Tayag vs. Benguet consolidated INC certificate of sale and motion to dismiss and Section 11.
s and Section 11. No franchise, certificate, or any
Facts:
Idonah Slade Perkins died in New
York on March 1960, the domestic
administrator in New York refused to give the
Stock Certificates owned by Perkins in the
Benguet Consolidated Inc. to the Ancillary
administrator here in the Philippines for the
purpose of satisfying the legitimate claims of
local creditors. The Court of First Instance of
Manila decided that the Stock Certificates
was considered lose because of the refusal of
the domestic administrator in New York to
give such certificates to the ancilliary
administrator here in the Philippines and
ordered Benguet Consolidated Inc to issue
New Stock Certificates to the Ancilliary
administrator. Benguet refuses to obey the
order of the CFI of Manila on the ground that
it is in violation of the Corporation By Laws.
Issue:
Whether or not the Benguet
Consolidated Inc is covered by the orders of
the COURT.
Held:
The Supreme Court Held that “a
corporation is an artificial being created by
operation of law, it owes its life to the state,
its birth being purely dependent on its will”.
It is logically inconceivable therefore that it
will have rights and privileges of a higher
priority than that of its creator. More than
that, it cannot legitimately REFUSE to yield
obedience to acts of its state organs,
certainly not excluding the JUDICIARY,
whenever called. It is not immune to judicial
control in those instances, where a duty
under the law as ascertained in an
appropriate legal proceeding is cast upon it.
Spouses Yu vs PCIB
CITATION: GR No. 147902, March 17, 2006
Petitioners Vicente Yu and Demetria Lee-Yu
mortgaged their title, interest, and
participation over several parcels of land
located in Dagupan City and Quezon City, in
favor of the Philippine Commercial
International Bank, respondent and highest
bidder, as security for the payment of a loan.
As petitioners failed to pay the loan and the
interest and penalties due thereon,
respondent filed petition for extra-judicial
foreclosure of real estate mortgage on the
Dagupan City properties on July 21, 1998.
City Sheriff issued notice of extra-judicial sale
on August 3, 1998 scheduling the auction
sale on September 10, 1998.
Certificate of Sale was issued on September
14, 1998 in favor of respondent, the highest
bidder. The sale was registered with the
Registry of Deeds in Dagupan City on October
1, 1998. After two months before the
expiration of the redemption period,
respondent filed an ex-parte petition for writ
of possession before RTC of Dagupan.
Petitioners complaint on annulment of
election of directors. PLDT’s Articles of
to strike out testimony of Rodante Manuel
was denied by said RTC. Motion for
reconsideration was then filed on February
14, 2000 arguing that the complaint on
annulment of certificate of sale is a
prejudicial issue to the filed ex-parte petition
for writ of possession, the resolution of
which is determinative of propriety of the
issuance of a Writ of Possession.
ISSUE: Whether prejudicial question exist in a
civil case for annulment of a cer hitificate of
sale and a petition for the issuance of a writ
of possession.
HELD:
Supreme Court held that no prejudicial
question can arise from the existence of a
civil case for annulment of a certificate of
sale and a petition for the issuance of a writ
of possession in a special proceeding since
the two cases are both civil in nature which
can proceed separately and take their own
direction independently of each other.
A prejudicial question is “one that arises in a
case the resolution of which is a logical
antecedent of the issue involved therein, and
the cognizance of which pertains to another
tribunal. It generally comes into play in a
situation where a civil action and a criminal
action are both pending and there exists in
the former an issue that must be
preemptively resolved before the criminal
action may proceed because issue raised in
civil action would be determinative de jure of
the guilt or innocence of the accused in a
criminal case”.
Wilson P. Gamboa v. Finance Secretary
Margarito Teves, et al., G.R. No. 176579,
June 28, 2011
This is a petition to nullify the sale of shares
of stock of Philippine Telecommunications
Investment Corporation (PTIC) by the
government of the Republic of the
Philippines, acting through the Inter-Agency
Privatization Council (IPC), to Metro Pacific
Assets Holdings, Inc. (MPAH), an affiliate of
First Pacific Company Limited (First Pacific), a
Hong Kong-based investment management
and holding company and a shareholder of
the Philippine Long Distance Telephone
Company (PLDT).
The petitioner questioned the sale on the
ground that it also involved an indirect sale
of 12 million shares (or about 6.3 percent of
the outstanding common shares) of PLDT
owned by PTIC to First Pacific. With the this
sale, First Pacific’s common shareholdings in
PLDT increased from 30.7 percent to 37
percent, thereby increasing the total
common shareholdings of foreigners in PLDT
to about 81.47%. This, according to the
petitioner, violates Section 11, Article XII of
the 1987 Philippine Constitution which limits
foreign ownership of the capital of a public
utility to not more than 40%, thus:
other form of authorization for the operation
of a public utility shall be granted except to
citizens of the Philippines or to corporations
or associations organized under the laws of
the Philippines, at least sixty per centum of
whose capital is owned by such citizens; nor
shall such franchise, certificate, or
authorization be exclusive in character or for
a longer period than fifty years. Neither shall
any such franchise or right be granted except
under the condition that it shall be subject to
amendment, alteration, or repeal by the
Congress when the common good so
requires. The State shall encourage equity
participation in public utilities by the general
public. The participation of foreign investors
in the governing body of any public utility
enterprise shall be limited to their
proportionate share in its capital, and all the
executive and managing officers of such
corporation or association must be citizens of
the Philippines. (Emphasis supplied)
II. THE ISSUE
Does the term “capital” in Section 11, Article
XII of the Constitution refer to the total
common shares only, or to the total
outstanding capital stock (combined total of
common and non-voting preferred shares) of
PLDT, a public utility?
III. THE RULING
[The Court partly granted the petition and
held that the term “capital” in Section 11,
Article XII of the Constitution refers only to
shares of stock entitled to vote in the
election of directors of a public utility, i.e., to
the total common shares in PLDT.]
Considering that common shares have voting
rights which translate to control, as opposed
to preferred shares which usually have no
voting rights, the term “capital” in Section 11,
Article XII of the Constitution refers only to
common shares. However, if the preferred
shares also have the right to vote in the
election of directors, then the term “capital”
shall include such preferred shares because
the right to participate in the control or
management of the corporation is exercised
through the right to vote in the election of
directors. In short, the term “capital” in
Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in
the election of directors.
To construe broadly the term “capital” as the
total outstanding capital stock, including both
common and non-voting preferred shares,
grossly contravenes the intent and letter of
the Constitution that the “State shall develop
a self-reliant and independent national
economy effectively controlled by Filipinos.”
