Corporation CASES 2017 CHAPTERS 1-5

1. Harden versus Benguet Consolidated Mining, 58 Phil 141 (1933)

In 1927, Benguet Consolidated Mining Company, registered as a sociedad anonima under the Spanish
Law, agreed to invest and build capital equipments in favor of Balatoc Mining Company, a corporation
registered under the then relatively new Corporation Law of 1925. In exchange, Balatoc Mining agreed to
give Benguet Mining 600,000 shares.
The venture proved to be profitable and Balatoc Mining earned and so did its stockholders, and of course,
Benguet Mining was earning big too because it now owns 600k shares. This prompted, Fred Harden a
stockholder of Balatoc Mining who also owns thousands of shares to sue Benguet Mining on the ground
that under the Corporation Law a corporation like Benguet Mining which is engaged in the mining
industry is prohibited from being interested in other corporations which are also engaged in the mining
industry like Balatoc Mining.
ISSUE: Whether or not Harden’s suit should prosper.
HELD: No. The Corporation Law of 1925 subjects sociedades anonimas to its provisions “so far as such
provisions may be applicable”. In 1929, the Corporation Law was amended and the prohibition cited by
Harden was so modified as merely to prohibit any such corporation from holding more than fifteen per
centum of the outstanding capital stock of another such corporation.
Further and more importantly, the Corporation Law of 1925 provides that if the person who allegedly
violated the provisions of said law is a corporation, the proper action is a quo warranto which should be
initiated by the Attorney-General or its deputized provincial fiscal and not a private action as the one filed
by Harden

2. PNB versus Andrada Electric and Engineering Co., 381 SCRA 244 (2002)

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

Because of the failure and refusal of PNB, PASUMIL and/or NASUDECO to pay their obligations,
AEEC allegedly suffered actual damages in the total amount of P513,263.80; and that in order to recover
these sums, AEEC was compelled to engage the professional services of counsel, to whom AEEC agreed
to pay a sum equivalent to 25% of the amount of the obligation due by way of attorney's fees. PNB and
NASUDECO filed a joint motion to dismiss on the ground that the complaint failed to state sufficient
allegations to establish a cause of action against PNB and NASUDECO, inasmuch as there is lack or want
of privity of contract between the them and AEEC. Said motion was denied by the trial court in its 27
November order, and ordered PNB nad NASUDECO to file their answers within 15 days. After due
proceedings, the Trial Court rendered judgment in favor of AEEC and against PNB, NASUDECO and
PASUMIL; the latter being ordered to pay jointly and severally the former (1) the sum of P513,623.80
plus interest thereon at the rate of 14% per annum as claimed from 25 September 1980 until fully paid;
(2) the sum of P102,724.76 as attorney's fees; and, (3) Costs. PNB and NASUDECO appealed. The Court
of Appeals affirmed the decision of the trial court in its decision of 17 April 2000 (CA-GR CV 57610.
PNB and NASUDECO filed the petition for review.

Issue: Whether PNB and NASUDECO may be held liable for PASUMIL’s liability to AEEC.

Held: Basic is the rule that a corporation has a legal personality distinct and separate from the persons
and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend
crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the
mere fact that the Philippine National Bank (PNB) acquired ownership or management of some assets of
the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at the resulting
public auction by the Development Bank of the Philippines (DBP), will not make PNB liable for the
PASUMIL's contractual debts to Andrada Electric & Engineering Company (AEEC). Piercing the veil of
corporate fiction may be allowed only if the following elements concur: (1) control — not mere stock
control, but complete domination — not only of finances, but of policy and business practice in respect to
the transaction attacked, must have been such that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own; (2) such control must have been used by the defendant
to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of
duty must have proximately caused the injury or unjust loss complained of. The absence of the foregoing
elements in the present case precludes the piercing of the corporate veil. First, other than the fact that
PNB and NASUDECO acquired the assets of PASUMIL, there is no showing that their control over it
warrants the disregard of corporate personalities. Second, there is no evidence that their juridical
personality was used to commit a fraud or to do a wrong; or that the separate corporate entity was
farcically used as a mere alter ego, business conduit or instrumentality of another entity or person. Third,
AEEC was not defrauded or injured when PNB and NASUDECO acquired the assets of PASUMIL.
Hence, although the assets of NASUDECO can be easily traced to PASUMIL, the transfer of the latter's
assets to PNB and NASUDECO was not fraudulently entered into in order to escape liability for its debt
to AEEC. Neither was there any merger or consolidation with respect to PASUMIL and PNB. The
procedure prescribed under Title IX of the Corporation Code 59 was not followed. In fact, PASUMIL's
corporate existence had not been legally extinguished or terminated. Further, prior to PNB's acquisition of
the foreclosed assets, PASUMIL had previously made partial payments to AEEC for the former's
obligation in the amount of P777,263.80. As of 27 June 1973, PASUMIL had paid P250,000 to AEEC
and, from 5 January 1974 to 23 May 1974, another P14,000. Neither did PNB expressly or impliedly
agree to assume the debt of PASUMIL to AEEC. LOI 11 explicitly provides that PNB shall study and
submit recommendations on the claims of PASUMIL's creditors. Clearly, the corporate separateness
between PASUMIL and PNB remains, despite AEEC's insistence to the contrary.

3. Pascual and Santos Inc. versus The members of the Tramo Wakas Neighborhood Assn.
Inc. 442 SCRA 438 (2004)

At bar is a petition for review on certiorari assailing the May 17, 2000 and August 8, 2000 Resolutions[1]
of the Court of Appeals (CA) in CA-G.R. No. 57274 which respectively, dismissed the appeal instituted
by petitioner Pascual and Santos, Inc. (petitioner) and denied its motion for reconsideration.
The Members of Tramo Wakas Neighborhood Association, represented by Dominga Magno
(respondents), lodged before the Presidential Action Center a petition dated January 12, 1994 praying that
ownership over three (3) parcels of land situated in Barangay San Dionisio, Paraaque, Metro Manila,
identified as Lot Nos. 4087, 4088 and 5003, Psu-118886, Cad. 229 with an aggregate area of 35,195
square meters be awarded to them. In their petition, respondents alleged that petitioner claims ownership
of the subject lots which they have openly, peacefully and continuously occupied since 1957.
The petition was referred to the Land Management Bureau (LMB) where it was docketed as LMB Case
No. 2-96, for investigation and hearing.
By Decision[2] of February 21, 1996, Director Abelardo G. Palad, Jr. of the LMB found for respondents.
The dispositive portion of the decision reads, quoted verbatim:
WHEREFORE, it is ordered that the claim of Pascual and Santos, Inc., over Lot 4087, Lot 4088 and Lot
5003, situated at Brgy. San Dionisio, Paraaque, Metro Manila be, as hereby it is, dismissed. The
individual members of TRAMO WAKAS NEIGHBORHOOD ASSOCIATION, now represented by
Dominga Magno, if qualified may file appropriate public land applications over the land they actually
possessed and occupied. An individual survey shall be conducted on the land at their own expense and
after approval of the said survey the same shall be given due course.
SO ORDERED.[3]
Its Motion for Reconsideration having been denied by Order of June 26, 1996, petitioner lodged an appeal
before the Office of the Department of Environment and Natural Resources (DENR) Secretary, docketed
as DENR Case No. 7816.
By Decision[4] of November 25, 1997, then DENR Secretary Victor O. Ramos dismissed the appeal for
lack of merit and affirmed in toto the decision of the Director of the LMB. Petitioners Motion for
Reconsideration of the decision having been denied by Order[5] of May 18, 1998, it filed an appeal
before the Office of the President (OP), docketed as O.P. Case No. 98-F-8459, which was likewise
dismissed for lack of merit by Decision[6] of January 20, 2000. The November 25, 1997 DENR decision
was affirmed in toto.
Petitioner received a copy of the OPs dismissal of its appeal on February 1, 2000,[7] following which or
on February 16, 2000, it filed a Petition for Time[8] before the CA for an additional period of fifteen days
or until March 2, 2000 within which to file its petition for review.
By Resolution[9] of February 21, 2000, the CA granted petitioners Petition for Time, giving it a non-
extendible period of fifteen days from February 16, 2000 or until March 2, 2000 within which to file the
petition.
Petitioner subsequently filed its Petition for Review[10] dated March 2, 2000 with the CA, praying that
judgment be rendered (1) reversing and setting aside the January 20, 2000 OP Decision and the
November 25, 1997 DENR Decision and May 18, 1998 Order, and (2) declaring the subject lots as no
longer forming part of the public domain and have been validly acquired by petitioner; or in the
alternative, (1) allowing it to present additional evidence in support of its claim to the subject lots, (2)
reversing and setting aside the aforementioned Decisions and Order of the OP and the DENR, and (3)
declaring the subject lots as no longer forming part of the public domain and have been validly acquired
by petitioner.[11]
By Resolution of May 17, 2000, the CA dismissed the appeal due to infirm Verification and Certification
of non-forum shopping and belated filing.
For one, the Verification and Certification of non-forum shopping was signed merely by Estela Lombos
and Anita Pascual who allege that they are the duly authorized representatives of petitioner corporation,
without showing any proof whatsoever of such authority.
For another, and importantly, the petition for review was filed a day after the period petitioner corporation
expressly sought. As indicated in its Petition for Time, petitioner corporation asked for an additional
fifteen (15) days, or until March 2, 2000, within which to file its petition, which was granted by the Court
per Resolution dated February 21, 2000. However, despite the foregoing, petitioner corporation filed the
same only on MARCH 3, 2000 as indicated by the date stamped on the envelope which contains the
petition for review.[12] (Citations omitted; underscoring supplied)
On June 14, 2000, petitioner filed a Motion for Reconsideration[13] of the CA May 17, 2000 Resolution,
arguing that there was no showing that the persons acting on its behalf were not authorized to do so and
that its petition was filed within the additional 15-day period granted by the CA. Attached to the Motion
was a Secretarys Certificate[14] dated June 14, 2000 showing that petitioners Board of Directors
approved a Resolution on February 11, 2000 appointing Estela Lombos and Anita Pascual, incumbent
directors of the corporation, as its duly authorized representatives who may sign all papers, execute all
documents, and do such other acts as may be necessary to prosecute the petition for review that it would
file with the CA assailing the decision rendered in OP Case No. 98-G-8459.[15]
By Resolution of August 23, 2000, the CA denied petitioners Motion for Reconsideration for lack of
merit.
xxx It must be stressed that any person who claims authority to sign, in behalf of another, the Certificate
of Non-Forum Shopping, as required by the rules, must show sufficient proof thereof. Bare allegations are
not proof, and the representation of one who acts in behalf of another cannot, by itself, serve as proof of
his authority to act as agent or of the extent of his authority as agent. Thus, absent such clear proof, the
Court cannot accept at face value, such authority to sign in behalf of the corporation.
Another perusal of the registry return receipts attached to the petition for review (Nos. 182, 183 and 184)
shows that copies of the Manifestation and Petition for Review were served to private respondents (sic)
counsel, the Office of the President, and the Department of Environment and Natural Resources, on
March 2, 2000. However, it does not indicate therein when the petition for review was filed with the
Court. The registry return receipts (No. 185, 186, 187 and 188) being referred to by petitioner shows (sic)
the date March 2, 2000 only on that numbered 188, and does (sic) not show the dates on those numbered
185-187. In fact, said receipts do not even indicate which pertain to the copy filed with the Court.
Moreover, the Court cannot sustain petitioners supposition that a post office employee might have
stamped the wrong date, March 3, 2000, without any proof whatsoever of such error. The date stamped
on the envelope which contained the Manifestation and Petition for Review clearly shows that the same
was filed on March 3, 2000, and petitioner having failed to rebut the presumption of regularity in the
performance of official functions, the same must prevail.[16] (Citations omitted; emphasis in the original;
underscoring supplied)
Petitioner thus filed on September 27, 2000 before this Court a Petition For Time to file its petition for
review.
On October 30, 2000, petitioner filed a Petition for Review on Certiorari raising the following issues:
I. WHETHER OR NOT THE PERSONS WHO EXECUTED THE VERIFICATION AND
CERTIFICATION OF NON-FORUM SHOPPING ATTACHED TO PSIS
MANIFESTATION/PETITION FOR REVIEW FILED WITH THE COURT OF APPEALS WERE
AUTHORIZED TO DO SO.
II. WHETHER OR NOT PSIS MANIFESTATION/PETITION FOR REVIEW WAS FILED WITHIN
THE REGLEMENTARY PERIOD.[17]
By Resolution[18] of December 6, 2000, this Court denied the Petition for Review in view of petitioners
failure to submit a valid affidavit of service pursuant to Section 13 of Rule 13 and Sections 3 and 5 of
Rule 45 in relation to Section 5 (d) of Rule 56 of the Rules of Court and attach to the petition a duplicate
original or certified true copy of the assailed CA resolutions pursuant to Sections 4 (d) and 5 of Rule 45 in
relation to Section 5 (d) of Rule 56 of the Rules of Court.
Petitioner filed a Motion for Reconsideration,[19] averring that it had already attached certified true
copies of the assailed resolutions of the CA in its Petition for Time filed before this Court on September
27, 2000, and while it was the affidavit before the CA which was inadvertently attached to its petition
before this Court, the messengerial staff of petitioners counsel did in fact serve copies of the petition on
counsel for respondents, the DENR, the OP and the court a quo as evidenced by registry receipts and
return cards[20] which it attached to its Motion for Reconsideration.
By Resolution[21] of March 7, 2001, this Court, finding petitioners explanation satisfactory, granted the
Motion for Reconsideration and reinstated the petition, now the subject of this Decision.
The petition is impressed with merit.
Section 6 (d) of Rule 43 in relation to Section 2 of Rule 42 of the Rules of Court mandates that a petition
for review shall contain a sworn certification against forum shopping in which the petitioner shall attest
that he has not commenced any other action involving the same issues in this Court, the Court of Appeals
or different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding,
he must state the status of the same; and if he should thereafter learn that a similar action or proceeding
has been filed or is pending before this Court, the Court of Appeals, or different divisions thereof, or any
other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or
agency thereof within five days therefrom.
For failure to comply with this mandate, Section 7 of Rule 43 provides:
SEC. 7. Effect of failure to comply with requirements. The failure of the petitioner to comply with any of
the foregoing requirements regarding the payment of the docket and other lawful fees, the deposit for
costs, proof of service of the petition, and the contents of and the documents which should accompany the
petition shall be sufficient ground for the dismissal thereof.
The requirement that the petitioner should sign the certificate of non-forum shopping applies even to
corporations, considering that the mandatory directives of the Rules of Court make no distinction between
natural and juridical persons.[22]
In the case at bar, the CA dismissed the petition before it on the ground that Lombos and Pascual, the
signatories to the verification and certification on non-forum shopping, failed to show proof that they
were authorized by petitioners board of directors to file such a petition.
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.[23] Thus, its power to sue and be sued
in any court is lodged with the board of directors that exercises its corporate powers.[24] 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.[25]
It is undisputed that when the petition for certiorari was filed with the CA, there was no proof attached
thereto that Lombos and Pascual were authorized to sign the verification and non-forum shopping
certification. Subsequent to the CAs dismissal of the petition, however, petitioner filed a motion for
reconsideration to which it attached a certificate issued by its board secretary stating that on February 11,
2000 or prior to the filing of the petition, Lombos and Pascual had been authorized by petitioners board of
directors to file the petition before the CA.
This Court has ruled that the subsequent submission of proof of authority to act on behalf of a petitioner
corporation justifies the relaxation of the Rules for the purpose of allowing its petition to be given due
course.[26]
Thus, in Shipside Incorporated v. Court of Appeals,[27] this Court held:
xxx Moreover, in Loyola, Roadway and Uy, the Court excused non-compliance with the requirement as to
the certificate of non-forum shopping. 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 secretarys certificate attesting
that Balbin was authorized to file an action on behalf of petitioner likewise mitigates this oversight.
It must also be kept in mind that while the requirement of the certificate of non-forum shopping is
mandatory, nonetheless the requirements must not be interpreted too literally and thus defeat the objective
of preventing the undesirable practice of forum shopping.[28]
As for the timeliness of the filing of its petition for review before the CA, petitioner maintains in the
affirmative.
Sections 3 and 12 of Rule 13 of the Rules of Court provide:
SEC. 3. Manner of filing. The filing of pleadings, appearances, motions, notices, orders, judgments and
all other papers shall be made by presenting the original copies thereof, plainly indicated as such,
personally to the clerk of court or by sending them by registered mail. In the first case, the clerk of court
shall endorse on the pleading the date and hour of filing. In the second case, the date of the mailing of
motions, pleadings, or any other papers or payments or deposits, as shown by the post office stamp on the
envelope or the registry receipt, shall be considered as the date of their filing, payment, or deposit in
court. The envelope shall be attached to the record of the case.
SEC. 12. Proof of filing. The filing of a pleading or paper shall be proved by its existence in the record of
the case. If it is not in the record, but is claimed to have been filed personally, the filing shall be proved
by the written or stamped acknowledgment of its filing by the clerk of court on a copy of the same; if
filed by registered mail, by the registry receipt and by the affidavit of the person who did the mailing,
containing a full statement of the date and place of depositing the mail in the post office in a sealed
envelope addressed to the court, with postage fully prepaid, and with instructions to the postmaster to
return the mail to the sender after ten (10) days if not delivered.
Registry Receipt Nos. 185-188 covering the envelopes bearing the copies of the petition which were sent
to the CA indicate that such copies were filed by registered mail at the Domestic Airport Post Office
(DAPO) on March 2, 2000.[29]
The Affidavit of Service[30] filed by the person who did the mailing of the petition in behalf of petitioner
states that such petition was filed by registered mail by depositing seven copies thereof in four separate
sealed envelopes and mailing the same to the Clerk of Court of the CA through the DAPO on March 2,
2000. The affidavit likewise states that on even date, the petition was served on counsel for respondents,
the DENR and the OP by depositing copies of the same in sealed envelopes and mailing them to said
parties respective addresses through the DAPO.
And in the Certification[31] dated October 26, 2000 issued by Postmaster Cesar A. Felicitas of the
DAPO, he states that the registered mail matter covered by Registry Receipt Nos. 185-188 addressed to
the Clerk of Court of the CA was posted at their office for mailing on March 2, 2000, but that it was
dispatched to the CMEC on March 3, 2000 for proper disposition. This could very well explain why the
latter date was stamped on the envelope received by the CA containing the petition.
At all events, strict adherence to rules of procedure must give way to considerations of equity and
substantial justice where, as in this case, there is evidence showing that the appeal was filed on time.[32]
WHEREFORE, the petition is GRANTED. The Resolutions dated May 17, 2000 and August 23, 2000 of
the Court of Appeals are SET ASIDE. The case, CA-G.R. SP No. 57274, is REMANDED to the appellate
court which is hereby directed to give due course to the appeal of petitioner.
No costs.
SO ORDERED.

4. Tayag versus Benguetv Consolidated, 26 SCRA 242 (1968)

FACTS:
 March 27, 1960: Idonah Slade Perkins died in New York City
 August 12, 1960: Prospero Sanidad instituted ancillary administration proceedings appointing
ancillary administrator Lazaro A. Marquez later on substituted by Renato D. Tayag
 On January 27, 1964: CFI ordered domiciliary administrator County Trust Company of New
York to surrender to the ancillary administrator in the Philippines 33,002 shares of stock
certificates owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the
legitimate claims of local creditors
 When County Trust Company of New York refused the court ordered Benguet Consolidated,
Inc. to declare the stocks lost and required it to issue new certificates in lieu thereof
 Appeal was taken by Benguet Consolidated, Inc. alleging the failure to comply with its by-laws
setting forth the procedure to be followed in case of a lost, stolen or destroyed so it cannot issue
new stock certs.
ISSUE: W/N Benguet Consolidated, Inc. can ignore a court order because of its by-laws

HELD: NO. CFI Affirmed

 Fear of contigent liability - obedience to a lawful order = valid defense
  Benguet Consolidated, Inc. is a Philippine corporation owing full allegiance and subject to the
unrestricted jurisdiction of local courts
 Assuming that a contrariety exists between the above by-law and the command of a court decree,
the latter is to be followed.
 corporation is an artificial being created by operation of law...."It owes its life to the state, its
birth being purely dependent on its will. Cannot ignore the source of its very existence

5. Ang Pue and Co. versus Secretary of Commerce and Industry 5 SCRA 645 (1962)

Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & Company, Ang
Pue and Tan Siong against the Secretary of Commerce and Industry to secure judgment "declaring that
plaintiffs could extend for five years the term of the partnership pursuant to the provisions of plaintiffs'
Amendment to the Article of Co-partnership."
The answer filed by the defendant alleged, in substance, that the extension for another five years of the
term of the plaintiffs' partnership would be in violation of the provisions of Republic Act No. 1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership
Ang Pue & Company for a term of five years from May 1, 1953, extendible by their mutual consent. The
purpose of the partnership was "to maintain the business of general merchandising, buying and selling at
wholesale and retail, particularly of lumber, hardware and other construction materials for commerce,
either native or foreign." The corresponding articles of partnership (Exhibit B) were registered in the
Office of the Securities & Exchange Commission on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided, among
other things, that, after its enactment, a partnership not wholly formed by Filipinos could continue to
engage in the retail business until the expiration of its term.
On April 15, 1958 — prior to the expiration of the five-year term of the partnership Ang Pue & Company,
but after the enactment of the Republic Act 1180, the partners already mentioned amended the original
articles of part ownership (Exhibit B) so as to extend the term of life of the partnership to another five
years. When the amended articles were presented for registration in the Office of the Securities &
Exchange Commission on April 16, 1958, registration was refused upon the ground that the extension
was in violation of the aforesaid Act.
From the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this
appeal.
The question before us is too clear to require an extended discussion. To organize a corporation or a
partnership that could claim a juridical personality of its own and transact business as such, is not a matter
of absolute right but a privilege which may be enjoyed only under such terms as the State may deem
necessary to impose. That the State, through Congress, and in the manner provided by law, had the right
to enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by
Filipinos may engage in the retail business can not be seriously disputed. That this provision was clearly
intended to apply to partnership already existing at the time of the enactment of the law is clearly showing
by its provision giving them the right to continue engaging in their retail business until the expiration of
their term or life.
To argue that because the original articles of partnership provided that the partners could extend the term
of the partnership, the provisions of Republic Act 1180 cannot be adversely affect appellants herein, is to
erroneously assume that the aforesaid provision constitute a property right of which the partners can not
be deprived without due process or without their consent. The agreement contain therein must be deemed
subject to the law existing at the time when the partners came to agree regarding the extension. In the
present case, as already stated, when the partners amended the articles of partnership, the provisions of
Republic Act 1180 were already in force, and there can be not the slightest doubt that the right claimed by
appellants to extend the original term of their partnership to another five years would be in violation of
the clear intent and purpose of the law aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.
 6. International Express Travel and Tour Services Inc. versus CA 343 SCRA 674 (2000)

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

7. Torres versus Court of Appeals m278 SCRA 793 (1997)

Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development
Corporation (TRDC). TRDC is a small family owned corporation and other stockholders thereof include
Judge Torres’ nieces and nephews. However, even though Judge Torres owns the majority of TRDC and
was also the president thereof, he is only entitled to one vote among the 9-seat Board of Directors, hence,
his vote can be easily overridden by minority stockholders. So in 1987, before the regular election of
TRDC officers, Judge Torres assigned one share (qualifying share) each to 5 “outsiders” for the purpose
of qualifying them to be elected as directors in the board and thereby strengthen Judge Torres’ power over
other family members.
However, the said assignment of shares were not recorded by the corporate secretary, Ma. Christina
Carlos (niece) in the stock and transfer book of TRDC. When the validity of said assignments were
questioned, Judge Torres ratiocinated that it is impractical for him to order Carlos to make the entries
because Carlos is one of his opposition. So what Judge Torres did was to make the entries himself
because he was keeping the stock and transfer book. He further ratiocinated that he can do what a mere
secretary can do because in the first place, he is the president.
Since the other family members were against the inclusion of the five outsiders, they refused to take part
in the election. Judge Torres and his five assignees then decided to conduct the election among
themselves considering that the 6 of them constitute a quorum.
ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the subsequent
election is valid.
HELD: No. The assignment of the shares of stocks did not comply with procedural requirements. It did
not comply with the by laws of TRDC nor did it comply with Section 74 of the Corporation Code.
Section 74 provides that the stock and transfer book should be kept at the principal office of the
corporation. Here, it was Judge Torres who was keeping it and was bringing it with him. Further, his
excuse of not ordering the secretary to make the entries is flimsy. The proper procedure is to order the
secretary to make the entry of said assignment in the book, and if she refuses, Judge Torres can come to
court and compel her to make the entry. There are judicial remedies for this. Needless to say, the
subsequent election is invalid because the assignment of shares is invalid by reason of procedural
infirmity. The Supreme Court also emphasized: all corporations, big or small, must abide by the
provisions of the Corporation Code. Being a simple family corporation is not an exemption. Such
corporations cannot have rules and practices other than those established by law.

8. PSE versus Court of Appeals 281 SCRA 232 (1997)

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.

9. Tan Boon Bee versus Jarencio 163 SCRA 205 (1988)

In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered into a contract of sale with Graphic
Publishing Inc. (GPI) whereby ASC shall deliver paper products to GPI. GPI paid a down payment but
defaulted in paying the rest despite demand from ASC. ASC sued GPI and ASC won. To satisfy the
indebtedness, the trial court, presided by Judge Hilarion Jarencio, ordered that one of the printing
machines of GPI be auctioned. But before the auction can be had, Philippine American Drug Company
(PADCO) notified the sheriff that PADCO is the actual owner of said printing machine. Notwithstanding,
the sheriff still went on with the auction sale where Tan Boon Bee was the highest bidder.
Later, PADCO filed with the same court a motion to nullify the sale on execution. The trial court ruled in
favor of PADCO and it nullified said auction sale. Tan Boon Bee assailed the order of the trial court. Tan
Boon Bee averred that PADCO holds 50% of GPI; that the board of directors of PADCO and GPI is the
same; that the veil of corporate fiction should be pierced based on the premises. PADCO on the other
hand asserts ownership over the said printing machine; that it is merely leasing it to GPI.
ISSUE: Whether or not the veil of corporate fiction should be pierced.
HELD: Yes. PADCO, as its name suggests, is a drug company not engaged in the printing business. So it
is dubious that it really owns the said printing machine regardless of PADCO’s title over it. Further, the
printing machine, as shown by evidence, has been in GPI’s premises even before the date when PADCO
alleged that it acquired ownership thereof. Premises considered, the veil of corporate fiction should be
pierced; PADCO and GPI should be considered as one. When a corporation is merely an adjunct, business
conduit or alter ego of another corporation the fiction of separate and distinct corporation entities should
be disregarded.

