Commercial Law Review Case Digest 2018-19 Prepared By: Catriona Janelle V. Gayatin

BUSINESS ORGANIZATION UPTO BY LAWS
JOSIE BERIN and MERLY ALORROvs. JUDGE FELIXBERTO P. BARTE, Municipal Circuit Trial Court, Hamtic,
Antique.
Facts: Complainants Josie Berin and Merly Alorro are real estate agents. They allege that sometime on January 2001,
respondent judge invited them to his office and asked them to look for a vendor of a lot for sale in Antique because the Manila
Mission of the Church of Jesus Christ of Latter Day Saints, Inc. wanted to buy a site for its church in Antique. Complainants claim
that they found a vendor, Eleanor M. Checa-Santos, who owned a lot consisting of 4,000 square meters, located in Barrio
Caridad, Municipality of Now, Hamtic, Antique, that respondent judge informed them three days later that the Church was
willing to pay P2.3 million for the lot; that respondent judge agreed that complainants would each receive a commission of
P100,000.00 in case the sale took place. Complainants said they wanted to have the agreement in writing, but respondent judge
refused, saying, "Do you have no trust in your Judge Barte?" This is the reason there is no written agreement of the transaction
between them. Complainants alleged that the sale was consummated and respondent judge received the purchase price, but,
despite demands made by them for the payment of their commission, respondent judge gave them only P10,000.00 each, telling
them to "take it or leave it." Hence, this complaint.|||
Respondent judge likewise denied that he agreed to pay complainants P100,000.00 each as commission for the sale. But he said
that, sometime in November 1999, complainant Merly Alorro, whom he considered his friend, learned from complainant Josie
Berin that the lot in question was up for sale, and Alorro told him about it. ||| Since he was able to realize some amount from the
sale, he decided to give complainants a share for the information they gave him, although they never contributed to the success
of the transaction. He gave complainant Berin P7,000.00 and Merly Alorro P12,000.00.aSCHIT]
The Office of the Court Administrator (OCA) agrees that respondent judge cannot be held liable for refusing to honor his
obligation under the alleged contract on the ground that the same has no relation to his official duties as a judge and does not
amount either to maladministration or willful intentional neglect and failure to discharge the duties of a judge. However, it
believes that respondent is liable for violation of Canon 5, Rule 5.02 of the Code of Judicial Conduct and recommends accordingly
that he be fined P5,000.00.|||
Issue: whether respondent judge committed an impropriety in acting as a broker in the sale of a real estate|||
Held: The people's confidence in the judicial system is founded not only on the competence and diligence of the members of
the bench, but also on their integrity and moral uprightness. He must not only be honest but also appear to be so. He must not
only be a "good judge," he must also appear to be a "good person." |||
Article 14 of the Code of Commerce prohibits members of the judiciary and prosecutors from engaging in commerce within their
jurisdiction. It provides:
ART. 14. The following cannot engage in commerce, either in person or by proxy, nor can they hold any office or have any direct,
administrative, or financial intervention in commercial or industrial companies within the limits of the districts, provinces, or
towns in which they discharge their duties:
1. Justices of the Supreme Court, judges and officials of the department of public prosecution in active service. This provision
shall not be applicable to mayors, municipal judges, and municipal prosecuting attorneys nor those who by chance are
temporarily discharging the functions of judge or prosecuting attorney.
xxx xxx xxx
5. Those who by virtue of laws or special provisions may not engage in commerce in a determinate territory.
This Court adopted the Code of Judicial Conduct, which took effect on October 20, 1989, the pertinent provision of which states:
COMMERCIAL LAW REVIEW CASE DIGEST 2018-19

Prepared by: Catriona Janelle V. Gayatin
Rule 5.02. — A judge shall refrain from financial and business dealings that tend to reflect adversely on the court's impartiality,
interfere with the proper performance of judicial activities, or increase involvement with lawyers or persons likely to come before
the court. A judge should so manage investments and other financial interests as to minimize the number of cases giving grounds
for disqualification.
WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY vs. SANITARY WARES
MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ,
Facts: In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing
sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American
who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States
entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to
participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines
and selling here and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the Philippines
shall be carried on by an incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares
Manufacturing Corporation."|||
The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the directors
of the corporation:
"3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form
annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall specifically
provide for.
(1) Cumulative voting for directors:

xxx xxx xxx
"5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which
shall consist of nine individuals. As long as American-Standard shall own at least 30% of the
outstanding stock of the Corporation, three of the nine directors shall be designated by
American-Standard, and the others six: shall be designated by the other stockholders of the
Corporation. (pp. 51 & 53, Rollo of 75875).
At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto
powers over a number of corporate acts and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto
powers over a number of corporate acts and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be owned by Philippine
nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the
business successes, there came a deterioration of the initially harmonious relations between the two groups.
\ The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine
investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin
Young. Mr. Eduardo R. Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The
chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for
the nine-member board of directors, and the legal advice of Saniwares' legal counsel.|||
Issue: the nature of the business established by the parties — whether it was a joint venture or a corporation
Held: The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or
some other relation depends upon their actual intention which is determined in accordance with the rules governing the
interpretation and construction of contracts.
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by
the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The history of
the organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint
venture and not with an ordinary corporation. As stated by the SEC:
"According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in
behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition that the Agreement should contain provisions to
protest ASI as the minority.
"An examination of the Agreement shows that certain provisions were included to protect the interests of
ASI as the minority. For example, the vote of 7 out of 9 directors is required in certain enumerated
corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to designate a member of
the Executive Committee and the vote of this member is required for certain transactions [Sec. 3 (b) (i)].
"The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws
of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides that the sales policy of Saniwares shall be that which
is normally followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products
otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed
to provide technology and know-how to Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
"It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of
directors for certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an
effective veto power. Furthermore, the grant to ASI of the right to designate certain officers of the
corporation; the super-majority voting requirements for amendments of the articles and by-laws; and
most significantly to the issues of this case, the provision that ASI shall designate 3 out of the 9 directors
and the other stockholders shall designate the other 6, clearly indicate that — 1) there are two distinct
groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine National
stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the minority
stockholder.
Premises considered, we believe that under the Agreement there are two groups of stockholders who
established a corporation with provisions for a special contractual relationship between the parties, i.e.,
ASI and the other stockholders." (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors
on a six to three ratio. Each group is assured of a fixed number of directors in the board.
ALFREDO CHING, vs. THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR CECILYN BURGOS-VILLAVERT, JUDGE
EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE
PEOPLE OF THE PHILIPPINES
Facts: Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to October
1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank) for the issuance of
commercial letters of credit to finance its importation of assorted goods.
Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The goods were
purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts as surety, acknowledging delivery of the following
goods. Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way of
conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as soon as received,
to apply against the relative acceptances and payment of other indebtedness to respondent bank. In case the goods remained
unsold within the specified period, the goods were to be returned to respondent bank without any need of demand. Thus, said
"goods, manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate
and capable of identification" were respondent bank's property.
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value amounting
to P6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa against petitioner in the Office of the
City Prosecutor of Manila.
Preliminary investigation ensued, the City Prosecutor ruled that there was no probable cause to charge petitioner with
violating P.D. No. 115, as petitioner's liability was only civil, not criminal, having signed the trust receipts as surety. Respondent
bank appealed the resolution to the Department of Justice (DOJ) via petition for review,|||
Issue: 1) whether or not petitioner Is liable under PD115

