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National Coal Co. v.

CIR Case Brief


Facts: The National Coal Co.(NCC) was created by a special
law and was enacted by virtue of Act 27! in order to develop
a coal industry. "t was en#a#ed in coal $inin# on reserved
lands belon#in# to the #overn$ent. The National Coal Co.
(NCC) %led a case a#ainst the C"& for the recovery of su$ of
$oney it paid on protest as speci%c ta' on 2()*+ tons of
coals clai$in# e'e$ption to ta' pursuant to ,ec. -( and -! of
Act 27-+.
"ssue: .hether or not NCC is a private corporation/
0eld: 1lainti2 is a private corporation. The $ere fact that the
#overn$ent is a $a3ority stoc4holder of the corporation does
not $a4e the corporation. Act 27! as a$ended by Act 2*22
$a4es it sub3ect to all the provision of the corporation law. As
a private corporation) it has no #reater ri#hts) powers or
privile#es than any other corporation which $ay be or#ani5ed
for the sa$e purpose under the corporation law and certainly
it was not the intention of the le#islature to #ive preference or
ri#ht or privile#e over other le#iti$ate private corporation in
the $inin# of coal. NCC is re6uired to pay ta'es pursuant to
,ection -(+7 of the Ad$inistrative Code. 8oreover) Act 27-+
is applicable only to lessee or owner of coal bearin# lands
which NCC is not.
Abejo vs. De la Cruz
9.&. No. :;7<!!*= 8ay -+) -+*7
FACT,: Case involves a dispute between the principal
stoc4holders of the corporation 1oc4et >ell 1hilippines) "nc.
(1oc4et >ell) na$ely spouses Abe3os? and the purchaser)
Telectronic ,yste$s) "nc. (Telectronics) of their $inority
shareholdin#s and of shares re#istered in the na$e of spouses
>ra#as?. .ith the said purchases) Telectronics would beco$e
the $a3ority stoc4holder) holdin# !7@ of the outstandin#
stoc4 and votin# power of the corporation 1oc4et >ell.
Telectronics re6uested the corporate secretary of the
corporation) Norberto >ra#a) to re#ister and transfer to its
na$e) and those of its no$inees the total -+7) 1oc4et >ell
shares in the corporationAs transfer boo4) cancel the
surrendered certi%cates of stoc4 and issue the correspondin#
new certi%cates of stoc4 in its na$e and those of its
no$inees. The latter refused to re#ister the aforesaid transfer
of shares in the corporate boo4s) assertin# that the >ra#as
clai$ pre;e$ptive ri#hts over the Abe3o shares and that
Bir#inia >ra#a never transferred her shares to Telectronics but
had lost the %ve stoc4 certi%cates representin# those shares.
This tri##ered o2 the series of intertwined actions between
the prota#onists) all centered on the 6uestion of 3urisdiction
over the dispute. The >ra#as assert that the re#ular civil court
has ori#inal and e'clusive 3urisdiction as a#ainst the ,CC)
while the Abe3os and Telectronics) as new $a3ority
shareholders) clai$ the contrary. &espondent Dud#e de la Cru5
issued an order rescindin# the order which dis$issed the
co$plaint of the >ra#as in the &TC) thus holdin# that the &TC
and not the ,CC had 3urisdiction. &espondent 3ud#e also
revived the T&E previously issued restrainin# TelectronicsA
a#ents or representatives fro$ enforcin# their resolution
constitutin# the$selves as the new set of oFcers of 1oc4et
>ell and fro$ assu$in# control of the corporation and
dischar#in# their functions. The Abe3os %led a 8&) which
$otion was duly opposed by the >ra#as) which was denied by
respondent Dud#e.
ISSUE: (-) .ho has 3urisdiction/
(2) .EN the corporate secretary $ay refuse to
re#ister the transfer of shares in the corporate boo4s.
HELD: (-) The Court ruled that the ,CC has ori#inal and
e'clusive 3urisdiction and that the ,CC correctly ruled in
dis$issin# the >ra#asA petition 6uestionin# its 3urisdiction)
that Gthe issue is not the ownership of shares but rather the
non;perfor$ance by the Corporate ,ecretary of the $inisterial
duty of recordin# transfers of shares of stoc4 of the
Corporation of which he is secretary.G
The dispute at bar) as held by the ,CC) is an intra;
corporate dispute that has arisen between and a$on# the
principal stoc4holders of the corporation 1oc4et >ell due to
the refusal of the corporate secretary) bac4ed up by his
parents as erstwhile $a3ority shareholders) to perfor$ his
G$inisterial dutyG to record the transfers of the corporationAs
controllin# (!7@) shares of stoc4) covered by duly endorsed
certi%cates of stoc4) in favor of Telectronics as the purchaser
thereof.
(2) NE. As pointed out by the Abe3os) 1oc4et >ell is
not a close corporation) and no restriction over the free
transferability of the shares appears in the Articles of
"ncorporation) as well as in the bylaws and the certi%cates of
stoc4 the$selves) as re6uired by law for the enforce$ent of
such restriction. As the ,CC $aintains) GThere is no
re6uire$ent that a stoc4holder of a corporation $ust be a
re#istered one in order that the ,ecurities and C'chan#e
Co$$ission $ay ta4e co#ni5ance of a suit see4in# to enforce
his ri#hts as such stoc4holder.G This is because the ,CC by
e'press $andate has Gabsolute 3urisdiction) supervision and
control over all corporationsG and is called upon to enforce the
provisions of the Corporation Code) a$on# which is the stoc4
purchaserAs ri#ht to secure the correspondin# certi%cate in his
na$e under the provisions of ,ection 7< of the Code.
CIR vs. THE CLUB ILI!IN"# INC. DE CEBU
Case Brief
$R No. L%&'(&) * +a, -&# &).' * !are/es# J.
ACTS: The Club Filipino) is a civic corporation or#ani5ed
under the laws of the 1hilippines with an ori#inal authori5ed
capital stoc4 of 122)) which was subse6uently increased to
12) to operate and $aintain a #olf course) tennis)
#y$nasiu$s) bowlin# alleys) billiard tables and pools) and all
sorts of #a$es not prohibited by #eneral laws and #eneral
ordinances) and develop and nurture sports of any 4ind
and any deno$ination for recreation and healthy trainin# of
its $e$bers and shareholdersG (sec. 2) Cscritura de
"ncorporacion (Heed of "ncorporation) del Club Filipino) "nc.).
There is no provision either in the articles or in the by;laws
relative to dividends and their distribution) althou#h it is
covenanted that upon its dissolution) the ClubAs re$ainin#
assets) after payin# debts) shall be donated to a charitable
1hil. "nstitution in Cebu (Art. 27) Cstatutos del (,tatutes of the)
Club).
The Club owns and operates a club house) a bowlin# alley) a
#olf course (on a lot leased fro$ the #overn$ent)) and a bar;
restaurant where it sells wines and li6uors) soft
drin4s) $eals and short orders to its $e$bers and their
#uests. The bar-restaurant was a necessary incident to the
operation of the club and its #olf;course. The club is operated
$ainly with funds derived fro$ $e$bership fees and dues.
.hatever pro%ts it had) were used to defray its overhead
e'penses and to i$prove its #olf;course. "n -+!-) as a result
of a capital surplus) arisin# fro$ the re;valuation of its real
properties) the value or price of which increased) the Club
declared stoc4 dividends= but no actual cash dividends were
distributed to the stoc4holders.
"n -+!2) a >"& a#ent discovered that the Club has never paid
percenta#e ta' on the #ross receipts of its bar and restaurant)
althou#h it secured licenses. "n a letter) the Collector assessed
a#ainst and de$anded fro$ the Club 1-2)7*.*(
-
as %'ed
and percenta#e ta'es) surchar#e and co$pro$ise penalty.
- 1+) !++.7 as percenta#e ta' on its #ross receipts (ta'
years -+(7;-+!-)) 12)<++.77 surchar#e) 17 %'ed ta' (ta'
years -+(7;-+!2) and 1! co$pro$ise penalty.
Also) the Collector denied the Club?s re6uest to cancel the
assess$ent.
En appeal) the CTA reversed the Collector and ruled that the
Club is not liable for the assessed ta' liabilities of 1-2)7*.*(
alle#edly due fro$ it as a 4eeper of bar and restaurant as it is
a non;stoc4 corporation. 0ence) the Collector %led the instant
petition for review.
ISSUE: .EN the Club is a stoc4 corporation
HELD: NE. "t is a non;stoc4 corporation.
The facts that the capital stoc4 of the Club is divided into
shares) does not detract fro$ the %ndin# of the trial court that
it is not en#a#ed in the business of operator of bar and
restaurant. 01at is /eter2inative of 31et1er or not t1e
Club is en4a4e/ in su51 business is its obje5t or
6ur6ose# as state/ in its arti5les an/ b,%la3s. The actual
purpose is not controlled by the corporate for$ or by the
co$$ercial aspect of the business prosecuted) but $ay be
shown by e'trinsic evidence) includin# the by;laws and the
$ethod of operation. Fro$ the e'trinsic evidence adduced)
the CTA concluded that the Club is not en#a#ed in the
business as a bar4eeper and restaurateur.
For a stoc4 corporation to e'ist) two re6uisites $ust be
co$plied with:
-. a capital stoc4 divided into shares and
2. an authority to distribute to the holders of such shares)
dividends or allot$ents of the surplus pro%ts on the basis
of the shares held (sec. <) Act No. -(!+).
Nowhere in its articles of incorporation or by;laws could be
found an authority for the distribution of its dividends or
surplus pro%ts. ,trictly spea4in#) it cannot) therefore) be
considered a stoc4 corporation) within the conte$plation of
the corpo law.
ISSUE: .EN the Club is liable for the pay$ent of 1-2)7*.*()
as %'ed and percenta#e ta'es and surchar#es prescribed in
sec. -*2
2
) -*<
<
and -+-
(
of the Ta' Code) in connection with
the operation of its bar and restaurant= and for 1! as
co$pro$ise penalty.
HELD: NE. A ta' is a burden) and) as such) it should not be
dee$ed i$posed upon fraternal) civic) non;pro%t) nonstoc4
or#ani5ations) unless the intent to the contrary is $anifest
and patentG (Collector v. >1EC Cl4s Club) et al.)) which is not
the case here.
0avin# found as a fact that the Club was or#ani5ed to develop
and cultivate sports of all class and deno$ination) for the
healthful recreation and entertain$ent of its stoc4holders and
$e$bers= that upon its dissolution) its re$ainin# assets) after
payin# debts) shall be donated to a charitable 1hil. "nstitution
in Cebu= that it is operated $ainly with funds derived fro$
$e$bership fees and dues= that the ClubAs bar and restaurant
catered only to its $e$bers and their #uests= that there was
in fact no cash dividend distribution to its stoc4holders and
that whatever was derived on retail fro$ its bar and
restaurant was used to defray its overall overhead e'penses
and to i$prove its #olf;course (cost;plus;e'penses;basis)) it
stands to reason that the Club is not en#a#ed in the business
of an operator of bar and restaurant.
2 Sec. 182, of the Tax Code states, "Unless otherwise provided, every
person engaging in a bsiness on which the percentage tax is i!posed
shall pay in fll a fixed annal tax of ten pesos for each calendar year or
fraction thereof in which sch person shall engage in said bsiness."
" Sec. 18" provides in general that "the percentage taxes on bsiness shall
be payable at the end of each calendar #arter in the a!ont lawflly de
on the bsiness transacted dring each #arter$ etc."
% Sec. 1&1, sa!e Tax Code, provides "'ercentage tax . . . (eepers of
restarants, refresh!ent parlors and other eating places shall pay a tax
three per centum, and )eepers of bar and cafes where wines or li#ors are
served five per centum of their gross receipts . . .".
Ratio: T1e liabilit, for 78e/ an/ 6er5enta4e ta8es# as
6rovi/e/ b, t1ese se5tions# /oes not ipso facto atta51
b, 2ere reason of t1e o6eration of a bar an/
restaurant. or t1e liabilit, to atta51# t1e o6erator
t1ereof 2ust be en4a4e/ in t1e business as a
bar9ee6er an/ restaurateur. The plain and ordinary
2eanin4 of business is restri5te/ to a5tivities or a:airs
31ere 6ro7t is t1e 6ur6ose or liveli1oo/ is t1e 2otive#
an/ t1e ter2 business 31en use/ 3it1out ;uali75ation#
s1oul/ be 5onstrue/ in its 6lain an/ or/inar, 2eanin4#
restri5te/ to a5tivities for 6ro7t or liveli1oo/ (C"& v.
8anila :od#e I CTA) -+!+= C"& v. ,weeney) et al.) -+!+)=
8anila 1olo Club v. >. :. 8eer) -+7).
The Club derived pro%t fro$ the operation of its bar and
restaurant) but such fact does not necessarily convert it into a
pro%t;$a4in# enterprise. The bar and restaurant are
necessary ad3uncts of the Club to foster its purposes and the
pro%ts derived therefro$ are necessarily incidental to the
pri$ary ob3ect of developin# and cultivatin# sports for the
healthful recreation and entertain$ent of the stoc4holders
and $e$bers. That a Club $a4es so$e pro%t) does not $a4e
it a pro%t;$a4in# Club. As has been re$ar4ed a club should
always strive) whenever possible) to have surplus (Desus
,acred 0eart Colle#e v. C"&) -+!(= C"& v. ,inco Cducational
Corp.) -+!7). AFr$ed.
+anuel R. Dula, Enter6rises vs. Court of
A66eals
J9& +-**+) 27 Au#ust -++<K
,econd Hivision) Nocon (D): < concur) - too4 no part
Facts: 8anuel &.Hulay Cnterprises) "nc.) a do$estic
corporation with the followin# as $e$bers of its >oard of
Hirectors: 8anuel &. Hulay with -+)+7 shares and desi#nated
as president) treasurer and #eneral $ana#er= Atty. Bir#ilio C.
Hulay with - shares and desi#nated as vice;president= :inda
C. Hulay with - shares= Celia Hulay;8endo5a with - shares=
and Atty. 1laridel C. Dose with - shares and desi#nated as
secretary) owned a property covered by TCT -7** ( and
4nown as Hulay Apart$ent consistin# of -7 apart$ent units
on a 7*+ s6uare $eter lot) $ore or less) located at ,eventh
,treet (now >uendia C'tension) and F.>. 0arrison ,treet)
1asay City. The corporation throu#h its president) 8anuel
Hulay) obtained various loans for the construction of its hotel
pro3ect) Hulay Continental 0otel (now Frederic4 0otel). "t even
had to borrow $oney fro$ Bir#ilio Hulay to be able to
continue the hotel pro3ect. As a result of said loan) Bir#ilio
Hulay occupied one of the unit apart$ents of the sub3ect
property since -+7< while at the sa$e ti$e $ana#in# the
Hulay Apart$ent as his shareholdin#s in the corporation was
subse6uently increased by his father. En 2< Hece$ber -+77)
8anuel Hulay by virtue of >oard &esolution -* of the
corporation sold the sub3ect property to spouses 8aria
Theresa and Castrense Beloso in the a$ount of 1<).
