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CASES IN

CORPORATION LAWS

SAINT LOUIS UNIVERSITY


SCHOOL OF LAW

SUBMITTED TO:

ATTY. H.V. BELMES


Professor

SUBMITTED BY:

Alberto, Ivi Dianne


Banganan, Kristen Gay
Geronimo, Harriet Anne
Ilao, Mikaelle Gabrielle
Ameda, Kenjie
Dinulong, Garrick
Gonzales, Ariel D.

1
MARCH 13, 2014

TABLE OF CONTENTS

I. Historical Background

• Harden v. Benguet Consolidated Mining Co.


GR. No. L-37331, March 18, 1933

II. Concepts

• Philippine Stock Exchange, Inc. v. CA


GR. No. 125469, October 27, 1997

• Reynoso IV v. Court of Appeals


GR. No. 116124-25, November 22, 2000

• San Juan Structural v. Court of Appeals


GR. No. 129459, September 29, 1998

• Pioneer Insurance v. Court of Appeals


GR. No. 84197, July 28, 1989

• Kilosbayan, Inc. v. Guingona, Jr.


GR. No. 113375, May 5, 1994

• Mead v. Cullough
GR. No. 6217, December 26, 1911

• Benguet Consolidated Mining Co. v. Pineda


GR. No. L-7231, March 28, 1956

• Philippine Products Co. v. Primateria Societe Anonyme


GR. No. L-17160, November 29, 1965

• Bourns v. Carman
GR. No. L-2880, December 4, 1906

III. Nature and Attributes of a Corporation

• Stonehill v. Diokno

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GR. No. L-19550, June 19, 1967

• PNB v. Court of Appeals


GR. No. L-27155, May 18, 1978

• Sergio Naguiat v. NLRC


GR. No. 116123, March 13, 1997

• PCIB v. Court of Appeals


GR. No. 121413, January 29, 2001

• West Coat Life Insurance v. Hurd


GR. No. L-8527, March 30, 1914

• Acme Shoe Rubber and Plastic Corp v. CA


GR. No. 103576, August 22, 1996

• ABS-CBN Broadcasting Corp v. CA


GR. No. 128690, January 21, 1999

• Cometa v. Court of Appeals


GR. No. 124062, January 21, 1999

• Tatad v. Garcia, Jr.


GR. No. 114222, April 6, 1995
• PLDT v. National Telecommunications Commission
GR. No. 88404, October 18, 1990

• Palting v. San Jose Petroleum, Inc.


GR. No. L-14441, December 17, 1966

IV. Separate Juridical Personality and


Doctrine of Piercing the veil of Corporate Fiction

• Rufina Luy Lim v. Court of Appeals


GR. No. 124715, January 24, 2000

• Francisco v. Mejia
GR. No. 141617, August 14, 2001

• ARB Construction v. Court of Appeals

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GR. No. 126554, May 31, 2000

• Traders Royal Bank v. Court of Appeals


GR. No. 93397, March 3, 1997

• Umali v. Court of Appeals


GR. No. 89561, September 13, 1990

• Francisco Motors Corp v. CA


GR. No. 100812, June 25, 1999

• Luxuria Homes, Inc. v. Court of Appeals


GR. No. 125986, January 28, 1999

• Cruz v. Dalisay
AM. No.R-181-P, July 31, 1987

• NAMARCO v. Associated Finance Co.


GR. No. L-20886, April 27, 1967

• Tan Boon Bee v. Jarencio


GR. No. L-41337, June 30, 1988

• Ramoso v. Court of Appeals


GR. No. 117416, December 8, 2000

• Emilio Cano Enterprises v. CIR


GR. No. L-20502, February 26, 1965

V. Classification of Corporations
• Camporedondo v. NLRC
GR. No. 129049, August 6, 1999

• Benguet Electric Cooperative, Inc. v. NLRC


GR. No. 89070, May 18, 1992

• Republic v. Iglesia ni Cristo


GR. No. L-61145, February 20, 1984

• Boy Scouts of the Phils. v. NLRC


GR. No. 80767, April 22, 1991

• Cervantes v. Auditor General

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GR. No. L-4043, May 26, 1952

• PNOC-Energy Development Corp v. NLRC


GR. No. 79182, September 11, 1991

• Manuel Torres v. Court of Appeals


GR. No. 120138, September 5, 1997

VI. Corporate Contract Law


• Caram, Jr. v. Court of Appeals
GR. No. L-48627, June 30, 1987

• Salvatierra v. Garlitos
GR. No. L-11442, May 23, 1958

• Lozano v. delos Santos


GR. No. 125221, June 19, 1997

• People v. Garcia
GR. No. 117010, April 18, 1997

• Bayla v. Silang Traffic Co., Inc.


GR. No. L-48195-6, May 1, 1942

• CIR v. CA and ANSCOR


GR. No. 108576, January 20, 1999

• Boman Environmental Dev. Corp v. CA


GR. No. 77860, November 22, 1988

VII. Articles of Incorporation


• Republic Planters Bank v. CA
GR. No. 93073, December 21, 1992

• Universal Mills Corp v. Universal Textile Mills, Inc.


GR. No. L-28351, July 28, 1977

• Laureano Investment & Development Corp v. CA


GR. No. 100468, May 6, 1997

• Pison-Arceo Agricultural Development Corp v. NLRC

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GR. No. 1177890, September 18, 1997

• Alhambra Cigar v. SEC


GR. No. L-23606, July 29, 1968

• Sy v. Tyson Enterprises, Inc.


GR. No. L-56763, December 15, 1982

VIII. By-Laws
• Loyola Grand Villas Homeowners (South) v. CA
GR. No. 117188, August 7, 1997

• Grace Christian High School v. CA


GR. No. 108905, October 23, 1997

• Salafranca v. Philamlife (Plampona)


GR. No. 121791, December 23, 1998

• PMI Colleges v. NLRC


GR. No. 121466, August 15, 1997

IX. CORPORATE POWERS, AUTHORITY AND


ACTIVITIES

• Land Bank of the Philippines v. COA


GR. Nos. 89679-81, September 28, 1990
• ABS-CBN Broadcasting Corp. v. CA
GR. No. 128690, January 21, 1999
• Vicente v. Geraldez
GR. No. L-32473, July 31, 1973
• Prime White Cement Corp. v. IAC
GR. No. L-68555, March 19, 1993
• Yao Ka Sin Trading v. CA
GR. No. L-53820, June 15, 1992
• First Philippine International Bank v. CA
GR. No. 115849, January 24, 1996
• Safic Alcan & Cie v. Imperial Vegetable Co.
GR No. 126751, March 28, 2001
• Tam Wing Tak v. Makasiar
GR. No. 122452, January 29, 2001
• Madrigal & Co. v. Zamora
GR. No. L-48237, June 30, 1987
• Islamic Directorate of the Philippines. v. CA

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GR. No. 117897, May 14, 1997
• Republic Planters Bank v. Agana
GR. No. 51765, March 3, 1997
• Ricafort v. Moya
GR. No. 59114, March 18, 1991
• San Juan Structural & Steel Fabricators, Inc. v. CA
GR. No. 129459, September 29, 1998
• China Banking Corp. v. CA
GR. No. 117604, March 26, 1997
• Lopez Realty v. Fontecha
GR. No. 76801, August 11, 1995

X. DIRECTORS, TRUSTEES AND OFFICERS

• Acuňa v. Batac Producers Cooperative Marketing Assn.


GR. No. L-20333, June 30, 1967
• Peňa v. CA
GR. No. 91478, February 1991
• Lopez v. Ericta
GR. No. L-32991, June 29, 1972
• Western Istitute of Technology, Inc. v. Salas
GR. No. 113032, August 21, 1997
• Gokongwei v. SEC
GR. No. L-45911, April 11, 1979
• De Rossi v. NLRC
GR. No. 108710, September 14, 1999
• Tabang v. NLRC
GR. No. 121143, January 21, 1997
• Boyer-Roxas v. CA
GR. No. 100866, July 14, 1992
• E.B. Villarosa & Partners Co. Ltd. V. Benito
GR. No. 136426, August 6, 1999
• Vasquez v. Borja
GR. No. L-48930, February 23, 1944
• MAM Realty v. NLRC
GR. No. 114787, June 2, 1995
• R.F. Sugay v. Reyes
GR. No. L-20451, December 28, 1964
• Paradise Sauna v. Ng
GR. No. L-66394, February 5, 1990
• Villanueva v. Adre
GR. No. 80863, April 27, 1989
• EPG Construction v. CA
GR. No. 103372, June 22, 1992

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• Arcilla v. CA
GR. No. 89804, October 23, 1992
• Rustan Pulp v. IAC
GR. No. 70789, October 19, 1992
• Reahs Corporation v. NLRC
GR. No. 117473, April 15, 1997
• AHS/ Philippines v. CA
GR. No. 111807, June 14, 1996
• NAPOCOR v. CA
GR. No. 113103, June 13, 1997
• Uichico v. NLRC
GR. No. 121434, June 2, 1997
• Brent Hospital v. NLRC
GR. No. 117593, July 10, 1998
• Nicario v. NLRC
GR. No. 125340, September 17, 1998
• Restaurante Las Conchas v. Llego
GR. No. 119085, September 9, 1999
• Camelcraft Corporation v. NLRC
GR. No. 90634-35, June 6, 1990
• Villa Rey Transit, Inc. v. Far East Motor Corp.
GR. No. L-31339, January 31, 1978
• Esguerra v. Court of Appeals
GR. No. 119310, February 3, 1997

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1. Re: Historical background of The Philippine Corporate Law

FRED M. HARDEN, J.D. HIGHSMITH, and JOHN C. HART, in their own behalf and in that all
other stockholders of the Balatoc Mining Company, etc.
vs.
BENGUET CONSOLIDATED MINING COMPANY, BALATOC MINING COMPANY, H. E. RENZ,
JOHN W. JAUSSERMANN, and A. W. BEAM.
G.R. No. L-37331 March 18, 1933
Street J.
Facts:
In 1927, Benguet Consolidated Mining Company, registered as a SociedadAnonima under the
Spanish Law, agreed to invest and build capital equipments in favor of Balatoc Mining Company, a
corporation registered under the then relatively new Corporation Law of 1925. In exchange, Balatoc Mining
agreed to give Benguet Mining 600,000 shares. The venture proved to be profitable and Balatoc Mining
earned and so did its stockholders, and of course, Benguet Mining was earning big too because it now owns
600,000 shares. This prompted Fred Harden a stockholder of Balatoc Mining who also owns thousands of
shares to sue Benguet Mining on the ground that under the Corporation Law a corporation like Benguet
Mining which is engaged in the mining industry is prohibited from being interested in other corporations
which are also engaged in the mining industry like Balatoc Mining.

Issue:

Whether the Benguet Company which was organized as a sociedadanonima is a corporation within
the language used by the US Congress and by the Philippine Legislature, prohibiting a mining corporation
from becoming interested in another mining corporation

Ruling:

In as much as the Corporation Law contains in Section 190 (A) provision fully penalizing the
violation of Subsection 5 of Section 13 of Act No. 1459 - which prohibits the acquisition by one mining
corporation of any interest in another and in as much as these provisions have been enacted in the exercise
of the general police powers of the government, it results that where one mining corporation acquires a

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prohibited interest in another such corporation, the shareholders of the latter cannot maintain an action to
annul the contract by which such interest was acquired. The remedy must be sought in a criminal
proceeding or Quo Warranto action, under Section 190 (A), instituted by the government. Until thus assailed
in a direct proceeding, the contract by which the interest was acquired will be treated as valid between the
parties.

The Corporation Law of 1925 subjects SociedadesAnonimas to its provisions “so far as such
provisions may be applicable”. In 1929, the Corporation Law was amended and the prohibition cited by
Harden was so modified as merely to prohibit any such corporation from holding more than fifteen per
centum of the outstanding capital stock of another such corporation.

Further and more importantly, the Corporation Law of 1925 provides that if the person who
allegedly violated the provisions of said law is a corporation, the proper action is a quo warranto which
should be initiated by the Attorney-General or its deputized provincial fiscal and not a private action as the
one filed by Harden.

2 Re: Theory of Enterprise Entity

PHILIPPINE STOCK EXCHANGE, INC.,


vs.
THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
PUERTO AZUL LAND, INC.
G.R. No. 125469. October 27, 1997
TORRES, JR., J.:
Facts:

` Securities and Exchange Commission’s functions are: supervision of all corporations, partnerships
and/or associations who are grantees of franchise, license or permit issued by the government to operate in
the Philippines. Puerto Azul Land Inc. (PALI) sought to offer its shares to the public in order to raise funds to
develop its properties and pay loans. PALI was issued Permit to Sell its shares by SEC. To facilitate trading
of shares, PALI sought to course the trading of its shares through the PSE. Thus, it filed application to list its
shares. Listing Committee recommended the approval. February 14, 1996, PSE received a letter from the
heirs of Ferdinand Marcos claiming that Marcos is the owner of certain properties forming part of PALI’s
properties. Ternate Development Corporation (TDC) is a stockholder of PALI appears to be held in trust by
Rebecca Panlilio for Marcos and now for his estate.

PALI’s application was requested to be deferred. PALI’s answer: the properties mentioned were not
being claimed by PALI. TDC owns 1.20% of PALI. Marcoses answer: asserted legal and beneficial

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ownership of other properties titled under the name of PALI. Marcoses received TRO, enjoining them from
further impeding, obstructing, delaying or interfering in any manner or means with the consideration,
processing and approval by the PSE of the initial public hearing of PALI. Board of governors of PSE rejected
PALI’s application. PALI wrote to SEC, bringing to SEC’s attention the action taken by the PSE; requesting
that the SEC in the exercise of supervisory and regulatory powers over stock exchanges under PD 902-A
Section 6 (j) review PSE’s action; institute measure as are just and proper. PSE filed its comments.

SEC rendered its order reversing PSE’s decisions. Commissioner’s authority under Securities Act
in conjunction with PD 902-A was invoked. PSE was ordered to cause the listing of PALI shares in the
exchange. PSE’s Motion for Reconsideration was denied. PSE filed a petition for Review with the CA. CA
dismissed PSE’s Petition for Review.

Issue:

Whether SEC has the power to order the listing and sale of shares and to review and substitute
decisions of PSE on listing application.

Ruling:

The Supreme Court affirms that the SEC is the entity with the primary say as to whether or not
securities, including shares of stock may be traded. Its function is vital to the national economy as the
business is affected with public interest.

The role of SEC under PD 902-A: it has the responsibility of enforcing all laws affecting
corporations and other forms of associations not otherwise vested in other government office. However, the
PSE’s management prerogatives are not under the absolute control of the SEC. The PSE is a corporation
authorized by its corporate franchise to engage in its proposed approved business. PSE’s main concern is
the generation of profit. PSE has all the right pertaining to corporations: right to sue and be sued, to hold
property in its own name, to enter or not into contracts, to perform all other legal acts.

In organizing itself as a collective body, a corporation waives no constitutional immunities and


perquisites appropriate to a corporation. The state will generally not interfere with its corporate and
management decisions. Questions of policy and management are left to the honest decisions of the officers
and directors of a corporation, and the courts have no authority to substitute their judgment for the judgment
of the board. The board is the business manager of the corporation and as long as it acts in good faith, its
orders are not reviewable by the courts. Thus, notwithstanding the regulatory power of the SEC over the
PSE, and the resultant authority to reverse the PSE’s decision in matters of application for listing in the

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market, the SEC may exercise such power ONLY if the PSE’s judgment is attended by bad faith. Bad faith
does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or interest
of ill will in the nature of fraud. SEC had acted arbitrarily in arrogating unto itself the discretion of approving
the application for listing in the PSE, since this is a matter addressed to the sound discretion of the PSE.

As to what policy should be relied upon in approving the registration and sale of securities, the
same is left to the sound discretion of the SEC. SEC has the power to promulgate rules and regulations in
the interest of the public. SEC has supervision and control over all corporations. PSE’s action is justified by
the law. Decisions of SEC and CA are reversed.

3 Re: Strong Legal Personality

BIBIANO O. REYNOSO, IV,


vs.
HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION
G.R. Nos. 116124-25. November 22, 2000
YNARES-SANTIAGO, J.:

Facts:
Reynoso was the branch manager of Commercial Credit Corporation – Quezon City (CCC-QC), a
branch of Commercial Credit Corporation (CCC). It was alleged that Reynoso was opposed to certain
questionable commercial practices being facilitated by CCC which caused its branches, like CCC-QC, to
rack up debts. Eventually, Reynoso withdrew his own funds from CCC-QC. This prompted CCC-QC to file
criminal cases for estafa and qualified theft against Reynoso. The criminal cases were dismissed and
Reynoso was exonerated and at the same time CCC-QC was ordered to pay Reynoso’s counterclaims
which amounted to millions. A writ of execution was issued against CCC-QC. The writ was opposed by
CCC-QC as it now claims that it has already closed and that its assets were taken over by the mother
company, CCC. Meanwhile, CCC changed its name to General Credit Corporation (GCC).

Reynoso filed a petition for an alias writ of execution. GCC opposed the writ as it argued that it is a separate
and distinct corporation from CCC and CCC-QC, in short, it raises the defense of corporate fiction.

Issue:

Whether General Credit Corporation (formerly CCC) may be held liable for the obligations of CCC-
QC (applicability of the Doctrine of Piercing the Veil of Corporate Fiction)

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Ruling:

It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was
intended to publicly identify it as a component of the CCC Group of Companies engaged income and the
same business i.e investment and finance. Aside from CCC-QC, other franchise companies were organized.

The organization of subsidiary corporations is usually resorted to for the aggrupation of capital, the
ability to cover more territory and population, the decentralization of activities best decentralized, and the
securing of other legitimate advantages. But when the mother corporation and its subsidiary cease to act in
good faith and honest business judgment, when the corporate device is used by the parent to avoid its
liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to perpetuate fraud
or promote injustice, the law steps in to remedy the problem. When that happens, the corporate character is
not necessarily abrogated. It continues for legitimate objectives. However, it is pierced in order to remedy
injustice. The defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent
of its parent. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the
veil of a corporate fiction applies only when such fiction is used to defeat public convenience, justify wrong,
protect fraud or defend crime.

The Discounting Agreements through which CCC controlled the finances of its subordinates
became unlawful when the Central Bank adopted the DOSRI prohibition. Under this rule, directors, officers,
stockholders and other persons with related interests are prohibited from borrowing money from their
company.

4 Re: Limited Liability to Investors

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC.


vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP.
G.R. No. 129459 September 29, 1998
PANGANIBAN, J.:
Facts:

In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan) alleged that it entered into a
contract of sale with Motorich Sales Corporation (Motorich) through the latter’s treasurer, Nenita Gruenberg.
The subject of the sale was a parcel of land owned by Motorich. San Juan advanced P100,000 to Nenita as

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earnest money. On the day agreed upon on which Nenita was supposed to deliver the title of the land to
Motorich, Nenita did not show up. Nenita and Motorich did not heed the subsequent demand of San Juan to
comply with the contract hence San Juan sued Motorich. Motorich, in its defense, argued that it is not bound
by the acts of its treasurer, Nenita, since her act in contracting with San Juan was not authorized by the
corporate board.

San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that
Nenita and her husband owns 98% of the corporation’s capital stocks; that as such, it is a close corporation
and that makes Nenita and the President as principal stockholders who do not need any authorization from
the corporate board; that in this case, the corporate veil may be properly pierced.

Issues:

1. May a corporate treasurer sell a parcel of land owned by the corporation?

2. May the veil of corporate fiction be pierced on the ground that almost all of the shares of stocks
are owned by the treasurer and her husband?

Ruling:

1. NO. True, Gruenberg and company signed the agreement but such contract cannot bind
Motorich because it never authorized or ratified the sale. A corporation is a juridical person separate and
distinct from its stockholders. The property of the corporation is not the property of the stockholders. A
corporation may act only through its Board of Directors or through its officers/agents when authorized by its
by-laws or board resolution.

Persons dealing with an agent whether general or special are bound at their peril to ascertain not
only the fact of the agency but also the nature and extent of authority. The treasurer in this case is also not
cloaked with actual or apparent authority to buy or sell real property, an activity which falls way beyond the
scope of her general authority.

2. NO. the question of piercing the veil of corporate fiction is a matter of proof. Petitioner failed to
establish that the corporation was formed or operated for the purpose of shielding any alleged fraudulent or
illegal activities of its officers or stockholders or that the veil was used to conceal fraud, illegality or inequity
at the expense of third persons. Motorich is not a close corporation. The Articles of Incorporation of Motorich
does not contain any provision stating that:

a. the number of stockholders shall not exceed 20 or;

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b. a pre-emption of shares is restricted in favor of any stockholder or of the corporation or;

c. listing its stocks in any stock exchange or making a public offering of the stocks is prohibited.

Motorich does not become a close corporation just because Reynaldo and Nenita owned 99.86%
of the subscribed capital stock. The mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not sufficient ground to disregard the separate
personalities.

The principle in Dulay Enterprises Inc. vs. CA which treated the family corporation as a close
corporation even without looking into the provisions of the Articles of Incorporation does not apply because
in Dulay, the sale of real properties was contracted by the President of a close corporation with the
knowledge and acquiescence of its Board of Directors.

5 Re: Corporation compared with Partnerships and Other Associations

PIONEER INSURANCE & SURETY CORPORATION


vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM
G.R. No. 84197 July 28, 1989
JACOB S. LIM
vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER
MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES
and CONSTANCIO MAGLANA
G.R. No. 84157 July 28, 1989
GUTIERREZ, JR., J.:
Facts:

In1965, Lim was engaged in the airline business as owner-operator of Southern Airlines as single
proprietorship. Lim purchased from Japan Domestic Airlines 2 aircrafts and 1 set of spare parts. Border
Machinery Company, Francisco and Modesto Cervantes, and ConstancioMaglana contributed some funds.
Pioneer Insurance and Surety Corp as surety executed and issued Surety Bond in favor of JDA in behalf of
its principal Lim for the balance price of the sold items. There was an Indemnity Agreement between
Pioneer Insurance and Lim et al. Chattel Mortgage was executed in favor of Pioneer as security for its
suretyship. Lim defaulted on his installment payments. Pioneer paid. Pioneer filed for extra-judicial
foreclosure of the chattel mortgage. After trial: Lim is liable to pay Pioneer but dismissed Pioneer’s complaint
against all other defendants. Appellate Court modified trial court’s decision.

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Issue:

What legal rules govern the relationship among co-investors whose agreement was to do business
through the corporate vehicle but failed to incorporate the entity in which they had chosen to invest.

Ruling:

No de facto partnership was created among the parties which could entitle Lim to a reimbursement
of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his
own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare
parts.

While it has been held that as between themselves, the rights of the stockholders in a defective
corporation should be governed by the supposed charter and the laws of the state relating thereto not by the
rules governing partners. It is ordinarily held that persons who attempt to form a corporation, but failed, and
who carry on business under the corporate name occupy the position of partners inter se.

However, such a relation does not necessarily exist, for ordinarily, persons cannot be made to
assume the relation of partners, as between themselves when their purpose is that no partnership shall
exist. It should be implied only when necessary to do justice between the parties. Thus, one who took no
part except to subscribe for stock in a proposed corporation which is never legally formed does not become
a partner with other subscribers who engage in business under the pretended corporation, so as to be liable
as such in an action for settlement.

6 Re: Corporation compared with Joint Venture

KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA,


EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO,
JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, SEN. FREDDIE WEBB, SEN.
WIGBERTO TAÑADA, and REP. JOKER P. ARROYO,
vs.
TEOFISTO GUINGONA, JR., in his capacity as Executive Secretary, Office of the President;
RENATO CORONA, in his capacity as Assistant Executive Secretary and Chairman of the
Presidential review Committee on the Lotto, Office of the President; PHILIPPINE CHARITY
SWEEPSTAKES OFFICE; and PHILIPPINE GAMING MANAGEMENT CORPORATION
G.R. No. 113375 May 5, 1994

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DAVIDE, JR., J.:
Facts:

Pursuant to Section1 of the Charter of the PCSO as amended by BP Blg. 42 which grants it the
authority “to hold and conduct charity sweepstakes races, lotteries and other similar activities”, the PCSO
decided to establish an on-line lottery system for the purpose of increasing its revenue base and diversifying
its sources of funds. After learning that the PCSO was interested in operating an on-line lottery system, the
Berjaya Group Berjad, a multinational company in Malaysia became interested to offer its services and
resources to PCSO. Berjaya group organized with some Filipino investors in March 1993 a Philippine
corporation known as the Philippine Gaming Management Corporation which was intended to be the
medium through which the technical and management services required for the project would be offered
and delivered to PCSO.

PCSO formally issued a request for proposal for the lease Contract of an on-line lottery system for
the PCSO. The bid submitted by PGMC was evaluated. The office of the President announced that
respondent PGMC may finally operate the country’s on-line lottery system and that the corresponding
contract would be for approval. KILOSBAYAN sent an open letter to the President strongly opposing the
setting up of the on-line lottery system on the basis of serious moral and ethical considerations. Petitioners
also submit that the PCSO cannot validly enter into the assailed Contract of Lease with PGMC because it is
an arrangement wherein the PCSO would hold and conduct the on-line lottery system in collaboration or
association with the PGMC in violation of Section 1(B) of RA 1169, as amended by BP Blg. 42 which
prohibits the PCSO from holding and conducting charity sweepstakes races, lotteries and other similar
activities in collaboration, association or joint venture with any person, association, company or entity,
foreign or domestic. Petitioner seeks to prohibit and restrain the implementation of the Contract of Lease
executed by the PCSO and PGMC.

Issue:

Whether or not the opposition made by the petitioner is valid

Ruling:

YES. The preliminary issue on the locus standi of the petitioner which was raised by the
respondents should be resolved in favor of the petitioners. The court finds the petition to be of
transcendental importance to the public. The issues it raised are of paramount public interest.

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The provision in Section 1 of RA 1169 as amended by BP Blg 42 is indisputably clear with respect
to its franchise or privilege to hold and conduct charity sweepstakes, races lotteries and other similar
activities. Meaning, the PCSO cannot exercise it in “collaboration, association or joint venture” with any
other party. Thus, the challenged contract of Lease violates the exception provided for in paragraph B,
Section 1 of RA 1169 as amended by BP Blg. 42 and is therefore invalid for being contrary to law.

7 Re: SociedadAnonima

CHARLES W. MEAD, plaintiff-appellant,


vs.
E. C. McCULLOUGH, ET AL., and THE PHILIPPINE ENGINEERING AND CONSTRUCTION
COMPANY,defendant-appellants.

G.R. No. 6217 December 26, 1911


TRENT, J.:
Facts:

Charles Mead, Edwin McCullough and three others organized the corporation called The Philippine
Engineering and Construction Company (PECC). The 4 organizers, except Mead, contributed to the majority
of the capital stock of PECC, the remaining shares were offered to the public. Mead contributed some
personal properties. Mead was assigned as a manager but he resigned as such when he accepted an
engineering job in China. But even so, he remained as one of the five directors (the organizers). At that time,
PECC was already incurring losses. McCullough, the president, proposed that he shall buy the assets of the
corporation. The three other directors then voted in favor of this proposal hence the assets were transferred
to McCullough. Mead learned of this and so he opposed it because the personal properties he contributed
were also transferred to McCullough. Mead also argued that under the Articles of Incorporation of PECC,
the board of directors only have ordinary powers; that the authorization made by the three directors to allow
the sale of company assets to McCullough constitutes an act of agency which is invalid at that because no
express commission was made, i.e., no power of attorney was made in favor of the directors. The
requirement for a commission can be inferred from Article 1713 of the Civil Code which provides: An agency
stated in general terms only includes acts of administration. In order to compromise, alienate, mortgage, or
execute any other act of strict ownership an express commission is required. Mead also insists that under
their charter, no resolution affecting the administration of the affairs of PECC should be binding upon the
corporation unless the unanimous consent of the entire board was first obtained

Issue:

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Whether or not the three directors had the authority to allow the sale/transfer of the company
assets to McCullough.

Ruling:

Where the Articles of Incorporation prescribe that all meetings of the stockholder, a majority of
votes of those present shall be necessary to determine any question discussed, the sale or transfer to one
of its members of the corporate property is a matter which the majority of the stockholders can properly
consider and generally speaking, the voice of the majority of the stockholders is the law of the corporation.

A majority of the stockholders or directors have the power to sell or transfer to one of its members
the corporate property, where the stockholders or directors have general ordinary powers and where there is
nothing in the Articles of Incorporation which expressly prohibits such a sale.

While a private corporation remains solvent, there is no reason why a director or officer by authority
of the majority of its stockholders or board of managers may not deal with the corporation, loan it money or
buy property from it in like manner as a stranger. This is likewise true of an insolvent corporation, but in all
cases, such officer or director must act in good faith and pay an adequate consideration, their acts being
subject to the most scrutiny at all times.

There is nothing in the provisions of the civil code, nor of the code of commerce dealing with the
manner of dissolving a corporation which expressly or impliedly prohibits the sale of corporate property to
one of its members. Where a director in a corporation accepts a position in which his duties are
incompatible with those as such director, it is presumed that he has abandoned his office as director of the
corporation.

8 Re: SociedadAnonima

BENGUET CONSOLIDATED MINING CO


vs.
MARIANO PINEDA, in his capacity as Securities and Exchange Commissioner, CONSOLIDATED
MINES, INC.

G.R. No. L-7231. March 28, 1956.


REYES, J. B. L., J.
Facts:

Benguet Consolidated Mining was organized on June 24, 1903 as a SociedadAnonima regulated
by Article 151 of the Spanish Code of Commerce. The Articles Of Incorporation provided that it was

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organized for a term of 50 years. In 1906, Corporation Code was enacted to take effect on April 1, 1906. At
the expiration of the 50-year period, the Board of Directors of Benguet Mining adopted in 1946 a resolution
to extend its life for another 50 years and submitted it for registration to the SEC. Registration was denied.

After 60 years, the shareholders of Benguet Consolidated adopted a resolution empowering the
Director to effectuate the extension of the company’s business life for not less than 20 and not more than 50
years by (1) amendment to the AOI (2) by reforming and reorganizing the company as a Philippine
Corporation (3) by both (4) by any other means. Benguet submitted to the SEC 2 documents for alternative
registration, but the SEC denied it.

Issue:

Could Benguet Consolidated Mining still exercise the option of reforming and reorganizing as a
corporation since the law is silent as to time when such option may be exercised or availed of

Ruling:

While no express period of time is fixed by the law within which SociedadAnonimas may elect
under Sec. 75 of Act No. 1459, either to reform or to retain their status quo, there are powerful reasons to
conclude that the legislature intended such choice to be made within a reasonable time from the effectivity
of the Act.

To enable a SociedadAnonima to choose reformation when its stipulated period of existence is


nearly ended would be to allow it to enjoy a term of existence for longer than that granted to corporations
organized under the Corporation Code. In Benguet’s case, 50 years as SociedadAnonima and 50 years as
corporation which is a result incompatible with the avowed purpose of Act 1459 to hasten the disappearance
of SociedadAnonimas. It would permit sociedadanonimas to prolong their corporate existence indirectly by
belated reformation into corporations.

The prohibition contained in Section 18 of Act 1459 against extending the period of corporate
existence by amendment of the original articles was intended to apply and does apply to SociedadAnonimas
already formed, organized and existing at the time of effectivity of the Corporation Law.

9 Re: SociedadesAnonimas

PHILIPPINE PRODUCTS COMPANY, plaintiff-appellant,


vs.

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PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE EXTERIEUR: PRIMATERIA
(PHILIPPINES) INC., ALEXANDER G. BAYLIN and JOSE M. CRAME, defendants-appellees.

G.R. No. L-17160 November 29, 1965


BENGZON, C.J.:
Facts:

Defendant PrimateriaSocieteAnonyme Pour Le Commerce Exterieur (hereinafter referred to as


Primateria Zurich) is a foreign juridical entity and, at the time of the transactions involved herein, had its
main office at Zurich, Switzerland. It was then engaged in "Transactions in international trade with
agricultural products. On October 24, 1951, Primateria Zurich, through defendant Alexander B. Baylin,
entered into an agreement with plaintiff Philippine Products Company, whereby the latter undertook to buy
copra in the Philippines for the account of Primateria Zurich, during "a tentative experimental period of one
month from date." The contract was renewed by mutual agreement of the parties to cover an extended
period up to February 24, 1952, later extended to 1953. During such period, plaintiff caused the shipment of
copra to foreign countries, pursuant to instructions from defendant Primateria Zurich, thru Primateria (Phil.)
Inc. — referred to hereafter as Primateria Philippines — acting by defendant Alexander G. Baylin and Jose
M. Crame, officers of said corporation. As a result, the total amount due to the plaintiff as of May 30, 1955,
was P33,009.71. At the trial, it was proven that the amount due from defendant Primateria Zurich, on
account of the various shipments of copra, was P31,009.71, because it had paid P2,000.00 of the original
claim of plaintiff. There is no dispute about accounting. And there is no question that Alexander G. Baylin
and Primateria Philippines acted as the duly authorized agents of Primateria Zurich in the Philippines. As far
as the record discloses, Baylin acted indiscriminately in these transactions in the dual capacities of agent of
the Zurich firm and executive vice-president of Primateria Philippines, which also acted as agent of
Primateria Zurich. It is likewise undisputed that Primateria Zurich had no license to transact business in the
Philippines. For failure to file an answer within the reglementary period, defendant Primateria Zurich was
declared in default. After trial, judgment was rendered by the lower court holding defendant Primateria
Zurich liable to the plaintiff for the sums of P31,009.71, with legal interest from the date of the filing of the
complaint, and P2,000.00 as and for attorney's fees; and absolving defendants Primateria (Phil.), Inc.,
Alexander G. Baylin, and Jose M. Crame from any and all liability. Plaintiff appealed from that portion of the
judgment dismissing its complaint as regards the three defendants. It is plaintiff's theory that Primateria
Zurich is a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law, and since it
has transacted business in the Philippines without the necessary license, as required by said provisions, its
agents here are personally liable for contracts made in its behalf.Section 68 of the Corporation Law states:
"No foreign corporation or corporation formed, organized, or existing under any laws other than those of the
Philippines shall be permitted to transact business in the Philippines, until after it shall have obtained a

21 | P a g e
license for that purpose from the Securities and Exchange Commission .. ." And under Section 69, "any
officer or agent of the corporation or any person transacting business for any foreign corporation not having
the license prescribed shall be punished by imprisonment for etc. ... ."

Issue:

Whether defendant Primateria Zurich may be considered a foreign corporation within the meaning
of Sections 68 and 69 of the Corporation Law;

Ruling:

The lower court ruled that the Primateria Zurich was not duly proven to be a foreign corporation;
nor that a societeanonyme ("sociedadanomima") is a corporation; and that failing such proof, the societe
cannot be deemed to fall within the prescription of Section 68 of the Corporation Law. We agree with the
said court's conclusion. In fact, our corporation law recognized the difference between sociedadesanonimas
and corporations. At any rate, we do not see how the plaintiff could recover from both the principal
(Primateria Zurich) and its agents. It has been given judgment against the principal for the whole amount. It
asked for such judgment, and did not appeal from it. It clearly stated that its appeal concerned the other
three defendants.