10. Remo Jr. versus IAC 172 SCRA 405 (1989)

FACTS:
 December, 1977: the BOD of Akron Customs Brokerage Corporation (Akron), composed of Jose
Remo, Jr., Ernesto Bañares, Feliciano Coprada, Jemina Coprada, and Dario Punzalan with Lucia
Lacaste as Secretary, adopted a resolution authorizing the purchase of 13 trucks for use in its
business to be paid out of a loan the corporation may secure from any lending institution

 January 25, 1978: Feliciano Coprada, as President and Chairman of Akron, purchased the trucks
from E.B. Marcha Transport Company, Inc. (Marcha) for P 525K as evidenced by a deed of
absolute sale.

o parties agreed on a downpayment in the amount of P50K and that the balance of P 475K
shall be paid within 60 days from the date of the execution of the agreement.

o They also agreed that until balance is fully paid, the down payment of P 50K shall accrue
as rentals and failure to pay the balance within 60 days, then the balance shall constitute
as a chattel mortgage lien covering the cargo trucks and the parties may allow an
extension of 30 days and Marcha may ask for a revocation of the contract and the
reconveyance of all trucks.

 The obligation is further secured by a promissory note executed by Coprada in

favor of Akron. It is stated that the balance shall be paid from the proceeds of a
loan obtained from the Development Bank of the Philippines (DBP) within 60
days

 After the lapse of 90 days, Marsha tried to collect from Coprada but the Coprada
promised to pay only upon the release of the DBP loan.

 Marsha sent Coprada a letter of demand dated May 10, 1978.

 Coprada reiterated that he was applying for a loan from the DBP
from the proceeds of which payment of the obligation shall be
made.

o Meanwhile, 2 of the trucks were sold under a pacto de retro sale to a Mr. Bais of the
Perpetual Loans and Savings Bank at Baclaran.

 March 15, 1978: sale was authorized by board resolution

  Marsha found that no loan application was ever filed by Akron with DBP.

 Akron paid rentals of P 500/day pursuant to a subsequent agreement, from April 27, 1978 (the
end of the 90-days to pay the balance) to May 31, 1978. Thereafter, no more rental payments
were made.

 June 17, 1978: Coprada wrote Marsha begging for a grace period of until the end of the month to
pay the balance of the purchase price; that he will update the rentals within the week; and in case
he fails, then he will return the 13 units should Marsha elect

 August 1, 1978: Marsha through counsel, wrote Akron demanding the return of the 13 trucks and
the payment of P 25K back rentals from June 1 to August 1, 1978.

 August 8, 1978: Coprada asked for another grace period of up to August 31, 1978 to pay the
balance, stating as well that he is expecting the approval of his loan application from a financing
company, and that 10 trucks have been returned to Bagbag, Novaliches.

 December 9, 1978: Coprada informed Marsha that he had returned 10 trucks to Bagbag and that a
resolution was passed by the board of directors confirming the deed of assignment to Marsha of P
475K from the proceeds of a loan obtained by Akron from the State Investment House, Inc.

 In due time, Marsha filed a compliant for the recovery of P 525K or the return of the 13 trucks
with damages against Akron and its officers and directors

o Remo Jr. sold all his shares in Akron to Coprada. It also appears that Akron amended its
articles of incorporation thereby changing its name to Akron Transport International, Inc.
which assumed the liability of Akron to Marsha.

 CA affirmed RTC: favor of Marsha

ISSUE: W/N Remo Jr. should be held personally liable together with Akron Transport International, Inc.

HELD: NO. Petition is granted.

 The environmental facts of this case show that there is no cogent basis to pierce the corporate veil
of Akron and hold petitioner personally liable

 While it is true that in December, 1977 petitioner was still a member of the board of directors of
Akron and that he participated in the adoption of a resolution authorizing the purchase of 13
trucks for the use in the brokerage business of Akron to be paid out of a loan to be secured from a
lending institution, it does not appear that said resolution was intended to defraud anyone

 Coprada, President and Chairman of Akron, who negotiated

o The word "WE' in the said promissory note must refer to the corporation which Coprada
represented in the execution of the note and not its stockholders or directors. Petitioner
did not sign the said promissory note so he cannot be personally bound thereby.

 As to the sale through pacto de retro of the two units to a third person by the corporation by
virtue of a board resolution, Remo Jr. asserts that he never signed the resolution.
 o Be that as it may, the sale is not inherently fraudulent as the 13 units were sold through a
deed of absolute sale to Akron so that the corporation is free to dispose of the same. Of
course, it was stipulated that in case of default , a chattel mortgage lien shall be
constituted on the 13 units.

 the new corporation confirmed and assumed the obligation of the old corporation. There is no
indication of an attempt on the part of Akron to evade payment of its obligation

 it is his inherent right as a stockholder to dispose of his shares of stock anytime he so desires.

 Fraud must be established by clear and convincing evidence. If at all, the principal character on
whom fault should be attributed is Feliciano Coprada, the President of Akron. Fortunately, a
judgment against him from the trial court has long been final and executory.

11. Stockholders of F. Guanzon and Sons, Inc. versus Register of Deeds of Manila SCRA
373 (1962)

FACTS:
 Sept 19, 1960: 5 stockholders of the F. Guanzon and Sons, Inc. executed a certificate of
liquidation of the assets of the corporation, dissolution and distribution among themselves in
proportion to their shareholdings, as liquidating dividends, corporate assets, including real
properties

 Register of Deeds of Manila denied the registration of the certificate of liquidation:

1. The number of parcels not certified to in the acknowledgment;

2. P430.50 Reg. fees need be paid;

3. P940.45 documentary stamps need be attached to the document;

4. The judgment of the Court approving the dissolution and directing the disposition of the assets of
the corporation need be presented

 Commissioner of Land Registration overruled ground No. 7 and sustained requirements Nos. 3, 5
and 6.

 Stockholders appealed

o contend that the certificate of liquidation is not a conveyance or transfer but merely a
distribution of the assets of the corporation which has ceased to exist for having been
dissolved

ISSUE: W/N certificate merely involves a distribution of the corporation's assets (or should be considered
a transfer or conveyance)

HELD: NO. affirm the resolution appealed from

 Corporation - juridical person distinct from the members composing it.

o Properties registered in the name of the corporation are owned by it as an entity separate
and distinct from its members.
 o While shares of stock constitute personal property they do not represent property of the
corporation.

 A share of stock only typifies an aliquot part of the corporation's property, or the
right to share in its proceeds to that extent when distributed according to law and
equity but its holder is NOT the owner of any part of the capital of the
corporation nor entitled to possession

 The stockholder is not a co-owner or tenant in common of the corporate property

12. Manacop versus Equitable PCI Bank 468 SCRA 256 (2005)

Respondent Lavine Loungewear Manufacturing, Inc. (Lavine) insured its buildings and supplies against
fire with Philippine Fire and Marine Insurance Corporation (PhilFire), Rizal Surety and Insurance
Company (Rizal Surety), Tabacalera Insurance Company (TICO), First Lepanto-Taisho Insurance
Corporation (First Lepanto), Equitable Insurance Corporation (Equitable Insurance), and Reliance
Insurance Corporation (Reliance Insurance). Except for Policy No. 13798 issued by First Lepanto, all the
policies provide that:
Loss, if any, under this policy is payable to Equitable Banking Corporation-Greenhills Branch, as their
interest may appear subject to the terms, conditions, clauses and warranties under this policy.
(Underscoring supplied)
On August 1, 1998, a fire gutted Lavines buildings and their contents thus claims were made against the
policies. As found by the Office of the Insurance Commission, the insurance proceeds payable to Lavine
is P112,245,324.34.[1]
Lavine was then represented by Harish C. Ramnani (Harish) but his authority was withdrawn on March
17, 2000 by the Board of Directors due to his alleged failure to account for the insurance proceeds.
Chandru C. Ramnani (Chandru) was appointed in his stead and was designated, together with Atty. Mario
A. Aguinaldo, as Lavines representatives in negotiating with the insurance companies.
Prior to the release of the proceeds, the insurance companies required Lavine to sign a Sworn Statement in
Proof of Loss and Subrogation Agreement[2] whereby the former would be absolved from their liabilities
upon payment of the proceeds to Equitable Bank. Only Harish signed the document while the rest of
Lavines directors refused to sign.
Notwithstanding Chandrus request that payments be made first to Lavine who shall thereafter pay
Equitable Bank as the latters interest may appear, certain insurance companies released the proceeds
directly to Equitable Bank thus Chandru filed, in behalf of Lavine, a Petition for the Issuance of a Writ of
Preliminary Injunction with Prayer for a Temporary Restraining Order[3] before the Regional Trial Court
(RTC) of Pasig City, against PhilFire, Rizal Surety, TICO, First Lepanto and Equitable Bank. The case
was docketed as Civil Case No. 68287 and raffled to Branch 71 presided by Judge Celso D. Lavia.
Harish, Jose F. Manacop, Chandru P. Pessumal, Maureen M. Ramnani and Salvador Cortez, moved to
intervene[4] claiming they were Lavines incumbent directors and that Harish was Lavines authorized
representative.[5] They disclaimed Chandrus designation as president of Lavine as well as his and Atty.
Aguinaldos authority to file the action. They also denied having refused to sign the Sworn Statement in
Proof of Loss and Subrogation Agreement.[6]
On February 14, 2001, the trial court granted the motion for intervention[7] and thereafter denied Lavines
motion for reconsideration.[8]
In their respective Answer with Compulsory Counterclaim, Rizal Surety stated its willingness to pay the
insurance proceeds but only to the rightful claimant,[9] while Equitable Bank alleged it had sufficiently
established the amount of its claim and as beneficiary of the insurance policies, it was entitled to collect
the proceeds.[10]
The intervenors in their Amended Answer-in-Intervention[11] with cross-claim against the insurance
companies alleged that as of August 1, 1998, Lavines obligations to Equitable Bank amounted to
P71,000,000.00 and since Equitable Insurance and Reliance Insurance have already paid the bank more
than this amount, respondent insurance companies should be ordered to immediately deliver to Lavine the
remaining insurance proceeds through the intervenors and to pay interests thereon from the time of
submission of proof of loss.
In its Answer[12] dated May 22, 2001 to Lavines complaint and the intervenors cross-claim, First
Lepanto alleged that its share in the combined proceeds was P16,145,760.11, of which P6,000,000.00 had
already been paid to Equitable Bank. It withheld payment of the balance since it could not determine to
whom it should be made. It further alleged that the intervenors had no personality to intervene and prayed
for the outright dismissal of their cross-claim against the insurance companies.
This was refuted by the intervenors who alleged that since Lavine and petitioners were already litigating,
it was too late for First Lepanto to file an action for interpleader. They stressed that the latter must now
deliver the balance of the insurance proceeds to either Equitable Bank or Lavine, through the
intervenors.[13]On June 18, 2001, PhilFire filed its Answer[14] admitting liability in the amount of
P12,916,608.09, of which P4,288,329.52 had been paid to Equitable Bank but withheld paying the
balance until the rightful claimant has been determined. TICO did not file an answer to Lavines complaint
and was declared in default.[15]
After pre-trial, the intervenors filed a Second Amended Answer-in-Intervention[16] alleging that Lavines
liabilities to Equitable Bank were extinguished since it received proceeds exceeding the amount of
Lavines obligations. Thus, the real estate mortgages given as security therefor be released and the excess
amount returned to Lavine.
Equitable Bank denied that Lavines obligations were fully paid, and averred that the loans were secured
not only by the insurance policies and the real estate mortgages but also by several surety agreements
executed by Harish and Maureen Ramnani. The bank prayed that: (a) the insurance companies be ordered
to deliver to it the proceeds of the policies and/or for Lavine to be directed to pay the outstanding loans;
(b) the spouses Harish and Maureen Ramnani be held solidarily liable for the payment of the outstanding
obligations of Lavine; and (c) the mortgaged properties be foreclosed in case of failure of Lavine, the
insurers and sureties to fully satisfy the loan obligations.[17]
In a Reply,[18] the intervenors denied that Lavine acquired further loans from the bank for the years 1998
and 1999. The promissory notes allegedly pertaining to these loans were obtained prior to 1998 and the
surety agreements signed by Harish and Maureen Ramnani were consolidated in a Surety Agreement
dated January 27, 1997[19] and that the loan covered by PN No. TL-GH-97-0292 had been fully paid.
In the meantime, Equitable Bank and First Lepanto manifested in open court that another pre-trial should
be conducted on the intervenors cross-claim under the Second Amended Answer-in-Intervention but the
trial court denied the same and proceeded with the hearing of the case.[20]
On April 2, 2002, the trial court rendered a decision, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered:
1. DISMISSING the Complaint dated January 22, 2001, for lack of merit, with costs against
Chandru C. Ramnani.
2. ORDERING the defendant Bank to refund to plaintiff through the Intervenors the amount of
P65,819,936.05 representing the overpayment as actual or compensatory damages, with legal rate
of interest at six (6%) per cent per annum from the date of this decision until full payment.
3. ORDERING:
a. Defendant Philippine Fire and Marine Insurance Corporation to pay plaintiff through
Intervenors the total amount of P15,111,670.48 representing unpaid insurance proceeds as actual
or compensatory damages, with twenty-nine (29%) per cent interest per annum from October 1,
1998 until full payment.
b. Defendant Rizal Surety and Insurance Company to pay plaintiff through Intervenors the
amount of P17,100,000.00 representing unpaid insurance proceeds as actual or compensatory
damages, with twenty-nine (29%) per cent interest per annum from October 1, 1998 until full
payment.
c. Defendant First Lepanto-Taisho Insurance Corporation to pay plaintiff through Intervenors the
total amount of P18,250,000.00 representing unpaid insurance proceeds as actual or
compensatory damages, with twenty-nine (29%) per cent interest per annum from October 1,
1998 until full payment.
d. Defendant Tabacalera Insurance Company to pay plaintiff through Intervenors the amount of
P25,690,000.00 representing unpaid insurance proceeds as actual or compensatory damages, with
twenty-nine (29%) per cent interest per annum from October 1, 1998 until full payment.
4. ORDERING all defendants to pay, jointly and severally, plaintiff through Intervenors the
amount equivalent to ten (10%) per cent of the actual damages due and demandable as and by
way of attorneys fees.
5. CANCELLING the loan mortgage annotations and RETURNING to plaintiff through
Intervenors TCT No. 23906, CCT Nos. PT-17871, PT-17872 and PT-17873.

6. Costs of suit.

Counterclaims filed by plaintiff against intervenors and cross-claims filed by all defendants
against intervenors and counterclaims are hereby DISMISSED for lack of merit.

SO ORDERED[21]
On April 3, 2002, the intervenors filed a Motion for Execution Pending Appeal[22] on the following
grounds: (a) TICO was on the brink of insolvency; (b) Lavine was in imminent danger of extinction; and
(c) any appeal from the trial courts judgment would be merely dilatory.
Meanwhile, Rizal Surety, First Lepanto, Equitable Bank and Lavine separately filed a Notice of
Appeal.[23] PhilFire likewise filed a Notice of Appeal,[24] a Motion for Reconsideration (Ad
Cautelam),[25] and a Motion to Dismiss.[26] PhilFires Motion for Reconsideration and Motion to
Dismiss were denied by the trial court on May 14, 2002.[27]
Without filing a motion for reconsideration from the decision of the trial court and even before the latter
could rule on the motion for execution pending appeal, Equitable Bank filed on April 24, 2002 a Petition
for Certiorari, Prohibition and Mandamus (with Prayer for Temporary Restraining Order and Preliminary
Injunction)[28] before the Court of Appeals docketed as CA-G.R. SP No. 70298. Lavine also filed a
Petition for Certiorari with Prayer for Temporary Restraining Order (TRO) and Writ of Preliminary
Injunction[29] docketed as CA-G.R. SP No. 70292, after it withdrew its Notice of Appeal. Both claimed
that appeal was not a plain, speedy and adequate remedy under the circumstances.
Judge Lavia granted intervenors motion for execution pending appeal[30] and issued a writ of execution
on May 20, 2002[31] which was implemented the following day. Personal properties of PhilFire and First
Lepanto were seized; the latters bank deposits garnished while real properties belonging to Equitable
Bank were levied upon. The writ was not enforced against Rizal Surety because its corporate name and
operations were transferred to QBE Insurance (Phils.) Incorporation (QBE Insurance).[32]
First Lepanto assailed the trial courts order granting execution pending appeal and the writ of execution in
a Petition for Certiorari[33] before the Court of Appeals docketed as CA-G.R. SP No. 70844. It allegedly
did not file a motion for reconsideration of the trial courts order due to extreme urgency, as the ongoing
execution of the appealed judgment was threatening to paralyze its operations. Before long, PhilFire also
filed a Petition for Certiorari With Prayer for Temporary Restraining Order and Writ of Preliminary
Injunction docketed as CA-G.R. SP No. 70799, against the same order and writ of execution.[34]
Rizal Surety, for its part, did not file a petition under Rule 65 of the Revised Rules of Civil Procedure but
maintained its ordinary appeal from the April 2, 2002 decision of the trial court. However, acting on the
report that Rizal Surety was now re-organized as QBE Insurance (Phils.) Inc., Judge Lavia issued an
Order dated May 27, 2002 directing the implementation of the Writ of Execution against QBE
Insurance.[35]
Subsequently, the certiorari petitions were consolidated before the Tenth Division of the Court of
Appeals, which thereupon granted Lavines prayer for the issuance of a writ of preliminary injunction
upon posting a P50M bond.[36]
In view of the issuance of the writ of execution by the trial court, Equitable Bank filed an Amended
and/or Supplemental Petition for Certiorari, Prohibition and Mandamus[37] in CA-G.R. SP No. 70298 on
June 11, 2002, assailing the trial courts order granting execution pending appeal as well as the issuance of
the writ of execution. In due course, the Court of Appeals promulgated a consolidated decision, the
dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
(1) SETTING ASIDE the decision dated April 2, 2001;
(2) declaring NULL and VOID the Special Order dated May 17, 2002 and the Writ of Execution
dated May 20, 2002;
(3) remanding the case to the lower court for the conduct of pre-trial conference on the Second
Amended Answer-in-Intervention and the subsequent pleadings filed in relation thereto; and
(4) in the event that the lower court decides that Lavine is the one entitled to the proceeds of the
insurance policies, payment thereof should be withheld, subject to the outcome of the decision on
the issue on the rightful members of the Board of Directors of Lavine which is pending before the
intra-corporate court.
SO ORDERED[38]
On March 17, 2004, the appellate court issued a resolution amending its earlier decision as follows:
WHEREFORE, premises considered, this Court hereby resolves to:
1. CORRECT paragraph 1 of the dispositive portion of the Consolidated Decision dated May 29,
2003 to reflect the correct date of the questioned decision of the court a quo which is April 2,
2002 and not April 2, 2001;
2. CLARIFY paragraph 3 of the Consolidated Decision in the sense that the case is remanded to
the lower court to enable to (sic) the parties to amend their respective pleadings and issues, as
may be necessary and conduct pre-trial anew and other proceedings to the exclusion of the
intervenors in view of the ruling that the latter should not have been allowed to intervene in the
case;
3. a) LIFT the order of levy and garnishment on the real and personal properties and bank
deposits of Equitable PCIBank; b) LIFT the garnishment on the bank accounts of Philippine Fire
and Marine Insurance Corporation which were made pursuant to the Special Order dated May 17,
2002 and the Writ of Execution dated May 20, 2002 which were declared null and void in this
Courts Consolidated Decision; and
5. DENY Equitable PCIBanks motion to disqualify respondent Judge Celso Lavia from hearing
the case upon its remand to the lower court.
SO ORDERED.[39]
Upon proper motion, the Court of Appeals also subsequently ordered the lifting of the order of
levy and notice of garnishment on the real properties and bank deposits of First Lepanto in a
resolution dated April 20, 2004.
Equitable Bank then filed a petition for review before this Court docketed as G.R. Nos. 162842-
45 assailing the appellate courts resolution insofar as it denied the banks motion to disqualify
Judge Lavia. However, the Third Division of this Court denied the petition[40] and its subsequent
motion for reconsideration.[41]
On the other hand, the intervenors now petitioners took this recourse under Rule 45 alleging that:
I. THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO THE PETITION FOR
CERTIORARI OF EQUITABLE PCIBANK IN CA-G.R. SP NO. 70298 AND THE PETITION FOR
CERTIORARI OF LAVINE IN CA-G.R. SP NO. 70292 NOTWITHSTANDING THAT THE
ORDINARY MODE OF APPEAL UNDER SECTION 2, RULE 41 OF THE REVISED RULES OF
COURT HAD ALREADY BEEN AVAILED OF BY THEM.
II. THE COURT OF APPEALS COMMITTED AN ERROR IN VOIDING THE DECISION OF
THE TRIAL COURT DATED APRIL 2, 2002 FOR LACK OF PRE-TRIAL ON THE
PETITIONERS AMENDED ANSWER-IN-INTERVENTION NOTWITHSTANDING THAT A
PRE-TRIAL WAS ALREADY CONCLUDED AND THE PARTIES HAVE ALREADY
ADDUCED THEIR RESPECTIVE EVIDENCES IN THE TRIAL.
III. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PETITIONERS
WHO ARE THE RIGHTFUL MEMBERS OF THE BOARD OF DIRECTORS CANNOT
INTERVENE TO PROSECUTE THE ACTION FILED BY LAVINE THROUGH A
MINORITY STOCKHOLDER WHO HAS NO AUTHORITY THEREFOR.
IV. THE COURT OF APPEALS ERRED IN SETTING ASIDE THE DECISION OF THE
TRIAL COURT AND FRUSTRATE THE FINDINGS THAT EQUITABLE PCIBANK IS NOT
ENTITLED TO CLAIM THE INSURANCE PROCEEDS SINCE THE LOAN OF LAVINE TO
IT HAD ALREADY BEEN FULLY PAID AS IN FACT THERE WAS AN OVERPAYMENT
WHICH MUST BE RETURNED TO LAVINE.
V. THE COURT OF APPEALS COMMITTED AN ERROR IN VOIDING THE WRIT OF
EXECUTION PENDING APPEAL NOTWITHSTANDING THAT THE JUDGMENT
LIABILITY IS ADMITTED BUT ITS SATISFACTION IS WITHHELD BY VIRTUE OF THE
FLIMSY APPEAL.[42]
The petition is partly meritorious.
On the first assigned error, we agree that the Court of Appeals should have dismissed CA-G.R.
SP Nos. 70292 and 70298. A perusal of these petitions show that Equitable Bank and Lavine
inappropriately filed the petitions for certiorari when appeal was clearly a plain, speedy and
adequate remedy from the decision of the trial court. In fact, both filed their respective notices of
appeal from the trial courts decision, although Lavine later withdrew its notice of appeal. They
therefore cannot be allowed to question the same decision on the merits and also invoke the
extraordinary remedy of certiorari.
Simultaneous filing of a petition for certiorari under Rule 65 and an ordinary appeal under Rule 41 of the
Revised Rules of Civil Procedure cannot be allowed since one remedy would necessarily cancel out the
other. The existence and availability of the right of appeal proscribes resort to certiorari because one of
the requirements for availment of the latter is precisely that there should be no appeal.[43] It is elementary
that for certiorari to prosper, it is not enough that the trial court committed grave abuse of discretion
amounting to lack or excess of jurisdiction; the requirement that there is no appeal, nor any plain, speedy
and adequate remedy in the ordinary course of law must likewise be satisfied.[44]
In the instant case, Equitable Bank and Lavine assailed the trial courts decision through certiorari by
alleging that Judge Lavia was biased. According to Equitable Bank, Judge Lavias partiality was evident in
his refusal to issue and serve summons on Jethmal Inc. and in conducting pre-trial on petitioners Second
Amended Answer-in-Intervention. On the other hand, Lavine alleged that Judge Lavia disregarded
mandatory provisions of the Rules of Court when he allowed petitioners to intervene; that he also
resolved the issue of corporate representation between the two groups of directors of Lavine when he had
no jurisdiction over the subject matter.
Clearly, the foregoing allegations are proper under Rule 41. It should be pointed out that when Equitable
Bank and Lavine filed their respective petitions before the Court of Appeals on April 24, 2002, the trial
court had already rendered on April 2, 2002 a judgment on the merits. Both had notice of said final
judgment as they even filed notices of appeal with the trial court. This only goes to show that Equitable
Bank and Lavine unwittingly recognized ordinary appeal as the proper remedy in seeking reversal of the
assailed decision.
It is well-settled that the remedy to obtain reversal or modification of the judgment on the merits is
appeal. This is true even if the error, or one of the errors, ascribed to the trial court rendering the judgment
is its lack of jurisdiction over the subject matter, or the exercise of power in excess thereof, or grave abuse
of discretion in the findings of fact or of law set out in the decision.[45] Thus, while it may be true that a
final order or judgment was rendered under circumstances that would otherwise justify resort to a special
civil action under Rule 65, the latter would nonetheless be unavailing if there is an appeal or any other
plain, speedy and adequate remedy in the ordinary course of law.
Equitable Bank, however, posits that in certain exceptional cases, certiorari may be allowed even with the
availability of an appeal, such as where valid and compelling considerations would warrant the same or
where rigid application of the rules would result in a manifest failure or miscarriage of justice, as in this
case.
Equitable Banks reliance on Estate of Salud Jimenez v. Philippine Export Processing Zone[46] is
misplaced. In that case, resort by the respondent to a special civil action was justified, even as the
reglementary period for the proper remedy of appeal had already lapsed, because the assailed order of the
trial court set aside an expropriation order that had long become final and executory. The Court declared
therein that the trial court clearly acted beyond its jurisdiction for it cannot modify a final and executory
order. The questioned order of the trial court in that case was a patent nullity.
In contrast, Equitable Bank has not shown any valid or extraordinary circumstance that would justify
immediate resort to certiorari. It simply alleged grave abuse of discretion on the part of the trial judge as
purportedly shown by a pattern of questionable rulings in favor of petitioners. However, these rulings
may not be corrected by certiorari no matter how irregular or erroneous they might be. If the court has
jurisdiction over the subject matter and of the person, its rulings upon all questions involved are within its
jurisdiction and may be corrected only by an appeal from the final decision.[47]
Another compelling reason for dismissing CA-G.R. Nos. 70292 and 70298 is that Equitable Bank and
Lavine actually engaged in forum-shopping. As pointed out by petitioners, there is indeed parallelism
between the instant case and Chemphil Export & Import Corp. v. CA.[48]
In Chemphil, PCIBank filed a special civil action for certiorari against final orders of the trial court, even
as its co-parties likewise brought an ordinary appeal from the same final orders. Although PCIBank did
not join its co-parties in the latters appeal and instead separately filed its own petition under Rule 65, the
Court nonetheless found PCIBanks acts as constituting forum-shopping:
We view with skepticism PCIBs contention that it did not join the consortium because it honestly
believed that certiorari was the more efficacious and speedy relief available under the
circumstances. Rule 65 of the Revised Rules of Court is not difficult to understand. Certiorari is
available only if there is no appeal or other plain, speedy and adequate remedy in the ordinary
course of law. Hence, in instituting a separate petition for certiorari, PCIB has deliberately
resorted to forum-shopping.