as evidenced by the Heed of Absolute ,ale. Thereafter) TCT
-7** was cancelled and TCT 2<22! was issued to 8aria
Theresa Beloso. ,ubse6uently) 8anuel Hulay and the spouses
Beloso e'ecuted a 8e$orandu$ to the Heed of Absolute ,ale
of 2< Hece$ber -+77 dated + Hece$ber -+77 #ivin# 8anuel
Hulay within 2 years or until + Hece$ber -+7+ to repurchase
the sub3ect property for 12). which was) however) not
annotated either in TCT -7** or TCT 2<22!. En 2( Hece$ber
-+77) 8aria Beloso) without the 4nowled#e of 8anuel Hulay)
$ort#a#ed the sub3ect property to 8anuel A. Torres for a loan
of 12!). which was duly annotated as Cntry 7*-<+ in
TCT 2<22!. Lpon the failure of 8aria Beloso to pay Torres) the
sub3ect property was sold on ! April -+7* to Torres as the
hi#hest bidder in an e'tra3udicial foreclosure sale as
evidenced by the Certi%cate of ,heri2As ,ale issued on 2
April -+7*. En 2 Duly -+7*) 8aria Beloso e'ecuted a Heed of
Absolute Assi#n$ent of the &i#ht to &edee$ in favor of
8anuel Hulay assi#nin# her ri#ht to repurchase the sub3ect
property fro$ Torres as a result of the e'tra3udicial sale. As
neither 8aria Beloso nor her assi#nee 8anuel Hulay was able
to redee$ the sub3ect property within the one year statutory
period for rede$ption) Torres %led an AFdavit of Consolidation
of Ewnership -< with the &e#istry of Heeds of 1asay City and
TCT 2(7++ was subse6uently issued to Torres on 2< April
-+7+. En - Ectober -+7+) Torres %led a petition for the
issuance of a writ of possession a#ainst spouses Beloso and
8anuel Hulay in :&C Case -7(2;1. 0owever) when Bir#ilio
Hulay appeared in court to intervene in said case alle#in# that
8anuel Hulay was never authori5ed by the corporation to sell
or $ort#a#e the sub3ect property) the trial court ordered
Torres to i$plead the corporation as an indispensable party
but the latter $oved for the dis$issal of his petition which
was #ranted in an Erder dated * April -+*. En 2 Dune -+*)
Torres and Cd#ardo 1abalan) real estate ad$inistrator of
Torres) %led an action a#ainst the corporation) Bir#ilio Hulay
and Nepo$uceno &edovan) a tenant of Hulay Apart$ent Lnit
No. *;A for the recovery of possession) su$ of $oney and
da$a#es with preli$inary in3unction in Civil Case *-+*;1 with
the then Court of First "nstance of &i5al. En 2- Duly -+*) the
corporation %led an action a#ainst spouses Beloso and Torres
for the cancellation of the Certi%cate of ,heri2As ,ale and TCT
2(7++ in Civil Case *27*;1 with the then Court of First
"nstance of &i5al. En 2+ Danuary -+*-) 1abalan and Torres %led
an action a#ainst spouses Florentino and Clvira 8analastas) a
tenant of Hulay Apart$ent Lnit No. 7;>) with the corporation
as intervenor for e3ect$ent in Civil Case <*;*- with the
8etropolitan Trial Court of 1asay City which rendered a
decision on 2! April -+*!) in favor of 1abalan) et al.) orderin#
the spouses 8analastas and all persons clai$in# possession
under the$ to vacate the pre$ises= and to pay the rents in
the su$ of 1!. a $onth fro$ 8ay -+7+ until they shall
have vacated the pre$ises with interest at the le#al rate= and
to pay attorneyAs fees in the su$ of 12). and 1-).
as other e'penses of liti#ation and for the$ to pay the costs
of the suit. Thereafter or on -7 8ay -+*!) the corporation and
Bir#ilio Hulay %led an action a#ainst the presidin# 3ud#e of the
8etropolitan Trial Court of 1asay City) 1abalan and Torres for
the annul$ent of said decision with the &e#ional Trial Court of
1asay in Civil Case 2**;1. Thereafter) the < cases were 3ointly
tried and the trial court rendered a decision in favor of
1abalan and Torres. Not satis%ed with said decision) the
corporation) et al. appealed to the Court of Appeals which
rendered a decision on 2< Ectober -+*+) aFr$in# the trial
court decision. En * Nove$ber -+*+) the corporation) et al.
%led a 8otion for &econsideration which was denied on 27
Danuary -++. The corporation) et al. %led the petition for
review on certiorari. Hurin# the pendency of the petition)
Torres died on < April -++- as shown in his death certi%cate
and na$ed Torres;1abalan &ealty I Hevelop$ent Corporation
as his heir in his holo#raphic will dated <- Ectober -+*7.
Issue: .hether the sale of the sub3ect property between
spouses Beloso and 8anuel Hulay has no bindin# e2ect on the
corporation as >oard &esolution -* which authori5ed the sale
of the sub3ect property was resolved without the approval of
all the $e$bers of the board of directors and said >oard
&esolution was prepared by a person not desi#nated by the
corporation to be its secretary.
Held: ,ection -- of the Corporation Code of the 1hilippines
provides that G.hen board $eetin# is unnecessary or
i$properly held. Lnless the by;laws provide otherwise) any
action by the directors of a close corporation without a
$eetin# shall nevertheless be dee$ed valid if: (-) >efore or
after such action is ta4en) written consent thereto is si#ned by
all the directors= or (2) All the stoc4holders have actual or
i$plied 4nowled#e of the action and $a4e no pro$pt
ob3ection thereto in writin#= or (<) The directors are
accusto$ed to ta4e infor$al action with the e'press or
i$plied ac6uiesce of all the stoc4holders= or (() All the
directors have e'press or i$plied 4nowled#e of the action in
6uestion and none of the$ $a4es pro$pt ob3ection thereto in
writin#. "f a directorsA $eetin# is held without proper call or
notice) an action ta4en therein within the corporate powers is
dee$ed rati%ed by a director who failed to attend) unless he
pro$ptly %les his written ob3ection with the secretary of the
corporation after havin# 4nowled#e thereof.G 0erein) the
corporation is classi%ed as a close corporation and
conse6uently a board resolution authori5in# the sale or
$ort#a#e of the sub3ect property is not necessary to bind the
corporation for the action of its president. At any rate) a
corporate action ta4en at a board $eetin# without proper call
or notice in a close corporation is dee$ed rati%ed by the
absent director unless the latter pro$ptly %les his written
ob3ection with the secretary of the corporation after havin#
4nowled#e of the $eetin# which) in this case) Bir#ilio Hulay
failed to do. The corporationAs clai$ that the sale of the
sub3ect property by its president) 8anuel Hulay) to spouses
Beloso is null and void as the alle#ed >oard &esolution -* was
passed without the 4nowled#e and consent of the other
$e$bers of the board of directors cannot be sustained.
Bir#ilio C. HulayAs protestations of co$plete innocence to the
e2ect that he never participated nor was even aware of any
$eetin# or resolution authori5in# the $ort#a#e or sale of the
sub3ect pre$ises is diFcult to believe. En the contrary) he is
very $uch privy to the transactions involved. To be#in with)
he is an incorporator and one of the board of directors
desi#nated at the ti$e of the or#ani5ation of 8anuel &. Hulay
Cnterprises) "nc. "n ordinary parlance) the said entity is loosely
referred to as a Gfa$ily corporation.G The no$enclature) if
i$precise) however) fairly reMects the cohesiveness of a #roup
and the parochial instincts of the individual $e$bers of such
an a##rupation of which 8anuel &. Hulay Cnterprises) "nc. is
typical: four;%fths of its incorporators bein# close relatives
na$ely) < children and their father whose na$e identi%es
their corporation. >esides) the fact that Bir#ilio Hulay on 2(
Dune -+7! e'ecuted an aFdavit that he was a si#natory
witness to the e'ecution of the post;dated Heed of Absolute
,ale of the sub3ect property in favor of Torres indicates that he
was aware of the transaction e'ecuted between his father and
Torres and had) therefore) ade6uate 4nowled#e about the sale
of the sub3ect property to Torres. Conse6uently) the
corporation is liable for the act of 8anuel Hulay and the sale
of the sub3ect property to Torres by 8anuel Hulay is valid and
bindin#.
$a2boa vs. Teves <9.&. No. -77!7+= Dune 2*) 2--)
ACTS: This is a petition to nullify the sale of shares of stoc4
of 1hilippine Teleco$$unications "nvest$ent Corporation
(1T"C) by the #overn$ent of the &epublic of the 1hilippines)
actin# throu#h the "nter;A#ency 1rivati5ation Council ("1C)) to
8etro 1aci%c Assets 0oldin#s) "nc. (81A0)) an aFliate of First
1aci%c Co$pany :i$ited (First 1aci%c)) a 0on# Non#;based
invest$ent $ana#e$ent and holdin# co$pany and a
shareholder of the 1hilippine :on# Histance Telephone
Co$pany (1:HT).
The petitioner 6uestioned the sale on the #round that
it also involved an indirect sale of -2 $illion shares (or about
7.< percent of the outstandin# co$$on shares) of 1:HT
owned by 1T"C to First 1aci%c. .ith this sale) First 1aci%c?s
co$$on shareholdin#s in 1:HT increased fro$ <.7 percent
to <7 percent) thereby increasin# the total co$$on
shareholdin#s of forei#ners in 1:HT to about *-.(7@. This)
accordin# to the petitioner) violates ,ection --) Article O"" of
the -+*7 1hilippine Constitution which li$its forei#n
ownership of the capital of a public utility to not $ore than
(@) thus:
,ection --. No franchise) certi%cate) or any other for$ of
authori5ation for the operation of a public utility shall be
#ranted e'cept to citi5ens of the 1hilippines or to corporations
or associations or#ani5ed under the laws of the 1hilippines) at
least si'ty per centu$ of whose capital is owned by such
citi5ens= ' ' '
ISSUE: Hoes the ter$ PcapitalQ in ,ection --) Article O"" of the
Constitution refer to the total co$$on shares only) or to the
total outstandin# capital stoc4 (co$bined total of co$$on
and non;votin# preferred shares) of 1:HT) a public utility/
HELD: [The Court partly granted the petition and held that
the term capital in Section 11, Article XII o the Constitution
reers only to shares o stoc! entitled to "ote in the election o
directors o a public utility, i#e#, to the total common shares in
$%&T#'
Considerin# that co$$on shares have votin# ri#hts
which translate to control) as opposed to preferred shares
which usually have no votin# ri#hts) the ter$ PcapitalQ in
,ection --) Article O"" of the Constitution refers only to
co$$on shares. 0owever) if the preferred shares also have
the ri#ht to vote in the election of directors) then the ter$
PcapitalQ shall include such preferred shares because the ri#ht
to participate in the control or $ana#e$ent of the corporation
is e'ercised throu#h the ri#ht to vote in the election of
directors. "n short) the ter$ PcapitalQ in ,ection --) Article O""
of the Constitution refers only to shares of stoc4 that can vote
in the election of directors.
To construe broadly the ter$ PcapitalQ as the total
outstandin# capital stoc4) includin# both co$$on and non;
votin# preferred shares) #rossly contravenes the intent and
letter of the Constitution that the P,tate shall develop a self;
reliant and independent national econo$y e2ectively
controlled by Filipinos.Q A broad de%nition un3usti%ably
disre#ards who owns the all;i$portant votin# stoc4) which
necessarily e6uates to control of the public utility.
NDC v A4ri8 $.R. Nos. =>&-'%-- De5e2ber
&?# &))?
a5ts:
1res. Hecree No. -7-7) which ordered the rehabilitation of the
A#ri' 9roup of Co$panies to be ad$inistered $ainly by the National
Hevelop$ent Co$pany) outlined the procedure for %lin#clai$s a#ainst
the A#ri' co$panies and created a Clai$s Co$$ittee to process these
clai$s.
Cspecially relevant to this case is ,ec. ((-) thereof providin# that Gall
$ort#a#es and other liens presently attachin# to any of the assets of
the dissolved corporations are hereby e'tin#uished.G
>efore this) the A#ri' 8ar4etin# had e'ecuted in favor of petitioner
1hilippine Beterans >an4 a real estate $ort#a#e dated Duly 7) -+7*)
over three (<) parcels of land situated in :os >aRos) :a#una. Hurin# the
e'istence of the $ort#a#e) A9&"O went ban4rupt. "t was for the
e'pressed purpose of salva#in# this and the other A#ri' co$panies
that the afore$entioned decree was issued by 1resident 8arcos.
1etitioner %led a clai$ with the A9&"O Clai$s Co$$ittee for the
pay$ent of its loan credit. "n the $eanti$e) the New A#ri') "nc. and
the National Hevelop$ent Co$pany) invo4in# ,ec. ( (-) of the decree)
%led a petition with the &e#ional Trial Court of Cala$ba) :a#una) for
the cancellation of the $ort#a#e lien in favor of 1hilippine Beterans.
For its part) the 1hilippine Beterans too4 steps to
e'tra3udicially foreclose the $ort#a#e) pro$ptin# A#ri' to %le a second
case with the sa$e court to stop the foreclosure.
"n the trial court) the 3ud#e annulled not only the challen#ed provision
of ,ec. ( (-)) but the entire 1res. Hecree No. -7-7 on the #rounds that:
(-) the presidential e'ercise of le#islative power was a violation of the
principle of separation of powers= (2) the law i$paired the obli#ation of
contracts= and (<) the decree violated the e6ual protection clause.
The $otion for reconsideration of this decision havin# been denied) the
present petition was %led in the ,upre$e Court.
The petitioners contend that the private respondent is now estopped
fro$ contestin# the validity of the decree. They cited 8endo5a v. A#ri'
8ar4etin#) "nc.)- where the constitutionality of 1res. Hecree No. -7-7
was also raised but not resolved.
8oreover the clai$s co$$ittee dis$issed the %lin# of the petition by
1hilippine Beterans on the #round of the afore$entioned estoppel.
The petitioners stress that in that the private respondent also invo4ed
the provisions of 1res. Hecree No. -7-7 by %lin# a clai$ with the A9&"O
Clai$s Co$$ittee. Failin# to #et results) it sou#ht to foreclose the real
estate $ort#a#e e'ecuted by A9&"O in its favor) which had been
e'tin#uished by the decree. "t was only when the petitioners
challen#ed the foreclosure on the basis of ,ec. ( (-) of the decree) that
the private respondent attac4ed the validity of the provision. At that
sta#e) however) consistent with 8endo5a) the petitioners alle#ed that
private respondent was already estopped fro$ 6uestionin# the
constitutionality of the decree.
Issues:
-. "s estoppel applicable/
2. "s 1H -7-7 constitutional/
Hel/: No. Ses. petition dis$issed
&atio:
-. To rule now that the private respondent is estopped for havin#
abided with the decree instead of boldly assailin# it is to close our eyes
to a cynical fact of life durin# the 8arcos ti$e.
This case $ust be distin#uished fro$ 8endo5a) where the petitioners)
after %lin# their clai$s with the A9&"O Clai$s Co$$ittee) received in
settle$ent shares of stoc4 valued at 1(). without protest
or reservation.
The private respondent has not been paid a sin#le centavo on its clai$)
which was 4ept pendin# for $ore than seven years for alle#ed lac4 of
supportin# papers. ,i#ni%cantly) the validity of that clai$ was not
6uestioned by the petitioner when it sou#ht to restrain the
e'tra3udicial foreclosureof the $ort#a#e by the private respondent.
The petitioner li$ited itself to the ar#u$ent that the private
respondent was estopped fro$ 6uestionin# the decree because of its
earlier co$pliance with its provisions.
2. The Court is especially disturbed by ,ection ((-) of the decree)
6uoted above) e'tin#uishin# all $ort#a#es and other liens attachin# to
the assets of A9&"O. "t also notes) the restriction in ,ubsection (ii)
thereof that all Gunsecured obli#ations shall not bear interestG and in
,ubsection (iii) that Gall accrued interests) penalties or char#es as of
date hereof pertainin# to the obli#ations) whether secured or
unsecured) shall not be reco#ni5ed.G
These provisions $ust be read with the >ill of &i#hts) where it is clearly
provided in ,ection - that Gno person shall be deprived of life) liberty or
property without due course of law nor shall any person be denied
the e6ual protection of the lawG and in ,ection - that Gno law
i$pairin# the obli#ation of contracts shall be passed.
1etitioners ar#ue that property ri#hts) li4e all ri#hts) are sub3ect to
re#ulation under the policepower for the pro$otion of the co$$on
welfare. 0ence 3usti%cation of the provision.
Court; The police power is not a panacea for all constitutional
$aladies. Neither does its $ere invocation con3ure an instant and
auto$atic 3usti%cation for every act of the #overn$ent deprivin# a
person of his life) liberty or property.
A le#islative act based on the police power re6uires the concurrence of
a lawful sub3ect and a lawful $ethod. "n $ore fa$iliar words) a) the
interests of the public #enerally) as distin#uished fro$ those of a
particular class) should 3ustify the interference of the state= and b) the
$eans e$ployed are reasonably necessary for the acco$plish$ent of
the purpose and not unduly oppressive upon individuals
The case is not applicable to these re6uire$ents because the interests
of the public are not suFciently involved to warrant the interference of
the #overn$ent with the private contracts of A9&"O. The decree
spea4s va#uely of the Gpublic) particularly the s$all investors)G who
would be pre3udiced if the corporation were not to be assisted. There
was no record of these investors. Also) there was no public interest to
be protected. The decree was to the bene%t of an e'clusive set of
investors.
The oppressiveness is patent on the face of the decree to rehabilitate
A#ri'. No consideration is paid for the e'tinction of
the $ort#a#e ri#hts. The accrued interests and other char#es are
si$ply re3ected by the decree.
A $ort#a#e lien is a property ri#ht derived fro$ contract and so co$es
under the protection of the >ill of &i#hts. 1rivate property cannot
si$ply be ta4en by law fro$ one person and #iven to another without
co$pensation and any 4nown public purpose. This is plain arbitrariness
and is not per$itted under the Constitution.
