SECTIONS

1-9 a mere association of persons and, in case of two corporations, merge them into
one.
1. Good Earth Emporium v. CA
A corporation has a personality distinct and separate from its individual Thus, where a sister corporation is used as a shield to evade a corporations
stockholders or members. Payment made to an officer of a corporation is not subsidiary liability for damages, the corporation may not be heard to say that it
deemed payment to the corporation especially if the officer denied being in has a personality separate and distinct from the other corporation. The piercing
possession of authority to receive payment for the respondent corporation and of the corporate veil comes into play.
received payment in individual capacities without any reference to the judgment
obligation in favor of corporation. 6. First Phil International Bank v. CA
Where the corporate fiction has been disregarded, we now add the instant case,
2. Cruz v. Dalisay and declare herewith that the corporate veil cannot be used to shield an
A corporation has a personality distinct and separate from its individual otherwise blatant violation of the prohibition against forum-shopping.
stockholders or members. The mere fact that one is president of a corporation Shareholders, whether suing as the majority in direct actions or as the minority in
does not render the property he owns or possesses the property of the a derivative suit, cannot be allowed to trifle with court processes, particularly
corporation, since the president, as individual, and the corporation are separate where, as in this case, the corporation itself has not been remiss in vigorously
entities. prosecuting or defending corporate causes and in using and applying remedies
available to it. To rule otherwise would be to encourage corporate litigants to use
3. Bank of America v. CA their shareholders as fronts to circumvent the stringent rules against forum
Private respondents while they are mere stockholders of the corporation and shopping.
that the corporate entities have juridical personalities separate and distinct from
those of the private respondents have capacity to sue since the corporations are 7. Francisco Motors v. CA
wholly owned by them and prior to the incorporation of such entities, they were The rationale behind piercing a corporations identity in a given case is to remove
clients of petitioners which induced them to acquire loans from said petitioners the barrier between the corporation from the persons comprising it to thwart the
to invest on the additional ships. fraudulent and illegal schemes of those who use the corporate personality as a
shield for undertaking certain proscribed activities. However, in the case at bar,
- On forum non conveniens -Requisites. instead of holding certain individuals or persons responsible for an alleged
(1) that the Philippine Court is one to which the parties may conveniently resort corporate act, the situation has been reversed. It is the petitioner as a
to; corporation which is being ordered to answer for the personal liability of certain
(2) that the Philippine Court is in a position to make an intelligent decision as to individual directors, officers and incorporators concerned. Hence, it appears to us
the law and the facts; and, that the doctrine has been turned upside down because of its erroneous
(3) that the Philippine Court has or is likely to have power to enforce its decision. invocation.

4. Avon Dale Garments Inc v. CA 8. Bibiano Reynoso v. CA
The two entities cannot be deemed as separate and distinct where there is a The defense of separateness will be disregarded where the business affairs of a
showing that one is merely the continuation of the other where in fact merely subsidiary corporation are so controlled by the mother corporation to the extent
continued the operations of the latter under the same owners, the same business that it becomes an instrument or agent of its parent. But even when there is
venture, at same address and even continued to hire the same employees. Even dominance over the affairs of the subsidiary, the doctrine of piercing the veil of
a change in the corporate name does not make a new corporation, whether corporate fiction applies only when such fiction is used to defeat public
effected by a special act or under a general law, it has no effect on the identity of convenience, justify wrong, protect fraud or defend crime. A court judgment
the corporation, or on its property, rights, or liabilities. becomes useless and ineffective if the employer, in this case CCC as a mother
corporation, is placed beyond the legal reach of the judgment creditor who, after
5. Concept Builders, Inc. v. CA protracted litigation, has been found entitled to positive relief. Courts have been
The corporate mask may be lifted and the corporate veil may be pierced when a organized to put an end to controversy. This purpose should not be negated by
corporation is just but the alter ego of a person or of another corporation. Where an inapplicable and wrong use of the fiction of the corporate veil.
badges of fraud exist; where public convenience is defeated; where a wrong is
sought to be justified thereby, the corporate fiction or the notion of legal entity
should come to naught. The law in these instances will regard the corporation as