It alarms us to realize that we have to constantly repeat our warning against forum-shopping. We
cannot over-emphasize its ill-effects, one of which is aptly demonstrated in the case at bench
where we are confronted with two divisions of the Court of Appeals issuing contradictory
decisions . . .
Forum-shopping or the act of a party against whom an adverse judgment has been rendered in one
forum, of seeking another (and possibly favorable) opinion in another forum (other than by
appeal or the special civil action of certiorari), or the institution of two (2) or more actions or
proceedings grounded on the same cause on the supposition that one or the other court would
make a favorable disposition has been characterized as an act of malpractice that is prohibited and
condemned as trifling with the Courts and abusing their processes. It constitutes improper
conduct which tends to degrade the administration of justice. It has also been aptly described as
deplorable because it adds to the congestion of the already heavily burdened dockets of the
courts. (Underscoring supplied)[49]
Thus, if we allow the instant petitions of Equitable Bank and Lavine to prosper, this Court would be
confronted with the spectacle of two (2) appellate court decisions (one on the special civil actions brought
by Equitable Bank and Lavine, and another on the ordinary appeals taken by Rizal Surety, Equitable Bank
and the other respondents) dealing with the same subject matter, issues, and parties. Needless to say, this
is exactly the pernicious effect that the rules against forum-shopping seek to avoid. Consequently, the
certiorari petitions of Equitable Bank and Lavine must be struck down for being anathema to the orderly
administration of justice.
In view of the preceding discussion, we find it no longer necessary to discuss petitioners second to fourth
assigned errors. The propriety of the intervention, the lack of pre-trial and the extent of Equitable Banks
interests in the insurance proceeds, among others, are issues that must properly be resolved in the ordinary
appeals. Except for Lavine which apparently withdrew its notice of appeal, all the other respondents
appealed the decision of the trial court under Rule 41. These appeals must consequently be allowed to
proceed.
Anent petitioners fifth assigned error, we find that the Court of Appeals did not err in giving due course
and in granting the petitions in CA-G.R. SP Nos. 70799 and 70844. These certiorari petitions initiated by
PhilFire and First Lepanto were directed against the trial courts orders granting execution pending appeal
and the concomitant issuance of a writ of execution. The proper recourse to be taken from these orders is
a special civil action for certiorari under Rule 65, pursuant to Section 1, Rule 41 of the Revised Rules of
Civil Procedure.[50]
Certiorari lies against an order granting execution pending appeal where the same is not founded upon
good reasons. The fact that the losing party had also appealed from the judgment does not bar the
certiorari proceedings, as the appeal could not be an adequate remedy from such premature execution.
Additionally, there is no forum-shopping where in one petition a party questions the order granting the
motion for execution pending appeal and at the same time questions the decision on the merits in a regular
appeal before the appellate court. After all, the merits of the main case are not to be determined in a
petition questioning execution pending appeal and vice versa.[51]
The general rule is that only judgments which have become final and executory may be executed.[52]
However, discretionary execution of appealed judgments may be allowed under Section 2 (a) of Rule 39
of the Revised Rules of Civil Procedure upon concurrence of the following requisites: (a) there must be a
motion by the prevailing party with notice to the adverse party; (b) there must be a good reason for
execution pending appeal; and (c) the good reason must be stated in a special order.[53] The yardstick
remains the presence or the absence of good reasons consisting of exceptional circumstances of such
urgency as to outweigh the injury or damage that the losing party may suffer, should the appealed
judgment be reversed later.[54] Since the execution of a judgment pending appeal is an exception to the
general rule, the existence of good reasons is essential.[55]
In the case at bar, petitioners insist that execution pending appeal is justified because respondent
insurance companies admitted their liabilities under the insurance contracts and thus have no reason to
withhold payment.
We are not persuaded. The fact that the insurance companies admit their liabilities is not a compelling or
superior circumstance that would warrant execution pending appeal. On the contrary, admission of their
liabilities and willingness to deliver the proceeds to the proper party militate against execution pending
appeal since there is little or no danger that the judgment will become illusory.
There is likewise no merit in petitioners contention that the appeals are merely dilatory because, while the
insurance companies admitted their liabilities, the matter of how much is owing from each of them and
who is entitled to the same remain unsettled. It should be noted that respondent insurance companies are
questioning the amounts awarded by the trial court for being over and above the amount ascertained by
the Office of the Insurance Commission. There are also three parties claiming the insurance proceeds,
namely: petitioners, Equitable Bank, and Lavine as represented by the group of Chandru.
Besides, that the appeal is merely dilatory is not a good reason for granting execution pending appeal.
As held in BF Corporation v. Edsa Shangri-la Hotel: it is not for the trial judge to determine the merit
of a decision he rendered as this is the role of the appellate court. Hence, it is not within competence
of the trial court, in resolving a motion for execution pending appeal, to rule that the appeal is
patently dilatory and rely on the same as basis for finding good reasons to grant the motion. Only an
appellate court can appreciate the dilatory intent of an appeal as an additional good reason in
upholding an order for execution pending appeal...[57]
Lastly, petitioners assert that Lavines financial distress is sufficient reason to order execution pending
appeal. Citing Borja v. Court of Appeals,[58] they claim that execution pending appeal may be granted if
the prevailing party is already of advanced age and in danger of extinction.
Borja is not applicable to the case at bar because its factual milieu is different. In Borja, the prevailing
party was a natural person who, at 76 years of age, may no longer enjoy the fruit of the judgment before
he finally passes away.[59] Lavine, on the other hand, is a juridical entity whose existence cannot be
likened to a natural person. Its precarious financial condition is not by itself a compelling circumstance
warranting immediate execution and does not outweigh the long standing general policy of enforcing only
final and executory judgments.[60]
WHEREFORE, the petition is PARTIALLY GRANTED. CA-G.R. SP Nos. 70292 and 70298 are
DISMISSED. The assailed decision of the Court of Appeals dated May 29, 2003 is AFFIRMED insofar
as it declared null and void the Special Order dated May 17, 2002 and the Writ of Execution dated May
20, 2002 of the Regional Trial Court-Pasig City, Branch 71, in Civil Case No. 68287.
SO ORDERED.

13. Firme versus Bukal Enterprises and Development Corp, 414 SCRA 169 (2003)

Facts: Spouses Constante and Azucena Firme are the registered owners of a parcel of land
located on Dahlia Avenue, Fairview Park, Quezon City. Renato de Castro, the vice president of
Bukal Enterprises and Development Corporation authorized his friend, Teodoro Aviles, a broker,
to negotiate with the Spouses Firme for the purchase of the Property. On 28 March 1995, Bukal
Enterprises filed a complaint for specific performance and damages with the trial court, alleging
that the Spouses Firme reneged on their agreement to sell the Property. The complaint asked the
trial court to order the Spouses Firme to execute the deed of sale and to deliver the title to the
Property to Bukal Enterprises upon payment of the agreed purchase price. On 7 August 1998, the
trial court rendered judgment against Bukal Enterprises, dismissing the case and ordering Bukal
Enterprises to pay the Spouses Constante and Azucena Firme (1) the sum of P335,964.90 as and
by way of actual and compensatory damages; (2) the sum of P500,000.00 as and by way of
moral damages; (3) the sum of P100,000.00 as and by way of attorney’s fees; and (4) the costs of
the suit.
The trial court held there was no perfected contract of sale as Bukal Enterprises failed to
establish that the Spouses Firme gave their consent to the sale of the Property; and that Aviles
had no valid authority to bind Bukal Enterprises in the sale transaction. Bukal Enterprises
appealed to the Court of Appeals, which reversed and set aside the decision of the trial court. The
appellate court ordered the Spouses Firme to execute the Deed of Absolute Sale transferring the
ownership of the subject property to Bukal Enterprises immediately upon receipt of the purchase
price of P3,224,000.00 and to perform all such acts necessary and proper to effect the transfer of
the property covered by TCT 264243 to Bulak Enterprises; and directed Bukal Enterprises to
deliver the payment of the purchase price of the property within 60 days from the finality of the
judgment. The Court of Appeals held that the lack of a board resolution authorizing Aviles to act
on behalf of Bukal Enterprises in the purchase of the Property was cured by ratification;
inasmuch as Bukal Enterprises ratified the purchase when it filed the complaint for the
enforcement of the sale. The spouses Firme filed the petition for review on certiorari before the
Supreme Court.
Issue: Whether there was a perfected contract between the Spouses Firme and Bukal Enterprises,
the latter allegedly being represented by Aviles.
Held: There was no consent on the part of the Spouses Firme. Consent is an essential element for
the existence of a contract, and where it is wanting, the contract is non-existent. The essence of
consent is the conformity of the parties on the terms of the contract, the acceptance by one of the
offer made by the other. The Spouses Firme flatly rejected the offer of Aviles to buy the Property
on behalf of Bukal Enterprises. There was therefore no concurrence of the offer and the
acceptance on the subject matter, consideration and terms of payment as would result in a
perfected contract of sale. Further, there was no approval from the Board of Directors of Bukal
Enterprises as would finalize any transaction with the Spouses Firme. Aviles did not have the
proper authority to negotiate for Bukal Enterprises. Aviles testified that his friend, De Castro,
had asked him to negotiate with the Spouses Firme to buy the Property. De Castro, as Bukal
Enterprises’ vice president, testified that he authorized Aviles to buy the Property. However,
there is no Board Resolution authorizing Aviles to negotiate and purchase the Property on behalf
of Bukal Enterprises. It is the board of directors or trustees which exercises almost all the
corporate powers in a corporation. Under Sections 23 and 36 of the Corporation Code, the power
to purchase real property is vested in the board of directors or trustees. While a corporation may
appoint agents to negotiate for the purchase of real property needed by the corporation, the final
say will have to be with the board, whose approval will finalize the transaction. A corporation
can only exercise its powers and transact its business through its board of directors and through
its officers and agents when authorized by a board resolution or its by-laws. Aviles, who
negotiated the purchase of the Property, is neither an officer of Bukal Enterprises nor a member
of the Board of Directors of Bukal Enterprises. There is no Board Resolution authorizing Aviles
to negotiate and purchase the Property for Bukal Enterprises. There is also no evidence to prove
that Bukal Enterprises approved whatever transaction Aviles made with the Spouses Firme. In
fact, the president of Bukal Enterprises did not sign any of the deeds of sale presented to the
Spouses Firme. Even De Castro admitted that he had never met the Spouses Firme. Considering
all these circumstances, it is highly improbable for Aviles to finalize any contract of sale with the
Spouses Firme. Furthermore, the Court notes that in the Complaint filed by Bukal Enterprises
with the trial court, Aviles signed the verification and certification of non-forum shopping. The
verification and certification of non-forum shopping was not accompanied by proof that Bukal
Enterprises authorized Aviles to file the complaint on behalf of Bukal Enterprises. The power of
a corporation to sue and be sued is exercised by the board of directors. “The physical acts of the
corporation, like the signing of documents, can be performed only by natural persons duly
authorized for the purpose by corporate by-laws or by a specific act of the board of directors.”
The purpose of verification is to secure an assurance that the allegations in the pleading are true
and correct and that it is filed in good faith. True, this requirement is procedural and not
jurisdictional. However, the trial court should have ordered the correction of the complaint since
Aviles was neither an officer of Bukal Enterprises nor authorized by its Board of Directors to act
on behalf of Bukal Enterprises.

14. Great Asian Sales Center Corp versus Court of Appeals 381 SCRA 557 (2002)
The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules on Civil
Procedure assailing the June 9, 1992 Decisioni[1] of the Court of Appealsii[2] in CA-G.R. CV No.
20167. The Court of Appeals affirmed the January 26, 1988 Decisioniii[3] of the Regional Trial
Court of Manila, Branch 52,iv[4] ordering petitioners Great Asian Sales Center Corporation
(Great Asian for brevity) and Tan Chong Lin to pay, solidarily, respondent Bancasia Finance and
Investment Corporation (Bancasia for brevity) the amount of P1,042,005.00. The Court of
Appeals affirmed the trial courts award of interest and costs of suit but deleted the award of
attorneys fees.

The Facts

Great Asian is engaged in the business of buying and selling general merchandise, in particular
household appliances. On March 17, 1981, the board of directors of Great Asian approved a
resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr. (Arsenio for
brevity) to secure a loan from Bancasia in an amount not to exceed P1.0 million. The board
resolution also authorized Arsenio to sign all papers, documents or promissory notes necessary to
secure the loan. On February 10, 1982, the board of directors of Great Asian approved a second
resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not
exceeding P2.0 million. The second board resolution also designated Arsenio as the authorized
signatory to sign all instruments, documents and checks necessary to secure the discounting line.

On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee,
solidarily, the debts of Great Asian to Bancasia. On January 29, 1982, Tan Chong Lin signed a
Comprehensive and Continuing Surety Agreement in favor of Bancasia to guarantee, solidarily,
the debts of Great Asian to Bancasia. Thus, Tan Chong Lin signed two surety agreements
(Surety Agreements for brevity) in favor of Bancasia.

Great Asian, through its Treasurer and General Manager Arsenio, signed four (4) Deeds of
Assignment of Receivables (Deeds of Assignment for brevity), assigning to Bancasia fifteen (15)
postdated checks. Nine of the checks were payable to Great Asian, three were payable to New
Asian Emp., and the last three were payable to cash. Various customers of Great Asian issued
these postdated checks in payment for appliances and other merchandise.

Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering
four postdated checks with a total face value of P244,225.82, with maturity dates not later than
March 17, 1982. Of these four postdated checks, two were dishonored. Great Asian and Bancasia
signed the second Deed of Assignment also on January 12, 1982 covering four postdated checks
with a total face value of P312,819.00, with maturity dates not later than April 1, 1982. All these
four checks were dishonored. Great Asian and Bancasia signed the third Deed of Assignment on
February 11, 1982 covering eight postdated checks with a total face value of P344,475.00, with
maturity dates not later than April 30, 1982. All these eight checks were dishonored. Great Asian
and Bancasia signed the fourth Deed of Assignment on March 5, 1982 covering one postdated
check with a face value of P200,000.00, with maturity date on March 18, 1982. This last check
was also dishonored. Great Asian assigned the postdated checks to Bancasia at a discount rate of
less than 24% of the face value of the checks.

Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks.
Eight of the dishonored checks bore the endorsement of Arsenio below the stamped name of
Great Asian Sales Center, while the rest of the dishonored checks just bore the signature of
Arsenio. The drawee banks dishonored the fifteen checks on maturity when deposited for
collection by Bancasia, with any of the following as reason for the dishonor: account closed,
payment stopped, account under garnishment, and insufficiency of funds. The total amount of the
fifteen dishonored checks is P1,042,005.00. Below is a table of the fifteen dishonored checks:

Drawee Bank Check No. Amount Maturity Date

1st Deed
Solid Bank C-A097480 P137,500.00 March 16, 1982
Pacific Banking Corp. 23950 P47,211.00 March 17, 1982
2nd Deed
Metrobank 030925 P68,722.00 March 19, 1982
030926 P45,230.00 March 19, 1982
Solidbank C-A097478 P140,000.00 March 23, 1982
Pacific Banking Corp. CC 769910 P58,867.00 April 1, 1982
3rd Deed
Phil. Trust Company 060835 P21,228.00 April 21, 1982
060836 P22,187.00 April 28, 1982
Allied Banking Corp. 11251624 P41,773.00 April 22, 1982
11251625 P38,592.00 April 29, 1982
Pacific Banking Corp. 237984 P37,886.00 April 23, 1982
237988 P47,385.00 April 28, 1982
237985 P46,748.00 April 30, 1982
Security Bank & Trust Co. 22061 P88,676.00 April 30, 1982
4 Deed
th

Pacific Banking Corp. 860178 P200,000.00 March 18, 1982

After the drawee bank dishonored Check No. 097480 dated March 16, 1982, Bancasia referred
the matter to its lawyer, Atty. Eladia Reyes, who sent by registered mail to Tan Chong Lin a
letter dated March 18, 1982, notifying him of the dishonor and demanding payment from him.
Subsequently, Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin,
notifying him of the dishonor of the fifteen checks and demanding payment from him. Neither
Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.

On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for
insolvency, verified under oath by its Corporate Secretary, Mario Tan. Attached to the verified
petition was a Schedule and Inventory of Liabilities and Creditors of Great Asian Sales Center
Corporation, listing Bancasia as one of the creditors of Great Asian in the amount of
P1,243,632.00.

On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great
Asian and Tan Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety
Agreements he signed in favor of Bancasia. In its answer, Great Asian denied the material
allegations of the complaint claiming it was unfounded, malicious, baseless, and unlawfully
instituted since there was already a pending insolvency proceedings, although Great Asian
subsequently withdrew its petition for voluntary insolvency. Great Asian further raised the
alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of
consideration and consent of all the parties to the Surety Agreements signed by Tan Chong Lin.
Ruling of the Trial Court

The trial court rendered its decision on January 26, 1988 with the following findings and
conclusions:

From the foregoing facts and circumstances, the Court finds that the plaintiff has established its
causes of action against the defendants. The Board Resolution (Exh. T), dated March 17, 1981,
authorizing Arsenio Lim Piat, Jr., general manager and treasurer of the defendant Great Asian to
apply and negotiate for a loan accommodation or credit line with the plaintiff Bancasia in an
amount not exceeding One Million Pesos (P1,000,000.00), and the other Board Resolution
approved on February 10, 1982, authorizing Arsenio Lim Piat, Jr., to obtain for defendant Asian
Center a discounting line with Bancasia at prevailing discounting rates in an amount not to
exceed Two Million Pesos (P2,000,000.00), both of which were intended to secure money from
the plaintiff financing firm to finance the business operations of defendant Great Asian, and
pursuant to which Arsenio Lim Piat, Jr. was able to have the aforementioned fifteen (15) checks
totaling P1,042,005.00 discounted with the plaintiff, which transactions were obviously known
by the beneficiary thereof, defendant Great Asian, as in fact, in its aforementioned Schedule and
Inventory of Liabilities and Creditors (Exh. DD, DD-1) attached to its Verified Petition for
Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian admitted an existing
liability to the plaintiff, in the amount of P1,243,632.00, secured by it, by way of financing
accommodation, from the said financing institution Bancasia Finance and Investment
Corporation, plaintiff herein, sufficiently establish the liability of the defendant Great Asian to
the plaintiff for the amount of P1,042,005.00 sought to be recovered by the latter in this case.v[5]

xxx

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the two (2)
defendants ordering the latter, jointly and severally, to pay the former:

(a) The amount of P1,042,005.00, plus interest thereon at the legal rate from the
filing of the complaint until the same is fully paid;

(b) Attorneys fees equivalent to twenty per cent (20%) of the total amount due; and

(c) The costs of suit.

SO ORDERED.vi[6]

Ruling of the Court of Appeals

On appeal, the Court of Appeals sustained the decision of the lower court, deleting only the
award of attorneys fees, as follows:

As against appellants bare denial of it, the Court is more inclined to accept the appellees version,
to the effect that the subject deeds of assignment are but individual transactions which -- being
collectively evidentiary of the loan accommodation and/or credit line it granted the appellant
corporation -- should not be taken singly and distinct therefrom. In addition to its plausibility, the
proposition is, more importantly, adequately backed by the documentary evidence on record.
Aside from the aforesaid Deeds of Assignment (Exhs. A, D, I, and R) and the Board Resolutions
of the appellant corporations Board of Directors (Exhs. T, U and V), the appellee -- consistent
with its theory -- interposed the Surety Agreements the appellant Tan Chong Lin executed (Exhs.
W and X), as well as the demand letters it served upon the latter as surety (Exhs. Y and Z). It
bears emphasis that the second Resolution of the appellant corporations Board of Directors (Exh.
V) even closely coincides with the execution of the February 11, 1982 and March 5, 1982 Deeds
of Assignment (Exhs. I and R). Were the appellants posturings true, it seems rather strange that
the appellant Tan Chong Lin did not even protest or, at least, make known to the appellee what
he -- together with the appellant corporation -- represented to be a corporate larceny to which all
of them supposedly fell prey. In the petition for voluntary insolvency it filed, the appellant
corporation, instead, indirectly acknowledged its indebtedness in terms of financing
accommodations to the appellee, in an amount which, while not exactly matching the sum herein
sought to be collected, approximates the same (Exhs. CC, DD and DD-1).vii[7]

xxx

The appellants contend that the foregoing warranties enlarged or increased the suretys risk, such
that appellant Tan Chong Lin should be released from his liabilities (pp. 37-44, Appellants
Brief). Without saying more, the appellants position is, however, soundly debunked by the
undertaking expressed in the Comprehensive and Continuing Surety Agreements (Exhs. W and
X), to the effect that the xxx surety/ies, jointly and severally among themselves and likewise
with the principal, hereby agree/s and bind/s himself to pay at maturity all the notes, drafts, bills
of exchange, overdrafts and other obligations which the principal may now or may hereafter owe
the creditor xxx. With the possible exception of the fixed ceiling for the amount of loan
obtainable, the surety undertaking in the case at bar is so comprehensive as to contemplate each
and every condition, term or warranty which the principal parties may have or may be minded to
agree on. Having affixed his signature thereto, the appellant Tan Chong Lin is expected to have,
at least, read and understood the same.

xxx

With the foregoing disquisition, the Court sees little or no reason to go into the appellants
remaining assignments of error, save the matter of attorneys fees. For want of a statement of the
rationale therefore in the body of the challenged decision, the trial courts award of attorneys fees
should be deleted and disallowed (Abrogar vs. Intermediate Appellate Court, 157 SCRA 57).

WHEREFORE, the decision appealed from is MODIFIED, to delete the trial courts award of
attorneys fees. The rest is AFFIRMED in toto.

SO ORDERED.viii[8]

The Issues

The petition is anchored on the following assigned errors:

1. The respondent Court erred in not holding that the proper parties against whom this
action for collection should be brought are the drawers and indorser of the checks in question,
being the real parties in interest, and not the herein petitioners.

2. The respondent Court erred in not holding that the petitioner-corporation is discharged
from liability for failure of the private respondent to comply with the provisions of the
Negotiable Instruments Law on the dishonor of the checks.

3. The respondent Court erred in its appreciation and interpretation of the effect and legal
consequences of the signing of the deeds of assignment and the subsequent indorsement of the
checks by Arsenio Lim Piat, Jr. in his individual and personal capacity and without stating or
indicating the name of his supposed principal.

4. The respondent Court erred in holding that the assignment of the checks is a loan
accommodation or credit line accorded by the private respondent to petitioner-corporation, and
not a purchase and sale thereof.

5. The respondent Court erred in not holding that there was a material alteration of the risk
assumed by the petitioner-surety under his surety agreement by the terms, conditions, warranties
and obligations assumed by the assignor Arsenio Lim Piat, Jr. under the deeds of assignment or
receivables.

6. The respondent Court erred in holding that the petitioner-corporation impliedly admitted
its liability to private respondent when the former included the latter as one of its creditors in its
petition for voluntary insolvency, although no claim was filed and proved by the private
respondent in the insolvency court.

7. The respondent Court erred in holding the petitioners liable to private respondent on the
transactions in question.ix[9]

The issues to be resolved in this petition can be summarized into three:

1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF

ASSIGNMENT AND THUS BIND GREAT ASIAN;

2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF

ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL CODE,
INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW;

3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE

SURETY AGREEMENTS.

The Courts Ruling

The petition is bereft of merit.

First Issue: Authority of Arsenio to Sign the Deeds of Assignment

Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the checks in his
personal capacity. The primordial question that must be resolved is whether Great Asian
authorized Arsenio to sign the Deeds of Assignment. If Great Asian so authorized Arsenio, then
Great Asian is bound by the Deeds of Assignment and must honor its terms.

The Corporation Code of the Philippines vests in the board of directors the exercise of the
corporate powers of the corporation, save in those instances where the Code requires
stockholders approval for certain specific acts. Section 23 of the Code provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of
directors or trustees x x x.

In the ordinary course of business, a corporation can borrow funds or dispose of assets of the
corporation only on authority of the board of directors. The board of directors normally
designates one or more corporate officers to sign loan documents or deeds of assignment for the
corporation.

