner it deems appropriate for its business identity, as long as no rights are trampled upon,
and public welfare is safeguarded. ART. XII SECTION 16, 1987 PHILIPPINE CONSTITUTION

HELD: YES, but only if the exercise of the PSE’s powers was attended with bad faith. The denial of the application of
PALI is proper due to the controversies surrounding its ownership.

Sec. 3 of P.D. 902-A, give the SEC the special mandate to be vigilant in the supervision of the affairs of stock exchanges
so that the interests of the investing public may be fully safeguard.

Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SEC’s challenged control authority
over the petitioner PSE even as it provides that “the Commission shall have absolute jurisdiction, supervision, and control
over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or permit
issued by the government to operate in the Philippines. . .” The SEC’s regulatory authority over private corporations
encompasses a wide margin of areas, touching nearly all of a corporation’s concerns. This authority springs from the fact that
a corporation owes its existence to the concession of its corporate franchise from the state.

SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation,
may be traded or not in the stock exchange. This is in line with the SEC’s mission to ensure proper compliance with
the laws, such as the Revised Securities Act and to regulate the sale and disposition of securities in the country.

This is not to say, however, that the PSE’s management prerogatives are under the absolute control of the SEC. The
PSE is, alter all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved business.
One of the PSE’s main concerns, as such, is still the generation of profit for its stockholders. Moreover, the PSE has all the
rights pertaining to corporations, including the right to sue and be sued, to hold property in its own name, to enter (or not to
enter) into contracts with third persons, and to perform all other legal acts within its allocated express or implied powers.

Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSE’s
decision in matters of application for listing in the market, the SEC may exercise such power only if the PSE’s judgment
is attended by bad faith. Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or
some moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest of ill
will, partaking of the nature of fraud.

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. The purpose of the Revised Securities Act, after all, is to give adequate and effective
protection to the investing public against fraudulent representations, or false promises, and the imposition of
worthless ventures.

In any case, for the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true
ownership of the properties of PALI need not be determined as an absolute fact. What is material is that the uncertainty of the
properties’ ownership and alienability exists, and this puts to question the qualification of PALI’s public offering. In sum, the
Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for
listing in the PSE of the private respondent PALI, since this is a matter addressed to the sound discretion of the PSE, a
corporation entity, whose business judgments are respected in theabsence of bad faith.

OTHER ISSUES under this case included in the topics:

1. Purpose of laws on securities – The purpose of the Revised Securities Act, after all, is to give adequate and effective
protection to the investing public against fraudulent representations, or false promises, and the imposition of worthless
ventures.

It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental to legitimate
business, thus:

The Securities Act, often referred to as the “truth in securities” Act, was designed not only to provide investors with
adequate information upon which to base their decisions to buy and sell securities, but also to protect legitimate business
seeking to obtain capital through honest presentation against competition from crooked promoters and to prevent fraud in the
sale of securities. (Tenth Annual Report, U.S. Securities & Exchange Commission, p. 14).

As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses and fraudulent transactions,
merely by requirement of that their details be revealed; (2) placing the market during the early stages of the offering of a
security a body of information, which operating indirectly through investment services and expert investors, will tend to
produce a more accurate appraisal of a security, . . . Thus, the Commission may refuse to permit a registration statement to
become effective if it appears on its face to be incomplete or inaccurate in any material respect, and empower the
Commission to issue a stop order suspending the effectiveness of any registration statement which is found to include any
untrue statement of a material fact or to omit to state any material fact required to be stated therein or necessary to make the
statements therein not misleading. (Idem).

2. Regulatory power of the SEC over the PSE – discussed na sa digest

3. Merit System vs. Full Disclosure method (in registration)

Section 9 of the Revised Securities Act sets forth the possibleGrounds for the Rejection of the registration of a security:

— The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in
such registration statement if it finds that —

(1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue
statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements
therein not misleading; or

(2) The issuer or registrant —

(i) is not solvent or not in sound financial condition;

(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant thereto, or any
order of the Commission;

(iii) has failed to comply with any of the applicable requirements and conditions that the Commission may, in the public
interest and for the protection of investors, impose before the security can be registered;

(iv) has been engaged or is engaged or is about to engage in fraudulent transaction;

(v) is in any way dishonest or is not of good repute; or

(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary to
government rules and regulations.

(3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles;

(4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to be such officer,
director or principal stockholder; or

(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not
work to the prejudice of the public interest or as a fraud upon the purchasers or investors. (Emphasis Ours)

A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance
of securities dependent, to a certain extent, on the merits of the securities themselves, and of the issuer, to be
determined by the Securities and Exchange Commission. This measure wasmeant to protect the interests of the
investing public against fraudulent and worthless securities, and the SEC is mandated by law to safeguard these
interests, following the policies and rules therefore provided. The absolute reliance on the full disclosure method in the
registration of securities is, therefore, untenable. As it is, the Court finds that the private respondent PALI, on at least two
points (nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity, thereby lending support
to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. This does not discount the
effectivity of whatever method the SEC, in the exercise of its vested authority, chooses in setting the standard for public
offerings of corporations wishing to do so. However, the SEC must recognize and implement the mandate of the law,
particularly the Revised Securities Act, the provisions of which cannot be amended or supplanted by mere administrative
issuance.

HINDI DINISCUSS mashado yung “full disclosure method” pero binanggit siya sa ruling ng SEC against PSE:

WHEREFORE, premises considered, the Commission finds no compelling reason to reconsider its order dated April 24,
1996, and in the light of recent developments on the adverse claim against the PALI properties, PSE should require PALI to
submit full disclosure of material facts and information to protect the investing public. In this regard, PALI is hereby
ordered to amend its registration statements filed with the Commission to incorporate the full disclosure of these material
facts and information.

ARTICLE XII SECTION 16, 1987 PHIL CONSTITUTION

FELICIANO VS COA (GR NO. 147402 JANUARY 14, 2004)

Facts: A special audit team from COA Regional office no. VIII audited the accounts of LMWD. Subsequently, LMWD
received a letter from COA dated July 19, 1999 requesting payment of auditing fees. As general manager of LMWD,
petitioner sent a reply dated October 12, 1999 informing COA’s regional director that the water district could not pay the
auditing fees. Petitioner cited as basis for his action section 6 and 20 of Presidential Decree no. 198 as well as section 18 of
RA 6758. The regional director referred petitioner to reply o the COA Chairman on October 18, 1999. On October 19, 1999,
petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously paid to COA. On
March 16, 2000, petitioner received COA Chairman Celso D. Gangans resolution dated January 3, 2o00 denying his
requests. Petitioner filed a motion for reconsideration on March 31, 2000, which COA denied on January 30, 2001.

Issue: Whether or not petitioner LMWD is a private corporation exempt from the auditing jurisdiction of COA.

Held: No. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist
under a general law. Stated differently, only corporations created under a general law can qualify as private corporations
under existing laws, that general law is the corporation code, except that the cooperative code governs the incorporation of
cooperatives.

Obviously, LWDs are not private corporations because they are not created under the corporation code. LWDs are
registered with the Securities and Exchange Commission (SEC). Section 14 of the corporation code states that all
corporations under this code shall file with the SEC articles of incorporation. LWDs have no articles of incorporation, no
incorporators and no stockholders or members. There are no stockholders or members to elect the board of directors of
LWDs as in the case of all corporations registered with the SEC. The local mayor or the provincial governor appoints the
directors of LWDs for a fixed term of office. This court has ruled that LWDs are not created under the corporation code.

The determining factor of COA’s audit jurisdiction is government ownership or control of the corporation. The criterion of
ownership and control is more important than the issue of original charter.

Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law,
PD 198. There is no private party involved as co-owner in the creation of and LWD. Just prior to the creation of LWDs, the
national or local government owns and controls all their assets. The government controls LWDs because under PD 198 the
municipal or city mayor, or the provincial governor, appoints all the board of directors of an LWD for a fixed term of six (6)
years. The board of directors of LWDs are not co-owners of the LWDs. LWD have no private stockholders or members. The
board of directors and other personnel of LWDs are government employees subject to civil service laws, anti-graft laws.

Section 18 of RA 6758 prohibits COA Personnel from receiving any kind of compensation from any government except
compensation paid directly by COA out of its appropriations and contributions. Thus, RA 6758 itself recognizes an exception
to the statutory ban by COA personnel receiving compensation from GOCCs.

B. CORPORATIONS CREATED BY SPECIAL LAWS OR CHARTER

National Coal Co. vs Collector of Internal Revenue 46 Phil 583

FACTS:
The National Coal Company was created by Act No. 2705 and was granted the general powers of a corporation
“and such other powers as may be necessary to enable it to prosecute the business of developing coal deposits in the
Philippine Island and of mining, extracting, transporting and selling the coal contained in said deposits.” Two months
later, the Philippine Legislature passed Act No. 2719 to provide for the leasing and development of coal lands in the
Philippine Islands. Seven months after the company’s creation, the National Coal Company took possession of coal
lands within a reservation in the Zambaonaga Peninsula. Plaintiff harvested coal on public lands between 1920 and 1922
collecting a total of 24,089.3 tons of coal.
 Appellant CIR then subjected the mined coal to a specific tax of P0.50 per metric ton under Act 1496 which
subjected coal collected by non-owners of land for P12,044.68. Plaintiff claimed a refund from the CIR arguing
exemption from taxes under the provision of sections 14 and 15 of Act No. 2719, and prayed for a judgment ordering the
defendant to refund to the plaintiff said sum of P12, 044.68, with legal interest from the date of the presentation of the
complaint, and costs against the defendant.
The trial court decided in favor of Plaintiff extending the definition of ownership and should be understood to
mean “lands held in lease or usufruct” and should be taxed only P0.04 per ton of coal under Section 15 of Act No. 2719.

ISSUE: Whether the plaintiff is subject to the taxes under section 15 of Act No. 2719, or to the specific taxes under
section 1496 of the Administrative Code?

HELD: Plaintiff is liable for the taxes imposed under Section 1496 of the Administrative Code.

Plaintiff is neither a lessee nor an owner of coal-bearing lands, and is, therefore, not subject to any other
provisions of Act No. 2719. It having been demonstrated that the plaintiff has produced coal in the Philippine Islands and
is not a lessee or owner of the land from which the coal was produced, we are clearly of the opinion, and so hold, that it
is subject to pay the internal revenue tax under the provisions of section 1496 of the Administrative Code, and is not
subject to the payment of the internal revenue tax under section 15 of Act No. 2719, nor to any other provisions of said
Act.
The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder
does not make it a public corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the
provisions of the Corporation Law, in so far as they are not inconsistent with said Act (No. 2705). As a private
corporation, it has no greater rights, powers or privileges than any other corporation which might be organized for the
same purpose under the Corporation Law, and certainly it was not the intention of the Legislature to give it a preference
or right or privilege over other legitimate private corporations in the mining of coal.

Marilao Waters Consumers Association, Inc. vs. IAC

Facts:
The herein petitioner filed a case in the Regional Trial Court against Marilao Water district alleging that its
creation was defective and illegal. Marilao Water district raised as affirmative defense the court’s lack of jurisdiction of
the subject matter. It alleged that the water district’s dissolution fell under the original and exclusive jurisdiction of the
Securities and Exchange Commission.
Issue: Whether the water district is correct in saying that the RTC has no jurisdiction over the case.
Held:
The juridical entities known as water districts created by PD 198, although considered as quasi-public
corporations and authorized to exercise the powers, rights and privileges given to private corporations under existing
laws are entirely distinct from corporations organized under the Corporation Code, PD 902-A, as amended. The
Corporation Code has nothing whatever to do with their formation and organization, all the terms and conditions for their
organization and operation being particularly spelled out in PD 198. The resolutions creating them, their charters, in other
words, are filed not with the Securities and Exchange Commission but with the LWUA. It is these resolutions qua
charters, and not articles of incorporation drawn up under the Corporation Code, which set forth the name of the water
districts, the number of their directors, the manner of their selection and replacement, their powers, etc. The SEC which
is charged with enforcement of the Corporation Code as regards corporations, partnerships and associations formed or
operating under its provisions, has no power of supervision or control over the activities of water districts.
For although described as quasi-public corporations, and granted the same powers as private corporations,
water districts are not really corporations. They have no incorporators, stockholders or members, who have the right to
vote for directors, or amend the articles of incorporation or by-laws, or pass resolutions, or otherwise perform such other
acts as are authorized to stockholders or members of corporations by the Corporation Code. In a word, there can be no
such thing as a relation of corporation and stockholders or members in a water district for the simple reason that in the
latter there are no stockholders or members. Between the water district and those who are recipients of its water
services there exists not the relationship of corporation-and-stockholder, but that of a service agency and users or
customers. There can therefore be no such thing in a water district as "intra-corporate or partnership relations, between
and among stockholders, members or associates (or) between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively," within the contemplation of Section 5
of the Corporation Code so as to bring controversies involving them within the competence and cognizance of the SEC.
The Consumer Association's action therefore is, in fine, in the nature of a mandamus suit, seeking to compel
the board of directors of the Marilao Water District, and its alleged co-conspirators, the Sangguniang Bayan and the
Mayor of Marilao to go through the process above described for the dissolution of the water district. In this sense, and
indeed, taking account of the nature of the proceedings for dissolution just described, it seems plain that the case does
not fall within the limited jurisdiction of the SEC., but within the general jurisdiction of Regional Trial Courts.

C. QUO WARRANTO

Sawadjaan vs CA, G.R No. 141735, June 8, 2005

(See full case)

FACTS:
Petitioner Sawadjaan is an appraiser/investigator in the Philippine Amanah Bank (PAB) when on the basis of his report,
a credit line was granted to Compressed Air Machineries and Equipment Corporation (CAMEC) by virtue of two parcels
of land it offered as collaterals.
Later on, a law was passed which created Al-Amanah Investment Bank of the Philippines (AIIBP) and repealed the law
creating PAB, transferring all its assets, liabilities and capital accounts to AIIBP. AIIBP discovered that the collaterals
were spurious, thus conducted an investigation and found petitioner Sawadjaan at fault.
Petitioner moved for a New Trial claiming he recently discovered that AIIBP had not yet filed its corporate by-laws and
since it failed to file within 60days from the passage of its law, it had forfeited franchise or charter and thus no legal
standing to initiate an Administrative case.
 ISSUE:
Whether or not the failure of AIIBP to file its by-laws within the period prescribed results to a nullity of all actions and
proceedings it initiated.

HELD:
NO. A corporation who has failed to file its by-laws within the prescribed period does not ipso facto lose its powers as
such. The SEC Rules on Suspension/Revocation of the Certificate of Registration of Corporations, details the
procedures and remedies that may be availed of before an order of revocation can be issued. There is no showing that
such a procedure has been initiated in this case. At the very least, the AIIBP may be considered as a de facto
corporation whose right to exercise corporate powers may not be inquired into collaterally in any private suit to which
such corporations may be a party

D. GRANDFATHER RULE

WILSON GAMBOA V TEVES

I. THE FACTS

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by
the government of the Republic of the Philippines, acting through the Inter-Agency Privatization Council (IPC), to Metro
Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based
investment management and holding company and a shareholder of the Philippine Long Distance Telephone Company
(PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or about 6.3
percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacific’s
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common
shareholdings of foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of
the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%,
thus:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited
to their proportionate share in its capital, and all the executive and managing officers of such corporation or association
must be citizens of the Philippines. (Emphasis supplied)

II. THE ISSUE

Does the term “capital” in Section 11, Article XII of the Constitution refer to the total common shares only, or to the total
outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility?