A broad definition unjustifiably disregards
who owns the all-important voting stock,
which necessarily equates to control of the
public utility.
Holders of PLDT preferred shares are
explicitly denied of the right to vote in the
Incorporation expressly state that “the
holders of Serial Preferred Stock shall not be
entitled to vote at any meeting of the
stockholders for the election of directors or
for any other purpose or otherwise
participate in any action taken by the
corporation or its stockholders, or to receive
notice of any meeting of stockholders.” On
the other hand, holders of common shares
are granted the exclusive right to vote in the
election of directors. PLDT’s Articles of
Incorporation state that “each holder of
Common Capital Stock shall have one vote in
respect of each share of such stock held by
him on all matters voted upon by the
stockholders, and the holders of Common
Capital Stock shall have the exclusive right to
vote for the election of directors and for all
other purposes.”
It must be stressed, and respondents do not
dispute, that foreigners hold a majority of the
common shares of PLDT. In fact, based on
PLDT’s 2010 General Information Sheet (GIS),
which is a document required to be
submitted annually to the Securities and
Exchange Commission, foreigners hold
120,046,690 common shares of PLDT
whereas Filipinos hold only 66,750,622
common shares. In other words, foreigners
hold 64.27% of the total number of PLDT’s
common shares, while Filipinos hold only
35.73%. Since holding a majority of the
common shares equates to control, it is clear
that foreigners exercise control over PLDT.
Such amount of control unmistakably
exceeds the allowable 40 percent limit on
foreign ownership of public utilities expressly
mandated in Section 11, Article XII of the
Constitution.
As shown in PLDT’s 2010 GIS, as submitted to
the SEC, the par value of PLDT common
shares is P5.00 per share, whereas the par
value of preferred shares is P10.00 per share.
In other words, preferred shares have twice
the par value of common shares but cannot
elect directors and have only 1/70 of the
dividends of common shares. Moreover,
99.44% of the preferred shares are owned by
Filipinos while foreigners own only a
minuscule 0.56% of the preferred shares.
Worse, preferred shares constitute 77.85% of
the authorized capital stock of PLDT while
common shares constitute only 22.15%. This
undeniably shows that beneficial interest in
PLDT is not with the non-voting preferred
shares but with the common shares,
blatantly violating the constitutional
requirement of 60 percent Filipino control
and Filipino beneficial ownership in a public
utility.
In short, Filipinos hold less than 60 percent of
the voting stock, and earn less than 60
percent of the dividends, of PLDT. This
directly contravenes the express command in
Section 11, Article XII of the Constitution that
“[n]o franchise, certificate, or any other form
of authorization for the operation of a public
utility shall be granted except to x x x
corporations x x x organized under the laws
of the Philippines, at least sixty per centum
of whose capital is owned by such citizens x x
x.”
To repeat, (1) foreigners own 64.27% of the
common shares of PLDT, which class of
shares exercises the sole right to vote in the
election of directors, and thus exercise
control over PLDT; (2) Filipinos own only
35.73% of PLDT’s common shares,
constituting a minority of the voting stock,
and thus do not exercise control over PLDT;
(3) preferred shares, 99.44% owned by
Filipinos, have no voting rights; (4) preferred
shares earn only 1/70 of the dividends that
common shares earn; (5) preferred shares
have twice the par value of common shares;
and (6) preferred shares constitute 77.85% of
the authorized capital stock of PLDT and
common shares only 22.15%. This kind of
ownership and control of a public utility is a
mockery of the Constitution.
[Thus, the Respondent Chairperson of the
Securities and Exchange Commission was
DIRECTED by the Court to apply the foregoing
definition of the term “capital” in
determining the extent of allowable foreign
ownership in respondent Philippine Long
Distance Telephone Company, and if there is
a violation of Section 11, Article XII of the
Constitution, to impose the appropriate
sanctions under the law.]
SOLIDBANK CORPORATION V. MINDANAO
FERROALLOY CORPORATION
GR 153535, JULY 28, 2005
FACTS:
Mindanao Ferroalloy corporation is the
fruit of a joint venture agreement
between a Filipino corporation and Korean
Corporation. In its operations, its liabilities
ballooned over its assets that it had to
secure loans from petitioner Solidbank. The
loans were later consolidated and
restructured, evidenced by a promissory
note. The promissory note was signed by Cu
and Hong, both officers of the corporation.
The corporation, through the same officers
also executed a deed of assignment.
Thereafter, the corporation stopped its
operations and the loan was left unpaid.
The bank was prompted to file a
complaint against the corporation, and
with it, impleading the officers who signed
the agreement and promissory notes. The
trial court held in favor of the bank but didn't
adjudge liability of the officers. Both the trial
court and CA held that there was no solidary
liability on the part of the officers impleaded
by the bank.
HELD:
Though Hong and Cu signed above the
“maker/borrower” and the printed name of
the corporation, without the word “by”
preceding their signatures, the fact that they
signed in their personal capacities is negated
by the facts that name and address of the
corporation also appeared on the space
provided for in the “maker/borrower” and
their signatures only appeared once when
it should be twice if indeed it was in their
personal capacities. Further, they didn't
sign on the portion allocated for the co-
maker, and there was also indicia of it being
signed as authorized representatives.
Solid Bank Corp. vs Mindanao Ferroalloy
Corp.G.R. No. 153535July 28, 2005
Doctrine: It is axiomatic that solidary liability
cannot be lightly inferred. Under Article 1207
of the Civil Code, "there is a solidary liability
only when the obligation expressly so states,
or when the law or the nature of the
obligation requires solidarity."
Facts: Private respondents herein secured a
loan to the petitioner bank under the name
of the respondent corporation. In the course
of the corporations operation, it was not able
to pay its obligation to the petitioner and has
to stop its operation. Petitioner bank filed an
action against the corporation together with
its principal officers for the collection of the
loan they acquired. The RTC ruled in favor of
the bank petitioner and ordering the
respondent corporation to pay the amount of
loan plus interest. On appeal, the CA held the
decision of the RTC and ruled also that the
private respondents were not solidary liable
to the petitioner.
Issue: Whether or not principal officers can
be held personally liable upon signing the
contract of loan under the name of the
corporation?
Ruling: Basic is the principle that a
corporation is vested by law with a
personality separate and distinct from that of
each person composing or representing it.
Equally fundamental is the general rule that
corporate officers cannot be held personally
liable for the consequences of their acts, for
as long as these are for and on behalf of the
corporation, within the scope of their
authority and in good faith. The separate
corporate personality is a shield against the
personal liability of corporate officers, whose
acts are properly attributed to the
corporation. Moreover, it is axiomatic that
solidary liability cannot be lightly inferred.