To secure a credit accommodation from Bancasia, the board of directors of Great Asian adopted
two board resolutions on different dates, the first on March 17, 1981, and the second on February
10, 1982. These two board resolutions, as certified under oath by Great Asians Corporate
Secretary Mario K. Tan, state:

First Board Resolution

RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be authorized
as he is authorized to apply for and negotiate for a loan accommodation or credit line in the
amount not to exceed ONE MILLION PESOS (P1,000,000.00), with Bancasia Finance and
Investment Corporation, and likewise to sign any and all papers, documents, and/or
promissory notes in connection with said loan accommodation or credit line, including the
power to mortgage such properties of the corporation as may be needed to effectuate the
same.x[10] (Emphasis supplied)

Second Board Resolution

RESOLVED that Great Asian Sales Center Corp. obtain a discounting line with
BANCASIA FINANCE & INVESTMENT CORPORATION, at prevailing discounting
rates, in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000),**
Philippine Currency.

RESOLVED FURTHER, that the corporation secure such other forms of credit lines with
BANCASIA FINANCE & INVESTMENT CORPORATION in an amount not to exceed**
 TWO MILLION PESOS ONLY (P2,000,000.00),** PESOS, under such terms and
conditions as the signatories may deem fit and proper.

RESOLVED FURTHER, that the following persons be authorized individually, jointly or

collectively to sign, execute and deliver any and all instruments, documents, checks,
sureties, etc. necessary or incidental to secure any of the foregoing obligation:

(signed)
Specimen Signature

1. ARSENIO LIM PIAT, JR._

2. _______________________
3. _______________________
4. _______________________

PROVIDED FINALLY that this authority shall be valid, binding and effective until
revoked by the Board of Directors in the manner prescribed by law, and that BANCASIA
FINANCE & INVESTMENT CORPORATION shall not be bound by any such revocation
until such time as it is noticed in writing of such revocation.xi[11] (Emphasis supplied)

The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for
a loan accommodation or credit line with Bancasia for not more than P1.0 million. Also, the
first resolution explicitly authorizes Arsenio to sign any document, paper or promissory note,
including mortgage deeds over properties of Great Asian, to secure the loan or credit line from
Bancasia.

The second board resolution expressly authorizes Great Asian to secure a discounting line from
Bancasia for not more than P2.0 million. The second board resolution also expressly empowers
Arsenio, as the authorized signatory of Great Asian, to sign, execute and deliver any and all
documents, checks x x x necessary or incidental to secure the discounting line. The second
board resolution specifically authorizes Arsenio to secure the discounting line under such terms
and conditions as (he) x x x may deem fit and proper.

As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or
discounting line from Bancasia. The two board resolutions also categorically designate Arsenio
as the authorized signatory to sign and deliver all the implementing documents, including
checks, for Great Asian. There is no iota of doubt whatsoever about the purpose of the two board
resolutions, and about the authority of Arsenio to act and sign for Great Asian. The second board
resolution even gave Arsenio full authority to agree with Bancasia on the terms and conditions
of the discounting line. Great Asian adopted the correct and proper board resolutions to secure a
loan or discounting line from Bancasia, and Bancasia had a right to rely on the two board
resolutions of Great Asian. Significantly, the two board resolutions specifically refer to Bancasia
as the financing institution from whom Great Asian will secure the loan accommodation or
discounting line.
Armed with the two board resolutions, Arsenio signed the Deeds of Assignment selling, and
endorsing, the fifteen checks of Great Asian to Bancasia. On the face of the Deeds of
Assignment, the contracting parties are indisputably Great Asian and Bancasia as the names of
these entities are expressly mentioned therein as the assignor and assignee, respectively. Great
Asian claims that Arsenio signed the Deeds of Assignment in his personal capacity because
Arsenio signed above his printed name, below which was the word Assignor, thereby making
Arsenio the assignor. Great Asian conveniently omits to state that the first paragraph of the
Deeds expressly contains the following words: the ASSIGNOR, Great Asian Sales Center, a
domestic corporation x x x herein represented by its Treasurer Arsenio Lim Piat, Jr. The
assignor is undoubtedly Great Asian, represented by its Treasurer, Arsenio. The only issue to
determine is whether the Deeds of Assignment are indeed the transactions the board of directors
of Great Asian authorized Arsenio to sign under the two board resolutions.

Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a discount, over
three months, to Bancasia. The Deeds of Assignment uniformly state that Great Asian,

x x x for valuable consideration received, does hereby SELL, TRANSFER, CONVEY, and
ASSIGN, unto the ASSIGNEE, BANCASIA FINANCE & INVESTMENT CORP., a
domestic corporation x x x, the following ACCOUNTS RECEIVABLES due and payable to
it, having an aggregate face value of x x x.

The Deeds of Assignment enabled Great Asian to generate instant cash from its fifteen checks,
which were still not due and demandable then. In short, instead of waiting for the maturity dates
of the fifteen postdated checks, Great Asian sold the checks to Bancasia at less than the total face
value of the checks. In exchange for receiving an amount less than the face value of the checks,
Great Asian obtained immediately much needed cash. Over three months, Great Asian entered
into four transactions of this nature with Bancasia, showing that Great Asian availed of a
discounting line with Bancasia.

In the financing industry, the term discounting line means a credit facility with a financing
company or bank, which allows a business entity to sell, on a continuing basis, its accounts
receivable at a discount.xii[12] The term discount means the sale of a receivable at less than its
face value. The purpose of a discounting line is to enable a business entity to generate instant
cash out of its receivables which are still to mature at future dates. The financing company or
bank which buys the receivables makes its profit out of the difference between the face value of
the receivable and the discounted price. Thus, Section 3 (a) of the Financing Company Act of
1998 provides:

Financing companies are corporations x x x primarily organized for the purpose of

extending credit facilities to consumers and to industrial, commercial or agricultural
enterprises by discounting or factoring commercial papers or accounts receivable, or by
buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness,
or by financial leasing of movable as well as immovable property. (Emphasis supplied)

This definition of financing companies is substantially the same definition as in the old
Financing Company Act (R.A. No. 5980).xiii[13]
Moreover, Section 1 (h) of the New Rules and Regulations adopted by the Securities and
Exchange Commission to implement the Financing Company Act of 1998 states:

Discounting is a type of receivables financing whereby evidences of indebtedness of a third

party, such as installment contracts, promissory notes and similar instruments, are purchased
by, or assigned to, a financing company in an amount or for a consideration less than
their face value. (Emphasis supplied)

Likewise, this definition of discounting is an exact reproduction of the definition of discounting

in the implementing rules of the old Finance Company Act.

Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment
were the very transactions envisioned in the two board resolutions of Great Asian to raise funds
for its business. Arsenio acted completely within the limits of his authority under the two board
resolutions. Arsenio did exactly what the board of directors of Great Asian directed and
authorized him to do.

Arsenio had all the proper and necessary authority from the board of directors of Great Asian to
sign the Deeds of Assignment and to endorse the fifteen postdated checks. Arsenio signed the
Deeds of Assignment as agent and authorized signatory of Great Asian under an authority
expressly granted by its board of directors. The signature of Arsenio on the Deeds of Assignment
is effectively also the signature of the board of directors of Great Asian, binding on the board of
directors and on Great Asian itself. Evidently, Great Asian shows its bad faith in disowning the
Deeds of Assignment signed by its own Treasurer, after receiving valuable consideration for the
checks assigned under the Deeds.

Second Issue: Breach of Contract by Great Asian

Bancasias complaint against Great Asian is founded on the latters breach of contract under the
Deeds of Assignment. The Deeds of Assignment uniformly stipulatexiv[14] as follows:

If for any reason the receivables or any part thereof cannot be paid by the obligor/s, the
ASSIGNOR unconditionally and irrevocably agrees to pay the same, assuming the liability to
pay, by way of penalty three per cent (3%) of the total amount unpaid, for the period of delay
until the same is fully paid.

In case of any litigation which the ASSIGNEE may institute to enforce the terms of this
agreement, the ASSIGNOR shall be liable for all the costs, plus attorneys fees equivalent to
twenty-five (25%) per cent of the total amount due. Further thereto, the ASSIGNOR agrees that
any and all actions which may be instituted relative hereto shall be filed before the proper courts
of the City of Manila, all other appropriate venues being hereby waived.

The last Deed of Assignmentxv[15] contains the following added stipulation:

xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR hereby made are
deemed part of the consideration for this transaction, such that any violation of any one, some, or
all of said warranties shall be deemed as deliberate misrepresentation on the part of the
ASSIGNOR. In such event, the monetary obligation herein conveyed unto the ASSIGNEE shall
be conclusively deemed defaulted, giving rise to the immediate responsibility on the part of the
ASSIGNOR to make good said obligation, and making the ASSIGNOR liable to pay the penalty
stipulated hereinabove as if the original obligor/s of the receivables actually defaulted. xxx

Obviously, there is one vital suspensive condition in the Deeds of Assignment. That is, in case
the drawers fail to pay the checks on maturity, Great Asian obligated itself to pay Bancasia the
full face value of the dishonored checks, including penalty and attorneys fees. The failure of the
drawers to pay the checks is a suspensive condition,xvi[16] the happening of which gives rise to
Bancasias right to demand payment from Great Asian. This conditional obligation of Great Asian
arises from its written contracts with Bancasia as embodied in the Deeds of Assignment. Article
1157 of the Civil Code provides that -

Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to
pay Bancasia the full value of the dishonored checks. In short, Great Asian sold the postdated
checks on with recourse basis against itself. This is an obligation that Great Asian is bound to
faithfully comply because it has the force of law as between Great Asian and Bancasia. Article
1159 of the Civil Code further provides that -

Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.

Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that
the receivables were negotiable instruments with the endorsement of Arsenio. The contracting
parties had the right to adopt the with recourse stipulation which is separate and distinct from the
warranties of an endorser under the Negotiable Instruments Law. Article 1306 of the Civil Code
provides that

The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order,
or public policy.

The explicit with recourse stipulation against Great Asian effectively enlarges, by agreement of
the parties, the liability of Great Asian beyond that of a mere endorser of a negotiable instrument.
Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter remains liable
to Bancasia because of the with recourse stipulation which is independent of the warranties of an
endorser under the Negotiable Instruments Law.
There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or
new), that prohibits Great Asian and Bancasia parties from adopting the with recourse
stipulation uniformly found in the Deeds of Assignment. Instead of being negotiated, a
negotiable instrument may be assigned.xvii[17] Assignment of a negotiable instrument is actually
the principal mode of conveying accounts receivable under the Financing Company Act. Since in
discounting of receivables the assignee is subrogated as creditor of the receivable, the
endorsement of the negotiable instrument becomes necessary to enable the assignee to collect
from the drawer. This is particularly true with checks because collecting banks will not accept
checks unless endorsed by the payee. The purpose of the endorsement is merely to facilitate
collection of the proceeds of the checks.

The purpose of the endorsement is not to make the assignee finance company a holder in due
course because policy considerations militate against according finance companies the rights of a
holder in due course.xviii[18] Otherwise, consumers who purchase appliances on installment,
giving their promissory notes or checks to the seller, will have no defense against the finance
company should the appliances later turn out to be defective. Thus, the endorsement does not
operate to make the finance company a holder in due course. For its own protection, therefore,
the finance company usually requires the assignor, in a separate and distinct contract, to pay the
finance company in the event of dishonor of the notes or checks.

As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the
Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have
governed Bancasias cause of action. Bancasia, however, did not choose this route. Instead,
Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that
Bancasia had under the express with recourse stipulation in the Deeds of Assignment.

The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not
leave Great Asian holding an empty bag. Great Asian, after paying Bancasia, is subrogated back
as creditor of the receivables. Great Asian can then proceed against the drawers who issued the
checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no
prejudice whatever to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is
not required if the drawer has no right to expect or require the bank to honor the check, or if the
drawer has countermanded payment.xix[19] In the instant case, all the checks were dishonored for
any of the following reasons: account closed, account under garnishment, insufficiency of funds,
or payment stopped. In the first three instances, the drawers had no right to expect or require the
bank to honor the checks, and in the last instance, the drawers had countermanded payment.

Moreover, under common law, delay in notice of dishonor, where such notice is required,
discharges the drawer only to the extent of the loss caused by the delay.xx[20] This rule finds
application in this jurisdiction pursuant to Section 196 of the Negotiable Instruments Law which
states, Any case not provided for in this Act shall be governed by the provisions of existing
legislation, or in default thereof, by the rules of the Law Merchant. Under Section 186 of the
Negotiable Instruments Law, delay in the presentment of checks discharges the drawer.
However, Section 186 refers only to delay in presentment of checks but is silent on delay in
giving notice of dishonor. Consequently, the common law or Law Merchant can supply this gap
in accordance with Section 196 of the Negotiable Instruments Law.
One other issue raised by Great Asian, that of lack of consideration for the Deeds of Assignment,
is completely unsubstantiated. The Deeds of Assignment uniformly provide that the fifteen
postdated checks were assigned to Bancasia for valuable consideration. Moreover, Article 1354
of the Civil Code states that, Although the cause is not stated in the contract, it is presumed that
it exists and is lawful, unless the debtor proves the contrary. The record is devoid of any showing
on the part of Great Asian rebutting this presumption. On the other hand, Bancasias Loan Section
Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a consideration at the
discount rate of less than 24% of the face value of the postdated checks.xxi[21] Moreover, in its
verified petition for voluntary insolvency, Great Asian admitted its debt to Bancasia when it
listed Bancasia as one of its creditors, an extra-judicial admission that Bancasia proved when it
formally offered in evidence the verified petition for insolvency.xxii[22] The Insolvency Law
requires the petitioner to submit a schedule of debts that must contain a full and true statement of
all his debts and liabilities.xxiii[23] The Insolvency Law even requires the petitioner to state in his
verification that the schedule of debts contains a full, correct and true discovery of all my debts
and liabilities x x x.xxiv[24] Great Asian cannot now claim that the listing of Bancasia as a
creditor was not an admission of its debt to Bancasia but merely an acknowledgment that
Bancasia had sent a demand letter to Great Asian.

Great Asian, moreover, claims that the assignment of the checks is not a loan accommodation
but a sale of the checks. With the sale, ownership of the checks passed to Bancasia, which must
now, according to Great Asian, sue the drawers and indorser of the check who are the parties
primarily liable on the checks. Great Asian forgets that under the Deeds of Assignment, Great
Asian expressly undertook to pay the full value of the checks in case of dishonor. Again, we
reiterate that this obligation of Great Asian is separate and distinct from its warranties as indorser
under the Negotiable Instruments Law.

Great Asian is, however, correct in saying that the assignment of the checks is a sale, or more
properly a discounting, of the checks and not a loan accommodation. However, it is precisely
because the transaction is a sale or a discounting of receivables, embodied in separate Deeds of
Assignment, that the relevant provisions of the Civil Code are applicable and not the Negotiable
Instruments Law.

At any rate, there is indeed a fine distinction between a discounting line and a loan
accommodation. If the accounts receivable, like postdated checks, are sold for a consideration
less than their face value, the transaction is one of discounting, and is subject to the provisions of
the Financing Company Act. The assignee is immediately subrogated as creditor of the accounts
receivable. However, if the accounts receivable are merely used as collateral for the loan, the
transaction is only a simple loan, and the lender is not subrogated as creditor until there is a
default and the collateral is foreclosed.

In summary, Great Asians four contracts assigning its fifteen postdated checks to Bancasia
expressly stipulate the suspensive condition that in the event the drawers of the checks fail to
pay, Great Asian itself will pay Bancasia. Since the common condition in the contracts had
transpired, an obligation on the part of Great Asian arose from the four contracts, and that
obligation is to pay Bancasia the full value of the checks, including the stipulated penalty and
attorneys fees.
Third Issue: The liability of surety Tan Chong Lin

Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the
Surety Agreements he signed wherein he solidarily held himself liable with Great Asian for the
payment of its debts to Bancasia. The Surety Agreements contain the following common
condition:

Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations
above mentioned, or in case of the Principals failure promptly to respond to any other lawful
demand made by the Creditor, its successors, administrators or assigns, both the Principal and
the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and
severally to the Creditor all outstanding obligations of the Principal, whether due or not due, and
whether held by the Creditor as Principal or agent, and it is agreed that a certified statement by
the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as
correct and final for all legal intents and purposes.

Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia,
solidarily with Great Asian, if the drawers of the checks fail to pay on due date. The condition on
which Tan Chong Lins obligation hinged had happened. As surety, Tan Chong Lin automatically
became liable for the entire obligation to the same extent as Great Asian.

Tan Chong Lin, however, contends that the following warranties in the Deeds of Assignment
enlarge or increase his risks under the Surety Agreements:

The ASSIGNOR warrants:

1. the soundness of the receivables herein assigned;

2. that said receivables are duly noted in its books and are supported by appropriate
documents;

3. that said receivables are genuine, valid and subsisting;

4. that said receivables represent bona fide sale of goods, merchandise, and/or services
rendered in the ordinary course of its business transactions;

5. that the obligors of the receivables herein assigned are solvent;

6. that it has valid and genuine title to and indefeasible right to dispose of said accounts;

7. that said receivables are free from all liens and encumbrances;

8. that the said receivables are freely and legally transferable, and that the obligor/s
therein will not interpose any objection to this assignment, and has in fact given
his/their consent hereto.
Tan Chong Lin maintains that these warranties in the Deeds of Assignment materially altered his
obligations under the Surety Agreements, and therefore he is released from any liability to
Bancasia. Under Article 1215 of the Civil Code, what releases a solidary debtor is a novation,
compensation, confusion or remission of the debt made by the creditor with any of the solidary
debtors. These warranties, however, are the usual warranties made by one who discounts
receivables with a financing company or bank. The Surety Agreements, written on the letter head
of Bancasia Finance & Investment Corporation, uniformly state that Great Asian Sales Center x
x x has obtained and/or desires to obtain loans, overdrafts, discounts and/or other forms of
credits from Bancasia. Tan Chong Lin was clearly on notice that he was holding himself as
surety of Great Asian which was discounting postdated checks issued by its buyers of goods and
merchandise. Moreover, Tan Chong Lin, as President of Great Asian, cannot feign ignorance of
Great Asians business activities or discounting transactions with Bancasia. Thus, the warranties
do not increase or enlarge the risks of Tan Chong Lin under the Surety Agreements. There is,
moreover, no novation of the debt of Great Asian that would warrant release of the surety.

In any event, the provisions of the Surety Agreements are broad enough to include the
obligations of Great Asian to Bancasia under the warranties. The first Surety Agreement states
that:

x x x herein Surety/ies, jointly and severally among themselves and likewise with principal,
hereby agree/s and bind/s himself/themselves to pay at maturity all the notes, drafts, bills of
exchange, overdraft and other obligations of every kind which the Principal may now or may
hereafter owe the Creditor, including extensions or renewals thereof in the sum *** ONE
MILLION ONLY*** PESOS (P1,000,000.00), Philippine Currency, plus stipulated interest
thereon at the rate of sixteen percent (16%) per annum, or at such increased rate of interest which
the Creditor may charge on the Principals obligations or renewals or the reduced amount thereof,
plus all the costs and expenses which the Creditor may incur in connection therewith.

xxx

Upon failure of the Principal to pay at maturity, with or without demand, any of the
obligations above mentioned, or in case of the Principals failure promptly to respond to any
other lawful demand made by the Creditor, its successors, administrators or assigns, both the
Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay
jointly and severally to the Creditor all outstanding obligations of the Principal, whether due or
not due, and whether held by the Creditor as Principal or agent, and it is agreed that a certified
statement by the Creditor as to the amount due from the Principal shall be accepted by the
Surety/ies as correct and final for all legal intents and purposes. (Emphasis supplied)

The second Surety Agreement contains the following provisions:

x x x herein Surety/ies, jointly and severally among themselves and likewise with PRINCIPAL,
hereby agree and bind themselves to pay at maturity all the notes, drafts, bills of exchange,
overdraft and other obligations of every kind which the PRINCIPAL may now or may
hereafter owe the Creditor, including extensions and/or renewals thereof in the principal sum
not to exceed TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, plus stipulated
interest thereon, or such increased or decreased rate of interest which the Creditor may charge on
the principal sum outstanding pursuant to the rules and regulations which the Monetary Board
may from time to time promulgate, together with all the cost and expenses which the
CREDITOR may incur in connection therewith.

If for any reason whatsoever, the PRINCIPAL should fail to pay at maturity any of the
obligations or amounts due to the CREDITOR, or if for any reason whatsoever the PRINCIPAL
fails to promptly respond to and comply with any other lawful demand made by the CREDITOR,
or if for any reason whatsoever any obligation of the PRINCIPAL in favor of any person or
entity should be considered as defaulted, then both the PRINCIPAL and the SURETY/IES shall
be considered in default under the terms of this Agreement. Pursuant thereto, the SURETY/IES
agree/s to pay jointly and severally with the PRINCIPAL, all outstanding obligations of the
CREDITOR, whether due or not due, and whether owing to the PRINCIPAL in its personal
capacity or as agent of any person, endorsee, assignee or transferee. x x x. (Emphasis supplied)

Article 1207 of the Civil Code provides, xxx There is a solidary liability only when the
obligation expressly so states, or when the law or nature of the obligation requires solidarity. The
stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong
Lin with Great Asian. Moreover, the stipulations in the Surety Agreements are sufficiently broad,
expressly encompassing all the notes, drafts, bills of exchange, overdraft and other obligations
of every kind which the PRINCIPAL may now or may hereafter owe the Creditor.
Consequently, Tan Chong Lin must be held solidarily liable with Great Asian for the
nonpayment of the fifteen dishonored checks, including penalty and attorneys fees in accordance
with the Deeds of Assignment.

The Deeds of Assignment stipulate that in case of suit Great Asian shall pay attorneys fees
equivalent to 25% of the outstanding debt. The award of attorneys fees in the instant case is
justified,xxv[25] not only because of such stipulation, but also because Great Asian and Tan
Chong Lin acted in gross and evident bad faith in refusing to pay Bancasias plainly valid, just
and demandable claim. We deem it just and equitable that the stipulated attorneys fee should be
awarded to Bancasia.

The Deeds of Assignment also provide for a 3% penalty on the total amount due in case of
failure to pay, but the Deeds are silent on whether this penalty is a running monthly or annual
penalty. Thus, the 3% penalty can only be considered as a one-time penalty. Moreover, the
Deeds of Assignment do not provide for interest if Great Asian fails to pay. We can only award
Bancasia legal interest at 12% interest per annum, and only from the time it filed the complaint
because the records do not show that Bancasia made a written demand on Great Asian prior to
filing the complaint.xxvi[26] Bancasia made an extrajudicial demand on Tan Chong Lin, the
surety, but not on the principal debtor, Great Asian.

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 20167 is
AFFIRMED with MODIFICATION. Petitioners are ordered to pay, solidarily, private
respondent the following amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b) interest on the
total outstanding amount in item (a) at the legal rate of 12% per annum from the filing of the
complaint until the same is fully paid, (c) attorneys fees equivalent to 25% of the total amount in
item (a), including interest at 12% per annum on the outstanding amount of the attorneys fees
from the finality of this judgment until the same is fully paid, and (c) costs of suit.

SO ORDERED.

15. S an Juan Structural and Steel Steel Fabricators, Inc versus CA 296 SCRA 631 (1988)

In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan) alleged that it entered into a
contract of sale with Motorich Sales Corporation (Motorich) through the latter’s treasurer, Nenita
Gruenberg. The subject of the sale was a parcel of land owned by Motorich. San Juan advanced
P100k to Nenita as earnest money.

On the day agreed upon on which Nenita was supposed to deliver the title of the land to
Motorich, Nenita did not show up. Nenita and Motorich did not heed the subsequent demand of
San Juan to comply with the contract hence San Juan sued Motorich. Motorich, in its defense,
argued that it is not bound by the acts of its treasurer, Nenita, since her act in contracting with
San Juan was not authorized by the corporate board.

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

ISSUE: Whether or not San Juan is correct.

HELD: No. Motorich is right in invoking that it is not bound by the acts of Nenita because her
act in entering into a contract with San Juan was not authorized by the board of directors of
Motorich. Nenita is however ordered to return the P100k.

There is no merit in the contention that the corporate veil should be pierced even though it is true
that Nenita and her husband own 98% of the capital stocks of Motorich. The corporate veil can
only be pierced if the corporate fiction is merely used by the incorporators to shield themselves
against liability for fraud, illegality or inequity committed on third persons. It is incumbent upon
San Juan to prove that Nenita or her husband is merely using Motorich to defraud San Juan. In
this case however, San Juan utterly failed to establish that Motorich was formed, or that it is
operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense
of third persons like San Juan.

16. Consolidated Bank and Trust Corp versus Court of Appeals 356 SCRA 651 (2001)

The instant petition for review seeks to partially set aside the July 26, 1993 Decisioniii[1] of
respondent Court of Appeals in CA-G.R. CV No. 29950, insofar as it orders petitioner to
reimburse respondent Continental Cement Corporation the amount of P490,228.90 with interest
thereon at the legal rate from July 26, 1988 until fully paid. The petition also seeks to set aside
the March 8, 1994 Resolutioniii[2] of respondent Court of Appeals denying its Motion for
Reconsideration.

The facts are as follows:

On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent

Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner
Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of
P1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of P320,445.00
to petitioner. The letter of credit was used to purchase around five hundred thousand liters of
bunker fuel oil from Petrophil Corporation, which the latter delivered directly to respondent
Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the amount
of P1,001,520.93 was executed by respondent Corporation, with respondent Lim as signatory.

Claiming that respondents failed to turn over the goods covered by the trust receipt or the
proceeds thereof, petitioner filed a complaint for sum of money with application for preliminary
attachmentiii[3] before the Regional Trial Court of Manila. In answer to the complaint,
respondents averred that the transaction between them was a simple loan and not a trust receipt
transaction, and that the amount claimed by petitioner did not take into account payments already
made by them. Respondent Lim also denied any personal liability in the subject transactions. In a
Supplemental Answer, respondents prayed for reimbursement of alleged overpayment to
petitioner of the amount of P490,228.90.

