1

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT VS.

SANDIGANBAYAN
G.R. Nos. 119609-10

FACTS OF THE CASE:

On August 28, 1990, PCGG sent Corporate Secretary

Victor A. Africa of Oceanic Wireless Network, Inc. (OWNI), a letter
dated August 3, 1990, directing him to send notices to all
stockholders of record of OWNI for special stockholders' meeting.
On September 17, 1990,during the special stockholders' meeting
of OWNI, PCGG voted all the Class "A" shares in the election of
directors and elected to the board of directors Commissioners
Maceren, Parlade and Gutierrez representing the Class "A" shares
and Brooker and Miller representing Class "B" and "C" shares.
None of the registered Class "A" shareholders of OWNI was
present in that, specialstockholders meeting. PCGG sequestered
the Class "A" shareholding about 60% of theoutstanding capital
stock, and PCGG voted all the Class "A" shares.

On October 9, 1990, Corporate Secretary Africa wrote

the SEC questioning the electionof PCGG nominees as directors
of the OWNI board on the ground that they were not stockholders
of OWNI.

On January 27, 1991, the special stockholders' meeting of OWNI

took place.Stockholders owning 63,573 Class "A" shares were
represented. An election of directors for Class "A" shares was held.
Nieto, Jr., J. Africa and A. Africa were elected as directors for
Class"A" shares for 1991 until their successors are elected and
qualified. Class "B" and "C"shareholders did not attend the
meeting. No new directors for them were elected.

On July 29, 1991, PCGG, acting for itself and in behalf of OWNI,
filed with theSandiganbayan a complaint for injunction with
damages against V. Africa, J. Africa, Nieto, Jr. and Ocampo. PCGG
sought to enjoin the defendants from interfering with PCGG's
management of OWNI and/or representing themselves as director.

ISSUE:

Whether or not the PCGG's takeover of OWNI is legal.

HELD:

NO. In PCGG v. Cojuanco, Jr ., the Court ruled that who

should vote the sequestered shares requires the determination of
the ill-gotten character of those shares and consequently the
rightful ownership thereof. The issue was still pending in the main
case in the Sandiganbayan. This is only an incident of the main
case and is limited to the stockholders' meeting held on September
17, 1990. This is without prejudice to the final disposition of the
merits of the main suit. The ownership of the shares is still under
litigation. It is not known whether the shares are part of the ill-gotten
wealth of former President Marcos and his "cronies."
We find the writ of sequestration issued against OWNI
not valid because the suit in Civil Case No. 0009 against Nieto, Jr.
and J. Africa as shareholders in OWNI is not a suit against OWNI.
This Court has held that "failure to implead these corporations as
defendants and merely annexing a list of such corporations to the
complaints is a violation of their right to due process for it would in
effect be disregarding their distinct and separate personality
without a hearing.

Furthermore, PCGG issued the writs of sequestration on

August 3, 1988, which was beyond the period set by the
Constitution. Article XVIII, Section 26, of the 1987 Constitution
provides.

Sec. 26.The authority to issue sequestration or freeze

orders under Proclamation No. 3dated March 25, 1986 in relation
to the recovery of ill-gotten wealth shall remain operative for not
more than eighteen months after the ratification of this Constitution.
However, in the national interest, as certified by the President, the
Congress may extend said period.

A sequestration or freeze order shall be issued only upon

showing of a prima facie case. The order and the list of the
sequestered or frozen properties shall forthwith be registered with
the proper court. For orders issued before the ratification of this
Constitution, the corresponding judicial action or proceeding shall
be filed within six months from its ratification. For those issued after
such ratification, the judicial action or proceeding shall be
commenced within six months from the issuance thereof.

The sequestration or freeze order is deemed

automatically lifted if no judicial action or proceeding is commenced
as herein provided.

The sequestration orders issued against respondents shall be

deemed automatically lifted due to the failure of PCGG to
commence the proper judicial action or to implead the respondents
therein within the period prescribed by Article XVIII, Section 26 of
the 1987 Constitution.

The lifting of the writs of sequestration will not necessarily be

fatal to the main case since the lifting of the subject orders does
not ipso facto mean that the sequestered property are not ill-gotten.
The effect of the lifting of the sequestration against OWNI will
merely be the termination of the role of the government as
conservator thereof. In other words, the PCGG may no longer
exercise administrative or housekeeping powers and its nominees
may no longer vote the sequestered shares to enable them to sit
on the corporate board of the subject firm.

2
590 SCRA 633 GR 178520 June 23, 2009
AMA Computer-College-East Rizal vs. Ignacio, 590 SCRA 633, June 23, 2009

3
470 SCRA 86 GR 140923 September 16, 2005
Mendoza vs. Banco Real Development Bank, 470 SCRA 86, September 16, 2005

4
593 SCRA 565 GR 178760 July 23, 2009
Dy-Dumalasa vs. Fernandez, 593 SCRA 565, July 23, 2009

FACTS: Domingo Fernandez, et al., former employees of Helios

Manufacturing Corporation (HELIOS), filed a complaint for illegal
dismissal or illegal closure of business, non-payment of salaries
and other money claims against HELIOS. The Labor Arbiter found
that the closure of the Muntinlupa office/plant was a sham, as
HELIOS simply relocated its operations to a new plant in Carmona,
Cavite under the new name of ―Pat & Suzara,‖ in response to the
newly-established local union. HELIOS and it Board of Directors
and stockholders were held liable.

The NLRC modified the Labor Arbiter’s Order, holding that

Dumalasa is not jointly and severally liable with HELIOS for
Fernandez, et al.’s claim, there being no showing that she acted in
bad faith nor that HELIOS cannot pay its obligations. Dumalasa
moved for reconsideration, but this was denied, hence, she
appealed to the Court of Appeals.

The appellate court reversed and set aside the NLRC Resolution,
holding that what the NLRC, in effect, modified was not the Order
denying the Motion to Quash the Writ of Execution, but the Labor
Arbiter’s Decision itself. This is an impermissible act since the
Decision has become final and executor; hence, it could no longer
be reversed or modified.

Respecting NLRC’s pronouncement that Dumalasa was not jointly

and severally liable, the appellate court held that the same is a
superfluity since there was no statement, either in the main case or
in the Writ, that the liability is solidary. Therefore, Dumalasa is
merely jointly liable for the judgment award. Dumalasa moved for
reconsideration of the appellate court’s Decision, which was
denied. Hence, this petition.

ISSUES:
Whether or not the Labor Arbiter acquired jurisdiction over
Dumalasa
Whether or not Dumalasa is solidarily liable with HELIOS for the
judgment award
HELD: Contrary to Dumalasa’s contention, the Labor Arbiter
acquired jurisdiction over her person regardless of the fact that
there was allegedly no valid service of summons. It bears noting
that, in quasi-judicial proceedings, procedural rules governing
service of summons are not strictly construed. Substantial
compliance therewith is sufficient. In the cases at bar, Dumalasa,
her husband and three other relatives, were all individually
impleaded in the complaint. The Labor Arbiter furnished her with
notices of the scheduled hearings and other processes. It is
undisputed that HELIOS, of which she and her therein co-
respondents in the subject cases were the stockholders and
managers, was in fact heard, proof of which is the attendance of
her husband, President-General Manager of HELIOS, together
with counsel in one such scheduled hearing and the Labor Arbiter’s
consideration of their position paper in arriving at the Decision,
albeit the same position paper was belatedly filed.

Clearly, Dumalasa was adequately represented in the proceedings

conducted by the Labor Arbiter by the lawyer retained by HELIOS.

Taking into account the peculiar circumstances of the cases,

HELIOS’ knowledge of the pendency thereof and its efforts to resist
them are deemed to be knowledge and action of petitioner. That
Dumalasa and her fellow members of the Board refused to heed
the summons and avail of the opportunity to defend themselves as
they instead opted to hide behind the corporate veil does not shield
them from the application of labor laws.

Dumalasa cannot now thus question the implementation of the Writ

of Execution on her on the pretext that jurisdiction was not validly
acquired over her person or that HELIOS has a separate and
distinct personality as a corporate entity. To apply the normal
precepts on corporate fiction and the technical rules on service of
summons would be to overturn the bias of the Constitution and the
laws in favor of labor.

On Carmen’s liability

A perusal of the Labor Arbiter’s Decision readily shows that,

notwithstanding the finding of bad faith on the part of the
management, the dispositive portion did not expressly mention the
solidary liability of the officers and Board members, including
Dumalasa.

Ineluctably, absent a clear and convincing showing of the bad faith

in effecting the closure of HELIOS that can be individually attributed
to petitioner as an officer thereof, and without the pronouncement
in the Decision that she is being held solidarily liable, petitioner is
only jointly liable.

The Court in fact finds that the present action is actually a last-ditch
attempt on the part of Dumalasa to wriggle its way out of her share
in the judgment obligation and to discuss the defenses which she
failed to interpose when given the opportunity. Even as Dumalasa
avers that she is not questioning the final and executory Decision
of the Labor Arbiter and admits liability, albeit only joint, still, she
proceeds to interpose the defenses that jurisdiction was not
acquired over her person and that HELIOS has a separate juridical
personality.

As for Dumalasa’s questioning the levy upon her house and lot, she
conveniently omits to mention that the same are actually conjugal
property belonging to her and her husband. Whether petitioner is
jointly or solidarily liable for the judgment obligation, the levied
property is not fully absolved from any lien except if it be shown
that it is exempt from execution.

FACTS
Domingo Fernandez, et al., former employees of Helios Manufacturing Corporation
(HELIOS), filed a complaint for illegal dismissal or illegal closure of business, non-
payment of salaries and other money claims against HELIOS. The Labor Arbiter found
that the closure of the Muntinlupa office/plant was a sham, as HELIOS simply relocated
its operations to a new plant in Carmona, Cavite under the new name of ―Pat & Suzara,‖
in response to the newly-established local union. HELIOS and it Board of Directors and
stockholders were held liable.

The NLRC modified the Labor Arbiter’s Order, holding that Dumalasa is not jointly and
severally liable with HELIOS for Fernandez, et al.’s claim, there being no showing that
she acted in bad faith nor that HELIOS cannot pay its obligations. Dumalasa moved for
reconsideration, but this was denied, hence, she appealed to the Court of Appeals.

The appellate court reversed and set aside the NLRC Resolution, holding that what the
NLRC, in effect, modified was not the Order denying the Motion to Quash the Writ of
Execution, but the Labor Arbiter’s Decision itself. This is an impermissible act since the
Decision has become final and executor; hence, it could no longer be reversed or
modified.

Respecting NLRC’s pronouncement that Dumalasa was not jointly and severally liable,
the appellate court held that the same is a superfluity since there was no statement, either
in the main case or in the Writ, that the liability is solidary. Therefore, Dumalasa is merely
jointly liable for the judgment award. Dumalasa moved for reconsideration of
the appellate court’s Decision, which was denied. Hence, this petition.

ISSUES:
1.) Whether or not the Labor Arbiter acquired jurisdiction over Dumalasa
2.) Whether or not Dumalasa is solidarily liable with HELIOS for the judgment award

HELD:
Contrary to Dumalasa’s contention, the Labor Arbiter acquired jurisdiction over her
person regardless of the fact that there was allegedly no valid service of summons. It bears
noting that, in quasi-judicial proceedings, procedural rules governing service of summons
are not strictly construed. Substantial compliance therewith is sufficient. In the cases
at bar, Dumalasa, her husband and three other relatives, were all individually impleaded
in the complaint. The Labor Arbiter furnished her with notices of the scheduled hearings
and other processes. It is undisputed that HELIOS, of which she and her therein co-
respondents in the subject cases were the stockholders and managers, was in fact heard,
proof of which is the attendance of her husband, President-General Manager of HELIOS,
together with counsel in one such scheduled hearing and the Labor Arbiter’s
consideration of their position paper in arriving at the Decision, albeit the same
position paper was belatedly filed.

Clearly, Dumalasa was adequately represented in the proceedings conducted by the

Labor Arbiter by the lawyer retained by HELIOS. Taking into account the peculiar
circumstances of the cases, HELIOS’ knowledge of the pendency thereof and its efforts to
resist them are deemed to be knowledge and action of petitioner. That Dumalasa and her
fellow members of the Board refused to heed the summons and avail of the opportunity
to defend themselves as they instead opted to hide behind the corporate veil does not
shield them from the applicationof labor laws.

Dumalasa cannot now thus question the implementation of the Writ of Execution on her
on the pretext that jurisdiction was not validly acquired over her person or that HELIOS
has a separate and distinct personality as a corporate entity. To apply the normal precepts
on corporate fiction and the technical rules on service of summons would be to overturn
the bias of the Constitution and the laws in favor of labor.

On Carmen’s liability, a perusal of the Labor Arbiter’s Decision readily shows that,
notwithstanding the finding of bad faith on the part of the management, the dispositive
portion did not expressly mention the solidary liability of the officers and Board
members, including Dumalasa.

Ineluctably, absent a clear and convincing showing of the bad faith in effecting the closure
of HELIOS that can be individually attributed to petitioner as an officer thereof, and
without the pronouncement in the Decision that she is being held solidarily liable,
petitioner is only jointly liable.

The Court in fact finds that the present action is actually a last-ditch attempt on the part
of Dumalasa to wriggle its way out of her share in the judgment obligation and to discuss
the defenses which she failed to interpose when given the opportunity. Even as
Dumalasa aversthat she is not questioning the final and executory Decision of the
Labor Arbiter and admits liability, albeit only joint, still, she proceeds to interpose the
defenses that jurisdiction was not acquired over her person and that HELIOS has a
separate juridical personality.

As for Dumalasa’s questioning the levy upon her house and lot, she conveniently omits to
mention that the same are actually conjugal property belonging to her and her husband.
Whether petitioner is jointly or solidarily liable for the judgment obligation, the levied
property is not fully absolved from any lien except if it be shown that it is exempt from
execution.