Since solidary liability is not clearly expressed
in the Promissory Note and is not required by
law or the nature of the obligation in this
case, no conclusion of solidary liability can be
made. Furthermore, nothing supports the
alleged joint liability of the individual
petitioners because, as correctly pointed out
by the two lower courts, the evidence shows
that there is only one debtor: the
corporation.
G.R. No. 150283 April 16, 2008
RYUICHI YAMAMOTO, petitioner,.
NISHINO LEATHER INDUSTRIES, INC. and
IKUO NISHINO,
The separate juridical personality of a
corporation, the wrongdoing or unjust act in
contravention of a plaintiff’s legal rights must
be clearly and convincingly established. Also,
without acceptance, a mere offer produces
no obligation.
Ryuichi Yamamoto and Ikuo Nishino agreed
to enter into a joint venture wherein Nishino
would acquire such number of shares of
stock equivalent to 70% of the authorized
capital stock of the corporation. However,
Nishino and his brother Yoshinobu Nishino
acquired more than 70% of the authorized
capital stock. Negotiations subsequently
ensued in light of a planned takeover by
Nishino who would buy-out the shares of
stock of Yamamoto who was advised through
a letter that he may take all the equipment/
machinery he had contributed to the
company (for his own use and sale) provided
that the value of such machines is deducted
from the capital contributions which will be
paid to him. However, the letter requested
that he give his “comments on all the above,
soonest”. On the basis of the said letter,
Yamamoto attempted to recover the
machineries but Nishino hindered him to do
so, drawing him to file a Writ of Replevin. The
Trial Court issued the writ. However, on
appeal, Nishino claimed that the properties
being recovered were owned by the
corporation and the above-said letter was a
mere proposal which was not yet authorized
by the Board of Directors. Thus, the Court of
Appeals reversed the trial court’s decision
despite Yamamoto’s contention that the
company is merely an instrumentality of the
Nishinos.
ISSUES:
Whether or not machineries remained part
of the capital property of the corporation.
RULING:
Yes. One of the elements determinative of
the applicability of the doctrine of piercing
the veil of corporate fiction is that control
must have been used by the defendant to
commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal
duty, or dishonest and unjust act in
contravention of the plaintiff’s legal rights. To
disregard the separate juridical personality of
a corporation, the wrongdoing or unjust act
in contravention of a plaintiff’s legal rights
must be clearly and convincingly established;
it cannot be presumed. Without a
demonstration that any of the evils sought to
be prevented by the doctrine is present, it
does not apply. Estoppel may arise from the
making of a promise. However, it bears
noting that the letter was followed by a
request for Yamamoto to give his “comments
on all the above, soonest.” What was thus
proffered to Yamamoto was not a promise,
but a mere offer, subject to his acceptance.
Without acceptance, a mere offer produces
no obligation. Thus, the machineries and
equipment, which comprised Yamamoto’s
investment, remained part of the capital
property of the corporation.
While the veil of separate corporate
personality may be pierced when the
corporation is merely an adjunct, a business
conduit, or alter ego of a person,27 the mere
ownership by a single stockholder of even all
or nearly all of the capital stocks of a
corporation is not by itself a sufficient ground
to disregard the separate corporate
personality.28
The elements determinative of the
applicability of the doctrine of piercing the
veil of corporate fiction follow:
"1. Control, not mere majority or complete
stock control, but complete domination, not
only of finances but of policy and business
practice in respect to the transaction
attacked so that the corporate entity as to
this transaction had at the time no separate
mind, will or existence of its own;
2. Such control must have been used by the
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or
other positive legal duty, or dishonest and
unjust act in contravention of the plaintiff’s
legal rights; and
3. The aforesaid control and breach of duty
must proximately cause the injury or unjust
loss complained of.
The absence of any one of these elements
prevents "piercing the corporate veil." In
applying the ‘instrumentality’ or ‘alter ego’
doctrine, the courts are concerned with
reality and not form, with how the
corporation operated and the individual
defendant’s relationship to that
operation."29 (Italics in the original;
emphasis and underscoring supplied)
What was thus proffered to Yamamoto was
not a promise, but a mere offer, subject to his
acceptance. Without acceptance, a mere
offer produces no obligation.34
Thus, under Article 1181 of the Civil Code,
"[i]n conditional obligations, the acquisition
of rights, as well as the extinguishment or
loss of those already acquired, shall depend
upon the happening of the event which
constitutes the condition." In the case at bar,
there is no showing of compliance with the
condition for allowing Yamamoto to take the
machineries and equipment, namely, his
agreement to the deduction of their value
from his capital contribution due him in the
buy-out of his interests in NLII. Yamamoto’s
allegation that he agreed to the condition35
remained just that, no proof thereof having
been presented.
The machineries and equipment, which
comprised Yamamoto’s investment in NLII,36
thus remained part of the capital property of
the corporation.37
It is settled that the property of a corporation
is not the property of its stockholders or
members.38 Under the trust fund doctrine,
the capital stock, property, and other assets
of a corporation are regarded as equity in
trust for the payment of corporate creditors
which are preferred over the stockholders in
the distribution of corporate assets.39 The
distribution of corporate assets and property
cannot be made to depend on the whims and
caprices of the stockholders, officers, or
directors of the corporation unless the
indispensable conditions and procedures for
the protection of corporate creditors are
followed.

Professional Services Inc. (PSI) v. Agana, G.R.
No. 126297,
Natividad Agana was rushed to the Medical
City General Hospital (Medical City Hospital)
because of difficulty of bowel movement and
bloody anal discharge. After a series of
medical examinations, Dr. Miguel Ampil
diagnosed her to be suffering from “cancer of
the sigmoid.” Dr. Ampil, assisted by the
medical staff of the Medical City Hospital,
performed an anterior resection surgery on
Natividad. He found that the malignancy in
her sigmoid area had spread on her left
ovary, necessitating the removal of certain
portions of it. Thus, Dr. Ampil obtained the
consent of Natividad’s husband, Enrique
Agana, to permit Dr. Juan Fuentes,
respondent in G.R. No. 126467, to perform
hysterectomy on her. Thereafter, Dr. Ampil
took over, completed the operation and
closed the incision. However, based on the
record of the hospital, the attending nurses
indicated nota bene that 2 sponges were
missing. The same was reported to Dr. Ampil
but were not found after “diligent seach”.
After couple of days, Natividad complained of
excruciating pain in her anal region. She
consulted both Dr. Ampil and Dr. Fuentes
about it. They told her that the pain was the
natural consequence of the surgery. Dr. Ampil
then recommended that she consult an
oncologist to examine the cancerous nodes
which were not removed during the
operation. Natividad went to the United
States for four months but she was only
declared free of cancer. In Natividad’s return
to the Philippines, her daughter found a
piece of gauze protruding from her vagina.