At the pre-trial conference, the parties agreed on the following issues:

1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction;

2) Whether or not the interest rates charged against the defendants by the plaintiff are proper
under the letter of credit, trust receipt and under existing rules or regulations of the Central Bank;

3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the
defendant corporation on July 13, 1982 as payment for the latters account; and

4) Whether or not the defendants are personally liable under the transaction sued for in this
case.iii[4]

On September 17, 1990, the trial court rendered its Decision,iii[5] dismissing the Complaint and
ordering petitioner to pay respondents the following amounts under their counterclaim:
P490,228.90 representing overpayment of respondent Corporation, with interest thereon at the
legal rate from July 26, 1988 until fully paid; P10,000.00 as attorneys fees; and costs.

Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting
the award of attorneys fees in favor of respondents and, instead, ordering respondent Corporation
to pay petitioner P37,469.22 as and for attorneys fees and litigation expenses.
Hence, the instant petition raising the following issues:

1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED

INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE
WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE
AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN
THE DECISION AND THE ERRONEOUS APPLICATION OF PAYMENTS WHICH IS IN
VIOLATION OF THE NEW CIVIL CODE.

2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL

DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH
BANKING PRACTICE.

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE

FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE
AND THE RULES AND REGULATIONS OF THE CENTRAL BANK.

4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY

ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT
TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE
RESPONDENTS AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR.

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY

ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE
TRUST RECEIPT TRANSACTION.iii[6]

The petition must be denied.

On the first issue respecting the fact of overpayment found by both the lower court and
respondent Court of Appeals, we stress the time-honored rule that findings of fact by the Court
of Appeals especially if they affirm factual findings of the trial court will not be disturbed by this
Court, unless these findings are not supported by evidence.iii[7]

Petitioner decries the lack of computation by the lower court as basis for its ruling that there was
an overpayment made. While such a computation may not have appeared in the Decision itself,
we note that the trial courts finding of overpayment is supported by evidence presented before it.
At any rate, we painstakingly reviewed and computed the payments together with the interest
and penalty charges due thereon and found that the amount of overpayment made by respondent
Bank to petitioner, i.e., P563,070.13, was more than what was ordered reimbursed by the lower
court. However, since respondents did not file an appeal in this case, the amount ordered
reimbursed by the lower court should stand.

Moreover, petitioners contention that the marginal deposit made by respondent Corporation
should not be deducted outright from the amount of the letter of credit is untenable. Petitioner
argues that the marginal deposit should be considered only after computing the principal plus
accrued interests and other charges. However, to sustain petitioner on this score would be to
countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in
favor of the debtor-depositor, the bank is not only able to use the same for its own purposes,
interest-free, but is also able to earn interest on the money loaned to respondent Corporation.
Indeed, it would be onerous to compute interest and other charges on the face value of the letter
of credit which the petitioner issued, without first crediting or setting off the marginal deposit
which the respondent Corporation paid to it. Compensation is proper and should take effect by
operation of law because the requisites in Article 1279 of the Civil Code are present and should
extinguish both debts to the concurrent amount.iii[8]

Hence, the interests and other charges on the subject letter of credit should be computed only on
the balance of P681,075.93, which was the portion actually loaned by the bank to respondent
Corporation.

Neither do we find error when the lower court and the Court of Appeals set aside as invalid the
floating rate of interest exhorted by petitioner to be applicable. The pertinent provision in the
trust receipt agreement of the parties fixing the interest rate states:

I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur
after July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the
penalty of 1% per month until the amount/s or installment/s due and unpaid under the trust
receipt on the reverse side hereof is/are fully paid.iii[9]

We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being
no reference rate set either by it or by the Central Bank, leaving the determination thereof at the
sole will and control of petitioner.

While it may be acceptable, for practical reasons given the fluctuating economic conditions, for
banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon
prevailing market conditions, there should always be a reference rate upon which to peg such
variable interest rates. An example of such a valid variable interest rate was found in Polotan, Sr.
v. Court of Appeals.iii[10] In that case, the contractual provision stating that if there occurs any
change in the prevailing market rates, the new interest rate shall be the guiding rate in
computing the interest due on the outstanding obligation without need of serving notice to the
Cardholder other than the required posting on the monthly statement served to the
Cardholderiii[11] was considered valid. The aforequoted provision was upheld notwithstanding
that it may partake of the nature of an escalation clause, because at the same time it provides for
the decrease in the interest rate in case the prevailing market rates dictate its reduction. In other
words, unlike the stipulation subject of the instant case, the interest rate involved in the Polotan
case is designed to be based on the prevailing market rate. On the other hand, a stipulation
ostensibly signifying an agreement to any increase or decrease in the interest rate, without more,
cannot be accepted by this Court as valid for it leaves solely to the creditor the determination of
what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent Corporation is really
a trust receipt transaction instead of merely a simple loan, as found by the lower court and the
Court of Appeals.

The recent case of Colinares v. Court of Appealsiii[12] appears to be foursquare with the facts
obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods
subject of the trust receipt before the trust receipt itself was entered into, the transaction in
question was a simple loan and not a trust receipt agreement. Prior to the date of execution of the
trust receipt, ownership over the goods was already transferred to the debtor. This situation is
inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods
belong in ownership to the bank and are only released to the importer in trust after the loan is
granted.

In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of
the trust receipt occurred long before the trust receipt itself was executed. More specifically,
delivery of the bunker fuel oil to respondent Corporations Bulacan plant commenced on July 7,
1982 and was completed by July 19, 1982.iii[13] Further, the oil was used up by respondent
Corporation in its normal operations by August, 1982.iii[14] On the other hand, the subject trust
receipt was only executed nearly two months after full delivery of the oil was made to
respondent Corporation, or on September 2, 1982.

The danger in characterizing a simple loan as a trust receipt transaction was explained in
Colinares, to wit:

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of
another regardless of whether the latter is the owner. Here, it is crystal clear that on the part of
Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the
prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by
several receipts issued by PBC acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the money for
their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a
state of mind was not proved to be present in Petitioners situation. Petitioners employed no
artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to
abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt. They are contractors who
obtained the fungible goods for their construction project. At no time did title over the
construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre.
This impresses upon the trust receipt in question vagueness and ambiguity, which should not be
the basis for criminal prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be
unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which
borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as
had happened in this case. Eventually, PBC showed its true colors and admitted that it was only
after collection of the money, as manifested by its Affidavit of Desistance.

Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with
petitioner. Neither has it been shown that it has evaded payment of its obligations. Indeed, it
continually endeavored to meet the same, as shown by the various receipts issued by petitioner
acknowledging payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a
loan with a principal amount of only P681,075.93 negates any badge of dishonesty, abuse of
confidence or mishandling of funds on the part of respondent Corporation, which are the
gravamen of a trust receipt violation. Furthermore, respondent Corporation is not an importer
which acquired the bunker fuel oil for re-sale; it needed the oil for its own operations. More
importantly, at no time did title over the oil pass to petitioner, but directly to respondent
Corporation to which the oil was directly delivered long before the trust receipt was executed.
The fact that ownership of the oil belonged to respondent Corporation, through its President,
Gregory Lim, was acknowledged by petitioners own account officer on the witness stand, to wit:

Q- After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the
defendants thereby paying the value of the bunker fuel oil what transpired next after that?

A- Upon purchase of the bunker fuel oil and upon the requests of the defendant possession
of the bunker fuel oil were transferred to them.

Q- You mentioned them to whom are you referring to?

A- To the Continental Cement Corp. upon the execution of the trust receipt acknowledging
the ownership of the bunker fuel oil this should be acceptable for whatever disposition he may
make.

Q- You mentioned about acknowledging ownership of the bunker fuel oil to whom by
whom?

A- By the Continental Cement Corp.

Q- So by your statement who really owns the bunker fuel oil?

ATTY. RACHON:

Objection already answered.

COURT:
 Give time to the other counsel to object.

ATTY. RACHON:

He has testified that ownership was acknowledged in favor of Continental Cement Corp.
so that question has already been answered.

ATTY. BAAGA:

That is why I made a follow up question asking ownership of the bunker fuel oil.

COURT:

Proceed.

ATTY. BAAGA:

Q- Who owns the bunker fuel oil after purchase from Petrophil Corp.?

A- Gregory Lim.iii[15]

By all indications, then, it is apparent that there was really no trust receipt transaction that took
place. Evidently, respondent Corporation was required to sign the trust receipt simply to
facilitate collection by petitioner of the loan it had extended to the former.

Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be
personally liable under the subject trust receipt. Petitioners argument that respondent Corporation
and respondent Lim and his spouse are one and the same cannot be sustained. The transactions
sued upon were clearly entered into by respondent Lim in his capacity as Executive Vice
President of respondent Corporation. We stress the hornbook law that corporate personality is a
shield against personal liability of its officers. Thus, we agree that respondents Gregory T. Lim
and his spouse cannot be made personally liable since respondent Lim entered into and signed
the contract clearly in his official capacity as Executive Vice President. The personality of the
corporation is separate and distinct from the persons composing it.iii[16]

WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The
Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.
17. Malayang Samahan ng mga Manggagawa sa M. Greenfield versus Ramos 357 SCRA 77 (2001)

In February 1990, M. Greenfield, Inc. (MGI), through its officers Saul Tawil, Carlos Javelosa,
and Renato Puangco began terminating employees. The corporation closed down one of their
plants and so they said they have to retrench the number of employees. Consequently, the
Malayang Samahan ng mga Manggagawa sa M. Greenfield (MSMG-UWP) filed an illegal
dismissal case against MGI. The National Labor Relations Commission, chaired by Cresencio
Ramos, ruled against the union. But on appeal, the decision of the NLRC was reversed and the
corporation was ordered, among others, to pay the employees’ backwages. The union further
appealed as they contend that the officers of the corporation should be held solidarily liable.

ISSUE: Whether or not the officers of the corporation should be held solidarily liable.

HELD: No. A corporation is a juridical entity with legal personality separate and distinct from
those acting for and in its behalf and, in general from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its directors, officers and employees are
its sole liabilities. There is no question that MGI is guilty of illegal dismissal but the officers
cannot be held solidarily liable.

It’s true that there’s a plethora of illegal dismissal cases where the SC made corporate officers
personally liable but these cases usually involve corporate officers who acted in bad faith in
illegally dismissing employees. Corporate directors and officers may be solidarily liable with the
corporation for the termination of employment of corporate employees if the same is done with
malice or in bad faith.

18. Halley versus Printwell, Inc. 649 SCRA 116 (2011)

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid
subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil
may be lifted to avoid defrauding corporate creditors.

Weaffirm with modification the decisionpromulgated on August 14, 2002,viii[1]whereby the

Court of Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City
(RTC),viii[2]ordering the defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the
principal sum of P291,342.76 plus interest.

Antecedents

The petitioner wasan incorporator and original director of Business Media Philippines, Inc.
(BMPI), which, at its incorporation on November 12, 1987,viii[3]had an authorized capital stock of
P3,000,000.00 divided into 300,000 shares each with a par value of P10.00,of which 75,000 were initially
subscribed, to wit:

Subscriber No. of shares Total subscription Amount paid

Donnina C. Halley 35,000 P 350,000.00 P87,500.00
Roberto V. Cabrera, Jr. 18,000 P 180,000.00 P45,000.00
Albert T. Yu 18,000 P 180,000.00 P45,000.00
Zenaida V. Yu 2,000 P 20,000.00 P5,000.00
Rizalino C. Vineza 2,000 P 20,000.00 P5,000.00
TOTAL 75,000 P750,000.00 P187,500.00

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the

printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI
published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI.

In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several
orders on credit, evidenced byinvoices and delivery receipts totalingP316,342.76.Considering that BMPI
paidonlyP25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance of
P291,342.76 in the RTC.viii[4]

On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the

original stockholders and incorporators to recover on theirunpaid subscriptions, as follows:viii[5]

Name Unpaid Shares

Donnina C. Halley P 262,500.00
Roberto V. Cabrera, Jr. P135,000.00
Albert T. Yu P135,000.00
Zenaida V. Yu P15,000.00
Rizalino C. Vieza P15,000.00
TOTAL P 562,500.00

The defendants filed a consolidated answer,viii[6]averring that they all had paid their
subscriptions in full; that BMPI had a separate personality from those of its stockholders; thatRizalino C.
Vieza had assigned his fully-paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors
and stockholders of BMPI had resolved to dissolve BMPI during the annual meetingheld on February 5,
1990.

To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI

official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no.
227,to wit:

Receipt No. Date Name Amount

217 November 5, 1987 Albert T. Yu P 45,000.00
218 May 13, 1988 Albert T. Yu P 135,000.00
220 May 13, 1988 Roberto V. Cabrera, Jr. P 135,000.00
221 November 5, 1987 Roberto V. Cabrera, Jr. P 45,000.00
222 November 5, 1987 Zenaida V. Yu P 5,000.00
 223 May 13, 1988 Zenaida V. Yu P 15,000.00
227 May 13, 1988 Donnina C. Halley P 262,500.00

In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report

dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the
BIR);viii[7](b) BMPIbalance sheetviii[8] and income statementviii[9]as of December 31, 1988; (c) BMPI
income tax return for the year 1988 (stamped received by the BIR);viii[10](d) journal vouchers;viii[11](e)
cash deposit slips;viii[12] and(f)Bank of the Philippine Islands (BPI) savings account passbookin the
name of BMPI.viii[13]

Ruling of the RTC

On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation
of payment in full of the subscriptions in view of an irregularity in the issuance of the ORs and
observingthat the defendants had used BMPIs corporate personality to evade payment and create
injustice, viz:

The claim of individual defendants that they have fully paid their subscriptions to
defend[a]nt corporation, is not worthy of consideration, because:

a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that
the alleged payment made on May 13, 1988 amounting to P135,000.00, is
covered by Official Receipt No. 218 (Exh. 2), whereas the alleged payment made
earlier on November 5, 1987, amounting to P5,000.00, is covered by Official
Receipt No. 222 (Exh. 3). This is cogent proof that said receipts were belatedly
issued just to suit their theory since in the ordinary course of business, a receipt
issued earlier must have serial numbers lower than those issued on a later date.
But in the case at bar, the receipt issued on November 5, 1987 has serial numbers
(222) higher than those issued on a later date (May 13, 1988).

b) The claim that since there was no call by the Board of Directors of defendant
corporation for the payment of unpaid subscriptions will not be a valid excuse to
free individual defendants from liability. Since the individual defendants are
members of the Board of Directors of defendantcorporation, it was within their
exclusive power to prevent the fulfillment of the condition, by simply not making
a call for the payment of the unpaid subscriptions. Their inaction should not work
to their benefit and unjust enrichment at the expense of plaintiff.

Assuming arguendo that the individual defendants have paid their unpaid
subscriptions, still, it is very apparent that individual defendants merely used the
corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate
personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc.
vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).viii[14]
Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell
pro rata, thusly:
 Defendant Business Media, Inc. is a registered corporation (Exhibits A, A-1 to A-
9), and, as appearing from the Articles of Incorporation, individual defendants have the
following unpaid subscriptions:

Names Unpaid Subscription

Donnina C. Halley P262,500.00
Roberto V. Cabrera, Jr. 135.000.00
Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
Rizalino V. Vineza 15,000.00
--------------------
Total P562,500.00

and it is an established doctrine that subscriptions to the capital stock of a corporation

constitute a fund to which creditors have a right to look for satisfaction of their claims
(Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a
corporation has no legal capacity to release a subscriber to its capital stock from the
obligation to pay for his shares, and any agreement to this effect is invalid (Velasco vs.
Poizat, 37 Phil. 802).

The liability of the individual stockholders in the instant case shall be pro-rated as
follows:

Names Amount
Donnina C. Halley P149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00
Rizalino V. Vineza 8,579.00
------------------
Total P321,342.75viii[15]

The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against

defendants, ordering defendants to pay to plaintiff the amount of P291,342.76, as
principal, with interest thereon at 20% per annum, from date of default, until fully paid,
plus P30,000.00 as attorneys fees, plus costs of suit.

Defendants counterclaims are ordered dismissed for lack of merit.

SO ORDERED.viii[16]

Ruling of the CA

All the defendants, except BMPI, appealed.

 Spouses Donnina and Simon Halley, andRizalinoVieza defined the following errors committed
by the RTC, as follows:

I.
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS
LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION.

II.
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE
EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY,
THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT
APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED,
NO SUCH UNPAID SUBSCRIPTIONS.

On their part, Spouses Albert and Zenaida Yu averred:

I.
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO
DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YUS
EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY
APPELLANT ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING
THEM.

II.
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT
AND ZENAIDA YU PERSONALLY LIABLE FOR THE CONTRACTUAL
OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY
SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS
TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.

Roberto V. Cabrera, Jr. argued:

I.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE
DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN
ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT
WOULD JUSTIFY RESORT THERETO.

II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT
INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEES
CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING
OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED
CAPITAL BY THE INDIVIDUAL DEFENDANTS.

On August 14, 2002, the CA affirmed the RTC, holding that the defendants resort to the corporate
personality would createan injustice becausePrintwell would thereby be at a loss against whom it would
assert the right to collect, viz:
 Settled is the rule that when the veil of corporate fiction is used as a means of
perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievements or perfection of monopoly or
generally the perpetration of knavery or crime, the veil with which the law covers and
isolates the corporation from the members or stockholders who compose it will be lifted
to allow for its consideration merely as an aggregation of individuals (First Philippine
International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine,
the corporate existence may be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligations or to justify wrong
(Claparols vs. CIR, 65 SCRA 613).

In the case at bench, it is undisputed that BMPI made several orders on credit from
appellee PRINTWELL involving the printing of business magazines, wrappers and
subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex A) which
facts were never denied by appellants stockholders that they owe appellee the amount of
P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay
its overdue account to appellee as well as the interest thereon, at the rate of 20% per
annum until fully paid. It was also during this time that appellants stockholders were in
charge of the operation of BMPI despite the fact that they were not able to pay their
unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the
unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order
to protect its right can collect from the appellants stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants would place appellee in
a limbo on where to assert their right to collect from BMPI since the stockholders who
are appellants herein are availing the defense of corporate fiction to evade payment of its
obligations.viii[17]

Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under
which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate
debts, stating thus:

It is an established doctrine that subscription to the capital stock of a corporation

constitute a fund to which creditors have a right to look up to for satisfaction of their
claims, and that the assignee in insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts (PNB vs. Bitulok
Sawmill, 23 SCRA 1366).

Premised on the above-doctrine, an inference could be made that the funds, which
consists of the payment of subscriptions of the stockholders, is where the creditors can
claim monetary considerations for the satisfaction of their claims. If these funds which
ought to be fully subscribed by the stockholders were not paid or remain an unpaid
subscription of the corporation then the creditors have no other recourse to collect from
the corporation of its liability. Such occurrence was evident in the case at bar wherein the
appellants as stockholders failed to fully pay their unpaid subscriptions, which left the
creditors helpless in collecting their claim due to insufficiency of funds of the
corporation. Likewise, the claim of appellants that they already paid the unpaid
subscriptions could not be given weight because said payment did not reflect in the
Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by the
appellants stockholders. For it is a rule that a stockholder may be sued directly by
 creditors to the extent of their unpaid subscriptions to the corporation (Keller vs. COB
Marketing, 141 SCRA 86).

Moreover, a corporation has no power to release a subscription or its capital stock,

without valuable consideration for such releases, and as against creditors, a reduction of
the capital stock can take place only in the manner and under the conditions prescribed by
the statute or the charter or the Articles of Incorporation. (PNB vs. Bitulok Sawmill, 23
SCRA 1366).viii[18]

The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full
payment of the subscriptions to the capital stock unworthy of consideration; andheld that the veil of
corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or to confuse
legitimate issues, to wit:

Finally, appellants SPS YU, argued that the fact of full payment for the unpaid
subscriptions was incontrovertibly established by competent testimonial and documentary
evidence, namely Exhibits 1, 2, 3 & 4, which were never disputed by appellee, clearly
shows that they should not be held liable for payment of the said unpaid subscriptions of
BMPI.

The reliance is misplaced.

We are hereby reproducing the contents of the above-mentioned exhibits, to wit:

Exh: 1 YU Official Receipt No. 217 dated November 5, 1987 amounting to

P45,000.00 allegedly representing the initial payment of subscriptions of
stockholder Albert Yu.
Exh: 2 YU Official Receipt No. 218 dated May 13, 1988 amounting to
P135,000.00 allegedly representing full payment of balance of subscriptions of
stockholder Albert Yu. (Record p. 352).
Exh: 3 YU Official Receipt No. 222 dated November 5, 1987 amounting to
P5,000.00 allegedly representing the initial payment of subscriptions of stockholder
Zenaida Yu.
Exh: 4 YU Official Receipt No. 223 dated May 13, 1988 amounting to
P15,000.00 allegedly representing the full payment of balance of subscriptions of
stockholder Zenaida Yu. (Record p. 353).

Based on the above exhibits, we are in accord with the lower courts findings that
the claim of the individual appellants that they fully paid their subscription to the
defendant BMPI is not worthy of consideration, because, in the case of appellants SPS.
YU, there is an inconsistency regarding the issuance of the official receipt since the
alleged payment made on May 13, 1988 amounting to P135,000.00 was covered by
Official Receipt No. 218 (Record, p. 352), whereas the alleged payment made earlier on
November 5, 1987 amounting to P5,000.00 is covered by Official Receipt No. 222
(Record, p. 353). Such issuance is a clear indication that said receipts were belatedly
issued just to suit their claim that they have fully paid the unpaid subscriptions since in
the ordinary course of business, a receipt is issued earlier must have serial numbers lower
than those issued on a later date. But in the case at bar, the receipt issued on November 5,
1987 had a serial number (222) higher than those issued on May 13, 1988 (218). And
even assuming arguendo that the individual appellants have paid their unpaid
 subscriptions, still, it is very apparent that the veil of corporate fiction may be pierced
when made as a shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs.
Court of Appeals, 198 SCRA 211).viii[19]

Spouses Halley and Vieza moved for a reconsideration, but the CA denied their motion for
reconsideration.

Issues

Only Donnina Halley has come to the Court to seek a further review, positing the following for
our consideration and resolution, to wit:

I.
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION
THAT DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE
JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF
RESPONDENTS MEMORANDUM ADOPTING THE SAME AS THE REASON FOR
THE DECISION

II.
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE
REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING
OF THE VEIL OF CORPORATE FICTION

III.
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST
FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN
SATISFIED.

On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of
Printwell; and submits that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII
of the Constitutionviii[20] as well as in Section 1,Rule 36 of the Rules of Court,viii[21]to the effect that a
judgment or final order of a court should state clearly and distinctly the facts and the law on which it is
based. The petitioner claims that the RTCs violation indicated that the RTC did not analyze the case
before rendering its decision, thus denying her the opportunity to analyze the decision; andthat a suspicion
of partiality arose from the fact that the RTC decision was but a replica of Printwells memorandum.She
cites Francisco v. Permskul,viii[22] in which the Court has stated that the reason underlying the
constitutional requirement, that every decision should clearly and distinctly state the facts and the law on
which it is based, is to inform the reader of how the court has reached its decision and thereby give the
losing party an opportunity to study and analyze the decision and enable such party to appropriately
assign the errors committed therein on appeal.

On the second and third errors, the petitioner maintains that the CA and the RTC erroneously
pierced the veil of corporate fiction despite the absence of cogent proof showing that she, as stockholder
of BMPI, had any hand in transacting with Printwell; thatthe CA and the RTC failed to appreciate the
evidence that she had fully paid her subscriptions; and the CA and the RTCwrongly relied on the articles
of incorporation in determining the current list of unpaid subscriptions despite the articles of
incorporationbeing at best reflectiveonly of the pre-incorporation status of BMPI.

As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of
disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that
separated them; and (b) the application of the trust fund doctrine.

Ruling

The petition for review fails.

I
The RTC did not violate
the Constitution and the Rules of Court

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in
writing its decision, and did not analyze the records on its own, thereby manifesting a bias in favor of
Printwell, is unfounded.

It is noted that the petition for review merely generally alleges that starting from its page 5, the
decision of the RTC copied verbatim the allegations of herein Respondents in its Memorandum before the
said court, as if the Memorandum was the draft of the Decision of the Regional Trial Court of
Pasig,viii[23]but fails to specify either the portions allegedly lifted verbatim from the memorandum, or
why she regards the decision as copied. The omission renders thepetition for review insufficient to
support her contention, considering that the mere similarityin language or thought between Printwells
memorandum and the trial courts decisiondid not necessarily justify the conclusion that the RTC simply
lifted verbatim or copied from thememorandum.

It is to be observed in this connection that a trial or appellate judge may occasionally viewa partys
memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the
judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems
suitable,and yet not be guilty of the accusation of lifting or copying from the memorandum.viii[24] This
isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct
determination of the controversy.Nor is there anything untoward in the congruence of ideas and views
about the legal issues between himself and the party drafting the memorandum.The frequency of
similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of
the courts and the memoranda of the parties, which may be great or small, can be fairly attributable tothe
adherence by our courts of law and the legal profession to widely knownor universally accepted
precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.

We also do not agree with the petitioner that the RTCs manner of writing the decisiondeprivedher
ofthe opportunity to analyze its decisionas to be able to assign errors on appeal. The contrary appears,
considering that she was able to impute and assignerrors to the RTCthat she extensively discussed in her
appeal in the CA, indicating her thorough analysis ofthe decision of the RTC.

Our own readingof the trial courts decision persuasively shows that the RTC did comply with the
requirements regarding the content and the manner of writing a decision prescribed in the Constitution
and the Rules of Court. The decision of the RTC contained clear and distinct findings of facts, and stated
the applicablelaw and jurisprudence, fully explaining why the defendants were being held liable to the
plaintiff. In short, the reader was at once informed of the factual and legal reasons for the ultimate result.