And not only is there arbitrary ta4in#) there is discri$ination as well. "n
e'tin#uishin# the $ort#a#eand other liens) the decree lu$ps the
secured creditors with the unsecured creditors and places the$ on the
sa$e level in the prosecution of their respective clai$s.
Lnder the e6ual protection clause) all persons or thin#s si$ilarly
situated $ust be treated ali4e) both in the privile#es conferred and the
obli#ations i$posed. Conversely) all persons or thin#s di2erently
situated should be treated di2erently. "n the case at bar) persons
di2erently situated are si$ilarly treated) in disre#ard of the principle
that there should be e6uality only a$on# e6uals.
Ene $ay also well wonder why A9&"O was sin#led out for #overn$ent
help) a$on# other corporations where the stoc4holders or investors
were also swindled. "t is not clear why other co$panies entitled to
si$ilar concern were not si$ilarly treated.
En top of all this) New A#ri') "nc. was created by special decree
notwithstandin# the provision of Article O"B) ,ection ( of the -+7<
Constitution) then in force) that:
,CC. (. The >atasan# 1a$bansa shall not) e'cept by #eneral law)
provide for the for$ation) or#ani5ation) or re#ulation of private
corporations) unless such corporations are owned or controlled by the
9overn$ent or any subdivision or instru$entality thereof.
The new corporation is neither owned nor controlled by the
#overn$ent.
T1e Court also feels t1at t1e /e5ree i26airs t1e obli4ation of
t1e 5ontra5t bet3een A$RI@ an/ t1e 6rivate res6on/ent
3it1out justi75ation. .hile it is true that the police power is superior
to the i$pair$ent clause) the principle will apply only where the
contract is so related to the public welfare that it will be considered
con#enitally susceptible to chan#e by the le#islature in the interest of
the #reater nu$ber.
"t can be seen that the contracts of loan and $ort#a#e e'ecuted by
A9&"O are purely private transactions and have not been shown to be
a2ected with public interest.
CEASE AS CA Case Brief
FACT,:
Forrest Cease and %ve (!) other A$erican citi5ens for$ed
Tiaon# 8illin# and 1lantation Co$pany. Cventually) the shares
of the other ori#inal incorporators were bou#ht out by Cease
with his children. The co$pany?s charter lapsed in Dune -+!*.
Forrest Cease died in Au#ust -+!+. There was no $ention
whether there were steps to li6uidate the co$pany. ,o$e of
his children wanted an actual division while others wanted a
reincorporation. Two of his children) >en3a$in and Florence)
initiated ,pecial 1roceedin# No. <*+< with CF" Tayabas as4in#
that the Tiaon# 8illin# and 1lantation Corporation be declared
identical to Forrest Cease and that its properties be divided
a$on# his children as intestate heirs. Hefendants opposed the
sa$e but the CF" ruled in favor of the plainti2s. Hefendants
%led a notice of appeal fro$ the CF"?s decision but the sa$e
was dis$issed for bein# pre$ature. The case was elevated to
the ,C which re$anded it to the Court of Appeals. The CA
dis$issed the petition.
",,LC: .hether or not the Court of Appeals erred in aFr$in#
the lower court?s decision that the sub3ect properties owned
by the corporation are also properties of the estate of Forrest
Cease
0C:H: NE. The trial court indeed found stron# support) one
that is based on a well;entrenched principle of law which is
the theory of G$er#er of Forrest :. Cease and The Tiaon#
8illin# as one personalityG) or that Gthe co$pany is only the
business conduit and alter e#o of the deceased Forrest :.
Cease and the re#istered properties of Tiaon# 8illin# are
actually properties of Forrest :. Cease and should be divided
e6ually) share and share ali4e a$on# his si' children) ... G) the
trial court aptly applied the fa$iliar e'ception to the #eneral
rule by disre#ardin# the le#al %ction of distinct and separate
corporate personality and re#ardin# the corporation and the
individual $e$ber one and the sa$e. "n shreddin# the
%ctitious corporate veil) the trial 3ud#e narrated the
undisputed factual pre$ise) thus:
.hile the records showed that ori#inally its incorporators were
aliens) friends or third;parties in relation to another) in the
course of its e'istence) it developed into a close fa$ily
corporation. The >oard of Hirectors and stoc4holders belon#
to one fa$ily the head of which Forrest :. Cease always
retained the $a3ority stoc4s and hence the control and
$ana#e$ent of its a2airs. "t $ust be noted that as his
children increase or beco$e of a#e) he continued distributin#
his shares a$on# the$ addin# Florence) Teresa and 8arion
until at the ti$e of his death only -+ were left to his na$e.
He%nitely) only the $e$bers of his fa$ily bene%ted fro$ the
Corporation.
The corporation AneverA had any account with any ban4in#
institution or if any account was carried in a ban4 on its
behalf) it was in the na$e of 8r. Forrest :. Cease. There is
truth in plainti2As alle#ation that the corporation is only a
business conduit of his father and an e'tension of his
personality) they are one and the sa$e thin#. Thus) the assets
of the corporation are also the estate of Forrest :. Cease) the
father of the parties herein who are all le#iti$ate children of
full blood.
A rich store of 3urisprudence has established the rule 4nown
as the doctrine of disre#ardin# or piercin# the veil of
corporate %ction.
9CNC&A: &L:C: a corporation is vested by law with a
personality separate and distinct fro$ the persons co$posin#
it as well as any other le#al entity to which it $ay be related.
>y virtue of this attribute) a corporation $ay not) #enerally)
be $ade to answer for acts or liabilities of its stoc4holders or
those of the le#al entities to which it $ay be connected) and
vice versa. This separate and distinct personality is) however)
$erely a %ction created by law for convenience and to
pro$ote the ends of 3ustice
COCC1T"EN,: ,uch rule $ay not be used or invo4ed for ends
subversive of the policy and purpose behind its creation or
which could not have been intended by law to which it owes
its bein#. This is particularly true where the %ction is used to
defeat public convenience) 3ustify wron#) protect fraud)
defend cri$e) confuse le#iti$ate le#al or 3udicial issues)
perpetrate deception or otherwise circu$vent the law
This is li4ewise true where the corporate entity is bein# used
as an alter e#o) ad3unct) or business conduit for the sole
bene%t of the stoc4holders or of another corporate. "n any of
these cases) the notion of corporate entity will be pierced or
disre#arded) and the corporation will be treated $erely as an
association of persons or) where there are two corporations)
they will be $er#ed as one) the one bein# $erely re#arded as
part or the instru$entality of the other.
An indubitable deduction fro$ the %ndin#s of the trial court
cannot but lead to the conclusion that the business of the
corporation is lar#ely) if not wholly) the personal venture of
Forrest :. Cease. There is not even a shadow of a showin# that
his children were subscribers or purchasers of the stoc4s they
own. Their participation as no$inal shareholders e$anated
solely fro$ Forrest :. CeaseAs #ratuitous dole out of his own
shares to the bene%t of his children and ulti$ately his fa$ily.
"f the Court sustained the theory of petitioners that the trial
court acted in e'cess of 3urisdiction or abuse of discretion
a$ountin# to lac4 of 3urisdiction in decidin# the civil case as a
case for partition) Tiaon# 8illin# and 1lantation Co$pany
would have been able to e'tend its corporate e'istence
beyond the period of its charter which lapsed in Dune) -+!*
under the #uise and cover of F. :) Cease 1lantation Co$pany)
"nc. as Trustee which would be a#ainst the law) and as Trustee
shall have been able to use the assets and properties for the
bene%t of the petitioners) to the #reat pre3udice and
defraudation. of private respondents. 0ence) it beco$es
necessary and i$perative to pierce that corporate veil.
The 3ud#$ent appealed fro$ is AFF"&8CH.
ran5is5o +otors Cor6oration vs. Court of
A66eals
J9& -*-2) 2! Dune -+++K
,econd Hivision) Tuisu$bin# (D): ( concur
Facts: En 2< Danuary -+*!) Francisco 8otors Corp. %led a
co$plaint a#ainst ,pouses 9re#orio and :ibrada 8anuel to
recover 1<)(-2.7) representin# the balance of the 3eep body
purchased by the 8anuels fro$ Francisco 8otors= an
additional su$ of 12)(!(.* representin# the unpaid balance
on the cost of repair of the vehicle= and 17). for cost of
suit and attorneyAs fees. To the ori#inal balance on the price of
3eep body were added the costs of repair. "n their answer) the
8anuel spouses interposed a counterclai$ for unpaid le#al
services by 9re#orio 8anuel in the a$ount of 1!) which
was not paid by the incorporators) directors and oFcers of
Francisco 8otors. The trial court decided the case on 27 Dune
-+*!) in favor of Francisco 8otors in re#ard to its clai$ for
$oney) but also allowed the counter;clai$ of the 8anuel
spouses. >oth parties appealed. En -! April -++-) the Court of
Appeals sustained the trial courtAs decision. 0ence) the
present petition for review on certiorari.
Issue: .hether the Francisco 8otors Corporation should be
liable for the le#al services of 9re#orio 8anuel rendered in the
intestate proceedin#s over >enita Trinidad?s estate (of the
Francisco fa$ily).
Held: >asic in corporation law is the principle that a
corporation has a separate personality distinct fro$ its
stoc4holders and fro$ other corporations to which it $ay be
connected. 0owever) under the doctrine of piercin# the veil of
corporate entity) the corporationAs separate 3uridical
personality $ay be disre#arded) for e'a$ple) when the
corporate identity is used to defeat public convenience) 3ustify
wron#) protect fraud) or defend cri$e. Also) where the
corporation is a $ere alter e#o or business conduit of a
person) or where the corporation is so or#ani5ed and
controlled and its a2airs are so conducted as to $a4e it
$erely an instru$entality) a#ency) conduit or ad3unct of
another corporation) then its distinct personality $ay be
i#nored. "n these circu$stances) the courts will treat the
corporation as a $ere a##rupation of persons and the liability
will directly attach to the$. The le#al %ction of a separate
corporate personality in those cited instances) for reasons of
public policy and in the interest of 3ustice) will be 3usti%ably
set aside. 0erein) however) #iven the facts and circu$stances
of this case) the doctrine of piercin# the corporate veil has no
relevant application. The rationale behind piercin# a
corporationAs identity in a #iven case is to re$ove the barrier
between the corporation fro$ the persons co$prisin# it to
thwart the fraudulent and ille#al sche$es of those who use
the corporate personality as a shield for underta4in# certain
proscribed activities. "n the present case) instead of holdin#
certain individuals or persons responsible for an alle#ed
corporate act) the situation has been reversed. "t is the
Francisco 8otors Corporation (F8C) as a corporation which is
bein# ordered to answer for the personal liability of certain
individual directors) oFcers and incorporators concerned.
0ence) the doctrine has been turned upside down because of
its erroneous invocation. "n fact) the services of 9re#orio
8anuel were solicited as counsel for $e$bers of the Francisco
fa$ily to represent the$ in the intestate proceedin#s over
>enita TrinidadAs estate. These estate proceedin#s did not
involve any business of F8C. 8anuelAs $ove to recover
unpaid le#al fees throu#h a counterclai$ a#ainst F8C) to
o2set the unpaid balance of the purchase and repair of a 3eep
body could only result fro$ an obvious $isapprehension that
F8CAs corporate assets could be used to answer for the
liabilities of its individual directors) oFcers) and incorporators.
,uch result if per$itted could easily pre3udice the corporation)
its own creditors) and even other stoc4holders= hence) clearly
ine6uitous to F8C. Further$ore) considerin# the nature of the
le#al services involved) whatever obli#ation said
incorporators) directors and oFcers of the corporation had
incurred) it was incurred in their personal capacity. .hen
directors and oFcers of a corporation are unable to
co$pensate a party for a personal obli#ation) it is far;fetched
to alle#e that the corporation is perpetuatin# fraud or
pro$otin# in3ustice) and be thereby held liable therefor by
piercin# its corporate veil. .hile there are no hard and fast
rules on disre#ardin# separate corporate identity) we $ust
always be $indful of its function and purpose. A court should
be careful in assessin# the $ilieu where the doctrine of
piercin# the corporate veil $ay be applied. Etherwise an
in3ustice) althou#h unintended) $ay result fro$ its erroneous
application. The personality of the corporation and those of its
incorporators) directors and oFcers in their personal
capacities ou#ht to be 4ept separate in this case. The clai$
for le#al fees a#ainst the concerned individual incorporators)
oFcers and directors could not be properly directed a#ainst
the corporation without violatin# basic principles #overnin#
corporations. 8oreover) every action U includin# a
counterclai$ U $ust be prosecuted or defended in the na$e
of the real party in interest. "t is plainly an error to lay the
clai$ for le#al fees of private respondent 9re#orio 8anuel at
the door of F8C rather than individual $e$bers of the
Francisco fa$ily.
CIR vs Norton an/ Harrison Co26an, Case Brief
1lainti2s %led a collection action a#ainst O Corporation. Lpon
e'ecution of the courtAs decision) O Corporation was found to be
without assets. Thereafter) plainti2s %led an action a#ainst its
present and past stoc4holder S Corporation which owned
substantially all of the stoc4s of O corporation. The two
corporations have the sa$e board of directors and S Corporation
%nanced the operations of O corporation. 8ay S Corporation be
held liable for the debts of O Corporation/ .hy/
A: Ses) S Corporation $ay be held liable for the debts of O
Corporation. The doctrine of piercin# the veil of corporation %ction
applies to this case. The two corporations have the sa$e board of
directors and S Corporation owned substantially all of the stoc4s of
O Corporation) which facts 3ustify the conclusion that the latter is
$erely an e'tension of the personality of the for$er) and that the
for$er controls the policies of the latter. Added to this is the fact
that S Corporation controls the %nances of O Corporation which is
$erely an ad3unct) business conduit or alter e#o of S Corporation.
Li6at vs. !a5i75 Ban9in4 Cor6oration Case
Brief
J9& -(2(<!) < April 2<K
,econd Hivision) Tuisu$bin# (D): < concur
Facts: The spouses Alfredo :ipat and Cstelita >ur#os :ipat)
owned G>elaAs C'port Tradin#G (>CT)) a sin#le proprietorship
with principal oFce at No. *-( Aurora >oulevard) Cubao)
Tue5on City. >CT was en#a#ed in the $anufacture of
#ar$ents for do$estic and forei#n consu$ption. The :ipats
also owned the G8ystical FashionsG in the Lnited ,tates) which
sells #oods i$ported fro$ the 1hilippines throu#h >CT. 8rs.
:ipat desi#nated her dau#hter) Teresita >. :ipat) to $ana#e
>CT in the 1hilippines while she was $ana#in# G8ystical
FashionsG in the Lnited ,tates. "n order to facilitate the
convenient operation of >CT) Cstelita :ipat e'ecuted on -(
Hece$ber -+7*) a special power of attorney appointin#
Teresita :ipat as her attorney;in;fact to obtain loans and other
credit acco$$odations fro$ 1aci%c >an4in# Corporation
(1aci%c >an4). ,he li4ewise authori5ed Teresita to e'ecute
$ort#a#e contracts on properties owned or co;owned by her
as security for the obli#ations to be e'tended by 1aci%c >an4
includin# any e'tension or renewal thereof. ,o$eti$e in April
-+7+) Teresita) by virtue of the special power of attorney) was
able to secure for and in behalf of her $other) 8rs. :ipat and
>CT) a loan fro$ 1aci%c >an4 a$ountin# to 1!*<)*!(. to
buy fabrics to be $anufactured by >CT and e'ported to
G8ystical FashionsG in the Lnited ,tates. As security therefor)
the :ipat spouses) as represented by Teresita) e'ecuted a &eal
Cstate 8ort#a#e over their property located at No. *-( Aurora
>lvd.) Cubao) Tue5on City. ,aid property was li4ewise $ade to
secure other additional or new loans) etc. En ! ,epte$ber
-+7+) >CT was incorporated into a fa$ily corporation na$ed
>elaAs C'port Corporation (>CC) in order to facilitate the
$ana#e$ent of the business. >CC was en#a#ed in the
business of $anufacturin# and e'portation of all 4inds of
#ar$ents of whatever 4ind and description and utili5ed the
sa$e $achineries and e6uip$ent previously used by >CT. "ts
incorporators and directors included the :ipat spouses who
owned a co$bined < shares out of the (2 shares
subscribed) Teresita :ipat who owned 2 shares) and other
close relatives and friends of the :ipats. Cstelita :ipat was
na$ed president of >CC) while Teresita beca$e the vice;
president and #eneral $ana#er. Cventually) the loan was later
restructured in the na$e of >CC and subse6uent loans were
obtained by >CC with the correspondin# pro$issory notes
duly e'ecuted by Teresita on behalf of the corporation. A letter
of credit was also opened by 1aci%c >an4 in favor of A. E.