III. THE RULING

[The Court partly granted the petition and held that the term “capital” in Section 11, Article XII of the Constitution refers
only to shares of stock entitled to vote in the election of directors of a public utility, i.e., to the total common shares in
PLDT.]

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which
usually have no voting rights, the term “capital” in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election of directors, then the term “capital”
shall include such preferred shares because the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term “capital” in Section 11, Article XII of
the Constitution refers only to shares of stock that can vote in the election of directors.

To construe broadly the term “capital” as the total outstanding capital stock, including both common and non-
voting preferred shares, grossly contravenes the intent and letter of the Constitution that the “State shall develop a self-
reliant and independent national economy effectively controlled by Filipinos.” A broad definition unjustifiably disregards
who owns the all-important voting stock, which necessarily equates to control of the public utility.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT’s Articles of
Incorporation expressly state that “the holders of Serial Preferred Stock shall not be entitled to vote at any meeting
of the stockholders for the election of directors or for any other purpose or otherwise participate in any action
taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders.” On the other hand,
holders of common shares are granted the exclusive right to vote in the election of directors. PLDT’s Articles of
Incorporation state that “each holder of Common Capital Stock shall have one vote in respect of each share of such
stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall
have the exclusive right to vote for the election of directors and for all other purposes.”

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In
fact, based on PLDT’s 2010 General Information Sheet (GIS), which is a document required to be submitted annually to
the Securities and Exchange Commission, foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold
only 66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of PLDT’s common shares,
while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that
foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on
foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution.

As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per share,
whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value
of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44%
of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred
shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares
constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred
shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and
Filipino beneficial ownership in a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of
PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that “[n]o franchise,
certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x
corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by
such citizens x x x.”

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to
vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDT’s common
shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares,
99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common
shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute
77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of
a public utility is a mockery of the Constitution.

[Thus, the Respondent Chairperson of the Securities and Exchange Commission was DIRECTED by the Court to apply
the foregoing definition of the term “capital” in determining the extent of allowable foreign ownership in respondent
Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to
impose the appropriate sanctions under the law.]
GRANDFATHER RULE - Not known to many, the Supreme Court rendered a sequel to Gamboa vs Teves, a 2011
decision affirmed in 2012, that defined the term “capital” for purposes of determining whether a public utility complies
with the foreign ownership limit under the Constitution.
This is the case of “In the Matter of the Corporate Rehabilitation of Bayan Telecommunications Inc.” (G.R. Nos. 175418-
20, December 5, 2012), which was consolidated with other cases relating to the rehabilitation of Bayan
Telecommunications Inc. (Bayantel). In this case, The Bank of New York filed a creditor-initiated petition to rehabilitate
Bayantel. In due course, the receiver recommended the rehabilitation of Bayantel by, among others, converting part of
the company’s debt into equity. However, the rehabilitation receiver imposed, as a condition, that the resulting equity
ownership of foreign creditors should not exceed the 40-percent foreign ownership limit under the 1987 Constitution.
The Bank of New York disagreed, explaining that the acquisition of shares by foreign creditors would be done, both
directly and indirectly, to meet the control test under RA 7042, or the Foreign Investments Act of 1991 (FIA).
The control test deals with a situation where a corporation and its non-Filipino stockholders own stocks in an SEC-
registered company. It provides that, where at least 60 percent of the capital stock outstanding and entitled to vote of
each of both corporations is owned and held by citizens of the Philippines and at least 60 percent of the members of the
board of directors of each of both corporations are Filipino citizens, the investee company is considered a Philippine
national.
The “grandfather rule,” on the other hand, requires that the citizenship of individuals or natural persons who ultimately
own or control the shares of stock of the corporation must be considered for purposes of determining compliance with
the Filipino ownership requirement.
Under the proposed structure for Bayantel, the foreign creditors would convert part of Bayantel’s debt to common stock
of the company. As a result, they would own 40 percent of the outstanding capital stock of Bayantel, while the remaining
40 percent of the shares would be registered to a holding company that would retain the other 60 percent equity
reserved for Filipino citizens. According to The Bank of New York, this structure would comply with the control test under
the FIA and, therefore, would not violate the Filipinization requirement prescribed by the Constitution for public utilities.
The issue was whether or not the proposed structure would violate the foreign ownership limit imposed by the
Constitution for public utilities.
 The relevant provision is Article XII, Section 11 of the 1987 Constitution, which states that “[n]o franchise, certificate, or
any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or
to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is
owned by such citizens.”
In ruling on the issue, the Supreme Court cited its 2011 en banc decision in Gamboa, which interpreted the term “capital”
as referring only to shares of stock (whether common or preferred shares) that are entitled to vote in the election of
directors. The court held that two steps must be taken to determine whether the conversion of debt to equity violates the
constitutional limit on foreign ownership of a public utility: First, identify which class of shares the debt will be converted
into, whether common shares, preferred shares that have the right to vote in the election of directors, or non-voting
preferred shares; Second, determine the number of shares with voting rights held by foreign entities prior to conversion.
If upon conversion, the total number of shares held by foreign entities exceeds 40 percent of the capital stock with voting
rights, the constitutional limit on foreign ownership is violated.
The Supreme Court observed that the proposed structure would give foreigners a 77.7-percent effective ownership of the
common shares of Bayantel. It then ruled that the structure would violate the foreign ownership restriction for public
utilities set by the Constitution.
The FIA expressly recognizes the control test in determining the nationality of a corporation in which there are foreign
investors. Yet, the Supreme Court disregarded the argument of The Bank of New York that its proposed structure is
compliant with this test. The court stated that the proposed structure “is precisely the scenario proscribed by the
Filipinization provision of the Constitution.” It is also worth noting that in its 2012 Gamboa decision, the Court cited with
approval the en banc ruling of the SEC in Redmont Consolidated Mines Corp. vs. McArthur Mining Inc., et al. (SEC en
banc case No. 09-09-177, March 25, 2010), which stated that “the Grandfather Rule must be applied to accurately
determine the actual participation, both direct and indirect, of foreigners in a corporation engaged in a nationalized
activity or business.” Interestingly, all members of the First Division who rendered the Bayantel decision participated in
the 2012 Gamboa decision which, as stated above, quoted with approval the Redmont decision of the SEC. In fact, four
of them—Justices Martin S. Villarama, Teresita Leonardo-de Castro, Lucas P. Bersamin and Jose Portugal Perez—
concurred in the 2012 Gamboa decision.
My question is: Does it now mean that a public utility, or any corporation that is nationalized under the Constitution, can
no longer invoke the control test to determine whether it is in compliance with the foreign ownership limit imposed by the
Constitution? Otherwise stated, is the grandfather rule now the test for said companies?
If so, it would be a huge setback to the Aquino administration’s drive to attract more foreign investments into the country.
(The author, former president and CEO of the Philippine Stock Exchange, is now co-managing partner and head of
corporate and special projects department of Accra law. He may be contacted at felim@accralaw.com)

E. DOCTRINE OF SEPARATE PERSONALITY/DOCTRINE OF CORPORATE ENTIRY

DOCTRINE OF SEPARATE PERSONALITYA corporation has a juridical personality separate and distinct from that of its
stockholders or members.Consequences:1.Liability for acts or contracts- obligations incurred by a corporation, acting
through its authorized agents are sole its sole liabilities (Creese vs CA, 93 SCRA 483)2.Right to bring actions – may
bring civil and criminal actions in is own name in the same manner as natural persons.3.Right to acquire and possess
property – property conveyed to or acquired by the corporation is in law the property of the corporation itself as a distinct
legal entity and not that of the stockholders or members.4.Acquisition of court of jurisdiction – service of summons may
be mad on the president, general manager, corporate secretary, treasure or in-house counsel (Sec 11, Rule 14, Rules of
Court) 5.Changes in individual membership - Remains unchanged and unaffected in its identity by changes in its
individual membership6.Entitlement to constitutional guarantees:Due ProcessEqual protection of the lawProtection
against unreasonable searches and seizuresNote: A corporation is not entitled to invoke the right against self-
incrimination. (Bataan Shipyard vs PCGG)2.Liability for torts – a corporation is liable whenever a tortuous act is
committed by an officer or agent under theexpress direction or authority of the stockholders or members acting as a body
or generally, from the directorsas the governing body.3.A corporation is not entitled to moral damages because it has no
feelings, no emotions, no senses (ABS-CBNvs CA)4.Liability for crimes – since a corporation is a mere legal fiction, it
cannot be held liable for a crime committed by its officers, since it does not have the essential element of malice; in such
case the responsible officers would be criminally liable (People vs Tan Boon Kong, 54 Phil 607)

CEASE V CA
Ernesto cease, Cecilia Cease, Mario Cease, Teresa Cease-Lacebal, and the F.L. Cease Plantation Co., Inc., vs.
Honorable Court of Appeals, et. al.
FACTS:
Forrest L. Cease, together with five other American citizens, organized the Tiaong Milling and Plantation Company. In
the course of its existence, the company acquired various properties, but the other incorporators were bought out by
Forrest L. Cease together with his children namely Ernest, Cecilia, Teresita, Benjamin, Florence and one
BonifaciaTirante also considered a member of the family. The charter of the company lapsed in June 1958 but no
records were found whether there were steps to liquidate it. Forrest L. Cease died on August 13, 1959, and his shares
were partitioned and disposed of among his children. Two of his children---Benjamin and Florence-- wanted an actual
division while the other children wanted reincorporation; and proceeding on that, these other children Ernesto, Teresita
and Cecilia and aforementioned other stockholder BonifaciaTirante proceeded to incorporate themselves into the F.L.
Cease Plantation Company. For their part, Benjamin and Florence initiated a Special proceeding or the settlement of the
estate of Forest L. Cease, and also filed a Civil Case against the other children and BonifaciaTiranteasking that the
Tiaong Milling and Plantation Corporation be declared Identical to F.L. Cease and that its properties be divided among
his children as his intestate heirs.
ISSUE:
Whether or not the registered properties of Tiaong Milling are also the properties of the estate of Forrest L. Cease

RULING:
 Yes, the Court found strong support in sustaining the Benjamin and Florence’s theory of “merger of Forrest L. Cease and
Tiaong Milling as one personality. Records show that what started as a corporation made up of aliens, friends or third-
parties in relation to one another, became a close family corporation headed by Forrest L. Cease, who retained the
majority stocks and hence the control and management of its affairs.The accounts of the corporation and therefore its
operation, as well as that of the family appears to be indistinguishable and apparently joined together. There is truth in
plaintiff's allegation that the corporation is only a business conduit of his father and an extension of his personality, they
are one and the same thing. Thus, the assets of the corporation are also assets of the estate of Forrest L. Cease.
A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil of
corporate fiction. Generally, a corporation is invested by law with a personality separate and distinct from that of the
persons composing it as well as from that of any other legal entity to which it may be related. By virtue of this attribute, a
corporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of the legal entities to
which it may be connected, and vice versa. This separate and distinct personality is, however, merely a fiction created by
law for convenience and to promote the ends of justice. For this reason, it may not be used or invoked for ends
subversive of the policy and purpose behind its creation, or which could not have been intended by law to which it owes
its being. This is particularly true where the fiction is used to defeat public convenience, justify wrong, protect fraud,
defend crime, confuse legitimate legal or judicial, perpetrate deception or otherwise circumvent the law. This is likewise
true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the
stockholders or of another corporate entity, which is what happened in this case. An indubitable deduction from the
findings of the trial court cannot but lead to the conclusion that the business of the corporation is largely, if not wholly, the
personal venture of Forrest L. Cease.

F. DOCTRINE OF PIERCING THE CORPORATE VEIL

CIR V NORTON
COMMISSIONER OF INTERNAL REVENUE vs. NORTON and HARRISON COMPANY

FACTS:
Norton and Harrison is a corporation organized (1) to buy and sell at wholesale and retail all kinds of goods and
merchandise, (2) to act as agents of manufacturers in th3e US and foreign countries, and (3) to carry on and conduct a
general wholesale and retail mercantile establishment in the Philippines. Jackbilt is also a corporation organized for the
purpose of producing and manufacturing concrete blocks. On 1948, both corporations entered into an agreement
whereby Norton was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt. In their
agreement, whenever an order for concrete blocks was received by the Norton & Harrison Co. from a customer, the
order was transmitted to Jackbilt which delivered the merchandise direct to the customer. Payment for the good is,
however, made to Norton, which in turn pays Jackbilt the amount charged the customer less a certain amount, as its
compensation or profit.
On 1949, Norton purchased all the outstanding shares of stock of Jackbilt, which resulted to the CIR investigating and
assessing Norton and Harrison for deficiency sales tax and surcharges. This is because the Commissioner considered
the sale of Norton to the public as theoriginal sale and not the transaction from Jackbilt.
The Commissioner of Internal Revenue contends that since Jackbilt was owned and controlled by Norton & Harrison, the
corporate personality of the former (Jackbilt) should be disregarded for sales tax purposes, and the sale of Jackbilt
blocks by petitioner to the publicmust be considered as the original sales from which the sales tax should be computed.
The Norton & Harrison Company contended otherwise that is, the transaction subject to tax is the sale from Jackbilt to
Norton.

ISSUE: Whether the acquisition of all the stocks of Jackbilt by the Norton & Harrison Co., merged the two corporations
into a single corporation, making them liable for the deficiency sales tax and surcharges.

RULING:

YES. In the case at bar, we find sufficient grounds to support the theory that the separate identities of the two companies
should be disregarded. The following circumstances show that they should not be treated as two separate companies,
and were not refuted by Norton, to wit: (a) Norton and Harrison owned all the outstanding stocks of the Jackbilt; (b)
Norton constituted Jackbilt's board of directors in such a way as to enable it to actually direct and manage the other's
affairs by making the same officers of the board for both companies; (c) Norton financed the operations of the Jackbilt;
(d) Norton treats Jackbilt employees as its own; and (e) Compensation given to board members of Jackbilt, who are also
board members and or employees of Norton, indicate that Jackbilt is merely a department of Norton. The Court ruled that
Norton and Jackbilt should be considered as one. Jackbilt's outstanding stocks, board of directors, finance of operations,
employees, and compensation are all controlled by Norton and Harrison. Jackbilt is merely an adjunct, business conduit
or alter ego, of Norton and Harrison and that the fiction of corporate entities, separate and distinct from each, should be
disregarded. This is a case where the doctrine of piercing the veil of corporate fiction, should be made to apply.

By being separate entities, it would work to the advantage of both corporations since they would have to pay lesser
income tax. The combined taxable Norton-Jackbilt income would subject Norton to a higher tax.

MCLEOD V NLRC
FACTS:
On February 2, 1995, John F. McLeod filed a complaint
for:1. retirement benefits2. vacation and sick leave benefits3. non-
payment of unused airline tickets4. holiday pay5. underpayment of salary6. 13th month pay7. moral and exemplary dam
ages8.
attorney’s fees plus interest,
against Filipinas Synthetic Corporation (FILSYN), Far Eastern Textile Mills, Inc., Sta. RosaTextiles, Inc. (SRTI), Patricio
Lim (President of PMI) and Eric Hu.Complainant was the Vice President and Plant Manager of the plant of Peggy Mills,
Inc. (PMI) atSta. Rosa, Laguna. Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. and this wasrenamed as
Sta. Rosa Textile (SRTI) with Patricio Lim as Chairman and President. The ownersof Far Eastern Textiles decided for
cessation of operations of Sta. Rosa Textiles. On twooccasions, complainant wrote letters to Patricio Lim requesting for
his retirement and otherbenefits. In the last quarter of 1994 respondents offered complainant compromise settlement
ofonly P300,000.00 which complainant rejected.