5
450 SCRA 169 GR 124293 January 31, 2005

JG Summit Holdings, Inc. vs. Court of Appeals, 345 SCRA 143, November 20, 2000
Facts:
On January 27, 1997, the National Investment and
Development Corporation (NIDC), a government corporation,
entered into a Joint Venture Agreement (JVA) with Kawasaki
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the
construction, operation and management of the Subic National
Shipyard, Inc. (SNS) which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO). Under
the JVA, the NIDC and KAWASAKI will contribute P330
million for the capitalization of PHILSECO in the proportion of
60%-40% respectively. One of its salient features is the grant
to the parties of the right of first refusal should either of them
decide to sell, assign or transfer its interest in the joint venture.
On November 25, 1986, NIDC transferred all its rights, title
and interest in PHILSECO to the Philippine National Bank
(PNB). Such interests were subsequently transferred to the
National Government pursuant to Administrative Order No. 14.
On December 8, 1986, President Corazon C. Aquino issued
Proclamation No. 50 establishing the Committee on Privatization
(COP) and the Asset Privatization Trust (APT) to take title to,
and possession of, conserve, manage and dispose of non-
performing assets of the National Government. Thereafter, on
February 27, 1987, a trust agreement was entered into
between the National Government and the APT wherein the latter
was named the trustee of the National Government's share in
PHILSECO. In 1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to PNB, the National
Government's shareholdings in PHILSECO increased to
97.41% thereby reducing KAWASAKI's shareholdings to 2.59%.
In the interest of the national economy and the government,
the COP and the APT deemed it best to sell the National
Government's share in PHILSECO to private entities. After a
series of negotiations between the APT and KAWASAKI, they
agreed that the latter's right of first refusal under the JVA be
"exchanged" for the right to top by five percent (5%) the highest
bid for the said shares. They further agreed that KAWASAKI
would be entitled to name a company in which it was a stockholder,
which could exercise the right to top. On September 7, 1990,
KAWASAKI informed APT that Philyards Holdings, Inc.
(PHI)1would exercise its right to top.
On 29 December 1993, JGSMI informed the APT that it was
protesting the offer of PHI to top its bid on the grounds that:
(a) the Kawasaki/PHI consortium composed of Kawasaki,
Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life
violated the ASBR because the last four (4) companies were
the losing bidders (for P1.528 billion) thereby circumventing the
law and prejudicing the weak winning bidder; (b) only Kawasaki
could exercise the right to top; (c) giving the same option to top to
PHI constituted unwarranted benefit to a third party; (d) no right of
first refusal can be exercised in a public bidding or auction sale,
and (e) the JG Summit Consortium was not estopped
from questioning the proceedings. On 2 February 1994, JGSMI
was notified that PHI had fully paid the balance of the purchase
price of the subject bidding. On 7 February 1994, the APT
notified JGSMI that PHI had exercised its option to top the highest
bid and that the COP had approved the same on 6 January 1994.
On 24 February 1994, the APT and PHI executed a Stock
Purchase Agreement. Consequently, JGSMI filed with the
Supreme Court a petition for mandamus under GR 114057. On 11
May 1994, said petition was referred to the Court of Appeals.
On 18 July 1995, the Court of Appeals "denied" for lack of merit
the petition for mandamus. JGSMI filed a motion for the
reconsideration of said Decision which was denied on 15
March 1996. JGSMI filed the petition for review on certiorari.
Issue:
Whether PHILSECO, as a shipyard, is a public utility and,
hence, could be operated only by a corporation at least 60% of
whose capital is owned by Filipino citizens, in accordance with
Article XII, Section 10 of the Constitution.
Ruling:
A shipyard such as PHILSECO being a public utility as provided by
law, Section 11 of the Article XII of the Constitution applies.
The provision states that "No franchise, certificate, or any other
form of authorization for the operation of a public utility shall
be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned
by such citizens, nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period
than fifty years. Neither shall any such franchise or right be granted
except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good
so requires.
The State shall encourage equity participation in public utilities
by the general public. The participation of foreign investors in
the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or
association shall be citizens of the Philippines." The progenitor
of this constitutional provision, Article XIV, Section 5 of the 1973
Constitution, required the same proportion of 60% -40%
capitalization.
The JVA between NIDC and Kawasaki entered into on 27 January
1977 manifests the intention of the parties to abide by the
constitutional mandate on capitalization of public utilities. The
joint venture created between NIDC and Kawasaki falls within
the purview of an "association" pursuant to Section 5 of Article
XIV of the 1973 Constitution and Section 11 of Article XII of
the 1987 Constitution. Consequently, a joint venture that would
engage in the business of operating a public utility, such as a
shipyard, must observe the proportion of 60%-40% Filipino-
foreign capitalization. Further, paragraph 1.4 of the JVA
accorded the parties the right of first refusal "under the same
terms." This phrase implies that when either party exercises the
right of first refusal under paragraph 1.4, they can only do so to the
extent allowed them by paragraphs 1.2 and 1.3 of the JVA or under
the proportion of 60%-40% of the shares of stock. Thus, should the
NIDC opt to sell its shares of stock to a third party, Kawasaki
could only exercise its right of first refusal to the extent that
its total shares of stock would not exceed 40% of the entire
shares of stock of SNS or PHILSECO.
The NIDC, on the other hand, may purchase even beyond
60% of the total shares. As a government corporation and
necessarily a 100% Filipino-owned corporation, there is nothing
to prevent its purchase of stocks even beyond 60% of the
capitalization as the Constitution clearly limits only foreign
capitalization. Kawasaki was bound by its contractual obligation
under the JVA that limits its right of first refusal to 40% of
the total capitalization of PHILSECO.
Thus, Kawasaki cannot purchase beyond 40% of the capitalization
of the joint venture on account of both constitutional and
contractual proscriptions. From the facts on record, it appears that
at the outset, the APT and Kawasaki respected the 60%-40%
capitalization proportion in PHILSECO.
However, APT subsequently encouraged Kawasaki to
participate in the public bidding of the National
Government's shareholdings of 87.67% of the total PHILSECO
shares, definitely over and above the 40% limit of its shareholdings.
In so doing, the APT went beyond the ambit of its authority.
FACTS:

National Investment and Development Corporation (NIDC) and

Kawasaki Heavy Industries entered into a Joint Venture Agreement
in a shipyard business named PHILSECO, with a shareholding of
60-40 respectively. NIDC’s interest was later transferred to the
National Government.

Pursuant to President Aquino’s Proclamation No.5, which

established the Committee on Privatization (COP) and Asset
Privatization Trust (APT), and allowed for the disposition of the
government’s non-performing assets, the latter allowed Kawasaki
Heavy Industries to choose a company to which it has
stockholdings, to top the winning bid of JG Summit Holdings over
PHILSECO. JG Summit protested alleging that such act would
effectively increase Kawasaki’s interest in PHILSECO—a shipyard
is a public utility–and thus violative of the Constitution.

ISSUE:
Whether or not respondents’ act is valid.

HELD:
No.
A shipyard such as PHILSECO being a public utility as provided by
law, the following provision of the Article XII of the Constitution
applies:

“Sec. 11. No franchise, certificate, or any other form of

authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens, nor
shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that
it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body
of any public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing officers of
such corporation or association shall be citizens of the Philippines.”

Notably, paragraph 1.4 of the JVA accorded the parties the right of
first refusal “under the same terms.” This phrase implies that when
either party exercises the right of first refusal under paragraph 1.4,
they can only do so to the extent allowed them by paragraphs 1.2
and 1.3 of the JVA or under the proportion of 60%-40% of the
shares of stock. Thus, should the NIDC opt to sell its shares of
stock to a third party, Kawasaki could only exercise its right of first
refusal to the extent that its total shares of stock would not exceed
40% of the entire shares of stock of SNS or PHILSECO. The NIDC,
on the other hand, may purchase even beyond 60% of the total
shares. As a government corporation and necessarily a 100%
Filipino-owned corporation, there is nothing to prevent its purchase
of stocks even beyond 60% of the capitalization as the Constitution
clearly limits only foreign capitalization.

6
463 SCRA 555 GR 151438 July 15, 2005
Jardine Davies, Inc. vs. JRB Realty, Inc., 463 SCRA 555, July 15, 2005

FACTS:
In 1979-1980, respondent JRB Realty, Inc. built a nine-storey
building, named Blanco Center, on its parcel of landlocated Makati
City. An air conditioningsystem was needed for the Blanco Law
Firm housed at the secondfloor of thebuilding.
On March 13, 1980,the respondent s Executive‟Vice-
President,Jose R. Blanco, acceptedthe contract quotationofMr.
A.G. Morrison, President of Aircon and Refrigeration
Industries,Inc. (Aircon),for two (2) sets of
FeddersAdaptomatic air conditioning equipment. Thereafter, two
(2) brand new packaged air conditioners were installed by
Airconbut they could not deliver the desired cooling temperature.
With this, the parties agreed to replace the units.
In a Letter,Aircon statedthat it would be replacing the
units currently installed with new ones using
rotarycompressors, at the earliest possible time. Regrettably,
however, it could not specify a date whendelivery could
beeffected. TempControl Systems, Inc. (a subsidiary of Aircon
until1987) undertook the maintenance of the units, inclusive ofparts
and services.
In October 1987,therespondentlearned,through newspaper ads,
that Maxim Industrial and MerchandisingCorporation (Maxim,
for short) was the new and exclusive licensee ofFedders Air
Conditioning USA in the Philippines forthe manufacture,
distribution, sale, installation and maintenance of Fedders
airconditioners.The respondent requestedthat Maximhonor the
obligation of Aircon, but the latter refused. Hence, the
respondent then instituted an action forspecific performance
with damages against Aircon, Fedders Air Conditioning USA,
Inc., Maxim and petitioner JardineDavies, Inc.
PetitionerJardine Davies, Inc. was impleaded as defendant,
considering thatAircon was a subsidiary of thepetitioner.Petitioner
contends that was not a party to the contract between JRB
Realty, Inc.and Aircon, and that it hadapersonality separate
and distinct fromthat of Aircon.
RTC ordered defendants Jardine Davies, Inc., Fedders
AirConditioning USA, Inc. and Maxim Industrial
andMerchandisingCorporation, jointly and severally liable which
was affirmed by the CA.
ISSUE
WHETHER OR NOT PETITIONER JARDINE MAY BE HELD
LIABLE SOLELY BECAUSE AIRCON WAS
FORMERLYJARDINE'S INSTRUMENTALITY OR ALTER EGO?
HELD:
NO.It is an elementary and fundamental principle ofcorporation law
that a corporation is an artificial being invested bylaw with a
personality separate and distinct from its stockholders and
from other corporations to which it maybe connected.
While a corporation is allowed to exist solely for a lawful purpose,
the law will regard it as an association ofpersons or in case of two
corporations, merge them into one, when this corporate legal entity
is used as a cloak for fraud or illegality. This is the doctrine of
piercing the veil of corporate fiction which applies only when such
corporate fiction isused to defeat public convenience, justify wrong,
protect fraud or defend crime.
While it is true that Aircon is a subsidiary of the petitioner, it does
not necessarily follow that Aircon s corporate‟legal existence can
just be disregarded. A subsidiary has an independent and separate
juridical personality, distinct fromthat of its parent company;hence,
any claim or suit against the latter does not bind the former,and
vice versa.
In applying the doctrine, the following requisites mustbe
established:(1) control, not merely majority or completestock
control;(2) such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violationof a statutory
orother positive legal duty, or dishonest acts in contravention
ofplaintiff s legal rights; and(3) the aforesaid‟control and breach of
duty must proximately cause the injury or unjust loss complained
of.
The records bear out that Aircon is a subsidiary of the petitioner
only because the latter acquired Aircon's majorityof capital stock.It,
however, does not exercise complete control over Aircon;nowhere
can it be gathered that the petitionermanages the business affairs
of Aircon.Indeed, no managementagreement exists between the
petitioner and Aircon, andthe latter is an entirely different entityfrom
the petitioner. The existence of interlocking directors, corporate
officers andshareholders is not enough justification to piercethe veil
ofcorporate fiction, in the absence of fraud orother public policy
considerations. But even when there is dominance over the affairs
ofthe subsidiary, the doctrine of piercing the veil ofcorporate fiction
applies only when such fiction is used to defeat public
convenience,justify wrong, protect fraud or defendcrime.
To warrant resort to this extraordinary remedy, there must be proof
that thecorporation is being used as a cloak orcover for fraud or
illegality, or to work injustice.Any piercing of the corporate
veil has to be done with caution. Thewrongdoing must be
clearlyand convincingly established.It cannot justbe presumed.
In the instant case, there is noevidence that Aircon was
formed or utilized with the intention of defrauding its
creditors orevading its contracts andobligations. There
wasnothing fraudulent in the acts of Aircon in this case.

7
186 SCRA 393 GR 90634-35 June 6, 1990
Carmelcraft Corporation vs. NLRC, 186 SCRA 393, June 06, 1990

8
506 SCRA 256 GR 171392 October 30, 2006
Suldao vs. Cimech System Construction, Inc., 506 SCRA 256, October 30, 2006

9
545 SCRA 367 GR 173207 February 14, 2008
Philippine Commercial and International Bank vs. Custodio, 545 SCRA 367, February 14, 2008

10
748 SCRA 455 GR 195580 January 28, 2015
Narra Nickel Mining and Development Corp. vs. Redmont Consolidated Mines Corp., 748
SCRA 455,January 28, 2015

11
215 SCRA 120 GR 89804 October 23, 1992

Arcilla vs. Court of Appeals, 215 SCRA 120, October 23, 1992

12
178 SCRA 168 GR 80352
Indino vs. National Labor Relations Commission, 178 SCRA 168, September 29, 1989

FACTS OF THE CASE

The petitioner, Benjamin Indino, joined the Phil. National
Construction Corp. (PNCC) as a project personnel officer on
December 12, 1974.
On January 6, 1981, he was transferred to private respondent
Dasmarinas Industrial Steelworks Corp. (DISC), a sister
corporation of PNCC.
On July 27, 1983, while the petitioner was on a paid vacation leave,
he received a “letter memorandum” from Roman Lopez, DISC
personnel manager, informing him that his services were no longer
needed at the Philphos Project in Leyte.
Immediately after receipt of the “letter-memorandum” the petitioner
filed with NLRC a complaint for illegal dismissal against private
respondent.
But before judgment could be rendered by NLRC, petitioner Indino
and private respondent DISC have reach an agreement to settle
their differences and for the petitioner to return to work with 50%
payment of back wages, salaries and other allowances.
On the basis of that agreement, the petitioner was reinstated on
Oct. 1, 1983. But barely two months after his reinstatement, the
petitioner received another “better-memorandum” from respondent
DISC, again terminating his services.
Petitioner refused to accept his termination, he filed a complaint for
illegal dismissal, unpaid wages, moral and exemplary damages,
and attorney’s fees against respondent DISC. Later, he amended
his complaint and impleaded PNCC as additional respondent.
The Labor Arbiter, to whom the case was assigned, dismissed the
petitioner’s complaint for lack of merit.
The petitioner appealed to the respondent NLRC. The latter,
however, finding no error in the appealed judgment, affirmed the
decision of Labor Arbiter dismissing the case. Amotion for
reconsideration filed by the petitioner was denied. Hence, he filed
a petition for certiorari under Rule 65 before the SC, alleging inter
alia, that the NLRC committed a grave abuse of discretion
amounting to lack or excess of jurisdiction.
ISSUE
Whether the PNCC, a sister corporation of DISC, with a separate
and distinct personality should also be held liable for the illegal
dismissal case.
RULING
Yes. Considering that the petitioner stated his employment
originally with the PNCC, and the amount of his separation benefits
only corresponds to the period of employment with DISC and not
with PNCC, the inclusion of PNCC as respondent in their action is
justified and proper.
The so-called separate and distinct personality of PNCC could be
validly ignored inasmuch as it would unjustly prejudice the
petitioner vis-à-vis whatever benefits he may receive by reason of
his illegal dismissal.
It should always be borne in mind that the fiction of law that a
corporation, as a juridical entity, has a distinct and separate
personality was designed for convenience and to serve justice;
therefore, it should not be used as a subterfuge to commit injustice
and circumvent labor laws.

