TUNA PROCESSING, INC. v.

PHILIPPINE KINGFORD
G.R. No. 185582 February 29, 2012

FACTS:

Kanemitsu Yamaoka, five Philippine tuna processors, and respondent Kingford entered into a Memorandum of
Agreement (MOA), which provided, among others, the establishment of Tuna Processors, Inc. (TPI).

Due to a series of events, the licensees, including respondent Kingford, withdrew from petitioner TPI and
correspondingly reneged on their obligations. Petitioner submitted the dispute for arbitration before the International
Centre for Dispute Resolution in the State of California, USA and won the case against respondent.

To enforce the award, petitioner TPI filed a Petition for Confirmation, Recognition, and Enforcement of Foreign
Arbitral Award before the RTC of Makati City.

The petition was dismissed on the ground that the petitioner lacked legal capacity to sue in the Philippines.

Petitioner TPI now seeks to nullify the order of the trial court dismissing its Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award.

ISSUE:

Can a foreign corporation not licensed to do business in the Philippines, but which collects royalties from entities in
the Philippines, sue here to enforce a foreign arbitral award?

RULING:

The petition is impressed with merit.

We reiterate that the foreign corporation’s capacity to sue in the Philippines is not material insofar as the recognition
and enforcement of a foreign arbitral award is concerned.

Following the generalia specialibus non derogant principle, the Alternative Dispute Resolution Act of 2004 shall apply
in this case as the Act, as its title – An Act to Institutionalize the Use of an Alternative Dispute Resolution System in
the Philippines and to Establish the Office for Alternative Dispute Resolution, and for Other Purposes – would
suggest, is a law especially enacted to actively promote party autonomy in the resolution of disputes or the freedom
of the party to make their own arrangements to resolve their disputes. It specifically provides exclusive grounds
available to the party opposing an application for recognition and enforcement of the arbitral award.

Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for
recognition and enforcement of the arbitral award may raise only those grounds that were enumerated under Article V
of the New York Convention, and not one of these exclusive grounds touched on the capacity to sue of the party
seeking the recognition and enforcement of the award.

Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may petition the court to recognize and
enforce a foreign arbitral award. The contents of such petition are enumerated in Rule 13.5. Capacity to sue is not
included.

Oppositely, in the Rule on local arbitral awards or arbitrations in instances where the place of arbitration is in the
Philippines, it is specifically required that a petition to determine any question concerning the existence, validity and
enforceability of such arbitration agreement available to the parties before the commencement of arbitration and/or a
petition for judicial relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining its
jurisdiction after arbitration has already commenced should state [t]he facts showing that the persons named as
petitioner or respondent have legal capacity to sue or be sued.

When a party enters into a contract containing a foreign arbitration clause and, as in this case, in fact submits itself to
arbitration, it becomes bound by the contract, by the arbitration and by the result of arbitration, conceding thereby the
capacity of the other party to enter into the contract, participate in the arbitration and cause the implementation of the
result.
The subject Resolution was REVERSED and SET ASIDE.

PHIL. NATIONAL CONSTRUCTION CORP. vs PABION

G.R. No. 131715, December 8, 1999

Facts: Private respondents Ernesto Pabion and Lovella Ramiro, claiming to be stockholders of the PNCC filed with
SEC a verified petition, therein alleging that since 1982 or for a period of 12 years, there has been no stockholders’
meeting of the PNCC to elect the corporation’s BOD, thus enabling the incumbent directors to hold on to their position
beyond their 1-yr term, in violation of PNCC’s By-Laws and the Corporation Code. Private respondents, therefore
prayed the SEC to issue an order “ordering the officers of PNCC or, in the alternative, authorizing petitioners, to call
and hold a meeting of the stockholders for the purpose of electing new directors. The care was assigned to SEC
Hearing Officer Manuel Perea.

The Commission en banc held that PNCC being incorporated under the Corporation Code is therefore, subject to
Section 50 of the Corporation Code which requires the holding of regular stockholders’ meeting for the purpose of
selecting PNCC’s BOD.

Issues:
1) Can SEC determine the corporate status of PNCC?
2) Does SEC have jurisdiction over GOCC’s? Does it have the authority to compel PNCC to hold a stockholders’
meeting for the purpose of electing members of a BOD?
3) Is PNCC an acquired-asset corporation?

Held:
1) Yes. It is certainly absurd to say that SEC is without jurisdiction to determine if PNCC is a GOCC simply because
the latter claims to be one. The President does not “determine” whether a corporation is a GOCC or not. It is the law
that does. PNCC’s status as a GOCC can be ruled upon by SEC based on law.

2) Yes. GOCCs may either be (1) with original charter or created by special law; or (2) incorporated under general
law, via either the Old Corporation Code or the New Corporation Code. SEC has no jurisdiction over corporations of
the first type primarily because they are governed by their charters. But even this is not absolute, since the
corporation Code may apply suppletorily, either by operation of law or through express provision in the charter.

On the other hand, over GOCCs established or organized under Corporation Code, the SEC can exercise jurisdiction.
These GOCCs are regarded as private corporations despite common misconception. That the government may own
the controlling shares in the corporation does not diminish the fact that the latter owes its existence to the Corporation
Code. Prescinding from such premises, it necessarily follows that SEC can compel PNCC to hold a stockholders’
meeting for the purpose of electing members of the latter’s BOD as clearly provided for by Section 50 of the
Corporation Code.

3) Yes. PNCC is indeed an acquired asset corporation as defined in Section 2 (a) of A.O. 59, to wit: a corporation
“under private ownership, the voting or outstanding share of which (i) were conveyed to the government financial
institutions in satisfaction of debts”.

Moreover, there is no inconsistency between AO 59 and EO 292 otherwise known as Revised Administrative Code.
AO 59 does not purport to have established a new kind of corporation that supersedes EO 292. Neither does the
former seek to revise the definition of GOCC given in the latter. What AO 59 in fact does is to distinguish GOCCs in
general from those that are sought to be privatized. In fact, the definition given in EO 292 itself stated that the GOCCs
“may be further categorized”. This caveat suggests that the definition is broad enough to admit distinctions as to the
kinds of GOCCs defined under AC 59.

Hence, PNCC is as a GOCC under EO 292. However, for purposes of AO 59, particularly in the application of Section
16 thereof, PNCC is an acquired asset corporation. In this light, the alleged inconsistency is more apparent than real.

REPUBLIC v. CITY OF PARAÑAQUE,

GR No. 191109, 2012-07-18

Facts:
The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential Decree (P.D.) No.
1084 (Creating the Public Estates Authority, Defining its Powers and Functions, Providing Funds Therefor and For
Other Purposes) which took... effect on February 4, 1977 to provide a coordinated, economical and efficient
reclamation of lands, and the administration and operation of lands belonging to, managed and/or operated by, the
government with the object of maximizing their utilization and hastening their... development consistent with public
interest.

On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President Ferdinand Marcos, PEA
was designated as the agency primarily responsible for integrating, directing and coordinating all reclamation projects
for and on behalf of the National

Government.

On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380 transforming PEA into PRA,
which shall perform all the powers and functions of the PEA relating to reclamation activities.

By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila Bay, including
those located in Parañaque City, and was issued Original Certificates of Title (OCT Nos. 180, 202, 206, 207, 289,
557, and 559) and Transfer Certificates of

Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.

On February 19, 2003, then Parañaque City Treasurer Liberato M. Carabeo (Carabeo) issued Warrants of Levy on
PRA's reclaimed properties (Central Business Park and Barangay San Dionisio) located in Parañaque City based on
the assessment for delinquent real property... taxes made by then Parañaque City Assessor Soledad Medina Cue for
tax years 2001 and 2002.

On January 8, 2010, the RTC rendered its decision dismissing PRA's petition. In ruling that PRA was not exempt from
payment of real property taxes, the RTC reasoned out that it was a GOCC under Section 3 of P.D. No. 1084. It was
organized as a stock corporation because it had an... authorized capital stock divided into no par value shares. In
fact, PRA admitted its corporate personality and that said properties were registered in its name as shown by the
certificates of title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of Section 193... of Republic Act
(R.A.) No. 7160 [Local Government Code (LGC)] which was the prevailing law in 2001 and 2002 with respect to real
property taxation. The RTC also ruled that the tax exemption claimed by PRA under E.O. No. 654 had already been
expressly repealed by R.A. No.

7160 and that PRA failed to comply with the procedural requirements in Section 206 thereof.

PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the Administrative Code.
Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution because it is not required to meet the test
of economic viability. Instead, PRA is a... government instrumentality vested with corporate powers and performing
an essential public service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code.
Although it has a capital stock divided into shares, it is not authorized to distribute... dividends and allotment of
surplus and profits to its stockholders. Therefore, it may not be classified as a stock corporation because it lacks the
second requisite of a stock corporation which is the distribution of dividends and allotment of surplus and profits to
the... stockholders.

It insists that it may not be classified as a non-stock corporation because it has no members and it is not organized
for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil
service, or similar purposes, like... trade, industry, agriculture and like chambers as provided in Section 88 of the
Corporation Code.

Moreover, PRA points out that it was not created to compete in the market place as there was no competing
reclamation company operated by the private sector. Also, while PRA is vested with corporate powers under P.D. No.
1084, such circumstance does not make it a corporation but... merely an incorporated instrumentality and that the
mere fact that an incorporated instrumentality of the National Government holds title to real property does not make
said instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987 recognizes a...
scenario where a piece of land owned by the Republic is titled in the name of a department, agency or
instrumentality.

Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is exempt from payment of
real property tax except when the beneficial use of the real property is granted to a taxable person. PRA claims that
based on Section 133(o) of the LGC, local... governments cannot tax the national government which delegate to local
governments the power to tax.

It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt from the payment of
real estate taxes. Reclaimed lands retain their inherent potential as areas for public use or public service. While the
subject reclaimed lands are still in its... hands, these lands remain public lands and form part of the public domain.
Hence, the assessment of real property taxes made on said lands, as well as the levy thereon, and the public sale
thereof on April 7, 2003, including the issuance of the certificates of sale in favor of... the respondent Parañaque City,
are invalid and of no force and effect.

Issues:

Whether the Trial Court erred when it failed to consider that reclaimed lands are part of the public domain.

THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED LANDS ARE PART OF
THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL PROPERTY TAX.

Ruling:

The Court finds merit in the petition.

In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot be
considered as a stock corporation because although it has a capital stock divided into no par value shares as
provided in Section 7... of P.D.

No. 1084, it is not authorized to distribute dividends, surplus allotments or profits to stockholders. There is no
provision whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances pertaining to PRA,
particularly, E.O. No. 525,... E.O.

No. 654... and EO No. 798... that authorizes PRA to distribute dividends, surplus allotments or profits to its
stockholders.