2) Whether or not the transactions entered into by petitioner is a trust receipt transaction
Held: CA ruled that the petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in finding
probable cause against the petitioner for violation of estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in
relation to P.D. No. 115.||| Be that as it may, even on the merits, the arguments advanced in support of the petition are not
persuasive enough to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming
out with his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is no
iota of evidence that he was a participes crimines in violating the trust receipts sued upon; and that his liability, if at all, is purely
civil because he signed the said trust receipts merely as a . . . surety and not as the entrustee.
'section 13 of PD 115 states . . If the violation or offense is committed by a corporation, partnership, association or other judicial
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or
persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.'
"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13) trust receipts.
As such, the law points to him as the official responsible for the offense. Since a corporation cannot be proceeded against
criminally because it cannot commit crime in which personal violence or malicious intent is required, criminal action is limited to
the corporate agents guilty of an act amounting to a crime and never against the corporation itself. Thus, the execution by
respondent of said receipts is enough to indict him as the official responsible for violation of PD 115.
"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately destined for sale
and not goods, like those imported by PBM, for use in manufacture. This issue has already been settled in the Allied Banking
Corporation case, supra, where he was also a party, when the Supreme Court ruled that PD 115 is 'not limited to transactions in
goods which are to be sold (retailed), reshipped, stored or processed as a component or a product ultimately sold' but 'covers

failure to turn over the proceeds of the sale of entrusted goods, or to return said goods if unsold or disposed of in accordance
with the terms of the trust receipts.'
"In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust receipts not only
as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities which do not exclude the other.
Logically, he can be proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its decision in RCBC
vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official responsible for the offense under PD 115, the present
case is an appropriate remedy under our penal law.|||
"Moreover, PD 115 explicitly allows the prosecution of corporate officers 'without prejudice to the civil liabilities arising from the
criminal offense' thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case is clearly separate and distinct
from his criminal liability under PD 115.'"
2) A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this
Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds
absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession
of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein
the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof
to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments
themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust
receipt|||
An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt transaction, and any
successor in interest of such person for the purpose of payment specified in the trust receipt agreement. The entrustee is obliged
to: (1) hold the goods, documents or instruments in trust for the entruster and shall dispose of them strictly in accordance with
the terms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster and turn over the same to the
entruster to the extent of the amount owing to the entruster or as appears on the trust receipt; (3) insure the goods for their
total value against loss from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money
or whatever form, separate and capable of identification as property of the entruster; (5) return the goods, documents or
instruments in the event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust
receipt not contrary to the provisions of the decree. The entruster shall be entitled to the proceeds from the sale of the goods,
documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or
as appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the
enforcement of all other rights conferred on him in the trust receipt; provided, such are not contrary to the provisions of the
document. In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions
envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust receipts signed
by petitioner, as entrustee, with the bank as entruster.
In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions envisaged
in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust receipts signed by
petitioner, as entrustee, with the bank as entruster. It must be stressed that P.D. No. 115 is a declaration by legislative authority
that, as a matter of public policy, the failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt
or to return said goods, if not sold, is a public nuisance to be abated by the imposition of penal sanctions.
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other officers or
persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or board of directors,
officers, or other officials or employees responsible for the offense. The rationale is that such officers or employees are vested
with the authority and responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so, are
held criminally accountable; thus, they have a responsible share in the violations of the law.

If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers thereof
responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the crime and the
penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by
imprisonment. However, a corporation may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the
statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined. |||
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate corporate
personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself behind a corporation
where he is the actual, present and efficient actor.|||
FILIPINAS BROADCASTING NETWORK, INC., vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN
COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO,
Facts: "Exposé" is a radio documentary program hosted by Carmelo 'Mel' Rima ("Rima") and Hermogenes ‘Jun' Alegre
("Alegre"). Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical and
Educational Center-Bicol Christian College of Medicine ("AMEC") and its administrators. Claiming that the broadcasts were
defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMEC's College of Medicine, filed a complaint for damages against
FBNI, Rima and Alegre on 27 February 1990. The complaint further alleged that AMEC is a reputable learning institution. With
the supposed exposés, FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs' (AMEC and
Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and
supervision of its employees, particularly Rima and Alegre.|||
The trial court rendered a Decision finding FBNI and Alegre liable for libel except Rima. The trial court held that the broadcasts
are libelous per se. The trial court rejected the broadcasters' claim that their utterances were the result of straight reporting
because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good faith. In
holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its
employees.
In absolving Rima from the charge, the trial court ruled that Rima's only participation was when he agreed with Alegre's exposé.
The trial court found Rima's statement within the "bounds of freedom of speech, expression, and of the press."
|||
Issue: whether or not AMEC shall be entitled to moral damages
Held: FBNI contends that AMEC is not entitled to moral damages because it is a corporation.
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. The Court of Appeals
cites Mambulao Lumber Co. v. PNB, et al. to justify the award of moral damages. However, the Court's statement
in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral
damages" is an obiter dictum.
Nevertheless, AMEC's claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This provision expressly
authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not
qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly
complain for libel or any other form of defamation and claim for moral damages. Moreover, where the broadcast is libelous per
se, the law implies damages. In such a case, evidence of an honest mistake or the want of character or reputation of the party
libeled goes only in mitigation of damages. Neither in such a case is the plaintiff required to introduce evidence of actual
damages as a condition precedent to the recovery of some damages. In this case, the broadcasts are libelous per se. Thus, AMEC
is entitled to moral damages.

The award of attorney's fees is not proper because AMEC failed to justify satisfactorily its claim for attorney's fees. AMEC did
not adduce evidence to warrant the award of attorney's fees. Moreover, both the trial and appellate courts failed to explicitly
state in their respective decisions the rationale for the award of attorney's fees.|||
FRANCISCO MOTORS CORPORATION, vs. COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL,
Facts: petitioner filed a complaint 2 against private respondents to recover three thousand four hundred twelve and six centavos
(P3,412.06), representing the balance of the jeep body purchased by the Manuels from petitioner; an additional sum of twenty
thousand four hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the cost of repair of the
vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorney's fees. To the original balance on the price of jeep body
were added the costs of repair. In their answer, private respondents interposed a counterclaim for unpaid legal services by
Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the incorporators, directors and officers
of the petitioner. The trial court decided the case on June 26, 1985, in favor of petitioner in regard to the petitioner's claim for
money, but also allowed the counter-claim of private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals
sustained the trial court's decision.||| Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was
petitioner's Assistant Legal Officer, he represented members of the Francisco family in the intestate estate proceedings of the
late Benita Trinidad. However, even after the termination of the proceedings, his services were not paid. Said family members,
he said, were also incorporators, directors and officers of petitioner. Hence to counter petitioner's collection suit, he filed a
permissive counterclaim for the unpaid attorney's fees.|||
Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the
transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner, there
was no cause of action by said respondent against petitioner; personal concerns of the heirs should be distinguished from those
involving corporate affairs.||| According to petitioner, the services for which respondent Gregorio Manuel seeks to collect fees
from petitioner are personal in nature. Hence, it avers the heirs should have been sued in their personal capacity, and not involve
the corporation.
Issue: Whether or not the corporation shall be liable for the unpaid legal fees.
Held: Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders and
from other corporations to which it may be connected. However, under the doctrine of piercing the veil of corporate entity, the
corporation's separate juridical personality may be disregarded, for example, when the corporate identity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business conduit
of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be ignored. In these
circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them.
The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of
justice, will be justifiably set aside.
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. The rationale behind piercing a
corporation's identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart
the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed
activities. However, 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.

Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner
corporation on the claims that its management had requested his services and he acceded thereto as an employee of petitioner
from whom it could be deduced he was also receiving a salary. His move to recover unpaid legal fees through a counterclaim
against Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body could only result
from an obvious misapprehension that petitioner's corporate assets could be used to answer for the liabilities of its individual
directors, officers, and incorporators. Such result if permitted could easily prejudice the corporation, its own creditors, and even
other stockholders; hence, clearly inequitous to 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 therefor by piercing its corporate veil. While there are no
hard and fast rules on disregarding separate corporate identity, we must always be mindful of its function and purpose. A court
should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an injustice,
although unintended, may result from its erroneous application. cdll
The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be
kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and directors could
not be properly directed against the corporation without violating basic principles governing corporations.|||
BANK OF AMERICA NT&SA, BANK OF AMERICA INTERNATIONAL, LTD., vs. COURT OF APPEALS, HON. MANUEL
PADOLINA, EDUARDO LITONJUA, SR., and AURELIO K. LITONJUA, JR.,
Facts: Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed a Complaint before the Regional Trial Court
of Pasig against the Bank of America NT&SA and Bank of America International, Ltd. (defendant banks for brevity) alleging that:
they were engaged in the shipping business; they owned two vessels: Don Aurelio and El Champion, through their wholly-owned
corporations; they deposited their revenues from said business together with other funds with the branches of said banks in the
United Kingdom and Hongkong up to 1979; with their business doing well, the defendant banks induced them to increase the
number of their ships in operation, offering them easy loans to acquire said vessels; thereafter, the defendant banks acquired,
through their (Litonjuas') corporations as the borrowers. The Litonjuas claimed that defendant banks as trustees did not fully
render an account of all the income derived from the operation of the vessels as well as of the proceeds of the subsequent
foreclosure sale; because of the breach of their fiduciary duties and/or negligence of the petitioners and/or the persons
designated by them in the operation of private respondents' six vessels, the revenues derived from the operation of all the
vessels declined drastically; the loans acquired for the purchase of the four additional vessels then matured and remained
unpaid, prompting defendant banks to have all the six vessels, including the two vessels originally owned by the private
respondents, foreclosed and sold at public auction to answer for the obligations incurred for and in behalf of the operation of
the vessels|; they (Litonjuas) lost sizeable amounts of their own personal funds equivalent to ten percent (10%) of the acquisition
cost of the four vessels and were left with the unpaid balance of their loans with defendant banks. The Litonjuas prayed for the
accounting of the revenues derived in the operation of the six vessels and of the proceeds of the sale thereof at the foreclosure
proceedings instituted by petitioners; damages for breach of trust; exemplary damages and attorney's fees.|||
Petitioners argue that the borrowers and the registered owners of the vessels are the foreign corporations and not private
respondents Litonjuas who are mere stockholders; and that the revenues derived from the operations of all the vessels are
deposited in the accounts of the corporations. Hence, petitioners maintain that these foreign corporations are the legal entities
that have the personalities to sue and not herein private respondents. that private respondents, being mere shareholders, have
no claim on the vessels as owners since they merely have an inchoate right to whatever may remain upon the dissolution of the
said foreign corporations and after all creditors have been fully paid and satisfied; and that while private respondents may have
allegedly spent amounts equal to 10% of the acquisition costs of the vessels in question, their 10% however represents their
investments as stockholders in the foreign corporations. |||

Issue: whether or not the respondents has no cause of action on the ground that they are merely stockholders.
Held: No. Petitioners' argument that private respondents, being mere stockholders of the foreign corporations, have no
personalities to sue, and therefore, the complaint should be dismissed, is untenable. A case is dismissible for lack of personality
to sue upon proof that the plaintiff is not the real party-in-interest. Lack of personality to sue can be used as a ground for a
Motion to Dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of action.
In the case at bar, the complaint contains the three elements of a cause of action. It alleges that: (1) plaintiffs, herein
private respondents, have the right to demand for an accounting from defendants (herein petitioners), as trustees by reason of
the fiduciary relationship that was created between the parties involving the vessels in question; (2) petitioners have the
obligation, as trustees, to render such an accounting; and (3) petitioners failed to do the same.
Petitioners insist that they do not have any obligation to the private respondents as they are mere stockholders of the
corporation; that the corporate entities have juridical personalities separate and distinct from those of the private respondents.
Private respondents maintain that the corporations are wholly owned by them and prior to the incorporation of such entities,
they were clients of petitioners which induced them to acquire loans from said petitioners to invest on the additional ships.
We agree with private respondents. assuming that the allegation of facts constituting plaintiffs' cause of action is not as clear
and categorical as would otherwise be desired, any uncertainty thereby arising should be so resolved as to enable a full inquiry
into the merits of the action."|||
As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicity of suits which the law abhors,
and conduce to the definitive determination and termination of the dispute. To do otherwise, that is, to abort the action on
account of the alleged fatal flaws of the complaint would obviously be indecisive and would not end the controversy, since the
institution of another action upon a revised complaint would not be foreclosed.|||
PHILIPPINE NATIONAL BANK, vs. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL
MERCHANDISE
Facts: Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile,
respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations,
likewise, organized and existing under Philippine law.
PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended
a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real estate mortgages constituted over
four (4) parcels of land in Makati City. This credit facility was later increased successively. Respondents made repayments of the
loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong. However, as of April 30, 1998, their
outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its
attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject
thereof were to be sold at a public auction at the Makati City Hall.
Issue: whether or not PNB is an alter ego of PNB-IFL.
Held: The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual
stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter. 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.
We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court disregarded the separate
existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of evading the
payment of higher taxes. In the case at bar, respondents fail to show any cogent reason why the separate entities of the PNB
and PNB-IFL should be disregarded.
While there exists no definite test of general application in determining when a subsidiary may be treated as a mere
instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment of
the doctrine of the piercing of the corporate veil.
Said Court then outlined the circumstances which may be useful in the determination of whether the subsidiary is but a mere
instrumentality of the parent-corporation:|||
(a) The parent corporation owns all or most of the capital stock of the subsidiary. CAaDTH
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise
causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets
except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is
described as a department or division of the parent corporation, or its business or financial responsibility
is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the
subsidiary but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to
address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The
doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime,
or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit
of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.
side from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that
the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils
sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the
corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar.|||
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this
case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it
acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without
compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or
defended in the name of the real party-in-interest, unless otherwise authorized by law or these Rules. |||

All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions
of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the
preliminary injunction issued in connection therewith, must be lifted.|||
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, vs. RITA C. MEJIA, as Executrix of Testate
Estate of ANDREA CORDOVA VDA. DE GUTIERREZ
Facts: Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in Camarin, Caloocan City
known as Lot 861 of the Tala Estate. The land had an aggregate area of twenty-five (25) hectares. The property was later
subdivided into five lots with an area of five hectares each and five new transfer certificates of title were issued in the name of
Gutierrez. Gutierrez and Cardale Financing and Realty Corporation (Cardale) executed a Deed of Sale with Mortgage relating to
the lots covered by TCT Nos. 7124, 7125, 7126 and 7127, for the consideration of P800,000.00. Upon the execution of the deed,
Cardale paid Gutierrez P171,000.00. It was agreed that the balance of P629,000.00 would be paid in several installments within
five years from the date of the deed, at an interest of nine percent per annum "based on the successive unpaid principal
balances." Thereafter, the titles of Gutierrez were cancelled and in lieu thereof TCT Nos. 7531 to 7534 were issued in favor of
Cardale.|||
To secure payment of the balance of the purchase price, Cardale constituted a mortgage on three of the four parcels of land
covered by TCT Nos. 7531, 7532 and 7533, encompassing fifteen hectares of land. The encumbrance was annotated upon the
certificates of title and the owner's duplicate certificates. The owner's duplicates were retained by Gutierrez. Owing to Cardale's
failure to settle its mortgage obligation, Gutierrez filed a complaint for rescission of the contract with the Quezon City Regional
Trial Court (RTC), during the pendency of the rescission case, Gutierrez died and was substituted by her executrix, respondent
Rita C. Mejia (Mejia). In 1971, plaintiff's presentation of evidence was terminated. However, Cardale, which was represented by
petitioner Adalia B. Francisco (Francisco) in her capacity as Vice-President and Treasurer of Cardale, lost interest in proceeding
with the presentation of its evidence and the case lapsed into inactive status for a period of about fourteen years.
In the meantime, the mortgaged parcels of land became delinquent in the payment of real estate taxes which culminated in
their levy and auction sale. The highest bidder for the three parcels of land was petitioner Merryland Development Corporation
(Merryland), whose President and majority stockholder is Francisco.|||
Before the expiration of the one year redemption period, Mejia filed a Motion for Decision with the trial court. The hearing of
said motion was deferred, however, due to a Motion for Postponement filed by Cardale through Francisco, who signed the
motion in her capacity as "officer-in-charge," claiming that Cardale needed time to hire new counsel. However, Francisco did
not mention the tax delinquencies and sale in favor of Merryland. Subsequently, the redemption period expired and Merryland,
acting through Francisco, filed petitions for consolidation of title, which culminated in the issuance of certain orders decreeing
the cancellation of Cardales' TCT Nos. 7531 to 7533 and the issuance of new transfer certificates of title "free from any
encumbrance or third-party claim whatsoever" in favor of Merryland. Pursuant to such orders, the Register of Deeds of Caloocan
City issued new transfer certificates of title in the name of Merryland which did not bear a memorandum of the mortgage liens
in favor of Gutierrez.|||
Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with the RTC of Quezon City a complaint for damages with
prayer for preliminary attachment against Francisco, Merryland and the Register of Deeds of Caloocan City. The trial court
rendered a decision in favor of the defendants, dismissing the complaint for damages filed by Mejia. It was held that plaintiff
Mejia, as executrix of Gutierrez's estate, failed to establish by clear and convincing evidence her allegations that Francisco
controlled Cardale and Merryland and that she had employed fraud by intentionally causing Cardale to default in its payment of
real property taxes on the mortgaged properties so that Merryland could purchase the same by means of a tax delinquency sale.
Moreover, according to the trial court, the failure to recover the property subject of the Deed of Sale with Mortgage was due to
Mejia's failure to actively pursue the action for rescission, allowing the case to drag on for eighteen years.|||

