1 Manila International Airport Authority vs Court of Appeals Facts: MIAA received Final Notices of Real Estate Tax Delinquency

from the City of Paraaque for the taxable years 1992 to 2001. MIAAs real estate tax delinquency was estimated at P624 million. The City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. Paranaque relied on Section 193 of the Local Government Code which expressly withdrew the tax exemption privileges of government-owned and-controlled corporations upon the effectivity of the Local Government Code. Respondents also argued that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents asserted that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax. MIAA contended that the Airport Lands and Buildings are owned by the Republic. The government could not tax itself. The reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor. Issue: Whether or not MIAA is a GOCC, hence, its Airport Lands and Buildings are subject to real estate tax under existing laws Held: No. MIAA is Not a Government-Owned or Controlled Corporation but an instrumentality of the National Government and thus exempt from local taxation. MIAA is also not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. MIAA is also not a non-stock corporation because it has no members. A non-stock corporation must have members. MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or nonstock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA exercises all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order. Therefore, the real estate tax assessments issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. Magsaysay-Labrador vs Court of Appeals Facts: On February 9 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before the then Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the Register of Deeds of Zambales, for the annulment of the Deed of Assignment executed by the late Senator in favor of SUBIC (as a result of which TCT 3258 was cancelled and TCT 22431 issued in the name of SUBIC), for the annulment of the Deed of Mortgage executed by SUBIC in favor of FILMANBANK (dated 28 April 1977 in the

2 amount of P 2,700,000.00), and cancellation of TCT 22431 by the Register of Deeds, and for the latter to issue a new title in her favor. On March 7, 1979, Concepcion Magsaysay-Labrador, Soledad Magsaysay-Cabrera, Luisa Magsaysay-Corpuz, Felicidad Magsaysay, and Mercedes Magsaysay-Diaz, sisters of the late senator, filed a motion for intervention on the ground that on June 20, 1978, their brother conveyed to them 1/2 of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC, they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC. The trial court denied the motion for intervention, and ruled that petitioners had no legal interest whatsoever in the matter in litigation and their being alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its stockholders. The Court of Appeals affirmed the decision of the trial court. The appellate court further stated that whatever claims the Magsaysay sisters had against the late Senator or against SUBIC for that matter could be ventilated in a separate proceeding. The motion for reconsideration of the Magsaysay sisters was denied. Hence, the petition for review on certiorari. Issue: Whether the Magsaysay sisters, allegedly stockholders of SUBIC, were interested parties in a case where corporate properties are in dispute. Held: No. Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, the Magsaysay sisters have no legal interest in the subject matter in litigation so as to entitle them to intervene in the proceedings. To be permitted to intervene in a pending action, the party must have a legal interest in the matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof . Here, the interest, if it exists at all, of the Magsaysay sisters is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person. Sulo ng Bayan vs Araneta Facts: Sulo ng Bayan, Inc. filed with the Court of First Instance of Bulacan against Gregorio Araneta Inc. (GAI), Paradise Farms Inc., National Waterworks & Sewerage Authority (NAWASA), Hacienda Caretas Inc., and the Register of Deeds of Bulacan to recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan in the name of GAI, et. al.'s predecessors-in-interest (who are members of the corporation). Thereafter, GAI filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based on the same grounds. NAWASA did not file any motion to dismiss. However, it pleaded in its answer as special and affirmative defenses lack of cause of action by Sulo ng Bayan Inc. and the barring of such action by prescription and laches. The trial court issued an Order dismissing the (amended) complaint. However, Sulo ng Bayan filed a motion to reconsider the order of dismissal, arguing among others that the complaint stated a sufficient cause of action because the subject matter of the controversy was one of common interest to the members of the corporation who were so numerous that the present complaint should be treated as a class suit. The motion was likewise denied by the trial court.

3 On appeal, the CA certified the case to the Supreme Court for resolution of the legal issues involved in the controversy. Issue: Whether the corporation (non-stock) may institute an action in behalf of its individual members for the recovery of certain parcels of land allegedly owned by said members, among others. Held: No. A corporation is a distinct legal entity to be considered as separate and apart from the individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. The property of the corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. Conversely, a corporation ordinarily has no interest in the individual property of its stockholders unless transferred to the corporation, "even in the case of a one-man corporation." The juridical personality of the corporation, as separate and distinct from the persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the ends of justice. 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. It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in question to the corporation. Absent any showing of interest, therefore, a corporation, has no personality to bring an action for and in behalf of its stockholders or members for the purpose of recovering property which belongs to said stockholders or members in their personal capacities. Bataan Shipyard vs PCGG Facts: When President Corazon Aquino took power, the Presidential Commission on Good Government (PCGG) was formed in order to recover ill gotten wealth allegedly acquired by former President Marcos and his cronies. Aquino then issued two executive orders in 1986 and pursuant thereto, a sequestration and a takeover order were issued against Bataan Shipyard & Engineering Co., Inc. (BASECO). BASECO was alleged to be in actuality owned and controlled by the Marcoses through the Romualdez family, and in turn, through dummy stockholders. The sequestration order issued in 1986 required, among others, that BASECO produce corporate records from 1973 to 1986 under pain of contempt of the PCGG if it failed to do so. BASECO assailed this order averring , among others, that it is against BASECOs right against self incrimination and unreasonable searches and seizures. Issue: Whether or not BASECO was correct Held: No. First of all, PCGG had the right to require the production of such documents pursuant to the power granted to it. Second, and more importantly, right against self-incrimination has no application to juridical persons. There is a reserve right in the legislature to investigate the contracts of a corporation and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation like BASECO to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. Neither is the right against unreasonable searches and seizures applicable in the instant case. There were no searches made and no seizure pursuant to any search was ever made. BASECO was merely ordered to produce the corporate records. Luxuria Homes vs Court of Appeals