CASE Doctrines | CORPORATION LAWS| MIDTERMS| ATTY. BUSMENTE| AKD2017

 9. Simeon De Leon v. CA 13. Lim Tong Lim v. Phil Fishing Gear Industries
The Labor Arbiter correctly applied the doctrine of piercing the corporate veil to The doctrine of corporation by estoppel may apply to the alleged corporation and
hold all respondents liable for unfair labor practice and illegal termination of to a third party. In the first instance, an unincorporated association, which
petitioners' employment. It is a fundamental principle in corporation law that a represented itself to be a corporation, will be estopped from denying its
corporation is an entity separate and distinct from its stockholders and from corporate capacity in a suit against it by a third person who relied in good faith
other corporations to which it is connected. However, when the concept of on such representation. It cannot allege lack of personality to be sued to evade
separate legal entity is used to defeat public convenience, justify wrong, protect its responsibility for a contract it entered into and by virtue of which it received
fraud or defend crime, the law will regard the corporation as an association of advantages and benefits.
persons, or in case of two corporations, merge them into one. The separate
juridical personality of a corporation may also be disregarded when such Technically, it is true that petitioner did not directly act on behalf of the
corporation is a mere alter ego or business conduit of another person. corporation. However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to be
10. PNB v. Andrada Electric & Engineer Co part of said association and is covered by the scope of the doctrine of corporation
Piercing the veil of corporate fiction may be allowed only if the following by estoppel.
elements concur:
(1) control -- not mere stock control, but complete domination -- not only of 14. Lozano v. Delos Santos
finances, but of policy and business practice in respect to the transaction The doctrine of corporation by estoppeladvanced by private respondent cannot
attacked, must have been such that the corporate entity as to this override jurisdictional requirements. Jurisdiction is fixed by law and is not subject
transaction had at the time no separate mind, will or existence of its own; to the agreement of the parties. It cannot be acquired through or waived,
(2) such control must have been used by the defendant to commit a fraud or enlarged or diminished by, any act or omission of the parties, neither can it be
a wrong to perpetuate the violation of a statutory or other positive legal conferred by the acquiescence of the court.
duty, or a dishonest and an unjust act in contravention of plaintiffs legal
right; and Corporation by estoppel is founded on principles of equity and is designed to
(3) the said control and breach of duty must have proximately caused the prevent injustice and unfairness. It applies when persons assume to form a
injury or unjust loss complained of. corporation and exercise corporate functions and enter into business relations
with third persons. Where there is no third person involved and the conflict
11. Estelita Burgos Lipat v. Pacific Banking Corp arises only among those assuming the form of a corporation, who therefore
In our view, BEC is a mere continuation and successor of BET, and petitioners know that it has not been registered, there is no corporation by estoppel.
cannot evade their obligations in the mortgage contract secured under the name
of BEC on the pretext that it was signed for the benefit and under the name of 15. Lyceum of the Phils. INc, v CA
BET. When the corporation is the mere alter ego or business conduit of a person, DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT ATTENDED
the separate personality of the corporation may be disregarded. This is WITH EXCLUSIVITY. The doctrine of secondary meaning originated in the field of
commonly referred to as the instrumentality rule or the alter ego doctrine, which trademark law. Its application has, however, been extended to corporate names
the courts have applied in disregarding the separate juridical personality of sine the right to use a corporate name to the exclusion of others is based upon
corporations. the same principle which underlies the right to use a particular trademark or
tradename. The number alone of the private respondents in the case at bar
SECTIONS 16-22 suggests strongly that petitioner's use of the word "Lyceum" has not been
attended with the exclusivity essential for applicability of the doctrine of
12. International Travel Express & Tours v. CA secondary meaning.
The doctrine of corporation by estoppel is mistakenly applied by the respondent
court to the petitioner. The application of the doctrine applies to a third party 16. Hall v. Piccio
only when he tries to escape liability on a contract from which he has benefited - it is the issuance of a certificate of incorporation by the Director of the Bureau
on the irrelevant ground of defective incorporation. In the case at bar, the of Commerce and Industry which calls a corporation into being. The immunity if
petitioner is not trying to escape liability from the contract but rather is the one collateral attack is granted to corporations "claiming in good faith to be a
claiming from the contract. corporation under this act." Such a claim is compatible with the existence of
errors and irregularities; but not with a total or substantial disregard of the law.