PRA cannot be considered a non-stock corporation either because it does not have members. A non-stock
corporation must have members.

Moreover, it was not organized for any of the purposes mentioned in Section 88 of the Corporation Code. Specifically,
it... was created to manage all government reclamation projects.

Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, thus:

SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.-

(1) The President shall have the power to reserve for settlement or public use, and for specific public purposes, any
of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter
remain subject to the specific public... purpose indicated until otherwise provided by law or proclamation.

Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are properties of public
dominion. The ownership of such lands remains with the State unless they are withdrawn by law or presidential
proclamation from public use.

Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of Manila Bay are part of
the "lands of the public domain, waters x x x and other natural resources" and consequently "owned by the State." As
such, foreshore and submerged areas

"shall not be alienated," unless they are classified as "agricultural lands" of the public domain. The mere reclamation
of these areas by PEA does not convert these inalienable natural resources of the State into alienable or disposable
lands of the public domain. There must be... a law or presidential proclamation officially classifying these reclaimed
lands as alienable or disposable and open to disposition or concession. Moreover, these reclaimed lands cannot be
classified as alienable or disposable if the law has reserved them for some public or... quasi-public use.

As the Court has repeatedly ruled, properties of public dominion are not subject to execution or foreclosure sale.
Thus, the assessment, levy and foreclosure made on the subject reclaimed lands by respondent, as well as the
issuances of certificates of... title in favor of respondent, are without basis.

Principles:

Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has capital stock
divided into shares; and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its
stockholders. If only one... requisite is present, it cannot be properly classified as a stock corporation. As for non-
stock corporations, they must have members and must not distribute any part of their income to said members.

Manila International Airport Authority vs. Court of Appeals, Paranaque City

G.R. No. 155650 July 20, 2006

FACTS:

MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years 1992
to 2001. MIAA’s real estate tax delinquency was estimated at P624 million.

The City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands
and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency.

MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary
injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing real
estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings.

Paranaque’s Contention: Section 193 of the Local Government Code expressly withdrew the tax exemption privileges
of “government-owned and-controlled corporations” upon the effectivity of the Local Government Code. Respondents
also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes
all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government
Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real
estate tax.

MIAA’s contention: Airport Lands and Buildings are owned by the Republic. The government cannot tax itself. The
reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such
a case the tax debtor is also the tax creditor.

ISSUE:

Whether Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws?

RULING:

Yes. Ergo, the real estate tax assessments issued by the City of Parañaque, and all proceedings taken pursuant to
such assessments, are void.

1. MIAA is Not a Government-Owned or Controlled Corporation

MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and
thus exempt from local taxation.

MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares.

MIAA is also not a non-stock corporation because it has no members. A non-stock corporation must have members.

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers.
When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time,
MIAA exercises “all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order.”

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like “roads, canals,
rivers, torrents, ports and bridges constructed by the State,” are owned by the State. The term “ports” includes
seaports and airports. The MIAA Airport Lands and Buildings constitute a “port” constructed by the State. Under
Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned
by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public
does not remove the character of the Airport Lands and Buildings as properties for public use.

The charging of fees to the public does not determine the character of the property whether it is of public dominion or
not. Article 420 of the Civil Code defines property of public dominion as one “intended for public use.” The terminal
fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the
income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as
an airport for public use. Such fees are often termed user’s tax. This means taxing those among the public who
actually use a public facility instead of taxing all the public including those who never use the particular public facility.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject
of an auction sale.

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public
or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and compel the
auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book
I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic. n
MIAA’s case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive
head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such
deed of conveyance.

d. Transfer to MIAA was Meant to Implement a Reorganization

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a
division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the
beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any
ownership rights over MIAA’s assets adverse to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Sec 234 of the LGC provides that real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person following are exempted from payment of the real property tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real
estate tax.

Gamboa v. Teves etal.,

GR No. 176579, October 9, 2012
Facts: The issue started when petitioner Gamboa questioned the indirect sale of shares involving almost 12 million
shares of the Philippine Long Distance Telephone Company (PLDT) owned by PTIC to First Pacific. Thus, First
Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total
common shareholdings of foreigners in PLDT to about 81.47%. The petitioner contends that it violates the
Constitutional provision on filipinazation of public utility, stated in Section 11, Article XII of the 1987 Philippine
Constitution, which limits foreign ownership of the capital of a public utility to not more than 40%. Then, in 2011, the
court ruled the case in favor of the petitioner, hence this new case, resolving the motion for reconsideration for the
2011 decision filed by the respondents.

Issue: Whether or not the Court made an erroneous interpretation of the term ‘capital’ in its 2011 decision?

Held/Reason: The Court said that the Constitution is clear in expressing its State policy of developing an economy
‘effectively controlled’ by Filipinos. Asserting the ideals that our Constitution’s Preamble want to achieve, that is – to
conserve and develop our patrimony , hence, the State should fortify a Filipino-controlled economy. In the 2011
decision, the Court finds no wrong in the construction of the term ‘capital’ which refers to the ‘shares with voting
rights, as well as with full beneficial ownership’ (Art. 12, sec. 10) which implies that the right to vote in the election of
directors, coupled with benefits, is tantamount to an effective control. Therefore, the Court’s interpretation of the term
‘capital’ was not erroneous. Thus, the motion for reconsideration is denied.

Narra Nickel Mining and Dev’t Corp., et al. v. Redmont Consolidated Mines Corp.,
G.R. No. 195580, 21 April 2014
FACTS

Redmont Consolidated Mines, Inc. (Redmont) filed before the Panel of Arbitrators (POA) of the DENR separate
petitions for denial of McArthur Mining, Inc. (McArthur), Tesoro and Mining and Development, Inc. (Tesoro), and
Narra Nickel Mining and Development Corporation (Narra) applications Mineral Production Sharing Agreement
(MPSA) on the ground that they are not “qualified persons” and thus disqualified from engaging in mining activities
through MPSAs reserved only for Filipino citizens.

McArthur Mining, Inc., is composed, among others, by Madridejos Mining Corporation (Filipino) owning 5,997 out of
10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also owns 3,331 out
of 10,000 shares of Madridejos Mining Corporation;

Tesoro and Mining and Development, Inc., is composed, among others, by Sara Marie Mining, Inc. (Filipino) owning
5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian) owning 3,998 out of 10,000 shares; MBMI also
owns 3,331 out of 10,000 shares of Sara Marie Mining, Inc.;

Narra Nickel Mining and Development Corporation, is composed, among others, by Patricia Louise Mining &
Development Corporation (Filipino) owning 5,997 out of 10,000 shares, and MBMI Resources, Inc. (Canadian)
owning 3,998 out of 10,000 shares; MBMI also owns 3,396 out of 10,000 shares of Patricia Louise Mining &
Development Corporation;

ISSUES

(1) Is the Grandfather Rule applicable?

(2) Whether McArthur, Tesoro and Narra are Filipino nationals.

RULINGS
(1) YES.

The instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law,
creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct or indirect, of
MBMI, the grandfather rule must be used.

The Strict Rule or the Grandfather Rule pertains to the portion in Paragraph 7 of the 1967 SEC Rules which states,
“but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of Philippine nationality.” Under the Strict Rule or
Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee Corporation must be
traced (i.e., “grandfathered”) to determine the total percentage of Filipino ownership.

(2) NO.

[P]etitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or
more of their equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners. xxx
Noticeably, the ownership of the “layered” corporations boils down to xxx group wherein MBMI has joint venture
agreements with, practically exercising majority control over the corporations mentioned. In effect, whether looking at
the capital structure or the underlying relationships between and among the corporations, petitioners are NOT Filipino
nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are owned by
MBMI.

COMMISSIONER vs. MANNING

G.R. No. L-28398. August 6, 1975 NOTE: 66 SCRA 14 page 3
FACTS:

Manila Trading and Supply Co. (MANTRASCO) had an authorized capital stock of P2.5 million divided into 25,000
common shares: 24,700 were owned by Reese and the rest at 100 shares each by the Respondents. Reese entered
into a trust agreement whereby it is stated that upon Reese’s death, the company would purchase back all of its
shares. Reese died. MANTRASCO repurchased the 24,700 shares. Thereafter, a resolution was passed authorizing
that the 24,700 shares be declared as stock dividends to be distributed to the stockholders. The BIR ordered an
examination of MANTRASCO’s books and discovered that the 24,700 shares declared as dividends were not
disclosed by respondents as part of their taxable income for the year 1958. Hence, the CIR issued notices of
assessment for deficiency income taxes to respondents. Respondents protested but the CIR denied. Respondents
appealed to the CTA. The CTA ruled in their favor. Hence, this petition by the CIR

ISSUE:

Whether the respondents are liable for deficiency income taxes on the stock dividends?

HELD: Dividends means any distribution made by a corporation to its shareholders out of its earnings or profits. Stock
dividends which represent transfer of surplus to capital account is not subject to income tax. But if a corporation
redeems stock issued so as to make a distribution, this is essentially equivalent to the distribution of a taxable
dividend the amount so distributed in the redemption considered as taxable income.

The distinctions between a stock dividend which does not and one which does constitute taxable income to the
shareholders is that a stock dividend constitutes income if its gives the shareholder an interest different from that
which his former stockholdings represented. On the other hand, it does constitute income if the new shares confer no
different rights or interests than did the old shares. Therefore, whenever the companies involved parted with a portion
of their earnings to bnuy the corporate holdings of Reese, they were making a distribution of such earnings to
respondents. These amounts are thus subject to income tax as a flow of cash benefits to respondents. Hence,
respondents are liable for deficiency income taxes.

MALABANG v. BENITO,
G.R. No. L-28113, March 28, 1969
Re: De facto municipal corporation

FACTS: Petitioners assailed the validity of EO 386 of the then President Carlos P. Garcia, which created the
Municipality of Balabagan out of barrios and sitios of Malabang. Petitioner relied on the ruling in Pelaez v. Auditor
General while respondent contended that that the rule announced in Pelaez can have no application in this case
because unlike the municipalities involved in Pelaez, the municipality of Balabagan is at least a de facto corporation,
having been organized under color of a statute before this was declared unconstitutional, its officers having been
either elected or appointed, and the municipality itself having discharged its corporate functions for the past five years
preceding the institution of this action. It is contended that as a de facto corporation, its existence cannot be
collaterally attacked, although it may be inquired into directly in an action for quo warranto at the instance of the State
and not of an individual like the petitioner Balindong.

WON:
(1) WON the controverted matter may be attacked collateraly.

(2) WON EO 386 is constitutional.