4 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 (P425,000.00). 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. Issue: Whether or not Luxuria Homes should be impleaded Held: 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. He could not 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. Concept Builders vs NLRC Facts: Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road, Valenzuela, Metro Manila, was engaged in the construction business. Private respondents were employed by said company as laborers, carpenters and riggers. On November, 1981, private respondents were served individual written notices of termination of employment by petitioner stating that their contracts of employment had expired and the project in which they were hired had been completed. However, they found that at the time of the termination of their employment, the project in which they were hired had not yet been finished and completed. Concept Builders had to engage the services of sub-contractors whose workers performed the functions of private respondents. Private respondents filed a complaint for illegal dismissal, unfair labor practice and nonpayment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner. The Labor Arbiter rendered judgment ordering reinstatement and payment of back wages. The NLRC dismissed the motion for reconsideration filed by Concept Builders on the ground that it had become final and executory. A writ of execution was issued. It was partially satisfied through garnishment of sums from petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority. An alias writ was issued to satisfy the balance and the reinstatement of private respondents. It could not be served because the petitioner no longer occupied the premises. Another alias writ was issued, which again could not be served because the employees claimed they were employees of Hydro Pipes Philippines, Inc. and that the properties to be levied upon were owned by the said corporation. Private respondents filed a "Motion for Issuance of a Break-Open Order," alleging that HPPI and Concept Builders were owned by the same incorporator/stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal

5 obligations to them and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the break-open order. The Labor Arbiter issued an Order which denied private respondents' motion for breakopen order. On appeal, the NLRC issued the break-open order. Concept Builders motion for reconsideration was denied. Issue: Whether or not NLRC commited grave abuse of discretion when it issued a "break-open order" to the sheriff to be enforced against personal property found in the premises of petitioner's sister company Held: No. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. But, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. So, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, this separate personality of the corporation may be disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act in contravention of plaintiff's legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to that operation. In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on April 29, 1986, it filed an Information Sheet with the SEC on May 15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. Both information sheets were filed by the same Virgilio O. Casio as the corporate secretary of both corporations. It would also not be amiss to note that both corporations had the same president, the same board of directors, the same corporate officers, and substantially the same subscribers. Clearly, petitioner ceased its business operations in order to evade the payment to private respondents of back wages and to bar their reinstatement to their former positions. HPPI is obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated to avoid the financial liability that already attached to petitioner corporation. In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the execution, private respondents had no other recourse but to apply for a break-open order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment. Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the breakopen order issued by the Labor Arbiter. Francisco Motors vs Court of Appeals

6 Facts: In 1985, Francisco Motors Corporation (FMC) sued Atty. Gregorio Manuel to recover from a him a sum of money in the amount of more than 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 Manuels 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. Held: No. 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. Manuels legal services were secured by the Francisco Family to represent them in the intestate proceedings over Benita Trinidads 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. Times Transportation Company vs Santos Sotelo Facts: Times Transportation Company, Inc. (Times) is a corporation engaged in the business of land transportation. Times Employees Union (TEU) was formed and issued a certificate of union registration. Times challenged the legitimacy of TEU by filing a petition for the cancellation of its union registration. TEU held a strike in response to Times alleged attempt to form a rival union and its dismissal of the employees identified to be active union members. The Labor Secretary assumed jurisdiction over the case and referred the matter to the NLRC for compulsory arbitration. A return-to-work order was likewise issued. In a certification election, TEU was certified as the sole and exclusive collective bargaining agent in Times. Consequently, TEUs president wrote the management of Times and requested for collective bargaining. Times refused. TEU filed a Notice of Strike. Another conciliation/mediation proceeding was conducted for the purpose of settling the brewing dispute. Times management implemented a retrenchment program and notices of retrenchment were sent to some of its employees. TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged participation in an illegal strike, Times terminated all the 123 striking employees. The DOLE Secretary issued the second return-to-work order certifying the dispute to the NLRC. While the strike was ended, the employees were no longer admitted back to work. MencorpTransport Systems, Inc. (Mencorp) had acquired ownership over Times Certificates of Public Convenience and a number of its bus units by virtue of several deeds of sale. Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority stockholder of Times. Meanwhile, the NLRC rendered a decision declaring the first strike legal and the second illegal. Times and TEU both appealed the decision of the NLRC, which the Court of Appeals affirmed. Upon denial of its motion for reconsideration, Times filed a petition for review on certiorari. After the closure of Times, the retrenched employees filed cases for illegal dismissal, money claims and unfair labor practices against Times before the Regional Arbitration Branch in

