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1. Tayag v.

Benguet Consolidated
Facts
- In Mar 1960, Idonah Perkins died in NYC leaving properties in Phils and abroad, one of w/c are 2
stock certs covering 33.002 shares of Benguet Consolidated Inc. (BCI)
- Said stock certs were in the possession of the Country Trust Company of NY (CTC-NY), the
domiciliary administrator of the estate of Perkins in the US
- Tayag, domiciliary administrator in Phils filed a case claiming he is entitled to possess the stock
certs and eventually, CFI ordered CTC-NY to turn over the stock certs to Tayag but was refused
- Tayag then filed w/ CFI a petition to have said stock certs be declared lost and to compel BCI to
issue new one w/c was granted
- BCI assailed said order as it averred that it cannot possibly issue new stock certs because said
certificates declared lost are not actually lost and accdg to BCI’s by-laws, it can only issue new
stock certs, in lieu of lost, stolen, or destroyed certs, only after court of law has issued a final and
executory order as to who really owns a certificate of stock
Issue
WON BCI can refuse court order by invoking its corporate by-laws.
Ruling
No. BCI is a corporation who owes its existence to Phil laws and given rights and privileges
under the law. Therefore, it has obligations to follow valid legal court orders and is not immune
from judicial control because it is domiciled here in the Phils. BCI’s opposition is to render the
court order will leave Tayag without any remedy simply because CTC-NY, a foreign entity refuses to
comply with a valid court order. The final recourse then is for our local courts to create a legal fiction
such that the stock certificates in issue be declared lost even though in reality they exist in the hands of
CTC-NY. This is valid. As held time and again, fictions which the law may rely upon in the pursuit of
legitimate ends have played an important part in its development.

Further non-performance of court order to issue new stock certificates in accordance with its bylaws is
misplaced. It is worth noting that CTC-NY did not appeal the order of the court – it simply refused to
turn over the stock certificates hence ownership can be said to have been settled in favor of estate of
Perkins here. Also, assuming that there really is a conflict between BCI’s bylaws and the court
order, what should prevail is the lawful court order. It would be highly irregular if court orders
would yield to the bylaws of a corporation.
1. Magsaysay-Labrador v. CA
Facts
- On 9 Feb 1979, Adelaida Magsaysay, widow and special administratix of the estate of the late
Genaro Magsaysay, filed before CFI an action against Panganiban, Subic Land Corporation
(SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for
the annulment of the Deed of Assignment executed by her late husband in favor of SUBIC of land
allegedly a conjugal property w/out her consent and annulment of Deed of mortgage in favor of
FILMANBANK executed by SUBIC using such land
- On 7 Mar 1979, sisters of the late senator, filed a motion for intervention on the ground that their
brother conveyed to them 1/2 of his shareholdings in SUBIC (416,566.6 shares) w/c is around 41
% of the total outstanding shares of SUBIC and they have a substantial and legal interest in the
subject matter of litigation
- On 26 Jul 1979, the CFI denied the motion for intervention, and ruled that they cannot legally entitle
them to intervene because SUBIC has a personality separate and distinct from its stockholders w/c
was affiremed by CA
Issue
WON the Magsaysay sisters, allegedly stockholders of SUBIC, can intervene in the case.
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Ruling
No, the Magsaysay sisters have no legal interest in the subject matter in litigation so as to entitle
them to intervene in the proceedings. Here, the interest, if it exists at all, is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after payment of the corporate
debts and obligations. While a share of stock represents a proportionate or aliquot interest in the
property of the corporation, it does not vest the owner any legal right or title to any of the property, his
interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal
sense the owners of corporate property, which is owned by the corporation as a distinct legal
person.
2. Sulo ng Bayan v. Araneta
Facts
- On 26 Apr 1966, Sulo ng Bayan, Inc. filed an accion de revindicacion with CFI against GAI,
Paradise Farms Inc., NAWASA, Hacienda Caretas Inc., and the Register of Deeds of Bulacan to
recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan,
containing an area of 27,982,250 sq. ms., more or less, registered under the Torrens System in the
name of GAI, et. al.'s predecessors-in-interest (who are members of the corporation)
- On 2 Sep 1966, GAI filed a motion to dismiss the amended complaint on the grounds that (1) the
complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription and
laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the
same grounds. NAWASA did not file any motion to dismiss. However, it pleaded in its answer as
special and affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and the barring of
such action by prescription and laches
- On 24 Jan 1967, the trial court issued an Order dismissing the (amended) complaint. On 14
February 1967, Sulo ng Bayan filed a motion to reconsider the Order of dismissal, arguing among
others that the complaint states a sufficient cause of action because the subject matter of the
controversy in one of common interest to the members of the corporation who are so numerous that
the present complaint should be treated as a class suit. The motion was denied by the trial court in
its Order dated 22 February 1967.
- Sulo ng Bayan appealed to the CA & upon finding that no question of fact was involved in the
appeal but only questions of law and jurisdiction, certified the case to SC
Issue
WON plaintiff corporation (non-stock) may institute an action in behalf of its individual Members for the
recovery of certain parcels of land allegedly owned by said members.
Ruling
No. A corporation is a distinct legal entity to be considered as separate and apart from the individual
stockholders or members who compose it, and is not affected by the personal rights, obligations and
transactions of its stockholders or members. The property of the corporation is its property and not that of the
stockholders, as owners, although they have equities in it. Properties registered in the name of the corporation
are owned by it as an entity separate and distinct from its members.
3. Bataan Shipyard v. PCGG
Facts
- When Corazon Aquino took power, the PCGG was formed in order to recover ill gotten wealth allegedly
acquired by former President Marcos and his cronies
- Aquino then issued 2 EO’s in 1986 and pursuant thereto, a sequestration and a takeover order were
issued against Bataan Shipyard & engineering Co., Inc. (BASECO).
- BASECO was alleged to be in actuality owned and controlled by the Marcoses through the Romualdez
family, and in turn, through dummy stockholders
- The sequestration order issued in 1986 required, that BASECO produce corporate records from 1973 to
1986 under pain of contempt of the PCGG if it fails to do so.

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- BASECO assails this order as it avers, among others, that it is against BASECO’s right against self
incrimination and unreasonable searches and seizures.
Issue
WON BASECO can invoke right against self-incrimination.
Ruling
No, right against self-incrimination has no application to juridical persons. There is a reserve right in the
legislature to investigate the contracts of a corporation and find out whether it has exceeded its powers. It
would be a strange anomaly to hold that a state, having chartered a corporation like BASECO to make
use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had
been employed, and whether they had been abused, and demand the production of the corporate
books and papers for that purpose. Neither is the right against unreasonable searches and seizures
applicable here. There were no searches made and no seizure pursuant to any search was ever made.
BASECO was merely ordered to produce the corporate records.

