Corporation Law Digests PDF

COMMERCIAL LAW REVIEW
Atty. Ceniza
CASES IN CORPORATION CODE
CASE TITLE NARRA NICKEL MINING AND DEVELOPMENT CORP.,

TESORO MINING AND DEVELOPMENT, INC. and
MCARTHUR MINING, INC. vs. REDMONT CONSOLIDATED
MINES CORP.
CITATION G.R. No. 195580
PROMULGATION April 21, 2014

DATE
DIGEST BY Albay, Miami Frianz
TOPIC COVERED Grandfather Rule
DOCTRINE: The “control test” is still the prevailing mode of determining whether or not
a corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration, development and utilization of the
natural resources of the Philippines. However, when in the mind of the Court there is doubt
in the 60-40 Filipino-equity ownership in the corporation, based on the attendant facts and
circumstances of the case, then it may apply the “grandfather rule.”
PONENTE: VELASCO, JR., J.
FACTS:
Redmont was interested in mining activities in several areas of Palawan. It found several suitable
areas, but these areas were already the subject of applications for Mineral Product Sharing
Agreements (MPSA) by Narra Nickel and Mining Development Corporation (Narra), Tesoro
Mining and Development, Inc. (Tesoro), and McArthur Mining, Inc. (McArthur). Redmont filed
petitions for the denial of these applications with the Panel of Arbitrators (POA) of the DENR on
the ground that the applicants were disqualified from engaging in mining activities since their
capital stocks were 60% owned by MBMI, a 100% Canadian Corporation. Petitioners contended
that, applying the control test, they should be considered Philippine corporations since on paper,
it clearly appears that at least 60% of their capital is owned by Filipinos.
ISSUE:
Whether petitioners are foreign corporations based on the application of the Grandfather Rule.
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RULING:
Yes, the petitioners are foreign corporations. There are two acknowledged tests in determining the
nationality of a corporation: the control test and the grandfather rule. Paragraph 7 of DOJ Opinion
No. 020, series of 2005 provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality.
The first part which provides that “shares belonging to corporations or partnerships at least 60%
of the capital of which is owned by Filipino citizens shall be considered as of Philippine
nationality,” pertains to the control test or the liberal rule. On the other hand, the second part which
provides that “if the percentage of the Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such percentage shall be counted as
Philippine nationality,” pertains to the stricter, more stringent grandfather rule.
“Corporate layering” is allowed by the Foreign Investments Act but if it is used to circumvent the
Constitution and pertinent laws, then it becomes illegal. Applying the Grandfather Rule to the set
of facts, it is clear that the petitioners are not Filipino corporations since MBMI, a 100% Canadian
Corporation, owns 60% or more of their equity interests. Looking at the corporate structure of each
corporation:
· McArthur:
Name Nationality Number of Shares
Madridejos Mining Filipino 59.97%

(see table below)
MBMI Canadian 39.98%
Kenneth Cawkell Canadian .01%
Michael Mason American .01%
Lauro Salazar Filipino .01%

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Fernando Esguerra Filipino .01%
Manuel Agcaoili Filipino .01%
Madridejos Mining:
Olympic Mines Filipino 66.63%
Amanti Limson Filipino .01%
Emmanuel Hernando Filipino .01%
Olympic did not pay any amount with respect to the number of shares they subscribed to in the
corporation. When McArthur is "grandfathered," company layering was utilized by MBMI to gain
control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in
McArthur, making the latter a foreign corporation.
· Tesoro:
Sara Marie Mining Filipino 59.97%

(see table below)
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Sara Marie Mining:

Olympic Mines Filipino 66.63%
Amanti Limson Filipino .01%
Emmanuel Hernando Filipino .01%
The corporate structure of Sara Marie and Madridejos Mining are identical. Olympic also did not
pay any amount with respect to the number of shares they subscribed to in the corporation.
Accordingly, when Tesoro is “grandfathered,” it is clear that MBMI is in control of Tesoro and
owns 60% or more equity interest in Tesoro. This makes Tesoro a non-Filipino corporation and,
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thus, disqualifies it to participate in the exploitation, utilization and development of our natural
resources.
· Narra
Patricia Louise Mining Filipino 59.97%

(see table below)
Robert McCurdy American .01%
Higinio Mendoza Filipino .01%
Henry Fernandez Filipino .01%
Ma. Elena Bocalan Filipino .01%
Bayani Agabin Filipino .01%
Patricia Louise Mining:

Palawan Alpha South Filipino 65.96%

Resources Devt. Corp.

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Higinio Mendoza Filipino .01%
Henry Fernandez Filipino .01%
Bayani Agabin Filipino .01%
The usual players in petitioners’ corporate structures are present. Similarly, the amount of money
paid by Palawan Alpha South Resources and Devt. Corp. is zero.
Joint Venture Agreements were entered into by MBMI:

With the Olympic Group (Olympic Mines, Sara Marie Mining and Tesoro) which provides that
MBMI holds directly and indirectly an effective equity interest in the Olympic Property of 60.0%.
With the Alpha Group (Patricia Louise Mining and Narra) which provides that MBMI holds
directly and indirectly an effective equity interest in the Alpha Property of 60.4%.
Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian
corporation, owns 60% or more of their equity interests. The ownership of the “layered”
corporations boils down to MBMI, Olympic or corporations under the Alpha Group wherein
MBMI has joint venture agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are NOT Filipino nationals and must
be considered foreign since 60% or more of their capital stocks or equity interests are owned by
MBMI.
The “control test” is still the prevailing mode of determining whether or not a corporation is a
Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to
undertake the exploration, development and utilization of the natural resources of the Philippines.
When in the mind of the Court there is doubt, based on the attendant facts and circumstances of
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the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the
“grandfather rule.”
CASE TITLE SHRIMP SPECIALISTS, INC vs. FUJI-TRIUMPH AGRI-IND’L

CORP.
PROMULGATION December 7, 2009

DATE
DIGEST BY Anonuevo, Jon Jon V.
TOPIC COVERED Separate Personality/Piercing the Veil
DOCTRINE: A corporation is vested by law with a personality separate and distinct from
the people comprising it. Ownership by a single or small group of stockholders of nearly
all of the capital stock of the corporation is not by itself a sufficient ground to disregard the
separate corporate personality. Thus, obligations incurred by corporate officers, acting as
corporate agents, are direct accountabilities of the corporation they represent.
PONENTE: CARPIO, J.
FACTS:
Shrimp Specialists and Fuji entered into a Distributorship Agreement, under which Fuji agreed to
supply prawn feeds on credit basis to Shrimp Specialists. Fuji delivered the feeds and Shrimp
Specialists issued 9 postdated checks as payment.
Shrimp Specialists issued a stop-payment order for the checks because the earlier deliveries were
contaminated with aflatoxin. Despite Fuji’s promise to send stocks of better quality, Shrimp
Specialists stated that the stocks were still contaminated. Fuji denied that the feeds were
contaminated and asserted that Shrimp Specialists requested to put on hold the deposit of the
checks due to insufficient funds. Fuji added that when the checks were presented for payment, the
drawee bank dishonored all the checks due to a stop-payment order.
The Finance Officer of Shrimp Specialists and the Vice-President and owner of Fuji agreed in
writing that the former would issue another set of checks to cover the ones issued earlier. However,
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upon presentment of the replacement checks, these were again dishonored due to another stop-
payment order issued. Shrimp Specialists argued that despite the written agreement, Fuji deposited
these checks without first replacing the defective feeds or at least informing Shrimp Specialists in
advance that it would not replace the defective feeds. Hence, Fuji filed a civil complaint for sum
of money against Shrimp Specialists and Eugene Lim (President).
The RTC held Shrimp Specialists and Eugene Lim solidarily liable to pay the amount of the
delivered feeds. The CA affirmed the RTC’s decision to hold Shrimp Specialists liable but
absolved Eugene Lim from any liability.
ISSUE:
Whether Eugene Lim, as the President of Shrimp Specialists, is solidarily liable for the obligations
of the corporation.
RULING:
No, Eugene Lim cannot be made personally liable for the obligations of Shrimp Specialists. The
general rule is that obligations incurred by the corporation, acting through its directors, officers,
and employees, are its sole liabilities. However, solidary liability may be incurred, but only under
the following exceptional circumstances:
1. When directors and trustees or, in appropriate cases, the officers of a corporation:
a. vote for or assent to patently unlawful acts of the corporation;
b. act in bad faith or with gross negligence in directing the corporate affairs;
c. are guilty of conflict of interest to the prejudice of the corporation, its stockholders or
members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto;
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate action.
In this case, none of these exceptional circumstances is present. In its decision, the trial court failed
to provide a clear ground why Eugene Lim was held solidarily liable. It merely stated that Eugene
Lim signed on behalf of the Shrimp Specialists as President without explaining the need to
disregard the separate corporate personality. The CA correctly ruled that the evidence to hold
Eugene Lim solidarily liable should be more than just signing on behalf of the corporation because
artificial entities can only act through natural persons. Thus, the CA was correct in dismissing the
case against Eugene Lim.
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CASE TITLE EDSA SHANGRI-LA HOTEL AND RESORT, INC. vs. BF
CORP.
PROMULGATION June 27, 2008

DATE
DIGEST BY Apostol, Zhainey C.
DOCTRINE: A corporation, upon coming to existence, is invested by law with a

personality separate and distinct from those of the person composing it. Ownership of a
single or a small group of stockholders of nearly all of the capital stock of the corporation
is not, without more, sufficient to disregard the fiction of separate corporate personality.
PONENTE: VELASCO, JR., J.
FACTS:
A contract denominated as “Agreement for the Execution of Builder’s Work for the EDSA
Shangri-La Hotel Project” was executed by EDSA Shangri-La Hotel Resort, Inc. (ESHRI) and BF
Corporation (BF) for the construction of the EDSA Shangri-La Hotel. Under this agreement, BF
shall submit a monthly progress billing to ESHRI which would then re-measure the work
accomplished and prepare a Progress Payment Certificate for that month’s progress billings. BF
submitted a total of 19 progress billings following the procedure agreed upon. Based on Progress
Billing Nos. 1 to 13, ESHRI paid BF. However, for Progress Billing Nos. 14 to 19, ESHRI did not
re-measure the work done, prepare the Progress Payment Certificates and remit payment for the
inclusive periods covered. In this regard, BF claimed having been misled into working
continuously on the project by ESHRI which gave the assurance about the Progress Payment
Certificates already being processed. After several futile attempts to collect the unpaid billings, BF
filed a suit for a sum of money and damages. Petitioner Roxas-del Castillo together with the other
individual petitioners, who were members of Board of Directors of ESHRI, were held jointly and
severally liable with ESHRI for damages.
ISSUE:
Whether Roxas-del Castillo, as director of ESHRI, is solidarily liable for any breach of contract
entered into by the corporation.
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RULING:
No. Obligations incurred by corporate officers, acting as corporate agents, are not theirs but direct
accountabilities of the corporation they represent. Solidary liability on the part of the corporate
officers may at times attach, but only under exceptional circumstances, such as when they act with
malice or in bad faith. Also, in appropriate cases, the veil of corporate fiction shall be disregarded
when the separate juridical personality of a corporation is abused or used to commit fraud and
perpetuate a social injustice, or used as a vehicle to evade obligations. In this case, no act of malice
or like dishonest purpose is ascribed on petitioner Roxas-del Castillo as to warrant the lifting of
the corporate veil.
The above conclusion would still hold even if petitioner Roxas-del Castillo, at the time ESHRI
defaulted in paying BF’s monthly progress bill, was still a director, for, before she could be held
personally liable as corporate director, it must be shown that she acted in a matter and under the
circumstances contemplated in Sec. 31 of the Corporation Code. The Court finds nothing in the
testimony of one Crispin Balingit to indicate that Roxas-del Castillo made any representation
respecting the payment of the bills in question. Balingit, in fact, testified that the submitted but
unpaid bills were still being evaluated. Further, in the said testimony, in no instance was bad faith
imputed on Roxas-del Castillo.
In the instant case, Roxas-del Castillo could not plausibly be held liable for breaches of contract
committed by ESHRI nor for the alleged wrongdoings of its governing board or corporate officers
occurring after she severed official ties with the hotel management.
CASE TITLE PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO)

and PANTRANCO RETRENCHED EMPLOYEES
ASSOCIATION (PANREA) VS. NATIONAL LABOR
RELATIONS COMMISSION (NLRC)
PROMULGATION March 17, 2009

DATE
DIGEST BY Borja, Mark Joseph

Atty. Ceniza
DOCTRINE: The general rule is that a corporation has a personality separate and distinct
from those of its stockholders and other corporations to which it may be connected. This is
a fiction created by law for convenience and to prevent injustice. The doctrine of piercing
the corporate veil applies only in three basic areas, namely: 1) defeat of public convenience
as when the corporate fiction is used as a vehicle for the evasion of an existing obligation;
2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere
alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.
PONENTE: NACHURA, J.
FACTS:
The Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation
(Macris). PNEI provided transportation services to the public. The terminal stood on four valuable
pieces of real estate (known as Pantranco properties) registered under the name of Macris. The
Gonzales family later incurred huge financial losses despite attempts of rehabilitation and loan
infusion. Their creditors took over the management of PNEI and Macris. Full ownership was
transferred to one of their creditors, the National Investment Development Corporation (NIDC), a
subsidiary of the PNB. Macris was later renamed as the National Realty Development Corporation
(Naredeco) and eventually merged with the National Warehousing Corporation (Nawaco) to form
the new PNB subsidiary, the PNB-Madecor. NIDC sold PNEI to North Express Transport, Inc.
(NETI). PNEI was among the several companies placed under sequestration by the Presidential
Commission on Good Government (PCGG). Thereafter, PCGG lifted the sequestration order to
pave the way for the sale of PNEI back to the private sector through the Asset Privatization Trust
(APT). APT thus took over the management of PNEI. PNEI applied with the Securities and
Exchange Commission (SEC) for suspension of payments. A management committee was
thereafter created which recommended to the SEC the sale of the company through privatization.
As a cost-saving measure, the committee likewise suggested the retrenchment of several PNEI
employees. Eventually, PNEI ceased its operation. Along with the cessation of business came the
various labor claims commenced by the former employees of PNEI where the latter obtained
favorable decisions. The Labor Arbiter issued the Sixth Alias Writ of Execution commanding the
NLRC Sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its former
employees, as full and final satisfaction of the judgment awards in the labor cases. The sheriffs
were likewise instructed to proceed against PNB, PNB-Madecor and Mega Prime.
ISSUE:
Whether the properties bought by PNB from PNEI may be attached to satisfy the unpaid labor
claims of PNEI employees.
Atty. Ceniza
RULING:
No. The general rule is that a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. This is a fiction created by law
for convenience and to prevent injustice. Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI
are corporations with their own personalities. Neither can we merge the personality of PNEI with
PNB simply because the latter acquired the former. Settled is the rule that where one corporation
sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that
fact alone, liable for the debts and liabilities of the transferor.
With respect to the issue of piercing the corporate veil, the Supreme Court ruled that the doctrine
of piercing the corporate veil applies only in three basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so organized and controlled and
its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.
Assuming, for the sake of argument, that PNB may be held liable for the debts of PNEI, petitioners
still cannot proceed against the Pantranco properties, the same being owned by PNB-Madecor,
notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The general rule remains
that PNB-Madecor has a personality separate and distinct from PNB. The 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 subsidiarys separate
existence shall be respected, and the liability of the parent corporation as well as the subsidiary
will be confined to those arising in their respective businesses.
CASE TITLE MANUEL C. ESPIRITU, JR., ET AL. vs. PETRON CORP., ET

AL.,
PROMULGATION Nov. 24, 2009

DATE
DIGEST BY Bustamante, Anne Murphy

Atty. Ceniza
DOCTRINE: In a corporation, the management of its business is generally vested in its
board of directors, not its stockholders. Before a stockholder may be held criminally liable
for acts committed by the corporation, it must be shown that he had knowledge of the
criminal act committed in the name of the corporation and that he took part in the same or
gave his consent to its commission, whether by action or inaction.
PONENTE: ABAD, J.
FACTS:
Respondent Petron sold and distributed LPGs in cylinder tanks that carried its trademark Gasul.
Respondent Carmen Doloiras owned and operated Kristina Patricia Enterprises (KPE), the
exclusive distributor of Gasul LPGs in the whole of Sorsogon. Jose Nelson Doloiras (Jose) served
as KPEs manager. Bicol Gas was also in the business of selling and distributing LPGs in Sorsogon
but theirs carried the trademark Bicol Savers Gas. Petitioner Audie Llona managed Bicol Gas.
In the course of trade and competition, any given distributor of LPGs at times acquired possession
of LPG cylinder tanks belonging to other distributors operating in the same area. They called these
captured cylinders. According to Jose, KPE’s manager, Bicol Gas agreed with KPE for the
swapping of captured cylinders since one distributor could not refill captured cylinders with its
own brand of LPG. In the course of implementing this arrangement, Jose visited the Bicol Gas
refilling plant. While there, he noticed several Gasul tanks in Bicol Gas possession. He requested
a swap but Audie Llona of Bicol Gas replied that he first needed to ask the permission of the Bicol
Gas owners. That permission was given. Jose noticed, however, that Bicol Gas still had a number
of Gasul tanks in its yard. He offered to make a swap for these but Llona declined and later told
Jose that it had no more Gasul tanks left in its possession. Jose saw a particular Bicol Gas truck on
the Maharlika Highway. While the truck carried mostly Bicol Savers LPG tanks, it had on it one
unsealed 50-kg Gasul tank and one 50-kg Shellane tank. Jose followed the truck and when it
stopped at a store, he asked the driver, Jun Leorena, and the Bicol Gas sales representative, Jerome
Misal, about the Gasul tank in their truck. They said it was empty but, when Jose turned open its
valve, he noted that it was not.
KPE filed a complaint for violations of R.A. No. 623 for illegally filling up registered cylinder
tanks and Sections 155 (infringement of trademarks) and 169.1 (unfair competition) of the
Intellectual Property Code (R.A. No. 8293). The complaint also charged the directors, officers,
and stockholders of Bicol Gas.
ISSUE:
Whether the stockholders of Bicol Gas are solidarily liable with its employees who were directly
involved in overt acts constituting the offense.
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RULING:
No. Bicol Gas is a corporation and as such, it is an entity separate and distinct from the persons of
its officers, directors, and stockholders. It has been held, however, that corporate officers or
employees, through whose act, default or omission the corporation commits a crime, may
themselves be individually held answerable for the crime.
The owners of a corporate organization are its stockholders and they are to be distinguished from
its directors and officers. The petitioners here, with the exception of Audie Llona, are being
charged in their capacities as stockholders of Bicol Gas. In a corporation, the management of its
business is generally vested in its board of directors, not its stockholders. Stockholders are
basically investors in a corporation. They do not have a hand in running the day-to-day business
operations of the corporation unless they are at the same time directors or officers of the
corporation. Before a stockholder may be held criminally liable for acts committed by the
corporation, it must be shown that he had knowledge of the criminal act committed in the name of
the corporation and that he took part in the same or gave his consent to its commission, whether
by action or inaction.
The finding of the Court of Appeals that the employees could not have committed the crimes
without the consent, permission, or participation of the owners of Bicol Gas is a sweeping
speculation especially since what was involved was just one Petron Gasul tank found in a truck
filled with Bicol Gas tanks. Although the KPE manager heard petitioner Llona say that he was
going to consult the owners of Bicol Gas regarding the offer to swap additional captured cylinders,
no indication was given as to which Bicol Gas stockholders Llona consulted. It would be unfair to
charge all the stockholders involved, some of whom were proved to be minors. No evidence was
presented establishing the names of the stockholders who were charged with running the
operations of Bicol Gas. The complaint even failed to allege who among the stockholders sat in
the board of directors of the company or served as its officers.
CASE TITLE QUEENSLAND-TOKYO COMMODITIES, INC. vs. GEORGE
PROMULGATION September 8, 2010

DATE
DIGEST BY Caratiquit, Reyville M.

Atty. Ceniza
DOCTRINE: A corporation is invested by law with a personality separate and distinct from
those of the persons composing it, such that, save for certain exceptions, corporate officers
who entered into contracts in behalf of the corporation cannot be held personally liable for
the liabilities of the latter. Personal liability of a corporate director, trustee, or officer, along
(although not necessarily) with the corporation, may validly attach, as a rule, when he is
guilty of bad faith or gross negligence in directing its affairs resulting in damages to the
corporation, its stockholders, or other persons.
FACTS:
Queensland-Tokyo Commodities, Inc. (QTCI) is a duly licensed broker engaged in the trading of
commodity futures. Mendoza and Lontoc of QTCI met with respondent George, encouraging the
latter to invest with QTCI. Upon Mendoza’s prodding, respondent finally invested with QTCI.
Collado, in behalf of QTCI, and respondent signed the Customer’s Agreement. Forming part of
the agreement was the Special Power of Attorney executed by respondent, appointing Mendoza as
his attorney-in-fact with full authority to trade and manage his account. SEC issued a Cease-and-
Desist Order (CDO) against QTCI. Alarmed by the issuance of the CDO, respondent demanded
from QTCI the return of his investment, but it was not heeded. He then sought legal assistance,
and discovered that 7 investment consultants, including Mendoza and Lontoc, were not licensed
commodity futures salesmen.
ISSUE:
Whether the piercing the veil of corporate doctrine is proper to hold Lau, as president of QCTI,
liable.
RULING:
Yes. A corporation is invested by law with a personality separate and distinct from those of the
persons composing it, such that, save for certain exceptions, corporate officers who entered into
contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter.
Personal liability of a corporate director, trustee, or officer, along (although not necessarily) with
the corporation, may validly attach, as a rule, only when—(1) he assents to a patently unlawful act
of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or
when there is a conflict of interest resulting in damages to the corporation, its stockholders, or
other persons; (2) he consents to the issuance of watered down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he
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agrees to hold himself personally and solidarily liable with the corporation; or (4) he is made by a
specific provision of law personally answerable for his corporate action.
In holding Lau jointly and severally liable with QTCI, the SEC Hearing Officer explained in this
wise:
[Petitioner] Romeo Lau, as president of [petitioner] QTCI, cannot feign innocence on the existence
of these unlawful activities within the company, especially so that Collado, himself a ranking
officer of QTCI, is involved in the unlawful execution of customers orders. [Petitioner] Lau, being
the chief operating officer, cannot escape the fact that had he exercised a modicum of care and
discretion in supervising the operations of QTCI, he could have detected and prevented the
unlawful acts of [petitioner] Collado and Mendoza.
It is therefore safe to conclude that although Lau may not have participated nor been aware of the
unlawful acts, he is however deemed to have been grossly negligence in directing the affairs of
QTCI.
We find no compelling reason to depart from the conclusion of the SEC Hearing Officer, which
was affirmed by the CA. Lau and Collado are jointly and severally liable with QTCI for the
payment of respondent’s claim.
CASE TITLE ERIC GODFREY STANLEY LIVESEY VS. BINSWANGER

PHILS INC

DATE
DIGEST BY Castillo, Kaycelle Anne
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 obligation e.g.
installments due in a compromise agreement.
PONENTE: BRION, J.
Atty. Ceniza
FACTS:
Livesey filed an illegal dismissal case against CBB Philippines, which in turn denied liability.
After the decision of the Labor Arbiter ordering Livesey’s reinstatement, the parties entered into a
compromise agreement. The compromise agreement provides, among others, that until the
agreement is fully satisfied, CBB shall not: (1) sell, alienate, or otherwise dispose of all or
substantially all of its assets or business; (2) suspend, discontinue, or cease its entire, or a
substantial portion of its business operations; (3) substantially change the nature of its business;
and (4) declare bankruptcy or insolvency. CBB paid Livesey the initial amount but failed to pay
the next two installments as the company ceased operations.
The Labor Arbiter issued a writ of execution in favor of Livesey upon his motion, but was not
enforced. Livesey then filed a motion for the issuance of an alias writ of execution, claiming that
CBB and its President, in a clear and willful attempt to avoid their liabilities to him, have organized
another corporation, Binswanger Philippines, Inc. (Binswanger). He claimed that there was
evidence showing that CBB and Binswanger are one and the same corporation. He invoked the
doctrine of piercing the veil of corporate fiction.
ISSUE:
Whether there is sufficient ground to pierce the veil of corporate fiction of Binswanger to make it
liable to Livesey for CBB’s liability.
RULING:
Yes. It can reasonably be concluded that Binswanger is CBB’s alter ego or that CBB and
Binswanger are one and the same corporation. There are also indications of badges of fraud in
Binswanger’s incorporation; that it was a business strategy to evade CBB’s financial liabilities,
including its outstanding obligation to Livesey.
The law vests a corporation with a personality distinct and separate from its stockholders or
members. In the same vein, a corporation, by legal fiction and convenience, is an entity shielded
by a protective mantle and imbued by law with a character alien to the persons comprising it.
Nonetheless, the shield is not at all times impenetrable and cannot be extended to a point beyond
its reason and policy. Circumstances might deny a claim for corporate personality, under the
“doctrine of piercing the veil of corporate fiction.” Piercing the veil of corporate fiction is an
equitable doctrine developed to address situations where the separate corporate personality of a
corporation is abused or used for wrongful purposes. Under the 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 obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out
similar or inequitable considerations, other unjustifiable aims or intentions, in which case, the
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fiction will be disregarded and the individuals composing it and the two corporations will be
treated as identical.
In the present case, there is an indubitable link between CBB’s closure and Binswanger’s
incorporation. CBB ceased to exist only in name; it re-emerged in the person of Binswanger for
an urgent purpose to avoid payment by CBB of the last two installments of its monetary obligation
to Livesey, as well as its other financial liabilities. Freed of CBB’s liabilities, especially that owing
to Livesey, Binswanger can continue, as it did continue, CBB’s real estate brokerage business.
Livesey’s evidence, whose existence Binswanger and its President never denied, converged to
show this continuity of business operations from CBB to Binswanger. It was not just coincidence
that Binswanger is engaged in the same line of business CBB embarked on; and:
1. It even holds office in the very same building and on the very same floor where CBB once
stood;
2. CBB’s key officers, Elliot, no less, and Catral moved over to Binswanger, performing the
tasks they were doing at CBB;
3. Notwithstanding CBB’s closure, Binswanger’s Web Editor (Young), in an e-mail
correspondence, supplied the information that Binswanger is “now known” as either CBB
(Chesterton Blumenauer Binswanger or as Chesterton Petty, Ltd., in the Philippines;
4. The use of Binswanger of CBB’s paraphernalia (receiving stamp) in connection with a labor
case where Binswanger was summoned by the authorities, although Elliot claimed that he bought
the item with his own money; and
5. Binswanger’s takeover of CBB’s project with the PNB.
While the ostensible reason for Binswanger’s establishment is to continue CBB’s business
operations in the Philippines, which by itself is not illegal, the close proximity between CBB’s
disestablishment and Binswanger’s coming into existence points to an unstated but urgent
consideration which, as earlier noted, was to evade CBB’s unfulfilled financial obligation to
Livesey under the compromise agreement.
The action of closing one corporation and putting up a new corporation with the intent to evade
financial liabilities cannot and must not be condoned, for it will give a premium to an iniquitous
business strategy where a corporation is formed or used for a non–legitimate purpose, such as to
evade a just and due obligation. Therefore Binswanger and Elliot are jointly and severally liable
for CBB’s unfulfilled obligation to Livesey.
CASE TITLE GERARDO LANUZA, JR., ET. AL. vs. BF CORPORATION, ET.
AL.