II
Corporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely:
(a) to reach the unpaid subscriptions because it appeared that such subscriptions were the remaining
visible assets of BMPI; and (b) to avoid multiplicity of suits.viii[25]

The petitionersubmits that she had no participation in the transaction between BMPI and
Printwell;that BMPI acted on its own; and that shehad no hand in persuading BMPI to renege on its
obligation to pay. Hence, she should not be personally liable.

We rule against the petitioners submission.

Although a corporation has a personality separate and distinct from those of its stockholders,
directors, or officers,viii[26]such separate and distinct personality is merely a fiction created by law for
the sake of convenience and to promote the ends of justice.viii[27]The corporate personality may be
disregarded, and the individuals composing the corporation will be treated as individuals, if the corporate
entity is being used as a cloak or cover for fraud or illegality;as a justification for a wrong; as an alter ego,
an adjunct, or a business conduit for the sole benefit of the stockholders.viii[28] As a general rule, a
corporation is looked upon as a legal entity, unless and until sufficient reason to the contrary appears.
Thus,the courts always presume good faith, andfor that reason accord prime importance to the separate
personality of the corporation, disregarding the corporate personality only after the wrongdoing is first
clearly and convincingly established.viii[29]It thus behooves the courts to be careful in assessing the
milieu where the piercing of the corporate veil shall be done.viii[30]

Although nowhere in Printwells amended complaint or in the testimonies Printwell offered can it
be read or inferred from that the petitioner was instrumental in persuading BMPI to renege onits
obligation to pay; or that sheinduced Printwell to extend the credit accommodation by misrepresenting the
solvency of BMPI toPrintwell, her personal liability, together with that of her co-defendants,
remainedbecause the CA found her and the other defendant stockholders to be in charge of the operations
of BMPI at the time the unpaid obligation was transacted and incurred, to wit:
In the case at bench, it is undisputed that BMPI made several orders on credit from
appellee PRINTWELL involving the printing of business magazines, wrappers and
subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex A) which
facts were never denied by appellants stockholders that they owe(d) appellee the amount
of P291,342.76. The said goods were delivered to and received by BMPI but it failed to
pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per
annum until fully paid. It was also during this time that appellants stockholders were in
charge of the operation of BMPI despite the fact that they were not able to pay their
unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the
unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order
to protect its right can collect from the appellants stockholders regarding their unpaid
subscriptions. To deny appellee from recovering from appellants would place appellee in
a limbo on where to assert their right to collect from BMPI since the stockholders who
 are appellants herein are availing the defense of corporate fiction to evade payment of its
obligations.viii[31]

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its
obligations to pay, and whether or not she induced Printwell to transact with BMPI were not
gooddefensesin the suit.

III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions

Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders,
including the petitioner.

The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had
already fully paid her subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts
erred in disregarding the evidence on the complete payment of the subscription, like receipts, income tax
returns, and relevant financial statements.

The petitioners argumentis devoid of substance.

The trust fund doctrineenunciates a

xxx rule that the property of a corporation is a trust fund for the payment of
creditors, but such property can be called a trust fund only by way of analogy or
metaphor. As between the corporation itself and its creditors it is a simple debtor, and as
between its creditors and stockholders its assets are in equity a fund for the payment of its
debts.viii[32]

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,viii[33]was
adopted in our jurisdiction in Philippine Trust Co. v. Rivera,viii[34]where thisCourt declared that:

It is established doctrine that subscriptions to the capital of a corporation constitute

a fund to which creditors have a right to look for satisfaction of their claims and that the
assignee in insolvency can maintain an action upon any unpaid stock subscription in
order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802)
xxxviii[35]

We clarify that the trust fund doctrineis not limited to reaching the stockholders unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the
capital stock, but also other property and assets generally regarded in equity as a trust fund for the
payment of corporate debts.viii[36]All assets and property belonging to the corporation held in trust for
the benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of full
paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim.

Also, under the trust fund doctrine,a corporation has no legal capacity to release an original
subscriber to its capital stock from the obligation of paying for his shares, in whole or in part,viii[37]
without a valuable consideration,viii[38] or fraudulently, to the prejudice of creditors.viii[39]The creditor
is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the
corporation for the satisfaction of its debt.viii[40]To make out a prima facie case in a suit against
stockholders of an insolvent corporation to compel them to contribute to the payment of its debts by
making good unpaid balances upon their subscriptions, it is only necessary to establish that
thestockholders have not in good faith paid the par value of the stocks of the corporation.viii[41]

The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs)
issued to the other stockholders/subscribers should not affect her becauseher receipt did not suffer similar
irregularity.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her
favor,we still cannot sustain the petitioners defense of full payment of her subscription.

In civil cases, theparty who pleads payment has the burden of proving it, that even where the
plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove nonpayment. In other words, the debtor bears the burden of
showing with legal certainty that the obligation has been discharged by payment.viii[42]

Apparently, the petitioner failed to discharge her burden.

A receipt is the written acknowledgment of the fact of payment in money or other settlement
between the seller and the buyer of goods, thedebtor or thecreditor, or theperson rendering services, and
theclient or thecustomer.viii[43]Althougha receipt is the best evidence of the fact of payment, it isnot
conclusive, but merely presumptive;nor is it exclusive evidence,considering thatparole evidence may also
establishthe fact of payment.viii[44]

The petitioners ORNo. 227,presentedto prove the payment of the balance of her subscription,
indicated that her supposed payment had beenmade by means of a check. Thus, to discharge theburden to
prove payment of her subscription, she had to adduce evidence satisfactorily proving that her payment by
check wasregardedas payment under the law.

Paymentis defined as the delivery of money.viii[45]Yet, because a check is not money and only
substitutes for money, the delivery of a check does not operate as payment and does not discharge the
obligation under a judgment.viii[46] The delivery of a bill of exchange only produces the fact of payment
when the bill has been encashed.viii[47]The following passage fromBank of Philippine Islands v.
Royecaviii[48]is enlightening:

Settled is the rule that payment must be made in legal tender. A check is not legal
tender and, therefore, cannot constitute a valid tender of payment. Since a
negotiable instrument is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document is
actually realized.

To establish their defense, the respondents therefore had to present proof, not
only that they delivered the checks to the petitioner, but also that the checks were
encashed. The respondents failed to do so. Had the checks been actually encashed, the
respondents could have easily produced the cancelled checks as evidence to prove
 the same. Instead, they merely averred that they believed in good faith that the
checks were encashed because they were not notified of the dishonor of the checks
and three years had already lapsed since they issued the checks.

Because of this failure of the respondents to present sufficient proof of payment, it

was no longer necessary for the petitioner to prove non-payment, particularly proof that
the checks were dishonored. The burden of evidence is shifted only if the party upon
whom it is lodged was able to adduce preponderant evidence to prove its claim.

Ostensibly, therefore, the petitioners mere submission of the receipt issued in exchange of the
check did not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could
not even inform the trial court about the identity of her drawee bank,viii[49]and about whether the check
was cleared and its amount paid to BMPI.viii[50]In fact, she did not present the check itself.

Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had
no bearing on the issue of payment of the subscription because they did not by themselves prove payment.
ITRsestablish ataxpayers liability for taxes or a taxpayers claim for refund. In the same manner, the
deposit slips and entries in the passbook issued in the name of BMPI were hardly relevant due to their not
reflecting the alleged payments.

It is notable, too, that the petitioner and her co-stockholders did not support their allegation of
complete payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed,
books and records of a corporation (including the stock and transfer book) are admissible in evidence in
favor of or against the corporation and its members to prove the corporate acts, its financial status and
other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts
and proceedings.viii[51]Specifically, a stock and transfer book is necessary as a measure of precaution,
expediency, and convenience because it provides the only certain and accurate method of establishing the
various corporate acts and transactions and of showing the ownership of stock and like
matters.viii[52]That she tendered no explanation why the stock and transfer book was not presented
warrants the inference that the book did not reflect the actual payment of her subscription.

Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate
covering her subscription might have been a reliable evidence of full payment of the subscriptions,
considering that under Section 65 of the Corporation Code a certificate of stock issues only to a
subscriber who has fully paid his subscription. The lack of any explanation for the absence of a stock
certificate in her favor likewise warrants an unfavorable inference on the issue of payment.

Lastly, the petitioner maintains that both lower courts erred in relying on the articles of
incorporationas proof of the liabilities of the stockholders subscribing to BMPIs stocks, averring that the
articles of incorporationdid not reflect the latest subscription status of BMPI.

Although the articles of incorporation may possibly reflect only the pre-incorporation status of a
corporation, the lower courts reliance on that document to determine whether the original
subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier
explained, the burden of establishing the fact of full payment belonged not to Printwell even if it was the
plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull payment of their
subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their
failure to counter the reliance on the recitals found in the articles of incorporation simply meant their
failure or inability to satisfactorily prove their defense of full payment of the subscriptions.
 To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate
obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPIs creditor,had a
right to reachher unpaid subscription in satisfaction of its claim.

IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their
shares in the capital stock of BMPI); and held the petitionerpersonally liable onlyin the amount of
P149,955.65.

We do not agree. The RTC lacked the legal and factual support for its prorating the liability.
Hence, we need to modify the extent of the petitioners personal liability to Printwell. The prevailing rule
is that a stockholder is personally liable for the financial obligations of the corporation to the extent of his
unpaid subscription.viii[53]In view ofthe petitioners unpaid subscription being worth P262,500.00,
shewas liable up to that amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at
12% per annum from the date the amended complaint was filed on February 8, 1990 until the obligation
(i.e., to the extent of the petitioners personal liability of P262,500.00) is fully paid.viii[54]

Lastly, we find no basis togrant attorneys fees, the award for which must be supported by findings
of fact and of law as provided under Article 2208 of the Civil Codeviii[55]incorporated in the body of
decision of the trial court. The absence of the requisite findings from the RTC decision warrants the
deletion of the attorneys fees.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification
the decision promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum of
P262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until full payment.

The petitioner shall paycost of suit in this appeal.

SO ORDERED.

19. Remo Jr. versus IAC 172 SCRA 405 (1989)

FACTS:
 December, 1977: the BOD of Akron Customs Brokerage Corporation (Akron), composed of Jose
Remo, Jr., Ernesto Bañares, Feliciano Coprada, Jemina Coprada, and Dario Punzalan with Lucia
Lacaste as Secretary, adopted a resolution authorizing the purchase of 13 trucks for use in its
business to be paid out of a loan the corporation may secure from any lending institution

 January 25, 1978: Feliciano Coprada, as President and Chairman of Akron, purchased the trucks
from E.B. Marcha Transport Company, Inc. (Marcha) for P 525K as evidenced by a deed of
absolute sale.
 o parties agreed on a downpayment in the amount of P50K and that the balance of P 475K
shall be paid within 60 days from the date of the execution of the agreement.

o They also agreed that until balance is fully paid, the down payment of P 50K shall accrue
as rentals and failure to pay the balance within 60 days, then the balance shall constitute
as a chattel mortgage lien covering the cargo trucks and the parties may allow an
extension of 30 days and Marcha may ask for a revocation of the contract and the
reconveyance of all trucks.

 The obligation is further secured by a promissory note executed by Coprada in

favor of Akron. It is stated that the balance shall be paid from the proceeds of a
loan obtained from the Development Bank of the Philippines (DBP) within 60
days

 After the lapse of 90 days, Marsha tried to collect from Coprada but the Coprada
promised to pay only upon the release of the DBP loan.

 Marsha sent Coprada a letter of demand dated May 10, 1978.

 Coprada reiterated that he was applying for a loan from the DBP
from the proceeds of which payment of the obligation shall be
made.

o Meanwhile, 2 of the trucks were sold under a pacto de retro sale to a Mr. Bais of the
Perpetual Loans and Savings Bank at Baclaran.

 March 15, 1978: sale was authorized by board resolution

 Marsha found that no loan application was ever filed by Akron with DBP.

 Akron paid rentals of P 500/day pursuant to a subsequent agreement, from April 27, 1978 (the
end of the 90-days to pay the balance) to May 31, 1978. Thereafter, no more rental payments
were made.

 June 17, 1978: Coprada wrote Marsha begging for a grace period of until the end of the month to
pay the balance of the purchase price; that he will update the rentals within the week; and in case
he fails, then he will return the 13 units should Marsha elect

 August 1, 1978: Marsha through counsel, wrote Akron demanding the return of the 13 trucks and
the payment of P 25K back rentals from June 1 to August 1, 1978.

 August 8, 1978: Coprada asked for another grace period of up to August 31, 1978 to pay the
balance, stating as well that he is expecting the approval of his loan application from a financing
company, and that 10 trucks have been returned to Bagbag, Novaliches.

 December 9, 1978: Coprada informed Marsha that he had returned 10 trucks to Bagbag and that a
resolution was passed by the board of directors confirming the deed of assignment to Marsha of P
475K from the proceeds of a loan obtained by Akron from the State Investment House, Inc.
  In due time, Marsha filed a compliant for the recovery of P 525K or the return of the 13 trucks
with damages against Akron and its officers and directors

o Remo Jr. sold all his shares in Akron to Coprada. It also appears that Akron amended its
articles of incorporation thereby changing its name to Akron Transport International, Inc.
which assumed the liability of Akron to Marsha.

 CA affirmed RTC: favor of Marsha

ISSUE: W/N Remo Jr. should be held personally liable together with Akron Transport International, Inc.

HELD: NO. Petition is granted.

 The environmental facts of this case show that there is no cogent basis to pierce the corporate veil
of Akron and hold petitioner personally liable

 While it is true that in December, 1977 petitioner was still a member of the board of directors of
Akron and that he participated in the adoption of a resolution authorizing the purchase of 13
trucks for the use in the brokerage business of Akron to be paid out of a loan to be secured from a
lending institution, it does not appear that said resolution was intended to defraud anyone

 Coprada, President and Chairman of Akron, who negotiated

o The word "WE' in the said promissory note must refer to the corporation which Coprada
represented in the execution of the note and not its stockholders or directors. Petitioner
did not sign the said promissory note so he cannot be personally bound thereby.

 As to the sale through pacto de retro of the two units to a third person by the corporation by
virtue of a board resolution, Remo Jr. asserts that he never signed the resolution.

o Be that as it may, the sale is not inherently fraudulent as the 13 units were sold through a
deed of absolute sale to Akron so that the corporation is free to dispose of the same. Of
course, it was stipulated that in case of default , a chattel mortgage lien shall be
constituted on the 13 units.

 the new corporation confirmed and assumed the obligation of the old corporation. There is no
indication of an attempt on the part of Akron to evade payment of its obligation

 it is his inherent right as a stockholder to dispose of his shares of stock anytime he so desires.

 Fraud must be established by clear and convincing evidence. If at all, the principal character on
whom fault should be attributed is Feliciano Coprada, the President of Akron. Fortunately, a
judgment against him from the trial court has long been final and executory.

20. PNB versus Ritratto Group, Inc. 362 SCRA 216 (2001)

FACTS:
 May 29, 1996: PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB,
organized and doing business in Hong Kong, extended a letter of credit in favor of the Ritratto
 Group, Inc. (Ritartto) in the amount of US$300K secured by real estate mortgages constituted
over 4 parcels of land in Makati City

o September 1996: increased successively to US$1,140,000.00

o November 1996: to US$1,290,000.00

o February 1997: US$1,425,000.00

o April 1998: decreased to US$1,421,316.18

 Ritratto Group, Inc. made repayments of the loan incurred by remitting those amounts to their
loan account with PNB-IFL in Hong Kong.

 April 30, 1998: outstanding amounted to US$1,497,274.70

o PNB-IFL, through its attorney-in-fact PNB, notified them of the foreclosure of all the real
estate mortgages and that the properties subjected

 May 25, 1999: Ritratto Group, Inc filed a complaint for injunction with prayer for the issuance of
a writ of preliminary injunction and/or temporary restraining order before the RTC. -granted 72-
hour TRO

 RTC and CA: dismissed motion to dismiss

o PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit
against the defendant PNB is a suit against PNB-IFL

 Rittratto: entire credit facility is void as it contains stipulations in violation of the

principle of mutuality of contracts

ISSUE: W/N PNB is an alter ego of PNB-IFL

HELD: NO. Petition is granted

 PNB is an agent with limited authority and specific duties under a special power of attorney
incorporated in the real estate mortgage.

o not privy to the loan contracts entered into by PNB-IFL.

 mere fact that a corporation owns all of the stocks of another corporation, taken alone is not
sufficient to justify their being treated as one entity.

 If used to perform legitimate functions, a subsidiary's separate existence may be respected, and
the liability of the parent corporation as well as the subsidiary will be confined to those arising in
their respective business.
  general rule the stock ownership alone by one corporation of the stock of another does not
thereby render the dominant corporation liable for the torts of the subsidiary unless the separate
corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is
such that it is but an instrumentality or adjunct of the dominant corporation.

 The Circumstance rendering the subsidiary an instrumentality (common circumstances)

(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its
incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets except
those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as
a department or division of the parent corporation, or its business or financial responsibility is referred to
as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary
but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.