4. Luxuria Homes v. CA
Facts
- Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she entered into an
agreement with Jaime Bravo for the latter to draft a development and architectural design for the said
property. The contract price was P450,000.00. Posadas gave a down payment of P25,000.00. Later,
Posadas assigned her property to Luxuria Homes, Inc. One of the witnesses to the deed of assignment
and articles of incorporation was Jaime Bravo
- In 1992, Bravo finished the architectural design so he proposed that he and his company manage the
development of the property, but Posadas turned down the proposal and thereafter the business
relationship between the two went sour.
- Bravo then demanded Posadas to pay them the balance of their agreement as regards the architectural
design (P425k). Bravo also demanded payment for some other expenses and fees he incurred i.e.,
negotiating and relocating the informal settlers then occupying the land of Posadas.
- Posadas refused to make payment. Bravo then filed a complaint for specific performance against
Posadas but he included Luxuria Homes as a co-defendant as he alleged that Luxuria Homes was a
mere conduit of Posadas; that the said corporation was created in order to defraud Bravo and avoid the
payment of debt.
Issue: WON Luxuria Homes should be impleaded in the complaint.
Ruling
No. It was Posadas who entered into a contract with Bravo in her personal capacity. Bravo was not able to
prove that Luxuria Homes was a mere conduit of Posadas. Posadas owns just 33% of Luxuria Homes. Further,
when Luxuria Homes was created, Bravo was there as a witness. So how can he claim that the creation of said
corporation was to defraud him. The eventual transfer of Posadas’ property to Luxuria was with the full
knowledge of Bravo. The agreement between Posadas and Bravo was entered into even before Luxuria
existed hence Luxuria was never a party thereto. Whatever liability Posadas incurred arising from said
agreement must be borne by her solely and not in solidum with Luxuria. To disregard the separate juridical
personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot
be presumed.
5. Concept Builders v. NLRC
Facts
- Concept Builders, Inc., a domestic corporation engaged in the construction business is the employer of
private respondents employed as laborers, carpenters and riggers who were illegally dismissed
- Aggrieved, they filed a complaint for illegal dismissal and Labor Arbiter rendered judgment ordering
petitioner to reinstate private respondents and to pay them back wages w/c became final and executory
- The alias Writ of Execution cannot be enforced by the sheriff because at Concept Builders address at
355 Maysan Road, Valenzuela, MM, claimed that they were employees of it was Hydro Pipes
Philippines, Inc. (HPPI) occupying and not by petitioner.
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- NLRC issued a break-open order against Concept Builders and HPPI upon motion of employees
Issue:
WON NLRC committed grave abuse of discretion when it issued a "break-open order" to the sheriff to
be enforced against personal property found in the premises of petitioner's sister company.
Ruling
Yes. 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. 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. Clearly, petitioner ceased its
business operations in order to evade the payment to private respondents of back wages and to bar their
reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its
emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner
corporation.
The conditions under which the juridical entity may be disregarded vary according to the peculiar facts
and circumstances of each case. There are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, to wit:
(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.
(4) Methods of conducting the business.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows:
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of
plaintiff’s legal rights; and
(3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents “piercing the corporate veil.” In applying the
“instrumentality” or “alter ego” doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant’s relationship to that operation.
6. Villa Rey Transit v. Ferrer
Facts
- Jose Villarama was an operator of a bus transportation pursuant to 2 CPC granted him by the
Public Service Commission (PSC) w/c he sold Pantranco w/ the condition that he "shall not for a
period of 10 years, apply for any TPU service identical or competing with the buyer.
- 3 months thereafter, a corporation called Villa Rey Transit, Inc. was organized with a capital stock
of P500k, P1k subscribed by Villarma’s wife and P199k by his brother and sister-in-law
- In less than a month after its registration with the SEC, the Corp bought 5 CPC’s and 49 buses from
one Valentin Fernando w/c later, the Sheriff of Manila levied on 2 of the 5 CPC’s , in favor of
Eusebio Ferrer, judgment creditor, against Fernando, judgment debtor
- A public sale was conducted and Ferrer was the highest bidder who sold 2 CPC’s to Pantranco.
- Villa Rey filed a complaint against Ferrer, Pantranco and PSC for the annulment of thesheriff's
sale and Pantranco, on its part, filed a third-party complaint against Villarama, alleging that
Villarama and/or the Corporation was disqualified from operating the 2 CPC’s in question by virtue
of the previous agreement
- The trial court declared null and void the sheriff's sale of 2 CPC’s in favor of Ferrer and the
subsequent sale thereof by the latter to Pantranco and ordering Ferrer and Pantranco to pay P5k
for atty’s fee
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ISSUE:
WON The stipulation between Villarama and Pantranco binds Villa Rey Transit, Inc.
Ruling
YES. The restrictive clause in the contract entered into by the Villarama and Pantranco is
enforceable and binding against the said Corporation. The evidence has disclosed that the initial cash
capitalization of the corporation was mostly financed by Villarama; he supplied the organization
expenses and the assets of the Corporation, such as trucks and equipment; there was no actual
payment by the original subscribers of the amounts of P95,000.00 and P100,000.00 as appearing n the
books; Villarama made use of the money of the Corporation and deposited them to his private
accounts; and the Corporation paid his personal accounts. The foregoing circumstances are strong
persuasive evidence showing that Villarama has been too much involved in the affairs of the
Corporation to altogether negate the claim that he was only a part-time general manager. They show
beyond doubt that the Corporation is his alter ego.
7. Francisco Motors v. Ca
Facts
- In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to recover from a him a
sum of money in the amount of P23k used by Manuel for the purchase of a jeep body plus repairs
thereto
- Manuel filed a counterclaim in the amount of P50k, and alleged that he was the Assistant Legal
Officer for FMC; that the Francisco Family, owners of FMC, engaged his services for the intestate
estate proceedings of one Benita Trinidad; that he was not paid for his legal services; that he is
filing the counterclaim against FMC because said corporation was merely a conduit of the Francisco
Family.
- The trial court CA granted Manuel’s counterclaim on the ground that the legal fees were owed by
the incorporators of FMC (an application of the doctrine of piercing the veil of corporation fiction in a
reversed manner).
Issue
WON the doctrine of piercing the veil of corporate fiction was properly used by CA.
HELD:
No. In the first place, the doctrine is to be used in disregarding corporate fiction and making the
incorporators liable in appropriate circumstances. In the case at bar, the doctrine is applied upside
down where the corporation is held liable for the personal obligations of the incorporators – such was
uncalled for and erroneous. It must be noted that that Atty. Manuel’s legal services were secured by the
Francisco Family to represent them in the intestate proceedings over Benita Trinidad’s estate. The
indebtedness was incurred by the Francisco Family in their separate and personal capacity. These
estate proceedings did not involve any business of FMC. The proper remedy is for Manuel to sue the
concerned members of the Francisco Family in their individual capacity.
8. Lipat et.al v. Pacific Banking Corp
Facts
- Sps Lipat owned Bela’s Export Trading (BET) a single proprietorship engaged in the manufacture of
garments for domestic and foreign consumption
- By virtue of an SPA, they appointed and authorized their daughter Teresita to obtain loan from
Pacific Bank and as security a REM was executed over the property of BET
- Sometime after, BET was incorporated into a family corporation named Bela’s Export Corporation
(BEC) and the loan was restructured in its name and subsequent loans were obtained in behalf of
BEC all secured by the previous REM.
- BEC defaulted in its payments which led to the foreclosure and sale of the mortgaged property and
the spouses moved to annul the sale alleging that BEC is a distinct and separate personality from
BET and that the REM was executed only to secure BET’s loan
- Both trial court and CA ruled to pierce the corporate veil to hold petitioner spouses liable for BEC’s
obligations.
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Issue:
WON the doctrine of piercing the veil of corporate fiction is applicable in this case.
Ruling
YES. We find that the evidence on record demolishes, rather than buttresses, petitioners’
contention that BET and BEC are separate business entities. Note that Estelita Lipat admitted that she
and her husband, Alfredo, were the owners of BET and were two of the incorporators and majority
stockholders of BEC. It is also undisputed that Estelita Lipat executed a special power of attorney in
favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf.
Incidentally, Teresita was designated as executive-vice president and general manager of both BET
and BEC, respectively. BEC is a mere continuation and successor of BET and petitioners cannot
evade their obligations in the mortgage contract secured under the name of BEC on the pretext that it
was signed for the benefit and under the name of BET.
9. Times Transportation v. Santos-Sotelo
Facts
- Times is a corporation engaged in the business of land transportation. Prior to its closure, the Times
Employees Union (TEU) was formed.
- Respondents were retrenched after Times’ management implemented a retrenchment program in
the height of a labor dispute between Times and TEU.
- In the meantime, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over Times’
CPC and a number of its bus units by virtue of several deeds of sale.
- Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the
majority stockholder of Times.
- After the closure of Times, the retrenched employees filed cases for illegal dismissal, money claims
and unfair labor practices against Times.
- The Labor Arbiter ruled that Times and Rondaris are liable for unfair labor practice.
Issue
WON the doctrine of piercing the veil of corporate fiction was properly applied.
Ruling
YES. Piercing the corporate veil may be allowed only if the following elements concur: (1)
control —not mere stock control, but complete domination not only of finances, but of policy and
business practice in respect to the transaction attacked; (2) such control must have been used to
commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of a legal right; and (3) the said control and breach of duty
must have proximately caused the injury or unjust loss complained of.
The sale of Times’ franchise as well as most of its bus units to a company owned by Rondaris’
daughter and family members, right in the middle of a labor dispute, is highly suspicious.
It is evident that the transaction was made in order to remove Times’ remaining assets from the reach
of any judgment that may be rendered in the unfair labor practice cases filed against it.
10. Yao Sr. v. People
Facts
- William Yao, Sr. and several others were incorporators and officers of Masagana Gas Corporation.
- In 2003, the NBI, acting on reports that petitioners unlawfully and in violation of intellectual property
rights of Petron Corporation and Pilipinas Shell, produce, sell, distribute LPG products using LPG
cylinders owned by Petron and Shell and by virtue of search warrants, raided the premises of
Masagana and confiscated, among other things, the motor compressor and refilling machine owned
by Masagana.
- Masagana Corporation intervened in the case and asked for the return of said pieces of equipment.
It argued that even if the same was being used by petitioners in their unlawful activity, the
equipment cannot be confiscated because having a personality separate and distinct from that of its
incorporators, directors and officers, said properties are owned by the corporation and not by the
petitioners.
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Issue
WON the doctrine of piercing the veil of corporate entity is applicable in the case.
Ruling
SC reiterated that it is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders, directors or officers. However, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud or defend crime, the law will
regard the corporation as an association of persons or in the case of two corporations merge them into
one. Hence, in this case, liability will attach personally or directly to the officers and stockholders. The
findings of the Court show that petitioners, as director/officers of Masagana were utilizing the
corporation in violating the intellectual property rights of Petron and Pilipinas Shell. As such, the
doctrine of piercing the veil of corporate entity applies.
11. Seventh Day Adventist v. Northeastern Mindanao Mission
Facts
- Sp Felix Cosio and Felisa Cuysona donate a parcel of land to South Philippine [Union] Mission of
Seventh Day Adventist Church (SPUM-SDA), and was received by Liberato Rayos, an elder of the
Seventh Day Adventist Church, on behalf of the donee.
- 21 later, the Sps sold the same land to the Seventh Day Adventist Church of Northeastern
Mindanao Mission
- Claiming to be the alleged donee’s successors-in-interest, SPUM-SDA asserted ownership over the
property. This was opposed by respondents who argued that at the time of the donation, SPUM-
SDA Bayugan could not legally be a donee because, not having been incorporated yet, it had no
juridical personality. Neither were petitioners members of the local church then, hence, the donation
could not have been made particularly to them.
Issue
WON donation to SPUM-SDA is valid w/c is not incorporated yet at that time.
Ruling
No. Donation is undeniably one of the modes of acquiring ownership of real property. Likewise,
ownership of a property may be transferred by tradition as a consequence of a sale. Donation is an act
of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who
accepts it. The donation could not have been made in favor of an entity yet inexistent at the time it was
made. Nor could it have been accepted as there was yet no one to accept it. The deed of donation was
not in favor of any informal group of SDA members but a supposed SPUM-SDA (the local church)
which, at the time, had neither juridical personality nor capacity to accept such gift.
12. Lim Tong Lim v. Fishing Gear
Facts
- it was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with him
and one Antonio Chua so the three agreed to purchase two fishing boats but since they do not have
the money they borrowed from one Jesus Lim (brother of Lim Tong Lim).
- They again borrowed money and they agreed to purchase fishing nets and other fishing
equipments.
- Yao and Chua represented themselves as acting in behalf of “Ocean Quest Fishing Corporation”
(OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing
nets amounting to more than P500k
- They were however unable to pay PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation.
- Chua admitted liability and asked for some time to pay. Yao waived his rights. Lim Tong Lim
however argued that he’s not liable because he was not aware that Chua and Yao represented
themselves as a corporation; that the two acted without his knowledge and consent.
Issue
WON Lim Tong Lim is liable.
Ruling
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Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term “common fund” under Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed
that any loss or profit from the sale and operation of the boats would be divided equally among them
also shows that they had indeed formed a partnership. Lim Tong Lim cannot argue that the principle of
corporation by estoppels can only be imputed to Yao and Chua. Unquestionably, Lim Tong Lim
benefited from the use of the nets found in his boats, the boat which has earlier been proven to be an
asset of the partnership. Lim, Chua and Yao decided to form a corporation. Although it was never
legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as
contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid existence, are held liable as general
partners.
13. Narra Nickel v. Redmont
Facts
- Narra and its co-petitioner corporations – Tesoro and MacArthur, filed a motion before the SC to
reconsider its April 21, 2014 Decision which upheld the denial of their MPSA applications.
- SC affirmed the CA ruling that there is a doubt to their nationality, and that in applying the
Grandfather Rule, the finding is that MBMI, a 100% Canadian-owned corporation, effectively owns
60% of the common stocks of petitioners by owning equity interests of the petitioners’ other majority
corporate shareholders.
- Narra, Tesoro and MacArthur argued that the application of the Grandfather Rule to determine their
nationality is erroneous and allegedly without basis in the Constitution, the FIA, the Philippine
Mining Act, and the Rules issued by the SEC. These laws and rules supposedly espouse the
application of the Control Test in verifying the Philippine nationality of corporate entities for
purposes of determining compliance with Sec. 2, Art. XII of the Constitution that only corporations
or associations at least 60% of whose capital is owned by such Filipino citizens may enjoy certain
rights and privileges, like the exploration and development of natural resources.
Issue:
WON the application by the SC of the grandfather resulted to the abandonment of the ‘control
test’
Held:
No. The ‘control test’ can be applied jointly with the Grandfather Rule to determine the
observance of foreign ownership restriction in nationalized economic activities. The Control Test and
the Grandfather Rule are not incompatible ownership-determinant methods that can only be applied
alternative to each other. Rather, these methods can, if appropriate, be used cumulatively in the
determination of the ownership and control of corporations engaged in fully or partly nationalized
activities, as the mining operation involved in this case or the operation of public utilities.
The Grandfather Rule, standing alone, should not be used to determine the Filipino ownership
and control in a corporation, as it could result in an otherwise foreign corporation rendered qualified to
perform nationalized or partly nationalized activities. Hence, it is only when the Control Test is first
complied with that the Grandfather Rule may be applied. Put in another manner, if the subject
corporation’s Filipino equity falls below the threshold 60%, the corporation is immediately considered
foreign-owned, in which case, the need to resort to the Grandfather Rule disappears.
In this case, using the ‘control test’, Narra, Tesoro and MacArthur appear to have satisfied the
60-40 equity requirement. But the nationality of these corporations and the foreign-owned common
investor that funds them was in doubt, hence, the need to apply the Grandfather Rule.