The Labor Arbiter held all respondents as jointly and solidarily liable for complainant’s money
claims.The NLRC reversed and set aside the ruling of the Labor Arbiter and a new one was enteredordering only
respondent Peggy Mills, Inc. (PMI) to pay the money claims. All other claims weredismissed for lack of merit.The Court
of Appeals affirmed the decision of the NLRC with modification. It held Patricio Lim as jointly and solidarily liable with
Peggy Mills, Inc. (PMI) to pay the money claims to McLeod.
ISSUE:
Whether or not Patricio Lim, as President of PMI, could be held jointly and solidarily liable withPMI.

RULING:
Held:
There was also no merger or consolidation of PMI and SRTI. Consolidation is the union of two or more existing
corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between
two or more corporations by which their rights, franchises, and property are united and become those of a single, new
corporation, composed generally, although not necessarily, of the stockholders of the original corporations. Merger, on
the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing
corporation survives and continues the combined business.

The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are
dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation,
are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the
surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually
become its stockholders. The surviving or consolidated corporation assumes automatically the liabilities of the dissolved
corporations, regardless of whether the creditors have consented or not to such merger or consolidation.27 In the
present case, there is no showing that the subject dation in payment involved any corporate merger or consolidation.
Neither is there any showing of those indicative factors that SRTI is a mere instrumentality of PMI.

Moreover, SRTI did not expressly or impliedly agree to assume any of PMI’s debts. 2. In the present case, there is
nothing substantial on record to show that Patricio acted in bad faith in terminating McLeod’s services to warrant
Patricio’s personal liability. PMI had no other choice but to stop plant operations. The work stoppage therefore was by
necessity. The company could no longer continue with its plant operations because of the serious business losses that it
had suffered. The mere fact that Patricio was president and director of PMI is not a ground to conclude that he should be
held solidarily liable with PMI for McLeod’s money claims.

The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,59 which the Court of Appeals cited, does not apply to this
case. We quote pertinent portions of the ruling, thus:
(a) Article 265 of the Labor Code, in part, expressly provides: "Any worker whose employment has been terminated as a
consequence of an unlawful lockout shall be entitled to reinstatement with full backwages."
Article 273 of the Code provides that: "Any person violating any of the provisions of Article 265 of this Code shall be
punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more than
six (6) months."

(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article
212 (c) of the Labor Code which provides: "(c) ‘Employer’ includes any person acting in the interest of an employer,
directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting
as employer.". The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an
artificial person, it must have an officer who can be presumed to be the employer, being the "person acting in the interest
of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer. The responsible officer of an
employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is
the policy of the law.

DE ASIS V CA
Francisco De Asis & Co Inc. vs Court of Appeals
G.R. No. L-61549 May 27, 1985

Facts: Defendant Francisco de Asis & Co., Inc. was organized sometime in 1967 with Francisco de Asis as its president
and Leocadio de Asis as one of the members of the Board of Directors, As a stock brokerage company, it did business in
the Makati Stock Exchange wherein one becomes a member upon the execution of an undertaking by at least 2
members of its Board of Directors who own 95% of the stocks to answer solidarily for the corporation liabilities of the
member company. Leocadio de Asis and Francisco de Asis who owned 95% of the outstanding capital stock of the
Francisco de Asis & Co., Inc. executed a joint and several undertaking on July 25, 1967 wherein they jointly and
severally warrant the equitable payment of all valid and legitimate corporate liabilities of Francisco de Asis & Co., Inc. in
connection with its membership in the Makati Stock Exchange (Exhibits A, A-1, and A-2). Sometime in June, 1970 the
defendant company thru its president Francisco de Asis approached Mrs. Mercedes P. Delgado for assistance to secure
a loan in the amount of P200,000.00 from the Resource & Finance Corporation. Since Francisco de Asis was a good
friend and his father Leocadio de Asis was solvent and answerable in a joint and solidarily undertaking of the company,
she agreed to raise the amount of P200,000.00 as requested.

Issue: Whether or not petitioner corporation should be held liable for the loan obtained by Francisco De Asis.

Held: Yes. The necessity and urgency for the loan of P200,000.00 was not to meet the personal need of Francisco de
Asis as there is no showing that he was in financial difficulties but to resolve the cash flow problems of Francisco de Asis
and Co., Inc. for which plaintiff-appellee deposited the amount of P200,000.00 on July 2, 1970 in the current account of
defendant corporation at the Makati Branch of the Bank of Asia. Neither would the absence of the usual documents, i.e.,
promissory notes and/or real estate or chattel mortgages, negate the existence of the loan. Considering the relationship
between the parties, being very good friends, plaintiff-appellee dispensed with the customary documentation in her
desire to bail out a friend from the difficulties that his corporation is facing, 97% of the capital stock of which he owned.
But the loan of P200,000.00 is not totally without any document. The deposit slip (Exhibit “B”) of the Bank of Asia
showing the deposit of P200,000.00 on July 2, 1970, in Current Account No. 2-0017 of defendant corporation indicates
the receipt of said amount. And the record is bereft of any evidence disclosing that said funds were used other than for
corporate purposes.

The claim of the corporation that it had not authorized Francisco de Asis to obtain loan for the company from the private
respondent is belied by the fact that upon deposit of the sum of P200,000.00 in its current account, it had retained and
disbursed the said amount. And, assuming that it had not really authorized Francisco de Asis to borrow money from
private respondent, the company is still obliged to return the same under Article 2154 of the Civil Code which provides, If
something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to
return it arises.

MARTINEZ vs CA
Topic: D. 1. What is a corporation and what is the role of the state in its creation?Nature: petition for review on certiorari
of the decision of the court of appeals
Facts:
•PERSONALITIES
oBPI International Finance (respondent) - a foreign deposit-taking company organizedunder the laws of HongKong.
oCCL (Cintas Largas, Ltd)- also a foreign corporation with a paid-up capital of HK$10,000.Its shareholders were mainly
nominee shareholders in HK but it was also equally owned by Wilfredo Martinez and Miguel Lacson,
Ramon Siy, and Ricardo Lopa. It’sbusiness was mainly the importation of molasses from the Philippines and selling it in
theinternational market. It imported the molasses from Mar Tierra Corporation.
O Mar Tierra Corporation- Its President was Wilfredo Martinez and Executive VP was Blamar Gonzales
.
O RJL Fishing Corp- owned 42% of the stocks of Mar Tierra. One of its majority stockholders is Ruben Martinez, father
of Wilfredo Martinez
.
•The business operations of CLL and Mar Tierra were run by Wilfredo Martinez and Gonzales.
•68% of Ruben Martinez’s assets were in RJL.BPI International Finance (respondent) granted CLL a letter of credit for
US$3,000,000. In January1979 and March 1980, CLL opened a money market placement with the respondent bearing
MMP No.063 with an initial placement of US$390,000, and MMP No. 084 with an initial placement of
US$68,768,transferred from MMP No. 063. Wilfredo Martinez was the authorized signatory in both accounts but thetwo
signature cards also bore Ruben Martinez, and Miguel Lacson’s signatures. The three of thembecame the joint account
holders of the said money market placements.At times, the funds in these MMPs were transferred to CLL’s deposit
account and vice versa. Toresolve this, Wilfredo Matrinez and the respondent executed a back-to-back credit facility.
WilfredoMartinez, aand the other owners of CLL executed a suretyship agreement where they obligedthemselves
solidarily with CLL in order to pay for CLL’s credit facility. The CLL deposit account, MMP063, and MMP 084 had
subsisting balances. Blamar Gonzales requested the respondent to transferUS$340,000 to an account registered to Mar
Tierra as payee. The respondent confirmed thatUS$340,000 was the account available considering the CLL deposit
account and money marketplacements. Months later Wilfredo Martinez also made the same request for the transfer.
Therespondent complied but instead of deducting the funds from either of the three accounts mentioned, itposted the
US$340,000 as account receivable of CLL since the money market placements hadn’tmatured yet. When these have
matured, they just allowed Wilfredo to make withdrawals and did notcollect the US$340,000 so it failed to secure its
reimbursement.Later problems came up regarding these three accounts and the respondent pressured Wilfredoand
Blamar Gonzales to pay the US$340,000. Wilfredo and Martinez had CLL’s account audited and itwas confirmed that the
corporation owed the respondent this amount. Despite the respondent’sdemands, Wilfredo, Gonzales, Lacson and ruben
Martinez did not make any remittance. Ruben Martinezeven denied having knowledge of such liability. The respondent
then filed a suit to recover the sumstating that the CLL was merely a paper company or an alter ego of Wilfredo and
Ruben. The RTC andCA ruled in its favor.Issue:WON the liability incurred by CLL can be attributed to Ruben Martinez
because CLL is merely their alteregoHeld:NO.Rationale: The general rule is that a corporation is clothed with a
personality separate and distinct from thepersons composing it—this separate and distinct personality of a corporation is
a fiction created by lawfor convenience and to prevent injustice. Such corporation cannot be liable for the obligations of
thepersons composing it and vice versa. There are valid grounds though to pierce this veil of corporateentity. The test to
determine whether this can be done is as follows:

1.Control, and not mere majority stock control, of policy and business practice in respect to thetransaction
attacked.2.Such control must have been used by the defendant to commit fraud or wrong.3.The said control and breach
of duty must proximately cause injury or unjust loss complained of. The absence of any one of these three elements
prevents the “piercing of the corporate veil”. Inthis case, the respondent failed to prove complete control by the
petitioners. Mere ownership by asingle stockholder or by another corporation of all or nearly all of the capital stocks of a
corporation isnot by itself a sufficient ground separate corporate personality. The mere fact that the majority stock-holder
of Mar Tierra is RJL and that Ruben Martinez owned about 42% of the capital stocks of RJL do notconstitute sufficient
evidence that the latter corporation, had complete control of Mar Tierra. They alsofailed to prove that Mar Tierra and RJL
were organized as an instrument of Wilfredo Martinez andBlamar Gonzales.mthere is also no evidence that the petitioner
had any involvement in the transactionbetween Wilfredo and the respondent.

Solid Bank Corp. vs Mindanao Ferroalloy Corp.

G.R. No. 153535July 28, 2005Doctrine: It is axiomatic that solidary liability cannot be lightly inferred. Under Article 1207
of the Civil Code, "thereis a solidary liability only when the obligation expressly so states, or when the law or the nature of
the obligationrequires solidarity."Facts: Private respondents herein secured a loan to the petitioner bank under the name
of the respondent corporation.In the course of the corporations operation, it was not able to pay its obligation to the
petitioner and has to stop itsoperation. Petitioner bank filed an action against the corporation together with its principal
officers for the collection of the loan they acquired. The RTC ruled in favor of the bank petitioner and ordering the
respondent corporation to paythe amount of loan plus interest. On appeal, the CA held the decision of the RTC and ruled
also that the privaterespondents were not solidary liable to the petitioner.Issue: Whether or not principal officers can be
held personally liable upon signing the contract of loan under the nameof the corporation?Ruling: Basic is the principle
that a corporation is vested by law with a personality separate and distinct from that of each person composing or
representing it. Equally fundamental is the general rule that corporate officers cannot be heldpersonally liable for the
consequences of their acts, for as long as these are for and on behalf of the corporation, withinthe scope of their
authority and in good faith. The separate corporate personality is a shield against the personalliability of corporate
officers, whose acts are properly attributed to the corporation. Moreover, it is axiomatic thatsolidary liability cannot be
lightly inferred. Since solidary liability is not clearly expressed in the Promissory Note andis not required by law or the
nature of the obligation in this case, no conclusion of solidary liability can be made.Furthermore, nothing supports the
alleged joint liability of the individual petitioners because, as correctly pointed outby the two lower courts, the evidence
shows that there is only one debtor: the corporation

Yamamoto v. Nishino leather

Ryuichi Yamamoto and Ikuo Nishino agreed to enter into a joint venture wherein Nishino would acquire such number of
shares of stock equivalent to 70% of the authorized capital stock of the corporation. However, Nishino and his brother
Yoshinobu Nishino acquired more than 70% of the authorized capital stock. Negotiations subsequently ensued in light of
a planned takeover by Nishino who would buy-out the shares of stock of Yamamoto who was advised through a letter
that he may take all the equipment/ machinery he had contributed to the company (for his own use and sale) provided
that the value of such machines is deducted from the capital contributions which will be paid to him. However, the letter
requested that he give his “comments on all the above, soonest”. On the basis of the said letter, Yamamoto attempted to
recover the machineries but Nishino hindered him to do so, drawing him to file a Writ of Replevin. The Trial Court issued
the writ. However, on appeal, Nishino claimed that the properties being recovered were owned by the corporation and
the above-said letter was a mere proposal which was not yet authorized by the Board of Directors. Thus, the Court of
Appeals reversed the trial court’s decision despite Yamamoto’s contention that the company is merely an instrumentality
of the Nishinos.

Issue:

Whether or not Yamamoto can recover the properties he contributed to the company in view of the Doctrine of Piercing
the Veil of Corporate Fiction and Doctrine of Promissory Estoppel.

Ruling:

One of the elements determinative of the applicability of the doctrine of piercing the veil of corporate fiction is that control
must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of the plaintiff’s legal rights. To disregard the separate
juridical personality of a corporation, the wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be
clearly and convincingly established; it cannot be presumed. Without a demonstration that any of the evils sought to be
prevented by the doctrine is present, it does not apply. Estoppel may arise from the making of a promise. However, it
bears noting that the letter was followed by a request for Yamamoto to give his “comments on all the above, soonest.”
What was thus proffered to Yamamoto was not a promise, but a mere offer, subject to his acceptance. Without
acceptance, a mere offer produces no obligation. Thus, the machineries and equipment, which comprised Yamamoto’s
investment, remained part of the capital property of the corporation.

ASJ CORPORATION V SPS EVANGELISTA

ASJ CORPORATION and ANTONIO SAN JUAN, petitioners, vs. SPS. EFREN & MAURA EVANGELISTA, respondents.

Facts of the case:

The abovementioned respondent are engaged in the large-scale business of buying broiler eggs, hatching them, and
selling their hatchlings (chicks) and egg by-products, the latter availed the hatchery services of the the petitioner and
agreed on a service fee of 80 centavos per egg, whether successfully hatched or not, A setting report indicates : the
number of eggs delivered; the date of setting or the date the eggs were delivered and laid out in the incubators; the date
of candling or the date the eggs, through a lighting system, were inspected and determined if viable or capable of being
hatched into chicks; and the date of hatching, which is also the date respondents would pick-up the chicks and by-
products the, Initially, the service fees were paid upon release of the eggs and by-products to respondents. But as their
business went along, respondents’ delays on their payments were tolerated by San Juan, who just carried over the
balance, as there may be, into the next delivery, out of keeping goodwill with respondents.
On February 3, 1993 the respondent went to the hatchery to pick up the chicks but the petitioner refused to release the
same unless the former will fully settle their account. the respondent tendered San juan P15,000 pesos but still the latter
insisted the full settlement of the account believing that the chicks harvested can cover the payment of the full account,
the petitioner threatened to impound the vehicle the respondent when the former disliked the idea of proper accounting
of the chick which will be done by San juan himself.
 both parties tried to amicably settled the disputes to the police authorities, no avail, the respondent filed an action for
damages against the petitioner due to the threats he received against the petitioner.

