Tatad v. Garcia, Jr. (G.R. No.

114222)

Facts:

DOTC planned to construct a light railway transit line along EDSA (EDSA LRT III) to provide a mass transit
system and alleviate the congestion and growing transportation problem in the metropolis. RA 6957 was
enacted allowing for the financing, construction and operation of government projects through private initiative
and investment. Accordingly, prequalification and bidding was made and EDSA LRT Corporation (organized
under HK laws) was recommended to be awarded with the contract. The President approved the awarding of
the contract. Petitioners are senators praying for the prohibition of respondents from further implementing and
enforcing the contract.

Issue:

Whether or not the EDSA LRT III, a public utility, can be owned by a foreign corporation.

Ruling: YES.

The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it
does not require a franchise before one can own the facilities needed to operate a public utility so long as it
does not operate them to serve the public.

In law, there is a clear distinction between the “operation” of a public utility and the ownership of the facilities
and equipment used to serve the public. Ownership is defined as a relation in law by virtue of which a thing
pertaining to one person is completely subjected to his will in everything not prohibited by law or the
concurrence with the rights of another. The exercise of the rights encompassed in ownership is limited by law
so that a property cannot be operated and used to serve the public as a public utility unless the operator has
a franchise. The operation of a rail system as a public utility includes the transportation of passengers from
one point to another point, their loading and unloading at designated places and the movement of the trains
at pre-scheduled times.

In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will have
no dealings with the public and the public will have no right to demand any services from it. Even the mere
formation of a public utility corporation does not ipso facto characterize the corporation as one operating a
public utility. The moment for determining the requisite Filipino nationality is when the entity applies for a
franchise, certificate or any other form of authorization for that purpose.

FILIPINAS COMPANIA DE SEGUROS vs. CHRISTERN HUENEFELD and CO., INC. 89 Phil 54

FACTS:

On October 1, 1941, the respondent corporation, Christern Huenefeld and Co., Inc., after payment of
corresponding premium, obtained from the petitioner, Filipinas Cia de Seguros fire policy covering
merchandise contained in a building located at Binondo, Manila. On February 27, 1942 or during the Japanese
military occupation, the building and insured merchandise were burned. In due time, the respondent submitted
to the petitioner its claim under the policy. The petitioner refused to pay the claim on the ground that the policy
in favor of the respondent that ceased to be a force on the date the United States declared war against
Germany, the respondent corporation (through organized under and by virtue of the laws of Philippines) being
controlled by German subjects and the petitioner being a company under American jurisdiction when said
policy was issued on October 1, 1941. The theory of the petitioner is that the insured merchandise was burned
after the policy issued in 1941 had ceased to be effective because the outbreak of the war between United
States and Germany on December 10, 1941, and that the payment made by the petitioner to the respondent
corporation during the Japanese military occupation was under pressure.
ISSUE:

Whether or not the respondent corporation is a corporation of public enemy.

RULING:

Since the majority of stockholders of the respondent corporation were German subjects, the respondent
became an enemy of the state upon the outbreak of the war between US and Germany. The English and
American cases relied upon by the Court of Appeals lost in force upon the latest decision of the Supreme
Court of US in which the control test has adopted.
Since World War I, the determination of enemy nationality of corporations has been discussed in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of individuals or corporations themselves considered as
enemies…
The Philippine Insurance Law (Act No 2427, as amended), in Section 8, provides that “anyone except a public
enemy may be insured”. It stands to reason that an insurance policy ceases to be allowable as soon as an
insured becomes a public enemy.
The respondent having an enemy corporation on December 10, 1941, the insurance policy issued in its favor
on October 1, 1941, by the petitioner had ceased to be valid and enforceable, and since the insured good
were burned during the war, the respondent was not entitled to any indemnity under said policy from the
petitioner. However, elementary rule of justice (in the absence of specific provisions in the Insurance Law)
require that the premium paid by the respondent for the period covered by its policy from December 11, 1941,
should be returned by the petitioner.
Palting v. San Jose Petroleum

G.R. No. L-14441 December 17, 1966

Lessons Applicable:

 Up to what level do you apply the grandfather rule? (Corporation Law)

 Pre-Corporation Code (Corporation Law)

FACTS:

 September 7, 1956: San Jose Petroleum (SJP) filed with the Philippine Securities and Exchange
Commission a sworn registration statement, for the registration and licensing for sale in the Philippines
Voting Trust Certificates representing 2,000,000 shares of its capital stock of a par value of $0.35 a
share, at P1.00 per share