13
352 SCRA 248 GR 136374 February 9, 2000

Baluyot vs.Holganza, 325 SCRA 248, February 09, 2000

14
121 SCRA 621 GR L-61259 April 26, 1983

Lions Clubs International vs. Amores, 121 SCRA 621, April 26, 1983

15
151 SCRA 372 GR L-48627 June 30, 1987

Caram, Jr. vs. Court of Appeals, 151 SCRA 372, June 30, 1987

16
175 SCRA 668 GR 84197 July 28, 1989

Pioneer Insurance & Surety Corporation vs. Court of Appeals, 175 SCRA
668,July 28, 1989

17
418 SCRA 431 GR 156819 December 11, 2003

Gala vs. Ellice Agro-Industrial Corporation, 418 SCRA 431, December

11, 2003

18

548 SCRA 273 GR 136409

Pasricha vs. Don Luis Dison Realty, Inc., 548 SCRA 273, March 14, 2008

FACTS OF THE CASE

Don Luis Dizon Reality Inc. Herein respondent and petitioners
executed two contracts of Lease involving several units of San
Luis Building located at T.M Kalaw Ermita, Manila owned by
respondent being the Lessor.
While the contracts replaced by Roswinda Bautista as the
President and General Manager. At first petitioners continuously
paid their rentals to Baustista, but after few months of payment
however, despite repeated demands, petitioner’s refuses to
continue payment of their rental obligations. Consequently,
respondent were in effect petitioners religiously paid monthly
rentals to the respondent Realty thru its President and General
Manager Francis Pacheco. Thereafter, Pacheco was
constrained to refer the matter to its lawyer who in turn made a final
demand, but to no avail, her complaint for ejectment was
filed by private respondent through its representative Ms.
Bautista before the METC of Manila.
The METC dismissed the complaint for ejectment due to
alleged lack of authority of Ms. Bautista to sue a behalf at the
corporation.
On Appeal, the RTC reversed the METC decision in favor
of the respondent corporation and ordered the petitioner to pay
the unpaid rentals and to vacate the premises, hence petitioners
debated the case to the court of appeals a petitioner for review
and certiorari, and the court of appeals affirmed the RTC decision.
A motion for reconsideration was filed but denied by the court
of appeals for lack of merit hence this petition for creational
before the SUPREME COURT.
ISSUE
Whether or not Roswinda Bautista, by virtue of her subsequent
designation by the board of directors as the corporation’s attorney-
in-fact had legal capacity to sue in behalf of the corporation.
RULING
The Supreme Court upholds the capacity of Ms. Bautista to
institute the ejectment case in behalf of the corporation despite
lack of proof of authority to represent it.
A corporation has no powers except those expressly conferred
on it by the Corporation Code and those that are implied from
or are incidental to its existence. And in turn, a corporation
exercise said powers thru its board of directors and/or its duly
authorized officers and agents. Thus any person suing on behalf of
a corporation must present proof of such authority.
Although Ms. Bautista initially failed to slow that she had the
capacity to sign the verification and institute the ejectment case
on behalf of the corporation, when confronted with such
question, she immediately presented the Secretary’s certificate
confirming her authority.
There is ample jurisprudence holding that subsequent and
substantial compliance may call for the relaxation of the rules
of procedures in the interest of justice.
Technical and procedural rules are intended to help secure,
not suppress the cause of justice, and deviation from the rigid
enforcement of the rules may be allowed to attain that prime
objective.

19
343 SCRA 674 GR 119020 October 19, 2000

International Express Travel & Tour Services, Inc. vs. Court of

Appeals, 343 SCRA 674, October 19, 2000

20

274 SCRA 452 GR 125221 June 9, 1997

Lozano vs. De los Santos, 274 SCRA 452, June 19, 1997

FACTS OF THE CASE

Petitioner Lozane filed Civil Case No. 1214 for
damages against respondent Anda before MCTC. Petitioner and
respondent was both president of their respective jeepney
drivers’ association. In August 1995, petitioner and private
respondent agreed to consolidate their respective
associations and form the Unified Mabalacat-Angeles Jeepney
Operators’ and Drivers’ Association, Inc. (UMAJODA). Petitioner
and private respondent also agreed to elect one set of
officers who shall be given the sole authority to collect the
daily dues from the members of the consolidated association.
Petitioner was elected to the position of president, to
whichrespondent objected. Respondent also refused to abide by
their agreement and continued collecting the dues from the
members of his association despite several demands to desist.
Private respondent moved to dismiss the complaint for lack of
jurisdiction, claiming that jurisdiction was lodged with the
SEC. MCTC denied the motion. RTC found the dispute to
be intra corporate, hence subject to the jurisdiction of the
SEC, and ordered the MCTC to dismiss Civil Case No. 1214.
ISSUE
Whether the RTC erred in concluding that the SEC has
jurisdiction over the case.
RULING
RTC erred in concluding that the SEC has jurisdiction over
the case. MCTC has the proper jurisdiction.
Jurisdiction of the SEC is determined by two elements: first, the
status and relationship of the parties, in that the controversy must
arise out of intracorporate or partnership relations; and second,
the nature of the question that is the subject of their controversy,
which requires that the dispute among the parties be
intrinsically connected with the regulation of the corporation,
partnerships and associations with the end in view that
investments in these entities may be encouraged and
protected, and their activities pursued for the promotion of
economic development.
There is no intra corporate or partnership relation between
petitioner and private respondent. The unified association was
still a proposal, and had not been approved by the SEC.
There must be a certificate of consolidation issued by the
SEC, making the reorganization special. Afterwards, the new
consolidated corporation comes into existence and the
constituent corporations dissolve and cease to exist. There
being no intracorporate nor does partnership relation between
the parties, the SEC have no jurisdiction over the case.
The doctrine of corporation by estoppel advanced by
respondent cannot override jurisdictional requirements.
Jurisdiction is fixed by law and is not subject to the agreement
of the parties. Corporation by estoppels is founded on
principles of equity and is designed to prevent injustice and
unfairness. It applies when persons assume to form a
corporation and exercise corporate functions and enter into
business relations with third persons. When there is no third
person involved and the conflict arises only among those
assuming the form of a corporation, who therefore know that it
has not been registered, there is no corporation by estoppel.

21

175 SCRA 668 GR 84197 July 28, 1989

Pioneer Insurance & Surety Corporation vs. Court of Appeals, 175 SCRA
668,July 28, 1989
FACTS OF THE CASE
This is a consolidated petitions of cases numbers G.R. No. 84197 July 28, 1989, entitled
“Pioneer Insurance and Surety Corporation vs. The Honorable Court of Appeals,
Borders Machinery and Heavy Equipment Inc., (BORMAHECO), Constancio M. Maglana
and Jacob S. Lim” and G.R. No.84197 July 28 1989 entitled “Jacob S. Lim vs. Court of Appeals,
Pioneer Insurance and Surety Corporation, Boarder Machinery and Heavy Equipment Co, Inc,
Francisco and Modesto Cervantes and Constacio Maglana.”
In 1965 Jacob S. Lim was engaged in the airline business as the owner operator of
Southern Airlines (SAL), a single Proprietorship.
On May 17, 1965 at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and
executed a sales contract for the sale and purchase of two (2) DC-3A type aircrafts and one (1)
set of necessary spare parts for the total agreed price of US$ 109,000 to be paid in installment.
Pioneer Insurance and Surety Corporation as surety executed and issued its Surety Bond No-
6639 in favor of JDA, in behalf of its principal,Jacob Lim, for the balance price of the aircrafts
spare parts.
Border Machinery and Heavy Equipment Company Inc. (BORMAHECO), Francisco and
Modesto Cervantes and Constancio Maglana contributed some funds used in the
purchased of the above aircrafts and spare parts. The funds were supposed to be their
contributions to a new corporation proposed by Lim to expand his airline business. They
executed two (2) separate indemnity agreements in favor of pioneer, one signed by
Maglana, and the other jointly signed by Lim for SAL, BORMAHECO and the Cervantes’s.
The indemnity agreements stipulated that the indemnitors principally agree and binds
themselves jointly and severally to indemnify and hold and save harmless Pioneer from
and against any/all damages, losses, costs, taxes, penalties charges and expenses of
whatever kind and nature which Pioneer may incur on consequence of having become surety
upon the bond/note.
Lim, doing business under the name of SAL executed in favor of Pioneer a deed of Chattel
Mortgage assecurity for the latter’s surety ship in favor of the former. It is stipulated that Lim
transfer and convey to the surety the two aircrafts in case he defaulted from the installment.
Lim defaulted on his subsequent installment payments prompting JDA to request
payments from the surety.
Pioneer paid a total sum of 298,626.12 Pioneer then filed a petition for extrajudicial foreclosure
of the said chattel mortgage. The Cervantes’s and Maglana however, filed a third party
claim alleging that they are co-owners of the aircrafts.
Pioneer later filed an action for judicial foreclosure with an application for a writ of preliminary
attachment against Lim, the Cervantes’s, BORMAHECO and Maglana.
In their answers, Maglana and Bormaheco and the Cervantes’s filed cross-claims against Lim
alleging that they were not privies to the contract signed by Lim, sought for damages and
recovery of the survey of money they advanced to Lim for the purchase of the aircrafts.
ISSUE
What regal rules govern the relationship among co-investors whose agreement was
to do business through the corporate vehicles but who failed to incorporate the entity?
How are loses to be treated under this situation? For failure of respondents Bormaheco,
Spouses, Cervantes, Maglana and petitioner Lim to incorporate, whether or not a “de facto
“partnership among them was created.
RULING
The Supreme Court ruled that no de facto partnership was created among the parties which
would entitle petitioner Lim to a reimbursement of the supposed loses of the proposed
corporation. The record shows that the petitioner was acting on his own and not in
behalf of his other would-be incorporators in transacting the sale of the aircrafts and spare
parts. Petitioner Lim never had the intention to form a corporation with the respondents and
that they were induced and lured by him to make contributions to a propose corporation which
was never formed because the petitioner reneged on their agreement.
It is ordinarily held that persons who attempt, but failed, to form a corporation and who
carry on business under the corporate name occupy the position of partners (Lynch vs.
Perryman) however, such a relation does not necessary exist for ordinarily persons cannot
be made to assume the relation of partners as between themselves, when their purposed is
that no partnership shall exist.
Thus, one who takes no part except to subscribe for the stock in a purposed corporation
which is never legally formed does not become a partner with other subscribers who
engaged in business under the name of the pretended corporation, so as to be liable
a such in action for settlement of the alleged partnership and contribution (Word vs.
Brigham, 127 Mass. 24)

22
596 SCRA 542 GR 183196 August 19, 2009

Estacio vs. Pampanga I Electric Cooperative, Inc., 596 SCRA

542, August 19, 2009

23
297 SCRA 170 GR 117847 October 7, 1998

People’s Aircargo and Warehousing Co., Inc. vs. Court of Appeals, 297
SCRA 170, October 07, 1998

24
89 SCRA 336 GR L-45911 April 11, 1979

Gokongwei, Jr. vs. Securities and Exchange Commission, 89 SCRA

336, April 11, 1979
Facts: [SEC Case 1375] On 22 October 1976, John Gokongwei Jr., as stockholder of San Miguel
Corporation, filed with the Securities and Exchange Commission (SEC) a petition for
"declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by-
laws, injunction and damages with prayer for a preliminary injunction" against the majority of
the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner.
As a first cause of action, Gokongwei alleged that on 18 September 1976, Andres Soriano, Jr.,
Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buñao, Walthrode B. Conde, Miguel
Ortigas, and Antonio Prieto amended by bylaws of the corporation, basing their authority to do
so on a resolution of the stockholders adopted on 13 March 1961, when the outstanding capital
stock of the corporation was only P70,139.740.00, divided into 5,513,974 common shares at
P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the
amendment, the outstanding and paid up shares totalled 30,127,043, with a total par value of
P301,270,430.00.

It was contended that according to section 22 of the Corporation Law and Article VIII of the by-
laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be
delegated to the Board of Directors only by the affirmative vote of stockholders representing
not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3
should have been computed on the basis of the capitalization at the time of the amendment.
Since the amendment was based on the 1961 authorization, Gokongwei contended that the
Board acted without authority and in usurpation of the power of the stockholders. As a second
cause of action, it was alleged that the authority granted in 1961 had already been exercised in
1962 and 1963, after which the authority of the Board ceased to exist. As a third cause of
action, Gokongwei averred that the membership of the Board of Directors had changed since
the authority was given in 1961, there being 6 new directors. As a fourth cause of action, it was
claimed that prior to the questioned amendment, Gokogwei had all the qualifications to be a
director of the corporation, being a substantial stockholder thereof; that as a stockholder,
Gokongwei had acquired rights inherent in stock ownership, such as the rights to vote and to be
voted upon in the election of directors; and that in amending the by-laws, Soriano, et. al.
purposely provided for Gokongwei's disqualification and deprived him of his vested right as
afore-mentioned, hence the amended by-laws are null and void. As additional causes of action,
it was alleged that corporations have no inherent power to disqualify a stockholder from being
elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M.
Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into
contracts (specifically a management contract) with the corporation, which was avowed
because the questioned amendment gave the Board itself the prerogative of determining
whether they or other persons are engaged in competitive or antagonistic business; that the
portion of the amended by-laws which states that in determining whether or not a person is
engaged in competitive business, the Board may consider such factors as business and family
relationship, is unreasonable and oppressive and, therefore, void; and that the portion of the
amended by-laws which requires that "all nominations for election of directors shall be
submitted in writing to the Board of Directors at least five (5) working days before the date of
the Annual Meeting" is likewise unreasonable and oppressive. It was, therefore, prayed that the
amended by-laws be declared null and void and the certificate of filing thereof be cancelled,
and that Soriano, et. al. be made to pay damages, in specified amounts, to Gokongwei. On 28
October 1976, in connection with the same case, Gokongwei filed with the Securities and
Exchange Commission an "Urgent Motion for Production and Inspection of Documents",
alleging that the Secretary of the corporation refused to allow him to inspect its records despite
request made by Gokongwei for production of certain documents enumerated in the request,
and that the corporation had been attempting to suppress information from its stockholders
despite a negative reply by the SEC to its query regarding their authority to do so.