Issue: Whether or not Merryland is solidarily liable with Francisco.
Held: That Merryland acquired the property at the public auction only serves to shed more light upon Francisco's fraudulent
purposes. Based on the findings of the Court of Appeals, Francisco is the controlling stockholder and President of
Merryland. Thus, aside from the instrumental role she played as an officer of Cardale, in evading that corporation's legitimate
obligations to Gutierrez, it appears that Francisco's actions were also oriented towards securing advantages for another
corporation in which she had a substantial interest. |||
We cannot agree, however, with the Court of Appeals' decision to hold Merryland solidarily liable with Francisco. The only act
imputable to Merryland in relation to the mortgaged properties is that it purchased the same and this by itself is not a fraudulent
or wrongful act. No evidence has been adduced to establish that Merryland was a mere alter ego or business conduit of
Francisco. Time and again it has been reiterated that mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality. Neither has it been alleged or proven that Merryland is so organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of Cardale. Even assuming that the businesses of Cardale
and Merryland are interrelated, this alone is not justification for disregarding their separate personalities, absent any showing
that Merryland was purposely used as a shield to defraud creditors and third persons of their rights. Thus, Merryland's separate
juridical personality must be upheld.|||
Even before 1984 when Mejia, in her capacity as executrix of Gutierrez's estate, filed a Motion for Decision with the trial court,
there is no question that Francisco knew that the properties subject of the mortgage had become tax delinquent. In fact, as
treasurer of Cardale, Francisco herself was the officer charged with the responsibility of paying the realty taxes on the
corporation's properties. This was admitted by the trial court in its decision. n addition, notices dated 9 July 1982 from the City
Treasurer of Caloocan demanding payment of the tax arrears on the subject properties and giving warning that if the realty taxes
were not paid within the given period then such properties would be sold at public auction to satisfy the tax delinquencies were
sent directly to Francisco's address in White Plains, Quezon City. Francisco could have informed the Gutierrez estate or the trial
court in Civil Case No. Q-12366 of the tax arrears and of the notice from the City Treasurer so that the estate could have taken
the necessary steps to prevent the auction sale and to protect its interests in the mortgaged properties, but she did no such
thing.
It is dicta in corporation law that a corporation is a juridical person with a separate and distinct personality from that of the
stockholders or members who compose it. However, when the legal fiction of the separate corporate personality is abused, such
as when the same is used for fraudulent or wrongful ends, the courts have not hesitated to pierce the corporate veil. One of the
earliest formulations of this doctrine of piercing the corporate veil was made in the American case of United States v. Milwaukee
Refrigerator Transit Co. — If any general rule can be laid down, in the present state of authority, it is that a corporation will be
looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as
an association of persons. Since then a good number of cases have firmly implanted this doctrine in Philippine jurisprudence.
One such case is Umali v. Court of Appeals wherein the Court declared that — Under the doctrine of piercing the veil of corporate
entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical personality separate
and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere
association of persons. The members or stockholders of the corporation will be considered as the corporation, that is, liability
will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or
where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.|||
ESTELITA BURGOS LIPAT and ALFREDO LIPAT, , vs. PACIFIC BANKING CORPORATION, REGISTER OF DEEDS, RTC EX-
OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO D. TRINIDAD,

Facts: Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned "Bela's Export Trading" (BET), a single
proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the manufacture of
garments for domestic and foreign consumption. The Lipats also owned the "Mystical Fashions" in the United States, which sells
goods imported from the Philippines through BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in the
Philippines while she was managing "Mystical Fashions" in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a special power of attorney
appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit accommodations from respondent Pacific
Banking Corporation (Pacific Bank). She likewise authorized Teresita to execute mortgage contracts on properties owned or co-
owned by her as security for the obligations to be extended by Pacific Bank including any extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in behalf of her mother,
Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be manufactured by BET and exported
to "Mystical Fashions" in the United States. As security therefor, the Lipat spouses, as represented by Teresita, executed a Real
Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property was likewise made to
secure "other additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever amount.
On September 5, 1979, BET was incorporated into a family corporation named Bela's Export Corporation (BEC) in order to
facilitate the management of the business. BEC was engaged in the business of manufacturing and exportation of all kinds of
garments of whatever kind and description 5 and utilized the same machineries and equipment previously used by BET. Its
incorporators and directors included the Lipat spouses who owned a combined 300 shares out of the 420 shares subscribed,
Teresita Lipat who owned 20 shares, and other close relatives and friends of the Lipats. 6 Estelita Lipat was named president of
BEC, while Teresita became the vice-president and general manager.
Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC with the
corresponding promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit was also opened by
Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after BEC executed the corresponding
trust receipt therefor. These transactions were all secured by the real estate mortgage over the Lipats' property.
The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately, BEC defaulted in
its payments. After receipt of Pacific Bank's demand letters, Estelita Lipat went to the office of the bank's liquidator and asked
for additional time to enable her to personally settle BEC's obligations. The bank acceded to her request but Estelita failed to
fulfill her promise. Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the
law the mortgaged property was sold at public auction.
The spouses Lipat filed before the Quezon City RTC a complaint for annulment of the real estate mortgage, extrajudicial
foreclosure and the certificate of sale issued over the property against Pacific Bank and Eugenio D. Trinidad. The complaint,
alleged, among others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were
executed without the requisite board resolution of the Board of Directors of BEC. The Lipats also averred that assuming said
acts were valid and binding on BEC, the same were the corporation's sole obligation, it having a personality distinct and separate
from spouses Lipat. |||
Issue: WON THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE.|||
Held: Petitioners' contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the resolution of the
appellate court show that in finding petitioners' mortgaged property liable for the obligations of BEC, both courts below relied
upon the alter ego doctrine or instrumentality rule, rather than fraud in piercing the veil of corporate fiction. When the
corporation is the mere alter ego or business conduit of a person, the separate personality of the corporation may be
disregarded. 12 This is commonly referred to as the "instrumentality rule" or the alter ego doctrine, which the courts have
applied in disregarding the separate juridical personality of corporations. As held in one case,
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the 'instrumentality' may be disregarded.