Upon being informed about it, Dr. Ampil
proceeded to her house where he managed
to extract by hand a piece of gauze
measuring 1.5 inches in width. He then
assured her that the pains would soon
vanish. But instead the pains intensified,
prompting Natividad to seek treatment at the
Polymedic General Hospital. While confined
there, Dr. Ramon Gutierrez detected the
presence of another foreign object in her
vagina — a foul-smelling gauze measuring 1.5
inches in width which badly infected her
vaginal vault. A recto-vaginal fistula had
formed in her reproductive organs which
forced stool to excrete through the vagina.
Natividad underwent another surgical
operation to remedy the damage. Civil and
administrative complaints, for damages and
gross negligence respectively, were filed
against Professional Services Inc., owner of
Medical City Hospital, Dr. Ampil and Dr.
Fuentes.
ISSUE(S):
Are the following liable?
(1) Professional Services Inc., based on
(a) “employer-employee relationship”;
(b) “doctrine of apparent authority”;
(c) “corporate negligence”;
(2) Dr. Ampil,
(a) for medical negligence;
(b) under the “captain of the ship doctrine”;
(3) Dr.Fuentes, under the doctrine of res ipsa
loquitor;
HELD:
(1)
(a) YES.
[P]rivate hospitals, hire, fire and exercise real
control over their attending and visiting
‘consultant’ staff. While ‘consultants’ are not,
technically employees, x x x, the control
exercised, the hiring, and the right to
terminate consultants all fulfill the important
hallmarks of an employer-employee
relationship, with the exception of the
payment of wages. In assessing whether such
a relationship in fact exists, the control test is
determining. Accordingly, on the basis of the
foregoing, we rule that for the purpose of
allocating responsibility in medical
negligence cases, an employer-employee
relationship in effect exists between hospitals
and their attending and visiting physicians.
(b) YES.
Apparent authority, or what is sometimes
referred to as the “holding out” theory, or
doctrine of ostensible agency or agency by
estoppel, has its origin from the law of
agency. It imposes liability, not as the result
of the reality of a contractual relationship,
but rather because of the actions of a
principal or an employer in somehow
misleading the public into believing that the
relationship or the authority exists. xxx In this
case, PSI publicly displays in the lobby of the
Medical City Hospital the names and
specializations of the physicians associated or
accredited by it, including those of Dr. Ampil
and Dr. Fuentes. We concur with the Court of
Appeals’ conclusion that it “is now estopped
from passing all the blame to the physicians
whose names it proudly paraded in the
public directory leading the public to believe
that it vouched for their skill and
competence.” Indeed, PSI’s act is tantamount
to holding out to the public that Medical City
Hospital, through its accredited physicians,
offers quality health care services. By
accrediting Dr. Ampil and Dr. Fuentes and
publicly advertising their qualifications, the
hospital created the impression that they
were its agents, authorized to perform
medical or surgical services for its patients.
As expected, these patients, Natividad being
one of them, accepted the services on the
reasonable belief that such were being
rendered by the hospital or its employees,
agents, or servants.
(c) YES.
Hospital’s corporate negligence extends to
permitting a physician known to be
incompetent to practice at the hospital. xxx
[A] patient who enters a hospital does so
with the reasonable expectation that it will
attempt to cure him. The hospital accordingly
has the duty to make a reasonable effort to
monitor and oversee the treatment
prescribed and administered by the
physicians practicing in its premises. In the
present case, it was duly established that PSI
operates the Medical City Hospital for the
purpose and under the concept of providing
comprehensive medical services to the
public. Accordingly, it has the duty to exercise
reasonable care to protect from harm all
patients admitted into its facility for medical
treatment. Unfortunately, PSI failed to
perform such duty.
(2)
(a) YES.
This is a clear case of medical malpractice or
more appropriately, medical negligence. To
successfully pursue this kind of case, a
patient must only prove that a health care
provider either failed to do something which
a reasonably prudent health care provider
would have done, or that he did something
that a reasonably prudent provider would
not have done; and that failure or action
caused injury to the patient. Simply put, the
elements are duty, breach, injury and
proximate causation. Dr, Ampil, as the lead
surgeon, had the duty to remove all foreign
objects, such as gauzes, from Natividad’s
body before closure of the incision. When he
failed to do so, it was his duty to inform
Natividad about it. Dr. Ampil breached both
duties. Such breach caused injury to
Natividad, necessitating her further
examination by American doctors and
another surgery. That Dr. Ampil’s negligence
is the proximate cause of Natividad’s injury
could be traced from his act of closing the
incision despite the information given by the
attending nurses that two pieces of gauze
were still missing. That they were later on
extracted from Natividad’s vagina established
the causal link between Dr. Ampil’s
negligence and the injury. And what further
aggravated such injury was his deliberate
concealment of the missing gauzes from the
knowledge of Natividad and her family.
(b) YES.
Under the “Captain of the Ship” rule, the
operating surgeon is the person in complete
charge of the surgery room and all personnel
connected with the operation. Their duty is
to obey his orders. As stated before, Dr.
Ampil was the lead surgeon. In other words,
he was the “Captain of the Ship.” That he
discharged such role is evident from his
following conduct: (1) calling Dr. Fuentes to
perform a hysterectomy; (2) examining the
work of Dr. Fuentes and finding it in order; (3)
granting Dr. Fuentes’ permission to leave;
and (4) ordering the closure of the incision.
To our mind, it was this act of ordering the
closure of the incision notwithstanding that
two pieces of gauze remained unaccounted
for, that caused injury to Natividad’s body.
Clearly, the control and management of the
thing which caused the injury was in the
hands of Dr. Ampil, not Dr. Fuentes.
(3) NO.
The requisites for the applicability of the
doctrine of res ipsa loquitur are: (1) the
occurrence of an injury; (2) the thing which
caused the injury was under the control and
management of the defendant; (3) the
occurrence was such that in the ordinary
course of things, would not have happened if
those who had control or management used
proper care; and (4) the absence of
explanation by the defendant. Of the
foregoing requisites, the most instrumental is
the “control and management of the thing
which caused the injury.”
We find the element of “control and
management of the thing which caused the
injury” to be wanting. Hence, the doctrine of
res ipsa loquitur will not lie.
It was duly established that Dr. Ampil was the
lead surgeon during the operation of
Natividad. He requested the assistance of Dr.
Fuentes only to perform hysterectomy when
he (Dr. Ampil) found that the malignancy in
her sigmoid area had spread to her left ovary.