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Second, the elaborate corporate layering resorted to by petitioners so as to make it appear that
there is compliance with the minimum Filipino ownership in the Constitution is deftly exceptional in
character. More importantly, the case is of paramount public interest, as the corporate layering
employed by petitioners was evidently designed to circumvent the constitutional caveat allowing only
Filipino citizens and corporations 60%-owned by Filipino citizens to explore, develop, and use the
country's natural resources.
Narra Nickel and Mining Development vs. Redmond Development April 21, 2014
FACTS:
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic
corporation organized and existing under Philippine laws, took interest in mining and exploring certain areas of
the province of Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it
learned that the areas where it wanted to undertake exploration and mining activities where already covered by
Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur Narra and Tesoro, filed an application for an MPSA and Exploration Permit (EP) which was
subsequently issued. On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR
three (3) separate petitions for the denial of petitioners’ applications for MPSA. Redmont alleged that at least
60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc.
(MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of
petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining activities through corporations which are
deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by
MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which are reserved
only for Filipino citizens. Petitioners averred that they were qualified persons under Section 39 (aq) of Republic
Act No. (RA) 7942 or the Philippine Mining Act of 1995. They stated that their nationality as applicants is
immaterial because they also applied for Financial or Technical Assistance Agreements (FTAA) denominated
as AFTAIVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which are granted to
foreign-owned corporations. Nevertheless, they claimed that the issue on nationality should not be raised since
McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens of the
Philippines. On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining
MPSAs. The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a
100% Canadian company and declared their MPSAs null and void. Pending the resolution of the appeal filed
by petitioners with the MAB, Redmont filed a Complaint with the Securities and Exchange Commission (SEC),
seeking the revocation of the certificates for registration of petitioners on the ground that they are foreign-
owned or controlled corporations engaged in mining in violation of Philippine laws. CA found that there was
doubt as to the nationality of petitioners when it realized that petitioners had a common major investor, MBMI,
a corporation composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of Department of
Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the
requirement of the Constitution and other laws pertaining to the exploitation of natural resources, the CA used
the "grandfather rule" to determine the nationality of petitioners. In determining the nationality of petitioners, the
CA looked into their corporate structures and their corresponding common shareholders. Using the
grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of the
petitioners as well as at least 60% equity interest of other majority shareholders of petitioners through
joint venture agreements. The CA found that through a "web of corporate layering, it is clear that one
common controlling investor in all mining corporations involved x x x is MBMI." Thus, it concluded that
petitioners McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.
ISSUE:
Whether or not the Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations based on
the "Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign Investments Act of
1991, as amended, and the FIA Rules.
Ruling:

9
No. 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, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other laws pertaining to the controlling interests in
enterprises engaged in the exploitation of natural resources owned by Filipino citizens, 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 (CONTROL TEST), 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 (GRANDFATHER RULE). Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong
to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50%
of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only
50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to
aliens. The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the
definition of a "Philippine National" under Sec. 3 of the FIA does not provide for it. They further claim that the
grandfather rule "has been abandoned and is no longer the applicable rule." They also opined that the last
portion of Sec. 3 of the FIA admits the application of a "corporate layering" scheme of corporations. Petitioners
claim that the clear and unambiguous wordings of the statute preclude the court from construing it and prevent
the court’s use of discretion in applying the law. They said that the plain, literal meaning of the statute meant
the application of the control test is obligatory. SC disagreed. "Corporate layering" is admittedly allowed by
the FIA; but if it is used to circumvent the Constitution and pertinent laws, then it becomes illegal.
Further, the pronouncement of petitioners that the grandfather rule has already been abandoned must be
discredited for lack of basis. Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100%
Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from
grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. 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 the case, in the 60-40 Filipino-equity ownership

1. Gamboa v. Teves 650 scra 690 (2011)


FACTS
This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation
(PTIC) by the government of the RP, acting through the Inter-Agency Privatization Council (IPC), to Metro
Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-
based investment management and holding company and a shareholder of the PLDT.
The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or
about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this
sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the total common shareholdings of foreigners in PLDT to about 81.47%. This, according to the
petitioner, violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of
the capital of a public utility to not more than 40%.
ISSUE
Does the term “capital” in Section 11, Article XII of the Constitution refer to the total common shares only, or to
the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a
public utility?
Ruling
The term “capital” in Section 11, Article XII of the 1987 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 (common and non-voting preferred shares).

10
FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a domestic corporation
at least "60% of the capital stock outstanding and entitled to vote" is owned by Philippine citizens.
Mere legal title is insufficient to meet the 60 percent Filipino owned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights,
is required.
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a
corporation is a "Philippine national."

1. Jose M. Roy vs. Chairperson Teresita Herbosa


-This is a case of special civil action for certiorari under Rule 65 of the Rules of Court seeking to annul
Memorandum Circular No. 8, Series of 2013 (SEC-MC No. 8)issued by the SEC for allegedly being in violation
of the Court's Decision ("Gamboa Decision") and Resolution ("Gamboa Resolution") in Gamboa v. Finance
Secretary Teves which jurisprudentially established the proper interpretation of Section 11, Article XII of the
Constitution.
On June 28, 2011, the Court issued the Gamboa Decision, the dispositive portion of which reads:
“WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11,
Article XII of the 1987 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 (common and non-voting preferred shares). “

-On May 20, 2013, the SEC, through Chairperson Herbosa, issued SEC-MC No. 8 entitled "Guidelines on
Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or Existing
Laws by Corporations Engaged in Nationalized and Partly Nationalized Activities." Section 2 of SEC-MC No. 8
provides:
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory
ownership requirement. For purposes of determining compliance therewith, the required
percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote in the election of directors.
-Roy, as a lawyer and taxpayer, filed the Petition, assailing the validity of SEC-MC No. 8 for not conforming to
the letter and spirit of the Gamboa Decision and Resolution and for having been issued by the SEC with grave
abuse of discretion. --
-Petitioner Roy also questions the ruling of the SEC that respondent Philippine Long Distance Telephone
Company ("PLDT") is compliant with the constitutional rule on foreign ownership. He prays that the Court
declare SEC-MC No. 8 unconstitutional and direct the SEC to issue new guidelines regarding the
determination of compliance with Section 11, Article XII of the Constitution in accordance with Gamboa.
Issue: whether or not SEC -MC No. 8 violated the ruling of the Court in Gamboa v. Finance Secretary
Teves, 18 and the resolution in Heirs of Wilson P. Gamboa v. Finance Sec. Teves 19 denying the
Motion for Reconsideration therein as to the proper understanding of "capital".
Ruling: NO
T h e Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[f]ull [and
legal] bene cial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting
rights x x x must rest in the hands of Filipino nationals x x x." 11 And, precisely that is what SEC-MC No. 8
provides , viz.: "x x x For purposes of determining compliance [with the constitutional or statutory ownership],
the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding
shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of
stock, whether or not entitled to vote x x x."
Dissenting Opinion- GRANT THE MR
-where 64.27% of the common shares were in the hands of foreigners, warranted the Court's ruling that the
term "capital" refers to shares of stock that can vote in the election of directors.
-Moreover, in the Gamboa Decision, the Court stated that "[m]ere legal title is insu cient to meet the 60
percent Filipino- owned 'capital' required in the Constitution." 4 Full bene cial ownership of 60 percent of the

11
total outstanding capital stock, coupled with 60 percent of the voting rights, is the minimum constitutional
requirement for a corporation to operate a public utility, thus:
-The newly-created votingpreferred shares, which have voting rights in the election of directors, are fully
owned by BTF Holdings, Inc. These voting preferred shares are not listed in the Philippine Stock Exchange.
With the newly-created preferred shares, it appears that Filipinos owned 65.53% while foreigners owned
34.47% of the total voting shares.
-All the 150,000,000 newly-issued voting preferred shares were acquired by BTF Holdings, Inc., a wholly-
owned company of the PLDT Bene cial Trust Fund (BTF). The voting preferred shares have a par value of
P1.00 per share, while the common shares have a par value of P5.00 per share.
-The BTF was established by the Board of Directors of PLDT as a retirement plan for PLDT's employees.
-Since the PLDT Board of Directors appoints the Board of Trustees of the BTF, in effect, it is PLDT's
management which controls the BTF.
-There is no question that the 150,000,000 voting preferred shares have the right to vote in the election of
the Board of Directors. However, the Board of Trustees of the BTF is appointed by the Board of Directors of
PLDT. The BTF controls how the voting preferred shares of BTF Holdings, Inc. are voted. In short, BTF
Holdings, Inc. is controlled by the Board of Directors of PLDT, including how the voting preferred shares of
BTF Holdings, Inc. will be voted. In essence, whoever controls PLDT also controls BTF and BTF Holdings,
Inc. When the voting preferred shares were created and issued to BTF Holdings, Inc., PLDT, BTF, and BTF
Holdings, Inc. were all controlled by the same PLDT Board of Directors, who was elected by the owners
of the PLDT common shares.
-the bene cial ownership of PLDT remained indisputably with the common shares.
Moreover, as I have previously stated, SEC Memorandum Circular No. 8 can be considered valid only if (1)
the stocks with voting rights and (2) the stocks without voting rights, which comprise the capital of a
corporation operating a public utility, have equal par values. If the shares of stock have different par values,
then applying SEC Memorandum Circular No. 8 would contravene the Gamboa Decision that the "legal
and bene cial ownership of 60 percent of the outstanding capital stock x x x rests in the hands of
Filipino nationals in accordance with the constitutional mandate."

2. Philips Export B.V. v. CA 206 scra 457 (1992)


FACTS:
Philips Export B.V. (PEBV) filed with the SEC for the cancellation of the word “Philips” the corporate name of
Standard Philips Corporation in view of its prior registration with the Bureau of Patents and the SEC. However,
Standard Philips refused to amend its Articles of Incorporation so PEBV filed with the SEC a petition for the
issuance of a Writ of Preliminary Injunction, however this was denied ruling that it can only be done when the
corporate names are identical and they have at least 2 words different. This was affirmed by the SEC en banc
and the Court of Appeals thus the case at bar.

ISSUE:
Whether or not Standard Philips can be enjoined from using Philips in its corporate name
RULING:
YES. A corporation’s right to use its corporate and trade name is a property right, a right in rem, which
it may assert and protect against the whole world. According to Sec. 18 of the Corporation Code, no
corporate name may be allowed if the proposed name is identical or deceptively confusingly similar to
that of any existing corporation or to any other name already protected by law or is patently deceptive,
confusing or contrary to existing law.
For the prohibition to apply, 2 requisites must be present:
(1) the complainant corporation must have acquired a prior right over the use of such corporate name
(2) the proposed name is either identical or deceptively or confusingly similar to that of any existing corporation
or to any other name already protected by law or patently deceptive, confusing or contrary to existing law.
Although PEBV primarily deals with electrical products, it has also shipped to its subsidiaries machines and
parts which fall under the classification of “chains, rollers, belts, bearings and cutting saw”, the goods which
12
Standard Philips also produce. Also, among Standard Philips’ primary purposes are to buy, sell trade x x x
electrical wiring devices, electrical component, electrical supplies. Given these, there is nothing to prevent
Standard Philips from dealing in the same line of business of electrical devices. The use of “Philips” by
Standard Philips tends to show its intention to ride on the popularity and established goodwill of PEBV.