The control necessary to invoke the rule is not majority or even complete stock control but such domination of
finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of
its own, and is but a conduit for its principal. . .
We find that the evidence on record demolishes, rather than buttresses, petitioners' contention that BET and BEC are separate
business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the owners of BET and were two of
the incorporators and majority stockholders of BEC. It is also undisputed that Estelita Lipat executed a special power of attorney
in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her behalf. Incidentally, Teresita was
designated as executive-vice president and general manager of both BET and BEC, respectively. We note further that: (1)
Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively; (2) both firms were managed
by their daughter, Teresita; (3) both firms were engaged in the garment business, supplying products to "Mystical Fashion," a
U.S. firm established by Estelita Lipat; (4) both firms held office in the same building owned by the Lipats; (5) BEC is a family
corporation with the Lipats as its majority stockholders; (6) the business operations of the BEC were so merged with those of
Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the
corporation itself had no visible assets; (8) the board of directors of BEC was composed of the Burgos and Lipat family
members; (9) Estelita had full control over the activities of and decided business matters of the corporation; and that (10)
Estelita Lipat had benefited from the loans secured from Pacific Bank to finance her business abroad and from the export bills
secured by BEC for the account of "Mystical Fashion." It could not have been coincidental that BET and BEC are so intertwined
with each other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one and the same and
the latter is a conduit of and merely succeeded the former. Petitioners' attempt to isolate themselves from and hide behind the
corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the classical doctrine of piercing the
veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere continuation and successor of BET, and
petitioners cannot evade their obligations in the mortgage contract secured under the name of BEC on the pretext that it was
signed for the benefit and under the name of BET. We are thus constrained to rule that the Court of Appeals did not err when it
applied the instrumentality doctrine in piercing the corporate veil of BEC.
|||
ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG PILIPINAS, INC., vs. IGLESIA NG
DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG KATOTOHANAN,
Facts: Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ Jesus, the Pillar and
Ground of Truth), 4 is a non-stock religious society or corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and
several other members of respondent corporation disassociated themselves from the latter and succeeded in registering on
March 30, 1977 a new non-stock religious society or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng
Katotohanan.
On July 16, 1979, respondent corporation filed with the SEC a petition to compel the Iglesia ng Dios Kay Kristo Hesus, Haligi at
Saligan ng Katotohanan to change its corporate name, which petition was docketed as SEC Case No. 1774. On May 4, 1988, the
SEC rendered judgment in favor of respondent, ordering the Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan to
change its corporate name to another name that is not similar or identical to any name already used by a corporation,
partnership or association registered with the Commission. No appeal was taken from said decision.
It appears that during the pendency of SEC Case No. 1774, Soriano, et al., caused the registration on April 25, 1980 of petitioner
corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas. The acronym "H.S.K." stands
for Haligi at Saligan ng Katotohanan.
On March 2, 1994, respondent corporation filed before the SEC a petition, docketed as SEC Case No. 03-94-4704, praying that
petitioner be compelled to change its corporate name and be barred from using the same or similar name on the ground that
the same causes confusion among their members as well as the public.
Invoking the case of Legarda v. Court of Appeals, petitioner insists that the decision of the Court of Appeals and the SEC should
be set aside because the negligence of its former counsel of record, Atty. Joaquin Garaygay, in failing to file an answer after its
motion to dismiss was denied by the SEC, deprived them of their day in court.|||
Issue:
Held: At any rate, the SEC has the authority to de-register at all times and under all circumstances corporate names which in its
estimation are likely to spawn confusion. It is the duty of the SEC to prevent confusion in the use of corporate names not only
for the protection of the corporations involved but more so for the protection of the public. 17
Section 18 of the Corporation Code provides:
Corporate Name. — No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or is
contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue
an amended certificate of incorporation under the amended name.
Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states:
(d) If the proposed name contains a word similar to a word already used as part of the firm name
or style of a registered company, the proposed name must contain two other words different from the
name of the company already registered;
Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by
another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in the exercise of its
corporate functions, regardless of intent, may be prevented by the corporation having a prior right, by a suit for injunction
against the new corporation to prevent the use of the name.
Petitioner claims that it complied with the aforecited SEC guideline by adding not only two but eight words to their
registered name, to wit: "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.," which, petitioner argues, effectively distinguished it
from respondent corporation.
The additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in petitioner's name are, as correctly observed
by the SEC, merely descriptive of and also referring to the members, or kaanib, of respondent who are likewise residing in the
Philippines. These words can hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in
distinguishing petitioner from respondent. This is especially so, since both petitioner and respondent corporations are using the
same acronym — H.S.K.; not to mention the fact that both are espousing religious beliefs and operating in the same place.
Parenthetically, it is well to mention that the acronym H.S.K. used by petitioner stands for "Haligi at Saligan ng Katotohanan."
Then, too, the records reveal that in holding out their corporate name to the public, petitioner highlights the dominant
words "IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN," which is strikingly similar to
respondent's corporate name, thus making it even more evident that the additional words "Ang Mga Kaanib" and "Sa Bansang
Pilipinas, Inc.", are merely descriptive of and pertaining to the members of respondent corporation.
Significantly, the only difference between the corporate names of petitioner and respondent are the
words SALIGAN and SUHAY. These words are synonymous — both mean ground, foundation or support. Hence, this case is on
all fours with Universal Mills Corporation v. Universal Textile Mills, Inc., where the Court ruled that the corporate names Universal
Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that even under the test of "reasonable care and
observation" confusion may arise.
The fact that there are other non-stock religious societies or corporations using the names Church of the Living God, Inc., Church
of God Jesus Christ the Son of God the Head, Church of God in Christ & By the Holy Spirit, and other similar names, is of no
consequence. It does not authorize the use by petitioner of the essential and distinguishing feature of respondent's registered
and protected corporate name

POWERS OF THE CORPORATION – CERT. OF STOCKS
UP TO MERGER & CONSOLIDATION
Facts: Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City, executed a Deed of
Assignment, wherein he assigned his shares, as well as those of eight (8) other shareholders under his control with a total of
10,467 shares, in favor of the stockholders of the Bank represented by its directors Bernardo Bautista, Jaime Custodio and
Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina, executed an Agreement wherein they
acknowledged their indebtedness to the Bank in the amount of P4,000,000.00, and stipulated that said debt will be paid out of
the proceeds of the sale of their real property described in the Agreement.
At a meeting of the Board of Directors of the Bank, the Villanueva spouses assured the Board that their debt would be paid
on or before December 31 of that same year; otherwise, the Bank would be entitled to liquidate their shareholdings, including
those under their control. In such an event, should the proceeds of the sale of said shares fail to satisfy in full the obligation, the
unpaid balance shall be secured by other collateral sufficient therefor.
When the Villanueva spouses failed to settle their obligation to the Bank on the due date, the Board sent them a letter
demanding: (1) the surrender of all the stock certificates issued to them; and (2) the delivery of sufficient collateral to secure the
balance of their debt amounting to P3,346,898.54. The Villanuevas ignored the banks demands, whereupon their shares of stock
were converted into Treasury Stocks. Later, the Villanuevas, through their counsel, questioned the legality of the conversion of
their shares. The stockholders of the Bank met to elect the new directors and set of officers for the year 1994. The Villanuevas
were not notified of said meeting. In a letter, Atty. Amado Ignacio, counsel for the Villanueva spouses, questioned the legality
of the said stockholders meeting and the validity of all the proceedings therein. In reply, the new set of officers of the Bank
informed Atty. Ignacio that the Villanuevas were no longer entitled to notice of the said meeting since they had relinquished
their rights as stockholders in favor of the Bank.
Consequently, the Villanueva spouses filed with the SEC, a petition for annulment of the stockholders meeting and
election of directors and officers with damages and prayer for preliminary injunction. Joining them as co-petitioners were
Catalino Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo Reyes, Alejandro Tonogan, and Elena Usi. Named
respondents were the newly-elected officers and directors of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio,
Octavio Katigbak, Francisco Custodio and Juanita Bautista.
The Villanuevas main contention was that the stockholders meeting and election of officers and directors held on January
15, 1994 were invalid because: (1) they were conducted in violation of the by-laws of the Rural Bank; (2) they were not given due
notice of said meeting and election notwithstanding the fact that they had not waived their right to notice; (3) they were
deprived of their right to vote despite their being holders of common stock with corresponding voting rights; (4) their names
were irregularly excluded from the list of stockholders; and (5) the candidacy of petitioner Avelina Villanueva for directorship
was arbitrarily disregarded by respondent Bernardo Bautista and company during the said meeting.
The Villanuevas application for the issuance of a writ of preliminary injunction was denied by the SEC Hearing Officer on the
ground of lack of sufficient basis for the issuance thereof. However, a motion for reconsideration was granted upon finding that
since the Villanuevas have not disposed of their shares, whether voluntarily or involuntarily, they were still stockholders entitled
to notice of the annual stockholders meeting was sustained by the SEC.
The hearing officer, therefore, had a basis in issuing the questioned orders since the private respondents rights as stockholders
may be prejudiced should the writ of injunction not be issued. The private respondents are presumably stockholders of the Bank
in view of the fact that they have in their possession the stock certificates evidencing their stockholdings. Until proven otherwise,
they remain to be such and the hearing officer, being the one directly confronted with the facts and pieces of evidence in the
case, may issue such orders and resolutions which may be necessary or reasonable relative thereto to protect their rights and
interest in the meantime that the said case is still pending trial on the merits.