HELD:
(1) Yes. It is indeed true that, generally, an inquiry into the legal existence of a municipality is reserved to the State in
a proceeding for quo warranto or other direct proceeding, and that only in a few exceptions may a private person
exercise this function of government. But the rule disallowing collateral attacks applies only where the municipal
corporation is at least a de facto corporations. For where it is neither a corporation de jure nor de facto, but a nullity,
the rule is that its existence may be, questioned collaterally or directly in any action or proceeding by any one whose
rights or interests are affected thereby, including the citizens of the territory incorporated unless they are estopped by
their conduct from doing so.

(2) No. In the cases where a de facto municipal corporation was recognized as such despite the fact that the statute
creating it was later invalidated, the decisions could fairly be made to rest on the consideration that there was some
other "valid law" giving corporate vitality to the organization. Hence, in the case at bar, the mere fact that Balabagan
was organized at a time when the statute had not been invalidated cannot conceivably make it a de facto corporation,
as, independently of the Administrative Code provision in question, there is "no other valid statute to give color of
authority to its creation".

ARNOLD HALL vs. EDMUNDO PICCIO

G.R. No. L-2598 / June 29, 1950
FACTS:

On May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma Brown,
Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the articles of incorporation of the
Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as
general contractors, operators and managers, etc. Attached to the articles was an affidavit of the treasurer stating
that 23,428 shares of stock had been subscribed and fully paid with certain properties transferred to the corporation
described in a list appended thereto.

Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the
adoption of by-laws and the election of its officers. On December 2, 1947, the said articles of incorporation were filed
in the office of the Securities and Exchange Commission for the issuance of the corresponding certificate of
incorporation.

On March 22, 1948, pending action on the articles of incorporation by the SEC, respondents Fred Brown, Emma
Brown, Hipolita D. Chapman and Ceferino S. Abella filed a suit against petitioners before the Court of First Instance
of Leyte alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered
partnership; that they wished to have it dissolved because of bitter dissension among the members, mismanagement
and fraud by the managers and heavy financial losses.

The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the
court’s jurisdiction and the sufficiency of the cause of action.

After hearing the parties, the Hon. Edmundo S. Piccio ordered the dissolution of the company; and at the request of
plaintiffs, appointed the respondent Pedro A. Capuciong as receiver of the properties thereof, upon the filing of a
P20,000 bond.
The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but the
respondent judge refused to accept the offer and to discharge the receiver.

Hence, this petition.

ISSUE:

Whether or not the trial court has jurisdiction over the case?

HELD:

No. The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being a de
facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance with
section 19 of the Corporation Law.

Under our statute it is to be noted that it is the issuance of a certificate of incorporation by the Director of the Bureau
of Commerce and Industry which calls a corporation into being. The immunity of collateral attack is granted to
corporations ‘claiming in good faith to be a corporation under this act.’

Further, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged
corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be
terminated in a private suit for its dissolution between stockholders, without the intervention of the state.

WHEREFORE, the petition is dismissed.

Albert vs University Publishing

G.R. No. L-19118, 13 Scra 84, January 30, 1965

Facts: In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to damages (for
breach of contract) but reduced the amount from P23, 000.00 to P15, 000.00.

Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment for
P15,000.00 which had become final and executory, should be executed to its full amount, since in fixing it, payment
already made had been considered.

15 years ago, Mariano Albert entered into a contract with University Publishing Co., Inc. through Jose M. Aruego, its
President, whereby University would pay plaintiff for the exclusive right to publish his revised Commentaries on the
Revised Penal Code. The contract stipulated that failure to pay one installment would render the rest of the
payments due. When University failed to pay the second installment, Albert sued for collection and won.

However, upon execution, it was found that the records of this Commission do not show the registration of
UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership. Albert petitioned for a writ of execution
against Jose M. Aruego as the real defendant. University opposed, on the ground that Aruego was not a party to the
case.

Issue: WON the non-registration of University Publishing Co., Inc. in the SEC is an existing corporation with an
independent juridical personality.

Held: No.

Ratio: On account of the non-registration it cannot be considered a corporation, not even a corporation de facto (Hall
vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it cannot be sued
independently.
 In the case at bar, Aruego represented a non-existent entity and induced not only Albert but the court to believe in
such representation. He signed the contract as “President” of “University Publishing Co., Inc.,” stating that this was “a
corporation duly organized and existing under the laws of the Philippines”.

“A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges
and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent.”

Aruego, acting as representative of such non-existent principal, was the real party to the contract sued upon, and
thus assumed such privileges and obligations and became personally liable for the contract entered into or for other
acts performed as such agent.

The Supreme Court likewise held that the doctrine of corporation by estoppel cannot be set up against Albert since it
was Aruego who had induced him to act upon his (Aruego’s) willful representation that University had been duly
organized and was existing under the law.

Dispositive: The order appealed from is hereby set aside.

MANUELA T. VDA. DE SALVATIERRA vs. GARLITOS

G.R. No. L-11442, May 23, 1958 NOTE 103 Phil 757 page 4
FACTS: Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at Maghobas,
Poblacion, Burauen, Teyte. On March 7, 1954, said landholder entered into a contract of lease with the
Philippine Fibers Producers Co., Inc., allegedly a corporation "duly organized and existing under the laws of
the Philippines, domiciled at Burauen, Leyte, Philippines, and with business address therein, represented in
this instance by Mr. Segundino Q. Refuerzo, the President". For failure of the corporation to comply with
the terms and conditions agreed upon with Manuela, plaintiff Alanuela T. Vda, de Salvatierra filed with the CFI of
Leyte a complaint against the Philippine Fibers Producers Co., Inc., and Segundino Q.Refuerzo, for
accounting, rescission and damages. The lower Court rendered judgment in favor of plaintiff. No appeal therefrom
having been perfected within the reglementary period, the Court, upon motion of plaintiff, issued a writ of
execution, in virtue of which the Provincial Sheriff of Leyte caused the attachment of 3 parcels of land
registered in the name of Segundino Refuerzo. Defendant filed a motion claiming that the decision rendered in
said Civil Case was null and void with respect to him, there being no allegation in the complaint pointing to his
personal liability for while it was stated therein that he was a signatory to the lease contract, he did so in his capacity
as president of the corporation and thus prayed that an order be issued limiting such liability to defendant
Corporation. The Court a quo then granted the same and ordered the Provincial Sheriff of Leyte to release all
properties belonging to the movant that might have already been attached. As plaintiff's petition for relief from said
order was denied, hence this instant action of Manuela asserting that the trial Judge in issuing the
order complained of acted with grave abuse of discretion and prayed that same be declared a nullity. She contended
that her failure to specify defendant's personal liability was due to the fact that all the time she was under the
impression that the Philippine Fibers Producers Co., Inc., represented by Refuerzo was a duly registered
corporation as appearing in the contract, but a subsequent inquiry from the SEC yielded otherwise.

ISSUE: Whether or not Segundino Q. Refuerzo in his capacity as president of the corporation shall be personally
liable for the contract of lease entered into.

RULING: While as a general rule a person who has contracted or dealt with an association in such a way as to
recognize its existence as a corporate body is estopped from denying the same in an action arising out of such
transaction or dealing, yet this doctrine may not be held to be applicable where fraud takes a part in the said
transaction. In the instant case, on plaintiff's charge that she was unaware of the fact that the Philippine Fibers
Producers Co., Inc., had no juridical personality, defendant Refuerzo gave no confirmation or denial and the
circumstances surrounding the execution of the contract lead to the inescapable conclusion that
plaintiff Manuela T. Vda. de Salvatierra was really made to believe that such corporation was duly organized
in accordance with law. There can be no question that a corporation with registered has a juridical personality
separate and distinct from its component members or stockholders and officers such that a corporation cannot be
held liable for the personal indebtedness of a stockholder even if he should be its president and conversely, a
stockholder or member cannot be held personally liable for any financial obligation be, the corporation in excess of
his unpaid subscription. But this rule is understood to refer merely to registered corporations and cannot be made
applicable to the liability of members of an unincorporated association. The reason behind this doctrine
is obvious-since an organization which before the law is non-existent has no personality and would be
incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that
a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed
of all the rights and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and obligations and comes personally liable for
contracts entered into or for other acts performed as such, agent. Considering that defendant Refuerzo, as president
of the unregistered corporation Philippine Fibers Producers Co., Inc., was the moving spirit behind the
consummation of the lease agreement by acting as its representative, his liability cannot be limited
or restricted that imposed upon corporate shareholders. In acting on behalf of a corporation which he knew to be
unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such
transaction.

INTERNATIONAL EXPRESS TRAVEL vs. CA ET AL

(G.R. No. 119002 2000 Oct 19.) NOTE: 343 SCRA 674 page 4
FACTS:

On June 30 1989, petitioner, through its managing director, wrote a letter to the Philippine Football Federation
(Federation), through its president private respondent Henri Kahn, wherein the former offered its services as a travel
agency to the latter. The offer was accepted.

Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian
Games in Kuala Lumpur as well as various other trips to China and Brisbane. The total cost of the tickets amounted
to P449,654.83. The Federation made two partial payments, both in September of 1989, in the total amount of
P176,467.50.

On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for
the amount of P265,894.33. On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount
of P31,603.00.

On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the
outstanding balance of the Federation. No further payments were made despite repeated demands.

Petitioner to filed a civil case before RTC- Manila. Petitioner sued Henri Kahn in his personal capacity and as
President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold
Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn
allegedly guaranteed the said obligation.

Henri Kahn averred that the petitioner has no cause of action against him either in his personal capacity or in his
official capacity as president of the Federation because he did not guarantee payment but merely acted as an agent
of the Federation which has a separate and distinct juridical personality. The Federation failed to file its answer,
hence, was declared in default by the trial court.

The trial court ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid obligation of
the Federation. CA reversed the trial court. Hence this Petition.

ISSUE: WON the doctrine of corporation by estoppel applies in this case.

RULING:

CA cited RA 3135 (Revised Charter of the Philippine Amateur Athletic Federation), and PD 604 as the laws from
which said Federation derives its existence. Both R.A. 3135 and P.D. No. 604 recognized the juridical existence of
national sports associations. These laws granted to national sports associations certain powers and functions which
clearly indicate that these entities may acquire a juridical personality. Among these powers is the power to purchase,
sell, lease and encumber property which are acts that may only be done by persons, whether natural or artificial, with
juridical capacity.
However, while we agree with the appellate court that national sports associations may be accorded corporate status,
such does not automatically take place by the mere passage of these laws. It is a basic postulate that before a
corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a
general enabling act.

We cannot agree with the view of the CA and the private respondent that the Philippine Football Federation came into
existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating
the Philippine Football Federation. These laws merely recognized the existence of national sports associations and
provided the manner by which these entities may acquire juridical personality.