The motion was opposed by Soriano, et. al. The Corporation, Soriano, et. al. filed their answer,
and their opposition to the petition, respectively. Meanwhile, on 10 December 1976, while the
petition was yet to be heard, the corporation issued a notice of special stockholders' meeting
for the purpose of "ratification and confirmation of the amendment to the By-laws", setting
such meeting for 10 February 1977. This prompted Gokongwei to ask the SEC for a summary
judgment insofar as the first cause of action is concerned, for the alleged reason that by calling
a special stockholders' meeting for the aforesaid purpose, Soriano, et. al. admitted the
invalidity of the amendments of 18 September 1976. The motion for summary judgment was
opposed by Soriano, et. al. Pending action on the motion, Gokongwei filed an "Urgent Motion
for the Issuance of a Temporary Restraining Order", praying that pending the determination of
Gokongwei's application for the issuance of a preliminary injunction and or Gokongwei's
motion for summary judgment, a temporary restraining order be issued, restraining Soriano, et.
al. from holding the special stockholders' meeting as scheduled. This motion was duly opposed
by Soriano, et. al. On 10 February 1977, Cremation issued an order denying the motion for
issuance of temporary restraining order. After receipt of the order of denial, Soriano, et. al.
conducted the special stockholders' meeting wherein the amendments to the by-laws were
ratified. On 14 February 1977, Gokongwei filed a consolidated motion for contempt and for
nullification of the special stockholders' meeting. A motion for reconsideration of the order
denying Gokongwei's motion for summary judgment was filed by Gokongwei before the SEC on
10 March 1977.

[SEC Case 1423] Gokongwei alleged that, having discovered that the corporation has been
investing corporate funds in other corporations and businesses outside of the primary purpose
clause of the corporation, in violation of section 17-1/2 of the Corporation Law, he filed with
SEC, on 20 January 1977, a petition seeking to have Andres M. Soriano, Jr. and Jose M. Soriano,
as well as the corporation declared guilty of such violation, and ordered to account for such
investments and to answer for damages. On 4 February 1977, motions to dismiss were filed by
Soriano, et. al., to which a consolidated motion to strike and to declare Soriano, et. al. in default
and an opposition ad abundantiorem cautelam were filed by Gokongwei. Despite the fact that
said motions were filed as early as 4 February 1977, the Commission acted thereon only on 25
April 1977, when it denied Soriano, et. al.'s motions to dismiss and gave them two (2) days
within which to file their answer, and set the case for hearing on April 29 and May 3, 1977.
Soriano, et. al. issued notices of the annual stockholders' meeting, including in the Agenda
thereof, the "reaffirmation of the authorization to the Board of Directors by the stockholders at
the meeting on 20 March 1972 to invest corporate funds in other companies or businesses or
for purposes other than the main purpose for which the Corporation has been organized, and
ratification of the investments thereafter made pursuant thereto." By reason of the foregoing,
on 28 April 1977, Gokongwei filed with the SEC an urgent motion for the issuance of a writ of
preliminary injunction to restrain Soriano, et. al. from taking up Item 6 of the Agenda at the
annual stockholders' meeting, requesting that the same be set for hearing on 3 May 1977, the
date set for the second hearing of the case on the merits. The SEC, however, cancelled the
dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after the
scheduled annual stockholders' meeting. For the purpose of urging the Commission to act,
Gokongwei filed an urgent manifestation on 3 May 1977, but this notwithstanding, no action
has been taken up to the date of the filing of the instant petition.

Gokongwei filed a petition for petition for certiorari, mandamus and injunction, with prayer for
issuance of writ of preliminary injunction, with the Supreme Court, alleging that there appears a
deliberate and concerted inability on the part of the SEC to act.

Issue:
Whether the corporation has the power to provide for the (additional) qualifications of its
directors.
Whether the disqualification of a competitor from being elected to the Board of Directors is a
reasonable exercise of corporate authority.
Whether the SEC gravely abused its discretion in denying Gokongwei's request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of San
Miguel Corporation.
Whether the SEC gravely abused its discretion in allowing the stockholders of San Miguel
Corporation to ratify the investment of corporate funds in a foreign corporation.
Held:

1. It is recognized by all authorities that "every corporation has the inherent power to adopt by-
laws 'for its internal government, and to regulate the conduct and prescribe the rights and
duties of its members towards itself and among themselves in reference to the management of
its affairs.'" In this jurisdiction under section 21 of the Corporation Law, a corporation may
prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and
employees." This must necessarily refer to a qualification in addition to that specified by section
30 of the Corporation Law, which provides that "every director must own in his right at least
one share of the capital stock of the stock corporation of which he is a director." Any person
"who buys stock in a corporation does so with the knowledge that its affairs are dominated by a
majority of the stockholders and that he impliedly contracts that the will of the majority shall
govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws
and not forbidden by law." To this extent, therefore, the stockholder may be considered to
have "parted with his personal right or privilege to regulate the disposition of his property
which he has invested in the capital stock of the corporation, and surrendered it to the will of
the majority of his fellow incorporators. It can not therefore be justly said that the contract,
express or implied, between the corporation and the stockholders is infringed by any act of the
former which is authorized by a majority." Pursuant to section 18 of the Corporation Law, any
corporation may amend its articles of incorporation by a vote or written assent of the
stockholders representing at least two-thirds of the subscribed capital stock of the corporation.
If the amendment changes, diminishes or restricts the rights of the existing shareholders, then
the dissenting minority has only one right, viz.: "to object thereto in writing and demand
payment for his share." Under section 22 of the same law, the owners of the majority of the
subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be
said, therefore, that Gokongwei has a vested right to be elected director, in the face of the fact
that the law at the time such right as stockholder was acquired contained the prescription that
the corporate charter and the by-law shall be subject to amendment, alteration and
modification.
2. Although in the strict and technical sense, directors of a private corporation are not regarded
as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the
corporation and the stockholders as a body are concerned. As agents entrusted with the
management of the corporation for the collective benefit of the stockholders, "they occupy a
fiduciary relation, and in this sense the relation is one of trust." "The ordinary trust relationship
of directors of a corporation and stockholders is not a matter of statutory or technical law. It
springs from the fact that directors have the control and guidance of corporate affairs and
property and hence of the property interests of the stockholders. Equity recognizes that
stockholders are the proprietors of the corporate interests and are ultimately the only
beneficiaries thereof." A director is a fiduciary. Their powers are powers in trust. He who is in
such fiduciary position cannot serve himself first and his cestuis second. He cannot manipulate
the affairs of his corporation to their detriment and in disregard of the standards of common
decency. He cannot by the intervention of a corporate entity violate the ancient precept against
serving two masters. He cannot utilize his inside information and strategic position for his own
preferment. He cannot violate rules of fair play by doing indirectly through the corporation
what he could not do so directly. He cannot violate rules of fair play by doing indirectly through
the corporation what he could not do so directly. He cannot use his power for his personal
advantage and to the detriment of the stockholders and creditors no matter how absolute in
terms that power may be and no matter how meticulous he is to satisfy technical requirements.
For that power is at all times subject to the equitable limitation that it may not be exercised for
the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of
the cestuis. The doctrine of "corporate opportunity" is precisely a recognition by the courts that
the fiduciary standards could not be upheld where the fiduciary was acting for two entities with
competing interests. This doctrine rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking advantage of an opportunity for his own personal
profit when the interest of the corporation justly calls for protection. It is not denied that a
member of the Board of Directors of the San Miguel Corporation has access to sensitive and
highly confidential information, such as: (a) marketing strategies and pricing structure; (b)
budget for expansion and diversification; (c) research and development; and (d) sources of
funding, availability of personnel, proposals of mergers or tie-ups with other firms. It is
obviously to prevent the creation of an opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing corporation, from taking
advantage of the information which he acquires as director to promote his individual or
corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the
questioned amendment of the by-laws was made. Certainly, where two corporations are
competitive in a substantial sense, it would seem improbable, if not impossible, for the director,
if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place
the performance of his corporation duties above his personal concerns. The offer and
assurance of Gokongwei that to avoid any possibility of his taking unfair advantage of his
position as director of San Miguel Corporation, he would absent himself from meetings at
which confidential matters would be discussed, would not detract from the validity and
reasonableness of the by-laws involved. Apart from the impractical results that would ensue
from such arrangement, it would be inconsistent with Gokongwei's primary motive in running
for board membership — which is to protect his investments in San Miguel Corporation. More
important, such a proposed norm of conduct would be against all accepted principles
underlying a director's duty of fidelity to the corporation, for the policy of the law is to
encourage and enforce responsible corporate management.

3. Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all
business transactions of the corporation and minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the corporation at reasonable hours." The
stockholder's right of inspection of the corporation's books and records is based upon their
ownership of the assets and property of the corporation. It is, therefore, an incident of
ownership of the corporate property, whether this ownership or interest be termed an
equitable ownership, a beneficial ownership, or a quasi-ownership. This right is predicated
upon the necessity of self-protection. It is generally held by majority of the courts that where
the right is granted by statute to the stockholder, it is given to him as such and must be
exercised by him with respect to his interest as a stockholder and for some purpose germane
thereto or in the interest of the corporation. In other words, the inspection has to be germane
to the petitioner's interest as a stockholder, and has to be proper and lawful in character and
not inimical to the interest of the corporation. The "general rule that stockholders are entitled
to full information as to the management of the corporation and the manner of expenditure of
its funds, and to inspection to obtain such information, especially where it appears that the
company is being mismanaged or that it is being managed for the personal benefit of officers or
directors or certain of the stockholders to the exclusion of others." While the right of a
stockholder to examine the books and records of a corporation for a lawful purpose is a matter
of law, the right of such stockholder to examine the books and records of a wholly-owned
subsidiary of the corporation in which he is a stockholder is a different thing. Stockholders are
entitled to inspect the books and records of a corporation in order to investigate the conduct of
the management, determine the financial condition of the corporation, and generally take an
account of the stewardship of the officers and directors. herein, considering that the foreign
subsidiary is wholly owned by San Miguel Corporation and, therefore, under Its control, it
would be more in accord with equity, good faith and fair dealing to construe the statutory right
of petitioner as stockholder to inspect the books and records of the corporation as extending to
books and records of such wholly owned subsidiary which are in the corporation's possession
and control.
4. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other
corporation or business or for any purpose other than the main purpose for which it was
organized" provided that its Board of Directors has been so authorized by the affirmative vote
of stockholders holding shares entitling them to exercise at least two-thirds of the voting
power. If the investment is made in pursuance of the corporate purpose, it does not need the
approval of the stockholders. It is only when the purchase of shares is done solely for
investment and not to accomplish the purpose of its incorporation that the vote of approval of
the stockholders holding shares entitling them to exercise at least two-thirds of the voting
power is necessary. As stated by the corporation, the purchase of beer manufacturing facilities
by SMC was an investment in the same business stated as its main purpose in its Articles of
Incorporation, which is to manufacture and market beer. It appears that the original investment
was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer brewery
in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San
Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the
organization of SMI in Bermuda as a tax free reorganization. Assuming arguendo that the Board
of Directors of SMC had no authority to make the assailed investment, there is no question that
a corporation, like an individual, may ratify and thereby render binding upon it the originally
unauthorized acts of its officers or other agents. This is true because the questioned investment
is neither contrary to law, morals, public order or public policy. It is a corporate transaction or
contract which is within the corporate powers, but which is defective from a purported failure
to observe in its execution the requirement of the law that the investment must be authorized
by the affirmative vote of the stockholders holding two-thirds of the voting power. This
requirement is for the benefit of the stockholders. The stockholders for whose benefit the
requirement was enacted may, therefore, ratify the investment and its ratification by said
stockholders obliterates any defect which it may have had at the outset. Besides, the
investment was for the purchase of beer manufacturing and marketing facilities which is
apparently relevant to the corporate purpose. The mere fact that the corporation submitted
the assailed investment to the stockholders for ratification at the annual meeting of 10 May
1977 cannot be construed as an admission that the corporation had committed an ultra vires
act, considering the common practice of corporations of periodically submitting for the
ratification of their stockholders the acts of their directors, officers and managers.