Dr. Fuentes performed the surgery and
thereafter reported and showed his work to
Dr. Ampil. The latter examined it and finding
everything to be in order, allowed Dr. Fuentes
to leave the operating room. Dr. Ampil then
resumed operating on Natividad. He was
about to finish the procedure when the
attending nurses informed him that two
pieces of gauze were missing. A “diligent
search” was conducted, but the misplaced
gauzes were not found. Dr. Ampil then
directed that the incision be closed. During
this entire period, Dr. Fuentes was no longer
in the operating room and had, in fact, left
the hospital.
INCORPORATION
KUKAN INTERNATIONAL CORPORATION,
Petitioner, vs HON. AMOR REYES, in her
capacity as Presiding Judge of the Regional
Trial Court of Manila, Branch 21, and
ROMEO M. MORALES, doing business under
the name and style “RM Morales Trophies
and Plaques,” Respondents.
Sometime in March 1998, Kukan, Inc.
conducted a bidding worth Php 5M (reduced
to PhP 3,388,502) for the supply and
installation of signages in a building being
constructed in Makati City which was won by
Morales.
Despite his compliance, Morales was only
paid the amount of PhP 1,976,371.07, leaving
a balance of PhP 1,412,130.93, which Kukan,
Inc. refused to pay despite demands.
Morales filed a Complaint with the RTC
against Kukan, Inc. for a sum of money.
However, starting November 2000, Kukan,
Inc. no longer appeared and participated in
the proceedings before the trial court,
prompting the RTC to declare Kukan, Inc. in
default and paving the way for Morales to
present his evidence ex parte.
On November 28, 2002, the RTC rendered a
Decision finding for Morales and against
Kukan, Inc.
After the above decision became final and
executory, Morales moved for and secured a
writ of execution against Kukan, Inc. The
sheriff then levied upon various personal
properties found at what was supposed to be
Kukan, Inc.’s office at Unit 2205, 88 Corporate
Center, Salcedo Village, Makati City. Alleging
that it owned the properties thus levied and
that it was a different corporation from
Kukan, Inc., Kukan International Corporation
(KIC) filed an Affidavit of Third-Party Claim.
Notably, KIC was incorporated in August
2000, or shortly after Kukan, Inc. had stopped
participating in Civil Case No. 99-93173.
In reaction to KIC’s claim, Morales interposed
an Omnibus Motion dated April 30, 2003,
praying, and applying the principle of
piercing the veil of corporate fiction, that an
order be issued for the satisfaction of the
judgment debt of Kukan, Inc. with the
properties under the name or in the
possession of KIC, it being alleged that both
corporations are but one and the same
entity. KIC opposed Morales’ motion. The
court denied the omibus motion.
In a bid to establish the link between KIC and
Kukan, Inc., Morales filed a Motion for
Examination of Judgment Debtors dated May
4, 2005 which sought that subponae be
issued against the primary stockholders of
Kukan, Inc., among them Michael Chan, a.k.a.
Chan Kai Kit. This too was denied by the
court.
Morales then sought the inhibition of the
presiding judge, Eduardo B. Peralta, Jr., who
eventually granted the motion. The case was
re-raffled to Branch 21, presided by public
respondent Judge Amor Reyes.
Before the Manila RTC, Branch 21, Morales
filed a Motion to Pierce the Veil of Corporate
Fiction to declare KIC as having no existence
separate from Kukan, Inc. This time around,
the RTC, by Order dated March 12, 2007,
granted the motion. From the above order,
KIC moved but was denied reconsideration in
another Order dated June 7, 2007.
KIC went to the CA on a petition for certiorari
to nullify the aforesaid March 12 and June 7,
2007 RTC Orders but on January 23, 2008,
the CA denied the petition and affirmed the
assailed Orders. The CA later denied KIC’s MR
in the assailed resolution.
Hence, the instant petition for review.
ISSUES
A. whether the trial court can, after the
judgment against Kukan, Inc. has attained
finality, execute it against the property of KIC;
B. whether the trial court acquired
jurisdiction over KIC;
C. whether the trial and appellate courts
correctly applied, under the premises, the
principle of piercing the veil of corporate
fiction.
A. No.
In Carpio v. Doroja,[13] the Court ruled
that the deciding court has supervisory
control over the execution of its judgment:
A case in which an execution has been issued
is regarded as still pending so that all
proceedings on the execution are
proceedings in the suit. There is no question
that the court which rendered the judgment
has a general supervisory control over its
process of execution, and this power carries
with it the right to determine every question
of fact and law which may be involved in the
execution.
The court’s supervisory control does not,
however, extend as to authorize the
alteration or amendment of a final and
executory decision, save for certain
recognized exceptions, among which is the
correction of clerical errors. Else, the court
violates the principle of finality of judgment
and immutability.
As may be noted, the above decision, in
unequivocal terms, directed Kukan, Inc. to
pay the aforementioned awards to Morales.
Thus, making KIC, thru the medium of a writ
of execution, answerable for the above
judgment liability is a clear case of altering a
decision, an instance of granting relief not
contemplated in the decision sought to be
executed. And the change does not fall under
any of the recognized exceptions to the
doctrine of finality and immutability of
judgment. It is a settled rule that a writ of
execution must conform to the fallo of the
judgment; as an inevitable corollary, a writ
beyond the terms of the judgment is a nullity.
Thus, on this ground alone, the instant
petition can already be granted.
Nonetheless, an examination of the other
issues raised by KIC would be proper.
B. No.
In the instant case, KIC was not made a
party-defendant in Civil Case No. 99-93173.
Even if it is conceded that it raised affirmative
defenses through its aforementioned
pleadings, KIC never abandoned its
challenge, however implicit, to the RTC’s
jurisdiction over its person. The challenge
was subsumed in KIC’s primary assertion that
it was not the same entity as Kukan, Inc.
Pertinently, in its Comment and Opposition
to Plaintiff’s Omnibus Motion dated May 20,
2003, KIC entered its “special but not
voluntary appearance” alleging therein that it
was a different entity and has a separate
legal personality from Kukan, Inc. And KIC
would consistently reiterate this assertion in
all its pleadings, thus effectively resisting all
along the RTC’s jurisdiction of its person. It
cannot be overemphasized that KIC could not
file before the RTC a motion to dismiss and
its attachments in Civil Case No. 99-93173,
precisely because KIC was neither impleaded
nor served with summons. Consequently,
KIC could only assert and claim through its
affidavits, comments, and motions filed by
special appearance before the RTC that it is
separate and distinct from Kukan, Inc.
Following La Naval Drug Corporation,
KIC cannot be deemed to have waived its
objection to the court’s lack of jurisdiction
over its person. It would defy logic to say that
KIC unequivocally submitted itself to the
jurisdiction of the RTC when it strongly
asserted that it and Kukan, Inc. are different
entities. In the scheme of things obtaining,
KIC had no other option but to insist on its
separate identity and plead for relief
consistent with that position.