Nnittin# 8anufacturin# Co.) "nc.) upon the re6uest of >CC after
>CC e'ecuted the correspondin# trust receipt therefor. C'port
bills were also e'ecuted in favor of 1aci%c >an4 for additional
%nances. These transactions were all secured by the real
estate $ort#a#e over the :ipatsA property. The pro$issory
notes) e'port bills) and trust receipt eventually beca$e due
and de$andable. Lnfortunately) >CC defaulted in its
pay$ents. After receipt of 1aci%c >an4As de$and letters)
Cstelita :ipat went to the oFce of the ban4As li6uidator and
as4ed for additional ti$e to enable her to personally settle
>CCAs obli#ations. The ban4 acceded to her re6uest but
Cstelita failed to ful%ll her pro$ise. Conse6uently) the real
estate $ort#a#e was foreclosed and after co$pliance with the
re6uire$ents of the law the $ort#a#ed property was sold at
public auction. En <- Danuary -+*+) a certi%cate of sale was
issued to respondent Cu#enio H. Trinidad as the hi#hest
bidder. En 2* Nove$ber -+*+) the spouses :ipat %led before
the Tue5on City &TC a co$plaint for annul$ent of the real
estate $ort#a#e) e'tra3udicial foreclosure and the certi%cate
of sale issued over the property a#ainst 1aci%c >an4 and
Cu#enio H. Trinidad. The co$plaint alle#ed) a$on# others)
that the pro$issory notes) trust receipt) and e'port bills were
all ultra vires acts of Teresita as they were e'ecuted without
the re6uisite board resolution of the >oard of Hirectors of >CC.
The :ipats also averred that assu$in# said acts were valid
and bindin# on >CC) the sa$e were the corporationAs sole
obli#ation) it havin# a personality distinct and separate fro$
spouses :ipat. "t was li4ewise pointed out that TeresitaAs
authority to secure a loan fro$ 1aci%c >an4 was speci%cally
li$ited to 8rs. :ipatAs sole use and bene%t and that the real
estate $ort#a#e was e'ecuted to secure the :ipatsA and >CTAs
1!*<)*!(. loan only. "n their respective answers) 1aci%c
>an4 and Trinidad alle#ed in co$$on that petitioners :ipat
cannot evade pay$ents of the value of the pro$issory notes)
trust receipt) and e'port bills with their property because they
and the >CC are one and the sa$e) the latter bein# a fa$ily
corporation. Trinidad further clai$ed that he was a buyer in
#ood faith and for value and that the :ipat spouses are
estopped fro$ denyin# >CCAs e'istence after holdin#
the$selves out as a corporation. After trial on the $erits) the
&TC dis$issed the co$plaint. The :ipats ti$ely appealed the
&TC decision to the Court of Appeals in CA;9.&. CB (-!<7.
,aid appeal) however) was dis$issed by the appellate court
for lac4 of $erit. The :ipats then $oved for reconsideration)
but this was denied by the appellate court in its &esolution of
2< February 2. The :ipat spouses %led the petition for
review on certiorari.
Issue: .hether >CC and >CT are separate business entities)
and thus the :ipt spouses can isolate the$selves behind the
corporate personality of >CC.
Held: .hen the corporation is the $ere alter e#o or business
conduit of a person) the separate personality of the
corporation $ay be disre#arded. This is co$$only referred to
as the Ginstru$entality ruleG or the alter e#o doctrine) which
the courts have applied in disre#ardin# the separate 3uridical
personality of corporations. As held in one case) where one
corporation is so or#ani5ed and controlled and its a2airs are
conducted so that it is) in fact) a $ere instru$entality or
ad3unct of the other) the %ction of the corporate entity of the
Ainstru$entalityA $ay be disre#arded. The control necessary
to invo4e the rule is not $a3ority or even co$plete stoc4
control but such do$ination of %nances) policies and practices
that the controlled corporation has) so to spea4) no separate
$ind) will or e'istence of its own) and is but a conduit for its
principal. The evidence on record shows >CT and >CC are not
separate business entities. (-) Cstelita and Alfredo :ipat are
the owners and $a3ority shareholders of >CT and >CC)
respectively= (2) both %r$s were $ana#ed by their dau#hter)
Teresita= -+ (<) both %r$s were en#a#ed in the #ar$ent
business) supplyin# products to G8ystical Fashion)G a L.,. %r$
established by Cstelita :ipat= (() both %r$s held oFce in the
sa$e buildin# owned by the :ipats= (!) >CC is a fa$ily
corporation with the :ipats as its $a3ority stoc4holders= (7)
the business operations of the >CC were so $er#ed with those
of 8rs. :ipat such that they were practically indistin#uishable=
(7) the corporate funds were held by Cstelita :ipat and the
corporation itself had no visible assets= (*) the board of
directors of >CC was co$posed of the >ur#os and :ipat fa$ily
$e$bers= (+) Cstelita had full control over the activities of
and decided business $atters of the corporation= and that
(-) Cstelita :ipat had bene%ted fro$ the loans secured fro$
1aci%c >an4 to %nance her business abroad and fro$ the
e'port bills secured by >CC for the account of G8ystical
Fashion.G "t could not have been coincidental that >CT and
>CC are so intertwined with each other in ter$s of ownership)
business purpose) and $ana#e$ent. Apparently) >CT and >CC
are one and the sa$e and the latter is a conduit of and
$erely succeeded the for$er. The spousesA atte$pt to isolate
the$selves fro$ and hide behind the corporate personality of
>CC so as to evade their liabilities to 1aci%c >an4 is precisely
what the classical doctrine of piercin# the veil of corporate
entity see4s to prevent and re$edy. >CC is a $ere
continuation and successor of >CT) and the :ipat spouses
cannot evade their obli#ations in the $ort#a#e contract
secured under the na$e of >CC on the prete't that it was
si#ned for the bene%t and under the na$e of >CT.
Albert vs. Universit, !ublis1in4 Co. <9.&. No. :;
-+--*= Danuary <) -+7!)
ACTS: 8ariano Albert entered into a contract with Lniversity
1ublishin# Co.) "nc. throu#h Dose 8. Arue#o) its 1resident)
whereby Lniversity would pay plainti2 for the e'clusive ri#ht
to publish his revised Co$$entaries on the &evised 1enal
Code. The contract stipulated that failure to pay one
install$ent would render the rest of the pay$ents due. .hen
Lniversity failed to pay the second install$ent) Albert sued for
collection and won. 0owever) upon e'ecution) it was found
that Lniversity was not re#istered with the ,CC. Albert
petitioned for a writ of e'ecution a#ainst Dose 8. Arue#o as
the real defendant. Lniversity opposed) on the #round that
Arue#o was not a party to the case.
ISSUE: .EN Arue#o can be held personally liable to the
plainti2.
HELD: SC,. The ,upre$e Court found that Arue#o
represented a non;e'istent entity and induced not only Albert
but the court to believe in such representation. Arue#o)
actin# as representative of such non;e'istent principal) was
the real party to the contract sued upon) and thus assu$ed
such privile#es and obli#ations and beca$e personally liable
for the contract entered into or for other acts perfor$ed as
such a#ent. Ene who has induced another to act upon his
wilful $isrepresentation that a corporation was duly or#ani5ed
and e'istin# under the law) cannot thereafter set up a#ainst
his victi$ the principle of corporation by estoppel
The ,upre$e Court li4ewise held that the doctrine of
corporation by estoppel cannot be set up a#ainst Albert since
it was Arue#o who had induced hi$ to act upon his (Arue#oAs)
willful representation that Lniversity had been duly or#ani5ed
and was e'istin# under the law.
ABS%CBN vs CA Case Brief <$.R. No. &'=.)?#
Banuar, '&# &)))C
ACTS: "n -++) A>,;C>N and Biva e'ecuted a Fil$ C'hibition
A#ree$ent whereby A>,;C>N was #iven the ri#ht of %rst
refusal to the ne't twenty;four (2() Biva %l$s for TB telecast
under such ter$s as $ay be a#reed upon by the parties
hereto) provided) however) that such ri#ht shall be e'ercised
by A>,;C>N fro$ the actual o2er in writin#. Conse6uently)
Biva) throu#h defendant Hel &osario) o2ered A>,;C>N)
throu#h its vice;president Charo ,antos;Concio) a list of
three(<) %l$ pac4a#es (<7 titles) fro$ which A>,;C>N $ay
e'ercise its ri#ht of %rst refusal under the afore;said
a#ree$ent. A>, C>N re3ected said list.
En February 27) -++2) Hel &osario approached 8s. Concio)
with a list consistin# of !2 ori#inal $ovie titles) as well as -(
re;runs fro$ which A>,;C>N $ay choose another !2 titles) or
a total of -!7 titles) proposin# to sell to A>,;C>N airin# ri#hts
over this pac4a#e of !2 ori#inals and !2 re;runs for
17)).. The pac4a#e was re3ected by A>,;C>N.
En April 7) -++2) Hel &osario and 8r. 9raciano 9o5on of &>,
discussed the ter$s and conditions of Biva?s o2er to sell the
-( %l$s.
En April 7) -++2) defendant Hel &osario received throu#h his
secretary) a handwritten note fro$ 8s. Concio which reads:
P0ere?s the draft of the contract. " hope you %nd everythin# in
order)Q to which was attached a draft e'hibition a#ree$ent) a
counter;proposal coverin# !< %l$s for a consideration of 1<!
$illion. The said counter;proposal was however re3ected by
Biva?s >oard of Hirectors.
En April 2+) -++2) Biva #ranted &>, the e'clusive ri#ht to air
-( Biva;produced andVor ac6uired %l$s includin# the
fourteen (-() %l$s sub3ect of the present case.
A>,;C>N then %led a a co$plaint for speci%c perfor$ance.
&TC rendered a decision in favor of &>, and B"BA and a#ainst
A>,;C>N) rulin# that there was no $eetin# of $inds on the
price and ter$s of the o2er. Further$ore) the ri#ht of %rst
refusal under the -++ Fil$ C'hibition A#ree$ent had
previously been e'ercised per 8s. Concio?s letter to Hel
&osario tic4in# o2 ten titles acceptable to the$) which would
have $ade the -++2 a#ree$ent an entirely new contract. The
Court of Appeals aFr$ed the decision of the &TC. 0ence) this
petition.
ISSUES
-. .hether or not there was no perfected contract between
petitioner and private respondent
2. .hether or not A>,;C>N has already e'ercised its ri#ht of
%rst refusal
HELD
-. The issue should be resolved a#ainst A>,;C>N. Contracts
that are consensual in nature are perfected upon $ere
$eetin# of the $inds. Ence there is concurrence between the
o2er and the acceptance upon the sub3ect $atter)
consideration) and ter$s of pay$ent a contract is produced.
The o2er $ust be certain. To convert the o2er into a contract)
the acceptance $ust be absolute and $ust not 6ualify the
ter$s of the o2er= it $ust be plain) une6uivocal)
unconditional) and without variance of any sort fro$ the
proposal. A 6uali%ed acceptance) or one that involves a new
proposal) constitutes a counter;o2er and is a re3ection of the
ori#inal o2er. Conse6uently) when so$ethin# is desired which
is not e'actly what is proposed in the o2er) such acceptance
is not suFcient to #enerate consent because any $odi%cation
or variation fro$ the ter$s of the o2er annuls the o2er.
Cven if it be conceded ar#uendo that Hel &osario had
accepted the counter;o2er) the acceptance did not bind B"BA)
as there was no proof whatsoever that Hel &osario had the
speci%c authority to do so. That Hel &osario did not have the
authority to accept A>,;C>N?s counter;o2er was best
evidenced by his sub$ission of the draft contract to B"BA?s
>oard of Hirectors for the latter?s approval. "n any event) there
was between Hel &osario and :ope5 """ no $eetin# of $inds.
2. Ses. A>,;C>N?s ri#ht of %rst refusal had already been
e'ercised when 8s. Concio wrote to B"BA tic4in# o2 ten %l$s.
As observed by the trial court) the subse6uent ne#otiation
with A>,;C>N was for an entirely di2erent pac4a#e. 8s.
Concio herself ad$itted on cross;e'a$ination to havin# used
or e'ercised the ri#ht of %rst refusal. ,he stated that the list
was not acceptable and was indeed not accepted by A>,;C>N.
Hel &osario hi$self 4new and understood that A>,;C>N has
lost its ri#hts of the %rst refusal when his list of <7 titles were
re3ected.
Coastal !a5i75 Tra/in4 vs Sout1ern Rollin4 +ills Case
Brief
ACTS: ,outhern &ollin# 8ills was rena$ed into Bisayan
"nte#rated ,teel Corp (B",CE). En Hec. --) -+7-;B",CE
obtained a loan fro$ H>1 a$ountin# to 1*<7). "t was
secured by a &eal Cstate 8ort#a#e coverin# B",CEAs < parcels
of land includin# the $achinery and e6uip$ents therein.
,econd :oan: B",CE entered a :oan A#ree$ent with
respondent ban4s ( referred as GConsortiu$G) to %nance its
i$portation for various raw $aterials. B",CE e'ecuted a
second $ort#a#e over the previous properties $entioned)
however they were unrecorded B",CE was unable to pay its
second $ort#a#e with the consortiu$) which resulted in the
latter ac6uirin# +@ of the e6uity of B",CE #ivin# the
Consortiu$ the control and $ana#e$ent of B",CE. Hespite
the ac6uisition) B",CE still re$ained indebted to the
Consortiu$.
Transaction to Coastal: >etween -+7( to -+7!) B",CE entered
a processin# a#ree$ent with Coastal wherein Coastal
delivered <) $etric tons of hot rolled steel coils which
B",CE would process into bloc4 iron sheets. 0owever) B",CE
was only able to return -)7 $etric tons of those sheets.
En the loan to H>1: To pay its %rst $ort#a#e with H>1) B",CE
sold 2 of its #enerators to F":8A9 1hils) "nc. H>1 e'ecuted a
Heed of Assi#n$ent of the $ort#a#e in favor of the
consortiu$. The Consortiu$ foreclosed the $ort#a#e and was
the hi#hest bidder in an auction sale of B",CEAs properties.
The Consortiu$ later sold the properties in favor of National
,teel Corporation.
Coastal %les a civil action for Annul$ent or &escission of ,ale)
Ha$a#es with 1reli$inary "n3unction. Coastal i$putes bad
faith on the action of the Consortiu$) the latter bein# able to
sell the properties of B",CE despite the attach$ent of the
properties) placin# the$ beyond the reach of B",CEAs other
creditors.
The lower court ruled in favor of B",CE) declarin# the sale
valid and le#al. The CA aFr$ed this.
ISSUE -: .hether the consortiu$ disposed B",CEAs assets in
fraud of creditors/
HELD: Ses. .hat the consortiu$ did was to pay to the$ the
proceeds fro$ the sale of the #enerator sets which in turn
they used to pay H>1. Hue to the Heed of Assi#n$ent issued
by H>1) the respondent ban4s recovered what they re$itted
to H>1 I it allowed the Consortiu$ to ac6uire H>1As pri$ary
lien on the $ort#a#ed properties. Allowin# the$ as unsecured
creditors ( as the $ort#a#e was unrecorded) to foreclose on
the assets of the corporation without re#ard to inferior clai$s
ISSUE ': .hether petitioner is entitled to $oral da$a#es/
No. As a rule) a corporation is not entitled to $oral da$a#es
because) not bein# a natural person) it cannot e'perience
physical su2erin# or senti$ents li4e wounded feelin#s) serious
an'iety) $ental an#uish and $oral shoc4. The only e'ception
to this rule is when the corporation has a #ood reputation that
is debased) resultin# in its hu$iliation in the business
real$. "n the present case) the records do not show any
evidence that the na$e or reputation of petitioner has been
sullied as a result of the Consortiu$As fraudulent acts.
Accordin#ly) $oral da$a#es are not warranted.
1etitioner was able to recover e'e$plary da$a#es.
Bar/ine Davies vs. Court of A66eals
J9& -2*77) -+ Dune 2K) also $ureoods Corporation "s#
Court o Appeals [() 1*+,-.'