 It was alleged that the entire proceeds of the sale of said securities will be devoted or used
exclusively to finance the operations of San Jose Oil Company, Inc. (Domestic Mining Oil
Company)

 express condition of the sale that every purchaser of the securities shall not receive a stock
certificate, but a registered or bearer-voting-trust certificate from the voting trustees James L.
Buckley and Austin G.E. Taylor

 June 20, 1958: SJP amended Statement increasing 2,000,000 to 5,000,000, at a reduced offering price
of from P1.00 to P0.70 per share

 Pedro R. Palting together with other investors in the share of SJP filed with the SEC an opposing the
registration and licensing of the securities on the grounds that:

1. tie-up between the issuer, SJP, a Panamanian corp. and San Jose Oil (SJO), a domestic corporation,
violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949

2. issuer has not been licensed to transact business in the Philippines

3. sale of the shares of the issuer is fraudulent, and works or tends to work a fraud upon Philippine
purchasers

4. issuer as an enterprise, as well as its business, is based upon unsound business principles

ISSUES:

1. W/N Pedro R. Palting, as a "prospective investor" in SJP's securities, has personality to file -YES

2. W/N the tie-up violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act
of 1949 (Up to what level do you apply the grandfather rule?) - YES

HELD: motion of respondent to dismiss this appeal, is denied and the orders of the Securities and Exchange
Commissioner, allowing the registration of Respondent's securities and licensing their sale in the Philippines
are hereby set aside. The case is remanded to the Securities and Exchange Commission for appropriate
action in consonance with this decision.
 1. YES

 any person (who may not be "aggrieved" or "interested" within the legal acceptation of the word) is
allowed or permitted to file an opposition to the registration of securities for sale in the Philippines

 eliminating the word "aggrieved" appearing in the old Rule, being procedural in nature, and in view of
the express provision of Rule 144 that the new rules made effective on January 1, 1964 shall govern
not only cases brought after they took effect but all further proceedings in cases then pending, except
to the extent that in the opinion of the Court their application would not be feasible or would work
injustice, in which event the former procedure shall apply

*amiscus curae -stranger to the case

2. YES

 SJO (domestic)- 90% owned by SJP (foreign) wholly owned by Pantepec Oil Co. and Pancoastel
Petroleum, both organized and existing under the laws of Venezuela

 CANNOT go beyond the level of what is reasonable

 SJO is not a party and it is not necessary to do so to dispose of the present controversy.

 SJP actually lost $4,550,000.00, which was received by SJO

 Articles of Incorporation of SJP is unlawful:

1. the directors of the Company need not be shareholders;

2. that in the meetings of the board of directors, any director may be represented and may vote through
a proxy who also need not be a director or stockholder; and

3. that no contract or transaction between the corporation and any other association or partnership will be
affected, except in case of fraud, by the fact that any of the directors or officers of the corporation is
interested in, or is a director or officer of, such other association or partnership, and that no such
contract or transaction of the corporation with any other person or persons, firm, association or
partnership shall be affected by the fact that any director or officer of the corporation is a party to or has
an interest in, such contract or transaction, or has in anyway connected with such other person or
persons, firm, association or partnership; and finally, that all and any of the persons who may become
director or officer of the corporation shall be relieved from all responsibility for which they may otherwise
be liable by reason of any contract entered into with the corporation, whether it be for his benefit or for
the benefit of any other person, firm, association or partnership in which he may be interested.
DBP VS NLRC (186 SCRA 8413)

Development Bank of the Philippines vs National Labor Relations Commission

186 SCRA 8413 [GR No. 86932 June 27, 1990]

Facts: Philippine Smelters Corporation (PSC), a corporation registered under Philippine law, obtained a loan
in 1983 from the Development Bank of the Philippines (DBP), a government-owned financial institution created
and operated in accordance with Executive Order No. 81, to finance its iron smelting and steel manufacturing
business. To secure said loan, PSC mortgaged to DBP real properties with all the buildings and improvements
thereon and chattels, with its president, Jose T. Marcelo Jr. as co-obligor. By virtue of the said loan agreement,
DBP became the majority stockholder of PSC, with stock holdings in the amount of Php31,000,000 of the total
Php80,226,000 subscribed and paid up capital stock.Subsequently, it took over the management of PSC.
When PSC failed to pay its obligations with DBP, which amounted to Php75,752,445.83 as of March 31, 1986,
DBP foreclosed and acquired the mortgaged real properties and chattels of PSC in the auction sale held on
February 25, 1987 and March 4, 1987. PSC’s employees filed a petition against herein petitioner for the unpaid
wages and other benefits to which the labor arbiter ordered DBP to pay.