ISSUE
1. Whether the corporation has the power to provide for the (additional) qualifications
of its directors.
2. Whether the disqualification of a competitor from being elected to the Board of Directors is a
reasonable exercise of corporate authority.
3. Whether the SEC gravely abused its discretion in denying Gokongwei's request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of San
Miguel Corporation.
4. Whether the SEC gravely abused its discretion in allowing the stockholders of San Miguel
Corporation to ratify the investment of corporate funds in a foreign corporation.
RULING
First Issue:
It is recognized by all authorities that "every corporation has the inherent power to adopt
by-laws 'for its internal government, and to regulate the conduct and prescribe the rights
and duties of its members towards itself and among themselves in reference to the
management of its affairs.'" In this jurisdiction under section 21 of the Corporation Law, a
corporation may prescribe in its by-laws "the qualifications, duties and compensation of
directors, officers and employees." This must necessarily refer to a qualification in addition to
that specified by section 30 of the Corporation Law, which provides that "every director
must own in his right at least one share of the capital stock of the stock corporation of which
he is a director." Any person "who buys stock in a corporation does so with the
knowledge that its affairs are dominated by a majority of the stockholders and that he
impliedly contracts that the will of the majority shall govern in all matters within the limitsof
the act of incorporation and lawfully enacted by-laws and not forbidden by law." To this extent,
therefore, the stockholder may be considered to have "parted with his personal right or
privilege to regulate the disposition of his property which he has invested in the capital
stock of the corporation, and surrendered itto the will of the majority of his fellow
incorporators. It cannot therefore be justly said that the contract, express or implied,
between the corporation and the stockholders is infringed by any act of the former which is
authorized by a majority." Pursuant to section 18 of the Corporation Law, any
corporation may amend its articles of incorporation by a vote or written assent of the
stockholders representing at least two-thirds of the subscribed capital stock of the
corporation. If the amendment changes, diminishes or restricts the rights of the existing
shareholders, then the dissenting minority has only one right, viz.: "to object thereto in writing
and demand payment for his share." Under section 22 of the same law, the owners of
the majority of the subscribed capital stock may amend or repeal any by-law or adopt
new by-laws. It cannot be said; therefore, that Gokongwei has a vested right to be
elected director, in the face of the fact that the law at the time such right as
stockholder was acquired contained the prescription that the corporate charter and the
by-law shall be subject to amendment, alteration and modification.
Second Issue:
Although in the strict and technical sense, directors of a private corporation are not
regarded as trustees, there cannot be any doubt that their character is that of a fiduciary
insofar as the corporation and the stockholders as a body are concerned. As agents
entrusted with the management of the corporation for the collective benefit of the
stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of
trust." "The ordinary trust relationship of directors of a corporation and stockholders is
not a matter of statutory or technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and hence of the property
interests of the stockholders. Equity recognizes that stockholders are the proprietors
of the corporate interests and are ultimately the only beneficiaries thereof." A director is a
fiduciary. Their powers are powers in trust. He who is in such fiduciary position cannot serve
himself first and his cestuis second. He cannot manipulate the affairs of his corporation
to their detriment and in disregard of the standards of common decency. He cannot by the
intervention of a corporate entity violate the ancient precept against serving two masters.
He cannot utilize his inside information and strategic position for his own preferment. He
cannot violate rules of fair play by doing indirectly through the corporation what he
could not do so directly. He cannot violate rules of fair play by doing indirectly through
the corporation what he could not do so directly. He cannot use hispower for his personal
advantage and to the detriment of the stockholders and creditors no matter how absolute
in terms that power may be and no matter how meticulous he is to satisfy technical
requirements. For that power is at all times subject to the equitable limitation that it
may not be exercised for the aggrandizement, preference, or advantage of the fiduciary
to the exclusion or detriment of the cestuis. The doctrine of "corporate opportunity" is
precisely a recognition by the courts that the fiduciary standards could not be upheld where
the fiduciary was acting for two entities with competing interests. This doctrine rests
fundamentally on the unfairness, in particular circumstances, of an officer or director taking
advantage of an opportunity for his own personal profit when the interest of the corporation
justly calls for protection. It is not denied that a member of the Board of Directors of
the San Miguel Corporation has access to sensitive and highly confidential information,
such as: (a) marketing strategies and pricing structure; (b) budget for expansion and
diversification; (c) research and development; and (d) sources of funding, availability of
personnel, proposals of mergers or tie-ups with other firms. It is obviously to prevent the
creation of an opportunity for an officer or director of San Miguel Corporation, who is
also the officer or owner of a competing corporation, from taking advantage of the
information which he acquires as director to promote his individual or corporate
intereststo the prejudice of San Miguel Corporation and its stockholders, that the questioned
amendment of the by-laws was made. Certainly, where two corporations are
competitive in a substantial sense, it would seem improbable, if not impossible, for the
director, if he were to discharge effectively his duty, to satisfy his loyalty to both
corporations and place the performance of his corporation duties above his personal
concerns. The offer and assurance of Gokongwei that to avoid any possibility of his
taking unfair advantage of his position as director of San Miguel Corporation, he would
absent himself from meetings at which confidential matters would be discussed, would
not detract from the validity and reasonableness of the by-laws involved. Apart from the
impractical results that would ensue from such arrangement, it would be inconsistent
with Gokongwei's primary motive in running for board membership —which is to protect
his investments in San Miguel Corporation. More important, such a proposed norm of
conduct would be against all accepted principles underlying a director's duty of fidelity to
the corporation, for the policy of the law is to encourage and enforce responsible corporate
management.
Third Issue:
Pursuant to the second paragraph of section 51 ofthe Corporation Law, "(t) he record of all
business transactions of the corporation and minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the corporation at reasonable
hours." The stockholder's right of inspection of the corporation's books and records is based
upon their ownership of the assets and property of the corporation. It is, therefore, an
incident of ownership of the corporate property, whether this ownership or interest be
termed an equitable ownership, a beneficial ownership, or a quasi-ownership. This right is
predicated upon the necessity of self-protection. It is generally held by majority of the
courts that where the right is granted by statute to the stockholder, it is given to him as
such and must be exercised by him with respect to his interest as a stockholder and for some
purpose germane thereto or in the interest of the corporation. In other words, the
inspection has to be germane to the petitioner's interest as a stockholder, and has to
beproper and lawful in character and not inimical to the interest of the corporation. The
"general rule that stockholders are entitled to full information as to the management of
the corporation and the manner of expenditure of its funds, and to inspection to obtain
such information, especially where it appears that the company is being mismanaged or
that it is being managed for the personal benefit of officers or directors or certain of the
stockholders to the exclusion of others." While the right of a stockholder to examine the
books and records of a corporation for a lawful purpose is a matter of law, the right of
such stockholder to examine the books and records of a wholly owned subsidiary of the
corporation in which he is a stockholder is a different thing. Stockholders are entitled to
inspect the books and records of a corporation in order to investigate the conduct of the
management, determine the financial condition of the corporation, and generally take an
account of the stewardship of the officers and directors. herein, considering that the foreign
subsidiary is wholly owned by San Miguel Corporation and, therefore, under Its control, it
would be more in accord with equity, good faith and fair dealing to construe the
statutory right of petitioner as stockholder to inspect the books and records of the
corporation as extending to books and records of such wholly owned subsidiary which are in
the corporation's possession and control.
Fourth Issue:
Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any
other corporation or business or for any purpose other than the main purpose for which
it was organized" provided that its Board of Directors has been so authorized by the
affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds
of the voting power. If the investment is made in pursuance of the corporate purpose, it
does not need the approval of the stockholders. It is only when the purchase of shares is
done solely for investment and not to accomplish the purpose of its incorporation that the vote
of approval of the stockholders holding shares entitling them to exercise at least two-thirds of
the voting power is necessary. As stated by the corporation, the purchase of beer
manufacturing facilities by SMC was an investment in the same business stated as its main
purpose in its Articles of Incorporation, which is to manufacture and market beer. It appears
that the original investment was made in 1947-1948, when SMC, then San Miguel
Brewery, Inc., purchased a beer brewery in Hong Kong (Hong Kong Brewery & Distillery,
Ltd.) for the manufacture and marketing of San Miguel beer thereat. Restructuring of the
investment was made in 1970-1971 thru the organization of SMI in Bermuda as tax free
reorganization. Assuming arguendo that the Board of Directors of SMC had no authority
to make the assailed investment, there is no question that a corporation, like an
individual, may ratify and thereby render binding upon it the originally unauthorized acts of
its officers or other agents. This is true because the questioned investment is neither
contrary to law, morals, public order or public policy. It is a corporate transaction or contract
which is within the corporate powers, but which is defective from a purported failure to
observe in its execution the requirement of the law that the investment must be
authorized by the affirmative vote of the stockholders holding two-thirds of the voting
power. This requirement is for the benefit of the stockholders. The stockholders for
whose benefit the requirement was enacted may, therefore, ratify the investment and its
ratification by said stockholders obliterates any defect which it may have had at the outset.
Besides, the investment was for the purchase of beer manufacturing and marketing facilities
which is apparently relevant to the corporate purpose. The mere fact that the
corporation submitted the assailed investment to the stockholders for ratification at the
annual meeting of 10 May 1977 cannot be construed as an admission that the corporation
had committed an ultra vires act, considering the common practice of corporations of
periodically submitting for the ratification of their stockholders the acts of their directors,
officers and managers.

25
488 SCRA 492 GR 142272 May 2, 2006

Aboitiz International Forwarders, Inc. vs. Court of Appeals, 488 SCRA

492,May 02, 2006
26
582 SCRA 230 GR 123650 March 23, 2009

Westmont Bank vs. Inland Construction and Development Corp., 582

SCRA 230, March 23, 2009

FACTS OF THE CASE

This case is a petition for review on certiorari. Inland Construction
and Development Corp. (Inland) obtained various loans and other
credit accommodations from petitioner, then known as Associated
Citizens Bank which later became United Overseas Bank, Phil’s.,
and still later Westmost Bank in 1977 and to secure the payment
of its obligations, Inland executed real estate mortgages over three
real properties in Pasig City and likewise issued promissory note in
favor of the bank. When the first and second promissory notes fell
due, Inland defaulted in its payments but authorized the bank to
debit P350,000 from its savings account to partially satisfy its
obligations.
Through Deed of Assignment, Conveyance and Release dated
May 2, 1978, Felix Aranda, President of Inland, assigned and
conveyed all his rights and interests at Hanil-Gonzales
Construction & Development (Phils.) Corporation (Hanil-Gonzales
Corporation) in favor of Horacio Abrantes (Abrantes), Executive
Vice-President and General Manager of Hanil-Gonzales
Corporation which included the assumption of the obligation
covered by PN# BD-2884 [-77] amounting to P800,000. The bank’s
Account Officer, Lionel Calo Jr. (Calo), signed for its conformity to
the deed.
On December 14, 1979, Inland was served 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 bank and
the Provincial Sheriff of Rizal at the RTC of Pasig City.
The bank, as response to the complaint, contended that it had no
knowledge, much less did it give its conformity to the alleged
assignment of the obligation covered by PN# BD-2884 [-77]. The
RTC found that the bank ratified the act of its account officer Calo
and that the defendant Bank ratified the act of Calo when its
Executive Committee failed to repudiate the assignment within a
reasonable time and even approved the request for a restructuring
of Liberty Const. & Dev. Corp./Hanil- Gonzales Construction &
Development Corp.’s obligations. It rendered judgment in favor of
Inland. The bank appealed the trial court’s decision to the Court of
Appeals which affirmed the decision of the RTC only insofar as it
finds appellant Associated Bank to have ratified the Deed of
Assignment but reversed in all other respects, and judgment is
accordingly rendered ordering the plaintiff-appellee Inland
Construction and Development Corporation to pay defendant-
appellant Associated Bank. The bank moved for partial
reconsideration of the appellate court’s decision on the aspect of
its ratification of the Deed of Assignment but the same was denied
by Resolution. Hence, this petition.
ISSUE
Whether the RTC erred in finding that the petitioner had ratified the
deed of assignment.
RULING
No. Both the RTC and CA’s inferences and conclusion that
petitioner
ratified its account officer’s act are thus rationally based on
evidence and
circumstances duly highlighted in their respective decisions.
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 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.

27
547 SCRA 402 GR 161134 March 3, 2008

Mandaue Dinghow Dimsum House, Co., Inc. vs. National Labor Relations
Commission-Fourth Division, 547 SCRA 402, March 03, 2008

28
517 SCRA 453

29
7 SCRA 361 GR L-18062 February 28, 1963

Republic vs. Acoje Mining Co., Inc., 7 SCRA 361, February 28, 1963

30
540 SCRA 62 GR 131723 December 13, 2007
Manila Electric Company vs. T.E.A.M. Electronics Corporation, 540 SCRA
62,December 13, 2007
199 SCRA 238 GR 60502 July 16, 1991

T.E.A.M. Electronics Corporation (TEC) was formerly known as NS

Electronics(Philippines), Inc. before 1982 and National Semi-
Conductors (Phils.) before1988. TEC is wholly owned by
respondent Technology Electronics Assembly and Management
Pacific Corporation (TPC).
On the other hand, petitioner Manila Electric Company (Meralco) is
a utility company supplying electricity in the Metro Manila area.
MERALCO and NS Electronics (Philippines), Inc., the predecessor-
in-interest of respondent TEC, entered into two separate contracts
denominated as Agreements for the Sale of Electric Energy
wherein: petitioner undertook to supply TEC's building known as
Dyna Craft International Manila (DCIM) with electric power.

Another contract was entered into for the supply of electric power
to TEC's NS Building under Account No. 19389-0900-10. - TEC,
under its former name National Semi-Conductors (Phils.) entered
into a Contract of Lease with respondent Ultra Electronics
Industries, Inc. for the use of the former's DCIM building for a period
of five years or until September 1991. Ultra was, however, ejected
from the premises on February 12, 1988 by virtue of a court order,
for repeated violation of the terms and conditions of the lease
contract.
On September 28, 1987, a team of petitioner's inspectors
conducted a surprise inspection of the electric meters installed at
the DCIM building which were found to be allegedly tampered with
and did not register the actual power consumption in the building.-
MERALCO informed TEC of the results of the inspection and
demanded from the latter the payment representing its
unregistered consumption from February 10,1986 until September
28, 1987, as a result of the alleged tampering of the meters.- Since
Ultra was in possession of the subject building during the covered
period, TEC's Managing Director, Mr. Bobby Tan, referred the
demand letter to Ultra.- For failure of TEC to pay the differential
billing, petitioner disconnected the electricity supply to the DCIM
building.- TEC demanded from petitioner the reconnection of
electrical service, claiming that it had nothing to do with the alleged
tampering but the latter refused to heed the demand.
Hence, TEC filed a complaint before the Energy Regulatory Board
(ERB) which immediately ordered the reconnection of the service.

However, prior to the reconnection, petitioner conducted a

scheduled inspection of the questioned meters and found them to
have been tampered anew.
Meanwhile, on April 25, 1988, petitioner conducted another
inspection, this time, in TEC's NS Building. The inspection allegedly
revealed that the electric meters were not registering the correct
power consumption - MERALCO sent a letter demanding payment
of representing the differential billing.

TEC denied petitioner's allegations and claim.

Petitioner, thus, sent TEC another letter demanding payment of the

aforesaid amount, with a warning that the electric service would be
disconnected in case of continued refusal to pay the differential
billing.- To avert the impending disconnection of electrical service,
TEC paid the above amount, under protest.- TEC and TPC filed a
complaint for damages against petitioner and Ultra before the RTC
which rendered a decision in their favor and affirmed by CA.-
Petitioner now comes before this Court in this petition for review on
certiorari.
ISSUES:
1) whether or not TEC tampered with the electric meters installed
at its DCIM and NS buildings;
2) If so, whether or not it is liable for the differential billing as
computed by petitioner; and
3) whether or not petitioner was justified in disconnecting the
electric power supply in TEC's DCIM building.
HELD:
The petition must fail. As to the alleged tampering of the electric
meter in TEC's NS building, suffice it to state that the allegation
was not proven, considering that the meters therein were enclosed
in a metal cabinet the metal seal of which was unbroken, with
petitioner having sole access to the said meters.
In view of the negative finding on the alleged tampering of electric
meters on TEC's DCIM and NS buildings, petitioner's claim of
differential billing was correctly denied by the trial and appellate
courts. With greater reason, therefore, could petitioner not exercise
the right of immediate disconnection. However, recourse to
differential billing with disconnection was subject to the prior
requirement of a 48-hour written notice of disconnection.
Petitioner, in the instant case, resorted to the remedy of
disconnection without prior notice. While it is true that petitioner
sent a demand letter to TEC for the payment of differential billing,
it did not include any notice that the electric supply would be
disconnected. In fine, petitioner abused the remedies granted to it
under P.D. 401 and Revised General Order No. 1 by outrightly
depriving TEC of electrical services without first notifying it of the
impending disconnection. Accordingly, the CA did not err in
affirming the RTC decision. We, however, deem it proper to delete
the award of moral damages. TEC's claim was premised allegedly
on the damage to its goodwill and reputation.
As a rule, a corporation is not entitled to moral damages because,
not being a natural person, it cannot experience physical suffering
or sentiments like wounded feelings, serious anxiety, mental
anguish and moral shock. The only exception to this rule is when
the corporation has a reputation that is debased, resulting in its
humiliation in the business realm.
But in such a case, it is imperative for the claimant to present proof
to justify the award. It is essential to prove the existence of the
factual basis of the damage and its causal relationto petitioner's
acts.

In the present case, the records are bereft of any evidence that
thename or reputation of TEC/TPC has been debased as a result
of petitioner's acts. Besides,the trial court simply awardedmoral
damages in the dispositive portion of its decisionwithout stating the
basis thereof.