10 Re: Cuentas En Participacion

FRANK S. BOURNS, Plaintiff-Appelle,


vs.
D.M. CARMAN ET AL., Defendants-Appellants.

G.R. No. L-2880 December 4, 1906


MAPA, J.:
Facts:

The plaintiff in this action seeks to recover the sum of $437.50, United States currency, balance
due on a contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim. The contract relating to the
said work was entered into by the said Lo-Chim-Lim, acting as in his own name with the plaintiff, and it
appears that the said Lo-Chim-Lim and his codefendants at the time the contract was made, they were the
joint proprietors and operators of the said lumber yard engaged in the purchase and sale of lumber under
the name and style of Lo-Chim-Lim. plaintiff tries to show that the other defendants were the partners of Lo-
Chim-Lim in the said lumber -yard business. The evidence of record show, according to the judgment of the
court below, "That Lo-Chim-Lim had a certain lumber yard in CalleLemery of the city of Manila, and that he

22 | P a g e
was the manager of the same, having ordered the plaintiff to do some work for him at his sawmill in the city
of Manila; and that Vicente Palanca was his partner, and Manila; and that Vicente Palanca was his partner,
and had an interest in the said business as well as in the profits and losses thereof . The court below
accordingly found that "Lo-Chim-Lim, Vicente Palanca, and Go-Tauco had a lumber yard in CalleLemery of
the city of Manila in the year 1904, participated in the profits and losses of the business and that Lo-Chim-
Lim in the business in question.

Issue:

Whether or not the partnership is Cuentas En Participacion.

Ruling:

The court ruled in the affirmative. It seems that the alleged partnership between Lo-Chim-Lim and
the appellants was formed by verbal agreement only. At least there is no evidence tending to show that said
agreement was reduced to writing, or that it was ever recorded in a public instrument. Moreover, that
partnership had no corporate name. The plaintiff himself alleges in his complaint that the partnership was
engaged in business under the name and style of Lo-Chim-Lim only, which according to the evidence was
the name of one of the defendants. On the other hand, and this is very important, it does not appear that
there was any mutual agreement between the parties, and if there were any, it has not been shown what
that agreement was. As far as the evidence shows it seems that the business was conducted by Lo-Chim-
Lim in his own name, although he gave to the appellants a share of the earnings of the business; but what
that share was has not been shown with certainty. The contract made with the plaintiff was made by Lo-
Chim-Lim individually in his own name, and there is no evidence that the partnership ever contracted in any
other form. Under such circumstances we find nothing upon which to consider this partnership other than as
a partnership of cuentas en participacion. But a simple business conducted by Lo-Chim-Lim exclusively, in
his own name, and under his own personal management, he having effected every transaction connected
therewith also in his own name, the names of the other persons interested in the profits and losses of the
business nowhere appearing. A partnership constituted in such a manner, the existence of which was only
known to those who had an interest in the same, there being no mutual agreements between the partners,
and without a corporate name indicating to the public in some way that there were other people besides the
one who ostensibly managed and conducted the business, in exactly the accidental partnership of cuentas
en participacion defined in article 239 of the Code of Commerce. Those who contract with the person under
whose name the business of such partnership of cuentas en participacion is conducted, shall have only a
right of action against such person and not against the other person interested, and the latter, on the other
hand, shall have no right of action against the third person who contracted with the manager unless such

23 | P a g e
manager formally transfers his right to them. (Art. 242 of the Code of Commerce.) It follows, therefore, that
the plaintiff has no right to demand from the appellants the payment of the amount claimed in the complaint,
as Lo-Chim-Lim was the only one who contracted with him.

11 Re: Unreasonable Searches and Seizure

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his
capacity as Acting Director, National Bureau of Investigation; SPECIAL PROSECUTORS PEDRO
D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G.
REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO,
Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-
Quezon City Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon City,
respondents.
G.R. No. L-19550 June 19, 1967
CONCEPCION, C.J.:
Facts:

Respondents Judges issued, on different dates, a total of 42 search warrants against petitioners to
search the persons above-named and/or the premises of their offices, warehouses and/or residences, and
to seize and take possession of the personal property as "the subject of the offense; stolen or embezzled
and proceeds or fruits of the offense, Alleging that the aforementioned search warrants are null and void, as
contravening the Constitution and the Rules of Court because they do not describe with particularity the
documents, books and things to be seized . On March 20, 1962, said petitioners filed with the Supreme
Court this original action for certiorari, prohibition, mandamus and injunction, and prayed that, pending final
disposition of the present case, a writ of preliminary injunction be issued restraining Respondents-
Prosecutors, their agents and /or representatives from using the effects seized. In their answer,
respondents-prosecutors alleged that the contested search warrants are valid and have been issued in
accordance with law; On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in
the petition. However, by resolution dated June 29, 1962, the writ was partially lifted or dissolved, insofar as
the papers, documents and things seized from the offices of the corporations above mentioned are
concerned; but, the injunction was maintained as regards the papers, documents and things found and
seized in the residences of petitioners herein.

Issue:

Whether the searches and seizures were valid.

24 | P a g e
Ruling:

The court ruled in the negative. As regards the first group, we hold that petitioners herein have no
cause of action to assail the legality of the contested warrants and of the seizures made in pursuance
thereof, for the simple reason that said corporations have their respective personalities, separate and
distinct from the personality of herein petitioners, regardless of the amount of shares of stock or of the
interest of each of them in said corporations, and whatever the offices they hold therein may be. Indeed, it is
well settled that the legality of a seizure can be contested only by the party whose rights have been impaired
thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of
by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them
of the documents, papers and things seized from the offices and premises of the corporations adverted to
above, since the right to object to the admission of said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in
proceedings against them in their individual capacity. Indeed, it has been held:. . . that the Government's
action in gaining possession of papers belonging to the corporation did not relate to nor did it affect the
personal defendants. If these papers were unlawfully seized and thereby the constitutional rights of or any
one was invaded, they were the rights of the corporation and not the rights of the other defendants. Next, it
is clear that a question of the lawfulness of a seizure can be raised only by one whose rights have been
invaded. the warrants for the search of three (3) residences of herein petitioners, as specified in the
Resolution of June 29, 1962, are null and void; that the searches and seizures therein made are illegal; that
the writ of preliminary injunction made permanent; that the writs prayed for are granted, insofar as the
documents, papers and other effects so seized in the aforementioned residences are concerned; that the
aforementioned motion for Reconsideration and Amendment should be, as it is hereby, denied; and that the
petition herein is dismissed and the writs prayed for denied, as regards the documents, papers and other
effects seized in the twenty-nine (29) places, offices and other premises enumerated in the same
Resolution, without special pronouncement as to costs.

12 Re: Liability for Torts


PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE
AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.
G.R. No. L-27155 May 18, 1978
ANTONIO, J.:
Facts:

25 | P a g e
The defendant Rita GuecoTapnio was indebted to the bank in the sum of P2,000.00, plus
accumulated interests unpaid, which she failed to pay despite demands. She claims, that she did not
consider herself to be indebted to the Bank at all because she had an agreement with one Jacobo-Nazon
whereby she had leased to the latter her unused export sugar quota for the 1956-1957 agricultural year,
consisting of 1,000 piculs at the rate of P2.80 per picul, which was already in excess of her obligation
guaranteed by plaintiff's bond. It has been established during the trial that Mrs.Tapnio had an export sugar
quota of 1,000 piculs for the agricultural year 1956-1957 which she did not need. She agreed to allow
Mr.Jacobo C. Tuazon to use said quota for the consideration of P2,500.00. This agreement was called a
contract of lease of sugar allotment. At the time of the agreement, Mrs.Tapnio was indebted to the Philippine
National Bank at San Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured
by a mortgage on her standing crop including her sugar quota allocation for the agricultural year
corresponding to said standing crop. This arrangement was necessary in order that when Mrs.Tapnio
harvests, the P.N.B., having a lien on the crop, may effectively enforce collection against her. This is the
arrangement entered into between Mrs.Tapnio and Mr. Tuazon regarding the former's excess quota for
1956-1957. Since the quota was mortgaged to the P.N.B., the contract of lease had to be approved by said
Bank, The same was submitted to the branch manager at San Fernando, Pampanga. The latter required the
parties to raise the consideration of P2.80 per picul or a total of P2, 800.00. Mr. Tuazon informed the
manager that he was agreeable to raising the consideration to P2.80 per picul but the board of directors
required that the amount be raised to 13.00 per picul. Tuazon, request for reconsideration to the board of
directors with another recommendation for the approval of the lease at P2.80 per picul, but the board
returned the recommendation unacted upon, considering that the current price prevailing at the time was
P3.00 per picul. Tuazon informed the Bank that he was no longer interested to continue the deal, referring to
the lease of sugar quota allotment in favor of defendant Rita GuecoTapnio. The result is that the latter lost
the sum of P2,800.00 which she should have received from Tuazon and which she could have paid the
Bank to cancel off her indebtedness,

Issue:

Whether or not petitioner is liable for the damage caused.

Ruling:

The court ruled in the affirmative. We concur that failure of the negotiation for the lease of the sugar
quota allocation of Rita GuecoTapnio to Tuazon was due to the fault of the directors of the Philippine
National Bank, The refusal on the part of the bank to approve the lease at the rate of P2.80 per picul which,
as stated above, would have enabled Rita GuecoTapnio to realize the amount of P2,800.00 which was more

26 | P a g e
than sufficient to pay off her indebtedness to the Bank, and its insistence on the rental price of P3.00 per
picul thus unnecessarily increasing the value by only a difference of P200.00. inevitably brought about the
rescission of the lease contract to the damage and prejudice of Rita GuecoTapnio in the aforesaid sum of
P2,800.00. While petitioner had the ultimate authority of approving or disapproving the proposed lease since
the quota was mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for
the protection of the interest of private respondents, that degree of care, precaution and vigilance which the
circumstances justly demand in approving or disapproving the lease of said sugar quota. The law makes it
imperative that every person "must in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith, 4 This petitioner failed to do. A
corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the
rules governing the liability of a principal or master for a tort committed by an agent or servant are the same
whether the principal or master be a natural person or a corporation, and whether the servant or agent be a
natural or artificial person. All of the authorities agree that a principal or master is liable for every tort which
he expressly directs or authorizes, and this is just as true of a corporation as of a natural person, A
corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express
direction or authority from the stockholders or members acting as a body, or, generally, from the directors as
the governing body."

13 Re: Liability for Torts

SERGIO F. NAGUIAT, doing business under the name and style SERGIO F. NAGUIAT ENT., INC.,
& CLARK FIELD TAXI, INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), NATIONAL ORGANIZATION
OF WORKINGMEN and its members, LEONARDO T. GALANG, et al., respondents.

G.R. No. 116123. March 13, 1997


PANGANIBAN, J.:
Facts:

Respondents were previously employed by CFTI as taxicab drivers. The drivers worked at least
three to four times a week, depending on the availability of taxicabs. They earned not less than US$15.00
daily. In excess of that amount, however, they were required to make cash deposits to the company, which
they could later withdraw every fifteen days. Due to the phase-out of the US military bases in the
Philippines, from which Clark Air Base was not spared, the AAFES was dissolved, and the services of
individual respondents were officially terminated on November 26, 1991.The AAFES Taxi Drivers and CFTI
held negotiations as regards separation benefits that should be awarded in favor of the drivers. They

27 | P a g e
arrived at an agreement that the separated drivers will be given P500.00 for every year of service as
severance pay. Most of the drivers accepted however respondents herein refused to accept theirs.
Respondents, through the National Organization of Workingmen ("NOWM"), a labor organization which they
subsequently joined, filed a complaint against "Sergio F. Naguiat doing business under the name and style
Sergio F. Naguiat Enterprises, Inc., Army-Air Force Exchange Services (AAFES) with Mark Hooper as Area
Service Manager, Pacific Region, and AAFES Taxi Drivers Association with Eduardo Castillo as President,"
for payment of separation pay due to termination/phase-out.

Issue:

Whether or not the petitioners are liable.

Ruling:

The court ruled in the affirmative. However private respondents failed to substantiate their claim
that Naguiat Enterprises managed, supervised and controlled their employment. It appears that they were
confused on the personalities of Sergio F. Naguiat as an individual who was the president of CFTI, and
Sergio F. Naguiat Enterprises, Inc., as a separate corporate entity with a separate business. They
presumed that Sergio F. Naguiat, who was at the same time a stockholder and director[27] of Sergio F.
Naguiat Enterprises, Inc., was managing and controlling the taxi business on behalf of the latter. A closer
scrutiny and analysis of the records, however, evince the truth of the matter: that Sergio F. Naguiat, in
supervising the-taxi drivers and determining their employment terms, was rather carrying out his
responsibilities as president of CFTI. Hence, Naguiat Enterprises as a separate corporation does not
appear to be involved at all in the taxi business. Petitioner-corporations would likewise want to avoid the
solidary liability of their officers. We, however, hold that Sergio F. Naguiat, in his capacity as president of
CFTI, cannot be exonerated from joint and several liability in the payment of separation pay to individual
respondents. Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the
business. .Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family
corporations"[34] owned by the Naguiat family. Section 100, paragraph 5, of the Corporation Code,
states:5) To the extent that the stockholders are actively engage(d) in the management or operation of the
business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each
other and among themselves. Said stockholders shall be personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance." Nothing in the records show whether
CFTI obtained "reasonably adequate liability insurance;" thus, what remains is to determine whether there
was corporate tort. Simply stated, tort is a breach of a legal duty. As pointed out earlier, the fifth paragraph of
Section 100 of the Corporation Code specifically imposes personal liability upon the stockholder actively

28 | P a g e
managing or operating the business and affairs of the close corporation. Only Sergio F. Naguiat, in his
individual and personal capacity, principally bound himself to comply with the obligation there under, i.e., "to
guarantee the payment to private respondents of any damages which they may incur by reason of the
issuance of a temporary restraining order sought, if it should be finally adjudged that said principals were not
entitled thereto.Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat, president and co-owner
thereof, are ORDERED to pay, jointly and severally, the individual respondents their separation pay
computed at US$120.00 for every year of service, or its peso equivalent at the time of payment or
satisfaction of the judgment; Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin T. Naguiat
are ABSOLVED from liability in the payment of separation pay to individual respondents.

14 Re: Liability for Tort

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND


AMERICA)
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.
G.R. No. 121413 January 29, 2001
QUISUMBING, J.:
Facts:

Ford drew and issued its Citibank Check No. SN-04867 in the amount of P4,746,114.41, in favor of
the Commissioner of Internal Revenue as payment of plaintiff;s percentage sales taxes for the third quarter
of 1977.The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was subsequently
cleared at the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was
paid to IBAA as collecting or depository bank.The proceeds of the same Citibank check of the plaintiff was
never paid to or received by the payee thereof, the Commissioner of Internal Revenue. As a consequence,
upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to make
a second payment to the Bureau of Internal Revenue. Regional Trial Court of Makati, Branch 57, which tried
the case, made its findings on the modus operandi of the syndicate, as follows:A certain Mr.Godofredo
Rivera was employed by the plaintiff FORD as its General Ledger Accountant. As such, he prepared the
plaintiff's check marked Citibank Check for payment to the BIR. Instead, however, of delivering the same of
the payee, he passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of
the San Andres Branch of PCIB.* In connivance with one Winston Dulay, Castro himself subsequently
opened a Checking Account in the name of a fictitious person denominated as 'Reynaldo reyes' in the
Meralco Branch of PCIBank where Dulay works as Assistant Manager. Hence, plaintiff filed on January 20,
1983 its original complaint before this Court.

29 | P a g e
Issue:

Whether or not the petitioner is liable.

Ruling:

The court ruled in the affirmative. , Citibank assets that the proximate cause of Ford's injury is the
gross negligence of PCIBank. Since the questionedcrossed check was deposited with PCIBank, which
claimed to be a depository/collecting bank of the BIR, it had the responsibility to make sure that the check in
questions is deposited in Payee's account only. In this case, there was no evidence presented confirming
the conscious particiapation of PCIBank in the embezzlement. As a general rule, however, a banking
corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the
course and scope of their employment.28 A bank will be held liable for the negligence of its officers or
agents when acting within the course and scope of their employment. It may be liable for the tortuous acts of
its officers even as regards that species of tort of which malice is an essential element. In this case, we find
a situation where the PCIBank appears also to be the victim of the scheme hatched by a syndicate in which
its own management employees had particiapted. , Remberto Castro pro-manager of San Andres Branch of
PCIBank, received Citibank Check Numbers SN-10597 and 16508. He passed the checks to a co-
conspirator, an Assistant Manager of PCIBank'sMeralco Branch, who helped Castro open a Checking
account of a fictitious person named "Reynaldo Reyes." Castro deposited a worthless Bank of America
Check in exactly the same amount of Ford checks. The syndicate tampered with the checks and succeeded
in replacing the worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and
16508. The PCIBankPtro-manager, Castro, and his co-conspirator Assistant Manager apparently performed
their activities using facilities in their official capacity or authority but for their personal and private gain or
benefit. A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by
the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment;
nor will t be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the
bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or representations of an
officer or agent acting within the course and apparent scope of his employment or authority. And if an officer
or employee of a bank, in his official capacity, receives money to satisfy an evidence of indebtedness lodged
with his bank for collection, the bank is liable for his misappropriation of such sum.

15 Re: Criminal Liability of a Corporation

WEST COAST LIFE INSURANCE CO., plaintiff,

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vs.
GEO N. HURD, Judge of Court of First Instance, defendant.

G.R. No. L-8527 March 30, 1914


MORELAND, J.:
Facts:

The petitioner is a foreign life-insurance corporation, was charged of criminal action joining John
Northcott and Manuel C. Grey g with the crime of libel. The said defendants West Coast Life Insurance
Company, John Northcott, and Manuel C. Grey, conspiring and confederating together, did then and there
willfully, unlawfully, and maliciously, and to the damage of the Insular Life Insurance Company, a domestic
corporation duly organized, registered, and doing business in the Philippine Islands, and with intent o cause
such damage and to expose the said Insular Life Insurance Company to public hatred, contempt, and
ridicule, compose and print, and cause to be printed a large number of circulars. The lower court ruled that it
has no power or authority, under the laws of the Philippine Islands, to proceed against a corporation, as
such, criminally, to bring it into court for the purpose of making it amenable to the criminal laws. It is
contended that the court had no jurisdiction to issue the process in evidence against the plaintiff corporation;
that the issuance and service thereof upon the plaintiff corporation were outside of the authority and
jurisdiction of the court, were authorized by no law, conferred no jurisdiction over said corporation, and that
they were absolutely void and without force or effect.

Issue:

Whether or not the plaintiff is liable.

Ruling:

The court ruled in the negative. No case has been cited to us where a corporation has been
proceeded against under a criminal statute where the court did not exercise its common law powers or
where there was not in force a special procedure applicable to corporations further attacking said process,
alleges that the process is a mixture of civil and criminal process, that it is not properly signed, that it does
not direct or require an arrest; that it s an order to appear and answer on a date certain without restraint of
the person, and that it is not in the form required by law.It is undoubted that, under the Spanish criminal law
and procedure, a corporation could not have been proceeded against criminally, as such, if such an entity as
a corporation in fact existed under the Spanish law, and as such it could not have committed a crime in
which a willful purpose or a malicious intent was required. Criminal actions would have been restricted or
limited, under that system, to the officials of such corporations and never would have been directed against
the corporation itself. This was the rule with relation to associations or combinations of persons

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approaching, more or less, the corporation as it is now understood, and it would undoubtedly have been the
rue with corporations. From this source, then, the courts derive no authority to bring corporations before
them in criminal actions, nor to issue processes for that purpose.

16 Re: Recovery of Moral Damages

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs.
HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY,respondents.

G.R. No. 103576 August 22, 1996


VITUG, J.:
Facts:

Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber &
Plastic Corporation," executed on 27 June 1978, for and in behalf of the company, a chattel mortgage in
favor of private respondent Producers Bank of the Philippines. In due time, the loan of P3, 000,000.00 was
paid by petitioner corporation. Subsequently, in 1981, it obtained from respondent bank additional financial
accommodations totaling P2, 700,000.00. These borrowings were on due date also fully paid. On 10 and 11
January 1984, the bank yet again extended to petitioner corporation a loan of one million pesos
(P1,000,000.00) covered by four promissory notes for P250,000.00 each. Due to financial constraints, the
loan was not settled at maturity. Respondent bank thereupon applied for an extra judicial foreclosure of the
chattel mortgage, herein before cited, with the Sheriff of Caloocan City, prompting Petitioner Corporation to
forthwith file an action for injunction, with moral damages and a prayer for a writ of preliminary injunction,
before the Regional Trial Court of Caloocan City (Civil Case No. C-12081). Ultimately, the court dismissed
the complaint and ordered the foreclosure of the chattel mortgage. It held Petitioner Corporation bound by
the stipulations, of the chattel mortgage. The Court of Appeals denied petitioner's first motion for
reconsideration but granted a second motion for reconsideration. Except in criminal cases where the penalty
of reclusion perpetua or death is imposed.

Issue:

Whether or not the petitioner is entitled for moral damages.

Ruling:

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The court ruled in the negative. We find no merit in petitioner corporation's other prayer that the
case should be remanded to the trial court for a specific finding on the amount of damages it has sustained
"as a result of the unlawful action taken by respondent bank against it." This prayer is not reflected in its
complaint which has merely asked for the amount of P3, 000,000.00 by way of moral damages. In LBC
Express, Inc. vs. Court of Appeals, we have said: Moral damages are granted in recompense for physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. A corporation, being an artificial person and having existence only in
legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system
and it flows from real ills, sorrows, and griefs of life — all of which cannot be suffered by respondent bank as
an artificial person. While Chua Pac is included in the case, the complaint, however, clearly states that he
has merely been so named as a party in representation of petitioner’s corporation.

17 RE: Recovery of moral damages and other damages.

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs.
HON. COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and REGIONAL
SHERIFF OF CALOOCAN CITY, respondents.

G.R. No. 103576. August 22, 1996


VITUG, J.:
Facts:

In June 1978, Acme Shoe, Rubber & Plastic Corporation executed a chattel mortgage in favor of
Producers Bank of the Philippines in consideration of a loan in the amount of P3 million. The loan was paid.
Thereafter, Producers Bank extended another P2.7 million loan to Acme. The same was paid. In 1984,
Producers Bank extended a P1 million loan to Acme. This time, Acme was unable to pay and eventually,
Producers Bank foreclosed the property subject of the chattel mortgage executed in June 1978.

Acme opposed the foreclosure as it alleged that the 1984 loan was no longer covered by the chattel
mortgage of 1978. Acme is also asking for moral damages (worth P3 million) for the groundless foreclosure
done by Producers Bank.

Issue:

Whether or not Petitioner Corporation is entitled to recover moral damages from Private
Respondent Bank for the groundless foreclosure done by the latter.

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Ruling:

No. We find no merit in petitioner corporation's other prayer that the case should be remanded to
the trial court for a specific finding on the amount of damages it has sustained "as a result of the unlawful
action taken by respondent bank against it." This prayer is not reflected in its complaint which has merely
asked for the amount of P3,000,000.00 by way of moral damages. In LBC Express, Inc. vs. Court of
Appeals, we have said:

"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A
corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no
emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental
suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and
griefs of life - all of which cannot be suffered by respondent bank as an artificial person."

While Chua Pac is included in the case, the complaint, however, clearly states that he has merely
been so named as a party in representation of petitioner corporation.

18 RE: Recovery of moral damages and other damages.

ABS-CBN BROADCASTING CORPORATION, petitioner,


vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION,
INC., and VICENTE DEL ROSARIO, respondents.
G.R. No. 128690 January 21, 1999
DAVIDE, JR., CJ.:
Facts:

In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement whereby ABS-CBN was given
the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may be
agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from
the actual offer in writing. Consequently, Viva, through defendant Del Rosario, offered ABS-CBN, through its
vice-president Charo Santos-Concio, a list of three(3) film packages (36 titles) from which ABS-CBN may
exercise its right of first refusal under the afore-said agreement. ABS CBN rejected said list. On February
27, 1992, Del Rosario approached Ms.Concio, with a list consisting of 52 original movie titles, as well as 104
re-runs from which ABS-CBN may choose another 52 titles, or a total of 156 titles, proposing to sell to ABS-

34 | P a g e
CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00. The package was
rejected by ABS-CBN.

On April 06, 1992, Del Rosario and Mr.GracianoGozon of RBS discussed the terms and conditions
of Viva’s offer to sell the 104 films. On April 07, 1992, defendant Del Rosario received through his secretary,
a handwritten note from Ms.Concio which reads: “Here’s the draft of the contract. I hope you find everything
in order,” to which was attached a draft exhibition agreement, a counter-proposal covering 53 films for a
consideration of P35 million. The said counter-proposal was however rejected by Viva’s Board of Directors.

On April 29, 1992, Viva granted RBS the exclusive right to air 104 Viva-produced and/or acquired
films including the fourteen (14) films subject of the present case.

ABS-CBN then filed aa complaint for specific performance. RTC rendered a decision in favor of
RBS and VIVA and against ABS-CBN, ruling that there was no meeting of minds on the price and terms of
the offer. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously
been exercised per Ms.Concio’s letter to Del Rosario ticking off ten titles acceptable to them, which would
have made the 1992 agreement an entirely new contract. The Court of Appeals affirmed the decision of the
RTC. Hence, this petition.

Issue:

Whether or not Private Respondent Corporation is entitled to actual, moral, and exemplary
damages under the circumstances of the present case.

Ruling:

No. We find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter
2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as
provided by law or by stipulation, one is entitled to compensation for actual damages only for such
pecuniary loss suffered by him as he has duly proved. The indemnification shall comprehend not only the
value of the loss suffered, but also that of the profits that the obligee failed to obtain. In contracts and quasi-
contracts the damages which may be awarded are dependent on whether the obligor acted with good faith
or otherwise, in case of good faith, the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or could have reasonably
foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or
wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-
performance of the obligation. In crimes and quasi-delicts, the defendant shall be liable for all damages

35 | P a g e
which are the natural and probable consequences of the act or omission complained of, whether or not such
damages has been foreseen or could have reasonably been foreseen by the defendant.

Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury, or for injury to the plaintiff's business standing or commercial credit.
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It
arose from the fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of
action. Needless to state the award of actual damages cannot be comprehended under the above law on
actual damages.

As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may
be recovered as actual or compensatory damages under any of the circumstances provided for in Article
2208 of the Civil Code. The general rule is that attorney's fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate. They are not to be awarded
every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands
factual, legal, and equitable justification. Even when claimant is compelled to litigate with third persons or to
incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of
bad faith could be reflected in a party's persistence in a case other than erroneous conviction of the
righteousness of his cause.

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article
2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases where
they may be recovered, Article 2220 provides that moral damages may be recovered in breaches of contract
where the defendant acted fraudulently or in bad faith. RBS's claim for moral damages could possibly fall
only under item (10) of Article 2219, thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

Moral damages are in the category of an award designed to compensate the claimant for actual
injury suffered. and not to impose a penalty on the wrongdoer. The award is not meant to enrich the
complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or
amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the restoration,
within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering
inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise
balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or
corruption on the part of the trial court.

36 | P a g e
The award of moral damages cannot be granted in favor of a corporation because, being an
artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no
senses, It cannot, therefore, experience physical suffering and mental anguish, which could be experienced
only by one having a nervous system. The statement in People v. Manero andMambulao Lumber Co. v.
PNB that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in
social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since
RBS is a corporation.

The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil
Code. These are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated or compensatory damages. They are recoverable in criminal cases as part of the civil
liability when the crime was committed with one or more aggravating circumstances; in quasi-contracts, if
the defendant acted with gross negligence; and in contracts and quasi-contracts, if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-
contract, delict, or quasi-delict, Hence, the claims for moral and exemplary damages can only be based on
Articles 19, 20, and 21 of the Civil Code. But since ABS-CBN did not act with bad faith or malice, moral
damages and exemplary damages based on Articles 19, 20 and 21 of the Civil Code cannot be granted
likewise.

19 RE: Real party in-interest.

REYNALDO T. COMETA and STATE INVESTMENT TRUST, INC., petitioners,


vs.
COURT OF APPEALS, HON. GEORGE MACLI-ING, in his capacity as Presiding Judge, Regional
Trial Court, Quezon City, Branch 100, REYNALDO S. GUEVARA and HONEYCOMB BUILDERS,
INC., respondents.

G.R. No. 124062 January 21, 1999


MENDOZA, J.:
Facts:

Reynaldo Cometa is the president of State Investment Trust, Inc. (SITI), a lending firm. Reynaldo
Guevara is the president of Honeycomb Builders, Inc. (HBI), a real estate developer. Guevara is also the
chairman of the board of Guevent Industrial Development Corp., (GIDC).

37 | P a g e
GIDC took out a loan from SITI and secured the loan by mortgaging some of its properties to SITI.
GIDC defaulted in paying and so SITI foreclosed the mortgaged assets. GIDC later sued SITI as it alleged
that the foreclosure was irregular. While the case was pending, the parties entered into a compromise
agreement where GIDC accepted HBI’s offer to purchase the mortgaged assets. But SITI did not approve
the said proposal.

GIDC then filed a request for clarification with the trial court and the latter directed SITI to accept
the proposal. Meanwhile, HBI filed a request with the HLURB asking the latter to grant them the right to
develop the mortgaged assets. HBI submitted an affidavit allegedly signed by Cometa. The affidavit
purported that Cometa and SITI is not opposing HBI’s petition with the HLURB.

Cometa assailed the affidavit as it was apparently forged as proven by an NBI investigation.
Subsequently, Cometa filed a criminal action for falsification of public document against Guevara. The
prosecutor initially did not file the information as he finds no cause of action but the then DOJ Secretary
(Drilon) directed the fiscal to file an information against Guevara. The case was dismissed. In turn, Guevara
filed a civil case for malicious prosecution against Cometa. Guevara, in his complaint, included HBI as a co-
plaintiff.

Issue:

Whether or not private respondent HBI should have been dropped as a party plaintiff upon
petitioners’ motion therefor.

Ruling:

No. The contention is without merit. We think the Court of Appeals correctly ruled: Section 11 of
Rule 3 of the Rules of Court provides:

Misjoinder and non-joinder of parties. Misjoinder of parties is not a ground for dismissal of an
action. Parties may be dropped or added by order of the court or on motion of any party or on its own
initiative at any stage of the action and on such terms as are just.

Given (1) the foregoing rule, (2), the fact that Guevara, in his capacity as president of HBI, filed
HBI’s application to sell at the HLURB and it was in the same capacity and in connection with the application
that he was criminally charged, and (3) the allegations in the complaint including that stating that by the filing
of the criminal case against Guevara, “the application of HBI with the HLURB for a regular license to sell
the condominium units . . . had been delayed,” resulting in the corresponding delay in the sale thereof on
account of which “plaintiffs incurred over runs in development, marketing and financial costs and charges,

38 | P a g e
resulting in actual damages,” the deferral by public respondent of petitioners’ motion to drop HBI as party
plaintiff cannot be said to have been attended with grave abuse of discretion. It bears emphasis that the
phraseology of Section 11 of Rule 3 is that “parties may be dropped . . . at any stage of the action.”

It is true that a criminal case can only be filed against the officers of a corporation and not against
the corporation itself. It does not follow from this, however, that the corporation cannot be a real-party-in-
interest for the purpose of bringing a civil action for malicious prosecution. As pointed out by the trial judge,
and as affirmed by the Court of Appeals, the allegation by Cometathat Guevara has no cause of action with
HBI not being a real party in interest is a matter of defense which can only be decisively determined in a full
blown trial.

20 RE: Public utilities.

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, petitioners,


vs.
HON. JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of
Transportation and Communications, and EDSA LRT CORPORATION, LTD., respondents.

G.R. No. 114222 April 6, 1995


QUIASON, J.:
Facts:

In 1989, the government planned to build a railway transit line along EDSA. No bidding was made
but certain corporations were invited to prequalify. The only corporation to qualify was the EDSA LRT
Consortium which was obviously formed for this particular undertaking. An agreement was then made
between the government, through the Department of Transportation and Communication (DOTC), and
EDSA LRT Consortium. The agreement was based on the Build-Operate-Transfer scheme provided for by
law (RA 6957, amended by RA 7718). Under the agreement, EDSA LRT Consortium shall build the facilities,
i.e., railways, and shall supply the train cabs. Every phase that is completed shall be turned over to the
DOTC and the latter shall pay rent for the same for 25 years. By the end of 25 years, it was projected that
the government shall have fully paid EDSA LRT Consortium. Thereafter, EDSA LRT Consortium shall sell
the facilities to the government for $1.00.

However, Senators Francisco Tatad, John Osmeña, and Rodolfo Biazon opposed the
implementation of said agreement as they averred that EDSA LRT Consortium is a foreign corporation as it
was organized under Hongkong laws; that as such, it cannot own a public utility such as the EDSA railway

39 | P a g e
transit because this falls under the nationalized areas of activities. The petition was filed against Jesus
Garcia, Jr. in his capacity as DOTC Secretary.

Issue:

Whether or not the EDSA LRT Consortium may operate the railway transit line along EDSA despite
the fact that it is a foreign corporation.

Ruling:

No. In law, there is a clear distinction between the "operation" of a public utility and the ownership
of the facilities and equipment used to serve the public.

The right to operate a public utility may exist independently and separately from the ownership of
the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one
may operate a public utility without owning the facilities used to serve the public. The devotion of property to
serve the public may be done by the owner or by the person in control thereof who may not necessarily be
the owner thereof.

The Supreme Court made a clarification. The SC ruled that EDSA LRT Consortium, under the
agreement, does not and will not become the owner of a public utility hence, the question of its nationality is
misplaced. It is true that a foreign corporation cannot own a public utility but in this case what EDSA LRT
Consortium will be owning are the facilities that it will be building for the EDSA railway project. There is no
prohibition against a foreign corporation to own facilities used for a public utility. Further, it cannot be said
that EDSA LRT Consortium will be the one operating the public utility for it will be DOTC that will operate the
railway transit. DOTC will be the one exacting fees from the people for the use of the railway and from the
proceeds, it shall be paying the rent due to EDSA LRT Consortium. All that EDSA LRT Consortium has to do
is to build the facilities and receive rent from the use thereof by the government for 25 years – it will not
operate the railway transit. Although EDSA LRT Consortium is a corporation formed for the purpose of
building a public utility it does not automatically mean that it is operating a public utility. The moment for
determining the requisite Filipino nationality is when the entity applies for a franchise, certificate or any other
form of authorization for that purpose.