Atty. Ceniza
PROMULGATION October 1, 2014
DATE
DIGEST BY Castro, Floricel
DOCTRINE: A corporation, in the legal sense, is an individual with a personality that is

distinct and separate from other persons including its stockholders, officers, directors,
representatives, and other juridical entities. Thus, a corporation’s representative who did
not personally bind himself to an arbitration agreement cannot be forced to participate in
arbitration proceedings made pursuant to an agreement entered into by the corporation
except if piercing the corporate veil is warranted.
PONENTE: LEONEN, J.
FACTS:
BF Corporation entered into an agreement with Shangri-La where it undertook to construct for
Shangri-La a mall and a multilevel parking structure. The agreement provides for an arbitration
clause—referral to arbitration in case of a dispute arising from the agreement.
Shangri-La started defaulting in payment in Oct. 1991, and despite the repeated demands Shangri-
La refused to pay the balance. This prompted BF Corporation to file a collection complaint with
the RTC against Shangri-La and its directors (the Petitioners). BF Corporation alleged that the
Petitioners were in bad faith in directing Shangri-La’s affair.
The trial was suspended and the dispute was submitted for arbitration. The Petitioners prayed that
they be excluded from the arbitration proceedings for being non-parties to Shangri-La’s and BF
Corporation’s agreement and argued that that they cannot be held personally liable for corporate
acts or obligations because a corporation is a separate being and nothing justifies BF Corporation’s
allegation that they are solidarily liable with Shangri-La.
The Trial Court and the CA compelled the Petitioners to submit to arbitration proceedings. The
CA ruled that the Petitioners who are Shangri-La’s directors were necessary parties in the
arbitration proceedings.
ISSUE:
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Whether the Petitioners should be made parties to the arbitration proceedings despite the fact that
they are non-parties to Shangri-La and BF Corporation agreement and have separate personalities
from Shangri-La.
RULING:
Yes. While the Petitioners are correct that, as a consequence of a corporation’s separate
personality, they are not bound by the terms of the contract executed by the corporation, there are
instances when the distinction between personalities of directors, officers, and representatives, and
of the corporation, are disregarded. We call this piercing the veil of corporate fiction.
Piercing the corporate veil is warranted when, the separate personality of a corporation is used as
a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, or to confuse legitimate issues and in alter ego cases-- where a
corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation. In that case, the corporation
and persons who are normally treated as distinct from the corporation are treated as one person,
such that when the corporation is adjudged liable, these persons, too, become liable as if they were
the corporation.
In cases where there are allegations of bad faith or malice against the directors of the corporation,
it becomes the duty of courts or tribunals to determine if these persons and the corporation should
be treated as one. A trial must be conducted to determine whether the veil of corporate fiction
should be pierced.
Here, BF Corporation alleged that there was bad faith on the part of the Petitioners in directing the
affairs of Shangri-La Corporation, calling for the piercing of the corporate veil. Therefore, the
Petitioners who are normally treated as distinct individuals should be made to participate in the
arbitration proceedings in order to determine if such distinction should indeed be disregarded and,
if so, to determine the extent of their liabilities.
CASE TITLE IRENE MARTEL FRANCISCO vs. NUMERIANO MALLEN, JR.

DATE
Atty. Ceniza
DIGEST BY Castro, Ernest
DOCTRINE: To hold a director or officer personally liable for corporate obligations, two
requisites must concur: (1) complainant must allege in the complaint that the director or
officer assented to patently unlawful acts of the corporation, or that the officer was guilty
of gross negligence or bad faith; and (2) complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.
PONENTE: CARPIO, J.
FACTS:
Respondent Numeriano Mallen, Jr. was hired as a waiter for VIPS Coffee Shop and Restaurant, a
fine dining restaurant in Manila. In 1998, he availed a series of vacation leaves, paternity leaves
and sick leaves. When he suffered from tonsilitis, he was forced to apply for a 3-day sick leave.
However, he was given a 3-month leave for not being physically fit. Few days after, he filed a
complaint for underpayment of wages and non-payment of holiday pay before the DOLE-NCR. A
month after, he reported back to work with a medical certificate stating he was fit to work but he
was refused work; hence he filed a complaint for illegal dismissal before the NLRC-NCR.
Respondent argued that he was constructively dismissed for having been granted an increased
three months leave instead of the three days leave he applied for.
ISSUE:
Whether the petitioner, as Vice-President of VIPS Coffee Shop and Restaurant, is personally liable
for the monetary awards granted in favor of respondent arising from his alleged illegal termination.
RULING:
No. Petitioner is not liable for the monetary awards. 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. To hold a director or officer personally
liable for corporate obligations, two requisites must concur:
1. The complainant must allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and
2. The complainant must clearly and convincingly prove such unlawful acts, negligence or bad
faith.
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The respondent failed to allege either in his complaint or position paper that petitioner, as Vice-
President of VIPS Coffee Shop and Restaurant, acted in bad faith. Neither did respondent clearly
and convincingly prove that petitioner, as Vice-President, acted in bad faith. In fact, there was no
evidence whatsoever to show petitioners participation in respondents alleged illegal dismissal.
Clearly, the twin requisites of allegation and proof of bad faith, necessary to hold petitioner
personally liable for the monetary awards to respondent, are lacking.
CASE TITLE PACIFIC REHOUSE CORPORATION vs. COURT OF

APPEALS

DATE
DIGEST BY De Vera, Queenie
DOCTRINE: There must be a perpetuation of fraud behind the control or at least a

fraudulent or illegal purpose behind the control in order to justify piercing the veil of
corporate fiction.
PONENTE: REYES, J.
FACTS:
This case emanated from a Makati RTC case where EIB Securities made an unauthorized sale of
32,180,000 DMCI shares of Pacific Rehouse, Pacific Concorde, Mizpah Holdings, Forum
Holdings and East Asia Oil. RTC rendered judgment on the pleadings which was ultimately
affirmed by the SC.
When the Writ of Execution was returned unsatisfied, Pacific Rehouse et. al moved for the
issuance of an alias writ of execution to hold Export and Industry Bank, Inc. liable for the judgment
obligation as E-Securities is “a wholly-owned controlled and dominated subsidiary of Export and
Industry Bank, Inc., and is, thus, a mere alter ego and business conduit of the latter.” E-Securities
opposed the motion, arguing that it has a corporate personality that is separate and distinct from
petitioner.
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The RTC held that E-Securities is a mere business conduit or alter ego of Export and Industry
Bank, Inc. The CA explained that the alter ego theory cannot be sustained because ownership of a
subsidiary by the parent company is not enough justification to pierce the veil of corporate fiction.
There must be proof, apart from mere ownership, that Export Bank exploited or misused the
corporate fiction of E-Securities. The existence of interlocking incorporators, directors and officers
between the two corporations is not a conclusive indication that they are one and the same. Records
do not show that Export Bank has complete control over the business policies, affairs and/or
transactions of E-Securities. It was solely E-Securities that contracted the obligation in furtherance
of its legitimate corporate purpose; thus, any fall out must be confined within its limited liability.
ISSUE:
Whether the veil of corporate fiction may be pierced.
RULING:
No. It is a fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected. But, this
separate and distinct personality of a corporation is merely a fiction created by law for convenience
and to promote justice. So, when the notion of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor
laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation.
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in
fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
“instrumentality” may be disregarded. The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal. It must be kept in mind that the control must be shown to have been
exercised at the time the acts complained of took place.
RTC bore emphasis on the alleged control exercised by Export Bank upon its subsidiary E-
Securities, “control”, by itself, does not mean that the controlled corporation is a mere
instrumentality or a business conduit of the mother company. Even control over the financial and
operational concerns of a subsidiary company does not by itself call for disregarding its corporate
fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent or illegal
purpose behind the control in order to justify piercing the veil of corporate fiction. Such fraudulent
intent is lacking in this case. There was nothing on record demonstrative of Export Bank’s
wrongful intent in setting up a subsidiary, E-Securities. If used to perform legitimate functions, a
subsidiary’s separate existence shall be respected, and the liability of the parent corporation as well
Atty. Ceniza
as the subsidiary will be confined to those arising in their respective business. To justify treating
the sole stockholder or holding company as responsible, it is not enough that the subsidiary is so
organized and controlled as to make it “merely an instrumentality, conduit or adjunct” of its
stockholders. It must further appear that to recognize their separate entities would aid in the
consummation of a wrong. PETITION DISMISSED.
CASE TITLE HEIRS OF FE TAN UY vs. INTERNATIONAL EXCHANGE

BANK
PROMULGATION February 13, 2013

DATE
DIGEST BY Dimao, Sittee Junaira
DOCTRINES:
A director, officer or employee of a corporation is generally not held personally liable for
obligations incurred by the corporation except if the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad
faith
Under a variation of the doctrine of piercing the veil of corporate fiction, when two business
enterprises are owned, conducted and controlled by the same parties, both law and equity
will, when necessary to protect the rights of third parties, disregard the legal fiction that
two corporations are distinct entities and treat them as identical or one and the same.
PONENTE: MENDOZA, J.
FACTS:
Respondent International Exchange Bank (iBank), granted loans to Hammer Garments
Corporation (Hammer), covered by promissory notes and deeds of assignment. These were made
pursuant to the Letter-Agreement between iBank and Hammer, represented by its President and
General Manager, Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a
P25M Omnibus Line. The loans were secured by a Real Estate Mortgage by Goldkey Development
Corporation (Goldkey) over several of its properties and a Surety Agreement signed by Chua and
his wife, Fe Tan Uy (Uy).
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Hammer defaulted in the payment of its loans, prompting iBank to foreclose on Goldkey’s third-
party Real Estate Mortgage. The mortgaged properties were sold during the foreclosure sale yet
insufficient to cover the loan leaving an unpaid balance. For failure of Hammer to pay the
deficiency, iBank filed a Complaint for sum of money on against Hammer, Chua, Uy, and Goldkey
before the Regional Trial Court.
Uy claimed that she was not liable to iBank because she never executed a surety agreement in
favor of iBank. Goldkey, on the other hand, also denies liability, averring that it acted only as a
third-party mortgagor and that it was a corporation separate and distinct from Hammer
ISSUE:
1. Whether Uy, as treasurer and stockholder of Hammer, can be held personally liable for the
corporation’s loan obligation.
2. Whether Goldkey is an alter ego of Hammer hence liable for the latter’s obligation.
RULING:
1. No, Uy is not liable. The piercing of the veil of corporate fiction is not justifiable. A
corporation is a juridical entity which is vested with a legal personality separate and distinct from
those acting for and in its behalf and, in general, from the people comprising it. Obligations
incurred by the corporation, acting through its directors, officers and employees, are its sole
liabilities. A director, officer or employee of a corporation is generally not held personally liable
for obligations incurred by the corporation. Nevertheless, this legal fiction may be disregarded if
it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate issues. Before a director
or officer of a corporation can be held personally liable for corporate obligations, however, the
following requisites must concur: (1) the complainant must allege in the complaint that the director
or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of
gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such
unlawful acts, negligence or bad faith.
There is no showing that Uy committed gross negligence. In the absence of any of the
aforementioned requisites for making a corporate officer, director or stockholder personally liable
for the obligations of a corporation, Uy cannot be made to answer for the unpaid debts of the
corporation.
2. Yes, Goldkey is a mere alter ego of Hammer hence liable. Under a variation of the doctrine
of piercing the veil of corporate fiction, when two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to protect the rights of
third parties, disregard the legal fiction that two corporations are distinct entities and treat them as
Atty. Ceniza
identical or one and the same. While the conditions for the disregard of the juridical entity may
vary, the following are some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil, as laid down in Concept Builders, Inc. v. NLRC:
(1) Stock ownership by one or common ownership of both corporations;
(2) Identity of directors and officers;
(3) The manner of keeping corporate books and records, and
(4) Methods of conducting the business.
These factors are present in the case of Goldkey and Hammer:

a. Both corporations are family corporations of spouses Chua and Uy. The other
incorporators and shareholders of the two corporations are the brother and sister of Chua and
the sister of Uy. The other incorporator/shareholder is the daughter of spouses Chua and Uy.
b. Hammer and Goldkey share the same office and practically transact their business from
the same place.
c. Defendant Chua is the President and Chief Operating Officer of both corporations. All
business transactions of Goldkey and Hammer are done at the instance of Chua who is
authorized to do so by the corporations. The promissory notes subject of this complaint are
signed by him as Hammer’s President and General Manager. The third-party real estate
mortgage of Goldkey is signed by him for Goldkey to secure the loan obligation of Hammer
with iBank. The other third-party real estate mortgages which Goldkey executed in favor of
the other creditor banks of Hammer are also signed by Chua.
d. The assets of Goldkey and Hammer are co-mingled. The real properties of Goldkey are
mortgaged to secure Hammer’s obligation with creditor banks. The proceeds of at least two
loans which Hammer obtained from iBank, purportedly to finance its export to Wal-Mart are
instead used to finance the purchase of a manager’s check payable to Goldkey. The
defendants’ claim that Goldkey is a creditor of Hammer to justify its receipt of the Manager’s
check is not substantiated by evidence. Despite subpoenas issued by this Court, Goldkey thru
its treasurer, Uy and or its corporate secretary Manling failed to produce the Financial
Statement of Goldkey.
e. When defendant Chua “disappeared”, Goldkey ceased to operate despite the claim that
other “officers” and stockholders like Uy, the brother and sister of Chua, and the sister of Uy
are still around and may be able to continue the business of Goldkey, if it were different or
distinct from Hammer, which suffered financial set back.
Goldkey was merely an adjunct of Hammer and, as such, the legal fiction that it has a separate
personality from that of Hammer should be brushed aside as they are, undeniably, one and the
same.
Atty. Ceniza
WHEREFORE, the petitions are PARTLY GRANTED. Uy is released from any liability arising
from the debts incurred by Hammer from iBank. Hammer, Chua and Goldkey are jointly and
severally liable to pay iBank the sum representing the unpaid loan obligation of Hammer.
CASE TITLE PNB vs. HYDRO RESOURCES CONTRACTORS CORP.
PROMULGATIO March 13, 2013

N DATE
DIGEST BY Fadera, Juan Carlo D.
TOPIC COVERED Separate Juridical Personality; Piercing the veil of Corporate

Fiction; Alter Ego Piercing
DOCTRINE: Piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements: 1) control of the corporation by the stockholder or Parent
Corporation; 2) fraud or fundamental unfairness imposed on the plaintiff; and 3) harm or
damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The
absence of any of these elements prevents piercing the corporate veil.
PONENTE: LEONARDO-DE CASTRO, J.
FACTS:
Petitioners DBP (57% shares) and PNB (43% shares) held substantially all the assets of
Marinduque Mining and Industrial Corporation (MMIC). Petitioners organized NMIC to resume
the business operations of the defunct MMIC. NMIC engaged the services of Hercon, Inc.
(Hercon), for its Mine Stripping and Road Construction Program.
Hercon found that NMIC still has an unpaid balance and made several demands but were not
heeded. A complaint for sum of money was then filed in the RTC (Makati) seeking to hold
petitioners NMIC, DBP, and PNB solidarily liable for the amount owing Hercon. Hercon was
substituted by HRCC after it was acquired by the latter in a merger.
DBP and PNB raised the defense that HRCC had no cause of action against it because DBP was
not privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical personality is separate
from that of DBP.
Atty. Ceniza
RTC ruled in favour of HRCC. It pierced the corporate veil of NMIC and held DBP and PNB
solidarily liable with NMIC. This was affirmed by the CA.
PNB and DBP insist that there is no sufficient ground for disregarding the separate corporate
personality of NMIC because NMIC was not a mere adjunct, business conduit or alter ego of DBP
and PNB and nothing in the records would show that the ownership and control of the
shareholdings of NMIC by DBP and PNB were used to commit fraud, illegality or injustice.
ISSUE:
WON NMIC is a mere adjunct, business conduit or alter ego of both DBP and PNB, to find the
application of the Doctrine of Piercing the corporate veil of NMIC.
RULING:
NO, NMIC is not a mere alter ego of DBP and PNB. Piercing the corporate veil based on the alter
ego theory requires the concurrence of three elements:[1] 1) control of the corporation by the
stockholder or Parent Corporation; 2) fraud or fundamental unfairness imposed on the plaintiff;
and 3) harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation.
The absence of any of these elements prevents piercing the corporate veil.
Here, the SC finds that none of the tests has been satisfactorily met in this case. Applying the
Control Test, while ownership by one corporation of all or a great majority of stocks of another
corporation and their interlocking directorates may serve as indicia of control, by themselves,
however, are insufficient to establish an alter ego relationship or connection between DBP and
PNB on the one hand and NMIC on the other hand, that will justify the puncturing of the latter’s
corporate cover.
Nothing in the records shows that the corporate finances, policies and practices of NMIC were
dominated by DBP and PNB in such a way that NMIC could be considered to have no separate
mind, will or existence of its own. On the contrary, the evidence establishes that: (1) HRCC knew
and acted on the knowledge that it was dealing with NMIC, not with NMIC’s stockholders; (2)
The letter proposal of Hercon, regarding the contract for NMIC’s mine stripping and road
construction program was addressed to and accepted by NMIC; and (3) The various billing reports
and communications of Hercon/HRCC regarding NMIC’s mine stripping and road construction
program in 1985 concerned NMIC and NMIC’s officers, without any indication of or reference to
the control exercised by DBP and/or PNB over NMIC’s affairs, policies and practices.
Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were
interlocking has no basis. HRCC’s evidence shows that NMIC operated as a distinct entity
endowed with its own legal personality.
Atty. Ceniza
Applying the Fraud Test, to disregard the separate juridical personality of a corporation, the
wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and
convincingly established; it cannot be presumed. Here, there is no evidence that the juridical
personality of NMIC was used by DBP and PNB to commit a fraud or to do a wrong against
HRCC.
Finally, applying the Harm Test, in the absence of both control by DBP and PNB of NMIC and
fraud or fundamental unfairness perpetuated by DBP and PNB through the corporate cover of
NMIC, no harm could be said to have been proximately caused by DBP and PNB on HRCC for
which HRCC could hold DBP and PNB solidarily liable with NMIC.
Therefore, NMIC is not a business conduit of PNB and DBP and the veil of corporate fiction shall
not be pierced.
[1]
CONTROL TEST FRAUD TEST HARM TEST
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· Requires that · Requires · Requires the
the subsidiary be that the parent plaintiff to show that
completely under corporation’s the defendant’s
the control and conduct in using the control, exerted in a
domination of the subsidiary fraudulent, illegal or
parent. corporation be otherwise unfair
· Examines the unjust, fraudulent or manner toward it,
parent corporation’s wrongful. caused the harm
relationship with the · Examines suffered.
subsidiary. the relationship of · A causal
· Inquires the plaintiff to the connection between
whether a subsidiary corporation. the fraudulent
corporation is so · Recognizes conduct committed
organized and that piercing is through the
controlled and its appropriate only if instrumentality of the
affairs are so the parent subsidiary and the
conducted as to corporation uses the injury suffered or the
make it a mere subsidiary in a way damage incurred by
instrumentality or that harms the the plaintiff should
agent of the parent plaintiff creditor. be established.
corporation such · Requires a · The plaintiff
that its separate showing of "an must prove that,
existence as a element of injustice unless the corporate
distinct corporate or fundamental veil is pierced, it will
entity will be unfairness." have been treated
ignored. unjustly by the
· Seeks to defendant’s exercise
establish whether of control and
the subsidiary improper use of the
corporation has no corporate form and,
autonomy and the thereby, suffer
parent corporation, damages.
though acting
through the
subsidiary in form
and appearance, "is
operating the
business directly for
itself."
Atty. Ceniza
CASE TITLE KUKAN INTERNATIONAL CORPORATION, Petitioner, vs.
HON. AMOR REYES
PROMULGATIO September 29, 2010

N DATE
DIGEST BY Fernando, Niezel Kathryn R.
TOPIC COVERED Piercing the veil of corporate fiction
DOCTRINE: The principle of piercing the veil of corporate fiction, and the resulting
treatment of two related corporations as one and the same juridical person with respect to
a given transaction, is basically applied only to determine established liability; it is not
available to confer on the court a jurisdiction it has not acquired, in the first place, over a
party not impleaded in a case.
The corporate mask may be removed or the corporate veil pierced when the corporation is
just an alter ego of a person or of another corporation. For reasons of public policy and in
the interest of justice, the corporate veil will justifiably be impaled only when it becomes
a shield for fraud, illegality or inequity committed against third persons.
PONENTE: VELASCO, JR., J.:
FACTS:
Kukan, Inc. conducted a bidding for the supply and installation of signages in a building being
constructed in Makati City. Morales tendered the winning bid and was awarded the PhP 5 million
contract. Morales was not paid the full amount leaving a balance which Kukan, Inc. refused to pay
despite demands. Morales filed a Complaint with the RTC against Kukan, Inc. for a sum of money.
He obtained a court decision in his favor and against Kukan, Inc. When the Sheriff implemented
the writ of execution, it allegedly levied on the properties of Kukan International Corporation
(KIC). KIC claims that such implementation was improper since it was not even a party to the case
and it is a different corporation as compared to Kukan, Inc.
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RTC sustained the acts of the Sheriff and maintained that the levied properties should be held
liable for the judgment and the corporate veil should be pierced because Kukan Inc and KIC are
one and the same. petitioner KIC maintains that the RTC violated its right to due process when it
authorized the issuance of the writ against KIC for Kukan, Inc’s judgment debt, albeit KIC has
never been a party to the underlying suit.
ISSUE:
Whether piercing the veil of corporate fiction was proper?
RULING:
No, a corporation not impleaded in a suit cannot be subject to the court’s process of piercing the
veil of its corporate fiction. In that situation, the court has not acquired jurisdiction over the
corporation and, hence, any proceedings taken against that corporation and its property would
infringe on its right to due process. The principle of piercing the veil of corporate fiction, and the
resulting treatment of two related corporations as one and the same juridical person with respect
to a given transaction, is basically applied only to determine established liability; it is not available
to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded
in a case.
No full-blown trial involving KIC was had when the RTC disregarded the corporate veil of KIC.
The reason for this actuality is simple and undisputed: KIC was not impleaded in the civil case and
that the RTC did not acquire jurisdiction over it. It was dragged to the case after it reacted to the
improper execution of its properties and veritably hauled to court, not thru the usual process of
service of summons, but by mere motion of a party with whom it has no privity of contract and
after the decision in the main case had already become final and executory.
Morales’ adverted motion to pierce the veil of corporate fiction stated a new cause of action, i.e.,
for the liability of judgment debtor Kukan, Inc. to be borne by KIC on the alleged identity of the
two corporations. This new cause of action should be properly ventilated in another complaint and
subsequent trial where the doctrine of piercing the corporate veil can, if appropriate, be applied,
based on the evidence adduced.
In any event, the principle of piercing the veil of corporate fiction finds no application to the instant
case.
The corporate mask may be removed or the corporate veil pierced when the corporation is just an
alter ego of a person or of another corporation. For reasons of public policy and in the interest of
justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons. Hence, any application of the doctrine of
piercing the corporate veil should be done with caution. Note that in those instances when the
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Court pierced the veil of corporate fiction of two corporations, there was a confluence of the
following factors:
1. A first corporation is dissolved;

2. The assets of the first corporation is transferred to a second corporation to avoid a financial
liability of the first corporation; and
3. Both corporations are owned and controlled by the same persons such that the second
corporation should be considered as a continuation and successor of the first corporation.
In the instant case, however, the second and third factors are conspicuously absent. There is,
therefore, no compelling justification for disregarding the fiction of corporate entity separating
Kukan, Inc. from KIC.
CASE TITLE TIMOTEO SARONA VS. NATIONAL LABOR RELATIONS