Issue: Whether or not DBP, as foreclosing creditor can be held liable for the unpaid wages, 13th moth pay,
incentive leave pay, and separation pay of the employees of PSC.

Held: No. A preference of credit bestows upon the preferred creditor an advantage of having his credit
satisfied first ahead of other claims which may be established against the debtor. Logically, it becomes material
only when the properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is
amply able to pay his various creditors, if full, how can the necessity exist to determine which of his creditors
shall be paid first or whether they shall be paid out of the proceeds of the sale of the debtor’s specific property?
Indubitably, the preferential right of credit attains significance only after the properties of the debtor have been
inventoried and liquidated, and the claims held by his various creditors have been established.

A distinction should be made between a preference of credit and a lien. A preference applies only to claims
which do not attach to specific properties. A lien creates a charge on a particular property. The right of first
preference as regards unpaid wages recognized by article 110 does not constitute a lien on the property of
the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application.
It is a method adopted to determine and specify the order in which credits should be paid in the final distribution
of the proceeds of the insolvent’s assets. It is a right to a preference in the discharge of funds of the judgement
debtor.

Article 110 of the labor code does not purport to create a lien in favor of workers or on employees for unpaid
wages either upon all of the properties or upon any particular property owned b their employer. Claims for
unpaid wages do not therefore fall within the category of specially preferred claims established under articles
2241 and 2242 of the civil code, except to the extent that such claims for unpaid wages are already covered
by article 2241 number 6; claims for laborer’s wages, on the goods manufactured or the work done; or by
article 2242 number 3; claims of laborers and other workers engaged in the construction, reconstruction or
repair of buildings, canals and other works, upon said buildings, canals or other works. To the extent that
claims for unpaid wages fall outside the scope of article 2241, number 6 and article 2242 number 3, they would
come within the ambit of the category of ordinary preferred credits under article 2244.
Corporate Law Case Digest: Stockholders Of F. Guanzon And Sons, Inc V. Register Of Deeds Of Manila
(1962)

G.R. No. L-18216 October 30, 1962

Lessons Applicable: Strong Juridical Personality (Corporate Law)

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

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

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

HELD: NO. affirm the resolution appealed from

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

 Properties registered in the name of the corporation are owned by it as an entity separate and
distinct from its members.

 While shares of stock constitute personal property they do not represent property of the
corporation.

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

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

GOOD EARTH EMPORIUM VS CA (194 SCRA 544)

Good Earth Emporium Inc. vs Court of Appeals

194 SCRA 544 [GR No. 82797 February 27, 1991]

Facts: A lease contract, dated October 16, 1981, was entered into by and between Roces-Reyes Realty Inc.
as lessor, and Good Earth Emporium Inc. (GEE) as lessee for a term of three years beginning November 1,
1981 and ending October 31, 1984 at a monthly rental of Php65,000. The building which was the subject of
the contract of lease is a five story building located at the corner of Rizal Avenue and Bustos Street in Sta.
Cruz, Manila. From March 1983 up to the complaint was filed, the lessee had defaulted in the payment of
rentals, as a consequence of which, private respondent Roces-Reyes Realty Inc. filed on October 14, 1984
an ejectment case against herein petitioners, Good Earth Emporium Inc. and Lim Ka Ring. After the latter had
tendered their responsive pleading, the lower court on motion of Roces rendered judgement on the pleadings
dated April 17, 1984 to which petitioners were ordered to vacate the premises and surrender the same to the
plaintiffs. On May 16, 1984, Roces filed a motion for execution which was opposed by petitioners on May 28,
1984 simultaneous with the latter’s filing of a notice of appeal. However, on August 15, 1984, GEE thru counsel
filed a motion to withdraw said appeal citing as reason that they are satisfied with the decision of the lower
court.

Issue: Whether or not the payment made by GEE to the Roces brothers constitute payment to private
respondent corporation which would result to the extinguishment of the obligation.

Held: No. Under article 1240 of the civil code of the Philippines – Payment shall be made to the person in
whose favor the obligation has been constituted, on his successor in interest or any person authorized to
receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty Inc. or to its successors in
interest nor is there positive evidence that payment was made to a person authorized to receive it. No such
proof was submitted but merely inferred by the RTC from Marcos Roces having signed the lease contract as
President which was witnessed by Jesus Marcos Roces. The later, however, was no longer President or even
an officer of the Roces-Realty Inc at the time he received the money and signed the sale with pacto de retro.
He, in fact denied being in possession of authority to receive payment for the respondent corporation nor does
the receipt show that he signed in the same capacity as he did in the lease contract at a time when he was
President for respondent corporation.