,econd Hivision) >ellosillo (D): ( concur
Facts: "n -++2) at the hei#ht of the power crisis which the country
was then e'periencin#) and to re$edy and curtail further losses
due to the series of power failures) 1ure Foods Corporation
decided to install two (2) -! N. #enerators in its food
processin# plant in ,an &o6ue) 8ari4ina City. ,o$eti$e in
Nove$ber -++2 a biddin# for the supply and installation of the
#enerators was held. ,everal suppliers and dealers were invited to
attend a pre;biddin# conference to discuss the conditions) propose
sche$e and speci%cations that would best suit the needs of
1L&CFEEH,. Eut of the * prospective bidders who attended the
pre;biddin# conference) only < bidders) na$ely) Far Cast 8ills
,upply Corporation (FC8,CE)) 8onar4 and Advance 1ower
sub$itted bid proposals and #ave bid bonds e6uivalent to !@ of
their respective bids) as re6uired. Thereafter) in a letter dated -2
Hece$ber -++2 addressed to FC8,CE 1resident Alfonso 1o)
1L&CFEEH, con%r$ed the award of the contract to FC8,CE.
"$$ediately) FC8,CE sub$itted the re6uired perfor$ance bond
in the a$ount of 1-)*(-)-*7.+ and contractorAs all;ris4 insurance
policy in the a$ount of 17)-<7)2+<. which 1L&CFEEH, throu#h
its Bice 1resident >enedicto 9. Tope ac4nowled#ed in a letter
dated -* Hece$ber -++2. FC8,CE also $ade arran#e$ents with
its principal and started the 1L&CFEEH, pro3ect by purchasin# the
necessary $aterials. 1L&CFEEH, on the other hand returned
FC8,CEAs >idderAs >ond in the a$ount of 1-)).) as
re6uested. :ater) however) in a letter dated 22 Hece$ber -++2)
1L&CFEEH, throu#h its ,enior Bice 1resident Teodoro :.
Hi$ayu#a unilaterally cancelled the award as Gsi#ni%cant factors
were uncovered and brou#ht to (their) attention which dictate
(the) cancellation and warrant a total review and re;bid of (the)
pro3ect.G Conse6uently) FC8,CE protested the cancellation of the
award and sou#ht a $eetin# with 1L&CFEEH,. 0owever) on 27
8arch -++<) before the $atter could be resolved) 1L&CFEEH,
already awarded the pro3ect and entered into a contract with
DA&H"NC NC::) a division of Dardine Havies) "nc. (DA&H"NC)) which
incidentally was not one of the bidders. FC8,CE thus wrote
1L&CFEEH, to honor its contract with the for$er) and to DA&H"NC
to cease and desist fro$ deliverin# and installin# the 2 #enerators
at 1L&CFEEH,. "ts de$and letters unheeded) FC8,CE sued both
1L&CFEEH, and DA&H"NC: 1L&CFEEH, for rene#in# on its
contract) and DA&H"NC for its unwarranted interference and
induce$ent. Trial ensued. After FC8,CE presented its evidence)
DA&H"NC %led a He$urrer to Cvidence. En 27 Dune -++( the
&e#ional Trial Court of 1asi#) >ranch 7*) #ranted DA&H"NCAs
He$urrer to Cvidence. En 2* Duly -++( the trial court rendered a
decision orderin# 1L&CFEEH,: (a) to inde$nify FC8,CE the su$
of 12)<). representin# the value of en#ineerin# services it
rendered= (b) to pay FC8,CE the su$ of L,W-(). or its peso
e6uivalent) and 1+). representin# contractorAs $ar4;up on
installation wor4) considerin# that it would be i$possible to
co$pel 1L&CFEEH, to honor) perfor$ and ful%ll its contractual
obli#ations in view of 1L&CFEEHAs contract with DA&H"NC and
notin# that construction had already started thereon= (c) to pay
attorneyAs fees in an a$ount e6uivalent to 2@ of the total
a$ount due= and) (d) to pay the costs. The trial court dis$issed
the counterclai$ %led by 1L&CFEEH, for lac4 of factual and le#al
basis. >oth FC8,CE and 1L&CFEEH, appealed to the Court of
Appeals. FC8,CE appealed the 27 Dune -++( &esolution of the
trial court which #ranted the He$urrer to Cvidence %led by
DA&H"NC resultin# in the dis$issal of the co$plaint a#ainst it)
while 1L&CFEEH, appealed the 2* Duly -++( Hecision of the sa$e
court which ordered it to pay FC8,CE. En -( Au#ust -++7 the
Court of Appeals aFr$ed in toto the 2* Duly -++( Hecision of the
trial court. "t also reversed the 27 Dune -++( &esolution of the
lower court and ordered DA&H"NC to pay FC8,CE da$a#es for
inducin# 1L&CFEEH, to violate the latterAs contract with FC8,CE.
As such) DA&H"NC was ordered to pay FC8,CE 12)). for
$oral da$a#es. "n addition) 1L&CFEEH, was also directed to pay
FC8,CE 12)). as $oral da$a#es and 1-)). as
e'e$plary da$a#es as well as 2@ of the total a$ount due as
attorneyAs fees. En <- Danuary -++7 the Court of Appeals denied
for lac4 of $erit the separate $otions for reconsideration %led by
1L&CFEEH, and DA&H"NC. 0ence) 2 petitions for review %led were
by 1L&CFEEH, and DA&H"NC which were subse6uently
consolidated.
Issue: .hether FC8,CE is entitled to an award for $oral
da$a#es.
Held: >y the unilateral cancellation of the contract) 1L&C FEEH,
has acted with bad faith and this was further a##ravated by the
subse6uent in4in# of a contract between 1urefoods and Dardine. "t
is very evident that 1urefoods thou#ht that by the e'pedient
$eans of $erely writin# a letter would auto$atically cancel or
nullify the e'istin# contract entered into by both parties after a
process of biddin#. This is a Ma#rant violation of the e'press
provisions of the law and is contrary to fair and 3ust dealin#s to
which every $an is due. The Court has awarded in the past $oral
da$a#es to a corporation whose reputation has been bes$irched.
0erein) FC8,CE has suFciently shown that its reputation was
tarnished after it i$$ediately ordered e6uip$ent fro$ its
suppliers on account of the ur#ency of the pro3ect) only to be
canceled later. The Court thus sustain the appellate courtAs award
of $oral da$a#es. The Court however reduced the award fro$
12)). to 1-)).) as $oral da$a#es are never
intended to enrich the recipient. :i4ewise) the award of e'e$plary
da$a#es by way of e'a$ple for the public #ood is e'cessive and
should be reduced to 1-).. En the other hand) the
appellate court erred in orderin# DA&H"NC to pay $oral da$a#es
to FC8,CE as it supposedly induced 1L&CFEEH, to violate the
contract with FC8,CE. .hile it $ay see$ that 1L&CFEEH, and
DA&H"NC connived to deceive FC8,CE) there is no speci%c
evidence on record to support such perception. :i4ewise) there is
no showin# whatsoever that DA&H"NC induced 1L&CFEEH,. The
si$ilarity in the desi#n sub$itted to 1L&CFEEH, by both DA&H"NC
and FC8,CE) and the tender of a lower 6uotation by DA&H"NC are
insuFcient to show that DA&H"NC indeed induced 1L&CFEEH, to
violate its contract with FC8,CE.
ili6inas Broa/5astin4 Net3or9 In5. vs. A4o +e/i5al
an/ E/u5ational Center%Bi5ol C1ristian Colle4e of
+e/i5ine <A+EC%BCC+C J9& -(-++() -7 Danuary 2!K
Facts: PC'posXQ is a radio docu$entary pro#ra$ hosted by
Car$elo Y8el? &i$a (P&i$aQ) and 0er$o#enes YDun? Ale#re
(PAle#reQ). C'posX is aired every $ornin# over HZ&C;A8
which is owned by Filipinas >roadcastin# Networ4) "nc.
(PF>N"Q). PC'posXQ is heard over :e#a5pi City) the Albay
$unicipalities and other >icol areas. "n the $ornin# of -( and
-! Hece$ber -+*+) &i$a and Ale#re e'posed various alle#ed
co$plaints fro$ students) teachers and parents a#ainst A#o
8edical and Cducational Center;>icol Christian Colle#e of
8edicine (PA8CCQ) and its ad$inistrators. Clai$in# that the
broadcasts were defa$atory) A8CC and An#elita A#o (PA#oQ))
as Hean of A8CC?s Colle#e of 8edicine) %led a co$plaint for
da$a#es a#ainst F>N") &i$a and Ale#re on 27 February -++.
The co$plaint further alle#ed that A8CC is a reputable
learnin# institution. .ith the supposed e'posXs) F>N") &i$a
and Ale#re Ptrans$itted $alicious i$putations) and as such)
destroyed plainti2s? (A8CC and A#o) reputation.Q A8CC and
A#o included F>N" as defendant for alle#edly failin# to
e'ercise due dili#ence in the selection and supervision of its
e$ployees) particularly &i$a and Ale#re. En -* Dune -++)
F>N") &i$a and Ale#re) throu#h Atty. &o5il :o5ares) %led an
Answer alle#in# that the broadcasts a#ainst A8CC were fair
and true. F>N") &i$a and Ale#re clai$ed that they were
plainly i$pelled by a sense of public duty to report the
P#oin#s;on in A8CC) Jwhich isK an institution i$bued with
public interest.Q Thereafter) trial ensued. Hurin# the
presentation of the evidence for the defense) Atty. Cd$undo
Cea) collaboratin# counsel of Atty. :o5ares) %led a 8otion to
His$iss on F>N"?s behalf. The trial court denied the $otion to
dis$iss. Conse6uently) F>N" %led a separate Answer clai$in#
that it e'ercised due dili#ence in the selection and supervision
of &i$a and Ale#re. F>N" clai$ed that before hirin# a
broadcaster) the broadcaster should (-) %le an application= (2)
be interviewed= and (<) under#o an apprenticeship and
trainin# pro#ra$ after passin# the interview. F>N" li4ewise
clai$ed that it always re$inds its broadcasters to Pobserve
truth) fairness and ob3ectivity in their broadcasts and to
refrain fro$ usin# libelous and indecent lan#ua#e.Q 8oreover)
F>N" re6uires all broadcasters to pass the Napisanan n# $#a
>rod4aster sa 1ilipinas (PN>1Q) accreditation test and to
secure a N>1 per$it. En -( Hece$ber -++2) the trial court
rendered a Hecision %ndin# F>N" and Ale#re liable for libel
e'cept &i$a. The trial court held that the broadcasts are
libelous per se. The trial court re3ected the broadcasters? clai$
that their utterances were the result of strai#ht reportin#
because it had no factual basis. The broadcasters did not even
verify their reports before airin# the$ to show #ood faith. "n
holdin# F>N" liable for libel) the trial court found that F>N"
failed to e'ercise dili#ence in the selection and supervision of
its e$ployees. "n absolvin# &i$a fro$ the char#e) the trial
court ruled that &i$a?s only participation was when he a#reed
with Ale#re?s e'posX. The trial court found &i$a?s state$ent
within the Pbounds of freedo$ of speech) e'pression) and of
the press.Q >oth parties) na$ely) F>N") &i$a and Ale#re) on
one hand) and A8CC and A#o) on the other) appealed the
decision to the Court of Appeals. The Court of Appeals
aFr$ed the trial court?s 3ud#$ent with $odi%cation. The
appellate court $ade &i$a solidarily liable with F>N" and
Ale#re. The appellate court denied A#o?s clai$ for da$a#es
and attorney?s fees because the broadcasts were directed
a#ainst A8CC) and not a#ainst her. F>N") &i$a and Ale#re
%led a $otion for reconsideration which the Court of Appeals
denied in its 27 Danuary 2 &esolution. 0ence) F>N" %led the
petition for review.
Issue: .hether A8CC is entitled to $oral da$a#es.
Held: A 3uridical person is #enerally not entitled to $oral
da$a#es because) unli4e a natural person) it cannot
e'perience physical su2erin# or such senti$ents as wounded
feelin#s) serious an'iety) $ental an#uish or $oral shoc4. The
Court of Appeals cites 8a$bulao :u$ber Co. v. 1N>) et al. to
3ustify the award of $oral da$a#es. 0owever) the Court?s
state$ent in 8a$bulao that Pa corporation $ay have a #ood
reputation which) if bes$irched) $ay also be a #round for the
award of $oral da$a#esQ is an obiter dictu$. Nevertheless)
A8CC?s clai$ for $oral da$a#es falls under ite$ 7 of Article
22-+ of the Civil Code. This provision e'pressly authori5es the
recovery of $oral da$a#es in cases of libel) slander or any
other for$ of defa$ation. Article 22-+(7) does not 6ualify
whether the plainti2 is a natural or 3uridical person. Therefore)
a 3uridical person such as a corporation can validly co$plain
for libel or any other for$ of defa$ation and clai$ for $oral
da$a#es. 8oreover) where the broadcast is libelous per se)
the law i$plies da$a#es. "n such a case) evidence of an
honest $ista4e or the want of character or reputation of the
party libeled #oes only in $iti#ation of da$a#es. Neither in
such a case is the plainti2 re6uired to introduce evidence of
actual da$a#es as a condition precedent to the recovery of
so$e da$a#es. "n this case) the broadcasts are libelous per
se. Thus) A8CC is entitled to $oral da$a#es. 0owever) the
Court found the award of 1<) $oral da$a#es
unreasonable. The record shows that even thou#h the
broadcasts were libelous per se) A8CC has not su2ered any
substantial or $aterial da$a#e to its reputation. Therefore)
the Court reduced the award of $oral da$a#es fro$
1<) to 1-!).
Cor6orate La3 Case Di4est: !NB A. CA
<&)(=C Case Brief
9.&. No. :;27-!! 8ay -*) -+7*
:essons Applicable: :iability for Torts (Corporate :aw)
ACTS:
1N> e'ecuted its bond wV &ita 9ueco Tapnio as
principal) in favor of the 1N> to #uarantee the
pay$ent of TapnioAs account with 1N>.
"nde$nity A#ree$ent wV -2@ int. and -!@ atty. fees
,ept -* -+!7: 1N> sent a letter of de$and for
Tapnio to pay the reduced a$ount of 2)<7+.+-
1N> de$anded both oral and written but to no avail
Tapnio $ort#a#ed to the ban4 her lease
a#ree$ent wV Dacobo Tua5on for her
unused e'port su#ar 6uota at 12.* per picular or a
total of 12)* which was $ore than the value of the
bond
1N> insisted on raisin# it to 1<. per picular so
Tua5on re3ected the o2er
ISSUE: .VN 1N> should be liable for tort
HELD: SC,. aFr$ed.
.hile Tapnio had the ulti$ate authority of approvin#
or disapprovin# the proposed lease since the 6uota
was $ort#a#ed to the ban4) it certainly CANNET
escape its responsibility of observin#) for the
protection of the interest of Tapnio and Tua5on) that
the de#ree of care) precaution and vi#ilance which
the circu$stances 3ustly de$and in approvin# or
disapprovin# the lease of said su#ar 6uota
Art. 2- of the Civil Code: any person who wilfully
causes loss or in3ury to another in a $anner that is
contrary to $orals) #ood custo$s or public policy
shall co$pensate the latter for the da$a#e.
!rofessional Servi5es# In5 A. CA <'?&?C Case
Brief <9.&. No. -272+7) February 2) 2-)
:essons Applicable: :iability for Torts (Corporate :aw)
ACTS:
Cnri6ue A#ana told his wife Natividad A#ana to #o
loo4 for their nei#hbor) Hr. A$pil) a sur#eon sta2
$e$ber of 8edical City) a pro$inent and 4nown
hospital
Natividad su2ered fro$ in3ury due to 2 #au#es left
inside her body so they sued 1rofessional "nc. (1,")
Hespite) the report of 2 $issin# #au5es after the
operation 1," did NET initiate an investi#ation
ISSUE: .VN 1," should be liable for tort.
HELD: SC,. -!8 [ -2@ int. until full satisfaction.
.hile 1," had no power to control the $eansV$ethod
by which Hr. A$pil conducted the sur#ery on
Natividad) they had the power to review or cause the
review
1," had the duty to tread on as captain of the ship for
the purpose of ensuin# the safety of the patients
availin# the$selves of its services and facilities
1," de%ned its standards of corporate conduct:
-. Cven after her operation to ensure her
safety as a patient
2. NET li$ited to record the 2 $issin# #au5es
<. C'tended to deter$inin# Hr. A$pils role in
it) brin#in# the $atter to his attention and
correctin# his ne#li#ence
Ad$ission bars itself fro$ ar#uin# that its corp. resp.
is NET yet in e'istence at the ti$e Natividad
underwent treat$ent
Hr. A$pil ; $edial ne#li#ence
1," ; Corporate Ne#li#ence
NETC:
:iability uni6ue to this case because of i$plied
a#ency and ad$itted corporate duty
27 years already and Hr. A$pilAs status could no
lon#er be ascertained
DUDAN INTERNATI"NAL C"R!"RATI"N vs.