21 Re: Public Utilities

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, petitioner,


vs.

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EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. (ETPI) and NATIONAL
TELECOMMUNICATIONS COMMISSION (NTC), respondents.

G.R. No. 94374 August 27, 1992


GUTIERREZ, JR., J.:
Facts:

On July, 16, 1987, Eastern Telecommunications Philippines, Inc. (Eastern) filed with the NTC an
application for a Certificate of Public Convenience and Necessity (CPCN) to construct, maintain and operate
an International Digital Gateway Facility (IDGF). In its application, Eastern alleged that it is a domestic
corporation and that it has the "franchise to land, construct, maintain and operate telecommunications
systems by cable, or any other means now known to science or which in the future may be developed for
the reception and transmission of messages to and between any point in the Philippines to point exterior
thereto . . . (R.A. 5002)

On July 22, 1987, NTC issued a notice of hearing, requiring publication of Eastern's application and
submission of financial and technical requirements and setting the case for initial hearing on May 31, 1988.
On June 23, 1988, petitioner Philippine Long Distance Telephone Company (PLDT) filed an "Opposition to
Main Application and to Prayer for Provisional Authority". On November 10, 1989, the NTC through
Commissioner Jose Luis A. Alcuaz rendered a decision granting Eastern's application.

Issue:

Whether or not the franchises granted to Eastern can be interpreted to include a telephone
exchange system.

Ruling:

No. Franchises are always interpreted strictly against the franchise holder, never liberally and
certainly not in a strained and exaggerated manner. The legislative history of the law granting Eastern's
franchise is most instructive and belies the arguments of Eastern.Eastern is actually not the original grantee
of the franchise under RA 5002. It acquired its franchise from Eastern Extension Australasia and China
Telegraph Co., Ltd., a foreign corporation organized and existing under the laws of Great Britain which was
engaged in international telecommunications in Manila since Spanish times. This company was given a
concession for the construction, operation and maintenance of a submarine telegraph cable from Hongkong
to Manila. On June 21, 1952, when the concession expired, RA 808 was approved granting a legislative
franchise "to land, construct, maintain and operate at Manila in the Philippines a submarine telegraph cable
connecting Manila with Hongkong."

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The original legislative grant was a franchise for a submarine telegraph (not telephone) cable. The
grantee upon whom Congress vested the franchise was a telegraph and not a telephone company. From
1952 until the franchise was assigned to Eastern and, in fact since Spanish times, it's predecessor never
operated any telephone service. The assignment of the franchise contemplated only what the transfer could
convey which is a telegraph system. And even from the time of the transfer in 1974, Eastern never operated
a telephone service. Eastern has always been aware of the limits of its franchise and the exact nature of its
operations.

The clear intention of the law granting the franchise cannot be disputed. If Congress had
contemplated the use of telephone, the law would have stated so. Undeniably, telephone technology was
already existing in 1952 when R.A. 808 was enacted. To construe the phrased "telecommunication system
by cable or any other means now known to science or which in the future may be developed for the
reception and transmission of messages" so as to include telephones is well-nigh preposterous. Indeed,
telephones did not have to be discovered or developed. They were not for the future. They were already
existing at that time. As held in De los Santos v. Mallare (87 Phil. 289 [1950]), the history of the times and
state of things when the act was framed must be followed. Conditions of the things at the time of enactment
of the law should be considered to determine the legislative intent.

Eastern's franchise was intended from the beginning and has been interpreted to cover only record
or data telecommunications services. This is bolstered by the fact that at present, Eastern is the holder of
various CPCN's from the NTC to operate only non-voice telecommunications services.

22 RE: The Grandfather Rule.

PEDRO R. PALTING, petitioner,


vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.

G.R. No. L-14441 December 17, 1966


BARRERA, J.:
Facts:

In 1956, San Jose Petroleum, Inc. (SJP), a mining corporation organized under the laws of
Panama, was allowed by the Securities and Exchange Commission (SEC) to sell its shares of stocks in the
Philippines. Apparently, the proceeds of such sale shall be invested in San Jose Oil Company, Inc. (SJO), a
domestic mining corporation. Pedro Palting opposed the authorization granted to San Jose Petroleum, Inc.
(SJP) because said tie up between San Jose Petroleum, Inc. (SJP) and San Jose Oil Company, Inc. (SJO)

42 | P a g e
is violative of the constitution; that San Jose Oil Company, Inc. (SJO) is 90% owned by San Jose Petroleum,
Inc. (SJP); that the other 10% is owned by another foreign corporation; that a mining corporation cannot be
interested in another mining corporation. San Jose Petroleum, Inc. (SJP) on the other hand invoked that
under the parity rights agreement (Laurel-Langley Agreement), San Jose Petroleum, Inc. (SJP), a foreign
corporation, is allowed to invest in a domestic corporation.

Issue:

Whether or not tie up between San Jose Petroleum, Inc. (SJP) and San Jose Oil Company, Inc.
(SJO) is violative of the constitution

Ruling:

Yes.The relationship of these corporations involved or affected in this case is admitted and
established through the papers and documents which are parts of the records: SAN JOSE OIL, is a
domestic mining corporation, 90% of the outstanding capital stock of which is owned by respondent SAN
JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority interest of which is owned by OIL
INVESTMENTS, Inc., another foreign (Panamanian) company. This latter corporation in turn is wholly
(100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A.,
both organized and existing under the laws of Venezuela. As of September 30, 1956, there were 9,976
stockholders of PANCOASTAL PETROLEUM found in 49 American states and U.S. territories, holding
3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said to
have 3,077,916 shares held by 12,373 stockholders scattered in 49 American state. In the two lists of
stockholders, there is no indication of the citizenship of these stockholders, or of the total number of
authorized stocks of each corporation, for the purpose of determining the corresponding percentage of
these listed stockholders in relation to the respective capital stock of said corporation.

Under the Constitution, the privilege to utilize, exploit, and develop the natural resources of this
country was granted, by Article XIII of the Constitution, to Filipino citizens or to corporations or associations
60% of the capital of which is owned by such citizens. With the Parity Amendment to the Constitution, the
same right was extended to citizens of the United States and business enterprises owned or controlled
directly or indirectly, by citizens of the United States.

Thus, is herein respondent SAN JOSE PETROLEUM an American business enterprise entitled to
parity rights in the Philippines? The answer must be in the negative, for the following reasons: Firstly — It is
not owned or controlled directly by citizens of the United States, because it is owned and controlled by a
corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation.

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Secondly — Neither can it be said that it is indirectly owned and controlled by American citizens
through the OIL INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of
the United States, but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and
PANCOASTAL PETROLEUM.

Thirdly — Although it is claimed that these two last corporations are owned and controlled
respectively by 12,373 and 9,979 stockholders residing in the different American states, there is no showing
in the certification furnished by respondent that the stockholders of PANCOASTAL or those of them holding
the controlling stock, are citizens of the United States.

Fourthly — Granting that these individual stockholders are American citizens, it is yet necessary to
establish that the different states of which they are citizens, allow Filipino citizens or corporations or
associations owned or controlled by Filipino citizens, to engage in the exploitation, etc. of the natural
resources of these states. Respondent has presented no proof to this effect.

Fifthly — But even if the requirements mentioned in the two immediately preceding paragraphs are
satisfied, nevertheless to hold that the set-up disclosed in this case, with a long chain of intervening foreign
corporations, comes within the purview of the Parity Amendment regarding business enterprises indirectly
owned or controlled by citizens of the United States, is to unduly stretch and strain the language and intent
of the law. For, to what extent must the word "indirectly" be carried? Must we trace the ownership or control
of these various corporations ad infinitum for the purpose of determining whether the American ownership-
control-requirement is satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and
PANCOASTAL which are allegedly owned or controlled directly by citizens of the United States, are traded
in the stock exchange in New York, and you have a situation where it becomes a practical impossibility to
determine at any given time, the citizenship of the controlling stock required by the law. In the
circumstances, we have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is
not a business enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the
Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.

As a conclusion, the parity rights agreement is not applicable to San Jose Oil Company, Inc. (SJO).
The parity rights are only granted to American business enterprises or enterprises directly or indirectly
controlled by US citizens. SJP is a Panamanian corporate citizen. The other owners of SJO are Venezuelan
corporations, not Americans. SJP was not able to show contrary evidence. Further, the stocks of these
corporations are being traded in stocks exchanges abroad which renders their foreign ownership subject to
change from time to time. This fact renders a practical impossibility to meet the requirements under the

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parity rights. Hence, the tie up between SJP and SJO is illegal, SJP not being a domestic corporation or an
American business enterprise contemplated under the Laurel-Langley Agreement

23 RE: Majority ownership of or dealings in shareholdings.

RUFINA LUY LIM, petitioner,


vs.
COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC.,
ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION COMPANY, INC.,
respondents.

G.R. No. 124715 January 24, 2000


BUENA, J.:
Facts:

`On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly
represented by her nephew George Luy, filed on 17 March 1995, a joint petition for the administration of the
estate of Pastor Y. Lim before the Regional Trial Court of Quezon City.

Private respondent corporations, whose properties were included in the inventory of the estate of
Pastor Y. Lim, then filed a motion for the lifting of lispendens and motion for exclusion of certain properties
from the estate of the decedent. On 04 September 1995, the probate court appointed Rufina Lim as special
administrator and Miguel Lim and Lawyer Donald Lee, as co-special administrators of the estate of Pastor Y.
Lim, after which letters of administration were accordingly issued. In an order dated 12 September 1995, the
probate court denied anew private respondents’ motion for exclusion.

Issue:

Whether or not a corporation, in its universality, be the proper subject of and be included in the
inventory of the estate of a deceased person.

Ruling:

No. Inasmuch as the real properties included in the inventory of the estate of the Late Pastor Y.
Lim are in the possession of and are registered in the name of private respondent corporations, which under
the law possess a personality separate and distinct from their stockholders, and in the absence of any
cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of
private respondents should stand undisturbed.

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Accordingly, the probate court was remiss in denying private respondents’ motion for exclusion.
While it may be true that the Regional Trial Court, acting in a restricted capacity and exercising limited
jurisdiction as a probate court, is competent to issue orders involving inclusion or exclusion of certain
properties in the inventory of the estate of the decedent, and to adjudge, albeit, provisionally the question of
title over properties, it is no less true that such authority conferred upon by law and reinforced by
jurisprudence, should be exercised judiciously, with due regard and caution to the peculiar circumstances of
each individual case.

Notwithstanding that the real properties were duly registered under the Torrens system in the name
of private respondents, and as such were to be afforded the presumptive conclusiveness of title, the probate
court obviously opted to shut its eyes to this gleamy fact and still proceeded to issue the impugned orders.

Moreover, petitioner urges that not only the properties of private respondent corporations are
properly part of the decedent’s estate but also the private respondent corporations themselves.

It is settled that a corporation is clothed with personality separate and distinct from that of the persons
composing it. It may not generally be held liable for that of the persons composing it. It may not be held
liable for the personal indebtedness of its stockholders or those of the entities connected with it.

Rudimentary is the rule that a corporation is invested by law with a personality distinct and
separate from its stockholders or members. In the same vein, a corporation by legal fiction and convenience
is an entity shielded by a protective mantle and imbued by law with a character alien to the persons
comprising it.

24 RE: Majority ownership of or dealings in shareholdings; Piercing the veil of corporate fiction .

ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners,


vs.
RITA C. MEJIA, as Executrix of Testate Estate of ANDREA CORDOVA VDA. DE GUTIERREZ,
respondent.
G.R. No. 141617 August 14, 2001
GONZAGA-REYES, J.
Facts:

Adalia Francisco was the Treasurer of Cardale Financing and Realty Corporation (Cardale).
Cardale, through Francisco, contracted with Andrea Gutierrez for the latter to execute a deed of sale over
certain parcels of land in favor of Cardale. It was agreed that Gutierrez shall hand over the titles to Cardale
but Cardale shall only give a downpayment, and later on full payment in installment. As security, Gutierrez

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shall retain a lien over the properties by way of mortgage. Nonetheless, Cardale defaulted in its payment.
Gutierrez then filed a petition with the trial court to have the Deed rescinded.

While the case was pending, Gutierrez died, and Rita Mejia, being the executrix of the will of
Gutierrez took over the affairs of the estate.

The case dragged on for 14 years because Francisco lost interest in presenting evidence. And
while the case was pending, Cardale failed to pay real estate taxes over the properties in litigation hence,
the local government subjected said properties to an auction sale to satisfy the tax arrears. The highest
bidder in the auction sale was Merryland Development Corporation (Merryland).

Apparently, Merryland is a corporation in which Francisco was the President and majority
stockholder. Mejia then sought to nullify the auction sale on the ground that Francisco used the two
corporations as dummies to defraud the estate of Gutierrez especially so that these circumstances are
present:

1. Francisco did not inform the lower court that the properties were delinquent in taxes; 2.
That there was notice for an auction sale and Francisco did not inform the Gutierrez estate and as such, the
estate was not able to perform appropriate acts to remedy the same; 3.That without knowledge of the
auction, the Gutierrez estate cannot exercise their right of redemption; 4.That Francisco failed to inform the
court that the highest bidder in the auction sale was Merryland, her other company; 5.That thereafter,
Cardale was dissolved and the subject properties were divided and sold to other people.

Issue:

Whether or not Merryland and Francisco shall be held solidarily liable.

Ruling:

No. 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. 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,

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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. The Court, after an assiduous study of
this case, is convinced that the totality of the circumstances appertaining conduce to the inevitable
conclusion that petitioner Francisco acted in bad faith.

It is exceedingly apparent to the Court that the totality of Franciso’s actions clearly betray an
intention to conceal the tax delinquencies, levy and public auction of the subject properties from the estate
of Gutierrez and the trial court in Civil Case No. Q-12366 until after the expiration of the redemption period
when the remotest possibility for the recovery of the properties would be extinguished.

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 Merrylandsolidarily 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.

25 RE: Dealings between the Corporation and stockholders; Piercing the veil of corporate fiction.

ARB CONSTRUCTION CO., INC., and MARK MOLINA, petitioners,


vs.
COURT OF APPEALS, TBS SECURITY AND INVESTIGATION AGENCY represented by CECILIA
R. BACLAY, respondents.
G.R. No. 126554. May 31, 2000
BELLOSILLO, J.:

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Facts:

In 1993, ARB Construction Co., Inc. (ARB) entered into a contract with TBS Security and
Investigation Agency (TBS) for the latter to provide security guards to guard the premises of ARB. But in
1994, while the contract is still subsisting, ARB, through its Vice President for Operations Mark Molina,
preterminated the contract because it alleged that the TBS guards were grossly negligent and inefficient.
TBS opposed the same. ARB reconsidered but it removed all other TBS guards except for one. ARB,
through Molina, also withheld payroll payments to TBS as it alleged that due to the negligence of the
guards, the premises of ARB incurred losses through burglary that happened while the guards were on duty.
TBS filed an injunction case against ARB. It later amended said complaint to include claims for damages
against ARB as well as against Molina in his personal capacity as it was alleged that Molina concocted
some of these facts.

Issue:

Whether or not Private respondent Molina may be held liable in his personal capacity as Vice
President for Operations of Petitioner Corporation.

Ruling:

No. It is basic that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it as well as from that of any other legal entity to which it may be related. As
a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of
the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be
pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not
have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud,
or defend crime; or to perpetuate deception; or as an alter ego, adjunct or business conduit for the sole
benefit of the stockholders.

Prescinding from the foregoing, the general rule is that officers of a corporation are not personally
liable for their official acts unless it is shown that they have exceeded their authority.

On the basis hereof, petitioner Molina could not be held jointly and severally liable for any
obligation which petitioner ARBC may be held accountable for, absent any proof of bad faith or malice on his
part. Corollarily, it is also incorrect on the part of the Court of Appeals to conclude that there was a sufficient
cause of action against Molina as to make him personally liable for his actuations as Vice President for
Operations of ARBC. A cursory reading of the records of the instant case would reveal that Molina did not

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summarily withhold certain amounts from the payroll of TBSS. Instead, he enumerated instances which in
his view were enough bases to do so.

26 Re: Nature of the Piercing Doctrine

TRADERS ROYAL BANK, petitioner,


vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL
BANK of the PHILIPPINES, respondent
G.R. No. 93397 March 3, 1997
TORRES, JR., J.:
Facts:

Filriters Guaranty Assurance Corporation (FGAC) is the owner of several Central Bank Certificates
of Indebtedness (CBCI). These certificates are actually proof that FGAC has the required reserve
investment with the Central Bank to operate as an insurer and to protect third persons from whatever
liabilities FGAC may incur. In 1979, FGAC agreed to assign said CBCI to Philippine Underwriters Finance
Corporation (PUFC). Later, PUFC sold said CBCI to Traders Royal Bank (TRB). Said sale with TRB comes
with a right to repurchase on a date certain. However, when the day to repurchase arrived, PUFC failed to
repurchase said CBCI hence TRB requested the Central Bank to have said CBCI be registered in TRB’s
name. Central Bank refused as it alleged that the CBCI are not negotiable; that as such, the transfer from
FGAC to PUFC is not valid; that since it was invalid, PUFC acquired no valid title over the CBCI; that the
subsequent transfer from PUFC to TRB is likewise invalid.

TRB then filed a petition for mandamus to compel the Central Bank to register said CBCI in TRB’s
name. TRB averred that PUFC is the alter ego of FGAC; that PUFC owns 90% of FGAC; that the two
corporations have identical sets of directors; that payment of said CBCI to PUFC is like a payment to FGAC
hence the sale between PUFC and TRB is valid. In short, TRB avers that that the veil of corporate fiction,
between PUFC and FGAC, should be pierced because the two corporations allegedly used their separate
identity to defraud TRD into buying said CBCI.

Issue:

Whether or not Traders Royal Bank is correct.

Ruling:

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No. Piercing the veil of corporate entity requires the court to see through the protective shroud
which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguished one
corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the
court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime
was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of
innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine.The
corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the
contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one
shall be maintained as to the other, there is nothing else which could lead the court under circumstance to
disregard their corporate personalities.Traders Royal Bank failed to show that the corporate fiction is used
by the two corporations to defeat public convenience, justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a person. TRB merely showed that PUFC owns 90%
of FGAC and that their directors are the same. The identity of PUFC can’t be maintained as that of FGAC
because of this mere fact; there is nothing else which could lead the court under the circumstance to
disregard their corporate personalities. Further, TRB can’t argue that it was defrauded into buying those
certificates. In the first place, TRB as a banking institution is not ignorant about these types of transactions.
It should know for a fact that a certificate of indebtedness is not negotiable because the payee therein is
inscribed specifically and that the Central Bank is obliged to pay the named payee only and no one else.

27 Re: When Piercing Doctrine Not Applicable

BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO,


BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA and SANTIAGO M.
RIVERA, petitioners,
vs.
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS
MANUFACTURING CO., INC.,respondents.
G.R. No. 89561 September 13, 1990
REGALADO, J.:
Facts:

Mauricia Castillo was the administratrix in charge over a parcel of land left be Felipe Castillo. Said
land was mortgaged to the Development Bank of the Philippines and was about to be foreclosed but then
Mauricia’s nephew, Santiago Rivera, proposed that they convert the land into 4 subdivisions so that they
can raise the necessary money to avoid foreclosure. Mauricia agreed. Rivera sought to develop said land
through his company, Slobec Realty Corporation (SRC), of which he was also the president. SRC then
contracted with Bormaheco, Inc. for the purchase of one tractor. Bormaheco agreed to sell the tractor on an

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installment basis. At the same time, SRC mortgaged said tractor to Bormaheco as security just in case SRC
will default. As additional security, Mauricia and other family members executed a surety agreement
whereby in case of default in paying said tractor, the Insurance Corporation of the Philippines (ICP) shall
pay the balance. The surety bond agreement between Mauricia and ICP was secured by Mauricia’s parcel
of land (same land to be developed).

SRC defaulted in paying said tractor. Bormaheco foreclosed the tractor but it wasn’t enough hence
ICP paid the deficiency. ICP then foreclosed the property of Mauricia. ICP later sold said property to
Philippine Machinery Parts Manufacturing Corporation (PMPMC). PMPMC then demanded Mauricia et al to
vacate the premises of said property.

While all this was going on, Mauricia died. Her successor-administratrix, Buenaflor Umali,
questioned the foreclosure made by ICP. Umali alleged that all the transactions are void and simulated
hence they were defrauded; that through Bormaheco’s machinations, Mauricia was fooled into entering into
a surety agreement with ICP; that Bormaheco even made the premium payments to ICP for said surety
bond; that the president of Bormaheco is a director of PMPMC; that the counsel who assisted in all the
transactions, Atty. Martin De Guzman, was the legal counsel of ICP, Bormaheco, and PMPMC.

Issue:

Whether or not the veil of corporate fiction should be pierced.

Ruling:

No. There is no clear showing of fraud in this case. The mere fact that Bormaheco paid said
premium payments to ICP does not constitute fraud per se. As it turned out, Bormaheco is an agent of ICP.
SRC, through Rivera, agreed that part of the payment of the mortgage shall be paid for the insurance.
Naturally, when Rivera was paying some portions of the mortgage to Bormaheco, Bormaheco is applying
some parts thereof for the payment of the premium – and this was agreed upon beforehand. Further,
piercing the veil of corporate fiction is not the proper remedy in order that the foreclosure conducted by ICP
be declared a nullity. The nullity may be attacked directly without disregarding the separate identity of the
corporations involved. Further still, Umali et al are not enforcing a claim against the individual members of
the corporations. They are not claiming said members to be liable. Umali et al are merely questioning the
validity of the foreclosure.

The veil of corporate fiction can’t be pierced also by the simple reason that the businesses of two
or more corporations are interrelated, absent sufficient showing that the corporate entity was purposely used

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as a shield to defraud creditors and third persons of their rights. In this case, there is no justification for
disregarding their separate personalities.

28 Re: When Piercing Doctrine Not Applicable

FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES


GREGORIO and LIBRADA MANUEL, respondents.
G.R. No. 100812. June 25, 1999
QUISUMBING, J.:
Facts:

In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to recover from a him a
sum of money in the amount of P23,000.00+. Said amount was allegedly owed to them by Manuel for the
purchase of a jeep body plus repairs thereto. Manuel filed a counterclaim in the amount of P50,000.00. In
his counterclaim, Manuel alleged that he was the Assistant Legal Officer for FMC; that the Francisco Family,
owners of FMC, engaged his services for the intestate estate proceedings of one Benita Trinidad; that he
was not paid for his legal services; that he is filing the counterclaim against FMC because said corporation
was merely a conduit of the Francisco Family. The trial court as well as the Court of Appeals granted
Manuel’s counterclaim on the ground that the legal fees were owed by the incorporators of FMC (an
application of the doctrine of piercing the veil of corporation fiction in a reversed manner).

Issue:

Whether or not the doctrine of piercing the veil of corporate fiction was properly used by the Court
of Appeals.

Ruling:

No. 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

53 | P a g e
those cited instances, for reasons of public policy and in the interest of justice, will be justifiably set aside.
However, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no
relevant application here. In the first place, the doctrine is to be used in disregarding corporate fiction and
making the incorporators liable in appropriate circumstances. In the case at bar, the doctrine is applied
upside down where the corporation is held liable for the personal obligations of the incorporators – such was
uncalled for and erroneous. It must be noted that that Atty. Manuel’s legal services were secured by the
Francisco Family to represent them in the intestate proceedings over Benita Trinidad’s estate. The
indebtedness was incurred by the Francisco Family in their separate and personal capacity. These estate
proceedings did not involve any business of FMC. The proper remedy is for Manuel to sue the concerned
members of the Francisco Family in their individual capacity.

29 Re: When Piercing Doctrine Not Applicable

LUXURIA HOMES, INC., and/or AIDA M. POSADAS, petitioners,


vs.
HONORABLE COURT OF APPEALS, JAMES BUILDER CONSTRUCTION and/or JAIME T.
BRAVO, respondents.
G.R. No. 125986. January 28, 1999
MARTINEZ, J.:
Facts:

Aida Posadas was the owner of a 1.6 hectare land in Sucat, Muntinlupa. In 1989, she entered into
an agreement with Jaime Bravo for the latter to draft a development and architectural design for the said
property. The contract price was P450,000.00. Posadas gave a down payment of P25,000.00. Later,
Posadas assigned her property to Luxuria Homes, Inc. One of the witnesses to the deed of assignment and
articles of incorporation was Jaime Bravo.

In 1992, Bravo finished the architectural design so he proposed that he and his company manage
the development of the property. But Posadas turned down the proposal and thereafter the business
relationship between the two went sour. Bravo then demanded Posadas to pay them the balance of their
agreement as regards the architectural design (P425k). Bravo also demanded payment for some other
expenses and fees he incurred i.e., negotiating and relocating the informal settlers then occupying the land
of Posadas. Posadas refused to make payment. Bravo then filed a complaint for specific performance
against Posadas but he included Luxuria Homes as a co-defendant as he alleged that Luxuria Homes was a
mere conduit of Posadas; that the said corporation was created in order to defraud Bravo and avoid the
payment of debt.

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Issue:

Whether or not Luxuria Homes should be impleaded.

Ruling:

No. It was Posadas who entered into a contract with Bravo in her personal capacity. Bravo was not
able to prove that Luxuria Homes was a mere conduit of Posadas. Posadas owns just 33% of Luxuria
Homes. Further, when Luxuria Homes was created, Bravo was there as a witness. So how can he claim that
the creation of said corporation was to defraud him. The eventual transfer of Posadas’ property to Luxuria
was with the full knowledge of Bravo. The agreement between Posadas and Bravo was entered into even
before Luxuria existed hence Luxuria was never a party thereto. Whatever liability Posadas incurred arising
from said agreement must be borne by her solely and not in solidum with Luxuria. To disregard the separate
juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot
be presumed. The separate personality of the corporation may be disregarded only when the corporation is
used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary for the protection of
the creditors. Obviously in the instant case, private respondents failed to show proof that petitioner Posadas
acted in bad faith. Consequently since private respondents failed to show that petitioner Luxuria Homes,
Inc., was a party to any of the supposed transactions, not even to the agreement to negotiate with and
relocate the squatters, it cannot be held liable, nay jointly and in solidum, to pay private respondents. In this
case since it was petitioner Aida M. Posadas who contracted respondent Bravo to render the subject
services, only she is liable to pay the amounts adjudged herein.

30 Re: When Piercing Doctrine Not Applicable

Adelio O. Cruz, petitioner,


vs.
Quiterio L. Dalisay, Deputy Sheriff, RTC, Manila, respondent
Adm. Matter No. R-181-P July 31, 1987
FERNAN,J.:
Facts:

In 1984, the National Labor Relations Commission issued an order against Qualitrans Limousine
Service, Inc. (QLSI) ordering the latter to reinstate the employees it terminated and to pay them backwages.
QuiterioDalisay, Deputy Sheriff of the court, to satisfy the backwages, then garnished the bank account of
Adelio Cruz. Dalisay justified his act by averring that Cruz was the owner and president of QLSI.
respondentDalisay explained that when he garnished complainant’s cash deposit at the Philtrust bank, he

55 | P a g e
was merely performing a ministerial duty. While it is true that said writ was addressed to Qualitrans
Limousine Service, Inc., yet it is also a fact that complainant had executed an affidavit before the Pasay City
assistant fiscal stating that he is the owner/president of said corporation and, because of that declaration,
the counsel for the plaintiff in the labor case advised him to serve notice of garnishment on the Philtrust
bank. Prior to the termination of the proceedings, however, complainant executed an affidavit of desistance
stating that he is no longer interested in prosecuting the case against respondent Dalisay and that it was just
a “misunderstanding” between them.

Issue:

Whether or not the action of Dalisay is correct.

Ruling:

No. What Dalisay did is tantamount to piercing the veil of corporate fiction. He actually usurped the power of
the court. He also overstepped his duty as a deputy sheriff. His duty is merely ministerial and it is incumbent
upon him to execute the decision of the court according to its tenor and only against the persons obliged to
comply. In this case, the person judicially named to comply was QLSI and not Cruz. It is a well-settled
doctrine both in law and in equity that as a legal entity, a corporation has a personality distinct and separate
from its individual stockholders or members. The mere fact that one is president of a corporation does not
render the property he owns or possesses the property of the corporation, since the president, as individual,
and the corporation are separate entities. Respondent’s actuation in enforcing a judgment against
complainant who is not the judgment debtor in the case calls for disciplinary action. Considering the
ministerial nature of his duty in enforcing writs of execution, what is incumbent upon him is to ensure that
only that portion of a decision ordained or decreed in the dispositive part should be the subject of execution.
No more, no less. That the title of the case specifically names complainant as one of the respondents is of
no moment as execution must conform to that directed in the dispositive portion and not in the title of the
case. It has been held that the desistance of complainant does not preclude the taking of disciplinary action
against respondent. Neither does it dissuade the Court from imposing the appropriate corrective sanction.
One who holds a public position, especially an office directly connected with the administration of justice and
the execution of judgments, must at all times be free from the appearance of impropriety.

31 Re: PRINCIPLE OF CORPORATE FICTION

EMILIO CANO ENTERPRISES, INC., petitioner,


vs.

56 | P a g e
COURT OF INDUSTRIAL RELATIONS, ET AL., respondents
G.R. No. L-20502 February 26, 1965
BAUTISTA ANGELO, J.:
Facts:

Honorata Cruz was terminated by Emilio Cano Enterprises, Inc. (ECEI). She then filed a complaint
for unfair labor practice against Emilio Cano, in his capacity as president and proprietor, and Rodolfo Cano,
in his capacity as manager. Cruz won and the Court of Industrial Relations (CIR) ordered the Canos to
reinstate Cruz plus pay her backwages with interest. The Canos appealed to the CIR en banc but while on
appeal Emilio died. The Canos lost on appeal and an order of execution was levied against ECEI’s property.
ECEI filed an ex parte motion to quash the writ as ECEI avers that it is a corporation with a separate and
distinct personality from the Canos. Their motion was denied and ECEI filed a petition for certiorari with the
Supreme Court.

Issue:

Whether or not the judgment of the Court of Industrial Relations is correct.

Ruling:

Yes. This is an instance where the corporation and its members can be considered as one. ECEI is
a close family corporation – the incorporators are members of the Cano family. Further, the Canos were
sued in their capacity as officers of ECEI not in their private capacity. Having been sued officially their
connection with the case must be deemed to be impressed with the representation of the corporation. The
judgment against the Canos has a direct bearing to ECEI. Verily, the order against them is in effect against
the corporation. Further still, even if this technicality be strictly observed, what will simply happen is for this
case to be remanded, change the name of the party, but the judgment will still be the same – there can be
no real benefit and will only subversive to the ends of justice. In this case, to hold ECEI liable is not to ignore
the legal fiction but merely to give meaning to the principle that such fiction cannot be invoked if its purpose
is to use it as a shield to further an end subversive of justice.

32 Re: Government Owned and Controlled Corporation vs Private Corporation

BALTAZAR G. CAMPOREDONDO
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC), Fifth Division, Cagayan de Oro City, THE
PHILIPPINE NATIONAL RED CROSS (PNRC), represented by GOVERNOR ROMEO C. ESPINO
and DR. CELSO SAMSON

57 | P a g e
G.R. No. 129049 August 6, 1999
PARDO, J.:
Facts:

BaltazarCamporedondo was the administrator of the SurigaodelNorte chapter of the Philippine


National Red Cross (PNRC). In 1995, a PNRC auditor found out that Baltazar had unremitted collections
amounting to P109,000.00. Baltazar, unable to restitute said missing amount, then filed for early retirement.
He later filed a complaint for illegal dismissal against PNRC. He filed the case with the National Labor
Relations Commission (NLRC). He averred that he was forced to retire because of the erroneous audit. The
Labor Arbiter, affirmed by the NLRC, ruled that it has no jurisdiction over the case because PNRC is a
government owned and controlled corporation (GOCC). Baltazar however argues that PNRC impliedly
became a private corporation when its charter was amended to give it authority to secure loans, etc.

Issue:

Whether or not the Philippine National Red Cross is a private corporation.

Ruling:

No. The simple test is to find out whether or not a corporation is public or private is to determine if it
has its own charter for the exercise of a public function or was it incorporated under the general corporation
law. PNRC has its own charter (R.A. 95). Its subsequent amendment did not convert it into a private
corporation. As a GOCC, it is subject to its own charter and its employees are under the jurisdiction of the
Civil Service Commission, and are compulsory members of the Government Service Insurance System.

33 Re: Cooperatives are Treated as Corporations

BENGUET ELECTRIC COOPERATIVE, INC., petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, PETER COSALAN and BOARD OF DIRECTORS
OF BENGUET ELECTRIC COOPERATIVE, INC., respondents.
G.R. No. 89070 May 18, 1992
FELICIANO, J.:
Facts:

In 1982, Peter Cosalan, then general manager of the Benguet Electric Cooperative (BENECO),
received an audit report from the National Electrification Administration (NEA). The said audit advised
Cosalan of certain irregularities in the management of the funds of BENECO. Cosalan then sought to
address the issue by introducing reforms recommended by the NEA as well as by the auditing body,

58 | P a g e
Commission on Audit. However, the Board Members of BENECO reacted to these reforms by issuing a
series of resolutions which first reduced Cosalan’s salary and allowances, then he was excluded from his
work, and eventually, he was suspended indefinitely.

Cosalan then filed a complaint for illegal dismissal against the BENECO Board Members, he later
impleaded BENECO itself. The Labor Arbiter (LA) ruled in favor of Cosalan. The National Labor Relations
Commission (NLRC) affirmed the decision of the LA but modified it so as to absolve the Board Members
from liability as it held that the Board Members merely acted in their official capacity. BENECO, being the
only party adjudged to be liable, then appealed said decision.

Issue:

Whether or not BENECO can be treated as a corporation.

Ruling:

Yes. The act of the Board Members is ultra vires. There was no legal basis for them to suspend
Cosalanindefinitely for under the Implementing Rules of the Labor Code the maximum period form
preventive suspension should not go beyond 30 days. Further, it was found that Cosalan was never
informed of the charges against him nor was he afforded the opportunity to present his case. He was
deprived of due process. Nor was Cosalan’s suspension approved by the NEA, which is also required for
due process purposes.

These acts by the Board Members are tainted with bad faith. A very strong presumption arises that
the Board Members are acting in reprisal against the reforms sought to be introduced by Cosalan in order to
address the irregularities within BENECO. The Board Members are therefore liable for damages under
Section 31 of the Corporation Code. And even though BENECO is a cooperative, it is still covered by the
Corporation Code because under PD 269, cooperatives are considered as corporations.

The Supreme Court ruled that BENECO and the BENECO Board Members are liable for the
damages caused against Cosalan. However BENECO can seek reimbursement from the Board Members
so as not to unduly penalize the innocent members of BENECO.