COMMISSION
PROMULGATIO January 18, 2012

N DATE
DIGEST BY Frias, Helen May
TOPIC COVERED Separate Personality/ Piercing the Veil
DOCTRINE: The corporate mask may be removed or the corporate veil pierced when the
corporation is just an alter ego of a person or of another corporation. For reasons of public
policy and in the interest of justice, the corporate veil will justifiably be impaled only when
it becomes a shield for fraud, illegality or inequity committed against third persons.
PONENTE: J. Reyes
FACTS:
The petitioner was hired by Sceptre as a security guard. After sometime, he was asked by Sceptre’s
Operation Manager, to submit a resignation letter as the same was supposedly required for
Atty. Ceniza
applying for a position at Royale. He then started working with Royale but was subsequently
dismissed as per the instructions of Aida, the general manager of Sceptre. This prompted him to
file a complaint for illegal dismissal.
The Labor Arbiter (LA) ruled in favor of the petitioner. However, LA refused to pierce Royale’s
corporate veil for purposes of factoring the petitioner’s length of service with Sceptre in the
computation of his separation pay. LA ruled that Royale’s corporate personality is separate and
distinct from that of Sceptre, a sole proprietorship owned by Aida. The petitioner raised the validity
of adverse findings of LA to CA with respect to piercing Royale’s corporate personality and
computation of his separation pay.
CA ruled against the petitioner and found the evidence he submitted as wanting to support his
allegation that Royale and Sceptre are one and the same juridical entity.
ISSUE:
Whether Royale’s corporate fiction should be pierced for the purpose of compelling it to recognize
the petitioner’s length of service with Sceptre and for holding it liable for the benefits that have
accrued to him arising from his employment with Sceptre.
RULING:
Yes. Royale’s corporate fiction should be pierced in this case.
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil
pierced when the corporation is just an alter ego of a person or of another corporation. For reasons
of public policy and in the interest of justice, the corporate veil will justifiably be impaled only
when it becomes a shield for fraud, illegality or inequity committed against third persons.
In this case, evidence shows that Royale is a mere continuation or successor of Sceptre and
fraudulent objectives are behind Royale’s incorporation and the petitioner’s subsequent
employment therein. It was found out that Aida exercises control and supervision over the affairs
of both Sceptre and Royale. Also, Sceptre and Royale have the same principal place of business.
The respondents do not likewise deny that Royale and Sceptre share the same officers and
employees. Royale also claimed a right to the cash bond which the petitioner posted when he was
still with Sceptre.
With the evidence above and considering Aida’s control over Sceptre’s and Royale’s business
affairs, it is patent that Royale was a mere subterfuge for Aida. Therefore, Royale’s corporate
Atty. Ceniza
fiction should be pierced in this case and petitioner’s length of service with Sceptre should be
recognized.
CASE TITLE RAMIREZ VS. MAR FISHING CO., INC.
PROMULGATIO June 13, 2012

N DATE
DIGEST BY Galicia, Monico King A.
DOCTRINE: Since piercing the veil of corporate fiction is frowned upon, those who seek
to pierce the veil must clearly establish that the separate and distinct personalities of the
corporations are set up to justify a wrong, protect a fraud, or perpetrate a deception
PONENTE: J. SERENO
FACTS:
Respondent corporation Mar Fishing is engaged in the business of fishing and canning of tuna. It
sold its principal assets to co-respondent corporation Miramar Fishing. After the sale, respondent
Mar Fishing notified its workers, as well as DOLE, of the closure of its business operations by the
end of the month.
Mar Fishing's labor union entered into a Memorandum of Agreement with the acquiring company
Miramar Fishing. The agreement provides that Miramar Fishing shall only absorb regular rank and
file employees whose performance was satisfactory. Petitioners were not hired or given separation
pay by Miramar Fishing. Thus, petitioners filed complaints for illegal dismissal before the NLRC.
LA ruled that the dismissal was proper, and ordered Mar Fishing to give separation pay. NLRC
modified the decision, and it awarded, apart from separation pay, full back wages to petitioners.
Additionally, the NLRC pierced the veil of corporate fiction and ruled that Mar Fishing and
Miramar were one and the same entity, since their officers were the same. Hence, both companies
were ordered to solidarily pay the monetary claims. However, on reconsideration, the NLRC
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modified its ruling by imposing liability only on Mar Fishing. Rule 65 petition was filed in CA.
Petitioners argued that both Mar Fishing and Miramar should be made liable.
ISSUE:
Whether Miramar Fishing is merely an alter ego of Mar Fishing making them solidarily liable to
the monetary claims of petitioner.
RULING:
NO. The question of whether one corporation is merely an alter ego of another is purely one of
fact. Here, Miramar and Mar Fishing are separate and distinct entities, based on the marked
differences in their stock ownership. Also, the fact that Mar Fishing’s officers remained as such in
Miramar does not by itself warrant a conclusion that the two companies are one and the same.
Neither can the veil of corporate fiction between the two companies be pierced by the alleged take-
over by Miramar of Mar Fishing’s operations and the evident similarity of their businesses. At this
point, it bears emphasizing that since piercing the veil of corporate fiction is frowned upon, those
who seek to pierce the veil must clearly establish that the separate and distinct personalities of the
corporations are set up to justify a wrong, protect a fraud, or perpetrate a deception. This,
unfortunately, petitioners have failed to do.
CASE TITLE CHINA BANKING CORPORATION VS. DYNE-SEM

ELECTRONICS CORP.

N DATE
DIGEST BY Ganchero, Kevin Ken S.
TOPIC COVERED Piercing the veil of corporate fiction
DOCTRINE: Even the overlapping of incorporators and stockholders of two or more

corporations will not necessarily justify the piercing of the veil of corporate fiction.
PONENTE: CORONA J.
Atty. Ceniza
FACTS:
Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed from petitioner China Banking
Corporation. The loan was evidenced by six (6) promissory notes. The borrowers failed to pay
when the obligations became due, thus, petitioner consequently instituted a complaint for sum of
money.
Summons was not served on Dynetics because it had already closed down. Lim, on the other hand,
filed his answer denying that "he promised to pay [the obligations] jointly and severally to
[petitioner]."
An amended complaint was filed by petitioner impleading respondent Dyne-Sem Electronics

Corporation (Dyne-Sem) and its stockholders. Petitioner alleged that respondent was formed and
organized to be Dynetics' alter ego as established by the following circumstances: Dynetics, Inc.
and respondent are both engaged in the same line of business of manufacturing, producing,
assembling, processing, importing, exporting, buying, distributing, marketing and testing
integrated circuits and semiconductor devices; Principal office and factory site of Dynetics, Inc.
located at Avocado Road, FTI Complex, Taguig, Metro Manila, were used by respondent as its
principal office and factory site; Respondent acquired some of the machineries and equipment of
Dynetics, Inc. from banks which acquired the same through foreclosure; Respondent retained some
of the officers of Dynetics, Inc.
Respondent, in its answer alleged that: its incorporators as well as present stockholders of are
totally different from those of Dynetics, Inc.,; various facilities, machineries and equipment it used
were legitimately and validly acquired, from various corporations and were not just "taken over"
nor "acquired from Dynetics"; present plant site is under lease from Food Terminal, Inc., where a
number of other firms are also engaged in similar business; practical convenience, and nothing
else, was behind its choice of plant site; it operates its own bonded warehouse under authority from
the Bureau of Customs.
The Court ruled that Dyne-Sem is not an alter ego of Dynetics. Thus, Dyne-Sem is not liable under
the promissory notes.
ISSUE:
Whether the doctrine of piercing of corporate veil applies in the case at bar.
RULING:
No. To disregard the separate juridical personality of a corporation, the wrongdoing must be
proven clearly and convincingly. Petitioner failed to prove that Dyne-Sem was organized and
controlled, and its affairs conducted, in a manner that made it merely an instrumentality, agency,
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conduit or adjunct of Dynetics, or that it was established to defraud Dynetics' creditors, including
petitioner.
The similarity of business of the two corporations did not warrant a conclusion that respondent
was but a conduit of Dynetics. Likewise, respondent's acquisition of some of the machineries and
equipment of Dynetics was not proof that respondent was formed to defraud petitioner. As the CA
found, no merger took place between Dynetics and Dyne-Sem. What took place was a sale of the
assets of the former to the latter.
Merger is legally distinct from a sale of assets. Thus, where one corporation sells or otherwise
transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for
the debts and liabilities of the transferor.
The machineries and equipment were transferred and disposed of by the winning bidders in their
capacity as owners. The sales were therefore valid and the transfers of the properties to respondent
legal and not in any way in contravention of petitioner's rights as Dynetics' creditor.
Finally, it may be true that respondent later hired Dynetics former Vice-President Maglaya and
Assistant Corporate Counsel Gesmundo. From this, however, we cannot conclude that respondent
was an alter ego of Dynetics. In fact, even the overlapping of incorporators and stockholders of
two or more corporations will not necessarily lead to such inference and justify the piercing of the
veil of corporate fiction. Much more has to be proven.
CASE TITLE HYATT ELEVATORS AND ESCALATORS CORPORATION

V. GOLD STAR ELEVATORS PHIL.,INC.
PROMULGATIO October 24, 2005

N DATE
DIGEST BY Gonzalez, Jillian Jiby
TOPIC COVERED Residence of a Corporation

Atty. Ceniza
DOCTRINE: A corporation is in a metaphysical sense a resident of the place where its
principal office is located as stated in the articles of incorporation.
PONENTE: PANGANIBAN, J.
FACTS:
HYATT filed a case of unfair trade practices against LG Industrial System Co. Ltd. (LGISC) and
LG International Corporation (LGIC) for breaching their Exclusive Distributorship Angreement.
It stated that HYATT was the exclusive distributor of the LG Elevators and escalators in the
Philippines. LGISC and LGIC filed a motion to dismiss on the grounds of (1) lack of jurisdicion
over the persons of the defendant, (2) improper venue and (3) failure to state a cause of action but
the motion was denied. HYATT later filed a motion for leave of court to amend the complaint in
order to afford complete relief, GOLDSTAR was added as a party-defendant and to change the
name of LGISC to LG OTIS. GOLDSTAR also filed a motion to Dismiss the amended complaint
on the grounds of (1) the venue was improperly laid, as neither HYATT nor defendants reside in
Mandaluyong City and (2) failure to state a cause of action against GOLDSTAR. The motion was
denied by the trial court. CA ruled that the trial court had erred in ruling, it was clear that the venue
was improper because none of the litigants resided in Manadaluyong City.
ISSUE:
WON the venue was properly laid in Mandaluyong City.
RULING:
The venue is improper. Under Section 14 (3) of the Corporation Code, the place where the principal
office of the corporation is to be located must be indicated in the corporation’s articles of
incorporation (AOI), which shall be filed with the Securities and Exchange Commission (SEC).
Jurisprudence has settled that the place where the principal office of a corporation is located, as
stated in the AOI establishes its residence.
Here, the principal place of business of HYATT is Makati, as indicated in the Articles of
Incorporation. HYATT cannot argue that it had closed its Makati office and relocated to
Mandaluyong City and that the respondent was well aware of those circumstances because the fact
remains that, in law, the latter’s residence was still the place indicated in its AOI.
Hence, the venue was improper in Mandaluyong City.
CASE TITLE ABS-CBN BROADCASTING CORP. vs. CA

Atty. Ceniza
PROMULGATIO January 21, 1999
N DATE
DIGEST BY Julo, Ma. Victoria
TOPIC COVERED Claims for Damages
DOCTRINE: The award of moral damages cannot be granted in favor of a corporation

because, being an artificial person and having existence only in legal contemplation, it has
no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and
mental anguish, which call be experienced only by one having a nervous system.
PONENTE: DAVIDE, JR., CJ.:
FACTS:
ABS-CBN requested Viva Production to allow it to air at least 14 films produced by Viva. A
meeting was then held between Viva’s representative (Vicente Del Rosario) and ABS-CBN’s
Eugenio Lopez (General Manager) and Santos-Concio where Del Rosario proposed a film package
which will allow ABS-CBN to air 104 Viva films for P60 million. Santos-Concio, in a letter to
Del Rosario, proposed a counterproposal of 53 films (including the 14 films initially requested)
for P35 million. Viva’s Board of Directors rejected the counter offer. Several negotiations were
subsequently made but on April 29, 1992, Viva made an agreement with Republic Broadcasting
Corporation (referred to as RBS – or GMA 7) which gave exclusive rights to RBS to air 104 Viva
films including the 14 films initially requested by ABS-CBN.
ABS-CBN now filed a complaint for specific performance against Viva, alleging that there was
already a perfected contract between them. ABS-CBN also filed an injunction against RBS to
enjoin the latter from airing the films. The injunction was granted.
RBS now filed a countersuit with a prayer for moral damages as it claimed that its reputation was
debased when they failed to air the shows that they promised to their viewers. RBS relying on the
ruling in People vs Manero and Mambulao Lumber vs PNB, contended that a corporation may
recover moral damages if it “has a good reputation that is debased, resulting in social humiliation”.
The trial court ruled in favor of Viva and RBS. The Court of Appeals affirmed the trial court.
ISSUE:
WON RBS (respondent) is entitled to moral damages.
Atty. Ceniza
RULING:
No. Award for Moral damages is designed to compensate the claimant for actual injury suffered
and not to impose a penalty on the wrongdoer. Moral damages are awarded to enable the injured
party to obtain means, diversion, or amusements that will serve to obviate the moral suffering he
has undergone. The award of moral damages cannot be granted in favor of a corporation because,
being an artificial person and having existence only in legal contemplation, it has no feelings, no
emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish, which
can be experienced only by one having a nervous system.
The statement in People v. Manero and Mambulao Lumber Co. v. PNB that a corporation may
recover moral damages if it "has a good reputation that is debased, resulting in social humiliation"
is an obiter dictum.
On this score alone the award for moral damages must be set aside, since RBS is a corporation.
CASE TITLE ADVANCE PAPER CORP, ET.AL., vs. ARMA TRADERS

CORP, ET. AL.
PROMULGATIO December 11, 2013

N DATE
DIGEST BY Lim, Justine Christopher C.
TOPIC COVERED Doctrine of Apparent Authority
DOCTRINE:
The doctrine of apparent authority provides that a corporation will be estopped from
denying the agent’s authority if it knowingly permits one of its officers or any other agent
to act within the scope of an apparent authority, and it holds him out to the public as
possessing the power to do those acts.
Atty. Ceniza
FACTS:
Tan and Uy, President and Treasurer of Arma Traders (the Respondent) obtained a loan with
Advance Paper (the Petitioner). Petitioners filed a complaint for collection of sum of money
against Arma Traders, Tan, Uy, etc. claiming that the respondents fraudulently issued the postdated
checks as payment for the purchases and loan transactions knowing that they did not have
sufficient funds with the drawee banks.
Respondent on the other hand claimed that the loan transactions were ultra vires because Tan and
Uy were not authorized by its board of directors (BOD) to obtain loans from the Petitioner. They
claimed that the borrowing of money requires prior approval of the BOD and without such
approval, the acts of corporate officers were ultra vires or in excess of authority and is not binding
to the corporation. They also argued that the Petitioner should have verified first the authority of
Tan and Uy to transact business on behalf of the Corporation.
ISSUE:
WON Arma Traders is liable to pay the loans obtained by Tan and Uy applying the doctrine of
apparent authority.
RULING:
Yes. The doctrine of apparent authority provides that a corporation will be estopped from denying
the agent’s authority if it knowingly permits one of its officers or any other agent to act within the
scope of an apparent authority, and it holds him out to the public as possessing the power to do
those acts. The existence of apparent authority may also be ascertained through the acquiescence
of the corporation to the acts of the agent, with actual or constructive knowledge thereof, within
or beyond the scope of the agent’s ordinary powers.
Here, Tan and Uy were not just ordinary corporate officers and authorized bank signatories for
they are also Arma Traders’ incorporators. It was also proven that the sole management of Arma
Traders’ was left to Tan and Uy for 14 years and that since 1984 its stockholders and BOD never
had its meeting.
Clearly, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact with
third persons without the necessary written authority from its non-performing board of directors.
Hence, applying the doctrine of apparent authority, Arma Traders is now estopped from denying
Tan and Uy’s authority to obtain loan from Advance Paper and his liability to the latter.
CASE TITLE DONNINA C. HALLEY VS. PRINTWELL, INC.

Atty. Ceniza
PROMULGATIO May 30, 2011
N DATE
DIGEST BY Ong, Gecel
TOPIC COVERED Trust Fund Doctrine
DOCTRINE: 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.
Under the trust fund doctrine, 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.
PONENTE: Bersamin, J.
FACTS:
Printwell sued Business Media Philippines, Inc. (BMPI) for the collection of its unpaid debt. It
impleaded as defendants all the original stockholders and incorporators (including the Petitioner)
to recover on their unpaid subscriptions. The RTC decided in favor of Printwell and declared the
defendant stockholders liable to Printwell applying the trust fund doctrine under which corporate
debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts. The
petitioner argues that the trust fund doctrine was inapplicable because she had already fully paid
her subscriptions to the capital stock of BMPI.
ISSUE:
WON the Petitioner (stockholder of BMPI) is personally liable under the trust fund doctrine.
RULING:
Yes, the petitioner is liable pursuant to the trust fund doctrine for the obligation of BMPI by virtue
of her subscription being still unpaid. Printwell, as BMPI’s creditor, had a right to reach her unpaid
subscription in satisfaction of its claim. The trust fund doctrine enunciates a rule that the property
of a corporation is a trust fund for the payment of creditors. It is established doctrine that
Atty. Ceniza
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. The trust fund
doctrine is 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. All assets
and property belonging to the corporation held in trust for the benefit of creditors that were
distributed or in the possession of the stockholders, regardless of full payment of their
subscriptions, may be reached by the creditor in satisfaction of its claim.
CASE TITLE WILSON GAMBOA VS. FINANCE SECRETARY

MARGARITO TEVES, ET AL.

N DATE
DIGEST BY Rementina, Mary Grace
TOPIC COVERED Capital
DOCTRINE: The term capital in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in the present case only
to common shares, and not to the total outstanding capital stock comprising both common
and non-voting preferred shares.
PONENTE: J. Carpio
FACTS:
This case involves the sale of shares of stock of Philippine Telecommunications Investment
Corporation (PTIC) by the Government to Metro Pacific Assets Holdings, Inc. (MPAH), an
affiliate of First Pacific Company Limited (First Pacific).
PLDT: Act No. 3436 granted PLDT a franchise and the right to engage in telecommunications
business. 26% of its outstanding common shares is sold to PTIC.
Atty. Ceniza
PTIC: 46% of the outstanding capital stock of PTIC were sequestered by PCGG while the
remaining 54% were owned by First Pacific, a Hong Kong-based investment firm. The
Government offered to sell 46% of the outstanding capital stock through a public bidding. First
Pacific, as a PTIC stockholder, announced that it would exercise its right of first refusal and buy
the 46% by matching the price of the winning bidder. First Pacific, through its subsidiary, MPAH,
entered into a Conditional Sale and Purchase Agreement with the Government.
Petitioner contends that since PTIC is a stockholder of PLDT, the sale of 46% of the outstanding
capital stock of PTIC is actually an indirect sale of about 6.3% of the outstanding common shares
of PLDT. With the sale, First Pacific’s common shareholdings in PLDT increased from 30.7% to
37%, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47%. This
violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership
of the capital of a public utility to not more than 40%. He submits that the 40% limitation refers
only to common shares because such shares are entitled to vote and it is through voting that control
over a corporation is exercised.
Respondents contend that First Pacific’s acquisition of 46% of the outstanding capital stock of
PTIC does not violate the 40% constitutional limit on foreign ownership of a public utility since
PTIC holds only 13.847% of the total outstanding common shares of PLDT. They contend that
the term capital includes preferred shares since the Constitution does not distinguish among
classes of shares.
ISSUE:
Whether the term capital in Section 11, Article XII of the Constitution refers to the total common
shares only or to the total outstanding capital stock (combined total of common and non-voting
preferred shares) of PLDT, a public utility.
RULING:
The term capital in Section 11, Article XII of the Constitution refers only to the common shares
or shares of stock that can vote in the election of directors.
Under the Corporation Code, a stockholder has the right to participate in the control and
management of the corporation by his vote in the election of directors. Section 6 provides that only
preferred or redeemable shares can be deprived of the right to vote, if expressly provided in its
articles of incorporation. Common shares cannot be deprived of the right to vote in any corporate
meeting, and any provision in the articles of incorporation restricting the right of common
shareholders to vote is invalid.
Atty. Ceniza
PLDT’s Articles of Incorporation expressly state that the Holders of Serial Preferred Stock shall
not be entitled to vote at any meeting of the stockholders for the election of directors or for any
other purpose. Holders of Common Capital Stock, on the other hand, are each entitled to one vote
and shall have the exclusive right to vote for the election of directors and for all other purposes.
Considering that common shares have voting rights which translate to control, the term capital in
Section 11, Article XII of the Constitution refers only to common shares. To construe broadly the
term capital as the total outstanding capital stock, including both common and non-voting
preferred shares, grossly contravenes the intent and letter of the Constitution that the State shall
develop a self-reliant and independent national economy effectively controlled by Filipinos.
The legal and beneficial ownership of 60% of the outstanding capital stock must rest in the hands
of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60% of
the outstanding capital stock, coupled with 60% of the voting rights, is constitutionally required
for the States grant of authority to operate a public utility. The undisputed fact that the PLDT
preferred shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends
that PLDT common shares earn, grossly violates the constitutional requirement of 60% Filipino
control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60% of the voting stock, and earn less than 60% of the dividends,
of PLDT. This directly contravenes the express command in Section 11, Article XII of the
Constitution.
CASE TITLE VALLE VERDE COUNTRY CLUB, INC. VS. VICTOR

AFRICA
PROMULGATION Sept. 4, 2009

DATE
DIGEST BY Sarangaya, Allan Paul S.
TOPIC COVERED Board of Directors/Powers of the BOD

Atty. Ceniza
DOCTRINE: The term of office is not affected by the holdover because it is fixed by the
statute and does not change because of vacancy nor because the incumbent holds over in
office beyond the end of the term due to the fact that a successor has not been elected and
has failed to qualify.
Theory of Delegated Power: The underlying policy of the Corporation Code is that the
business and affairs of a corporation must be governed by a board of directors whose
members have stood for election, and who have actually been elected by the stockholders,
on an annual basis. Only in that way can the directors' continued accountability to
shareholders, and the legitimacy of their decisions that bind the corporation's stockholders,
be assured. The shareholder vote is critical to the theory that legitimizes the exercise of
power by the directors or officers over properties that they do not own.
PONENTE: PEREZ, J.:

Facts:
On 1996 During the annual Stockholders Meeting of petitioner (VVCC), Dinglasan and Makalintal
were elected as members of the VVCC Board of Directors. However, in the years 1997, 1998,
1999, 2000 and 2001 the requisite quorum for the holding of stockholders meeting could not be
obtained. Therefore, the directors continued to serve in the VVCC board in a hold over capacity.
On 1998, Dinglasan resigned from his position as member and was replaced by Roxas through
election by the other members of the Board. A year later Makalintal also resigned and was replaced
by Ramirez also through election by the other members of the Board.
Respondent (Africa) a member of VVCC, questioned the election of Roxas and Ramirez alleging
that the election was contrary to Section 29[1], in relation to Section 23[2], of the Corporation
Code. Africa claimed that Makalintals term as well as the other members of the Board should be
considered expired and the vacancy should have been filled by the stockholders in a regular or
special meeting and not by the remaining members of the Board.
Issue:
W/N the remaining directors of the still constituting a quorum can elect another director to fill in
a vacancy caused by the resignation of a hold-over director.
Atty. Ceniza
Ruling:
NO, the holdover period is not part of the term of office of a member of the board of directors.
Term means the time during which the officer may claim to hold office as of right, and fixes the
interval after which the several incumbents shall succeed one another. Tenure represents the term
during which the incumbent actually holds office.
The term of office is not affected by the holdover because it is fixed by the statute and does not
change because of vacancy nor because the incumbent holds over in office beyond the end of the
term due to the fact that a successor has not been elected and has failed to qualify.
Makalintals term of office (1996 to 1997) after the lapse of one year has already expired and his
continued service as Board member in a holdover capacity cannot be considered as extending his
term. With the expiration of Makalintals term, the vacancy should have been filled by the
stockholders of VVCC pursuant to Section 29 of the Corporation Code.
The underlying policy of the Corporation Code is that the business and affairs of a corporation
must be governed by a board of directors whose members have stood for election, and who have
actually been elected by the stockholders, on an annual basis. Only in that way can the directors'
continued accountability to shareholders, and the legitimacy of their decisions that bind the
corporation's stockholders, be assured. The shareholder vote is critical to the theory that legitimizes
the exercise of power by the directors or officers over properties that they do not own.
[1] Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by the stockholders or members or by expiration of
term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or
special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be
elected only or the unexpired term of his predecessor in office.
[2] 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 to be elected from among the holders of stocks, or where there is no stock, from among
Atty. Ceniza
the members of the corporation, who shall hold office for one (1) year until their successors are
elected and qualified.
Every director must own at least one (1) share of the capital stock of the corporation of which he
is a director, which share shall stand in his name on the books of the corporation. Any director
who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which
he is a director shall thereby cease to be a director. Trustees of non-stock corporations must be
members thereof. a majority of the directors or trustees of all corporations organized under this
Code must be residents of the Philippines.
CASE TITLE FILIPINAS PORT SERVICES VS. GO

PROMULGATION
March 16, 2017
DATE
DIGEST BY Sanchez, Antonio Jr. D.
TOPIC COVERED Board of Directors / Power of the BOD
DOCTRINE: The corporate powers of all corporations formed under the Corporation Code
shall be exercised, all business conducted and all property of the corporation shall be controlled
and held by a Board of Directors (Sec. 23 of the Corporation Code). The raison d’être behind
the conferment of corporate powers on the board of directors is not lost on the Court, indeed,
the concentration in the board of the powers of control of corporate business and of appointment
of corporate officers and managers is
necessary for efficiency in any large organization.
PONENTE: J. Garcia
FACTS:
Cruz, the newly-ousted President of Filport filed a derivative suit against its new BOD for alleged
acts of mismanagement detrimental to the interest of the corporation and its shareholders by:
1. Creating an Executive Committee even though such creation is not provided in the
Corporate by-laws
2. Increasing the emoluments of principal officers of the Corporation
3. Re-creating the Assistant Vice President positions
4. Creating additional positions
The respondent BODs alleged that the above acts are valid exercise of their powers.
CA favors the respondents, hence this petition.
ISSUE:
WON the acts of the BOD are considered valid corporate acts
RULING:
Yes. The aforementioned acts are valid exercise of the powers of the BODs.The governing body
of a corporation is its board of directors. Section 23 of the Corporation Code explicitly provides
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that unless otherwise provided therein, the corporate powers of all corporations formed under the
Code shall be exercised, all business conducted and all property of the corporation shall be
controlled and held by a board of directors. Thus, with the exception only of some powers
expressly granted by law to stockholders (or members, in case of non-stock corporations), the
board of directors (or trustees, in case of non-stock corporations) has the sole authority to
determine policies, enter into contracts, and conduct the ordinary business of the corporation
within the scope of its charter, i.e., its articles of incorporation, bylaws and relevant provisions of
law. Verily, the authority of the board of directors is restricted to the management of the regular
business affairs of the corporation, unless more extensive power is expressly conferred.
The raison d’être behind the conferment of corporate powers on the board of directors is not lost
on the Court.
Indeed, the concentration in the board of the powers of control of corporate business and of
appointment of corporate officers and managers is necessary for efficiency in any large
organization. Stockholders are too numerous, scattered and unfamiliar with the business of a
corporation to conduct its business directly. And so the plan of corporate organization is for the
stockholders to choose the directors who shall control and supervise the conduct of corporate
business In the present case, the acts of the BODs are considered in accordance with the regular
business operations of Filport and/or within the powers of the BOD.
CASE TITLE MATLING INDUSTRIAL AND COMMERCIAL CORP. et al. vs.