3. Sawadjaan v. CA 459 SCRA 516 (2005)


Facts:
Petitioner Sawadjaan was an appraiser/investigator in the Philippine Amanah Bank (PAB) when on the basis of
his report, a credit line was granted to Compressed Air Machineries and Equipment Corporation (CAMEC) by
virtue of the two parcels of land it offered as collaterals. Meanwhile, Congress passed a law which created Al-
Amanah Investment Bank of the Philippines (AIIBP) and repealed the law creating PAB, transferring all its
assets, liabilities and capital accounts to AIIBP. Later, AIIBP discovered that the collaterals were spurious, thus
conducted an investigation and found petitioner Sawadjaan at fault. Petitioner appealed before the SC which
ruled against him. Petitioner moved for a new trial claiming he recently discovered that AIIBP had not yet
adopted its corporate by-laws and since it failed to file within 60 days from the passage of its law, it had
forfeited its franchise or charter and thus has no legal standing to initiate an administrative case. The motion
was denied.
Issue:
WON the failure of AIIBP to file its by-laws within the period prescribed results to a nullity of all actions and
proceedings it has initiated.
Ruling: NO.

The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts business, has
shareholders, corporate officers, a board of directors, assets, and personnel. It is, in fact, here represented by
the Office of the Government Corporate Counsel, “the principal law office of government-owned corporations,
one of which is respondent bank.” At the very least, by its failure to submit its by-laws on time, the AIIBP may
be considered a de facto corporation whose right to exercise corporate powers may not be inquired into
collaterally in any private suit to which such corporations may be a party.
Moreover, a corporation which has failed to file its by-laws within the prescribed period does not ipso
facto lose its powers as such. The SEC Rules on Suspension/Revocation of the Certificate of
Registration of Corporations, details the procedures and remedies that may be availed of before an
order of revocation can be issued. There is no showing that such a procedure has been initiated in this
case.

4. Westmont Bank v. Inland Construction & Devt Corp 582 SCRA 230
Facts
Inland Construction and Development Corp. (Inland) obtained various loans from petitioner Westmont Bank
(Westmont). To secure the payment of its obligations, Inland executed REMs over 3 real properties and issued
PN in favor of the bank.
By a Deed of Assignment, Conveyance and Release, Felix Aranda (Inland Pres) assigned and conveyed all his
rights and interests at Hanil-Gonzales Construction & Development Phils. Corporation (HGCDP) in favor of
Horacio Abrante (EVP). Under the same Deed, it appears that HGCDP assumed the obligations of Inland at
Westmont. Westmont’s Account Officer, Lionel Calo, Jr. signed for its conformity to the deed.
Inland was subsequently served with a Notice of Sheriff’s Sale foreclosing the real estate mortgages over its
real properties prompting it to file a complaint for injunction against the Westmont. In its answer, Westmont
underscored that it had no knowledge, much less did it give its conformity to the alleged assignment of the
obligation. The trial court found that Westmont ratified the act of Calo. It accordingly rendered judgment in
favor of Inland. On appeal, the appellate court affirmed the trial court’s decision insofar as it finds Westmont to
have ratified the Deed of Assignment.
Issue
WON Lionel Calo acted under the power of an apparent authority
Ruling
Yes. The general rule remains that, in the absence of authority from the board of directors, no person, not even
its officers, can validly bind a corporation. If a corporation, however, consciously lets one of its officers, or
any other agent, to act within the scope of an apparent authority, it will be estopped from denying such
13
officer’s authority. The records show that Calo was the one assigned to transact on petitioner’s behalf
respecting the loan transactions and arrangements of Inland as well as those of Hanil-Gonzales and Abrantes.
Since it conducted business through Calo, who is an Account Officer, it is presumed that he had authority to
sign for the bank in the Deed of Assignment.

1. Roy III v Herbosa


Facts:
On Jun 28, 2011, the Court issued the Gamboa Decision,... that the term "capital" in Section 11, Article XII of
the 1987 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 (common and non-voting
preferred shares). Decision attained finality on Oct 18, 2012, and Entry of Judgment was thereafter issued on
Dec 11, 2012
On May 20, 2013, the SEC, through respondent Herbosa, issued SEC-MC No. 8
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership
requirement. For purposes of determining compliance therewith, the required percentage of Filipino ownership
shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of
directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the
election of directors.
On Jun 10, 2013, petitioner Roy, filed the Petition,assailing the validity of SEC-MC No. 8 for not conforming to
the letter and spirit of the Gamboa Decision and Resolution and for having been issued by the SEC with grave
abuse of discretion.
Issues:
WON the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa Decision and
Gamboa Resolution
Ruling:
SEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it issued SEC--
MC No. 8. The Court finds SEC-MC No. 8 to have been issued in fealty (acknowledgment) to the Gamboa
Decision and Resolution.
Gamboa Resolution put to rest the Court's interpretation of the term "capital"
Full beneficial ownership of stocks, coupled with appropriate voting rights is essential... reiterates and confirms
the interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares with
voting rights, as well as with full beneficial ownership.
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest requirement.
In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it
moreover requires the 60-40 percentage ownership in the total number of outstanding shares of stock, whether
voting or not. The SEC formulated SEC-MC No. 8 to adhere to the Court's unambiguous pronouncement that
"full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting
rights is required."
While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full beneficial ownership of
stocks requirement in the FIA, this will not, as it does not, render it invalid meaning, it does not follow that the
SEC will not apply this test in determining whether the shares claimed to be owned by Philippine nationals are
Filipino, i.e., are held by them by mere title or in full beneficial ownership. To be sure, the SEC takes its guiding
lights also from the FIA and its implementing rules, the Securities Regulation Code

2. DBP v. Ong
-Sps went to the DBP branch at CDO told Palasan, bank clerk were interested to buy 2 foreclosed lots.
-Palasan went to talk to Lagrito, the branch manager and returned to the spouses informing them that the
Lagrito agreed to sell the property to them.
-Palasan required them to pay 10% of the purchase price as d/p, adding that if they were to pay the
purchase price in cash, they would be entitled to a 10% discount.
-They made a d/p of P14k and were required by Palasan to sign a bank form supposedly to express their
firm offer to purchase the subject property w/c contained the statement that the approval of higher
authorities of the bank is required to close the deal and when there is a more advantageous offer their
deposit will be refunded.

14
- Upon query, Palasan told them that documents were formality purposes, and assured them that the
Lagrito has already agreed to sell the subject property to them.
-Subsequently after, they were told that property can’t be sold to them but will be sold in a public auction.
-Feeling aggrieved, Sps. filed a complaint for breach of contract and/or specific performance against DBP.
Case was dismissed but upon MfR, it was decided in favor of Sps. by RTC and CA, thus DPB filed this
appeal by way of petition for review on certiorari on CA’s decision.

Issue: WON there actually was a perfected contract of sale between parties, for w/c the Court may
compel DBP to issue a board resolution approving the sale and to execute the final deed of sale and/or
hold petitioner liable for a breach.

Ruling: No, The representation of Palasan, a mere clerk that the Lagrito had already approved the sale,
even if true, cannot bind the DBP to a contract of sale, it being obvious that such a clerk is not among the
bank officers upon whom such putative authority may be reposed, thus, no legal basis to bind petitioner
into any valid contract of sale, given the absolute absence of any approval or consent by any responsible
officer of petitioner bank. Sincem there is no perfected contract of sale between the parties, action for
breach of contract and/or specific performance cannot stand.

Issue: whether or not there actually was a perfected contract of sale between petitioner and respondents.

Ruling: No.
-Doctrine of Apparent Authority not applicable.
-it appears clear to us that the transaction between the respondents and the petitioner was limited to Palasan,
one of the clerks of petitioner's branch in Cagayan de Oro City. Lagrito, the branch manager, had no personal
or direct communication with respondents to express his alleged consent to the sale transaction. Thus, the
undisputed evidence showed that it was Palasan, a mere bank clerk, and not the branch manager himself
who assured respondents that theirs was a closed deal.
-Therefore, there is absolutely no approval whatsoever by any responsible bank officer of the petitioner.
True it is that the signature of branch manager Lagrito appears below the typewritten word "NOTED" at the
bottom of respondents' offer to purchase dated May 25, 1988. By no stretch of imagination, however, can
the mere "NOTING" of such an offer be taken to mean an approval of the supposed sale. Quite the
contrary, the very circumstance that the offer to purchase was merely "NOTED" by the branch manager and
not "approved", is a clear indication that there is no perfected contract of sale to speak of.
-The representation of Roy Palasan, a mere clerk at petitioner's Cagayan de Oro City branch, that the
manager had already approved the sale, even if true, cannot bind the petitioner bank to a contract of sale
with respondents, it being obvious to us that such a clerk is not among the bank officers upon whom such
putative authority may be reposed by a third party.