34 Re: Right of a corporation to own parcel of land in the Philippines

59 | P a g e
REPUBLIC OF THE PHILIPPINES (Director of Lands), petitioner,
vs.
IGLESIA NI CRISTO and JUDGE DOMINGO M. ANGELES, Branch I, Court of First Instance of
CamarinesNorte, respondents.
G.R. No. L-61145 February 20, 1984
AQUINO, J.:
Facts:

In 1955 and 1973, the Iglesiani Cristo (INC) purchased two parcels of land in CamarinesNorte. In
1976, INC filed an application for confirmation of title over said parcels of land. The Director of Lands
opposed the application. The Iglesianicristo and its predecessors claimed to have actual, public, peaceful,
continuous and uninterrupted possession of the two lots in the concept of an owner for more than 30 years
preceding the filing of the application. No realty taxes were paid by the INC because it is an exempt
corporation.

Issue:

Whether or not the Iglesiani Cristo may register land under its name.

Ruling:

No. The Iglesia in Cristo is not a Filipino Citizen. The lands in question are still public lands
registered. Moreover, under the aforecited section 11 of Article XIV, it I disqualified as a corporation to hold
lands o the public domain except by lease.Under the Public Land Law, only Filipino citizens are entitled to
register alienable public lands. A corporation, even a corporation sole like the INC (solely incorporated by
one man, Eraño Manalo, a Filipino citizen), is disqualified from registering public land under its name. It can
only hold alienable public land through lease. It cannot even register said lands under its name as a trustee.
The INC in its brief has not shown that it is not covered by the said constitutional and statutory provisions.
Its statement that it “is not a religious corporation” when it filed its application is belied by the facts. It
contends that it is entitled to register the lands as a trustee. This contention is erroneous.

35 Re: Jurisdiction over employees of GOCC’s

BOY SCOUTS OF THE PHILIPPINES, petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, FORTUNATO ESGUERRA, ROBERTO
MALABORBOR, ESTANISLAO MISA, VICENTE EVANGELISTA, and MARCELINO GARCIA,
respondents.
G.R. No. 80767 April 22, 1911
FELICIANO, J.:

60 | P a g e
Facts:

Private respondents Fortunato C. Esquerra, Roberto O. Malaborbor, Estanislao M. Misa, Vicente N.


Evangelista and Marcelino P. Garcia, had all been rank-and-file employees of petitioner Boy Scouts of the
Philippines ("BSP"). At the time of termination of their services in February 1985, private respondents were
stationed at the BSP Camp in Makiling, Los Baños, Laguna. On 6 November 1984, petitioner BSP
conducted a pre-transfer briefing at its National Headquarters in Manila. Private respondents were in
attendance during the briefing and they were there assured that their transfer to Davao del Norte would not
involve any diminution in salary, and that each of them would receive a relocation allowance equivalent to
one (1) month's basic pay. This assurance, however, failed to persuade private respondents to abandon
their opposition to the transfer orders issued by the BSP Secretary-General On 21 November 1984 (or the
day immediately following the date of scheduled transfer), the BSP Camp Manager in Makiling issued a
Memorandum requiring the five (5) private respondents to explain why they should not be charged
administratively for insubordination. The Memorandum was a direct result of the refusal by private
respondents, two (2) days earlier, to accept from petitioner BSP their respective boat tickets to Davao del
Norte and their relocation allowances. Petitioner BSP consequently imposed a five-day suspension on the
five (5) private respondents, in the latter part of January 1985.

Subsequently, by Special Order dated 12 February 1985 issued by the BSP Secretary-General,
private respondents' services were ordered terminated effective 15 February 1985. On 22 February 1985,
private respondents amended their original complaint to include charges of illegal dismissal and unfair labor
practice against petitioner BSP.

Issues:

1. Whether or not BSP is a government owned and controlled corporation.

2. Whether or not private respondent NLRC had jurisdiction to render the Decision and
Resolution

Ruling:

1. Yes. While the BSP may be seen to be a mixed type of entity, combining aspects of both public and
private entities, the Court ruled that considering the character of its purposes and its functions, the statutory
designation of the BSP as "a public corporation" and the substantial participation of the Government in the
selection of members of the National Executive Board of the BSP, the BSP, as presently constituted under
its charter, is a government-controlled corporation within the meaning of Article IX. (B) (2) (1) of the

61 | P a g e
Constitution. BSP is appropriately regarded as "a government instrumentality" under the 1987
Administrative Code.

2. No.BSP may be regarded as both a "government controlled corporation with an original charter"
and as an "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution.
It follows that the employees of petitioner BSP are embraced within the Civil Service and are accordingly
governed by the Civil Service Law and Regulations. There should no longer be any question at this time that
employees of government-owned or controlled corporations are governed by the civil service law and civil
service rules and regulations.

Both the Labor Arbiter and public respondent NLRC had no jurisdiction over the complaint filed by
private respondents in NLRC Case No. 1637-84; neither labor agency had before it any matter which could
validly have been passed upon by it in the exercise of original or appellate jurisdiction. The appealed
Decision and Resolution in this case, having been rendered without jurisdiction, vested no rights and
imposed no liabilities upon any of the parties here involved. That neither party had expressly raised the
issue of jurisdiction in the pleadings poses no obstacle to this ruling of the Court, which may motuproprio
take cognizance of the issue of existence or absence of jurisdiction and pass upon the same.

36 Re: Government Controlled Corporations

CENON S. CERVANTES, petitioner,


vs.
THE AUDITOR GENERAL, respondent.
G.R. No. L-4043 May 26, 1951
REYES, J.:
Facts:

Petitioner was in 1949 the manager of the NAFCO with a salary of P15,000 a year. By a resolution
of the Board of Directors of this corporation approved on January 19 of that year, he was granted quarters
allowance of not exceeding P400 a month effective the first of that month. Submitted the Control Committee
of the Government Enterprises Council for approval, the said resolution was on August 3, 1949, disapproved
by the said Committee on strenght of the recommendation of the NAFCO auditor, concurred in by the
Auditor General, (1) that quarters allowance constituted additional compensation prohibited by the charter of
the NAFCO, which fixes the salary of the general manager thereof at the sum not to exceed P15,000 a year,
and (2) that the precarious financial condition of the corporation did not warrant the granting of such
allowance.

62 | P a g e
On March 16, 1949, the petitioner asked the Control Committee to reconsider its action and
approve his claim for allowance for January to June 15, 1949, amounting to P1,650. The claim was again
referred by the Control Committee to the auditor General for comment. The latter, in turn referred it to the
NAFCO auditor, who reaffirmed his previous recommendation and emphasized that the fact that the
corporation's finances had not improved. In view of this, the auditor General also reiterated his previous
opinion against the granting of the petitioner's claim and so informed both the Control Committee and the
petitioner. But as the petitioner insisted on his claim the Auditor General Informed him on June 19, 1950, of
his refusal to modify his decision. Hence this petition for review.

Issue:

Whether or not NAFCO is Government controlled corporation subject to the provisions of Republic
Act No. 51 and the executive order No. 93

Ruling:

Yes. With its controlling stock owned by the Government and the power of appointing its directors
vested in the President of the Philippines, there can be no question that the NAFCO is Government
controlled corporation subject to the provisions of Republic Act No. 51 and the executive order No. 93
promulgated in accordance therewith. Consequently, it was also subject to the powers of the Control
Committee created in said executive order, among which is the power of supervision for the purpose of
insuring efficiency and economy in the operations of the corporation and also the power to pass upon the
program of activities and the yearly budget of expenditures approved by the board of directors. It can hardly
be questioned that under these powers the Control Committee had the right to pass upon, and consequently
to approve or disapprove, the resolution of the NAFCO board of directors granting quarters allowance to the
petitioners as such allowance necessarily constitute an item of expenditure in the corporation's budget. That
the Control Committee had good grounds for disapproving the resolution is also clear, for, as pointed out by
the Auditor General and the NAFCO auditor, the granting of the allowance amounted to an illegal increase of
petitioner's salary beyond the limit fixed in the corporate charter and was furthermore not justified by the
precarious financial condition of the corporation.

37 Re: Jurisdiction over GOCCs and their subsidiaries in labor cases

PNOC-ENERGY DEVELOPMENT CORPORATION, petitioner,


vs.

63 | P a g e
NATIONAL LABOR RELATIONS COMMISSION (Third Division) and DANILO MERCADO,
respondents.
G.R. No. 79182 September 11, 1991
PARAS, J.:
Facts:

In June 1985, Danilo Mercado was dismissed by PNOC-Energy Development Corporation (PNOC-
EDC) due to serious acts of dishonesty allegedly committed by Mercado. Mercado then filed a complaint for
illegal dismissal against PNOC-EDC. PNOC-EDC filed a motion to dismiss on the ground that the Labor
arbiter and/or the National Labor Relations Commission (NLRC) has no jurisdiction over PNOC-EDC
because it is a subsidiary of the Philippine National Oil Company (PNOC), a government owned or
controlled corporation, and as a subsidiary, it is also a GOCC and as such, the proper forum for Mercado’s
suit is the Civil Service Commission.

Issue:

Whether or not PBOC-EDC is correct.

Ruling:

No. The issue in this case has been decided already in the case of PNOC-EDC vsLeogardo. It is
true that PNOC is a GOCC and that PNOC-EDC, being a subsidiary of PNOC, is likewise a GOCC. It is also
true that under the 1973 Constitution, all GOCCs are under the jurisdiction of the CSC. However, the 1987
Constitution change all this as it now provides: The Civil Service embraces all branches, subdivisions,
instrumentalities and agencies of the Government,including government-owned or controlled corporations
with original charters. (Article IX-B, Section 2 [1]) Hence, the above provision sets the rule that the mere fact
that a corporation is a GOCC does not automatically place it under the CSC. Under this provision, the test in
determining whether a GOCC is subject to the Civil Service Law is the manner of its creation such that
government corporations created by special charter are subject to its provisions while those incorporated
under the general Corporation Law are not within its coverage.

In the case at bar, PNOC-EDC, even though it is a GOCC, was incorporated under the general
Corporation Law – it does not have its own charter, hence, it is under the jurisdiction of the MOLE. Even
though the facts of this case occurred while the 1973 Constitution was still in force, the provisions of the
1987 Constitution regarding the legal matters [procedural aspect] are applicable because it is the law in
force at the time of the decision.

64 | P a g e
38 Re: Alter-Ego Case

ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA BARING,
petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
G.R. No. 134559 December 9, 1999
PANGANIBAN, J.:
Facts:

In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement with
Manuel Torres. Under the agreement, the sisters agreed to execute a deed of sale in favor Manuel over a
parcel of land, the sisters received no cash payment from Manuel but the promise of profits (60% for the
sisters and 40% for Manuel) – said parcel of land is to be developed as a subdivision.

Manuel then had the title of the land transferred in his name and he subsequently mortgaged the
property. He used the proceeds from the mortgage to start building roads, curbs and gutters. Manuel also
contracted an engineering firm for the building of housing units. But due to adverse claims in the land,
prospective buyers were scared off and the subdivision project eventually failed. The sisters then filed a civil
case against Manuel for damages equivalent to 60% of the value of the property, which according to the
sisters, is what’s due them as per the contract.

The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court. The
sisters then appealed before the Supreme Court where they argued that there is no partnership between
them and Manuel because the joint venture agreement is void.

Issue:

Whether or not there exists a partnership.

Ruling:

Yes. The joint venture agreement the sisters entered into with Manuel is a partnership agreement
whereby they agreed to contribute property (their land) which was to be developed as a subdivision. While
on the other hand, though Manuel did not contribute capital, he is an industrial partner for his contribution for
general expenses and other costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage (60-40). Clearly, the contract manifested the intention of the parties
to form a partnership. Further still, the sisters cannot invoke their right to the 60% value of the property and
at the same time deny the same contract which entitles them to it.

65 | P a g e
At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be blamed to
Manuel (the sisters on their appeal did not show evidence as to Manuel’s fault in the failure of the
partnership). The sisters must then bear their loss (which is 60%). Manuel does not bear the loss of the
other 40% because as an industrial partner he is exempt from losses.

39 Re: Alter-Ego Case

Tan Boon Bee & Co., Inc..petitioner


vs.
THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH XVIII of the
Court of First Instance of Manila, GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN
DRUG COMPANY,respondents.
G.R. No. L-41337 June 30, 1988
PARAS, J.:
Facts:

In 1972, Anchor Supply Co. (ASC), through Tan Boon Bee, entered into a contract of sale with
Graphic Publishing Inc. (GPI) whereby ASC shall deliver paper products to GPI. GPI paid a down payment
but defaulted in paying the rest despite demand from ASC. ASC sued GPI and ASC won. To satisfy the
indebtedness, the trial court, presided by Judge HilarionJarencio, ordered that one of the printing machines
of GPI be auctioned. But before the auction can be had, Philippine American Drug Company (PADCO)
notified the sheriff that PADCO is the actual owner of said printing machine. Notwithstanding, the sheriff still
went on with the auction sale where Tan Boon Bee was the highest bidder.

Later, PADCO filed with the same court a motion to nullify the sale on execution. The trial court
ruled in favor of PADCO and it nullified said auction sale. Tan Boon Bee assailed the order of the trial court.
Tan Boon Bee averred that PADCO holds 50% of GPI; that the board of directors of PADCO and GPI is the
same; that the veil of corporate fiction should be pierced based on the premises. PADCO on the other hand
asserts ownership over the said printing machine; that it is merely leasing it to GPI.

Issue:

Whether or not the veil of corporate fiction should be pierced.

Ruling:

Yes. It is true that a corporation, upon coming into being, is invested by law with a personality
separate and distinct from that of the persons composing it as well as from any other legal entity to which it
may be related . However, this separate and distinct personality is merely a fiction created by law for

66 | P a g e
convenience and to promote justice. Accordingly, this separate personality of the corporation may be
disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for fraud or
illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection
of creditors. Corporations are composed of natural persons and the legal fiction of a separate corporate
personality is not a shield for the commission of injustice and inequity. PADCO, as its name suggests, is a
drug company not engaged in the printing business. So it is dubious that it really owns the said printing
machine regardless of PADCO’s title over it. Further, the printing machine, as shown by evidence, has been
in GPI’s premises even before the date when PADCO alleged that it acquired ownership thereof. Premises
considered the veil of corporate fiction should be pierced; PADCO and GPI should be considered as one.
When a corporation is merely an adjunct, business conduit or alter ego of another corporation the fiction of
separate and distinct corporation entities should be disregarded.

40 Re: Fraud Case

NATIONAL MARKETING CORPORATION (NAMARCO), plaintiff-appellant,vs.


ASSOCIATED FINANCE COMPANY, INC., and FRANCISCO SYCIP, defendants.
FRANCISCO SYCIP, defendant-appellee.
G.R. No. L-20886 April 27, 1967
DIZON, J.:
Facts:

In 1958, National Marketing Corporation (NAMARCO) entered into an agreement with Associated
Finance Company, Inc. (AFCI). NAMARCO was represented by its general manager Benjamin Estrella.
AFCI was represented by its president Francisco Sycip. The agreement was that NAMARCO will deliver raw
sugar to AFCI. In exchange, AFCI will deliver refined sugar to NAMARCO. NAMARCO delivered the raw
sugar but AFCI failed to comply with its obligation. NAMARCO then demanded AFCI to comply or if not pay
the amount of the raw sugar delivered which was at P403, 514.28. AFCI was not able to do either hence
NAMARCO sued AFCI andSycip was impleaded.

Issue:

Whether or not Sycip should be held jointly and severally liable with Associated Finance Company,
Inc.

Ruling:

67 | P a g e
Yes. The facts, fully established by the evidence, can lead to no other conclusion than that Sycip
was guilty of fraud because through false representations he succeeded in inducing NAMARCO to enter into
the aforesaid exchange agreement, with full knowledge, on his part, on the fact that ASSOCIATED whom he
represented and over whose business and affairs he had absolute control, was in no position to comply with
the obligation it had assumed. Consequently, he cannot now seek refuge behind the general principle that a
corporation has a personality distinct and separate from that of its stockholders and that the latter are not
personally liable for the corporate obligations. In this case, it is proper to pierce the veil of corporate fiction. It
was proven that during the time of the agreement, AFCI was already insolvent. Such fact was already
known to Sycip. He knew that AFCI was not in a position to transact with NAMARCO because it could not
possibly comply with its obligations. Sycip’s assurances that AFCI can deliver said refined sugar products is
obviously fashioned to defraud NAMARCO into delivering the raw sugar to AFCI. Consequently, Sycip
cannot now seek refuge behind the general principle that a corporation has a personality distinct and
separate from that of its stockholders and that the latter are not personally liable for the corporate
obligations. He is therefore liable jointly and severally with AFCI to pay the amount claim for the raw sugar
delivered plus other damages claimed by NAMARCO with interest. It is settled law in this and other
jurisdictions that when the corporation is the mere alter ego of a person, the corporate fiction may be
disregarded; the same being true when the corporation is controlled, and its affairs are so conducted as to
make it merely an instrumentality, agency or conduit of another.

41 Re: Alter-Ego Case

AVELINA G. RAMOSO, RENATO B. Salvatierra, Benefrido M. Cruz, Leticia L. Medina,


PelagioPascual, Domingo P. Santiago, Amado S. Veloira, Concepcion F. Blaylock, in their own
behalf and in behalf of numerous other persons similarly situated, Commercial Credit Corp. of
North Manila, Commercial Credit Corp. of Cagayan Valley, Commercial Credit Corp. of Olongapo
City, and Commercial Credit Corp. of Quezon City, petitioners,
vs.
Court of Appeals, General Credit Corp. (Formerly Commercial Credit Corp.), CCC Equity Corp.,
Resource and Finance Corp., Generoso G. Villanueva and Leonardo B. Alejandrino, and
Securities and Exchange Commission, respondents.
G.R. No. 117416 December 8, 2000
QUISUMBING, J.
Facts:

AvelinaRamoso and several others are investors and majority stock holders of the franchise
branches of Commercial Credit Corporation (CCC). CCC is a lending and investment firm. CCC contracted
with its franchise branches for the latter to assign its receivables to CCC. But this practice was discontinued
due to a prohibition (DOSRI rule) issued by the Central Bank where corporations are prohibited from lending

68 | P a g e
funds to persons with related interests, among others. To circumvent this, CCC incorporated CCC Equity, a
wholly owned subsidiary to manage the franchise branches. CCC later changed its name to General Credit
Corporation (GCC).

In 1981, Ramoso et al alleged that they discovered several bad business practices being
conducted by GCC; that such questionable practices divested GCC of its assets thereby placing the
franchise branches at a disadvantage; that GCC, through CCC Equity mismanaged the franchise branches
thereby causing imminent losses to the investors.

Ramoso et al then sued GCC before the Securities and Exchange Commission. The hearing officer
ruled in favor of Ramoso et al. He pierced the veil of corporate fiction and he declared that the franchise
branches, GCC, and CCC equity are one and the same corporation; that as such, the franchise branches, in
whom Ramoso et al invested, are not liable to the obligations incurred by GCC. The SEC en banc however
reversed the ruling of the hearing officer. The Court of Appeals affirmed the SEC en banc.

Issue:

Whether or not the veil of corporate fiction should be pierced.

Ruling:

No. Ramoso et al did not properly plead their cause. They merely alleged that CCC Equity is a
conduit of GCC. As found by the SEC en banc, Ramoso et al were not able to prove that CCC Equity was
incorporated in order to perpetrate fraud against them. Whether the existence of the corporation should be
pierced depends on questions of facts, appropriately pleaded. Mere allegation that a corporation is the alter
ego of the individual stockholders is insufficient. The presumption is that the stockholders or officers and the
corporation are distinct entities. The burden of proving otherwise is on the party seeking to have the court
pierce the veil of the corporate entity. It was not shown that the debts incurred by GCC were actually
incurred in bad faith. Further, there is a pending case relating to the liability of Ramoso et al as guarantors –
that will be the proper forum to raise their respective liability as regards said debts.

42 Re: De Facto Incorporation

FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners


vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V. ARELLANO, respondents.
G.R. No. L-48627 June 30, 1987
CRUZ, J.:

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Facts:

Caram, et al were adjudged solidarily liable with Barreto and Garcia and Filipinas Orient Airways for
a fifty thousand peso (P50, 000. 00) judgement in favor of Arellano for his services. Caram, et al assailed
the judgement because they claim that this order has no support in fact and law because they had no
contract whatsoever with Arellano regarding the above-mentioned services. Their position is that as mere
subsequent investors in the corporation that was later created, they should not be held solidarily liable with
the Filipinas Orient Airways, a separate juridical entity, and with Barretto and Garcia, their co-defendants in
the lower court.

Issue:

The issue in this case is whether or not Caram, et al are also and personally liable for such
expenses and, if so, to what extent.

Ruling:

The Supreme Court ruled in the negative. It would appear from the above justification that the
petitioners were not really involved in the initial steps that finally led to the incorporation of the Filipinas
Orient Airways. Elsewhere in the decision, Barretto was described as "the moving spirit." The finding of the
respondent court is that the project study was undertaken by the private respondent at the request of
Barretto and Garcia who, upon its completion, presented it to the petitioners to induce them to invest in the
proposed airline. The study could have been presented to other prospective investors. At any rate, the
airline was eventually organized on the basis of the project study with the petitioners as major stockholders
and, together with Barretto and Garcia, as principal officers.

The petitioners cannot be held personally liable for the compensation claimed by the private
respondent for the services performed by him in the organization of the corporation. To repeat, the
petitioners did not contract such services. It was only the results of such services that Barretto and Garcia
presented to them and which persuaded them to invest in the proposed airline. The most that can be said is
that they benefited from such services, but that surely is no justification to hold them personally liable
therefor. Otherwise, all the other stockholders of the corporation, including those who came in later, and
regardless of the amount of their share holdings, would be equally and personally liable also with the
petitioners for the claims of the private respondent.

43 Re: Corporation by Estoppel Doctrine

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MANUELA T. VDA. DE SALVATIERRA, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
Branch II, and SEGUNDINO REFUERZO, respondents.
G.R. No. L-11442 May 23, 1958
FELIX, J.:
Facts:

Manuela T. Vda. deSalvatierra appeared was the owner of a parcel of land which was the subject
of a contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a corporation "duly organized
and existing under the laws of the Philippines, represented in this instance by Mr.Segundino Q. Refuerzo as
the President. It was provided in said contract that the land would be planted with kenaf, ramie or other
crops and that the lessor would be entitled to 30 per cent of the net income accruing from the harvest of any,
crop without being responsible for the cost of production thereof. After every harvest, the lessee was bound
to declare at the earliest possible time the income derived therefrom and to deliver the corresponding share
due the lessor. These obligations were not complied with, however, prompting a certain Alanuela T. Vda, de
Salvatierra to file a suit for accounting, rescission and damages. As defendants apparently failed to file their
answer to the complaint, of which they were allegedly notified, the Court declared them in default and the
case ended with the attachment of 3 parcels of land registered in the name of SegundinoRefuerzo as no
property of the Philippine Fibers Producers Co., Inc., was found available for attachment.

Issue:

The issue in this case is whether or not the attachment of SegundinoRefuerzo’s property is valid.

Ruling:

The Supreme Court ruled in the affirmative. There can be no question that a corporation when
registered has a juridical personality separate and distinct from its component members or stockholders and
officers such that a corporation cannot be held liable for the personal indebtedness of a stockholder even if
he should be its president. Conversely, a stockholder or member cannot be held personally liable for any
financial obligation of the corporation in excess of his unpaid subscription. But this rule is understood to refer
merely to registered corporations and cannot be made applicable to the liability of members of an
unincorporated association.

The reason behind this doctrine is obvious -since an organization which before the law is non-
existent has no personality and would be incompetent to act and appropriate for itself the powers and
attribute of a corporation as provided by law; it cannot create agents or confer authority on another to act in
its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and

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at their own risk. And as it is an elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal, possessed of all the rights and subject to
all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as its agent. In acting on behalf of a corporation which he knew to
be unregistered, Segundino Refuerzo assumed the risk of reaping the consequential damages or resultant
rights, if any, arising out of such transaction.

44 Re: Nature of Doctrine of Corporation by Estoppel

REYNALDO M. LOZANO, petitioner,


vs.
HON. ELIEZER R. DE LOS SANTOS, Presiding Judge, RTC, Br. 58, Angeles City; and ANTONIO
ANDA,respondents.
G.R. No. 125221 June 19, 1997
PUNO, J.:
Facts:

Lozano and Anda were presidents of two jeepney drivers’ associations which were proposed to be
consolidated. To have only a single set of officers for the proposed association was agreed upon by the
associations and the election yielded the victory or Lozano as the president of the consolidated association
over Anda. Anda protested and refused to recognize electoral defeat. He continued to collect dues from his
association’s members despite demands to desist. Lozano moved to restrain Anda but the Municipal Circuit
Trial Court ruled that the Securities and Exchange Commission had jurisdiction over the case as it was an
intracorporate controversy.

Issue:

The issue in this case is whether or not the Securities and Exchange Commission rightfully has
jurisdiction over the case.

Ruling:

The Supreme Court ruled in the negative. The grant of jurisdiction to the SEC must be viewed in
the light of its nature and function under the law. This jurisdiction is determined by a concurrence of two
elements: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of
their controversy.

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The first element requires that the controversy must arise out of intracorporate or partnership
relations between and among stockholders, members, or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or associates, respectively;
and between such corporation, partnership or association and the State in so far as it concerns their
individual franchises. The second element requires that the dispute among the parties be intrinsically
connected with the regulation of the corporation, partnership or association or deal with the internal affairs of
the corporation, partnership or association.

There is no intracorporate nor partnership relation between petitioner and private respondent. The
controversy between them arose out of their plan to consolidate their respective jeepney drivers' and
operators' associations into a single common association. This unified association was, however, still a
proposal. It had not been approved by the SEC, neither had its officers and members submitted their articles
of consolidation is accordance with Sections 78 and 79 of the Corporation Code. Consolidation becomes
effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation
by the SEC. When the SEC, upon processing and examining the articles of consolidation, is satisfied that
the consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and
existing laws, it issues a certificate of consolidation which makes the reorganization official. The new
consolidated corporation comes into existence and the constituent corporations dissolve and cease to exist.

45 Re: Corporation by estoppel Doctrine

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,


vs.
ENGR. CARLOS GARCIA y PINEDA, PATRICIO BOTERO y VALES, LUISA MIRAPLES (at large),
accused, PATRICIO BOTERO y VALES, accused-appellant.
G.R. No. 117010 April 18, 1997
PUNO, J.:
Facts:

In 1992, accused-appellant PatricioBotero together with Carlos P. Garcia and Luisa Miraples were
charged with the crime of illegal recruitment in large scale defined by Article 38 (b) and penalized under
Article 39 (a) of the Labor Code. Accused Garcia and Botero pleaded not guilty upon arraignment. Miraples
remained at large as the warrant of arrest against her was returned unserved. A joint trial was conducted
against the two (2) accused considering that their cases involve the same parties and issues. Botero
testified that he became acquainted with Ricorn, the recruitment agency, when he applied for overseas
employment as a machinist. He dealt with accused Garcia who claimed to be the President of Ricorn.

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Eventually, he gained the trust of Garcia and became an employee of Ricorn. Three (3) times a week, he
reported for work at Jovan Building. As a former seaman, he was familiar with the processing of passport,
seaman's book and SOLAS. His job consisted in following-up these documents. He left Ricorn when he
discovered it was not licensed by the POEA nor was it registered with the SEC. Prior to that, it was
established that Garcia convinced him to become one of the incorporators of Ricorn. He gave money to
Garcia for Ricorn's registration with the SEC.

Issue:

The issue in this case is whether or not Botero can be held liable.

Ruling:

The Supereme Court ruled in the affirmative. It is a fact that Ricorn had no license to recruit from
DOLE. In the office of Ricorn, a notice was posted informing job applicants that its recruitment license is still
being processed. Yet, Ricorn already entertained applicants and collected fees for processing their travel
documents.

For engaging in recruitment of workers without obtaining the necessary license from the POEA,
Boteros should suffer the consequences of Ricorn's illegal act for "(i)f the offender is a corporation,
partnership, association or entity, the penalty shall be imposed upon the officer or officers of the corporation,
partnership, association or entity responsible for violation; . . . " The evidence shows that appellant Botero
was one of the incorporators of Ricorn. For reasons that cannot be discerned from the records, Ricorn's
incorporation was not consummated. Even then, appellant cannot avoid his liabilities to the public as an
incorporator of Ricorn. He and his co-accused Garcia held themselves out to the public as officers of Ricorn.
They received money from applicants who availed of their services. They are thus estopped from claiming
that they are not liable as corporate officials of Ricorn. Section 25 of the Corporation Code provides that
"(a)ll persons who assume to act as a corporation knowing it to be without authority to do so shall be liable
as general partners for all the debts, liabilities and damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of
corporate personality."

46 Re: Trust Fund Doctrine

SOFRONIO T. BAYLA, ET AL., petitioners,

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vs.
SILANG TRAFFIC CO., INC., respondent. SILANG TRAFFIC CO., petitioner, vs. SOFRONIO
BAYLA, ET AL., respondents.
G.R. Nos. L-48195 and 48196 May 1, 1942
OZAETA, J.:
Facts:

Sofronio T. Bayla, Josefa Naval, and Paz Toledo individually agreed to take and pay for under
certain specified terms and conditions shares of stock of Silang Traffic Co., Inc. The agreement was
denominated to be one for installment sale of shares. The agreement provided for, among others, the
payment of the “subscriber” for the shares of stock in an installment basis to the “seller”. It provided that
there would be an interest rate for deferred payments pegged at SIX (6%) per cent per annum until paid.
One paragraph in the agreement, however, also provided that if the subscriber fails to pay for any
installment, the said shares are to revert to the seller and the payments already made are to be forfeited in
favor of said seller, and the latter may then take possession, without resorting to court proceedings. A
resolution of the Board was the root of the controversy. It was of the tenor that the sale of some shares of
stock will be rescinded and the amount paid by the subscribers of these shares of stock will be returned to
them. Silang, however, did not return the amounts paid by Bayla, Naval and Toledo because their
subscribed shares of stock had already automatically reverted to the defendant, and the installments paid by
them had already been forfeited.

Issue:

Whether or not the amounts paid by Bayla, Naval and Toledo may be returned to them.

Ruling:

The Supreme Court ruled in the affirmative. The parties have interpreted or considered the said
agreement as a contract of subscription to the capital stock of the respondent corporation. It should be
noted, however, that said agreement is entitled "Agreement for Installment Sale of Shares in the Silang
Traffic Company, Inc.,"; that while the purchaser is designated as "subscriber," the corporation is described
as "seller"; that the agreement was entered into on March 30, 1935, long after the incorporation and
organization of the corporation, which took place in 1927; and that the price of the stock was payable in
quarterly installments spread over a period of five years.

It seems clear from the terms of the contracts in question that they are contracts of sale and not of
subscription. A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay
for the stock of a corporation, while a purchase is an independent agreement between the individual and the
corporation to buy shares of stock from it at stipulated price. Unpaid subscription and assessment of stock

75 | P a g e
do not apply to a purchase of stock; likewise the rule that a corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation to pay for his shares is inapplicable to a contract of
purchase of shares.

Since the contract is one of purchase and not one of subscription, there exists no legal impediment
to its rescission by agreement of the parties. The resolution was able to benefit other shareholders
mentioned in the resolution who are similarly situated as petitioners so there should be no cogent reason
why the benefit received by the others should be withheld from them.

47 Re: Trust Fund Doctrine

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
THE COURT OF APPEALS, COURT OF TAX APPEALS and A. SORIANO CORP., respondents.
G.R. No. 108576 January 20, 1999
MARTINEZ, J.:
Facts:

Sometime in the 1930s, Don Andres Soriano, a citizen and resident of the United States, formed
the corporation "A. Soriano Y Cia", predecessor of ANSCOR, with a P1,000,000.00 capitalization divided
into 10,000 common shares at a par value of P100/share. ANSCOR is wholly owned and controlled by the
family of Don Andres, who are all non-resident aliens. When he died, his estate received stock dividends
amounting to 46, 290 shares. At that time, Soriano and his wife’s accumulated shareholdings were 138,867
and 138,864 common shares each. The estate later exchanged 11, 140 of its common shares to preferred
shares reducing its common shares to 127, 727. On two occasions thereafter, ANSCOR redeemed 28, 000
common shares and 80, 000 common shares respectively from the estate. 19, 727 shares were left.

Issue:

Whether or not such redemption is tantamount to a distribution of taxable dividends.

Ruling:

The Supreme Court ruled in the affirmative. Redemption is repurchase, a reacquisition of stock by
a corporation which issued the stock in exchange for property, whether or not the acquired stock is
cancelled, retired or held in the treasury. Essentially, the corporation gets back some of its stock, distributes
cash or property to the shareholder in payment for the stock, and continues in business as before. The
redemption of stock dividends previously issued is used as a veil for the constructive distribution of cash

76 | P a g e
dividends. It is not the stock dividends but the proceeds of its redemption that may be deemed as taxable
dividends. Here, it is undisputed that at the time of the last redemption, the original common shares owned
by the estate were only 25,247.5 This means that from the total of 108,000 shares redeemed from the
estate, the balance of 82,752.5 (108,000 less 25,247.5) must have come from stock dividends. Besides, in
the absence of evidence to the contrary, the Tax Code presumes that every distribution of corporate
property, in whole or in part, is made out of corporate profits such as stock dividends. The capital cannot be
distributed in the form of redemption of stock dividends without violating the trust fund doctrine — wherein
the capital stock, property and other assets of the corporation are regarded as equity in trust for the
payment of the corporate creditors. Once capital, it is always capital. That doctrine was intended for the
protection of corporate creditors.

48 Re: Trust Fund Doctrine

BOMAN ENVIRONMENTAL DEVELOPMENT CORPORATION, petitioners,


vs.
HON. COURT OF APPEALS and NILCAR Y. FAJILAN, respondents.
G.R. No. 77860 November 22, 1988
GRIÑO-AQUINO, J.:
Facts:

Fajilan resigned as a member of the Board of Directors and President of Boman Environmental
Development Corporation (BEDECO) effective as soon as his shares and interests therein were sold to and
fully paid by the latter. Despite the issuance of a promissory note, BEDECO defaulted in paying after just
satisfying two installments. Fajilan filed a complaint with the Regional Trial Court but it was dismissed for
being an intrcorporate controversy to which the Securites and Exchange Commission rightfully has
jurisdiction.

Issue:

The issue in this case is whether or not the Securities and Exchange Commission rightfully has
jurisdiction.

Ruling:

The Supreme Court ruled in the affirmative. This case involves an intra-corporate controversy
because the parties are a stockholder and the corporation. It was an intra-corporate transaction; hence, this
suit is an intra-corporate controversy.