Issue: Whether or not there was a valid transfer of shares to the bank.
Held: Section 63 of the Corporation Code states: x x x Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner x x x. No transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction,
the date of the transfer, the number of the certificate or certificates and the number of shares transferred.
In the case at bench, when private respondents executed a deed of assignment of their shares of stocks in favor of the
Stockholders of the Rural Bank of Lipa City, represented by Bernardo Bautista, Jaime Custodio and Octavio Katigbak, title to
such shares will not be effective unless the duly indorsed certificate of stock is delivered to them. For an effective transfer of
shares of stock, the mode and manner of transfer as prescribed by law should be followed. Private respondents are still presumed
to be the owners of the shares and to be stockholders of the Rural Bank.
Petitioners argue that by virtue of the Deed of Assignment, private respondents had relinquished to them any and all rights they
may have had as stockholders of the Bank. While it may be true that there was an assignment of private respondents shares to
the petitioners, said assignment was not sufficient to effect the transfer of shares since there was no endorsement of the
certificates of stock by the owners, their attorneys-in-fact or any other person legally authorized to make the transfer. Moreover,
petitioners admit that the assignment of shares was not coupled with delivery, the absence of which is a fatal defect. The rule is
that the delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful
owner to the transferee. Thus, title may be vested in the transferee only by delivery of the duly indorsed certificate of stock.
We have uniformly held that for a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed
by law. The requirements are: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the
owner or his attorney-in-fact or other persons legally authorized to make the transfer; and (c) To be valid against third parties,
the transfer must be recorded in the books of the corporation. As it is, compliance with any of these requisites has not been
clearly and sufficiently shown.
It may be argued that despite non-compliance with the requisite endorsement and delivery, the assignment was valid between
the parties, meaning the private respondents as assignors and the petitioners as assignees. While the assignment may be valid
and binding on the petitioners and private respondents, it does not necessarily make the transfer effective. Consequently, the
petitioners, as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled
to dividends, insofar as the assigned shares are concerned. Parenthetically, the private respondents cannot, as yet, be deprived
of their rights as stockholders, until and unless the issue of ownership and transfer of the shares in question is resolved with
finality.
CHEMPHIL EXPORT & IMPORT CORPORATION (CEIC),vs. THE HONORABLE COURT OF APPEALS JAIME Y. GONZALES,
as Assignee of the Bank of the Philippine Islands (BPI), RIZAL COMMERCIAL BANKING CORPORATION (RCBC), LAND
BANK OF THE PHILIPPINES (LBP), PHILIPPINE COMMERCIAL & INTERNATIONAL BANK (PCIB) and THE PHILIPPINE
INVESTMENT SYSTEM ORGANIZATION (PISO),
Facts: Dynetics, Inc. and Antonio M. Garcia filed a complaint for declaratory relief and/or injunction against the PISO, BPI, LBP,
PCIB and RCBC or the consortium with the Regional Trial Court of Makati, seeking judicial declaration, construction and
interpretation of the validity of the surety agreement that Dynetics and Garcia had entered into with the consortium and to
perpetually enjoin the latter from claiming, collecting and enforcing any purported obligations which Dynetics and Garcia might
have undertaken in said agreement.

The consortium filed their respective answers with counterclaims alleging that the surety agreement in question was valid and
binding and that Dynetics and Garcia were liable under the terms of the said agreement. It likewise applied for the issuance of a
writ of preliminary attachment against Dynetics and Garcia.
Seven months later, Dynetics, Antonio Garcia and Matrix Management & Trading Corporation filed a complaint for declaratory
relief and/or injunction against the Security Bank & Trust Co. (SBTC case) before the Regional Trial Court of Makati. The trial
court granted SBTC's prayer for the issuance of a writ of preliminary attachment and a notice of garnishment covering Garcia's
shares in CIP/Chemphil (including the disputed shares) was served on Chemphil through its then President. The notice of
garnishment was duly annotated in the stock and transfer books of Chemphil on the same date.
In the meantime, on 12 July 1985, the Regional Trial (the consortium case) denied the application of Dynetics and Garcia for
preliminary injunction and instead granted the consortium's prayer for a consolidated writ of preliminary attachment. Hence,
on 19 July 1985, after the consortium had filed the required bond, a writ of attachment was issued and various real and personal
properties of Dynetics and Garcia were garnished, including the disputed shares. 8 This garnishment, however, was not
annotated in Chemphil's stock and transfer book. The Regional Trial Court dismissed the complaint of Dynetics and Garcia as
well as the counterclaims of the consortium. During the pendency of consortium's appeal, Antonio Garcia and the consortium
entered into a Compromise Agreement which the Court of Appeals approved on 22 May 1989 and became the basis of its
judgment by compromise. Antonio Garcia was dropped as a party to the appeal leaving the consortium to proceed solely against
Dynetics, Inc.
It appears that on 15 July 1988, Antonio Garcia under a Deed of Sale transferred to Ferro Chemicals, Inc. (FCI) the disputed shares
and other properties for P79,207,331.28. It was agreed upon that part of the purchase price shall be paid by FCI directly to SBTC
for whatever judgment credits that may be adjudged in the latter's favor and against Antonio Garcia in the aforementioned
SBTC case.
FCI, through its President Antonio M. Garcia, issued a Bank of America Check No. 860114 in favor of SBTC in the amount of
P35,462,869.62. SBTC refused to accept the check claiming that the amount was not sufficient to discharge the debt. The check
was thus consigned by Antonio Garcia and Dynetics with the Regional Trial Court as payment of their judgment debt in the SBTC
case. FCI assigned its 4,119,614 shares in Chemphil, which included the disputed shares, to petitioner CEIC. The shares were
registered and recorded in the corporate books of Chemphil in CEIC's name and the corresponding stock certificates were issued
to it.
Meanwhile, Antonio Garcia, in the consortium case, failed to comply with the terms of the compromise agreement he entered
into with the consortium. As a result, the consortium filed a motion for execution which was granted by the trial court on 11
August 1989. Among Garcia's properties that were levied upon on execution were his 1,717,678 shares in Chemphil (the disputed
shares) previously garnished. he consortium acquired the disputed shares of stock at the public auction sale conducted by the
sheriff for P85,000,000.00. On same day, a Certificate of Sale covering the disputed shares was issued to it.The consortium filed
a motion (dated 29 August 1989) to order the corporate secretary of Chemphil to enter in its stock and transfer books the sheriff's
certificate of sale dated 22 August 1989, and to issue new certificates of stock in the name of the banks concerned. The trial
court granted said motion.
CEIC filed a motion to intervene (dated 25 September 1989) in the consortium case seeking the recall of the abovementioned
order on grounds that it is the rightful owner of the disputed shares. It further alleged that the disputed shares were previously
owned by Antonio M. Garcia but subsequently sold by him on 15 July 1988 to Ferro Chemicals, Inc. (FCI) which in turn assigned
the same to CEIC in an agreement dated 26 June 1989. he consortium filed their opposition to CEIC's motion for intervention
alleging that their attachment lien over the disputed shares of stocks must prevail over the private sale in favor of the CEIC
considering that said shares of stock were garnished in the consortium's favor as early as 19 July 1985.
The CONSORTIUM has admitted that the writ of attachment/garnishment issued on the shares of stock belonging to plaintiff
Antonio M. Garcia was not annotated and registered in the stock and transfer books of CHEMPHIL. On the other hand, the prior