3. NPC v. Alonzo-Legasto
-NPC and FUCC entered into a contract for the construction of power facilities. FUCC requested NPC that it be
allowed to do blasting works and that it be paid P1,346.00 per cubic meter similar to the rate of NPCs project in
Palinpinon.
-In the meantime, by March 1993, the works in Botong area were in considerable delay. By May 1993, civil
works in Botong were kept at a minimum until on November 1, 1993, the entire operation in the area
completely ceased and FUCC abandoned the project.
-The NPC and FUCC entered into a Compromise Agreement and agreed that NPC will pay the undisputed
unpaid claims and that they will submit the agreement to an arbitration board to settle the amount to be paid.
-After the arbitration issued its ruling, NPC questioned the award which included the blasting works.
-Petitioner avers that FUCCs claim for blasting works was not approved by authorized officials in accordance
with Presidential Decree No. 1594 (P.D. 1594) and its implementing rules which specifically require the
approval of the extra work by authorized officials before an extra work order may be issued in favor of the
contractor.
-Thus, it should not be held liable for the claim. If at all, only the erring officials should be held liable.

15
Issue: WON NPC is bound to pay the additional work of FUCC.

Ruling: Yes. The officials exceed the scope of their authority when they authorized FUCC to commence
blasting works without an extra work order properly approved in accordance with P.D. 1594. Their acts cannot
bind petitioner unless it has ratified such acts or is estopped from disclaiming them. However, the
Compromise Agreement entered into by the parties, represented by its President acting pursuant to its Board
Resolution No. , is a confirmatory act signifying ratification of all the prior acts of its officers.
-unjust enrichment

4. Alba vs. Yupangco


-Plaintiff Alba and De Guzman led separate complaints for illegal dismissal and payment of retirement
bene ts against Y.L. Land Corporation and Ultra Motors Corporation, respectively.
- Defendant Yupangco was impleaded in his capacity as President of both corporations.
-the Labor Arbiter rendered judgment in favor of Plaintiff.
- Defendant by motion, challenged the impending sale of his club share, arguing, inter alia, that he should
not be held solidarily liable with his co-respondent corporations for the judgment obligation.
-On respondent's appeal, the NLRC, by Resolution of February 27, 2008, affirmed the Labor Arbiter's
Order.

Issue: WON Defendant Yupangco is solidary liable.

Ruling: NO
-There is solidary liability when the obligation expressly so states, when the law so provides, or when the
nature of the obligation so requires.
-MAM Realty Development Corporation v. NLRC, 5 on solidary liability of corporate of cers in
labor disputes, enlightens:
. . . A corporation being a juridical entity, may act only through its directors, of cers 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 of cers 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;
-In labor cases, for instance, the Court has held corporate directors and of cers solidarily liable with the
corporation for the termination of employment of employees done with malice or in bad faith.
-Decision of the Labor Arbiter, there is no nding or indication that petitioners' dismissal was effected with
malice or bad faith.Defendant’s liability could thus only be joint, not solidary.

5. Ever Electrical v. Samahang Manggagawa ng Ever Electrical


-EEMI suffered business losses because of the Asian Financial Crises and Orient Bank, an entity which it
invested a lot in, closed. As a result, it was not able to pay its loan to UCPB, hence UCPB foreclosed its
properties.
-EEMI wanted to lease these foreclosed properties for it to continue its operations, however, there is this policy
of UCPB which prohibits leases to previous debtors.
-Therefore, they mutually agreed to have an affiliate entity, EGO Electrical Supply, to lease those properties.
Then, EEMI continued operations. EEMI (with Go as the president), failed to pay rentals, hence an unlawful
detainer judgment was enforced and kicked EEMI out of the property.
-Hence,workers filed for illegal dismissal and benefits.

16
-The Labor Arbiter (LA) ruled that respondents were not illegally dismissed but ordered EEMI and its President,
Vicente Go to pay their employees separation pay and 13th month pay respectively.
-NLRC reversed LA and ruled that since EEMI cessation of business operation was due to serious business
losses, the employees were not entitled to separation pay. CA reinstated LA’s ruling.

Issue : WON the president is solidarily liable with the corporation.

Ruling : No. In the present case, Go may have acted in behalf of EEMI but the company failure to operate
cannot be equated to bad faith.
- Cessation of business operation is brought about by various causes like mismanagement, lack of demand,
negligence, or lack of business foresight.
- Unless it can be shown that the closure was deliberate, malicious and in bad faith, the Court must apply the
general rule that a corporation has, by law, a personality separate and distinct from that of its owners.
- As there is no evidence that Go, as EEMI President, acted maliciously or in bad faith in handling their
business affairs and in eventually implementing the closure of its business, he cannot be held jointly and
solidarily liable with EEMI.

Issue: Whether the the closure of EEMI operation was due to business losses?
Ruling: No
-Article 283 of the Labor Code identifies closure or cessation of operation of the establishment as an
authorized cause for terminating an employee. Similarly, the said provision mandates that employees who
are laid off from work due to closures that are not due to business insolvency should be paid separation pay
equivalent to one-month pay or to at least one-half month pay for every year of service, whichever is higher.
-the cessation of EEMI's business was not directly brought about by serious business losses or financial
reverses, but by reason of the enforcement of a judgment against it. Thus, EEMI should be required to pay
separation pay to its affected employees.

Additional Information:
Issue: WON Vicente Go solidarily liable with EEMI?
Ruling: No.
-As a general rule, corporate of cers should not be held solidarily liable with the corporation for
separation pay for it is settled that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any other legal entity to which
it may be related.
-Similarly, in the case at bench, the records do not warrant an application of the exception. The rule, which
requires the presence of malice or bad faith, must still prevail.
-In the recent case of Wensha Spa Center and/or Xu Zhi Jie v. Yung, the Court absolved the corporation's
president from liability in the absence of bad faith or malice. In the said case, the Court stated:
In labor cases, corporate directors and of cers may be held solidarily liable with the
corporation for the termination of employment only if done with malice or in bad faith. Bad
faith does not connote bad judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it means breach of a known duty through
some motive or interest or ill will; itpartakes of the nature of fraud.
-Unless it can be shown that the closure was deliberate, malicious and in bad faith, the Court must apply the
general rule that a corporation has, by law, a personality separate and distinct from that of its owners.
-As there is no evidence that Go, as EEMI's President, acted maliciously or in bad faith in handling their
business affairs and in eventually implementing the closure of its business, he cannot be held jointly and
solidarily liable with EEMI.

6. Expert Travel & Tours v. CA


-Korean Airlines (KAL) is a fcorporation licensed to do business in the Philippines.

17
-KAL, through appointed counsel (Aguinaldo), filed a complaint against Expert Travel with the RTC for the
collection of sum of money.
-The verification and certification against forum shopping was signed him, who indicated that he was the
resident agent and legal counsel of KAL and had caused the preparation of the complaint.
-Expert Travel filed a MtD the complaint on the ground that the appointed counsel was not authorized to
execute the verification and certificate of non-forum shopping as required by the Rules of Court.
-KAL opposed the motion, contending that he is a resident agent and was registered as such with the SEC as
required by the Corporation Code.
-He also claimed that he had been authorized to file the complaint through a resolution of the KAL BoD
approved during a special meeting, wherein the BoD conducted a special teleconference which he attended.
-It was also averred that in the same teleconference, the BoD approved a resolution authorizing him to execute
the certificate of non-forum shopping and to file the complaint.
-Kim (GM) alleged, however, that the corporation had no written copy of the aforesaid resolution.
TC denied MtD. CA affirms.

Issue: Whether or not the verification and certificate of non-forum shopping executed by Atty. Aguinaldo as the
resident agent and legal counsel of KAL (a corporation established and registered in the Republic of South
Korea and licensed to do business in the Philippine) was sufficient compliance with the Rules of Court.
Ruling: No.
-It is settled that the requirement to file a certificate of non-forum shopping is mandatory and that the failure to
comply with this requirement cannot be excused.
-In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf
of the said corporation, by a specifically authorized person, including its retained counsel, who has
personal knowledge of the facts required to be established by the documents.
-Physical acts, like the signing of documents, can be performed only by natural persons duly-authorized for the
purpose by corporate by-laws or by specific act of the board of directors.
- It was, thus, incumbent upon the respondent, as the plaintiff, to allege and establish that Atty.
Aguinaldo had such authority to execute the requisite verification and certification for and in its behalf.
The respondent, however, failed to do so.
-As gleaned from the aforequoted certification, there was no allegation that Atty. Aguinaldo had been
authorized to execute the certificate of non-forum shopping by the respondents Board of Directors;
moreover, no such board resolution was appended thereto or incorporated therein.