RICARDO COROS

DATE
DIGEST BY Trinidad, Nathaniel Laurence C.
TOPIC COVERED Who are the corporate officers. Section 25 of the Corp Code
DOCTRINE: Conformably with Section 25, a position must be expressly mentioned in the
By-laws in order to be considered as a corporate officer. Thus, the creation of an officer
pursuant to or under a By-Law enabling provision is not enough to make a position a
corporate office.
PONENTE: Justice Bersamin

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FACTS: Respondent as Matling Corp’s Vice President for Finance and Adminstration was elected
by through Matling’s Board of Directors to its President through By-Law No. V, as amended; and
that any office the President created, like the position of the respondent, was as valid and effective
creation as that made by the Board of Directors, making the office a corporate office.
ISSUE:
WON the respondent who is the Vice President for Finance and Adminstration is a corporate
officer.
RULING:
No. Respondent is not a corporate officer.
Matling’s By-Law No. III listed only four corporate officers, namely: President, Executive Vice
President, Secretary, and Treasurer.
Section 25 of the Corporation Code provides:
“Section 25. Corporate officers, quorum. – Immediately after their election, the directors of a
corporation must formally organize by the election of the president, who shall be a director, a
treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the
Philippines, and such other officers as may be provided for in the by-laws.
Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to
make a position a corporate office. Guerrea v. Lezama, the first ruling on the matter, held that the
only officers of a corporation were those given that character either by the Corporation Code or by
the By-Laws; the rest of the corporate officers could be considered only as employees or
subordinate officials
Moreover, the Board of Directors of Matling could not validly delegate the power to create a
corporate office to the President, in light of Section 25 of the Corporation Code requiring the Board
of Directors itself to elect the corporate officers. Verily, the power to elect the corporate officers
was a discretionary power that the law exclusively vested in the Board of Directors, and could not
be delegated to subordinate officers or agents. The office of Vice President for Finance and
Administration created by Matling’s President pursuant to By-Law No. V was an ordinary, not a
corporate, office.
To emphasize, the power to create new offices and the power to appoint the officers to occupy
them vested by By- Law No. V merely allowed Matling’s President to create non-corporate offices
to be occupied by ordinary employees of Matling. Such powers were incidental to the President’s
duties as the executive head of Matling to assist him in the daily operations of the business.
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CASE TITLE MARC II MARKETING, INC. VS. ALFREDO M. JOSON

DATE
DIGEST BY Umbalin, Norissa Fhlor N.
TOPIC COVERED Corporate Officer
DOCTRINE: A position must be expressly mentioned in the by-laws in order to be

considered as a corporate office. Thus, the creation of an office pursuant to or under a by-
law enabling provision is not enough to make a position a corporate office.
PONENTE: PEREZ, J..
FACTS:
Petitioner corporation, is a corporation duly organized and existing under and by virtue of the laws
of the Philippines. It took over the business operations of Marc Marketing, Inc. which was made
non-operational following its incorporation and registration with the SEC.
Pending its incorporation, respondent was designated as the General Manager of Marc Marketing,
Inc., until it was officially incorporated and registered with the SEC, respondent continued to
discharge his duties as a General Manager under the petitioner corporation.
Pursuant to Section 1, Article IV of petitioner corporation’s by-laws its corporate officers are as
follows: Chairman, President, one or more Vice-President(s), Treasurer and Secretary. Its Board
of Directors, however, may, from time to time, appoint such other officers as it may determine to
be necessary or proper.
Per an undated Secretary’s Certificate petitioner corporations Board of Directors conducted a

meeting where respondent was appointed as one of its corporate officers with the designation or
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title of General Manager to function as a managing director with other duties and responsibilities
that the Board of Directors may provide and authorized.
Upon petitioner corporation’s cessation of operation, respondent was apprised of the termination
of his services as General Manager. Aggrieved, respondent filed a Complaint for Reinstatement
and Money Claim against petitioners before the LA.
Petitioner filed a Motion to Dismiss grounded on the LAs lack of jurisdiction as the case involved
an intra-corporate controversy, which jurisdiction belongs to the SEC.
Labor Arbiter issued an Order deferring the resolution of petitioners Motion to Dismiss.
Aggrieved, petitioners appealed the aforesaid Labor Arbiter’s Decision to the NLRC.
NLRC dismissed respondent Complaint for want of jurisdiction.
CA reversed, ruled that the LA has jurisdiction over the present controversy finding that the
respondent was a mere employee of petitioner corporation.
ISSUE:
Whether or not respondent is a corporate officer.
RULING:
No, respondent is not a corporate officer but a mere employee of petitioner corporation.
In the case of Easycall Communications Phils., Inc. v. King, this Court held that in the context of
Presidential Decree No. 902-A, corporate officers are those officers of a corporation who are given
that character either by the Corporation Code or by the corporation’s by-laws. Section 25 of the
Corporation Code specifically enumerated who are these corporate officers, to wit: (1) president;
(2) secretary; (3) treasurer; and (4) such other officers as may be provided for in the by-laws.
The phrase "such other officers as may be provided for in the by-laws," has been clarified and
elaborated in this Court’s pronouncement in Matling Industrial and Commercial Corporation v.
Coros, where it held, that: “a position must be expressly mentioned in the by-laws in order to be
considered as a corporate office.” Thus, the creation of an office pursuant to or under a by-law
enabling provision is not enough to make a position a corporate office.
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A careful perusal of petitioner corporation’s by-laws, particularly paragraph 1, Section 1, Article
IV, would explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2)
President; (3) one or more Vice-President; (4) Treasurer; and (5) Secretary. The position of
General Manager was not among those enumerated.
However, under Paragraph 2, Section 1, Article IV of petitioner corporation’s by-laws, it

empowered its Board of Directors to appoint such other officers as it may determine necessary or
proper. It is by virtue of this enabling provision that petitioner corporation’s Board of Directors
allegedly approved a resolution to make the position of General Manager a corporate office, and,
thereafter, appointed respondent thereto making him one of its corporate officers. All of these acts
were done without first amending its by-laws so as to include the General Manager in its roster of
corporate officers.
Petitioner’s basis of respondent’s position as corporate officer is untenable. Based on the court’s
ruling in Matling case, the board of directors has no power to create other corporate offices without
first amending the corporate by-laws so as to include therein the newly created corporate office.
Though the board of directors may create appointive positions other than the positions of corporate
officers, the persons occupying such positions cannot be viewed as corporate officers under
Section 25 of the Corporation Code. In view thereof, the Court ruled that unless and until petitioner
corporations by-laws is amended for the inclusion of General Manager in the list of its corporate
officers, such position cannot be considered as a corporate office within the realm of Section 25
of the Corporation Code.
Section 25 of the Corporation Code safeguards the constitutionally enshrined right of every
employee to security of tenure. To allow the creation of a corporate officer position by a simple
inclusion in the corporate by-laws of an enabling clause empowering the board of directors to do
so can result in the circumvention of that constitutionally well-protected right. Conformably with
Section 25, a position must be expressly mentioned in the by-laws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to or under a by-law enabling provision
is not enough to make a position a corporate office.
Atty. Ceniza
CASE TITLE LESLIE OKOL, Petitioner,
vs.
SLIMMERS WORLD INTERNATIONAL, BEHAVIOR
MODIFICATIONS, INC., and RONALD JOSEPH MOY,
Respondents.
DATE
DOCTRINE: An "office" is created by the charter of the corporation and the officer is elected
by the directors or stockholders. On the other hand, an "employee" usually occupies no office
and generally is employed not by action of the directors or stockholders but by the managing
officer of the corporation who also determines the compensation to be paid to such employee.
It is a settled rule that jurisdiction over the subject matter is conferred by law. The determination
of the rights of a director and corporate officer dismissed from his employment as well as the
corresponding liability of a corporation, if any, is an intra-corporate dispute subject to the
jurisdiction of the regular courts. Thus, the appellate court correctly ruled that it is not the NLRC
but the regular courts which have jurisdiction over the present case.
PONENTE: CARPIO, J..
FACTS:
Respondent Slimmers World International operating under the name Behavior Modifications, Inc.
(Slimmers World) employed petitioner Leslie Okol (Okol) as a management trainee. She rose up
the ranks to become Head Office Manager and then Director and Vice President. The petitioner
was preventively suspended and later on was dismissed when the undervalued equipment seized
by the Bureau of Customs was placed under the names of Okol and two customs brokers. Petitioner
then filed for illegal suspension, illegal dismissal, unpaid commissions, damages and attorney’s
fees, with prayer for reinstatement and payment of backwages before the NLRC.
ISSUE:
WON the petitioner is a Corporate Officer in which case the NLRC has no jurisdiction since there
is no employer-employee relationship.
RULING:
Yes, The petitioner is a Corporate Officer. Section 25 of the Corporation Code enumerates
corporate officers as the president, secretary, treasurer and such other officers as may be provided
for in the by-laws. In Tabang v. NLRC, the court held that an "office" is created by the charter of
the corporation and the officer is elected by the directors or stockholders. On the other hand, an
"employee" usually occupies no office and generally is employed not by action of the directors or
stockholders but by the managing officer of the corporation who also determines the compensation
to be paid to such employee.
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In the present case, the respondents, in their motion to dismiss filed before the labor arbiter,
questioned the jurisdiction of the NLRC in taking cognizance of petitioner’s complaint. In the
motion, respondents attached the General Information Sheet (GIS), Minutes of the meeting of the
Board of Directors and Secretary’s Certificate, and the Amended By-Laws of Slimmers World as
submitted to the SEC to show that petitioner was a corporate officer whose rights do not fall within
the NLRC’s jurisdiction. The GIS and minutes of the meeting of the board of directors indicated
that petitioner was a member of the board of directors, holding one subscribed share of the capital
stock, and an elected corporate officer.
The determination of the rights of a director and corporate officer dismissed from his
employment as well as the corresponding liability of a corporation, if any, is an intra-corporate
dispute subject to the jurisdiction of the regular courts. Thus, the appellate court correctly ruled
that it is not the NLRC but the regular courts which have jurisdiction over the present case.
CASE TITLE GLORIA V. GOMEZ VS. PNOC DEV. AND MNGT. CORP.
(PDMC),
CITATION G.R. No. 174044,
PROMULGATION November 27, 2009

DATE
DIGEST BY Anonuevo, Jon Jon V.
DOCTRINE: The relationship of a person to a corporation, whether as officer or agent or

employee, is not determined by the nature of the services he performs but by the incidents
of his relationship with the corporation as they actually exist.
PONENTE: ABAD, J.:
FACTS:
Petitioner Gloria V. Gomez used to work as Manager of the Legal Department of Petron
Corporation, then a government-owned corporation. With Petron’s privatization, she availed of
the company’s early retirement program and left that organization. Filoil Refinery Corporation
(Filoil), also a government-owned corporation, appointed her its corporate secretary and legal
counsel, with the same managerial rank, compensation, and benefits that she used to enjoy at
Petron.
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But Filoil was later on also identified for privatization. Which later became the respondent PNOC
Development Management Corporation (PDMC). When this happened, Gomez’s task force was
abolished. She was re-hired as administrator and legal counsel of the company. In accordance with
company guidelines, it credited her the years she served with the Filoil task force. The next
president of PDMC extended her term as administrator beyond her retirement age, pursuant to his
authority under the PDMC Approvals Manual.
Meantime, a new board of directors for PDMC took over the company. The new board of directors
of respondent PDMC removed petitioner Gomez as corporate secretary, questioned her continued
employment as administrator. Petitioner Gomez for her part conceded that as corporate secretary,
she served only as a corporate officer. But, when they named her administrator, she became a
regular managerial employee. Consequently, the respondent PDMC’s board did not have to
approve either her appointment as such or the extension of her term. Pending resolution of the
issue, the respondent PDMC’s board withheld petitioner Gomez’s wages, prompting her to file a
complaint for non-payment of wages, damages, and attorney’s fees with the Labor Arbiter. She
later amended her complaint to include other money claims and illegal dismissal.
Respondent PDMC moved to have petitioner Gomez’s complaint dismissed on ground of lack of
jurisdiction. The Labor Arbiter granted the motion upon a finding that Gomez was a corporate
officer and that her case involved an intra-corporate dispute that fell under the jurisdiction of the
Securities and Exchange Commission (SEC). The NLRC held that Gomez was a regular employee,
not a corporate officer; hence, her complaint came under the jurisdiction of the Labor Arbiter.
The Court of Appeals (CA) reversed the NLRC decision. The CA held that since Gomez’s
appointment as administrator required the approval of the board of directors, she was clearly a
corporate officer. Thus, her complaint is within the jurisdiction of the Regional Trial Court (RTC).
ISSUE:
Whether Gomez was, in her capacity as administrator of respondent PDMC, is a corporate officer,
whose complaint is not within the jurisdiction of NLRC.
RULING:
Petitioner is a not a corporate officer. Ordinary company employees are generally employed not
by action of the directors and stockholders but by that of the managing officer of the corporation
who also determines the compensation to be paid such employees. Corporate officers, on the other
hand, are elected or appointed by the directors or stockholders, and are those who are given that
character either by the Corporation Code or by the corporation’s by-laws.
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Respondent PDMC of course claims that as administrator petitioner Gomez performed functions
that were similar to those of its vice-president or its general manager, corporate positions that were
mentioned in the company’s by-laws. It points out that Gomez was third in the line of command,
next only to the chairman and president, and had been empowered to make major decisions and
manage the affairs of the company.
But the relationship of a person to a corporation, whether as officer or agent or employee, is not
determined by the nature of the services he performs but by the incidents of his relationship with
the corporation as they actually exist. Here, respondent PDMC hired petitioner Gomez as an
ordinary employee without board approval as was proper for a corporate officer. When the
company got her the first time, it agreed to have her retain the managerial rank that she held with
Petron. Her appointment paper said that she would be entitled to all the rights, privileges, and
benefits that regular PDMC employees enjoyed. This is in sharp contrast to what the former PDMC
president’s appointment paper stated: he was elected to the position and his compensation
depended on the will of the board of directors.
What is more, respondent PDMC enrolled petitioner Gomez with the Social Security System, the
Medicare, and the Pag-Ibig Fund. It even issued certifications
stating that Gomez was a permanent employee and that the company had remitted combined
contributions during her tenure. The company also made her a member of the PDMC’s savings
and provident plan and its retirement plan. These are all indicia of an employer-employee
relationship which respondent PDMC failed to refute.
The PDMC in this case is estopped from claiming that despite all the appearances of regular
employment that it weaved around petitioner Gomez’s position it must have technically hired her
only as a corporate officer. The board and its officers made her stay on and work with the company
for years under the belief that she held a regular managerial position.
That petitioner Gomez served concurrently as corporate secretary for a time is immaterial. A
corporation is not prohibited from hiring a corporate officer to perform services under
circumstances which will make him an employee. Indeed, it is possible for one to have a dual role
of officer and employee. In Elleccion Vda. De Lecciones v. National Labor Relations Commission,
the Court upheld NLRC jurisdiction over a complaint filed by one who served both as corporate
secretary and administrator, finding that the money claims were made as an employee and not as
a corporate officer.
CASE TITLE RODOLFO LABORTE, ET AL. vs PAGSANJAN TOURISM

CONSUMERS’ COOP
Atty. Ceniza

DATE
TOPIC COVERED Liability of Corporate Officer
DOCTRINE:
As a general rule, the officer cannot be held personally liable with the corporation, whether
civilly or otherwise, for the consequences of his acts, if acted for and in behalf of the
corporation, with the scope of his authority and in good faith.
PONENTE: Justice Reyes
FACTS:
In order to help respondent Pagsanjan Tourism Consumers’ Cooperative (PTCC) as a cooperative,
the Philippine Tourism Authority (PTA) allowed PTCC to operate a restaurant business located at
the main building of the PTA Complex and the boat ride services to ferry guests and tourists to
and from the Pagsanjan Falls, paying a certain percentage of its earnings to the PTA.
In 1993, the PTA implemented a reorganization and designated petitioner Rodolfo Laborte as Area
Manager, CALABARZON area with direct supervision over the PTA Complex and other entities
at the Southern Luzon.
Laborte served a written notice upon the respondents to cease the operations of the latter’s
restaurant business and boat ride services in view of the rehabilitation, face lifting and upgrading
project of the PTA Complex.
PTCC filed a complaint for Prohibition, Injunction and Damages with Temporary Restraining
Order (TRO) and Preliminary Injunction against Laborte to prohibit the latter from causing PTCC
to cease the operations of the restaurant and boat ride services and from evicting the PTCC’s
restaurant from the main building of the PTA Complex. The RTC rendered a decision ordering
Laborte and PTA jointly and severally to pay the respondents damages.
ISSUE:
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Whether Laborte can be held personally and solidarily liable for damages to PTCC?
RULING:
No, Laborte cannot be held personally liable for damages to PTCC.
As a general rule, “the officer cannot be held personally liable with the corporation, whether civilly
or otherwise, for the consequences of his acts, if acted for and in behalf of the corporation, whether
civilly or otherwise, for the corporation, within the scope of his authority and in good faith.”
In this case, Laborte was simply implementing the lawful order of the PTA Management to notify
respondent PTCC to cease business operations at the complex in view of the intended renovation
and repair of the restaurant facility at the complex. Thus, the Court finds no basis to hold petitioner
Laborte liable.
CASE TITLE MAM REALTY DEVELOPMENT CORPORATION VS. NLRC

DATE
TOPIC COVERED Liability of a Corporate Officer

Atty. Ceniza
DOCTRINE: A corporation, being a juridical entity, may act only through its directors,
officers and employees. Obligations incurred by them, acting as such corporate agents, are
not theirs but the direct accountabilities of the corporation they represent. True, solidary
liabilities may at times be incurred but only when exceptional circumstances warrant such
as, generally, in the following cases:
1. When directors and trustees or, in appropriate cases, the officers of a corporation —
(a) vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or
members, and other persons.
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto.
personally and solidarily liable with the Corporation.
4 When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action.
PONENTE: VITUG, J.
FACTS:
The case originated from a complaint filed with the Labor Arbiter by private respondent Celso B.
Balbastro against herein petitioners, MAM Realty Development Corporation ("MAM") and its
Vice President Manuel P. Centeno, for wage differentials, "ECOLA," overtime pay, incentive
leave pay, 13th month pay, holiday pay and rest day pay.
ISSUE:
WON Centeno may be held jointly and severally liable with MAM corporation?
RULING:
NO. A corporation, being a juridical entity, may act only through its directors, officers and
employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the
direct accountabilities of the corporation they represent. True, solidary liabilities may at times be
incurred but only when exceptional circumstances warrant such as, generally, in the following
cases:
1. When directors and trustees or, in appropriate cases, the officers of a corporation —
(a) vote for or assent to patently unlawful acts of the corporation;

Atty. Ceniza
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members,
and other persons.
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto.
personally and solidarily liable with the Corporation.
4 When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.
In labor cases, for instance, the Court has held corporate directors and officers solidarily liable
with the corporation for the termination of employment of employees done with malice or in bad
faith.
In the case at Bench, there is nothing substantial on record that can justify Centeno's solidary
liability with the corporation since Centeno did not commit any of the exceptional circumstances
mentioned above.
CASE TITLE HARPOON MARINE SERVICES, INC., ET AL. V. FERNAN H.

FRANCISCO

DATE
DOCTRINE: A corporation has a legal personality separate and distinct from the persons
comprising it, to warrant the piercing of the veil of corporate fiction, the officers bad faith
or wrongdoing must be established clearly and convincingly as bad faith is never presumed.
Atty. Ceniza
PONENTE: DEL CASTILLO, J.
FACTS:
Respondent averred that he was unceremoniously dismissed by petitioner Rosit. He was informed
that the company could no longer afford his salary and that he would be paid his separation pay
and accrued commissions. Petitioners presented a different version of the events and refuted the
allegations of respondent. Petitioner Rosit indeed talked to respondent not to dismiss him but only
to remind and warn him of his excessive absences and tardiness, as evinced by his Time Card
covering the period June 1-15, 2001. Instead of improving his work behavior, respondent
continued to absent himself and sought employment with another company engaged in the same
line of business, thus, creating serious damage in the form of unfinished projects. Petitioners
denied having terminated respondent as the latter voluntarily abandoned his work after going on
Absence Without Official Leave (AWOL) beginning June 22, 2001. Petitioners contended that
when respondent’s absences persisted, several memoranda informing him of his absences were
sent to him by ordinary mail and were duly filed with the DOLE on August 13, 2001. Upon
respondent’s continuous and deliberate failure to respond to these memoranda, a Notice of
Termination dated July 30, 2001was later on issued to him.
Respondent denied petitioners asseverations of his alleged tardiness and excessive absences; of
having received the memoranda that were allegedly mailed to him and abandoning his job without
any formal notice in 1998 as he wrote a resignation letter which petitioners received.
Labor Arbiter rendered a Decision holding that respondent was validly dismissed due to his
unjustified absences and tardiness and also found that respondent is entitled to the payment of
commissions ordering Harpoon Marine Services Inc., and Jose Lido T. Rosit, to pay complainant.
NLRC affirmed the Labor Arbiter’s award of commissions in favor of respondent for failure of
petitioners to refute the validity of his claim. Petitioners filed a petition for certiorari with the CA,
on which it affirmed the findings and conclusions of the NLRC.
ISSUE:
Whether Petitioner Rosit can be held solidarily liable with Petitioner Harpoon.
RULING:
No, Rosit should not be held solidarily liable with petitioner Harpoon for the payment of
respondents backwages and separation pay.
As held in the case of MAM Realty Development Corporation v. National Labor Relations
Commission, obligations incurred by [corporate officers], acting as such corporate agents, are not
theirs but the direct accountabilities of the corporation they represent. As such, they should not be
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generally held jointly and solidarily liable with the corporation. The Court, however, cited
circumstances when solidary liabilities may be imposed, as exceptions:
1. When directors and trustees or, in appropriate cases, the officers of a corporation
1. vote for or assent to [patently] unlawful acts of the corporation;

2. act in bad faith or with gross negligence in directing the corporate affairs;
3. are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons.
2. When the director or officer has consented to the issuance of watered stock or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto.
personally and solidarily liable with the corporation.
4. When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action.
The general rule is grounded on the theory that a corporation has a legal personality separate and
distinct from the persons comprising it, to warrant the piercing of the veil of corporate fiction, the
officers bad faith or wrongdoing must be established clearly and convincingly as bad faith is never
presumed.
In the case at bench, the CAs basis for petitioner Rosits liability was that he acted in bad faith when
he approached respondent and told him that the company could no longer afford his salary and that
he will be paid instead his separation pay and accrued commissions. This finding, however, could
not substantially justify the holding of any personal liability against petitioner Rosit. The records
are bereft of any other satisfactory evidence that petitioner Rosit acted in bad faith with gross or
inexcusable negligence, or that he acted outside the scope of his authority as company president.
Indeed, petitioner Rosit informed respondent that the company wishes to terminate his services
since it could no longer afford his salary. Moreover, the promise of separation pay, according to
petitioners, was out of goodwill and magnanimity. At the most, petitioner Rosits actuations only
show the illegality of the manner of effecting respondents termination from service due to absence
of just or valid cause and non-observance of procedural due process but do not point to any malice
or bad faith on his part. Besides, good faith is still presumed. In addition, liability only attaches if
the officer has assented to patently unlawful acts of the corporation.
Atty. Ceniza
Thus, it was error for the CA to hold petitioner Rosit solidarily liable with petitioner Harpoon for
illegally dismissing respondent.
CASE TITLE SPI TECHNOLOGIES, INC. VS. MAPUA
PROMULGATION April 7, 2014.