A corporation has a personality distinct and separate from its individual stockholders or members. Being an
officer or stockholder of a corporation does not make one’s property also of the corporation, and vice-versa,
for they are separate entities. Share owners are in no legal sense the owners corporate property which is
owned by the corporation as a distinct legal person. As a consequence of the separate juridical personality of
a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder’s
debt or credit that of the corporation.

SULO NG BAYAN VS ARANETA (72 SCRA 347)

Sulo Ng Bayan Inc. vs Gregorio Araneta Inc.

72 SCRA 347 [GR No. L-31061 August 17, 1976]

Facts: On April 26, 1966, plaintiff-appellant Sulo ng Bayan Inc., filed an action de revindicacion with the Court
of First Instance of Bulacan, fifth judicial district, Valenzuela, Bulacan, against defendant-appellees to recover
the ownership and possession of large tract of land in San Jose del Monte, Bulacan, containing an area of
27,982,250 square meters, more or less, registered under the Torrens system in the name of defendants-
appellees’ predecessors-in-interest. The complaint as amended on June 13, 1966, specifically alleged that
plaintiff is a corporation organized and existing under the laws of the Philippines, with its principal office and
place of business at San Jose del Monter, Bulacan; that its membership is composed of natural persons
resident at San Jose del Monte, Bulacan; that the members of the plaintiff corporation through themselves
and their predecessor-in-interest, had pioneered in the clearing of the forementioned tract of land, activated
the same since the spanish regime and continuously possessed the said property openly and public under
concept of ownership adverse against the whole world; that the defendant-appellee Gregorio Araneta Inc.
sometime in the year 1958, through force and intimidation ejected the members of the plaintiff corporation
from their possession of the aforementioned vast tract of land; that upon investigation conducted by the
members and officers of plaintiff corporation, they found out for the first time in the year 1961 that the land in
question had been either fraudulently or erroneously included by direct or constructive fraud in original
certificate of title no. 466 of the land of records of the province of Bulacan issued on May 11, 1916 which title
is fictitious non-existent and devoid of legal efficacy due to the fact that no original survey nor plan whatsoever
appears to have been submitted as basis thereof and that the Court of First Instance of Bulacan which issued
the decree of registration did not acquire jurisdiction over the land registration case because no such notice
proceeding was given to the members of the plaintiff corporation who were then in actual possession of said
properties; that as consequence of the nullity of the original title, all subsequent titles derived therefrom such
as TCT no. 7573 in the name of Gregorio Araneta Inc. TCT No. 4988 issued in the name of the National
Waterworks & Sewerage System TCT No. 4986 issued in the name of Hacienda Caretas Inc. and another
transfer certificate of title in the name of Paradise Farms Inc. are therefore void.
Issue: Whether or not the plaintiff corporation can represent the stockholders in the proceeding for the
properties involved.

Held: No. It is a doctrine well established and obtains both at law and equity that a corporation is a distinct
legal entity to be considered as separate and apart from the individual stockholders a members who compose
it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. The
property of the corporation is its property and not that of the stockholders as owners although they have
equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and
distinct from its members. Conversely, a corporation ordinarily has no interest in the individual property of its
stockholders unless transferred to the corporation, even in the case of a one-man corporation. The mere fact
that one is president of a corporation does not render the property which he owns or possesses the property
of the corporation, since the president as individual, and the corporation are separate similarities. Sincerely,
stockholders in a corporation engaged in buying and dealing in real estate whose certificates of stock entitled
the holder thereof, to an allotment in the distribution of the land of the corporation upon surrender of their stock
certificates were considered not to have such legal or equitable title or interest in the land, as would support
a suit for title, especially against parties other than corporation.

It must be noted, however, that the juridical personality of the corporation,as separate and distinct from the
persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the
ends of justice. This separate personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak for fraud or illegality, or to work an injustice, or where necessary
to achieve equity.

Thus when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of persons, or in the case of two
corporations, merge them into one, the one being merely regarded as part or instrumentality of the other. The
same is true where a corporation is a dummy and serves no business purpose and is intended only as blind,
or an alter ego or business conduct for the sole benefit of the stockholders. This doctrine of disregarding the
distinct personality of the corporation has been applied by the courts in those cases when the corporate entity
is used for the evasion of taxes. Or when the veil of corporate fiction is used to confuse legitimate issue of
employer-employee relationship or when necessary for the protection of creditors, in which case the veil of
corporate fiction may be pierced and the funds of the corporation may be garnished to satisfy the debts of a
principal stockholder. The aforecited principle is resorted to by the courts as a measure protection for third
parties to prevent fraud illegality or injustice.