The said laws require that before an entity may be considered as a national sports association, such entity must be
recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the
Department of Youth and Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed
to substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his MR before
the trial court a copy of the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same
does not prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur
Athletic Federation or the Department of Youth and Sports Development. We rule that the Philippine Football
Federation is not a national sports association within the purview of the aforementioned laws and does not have
corporate existence of its own.

It follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated
Philippine Football Federation. It is a settled principle in corporation law that any person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for
contract entered into or for other acts performed as such agent. As president of the Federation, Henri Kahn is
presumed to have known about the corporate existence or non-existence of the Federation.

We do not agree with the position taken by the CA that even assuming that the Federation was defectively
incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and
dealt with the Federation in such a manner as to recognize and in effect admit its existence. The doctrine of
corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the
doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the
irrelevant ground of defective incorporation. In the case at bar, the petitioner is not trying to escape liability from the
contract but rather is the one claiming from the contract.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE.

HEIRS OF SORIANO V. CA and SPOUSES ABALOS

NOTE page 5

FACTS:
A piece of land located in Lingayen, Pangasinan is the disputed property in this case. Said land was originally owned
by one Adriano Soriano, subsequently it was leased for a period of 15 years to the Spouses David and Consuelo with
RAMON SORIANO, son of Adriano and herein petitioner, acting as caretaker/tenant of the property during the
duration of the lease. Upon the death of Adriano the lot he owned was divided into TWO and given to his heirs. One
of the lots inherited was sold to the Spouses ABALOS, here. The other lot was also bought by the Spouses Abalos
although not completely (only ¾ of the lot). The lots in question were subsequently registered in the name of the
Spouses Abalos. The courts later declared them to be the undisputed owners thereof. Soriano questions their
ownership of the land and so filed cases against the spouses. Currently Soriano is still in possession of the land
claiming rights of “Security of Tenure” as a tenant of the land.

ISSUE:
May a winning party in a land registration case effectively eject the possessor thereof?

RULING/RATIO:
No. Possession and ownership are distinct legal concepts. Possession is the holding of a thing or the enjoyment of a
right. Literally, to possess means to actually and physically occupy a thing with or without right. A judgment of
ownership does not necessarily include possession as a necessary incident. Such declaration pertains only to
OWNERSHIP and does not automatically include possession. This is especially true in the case at bar wherein
petitioner is occupying the land allegedly in the concept of an agricultural tenant. The court says “allegedly” due to the
fact that there is still a pending case in the DARAB (Department of Agrarian Reform and Adjudication Board) on the
issue. The issue of ownership of the subject land has been laid to rest by final judgment; however the right of
possession is yet to be resolved. The Tenancy Act, which protects the rights of agricultural tenants, may limit the
exercise of rights by the lawful owners. The exercise of the rights of ownership yields to the exercise of the rights of
an agricultural tenant. Since the rights of Soriano to possess the land are still pending litigation in the DARAB he is
protected from dispossession of the land until final judgment of said court unless Soriano’s occupancy is found by the
court to be unlawful.

INTERNATIONAL ACADEMY OF MANAGEMENT v. LITTON

GR No. 191525, 2017-12-13 NOTE 848 SCRA 437 page 5
Facts:

Atty. Emmanuel T. Santos (Santos), a lessee to two (2) buildings owned by Litton... owed the latter rental arrears as
well as his share of the payment of realty taxes.

Litton filed a complaint for unlawful detainer against Santos before the MeTC of Manila. The MeTC ruled in Litton's
favor and ordered Santos to vacate A.I.D. Building and Litton Apartments and to pay various sums of money
representing unpaid arrears, realty taxes, penalty, and attorney's fees.

the judgment was not executed.

On 11 November 1996, the sheriff of the MeTC of Manila levied on a piece of real property covered by Transfer
Certificate of Title (TCT) No. 187565 and registered in the name of International Academy of Management and
Economics Incorporated (I/AME), in order to execute the judgment against Santos.

indicated that such was "only up to the extent of the share of Emmanuel T. Santos."

I/AME claimed that it has a separate and distinct personality from Santos; hence, its properties should not be made to
answer for the latter's liabilities.

Upon motion for reconsideration of I/AME, the MeTC reversed its earlier ruling and ordered the cancellation of the
annotations of levy as well as the writ of execution.

Petitioner avers that its right to due process was violated when it was dragged into the case and its real property
made an object of a writ of execution in a judgment against Santos.

It argues that since it was not impleaded in the main case, the court a quo never acquired jurisdiction over it.

Petitioner I/AME argues that the doctrine of piercing the corporate veil applies only to stock corporations, and not to
non-stock, nonprofit corporations such as I/AME since there are no stockholders to hold liable in such a situation but
instead only members. Hence, they do not have investments or shares of stock or assets to answer for possible
liabilities. Thus, no one in a non-stock corporation can be held liable in case the corporate veil is disregarded or
pierced.

The petitioner also insists that the piercing of the corporate veil cannot be applied to a natural person - in this case,
Santos - simply because as a human being, he has no corporate veil shrouding or covering his person.

Issues:

The issues boil down to the alleged denial of due process when the court pierced the corporate veil of I/AME and its
property was made to answer for the liability of Santos.

Ruling:
The piercing of the corporate veil is premised on the fact that the corporation concerned must have been properly
served with summons or properly subjected to the jurisdiction of the court a quo. Corollary thereto, it cannot be
subjected to a writ of execution meant for another in violation of its right to due process.

There exists, however, an exception to this rule: if it is shown "by clear and convincing proof that the separate and
distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and
perpetuate a fraud or like wrongdoings."

The resistance of the Court to offend the right to due process of a corporation that is a nonparty in a main case, may
disintegrate not only when its director, officer, shareholder, trustee or member is a party to the main case, but when it
finds facts which show that piercing of the corporate veil is merited.

In determining the propriety of applicability of piercing the veil of corporate fiction, this Court, in a number of cases,
did not put in issue whether a corporation is a stock or non-stock corporation.

In the United States, from which we have adopted our law on corporations, non-profit corporations are not immune
from the doctrine of piercing the corporate veil. Their courts view piercing of the corporation as an equitable remedy,
which justifies said courts to scrutinize any organization however organized and in whatever manner it operates.
Moreover, control of ownership does not hinge on stock ownership.

As held in Barineau v. Barineau:[36] [t]he mere fact that the corporation involved is a nonprofit corporation does not
by itself preclude a court from applying the equitable remedy of piercing the corporate veil. The equitable character of
the remedy permits a court to look to the substance of the organization, and its decision is not controlled by the
statutory framework under which the corporation was formed and operated. While it may appear to be impossible for
a person to exercise ownership control over a nonstock, not-for-profit corporation, a person can be held personally
liable under the alter ego theory if the evidence shows that the person controlling the corporation did in fact exercise
control, even though there was no stock ownership.

The concept of equitable ownership, for stock or non-stock corporations, in piercing of the corporate veil scenarios,
may also be considered. An equitable owner is an individual who is a non-shareholder defendant, who exercises
sufficient control or considerable authority over the corporation to the point of completely disregarding the corporate
form and acting as though its assets are his or her alone to manage and distribute.

The piercing of the corporate veil may apply to corporations as well as natural persons involved with corporations.
This Court has held that the "corporate mask may be lifted and the corporate veil may be pierced when a corporation
is just but the alter ego of a person or of another corporation.”

Like Arcilla, Santos: (1) was adjudged liable to pay on a judgment against him; (2) he became President of a
corporation; (3) he formed a corporation to conceal assets which were supposed to pay for the judgment against his
favor; (4) the corporation which has Santos as its President, is being asked by the court to pay on the judgment; and
(5) he may not use as a defense that he is no longer President of I/AME (although a visit to the website of the school
shows he is the current President).

This Court agrees with the CA that I/AME is the alter ego of Santos and Santos - the natural person - is the alter ego
of I/AME. Santos falsely represented himself as President of I/AME in the Deed of Absolute Sale when he bought the
Makati real property, at a time when I/AME had not yet existed.

We borrow from American parlance what is called reverse piercing or reverse corporate piercing or piercing the
corporate veil "in reverse."

"in a traditional veil-piercing action, a court disregards the existence of the corporate entity so a claimant can reach
the assets of a corporate insider. In a reverse piercing action, however, the plaintiff seeks to reach the assets of a
corporation to satisfy claims against a corporate insider."

"Reverse-piercing flows in the opposite direction (of traditional corporate veil-piercing) and makes the corporation
liable for the debt of the shareholders."

It has two (2) types: outsider reverse piercing and insider reverse piercing. Outsider reverse piercing occurs when a
party with a claim against an individual or corporation attempts to be repaid with assets of a corporation owned or
substantially controlled by the defendant.[52] In contrast, in insider reverse piercing, the controlling members will
attempt to ignore the corporate fiction in order to take advantage of a benefit available to the corporation, such as an
interest in a lawsuit or protection of personal assets.

Outsider reverse veil-piercing is applicable in the instant case. Litton, as judgment creditor, seeks the Court's
intervention to pierce the corporate veil of I/AME in order to make its Makati real property answer for a judgment
against Santos, who formerly owned and still substantially controls I/AME.

In the U.S. case Acree v. McMahan,[54] the American court held that "[o]utsider reverse veil-piercing extends the
traditional veil-piercing doctrine to permit a third-party creditor to pierce the veil to satisfy the debts of an individual out
of the corporation's assets."

This notwithstanding, the equitable remedy of reverse corporate piercing or reverse piercing was not meant to
encourage a creditor's failure to undertake such remedies that could have otherwise been available, to the detriment
of other creditors.

Reverse corporate piercing is an equitable remedy which if utilized cavalierly, may lead to disastrous consequences
for both stock and non-stock corporations. We are aware that ordinary judgment collection procedures or other legal
remedies are preferred over that which would risk damage to third parties (for instance, innocent stockholders or
voluntary creditors) with unprotected interests in the assets of the beleaguered corporation.[57] Thus, this Court
would recommend the application of the current 1997 Rules on Civil Procedure on Enforcement of Judgments. Under
the current Rules of Court on Civil Procedure, when it comes to satisfaction by levy, a judgment obligor is given the
option to immediately choose which property or part thereof may be levied upon to satisfy the judgment. If the
judgment obligor does not exercise the option, personal properties, if any, shall be first levied and then on real
properties if the personal properties are deemed insufficient to answer for the judgment.[58] In the instant case, it
may be possible for this Court to recommend that Litton run after the other properties of Santos that could satisfy the
money judgment - first personal, then other real properties other than that of the school. However, if we allow this, we
frustrate the decades-old yet valid MeTC judgment which levied on the real property now titled under the name of the
school. Moreover, this Court will unwittingly condone the action of Santos in hiding all these years behind the
corporate form to evade paying his obligation under the judgment in the court a quo. This we cannot countenance
without being a party to the injustice. Thus, the reverse piercing of the corporate veil of I/AME to enforce the levy on
execution of the Makati real property where the school now stands is applied.