21. Thomson versus CA 298 SCRA 280 (1998)

This is a petition for review on certiorari seeking the reversal of the Decisionxiii[1] of the Court of
Appeals on May 19, 1994, disposing as follows:
WHEREFORE, THE DECISION APPEALED FROM IS HEREBY SET ASIDE. ANOTHER
JUDGMENT IS ENTERED ORDERING DEFENDANT-APPELLEE MARSH THOMSON TO
TRANSFER THE SAID MPC [Manila Polo Club] SHARE TO THE NOMINEE OF THE APPELLANT.
The facts of the case are:
Petitioner Marsh Thomson (Thomson) was the Executive Vice-President and, later on, the Management
Consultant of private respondent, the American Chamber of Commerce of the Philippines, Inc.
(AmCham) for over ten years, 1979-1989.
While petitioner was still working with private respondent, his superior, A. Lewis Burridge, retired as
AmChams President. Before Burridge decided to return to his home country, he wanted to transfer his
proprietary share in the Manila Polo Club (MPC) to petitioner. However, through the intercession of
Burridge, private respondent paid for the share but had it listed in petitioners name. This was made clear
in an employment advice dated January 13, 1986, wherein petitioner was informed by private respondent
as follows:
xxxxxxxxx
11. If you so desire, the Chamber is willing to acquire for your use a membership in the Manila
Polo Club. The timing of such acquisition shall be subject to the discretion of the Board based
on the Chambers financial position. All dues and other charges relating to such membership
shall be for your personal account. If the membership is acquired in your name, you would
 execute such documents as necessary to acknowledge beneficial ownership thereof by the
Chamber.xiii[2]
xxxxxxxxx
On April 25, 1986, Burridge transferred said proprietary share to petitioner, as confirmed in a letterxiii[3]
of notification to the Manila Polo Club.
Upon his admission as a new member of the MPC, petitioner paid the transfer fee of P40,000.00 from his
own funds; but private respondent subsequently reimbursed this amount. On November 19, 1986, MPC
issued Proprietary Membership Certificate Number 3398 in favor of petitioner. But petitioner, however,
failed to execute a document recognizing private respondents beneficial ownership over said share.
Following AmChams policy and practice, there was a yearly renewal of employment contract between the
petitioner and private respondent. Separate letters of employment advice dated October 1, 1986,xiii[4] as
well March 4, 1988xiii[5] and January 7, 1989,xiii[6] mentioned the MPC share. But petitioner never
acknowledged that private respondent is the beneficial owner of the share as requested in follow-up
requests, particularly one dated March 4, 1988 as follows:
Dear Marsh:
xxxxxxxxx
All other provisions of your compensation/benefit package will remain the same and are summarized as
follows:
xxxxxxxxx
9) The Manila Polo Club membership provided by the Chamber for you and your family will
continue on the same basis, to wit: all dues and other charges relating to such membership
shall be for your personal account and, if you have not already done so, you will execute
such documents as are necessary to acknowledge that the Chamber is the beneficial owner of
your membership in the Club.xiii[7]
When petitioners contract of employment was up for renewal in 1989, he notified private respondent that
he would no longer be available as Executive Vice President after September 30, 1989. Still, the private
respondent asked the petitioner to stay on for another six (6) months. Petitioner indicated his acceptance
of the consultancy arrangement with a counter-proposal in his letter dated October 8, 1989, among others
as follows:
11.) Retention of the Polo Club share, subject to my reimbursing the purchase price to the
Chamber, or one hundred ten thousand pesos (P110,000.00).xiii[8]
Private respondent rejected petitioners counter-proposal.
Pending the negotiation for the consultancy arrangement, private respondent executed on September 29,
1989 a Release and Quitclaim,xiii[9] stating that AMCHAM, its directors, officers and assigns,
employees and/or representatives do hereby release, waive, abandon and discharge J. MARSH
THOMSON from any and all existing claims that the AMCHAM, its directors, officers and assigns,
employees and/or representatives may have against J. MARSH THOMSON.xiii[10] The quitclaim,
expressed in general terms, did not mention specifically the MPC share.
On April 5, 1990, private respondent, through counsel sent a letter to the petitioner demanding the return
and delivery of the MPC share which it (AmCham) owns and placed in your (Thomsons) name.xiii[11]
Failing to get a favorable response, private respondent filed on May 15, 1990, a complaint against
petitioner praying, inter alia, that the Makati Regional Trial Court render judgment ordering Thomson to
return the Manila Polo Club share to the plaintiff and transfer said share to the nominee of
plaintiff.xiii[12]
On February 28, 1992, the trial court promulgated its decision,xiii[13] thus:
The foregoing considered judgment is rendered as follows:
1.) The ownership of the contested Manila Polo Club share is adjudicated in favor of defendant Marsh
Thomson; and;
2.) Defendant shall pay plaintiff the sum of P300,000.00
Because both parties thru their respective faults have somehow contributed to the birth of this case, each
shall bear the incidental expenses incurred.xiii[14]
In said decision, the trial court awarded the MPC share to defendant (petitioner now) on the ground that
the Articles of Incorporation and By-laws of Manila Polo Club prohibit artificial persons, such as
corporations, to be club members, ratiocinating in this manner:
An assessment of the evidence adduced by both parties at the trial will show clearly that it was the
intention of the parties that a membership to Manila Polo Club was to be secured by plaintiff [herein
private respondent] for defendants [herein petitioner] use. The latter was to execute the necessary
documents to acknowledge ownership of the Polo membership in favor of plaintiff. (Exh. C par 9)
However, when the parties parted ways in disagreement and with some degree of bitterness, the defendant
had second thoughts and decided to keep the membership for himself. This is evident from the exhibits (E
& G) where defendant asked that he retained the Polo Club membership upon reimbursement of its
purchase price; and where he showed his profound disappointment, both at the previous Boards unfair
action, and at what I consider to be harsh terms, after my long years of dedication to the Chambers
interest.
xxx xxx xxx
Notwithstanding all these evidence in favor of plaintiff, however, defendant may not be declared the
owner of the contested membership nor be compelled to execute documents transferring the Polo
Membership to plaintiff or the latters nominee for the reason that this is prohibited by Polo Clubs Articles
& By-Laws. x x x
It is for the foregoing reasons that the Court rules that the ownership of the questioned Polo Club
membership be retained by defendant.xiii[15] x x x.
Not satisfied with the trial courts decision, private respondent appealed to the Court of Appeals.
On May 19, 1994, the Court of Appeals (Former Special Sixth Division) promulgated its decisionxiii[16]
in said CA-G.R. CV No. 38417, reversing the trial courts judgment and ordered herein petitioner to
transfer the MPC share to the nominee of private respondent, reasoning thus:
xxxxxxxxx
The significant fact in the instant case is that the appellant [herein private respondent] purchased the MPC
share for the use of the appellee [herein petitioner] and the latter expressly conformed thereto as shown in
Exhibits A-1, B, B-1, C, C-1, D, D-1. By such express conformity of the appellee, the former was bound
to recognize the appellant as the owner of the said share for a contract has the force of law between the
parties. (Alim vs. CA, 200 SCRA 450; Sasuhura Company, Inc., Ltd. vs. IAC, 205 SCRA 632) Aside
from the foregoing, the appellee conceded the true ownership of the said share to the appellant when (1)
he offered to buy the MPC share from the appellant (Exhs. E and E-1) upon the termination of his
employment; (2) he obliged himself to return the MPC share after his six month consultancy contract had
elapsed, unless its return was earlier requested in writing (Exh. I); and (3) on cross-examination, he
admitted that the proprietary share listed as one of the assets of the appellant corporation in its 1988
Corporate Income Tax Return, which he signed as the latters Executive Vice President (prior to its filing),
refers to the Manila Polo Club share (tsn., pp. 19-20, August 30, 1991). x x xxiii[17]
On 16 June 1994, petitioner filed a motion for reconsiderationxiii[18] of said decision. By
resolutionxiii[19] promulgated on August 4, 1994, the Court of Appeals denied the motion for
reconsideration.
In this petition for review, petitioner alleges the following errors of public respondent as grounds for our
review:
I. The respondent Court of Appeals erred in setting aside the Decision dated 28 February 1992 of the
Regional Trial Court, NCJR, Branch 65, Makati, Metro Manila, in its Civil Case No. 90-1286, and in not
confirming petitioners ownership over the MPC membership share.
II. The respondent Court of Appeals erred in ruling that the Quitclaim executed by AmCham in favor of
petitioner on September 29, 1989 was superseded by the contractual agreement entered into by the parties
on October 13, 1989 wherein again the appellee acknowledged that the appellant owned the MPC share,
there being absolutely no evidence to support such a conclusion and/or such inference is manifestly
mistaken.
III. The respondent Court of Appeals erred in rendering judgment ordering petitioner to transfer the
contested MPC share to a nominee of respondent AmCham notwithstanding that: (a) AmCham has no
standing in the Manila Polo Club (MPC), and being an artificial person, it is precluded under MPCs
Articles of Incorporation and governing rules and regulations from owning a proprietary share or from
becoming a member thereof; and (b) even under AmChams Articles of Incorporation, and the purposes
for which it is dedicated, becoming a stockholder or shareholder in other corporations is not one of the
express or implied powers fixed in AmChams said corporate franchise.xiii[20]
As posited above, these assigned errors show the disputed matters herein are mainly factual. As such they
are best left to the trial and appellate courts disposition. And this Court could have dismissed the petition
outright, were it not for the opposite results reached by the courts below. Moreover, for the enhanced
appreciation of the jural relationship between the parties involving trust, this Court has given due course
to the petition, which we now decide.
After carefully considering the pleadings on record, we find there are two main issues to be resolved: (1)
Did respondent court err in holding that private respondent is the beneficial owner of the disputed share?
(2) Did the respondent court err in ordering petitioner to transfer said share to private respondents
nominee?
Petitioner claims ownership of the MPC share, asserting that he merely incurred a debt to respondent
when the latter advanced the funds for the purchase of the share. On the other hand, private respondent
asserts beneficial ownership whereby petitioner only holds the share in his name, but the beneficial title
belongs to private respondent. To resolve the first issue, we must clearly distinguish a debt from a trust.
The beneficiary of a trust has beneficial interest in the trust property, while a creditor has merely a
personal claim against the debtor. In trust, there is a fiduciary relation between a trustee and a beneficiary,
but there is no such relation between a debtor and creditor. While a debt implies merely an obligation to
pay a certain sum of money, a trust refers to a duty to deal with a specific property for the benefit of
another. If a creditor-debtor relationship exists, but not a fiduciary relationship between the parties, there
is no express trust. However, it is understood that when the purported trustee of funds is entitled to use
them as his or her own (and commingle them with his or her own money), a debtor-creditor relationship
exists, not a trust.xiii[21]
In the present case, as the Executive Vice-President of AmCham, petitioner occupied a fiduciary position
in the business of Amcham. AmCham released the funds to acquire a share in the Club for the use of
petitioner but obliged him to execute such document as necessary to acknowledge beneficial ownership
thereof by the Chamber.xiii[22] A trust relationship is, therefore, manifestly indicated.
Moreover, petitioner failed to present evidence to support his allegation of being merely a debtor when
the private respondent paid the purchase price of the MPC share. Applicable here is the rule that a trust
arises in favor of one who pays the purchase money of property in the name of another, because of the
presumption that he who pays for a thing intends a beneficial interest therein for himself.xiii[23]
Although petitioner initiated the acquisition of the share, evidence on record shows that private
respondent acquired said share with its funds. Petitioner did not pay for said share, although he later
wanted to, but according to his own terms, particularly the price thereof.
Private respondents evident purpose in acquiring the share was to provide additional incentive and perks
to its chosen executive, the petitioner himself. Such intention was repeated in the yearly employment
advice prepared by AmCham for petitioners concurrence. In the cited employment advice, dated March 4,
1988, private respondent once again, asked the petitioner to execute proof to recognize the trust
agreement in writing:
The Manila Polo membership provided by the Chamber for you and your family will continue on the
same basis, to wit: all dues and other charges relating to such membership shall be for your personal
account and, if you have not already done so, you will execute such documents as are necessary to
acknowledge that the Chamber is the beneficial owner of your membership in the Club.xiii[24]
Petitioner voluntarily affixed his signature to conform with the employment advice, including his
obligation stated therein -- for him to execute the necessary document to recognize his employer as the
beneficial owner of the MPC share. Now, we cannot hear him claiming otherwise, in derogation of said
undertaking, without legal and equitable justification.
For private respondents intention to hold on to its beneficial ownership is not only presumed; it was
expressed in writing at the very outset. Although the share was placed in the name of petitioner, his title is
limited to the usufruct, that is, to enjoy the facilities and privileges of such membership in the club
appertaining to the share. Such arrangement reflects a trust relationship governed by law and equity.
While private respondent paid the purchase price for the share, petitioner was given legal title thereto.
Thus, a resulting trust is presumed as a matter of law. The burden then shifted to the transferee to show
otherwise, that it was just a loan. Such resulting trust could have been rebutted by proof of a contrary
intention by a showing that, in fact, no trust was intended. Petitioner could have negated the trust
agreement by contrary, consistent and convincing evidence on rebuttal. However, on the witness stand,
petitioner failed to do so persuasively.
On cross-examination, the petitioner testified as follows:
ATTY. AQUINO (continuing)
Q. Okay, let me go to the cash advance that you mentioned Mr. Witness, is there any document proving
that you claimed cash advance signed by an officer of the Chamber?
A. I believe the best evidence is the check.
Q. Is there any document?
COURT
Other than the Check?
MR. THOMSON
Nothing more.
ATTY. AQUINO
Is there any application filed in the Chamber to avail of this cash advance?
A. Verbal only.
Q. Nothing written, and can you tell to this Honorable Court what are the stipulations or conditions, or
terms of this transaction of securing this cash advance or loan?
xxxxxxxxx
COURT
How are you going to repay the cash advance?
MR THOMSON
The cash advance, we never stipulate when I have to repay it, but I presume that I would, when
able to repay the money.xiii[25]
In deciding whether the property was wrongfully appropriated or retained and what the intent of the
parties was at the time of the conveyance, the court must rely upon its impression of the credibility of the
witnesses.xiii[26] Intent is a question of fact, the determination of which is not reviewable unless the
conclusion drawn by the trier is one which could not reasonably be drawn.xiii[27] Petitioners denial is not
adequate to rebut the trust. Time and again, we have ruled that denials, if unsubstantiated by clear and
convincing evidence, are deemed negative and self-serving evidence, unworthy of credence.xiii[28]
The trust between the parties having been established, petitioner advanced an alternative defense that the
private respondent waived the beneficial ownership of MPC share by issuing the Release and Quitclaim
in his favor.
This argument is less than persuasive. The quitclaim executed by private respondent does not clearly
show the intent to include therein the ownership over the MPC share. Private respondent even asserts that
at the time the Release and Quitclaim was executed on September 29, 1989, the ownership of the MPC
share was not controversial nor contested. Settled is the rule that a waiver to be valid and effective must,
in the first place, be couched in clear and unequivocal terms which leave no doubt as to the intention of a
party to give up a right or benefit which legally pertains to him.xiii[29] A waiver may not be attributed to
a person when the terms thereof do not explicitly and clearly evidence an intent to abandon a right vested
in such person.xiii[30] If we apply the standard rule that waiver must be cast in clear and unequivocal
terms, then clearly the general terms of the cited release and quitclaim indicates merely a clearance from
general accountability, not specifically a waiver of AmChams beneficial ownership of the disputed
shares.
Additionally, the intention to waive a right or advantage must be shown clearly and convincingly, and
when the only proof of intention rests in what a party does, his act should be so manifestly consistent
with, and indicative of, an intent to voluntarily relinquish the particular right or advantage that no other
reasonable explanation of his conduct is possible.xiii[31] Considering the terms of the quitclaim executed
by the President of private respondent, the tenor of the document does not lead to the purported
conclusion that he intended to renounce private respondents beneficial title over its share in the Manila
Polo Club. We, therefore, find no reversible error in the respondent Courts holding that private
respondent, AmCham, is the beneficial owner of the share in dispute.
Turning now to the second issue, the petitioner contends that the Articles of Incorporation and By-laws of
Manila Polo Club prohibit corporate membership. However, private respondent does not insist nor intend
to transfer the club membership in its name but rather to its designated nominee. For as properly ruled by
the Court of Appeals:
The matter prayed for does not involve the transfer of said share to the appellant, an artificial person. The
transfer sought is to the appellants nominee. Even if the MPC By-Laws and Articles prohibit corporate
membership, there would be no violation of said prohibition for the appellants nominee to whom the said
share is sought to be transferred would certainly be a natural person. x x x
As to whether or not the transfer of said share to the appellants nominee would be disapproved by the
MPC, is a matter that should be raised at the proper time, which is only if such transfer is disapproved by
the MPC.xiii[32]
The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its members. The
Club only restricts membership to deserving applicants in accordance with its rules, when the amended
Articles of Incorporation states that: No transfer shall be valid except between the parties, and shall be
registered in the Membership Book unless made in accordance with these Articles and the By-
Laws.xiii[33] Thus, as between parties herein, there is no question that a transfer is feasible. Moreover,
authority granted to a corporation to regulate the transfer of its stock does not empower it to restrict the
right of a stockholder to transfer his shares, but merely authorizes the adoption of regulations as to the
formalities and procedure to be followed in effecting transfer.xiii[34]
In this case, the petitioner was the nominee of the private respondent to hold the share and enjoy the
privileges of the club. But upon the expiration of petitioners employment as officer and consultant of
AmCham, the incentives that go with the position, including use of the MPC share, also ceased to exist. It
now behooves petitioner to surrender said share to private respondents next nominee, another natural
person. Obviously this arrangement of trust and confidence cannot be defeated by the petitioners citation
of the MPC rules to shield his untenable position, without doing violence to basic tenets of justice and fair
dealing.
However, we still have to ascertain whether the rights of herein parties to the trust still subsist. It has been
held that so long as there has been no denial or repudiation of the trust, the possession of the trustee of an
express and continuing trust is presumed to be that of the beneficiary, and the statute of limitations does
not run between them.xiii[35] With regard to a constructive or a resulting trust, the statute of limitations
does not begin to run until the trustee clearly repudiates or disavows the trust and such disavowal is
brought home to the other party, cestui que trust.xiii[36] The statute of limitations runs generally from the
time when the act was done by which the party became chargeable as a trustee by operation of law or
when the beneficiary knew that he had a cause of action,xiii[37] in the absence of fraud or concealment.
Noteworthy in the instant case, there was no declared or explicit repudiation of the trust existing between
the parties. Such repudiation could only be inferred as evident when the petitioner showed his intent to
appropriate the MPC share for himself. Specifically, this happened when he requested to retain the MPC
share upon his reimbursing the purchase price of P110,000, a request denied promptly by private
respondent. Eventually, petitioner refused to surrender the share despite the written demand of private
respondent. This act could then be construed as repudiation of the trust. The statute of limitation could
start to set in at this point in time. But private respondent took immediate positive action. Thus, on May
15, 1990, private respondent filed an action to recover the MPC share. Between the time of implicit
repudiation of the trust on October 9, 1989, as evidenced by petitioners letter of said date, and private
respondents institution of the action to recover the MPC share on May 15, 1990, only about seven months
had lapsed. Our laws on the matter provide that actions to recover movables shall prescribe eight years
from the time the possession thereof is lost,xiii[38] unless the possessor has acquired the ownership by
prescription for a less period of four years if in good faith.xiii[39] Since the private respondent filed the
necessary action on time and the defense of good faith is not available to the petitioner, there is no basis
for any purported claim of prescription, after repudiation of the trust, which will entitle petitioner to
ownership of the disputed share. As correctly held by the respondent court, petitioner has the obligation to
transfer now said share to the nominee of private respondent.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals
of May 19, 1994, is AFFIRMED.
COSTS against petitioner.
SO ORDERED.

22. Excellent Quality Apparel Inc versus Win Multiple –Rich Builders Inc 578 SCRA 272 (2009)

Before us is a Rule 45 petitionxiii[1] seeking the reversal of the Decisionxiii[2] and

Resolutionxiii[3] of the Court of Appeals in CA-G.R. SP No. 84640. The Court of Appeals had annulled
two ordersxiii[4] of the Regional Trial Court (RTC), Branch 32, of Manila in Civil Case No. 04-108940.
This case involves a claim for a sum of money which arose from a construction dispute.

On 26 March 1996, petitioner Excellent Quality Apparel, Inc. (petitioner) then represented by
Max L.F. Ying, Vice-President for Productions, and Alfiero R. Orden, Treasurer, entered into a
contractxiii[5] with Multi-Rich Builders (Multi-Rich) represented by Wilson G. Chua (Chua), its
President and General Manager, for the construction of a garment factory within the Cavite Philippine
Economic Zone Authority (CPEZ).xiii[6] The duration of the project was for a maximum period of five
(5) months or 150 consecutive calendar days. Included in the contract is an arbitration clause which is as
follows:

Article XIX : ARBITRATION CLAUSE

Should there be any dispute, controversy or difference between the parties

arising out of this Contract that may not be resolved by them to their mutual satisfaction,
the matter shall be submitted to an Arbitration Committee of three (3) members; one (1)
chosen by the OWNER; one (1) chosen by the CONTRACTOR; and the Chairman
thereof to be chosen by two (2) members. The decision of the Arbitration Committee
shall be final and binding on both the parties hereto. The Arbitration shall be governed
by the Arbitration Law (R.A. [No.] 876). The cost of arbitration shall be borned [sic]
jointly by both CONTRACTOR and OWNER on 50-50 basis.xiii[7]
The construction of the factory building was completed on 27 November 1996.

Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the Securities and
Exchange Commission (SEC) on 20 February 1997xiii[8] with Chua as its President and General
Manager. On 26 January 2004, Win filed a complaint for a sum of moneyxiii[9] against petitioner and Mr.
Ying amounting to P8,634,448.20. It also prayed for the issuance of a writ of attachment claiming that
Mr. Ying was about to abscond and that petitioner was about to close. Win obtained a surety bondxiii[10]
issued by Visayan Surety & Insurance Corporation. On 10 February 2004, the RTC issued the Writ of
Attachmentxiii[11] against the properties of petitioner.

On 16 February 2004, Sheriff Salvador D. Dacumos of the RTC of Manila, Branch 32, went to
the office of petitioner in CPEZ to serve the Writ of Attachment, Summonsxiii[12] and the Complaint.
Petitioner issued Equitable PCIBank (PEZA Branch) Check No. 160149, dated 16 February 2004, in the
amount of P8,634,448.20, to prevent the Sheriff from taking possession of its properties.xiii[13] The
check was made payable to the Office of the Clerk of Court of the RTC of Manila as a guarantee for
whatever liability there may be against petitioner.

Petitioner filed an Omnibus Motionxiii[14] claiming that it was neither about to close. It also
denied owing anything to Win, as it had already paid all its obligations to it. Lastly, it questioned the
jurisdiction of the trial court from taking cognizance of the case. Petitioner pointed to the presence of the
Arbitration Clause and it asserted that the case should be referred to the Construction Industry Arbitration
Commission (CIAC) pursuant to Executive Order (E.O.) No. 1008.

In the hearing held on 10 February 2004, the counsel of Win moved that its name in the case be
changed from Win Multi-Rich Builders, Inc. to Multi-Rich Builders, Inc. It was only then that petitioner
apparently became aware of the variance in the name of the plaintiff. In the Replyxiii[15] filed by
petitioner, it moved to dismiss the case since Win was not the contractor and neither a party to the
contract, thus it cannot institute the case. Petitioner obtained a Certificate of Non-Registration of
Corporation/Partnershipxiii[16] from the SEC which certified that the latter did not have any records of a
Multi-Rich Builders, Inc. Moreover, Win in its Rejoinderxiii[17] did not

oppose the allegations in the Reply. Win admitted that it was only incorporated on 20 February 1997
while the construction contract was executed on 26 March 1996. Likewise, it admitted that at the time of
execution of the contract, Multi-Rich was a registered sole proprietorship and was issued a business
permitxiii[18] by the Office of the Mayor of Manila.

In an Orderxiii[19] dated 12 April 2004, the RTC denied the motion and stated that the issues can
be answered in a full-blown trial. Upon its denial, petitioner filed its Answer and prayed for the dismissal
of the case.xiii[20] Win filed a Motionxiii[21] to deposit the garnished amount to the court to protect its
legal rights. In a Manifestation,xiii[22] petitioner vehemently opposed the deposit of the garnished
amount. The RTC issued an Orderxiii[23] dated 20 April 2004, which granted the motion to deposit the
garnished amount. On the same date, Win filed a motionxiii[24] to release the garnished amount to it.
Petitioner filed its oppositionxiii[25] to the motion claiming that the release of the money does not have
legal and factual basis.

On 18 June 2004, petitioner filed a petition for review on certiorarixiii[26] under Rule 65 before
the Court of Appeals, which questioned the jurisdiction of the RTC and challenged the orders issued by
the lower court with a prayer for the issuance of a temporary retraining order and a writ of preliminary
injunction. Subsequently, petitioner filed a Supplemental Manifestation and Motionxiii[27] and alleged
that the money deposited with the RTC was turned over to Win. Win admitted that the garnished amount
had already been released to it. On 14 March 2006, the Court of Appeals rendered its Decisionxiii[28]
annulling the 12 April and 20 April 2004 orders of the RTC. It also ruled that the RTC had jurisdiction
over the case since it is a suit for collection of sum of money. Petitioner filed a Motion for
Reconsiderationxiii[29] which was subsequently denied in a resolution.xiii[30]

Hence this petition.

Petitioner raised the following issues to wit: (1) does Win have a legal personality to institute the
present case; (2) does the RTC have jurisdiction over the case notwithstanding the presence of the
arbitration clause; and (3) was the issuance of the writ of attachment and the subsequent garnishment
proper.

A suit may only be instituted by the real party in interest. Section 2, Rule 3 of the Rules of Court
defines parties in interest in this manner:

A real party in interest is the party who stands to be benefited or injured by the judgment
in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by
law or these Rules, every action must be prosecuted or defended in the name of the real
party in interest.

Is Win a real party in interest? We answer in the negative.

Win admitted that the contract was executed between Multi-Rich and petitioner. It further
admitted that Multi-Rich was a sole proprietorship with a business permit issued by the Office of the
Mayor of Manila. A sole proprietorship is the oldest, simplest, and most prevalent form of business
enterprise.xiii[31] It is an unorganized business owned by one person. The sole proprietor is personally
liable for all the debts and obligations of the business.xiii[32] In the case of Mangila v. Court of
Appeals,xiii[33] we held that:

x x x In fact, there is no law authorizing sole proprietorships to file a suit in

court.

A sole proprietorship does not possess a juridical personality separate and

distinct from the personality of the owner of the enterprise. The law merely recognizes
the existence of a sole proprietorship as a form of business organization conducted for
profit by a single individual and requires its proprietor or owner to secure licenses and
permits, register its business name, and pay taxes to the national government. The law
does not vest a separate legal personality on the sole proprietorship or empower it to file
or defend an action in court.

The original petition was instituted by Win, which is a SEC-registered corporation. It filed a
collection of sum of money suit which involved a construction contract entered into by petitioner and
Multi-Rich, a sole proprietorship. The counsel of Win wanted to change the name of the plaintiff in the
suit to Multi-Rich. The change cannot be countenanced. The plaintiff in the collection suit is a
corporation. The name cannot be changed to that of a sole proprietorship. Again, a sole proprietorship is
not vested with juridical personality to file or defend an action.xiii[34]

Petitioner had continuously contested the legal personality of Win to institute the case. Win was
given ample opportunity to adduce evidence to show that it had legal personality. It failed to do so.
Corpus Juris Secundum, notes:

x x x where an individual or sole trader organizes a corporation to take over his business
and all his assets, and it becomes in effect merely an alter ego of the incorporator, the
corporation, either on the grounds of implied assumption of the debts or on the grounds
that the business is the same and is merely being conducted under a new guise, is liable
for the incorporator's preexisting debts and liabilities. Clearly, where the corporation
assumes or accepts the debt of its predecessor in business it is liable and if the transfer of
assets is in fraud of creditors it will be liable to the extent of the assets transferred. The
corporation is not liable on an implied assumption of debts from the receipt of assets
where the incorporator retains sufficient assets to pay the indebtedness, or where none of
his assets are transferred to the corporation, or
where, although all the assets of the incorporator have been transferred, there is a change
in the persons carrying on the business and the corporation is not merely an alter ego of
the person to whose business it succeeded.xiii[35]

In order for a corporation to be able to file suit and claim the receivables of its predecessor in
business, in this case a sole proprietorship, it must show proof that the corporation had acquired the assets
and liabilities of the sole proprietorship. Win could have easily presented or attached any document e.g.,
deed of assignment which will show whether the assets, liabilities and receivables of Multi-Rich were
acquired by Win. Having been given the opportunity to rebut the allegations made by petitioner, Win
failed to use that opportunity. Thus, we cannot presume that Multi-Rich is the predecessor-in-business of
Win and hold that the latter has standing to institute the collection suit.

Assuming arguendo that Win has legal personality, the petition will still be granted.

Section 4 of E.O. No. 1008xiii[36] provides for the jurisdiction of the Construction Industry
Arbitration Commission, to wit:

Section 4. Jurisdiction.The CIAC shall have original and exclusive jurisdiction

over disputes arising from, or connected with, contracts entered into by parties involved
in construction in the Philippines, whether the disputes arises before or after the
completion of the contract, or after the abandonment or breach thereof. These disputes
may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of
specifications for materials and workmanship; violation of the terms of agreement;
interpretation and/or application of contractual time and delays; amount of damages and
penalties; commencement time and delays; maintenance and defects; payment, default of
employer or contractor and changes in contract cost.
 Excluded from the coverage of this law are disputes from employer-employee
relationships which shall continue to be covered by the Labor Code of the Philippines.

There is nothing in the law which limits the exercise of jurisdiction to complex or difficult cases.
E.O. No. 1008 does not distinguish between claims involving payment of money or not.xiii[37] The
CIAC acquires jurisdiction over a construction contract by the mere fact that the parties agreed to submit
to voluntary arbitration.xiii[38] The law does not preclude parties from stipulating a preferred forum or
arbitral body but they may not divest the CIAC of jurisdiction as provided by law.xiii[39] Arbitration is
an alternative method of dispute resolution which is highly encouraged.xiii[40] The arbitration clause is a
commitment on the part of the parties to submit to arbitration the disputes covered since that clause is
binding, and they are expected to
abide by it in good faith.xiii[41] Clearly, the RTC should not have taken cognizance of the collection suit.
The presence of the arbitration clause vested jurisdiction to the CIAC over all construction disputes
between Petitioner and Multi-Rich. The RTC does not have jurisdiction.xiii[42]

Based on the foregoing, there is no need to discuss the propriety of the issuance of the writ of
attachment. However, we cannot allow Win to retain the garnished amount which was turned over by the
RTC. The RTC did not have jurisdiction to issue the questioned writ of attachment and to order the
release of the garnished funds.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals is hereby
MODIFIED. Civil Case No. 04-108940 is DISMISSED. Win Multi-Rich Builders, Inc. is ORDERED
to return the garnished amount of EIGHT MILLION SIX HUNDRED THIRTY-FOUR THOUSAND
FOUR HUNDRED

FORTY-EIGHT PESOS AND FORTY CENTAVOS (P8,634,448.40),

which was turned over by the Regional Trial Court, to petitioner with legal interest of 12 percent (12%)
per annum upon finality of this Decision until payment.

SO ORDERED.

23. Pioneer Insurance versus CA 175 SCRA 668 (1989)

Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim convinced
Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border Machinery and
Heavy Equipment Company (BORMAHECO) to contribute funds and to buy two aircrafts which
would form part a corporation which will be the expansion of Southern Air Lines. Maglana et al
then contributed and delivered money to Lim.

But instead of using the money given to him to pay in full the aircrafts, Lim, without the
knowledge of Maglana et al, made an agreement with Pioneer Insurance for the latter to insure
the two aircrafts which were brought in installment from Japan Domestic Airlines (JDA) using
said aircrafts as security. So when Lim defaulted from paying JDA, the two aircrafts were
foreclosed by Pioneer Insurance.
It was established that no corporation was formally formed between Lim and Maglana et al.

ISSUE: Whether or not Maglana et al must share in the loss as general partners.

HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do
business through a corporation but failed to incorporate, a de facto partnership would have been
formed, and as such, all must share in the losses and/or gains of the venture in proportion to their
contribution. But in this case, it was shown that Lim did not have the intent to form a corporation
with Maglana et al. This can be inferred from acts of unilaterally taking out a surety from
Pioneer Insurance and not using the funds he got from Maglana et al. The record shows that Lim
was acting on his own and not in behalf of his other would-be incorporators in transacting the
sale of the airplanes and spare parts.

24. Lim Tong Lim versus Philippine Fishing Gear Industries Inc 317 SCRA 728 (1999)

It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with
him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not
have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again
borrowed money and they agreed to purchase fishing nets and other fishing equipments. Now,
Yao and Chua represented themselves as acting in behalf of “Ocean Quest Fishing Corporation”
(OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of
fishing nets amounting to more than P500k.

They were however unable to pay PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some time
to pay. Yao waived his rights. Lim Tong Lim however argued that he’s not liable because he was
not aware that Chua and Yao represented themselves as a corporation; that the two acted without
his knowledge and consent.

ISSUE: Whether or not Lim Tong Lim is liable.

HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats,
and to divide equally among them the excess or loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the term “common fund” under Article
1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible
like credit or industry. That the parties agreed that any loss or profit from the sale and operation
of the boats would be divided equally among them also shows that they had indeed formed a
partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to
Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his
boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua and
Yao decided to form a corporation. Although it was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of the three as contracting parties in representation
of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general partners.

25. Kilosbayan Inc. versus Guingona Jr. 232 SCRA 110 (1994)

In 1993, the Philippine Charity Sweepstakes Office decided to put up an on-line lottery system
which will establish a national network system that will in turn expand PCSO’s source of
income.

A bidding was made. Philippine Gaming Management Corporation (PGMC) won it. A contract
of lease was awarded in favor of PGMC.

Kilosbayan opposed the said agreement between PCSO and PGMC as it alleged that:

1. PGMC does not meet the nationality requirement because it is 75% foreign owned
(owned by a Malaysian firm Berjaya Group Berhad);
2. PCSO, under Section 1 of its charter (RA 1169), is prohibited from holding and
conducting lotteries “in collaboration, association or joint venture with any person,
association, company or entity”;
3. The network system sought to be built by PGMC for PCSO is a telecommunications
network. Under the law (Act No. 3846), a franchise is needed to be granted by the
Congress before any person may be allowed to set up such;
4. PGMC’s articles of incorporation, as well as the Foreign Investments Act (R.A. No.
7042) does not allow it to install, establish and operate the on-line lotto and
telecommunications systems.