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 Unless there has been an evident attempt to comply with the law the claim to be 20. Inter-Asia Investments v. CA
a corporation "under this act" could not be made "in good faith." The general rule is that, in the absence of authority from the board of directors,
no person, not even its officers, can validly bind a corporation. However, just as a
- To become a De Facto Corporation, the articles of incorporation need to be natural person may authorize another to do certain acts for and on his behalf, the
filed and the SEC must issue the certificate of incorporation. board of directors may validly delegate some of its functions and powers to
officers, committees or agents. an officer of a corporation who is authorized to
17. Seventh Day Adventist v. Northeastern Mindanao purchase the stock of another corporation has the implied power to perform all
- Requirements before one can qualify as a de facto corporation: other obligations arising therefrom, such as payment of the shares of stock. By
(a) the existence of a valid law under which it may be incorporated; allowing its president to sign the Agreement on its behalf, petitioner clothed him
(b) an attempt in good faith to incorporate; and with apparent capacity to perform all acts which are expressly, impliedly and
(c) assumption of corporate powers. inherently stated therein

The filing of articles of incorporation and the issuance of the certificate of 21. Nacpil v. International Broadcasting

incorporation are essential for the existence of a de facto corporation. We have As petitioners appointment as comptroller required the approval and formal
held that an organization not registered with the Securities and Exchange action of the IBCs Board of Directors to become valid, it is clear therefore holds
Commission (SEC) cannot be considered a corporation in any concept, not even that petitioner is a corporate officer whose dismissal may be the subject of a
as a corporation de facto. controversy cognizable by the SEC under Section 5(c) of P.D. 902-A which
includes controversies involving both election and appointment of corporate
directors, trustees, officers, and managers. Had petitioner been an ordinary
SECTIONS 23-25 employee, such board action would not have been required. The rule is that
dismissal or non-appointment of a corporate officer is clearly an intra-corporate
18. Grace Christian High School v. CA matter and jurisdiction over the case properly belongs to the SEC, not to the
- The board of directors of corporations must be elected from among the NLRC.
stockholders or members. Since the provision in question is contrary to law, the
fact that for fifteen years it has not been questioned or challenged but, on the SECTIONS 26-35
contrary, appears to have been implemented by the members of the association
cannot forestall a later challenge to its validity. Neither can it attain validity 22. Western Institute of Technology Inc. v. Salas
through acquiescence because, if it is contrary to law, it is beyond the power of There is no argument that directors or trustees, as the case may be, are not
the members of the association to waive its invalidity. For that matter the entitled to salary or other compensation when they perform nothing more than
members of the association may have formally adopted the provision in the usual and ordinary duties of their office. This rule is founded upon a
question, but their action would be of no avail because no provision of the by- presumption that directors /trustees render service gratuitously and that the
laws can be adopted if it is contrary to law. return upon their shares adequately furnishes the motives for service, without
compensation. Under the foregoing section, there are only two (2) ways by
19. Gokongwei v. SEC which members of the board can be granted compensation apart from
The doctrine of "corporate opportunity" is precisely a recognition by the courts reasonable per diems: (1) when there is a provision in the by-laws fixing their
that the fiduciary standards could not be upheld where the fiduciary was acting compensation; and (2) when the stockholders representing a majority of the
for two entities with competing interests. This doctrine rests fundamentally on outstanding capital stock at a regular or special stockholders meeting agree to
the unfairness, in particular circumstances, of an officer or director taking give it to them. In the case at bench, Resolution No. 48, s. 1986 granted monthly
advantage of an opportunity for his own personal profit when the interest of the compensation to private respondents not in their capacity as members of the
corporation justly calls for protection. board, but rather as officers of the corporation, more particularly as Chairman,
Vice-Chairman, Treasurer and Secretary of Western Institute of Technology.
Where two corporations are competitive in a substantial sense, it would seem
improbable, if not impossible, for the director, if he were to discharge effectively
his duty, to satisfy his loyalty to both corporations and place the performance of
his corporation duties above his personal concerns. Therefore the additional
qualifications made by the Board of Directors is proper.