COMMISSIONER OF INTERNAL REVENUE v. NORTON and HARRISON COMPANY.

G.R. No. L-17618. August 31, 1964 NOTE: 11 SCRA 714 page 5

FACTS:

Norton and Harrison is a corporation organized to buy and sell at wholesale and retail all kinds of goods and
merchandise. Jackbilt is also a corporation organized on for producing concrete blocks. On 1948, the corporations
entered into an agreement whereby Norton was made the sole and exclusive distributor of concrete blocks
manufactured by Jackbilt.

On 1949, Norton purchased all the outstanding shares of stock of Jackbilt. This prompted the CIR to investigate and
eventually asses Norton and Harrison for deficiency sales tax and surcharges.

ISSUE: Whether Norton and Harrison is liable for the deficiency sales tax and surcharges.

RULING:

YES. The Court ruled that Norton and Jackbilt should be considered as one. Jackbilt's outstanding stocks, board of
directors, finance of operations, employees, and compensation are all controlled by Norton and Harrison. Jackbilt is
merely an adjunct, business conduit or alter ego, of Norton and Harrison and that the fiction of corporate entities,
separate and distinct from each, should be disregarded. This is a case where the doctrine of piercing the veil of
corporate fiction, should be made to apply.

By being separate entities, the corporations would have to pay lesser income tax. The combined taxable Norton-
Jackbilt income would subject Norton to a higher tax.

Concept Builders v NLRC

 G.R. No. 108374, 29 May 1996 (257 SCRA 149)

FACTS:

Petitioner Concept Builders, Inc., a domestic corporation, while private respondents were employed by said company
as laborers, carpenters and riggers.

On November, 1981, private respondents were served individual written notices of termination of employment by
petitioner, stating that their contracts of employment had expired and the project in which they were hired had been
completed.

Public respondent found however, that at the time of said termination, the project in which they were hired had not yet
been finished and completed. In fact, petitioner had to engage the services of sub-contractors whose workers
performed the functions of private respondents.

Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-payment of their
legal holiday pay, overtime pay and thirteenth-month pay against petitioner with the Labor Arbiter (LA).

Labor Arbiter: ruled against petitioner and order the latter to reinstate private respondents and to pay them back
wages.

NLRC: Petitioner moved for reconsideration with the National Labor Relations Commission (NLRC) but it dismissed
the motion on the ground that the said decision had already become final and executory.

A writ of execution directing the sheriff to execute the Decision, which was partially satisfied through garnishment of
sums from petitioner’s debtor, the Metropolitan Waterworks and Sewerage Authority. Thereafter, an Alias Writ of
Execution was issued by the Labor Arbiter directing the sheriff to collect from herein petitioner representing the
balance of the judgment award, and to reinstate private respondents to their former positions.

The alias Writ of Execution cannot be enforced by the sheriff because all the employees inside petitioner’s premises
in Valenzuela claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by petitioner. Thus,
NLRC issued a break-open order against Concept Builders and HPPI.

Hence, this present case. Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the
execution of its decision despite a third-party claim on the levied property. Petitioner further contends, that the
doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of any showing that
it created HPPI in order to evade its liability to private respondents.

ISSUE: Whether or not the doctrine of piercing the corporate veil should apply in this case?

RULING: YES.

RATIO:

It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected. But, this separate and distinct personality of
a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of
separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is
used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil
of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an
alter ego of another corporation.

There is no hard and fast rule but there are some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil, to wit:

Stock ownership by one or common ownership of both corporations.

Identity of directors and officers.
The manner of keeping corporate books and records.
Methods of conducting the business.
Likewise, the Court laid down the test in determining the applicability of the doctrine of piercing the veil of corporate
fiction is as follows:
Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own;
Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and
The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil in applying the instrumentality or alter
ego doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual
defendants relationship to that operation.

In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it
filed an Information Sheet with the Securities and Exchange Commission on May 15, 1987, stating that its office
address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant,
submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila.

Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of backwages
and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation
and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner
corporation.

Also, in view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution,
private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was
dismissed for lack of merit by the NLRC.

Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open order issued by the
Labor Arbiter.

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23, 1992 and
December 3, 1992, are AFFIRMED.

Cease vs Court of Appeals

G.R. No. L-33172 October 18, 1979 NOTE 93 SCRA 483
Facts: sometime in June 1908, one Forrest L. Cease common predecessor in interest of the parties together with five
(5) other American citizens organized the Tiaong Milling and Plantation Company and in the course of its corporate
existence the company acquired various properties but at the same time all the other original incorporators were
bought out by Forrest L. Cease together with his children namely Ernest, Cecilia, Teresita, Benjamin, Florence and
one Bonifacia Tirante also considered a member of the family; the charter of the company lapsed in June 1958; but
whether there were steps to liquidate it, the record is silent; on 13 August 1959, Forrest L. Cease died and by
extrajudicial partition of his shares, among the children, this was disposed of on 19 October 1959; it was here where
the trouble among them came to arise because it would appear that Benjamin and Florence wanted an actual division
while the other children wanted reincorporation; and proceeding on that, these other children Ernesto, Teresita and
Cecilia and aforementioned other stockholder Bonifacia Tirante proceeded to incorporate themselves into the F.L.
Cease Plantation Company and registered it with the Securities and Exchange Commission on 9 December, 1959;
apparently in view of that, Benjamin and Florence for their part initiated a Special Proceeding No. 3893 of the Court of
First Instance of Tayabas for the settlement of the estate of Forest L. Cease on 21 April, 1960 and one month
afterwards on 19 May 1960 they filed Civil Case No. 6326 against Ernesto, Teresita and Cecilia Cease together with
Bonifacia Tirante asking that the Tiaong Milling and Plantation Corporation be declared Identical to F.L. Cease and
that its properties be divided among his children as his intestate heirs; this Civil Case was resisted by aforestated
defendants and notwithstanding efforts of the plaintiffs to have the properties placed under receivership, they were
not able to succeed because defendants filed a bond to remain as they have remained in possession; after that and
already, during the pendency of Civil Case No. 6326 specifically on 21 May, 1961 apparently on the eve of the expiry
of the three (3) year period provided by the law for the liquidation of corporations, the board of liquidators of Tiaong
Milling executed an assignment and conveyance of properties and trust agreement in favor of F.L. Cease Plantation
Co. Inc. as trustee of the Tiaong Milling and Plantation Co. so that upon motion of the plaintiffs trial Judge ordered
that this alleged trustee be also included as party defendant; now this being the situation, it will be remembered that
there were thus two (2) proceedings pending in the Court of First Instance of Quezon namely Civil Case No. 6326
and Special Proceeding No. 3893 but both of these were assigned to the Honorable Respondent Judge Manolo L.
Maddela p. 43 and the case was finally heard and submitted upon stipulation of facts pp, 34-110, rollo; and trial
Judge by decision dated 27 December 1969 held for the plaintiffs Benjamin and Florence.
Issue: Whether or not the properties of the Tiaong Milling and Plantation Company forms part of the estate of the
deceased Forrest L. Cease.

Held: Yes. The theory of “merger of Forrest L. Cease and The Tiaong Milling as one personality”, or that “the
company is only the business conduit and alter ego of the deceased Forrest L. Cease and the registered properties of
Tiaong Milling are actually properties of Forrest L. Cease and should be divided equally, share and share alike
among his six children, … “, the trial court did aptly apply the familiar exception to the general rule by disregarding the
legal fiction of distinct and separate corporate personality and regarding the corporation and the individual member
one and the same.

It must be remembered that when Tiaong Milling adduced its defense and raised the issue of ownership, its corporate
existence already terminated through the expiration of its charter. It is clear in Section 77 of Act No. 1459
(Corporation Law) that upon the expiration of the charter period, the corporation ceases to exist and is dissolved ipso
facto except for purposes connected with the winding up and liquidation. The provision allows a three year, period
from expiration of the charter within which the entity gradually settles and closes its affairs, disposes and convey its
property and to divide its capital stock, but not for the purpose of continuing the business for which it was established.
At this terminal stage of its existence, Tiaong Milling may no longer persist to maintain adverse title and ownership of
the corporate assets as against the prospective distributees when at this time it merely holds the property in trust, its
assertion of ownership is not only a legal contradiction, but more so, to allow it to maintain adverse interest would
certainly thwart the very purpose of liquidation and the final distribute loll of the assets to the proper, parties.

While the records showed that originally its incorporators were aliens, friends or third-parties in relation of one to
another, in the course of its existence, it developed into a close family corporation. The Board of Directors and
stockholders belong to one family the head of which Forrest L. Cease always retained the majority stocks and hence
the control and management of its affairs. In fact, during the reconstruction of its records in 1947 before the Security
and Exchange Commission only 9 nominal shares out of 300 appears in the name of his 3 eldest children then and
another person close to them. It is likewise noteworthy to observe that as his children increase or perhaps become of
age, he continued distributing his shares among them adding Florence, Teresa and Marion until at the time of his
death only 190 were left to his name. Definitely, only the members of his family benefited from the Corporation.

The accounts of the corporation and therefore its operation, as well as that of the family appears to be
indistinguishable and apparently joined together. As admitted by the defendants corporation ‘never’ had any account
with any banking institution or if any account was carried in a bank on its behalf, it was in the name of Mr. Forrest L.
Cease. In brief, the operation of the Corporation is merged with those of the majority stockholders, the latter using the
former as his instrumentality and for the exclusive benefits of all his family. From the foregoing indication, therefore,
there is truth in plaintiff’s allegation that the corporation is only a business conduit of his father and an extension of his
personality, they are one and the same thing. Thus, the assets of the corporation are also the estate of Forrest L.
Cease, the father of the parties herein who are all legitimate children of full blood.

A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil of
corporate fiction. Generally, a corporation is invested by law with a personality separate and distinct from that of the
persons composing it as well as from that of any other legal entity to which it may be related. By virtue of this
attribute, a corporation may not, generally, be made to answer for acts or liabilities of its stockholders or those of the
legal entities to which it may be connected, and vice versa. This separate and distinct personality is, however, merely
a fiction created by law for convenience and to promote the ends of justice. For this reason, it may not be used or
invoked for ends subversive of the policy and purpose behind its creation. This is particularly true where the fiction is
used to defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial
issues , perpetrate deception or otherwise circumvent the law. This is likewise true where the corporate entity is being
used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate
entity.