7 San Fernando City, La Union. The employees withdrew their complaints with leave of court and filed a new set of cases before the National Capital Region Arbitration Branch, impleading Mencorp and the Spouses Mendoza. Times sought the dismissal of these cases on the ground of litis pendencia and forum shopping. The Labor Arbiter ruled that the dismissals of complainants Times, effected, participated in, authorized or ratified by Santiago Rondaris constituted the prohibited act of unfair labor practice and hence, illegal and that th esale of said respondent company to respondents Mencorp Transport Systems Company (sic),Inc. and/or Virginia Mendoza and Reynaldo Mendoza was simulated and/or effected in bad faith. Times, Mencorp and the Spouses Mendoza submitted their respective memorandum of appeal to the NLRC. NLRC rendered its decision remanding the records of the consolidated cases to the Arbitration Branch of origin for disposition and for the conduct of appropriate proceedings. NLRC denied the Motion for Reconsideration. Thus, the employees appealed to the CA by way of a petition for certiorari, which granted the petition and set aside the decision of the N LRC. Times, Mencorp and the Spouses Mendoza filed Motions for Reconsideration, which were denied. Hence, this petition for review on certiorari.

8 Issue: Whether or not piercing the corporate veil in this case was proper Held: Yes. We have held that piercing the corporate veil is warranted only in cases when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defendcrime, such that in the case of two corporations, the law will regard the corporations as merged into one. It may be allowed only if the following elements concur: (1) controlnot mere stockcontrol, but complete dominationnot only of finances, but of policy and business practice inrespect to the transaction attacked; (2) such control must have been used to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest andan unjust act in contravention of a legal right; and (3) the said control and breach of duty musthave proximately caused the injury or unjust loss complained of. In this case, the sale was transferred to a corporation controlled by V. Mendoza, the daughter of S. Rondaris of Times where she is/was also a director. All of the stockholders/incorporators of Mencorp are all relatives of S. Rondaris. The timing of the sale evidently was to negate the employees/complainants/members right to organization as it was effected when their union (TEU) was just organized/requesting Times to bargain. Mencorp never obtained a franchise since its supposed incorporation but at present, all the buses of Times are already being run/operated by Mencorp, the franchise of Times having been transferred to it. The sale of Times franchise as well as most of its bus units to a company owned by Rondaris daughter and family members, right in the middle of a labor dispute, is highly suspicious. Evidently, the transaction was made in order to remove Times remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases filed against it. Yao, Sr. vs People Facts: Petitioners are incorporators and officers of Masagana Gas Corporation (Masagana), an entity engaged in the refilling, sale and distribution of LPG products. Private respondents Petron Corporation (Petron) and Pilipinas Shell Petroleum Corporation (Pilipinas Shell) are two of the largest bulk suppliers and producers of LPG in the Philippines. Petron is the registered owner in the Philippines of the trademarks GASUL and GASUL cylinders used for its LPG products. It is the sole entity in the Philippines authorized to allow refillers and distributors to refill, use, sell, and distribute GASUL LPG containers, products and its trademarks. Pilipinas Shell, on the other hand, is the authorized user in the Philippines of the tradename, trademarks, symbols, or designs of its principal, Shell International Petroleum Company Limited (Shell International), including the marks SHELLANE and SHELL device in connection with the production, sale and distribution of SHELLANE LPGs. It is the only corporation in the Philippines authorized to allow refillers and distributors to refill, use, sell and distribute SHELLANE LPG containers and products. On April 3, 2003, NBI agent Ritche N. Oblanca (Oblanca) filed two applications for search warrant with the RTC, Cavite City, against petitioners and other occupants of the Masagana compound for alleged violation of Section 155, in relation to Section 170 of The Intellectual Property Code of the Philippines. The two applications for search warrant uniformly alleged that per information, belief, and personal verification of Oblanca, the petitioners were actually producing, selling, offering for sale and/or distributing LPG products using steel cylinders owned by, and bearing the tradenames, trademarks, and devices of Petron and Pilipinas Shell, without authority and in violation of the rights of the said entities. Masagana, as third party claimant, filed with the RTC a Motion for the Return of Motor Compressor and LPG Refilling Machine. It claimed that it is the owner of the said motor compressor and LPG refilling machine; that these items were used in the operation of its legitimate business; and that their seizure will jeopardize its business interests. RTC resolved that Masagana cannot be considered a third party claimant whose rights were violated as a result of the seizure since the evidence disclosed that petitioners are stockholders of Masagana and that they conducted their business through the same juridical entity. CA affirmed RTCs decision.