DATE
DOCTRINE: Personal liability of corporate directors, trustees or officers attaches only

when: (a) they assent to a patently unlawful act of the corporation, or when they are guilty
of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its stockholders or other persons; (b) they consent
to the issuance of watered down stocks or when, having knowledge of such issuance, do
not forthwith file with the corporate secretary their written objection; (c) they agree to hold
themselves personally and solidarily liable with the corporation; or (d) they are made by
specific provision of law personally answerable for their corporate action.
PONENTE: REYES, J.
FACTS:
Mapua alleged that she was hired in 2003 by SPI Technologies, Inc. (SPI) and was the Corporate
Development’s Research/Business Intelligence Unit Head and Manager of the company.
Subsequently in August 2006, the then Vice President and Corporate Development Head Maquera
hired Nolan as Mapua’s supervisor.
The hard disk on Mapua’s laptop crashed, causing her to lose files and data. Mapua informed
Nolan and her colleagues that she was working on recovering the lost data and asked for their
patience for any possible delay on her part in meeting deadlines. Mapua retrieved the lost data with
the assistance of NBI Anti-Fraud and Computer Crimes Division. Yet, Nolan informed Mapua that
she was realigning Mapua’s position to become a subordinate of co-manager Raina due to her
missing a work deadline.
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On March 21, 2007, Raina informed Mapua over the phone that her position was considered
redundant and that she is terminated from employment effective immediately. Villanueva notified
Mapua that she should cease reporting for work the next day. Mapua filed with the Labor Arbiter
a complaint for illegal dismissal, claiming reinstatement or if deemed impossible, for separation
pay. Later on, a recruitment advertisement of SPI was published in the Philippine Daily Inquirer.
It listed all vacancies in SPI, including a position for Marketing Communications Manager under
Corporate Support — the same group where Mapua previously belonged. Because of these
developments, Mapua was convinced that her former position is not redundant.
ISSUE:
Whether the corporate officers, Villanueva, Nolan, Maquera and Raina, can be held solidary liable
with the corporation for Mapua’s illegal dismissal.
RULING:
NO. “[i]t is hornbook principle that personal liability of corporate directors, trustees or officers
attaches only when: (a) they assent to a patently unlawful act of the corporation, or when they are
guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its stockholders or other persons; (b) they consent to the
issuance of watered down stocks or when, having knowledge of such issuance, do not forthwith
file with the corporate secretary their written objection; (c) they agree to hold themselves
personally and solidarily liable with the corporation; or (d) they are made by specific provision of
law personally answerable for their corporate action.
While the Court finds Mapua’s averments against Villanueva, Nolan, Maquera and Raina as
detailed and exhaustive, the Court takes notice that these are mostly suppositions on her part. Thus,
the Court cannot apply the
above-enumerated exceptions when a corporate officer becomes personally liable for the
obligation of a corporation to this case.
CASE TITLE MIRANT (PHILIPPINES) CORPORATION VS. JOSELITO CARO

PROMULGATION
April 23, 2014
DATE
TOPIC COVERED Liability of corporate officer in the dismissal of an employee
DOCTRINE: A corporation has a separate personality from its officers and board of directors.
Such corporate officers may only be personally held liable if it is proven that they acted with
malice or bad faith in the dismissal of an employee.
PONENTE: J. Villarama
Atty. Ceniza
FACTS:
Caro, an employee of Mirant (Philippines) was not able to undergo the random drug test which the
company conducted because when he was scheduled to take the test, he had to leave the office to
ascertain the whereabouts and condition of his wife in relation to a bombing incident. Caro was
then dismissed from work due to his unjustified refusal to submit to random drug testing. Caro
filed a complaint for illegal dismissal and money claims against Mirant and its President, Edgardo
Bautista. Both the Labor Arbiter and the Court of Appeals held Bautista personally liable jointly
and severally with Mirant as its President.
ISSUE:
Whether Bautista, as Mirant’s President, can be personally held liable to Caro.
RULING:
NO, because Bautista did not act maliciously or in bad faith in the dismissal of Caro. Even in the
decisions of both the Labor Arbiter and the CA have no discussion of the legal basis of why he
should be held personally liable.
A corporation has a personality separate and distinct from its officers and board of directors who
may only be held personally liable for damages if it is proven that they acted with malice or bad
faith in the dismissal of an employee. Absent any evidence on record that petitioner Bautista acted
maliciously or in bad faith in effecting the termination of Caro, plus the apparent lack of allegation
in the pleadings of Caro that petitioner Bautista acted in such manner, the doctrine of corporate
fiction dictates that only Mirant (the corporation) should be held liable for the illegal dismissal of
Caro.
CASE TITLE JOSELITO MUSNI PUNO VS. PUNO ENTERPRISES, INC., ET.
AL.

DATE
TOPIC COVERED Stockholder

Atty. Ceniza
DOCTRINE: The stockholders right of inspection of the corporation’s books and records
is based upon his ownership of shares in the corporation and the necessity for self-
protection. Upon the death of a shareholder, the heirs do not automatically become
stockholders of the corporation, the stocks must be distributed first to the heirs in estate
proceedings, and the transfer of the stocks must be recorded in the books of the corporation
pursuant to Section 63 of the Corporation Code.
PONENTE: NACHURA, J.:
FACTS:
Carlos Puno was an incorporator of Puno Enterprises, Inc. (the Respondent). When Carlo Puno
died, Joselito Musni Puno (the Petitioner) initiated a complaint for specific performance against
the Respondent contending that as the son of the deceased with the latter’s common-law wife,
Amelia Puno, he is entitled to the rights and privileges of his late father as stockholder of the
Respondent. Specifically, the Petitioner pray that he be allowed to inspect the Respondent’s
corporate book, render an accounting of all the transactions it entered into from 1962, and give
him all the profits, earnings, dividends, or income pertaining to the shares of Carlos Puno.
The Respondent filed a motion to dismiss on the ground that petitioner did not have the legal
personality to sue-- his birth certificate names him as Joselito Musni Muno (not Puno).
When the Petitioner submitted the corrected birth certificate certified by the Civil Registrar of the
City of Manila, the Trial Court rendered an order allowing the Petitioner to inspect the corporate
books and records of the company including its financial statements.
On appeal, the CA ruled that the Petitioner had no right to demand that he be allowed to examine
the Respondent’s books as he was not a stockholder of the corporation but was merely claiming
rights as an heir of Carlos Puno.
ISSUE:
WON the Petitioner is entitled to the rights and privileges of his late father as a stockholder of the
Respondent.
RULING:
No. Aside from the failure of the Petitioner to prove satisfactorily his filiation to the deceased
stockholder, under Sections 74 and 75 of the Corporation Code the persons who are entitled to the
inspection of the corporate books and financial statements are the director, trustee, stockholder or
member of the corporation.
Atty. Ceniza
The stockholders right of inspection of the corporation’s books and records is based upon his
ownership of shares in the corporation and the necessity for self-protection. Similarly, only
stockholders of record are entitled to receive dividends declared by the corporation, a right inherent
in the ownership of the shares.
Upon the death of a shareholder, the heirs do not automatically become stockholders of the
corporation, the stocks must be distributed first to the heirs in estate proceedings, and the transfer
of the stocks must be recorded in the books of the corporation pursuant to Section 63 of the
Corporation Code.
Here, the Petitioner was neither recognized as the heir of Carlos Puno in the estate proceedings
nor the Respondent’s transfer book indicate that some of the shares owned by Carlos Puno were
transferred to him.
Hence, the Petitioner is not entitled to the rights and privileges of his late father as a stockholder
of the Respondent.
CASE TITLE DAVID C. LAO AND JOSE LAO VS. DIONISIO C. LAO

DATE
TOPIC COVERED Stockholders
DOCTRINE: The mere inclusion as shareholder of petitioners in the General Information

Sheet of PFSC is insufficient proof that they are shareholders of the company. A certificate
of stock is the evidence of a holder’s interest and status in a corporation—it is prima facie
evidence that the holder is a shareholder of a corporation. Corporate books prevail over
the General Information Sheet.
PONENTE, REYES, R.T., J:
FACTS:
Petitioners David and Jose Lao filed a petition with the SEC against respondent Dionisio Lao,
president of Pacific Foundry Shop Corporation (PFSC). Petitioners prayed for a declaration as
Atty. Ceniza
stockholders and directors of PFSC, issuance of certificates of shares in their name and to be
allowed to examine the corporate books of PFSC. Petitioners claimed that they are stockholders
of PFSC based on the General Information Sheet (GIS) filed with the SEC, in which they are
named as stockholders and directors of the corporation. Petitioners claim that the respondent is
estopped from contesting the GIS. Records, however, disclose that petitioners have no certificates
of shares in their name.
ISSUE:
Whether the mere inclusion as shareholder in the General Information Sheet of a corporation
constitutes as a sufficient proof that one is a shareholder in such corporation.
RULING:
NO. The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is
insufficient proof that they are shareholders of the company.
A certificate of stock is the evidence of a holder's interest and status in a corporation. It is a written
instrument signed by the proper officer of a corporation stating or acknowledging that the person
named in the document is the owner of a designated number of shares of its stock. It is prima facie
evidence that the holder is a shareholder of a corporation.
While it may be true that petitioners were named as shareholders in the General Information Sheet
submitted to the SEC, that document alone does not conclusively prove that they are shareholders
of PFSC. The information in the document will still have to be correlated with the corporate books
of PFSC. As between the General Information Sheet and the corporate books, it is the latter that is
controlling.
CASE TITLE LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH)

ASSOCIATOION, INC. vs. COURT OF APPEALS
PROMULGATION August 7, 1997

DATE
DIGEST BY De Vera, Queenie
TOPIC COVERED By-Laws

Atty. Ceniza
DOCTRINE: Failure to file the by-laws within that period does not imply the “demise” of
the corporation. Proper notice and hearing are cardinal components of due process in any
democratic institution, agency or society. The Incorporators must be given the chance to
explain their neglect or omission and remedy the same.
PONENTE: J. Romero
FACTS:
LGVHAI was organized as the association of homeowners and residents of the Loyola Grand
Villas. It was registered with the Home Financing Corporation, predecessor of HIGC, as the sole
homeowners’ organization in the said subdivision. The officers of the LGVHAI tried to register
its by-laws. They failed to do so. It was organized by the developer of the subdivision and its first
president was Victorio V. Soliven, himself the owner of the developer. LGVHAI did not file its
corporate by-laws.
Soliven inquired about the status of LGVHAI, the head of the legal department of the HIGC,
informed him that LGVHAI had been automatically dissolved for two reasons. First, it did not
submit its by-laws within the period required by the Corporation Code and, second, there was non-
user of corporate charter because HIGC had not received any report on the association's activities.
ISSUE:
Whether the failure to file the by-laws within the period specified by law automatically dissolves
the corporation
RULING:
NO. The legislative deliberations demonstrate that automatic corporate dissolution for failure to
file the by-laws on time was never the intention of the legislature. Moreover, even without
resorting to the records of deliberations of the Batasang Pambansa, the law itself provides the
answer to the issue propounded by petitioner.
Taken as a whole and under the principle that the best interpreter of a statute is the statute itself
(optima statute interpretatix est ipsum statutum), Section 46 reveals the legislative intent to attach
a directory, and not mandatory, meaning for the word “must” in the first sentence thereof. Note
should be taken of the second paragraph of the law which allows the filing of the by-laws even
prior to incorporation. This provision in the same section of the Code rules out mandatory
compliance with the requirement of filing the by-laws “within one (1) month after receipt of
official notice of the issuance of its certificate of incorporation by the Securities and Exchange
Atty. Ceniza
Commission.” It necessarily follows that failure to file the by-laws within that period does not
imply the “demise” of the corporation. By-laws may be necessary for the “government” of the
corporation but these are subordinate to the articles of incorporation as well as to the Corporation
Code and related statutes.
Even under the foregoing express grant of power and authority, there can be no automatic corporate
dissolution simply because the incorporators failed to abide by the required filing of by-laws
embodied in Section 46 of the Corporation Code. There is no outright “demise” of corporate
existence. Proper notice and hearing are cardinal components of due process in any democratic
institution, agency or society. In other words, the incorporators must be given the chance to explain
their neglect or omission and remedy the same.
CASE TITLE PETRONILO J. BARAYUGA VS. ADVENTIST UNIV. OF THE

PHILS.

DATE
DIGEST BY Dimao, Sittee Junaira
TOPIC COVERED By-laws
DOCTRINE: The second paragraph of Section 108 of the Corporation Code, although
setting the term of
the members of the Board of Trustees at five years, contains a proviso expressly subjecting
the duration to what is otherwise provided in the articles of incorporation or by-laws of the
educational corporation – that contrary provision controls on the term of office.
PONENTE: BERSAMIN, J
FACTS:
On January 23, 2001, the Board of Trustees of the Adventist University of the Philippines, non-
stock and non-profit domestic educational institution incorporated under Philippine, appointed the
petitioner, Petronilo J. Barayuga, President of AUP. During his tenure, a group from the NPUM
Atty. Ceniza
conducted an external performance audit which revealed the petitioner’s autocratic management
style, like making major decisions without the approval or recommendation of the proper
committees, including the Finance Committee; and that he had himself done the canvassing and
purchasing of materials and made withdrawals and reimbursements for expenses without valid
supporting receipts and without the approval of the Finance Committee. The audit concluded that
he had committed serious violations of fundamental rules and procedure in the disbursement and
use of funds.
In a special meeting, the Board of trustees, by secret ballot, voted to remove the Petitioner as
President because of his serious violations of fundamental rules and procedures in the
disbursement and use of funds as revealed by the special audit; to appoint an interim committee
consisting of three members to assume the powers and functions of the President; and to
recommend him to the NPUM for consideration as Associate Director for Secondary Education.
Petitioner brought his suit for injunction and damages in the RTC, with prayer for the issuance of
a temporary restraining order (TRO), impleading AUP and its Board of Trustees and the interim
committee. His complaint alleged that the Board of Trustees had relieved him as President without
valid grounds despite his five-year term. The petitioner rested his claim for injunction mainly upon
his representation that he was entitled to serve for five years as President of AUP under the
Constitution, By-Laws and Working Policy of the General Conference of the Seventh Day
Adventists (otherwise called the Bluebook). However, AUP’s amended By-Laws provided the
term of the members of the Board of Trustees be limited to 2 years.
ISSUE:
Whether the petitioner is entitled to 5-yr term as the President of AUP.
RULING:
NO. Section 108 of the Corporation Code determines the membership and number of trustees in
an educational corporation. The second paragraph of the provision, although setting the term of
the members of the Board of Trustees at five years, contains a proviso expressly subjecting the
duration to what is otherwise provided in the articles of incorporation or by-laws of the educational
corporation. That contrary provision controls on the term of office.
In AUPs case, its amended By-Laws provided the term of the members of the Board of Trustees,
and the period within which to elect the officers. In light of foregoing, the members of the Board
of Trustees were to serve a term of office of only two years; and the officers, who included the
President, were to be elected from among the members of the Board of Trustees during their
organizational meeting, which was held during the election of the Board of Trustees every two
years. Naturally, the officers, including the President, were to exercise the powers vested by
Section 2 of the amended By-Laws for a term of only two years, not five years.
Atty. Ceniza
Ineluctably, the petitioner, having assumed as President of AUP on January 23, 2001, could serve
for only two years, or until January 22, 2003. By the time of his removal for cause as President on
January 27, 2003, he was already occupying the office in a hold-over capacity, and could be
removed at any time, without cause, upon the election or appointment of his successor. His
insistence on holding on to the office was untenable, therefore, and with more reason when one
considers that his removal was due to the loss of confidence on the part of the Board of Trustees.
CASE TITLE VALLEY GOLF & COUNTRY CLUB, INC., vs. VDA DE
CARAM

DATE
TOPIC COVERED By-Laws
DOCTRINE: Termination of Membership in a Non-Stock Corporation may be provided in

the Articles of Incorporation or the by-laws.
PONENTE: TINGA, J.
FACTS:
Valley Golf & Country Club (Valley Golf) is a duly constituted non-stock, non-profit corporation
which operates a golf course.
The late Congressman Fermin Z. Caram, Jr. (Caram), the husband of the present respondent,
subscribed to purchased and paid for in full one share (Golf Share) in the capital stock of Valley
Golf. He was issued Stock Certificate for the Golf Share.
Valley Golf would subsequently allege that Caram stopped paying his monthly dues. Valley Golf
sent a total of 5 demand letter – which includes the demand that failure to satisfy the outstanding
amount, the Golf Share will be sold, pursuant to the provisions of the by-laws – to Caram but this
remained unheeded.
Atty. Ceniza
The Golf Share was sold at public auction. It turned out that Caram died. Respondent initiated
intestate proceedings. Respondent included the Golf Share in Caram’s estate because she was
unaware of the pending controversy.
Respondents learned of the sale of the Golf Share. Respondent filed an action for reconveyance of
the share before the SEC against valley golf. SEC rendered a decision in favor of the respondents,
ordering Valley Golf to convey ownership of the Golf Share or in the alternative to issue one fully
paid share of stock of the Petitioner. According to SEC, pursuant to Section 6 of the Corporation
Code, a provision creating a lien upon shares of stock for unpaid debts, liabilities, or assessments
of stockholders to the corporation, should be embodied in the Articles of Incorporation, and not
merely in the by-laws, because Section 6 (par.1) prescribes that the shares of stock of a corporation
may have such rights, privileges and restrictions as may be stated in the articles of incorporation.
It was observed that the Articles of Incorporation of Valley Golf did not impose any lien, liability
or restriction on the Golf Share or, for that matter, even any conditionality that the Golf Share
would be subject to assessment of monthly dues or a lien on the share for non-payment of such
dues.
SEC En banc affirmed the SEC Division.
CA likewise affirmed the decision of the SEC. Hence, this petition. Petitioner contends that the
by-laws of Valley Golf authorizes the sale of delinquent shares and that the by-laws constitute a
valid law or contractual agreement between the corporation and its stockholders or their respective
successors. That Section 6 refers to restrictions on the shares of stock which should be stated in
the articles of incorporation, as differentiated from liens which under the by-laws would serve as
basis for the auction sale of the share. Since Section 6 refers to restrictions and not to liens, Valley
Golf submits that liens are excluded from the ambit of the provision. It further proffers that
assuming that liens and restrictions are synonymous, Section 6 itself utilizes the permissive word
may, thus evincing the non-mandatory character of the requirement that restrictions or liens be
stated in the articles of incorporation.
ISSUE:
May a non-stock corporation seize and dispose of the membership share of a fully-paid member
on account of its unpaid debts to the corporation when it is authorized to do so under the corporate
by-laws but not by the Articles of Incorporation?
RULING:
YES. Under Sec. 91 of the Corporation Code on Non-Stock Corporation dealing with termination
of membership, membership shall be terminated in the manner and for the causes provided in the
articles of incorporation or the by-laws. Termination of membership shall have the effect of
Atty. Ceniza
extinguishing all rights of a member in the corporation or in its property, unless otherwise provided
in the articles of incorporation or the by-laws.
Clearly, the right of a non-stock corporation such as Valley Golf to expel a member through the
forfeiture of the Golf Share may be established in the by-laws alone, as is the situation in this case.
Thus, both the SEC and the appellate court are wrong in holding that the establishment of a lien
and the loss of the Golf Share consequent to the enforcement of the lien should have been provided
for in the articles of incorporation.
CASE TITLE JUANITO ANG, for and in behalf of SUNRISE MARKETING

(BACOLOD), INC. vs. SPOUSES ROBERTO and RACHEL
ANG

DATE
TOPIC COVERED Derivative suit
DOCTRINE: A derivative suit is an action brought by a stockholder on behalf of the

corporation to enforce corporate rights against the corporation’s directors, officers or other
insiders. Under Sections 23 and 36 of the Corporation Code, the directors or officers, as
provided under the by-laws, have the right to decide whether or not a corporation should
sue.
PONENTE: CARPIO, J.
FACTS:
Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered corporation owned by the Ang
family. Nancy Ang (Nancy), the sister of Juanito and Roberto, and her husband, Theodore Ang
(Theodore), agreed to extend a loan to settle the obligations of SMBI and other corporations owned
by the Ang family. Nancy and Theodore issued a check payable to “Juanito Ang and/or Anecita
Ang and/or Roberto Ang and/or Rachel Ang.” Nancy was a former stockholder of SMBI, but she
Atty. Ceniza
no longer appears in SMBI’s General Information Sheets as early as 1996. Part of the loan was
also used to purchase real properties for SMBI, for Juanito, and for Roberto.
On 22 December 2005, SMBI increased its authorized capital stock and the certificate was signed
by Juanito, Anecita, Roberto, and Rachel as directors of SMBI.
Juanito claimed that payments to Nancy and Theodore ceased sometime after 2006. Nancy and
Theodore, through their counsel sent a demand letter. Juanito filed a “Stockholder Derivative Suit
with prayer for an ex-parte Writ of Attachment/Receivership” alleging that the intentional and
malicious refusal of defendant Sps. Roberto and Rachel Ang to settle their 50% share of the total
obligation will definitely affect the financial viability of plaintiff SMBI.
ISSUE:
Whether the case is a derivative suit?
RULING:
NO. A derivative suit is an action brought by a stockholder on behalf of the corporation to enforce
corporate rights against the corporation’s directors, officers or other insiders. Under Sections 23
and 36 of the Corporation Code, the directors or officers, as provided under the by-laws, have the
right to decide whether or not a corporation should sue. Since these directors or officers will never
be willing to sue themselves, or impugn their wrongful or fraudulent decisions, stockholders are
permitted by law to bring an action in the name of the corporation to hold these directors and
officers accountable. In derivative suits, the real party in interest is the corporation, while the
stockholder is a mere nominal party. Since these directors or officers will never be willing to sue
themselves, or impugn their wrongful or fraudulent decisions, stockholders are permitted by law
to bring an action in the name of the corporation to hold these directors and officers accountable.
Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits:
(1) [The person filing the suit must be] a stockholder or member at the time the acts or transactions
subject of the action occurred and the time the action was filed;
(2) [He must have] exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or
rules governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harrassment suit.
Applying the foregoing, we find that the Complaint is not a derivative suit. The Complaint failed
to show how the acts of Rachel and Roberto resulted in any detriment to SMBI. The CA-Cebu
correctly concluded that the loan was not a corporate obligation, but a personal debt of the Ang
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brothers and their spouses. The check was issued to “Juanito Ang and/or Anecita Ang and/or
Roberto Ang and/or Rachel Ang” and not SMBI. The proceeds of the loan were used for payment
of the obligations of the other corporations owned by the Angs as well as the purchase of real
properties for the Ang brothers. SMBI was never a party to the Settlement Agreement or the
Mortgage. It was never named as a co-debtor or guarantor of the loan.
Both instruments were executed by Juanito and Anecita in their personal capacity, and not in their
capacity as directors or officers of SMBI. Thus, SMBI is under no legal obligation to satisfy the
obligation.
The CA-Cebu correctly ruled that the Complaint should be dismissed since it is a nuisance or
harassment suit under Section 1(b) of the Interim Rules.
Since damage to the corporation was not sufficiently proven by Juanito, the Complaint cannot be
considered a bona fide derivative suit. A derivative suit is one that seeks redress for injury to the
corporation, and not the stockholder. No such injury was proven in this case.
CASE TITLE LEGASPI TOWERS 300, INC. VS. MUER

PROMULGATION
June 18, 2012
DATE
DIGEST BY Frias, Helen May
TOPIC COVERED Derivative Suit
DOCTRINE: The requisites for a derivative suit are as follows: a) the party bringing suit should
be a shareholder as of the time of the act or transaction complained of, the number of his shares
not being material; b) he has tried to exhaust intra-corporate remedies, and c) the cause of action
actually devolves on the corporation, the wrongdoing or harm having been, or being caused to
the corporation and not to the particular stockholder bringing the suit.
Since it is the corporation that is the real party-in interest in a derivative suit, then the reliefs
prayed for must be for the benefit or interest of the corporation. When the reliefs prayed for do
not pertain to the corporation, then it is an improper derivative suit.
PONENTE: J. Panganiban
FACTS:
The petitioners in this case are the incumbent Board of Directors of Legaspi Towers 300. Pursuant
to the by-laws of the said corporation, they set the annual meeting and election of the new Board
of Directors for the years 2004-2005. However, due to lack of quorum caused by irregular proxy
votes petitioners adjourned the meeting. The respondents on the other hand, questioned the
adjournment and pushed through with the scheduled election and were elected as the new Board
of Directors and officers of Legaspi Towers 300, Inc.
Atty. Ceniza
The petitioners filed a complaint to nullify the election. Before respondents could file an Answer
to the original Complaint, petitioners filed an Amended Complaint. In the amended complaint, it
includes Legaspi Towers 300, Inc., as a party-plaintiff. Respondents filed a Comment on the
Motion to Amend Complaint stating that the inclusion of Legaspi Towers 300, Inc., as party-
plaintiff was improper.
ISSUE:
Whether the inclusion of the Corporation so as to treat the case a derivative suit proper.
RULING:
No. It is the corporation that is the real party-in interest
in a derivative suit, then the reliefs prayed for must be for the benefit or interest of the corporation.
When the reliefs prayed for do not pertain to the corporation, then it is an improper derivative suit.
The requisites for a derivative suit are as follows: a) the party bringing suit should be a shareholder
as of the time of the act or transaction complained of, the number of his shares not being material;
b) he has tried to exhaust intra-corporate remedies, and c) the cause of action actually devolves on
the corporation, the wrongdoing or harm having been, or being caused to the corporation and not
to the particular stockholder bringing the suit. Since it is the corporation that is the real party-in
interest in a derivative suit, then the reliefs prayed for must be for the benefit or interest of the
corporation. When the reliefs prayed for do not pertain to the corporation, then it is an improper
derivative suit.
In this case, petitioners seek the nullification of the election of the Board of Directors for the years
2004-2005, composed of herein respondents, who pushed through with the election even if
petitioners had adjourned the meeting allegedly due to lack of quorum. Petitioners are the injured
party, whose rights to vote and to be voted upon were directly affected by the election of the new
set of board of directors. The party-in-interest are the petitioners as stockholders, who wield such
right to vote. The cause of action devolves on petitioners, not the condominium corporation, which
did not have the right to vote. Hence, the complaint for nullification of the election is a direct action
by petitioners, who were the members of the Board of Directors of the corporation before the
election, against respondents, who are the newly-elected Board of Directors. Under the
circumstances, the derivative suit filed by petitioners in behalf of the condominium corporation in
the Second Amended Complaint is improper.
CASE TITLE MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL

CORPORATION VS. LIM

DATE
Atty. Ceniza
DIGEST BY Galicia, Monico King A.
TOPIC COVERED Derivative Suits
DOCTRINE: An individual stockholder is permitted to institute a derivative suit on behalf

of the corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever officials of the corporation refuse to sue or are the ones to be sued or hold the
control of the corporation. In such actions, the suing stockholder is regarded as the nominal
party, with the corporation as the party in interest.
PONENTE: J. VILLARAMA, JR.
FACTS:
Ruby Industrial (RUBY), a domestic corporation engaged in glass manufacturing, filed a petition
for suspension of payments with the SEC due to severe liquidity problem. SEC granted the petition
and declared RUBY under suspension of payments and enjoining the disposition of its properties.
SEC created the management committee (MANCOM), which was tasked to undertake the
management of, and evaluate the proposed rehabilitation plan for RUBY. Subsequently, two (2)
rehabilitation plans were submitted to the SEC: the BENHAR/RUBY Rehabilitation Plan of the
majority stockholders, and the ALTERNATIVE Plan of the minority stockholders represented by
respondent Miguel Lim (LIM).
Under the BENHAR/RUBY Plan, Benhar International, a domestic corporation, shall control and
manage RUBY’s operations. It was opposed by 40% of the stockholders, including Lim, a minority
shareholder of RUBY, as well as its unsecured creditors. On the other hand, the ALTERNATIVE
Plan of the minority stockholders proposed to pay all its creditors, operate and rehabilitate RUBY.
Both plans were endorsed by the SEC to the MANCOM for evaluation.
SEC Hearing Panel approved the BENHAR/RUBY Plan. The minority stockholders thru Lim
appealed to the SEC En Banc, which enjoined the implementation of the said plan. BENHAR and
RUBY have continued performing acts pursuant to the BENHAR/RUBY Plan, despite the SEC’s
TRO and injunction.
Respondents LIM and MANCOM then filed a separate case in CA. Petitioner Majority
Stockholders of RUBY prayed for the dismissal of said case arguing that MANCOM, of which
Lim is a member, circumvented the proscription against forum shopping. CA held that this is not
applicable because the parties are not the same and they do not have the same interest. CA also
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held that respondent LIM clearly can file the same not only in representation of the minority
stockholders but also in behalf of the corporation itself which is the real party in interest.
ISSUE:
Whether the petition filed by respondent LIM is a separate and distinct derivative suit, which would
not constitute a violation on the proscription against forum shopping.
RULING:
YES. We find no error committed by the CA in holding that the belated submission of a special
power of attorney executed in Lim’s favor by the minority stockholders has no bearing to the
continuation of the case as supported by ample jurisprudence. To appreciate the liberal stance
adopted by the CA, one must take into account the previous history of the petitions for review
before the CA involving the SEC Order. It was actually the third time that Lim and/or MANCOM
have challenged certain acts perpetrated by the majority stockholders which are prejudicial to
RUBY, such as the execution of deeds of assignment during the effectivity of the suspension order
in pursuit of two rehabilitation plans submitted by them together with BENHAR. The assignment
of RUBY’s credits to BENHAR gave the secured creditors undue advantage over RUBY’s prime
properties and put these assets beyond the reach of the unsecured creditors. Each time they go to
court, Lim and MANCOM essentially advance the interest of the corporation itself. They have
consistently taken the position that RUBY’s assets should be preserved for the equal benefit of all
its creditors, and vigorously resisted any attempt of the controlling stockholders to favor any or
some of its creditors by entering into questionable deals or financing schemes under two
BENHAR/RUBY Plans. Viewed in this light, the CA was therefore correct in recognizing Lim’s
right to institute a stockholder’s action in which the real party in interest is the corporation itself.
A derivative action is a suit by a shareholder to enforce a corporate cause of action. It is a remedy

designed by equity and has been the principal defense of the minority shareholders against abuses
by the majority. For this purpose, it is enough that a member or a minority of stockholders file a
derivative suit for and in behalf of a corporation. An individual stockholder is permitted to institute
a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate
corporate rights, whenever officials of the corporation refuse to sue or are the ones to be sued or
hold the control of the corporation. In such actions, the suing stockholder is regarded as the
nominal party, with the corporation as the party in interest.
CASE TITLE SIMNY G. GUY, ET. AL. VS. THE HON. OFELIA C. CALO

Atty. Ceniza
DATE
DIGEST BY Ganchero, Kevin Ken S.
TOPIC COVERED Transfer of ownership.
DOCTRINE: An endorsement in blank of the stock certificates coupled with its delivery,
entitles the holder thereof to demand the transfer of said stock certificates in his name from
the issuing corporation.
PONENTE: PEREZ, J.
FACTS:
Respondent Gilbert practically owned almost 80 percent of the 650,000 subscribed capital stock
of GoodGold Realty & Development Corporation (GoodGold). The remaining shares of the
corporation were divided among Francisco, Simny, Benjamin and Paulino. Gilbert is the son of
spouses Francisco and Simny.
In 1999, the aging Francisco instructed Benjamin Lim, a nominal shareholder of GoodGold and
his trusted employee, to collaborate with Atty. Emmanuel Paras, to redistribute GoodGold’s
shareholdings evenly among his children while maintaining a proportionate share for himself and
his wife, Simny. Accordingly, some of GoodGold’s certificates were cancelled and new ones were
issued to represent the redistribution of GoodGold’s shares of stock. The new certificates of stock
were signed by Francisco and Atty. Emmanuel Paras, as President and Corporate Secretary,
respectively.
In September 2004, Gilbert filed with the RTC of Manila, a Complaint for the “Declaration of
Nullity of Transfers of Shares in GoodGold and of General Information Sheets and Minutes of
Meeting, and for Damages with Application for a Preliminary Injunctive Relief,” against his
mother, Simny, and his sisters. Gilbert alleged, among others, that no stock certificate ever existed;
that his signature at the back of the spurious Stock Certificate Nos. 004-014 which purportedly
endorsed the same and that of the corporate secretary, Emmanuel Paras, at the obverse side of the
certificates were forged, and, hence, should be nullified. Gilbert, however, withdrew the complaint,
after the National Bureau of Investigation (NBI) submitted a report to the RTC of Manila
authenticating Gilbert’s signature in the endorsed certificates.
Atty. Ceniza
In 2008, three years after the complaint with the RTC of Manila was withdrawn, Gilbert again
filed a complaint, this time, with the RTC of Mandaluyong, captioned as “IntraCorporate
Controversy: For the Declaration of Nullity of Fraudulent Transfers of Shares of Stock
Certificates, Fabricated Stock Certificates, Falsified General Information Sheets, Minutes of
Meetings, and Damages with Application for the Issuance of a Writ of Preliminary and Mandatory
Injunction,” against his mother, Simny, his sisters, Geraldine, Gladys, and the heirs of his late
sister Grace. Gilbert alleged that he never signed any document which would justify and support
the transfer of his shares to his siblings and that he has in no way, disposed, alienated, encumbered,
assigned or sold any or part of his shares in GoodGold. He also denied the existence of the
certificates of stocks.
ISSUE:
Whether the holder of a stock certificate is endorsed in blank by the owner is entitled to demand
its transfer his name from the issuing corporation as it constitutes what is termed as “street
certificate”.
RULING:
YES. With Gilbert’s failure to allege specific acts of fraud in his complaint and his failure to rebut
the NBI report, this Court pronounces, that the signatures appearing on the stock certificates,
including his blank endorsement thereon were authentic. With the stock certificates having been
endorsed in blank by Gilbert, which he himself delivered to his parents, the same can be cancelled
and transferred in the names of herein petitioners.
In Santamaria v. Hongkong and Shanghai Banking Corp., this Court held that when a stock
certificate is endorsed in blank by the owner thereof, it constitutes what is termed as “street
certificate,” so that upon its face, the holder is entitled to demand its transfer into his name from
the issuing corporation. Such certificate is deemed quasi-negotiable, and as such the transferee
thereof is justified in believing that it belongs to the holder and transferor.
While there is a contrary ruling, as an exception to the general rule enunciated above, what the
Court held in Neugene Marketing Inc., et al., v CA, where stock certificates endorsed in blank were
stolen from the possession of the beneficial owners thereof constraining this Court to declare the
transfer void for lack of delivery and want of value, the same cannot apply to Gilbert because the
stock certificates which Gilbert endorsed in blank were in the undisturbed possession of his parents
who were the beneficial owners thereof and who themselves as such owners caused the transfer in
their names. Indeed, even if Gilbert’s parents were not the beneficial owners, an endorsement in
blank of the stock certificates coupled with its delivery, entitles the holder thereof to demand the
transfer of said stock certificates in his name from the issuing corporation.
Atty. Ceniza
CASE TITLE FIL-ESTATE GOLD AND DEVELOPMENT, INC. AND

FILESTATE LAND INC. V. VERTEX SALES AND TRADING
INC.

DATE
DIGEST BY Gonzalez, Jillian Jiby
TOPIC COVERED Sec 63 of the Corporation Code
DOCTRINE: A sale of shares of stock, physical delivery of the stock is one of the essential
requisite for the transfer of ownership of the stocks purchased.
PONENTE: BRION. J.
FACTS:
Fil- Estate Golf and Development, Inc. (FEGDI) is engaged in the business in development of golf
courses. It sold on installment RS Asuncion Construction Corporation common shares which they
later sold to Vertez Sales and Trading, Inc. (Vertex). FEGDI was advised about the sale made and
was instructed to recognize Vertex as a shareholder. Vertex enjoyed the membership priviledges
in Forest Hills. Despite full payment, the share remained in the name of FEGDI. Vertex wrote to
FEGDI demanding the issuance o the the stock certificate in its name but FEGDI requested that it
must pay the proper fees. Vertex paid the fees but no certificate was issued. Vertex filed a
Complaint for Recission against FEDGI, FELI and Forest Hills. On the ground that they defaulted
in their obligation for failure to issue the stock certificate despite several demands.
ISSUE:
Whether physical delivery of a stock certificate is needed to transfer stock ownership.
RULING:
Yes. Physical delivery of a stock certificate is one the essential requisites for the transfer of
ownership of the stock issued. Under Sec. 63 of the Corporation Code “Shares of stock so issued
are personal property and may be transferred by delivery of the certificate or certificate indorsed
Atty. Ceniza
by the owner or his attorney-in-fact or other person legally authorixed to make the transfer…”
Vertex fully paid the purchase price but the stock was delivered only when an action for rescission
against FEGDI was filed. Even if Vertex already had enjoyed the right, the sale cannot still be
considered consumated especially when the law by its express terms, requires a specific form to
transfer ownership.
CASE TITLE CALATAGAN GOLF CLUB vs SIXTO CLEMENTE

DATE
DIGEST BY Julo, Ma. Victoria
TOPIC COVERED Sale of delinquent Stocks
DOCTRINE: Section 69 of the Corporation Code refers specifically to unpaid subscriptions

to capital stock, the sale of which is governed by Section 68 (Delinquency Sale).
PONENTE: QUISUMBING
FACTS:
Clemente owns one share of stock of Calatagan where he was issued a Certificate of Stock.
Calatagan charges monthly dues on its members to meet expenses for general operations, as well
as costs for upkeep and improvement of the grounds and facilities. The provision on monthly dues
is incorporated in Calatagan’s Articles of Incorporation and By-Laws. Clemente failed to pay
monthly dues hence Calatagan declared Clemente delinquent for having failed to pay his monthly
dues for more than sixty (60) days.
Calatagan included Clemente name in the list of delinquent members posted on the clubs bulletin
board. The Board adopted a resolution authorizing the foreclosure of shares of delinquent
members, including Clemente’s; and the public auction of these shares. Letters were sent to
mailing address at Phimco Industries, Inc., where Clemente was previously connected, but were
sent back to sender with the postal note that the address had been closed. The auction sale took
place on 15 January 1993. In November 1997, Clemente learned of the sale of his share and filed
a claim with the Securities and Exchange Commission (SEC) seeking the restoration of his
Atty. Ceniza
shareholding in Calatagan with damages. Calatagan argues that Clemente’s action is barred by
prescription citing Section 69 of the Corporation Code which provides that the sale of shares at an
auction sale can only be questioned within six (6) months from the date of sale.
ISSUE:
Whether Sec. 69 of the Corporation Code, which provides that the sale of shares at an auction sale
can only be questioned within six (6) months from the date of sale, is applicable to paid
subscription.
RULING:
NO. Section 69 of the Code provides that an action to recover delinquent stock sold must be
commenced by the filing of a complaint within six (6) months from the date of sale. As correctly
pointed out by the Court of Appeals, Section 69 is part of Title VIII of the Code entitled “Stocks
and Stockholders” and refers specifically to unpaid subscriptions to capital stock, the sale of which
is governed by the immediately preceding Section 68.
There are fundamental differences that defy equivalence or even analogy between the sale of
delinquent stock under Section 68 and the sale that occurred in this case. At the root of the sale of
delinquent stock is the non-payment of the subscription price for the share of stock itself. The
stockholder or subscriber has yet to fully pay for the value of the share or shares subscribed. In
this case, Clemente had already fully paid for the share in Calatagan and no longer had any
outstanding obligation to deprive him of full title to his share. Perhaps the analogy could have been
made if Clemente had not yet fully paid for his share and the non-stock corporation, pursuant to
an article or by-law provision designed to address that situation, decided to sell such share as a
consequence. But that is not the case here, and there is no purpose for us to apply Section 69 to the
case at bar.
CASE TITLE PAUL LEE TAN VS. PAUL SYCIP

DATE
DIGEST BY Lim, Justine Christopher C.
TOPIC COVERED Quorum

Atty. Ceniza
DOCTRINE:
For Stock Corporations, the “quorum” is based on the number of outstanding voting stocks.
For nonstock corporations, only those who are actual, living members with voting rights
shall be counted in determining the existence of a quorum during members’ meetings. Dead
members shall not be counted.
PONENTE: Chief Justice Panganiban
FACTS:
Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation
with 15 regular members, who also constitute the board of trustees. During the annual members’
meeting, only 11 member-trustees left, as 4 were already dead. Out of the 11, 7 attended the
meeting through proxies. The meeting was convened and chaired by Atty. Sabino Padilla Jr. over
the objection of Atty. Antonio Pacis, who argued that there was no quorum. In the meeting,
petitioners were voted to replace the four deceased member-trustees. Petitioners argued that the
members who were already dead should not be counted when the quorum is computed, because,
upon their death, members automatically lost all their rights, including the right to vote, and interest
in the corporation.
ISSUE:
Whether dead members should still be counted in the determination of the quorum, for purposes
of conducting the annual members’ meeting.
RULING:
No, the dead members shall not be counted in the determination of the quorum for purposes of
conducting the annual members’ meeting as stated in the by-laws of the GCHS.
The right to vote is inherent and incidental to the ownership of corporate stocks. It is settled that
unissued stocks may not be voted or considered in determining whether a quorum is present in a
stockholder’ meeting or whether a requisite proportion of the stock of the corporation is voted to
adopt a certain measure or act. Only stock issued and outstanding may be voted. Under Section 6
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of the Corporation Code, each share of stock is entitled to vote unless otherwise provided in the
articles of incorporation or declared delinquent under Section 67 of the Code.
In nonstock corporations, the voting rights attach to membership. Members vote as persons, in
accordance with the law and the bylaws of the corporation. Each member shall be entitled to one
vote unless so limited, broadened, or denied in the articles of incorporation or bylaws. The Court
hold that when the principle for determining the quorum for stock corporations is applied by
analogy to nonstock corporations, only those who are actual members with voting rights should be
counted. Under Section 52 of the Corporation Code, the majority of the members representing the
actual number of voting rights, not the number or numerical constant that may originally be
specified in the articles of incorporation, constitutes the quorum.
The determination of whether or not “dead members” are entitled to exercise voting rights, depends
on those articles of incorporation or by laws. Under the by-laws of GCHS, membership in the
corporation shall, among other, be terminated by the death of the member. Section 91 of the
Corporation Code further provides that termination extinguishes all the rights of a member of the
corporation, unless otherwise provided in the articles of incorporation or the bylaws.
Applying Section 91 to the present case, the Court hold that dead members who are dropped from
the membership roster in the manner and for the cause provided for in the by-laws of GCHS are
not to be counted in determining the requisite vote in corporate matters or the requisite quorum for
the annual members’ meeting. With 11 remaining members, the quorum in the present case should
be six. Therefore, there being a quorum, the annual members’ meeting conducted with six
members present, was valid.
CASE TITLE PHILIP TURNER, ET AL. VS. LORENZO SHIPPING CORP.

DATE
Atty. Ceniza
DIGEST BY Ong, Gecel
TOPIC COVERED Appraisal Right
DOCTRINE: A stockholder who dissents from certain corporate actions has the right to
demand payment of the fair value of his or her shares. This right is known as the right of
appraisal. However, a corporation can purchase its own shares, provided payment is made
out of surplus profits and the acquisition is for a legitimate corporate purpose. No payment
shall be made to any dissenting stockholder unless the corporation has unrestricted retained
earnings in its books to cover the payment.
PONENTE: Bersamin, J.
FACTS:
The petitioners held shares of stock of the respondent corporation. The respondent decided to
amend its articles of incorporation to remove the stockholders’ pre-emptive rights to newly issued
shares of stock. Feeling that the corporate move would be prejudicial to their interest, the
petitioners voted against the amendment and demanded payment of their shares. The respondent
refused the petitioners demand, explaining that the dissenting stockholders exercising their
appraisal rights could be paid only when the corporation had unrestricted retained earnings to cover
the fair value of the shares, but that it had no retained earnings at the time of the petitioners demand.
Upon the respondent’s refusal to pay, the petitioners sued the respondent for collection and
damages.
ISSUE:
Whether the Petitioners can compel Respondent to pay the value of their shares by exercising their
appraisal right
RULING:
No. A stockholder who dissents from certain corporate actions has the right to demand payment
of the fair value of his or her shares. This right, known as the right of appraisal, is expressly
recognized in Section 81[1] of the Corporation Code. The right of appraisal may be exercised
when there is a fundamental change in the charter or articles of incorporation substantially
prejudicing the rights of the stockholders. However, a corporation can purchase its own shares,
provided payment is made out of surplus profits and the acquisition is for a legitimate corporate
purpose. This rule is embodied in Section 41[2] of the Corporation Code. Thus, no payment shall
be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in
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its books to cover the payment. In case the corporation has no available unrestricted retained
earnings in its books, Section 83 of the Corporation Code provides that if the dissenting
stockholder is not paid the value of his shares within 30 days after the award, his voting and
dividend rights shall immediately be restored.
[1]
Section 81. Instances of appraisal right. - Any stockholder of a corporation shall have the right
to dissent and demand payment of the fair value of his shares in the following instances:
1. In case any amendment to the articles of incorporation has the effect of changing or restricting
the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior
to those of outstanding shares of any class, or of extending or shortening the term of corporate
existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in the Code; and
3. In case of merger or consolidation.
[2]
Section 41. Power to acquire own shares. - A stock corporation shall have the power to purchase
or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited
to the following cases: Provided, That the corporation has unrestricted retained earnings in its
books to cover the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription,
in a delinquency sale, and to purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the
provisions of this Code.
CASE TITLE MA. BELEN FLORDELIZA ANG-ABAYA, FRANCIS JASON

ANG, HANNAH ZORAYDA ANG and VICENTE GENATO vs.
EDUARDO ANG

DATE
DIGEST BY Rementina, Mary Grace

Atty. Ceniza
TOPIC COVERED Corporate Books and Right to Inspect
DOCTRINE: A stockholder has the right to inspect corporate books. As a condition for
such examination, the one requesting it must not have been guilty of using improperly any
information secured through a prior examination, or that the person asking for such
examination must be acting in good faith and for a legitimate purpose in making his
demand.
PONENTE: J. Ynares-Santiago
FACTS:
Vibelle Manufacturing Corporation (VMC) and Genato Investments, Inc. (Genato) are family-
owned corporations, where petitioners and private respondent are shareholders, officers and
members of the board of directors.
Prior to the instant controversy, VMC, Genato, and Oriana Manufacturing Corporation (Oriana)
filed a civil case for damages against respondent and some other persons for allegedly conniving
to fraudulently wrest control/management of the corporations. Respondent allegedly borrowed
substantial amounts of money from said corporations without any intention to repay; that he
repeatedly demanded for increases in his allowance and for more cash advances contrary to
corporate policies; that he harassed petitioner Flordeliza to transfer and/or sell certain properties
in order to pay off his personal obligations; that he attempted to forcibly evict petitioner Jason
from his office and claim it as his own; that he interfered with and disrupted the business operations
of the corporations; that Michael was placed on preventive suspension due to prolonged absence
without leave and commission of acts of disloyalty such as carrying out orders of respondent which
were detrimental to their business, using privileged information and confidential documents/data
obtained in his capacity as Vice-President of the corporations, and admitting to have sabotaged
their distribution system and operations.
During the pendency of the case, respondent sought permission to inspect the corporate books of
VMC and Genato on account of petitioners’ alleged failure and/or refusal to update him on the
financial and business activities of these family corporations. Petitioners denied the request
claiming that he would use the information from said inspection for purposes inimical to the
corporations’ interests considering the allegations against him in the pending civil case.
Respondent then filed a complaint against petitioners, charging them with violations of Section
74, in relation to Section 144, of the Corporation Code.
ISSUE:
Atty. Ceniza
Whether or not a stockholder’s right of inspection of the corporate books and records under Section
74 of the Corporation Code is absolute.
RULING:
No. The stockholder's right of inspection of the corporation's books and records is based upon their
ownership of the assets and property of the corporation. The inspection has to be germane to the
petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical
to the interest of the corporation.
In order for the penal provision under Section 144[1] of the Corporation Code to apply in a case
of violation of a stockholder or member’s right to inspect the corporate books/records as provided
for under Section 74, the following elements must be present:
1. A director, trustee, stockholder or member has made a prior demand in writing for a copy
of excerpts from the corporation’s records or minutes;
2. Any officer or agent of the concerned corporation shall refuse to allow the said director,
trustee, stockholder or member of the corporation to examine and copy said excerpts;
3. If such refusal is made pursuant to a resolution or order of the board of directors or trustees,
the liability under this section for such action shall be imposed upon the directors or trustees who
voted for such refusal; and
4. Where the officer or agent of the corporation sets up the defense that the person demanding
to examine and copy excerpts from the corporation’s records and minutes has improperly used any
information secured through any prior examination of the records or minutes of such corporation
or of any other corporation, or was not acting in good faith or for a legitimate purpose in making
his demand, the contrary must be shown or proved.
The allegations of the petitioners are supported by official and other documents, such as board
resolutions, treasurer’s affidavits and written communication from the respondent himself, who
appears to have withheld his objections to these charges. His silence virtually amounts to an
acquiescence. Taken together, all these serve to justify petitioners’ allegation that respondent was
not acting in good faith and for a legitimate purpose in making his demand for inspection of the
corporate books. Otherwise stated, there is lack of probable cause to support the allegation that
petitioners violated Section 74[2] of the Corporation Code in refusing respondent’s request for
examination of the corporation books.
[1] Section 144. Violations of the Code. – Violations of any of the provisions of this Code or its
amendments not otherwise specifically penalized therein shall be punished by a fine of not less
than one thousand (P1,000.00) pesos but not more than ten thousand (P10,000.00) pesos or by
imprisonment for not less than thirty (30) days but not more than five (5) years, or both, in the
Atty. Ceniza
discretion of the court. If the violation is committed by a corporation, the same may, after notice
and hearing, be dissolved in appropriate proceedings before the Securities and Exchange
Commission: Provided, That such dissolution shall not preclude the institution of appropriate
action against the director, trustee or officer of the corporation responsible for the said violation:
Provided, further, That nothing in this section shall be construed to repeal the other causes for
dissolution of a corporation provided in this Code.
[2] Section 74. It shall be a defense to any action under this section that a person demanding to
examine and copy excerpts from the corporation’s records and minutes has improperly used any
information secured through any prior examination of the records or minutes of such corporation
or of any other corporation, or was not acting in good faith or for a legitimate purpose in making
his demand.
CASE TITLE ADERITO Z. YUJUICO, ET. AL. VS. CEZAR T. QUIAMBAO