REEES <$.R. No. &='(')# Se6te2ber ')# '?&?C
ACTS: ,o$eti$e in 8arch -++*) Nu4an) "nc. conducted
biddin# for the supply and installation of si#na#es in a
buildin# bein# constructed in 8a4ati City. &o$eo 8orales
tendered the winnin# bid and was awarded the 1h1 ! $illion
contract. ,hort chan#ed) 8orales %led a Co$plaint with the
&TC a#ainst Nu4an) "nc. for a su$ of $oney. The &TC rendered
a Hecision in favor of 8orales and a#ainst Nu4an) "nc. After the
decision beca$e %nal and e'ecutory) 8orales $oved for and
secured a writ of e'ecution a#ainst Nu4an) "nc. The sheri2
then levied upon various personal properties of Nu4an
"nternational Corporation (N"C). N"C then %led an AFdavit of
Third;1arty Clai$. Notably) N"C was incorporated in Au#ust
2) or shortly after Nu4an) "nc. had stopped participatin# in
Civil Case. "n reaction to the third party clai$) 8orales
interposed an E$nibus 8otion dated April <) 2<. "n it)
8orales prayed) applyin# the principle of piercin# the veil of
corporate %ction) that an order be issued for the satisfaction
of the 3ud#$ent debt of Nu4an) "nc. with the properties under
the na$e or in the possession of N"C) it bein# alle#ed that
both corporations are but one and the sa$e entity. >y Erder
of 8ay 2+) 2< as reiterated in a subse6uent order) the court
denied the o$nibus $otion. "n a bid to establish the lin4
between N"C and Nu4an) "nc.) and thus deter$ine the true
relationship between the two) 8orales %led a 8otion for
C'a$ination of Dud#$ent Hebtors dated 8ay () 2!. "n this
$otion 8orales sou#ht that subpoena be issued a#ainst the
pri$ary stoc4holders of Nu4an) "nc.) a$on# the$ 8ichael
Chan) a.4.a. Chan Nai Nit. This too was denied by the trial
court in an Erder dated 8ay 2() 2!. 8orales then sou#ht
the inhibition of the presidin# 3ud#e) Cduardo >. 1eralta) Dr.)
who eventually #ranted the $otion. The case was re;ra\ed to
>ranch 2-) presided by public respondent Dud#e A$or &eyes.
>efore the 8anila &TC) >ranch 2-) 8orales %led a 8otion to
1ierce the Beil of Corporate Fiction to declare N"C as havin# no
e'istence separate fro$ Nu4an) "nc. This ti$e around) the
&TC) by Erder dated 8arch -2) 27) #ranted the $otion. N"C
$oved but was denied reconsideration in another Erder dated
Dune 7) 27. En petition for certiorari before CA) the sa$e
was denied. The CA later denied N"C?s $otion for
reconsideration in the assailed resolution. 0ence) the instant
petition for review.
ISSUE: .hether the trial and appellate courts correctly
applied) under the pre$ises) the principle of piercin# the veil
of corporate %ction.
RULIN$: 1iercin# the veil of corporate entity apllies only: (-)
the court $ust %rst ac6uire 3urisdiction over the corporation or
corporations involved before its or their separate personalities
are disre#arded= and (2) the doctrine of piercin# the veil of
corporate entity can only be raised durin# a full;blown trial
over a cause of action duly co$$enced involvin# parties duly
brou#ht under the authority of the court by way of service of
su$$ons or what passes as such service.
8ere ownership by a sin#le stoc4holder or by another
corporation of a substantial bloc4 of shares of a corporation
does not) standin# alone) provide suFcient 3usti%cation for
disre#ardin# the separate corporate personality. For this
#round to hold sway in this case) there $ust be proof that
Chan had control or co$plete do$inion of Nu4an and N"C?s
%nances) policies) and business practices= he used such
control to co$$it fraud= and the control was the pro'i$ate
cause of the %nancial loss co$plained of by 8orales. The
absence of any of the ele$ents prevents the piercin# of the
corporate veil. And indeed) the records do not show the
presence of these ele$ents.
"n %ne) there is no showin# that the incorporation) and the
separate and distinct personality) of N"C was used to defeat
8orales? ri#ht to recover fro$ Nu4an) "nc. Dud#in# fro$ the
records) no serious atte$pt was $ade to levy on the
properties of Nu4an) "nc. 8orales could not) thus) validly ar#ue
that Nu4an) "nc. tried to avoid liability or had no property
a#ainst which to proceed.
The su##estion that N"C is but a continuation and successor of
Nu4an) "nc.) owned and controlled as they are by the sa$e
stoc4holders) stands without factual basis. "t is true that
8ichael Chan) a.4.a. Chan Nai Nit) owns (@ of the
outstandin# capital stoc4 of both corporations. >ut such
circu$stance) standin# alone) is insuFcient to establish
identity. There $ust be at least a substantial identity of
stoc4holders for both corporations in order to consider this
factor to be constitutive of corporate identity.
Cvidently) the afore$entioned case relied upon by 8orales
cannot 3ustify the application of the principle of piercin# the
veil of corporate %ction to the instant case. As shown by the
records) the na$e 8ichael Chan) the si$ilarity of business
activities en#a#ed in) and incidentally the word GNu4anG
appearin# in the corporate na$es provide the ne'us between
Nu4an) "nc. and N"C. As illustrated) these circu$stances are
insuFcient to establish the identity of N"C as the alter e#o or
successor of Nu4an) "nc.
Ba9a Invest2ents Cor6 vs CIR Case Brief
a5ts: in -++() petitioner sou#ht to invest in DANA C6uities
Corporation (DCC)) which was then plannin# to underta4e an initial
public o2erin# ("1E) and listin# of its shares of stoc4 with the
1hilippine ,toc4 C'chan#e. petitioner proposed to subscribe to
Five 0undred Ci#ht 8illion Ci#ht 0undred ,i' Thousand Two
0undred 1esos (1!*)*7)2.) out of the increase in the
authori5ed capital stoc4 of DCC throu#h a ta';free e'chan#e under
,ection <((c)(2) of the National "nternal &evenue Code (N"&C) of
-+77) as a$ended) which was e2ected by the e'ecution of a
,ubscription A#ree$ent and Heed of Assi#n$ent of 1roperty in
1ay$ent of ,ubscription. Lnder this A#ree$ent) as pay$ent for
its subscription) petitioner will assi#n and transfer to DCC shares of
stoc4.
The intended "1E and listin# of shares of DCC did not $ateriali5e.
0owever) DCC still decided to proceed with the increase in its
authori5ed capital stoc4 and petitioner a#reed to subscribe
thereto) but under di2erent ter$s of pay$ent.
Thus) petitioner and DCC e'ecuted the A$ended ,ubscription
A#ree$ent wherein the above;enu$erated &90C) 19C") and LC1>
shares of stoc4 were transferred to DCC. "n lieu of the FC>TC
shares) petitioner paid DCC.
petitioner paid Ene basic docu$entary sta$p ta' inclusive of the
2!@ surchar#e for late pay$ent on the A$ended ,ubscription
A#ree$ent.
1etitioner) after seein# the &HE?s certi%cations) the total a$ount
of which was less than the actual a$ount it had paid as
docu$entary sta$p ta') concluded that it had overpaid.
1etitioner subse6uently sou#ht a refund for the alle#ed e'cess
docu$entary sta$p ta' and surchar#es it had paid.
1etitioner?s $ain contention in this clai$ for refund is that the ta'
base for the docu$entary sta$p ta' on the A$ended ,ubscription
A#ree$ent should have been only the shares of stoc4 in &90C)
19C") and LC1> that petitioner had transferred to DCC as pay$ent
for its subscription to the DCC shares) and should not have included
the cash portion of its pay$ent) based on ,ection -77 of the
National "nternal &evenue Code of -+77) as a$ended by &epublic
Act No. 777) or the New Hocu$entary ,ta$ps Ta' :aw (the -++(
Ta' Code)) the law applicable at the ti$e of the transaction.
1etitioner ar#ues that the cash co$ponent of its pay$ent for its
subscription to the DCC shares) totalin# Three 0undred ,eventy
8illion ,even 0undred ,i'ty;,i' Thousand 1esos
(1<7)777).) should not have been char#ed any
docu$entary sta$p ta'. 1etitioner clai$s that there was
overpay$ent because the ta' due on the transferred shares was
only Five 0undred Ninety;Three Thousand Five 0undred Twenty;
Ci#ht and -!V- 1esos (1!+<)!2*.-!)) as indicated in the
certi%cations issued by &HE Cs6uivias. 1etitioner alle#es that it is
entitled to a refund for the overpay$ent) which is the di2erence
in the a$ount it had actually paid (1-)<)*+!.7!) and the
a$ount of docu$entary sta$p ta' due on the transfer of said
shares (1!+<)!2*.-!)) or a total of Four 0undred Ten Thousand
Three 0undred ,i'ty;,even 1esos (1(-)<77.).
1etitioner e'plains that in this instance where shares of stoc4 are
used as subscription pay$ent) there are two docu$entary sta$p
ta' incidences) na$ely) the docu$entary sta$p ta' on the
ori#inal issuance of the shares subscribed (the DCC shares)) which
is i$posed under ,ection -7!= and the docu$entary sta$p ta' on
the shares transferred in pay$ent of such subscription (the
transfer of the &90C) 19C" and LC1> shares of stoc4 fro$
petitioner to DCC)) which is i$posed under ,ection -77 of the -++(
Ta' Code. 1etitioner ar#ues that the docu$entary sta$p ta'
i$posed under ,ection -7! is due on ori#inal issuances of
certi%cates of stoc4 and is co$puted based on the a##re#ate par
value of the shares to be issued= and that these certi%cates of
stoc4 are issued only upon full pay$ent of the subscription price
such that under the >ureau of "nternal &evenue?s (>"&?s).
&espondent $aintains that the docu$entary sta$p ta' i$posed
in this case is on the ori#inal issue of certi%cates of stoc4 of DCC on
the subscription by the petitioner of the 1!*)*7)2. shares
out of the increase in the authori5ed capital stoc4 of the for$er
pursuant to ,ection -7! of the N"&C. The docu$entary sta$p ta'
was not i$posed on the shares of stoc4 owned by petitioner in
&90C) 19C") and LC1>) which $erely for$ part of the partial
pay$ent of the subscribed shares in DCC. &espondent avers that
the a$ounts indicated in the Certi%cates of &HE Cs6uivias are the
a$ounts of docu$entary sta$p ta' representin# the e6uivalent of
each #roup of shares bein# applied for pay$ent. Considerin# that
the a$ount of docu$entary sta$p ta' represented by the shares
of stoc4 in the afore$entioned co$panies a$ounted only to
1!+<)!2*.-!) while the basic docu$entary sta$p ta' for the
entire subscription of 1!*)*7)2. was co$puted by
respondent?s revenue oFcers to the tune of 1*<)--7.72)
e'clusive of the penalties) leavin# a balance of 12+)!**.!7) is a
clear indication that the pay$ent $ade with the shares of stoc4 is
insuFcient.
ISSUE: whether or not petitioner is entitled to a partial refund of
the docu$entary sta$p ta' and surchar#es it paid on the
e'ecution of the A$ended ,ubscription A#ree$ent.
RULIN$: "n clai$s for refund) the burden of proof is on the
ta'payer to prove entitle$ent to such refund. "t was thus
incu$bent upon petitioner to show clearly its basis for clai$in#
that it is entitled to a ta' refund. the petitioner failed to do.
"n the case at bar) the ri#hts and obli#ations between petitioner
DANA "nvest$ents Corporation and DANA C6uities Corporation are
established and enforceable at the ti$e the PA$ended
,ubscription A#ree$ent and Heed of Assi#n$ent of 1roperty in
1ay$ent of ,ubscriptionQ were si#ned by the parties and their
witness) so is the ri#ht of the state to ta' the aforestated
docu$ent evidencin# the transaction. H,T is a ta' on the
docu$ent itself and therefore the rate of ta' $ust be deter$ined
on the basis of what is written or indicated on the instru$ent itself
independent of any ad3ust$ent which the parties $ay a#ree on in
the future ' ' '. The H,T upon the ta'able docu$ent should be
paid at the ti$e the contract is e'ecuted or at the ti$e the
transaction is acco$plished. The overridin# purpose of the law is
the collection of ta'es. ,o that when it paid in cash the a$ount of
1<7)777). in substitution for) or replace$ent of the
-)<-<)-77 FC>TC shares) its pay$ent of 1-)<)*<!.7!
docu$entary sta$ps ta' pursuant to ,ection -7! of N"&C is in
order.
Thus) applyin# the settled rule in this 3urisdiction that) a clai$ for
refund is in the nature of a clai$ for e'e$ption) thus) should be
construed in strictissi$i 3uris a#ainst the ta'payer (Co$$issioner
of "nternal &evenue vs. To4yo ,hippin# Co.) :td.) 2(( ,C&A <<2)
and since the petitioner failed to adduce evidence that will show
that it is e'e$pt fro$ H,T under ,ection -++ or other provision of
the ta' code) the court ruled the focal issue in the ne#ative.
A docu$entary sta$p ta' is in the nature of an e'cise ta'. "t is not
i$posed upon the business transacted but is an e'cise upon the
privile#e) opportunity or facility o2ered at e'chan#es for the
transaction of the business. "t is an e'cise upon the facilities used
in the transaction of the business separate and apart fro$ the
business itself. Hocu$entary sta$p ta'es are levied on the
e'ercise by persons of certain privile#es conferred by law for the
creation) revision) or ter$ination of speci%c le#al relationships
throu#h the e'ecution of speci%c instru$ents.
docu$entary sta$p ta'es are levied independently of the le#al
status of the transactions #ivin# rise thereto. The docu$entary
sta$p ta'es $ust be paid upon the issuance of the said
instru$ents) without re#ard to whether the contracts which #ave
rise to the$ are rescissible) void) voidable) or unenforceable.
The fact that it was petitioner and not DCC that paid for the
docu$entary sta$p ta' on the ori#inal issuance of shares is of no
$o$ent) as ,ection -7< of the -++( Ta' Code states that the
docu$entary sta$p ta' shall be paid by the person $a4in#)
si#nin#) issuin#) acceptin# or transferrin# the property) ri#ht or
obli#ation.
petition is H",8",,CH.
"n4 Eon4# et al. vs. Tiu# et al. <J9& -(((77) * April
2<K)
Facts: "n -++() the construction of the 8asa#ana Citi$all in 1asay
City was threatened with stoppa#e and inco$pletion when its
owner) the First :andlin4 Asia Hevelop$ent Corporation (F:AHC))
which was owned by Havid ,. Tiu) Cely S. Tiu) 8oly Su 9ow) >elen
,ee Su) H. Terence S. Tiu) Dohn Su and :ourdes C. Tiu (the Tius))
encountered dire %nancial diFculties. "t was heavily indebted to
the 1hilippine National >an4 (1N>) for 1-+ $illion. To stave o2
foreclosure of the $ort#a#e on the two lots where the $all was
bein# built) the Tius invited En# Son#) Duanita Tan En#) .ilson T.
En#) Anna :. En#) .illia$ T. En# and Dulia En# Alon5o (the En#s))
to invest in F:AHC. Lnder the 1re;,ubscription A#ree$ent they
entered into) the En#s and the Tius a#reed to $aintain e6ual
shareholdin#s in F:AHC: the En#s were to subscribe to -))
shares at a par value of 1-. each while the Tius were to
subscribe to an additional !(+)* shares at 1-. each in
addition to their already e'istin# subscription of (!)2 shares.
Further$ore) they a#reed that the Tius were entitled to no$inate
the Bice;1resident and the Treasurer plus ! directors while the
En#s were entitled to no$inate the 1resident) the ,ecretary and 7
directors (includin# the chair$an) to the board of directors of
F:AHC. 8oreover) the En#s were #iven the ri#ht to $ana#e and
operate the $all. Accordin#ly) the En#s paid 1- $illion in cash
for their subscription to -)) shares of stoc4 while the Tius
co$$itted to contribute to F:AHC a four;storey buildin# and two
parcels of land respectively valued at 12 $illion (for 2)
shares)) 1< $illion (for <) shares) and 1(+.* $illion (for
(+)* shares) to cover their additional !(+)* stoc4
subscription therein. The En#s paid in another 17 $illion < to
F:AHC and 12 $illion to the Tius over and above their 1-
$illion invest$ent) the total su$ of which (1-+ $illion) was used
to settle the 1-+ $illion $ort#a#e indebtedness of F:AHC to
1N>. The business har$ony between the En#s and the Tius in
F:AHC) however) was shortlived because the Tius) on 2< February
-++7) rescinded the 1re;,ubscription A#ree$ent. The Tius
accused the En#s of (-) refusin# to credit to the$ the F:AHC
shares coverin# their real property contributions= (2) preventin#
Havid ,. Tiu and Cely S. Tiu fro$ assu$in# the positions of and
perfor$in# their duties as Bice;1resident and Treasurer)
respectively) and (<) refusin# to #ive the$ the oFce spaces
a#reed upon. The controversy %nally ca$e to a head when the
case was co$$enced by the Tius on 27 February -++7 at the
,ecurities and C'chan#e Co$$ission (,CC)) see4in# con%r$ation
of their rescission of the 1re;,ubscription A#ree$ent. After
hearin#) the ,CC) throu#h then 0earin# EFcer &olando 9.