9 Issue: Whether or not CA erred in ruling that the complaint is directed against Masagana Gas Corporation, acting through its officers and directors, hence, Masagana may not be considered as third party claimant whose rights were violated as a result of the seizure Held: No. It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders, directors or officers. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or in the case of two corporations merge them into one. Here, the petitioners, as directors/officers of MASAGANA, are utilizing the latter in violating the intellectual property rights of Petron and Pilipinas Shell. Thus, petitioners collectively and MASAGANA should be considered as one and the same person for liability purposes. Consequently, MASAGANAs third party claim serves no refuge for petitioners. The law does not require that the property to be seized should be owned by the person against whom the search warrants are directed. Ownership, therefore, is of no consequence, and it is sufficient that the person against whom the warrant is directed has control or possession of the property sought to be seized. Hence, even if, as petitioners claimed, the properties seized belong to MASAGANA as a separate entity, their seizure pursuant to the search warrants is still valid. Further, it is apparent that the motor compressor, LPG refilling machine and the GASUL and SHELL LPG cylinders seized were the corpus delicti, the body or substance of the crime, or the evidence of the commission of trademark infringement. These were the very instruments used or intended to be used by the petitioners in trademark infringement. It is possible that, if returned to MASAGANA, these items will be used again in violating the intellectual property rights of Petron and Pilipinas Shell. Seventh Day Adventist vs Northeastern Mindanao Mission Facts: On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union Mission of Seventh Day Adventist Church of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan). The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist Church, on behalf of the donee. Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the spouses Cosio to the Seventh Day Adventist Church of North-Eastern Mindanao Mission (SDA-NEMM). Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the property. This was opposed by respondents who argued that at the time of the donation, SPUM-SDA Bayugan could not legally be a donee because, not having been incorporated yet, it had no juridical personality. Petitioners then filed a case for cancellation of title, quieting of ownership and possession, declaratory relief and reconveyance with prayer for preliminary injunction and damages, in the RTC of Bayugan, Agusan del Sur. RTC upheld the sale in favor of respondents. On appeal, the CA affirmed the RTC decision. Petitioners motion for reconsideration was likewise denied. Thus, this petition. Issue: Whether or not at the time the donation was made, SPUM-SDA had juridical personality or capacity to accept such gift. Ruling: No. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who accepts it. The donation could not have been made in favor of an entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet no one to accept it. The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift. While there existed the old Corporation Law (Act 1459), a law under which SPUM-SDA Bayugan could have been organized, there is no proof that there was an attempt to incorporate at that time. The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto corporation. An organization not

10 registered with the SEC cannot be considered a corporation in any concept, not even as a corporation de facto. Petitioners themselves admitted that at the time of the donation, they were not registered with the SEC, nor did they even attempt to organize to comply with legal requirements. Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate was ever issued to petitioners or their supposed predecessor-in-interest at the time of the donation. Petitioners obviously could not have claimed succession to an entity that never came to exist. Neither could the principle of separate juridical personality apply since there was never any corporation to speak of. And, as already stated, some of the representatives of petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were not even members of the local church then, thus, they could not even claim that the donation was particularly for them. Lim Tong Lim vs Court of Appeals Facts: It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again borrowed money and they agreed to purchase fishing nets and other fishing equipments. Now, Yao and Chua represented themselves as acting in behalf of Ocean Quest Fishing Corporation (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to more than P500k. They were however unable to pay PFGI and so they were sued in their own names because apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some time to pay. Yao waived his rights. Lim Tong Lim however argued that he was not liable because he was not aware that Chua and Yao represented themselves as a corporation; that the two acted without his knowledge and consent. Issue: Whether or not Lim Tong Lim was liable. Held: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term common fund under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. Lim Tong Lim could not argue that the principle of corporation by estoppel can only be imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners. International Express Travel and Tour Services vs Court of Appeals Facts: In 1989, International Express Travel & Tour Services, Inc. (IETTI), offered to the Philippine Football Federation (PFF) its travel services for the South East Asian Games. PFF, through Henri Kahn, its president, agreed. IETTI then delivered the plane tickets to PFF. PFF in turn made a down payment. However, PFF was not able to complete the full payment in subsequent installments despite repeated demands from IETTI. IETTI then sued PFF and Kahn

11 was impleaded as a co-defendant. Kahn averred that he should not be impleaded because he merely acted as an agent of PFF which he averred is a corporation with separate and distinct personality from him. The trial court ruled against Kahn and held him personally liable for the said obligation (PFF was declared in default for failing to file an answer). The trial court ruled that Kahn failed to prove that PFF is a corporation. The Court of Appeals however reversed the decision of the trial court. The Court of Appeals took judicial notice of the existence of PFF as a national sports association; that as such, PFF is empowered to enter into contracts through its agents; that PFF is therefore liable for the contract entered into by its agent Kahn. The CA further ruled that IETTI is in estoppel; that it cannot now deny the corporate existence of PFF because it had contracted and dealt with PFF in such a manner as to recognize and in effect admit its existence. Issue: Whether or not the Court of Appeals is correct. Held: No. PFF, upon its creation, is not automatically considered a national sports association. It must first be recognized and accredited by the Philippine Amateur Athletic Federation and the Department of Youth and Sports Development. This fact was never substantiated by Kahn. As such, PFF is considered as an unincorporated sports association. And under the law, any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. Kahn is therefore personally liable for the contract entered into by PFF with IETTI. There is also no merit on the finding of the CA that IETTI is in estoppel. The application of the doctrine of corporation by estoppel applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective incorporation. In the case at bar, IETTI is not trying to escape liability from the contract but rather is the one claiming from the contract. Filipinas Broadcasting Network, Inc. vs Ago Medical and Educational Center-Bicol Christian College of Medicine Facts: Petitioner Filipinas Broadcasting Network, Inc (FBNI) assails the Resolution of the CA which modified the December 14, 1992 decision of the RTC of Legazpi City (as to the amount of moral damages), and found petitioner and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel. The lower court ordered FBNI, Alegre and Rima to solidarily pay moral damages, attorneys fees and the costs of the suit to Ago Medical and Educational Center- Bicol Christian College of Medicine (AMEC). The complaint alleged that Alegre and Rima had made malicious imputations and as such destroyed plaintiffs (AMEC and Angelita Ago, Dean of the College of Medicine) reputation by citing the alleged complaints of students, parents and teachers. The complaint cited that defendants had made the ff libellous imputations with no factual basis: (1) That AMEC-BCCM requires its students to repeat subjects which they have passed already the moment they fail one subject, despite the absence of any such regulation by the DECS; (2) That students were required to take and pay for the subject even if there is no instructor, which demonstrates the greed of AMECs administration and; (3) That AMEC is a dumping ground of moral and physical misfits because it continued to accept rejects in order to minimize salary expenses. FBNI was impleaded as a defendant for failing to exercise due diligence in the selection and supervision of its employees (Alegre and Rima). A Motion to Dismiss was filed in behalf of FBNI which the RTC denied. The lower court held that the broadcasters were liable per se and were not the result of straight reporting because it had no factual basis because the broadcasters failed to verify their reports. FBNI failed to exercise the due diligence as required by law. Hence, the judgment requiring FBNI, Alegre and Rima to pay moral damages (Php 300,000), plus reimbursement of attorneys fees (Php 30,000) and the costs of the suit. CA lowered the amount of moral damages to Php 150,000.