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 23. Santos v. NLRC (2) When a director or officer has consented to the issuance of watered stocks or
- Personal civil liability can also be said to lawfully attach to a corporate director, who, having knowledge thereof, did not forthwith file with the corporate
trustee or officer; to wit: When secretary his written objection thereto
(3) When a director, trustee or officer has contractually agreed or stipulated to
(1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad hold himself personally and solidarily liable with the Corporation.
faith or gross negligence in directing its affairs, or (c) for conflict of interest, (4) When a director, trustee or officer is made, by specific provision of law,
resulting in damages to the corporation, its stockholders or other persons; personally liable for his corporate action.[18]
(2) He consents to the issuance of watered stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection In labor cases, particularly, the Court has held corporate directors and officers
thereto; solidarily liable with the corporation for the termination of employment of
(3) He agrees to hold himself personally and solidarily liable with the corporation; corporate employees done with malice or in bad faith. In the instant case, there
or is nothing substantial on record to show that respondent officers acted in patent
(4) He is made, by a specific provision of law, to personally answer for his bad faith or were guilty of gross negligence in terminating the services of
corporate action. petitioners so as to warrant personal liability.

The case of petitioner is way off these exceptional instances. It is not even shown 26. Prime White Cement Corp v. IAC
that petitioner has had a direct hand in the dismissal of private respondent - The situation is quite different where a director or officer is dealing with his own
enough to attribute to him (petitioner) a patently unlawful act while acting for corporation. In the instant case respondent Te was not an ordinary stockholder;
the corporation. he was a member of the Board of Directors and Auditor of the corporation as
well. He was what is often referred to as a "self-dealing" director.
24. Sps. David et al vs. Construction Industry
- As a general rule, the officers of a corporation are not personally liable for their A self dealing director's contract with his corporation is not in all instances
official acts unless it is shown that they have exceeded their authority. void or voidable. If the contract is fair and reasonable under the circumstances, it
However, the personal liability of a corporate director, trustee or officer, along may be ratified by the stockholders provided a full disclosure of his adverse
with corporation, may so validly attach when he assents to a patently unlawful interest is made.
act of the corporation or for bad faith or gross negligence in directing its affairs.
The revision of the structural plans which were allegedly to reduce cost SECTION 36-45
prejudicial to Sps. Quiambao is tantamount to gross negligence in directing the
corporate affairs. 27. Dee v. SEC
- The questioned issuance of the 113,800 stocks is not invalid even assuming that
25. Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos it was made without notice to the stockholders as claimed by the petitioner. The
- A corporation is a juridical entity with legal personality separate and distinct power to issue shares of stocks in a corporation is lodged in the board of
from those acting for and in its behalf and, in general from the people comprising directors and no stockholders meeting is required to consider it because
it. The rule is that obligations incurred by the corporation, acting through its additional issuance of shares of stocks does not need approval of the
directors, officers and employees, are its sole liabilities. True, solidary liabilities stockholders. Consequently, no pre-emptive right of Natelco stockholders was
may at times be incurred but only when exceptional circumstances warrant such violated by the issuance of the 113,800 shares to CSI.
as, generally, in the following cases:
- the general rule is that pre-emptive right is recognized only with respect to new
(1) When directors and trustees or, in appropriate cases, the officers of a issues of shares, and not with respect to additional issues of originally authorized
corporation shares. This is on the theory that when a corporation at its inception offers its
(a) Vote for or assent to patently unlawful acts of the corporation; first shares, it is presumed to have offered all of those which it is authorized to
(b) act in bad faith or with gross negligence in directing the corporate affairs; issue. An original subscriber is deemed to have taken his shares knowing that
(c) are guilty of conflict of interest to the prejudice of the corporation, its they form a definite proportionate part of the whole number of authorized
stockholders or members, and other persons. shares. When the shares left unsubscribed are later re-offered, he cannot
therefore (sic) claim a dilution of interest