C. No.
The principle of piercing the veil of corporate
fiction, and the resulting treatment of two
related corporations as one and the same
juridical person with respect to a given
transaction, is basically applied only to
determine established liability;[34] it is not
available to confer on the court a jurisdiction
it has not acquired, in the first place, over a
party not impleaded in a case. Elsewise put,
a corporation not impleaded in a suit cannot
be subject to the court’s process of piercing
the veil of its corporate fiction. In that
situation, the court has not acquired
jurisdiction over the corporation and, hence,
any proceedings taken against that
corporation and its property would infringe
on its right to due process. Aguedo
Agbayani, a recognized authority on
Commercial Law, stated as much:
23. Piercing the veil of corporate entity
applies to determination of liability not of
jurisdiction. x x x
This is so because the doctrine of piercing
the veil of corporate fiction comes to play
only during the trial of the case after the
court has already acquired jurisdiction over
the corporation. Hence, before this doctrine
can be applied, based on the evidence
presented, it is imperative that the court
must first have jurisdiction over the
corporation.[35] x x x (Emphasis supplied.)
The implication of the above comment is
twofold: (1) the court must first acquire
jurisdiction over the corporation or
corporations involved before its or their
separate personalities are disregarded; and
(2) the doctrine of piercing the veil of
corporate entity can only be raised during a
full-blown trial over a cause of action duly
commenced involving parties duly brought
under the authority of the court by way of
service of summons or what passes as such
service.
–––
In fine, to justify the piercing of the veil of
corporate fiction, it must be shown by clear
and convincing proof that the separate and
distinct personality of the corporation was
purposefully employed to evade a legitimate
and binding commitment and perpetuate a
fraud or like wrongdoings. To be sure, the
Court has, on numerous occasions, applied
the principle where a corporation is dissolved
and its assets are transferred to another to
avoid a financial liability of the first
corporation with the result that the second
corporation should be considered a
continuation and successor of the first entity.
In those instances when the Court pierced
the veil of corporate fiction of two
corporations, there was a confluence of the
following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is
transferred to a second corporation to avoid
a financial liability of the first corporation;
and
3. Both corporations are owned and
controlled by the same persons such that the
second corporation should be considered as
a continuation and successor of the first
corporation.
In the instant case, however, the second and
third factors are conspicuously absent. There
is, therefore, no compelling justification for
disregarding the fiction of corporate entity
separating Kukan, Inc. from KIC. In applying
the principle, both the RTC and the CA
miserably failed to identify the presence of
the abovementioned factors.
–––
It bears reiterating that piercing the veil of
corporate fiction is frowned upon.
Accordingly, those who seek to pierce the veil
must clearly establish that the separate and
distinct personalities of the corporations are
set up to justify a wrong, protect fraud, or
perpetrate a deception. In the concrete and
on the assumption that the RTC has validly
acquired jurisdiction over the party
concerned, Morales ought to have proved by
convincing evidence that Kukan, Inc. was
collapsed and thereafter KIC purposely
formed and operated to defraud him.
Morales has not to us discharged his burden.
WHEREFORE, the petition is hereby
GRANTED. The CA’s January 23, 2008
Decision and April 16, 2008 Resolution in CA-
G.R. SP No. 100152 are hereby REVERSED
and SET ASIDE. The levy placed upon the
personal properties of Kukan International
Corporation is hereby ordered lifted and the
personal properties ordered returned to
Kukan International Corporation. The RTC of
Manila, Branch 21 is hereby directed to
execute the RTC Decision dated November
28, 2002 against Kukan, Inc. with reasonable
dispatch.
Case: Ong Yong vs. David S. Tiu
G.R. No. 144476
In 1994, the construction of the Masagana
Citimall in Pasay City was threatened with
stoppage and incompletion when its owner,
the First Landlink Asia Development
Corporation (FLADC), which was owned by
the Tius encountered dire financial
difficulties. It was heavily indebted to the
Philippine National Bank for P190 Million. To
stave off the foreclosure, Tiu invited the
petitioners to invest in FLADC. Under the Pre-
Subscription Agreement they entered into,
the Ongs and Tius agreed to maintain equal
shareholdings in FLADC. Ong subscribed
1,000,000 shares at a par value of P100.00
each while Tius were to subscribe to an
addritional 549,800 shares at P100.00 each in
addition to their already existing subscription
of 450,200 shares.
On February 23,1996, Tius rescinded the Pre
Subscription Agreement, accusing Ongs of
refusing to credit to them the FLADC shares
covering their real property contributions,
preventing them from assuming the positions
of and performing their duties.
Ongs in their defense, said that the Tius had
in fact assumed the positions of Vice-
president and Treasurer of FLADC but it was
they who refused to comply with the
corporate duties assigned to them. Tius,
according to Ongs, refused to pay P570,690
for capital gains tax and documentary stamp
tax so it is impossible for them to secure
anew TCT over the property in FLADC name.
Issue:
Whether or not the rescission of the Pre-
subscription Agreement was proper
Held:
No, the rescission of the Agreement was not
proper.
FLADC was originally incorporated with an
authorized capital stock of 500,000 shares
with the Tius owning the 450,200 shares
representing the paid-up capital. When the
Tius invited the Ongs to invest in FLADC as
stockholders, and increase of the authorized
capital stock became necessary to give each
group equal shareholding as agreed upon the
Pre-subscription agreement. The authorized
capital stock was increased from 500,000
shared to 2,000,000 shares with par value of
P100 each. The subject matter of the
contract was the 1 million unissued shares of
FLADC stock allocated to the Ongs.
A subscription contract necessarily involves
the corporations one of the contracting
parties since the subject matter of the
transaction is property owned by the
corporation its shares of stock. Thus, the
subscription contract was one between the
Ongs and FLADC and not between the Ongs
and the Tius.
Considering therefore that the real
contracting parties to the subscription
agreement were FLADC and the Ongs alone,
acivil case for rescission on the ground of
breach of contract filed by the Tius in their
personal capacities will not prosper.
Manufacturing Company Inc. vs Securities
and Exchange Commission
G.R. No. L-23606 July 29, 1968
Facts: Petitioner Alhambra Cigar and
Cigarette Manufacturing Company, Inc.