ISSUE: Whether or not Bilateral Obligation/Reciprocal Obligation Exists between ASJ Corp and Evangelista

Held:

The RTC ruled in Favor of the respondent.

The CA Denied the Appeals for lack of merits with Slight modification including an exemplary damages and applying “the
doctrine of piercing the veil of corporate fiction”.
The SC granted the petition partly, ordering the respondent to pay the petitioner 183,416.80 pesos as actual damages
The award of actual damages of P529,644.80 in favor of respondents is hereby REDUCED to P408,852.10, with legal
interest of 12% from the date of finality of this judgment until fully paid.
The award of actual damages of P529,644.80 in favor of respondents is hereby REDUCED to P408,852.10, with legal
interest of 12% from the date of finality of this judgment until fully paid.
The award of moral damages, exemplary damages and attorney’s fees of P100,000.00, P10,000.00, P50,000.00,
respectively, in favor of respondents is hereby AFFIRMED.

RULINGS:

Reciprocal obligations are those which arise from the same cause, wherein each party is a debtor and a creditor of the
other, such that the performance of one is conditioned upon the simultaneous fulfillment of the other.28 From the
moment one of the parties fulfills his obligation, delay by the other party begins.

To begin with, petitioners’ obligation to deliver the chicks and by-products corresponds to three dates: the date of
hatching, the delivery/pick-up date and the date of respondents’ payment. On several setting reports, respondents made
delays on their payments, but petitioners tolerated such delay. When respondents’ accounts accumulated because of
their successive failure to pay on several setting reports, petitioners opted to demand the full settlement of respondents’
accounts as a condition precedent to the delivery. However, respondents were unable to fully settle their accounts.

Respondents’ offer to partially satisfy their accounts is not enough to extinguish their obligation. Under Article 124827 of
the Civil Code, the creditor cannot be compelled to accept partial payments from the debtor, unless there is an express
stipulation to that effect. More so, respondents cannot substitute or apply as their payment the value of the chicks and
by-products they expect to derive because it is necessary that all the debts be for the same kind, generally of a monetary
character. Needless to say, there was no valid application of payment in this case.

G. INSTRUMENTALITY/ALTER EGO

CONCEPT BUILDERS, INC. v. NLRC G.R. No. 108734. May 29, 1996

Doctrine of Piercing the Veil of Corporate Fiction

FACTS: Petitioner Concept Builders, Inc., a domestic corporation, is engaged in the construction business. Private respondents
were employed by said company as laborers, carpenters and riggers. Private respondents were served individual written notices
of termination of employment by petitioner, stating that their contracts of employment had expired and the project in which they
were hired had been completed. Private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment
of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.

The Labor Arbiter (LA) rendered judgment ordering petitioner to reinstate private respondents and to pay them back wages. The
NLRC dismissed the Motion for Reconsideration. The LA issued a writ of execution directing the sheriff to execute the Decision.
The writ was partially satisfied through garnishment of sums from petitioners debtor.

An Alias Writ of Execution was issued for the collection of the balance of the judgment award, and to reinstate private
respondents to their former positions. However, the security guard on duty refused the service of the Writ saying that petitioner no
longer occupied the premises. The LA issued a second alias writ of execution. The said writ had not been enforced by the special
sheriff because, as stated in his progress report, All the employees inside petitioners premises at 355 Maysan Road, Valenzuela,
Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent; Levy was made
upon personal properties he found in the premises; Security guards with high-powered guns prevented him from removing the
properties he had levied upon. The said special sheriff recommended that a break-open order be issued to enable him to enter
petitioners premises so that he could proceed with the public auction sale of the aforesaid personal properties.

A certain Dennis Cuyegkeng filed a third-party claim alleging that the properties sought to be levied upon by the sheriff were
owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.

Private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI and petitioner corporation were owned
by the same incorporators/stockholders. HPPI filed an Opposition, contending that HPPI is a corporation which is separate and
distinct from petitioner.

The motion for break-open order was denied by the LA.

On appeal to the NLRC, a break-open order was issued, and the sheriff was directed to proceed with the auction sale of the
properties already levied upon. It dismissed the third-party claim for lack of merit.

ISSUE: Whether the doctrine of piercing the veil of corporate fiction is applicable in this case.
RULING: The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a
person or of another corporation. Where badges of fraud exist; where public convenience is defeated; where a wrong is sought to
be justified thereby, the corporate fiction or the notion of legal entity should come to naught. The law in these instances will regard
the corporation as a mere association of persons and, in case of two corporations, merge them into one.

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from
other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction
created by law for convenience and to promote justice.

So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend
crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil
of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.

The conditions under which the juridical entity may be disregarded vary according to the peculiar facts and circumstances of each
case. No hard and fast rule can be accurately laid down, but certainly, there are some probative factors of identity that will justify
the application of the doctrine of piercing the corporate veil, to wit:

Stock ownership by one or common ownership of both corporations. Identity of directors and officers. The manner of keeping
corporate books and records. Methods of conducting the business. The SEC en banc explained the instrumentality rule which the
courts have applied in disregarding the separate juridical personality of corporations as follows:

Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or
adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The control necessary to invoke
the rule is not majority or even complete stock control but such domination of finances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in
mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control
and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.

The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows:

Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind,
will or existence of its own; Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and

The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents piercing the corporate veil. in applying the instrumentality or alter ego
doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendants
relationship to that operation.

The question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a subterfuge is purely
one of fact.

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages and to bar
their reinstatement to their former positions.

HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial
liability that already attached to petitioner corporation.

It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose veil in the present case
could, and should, be pierced as it was deliberately and maliciously designed to evade its financial obligation to its employees.

H. ENTITLEMENT TO CONSTITUTIONAL RIGHTS

Mariano Albert v University Publishing Co., Inc. Bengzon, J.P. J. | 1965

Due Process

Facts:
“No less than three times have the parties here appealed to this Court.”
In 1949, Albert sued University Publishing Co.(UPC). He alleged that UPC was organized and existing under PH laws
and that thru its president Jose Aruego (Aruego), they entered into a contract where UPC would pay him 30 thousand
pesos for the exclusive right to publish his revised Commentaries on the RPC and for his share in previous sales of the
book’s 1st edition; that UPC undertook to pay in 8 installments of 3.5k and failure to pay one installment would render the
rest due Albert said UPC failed to pay the 2nd installment but the latter countered that it was the former who violated their
contract by his failure to deliver the manuscript. Later, Albert died and Justo Albert (his administrator) substituted him.
The CFI then favoured Justo and ordered UPC to pay him 23 thousand. The cases went to SC which reduced it to 15
thousand pesos. The CFI then ordered for the execution against UPC but at some point, Justo petitioned for a writ of
execution against Aruego (its president) because he and the sheriff discovered that UPC wasn’t registered in the SEC.
UPC countered by saying that Aruego was not a party to the case so the petition should be denied.
SC notes that UPC doesn’t want Aruego to be a party to the case because if he’s not a party, a separate action will have
to be filed by Justo which will result in him dealing with the statute of limitations. The CFI denied the petition so Justo
appealed.

W/N Aruego considered a party in the case. Yes. Ratio: Non-registration of UPC:-
Undisputed;- on account of the non-registration it cannot be considered a corporation, not even a corporation
de facto; -UPC then has no personality separate from Aruego, thus cannot be sued independently;
Corporation-by-estoppel not invoked by UPC:- Even if invoked, it’s not applicable;
- Aruego represented a non-existent entity and induced not only Justo but also the court to believe such
representation; (he signed the contract as president and stated the UPC was registered);-
One who has induced another to act upon his willful misrepresentation that a corporation was duly organized and
existing under the law, cannot thereafter set up against his victim the principle of corporation by estoppel(Salvatiera vs.
Garlitos, 56 O.G. 3069);
Aruego is the real defendant: UPC who came to the court, but as said, it does not have independent personality; it is just
a name;- In reality, it was Aruego, in reality, the one who answered and litigated, through his own law firm as counsel;
On Agency:- 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;

On due process question (since Aruego wasn’t named in the case):- Aruego was given his day in court;- Parties to a suit
are "persons who have a right to control the proceedings, to make defense, to adduce and cross-examine witnesses,
and to appeal from a decision; in reality, it was Aruego who exercised these rights; - By due process of law we mean a
law which hears before it condemns; which proceeds upon inquiry, and renders judgment only after trial;

Summary:
The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent principal, was the real
party to the contract sued upon; that he was the one who reaped the benefits resulting from it, so much so that partial
payments of the consideration were made by him; that he violated its terms, thereby precipitating the suit in question;
and that in the litigation he was the real defendant.
CASE REMANDED:
Lower court to hold supplementary proceedings for the purpose of carrying the judgment into effect against University
Publishing Co., Inc. and/or Jose M. Aruego (because others might be liable to him for reimbursement or contribution)

Constitutional Law: Stonehill v Diokno

Stonehill v Diokno
Unreasonable Searches and Seizures

Facts:
Forty-two (42) search warrants were issued at different dates against petitioners and the corporations of which they were
officers. Peace officers were directed to search the persons of the petitioners and/or their premises of their offices,
warehouses and/or residences. Books of accounts, financial records, vouchers, correspondence, receipts, ledgers,
journals, portfolios, credit journals, typewriters, and other documents and/or papers showing all business transactions
including disbursements receipts, balance sheets, and profit and loss statements and Bobbins were to be seized.
Petitioner contends that the issued search warrants were null and void as having contravened the Constitution and the
Rules of Court for, among others, it did not describe the documents, books and things to be seized PARTICULARLY.

Issue:
Whether or not the search warrant has been validly issued.
Whether or not the seized articles may be admitted in court.

Held:
The authority of the warrants in question may be split in two major groups: (a) those found and seized in the offices of
the corporations; and (b) those found and seized in the residences of the petitioners.
The petitioners have no cause of action against the contested warrants on the first major group. This is because
corporations have their respective personalities, separate and distinct from the personality of their officers, directors and
stockholders. The legality of a seizure can be contested only by the party whose rights have been impaired, the objection
to an unlawful search and seizure purely being personal cannot be availed by third parties.
As to the second major group, two important questions need be settled: (1) whether the search warrants in question, and
the searches and seizures made under authority thereof, are valid or not; and (2) if the answer is no, whether said
documents, papers and things may be used in evidence against petitioners.
The Constitution protects the rights of the people from unreasonable searches and seizure. Two points must be stressed
in connection to this constitutional mandate: (1) no warrant shall be issued except if based upon probable cause
determined personally by the judge by the manner set in the provision; and (2) the warrant shall describe the things to be
seized with particularly.
In the present case, no specific offense has been alleged in the warrant’s application. The averments of the offenses
committed were abstract and therefore, would make it impossible for judges to determine the existence of probable
cause. Such impossibility of such determination naturally hinders the issuance of a valid search warrant.
The Constitution also requires the things to be seized described with particularity. This is to eliminate general warrants.

The Court held that the warrants issued for the search of three residences of petitioners are null and void.

Bataan Shipyard & Engineering Co., Inc. vs Presidential Commission on Good Government
November 19, 2012
RIGHT AGAINST SELF-INCRIMINATION

150 SCRA 181 – Business Organization – Corporation Law – A Corporation Cannot Invoke the Right Against Self-
Incrimination

When President Corazon Aquino took power, the Presidential Commission on Good Government (PCGG) was formed in
order to recover ill gotten wealth allegedly acquired by former President Marcos and his cronies. Aquino then issued two
 executive orders in 1986 and pursuant thereto, a sequestration and a takeover order were issued against Bataan
Shipyard & engineering Co., Inc. (BASECO). BASECO was alleged to be in actuality owned and controlled by the
Marcoses through the Romualdez family, and in turn, through dummy stockholders.

The sequestration order issued in 1986 required, among others, that BASECO produce corporate records from 1973 to
1986 under pain of contempt of the PCGG if it fails to do so. BASECO assails this order as it avers, among others, that it
is against BASECO’s right against self incrimination and unreasonable searches and seizures.

ISSUE: Whether or not BASECO is correct.

HELD: No. First of all, PCGG has the right to require the production of such documents pursuant to the power granted to
it. Second, and more importantly, right against self-incrimination has no application to juridical persons. There is a
reserve right in the legislature to investigate the contracts of a corporation and find out whether it has exceeded its
powers. It would be a strange anomaly to hold that a state, having chartered a corporation like BASECO to make use of
certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and
whether they had been abused, and demand the production of the corporate books and papers for that purpose.

Neither is the right against unreasonable searches and seizures applicable here. There were no searches made and no
seizure pursuant to any search was ever made. BASECO was merely ordered to produce the corporate records.

I. ENTITLEMENT TO MORAL DAMAGES

ABS-CBN vs CA
GR No. 128690

Facts:
Viva, through Del Rosario, offered ABS-CBN through its vice-president Charo Santos-Concio, a list of 3 film packages or
36 titles from which ABS-CBN may exercise its right of first refusal. Mrs. Concio informed Vic through a letter that they
can only purchase 10 titles to be schedules on non-primetime slots because they were very adult themes which the
ruling of the MTRCB advises to be aired at 9:00 p.m

Del Rosario approached ABS-CBN's Ms. Concio with a list consisting of 52 original movie titles as well as 104 re-runs
proposing to sell to ABS-CBN airing rights for P60M (P30M cash and P30M worth of television spots). Del Rosario and
ABS-CBN general manager, Eugenio Lopez III met wherein Del Rosario allegedly agreed to grant rights for 14 films for
P30M

Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of
Viva's offer to sell the 104 films, after the rejection of the same package by ABS-CBN. Ms. Concio sent the proposal draft
of 53 films for P35M which Viva's Board rejected since they will not accept anything less than P60M. Viva granted RBS
exclusive grants for P60M.

Regional Trial Court Issued TRO against RBS in showing 14 films as filed by ABS-CBN. RBS also set up a cross-claim
against VIVA. Regional Trial Court ordered ABS-CBN to pay RBS P107,727 premium paid by RBS to the surety which
issued their bond to lift the injunction, P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in
various newspapers, P1M attorney's fees, P5M moral damages, P5M exemplary damages and costs. Cross-claim to
VIVA was dismissed.

ABS-CBN appealed. VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional
attorney's fees. Court of Appeals reduced the awards of moral damages to P2M, exemplary damages to P2M and
attorney's fees to P500,000. Denied VIVA and Del Rosario's appeal because it was RBS and not VIVA which was
actually prejudiced when the complaint was filed by ABS-CBN.

Issue:
1.Whether or Not RBS is entitled to damages.
2.Whether or Not VIVA is entitled to damages.

Rulings:
One is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly
proved. The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the
obligee failed to obtain.
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the
fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Needless to state the
award of actual damages cannot be comprehended under the above law on actual damages. RBS could only probably
take refuge under Articles 19, 20, and 21 of the Civil Code. In this case, ABS-CBN had not yet filed the required bond; as
a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the
matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible
for the premium RBS paid for the counterbond

The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience
physical suffering and mental anguish, which call be experienced only by one having a nervous system. A corporation
may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter
dictum. On this score alone the award for damages must be set aside, since RBS is a corporation. Exemplary damages
are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or
compensatory damages. They are recoverable in criminal cases as part of the civil liability when the crime was
 committed with one or more aggravating circumstances in quasi-contracts, if the defendant acted with gross negligence
and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.