Andaya) Dr.) issued a decision on -+ 8ay -++7 con%r$in# the
rescission sou#ht by the Tius. En $otion of both parties) the
above decision was partially reconsidered but only insofar as the
En#sA 17 $illion was declared not as a pre$iu$ on capital stoc4
but an advance (loan) by the En#s to F:AHC and that the
i$position of interest on it was correct. >oth parties appealed to
the ,CC en banc which rendered a decision on -- ,epte$ber
-++*) aFr$in# the -+ 8ay -++7 decision of the 0earin# EFcer.
The ,CC en banc con%r$ed the rescission of the 1re;,ubscription
A#ree$ent but reverted to classifyin# the 17 $illion paid by the
En#s as pre$iu$ on capital and not as a loan or advance to
F:AHC) hence) not entitled to earn interest. En appeal) the Court
of Appeals (CA) rendered a decision on ! Ectober -+++) $odifyin#
the ,CC order of -- ,epte$ber -++*. Their $otions for
reconsideration havin# been denied) both parties %led separate
petitions for review before the ,upre$e Court. En - February
22) the ,upre$e Court pro$ul#ated its Hecision) aFr$in# the
assailed decision of the Court of Appeals but with the
$odi%cations that the 12 $illion loan e'tended by the En#s to
the Tius shall earn interest at -2@ per annu$ to be co$puted
fro$ the ti$e of 3udicial de$and which is fro$ 2< April -++7= that
the 17 $illion advanced by the En#s to the F:AHC shall earn
interest at -@ per annu$ to be co$puted fro$ the date of the
F:AHC >oard &esolution which is -+ Dune -++7= and that the Tius
shall be credited with (+)* shares in F:AHC for their property
contribution) speci%cally) the -!- s6. $. parcel of land. The Court
aFr$ed the fact that both the En#s and the Tius violated their
respective obli#ations under the 1re;,ubscription A#ree$ent.
En -! 8arch 22) the Tius %led before the Court a 8otion for
"ssuance of a .rit of C'ecution. Aside fro$ their opposition to the
TiusA 8otion for "ssuance of .rit of C'ecution) the En#s %led their
own G8otion for &econsideration= Alternatively) 8otion for
8odi%cation (of the February -) 22 Hecision)G on -! 8arch
22. .illie En# %led a separate G8otion for 1artial
&econsiderationG dated * 8arch 22) pointin# out that there was
no violation of the 1re;,ubscription A#ree$ent on the part of the
En#s) a$on# others. En 2+ Danuary 2<) the ,pecial ,econd
Hivision of this Court held oral ar#u$ents on the respective
positions of the parties. En 27 February 2<) Hr. .illie En# and
the rest of the $ovants En# %led their respective $e$oranda. En
2* February 2<) the Tius sub$itted their $e$orandu$.
Issue [1]: .hether the pre;,ubscription A#ree$ent e'ecuted by
the En#s is actually a subscription contract.
Held [1]: F:AHC was ori#inally incorporated with an authori5ed
capital stoc4 of !) shares with the Tius ownin# (!)2
shares representin# the paid;up capital. .hen the Tius invited the
En#s to invest in F:AHC as stoc4holders) an increase of the
authori5ed capital stoc4 beca$e necessary to #ive each #roup
e6ual (!;!) shareholdin#s as a#reed upon in the 1re;
,ubscription A#ree$ent. The authori5ed capital stoc4 was thus
increased fro$ !) shares to 2)) shares with a par
value of 1- each) with the En#s subscribin# to -)) shares
and the Tius to !(+)* $ore shares in addition to their (!)2
shares to co$plete -)) shares. Thus) the sub3ect $atter of
the contract was the -)) unissued shares of F:AHC stoc4
allocated to the En#s. ,ince these were unissued shares) the
partiesA 1re;,ubscription A#ree$ent was in fact a subscription
contract as de%ned under ,ection 7) Title B"" of the Corporation
Code. A subscription contract necessarily involves the corporation
as one of the contractin# parties since the sub3ect $atter of the
transaction is property owned by the corporation U its shares of
stoc4. Thus) the subscription contract (deno$inated by the parties
as a 1re;,ubscription A#ree$ent) whereby the En#s invested
1- $illion for -)) shares of stoc4 was) fro$ the viewpoint
of the law) one between the En#s and F:AHC) not between the
En#s and the Tius. Etherwise stated) the Tius did not contract in
their personal capacities with the En#s since they were not sellin#
any of their own shares to the$. "t was F:AHC that did.
Considerin# therefore that the real contractin# parties to the
subscription a#ree$ent were F:AHC and the En#s alone) a civil
case for rescission on the #round of breach of contract %led by the
Tius in their personal capacities will not prosper. Assu$in# it had
valid reasons to do so) only F:AHC (and certainly not the Tius) had
the le#al personality to %le suit rescindin# the subscription
a#ree$ent with the En#s inas$uch as it was the real party in
interest therein. Article -<-- of the Civil Code provides that
Gcontracts ta4e e2ect only between the parties) their assi#ns and
heirs. . .G Therefore) a party who has not ta4en part in the
transaction cannot sue or be sued for perfor$ance or for
cancellation thereof) unless he shows that he has a real interest
a2ected thereby.
Issue [2]: .hether the rescission of 1re;,ubscription A#ree$ent
would result in unauthori5ed li6uidation.
Held [2]: The rescission of the 1re;,ubscription A#ree$ent will
e2ectively result in the unauthori5ed distribution of the capital
assets and property of the corporation) thereby violatin# the Trust
Fund Hoctrine and the Corporation Code) since rescission of a
subscription a#ree$ent is not one of the instances when
distribution of capital assets and property of the corporation is
allowed. &escission will) in the %nal analysis) result in the
pre$ature li6uidation of the corporation without the bene%t of
prior dissolution in accordance with ,ections --7) --*) --+ and
-2 of the Corporation Code.
An4 24a Daanib sa I4lesia n4 Dios Da,
Dristo Hesus# HSD sa Bansan4 !ili6inas In5.
vs. I4lesia n4 Dios 9a, Cristo Besus# Hali4i at
Su1a, n4 Datoto1anan
J9& -<7!+2) -2 Hece$ber 2-K
First Hivision) Snares;,antia#o (D): < concur) - on oFcial leave
Facts: The "#lesia n# Hios Nay Cristo Desus) 0ali#i at ,uhay n#
Natotohanan ("HCD;0,N= Church of 9od in Christ Desus) the
1illar and 9round of Truth)) is a non;stoc4 reli#ious society or
corporation re#istered in -+<7. ,o$eti$e in -+77) one Cliseo
,oriano and several other $e$bers of said corporation
disassociated the$selves fro$ the latter and succeeded in
re#isterin# on < 8arch -+77 a new non;stoc4 reli#ious
society or corporation) na$ed "#lesia n# Hios Nay Nristo
0esus) 0ali#i at ,ali#an n# Natotohanan ("HND;0,N). En -7 Duly
-+7+) "HCD;0,N %led with the ,CC a petition to co$pel "HND;
0,N to chan#e its corporate na$e (,CC Case -77(). En ( 8ay
-+**) the ,CC rendered 3ud#$ent in favor of "HCD;0,N)
orderin# "HND;0,N to chan#e its corporate na$e to another
na$e that is not si$ilar or identical to any na$e already used
by a corporation) partnership or association re#istered with
the Co$$ission. No appeal was ta4en fro$ said decision.
Hurin# the pendency of ,CC Case -77() ,oriano) et al.)
caused the re#istration on 2! April -+* of An# 8#a Naanib sa
"#lesia n# Hios Nay Nristo 0esus) 0.,.N) sa >ansan# 1ilipinas
(ANJ"HN0;0,NK>1). The acrony$ G0.,.N.G stands for 0ali#i at
,ali#an n# Natotohanan. En 2 8arch -++() "HCD;0,N %led
before the ,CC a petition (,CC Case <;+(;(7()) prayin# that
ANJ"HN0;0,NK>1 be co$pelled to chan#e its corporate na$e
and be barred fro$ usin# the sa$e or si$ilar na$e on the
#round that the sa$e causes confusion a$on# their $e$bers
as well as the public. N"HN0;0,N;>1 %led a $otion to dis$iss
on the #round of lac4 of cause of action. The $otion to
dis$iss was denied. Thereafter) for failure to %le an answer)
ANJ"HN0;0,NK>1 was declared in default and "HCD;0,N was
allowed to present its evidence e' parte. En 2 Nove$ber
-++!) the ,CC rendered a decision orderin# ANJ"HN0;0,NK>1
to chan#e its corporate na$e. ANJ"HN0;0,NK>1 appealed to
the ,CC Cn >anc (,CC;AC !<+). "n a decision dated ( 8arch
-++7) the ,CC Cn >anc aFr$ed the above decision) upon a
%ndin# that ANJ"HN0;0,NK>1As corporate na$e was identical
or confusin#ly or deceptively si$ilar to that of "HCD;0,NAs
corporate na$e. ANJ"HN0;0,NK>1 %led a petition for review
with the Court of Appeals. En 7 Ectober -++7) the Court of
Appeals rendered the decision aFr$in# the decision of the
,CC Cn >anc. ANJ"HN0;0,NK>1As $otion for reconsideration
was denied by the Court of Appeals on -7 February -++2.
ANJ"HN0;0,NK>1 %led the petition for review.
Issue [1]: .hether the corporate na$es of ANJ"HN0;0,NK>1
and "HC0;0,N are confusin#ly si$ilar.
Held [1]: The ,CC has the authority to de;re#ister at all ti$es
and under all circu$stances corporate na$es which in its
esti$ation are li4ely to spawn confusion. "t is the duty of the
,CC to prevent confusion in the use of corporate na$es not
only for the protection of the corporations involved but $ore
so for the protection of the public. ,ection -* of the
Corporation Code provides that GNo corporate na$e $ay be
allowed by the ,ecurities and C'chan#e Co$$ission if the
proposed na$e is identical or deceptively or confusin#ly
si$ilar to that of any e'istin# corporation or to any other
na$e already protected by law or is patently deceptive)
confusin# or is contrary to e'istin# laws. .hen a chan#e in
the corporate na$e is approved) the Co$$ission shall issue
an a$ended certi%cate of incorporation under the a$ended
na$e.G Corollary thereto) the pertinent portion of the ,CC
9uidelines on Corporate Na$es states that G(d) "f the
proposed na$e contains a word si$ilar to a word already
used as part of the %r$ na$e or style of a re#istered
co$pany) the proposed na$e $ust contain two other words
di2erent fro$ the na$e of the co$pany already re#istered=
1arties or#ani5in# a corporation $ust choose a na$e at their
peril= and the use of a na$e si$ilar to one adopted by
another corporation) whether a business or a nonpro%t
or#ani5ation) if $isleadin# or li4ely to in3ure in the e'ercise of
its corporate functions) re#ardless of intent) $ay be prevented
by the corporation havin# a prior ri#ht) by a suit for in3unction
a#ainst the new corporation to prevent the use of the na$e.
0erein) the additional words GAn# 8#a Naanib G and G,a
>ansan# 1ilipinas) "nc.G in ANJ"HN0;0,NK>1As na$e are $erely
descriptive of and also referrin# to the $e$bers) or 4aanib) of
"HC0;0,N who are li4ewise residin# in the 1hilippines. These
words can hardly serve as an e2ective di2erentiatin# $ediu$
necessary to avoid confusion or diFculty in distin#uishin#
ANJ"HN0;0,NK>1 fro$ "HC0;0,N. This is especially so) since
both ANJ"HN0;0,NK>1 and "HC0;0,N are usin# the sa$e
acrony$ U 0.,.N.= not to $ention the fact that both are
espousin# reli#ious beliefs and operatin# in the sa$e place.
1arenthetically) it is well to $ention that the acrony$ 0.,.N.
used by ANJ"HN0;0,NK>1 stands for G0ali#i at ,ali#an n#
Natotohanan.G Then) too) the records reveal that in holdin# out
their corporate na$e to the public) ANJ"HN0;0,NK>1 hi#hli#hts
the do$inant words G"9:C,"A N9 H"E, NAS N&",TE 0C,L,)
0A:"9" AT ,A:"9AN N9 NATETE0ANAN)G which is stri4in#ly
si$ilar to "HC0;0,NAs corporate na$e) thus $a4in# it even
$ore evident that the additional words GAn# 8#a NaanibG and
G,a >ansan# 1ilipinas) "nc.G) are $erely descriptive of and
pertainin# to the $e$bers of "HC0;0,N. ,i#ni%cantly) the only
di2erence between the corporate na$es of ANJ"HN0;0,NK>1
and "HC0;0,N are the words ,A:"9AN and ,L0AS. These
words are synony$ous U both $ean #round) foundation or
support. 0ence) this case is on all fours with Lniversal 8ills
Corporation v. Lniversal Te'tile 8ills) "nc.) 22 where the Court
ruled that the corporate na$es Lniversal 8ills Corporation
and Lniversal Te'tile 8ills) "nc.) are undisputably so si$ilar
that even under the test of Greasonable care and observationG
confusion $ay arise.
Issue [2]: .hether the #eneric word rule would apply to
support ANJ"HN0;0,NK>1?s cause.
Held [2]: The wholesale appropriation by ANJ"HN0;0,NK>1 of
"HC0;0,NAs corporate na$e cannot %nd 3usti%cation under the
#eneric word rule. A contrary rulin# would encoura#e other
corporations to adopt verbati$ and re#ister an e'istin# and
protected corporate na$e) to the detri$ent of the public. The
fact that there are other non;stoc4 reli#ious societies or
corporations usin# the na$es Church of the :ivin# 9od) "nc.)
Church of 9od Desus Christ the ,on of 9od the 0ead) Church of
9od in Christ I >y the 0oly ,pirit) and other si$ilar na$es) is
of no conse6uence. "t does not authori5e the use by ANJ"HN0;
0,NK>1 of the essential and distin#uishin# feature of "HC0;
0,NAs re#istered and protected corporate na$e.
L,5eu2 of t1e !1ili66ines vs. Court of
A66eals <J9& --*+7) ! 8arch -++<K)
Facts: :yceu$ of the 1hilippines "nc. had so$eti$e before
co$$enced in the ,CC a proceedin# (,CC;Case No. -2(-)
a#ainst the :yceu$ of >a#uio) "nc. to re6uire it to chan#e its
corporate na$e and to adopt another na$e not Gsi$ilar JtoK
or identicalG with that of petitioner. "n an Erder dated 2 April
-+77) Associate Co$$issioner Dulio ,ulit held that the
corporate na$e of petitioner and that of the :yceu$ of
>a#uio) "nc. were substantially identical because of the
presence of a Gdo$inantG word) i.e.) G:yceu$)G the na$e of
the #eo#raphical location of the ca$pus bein# the only word
which distin#uished one fro$ the other corporate na$e. The
,CC also noted that :yceu$ of the 1hilippines "nc. had
re#istered as a corporation ahead of the :yceu$ of >a#uio)
"nc. in point of ti$e) and ordered the latter to chan#e its na$e
to another na$e Gnot si$ilar or identical JwithKG the na$es of
previously re#istered entities. The :yceu$ of >a#uio) "nc.
assailed the Erder of the ,CC before the ,upre$e Court (9& :;
(7!+!). "n a 8inute &esolution dated -( ,epte$ber -+77) the
Court denied the 1etition for &eview for lac4 of $erit. Cntry of
3ud#$ent in that case was $ade on 2- Ectober -+77.