Del Rosario vs National Labor Relations Commission

187 SCRA 777 [GR No. 85416 July 24, 1990]

Facts: In POEA case no. 85-06-0394, the Philippine Overseas Employment Administration (POEA) promulgated a
decision on February 4,1986 dismissing the complaint for money claims for lack of merit. The decision was appealed
to the NLRC, which on April 30, 1987 reversed the POEA decision and ordered Philsa Construction and Trading
Co.Ind and Ariel Enterprises (the foreign employer) to jointly and severally pay private respondent the peso
equivalent of $16,039,000 salary differentials and $2,420.03 as vacation leave benefits. A writ of execution was
issued by the POEA but it was returned unsatisfied incapable of satisfying the judgement. Private respondent moved
for the issuance of an alias writ against the officers of Philsa. This motion was opposed by the officers led by
petitioners, the president and general manager of the corporation. However, POEA issued a resolution ordering the
sheriff to execute against the properties of the petitioner and if insufficient, against the cash and/or surety bond of
bonding company concerned for the full satisfaction of the judgement awarded.

Issue: Whether or not the POEA resolution is proper.

Held: No. Under the law, a corporation is bestowed juridical personality, separate and distinct from its stockholders.
But when the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect or
defend crime, the corporation shall be considered as a mere association of persons and its responsible officers
and/or stockholders shall be individually liable. For the same reasons, a corporation shall be liable for obligations of a
stockholder or a corporation and its successor-in-interest shall be considered as one and the liability of the former
shall attach to the latter.

But for the separate juridical personality of a corporation to be disregarded, the wrong doing must be clearly and
convincingly established. It cannot be presumed.

Thus, at the time Philsa allowed its license to lapse in 1985 and even at the time it was delivered in 1986, there was
yet no judgement in favor of private respondent. An intent to evade payment of his claims cannot therefore be implied
from the expiration of Phila’s license and its delisting.

Neither will the organization of Philsa International Placement and Services Corp. and its registration with the POEA
as a private employment agency imply fraud since it was organized and registered in 1981, several years before
private respondent filed his complaint with the POEA in 1985. The creation of the second anticipation of private
respondent’s money claims and the consequent adverse judgement against Philsa.

Likewise, substantially identity of the incorporators of the two corporations does not necessarily imply fraud.

PNB V. RITRATTO – G.R. NO. 142616 – 362 SCRA 216

Facts:

PNB-IFL, a subsidiary company of PNB extended credit to Ritratto and secured by the real estate mortgages on four
parcels of land. Since there was default, PNB-IFL thru PNB, foreclosed the property and were subject to public
auction. Ritratto Group filed a complaint for injunction. PNB filed a motion to dismiss on the grounds of failure to state
a cause of action and the absence of any privity between respondents and petitioner.

Issue:

Is PNB privy to the loan contracts entered into by respondent & PNB-IFL being that PNB-IFL is owned by PNB?

Held:

No. The contract questioned is one entered into between Ritratto and PNB-IFL. PNB was admittedly an agent of the
latter who acted as an agent with limited authority and specific duties under a special power of attorney incorporated
in the real estate mortgage.

The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify
their being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence may be
respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their
respective business. The courts may, in the exercise of judicial discretion, step in to prevent the abuses of separate
entity privilege and pierce the veil of corporate entity.

Pacific Rehouse Corporation v. Court of Appeals, G.R. No. 199687, March 24, 2014.
NOTE 719 SCRA 665 page 5
FACTS

A complaint was instituted with the Makati City Regional Trial Court (RTC), Branch 66, against EIB Securities Inc. (E–
Securities) for unauthorized sale of 32,180,000 DMCI shares of Pacific Rehouse Corporation, Pacific Concorde
Corporation, Mizpah Holdings, Inc., Forum Holdings Corporation, and East Asia Oil Company, Inc. In its October 18,
2005 Resolution, the RTC rendered judgment on the pleadings, directing the E–Securities to return to the petitioners
32,180,000 DMCI shares, as of judicial demand. On the other hand, petitioners are directed to reimburse the
defendant the amount of [P]10,942,200.00, representing the buy back price of the 60,790,000 KPP shares of stocks
at [P]0.18 per share. The Resolution was ultimately affirmed by the Supreme Court and attained finality.

When the Writ of Execution was returned unsatisfied, petitioners moved for the issuance of an alias writ of execution
to hold Export and Industry Bank, Inc. liable for the judgment obligation as E–Securities is “a wholly–owned controlled
and dominated subsidiary of Export and Industry Bank, Inc., and is[,] thus[,] a mere alter ego and business conduit of
the latter. E–Securities opposed the motion[,] arguing that it has a corporate personality that is separate and distinct
from the respondent.

The RTC eventually concluded that E–Securities is a mere business conduit or alter ego of petitioner, the dominant
parent corporation, which justifies piercing of the veil of corporate fiction, and issued an alias writ of summons
directing defendant EIB Securities, Inc., and/or Export and Industry Bank, Inc., to fully comply therewith. It
ratiocinated that being one and the same entity in the eyes of the law, the service of summons upon EIB Securities,
Inc. (E–Securities) has bestowed jurisdiction over both the parent and wholly–owned subsidiary.

Export and Industry Bank, Inc. (Export Bank) filed before the Court of Appeals a petition for certiorari with prayer for
the issuance of a temporary restraining order (TRO) seeking the nullification of the RTC Order. The Court of Appeals
reversed the RTC Order and explained that the alter ego theory cannot be sustained because ownership of a
subsidiary by the parent company is not enough justification to pierce the veil of corporate fiction. There must be
proof, apart from mere ownership, that Export Bank exploited or misused the corporate fiction of E–Securities. The
existence of interlocking incorporators, directors and officers between the two corporations is not a conclusive
indication that they are one and the same. The records also do not show that Export Bank has complete control over
the business policies, affairs and/or transactions of E–Securities. It was solely E–Securities that contracted the
obligation in furtherance of its legitimate corporate purpose; thus, any fall out must be confined within its limited
liability.

ISSUE

Whether or not E-Securities is merely an alter ego of Export Bank so that “piercing the veil of corporate fiction” is
proper.

RULING

NO. An alter ego exists where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other. The control necessary to invoke the alter ego doctrine is not
majority or even complete stock control but such domination of finances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal.

The Court has laid down a three–pronged control test to establish when the alter ego doctrine should be operative:

Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own;
Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and
The aforesaid control and breach of duty must [have] proximately caused the injury or unjust loss complained of.
The absence of any one of these elements prevents ‘piercing the corporate veil’ in applying the ‘instrumentality’ or
‘alter ego’ doctrine, the courts are concerned with reality and not form, with how the corporation operated and the
individual defendant’s relationship to that operation. Hence, all three elements should concur for the alter ego
doctrine to be applicable.

In this case, the alleged control exercised by Export Bank upon its subsidiary E–Securities, by itself, does not mean
that the controlled corporation is a mere instrumentality or a business conduit of the mother company. Even control
over the financial and operational concerns of a subsidiary company does not by itself call for disregarding its
corporate fiction. There must be a perpetuation of fraud behind the control or at least a fraudulent or illegal purpose
behind the control in order to justify piercing the veil of corporate fiction. Such fraudulent intent is lacking in this case.

While the courts have been granted the colossal authority to wield the sword which pierces through the veil of
corporate fiction, concomitant to the exercise of this power, is the responsibility to uphold the doctrine of separate
entity, when rightly so; as it has for so long encouraged businessmen to enter into economic endeavors fraught with
risks and where only a few dared to venture.
The decision of the Court of Appeals in favor of Export Bank (reversing the RTC Order) is affirmed.

Francisco Motors Corporation v. CA and Sps. Manuel (G.R. No. 100812)

Facts:

Petitioner Francisco Motors Corp filed a complaint to recover from respondent spouses Manuel the unpaid balance of
the jeepney bought by the latter from them. As their answer, respondent spouses interposed a counterclaim for
unpaid legal services by Gregorio Manuel which was not paid by petitioner corporation’s directors and officers.
Respondent Manuel alleges that he represented members of the Francisco family who were directors and officers of
herein petitioner corporation in an intestate estate proceeding but even after its termination, his services were not
paid. The trial court ruled in favor of petitioner but also allowed respondent spouses’ counterclaim. CA affirmed.

Issue:

Whether or not petitioner corporation may be held liable for the liability incurred by its directors and officers in their
personal capacity.

Ruling: NO.

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has
no relevant application here. Respondent court erred in permitting the trial court’s resort to this doctrine.

In the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the
situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal
liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine
has been turned upside down because of its erroneous invocation. Note that according to private respondent
Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them in the
intestate proceedings over Benita Trinidad’s estate. These estate proceedings did not involve any business of
petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors
and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of
a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the
corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefore by piercing its corporate
veil

Philippine First Insurance Company, Inc. v. Ma. Carmen Hartigan

G.R. No. L-26370, 31 July 1970 (74 SCRA 252)

FACTS:

Plaintiff was originally organized as an insurance corporation under the name of ‘The Yek Tong Lin Fire and Marine
Insurance Co., Ltd.,’ in 1953. But on 26 May 1961, its Articles of Incorporation were amended changing the name of
the corporation to ‘Philippine First Insurance, Co., Inc.’.

The case arose when plaintiff, acting in the name of Yek Tong, signed as co-maker together with defendants, a
promissory note in favor of China Banking Corporation. Subsequently, as form of security, defendants signed an
indemnity agreement in favor of plaintiff in case damages or loses arises thereof.

Defendant Hartigan failed to pay, hence, the complaint for collection of sum of money with interest and other fees.

Defendants deny the allegations, claiming, among others that there is no privity of contract between them and plaintiff
since the plaintiff did not conduct its business under the name of Yek Tong Insurance, hence not entitled to the
indemnification agreement which is named in favor of Yek Tong.

Decision of the CFI: The Court of First Instance of Manila dismissed the action against plaintiff PFIC, based on the
following grounds, among others:
The change of name of the Yek Tong Lin Fire & Marine Insurance Co. to PFIC is of dubious validity, because such
change in effect dissolved the original corporation by a process of dissolution not authorized by the Corporation Law;
Assuming the change is valid, Yek Tong is considered dissolved, hence, at the time the indemnity agreement was
signed, it has no capacity to enter into such agreement anymore;
Assuming further that the chance is valid, Yek Tong is deemed as continuing as a body corporate for three (3) years
for the purpose of prosecuting and defending suits, hence, Yek Tong should be the proper party in interest.
Its Motion for Reconsideration having been denied, the plaintiff filed this present case.

ISSUE: Whether or not a Philippine Corporation may change its name and still retain its original personality and
individuality?

RULING: YES.

RATIO:

Under section 18 of the Corporation Code, the law authorizes corporations to amend their charter, its procedure and
restrictions for such amendments. There is restriction on the term of their existence and the increase or decrease of
the capital stock but there is no prohibition against the change of name.

The general rule as to corporations is that each corporation shall have a name by which it is to sue and be sued and
do all legal acts. The name of a corporation in this respect designates the corporation in the same manner as the
name of an individual designates the person.” Since an individual has the right to change his name under certain
conditions, there is no compelling reason why a corporation may not enjoy the same right.