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28. Mcleod v. NLRC 32. Hyrdo Resources Contractors Corp v. NIA
As a rule, a corporation that purchases the assets of another will not be liable for Court of Appeals ruled that Cesar L. Techs act of signing the Joint Computation
the debts of the selling corporation, provided the former acted in good faith and was an ultra vires act. This again is patent error. The NIA Administrator is
paid adequate consideration for such assets, except when any of the following empowered by the Contract to grant or deny foreign currency differential claims.
circumstances is present: The records of the case will show that NIA itself never disputed its Administrators
(1) where the purchaser expressly or impliedly agrees to assume the debts, capacity to sign the Joint Computation because it knew that the Administrator, in
(2) where the transaction amounts to a consolidation or merger of the fact, had such capacity.
corporations,
(3) where the purchasing corporation is merely a continuation of the selling Even assuming for the sake of argument that the Administrator had no authority
corporation, and to bind NIA, the latter is already estopped after repeatedly representing to Hydro
(4) where the selling corporation fraudulently enters into the transaction to that the Administrator had such authority. A corporation may be held in estoppel
escape liability for those debts from denying as against third persons the authority of its officers or agents who
have been clothed by it with ostensible or apparent authority. The rule is of
None of the foregoing exceptions is present in this case. course settled that [a]lthough an officer or agent acts without, or in excess of, his
actual authority if he acts within the scope of an apparent authority with which
29. Islamic Directorate of the Phils v. CA the corporation has clothed him by holding him out or permitting him to appear
For the sale to be valid, the majority vote of the legitimate Board of Trustees, as having such authority, the corporation is bound thereby in favor of a person
concurred in by the vote of at least 2/3 of the bona fide members of the who deals with him in good faith in reliance on such apparent authority, as where
corporation should have been obtained. These twin requirements were not met an officer is allowed to exercise a particular authority with respect to the
as the Carpizo Group which voted to sell the Tandang Sora property was a fake business, or a particular branch of it, continuously and publicly, for a considerable
Board of Trustees, and those whose names and signatures were affixed by the time
Carpizo Group together with the sham Board Resolution authorizing the
negotiation for the sale were, from all indications, not bona fide members of the SECTIONS 46 54
IDP as they were made to appear to be. All told, the disputed Deed of Absolute
Sale executed by the fake Carpizo Board and private respondent INC was 33. Loyola Grand Villas Homeowners Assoc v. CA
intrinsically void ab initio. Failure to file the by-laws does not automatically operate to dissolve a
corporation but is now considered only a ground for such dissolution.
30. PNB v. Andrada Electric & Engr. CO
As a rule, a corporation that purchases the assets of another will not be liable for Section 19 of the Corporation Law, part of which is now Section 22 of the
the debts of the selling corporation, provided the former acted in good faith and Corporation Code, provided that the powers of the corporation would cease if it
paid adequate consideration for such assets, except when any of the following did not formally organize and commence the transaction of its business or the
circumstances is present: continuation of its works within two years from date of its incorporation. Section
(1) where the purchaser expressly or impliedly agrees to assume the debts, 20, which has been reproduced with some modifications in Section 46 of the
(2) where the transaction amounts to a consolidation or merger of the Corporation Code, expressly declared that every corporation formed under this
corporations, Act, must within one month after the filing of the articles of incorporation with
(3) where the purchasing corporation is merely a continuation of the selling the Securities and Exchange Commission, adopt a code of by-laws. Whether this
corporation, and provision should be given mandatory or only directory effect remained a
(4) where the transaction is fraudulently entered into in order to escape liability controversial question until it became academic with the adoption of PD 902-
for those debts A. Under this decree, it is now clear that the failure to file by-laws within the
required period is only a ground for suspension or revocation of the certificate of
31. Nielson & Co. Inc v. Lepanto Mining registration of corporations.
Under Section 16 of the Corporation Law stock dividends can not be issued to a
person who is not a stockholder in payment of services rendered. And so, in the 34. China Banking Corp v. CA
case at bar Nielson can not be paid in shares of stock which form part of the The general rule really is that third persons are not bound by the by-laws of a
stock dividends of Lepanto for services it rendered under the management corporation since they are not privy thereto. The exception to this is when third
contract. persons have actual or constructive knowledge of the same. In the case at bar,
petitioner had actual knowledge of the by-laws of private respondent when