77 | P a g e
Fajilan's suit against the corporation to enforce the latter's promissory note or compel the
corporation to pay for his shareholdings is cognizable by the SEC alone which shall determine whether such
payment will not constitute a distribution of corporate assets to a stockholder in preference over creditors of
the corporation. The SEC has exclusive supervision, control and regulatory jurisdiction to investigate
whether the corporation has unrestricted retained earnings to cover the payment for the shares, and
whether the purchase is for a legitimate corporate purpose. The requirement of unrestricted retained
earnings to cover the shares is based on the trust fund doctrine which means that the capital stock, property
and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors. The
reason is that creditors of a corporation are preferred over the stockholders in the distribution of corporate
assets. There can be no distribution of assets among the stockholders without first paying corporate
creditors. Hence, any disposition of corporate funds to the prejudice of creditors is null and void.

49 Re: Procedure and Documentary Requirements

REPUBLIC PLANTERS BANK, petitioner,


vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.
G.R. No. 93073 December 21, 1992
CAMPOS, JR., J.:
Facts:

Fermin Canlas was the treasurer of the defunct World-Wide Garment Manufacturing, Inc. He,
among others, was authorized to apply for credit facilities with Republic Planters Bank. In response, the
Bank issued nine promissory notes. In 1982, the Bank filed a Complaint for the Recovery of Sums of Money
brought against World-Wide which was now assuming the name of Pinch Manufacturing Corporation.
Canlas contends that he cannot be held liable for the promissory notes as he is an officer of World-Wide,
Inc. and not Pinch Corporation.

Issue:

The issue in this case is whether or not Fermin Canlas may be held liable.

Ruling:

The Supreme Court ruled in the affirmative. The corporation, upon such change in its name, is in
no sense a new corporation, nor the successor of the original corporation. It is the same corporation with a
different name, and its character is in no respect changed.

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A change in the corporate name does not make a new corporation, and whether effected by special
act or under a general law, has no affect on the identity of the corporation, or on its property, rights, or
liabilities. The corporation continues, as before, responsible in its new name for all debts or other liabilities
which it had previously contracted or incurred.

Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of
name meant only the continuation of the old juridical entity, the corporation bearing the same name is still
bound by the acts of its agents if authorized by the Board. Where the agent signs his name but nowhere in
the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the
third party for whom he might have acted as agent, the agent is personally liable to take holder of the
instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or
extrinsic evidence is not admissible to avoid the agent's personal liability.

50 Re: Procedure and Documentary Requirements

UNIVERSAL MILLS CORPORATION, petitioner,


vs.
UNIVERSAL TEXTILE MILLS, INC., respondent.
G.R. No. L-28351 July 28, 1977
BARREDO, J.:
Facts:

This case involves a petition to have a corporate’s name changed as it results to confusion among
the public and their customers. Herein respondent corporation was organized in 1953 then registered with
SEC in 1954. Universal Mills Corporation, on the other hand, had just changed its name from Universal
Hosiery Mills Corporation in 1963, for which a certificate of approval was issued in its favor in the same year.
The complaint arose when one of the spinning mills of respondent Universal Mills Corp was gutted by fire.
Petitioner alleged that as a result of this fire and because of the similarity of respondent's name to that of
herein complainant, the news items appearing in various newspapers carrying reports on the fire created
uncertainty and confusion among its bankers, friends, stockholders and customers prompting petitioner to
make announcements, clarifying the real Identity of the corporation whose property was burned.

Issue:

Whether or not respondent’s contention deserves merit to justify the change of name by petitioner

Ruling:

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Yes. Although the corporate names in question are not identical, they are indisputably so similar.
The court declared that based d on what transpired that indeed, confusion will definitely arise. NO less than
the SEC found that there exist possible confusion considering that both corporations are engaged in almost
the same line of business. The court even stated that it could not fathom why of all names, it had to choose
something already being used by another firm engaged in the same business for more than a decade
enjoying an established goodwill when a lot of options can resorted to.

Thus, to avoid confusion in the mind of the public which could mislead even its own customers, the
court ruled that it is but proper to change the name of Petitioner Corporation.

51 Re: Procedure and Documentary Requirements

LAUREANO INVESTMENT & DEVELOPMENT CORPORATION, petitioner,


vs.
THE HONORABLE COURT OF APPEALS and BORMAHECO, INC.,respondents.
G.R. No. 100468. May 6, 1997
PANGANIBAN, J.:
Facts:

Spouses Reynaldo and Florence Laureano are majority stockholders of Laureano Investment and
Development Corporation. They entered into various credit transactions with Philippine National Cooperative
Bank (PNCB )These loans were secured by four Deed of Real Estate Mortgage in favour of the latter. For
their failure to pay said loans the Real Estate Mortgages were foreclosed and sold. PNCB purchased the
properties and consolidated the tiltes in its name. PNCB however never secured a writ of possession
against the Laureano spouses because the lots were the subject of judicial proceeding.

Sometime in September 1988, private respondent Bormaheco, Inc. became the successor of the
obligations and liabilities of PNCB over subject lots by virtue of a Deed of Sale/Assignment wherein
Bormaheco bought from PNCB under a bulk sale 114 titled and untitled properties including the two parcels
of land in question, formerly registered in the name of the Laureano spouses. Transfer Certificate of Titles
over the lots in question were issued in the name of Bormaheco. Thereafter, Bormaheco immediately sought
the issuance of a writ of possession covering the newly acquired properties. LIDECO intervened but
BOrmaheco moved to strike the intervention averring that LIDECO has no legal personality to intervene and
that it has misrepresented to the courts that it was registered with SEC when in truth and in fact, no such
corporation is registered with the SEC. Petitioner corporation on the other hand alleged that it was not suing
on behalf of another company but of Laureano Investment and Development Corp, that it was just an

80 | P a g e
acronym for the said company and that it was Bormaheco who first used the acronym to refer to petitioner
company.

Issue:

Whether or not Bormaheco is estopped from questioning the personality of LIDECOas the same
as petitioner corporation

Ruling:

Yes. The record shows that it was indeed Bormaheco which initially used the acronym LIDECO to
refer to petitioner corporation when it filed its first motion to strike. Private respondent therefore is estopped
from denying that LIDECO and petitioner corporation are one and the same.

In one case, the Supreme Court elaborated on the essence of equitable doctrine of estoppel ,to wit “Under
the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying thereon. A party may not go back on his
own acts and representations to the prejudice of the other party who relied upon them.”

However, this is not a sufficient ground to justify the use of LIDECO instead of its full name in its motion to
Intervene. Under the Corporation Code, a corporation may sue and be sued in its name. LIDECO is
certainly not the registered name of petitioner corporation. The court agreed with the trial court that if
petitioner legally and truly wanted to intervene, it should have used its corporate name as the law requires
and not another name which it had not registered. Had petitioner wanted to use the name LIDECO, it should
have shown in the complaint in intervention that “Lideco Corporation” stands for Laureano Investment and
Development Corporation.

NB. Although Bormaheco, Inc., is estopped from denying that LIDECO and Laureano Investment and Dev’t
Corporation are one and the same, t is not estopped from questioning the juridical personality of
“LidecoCorporation,” even after the trial court had allowed it to intervene in the case.

52 Re: Procedure and Documentary Requirements

PISON-ARCEO AGRICULTURAL and DEVELOPMENT CORPORATION, petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION and NATIONAL FEDERATION OF SUGAR
WORKERS-FOOD and GENERAL TRADE (NFSW-FGT),respondents.
G.R. No. 117890 September 18, 1997

81 | P a g e
PANGANIBAN, J.:
Facts:

This case involves an illegal dismissal suit filed by several employees of Hacienda Lanutan against
said corporation and its administrator Jose EdmundoLanuta.. Private respondents were employed as
regular sugar farm workers. Hacienda Lanutan on the other hand was owned by Pison-Arceo Agricultural
and Development Corporation. In deciding the case, the Labor Arbiter ruled that private respondents were
indeed illegally dismissed and ordered Hacienda Lanutan and Jose EdmundoPison to pay jointly and
severally the claims for backwages and separation pay of private respondents. Upon appeal with the NLRC,
the latter tribunal affirmed the Labor Arbiter’s decision including Pison-Arceo Agricultural and Development
Corporation as jointly and severally liable with Hacienda Lanutan and Pison.

Issue:

Whether or not public respondent NLRC can make petitioner corporation equally liable with the
original respondents in the illegal dismissal case considering that it was never impleaded as defendant in
the first place

Ruling:

Yes. The initial consideration should be on the fact that the proceeding below is a quasi-judicial
proceeding hence strict compliance with service of summons can be relaxed. Substantial compliance in the
instant case is sufficient to justify the inclusion of petitioner corporation as defendant in illegal dismissal
case. Substantial compliance could be gleaned from the fact that Hacienda Lanutan is solely owned by
petitioner corporation. Furthermore, it cannot be denied that the former was impleaded and heard. Thus,
petitioner corporation could not argue that it was denied due process.

Also, it is undisputed that summons and all notices of hearing were duly served upon Jose
EdmundoPison. Since Pison is the administrator and representative of petitioner in its property (Hacienda
Lanutan) and recognized as such by the workers therein, the court deemed the service of summons upon
him as sufficient and substantial compliance with the requirements for service of summons and other notices
in respect of petitioner corporation. Insofar as the complainants are concerned, Jose EdmundoPison was
their employer and/or their employer’s representative. In view of the peculiar circumstances of the case, the
court ruled that JosePison’s knowledge of the labor case and effort to resist it can be deemed knowledge
and action of the corporation. Indeed, to apply the normal precepts on corporate fiction and the technical
rules on service of summons would be to overturn the bias of the Constitution and the laws in favor of labor.

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53 Re: Procedure and Documentary Requirements

ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner,


vs.
SECURITIES & EXCHANGE COMMISSION, respondent.
G.R. No. L-23606 July 29, 1968
SANCHEZ, J.:
Facts:

Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc is a Philippine registered
corporation that had existed for a period of fifty years. Because its statutory term of existence has already
expired, the company assets were subjected to the year liquidation period. Thereafter, is officers established
another company in the name of Alhambra Industries, inc to continue Alhambra’s business operations.
Sometime in 1963, within the three –year period of liquidation, RA 3531 was passed which repealed article 8
of the COrportion law, allowing private corporations to extend their term of existence for another year fifty
years for one instance only. Petitioner, intending to avail of this law conducted a meeting to amend its
articles of incorporation Indeed , a meeting was organized and the articles of incorporation of Alhambra was
amended particularly paragraph four providing for its corporate life. From the original fifty years, it was
amended to exist for one hundred years. The amendment was then certified by the president, the secretary
and the majority members of the Board. Thereafter, it was registered with the Securities and Exchange
Commission.

The SEC however, returned the amended AOI with a ruling that the new law was not available to
the petitioner on the ground that the Alhambra’s corporate life has already expire(dJanuary 15, 1962) when
the new law took effect (June 20, 1963); that since its (Alhambra’s) corporate life has expired , there is no
more term or corporate life to extend.

A reconsideration was sought by Petitioner but the Securities and Exchange Commission denied
the same. Hence the petition.

Issue:

Whether or not the officers of petitioner may renew the corporation’s term of existence during the
three-year period of liquidation despite the fact that the corporation’s life has already expired

Ruling:

No. the provisions of the new law provides for extension of corporate term of existence of private
corporations. It does not speak of renewal. The two terms are of different genre. Extension on one hand

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presupposes an existing corporate life subject of extension. Renewal on the other hand signifies that a term
has expired hence the need for renewal.

On the petitioner’s contention that a dissolved corporation does not become an extinguished entity during
the liquidation period is without merit. The Corporation Law is very clear and unequivocal as it provides that
the three-year granted to a corporation after the expiration of its corporate life is solely for the purpose of
settlement of its unfinished business and for the liquidation of the corporation’s assets and for no other
purpose.

54 Re: Grounds for Disapproval of Articles of Incorporation

JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION, petitioners,


vs.
TYSON ENTERPRISES, INC., JUDGE GREGORIO G. PINEDA of the Court of First Instance of
Rizal, Pasig Branch XXI and COURT OF APPEALS, respondents.

G.R. No. L-56763 December 15, 1982


AQUINO, J:
Facts:

This case involves a collection suit filed by Tyson Enterprises against John SY and co-defendant
Universal Parts Supply Corporation. The complaint was filed with the RTC of Rizal, the residence of
Dominador Ti, the president of TYSON as the principal place of business of the latter was not alleged in the
complaint. Defendants SY and Tyson moved first for bill of particulars but the same was denied. They then
filed a motion to dismiss grounded on improper venue; that the venue should have been either the
residence of the defendant or the plaintiff’s (TYSON) residence.

Issue:

Whether or not the venue was improperly laid

Ruling:

The court agreed with petitioner that the complaint was improperly laid as it should have been filed
either at defendant’s residence or at the plaintiff corporation’s residence at the plaintiff’s option. Now, under
the Corporation Code, for purposes of determining the venue of an action, a corporation’s residence is its
principal place of business as specified in its Articles of Incorporation.

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Moreover, it should be noted that under the doctrine of separate fiction a corporation has a separate juridical
personality distinct from its members. Having said so, the residence of its members or officers should not be
considered as the residence of the corporation. In the instant case, the filing of the complaint at the
residence of one of the officers therefore is improper.

55 Re: Nature and Functions of by-laws

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner,


vs.
HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN
ENCARNACION and HORATIO AYCARDO, respondents.
G.R. No. 117188 August 7, 1997
ROMERO, J.:
Facts:

The Loyola Grand Villas Homeowners’ Association was organized and registered with Home
Insurance and Guaranty Corporation as the sole homeowners’ association of the Loyola Grand Villas
Community. The president, however, failed to submit the corporate by-laws of the Association. After five
years of existence, the incumbent officers attempted to submit the corporate by-laws of the association but
they failed to do so as they learned that there were two more associations representing the Homeowners of
Loyola Grand Villas, the North and the South Association. To clarify matters, the developer of the Loyola
Grand Villas inquired on the status of LGHVAI. The HIGC responded and declared LGHVAI was
automatically dissolved for its failure to submit its by-laws within the period required by the Corporate Code.
LGHVAI then questioned the validity of the revocation of its certification without due notice and hearing and
concomitantly prayed for the cancellation of the certificate of registration issued in favor of the North and
South Association. The Hearing officer of HIGC ruled in favor of LGHVAI, hence the petition for review by
the South Association.

Issue:

Whether or not the non-submission of the corporate by-laws result to automatic dissolution of a
corporation

Ruling:

No. although the Corporation Code is silent as to the effect of non-compliance with the one-month
submission period, the provision of said law should be read in relation to PD 902-A granting power to the
SEC to suspend and revoke certificates of registration on ground listed therein. And one of the grounds

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enumerated is failure to submit its by-laws. However, this power is to be considered with limit as observance
of due notice and hearing is imperative. Although this power and its limitation refers to SEC, the same
should be deemed as the same with HIGC as it was conferred the power to revoke certificates of
registration of homeowners’ associations.(Section 2 [a], E.O. 535, series 1979, transferred the powers and
authorities of the SEC over homeowners associations to the HIGC.)

56 Re: Nature and Functions of by-laws

GRACE CHRISTIAN HIGH SCHOOL, petitioner,


vs.
THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN,
and ERNESTO L. GO, respondents.
G.R. No. 108905 October 23, 1997
MENDOZA, J.:
Facts:

The Grace Christian High School has been allowed to send a representative to sit as a permanent
member of the Board of Grace Village Association, Inc. for a period of fifteen years. However, in 1990, the
petitioner received a notice informing the latter that its participation as member of the Board is being
reconsidered. Eventually, the association decided that it is no longer allowing the representative of Grace
Christian High School as an automatic member of the Board of Directors.

Issue:

Whether or not petitioner has earned a vested right as a permanent member of the Board of
Directors of Grace Village Association, Inc.

Ruling:

No, irrespective of the corporate by-laws formulated for the corporation providing for automatic and
permanent member of the Board, the provision of the Corporate Code requiring for election by the holders of
stock or by the members of the corporation when there is no stock prevails. The pertinent provision of the
law is section 30 of the Corporation Code which provides that:

§23. The Board of Directors or Trustees. - Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected from

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among the holders of stocks, or where there is no stock, from among the members of the corporation, who
shall hold office for one (1) year and until their successors are elected and qualified.

It is clear therefore that members of the board must be elected by the members of a non-stock
corporation or the stockholders. No such automatic membership can be availed of by any party who seeks
to be a member of the Board of Directors. Obviously, the PROPOSED AMENDMENT of the by-laws is
contrary to law, therefore considered as invalid or void.

57 Re: Nature and Functions of by-laws

ENRIQUE SALAFRANCA, petitioner,


vs.
PHILAMLIFE (PAMPLONA) VILLAGE, HOMEOWNERS ASSOCIATION, INC., BONIFACIO DAZO
and THE SECOND DIVISION, NATIONAL LABOR RELATIONS COMMISSION (NLRC),
respondents.
G.R. No. 121791 December 23, 1998
ROMERO, J.:
Facts:

Petitioner Enrique Salafranca was an Administrative Officer of private respondent Philamlife Village
Homeowners Association. His initial contract was for a period of six months. After his contract expired, the
same was renewed thrice. The supposed date of expiration of his last contract was December 1,
1983,however, he continued working after this date without having his contract renewed.

Sometime in 1987, the by-laws of the corporation was amended making the term of office of some
officers co-terminus with the Board of DIrectors which appointed said officers. One office made coterminous
with the BOD was the office of pertitionerSalafranca. There was also a condition imposed on Salafranca to
submit his medical certificate otherwise his service will be considered on a month-to-month basis. This
development was relayed to him on July 3, 1987 however, petitioner failed to submit a medical certificate.
Despite failure of petitioner to submit a medical certificate, he was still allowed to work until his employment
was terminated in December 1992. Hence, a complaint for illegal dismissal with money claims was filed.

Issue:

Whether or not the amendment in the by-laws altering the term of an office enjoying permanent
tenure into a coterminous tenure (with the appointing BOD) is valid

Ruling:

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No, it is an obvious fact that petitioner has attained a regular employment considering his years of
service (11 years). Such security of tenure cannot be violated by a mere amendment of a corporation’s by-
laws.

Indeed, an employer has all the prerogative to amend its by-laws as it deems it necessary,
however, amendments should not cause any violation of any existing obligations of contracts, otherwise the
same will be deemed void for being contrary to law.

57. RE: Binding Effects of By-Laws

PMI COLLEGES vs.


THE NATIONAL LABOR RELATIONS COMMISSION and ALEJANDRO GA LVAN

G.R. No. 121466 August 15, 1997

FACTS:

On July 7, 1991, petitioner, an educational institution offering courses on basic seaman's training
and other marine-related courses, hired private respondent as contractual instructor with an agreement that
the latter shall be paid at an hourly rate of P30.00 to P50.00, depending on the description of load subjects
and on the schedule for teaching the same. Pursuant to this engagement, private respondent then
organized classes in marine engineering.
However, for unknown reasons, PMI defaulted from paying the remunerations due to Galvan.
Galvan made demands but were ignored by PMI. Eventually, Galvan filed a labor case against PMI. Galvan
got a favorable judgment from the Labor Arbiter; this was affirmed by the National Labor Relations
Commission. On appeal, PMI reiterated, among others, that the employment of Galvan is void because it
did not comply with its by-laws. Apparently, the by-laws require that an employment contract must be signed
by the Chairman of the Board of PMI. PMI asserts that Galvan’s employment contract was not signed by the
Chairman of the Board.

ISSUE:
Whether or not Galvan’s employment contract is void as it did not comply with the By-Laws.

HELD:
NO.
PMI Colleges never even presented a copy of the by-laws to prove the existence of such provision.
But even if it did, the employment contract cannot be rendered invalid just because it does not bear the
signature of the Chairman of the Board of PMI. That this allegation has never been denied by private
respondent does not necessarily signify admission of its existence because technicalities of law and
procedure and the rules obtaining in the courts of law do not strictly apply to proceedings of this nature.

88 | P a g e
By-Laws operate merely as internal rules among the stockholders, they cannot affect or prejudice
third persons who deal with the corporation, unless they have knowledge of the same. In this case, PMI was
not able to prove that Galvan knew of said provision in the by-laws when he was employed by PMI.

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED for lack of merit
while the resolution of the National Labor Relations Commission dated August 4, 1995 is hereby
AFFIRMED.

58 RE: Corporate Power and Capacity

LAND BANK OF THE PHILIPPINES


vs.COMMISSION ON AUDIT

G.R. Nos. 89679-81 September 28, 1990

FACTS:
The Land Bank of the Philippines asserts that, as a banking institution, its Charter authorizes it to
condone claims or liabilities. The Commission on Audit, on the other hand, maintains that such power is
exclusively vested in the Commission pursuant to Section 36 of Pres. Decree No. 1445, or the Government
Auditing Code.The records indicate that on 22 July 1980, the Board of Directors of the LBP issued
Resolution No. 80-222 fixing the new rates for penalty charges on past due loans/amortization and other
credit accommodations. The Resolution also provided that "in cases of defaults in loan payment and other
credit accommodations due to unforeseen, highly justifiable reasons/circumstances beyond the control of
the borrower such as damages due to natural calamities, sickness, adverse government HELDs or court
judgments, duly processed and verified by the lending units, penalty charges may be condoned / reduced
by the Loan Executive Committee upon recommendation of theappropriate lending units.
Pursuant to this Resolution, LBP, through its Loan Executive Committee, waived the penalty
charges in the amount of P9,636.36 on the loan of HSBTC, a thrift banking institution organized under
Philippine laws. LBP requested its Corporate Auditor to pass in audit its waiver of the penalty charges. Said
official questioned the waiver and opined that the power to condone interests or penalties is vested
exclusively in the COA but, in the absence of a categorical HELD on the matter applicable to a government
banking institution, referred the LBP request to the COA. The COA held that the waiver is unauthorized and
should outrightly be disallowed in audit, pursuant to Pres. Decree No. 1445.

ISSUE:
Whether or not LBP is authorized to compromise or release claims or liabilities in whole or in part.

HELD:
YES.
LBP has the power to condone penalties being a commercial bank clothed with authority to
exercise all the general powers mentioned in the Corporation Law and the General Banking Act, as provided
in its Charter, Rep. Act. No. 3844, as amended by Pres. Decree No. 251, among which is the power to write
off loans and advances which necessarily includes the lesser power to charge off interests and penalties.

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LBP’s Charter being a special law, should prevail over the general grant of authority to COA by PD No. 1445
to compromise claims.

LBP was created as a body corporate and government instrumentality to provide timely and
adequate financial support in all phases involved in the execution of needed agrarian reform (Rep. Act No.
3844, as amended, Sec. 74). Section 75 of its Charter vests in LBP specific powers normally exercised by
banking institutions, such as the authority to grant short, medium and long-term loans and advances against
security of real estate and/or other acceptable assets; to guarantee acceptance(s), credits, loans,
transactions or obligations; and to borrow from, or rediscount notes, bills of exchange and other commercial
papers with the Central Bank. In addition to the enumeration of specific powers granted to LBP, Section 75
of its Charter also authorizes it to exercise the general powers mentioned in the Corporation Law and the
General Banking Act. One of the general powers mentioned in the General Banking Act is the Writing-off
ofloans and advances with an outstanding amount of one hundred thousand pesos or more shall require the
prior approval of the Monetary Board.
LBP is a unique and specialized banking institution, not an ordinary "government agency". As a
bank, it is specifically placed under the supervision and regulation of the Central Bank of the Philippines
pursuant to its Charter. In so far as loans and advances are concerned, therefore, it should be deemed
primarily governed by Central Bank Circular No. 958, Series of 1983, which vests the determination of the
frequency of writing-off loans in the Board of Directors of a bank provided that the loans written-off do not
exceed a certain aggregate amount.
The authority to write-off loans and advances should be construed to include within its scope the
waiver of penalty charges on past due loans, which are of a lesser category.Concededly, the power to write-
off is not expressly granted in the LBP Charter. It can be logically implied however, from LBP's authority to
exercise the general powers vested in banking institutions as provided in the General Banking Act. The clear
intendment of its Charter is for LBP to be clothed not only with the express powers granted to it, but also
with those implied, incidental and necessary for the exercise of those express powers.
But while we rule that LBP is empowered by its corporate charter to waive penalty charges, thereby
overHELD COA's avowed exclusive prerogative to settle and compromise liabilities to the Government,
nevertheless, pursuant to Pres. Decree No. 1445, LBP is still subject to COA's general audit jurisdiction to
see to it that the fiscal responsibility that rests directly with the head of the government agency has been
properly and effectively discharged.
WHEREFORE, the Decisions of the Commission on Audit sought to be reviewed are hereby SET
ASIDE in so far as they hold that the Commission on Audit, vis-a-vis the Land Bank, has the exclusive
prerogative to settle and compromise liabilities to the Government.

59RE: Where Corporate Power is Lodged

ABS-CBN BROADCASTING CORPORATIONvs.


HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION,
INC., and VICENTE DEL ROSARIO

G.R. No. 128690 January 21, 1999

FACTS:

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In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo Santos-Concio,
requested Viva Production, Inc. to allow ABS-CBN to air at least 14 films produced by Viva. Pursuant to this
request, a meeting was held between Viva’s representative (Vicente Del Rosario) and ABS-CBN’s Eugenio
Lopez (General Manager) and Santos-Concio was held on April 2, 1992. During the meeting Del Rosario
proposed a film package which will allow ABS-CBN to air 104 Viva films for P60 million. Later, Santos-
Concio, in a letter to Del Rosario, proposed a counterproposal of 53 films (including the 14 films initially
requested) for P35 million. Del Rosario presented the counter offer to Viva’s Board of Directors but the
Board rejected the counter offer. Several negotiations were subsequently made but on April 29, 1992, Viva
made an agreement with Republic Broadcasting Corporation (referred to as RBS – or GMA 7) which gave
exclusive rights to RBS to air 104 Viva films including the 14 films initially requested by ABS-CBN.
ABS-CBN now filed a complaint for specific performance against Viva as it alleged that there is
already a perfected contract between Viva and ABS-CBN in the April 2, 1992 meeting. Lopez testified that
Del Rosario agreed to the counterproposal and he (Lopez) even put the agreement in a napkin which was
signed and given to Del Rosario. ABS-CBN also filed an injunction against RBS to enjoin the latter from
airing the films. The injunction was granted. RBS now filed a countersuit with a prayer for moral damages as
it claimed that its reputation was debased when they failed to air the shows that they promised to their
viewers. The trial court ruled in favor of Viva and RBS. The Court of Appeals affirmed the trial court.

ISSUE:
Whether or not a contract was perfected in the April 2, 1992 meeting between the representatives
of the two corporations

HELD:
No.
There is no proof that a contract was perfected in the said meeting. Lopez’ testimony about the
contract being written in a napkin is not corroborated because the napkin was never produced in court.
Further, there is no meeting of the minds because Del Rosario’s offer of 104 films for P60 million was not
accepted. And that the alleged counter-offer made by Lopez on the same day was not also accepted
because there’s no proof of such. The counter offer can only be deemed to have been made days after the
April 2 meeting when Santos-Concio sent a letter to Del Rosario containing the counter-offer. Regardless,
there was no showing that Del Rosario accepted. But even if he did accept, such acceptance will not bloom
into a perfected contract because Del Rosario has no authority to do so.
As a rule, corporate powers, such as the power; to enter into contracts; are exercised by the Board
of Directors. But this power may be delegated to a corporate committee, a corporate officer or corporate
manager. Such a delegation must be clear and specific. In the case at bar, there was no such delegation to
Del Rosario. The fact that he has to present the counteroffer to the Board of Directors of Viva is proof that
the contract must be accepted first by the Viva’s Board. Hence, even if Del Rosario accepted the counter-
offer, it did not result to a contract because it will not bind Viva sans authorization.

60RE: Ratification Of Ultra Vires Acts

IGNACIO VICENTE and MOISES ANGELES


vs. HON. AMBROSIO M. GERALDEZ, and HI CEMENT CORPORATION
G.R. No. L-32473 July 31, 1973

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JUAN BERNABE vs.
HI CEMENT CORPORATION and THE HON. AMBROSIO M. GERALDEZ
G.R. No. L-32483 July 31, 1973

FACTS:
In 1967, HI Cement Corporation was granted authority to operate mining facilities in Bulacan.
However, the areas allowed for it to explore cover areas which were also being explored by Ignacio Vicente,
Juan Bernabe, and Moises Angeles. And so a dispute arose between the three and HI Cement as neither
side wanted to give up their mining claims over the disputed areas. Eventually, HI Cement filed a civil case
against the three. During pre-trial, the possibility of an amicable settlement was explored where HI Cement
offered to purchase the areas of claims of Vicente et al at the rate of P0.90 per square meter. Vicente et al
however wanted P10.00 per square meter.
In 1969, the lawyers of HI Cement agreed to enter into a compromise agreement with the three
whereby commissioners shall be assigned by the court for the purpose of assessing the value of the
disputed areas of claim. An assessment was subsequently made pursuant to the compromise agreement
and the commissioners recommended a price rate of P15.00 per square meter.
One of the lawyers of HI Cement, Atty. Francisco Ventura, then notified the Board of Directors of HI
Cement for the approval of the compromise agreement. But the Board disapproved the compromise
agreement hence Atty. Ventura filed a motion with the court to disregard the compromise agreement.
Vicente et al naturally assailed the motion. Vicente et al insisted that the compromise agreement is binding
because prior to entering into the compromise agreement, the three lawyers of HI Cement declared in open
court that they are authorized to enter into a compromise agreement for HI Cement; that one of the lawyers
of HI Cement, Atty. Florentino Cardenas, is an executive official of HI Cement; that Cardenas even
nominated one of the commissioners; that such act ratified the compromise agreement even if it was not
approved by the Board. HI Cement, in its defense, averred that the lawyers were not authorized and that in
fact there was no special power of attorney executed in their favor for the purpose of entering into a
compromise agreement. Judge AmbrosioGeraldez ruled in favor of HI Cement.

ISSUE:
Whether or not a Compromise Agreement entered into by a lawyer in behalf of the corporation is
valid without a written authority.

HELD:
NO.
Corporations may compromise only in the form and with the requisites which may be necessary to
alienate their property. Under the corporation law the power to compromise or settle claims in favor of or
against the corporation is ordinarily and primarily committed to the Board of Directors but such power may
be delegated. The delegation must be clearly shown for as a general rule an officer or agent of the
corporation has no power to compromise or settle a claim by or against the corporation, except to the extent
that such power is given to him either expressly or by reasonable implication from the circumstances. In the
case at bar, there was no special power of attorney authorizing the three lawyers to enter into a compromise
agreement. This is even if the lawyers declared in open court that they are authorized to do so by the
corporation.

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The fact that Cardenas, an officer of HI Cement, acted in effecting the compromise agreement, i.e.
nominating a commissioner, does not ratify the compromise agreement. There is no showing that Cardenas’
act binds HI Cement; no proof that he is authorized by the Board; no proof that there is a provision in the
Articles of Incorporation of HI-Cement that he can bind the corporation.

61Re: role of a board of director.

PRIME WHITE CEMENT CORPORATION, petitioner,


vs.
HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, respondents.
G.R. No. L-68555 March 19, 1993
CAMPOS, JR., J.:
Facts:
On or about the 16th day of July, 1969, plaintiff and defendant corporation thru its President, Mr.
Zosimo Falcon and Justo C. Trazo, as Chairman of the Board, entered into a dealership agreement whereby
said plaintiff was obligated to act as the exclusive dealer and/or distributor of the said defendant corporation
of its cement products in the entire Mindanao area for a term of five (5) years and proving among others
that:
a. The corporation shall, commencing September, 1970, sell to and supply the plaintiff, as dealer
with 20,000 bags (94 lbs/bag) of white cement per month;
b. The plaintiff shall pay the defendant corporation P9.70, Philippine Currency, per bag of white
cement, FOB Davao and Cagayan de Oro ports;
After the plaintiff was assured by his supposed buyer that his allocation of 20,000 bags of white
cement can be disposed of, he informed the defendant corporation in his letter dated August 18, 1970 that
he is making the necessary preparation for the opening of the requisite letter of credit to cover the price of
the due initial delivery for the month of September, 1970, looking forward to the defendant corporation's duty
to comply with the dealership agreement. In reply to the aforesaid letter of the plaintiff, the defendant
corporation thru its corporate secretary, replied that the board of directors of the said defendant decided to
impose the following conditions:
a. Delivery of white cement shall commence at the end of November, 1970;
b. Only 8,000 bags of white cement per month for only a period of three (3) months will be delivered;
c. The price of white cement was priced at P13.30 per bag;
d. The price of white cement is subject to readjustment unilaterally on the part of the defendant;
Several demands to comply with the dealership agreement were made by the plaintiff to the
defendant, however, defendant refused to comply with the same, and plaintiff by force of circumstances was
constrained to cancel his agreement for the supply of white cement with third parties, which were concluded
in anticipation of, and pursuant to the said dealership agreement.
Notwithstanding that the dealership agreement between the plaintiff and defendant was in force
and subsisting, the defendant corporation, in violation of, and with evident intention not to be bound by the

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terms and conditions thereof, entered into an exclusive dealership agreement with a certain Napoleon Co
for the marketing of white cement in Mindanao, hence, this suit.

Issue:
Whether or not the "dealership agreement" referred by the President and Chairman of the Board of
petitioner corporation is a valid and enforceable contract.

Held:
No.
Under the Corporation Law, which was then in force at the time this case arose, as well as under
the present Corporation Code, all corporate powers shall be exercised by the Board of Directors, except as
otherwise provided by law. Although it cannot completely abdicate its power and responsibility to act for the
juridical entity, the Board may expressly delegate specific powers to its President or any of its officers. In the
absence of such express delegation, a contract entered into by its President, on behalf of the corporation,
may still bind the corporation if the board should ratify the same expressly or impliedly. Implied ratification
may take various forms — like silence or acquiescence; by acts showing approval or adoption of the
contract; or by acceptance and retention of benefits flowing therefrom. Furthermore, even in the absence of
express or implied authority by ratification, the President as such may, as a general rule, bind the
corporation by a contract in the ordinary course of business, provided the same is reasonable under the
circumstances. These rules are basic, but are all general and thus quite flexible. They apply where the
President or other officer, purportedly acting for the corporation, is dealing with a third person, i. e., a
person outside the corporation.
The situation is quite different where a director or officer is dealing with his own corporation. In the
instant case respondent Te was not an ordinary stockholder; he was a member of the Board of Directors
and Auditor of the corporation as well. He was what is often referred to as a "self-dealing" director.
A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his
corporation. In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his
own advantage and benefit. As corporate managers, directors are committed to seek the maximum amount
of profits for the corporation. This trust relationship "is not a matter of statutory or technical law. It springs
from the fact that directors have the control and guidance of corporate affairs and property and hence of the
property interests of the stockholders.
On the other hand, a director's contract with his corporation is not in all instances void or voidable.
If the contract is fair and reasonable under the circumstances, it may be ratified by the stockholders
provided a full disclosure of his adverse interest is made.
Granting arguendo that the "dealership agreement" involved here would be valid and enforceable if
entered into with a person other than a director or officer of the corporation, the fact that the other party to
the contract was a Director and Auditor of the petitioner corporation changes the whole situation. First of all,
we believe that the contract was neither fair nor reasonable. The "dealership agreement" entered into in
July, 1969, was to sell and supply to respondent Te 20,000 bags of white cement per month, for five years
starting September, 1970, at thefixed price of P9.70 per bag. At the time of the contract, petitioner

94 | P a g e
Corporation had not even commenced the manufacture of white cement, the reason why delivery was not to
begin until 14 months later. He must have known that within that period of six years, there would be a
considerable rise in the price of white cement. In fact, respondent Te's own Memorandum shows that in
September, 1970, the price per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag.
Despite this, no provision was made in the "dealership agreement" to allow for an increase in price mutually
acceptable to the parties. Instead, the price was pegged at P9.70 per bag for the whole five years of the
contract. Fairness on his part as a director of the corporation from whom he was to buy the cement, would
require such a provision. In fact, this unfairness in the contract is also a basis which renders a contract
entered into by the President, without authority from the Board of Directors, void or voidable, although it may
have been in the ordinary course of business. We believe that the fixed price of P9.70 per bag for a period
of five years was not fair and reasonable.