Coastal Pacific Trading Inc vs. Southern Rolling Mills, Co., Inc

Facts:
Southern Rolling Mills was renamed into Visayan Integrated Steel Corp (VISCO). On Dec. 11, 1961-VISCO obtained a
loan from DBP amounting to P836,000. It was secured by a Real Estate Mortgage covering VISCO's 3 parcels of land
including the machinery and equipments therein. Second Loan: VISCO entered a Loan Agreement with respondent
banks ( referred as "Consortium") to finance its importation for various raw materials. VISCO executed a second
mortgage over the previous properties mentioned, however they were unrecorded VISCO was unable to pay its second
mortgage with the consortium, which resulted in the latter acquiring 90% of the equity of VISCO giving the Consortium
the control and management of VISCO.

Despite the acquisition, VISCO still remained indebted to the Consortium. Transaction to Coastal: Between 1964 to
1965, VISCO entered a processing agreement with Coastal wherein Coastal delivered 3,000 metric tons of hot rolled
steel coils which VISCO would process into block iron sheets. However, VISCO was only able to return 1,600 metric tons
of those sheets. On the loan to DBP: To pay its first mortgage with DBP, VISCO sold 2 of its generators to FILMAG
Phils, Inc. DBP executed a Deed of Assignment of the mortgage in favor of the consortium. The Consortium foreclosed
the mortgage and was the highest bidder in an auction sale of VISCO's properties.

The Consortium later sold the properties in favor of National Steel Corporation. Coastal files a civil action for Annulment
or Rescission of Sale, Damages with Preliminary Injunction. Coastal imputes bad faith on the action of the Consortium,
the latter being able to sell the properties of VISCO despite the attachment of the properties, placing them beyond the
reach of VISCO's other creditors. The lower court ruled in favor of VISCO, declaring the sale valid and legal. The CA
affirmed this.

Issue:
1. Whether the consortium disposed VISCO's assets in fraud of creditors?
2. Whether petitioner is entitled to moral damages?

Rulings:
Yes. What the consortium did was to pay to them the proceeds from the sale of the generator sets which in turn they
used to pay DBP. Due to the Deed of Assignment issued by DBP, the respondent banks recovered what they remitted to
DBP & it allowed the Consortium to acquire DBP's primary lien on the mortgaged properties. Allowing them as
unsecured creditors ( as the mortgage was unrecorded) to foreclose on the assets of the corporation without regard to
inferior claims.

As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience
physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only
exception to this rule is when the corporation has a good reputation that is debased, resulting in its humiliation in the
business realm. In the present case, the records do not show any evidence that the name or reputation of petitioner has
been sullied as a result of the Consortium's fraudulent acts. Accordingly, moral damages are not warranted. Petitioner
was able to recover exemplary damages.

J. LIBEL

Filipinas Broadcasting vs. Ago Medical Center

GRN 141994 January 17, 2005

Carpio, J.:

FACTS:

Rima & Alegre were host of FBNI radio program “Expose”. Respondent Ago was the owner of the Medical & Educational
center, subject of the radio program “Expose”. AMEC claimed that the broadcasts were defamatory and owner Ago and
school AMEC claimed for damages. The complaint further alleged that AMEC is a reputable learning institution. With the
supposed expose, FBNI, Rima and Alegre “transmitted malicious imputations and as such, destroyed plaintiff’s
reputation. FBNI was included as defendant for allegedly failing to exercise due diligence in the selection and supervision
of its employees. The trial court found Rima’s statements to be within the bounds of freedom of speech and ruled that the
broadcast was libelous. It ordered the defendants Alegre and FBNI to pay AMEC 300k for moral damages.”

ISSUE:

Whether or not AMEC is entitled to moral damages.

RULING:

A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.
Nevertheless, AMEC’s claim, or moral damages fall under item 7 of Art – 2219 of the NCC.

This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Art 2219 (7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person
 such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.
Moreover, where the broadcast is libelous per se, the law implied damages. In such a case, evidence of an honest
mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. In this case, the
broadcasts are libelous per se. thus, AMEC is entitled to moral damages. However, we find the award P500,000 moral
damages unreasonable. The record shows that even though the broadcasts were libelous, per se, AMEC has not
suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages to
P150k.

v JOIN TORT FEASORS are all the persons who command, instigate, promote, encourage, advice countenance,
cooperate in, aid or abet the commission of a tort, as who approve of it after it is done, for its benefit.

K. LIABILITY FOR TORTS

Philippine National Bank vs Court of Appeals et al
November 19, 2012

83 SCRA 237 – Business Organization – Corporation Law – Corporation’s Liability for Negligence

Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured by her sugar crops about to be harvested
including her export quota allocation worth 1,000 piculs. The said export quota was later dealt by Tapnio to a certain
Jacobo Tuazon at P2.50 per picul or a total of P2,500. Since the subject of the deal is mortgaged with PNB, the latter
has to approve it. The branch manager of PNB recommended that the price should be at P2.80 per picul which was the
prevailing minimum amount allowable. Tapnio and Tuazon agreed to the said amount. And so the bank manager
recommended the agreement to the vice president of PNB. The vice president in turn recommended it to the board of
directors of PNB.

However, the Board of Directors wanted to raise the price to P3.00 per picul. This Tuazon does not want hence he
backed out from the agreement. This resulted to Tapnio not being able to realize profit and at the same time rendered
her unable to pay her P2,000.00 crop loan which would have been covered by her agreement with Tuazon.

Eventually, Tapnio was sued by her other creditors and Tapnio filed a third party complaint against PNB where she
alleged that her failure to pay her debts was because of PNB’s negligence and unreasonableness.

ISSUE: Whether or not Tapnio is correct.

HELD: Yes. In this type of transaction, time is of the essence considering that Tapnio’s sugar quota for said year needs
to be utilized ASAP otherwise her allotment may be assigned to someone else, and if she can’t use it, she won’t be able
to export her crops. It is unreasonable for PNB’s board of directors to disallow the agreement between Tapnio and
Tuazon because of the mere difference of 0.20 in the agreed price rate. What makes it more unreasonable is the fact
that the P2.80 was recommended both by the bank manager and PNB’s VP yet it was disapproved by the board.
Further, the P2.80 per picul rate is the minimum allowable rate pursuant to prevailing market trends that time. This
unreasonable stand reflects PNB’s lack of the reasonable degree of care and vigilance in attending to the matter. PNB is
therefore negligent.

A corporation is civilly liable in the same manner as natural persons for torts, because “generally speaking, the rules
governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the
principal or master be a natural person or a corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable for every tort which it expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, a corporation is liable, therefore, whenever a
tortious act is committed by an officer or agent under express direction or authority from the stockholders or members
acting as a body, or, generally, from the directors as the governing body.”

L. Liability for crimes

PP vs. TAN BOON KONG

FACTS:
On and during the four quarters of the year 1924, in Municipality of Iloilo, Province of Iloilo, the defendant, as manager of
the Visayan General Supply Co., Inc., a corporation organized under the laws of the Philippine Islands and engaged in
the purchase and sale of sugar, `bayon,’ coprax, and other native products and as such subject to the payment of
internal-revenue taxes upon its sales, declared in 1924 for purpose of taxation only the sum of P2,352,761.94, when in
truth and in fact, and the accused knew that the total gross sales of said corporation during that year amounted to
P2,543,303.44, thereby failing to declare P190,541.50, and voluntarily not paying the percentage taxes the sum of
P2,960.12, corresponding to 1½ per cent of said undeclared sales.

ISSUE:
WON the defendant, as manager of the corporation, is criminally liable for violation of the tax law for the benefit of said
corporation.

RULING:
A corporation can act only through its officers and agents, and where the business itself involves a violation of the law, all
who participate in it are liable
In case of State vs. Burnam (71 Wash., 199), the court hold that the manager of a dairy corporation was criminally liable
for the violation of a statute by the corporation though he was not present when the offense was committed.
In the present case the information alleges that the defendant was the manager of a corporation which was engaged in
business as a merchant, and as such manager, he made a false return, for purposes of taxation, of the total amount of
sales made by said corporation during the year 1924. As the filing of such false return constitutes a violation of law, the
 defendant, as the author of the illegal act, must necessarily answer for its consequences, provided that the allegations
are proven.

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be
returned to said court for further proceedings not inconsistent with our view as hereinbefore stated.

M. DOCTRINE OF CORPORATE NEGLIGENCE

Professional Services Inc. v. Agana

FACTS
Natividad Agana was rushed to Medical City because of difficulty of bowel movement and bloody anal discharge. Dr.
Ampil diagnosed her to be suffering from cancer of the sigmoid. Dr. Ampil performed an anterior resection surgery on
her, and finding that the malignancy spread on her left ovary, he obtained the consent of her husband, Enrique, to permit
Dr. Fuentes to perform hysterectomy on her. After the hysterectomy, Dr. Fuentes showed his work to Dr. Ampil, who
examined it and found it in order, so he allowed Dr. Fuentes to leave the operating room. Dr. Ampil was about to
complete the procedure when the attending nurses made some remarks on the Record of Operation: “sponge count
lacking 2; announced to surgeon search done but to no avail continue for closure” (two pieces of gauze were missing). A
“diligent search” was conducted but they could not be found. Dr. Ampil then directed that the incision be closed.
A couple of days after, she complained of pain in her anal region, but the doctors told her that it was just a natural
consequence of the surgery. Dr. Ampil recommended that she consult an oncologist to examine the cancerous nodes
which were not removed during the operation. After months of consultations and examinations in the US, she was told
that she was free of cancer. Weeks after coming back, her daughter found a piece of gauze (1.5 in) protruding from her
vagina, so Dr. Ampil manually extracted this, assuring Natividad that the pains will go away. However, the pain
worsened, so she sought treatment at a hospital, where another 1.5 in piece of gauze was found in her vagina. She
underwent another surgery.
Sps. Agana filed a complaint for damages against PSI (owner of Medical City), Dr. Ampil, and Dr. Fuentes,
alleging that the latter are liable for negligence for leaving 2 pieces of gauze in Natividad’s body, and malpractice for
concealing their acts of negligence. Enrique Agana also filed an administrative complaint for gross negligence and
malpractice against the two doctors with the PRC (although only the case against Dr. Fuentes was heard since Dr. Ampil
was abroad). Pending the outcome of the cases, Natividad died (now substituted by her children). RTC found PSI and
the two doctors liable for negligence and malpractice. PRC dismissed the case against Dr. Fuentes. CA dismissed only
the case against Fuentes.

ISSUE AND HOLDING

WON CA erred in holding Dr. Ampil liable for negligence and malpractice. NO; DR. AMPIL IS GUILTY
WON CA erred in absolving Dr. Fuentes of any liability. NO
WON PSI may be held solidarily liable for Dr. Ampil’s negligence. YES

RATIO
DR. AMPIL IS LIABLE FOR NEGLIGENCE AND MALPRACTICE
His arguments are without basis [did not prove that the American doctors were the ones who put / left the gauzes; did not
submit evidence to rebut the correctness of the operation record (re: number of gauzes used); re: Dr. Fuentes’ alleged
negligence, Dr. Ampil examined his work and found it in order].
Leaving foreign substances in the wound after incision has been closed is at least prima facie negligence by the
operating surgeon. Even if it has been shown that a surgeon was required to leave a sponge in his patient’s abdomen
because of the dangers attendant upon delay, still, it is his legal duty to inform his patient within a reasonable time by
advising her of what he had been compelled to do, so she can seek relief from the effects of the foreign object left in her
body as her condition might permit. What’s worse in this case is that he misled her by saying that the pain was an
ordinary consequence of her operation.

Medical negligence; standard of diligence

To successfully pursue this case of medical negligence, a patient must only prove that a health care provider either failed
to do something [or did something] which a reasonably prudent health care provider would have done [or wouldn’t have
done], and that the failure or action caused injury to the patient.
Duty – to remove all foreign objects from the body before closure of the incision; if he fails to do so, it was his duty to
inform the patient about it
Breach – failed to remove foreign objects; failed to inform patient
Injury – suffered pain that necessitated examination and another surgery
Proximate Causation – breach caused this injury; could be traced from his act of closing the incision despite information
given by the attendant nurses that 2 pieces of gauze were still missing; what established causal link: gauze pieces later
extracted from patient’s vagina

DR. FUENTES NOT LIABLE

The res ipsa loquitur [thing speaks for itself] argument of the Aganas’ does not convince the court. Mere invocation and
application of this doctrine does not dispense with the requirement of proof of negligence.

Requisites for the applicability of res ipsa loquitur

Occurrence of injury
Thing which caused injury was under the control and management of the defendant [DR. FUENTES] — LACKING
SINCE CTRL+MGT WAS WITH DR. AMPIL
Occurrence was such that in the ordinary course of things, would not have happened if those who had control or
management used proper care
Absence of explanation by defendant
 Under the Captain of the Ship rule, the operating surgeon is the person in complete charge of the surgery room and all
personnel connected with the operation. That Dr. Ampil discharged such role is evident from the following:
He called Dr. Fuentes to perform a hysterectomy
He examined Dr. Fuentes’ work and found it in order
He granted Dr. Fuentes permission to leave
He ordered the closure of the incision

HOSPITAL OWNER PSI SOLIDARILY LIABLE WITH DR. AMPIL [NCC 2180], AND DIRECTLY LIABLE TO SPS.
AGANAS [NCC 2176]
Previously, employers cannot be held liable for the fault or negligence of its professionals. However, this doctrine has
weakened since courts came to realize that modern hospitals are taking a more active role in supplying and regulating
medical care to its patients, by employing staff of physicians, among others. Hence, there is no reason to exempt
hospitals from the universal rule of respondeat superior. Here are the Court’s bases for sustaining PSI’s liability:
Ramos v. CA doctrine on E-E relationship
For purposes of apportioning responsibility in medical negligence cases, an employer-employee relationship in effect
exists between hospitals and their attending and visiting physicians. [LABOR LESSON: power to hire, fire, power of
control]

Agency principle of apparent authority / agency by estoppel

Imposes liability because of the actions of a principal or employer in somehow misleading the public into believing that
the relationship or the authority exists [see NCC 1869]
PSI publicly displays in the Medical City lobby the names and specializations of their physicians. Hence, PSI is now
estopped from passing all the blame to the physicians whose names it proudly paraded in the public directory, leading
the public to believe that it vouched for their skill and competence.
If doctors do well, hospital profits financially, so when negligence mars the quality of its services, the hospital should not
be allowed to escape liability for its agents’ acts.

Doctrine of corporate negligence / corporate responsibility

This is the judicial answer to the problem of allocating hospital’s liability for the negligent acts of health practitioners,
absent facts to support the application of respondeat superior.
This provides for the duties expected [from hospitals]. In this case, PSI failed to perform the duty of exercising
reasonable care to protect from harm all patients admitted into its facility for medical treatment. PSI failed to conduct an
investigation of the matter reported in the note of the count nurse, and this established PSI’s part in the dark conspiracy
of silence and concealment about the gauzes.
PSI has actual / constructive knowledge of the matter, through the report of the attending nurses + the fact that the
operation was carried on with the assistance of various hospital staff
It also breached its duties to oversee or supervise all persons who practice medicine within its walls and take an active
step in fixing the negligence committed

PSI also liable under NCC 2180

It failed to adduce evidence to show that it exercised the diligence of a good father of the family in the accreditation and
supervision of Dr. Ampil

N. CERTIFICATE OF STOCK

KUKAN VS REYES DIGEST

KUKAN INTERNATIONAL CORPORATION, Petitioner, vs HON. AMOR REYES, in her capacity as Presiding Judge of the
Regional Trial Court of Manila, Branch 21, and ROMEO M. MORALES, doing business under the name and style “RM
Morales Trophies and Plaques,” Respondents.