12 Issue: Whether or not AMEC-BCCM, a corporation, is entitled to the award of moral damages. Ruling: Yes. AMEC-BCCM is entitled to the award of moral damages. Generally, a juridical person is not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. In Mambulao Lumber Co. v. PNB, et al, the award of moral damages may be justified. However, the Courts statement in the said case, that a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages, is an obiter dictum. AMECs claim for moral damages was grounded under item 7 of Article 2219 of the Civil Code which authorizes the same in cases of libel, slander, or any other form of defamation. The provision does not qualify whether the plaintiff seeking such award is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain of libel or any other form of defamation and claim for moral damages as a result thereof. Moreover, evidence of an honest mistake or the want of character or reputation of the party libelled serves only to mitigate the amount of damages. Since the broadcasts are libelous per se, AMEC is entitled to moral damages. The amount is reduced to Php 150,000 because AMEC has not suffered any substantial or material damage to its reputation. Coastal Pacific Trading, Inc. vs Southern Rolling Mills Co., Inc. Facts: Visayan Integrated Steel Corporation or VISCO was formerly known as Sounthern Rolling Mills, Inc. VISCO entered into a processing agreement with Petitioner Coastal. The parties agreed that Coastal would deliver 3,000 metric tons of hot rolled steel coils to VISCO for processing in to block iron sheets. However, VISCO was able to process and deliver to Coastal only 1, 600 metric tons of the said sheets. Hence , a total of 1,400 metric tons of hot rolled coils remained unclaimed for. Then a year later, Coastal filed with the RTC a Complaint for Recovery of Property and Damages. It alleged that VISCO had fraudulently misapplied or converted the finished steel entrusted to it. Issue: Whether or not Coastal is liable for moral damages. Held: No. As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a good reputation that is debased, resulting in its humiliation in the business realm. In the case at bar, the records did not show any evidence that the name or reputation of Coastal was dishonored as a result of the fraudulent acts complained by Coastal. Hence, Coastal is not entitled to moral damages. Lyceum of the Philippines vs Court of Appeals Facts: Petitioner is an educational institution duly registered with the SEC since Sept 1950. Before the case at bar, petitioner commenced a proceeding against Lyceum of Baguio with the SEC to require it to change its corporate name and adopt a new one not similar or identical to the Petitioner. SEC granted noting that there was substantial similarity because of the dominant word Lyceum. CA and SC affirmed. Petitioner filed a similar complaint against other schools and obtained a favorable decision from the hearing officer. On appeal, SEC En banc reversed the decision and held that the word Lyceum have not become so identified with the petitioner and that the use thereof will cause confusion to the general public. Issue:

13 Whether or not the corporate names of the private respondents are identical with or deceptively similar to that of the petitioner. Held: No. The corporate names of the parties carry the word Lyceum but confusion and deception are precluded by the appending of geographic names. Lyceum generally refers to a school or an institution of learning and it is natural to use this word to designate an entity which is organized and operating as an educational institution. The doctrine of secondary meaning is a word of phrase originally incapable of exclusive appropriation, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his product. Lyceum of the Philippines has not gained exclusive use of Lyceum by long passage of time. The number alone of the private respondents suggests strongly that the use of Lyceum has not been attended with the exclusivity essential for the applicability of the doctrine. It may be noted that one of the respondents Western Pangasinan Lyceum used such term 17 years before the petitioner registered with the SEC. Moreover, there may be other schools using the name but not registered with the SEC because they have not adopted the corporate form of organization. Ang mga Kaanib sa Iglesia ng Dios vs Iglesia ng Dios Kay Kristo Jesus Facts: The Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (IDCJ-HSK; Church of God in Christ Jesus, the Pillar and Ground of Truth), is a non-stock religious society or corporation registered in 1936. Sometime in 1976, one Eliseo Soriano and several other members of said corporation disassociated themselves from the latter and succeeded in registering on March 30, 1977 a new non-stock religious society or corporation, named Iglesia ng Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan (IDKJ-HSK). On 16 July 1979, IDCJ-HSK filed with the SEC a petition to compel IDKJ-HSK to change its corporate name (SEC Case 1774). The SEC rendered judgment in favor of IDCJ-HSK, ordering IDKJ-HSK to change its corporate name to another name that is not similar or identical to any name already used by a corporation, partnership or association registered with the Commission. No appeal was taken from said decision. During the pendency of SEC Case 1774, Soriano, et al., caused the registration on April 25, 1980 of Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K, sa Bansang Pilipinas (AK[IDKH-HSK]BP). The acronym "H.S.K." stands for Haligi at Saligan ng Katotohanan. On 2 March 1994, IDCJ-HSK filed before the SEC a petition praying that AK[IDKH-HSK]BP be compelled to change its corporate name and be barred from using the same or similar name on the ground that the same causes confusion among their members as well as the public. KIDKH-HSK-BP filed a motion to dismiss on the ground of lack of cause of action. The motion to dismiss was denied. Thereafter, for failure to file an answer, AK[IDKH-HSK]BP was declared in default and IDCJ-HSK was allowed to present its evidence ex parte. Thereafter, SEC rendered a decision ordering AK[IDKH-HSK]BP to change its corporate name. AK[IDKH-HSK]BP appealed to the SEC En Banc. In a decision dated 4 March 1996, the SEC En Banc affirmed the above decision, upon a finding that AK[IDKH-HSK]BP's corporate name was identical or confusingly or deceptively similar to that of IDCJ-HSK's corporate name. CA affirmed the decision of the SEC En Banc. AK[IDKH-HSK]BP's motion for reconsideration was denied, hence, this petition for review. Issue: Whether or not the corporate names of AK[IDKH-HSK]BP and IDCH-HSK are confusingly similar. Held: Yes. The SEC has the authority to de-register at all times and under all circumstances corporate names which in its estimation are likely to spawn confusion. It is the duty of the SEC to