Further, the Court held that a change of corporate name is not against public policy. As such, what is held to be
contrary to public policy is the use by one corporation of the name of another corporation as its trade name.

Likewise, it was ruled that change of name does not result in a corporation’s dissolution. In settled jurisprudence, the
Court held that an authorized change in the name of a corporation has no more effect upon its identity as a
corporation than a change of name of a natural person has upon his identity. It does not affect the rights of the
corporation or lessen or add to its obligations. After a corporation has effected a change in its name it should sue and
be sued in its new name.

From the foregoing, the Court believes that the lower court erred in holding that plaintiff is not the right party in
interest to sue defendants-appellees. As correctly pointed out by appellant, the approval by the stockholders of the
amendment of its articles of incorporation changing the name “The Yek Tong Lin Fire & Marine Insurance Co., Ltd.”
to “Philippine First Insurance Co., Inc.” on March 8, 1961, did not automatically change the name of said corporation
on that date. Hence, the lower court likewise erred in dismissing appellant’s complaint.

WHEREFORE, judgment of the lower court is reversed, and this case is remanded to the trial court for further
proceedings consistent herewith with costs against appellees.

COMPANY REGISTRATION AND MONITORING DEPARTMENT AND SECURITY AND

EXCHANGE Commission, en banc v. Ching Bee Trading Corporation
GR NO 205291
The Securities and Exchange Commission en banc and Company Registration and Monitoring Department of SEC

(Petitioner) seeks to review, to reverse and to sets aside the CA resolution’s CA G.R SP no.120817, which reversing
the SEC en banc decision on Aug. 4, 2011 which denied the extension of time for filling of amended articles of
incorporated extending the corporate life of Ching Bee Trading Corporation.

The core question presented in this case is whether CBTC is entitled to an additional time to file its amended articles
of incorporated extending its corporate life despite its attempt to file it before the original term expired.

Facts:

CBTC was registered with the SEC on Dec 23, 1960. Its corporate existence being limited to a period of only 50
years, it was to expire on Dec 23, 2010.
On Dec 22,2010 or 1 day before the last day of its existence, CBTC filed with the Company Registration and
Monitoring Department of the SEC , an application seeking the approval of its amended articles of incorporation
extending its term for another 50 years.

However CRMD refused to accept the application because of CBTC’s failure to state in the required Director’s
Certificate that the stockholder, owning and representing at least 2/3 of its capital stock

On Dec 23, 2010 or just hours before CBTC’s corporate personality expired such a letter was filed pursuant to CRMD
processor’s suggestion. On Jan 6, 2011 however CRMD denied the request citing SEC resolution No.394 as basis.
The said resolution contained SEC’s policy of denying the filing of any amended articles of incorporation extending
the corporate life of a corporation whose original term had expired.

CBTC appeal to SEC en banc but likewise denied.

Thus CBTC went to Court Appeals. However the Court of Appeals in its Oct 10,2012 decision and January 14,2013
resolution ordered the SEC to admit CBTC’s articles of incorporation, reversing the SEC en banc decisions, the CA
states that CBTC should have been given reasonable time with in which to correct or modify any portion in articles
following Sec 17 of the corporation code.

Hence in this petition SEC contends that the CA erred in granting CBTC appeal for an extension to file the amended
articles of incorporation. It points out that a corporation seeking to extend corporate term must take all the necessary
steps before it life’s expire. Considering that CBTC failed to file the amended articles of incorporation and to seek
approval of the SEC before the expiration of its term on Dec 23, 2010 the SEC argues that no valid extension of its
corporate existence could be allowed.

ISSUE

Whether or not CBTC is entitled to an additional time to file its amended articles of incorporation despite its
corporation‘s right to exist as an artificial person ceases.

HELD

The Supreme Court affirms the Court of Appeals decision.

The court denies the petition.

With the Following rulings:

The extending of the corporate term must be done within the limited period of 5 years prior to the original or
subsequent expiry date.(CBTC filed the required document DEC 22,2010 obviously with in the period allowed granted
by the code to seek extension).
On the ground of rejection of filling due to non-compliance of the requirements of the code Supreme Court however
cite the section 17 of the code which states:
SEC 17 grounds when articles of incorporation or amendment may be rejected or disapproved. –the Securities and
Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is
not in compliance with the requirements of this code: Provide, that the Commission shall give the incorporators a
reasonable time within which to correct or modify the objectionable portions of the articles or amendment.
That a day (1 day) is enough to complete the process of filling the application within in the period specified by the
code but being deprived because of the refusal of processor on Dec 23,2010 to file but instead verbally advised the
CBTC to have a request letter for an extension to file the deficient documentary requirements.

This ruling runs in accord with the doctrine of relation, under the said principle where the delay is due to the neglect of
the officer with whom the certificate is required to file or wrongful refusal on his part to receive the application, the
amendments shall take effect from the date the documents were filed.

Ramirez vs Orientalist Co. and Fernandez

38 Phil 634. No. 11897. September 24, 1918
Facts:
 The Orientalist Company is a corporation, duly organized under the laws of the Philippine Islands, was
engaged in the business of maintaining and conducting a theatre in the city of Manila for the exhibition of
cinematographic films. The plaintiff J. F. Ramirez was, at the same time, a resident of the city of Paris, France, and
was engaged in the business of marketing films for a manufacturer or manufacturers, there engaged in the production
or distribution of cinematographic material. In this enterprise the plaintiff was represented in the city of Manila by his
son, Jose Ramirez.
The written contract which was the subject of this action contained corporate name signed at the lower right
hand corner of the contract, in the manner usual with a party signing in the character of principal obligor. The name of
another individual was signed somewhat below and to the left of the corporate signature, after the customary manner
of those who sign in a subsidiary capacity, but no words were written to indicate clearly whether this individual signed
as a principal obligor or surety.

Issue:
Where a name is signed ambiguously, whether or not parol evidence is admissible to show the character in
which the signature was affixed.

Ruling:
Yes.
Rule of law which declares that oral evidence is admissible to show the character in which the signature
was affixed. This conclusion is perhaps supported by the language of the second paragraph of article 1281 of the
Civil Code, which declares that if the words of a contract should appear contrary to the evident intention of the
parties, the intention shall prevail. But the conclusion reached is deducible from the general principle that in case of
ambiguity parol evidence is admissible to show the intention of the contracting parties.

Therefore, parol evidence was admissible to show that the intention of the parties was that he should be
bound as surety and not jointly with other party.

Lee V. CA
G.R. No. 93695 February 4, 1992
FACTS:
November 15, 1985: a complaint for a sum of money was filed by the International Corporate Bank, Inc. (ICB) against
the private respondents

March 17, 1986: private respondents, in turn, filed a 3rd-party complaint against ALFA and ICB

September 17, 1987: petitioners filed a motion to dismiss the third party complaint - denied

July 12, 1988: trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP

consequence of the petitioner's letter that ALFA management was transferred to DBP

July 22, 1988: DBP claimed that it was not authorized to receive summons on behalf of ALFA

August 4, 1988: trial court issued an order advising the private respondents to take the appropriate steps to serve the
summons to ALFA

September 12, 1988: petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised
Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should
have availed of another mode of service under Rule 14, Section 16 of the said Rules, i.e., through publication to
effect proper service upon ALFA - denied

January 19, 1989: 2nd motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of
the voting trust agreement they ceased to be officers and directors of ALFA

attached a copy of the voting trust agreement between all the stockholders of ALFA and the DBP whereby the
management and control of ALFA became vested upon the DBP

April 25, 1989: trial court reversed itself by setting aside its previous Order dated January 2, 1989 and declared that
service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service
of summons on ALFA
October 17, 1989: trial court (NOT notified of the petition for certiorari) declared final its decision on April 25, 1989

ISSUE: W/N the voting trust agreement is valid despite being contrary to the general principle that a corporation can
only be bound by such acts which are within the scope of its officers' or agents' authority

HELD:
voting trust

trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of
identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of
years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock
owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with
or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall
be used (Ballentine's Law Dictionary)

Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a voting trust for the purpose
of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights
pertaining to the shares for a period not exceeding 5 years at any one time: Provided, that in the case of a voting trust
specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding 5 years but
shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized,
and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the
corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and
unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and
new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said
agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is
made pursuant to said voting trust agreement.

GRACE CHRISTIAN HIGH SCHOOL vs. THE COURT OF APPEALS

G.R. No. 108905 October 23, 1997 NOTE 281 SCRA 133 page 6

Petitioner Grace Christian High School is an educational institution located at the Grace Village in Quezon City, while
Private respondent Grace Village Association, Inc. ["Association'] is an organization of lot and/or building owners,
lessees and residents at Grace Village.

The original 1968 by-laws provide that the Board of Directors, composed of eleven (11) members, shall serve for one
(1) year until their successors are duly elected and have qualified.

On 20 December 1975, a committee of the board of directors prepared a draft of an amendment to the
by-laws which provides that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent
Director of the ASSOCIATION."

However, this draft was never presented to the general membership for approval. Nevertheless, from 1975 to 1990,
petitioner was given a permanent seat in the board of directors of the association.

On 13 February 1990, the association's committee on election sought to change the by-laws and informed the
Petitioner's school principal "the proposal to make the Grace Christian High School representative as a permanent
director of the association, although previously tolerated in the past elections should be reexamined."

Following this advice, notices were sent to the members of the association that the provision on election of directors
of the 1968 by-laws of the association would be observed. Petitioner requested the chairman of the election
committee to change the notice to honor the 1975 by-laws provision, but was denied.

The school then brought suit for mandamus in the Home Insurance and Guaranty Corporation (HIGC) to compel the
board of directors to recognize its right to a permanent seat in the board.

Meanwhile, the opinion of the SEC was sought by the association, and SEC rendered an opinion to the effect that the
practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to
§92 of the Corporation Code (B.P. Blg. 68). This was adopted by the association in its Answer in the mandamus filed
with the HIGC.
The HIGC hearing officer ruled in favor of the association, which decision was affirmed by the HIGC Appeals Board
and the Court of Appeals.

Issue: W/N the 1975 provision giving the petitioner a permanent board seat was valid.

Ruling: No.

Section 23 of the Corporation Code (and its predecessor Section 28 and 29 of the Corporation Law) leaves no room
for doubt that the Board of Directors of a Corporation must be elected from among the stockholders or members.

There may be corporations in which there are unelected members in the board but it is clear that in these instances,
the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office (e.g.
whoever is the Archbishop of Manila is considered a member of the board of Cardinal Santos Memorial Hospital, Inc.)

But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does
petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It
was only in 1975 that a proposed amendment to the by-laws sought to give it one.