31

199 SCRA 238 GR 60502 July 16, 1991

Dee vs. Securities and Exchange Commission, 199 SCRA 238, July 16,
1991
FACTS OF THE CASE

Naga Telephone Company, Inc. (Natelco) was organized in 1954; the authorized capital was
P100,000.00. In 1974, it decided to increase its authorized capital to P3, 000,000.00. As required by the
Public Service Act, Natelco filed an application for the approval of the increased authorized capital with
the Board of Communications (BOC) which was duly approved subject to certain conditions imposed by
the decision in BOC Case NO. 74-84 that the issuance of the shares of stocks will be for a period of one
year from January 8, 1975, after which no further issues will be made without previous authority from
BOC.

Pursuant to the approval given by the then BOC, Natelco filed its Amended Articles of Incorporation with
the SEC. When the amended articles were filed with the SEC, the original authorized capital of P100,
000.00 was already paid. Of the increased capital of P2, 900,000.00 the subscribers subscribed to
P580,000.00 of which P145,000 was fully paid.

On April 12, 1977, Natelco entered into a contract with Communication Services, Inc. (CSI) for the
“manufacture, supply, delivery and installation” of telephone equipment. In accordance with this
contract, Natelco issued 24,000 shares of common stocks to CSI on the same date as part of the down
payment.

On May 5, 1979, another 12,000 shares of common stocks were issued to CSI. In both instances, no prior
authorization from the Board of Communications, now the National Telecommunications Commission,
was secured pursuant to the conditions imposed by the decision in BOC Case NO. 74 - 84.
On May 19, 1979, the stockholders of the Natelco held their annual stockholders’ meeting to elect their
seven directors to their Board of Directors, for the year 1979-1980, wherein Pedro Lopez Dee (Dee) was
unseated as Chairman of the Board and President of the Corporation, but was elected as one of the
directors, together with his wife, Amelia Lopez Dee. In the election CSI was able to gain control of
Natelco when the latter’s legal counsel; Atty. Maggay won a seat in the Board with the help of CSI. In the
reorganization Atty. Maggay became president.

Petitioner Dee having been unseated in the election, filed a petition in the SEC questioning the validity
of the elections of May 19, 1979 upon the main ground that there was no valid list of stockholders
through which the right to vote could be determined. SEC issued restraining order which was elevated
to the Supreme Court where the enforcement of the SEC restraining order was restrained upon the
ground that the same was premature and the Commission should be allowed to conduct its hearing on
the controversy. Subsequently, the Supreme Court dismissed the petition which resulted in the
unseating of the Maggay group from the board of directors of Natelco in a “hold-over” capacity.

In the course of the proceedings in SEC Case No. 1748, respondent hearing officer issued an order on
June 23, 1981, declaring: (1) that CSI is a stockholder of Natelco and, therefore, entitled to vote; (2) that
unexplained 16,858 shares of Natelco appear to have been issued in excess to CSI which should not be
allowed to vote; (3) that 82 shareholders with their corresponding number of shares shall be allowed to
vote; and (4) consequently, ordering the holding of special stock-holder’ meeting to elect the new
members of the Board of Directors for Natelco based on the findings made in the order as to who are
entitled to vote. Due to this order, petitioner Dee filed a petition for certiorari/appeal with the SEC
which was sustained by the Commission en banc. A motion for reconsideration was filed but was denied.

On May 20, 1982, Antonio Villasenor filed with the CFI claiming that he was an assignee of an option to
repurchase 36,000 shares of CS of Natelco under a Deed of Assignment executed in his favor. On May
21, 1982, restraining order was issued by the lower court commanding desistance from the scheduled
election until further orders. Then on May 22, 1982, controlling majority of the stockholders proceeded
with the elections under the supervision of the SEC representatives. SEC recognized the election and the
duly elected directors of Lopez Dee group headed by Messrs. Justino De Jesus and Julio Lopez Dee kept
insisting no elections were held and refused to vacate their positions. On May 28, 1982, SEC issued
another order directing the hold-over directors and officers to turn over their respective posts and
directing the Sheriff of Naga City and other enforcement agencies to enforce its order. Hold-over officers
peacefully vacated.

On June 2, 1982, Villasenor filed a charge for contempt which on September 7, 1982, lower court
rendered CSI Nilda Ramos, Luciano Maggay, Desiderio Saavedra, Augusto Federis and Ernesto Miguel,
guilty of contempt of court. On September 17, 1982, CSI group filed a petition for certiorari and
prohibition with preliminary injunction or restraining order against the CFI. Then on April 14, 1983,
Intermediate Appellate Court annulled the contempt charge. Hence, this petition.
Issue:
1. Whether the issuance of 113,800 shares of Natelco to CSI, made during the pendency
of SEC Case 1748 in the Securities and Exchange Commission was valid.
2. Whether Natelco stockholders have a right of preemption to the 113,800 shares in
question; else, whether the Maggay Board, in issuing said shares without notifying Natelco
stockholders, violated their right of pre-emption to the unissued shares .
Held:

1. The issuance of 113,800 shares of Natelco stock to CSI made during the pendency of SEC Case
1748 in the Securities and Exchange Commission was valid. The findings of the SEC En Banc as to
the issuance of the 113,800 shares of stock was stated as follows: "But the issuance of 113,800 shares
was pursuant to a Board Resolution and stockholders' approval prior to 19 May 1979 when CSI was
not yet in control of the Board or of the voting shares. There is distinction between an order to issue
shares on or before 19 May 1979 and actual issuance of the shares after 19 May 1979. The actual
issuance, it is true, came during the period when CSI was in control of voting shares and the Board (if
they were in fact in control) - but only pursuant to the original Board and stockholders' orders, not on
the initiative to the new Board, elected 19 May 1979, which petitioners are questioning. The
Commission en banc finds it difficult to see how the one who gave the orders can turn around and
impugn the implementation of the orders he had previously given. The reformation of the contract is
understandable for Natelco lacked the corporate funds to purchase the CSI equipment.... Appellant
had raise the issue whether the issuance of 113,800 shares of stock during the incumbency of the
Maggay Board which was allegedly CSI controlled, and while the case was sub judice, amounted to
unfair and undue advantage. This does not merit consideration in the absence of additional evidence
to support the proposition." In effect, therefore, the stockholders of Natelco approved the issuance of
stock to CSI.

2. The issuance of the 113,800 stocks is not invalid even assuming that it was made without notice to
the stockholders as claimed by Dee, et. al.. The power to issue shares of stocks in a corporation is
lodged in the board of directors and no stockholders meeting is required to consider it because
additional issuance of shares of stocks does not need approval of the stockholders. Consequently, no
pre-emptive right of Natelco stockholders was violated by the issuance of the 113,800 shares to CSI.

ISSUES:
1. W/N SEC has the power and jurisdiction to declare null and void shares of stock issued by
NATELCO to CSI for violation of Sec. 20 (h) of the Public Service Act - NO
2. W/N Natelco stockholders have a right of preemption to the 113,800 shares
3. W/N the May 22, 1982 election was valid
HELD: Dismissed for lack of merit
1. NO
 The jurisdiction of the SEC is limited to matters intrinsically connected with the regulation of
corporations, partnerships and associations and those dealing with internal affairs of such
entities; P.D. 902-A does not confer jurisdiction to SEC over all matters affecting
corporations
 The jurisdiction of the SEC is limited to deciding the controversy in the election of the
directors and officers of Natelco
 The SEC is empowered by P.D. 902-A to decide intra-corporate controversies and that is
precisely the only issue in this case.
2. NO
 There is distinction between:
 an order to issue shares on or before May 19, 1979; and
 actual issuance of the shares after May 19, 1979 - CSI was in control of voting shares and
the Board
 The power to issue shares of stocks in a corporation is lodged in the board of directors and no
stockholders meeting is required to consider it because additional issuance of shares of
stocks does not need approval of the stockholders - no violation of preemptive right
3. YES.
 Clear from records that it was held
 within the jurisdiction of the lower court as it does not involve an intra-corporate matter but
merely a claim of a private party of the right to repurchase common shares of stock of
Natelco and that the restraining order was not meant to stop the election duly called for by
the SEC and a matter purely within the exclusive jurisdiction of the SEC
 temporary restraining order amounted to an injunctive relief against the SEC
 since the trial judge in the lower court did not have jurisdiction in issuing the questioned
restraining order, disobedience thereto did not constitute contempt

32
52/539 SCRA 222
539 SCRA 365 GR 152685 December 4, 2007

Philippine Long Distance Telephone Company vs. National

Telecommunications Commission, 539 SCRA 365, December 04, 2007

FACTS:

This case pertains to Section 40 (e) of the Public Service Act

(PSA), as amended on March 15, 1984, pursuant to Batas
Pambansa Blg. 325, which authorized the NTC to collect from
public telecommunications companies Supervision and Regulation
Fees (SRF) of PhP 0.50 for every PhP 100 or a fraction of the
capital and stock subscribed or paid for of a stock corporation,
partnership or single proprietorship of the capital invested, or of the
property and equipment, whichever is higher.

Under Section 40 (e) of the PSA, the NTC sent SRF assessments
to petitioner Philippine Long Distance Telephone Company (PLDT)
starting sometime in 1988. The SRF assessments were based on
the market value of the outstanding capital stock, including stock
dividends, of PLDT. PLDT protested the assessments contending
that the SRF ought to be based on the par value of its outstanding
capital stock. Its protest was denied by the NTC and likewise, its
motion for reconsideration.
PLDT appealed before the CA. The CA modified the disposition of
the NTC by holding that the SRF should be assessed at par value
of the outstanding capital stock of PLDT, excluding stock dividends.

ISSUE:

Whether or not the value transferred from the unrestricted retained

earnings of PLDT to the capital stock account pursuant to the
issuance of stock dividends is the proper basis for the assessment
of the SRF?

RULING:

NO.

In the case of stock dividends, it is the amount that the corporation

transfers from its surplus profit account to its capital account. It is
the same amount that can be loosely termed as the trust fund of
the corporation. The Trust Fund doctrine considers this subscribed
capital as a trust fund for the payment of the debts of the
corporation, to which the creditors may look for satisfaction. Until
the liquidation of the corporation, no part of the subscribed capital
may be returned or released to the stockholder (except in the
redemption of redeemable shares) without violating this principle.
Thus, dividends must never impair the subscribed capital;
subscription commitments cannot be condoned or remitted; nor
can the corporation buy its own shares using the subscribed capital
as the considerations therefor.

When stock dividends are distributed, the amount declared ceases

to belong to the corporation but is distributed among the
shareholders. Consequently, the unrestricted retained earnings of
the corporation are diminished by the amount of the declared
dividend while the stockholders equity is increased. Furthermore,
the actual payment is the cash value from the unrestricted retained
earnings that each shareholder foregoes for additional
stocks/shares which he would otherwise receive as required by the
Corporation Code to be given to the stockholders subject to the
availability and conditioned on a certain level of retained earnings.

In essence, therefore, the stockholders by receiving stock

dividends are forced to exchange the monetary value of their
dividend for capital stock, and the monetary value they forego is
considered the actual payment for the original issuance of the
stocks given as dividends. Therefore, stock dividends acquired by
shareholders for the monetary value they forego are under the
coverage of the SRF and the basis for the latter is such monetary
value as declared by the board of directors.

33
353 SCRA 23 GR 109491 February 28, 2001

Atrium Management Corporation vs. Court of Appeals, 353 SCRA

23, February 28, 2001
353 SCRA 23 – Business Organization – Corporation Law – Ultra Vires Act – Liability of
Corporate Officers
In 1981, Hi-Cement Corporation through Lourdes De Leon (its Treasurer) and Antonio De
Las Alas (its Chairman, now deceased) issued four postdated checks to E.T. Henry and Co.
The checks amount to P2 million. The checks are crossed checks and are only made payable
to E.T. Henry’s account. However, E.T. Henry still indorsed the checks to Atrium Management
Corporation (AMC). AMC then made sure that the checks were validly issued by requesting
E.T. Henry to get some confirmation from Atrium. Interestingly, De Leon confirmed the checks
and advised that the checks are okay to be rediscounted by AMC notwithstanding the fact
that the checks are crossed checks payable to no other accounts but that of E.T. Henry. So
when AMC presented the check, it was dishonored because Hi-Cement stopped payment.
Eventually, AMC sued Hi-Cement, E.T. Henry, and De Leon. The trial court ruled in favor of
AMC and made all the respondents liable.
 On appeal, Hi-Cement averred that De Leon’s act in signing the check was ultra vires
hence De Leon should be personally liable for the check. De Leon, on the other hand, insisted
that the checks were authorized by the corporation.
ISSUE: Whether or not De Leon’s act of signing the check constitutes an ultra vires act hence
making her personally liable.
HELD: No, the act is not ultra vires but De Leon is still personally liable. The act is not ultra
vires because the act of issuing the checks was well within the ambit of a valid corporate act.
De Leon as treasurer is authorized to sign checks. When the checks were issued, Hi-Cement
has sufficient funds to cover the P2 million.
As a rule, there are four instances that will make a corporate director, trustee or officer along
(although not necessarily) with the corporation personally liable to certain obligations. They
are:

1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders
or other persons;
2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action.

In the case at bar, De Leon is negligent. She was aware that the checks were only payable
to E.T. Henry’s account yet she sent a confirmation to Atrium to the effect that the checks can
be negotiated to them (Atrium) by E.T. Henry. Therefore, she may be held personally liable
along with E.T. Henry (but not with Hi-Cement where she is an officer).

34
545 SCRA 10 GR 151413 February 13, 2008

Cagayan Valley Drug Corporation vs. Commissioner of Internal

Revenue, 545 SCRA 10, February 13, 2008
FACTS OF THE CASE
Cagayan Valley Drug Corporation (CVDC) is a duly organized corporation
under Philippine laws, and a duly licensed retailer of medicine and other
pharmaceutical products. It operates two drugstores, under the name and style of
“Mercury Drug.” In 1998, CVDC filed a petition for review against BIR before G.R.
NO. 151413
Court of Tax Appeals due to BIR’s inaction on petitioner’s claim for
refund/tax credit pursuant to RA 7432 on the 20% sales discount it gave to senior
citizens in 1995. CTA denied the petition. Hence CVDC elevated the case to the
Court of Appeals.
The Court of Appeals dismissed the petition. According to the court, the
person who signed the verification and certification of absence of forum
shopping, a certain Jacinto J. Concepcion, president of CVDC, failed to adduce
proof that he was duly authorized by the board of directors to do so.
ISSUE
Whether CVDC’s president can sign the subject verification and
certification sans the approval of its Board of Directors.
RULING
With respect to a juridical person, Sec. 4, Rule 7 on verification and Sec. 5,
Rule 7 on certification against forum shopping are silent as to who the authorized
signatory should be. Said rules do not indicate if the submission of a board
resolution authorizing the officer or representative is necessary.
However, Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly
enunciates that all corporate powers are exercised, all business conducted, and
all properties controlled by the board of directors. A corporation has a separate
and distinct personality from its directors and officers and can only exercise its
corporate powers through the board of directors. Thus, it is clear that an
individual corporate officer cannot solely exercise any corporate power pertaining
to the corporation without authority from the board of directors. But in previous
cases, the Court has recognized the authority of some corporate officers to sign
the verification and certification against forum shopping. The Court has held the
following officials or employees of the company can sign the verification and
certification without need of a board resolution: the Chairperson of the Board of
Directors; the President of a corporation; the General Manager or Acting General
Manager; Personnel Officer; and an Employment Specialist in a labor case. The
determination of the sufficiency of authority of corporate officers or
representatives of the corporation to sign the verification or certificate against
forum shopping, being “in a position to verify the truthfulness and correctness of
the allegations in the petition.” The Court however believes that appending the
board resolution to the complaint or petition is the better procedure to obviate any
question on the authority of the signatory to the verification and certification.
In the case at bar, CVDC has substantially complied with the Rules on Civil
Procedure. The President of CVDC is in a position to verify the truthfulness and
correctness of the allegations in the petition. Also, the requisite board resolution
has been submitted albeit belatedly by CVDC.