14 prevent confusion in the use of corporate names not only for the protection of the corporations involved but more so for the protection of the public. Section 18 of the Corporation Code provides that "No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or is contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name." Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states that "(d) If the proposed name contains a word similar to a word already used as part of the firm name or style of a registered company, the proposed name must contain two other words different from the name of the company already registered; Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted by another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may be prevented by the corporation having a prior right, by a suit for injunction against the new corporation to prevent the use of the name. Herein, the additional words "Ang Mga Kaanib " and "Sa Bansang Pilipinas, Inc." in AK[IDKH-HSK]BP's name are merely descriptive of and also referring to the members, or kaanib, of IDCH-HSK who are likewise residing in the Philippines. These words can hardly serve as an effective differentiating medium necessary to avoid confusion or difficulty in distinguishing AK[IDKH-HSK]BP from IDCH-HSK. This is especially so, since both AK[IDKH-HSK]BP and IDCHHSK are using the same acronym H.S.K.; not to mention the fact that both are espousing religious beliefs and operating in the same place. Parenthetically, it is well to mention that the acronym H.S.K. used by AK[IDKH-HSK]BP stands for "Haligi at Saligan ng Katotohanan." The records reveal that in holding out their corporate name to the public, AK[IDKHHSK]BP highlights the dominant words "IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN," which is strikingly similar to IDCH-HSK's corporate name, thus making it even more evident that the additional words "Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc.", are merely descriptive of and pertaining to the members of IDCH-HSK. Significantly, the only difference between the corporate names of AK[IDKH-HSK]BP and IDCHHSK are the words SALIGAN and SUHAY. These words are synonymous both mean ground, foundation or support. Hence, this case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc., where the Court ruled that the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that even under the test of "reasonable care and observation" confusion may arise. Young Auto Supply vs Court of Appeals Facts: On October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in Consolidated Marketing & Development Corporation (CMDC) to George C. Roxas. The purchase price was P8,000,000.00 payable as follows: a down payment of P4,000,000.00 and the balance of P4,000,000.00 in four postdated checks of P1,000,000.00 each. Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full payment of the balance of the purchase price. The first check of P4,000,000.00, representing the down payment, was honored by the drawee bank but the four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00. Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the CMDC shares to Nemesio Garcia. YASCO and Garcia filed a complaint against Roxas in the Regional Trial Court of Cebu City praying that Roxas be ordered to pay them the sum of P3,400,000.00 or that full control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and costs.

15 Failing to submit his answer, the trial court declared Roxas in default. The order of default was, however, lifted upon motion of Roxas. Roxas then filed a motion to dismiss. After hearing, trial court denied Roxas' motion to dismiss. After receiving said order, Roxas filed another motion for extension of time to submit his answer. He also filed a motion for reconsideration, which the trial court denied for being pro-forma. Roxas was again declared in default, on the ground that his motion for reconsideration did not toll the running of the period to file his answer. On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not accompanied with the required affidavit of merit. But without waiting for the resolution of the motion, he filed a petition for certiorari with the Court of Appeals. The Court of Appeals dismissed the complaint on the ground of improper venue. A subsequent motion for reconsideration was filed by YASCO but to no avail. YASCO and Garcia filed the petition. Issue: Whether the venue for the case against YASCO and Garcia in Cebu City was improperly laid. Held: No. A corporation has no residence in the same sense in which this term is applied to a natural person. But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articles of incorporation. The Corporation Code precisely requires each corporation to specify in its articles of incorporation the "place where the principal office of the corporation is to be located which must be within the Philippines." The purpose of this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be ambulatory. Actions cannot be filed against a corporation in any place where the corporation maintains its branch offices. The Court ruled that to allow an action to be instituted in any place where the corporation has branch offices would create confusion and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file personal actions in a place other than its principal place of business unless such a place is also the residence of a coplaintiff or a defendant. With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City as the venue. The decision of the Court of Appeals was set aside. Republic Planters Bank vs Agana Facts: On September 18, 1961, the Robes-Francisco Realty & Development Corporation (RFRDC) secured a loan from the Republic Planters Bank in the amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were issued to RFRDC through its officers then, Adalia F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to the full amount of the loan, which is P120,000.00, the Bank lent such amount partially in the form of money and 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 P4,000.00 each, for a total of P8,000.00. Said stock certificates were in the name of Adalia F. Robes and Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F. Robes. Said certificates of stock bear the following terms and conditions: "The Preferred Stock shall have the following rights, preferences, qualifications and limitations, to wit: 1. Of the right to receive a quarterly dividend of 1%, cumulative and participating. xxx 2. That such preferred shares may be redeemed, by the system of drawing lots, at any time after 2 years from the date of issue at the option of the Corporation." On January 31, 1979, RFRDC and Robes proceeded against the Bank and filed a complaint anchored on their alleged rights to collect dividends under the preferred shares in question and to have the bank redeem the same under the terms and conditions of the stock certificates. The bank filed a Motion to Dismiss on the following grounds: (1) that the trial court had no jurisdiction over the subject-matter of the action; (2) that the action was unenforceable under