attachment issued in favor of SBTC of this Court against the same CHEMPHIL shares of Antonio M. Garcia, was duly registered
and annotated in the stock and transfer books of CHEMPHIL. The matter of non-recording of the Consortium's attachment in
Chemphil's stock and transfer book on the shares of Antonio M. Garcia assumes significance considering CEIC's position that FCI
and later CEIC acquired the CHEMPHIL shares of Antonio M. Garcia without knowledge of the attachment of the CONSORTIUM.
This is also important as CEIC claims that it has been subrogated to the rights of SBTC since CEIC's predecessor-in-interest, the
FCI, had paid SBTC the amount of P35,462,869.12 pursuant to the Deed of Sale and Purchase of Shares of Stock executed by
Antonio M. Garcia on July 15, 1988. By reason of such payment, sale with the knowledge and consent of Antonio M. Garcia, FCI
and CEIC, as party-in-interest to FCI, are subrogated by operation of law to the rights of SBTC. The Court is not unaware of the
citation in CEIC's reply that "as between two (2) attaching creditors, the one whose claims was first registered on the books of
the corporation enjoy priority."
Issue: WHETHER OR NOT THE ATTACHMENT OF SHARES OF STOCK, IN ORDER TO BIND THIRD PERSONS, MUST BE
RECORDED IN THE STOCK AND TRANSFER BOOK OF THE CORPORATION
Held: The Court of Appeals agreed with the consortium's position that the attachment of shares of stock in a corporation need
not be recorded in the corporation's stock and transfer book in order to bind third persons. Section 7(d), Rule 57 of the Rules of
Court was complied with by the consortium (through the Sheriff of the trial court) when the notice of garnishment over the
Chemphil shares of Garcia was served on the president of Chemphil on July 19, 1985. Indeed, to bind third persons, no law
requires that an attachment of shares of stock be recorded in the stock and transfer book of a corporation. The statement
attributed by the Regional Trial Court to the Supreme Court in Samahang Magsasaka, Inc. vs. Gonzalo Chua Guan, G.R. No. L-
7252, February 25, 1955 (unreported), to the effect that "as between two attaching creditors, the one whose claim was registered
first on the books of the corporation enjoys priority," is an obiter dictum that does not modify the procedure laid down in Section
7(d), Rule 57 of the Rules of Court.
Therefore, ruled the Court of Appeals, the attachment made over the Chemphil shares in the name of Garcia on July 19, 1985
was made in accordance with law and the lien created thereby remained valid and subsisting at the time Garcia sold those shares
to FCI (predecessor-in-interest of appellee CEIC) in 1988.
The rule laid down in the case of Samahang Magsasaka, Inc. v. Chua Guan,47 that as between two attaching creditors the one
whose claim was registered ahead on the books of the corporation enjoys priority, clearly has no application in the case at bench.
As we have amply discussed, since CEIC was not subrogated to SBTC's right as attaching creditor, which right in turn, had already
terminated after Garcia paid his debt to SBTC, it cannot, therefore, be categorized as an attaching creditor in the present
controversy. CEIC cannot resurrect and claim a right which no longer exists. The issue in the instant case, then, is priority
between an attaching creditor (the consortium) and a purchaser (FCI/CEIC) of the disputed shares of stock and not between two
attaching creditors — the subject matter of the aforestated Samahang Magsasaka case.
Shares of stock being personal property, may be the subject matter of pledge and chattel mortgage. Such collateral transfers are
however not covered by the registration requirement of Section 63, since our Supreme Court has held that such provision applies
only to absolute transfers thus, the registration in the corporate books of pledges and chattel mortgages of shares cannot have
any legal effect.
Consequently, the entry or notation on the books of the corporation of pledges and chattel mortgages on shares is not necessary
to their validity (although it is advisable to do so) since they do not involve absolute alienation of ownership of stock (Monserrat
vs. Ceron, 58 Phil. 469 [1933]; Chua Guan vs. Samahang Magsasaka, Inc., 62 Phil. 472 [1935].) To affect third persons, it is enough
that the date and description of the shares pledged appear in a public instrument. (Art. 2096, Civil Code.) With respect to a
chattel mortgage constituted on shares of stock, what is necessary is its registration in the Chattel Mortgage Registry. (Act No.
1508 and Art. 2140, Civil Code.) We rule, therefore, that there was substantial compliance with Sec. 7(d), Rule 57 of the Rules of
Court.

VICENTE C. PONCE, petitioner, vs. ALSONS CEMENT CORPORATION, and FRANCISCO M. GIRON, JR., respondents.
Facts: plaintiff (now petitioner) Vicente C. Ponce, filed a complaint with the SEC for mandamus and damages against defendants
(now respondents) Alsons Cement Corporation and its corporate secretary Francisco M. Giron, Jr. In his complaint, petitioner
alleged, among others, that: xxx..
5. The late Fausto G. Gaid was an incorporator of Victory Cement Corporation (VCC), having subscribed to and fully paid 239,500
shares of said corporation.
6. On February 8, 1968, plaintiff and Fausto Gaid executed a Deed of Undertaking and Indorsement whereby the latter
acknowledges that the former is the owner of said shares and he was therefore assigning/endorsing the same to the plaintiff. A
copy of the said deed/indorsement is attached as Annex A.
7. On April 10, 1968, VCC was renamed Floro Cement Corporation (FCC for brevity).
8. On October 22, 1990, FCC was renamed Alsons Cement Corporation (ACC for brevity) as shown by the Amended Articles of
Incorporation of ACC, a copy of which is attached as Annex B.
9. From the time of incorporation of VCC up to the present, no certificates of stock corresponding to the 239,500 subscribed and
fully paid shares of Gaid were issued in the name of Fausto G. Gaid and/or the plaintiff.
10. Despite repeated demands, the defendants refused and continue to refuse without any justifiable reason to issue to plaintiff
the certificates of stocks corresponding to the 239,500 shares of Gaid, in violation of plaintiffs right to secure the corresponding
certificate of stock in his name.
With these allegations, petitioner prayed that judgment be rendered ordering respondents (a) to issue in his name certificates
of stocks covering the 239,500 shares of stocks and its legal increments and (b) to pay him damages.
Instead of filing an answer, respondents moved to dismiss the complaint on the grounds that: (a) the complaint states no cause
of action; mandamus is improper and not available to petitioner; (b) the petitioner is not the real party in interest; (c) the cause
of action is barred by the statute of limitations; and (d) in any case, the petitioners cause of action is barred by laches. They
argued, inter alia, that there being no allegation that the alleged INDORSEMENT was recorded in the books of the corporation,
said indorsement by Gaid to the plaintiff of the shares of stock in questionassuming that the indorsement was in fact a transfer
of stockswas not valid against third persons such as ALSONS under Section 63 of the Corporation Code. There was, therefore,
no specific legal duty on the part of the respondents to issue the corresponding certificates of stock, and mandamus will not lie.
SEC Hearing Officer Enrique L. Flores, Jr. granted the motion to dismiss in an Order which held that Insofar as the issuance of
certificates of stock is concerned, the real party in interest is Fausto G. Gaid, or his estate or his heirs. Gaid was an incorporator
and an original stockholder of the defendant corporation who subscribed and fully paid for 239,500 shares of stock (Annex "B").In
accordance with Section 37 of the old Corporation Law (Act No. 1459) obtaining in 1968 when the defendant corporation was
incorporated, as well as Section 64 of the present Corporation Code (Batas Pambansa Blg. 68), a stockholder who has fully paid
for his subscription together with interest and expenses in case of delinquent shares, is entitled to the issuance of a certificate
of stock for his shares. According to paragraph 9 of the Complaint, no stock certificate was issued to Gaid. In the present case,
there is not even any indorsement of any stock certificate to speak of. What the plaintiff possesses is a document by which Gaid
supposedly transferred the shares to him. Assuming the document has this effect, nevertheless there is neither any allegation
nor any showing that it is recorded in the books of the defendant corporation, such recording being a prerequisite to the issuance
of a stock certificate in favor of the transferee.
Issue: Whether or not petitioner can compel the corporation by mandamus to issue certificate of stocks by virtue of a deed of
assignment not recorded in the stock and transfer books of the corporation.