(hereinafter referred to simply as Alhambra)
was duly incorporated under Philippine laws
on January 15, 1912. By its corporate articles
it was to exist for fifty (50) years from
incorporation. Its term of existence expired
on January 15, 1962. On that date, it ceased
transacting business, entered into a state of
liquidation. Thereafter, a new corporation. —
Alhambra Industries, Inc. — was formed to
carry on the business of Alhambra. On May 1,
1962, Alhambra’s stockholders, by resolution
named Angel S. Gamboa trustee to take
charge of its liquidation. On June 20, 1963 —
within Alhambra’s three-year statutory
period for liquidation – Republic Act 3531
was enacted into law. It amended Section 18
of the Corporation Law; it empowered
domestic private corporations to extend their
corporate life beyond the period fixed by the
articles of incorporation for a term not to
exceed fifty years in any one instance.
Previous to Republic Act 3531, the maximum
non-extendible term of such corporations
was fifty years. On July 15, 1963, at a special
meeting, Alhambra’s board of directors
resolved to amend paragraph “Fourth” of its
articles of incorporation to extend its
corporate life for an additional fifty years, or
a total of 100 years from its incorporation.
On August 26, 1963, Alhambra’s
stockholders, representing more than two-
thirds of its subscribed capital stock, voted to
approve the foregoing resolution. On
October 28, 1963, Alhambra’s articles of
incorporation as so amended certified
correct by its president and secretary and a
majority of its board of directors, were filed
with respondent Securities and Exchange
Commission (SEC). On November 18, 1963,
SEC, however, returned said amended
articles of incorporation to Alhambra’s
counsel with the ruling that Republic Act
3531 “which took effect only on June 20,
1963, cannot be availed of by the said
corporation, for the reason that its term of
existence had already expired when the said
law took effect in short, said law has no
retroactive effect.”
Issue: Whether or not the corporate life of a
corporation be extended during the period of
winding up or after it’s charter has already
expired.
Held: No. The common law rule, at the
beginning, was rigid and inflexible in that
upon its dissolution, a corporation became
legally dead for all purposes. Statutory
authorizations had to be provided for its
continuance after dissolution “for limited and
specified purposes incident to complete
liquidation of its affairs”. Thus, the moment a
corporation’s right to exist as an “artificial
person” ceases, its corporate powers are
terminated “just as the powers of a natural
person to take part in mundane affairs cease
to exist upon his death”. There is nothing left
but to conduct, as it were, the settlement of
the estate of a deceased juridical person.
From July 15 to October 28, 1963, when
Alhambra made its attempt to extend its
corporate existence, its original term of fifty
years had already expired (January 15, 1962);
it was in the midst of the three-year grace
period statutorily fixed in Section 77 of the
Corporation Law, thus: .
SEC. 77. Every corporation whose charter
expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in
any other manner, shall nevertheless be
continued as a body corporate for three
years after the time when it would have been
so dissolved, for the purpose of prosecuting
and defending suits by or against it and of
enabling it gradually to settle and close its
affairs, to dispose of and convey its property
and to divide its capital stock, but not for the
purpose of continuing the business for which
it was established.
Plain from the language of the provision is its
meaning: continuance of a “dissolved”
corporation as a body corporate for three
years has for its purpose the final closure of
its affairs, and no other; the corporation is
specifically enjoined from “continuing the
business for which it was established”. The
liquidation of the corporation’s affairs set
forth in Section 77 became necessary
precisely because its life had ended. For this
reason alone, the corporate existence and
juridical personality of that corporation to do
business may no longer be extended.
Silence of the law on the matter is not hard
to understand. Specificity is not really
necessary. The authority to prolong
corporate life was inserted by Republic Act
3531 into a section of the law that deals with
the power of a corporation to amend its
articles of incorporation. (For, the manner of
prolongation is through an amendment of
the articles.) And it should be clearly evident
that under Section 77 no corporation in a
state of liquidation can act in any way, much
less amend its articles, “for the purpose of
continuing the business for which it was
established”.
All these dilute Alhambra’s position that it
could revivify its corporate life simply
because when it attempted to do so,
Alhambra was still in the process of
liquidation. It is surely impermissible for us to
stretch the law — that merely empowers a
corporation to act in liquidation — to inject
therein the power to extend its corporate
existence.
The pari materia rule of statutory
construction, in fact, commands that statutes
must be harmonized with each other. So
harmonizing, the conclusion is clear that
Section 18 of the Corporation Law, as
amended by Republic Act 3531 in reference
to extensions of corporate existence, is to be
read in the same light as Republic Act 1932.
Which means that domestic corporations in
general, as with domestic insurance
companies, can extend corporate existence
only on or before the expiration of the term
fixed in their charters.
Philippine National Bank vs Court of First
Instance of Pasig, Rizal Branch XXI
G.R. No. 63201 May 27, 1992
Facts: Private respondents are the registered
owners of three parcels of land in Pasig,
Metro Manila covered by OCT No. 853, TCT
Nos. 32843 and 32897 of the Registry of
Deeds of Rizal. On March 1, 1954, private
respondents entered into a contract of lease
with Philippine Blooming Mills, Co., Inc.,
(PBM) whereby the latter shall lease the
aforementioned parcels of land as factory
site. PBM was duly organized and
incorporated on January 19, 1952 with a
corporate term of twenty-five (25) years. This
leasehold right of PBM covering the parcels
of land was duly annotated at the back of the
above stated certificates of title as Entry No.
9367/T-No. 32843. The contract of lease
provides that the term of the lease is for
twenty years beginning from the date of the
contract and “is extendable for another term
of twenty years at the option of the LESSEE
should its term of existence be extended in
accordance with law.”. The contract also
states that the lessee agrees to “use the
property as factory site and for that purpose
to construct whatever buildings or
improvements may be necessary or
convenient and/or . . . for any purpose it may
deem fit; and before the termination of the
lease to remove all such buildings and
improvements. In accordance with the
contract, PBM introduced on the land,
buildings, machineries and other useful
improvements. These constructions and
improvements were registered with the
Registry of Deeds of Rizal and annotated at
the back of the respondents’ certificates of
title as Entry No. 85213/T-No. 43338. On
October 11, 1963, PBM executed in favor of
Philippine National Bank (PNB), petitioner
herein, a deed of assignment, conveying and
transferring all its rights and interests under
the contract of lease which it executed with
private respondents. The assignment was for
and in consideration of the loans granted by
PNB to PBM. The deed of assignment was
registered and annotated at the back of the
private respondents’ certificates of title as
Entry No. 85215/TNo. 32843. On November
6, 1963 and December 23, 1963 respectively,
PBM executed in favor of PNB a real estate
mortgage for a loan of P100,000.00 and an
addendum to real estate mortgage for
another loan of P1,590,000.00, covering all
the improvements constructed by PBM on
the leased premises. These mortgages were
registered and annotated at the back of
respondents’ certificates as Entry No.