16 substantive law; and (3) that the action was barred by the statute of limitations and/or laches. The bank's Motion to Dismiss was denied by the trial court. The trial court rendered a decision in favor of RFRDC and Robes ordering the bank to pay RFRDC and Robes the face value of the stock certificates as redemption price, plus 1% quarterly interest thereon until full payment. The bank filed the petition for certiorari with the Supreme Court, essentially on pure questions of law. Issue: 1. Whether the bank can be compelled to redeem the preferred shares issued to RFRDC and Robes. 2. Whether RFRDC and Robes are entitled to the payment of certain rate of interest on the stocks as a matter of right without necessity of a prior declaration of dividend. Held: 1. No. While the stock certificate does allow redemption, the option to do so was clearly vested in the bank. The redemption therefore is clearly the type known as "optional". Thus, except as otherwise provided in the stock certificate, the redemption rests entirely with the corporation and the stockholder is without right to either compel or refuse the redemption of its stock. Furthermore, the terms and conditions set forth therein use the word "may". It is a settled doctrine in statutory construction that the word "may" denotes discretion, and cannot be construed as having a mandatory effect. The redemption of said shares cannot be allowed. The Central Bank made a finding that the Bank has been suffering from chronic reserve deficiency, and that such finding resulted in a directive, issued on 31 January 1973 by then Gov. G. S. Licaros of the Central Bank, to the President and Acting Chairman of the Board of the bank prohibiting the latter from redeeming any preferred share, on the ground that said redemption would reduce the assets of the Bank to the prejudice of its depositors and creditors. Redemption of preferred shares was prohibited for a just and valid reason. The directive issued by the Central Bank Governor was obviously meant to preserve the status quo, and to prevent the financial ruin of a banking institution that would have resulted in adverse repercussions, not only to its depositors and creditors, but also to the banking industry as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity, may thus be considered as an exercise of police power. 2. No. Both Section 16 of the Corporation Law and Section 43 of the present Corporation Code prohibit the issuance of any stock dividend without the approval of stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter of consensus. Furthermore, "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. In compelling the bank to redeem the shares and to pay the corresponding dividends, the Trial committed grave abuse of discretion amounting to lack or excess of jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well as the clear mandate of the law. Castillo, et. al. vs Balinghasay, et. al. Facts: Petitioners and the respondents are stockholders of MCPI, with the former holding Class B shares and the latter owning Class A shares. MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat, Paraaque City. It was organized sometime in September 1977. At the time of its incorporation, Act No. 1459, the old Corporation Law was still in force and effect. Article VII of MCPIs original Articles of Incorporation, as approved by the Securities and Exchange Commission (SEC) on October 26, 1977, provides that: Only holders of Class A shares can have the right to vote and the right to be elected as directors or as corporate officers.