Additional Information:

ISSUE: Can a special teleconference be recognized as legitimate means to approved a board resolution and
authorize an agent to execute an act in favor of the corporation?

Ruling: YES.
-In this age of modern technology, the courts may take judicial notice that business transactions may be made
by individuals through teleconferencing. teleconferencing and videoconferencing of members of BoD of private
corporations is a reality, in light of RA No. 8792.
- The SEC issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be
complied with related to such conferences. HOWEVER, in the case at bar, even given the possibility that Atty.
Aguinaldo and Suk Kyoo Kim participated in a teleconference along with the BoD, the Court is not convinced
that one was conducted; even if there had been one, the Court is not inclined to believe that a board resolution
was duly passed specifically authorizing Aguinaldo to file the complaint and execute the required certification
against forum shopping.
- Facts and circumstances show that there was gross failure on the part of company to prove that there was
indeed a special teleconference such as failure to produce a written copy of the board resolution via
teleconference.

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7. Tan v. Sycip
-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, there were only 11 living member-trustees, as 4 have already died.
-Out of the 11, 7 attended the meeting through their respective proxies. The meeting was convened and
chaired by Atty. Padilla Jr. over the objection of Atty. Pacis, who argued that there was no quorum.
-In the meeting, Petitioners Ernesto Tanchi,Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace
the four deceased member-trustees.
-The controversy reached SEC and the petitioners maintained that the deceased member-trustees should not
be counted in the computation of the quorum because, upon their death, members automatically lost all their
rights (including the right to vote) and interests in the corporation.
-SEC declared the meeting null and void and ruled that thephrase “entitled to vote” under Sec 24 should be
read with Sec 89 of Corpo Code.

Issue: WON dead members should still be counted in determination of quorum for conducting the Annual
Members’ Meeting.

Ruling: No.
- 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. Under the By-Laws of GCHS, membership in the corporation shall,
among others, be terminated by the death of the member.
-Sec 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, we 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 6.
-Therefore, there being a quorum, the annual members meeting, conducted with six members present, was
valid.
-However, the election of the four trustees cannot be legally upheld for the obvious reason that it was held in
an annual meeting of the members, not of the board of trustees. GCHS bylaw provision, which specifically
prescribes that vacancies in the board must be filled up by the remaining trustees.

Additional Information:
Main Issue:
Basis for Quorum

Section 52 of the Corporation Code states:

Section 52. Quorum in Meetings. Unless otherwise provided for in this Code or in the by-laws, a
quorum shall consist of the stockholders representing a majority of the outstanding capital stock
or a majority of the members in the case of non-stock corporations.

In stock corporations, the presence of a quorum is ascertained and counted on the basis of
the outstanding capital stock.

The Right to Vote in


Stock Corporations

The right to vote is inherent in 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 stockholders
meeting, or whether a requisite proportion of the stock of the corporation is voted to adopt a certain measure or
19
act. Only stock actually issued and outstanding may be voted. Under Section 6 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.

Neither the stockholders nor the corporation can vote or represent shares that have never
passed to the ownership of stockholders; or, having so passed, have again been purchased by the
corporation. These shares are not to be taken into consideration in determining majorities. When the law
speaks of a
given proportion of the stock, it must be construed to mean the shares that have passed from the corporation,
and that may be voted.

The Right to Vote in


Nonstock Corporations

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. We 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.

Effect of the Death


of a Member or Shareholder

In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a
shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to
the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of the
decedent are held by the administrator or executor.

On the other hand, membership in and all rights arising from a nonstock corporation are
personal and non-transferable, unless the articles of incorporation or the bylaws of the corporation
provide otherwise. In other words, the determination of whether or not dead members are entitled to
exercise their voting rights (through their executor or administrator), depends on those articles of
incorporation or bylaws.

Under the By-Laws of GCHS, membership in the corporation shall, among others, 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, we 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 6. Therefore, there
being a quorum, the annual members meeting, conducted with six members present, was valid.

Vacancy in the
Board of Trustees

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As regards the filling of vacancies in the board of trustees, Section 29 of the Corporation Code provides:

SECTION 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 for the unexpired term of his predecessor in office.

Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still
constitute a quorum. The phrase may be filled in Section 29 shows that the filling of vacancies in the
board by the remaining directors or trustees constituting a quorum is merely permissive, not
mandatory. Corporations, therefore, may choose how vacancies in their respective boards may be
filled up -- either by the remaining directors constituting a quorum, or by the stockholders or members
in a regular or special meeting called for the purpose.

The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of
directors; that is, by a majority vote of the remaining members of the board.

While a majority of the remaining corporate members were present, however, the election of the
four trustees cannot be legally upheld for the obvious reason that it was held in an annual meeting of
the members, not of the board of trustees. We are not unmindful of the fact that the members of GCHS
themselves also constitute the trustees, but we cannot ignore the GCHS bylaw provision, which specifically
prescribes that vacancies in the board must be filled up by the remaining trustees. In other words, these
remaining member-trustees must sit as a board in order to validly elect the new ones.

Indeed, there is a well-defined distinction between a corporate act to be done by the board and that by
the constituent members of the corporation. The board of trustees must act, not individually or separately,
but as a body in a lawful meeting. On the other hand, in their annual meeting, the members may be
represented by their respective proxies, as in the contested annual members meeting of GCHS.

8. Reyes and Pastor vs. Bancom Development Corp.


-The dispute in this case originated from a Continuing Guaranty executed in favor of respondent Bancom by
two petitioners herein and etc or the (the Reyes Group).
-In the instrument, the Reyes Group agreed to guarantee the full and due payment of obligations incurred by
Marbella under an Underwriting Agreement with Bancom.
-It appears from the records that Marbella was unable to pay back the notes at the time of their maturity.
-Because of Marbella's continued failure to pay back the loan despite repeated demands, Bancom filed a
Complaint for Sum of Money before the RTC of Makati. This was instituted against (a) Marbella as principal
debtor; and (b) the individuals comprising the Reyes Group as guarantors of the loan.
-In their defense, Marbella and the Reyes Group argued that they had been forced to execute the Promissory
Notes and the Continuing Guaranty against their will.
-They also alleged that the foregoing instruments should be interpreted in relation to earlier contracts
pertaining to the development of a condominium project known as Marbella II.
-The Marbella II contracts were entered into by Bancom; the Reyes Group, as owners of the parcel of land to
be utilized for the condominium project along Roxas Boulevard; and Fereit Realty Development Corporation
(Fereit), a sister company of Bancom, as the construction developer and project manager. 12 This venture,
however, soon encountered financial difficulties. As a result, the Reyes Group was allegedly forced to enter

21
into a Memorandum of Agreement to take on part of the loans obtained by F ereit from Bancom for the
development of the project.
-RTC ruled in favor of Bancom which was affirmed by the CA.
-in the SC, Petitioners contended that the action must be considered abated pursuant to Section 122 of the
Corporation Code. They pointed out that the Certificate of Registration issued to Bancom had been revoked by
the Securities and Exchange Commission (SEC) on 31 May 2004, and that no trustee or receiver had been
appointed to continue the suit. in fact, even Bancom's former counsel was compelled to withdraw its
appearance from the case, as it could no longer contact the corporation.

Issue: Whether the present suit should be deemed abated by the revocation by the SEC of the Certificate of
Registration issued to Bancom.
Ruling: No.
-The revocation of Bancom 's Certificate of Registration does not justify
the abatement of these proceedings.