85214/T-No. 43338 and Entry No. 870971/T-
No. 32843, respectively. On October 7, 1981,
private respondents filed a motion in the
same proceedings which was given a
different case number to wit, LRC Case No.
R-2744, because of the payment of filing fees
for the motion. The motion sought to cancel
the annotations on respondents’ certificates
of title pertaining to the assignment by PBM
to PNB of the former’s leasehold rights,
inclusion of improvements and the real
estate mortgages made by PBM in favor of
PNB, on the ground that the contract of lease
entered into between PBM and respondents-
movants had already expired by the failure of
PBM and/or its assignee to exercise the
option to renew the second 20-year lease
commencing on March 1, 1974 and also by
the failure of PBM to extend its corporate
existence in accordance with law. The motion
also states that since PBM failed to remove
its improvements on the leased premises
before the expiration of the contract of lease,
such improvements shall accrue to
respondents as owners of the land.
Issue: Whether or not the corporate life of
PBM was extended by the continuance of the
lease and subsequent registration of the title
to the improvements under its name.
Held: No. The contract of lease expressly
provides that the term of the lease shall be
twenty years from the execution of the
contract but can be extended for another
period of twenty years at the option of the
lessee should the corporate term be
extended in accordance with law. Clearly, the
option of the lessee to extend the lease for
another period of twenty years can be
exercised only if the lessee as corporation
renews or extends its corporate term of
existence in accordance with the Corporation
Code which is the applicable law. Contracts
are to be interpreted according to their literal
meaning and should not be interpreted
beyond their obvious intendment. Thus, in
the instant case, the initial term of the
contract of lease which commenced on
March 1, 1954 ended on March 1, 1974. PBM
as lessee continued to occupy the leased
premises beyond that date with the
acquiescence and consent of the
respondents as lessor. Records show
however, that PBM as a corporation had a
corporate life of only twenty-five (25) years
which ended an January 19, 1977. It should
be noted however that PBM allowed its
corporate term to expire without complying
with the requirements provided by law for
the extension of its corporate term of
existence.
Section 11 of Corporation Code provides that
a corporation shall exist for a period not
exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or
unless said period is extended. Upon the
expiration of the period fixed in the articles
of incorporation in the absence of
compliance with the legal requisites for the
extension of the period, the corporation
ceases to exist and is dissolved ipso facto.
When the period of corporate life expires,
the corporation ceases to be a body
corporate for the purpose of continuing the
business for which it was organized. But it
shall nevertheless be continued as a body
corporate for three years after the time when
it would have been so dissolved, for the
purpose of prosecuting and defending suits
by or against it and enabling it gradually to
settle and close its affairs, to dispose of and
convey its property and to divide its assets.
There is no need for the institution of a
proceeding for quo warranto to determine
the time or date of the dissolution of a
corporation because the period of corporate
existence is provided in the articles of
incorporation. When such period expires and
without any extension having been made
pursuant to law, the corporation is dissolved
automatically insofar as the continuation of
its business is concerned. The quo warranto
proceeding under Rule 66 of the Rules of
Court, as amended, may be instituted by the
Solicitor General only for the involuntary
dissolution of a corporation on the following
grounds: a) when the corporation has
offended against a provision of an Act for its
creation or renewal; b) when it has forfeited
its privileges and franchises by non-user; c)
when it has committed or omitted an act
which amounts to a surrender of its
corporate rights, privileges or franchises; d)
when it has mis-used a right, privilege or
franchise conferred upon it by law, or when it
has exercised a right, privilege or franchise in
contravention of law. Hence, there is no need
for the SEC to make an involuntary
dissolution of a corporation whose corporate
term had ended because its articles of
incorporation had in effect expired by its own
limitation.
Considering the foregoing in relation to the
contract of lease between the parties herein,
when PBM’s corporate life ended on January
19, 1977 and its 3-year period for winding up
and liquidation expired on January 19, 1980,
the option of extending the lease was
likewise terminated on January 19, 1977
because PBM failed to renew or extend its
corporate life in accordance with law. From
then on, the respondents can exercise their
right to terminate the lease pursuant to the
stipulations in the contract.
SEVENTH DAY ADVENTIST
CONFERENCE CHURCH OF SOUTHERN
PHILIPPINES, INC., and/or represented by
MANASSEH C. ARRANGUEZ, BRIGIDO P.
GULAY, FRANCISCO M. LUCENARA, DIONICES
O. TIPGOS, LORESTO C. MURILLON, ISRAEL
C. NINAL, GEORGE G. SOMOSOT, JESSIE T.
ORBISO, LORETO PAEL and JOEL BACUBAS,
petitioners vs. NORTHEASTERN MINDANAO
MISSION OF SEVENTH DAY ADVENTIST, INC.,
and/or represented by JOSUE A. LAYON,
WENDELL M. SERRANO, FLORANTE P. TY and
JETHRO CALAHAT and/or SEVENTH DAY
ADVENTIST CHURCH [OF] NORTHEASTERN
MINDANAO MISSION, Respondents
G.R. No. 150416 July 21, 2006
FACTS: This case involves two supposed
transfers of the lot previously owned by the
spouses Cosio. The first transfer was a
donation to petitioners’ alleged
predecessors-in-interest in 1959 while the
second transfer was through a contract of
sale to respondents in 1980. A TCT was later
issued in the name of respondents. Claiming
to be the alleged donee’s successors-in-
interest, petitioners filed a case for
cancellation of title, quieting of ownership
and possession, declaratory relief and
reconveyance with prayer for preliminary
injunction and damages against respondents.
Respondents, on the other hand, argued that
at the time of the donation, petitioners’
predecessors-in-interest has no juridical
personality to accept the donation because it
was not yet incorporated. Moreover,
petitioners were not members of the local
church then.
The RTC upheld the sale in favor
of respondents, which was affirmed by the
Court of Appeals, on the ground that all the
essential requisites of a contract were
present and it also applied the indefeasibility
of title.
ISSUE: Whether or not the donation was
void.
HELD: Yes, the donation was void because
the local church had neither juridical
personality nor capacity to accept such gift
since it was inexistent at the time it was
made.
The Court denied petitioners’ contention
that there exists a de facto corporation.
While there existed the old Corporation Law
(Act 1459), a law under which the local
church could have been organized,
petitioners admitted that they did not even
attempt to incorporate at that time nor the
organization was registered at the Securities
and Exchange Commission. Hence,
petitioners obviously could not have claimed
succession to an entity that never came to
exist. And since some of the representatives
of petitioner Seventh Day Adventist
Conference Church of Southern Philippines,
Inc. were not even members of the local
church then, it necessarily follows that they
could not even claim that the donation was
particularly for them.