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 petitioner foreclosed the pledge made. Because of this actual knowledge of such corporation an indispensable party, but it is also the present rule that it must be
by-laws then the same bound the petitioner as of the time when petitioner served with process. The judgment must be made binding upon the corporation
purchased the share. in order that the corporation may get the benefit of the suit and may not bring
subsequent suit against the same defendants for the same cause of action. In
35. Salafranca v. Philamlife Village Homeowners Association other words, the corporation must be joined as party because it is its cause of
- Admittedly, the right to amend the by-laws lies solely in the discretion of the action that is being litigated and because judgment must be a res
employer, this being in the exercise of management prerogative or business adjudicata against it.
judgment.However this right, extensive as it may be, cannot impair the obligation
of existing contracts or rights. If private respondent wanted to make the In the criminal complaint filed by herein respondent, nowhere is it stated that
petitioners position co-terminus with that of the Board of Directors, then the she is filing the same in behalf and for the benefit of the corporation. Thus, the
amendment must be effective after petitioners stay with the private respondent, criminal complaint including the civil aspect thereof could not be deemed in the
not during his term. Obviously, the measure taken by the private respondent in nature of a derivative suit.
amending its by-laws is nothing but a devious, but crude, attempt to circumvent
petitioners right to security of tenure as a regular employee guaranteed under 38. Expert Travel Tours v. CA
-
the Labor Code Indeed, teleconferencing can only facilitate the linking of people; it does not
alter the complexity of group communication. Although it may be easier to
36. Republic of the Phils. v. COCOFED communicate via teleconferencing, it may also be easier to
- At the outset, it is necessary to restate the general rule that the registered miscommunicate. Teleconferencing cannot satisfy the individual needs of

owner of the shares of a corporation exercises the right and the privilege of every type of meeting.
voting.This principle applies even to shares that are sequestered by the
government, over which the PCGG as a mere conservator cannot, as a - In the Philippines, teleconferencing and videoconferencing of members of
general rule, exercise acts of dominion. On the other hand, it is authorized board of directors of private corporations is a reality, in light of Republic Act
to vote these sequestered shares registered in the names of private persons No. 8792. The Securities and Exchange Commission issued SEC
and acquired with allegedly ill-gotten wealth, if it is able to satisfy the two- Memorandum Circular No. 15, on November 30, 2001, providing the
tiered test: guidelines to be complied with related to such conferences.Thus, the Court
(1) show prima facie evidence that the wealth and/or the shares are agrees with the RTC that persons in the Philippines may have a
indeed ill-gotten; and teleconference with a group of persons in South Korea relating to business
(2) demonstrate imminent danger of dissipation of the assets, thus transactions or corporate governance, however such cannot substitute a
necessitating their continued sequestration and voting by the written board resolution.
government until a decision, ruling with finality on their ownership, is
promulgated by the proper court.

However, the foregoing two-tiered test does not apply when the sequestered
stocks are acquired with funds that are prima facie public in character or, at least,
are affected with public interest. Inasmuch as the subject UCPB shares in the
present case were undisputably acquired with coco levy funds which are public in
character, then the right to vote them shall be exercised by the PCGG. In sum,
the public character test, not the two-tiered one, applies in the instant
controversy.

37. Chua v. CA
- Not every suit filed in behalf of the corporation is a derivative suit. For a
derivative suit to prosper, it is required that the minority stockholder suing for
and on behalf of the corporation must allege in his complaint that he is suing on a
derivative cause of action on behalf of the corporation and all other stockholders

similarly situated who may wish to join him in the suit. It is a condition sine qua
non that the corporation be impleaded as a party because not only is the

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