FACTS

Sometime in March 1998, Kukan, Inc. conducted a bidding worth Php 5M (reduced to PhP 3,388,502) for the supply and
installation of signages in a building being constructed in Makati City which was won by Morales.

Despite his compliance, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93,
which Kukan, Inc. refused to pay despite demands.

Morales filed a Complaint with the RTC against Kukan, Inc. for a sum of money. However, starting November 2000, Kukan,
Inc. no longer appeared and participated in the proceedings before the trial court, prompting the RTC to declare Kukan, Inc.
in default and paving the way for Morales to present his evidence ex parte.

On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc.

After the above decision became final and executory, Morales moved for and secured a writ of execution against Kukan, Inc.
The sheriff then levied upon various personal properties found at what was supposed to be Kukan, Inc.’s office at Unit 2205,
88 Corporate Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied and that it was a different
corporation from Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party Claim. Notably, KIC was
incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in Civil Case No. 99-93173.

In reaction to KIC’s claim, Morales interposed an Omnibus Motion dated April 30, 2003, praying, and applying the principle of
piercing the veil of corporate fiction, that an order be issued for the satisfaction of the judgment debt of Kukan, Inc. with the
properties under the name or in the possession of KIC, it being alleged that both corporations are but one and the same
entity. KIC opposed Morales’ motion. The court denied the omibus motion.
In a bid to establish the link between KIC and Kukan, Inc., Morales filed a Motion for Examination of Judgment Debtors dated May
4, 2005 which sought that subponae be issued against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a.
Chan Kai Kit. This too was denied by the court.

Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually granted the motion. The case
was re-raffled to Branch 21, presided by public respondent Judge Amor Reyes. Before the Manila RTC, Branch 21, Morales filed
a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no existence separate from Kukan, Inc. This time
around, the RTC, by Order dated March 12, 2007, granted the motion. From the above order, KIC moved but was denied
reconsideration in another Order dated June 7, 2007.

KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC Orders but on January 23,
2008, the CA denied the petition and affirmed the assailed Orders. The CA later denied KIC’s MR in the assailed resolution.
Hence, the instant petition for review.

ISSUES

A. whether the trial court can, after the judgment against Kukan, Inc. has attained finality, execute it against the property of KIC;

B. whether the trial court acquired jurisdiction over KIC;

C. whether the trial and appellate courts correctly applied, under the premises, the principle of piercing the veil of corporate fiction.

DECISION

A. No. In Carpio v. Doroja,[13] the Court ruled that the deciding court has supervisory control over the execution of its judgment:

A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are
proceedings in the suit. There is no question that the court which rendered the judgment has a general supervisory control over
its process of execution, and this power carries with it the right to determine every question of fact and law which may be involved
in the execution.

The court’s supervisory control does not, however, extend as to authorize the alteration or amendment of a final and executory
decision, save for certain recognized exceptions, among which is the correction of clerical errors. Else, the court violates the
principle of finality of judgment and immutability.

As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the aforementioned awards to Morales.
Thus, making KIC, thru the medium of a writ of execution, answerable for the above judgment liability is a clear case of altering a
decision, an instance of granting relief not contemplated in the decision sought to be executed. And the change does not fall
under any of the recognized exceptions to the doctrine of finality and immutability of judgment. It is a settled rule that a writ of
execution must conform to the fallo of the judgment; as an inevitable corollary, a writ beyond the terms of the judgment is a nullity.

Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of the other issues raised
by KIC would be proper.

B. No. In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is conceded that it raised
affirmative defenses through its aforementioned pleadings, KIC never abandoned its challenge, however implicit, to the RTC’s
jurisdiction over its person. The challenge was subsumed in KIC’s primary assertion that it was not the same entity as Kukan, Inc.
Pertinently, in its Comment and Opposition to Plaintiff’s Omnibus Motion dated May 20, 2003, KIC entered its “special but not
voluntary appearance” alleging therein that it was a different entity and has a separate legal personality from Kukan, Inc. And KIC
would consistently reiterate this assertion in all its pleadings, thus effectively resisting all along the RTC’s jurisdiction of its person.
It cannot be overemphasized that KIC could not file before the RTC a motion to dismiss and its attachments in Civil Case No. 99-
93173, precisely because KIC was neither impleaded nor served with summons. Consequently, KIC could only assert and claim
through its affidavits, comments, and motions filed by special appearance before the RTC that it is separate and distinct from
Kukan, Inc.

Following La Naval Drug Corporation, KIC cannot be deemed to have waived its objection to the court’s lack of jurisdiction
over its person. It would defy logic to say that KIC unequivocally submitted itself to the jurisdiction of the RTC when it strongly
asserted that it and Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other option but to insist on its
separate identity and plead for relief consistent with that position.

C. No. The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the
same juridical person with respect to a given transaction, is basically applied only to determine established liability;[34] it is not
available to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case. Elsewise
put, a corporation not impleaded in a suit cannot be subject to the court’s process of piercing the veil of its corporate fiction. In
that situation, the court has not acquired jurisdiction over the corporation and, hence, any proceedings taken against that
corporation and its property would infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial
Law, stated as much:

23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x This is so because the
doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired
jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence presented, it is imperative that
the court must first have jurisdiction over the corporation.[35] x x x (Emphasis supplied.)

The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation or corporations
involved before its or their separate personalities are disregarded; and (2) the doctrine of piercing the veil of corporate entity can
only be raised during a full-blown trial over a cause of action duly commenced involving parties duly brought under the authority of
the court by way of service of summons or what passes as such service. – – –
In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that the separate and
distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a
fraud or like wrongdoings. To be sure, the Court has, on numerous occasions, applied the principle where a corporation is
dissolved and its assets are transferred to another to avoid a financial liability of the first corporation with the result that the
second corporation should be considered a continuation and successor of the first entity.

In those instances when the Court pierced the veil of corporate fiction of two corporations, there was a confluence of the following
factors:

1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first
corporation; and
3. Both corporations are owned and controlled by the same persons such that the second corporation should be
considered as a continuation and successor of the first corporation.

In the instant case, however, the second and third factors are conspicuously absent. There is, therefore, no compelling
justification for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC. In applying the principle, both the
RTC and the CA miserably failed to identify the presence of the abovementioned factors.

It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those who seek to pierce the veil
must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong, protect
fraud, or perpetrate a deception. In the concrete and on the assumption that the RTC has validly acquired jurisdiction over the
party concerned, Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter KIC
purposely formed and operated to defraud him. Morales has not to us discharged his burden.

WHEREFORE, the petition is hereby GRANTED. The CA’s January 23, 2008 Decision and April 16, 2008 Resolution in CA-
G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The levy placed upon the personal properties of Kukan
International Corporation is hereby ordered lifted and the personal properties ordered returned to Kukan International
Corporation. The RTC of Manila, Branch 21 is hereby directed to execute the RTC Decision dated November 28, 2002
against Kukan, Inc. with reasonable dispatch.

O. SUBSCRIPTION CONTRACT

Ong Yong v. Tiu, GR No. 144476, Apr. 8, 2003

FACTS: The First Landlink Asia Development Corporation (FLADC) was fully owned by the Tius. The Ongs were invited
by the Tius to invest in FLADC and the corresponding Pre- Subscription Agreement was executed whereby both parties
agreed to maintain equal shareholdings in FLADC with the Ongs investing cash while the Tius contributing property,
which included a parcel of land in the name of MasaganaTelemart, Inc.

The controversy between the two parties arose when the Ongs violated the provisions of the Pre-Subscription
Agreement, which became the basis of the Tius' unilateral rescission of the same.

ISSUE: Whether or not the rescission of the agreement was proper.

HELD:NO. A subscription contract necessarily involves the corporation as one of the contracting parties since the subject
matter of the transaction is property owned by the corporation — its shares of stock. Thus, the subscription contract is
one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in
their personal capacities with the Ongs since they were not selling any of their own shares to them. Considering
therefore that the real contracting parties to the subscription agreement were FLADC and the Ongs alone, a civil case for
rescission on the ground of breach of contract filed by the Tius on their personal capacities will not prosper. Assuming it
had valid reasons to do so, only FLADC (and certainly not the Tius) had the legal personality to file suit rescinding the
subscription agreement with the Ongs inasmuch as it was the real party in interest therein. Article 1311 of the Civil Code
provides that "contracts take effect only between the parties, their assigns and heirs..." Therefore, a party who has not
taken part in the transaction cannot sue or be sued for performance or for cancellation thereof, unless he shows that he
has a real interest affected thereby.

P. CORPORATE TERM (SEC. 11); DOCTRINE OF RELATING BACK OR DOCTRINE OF RELATION

Alhambra Cigar & Cigarette Manufacturing Company, Inc. v. SEC, GR No. L-23606, July 29, 1968

FACTS: Alhambra Cigar and Cigarette Manufacturing Company, Inc. (Alhambra) was duly incorporated under Philippine
laws, and by its corporate articles, it was to exist for 50 years from incorporation. Its term of existence expired on
January 15, 1962. On that date, it ceased transacting business, entered into a state of liquidation, and a new corporation,
Alhambra Industries, Inc., was formed to carry on the business of Alhambra. On 1963, within Alhambra's 3-yer statutory
period for liquidation, RA 3531 was enacted amending Sec. 18 of the Corporation Law, empowering domestic private
corporations to extend their corporate life beyond the period fixed by the articles of incorporation for a term not to exceed
50 years in any one instance. Alhambra's board of directors resolved to amend its articles of incorporation to extend its
corporate life for an additional 50 years, or a total of 100 years from its 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, Alhambra’s board cannot validly amend its articles of
incorporation to extend its lifespan.

PNB VS CFI PASIG (G.R. NO. 63201 MAY 27, 1992)

Philippine National Bank vs Court of First Instance of Pasig, Rizal Branch XXI
G.R. No. 63201 May 27, 1992

Facts: Private respondents are the registered owners of three parcels of land in Pasig, Metro Manila covered by OCT
No. 853, TCT Nos. 32843 and 32897 of the Registry of Deeds of Rizal. On March 1, 1954, private respondents entered
into a contract of lease with Philippine Blooming Mills, Co., Inc., (PBM) whereby the latter shall lease the aforementioned
parcels of land as factory site. PBM was duly organized and incorporated on January 19, 1952 with a corporate term of
twenty-five (25) years. This leasehold right of PBM covering the parcels of land was duly annotated at the back of the
above stated certificates of title as Entry No. 9367/T-No. 32843. The contract of lease provides that the term of the lease
is for twenty years beginning from the date of the contract and “is extendable for another term of twenty years at the
option of the LESSEE should its term of existence be extended in accordance with law.”. The contract also states that
the lessee agrees to “use the property as factory site and for that purpose to construct whatever buildings or
improvements may be necessary or convenient and/or . . . for any purpose it may deem fit; and before the termination of
the lease to remove all such buildings and improvements. In accordance with the contract, PBM introduced on the land,
buildings, machineries and other useful improvements. These constructions and improvements were registered with the
Registry of Deeds of Rizal and annotated at the back of the respondents’ certificates of title as Entry No. 85213/T-No.
43338. On October 11, 1963, PBM executed in favor of Philippine National Bank (PNB), petitioner herein, a deed of
assignment, conveying and transferring all its rights and interests under the contract of lease which it executed with
private respondents. The assignment was for and in consideration of the loans granted by PNB to PBM. The deed of
assignment was registered and annotated at the back of the private respondents’ certificates of title as Entry No.
85215/TNo. 32843. On November 6, 1963 and December 23, 1963 respectively, PBM executed in favor of PNB a real
estate mortgage for a loan of P100,000.00 and an addendum to real estate mortgage for another loan of P1,590,000.00,
covering all the improvements constructed by PBM on the leased premises. These mortgages were registered and
annotated at the back of respondents’ certificates as Entry No. 85214/T-No. 43338 and Entry No. 870971/T-No. 32843,
respectively. On October 7, 1981, private respondents filed a motion in the same proceedings which was given a
different case number to wit, LRC Case No. R-2744, because of the payment of filing fees for the motion. The motion
sought to cancel the annotations on respondents’ certificates of title pertaining to the assignment by PBM to PNB of the
former’s leasehold rights, inclusion of improvements and the real estate mortgages made by PBM in favor of PNB, on the
ground that the contract of lease entered into between PBM and respondents-movants had already expired by the failure
of PBM and/or its assignee to exercise the option to renew the second 20-year lease commencing on March 1, 1974 and
also by the failure of PBM to extend its corporate existence in accordance with law. The motion also states that since
PBM failed to remove its improvements on the leased premises before the expiration of the contract of lease, such
improvements shall accrue to respondents as owners of the land.

Issue: Whether or not the corporate life of PBM was extended by the continuance of the lease and subsequent
registration of the title to the improvements under its name.

Held: No. The contract of lease expressly provides that the term of the lease shall be twenty years from the execution of
the contract but can be extended for another period of twenty years at the option of the lessee should the corporate term
be extended in accordance with law. Clearly, the option of the lessee to extend the lease for another period of twenty
years can be exercised only if the lessee as corporation renews or extends its corporate term of existence in accordance
with the Corporation Code which is the applicable law. Contracts are to be interpreted according to their literal meaning
and should not be interpreted beyond their obvious intendment. Thus, in the instant case, the initial term of the contract
of lease which commenced on March 1, 1954 ended on March 1, 1974. PBM as lessee continued to occupy the leased
premises beyond that date with the acquiescence and consent of the respondents as lessor. Records show however,
that PBM as a corporation had a corporate life of only twenty-five (25) years which ended an January 19, 1977. It should
be noted however that PBM allowed its corporate term to expire without complying with the requirements provided by law
for the extension of its corporate term of existence.

Section 11 of Corporation Code provides that a corporation shall exist for a period not exceeding fifty (50) years from the
date of incorporation unless sooner dissolved or unless said period is extended. Upon the expiration of the period fixed in
the articles of incorporation in the absence of compliance with the legal requisites for the extension of the period, the
corporation ceases to exist and is dissolved ipso facto. When the period of corporate life expires, the corporation ceases
to be a body corporate for the purpose of continuing the business for which it was organized. But it shall nevertheless be
continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of
prosecuting and defending suits by or against it and enabling it gradually to settle and close its affairs, to dispose of and
convey its property and to divide its assets. There is no need for the institution of a proceeding for quo warranto to
determine the time or date of the dissolution of a corporation because the period of corporate existence is provided in the
articles of incorporation. When such period expires and without any extension having been made pursuant to law, the
corporation is dissolved automatically insofar as the continuation of its business is concerned. The quo warranto
proceeding under Rule 66 of the Rules of Court, as amended, may be instituted by the Solicitor General only for the
involuntary dissolution of a corporation on the following grounds: a) when the corporation has offended against a
provision of an Act for its creation or renewal; b) when it has forfeited its privileges and franchises by non-user; c) when it
has committed or omitted an act which amounts to a surrender of its corporate rights, privileges or franchises; d) when it
has mis-used a right, privilege or franchise conferred upon it by law, or when it has exercised a right, privilege or
franchise in contravention of law. Hence, there is no need for the SEC to make an involuntary dissolution of a corporation
whose corporate term had ended because its articles of incorporation had in effect expired by its own limitation.
 Considering the foregoing in relation to the contract of lease between the parties herein, when PBM’s corporate life
ended on January 19, 1977 and its 3-year period for winding up and liquidation expired on January 19, 1980, the option
of extending the lease was likewise terminated on January 19, 1977 because PBM failed to renew or extend its
corporate life in accordance with law. From then on, the respondents can exercise their right to terminate the lease
pursuant to the stipulations in the contract.