ET. AL.,

DATE
DIGEST BY Sarangaya, Allan Paul S.
TOPIC COVERED Corporate Books and Right to Inspect
DOCTRINE: The act of refusing to allow inspection of the stock and transfer book is a
punishable offense under Corporation Code.
Brion, J.:
Facts:
During the stockholders meeting, Yujuico, as newly elected president and chairman of Strategic
Alliance Development Corporation (STRADEC), demanded Quiambao for the turnover of the
corporate records of the company. However, Quiambao refused. As it turns out, the corporate
records were in the possession of the Casanova, STRADEC’s accountant. After the stockholder’s
meeting, Quiambao and Casanova caused the removal of the corporate records from the company
premises.
Atty. Ceniza
Upon his appointment as corporate secretary, Blando likewise demanded Pilapil for the turnover
of the stock and transfer book of STRADEC. Pilapil refused and proposed to Blando to have the
stock and transfer book deposited in a safety deposit box. Blando acceded to the proposal and the
parties agreed that the safety deposit box may only be opened in the presence of both Quiambao
and Blando. However, Quiambao and Pilapil withdrew the stock and transfer book from the safety
deposit box. Blando again demanded that he be given possession of the stock and transfer book.
However, Quiambao refused.
A criminal complaint was filed against the respondents for violation of Section 74 in relation to
Section 144 of the Corporation Code. Petitioner theorize that the refusal by the respondents and
Casanova to turnover STRADEC’s corporate records and stock and transfer book violates their
right, as stockholders, directors and officers of the corporation, to inspect such records and books
under Section 74 of the Corporation Code.
Issue:
Whether the refusal to allow inspection of the stock and transfer book of a corporation is a
punishable offense under Corporation Code.
Ruling:
Yes. Refusal to allow inspection of the stock and transfer book of a corporation, when done in
violation of Section 74(4)[1] of the Corporation Code, properly falls within the purview of Section
144 of the same code and thus may be penalized as an offense.
While Section 74 of the Corporation Code expressly mentions the application of Section 144 only
in relation to the act of refusing to allow any director, trustees, stockholders or member of the
corporation to examine and copy excerpts from the corporation’s records or minutes, the same
does not mean that the latter section no longer apply to any other possible violations of the former
section. It must be emphasized that Section 144 already purports to penalize violations of any
provisions of the Corporation Code not otherwise specifically penalized therein.
Hence, the Court found inconsequential the fact that Section 74 expressly mentions the application
of Section 144 only to specific act, but not with respect to the other possible violations of the
former section. Moreover, it found no cogent reason why Section 144 of the Corporation Code
cannot be made to apply to violations of the right of a stockholder to inspect the stock and transfer
book of a corporation under Section 74(4) given the already unequivocal intent of the legislature
to penalize violations of a parallel right, the right to examine the other records and minutes of a
corporation.
Atty. Ceniza
[1] Section 74(4). Stock corporations must also keep a book to be known as the “stock and transfer
book,” in which must be kept a record of all stocks in the names of the stockholders alphabetically
arranged; the installments paid and unpaid on all stock for which subscription has been made, and
the date of payment of any installment; a statement of every alienation, sale or transfer of stock
made, the date thereof, and by and to whom made; and such other entries as the by-laws may
prescribe. The stock and transfer book shall be kept in the principal office of the corporation or in
the office of its stock transfer agent and shall be open for inspection by any director or stockholder
of the corporation at reasonable hours on business days.
CASE TITLE BANK OF COMMERCE v. Radio Philippines Network, Inc., et

al.,

DATE
DIGEST BY Trinidad, Nathaniel Laurence C.
TOPIC COVERED Merger and Consolidation
DOCTRINE: Merger is a re-organization of two or more corporations that results in their

consolidating into a single corporation, which is one of the constituent corporations, one
disappearing or dissolving and the other surviving. It does not become effective upon the
mere agreement of the constituent corporations. It shall be effective only upon the issuance
of the SEC of a certificate of merger.
PONENTE: Justice Abad
FACTS:
Upon the approval of the BSP, Bancommerce entered into an agreement with Traders Royal Bank
(TRB) and acquired its specified assets and liabilities, excluding liabilities arising from judicial
actions, which were to be covered by the BSP-mandated escrow of ₱50 million. Shortly after, the
Supreme Court in another case ordered TRB to pay respondents actual damages of plus legal
interest. Based on this decision, RPN, filed a motion for execution against TRB before the RTC.
But rather than pursue a levy in execution, RPN filed a Supplemental Motion for Execution where
Atty. Ceniza
they described TRB as "now Bank of Commerce" based on the assumption that TRB had been
merged into petitioner. The petitioner filed is opposition denying that there was a merger between
TRB and Bank of Commerce (Bancommerce).
ISSUE:
Whether there is a valid merger between TRB and Bancommerce.
RULING:
NO. There is no valid merger nor a de facto merger.
Merger is a re-organization of two or more corporations that results in their consolidating into a
single corporation, which is one of the constituent corporations, one disappearing or dissolving
and the other surviving. To put it another way, merger is the absorption of one or more corporations
by another existing corporation, which retains its identity and takes over the rights, privileges,
franchises, properties, claims, liabilities and obligations of the absorbed corporations.
The absorbing corporation continues its existence while the life or lives of the other corporation is
terminated.
The Corporation Code requires the following steps for merger or consolidation:
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must
include any amendment, if necessary, to the articles of incorporation of the surviving
corporation, or in case of consolidation, all the statements required in the articles of
incorporation of a corporation.
(2)
(3) Submission of plan to stockholders or members of each corporation for approval. A
meeting must be called and at least two (2) weeks’ notice must be sent to all stockholders
or members, personally or by registered mail. A summary of the plan must be attached to
the notice. Vote of two-thirds of the members or of stockholders representing two thirds of
the outstanding capital stock will be needed. Appraisal rights, when proper, must be
respected.
(4) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation,
by the corporate officers of each constituent corporation. These take the place of the articles
of incorporation of the consolidated corporation, or amend the articles of incorporation of
the surviving corporation.
(5) Submission of said articles of merger or consolidation to the SEC for approval.
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(6) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two
weeks before.
(7) Issuance of certificate of merger or consolidation.
(8)
It is clear that no merger took place between Bancommerce and TRB as the requirements and
procedures for a merger were absent. A merger does not become effective upon the mere
agreement of the constituent corporations. All the requirements specified in the law must be
complied with in order for merger to take effect. Section 79 of the Corporation Code further
provides that the merger shall be effective only upon the issuance by the SEC of a certificate of
merger.
Here, Bancommerce and TRB remained separate corporations with distinct corporate
personalities. No merger or consolidation took place as the records do not show any plan or articles
of merger or consolidation. More importantly, the SEC did not issue any certificate of merger or
consolidation. Moreover, no de facto merger took place in the present case simply because the
TRB owners did not get in exchange for the bank’s assets and liabilities an equivalent value in
Bancommerce shares of stock. Bancommerce and TRB agreed with BSP approval to exclude from
the sale the TRB’s contingent judicial liabilities, including those owing to RPN.
The phrase “now known as Bank of Common” used in the petition served only to indicate that
Bancommerce is now the former property owner’s creditor that filed the petition for writ of
possession as a result of the agreement. It does not indicate a merger. Since there had been no
merger, Bancommerce cannot be considered as TRB’s successor-in-interest and against which the
court’s decision may be enforced.
CASE TITLE MINDANAO SAVINGS AND LOAN ASSOCIATION, INC.,

petitioner, vs. EDWARD WILLKOM, et. al., respondent.

DATE

Atty. Ceniza
DOCTRINE: Merger does not become effective upon the mere agreement of the constituent
corporations, since a merger or consolidation involves fundamental changes in the
corporation, as well as in the rights of stockholders and creditors, there must be an express
provision of law authorizing them. The Code particularly mandates that a favorable
recommendation of the appropriate government agency should first be obtained. Merger
shall only be effective upon the issuance of a certificate of merger by the SEC.
FACTS:
First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan
Association, Inc. (DSLAI) are primarily engaged in the business of granting loans and receiving
deposits from the general public. They entered into a merger, with DSLAI, which later on become
MSLAI, as the surviving corporation. However, the articles of merger were not registered with the
SEC due to incomplete documentation. The business of MSLAI failed and was placed under
receivership.
Prior to the closure of MSLAI, an action for collection of sum of money was filed against FISLAI.
A writ of execution was issued and the sheriff levied on six parcels of land owned by FISLAI. A
public auction was made and the respondent was the highest bidder. Consequently, new certificate
of title were issued in favor of the respondent. MSLAI, represented by the PDIC, filed a complaint
for Annulment of Sheriff’s Sale, Cancellation of Title and Reconveyance of Properties against
respondents. Respondents averred that MSLAI had no cause of action against them or the right to
recover the subject properties because MSLAI is a separate and distinct entity from FISLAI. They
contended that the “unofficial merger” between FISLAI and DSLAI, now MSLAI, did not take
effect considering that the merging companies did not comply with the formalities and procedure
for merger and consolidation as prescribed by the Corporation Code.
ISSUE:
Whether there is a valid merger between FISLAI and DSLAI (now MSLAI) in which case the
latter is deemed to be the owner of the property and should be notified of the subject sale of its
property.
RULING:
No, there is no merger that validly took place. Ordinarily, in the merger of two or more existing
corporations, one of the corporations survives and continues the combined business, while the rest
are dissolved and all their rights, properties, and liabilities are acquired by the surviving
corporation. The merger does not become effective upon the mere agreement of the constituent
corporations since a merger or consolidation involves fundamental changes in the corporation, as
Atty. Ceniza
well as in the rights of stockholders and creditors, there must be an express provision of law
authorizing them. The merger shall only be effective upon the issuance of a certificate of merger
by the SEC, subject to its prior determination that the merger is not inconsistent with the
Corporation Code or existing laws. Where a party to the merger is a special corporation governed
by its own charter, the Code particularly mandates that a favorable recommendation of the
appropriate government agency should first be obtained.
In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not
registered with the SEC due to incomplete documentation. Consequently, the SEC did not issue
the required certificate of merger. Even if it is true that the Monetary Board of the Central Bank
of the Philippines recognized such merger, the fact remains that no certificate was issued by the
SEC. Such merger is still incomplete without the certification. The issuance of the certificate of
merger is crucial because not only does it bear out SEC’s approval but it also marks the moment
when the consequences of a merger take place. By operation of law, upon the effectivity of the
merger, the absorbed corporation ceases to exist but its rights and properties, as well as liabilities,
shall be taken and deemed transferred to and vested in the surviving corporation.
There being no merger between FISLAI and DSLAI (now MSLAI), for third parties such as
respondents, the two corporations shall not be considered as one but two separate corporations.
Hence, MSLAI need not be notified of the subject auction sale.
CASE TITLE METROBANK VS. THE BOARD OF TRUSTEES OF

RIVERSIDE MILLS CORP., ET AL.,

DATE
DIGEST BY Umbalin, Norissa Fhlor N.
DOCTRINE: A trustee of a dissolved corporation may commence a suit which can proceed
to final judgment even beyond the three (3)-year period of liquidation.
PONENTE: ABAD, J.
Atty. Ceniza
FACTS:
Riverside Mills Corporation (RMC) established a retirement plan for its regular employees. Under
the Plan, RMC and its employees shall each contribute a percentage of their current basic monthly
salary. The contributions shall form part of a fund which shall be held, invested and distributed by
the Commercial Bank and Trust Company. In 1979, the respondent entered into an Investment
Management Agreement with the petitioner whereby the latter shall act as an agent of the Board
and shall hold, manage, invest and reinvest the fund in a trust account in its behalf.
RMC ceased business operations. Nonetheless, petitioner continued to render investment services
to respondent Board. Petitioner informed respondent Board that it had decided to apply the
remaining trust assets held by it against part of the outstanding obligations of RMC.
Subsequently, respondent RMC Unpaid Employees Association, Inc. learned of the trust account.
They demanded payment of their share. When such demand went unheeded, the Association, along
with the individual members of RMCPRF, filed a complaint for accounting against the Board and
its officers, as well as petitioner bank. Petitioner contends that RMC’s closure rendered the
respondent Board of Trustees functus officio and devoid of authority to act on behalf of the
respondent.
ISSUE:
Whether or not the the functions of the Board of Trustees ceased upon with RMCs closure.
RULING:
No. Under Section 122 of the Corporation Code, a dissolved corporation shall nevertheless
continue as a body corporate for three (3) years for the purpose of prosecuting and defending suits
by or against it and enabling it to settle and close its affairs, to dispose and convey its property and
to distribute its assets, but not for the purpose of continuing the business for which it was
established. Within those three (3) years, the corporation may appoint a trustee or receiver who
shall carry out the said purposes beyond the three (3)-year winding-up period. Thus, a trustee of a
dissolved corporation may commence a suit which can proceed to final judgment even beyond the
three (3)-year period of liquidation.
In the same manner, during and beyond the three (3)-year winding-up period of RMC, the Board
of Trustees of RMCPRF may do no more than settle and close the affairs of the Fund. The Board
retains its authority to act on behalf of its members, albeit, in a limited capacity. It may commence
suits on behalf of its members but not continue managing the Fund for purposes of maximizing
profits. Here, the Boards act of issuing the Resolution authorizing petitioner to release the Fund to
its beneficiaries is still part of the liquidation process, that is, satisfaction of the liabilities of the
Plan, and does not amount to doing business. Hence, it was properly within the Boards power to
promulgate.
Atty. Ceniza
Petitioner applied the Fund in satisfaction of the obligation of RMC without authority and without
bothering to inquire regarding unpaid claims from the Board of Trustees of RMCPRF. It wrote the
members of the Board only after it had decided to revert the Fund to RMC. Upon being met with
objections, petitioner insisted on the reversion of the Fund to RMC, despite the clause in the Plan
that prohibits such reversion before all liabilities shall have been satisfied, thereby leaving
respondents with no choice but to seek judicial relief.
CASE TITLE VITALIANO N. AGUIRRE II , ET. AL. VS. FQB+7, INC., ET.
AL,.
PROMULGATION January 9, 2013

DATE
DIGEST BY Anonuevo Jon Jon
TOPIC COVERED Corporate Dissolution
DOCTRINE: Corporation Code prohibits a dissolved corporation from continuing its

business, but allows it to continue with a limited personality in order to settle and close its
affairs, including its complete liquidation.
PONENTE: DEL CASTILLO J.:
FACTS:
Vitaliano discovered a General Information Sheet (GIS) of the respondent corporation in the SEC
records. This was filed by Nathaniel and Priscila, as FBQ+7’s president and secretary, respectively.
The composition of directors and subscriber under Articles of Incorporation and the GIS were
different. Further, the GIS reported that FQB+7’s stockholders held their annual meeting on
September 3, 2002. Due to substantive changes, petitioner wrote to the “real” Board of Directors,
directors reflected in the Articles of Incorporation, questioning the validity and truthfulness of the
alleged stockholders meeting. However, the “real” Board ignored his request.
Characterizing Nathaniel’s and Priscila’s continuous representation of the corporation as a

usurpation of the management powers and prerogatives of the “real” Board of Directors, petitioner
file a complaint for injunction against them and for the nullification of all their previous actions as
Atty. Ceniza
purported directors, including the GIS they had filed with the SEC. The RTC issued a writ of
preliminary injunction against respondents.
On appeal, respondents filed a petition for certiorari and prohibition. They informed the CA that
the SEC had already revoked FQB+7’s Certificate of Registration for its failure to comply with
the SEC reportorial requirements. The CA postulated that Section 122 of the Corporation Code
allows dissolved corporation to continue as a corporate body for the limited purpose of liquidating
the corporate assets and distributing them to its creditors, stockholders, and others in interest. It
does not allow the dissolved corporation to continue its business. It determined that petitioner’s
complaint, being geared towards the continuation of the respondent corporation’s business, should
be dismissed because the corporation lost its juridical personality.
ISSUE:
Whether petitioner’s complaint seek a continuation of business of the respondent corporation
which was already dissolved.
RULING:
No. The Court fails to find in the complaint any intention to continue the corporate business of
FQB+7.
The complaint does not seek to enter into a contracts, issue new stocks, acquire properties, or
execute business transactions. Its aim is not to continue the corporate business, but to determine
and vindicate an alleged stockholder’s right to the return of his stockholdings and to participate in
the election of directors, and a corporation’s right to remove usurpers and strangers from its affairs.
The Court fails to see how the resolution of these issues can be said to continue the business of
FQB+7.
Neither are these issues mooted by the dissolution of the corporation. A corporation’s board of
directors is not rendered functus officio by its dissolution. Since Section 122 allows a corporation
to continue its existence for a limited purpose, necessarily there must be a board that will continue
acting for and on behalf of the dissolved corporation for that purpose. In fact, Section 122
authorizes the dissolved corporation’s board of directors to conduct its liquidation within three
years from its dissolution. Jurisprudence has even recognized the board’s authority to act as trustee
for persons in interest beyond the said three-year period. Thus, the determination of which group
is the bona fide or rightful board of the dissolved corporation will still provide practical relief to
the parties involved.
Atty. Ceniza
The same is true with regard to Vitaliano’s shareholdings in the dissolved corporation. A party’s
stockholdings in a corporation, whether existing or dissolved, is a property right which he may
vindicate against another party who has deprived him thereof. The corporation’s dissolution does
not extinguish such property right.
CASE TITLE PARAMOUNT INSURANCE CORP. vs A.C. ORDONEZ CORP.

ET AL

DATE
DOCTRINE: Dissolution or even the expiration of the three-year liquidation period should
not be a bar to a corporation’s enforcement of its rights as a corporation.
PONENTE: Justice Ynares-Santiago
FACTS:
Petitioner Paramount Insurance Corporation is the subrogee of Maximo Mata, the registered owner
of a sedan involved in a vehicular accident with a truck owned by respondent A.C. Ordonez
Corporation. Petitioner filed a complaint for damages against respondents. Based on the Sheriff’s
Return of Service, summons remained unserved on Suspine, while it was served on respondent
corporation. Petitioner filed a Motion to Declare Defendants in Default. However, respondent
corporation filed an Omnibus Motion and Opposition alleging that summons was improperly
served upon it because it was made to a secretariat staff who was unfamiliar with court processes.
The Respondent subsequently filed a Motion to Admit Answer which was granted by the MTC.
The RTC issued a TRO against the order of the MTC. Respondent’s Motion for Reconsideration
was denied by the RTC, hence it filed an appeal before the CA. Petitioners claim that respondent
lacks personality to file an appeal.
ISSUE:
Whether the respondent corporation which was already dissolved may file an appeal
Atty. Ceniza
RULING:
Yes. Although the cancellation of a corporation’s certificate of registration puts an end to its
juridical personality, Sec. 122 of the Corporation Code, however, provides that a corporation
whose corporate existence is terminated in any manner continues to be a body corporate for three
years after its dissolution for purposes of prosecuting and defending suits by and against it and to
enable it to settle and close its affairs. Moreover, the rights of a corporation, which is dissolved
pending litigation, are accorded protection pursuant to Section 145 of the Corporation Code.
Dissolution or even the expiration of the three-year liquidation period should not be a bar to a
corporation’s enforcement of its rights as a corporation.
CASE TITLE ALABANG DEVELOPMENT CORPORATION VS. ALABANG

HILLS VILLAGE ASSOCIATION

DATE
DOCTRINE: The trustee of a corporation may continue to prosecute a case commenced by

the corporation within three years from its dissolution until rendition of the final judgment,
even if such judgment is rendered beyond the three-year period allowed by Section 122 of
the Corporation Code.
PONENTE: PERALTA, J.
FACTS:
A Complaint for Injunction and Damages was filed by petitioner, Alabang Development
Corporation ADC against respondents, Alabang Hills Village Association, Inc. (AHVAI) and
Rafael Tinio, President of AHVAI alleging that petitioner is the developer of Alabang Hills Village
and still owns certain parcels of land therein. ADC learned that AHVAI started the construction of
a multi-purpose hall and a swimming pool on one of the parcels of land still owned by ADC
without the latter's consent and approval, and that despite demand, AHVAI failed to desist from
Atty. Ceniza
constructing the said improvements. ADC thus prayed that an injunction be issued enjoining
defendants from the construction. In its Answer, AHVAI claimed, among others, that ADC has no
legal capacity to sue since its existence as a registered corporate entity was already revoked by the
SEC
ISSUE:
WON ADC may still sue AHVAI despite its existence as a corporation had already been revoked
by the SEC
RULING: NO.
Petitioner's corporate registration was revoked on May 26, 2003. Based on Sec. 122 of the
Corporation Code, it had three years, or until May 26, 2006, to prosecute or defend any suit by or
against it. The complaint, however, was filed only on October 19, 2006, more than three years
after such revocation. Likewise, the complaint was filed by petitioner-corporation and not by its
directors or trustees.
The trustee of a corporation may continue to prosecute a case commenced by the corporation
within three years from its dissolution until rendition of the final judgment, even if such judgment
is rendered beyond the three-year period allowed by Section 122 of the Corporation Code. An
already defunct corporation is no longer allowed to initiate a suit after the lapse of the said three-
year period.
In the present case, petitioner filed its complaint not only after its corporate existence was
terminated but also beyond the three-year period allowed by Section 122 of the Corporation Code.
Thus, at the time of the filing of the complaint petitioner lacks the capacity to sue as a corporation.
To allow petitioner to initiate the subject complaint and pursue it until final judgment, on the
ground that such complaint was filed for the sole purpose of liquidating its assets, would be to
circumvent the provisions of Section 122 of the Corporation Code.
CASE TITLE STEELCASE, INC. VS. DESIGN INTERNATIONAL

SELECTIONS, INC.
PROMULGATI April 18, 2012

ON DATE

Atty. Ceniza
TOPIC Foreign Corporation
COVERED
DOCTRINE: A foreign corporation doing business in the Philippines without the requisite
license may sue in Philippine Courts against a Philippine citizen or entity who had
contracted with and benefited by said corporation. In other words, a party is estopped to
challenge the personality of a corporation after having acknowledged the same by entering
into a contract with it.
PONENTE: MENDOZA, J.
FACTS:
Petitioner Steelcase, Inc. (Steelcase) is a foreign corporation existing under the laws of Michigan,
U.S.A. and engaged in the manufacture of office furniture with dealers worldwide. Respondent
Design International Selections, Inc. (DISI) is a corporation existing under Philippine Laws and
engaged in the distribution of furniture. Steelcase and DISI orally entered into a dealership
agreement whereby Steelcase granted DISI the right to market, sell, distribute, install, and service
its products to customers within the Philippines. The business relationship continued smoothly
until it was terminated after the agreement was breached. Steelcase filed a complaint for sum of
money against DISI alleging, among others, that DISI had an unpaid account of US$600,000.
Consequently, DISI posited that the complaint should be dismissed because of Steelcase’s lack of
legal capacity to sue in Philippine courts. The RTC and CA concluded that Steelcase was "doing
business" in the Philippines, as contemplated by the Foreign Investments Act of 1991, and since it
did not have the license to do business in the country, it was barred from seeking redress from our
courts until it obtained the requisite license to do so.
ISSUE:
1. Whether Steelcase is doing business in the Philippines without a license.
2. Whether DISI is estopped from challenging the Steelcase’s legal capacity to sue.
RULING:
1. No, Steelcase is an unlicensed foreign corporation NOT doing business in the Philippines. The
following acts shall not be deemed "doing business" in the Philippines:
1. mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor;
2. having a nominee director or officer to represent its interest in such corporation;
3. appointing a representative or distributor domiciled in the Philippines which
transacts business in the representative's or distributor's own name and account;
4. the publication of a general advertisement through any print or broadcast media;
Atty. Ceniza
5. maintaining a stock of goods in the Philippines solely for the purpose of having the
same processed by another entity in the Philippines;
6. consignment by a foreign entity of equipment with a local company to be used in
the processing of products for export;
7. collecting information in the Philippines; and
8. performing services auxiliary to an existing isolated contract of sale which are not
on a continuing basis, such as installing in the Philippines machinery it has manufactured
or exported to the Philippines, servicing the same, training domestic workers to operate it,
and similar incidental services.
The appointment of a distributor in the Philippines is not sufficient to constitute "doing business"
unless it is under the full control of the foreign corporation. If the distributor is an independent
entity which buys and distributes products, other than those of the foreign corporation, for its own
name and its own account, the latter cannot be considered to be doing business in the Philippines.
DISI is independently owned and managed. In addition to Steelcase products, DISI also distributed
products of other companies. The dealership agreement between Steelcase and DISI had been
described by the owner himself as a buy and sell arrangement. This clearly belies DISI’s assertion
that it was a mere conduit through which Steelcase conducted its business in the country. Hence,
DISI was an independent contractor, distributing various products of Steelcase and of other
companies, acting in its own name and for its own account. As a result, Steelcase cannot be
considered to be doing business in the Philippines by its act of appointing a distributor as it falls
under one of the exceptions under R.A. No. 7042.
2. Yes, DISI is estopped from challenging Steelcase's capacity to sue. By acknowledging the
corporate entity of Steelcase and entering into a dealership agreement with it and even benefiting
from it, DISI is estopped from questioning Steelcase’s existence and capacity to sue. A foreign
corporation doing business in the Philippines may sue in Philippine Courts although not authorized
to do business here against a Philippine citizen or entity who had contracted with and benefited by
said corporation. To put it in another way, a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a contract with it. And the
doctrine of estoppel to deny corporate existence applies to a foreign as well as to domestic
corporations. One who has dealt with a corporation of foreign origin as a corporate entity is
estopped to deny its corporate existence and capacity.
CASE TITLE GLOBAL BUSINESS HOLDING, INC. VS. SURECOMP

SOFWARE, B.V.
Atty. Ceniza

DATE
TOPIC COVERED Foreign Corporation
DOCTRINE: As a rule, unlicensed foreign non-resident corporations doing business in the

Philippines cannot file suits in the Philippines. A corporation has a legal status only within
the state or territory in which it was organized. For this reason, a corporation organized in
another country has no personality to file suits in the Philippines. In order to subject a
foreign corporation doing business in the country to the jurisdiction of our courts, it must
acquire a license from the Securities and Exchange Commission and appoint an agent for
service of process. Without such license, it cannot institute a suit in the Philippines. The
exception to this rule is the doctrine of estoppel.
FACTS:
Respondent Surecomp Software, B.V. (Surecomp), a foreign corporation duly organized and
existing under the laws of the Netherlands, entered into a software license agreement with Asian
Bank Corporation (ABC), a domestic corporation, for the use of its IMEX Software System
(System). ABC merged with petitioner Global Business Holdings, Inc. (Global), with Global as
the surviving corporation. Global assumed all the liabilities and obligations of ABC. When Global
took over the operations of ABC, it found the System unworkable for its operations, and informed
Surecomp of its decision to discontinue with the agreement and to stop further payments thereon.
Consequently, for failure of Global to pay its obligations under the agreement despite demands,
Surecomp filed a complaint for breach of contract with damages.
ISSUE:
Whether Surecomp, a foreign corporation, has the capacity to sue in the Philippines
RULING:
YES. As a rule, unlicensed foreign non-resident corporations doing business in the Philippines
cannot file suits in the Philippines. A corporation has a legal status only within the state or territory
in which it was organized. For this reason, a corporation organized in another country has no
Atty. Ceniza
personality to file suits in the Philippines. In order to subject a foreign corporation doing business
in the country to the jurisdiction of our courts, it must acquire a license from the Securities and
Exchange Commission and appoint an agent for service of process. Without such license, it cannot
institute a suit in the Philippines. The exception to this rule is the doctrine of estoppel. Global is
estopped from challenging Surecomp’s capacity to sue.
A foreign corporation doing business in the Philippines without license may sue in Philippine
courts a Filipino citizen or a Philippine entity that had contracted with and benefited from it. A
party is estopped from challenging the personality of a corporation after having acknowledged the
same by entering into a contract with it. The principle is applied to prevent a person contracting
with a foreign corporation from later taking advantage of its noncompliance with the statutes,
chiefly in cases where such person has received the benefits of the contract. Due to Global’s merger
with ABC and because it is the surviving corporation, it is as if it was the one which entered into
contract with Surecomp. In the merger of two existing corporations, one of the corporations
survives and continues the business, while the other is dissolved, and all its rights, properties, and
liabilities are acquired by the surviving corporation. Under the terms of the merger or
consolidation, Global assumed all the liabilities and obligations of ABC as if it had incurred such
liabilities or obligations itself.
CASE TITLE CARGILL INC VS. INTRA STRATA ASSURANCE