62Re: approval by the Board of Directors of the act of its president.


YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner,
vs.
HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION, represented
by its President-Chairman, CONSTANCIO B. MALAGNA, respondents.
G.R. No. L-53820 June 15, 1992
DAVIDE, JR., J.:
Facts:
The root of this controversy is the undated letter-offer of Constancio B. Maglana, President and
Chairman of the Board of private respondent Prime White Cement Corporation, hereinafter referred to as
PWCC, to Yao Ka Sin Trading, hereinafter referred to as YKS and is represented by its manager, Mr. Henry
Yao.
In its meeting in Cebu City on 30 June 1973, or twenty-three days after the signing of Letter offer,
the Board of Directors of PWCC disapproved the same. On 5 July 1973, PWCC wrote a letter to YKS
informing it of the disapproval of letter offer. Pursuant, however, to its decision with respect to the 10,000
bags of cement, it issued the corresponding Delivery Order and Official Receipt No. 0394 for the payment of
the same in the amount of P243,000.00 This is the same amount received and acknowledged by Maglana in
Exhibit “A”.
On 4 August 1973, PWCC wrote a letter to YKS stating that it is “withdrawing or taking delivery
of not less than 10,000 bags of white cement on August 6-7, 1973 at Asturias, Cebu, thru M/V Taurus.” On 9
February 1974, YKS wrote PWCC a letter requesting, for the last time, compliance by the latter with its
obligation under
Exhibit “A”. On 27 February 1974, PWCC sent an answer to the aforementioned letter of 9 February 1974;
PWCC reiterated the unenforceability of Exhibit “A”.
On 4 March 1974, YKS filed with the then Court of First Instance of Leyte a complaint for Specific
Performance with Damages against PWCC. The complaint was based on Exhibit “A” and was docketed as
Civil Case No. 5064.
Issue:

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Whether or the contract entered into by the President and Chairman of the Board of
Directors,Constancio B. Maglana, in behalf of the respondent corporation binds the said corporation.
Held:
No.
The contract is not binding upon the private respondent. Mr. Maglana, its President and Chairman,
was not empowered to execute it. Since a corporation, such as the private respondent, can act only through
its officers and agents, “all acts within the powers of said corporation may be performed by agents of its
selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or
statutory provisions, the same general principles of law which govern the relation of agency for a natural
person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act
for the corporation; and agents when once appointed, or members acting in their stead, are subject to the
same rules, liabilities and incapacities as are agents of individuals and private persons.” Moreover, ” . . . a
corporate officer or agent may represent and bind the corporation in transactions with third persons to the
extent that authority to do so has been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and
usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation
has caused persons dealing with the officer or agent to believe that it has conferred.
While there can be no question that Mr. Maglana was an officer — the President and Chairman —
of private respondent corporation at the time he signed the letter-offer, the private respondent’s By-Laws do
not in any way confer upon the President the authority to enter into contracts for the corporation
independently, of the Board of Directors. That power is exclusively lodged in the latter. Nevertheless, to
expedite or facilitate the execution of the contract, only the President — and not all the members of the
Board, or so much thereof as are required for the act — shall sign it for the corporation. This is the import of
the words through the president and the clear intent of the power of the chairman “to execute and sign for
and in behalf of the corporation all contracts and agreements which the corporation may enter into. Both
powers presuppose a prior act of the corporation exercised through the Board of Directors. No greater
power can be implied from such express, but limited, delegated authority. Neither can it be logically claimed
that any power greater than that expressly conferred is inherent in Mr. Maglana’s position as president and
chairman of the corporation.
Although there is authority “that if the president is given general control and supervision over the
affairs of the corporation, it will be presumed that he has authority to make contract and do acts within the
course of its ordinary business,” We find such inapplicable in this case. We note that the private corporation
has a general manager who, under its By-Laws has, inter alia, the following powers: “(a) to have the active
and direct management of the business and operation of the corporation, conducting the same accordingly
to the order, directives or resolutions of the Board of Directors or of the president.” It goes without saying
then that Mr. Maglana did not have a direct and active hand in the management of the business and
operations of the corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in the past,
entered into contracts similar to that of Exhibit “A” either with the petitioner or with other parties.
Petitioner’s last refuge then is his alternative proposition, namely, that private respondent had
clothed Mr. Maglana with the apparent power to act for it and had caused persons dealing with it to believe
that he was conferred with such power. The rule is of course settled that “although an officer or agent acts

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without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which
the corporation has clothed him by holding him out or permitting him to appear as having such authority, the
corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such
apparent authority, as where an officer is allowed to exercise a particular authority with respect to the
business, or a particular branch of it, continuously and publicly, for a considerable time.” Also, “if a private
corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for
it, the corporation will be estopped to deny that such apparent authority in real, as to innocent third persons
dealing in good faith with such officers or agents.” This “apparent authority may result from (1) the general
manner, by which the corporation holds out an officer or agent as having power to act or, in other words, the
apparent authority with which it clothes him to act in general or (2) acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, whether within or without the scope of his ordinary
powers.
It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr.
Maglana with the apparent power to execute Exhibit “A” or any similar contract. This could have been easily
done by evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably
failed to do that. Upon the other hand, private respondent’s evidence overwhelmingly shows that no contract
can be signed by the president without first being approved by the Board of Directors.
63Re: Doctrine of apparent authority

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA, petitioners ,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE
JANOLO, respondents .
G.R. No. 115849 January 24, 1996
PANGANIBAN, J.:
Facts:
In the course of its banking operations, the defendant Producer Bank of the Philippines acquired
six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna, and covered by
Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME
Investment and Development Corporation which had them mortgaged with the bank as collateral for a loan.
The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus
initiated negotiations for that purpose.
In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investment’s legal
counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management
Department of the defendant bank. The meeting was held pursuant to plaintiffs’ plan to buy the property.
After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to
the bank.
On May 3, 1988, plaintiff, through counsel, made a final demand for compliance by the bank with
its obligations under the considered perfected contract of sale. As recounted by the trial court, in a reply
letter dated May 12, 1988, the defendants through Acting Conservator Encarnacion repudiated the authority

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of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5
Million are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of
payment and the non-compliance with the obligations under what the plaintiffs considered to be a perfected
contract of sale.
On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its
Manager Rivera and Acting Conservator Encarnacion. The basis of the suit was that the transaction had
with the bank resulted in a perfected contract of sale. The defendants took the position that there was no
such perfected sale because the defendant Rivera is not authorized to sell the property, and that there was
no meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of 80% of the
Bank’s outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991,
the trial court issued an order denying the motion to intervene on the ground that it was filed after trial had
already been concluded.

Issues:
Whether or not there was a perfected contract of sale with the application of the doctrine of
apparent authority.
Held:
Yes.
The authority of a corporate officer in dealing with third persons may be actual or apparent. The
doctrine of “apparent authority,” with special reference to banks, was laid out in Prudential Bank vs. Court of
Appeals, where it was held that:
“Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agent’s apparent representation yields to the principal’s true representation
and the contract is considered as entered into between the principal and the third person (citing National
Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).
“A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of
dealings of the officers in their representative capacity but not for acts outside the scope of their authority. A
bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds
they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to
shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons where the representation is made in
the course of its business by an agent acting within the general scope of his authority even though, in the
particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204
NW 818, 40 ALR 1021).
“Application of these principles is especially necessary because banks have a fiduciary relationship
with the public and their stability depends on the confidence of the people in their honesty and efficiency.

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Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its
employees, resulting in prejudice to their depositors.”
From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or
implied authority to act for the Bank in the matter of selling its acquired assets.
To be sure, petitioners attempted to repudiate Rivera’s apparent authority through documents and
testimony which seek to establish Rivera’s actual authority. These pieces of evidence, however, are
inherently weak as they consist of Rivera’s self-serving testimony and various inter-office memoranda that
purport to show his limited actual authority, of which private respondent cannot be charged with knowledge.
In any event, since the issue is apparent authority, the existence of which is borne out by the respondent
Court’s findings, the evidence of actual authority is immaterial insofar as the liability of a corporation is
concerned.

64Re: ratification of the board of directors.

SAFIC ALCAN & CIE, petitioner,


vs.
IMPERIAL VEGETABLE OIL CO., INC., respondent.
G.R. No. 126751 March 28, 2001
YNARES-SANTIAGO, J.:
Facts:
Petitioner is a French corporation engaged in the international purchase, sale and trading of
coconut oil. It filed with the Regional Trial Court of Manila, Branch XXV, a complaint dated February 26,
1987 against private respondent Imperial Vegetable Oil Co., Inc. (IVO). Petitioner Safic alleged that on July
1, 1986 and September 25, 1986, it placed purchase orders with IVO for 2,000 long tons of crude coconut
oil, valued at US$222.50 per ton, covered by Purchase Contract Nos. A601446 and A601655, respectively,
to be delivered within the month of January 1987. Private respondent, however, failed to deliver the said
coconut oil and, instead, offered a “wash out” settlement, whereby the coconut oil subject of the purchase
contracts were to be “sold back” to IVO at the prevailing price in the international market at the time of wash
out. Thus, IVO bound itself to pay to Safic the difference between the said prevailing price and the contract
price of the 2,000 long tons of crude coconut oil, which amounted to US$293,500.00. IVO failed to pay this
amount despite repeated oral and written demands.
Under its second cause of action, Safic alleged that on eight occasions between April 24, 1986 and
October 31, 1986, it placed purchase orders with IVO for a total of 4,750 tons of crude coconut oil, covered
by Purchase Contract Nos. A601297A/B, A601384, A601385, A601391, A601415, A601681, A601683 and
A601770A/B/C/. When IVO failed to honor its obligation under the wash out settlement narrated above,
Safic demanded that IVO make marginal deposits within forty-eight hours on the eight purchase contracts in
amounts equivalent to the difference between the contract price and the market price of the coconut oil, to
compensate it for the damages it suffered when it was forced to acquire coconut oil at a higher price. IVO
failed to make the prescribed marginal deposits on the eight contracts, in the aggregate amount of
US$391,593.62, despite written demand therefor.

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The demand for marginal deposits was based on the customs of the trade, as governed by the provisions of
the standard N.I.O.P. Contract arid the FOSFA Contract, to wit:

Issue:
Whether or not IVO’s President, DominadorMonteverde, validly entered into the 1986 contracts for
and on behalf of IVO.

Held:
No.
Under the provision of IVO’s By-lawsMonteverde had no blanket authority to bind IVO to any
contract. He must act according to the instructions of the Board of Directors. Even in instances when he was
authorized to act according to his discretion that discretion must not conflict with prior Board orders,
resolutions and instructions. The evidence shows that the IVO Board knew nothing of the 1986
contracts and that it did not authorize Monteverde to enter into speculative contracts. In fact, Monteverde
had earlier proposed that the company engage in such transactions but the IVO Board rejected his
proposal.Since the 1986 contracts marked a sharp departure from past IVO transactions, Safic should have
obtained from Monteverde the prior authorization of the IVO Board. Safic cannot rely on the doctrine of
implied agency because before the controversial 1986 contracts, IVO did not enter into identical contracts
with Safic. The basis for agency is representation and a person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the agent.
The most prudent thing petitioner should have done was to ascertain the extent of the authority of
DominadorMonteverde. Being remiss in this regard, petitioner cannot seek relief on the basis of a supposed
agency.
Under Article 1898 of the Civil Code, the acts of an agent beyond the scope of his authority do not
bind the principal unless the latter ratifies the same expressly or impliedly. It also bears emphasizing that
when the third person knows that the agent was acting beyond his power or authority, the principal cannot
be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the
principal’s ratification.
There was no such ratification in this case. When Monteverde entered into the speculative
contracts with Safic, he did not secure the Board’s approval.He also did not submit the contracts to the
Board after their consummation so there was, in fact, no occasion at all for ratification. The contracts were
not reported in IVO’s export sales book and turn-out book. Neither were they reflected in other books and
records of the corporation.It must be pointed out that the Board of Directors, not Monteverde, exercises
corporate power. Clearly, Monteverde’s speculative contracts with Safic never bound IVO and Safic cannot
therefore enforce those contracts against IVO.
SAFIC claims that there is no distinction between the 1985 and 1986 contracts, both of which
groups of contracts were signed and authorized by IVO’s President, DominadorMonteverde. SAFIC
concludes that the 1986 contracts were equally binding, as the 1985 contracts were, on IVO.We remain
unconvinced. The so-called “wash out” agreements are clearly ultra vires and not binding on IVO.

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65RE: SPECIFIC POWERS
TAM WING TAK, petitioner
vs.
HON. RAMON P. MAKASIAR (in his Capacity as Presiding Judge of the Regional Trial Court of
Manila, Branch 35) and ZENON DE GUIA (in his capacity as Chief State Prosecutor),
respondents.
GR No. 122452 January 29, 2001
QUISUMBING, J .:
Facts:
Petitioner, as a director of Concord-World Properties Inc., filed a complaint affidavit charging Vic
Ang Siong for violation of BP 22 in the QC Prosecutors Office. It was alleged in the said affidavit that the
check issued by the latter to the company was dishonored when presented for encashment. Ang Siong
moved to dismiss the said case on the ground that petitioner had no authority to file the said case and that
he and the company had agreed to settle amicably after paying partially the dishonored check. On March
23, 1994, the City Prosecutor dismissed the said case on the grounds given by Ang Siong. The Chief State
Prosecutor denied petitioner’s appeal andMotion for Reconsideration; hence he filed a civil case for
mandamus in the RTC of QC to compel the Chief State Prosecutor to file the information charging Ang
Siong for violating BP 22. The trial court also dismissed the case for lack of merit, thus the petition for review
on certiorari in the Supreme Court.

Issue:
Whether or not the petitioner had the personality to file the said case.

Held:
The court ruled in the negative, it is not disputed in the instant case that Concord, a domestic
corporation, was the payee of the bum check, not petitioner. Therefore, it is Concord, as payee of the
bounced check, which is the injured party. Since petitioner was neither a payee nor a holder of the bad
check, he had neither the personality to sue nor cause of action against Vic Ang Siong. Under Section 36 of
the Corporation Code, in relation to Section 23, it is clear that where a corporation is an injured party, its
power to sue is lodged with its board of directors or trustees. Note that petitioner failed to show any proof
that he was authorized or deputized or granted specific powers by Concord's board of director to sue Victor
Ang Siong for and on behalf of the firm. Clearly, petitioner as a minority stockholder and member of the
board of directors had no such power or authority to sue on Concord's behalf. Nor uphold his act as a
derivative suit. For a derivative suit to prosper, it is required that the minority stockholder suing for and on
behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on
behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit.
There is no showing that petitioner has complied with the foregoing requisites. It is obvious that petitioner

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has not shown any clear legal right which would warrant the overturning of the decision of public
respondents to dismiss the complaint against Vic Ang Siong. A public prosecutor, by the nature of his office,
is under no compulsion to file a criminal information where no clear legal justification has been shown, and
no sufficient evidence of guilt nor prima facie case has been presented by the petitioner. No reversible error
may be attributed to the court a quo when it dismissed petitioner's special civil action for mandamus.

66 RE: POWER TO INCREASE OR DECREASE CAPITAL STOCK


MADRIGAL & COMPANY, INC. vs.
HON. RONALDO B. ZAMORA, SEC OF LABOR, and MADRIGAL CENTRAL OFFICE
EMPLOYEES UNION. No. L-49023 June 30, 1987MADRIGAL & COMPANY, INC. vs.
HON. MINISTER OF LABOR and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION
G.R. No. L-48237 June 30, 1987
SARMIENTO, J. :
Facts:
MADRIGAL was engaged in the management of Rizal Cement Co., Inc. The petitioner and Rizal
Cement are sister companies. Both are owned by the same stockholders. The Madrigal Union, sought for
the renewal of its CBA with the petitioner.UNION proposed a wage increase of P200/month, an allowance of
P100/month, and other economic benefits. MADRIGAL however, requested for a deferment in the
negotiations. By an alleged resolution of its stockholders, MADRIGAL reduced its capital stock from 765,000
shares to 267,366 shares. This was affected through the distribution of the marketable securities owned by
the petitioner to its stockholders in exchange for their shares in an equivalent amount in the corporation. By
yet another alleged stockholders' action, the petitioner reduced its authorized capitalization from 267,366
shares to 110,085 shares, again, through the same scheme.
Issue:
Whether or not MADRIGAL INC’s ACT of DECREASING ITS CAPITAL STOCK is VALID
Held:
The court ruled in the negative. There is no merit in these 2 petitions. We do not subscribe to
appellant's argument that by reducing its capital, it is made evident that it is phasing out its operations.
Section 38. Power to increase or decrease capital stock; incur, create or increase bonded
indebtedness. –
No corporation shall increase or decrease its capital stock or incur, create or increase any bonded
indebtedness unless approved by a majority vote of the board of directors and, at a stockholder’s meeting
duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the increase or
diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Written
notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or increasing
of any bonded indebtedness and of the time and place of the stockholder’s meeting at which the proposed
increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be
considered, must be addressed to each stockholder at his place of residence as shown on the books of the

102 | P a g e
corporation and deposited to the addressee in the post office with postage prepaid, or served personally. A
certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by
the chairman and the secretary of the stockholders’ meeting, setting forth the requirements provided under
the law.

67RE: SPECIFIC POWERS


ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and SECURITIES
&EXCHANGE COMMISSION vs.
COURT OF APPEALS and IGLESIA NI CRISTO
G.R. No. 117897 May 14, 1997
HERMOSISIMA, JR., J .:
Facts:
In 1971, Islamic leaders of all Muslim major tribal groups in the Philippines headed by Dean Cesar
Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the
primary purpose of which is to establish an Islamic Center in Quezon City for the construction of a "Mosque
(prayer place), Madrasah (Arabic School), and other religious infrastructures" so as to facilitate the effective
practice of Islamic faith in the area. In the same year, the Libyan government donated money to the IDP to
purchase land at Culiat, Tandang Sora, Quezon City, to be used as a Center for the Islamic populace. The
land, with an area of 49,652 square meters, was covered by two titles both registered in the name of IDP.
According to the petitioner, in 1972, after the purchase of the land by the Libyan government in the
name of IDP, Martial Law was declared by the late President Ferdinand Marcos. Most of the members of the
1971 Board of Trustees like Senators Mamintal Tamano, Salipada Pendatun, Ahmad Alonto, and
Congressman Al-Rashid Lucman flew to the Middle East to escape political persecution.Thereafter, two
Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and the Abbas Group, led
by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP.. On April
20, 1989, without having been properly elected as new members of the Board of Trustee of IDP, the Carpizo
Group caused to be signed an alleged Board Resolution of the IDP, authorizing the sale of the subject two
parcels of land to the private respondent Iglesia Ni Cristo. The petitioner 1971 IDP Board of Trustees
headed by former Senator Mamintal Tamano, or the Tamano Group, filed a petition before the SEC.,
docketed as SEC Case No. 4012, seeking to declare null and void the Deed of Absolute Sale signed by the
Carpizo Group and the INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of
the IDP.

Issue:
Whether or not the sale is valid.

Held:
The court ruled in the negative.

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The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo
Group's failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or
substantially all assets of the corporation:
Sec. 40. Sale or other disposition of assets. — Subject to the provisions of existing laws on illegal
combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees,
sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and
assets, including its goodwill, upon terms and conditions and for such consideration, which may be money,
stocks, bonds or other instruments for the payment of money or other property or consideration, as its board
of directors or trustees may deem expedient, when authorized by the vote of the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation, by the vote of at
least two-thirds (2/3) of the members, in a stockholders' or members' meeting duly called for the purpose.
Written notice of the proposed action and of the time and place of the meeting shall be addressed to each
stockholder or member at his place of residence as shown on the books of the corporation and deposited to
the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting
stockholder may exercise his appraisal right under the conditions provided in this Code.A sale or other
disposition shall be deemed to cover substantially all the corporate property and assets if thereby the
corporation would be rendered incapable of continuing the business or accomplishing the purpose for which
it was incorporated.

68 RE: Dividends
Republic Planters Bank
vs.
Honorable Enrique A. Agana, Sr. & ROBES-FRANCISCO REALTY & DEVELOPMENT
CORPORATION and ADALIA F. ROBES [March 3, 1997]
[G.R. No. 51765. March 3, 1997]
HERMOSISIMA, JR., J .:
Facts:
Private respondent Robes Francisco Realty & Dev’t Corp. secured a loan from petitioner in the
amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to
private respondent-corporation. In other words, instead of giving the legal tender totaling to the full amount
of the loan which is P120,000.00, petitioner lent such amount partially in the form of stock certificates
numbered 3204 and 3205, each for 400 shares with a par value of P10.00 per share, or for P4,000 each, for
a total of P8,000.00. Said stock certificates were in the name of private respondent Adalia Robes and
Carlos Robes, who, however, subsequently endorsed his shares in favor of Adalia Robes. The latter
constitutes terms and conditions.
Private respondents proceeded against petitioner and filed a complaint anchored on private
respondents’ alleged rights to collect dividends under the preferred shares in question and to have petitioner
redeem the same under the terms and conditions of the stock certificates. The trial court ordered the

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petitioner to pay private respondents the face value of the stock certificates as redemption price, plus 1%
quarterly interest. Hence this petition.
Issue:
Whether or not respondents have the right to collect dividends.
Held:
The court ruled in the negative.
There is no guarantee, however, that the share will receive any dividends. The redemption of said
shares cannot be allowed. The Central Bank made a finding that said petitioner has been suffering from
chronic reserve deficiency, and that such finding resulted in the directive prohibiting the petitionerbank from
redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to
theprejudice of its depositors and creditors. Redemption of preferred shares was prohibited for a just and
valid reason. “Interest bearing stocks”, on which the corporation agrees absolutely to pay interest before
dividends are paid to common stockholders, is legal only when construed as requiring payment of interest
as dividends from net earnings or surplus only.

69.Re: Corporate powers


JOSE G. RICAFORT, CONRADO T. CALALANG, NATIONWIDE DEVELOPMENT
CORPORATION and AGUINALDO DEVELOPMENT CORPORATION, petitioners,
vs.
HON. FELIX L. MOYA, Judge, CFI, Davao, Br. II, BLACK MOUNTAIN, INC., TETRA
MANAGEMENT CORPORATION and the ENERGY CORPORATION, respondents.
G.R. No. 59114 March 18, 1991
NARVASA, J.:
Facts:
At the stockholders' meeting of NADECOR, Daniel R. Aguinaldo, Dominador Aytona, Conrado
Calalang, Jose G. Ricafort, and five (5) others were elected directors. These directors later elected Aytona,
Aguinaldo, and Romeo H. Borsoto as, respectively, Chairman, President and Secretary.
On March 30, 1981, in Civil Case No. 135262, the Manila Trial Court enjoined the NADECOR
Board (controlled by the Aguinaldo-Aytona Group) from ratifying this Operating Agreement. On April 20,
1981, the same Court inter alia stopped Aguinaldo from representing himself as the controlling stockholder
of NADECOR and offering its Kingking Claims for sale. On June 29, 1981, the Court issued another Order
(a) declaring Aguinaldo and the NADECOR directors guilty of contempt of court for having, despite the
injunction of March 30, 1981, approved and confirmed the Operating Agreement involving the Kingking
Claims entered into by NADECOR with Black Mountain, etc., administering an admonition on them, and (b)
NULLIFYING said Operating Agreement.
The Ricafort-Calalang Group validly elected directors at the annual stockholders meeting of
NADECOR on August 17, 1981; and said directors thereafter validly elected the officers of the corporation at
the organizational meeting of the board. The same group (Ricafort-Calalang) had been validly re-elected
since then, in 1985, 1986, 1987. An attempt of the Aguinaldo-Aytona group to have its members elected as
directors at the stockholders' meeting of August 19, 1985 was declared null and void.

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At the annual meeting of August 17, 1981, too, the NADECOR stockholders rejected the operating
agreement executed on March 25, 1981 by NADECOR, then acting through the Aguinaldo-Aytona Group,
and the Black Mountain Consortium, supra. The stockholders also approved the proposed Agreement with
Benguet Corporation for the operation by the latter of the company's KINGKING MINES. The agreement
with Benguet Corporation was subsequently signed and executed.
On January 22, 1987, President Corazon C. Aquino issued Memorandum Order No. 69, entitled
"RESCINDING LETTER OF INSTRUCTION NOS. 1210 AND 1349, DATED MARCH 9, 1982 AND AUGUST
1, 1983," treating directly of the "approved operating agreement involving the Kingking mining property in
Pantukan, Davao" of the consortium composed of Black Mountain, Inc., Energy Corporation, and Tetra
Management Corporation .

Issue:
Whether or not the Operating Agreement relative to the Kingking Minesentered into on March 25,
1981 between NADECOR, then represented by the Aguinaldo-Aytona Group, and the consortium composed
of Black Mountain, Inc., Tetra Management Corporation, and Energy Corporation was valid

Held:
No.
The Operating Agreement with the Black Mountain Consortium of March 25, 1981 was never
ratified by the NADECOR stockholders; indeed, it was explicitly rejected by said stockholders. Considering
that the Kingking Mines comprise all or substantially all the assets of NADECOR, the operating agreement
of March 25, 1981 had to be ratified by the stockholders in order to be valid and effective. This, in
accordance with Section 44 of the Corporation Code. That no such ratification was ever given constitutes
yet another reason to invalidate the same.
Under these circumstances, the agreement executed on March 25, 1981 was entered into in
defiance of valid orders of a court of competent jurisdiction and was in fact subsequently nullified by it; it was
entered into against the wishes of the majority of the stockholders and directors and in truth, was not
only not ratified by the majority of said stockholders as required by the Corporation Code, but explicitly
rejected and disowned by them at a meeting duly convoked, said stockholders thereafter approving an
operating agreement with Benguet Corporation; the agreement was sought to be vindicated and enforced by
individuals who no longer represented the majority of the stockholders of NADECOR, over the objection and
against the wishes of the legitimate majority; the authority granted to the consortium (Black Mountain, Inc.,
Energy Corporation, and Tetra Management Corporation) to implement the agreement of March 25, 1981
was rescinded and revoked by the Office of the President of the Philippines; and one of the companies in
said consortium is now, admittedly, no longer capable on account of bankruptcy of complying with its
contractual commitments—it is impossible to accord the agreement any validity or effect whatsoever.
It thus clearly appears, not only that upon purely legal considerations, the operating agreement of
March 25, 1981 is, if not outrightly void, unenforceable for want of requisite valid ratification and conferred
upon private respondents no actionable, vindicable rights, but also that, from a practical standpoint, any
issue about said respondents' rights under the agreement has been mooted by supervening events
effectively precluding their exercise in any case

70. Re: Corporate Liability

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SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner ,
vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents .
G.R. No. 129459 September 29, 1998
PANGANIBAN, J.:
Facts:
In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan) alleged that it entered into a
contract of sale with Motorich Sales Corporation (Motorich) through the latter’s treasurer, Nenita Gruenberg.
The subject of the sale was a parcel of land owned by Motorich. San Juan advanced P100k to Nenita as
earnest money.
On the day agreed upon on which Nenita was supposed to deliver the title of the land to Motorich,
Nenita did not show up. Nenita and Motorich did not heed the subsequent demand of San Juan to comply
with the contract hence San Juan sued Motorich. Motorich, in its defense, argued that it is not bound by the
acts of its treasurer, Nenita, since her act in contracting with San Juan was not authorized by the corporate
board.
San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that
Nenita and her husband owns 98% of the corporation’s capital stocks; that as such, it is a close corporation
and that makes Nenita and the President as principal stockholders who do not need any authorization from
the corporate board; that in this case, the corporate veil may be properly pierced.

Issue:
Whether or not San Juan is correct.

HELD:
No.
Motorich is right in invoking that it is not bound by the acts of Nenita because her act in entering
into a contract with San Juan was not authorized by the board of directors of Motorich. Nenita is however
ordered to return the P100k.
There is no merit in the contention that the corporate veil should be pierced even though it is true
that Nenita and her husband own 98% of the capital stocks of Motorich. The corporate veil can only be
pierced if the corporate fiction is merely used by the incorporators to shield themselves against liability for
fraud, illegality or inequity committed on third persons. It is incumbent upon San Juan to prove that Nenita or
her husband is merely using Motorich to defraud San Juan. In this case however, San Juan utterly failed to
establish that Motorich was formed, or that it is operated, for the purpose of shielding any alleged fraudulent
or illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or
inequity at the expense of third persons like San Juan.

71. Powers of Board of Directors or Trustees


CHINA BANKING CORPORATION, petitioner , vs . COURT OF APPEALS, and VALLEY GOLF and
COUNTRY CLUB, INC ., respondents .

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G.R. No. 117604. March 26, 1997
KAPUNAN, J .:
Facts:
On 21 August 1974, Galicano Calapatia, Jr. a stockholder of private respondent Valley Golf &
Country Club, Inc. (VGCCI) pledged his Stock Certificate No. 1219 to petitioner China Banking Corporation
(CBC). On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge
agreement be recorded in its books. In a letter dated 27 September 1974, VGCCI replied that the deed of
pledge executed by Calapatia in petitioner's favor was duly noted in its corporate books.
On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was
secured by the aforestated pledge agreement still existing between Calapatia and petitioner. Due to
Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial
foreclosure before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public
auction sale of the pledged stock.
On 14 May 1985, petitioner informed VGCCI of the foreclosure proceedings and requested that the
pledged stock be transferred to its (petitioner's) name and the same be recorded in the corporate books.
However, on 15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's request in
view of Calapatia's unsettled accounts with the club. Despite the foregoing, Notary Public de Vera held a
public auction on 17 September 1985 and petitioner emerged as the highest bidder at P20,000.00 for the
pledged stock. Consequently, petitioner was issued the corresponding certificate of sale.
On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No.
1219 by virtue of being the highest bidder in the 17 September 1985 auction and requested that a new
certificate of stock be issued in its name. On 2 March 1990, VGCCI replied that "for reason of delinquency"
Calapatia's stock was sold at the public auction held on 10 December 1986 for P25,000.00.
On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter
filed a case with the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and
for the issuance of a new stock certificate in its name. On 18 June 1990, the Regional Trial Court of Makati
dismissed the complaint for lack of jurisdiction over the subject matter on the theory that it involves an intra-
corporate dispute and on 27 August 1990 denied petitioner's motion for reconsideration.
On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission
(SEC) for the nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock
certificate issued pursuant thereto; for the issuance of a new certificate in petitioner's name; and for
damages, attorney's fees and costs of litigation. On 3 January 1992, SEC Hearing Officer Manuel P. Perea
rendered a decision in favor of VGCCI, stating in the main that "considering that the said share is
delinquent, VGCCI had valid reason not to transfer the share in the name of the petitioner in the books of
VGCCI until liquidation of delinquency." Consequently, the case was dismissed.
On appeal, Court of Appeals rendered its decision nullifying and setting aside the orders of the
SEC and its hearing officer on ground of lack of jurisdiction over the subject matter and, consequently,
dismissed petitioner's original complaint. The Court of Appeals declared that the controversy between CBC
and VGCCI is not intra-corporate. Hence, this petition.

Issue:
Whether or not the action of the corporation was proper.

Held:

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No.
VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the
Civil Code which stipulates that the creditor must take care of the thing pledged with the diligence of a good
father of a family, fails to convince. a membership share is quite different in character from a pawn ticket and
to reiterate, petitioner was never informed of Calapatia' s unpaid accounts and the restrictive provisions in
VGCCI's by-laws.
Under Sec. 63 of the Corporation Code which provides that "no shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be utilized
by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to
any indebtedness which a subscriber or stockholder may owe the corporation arising from any other
transaction." In the case at bar, the subscription for the share in question has been fully paid as evidenced
by the issuance of Membership Certificate No. 1219. What Calapatia owed the corporation were merely the
monthly dues. Hence, the aforequoted provision does not apply.

72. Other Powers of a Corporation


LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners,
vs.
FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS
COMMISSION, respondents.
G.R. No. 76801 August 11, 1995
PUNO, J.:
Facts:
Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion
Lopez Gonzales is one of its majority shareholders. It appears that petitioner corporation approved two (2)
resolutions providing for the gratuity pay of its employees Meanwhile, on July 28, 1981, board member and
majority stockholder Teresita Lopez Marquez died. On August 17, 1981, except for Asuncion Lopez
Gonzales who was then abroad, the remaining members of the Board of Directors, namely: Rosendo de
Leon, Benjamin Bernardino, and Leo Rivera, convened a special meeting and passed a resolution
Private respondents were the retained employees of petitioner corporation. In a letter, dated August
31, 1981, private respondents requested for the full payment of their gratuity pay. Their request was granted
in a special meeting held on September 1, 1981. At that, time, however, petitioner Asuncion Lopez Gonzales
was still abroad. Allegedly, while she was still out of the country, she sent a cablegram to the corporation,
objecting to certain matters taken up by the board in her absence, such as the sale of some of the assets of
the corporation. Upon her return, she filed a derivative suit with the Securities and Exchange Commission
(SEC) against majority shareholder Arturo F. Lopez.

Issue:
Whether or not public respondent acted with grave abuse of discretion in holding that private
respondents are entitled to receive their gratuity pay under the assailed board resolutions dated August 17,
1951 and September 1, 1981.

HELD:

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Yes.
The general rule is that a corporation, through its board of directors, should act in the manner and
within the formalities, if any, prescribed by its charter or by the general law. Thus, directors must act as a
body in a meeting called pursuant to the law or the corporation's by-laws, otherwise, any action taken
therein may be questioned by any objecting director or shareholder.
In the case at bench, it was established that petitioner corporation did not issue any resolution
revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid
the gratuity pay, particularly, the first two (2) installments thereof, of private respondents Florentina
Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista.Despite the alleged lack of notice to
petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from
the records that she was aware of the corporation's obligation under the said resolutions. More importantly,
she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed
her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing
the 2nd installment of the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha.
As such, the Court ruled that the conduct of petitioners after the passage of resolutions dated
August, 17, 1951 and September 1, 1981, had estopped them from assailing the validity of said board
resolution.