Ar$ed with the &esolution of the ,upre$e Court) the :yceu$
of the 1hilippines then wrote all the educational institutions it
could %nd usin# the word G:yceu$G as part of their corporate
na$e) and advised the$ to discontinue such use of G:yceu$.G
.hen) with the passa#e of ti$e) it beca$e clear that this
recourse had failed) and on 2( February -+*() :yceu$ of the
1hilippines instituted before the ,CC ,CC;Case 2!7+ to
enforce what :yceu$ of the 1hilippines clai$s as its
proprietary ri#ht to the word G:yceu$.G The ,CC hearin#
oFcer rendered a decision sustainin# petitionerAs clai$ to an
e'clusive ri#ht to use the word G:yceu$.G The hearin# oFcer
relied upon the ,CC rulin# in the :yceu$ of >a#uio) "nc. case
(,CC;Case -2(-) and held that the word G:yceu$G was
capable of appropriation and that petitioner had ac6uired an
enforceable e'clusive ri#ht to the use of that word. En appeal)
however) by :yceu$ Ef Aparri) :yceu$ Ef Caba#an) :yceu$
Ef Ca$alaniu#an) "nc.) :yceu$ Ef :allo) "nc.) :yceu$ Ef Tuao)
"nc.) >uhi :yceu$) Central :yceu$ Ef Catanduanes) :yceu$
Ef ,outhern 1hilippines) :yceu$ Ef Castern 8indanao) "nc.
and .estern 1an#asinan :yceu$) "nc.)) which are also
educational institutions) to the ,CC Cn >anc) the decision of
the hearin# oFcer was reversed and set aside. The ,CC Cn
>anc did not consider the word G:yceu$G to have beco$e so
identi%ed with :yceu$ of the 1hilippines as to render use
thereof by other institutions as productive of confusion about
the identity of the schools concerned in the $ind of the
#eneral public. Lnli4e its hearin# oFcer) the ,CC Cn >anc held
that the attachin# of #eo#raphical na$es to the word
G:yceu$G served suFciently to distin#uish the schools fro$
one another) especially in view of the fact that the ca$puses
of :yceu$ of the 1hilippines and those of the other :yceu$s
were physically 6uite re$ote fro$ each other. :yceu$ of the
1hilippines then went on appeal to the Court of Appeals. "n its
Hecision dated 2* Dune -++-) however) the Court of Appeals
aFr$ed the 6uestioned Erders of the ,CC Cn >anc. :yceu$ of
the 1hilippines %led a $otion for reconsideration) without
success. :yceu$ of the 1hilippines %led the petition for review.
Issue [1]: .hether the na$es of the contendin# :yceu$
schools are confusin#ly si$ilar.
Held [1]: The Articles of "ncorporation of a corporation $ust)
a$on# other thin#s) set out the na$e of the corporation.
,ection -* of the Corporation Code establishes a restrictive
rule insofar as corporate na$es are concerned. "t provides
that GNo corporate na$e $ay be allowed by the ,ecurities an
C'chan#e Co$$ission if the proposed na$e is identical or
deceptively or confusin#ly si$ilar to that of any e'istin#
corporation or to any other na$e already protected by law or
is patently deceptive) confusin# or contrary to e'istin# laws.
.hen a chan#e in the corporate na$e is approved) the
Co$$ission shall issue an a$ended certi%cate of
incorporation under the a$ended na$e.G The policy
underlyin# the prohibition in ,ection -* a#ainst the
re#istration of a corporate na$e which is Gidentical or
deceptively or confusin#ly si$ilarG to that of any e'istin#
corporation or which is Gpatently deceptiveG or Gpatently
confusin#G or Gcontrary to e'istin# laws)G is the avoidance of
fraud upon the public which would have occasion to deal with
the entity concerned) the evasion of le#al obli#ations and
duties) and the reduction of diFculties of ad$inistration and
supervision over corporations. 0erein) the Court does not
consider that the corporate na$es of the acade$ic
institutions are Gidentical with) or deceptively or confusin#ly
si$ilarG to that of :yceu$ of the 1hilippines "nc.. True enou#h)
the corporate na$es of the other schools (defendant
institutions) entities all carry the word G:yceu$G but confusion
and deception are e2ectively precluded by the appendin# of
#eo#raphic na$es to the word G:yceu$.G Thus) the G:yceu$
of AparriG cannot be $ista4en by the #eneral public for the
:yceu$ of the 1hilippines) or that the G:yceu$ of
Ca$alaniu#anG would be confused with the :yceu$ of the
1hilippines. Further) ety$olo#ically) the word G:yceu$G is the
:atin word for the 9ree4 ly4eion which in turn referred to a
locality on the river "lissius in ancient Athens Gco$prisin# an
enclosure dedicated to Apollo and adorned with fountains and
buildin#s erected by 1isistratus) 1ericles and :ycur#us
fre6uented by the youth for e'ercise and by the philosopher
Aristotle and his followers for teachin#.G "n ti$e) the word
G:yceu$G beca$e associated with schools and other
institutions providin# public lectures and concerts and public
discussions. Thus today) the word G:yceu$G #enerally refers
to a school or an institution of learnin#. ,ince G:yceu$G or
G:iceoG denotes a school or institution of learnin#) it is not
unnatural to use this word to desi#nate an entity which is
or#ani5ed and operatin# as an educational institution. To
deter$ine whether a #iven corporate na$e is GidenticalG or
Gconfusin#ly or deceptively si$ilarG with another entityAs
corporate na$e) it is not enou#h to ascertain the presence of
G:yceu$G or G:iceoG in both na$es. Ene $ust evaluate
corporate na$es in their entirety and when the na$e of
:yceu$ of the 1hilippines is 3u'taposed with the na$es of
private respondents) they are not reasonably re#arded as
GidenticalG or Gconfusin#ly or deceptively si$ilarG with each
other.
Issue [2]: .hether the use by the :yceu$ of the 1hilippines
of G:yceu$G in its corporate na$e has been for such len#th of
ti$e and with such e'clusivity as to have beco$e associated
or identi%ed with the petitioner institution in the $ind of the
#eneral public (or at least that portion of the #eneral public
which has to do with schools).
Held [2]: The nu$ber alone of the private respondents in the
present case su##ests stron#ly that the :yceu$ of the
1hilippinesA use of the word G:yceu$G has not been attended
with the e'clusivity essential for applicability of the doctrine of
secondary $eanin#. "t $ay be noted also that at least one of
the private respondents) i.e.) the .estern 1an#asinan :yceu$)
"nc.) used the ter$ G:yceu$G -7 years before :yceu$ of the
1hilippines re#istered its own corporate na$e with the ,CC
and be#an usin# the word G:yceu$.G "t follows that if any
institution had ac6uired an e'clusive ri#ht to the word
G:yceu$)G that institution would have been the .estern
1an#asinan :yceu$) "nc. rather than :yceu$ of the
1hilippines. 0ence) :yceu$ of the 1hilippines is not entitled to
a le#ally enforceable e'clusive ri#ht to use the word G:yceu$G
in its corporate na$e and that other institutions $ay use
G:yceu$G as part of their corporate na$es.
Cor6orate La3 Case Di4est: !ioneer
Insuran5e A. CA <&)=)C Case Brief
9.&. No. *(-+7 Duly 2*) -+*+
:essons Applicable: Hefective atte$pt to for$ a corp. does
NET result in at least a partnership absent intent to for$ one
(Corporate :aw)
ACTS:
-+7!: Dacob ,. :i$ is an owner;operator of ,outhern
Airlines (,A:)) a sin#le proprietorship
8ay -7 -+7!: Dapan Ho$estic Airlines (DHA) and :i$
entered into a sales contract re#ardin#:
2 HC;]A type aircrafts
- set of necessary spare parts
Total: W -+) in install$ents
8ay 22 -+7!: 1ioneer "nsurance and ,urety Corp. as
surety e'ecuted its surety bond in favor of DHA on
behalf of its principal :i$
>order 8achinery and 0eacy C6uip$ent Co) "nc.
Francisco and 8odesto Cervantes and Constancio
8a#lana contributed funds for the transaction based
on the $isrepresentation of :i$ that they will for$a
new corp.. to e'pand his business
Dun - -+7!: :i$ as ,A: e'ecuted in favor of 1ioneer
a deed of chattel $ort#a#e as security
&estructurin# of obli#ation to chan#e the $aturity
was done 2' wVo the 4nowled#e of other defendants
$ade the surety of DHA prescribed so not entitled to
rei$burse$ent
Lpon default on the 2V* pay$ents) 1ioneer paid for
hi$ and %led a petition for the foreclosure of chattel
$ort#a#e as security
CA aFr$ed Trial of 8erits: Enly :i$ is liable to pay
ISSUE: .VN failure of respondents to incorporate ^ de facto
partnership.
HELD: NE. CA aFr$ed.
1artnership inter se does NET necessarily e'ist) for
ordinarily CANNET be $ade to assu$e the relation of
partners as bet. the$selves) when their purpose is
that no partnership shall e'ists
,hould be i$plied only when necessary to do 3ustice
bet. the parties (i.e. only pretend to $a4e others
liable)
:i$ never intended to for$ a corp.
Li2 vs. !1ili66ine is1in4 $ear In/ustries
In5.
J9& -<7((*) < Nove$ber -+++K
Third Hivision) 1an#aniban (D): < concur
Facts: En behalf of GEcean Tuest Fishin# Corporation)G
Antonio Chua and 1eter Sao entered into a Contract dated 7
February -++) for the purchase of %shin# nets of various
si5es fro$ the 1hilippine Fishin# 9ear "ndustries) "nc. (1F9").
They clai$ed that they were en#a#ed in a business venture
with :i$ Ton# :i$) who however was not a si#natory to the
a#ree$ent. The total price of the nets a$ounted to 1!<2)(!.
( pieces of Moats worth 17*) were also sold to the
Corporation. The buyers) however) failed to pay for the %shin#
nets and the Moats= hence) 1F9" %led a collection suit a#ainst
Chua) Sao and :i$ Ton# :i$ with a prayer for a writ of
preli$inary attach$ent. The suit was brou#ht a#ainst the
three in their capacities as #eneral partners) on the alle#ation
that GEcean Tuest Fishin# CorporationG was a none'istent
corporation as shown by a Certi%cation fro$ the ,ecurities
and C'chan#e Co$$ission. En 2 ,epte$ber -++) the lower
court issued a .rit of 1reli$inary Attach$ent) which the
sheri2 enforced by attachin# the %shin# nets on board FV>
:ourdes which was then doc4ed at the Fisheries 1ort) Navotas)
8etro 8anila. "nstead of answerin# the Co$plaint) Chua %led
a 8anifestation ad$ittin# his liability and re6uestin# a
reasonable ti$e within which to pay. 0e also turned over to
1F9" so$e of the nets which were in his possession. 1eter Sao
%led an Answer) after which he was dee$ed to have waived
his ri#ht to cross;e'a$ine witnesses and to present evidence
on his behalf) because of his failure to appear in subse6uent
hearin#s. :i$ Ton# :i$) on the other hand) %led an Answer
with Counterclai$ and Crossclai$ and $oved for the liftin# of
the .rit of Attach$ent. The trial court $aintained the .rit)
and upon $otion of 1F9") ordered the sale of the %shin# nets
at a public auction. 1F9" won the biddin# and deposited with
the said court the sales proceeds of 1+). En -*
Nove$ber -++2) the trial court rendered its Hecision) rulin#
that 1F9" was entitled to the .rit of Attach$ent and that
Chua) Sao and :i$) as #eneral partners) were 3ointly liable to
pay 1F9". The trial court ruled that a partnership a$on# :i$)
Chua and Sao e'isted based (-) on the testi$onies of the
witnesses presented and (2) on a Co$pro$ise A#ree$ent
e'ecuted by the three in Civil Case -(+2;8N which Chua and
Sao had brou#ht a#ainst :i$ in the &TC of 8alabon) >ranch
72) for (a) a declaration of nullity of co$$ercial docu$ents=
(b) a refor$ation of contracts= (c) a declaration of ownership
of %shin# boats= (d) an in3unction and (e) da$a#es. :i$
appealed to the Court of Appeals (CA) which) aFr$ed the
&TC. :i$ %led the 1etition for &eview on Certiorari. :i$
ar#ues) a$on# others) that under the doctrine of corporation
by estoppel) liability can be i$puted only to Chua and Sao)
and not to hi$.
Issue: .hether :i$ should be held 3ointly liable with Chua
and Sao.
Held: Chua) Sao and :i$ had decided to en#a#e in a %shin#
business) which they started by buyin# boats worth 1<.<!
$illion) %nanced by a loan secured fro$ Desus :i$ who was
:i$ Ton# :i$?s brother. "n their Co$pro$ise A#ree$ent) they
subse6uently revealed their intention to pay the loan with the
proceeds of the sale of the boats) and to divide e6ually a$on#
the$ the e'cess or loss. These boats) the purchase and the
repair of which were %nanced with borrowed $oney) fell under
the ter$ Gco$$on fundG under Article -777. The contribution
to such fund need not be cash or %'ed assets= it could be an
intan#ible li4e credit or industry. That the parties a#reed that
any loss or pro%t fro$ the sale and operation of the boats
would be divided e6ually a$on# the$ also shows that they
had indeed for$ed a partnership. The partnership e'tended
not only to the purchase of the boat) but also to that of the
nets and the Moats. The %shin# nets and the Moats) both
essential to %shin#) were obviously ac6uired in furtherance of
their business. "t would have been inconceivable for :i$ to
involve hi$self so $uch in buyin# the boat but not in the
ac6uisition of the aforesaid e6uip$ent) without which the
business could not have proceeded. The sale of the boats) as
well as the division a$on# the three of the balance re$ainin#
after the pay$ent of their loans) proves beyond cavil that FV>
:ourdes) thou#h re#istered in his na$e) was not his own
property but an asset of the partnership. "t is not unco$$on
to re#ister the properties ac6uired fro$ a loan in the na$e of
the person the lender trusts) who in this case is :i$ Ton# :i$
hi$self. After all) he is the brother of the creditor) Desus :i$. "t
is unreasonable U indeed) it is absurd U for petitioner to sell
his property to pay a debt he did not incur) if the relationship
a$on# the three of the$ was $erely that of lessor;lessee)
instead of partners.
As to :i$As ar#u$ent that under the doctrine of corporation
by estoppel) liability can be i$puted only to Chua and Sao)
and not to hi$= ,ection 2- of the Corporation Code of the
1hilippines provides that GAll persons who assu$e to act as a
corporation 4nowin# it to be without authority to do so shall
be liable as #eneral partners for all debts) liabilities and
da$a#es incurred or arisin# as a result thereof: 1rovided
however) That when any such ostensible corporation is sued
on any transaction entered by it as a corporation or on any
tort co$$itted by it as such) it shall not be allowed to use as
a defense its lac4 of corporate personality. Ene who assu$es
an obli#ation to an ostensible corporation as such) cannot
resist perfor$ance thereof on the #round that there was in
fact no corporation.G Thus) even if the ostensible corporate
entity is proven to be le#ally none'istent) a party $ay be
estopped fro$ denyin# its corporate e'istence. GThe reason
behind this doctrine is obvious U an unincorporated
association has no personality and would be inco$petent to
act and appropriate for itself the power and attributes of a
corporation as provided by law= it cannot create a#ents or
confer authority on another to act in its behalf= thus) those
who act or purport to act as its representatives or a#ents do
so without authority and at their own ris4. And as it is an
ele$entary principle of law that a person who acts as an
a#ent without authority or without a principal is hi$self
re#arded as the principal) possessed of all the ri#ht and
sub3ect to all the liabilities of a principal) a person actin# or
purportin# to act on behalf of a corporation which has no valid
e'istence assu$es such privile#es and obli#ations and
beco$es personally liable for contracts entered into or for
other acts perfor$ed as such a#ent.G The doctrine of
corporation by estoppel $ay apply to the alle#ed corporation
and to a third party. "n the %rst instance) an unincorporated
association) which represented itself to be a corporation) will
be estopped fro$ denyin# its corporate capacity in a suit
a#ainst it by a third person who relied in #ood faith on such
representation. "t cannot alle#e lac4 of personality to be sued
to evade its responsibility for a contract it entered into and by
virtue of which it received advanta#es and bene%ts. En the
other hand) a third party who) 4nowin# an association to be
unincorporated) nonetheless treated it as a corporation and
received bene%ts fro$ it) $ay be barred fro$ denyin# its
corporate e'istence in a suit brou#ht a#ainst the alle#ed
corporation. "n such case) all those who bene%ted fro$ the
transaction $ade by the ostensible corporation) despite
4nowled#e of its le#al defects) $ay be held liable for
contracts they i$pliedly assented to or too4 advanta#e of.
There is no dispute that 1F9" is entitled to be paid for the nets
it sold. The only 6uestion here is whether :i$ should be held
3ointly liable with Chua and Sao. :i$ contests such liability)
insistin# that only those who dealt in the na$e of the
ostensible corporation should be held liable. Althou#h
technically it is true that :i$ did not directly act on behalf of
the corporation= however) havin# reaped the bene%ts of the
contract entered into by persons with who$ he previously had
an e'istin# relationship) he is dee$ed to be part of said
association and is covered by the scope of the doctrine of
corporation by estoppel.