Q. DIFFERENCE BET. DE JURE, DE FACTO AND CORPORATION BY ESTOPPEL (SEC. 20)

SEVENTH DAY ADVENTIST V NORTHEASTERN MINDANAO

FACTS: This case involves two supposed transfers of the lot previously owned by the spouses Cosio. The first transfer
was a donation to petitioners’ alleged predecessors-in-interest in 1959 while the second transfer was through a contract
of sale to respondents in 1980. A TCT was later issued in the name of respondents. Claiming to be the alleged donee’s
successors-in-interest, petitioners filed a case for cancellation of title, quieting of ownership and possession, declaratory
relief and reconveyance with prayer for preliminary injunction and damages against respondents. Respondents, on the
other hand, argued that at the time of the donation, petitioners’ predecessors -in-interest has no juridical personality to
accept the donation because it was not yet incorporated. Moreover, petitioners were not members of the local church
then. The RTC upheld the sale in favor of respondents, which was affirmed by the Court of Appeals, on the ground that
all the essential requisites of a contract were present and it also applied the indefeasibility of title.

ISSUE: Whether or not the donation was void.

HELD: Yes, the donation was void because the local church had neither juridical personality nor capacity to accept such
gift since it was inexistent at the time it was made.
The Court denied petitioners’ contention that there exists a de facto corporation.
While there existed the old Corporation Law (Act 1459), a law under which the local church could have been organized,
petitioners admitted that they did not even attempt to incorporate at that time nor the organization was registered at the
Securities and Exchange Commission. Hence, petitioners obviously could not have claimed succession to an entity that
never came to exist. And since some of the representatives of petitioner Seventh Day Adventist Conference Church of
Southern Philippines, Inc. were not even members of the local church then, it necessarily follows that they could not
even claim that the donation was particularly for them.

R. CORPORATE OFFICERS

Matling Industrial and Commercial Corporation, et al., v. Ricardo R. Coros, G.R. No. 157802, October 10, 2010
FACTS: Ricardo Coros was dismissed by Matling Industrial and Commercial Corporation (Matling) as its Vice President
for Finance and Administration. Coros filed a complaint for illegal suspension and illegal dismissal against Matling and
some of its corporate officers with the NLRC. Matling, et al., moved to dismiss the complaint, raising the ground, among
others, that the complaint pertained to the jurisdiction of the SEC due to the controversy being intra- corporate inasmuch
as Coros was a member of Matling’s Board of Directors aside from being its Vice-President for Finance and
Administration prior to his termination. It further argues that the power to create corporate offices and to appoint the
individuals to assume the offices was delegated by Matling’s Board of Directors to its President through its By-Laws; and
that any office the President created, like the position of the Coros, was as valid and effective a creation as that made by
the Board of Directors, making the office a corporate office.
ISSUE: Is Coros a corporate officer of Matling?
HELD: NO. Pursuant to Section 25 of the Corporation Code, whoever are the corporate officers enumerated in the by-
laws are the exclusive officers of the corporation and the Board has no power to create other offices without amending
first the corporate By-laws. However, the Board may create appointive positions other than the positions of corporate
officers, but the persons occupying such positions are not considered as corporate officers within the meaning of Sec. 25
of the Corporation Code and are not empowered to exercise the functions of the corporate officers, except those
functions lawfully delegated to them. Their functions and duties are to be determined by the Board of Directors/Trustees.
Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate office to the
President, in light of Sec. 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate officers.
Verily, the power to elect the corporate officers is a discretionary power that the law exclusively vested in the Board of
Directors, and could not be delegated to subordinate officers or agents. The office of Vice President for Finance and
Administration created by Matling’s President pursuant to the By-Law was an ordinary, not a corporate, office.

S. VACANCIES IN THE OFFICE OF DIRECTORS AND TRUSTEES (Section 29)

Valle Verde Country Club, Inc., et al., v. Victor Africa,

G.R. No. 151969, September 4, 2009

FACTS: During the Annual Stockholders’ Meeting of Valle Verde Country Club, Inc. (VVCC), Jaime Dinglasan and
Eduardo Makalintal were elected as new members of the board of directors. In the succeeding years however, the
requisite quorum for the holding of the stockholders’ meeting could not be obtained. Consequently, Dinglasan and
Makalintal continued to serve in the VVCC Board in a hold-over capacity. Subsequently, Dinglasan resigned from his
position as member of the VVCC Board. In a meeting, the remaining directors, still constituting a quorum of VVCC’s
nine-member board, elected Eric Roxas to fill in the vacancy created by the resignation of Dinglasan. A year later,
Makalintal also resigned as member of the VVCC Board. He was replaced by Jose Ramirez, who was elected by the
remaining members of the VVCC Board. Victor Africa, a member of VVCC, questioned the election of Roxas and
Ramirez as members of the VVCC Board with the SEC and the RTC.

ISSUE: May the remaining directors of the corporation’s Board, still constituting a quorum, elect another director to fill in
a vacancy caused by the resignation of a hold-over director?
 HELD: NO. The remaining directors of the corporation’s Board, even if still constituting a quorum, cannot elect another
director to fill in a vacancy caused by the resignation of a hold-over director. Section 23 of the CC means that the term of
the members of the board of directors shall be only for one year; their term expires one year after election to the office.
The holdover period – that time from the lapse of one year from a member’s election to the Board and until his
successor’s election and qualification – is not part of the director’s original term of office, nor is it a new term; the
holdover period, however, constitutes part of his tenure. Corollary, when an incumbent member of the board of directors
continues to serve in a holdover capacity, it implies that the office has a fixed term, which has expired, and the
incumbent is holding the succeeding term. With the expiration of Makalintal’s term of office, a vacancy resulted which, by
the terms of Section 29 of the Corporation Code, must be filled by the stockholders of VVCC in a regular or special
meeting called for the purpose. His resignation as a hold-over director did not change the nature of the vacancy; the
vacancy due to the expiration of Makalintal’s term had been created long before his resignation.

T. BUSINESS JUDGMENT RULE

SABER VS CA (G.R. NO. 132981 AUGUST 31, 2004)

G.R. No. 132981 August 31, 2004

Facts: On April 8, 1974 then President Ferdinand E. Marcos appointed Dr. Mamitua Saber, then Dean of Research at the
Mindanao State University and Acting Director, National Science Museum, as Executive Vice-President of the Philippine Amanah
Bank (PAB). He was also designated as the Officer-in-Charge of the bank pending the election of its president by the Board of
Directors. Saber was surprised because he did not apply for appointment to the position. He inquired from Executive Secretary
Alejandro Melchor why he was appointed thereto, considering that he had no experience whatsoever in the field of business and
banking. He was told that he was chosen by the President from among forty applicants because of his proven personal integrity.
Saber took a year-long leave of absence from the university and assumed office at the PAB. From the serenity of the academe,
he plunged head-on into the turbulent and intricate world of business. One of the members of the Board of Directors of the bank
was Asgari Aradji who was also the Acting Chairman of the Screening Committee for Personnel. Martin Saludo, then Senior Vice-
President of the Philippine National Bank (PNB), was a management consultant of the PAB. Saber was sent to Malaysia to study
how its Malaysian government prepared and managed the annual Muslim pilgrimage (Hajj) to Mecca, and thus, avoid the fiascos
that plagued previous such pilgrimages of Filipino Muslims in the past. After his stint in Malaysia, Saber resumed his duties at the
PAB. Saber decided to charter the M/V Sweet Homes, owned by the Sweet Lines, Inc., for the trip. In behalf of the PAB, as
charter, Saber executed a Uniform Time-Charter on October 15, 1974 under which the PAB chartered the M/V Sweet Homes to
transport the pilgrims to Mecca and back to the Philippines for P 5,300,000 cash, the amount budgeted by the PAB. The parties
executed a Rider to Charter Party in which the PAB was allowed to load cargoes in the cargo hold of the vessel up to 500 metric
tons free of freight. The vessel was scheduled to leave on November 28, 1974. There was no time to lose; the PAB conducted a
massive information drive to inform the Muslims of the arrangements, including the accommodations on board the vessel and
urged them to join the Hajj through the bank. Prospective pilgrims, including PAB depositors, made reservations for the voyage
and made partial payments for their tickets thereon. In a parallel development, Atty. Mangawan Toro, the Legal Counsel of the
PAB, prepared a Freight Contract which the PAB, through Saber, and the AGEAC, through Basman, its General Manager,
executed without the approval of the PAB Board of Directors. Under the contract, AGEAC was allowed to load on the M/V Sweet
Homes chartered by the PAB, exportable/importable goods and other cargoes on its trip to Saudi Arabia and return, in
consideration of P paid by AGEAC via a postdated check. During the meeting of the PAB Board of Directors, Saber was present.
The Board, after exhaustive deliberations, approved Resolution No. 67, Series of 1975, without any objection, declaring Saber
liable for the receivables on the ground that the Board did not authorize him to sell tickets on credit payable via postdated checks,
and to execute the Freight Contract with AGEAC. The Board directed Saber to collect the receivables himself, because of its
perception that if the PAB endeavored to collect the receivables, it would, thereby, be ratifying the unauthorized acts of Saber.

Issue: Whether or not a separate committee should be formed to investigate on the allegations against petitioner, Saber.

Held: Yes. We agree with the petitioners that a person other than respondent Aradji should have been designated as Chairperson
of the Investigating Committee to investigate the pilgrimage fiasco. This is so because in his Memorandum to the Board of
Directors of the PAB on February 21, 1975, respondent Aradji had declared that the 1974 Mecca pilgrimage under the supervision
of Saber was mishandled and there were indications then that there was an apparent lack of exercise of effective leadership
which was so vital and essential to make the bank truly responsive to the needs of the Filipino Muslims. Respondent Aradji then
proposed that Saludo exercise the powers of the president of the respondent bank in place of Saber. In fine, respondent Aradji
attributed the problems attendant to the pilgrimage fiasco to Saber. But then Saber did not oppose the designation by the Board of
Directors for respondent Aradji to be the Chairman of the Investigating Committee, or even asked for the latters inhibition. Saber
must have believed that he could still prove that he acted in good faith, and was not guilty of any wrongdoing regardless of any
misconception of respondent Aradji. Besides, respondent Aradji was only the chairman of the committee, and there were four (4)
other members who could rule in Sabers favor. As it was, Saber even appeared before the committee and adduced testimonial
and documentary evidence in his behalf.

The respondent PAB cannot be faulted, nor can it be ordered to pay damages and attorneys fees for issuing a conditional
clearance to Saber after his resignation from respondent PAB. Saber had not yet liquidated his accountability of P 1,012,000
when his leave of absence from the university had expired. The Investigating Committee had yet to commence and terminate its
investigation of Sabers accountability, administrative or civil, for the pilgrimage fiasco. The respondent PAB had no discretion to
issue a clearance to Saber. It bears stressing that a public officer, in the discharge of his duties has to use prudence, caution and
attention in the management of his affairs. In fact, the respondent PAB was duty bound to withhold such clearance to Saber
pending final determination of his monetary accountabilities. Even assuming that Saber and/or the petitioners sustained economic
difficulties on account of the conditional clearance issued by the respondent PAB, the petitioners are not entitled to moral and
exemplary damages. The act of the respondent PAB was not wrongful. It is a case of damnum absque injuria and not of damnum
et injuria.
To constitute malicious prosecution, there must be proof that the prosecutor was prompted by a sinister or devious design to vex
and humiliate a person, and that it was initiated deliberately, knowing that the charges are false and groundless. Malice with
probable cause must both be clearly established to justify an award of damages based on malicious prosecution. Lack of probable
cause is an element separate and distinct from that of malice. One cannot be held liable for damages for malicious prosecution
where he acted with probable cause. We also held that a determination that there is no probable cause cannot be made to rest
solely on the fact that the trial court after trial decided to acquit the accused. Neither can lack of probable cause be made to rest
on the fact that the finding of probable cause of the Special Counsel was reversed by the Secretary of Justice or the Ombudsman
as the case may be. The mere act of submitting the case to the authorities for prosecution does not make one liable for malicious
prosecution. Moreover, the adverse result of an action does not per se make the action wrongful and subject the action to
damages, for the law could not have meant to impose a penalty on the right to litigate. If damages result from a persons exercise
of a right, it is damnum absque injuria.

U. CLASSIFICATION OF POWERS OF CORPORATION

CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA, Petitioners, v. DEVELOPMENT BANK OF THE
PHILIPPINES, JOSE TO CHIP, PATRICIO YAP and ROGER BALILA, Respondents.

FACTS: Spouses Robles entered into a mortgage contract with the DBP to create the State Theatre Building in Talisay,
Cebu. Upon completion, Rudy Robles executed a contract of lease in favour of Cebu Bionic Builders Supply. However,
the spouses defaulted on their obligation to pay and DBP extrajudicially foreclosed the mortgage. DBP sent a letter to
Cebu Bionic that if they were interested in leasing the facilities, they would have to pay DBP. However, nothing came
from these correspondences.

DBP then invited parties to bid on the property. Initially, Cebu Bionic submitted their interest in bidding, but the price that
they gave was insufficient. DBP then awarded the auction to Respondents To Chip, Yap and Balila. In response to
several demand letters by the Respondents, Cebu Bionic filed a petition for preliminary injunction, cancellation of deed of
sale and specific performance against DBP. Petitioners then related that, without their knowledge, DBP sold the subject
properties to respondents To Chip, Yap andBalila.The sale was claimed to be simulated and fictitious, as DBP still
received rentals from petitioners until March 1991.By acquiring the subject properties, petitioners contended that DBP
was deemed to have assumed the contract of lease executed between them and Rudy Robles. They alleged that the
original leases clause of the Right of First Option to Buy should be upheld.

The trial court granted their complaint. The Court of Appeals similarly upheld the decision of the trial court. Cebu Bionic
filed a motion for entry of judgment, but Respondents filed a motion for reconsideration on the ground that they relied on
the friend of their lawyer to personally file the MR, but apparently did not. The court granted their MR, and reversed their
judgment before. Thus, the petitioners file the case before the Supreme Court.

ISSUES:

Was a contract of lease between petitioners and DBP?

If in the affirmative, did this contract contain a right of first refusal in favor of petitioners?
Are respondents To Chip, Yap and Balila likewise bound by such right of first refusal?

HELD: Under Article 1305 of the Civil Code, "[a] contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service."A contract undergoes three distinct
stages preparation or negotiation, its perfection, and finally, its consummation.Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the
parties.The perfection or birth of the contract takes place when the parties agree upon the essential elements of the
contract.The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in
the contract, culminating in the extinguishment thereof

In the case at bar, there was no concurrence of offer and acceptancevis-visthe terms of the proposed lease
agreement.In fact, after the reply of petitioners counsel dated July 7, 1987, there was no indication that the parties
undertook any other action to pursue the execution of the intended lease contract.Petitioners even admitted that they
merely waited for DBP to present the contract to them, despite being instructed to come to the bank for the execution of
the same.