35
512 SCRA 222 GR 146667 January 23, 2007

McLeod vs. National Labor Relations Commission, 512 SCRA

222, January 23, 2007
FACTS:
Feb 1995 McLeod filed a complaint for retirement benefits, vacation and sick leave
benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary
and 13th month pay, damages, attorney’s fees against Filsyn, Far Eastern Textile Mills,
Inc., Sta. Rosa Textiles, Inc., Patricio Lim and Eric Hu.
McLeod, an expert in textile manufacturing process, was hired as the Assistant Spinning
Manager of Universal Textiles, Inc. (UTEX), promoted to Senior Manager. UTEX
President Patricio Lim formed Peggy Mills, Inc. with Filsyn having controlling interest.
McLeod was absorbed by Peggy as its VP and Laguna Plant Manager. McLeod claimed
that respondents failed to pay him vacation and leave credits since Peggy was short of
funds; that he was entitled to the monetary value of 4 round trip business class plane
tickets on a Manila-London-Manila itinerary; that his monthly salary of 60k was reduced
by 9.9k for 39 months.
Filsyn sold Peggy Mills, Inc. to Far Eastern Textile Mills, Inc. Peggy Mills was renamed
as Sta. Rosa Textile with Patricio Lim as Chairman and President. When McLeod reached
the retirement age, he was only given a reduced 13th month pay ofP44,183.63, leaving
a balance ofP15,816.87.The owners of Far Eastern Textiles decided for cessation of
operations of Sta. Rosa Textiles. McLeod wrote to Lim requesting his retirement and
other benefits. Respondents offered compromise settlement of 300k which McLeod
rejected.
According to Respondents, Peggy Mills closed operations due to irreversible losses
but the corporation still exists at present. Peggy’s assets were acquired by Sta. RosaTextile
Corporation which was established but still remains non-operational. McLeod was hired
as consultant by Sta. Rosa but resigned. Respondents also allege that Filsyn and Far
Eastern Textiles are separate legal entities and have no employer relationship with McLeod;
that Lim is Sta Rosa’s President and Board Chairman; that respondent Eric Hu is Sta Rosa’s
Taiwanese Director; that complainant has no cause of action against Filsyn, Far
Eastern, Sta. Rosa Textile Corporation and Eric Hu; that Sta. Rosa only acquired the
assets and not the liabilities of Peggy Mills, Inc.; that Lim was only impleaded as Board
Chairman of Sta. Rosa Textile and not as private individual; that while McLeod was
Vice President and Plant Manager of Peggy Mills, the union staged astrike up to July
1992 resulting in closure of operations due to irreversible losses and it was due to
McLeod’s lack of attention and absence the strike continued. The attendance records
of McLeod show that he was either absent or worked at most two hoursa day; the
McLeod’s monthly salary at Peggy Mills was P50,495.00 and notP60,000.00; that Peggy
Mills, does not have a retirement program; that whatever amount complainant is entitled
should be offset with the counterclaims. McLeod was only hired as a consultant and not
an employee by Sta. Rosa. The attendance records wipes out any vacation/sick leave
accumulated. There is no basis for the claim of business class airline tickets.]
McLeod alleged that all respondents, one and the same entities, are solidarily liable.
They bear the same address at 12/F B.A. Lepanto Building, Makati City; that their
counsel holds office in the same address; same offices and key personnel such as Patricio
Lim and Eric Hu; [that the veil of corporate fiction may be pierced if itis used as a shield to
perpetuate fraud and confuse legitimate issues; that he never accepted the change in
his position from Vice-President and Plant Manger to consultant and it is incumbent
upon respondents to prove that he was only a consultant; that he never resigned from his
job but applied for retirement; Eric Hu is a top official of Peggy Mills that the closure of Peggy
Mills cannot be the fault of McLeod also because that the strike was staged on the
issue of CBA negotiations which is not part of the usual duties and responsibilities
as Plant Manager; that complainant is a British national and is prohibited by law in
engaging in union activities; that the alleged attendance was lifted from the logbook of a
security agency and is hearsay evidence; his limited hours was due to the strike but was on
call 24 hours a day as plant manager; the law itself provides for retirement benefits; that
Lim by way of Memorandum approved vacation and sick leave benefits; that
complainant was not made to sign an acknowledgement that their monthly compensation
includes holiday pay precisely because he is entitled to holiday pay over and above his
monthly pay.
Respondents alleged that except for Peggy Mills, the other respondents are not proper
persons in interest due to the lack of employer-employee relationship. Peggy Mills
alleged that it offered complainant his retirement benefits under RA 7641 but McLeod
refused.
The Labor Arbiter decided to hold all respondents as jointly and solidarily liable. On
Filsyn, Far Eastern, Sta Rosa, Lim an Hu’s appeal, the NLRC reversed. The NLRC
held that only Peggy was to pay McLeod. McLeod’s MR was dismissed. In resolving the
certiorari petition the CA held that Lim is jointly and solidarily liable with Peggy Mills.
The Court of Appealsruled that the fact that (1) all respondent corporations have
the same address; (2) all were represented by the same counsel, Atty. Isidro S.
Escano; (3) Atty. Escano holds office at respondent corporations’ address; and (4) all
respondent corporations have common officers and key personnel, would not justify the
application of the doctrine of piercing the veil of corporate fiction. Peggy and Filsyn
have only two interlocking incorporators and directors, namely, Patricio and Carlos
Palanca, Jr. Patricio deliberately and maliciously evaded PMI’s financial obligation to
McLeod. Despite his approval, Patricio refused and ignored to pay McLeod’s retirement
benefits.
Hence this petition, Mcleod’s argument pertinent to the topic of mergers is that after Far
Eastern purchased Peggy Mills in January 1993, McLeod "continued to work at
the same plant with the same responsibilities" until 30 November 1993. xxx Far Eastern
merely renamed Peggy Mills as Sta Rosa. It was for this reason that when he reached
the retirementage in 1993, he asked all the respondents for the payment of his benefits.
ISSUE:
WON there was a merger or consolidation of PMI and SRTI.
RULING:
NO THERE WAS NO MERGER OR CONSOLIDATION. There is no employer-employee
relationship between the other corporations except Peggy Mills. The SC affirmed the CA’s
decision insofar as Peggy’s liability but absolved Patricio Lim.
What took place between PMI and SRTI was dation in payment with lease. Peggy is indebted
to the DBP so the former executed REMs in favor ofthe latter. By virtue of an inter-
governmental agency arrangement, DBP transferred the Obligations, including the Assets,
to the Asset Privatization Trust ("APT") and the latter has received payment for the
Obligations from Peggy, under the Direct Debt Buy-Out ("DDBO") program thereby
causing APT to completely discharge and cancel the mortgage in the Assets and to
release the titles of the Assets back to PMI. PMI obtained cash advances totaling to
210M from Sta Rosa to enable Peggy to consummate the DDBO with APT, with SRTC
subrogating APT as PMI’s creditor thereby. PMI agreed to transfer all its rights, title and
interests in the Assets by way of a dation in payment to SRTC, provided that simultaneous
with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets.
As a rule, a corporation that purchases the assets of another will not be liable for
the debts of the selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets, except when any of the following circumstances
is present: (1) where the purchaser expressly or impliedly agrees to assume the
debts, (2) where the transaction amounts to a consolidation or merger of the corporations,
(3) where the purchasing corporation is merely a continuation of the selling corporation,
and (4) where the selling corporation fraudulently enters into the transaction to escape
liability for those debts. None of the foregoing exceptions is present. The SC was not
convinced that PMI fraudulently transferred these assets to escape its liability for any of its
debts. PMI had already paid its employees, except McLeod, their money claims.
Consolidation is the union of two or more existing corporations to form a new
corporation called the consolidated corporation. It is a combination by agreement
between two or more corporations by which their rights, franchises, and property are
united and become those of a single, new corporation, composed generally, although
not necessarily, of the stockholders of the original corporations.
On the other hand, is a union whereby one corporation absorbs one or more existing
corporations, and the absorbing corporation survives and continues the combined
business.
The parties to a merger or consolidation are called constituent corporations. In
consolidation, all the constituents are dissolved and absorbed by the new consolidated
enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both
cases, however, there is no liquidation of the assets ofthe dissolved corporations, and
the surviving or consolidated corporation acquires all their properties, rights and
franchises and their stockholders usually become its stockholders.
The surviving or consolidated corporation assumes automatically the liabilities of the
dissolved corporations, regardless of whether the creditors have consented or not to such
merger or consolidation.
In this case, there is no showing that the subject dation in payment involved any
corporate merger or consolidation. Neither is there any showing of those indicative factors
that SRTI is a mere instrumentality of PMI. SRTI did not expressly or impliedly agree to
assume any of PMI’s debts.
Also, McLeod did not present any evidence to show the alleged renaming of "Peggy Mills,
Inc." to "Sta. Rosa Textiles, Inc."McLeod could have presented evidence to support his
allegation of employer-employee relationship between him and any of Filsyn, SRTI, and
FETMI, but he did not. McLeod claims that "for purposes of determining employer liability, all
private respondents are one and the same employer" because: (1) they have the same
address; (2) they are all engaged in the same business; and (3) they have interlocking
directors and officers.
The fact that SRTI and PMI shared the same addres can be explained by the two companies’
stipulation in their Deed of Dation in Payment with Lease that "simultaneous with the dation
in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and
conditions stated hereunder." Filsyn and FETMI did not have the same address as
that of PMI. That respondent corporations have interlocking incorporators, directors, and
officers is of no moment. The only interlocking incorporators of PMI and Filsyn were Patricio
and Carlos Palanca, Jr. Patricio was never an officer of FETMI. Respondent Eric Hu was
never anofficer of PMI.I
n light of the foregoing, and there being no proof of employer-employee relationship
between McLeod and respondent corporations and Eric Hu, McLeod’s cause of
action is only against his former employer, PMI.

36
195 SCRA 797 GR 91925 April 16, 1991

Cojuangco, Jr. vs. Roxas, 195 SCRA 797, April 16, 1991

37
454 SCRA 54 GR 131394 March 28, 2005

Lanuza vs. Court of Appeals, 454 SCRA 54, March 28, 2005
FACTS OF THE CASE
The Philippine Merchant Marine School (PMMI) was incorporated in 1952 with
700 founders’, Shares and 76 common shares as its initial stock subscription
reflected in the articles of incorporation.it was only in 1978 when the company’s
stock and transfer book was registered, recording 33 common shares as the only
issued and outstanding shares of PMMI. In a dispute over the basis of a quorum
in a stockholders’ meeting, private respondents contend that the same should be
based on the initial subscribed capital stock as reflected in the 1052 articles of
incorporation, and not on the number of issued and outstanding shares as recorded in
1978 in the company’s stock and transfer book. Petitioners contend otherwise.
Both the SEC en banc and the Court of Appeals ruled in favor of private
respondents. Hence, this petition seeking to nullify the assailed decision.
ISSUE
What should be the basis in determining the quorum in the stockholders’
meeting?
RULING
The initial subscribed capital stock as reflected in the articles of incorporation
should be made the basis in the determination of a quorum. The article of
incorporation defines the charter of the corporation and its contractual relations with the
state and the stockholders. The contents thereof are binding not only on the corporation
but also on its shareholders. In the instant case, the articles of incorporation
indicate that the company had 776 issued and outstanding shares. On the other
hand, the stock and transfer book is not in any sense a public record and only
constitutes prima facie evidence. Hence, it may be impeached by other competent
evidence. Therefore, the same cannot be used as the sole basis for determining the quorum
as it does not reflect the totality of shares which have been subscribed, more so when
the articles of incorporation show a significantly larger amount of shares issued
and outstanding.

38
206 SCRA 740 GR 95696 March 3, 1992

Tan vs. Securities and Exchange Commission, 206 SCRA 740, March 03,
1992
Facts:
Respondent Corporation, Visayan Educational Supply was a registered corporation on
October 1979. Petitioner Alfonso S. Tan is an incorporator of said corporation holding 400
shares of capital stock with a par value of 100, evidenced by certificate of stock No.2.
He was elected as President and held such position until 1982 but remained in the
Board of Directors until 1983. In 1981 two other incorporators withdraw from the
corporation and assigned their shares represented by certificate of stock No. 4 and No. 5
to the corporation and were paid 40% of the corporate stock in trade. Due to the withdrawal
of the said incorporators and to complete the membership of the five(5) directors of the
board, petitioner sold fifty(50) shares out of his 400 shares of capital stock to his brother,
Angel S. Tan. Another incorporatoralso sold fifty (50) of his share of capital stock to
Teodora S. Tan in order to complete the minimum required number of Board of Directors.
As a result of the sale by petitioner of his fifty (50) shares, certificate of stock No.2 was
cancelled by the corporate secretary and respondent Patricia Aguillar, by virtue of a
resolution which was passed and approved while petitioner was still a member of the
Board of Directors of the respondent Corporation. But said cancelled certificate of
stock was not surrendered by the petitioner.
The cancelled certificate of stock No.2 was replaced by the issuance of certificate of
stock No.6 for the new owner and newly elected member of the board and at the same
time the new Vice-President, Angel S. Tan, certificate of stock No.8 for the reduced share
of respondent Alfonso Tan. A request was made from petitioner Alfonso Tan to make
proper endorsement of the cancelled certificate of stock No.2 as well as the newly issued
certificate of stock No.8 but he did not indorsed, instead he kept the cancelled certificate
of stock No.2 and return only certificate of stock No.8. When petitioner dislodge from
his position as President, he withdrew from the corporation on the condition that he be paid
with stock in trade in lieu of the value of his shares. After he withdraw of the stocks,
the board of directors, held in a meeting cancelled certificate of stock No.2 and No.8
of the withdrawing stockholder, here in petitioner, in the corporate stock and transfer book,
and submitted thereof the minutes of the meeting to the Securities and Exchange
commission. The petitioner question the cancellation of his aforesaid stock certificate No.2
and No.8 countering that the deprivation of his shares despite non-endorsement or surrender
was withoutthe process required in Sec.63 of the Corporation code.
The Securities and Exchange Commission Extension Office hearing officer in Cebu, Mr. Felix
Chan ruled and held that the cancellation of the petitioner’s stock certificate No.2 and the
subsequent insurance of stock certificate No.8 were null and void. On appeal, the
Securities and Exchange Commission en banc unanimously overturned the decision of the
hearing officer hence, a petition for certiorari was filed by the petitioner before the Supreme
Court.
Issue:
Whether or not the cancellation and transfer of petitioner’s shares and certificate of stock
No.2 as well as the issuance and cancellation of the certificate of Stock No.8 was null or
void and runs counter with the Provision of Section 63 of theCorporation Code.
Ruling:
The court ruled that the requirement of Section 63 regarding the “actual delivery and
endorsement of the certificate” in question for a valid transfer of certificate of stock is not
mandatory but merely permissive become of theuse of the term “may”. From the given
facts, there was already delivery of unendorsed stock certificate No 2, which is essential
to the insurance of stock certificate No 6. It was only returned to the petitioner for
his proper endorsement which he deliberately failed to do so. Since Stock Certificate
No.2 was already cancelled and such cancellation was reported the respondent
Commission, there was no more necessity for the same certificate to be endorsed by
the petitioner. Moreover said transfer was earlier recorded or registered in the corporate
stock and transfer book. Furthermore, the certificate is not stock in the corporation but is
merely evidence of the holder’s interest and status in the corporation, his ownership
of the share represented thereby, but is not in law the equivalent of ownership. The
Supreme Court affirmed the decision of the Securities and Exchange Commission
declaring the cancellation and transfer of stock petitioner valid.