17 On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was amended, to read thus: Only holders of Class A shares have the right to vote and the right to be elected as directors or as corporate officers. On September 9, 1992, Article VII was again amended to provide as follows: Except when otherwise provided by law, only holders of Class A shares have the right to vote and the right to be elected as directors or as corporate officers. Before the trial court, the herein petitioners alleged that they were deprived of their right to vote and to be voted on as directors at the annual stockholders meeting held on February 9, 2001, because respondents had erroneously relied on Article VII of the Articles of Incorporation of MCPI, despite Article VII being contrary to the Corporation Code, thus null and void. Issue: Whether or not holders of Class B shares of the MCPI may be deprived of the right to vote and be voted for as directors in MCPI Held: No. When Article VII of the Articles of Incorporation of MCPI was amended in 1992, the phrase except when otherwise provided by law was inserted in the provision governing the grant of voting powers to Class A shareholders. This particular amendment is relevant for it speaks of a law providing for exceptions to the exclusive grant of voting rights to Class A stockholders. The law referred to in the amendment to Article VII refers to the Corporation Code and no other law. At the time of the incorporation of MCPI in 1977, the right of a corporation to classify its shares of stock was sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P. Blg. 68, retained the same grant of right of classification of stock shares to corporations, but with a significant change. Under Section 6 of B.P. Blg. 68, the requirements and restrictions on voting rights were explicitly provided for, such that no share may be deprived of voting rights except those classified and issued as preferred or redeemable shares, unless otherwise provided in this Code and that there shall always be a class or series of shares which have complete voting rights. Section 6 of the Corporation Code being deemed written into Article VII of the Articles of Incorporation of MCPI, it necessarily follows that unless Class B shares of MCPI stocks are clearly categorized to be preferred or redeemable shares, the holders of said Class B shares may not be deprived of their voting rights. Note that there is nothing in the Articles of Incorporation nor an iota of evidence on record to show that Class B shares were categorized as either preferred or redeemable shares. The only possible conclusion is that Class B shares fall under neither category and thus, under the law, are allowed to exercise voting rights. The stockholder cannot be deprived of the right to vote his stock nor may the right be essentially impaired, either by the legislature or by the corporation, without his consent, through amending the charter, or the by-laws. Section 148 of the Corporation Code expressly provides that it shall apply to corporations in existence at the time of the effectivity of the Code. Hence, the non-impairment clause is inapplicable in this instance. When Article VII of the Articles of Incorporation of MCPI were amended in 1992, the board of directors and stockholders must have been aware of Section 6 of the Corporation Code and intended that Article VII be construed in harmony with the Code, which was then already in force and effect. Wilson P. Gamboa vs Finance Secretary Margarito B. Teves, et. al and Pablito V. Sanidad, et. al. (2012) Facts: In 1928, the Philippine Long Distance Telephone Company (PLDT) was granted a franchise to engage in the business of telecommunications. Telecommunications is a nationalized area of activity where a corporation engaged therein must have 60% of its capital be owned by Filipinos as provided for by Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution, to wit: Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; xxx

18 In 1999, First Pacific, a foreign corporation, acquired 37% of PLDT common shares. Wilson Gamboa opposed said acquisition because at that time, 44.47% of PLDT common shares already belonged to various other foreign corporations. Hence, if First Pacifics share is added, foreign shares will amount to 81.47% or more than the 40% threshold prescribed by the Constitution. Margarito Teves, as Secretary of Finance, and the other respondents argued that this is okay because in totality, most of the capital stocks of PLDT is Filipino owned. It was explained that all PLDT subscribers, pursuant to a law passed by Marcos, are considered shareholders (they hold serial preferred shares). Broken down, preferred shares consist of 77.85% while common shares consist of 22.15%. Gamboa argued that the term capital should only pertain to the common shares because that is the share which is entitled to vote and thus have effective control over the corporation. Issue: Whether or not the term capital in Section 11, Article XII of the Constitution refers to common shares Held: Yes. Capital only pertains to common shares. It will be absurd for capital to pertain as inclusive of non-voting shares. This is because a corporation consisting of 1,000,000 capital stocks, 100 of which are common shares which are foreign owned and the rest (999,900 shares) are preferred shares which are non-voting shares and are Filipino owned, would seem compliant to the constitutional requirement here 99.999% is Filipino owned. But if scrutinized, the controlling stock the voting stock or that miniscule .001% is foreign owned. That is absurd. In this case, it is true that at least 77.85% of the capital is owned by Filipinos (the PLDT subscribers). But these subscribers, who hold non-voting preferred shares, have no control over the corporation. Hence, capital should only pertain to common shares. Thus, to be compliant with the constitution, 60% of the common shares of PLDT should be Filipino owned. That is not so in this case as it appears that 81.47% of the common shares are already foreign owned (split between First Pacific (37%) and a Japanese corporation). Preferred shares may be considered part of the capital share only if the preferred shares are allowed to vote like common shares. Grace Christian High School vs Court of Appeals Facts: Grace Christian High School (GCHS) is an educational institution in Grace Village. Grace Village Association, Inc. (GVAI) is the homeowners association in Grace Village. GVAI has an existing by-laws which was already in effect since 1968. But in 1975, the board of directors made a draft amending the by-laws whereby the representative of GCHS shall have a permanent seat in the 15-seat board. The draft however was never presented to the general membership for approval. But nevertheless, the representative of GCHS held a seat in the board for 15 years until in 1990 when a proposal was made to the board to reconsider the practice of allowing the GCHS representative in taking a permanent seat. An election was scheduled for the 15 seats in the board. GCHS opposed the election as it insisted that the election should only be for 14 directors because it has a permanent seat. GVAI argued that GCHS claim has no basis because the 1975 proposed amendment was never ratified. GCHS averred that it was ratified when it was allowed to take the seat for 15 years and as such its right has already vested. Issue: Whether or not the representative from Grace Christian High School should be allowed to have a permanent seat in the board of directors. Held: No. The Corporation Code is clear when it provides that members of the board of a corporation must be elected by the stockholders (stock corporation) or the members (non-stock corporation). Admittedly, there are corporations who allow some of their directors to sit in the board without being elected but such practice cannot prevail over provisions of law. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law.

19 There is no reason as to why a representative from GCHS should be given an automatic seat. It should therefore go through the process of election. It cannot also be argued that the draft of the by-laws in 1975 was ratified when GCHS was allowed to take its seat for 15 years without an election. In the first place, the proposal was merely a draft and even if passed and approved by the general membership, it cannot be given effect because it is void and contrary to the law. GCHS seat in the corporate board is at best merely tolerated by GVAI. Gokongwei vs SEC

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