Held: No. There is no question that Fausto Gaid was an original subscriber of respondent corporations 239,500 shares. This is
clear from the numerous pleadings filed by either party. It is also clear from the Amended Articles of Incorporation approved on
August 9, 1995 that each share had a par value of P1.00 per share. And, it is undisputed that petitioner had not made a previous
request upon the corporate secretary of ALSONS, respondent Francisco M. Giron Jr., to record the alleged transfer of stocks.
A transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the
corporation is concerned. As between the corporation on the one hand, and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of determining who its shareholders are. It is only when the transfer has been
recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From
this time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize
arises.
Hence, without such recording, the transferee may not be regarded by the corporation as one among its stockholders and the
corporation may legally refuse the issuance of stock certificates in the name of the transferee even when there has been
compliance with the requirements of Section 64 of the Corporation Code. This is the import of Section 63 which states that No
transfer, however, shall be valid, except between the parties, until the transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and
the number of shares transferred. The situation would be different if the petitioner was himself the registered owner of the stock
which he sought to transfer to a third party, for then he would be entitled to the remedy of mandamus.
From the corporations point of view, the transfer is not effective until it is recorded. Unless and until such recording is made the
demand for the issuance of stock certificates to the alleged transferee has no legal basis. As between the corporation on the one
hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining
who its shareholders are. In other words, the stock and transfer book is the basis for ascertaining the persons entitled to the
rights and subject to the liabilities of a stockholder. Where a transferee is not yet recognized as a stockholder, the corporation
is under no specific legal duty to issue stock certificates in the transferees name. until registration is accomplished, the
transfer, though valid between the parties, cannot be effective as against the corporation. Thus, in the absence of any
allegation that the transfer of the shares between Gaid and the private respondent [herein petitioner] was registered in the
stock and transfer book of the petitioner corporation, the private respondent has failed to state a cause of action.
Under the provisions of our statute touching the transfer of stock (secs. 35 and 36 of Act No. 1459), the mere indorsement of
stock certificates does not in itself give to the indorsee such a right to have a transfer of the shares of stock on the books of the
company as will entitle him to the writ of mandamus to compel the company and its officers to make such transfer at his demand,
because, under such circumstances the duty, the legal obligation, is not so clear and indisputable as to justify the issuance of the
writ. As a general rule and especially under the above-cited statute, as between the corporation on the one hand, and its
shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its
shareholders are, so that a mere indorsee of a stock certificate, claiming to be the owner, will not necessarily be recognized as
such by the corporation and its officers, in the absence of express instructions of the registered owner to make such transfer to
the indorsee, or a power of attorney authorizing such transfer.
BANK OF THE PHILIPPINE ISLANDS, vs BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI
UNIBANK,
Facts: On March 23, 2000, the Bangko Sentral ng Pilipinas approved the Articles of Merger executed on January 20, 2000 by
and between BPI, herein petitioner, and FEBTC. This Article and Plan of Merger was approved by the Securities and Exchange
Commission on April 7, 2000.

Pursuant to the Article and Plan of Merger, all the assets and liabilities of FEBTC were transferred to and absorbed by BPI as
the surviving corporation. FEBTC employees, including those in its different branches across the country, were hired by
petitioner as its own employees, with their status and tenure recognized and salaries and benefits maintained.
Respondent BPI Employees Union-Davao Chapter - Federation of Unions in BPI Unibank (hereinafter the Union, for brevity) is
the exclusive bargaining agent of BPIs rank and file employees in Davao City. The former FEBTC rank-and-file employees in
Davao City did not belong to any labor union at the time of the merger. Prior to the effectivity of the merger, or on March 31,
2000, respondent Union invited said FEBTC employees to a meeting regarding the Union Shop Clause (Article II, Section 2)
of the existing CBA between petitioner BPI and respondent Union. After the meeting called by the Union, some of the former
FEBTC employees joined the Union, while others refused. Later, however, some of those who initially joined retracted their
membership. Respondent Union then sent notices to the former FEBTC employees who refused to join, as well as those who
retracted their membership, and called them to a hearing regarding the matter. When these former FEBTC employees refused
to attend the hearing, the president of the Union requested BPI to implement the Union Shop Clause of the CBA and to
terminate their employment pursuant thereto.
Voluntary Arbitrator Rosalina Letrondo-Montejo, in a Decision ruled in favor of petitioner BPIs interpretation that the former
FEBTC employees were not covered by the Union Security Clause of the CBA between the Union and the Bank on the ground
that the said employees were not new employees who were hired and subsequently regularized, but were absorbed employees
by operation of law because the former employees of FEBTC can be considered assets and liabilities of the absorbed
corporation. The Voluntary Arbitrator concluded that the former FEBTC employees could not be compelled to join the Union,
as it was their constitutional right to join or not to join any organization.
Issue: Whether or not a corporation may invoke its merger with another corporation as a valid ground to exempt its absorbed
employees from the coverage of a union shop clause contained in its existing Collective Bargaining Agreement (CBA) with its
own certified labor union
Held: In the present case, the merger was voluntarily entered into by both banks presumably for some mutually acceptable
consideration. In fact, the Corporation Code does not also mandate the absorption of the employees of the non-surviving
corporation by the surviving corporation in the case of a merger. Section 80 of the Corporation Code provides:
SEC. 80. Effects of merger or consolidation. The merger or consolidation, as provided in the preceding
sections shall have the following effects:
1. The constituent corporations shall become a single corporation which, in case of merger, shall be the
surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the
consolidated corporation designated in the plan of consolidation;
2. The separate existence of the constituent corporations shall cease, except that of the surviving or the
consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and
powers and shall be subject to all the duties and liabilities of a corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the constituent corporations; and all property, real or
personal, and all receivables due on whatever account, including subscriptions to shares and other choses in
action, and all and every other interest of, or belonging to, or due to each constituent corporation, shall be
taken and deemed to be transferred to and vested in such surviving or consolidated corporation without
further act or deed; and

5. The surviving or the consolidated corporation shall be responsible and liable for all the liabilities and
obligations of each of the constituent corporations in the same manner as if such surviving or consolidated
corporation had itself incurred such liabilities or obligations; and any claim, action or proceeding pending by
or against any of such constituent corporations may be prosecuted by or against the surviving or
consolidated corporation, as the case may be. Neither the rights of creditors nor any lien upon the property
of any of such constituent corporations shall be impaired by such merger or consolidated.
Significantly, too, the Articles of Merger and Plan of Merger dated April 7, 2000 did not contain any specific stipulation with
respect to the employment contracts of existing personnel of the non-surviving entity which is FEBTC. Unlike the Voluntary
Arbitrator, this Court cannot uphold the reasoning that the general stipulation regarding transfer of FEBTC assets and liabilities
to BPI as set forth in the Articles of Merger necessarily includes the transfer of all FEBTC employees into the employ of BPI and
neither BPI nor the FEBTC employees allegedly could do anything about it. Even if it is so, it does not follow that the absorbed
employees should not be subject to the terms and conditions of employment obtaining in the surviving corporation.
The rule is that unless expressly assumed, labor contracts such as employment contracts and collective bargaining agreements
are not enforceable against a transferee of an enterprise, labor contracts being in personam, thus binding only between the
parties. A labor contract merely creates an action in personam and does not create any real right which should be respected by
third parties. This conclusion draws its force from the right of an employer to select his employees and to decide when to engage
them as protected under our Constitution, and the same can only be restricted by law through the exercise of the police power.


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BUSINESS ORGANIZATION UPTO BY LAWS

xxx xxx xxx

COMMERCIAL LAW REVIEW CASE DIGEST 2018-19

"3. Articles of Incorporation

(1) Cumulative voting for directors:

xxx xxx xxx

Issue: 1) whether or not petitioner Is liable under PD115

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Issue: whether or not PNB is an alter ego of PNB-IFL.

(c) The parent corporation finances the subsidiary.

(e) The subsidiary has grossly inadequate capital.

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Section 18 of the Corporation Code provides:

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UP TO MERGER & CONSOLIDATION

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