DBP cannot, therefore, be accused of violating the rights of petitioners when it offered the subject properties for sale, and
eventually sold the same to respondents To Chip, Yap and Balila, without first notifying petitioners.Neither were the said
respondents bound by any right of first refusal in favor of petitioners.Consequently, the sale of the subject properties to
respondents was valid.Petitioners claim for rescission was properly dismissed.

Except for the powers which are expressly conferred on it by the Corporation Code and those that are implied by or are
incidental to its existence, a corporation has no powers. It exercises its powers through its board of directors and/or its
duly authorized officers and agents. Thus, its power to sue and be sued in any court is lodged with the board of directors
that exercises its corporate powers.[53] Physical acts, 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.[54]cralaw

In this case, respondents To Chip, Yap and Balila obviously overlooked the Secretary’s Certificate[55] attached to the
instant petition, which was executed by the Corporate Secretary of Cebu Bionic. Unequivocally stated therein was the
fact that the Board of Directors of Cebu Bionic held a special meeting on July 26, 2002 and they thereby approved a
Resolution authorizing Lydia Sia to elevate the present case to this Court in behalf of Cebu Bionic, to
wit:chanroblesvirtuallawlibrary
Whereas, the board appointed LYDIA I. SIA to act and in behalf of the corporation to file the CERTIORARI with the
Supreme Court in relations to the decision of the Court of Appeals dated July 5, 2002 which reversed its own judgment
earlier promulgated on February 14, 2001 entitled CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA,
(Petitioners- Appellants) –versus – THE DEVELOPMENT BANK OF THE PHILIPPINES, JOSE TO CHIP, PATRICIO
YAP and ROGER BALILA (Respondents- Appelles), docketed CA-G.R. NO. 57216.

Whereas, on mass unanimously motion of all members of directors present hereby approved the appointment of LYDIA
I. SIA to act and sign all papers in connection of CA-G.R. NO. 57216.

Resolved and it is hereby resolve to appoint and authorized LYDIA I. SIA to sign and file with the SUPREME COURT in
connection to decision of the Court of Appeals as above mention.[56]cralaw

DENIED

SHIPSIDE INCORPORATED v. CA, GR No. 143377, 2001-02-20

Facts:

On October 29, 1958, Original Certificate of Title No. 0-381 was issued in favor of Rafael Galvez, over four parcels of
land - Lot 1 with 6,571 square meters; Lot 2, with 16,777 square meters; Lot 3 with 1,583 square meters; and Lot 4, with
508 square meters.

On April 11, 1960, Lots No. 1 and 4 were conveyed by Rafael Galvez in favor of Filipina Mamaril, Cleopatra Llana,
Regina Bustos, and Erlinda Balatbat in a deed of sale which was inscribed as Entry No. 9115 OCT No. 0-381 on August
10, 1960. Consequently, Transfer Certificate No.

T-4304 was issued in favor of the buyers covering Lots No. 1 and 4.

Mamaril, et al. sold Lots No. 1 and 4 to Lepanto Consolidated Mining Company

Transfer Certificate No. T-4314 was issued in the name of Lepanto

Consolidated Mining Company as owner of Lots No. 1 and 4.

Order in Land Registration Case No. N-361 (LRC Record No. N-14012) entitled "Rafael Galvez, Applicant, Eliza Bustos,
et al.,... Parties-In-Interest; Republic of the Philippines, Movant" declaring OCT No. 0-381 of the Registry of Deeds for
the Province of La Union issued in the name of Rafael Galvez, null and void, and ordered the cancellation thereof.

Transfer Certificate of Title No. T-5710 was thus issued in favor of the petitioner which starting since then... exercised
proprietary rights over Lots No. 1 and 4.

the trial court in L. R. C. Case No. N-361 issued a writ of execution of the judgment which was served on the Register of
Deeds, San Fernando, La Union on April 29, 1974.

Twenty four long years thereafter, on January 14, 1999, the Office of the Solicitor General received a letter dated
January 11, 1999 from Mr. Victor G. Floresca, Vice-President, John Hay Poro Point Development Corporation, stating
that the aforementioned orders and decision of... the trial court in L. R. C. No. N-361 have not been executed by the
Register of Deeds, San Fernando, La Union despite receipt of the writ of execution.

Office of the Solicitor General filed a complaint for revival of judgment and cancellation of titles before the Regional Trial
Court of the First Judicial Region (Branch 26, San Fernando, La Union) docketed therein as Civil Case No. 6346
entitled,... "Republic of the Philippines, Plaintiff, versus Heirs of Rafael Galvez, represented by Teresita Tan, Reynaldo
Mamaril, Elisa Bustos, Erlinda Balatbat, Regina Bustos, Shipside Incorporated and the Register of Deeds of La Union,
Defendants."

(a) Shipside

Inc. which is presently the registered owner in fee simple of Lots No. 1 and 4 covered by TCT No. T-5710, with a total
area of 7,079 square meters; (b) Elisa Bustos, Jesusito Galvez, and Teresita Tan who are the registered owners of Lot
No. 2 of OCT No. 0-381;and (c) Elisa

Bustos, Filipina Mamaril, Regina Bustos and Erlinda Balatbat who are the registered owners of Lot No. 3 of OCT No. 0-
381, now covered by TCT No. T-4916, with an area of 1,583 square meters.

the defendants-successors-in-interest of

Rafael Galvez have no valid title over the property covered by OCT No. 0-381, and the subsequent Torrens titles issued
in their names should be consequently cancelled.

Shipside, Inc. filed its Motion to Dismiss

(1) the real party-in-interest is the Republic of the Philippines;and (2) prescription does not run against the State.

trial court denied petitioner's motion to dismiss... etitioner instituted a petition for certiorari and prohibition with the Court
of Appeals
The issues posited in this case are: (1) whether or not an authorization from petitioner's Board of Directors is still
required in order for its resident manager to institute or commence a legal action for and in behalf of the corporation; and
(2) whether or not the Republic of... the Philippines can maintain the action for revival of judgment herein.

Issues:

The issues posited in this case are: (1) whether or not an authorization from petitioner's Board of Directors is still
required in order for its resident manager to institute or commence a legal action for and in behalf of the corporation; and
(2) whether or not the Republic of... the Philippines can maintain the action for revival of judgment herein.

Ruling:

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.

However, subsequent to such dismissal, petitioner filed a motion for reconsideration, attaching to said motion a
certificate issued by its board secretary stating that on October 11, 1999, or ten days prior to the filing of the... petition,
Balbin had been authorized by petitioner's board of directors to file said petition.

Verification is simply intended to secure an assurance that the allegations in the pleading are true and correct and not
the product of the imagination or a matter of speculation, and that the pleading is filed in good... faith. The court may
order the correction of the pleading if verification is lacking or act on the pleading although it is not verified, if the
attending circumstances are such that strict compliance with the rules may be dispensed with in order that the ends of
justice may... thereby be served.

With more reason should we allow the instant petition since petitioner herein did submit a certification on non-forum
shopping, failing only to show proof that the signatory... was authorized to do so. That petitioner subsequently submitted
a secretary's certificate attesting that Balbin was authorized to file an action on behalf of petitioner likewise mitigates this
oversight.

Section 6, Rule 39 provides that a final and executory judgment or order may be executed on motion within five (5) years
from the date of its entry, but that after the... lapse of such time, and before it is barred by the statute of limitations, a
judgment may be enforced by action. Taking these two provisions into consideration, it is plain that an action for revival
of judgment must be brought within ten years from the time said judgment... becomes final.

action is barred by extinctive prescription considering that such an action can be instituted only within ten (10) years from
the time the cause of action accrues.

While Camp Wallace may have belonged to the government at the time Rafael Galvez's title was... ordered cancelled in
Land Registration Case No. N-361, the same no longer holds true today.

With the transfer of Camp Wallace to the BCDA, the government no longer has a right or interest to protect.
Consequently, the Republic is not a real party in interest and it may not institute the instant action. Nor may it raise the
defense of imprescriptibility, the same being... applicable only in cases where the government is a party in interest.

Nonetheless, it has been posited that the transfer of military reservations and their extensions to the BCDA is basically
for the purpose of accelerating the sound and balanced conversion of these military reservations into alternative
productive uses and to enhance the benefits... to be derived from such property as a measure of promoting the
economic and social development, particularly of Central Luzon and, in general, the country's goal for enhancement

Section 5. Powers of the Conversion Authority. -- To carry out its objectives under this Act, the Conversion Authority is
hereby vested with the following powers:

(a) To succeed in its corporate name, to sue and be sued in such corporate name and to adopt, alter and use a
corporate seal which shall be judicially noticed; BCDA which may file an action to cancel petitioner's title, not the
Republic, the former being the real party in interest.

Principles: governed by Article 1144(3) of the Civil Code and Section 6, Rule 39 of the 1997 Rules on Civil Procedure.
Article 1144(3) provides that an action upon a judgment "must be brought within 10 years from the time the right of action
accrues."

Lapu-Lapu Foundation vs. Court of Appeals

[GR 126006, 29 January 2004]

Facts: Sometime in 1977, Elias Q. Tan, then President of Lapulapu Foundation, Inc., obtained four loans from Allied
Banking Corporation covered by four promissory notes in the amounts of P100,000 each. As of 23 January 1979, the
entire obligation amounted to P493,566.61 and despite demands made on them by the Bank, Tan and the foundation
failed to pay the same. The Bank was constrained to file with the Regional Trial Court of Cebu City, Branch 15, a
complaint seeking payment by Tan and the foundation, jointly and solidarily, of the sum of P493,566.61 representing
their loan obligation, exclusive of interests, penalty charges, attorney’s fees and costs. In its answer to the complaint, the
Foundation denied incurring indebtedness from the Bank alleging that the loans were obtained by Tan in his personal
capacity, for his own use and benefit and on the strength of the personal information he furnished the Bank. The
Foundation maintained that it never authorized Tan to co-sign in his capacity as its President any promissory note and
that the Bank fully knew that the loans contracted were made in Tan’s personal capacity and for his own use and that the
Foundation never benefited, directly or indirectly, therefrom.
 The Foundation then interposed a cross-claim against Tan alleging that he, having exceeded his authority, should be
solely liable for said loans, and a counterclaim against the Bank for damages and attorney’s fees. For his part, Tan
admitted that he contracted the loans from the Bank in his personal capacity. The parties, however, agreed that the loans
were to be paid from the proceeds of Tan’s shares of common stocks in the Lapulapu Industries Corporation, a real
estate firm. The loans were covered by promissory notes which were automatically renewable (“rolled-over”) every year
at an amount including unpaid interests, until such time as Tan was able to pay the same from the proceeds of his
aforesaid shares. According to Tan, the Bank’s employee required him to affix two signatures on every promissory note,
assuring him that the loan documents would be filled out in accordance with their agreement. However, after he signed
and delivered the loan documents to the Bank, these were filled out in a manner not in accord with their agreement, such
that the Foundation was included as party thereto. Further, prior to its filing of the complaint, the Bank made no demand
on him.

After due trial, the court rendered judgment (1) requiring Tan and the Foundation to pay jointly and solidarily to the Bank
the amount of P493,566.61 as principal obligation for the four promissory notes, including all other charges included in
the same, with interest at 14% per annum, computed from 24 January 1979, until the same are fully paid, plus 2%
service charges and 1% monthly penalty charges; (2) requiring Tan and the Foundation to pay jointly and solidarily,
attorney’s fees in the equivalent amount of 25% of the total amount due from them on the promissory notes, including all
charges; and (3) requiring Tan and the Foundation to pay jointly and solidarily litigation expenses of P1,000.00 plus costs
of the suit. On appeal, the CA affirmed with modification the judgment of the court a quo by deleting the award of
attorney’s fees in favor of the Bank for being without basis. Tan and the foundation filed the petition for review on
certiorari.

Issue:
Whether Tan and the foundation should be held jointly and solidarily liable.
Whether the foundation gave Tan an apparent authority to deal with the Bank.
Held:

1. The appellate court did not err in holding Tan and the foundation jointly and solidarily liable as it applied the doctrine of
piercing the veil of corporate entity. Tan and the foundation cannot hide behind the corporate veil under the following
circumstances: "The evidence shows that Tan has been representing himself as the President of Lapulapu Foundation,
Inc. He opened a savings account and a current account in the names of the corporation, and signed the application
form as well as the necessary specimen signature cards twice, for himself and for the foundation. He submitted a
notarized Secretary’s Certificate from the corporation, attesting that he has been authorized, inter alia, to sign for and in
behalf of the Lapulapu Foundation any and all checks, drafts or other orders with respect to the bank; to transact
business with the Bank, negotiate loans, agreements, obligations, promissory notes and other commercial documents;
and to initially obtain a loan for P100,000.00 from any bank. Under these circumstances, the foundation is liable for the
transactions entered into by Tan on its behalf.

2. Per its Secretary’s Certificate, the Foundation had given its President, Tan, ostensible and apparent authority to inter alia
deal with the Bank. Accordingly, the Foundation is estopped from questioning Tan’s authority to obtain the subject loans
from the respondent Bank. It is a familiar doctrine that if a corporation knowingly permits one of its officers, or any other
agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those
acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agent’s authority.

V. ULTRA VIRES ACTS (SEC.45)

1.

2. Republic v. Acoje Mining, Inc. GR No. L-18062, Feb. 28, 1963

FACTS:On May 17, 1948, the Acoje Mining Company, Inc. wrote the Director of Posts requesting the opening of a post,telegraph
and money order offices at its mining camp at Sta. Cruz, Zambales, to service its employees and their familiesthat were living in
said camp. The Director of Posts acted on their request, and required that the company assume direct responsibility for whatever
pecuniary loss may be suffered by the Bureau of Posts by reason of any act of dishonesty, carelessness or negligence onthe part
of the employee of the company who is assigned to take charge of the post office. The Board of Directors of Acoje passed a
resolution stating that: “That the requirement of the Bureau of Posts that theCompany should accept full responsibility for all cash
received by the Postmaster be complied with, and that a copy of thisresolution be forwarded to the Bureau of Posts.” The post
office branch was opened on Oct. 13, 1949. On May 11, 1954, the postmaster, an employee of Acoje, went on a 3 day leave and
never returned. Acoje informed the Manila Post Office and upon auditing, it was found that P13,867.24 was missing. The post
office demanded payment and filed a suit with the CFI of Manila for the amount but Acoje denied liability alleging that the Board of
Directors’ act in assigning a postmaster was ultra vires; also, the company alleged that their liability was merely that of a
guarantor. CFI of Manila ruled in favor of the Post Office but only to the amount of P9,515.25 (since they could only present
evidence for such amount). Acoje appealed to the SC.

ISSUE

1. Whether or not the board of directors’ acts was ultra vires?

2. Whether or not its liability was that of a mere guarantor?

HELD

1. No. The act covers a subject which concerns the benefit, convenience, and welfare of the company’s employees andtheir
families. There are certain corporate acts that may be performed outside of the scope of the powers expresslyconferred if they are
necessary to promote the interest or welfare of the corporation.
2. No. The phraseology and the terms employed are so clear and sweeping.