73. Re: Board Acting as a Body

EMILIANO ACUÑA, plaintiff-appellant,


vs.
BATAC PRODUCERS COOPERATIVE MARKETING ASSOCIATION, INC., defendants-appellees.
G.R. No. L-20333 June 30, 1967

MAKALINTAL, J.:

Facts:

EmilianoAcuna and Leon Verano as the manager of defendant Batacprocoma, inc.agreed that the
former would advance and amount not less than p20,000 from the latter for the redrying of its tobacco.
Acunawas constituted as the corporation’s representative in Manila to assist in handling and facilitating its
continuous shipment of tobacco. For the services of acuna, he will be paid fifty cents per kilo of tobacco.
Said agreement was however tentative as it was subject to approval by the Board of Directors. Upon
referral to the Board, the latter agreed on all the terms of the contracts except as to the remuneration and
agreed only to thirty cents per kilo of tobacco. Nevertheless, the plaintiff agreed to the modification. After,
complying with his obligation by virtue of the contract, the petitioner sought for his compensation from
BatacProcoma but the latter refused to pay and denied acquiescence to the terms of the contract as there
was no proof to such agreement.

Issue:

Whether or not the contract is valid

HELD:

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Yes, the contract is valid. the records show that there was subsequent ratification by the Board of
Directors. The plaintiff met with each and all of the individual defendants (who constituted the entire Board of
Directors) and discussed with them extensively the tentative agreement and he was made to understand
that it was acceptable to them, except as to plaintiff's remuneration; that it was finally agreed between
plaintiff and all said Directors that his remuneration would be P0.30 per kilo (of tobacco); and that after the
agreement was formally executed he was assured by said Directors that there would be no need of formal
approval by the Board. Absence any resolution to this effect should not be used to prejudice a party who
was assured by the directors themselves of their acquiescence.

There is abundant authority in support of the proposition that ratification may be express or implied, and that
implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or
adoption of the contract; or by acceptance and retention of benefits flowing therefrom.

74. Re: Qualifications of Directors and Trustees

ROSITA PEÑA petitioner,


vs.
THE COURT OF APPEALS, SPOUSES RISING T. YAP et. al

G.R. No. 91478 February 7, 1991

GANCAYCO, J.:

Facts:

A parcel of land was mortgaged by PAMBUSCO as security for a loan obtained from DBP.
Themortgage was foreclosed for failure to pay the loan. In a foreclosure sale held by DBP, petitioner was
declared the highest bidder hence the issuance in her favor of a certificate of sale. In the meantime,
PAMBUSCO assigned its right to redeem the property to one Marcelino Enriquez who redeemed the
property and sold the same to the spouses Yap. The deed of sale made in favor of the Yaps was assailed by
the petitioner on the ground that it was made under a void deed of assignment.

Issue:

whether or not he deed of assignment made in favour of enriquez is valid

HELD:

NO. The deed of assignment in favour of Enriquez is void on the following grounds

1. The meeting called for the purpose of issuing a resolution allowing the assignment of the right of the
corporation to redeem was in violation of the corporate by laws. The by-laws of the corporation states that in

111 | P a g e
order to obtain a quorum, at least four directors should be present. In the case at hand, only three were in
attendance.

2. The act of the directors was tantamount sale of all or substantially all of the assets of the corporation as
the right to redeem the property was basically the only asset of the corporation hence the need for the vote
of atleast 2/3s of the stockholders.

3. In the latest Annual Information sheet of the corporation, the names of the alleged Board of Directors who
issued the resolution were not listed as shareholders of the corporation. In effect, they lack the qualifying
share to be directors of the corporation.

75. Re: Director’s or Trustees Meeting

SALVADOR P. LOPEZ, vs. HON. VICENTE ERICTA, Judge of the Court of First Instance of Rizal,
Branch XVIII (Quezon City), and DR. CONSUELO S. BLANCO, respondents

G.R. No. L-32991 June 29, 1972

MAKALINTAL, J.:

Facts:

Dr.Consuelo Blanco was appointed as ad interim Dean of the College of Education of the
University of the Philippines pending the deliberation of the Personnel Committee of the University. The
appointment was effective unless sooner terminated and subject to the approval of the Board of Regents of
the University. In the deliberation of respondent’s appointment, the Board of Regents came up with the
following votes to wit; : five (5) votes in favor of Dr. Blanco's ad interim appointment, three (3) votes against,
and four (4) abstentions — all the twelve constituting the total membership of the Board of the time.
Because of which, the board decided to withdraw the appointment of Blanco. Blanco sought his
reinstatement as his appointment should have been made permanent based on the roll call of votes.
According to him, the abstentions should have been treated as votes in favour of the majority.

Issue:

Whether or not the abstentions should be considered as votes in favour of respondent

HELD:

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As a general rule, abstentions are considered as acquiescence by those who abstained in favour
of the majority votes. In the case at hand, private respondent’s contention should have been found
meritorious. However, the reason for the abstention is apparent from the minutes of the meeting where it
was shown that the Board really intended to withdraw respondent’s appointment but opted to do it in a
diplomatic way so as to avoid embarrassment on the part of respondent. Hence, in cases of abstention, the
purpose for which should be considered. In the absence of any explanation for abstention, the general rule
shall apply.

76. Re: Compensation of Directors

WESTERN INSTITUTE OF TECHNOLOGY, INC.,


vs .
RICARDO T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS
& HON. JUDGE PORFIRIO PARIAN,
G.R. No. 113032. August 21, 1997
HERMOSISIMA, JR., J .:
Facts:

Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S.


Salas, and Richard S. Salas, belonging to the same family, are the majority and controlling members of the
Board of Trustees of Western Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in
the operation, among others, of an educational institution. In a special meeting, the private respondents as
members of the board of trustees resolved to grant monthly compensation to its officers and other
remunerations. The directors happened to be the officers themselves

This act by the body was assailed by some stockholders.

Issue:

Whether or not the compensation subject of the resolution is valid

HELD:

The resolution is valid. In the case at bench, Resolution No. 48, s. 1986 granted monthly
compensation to private respondents not in their capacity as members of the board, but rather as officers of
the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western
Institute of Technology.

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77. Re: Role of Directors
JOHN GOKONGWEI, JR., petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO,
ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL
ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and
EDUARDO R. VISAYA, respondents.
G.R. No. L-45911 April 11, 1979

FACTS:
Petitioner, stockholder of San Miguel Corp. filed a petition with the SEC for the declaration of nullity
of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the by-laws that
the amendment or modification of the by-laws may only be delegated to the BODs upon an affirmative vote
of stockholders representing not less than 2/3 of the subscribed and paid uo capital stock of the corporation,
which 2/3 could have been computed on the basis of the capitalization at the time of the amendment.
Petitioner contends that the amendment was based on the 1961 authorization, the Board acted without
authority and in usurpation of the power of the stockholders n amending the by-laws in 1976. He also
contends that the 1961 authorization was already used in 1962 and 1963. He also contends that the
amendment deprived him of his right to vote and be voted upon as a stockholder (because it disqualified
competitors from nomination and election in the BOD of SMC), thus the amended by-laws were null and
void. While this was pending, the corporation called for a stockholder’s meeting for the ratification of the
amendment to the by-laws. This prompted petitioner to seek for summary judgment. This was denied by the
SEC. In another case filed by petitioner, he alleged that the corporation had been using corporate funds in
other corps and businesses outside the primary purpose clause of the corporation in violation of the
Corporation Code.

ISSUE:
Whether or not the amendments valid?

HELD:
The validity and reasonableness of a by-law is purely a question of law. Whether the by-law is in
conflict with the law of the land, or with the charter of the corporation or is in legal sense unreasonable and
therefore unlawful is a question of law. However, this is limited where the reasonableness of a by-law is a
mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not
be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-
laws and who have exercised authority. The Court held that a corporation has authority prescribed by law to
prescribe the qualifications of directors. It has the inherent power to adopt by-laws for its internal
government, and to regulate the conduct and prescribe the rights and duties of its members towards itself
and among themselves in reference to the management of its affairs. A corporation, under the Corporation
law, may prescribe in its by-laws the qualifications, duties and compensation of directors, officers, and
employees. Any person who buys stock in a corporation does so with the knowledge that its affairs are
dominated by a majority of the stockholders and he impliedly contracts that the will of the majority shall
govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not

114 | P a g e
forbidden by law. Any corporation may amend its by-laws by the owners of the majority of the subscribed
stock. It cannot thus be said that petitioners has the vested right, as a stock holder, to be elected director, in
the face of the fact that the law at the time such stockholder's right was acquired contained the prescription
that the corporate charter and the by-laws shall be subject to amendment, alteration and modification. A
Director stands in a fiduciary relation to the corporation and its shareholders, which is characterized as a
trust relationship. An amendment to the corporate by-laws which renders a stockholder ineligible to be
director, if he be also director in a corporation whose business is in competition with that of the other
corporation, has been sustained as valid. This is based upon the principle that where the director is
employed in the service of a rival company, he cannot serve both, but must betray one or the other. The
amendment in this case serves to advance the benefit of the corporation and is good. Corporate officers are
also not permitted to use their position of trust and confidence to further their private needs, and the act
done in furtherance of private needs is deemed to be for the benefit of the corporation. This is called the
doctrine of corporate opportunity.

78 Re: Officer of Corporation

ARMANDO T. DE ROSSI, petitioner


vs.
NATIONAL LABOR RELATIONS COMMISSION, MATLING INDUSTRIAL AND COMMERCIAL
CORPORATION AND RICHARD K. SPENCER, respondents
G.R. No. 108710. September 14, 1999

FACTS:
An Italian citizen, petitioner was the Executive Vice-President and General Manager of private
respondent, Matling Industrial and Commercial Corporation (MICC). He started work on July 1, 1985. On
August 10, 1988, MICC terminated his employment. Aggrieved, petitioner filed with the NLRC a complaint
for illegal dismissal with corresponding damage. MICC based petitioner’s dismissal on the ground that the
petitioner failed to secure his employment permit, grossly mismanaged the business affairs of the company,
and misused corporate funds. However, petitioner argued that it was the duty of the company to secure his
work permit during the term of his office, and that his termination was illegal for lack of just cause. The Labor
Arbiterrendered a decision in favor of petitioner.MICC appealed the decision of the labor arbiter to the
NLRC. Petitioner filed a motion for issuance of writ of execution, stating that the reinstatement order is
immediately executory. Respondents opposed the said motion. Further, they contended that the position of
executive vice-president is an elective post, specifically provided by the corporate’s by-laws. Thus, the
dismissal of the petitioner was an intra-corporate matter within the jurisdiction of the Securities and
Exchange Commission (SEC) and not with the Labor Arbiter nor the NLRC.

ISSUE:
Whether or not the case falls under the jurisdiction of the NLRC.

HELD:
No. Section 5, paragraph (c) of P.D. 902-A unequivocally provides that SEC has jurisdiction over
intra-corporate affairs regarding the election or appointment of officers of a corporation. An “office” is created

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by the charter of the corporation under which a corporation is organized, and the officer is elected by the
directors or stockholders. In the present case, private respondents aver that the officers and their terms of
office are prescribed by the corporation’s by-laws. The by-laws being in force, clearly petitioner is
considered an officer of MICC, elected and/or designated by its board of directors. Following Section 5(c) of
P.D. No. 902-A, the SEC exercises exclusive jurisdiction over controversies regarding the election and/or
designation of directors, trustees, officers or managers of a corporation, partnership or association. This
provision is indubitably applicable to the petitioner’s case. Jurisdiction here is not with the Labor Arbiter nor
the NLRC, but with the SEC.

79 Re: Officer of the Corporation

PURIFICACION G. TABANG, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and


PAMANA GOLDEN CARE MEDICAL CENTER FOUNDATION, INC., respondents.
G.R. No. 121143. January 21, 1997

FACTS:
Petitioner PurificacionTabang was a founding member, a member of the Board of Trustees, and the
corporate secretary of private respondent Pamana Golden Care Medical Center Foundation, Inc., a non-
stock corporation engaged in extending medical and surgical services.The Board of Trustees issued a
memorandum appointing petitioner as Medical Director and Hospital Administrator of private respondent’s
Pamana Golden Care Medical Center in Calamba, Laguna.Although the memorandum was silent as to the
amount of remuneration for the position, petitioner claims that she received a monthly retainer fee of five
thousand pesos from private respondent, but the payment thereof was allegedly stopped in November,
1991.As medical director and hospital administrator, petitioner was tasked to run the affairs of the aforesaid
medical center and perform all acts of administration relative to its daily operations.Petitioner was allegedly
informed that the Board of Trustees passed a resolution relieving her of her position as Medical Director and
Hospital. Petitioner averred that she thereafter received a copy of said board resolution.Petitioner filed a
complaint for illegal dismissal and non-payment of wages, allowances and 13th month pay before the labor
arbiter.Respondent Corporation moved for the dismissal of the complaint on the ground of lack of jurisdiction
over the subject matter. It argued that petitioner’s position as Medical Director and Hospital Administrator
was interlinked with her position as member of the Board of Trustees, hence, her dismissal is an intra-
corporate controversy which falls within the exclusive jurisdiction of the Securities and Exchange
Commission (SEC).The labor arbiter issued an order dismissing the complaint for lack of jurisdiction. NLRC
affirmed the dismissal of the case on the additional ground that “the position of a Medical Director and
Hospital Administrator is akin to that of an executive position in a corporate ladder structure,” hence,
petitioner’s removal from the said position was an intra-corporate controversy within the original and
exclusive jurisdiction of the SEC.

ISSUE:
Whether or not the case falls within the jurisdiction of the SEC

HELD:
Yes. The charges against herein private respondent partake of the nature of an intra-corporate
controversy. Similarly, the determination of the rights of petitioner and the concomitant liability of private

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respondent arising from her ouster as a medical director and/or hospital administrator, which are corporate
offices, is an intra-corporate controversy subject to the jurisdiction of the SEC.A medical director and a
hospital administrator are considered as corporate officers under the by-laws of respondent corporation. The
president, vice-president, secretary and treasurer are commonly regarded as the principal or executive
officers of a corporation, and modern corporation statutes usually designate them as the officers of the
corporation. However, other offices are sometimes created by the charter or by-laws of a corporation, or the
board of directors may be empowered under the by-laws of a corporation to create additional offices as may
be necessary. It has been held that an “office” is created by the charter of the corporation and the officer is
elected by the directors or stockholders. On the other hand, an “employee” usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of the
corporation who also determines the compensation to be paid to such employee.In the case at bar,
considering that herein petitioner, unlike an ordinary employee, was appointed by respondent corporation’s
Board of Trustees in its memorandum of October 30, 1990,[9] she is deemed an officer of the corporation.
Perforce, Section 5(c) of Presidential Decree No. 902-A, which provides that the SEC exercises exclusive
jurisdiction over controversies in the election or appointment of directors, trustees, officers or managers of
corporations, partnerships or associations, applies in the present dispute. Accordingly, jurisdiction over the
same is vested in the SEC, and not in the Labor Arbiter or the NLRC.

80 Re: Powers of Corporate Officers

REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners,


vs.
HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents.
G.R. No. 100866 July 14, 1992

FACTS:
In two separate complaints for recovery of possession filed with the Regional Trial Court of Laguna
against petitioners respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the
ejectment of the petitioners from buildings inside the Hidden Valley Springs Resort located at Limao,
Calauan, Laguna allegedly owned by the respondent corporation.In the case of petitioner Rebecca Boyer-
Roxas, the respondent corporation alleged that Rebecca is in possession of two houses; and that her
occupancy on the two houses was only upon the tolerance of the respondent corporation.In the case of
petitioner Guillermo Roxas, the respondent corporation alleged that Guillermo occupies a house which was
built at the expense of the former during the time when Guillermo's father, EribertoRoxas, was still living and
was the general manager of the respondent corporation; that the house was originally intended as a
recreation hall but was converted for the residential use of Guillermo; and that Guillermo's possession over
the house and lot was only upon the tolerance of the respondent corporation. In both cases, the respondent
corporation alleged that the petitioners never paid rentals for the use of the buildings and the lots and that
they ignored the demand letters for them to vacate the buildings.In their separate answers, the petitioners
traversed the allegations in the complaint by stating that they are heirs of Eugenia V. Roxas and therefore,
co-owners of the Hidden Valley Springs Resort; and as co-owners of the property, they have the right to stay
within its premises. The petitioners maintain that their possession of the questioned properties must be
respected in view of their ownership of an aliquot portion of all the properties of the respondent corporation

117 | P a g e
being stockholders thereof. They propose that the veil of corporate fiction be pierced, considering the
circumstances under which the respondent corporation was formed.

ISSUE:
Whether or not the contention of the petitioners is tenable.

HELD:
No. The respondent is a bona fide corporation. As such, it has a juridical personality of its own
separate from the members composing it.There is no dispute that title over the questioned land where the
Hidden Valley Springs Resort is located is registered in the name of the corporation. The records also show
that the staff house being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was
later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the
respondent corporation.Properties registered in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of stock constitute personal property, they do not
represent property of the corporation. The corporation has property of its own which consists chiefly of real
estate.A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its
proceeds to that extent when distributed according to law and equity, but its holder is not the owner of any
part of the capital of the corporation. Nor is he entitled to the possession of any definite portion of its
property or assets. The stockholder is not a co-owner or tenant in common of the corporate property.

81 RE: Liabilities of Corporate Officers

G.R. No. L-48930 February 23, 1944


ANTONIO VAZQUEZ vs. FRANCISCO DE BORJA

OZAETA, J. :

Facts:

Antonio Vasquez was the acting manager of Natividad-Vasquez Sabani Development Co., Inc., a
corporation organized and existing under the laws of the Philippines. In January 1932, Vasquez, together
with Fernando Busuego jointly and severally obligated themselves to sell to Francisco de Borja 4,000
cavans of palay at P2.10 per cavan. It was to be delivered during the month of February 1932, but only
2,488 cavans of palay were delivered and Vasquez and Busuego allegedly refused to deliver the balance of
1,512 cavans notwithstanding repeated demands. De Borja filed an action in court in order to recover from
Vasquez and Busuego the total sum of the value of the 4,000 cavans of palay at P2.10 per cavan.

The defendant Antonio Vazquez answered the complaint, denying having entered into the contract
mentioned in the first cause of action in his own individual and personal capacity, either solely or together
with his codefendant Fernando Busuego, and alleging that the agreement for the purchase of 4,000 cavans
of palay and the payment of the price of P8,400 were made by the plaintiff with and to the Natividad-
Vasquez Sabani Development Co., Inc., a corporation organized and existing under the laws of the

118 | P a g e
Philippines, of which the defendant Antonio Vazquez was the acting manager at the time the transaction
took place.

Issue:

The issue in this case is whether or not Antonio Vasquez entered into the contract with in his
personal capacity and can be held liable personally for the amount.

HELD:

The Supreme Court ruled in the negative. It is well known that a corporation is an artificial being
invested by law with a personality of its own, separate and distinct from that of its stockholders and from that
of its officers who manage and run its affairs. The mere fact that its personality is owing to a legal fiction and
that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly
entered into, or for an act lawfully performed, by them for an in its behalf. The legal fiction by which the
personality of a corporation is created is a practical reality and necessity. Without it no corporate entities
may exists and no corporate business may be transacted. Such legal fiction may be disregarded only when
an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has been
alleged or proven in this case.

It has not been alleged nor even intimated that Vazquez personally benefited by the contract of
sale in question and that he is merely invoking the legal fiction to avoid personal liability. Neither is it
contended that he entered into said contract for the corporation in bad faith and with intent to defraud the
plaintiff.

The trial court and the Court of Appeals found Vasquez guilty, however, on the ground of
negligence. The fault and negligence referred to in articles 1101-1104 of the Civil Code are those incidental
to the fulfillment or non-fulfillment of a contractual obligation; while the fault or negligence referred to in
article 1902 is the culpa aquiliana of the civil law, homologous but not identical to tort of the common law,
which gives rise to an obligation independently of any contract.

The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the
fulfillment of the contract did not make Vazquez principally or even subsidiarily liable for such negligence.
Since it was the corporation's contract, its non-fulfillment, whether due to negligence or fault or to any other
cause, made the corporation and not its agent, liable.

82 RE: Liabilities of Corporate Officers

G.R. No. 90634-35 June 6, 1990


CARMELCRAFT CORPORATION v. NLRC

CRUZ, J .:

Facts:

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Carmelcraft Employees Union is a duly-registered labor union. It sought but did not get recognition
from CarmelCraft Corp. Consequently, it filed a petition for certification election but in a meeting with the
employees, Carmelcraft Corporation, through its president and general manager, Carmen Yulo, announced
that it would cease operations due to serious financial losses. Operations did cease as announced. The
union filed a complaint with the Department of Labor against CarmelCraft for illegal lockout, unfair labor
practice and damages, followed the next day with another complaint for payment of unpaid wages,
emergency cost of living allowances, holiday pay, and other benefits. The Labor Arbiter declared the
shutdown illegal and violative of the employees' right to self-organization. CarmelCraft Corporation now
assails the Decision made by the Labor Arbiter on the ground that it is tainted with grave abuse of discretion.

Issue:

The issue in this case is whether or not the Decision rendered by the Labor Arbiter is tainted with
grave abuse of discretion.

HELD:

The Supreme Court ruled in the affirmative. The reason invoked by the petitioner company to justify
the cessation of its operations is hardly credible; in fact, it is preposterous when viewed in the light of the
other relevant circumstances. Its justification is that it sustained losses in the amount of P 1,603.88 but there
is no report, however, of its operations during the period after that date, that is, during the succeeding seven
and a half months before it decided to close its business. Significantly, the company is capitalized at P 3
million. Considering such a substantial investment, we hardly think that a loss of the paltry sum of less than
P 2,000.00 could be considered serious enough to call for the closure of the company.
The Court agreed with the Carmelcraft Employees Union that the real reason for the decision of the
Carmelcraft Corp. to cease operations was the establishment of Carmelcraft Employees Union. It was
apparently unwelcome to the corporation, which would rather shut down than deal with the union. There is
the allegation from CarmelCraft Employees Union that the company had suggested that it might decide not
to close the business if the employees were to affiliate with another union which the management preferred
which was not sufficiently disproved.
It is also untenable that Carmen Yulo is not liable for the acts of the company, assuming it had
acted illegally, because the Carmelcraft Corporation is a distinct and separate entity with a legal personality
of its own. Yulo claims she is only an agent of the company carrying out the decisions of its board of
directors but it was found that she is in fact and legal effect the corporation, being not only its president and
general manager but also its owner.
WHEREFORE, the petition is DISMISSED and the challenged decision is AFFIRMED, with costs
against the petitioner. It is so ordered.

83 Re: Liabilities of Corporate Officers

G.R. No. 98239. April 25, 1996

120 | P a g e
CONSUELO VALDERRAMA vs. NATIONAL LABOR RELATIONS COMMISSION, FIRST DIVISION
AND MARIA ANDREA SAAVEDRA

MENDOZA, J.:

Facts:

On October 27, 1983, Maria Andrea Saavedra, herein private respondent, filed a complaint against
the COMMODEX (Phils.), Inc., petitioner Consuelo Valderrama as owner, Tranquilino Valderrama as
executive vice president and Jose Ma. Togle as vice president and general manager, for reinstatement and
backwages. On December 2, 1986, the Labor Arbiter rendered a decision, finding private respondent to
have been illegally dismissed and holding the respondent COMMODEX liable. It was shown that private
respondent had been dismissed from her employment due to her pregnancy, contrary to allegations of
petitioner and her co-respondents therein that the termination of her employment was due to redundancy
and retrenchment. A writ of execution was granted, but it was returned unsatisfied. The sheriff reported that
COMMODEX had ceased operation, while the individual officers, who were co-respondents in the case, took
the position that the writ could not be enforced against them on the ground that the dispositive portion of the
decision mentioned only COMMODEX.

Issue:

The issue in this case is whether or not the Decision of the Labor Arbiter may still be satisfied
notwithstanding the cessation of COMMODEX’s operations.

HELD:

The Supreme Court ruled in the affirmative. The rule that once a judgment becomes final it can no
longer be disturbed, altered, or modified is not an inflexible one. It admits of exceptions, as where facts and
circumstances transpire after a judgment has become final and executory which render its execution
impossible or unjust. In such a case the modification of the decision may be sought by the interested party
and the court will modify and alter the judgment to harmonize it with justice and the facts. In the case at bar,
modification of the judgment is appropriate considering that the company is no longer in operation and there
is no showing that it has filed bankruptcy proceedings in which private respondent might file a claim and
pursue her remedy under Article 110 of the Labor Code.

A corporation can only act through its officers and agents. The case of A. C. Ransom Labor Union-
CCLU v. NLRC clearly also holds that any decision against the company can be enforced against the
officers in their personal capacities should the corporation fail to satisfy the judgment against it.

Agreeably with the HELD in A. C. Ransom Labor Union-CCLU it was held in another case that
“where the Employer corporation is no longer existing and is unable to satisfy the judgment in favor of the
employee, the officer should be held liable for acting on behalf of the corporation.”

84 Re: Service of Summons on Corporations

121 | P a g e
G.R. No. 136426 August 6, 1999
E. B. VILLAROSA & PARTNER CO., LTD. v. HON. HERMINIO I. BENITO

GONZAGA-REYES, J.:

Facts:
E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal office address at 102 Juan
Luna St., Davao City and with branch offices at 2492 Bay View Drive, Tambo, Parañaque, Metro Manila and
Kolambog, Lapasan, Cagayan de Oro City. It executed a Deed of Sale with Development Agreement with
Imperial Development Corporation wherein the former agreed to develop certain parcels of land located at
Barrio Carmen, Cagayan de Oro belonging to the latter into a housing subdivision for the construction of low
cost housing units but the latter subsequently filed a Complaint for Breach of Contract and Damages for
failure of E.B. Villarosa & Partner Co., Ltd. to comply with its contractual obligation in that, other than a few
unfinished low cost houses, there were no substantial developments at Barrio Carmen. The Summons was
served upon E.B. Villarosa & Partner Co., Ltd. through its Branch Manager Engr. Wendell Sabulbero at
Cagayan de Oro City. E.B. Villarosa & Partner Co., Ltd. moved to dismiss the case because summons
intended for it was served upon Engr. Wendell Sabulbero, an employee at its branch office at Cagayan de
Oro City. It prayed for the dismissal of the complaint on the ground of improper service of summons and for
lack of jurisdiction over the person of the defendant. It contends that the trial court did not acquire
jurisdiction over its person since the summons was improperly served upon its employee in its branch office
at Cagayan de Oro City who is not one of those persons named in Section 11, Rule 14 of the 1997 Rules of
Civil Procedure upon whom service of summons may be made.

Issue:

The issue in this case is whether or not the Court was able to acquire jurisdiction over the person
of the defendant.

HELD:

The Supreme Court ruled in the negative. When the complaint was filed in 1998, the 1997 Rules of
Civil Procedure was already in force. Sec. 11, Rule 14 of the 1997 Rules of Civil Procedure provides that:
“when the defendant is a corporation, partnership or association organized under the laws of the Philippines
with a juridical personality, service may be made on the president, managing partner, general manager,
corporate secretary, treasurer, or in-house counsel. The rule now states "general manager" instead of only
"manager"; "corporate secretary" instead of "secretary"; and "treasurer" instead of "cashier." The phrase
"agent, or any of its directors" is conspicuously deleted in the new rule. The old rule, Section 13 of Rule 14,
was revised because its terms were obviously ambiguous and susceptible of broad and sometimes illogical
interpretations, especially the word "agent" of the corporation. The service of summons upon the branch
manager of E.B. Villarosa & Partner Co., Ltd. at its branch office at Cagayan de Oro, instead of upon the
general manager at its principal office at Davao City is improper. Consequently, the trial court did not acquire
jurisdiction over the person of the E.B. Villarosa & Partner Co., Ltd.

122 | P a g e
85RE: Liabilities of Corporate Officers

MAM REALTY DEVELOPMENT CORPORATION and MANUEL CENTENOvs.


NATIONAL LABOR RELATIONS COMMISSION and CELSO B. BALBASTRO
G.R. No. 114787 June 2, 1995

FACTS:

The case originated from a complaint filed with the Labor Arbiter by private respondent Celso B.
Balbastro against MAM Realty Development Corporation ("MAM") and its Vice President Manuel P.
Centeno, for wage differentials, "ECOLA," overtime pay, incentive leave pay, 13 th month pay, holiday pay
and rest day pay. Balbastro alleged that he was employed by MAM as a pump operator in 1982 and had
since performed such work at its Rancho Estate, Marikina, Metro Manila. He earned a basic monthly salary
of P1,590.00 for seven days of work a week.MAM countered that Balbastro had previously been employed
by Francisco Cacho and Co., Inc., the developer of Rancho Estates. Sometime in May 1982, his services
were contracted by MAM for the operation of the Rancho Estates' water pump. He was engaged, however,
not as an employee, but as a service contractor, at an agreed fee of P1,590.00 a month.

Similar arrangements were likewise entered into by MAM with one Rodolfo Mercado and with a
security guard of Rancho Estates III Homeowners' Association. Under the agreement, Balbastro was merely
made to open and close on a daily basis the water supply system of the different phases of the subdivision
in accordance with its water rationing scheme. He worked for only a maximum period of three hours a day,
and he made use of his free time by offering plumbing services to the residents of the subdivision. He was
not at all subject to the control or supervision of MAM for, in fact, his work could so also be done either by
Mercado or by the security guard. On 23 May 1990, prior to the filing of the complaint, MAM executed a
Deed of Transfer, effective 01 July 1990, in favor of the Rancho Estates Phase III Homeowners Association,
Inc., conveying to the latter all its rights and interests over the water system in the subdivision. Centeno was
held solidarily liable with the corporation.

ISSUE:
Whether or not it is proper to hold a corporate officer solidarily liable with the corporation

HELD:

NO.
NLRC erred in holding Centeno jointly and severally liable with MAM. A corporation, being a
juridical entity, may act only through its directors, officers and employees. Obligations incurred by them,
acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they
represent. True, solidary liabilities may at times be incurred but only when exceptional circumstances
warrant such as, generally, in the following cases:
1. When directors and trustees or, in appropriate cases, the officers of a corporation —
(a) vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members,
and other persons.

123 | P a g e
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto.
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the Corporation.
4 When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action.
In labor cases, for instance, the Court has held corporate directors and officerssolidarily liable with
the corporation for the termination of employment of employees done with malice or in bad faith.In the case
at Bench, there is nothing substantial on record that can justify, prescinding from the foregoing, petitioner
Centeno's solidary liability with the corporation.

WHEREFORE, the order of 21 March 1994 is MODIFIED. The case is REMANDED to the NLRC
for a re-computation of private respondent's monetary awards, which, conformably with this opinion, shall be
paid solely by petitioner MAM Realty.

86RE: Agent of the Corporation/ Veil of Corporate Fiction

R. F. SUGAY and CO., INC.vs.


PABLO C. REYES, CESAR CURATA, PACIFIC PRODUCTS, INC., and WORKMEN'S
COMPENSATION COMMISSION

G.R. No. L-20451 December 28, 1964


FACTS:
This is a Workmen's Compensation Case, the compensability of the injuries suffered by the
claimants, Pablo C. Reyes, and Cesar Curata, being admitted by all the parties.
In the evening of January 13, 1961, respondents Pablo Reyes and Cesar Curata suffered burns of
various degrees, while painting the building of the Pacific Products, Inc., caused by a fire of accidental
origin, resulting in their temporary disability from work. For said injuries they filed claims for disability and
medical expenses against the R. F. Sugay& Co., Inc., Romulo F. Sugay and the Pacific Products, Inc. The
R. F. Sugay& Co., Inc., answered the claim, alleging that the corporation was not the employer of the
claimants but it was the Pacific Products, Inc., which had an administration and supervision job contract with
Romulo F. Sugay, who, aside from being the President of the corporation, bearing his name, had also a
business of his own, distinct and separate from said corporation; Romulo F. Sugay did not file an Answer,
but voluntarily appeared during the hearing and disclaimed liability.The Answer of Pacific Products, Inc.
averred that its business was mainly in the manufacture and sale of lacquer and other painting materials. As
defenses, it stated that the claimants were the employees of respondents R. F. Sugay Construction Co.,
Inc., and/or Romulo F. Sugay.
The Hearing Officer dismissed the case with respect, to R. F. Sugay& Co., Inc., and Romulo F.
Sugay "for want of employer-employee relationship with the claimants, either directly or through an
independent contractor".

124 | P a g e
Commissioner Jose Sanchez modified the decision of the Hearing Officer, by finding that R. F.
Sugay& Co., Inc., was the statutory employer of the claimants and should be liable to them. Pacific
Products, Inc., was absolved from all responsibility.

ISSUE:
Who among the three (3) persons (Romulo Sugay, R. F. Sugay& Co., Inc., and Pacific Products,
Inc.) is the statutory employer of said claimants and who should be liable for their disability compensation.

HELD:
In the case at bar, We find that the findings of facts made by the Commissioner and concurred in
by the Commission en banc are fully supported by the evidence on record which clearly points out that R. F.
Sugay& Co., is the statutory employer of the claimants. The decisive elements showing that it is the
employer, are present: such as selection and engagement; payment of wages; power of dismissal, and
control. These powers were lodged in R. F. Sugay& Co.
There was a faint attempt by the petitioning corporation, to evade liability, by advancing the theory
that Romulo P. Sugay, its President, was the one who entered into a contract of administration and
supervision for the painting of the factory of the Pacific Products, Inc., and making it appear that said
Romulo F. Sugay acted as an agent of the Pacific Products, Inc., and as such, the latter should be made
answerable to the compensation due to the claimants.
We agree with the Commission that "the dual roles of Romulo F. Sugay should not be allowed to
confuse the facts relating to employer-employee relationship." It is a legal truism that when the veil of
corporate fiction is made as a shield to perpetrate a fraud and/or confuse legitimate issues (here, the
relation of employer-employee), the same should be pierced. Verily the R. F. Sugay& Co., Inc. is a business
conduit of R. F. Sugay.
IN VIEW HEREOF, the judgment appealed from, is hereby affirmed, in all respects. Costs taxed
against petitioner R. F. Sugay& Co., Inc., in both instances.