General Rule
-Section 122 of the Corporation Code provides that a corporation whose charter is annulled, or whose
corporate existence is otherwise terminated, may continue as a body corporate for a limited period of three
years, but only for certain specific purposes enumerated by law. These include the prosecution and defense
of suits by or against the corporation, and other objectives relating to the settlement and closure of corporate
affairs.
-Based on the provision, a defunct corporation loses the right to sue and be sued in its name upon the
expiration of the three-year period provided by law.36 Jurisprudence, however, has carved out an exception to
this rule. In several cases, this Court has ruled that an appointed receiver,37 an assignee,38 or a trustee39 may
institute suits or continue pending actions on behalf of the corporation, even after the winding-up period.
-Here, it appears that the SEC revoked the Certificate of Registration issued to Bancom on 26 May
2003.44 Despite this revocation, however, Bancom does not seem to have conveyed its assets to trustees
or to its stockholders and creditors. The corporation has also failed to appoint a new counsel after the law
firm formerly representing it was allowed to withdraw its appearance on 1 June 2004. Citing these
circumstances, petitioners assert that these proceedings should be considered abated.
SC RULING
-It is evident from the foregoing discussion of law and jurisprudence that the mere revocation of the charter
of a corporation does not result in the abatement of proceedings. Since its directors are considered trustees
by legal implication,45 the fact that Bancom did not convey its assets to a receiver or assignee was of no
consequence. It must also be emphasized that the dissolution of a creditor-corporation does not extinguish
any right or remedy in its favor. Section 145 of the Corporation Code is explicit on this point:
Sec. 145. Amendment or repeal. - No right or remedy in favor of or against
any corporation, its stockholders, members, directors, trustees, or officers, nor any
liability incurred by any such corporation, stockholders, members, directors, trustees,
or officers, shall be removed or impaired either by the subsequent dissolution of said
corporation or by any subsequent amendment or repeal of this Code or of any part
thereof. (Emphasis supplied)
-As a necessary consequence of the above rule, the corresponding liability of the debtors of a dissolved
corporation must also be deemed subsisting. To rule otherwise would be to sanction the unjust enrichment of
the debtor at the expense of the corporation.
Issue: Whether the CA correctly ruled that petitioners are liable to Bancom for (a) the payment of the loan
amounts indicated on the Promissory Notes issued by Marbella.
Ruling: Yes.
22
As guarantors of the loans of Marbella, petitioners are liable to
Bancom.
-Having executed a Continuing Guaranty in favor of Bancom, petitioners are solidarily liable with Marbella for
the payment of the amounts indicated on the Promissory Notes.
-As to petitioners, the Continuing Guaranty evidently binds them to pay Bancom the amounts indicated on the
original set of Promissory Notes, as well as any and all instruments issued upon the renewal, extension,
amendment or novation thereof.
-Marbella, in turn, was granted the right to collect reimbursement from Fereit, an entirely distinct entity. While
it was averred that Bancom had complete control of Fereit's assets and activities, we note that no sufficient
evidence was presented in support of this assertion.

9. International Acedemy of Management and Economics(I/AME) vs Liton and Company Inc.


-Atty. Emmanuel T. Santos (Santos), a lessee to two (2) buildings owned by Litton, owed the latter rental
arrears as well as his share of the payment of realty ta:xes.
-Consequently, Litton filed a complaint for unlawful detainer against Santos before the MeTC of Manila. The
MeTC ruled in Litton's favor and ordered Santos to vacate A.l.D. Building and Litton Apartments and to pay
variou~ surris of money representing unpaid arrears, realty taxes, penalty, and attorney's fees.
-the sheriff of the MeTC of Manila levied on a piece of real property covered by Transfer Certificate of Title
(TCT) No. 187565 and registered in the name of International Academy of Management and Economics
Incorporated (I/AME), in order to execute the judgment against Santos. 11 The annotations on TCT No.
187565 indicated that such was "only up to the extent ofthe share of Emmanuel T. Santos. "
-IIAME filed with Me TC a "Motion to Lift or Remove Annotations Inscribed in TCT No. 187565 of the Register
of Deeds of Makati City." 13 I/AME claimed tha~ it has a separate and distinct personality from Santos
-MTC denied Motion but reversed (in favor of I/AME). RTC reversed. CA affirmed.
-In SC, It argues that since it was not impleaded in the main case, the court a quo never acquired jurisdiction
over it.
-Petitioner I/AME argues that the doctrine of piercing the corporate veil applies only to stock corporations, and
not to non-stock, nonprofit corporations such as I/AME since there are no stockholders to hold liable in such a
situation but instead only members.
-The petitioner also insists that the piercing of the corporate veil cannot be applied to a natural person - in this
case, Santos - simply because as a human being, he has no corporate veil shrouding or covering his person.

1. Issue: WON there was denial of due process when the court pierced the corporate veil of I/ AME and its
property was made to answer for the liability of Santos.
Ruling: No.
-GR: The piercing of the corporate veil is premised on the fact that the corporation concerned must have been
properly served with summons or properly subjected to the jurisdiction of the court a quo. Corollary thereto, it
cannot be subjected to a writ of execution meant for another in violation of due process.
-There exists, however, an exception to this rule: if it is shown "by clear and convincing proof that the separate
and distinct personality of the corporation was purposefully employed to evade a legitimate and binding
commitment and perpetuate a fraud or like wrongdoings. "

-The Court agrees with the CA that Santos used I/AME as a means to defeat judicial processes and to evade
his obligation to Litton.30 Thus, even while I/AME was not imp leaded in the main case and yet was so named
in a writ of execution to satisfyagainstcourt judgment Santos, it is vulnerable to the piercing of its corporate veil.
We will further expound on this matter.
2. Issue: WON doctrine of piercing the corporate veil applies only to stock corporations, and not to non-stock,
nonprofit corporations such as I/AME since there are no stockholders to hold liable in such a situation but
instead only members.
Ruling: No.
23
-In the United States, from which we have adopted our law on corporations, non-profit corporations are not
immune from the doctrine of piercing the corporate veil. Their courts view piercing of the corporation as an
equitable remedy, which justifies said courts to scrutm1ze any organization however organized and in
whatever manner it operates. Moreover, control of ownership does not hinge on stock ownership.
Doctrine:
The concept of equitable ownership, for stock or non-stock corporations, in piercing of the corporate veil
scenarios, may also be considered. An equitable owner is an individual who is a non-shareholder
defendant, who exercises sufficient control or considerable authority over the corporation to the point
of completely disregarding the corporate form and acting as though its assets are his or her alone to
manage and distribute.
3. Issue: WON piercing of the corporate veil cannot be applied to a natural person - in this case, Santos -
simply because as a human being, he has no corporate veil shrouding or covering his person.
Ruling: No.
a) When the Corporation is the Alter Ego of a Natural Person

As cited in Sula ng Bayan, Inc. v. Araneta, Inc. ,40 "[t]he doctrine of alter ego is based upon the
misuse of a corporation by an individual for wrongful or inequitable purposes, and in such case the
court merely disregards the corporate entity and holds the individual responsible for acts knowingly
and intentionally done in the name of the corporation." This, Santos has done in this case. Santos
formed I/AME, using the non-stock corporation, to evade paying his judgment creditor, Litton.
The piercing of the corporate veil may apply to corporations as well as natural persons
involved with corporations. This Court has held that the "corporate mask may be lifted and the
corporate veil may be pierced when a corporation is just but the alter ego of a person or of another
corporation."41
This Court agrees with the CA that I/AME is the alter ego of Santos and Santos - the natural
person - is the alter ego of IIAME. Santos falsely represented himself as President of IIAME in the
Deed of Absolute Sale when he bought the Makati real property, at a time when I/ AME had not yet
existed. Uncontroverted facts in this case also reveal the findings of Me TC showing Santos and I/
AME as being one and the same person:

( 1) Santos is the conceptualizer and implementor of IIAME;

(2) Santos' contribution is Pl,200,000.00 (One Million Two Hundred Thousand


Pesos) out of the Pl,500,000.00 (One Million Five Hundred Thousand Pesos), making
him the majority contributor of I/AME; and,

(3) The building being occupied by I/AME is named after


Santos using his known nickname (to date it is called, the "Noli Santos Inte1national Tower").

Reverse Piercing of the Corporate Veil


-Outsider reverse veil-piercing is applicable in the instant case. Litton, as judgment creditor, seeks the
Court's intervention to pierce the corporate veil of I/AME in order to make its Makati real property answer for
a judgment against Santos, who formerly owned and still substantially controls I/AME.
-"Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing) and makes the
corporation liable for the debt of the shareholders."51
-It has two (2) types: outsider reverse piercing and insider reverse piercing. Outsider reverse piercing occurs
when a party with a claim against an individual or corporation attempts to be repaid with assets of a
corporation owned or substantially controlled by the defendant. In contrast, in insider reverse piercing, the

24
controlling members will attempt to ignore the corporate fiction in order to take advantage of a benefit
available to the corporation, such as an interest in a lawsuit or protection of personal assets.
Another Issue: Execution of Judgment
In the instant case, it may be possible for this Court to recommend that Litton run after the other properties
of Santos that could satisfy the money judgment - first personal, then other real properties other than that
of the school. However, if we allow this, we frustrate the decades-old yet valid MeTC judgment which levied
on the real property now titled under the name of the school. Moreover, this Court will unwittingly condone
the action of Santos in hiding all these years behind the corporate form to evade paying his obligation
under the judgment in the court a quo. This we cannot without countenance being a party to the
injustice.
-Thus, the reverse piercing of the corporate veil of I/AME to enforce the levy on execution of the Makati real
property where the school now stands is applied.

25