PGMC and PCSO, through Teofisto Guingona, Jr. and Renato Corona, Executive Secretary and
Asst. Executive Secretary respectively, alleged that PGMC is not a collaborator but merely a
contractor for a piece of work, i.e., the building of the network; that PGMC is a mere lessor of
the network it will build as evidenced by the nature of the contract agreed upon, i.e., Contract of
Lease.

ISSUE: Whether or not Kilosbayan is correct.

HELD: Yes, but only on issues 2, 3, and 4.

1. On the issue of nationality, it seems that PGMC’s foreign ownership was reduced to 40%
though.
2. On issues 2, 3, and 4, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, prohibits
the PCSO from holding and conducting lotteries “in collaboration, association or joint
 venture with any person, association, company or entity, whether domestic or foreign.”
There is undoubtedly a collaboration between PCSO and PGMC and not merely a
contract of lease. The relations between PCSO and PGMC cannot be defined simply by
the designation they used, i.e., a contract of lease. Pursuant to the wordings of their
agreement, PGMC at its own expense shall build, operate, and manage the network
system including its facilities needed to operate a nationwide online lottery system.
PCSO bears no risk and all it does is to provide its franchise – in violation of its charter.
Necessarily, the use of such franchise by PGMC is a violation of Act No. 3846.

26. Corpuz versus Grospe 333 SCRA 425 (2000)

The sale, transfer or conveyance of land reform rights are, as a rule, void in order to prevent a
circumvention of agrarian reform laws. However, in the present case, the voluntary surrender or waiver of
these rights in favor of the Samahang Nayon is valid because such action is deemed a legally permissible
conveyance in favor of the government. After the surrender or waiver of said land reform rights, the
Department of Agrarian Reform, which took control of the property, validly awarded it to private
respondents.
The Case
Before the Court is a Petition for Review on Certiorari of the May 14, 1998 Decisionxiii[1] and the
August 19, 1998 Resolutionxiii[2] in CA-GR SP No. 47176, in which the Court of Appeals (CA)xiii[3]
dismissed the petitioners appeal and denied reconsideration respectively.
The decretal portion of the assailed Decision reads:xiii[4]
"IN THE LIGHT OF ALL THE FOREGOING, the Petition is denied due course and is
hereby dismissed. The Decision appealed from is AFFIRMED. With costs against the
Petitioner."
The Facts
Petitioner Gavino Corpuz was a farmer-beneficiary under the Operation Land Transfer (OLT) Program of
the Department of Agrarian Reform (DAR). Pursuant to Presidential Decree (PD) No. 27, he was issued a
Certificate of Land Transfer (CLT) over two parcels of agricultural land (Lot Nos. 3017 and 012) with a
total area of 3.3 hectares situated in Salungat, Sto. Domingo, Nueva Ecija. The lots were formerly owned
by a certain Florentino Chioco and registered under Title No. 126638.
To pay for his wifes hospitalization, petitioner mortgaged the subject land on January 20, 1982, in favor
of Virginia de Leon. When the contract period expired, he again mortgaged it to Respondent Hilaria
Grospe, wife of Geronimo Grospe, for a period of four years (December 5, 1986 to December 5, 1990) to
guarantee a loan of P32,500. The parties executed a contract denominated as "Kasunduan Sa
Pagpapahiram Ng Lupang Sakahan,"xiii[5] which allowed the respondents to use or cultivate the land
during the duration of the mortgage.
Before the Department of Agrarian Reform Adjudication Board (DARAB) in Cabanatuan City (Region
III), petitioner instituted against the respondents an action for recovery of possession.xiii[6] In his
Complaint, he alleged that they had entered the disputed land by force and intimidation on January 10 and
11, 1991, and destroyed the palay that he had planted on the land.
Respondents, in their Answer, claimed that the "Kasunduan" between them and petitioner allowed the
former to take over the possession and cultivation of the property until the latter paid his loan. Instead of
paying his loan, petitioner allegedly executed on June 29, 1989, a "Waiver of Rights"xiii[7]
over the landholding in favor of respondents in consideration of P54,394.
Petitioner denied waiving his rights and interest over the landholding and alleged that his and his
childrens signatures appearing on the Waiver were forgeries.
Provincial Agrarian Reform Adjudicator (PARAD) Ernesto P. Tabara ruled that petitioner abandoned and
surrendered the landholding to the Samahang Nayon of Malaya, Sto. Domingo, Nueva Ecija, which had
passed Resolution Nos. 16 and 27 recommending the reallocation of the said lots to the respondent
spouses, who were the "most qualified farmer[s]-beneficiaries."xiii[8]
The Department of Agrarian Reform Adjudication Board (DARAB),xiii[9] in a Decision promulgated on
October 8, 1997 in DARAB Case No. 1251, affirmed the provincial adjudicators Decision.xiii[10]
Petitioners Motion for Reconsideration was denied in the Resolution dated February 26, 1998.xiii[11] As
earlier stated, petitioners appeal was denied by the Court of Appeals.
Ruling of the Court of Appeals
The appellate court ruled that petitioner had abandoned the landholding and forfeited his right as a
beneficiary. It rejected his contention that all deeds relinquishing possession of the landholding by a
beneficiary were unenforceable. Section 9 of Republic Act (RA) 1199 and Section 28 of RA 6389 allow a
tenant to voluntarily sever his tenancy status by voluntary surrender. The waiver by petitioner of his rights
and his conformity to the Samahang Nayon Resolutions reallocating the landholding to the respondents
are immutable evidence of his abandonment and voluntary surrender of his rights as beneficiary under the
land reform laws.
Furthermore, petitioner failed to prove with clear and convincing evidence the alleged forgery of his and
his sons signatures.
Hence, this recourse.xiii[12]
Issues
Feeling aggrieved, the petitioner alleges in his Memorandum that the appellate court committed these
reversible errors:xiii[13]
"I
xxx [I]n relying on the findings of fact of the DARAB and PARAD as conclusive when
the judgment is based on a misapprehension of facts and the inference taken is manifestly
mistaken.
"II
xxx [I]n disregarding and/or ignoring the claim of petitioner that the alleged waiver
documents are all forgeries.
"III
xxx [I]n ruling that petitioner had forfeited his right to become a beneficiary under PD
No. 27.
"IV
xxx [I]n failing to rule on the legality and/or validity of the waiver/transfer action."
In short, the focal issues are: (1) Was the appellate court correct in finding that the signatures of petitioner
and his sons on the Waiver were not forged? (2) Assuming arguendo that the signatures in the Waiver
were genuine, was it null and void for being contrary to agrarian laws? (3) Did the petitioner abandon his
rights as a beneficiary under PD 27? (4) Did he, by voluntary surrender, forfeit his right as a beneficiary?
The Courts Ruling
The Petition is devoid of merit.
First Issue: Factual Findings
Alleging that an information for estafa through falsification was filed against the respondents, petitioner
insists that his signature on the Waiver was forged.
We are not persuaded. The filing of an information for estafa does not by itself prove that the respondents
forged his signature. It only means that the public prosecutor found probable cause against the
respondents, but such finding does not constitute binding evidence of forgery or fraud.xiii[14] We agree
with the well-reasoned CA ruling on this point:xiii[15]
"xxx We are not swayed by Petitioners incantations that his signature on the Waiver of
Rights is a forgery. In the first place, forgery is never presumed. The Petitioner is
mandated to prove forgery with clear and convincing evidence. The Petitioner failed to
do so. Indeed, the Waiver of Rights executed by the Petitioner was even with the written
conformity of his four (4) sons (at page 11, Rollo). The Petitioner himself signed the
 Resolution of the Board of Samahang Nayon of Malaya, Sto. Domingo, Nueva Ecija,
surrendering his possession of the landholding to the Samahang Nayon, (idem, supra).
Under Memorandum Circular No. 7, dated April 23, 1979 of the Secretary of Agrarian
Reform, transactions involving transfer of rights of possession and or cultivation of
agricultural lands are first investigated by a team leader of the DAR District who then
submits the results of his investigation to the District Officer who, in turn, submits his
report to the Regional Director who, then, acts on said report. In the present recourse, the
requisite investigation was conducted and the report thereon was submitted to and
approved by the Regional Director. Under Section 3(m), Rule 131 of the Rules of
Evidence, public officers are presumed to have performed their duties regularly and in
accordance with law."
As a rule, if the factual findings of the Court of Appeals coincide with those of the DARAB -- an
administrative body which has acquired expertise on the matter such findings are accorded respect and
will not be disturbed on appeal.xiii[16] The presence or the absence of forgery was an issue of fact that
was convincingly settled by the agrarian and the appellate tribunals. Petitioner utterly failed to convince
us that the appellate court had misapprehended the facts. Quite the contrary, its findings were well-
supported by the evidence.
Second Issue: Validity of the "Waiver of Rights"
Petitioner insists that agreements purportedly relinquishing possession of landholdings are invalid for
being violative of the agrarian reform laws.
Private respondents contend that petitioner was no longer entitled to recognition as a farmer-beneficiary
because of the series of mortgages he had taken out over the land. They also cite his "Waiver of Rights"
and abandonment of the farm.
We have already ruled that the sale or transfer of rights over a property covered by a Certificate of Land
Transfer is void except when the alienation is made in favor of the government or through hereditary
succession. This ruling is intended to prevent a reversion to the old feudal system in which the
landowners reacquired vast tracts of land, thus negating the governments program of freeing the tenant
from the bondage of the soil.xiii[17] In Torres v. Ventura,xiii[18] the Court clearly held:
"xxx As such [the farmer-beneficiary] gained the rights to possess, cultivate and enjoy
the landholding for himself. Those rights over that particular property were granted by
the government to him and to no other. To insure his continued possession and enjoyment
of the property, he could not, under the law, make any valid form of transfer except to the
government or by hereditary succession, to his successors.
"xxx [T]he then Ministry of Agrarian Reform issued the following Memorandum
Circular [No. 7, Series of 1979, April 23, 1979]:
"Despite the above prohibition, however, there are reports that many farmer-beneficiaries
of PD 27 have transferred the ownership, rights, and/or possession of their
farms/homelots to other persons or have surrendered the same to their former
landowners. All these transactions/surrenders are violative of PD 27 and therefore, null
and void."
Third Issue: Abandonment
Based on the invalidity of the Waiver, petitioner concludes that the PARAD, the DARAB and the CA
erroneously ruled on the basis of the said document that he had abandoned or voluntarily surrendered his
landholding. Denying that he abandoned the land, he contends that the transaction was a simple loan to
enable him to pay the expenses incurred for his wifes hospitalization.
We agree. Abandonmentxiii[19] requires (a) a clear and absolute intention to renounce a right or claim or
to desert a right or property; and (b) an external act by which that intention is expressed or carried into
effect.xiii[20] The intention to abandon implies a departure, with the avowed intent of never returning,
resuming or claiming the right and the interest that have been abandoned.xiii[21]
The CA ruled that abandonment required (a) the tenants clear intention to sever the agricultural tenancy
relationship; and (b) his failure to work on the landholding for no valid reason.xiii[22] The CA also
deemed the following as formidable evidence of his intent to sever the tenancy relationship: (a) the
mortgage and (b) his express approval and conformity to the Samahang Nayon Resolution installing the
private respondents as tenants/farmers-beneficiaries of the landholding. We disagree.
As earlier shown, the Waiver was void. Furthermore, the mortgage expired after four years. Thus, the
private respondents were obligated to return possession of the landholding to the petitioner. At bottom,
we see on the part of the petitioner no clear, absolute or irrevocable intent to abandon. His surrender of
possession did not amount to an abandonment because there was an obligation on the part of private
respondents to return possession upon full payment of the loan.
Fourth Issue: Voluntary Surrender
Contrary to the finding of the appellate court, the petitioner also denies that he voluntarily surrendered his
landholding.
His contention is untenable. The nullity of the Waiver does not save the case for him because there is a
clear showing that he voluntarily surrendered his landholding to the Samahang Nayon which, under the
present circumstances, may qualify as a surrender or transfer, to the government, of his rights under the
agrarian laws.
PD 27 provides that title to land acquired pursuant to the land reform program shall not be transferable
except through hereditary succession or to the government, in accordance with the provisions of existing
laws and regulations. Section 8 of RA 3844 also provides that "[t]he agricultural leasehold relation xxx
shall be extinguished by: xxx (2) [v]oluntary surrender of the landholding by the agricultural lessee, xxx."
In this case, petitioners intention to surrender the landholding was clear and unequivocal. He signed his
concurrence to the Samahang Nayon Resolutions surrendering his possession of the landholding. The
Samahan then recommended to the team leader of the DAR District that the private respondent be
designated farmer-beneficiary of said landholding.
To repeat, the land was surrendered to the government, not transferred to another private person. It was
the government, through the DAR, which awarded the landholding to the private respondents who were
declared as qualified beneficiaries under the agrarian laws. Voluntary surrender, as a mode of
extinguishment of tenancy relations, does not require court approval as long as it is convincingly and
sufficiently proved by competent evidence.xiii[23]
Petitioners voluntary surrender to the Samahang Nayon qualifies as a surrender or transfer to the
government because such action forms part of the mechanism for the disposition and the reallocation of
farmholdings of tenant-farmers who refuse to become beneficiaries of PD 27. Under Memorandum
Circular No. 8-80 of the then Ministry of Agrarian Reform, the Samahan shall, upon notice from the
agrarian reform team leader, recommend other tenant-farmers who shall be substituted to all rights and
obligations of the abandoning or surrendering tenant-farmer. Besides, these cooperatives are established
to provide a strong social and economic organization to ensure that the tenant-farmers will enjoy on a
lasting basis the benefits of agrarian reform.
The cooperatives work in close coordination with DAR officers (regional directors, district officers, team
leaders and field personnel) to attain the goals of agrarian reform (DAR Memorandum Circular No. 10,
Series of 1977). The Department of Local Government (now the Department of Interior and Local
Government) regulates them through the Bureau of Cooperative Development (Section 8, PD 175). They
also have access to financial assistance through the Cooperative Development Fund, which is
administered by a management committee composed of the representatives from the DILG, the Central
Bank, the Philippine National Bank, the DAR and the DENR (Section 6, PD 175).
Petitioner insists that his act of allowing another to possess and cultivate his land did not amount to
abandonment or voluntary surrender, as the rights of an OLT beneficiary are preserved even in case of
transfer of legal possession over the subject property, as held in Coconut Cooperative Marketing
Association (Cocoma) v. Court of Appeals.xiii[24]
We disagree. Petitioner misconstrued the Cocoma ruling because what was prohibited was the
perpetration of the tenancy or leasehold relationship between the landlord and the farmer-beneficiary. The
case did not rule out abandonment or voluntary surrender by the agricultural tenant or lessee in favor of
the government.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED
insofar as it dismissed petitioners appeal. Costs against petitioner.
SO ORDERED.

27. Mead versus McCullough 21 Phil 95 (1911)

Charles Mead, Edwin McCullough and three others organized the corporation called The
Philippine Engineering and Construction Company (PECC). The 4 organizers, except Mead,
contributed to the majority of the capital stock of PECC, the remaining shares were offered to the
public. Mead contributed some personal properties. Mead was assigned as a manager but he
resigned as such when he accepted an engineering job in China. But even so, he remained as one
of the five directors (the organizers).

At that time, PECC was already incurring losses. McCullough, the president, proposed that he
shall buy the assets of the corporation. The three other directors then voted in favor of this
proposal hence the assets were transferred to McCullough. Mead learned of this and so he
opposed it because the personal properties he contributed were also transferred to McCullough.

Mead also argued that under the articles of incorporation of PECC, the board of directors only
have ordinary powers; that the authorization made by the three directors to allow the sale of
company assets to McCullough constitutes an act of agency which is invalid at that because no
express commission was made, i.e., no power of attorney was made in favor of the directors. The
requirement for a commission can be inferred from Article 1713 of the Civil Code which
provides:

An agency stated in general terms only includes acts of administration.

In order to compromise, alienate, mortgage, or execute any other act of strict ownership an
express commission is required. (Emphasis supplied).

Mead also insists that under their charter, no resolution affecting the administration of the affairs
of PECC should be binding upon the corporation unless the unanimous consent of the entire
board was first obtained

ISSUE: Whether or not the three directors had the authority to allow the sale/transfer of the
company assets to McCullough.

HELD: Yes. Several factors have to be considered. First is the fact that Mead abandoned his
post when he took the job offer to work in China. He knew for a fact that the nature of the job
offered is permanent. Second, a close reading of the articles of incorporation of PECC shows that
there is no such intention for unanimity when it comes to votes affecting matters of
administration. The only requirement is that “At least three of said board must be present in
order to constitute a legal meeting.” Which was complied with when the other four directors
were present when the decision to transfer the company assets was made.

Third is the fact that PECC was in a downhill situation. A corporation is essentially a
partnership, except in form. “The directors are the trustees or managing partners, and the
stockholders are the cestui que trust and have a joint interest in all the property and effects of the
corporation.” McCullough as a director himself and the president can be considered an agent but
not the “agent” contemplated in Article 1713 of the Civil Code. Article 1713 deals with the
broad aspect of agency and in ordinary cases but not in the case of a corporation and its directors.
In the case at bar, the more appropriate analogy is that PECC, being a losing corporation, has its
directors as the trustees. The trustees-directors hold the company assets in trust for the
beneficiaries, which are the creditors. As trustees, they decided that it is beneficial to sell the
company assets to McCullough to at least recover some cash equivalents in the winding up of the
corporate affairs. Besides, there is no prohibition against the selling of company assets to one of
its directors either from law or from PECC’s articles of incorporation.

28. Benguet Consolidated Mining Co. versus Pineda 98 Phil 711 (1956)

Benguet Consolidated Mining Company was organized in 1903 under the Spanish Code of
Commerce of 1886 as a sociedad anonima. It was agreed by the incorporators that Benguet
Mining was to exist for 50 years.

In 1906, Act 1459 (Corporation Law) was enacted which superseded the Code of Commerce of
1886. Act 1459 essentially introduced the American concept of a corporation. The purpose of the
law, among others, is to eradicate the Spanish Code and make sociedades anonimas obsolete.

In 1953, the board of directors of Benguet Mining submitted to the Securities and Exchange
Commission an application for them to be allowed to extend the life span of Benguet Mining.
Then Commissioner Mariano Pineda denied the application as it ruled that the extension
requested is contrary to Section 18 of the Corporation Law of 1906 which provides that the life
of a corporation shall not be extended by amendment beyond the time fixed in their original
articles.

Benguet Mining contends that they have a vested right under the Code of Commerce of 1886
because they were organized under said law; that under said law, Benguet Mining is allowed to
extend its life by simply amending its articles of incorporation; that the prohibition in Section 18
of the Corporation Code of 1906 does not apply to sociedades anonimas already existing prior to
the Law’s enactment; that even assuming that the prohibition applies to Benguet Mining, it
should be allowed to be reorganized as a corporation under the said Corporation Law.

ISSUE: Whether or not Benguet Mining is correct.

HELD: No. Benguet Mining has no vested right to extend its life. It is a well settled rule that no
person has a vested interest in any rule of law entitling him to insist that it shall remain
unchanged for his benefit. Had Benguet Mining agreed to extend its life prior to the passage of
the Corporation Code of 1906 such right would have vested. But when the law was passed in
1906, Benguet Mining was already deprived of such right.

To allow Benguet Mining to extend its life will be inimical to the purpose of the law which
sought to render obsolete sociedades anonimas. If this is allowed, Benguet Mining will unfairly
do something which new corporations organized under the new Corporation Law can’t do – that
is, exist beyond 50 years. Plus, it would have reaped the benefits of being a sociedad anonima
and later on of being a corporation. Further, under the Corporation Code of 1906, existing
sociedades anonimas during the enactment of the law must choose whether to continue as such
or be organized as a corporation under the new law. Once a sociedad anonima chooses one of
these, it is already proscribed from choosing the other. Evidently, Benguet Mining chose to exist
as a sociedad anonima hence it can no longer elect to become a corporation when its life is near
its end.

29. Phil Product Co. versus Primateria Societe Anonyme 15 SCRA 301 (1965)

Primateria Societe Anonyme Pour Le Commerce Exterieur (Primateria Zurich, a sociedad

anonima formed in Zurich), through Alexander Baylin, entered into an agreement with
Philippine Products Company (PPC) whereby it was agreed that from 1951 to 1953, PPC shall
ship copra products abroad.

Apparently, Primateria Zurich was not licensed by the Securities and Exchange Commission to
do business in the Philippines. Primateria Zurich also failed to pay its obligations amounting to
P31,009.71. PPC sued Primateria Zurich and it impleaded Baylin, Primateria Philippines, and
one Jose Crame, the latter three being impleaded as agents of Primateria Zurich.

The lower court ruled in favor PPC but it absolved Baylin, Crame, and Primateria Philippines.

PPC appealed as it insists that Baylin et al should be liable as agents because under Section 68
and 69 of the Corporation Law, the agents of foreign corporations not licensed to transact in the
Philippines shall be personally liable for contracts made in their (foreign corporation’s) behalf.

ISSUE: Whether or not PPC is correct.

HELD: No. PPC was not able to prove that Primateria Zurich, a sociedad anonima, is a foreign
corporation. And as a sociedad anonima, Primateria Zurich is not a corporation under our
Corporation Law. As such, Sections 68 and 69 cannot be invoked in order to make the alleged
agents of Primateria Zurich be liable. PPC will have to enforce the judgment against Primateria
Zurich alone.
30. Bourns versus Carman 7 Phil 117 (1906)

The plaintiff in this action seeks to recover the sum of $437.50, United Stated currency, balance
due on a contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim. the contract
relating to the said work was entered into by the said Lo-Chim-Lim, acting as in his own name
with the plaintiff, and it appears that the said Lo-Chim-Lim personally agreed to pay for the
work himself. The plaintiff, however, has brought this action against Lo-Chim-Lim and his
codefendants jointly, alleging that, at the time the contract was made, they were the joint
proprietors and operators of the said lumber yard engaged in the purchase and sale of lumber
under the name and style of Lo-Chim-Lim. Apparently the plaintiff tries to show by the words
above italicized that the other defendants were the partners of Lo-Chim-Lim in the said lumber-
yard business.lawphil.net

The court below dismissed the action as to the defendants D. M. Carman and Fulgencio Tan-
Tongco on the ground that they were not the partners of Lo-Chim-Lim, and rendered judgment
against the other defendants for the amount claimed in the complaint with the costs of
proceedings. Vicente Palanca and Go-Tauco only excepted to the said judgment, moved for a
new trial, and have brought the case to this court by bill of exceptions.

The evidence of record shows, according to the judgment of the court, "That Lo-Chim-Lim had a
certain lumber yard in Calle Lemery of the city of Manila, and that he was the manager of the
same, having ordered the plaintiff to do some work for him at his sawmill in the city of Manila;
and that Vicente Palanca was his partner, and had an interest in the said business as well as in the
profits and losses thereof . . .," and that Go-Tuaco received part of the earnings of the lumber
yard in the management of which he was interested.

The court below accordingly found that "Lo-Chim-Lim, Vicente Palanca, Go-Tuaco had a
lumber yard in Calle Lemmery of the city of Manila in the year 1904, and participated in the
profits and losses of business and that Lo-Chim-Lim was managing partner of the said lumber
yard." In other words, coparticipants with the said Lo-Chim-Lim in the business in question.

Although the evidence upon this point as stated by the by the however, that is plainly and
manifestly in conflict with the above finding of that court. Such finding should therefore be
sustained. lawphil.net

The question thus raised is, therefore, purely one of law and reduces itself to determining the real
legal nature of the participation which the appellants had in Lo-Chim-Lim's lumber yard, and
consequently their liability toward the plaintiff, in connection with the transaction which gave
rise to the present suit.

It seems that the alleged partnership between Lo-Chim-Lim and the appellants was formed by
verbal agreement only. At least there is no evidence tending to show that the said agreement was
reduced to writing, or that it was ever recorded in a public instrument.
Moreover, that partnership had no corporate name. The plaintiff himself alleges in his complaint
that the partnership was engaged in business under the name and style of Lo-Chim-Lim only,
which according to the evidence was the name of one of the defendants. On the other hand, and
this is very important, it does not appear that there was any mutual agreement, between the
parties, and if there were any, it has not been shown what the agreement was. As far as the
evidence shows it seems that the business was conducted by Lo-Chim-Lim in his own name,
although he gave to the appellants a share was has been shown with certainty. The contracts
made with the plaintiff were made by Lo-Chim-Lim individually in his own name, and there is
no evidence that the partnership over contracted in any other form. Under such circumstances we
find nothing upon which to consider this partnership other than as a partnership of cuentas en
participacion. It may be that, as a matter of fact, it is something different, but a simple business
and scant evidence introduced by the partnership We see nothing, according to the evidence, but
a simple business conducted by Lo-Chim-Lim exclusively, in his own name, the names of other
persons interested in the profits and losses of the business nowhere appearing. A partnership
constituted in such a manner, the existence of which was only known to those who had an
interest in the same, being no mutual agreements between the partners and without a corporate
name indicating to the public in some way that there were other people besides the one who
ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas
en participacion defined in article 239 of the Code of Commerce.

Those who contract with the person under whose name the business of such partnership of
cuentas en participacion is conducted, shall have only a right of action against such person and
not against the other persons interested, and the latter, on the other hand, shall have no right of
action against the third person who contracted with the manager unless such manager formally
transfers his right to them. (Art 242 of the code Of Commerce.) It follows, therefore that the
plaintiff has no right to demand from the appellants the payment of the amount claimed in the
complaint, as Lo-Chim-Lim was the only one who contracted with him. the action of the plaintiff
lacks, therefore, a legal foundation and should be accordingly dismissed.

The judgment appealed from this hereby reversed and the appellants are absolved of the
complaint without express provisions as to the costs of both instances. After the expiration of
twenty days let judgment be entered in accordance herewith, and ten days thereafter the cause be
remanded to the court below for execution. So ordered.