87RE:Liabilities of Corporate Officers

PARADISE SAUNA, MASSAGE CORPORATION and JUANITO UY


vs. ALEJANDRO NG AND THE INTERMEDIATE APPELLATE COURT

G.R. No. L-66394 February 5, 1990

FACTS:
Paradise Sauna and Uy alleged that the contract executed between them and Ng was a
Management contract. The latter alleged that it was a Lease Contract. The amended complaint of Ng
alleged, among others, that the petitioners agreed to lease in favor of the private respondent their business
called "Paradise Sauna and Massage Corporation" located at E. Rodriguez, Sr. Avenue, Quezon City and
that they entered into a contract whereby the latter shall have full control and management of the said
business effective January 1, 1976 until September 30,1979; that as lessee of the said business with full
and sole control thereof, private respondent's principal obligation consists of only paying the petitioners the
sum of P8,000 not later than the first five (5) days of each month as rentals and remitting to the latter the

125 | P a g e
sum of P16,000 as guarantee bond; that as such lessee, the private respondent assumed control and
management of the petitioner's business on January 1, 1976, hired and paid personnel to beef up its
operations and tried religiously to comply with his obligations like paying for his account all government
licenses, permits, utilities and services in the premises such as water, gas, electricity and telephone; that the
private respondent paid all the monthly rentals due the petitioners until December 1976; that the petitioner
refused to accept the rental for January 1977 and asked the private respondent to vacate and leave the
premises instead thereby terminating his services and forfeiting his guarantee bond; that on January 16,
1977, the petitioners, assisted by Metrocom soldiers, entered the private respondent's office and through
intimidations, forcibly ejected him from the premises, assumed full control and supervision of the business
and put another person in his place who immediately took possession of all cash sales for the day; that the
private respondent returned to the business premises the following day but he was refused entry and there
was a notice to all the employees in front of the premises signed by the petitioners to the effect that the
private respondent's services had been terminated and that another person had been appointed to take his
place;
After trial, the lower court rendered judgment in favor of the private respondent.
On appeal, the then Intermediate Appellate Court affirmed in toto the decision of the trial court.

ISSUE:
Whether or not petitioner UY is severally liable with the corporation

HELD:
YES.
In HELD that the subject contract is a lease contract and not a management contract, the Court
adopts the findings of fact made by the trial court and affirmed by the respondent court.
The claim of the petitioners that respondent Ng is their manager-administrator is untenable since it
fails to pass the control test pertinent to the existence of an employer-employee relationship. The control
test asks whether the employer controls or has reserved the right to control the employee not only as to the
result of the work but also as to the means and methods by which the said work is to be accomplished.
Such control by the petitioners over respondent Ng is lacking.

Anent the argument that the respondent Court, in holding petitioner Uy severally liable with the
petitioner corporation, departed from the rule that a stockholder or officer of a corporation has a personality
distinct from the corporation, we hold that the corporate entity theory cannot apply in the instant case where
it is being invoked as a cloak or shield for illegality. Being a party to a simulated contract of management,
petitioner Uy cannot be permitted to escape liability under the said contract by using the corporate entity
theory. This is one instance when the veil of corporate entity has to be pierced to avoid injustice and
inequity.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is DISMISSED. The judgment
appealed from is AFFIRMED with the MODIFICATION that the award of moral and exemplary damages is
hereby reduced to a total of P20,000. The term of the lease having expired, the order to return the massage
clinic to the private respondent is DELETED.

88 Re: Liability of Corporate Officer.

126 | P a g e
ANTONIO M. VILLANUEVA and FULGENCIO B. LAVAREZ, petitioners,
vs.
HONORABLE ABEDNEGO O. ADRE, Presiding Judge, Regional Trial Court, Branch 22, 11th
Judicial Region, and LUCIO VELAYO, respondents.
G.R. No. 80863 April 27, 1989
SARMIENTO, J.:
Facts:
The case began from a complaint, dated January 6, 1977, for recovery of unpaid thirteenth-month
pay filed by the Sarangani Marine and General Workers Union-ALU with the Department of Labor against
the South Cotabato Integrated Port Services, Inc. (SCIPSI), a Philippine corporation. Later, thirty-seven
SCIPSI employees, non-union members apparently, filed their own complaint. The labor arbiter consolidated
the twin complaints and after hearing, ordered a dismissal on December 29, 1977. On appeal, however, the
National Labor Relations Commission, on June 9, 1981, reversed and accordingly, ordered the private
respondents, SCIPSI and its president and general, LucioVelayo, to pay the thirteenth-month pays
demanded.
There was execution against the property of the corporation including that of Velayo’s.
Velayo alone filed a petition on a cause of action based on an alleged irregular execution, on the ground that
he "was never a party to the labor case" and that "a corporation (that is, SCIPSI has a separate and distinct
personality from this incorporators, stockholders and officers."

Issue:
Whether or not Velayo was a party to the labor case and shall be held liable with the illegal
dismissal of the petitioners.

Held:
Yes.
Velayo cannot be said to be a stranger to the proceedings for a number of reasons. First, and as
pointed out by the Solicitor General, and as the records will amply show, he, Velayo, was a party to the
proceedings below where he took part actively in defense of his case. Certainly, he cannot now be heard to
say that he was no party to the controversy.
The fact that he was never mentioned in the pleadings before the petitioner-labor arbiter is of no
moment. The fact is that he himself had questioned the findings of the corporate auditor and this is enough
evidence that he admits personal liability, although he does not agree with the amount supposedly due from
him. His remonstrance came too late in the day.
But other than estoppel, the law itself stands as a formidable obstacle to Velayo's claims. We held
that in case of corporations, it is the president who responds personally for violation of the labor pay laws.
The responsible officer of an employer corporation can be held personally, not to say even criminally, liable
for non-payment of back wages. That is the policy of the law.
Accordingly, Velayo cannot be excused from payment of SCIPSI's liability by mere reason of
SCIPSI's separate corporate existence. The theory of corporate entity, in the first place, was not meant to
promote unfair objectives or otherwise, to shield them. This Court has not hesitated in penetrating the veil of
corporate fiction when it would defeat the ends envisaged by law, not to mention the clear decree of the
Labor Code.
And if Velayo truly had a valid objection (to the levy on his properties), he could have raised it at
the earliest hour, and in the course of the labor proceedings themselves. But, as we earlier indicated, he
raised nary a finger there, and he cannot raise it now, much less in a separate proceeding.

127 | P a g e
89 Re: Liability of Corporate Officer.

EPG CONSTRUCTION COMPANY, INC., and EMMANUEL P. DE GUZMAN, petitioner,


vs.
HONARABLE COURT OF APPEALS (17th Division), ( Republic of the Philippines), UNIVERSITY
OF THE PHILIPPINES, respondents
G.R. No. 103372 June 22, 1992
CRUZ, J.:
Facts:
Petitioner EPG Construction Co., Inc. and the University of the Philippines, herein private
respondent, entered into a contract for the construction of the UP Law Library Building for the stipulated
price of P7, 545,000.00.
Sometime in July, 1983, the private respondent complained to the petitioner that 6 air-conditioning
units on the third floor of the building were not cooling properly. After inspection of the equipment, EPG
agreed to shoulder the expenses for their repair, including labor and materials, in the amount of P38.000.00.
For whatever reason, the repair was never undertaken.
UP repeated its complaints to EPG, which again sent its representatives to assess the defects.
Finally, it made UP a written offer to repair the system for P194, 000.00.
UP insisted that EPG was obligated to repair the defects at its own expense under the guarantee
provision in their contract. EPG demurred. UP then contracted with another company, which repaired the
defects for P190, 000.00.
The private respondent subsequently demanded from EPG reimbursement of the said amount plus
an equal sum as liquidated damages. When the demand was rejected, UP sued EPG and its president,
Emmanuel P. de Guzman. De Guzman moved to dismiss the complaint as to him for lack of a cause of
action, but the motion was denied.
After trial, judgment was rendered by Judge Antonio P. Solano requiring both defendants jointly and
severally to pay the plaintiff P190, 000.00 as actual damages, P50, 000.00 as liquidated damages, P10,
000.00 as attorney's fees, and costs.

Issue:
Whether Emmanuel P. de Guzman has a separate legal personality from EPG Construction Co.,
Inc. and should not be held solidarity liable with the latter.

Held:
Yes.
His inclusion as President of the company was therefore superfluous because his acts as such
were corporate acts imputable to EPG itself as his principal. It is settled that a corporation is invested by law
with a personality separate and distinct from those of the persons composing it as well as from that of any
other entity to which it may be related. 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. The general manager of a corporation therefore should not be made
personally answerable for the payment of the employee's backwages unless he had acted maliciously or in
bad faith in terminating the services of the employee.
The exception noted is where the official "had acted maliciously or in bad faith," in which event he
may be made personally liable for his own act. That exception is not applicable in the case at bar, because it

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has not been proved that De Guzman acted maliciously or in bad faith when, as President of EPG, he
sought to protect its interests and resisted UP's claims.
Whatever damage was caused to UP as a result of his acts is the sole responsibility of EPG even
though De Guzman was its principal officer and controlling stockholder.
In sum, we hold that the lower court did not err in holding EPG liable for the repair of the air-
conditioning system at its expense pursuant to the guarantee provision in the construction contract with UP.
However, Emmanuel de Guzman is not solidarily liable with it, having acted on its behalf within the scope of
his authority and without any demonstrated malice or bad faith.

90 Re: Liability of Corporate Officer.

CALVIN S. ARCILLA, petitioner,


vs.
THE HONORABLE COURT OF APPEALS and EMILIO RODULFO, respondents.
G.R. No. 89804 October 23, 1992
DAVIDE, JR., J.:
Facts:
From late 1981 up to early 1983, the petitioner, succeeded in securing on credit from the
respondent, various items, cash and checks which the defendant encashed, in the total amount of P93,
358.51, which the plaintiff willingly extended because of the representations of the defendant that he was a
successful financial consultant of local and international businessmen.
The respondent had made numerous demands for payment but the respondent acted in gross and
evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim.
In his Answer, petitioner does not deny having had business transactions with the private
respondent. He explicitly admits that "His loan was in the name of his family corporation, CSAR Marine
Resources, Inc.;" however, his main defense is payment; he did not interpose any other affirmative defense.

Issue:
Whether or not the corporation may be held liable by the acts of its president.

Held
No.
It is the petitioner who was declared liable therefor and consequently made to pay. That the latter
was ordered to do so as president of the corporation would not free him from the responsibility of paying the
due amount simply because according to him, he had ceased to be corporate president. In short, even if we
are to assume arguendo that the obligation was incurred in the name of the corporation, the petitioner would
still be personally liable therefor because for all legal intents and purposes, he and the corporation are one
and the same. Csar Marine Resources, Inc. is nothing more than his business conduit and alter ego. The
fiction of a separate juridical personality conferred upon such corporation by law should be
disregarded. Significantly, petitioner does not seriously challenge the public respondent's application of the
doctrine which permits the piercing of the corporate veil and the disregarding of the fiction of a separate
juridical personality; this is because he knows only too well that from the very beginning, he merely used the
corporation for his personal purposes.
Then too, petitioner in his Brief, did not assign as error the holding of the trial court that he is solely
liable for the obligation. Petitioner's volunteered admission that he procured the pro-forma invoice from the

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private respondent in connection with his loan from the KKK, using his family corporation in the process, and
his deliberate waiver of the aforementioned defense provide an insurmountable obstacle to the viability of
this petition.

91 RE: Separate Personality of Corporation

RUSTAN PULP & PAPER MILLS, INC., ET AL.


vs.
INTERMEDIATE APPELLATE COURT, ET AL.
(G.R. No. 166554 November 27, 2008)
REYES, R.T., J .

Facts:
Petitioner established a pulp and paper mill with Lluch as one of its supplier of row materials. In
their contract of sale entered in to between petitioner and Lluch, it is provided that the contract to supply is
not exclusive because the petitioner has the option to buy from other supplier who are qualified to sell and
That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by this
contract when supply of the same shall become sufficient until such time when need for said raw materials
shall have become necessarily provided, however, that the SELLER is given sufficient notice. During the test
run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw materials piled
up, which prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries
and so the suppliers were informed to stop deliveries.4. Private respondent try to clarify whether the
respondent is terminating there contract but Respondent did not answer so Private respondent file a
complaint of contractual breach but was dismiss by the court of origin.5. On appeal to IAC, it modified the
judgment by ordering the petitioner to
pay private respondent moral damages and attorney‘s fees and hold Tantoko the representative of the
respondent and Vergara president manager of the petitioner personally liable.

Issue:
Whether or not, Tantoko and Vergara will be held liable.

Held:
NO. Tantoco merely represented the interest of Rustan Pulp and Paper Mills, Inc. while Romeo
S. Vergara was not privy to the contract of sale. On this score, we have to agree with petitioners' citation of
authority to the effect that the President and Manager of a corporation who entered into and signed a
contract in his official capacity, cannot be made liable there under in his individual capacity in the absence of
stipulation.
To that effect due to the personality of the corporation being separate and distinct from the person
composing it (Bangued Generale Belge vs. Walter Bull and Co., Inc., 84 Phil. 164). Vergara's supposed non-
participation in the contract of sale although he signed the letter dated September 30, 1968 is completely
immaterial. The two exceptions contemplated by Article 1897 of the New Civil Code where agents are
directly responsible are absent and wanting.

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WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only petitioner
Rustan Pulp and Paper Mills is ordered to pay moral damages and attorney's fees as awarded by
respondent Court. SO ORDERED

92 RE: Assignment of Shares of Stocks

TORRES Jr. v Court of Appeals


G.R. No . 120138 September 5, 1997

Facts:
Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty & Development
Corporation (TRDC). TRDC is a small family owned corporation and other stockholders thereof include
Judge Torres’ nieces and nephews. However, even though Judge Torres owns the majority of TRDC and
was also the president thereof, he is only entitled to one vote among the 9-seat Board of Directors, hence,
his vote can be easily overridden by minority stockholders. So in 1987, before the regular election of TRDC
officers, Judge Torres assigned one share (qualifying share) each to 5 “outsiders” for the purpose of
qualifying them to be elected as directors in the board and thereby strengthen Judge Torres’ power over
other family members.
However, the said assignments of shares were not recorded by the corporate secretary. When the
validity of said assignments was questioned, Judge Torres ratiocinated that it is impractical for him to order
Carlos to make the entries because Carlos is one of his opposition. So what Judge Torres did was to make
the entries himself because he was keeping the stock and transfer book. He further ratiocinated that he can
do what a mere secretary can do because in the first place, he is the president. Since the other family
members were against the inclusion of the five outsiders, they refused to take part in the election. Judge
Torres and his five assignees then decided to conduct the election.

Issue:
Whether or not the inclusion of the five outsiders are valid

Held:
No. The assignment of the shares of stocks did not comply with procedural requirements. It did not
comply with the bylaws of TRDC nor did it comply with Section 74 of the Corporation Code. Section 74
provides that the stock and transfer book should be kept at the principal office of the corporation. Here, it
was Judge Torres who was keeping it and was bringing it with him. Further, his excuse of not ordering the
secretary to make the entries is flimsy. The proper procedure is to order the secretary to make the entry of
said assignment in the book, and if she refuses, Judge Torres can come to court and compel her to make
the entry. There are judicial remedies for this. Needless to say, the subsequent election is invalid because
the assignment of shares is invalid by reason of procedural infirmity. The Supreme Court also emphasized:
all corporations, big or small, must abide by the provisions of the Corporation Code. Being a simple family
corporation is not an exemption. Such corporations cannot have rules and practices other than those
established by law.

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93.Re: Special Provisions in Labor Laws
AHS/PHILIPPINES, INC., GERVACIO R. AMISTOSO and CONSTANCIO V. HALILI,
petitioners,
vs.
COURT OF APPEALS and ALFONSO R. BAYANI, respondents.
G.R. No. 111807 June 14, 1996
BELLOSILLO, J.:
Facts:
Petitioner corporation was engaged in the sale and manufacture of medicines and pharmaceuticals
in the country and did substantial business with government hospitals. On 1 June 1970 it hired private
respondent as an Area Manager for Visayas and Mindanao, and later appointed him Manager of its Cebu
branch. On 30 January 1978 private respondent was dismissed from the service. At that time he was
receiving a monthly compensation of P3,180.00.
Private respondent filed a complaint for damages before the trial court alleging that in the course of
their business petitioners were directly encouraging, abetting and promoting bribery in the guise of
"commissions," "entertainment expenses" and "representation expenses" which were given to various
government hospital officials in exchange for favorable recommendations, approvals and actual purchases
of medicines and pharmaceuticals. For his refusal to take direct and personal hand in giving "bribe money"
he was dismissed. In his complaint he asked for an amount of not less than P520,000.00 as moral and
consequential damages, P25,000.00 as exemplary damages and P50,000.00 for attorney's fees. On the
other hand petitioner in its answer claims that private respondent was not dismissed but that he himself
resigned on his own volition.
The trial court ruled found that private respondent was illegally dismissed. On appeal, respondent
Court of Appeals affirmed in toto the decision of the trial court; hence this petition for review.
Issue:
Whether or not petitioner Amistoso as president of petitioner corporation, and of petitioner Halili as
vice-president of the same corporation are jointly and solidarily liable.
Held:
NO.
As a rule, corporate officers are not personally liable for money claims of discharged corporate
employees unless they acted with evident malice and bad faith in terminating their employment.
In the case at bar, while petitioners Amistoso and Halili may have had a hand in the relief of
respondent. Bayani, there are no indications of malice and bad faith on their part. We take exception to the
conclusion of respondent Court of Appeals that "the manner by which Halili and Amistoso acted is
characterized by bad faith and malice, thus binding them personally liable to plaintiff-appellee,'' On the
contrary it is apparent that the relief order was a business judgment on the part of the officers, with the best
interest of the corporation in mind, based on their opinion that respondent Bayani had failed to perform the
duties expected of him. Hence both the trial court and respondent Court of Appeals committed a reversible
error in holding petitioners Amistoso and Halili jointly and solidarily liable with petitioner corporation. Despite
such, the Court ruled that because of the unlawful act of petitioner corporation, private respondent is entitled
to recover attorney's fees as he was compelled to litigate and incur expenses to protect his interests.

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94.Re: Special Provisions in Labor Laws
NATIONAL POWER CORPORATION, THE NATIONAL POWER CORPORATION BOARD OF
DIRECTORS, CONRADO D. DEL ROSARIO and MARCELINO ILAO, petitioners,
vs.
THE HON. COURT OF APPEALS, HON. TOMAS V. TADEO, JR., in his capacity as Presiding
Judge, Regional Trial Court of Quezon City, Branch 105 and GROWTH LINK, INC., respondents.
G.R. No. 113103 June 13, 1997
HERMOSISIMA, JR., J.:
Facts:
Growth Link is a duly registered domestic corporation while NPC is a duly organized government
corporate entity while the individual petitioners are officers and/or members of the NPC Board of Directors,
except that petitioners Conrado Del Rosario and Crispin T. Ubaldo are no longer connected with NPC.
Since 1982 when, as admitted, Growth Link was pre-qualified as NPC supplier, up to the time in
1987 when NPC refused to do business with petitioner, the latter had numerous sales through public
biddings with a total value of over P60 million. Growth Link was the lowest bidder and the most
advantageous bidder in several other biddings but NPC did not issue the awards. As a matter of procedure,
NPC dealt only with accredited suppliers and NPC recognized Growth Link as duly accredited.
At the start in 1982 Growth Link complied with the accreditation requirements of NPC by submitting
voluminous documents. On February 13, 1987 NPC announced its decision to stop transacting business
with Growth Link and was blacklisted due to violation of the conditions of the contract. Growth Link refuted
the charges in several letters and was asking for opportunity to be heard at a formal hearing on the request
for reconsideration but same was not acted upon by NPC.
Growth Link filed a petition for mandamus with preliminary injunction and damages with the trial
court on February 8, 1988. The trial court found the NPC guilty of gross evident bad faith in its dealings with
Growth Link as its duly accredited supplier. Consequently, it ordered the NPC and its officers and members
of the Board of Directors, to jointly and severally pay Growth Link. Refusing to concede its solidary liability
for the aforegoing amounts, the NPC, and its officers and members of its Board of Directors appealed the
trial court's decision to the Court of Appeals and sought its reversal. The Court of Appeals affirmed the trial
court's findings of gross evident bad faith on the part of NPC.
Issue:
Whether or not the officers and members of the Board of Directors of NPC are solidarily liable.
Held:
No.
The finding of solidary liability among the NPC and its officers and members of the Board of
Directors, is patently baseless. The decision of the trial court contains no such allegation, finding or
conclusion regarding particular acts committed by said officers and members of the Board of Directors that
show them to have been individually guilty of unmistakable malice, bad faith, or ill-motive in their personal
dealings with Growth Link. In fact, it was only in the dispositive portion of the decision of the court a quo that
solidary liability as such was first mentioned.
NPC's officers and members of the Board of Directors were sued merely as nominal parties in their
official capacities as such. They were impleaded by Growth Link not in their personal capacities as
individuals but in their official capacities as officers and members of the Board of Directors through whom
the NPC conducts business and undertakes its operations pursuant to its avowed corporate purposes.

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Therefore, as a bonafide government corporation, NPC should alone be liable for its corporate acts as duly
authorized by its officers and directors.

95 RE: Liability of Corporate Officers

ELENA F. UICHICO, SAMUEL FLORO, VICTORIA F. BASILIO, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, LUZVIMINDA SANTOS, SHIRLEY PORRAS, CARMEN ELIZARDE,
ET. AL., respondents.

G.R. No. 121434. June 2, 1997

FACTS:

Private respondents were employed by Crispa, Inc. for many years in the latter's garments factory
located in Pasig Boulevard, Pasig City. Sometime in September, 1991, private respondents' services were
terminated on the ground of retrenchment due to alleged serious business losses suffered by Crispa, Inc. in
the years immediately preceding 1990.Thereafter, respondent employeesfiled before the NLRC, three
separate complaints for illegal dismissal and diminution of compensation against Crispa, Inc., ValerianoFloro
, and the petitioners. ValerianoFloro was a major stockholder, incorporator and Director of Crispa, Inc.,
while the petitioners were high ranking officers and directors of the company. Said complaints were
consolidated in order to expedite the proceedings. The case was assigned to Labor Arbiter Raul
Aquino.Labor Arbiter Aquino rendered a decision dismissing the complaints for illegal dismissal but at the
same time ordering Crispa, Inc., Floro and the petitioners to pay respondent employees separation pays
equivalent to seventeen days for every year of service. Dissatisfied, private respondents appealed before
the public respondent NLRC.The NLRC found Crispa, Inc., ValerianoFloro, together with the petitioners
liable for illegal dismissal and modified the award of separation pay in the amount of one month for every
year of service instead of seventeen days. The petitioner is now assailing the decision of the NLRC holding
them solidarily liable with the company for the payment of separation pay and backwages to the private
respondents. It is the contention of the petitioners that the award of backwages and separation pay is a
corporate obligation and must therefore be assumed by Crispa, Inc. alone.

ISSUE:

Whether or not petitioner should be solidarily liable with the company for the payment of separation
pay and back wages.

HELD:

NO. A corporation is a juridical entity with legal personality separate and distinct from those acting for
and in its behalf and, in general, from the people comprising it. The general rule is that obligations incurred
by the corporation, acting through its directors, officers and employees, are its sole liabilities.[21] There are
times, however, when solidary liabilities may be incurred but only when exceptional circumstances warrant
such as in the following cases:

“1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent
to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the

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corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or
members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and
solidarilyliable with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate
action.

In labor cases, particularly, corporate directors and officers are solidarily liable with the corporation for the
termination of employment of corporate employees done with malice or in bad faith. In this case, it is
undisputed that petitioners have a direct hand in the illegal dismissal of respondent employees. They were
the ones, who as high-ranking officers and directors of Crispa, Inc., signed the Board Resolution retrenching
the private respondents on the feigned ground of serious business losses that had no basis apart from an
unsigned and unaudited Profit and Loss Statement which, to repeat, had no evidentiary value whatsoever.
This is indicative of bad faith on the part of petitioners for which they can be held jointly and severally liable
with Crispa, Inc. for all the money claims of the illegally terminated respondent employees in this case.

96 RE: Liability of Corporate Officers

BRENT HOSPITAL INC. and MORLITO B. APUZEN, petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION and TERESITA M. FERNANDEZ, respondents.

G.R. No. 117593. July 10, 1998

FACTS:

Respondent Teresita M. Fernandez was employed by petitioner Zamboanga Brent Hospital (Brent)
as a staff nurse and thereafter discharged functions in different capacities until she was promoted as acting
clinic coordinator.It appears thatthe principal and a number of faculty members of Brent’s School of
Midwifery (BSM) resigned and sought lucrative jobs abroad, thus, crippling its operations. Consequently,
respondent was offered the position of principal which proposal, however, she initially rejected. After
continuous prodding and with the assurance that she could return, should she desire, to her former position
as clinic coordinator after a year of serving as principal, she was finally prevailed upon to accept the
offer.The record shows that BSM handles the review of its midwifery graduates by sending them to Manila
one (1) month prior to the board examinations. In pursuing this task, BSM enjoins each reviewee to pay the
sum of P350.00 to defray the necessary coordinator’s expenses that may be incurred in the performance of
the latter’s duties. When BSM’s Board of Directors (Board) scrapped the coordinator’s fee in May 1993, the
reviewees requested respondent and Mrs. Norma Pada, an instructor at BSM, to accompany them to
Manila, as previous reviewees have been accustomed to, and expressed their willingness to voluntarily
shoulder the said fees. For lack of time, the collection of the same was neither communicated to the Board
nor to the parents of the reviewees. The collection effected in Manila was allegedly discovered by petitioner

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through its Hospital Administrator MorlitoApuzen who declared that, while in Manila, a reviewee confided to
him that respondent demanded, as coordinator’s fee, the sum of P350.00 from each of them. Forthwith,
Apuzen reported the matter to the Board who immediately convened the protesting parents, assuring the
latter that respondent would be confronted with the same.Upon her return from Manila, respondent, without
being required to, presented to the Board a report of her expenses which were charged against the
voluntary contributions of the reviewees. For allegedly violating the policy laid down by petitioner regarding
the imposition and collection of coordinator’s fee of P350.00, respondent and Mrs. Pada were terminated
from their respective employments. While the latter sought reconsideration from the Board’s decision,
respondent filed a case for illegal dismissal and damages against Brent.Labor Arbiterrendered a decision in
favor of respondent. On appeal, the above decision was affirmed by theNLRC.PetitionerMorlitoApuzen
argues that he should not be held liable.

ISSUE:

Whether or not MorlitoApuzen should be held liable with the corporation.

HELD:

NO. Evidence and records of the case show no cause of action against petitioner MorlitoApuzen
not being the party in interest and not the one who terminated or even responsible for private respondent’s
dismissal. “A corporation, being a juridical entity, may act only through its directors, officers and employees
and obligations incurred by them, acting as corporate agents, are not theirs but the direct accountabilities of
the corporation they represent.”

97 Re: Special provisions on Labor Laws

EmelitaNicario, petitioner
vs.
NLRC, respondents
G.r. no. 125340 September 17, 1998
ROMERO, J.:

Facts:

Petitioner Nicario was employed with respondent company Mancao Supermarket as a salesgirl.
She was later on promoted as sales supervisor. However, she was later on terminated in 1989. She then
filed for illegal dismissal and impleaded respondent company and its manager as jointly and severally liable
for the latter’s failure to pay the petitioner’s benefits. She was awarded several money claims but the NLRC
declared that respondent Antonio Mancao is not jointly and severally liable with MancaoSupermarket to pay
petitioner the monetary award adjudged.

Issue:

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Whether or not Antonio Mancao as manager maybe held jointly and severally liable with
Respondent Corporation

HELD:

No, the general rule is that officers of a corporation are not personally liable for their official acts
unless it is shown that they have exceeded their authority. However, the legal fiction that a corporation has a
personality separate and distinct from stockholders and members may be disregarded if it is used as a
means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues.

In the case at hand, there is no showing that Antonio Mancao, as manager of respondent company
deliberately and maliciously evaded the respondent’s company financial obligation to the petitioner. Hence,
there appearing to be no evidence on record that Antonio Mancao acted maliciously or deliberately in non-
payment of benefits to petitioner, he cannot be held jointly liable with Mancao supermarket.

98. Re: Special provisions on Labor Laws

Restaurante Las Conchas and/or David Gonzales, petitioners,


vs.
Lydia llego, Sergio Dano et.al.

G.r. no. 110085 September 9, 1999

KAPUNAN,J.:

Facts:

Private respondents were employees of Petitioner Corporation allegedly operated by the


Restaurant Services Corporation and by petitioners David Gonzales and Elizabeth Gonzales who are
members of the board of directors and officers of the corporation. In a land dispute, Petitioner Corporation
lost the suit and was ordered to vacate the premises. Petitioners attempted to seek for a new business
location to no avail so they were compelled to shut down their operations. As a result, private respondents’
employments were terminated. The latter filed a complaint for payment of separation pay and 13 th month
pay. The same was dismissed. on appeal, the claims were awarded by the NLRC.

Issue:

Whether or not in the payment of the benefits and separation pay, the spouses Gonzales maybe
held personally liable for corporate liabilities.

HELD:

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As a general rule, the officers and members of a corporation are not personally liable for acts done
in the performance of their duties, this rule admits of exceptions, one of which is when the employer
corporation is no longer existing and is unable to satisfy the judgment in favour of the employee, the officers
should be held liable for acting on behalf of the corporation. Here, the corporation does not appear to exist
anymore.

99 Re: Special Provisions in Labor Laws

G.R. No. L-31339 January 31, 1978


VILLA REY TRANSIT, INC. v. FAR EAST MOTOR CORPORATION

GUERRERO, J.:

Facts:

On April 25, 1968, Far East Motor Corporation sued petitioner Villa Rey Transit, Inc. for various
sums of money before the Court of First Instance of Manila. Summons was issued to Villa Rey Transit.
Deputy Sheriff Salita went to Villa Rey’s sub-station where he handed some papers to Atty. Virgilio A. Reyes,
Assistant General Manager for Operations. After reading the contents of the same, and noting that they
were copies of a complaint filed by Far East Motor corporation against Villa Rey involving some transactions
made by him with Far East Motor Corporation as the then president of Villa Rey, he suggested that service
of the complaint and the corresponding summons be made directly on De. Jose M. Villarama, the present
President and General Manager, at their main office. Instead, the sheriff left the papers with one of their
night tellers, Juanito Vince Cruz. Due to volume and pressure of his work, Cruz forgot all about the papers;
hence, the papers were delivered to their main office only on September 27, 1968. Claiming failure of the
Villa Rey to file answer within the reglementary period, Far Eastern Corporation filed on August 13, 1968
an ex-parte motion to declare the petitioner in default, which was granted. On the other hand, alleging late
receipt of the summons by its main office, Villa Rey filed an Urgent Motion to Extend Time to Answer, which
was denied.

Issue:

The issue in this case is whether or not the service of Summons to Atty. Virgilio A. Reyes, Assistant
General Manager for Operations, effectively served to vest jurisdiction on the court.

HELD:

The Supreme Court ruled in the affirmative. Atty. Virgilio A. Reyes is the
Assistant General Manager, and admittedly, the former President and General Manager of Villa Rey
Corporation. As his present title implies, Atty. Virgilio A. Reyes is not one of the lesser officers of the
corporation upon whom service of Summons is not authorized by law. That he is in charge of Operations,
which "includes the incoming and outgoing buses, the arrangement of schedule, the appointment of drivers

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and conductors, the following of highway troubles, and generally affecting the running of buses, does not
make him a mere branch manager so insistently pointed out by them. The Court took the opposite view, for
precisely, as the Assistant General Manager for Operations, Reyes is in charge of the main bulk of the
corporate business of the Villa Rey Transit Corporation. "Operations" is the main concern, if not all, of a
transit corporation.
According to jurisprudence, the rationale of all rules for service of process on corporation is that
service must be made on a representative so integrated with the corporation sued as to make it a
priori supposable that he will realize his responsibilities and know what he should do with any legal papers
served on him.
Based on the particular facts of this case, service of summons upon Atty. Virgilio A. Reyes has
served the purpose of the law. As he refused to receive the summons, tender unto him was sufficient to
confer jurisdiction over the petitioner.

100 Re: Special Provisions in Labor Laws

G.R. No. 119310. February 3, 1997


ESGUERRA v. COURT OF APPEALS

PANGANIBAN, J .:
Facts:

On 29 June 1984, Julieta Esguerra filed a complaint for administration of conjugal partnership or
separation of property against her husband. Vicente Esguerra, Jr. Vicente and V.E. Construction Co. Inc.
entered into a compromise agreement with Julieta. On the basis of the said agreement, the Regional Trial
Court rendered two partial judgments: one between Vicente and Julieta and the other as between the latter
and VECCI. It provided that certain properties shall be sold and the net resulting balance shall be remitted to
the latter. The controversy arose when Julieta claimed ½ of the rentals of one of the buildings to be sold.
The RTC awarded rentals to Julieta and the said building was later sold to Sureste Properties, Inc.
for P150,000,000.00. Julieta filed a Motion to Nullify the Sale alleging that V.E. Construction Co. Inc. violated
the compromise agreement condition that the sale must be made “under the terms and conditions recited in
the enabling resolution of its Board of Directors and shareholders. She rues that no shareholders’ or
directors’ meeting, wherein these resolutions were passed, was actually held. She thus bewails this sale as
improper for not having complied with the requirements mandated by Section 40 of the Corporation Code.

Issue:

The issue in this case is whether or not there was sufficient compliance with the provisions of
Section 40 of the Corporation Code.

HELD:

The Supreme Court ruled in the affirmative. VECCI’s sale of all the properties mentioned in the
judicially-approved compromise agreement was done on the basis of its Corporate Secretary’s
Certification of two resolutions, both dated November 9, 1989,authorizing VECCI to sell and/or dispose of all

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or substantially all its property and assets as the board of directors may deem expedient at the highest
available price andauthorizing the President Vicente B. Esguerra, Jr. to negotiate, contract, execute and
sign such sale for and in behalf of the corporation. The partial decision did not require any further board or
stockholder resolutions to make VECCI’s sale of these properties valid. Being regular on its face, the
Secretary’s Certification was sufficient for private respondent Sureste Properties, Inc. to rely on. It did not
have to investigate the truth of the facts contained in such certification. Otherwise, business transactions of
corporations would become tortuously slow and unnecessarily hampered. Ineluctably, VECCI’s sale of
Esguerra Building II to private respondent was not ultra vires but a valid execution of the trial court’s partial
decision. Based on the foregoing, the sale is also deemed to have satisfied the requirements of Section 40
of the Corporation Code.

Furthermore, Julieta Esguerra is estopped from contesting the validity of VECCI’s corporate action
in selling the aforementioned building to Sureste Properties on the basis of said resolutions and certification
because she never raised this issue in VECCI’s prior sales of the other properties sold. The same identical
resolutions and certification were used in such prior sales.

WHEREFORE, the petition is hereby DENIED for lack of merit, no reversible error having been
committed by respondent Court. The assailed Decision is AFFIRMED in toto. Costs against petitioner.

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