CORPORATION

DATE
TOPIC COVERED Foreign Corporation – doing business in the Philippines and

capacity to sue
DOCTRINE: A foreign company that merely imports goods from a Philippine exporter,
without opening an office or appointing an agent in the Philippines, with no intent to
establish a continuous business or extend its operations in the Philippines, and whose
activities do not involve profit-making, is not doing business in the Philippines.
Consequently, notwithstanding the absence of a license, such foreign corporation cannot
be prevented from bringing an action before Philippine courts.
Atty. Ceniza
PONENTE: J. Carpio
FACTS:
Cargill, Inc. is a corporation organized and existing under the laws of the State of Delaware, United
States of America. Cargill and Northern Mindanao Corporation (NMC) executed a contract
whereby NMC agreed to sell molasses to Cargill. Cargill opened a Letter of Credit with BPI,
whereby NMC was permitted to draw the amount of the minimum price of the contract. Several
amendments were made to the contract, one of which required that NMC must put up a
performance bond. Intra Strata issued bonds to guarantee NMC’s delivery of the molasses and
repayment of the down payment. NMC failed to fully comply with the delivery and repayment
terms so Cargill claimed from Intra Strata under the bonds. Intra Strata refused to pay. Cargill and
NMC entered into a compromise agreement but still, NMC failed to comply with its obligation
under the compromise agreement. Trial then proceeded against Intra Strata, which in turn, raised
the issue of Cargill’s legal capacity to sue as a foreign corporation.
ISSUE:
Whether Cargill has legal capacity to sue under Philippine Courts considering that it is an
unlicensed foreign corporation, premised on whether it is doing or transacting business in the
Philippines
RULING:
YES, Cargill has legal capacity to sue under Philippine Courts notwithstanding the absence of a
license since it is not doing business in the Philippines. Under Article 133 of the Corporation Code,
where a foreign corporation does business in the Philippines without the proper license, it cannot
maintain any action or proceeding before Philippine courts.To be doing or transacting business in
the Philippines for purposes of Section 133 of the Corp Code, the foreign corporation must actually
transact business in the Philippines, i.e., perform specific business transactions within the
Philippine territory on a continuing basis in its own name and for its own account. Actual
transaction of business within the Philippine territory is an essential requisite for the Philippines
to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure
a Philippine business license. Here, Cargill is a foreign company merely importing molasses from
a Philippine exporter. A foreign company that merely imports goods from a Philippine exporter,
without opening an office or appointing an agent in the Philippines, is not doing business in the
Philippines.
■ The element of continuity of commercial activities is important to constitute doing
business in the Philippines. Here, there is no showing that the transactions between Cargill
and NMC signify the intent of Cargill to establish a continuous business or extend its
operations in the Philippines.
Atty. Ceniza
■ Activities within Philippine jurisdiction that do not create earnings or profits to the
foreign corporation do not constitute doing business in the Philippines. In this case, it was
NMC (domestic) which derived income from the transaction and not Cargill (foreign). To
constitute doing business, the activity undertaken in the Philippines should involve profit-
making.
■ Other factors which support the finding that Cargill is not doing business in the
Philippines are:
(1) Cargill does not have an office in the Philippines;
(2) Cargill imports products from the Philippines through its non-exclusive local broker,
whose authority to act on its behalf is limited to soliciting purchases of products from
suppliers engaged in the sugar trade in the Philippines; and
(3) the local broker is an independent contractor and not an agent of Cargill.
Based on the foregoing, notwithstanding the absence of license, Cargill has the legal capacity to
sue and Intra Strata has no legitimate reason to refuse payment under the bonds when NMC failed
to comply with its obligation in favor of Cargill.
CASE TITLE STRATEGIC ALLIANCE DEV. CORP. VS. STAR INFRA DEV.
CORP. ET. AL.
PROMULGATION Nov. 17, 2010

DATE
TOPIC COVERED Intra-corporate Dispute
DOCTRINE: An intra-corporate dispute is a suit arising from intra-corporate relations or

between or among stockholders or between any or all of them and the corporation. In
determining whether the case involves an intra-corporate dispute, the status or relationship
of the parties (relationship test) as well as the nature of the question that is the subject of
their controversy (controversy test) must be considered.
PONENTE: PEREZ, J.:

Atty. Ceniza
FACTS:
STRADEC (the Petitioner) is one of the incorporators of SIDC (the Respondent). As such
incorporator, STRADEC owned 2.4M shares or 49% of the authorized capital stock of SIDC.
Respondents Yujuico and Sumbilla, the President and Treasurer of STRADEC obtained a loan
from Robert Wong, one of the incorporators of SIDC and as a security, pledged STRADEC’s
entire shareholdings in SIDC. Due to STRADEC’s repeated defaults in its obligation, the shares
pledged were sold in favour of Wong. Pursuant to this, Quiambao (President and Chairman of the
BOD of STRADEC) filed a petition before the RTC (Batangas) sitting as a Special Commercial
Court. STRADEC alleging that Yujuico and Sumbilla were not authorized to enter into any loan
agreement and to pledge STRADEC’s entire shareholdings in SIDC with Wong, that the auction
sale was held in a wrong venue, that the annual stockholders meeting of SIDC where the change
of principal place of business was approved is invalid pending determination of the legitimate
Board of Directors for STRADEC. The trial court refused to act upon the causes of action
involving the declaration of nullity of the loan and pledge as well as the nullification of the auction
sale on the ground of improper venue. The court ruled that since the case is a personal action the
venue must be either in Pangasinan, the principal place of business of STRADEC or in any of the
residences of Yujuico, Sumbilla or Wong. The Petitioner on the other hand contended that the case
involves intra-corporate dispute and was correctly filed in RTC Batangas.
ISSUE:
WON the causes of action of the Petitioner qualify as intra-corporate dispute
RULING:
Yes, the causes of action qualify as intra-corporate disputes. An intra-corporate dispute is a suit
arising from intra-corporate relations or between or among stockholders or between any or all of
them and the corporation. Applying the relationship test, intra-corporate disputes involve suits: (a)
between the corporation, partnership or association and the public; (b) between the corporation,
partnership or association and its stockholders, partners, members, or officers; (c) between the
corporation, partnership or association and the State insofar as its franchise, permit or license to
operate is concerned; and, (d) among the stockholders, partners or associates themselves.
In determining whether the case involves an intra-corporate dispute, the status or relationship of
the parties (relationship test) as well as the nature of the question that is the subject of their
controversy (controversy test) must be considered. Under the nature of the controversy test, the
dispute must not only be rooted in the existence of an intra-corporate relationship, but must also
refer to the enforcement of the parties' correlative rights and obligations under the Corporation
Code as well as the internal and intra-corporate regulatory rules of the corporation.
Here, STRADEC and Wong are incorporators and/or stockholders of SIDC and the causes of
action relate to STRADEC’s status as a stockholder and the alleged fraudulent divestment of its
Atty. Ceniza
stockholding in SIDC. Therefore, applying both the relationship test and the controversy test, the
causes of action qualify as intra-corporate dispute.
CASE TITLE IGLESIA EVANGELICA METODISTA EN LAS ISLAS

FILIPINAS, INC. VS. JUANE consolidated with JUANE vs.
IGLESIA EVANGELICA METODISTA EN LAS ISLAS
FILIPINAS
CITATION G.R. No. 172447 and G.R. No. 179404

DATE
TOPIC COVERED Corporation Sole
DOCTRINE: Even if the transformation of IEMELIF from a corporation sole to a

corporation aggregate was legally defective, its head or governing body whose acts were
approved by the Consistory Elders, still did not change.
PONENTE: CHICO-NAZARIO, J.
FACTS:
Iglesia Evangelica Metodista en las Islas Filipinas (IEMELIF) is a religious corporation which
owns parcels of land in Tondo, Manila where its Cathedral is situated including Pastor Juane’s
residence. Juane is one of the members of the Board of Trustees (known as Highest Consistory of
Elders) and was appointed as Resident Pastor of the Cathedral Congregation in Tondo. He was
authorized to stay and occupy the Resident Pastor’s residence inside the Cathedral Complex and
took charge of the facilities and properties therein. Bishop Lazaro reassigned Juane as Resident
Pastor of the Sta. Mesa Congregation but the latter refused such reassignment and continued to
arrogate upon himself the position of Resident Pastor of Tondo Congregation and occupy the
Tondo Cathedral Complex despite the cessation of his authority over the same. Subsequently, the
Elders permanently expelled Juane as a pastor and took away all the rights and authorities
conferred upon him. The Elders sent him a demand letter to vacate and turnover to the church all
properties in his possession but he refused to do so. Because of such refusal, the IEMELIF filed
an action for the unlawful detainer against Juane. Juane argued that the transformation of IEMELIF
Atty. Ceniza
from a corporation sole to a corporation aggregate was legally defective and, therefore, IEMELIF
had no personality to eject Juane from the subject property.
ISSUE:
Whether a “legally defective” transformation of a corporation sole to a corporation aggregate
affects the personality of the IEMELIF to eject Juane from the said premises
RULING:
No. Even if the transformation of IEMELIF from a corporation sole to a corporation aggregate
was legally defective, its head or governing body, i.e., Bishop Lazaro, whose acts were approved
by the Highest Consistory of Elders, still did not change. A corporation sole is one formed by the
chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a religious
denomination, sect, or church, for the purpose of administering or managing, as trustee, the affairs,
properties and temporalities of such religious denomination, sect or church. As opposed to a
corporation aggregate, a corporation sole consists of a single member, while a corporation
aggregate consists of two or more persons. If the transformation did not materialize, the
corporation sole would still be Bishop Lazaro, who himself performed the questioned acts of
removing Juane as Resident Pastor of the Tondo Congregation. If the transformation did
materialize, the corporation aggregate would be composed of the Highest Consistory of Elders,
which nevertheless approved the very same acts. As either Bishop Lazaro or the Highest
Consistory of Elders had the authority to appoint Juane as Resident Pastor of the IEMELIF Tondo
Congregation, it also had the power to remove him as such or transfer him to another congregation.
CASE TITLE RENATO REAL vs. SANGU PHILIPPINES, INC., et. al.
PROMULGATION January 19, 2011

DATE
DIGEST BY De Vera, Queenie.
TOPIC COVERED Intra-Corporate Dispute

Atty. Ceniza
DOCTRINE: The fact alone that a person is a stockholder and director of a corporation
does not automatically classify this case as an intra-corporate controversy. To determine
whether a case involves an intra-corporate controversy, two elements must concur: (a) the
status or relationship of the parties, and (2) the nature of the question that is the subject of
their controversy.
PONENTE: J. Del Castillo
FACTS:
Petitioner Real was the Manager of respondent corporation Sangu Philippines, Inc. Petitioner filed
an illegal dismissal case against the respondent corporation alleging that he was neither notified of
the Board Meeting during which the board resolution of his termination was passed nor formally
charged with any infraction. He just received from respondents a letter stating that he has been
terminated from service for the following reasons: (1) continuous absences; (2) loss of trust and
confidence; and, (3) to cut down operational expenses to reduce further losses. The NLRC ruled
on Petitioner’s status as a stockholder and as a corporate officer and hence, his action against
respondent is an intra-corporate controversy over which the Labor Arbiter has no jurisdiction.
Petitioner negates his status as a corporate officer by pointing out that although he was removed
as Manager through a board resolution, he was never elected to said position nor was he appointed
thereto by the Board of Directors.
ISSUE:
Whether petitioner’s complaint for illegal dismissal constitutes an intra-corporate controversy and
thus, beyond the jurisdiction of the Labor Arbiter
RULING:
NO. To determine whether a case involves an intra-corporate controversy, two elements must
concur: (a) the status or relationship of the parties, and (2) the nature of the question that is the
subject of their controversy.
While Petitioner’s status as a stockholder and director of respondent corporation is not disputed,
the complaint, however, reveals that the root of the controversy is petitioner’s dismissal as
Manager of respondent corporation, a position which respondents claim to be a corporate office.
Hence, petitioner is involved not in his capacity as a stockholder or director, but as an alleged
corporate officer. In applying the relationship test, therefore, it is necessary to determine if
petitioner is a corporate officer. Corporate officers are those officers of the corporation who are
given that character by the Corporation Code or by the by-laws. However, the petitioner’s
appointment was not proven to be made pursuant to the provision of respondent corporations By-
Laws. No copy of board resolution appointing petitioner as Manager or any other document
showing that he was appointed to said position by the board was submitted by respondents. Thus,
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there is no intra-corporate relationship between the parties and that same does not satisfy the
relationship test.
Moreover, respondents terminated the services of petitioner for the following reasons: (1) his
continuous absences at his post at Ogino Philippines, Inc; (2) respondents’ loss of trust and
confidence on petitioner; and, (3) to cut down operational expenses to reduce further losses being
experienced by the corporation. Hence, petitioner filed a complaint for illegal dismissal and sought
reinstatement, backwages, moral damages and attorney’s fees. The reasons given by respondents
for dismissing petitioner have something to do with his being a Manager of respondent corporation
and nothing with his being a director or stockholder. When petitioner sought for reinstatement, he
wanted to recover his position as Manager, a position which as earlier declared to be not a corporate
position. He is not trying to recover a seat in the board of directors or to any appointive or elective
corporate position which has been declared vacant by the board. Certainly, applying the nature of
controversy test, this is a case of termination of employment which is a labor controversy and not
an intra-corporate dispute.
CASE TITLE CHATEAU DE BAIE CONDOMINIUM CORP. V. SPS. MORENO

PROMULGATION
February 23, 2011
DATE
DIGEST BY Dimao,Sittee Junaira
TOPIC COVERED Intra-corporate dispute
DOCTRINE: Propriety and legality with regard to assessment dues involves an intra-corporate
controversy which is within the RTC jurisdiction.
PONENTE: BRION, J
FACTS:
Mrs. Moreno is the registered owner of a penthouse unit and two parking slots in Chateau de Baie
Condominium (Chateau Condominium). When Moreno defaulted in the payment of association
dues, petitioner Chateau Condominium caused the annotation of a Notice of Assessment on the
CCTs of the Moreno properties. Subsequently, to enforce its lien, an extrajudicial public auction
sale of the Moreno properties was executed. The Moreno properties were sold to the petitioner as
a sole bidder.
Moreno spouses filed before the RTC a complaint for intra-corporate dispute against the petitioner
to question how it calculated the dues assessed against them, and to ask an accounting of the
association dues. The petitioner moved to dismiss the complaint on the ground of lack of
jurisdiction, alleging that since the complaint was against the owner/developer of a condominium
whose condominium project was registered with and licensed by the Housing and Land Use
Regulatory Board (HLURB), the HLURB has the exclusive jurisdiction.
ISSUE:
Atty. Ceniza
Whether the case filed by Moreno is an inter-corporate dispute which is within the jurisdiction of
the RTC
RULING:
YES. Controversy with regard to association dues is an intra-corporate dispute falling within the
RTC jurisdiction.
The Moreno spouses were asking for an accounting of the association dues and were questioning
the manner the petitioner calculated the dues assessed against them. Although the extrajudicial
sale of the Moreno properties to the petitioner has been fully effected, the completion of the sale
does not bar Moreno spouses from questioning the amount of the unpaid dues that give rise to the
foreclosure and to the subsequent sale of their properties. Hence, the dispute as to the validity of
the assessments is purely an intra-corporate matter and is within the exclusive jurisdiction of the
trial court.
CASE TITLE WACK WACK CONDOMINIUM CORPORATION, WELBILT

CONSTRUCTION CORPORATION and EUGENIO JUAN
GONZALES vs. THE COURT OF APPEALS, HON. JUANITO
ALMOSA, JR., in his capacity as Securities and Exchange
Commission Hearing Officer, and JOSEFINA M. BAYOT

DATE
TOPIC COVERED Intra Corporate Disputes
DOCTRINE: The dispute as to the validity of the assessments upon a condominium unit is
purely an intra-corporate matter and is thus within the exclusive original jurisdiction of the
SEC (now RTC). And since the extrajudicial sale was authorized by corporation’s by-laws
and was the result of the non-payment of said assessment, the legality of such foreclosure
is necessarily an issue also within the exclusive original jurisdiction of the SEC.
PONENTE: CAMPOS, JR. J

Atty. Ceniza
FACTS:
Respondent Josefina Bayot (Bayot) bought a condominium unit in the Wack Wack Building.
Petitioner Welbilt Construction Corporation (Welbilt) is the developer of said condominium
building, while petitioner Wack Wack Condominium Corporation (Wack Wack) owns the
common areas of said building and is the manager of the condominium project. Petitioner Eugenio
Gonzales is the President of both Welbilt and Wack Wack and, with Welbilt, holds the controlling
interests in Wack Wack. Bayot, having fully paid for her unit, was issued Condominium Certificate
of Title 727, and became a stockholder of Wack Wack. Later, Wack Wack issued assessments
against Bayot's unit which the latter refused to pay on the ground that they were unreasonable,
arbitrary and/or unauthorized by their contract of sale. Wack Wack filed a petition for extrajudicial
sale of Bayot's unit to answer for the outstanding assessments which had remained unpaid. Bayot,
through counsel, filed a petition before the SEC for Injunction and Damages with a prayer for a
preliminary injunction to restrain the sheriff from going on with the sale. The SEC Hearing Officer
issued a temporary restraining order addressed to the said Sheriff.
ISSUE:
WON SEC has jurisdiction over the foreclosure sale.
RULING:
YES. The dispute as to the validity of the assessments is purely an intra-corporate matter between
Wack Wack and its stockholder, Bayot, and is thus within the exclusive original jurisdiction of the
SEC. And since the extrajudicial sale was authorized by Wack Wack's by-laws and was the result
of the non-payment of said assessment, the legality of such foreclosure is necessarily an issue also
within the exclusive original jurisdiction of the SEC, contrary to petitioner's contention that the
SEC has no jurisdiction over such foreclosure it being an action quasi-in-rem. Just because the
property has already been sold extrajudicially does not mean that the questioned assessment have
now become legal and valid or that they have become immaterial. In fact, the validity of the
foreclosure depends on the legality of the assessments and the issue must be determined by the
SEC if only to insure that the private respondent was not deprived of her property without having
been heard. If there were no valid assessments, then there was no lien on the property, and if there
was no lien, what was there to foreclosure? Thus, the the SEC retains its jurisdiction to hear and
decide the case despite the extrajudicial sale.
CASE TITLE RAUL C. COSARE V. BROADCOM ASIA, INC., ET AL.

Atty. Ceniza
PROMULGATION February 5, 2014
DATE
TOPIC COVERED Intra-corporate controversy
DOCTRINE: An intra-corporate controversy, which falls within the jurisdiction of regular

courts, has been regarded in its broad sense to pertain to disputes that involve any of the
following relationships: (1) between the corporation, partnership or association and the
public; (2) between the corporation, partnership or association and the state in so far as its
franchise, permit or license to operate is concerned; (3) between the corporation,
partnership or association and its stockholders, partners, members or officers; and (4)
among the stockholders, partners or associates, themselves.
Under the nature of the controversy test, the incidents of that relationship must also be
considered for the purpose of ascertaining whether the controversy is intra-corporate. The
controversy must not only be rooted in the existence of an intra-corporate relationship, but
must as well pertain to the enforcement of the parties’ correlative rights and obligations
under the Corporation Code and the internal and intra-corporate regulatory rules of the
corporation. If the relationship and its incidents are merely incidental to the controversy or
if there will still be conflict even if the relationship does not exist, then no intra-corporate
controversy exists.
PONENTE: REYES, J.
FACTS:
Cosare was a salesman of Arevalo who was selling broadcast equipment to TV networks. Arevalo
then set up Broadcom. Cosare was named an incorporator. He was promoted to AVP for Sales and
Head of the Technical Coordination. Thereafter, Abiog was appointed as VP for Sales and became
Cosare’s immediate superior. Cosare sent a confidential memo to Arevalo to inform him of
anomalies allegedly committed by Abiog (i.e., failed to report to work on time, advised clients to
purchase from its competitors, etc.). Arevalo failed to act on said memo. Instead, Cosare was asked
to tender his resignation. He received a memo charging him of serious misconduct and willful
breach of trust. He filed a labor complaint for constructive dismissal. (NLRC: Illegally dismissed;
Broadcom and Arevalo solidarily liable.) Broadcom raised that it involved an intra-corporate
controversy that was within the RTC jurisdiction. That it involved a complaint against a
corporation filed by a stockholder, who was at the same time a corporate officer.
Atty. Ceniza
ISSUE:
Whether the case was an intra-corporate dispute that was within the RTC’s original jurisdiction
RULING:
No, the mere fact that Cosare was a stockholder and an officer at the time the controversy
developed failed to make the case an intra-corporate dispute. Thus, the LA, instead of the RTC,
has the original jurisdiction.
The Court distinguished between a "regular employee" and a "corporate officer" for purposes of
establishing the true nature of a dispute or complaint for illegal dismissal and determining which
body has jurisdiction. Cosare, although an officer was not a "corporate officer" as the term is
defined by law. ‘Corporate officers’ are those officers of the corporation who are given that
character by the Corporation Code or by the corporation’s by-laws. There are 3 specific officers
whom a corporation must have under Sec. 25 of the Corporation Code (i.e., president, secretary
and the treasurer). The number of officers is not limited to these. A corporation may have other
officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier,
auditor or general manager. The number of corporate officers is thus limited by law and by the
corporation’s by-laws.
There are two circumstances which must concur in order for an individual to be considered a
corporate officer, as against an ordinary employee or officer, namely: (1) the creation of the
position is under the corporation’s charter or by-laws; and (2) the election of the officer is by the
directors or stockholders. It is only when the officer claiming to have been illegally dismissed is
classified as such corporate officer that the issue is deemed an intra-corporate dispute which falls
within the jurisdiction of the trial courts. Here, the respondents failed to establish that the position
of AVP for Sales was created by virtue of an act of Broadcom’s board, and that Cosare was
specifically elected or appointed to such position by the directors. No board resolutions to establish
such facts form part of the case records.
Finally, the mere fact that Cosare was a stockholder of Broadcom did not necessarily make the
action an intra- corporate controversy. Not all conflicts between the stockholders and the
corporation are classified as intra-corporate. In determining the existence of an intra-corporate
dispute, the status or relationship of the parties and the nature of the question that is the subject of
the controversy must be taken into account.. Considering that the dispute relates to Cosare’s rights
and obligations as a regular officer, instead of as a stockholder, the controversy cannot be deemed
intra-corporate. This is consistent with the "controversy test" whereby the incidents of that
relationship must also be considered for the purpose of ascertaining whether the controversy is
intra-corporate. The controversy must not only be rooted in the existence of an intra-corporate
relationship, but must as well pertain to the enforcement of the parties’ correlative rights and
Atty. Ceniza
obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the
corporation. If the relationship and its incidents are merely incidental to the controversy or if there
will still be conflict even if the relationship does not exist, then no intra-corporate controversy
exists.

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COMMERCIAL LAW REVIEW

CASE TITLE NARRA NICKEL MINING AND DEVELOPMENT CORP.,

CITATION G.R. No. 195580

PROMULGATION April 21, 2014

DIGEST BY Albay, Miami Frianz

TOPIC COVERED Grandfather Rule

PONENTE: VELASCO, JR., J.

Madridejos Mining Filipino 59.97%

MBMI Canadian 39.98%

Kenneth Cawkell Canadian .01%

Michael Mason American .01%

Lauro Salazar Filipino .01%

Manuel Agcaoili Filipino .01%

Olympic Mines Filipino 66.63%

MBMI Canadian 33.31%

Kenneth Cawkell Canadian .01%

Michael Mason American .01%

Lauro Salazar Filipino .01%

Fernando Esguerra Filipino .01%

Amanti Limson Filipino .01%

Emmanuel Hernando Filipino .01%

Sara Marie Mining Filipino 59.97%

Kenneth Cawkell Canadian .01%

Michael Mason American .01%

Lauro Salazar Filipino .01%

Fernando Esguerra Filipino .01%

Manuel Agcaoili Filipino .01%

Sara Marie Mining:

Olympic Mines Filipino 66.63%

MBMI Canadian 33.31%

Kenneth Cawkell Canadian .01%

Michael Mason American .01%

Lauro Salazar Filipino .01%

Fernando Esguerra Filipino .01%

Amanti Limson Filipino .01%

Emmanuel Hernando Filipino .01%

Patricia Louise Mining Filipino 59.97%

MBMI Canadian 39.98%

Kenneth Cawkell Canadian .01%

Robert McCurdy American .01%

Higinio Mendoza Filipino .01%

Henry Fernandez Filipino .01%

Manuel Agcaoili Filipino .01%

Ma. Elena Bocalan Filipino .01%

Bayani Agabin Filipino .01%

Patricia Louise Mining:

Palawan Alpha South Filipino 65.96%

MBMI Canadian 33.96%

Kenneth Cawkell Canadian .01%

Higinio Mendoza Filipino .01%

Fernando Esguerra Filipino .01%

Henry Fernandez Filipino .01%

Lauro Salazar Filipino .01%

Manuel Agcaoili Filipino .01%

Bayani Agabin Filipino .01%

Joint Venture Agreements were entered into by MBMI:

CASE TITLE SHRIMP SPECIALISTS, INC vs. FUJI-TRIUMPH AGRI-IND’L

CITATION G.R. No. 168756

PROMULGATION December 7, 2009

DIGEST BY Anonuevo, Jon Jon V.

TOPIC COVERED Separate Personality/Piercing the Veil

CITATION G.R. No. 145842