39
592 SCRA 169 GR 174986 July 7, 2009

Raquel-Santos vs. Court of Appeals, 592 SCRA 169, July 07, 2009

40
354 SCRA 207 GR 131889 March 12, 2001

Gochan vs. Young, 354 SCRA 207, March 12, 2001

Facts :
Felix Gochan and Sons Realty Corporation (Gochan Realty) was registered with the
SEC on June 1951, with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan, Tomasa
Gochan, Esteban Gochan and Crispo Gochan as its incorporators. Felix Gochan Sr.'s
daughter, Alice inherited 50 shares of stock in Gochan Realty from the former. Alice died
in 1955, leaving the 50 shares to her husband, John Young, Sr. In 1962, the Regional
Trial Court of Cebu adjudicated 6/14 of these shares to her children, Richard Young,
David Young, Jane Young Llaban, John Young Jr., Mary Young Hsu and Alexander
Thomas Young (the Youngs). Having earned dividends, these stocks numbered 179
by 20 September 1979. 5 days later (25 September), at which time all the children
had reached the age of majority, their father John Sr., requested Gochan Realty to partition
the shares of his late wife by cancelling the stock certificates in his name and issuing
in lieu thereof, new stock certificates in the names of the Youngs. On 17 October 1979,
Gochan Realty refused, citing as reason, the right of first refusal granted to the
remaining stockholders by the Articles of Incorporation. In 1990, John, Sr. died,
leaving the shares to the Youngs. On 8 February 1994, Cecilia Gochan Uy and Miguel
Uy filed a complaint with the SEC for issuance of shares of stock to the rightful owners,
nullification of shares of stock, reconveyance of property impressed with trust,
accounting, removal of officers and directors and damages against Virginia Gochan, et. al.
(Gochans) A Notice of Lis Pendens was annotated to the real properties of the corporation.
On 16 March 1994, the Gochans moved to dismiss the complaint alleging that: (1) the
SEC had no jurisdiction over the nature of the action; (2) the the Youngs were not the real
parties-in-interest and had no capacity to sue; and (3) the Youngs' causes of action
were barred by the Statute of Limitations. The motion was opposed by the Youngs. On
29 March 1994, the Gochans filed a Motion for cancellation of Notice of Lis Pendens. The
Youngs opposed the said motion. On 9 December 1994, the SEC, through its Hearing
Officer, granted the motion to dismiss and ordered the cancellation of the notice of lis
pendens annotated upon the titles of the corporate lands; holding that the Youngs never been
stockholders of record of FGSRC to confer them with the legal capacity to bring and maintain
their action, and thus, the case cannot be considered as an intra-corporate controversy
within the jurisdiction of the SEC; and that on the allegation that the Youngs brought the action
as a derivative suit on their own behalf and on behalf of Gochan Realty, rhe failure to
comply with the jurisdictional requirement on derivative action necessarily result in the
dismissal of the complaint. The Youngs filed a Petitionfor Review with the Court of
Appeals. On 28 February 1996, the Court of Appeals ruled that the SEC had no
jurisdiction over the case as far as the heirs of Alice Gochan were concerned,
because they were not yet stockholders of the corporation. On the other hand, it
upheld the capacity of Cecilia Gochan Uy and her spouse Miguel Uy. It also held that
the Intestate Estate of John Young Sr. was an indispensable party. The appellate court
further ruled that the cancellation of the notice of lis pendens on the titles of the
corporate real estate was not justified. Moreover, it declared that the Youngs' Motion
for Reconsideration before the SEC was not pro forma; thus, its filing tolled the appeal
period. The Gochans moved for reconsideration but were denied in a Resolution dated
18 December 1997. The Gochans filed the Petition for Review on Certiorari.
Issue:
Whether the action filed by the Spouses Uy was not a derivative suit, because the
spouses and not the corporation were the injured parties.
Ruling :
The following portions of the Complaint shows allegations of injury to the corporation
itself, to wit: "That on information and belief, in further pursuance of the said conspiracy
and for the fraudulent purpose of depressing the value of the stock of the Corporation and
to induce the minority stockholders to sell their shares of stock for an inadequate
consideration as aforesaid, respondent Esteban T. Gochan . . ., in violation of their duties
as directors and officers of the Corporation . . ., unlawfully andfraudulently appropriated
[for] themselves the funds of the Corporation by drawing excessive amounts in the
form of salaries and cash advances . . . and by otherwise charging their purely
personal expenses to the Corporation"; and "That the payment of P1,200,000.00 by
the Corporation to complainant Cecilia Gochan Uy for her shares of stock constituted an
unlawful, premature and partial liquidation and distribution of assets to a stockholder,
resulting in the impairment of the capital of the Corporation and prevented it from
otherwise utilizing said amount for its regular and lawful business, to the damage and
prejudice of the Corporation, its creditors, and of complainants as minority stockholders."
As early as 1911, the Court has recognized the right of a single stockholder to file
derivative suits. "Where corporate directors have committed a breach of trust either by their
frauds, ultra vires acts, or negligence, and the corporation is unable or unwilling to
institute suit to remedy the wrong, a single stockholder may institute that suit, suing
on behalf of himself and other stockholders and for the benefit of the corporation, to bring
about a redress of the wrong done directly to the corporation and indirectly to the
stockholders." Herein, the Complaint alleges all the components of a derivative suit.
The allegations of injury to the Spouses Uy can coexist with those pertaining to the
corporation. The personal injury suffered by the spouses cannot disqualify them from filing a
derivative suit on behalf of the corporation. It merely gives rise to an additional cause of
action for damages against the erring directors. This cause of action is also included
in the Complaint filed before the SEC. The Spouses Uy have the capacity to file a derivative
suit in behalf of and for the benefit of the corporation. The reason is that the allegations
of the Complaint make them out as stockholders at the time the questioned transaction
occurred, as well as at the time the action was filed and during the pendency of the action.

FACTS:
Respondents were stockholders of the Felix Gochan and Sons Realty Corporationand the
Mactan Realty Development Corporation. Respondents offered to sell theirshares in the two
corporations to the individual petitioners in consideration of thesum of P200,000,000:00.
Petitioners accepted and paid the said amount torespondents.
Respondents, through Crispo Gochan, Jr., required individual petitioners to executea
"promissory note. The former drafted the promissory note in his own handwritingand had
the same signed by the petitioners. Unbeknown to petitioners, CrispoGochan, Jr.
inserted in the "promissory note" a phrase that says, "Said amount is inpartial consideration
of the sale."
Respondents filed a complaint against petitioners for specific performance
anddamages alleging that the petitioners that offered to buy their shares of
stock,inconsideration of P200M and multiple properties. Accordingly, respondents
claimedthat they are entitled to the conveyance of the properties, in addition to the amountof
P200,000,000.00, which they acknowledge to have received from petitioners plusdamages.
Petitioners filed their answer, raising the following affirmative defences one of whichis the
lack of jurisdiction by the trial court for non-payment of the correct docket fees;
Trial court ruled in favor of the defendants. It cited that respondents paid
thenecessary filing and docket fees of at least P165K.
MR denied. Petition for certiorari with CA dismissed. MR denied. Hence this petition.
ISSUE:
1. Did the respondent filed and paid the necessary docket fees to warrant court’s jurisdiction?
2. What is the real nature of the case?
3. What should be the basis for the assessment of the correct docket fees?
HELD:
1. NO
2. Real action not specific performance
3. Assessed value of the property, or the estimated value
The rule is well-settled that the court acquires jurisdiction over any case only upon the
payment of the prescribed docket fees. In the case of Sun Insurance Office, Ltd. (SIOL)v.
Asuncion,12 this Court held that it is not simply the filing of the complaint or
appropriate initiatory pleading, but the payment of the prescribed docket fee that vests atrial
court with jurisdiction over the subject matter or nature of the action.
Petitioners, that the complaint is in the nature of a real action which affects title to real
properties; hence, respondents should have alleged therein the value of the real
properties which shall be the basis for the assessment of the correct docket fees.
It is necessary to determine the true nature of the complaint in order to resolve the issue of
whether or not respondents paid the correct amount of docket fees therefor. In this
jurisdiction, the dictum adhered to is that the nature of an action is determined by the
allegations in the body of the pleading or complaint itself, rather than by its title or heading.
The caption of the complaint below was denominated as one for "specific performance
and damages." The relief sought, however, is the conveyance or transfer of real property, or
ultimately, the execution of deeds of conveyance in their favor of the real properties
enumerated in the provisional memorandum of agreement. Under these circumstances, the
case below was actually a real action, affecting as it does title to or possession of real
property.
Real action is one where the plaintiff seeks the recovery of real property or, as indicated in
section 2(a) of Rule 4 (now Section 1, Rule 4 of the 1997 Rules of Civil Procedure), areal
action is an action affecting title to or recovery of possession of real property. In the case at
bar, therefore, the complaint filed with the trial court was in the nature of areal action,
although ostensibly denominated as one for specific performance. Consequently,
the basis for determining the correct docket fees shall be the assessed value of the property,
or the estimated value thereof as alleged by the claimant
We are not unmindful of our pronouncement in the case of Sun Insurance, to the effect that
in case the filing of the initiatory pleading is not accompanied by payment of the docket fee,
the court may allow payment of the fee within a reasonable time but in no case beyond the
applicable prescriptive period. However, the liberal interpretation of the rules relating to
the payment of docket fees as applied in the case of Sun Insurance cannot apply
to the instant case as respondents have never demonstrated any willingness to abide by
the rules and to pay the correct docket fees. Instead, respondents have stubbornly
insisted that the case they filed was one for specific performance and damages
and that they actually paid the correct docket fees therefor at the time of the filing of the
complaint.

41
599 SCRA 585 GR 177066 September 11, 2009

Puno vs. Puno Enterprises, Inc., 599 SCRA 585, September 11, 2009
phone

42
590 SCRA 548 GR 168863 June 23, 2009
Hi-Yield Realty, Incorporated vs. Court of Appeals, 590 SCRA 548, June
23, 2009
FACTS:
Leonora H. Torres was a major stockholder of Honorio Torres & Sons, Inc. (HTSI)
owning 55% of the outstanding shares who allegedly, together with Glenn and Stephanie
Torres, entered into a loan obligation on behalf of HTSI and without authority of the
Board of Directors. However, the mortgage was foreclosed and sold to Hi-Yield Realty.
For this, Roberto Torres, a stockholder of HTSI filed a petition for annulment of the Real
Estate Mortgage and Foreclosure Sale. Hi-Yield Realty moved for its dismissal but was
denied by the RTC and later by CA ruling that the case was a real action in a form of a
derivative suit and that the prayer for annulment of mortgage and foreclosure
proceedings was merely incidental to the main action. Hence, this petition for certiorari
against CA.
ISSUE:
Whether the suit filed by Roberto Torres was a derivative suit.
RULING:
The Supreme Court (SC) ruled that the case was indeed a derivative suit which does not
require to be filed were the subject properties were located rather, may be instituted were
the corporation’s principal office is located. Moreover, SC explained that Roberthad
fulfilled the requisites before a stockholder could file a derivative suit: a.) He was a stockholder
at the time of the transaction; b.) He has tried to exhaust intra-corporate remedies (Found
to be inapplicable in Robert’s case because the earnest effort of Robert to arrive at a
compromise was rendered inutile considering that those impleaded control the
corporation); c.) The cause of action devolves on the corporation.
In conclusion, SC settled that CA did not commit grave abuse of discretion hence the petition
was dismissed.

43
589 SCRA 588 GR 177549 June 18, 2009

Yu vs. Yukayguan, 589 SCRA 588, June 18, 2009

phone

44

585 SCRA 300 GR 165443 April 16, 2009

Calatagan Golf Club, Inc. vs. Clemento, Jr., 585 SCRA 300, April 16,
2009
phone
Facts:
Clemente applied to purchase one share of stock of Calatagan, indicating in his application for
membership his mailing address at Phimco Industries, Inc., complete residential address, office
and residence telephone numbers, as well as the company with which he was connected.
Calatagan issued to him a Certificate of Stock No. A-01295 on May 2, 1990 after paying
120,000php for share.
Calatagan charges monthly dues on its members. The provisions of monthly dues is
incorporation in Calatagan’s Articles of Incorporation and By
-Laws. It is also reproduced at the back of each certificate of stock.
The amount to be paid for the monthly dues should be no less than 50php, in addition to such
fees as may be charged for the actual use of facilities
Clemente became a member, the monthly charge stood at 400php. He paid 3,000php for his
monthly dues on march 21, 1991 and another 5,400php on December 9, 1991. Then he ceased
paying the dues. At that point, his balance amounted to 400php

Issue
Whether or not Calatagan Golf Club acted in bad faith when it sold Clemente’s share

Ruling
Calatagan’s bad faith and failure to observe its own By
-Laws had resulted not merely in
the loss of Clemente’s privilege to play golf at its gold course and avail of its amenities,
but also in significant pecuniary damage to him
The bad faith exhibited by Calatagan brings into operation Articles 19, 20, and 21 of the Civil
Code
The CA awarded Clemente 200,000php as moral damages, 100,000pho as exemplary
damages, and 100,000php attorney’s fees
Wherefore, the petition is denied. The Decision of the Court of Appeals is Affirmed. Costs
against petitioner.

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