Since the provision in question is contrary to law, the fact that it has gone unchallenged for fifteen years cannot
forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to
law, it is beyond the power of the members of the association to waive its invalidity.

It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be
considered ratification.

Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long
continued, cannot give rise to any vested right if it is contrary to law.

Tan versus Sycip

G.R. No. 153468; August 17, 2006 NOTE 499 SCRA 216 page 6
Facts:

Petitioner Grace Christian High School (GCHS) is a nonstock, non-profit educational corporation with fifteen (15)
regular members, who also constitute the board of trustees. During the annual members meeting held on April 6,
1998, there were only eleven (11) living member-trustees, as four (4) had already died. Out of the eleven, seven (7)
attended the meeting through their respective proxies. The meeting was convened and chaired by Atty. Sabino
Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no quorum. In the meeting,
Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were voted to replace the four deceased
member-trustees.

When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained that the
deceased member-trustees should not be counted in the computation of the quorum because, upon their death,
members automatically lost all their rights (including the right to vote) and interests in the corporation.

SEC Hearing Officer Malthie G. Militar declared the April 6, 1998 meeting null and void for lack of quorum. She held
that the basis for determining the quorum in a meeting of members should be their number as specified in the articles
of incorporation, not simply the number of living members.

REPORT THIS AD

Issue:

Whether or not in NON-STOCK corporations, dead members should still be counted in determination of quorum for
purpose of conducting the Annual Members Meeting.

Ruling:

The Right to Vote in Nonstock Corporations

In nonstock corporations, the voting rights attach to membership. Members vote as persons, in accordance with the
law and the bylaws of the corporation. Each member shall be entitled to one vote unless so limited, broadened, or
denied in the articles of incorporation or bylaws. We hold that when the principle for determining the quorum for stock
corporations is applied by analogy to nonstock corporations, only those who are actual members with voting rights
should be counted.

Under Section 52 of the Corporation Code, the majority of the members representing the actual number of voting
rights, not the number or numerical constant that may originally be specified in the articles of incorporation,
constitutes the quorum.

Section 25 of the Code specifically provides that a majority of the directors or trustees, as fixed in the articles of
incorporation, shall constitute a quorum for the transaction of corporate business (unless the articles of incorporation
or the bylaws provide for a greater majority). If the intention of the lawmakers was to base the quorum in the meetings
of stockholders or members on their absolute number as fixed in the articles of incorporation, it would have expressly
specified so. Otherwise, the only logical conclusion is that the legislature did not have that intention.

Effect of the Death of a Member or Shareholder

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

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

Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of the
member. Section 91 of the Corporation Code further provides that termination extinguishes all the rights of a member
of the corporation, unless otherwise provided in the articles of incorporation or the bylaws.

Applying Section 91 to the present case, we hold that dead members who are dropped from the membership roster in
the manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite
vote in corporate matters or the requisite quorum for the annual members meeting. With 11 remaining members, the
quorum in the present case should be 6. Therefore, there being a quorum, the annual members meeting, conducted
with six members present, was valid.

Yao Ka Sin Trading v CA

G.R. No. 53820. June 15, 1992 NOTE 209 SCRA 763 page 6
Facts:
· Constancio B. Maglana, President and Chairman of the Board of PWCC, submitted a letter-offer to YKS, to wit:
(a) To deliver 45,000 bags of white cement;
(b) At YKS option: a) P24.30 per 94 Ibs. bag net, FOB Cebu City; and b) P23.30 per 94 Ibs. bag net, FOB Asturias
Cebu;
(c) With downpayment of P243k, et al.
· But 23 days after the signing of the confirmation of the said letter, PWCC Board disapproved the same as
evidenced on the minutes of their meeting.
· PWCC informed YKS of the disapproval of the letter-offer. But it issued the corresponding Delivery Order of
10,000 bags of cement at P24.30, and Official Receipt for the payment of the same in the amount of P243,000.00,
which YKS accepted without protest.
· Then, a series of correspondence ensued between the parties: YKS demanding the delivery of the balance
35,000 bags of cement as per letter-offer; while PWCC insisting on the full compliance with the terms thereof and
informing the latter that it is exercising the option therein stipulated.
· YKS filed a complaint against PWCC, on the basis of the aforesaid letter-offer, as accepted by YKS, as a
contract that binds the PWCC.
· The CFI Leyte ruled in favor of YKS, but reversed by the CA on the ground that the said letter-offer is not
binding upon it because Mr. Maglana was not authorized to make the offer and sign the contract in behalf of the
corporation as the Board rejected the same.

Issue:
WoN Mr. Maglana, the PWCC President and Chairman, was empowered to execute the contract for the
corporation as implied from its By-Laws.
Held:
No, the Court holds that Mr. Maglana was not so authorized under the By-Laws of PWCC to enter into
contracts for the corporation independently of the Board of Directors.
"ARTICLE 1317. No one may contract in the name of another without being authorized by the latter, or unless
he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or
legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party."
In the case at bar, the letter-offer was effectively disapproved and rejected by the Board of Directors which, at
the same time, considered the amount of P243,000.00 received by Maglana as payment for 10,000 bags of white
cement, treated as an entirely different contract, and forthwith notified YKS its decision to accept the new transaction
involving only 10,000 bags of white cement within 10 days, otherwise it will return the latter’s payment in check of
P243k.
Thus, judgment appealed is AFFIRMED.
Francisco vs GSIS (1963)

February 14, 2013 markerwins Corporation Law, Mercantile Lawcorpo, merc

Facts: The plaintiff, Trinidad J. Francisco, in consideration of a loan mortgaged in favor of the defendant, Government
Service Insurance System a parcel of land known as Vic-Mari Compound, located at Baesa, Quezon City. The
System extrajudicially foreclosed the mortgage on the ground that up to that date the plaintiff-mortgagor was in
arrears on her monthly instalments. The System itself was the buyer of the property in the foreclosure sale. The
plaintiff’s father, Atty. Vicente J. Francisco, sent a letter to the general manager of the defendant corporation, Mr.
Rodolfo P. Andal. And latter the System approved the request of Francisco to redeem the land through a telegram.
Defendant received the payment and it did not, however, take over the administration of the compound. The System
then sent a letter to Francisco informing of his indebtedness and the 1 year period of redemption has been expired.
And the System argued that the telegram sent to Francisco saying that the System has approved the request in
redeeming the property is incorrect due to clerical problems.

Issue: WON the System is liable for the acts of its employees regarding the telegram?

Held: Yes. There was nothing in the telegram that hinted at any anomaly, or gave ground to suspect its veracity, and
the plaintiff, therefore, can not be blamed for relying upon it. There is no denying that the telegram was within Andal’s
apparent authority. Hence, even if it were the board secretary who sent the telegram, the corporation could not evade
the binding effect produced by the telegram. Knowledge of facts acquired or possessed by an officer or agent of a
corporation in the course of his employment, and in relation to matters within the scope of his authority, is notice to
the corporation, whether he communicates such knowledge or not. Yet, notwithstanding this notice, the defendant
System pocketed the amount, and kept silent about the telegram not being in accordance with the true facts, as it
now alleges. This silence, taken together with the unconditional acceptance of three other subsequent remittances
from plaintiff, constitutes in itself a binding ratification of the original agreement.

BOARD OF LIQUIDATORS vs.HEIRS OF MAXIMO M. KALAW

FACTS: Kalaw is the General Manager and Board Chairman of NACOCO(National Coconut Corporation). In 1947,
NACOCO contracted to sell coconut product with several buyers. That year, there were four typhoons that hit Phil.
Coconut trees throughout the country suffered extensive damage. Copra production decreased. When it became
clear that the contracts would be unprofitable Kalaw submitted them to the board for approval. Which was approved
by the Board. As was to be expected, NACOCO but partially performed the contracts.the buyers filed a case for the
full performance of the Contract. settlements were paid. NACOCO seeks to recover from Kalaw the said paid
settlements. For bad faith and/or breach trust for having approved the contracts.According to Kalaw he did so acted
for the best interest of the Corp.Trial Court decided for Kalaw.

ISSUE: Is Kalaw liable?

HELD: judgment affirmed.

RATIO:Kalaw is not liable. the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of
damage and wrong is here absent. There cannot be an actionable wrong if either one or the other is wanting. Kalaw
all along thought that he had authority to enter into the contracts; that he did so in the best interests of the
corporation.

Valle Verde Country Club, Inc. v. Africa, G.R. No.151969, September 4, 2009.
FACTS

On February 27, 1996, during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club, Inc. (VVCC),
the VVCC Board of Directors were elected including Eduardo Makalintal (Makalintal) among others. In the years
1997, 1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of the stockholders’ meeting could
not be obtained. Consequently, the directors continued to serve in the VVCC Board in a hold-over capacity. Later,
Makalintal resigned as member of the VVCC Board. He was replaced by Jose Ramirez (Ramirez), who was elected
by the remaining members of the VVCC Board on March 6, 2001. Respondent Africa (Africa), a member of VVCC,
questioned the election of Ramirez as members of the VVCC Board with the Regional Trial Court (RTC), respectively.
Africa claimed that a year after Makalintal’s election as member of the VVCC Board in 1996, his [Makalintal’s] term –
as well as those of the other members of the VVCC Board – should be considered to have already expired. Thus,
according to Africa, the resulting vacancy should have been filled by the stockholders in a regular or special meeting
called for that purpose, and not by the remaining members of the VVCC Board, as was done in this case. The RTC
sustained Africa’s complaint.

ISSUE

Whether the remaining directors of the corporation’s Board, still constituting a quorum, can elect another director to fill
in a vacancy caused by the resignation of a hold-over director.

RULING

NO.

When Section 23 of the Corporation Code declares that “the board of directors…shall hold office for one (1) year until
their successors are elected and qualified,” we construe the provision to mean that the term of the members of the
board of directors shall be only for one year; their term expires one year after election to the office. The holdover
period – that time from the lapse of one year from a member’s election to the Board and until his successor’s election
and qualification – is not part of the director’s original term of office, nor is it a new term; the holdover period,
however, constitutes part of his tenure. Corollary, when an incumbent member of the board of directors continues to
serve in a holdover capacity, it implies that the office has a fixed term, which has expired, and the incumbent is
holding the succeeding term.

[Here], when remaining members of the VVCC Board elected Ramirez to replace Makalintal, there was no more
unexpired term to speak of, as Makalintal’s one-year term had already expired. Pursuant to law, the authority to fill in
the vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members of its
board of directors. To assume – as VVCC does – that the vacancy is caused by Makalintal’s resignation in 1998, not
by the expiration of his term in 1997, is both illogical and unreasonable. His resignation as a holdover director did not
change the nature of the vacancy; the vacancy due to the expiration of Makalintal’s term had been created long
before his resignation.